Wintek Corporation · 2011. 7. 13. · - 3 - WINTEK CORPORATION BALANCE SHEETS DECEMBER 31, 2009...

Wintek Corporation

Financial Statements for the Years Ended December 31, 2009 and 2008 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Stockholders

Wintek Corporation

We have audited the accompanying balance sheets of Wintek Corporation as of December 31, 2009

and 2008, and the related statements of income, changes in stockholders' equity and cash flows for

the years then ended. These financial statements are the responsibility of the Corporation’s

management. Our responsibility is to express an opinion on these financial statements based on

our audits. However, we did not audit the financial statements as of and for the years ended

December 31, 2009 and 2008 of Wintek Electro-Optics Corporation and Wintek (Central Europe)

GmbH, and as of and for the year ended December 31, 2009 of Wintek Technology (India) Private

Limited, the investments in which were accounted for by the equity method. These three

investees’ financial statements were audited by other auditors whose reports have been furnished to

us and our opinion, insofar as it relates to the amounts included for these investees as well as the

investees’ information disclosed in Note 27 to the financial statements, is based solely on the

reports of the other auditors. The carrying values of these investments were NT$799,812

thousand and NT$304,667 thousand as of December 31, 2009 and 2008, respectively, or 2% and

1% of the Corporation’s total assets as of those dates. On these investments, there were a loss at

1% (NT$27,597 thousand) and a gain at (1%) (NT$27,214 thousand) of net loss before income tax

in 2009 and 2008, respectively.

We conducted our audits in accordance with the Rules Governing the Audit of Financial

Statements by Certified Public Accountants and auditing standards generally accepted in the

Republic of China. Those rules and standards require that we plan and perform the audit to obtain

reasonable assurance about whether the financial statements are free of material misstatement. An

audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the

financial statements. An audit also includes assessing the accounting principles used and

significant estimates made by management, as well as evaluating the overall financial statement

presentation. We believe that our audits and the reports of the other auditors provide a reasonable

basis for our opinion.

In our opinion, based on our audits and the reports of the other auditors, the financial statements

referred to above present fairly, in all material respects, the financial position of Wintek

Corporation as of December 31, 2009 and 2008, and the results of its operations and its cash flows

for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial

Reports by Securities Issuers, the requirements of the Business Accounting Law and the Guidelines

Governing Business Accounting relevant to financial accounting standards, and accounting

principles generally accepted in the Republic of China.

As stated in Note 3 to the financial statements, on January 1, 2009, the Corporation adopted the

newly revised Statement of Financial Accounting Standards No. 10, “Accounting for Inventories”.

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We have also audited the consolidated financial statements of Wintek Corporation and subsidiaries

as of and for the years ended December 31, 2009 and 2008 and have expressed a modified

unqualified opinion thereon in our report (not presented herewith) dated February 10, 2010.

February 10, 2010

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results

of operations and cash flows in accordance with accounting principles and practices generally

accepted in the Republic of China and not those of any other jurisdictions. The standards,

procedures and practices to audit such financial statements are those generally accepted and

applied in the Republic of China.

For the convenience of readers, the auditors’ report and the accompanying financial statements

have been translated into English from the original Chinese version prepared and used in the

Republic of China. If there is any conflict between the English version and the original Chinese

version or any difference in the interpretation of the two versions, the Chinese version auditors’

report and financial statements shall prevail.

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WINTEK CORPORATION

BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

(In Thousands of New Taiwan Dollars, Except Par Value)

2009 2008 2009 2008

ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount %

CURRENT ASSETS CURRENT LIABILITIES

Cash (Note 4) $ 2,703,823 6 $ 2,414,624 5 Short-term bank loans (Note 14) $ 4,976,333 10 $ 5,049,955 10

Financial assets at fair value through profit or loss - current Short-term bills payable (Note 15) 199,866 - 298,945 1

(Notes 2 and 5) 13,052 - 119,248 - Notes payable

Available-for-sale financial assets - current (Notes 2 and 6) 206,960 - 445 - Third parties 217 - 438 -

Notes receivable (Note 2) Accounts payable

Third parties 1,833 - 30,191 - Third parties 3,184,473 7 2,154,296 4

Accounts receivable (Note 2) Related parties (Note 24) 1,594,236 3 675,952 2

Third parties (Note 7) 4,243,155 9 3,933,205 8 Income tax payable (Notes 2 and 20) 27,688 - 32,416 -

Related parties (Note 24) 707,372 1 514,146 1 Accrued expenses (Notes 2 and 24) 1,194,867 3 1,112,146 2

Other receivables (Note 24) 392,880 1 182,875 - Financial liabilities at fair value through profit or loss -

Other financial assets - current (Note 2) 46,583 - 37,903 - current (Notes 2 and 5) 67,728 - 69,519 -

Inventories, net (Notes 2, 3 and 8) 5,299,890 11 5,886,495 12 Payables for the acquisition of equipment (Note 24) 453,567 1 592,392 1

Deferred income tax assets - current (Notes 2 and 20) 264,401 - 224,381 - Current portion of long-term loans (Notes 16 and 25) 2,346,952 5 1,246,129 3

Restricted assets - current (Notes 4 and 25) 389,773 1 - - Other current liabilities (Notes 2 and 24) 218,021 - 222,837 -

Other current assets (Notes 2, 24 and 25) 354,335 1 393,148 1

Total current liabilities 14,263,948 29 11,455,025 23

Total current assets 14,624,057 30 13,736,661 27

LONG-TERM LOANS, NET OF CURRENT PORTION (Notes 16 and

INVESTMENTS (Note 2) 25) 11,187,322 23 13,311,414 26

Available-for-sale financial assets - noncurrent (Note 6) - - 96,615 -

Financial assets carried at cost - noncurrent (Note 9) 309,463 - 319,337 1 DEFERRED INTERCOMPANY PROFIT (Notes 2 and 24) 3,204 - 4,806 -

Investments accounted for by the equity method (Note 10) 11,993,300 25 12,352,060 24

Total liabilities 25,454,474 52 24,771,245 49

Total investments 12,302,763 25 12,768,012 25

STOCKHOLDERS’ EQUITY (Notes 2, 18 and 19)

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11, 24 and 25) Capital stock, NT$10.00 par value

Cost Authorized - 1,500,000 thousand shares

Land 2,365,861 5 2,365,861 5 Issued and outstanding - 1,132,041 thousand shares in 2009;

Buildings 6,118,193 13 5,409,345 11 1,148,405 thousand shares in 2008 11,320,411 24 11,484,051 23

Machinery and equipment 20,381,436 42 17,452,659 34 Capital surplus

Transportation equipment 31,940 - 32,324 - Additional paid-in capital from share issuance in excess of par 9,098,727 19 9,230,293 18

Furniture and fixtures 69,569 - 69,037 - Treasury stock transactions 172,402 - 7,192 -

Leasehold improvements 2,380 - 2,738 - Long-term investments 3,068 - 3,068 -

Miscellaneous equipment 3,077,700 6 2,990,644 6 Merger 48,478 - 49,133 -

Total cost 32,047,079 66 28,322,608 56 Employee stock options 4,865 - 2,409 -

Less: Accumulated depreciation (12,184,866) (25) (8,157,393) (16) Others 318 - 318 -

Less: Accumulated impairment (38,273) - (38,273) - Retained earnings

Construction in progress 79,043 - 508,142 1 Legal reserve 1,403,641 3 1,403,641 3

Prepayments for equipment 1,009,089 2 2,949,693 6 Unappropriated earnings (Accumulated deficit) (333,080) (1) 2,288,745 4

Cumulative translation adjustments 1,273,615 3 1,549,228 3

Net property, plant and equipment 20,912,072 43 23,584,777 47 Unrealized gain on financial instruments 135,908 - 23,111 -

Treasury stock - 16,364 thousand shares - - (130,651) -

OTHER ASSETS

Refundable deposits 83,748 - 73,495 - Total stockholders’ equity 23,128,353 48 25,910,538 51

Deferred charges (Notes 2, 12 and 25) 107,115 1 186,407 -

Deferred income tax assets - noncurrent (Notes 2 and 20) 475,872 1 266,298 1

Others (Notes 2, 13 and 17) 77,200 - 66,133 -

Total other assets 743,935 2 592,333 1

TOTAL $ 48,582,827 100 $ 50,681,783 100 TOTAL $ 48,582,827 100 $ 50,681,783 100

The accompanying notes are an integral part of the financial statements.

(With Deloitte & Touche audit report dated February 10, 2010)

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WINTEK CORPORATION

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2009 AND 2008

(In Thousands of New Taiwan Dollars, Except Loss Per Share)

2009 2008

Amount % Amount %

GROSS SALES $ 26,549,947 101 $ 31,899,644 102

SALES RETURNS 268,376 1 456,154 2

SALES ALLOWANCES 20,271 - 68,040 -

NET SALES (Notes 2 and 24) 26,261,300 100 31,375,450 100

COST OF SALES (Notes 3, 8, 21 and 24) 27,174,921 103 31,147,797 99

GROSS PROFIT (LOSS) (913,621) (3) 227,653 1

REALIZED INTERCOMPANY PROFIT (Notes 2 and

24)

724 - 7,286 -

REALIZED GROSS PROFIT (LOSS) (912,897) (3) 234,939 1

OPERATING EXPENSES (Notes 21 and 24)

Selling 431,627 2 722,170 2

General and administrative 442,881 2 469,925 2

Research and development 641,536 2 698,862 2

Total operating expenses 1,516,044 6 1,890,957 6

OPERATING LOSS (2,428,941) (9) (1,656,018) (5)

NONOPERATING INCOME AND GAINS

Royalty income (Note 24) 46,690 - 44,321 -

Government subsidy income (Note 2) 10,997 - - -

Interest income (Note 5) 9,008 - 57,591 -

Gain on sale of investments, net (Note 2) 4,132 - 530 -

Dividend income (Note 2) 3,175 - 22,680 -

Penalty income and insurance proceeds 840 - 15,487 -

Valuation gain on financial instruments, net (Notes 2

and 5)

- - 191,212 1

Others (Notes 2 and 24) 58,273 - 138,240 -

Total nonoperating income and gains 133,115 - 470,061 1

(Continued)

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WINTEK CORPORATION

STATEMENTS OF INCOME


(In Thousands of New Taiwan Dollars, Except Loss Per Share)

2009 2008

Amount % Amount %

NONOPERATING EXPENSES AND LOSSES

Interest expense, net of amount capitalized (Notes 2,

5 and 11)

$ 336,976 1 $ 472,782 1

Foreign exchange loss, net (Note 2) 44,501 - 484,986 2

Valuation loss on financial instruments, net (Notes 2

and 5)

33,292 - - -

Investment loss recognized under the equity method,

net (Notes 2 and 10)

30,671 - 180,057 1

Impairment loss on assets (Notes 2, 9 and 13) 49,412 - 187,229 1

Others (Notes 2, 21 and 24) 75,599 1 132,755 -

Total nonoperating expenses and losses 570,451 2 1,457,809 5

LOSS BEFORE INCOME TAX (2,866,277) (11) (2,643,766) (9)

INCOME TAX BENEFIT (Notes 2 and 20) (244,452) (1) (237,812) (1)

NET LOSS $ (2,621,825) (10) $ (2,405,954) (8)

2009 2008

Before

Income

Tax

After

Income

Tax

Before

Income

Tax

After

Income

Tax

LOSS PER SHARE (Note 22)

Basic $ (2.53) $ (2.32) $ (2.31) $ (2.10)

Diluted $ (2.53) $ (2.32) $ (2.31) $ (2.10)


(With Deloitte & Touche audit report dated February 10, 2010) (Concluded)

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WINTEK CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


(In Thousands of New Taiwan Dollars, Except Per Share Data)

Retained Earnings (Note 18) Unrealized

Unappropriated Cumulative Gain (Loss)

Capital Stock (Note 18) Earnings Translation on Financial Total

Issued and Capital Surplus (Accumulated Adjustments Instruments Treasury Stock Stockholder’s

Authorized Outstanding (Notes 2, 18 and 19) Legal Reserve Deficit) (Note 2) (Notes 2 and 18) (Notes 2 and 19) Equity

BALANCE, JANUARY 1, 2008 $ 15,000,000 $ 11,483,221 $ 9,292,464 $ 1,344,461 $ 5,286,503 $ 896,307 $ 262,687 $ - $ 28,565,643

Appropriation of the 2007 earnings:

Legal reserve - - - 59,180 (59,180) - - - -

Cash dividends - NT$0.39 per share - - - - (442,730) - - - (442,730)

Employee bonuses - cash - - - - (79,894) - - - (79,894)

Remuneration to directors and supervisors - - - - (10,000) - - - (10,000)

Exercise of employee stock options - 830 419 - - - - - 1,249

Decrease in the Corporation's equity in the net assets of a subsidiary due to

the subscription for an investee's newly issued shares at a percentage

different from the Corporation's current equity in the investee

- - (3,197) - - - - - (3,197)

Recognition of an equity-method investee's remuneration to employees due

to the investee's newly granted employee stock options

- - 2,409 - - - - - 2,409


to the investee's issuance of shares for cash and reserving of shares for

employee stock options

- - 318 - - - - - 318

Net loss in the year ended December 31, 2008 - - - - (2,405,954) - - - (2,405,954)

