z The Spokesman and Acting Spokesman of the Company · 2009-06-24 · First of all, CPT has...
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Transcript of z The Spokesman and Acting Spokesman of the Company · 2009-06-24 · First of all, CPT has...
The Spokesman and Acting Spokesman of the Company
Spokesman:
Name: Jiun-Yi Wu, Title: Vice President
Telephone: (03) 367-5151; E-mail: [email protected]
Acting Spokesman:
Name: Sheng-Chang Lin, Title: Vice President
Telephone: (03) 367-5151; E-mail: [email protected]
Headquarters, Branches, and Plants
Headquarter: No. 1127, Heping Rd., Bade City, Taoyuan, Taiwan, 334, R.O.C; Telephone: (03) 367-5151
Taoyuan Plant: No. 1127, Heping Rd., Bade City, Taoyuan, Taiwan, 334, R.O.C.; Telephone: (03) 367-5151
Lungtan Plant: No.1, Huaying Rd, Sanho Tsun, Lungtan Shiang, Taoyuan, Taiwan, 325, R.O.C.; Telephone: (03) 480-5678
Yangmei Plant: No. 80, Hsigshan Rd., Yangmei, Taoyuan, Taiwan, 326, R.O.C.; Telephone: (03) 478-6121
Hukou Plant: No. 2-1. Wenhua Rd., Hsin-chu Industrial Park, Hukou Shiang, Hsin-chu, Taiwan, 303, R.O.C.; Telephone: (03) 597-1875
Shares Registrar
Name: Chunghwa Picture Tubes, Ltd.
Address: No. 22, Chungshan N. Rd., 3rd Sec., Taipei, Taiwan, 104, R.O.C.;
Website: http://www.cptt.com.tw
Telephone: (02) 2592-5252
External Auditors of the Company in the most Recent Year Names of CPA: Yi-Chang Liang, Ming-Yu Lee
Address: No. 333, Keelun Rd. Section I, 9F, Taipei Website: http://www.dey.com.tw Telephone: (02) 2720-4000
Names of Overseas Stock Exchanges for Trading of Securities Name of overseas stock exchanges for trading of securities: Luxembourg Stock Exchange, Stock Exchange of Singapore. For information on overseas securities: Contact BLOOMBERG.
The Company Website http://www.cptt.com.tw
Table of Contents
1. Letter to Shareholders………………………………………………………………………….. 01
2. Company Profile………………………………………………………………………………. .03
3. Report on Corporate Government………………………………………………………………05
4. Status of Capital Planning………………………………………………………………………24
5. Operational Highlights………………………………………………………………………… .34
6. Financial Operation……………………………………………………………………………. 41
7. Financial Position & Review on Operation and Risks………………………………………... .45
8. Special Attention………………………………………………………………………………. 51
9. Financial Statements…………………………………………………………………………....54
10. Consolidated Financial Report………………………………………………………………...114
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1、Letter to Shareholders
Dear Shareholders, Ladies, and Gentlemen, I would like to express my sincere gratitude to all of you for your support and concern to
Chunghwa Picture Tubes, Ltd (CPT). We would not have achieved such sustained growth and prosperity without your support. With the hard work of all in CPT employees in 2008, we achieved consolidated revenue of NT$ 118.5 billion. Over 87% of our revenue came from the TFT-LCD (thin-film transistor liquid-crystal display) operation, with a shipment of 22.78 million pieces of large-sized TFT (thin-film transistor) panels, and 51.6 million pieces of small- and medium-sized TFT panels. CPT’s Netbook panel market share reached 22% ranked the second largest in the world. From 2007 to the first half of 2008, the prosperous TFT market demand and over positive estimation caused active reinvestment on expansion of TFT industry, which lead to unbalanced supply and demand, fierce price competition, and severe price drop in all CPT product lines. Together with worldwide economic downturn caused by the subprime mortgage loan crisis and Wall Street financial crisis, the selling price of IT panels fell by more than 35% while the selling price of TV panels fell by more than 40%. As a result, the reduction of costs could not offset the decrease in product selling prices, leading the Company‘s consolidated profit was NT$ -13.9 billion in 2008.
Despite the tough business environment, we continued our development and achieved our business goals in TFT operation by controlling inventory efficiently and improving cost structure to enhance our profit margin. CPT prioritized on making profit instead of expanding market share; with the prerequisite of high-quality products. Moreover, CPT emphasized more on inventory control than utilization improvement. More precised orders confirmation helped us to lower our cost on material preparation and production. CPT also focused on the niche market to create profitability and implement well-managed plans, such as production line consolidation and manpower restructuring. In addition, CPT implemented the profit center management approach. By having such profit center, each business unit could control the cost effectively and provide superior customer-oriented services for clients. Last but not least, CPT established a new department of Knowledge Management (KM) to gather and share the internal wisdom and knowledge. CPT will achieve strong and long-term competitive advantages in the dynamic market by implementing the above-mentioned measures.
In strategic development, we have not only established foothold in color filter (CF) and cold cathode fluorescent lamp (CCFL) production, vital components for TFT-LCD, also proactively sought vertical integration with industries upstream and downstream for greater competitive advantages for the optoelectronic industry. First of all, CPT has invested in Driver IC suppliers Sitronix and ILITEK, CCFL supplier Sintornic, small- and medium-sized module producer Giantplus, and leading electronic manufactures Xoceco in China. In 2008, CPT acquired Sintek’s CF fabs in order to ensure the supply of our major components. Simultaneously, the joint venture with Forward Electronics Co. for the manufacturing for backlight modules has already started production. With the advantages of in-house manufacturing and supply, CPT could enhance its competitive power in cost. Therefore, the strategic development of CPT yielded preliminary results in integrating key parts and components, and value chain extension, which enable us to guarantee key components supply, meet customers’ expectations, and manage products outlet effectively and efficiently. Apparently, CPT will be able to increase its profitability in the near future.
Despite of the tough situation following US subprime mortgage loan crisis and Wall Street financial crisis, CPT has put extra efforts to create growth opportunity for the year 2009. In the small-sized business, CPT focuses on China market and first-tier customers. CPT has delivered products punctually to these first-tier customers this year. At a result, the utilization rate and the
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amount of net sales will gradually increase. In addition, CPT has completed development strategy for LCPC, DPF, and P-DVD market. Due to the fierce competition in the market, we will put extra efforts to maintain the current market share. Moreover, CPT will enhance 16:9 IT applications in its large-sized TFT business, so that we can improve our cutting rate and enlarge competitive advantages to be able to compete with others. In 2009, the total shipment of LCD ITs is estimated to reach 18.16 million pieces, and the total shipment of LCD TVs will reach 2.43 million pieces.
We were able to achieve our business goal in TFT operation albeit the tough challenges it confronted. We persisted in technology improvement and innovation. Meanwhile, we developed R&D strategy towards three goals, namely, the R&D of technologies for the future, the R&D of a mid-term technology platform, and the R&D of products for the short run. With continued efforts in R&D innovations, CPT honorably received rewards of Outstanding Industry Contribution and Excellent Product from Color Imaging Industry Promotion Office (CIPO) of the Ministry of Economic Affairs (MOEA) four times in a roll on its 15.4” Color Sequential Display and 2D/3D Switchable. Furthermore, CPT has entered into a new round of licensing agreement with large international firms for business expansion, technology development, and protection of the customers’ rights and privileges. Expect for IT products covered by previous signed agreement, the new agreements coved LCD TV products and other LCD products patent exchange authorization. With these agreements, we improve marketing and sales channels and provide higher quality products to our customers.
The mankind’s greatest achievement is to fully contribute our unique talents to our sociality. In 2008, we made great contribution to the public on information technology, telecommunication, and entertainment with all CPT’s investors’ and employees’ wisdom and efforts. We produced around 20 million CRT units, over 22 million large-sized TFT pieces, and over 50 million small- and medium-sized TFT pieces. Meanwhile, as a member of the society, CPT strives to implement corporate social responsibilities in many ways such as encouraging employees to reduce carbon dioxide, sponsoring a non-profit children arts foundation, and assisting minority group in fund raising. In the corporate management, CPT proactively reduces environmental effect and integrates so-called green technology from R&D, material, production, finished products, to transportation. Therefore, CPT is not only a pioneer to launch corporate social responsibilities, but also to continually exert efforts to concern about the mission. Although we foresee lots of difficulties and challenges, CPT has great confident to overcome whatever situations. Let’s Do It Together.
Having experienced years of hardship and challenges in TFT development, CPT persists with
its positive attitude towards corporate development. We see innovation in operation as our core competence, and maintain our utmost effort to integrate the upper course and lower course of the industry in order to reinforce our advantages in R&D technologies in the display industry. We try our best to maximize benefits for our shareholders, customers, and employees. Finally, we sincerely thank you for support and encouragement, and on behalf of everyone at CPT, may we wish you the best of luck over the coming year. Best regards, Wei-Shan Lin, the Chairman
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2、Company Profile
I、Date of Establishment: May 4th, 1971 II、Milestones: 2004 － 2008 Year Record
Donated a building to National Chiao Tung University and sponsored a research and development program.
Sponsored Tatung University for the construction of the Hsieh Chih Knowledge Innovation Center and a research and development program.
Construction of Color Filter Plant No. 1 (Gen 4.5) and Plant No. 2 (Gen 6) commenced. Invested to establish FDT for the assembly of TFT modules. Became a Sony Green Partner. Debut of brass production process technology for the production of TFT-LCD panels in Successfully developed the 28” LTPS TFT-LCD panel that was the second largest in the world.
2004
The consolidated revenues of CPT Group exceeded NT$100 Billion.
Conferred “the 5th Flat Screen Monitor Contribution Award” by MOEA. Conferred “the 5th Outstanding Flat Screen Product Award” for its 65” Lcos TV. Construction of the Color Filtered Plant No. 2 (Gen 6) in YangMei was completed. Construction of the Gen 6 Plant in LungTan was completed. Establishment of CPT TPV Optical (Fujian) Co., Ltd. Color Filtered Plant No.1 in YangMei was accredited under the ISO-9001 system.
2005
Conferred the Gold Trade Award by MOEA in 2004 and ranked in the 7th place in export.
Mass production of the 17ES01 high contrast monitor. Mass production of the 320WB02, 370WA03 panels. Attended the 2006 SID Symposium and release 12 papers. The FDT 201WA03/170EA07P was launched into mass production. Mass production of small- and medium-sized 9 Multi-Channel OEM was Launched in China. Mass Production of the CPTM (Malaysia) in 27V RF AK. TV 201WA03 V3 CD version (20) was launched into mass production.
2006
CPTW was accredited by the ISO 9001 system.
Conferred the 7th Gold Panel Awards by MOEA. CPT held “Industry-University Cooperation Achievement Conference” with National Chiao
Tung University and Tatung University.
Equity joint venture between CPT and Forward Electronics Co. for the establishment of a backlight module plant in Fuzhou.
Conferred the Gold Trading Award Excellent Exporter in 2006 by MOEA. Conferred the 15th Industrial Technology Advancement Award: Outstanding Innovation
Enterprise Award and Advanced Technology Innovator Award by MOEA.
Introduced Warburg Pincus LLC as a strategic Investor. Launched the 1st 5500:1 high contrast TV screen in the world at Yokohama Show in Japan.
This was the only duo module display 15.4” NB panel.
Formed strategic alliance with Giantplus Technology Co., Ltd. Investment integration between CPT and Sintronix Technology Co. The 50,000,000th MDL was produced at CPTW.
2007
CPT increased investment in CPTF Optronics and built small- and medium-sized modules manufacture.
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Year Record Conferred “Happy & Health Company Award” by the CommomWealth. Produced the first piece of backlight module at FVD. Held a Small & Medium-sized Backlight Module MOVE-IN ceremony in CPTF
Optronics. Signed a contact with Sintek Photronic Corp. to acquire its CF 3.5 G and 4.5 G Plants Conferred the Second Remarkable Enterprise Award by Taoyuan County Government Signed a NT$ 4 billion syndicated loan agreement to complete the phase two capacity
expansion project for the 6G Color Filter (CF) fab The President of FDT, Mr. Luke Kang, represented CPT to make a Sichuan Earthquake
donation of RMB3,000,000 to Fujian Branch Red Cross Society of China.
2008
Received the rewards of Outstanding Industry Contribution and of Excellent Product from Color Imaging Industry Promotion Office (CIPO) of the Ministry of Economic Affairs (MOEA) four times in a roll on its 15.4” Color Sequential Display and 2D/3D Switchable.
Ranked the 26th place in the Info Tech 100 list in the BusinessNext and the 24th place in the Manufacture 1,000 list in the CommomWealth.
Celebrated the acquisitions of the 2 CF production lines from Sintek Photronic Corp. located at Hukou.
Built small- and medium-sized modules manufacture and celebrated the 100,000,000th CRT being produced at CPTF.
Conferred the Gold Trading Award Excellent Exporter by MOEA. Received a certificate of Environmental Production Declaration. Conferred “Friendly Work Place” by Council of Labor Affairs. Launched “Innovation Plan” to announce the approach of the Knowledge Economy
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3、 Report on Corporate Government I、Organization Chart
The Shareholders General Meeting
Chairman & CEO
The Board
President
Legal & Intellectual Property Division
(Administer the legal affairs and intellectual
TFT Business Unit
(Administer the production and manufacturing of TFT products)
Research and Development Center
(Product development, design, and planning)
Administration Center
(Administer human resources management, new construction projects, security and miscellaneous affairs)
Supply Chain Management General Division
(Administer production planning and material planning)
The Office of President
(Corporate Planning and Business Direction)
Knowledge Management Office
(Administer the planning and implementation of knowledge management and encouraging innovation)
Risk Management & E.S. General Division
(Responsible for environmental protection, security, medical care, and insurance)
Financial General Department
(Administer the establishment and maintenance of investment, accounting affairs, taxation, share registration, and information systems)
Audit Committee
(Responsible for the audit of internal management system and process)
Display Business Unit
(Administer the marketing and sales of display products)
CRT Business Unit
(Administer CRT products)
Procurement General Division
(Administer the procurement of material, equipment, and works)
Quality General Division
(Administer product quality)
Small & Medium TFT Product Business Unit
(Administer small- and medium-sized TFT)
NB Business Unit
(Administer the marketing and sales of NB products)
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II、
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td.
- -
-
Dire
ctor
Y
uan,
C
hien
-Chu
ng
2007
.06.
133
year
s 20
04.0
6.16
-
- -
- 30
,000
-
- -
PhD
of E
lect
rical
Eng
inee
ring,
N
Y S
tate
Uni
vers
ity, U
SA
Visi
ting
Scho
lar,
MIT
, USA
V
isitin
g Sc
hola
r, R
oyal
In
stitu
te, U
K
Vic
e Pr
ovos
t, Co
llege
of
Man
agem
ent S
cien
ce, N
atio
nal
Chi
ao T
ung
Uni
vers
ity
Prof
esso
r and
Dire
ctor
of G
radu
ate
Stud
ies,
Dep
t. of
Man
agem
ent S
cien
ce, N
atio
nal C
hiao
Tun
g U
nive
rsity
-
- -
Dire
ctor
Sh
ih,
Kuo
-Chi
ng
2007
.06.
133
year
s
2004
.06.
16
- -
- -
- -
- -
Gen
eral
Div
isio
nal M
anag
er,
Gen
eral
Hea
dqua
rters
of T
atun
g C
o. E
lect
roni
c Pl
ant
Rep
rese
ntat
ive
to In
stitu
tiona
l Sha
reho
lder
Pa
n Sh
i (X
iam
en) R
eal E
stat
e D
evel
opm
ent C
o.,
Ltd.
-
- -
8
Dire
ctor
C
hao,
C
hien
-Ho
2007
.06.
133
year
s 20
05.0
5.18
-
- -
- -
- -
- G
radu
ate
Stud
y, G
radu
ate
Inst
itute
of L
aw, M
ing
Chu
an
Uni
vers
ity
Dire
ctor
Law
yer,
Hsie
h Li
LA
W O
FFIC
E -
- -
Supe
rviso
r
Chu
nghw
a El
ectro
nics
In
vest
men
t Co.
, Lt
d.
Rep
rese
ntat
ive:
W
ang,
Lu
ng-C
hieh
2008
.07.
103
year
s 19
71.0
5.04
1,
486,
542,
603
18.1
0%1,
486,
542,
603
15.6
8%56
1
- -
Mas
ter o
f Bus
ines
s M
anag
emen
t, Ta
tung
Uni
vers
ity C
hief
Sec
reta
ry, T
atun
g C
o.
Supe
rviso
r, G
reen
Ene
rgy
Tech
nolo
gy In
c., L
td.
Dire
ctor
, C
hung
hwa
Elec
troni
cs I
nves
tmen
t C
o.,
Ltd.
Su
perv
isor,
Tatu
ng F
ine
Che
mic
als C
o., L
td.
Supe
rviso
r, Sh
an C
hih
Sem
icon
duct
or C
o., L
td.
Dire
ctor
, Sha
n C
hih
Inve
stm
ent C
o., L
td.
D
irect
or, N
atur
e W
orld
wid
e Te
chno
logy
Cor
p.
- -
-
Supe
rviso
r
Chu
nghw
a El
ectro
nics
In
vest
men
t Co.
, Lt
d.
Rep
rese
ntat
ive:
O
u, T
ien-
Fa
2007
.06.
133
year
s 19
71.0
5.04
1,
486,
542,
603
18.1
0%1,
486,
542,
603
15.6
8%1,
000
- -
-
Nat
iona
l Tai
pei T
echn
olog
y U
nive
rsity
C
FO, F
orw
ard
Elec
troni
cs C
o.,
Ltd.
Hea
d of
Fin
anci
al d
epar
tmen
t, Ta
tung
Co.
Su
perv
isor,
Tatu
ng In
foC
omm
Co.
, Ltd
. D
irect
or, T
atun
g (U
K) L
td.
Supe
rviso
r, Ta
tung
Sys
tem
Tec
hnol
ogie
s Inc
. D
irect
or, T
atun
g C
o. o
f Am
eric
a, In
c.
- -
-
Supe
rviso
r
Chu
nghw
a El
ectro
nics
In
vest
men
t Co.
, Lt
d.
Rep
rese
ntat
ive:
C
hen,
Shu
-Fen
2008
.07.
103
year
s 19
71.0
5.04
1,
486,
542,
603
18.1
0%1,
486,
542,
603
15.6
8%-
- -
- D
ept o
f Bus
ines
s A
dmin
istra
tion,
Tat
ung
Uni
vers
ity
Supe
rviso
r, Ta
tung
Chu
gai P
reci
ous M
etal
s Co.
, Lt
d.
Dire
ctor
, Chu
nghw
a El
ectro
nics
Inve
stm
ent C
o.,
Ltd.
Su
perv
isor,
Chi
h-Sh
eng
Inve
stm
ent C
o., L
td.
Dire
ctor
, Tat
ung
Elec
troni
cs (S
) Pte
. Ltd
. Su
perv
isor,
Toes
Opt
o-M
echa
troni
cs C
o., L
td.
Supe
rviso
r, C
hyun
Hue
i Hea
lth T
echn
olog
ies I
nc.
- -
-
Supe
rviso
r
Chu
nghw
a El
ectro
nics
In
vest
men
t Co.
, Lt
d.
Rep
rese
ntat
ive:
Yan
g,
Cha
ng-C
hieh
2008
.07.
103
year
s 19
71.0
5.04
1,
486,
542,
603
18.1
0%1,
486,
542,
603
15.6
8%-
- -
-
Nat
iona
l Tai
wan
Uni
vers
ity o
f Sc
ienc
e an
d Te
chno
logy
D
epar
tmen
t of B
usin
ess
Adm
inist
ratio
n
Supe
rviso
r, Fo
rwar
d El
ectro
nics
Co.
, Ltd
. D
irect
or, T
atun
g Sy
stem
Tec
hnol
ogie
s Inc
. Su
perv
isor,
Tatu
ng F
ores
try &
Con
stru
ctio
n C
o.
Supe
rviso
r, Ta
iwan
Aer
ospa
ce C
orp.
Su
perv
isor,
Tatu
ng P
reci
se M
ater
Co.
, Ltd
. Su
perv
isor,
Tatu
ng C
o. o
f Jap
an, I
nc.
Supe
rviso
r, Se
quel
Tec
hnol
ogie
s Co.
, Ltd
. Su
perv
isor,
Chu
nghw
a El
ectro
nics
Inve
stm
ent
Co.
, Ltd
. D
irect
or, S
han
Chi
h In
vest
men
t Co.
, Ltd
. D
irect
or, T
atun
g En
ergy
Tec
hnol
ogy
(Wuj
iang
) In
c.
- -
-
Supe
rviso
r C
hi, T
ung-
Fa
2007
.06.
133
year
s 20
07.0
6.13
2,
378
- 6,
378
- 18
,000
-
- -
Chi
ef A
ccou
ntin
g O
ffic
er,
Tatu
ng C
o.
Acc
ount
ing
Man
ager
, Tai
wan
V
ideo
& M
onito
r Cor
p.
Supe
rviso
r, Ta
iwan
Vid
eo &
Mon
itor C
orp.
-
- -
9
(2)
Dom
inan
t ins
titut
iona
l sha
reho
lder
s
A
pril
30, 2
009
Nam
e of
Inst
itutio
nal
Shar
ehol
der
Dom
inan
t sha
reho
lder
s of t
he in
stitu
tiona
l sha
reho
lder
s
Chu
nghw
a El
ectro
nics
In
vest
men
t Co.
, Ltd
.
Tatu
ng C
o. (
95.1
4%),
Chi
na D
evel
opm
ent
Indu
stria
l B
ank
(2.5
2%),
Fuko
ku I
nves
tmen
t Lt
d. (
0.88
%),
Kol
in I
nc. (
0.5%
), V
iGO
UR
Tec
hnol
ogy
Cor
p. (0
.49%
), Sh
an C
hih
Ass
et D
evel
opm
ent C
o., L
td. (
0.28
%),
Chu
ng H
sin
Elec
tric
& M
achi
nery
Mfg
. Cor
p. L
td. (
0.19
%),
Empl
oyee
s W
elfa
re
Com
mitt
ee (0
.00%
)
Tatu
ng C
o.
Tatu
ng U
nive
rsity
(7.5
5%),
Tatu
ng C
o. E
mpl
oyee
Sha
reho
ldin
g Tr
uste
e A
ccou
nt (5
.63%
), Ti
ng-S
heng
Lin
(4.0
9%),
Chu
nghw
a Pi
ctur
e Tu
bes
Ltd.
(3
.73%
), M
acke
nzie
Ken
dall
Fund
Inve
stm
ent A
ccou
nt a
t Sta
ndar
d C
harte
red
(3.3
0%),
Taip
ei P
rivat
e Ta
tung
Sen
ior H
igh
Scho
ol (1
.67%
), Ta
tung
U
nite
d Em
ploy
ees
Wel
fare
Com
mitt
ee (
1.66
%),
Tatu
ng E
mpl
oyee
s W
elfa
re C
omm
ittee
(0.
82%
), B
ango
r In
vest
men
t A
ccou
nt w
ith C
itiba
nk
(0.6
4%),
Dai
lian
Inve
stm
ent A
ccou
nt w
ith C
itiba
nk (0
.63%
). (3
) D
omin
ant i
nstit
utio
nal s
hare
hold
ers t
o th
e C
ompa
ny
A
pril
30, 2
009
Nam
e of
inst
itutio
ns
Dom
inan
t sha
reho
lder
s of i
nstit
utio
nal s
hare
hold
ers
Tatu
ng U
nive
rsity
N
one
(Not
e 1)
Ta
tung
Co.
Em
ploy
ee S
hare
hold
ing
Trus
tee
Acc
ount
N
/A
Chu
nghw
a Pi
ctur
e Tu
bes L
td.
Chu
nghw
a El
ectro
nics
Inve
stm
ent C
o., L
td. &
Tat
ung
Co.
M
acke
nzie
Ken
dall
Fund
Inve
stm
ent A
ccou
nt a
t Sta
ndar
d C
harte
red
N/A
Ta
ipei
Priv
ate
Tatu
ng S
enio
r Hig
h Sc
hool
N
one
(Not
e 1)
Ta
tung
Uni
ted
Empl
oyee
s Wel
fare
Com
mitt
ee
N/A
Ta
tung
Em
ploy
ees W
elfa
re C
omm
ittee
N
/A
Ban
gor I
nves
tmen
t Acc
ount
with
Citi
bank
N
/A
Dai
lian
Inve
stm
ent A
ccou
nt w
ith C
itiba
nk
N/A
N
ote
1: T
his i
s an
educ
atio
nal i
nstit
utio
n an
d th
eref
ore
has n
o sh
areh
olde
rs.
10
(4)
Info
rmat
ion
on D
irect
ors’
and
Sup
ervi
sors
’ qua
lific
atio
ns a
nd in
depe
nden
ce a
naly
sis
Mee
t one
of t
he F
ollo
win
g Pr
ofes
sion
al Q
ualif
icat
ion
Req
uire
men
ts, T
oget
her w
ith m
ore
than
Fiv
e Y
ears
Wor
k Ex
perie
nce
Crit
eria
(not
e 1)
Con
ditio
ns
N
ame
An
Inst
ruct
or o
r Hig
her P
ositi
on in
a
Dep
artm
ent o
f Com
mer
ce, L
aw,
Fina
nce,
Acc
ount
ing,
or O
ther
A
cade
mic
Dep
artm
ent R
elat
ed to
the
Bus
ines
s Nee
ds o
f the
Com
pany
in
Pubi
c or
Priv
ate
Col
lege
or U
nive
rsity
A Ju
dge,
Pub
lic P
rose
cuto
r, A
ttorn
ey,
Cer
tifie
d Pu
blic
Acc
ount
ant,
or O
ther
Pr
ofes
sion
al o
r Tec
hnic
al S
peci
alis
ts
Who
Has
Pas
sed
a N
atio
nal E
xam
inat
ion
and
Bee
n A
war
ded
a C
ertif
icat
e in
a
Prof
essi
on N
eces
sary
for t
he B
usin
ess o
f th
e C
ompa
ny
Hav
e W
ork
Expe
rienc
e in
th
e A
rea
of C
omm
erce
, La
w, F
inan
ce, o
r A
ccou
ntin
g, o
r Oth
erw
ise
Nec
essa
ry fo
r the
Bus
ines
s of
the
Com
pany
12
34
56
78
910
Num
ber o
f Oth
er
Publ
ic C
ompa
nies
C
oncu
rren
tly
Serv
ing
as a
n In
depe
nden
t D
irect
or
Lin,
Wei
-Sha
n
Tang
, Yua
n-Sh
eng
Hsu
, Cha
o-Y
un
Lin
K.,
Wen
-Yen
Lin,
Hun
g-M
ing
Chi
u, C
huan
g -Y
i
Yua
n, C
hien
-Chu
ng
Shih
, Kuo
-Chi
ng
Cha
o, C
hien
-Ho
Wan
g, L
ung-
Chi
eh
Ou,
Tie
n-Fa
Che
n, S
hu-F
en
Chi
, Tun
g-Fa
Yan
g, C
hang
-Chi
eh
Not
e 1:
Dire
ctor
s or s
uper
viso
rs ,
durin
g th
e tw
o ye
ars b
efor
e el
ecte
d or
dur
ing
the
term
of o
ffice
, hav
e be
en o
r be
any
of th
e fo
llow
ing,
ple
ase
“”
the
appr
opria
te c
orre
spon
ding
box
es:
(1)
Not
an
empl
oyee
of t
he C
ompa
ny o
r any
its a
ffilia
tes;
(2
) N
ot a
dire
ctor
or s
uper
viso
r of t
he C
ompa
ny o
r any
its
affil
iate
s. Th
e sa
me
does
not
app
ly; h
owev
er, i
n ca
ses
whe
re th
e pe
rson
is a
n in
depe
nden
t dire
ctor
of t
he C
ompa
ny, i
ts p
aren
t com
pany
, or
any
subs
idia
ry in
whi
ch th
e C
ompa
ny h
olds
, dire
ctly
or i
ndire
ctly
, mor
e th
an 5
0% o
f the
vot
ing
shar
es;
(3)
Not
a n
atur
al-p
erso
n sh
areh
olde
r who
hol
ds sh
ares
, tog
ethe
r with
thos
e he
ld b
y th
e pe
rson
’s s
pous
e, m
inor
chi
ldre
n, o
r hel
d by
the
pers
on u
nder
oth
er’s
nam
es, i
n an
agg
rega
te o
f 1%
or m
ore
of
the
tota
l num
ber o
f out
stan
ding
shar
es o
f the
Com
pany
or r
anki
ng in
the
top
10 in
hol
ding
; (4
) N
ot a
spou
se, r
elat
ive
with
in th
e se
cond
deg
ree
of k
insh
ip, o
r lin
eal r
elat
ive
with
in th
e fif
th d
egre
e of
kin
ship
, of a
ny o
f the
per
sons
in th
e pr
eced
ing
thre
e su
bpar
agra
phs;
(5
) N
ot a
dire
ctor
, sup
ervi
sor,
or e
mpl
oyee
of a
cor
pora
te sh
areh
olde
r tha
t dire
ctly
hol
ds 5
% o
r mor
e of
the
tota
l num
ber o
f out
stan
ding
shar
es o
f the
Com
pany
or t
hat h
olds
shar
es ra
nkin
g in
the
top
five
in h
oldi
ngs;
(6
) N
ot a
dire
ctor
, sup
ervi
sor,
offic
er, o
r sha
reho
lder
hol
ding
5%
or m
ore
of th
e sh
ares
, of a
spec
ified
com
pany
or i
nstit
utio
n th
at h
as a
fina
ncia
l or b
usin
ess r
elat
ions
hip
with
the
Com
pany
. (7
) N
ot a
pro
fess
iona
l ind
ivid
ual w
ho, o
r an
owne
r, pa
rtner
, dire
ctor
, sup
ervi
sor,
or o
ffice
r of a
sol
e pr
oprie
tors
hip,
par
tner
ship
, com
pany
, or i
nstit
utio
n th
at, p
rovi
des
com
mer
cial
, leg
al, f
inan
cial
, ac
coun
ting
serv
ices
or c
onsu
ltatio
n to
the
Com
pany
or t
o an
y af
filia
te o
f the
Com
pany
, or a
spou
se th
ereo
f; (8
) N
ot h
avin
g a
mar
ital r
elat
ions
hip,
or a
rela
tive
with
in th
e se
cond
deg
ree
of k
insh
ip to
any
oth
er d
irect
or o
f the
Com
pany
; (9
) N
ot b
een
a pe
rson
of a
ny c
ondi
tions
def
ined
in A
rticl
e 30
of t
he C
ompa
ny L
aw; a
nd
(10)
N
ot a
gov
ernm
ent,
jurid
ical
per
son
or it
s rep
rese
ntat
ive
as d
efin
ed in
Arti
cle
27 o
f the
Com
pany
Law
.
11
2.
Pres
iden
t, V
ice
Pres
iden
t, A
ssis
tant
Vic
e Pr
esid
ent a
nd, M
anag
ers o
f the
Dep
artm
ents
and
Bra
nche
s
A
pril
30, 2
009
Shar
ehol
ding
Sp
ouse
s & M
inor
Sh
areh
oldi
ng
Shar
ehol
ding
Und
er
the
Third
Par
ty
Title
N
ame
Dat
e
Elec
ted
Shar
es%
Sh
ares
%
Shar
es%
Educ
atio
n an
d Ex
perie
nce
Posi
tions
in O
ther
Com
pani
es
CEO
Li
n,
Wei
-Sha
n 20
08.0
7.10
20
0,90
30.
00%
200,
780
M
BA
, Was
hing
ton
Uni
vers
ity, U
SA
Cha
irman
& P
resi
dent
, Tat
ung
Co.
C
hairm
an, T
atun
g C
onsu
mer
Pro
duct
s (Ta
iwan
) Co.
, Ltd
. C
hairm
an, F
orw
ard
Elec
troni
cs C
o., L
td.
Cha
irman
, Tai
wan
Tel
ecom
mun
icat
ion
Indu
stry
Co.
, Ltd
. C
hairm
an, T
atun
g O
TIS
Elev
ator
Co.
C
hairm
an, G
reen
Ene
rgy
Tech
nolo
gy In
c., L
td.
Cha
irman
& C
EO, C
PT
Cha
irman
, Tat
ung
Fanu
c R
obot
ics C
o.
Cha
irman
, Gra
nd C
atha
y In
tern
atio
nal A
sset
Man
agem
ent C
o., L
td.
Cha
irman
, Ben
salin
e In
vest
men
t Ltd
. C
hairm
an, B
anga
lor I
nves
tmen
t Ltd
. C
hairm
an, D
alem
ont I
nves
tmen
t Ltd
. C
hairm
an, D
alia
nt In
vest
men
t Ltd
. C
hairm
an, S
han
Chi
h Se
mic
ondu
ctor
Co.
, Ltd
. D
irect
or, T
atun
g In
foC
omm
Co.
, Ltd
. C
hairm
an, S
hang
Chi
h A
sset
Dev
elop
men
t Co.
, Ltd
. C
hairm
an, T
oes O
pto-
Mec
hatro
nics
Co.
C
hairm
an, T
atun
g Fi
ne C
hem
ical
s Co.
, Ltd
. C
hairm
an, C
PT (B
erm
uda)
Ltd
. C
hairm
an, C
PT (L
abua
n) L
td.
Cha
irman
, Tat
ung
Vie
tnam
Co.
, Ltd
.
Pres
iden
t C
hiu,
C
huan
g-Y
i20
07.0
3.30
12
6,66
50.
00%
- -
- -
Dep
t of E
lect
rical
En
gine
erin
g, N
atio
nal
Taiw
an T
echn
olog
y U
nive
rsity
Pres
iden
t, C
PT
Cha
irman
, CPT
Dis
play
Tec
hnol
ogy
(Fuj
ian)
Ltd
. C
hairm
an, C
PTF
Vis
ual D
ispl
ay (F
uzho
u) L
td.
Cha
irman
, CPT
TV
P O
ptic
al (F
ujia
n) C
o., L
td.
D
irect
or, T
oppa
n C
hung
hwa
Elec
troni
cs C
o., L
td.
Dire
ctor
, CPT
F O
ptro
nics
Co.
, Ltd
. D
irect
or, X
iam
en O
vers
eas C
hine
se E
lect
roni
cs C
o., L
td.
Cha
irman
, Mak
olin
Ele
ctro
nics
(M) S
dn. B
hd.
Cha
irman
, CPT
(Mal
aysi
a) S
dn. B
hd.
Cha
irman
, CPT
(Kam
par)
Sdn
. Bhd
. C
hairm
an, N
ew K
ings
ton
Ente
rpris
es L
td.
Dire
ctor
& V
P, C
PT (B
erm
uda)
Co.
, Ltd
. C
hairm
an, B
ensa
line
Inve
stm
ent L
td.
Cha
irman
, Ban
galo
r Inv
estm
ent L
td.
Cha
irman
, Dal
emon
t Inv
estm
ent L
td.
Cha
irman
, Dal
iant
Inve
stm
ent L
td.
Cha
irman
, CPT
Dis
play
Tec
hnol
ogy
(She
nzhe
n) L
td.
Cha
irman
, CPT
(Wuj
iang
) Ltd
. D
irect
or, F
orw
ard
Elec
troni
cs C
o., L
td.
Dire
ctor
, Gra
nd C
atha
y In
tern
atio
nal A
sset
Man
agem
ent C
o., L
td.
Dire
ctor
, Gia
ntpl
us T
echn
olog
y C
o., L
td.
12
Vic
e Pr
esid
ent
Che
n,
Kua
ng-L
ang
2003
.05.
01
284,
996
0.00
%-
- -
- M
aste
r, G
radu
ate
Scho
ol o
f El
ectro
nic
Engi
neer
ing,
N
atio
nal T
aiw
an U
nive
rsity
of
Scie
nce
and
Tech
nolo
gy
Dire
ctor
, Gra
nd C
atha
y In
tern
atio
nal A
sset
Man
agem
ent C
o., L
td.
Dire
ctor
, Sitr
onix
Tec
hnol
ogy
Co.
, Ltd
. D
irect
or, S
intro
nic
Tech
nolo
gy In
c.
Vic
e Pr
esid
ent
Hsu
, Y
i-Tsa
i 20
04.0
4.01
70
,103
0.00
%-
- -
- M
aste
r, In
form
atio
n an
d El
ectro
nics
, Nat
iona
l C
entra
l Uni
vers
ity
-
Vic
e Pr
esid
ent
Chi
ang,
W
en-C
hang
2004
.04.
01
281,
163
0.00
%15
,251
0.00
%-
- M
aste
r, C
hem
ical
En
gine
erin
g, T
atun
g U
nive
rsity
-
VP
and
CFO
W
u,
Jiun
-Yi
2005
.07.
11
69,0
470.
00%
- -
- -
MB
A, M
ichi
gan
Stat
e U
nive
rsity
Dire
ctor
, CPT
(Ber
mud
a) L
td.
Dire
ctor
, CPT
(Lab
uan)
Ltd
. D
irect
or, C
PT D
ispl
ay T
echn
olog
y (S
henz
hen)
Ltd
. D
irect
or, C
PT (W
ujia
ng) L
td.
Supe
rvis
or, G
rand
Cat
hay
Inte
rnat
iona
l Ass
et M
anag
emen
t Co.
, Ltd
. D
irect
or, X
iam
en O
vers
eas C
hine
se E
lect
roni
cs C
o., L
td.
Dire
ctor
, Dal
emon
t Inv
estm
ent L
td.
D
irect
or, D
alia
nt In
vest
men
t Ltd
. D
irect
or, B
anga
lor I
nves
tmen
t Ltd
. D
irect
or, B
ensa
line
Inve
stm
ent L
td.
Vic
e Pr
esid
ent
Dun
g,
Kua
ng-Y
eh20
06.0
4.01
47
4,27
30.
01%
- -
- -
Dep
t of E
lect
roni
cs, T
aipe
i Te
chno
logy
Inst
itute
Dire
ctor
, Sin
troni
c Te
chno
logy
Inc.
D
irect
or, S
intro
nic
Hol
ding
Co.
, Ltd
. D
irect
or, S
intro
nic
Tech
nolo
gy (S
uzho
u) In
c.
Vic
e Pr
esid
ent
Lee,
H
sueh
-Lun
g20
06.0
1.05
27
,970
0.00
%-
- -
- M
aste
r, Fi
nanc
ial
Man
agem
ent,
Nat
iona
l C
entra
l Uni
vers
ity
Pres
iden
t, G
rand
Cat
hay
Inte
rnat
iona
l Ass
et M
anag
emen
t Co.
, Ltd
.
Vic
e Pr
esid
ent
Lu,
Kua
n-M
in
2005
.01.
28
236,
704
0.00
%14
1,00
30.
00%
- -
Dep
t of M
anag
emen
t Sc
ienc
e, N
atio
nal C
hiao
Tu
ng U
nive
rsity
-
Vic
e Pr
esid
ent
Lin,
Sh
eng-
Cha
ng
2006
.12.
08
52,6
080.
00%
6,00
00.
00%
- -
Mas
ter,
Indu
stria
l En
gine
erin
g, T
ung-
Hai
U
nive
rsity
D
irect
or, G
iant
plus
Tec
hnol
ogy
Co.
, Ltd
.
Vic
e Pr
esid
ent
Yan
g,
Shih
-Tsu
ng20
06.1
0.01
16
6,09
80.
00%
- -
- -
Mas
ter,
Elec
troni
cs,
Nat
iona
l Osa
ka U
nive
rsity
, Ja
pan
Vic
e Pr
esid
ent
Lin,
Te
rng-
Yaw
2008
.01.
17
- -
1,00
00.
00%
- -
PhD
, Col
ogne
Uni
vers
ity,
Ger
man
y
Not
e: N
o m
anag
ers o
f the
Com
pany
had
a sp
ouse
or r
elat
ive
with
in tw
o de
gree
of c
onsa
ngui
nity
serv
ing
as a
man
ager
at t
he C
ompa
ny. V
ice
Pres
iden
t, M
r. Te
rng-
Yaw
Lin
, lef
t the
pos
ition
on
Febr
uary
14,
200
9.
13
3.
Rem
uner
atio
ns P
aid
to D
irect
ors (
incl
udin
g In
depe
nden
t Dire
ctor
s), S
uper
viso
rs, P
resi
dent
and
Vic
e Pr
esid
ent
(1) R
emun
erat
ions
pai
d to
Dire
ctor
s (in
clud
ing
Inde
pend
ent D
irect
ors)
R
emun
erat
ion
Com
pens
atio
n Ea
rned
as E
mpl
oyee
of C
PT o
r of C
PT’s
Con
solid
ated
Ent
ities
B
ase
Com
pens
atio
n (A
)
Ret
ired
Pens
ion
(B)
Prof
it Sh
arin
g (C
) A
llow
ance
s (D
)
The
Rem
uner
atio
n
(A+
B+C
+D)
as
a %
of N
et In
com
e Sa
larie
s, B
onus
and
A
llow
ance
s (E)
R
etire
d Pe
nsio
n(F
) (N
ote
2)
Empl
oyee
Pro
fit S
harin
g (G
)
Exer
cisa
ble
Empl
oyee
Sto
ck
Opt
ions
(H)
The
Rem
uner
atio
n (A
+B+C
+D+E
+F+G
) as
a %
of N
et In
com
e
The
Com
pany
Fr
om A
ll C
onso
lidat
ed
Entit
ies
Title
N
ame
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s
The Company
From
All
Con
solid
ated
En
titie
s C
ash
Div
iden
dC
ash
Div
iden
dC
ash
Div
iden
dC
ash
Div
iden
d
The Company
From
All
Con
solid
ated
En
titie
s The Company
From
All
Con
solid
ated
En
titie
s
Com
pens
atio
n Pa
id
to D
irect
ors f
rom
N
on-c
onso
lidat
ed
Aff
iliat
es
Cha
irman
Lin,
W
ei-S
han
Dire
ctor
C
hang
,
Chu
n-Y
ing
(Not
e 1)
Dire
ctor
H
su,
Cha
0-Y
un
Dire
ctor
Ta
ng,
Yua
n-Sh
eng
Dire
ctor
Li
n K
., W
en-Y
en
Dire
ctor
Li
n,
Hun
g-M
ing
Dire
ctor
C
hiu,
C
haun
g-Y
i
Dire
ctor
Y
uan,
C
hien
-Chu
ng
Dire
ctor
Sh
ih,
K
uo-C
hing
Dire
ctor
C
hao,
C
hien
-Ho
- -
- -
- -
1,08
01,
080
(0.0
07%
)(0
.007
%)
27,9
6127
,961
13
8 13
8 -
- -
- -
- (0
.21%
)(0
.21%
) Y
es
Not
e 1:
Thi
s Dire
ctor
was
relie
ved
on Ju
ly 1
0, 2
008.
Tat
ung
Co.
has
app
oint
ed M
r. C
hao-
Yun
Hsu
as t
he re
pres
enta
tive
to th
e in
stitu
tiona
l sha
reho
lder
. N
ote
2: T
he C
ompa
ny a
lloca
ted
NT$
138
thou
sand
from
ear
ning
s ava
ilabl
e fo
r dis
tribu
tion
as e
mpl
oyee
s’ re
tired
pen
sion
. Sa
lary
Sca
le
Nam
eof
Dire
ctor
sTh
e To
tal o
f A, B
, C, a
nd D
Th
e To
tal o
f A, B
, C, D
, E, F
, and
G
Rem
uner
atio
n Pa
id to
Dire
ctor
s
The
Com
pany
Fr
om A
ll C
onso
lidat
ed E
ntiti
es
The
Com
pany
Fr
om A
ll C
onso
lidat
ed E
ntiti
es
Und
er N
T$ 2
,000
,000
Wei
-Sha
n Li
n, C
hun-
Yin
g Ch
ang,
C
hao-
Yun
Hsu
, Yua
n-Sh
eng
Tang
, W
en-Y
en K
. Lin
, Hun
g-M
ing
Lin,
C
haun
g-Y
i Chi
u, C
hien
-Chu
ng Y
uan,
K
uo-C
hing
Shi
h, C
hien
-Ho
Cha
o
Wei
-Sha
n Li
n, C
hun-
Yin
g Ch
ang,
C
hao-
Yun
Hsu
, Yua
n-Sh
eng
Tang
W
en-Y
en K
. Lin
, Hun
g-M
ing
Lin,
C
haun
g-Y
i Chi
u, C
hien
-Chu
ng Y
uan,
K
uo-C
hing
Shi
h, C
hien
-Ho
Cha
o
Chu
n-Y
ing
Chan
g, C
hao-
Yun
Hsu
, Y
uan-
Shen
g Ta
ng, W
en-Y
en K
. Lin
, H
ung-
Min
g Li
n, C
hien
-Chu
ng Y
uan,
K
uo-C
hing
Shi
h, C
hien
-Ho
Cha
o
Chu
n-Y
ing
Chan
g, C
hao-
Yun
Hsu
, Y
uan-
Shen
g Ta
ng, W
en-Y
en K
. Lin
, H
ung-
Min
g Li
n, C
hien
-Chu
ng Y
uan,
K
uo-C
hing
Shi
h, C
hien
-Ho
Cha
o
NT$
2,
000,
000～
NT$
4
,999
,999
N
T$
5,00
0,00
0～
NT$
9
,999
,999
Cha
ung-
Yi C
hiu
Cha
ung-
Yi C
hiu
N
T$ 1
0,00
0,00
0～
NT$
14
,999
,999
N
T$ 1
5,00
0,00
0～
NT$
29
,999
,999
Wei
-Sha
n Li
nW
ei-S
han
Lin
N
T$ 3
0,00
0,00
0～
NT$
49
,999
,999
N
T$ 5
0,00
0,00
0～
NT$
99
,999
,999
Ove
r 100
,000
,000
Tota
l10
10
1010
14
(2) R
emun
erat
ions
pai
d to
Sup
ervi
sors
R
emun
erat
ion
Bas
e C
ompe
nsat
ion
(A)
Ret
ired
Pens
ion
(B)
Prof
it Sh
arin
g (C
) A
llow
ance
s (D
)
The
Rem
uner
atio
n (A
+ B
+C+D
) as
a %
of N
et In
com
e Ti
tle
Nam
e
The
Com
pany
Fr
om A
ll C
onso
lidat
ed
Entit
ies
The
Com
pany
From
All
Con
solid
ated
En
titie
s Th
e C
ompa
nyFr
om A
ll C
onso
lidat
ed
Entit
ies
The
Com
pany
From
All
Con
solid
ated
En
titie
s Th
e C
ompa
nyFr
om A
ll C
onso
lidat
ed
Entit
ies
Com
pens
atio
n Pa
id to
Su
perv
isor
s fro
m
Non
-con
solid
ated
A
ffilia
tes
Supe
rvis
or Y
u,
Wen
-Cha
ng (N
ote
1)
Supe
rvis
or W
ang,
C
hih-
Che
ng (N
ote
1)
Supe
rvis
or C
hu,
Yin
g-Y
u (N
ote
1)
Supe
rvis
or O
u,
Tien
-Fa
Supe
rvis
or C
hi,
Tu
ng-F
a
Supe
rvis
or C
hen,
Sh
u-Fe
n
Supe
rvis
or Y
ang,
C
hang
-Chi
eh
Supe
rvis
or W
ang,
Lu
ng-C
hieh
- -
- -
- -
600
600
(0.0
04%
) (0
.004
%)
Non
e
Not
e 1:
Dire
ctor
was
relie
ved
on Ju
ly 1
0, 2
008.
Chu
nghw
a El
ectro
nics
Inve
stm
ent C
o., L
td. h
as a
ppoi
nted
Shu
-Fen
Che
n, C
hang
-Chi
eh Y
ang,
and
Lun
g-C
hieh
Wan
g as
the
repr
esen
tativ
es to
the
inst
itutio
nal s
hare
hold
ers.
Sala
ry S
cale
N
ame
of S
uper
viso
rsTh
e To
tal o
f A, B
, C, a
nd D
R
emun
erat
ion
Paid
to S
uper
viso
rs
The
Com
pany
Fr
om A
ll C
onso
lidat
ed E
ntiti
es
Und
er N
T$ 2
,000
,000
W
en-C
hang
Yu,
Chi
h-C
heng
Wan
g, Y
ing-
Yu
Chu,
Tie
n-Fa
Ou,
Tu
ng-F
a C
hi, S
hu-F
en C
hen,
Cha
ng-C
hieh
Yan
g, L
ung-
Chi
eh W
ang
Wen
-Cha
ng Y
u, C
hih-
Che
ng W
ang,
Yin
g-Y
u Ch
u, T
ien-
Fa O
u,
Tung
-Fa
Chi
, Shu
-Fen
Che
n, C
hang
-Chi
eh Y
ang,
Lun
g-C
hieh
Wan
g N
T$ 2
,000
,000
～
NT$
4,99
9,99
9
NT$
5,
000,
000～
NT$
9,99
9,99
9
NT$
10,
000,
000～
NT$
1
4,99
9,99
9
N
T$ 1
5,00
0,00
0～
NT$
2
9,99
9,99
9
NT$
30,
000,
000～
NT$
4
9,99
9,99
9
N
T$ 5
0,00
0,00
0 ～
NT$
9
9,99
9,99
9
O
ver 1
00,0
00,0
00
Tota
l8
8
15
(3) R
emun
erat
ions
pai
d to
the
Chi
ef E
xecu
tive
Offi
cer,
the
Pres
iden
t, an
d V
ice
Pres
iden
ts
B
ase
Com
pens
atio
n (A
) R
etire
d Pe
nsio
n (B
) Sa
larie
s, B
onus
and
A
llow
ance
s (E)
Em
ploy
ee P
rofit
Sha
ring
(G)
The
Rem
uner
atio
n (A
+B+C
+D)
as
a %
of N
et In
com
e
Exer
cisa
ble
Empl
oyee
St
ock
Opi
nion
s
The
Com
pany
Fr
om A
ll C
onso
lidat
ed
Entit
ies
Title
N
ame
The
Com
pany
From
All
Con
solid
ated
En
titie
s
The
Com
pany
From
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16
4. Remunerations to Directors, Supervisors, the President, and Vice Presidents of the Company in the past 2 years, and the proportion of remunerations from corporate earnings:
The remunerations to Directors, Supervisors, the Chief Executive Officer, the President, and Vice Presidents paid by the Company and companies included in the consolidated financial statements in 2008 accounted for (0.21%), (0.004%), and (0.47%) of the corporate earnings. In 2007, these remunerations accounted for 0.26%, 0.007%, and 0.5% of the corporate earnings of the Company. Also, in the past 2 years, the Company only disbursed traveling subsidies as remunerations to the Directors and Supervisors. The remunerations to the President were governed by the upper limit as resolved by the Board. The remunerations to Vice Presidents were based on the evaluation and regulation on salary scale.
III、 The Status of Corporate Governance 1. Board of Directors Meeting Status The Board has held 11 times (A) in the most recent year. The directors’ attendance status is as follows:
Title
Name Attendance in Person
(B)
By Proxy
Attendance Rate in Person
(%) (Ｂ/Ａ) (Note)
Remark
Chairman Tatung Co. Representative: Wei-Shan Lin 11 0 100.00
Director Tatung Co. Representative: Wen-Yen K. Lin 11 0 100.00
Director Tatung Co. Representative: Yuan-Sheng Tang 9 2 81.82
Director Tatung Co. Representative: Hung-Ming Lin 9 1 81.82
Director Tatung Co. Representative: Chau-Yun Hsu 5 1 83.33 Assigned on July 10, 2008;
6 times of supposed attendances.
Director Tatung Co. Representative: Chun-Ying Chang 5 0 100.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Director Tatung Co. Representative: Chuang-Yi Chiu 11 0 100.00
Independent Director Chien-Chung Yuan 7 3 63.64
Independent Director Kuo-Ching Shih 8 3 72.73
Independent Director Chien-Ho Chao 9 1 81.82
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Wen-Chang Yu 1 0 20.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Tien-Fa Ou 11 0 100.00
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Ying-Yu Chu 4 0 80.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Chih-Cheng Wang 5 0 100.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Tung-Fa Chi 11 0 100.00
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Lung-Chieh Wang 6 0 100.00 Assigned on July 10, 2008;
6 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Chang-Chieh Yang 6 0 100.00 Assigned on July 10, 2008;
6 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Shu-Fen Chen 6 0 100.00 Assigned on July 10, 2008;
6 times of supposed attendances.Annotations: 1. According to Securities and Exchange Act §14-3, there were on written or otherwise recorded resolutions on which
independent directors had a dissenting opinion or qualified opinion. 2. There were on recusal of Directors due to conflicts of interests in 2008. 3. Objectives to strengthen the functions of the Board of Directors in the current year and most recent year: The Company has
well-organized agenda for the Board of Directors. During the meeting, such well-organized agenda was implemented exactly. Note: (1) At the end of the year, if there is any director and supervisor resigned, the box of remark is needed to disclose the date of
resignation. The attendance rate is calculated regarding the time of the actual attendance. (2)At the end of the year, if there is any director and supervisor reelected, the box of remark is needed to clarify the name of new
and old directors and supervisors and to disclose information on the date of reelection. The attendance rate is calculated regarding the time of the actual attendance.
17
2. Supervisors participated in the Board of Directors Meeting The Board has held 11 times (A) in the most recent year. The attendance status is as follows:
Title
Name
Attendance in Person (B)
Attendance Rate in Person
(%) (Ｂ/Ａ) (Note)
Notes
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Wen-Chang Yu 1 20.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Tien-Fa Ou 11 100.00
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Ying-Yu Chu 4 80.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Chih-Cheng Wang 5 100.00 Resigned on July 10, 2008;
5 times of supposed attendances.
Supervisor Tung-Fa Chi 11 100.00
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Lung-Chieh Wang 6 100.00 Assigned on July 10, 2008;
6 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Chang-Chieh Yang 6 100.00 Assigned on July 10, 2008;
6 times of supposed attendances.
Supervisor Chunghwa Electronics Investment Co., Ltd. Representative: Shu-Fen Chen 6 100.00 Assigned on July 10, 2008;
6 times of supposed attendances. Annotations: 1. Supervisors’ duties:
(1) The Company has assigned special people to set a communication channel in order to collect and inform employees’ and shareholders’ suggestions or questions to supervisors.
(2) Supervisors would review the Company’s financial reports and operation status all the time. Also, supervisors would ask the Board of directors or the management to keep well communication with the auditors
2. Supervisors did not have any opinion as attended the Board of Meeting. Note: (1) At the end of the year, if there is any director and supervisor resigned, the box of remark is needed to disclose the date of
resignation. The attendance rate is calculated regarding the time of the actual attendance. (2)At the end of the year, if there is any director and supervisor reelected, the box of remark is needed to clarify the name of new
and old directors and supervisors and to disclose information on the date of reelection. The attendance rate is calculated regarding the time of the actual attendance.
3. Audit Committee Meeting Status: The Company has not yet established an Audit Committee;
therefore, the independent directors perform the function of such a board.
18
4. Taiwan Corporate Governance Implementation as Required by the Taiwan Financial Supervisory Commission
Item Implementation Status Reason for Non-implementation
1、Shareholding structure & shareholders’ rights (1) Method of handing shareholder suggestions or
complaints. (2) The Company’s possession of a list of major
shareholders and a list of ultimate owners of these major shareholders.
(3) Risk management mechanism and “Chinese Wall” between the Company and its affiliates.
(1) The Company has appointed IRO to assigned a mail box to deal with shareholder suggestions and complaints
(2) The Company has properly controlled the role of dominant shareholders and the shareholders behind them. The Company also has accessed to their status of shareholding at any time.
(3) The Company has instituted the proper procedure for handling financial and business transactions with affiliates whereby authority and responsibility are clear cut.
None
2、Composition and responsibilities of the board of directors
(1) Independent directors (2) Regular evaluation of external auditors’
independence
(1) The Company has three independent directors. (2) The Board regularly assesses the independence
and impartiality of its external auditors, and replaces such auditors after a few years of service to the Company for assuring their independence and impartiality.
None
3、Communication channel with stakeholders
The Company has designed appropriate channel and departments, such as Spokesperson System, the Website, Legal, the SEC Compliance Department, and Investor Relations etc., to communicate with stakeholders.
None
4、Information disclosure (1) Establishment of a corporate website to
disclose information regarding the Company’s financial, business and corporate governance status.
(2) Other information disclosure channels (e.g. maintaining an English-language website, appointing responsible people to handle information collection and disclosure, appointing spokespersons, webcasting investors conferences).
(1) The Company discloses information through its website http://www.cptt.com.
(2) The Company has appointed responsible people to maintain English- and Chinese-language websites and to handle information collection and disclosure. Furthermore, the Company has designated spokespersons to set up periodical investors conferences. All relevant references and information are available on CPT’s website.
None
5、Operations of the Company’s nomination committee, compensation committee, or other committee of the board of directors’.
The Company did not establish an audit committee or a compensation committee. None
6、If the Company has instituted the internal rules for corporate governance in accordance with the “Corporate Governance Best-Practice Principles for TSE/GTSM Listed Companies,” specify the status of enforcement and nonconformity: The Company has not yet instituted such rules but has duly observed the “Corporate Governance Best-Practice Principles for TSE/GTSM Listed Companies” in pursuing corporate governance for its desired goal.
7、Other important information to facilitate better understanding of the Company’s corporate governance practices (e.g. employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of consumer/customer protection policies, and insurance for directors and supervisors):
(1) Status of directors and supervisors’ training records: The Company continually informs the directors and supervisorsabout training courses designed by competent authority or professional institutions. Directors and supervisors haveopinions to take these classes.
(2) Status of attendances: The attendances of directors and supervisors at the 2008 Board were 98.14% and 88.89%. (3) Status of risk management policies and risk evaluation: The Company has already implemented related policies. (4) Status of avoiding conflict of interest: Directors with high moral avoid any conflict of interest when the Board reviews
motions. (5) Status of Directors and Officers (D&O) liability insurance for directors and officers: Since 2006, the Company has
purchased D&O liability insurance for its directors and supervisors regarding to the Article of Incorporation. (6) The Company has instituted a viable parliamentary procedure for the Board and for the General Shareholders Meeting.
All sessions shall be governed by such procedure. 8、If the Company has a self corporate governance evaluation or has authorized any other professional organization to
conduct such an evaluation, the evaluation results, major deficiencies or suggestions, and improvements are stated as follows: None.
19
To fulfill corporate social responsibilities: CPT achieves its promises and fulfills social responsibilities with “CREATION, PERFECTION, and TEAMWORK.” ◎ Creation:
Rich and Colorful Display with Innovation Technology: In 2008, CPT honorably received the rewards of Outstanding Industry Contribution and of Excellent Product from Color Imaging Industry Promotion Office (CIPO) of the Ministry of Economic Affairs four times in a roll on its 15.4” Color Sequential Display and 2D/3D Switchable. Knowledge-based Economy with People-centred Approach CPT, which is a globalized organization in the Optronics industry, fulfills Corporate Social Responsibility (CSR) and implements Electronics Industry Code of Conduct (EICC). In addition, CPT assures that its recruitment, environmental health perspectives, working processes, and internal management fulfill recycling and moral concerns. Meanwhile, CPT supports and encourages its suppliers to follow the same principles.
◎ Perfection: Pursuing Cultivated Technology, People, and Education: CPT continually develops the Optronics industry by holding a lecture on campus and cultivating know-how employees. Charity and Welfare Support: CPT strives to implement corporate social responsibilities. CPT sponsors a non-profit foundation “First Mile, Kid’s Mile” that performs and enlightens children. Over 10,000 people go to watch the show; in Bade: 4,000 people; in Lungtan: 3,800 people; in Yangmei: 4,200 people. Although CPT is not a pioneer to launch corporate social responsibilities, CPT continually exerts efforts to concern about the mission.
◎ Teamwork:
Cooperate with Universities to Innovate R&D: CPT held “Industry-University Cooperation Achievement Conference” with National Chiao Tung University and Tatung University. From 2004 to 2008, CPT has had 133 patent applications, in which seven of them have already got approval and twenty-eight of them have already been in publish. Also, a number of 59 papers were released in 2008. Moreover, CPT published seven advanced technology papers in the 2008 Society for Information Display (SID). The total volume of papers was the second highest in the industry. The R&D achievement of Color Sequential by CPT and National Chiao Tung University achieved number one position in the CF-Less technology. Such innovative technology helped CPT succeed in producing unique Transflective TFT-LCD panels. In addition, BusinessNext used the same way as BuinessWeek in USA to evaluate each company regarding revenue, rate of revenue growth, rate of return on shareholders’ equity, and rate of return on investment. CPT was ranked the 26th place in the Info Tech 100 list in the BusinessNext and the 24th place in the Manufacture 1,000 list in the CommomWealth. CPT exerts all its strength to enhance its R&D and maintain its position in the industry with stable business operation, customers’ trust, and well-organized up- and down-stream integration. Simultaneously, CPT continually enlarges self-promotion and creates a whole new world with customers and suppliers
20
5. Disclosure of the method of inquiry on internal code of corporate governance and related regulation, if there is any: None.
6. Information for the better understanding of enhancing corporate governance shall also be disclosed:
None. 7. The following sections of the status of enforcement in internal control shall be disclosed:
(1) Statement of Internal Control System: Please, refer to page 53. (2) Disclose the audit report by independent accountants on special audit on internal control system,
if there is any: None
8. Punishment on the Company and employees in violation of law, punishment on employees in violation of internal control system and other internal regulation, major shortcomings and status correction: None.
9. Major resolutions of the General Shareholders Meeting and the Board in the most recent year as of
the day this annual report was printed. Date Type Major Resolutions
January 04, 2008 Board (1) Resolution on the quantity of ESOP released for subscription in Q4, 2007 and determination of the date of issuance (for raising new capital).
March 25, 2008 Board (1) Discussion on the agenda of the General Shareholders Meeting in 2008
April 22, 2008 Board (1) Recognition of the 2007 profits’ distribution. (2) Resolution on the acquisitions of the G3.5 and G4.5 CF plants from Sintek
Photronic Corp.
May 02, 2008 Board (1) Resolution on support the representative of Tatung University to participate in
the directors’ election of Tatung Co.; support the representative of Tatung High School to participate in the supervisors’ election of Tatung Co.
June 13, 2008 General
Shareholders Meeting
(1) Recognition of the 2007 Business Report and Financial Statements. (2) Recognition of the 2007 profits’ distribution. (3) Resolution on amendment to the Article of Incorporation (4) Resolution on raise capital through the issuance of new shares in common
stock or the issuance of new shares for the participation in the issuance of GDR/ADR
June 30, 2008 Board (1) Planned to assign the Company’s buyback stocks to its employees.
July 10, 2008 Board (1) Resolution on the date of cash dividend payout to distribute the 2007 profits. (2) Resolution on change of Headquarters’ address.
July 23, 2008 Board (1) Resolution on the adjustment in the proportion of cash dividend payout of the 2007 profit distribution.
August 25, 2008 Board (1) Resolution on the replacement of CPA in financial auditing. (2) Recognition of the Report on Consolidated and Non-consolidated Financial
Statements in the first half, 2008.
November 07, 2008 Board (1) Resolution on establishing the policies of employee stock options and
applying to Financial Supervisory Commission, Executive Yuan for employees stock options.
March 03, 2009 Board (1) Discussion on the agenda of the General Shareholders Meeting in 2009 (2) Resolution on the replacement of CPA in financial auditing.
April 06, 2009 Board (1) Amendment to the procedure for financing third parties (2) Revisions to the Article of Incorporation.
April 29, 2009 Board (1) Recognition of the 2008 Business Report and Financial Statements. (2) Financing third parties
21
10. Adverse opinions from directors or supervisors over important resolutions of the Board in the most recent year as of the day this annual report was printed with records and written declaration, and the content of such opinions: None.
11. Any discharge and resignation of parties relating to financial reporting (including the Chairman, the President, Chief Accounting Officer, and Head of Internal Audit) in the most recent year as of the day this annual was printed: None.
IV、 Information on Independent Auditor 1. Disclosure of the amount and service content of payment to external auditors and the employer of
the external auditors and affiliates for non-audit fees accounting for 25% of the fees for financial service: The Company does not pay more than 25% of the financial service fees to auditors. Therefore, it is not applicable.
2. Replacement of CPA firm with smaller amount of fees for audit service. Disclose the amount saved and the proportion, and reason for such differences: None.
3. Fee for financial audit service was 15% less than that of the previous year, disclose the amount, proportion and the reason: None.
V、 Information on Replacement of Independent Auditor The Company retained Ting-Ming Chang (CPA) and Yi-Chang Liang (CPA) of Ernst & Young for auditing the financial report in 2008. In light of the internal job rotation at Ernst& Young, Yi-Chang Liang (CPA) and Ming-Yu Lee (CPA) were assigned to conduct the financial auditing of the Company effective in Q4 2008.
VI、 Disclose the Names Title of the Chairman, President, Financial and Accounting Manager of
the Company Who have Worked for the CPA Firms or the Affiliates to such Related Firms in the Most Recent Year: None.
22
VII、 Net Change in Shareholding and Net Change in Shares Pledged by Directors, Supervisors, Management, and Shareholders with 10% Shareholdings or More as of the Day this Annual Report was Printed.
1. Net change in shareholding and net change in shares pledged by Directors, Supervisors, Management, and Shareholders with 10% shareholdings or more:
2008 As of 30 April 2009 Title Name Net Change in
ShareholdingNet Change in Shares Pledged
Net Change in Shareholding
Net Change in Shares Pledged
Chairman Wei-Shan Lin Director Yuan-Sheng Tang Director Wen-Yen K. Lin Director Hung-Ming Lin Director Chun-Ying Chang (Note 1) Director Chuang-Yi Chiu Director Chao-Yun Hsu (Note1)
Representative of Tatung Co. - - - -
Independent Director Chien-Chung Yuan - - - -
Independent Director Kuo-Ching Shih - - - -
Independent Director Chien-Ho Chao - - - -
Supervisor Wen-Chang Yu (Note 2) Supervisor Tien-Fa Ou Supervisor Ying-Yu Chu (Note 2) Supervisor Chih-Cheng Wang (Note 2) Supervisor Lung-Chieh Wang (Note 2) Supervisor Shu-Fen Chen (Note 2) Supervisor Chang-Chieh Yang (Note 2)
Representative of Chunghwa Electronics Investment Co., Ltd.
- 222,000,000 - -
Supervisor Tung-Fa Chi - - - -
CEO Wei-Shan Lin - - - -
President Chuang-Yi Chiu - - - -
VP Kuang-Lang Chen - - - -
VP Yi-Tsai Hsu - - - -
VP Wen-Chang Chiang - - - -
VP & CFO Jiun-Yi Wu - - - -
VP Kuang-Yeh Dung - - - -
VP Hsueh-Lung Lee - - - -
VP Kuan-Min Lu - - - -
VP Sheng-Chang Lin - - - -
VP Shih-Tsung Yang - - - -
VP Terng-Yaw Lin - - - -
Note 1: The former representative of Tatung Co., Chun-Ying Chang, was relieved. Mr. Chao-Yun Hsu was appointed as a Director and acted as the representative of his institutional shareholder on July 10, 2008.
Note 2: The former representatives of Chunghwa Electronics Investment Co., Ltd. Mr. Wen-Chang Yu, Mr. Ying-Yu Chu, and Mr. Chih-Cheng Wang were relieved. Mr. Lung-Chieh Wang, Miss Shu-Fen Chen, and Mr. Chang-Chieh Yang were appointed as directors and acted as the representatives of institutional shareholders on July 10, 2008.
2. Information on stock trade: None. 3. Information on stock pledge: None.
23
VIII、 The Top 10 Shareholders in Percentage of Shareholding and Are Related to One Another as Required to Disclose under Financial Accounting Standard No. 6.
Information on the 10 largest shareholders who are related parties to each other:
Shareholding by Self Spouse & Minor
Shareholding by Nominee Arrangement
The Top 10 Shareholders who are Spouses or within Second-degree Relative of
Consanguinity to Each Other
Rem
ark
Name
Shareholding % Shareholding % Shareholding % Name Relation
Tatung Co. Representative: Wei-Shan Lin
1,051,537,247 11.09% 200,780 0.00
% - -Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Tatung Co. Representative: Wen-Yen K. Lin
1,051,537,247 11.09% 200,903 0.00
% - -Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Tatung Co. Representative: Yuan-Sheng Tang
1,051,537,247 11.09% 8,243 0.00
% - -Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Tatung Co. Representative: Chao-Yun Hsu
1,051,537,247 11.09% - - - -
Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Tatung Co. Representative: Hung-Ming Lin
1,051,537,247 11.09% 73,618 0.00
% - -Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Tatung Co. Representative: Chuang-Yi Chiu
1,051,537,247 11.09% - - - -
Chunghwa Electronics
Investment Co., Ltd.