Translation adjustments on investments in shares of stock - - - - - 652,921 - - 652,921

Unrealized loss on available-for-sale financial instruments - - - - - - (239,576) - (239,576)

Acquisition of treasury stock - 16,364 thousand shares - - - - - - - (130,651) (130,651)

BALANCE, DECEMBER 31, 2008 15,000,000 11,484,051 9,292,413 1,403,641 2,288,745 1,549,228 23,111 (130,651) 25,910,538


to the investee's newly granted employee stock options

- - 2,456 - - - - - 2,456

Net loss in the year ended December 31, 2009 - - - - (2,621,825) - - - (2,621,825)

Translation adjustments on investments in shares of stock - - - - - (275,613) - - (275,613)

Unrealized gain on available-for-sale financial instruments - - - - - - 112,797 - 112,797

Retirement of treasury stock - 16,364 thousand shares - (163,640) 32,989 - - - - 130,651 -

BALANCE, DECEMBER 31, 2009 $ 15,000,000 $ 11,320,411 $ 9,327,858 $ 1,403,641 $ (333,080) $ 1,273,615 $ 135,908 $ - $ 23,128,353


(With Deloitte & Touche audit report dated February 10, 2010)

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WINTEK CORPORATION

STATEMENTS OF CASH FLOWS


(In Thousands of New Taiwan Dollars)

2009 2008

CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (2,621,825) $ (2,405,954)

Deferred income taxes (249,594) (242,937)

Depreciation 4,176,505 3,728,113

Provision for loss on inventories 407,795 644,418

Amortization of deferred charges 91,878 165,741

Impairment loss on assets 49,412 187,229

Valuation loss (gain) on financial instruments, net 33,292 (191,212)

Investment loss recognized under the equity method, net 30,671 180,057

Cash dividends received from equity-method investees 26,177 -

Realized foreign exchange gain on merger with subsidiary (8,213) -

Gain on sale of investments, net (4,132) (530)

Loss (gain) on disposal of assets, net (1,760) 3,885

Realized deferred intercompany profit (1,602) (1,602)

Realized gross profit (724) (7,286)

Net changes in operating assets and liabilities

Financial instruments held for trading 71,113 132,854

Notes receivable 28,357 (28,001)

Accounts receivable (487,859) 1,005,974

Other receivables (208,926) 198,596

Other financial assets - current (8,680) 21,986

Inventories 178,810 (425,020)

Other current assets 38,813 362,666

Notes payable (221) (1,171)

Accounts payable 1,948,461 (2,770,883)

Income tax payable (4,951) (67,961)

Accrued expenses 78,765 (718,944)

Other current liabilities (3,378) 88,598

Net cash provided by (used in) operating activities 3,558,184 (141,384)

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of property, plant and equipment (1,693,817) (5,390,523)

Increase in restricted assets (383,880) -

Proceeds from disposal of assets 158,572 17,524

Increases in deferred charges (12,717) (267,387)

Proceeds from the return of capital on investment accounted for by the

equity method

11,309 -

Increase in other assets (11,067) (12,386)

Increase in refundable deposits (9,563) (24,462)

Proceeds from disposal of available-for-sale financial assets 7,021 110,530

Acquisition of financial assets carried at cost (5,716) -

Proceeds from a merger with subsidiary 3,839 -

Proceeds from disposal of investments accounted for by the equity

method

2,642 -

(Continued)

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WINTEK CORPORATION

STATEMENTS OF CASH FLOWS



2009 2008

Acquisition of investments accounted for by the equity method $ - $ (246,160)

Acquisition of available-for-sale financial assets - current - (110,000)

Proceeds of the return of capital on financial assets carried at cost - 600

Net cash used in investing activities (1,933,377) (5,922,264)

CASH FLOWS FROM FINANCING ACTIVITIES

Repayment of long-term loans (1,273,269) (1,196,130)

Proceeds from long-term loans 250,000 3,999,000

Decrease in payable for the acquisition of equipment (138,825) (274,973)

Net increase (decrease) in short-term bills payable (99,079) 99,635

Net increase (decrease) in short-term bank loans (73,622) 2,173,204

Increase (decrease) in guarantee deposits received (813) 1,208

Cash dividends - (442,730)

Acquisition of treasury stock - (130,651)

Remuneration to directors and supervisors and employee bonuses - (89,894)

Exercise of employee stock options - 1,249

Net cash provided by (used in) financing activities (1,335,608) 4,139,918

NET INCREASE (DECREASE) IN CASH 289,199 (1,923,730)

CASH, BEGINNING OF YEAR 2,414,624 4,338,354

CASH, END OF YEAR $ 2,703,823 $ 2,414,624

SUPPLEMENTARY CASH FLOW INFORMATION

Interest paid, net of amount capitalized $ 354,717 $ 458,192

Income tax paid $ 15,336 $ 73,087

NONCASH INVESTING AND FINANCING ACTIVITIES

Current portion of long-term loans $ 2,346,952 $ 1,246,129

Available-for-sale financial assets - reclassified from noncurrent to

current

$ 96,615 $ -

Property, plant and equipment reclassified to idle assets $ 33,822 $ 134,056


(With Deloitte & Touche audit report dated February 10, 2010) (Concluded)

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WINTEK CORPORATION

NOTES TO FINANCIAL STATEMENTS


(In Thousands of New Taiwan Dollars, Except Per Share Data and Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

Wintek Corporation (the “Corporation”) was incorporated on April 26, 1990. It manufactures and sells

liquid crystal displays (LCDs), liquid crystal modules (LCMs) and touch panels.

The Corporation’s shares have been listed on the Taiwan Stock Exchange (“TSE”) since December 19,

1998.

The Corporation had 3,440 and 3,792 employees as of December 31, 2009 and 2008, respectively.

2. SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in conformity with the Guidelines Governing the Preparation

of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business

Accounting, and accounting principles generally accepted in the Republic of China (“ROC”). Under these

guidelines, law and principles, certain estimates and assumptions have been used for the allowance for

doubtful accounts, allowance for loss on inventory, depreciation of property, plant and equipment,

impairment loss on assets, amortization of deferred charges and pension, etc. Actual results may differ

from these estimates.

For the convenience of readers, the accompanying financial statements have been translated into English

from the original Chinese version prepared and used in the ROC. If there is any conflict between the

English version and the original Chinese version or any difference in the interpretation of the two versions,

the Chinese version financial statements shall prevail.

Significant accounting policies are summarized as follows:

Current and Noncurrent Assets and Liabilities

Current assets include cash, cash equivalents and those assets held primarily for trading and those to be

converted to cash, sold or consumed within one year from the balance sheet date. All other assets such as

property, plant and equipment are classified as noncurrent. Current liabilities are obligations incurred for

trading purposes or to be settled within one year from the balance sheet date. All other liabilities are

classified as noncurrent.

Financial Assets/Liabilities at Fair Value through Profit or Loss

Financial instruments at fair value through profit or loss (“FVTPL”) are initially measured at fair value plus

transaction costs. At each balance sheet date, financial assets or financial liabilities at FVTPL are

remeasured at fair value, with changes in fair value recognized directly in gain or loss in the year in which

they arise. Cash dividends received subsequently (including those received in the year of investment) are

recognized as income for the year. On the derecognition of a financial asset or a financial liability, the

difference between its carrying amount and the sum of the consideration received and receivable or

consideration paid and payable is recognized as gain or loss.

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A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a

financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the

derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability.

All regular way purchases or sales of financial assets are recognized and derecognized on a settlement date

basis.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly

attributable to the acquisition of the financial assets. When the assets are subsequently measured at fair

value, the changes in fair value are recognized as an adjustment to stockholders’ equity. The accumulated

gains or losses will be recognized when the financial asset is de-recognized from the balance sheet. A

regular way purchase or sale of financial assets is recognized and de-recognized using settlement date

accounting.

The recognition, derecognition and the fair value bases of available-for-sale financial assets are similar to

those of financial assets at FVTPL.

Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows:

Publicly traded stocks - at closing prices.

Cash dividends are recognized as investment income upon resolution of stockholders of an investee but are

accounted for as a reduction to original cost of investment if such dividends are declared on the earnings of

the investee attributable to the period prior to the purchase of the investment. Stock dividends are

recognized only as an increase in the number of shares of stock held on the ex-dividend date. Costs of

investments sold are determined by the weighted-average method.

An impairment loss is recognized when there is objective evidence that the financial asset is impaired.

Any subsequent decrease in impairment loss for an equity instrument classified as available-for-sale is

recognized directly in equity.

Revenue Recognition, Receivables and Allowance for Doubtful Accounts

Revenue is recognized when titles to products and risks of ownership are transferred to customers,

primarily upon shipment. The Corporation does not recognize sales on transactions involving the delivery

of materials to subcontractors since there is no transfer to subcontractors of the rights to these materials.

Sales are measured at fair value, taking into account related sales discounts and volume rebates agreed to by

the Corporation and customers. Since the receivables from sales are collectible within one year and such

transactions are frequent, the fair value of receivables is equivalent to the amount of cash to be received.

Allowance for doubtful accounts is provided on the basis of a review of the collectibility and aging of

receivables as well as an analysis of prevailing economic circumstances.

Inventories

Inventories consist of raw materials, supplies, work-in-process and finished goods. Before January 1,

2009, inventories were stated at the lower of cost or market value (replacement cost or net realizable value).

Any write-down was made on a total-inventory basis. Market value meant replacement cost for raw

materials and supplies and net realizable value for finished goods and work in process. As stated in Note

3, effective January 1, 2009, inventories are stated at the lower of cost or net realizable value. Inventory

write-downs are made item by item, except where it may be appropriate to group similar or related items.

Net realizable value is the estimated selling price of inventories less all estimated costs of completion and

costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate

weighted-average cost on the balance sheet date.

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Financial Assets Carried at Cost

Unquoted equity instrument with fair values that cannot be reliably measured, such as non-publicly traded

stocks and stocks traded in the Emerging Stock Market, are initially recognized and then carried at original

cost. The accounting treatment for cash dividends and stock dividends arising from financial assets

carried at cost is the same as that for cash and stock dividends arising from available-for-sale financial

assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A

reversal of this impairment loss is disallowed.

Investments Accounted for by the Equity Method

Investments in shares of stock in companies in which the Corporation owns at least 20% of the outstanding

common stock or exercises significant influence over their financial and operating policy decisions are

accounted for by the equity method.

Prior to January 1, 2006, the difference between the acquisition cost and the Corporation’s proportionate

share in the investee’s equity was amortized by the straight-line method over 5 to 10 years. Effective

January 1, 2006, pursuant to the revised Statement of Financial Accounting Standard (“SFAS”) No. 5,

“Long-term Investments Accounted for by Equity Method”, the acquisition cost is allocated to the assets

acquired and liabilities assumed based on their fair values at the date of acquisition, and the excess of the

acquisition cost over the fair value of the identifiable net assets acquired is recognized as goodwill.

Goodwill is not being amortized. The excess of the fair value of the net identifiable assets acquired over

the acquisition cost is used to reduce the fair value of each of the noncurrent assets acquired in proportion to

the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain.

Effective January 1, 2006, the accounting treatment for the unamortized investment premium arising on

acquisitions before January 1, 2006 is the same as that for goodwill and the premium is no longer being

amortized. For any investment discount arising on acquisitions before January 1, 2006, the unamortized

amount continues to be amortized over the remaining year.

If the Corporation’s subscription for new shares issued by an investee is at a ratio that is not equal to its

current equity in the investee, the Corporation will recognize (a) an increase in the carrying amount of the

investment, with a corresponding amount credited to capital surplus, or (b) a decrease, with a corresponding

amount debited to capital surplus or to retained earnings if the capital surplus has zero balance.

Unrealized Intercompany Profit

All profits on product or other sales to subsidiaries are wholly deferred or in the case of other

equity-method investees that are not majority owned, are deferred only to the extent of the Corporation’s

equity interest, with the deferred profit reported as deferred intercompany profits. The profits on sales

between equity-method investees are deferred to the extent of the Corporation’s equivalent equity interests

in those equity-method investees. In addition, the Corporation recognizes its proportionate share in net

income from product and other sales of its subsidiaries and other equity-method investees in the year they

are realized through the subsequent sale of the related items to unrelated third parties.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation and accumulated impairment.

Major additions, replacements and betterment are capitalized while maintenance and repairs are expensed

currently. Interest expenses incurred during the construction and in the acquisition of property, plant and

equipment are also capitalized.

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Depreciation expense is computed using the straight-line method over service lives (plus one year to

represent estimate salvage value) estimated as follows: buildings, 10 to 30 years; machinery and

equipment, 3 to 10 years; transportation equipment, 3 to 5 years; furniture and fixtures, 3 to 5 years;

leasehold improvements, 2 to 4 years; and miscellaneous equipment, 3 to 10 years. Property, plant and

equipment still used in operations after they have reached their original estimated service lives are further

depreciated over their newly estimated service lives.

Upon retirement or disposal of property, plant and equipment, the related cost, accumulated depreciation

and accumulated impairment are removed from the accounts. Any resulting gain or loss is recorded as

nonoperating gains or losses in the current year.

Idle Assets

Idle fixed assets are classified as other assets and stated at the lower of net fair value or carrying value.