Parents- Subsidiary
Chunghwa Electronics Investment Co., Ltd. Representative: Lung-Chieh Wang
1,486,542,603 15.68% 561 0.00
% - - Tatung Co. Parents- Subsidiary
Chunghwa Electronics Investment Co., Ltd. Representative: Tien-Fa Ou
1,486,542,603 15.68% - - - - Tatung Co. Parents-
Subsidiary
Chunghwa Electronics Investment Co., Ltd. Representative: Shu-Fen Chen
1,486,542,603 15.68% - - - - Tatung Co. Parents-
Subsidiary
Chunghwa Electronics Investment Co., Ltd. Representative: Chang-Chieh Yang
1,486,542,603 15.68% - - - - Tatung Co. Parents-
Subsidiary
IX、 Quantity of Shareholding for Each Investee Provided by the Company or the Directors, Supervisors, Manager of the Company and Direct or Indirect Subsidiaries in Proportion to the Combined Holding of All Unit: shares; ％
Ownership by the Company Direct/Indirect Ownership by Directors and Management Total Ownership Investee
（Note） Shares % Shares % Shares %
CPT (Bermuda) Co., Ltd. 131,900,000 100.00% - - 131,900,000 100.00%
CPT (Labuan) Co., Ltd. 8,000,000 41.03% 11,500,000 58.97% 19,500,000 100.00%
Forward Electronics Co., Ltd. 24,099,974 15.33% 30,441,373 19.35% 54,541,347 34.68%
Tatung Co. 169,528,938 3.73% 141,588,240 3.11% 311,117,178 6.84%Toppan Chunghwa Electronics
Co., Ltd 60,000,000 22.49% - - 60,000,000 22.49%
Grand Cathay International Asset Management Co., Ltd. 34,000,000 100.00% - - 34,000,000 100.00%
Giantplus Technology Co., Ltd 130,865,696 32.22% - - 130,865,696 32.22%Note: Long-term investment of the Company.
24
4、Status of Capital Planning I、Capital Stock 1. Capitalization Unit: NT$ thousands; thousand shares
Authorized Share Capital Capital Stock Remark Month/
Year Issuing Price Shares Amount Shares Amount Sources of
Capital
Capital Increase by Assets Other than
Cash Others
Jul. 2007 10 12,500,000 125,000,000 8,484,909 84,849,089 Convertible
Bonds - Note 1
Nov. 2007 10 12,500,000 125,000,000 8,836,157 88,361,574 Convertible
Bonds - Note 2
Jan. 2008 10 12,500,000 125,000,000 9,373,776 93,737,762
Convertible Bonds &
Exercise of Employee Stock
Opinions
- Note 3
May 2008 10 12,500,000 125,000,000 9,480,960 94,809,598 Convertible
Bonds - Note 4
Note 1: Letter Chin-Kun-Cheng (1) No. 0940161485 dated February 14, 2006 became effective and approval was made under Letter Ching-Shou-Shang No. 09601178830 dated July 27, 2007.
Note 2: Letter Chin-Kun-Cheng (1) No. 0950114064 dated April 21, 2006 became effective and approval was made under Letter Ching-Shou-Shang No. 09601271630 dated November 07, 2007.
Note 3: Approval was made under Tai-Tsai-Cheng (1) 0930115893 dated April 29, 2004, and Letter Chin-Kun-Cheng (1) No. 0950114064 dated April 21, 2006, Letter Chin-Kun-Cheng (1) No. 0960011679 dated March 29, 2007, became effective. Also approval was made under Ching-Shou-Shang (1) No. 09701017070 dated January 24, 2008.
Note 4: Letter Chin-Kun-Cheng (1) No. 0950114064 dated April 21, 2006; and Letter Chin-Kun-Cheng (1) No. 0960011679 dated March 29, 2007, became effective and approval was made under Letter Ching-Shou-Shang No. 09701108940 date May 12, 2008.
Unit: Shares
Authorized Share Capital Type of Stock Outstanding Shares Unissued Shares Total
Remark
Listed Common
Stock 9,480,959,830 3,019,040,170 12,500,000,000
Retained for corporate bond conversion: 972,941,176 Retained for Employee Stock Opinions: 700,000,000
Shelf registration: None.
2. Composition of Shareholders March 21, 2009
Government Agencies
Financial Institutions
Other Juridical Persons
Domestic Natural Persons
Foreign Institutions & Natural Persons
Treasure Stock
Total
Number of Shareholders 8 19 361 324,537 406 1 325,332
Shareholding 31,530 76,765,418 2,686,541,637 5,532,948,958 1,140,672,287 44,000,000 9,480,959,830
Holding Percentage (%) 0.00% 0.81% 28.34% 58.36% 12.03% 0.46% 100.00%
25
3. Distribution Profile of Share Ownership NT$ 10 per share; March 21, 2009 Shareholder Ownership Number of Shareholders Ownership Ownership (%)
1 to 999 47,134 15,523,906 0.16%1,000 to 5,000 132,277 335,132,463 3.53% 5,001 to 10,000 55,281 437,156,859 4.61%
10,001 to 15,000 24,117 292,994,501 3.09% 15,001 to 20,000 16,894 314,951,534 3.32% 20,001 to 30,000 16,553 418,624,316 4.42%
30,001 to 40,000 7,995 283,864,624 2.99% 40,001 to 50,000 6,160 287,908,966 3.04%
50,001 to 100,000 10,695 777,736,007 8.20% 100,001 to 200,000 4,889 691,585,056 7.29%
200,001 to 400,000 1,957 541,076,876 5.71% 400,001 to 600,000 588 289,618,042 3.05%
600,001 to 800,000 215 148,619,140 1.57% 800,001 to 1,000,000 158 145,940,964 1.54%
Over 1,000,001 419 4,500,226,576 47.48% Total 325,332 9,480,959,830 100.00%
Preferred Share: None.
4. Major Shareholders
Code Account Number Shareholders Total Shares
Owned Ownership (%)
1 1 Chunghwa Electronics Investment Co., Ltd 1,486,542,603 15.68% 2 2 Tatung Co. 1,051,537,247 11.09% 3 365513 Standard Chartered Newly Emerged Market Fund Special Trustee Account 56,213,000 0.59% 4 365436 ABP Pension Fund Investment Account at Morgan Chase Bank 51,673,046 0.55% 5 515130 Citibank Newly Emerged Market Fund Special Trustee Account 51,320,045 0.54%
6 365252 Standard Chartered Vanguard Newly Emerged Market Fund Special Trustee Account 47,307,331 0.50%
7 365297 iShares Investment Account at Standard Chartered Bank 44,184,105 0.47% 8 170782 Civil Servants Pension Fund Management Committee 41,026,849 0.43% 9 571567 Wisconsin Committee Investment Account at Standard Chartered Bank 38,502,000 0.41%
10 90214 Abu Dhabi Investment Account at Morgan Chase Bank 37,594,596 0.40%
5. Information on marker price, net worth, earnings, and dividends per common share in the past two years Year
Item 2007 2008 As of April 30, 2009 (Note 4)
High 13.75 11.4 5.60 Low 5.71 2.03 2.59
Market Price Per
Share Average 8.79 7.22 4.19 Before Distribution 10.8 8.62 7.43 Net Worth
Per Share After Distribution 10.4 - - Weighted Average Shares (thousand shares) 8,559,958 9,449,716 9,436,960 Earnings
Per Share Earning Per Share 1.02 (1.47) (1.19) Cash Dividends 0.40 - -
Dividend from Retained Earnings - - - Stock Dividends Dividend from Capital Surplus - - -
Dividends Per Share
Accumulated Undistributed Dividend - - - Price/Earnings Ratio (Note 1) 8.62 (4.91) - Price/Dividends Ratio (Note 2) 21.97 - - Return on
Investment Cash Dividend Yield (Note 3) 0.05 - - Note 1: Price/Earnings Ratio = Average Market Price / Earnings Per Share Note 2: Price/Dividends Ratio = Average Market Price / Cash dividends Per Share Note 3: Cash Dividend Yield = Cash Dividend Per Share / Average Market Price Note 4: Audited net worth per share and earnings per share figures based on the latest quarter preceding the publication of the annual
report; other figures based on the latest data available prior to the publication of the annual report.
26
6. Dividend policy and implementation (1) Dividend policy as stated in the Corporate Charter Earnings of the Company shall be subject to corporate income tax under law. The remainder of such earnings shall be appropriated for writing off loss carried forward and 10% will be set aside as a statutory reserve. Competent authority also requires the Company to set aside a special reserve from the remainder of the aforementioned earnings net of all the above deductions, and only the remainder after all these appropriations is the income for payout. The Board shall be responsible for the proposal of dividend payout pending the approval of the General Shareholders Meeting. Directors’ and Supervisors’ compensation shall contribute less than 1% of remaining earnings. Also, employee bonuses shall range from 1% to 10% of such remaining amount and the rest shall be paid out as dividend for shareholders. The Company is in the high-tech industry and is in the growth stage of the corporate lifecycle. To enlarge scale and enhance competitive position comparable to other large global firms, the Company has adopted the policy out only the remainder. Dividend payout and bonus shall be relevant to the consideration of capital spending and capital requirement of the future. Cash dividends shall not be lower than 10% of the total of cash dividend and stock dividend of the year. However, the release of cash dividend shall be pending on the actual profit position of the Company in a specific year and the capital requirement in the future and adjustment shall be made accordingly.
(2) Proposal for dividend payout proposed in General Shareholders Meeting: The Company shall not pay out any dividend fir this year.
7. Impact on operation performance of the Company and EPS resulting from stock dividend distribution:
No decision was made fro stock dividend distribution in this General Shareholders Meeting.
8. Employee profit sharing and directors & supervisors compensation (1) Percentage and scope of employee profit sharing and directors & supervisors compensation as
stated in the Corporate Charter: For details, refer to “6” on Dividend Policy and Implementation.
(2) Information on the resolution of the Board on the payout of employee bonuses:
(a) Profit distribution set aside as directors & supervisors compensation, and employee bonuses: None.
(b) Proposed stock dividends to be distributed to employees and the percentage thereof in increase in capital by earnings: None.
(c) Imputed EPS after distribution of employs bonuses and directors & supervisors compensation: N/A.
(3) Profit distribution set aside as employee profit sharing and directors & supervisors compensation:
(a) Employee profit sharing: The Company’s 2007 remain earning was NT$ 8,703,353,914. As approved by the 2008 General Shareholders Meeting, the Company distributed the amount of NT$ 331,714,519 to employees. The actual amount distributed was relevant with the resolution of the Board on the same issue.
(b) Directors & supervisors compensation: The Company only disbursed traveling subsidies to its directors and supervisors, and no other forms of compensations.
27
9. Buyback of Common Share: April 30, 2009 Buyback Plan The Fifth Buyback Plan
Purpose Transfer to Employees Period 07/01/2008 ~ 08/31/2008 Buyback Price Range (NT$) NT$ 14.01 to NT$ 5.57 Class and Number of Shares Bought Back 44,000,000 shares Value of Shares Bought Back NT$ 307,160,515 Number of Shares Cancelled or Transferred 0 shares Accumulated Number of Treasury Shares Held 44,000,000 shares Accumulated Treasury Shares Held as a %of Total Outstanding Shares（%） 0.46 ％
28
10. Issuance of Corporate Bonds (1)Outstanding bonds and bonds in application
Issuance The 7th Issuance of Secured Overseas ECB The 1st Issuance of Private Placed ECB Issuing Date 10/02/2007 01/31/2008 Denomination US$ 1,000 US$ 10,000 Issuance & Listing Stock Exchange of Singapore Stock Exchange of Singapore Offering Price Par Par Total Amount US$ 150,000,000 US$ 250,000,000 Interest Rate 0% 0%
Tenure 5 Years Maturity: 10/02/2012
6 Years Maturity: 01/31/2014
Guarantor - - Trustee Bank of New York Bank of New York Underwriter ABN - Legal Counsel Simpson Thacher & Bartlett Skadden, Arps, Slate, Meagher&Flom Auditor Ernst & Young Ernst & Young
Repayment
Unless otherwise redeemed, repurchased by the Company or the exercise of conversion rights thereof, the Company shall pay 120% of the face value for redemption on maturity.
Unless otherwise redeemed, repurchased by the Company or the exercise of conversion rights thereof, the Company shall pay 134.34% of the face value for redemption on maturity.
Outstanding US$ 140,450,000 US$ 250,000,000
Redemption or Early Repayment Clause
1. In case the price of the common stock issued by the issuer traded on the TSE for 20 consecutive days at close exceeds 130% of the conversion price of this bond after being converted into USD after the first 18 months of the issuance, the issuer reserved the rights to redeem this issuance of bonds in whole or in part at 120 % of the face value.
2. When 90% of this issuance of bonds were redeemed, repurchase and cancelled or conversion right was being exercised, the issuer might redeem the outstanding bonds in whole at 120% of the face value.
3. Where there might be change in the legal environment, to the extent that the withholding tax becomes higher than current level, and additional tax burden was levied to the issuer, the issuer reserved the right to redeem this issuance of bonds in whole at 120% of the face value.
If the price of the common stock of the Company traded on the TSE at close fro more than 30 consecutive days of trade from the day after the 3rd anniversary of the issuance of the bond at a value exceeding 150% of the redemption price of this bond (at 139.34% of the face value), the issuer with validity of more than 20 business days to redeem the outstanding portion of the bonds in whole or in part by cash at the redemption price.
Covenants - - Credit Rating - -
Other Rights of
Bondholders
Amount of Converted Shares as of the Day this
Report was Printed
9,550,000 -
Other Rights of
Bondholders
Conversion Right
1. Respective bond holder reserved the right to apply for the conversion of bond to common stocks of the Company from the 40th day after the issuance of bond to 7 days before maturity.
2. Period for suspension of transactions before General Shareholders Meeting: No conversion may be made from the day that is 15 days before the cum-right day to the dividend day or during any period as prescribed by law.
1. Respective bond holder reserved the right to apply for the conversion of bonds to common stocks of the Company 3 months after this issuance of bonds to 7 days before maturity.
2. Period for suspension of transactions before General Shareholders Meeting: No conversion might be made from the 15th day before the cum-right day to the dividend day or during any period as dictated by law.
3. Respective bond holder reserved the right to apply for the conversion of bond to common stocks of the Company 3 months after the issuance of bonds. However, the shares so converted night be traded in the centralized market only after the 3rd anniversary of the issuance.
Dilution Effect and Other Adverse Effects on
Existing Shareholders
After this issuance of bonds was converted into common stocks in whole, it would cause dilution of previous shareholders equity by 11.98%, which was minimal.
After this issuance of bonds was converted into common stocks in whole, it would cause dilution of previous shareholders equity by 11.98%, which was minimal.
Custodian - -
29
(2) Convertible bond
Issuance The 6th Issuance of Secured Overseas ECB (Note 1)
The 7th Issuance of Secured Overseas ECB
The 1st Issuance of Private Placed ECB
Year Item 2008 2008 As of April
30, 2009 2008 As of April 30, 2009
High 159.62 118.21 106.70 - -
Low 138.06 97.45 100.20 - - Market Price
Average 151.58 106.00 102.07 - - Conversion Price 6.83 9.75 (Note 2) 7.8 (Note 2) 6.45 (Note 3) 6.45 (Note 3)
Issuing Date 07/14/2006 10/02/2007 01/31/2008 Conversion Price at
Issuance 7.89 10.35 8.5
Contractual Obligation for Conversion New Common Shares New Common Shares New Common Shares
Note 1: The 6th issuance of secured overseas ECB was redeemed on February 21st, 2008. Note 2: Adjustment on price due to conversion was made on August 16th, 2008 and February 16th, 2009 for the 7th issuance of
secured overseas ECB. Note 3: Adjustment on price due to conversion was made on December 31, 2008 for the 1st issuance of private placed ECB. (3) Exchangeable bond: None. (4) Shelf Registration: None. (5) Bond with warrants: None.
11. Preferred Shares: None. 12. Issuance of GDR/ADR Issuing Date October 08, 2003 / March 04, 2004 / June 24, 2005 Issuance & Listing Luxembourg Stock Exchange Total Amount US$ 226,600,000 / US$ 132,000,000 / US$ 308,560,000 Offering Price Per GDR/ADR US$ 11.33 / US$ 16.5 / US$ 11.02 Units Issued 20,000,000 units / 8,000,000 units / 28,000,000 units Underlying Securities Issuing new shares and common share from Tatung Co. Common Shares Represented 500,000,000 shares / 200,000,000 shares / 700,000,000 shares Rights & Obligations of GDR/ADR Same as those of common shares holders Trustee None Depositary Bank Citibank, N. A. - New York Custodian Bank Citibank, N.A. - Taiwan Branch GDR/ADR Outstanding 239,134 units
Apportionment of Expenses for Issuance & Maintenance
The expenses for issuance were allocated to the Company and the shareholders in proportion to the actual volume of shares sold. After the issuance, the Company shall be fully responsible for the expenses incurred during the term of the ADR unless otherwise agreed with the depository bank.
Terms and Conditions in the Deposit Agreement & Custody Agreement -
High US$ 8.62 Low US$ 1.57 2008 Average US$ 5.84 High US$ 4.03 Low US$ 1.97
Market Price As of
April 30, 2009 Average US$ 2.66
Note: This was the total volume of the initial issuer, excluding the capitalization of retained earnings and capital surplus of 7,191,427 shares as of August 09, 2005 (equivalent to 287,656 units of GDR/ADR).
30
13. Status of employee stock opinion plan (1) Issuance of employee stock opinions April 30, 2009
Employee Stock Opinions Granted
Second Grand in 2002
First Grant in 2004
Second Grant in 2004
Third Grant in 2004
First Grant in 2007
Approval Date by the Securities & Future Bureau
05/14/2002 04/29/2004 04/29/2004 04/29/2004 05/24/2007
Issue (Grant) Date 01/02/2003 05/17/2004 10/01/2004 03/22/2005 05/30/2007
Number of Opinions Granted 165,710,000 shares 113,821,000 shares 72,349,000 shares 46,430,000 shares 100,000,000 shares
Percentage of Shares Exercisable to Outstanding Shares
1.75% 1.20% 0.76% 0.49% 1.05%
Opinion Duration 01/02/2003~ 01/01/2008
05/17/2004~ 05/16/2008
09/30/2004~ 09/29/2009
03/22/2005~ 03/21/2010
05/30/2007~ 05/29/2012
Source of Opinion Shares New Common Share New Common Share New Common Share New Common Share New Common Share
Vesting Schedule（%） 2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100%
2nd Year: up to 50%3rd Year: up to 75%4th Year: up to 100%
2nd Year: up to 50%3rd Year: up to 75%4th Year: up to 100%
2nd Year: up to 50% 3rd Year: up to 75% 4th Year: up to 100%
2nd Year: up to 50%3rd Year: up to 75%4th Year: up to 100%
Shares Exercised 72,088,000 shares - - 1,249,000 shares - Value of Shares Exercised NT$ 782,968,200 - - NT$ 13,489,200 - Shares Unexercised 93,622,000 shares 113,821,000 shares 72,349,000 shares 45,181,000 shares 100,000,000 sharesGranted Price Per Share 10.5 14.6 12.5 10.4 8.00 Percentage of Shares Unexercised to Outstanding Shares 0.99% 1.20% 0.76% 0.48% 1.05%
Impact on Shareholders’ Equity
- - - - -
31
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32
II、Financial Plans and Implementation Unaccomplished issuance of marketable securities through public offering and private placement or plans accomplished within the last three years without yielding the desired effect:
1. The Issuance of ECB in 2007 (1) The Plan
(a) Approval Document Number and date of approval: Jin-Guan-Zi (1) No. 0960011679 dated March 29th, 2007.
(b) Total capital requirement for this plan: NT$ 8,125 million. (c) Sources of capital: the issuance of unsecured overseas ECB amounted to NT$ 8,125
million with a five-year term at 0% interest rate. (d) The content of the plan and progress in the utilization of funds:
Status of Use 2007 2008 Project Projected
Completion Date Total Capital Requirement
3Q 4Q 1Q 2Q Overseas Material
Procurement 06/30/2008 NT$ 8,125,000 2,031,250 2,031,250 2,031,250 2,031,250
(e) Expected Results:
①.Interest amounting to NT$ 500 million could be saved annually. ②.Reduce exchange risk through diversity of financing channels, including foreign
capital. This measure also helps to enhance the Company’s reputation. (f) Date of data input to MOPS: April 10, 2008. (g) The date of the Plan of Change proposed before the General Shareholders Meeting:
No plan of change.
(2) Status of Implementation: Unit: NT$ thousands; June 30, 2008
Status of Use Status Year Projected Amount
of Consumption Actual Amount of
Consumption Projected Amount of Consumption
Actual Amount of Consumption
3Q 2,031,250 - - - 2007
4Q 2,031,250 3,273,964 50.00% 40.29% 1Q 2,031,250 3,145,459 75.00% 79.00%
2008 2Q 2,031,250 1,705,577 100.00% 100.00%
33
2. The 1st issuance of private placed overseas securities in 2008.
(1) The plan (a) Approval Document Number and date of approval: Jin-Guan-Zi (1) No. 0970010663
dated January 23th, 2008. (b) Total capital requirement for this project: NT$ 8,270 million (or approximately equal to
US$ 250 million at the exchange rate of 33.08:1) (c) Sources of capital: Private placed ECB. (d) The content of the plan and progress in the utilization of funds:
Unit: NT$ thousands Status of Use
2008 Project Projected Completion Date
Total Capital Requirement
1Q 2Q 3Q 4Q Used as working capital-retirement of debts
12/31/2008 4,366,560 1,852,480 595,440 1,323,200 595,440
Used as working capital-overseas material procurement
12/31/2008 3,903,440 1,455,520 1,058,560 1,157,800 231,560
Total 8,270,000 3,308,000 1,654,000 2,481,000 827,000 (e) Projected benefits:
�.Save interest spending by NT$ 500 million annually. �.Attract world-known investors to enhance the Company’s reputation.
(f) Date of data input to MOPS: February 13, 2008. (g) The date of the Plan of Change proposed before the General Shareholders Meeting: No
plan of change. (2) Status of implementation: Unit: NT$ thousands; December 31, 2008
Status of Use Status Year Projected Amount
of Consumption Actual Amount of
Consumption Projected Amount of Consumption
Actual Amount of Consumption
1Q 3,308,000 3,648,545 40.00% 44.12% 2Q 1,654,000 1,707,978 60.00% 64.77% 3Q 2,481,000 2,280,006 90.00% 92.34%
2008
4Q 827,000 633,471 100.00% 100.00%
34
5、Operational Highlights I、Business Activities 1. Business Scope CPT is a professional manufacturer of display components. With a competitive advantage of outstanding know-how, the Company primarily focuses on R&D, product design, manufacturing and, sales of TFT-LCD and color/mono CRT. In 2008, the main shipment product of CPT was slim TFT-LCD, which accounted for 87% of its total revenue. Its main shipment item was TFT-LCD, including small- and medium-sized panels and panels for monitors, notebooks, and TV. 2. Industry Outlook Over the years, TFT-LCD remained the primary force driving the growth and development of the Company. TFT-LCD features the advantages of technology and product specification for a wide array of applications. Therefore, this item emerged as the mainstream application for almost all types of flat screens.
The TFT sector is capital- and technology-intensive, and is sensitive to the economic cycle. At the present, the production in this sector has been concentrated in Taiwan, Korea, China, and Japan for the time being.
The TFT sector in Taiwan developed incrementally in scope and depth in line with industrial growth. The supply chain integration over the years gave a cost advantage to local TFT firms in competition against Korea and Japan, allowing it to emerge as a leader in the industry. Japan has been a leader in the TFT sector, but has withered under the pressure of cost competition and overall financial capacity that hampered its effort in further investment. Most manufacturers in Japan have gradually pulled out of the large-sized TFT-LCD market and focused on the development of small- and medium-sized products. In China, government policy and capital spending helped to buttress the development of the TFT sector. However, the supply chain in China is far from mature at the moment and its economy of scale is still not large enough. The capital resources are also scarce there. As such, the TFT sector in China tending towards industrial integration for survival.
The applications of TFT to information devices and consumer electronics have become more popular than ever. TFT-LCD panels play a decisive role in the display devices, given that its key component is pivotal in the industry. It engineers the growth in the supply of parts and components in the upper course industries and supports the development of information devices and consumer electronics and related applications in the lower course all over the world. 3. Status of Technology and R&D In 2008, the Company invested the amount of NT$ 4,352,759,000 in R&D. Also, in 2009, the Company estimates to invest NT$ 2,839,700,000 in R&D. As of the day this report was printed, the Company has already invested NT$ 709,925,000 in R&D.
Started from the initial production of small-sized products, CPT has extended its professionalism through technological know-how towards the manufacture of large-sized TFT products which are increasingly refined with a high quality display to create the-state-of-the-art visual satisfaction. CPT is ranked at the top in the industry with a number of R&D technologies, which demonstrating its strengths in the domain of TFT-LCD: (1) Successfully develop Triple Gate technology, which is applied to a-Si GIP middle-sized panel
to reduce cost and improve narrow bezel design. (2) Successfully develop LTPS technology, which not only improves imagine quality in
small-sized panel but also reaches product specifications of narrow bezel and high resolution. (3) Successfully develop a wide viewing angle Transflective display, which is sunlight readable,
low power consumption, and wider viewing angle. These product characteristics are ideal for smart phone application. Furthermore, the improvement in product reflectivity also satisfied outdoor usage image quality product requirements.
(4) High resolution (282 ppi), 2.8” VGA CS panel is developed (Worldwide No.1). (5) Develop energy-efficient electronic paper (E-Paper). (6) A prior development of capacity-embedded touch panel within CS technology.
35
(7) Develop super wide-temperature LCD to make portable displays, which can be operated at -30˚C~95˚C to improve products reliability.
(8) Ultra-slim, high-efficiency LED package combined with GIP (Gate In Panel) and WOA (Wired On Array) technology to develop portable display products with thin, and compactable and low power consumption.
(9) Develop green products with light-weight and ultra-slim design and greater energy efficiency (10) Develop BBI (Black Band Insertion) technology in 26” panel for reducing motion blur. (11) Apply high-speed transmission mini LVDS (Low-voltage Differential Signaling) technology
(~300 MHz) in 21.6” TV. (12) Head the industry to develop high response time LCD (3ms and GTG 2ms) development. (13) Head the industry to develop high contrast monitor panel (1,300:1). (14) Develop EMVA technology for great image quality (full field and low color washout). (15) Successfully develop 15.4” CS NB with great color range, low power consumption, and
switchable reflective. (16) Successfully develop 2D/3D Auto-Switchable 3D display. (17) Successfully develop low cost LED backlight to protect environment. (18) Successfully develop high contrast ratio (9,000:1) TV Panel. (19) Develop Novel Color Engine for greater image quality and vivid color performance. (20) Develop Multi-touch technology for multiple applications.
With continued efforts in R&D, CPT in 2008 honorably received two Gold Panel Awards by Industry Development Bureau (IDB) of Ministry of Economic Affairs (MOEA): (1) the 15.4” Color Sequential Display NB won the Best Product Award; (2) the 15.4” 3D Switching Barrier won the Best Product Award. 4. Long- and Short-term Business Plans CPT has launches different-sized products to meet the diverse needs in the market. In addition, CPT also takes a proactive action in maximizing profits with the G4 and G4.5 small- and medium-sized products. Indeed, the Company has already launched the 7” / 8” / 9” / 10.2” / 10.4” panels for car-used and portable DVD Player, and is moving towards the production of 1.8” / 2” / 2.2” panels for mobile phones.
In demonstrating its strengths in its G6 production, CPT concentrates its effort in the production of the whole line of 17” / 19”W / 22”W / 26”W / 32”W / 37”W panels. The Company also makes an effort in wider panels for monitors with sizes of 17”W / 19”W / 20”W / 22”W / 26”W. Given the popularity of wide screen for notebooks, the Company launches full production of wide screens for notebook, including 14.1”W and 15.4”W. In the area of LCD TV, the Company produces a full line with 19”W / 22”W / 32”W / 37”W in sizes.
The principal business of CPT is the development of a full line of TFT-LCD and application products. Its main customers include well-known international firms with famous brands and large system OEM makers. CPT also takes a proactive action in integrating the system makers at the lower course of the industry for back-end module strategic cooperation and makes investment in XOC, a famous LCD TV firm in Mainland China, for reinforcing its sales channels and enhancing its capacity in marketing.
In the long-term plan, CPT persisted to satisfy the needs of its customer for growth, and supports the development of the market. Therefore, CPT never ceases to provide high quality and low cost products for its customers, and works closely with its customers for a win-win outcome.
36
II、Market, Production, and Sales 1. Market Analysis: (1) Major Products and Main Market
The major products of the Company are TFT-LCD and the main market covers Taiwan, Mainland China, and other areas in Asia. The prime customer group contains dominant manufacturers of home appliances, IT systems, and OEM.
(2) Market Shares The demand of the TFT-LCD market in 2009 is foreseen a growth. In 2008, the shipment volume of large-sized panels was 22,780 thousand. To enlarge value-added products and follow the market trend, CPT proactively adjusts its product mix in 2009, such as 18.5” and 21.6” with 16:9 resolution. Currently, the shipment volume of 20.1” and 22” is ranked 2nd place in the world. The shipment volume of LCD TV is ranked 6th place, and the shipment volume of TFT-LCD MN is ranked 5th place in the world.
(3) Factors favorable and unfavorable to the supply and demand, growth, competitive edge and prospects of the market in the future, and the policy to respond: Based on the outlook for 2009, the demand is not unfavorable including the effects of the US subprime crisis and economic downturn, which impact on the consumer purchasing power. The panel makers have reduced the utilization rate and postponed building new fabs. In addition, there are still some rooms to reduce the material cost. Therefore, regarding the status of supply and demand, the market in 2009 is more health than in 2008. In the future, the two major areas of applications for TFT-LCD will be IT and TVs. CPT has a G6 production line featuring economies of scale for production in the two areas of application. After proper licensing with international organizations, CPT can attune to the changes in demand in peak and slow seasons for proper operation risk control. CPT can also proactively develop newly-emerged products with high profit margin. With the vertical integration of industries in the upper and lower courses, CPT can speed up the manufacturing of CF and CCFL productions. With its positive stance in integrating the assembly and brand holders through strategic alliances, CPT can substantially reduce its cost of materials and ascertain barrier-free marketing channels. These moves will help to enhance the profitability of the Company and create higher returns to the investments to the shareholders.
2. The Major Application of Products and Production Process (1) Major Application
TFT-LCD features light weight, low energy consumption, low radiation, and durability. It is extensively applied to consumer electronics and industrial products, including television sets, monitors, notebook, mobile phones, PDAs, portable DVD Players, MP3s and MP4s, measurement instruments, analysis instruments, medical equipment, motor vehicle panels, radars, and others.
(2) Production Process There are three major steps in the TFT-LCD production process: (1) Array Process; (2) Cell Process; and (3) Module Process.
3. Raw Materials Supply
Key components of TFT-LCD include CF, IC Driver, Backlight, Polarizer, and Glass. For diversifying the risks deriving from materials purchase and for enhancing flexibility of purchase, the Company keeps at least two suppliers for the same component and has maintained good relationships with these suppliers. Therefore, the supply of materials is stable. Additionally, for the higher cost color filter, which is limited in supply, the Company has established CF fabs in Yangmei and Hukou. The operation of these two plants will support the capacity expansion for the next generation with an effective reduction of production cost.
37
4. Name of companies in the past two years who individually accounted for more than 10% of the total purchase and the total sales of the Company. Specify the reasons for any change.
(1) Major Suppliers in the Past Two Years Unit: NT$ thousands
The Company will continue to diverse its source of supply. Further to the joint venture with overseas subsidiaries in TFT-LCD module assembly of CPTL (MY), the Company has no supplier who individually accounted for more than 10% of the purchase value.
(2) Major Customers in the Past Two Years Unit: NT$ thousands
2007 2008 The Name of Company Amount Total Sales (%) Amount Total Sales (%)
A Company 31,673,571 22.00% 12,884,976 12.82% The changes in the amount of sales to customers were mainly the reflection of the changes in the TFT-LCD market.
5. Production in the Past Two Years Unit: 1,000 pcs; NT$ thousands 2007 2008
Capacity Output Gross Sales Capacity Output Gross Sales
TFT-LCD 90,040 90,040 120,643,411 85,869 85,869 100,803,283Other - - 338,437 - - 24,669
Total - - 120,981,848 - - 100,827,952 6. Shipments and Gross Sales in the Past Two Years Unit: 1,000 pcs; NT$ thousands
2007 2008 Domestic Export Domestic Export
Shipments Gross Sales Shipments Gross
Sales Shipments Gross Sales Shipments Gross
Sales
TFT-LCD 44,710 9,766,260 43,704 133,323,653 8,798 4,087,124 65,581 96,377,947
Other 27,502 831,350 16,549 37,387
Total 9,793,762 134,155,003 4,103,673 96,415,334
III、Workforce Structure
2007 2008 2009/04/30 Management 2,891 3,051 3,015Technician 486 492 487 Operators 5,511 5,230 4,953
Number of Employees
Total 8,888 8,773 8,455 Average Age 32 33.4 33.4
Average Years of Services 6 5.5 5.5 Ph.D. 0.08% 0.14% 0.14% Master 10.83% 11.63% 11.79% Bachelor 48.86% 49.86% 50.93% High School 36.52% 35.17% 33.94%
Level of Education
Under High School 3.71% 3.20% 3.20%
2007 2008 The Name of Company Amount Total Purchase (%) Amount Total Purchase (%)
CPTL (MY) 49,986,551 57.33% 36,060,713 53.22%
38
IV、 Information on Environmental Protection Expenditure：Damage or Loss (Including Indemnity) Inflicted by Pollution, Punishments Policies to Cope with the Problem (Including Corrective Action) and Possible Expenditure Thereof.
Violation Amount Loss Corrective Action ExpenditureAccording to Optoelectronic Material and Element Manufacturing Industry Air Pollution Control and Emission Standards, CPT’s raw materials containing VOCs, hydrofluoric acid, and hydrochloric acid in all discharge pipes are fail in recording emission on the Stationary Pollution Source operating permit.
A Fine of NT$ 100,000
CPT has already completed testing for the three pollutants VOCs, hydrofluoric acid, and hydrochloric acid in all discharge pipes before the deadline. The completed testing report has been submitted together with the report on the concentration and emissions of non-methane hydrocarbons (NMHC).
The Environmental Protection Administration points out that the proposals of industrial waste disposal of C-0173, D-0299, and D-1099 are fail in recording their modifications.
A Fine of NT$ 60,000 Modifications have been made changes regarding the Waste Disposal Act.
Zeolite roller and flue gas incinerator are fail in recording on the Stationary Pollution Source operating permit.
A Fine of NT$ 100,000 The operating permit has been changed and recorded.
The raw material from the new process is not congruent with the operating permit. A Fine of NT$ 100,000
The M01 operating permit has been stopped and made an adjustment excluded material, in which has qualified the M02 operating permit.
Washing Tower A211’s maximum liquid flow meter is not congruent with the operating permit.
A Fine of NT$ 100,000To meet the Law’s requirements, the permit has been changed for improvement.
Testing on fume chamber for gaseous ventilation has been conducted and, the initial result has not met the emission standard.
A Fine of NT$ 300,000Retesting on gaseous ventilation has been conducted. The final result met the emission standard.
V、Labor-management Relation 1. Specify the employee welfare policy, continuing education, on the job training, retirement system,
and the status of implementation; and labor-management agreement and the protection of the rights and privileges of the employees.
(1) Employee Benefits Programs:
Employee stock options, stock dividend, performance award, transportation subsidy, lodging, social functions, festivity events, family days, social gatherings, variety of meals, fruit store, bakery, coffee shops, convenient stores, hair parlor, Laundromats, contracted shops, group insurance, physical examinations, recreation center, stadium, bowling place, warm-water pool, film showing, birthday cash gift, matrimony/maternity/funeral subsidy and others.
(2) Continuing Education and On-the-job-training: The Company has a professional team of lecturers, while at the same time; the Company also organizes different programs for orientation and on-the-job-training, courses on foreign languages, computer courses, and program for the second skills in order to strengthen the employees with relevant skills and knowledge. For the employees in management positions, the Company offers them finely tuned courses in leadership. In addition, the Company encourages its employees to participate in external professional training programs by reimbursing them all the tuition expenses. Employees can take part in different forms of training and can also use the electronic library, online database, and online learning facility of the Company for private study and learning.
39
(3) Retirement Policy: (a) The Company duly observes the Labor Standards Law whereby employees eligible for
retirement (at the age of 55 and more than 15 years of service, or more than 25 years of service with the Company) and is entitled to applicable level of pension.
(b) The new retirement policy became effective on July 1st, 2005 whereby the Company shall appropriate pension contribution to the individual pension accounts of employees for those covered by the new Statue for Labor Retirement and Pension on a monthly basis.
(4) Labor-management Agreement and the Protection of the Rights and Privileges of Employees:
Employees are the most valuable asset of the Company. As such, the Company has an employee union and an employee welfare committee, and it has made ceaseless efforts in promoting and protecting the rights and privileges of the employees. The Company has provided employees with a much better environment than what is required by law.
2. Specify the damage and loss caused by labor-management disputes in the most recent years to the
date this report is in printing, and disclose any projected amount of loss at present and in the future and the policy to cope with the problem. If such damage or loss cannot be fairly estimated, specify the reasons and state the facts. The Company did not have any loss caused by labor-management disputes in 2008, and has not been pending lawsuit respective labor-management dispute for the time being.
40
VI、
Mat
eria
l Con
trac
ts
Agr
eem
ents
C
ontra
ctin
g Pa
rty
Effe
ctiv
ely
Sum
mar
y R
estri
ctio
n C
laus
e
Pate
nt L
icen
se
Tosh
iba
Mat
sush
ita D
ispl
ay T
echn
olog
y C
o., L
td.,
TMD
20
07/0
4/01
~ 20
12/0
2/29
1. C
PT e
xcha
nged
lice
nsin
g rig
hts w
ith T
MD
on
usin
g its
TFT
-LC
D p
aten
t.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
Sola
r Phy
sics
Cor
pora
tion,
Pla
sma
Phys
ic
Cor
pora
tion,
and
John
H. C
olem
an
2007
/12/
29~
1. C
PT w
as li
cens
ed to
use
its T
FT-L
CD
pat
ent.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
LG P
hilip
LC
D C
o., L
td.
2007
/11/
26~
2014
/09/
20
1. C
PT w
as li
cens
ed to
use
its T
FT-L
CD
pat
ent.
2. R
oyal
ties w
ill b
e di
sbur
sed
in in
stal
lmen
ts.
Con
fiden
tialit
y C
laus
e
Settl
emen
t LG
Phi
lip L
CD
Co.
, Ltd
. 20
07/1
1/26
~ 20
14/0
9/20
R
econ
cilia
tion
with
LPL
on
leal
act
ions
on
pate
nt in
fring
emen
ts i
nstit
uted
in C
alifo
rnia
and
Del
awar
e.
Con
fiden
tialit
y C
laus
e
Pate
nt L
icen
se
Mits
ubis
hi E
lect
ric C
orpo
ratio
n (M
ELC
O)
2007
/07/
01~
2010
/06/
30
1. C
PT w
as li
cens
ed to
use
its T
FT-L
CD
pat
ent.
2. R
oyal
ties w
ill b
e di
sbur
sed
in in
stal
lmen
ts.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
SHA
RP
Cor
pora
tion,
Japa
n 20
06/0
7~
2011
/06
1. C
PT w
as li
cens
ed to
use
its T
FT-L
CD
pat
ent.
2. R
oyal
ties w
ill b
e di
sbur
sed
in in
stal
lmen
ts.
Con
fiden
tialit
y C
laus
e
Pate
nt L
icen
se
Hita
chi C
orpo
ratio
n, Ja
pan
2003
/01~
20
10/1
21.
CPT
was
lice
nsed
to u
se it
s pat
ents
on
com
mon
item
s and
IPS.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
Sem
icon
duct
or E
nerg
y La
bora
tory
Co.
, Lt
d (S
EL)
2004
/01~
20
08/1
21.
CPT
was
lice
nsed
to u
se it
s TFT
-LC
D p
aten
t.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt T
rans
fer
Indu
stria
l Tec
hnol
ogy
Res
earc
h In
stitu
te o
f Ta
iwan
(ITR
I)
2002
/05~
20
09/0
51.
ITR
I ass
igne
d th
e pa
tent
s of T
FT-L
CD
man
ufac
turin
g to
CPT
and
a fe
w c
ompa
nies
in th
e in
dust
ry.
2. R
oyal
ties w
ill b
e di
sbur
sed
in in
stal
lmen
ts.
Con
fiden
tialit
y C
laus
e
Pate
nt L
icen
se
Hon
eyw
ell
20
05/0
8～
2009
/12
1. C
PT w
as e
ngag
ed in
a c
ross
-ass
ignm
ent o
f pat
ents
with
Hon
eyw
ell i
n sp
ecifi
c ar
eas.
2. R
oyal
ties w
ill b
e di
sbur
sed
in in
stal
lmen
ts.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
Gua
rdia
n 20
06/0
4~
2011
/04
1. C
PT w
as li
cens
ed to
use
its r
etar
datio
n fil
m p
aten
t.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
Sam
sung
Ele
ctro
nics
Co,
Ltd
20
09/0
1/07
~ 20
13/1
2/31
1.
CPT
was
lice
nsed
to u
se it
s ret
arda
tion
film
pat
ent.
2.
Roy
altie
s will
be
disb
urse
d in
inst
allm
ents
.
C
onfid
entia
lity
Cla
use
Pate
nt L
icen
se
Hew
lett-
Pack
ard
Dev
elop
men
t Co.
, L.P
. 20
04/0
2~
The
pate
nt o
f sid
e m
ount
was
tran
sfer
red
to C
PT.
Con
fiden
tialit
y C
laus
e
Proc
urem
ent
Con
tract
C
orni
ng D
ispl
ay T
echn
olog
ies T
aiw
an C
o., L
td.
(Cor
ning
Tai
wan
) 20
05/0
4~
2011
/03
1. C
orni
ng T
aiw
an su
pplie
s CPT
with
the
glas
s pan
els r
equi
red
for t
he p
rodu
ctio
n of
the
G6
TFT-
LCD
. 2.
With
in th
e af
fect
ivity
of t
he a
gree
men
t, C
PT sh
all p
repa
y C
orni
ng T
aiw
an in
inst
allm
ents
for t
he
purc
hase
of t
he sa
id m
ater
ials
. C
onfid
entia
lity
Cla
use
Long
-term
Lo
ans
Con
sorti
um in
clud
ing
Ban
k of
Tai
wan
20
02/1
0~
2011
/02
A lo
an o
f NT$
19,0
00 m
illio
n fo
r fin
anci
ng th
e co
nstru
ctio
n of
a T
FT G
3 pl
ant.
Plan
ts a
nd E
quip
men
tsas
Ple
dges
for t
he L
oan
Long
-term
Lo
ans
Con
sorti
um in
clud
ing
Ban
k of
Tai
wan
20
04/0
5~
2013
/03
Fina
ncin
g th
e co
nstru
ctio
n of
TFT
G4.
5 an
d G
6 Pl
ants
am
ount
ing
to
NT$
31,5
00 m
illio
n an
d U
SD 2
00 m
illio
n.
Plan
ts a
nd E
quip
men
tsas
Ple
dges
for t
he L
oan
Long
-term
Lo
ans
Con
sorti
um in
clud
ing
Chi
na T
rust
Com
mer
cial
B
ank
2004
/11~
20
10/1
1 Fi
nanc
ing
the
cons
truct
ion
of C
F G
4.5
Pla
nt a
mou
ntin
g to
US$
150
mill
ion.
Pl
ants
and
Equ
ipm
ents
as P
ledg
es fo
r the
Loa
n Lo
ng-te
rm
Loan
s C
onso
rtium
incl
udin
g C
itiba
nk
2005
/07~
20
11/0
7 A
loan
of U
S$ 9
8 m
illio
n (N
T$3,
220
mill
ion)
for
finan
cing
the
cons
truct
ion
of a
G6
CF
Plan
t. Pl
ants
and
Equ
ipm
ents
as P
ledg
es fo
r the
Loa
n Lo
ng-te
rm
Loan
s C
onso
rtium
incl
udin
g C
hina
Tru
st C
omm
erci
al
Ban
k 20
05/1
1~
2013
/11
Fina
ncin
g th
e co
nstru
ctio
n of
TFT
G6
Plan
t in
phas
e II
and
III a
mou
ntin
g to
N
T$ 1
3,00
0 m
illio
n.
Plan
ts a
nd E
quip
men
tsas
Ple
dges
for t
he L
oan
Long
-term
Lo
ans
Con
sorti
um in
clud
ing
Meg
a In
tern
atio
nal
Com
mer
cial
Ban
k 20
08/0
5~
2014
/11
Fina
ncin
g th
e co
nstru
ctio
n of
CF
G6
Plan
t in
phas
e II
and
III a
mou
ntin
g to
N
T$ 4
,000
mill
ion.
Pl
ants
and
Equ
ipm
ents
as P
ledg
es fo
r the
Loa
n
41
6、 F
inan
cial
Info
rmat
ion
I、C
onde
nsed
Bal
ance
She
et a
nd In
com
e St
atem
ent f
or th
e Pa
st F
ive
Year
s 1.
Con
dens
ed B
alan
ce S
heet
Uni
t: N
T$ th
ousa
nds
Fina
ncia
l Sta
tem
ent f
or th
e Pa
st F
ive
Yea
rs
Yea
r Ite
m
2004
20
05
2006
20
07
2008
A
s of 3
1 M
arch
20
09
Cur
rent
Ass
ets
46,5
59,1
89
43,4
53,4
81
48,6
15,2
92
52,7
08,1
81
30,8
09,0
15
24,6
08,1
40
Fund
s and
Lon
g-te
rm In
vest
men
ts
29,4
18,4
82
28,2
70,2
65
31,6
32,6
59
36,8
18,6
34
36,8
94,2
04
36,1
79,7
60
Fixe
d A
sset
s 96
,508
,202
13
9,16
1,25
3 12
8,25
1,95
0 10
9,50
7,98
3 95
,401
,771
91
,033
,377
In
tang
ible
Ass
ets
202,
475
168,
729
1,03
2,72
8 1,
278,
069
1,04
0,12
4 3,
159,
387
Oth
er A
sset
s 2,
942,
856
5,70
9,92
2 5,
712,
997
4,27
7,64
8 3,
267,
703
1,46
2,13
7 To
tal A
sset
s 17
5,63
1,20
4 21
6,76
3,65
0 21
5,24
5,62
6 20
4,59
0,51
5 16
7,41
2,81
7 15
2,44
2,80
1 B
efor
e D
istri
butio
n 51
,952
,733
46
,815
,946
69
,555
,543
55
,725
,148
56
,221
,090
59
,759
,862
C
urre
nt L
iabi
litie
sA
fter
Dis
tribu
tion
56,3
19,0
28
46,8
15,9
46
69,5
55,5
43
59,8
48,6
39
Long
-term
Lia
bilit
ies (
incl
udin
g th
e al
low
ance
s)
25,5
70,4
76
72,3
91,2
45
59,0
07,7
91
43,6
45,5
66
24,2
96,9
50
20,4
69,1
01
Oth
er L
iabi
litie
s 3,
331,
922
3,63
0,45
5 4,
541,
844
5,14
1,30
4 5,
564,
970
6,12
7,50
9 B
efor
e D
istri
butio
n 80
,855
,131
12
2,83
7,64
6 13
3,10
5,17
8 10
4,51
2,01
8 86
,083
,010
86
,356
,472
To
tal L
iabi
litie
s
Afte
r D
istri
butio
n 85
,221
,426
12
2,83
7,64
6 13
3,10
5,17
8 10
8,63
5,50
9
C
apita
l Sto
ck
68,5
64,1
59
82,1
26,0
48
82,1
26,0
48
93,7
37,7
62
94,8
09,5
98
94,8
09,5
98
Cap
ital S
urpl
us
19,1
19,6
25
16,3
32,1
70
14,3
50,3
12
90,0
27
27,4
10
27,4
10
Bef
ore
Dis
tribu
tion
11,2
57,6
73
(2
,647
,556
) (1
3,97
9,37
1)
5,26
5,30
9 (1
3,25
0,88
4)
(24,
446,
232)
R
etai
ned
Earn
ings
Afte
r D
istri
butio
n 6,
891,
378
(2,6
47,5
56)
(13,
979,
371)
1,
141,
818
Unr
ealiz
ed G
ains
on
Fina
ncia
l Ins
trum
ents
(2
,398
,311
) (2
,711
,230
) (1
,386
,508
) (9
64,1
51)
(3,6
76,3
32)
(3,7
08,6
72)
Cum
ulat
ive
Tran
sact
ion
Adj
ustm
ents
(5
66,5
72)
317,
584
950,
036
1,77
6,99
5 3,
353,
803
3,33
8,01
3 N
et L
oss U
nrec
ogni
zed
as P
ensi
on C
ost
(1
60,7
58)
(133
,849
) (5
62,9
06)
(496
,912
) (2
96,0
94)
(296
,094
) Tr
easu
ry st
ocks
(1
,039
,734
)
-
-
- (3
07,1
61)
(307
,161
) C
apita
l Sur
plus
from
Ass
ets R
eval
uatio
n
642,
837
642,
837
669,
467
669,
467
669,
467
Bef
ore
Dis
tribu
tion
94,7
76,0
73
93,9
26,0
04
82,1
40,4
48
100,
078,
497
81,3
29,8
07
70,0
86,3
29
Tota
l Sha
reho
lder
s’
Equi
ty
Afte
r D
istri
butio
n 90
,409
,778
93
,926
,004
82
,140
,448
95
,955
,006
42
2. C
onde
nsed
Inco
me
Stat
emen
t U
nit:
NT$
tho
usan
ds (
Expe
ct E
PS:
NT$
) Fi
nanc
ial S
tate
men
t for
the
Past
Fiv
e Y
ears
(Not
e 1)
Y
ear
Item
20
04
2005
20
06
2007
20
08
As o
f 31
Mar
ch 2
009
Net
Sal
es
78,
416,
749
78,
458,
350
105,
925,
974
143,
948,
765
100,
519,
007
7,89
9,33
3 G
ross
Pro
fit
10,
725,
089
(1,
243,
552)
(3
,170
,914
) 19
,419
,265
(
834,
665)
(
7,25
3,98
9)
Inco
me
from
Ope
ratio
ns
5,
602,
623
(7,
059,
246)
(1
0,77
5,93
0)
10,2
84,2
96
(12,
049,
447)
(8
,726
,339
)
N
on-o
pera
ting
Inco
me
and
Gai
n
5,99
4,78
7
1,7
90,6
45
1,7
31,4
10
2,22
0,89
9
5,30
8,84
4
459
,184
Non
-ope
ratin
g Ex
pens
es a
nd
Loss
es
(1,
027,
965)
(
2,03
2,02
5)
(4,1
16,9
03)
(3,
750,
294)
(
7,12
8,51
4)
(2,
928,
193)
In
com
e fr
om O
pera
tions
of
Con
tinue
d Se
gmen
t – B
efor
e Ta
x 1
0,56
9,44
5 (7
,296
,565
) (1
3,16
1,42
3)
8,
754,
901
(13,
869,
117)
(1
1,19
5,34
8)
Inco
me
from
Ope
ratio
ns o
f C
ontin
ued
Segm
ent –
Afte
r Tax
1
0,32
1,88
3 (7
,352
,301
) (1
3,96
6,81
0)
8,70
3,35
3 (1
3,87
5,11
2)
(11,
195,
348)
In
com
e fr
om D
isco
ntin
ued
Dep
artm
ent
- -
-
-
-
Ex
traor
dina
ry G
ain
or L
oss
- -
-
-
-
C
umul
ativ
e Ef
fect
of A
ccou
ntin
g Pr
inci
ple
- -
(80
5,38
7)
-
-
Net
Inco
me
10,
321,
883
(7,3
52,3
01)
(13,
966,
810)
8,70
3,35
3 (1
3,87
5,11
2)
(11,
195,
348)
Ea
rnin
g pe
r Sha
re (N
ote
1)
1.45
(0
.94)
(1
.70)
1.
02
(1.4
7)
(1.1
9)
Not
e 1:
Adj
ustm
ent i
s mad
e to
EPS
or l
oss i
n ac
cord
ance
with
the
prop
ortio
n of
reta
ined
ear
ning
s, ca
pita
l sur
plus
or e
mpl
oyee
bon
us tu
rned
into
new
shar
es th
roug
h ca
pita
lizat
ion.
3.
Aud
itors
’ opi
nion
s fro
m 2
004
to 2
008
Yea
r Fi
rm
CPA
Opi
nion
s
2004
Er
nst &
You
ng
Ron
g-Y
u Li
n &
Hsi
ng-C
heng
Tai
U
nqua
lifie
d op
inio
n
2005
Er
nst &
You
ng
Ron
g-Y
u Li
n &
Hsi
ng-C
heng
Tai
A
n U
nqua
lifie
d O
pini
on w
ith e
xpla
nato
ry p
arag
raph
re
ferr
ing
to a
dopt
ion
of n
ew a
ccou
ntin
g st
anda
rds
2006
Er
nst &
You
ng
Hsi
ng-C
heng
Tai
& T
ing-
Min
g C
hang
A
n U
nqua
lifie
d O
pini
on w
ith e
xpla
nato
ry p
arag
raph
re
ferr
ing
to a
dopt
ion
of n
ew a
ccou
ntin
g st
anda
rds
2007
Er
nst &
You
ng
Ting
-Min
g, C
hang
& M
ou-H
sien
Che
n U
nqua
lifie
d op
inio
n
2008
Er
nst &
You
ng
Yi-C
hang
Lia
ng &
Min
g-Y
u Le
e A
n U
nqua
lifie
d O
pini
on w
ith e
xpla
nato
ry p
arag
raph
re
ferr
ing
to a
dopt
ion
of n
ew a
ccou
ntin
g st
anda
rds
43
II、
Fin
anci
al A
naly
sis
Fi
nanc
ial A
naly
sis o
f the
Pas
t Fiv
e Y
ears
(Not
e 1)
Yea
r Ite
m
2004
20
05
2006
20
07
2008
A
s of 3
1 M
arch
20
09
Deb
t Rat
io (%
) 46
.04
56.6
7 61
.84
51.0
8 51
.42
55.2
0 C
apita
l St
ruct
ure
Ana
l ysi
s
Long
-term
Fun
d to
Fix
ed A
sset
s Rat
io (%
) 12
4.70
11
9.51
11
0.06
13
1.22
11
0.69
99
.45
Cur
rent
Rat
io (%
) 89
.62
92.8
2 69
.89
94.5
9 54
.80
41.1
8 Q
uick
Rat
io (%
) 73
.67
70.8
4 51
.11
79.8
3 42
.74
31.3
0 Li
quid
ity
Ana
lysi
s Ti
mes
Inte
rest
Ear
ned
(Tim
es)
14.4
9 (4
.68)
(2
.64)
3.
71
(4.2
1)
(19.
00)
Ave
rage
Col
lect
ion
Turn
over
(Tim
es)
6.88
5.
19
5.87
6.
12
4.76
2.
48
Day
s Sal
es O
utst
andi
ng
53.0
0 70
.00
62.0
0 60
.00
77.0
0 14
7.00
A
vera
ge In
vent
ory
Turn
over
(Tim
es)
12.8
4 9.
97
9.82
12
.12
14.1
5 11
.18
Ave
rage
Pay
men
t Tur
nove
r (Ti
mes
) 5.
44
3.98
4.
03
4.28
4.
09
2.90
A
vera
ge In
vent
ory
Turn
over
Day
s 28
.00
37.0
0 37
.00
30.0
0 26
.00
32.6
4 Fi
xed
Ass
ets T
urno
ver (
Tim
es)
1.06
0.
67
0.79
1.
21
0.98
0.
33
Ope
ratin
g Pe
rfor
man
ce
Ana
lysi
s
Tota
l Ass
ets T
urno
ver (
Tim
es)
0.54
0.
40
0.49
0.
69
0.54
0.
20
Ret
urn
on A
sset
s (％
) 7.
52(3
.26)
(5
.13)
5.
30
(6.3
9)
(6.6
5)
Ret
urn
on E
quity
(％)
12.7
9(7
.79)
(1
5.87
) 9.
55
(15.
30)
(14.
79)
Ope
ratin
g In
com
e 8.
17
(8.6
0)
(13.
12)
20.7
2 (1
2.71
) (9
.20)
Pe
rcen
tage
to P
aid-
in
Cap
ital R
atio
(%)
Pre-
Tax
Inco
me
15.4
2 (8
.88)
(1
7.01
) 9.
34
(14.
63)
(11.
81)
Net
Pro
fit M
argi
n (％
) 13
.16
(9.3
7)
(13.
19)
6.05
(1
3.80
) (1
41.7
3)
Prof
itabi
lity
Ana
lysi
s
Earn
ing
Per S
hare
(NT$
) (N
ote
1)
1.45
(0.9
4)
(1.7
0)
1.02
(1
.47)
(1
.19)
C
ash
Flow
Rat
io (%
) 53
.13
17.3
2 10
.26
40.8
7 19
.06
3.41
C
ash
Flow
Ade
quac
y R
atio
(%)
47.2
1 32
.88
34.8
9 48
.44
50.2
0 65
.66
Cas
h Fl
ow
Cas
h Fl
ow R
einv
estm
ent R
atio
(%)
18.0
3 1.
75
3.46
10
.50
3.43
1.
99
Ope
ratin
g Le
vera
ge
3.72
(1
.62)
(1
.56)
1.
74
(0.9
8)
0.81
Le
vera
ge
Fina
ncia
l Lev
erag
e
1.16
0.
85
0.74
1.
20
0.82
0.
94
Ana
lysi
s of D
evia
tion
over
20%
(200
8 vs
. 200
7)
1. T
he d
ecre
ase
in lo
ng-te
rm fu
nd to
fixe
d as
sets
ratio
was
mai
nly
due
to th
e de
crea
se in
long
-term
liab
ilitie
s. 2.
The
dec
reas
e in
cur
rent
ratio
and
qui
ck ra
tio w
ere
mai
nly
due
to th
e in
crea
se in
cur
rent
liab
ilitie
s. 3.
The
dec
reas
e in
tim
e in
tere
st e
arne
d w
as m
ainl
y du
e to
the
mac
roec
onom
ic re
cess
ion
resu
lting
in p
re-ta
x in
com
e lo
ss.
4. T
he d
ecre
ase
in R
OA
, RO
E, p
erce
ntag
e to
pai
d-in
cap
ital r
atio
, net
pro
fit m
argi
n, a
nd e
arni
ng p
er sh
are
wer
e m
ainl
y du
e to
hav
ing
net l
oss.
5. T
he d
ecre
ase
in c
ash
flow
ratio
was
mai
nly
due
to th
e de
crea
se in
cas
h flo
ws p
rovi
ded
by o
pera
ting
activ
ities
. 6.
The
dec
reas
e in
ope
ratin
g le
vera
ge a
nd fi
nanc
ial l
ever
age
wer
e m
ainl
y du
o to
hav
ing
a op
erat
ing
loss
.
44
For the change in financial ratios, refer to page 45 on financial position and review on operation and relating risks. Note 1: Adjustment is made to EPS or loss in accordance with the proportion of retained earnings, capital surplus or employee bonus turned into new shares through capitalization. Note 2: The end of this statement shall include the following equation for calculation:
1. Financial Structure Analysis (1) Debt Ratio = Total liabilities ÷ Total Assets (2) Long-term Fund to Fixed Assets Ratio = (Shareholders’ Equity ＋ Long-term Liabilities) ÷ Net Fixed
Assets
2. Liquidity Analysis (1) Current Ratio = Current Assets ÷ Current Liabilities (2) Quick Ratio = [Current Assets － (Inventory － prepayments)] ÷ current liabilities (3) Times Interest Earned = Earning Before Interest and Taxes ÷ Interest Expenses
3. Operating Performance Analysis (1) Average Collection Turnover = Net Sales ÷ Average Accounts Receivable (2) Days Sales Outstanding = 365 Days ÷ Average Collection Turnover (3) Average Inventory Turnover = Cost of Goods Sold ÷ Average Inventory (4) Average Payment Turnover = Cost of Goods Sold ÷ Average Account Payable (5) Average Inventory Turnover Days = 365 Days ÷ Average Inventory Turnover (6) Fixed Assets Turnover = Net Sales ÷ Net Fixed Assets (7) Total Assets Turnover = Net Sales ÷ Total Assets
4. Profitability Analysis (1) Return on assets = [Net Income + Interest Expenses x (1 – tax rate)] ÷ Average Total Assets (2) Return on Shareholders’ Equity = Net Income ÷ Average Shareholders’ Equity (3) Net Profit Margin = Net Income ÷ Net Sales (4) Earning Per Share = (Net Income - Preferred Stock Dividend) ÷ Weighed Average Number of
Outstanding Shares
5. Cash Flow (1) Cash Flow Ratio = Net Cash Provided by Operating Activities ÷ Current Liabilities (2) Cash Flow Adequacy Ratio = Five-year Sum of Cash from Operation ÷ Five-year Sum of Capital
Expenditure, Increase in inventories, and Cash Dividend (3) Cash Flow Reinvestment Ratio = (Net Cash Provided by Operating Activities - Cash Dividend) ÷ (Gross
Fixed Assets + Long-term Investments + Other Assets + Working Capital)
6. Leverage (1) Operation Leverage = (Net Revenue – Variable Operating Cost and Expenses) ÷ Income from Operation (2) Financial Leverage = Income from Operations ÷ (Income from Operation – Interest Expenses)
III、 Supervisors’ Review Report for the Most Recent Years: Please refer to page 54. IV、 Financial Statement of the Most Recent Years: Please refer to page 55. V、 Audited Consolidated Financial Statements for the Most Recent Years: Please refer to
page 114. VI、 Specify if any, Insolvency of the Company and Subsidiaries in the Most Recent Years
until the Day this Report was Printed, and its Effect on the Financial Position of the Company: None.
45
7、Financing Plan and Implementation I、Financial Status Unit: NT$ thousands
Difference Year Item 2008 2007
Amount % Current Assets 30,809,015 52,708,181 (21,899,166) (41.55%) Fixed Assets 95,401,771 109,507,983 (14,106,212) (12.88%) Long-term Investments 36,894,204 36,818,634 75,570 0.21% Other Assets (including Intangible Assets) 4,307,827 5,555,717 (1,247,890) (22.46%) Total Assets 167,412,817 204,590,515 (37,177,698) (18.17%) Current Liabilities 56,221,090 55,725,148 495,942 0.89% Long-term Liabilities (including Allowance) 24,296,950 43,645,566 (19,348,616) (44.33%) Other Liabilities 5,564,970 5,141,304 423,666 8.24% Total Liabilities 86,083,010 104,512,018 (18,429,008) (17.63%) Capital Stock 94,809,598 93,737,762 1,071,836 1.14% Capital Surplus 27,410 90,027 (62,617) (69.55%) Retained earnings (13,250,884) 5,265,309 (18,516,193) (351.66%) Other Shareholders’ Equity (256,317) 985,399 (1,241,716) (126.01%) Total Shareholders’ Equity 81,329,807 100,078,497 (18,748,690) (18.73%)
Analysis of Deviation over 20%: The decrease in current assets was mainly due to the decrease in net sales resulting in the decrease in savings and account receivable. The decrease in other assets was mainly due to the decrease in Corning’s prepayment. The decrease in long-term liabilities was mainly due to the reclassification of bonds payable from long-term to current. The decrease in retained earnings was mainly due to net loss. The decrease in capital surplus was mainly due to adjustments arising from changes in percentage of ownership in equity method investees. The decrease in other shareholders’ equity was mainly due to recognition a greater unrealized loss on available-for-sale financial assets than the previous year.
II、 Operating Results 1. Analysis of Operating Result Unit: NT$ thousands
Item Year 2008 2007 Difference % Revenues 103,754,325 145,341,281 (41,586,956) (28.61%)Loss: Sales Returns (859,419) (262,750) (596,669) 227.09%
Allowances (2,375,899) (1,129,766) (1,246,133) 110.30%Net Sales 100,519,007 143,948,765 (43,429,758) (30.17%)Cost of Good Sold (101,353,672) (124,529,500) 23,175,828 (18.61%)Gross Profit (817,293) 19,419,265 (20,236,558) (104.21%)Realized (Unrealized) Gross Profit from Affiliates 17,372 (88,067) 105,439 (119.73%)Realized Gross Profit (817,293) 19,331,198 (20,148,491) (104.23%)Operating Expenses (11,232,154) (9,046,902) (2,185,252) 24.15%Income from Operation (12,049,447) 10,284,296 (22,333,743) (217.16%)Non-operating Income & Gains 5,308,844 2,220,899 3,087,945 139.04%Non-operating Expenses & Losses (7,128,514) (3,750,294) (3,378,220) 90.08%Income from Operation of Continued Segment –Before Tax (13,869,117) 8,754,901 (22,624,018) (258.42%)Income Tax Expenses (5,995) (51,548) 45,553 (88.37%)Cumulative Effect of Accounting Principle - - - -Income from Operation of Continued Segment – After Tax (13,875,112) 8,703,353 (22,578,465) (259.42%)Analysis of Deviation over 20%: 1. Decrease in income from operation: In the second half of 2008, decrease in average selling price and demand caused utilization rate
dropped resulting in the increase in cost of good sold and the decrease in gross profit. 2. Increase in non-operating income and gains: The increase was the result of sale G3 to Giantplus. 3. Increase in non-operating expenses and losses: The increase was primarily due to recognizing losses in long-term investments and
inventory.
46
2. Analysis of the change in gross margin Unit: NT$ thousands Item
Year Net Sales Cost of Good Sale Gross Profit Gross Margin
2008 100,519,007 101,353,672 (834,665) (0.83%) 2007 143,948,765 124,529,500 19,419,265 13.49%
Difference (20,253,930) (14.32%)
Reasons for Change
Analysis of Volume and Prices Change in Prices Change in Volume Item Difference Selling Prices Cost Sale Portfolio Quantity
TFT-LCD (19,666,252) (8,602,022) (8,180,295) (581,238) (2,302,697) Other (587,678) Total (20,253,930)
Analysis of Deviation: 1. Decrease in selling price was caused by the global financial crisis and oversupply. The selling prices rapidly dropped in the second
half, 2008. 2. Due to the economic recession, the total shipment in 2008 was smaller than in 2007 resulting in a great difference. 3. Due to the global economic slowdown, the production was cut in the second half of 2008 resulting in having a cost disadvantage. In conclusion, CPT had a negative gross margin in 2008.
Sales volume forecast and related information: Please refer to “A Message to Shareholders” of this annual report. Possible effect on the financial position and operation of the Company and countermeasures: None. III、Cash Flow 1. Analysis of Cash Flow
Item Year Dec 31, 2008 Dec 31, 2007 Change (%) Cash Flow Ratio 19.06% 41.32% (22.26%) Cash Suitability Ratio 50.36% 48.60% 3.62% Cash Reinvestment Ratio 3.43% 10.62% (7.19%) Analysis of Deviation: 1. The decease in cash flow ratio was mainly due to the decrease in cash flows provided by operating activities and the increase in
current liabilities. 2. The increase in cash suitability ratio was mainly due to the decrease in the total of capital expenditure from 2004 to 2008. 3. The decrease in cash reinvestment ratio was mainly due to the decrease in cash flows provided by operating activities and the cash
dividend distribution in 2008. 2. Analysis of Cash Flow Projection for Next Year Unit: NT$ thousands
Remedy for Cash Shortfall Cash Balance 12/31/2008 (A)
Net Cash Provided by Operating Activities
(B)
Net Cash Outflows from Investing and
Financing Activities (C)
Cash Balance 12/21/2008
(A)＋(B)－(C) Investment Plan
Financing Plan
8,356,173 (1,668,889) (18,343,092) (11,655,808) 16,800,000Note: The analysis of cash flow projection for next year is not reviewed.