The related cost, accumulated depreciation and accumulated impairment are written off, and any excess of

cost over net realizable value is recognized as losses. The remaining value is depreciated using the

straight-line method.

Deferred Charges

Deferred charges, which pertain to technical assistance royalty, molding, the enterprise resource planning

(“ERP”) system, supplies and manufacturing information system, are amortized using the straight-line

method over 2 to 20 years.

Intangible Assets

Expenditures for research activities are charged to expense when incurred, and those for development

activities that meet the criteria for capitalization are recognized under intangible assets and amortized using

the straight-line method. Those expenditures that do not meet the criteria for capitalization are charged to

expense when incurred.

Impairment of Assets

If a property, plant and equipment, deferred charges, idle asset and investments accounted for by the equity

method is determined to be impaired, the carrying value of the asset in excess of its recoverable amount is

recognized as loss. For investments over which the Corporation has significant influence but no control,

impairment is evaluated at individual carrying value; for investments over which the Corporation has

control, impairment is evaluated based on cash generating unit of consolidated financial statement. If the

recoverable amount increases, the impairment loss reversal is recognized as a gain. However, the

increased carrying value of an asset due to impairment loss reversal should not exceed the carrying value

that would have been determined (net of depreciation) had no impairment loss been recognized for the asset

in prior years.

Stock-based Compensation

Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39,

“Accounting for Share-based Payment.” Under the statement, the value of the stock options granted,

which is equal to the best available estimate of the number of stock options expected to vest multiplied by

the grant-date fair value, is expensed on a straight-line basis over the vesting year, with a corresponding

adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information

indicates that the number of stock options expected to vest differs from previous estimates.

- 13 -

Employee stock options granted between January 1, 2004 and December 31, 2007 must be accounted for in

accordance with the pronouncements issued by the Accounting Research and Development Foundation

(“ARDF”). The Corporation adopted the intrinsic value method for these options, and any compensation

cost determined using this method is charged to expense over the employee vesting period.

Pension Costs

Under the defined benefit pension plan, pension costs are recognized on the basis of actuarial calculations.

Under the defined contribution pension plan, pension costs are recorded on the basis of the Corporation’s

required monthly contributions to employees’ individual pension accounts.

If the defined benefit plan is curtailed or settled, the curtailment or settlement gain or loss is recognized as

part of the net pension cost for the year.

Government Subsidy

Government subsidies that are realized should be recognized as income for the period and should be

presented as government subsidy income or other income. Government subsidies that are not yet realized

should be presented as deferred income. Deferred income should be recognized as government subsidy

income or other income only when the Corporation has met the related conditions and fulfill its obligations.

Treasury Stock

Treasury stock is stated at cost and shown as deduction in stockholders’ equity.

Income Tax

The Corporation applies the intra-period allocations for its income tax. Deferred tax assets are recognized

for the tax effects of temporary differences, operating loss carryforwards and unused investment tax credits.

A valuation allowance is provided for deferred tax assets that are not certain to be realized. Deferred

income taxes are classified as current or noncurrent on the basis of the classification of the related asset and

liability for financial reporting. A deferred tax asset or a liability that is not related to an asset or liability

for financial reporting is classified according to the expected realization date of the temporary difference.

The tax effects of temporary differences arising from investments in shares of stocks of foreign subsidiaries

are not recognized as deferred assets or liabilities since the Corporation can control the realization date of

the temporary differences and these differences are unlikely to be realized.

The tax credits for purchases of eligible equipment and technology, research and development expenditures

and personnel training expenditures are recognized in the current period.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s income tax

provison.

Income tax (10%) on undistributed earnings is recorded as expense in the year the stockholders resolve to

retain these earnings.

Foreign-currency and Foreign Financial Statement Transactions

Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange

in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency

assets and liabilities are recognized in gain or loss.

At the balance sheet date, foreign-currency monetary assets and liabilities are retranslated using prevailing

exchange rates and the exchange differences are recognized in gain or loss.

- 14 -

At the balance sheet date, foreign-currency nonmonetary assets (such as equity instruments) and liabilities

that are measured at fair value are retranslated using prevailing exchange rates, with the exchange

differences treated as follows:

a. Recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity;

b. Recognized in gain and loss if the changes in fair value is recognized in gain or loss.

Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange

rates at trade dates.

If the functional currency of an equity-method investee is a foreign currency, translation adjustments will

result from the translation of the investee’s financial statements into the reporting currency of the

Corporation. Such adjustments are accumulated and reported as a separate component of stockholders’

equity.

Reclassifications

Certain accounts in the financial statements as of and for the year ended December 31, 2008 have been

reclassified to conform to the presentation of the financial statements as of and for the year ended

December 31, 2009.

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

Accounting for Bonuses to Employees, Directors and Supervisors

In March 2007, the ARDF issued an interpretation 2007-052 that requires companies to recognize bonuses

paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These

bonuses were previously recorded as appropriations from earnings. The adoption of this interpretation has

no impact on the financial statements for the year ended December 31, 2008.

Accounting for Employee Stock Options

On January 1, 2008, the Corporation adopted the newly released SFAS No. 39, “Accounting for

Share-based Payment”. The adoption of this interpretation had no impact on the financial statements for

the year ended December 31, 2008.

Accounting for Inventories

On January 1, 2009, the Corporation adopted the newly revised SFAS No. 10, “Accounting for Inventories”.

The main revisions are (1) inventories are stated at the lower of cost or net realizable value, and inventories

are written down to net realizable value item-by-item except when the grouping of similar or related items

is appropriate; (2) unallocated overheads are recognized as expenses in the year in which they are incurred;

and (3) abnormal costs, write-downs of inventories are recorded as cost of sales for the year. The adoption

resulted in increases of $511,746 thousand in net loss and $0.45 in after income tax basic loss per share for

the year ended December 31, 2009. For comparison purposes, the Corporation also reclassified

nonoperating income and gains of $6,592 thousand and nonoperating expenses and losses of $644,418

thousand to cost of sales for the year ended December 31, 2008.

- 15 -

4. CASH

December 31

2009 2008

Cash in banks $ 2,004,254 $ 947,348

Time deposits 1,087,660 1,465,180

Cash on hand and petty cash 1,682 2,096

3,093,596 2,414,624

Less: Mortgage deposits - current (389,773) -

$ 2,703,823 $ 2,414,624

5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS - CURRENT

December 31

2009 2008

Financial assets held for trading

Forward exchange contracts

Domestic banks $ 13,008 $ 66,874

Foreign banks 44 52,374

$ 13,052 $ 119,248

Financial liabilities held for trading

Forward exchange contracts

Domestic banks $ 12,019 $ 3,208

Foreign banks 11,670 2,227

23,689 5,435

Interest rate swap contracts

Domestic banks 44,039 64,084

$ 67,728 $ 69,519

The Corporation entered into forward exchange contract and interest rate swap transactions for the years

ended December 31, 2009 and 2008 to hedge its exposures to adverse exchange rate and interest rate

fluctuations of its foreign-currency assets or liabilities. The financial risk management objective of the

Corporation is to minimize risks due to changes in fair value or cash flows.

a. Forward exchange contracts

Outstanding forward exchange contracts as of December 31, 2009 and 2008:

Contract Amount

Currency Maturity (In Thousands)

December 31, 2009

Sell/buy US$/JPY January 5, 2010 to March 1, 2010 US$34,200/JPY3,065,365

Sell/buy US$/NT$ January 4, 2010 to March 19, 2010 US$83,400/NT$2,691,323

Sell/buy INR/US$ January 11, 2010 to January 28, 2010 INR981,830/US$21,000

- 16 -

Contract Amount

Currency Maturity (In Thousands)

December 31, 2008

Sell/buy US$/JPY January 5, 2009 to February 26, 2009 US$52,065/JPY4,946,005

Sell/buy US$/NT$ January 5, 2009 to February 19, 2009 US$65,300/NT$2,166,838

Sell/buy INR/US$ January 9, 2009 to February 4, 2009 INR773,360/US$15,000

The contracts resulted in net losses of $53,337 thousand and net gains of $256,109 thousand for the

years ended December 31, 2009 and 2008, respectively.

b. Interest rate swap contracts

The Corporation entered into an interest rate swap contract with a financial institution to hedge against

adverse fluctuations of the floating interest rates of its bank loans. The contract resulted in net losses

of $10,921 thousand and $65,491 thousand for the years ended December 31, 2009 and 2008,

respectively.

Contracts outstanding as of December 31, 2009 and 2008 are summarized as follows:

Principal Amount

(In Thousands)

Maturity Date

Range of Interest Rates Paid (Note 1)

Range of Interest Rate

Receivable (Note 2)

December 31, 2009

NT$1,714,286

(Note 3) December 15, 2012 Daily range accrual, 2.35%+(3*TWD 90D

CP)*N/M

N is the number of days which TWD 5Y

CMS-TWD 1Y CMS≤ 0 in that calculation

period

90-day commercial paper

December 31, 2008

NT$2,000,000

(Note 3) December 15, 2012 Daily range accrual, 2.35%+(3*TWD 90D

CP)*N/M

N is the number of days which TWD 5Y

CMS-TWD 1Y CMS≤ 0 in that calculation

period

90-day commercial paper

Note 1: “3ML” means three months’ LIBOR.

Note 2: “90-day commercial paper” means the interest rate in Taiwan for a 90-day commercial paper.

Note 3: The principal amounts of the interest rate swap contracts decreases gradually as bank loans are

repaid.

6. AVAILABLE-FOR- SALE FINANCIAL ASSETS

December 31

2009 2008

Publicly listed stocks $ 206,960 $ 97,060

Less: Reclassified to noncurrent assets - (96,615)

Reclassified to current assets $ 206,960 $ 445

- 17 -

7. ACCOUNTS RECEIVABLE

December 31

2009 2008

Accounts receivable- third parties $ 4,257,961 $ 3,950,718

Less: Allowance for doubtful accounts (14,806) (17,513)

$ 4,243,155 $ 3,933,205

The movements of the doubtful accounts are summarized as follows:

Year Ended December 31

2009 2008

Beginning balance $ 17,513 $ 19,727

Written off (3,129) -

Reclassification 422 (2,214)

Ending balance $ 14,806 $ 17,513

8. INVENTORIES, NET

December 31

2009 2008

Finished goods $ 1,040,547 $ 1,230,287

Work in process 2,395,544 2,938,559

Raw materials and supplies 1,863,799 1,717,649

$ 5,299,890 $ 5,886,495

As of December 31, 2009 and 2008, the allowance for inventory devaluation was $1,057,659 thousand and

$712,072 thousand, respectively.

The cost of inventories recognized as cost of sales for the years ended December 31, 2009 and 2008 was

$27,174,921 thousand and $31,147,797 thousand, respectively, which included $407,795 thousand and

$644,418 thousand, respectively, due to write-downs of inventories.

9. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

December 31

2009 2008

% of % of

Carrying Owner- Carrying Owner-

Value ship Value ship

Unlisted

Kingpak Technology Corporation (“Kingpak”) $ 113,160 6 $ 113,160 6

Asia Pacific Microsystems, Inc. (“Microsystems”) 63,890 4 63,890 4

Uniflex Technology Inc. (“Uniflex”) 59,156 4 59,156 4

Calin Technology Co., Ltd. (“Calin Technology”) 40,748 4 35,032 4

(Continued)

- 18 -

December 31

2009 2008

% of % of



Unlisted

Andes Technology Corporation (“Andes”) $ 19,404 4 $ 34,994 4

Transcom Corporation (“Transcom”) 9,595 6 9,595 6

Integrated Solutions Technology, Inc. (“Integrated

Solutions”)

3,510

1

3,510

1

Mobilic Technology (Cayman) Corp. (“Mobilic

Cayman”)

-

11

-

11

Yo-Shih Investment Corporation (“Yo-Shih”) - - - 9

$ 309,463 $ 319,337

(Concluded)

There are no reliable quoted prices for emerging and unlisted stocks to estimate fair value. Therefore,

these investments are carried at cost.

The offset the accumulated deficts, Andes reduced its capital in December 2009, and Microsystems reduced

its capital in December 2008. Thus, the Corporation recognized impairment losses of $15,590 thousand

and $52,273 thousand for the years ended December 31, 2009 and 2008, respectively.

In June 2008, Yo-Shih reduced its capital and returned $600 thousand to the Corporation. The

Corporation recognized an impairment loss of $900 thousand for the year ended December 31, 2008.

10. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

December 31

2009 2008

% of % of



Unlisted

Wintek Technology (Cayman) Corporation (“Wintek

Technology Cayman”)

$ 8,184,927 100

$ 8,093,016

100

Masstop LLC 2,399,223 100 2,774,986 100

Wintek (B.V.I.) Corporation (“Wintek BVI”) 468,939 100 472,237 100

Wintek International Holding (Cayman) Corporation

(“Wintek International Holding”)

338,850 100

372,645

100

United Win Investment Corporation (“United Win

Investment”)

181,372 100

212,058

100

Wintek Electro-Optics Corporation (“Wintek

Electro-Optics”)

172,087 100

177,504

100

Wintek (Central Europe) GmbH (“Wintek Central

Europe”)

143,290 100

127,163

100

Mactech Corporation (“Mactech”) 104,612 52 76,647 52

Wintek Europe - - 29,488 100

FlexMedia Electronics Corporation (“Flex Media”) - - 16,316 10

$ 11,993,300 $ 12,352,060

- 19 -

The difference between the cost of investment and the Corporation’s equity in the carrying value of the

investee’s net assets resulted in goodwill. The movements of goodwill for the years ended of December

31, 2009 and 2008 are summarized as follows:


2009 2008

Beginning balance $ 40,570 $ 40,113

Effect of exchange rate changes (1,002) 457

Ending balance $ 39,568 $ 40,570

The Corporation and a subsidiary, United Win Investment, have acquired more than 20% equity interest in

FlexMedia; thus, this investment was accounted for by the equity method. In November, 2009, the

Corporation and United Win Investment disposed of all their holdings in FlexMedia.