47
IV、Major Capital Expenditure in the Most Recent Year and its Effects on Financial Position and Operation
1. Major Capital Expenditure and Sources of Funding Unit: NT$ thousands
Status of Actual on Projected Use of Capital
Plan
Actual or Planned Source of Capital
Actual or Planned Completion Date
Total Capital Requirement
2008 2009 2010
The acquisitions of the G3.5 and G4.5 CF plants from Sintek Photronic Corp.
Equity Capital July 2008 2,300,000 2,089,049 210,951 -
2. Expected Future Benefit: Unit: 1,000 pcs; NT$ thousands
Plan Year Capacity Shipments Gross Sales Gross Profit
The acquisitions of the G3.5 and G4.5 CF plants from Sintek Photronic Corp. 2008 525 525 1,324,590 40,768
3. Expected Reduction in Cost: Unit: 1,000 pcs; NT$ thousands
Note 1: The acquisitions of the G4.5 CF plants from Sintek Photronic Corp., production facilities, and related equipments in order to supply the internal needs.
V、Investment Exceeding 5% of the Company’s Paid-in Capital
No investment exceeding 5% of the paid-in capital in the most recent year. Investment plan for the future shall depend on the market situation and the expansion of the economic scale.
VI、Risk Analysis for the Most Recent Year up to the Date this Report is in Printing: 1. Risk Associated with Interest Rate Fluctuation, Foreign Exchange Volatility, and Inflation (1) Cash Flow Risks caused by Interest Rate Fluctuation and Foreign Exchange Volatility:
The long-term loans from the banks to the Company are based on floating interest rate. Any fluctuation of interest rate in the market will cause corresponding fluctuation on applicable interest rate, which will affect the cash flow of the Company. The Company has practiced hedging to minimize exposure to such risk of cash flow.
(2) Market Risks:
The Company is bound to expose interest risk and price risk in the market due to its issuance of zero-coupon convertible bonds, holding of financial instruments at fair value through income statements (not derivative products) and financial instruments available for sales. Portions of sales and purchases of the Company and corporate bonds are expressed in foreign currencies which fair value shall be subject to change under exchange rate fluctuation in the market. The Company adopts the self hedging method to cope with the risk deriving from its holding of assets and liabilities expressed in foreign currencies.
(3) Credit Risks:
Credit risk refers to the risks deriving from performance failure of the counterparties. The primary sources of such risk to CPT are cash and cash equivalents, derivatives including funds, convertible bonds, and accounts receivables. CPT deposits its cash with financial institutions in good credit standing at home and overseas and conducts transactions with a number of financial institutions for diversification of risk. Default of counterparties is therefore unlikely to happen. CPT holds funds and convertible bonds issued by companies in good credit
Plan Year Capacity (Note 1)
Outsourcing Price
Cost of Production
Reduction in Cost
The acquisitions of the G3.5 and G4.5 CF plants from Sintek Photronic Corp. 2008 481 1,680,802 1,399,751 281,051
48
standing and diversify its capital in a number of institutions for reducing risk. The Company’s major clients are internationally renowned big firms or firms in good standing. At the same time, CPT regularly assesses the recoverability of its accounts receivables based on which the Company quotes for allowance for doubtful accounts. Major credit risk is therefore unlikely to happen.
(4) Liquidity Risks
Liquidity risk refers to the failure to cover and settle the short position of loans in due time as expected. Currently, the size of current assets of CPT is smaller than its current liabilities. Liquidity risk will be controlled through capital inflows from operation growth. In addition, CPT closely monitors its cash position and raises capital through appropriate channels or assigns its account receivables through factoring for contractual performance (including the liquidity risk deriving from the obligations from derivative contracts). Furthermore, CPT invested in financial instruments at fair value through income statements and financial instruments available for sales have active market, which enables the Company to sell the said instruments in the market approximating fair value.
2. Risks Associated with High-risk/High-leveraged Investment, Lending, Endorsements, and
Guarantees for Other Parties, and Financial Derivation Transactions The Company deals with high-risk/high-leveraged investment and financial derivation transactions for reducing operation risk. The Company does not loan to a third party. Endorsements for other parties are made only to invest where the Company holds more than 50% of their stakes or as required by contractual obligations. Relevant loan to a third party, endorsements for other parties, and financial derivation transactions are governed by the internal procedure of the Company in these areas and the procedure for the acquisition and disposition of assets.
3. Future R&D Plans and Expected R&D Spending: Please the “5” below, of changes in technology
and industry development. 4. Risks Associated with Changes in the Government Policies and Regulatory Environment: None. 5. Risks Associated with Changes in Technology and Industry Development:
Production processes for new generations of big screen TFT-LCD are launching into the market persistently. The application of this technology to TV is also getting popular. For reducing costs, expanding market share, maintaining competitive power, the company has made ceaseless effort in developing more efficient production model. As for new display technologies, including LPTS TFT-LCD, LED B/L, 3D DISPLAY and others, the company also keeps up its works on research and developments.
6. Changes in Corporate Image and Impact on Company’s Crisis Management: None. 7. Risks: Associated with Mergers and Acquisition: None. 8. Risks Associated with Capacity Expansion:
The Company is in the process of redesigning its production lines and capacity expansion. After launching in mass production and the economic ways of cutting IT/TV panels, the Company can substantially strength itself in as to its bargaining power with suppliers. This capability will eventually help to reduce the costs, which in turn is an advantage in market expansion. Yet, the market is so unpredictable. Experience in the past may help to make production forecasting more accurate. With proper information from market observation, the Company can adjust its inventory level more flexibly and can demonstrate its strength in low seasons.
49
9. Risks Associated with Purchase and Sales Concentration: None. 10.Potential Impact and Risks Associated with Sales of Significant Numbers of Shares by the
Company’s Directors, Supervisors, or Major Shareholders who Own 10% or More of the Company’s total Outstanding Shares: None.
11. Risks Associated with Change in Management: None. 12. Risks Associated with Litigation
Disclose if company, any of the directors, supervisors, president, deputy agents of the Company or dominant shareholders who hold more than 10% of the Company’s outstanding shares, are involved in major litigations, non-contentious matters or administrative procedure, with decision or pending on decision, the possible influence on shareholders’ equity and stock price. Also specify the facts of the contentions, the amount involved, date of proceeding, concerned parties, to the day this report was printed. Lawsuits on Patents － Anvik Corporation, Honeywell International Inc./Honeywell Intellectual Properties Inc. (1) In February, 2007, Anvik Corporation filed a patent infringement suit in the United States
District Court of New York against the Company, Tatung Co. and Tatung Co. of America. The lawsuit alleged the Company and Tatung Companies of using the photo-masking equipment and the patented methods performed by such system in producing TFT-LCD panel without permission. The Company contested that the Company had no presence, transacted business or directed product in the Court of New York that related to the claim. So far, the Court has not responded to the aforementioned motions yet.
(2) Honeywell International Inc. and Honeywell Intellectual Properties Inc. filed a lawsuit against
the Company in March 2007 on charges of patent infringement on Flicker-Free Liquid Crystal Display Driver System in its driver IC (provided by suppliers) with the Court of Texas. The Company intends to vigorously defend the action. On April 7th, 2009, the lawsuit has been settled out of court in the second conciliation procedures.
Other Lawsuits
From December 2006 to February 2007, CPT received series of letter of complaints issued by U.S. Department of Justice (following abbreviated as “DOJ”), JFTC of Japan, EC of European Union, CCB of Canada, and KFTC of Korea claiming that the TFT-LCD products of the Company and other suppliers were collective actions of related parties with an attempt of price monopolization and control over supply volume. CPT was blacklisted as a target of investigation on antitrust laws and legal proceedings commenced. On November 13th, 2008, the Company has entered a plea agreement with DOJ and agreed to pay US$65 million in 6 installments. (the first five installments of US$11 million and the final installment of US$10 million). Simultaneously, an agreement is made and entered by between defendant CPT and the plaintiff class representative, both individually and on behalf of a settlement class of purchasers of TFT-LCD products in US and Canada. An investigation is still in process. Moreover, in November, 2007, the Company has received notices from DOJ of USA, informing the Company of being listed as an alleged violator of the antitrust law due to the alleged monopoly of price and supply of cathode ray tube (CRT) by the Company and other suppliers. CPT has been a target of investigation on antitrust law and legal proceeding commenced. Also, an agreement is made and entered by between defendant CPT and the plaintiff class representative, both individually and on behalf of a settlement class of
50
purchasers of CRT products in US and Canada. An investigation is still in process.
The Company has retained attorneys in different countries to cautiously respond to the charge of Anvik Corporation, Honeywell International Inc./Honeywell Intellectual Properties Inc., and the antitrust case, and believes that such lawsuits will not significantly effect the financial position and operation of the Company.
13. Other Material Risks: None. VII、Other Important Notice: None.
51
8、Special Attention I、Affiliate Information:
For consolidated reports on operation and consolidated financial statements between parent and subsidiaries compiled in accordance with the standards for consolidated report on operation, consolidated financial statements and for compilation of such reports set forth by this commission, please refer to page 114.
II、The status of issuing securities through private placement in the most recent year to the
date this report was printed, the date resolutions by the General Meeting of Shareholders or the Board, the rationality and references for determining the quantity of shares and price, the selection of designated parties for investment, the necessity of issuing securities through private placement, the accomplishment of the fund utilization plan from investment or premium of investment, the status of the use of capital from issuing securities through private placement and the enforcement of the capital utilization plan for disclosures:
Item Initial Issuance Through Private Placement in 2007 (Note 1) Issuing Date: 2008/01/31
Type of Securities Issued Through Private Placement (Note 2) ECB
Date of Resolution by General Meeting of Shareholders and Quantity for Issuance (Note 3)
2007/11/19; 25,000 units
Reference and Rationality of Pricing Current price is set at 80.57% of the price of CPT common stock at close on the business day before the pricing day.
The Selection of Designated Parties (Note 4)
The targets for the solicitation of funds through the issuance of ECB under private placement are targets specified in Article 43-6 of the Securities and Exchanges Act and the parties defined by Ministry of Finance Securities and Futures Commission (91) Letter Tai-Tsai-Cheng (I)-Tzi No. 0910003455 dated June 13, 2002.
The Necessity of Issuance Through Private Placement For material procurement overseas and retirement of debts
Investment Deadline 2008/01/31 Investors of
Private Placement (Note 5)
Qualifications(Note 6)
Subscription Quantity
Affiliation to CPT
Operation of Participants
Profiles of the Investors BRIGHT / GREAT DISPLAY HOLDINGS LIMITED
Section II 25,000 Not a Stakeholder to the CPT
None
Actual Subscription (or Conversion) Price (Note 7) NT$ 8.5
Spread Between Actual Subscription (or Conversion) Price (Note 7) NT$ 2.05
Effect of Private Placement of Securities on Shareholders’ Equity (e.g., Increase in Accumulated Loss….)
The issuance of ECB for this instance helped to reduce the actual spending on interest by the Shareholders. This fits the long-term development and planning of the Company. For existing shareholders, they may face the dilution of equity at about 9.92% if the entire lot of ECB was converted into common shares and the effect is minimal.
The Use of Fund from Private Placement and the Enforcement of the Plan Please refer to page 28 & 32
The Contribution of Private Placement of Securities Please refer to page 32
Note 1: The number of fields may be adjusted as needed. If the issuance of ECB is split into tranche, specify separately. Note 2: Fill in the issuance of securities through private placement, including common shares, preferred shares, and
conversion of preferred shares, preferred shares with subscription warrants, regular corporate bonds, and convertible bonds, bonds with warrants, ECB, GDR/ADR, and Employee Stock Options.
52
Note 3: If the private placement of corporate bonds does not require the resolution of the General Meeting of Shareholders, specify the date of Board resolution and the quantity for issuance.
Note 4: If designated parties were selected in private placement, specify the titles or names of the investors and their affiliation to the Company.
Note 5: The number of fields may be adjusted as needed. Note 6: Fill in Article 43-6-1-1~3 of the Securities and Exchanges Act Note 7: The actual subscription (or conversion) price refers to the subscription (conversion) price at the time of issuing
securities through private placement. III、Held or Disposed of the Company Stocks by Subsidiaries in the Most Recent Year to the
Date this Report was Printed: None. IV、Supplementary Disclosure: None.
53
Chunghwa Picture Tubes, Ltd. Statement of Internal Control System
Date: March 5th, 2009 Based on the findings of a self-assessment, Chunghwa Picture Tubes Ltd. States the following with regard to its internal control system during the period from January 1st, 2008 to December 31st, 2008:
1. The Company is fully aware that establishing, operating, and maintaining an internal control system are the responsibility of its Board of Directors and management. The Company has already established such a system aimed at providing reasonable assurance regarding the achievement of objectives in the following categories: effectiveness and efficiency of operations (including profitability, performance, and safeguarding of assets), reliability of financial reporting, and compliance with applicable laws and regulations.
2. An internal control system has inherent limitations. No matter how perfectly designed, an effective internal control system can provide only reasonable assurance of accomplishing the three objectives mentioned above. Moreover, the effectiveness of an internal control system may be subject to changes of environment or circumstances. Nevertheless, the internal control system of the Company contains self-monitoring mechanisms. The Company takes corrective actions whenever a deficiency is identified.
3. The Company evaluates the design and operating effectiveness of its internal control system based on the criteria provided in the Regulations Governing the Establishment of Internal Control Systems by Public Companies (hereinafter referred to as, the “Regulations”). The criteria adopted by the Regulations identify five components of internal control based on the process of management control: (1) control environment, (2) risk assessment, (3) control activities, (4) information and communication, and (5) monitoring. Each component further contains several items. Please, refer to the Regulations for details.
4. The Company has evaluated the design and operating effectiveness of its internal control system according to the aforesaid criteria.
5. Based on the findings of the evaluation mentioned in the preceding paragraph, the Company believes that, during the year 2008, its internal control system (including its supervision and management of subsidiaries), as well as its internal controls to monitor the achievement of its objectives concerning operational effectiveness and efficiency, reliability of financial reporting, and compliance with applicable laws and regulations, were effective in design and operation, and reasonably assured the achievement of the above-stated objectives.
6. This statement will be an integral part of the Company’s annual report for the year 2008 and prospectus, and will be made public. Any falsehood, concealment, or other illegality in the content made public will entail legal liability under Articles 20, 32, 171, and 174 of the Securities and Exchanges Act.
7. This statement has been passed by the Board of Directors in their meeting held on March 3rd, 2009, with zero of the night attending directors expressing dissenting opinions, and the remainder all affirming the content of this statement.
Chunghwa Picture Tubes, Ltd.
Chairman (Signature):
President (Signature):
54
CHUNGHWA PICTURE TUBES, LTD. FINANCIAL STATEMENTS
WITH REPORT OF INDEPENDENT AUDITORS FOR THE YEARS ENDED
DECEMBER 31, 2008 AND 2007
The reader is advised that these financial statements have been prepared originally in Chinese. If there is any conflict between these financial statements and the Chinese version or any difference in the interpretation of the two versions, the Chinese language financial statements shall prevail.
55
REPORT OF INDEPENDENT AUDITORS English Translation of a Report Originally Issued in Chinese
To Chunghwa Picture Tubes, Ltd. We have audited the accompanying balance sheets of Chunghwa Picture Tubes, Ltd. (the “Company”) as of December 31, 2008 and 2007, the related statements of operations, changes in stockholders' equity and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4(8) to the financial statements, certain long-term investments were accounted for under equity method based on financial statements as of December 31, 2008 of the investees, which were audited by other auditors. Our audit insofar it relates to the investment loss amounted to NT$20,072 for the year ended December 31, 2008, and the related long-term investment balances of NT$5,283,936 as of December 31, 2008, is based solely on the reports of other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which 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, assessing the accounting principles used and significant estimates made by management, and 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 other audits, the financial statement referred to above present fairly, in all material respects, the financial position of Chunghwa Picture Tubes, Ltd. as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years ended December 31, 2008 and 2007, in conformity with requirements of the Business Entity Accounting Act and Regulation on Business Entity Accounting Handling with respect to financial accounting standards, Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China. As described in Note 3 to the financial statements, effective from July 1, 2008, the Company adopted amendments of Statement of Financial Accounting Standards No. 34, “Accounting for Financial Instruments”, therefore specific financial instruments have been reclassified. We have also audited the consolidated financial statements of Chunghwa Picture Tubes, Ltd. and subsidiaries as of and for the years ended December 31, 2008 and 2007, and have expressed an unqualified opinion with explanatory paragraph and an unqualified opinion on such financial statements, respectively. Ernst & Young Taipei, Taiwan Republic of China
April 28, 2009 Notice to Readers The accompanying financial statements are intended only to present the financial position and 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.
56
2008 2007CURRENT ASSETS：
Cash and cash in bank (Notes 2,4 and 10) $8,356,173 $12,634,307Financial assets at fair value through profit or loss - current (Notes 2,4 and 10) 595,392 1,517,499Financial assets carried at cost - current (Notes 2,4 and 10) - 229,706Investments in debt securities with no active market - current (Notes 2, 4 and 10) 87,123 170,294Notes receivable, net (Notes 2,4 and 10) 12,364 16,497Accounts receivable, net (Notes 2,4 and 10)
Trade 8,472,725 23,269,434Others 156,906 117,617
Due from affiliates, net (Notes 2,4,5 and 10)Trade 4,090,418 3,092,372Others 1,962,750 1,080,065
Inventories, net (Notes 2 and 4) 6,176,545 8,145,649Prepayments 606,001 75,002Assets of disposal group classified as held for sale - current - 1,965,078Pledged time deposits - current (Notes 6 and 10) 292,618 394,661
Total current assets 30,809,015 52,708,181INVESTMENTS：(Notes 2,4 and 10)
Investment in associated companies and subsidiaries 35,467,273 35,098,751Financial assets at fair value through profit or loss - noncurrent - 40,000Available-for-sale financial assets - noncurrent 1,032,431 1,240,201Derivative financial assets for hedging - noncurrent - 85,182Financial assets carried at cost - noncurrent 355,975 354,500Investments in debt securities with no active market - noncurrent 38,525 -
Total investments 36,894,204 36,818,634PROPERTY, PLANT AND EQUIPMENT：(Notes 2,4,5 and 6)
Land 3,537,992 3,354,140Buildings 28,838,029 28,146,697Machinery and equipment 115,078,930 113,460,245Transportation equipment 35,016 35,421Furniture and fixtures 870,032 851,031Miscellaneous equipment 32,605,808 31,640,342Revaluation increment 57,192 57,192
Total 181,022,999 177,545,068Accumulated depreciation (91,498,435) (69,324,113)Prepayments on equipments and construction in progress 5,877,207 1,287,028Property, plant and equipment, net 95,401,771 109,507,983
INTANGIBLE ASSETS：
Deferred pension cost (Notes 2 and 4) 67,492 101,238Computer software cost 77,691 55,950Technology license fees 894,941 1,120,881
Total intangible assets 1,040,124 1,278,069OTHER ASSETS：
Refundable deposits (Note 10) 83,918 85,965Deferred charges (Notes 2 and 4) 1,074,507 1,654,703Long-term receivables - relatd party (Notes 4,5 and 10) 560,063 - Prepayment for materials - noncurrent (Note 4) 1,513,460 2,501,225Others, net (Notes 2 and 4) 35,755 35,755
Total other assets 3,267,703 4,277,648TOTAL ASSETS $167,412,817 $204,590,515
English Translation of a Report Originally Issued in Chinese
The accompanying notes are an integral part of the financial statements.
December 31ASSETS
CHUNGHWA PICTURE TUBES, LTD.BALANCE SHEETS
December 31, 2008 and 2007(Expressed in Thousands of New Taiwan Dollars)
57
LIABILITIES AND STOCKHOLDERS' EQUITY 2008 2007CURRENT LIABILITIES：
Short-term bank loans (Notes 4 and 10) $7,203,223 $659,068Financial liabilities at fair value through profit or loss - current (Notes 2, 4 and 10) 609,265 - Accounts payable (Note 10)
Trade 5,410,051 10,184,132Others 2,924,803 708,322
Due to affiliates (Notes 5 and 10)Trade 7,370,691 17,873,232Others 524,571 193,288
Income tax payable (Notes 2 and 4) - 29,525Accrued expenses (Note 10) 5,324,773 5,749,669Advances receipts 5,893 4,004,770Current portion of bonds payable (Notes 2,4 and 10) 11,538,301 - Current portion of long-term bank loans (Notes 4,5,6 and 10) 14,349,318 15,991,799Other current liabilities 960,201 331,343
Total current liabilities 56,221,090 55,725,148LONG-TERM DEBT：
Financial liabilities at fair value through profit or loss - noncurrent - 1,614,104Derivative financial liabilities for hedging - noncurrent (Notes 2,4 and 10) 26,496 6,500Long-term bank loans, net of noncurrent portion (Notes 4,5,6 and 10) 23,960,786 38,250,250Bonds payable, net of noncurrent portion - 3,747,919Long-term deferred revenues (Notes 4 and 5) 282,875 -
Total long-term debt 24,270,157 43,618,773
RESERVE FOR INCREMENT TAX ON LAND REVALUATION (Notes 2 and 4) 26,793 26,793OTHER LIABILITIES：
Accrued pension liabilities (Notes 2 and 4) 2,166,623 2,260,296Deferred tax liabilities, net - noncurrent (Notes 2 and 4) 1,212,891 1,693,605Deferred credits (Notes 2,4 and 5) 2,185,456 1,187,403
Total other liabilities 5,564,970 5,141,304TOTAL LIABILITIES 86,083,010 104,512,018
STOCKHOLDERS' EQUITY：
Capital : (Note 4)Common stock 94,809,598 88,361,574Common stock to be registered - 5,376,188
Capital reserve : (Notes 2 and 4)Additional paid - in capital 27,410 27,410Long-term investments - 11,004Equity components of convertible bonds - 51,613
Retained earnings：(Note 4)Legal reserve 526,531 - Undistributed earnings (13,777,415) 5,265,309
Other items in stockholders' equity: (Notes 2 and 4)Cumulative translation adjustment 3,353,803 1,776,995Excess of additional pension liability over unrecognized prior service cost (296,094) (496,912)Unrealized loss on available-for-sale financial assets (3,579,603) (970,488)Unrealized (loss) gain on cash flow hedge (96,729) 6,337Unrealized incremental value from assets revaluation 669,467 669,467Treasury stock (307,161) - Total Stockholders' Equity 81,329,807 100,078,497
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $167,412,817 $204,590,515
The accompanying notes are an integral part of the financial statements.
English Translation of a Report Originally Issued in Chinese
December 31
CHUNGHWA PICTURE TUBES, LTD.BALANCE SHEETS (CONTINUED)
(Expressed in Thousands of New Taiwan Dollars)December 31, 2008 and 2007
58
2008 2007OPERATING REVENUES: (Notes 2, 4 and 5)
NET SALES $100,519,007 $143,948,765OPERATING COSTS: (Notes 4 and 5)
COST OF GOODS SOLD (101,353,672) (124,529,500)GROSS (LOSS) PROFIT INCLUDED UNREALIZED INTERCOMPANY PROFIT (834,665) 19,419,265REALIZED INTERCOMPANY PROFIT (LOSS), NET (Notes 2, 4 and 5) 19,085 (76)UNREALIZED INTERCOMPANY PROFIT, NET (Notes 2, 4 and 5) (1,713) (87,991)NET GROSS (LOSS) PROFIT (817,293) 19,331,198OPERATING EXPENSES: (Notes 4 and 5)
Selling and marketing (2,607,130) (1,400,664)General and administrative (4,347,353) (1,700,890)Research and development (4,277,671) (5,945,348)
Total (11,232,154) (9,046,902)OPERATING (LOSS) INCOME (12,049,447) 10,284,296NON-OPERATING INCOME:
Interest income (Notes 4 and 10) 175,265 398,440Investment income accounted for under equity method, net - 1,060,311Dividend income 26,768 - Gain on disposal of property, plant and equipment (Notes 2 and 5) 2,117,779 2,735Gain on disposal of investments (Notes 2 and 5) 20,000 114,789Recovery on decline in market value and obsolescence of inventory, net (Notes 2 and 4) - 88,000Valuation gain on financial assets at fair value through profit or loss, net (Notes 2 and 10) - 247,598Valuation gain on financial liabilities at fair value though profit or loss, net (Notes 2 and 10) 1,752,698 - Others (Note 5) 1,216,334 309,026
Total 5,308,844 2,220,899NON-OPERATING EXPENSES:
Interest expenses (Notes 2, 4 and 10) (2,662,424) (3,230,425)Investment loss accounted for under equity method, net (Notes 2 and 4) (1,496,949) - Loss on disposal of property, plant and equipment (Notes 2 and 5) (1,167) (14,431)Loss on foreign currency exchange, net (Note 2) (856,875) (278,644)Provision loss on decline in market value and obsolescence of inventory, net (Notes 2 and 4) (1,440,000) - Valuation loss on financial assets at fair value through profit or loss, net (Notes 2 and 10) (644,995) - Valuation loss on financial liabilities at fair value through profit or loss, net (Notes 2 and 10) - (201,860)Others (26,104) (24,934)
Total (7,128,514) (3,750,294)(LOSS) INCOME BEFORE INCOME TAX (13,869,117) 8,754,901INCOME TAX EXPENSES (Notes 2 and 4) (5,995) (51,548)NET (LOSS) INCOME $(13,875,112) $8,703,353EARNINGS (LOSS) PER SHARE (Notes 2 and 4)
BASIC (in dollars)NET (LOSS) INCOME $(1.47) $1.02
DILUTED (in dollars)NET INCOME (LOSS) $(1.47) $0.92
The accompanying notes are an integral part of the financial statements.
Ended December 31
(Expressed in Thousands of New Taiwan Dollars Except Per Share Information)
For the Years
59
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rcen
tage
in in
vest
ees
acco
unte
d fo
r un
der
equi
ty m
etho
d (N
ote
2)
Exe
rcis
e of
em
ploy
ee s
tock
opt
ion
(Not
es 2
and
4)
540,
700
27,4
1056
8,11
0
Dis
posa
l of
long
-ter
m in
vest
men
t und
er e
quity
met
hod
(4,0
42)
(13,
587)
(17,
629)
Cum
ulat
ive
tran
slat
ion
adju
stm
ent (
Not
e 2)
826,
959
826,
959
Pro
port
iona
l adj
ustm
ents
on
unre
aliz
ed g
ain
on a
vaila
ble-
for-
sale
fin
anci
al
289,
908
289,
908
ass
ets
in in
vest
ees
acco
unte
d fo
r un
der
equi
ty m
etho
d (N
ote
2)
Unr
ealiz
ed g
ain
on a
vaila
ble-
for-
sale
fin
anci
al a
sset
s (N
ote
2)90
,554
90
,554
Pre
miu
m b
y is
suin
g st
ock
in c
ash
(Not
e 2)
419
419
Unr
ealiz
ed r
eval
uatio
n in
crem
ents
(N
ote
2)26
,630
26
,630
Unr
ealiz
ed g
ain
on c
ash
flow
hed
ge (
Not
e 2)
71,5
64
71,5
64
Pro
port
iona
l adj
ustm
ents
on
unre
aliz
ed g
ain
on c
ash
flow
(16,
082)
(16,
082)
hedg
e in
inve
stee
s ac
coun
ted
for
unde
r eq
uity
met
hod
(Not
e 2)
Con
vert
ible
bon
ds c
onve
rted
into
com
mon
sto
ck (
Not
es 2
and
4)
6,23
5,52
64,
835,
488
(5
21,1
04)
(3
,132
,805
)
7,41
7,10
5
Exc
ess
of a
dditi
onal
pen
sion
liab
iliti
es o
ver
unre
cogn
ized
pri
or s
ervi
ce c
ost
66,9
88
66,9
88
(N
otes
2 a
nd 4
)
Pro
port
iona
l adj
ustm
ents
on
exce
ss o
f ad
ditio
nal p
ensi
on li
abil
ities
ove
r(9
94)
(9
94)
un
reco
gniz
ed p
rior
ser
vice
cos
t in
inve
stee
s ac
coun
ted
for
unde
r eq
uity
met
hod
(Not
es 2
and
4)
Bal
ance
at D
ecem
ber
31, 2
007
88,3
61,5
74
5,37
6,18
8
27,4
10
-
11
,004
51,6
13
-
5,26
5,30
9
1,
776,
995
(4
96,9
12)
(970
,488
)
6,
337
66
9,46
7
-
10
0,07
8,49
7
App
ropr
iatio
n of
200
7 ne
t inc
ome
Leg
al r
eser
ve (
Not
e 4)
526,
531
(526
,531
)
-
Cas
h di
vide
nds
(Not
e 4)
(3,7
92,3
84)
(3
,792
,384
)
E
mpl
oyee
bon
uses
in c
ash
(Not
es 2
and
4)
(331
,714
)
(3
31,7
14)
Net
loss
for
the
year
end
ed D
ecem
ber
31, 2
008
(13,
875,
112)
(13,
875,
112)
Adj
ustm
ents
of
undi
stri
bute
d ea
rnin
gs a
risi
ng f
rom
cha
nges
(1
1,00
4)
(6,2
30)
(1
7,23
4)
in o
wne
rshi
p pe
rcen
tage
in in
vest
ees
acco
unte
d fo
r un
der
equi
ty m
etho
d (N
ote
2)
Cum
ulat
ive
tran
slat
ion
adju
stm
ent (
Not
e 2)
1,57
6,80
8
1,57
6,80
8
Pro
port
iona
l adj
ustm
ents
on
unre
aliz
ed lo
ss o
n av
aila
ble-
for-
sale
fin
anci
al
(1,2
65,1
81)
(1
,265
,181
)
ass
ets
in in
vest
ees
acco
unte
d fo
r un
der
equi
ty m
etho
d (N
ote
2)
Unr
ealiz
ed lo
ss o
n av
aila
ble-
for-
sale
fin
anci
al a
sset
s (N
ote
2)(1
,343
,934
)
(1,3
43,9
34)
Pro
port
iona
l adj
ustm
ents
on
unre
aliz
ed g
ain
on c
ash
flow
(176
)
(1
76)
hedg
e in
inve
stee
s ac
coun
ted
for
unde
r eq
uity
met
hod
(Not
e 2)
Unr
ealiz
ed lo
ss o
n ca
sh f
low
hed
ge (
Not
e 2)
(102
,890
)
(1
02,8
90)
Con
vert
ible
bon
ds c
onve
rted
into
com
mon
sto
ck (
Not
es 2
and
4)
1,07
1,83
6
(5
1,61
3)
(510
,753
)
50
9,47
0
Exc
ess
of a
dditi
onal
pen
sion
liab
iliti
es o
ver
unre
cogn
ized
pri
or s
ervi
ce c
ost
201,
783
20
1,78
3
(N
otes
2 a
nd 4
)
Pro
port
iona
l adj
ustm
ents
on
exce
ss o
f ad
ditio
nal p
ensi
on li
abil
ities
ove
r(9
65)
(9
65)
un
reco
gniz
ed p
rior
ser
vice
cos
t in
inve
stee
s ac
coun
ted
for
unde
r
equi
ty m
etho
d
Com
mon
sto
ck to
be
regi
ster
ed c
onve
rted
into
reg
iste
red
com
mon
sto
ck5,
376,
188
(5,3
76,1
88)
-
Tre
asur
y st
ock
repu
rcha
sed
(Not
es 2
and
4)
(307
,161
)
(3
07,1
61)
Bal
ance
at D
ecem
ber
31, 2
008
$94,
809,
598
$
-
$27,
410
$
-
$
-
$
-
$526
,531
$(13
,777
,415
)$3
,353
,803
$(29
6,09
4)$(
3,57
9,60
3)$(
96,7
29)
$669
,467
$(30
7,16
1)$8
1,32
9,80
7
The
acc
ompa
nyin
g no
tes
are
an in
tegr
al p
art o
f th
e co
nsol
idat
ed f
inan
cial
sta
tem
ents
.
EQ
UIT
Y A
TT
RIB
UT
AB
LE
TO
ST
OC
KH
OL
DE
RS'
OF
TH
E P
AR
EN
T
Eng
lish
Tra
nsla
tion
of a
Rep
ort O
rigi
nally
Iss
ued
in C
hine
se
RE
TA
INE
D E
AR
NIN
GS
CA
PIT
AL
OT
HE
R I
TE
MS
IN S
TO
CK
HO
LD
ER
S' E
QU
ITY
CA
PIT
AL
RE
SE
RV
ES
CH
UN
GH
WA
PIC
TU
RE
TU
BE
S, L
TD
.
ST
AT
EM
EN
TS
OF
CH
AN
GE
S I
N S
TO
CK
HO
LD
ER
S' E
QU
ITY
For
the
year
s en
ded
Dec
embe
r 31,
200
8 an
d 20
07
(Exp
ress
ed in
Tho
usan
ds o
f N
ew T
aiw
an D
olla
rs)
60
STATEMENTS OF CASH FLOWSFor The Years Ended December 31, 2008 and 2007
2008 2007CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income after Tax $(13,875,112) $8,703,353Adjustments to reconcile net income (loss) after tax to net cash provided by operating activities:
Depreciation 22,198,298 21,263,312Amortization 1,696,485 2,138,642Investment loss (income) accounted for under equity method, net 1,496,949 (1,060,311)Gain on disposal of long-term investment accounted for under equity method - (114,789)Cash dividends received from investees accounted for under equity method 249,714 75,548Unrealized gain on foreign currency exchange of long-term debt (133,848) (7,369) (Gain) loss on disposal of property, plant and equipment, net (2,116,612) 11,696Gain on sales of intellectual property rights and recognition of long-term deferred (1,008,658) - revenueProvision loss (gain on recovery) on decline in market value and obsolescence of 1,440,000 (88,000) inventory, netGain on disposal of other assets (included in other income) (17,611) - Gain on disposal of investment (20,000) - Valuation loss on financial assets at fair value through profit or loss 644,995 - Valuation (gain) loss on financial liabilities at fair value through profit or loss (1,752,698) 201,860Loss on exchange rate effect of financial liabilities 40,092 - Amortization of investments in debt securities with no active market (7,953) - Amortization of discount on commercial paper payable - long-term bank loans 84,407 83,870Amortization of discount on bonds payable 888,573 233,973Increase in financial assets at fair value through profit or loss (738,222) (1,156,533)Decrease in notes receivable 4,133 6,992Decrease (increase) in accounts receivable - trade 14,796,709 (8,182,782)Increase in due from affiliates - trade (998,046) (5,965)Decrease in accounts receivable - others 306,434 303,818Increase in due from affiliates - others (233,557) (37,016)Decrease in inventories 529,104 4,346,033(Increase) decrease in prepayments (454,101) 222,524Decrease in prepayment for materials - noncurrent 987,765 625,307Decrease in financial liabilities at fair value through profit or loss - (1,139)Decrease in accounts payable (4,774,081) (2,045,417)Decrease in due to affiliates - trade (10,502,541) (9,645)(Decrease) increase in accrued expenses (313,562) 1,864,404Increase (decrease) in accounts payable - others 2,216,481 (4,520,414)Increase (decrease) in due to affiliates - others 331,283 (1,315,807)(Decrease) increase in advances receipts (1,004,770) 974,520(Decrease) increase in deferred credits (17,372) 88,067Increase in accrued pension liabilities 481,947 443,041Payments for pension (340,093) (326,149)Increase in compensation interest payable - 92,122(Decrease) increase in income tax payable (364) 29,525Increase in other current liabilities 628,858 188,214 Net cash provided by operating activities 10,713,026 23,025,485
(Continued)
Ended December 31
English Translation of a Report Originally Issued in ChineseCHUNGHWA PICTURE TUBES, LTD.
(Expressed in Thousands of New Taiwan Dollars)
For the Years
61
(Continued)
CHUNGHWA PICTURE TUBES, LTD. STATEMENTS OF CASH FLOWS (CONTINUED)For The Years Ended December 31, 2008 and 2007(Expressed in Thousands of New Taiwan Dollars)
2008 2007CASH FLOWS FROM INVESTING ACTIVITIES :
Increase in due from affiliates - others $- $(232,000)Increase in advance receipts for property, plant and equipment - 3,000,000 Increase in financial assets carried at cost - (584,206) Increase in investment in debt securities with no active market - (170,294) Decrease (Increase) in pledged time deposits 102,043 (12,175)Increase in investment in associated companies (2,329,520) (2,220,000)Increase in deferred charges (960,529) (696,140)Proceeds from disposal of convertible bonds investment 220,000 - Proceeds from disposal of investment - 59,400Proceeds from disposal of property, plant and equipment and intellectual property 2,188,690 18,626Proceeds from disposal of other assests 35,035 - Acquisition of property, plant and equipment (8,223,719) (4,559,032)Decrease (increase) in refundable deposits 2,047 (317)Increase in technology license fee (205,725) (796,111)Increase in computer software cost (57,587) (83,926) Net cash used in investing activities (9,229,265) (6,276,175)
CASH FLOWS FROM FINANCING ACTIVITIES :Increase (decrease) in short-term bank loans 6,544,155 (3,784,716)Issuance of employee stock options exercised - 568,110Repayments of long-term bank loans (15,920,398) (13,929,322)Issuance of overseas convertible bonds 8,045,000 4,835,860Payments of employees' bonuses (331,277) - Payments of cash dividends (3,792,214) - Purchase of treasury stock (307,161) - Repayments of convertible bonds - (7,510,408) Net cash used in financing activities (5,761,895) (19,820,476)
DECREASE IN CASH AND CASH IN BANK (4,278,134) (3,071,166)CASH AND CASH IN BANK AT BEGINNING OF PERIOD 12,634,307 15,705,473CASH AND CASH IN BANK AT END OF PERIOD $8,356,173 $12,634,307SUPPLEMENT DISCLOSURES OF CASH FLOWS
INFORMATION :Interest expenses paid (excluding interest capitalized) $1,902,208 $3,169,240Income tax paid $35,520 $22,023
INVESTING AND FINANCING ACTIVITIES NOTAFFECTING CASH FLOWS :Current portion of long-term debt $38,310,104 $15,991,799Conversion of convertible bonds into common stock $509,470 $7,938,209Property, plant and equipment transferred to disposal group classified as held for sale $- $1,965,078Financial assets at fair value through profit or loss reclassified to $1,136,164 $-
available-for-sale financial assetsINVESTING ACTIVITIES AFFECTING CASH FLOWS :
Decrease in property, plant and equipment, intellectual property and land use rights $6,502,690 $- Less : accounts receivable - others and long-term accounts receivable (1,314,000) - Less : advance receipts at beginning of period (3,000,000) -
$2,188,690 $-
For the YearsEnded December 31
The accompanying notes are an integral part of the financial statements.
English Translation of a Report Originally Issued in Chinese
62
CHUNGHWA PICTURE TUBES, LTD. NOTES TO FINANCIAL STATEMENTS
As of and for the Years Ended December 31, 2008 and 2007 (Expressed in Thousands of New Taiwan Dollars except for Par Value, Shares and Unless
Otherwise Stated) I、DESCRIPTION OF BUSINESS 1. Chunghwa Picture Tubes, Ltd. (the “Company”) was incorporated under the Company Law of
the Republic of China (the "R.O.C.") on May 4, 1971. The main activities of the Company include the design, manufacture, sale, installation, maintenance service, import, export and agency service of thin film transistor liquid crystal displays (“TFT-LCD”), color filter (“CF”) and related materials, parts and components.
2. As of December 31, 2008 and 2007, the Company had 8,642 and 8,888 employees, respectively.
3. The parent company of the Company is Tatung Co., Ltd.
II、SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The financial statements have been prepared in accordance with the requirements of the Business Entity Accounting Law and Regulation on Business Entity Accounting Handling with respect to financial accounting standards, Guidelines Governing the Preparation of Financial Report by Securities Issuers and accounting principles generally accepted in the Republic of China (collectively referred to as "R.O.C. GAAP").
Summary of Significant accounting policies is as follows:
1. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash or cash in bank, sold or consumed within one year from the balance sheet date. Current liabilities are obligations expected to be due within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities.
2. Financial Assets and Liabilities
In accordance with R.O.C. Statement of Financial Accounting Standard (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as either financial assets at fair value through profit or loss, financial assets measured at cost, investment in debt securities with no active market, derivative financial assets for hedging or available-for-sale financial assets. Financial liabilities are classified as fair value through profit or loss and derivate financial liabilities for hedging. When financial assets or liabilities are recognized initially, they are measured at fair value, plus transaction cost for all financial assets or liabilities not carried at fair value through profit or loss.
All “regular way” purchases and sales of financial assets, stocks and funds investments are
63
recorded using trade date (the date that the Company commits to purchase or sell the asset) accounting. “Regular way” purchases or sales are transactions of financial assets that require delivery of assets within the period established by regulation or convention in the marketplace. The remaining financial assets are recorded using settlement date accounting.
(1) Financial assets and financial liabilities at fair value through profit or loss This category has two sub-categories: financial assets or liabilities held for trading and those designated at fair value through profit or loss at inception.
Financial assets or liabilities at fair value through profit or loss are subsequently measured at fair value and changes in fair value are recognized in profit and loss.
The Company shall not reclassify a derivative and any financial instrument out of the fair value through profit or loss category if upon initial recognition it was designated at fair value through profit or loss; and may, if a financial asset is no longer held for the purpose of selling or repurchasing it in the near term, reclassify that financial asset out of the fair value through profit or loss category if the requirements are met as follows:
(A)A financial asset that would have met the definition of loans and receivables may be
reclassified out of the fair value through profit or loss category if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity.
(B)A financial asset that would have not met the definition of loans and receivables may be reclassified out of the fair value through profit or loss category only in rare circumstances. The fair value of the financial asset on the date of reclassification becomes its new cost or amortized cost, as applicable. Any gain or loss already recognized in profit or loss shall not be reversed. The Company shall not reclassify any financial instrument into the fair value through profit or loss category after initial recognition.
(2) Financial assets carried at cost Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at original cost, such as non-publicly traded stocks and private placement shares issued by public company, and derivatives which are linked to the price of the above equity investments.
(3) Investments in debt securities with no active market
Debt securities with no active market are non-derivative financial assets with fixed or determinable collections that are not quoted in an active market. When such investments are recognized initially, they are measured at fair value plus transaction cost. And such assets are carried at amortized cost using the effective interest method in the subsequent period. Gains and losses are recognized when these investments are derecognized or impaired, as well as through the amortization process. All regular way purchases and sales of financial assets are recognized on the trade date.
(4) Available-for-sale financial assets
Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or not classified as financial assets at fair value through profit or loss,
64
financial assets carried at cost, or loans and receivables. Subsequent measurement is calculated at fair value. Unrealized gains and losses, net of tax, excluding impairment loss and exchange gain or loss arising from the translation of monetary financial assts denominated in foreign currencies, is recorded in other items in stockholders’ equity until such investment is derecognized, upon which time the cumulative gains or losses previously recognized in equity should be included in the statement of operations. Any difference between the initial carrying amount of an available-for-sale financial asset and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
(5) Financial liabilities
The Company recognizes all financial liabilities at amortized costs, except for financial liabilities at fair value through profit and loss and derivative financial liabilities for hedging. Such liabilities are measured at fair value.
The fair value is determined by reference to the closing price on the balance sheet date for listed equity securities, convertible bonds and close-end mutual funds or the net asset value per unit for open-end mutual funds. The fair value of financial instruments with no active market, such as debt securities, mixed products, or certain derivatives are determined by using appropriate valuation method.
3. Impairment
Financial assets (1) Available-for-sale financial assets
If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value or recoverable amount, less any impairment loss previously recognized in profit or loss, is transferred from equity to the statement of operations. Reversal resulting from the reduction in the impairment loss of equity instruments classified as available-for-sale is not recognized in profit or loss but as an adjustment to stockholders’ equity. Reversals of impairment losses on debt instruments classified as available-for-sale are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
(2) Financial assets carried at cost
If there is the objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The reversals of such impairment loss on financial assets carried at cost are not allowed.
(3) Investment in debt securities without active market The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the amount of impairment loss subsequently
65
decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss shall be reversed in profit or loss. The new cost basis as a result of the reversal cannot exceed what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed.
Non-financial assets Pursuant to R.O.C. SFAS No. 35, the Company assesses indicators for impairment for all its assets within the scope of R.O.C. SFAS No. 35 at each balance sheet date. If impairment indicators exist, the Company shall then compare the carrying amount with the recoverable amount of the assets or the cash-generating unit (“CGU”) and write down the carrying amount to the recoverable amount where applicable. Recoverable amount is defined as the higher of fair value less costs to sell and value in use. For previously recognized losses, the Company shall assess, at each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company has to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior periods.
In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether indicator for impairment exists. If an impairment test reveals that the carrying amount, including goodwill of the CGU or group of CGUs is greater than its recoverable amount, then an impairment loss is recognized. The impairment loss is first recorded against the goodwill allocated to the CGU, with any remaining loss allocated to other assets in the CGU on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances. Impairment loss /reversal are classified as non-operating losses/income.
4. Derecognition of Financial Assets and Liabilities
Financial assets A financial asset or a portion of the financial asset is derecognized, when the Company loses control of the contractual rights that comprise such asset or a portion of such asset. A transfer of a financial asset or a portion of the financial asset in which the Company surrenders control over such asset is regarded as a sale to the extent that consideration in transferring the asset is received in exchange. If a financial asset is transferred but the conditions for loss of control are not satisfied, then the Company accounts for the transaction as a secured borrowing. In that case, the Company’s right to reacquire the asset is not a derivative financial instrument. Financial liabilities An entire or part of a financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or it expires.
66
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
5. Allowance for Doubtful Accounts
The allowance for doubtful accounts is provided based on the aging analysis and results of the Company’s evaluation of collectibility of the outstanding notes and accounts receivable.
6. Inventories
Inventories are recorded at cost when acquired and are stated at the lower of aggregate cost or market value. Cost is determined using the weighted-average method. Market value of work-in-process and finished goods is determined on the basis of net realizable value. Market value of raw materials is determined on the basis of replacement cost. An allowance for loss on decline in market value or obsolescence is provided when necessary.
7. Long-term Investments Accounted for under Equity Method (1) Investments in which the Company owns 20% or more of the voting shares of investees, or
under 20% but is able to exercise significant influence over the investee’s operational decisions, are accounted for under equity method. However equity method is not required when preparing first and third quarter interim financial statements for a holding interest betweens 20% to 50% (considered significant influence), therefore no investment gain/loss from equity method is recognized. However, equity method must be applied for holding interest over 50% (considered controlling interest). Prior to January 1, 2006, the difference between the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized over 5 years; however, effective from January 1, 2006, investment premiums, representing goodwill, are no longer amortized and is assessed for impairment at least on an annual basis; while investment discounts continue to be amortized over the remaining periods. Investment discounts generated after December 31, 2005, shall be allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired non-current assets. If any excess remains after reducing to zero the amounts that otherwise would have been assigned to those assets, that remaining excess shall be recognized as an extraordinary gain.
(2) For an equity investee in which the Company possesses control, such investee’s total losses will
be fully recognized by the Company when the long-term investment becomes a credit balance unless other investors are obligated to and have the ability to assume a portion of the loss. Such credit balance shall first be offset by the advance (if any) made by the Company to the investee company, the remaining shall be recorded under other liabilities.
(3) When the Company subscribes to additional shares of an investee at a percentage different from
its existing equity interest, the resulting difference between the carrying amount of the investment and the amount of the Company’s proportionate share in the investee’ net equity is
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recorded as an adjustment to the additional paid-in capital. If the additional paid-in capital is not sufficient, then the excess will be charged against retained earnings.
(4) Unrealized intercompany gains and losses are eliminated under equity method. Profit from
sales of depreciable assets between the investee and the Company is amortized and recognized based on the assets’ economic life. Profit from other types of intercompany transactions is recognized when realized.
(5) When the investees pay cash dividends, the Company recognizes dividends as the deducted item
of long-term investments. Gain or loss on disposal of long-term investments is based on the difference between selling price and book value of investments sold. Any amount of the investee’s additional paid-in capital and other adjustment items under stockholders’ equity recorded in the stockholders’ equity of the Company are eliminated in proportion to the percentage of ownership interests sold and recorded as gain or loss on disposal of investments.
(6) The Company is required to include the accounts of direct or indirect majority-owned
subsidiaries in its consolidated financial statement. The investees which the Company owned over 50% voting shares or under 50% voting shares but exercised control over are majority-owned subsidiaries.
8. Property, Plant and Equipment
Property, plant and equipment are stated at cost plus revaluation increment and net of accumulated depreciation and/or accumulated impairment losses, if any. Major renewals and improvements are capitalized, while ordinary maintenances and repairs are expensed as incurred. When an item of property, plant and equipment is impaired, the impairment loss is first offset against the balance of revaluation increment of the asset under the stockholders’ equity, if any, with the remaining amount recognized in profit or loss. The related cost (including revaluation increment), accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment of an item of property, plant and equipment are derecognized from the balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in non-operating gains or losses in the year of disposal. If due to certain legal restrictions barring the Company from owning the title of the land directly, such lands were classified as other assets. Depreciation is provided by using the straight-line method over the following estimated useful lives:
Buildings 5 – 35 years Machinery and equipment 3 – 5 years Transportation equipment 5 years Furniture and fixtures 5 years Miscellaneous equipment 5 – 10 years
Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their newly estimated useful lives. When an impairment loss is recognized, the depreciation for the impaired asset will be recalculated based on the adjusted value over the estimated remaining useful lives.
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Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly.
9. Intangible Assets (1) Effective from January 1, 2007, the Company adopted R.O.C. SFAS NO.37, “Accounting for
Intangible Asset”. Intangible assets are stated initially at cost, net of accumulated amortization and impairment. Intangible assets with finite lives should be amortized on a systematic basis over their useful lives. The Company will assess the intangible assets for impairment in accordance with R.O.C. SFAS No.35 if impairment indicators exist.
(2) The Company’s R&D project has two phases, research and development. Expenditure on
research shall be recognized as an expense when incurred.
Development costs are capitalized if, and only if, all of the following conditions can be met: (a) the technical feasibility of completing the intangible asset. (b) its intention to complete the intangible asset and use or sell it. (c) its ability to use or sell the intangible asset. (d) the intangible asset is able to generate probable future economic benefits. (e) the availability of adequate technical, financial and other resources to complete the
development. (f) its ability to measure reliably the expenditure.
The capitalized development costs should be assessed for impairment under R.O.C. SFAS No.35 at least annually.
(3) Technology license fees are amortized over 5 years or the term of the technology cooperation
contract; while Computer software cost is amortized over 3 years.
10. Deferred Charges Deferred charges, including shadow mask, expense of syndicated loan application and other charges are recorded at cost and amortized using the straight-line method over the following useful lives:
(1) Shadow mask - 2 years
(2) Expense of syndicated loan application - the term of syndicated loan.
(3) Other charges - 3 years
11. Convertible Bonds (1) For convertible bonds issued after January 1, 2006, the components of convertibles bonds with
an embedded derivative that is not clearly and closely related to the host contract are bifurcated by the Company on initial recognition. The liability component is measured first, and the difference between the proceeds of the bond issued and the fair value of the liability is accounted for as the equity component (conversion option with a fixed exchange rate feature).
(2) The present value of the liability component is calculated using the market interest rate for
similar debt without conversion options until the day before the conversion date. The liability
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component is subsequently measured at amortized cost, and changes in fair value of the equity component are not recognized while changes in fair value of the embedded derivatives are reported in profit or loss. When the conversion option expires unexercised and at that time the market value of the common stock under conversion exceeds the put price, put premium should be credited to additional paid-in capital, if the market value is otherwise lower than the put price, then it is recognized in profit or loss.
(3) When the bondholder exercises the conversion option before bond maturity, the adjusted
carrying value of the debt components (including bonds and embedded derivatives) is credited to the capital stock account along with the carrying amount of the stocks converted.
(4) Bond issuance costs were allocated proportionately to the equity and liability components and
included under bond premium/discount amortized using the effective interest rate method.
(5) If the bondholder could exercise the conversion option within the next year, then the related bonds and embedded derivatives should be reclassified as current liabilities; after the conversion option expires unexercised, the related portion of the bonds and embedded derivatives may be reclassified as noncurrent liabilities.
12. Pension (1) According to the Labor Standards Law, the Company has employees’ retirement plan which is a
defined benefit plan and has made monthly contributions based on fixed percent of these employees’ monthly wages since October, 1996. All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the Bank of Taiwan and hence, not associated with the Company. Therefore, fund assets are not to be included in the Company’s financial statements.
(2) The Labor Pension Act of R.O.C. (the Act), which adopts a defined contribution plan, became
effective on July 1, 2005. Employees eligible for the Labor Standards Law, a defined benefit plan, were allowed to elect either the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and the Company will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. The Company recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.
(3) Under the plan, the net pension cost is computed based on an actuarial valuation in accordance
with R.O.C. SFAS No. 18 “Accounting for Pensions”, which requires consideration of pension cost components such as employee service cost, interest cost, expected return on plan assets and amortization of net transition obligation. The unrecognized net transition obligation is amortized on the straight-line basis over the employees’ average remaining service period or 15 years.
13. Foreign Currency Transactions and Translation (1) The Company maintains its accounting records in New Taiwan dollars ("NT dollars" or "NT$").
Non-derivative transactions denominated in foreign currencies are recorded in NT dollars using the exchange rates in effect at the date of the transactions. Monetary assets and liabilities
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denominated in foreign currencies are translated into NT dollars using the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains or losses from settlement of such transactions or translations of monetary assets and liabilities are recorded in statements of operations. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value with changes in fair value recognized in profit or loss, are remeasured on the balance sheet date using the exchange rates prevailing as at that date, with the resulting exchange gains or losses recorded in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value with changes in fair value recognized in stockholders equity, are remeasured at the exchange rate prevailing at the balance sheet date, with resulting exchange gains or losses recorded as adjustment items to stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies that are measured at cost are remeasured at historical exchange rates. Foreign exchange gains or losses from settlement of non-monetary assets and liabilities are recorded in statements of operations.
(2) The financial statements of the foreign subsidiaries are translated into NT dollars, with the local
currency of each foreign subsidiary as its functional currency, at exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated using a weighted average exchange rate for the relevant period. Equity accounts are translated using a historical exchange rate except for the beginning balance of the retained earnings, which is the translated amount from prior period carried forward; dividend is using the rate at the declared date. Difference in translation is recorded, net of tax effect, as a component of stockholders’ equity.
14. Accounting for Derivative Financial Instruments and Hedging Activities
The Company recognized derivative as either assets (when the fair value is positive) or liabilities (when the fair value is negative) on the balance sheet and measured those instruments at fair value. Derivatives that are not qualified for hedge accounting criteria are accounted for as financial assets or liabilities held for trading with changes in fair value recognized in profit or loss. However if derivatives satisfy the hedge accounting criteria, they are accounted for using hedge accounting. The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various accounting hedges. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value and cash flow attributable to the hedged risk. Such hedges are expected to be highly effective in offsetting changes in fair value and cash flow of the hedged items. The Company assesses on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
The ineffective portion of derivative financial assets and liabilities for hedging is also categorized as held for trading and the gain or loss is reported in earning immediately.
Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
(1) Fair value hedges Fair value hedges are hedges of the Company's exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could
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affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss.
(2) Cash flow hedges
Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss immediately. Amounts taken to equity are transferred to the statement of operations when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
(3) Hedge of a net investment in a foreign operation
Hedge of a net investment in a foreign operation is a hedge of the exposure to changes in foreign currency of a net investment in a foreign operation. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity. The amount recognized in stockholders’ equity is recognized in profit or loss when disposal of the foreign operation.
15. Stock Compensation
In accordance with Accounting Research and Development Foundation interpretation Nos.92-070~072, the Company accounted for employee stock options granted on or before December 31, 2007, using the intrinsic value method.
Under the intrinsic value method, deferred compensation for options granted to employees is equal to its intrinsic value determined as the difference between the exercise price of the option and the fair value of the underlying stock at the date of grant or amendment. The Company is required to adopt R.O.C. SFAS No. 39 “Accounting for Share-Based Payment”, for employee stock options granted on or after January 1, 2008, using the fair value method. In accordance with R.O.C. SFAS No. 39, share-based payment transaction is measured by reference to the fair value of the equity instruments at the grant date; the fair value is determined by an external expert using an appropriate pricing model.
16. Treasury Stock
In accordance with R.O.C. SFAS No.30, “Accounting for Treasury Stock”, treasury stock held by the Company is accounted for under the cost method. The cost of treasury stock is shown as a deduction to stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital.
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17. Income Tax (1) The Company adopted an inter-period and intra-period income tax allocation method to
recognize income tax. Tax effects on taxable temporary differences are recognized as deferred tax liabilities. Tax effects on deductible temporary differences, operating loss carryforward and investment tax credits are recognized as deferred tax assets. Valuation allowance is provided based on the expected realization of the deferred tax assets. A deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or non-current. However, if a deferred tax asset or liability is not directly related to an asset or a liability, then the classification is based on the expected realization date of such deferred income tax asset or liability. The income tax expense or benefit for unrealized losses or gains that are not included in profit or loss for the period, but reported directly in stockholders’ equity, should also be adjusted directly in stockholders’ equity.
(2) According to R.O.C. SFAS No.12, “Accounting for Income Tax Credits”, the Company
recognizes the tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, employee training, and certain equity investment in the period when such purchases, expenditures and training occur.
(3) Undistributed earnings generated after 1997 are subject to a 10% additional retained earning tax
(10% additional tax) in compliance with the Income Tax Law of R.O.C. The 10% additional tax is recorded as income tax expense in the year in which stockholders have resolved that the Company’s earnings shall be retained.
(4) According to the implemented Alternative Minimum Tax Act (AMT), which became effective
from January 1, 2006, the Company will be subject to a 10% additional AMT if the income tax payable determined pursuant to the income tax law of R.O.C. is below the minimum amount prescribed under the AMT Act. The impact of AMT has been considered in the calculation of the Company’s income tax for the current reporting period.
18. Employees’ Bonuses and Directors and Supervisors’ Remunerations
The Company adopted Accounting Research and Development Foundation interpretation No. 96-052 to recognize share-based employees’ bonuses and remunerations paid to directors and supervisors as expenses, not distribution of earnings.
19. Revenue Recognition
The Company recognizes revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title and acceptance, if applicable, as well as fixed or determinable pricing and reasonably assured collectibility.
Recognition of dividend When cash dividends on equity securities are declared from pre-acquisition profits (for example, in the year of investment), those dividends are credited against the cost of the equity securities as recovery of acquisition costs rather than recognized as investment income except for cash dividends from financial assets at fair value through profit or loss. Receipts of cash dividends declared in the subsequent years are recognized as investment income on the date of
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ex-dividend or the date of stockholders’ meeting. However, if the accumulated cash dividends distributed exceed the accumulated net incomes or losses for the time period starting from the investment acquisition date to the prior year end, then the amount in excess shall be credited to the cost of the equity securities rather than recognized as investment income.
Stock dividends are not recognized as investment income but instead are recorded as an increase in the number of shares held. The Company recalculated the average cost or carrying amount of its holding shares after receiving stock dividends.
20. Earnings (Loss) Per Share
Earnings per share is computed according to R.O.C. SFAS No. 24, “Earnings Per Share.” The Company presents basic earnings per share and diluted earnings per share information. Basic earnings per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the current reporting period. When calculating diluted earnings per share, the numerator includes or adds back potential common stock dividends, interest and other conversion revenues (expenses). The denominator includes all potentially dilutive common shares.
When the Company has such situations like capital increase by cash, convertible bonds converted into common stocks, exercise of stock options and buyback of treasury stocks, the Company shall recalculate weighted average outstanding shares based on outstanding terms of the above situations. The weighted-average outstanding shares shall be retroactively adjusted for capital increases arising from transfer of retained earnings, capital reserves and bonuses to employees.
III、REASONS AND EFFECTS FOR CHANGES IN ACCOUNTING POLICIES
1. Effective from January 1, 2007, the Company adopted R.O.C. SFAS No.37, “Accounting for
intangible assets”. The adoption had no effect on net income or earnings per share for the year ended December 31, 2007 and total assets as of December 31, 2007.
2. Effective from January 1, 2008, the Company adopted R.O.C. SFAS No. 39, “Accounting for
Share-Based Payment” to account for share-based payments. This change in accounting principles had no effect on net loss or loss per share for the year ended December 31, 2008 and total assets as of December 31, 2008.
3. Effective from January 1, 2008, the Company adopted Accounting Research and Development
Foundation interpretation No. 96-052 to account for share-based employees’ bonuses and remunerations paid to directors and supervisors. The adoption had no effect on net loss or loss per share for the year ended December 31, 2008 and total assets as of December 31, 2008.
4. Effective from July 1, 2008, the Company adopted amendments to R.O.C SFAS No.34, “Financial Instruments: Recognition and Measurement” to reclassify its financial instruments. The adoption resulted in a favorable effect on net loss in the amount of NT$583,278, thereby decreasing loss per share by NT$0.06 for the year ended December 31, 2008.
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IV、.DETAILS OF SIGNIFICANT ACCOUNTS BALANCES 1. Cash and cash in bank
December 31 2008 2007
Cash: Cash on hand $1,740 $3,135 Cash in banks - checking and savings account 8,054,433 12,143,912 Cash in banks - time deposits 300,000 487,260 Total $8,356,173 $12,634,307
2. Financial assets and liabilities at fair value through profit or loss
December 31 2008 2007
Assets Financial assets held for trading:
Funds $- $1,001,463 Foreign currency forward exchange contracts 144,243 141,594
Convertible bonds - option 120,830 - Financial assets designated at fair value through profit or
loss:
R.O.C. convertible bonds - listed company 330,319 374,442 Prepayment - R.O.C. convertible bonds - unlisted
company - 40,000
Less: non-current portion - (40,000) Total $595,392 $1,517,499
Liabilities Financial liabilities held for trading: Interest rate swap contracts $229,082 $- Financial liabilities designated at fair value through profit or
loss:
Liability components of convertible bonds - embedded derivative contracts
380,183 1,614,104
Less: non-current portion - (1,614,104) Current $609,265 $- Detailed information of the derivative financial instruments above refers to Note 10.
3.Derivative financial assets and liabilities for hedging
December 31 2008 2007
Assets Interest rate swap contracts – noncurrent $- $85,182
Liabilities Interest rate swap contracts – noncurrent $26,496 $6,500
Detailed information of the derivative financial instruments above refers to Note 10.
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4. Financial assets carried at cost - current December 31
2008 2007 Domestic convertible bonds $- $229,706 The investment that does not have a quoted market price in an active market and its fair value cannot be reliably measured is carried at original cost.
5. Investments in debt securities with no active market December 31
2008 2007 Domestic convertible bonds $125,648 $170,294 Less: non-current portion (38,525) - Current $87,123 $170,294
6. Receivable, net
December 31 2008 2007
Notes receivable $12,504 $16,664 Less: Allowance for doubtful accounts (140) (167)
Net $12,364 $16,497
December 31 2008 2007
Accounts receivable-trade $9,742,585 $23,796,267 Less: Allowance for doubtful accounts (1,269,860) (526,833)
Net $8,472,725 $23,269,434
December 31 2008 2007 Due from affiliates-trade $4,356,418 $3,122,372 Less: Allowance for doubtful accounts (266,000) (30,000)
Net $4,090,418 $3,092,372
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In order to improve working capital, the Company entered into accounts receivable factoring agreements on December 12, 2006, without recourse, together with Chinatrust Commercial Bank, Taipei Fubon Bank, Cathay United Bank, Hua Nan Bank and Chang Hwa Bank amounted up to US$600,000,000. Related information with respect to these agreements was as follows:
December 31
2008 2007 Prepaid proceeds from factor $- $400,040 Due from factor (Note 1) - 74,457 Amounts derecognized of accounts receivable $- $474,497
The range of interest rate of prepaid proceeds - 5.7188%~6.6108%
Credit line - US$600,000
Promissory note (Note 2) - US$90,000
Note 1: The amount of due from factor was classified as “accounts receivable – others”. Note 2: The promissory note was issued as the security of future commercial dispute. Note 3: The primary transfer criteria of due from factor: The term of accounts receivable
factoring is without recourse, but the Company is responsible for the risk other than the credit risk of debtors.
7. Inventories, net
December 31 2008 2007
Raw materials and supplies $1,375,594 $1,954,427 Work in process 1,383,254 2,054,541 Finished goods 5,137,697 4,416,681
Total 7,896,545 8,425,649 Less: Allowance for decline in market value and obsolescence (1,720,000) (280,000)
Net $6,176,545 $8,145,649
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8. Investment in associated companies and subsidiaries (1) Details of investment in associated companies and subsidiaries are as follow:
December 31 2008 2007
Name of Investees
Amount Percentage
of Ownership
(%)
Amount
Percentage of
Ownership (%)
Unlisted Company Chunghwa P.T. (Bermuda) Ltd. $28,047,638 100.00 $29,683,923 100.00 Chunghwa P.T.(Labuan) Ltd. 1,143,657 41.03 1,267,243 41.03 Grand Cathay International Asset Management Co., Ltd.
466,306 100.00 464,788 100.00
Toppan Chunghwa Electronics Co., Ltd. 809,013 22.49 952,761 22.49 Subtotal 30,466,614 32,368,715
Listed Company
Forward Electronics Co., Ltd. 525,736 15.33 530,036 15.41 Giantplus Technology Co., Ltd. 4,474,923 32.22 - - Total 5,000,659 530,036
Prepayments of long-term
investment Giantplus Technology Co., Ltd. - - 2,200,000 - Total $35,467,273 $35,098,751
(2) The Company indirectly invested in Mainland China and set up CPTF Optronics Co., Ltd., CPTF Visual Display (Fuzhou) Ltd., Chunghwa P.T. (Wujiang) Ltd., CPT TPV Optical (Fujian) Co., Ltd., and Chunghwa P.T. Display Technology (Fujian) & (Shen-Zhen) Ltd. etc. through Chunghwa P.T. (Bermuda) Ltd. and Chunghwa P.T. (Labuan) Ltd., the subsidiaries of the Company. All the above investment in Mainland China had been approved by the Investment Commission of R.O.C. Ministry of Economic Affairs.
(3) The Company holds less than 20% of an investee’s voting shares for some of the long-term
equity investments listed above. However, if the Company and its affiliates altogether own 20% or more of the investee’s voting shares, it is usually evident that the Company has significant influence and the investee should be accounted for under equity method.
(4) The Company recognized investment loss of $1,496,949 for long-term equity investments under
equity method for the year ended December 31, 2008. The Investment loss of $20,072 for the year ended December 31, 2008, and the related long-term investment balances of $5,283,936 as of December 31, 2008 are determined based on the investees’ financial statements audited by other auditors.
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(5) On November 5, 2007, the Board of Directors of the Company resolved to subscribe 128,315,000 common shares of Giantplus Technology Co., Ltd. totaling $4,529,520 (unit price: $35.3 per share) through private placement, representing around 1/3 of the outstanding shares of Giantplus Technology Co., Ltd. As of December 31, 2007, the Company had paid $2,200,000 to Giantplus Technology Co., Ltd. as prepaid long-term investment under equity method. On January 2, 2008, the Company paid the remaining balances $2,329,520 to complete the transaction and acquired 32.82% voting rights of common stocks of Giantplus Technology, Co., Ltd. In addition, under applicable R.O.C. law, such common stocks are subject to the restrictions of prohibiting trade and exchange on the stock exchange in Taiwan for the period of the three years following the date of issuance of such common stocks.
9. Available-for-sale financial assets-noncurrent
December 31 2008 2007
Name of Listed Companies
Amount
Percentage of
Ownership (%)
Amount
Percentageof
Ownership (%)
Listed company shares $2,667,223 3.73% $1,531,059 1.75% Less: Allowance for unrealized loss
on available-for-sale financial assets
(1,634,792) (290,858)
Total $1,032,431 $1,240,201
10. Financial assets carried at cost - noncurrent December 31
Name of Investee 2008 2007 Private placement stock - listed company $262,500 $262,500
- unlisted company 92,000 92,000 Convertible bonds - option 1,475 - Total $355,975 $354,500 The fair value of the above investments is not measurable as they are not quoted in an active market, or because the private placement stock could not be transferred for 3 years following the issuance date. Therefore the Company recognized the above investments at cost.