The Investment Commission (“IC”) of the Ministry of Economic Affairs (“MOEA”) had authorized the

Corporation’s investment in United Win (China) Technology Limited (“United Win China”). This

investment was made through Wintek Technology Cayman, United Win Technology (Cayman)

Corporation (“United Win Cayman”) and United Win (H.K.) Technology Limited (“United Win H.K.”).

United Win China produces and assembles electronic and related products in Mainland China.

The MOEA had authorized the Corporation’s investment in Dongguan Masstop Liquid Crystal Display Co.,

Ltd. (“Dongguan Masstop”) through Masstop LLC and Masstop Asia Pacific Limited (“Masstop”).

Dongguan Masstop produces and processes liquid crystal modules.

The Corporation invested in Wintek Technology (India) Private Limited (“Wintek Technology India”), a

LCD and LCM manufacturer and seller through Wintek Far East (Cayman) Corporation (“Wintek Far East”)

and Wintek International Holding. The Corporation invested in Wintek Far East (Cayman) Corporation

through Wintek Electro-Optics in December 2008.

The Corporation merged with Wintek Europe on September 30, 2009, with the Corporation as the survivor

entity. Also, on September 30, 2009, the Corporation recorded the assets and liabilities of Wintek Europe

at their prevailing fair value and wrote off its investment in Wintek Europe.

The financial statements used as basis for calculating the carrying values of the equity-method investments

as of December 31, 2009 and 2008 and the net income or loss on these investments recognized by the

Corporation for the years ended December 31, 2009 and 2008 were audited, except for Wintek Europe in

2008. Under certain regulations, neither this investee’s revenue nor capital warranted the audit of their

financial statements.

Investment net income (loss) recognized was as follows:


2009 2008

Net Income

(Loss) of the

Investee

Investment

Net Income

(Loss)

Recognized

Net Income

(Loss) of the

Investee

Investment

Net Income

(Loss)

Recognized

Masstop LLC $ (319,143) $ (316,619) $ (36,633) $ (33,842)

Wintek Technology Cayman 279,436 293,155 (25,145) (36,985)

Mactech 28,128 51,686 105,306 24,634

Wintek International Holding (39,651) (39,651) (118,410) (118,410)

(Continued)

- 20 -


2009 2008

Net Income

(Loss) of the

Investee

Investment

Net Income

(Loss)

Recognized

Net Income

(Loss) of the

Investee

Investment

Net Income

(Loss)

Recognized

United Win Investment $ (30,636) $ (30,636) $ (13,922) $ (13,922)

Wintek Central Europe 16,637 16,637 22,090 22,090

Wintek BVI 8,517 8,517 (20,269) (20,269)

Wintek Europe (6,754) (6,754) (4,800) (4,800)

Wintek Electro-Optics (8,146) (4,583) 2,067 5,124

FlexMedia (24,226) (2,423) (36,768) (3,677)

$ (95,838) $ (30,671) $ (126,484) $ (180,057)

(Concluded)

Wintek BVI, United Win Investment, Wintek Central Europe and Wintek Europe as of December 31, 2008

were excluded from the Corporation’s consolidated financial statements since those companies were

engaged in overseas sales or investment, and their operating results had no significant effect on the

consolidated financial statements. The others were included in the consolidated financial statements. All

significant intercompany accounts and transactions have been eliminated from the consolidation.

11. PROPERTY, PLANT AND EQUIPMENT

Year Ended December 31, 2009

Beginning Ending

Balance Addition Reclassification Disposal Balance

Cost

Land $ 2,365,861 $ - $ - $ - $ 2,365,861 Buildings 5,409,345 66,013 642,835 - 6,118,193

Machinery and equipment 17,452,659 262,287 2,874,951 (208,461 ) 20,381,436

Transportation equipment 32,324 - 401 (785 ) 31,940 Furniture and fixtures 69,037 4,629 90 (4,187 ) 69,569

Leasehold improvements 2,738 - - (358 ) 2,380

Miscellaneous equipment 2,990,644 4,201 84,260 (1,405 ) 3,077,700 Construction in progress 508,142 213,736 (642,835 ) - 79,043

Prepayments for equipment 2,949,693 1,146,969 (3,087,573 ) - 1,009,089

31,780,443 $ 1,697,835 $ (127,871 ) $ (215,196 ) 33,135,211 Accumulated depreciation

Buildings 948,314 $ 288,550 $ - $ - 1,236,864 Machinery and equipment 6,250,840 3,279,998 (93,762 ) (53,306 ) 9,383,770

Transportation equipment 20,705 4,144 - (746 ) 24,103

Furniture and fixtures 28,585 14,660 - (3,680 ) 39,565 Leasehold improvements 1,238 596 - (358 ) 1,476

Miscellaneous equipment 907,711 592,089 (287 ) (425 ) 1,499,088

8,157,393 $ 4,180,037 $ (94,049 ) $ (58,515 ) 12,184,866 Accumulated impairment

Land 33,981 $ - $ - $ - 33,981 Buildings 4,292 - - - 4,292

38,273 $ - $ - $ - 38,273

Property, plant and equipment, net $ 23,584,777 $ 20,912,072

- 21 -

Year Ended December 31, 2008

Beginning Ending

Balance Addition Reclassification Disposal Balance

Cost

Land $ 2,365,861 $ - $ - $ - $ 2,365,861 Buildings 4,766,066 240,230 403,049 - 5,409,345

Machinery and equipment 10,272,352 722,299 6,511,347 (53,339 ) 17,452,659

Transportation equipment 28,137 4,620 - (433 ) 32,324 Furniture and fixtures 81,817 21,797 1,214 (35,791 ) 69,037

Leasehold improvements 76,664 1,590 (75,516 ) - 2,738

Miscellaneous equipment 1,547,003 130,306 1,319,552 (6,217 ) 2,990,644 Construction in progress 60,762 868,909 (421,529 ) - 508,142

Prepayments for equipment 7,639,839 3,400,772 (8,090,918 ) - 2,949,693

26,838,501 $ 5,390,523 $ (352,801 ) $ (95,780 ) 31,780,443 Accumulated depreciation

Buildings and improvements 708,750 $ 239,564 $ - $ - 948,314 Machinery and equipment 3,580,796 2,883,876 (179,579 ) (34,253 ) 6,250,840

Transportation equipment 16,428 4,710 - (433 ) 20,705

Furniture and fixtures 51,109 12,150 - (34,674 ) 28,585 Leasehold improvements 21,461 18,943 (39,166 ) - 1,238

Miscellaneous equipment 344,124 568,870 - (5,283 ) 907,711

4,722,668 $ 3,728,113 $ (218,745 ) $ (74,643 ) 8,157,393 Accumulated impairment

Land 33,981 $ - $ - $ - 33,981 Buildings 4,292 - - - 4,292

38,273 $ - $ - $ - 38,273


Under an operating lease, the Corporation rents the site of its manufacturing facilities from the MOEA

under various contracts, with the latest expiry in December 2019. The monthly rentals are $244 thousand.

Interest capitalized for the period was as follows:


2009 2008

Interest expense $ 382,714 $ 552,409

Interest capitalized (recorded under prepayments for equipment and

construction in progress)

45,738

79,627

Interest rates 1.81%-2.47% 2.87%-3.22%

In August 2007, the Corporation entered into an agreement to buy from Hannstar Display Corporation

(“Hannstar”) a TFT-LCD factory and related equipment. The transaction ceiling price was NT$9,000,000

thousand, subject to adjustment based on the progress of factory asset delivery. As of January 31, 2009,

the Corporation had completed this transaction and payment, which was recorded under the relevant asset

account. The Corporation also agreed to take over the rental leases for two years from December 1, 2007,

which Hannstar entered into with Walsin Technology Corporation (“Walsin”).

- 22 -

12. DEFERRED CHARGES

December 31

2009 2008

Manufacturing information system $ 31,180 $ 62,360

ERP system 13,712 28,202

Technical assistance royalty 15,457 17,617

Molding equipment 6,509 15,758

Supplies 3,670 5,135

Others 36,587 57,335

$ 107,115 $ 186,407

13. OTHER ASSETS - OTHERS

December 31

2009 2008

Idle assets

Cost $ 430,048 $ 344,109

Less: Accumulated depreciation (275,200) (208,881)

Accumulated impairment (154,848) (135,228)

- -

Others 77,200 66,133

$ 77,200 $ 66,133

The Corporation recognized impairment losses of $33,822 thousand and $134,056 thousand for the years

ended December 31, 2009 and 2008, respectively, which were recorded under nonoperating expenses and

losses - impairment loss on assets.

14. SHORT-TERM BANK LOANS

December 31

2009 2008

Usance L/C loans - interest - 0.88%-2.45% in 2009 and

1.30%-8.93% in 2008

$ 2,306,483

$ 2,810,888

Revolving loans - interest - 1.64%-2.45% in 2009 and 1.71%-3.32%

in 2008

2,190,000

1,930,000

Export loans - interest - 1.41%-1.80% in 2009 and 1.72%-3.85% in

2008

479,850

309,067

$ 4,976,333 $ 5,049,955

15. SHORT-TERM BILLS PAYABLE

Short-term bills payable were commercial paper. These instruments were issued with annual discount

rates of 1.80% and 1.70%-2.05% as of December 31, 2009 and 2008, respectively.

- 23 -

16. LONG-TERM LOANS

December 31

2009 2008

Secured loans - repayable in installments from June 2012 to

September 2014; interest - 1.07%-2.32% in 2009 and

1.88%-3.59% in 2008

$ 11,899,131

$ 12,499,543

Unsecured loans - repayable in installments from March 2010 to

December 2012; interest - 1.07%-2.73% in 2009 and

1.88%-3.18% in 2008

1,635,143

2,058,000

13,534,274 14,557,543

Less: Current portion (2,346,952) (1,246,129)

$ 11,187,322 $ 13,311,414

The Corporation entered into agreements, with loan amounts of $6 billion in December 2007, with a

syndicate of banks led by Bank of Taiwan. These loans were for constructing plants and buying

equipment. The 2007 agreement provided that the Corporation (a) should maintain certain current, debt

and interest coverage ratios semiannually and annually based on the Corporation’s consolidated financial

statements; and (b) should not, without the prior written consent of the majority of the bank syndicate, sell

important assets and royalties, buy back its own shares and reduce capital during the contract period.

To raise working capital, the Corporation entered into loan agreements with China Development Industrial

Bank. Under the agreement, the Corporation should maintain certain current, debt and interest coverage

ratios based on the Corporation’s annual consolidated financial statements during the contract term.

In September 2009, the Corporation signed a revised loan repayment contract with Bank of Taiwan, the

deadline for the one-time repayment of the principal of NT$7,116,000 thousand of this secured loan was

extended from September 2010 to September 2012.

17. PENSION PLAN

The pension plan under the Labor Pension Act is a defined contribution plan, the Corporation has made

monthly contributions at 6% of salaries and wages to the employees’ individual pension fund accounts.

The pension costs recognized were $92,009 thousand and $113,774 thousand for the years ended December

31, 2009 and 2008, respectively.

Based on the defined benefit plan under the Labor Standards Law, pension benefits are calculated on the

basis of the length of service and average monthly salaries of the six months before retirement. The

Corporation contributes amounts equal to 2% of total monthly salaries and wages to a pension fund

administered by the pension fund monitoring committee. The pension fund is deposited in the Bank of

Taiwan in the committee’s name.

- 24 -

Other defined benefit pension information was as follows:


2009 2008

a. Pension cost:

Service cost $ 3,481 $ 5,583

Interest cost 6,192 5,956

Actual return on plan assets (1,519) (7,410)

Gain (loss) on plan assets (4,997) 1,633

Amortization 1,019 2,019

$ 4,176 $ 7,781

December 31

2009 2008

b. Reconciliation of funded status of the plan and prepaid pension

cost:

Benefit obligations:

Vested benefit obligation $ (18,071) $ (17,437)

Non-vested benefit obligation (121,041) (113,209)

Accumulated benefit obligation (139,112) (130,646)

Additional benefits based on future salaries (76,392) (94,525)

Projected benefit obligation (215,504) (225,171)

Fair value of plan assets 235,014 227,832

Funded status 19,510 2,661

Unrecognized net loss 38,227 45,195

Prepaid pension cost $ 57,737 $ 47,856

Vested benefits $ (21,028) $ (21,117)

c. Actuarial assumptions:

Discount rate used in determining present values 2.00% 2.75%

Future salary increase rate 2.75% 3.25%

Expected rate of return on plan assets 2.00% 2.75%


2009 2008

d. Pension fund changes:

Contributions $ 14,057 $ 20,167

Payment of benefits $ 8,394 $ -

18. STOCKHOLDERS’ EQUITY

a. Issuance of global depositary receipts (“GDRs”)

In November 2002, November 2004 and October 2007, the Corporation issued 80,000 thousand, 95,000

thousand and 100,000 thousand common shares, respectively, equivalent to 16,000 thousand, 19,000

thousand and 20,000 thousand GDRs, respectively. Each GDR represented the right to receive five

common shares, with issuance prices of US$3.835 in November 2002, US$5.24 in November 2004 and

US$6.00 in October 2007. As of December 31, 2009, the GDR holders had exchanged GDRs

- 25 -

amounting to US$177,298 thousand and representing 282,865 thousand common shares, and total

outstanding GDRs were equal to 2,567 thousand common shares, or 0.23% of total capital stock issued.