11. Property, plant and equipment (1) In accordance with relevant regulations of R.O.C., the Company revalued its property, plant and
equipment in 1978, 1979, and 1981. As a result, a total of $88,005 was added to total assets and $59,304 (net of reserve for incremental tax on land revaluation of $28,701) was credited to other items in stockholders’ equity. As of December 31, 2008, the revalued assets amounted to $57,192.
(2) No interest was capitalized during the years ended December 31, 2008 and 2007.
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(3) On November 5, 2007, in order to provide more diversified products and quality services to lift up industry positions in small-medium sized application market, the Company’s Board of Directors decided to dispose of generation 3 (“G 3”) TFT-LCD fab. located in Taiwan to Giantplus Technology Co., Ltd. for $6,500,520 (included intellectual property of $1,435,000, land use rights of $294,661 and building and equipment of $4,770,859). Net gain from disposing the intellectual property and building and equipment amounted to $4,135,972 (include gain on disposal of fixed assets of $2,805,781 and non-operating income-other income of $1,330,191). The Company transferred the gain on disposal of fixed assets of $920,857 and other income of $436,568 to deferred credits based on the Company’s proportionate shares in the net equity of Giantplus Technology Co., Ltd. as intercompany profit on the transaction. The deferred credits will be released as gain on disposal of fixed assets and other income in the future over these assets’ economic service lives. For the year ended then December 31, 2008, the Company transferred deferred credits to gain on disposal of fixed assets of $229,942 and other income of $109,142. Unrealized intercompany gain on disposal of land use rights of $294,661 was amortized over the contractual life and recognized as other income of $5,893 for the year ended December 31, 2008. The remainder was booked in long-term deferred revenue - current portion (included in advances receipts) of $282,875 and long-term deferred revenue of $5,893. The Company has received $3,000,000 in cash in 2007 and $1,693,770 in the first quarter of 2008, respectively. Furthermore, the remaining payment of $1,806,750 should be calculated at the present value of $1,792,278 (minus unrealized interest revenue of $104,809 and sales tax of $90,337). The balance was recorded as other accounts receivable - current of $673,598 and non-current of $1,118,680. These payments should be paid in 11 quarterly installments of $164,250 from April 7, 2008. As of December 31, 2008, outstanding balance recorded under accounts receivable - others - current amounted to $714,828 and $560,063 as accounts receivable - others - noncurrent .
(4) In order to strengthen competitive advantage through vertical integration, the Company’s Board of Directors resolved to sign a definitive agreement to purchase Gen 3.5 and Gen 4.5 color filter fab of Sintek Co., Ltd. factories in April 2007. The transaction price of the assets including plant, property, machinery equipment, lands and associated miscellaneous equipment is $2,300,000. As of December 31, 2008, the Company had paid $2,089,050 to Sintek Co., Ltd.
12. Intangible Asset
Intangible assets as of December 31, 2008 and 2007 consisted of the following: For the year period ended December 31, 2008
Items Beginning
balance Additions Amortization Ending balance
Technology license fees $1,120,881 $205,725 $431,665 $894,941 Computer software cost 55,950 57,587 35,846 77,691 Deferred pension cost 101,238 - 33,746 67,492
Total $1,278,069 $263,312 $501,257 $1,040,124
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For the year period ended December 31, 2007
Items Beginning
balance Additions Amortization Ending balance
Technology license fees $881,412 $796,111 $556,642 $1,120,881 Computer software cost 16,333 83,926 44,309 55,950 Deferred pension cost 134,983 - 33,745 101,238
Total $1,032,728 $880,037 $634,696 $1,278,069
The intangible assets mainly consist of license fees related to TFT-LCD and computer software cost.
13. Deferred charges
December 31 Items 2008 2007
Expense of syndicated loan application $117,709 $135,163 Shadow mask 841,314 1,344,206 Others 115,484 175,334 Total $1,074,507 $1,654,703
14. Other assets-others As of December 31, 2008, due to legal restriction of R.O.C., the Company had not been able to register as the legal owner of certain farmlands (0.347118 hectares amounting to $35,755) purchased by the Company. Accordingly, such lands were temporarily held in trust by third parties. However, in order to protect the Company’s interest, the Company has kept control of the title deeds.
15. Short-term bank loans
December 31 Items 2008 2007
Unsecured loans $7,029,937 $- Usance L/C loan 173,286 659,068 Total $7,203,223 $659,068 Interest rates 1.35%~3.02% 1.21%~5.74%
16. Bonds payable
December 31 2008 2007
Zero Coupon Convertible Bonds, issued in 2006 and due 2011 - Debt components, net
$- $572,528
Zero Coupon Convertible Bonds, issued in 2007 and due 2012 - Debt components, net
4,162,441 3,175,391
Zero Coupon Convertible Bonds, issued in 2008 and due 2014 - Debt components, net
7,375,860
-
Less: Current portion of bonds payable (11,538,301) - Bonds payable, net of current portion $- $3,747,919
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The significant terms of the Convertible Bonds are as follows: Zero Coupon Convertible
Bonds, issued in 2006 and due 2011
Zero Coupon Convertible Bonds, issued in 2007 and
due 2012
Zero Coupon Convertible Bonds, issued in 2008 and
due 2014 Amount: US$250 million US$150 million US$250 million Issue price: 100% 100% 100% Duration: 5 years
(2006.07.14 to 2011.07.14)
5 years (2007.10.02 to 2012.10.02)
6 years (2008.01.31 to
2014.01.31) Place of trading:
Singapore Stock Exchange
Singapore Stock Exchange Singapore Stock Exchange
Coupon rate: - - - Conversion period:
Bondholders may convert the bonds to the Company’s common shares during a period 30 days after the issuance and 30 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $32.345= US$1).
Bondholders may convert the bonds to the Company’s common shares during a period 40 days after the issuance and 7 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $32.897= US$1).
Bondholders may convert the bonds to the Company’s common shares during a period 3 months after the issuance and 7 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $33.08= US$1).
Conversion price and adjustment:
The conversion price is $7.89 per share and will be adjusted if number of the Company’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $6.83 per share.
The conversion price is $10.35 per share and will be adjusted if number of the Company’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $9.75 per share.
The conversion price is $8.5 per share and will be adjusted if number of the Company’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $6.52 per share.
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Zero Coupon ConvertibleBonds, issued in 2006
and due 2011
Zero Coupon Convertible Bonds, issued in 2007 and
due 2012
Zero Coupon Convertible Bonds, issued in 2008 and
due 2014 Company’s redemption rights:
On and after January 14, 2008, the Company may redeem the bonds at a gross yield of 2.75% on a semi-annual basis of the unpaid principal amount outstanding if the closing price of the Company’s common stock on Taiwan Stock Exchange (“TSE”) is equal to 125% or above of the conversion price in effect on each trading day for a period of 20 consecutive trading days, or the bonds not yet converted or bought back amounted to less than 10% of the aggregate principal amount originally issued.
On and after April 2, 2009, the Company may redeem the bonds at 100% basis of the unpaid principal amount outstanding if the closing price of the Company’s common stock on TSE is equal to 130% or above of the conversion price in effect on each trading day for a period of 20 consecutive trading days, or the bonds not yet converted or bought back amounted to less than 10% of the aggregate principal amount originally issued.
On and after January 31, 2011, the Company may redeem all or some of the unpaid principal amount outstanding if the closing price of the Company’s common stock on TSE is equal to 150% or above of the conversion price in effect on each trading day for a period of 30 consecutive trading days.
The Company may
redeem the bonds at a gross yield of 2.75% on a semi-annual basis of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of the Company.
The Company may redeem the bonds at 100% of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of the Company.
The Company may redeem the bonds at 100% of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of the Company.
3 The Company may redeem the bonds at 114.63% of coupon price on maturity.
3 The Company may redeem the bonds at 120% of coupon price on maturity.
3 The Company may redeem the bonds at 139.34% of coupon price on maturity.
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Zero Coupon ConvertibleBonds, issued in 2006
and due 2011
Zero Coupon Convertible Bonds, issued in 2007 and
due 2012
Zero Coupon Convertible Bonds, issued in 2008 and
due 2014 Bondholders’ option rights:
On January 14, 2008, the bondholders have the right to require the Company to redeem the bonds at a price equal to 104.18% of the principal amount. The Company may redeem the bonds at 114.63% of coupon price on maturity.
On April 2, 2009, the bondholders have the right to require the Company to redeem the bonds at a price equal to 106.903% of the principalamount. The bondholders have demand the Company to redeem the bonds at the above price to the amount US$140,350 million. The Company may redeem the bonds at 120% of coupon price on maturity.
On and after July 31, 2009, January 31, 2011 and January 31, 2012, the bondholders have the right to require the Company to redeem the bonds at a price equal to 105.91%, 112.16% and 125.01% of the principal amount. The Company may redeem the bonds at 139.34% of coupon price on maturity.
The bondholders may demand the Company to redeem the bonds if trading of the Company’s shares is restricted on the TSE.
The bondholders may demand the Company to redeem the bonds if trading of the Company’s shares is restricted on the TSE.
The bondholders may demand the Company to redeem the bonds if trading of the Company’sshares is restricted on the TSE.
Converting status:
All bonds have been converted to common shares.
The bondholders have applied to exercise the conversion right of US$9,550 with 30,354 thousand shares as of December 31, 2008.
The bondholders have not applied to exercise the conversion right as of December 31, 2008.
17. Long-term bank loans
December 31 2008 2007
Unsecured syndicated loan $- $30,000 Secured loan 36,154,240 51,520,498
Subtotal 36,154,240 51,550,498 Commercial paper payable (note a) 2,181,600 2,727,200 Less: Unamortized discount on commercial paper payable
(25,736) (35,649)
Subtotal 2,155,864 2,691,551 Less: current portion (14,349,318) (15,991,799) reclassified to other current liability (note b) Net $(23,960,786) $38,250,250 Interest rates 2.60%~6.05% 2.60%~6.58%
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a. The L/C facility and commercial paper payable is revolving within the credit limit of the syndicated loan. The Company classified the L/C loan and commercial paper payable as long-term bank loans because the term of the syndicated loan is over 12 months and the Company intends to refinance the syndicated loan.
b. The Company has been informed by the syndicate banks on April 28, 2009, of their approval to reschedule the long-term bank loans. Therefore, payment schedule for certain current portion of bank loans amounted to $9,883,070 as payable in one year’s time as of December 31, 2008, have been postponed for one year.
c. The long-term bank loans are to be repaid in NT$ or foreign currency quarterly, or
semiannually, or upon maturity before November 2012. According to the loan agreement, the Company shall maintain certain financial ratio during the contract period.
d. Certain of the long-term bank loans were jointly guaranteed by the former President of the
Company. Detail information of the long-term bank loans above refers to Note 6.
18. Pension (1) Pension expenses:
For the years ended December 31 Type of pension plan 2008 2007
Defined benefit pension plan $277,618 $251,706 Defined contribution pension plan 204,329 191,335 Total $481,947 $443,041
(2) Funded defined benefit pension plan
(A) Details of net periodic pension cost of defined benefit pension plan for the years ended December 31, 2008 and 2007 are as follows:
2008 2007 Employee service cost $100,527 $99,993 Interest cost 103,608 92,995 Expected return on plan assets (10,885) (10,348) Amortization of net transition obligation 33,746 33,746 Amortization of actuarial gain or loss 50,622 35,320 Total $277,618 $251,706
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(B) The reconciliation statements of reporting funded status of the defined benefit pension plan as of December 31, 2008 and 2007 are as follow:
December 31 2008 2007 Pension obligation
Vested $221,560 $210,837 Non-Vested 2,186,459 2,384,397
Accumulated benefit obligation 2,408,019 2,595,234 Additional benefits based on future salaries 252,349 592,716 Projected benefit obligation 2,660,368 3,187,950 Fair value of plan assets (241,396) (334,938) Funded status 2,418,972 2,853,012 Unamortized net transition obligation (67,492) (101,238) Unrealized loss on pension assets (535,975) (1,078,124) Deferred pension cost 67,492 101,238 Excess of additional pension liability over
unrecognized prior service cost 283,626 485,408
Accrued pension liability $2,166,623 $2,260,296
Vested benefits
$231,211 $219,896
The major actuarial assumptions are as follows: December 31 2008 2007 Discount rate 3.25% 3.25% Rate of increase in future compensation levels 2.00% 1.00% Expected long-term rate of return on plan assets 3.25% 3.25% (C)Effective from October 1996, as required by R.O.C. Labor Standard Law, the Company
makes monthly contributions to a pension fund at pre-determined percentage of salaries paid.
(D)The pension fund is administered by the employee committee and deposited, under the
committee's name, with Bank of Taiwan. As of December 31, 2008 and 2007, the balances were $234,900 and $328,290, respectively.
19. Deferred credits – intercom any gain or loss
As of December 31, 2008 and 2007, the balances of deferred gain on transaction with equity investees were as follows: December 31
Transaction 2008 2007 Sales $204,264 $221,638 Fixed asset and intellectual property rights 1,039,137 23,710 Stock 942,055 942,055 Total $2,185,456 $1,187,403
The unrealized gain of $942,055 resulted from the stock transaction between the Company and subsidiaries. The gain was deemed unrealized as subsidiaries have not disposed the stock.
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20. Capital (1) The authorized and issued capital of the Company were $125,000,000 (including 700 million
shares reserved for future exercise of employee stock options) and $82,126,048, divided into12,500,000 thousand shares and 8,212,605 thousand shares, respectively, each at par value of $10.
(2) In 2007, the Company issued 1,107,101 thousand shares and 54,070 thousand shares for the conversion of the Company’s convertible bonds and stock options exercised, respectively. Total issued common stock after the conversion and exercise was $93,737,762.
(3) For the year ended December 31, 2008, the Company issued 107,184 thousand shares for the conversion of the Company’s convertible bond.
(4) As of December 31, 2008, the authorized and issued capital of the Company were $125,000,000 (including 700 million shares reserved for future exercise of employee stock options) and $94,809,598, divided into 12,500,000 thousand shares and 9,480,960 thousand shares, respectively, each at par value of $10.
21. Stock compensation
The Company has four stock option plans (“2002 Plan”, “2004 Plan”, “2007 Plan” and “2008 Plan”) approved by Securities and Futures Bureau of Financial Supervisory Commission on May 14, 2002, April 29, 2004, May 24, 2007, and December 23, 2008, respectively. These stock option plans granted options to purchase the Company’s common shares at the market price of the grant date to qualified employees of the Company or any of its domestic or foreign subsidiaries. Stock options expire in five years from the grant date and vest over service periods that range from two to four years. The Company is authorized to grant options for up to 400,000 units, 233,982 units, 100,000 units and 100,000 units under the 2002 Plan, 2004 Plan, 2007 Plan, and 2008 Plan, respectively. Each unit entitles an optionee to subscribe to 1 share of the Company’s common stock and has the contractual life of 5 years. An optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the grant date. If there is any change in the equity structure of the Company, the exercise price for each issued stock option plan will be adjusted. In accordance with “The rule of stock option”, if the exercise price is equal to the closing price of common stock at the grant date, no compensation expense is recognized. Detailed information relevant to the employee stock options was disclosed as follows:
Date of grant
Total number of options granted
Total number of options outstanding as of December 31,
2008 Exercise price
(in NT$) Plan May 17, 2004 113,821 72,120 14.60 2004 plan
September 30, 2004 72,349 48,488 12.50 2004 planMarch 22, 2005 46,430 28,158 10.40 2004 planMay 30, 2007 100,000 91,050 8.00 2007 plan
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(1) A summary of the Company’s stock option activity and the related information for the years ended December 31, 2008 and 2007 was shown below:
For the year ended December 31, 2008 2002 Plan 2004 Plan 2007 Plan
Options
Weighted-Average Exercise
Price (in dollars) Options
Weighted-Average Exercise
Price (in dollars) Options
Weighted-Average Exercise
Price (in dollars)
Outstanding, beginning of period 28,815
$10.50 155,584 $13.13 95,609
$8.44
Granted - - - - - - Exercised - - - - - - Forfeited (28,815) 10.50 (6,818) 13.28 (4,559) 8.00 Outstanding, end of period -
- 148,766 13.12 91,050
8.00
For the year ended December 31, 2007 2002 Plan 2004 Plan 2007 Plan
Options
Weighted-Average Exercise
Price (in dollars)
Options
Weighted-Average Exercise
Price (in dollars) Options
Weighted-Average Exercise
Price (in dollars)
Outstanding, beginning of period 146,600
$11.05 181,632 $13.46 -
$-
Granted - - - - 100,000 8.44 Exercised (52,821) 10.50 (1,249) 10.80 - - Forfeited (64,964) 11.74 (24,799) 12.54 (4,391) 8.44 Outstanding, end of period 28,815
10.50 155,584 13.53 95,609
$8.44
(2) Information with respect to the outstanding options of the Company as of December 31, 2008
and 2007 was as follows: December 31, 2008 Outstanding options at balance sheet date Options Exercisable
Range of
Exercise Price (in dollars)
Options
Weighted- Average
Remaining Contractual
Life (in years)
Weighted- Average
Exercise Price(in dollars)
Number of Exercisable
Options
Weighted-Average Exercise
Price (in dollars)
2004 Plan $10.40-$14.60 148,766 0.66 $13.12 141,727 $13.262007 Plan $8.00 91,050 3.41 8.00 - -
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December 31, 2007 Outstanding options at balance sheet date Options Exercisable
Range of Exercise Price
(in dollars)
Options
Weighted- Average
Remaining Contractual
Life (in years)
Weighted- Average
Exercise Price(in dollars)
Number of Exercisable
Options
Weighted-Average Exercise
Price (in
dollars)2002 Plan $10.50 28,815 0.01 $10.50 28,815 $10.50 2004 Plan $10.80 -$15.00 155,584 1.66 13.53 115,747 13.51 2007 Plan $8.44 95,609 4.39 8.44 - -
(3) No compensation was recognized because that the exercise price of the Company’s stock
options are equal to the market price at the grant date for the years ended December 31, 2008 and 2007. Had the Company used the fair value method to account for its stock options, compensation cost for the years ended December 31, 2008 and 2007 would have been $111,323 and $123,398, respectively.
Pro forma net income (loss) and earnings (loss) per share are disclosed below as if the Company had accounted for its employee stock options under the fair value method.
For the years ended December 31 2008 2007
Net income (loss) as reported $(13,875,112) $8,703,353 Pro forma net income (loss) $(13,986,435) $8,579,955 Basic earnings (loss) per share as reported (in dollars) $(1.47) $1.02 Pro forma basic earnings (loss) per share (in dollars) $(1.48) $1.00 Diluted earnings (loss) per share as reported (in dollars) $(1.47) $0.92 Pro forma diluted earnings (loss) per share (in dollars) $(1.48) $0.90
The fair value of these options was calculated at the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions for the year ended:
Stock option plans 2002 Plan 2004 Plan 2007 Plan Dividend yield: 3.84% 3.84% 0.00% Expected volatility: 37.68% 37.68% 33.58% Risk-free interest rate: 1.00% 1.00% 2.26% Expected life: 3.875 years 3.875 years 3.875 years
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22. Treasury stock (1) The Company bought back its own shares from the open market for the year ended December
31, 2008 as follows: For the year ended December 31, 2008 (In thousands of shares)
For the year ended December 31 Purpose Beginning Increase Decrease Ending
For transfer to employees - 44,000 - 44,000
(2) The Company bought back its own shares until the end of August, 2008. According to the Securities and Exchange Law of R.O.C. the total shares of treasury stock shall not exceed 10% of the Company’s issued stock, and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital-premiums, and realized additional paid-in capital.
(3) In compliance with Securities and Exchange Law of R.O.C., treasury stock should not be
pledged, nor should it be entitled to voting rights or receiving dividends.
23. Capital reserve According to R.O.C. Company Law, capital reserve can only be used for making up accumulated deficits if the legal reserve is insufficient for making up such deficits. Capital reserve derived from additional paid-in capital and donation from stockholders can also be used to increase common stock if the Company does not have accumulated deficits. The distribution of stock dividends can be made only once a year and cannot exceed 10% of issued capital.
24. Legal reserve
According to R.O.C. Company Law, the Company must retain at least 10% of its annual earnings as legal reserve until such reserve equals the amount of capital. Once the legal reserve equals one-half of the paid-in capital, 50% of the reserve may be transferred to common stock. The legal reserve can be used to make up deficit.
25. Special reserve
In accordance with R.O.C. Securities and Futures Bureau (“SFB”) regulations, a special reserve must be provided for unrealized loss on available-for-sale financial assets, excess of additional pension liability over unrecognized prior service cost and cumulative translation adjustment and unrealized loss for cash flow hedge that are accounted for as deductions to stockholders’ equity. Once the aforementioned deductions to stockholders’ equity are reversed, the related reserve can be reversed to distributable earnings.
26. Distributions of earnings and Dividends policy (1) Pursuant to the Company’s Articles of Incorporation, current year’s earnings before tax, if any,
shall be distributed in the following order: (a) payment of all taxes; (b) make up prior years’ operation losses; (c) set aside 10% of the remaining amount after deducting (a) and (b) as legal reserve; (d) set aside special reserve in accordance with regulation prescribed by R.O.C.’s SFB or
reverse special reserve previously provided; and
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(e) after deduction of items (a), (b), (c) and (d) from current year’s earnings, the remaining is allocated as follows: no higher than 1% as directors’ and supervisors’ remuneration; 1%-10% as employees’ bonus, and 90%-99% as distributable earnings.
(2) The Company is engaged in high-tech industry and the cycle of high-tech industry is currently experiencing the growth stage. In order to expand scale and improve its strength to compete with other major companies in the world, the Company adopts a policy of residual dividends. The Company shall base its budget on capital expenditure and the demands of the funding, taking into account the balance of retained earnings, to determine dividends or bonuses provided; however, cash dividends shall not be less than 10% of the sum of the stock dividends and cash dividends and adjusted based on current year’s profit and future year’s funding demand.
(3) On June 13, 2007, the Company’s stockholders resolved that capital reserve of $13,674,132 was
used for making up accumulated deficits. On June 13, 2008, the Company’s stockholders had resolved to distribute earnings, the detail information was as follows: 2007 Amount Dividend per share Legal reserve $526,531 $- Cash dividends 3,792,384 0.40 Employees’ bonuses in cash 331,714 -
(4) The appropriation of 2007 earnings has not yet been recommended by the Board of Directors as
of the date of the Report of Independent Auditors. Information on the Board of Directors’ recommendations and stockholders’ approval can be obtained from the “Market Observation Post System” on the website of TSE.
(5) On April 6, 2009, the Company’s Board of Directors resolved to offset accumulated deficits as
of December 31, 2008, with legal reserve and additional paid-in capital by $526,531 and $27,410, respectively.
27. Personnel, depreciation and amortization expenses For the three-month periods ended March 31 2009 2008 Operating
cost Operating
expenses
Total Operating
cost Operating expenses
Total
Personnel expenses: Salaries $4,747,628 $855,675 $5,603,303 $6,303,803 $1,052,032 $7,355,835Staff labor/health
insurance 316,976 53,500 370,476 323,618 54,910 378,528
Pension 394,001 87,946 481,947 369,106 73,935 443,041 Other personnel
expenses 114,951 19,372 134,323 135,681 14,416 150,097
Depreciation 21,877,378 320,920 22,198,298 20,936,373 326,939 21,263,312Amortization 905,936 790,549 1,696,485 389,093 1,749,549 2,138,642
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28. Income tax (1) R.O.C. income tax authorities have examined the income tax returns of the Company through
2004. The 2001 and 2004 income tax return have been assessed by the tax authorities and loss carry forward, investment tax credit in research and development expenditure and income tax exemption in 2001 and 2004 had been decreased and therefore due to dispute in the eligibility of using research and development expenditure for tax deduction, an additional tax payable for 2004 of $46,659 was imposed. However, the Company disagreed with the outcome and had filed a tax appeal.
The Company believed that it will not have an adverse material effect on the financial statements and therefore has not accrued an additional tax liability. Furthermore, in prior year a valuation of allowance have been recorded against deferred tax assets for loss carry forward and investment tax credit in research and development expenditure; therefore, there is no significant impact on the current year income tax expense.
(2) There is no taxation charge on the profit of the Company for the three-month periods ended
March 31, 2009 due to the followings: The Company was entitled to an income tax exemption for a period of five consecutive years for the income generated by sales of its TFT-LCD. Details of the Company’s effective tax exemption periods were as follows:
Tax exempted products Tax exemption period TFT-LCD 2004～2008 TFT-LCD
2010～2014
TFT-LCD 2008～2012 CF
2006～2010
(3) The Company obtained the approval letter for applying tax exemption in respect of setting its
headquarters in Taiwan. (4) The provision for income tax expenses consists of the following: For the three-month periods
ended March 31 2009 2008 Income (loss) before income tax $(13,869,117) $8,754,901 The tax effects of taxation adjustments: Permanent difference and tax-exempt income (59,342) (551,469)
Temporary difference 7,251,682 (633,096)Operating loss carryforward 6,676,777 (7,570,336)
Taxable income - - Income tax calculated by Alternative Minimum Tax Act (AMT) 5,995 51,548 Withholding tax (5,995) (22,023)Income tax-current (note) - 29,525 Income tax calculated by Alternative Minimum Tax Act (AMT) 5,995 22,023 Income tax – deferred
Investment tax credits (341,072) (1,540,734)Operating loss carryforward (1,669,194) (1,931,460)Temporary differences (1,829,513) (176,816)
Valuation allowances 3,839,779 3,649,010 Income tax expenses $5,995 $51,548 Note: The Company will be subject to a 10% AMT if the income tax payable determined pursuant to
the income tax law of R.O.C. is below the minimum amount prescribed under the AMT Act.
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(5) Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2008 and 2007 were as follows:
December 31 2008 2007
Components Amount Tax effect Amount Tax effect Deferred tax assets:
Investment tax credits $- $6,555,002 $- $6,213,930Allowance for bad debts 1,523,126 380,782 288,098 72,024Unrealized loss on decline in
market value and obsolescence of inventory
1,720,000 430,000 280,000 70,000
Deferred credits 227,975 56,994 245,348 61,337Expenses capitalization - - 7,750 1,938Deferred pension expense 1,537,689 384,422 1,392,431 348,108Unrealized law – related expenses 2,400,000 600,000 - -Unrealized loss on foreign currency
exchange, net 1,082,995 270,749 116,389 29,097
Operating loss carryforward 21,366,245 5,341,561 14,689,468 3,672,367Unrealized loss on
available-for-sale financial assets of overseas investee companies
2,442,671 610,668 906,174 226,544
Unrealized interest expenses on interest rate swap contracts
754,185 188,546 352,219 88,056
$14,818,724 $10,783,401
December 31 2008 2007
Components Amount Tax effect Amount Tax effect Deferred tax liabilities:
Overseas investment income accounted for under the equity method
$8,541,999 $(2,135,500) $10,009,781 $(2,502,445)
Cumulative translation adjustments 1,848,597 (462,150) 2,343,152 (585,789) Unrealized loss on financial assets
and liabilities at fair value through profit or loss, net
1,111,496 (277,874) 281,393 (70,348)
Unrealized loss on cash flow hedge - - 8,449 (2,112) $(2,875,524) $(3,160,694)
December 31 2008 2007
(6) Deferred tax assets - current $5,858,592 $395,443 Valuation allowance - current (5,580,718) (325,095) Deferred tax assets - net - current 277,874 70,348 Deferred tax liabilities - current (277,874) (70,348) Net deferred assets - current $- $-
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December 31 2008 2007
(7) Deferred tax assets - noncurrent $8,960,132 $10,387,958 Valuation allowance - noncurrent (7,575,373) (8,991,217) Deferred tax assets - net - noncurrent 1,384,759 1,396,741 Deferred tax liabilities - noncurrent (2,597,650) (3,090,346) Net deferred tax liabilities - noncurrent $(1,212,891) $(1,693,605)
(8) Details of unused investment tax credits and tax operating loss carryforward as of December 31,
2008 were as follows:
Regulation
Item Tax credit Unused
tax credit Expiration
year Statute for Upgrading Investment tax credit in $274,125 $274,125 2012
Industries production equipment, research
535,341 535,341 2011
and development expenditure,
708,263 708,263 2010
and employee training 4,901,006 4,901,006 2009 expenditure 136,267 136,267 2008 $6,555,002 $6,555,002 Income Tax Law Tax loss carryforward $6,786,474 $6,786,474 2018 13,479,893 13,479,893 2016 7,986,117 1,099,878 2015 $28,252,484 $21,366,245
(9) The integrated income tax information of the Company was as follows:
December 31 2008 2007 Imputation credit account (ICA) $28,444 $85,339 Retained earnings (accumulated deficits) $(13,777,415) $5,265,309 Creditable ratio - 1.62%
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29. Earnings (loss) per share The Company’s capital structure is a complex structure. When calculating the potential common shares, the effect of convertible bonds and employees’ stock options is considered. However, these potential common shares were not included in the computation of diluted loss per share for the year ended 2008 due to their anti-dilutive effect and thereby the basic loss per share is equal to diluted loss per share.
For the year ended December 31, 2008 Amount Loss per share
Loss before income tax Net loss
Shares expressed
in thousands
Loss before income
tax
Net loss
Loss per- share - basic $(13,869,117) $(13,875,112) 9,449,716 $(1.47) $(1.47)Loss per- share - diluted $(13,869,117) $(13,875,112) 9,449,716 $(1.47) $(1.47)
For the year ended December 31, 2007 Amount Earnings (loss) per
share
Profit before income tax Net Profit
Shares expressed
in thousands
Profit before income
tax
Net Profit
Earnings per share –basic $8,754,901 $8,703,353 $8,562,625 $1.02 $1.02
Effect of dilutive potential shares
Convertible bonds 32,173 32,173 955,769 Stock options - - 24,532 Earnings per share - diluted
$8,787,074 $8,735,526 $9,542,926 $0.92 $0.92
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30. Technology and purchase agreement
Contracting party The term of
the contract
The content of repayment Technology agreement Advanced Display Inc. (ADI)
April 1997｜
June 2010
1. The Company is required to pay licensing fees on installment basis for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
3. ADI has the right to purchase no more than 15% of the total products from the Company at 90% of the average selling price. The Company bears the shipping costs of the products to locations designated by ADI.
Sharp Corporation January 2002
｜ June 2011
1. The Company is required to pay licensing fees (one time payment) for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Hitachi Ltd. January 2003︳
December 2010
1. The Company is required to pay licensing fees on installment basis for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Semiconductor Energy Laboratory Co., Ltd. (SEL)
January 2004|
December 2008
1. The Company is required to pay licensing fees on installment basis for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Industrial Technology Research Institute (ITRI)
May 2002 |
May 2009
The Company is required to pay licensing fees on installment basis for using the technologies.
Mitsubishi Electric Corporation and Advanced Display Inc.
During the patent period
beginning November
2002
The Company is required to pay licensing fees on installment basis for using the technologies.
96
Contracting party
The term ofthe contract
The content of repayment
Guardian Industries, Corp. May 2006 |
April 2011
1. The Company is required to pay licensing fees on installment basis for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Toshiba Matsushita Display Technology Co., Ltd. (‘TMD)
April 2007|
February 2012
1. The Company is required to pay licensing fees on installment basis for using the technologies.
2. The Company is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
LG. Display Co. Ltd. October 2007
| September
2014
The Company is required to pay royalty fees based on pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Purchase Agreement Corning Display Technologies Taiwan Co., Ltd (“Corning Taiwan”)
April 2005｜
March 2011
1. Corning Taiwan will guarantee to supply materials of TFT-LCD to the Company for 6 generation fabrication.
2. The Company is required to make prepayments on installment basis to Corning Taiwan to be deductible from subsequent purchase.
V. RELATED PARTY TRANSACTIONS 1. Name and relationship:
Name of related party Relationship with the Company Tatung Co., Ltd. The Company’s major stockholder and
represented on the Company’s board of directorsForward Electronics Co., Ltd. An investee accounted for under equity method Toppan Chunghwa Electronics Co., Ltd. An investee accounted for under equity method Giantplus Technology Co., Ltd. An investee accounted for under equity methodGrand Cathay International Asset
Management Co., Ltd. A subsidiary of the Company
Sintronic Technology Inc. An investee of Grand Cathay International Asset Management Co., Ltd. accounted for under equity method
Taiwan Telecommunication Industry Co., Ltd.
Subsidiary of Tatung Co., Ltd.
Tatung Fine Chemical Co., Ltd. Subsidiary of Tatung Co., Ltd.
97
Name of related party Relationship with the Company Shang Chih International Express Co., Ltd. Subsidiary of Tatung Co., Ltd. Tatung-Fanuc Robotics Company Subsidiary of Tatung Co., Ltd. Tatung Co. of Japan, Inc. Subsidiary of Tatung Co., Ltd. Tatung (U.K.) Ltd. Subsidiary of Tatung Co., Ltd. Tatung (Thailand) Co., Ltd. Subsidiary of Tatung Co., Ltd. Tatung Co. of America, Inc. Subsidiary of Tatung Co., Ltd. Tatung Consumer Products (Taiwan) Co.,
Ltd. Subsidiary of Tatung Co., Ltd.
Tatung System Technology Inc. Subsidiary of Tatung Co., Ltd. Toes Opto-Mechatronics Co.,Ltd Subsidiary of Tatung Co., Ltd. Tatung Chungai Precious Metals Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Atherton Co. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Telecom Corporation An investee of Tatung Co., Ltd. accounted for
under equity method Tatung OTIS Elevator Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Kuender Company Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung electronics (Singapore) Pte. Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Information (Singapore) Pte. Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Okuma Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Elitegroup Computer Systems Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Information Technology (Jiang Su)
Co., Ltd. Subsidiary of subsidiary of Tatung Co., Ltd.