The GDR holders have the same rights as the Corporation’s stockholders. In addition, under the

related laws and depositary agreement, the GDR depositary will act on behalf of the GDR holders when

they:

1) Exercise voting rights,

2) Sell the securities of depositary receipts,

3) Receive dividends and subscribe for capital stock.

b. Common share issuance through private placement

In October 2006, the Corporation issued - in accordance with Article 43 of the Securities and Exchange

Act - 32,444 thousand common shares at par value of $10.00 through private placement to certain

investors. The issuance price was $27.74 per share. These shares may be resold only after three

years from the delivery date (November 23, 2006).

c. Employee stock options

Under a stock option plan (the “Plan”), the Corporation issued to employees 13,772 units in February

2002, 16,218 units in April 2003 and 29,000 units in August 2007. The Corporation integrated the

3,760 employee stock option units issued by Windell Corporation (“Windell”) after the merger with

Windell on July 1, 2004. Each unit represents one thousand common shares. Employees eligible to

receive options under the Plan are full-time employees of the Corporation and subsidiaries. The

option is exercisable two years from the grant dates. The option certificate is valid for six years and

the vested right is exercisable on the basis of an employee’s service years. Additionally, employee

stock options, which were issued in February 2002, July 2004 and April 2003 matured in February 2008,

August 2008 and April 2009, respectively. The exercise price of the stock option is the closing price

of the Corporation’s share on the grant date. If any change is made in the common stock subject to the

Plan, the exercise price of any options under the Plan then outstanding will be appropriately adjusted in

accordance with a certain formula.

Information about employee stock options was as follows:


2009 2008

Weighted Weighted

Average Average

Exercise Exercise

Employee Stock Options Units Price Units Price

(NT$) (NT$)

Balance, beginning of year 29,163 $34.76 29,331 $35.45

Options exercised - - (83) 15.06

Options cancelled (163) 10.00 (85) 11.05

Balance, end of year 29,000 34.90 29,163 34.76

Options exercisable, end of year 29,000 34.90 163 10.00

The weighted-average stock price at the date of exercise for stock options exercised during the year

ended December 31, 2008 was $33.94.

- 26 -

Information about outstanding options as of December 31, 2009 and 2008 was as follows:

December 31

2009 2008

Exercise

Price (NT$)

Weighted-average

Remaining

Contractual Life

(Years)

Range of Exercise

Price (NT$)

Weighted-average

Remaining

Contractual Life

(Years)

$34.90 3.67 $10.00-$34.90 3.98

The compensation cost recognized under the intrinsic value method for the years ended December 31,

2009 and 2008 was NT$0. Had the Corporation used the intrinsic value method to evaluate the

options granted, the method, assumptions and pro forma information for the years ended December 31,

2009 and 2008 assuming employee stock options granted before January 1, 2008 were accounted for

under the SFAS No. 39 would have been as follows:

Black-Scholes Model


2009 2008

Method:

Assumptions:

Risk-free interest rate 2.28% 1.83%-2.28%

Expected life 4 years 3.67 years - 4 years

Expected volatility 44.06% 44.06%-48.31%

Expected dividend yield - 0%-2.87%

Net loss

Pro forma $ (2,748,059) $ (2,599,442)

After income tax basic loss per share (NT$)

Pro forma $(2.43) $(2.27)

d. Capital surplus

Under the Company Law, capital surplus can only be used to offset deficit. In addition, under the

regulations of the Securities and Futures Bureau, the capital surplus from equity-method investments

cannot be used under any circumstances. The capital surplus from any paid-in capital in excess of par

value and from donations can only be capitalized once a year within certain limits of issued and

outstanding capital stock and distributed as stock dividends.

e. Appropriation of earnings and dividends policy

The Corporation’s Articles of Incorporation provide that, after (a) the payment of all taxes required by

law; (b) the offset of deficit; and (c) the deduction of legal reserve and special reserve, the remaining

earnings will be reserved for the operating requirements of its business or allocated as follows:

1) Up to 2% as remuneration of directors and supervisors;

2) 15% as employees’ bonus; and

3) The remainder, as dividends.

- 27 -

The Corporation’s dividend policy takes several aspects into consideration, listed as follows:

1) The investment environment;

2) Worldwide competition condition;

3) Stockholders’ benefit;

4) Dividend stability;

5) The Corporation’s capital expenditure budget, capital requirement and long-term financial plan.

Under the Company Law, the board of directors should draft a proposal on earnings distribution for

approval at the stockholders’ meeting. In principle, cash dividend should be more than 10% of total

dividends.

In the years ended December 31, 2009 and 2008, the Corporation had no profits; thus, it did not require

to estimate the bonus to employees and remuneration to directors and supervisors.

Under the regulations of the Securities and Futures Bureau, a special reserve equivalent to the debit

balance of any stockholders’ equity account, other than deficit and treasury stock, is appropriated from

retained earnings. The balance of the special reserve is adjusted on the basis of the debit balance of

the applicable stockholders’ equity account at year-end.

Under the Company Law, legal reserve should be appropriated each year until the balance of the reserve

equals the Corporation’s paid-in capital. This reserve can only be used to offset a deficit or, when the

reserve has reached 50% of the Corporation’s paid-in capital, up to one half of the reserve may be

distributed as stock dividends. Additionally, to the Corporation without a deficit, when the legal

reserve has reached 50% of the Corporation’s paid-in capital, up to 50% therefore may be transferred to

paid-in capital.

Except for non-ROC resident stockholders, all stockholders receiving the dividends are allowed a tax

credit equals to their proportionate share of the income tax paid by the Corporation.

Due to the loss of operation in 2008, the stockholders’ meeting resolved not to appropriate the earnings

for 2008 on June 10, 2009; contrarily, the appropriation of earnings for 2007 was resolved by the

stockholder in June 2008. The appropriation of earnings and the dividends per share are as follows:

Dividends Per Share

Appropriation of Earnings (NT$)

For Year

2008

For Year

2007

For Year

2008

For Year

2007

Legal reserve $ - $ 59,180

Cash dividends - 442,730 $ - $ 0.39

Bonus to employees - cash - 79,894

Remuneration to directors and supervisors - 10,000

$ - $ 591,804

As of February 10, 2010, the date of the accompanying auditors’ report, the board of directors had not

resolved the appropriation of the 2009 earnings. Information about the bonus to employees, directors

and supervisors is available on the Market Observation Post System website of the Taiwan Stock

Exchange.

- 28 -

f. Unrealized gain or loss on financial instruments

Movements of the unrealized gain or loss on financial instruments for the years ended December 31,

2009 and 2008 were as follows:

Available-

for-sale

Financial Assets

Equity-

method

Investments

Total

Year ended December 31, 2009

Beginning balance $ 23,111 $ - $ 23,111

Recognized in stockholders’ equity 116,966 (50) 116,916

Transferred to gain or loss (4,119) - (4,119)

Ending balance $ 135,958 $ (50) $ 135,908


Beginning balance $ 262,687 $ - $ 262,687

Recognized in stockholders’ equity (239,576) - (239,576)

Ending balance $ 23,111 $ - $ 23,111

19. TREASURY STOCK

(Shares in Thousands)

Purpose of Treasury Stock

Number of

Shares,

Beginning of

Year

Addition

During the

Year

Reduction

During the

Year

Number of

Shares, End

of Year


Purchased and retired 16,364 - (16,364) -


Purchased and retired - 16,364 - 16,364

The Board of Directors approved a plan to repurchase 16,364 thousand common shares for $130,651

thousand from October 21, 2008 to December 19, 2008. The Corporation retired treasury stock at March

20, 2009, the date of reducing its capital, and debited an additional paid-in capital of the issuance premium

for $131,566 thousand and the merger premium for $655 thousand.

Under the Securities and Exchange Act, the Corporation shall neither pledge treasury stock nor exercise

stockholders’ rights on these shares, such as rights to dividends and to vote.

- 29 -

20. INCOME TAX

a. A reconciliation of income tax expense (benefit) based on loss before income tax at the 25% statutory

rate and income tax expense was as follows:


2009 2008

Income tax expense (benefit) based on loss before income tax at

statutory rate (25%)

$ (716,569)

$ (660,942)

Tax-exempt income (28,707) (14,417)

Permanent differences 7,598 31,541

Temporary differences 86,145 157,944

Loss carryforwards 651,533 485,874

Current income tax expense $ - $ -

b. The details of income tax expense (benefit) were as follows:


2009 2008

Current income tax expense $ - $ -

Deferred

Investment tax credits (234,827) (365,509)

Loss carryforwards (598,014) (485,874)

Temporary differences (85,919) (157,944)

Effect of tax law changes on deferred income tax 288,373 -

Valuation allowance 380,793 766,390

Others 5,142 5,125

Income tax benefit $ (244,452) $ (237,812)

In January 2009, the Legislative Yuan passed the amendment of Article 39 of the Income Tax Law,

which extends the period of the operating losses carryforwards from 5 years to 10 years.

In May 2009, the Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which

reduces a profit-seeking enterprise’s income tax rate from 25% to 20%, effective 2010. The

Corporation recalculated its deferred tax assets and liabilities in accordance with the amended Article

and recorded the resulting difference as a deferred income tax expense.

c. Net deferred income tax assets (liabilities) were as follows:

December 31

2009 2008

Current:

Provision for loss on inventories $ 211,532 $ 178,018

Unrealized cost of sales 36,730 -

Allowance for doubtful accounts 9,459 9,933

Employee welfare not contributed 2,446 3,057

Unrealized valuation loss (gain) on financial instruments 2,127 (28,453)

Unrealized foreign exchange loss 1,240 60,561

Unrealized gross profit 867 1,265

$ 264,401 $ 224,381

(Continued)

- 30 -

December 31

2009 2008

Noncurrent:

Investment tax credits $ 893,601 $ 658,774

Loss carryforwards 867,110 485,874

Loss on idle assets 13,673 30,995

Unrealized valuation loss on financial instruments 8,808 16,021

Unrealized deferred loss (1,359) (1,298)

Impairment loss on assets 858 1,073

Unrealized impairment loss - 225

Others - 660

1,782,691 1,192,324

Less: Valuation allowance (1,306,819) (926,026)

$ 475,872 $ 266,298

(Concluded)

d. Information about integrated income tax as of December 31, 2009 and 2008 was as follows:

The Corporation has no unappropriated earnings generated before January 1, 1998.

As of December 31, 2009 and 2008, the balance of the imputation credits to be allocated to the

stockholders amounted to $381,087 thousand and $358,309 thousand, respectively.

Due to the loss of operation in 2008, the stockholders’ meeting resolved not appropriate the earnings of

2008.

Under the revised Income Tax Law, the Corporation allocates imputation credits to each stockholder on

the basis of the imputation credit accounts (“ICA”) balance on the dividend distribution date.

e. In September 2003, the Industrial Development Bureau (“IDB”) approved the tax credits for new

investment in the manufacturing industry. The credits can be used to reduce the Corporation’s tax

obligations from August 2004 to July 2009.

f. In 2009 and 2008, the IDB approved the Corporation’s establishment of an operating headquarter in

Taiwan. Under this approval, royalties received from overseas subsidiaries in 2009 and 2008 qualify

as tax-exempt income.

g. As of December 31, 2009, the investment tax credits that can be used to offset the Corporation’s future

income taxes were as follows:

Tax Amount

Regulatory Basis of Credit of Unused Expiry

Tax Credits Source of Tax Credits Granted Credit Year

Statute for Upgrading Eligible equipment and technology $ 98,481 $ 39 2010

Industries Research and development 156,570 156,570 2010

(Same as above) Personnel training 2,546 2,546 2010

Eligible equipment and technology 57,280 57,280 2011

Research and development 144,862 144,862 2011

Personnel training 2,829 2,829 2011

Eligible equipment and technology 304,393 304,393 2012

Research and development 203,436 203,436 2012

(Continued)

- 31 -

Tax Amount

Regulatory Basis of Credit of Unused Expiry

Tax Credits Source of Tax Credits Granted Credit Year

Statute for Upgrading Personnel trading $ 2,481 $ 2,481 2012

Industries Eligible equipment and technology 19,165 19,165 2013

(Same as above)

$ 893,601

h. As of December 31, 2009, the loss carryforwards were as follows:

Year of Operating Loss

Tax Credit

Granted

Amount of

Unused Credit Expiry Year

2008 $ 1,844,245 $ 1,844,245 2018

2009 2,491,306 2,491,306 2019

$ 4,335,551 $ 4,335,551

i. Income tax returns through 2006 had been examined and cleared by the tax authorities.

21. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSE


2009 2008

Cost of Sales

Operating

Expenses/

Nonoperating

Expenses and

Losses Total Cost of Sales

Operating

Expenses/

Nonoperating

Expenses and

Losses Total Labor cost

Salaries $ 1,286,124 $ 441,872 $ 1,727,996 $ 1,967,884 $ 402,207 $ 2,370,091

Insurance 117,731 37,471 155,202 165,153 38,860 204,013

Pension 73,362 22,823 96,185 97,341 24,214 121,555

Others 110,409 25,735 136,144 263,808 135,786 399,594

Depreciation 4,049,402 127,103 4,176,505 3,625,897 102,216 3,728,113

Amortization 51,851 40,027 91,878 115,074 50,667 165,741

22. LOSS PER SHARE

Number of Loss Per Share (NT$)

Amounts (Numerator) Shares Before After

Before After (In Thousands) Income Income

Loss Per Share Income Tax Income Tax (Denominator) Tax Tax


Basic $ (2,866,277) $ (2,621,825) 1,132,041 $ (2.53) $ (2.32)


Basic $ (2,643,766) $ (2,405,954) 1,145,779 $ (2.31) $ (2.10)

Dilutive effects

Employee stock options - - 89

Diluted $ (2,643,766) $ (2,405,954) 1,145,868 $ (2.31) $ (2.10)

- 32 -

23. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments were as follows (representing the financial assets that not evaluated

at the fair value):

December 31

2009 2008

Carrying

Value

Fair Value

Carrying

Value

Fair Value

Nonderivative instruments

Assets

Financial assets carried at cost -

noncurrent

$ 309,463 $ -

$ 319,337

$ -

b. Following are the methods and assumptions used by the Corporation in estimating the fair values of

financial instruments:

1) The short-term financial instruments include cash, notes and accounts receivable, other receivables,

other financial assets - current, restricted assets - current, refundable deposits, short-term bank loans,

notes and accounts payable, short-term bills payable, accrued expenses and payables for the

acquisition of equipment. The carrying value of these excluded financial instruments approximate

their fair values because of their short maturities.

2) If the financial instruments at FVTPL, available-for-sale financial assets and derivative financial

instruments have quoted market prices in an active market, these prices are the fair values of these

instruments. Otherwise, their fair values are estimated using valuation techniques commonly used

by market participants for instrument pricing and proven to provide reliable price estimates in actual

market transactions.

3) Financial assets carried at cost are investments in unquoted shares, which have no quoted prices in

an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore,

no fair value is presented.

4) The fair values of long-term debts are estimated using discounted cash flow analysis. If the

interest rate is floating, fair values approximate carrying values. Otherwise, the discount rate is

based on the Corporation’s current incremental borrowing rates for similar types of borrowings.

c. Following are the fair values of the Corporation’s financial instruments, which were based on quoted

prices in an active market; otherwise, the fair value were estimated using valuation techniques:

December 31

2009 2008

Assets

Available-for-sale financial assets - current $ 206,960 $ 445

Available-for-sale financial assets - noncurrent - 96,615

d. For financial instruments with fair values determined using valuation techniques, there were net losses

of $33,292 thousand and net gains of $191,212 thousand for the years ended December 31, 2009 and

2008, respectively.

e. As of December 31, 2009 and 2008, financial assets exposed to fair value interest rate risk amounted to

$1,088,860 thousand and $1,465,730 thousand, respectively; financial liabilities exposed to fair value

interest rate risk amounted to $3,979,302 thousand and $1,933,222 thousand, respectively; financial

assets exposed to cash flow interest rate risk amounted to $2,025,645 thousand and $955,494 thousand,

- 33 -

respectively; financial liabilities exposed to cash flow interest rate risk amounted to $14,775,210

thousand and $18,037,305 thousand, respectively.

f. On financial assets (liabilities) other than the financial assets (liabilities) at fair value through profit or

loss for the years ended December 31, 2009 and 2008, interest income were $9,008 thousand and

$57,591 thousand, respectively; interest expense (including capitalized interest) were $351,748

thousand and $551,815 thousand, respectively.

g. Financial risks

1) Market risk

The market risk is the fluctuation of market exchange rate and interest rate. All derivative

financial instruments are used to hedge exchange rate and interest rate fluctuations of the

Corporation’s foreign currency-denominated receivables or payables and interest rate fluctuations

on its floating rate long-term loans. Gains or losses on forward exchange contracts are likely to

offset the gains or losses on the hedged receivables and payables. Interest rate risks are also

controlled because the cost of capital is fixed. Thus, market risks are believed to be minimal.

2) Credit risk

Credit risk represents the potential loss that would be incurred by the Corporation if the

counter-parties breached contracts. Financial instruments with positive fair values at the balance

sheet date are evaluated for credit risk. The counter-parties to the foregoing financial instruments

are reputable financial institutions and business organizations. Management does not expect the

Corporation’s exposure to default by those parties to be material.

3) Liquidity risk

The Corporation has sufficient cash flow from its operations; thus, there is no need to raise

additional funds, either from the stockholders or external sources, to cover potential cash

requirements. As of December 31, 2009, the Corporation’s future cash demand for the outstanding

forward exchange contracts was as follows:

Forward Contract Term

Outflow

(In Thousands)

Inflow

(In Thousands)

Within one year US$ 117,600 JPY 3,065,365

NT$ 2,691,323

In addition, the exchange rates for settling forward foreign exchange contracts are fixed. Thus,

there is no material cash flow risk.

4) Cash flow interest rate risk

The interest rates for the Corporation’s short-term and long-term bank loans are floating, i.e., the

effective interest rate will change because of changes in market interest rates. Thus, future cash

flows are expected to fluctuate because of these changes in market interest rates.

- 34 -

24. RELATED-PARTY TRANSACTIONS

a. Related parties

Relationship with the Corporation

Wintek Technology Cayman Wholly owned subsidiary

Masstop LLC Wholly owned subsidiary

Wintek BVI Wholly owned subsidiary

Wintek Electro-Optics Wholly owned subsidiary

United Win Investment Wholly owned subsidiary

Wintek Europe Wholly owned subsidiary; merged with the Corporation on

September 30, 2009

Wintek Central Europe Wholly owned subsidiary

Wintek International Holding Wholly owned subsidiary

Mactech Equity-method investee

United Win Cayman Wholly owned subsidiary of Wintek Technology Cayman

United Win H.K. Wholly owned subsidiary of United Win Cayman

United Win China Wholly owned subsidiary of United Win H.K.

Masstop Wholly owned subsidiary of Masstop LLC

Dongguan Masstop Wholly owned subsidiary of Masstop

Wintek Far East Equity-method investee of Wintek International Holding and

Wintek Electro-Optics

Wintek Technology India Equity-method investee of Wintek Far East

Hannstar The president is the Corporation’s director

FlexMedia Equity-method investee; Corporation’s entire holdings sold in

November 2009

Walsin The president is a brother of the Corporation’s director

b. Significant transactions with related parties (in addition to those disclosed in other notes)


2009 2008

Amount % Amount %

1) Net sales

Wintek Technology India $ 1,344,008 5 $ 471,470 2

United Win China 1,217,848 5 665,087 2

Wintek Electro-Optics 182,512 1 308,586 1

FlexMedia - - 5,684 -

Others 88 - - -

$ 2,744,456 11 $ 1,450,827 5

The deferred gross profits (losses) (recorded under other current liabilities) on the above related

parties were as follows:

December 31

2009 2008

Amount % Amount %

United Win China $ 13,230 305 $ 5,332 105

Wintek Electro - Optics 430 10 606 12

Wintek Technology India (9,322) (215) (876) (17)

$ 4,338 100 $ 5,062 100

- 35 -

The prices of sales to related parties were individually negotiated on the basis of the difference

between the product price and the related market quotation. The collection periods for receivables

from sales to related parties were as follows:


Related Party 2009 2008

United Win China T/T 90 days T/T 90 days

Wintek Technology India T/T 90 days T/T 90 days

Wintek Electro-Optics T/T 60 days T/T 60 days

Hannstar 60 days after the end of the

transaction month

-

FlexMedia -

30 days after the end of the

transaction month


2009 2008

Amount % Amount %

2) Cost of sales - purchase

Dongguan Masstop $ 63,426 - $ 80,562 -

Walsin 11,782 - 12,799 -

Wintek Technology India 298 - - -

$ 75,506 - $ 93,361 -

The prices for purchases from related parties are individually negotiated on the basis of the

difference between the product price and the related market quotation. The payment terms for

Dongguan Masstop, Walsin and Wintek Technology India were T/T 60 days, 105 days after the end

of the transaction month and T/T 90 days, respectively.


2009 2008

Amount % Amount %

3) Cost of sales - outsourced production

activities, packing expenses and spare parts

United Win China $ 4,529,956 17 $ 5,289,704 17

Dongguan Masstop 1,690,640 6 2,109,190 7

Wintek Technology India 17,532 - - -

Mactech 12,083 - 11,994 -

$ 6,250,211 23 $ 7,410,888 24

4) Cost of sales - service expenses

Masstop $ - - $ 6,001 -

5) Operating expenses - commissions

Wintek Central Europe $ 43,764 3 $ 63,419 3

Wintek Europe 971 - 43,481 2

Masstop - - 2,089 -

$ 44,735 3 $ 108,989 5

- 36 -


2009 2008

Amount % Amount %

6) Nonoperating income and gains - royalty

and others

United Win China $ 57,513 43 $ 75,154 16

Walsin 3,933 3 7,601 2

Dongguan Masstop 3,062 2 18,205 4

Wintek Technology India 2 - 7,066 1

Hannstar - - 2,002 -

Others 41 - 776 -

$ 64,551 48 $ 110,804 23

December 31

2009 2008

Amount % Amount %

7) Accounts receivable

Wintek Technology India $ 673,822 95 $ 470,476 92


Hannstar 42 - - -

Mactech 5 - - -

$ 707,372 100 $ 514,146 100

8) Other receivables

United Win China $ 374,430 95 $ 148,441 81

Walsin 168 - 948 1

Wintek Technology India - - 8,365 4

$ 374,598 95 $ 157,754 86

The Corporation bought machinery and equipment on behalf of United Win China and Wintek

Technology India for production use. Generally, the collection period is three months after the

date of shipping or inspection.

December 31

2009 2008

Amount % Amount %

9) Other current assets

Mactech $ - - $ 4,667 1

10) Accounts payable

United Win China $ 1,591,065 100 $ 674,147 100

Walsin 3,171 - 1,805 -

$ 1,594,236 100 $ 675,952 100

- 37 -

December 31

2009 2008

Amount % Amount %

11) Accrued expenses

Wintek Central Europe $ 23,814 2 $ 31,560 3

Wintek Europe - - 25,370 2

$ 23,814 2 $ 56,930 5

12) Payables for the acquisition of equipment

Mactech $ 194,829 43 $ 236,331 40

Hannstar - - 15,207 3

$ 194,829 43 $ 251,538 43

13) Other payables (recorded under other

current liabilities)

Dongguan Masstop $ 110,442 52 $ 36,900 17

Mactech 11,034 5 7,824 3


Wintek Technology India 1,170 1 - -

Others 451 - 308 -

$ 127,408 60 $ 50,827 23

14) Transactions involving property, plant and equipment

Acquisitions Amount


Mactech Prepayments for equipment $ 291,169

Machinery and equipment 222,132

United Win China Machinery and equipment 145,584

Wintek Electro-Optics Prepayments for equipment 27,468

Machinery and equipment 474

$ 686,827


Mactech Prepayments for equipment $ 651,603


Wintek Electro-Optics Prepayments for equipment 28,732


Dongguan Masstop Machinery and equipment 788

$ 1,203,017

- 38 -

Gain on

Disposal

Fair Carrying of

Sale/Disposal Value Value Properties

Year ended December 31,

2009

United Win China Machinery and equipment $ 117,368 $ 116,920 $ 448

Miscellaneous equipment 741 710 31

Idle assets 1,405 - 1,405

Dongguan Masstop Machinery and equipment 38,132 36,278 1,854

Miscellaneous equipment 323 270 53

Idle assets 140 - 140

Mactech Idle assets 180 - 180

$ 158,289 $ 154,178 $ 4,111

Year ended December 31,

2008

United Win China Machinery and equipment $ 4,762 $ 4,713 $ 49

Miscellaneous equipment 26 26 -


Deferred charges 295 272 23

Dongguan Masstop Machinery and equipment 8,860 6,505 2,355

Miscellaneous equipment 140 140 -


Wintek Technology India Machinery and equipment 1,274 1,273 1

$ 16,411 $ 12,929 $ 3,482

In 2007, the Corporation sold to Dongguan Masstop property, plant and equipment with a carrying

value of $82,597 thousand. The gain of $8,010 thousand on this sale, which was a downstream

transaction with an equity-method investee, should be deferred and amortized. The deferred

income as of December 31, 2009 was $3,204 thousand (recorded under deferred intercompany

profit).

15) Guarantees

Counterparty Guarantee Item Guarantee Amount

As of December 31, 2009

Masstop Loans from banks 1,262,295 (US$39,000 thousand)

Dongguan Masstop Loans from banks 2,151,671 (US$7,800 thousand,

RMB400,000 thousand)

United Win China Loans from banks 816,470 (US$25,000 thousand)

United Win H.K. Loans from banks 1,324,580 (US$42,000 thousand)

(Continued)

- 39 -

Counterparty Guarantee Item Guarantee Amount

As of December 31, 2008

United Win Cayman Loans from banks $ 633,231 (US$20,751 thousand)

Masstop Loans from banks 2,426,925 (US$76,000 thousand)

Dongguan Masstop Loans from banks 1,885,537 (US$10,800 thousand,

RMB325,000 thousand)

United Win China Loans from banks 649,750 (US$20,000 thousand)

Wintek Technology India Loans from banks 156,025 (US$5,000 thousand)

United Win H.K. Loans from banks 119,844 (US$3,600 thousand)

(Concluded)

In 2009, the only collaterals provided by the Corporation were time deposits of NT$383,880

thousand for bank loans obtained by United Win China.

In August 2008, Masstop and United Win H.K. entered into a US$57,000 thousand loan agreement

with a syndicate of banks led by Bank of Taiwan. The Corporation guaranteed both of these loans.

Under this agreement, the Corporation should (a) maintain current, equity and interest coverage

ratios every fiscal year based on the Corporation’s audited annual consolidated financial statements

and (b) not pledge its assets to any third party, except for loans with a term of five years or more

and for strategic subsidized loans extended to the Corporation.

c. Compensation of directors, supervisors and management personnel


2009 2008

Salaries $ 69,500 $ 26,876

Incentives 11,145 7,813

Service fees 343 406

$ 80,988 $ 35,095

25. MORTGAGED OR PLEDGED ASSETS

The Corporation mortgaged or pledged as collaterals for long-term loans and endorsements provided to

subsidiaries were as follows:

December 31

2009 2008


Deferred charges, net 47,876 101,152

Bank deposits (recorded under restricted assets - current) 389,773 -

$ 12,067,020 $ 12,820,220

- 40 -

26. SIGNIFICANT COMMITMENTS AS OF DECEMBER 31, 2009

a. Unused letter of credit for about $302,177 thousand.

b. Purchase of machinery and equipment for about $120,935 thousand.

c. Purchase of buildings for about $34,888 thousand.

d. Checks of $2,586,875 thousand issued for various financial guarantees provided (please see Note 24

and Table 2)

e. The Corporation leases the sites of its factories and equipments under renewable operating lease

agreements starting from March 1, 2006 to March 31, 2010. Monthly rental is $4,753 thousand. As

of December 31, 2009, future lease payments were $14,260 thousand for the year ended of December

31, 2010.

27. ADDITIONAL DISCLOSURES

The following disclosures are made as required by the Securities and Futures Bureau for the Corporation

and its investees:

a. Financings provided: Table 1 (attached)

b. Endorsements/guarantees provided: Table 2 (attached)

c. Marketable securities held: Table 3 (attached)

d. Marketable securities acquired or disposed of at cost or prices of at least NT$100 million or 20% of the

paid-in capital: None

e. Acquisition of individual real estate at costs of at least NT$100 million or 20% of the paid-in capital:

None

f. Disposal of individual real estate at prices of at least NT$100 million or 20% of the paid-in capital:

None

g. Total purchases from or sales to related parties of at least NT$100 million or 20% of the paid-in capital:

Table 4 (attached)

h. Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital:

Table 5 (attached)

i. Names, locations, and related information of investees over which the Corporation exercises significant

influence: Table 6 (attached)

j. Derivative transactions of investees over which the Corporation has a controlling interest: Table 7

(attached)

k. Investments in Mainland China:

1) Name of the investees in Mainland China, main businesses and products, paid-in capital, method of

investment, information on inflow or outflow of capital, percentage of ownership, Investment net

income or loss, ending balance of investment, dividends remitted by the investee, and the limit of

investment in Mainland China: Table 8 (attached)

- 41 -

2) Significant direct or indirect transactions with the investees, prices and terms of payment, and

unrealized gain or loss: Notes 10, 24 and Table 4 (attached).

3) Significant direct or indirect endorsement or guarantees provided to the investees: Table 2

(attached)

4) Significant direct or indirect financing provided to the investees: Table 1 (attached)

5) Other transactions with significant effect on the current income statement or financial position:

None

28. SEGMENT INFORMATION

The disclosure based on SFAS No. 20 - “Segment Reporting” is as follows:

a. Industry

The Corporation’s sole business is manufacturing and selling LCDs and LCMs.

b. Export sales


2009 2008

Area Amount % Amount %

Asia $ 20,836,936 79 $ 26,948,740 85

Europe 1,370,931 5 1,705,647 5

Others 1,300,768 5 1,386,067 4

$ 23,508,635 89 $ 30,040,454 94

c. Operations by geographic area: The Corporation has no overseas operating department.

d. Major customers


2009 2008

Customer Amount % Amount %

Corporation A $ 6,679,769 25 $ 3,493,905 11

Corporation B 4,060,854 15 5,263,406 17

Corporation C 1,850,269 7 3,537,583 11

Corporation D 903,576 3 4,093,015 13

$ 13,494,468 50 $ 16,387,909 52

- 42 -

TABLE 1

WINTEK CORPORATION AND SUBSIDIARIES

FINANCINGS PROVIDED

YEAR ENDED DECEMBER 31, 2009

(In Thousands, Unless stated Otherwise)

No. Financier Counterparty Financial Statement Account Highest Balance

for the Period Ending Balance

Interest

Rate

Type of

Financing

Transaction

Amounts

Reasons for

Short-term

Financing

Allowance for

Doubtful

Accounts

Mortgage Maximum

Amount of the

Financing that

Can be Provided

by the Financier

Item Value

1 United Win Cayman United Win H.K. Other receivables from related parties US$ 27,000 US$ 27,000 2.88%-3.15% Note 1 $ - Operating capital $ - - $ - Note 2

2 United Win H.K. United Win China Other receivables from related parties US$ 77,000 US$ 77,000 2.35%-3.15% Note 1 - Operating capital - - - Note 2

3 Masstop Dongguan Masstop Other receivables from related parties US$ 23,000 US$ 20,000 2.40%-2.65% Note 1 - Operating capital - - - Note 2

4 Wintek BVI United Win H.K. Other receivables from related parties US$ 10,000 US$ 10,000 2.47% Note 1 - Operating capital - - - Note 3

Wintek Far East Other receivables from related parties US$ 2,000 US$ 2,000 - Note 1 - Operating capital - - - Note 3

Wintek Technology India Other receivables from related parties US$ 580 US$ - - Note 1 - Operating capital - - - Note 3

5 Wintek Technology

Cayman

Apticon Inc. Other receivables from related parties US$ 50 US$ 50 - Note 1 - Operating capital US$ 50 - - Note 2

Note 1: Necessary for short-term financing.

Note 2: For the financing provided by each subsidiary, the maximum amount did not exceed 50% of the net assets of the Corporation as of December 31, 2008 (NT$25,910,538 thousand x 50% = NT$12,955,269 thousand).

Note 3: For the financing provided by each subsidiary, the maximum amount did not exceed 25% of the net assets of the Corporation as of December 31, 2008 (NT$25,910,538 thousand x 25% = NT$6,477,635 thousand).

- 43 -

TABLE 2


ENDORSEMENTS/GUARANTEES PROVIDED


(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

No. Endorser/

Guarantor

Counterparty Maximum Amount of

the Guarantee that

Can be Provided to

Each Counterparty

Maximum

Balance for the Period Ending Balance

Value of Collateralized

Properties

Ratio of Accumulated

Amount of Guarantee

Provided to Net Equity

of the Latest Financial

Statements

Maximum Amount of

the Total Guarantee

that Can be Provided

by the Guarantor

Name Nature of Relationship

0 Wintek Corporation United Win Cayman (Note 1) (Note 2) $ 633,231

(US$ 20,751)

$ -

$ - - (Note 3)

Masstop (Note 1) (Note 2) 2,426,925

(US$ 76,000)

(Note 4)

1,262,295

(US$ 39,000)

- 5.33% (Note 3)

Dongguan Masstop (Note 1) (Note 2) 2,252,021

(US$ 10,800)

(RMB 400,000)

2,151,671

(US$ 7,800)

(RMB 400,000)

- 9.08% (Note 3)

United Win China (Note 1) (Note 2) 1,043,830

(US$ 32,000)

816,470

(US$ 25,000)

- 3.45% (Note 3)

United Win H.K. (Note 1) (Note 2) 1,380,444

(US$ 43,600)

1,324,580

(US$ 42,000)

- 5.59% (Note 3)

1 United Win Cayman United Win China (Note 1) (Note 2) 993,450

(US$ 30,000)

-

- - (Note 3)

Note 1: See Note 24 to the financial statements.

Note 2: The maximum amount was 25% of the net assets of the Corporation as of December 31, 2008 ($25,910,538 x 25% = $6,477,635). But for subsidiaries, the maximum amount was up to 50% of the net assets of the Corporation as of

December 31, 2008 ($25,910,538 x 50% = $12,955,269).

Note 3: The maximum was 50% of the net assets of the Corporation as of December 31, 2008 ($25,910,538 x 50% = $12,955,269).

Note 4: Masstop and United Win H.K.’s share of the above endorsement of $1,823,430 thousand (US$57,000 thousand).

- 44 -

TABLE 3


MARKETABLE SECURITIES HELD

DECEMBER 31, 2009


Holding Company Type and Issuer of Securities Held Relationship with the

Holding Company Financial Statement Account

December 31, 2009

Note Shares Carrying Value

Percentage of

Ownership

Market Value or

Net Asset Value

(Note)

Wintek Corporation Capital stock

Sitronix Technology Co., Ltd. Not applicable Available-for-sale financial assets - current 3,184,005 $ 206,960 3 $ 206,960

Wintek Technology Cayman Investee Investments accounted for by the equity method 65,060,801 8,184,927 100 8,183,048

Wintek BVI Investee Investments accounted for by the equity method 3,730,328 468,939 100 468,939

Wintek International Holding Investee Investments accounted for by the equity method 16,610,003 338,850 100 338,850

Mactech Investee Investments accounted for by the equity method 13,088,643 104,612 52 253,450

United Win Investment Investee Investments accounted for by the equity method 20,704,000 181,372 100 181,372

Wintek Electro-Optics Investee Investments accounted for by the equity method 1,000 172,087 100 176,142

Kingpak The president of Wintek is

a brother of Kingpak’s

president

Financial assets carried at cost - noncurrent 7,792,952 113,160 6 86,283

Microsystems Not applicable Financial assets carried at cost - noncurrent 6,388,936 63,890 4 42,967

Uniflex Not applicable Financial assets carried at cost - noncurrent 4,810,753 59,156 4 24,383

Calin Technology Not applicable Financial assets carried at cost - noncurrent 3,037,852 40,748 4 20,707

Andes Not applicable Financial assets carried at cost - noncurrent 1,552,608 19,404 4 11,583

Transcom Not applicable Financial assets carried at cost - noncurrent 1,324,166 9,595 6 7,123

Integrated Solutions Not applicable Financial assets carried at cost - noncurrent 322,044 3,510 1 2,951

Mobilic Cayman Not applicable Financial assets carried at cost - noncurrent 2,340,839 - 11 25,367

Share capital

Masstop LLC Investee Investments accounted for by the equity method 38,000,174 2,399,223 100 2,399,107

Wintek Central Europe Investee Investments accounted for by the equity method - 143,290 100 143,290

Wintek Technology Cayman Capital stock

United Win Cayman Investee Investments accounted for by the equity method 61,202,030 US$ 244,515 100 US$ 244,515

Apticon Inc. Not applicable Investments accounted for by the equity method 3,333,333 US$ - 23 US$ -

Focal Tech Systems Inc. Not applicable Financial assets carried at cost - noncurrent 1,000,000 US$ 1,000 6 US$ 225

United Win Cayman Capital stock

United Win H.K. Investee Investments accounted for by the equity method 476,971,586 US$ 212,528 100 US$ 212,528

United Win H.K. Share capital

United Win China Investee Investments accounted for by the equity method - HK$ 1,632,985 100 HK$ 1,632,985

(Continued)

- 45 -

Holding Company Type and Issuer of Securities Held Relationship with the

Holding Company Financial Statement Account

December 31, 2009

Note Shares Carrying Value

Percentage of

Ownership

Market Value or

Net Asset Value

(Note)

Masstop LLC Capital stock

Masstop Investee Investments accounted for by the equity method 296,393,543 US$ 74,996 100 US$ 73,759

Masstop Share capital

Dongguan Masstop Investee Investments accounted for by the equity method - HK$ 540,384 100 HK$ 540,384

United Win Investment Mutual funds

JF (Taiwan) China Selection Not applicable Available-for-sale financial assets - current 2,500,000 $ 24,950 - $ 24,950

Capital stock

Uniflex Not applicable Financial assets carried at cost - noncurrent 4,934,107 60,674 4 25,008

Andes Not applicable Financial assets carried at cost - noncurrent 2,328,912 29,115 7 17,374

Kingpak Not applicable Financial assets carried at cost - noncurrent 2,066,000 20,000 1 22,875

Hsin Chu Golf Country Club Co.,

Ltd.

Not applicable Financial assets carried at cost - noncurrent 3 9,260 - 228

Microsystems Not applicable Financial assets carried at cost - noncurrent 622,736 7,314 - 4,188

Integrated Solutions Not applicable Financial assets carried at cost - noncurrent 322,044 3,308 1 2,951

Ultra Chip Inc. Not applicable Financial assets carried at cost - noncurrent 83,325 1,489 - 828

Calin Technology Not applicable Financial assets carried at cost - noncurrent 72,000 900 - 491

Mobilic Cayman Not applicable Financial assets carried at cost - noncurrent 1,280,000 - 6 13,871

Wintek International Holding Capital stock

Wintek Far East Investee Investments accounted for by the equity method 16,610,000 US$ 10,592 81 US$ 10,592

Wintek Technology India Investee Investments accounted for by the equity method 3 US$ - - US$ -

Wintek Electro-Optics Capital stock

Wintek Far East Investee Investments accounted for by the equity method 4,000,000 US$ 2,551 19 US$ 2,551

Wintek Far East Capital stock

Wintek Technology India Investee Investments accounted for by the equity method 22,610,000 US$ 15,143 100 US$ 15,143

Mactech Capital stock

Taichung International Country Club Not applicable Financial assets carried at cost - noncurrent 3 2,940 - 499

Note: The estimated fair values of the securities held with no quoted market prices are based on the investees’ net assets.

(Concluded)

- 46 -

TABLE 4


TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL



Purchaser or Seller Related Party Nature of Relationship

with the Purchaser or Seller

Transaction Details Abnormal Transaction Notes and Accounts

Receivable (Payable) Note

Purchase

or Sale Amount

% to

Total Collection Terms Unit Price Collection Terms

Ending

Balance

%

to Total

Wintek Corporation United Win China Note Sale $ (1,207,025) (5%) T/T 90 days - - $ - -

Wintek Technology India Note Sale (1,344,008) (5%) T/T 90 days - - 673,822 14%

Wintek Electro-Optics Note Sale (182,512) (1%) T/T 60 days - - 33,503 1%

United Win China Wintek Corporation Note Purchase 1,207,025 62% T/T 90 days - - - -

Wintek Technology India Wintek Corporation Note Purchase 1,344,008 100% T/T 90 days - - (673,822) (100%)

Wintek Electro-Optics Wintek Corporation Note Purchase 182,512 90% T/T 60 days - - (33,503) (91%)

Note: See Note 24 to the financial statements.

- 47 -

TABLE 5


RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2009


Company Name Related Party Nature of Relationship Ending Balance Turnover

Rate

Overdue Amounts Received

in Subsequent

Period

Allowance for

Doubtful Accounts Amount Action Taken

Wintek Corporation Wintek Technology India (Note 1) $ 673,822

(Note 2)

2.34 $ - - $ 159,465 $ -

United Win China (Note 1) 374,430

(Note 3)

- - - 128,166 -

United Win China Wintek Corporation (Note 1) 1,591,065

(Note 4)

11.45 - - - -

Mactech Wintek Corporation (Note 1) 205,862

(Note 2)

3.56 - - 117,317 -

Dongguan Masstop Wintek Corporation (Note 1) 110,442

(Note 4)

8.06 - - 12,891 -

United Win Cayman United Win H.K. (Note 1) US$ 27,000

(Note 5)

- - - - -

United Win H.K. United Win China (Note 1) US$ 77,000

(Note 5)

- - - - -

Masstop Dongguan Masstop (Note 1) US$ 20,000

(Note 5)

- - - - -

Wintek BVI United Win H.K. (Note 1) US$ 10,000

(Note 5)

- - - - -

Note 1: See Note 24 to the financial statements.

Note 2: The ending balance was under accounts receivable.

Note 3: The ending balance was under other receivables.

Note 4: The ending balance was under accounts receivable and other receivables.

Note 5: The ending balance was under other receivables from related parties.

- 48 -

TABLE 6


NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES OVER WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE



Investor Investee Location Main Businesses and Products

Investment Amount Balance as of December 31, 2009 Net Income

(Loss) of the

Investee

Investment Net

Income

Recognized

Note December 31,

2009

December 31,

2008 Shares

Percentage of

Ownership Carrying Value

Wintek Corporation Wintek Technology Cayman British Cayman Islands Overseas reinvested holding company $ 2,123,037 $ 2,123,037 65,060,801 100 $ 8,184,927 $ 279,436 $ 293,155 Subsidiary

Masstop LLC United States Overseas reinvested holding company 1,259,356 1,259,356 38,000,174 100 2,399,223 (319,143) (316,619) Subsidiary

Wintek BVI British Virgin Islands Overseas reinvested holding company 121,215 121,215 3,730,328 100 468,939 8,517 8,517 Subsidiary

Wintek International Holding British Cayman Islands Overseas reinvested holding company 530,754 530,754 16,610,003 100 338,850 (39,651) (39,651) Subsidiary

United Win Investment Taichung Hsien, Taiwan Reinvested holding company 202,000 202,000 20,704,000 100 181,372 (30,636) (30,636) Subsidiary

Wintek Electro-Optics United States Sales of LCD/LCM products 111,393 111,393 1,000 100 172,087 (8,146) (4,583) Subsidiary

Mactech Taichung Hsien, Taiwan Manufacture of machinery and equipment 54,581 54,581 13,088,643 52 104,612 28,128 51,686 Subsidiary

Wintek Central Europe Germany Sales of LCD/LCM products 53,475 53,475 - 100 143,290 16,637 16,637 Subsidiary

Wintek Europe France Sales of LCD/LCM products - 10,117 - - - (6,754) (6,754) Subsidiary

FlexMedia Miaoli Hsien, Taiwan Manufacture and sales of digital frames - 20,000 - - - (24,226) (2,423) Investments

accounted for

using equity

method

United Win Investment FlexMedia Miaoli Hsien, Taiwan Manufacture and sales of digital frames - 58,000 - - - (24,226) (Note) Investments

accounted for

using equity

method

Wintek Technology Cayman United Win Cayman British Cayman Islands Overseas reinvested holding company US$ 61,202 US$ 61,202 61,202,030 100 US$ 244,515 US$ 10,195 (Note) Indirectly owned

subsidiary

Apticon Inc. British Cayman Islands Overseas reinvested holding company US$ 6,000 US$ 6,000 3,333,333 23 US$ - (US$ 1,348) (Note) Investments

accounted for

using equity

method

United Win Cayman United Win H.K. Hong Kong Overseas reinvested holding company US$ 61,202 US$ 61,202 476,971,586 100 US$ 212,528 US$ 9,381 (Note) Indirectly owned

subsidiary

United Win H.K. United Win China Suzhou, People’s Republic of China Manufacture and sales of electronic

components, accessories and related

products

US$ 60,912 US$ 60,912 - 100 HK$ 1,632,985 HK$ 73,734 (Note) Indirectly owned

subsidiary

Masstop LLC Masstop Hong Kong Overseas reinvested holding company and

sales of LCD/LCM products

US$ 38,000 US$ 38,000 296,393,543 100 US$ 74,996 (US$ 9,750) (Note) Indirectly owned

subsidiary

Masstop Dongguan Masstop Dongguan, People’s Republic of

China

Manufacture and sales of LCM products HK$ 273,360 HK$ 273,360 - 100 HK$ 540,384 (HK$ 76,869) (Note) Indirectly owned

subsidiary

Wintek International Holding Wintek Far East British Cayman Islands Overseas reinvested holding company US$ 16,610 US$ 16,610 16,610,000 81 US$ 10,592 (US$ 1,412) (Note) Indirectly owned

subsidiary

Wintek Technology India India Manufacture and sales of LCD/LCM US$ - US$ - 3 - US$ - (US$ 1,412) (Note) Indirectly owned

subsidiary

Wintek Electro-Optics Wintek Far East British Cayman Islands Overseas reinvested holding company US$ 4,000 US$ 4,000 4,000,000 19 US$ 2,551 (US$ 1,412) (Note) Indirectly owned

subsidiary

Wintek Far East Wintek Technology India India Manufacture and sales of LCD/LCM US$ 22,610 US$ 22,610 22,610,000 100 US$ 15,143 (US$ 1,412) (Note) Indirectly owned

subsidiary

Note: Under certain regulations, the net investment income recognized need not be disclosed.

- 49 -

TABLE 7


DERIVATIVE TRANSACTIONS OF INVESTEES OVER WHICH THE CORPORATION HAS A

CONTROLLING INTEREST


United Win H.K. used interest rate swap contracts to hedge its exposures to rising interest rates on its

floating-rate (USD LIBOR) long-term loans. The contract resulted in loss of HK$1,136 thousand for the year

ended December 31, 2009. As of December 31, 2009, the fair value of the interest rate swap contracts was

HK$(1,662) thousand. Open interest rate swap contracts as of December 31, 2009 were as follows:

Contract Date Period Amount

(In Thousands)

May 6, 2009 May 8, 2009 to September 15, 2011 US$ 10,000

June 24, 2009 June 26, 2009 to September 15, 2011 10,000

- 50 -

TABLE 7-1





Mactech entered into forward exchange contracts, which resulted in a net receivable of $7 thousand, recorded as

financial assets at fair value through profit or loss - forward exchange contracts as of December 31, 2009. The

contracts resulted in a net loss of $737 thousand for the year ended December 31, 2009. The open forward

exchange contracts are summarized as follows:

Forward Exchange

Contracts - Sell

Contract Amount

(In Thousands)

Credit Risk

(In Thousands)

Fair Value

(In Thousands)

December 31, 2009 US$ 97 NT$ 7 NT$ 7

NT$ 2,451

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TABLE 7-2





Dongguan Masstop entered into forward exchange contracts, which resulted in a net receivable of RMB26

thousand, recorded as financial assets at fair value through profit or loss - forward exchange contracts as of

December 31, 2009. The contracts resulted in a net income of RMB1,336 thousand for the year ended

December 31, 2009. The open forward exchange contracts are summarized as follows:

Forward Exchange

Contracts - Sell

Contract Amount

(In Thousands)

Credit Risk

(In Thousands)

Fair Value

(In Thousands)

December 31, 2009 RMB92,151 RMB 26 RMB 26

United Win Cayman had no open derivative contracts as of December 31, 2009 and had net loss of US$22

thousand on financial instruments at fair value through profit or loss - forward exchange contracts for the year

ended December 31, 2009.

- 52 -

TABLE 8


INFORMATION ON INVESTMENTS IN MAINLAND CHINA



Investee Main Businesses and Products Paid-in Capital Method of

Investment

Accumulated

Outflow of

Capital

Investment from

Taiwan as of

Jan. 1, 2009

Outflow or Inflow of Capital

Investment

Accumulated

Outflow of

Capital

Investment from

Taiwan as of

December 31,

2009

Percentage of

Ownership

Investment Net

Income (Loss)

Recognized

(Note 4)

Carrying Value

as of

December 31,

2009

Accumulated

inward

Remittance of

Earnings as of

December 31,

2009

Accumulated

Investment as of

December 31,

2009

Investment

Amounts

Authorized by

the Investment

Commission,

MOEA (Note 5)

Maximum

Allowable

Investment

Authorized by

the Investment

Commission,

MOEA

Outflow Inflow

United Win China Manufacture and sale of electronic

components, accessories and

related products

$ 3,934,770 Note 1 $ 1,948,575 $ - $ - $ 1,948,575 100% $ 317,505 $ 6,739,577 $ 511,840 $ 2,492,405 $ 3,676,035 (Note 6)

Dongguan Masstop Manufacture and sale of LCMs 1,653,948 Note 1 1,055,670 - - 1,055,670 100% (314,717) 2,229,741 -

Apticon Technology

(Nanjing) Co. Ltd.

Manufacture of LCD back light

modules

534,265 Note 2 (Note 3) - - - 23% (10,216) - -

Note 1: The investment was made by establishing a corporation in a third country and then making the new corporation invest in companies located in Mainland China.

Note 2: The investment was made through a corporation established in a third country, which, in turn, invested in companies located in Mainland China.

Note 3: The investment in Mainland China is made by Apticon Inc., the investee of Wintek Technology Cayman which is invested by the Corporation. The capital of the investment is put up by Apticon Inc.

Note 4: Except for Apticon Technology (Nanjing) Co. Ltd. which had discontinued to operate, the Corporation recognized its equity in the net income (loss) on the basis of financial statements audited by the Corporation’s CPA firm.

Note 5: The amount include the investment amounts authorized by the Investment Commission, MOEA, but does not include the common stock issuance by mainland China investees from these investee’s earnings.

Note 6: According to the “Regulations for Screening of Application to Engage in Technical Cooperation in Mainland China“, issued by the Investment Commission of the Ministry of Economic Affairs at August 29, 2008, the investment in Mainland China has no maximum limitation since the

Corporation had acquired the IDB approval of the Corporation’s establishment of an operating headquarter in Taiwan.

Note 7: The foreign currency amounts were translated into New Taiwan dollars at the exchange rates on December 31, 2009.

Wintek Corporation · 2011. 7. 13. · - 3 - WINTEK CORPORATION BALANCE SHEETS DECEMBER 31, 2009...

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