TIS Net Technology Inc. Subsidiary of subsidiary of Tatung Co., Ltd. Green Energy Technology Inc., Ltd. Subsidiary of subsidiary of Tatung Co., Ltd. Chunghwa P.T. (Bermuda) Ltd. A subsidiary of the Company Chunghwa P.T. (Labuan) Ltd. A subsidiary of the Company Chunghwa P.T. (Malaysia) Sdn. Bhd. A subsidiary of the Company’s subsidiary Chunghwa P.T. (Wujiang) Ltd. A subsidiary of the Company’s subsidiary CPTF Optronics Co., Ltd. A subsidiary of the Company’s subsidiary Dalemont Investment Ltd. A subsidiary of the Company’s subsidiary Daliant Investment Ltd. A subsidiary of the Company’s subsidiary Bangalor Investment Ltd. A subsidiary of the Company’s subsidiary Bensaline Investment Ltd. A subsidiary of the Company’s subsidiary
98
Name of related party Relationship with the Company Chunghwa P.T. Display Technology (Fujian)
Ltd. A subsidiary of the Company’s subsidiary
Chunghwa P.T. Display Technology (Shen-Zhen) Ltd.
A subsidiary of the Company’s subsidiary
CPT TPV Optical Co., Ltd. A subsidiary of the Company’s subsidiary Makolin Electronics (M) Sdn. Bhd. A subsidiary of the Company’s subsidiary Chunghwa P.T. (Kampar) Sdn. Bhd. A subsidiary of the Chunghwa P.T. (Malaysia)
Sdn. Bhd. CPTF Visual Display (Fuzhou) Ltd. A subsidiary of CPTF Optronics Co., Ltd. Xiamen Overseas Chinese Electronic Co.,
Ltd. An investee of Chunghwa P.T. (Wujiang) Ltd.
accounted for under equity method Jean Co., Ltd. Chairman is one of the immediate family
members of the Company’s Chairman Jeffrey Investment Ltd. Subsidiary of Jean Co., Ltd. Jean (M) Sdn. Bhd., Malaysia Subsidiary of Jean Co., Ltd. K-tronics, Inc. Subsidiary of subsidiary of Jean Co., Ltd. Tatung University The major stockholder of Tatung Co., Ltd. Lin, Wei-Shan etc. (9 people) Directors of the Company On, Tian-Fa etc. (5 people) Supervisors of the Company Cion, Chuang-Yi etc. (11 people) Main Management of the Company
2. Significant transactions with related parties: (1) Operating Revenue
For the years ended December 31 2008 2007
Name of related party Amount % Amount % Xiamen Overseas Chinese Electronic Co., Ltd. $3,391,500 3.37 $2,690,980 1.87Tatung Co., Ltd. 2,205,727 2.19 5,512,254 3.83Tatung Information Technology (Jiang Su) Co., Ltd. 1,780,872 1.77 52,877 0.04Elitegroup Computer Systems Co., Ltd. 1,670,953 1.66 1,266,859 0.88Jean Co., Ltd. 1,215,692 1.21 1,837,597 1.28Giantplus Technology Co., Ltd. 1,420,042 1.41 - - Chunghwa P.T. (Labuan) Ltd. 1,291,576 1.29 1,112,625 0.77Jeffrey Investment Ltd. 239,118 0.24 2,420,190 1.68K-tronics, Inc. 55,488 0.06 145,938 0.10Others 22,038 0.02 20,670 0.01Total $13,293,006 13.22 $15,059,990 10.46
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There are no significant differences between selling prices to related parties and prices to arms length customers. The comparison of collection terms between related parties and arms length customers is summarized as follows:
For the years ended December 31 2008 2007
Region Related party
Arms length customer
Related party Arms length
customer
Overseas O/A 90-120 days Cash payment with 30 to 90 days
O/A 90-120 days
Cash payment with 30 to 90
days
L/C with 30 to 65 days L/C with 30 to
65 days At sight payment At sight payment
R.O.C. Domestic O/A 60-90 days Cash payment with 30 to 60 days
O/A 90-120 days
Cash payment with 30 to 60
days At sight payment At sight payment
(2) Purchases
For the years ended December 31, 2008 2007
Name of related party Amount % Amount % Chunghwa P.T. (Labuan) Ltd. $36,060,713 53.22 $49,986,551 57.33Giantplus Technology Co., Ltd. 1,609,101 2.38 - - Forward Electronics Co., Ltd. 354,955 0.52 216,538 0.25Total $38,024,769 56.12 $50,203,089 57.58 There are no significant differences between purchase prices from related parties and purchase prices from arms length suppliers. The comparison of terms of payment between related parties and arms length suppliers is summarized as follows:
For the years ended December 31, 2008 2007
Region Related party
Arms length supplier
Related party
Arms length supplier
Overseas T/T 30 to 360 days
L/C 30 to 180 days
T/T 30 to 360 days
L/C 30 to 180 days
T/T 30 to 360 days
T/T 30 to 360 days
R.O.C. Domestic 30 to 60 days after QC
30 to 210 days after QC
30 to 60 days after QC
30 to 210 days after QC
(3) Fixed asset addition
For the years ended December 31 Name of related party 2008 2007
Tatung Co., Ltd. $1,097,174 $81,442 Toes Opto-Mechatronics Co., Ltd. 194,342 309,926 Tatung Co. of Japan, Inc. 51,828 - Tatung System Technology Inc. 30,225 22,053 Others 29,872 10,522 Total $1,403,441 $423,943
100
(4) Operating and manufacturing expenditures
For the years ended December 31 2008 2007
Name of related party Amount % Amount % Chunghwa P.T. (Labuan) Ltd. $123,948 0.30 $50,983 0.13 Tatung Co., Ltd. 34,869 0.08 18,011 0.04 Tatung System Technology Inc. 18,350 0.04 10,395 0.03 Tatung OTIS Elevator Co., Ltd. 4,190 0.01 6,232 0.02 Others 15,287 0.05 13,259 0.03 Total $196,644 0.48 $98,880 0.25
(A)The above expenditure incurred in connection with the purchase of materials, products or
services from related parties. (B) The Company purchased certain raw material, components and equipment from Japan
through Tatung Co. of Japan, Inc., which charges the Company commissions for such services. The total raw material and equipment purchased through Tatung Co. of Japan, Inc. amounted to $2,235,438 and $1,559,589 for the years ended December 31, 2008 and 2007, respectively. The commission charged, included in the aforementioned purchase amount, amounted to $28,636 and $0 for the corresponding periods, respectively.
(5) Disposal on fixed asset and intellectual property rights
For the years ended December 31 2008 2007
Name of related party Selling
price Carrying amount
Loss on sale of
fixed asset
Selling price Carrying
amount Gain on sale of
fixed assetChunghwa P.T.
(Labuan) Ltd.
$- $- $- $16,098 $13,363 $2,735 Sintronic Technology
Inc.
1,831 2,103 (272) - - -Total $1,831 $2,103 $(272) $16,098 $13,363 $2,735
Note: Detail information regarding disposal of fixed asset and intellectual property rights to
Giantplus technology Co., Ltd. for the year ended December 31, 2008 is per Note 4(11).
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(6) Due from affiliates - trade, net December 31
2008 2007 Name of related party Amount % Amount %
Xiamen Overseas Chinese Electronic Co., Ltd.
$2,187,867 15.52 $638,005 2.37
Tatung Co., Ltd. 1,254,055 8.90 1,867,126 6.94Elitegroup Computer Systems Co., Ltd. 358,865 2.55 88,975 0.33Chunghwa P.T. (Labuan) Ltd. 229,397 1.63 3,604 0.01Giantplus Technology Co., Ltd. 189,273 1.34 - - Jean Co., Ltd. 123,322 0.88 377,055 1.40Tatung Information Technology (Jiang Su)
Co., Ltd. 9,346 0.07 - - -
Others 4,293 0.01 147,607 0.55Total 4,356,418 30.90 3,122,372 11.60Less：Allowance for doubtful accounts (266,000) (30,000) Net $4,090,418 $3,092,372
(7) Due from affiliates - others December 31
2008 2007 Name of related party Amount % Amount %
Chunghwa P.T. (Bermuda) Ltd. $941,235 44.40 $789,028 65.88 Giantplus Technology Co., Ltd. 714,828 33.72 - - Xiamen Overseas Chinese Electronic Co., Ltd. 42,361 2.00 - - Toppan Chunghwa Electronics Co., Ltd. 17,778 0.84 10,993 0.92 Sintronic Technology Inc. 14,548 0.69 26,324 2.20 Others - - 21,720 1.81 Grand Cathay International Asset Management
Co., Ltd. 232,000 10.95 232,000 19.37
Total $1,962,750 92.60 $1,080,065 90.18
The detail of financing from the related party December 31, 2008 is as follow:
Name of related party
Maximum balance for the period Date
Ending balance
Interest rate
Total Interest revenue
2008.12.31 Grand Cathay International
Asset Management Co., Ltd.
$232,000 2008.12.10 $232,000 3% $6,960 2007.12.31 Grand Cathay International
Asset Management Co., Ltd.
$232,000 2007.12.10 $232,000 - $- (8) Long-term receivable-related party
December 31 2008 2007
Name of related party Amount % Amount % Giantplus Technology Co., Ltd. $560,063 100.00 $- -
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(9) Due to affiliates-trade December 31
2008 2007 Name of related party Amount % Amount %
Chunghwa P.T. (Labuan) Ltd. $6,323,866 49.48 $16,404,518 58.47 Tatung Co. of Japan, Inc. 828,655 6.48 1,411,673 5.03 Giantplus Technology Co., Ltd. 130,286 1.02 - - Others 87,884 0.69 57,041 0.20 Total $7,370,691 57.67 $17,873,232 63.70
(10) Due to affiliates-others
December 31 2008 2007
Name of related party Amount % Amount % Tatung Co., Ltd. $330,607 9.58 $65,293 7.24 Toes Opto-Mechatronic Co., Ltd. 93,791 2.72 125,194 13.89 Tatung Co. of Japan, Inc. 76,749 2.23 - - Tatung System Technology Inc. 14,569 0.42 - - Chunghwa P.T. (Labuan) Ltd. 7,101 0.21 83 0.01 Others 1,754 0.05 2,718 0.30 Total $524,571 15.21 $193,288 21.44
(11) Deferred credits
December 31 2008 2007
Name of related party Amount % Amount % Chunghwa P.T. (Malaysia) Sdn. Bhd. $31,736 1.45 $- - Chunghwa P.T. (Labuan) Ltd. 188,999 8.65 240,468 20.25 Chunghwa P.T. (Bermuda) Ltd. and
Dalemont Investment Ltd. etc. 942,055 43.10 942,055 79.34
Chunghwa P.T. (Kampar) Sdn. Bhd. 4,325 0.20 4,652 0.39 Giantplus Technology Co., Ltd. 1,018,341 46.60 - - Sintronics Technology Co., Ltd. - - 228 0.02 Total $2,185,456 100.00 $1,187,403 100.00
(12) Guarantees
The amount of guarantees that the Company provided for related parties December 31, 2008 and 2007 was as follows:
Amount December 31
Name of related party 2008 2007 Chunghwa P.T. (Bermuda) Ltd. - US$22,004,000
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(13) Certain of the long-term bank loans were jointly guaranteed by the Chairman of the Company. Please refer to note 4(17).
(14) The Company leased portions of its plants to Toppan Chunghwa Electronics Co., Ltd. That
rental revenue of $39,194 and $30,678 for the years ended December 31, 2008 and 2007, respectively. The related receivables (recorded in due from affiliates-others) were $17,778 and $10,993 as of December 31, 2008 and 2007, respectively. In addition, the Company charged Toppan Chunghwa Electronics Co., Ltd. management fee of $93,595 and $87,041 for the years ended December 31, 2008 and 2007, respectively, which were recorded as a deduction of operating expense.
(15) The Company leased portions of its plants to Sintronic Technology Inc. That rental revenue of
$25,493 and $34,424 for the years ended December 31, 2008 and 2007, respectively. The related receivables (recorded in due from affiliates-others) were $14,548 and $26,324 as of December 31, 2008 and 2007, respectively. In addition, the Company charged Sintronic Technology Inc management fee of $48,365 and $41,479 for the years ended December 31, 2008 and 2007, respectively, which were recorded as a deduction of operating expense.
(16) The Company sold its investment in associated companies, Shang Chih Investment Co., Ltd. to
Tatung Co., Ltd. in third quarter of 2007. The selling price and gain on disposal of investments amounted to $59,400 and $114,789, respectively.
(17) Information of Remunerations for the main management:
The main management of the Company contains the chairman, supervisor and vice-president. The payment of salaries, prize, special expenses and bonuses for the main management amounted to $66,617 and $101,435 for the years ended December 31, 2008 and 2007, respectively. The detailed information of management’s remunerations is in the annual report of stockholders’ meeting.
VI. ASSETS PLEDGED OR MORTGAGED
As of December 31, 2008 and 2007, the following assets were mortgaged to several banks, customs and government agencies as collateral for bank loans, credit facilities and other purposes:
Carrying Amount December 31
Account Purposes 2008 2007 Machinery, equipment collateral for bank loans $43,871,943 $54,483,867 Building collateral for bank loans 4,037,915 5,524,454 Pledged time deposit collateral for building 292,618 394,661 Total $48,202,476 $60,402,982
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VII. COMMITMENTS AND CONTINGENCIES General Matters: As of December 31, 2008, the following commitments and contingencies were not reflected in above financial statements:
1. Unused letters of credit of the Company were approximately US$330, JPY$240,232 and CHF
$790 as of December 31, 2008.
2. Besides the guarantees disclosed in Note 5(2) m, the Company issued promissory notes are as follows:
Items Amount Bank loans NT$52,023,244 US$373,500 Account receivable factoring US$90,000 Employee’s dormitory NT$1,500
The promissory notes for accounts receivable factoring above was terminated on March 12, 2009.
3. The Company leases land from the Central Taiwan Science Park. The term of lease agreement is
from May 15, 2006 to December 31, 2025. Due to TFT-LCD market downturn, the aforementioned lease has been ceased temporarily in December 2006. However, the Company is applying to obtain another leased land in process.
4. Legal process: The Company currently involved in certain lawsuits is summary as follow:
(1) Anvik Corporation and related matters: In February 2007, Anvik Corporation filed a patent infringement suit in the United States District Court of New York against the Company, Tatung Company and Tatung Company of America (the “Tatung Companies”). The lawsuit alleged the Company and Tatung Companies of using the photo-masking equipment and the patented methods performed by such system in producing TFT-LCD panel without permission. The Company contested that the Company had no presence, transacted business or directed product in New York State that related to the claim. However the Court has not yet made any ruling on the matter.
(2) Honeywell International Inc. and Honeywell Intellectual Properties Inc related matters:
In March 2007, the Company has been sued for patent infringement involving the driver IC outsourced from other component suppliers by Honeywell International Inc. and Honeywell Intellectual Properties Inc. The Company intends to vigorously defend the action. The lawsuit has been settled out of court in the second conciliation procedures on April 7, 2009. CPT has agreed to pay US $350 to settle the case.
(3) Antitrust:
From December 2006 to February 2007, the Company received notices together with other competitive companies under investigation by the Antitrust Division of the U.S. Department of Justice (D.O.J.), European Commission (“EC”), Canadian Bureau of Competition (“CBC”), and Japan Fair Trade Commission (“JFTC”) for involving in price-fixing behavior in the TFT-LCD industry.
105
During November 2007, the Company received plaint of antitrust civil class action for CRT and a criminal summons from the U.S. Department of Justice (D.O.J.), which accused the Company together with other companies had been involved in price-fixing and supply-controlling. Therefore, the Company has been under investigation with the Antitrust Act. On November 13, the Company made the compromise with D.O.J and agreed to pay US$65,000 in 6 installments. (previous 5 installments of US$11,000 and final installment of US$10,000) The Company has engaged legal representatives to defend the above suits and believes that these suits will not have a material adverse effect on the Company’s result of operations or financial condition.
VIII. SIGNIFICANT DISASTER LOSS
NONE.
IX. SIGNIFICANT SUBSEQUENT EVENTS NONE.
X. OTHER A. Financial Instruments: 1. Fair value of financial instruments:
December 31, 2008 Fair value
Non-derivative Carrying amount
Determined by quoted
price
Determined by valuation
technique Financial assets: Cash and cash in bank $8,356,173 $8,356,173 $-Financial assets at fair value through profit or loss - current 330,319 330,319 -Investment in debt securities with no active market - current 87,123 - 87,123Notes and accounts receivable, net 15,255,226 - 15,255,226Investment in debt securities with no active market - noncurrent
38,525 - 38,525
Long-term investment under the equity method 35,467,273 1,514,834 30,466,614Available-for-sale financial assets - non-current 1,032,431 1,032,431 -Financial assets carried at cost - non-current 354,500 - 354,500Pledged time deposits 292,618 - 292,618Refundable deposits 83,918 - 83,918Financial liabilities: Short-term bank loans $7,203,223 - $7,203,223Payable 21,554,889 - 21,554,889Bonds payable (including current portion) 11,538,301 - 14,028,743Long-term bank loans (including current portion) 38,310,104 - 38,310,104
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December 31, 2008 Fair value
Non-derivative Carrying amount
Determined by quoted
price
Determined by valuation
technique Derivative
Financial assets: Financial assets at fair value through profit or loss:
Foreign currency forward exchange contracts 144,243 - 144,243Domestic convertible bonds 120,830 - 120,830
Financial assets carried at cost: Convertible bond - option 1,475 - 1,475
Financial liabilities: Financial liabilities at fair value through profit or
loss: Interest rate swap contracts 229,082 - 229,082Liability components of convertible bonds -
embedded derivative contract 380,183 - 380,183
Derivative financial liabilities for hedging - non-current:
Interest rate swap contracts 26,496 - 26,496
December 31, 2007 Fair value
Non-derivative Carrying amount
Determined by quoted
price
Determined by valuation
technique Financial assets: Cash and cash in bank $12,634,037 $12,634,037 $-Financial assets at fair value through profit or loss -
current 1,375,905 1,375,905
-Investment in debt securities with no active market 170,294 - 170,294Notes and accounts receivable, net 27,575,985 - 27,575,985Long-term investment under the equity method 35,098,751 545,174 34,568,715Available-for-sale financial assets - non - current 1,204,201 - 1,204,201Financial assets carried at cost - non - current 354,500 - 354,500Pledged time deposits 394,661 - 394,661Refundable deposits 85,965 - 85,965 Financial liabilities: Short-term bank loans $659,068 $- $659,068Payables 34,738,168 - 34,738,168Bonds payable (including current portion) 3,747,919 - 3,747,919
107
December 31, 2007 Fair value
Non-derivative Carrying amount
Determined by quoted
price
Determined by valuation
technique Long-term bank loans (including current portion) 54,242,049 - 54,242,049
Derivative Financial assets:
Financial assets at fair value through profit or loss: Foreign currency forward exchange contracts 141,594 - 141,594Domestic convertible bonds - - -
Financial assets carried at cost: Convertible bonds-option 229,706 - 229,706
Derivative financial asset for hedging: Interest rate swap contracts 85,182 - 85,182
Financial liabilities:
Financial liabilities at fair value through profit or loss:
Liability components of convertible bonds - embedded derivative contract
1,614,104 - 1,614,104
Interest rate swap contracts 6,500 - 6,500 The methods and assumptions used by the Company to determine the above fair value of financial instruments are as follows:
(1) The carrying value of short-term financial instruments, such as cash and cash in bank,
receivables, short-term bank loans and payables approximate fair value because of short maturity of these instruments.
(2) The fair values of financial assets at fair value through profit or loss, such as listed equity
securities, open-end mutual funds and available-for-sale financial assets are based on their quoted market price or the net asset value per unit. If there is no quoted price, the Company uses the valuation method to estimate their fair value.
(3) The fair values of investment in debt securities with no active market and long-term investment
are based on market values if they have quoted price, such as listed companies. If quoted price is not obtainable, then the fair values are estimated based on their financial information.
(4) The fair values of pledged time deposits, refundable deposits and long-term payment are based
on their book values which approximate present value.
108
(5) The fair values of long-term bank loans due within one year approximate carrying amount as loans bear interest at variable rates. The fair values of the non-current portion of the loans are determined based on the discounted future cash flows. The discount rate used is the interest rate for bank loans with similar terms and conditions. The fair values of convertible bonds are determined based on their market price which was provided by financial institution.
(6) The fair values of derivative financial instruments were based on valuation techniques provided
by the financial institution.
(7) As of and for the years ended December 31, 2008 and 2007, the derivative instruments for hedging but failed to meet the criteria of hedge accounting were classified as held for trading and the related gain or loss reported in earnings is as follows:
December 31 Items 2008 2007
Financial assets held for trading - current $144,243 $141,594
For the year ended December 31Items 2008 2007
Gain on financial assets at fair value through profit or loss
$144,243 $141,594
2. Financial risk management and hedging strategy:
Financial risk: Besides derivative financial instruments, the Company held other kinds of financial instruments for its capital demand such as short-term and long-term bank loans, bonds payable, cash and cash in bank, receivable and payable arising from operating activities.
The Company made transactions of derivatives, such as interest rate swap and forward contracts of foreign currency in order to hedge the interest rate and exchange rate risk arising from financing with the banks. The Company’s financial instruments are mainly exposed to the following financial risks: cash flow risk on interest, market risk, credit risk, and liquidity risk. The risk management policy is as follows:
(1) Cash flow risk on interest
The Company’s long-term bank loans are subject to floating interest rate and therefore exposed to the risk that the future cash flows will fluctuate because of changes in market interest rates. The derivative financial instruments are used to hedge floating interest rate of long-term bank loans. As of December 31, 2008 and 2007, the expected cash flows of derivative financial instruments were as follows:
Financial Instruments Period Cash outflow Cash inflow 2008.12.31 Interest rate swap contracts April 2009 ~ March 2010 $441,685 $264,555
2007.12.31 Interest rate swap contracts January 2008 ~ March 2010 $276,888 $329,758
Note: The interest swap portion is calculated based on the latest floating interest rate specified in the contract.
109
(2) Market risk Market risk is a potential loss arising from adverse movements of market price, such interest rates, exchange rates and equity securities.
Investment in equity financial instruments owned by the Company and Zero coupon Convertible Bonds issued are both exposed to market price risk and interest rate risk. In addition, open-end mutual funds and listed equity securities of the Company, managed by professional or reputable financial institutes ( the Company has entered into investment management agreements with fund managers), were categorized as financial assets at fair value through profit or loss for trading purpose.
The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to New Taiwan Dollars. Gains or losses due to changes in foreign exchange rates will be offset by foreign monetary assets and liabilities accordingly. In addition, the Company also entered into foreign currency forward exchange contracts to hedge the risk.
(3) Credit risk
Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The credit risk of the Company consists principally of investment in listed equity securities, mutual funds, convertible bonds and trade receivables. The credit risk is considered minimal by only depositing cash with reputable financial institutions and diversification of credit risk to mitigate financial loss through potential counterparty failure. Investments of funds are made only with companies with high credit rating and the investments are also diversified to reduced concentration of credit risks.
The majority of the Company’s trade receivables are derived from sales to original design manufacturing or reputable companies. There are also policies of the Company to provide allowance for outstanding accounts and the Company regularly reviews them.
(4) Liquidity risk
Liquidity risk is the risk of unable to settle the contracts on schedule. As of December 31,2008, current liabilities of the Company exceeded current assets and liquidity risk is depended on whether the Company could obtain enough funding from operation growth. However, the Company controls its cash position by regularly monitoring suitable fund-raising channel or receivables factoring. Since the Company’s financial assets at fair value through profit or loss or available-for-sale financial assets all have active market, the Company should be able to liquidate them for cash at a price approximating their fair value.
110
Measurement of effectiveness of hedge relationship: The Company entered into interest rate swap contracts to hedge exposures from the impact of interest rate changes primarily arising from its borrowing activities in New Taiwan dollars at floating rates. All above derivative instruments are designated as cash flow hedge.
As of December 31, 2008, the designation of cash flow hedging instruments is as follows:
Item Instruments for Hedging Fair Value Maturity Period
NTD long-term bank loans with floating rate
Interest rate swap contracts $(26,496) 2009~2010
As of December 31, 2007, the designation of cash flow hedging instruments is as follows:
Item Instruments for Hedging Fair Value Maturity Period
NTD long-term bank loans with floating rate
Interest rate swap contracts $78,682 2008~2010
Gain or loss generated from cash flow hedging instruments was recognized as adjustments in equity accounts as follows:
Item December 31, 2008 December 31, 2007 Adjustment in equity account $105,178 $95,418
3. Information of derivative financial instruments as of December 31, 2008 and 2007 as follows:
Embedded derivatives of compound financial instrument:
contract amount or notional amount Item December 31, 2008 December 31, 2007
Financial assets held for trading Domestic Convertible Bonds - option $120,830 $- Financial assets at fair value through profit or loss
Domestic Convertible Bonds – Listed stock
$330,319
$414,442
Financial assets carried at cost Domestic Convertible Bonds - option $1,475 $229,706 The convertible bonds of the Company are hybrid financial instruments with embedded derivatives that are not clearly and closely related to the host contracts. However because the Company is unable to measure the embedded derivative separately at acquisition, the fair value of the embedded derivative is the difference between the fair value of the hybrid instrument and the fair value of the host contract, or the Company designates the entire hybrid contract as at fair value through profit or loss.
111
Foreign currency forward exchange contracts: December 31, 2008
contract amount or notional amount
Maturity period
Buy USD / Sell NTD US$36,750 2009.07 - 2010.07 Buy NTD / Sell USD US$11,000 2009.01 Buy JPY / Sell USD US$34,000 2009.01~2009.04
December 31, 2007
contract amount or notional amount
Maturity period
Buy USD / Sell NTD US$61,250 2008.07 - 2010.07
Interest rate swap transactions:
Maturity period Contract amount or
notional amount Payable on Fixed
Interest Rate Receivables on Floating
Interest Rate
December 31, 2008 2009.4~2010.3 $9,500,000 1.39%~3.49% 2.22%~2.32% 2009.4~2010.3 $10,100,000 1.65%~3.98% 2.23%~2.31% December 31, 2007 2009.4~2010.3 $9,500,000 1.39%~2.34% 2.21%~2.26% 2009.4~2010.3 $10,100,000 3.21%~5.70% 2.19%~2.22%
4. Derivative financial instruments transaction of investees:
As of December 31, 2008 and 2007, the information of derivative financial instruments transaction of investee were as follow:
(1) Grand Cathy International Asset Management Co., Ltd. Embedded derivatives of compound financial instrument:
Contract amount or notional amount
Item December 31, 2008 December 31, 2007Financial assets at fair value through profit or loss Domestic convertible bonds-listed company $213,672 $247,312
(2) CPTF Optronics Co., Ltd.
Interest rate swaps transactions: December 31, 2008: None.
Maturity period
Contract amount or notional amount
Payable on Fixed Interest Rate
Receivables on FloatingInterest Rate
December 31, 2007 March 2008~March 2010 US$30,000 4.08%~4.28% 6.07%~6.26% The investee company entered into interest rate swap contracts to hedge exposures from the impact of interest rate changes primarily arising from its borrowing activities. All above derivative instruments are designated to hedge the abovementioned risk.
112
As of December 31, 2007, the expected cash flows of derivative financial instruments were as follows:
Financial Instruments Period Cash outflow Cash inflow Interest rate swap contracts January 2008 ~ March 2010 RMB 14,168 RMB 20,884
Note: The interest swap portion is calculated based on the latest floating interest rate specified in the contract.
(3) CPT TPV Optical Co., Ltd. Foreign currency forward exchange contracts: December 31, 2008: None. Financial instruments Contract amount or notional amount Maturity period December 31, 2007 Buy USD/ Sell RMB US$6,000 2008.01~2008.06
(4) Chunghwa P. T. Display Technology (Fujian) Ltd.
Foreign currency forward exchange contracts: December 31, 2008: None.
Financial Instruments Contract amount or notional amount Maturity period December 31, 2007 Buy USD/ Sell RMB US$1,000 2008.01
The investee company entered into foreign currency forward exchange contracts and designated them under fair value hedge, in order to hedge exposures from foreign currency exchange rate risk arising from assets or liabilities denominated in foreign currencies (market price risk).
B. Reclassified financial assets information: 1. The amount and reason for reclassifications of financial assets
Some of the Company’s financial assets classified as held-for-trading are no longer for near-term trading, but did not meet the definition of loans and receivables. However based on the relevant guidance issued by International Accounting Standard Board, Financial Supervisory Commission and Accounting Research and Development Foundation, the Company believes that the recent international and domestic economy condition had constituted “the rare circumstances” described by the reclassification amendments in R.O.C. SFAS No. 34, thus the Company reclassified some financial assets originally classified held for trading to available-for-sale category, amounted to 1,136,164.
2. The book value and fair value of reclassified financial assets as follows:
Book value Fair value Available-for-sale financial assets $621,884 $621,884
3. The amount of fair value movement of financial assets reclassified recognized in profit or loss or
stockholders’ equity is as follows:
$(644,002) was recognized in profit or (loss) for the year ended December 31, 2008, for financial assets reclassified.
113
4. The fair value movement of financial assets reclassified but not yet derecognized is as follows: Originally classified as financial assets held for trading Amount recognized in profit
(loss) before reclassification Amount recognized in profit (loss) after reclassification
For the year ended December 31, 2008
$(1,227,280) $(644,002)
C. Other
Certain comparative amounts have been reclassified to conform to the current year’s presentation.
114
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS WITH REPORT OF INDEPENDENT AUDITORS
FOR THE YEARS ENDED DECEMBER 31, 2008 and 2007
The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail
115
REPORT OF INDEPENDENT AUDITORS English Translation of a Report Originally Issued in Chinese
To Chunghwa Picture Tubes, Ltd. We have audited the accompanying consolidated balance sheets of Chunghwa Picture Tubes, Ltd. and Subsidiaries (the “Company”) as of December 31, 2008 and 2007, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for the years ended December 31, 2008 and 2007. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. As described in Note 4(8) to the consolidated financial statements, certain long-term investments were accounted for under equity method based on the December 31, 2008 financial statements of the investees, which were audited by the other auditors. Our audits insofar as it relates to the investment loss amounted to NT$20,072 for the year ended December 31, 2008, and the related long-term investment balances of NT$5,283,936 as of December 31, 2008, is based solely on the reports of the other auditors. We conducted our audits in accordance with auditing standards generally accepted in the Republic of China and “Guidelines for Certified Public Accountants’ Examination and Reports on Financial Statements”, which 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, assessing the accounting principles used and significant estimates made by management, and 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 other audits, the consolidated financial statement referred to above present fairly, in all material respects, the consolidated financial position of Chunghwa Picture Tubes, Ltd. and subsidiaries as of December 31, 2008 and 2007, and the results of their consolidated operations and their consolidated cash flows for the years ended December 31, 2008 and 2007, in conformity with requirements of the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China. As described in Note 3 to the consolidated financial statements, effective from July 1, 2008, the Company adopted amendments of Statement of Financial Accounting Standards No. 34, “Accounting for Financial Instruments”,therefore specific financial instruments have been reclasified. Ernst & Young Taipei, Taiwan Republic of China April 28 , 2009 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position and results of consolidated 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 review such financial statements are those generally accepted and applied in the Republic of China.
116
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS
December 31, 2008 and 2007(Expressed in Thousands of New Taiwan Dollars)
ASSETS 2008 2007CURRENT ASSETS :
Cash and cash in bank (Notes 2, 4 and 10) $20,679,665 $27,207,618Financial assets at fair value through profit or loss - current (Notes 2, 4 and 10) 1,054,092 2,138,311Derivative financial assets for hedging - current (Notes 2, 4 and 10) - 8,097Financial assets carried at cost - current (Notes 2, 4 and 10) - 229,706Investments in debt securities with no active market - current (Notes 2, 4 and 10) 87,123 170,294Notes receivable, net (Notes 2, 4, 5 and 10) 361,254 295,911Accounts receivable, net (Notes 2, 4 and 10)
Trade 9,018,917 26,352,813Others 1,042,282 1,283,274
Due from affiliates, net (Notes 2, 4, 5 and 10)Trade 4,041,984 3,244,150Others 3,066,329 1,409,799
Inventories, net (Notes 2 and 4) 10,532,430 11,649,503Prepayments (Note 4) 944,510 512,449Assets of disposal group classified as held to sale - current (Notes 2 and 4) - 1,965,078Deferred income tax assets - current (Notes 2 and 4) - 3,074Pledged time deposits - current (Notes 6 and 10) 1,276,115 394,661
Total current assets 52,104,701 76,864,738INVESTMENTS : (Notes 2, 4 and 10)
Investment in associated companies 6,253,369 2,712,619Financial assets at fair value through profit or loss - noncurrent - 40,000Available-for-sale financial assets - noncurrent 2,252,239 4,199,047Derivative financial assets for hedging - noncurrent - 85,182Financial assets carried at cost - noncurrent 489,360 470,698Investments in debt securities with no active market - noncurrent 38,525 - Prepayments of long-term investments 215,814 2,397,546
Total investments 9,249,307 9,905,092PROPERTY, PLANT AND EQUIPMENT : (Notes 2, 4, 5 and 6)
Land 3,985,019 3,811,567Buildings 39,178,771 37,620,990Machinery and equipment 146,622,149 147,063,167Transportation equipment 122,777 144,186Furniture and fixtures 1,114,499 1,049,209Miscellaneous equipment 42,852,988 41,206,793Revaluation increment 594,557 618,056
Total 234,470,760 231,513,968Accumulated depreciation and impairment (121,281,366) (97,903,431)Prepayments on equipments and construction in progress 5,979,397 1,483,232Property, plant and equipment, net 119,168,791 135,093,769
INTANGIBLE ASSETS : (Notes 2, 3 and 4)Computer software cost 77,691 55,950Deferred pension cost 67,492 101,238Technology license fees 3,687,131 4,776,040Land use right 346,826 315,589
Total intangible assets 4,179,140 5,248,817OTHER ASSETS :
Refundable deposits (Note 10) 94,324 98,778Deferred charges (Notes 2 and 4) 1,074,507 1,654,703Long-term receivables - related party (Notes 4, 5 and 10) 560,063 - Others, net (Notes 2 and 4) 35,755 35,755Prepayment for materials - noncurrent (Note 4) 1,513,460 2,501,225
Total other assets 3,278,109 4,290,461TOTAL ASSETS $187,980,048 $231,402,877
December 31
The accompanying notes are an integral part of the consolidated financial statements.
English Translation of a Report Originally Issued in Chinese
117
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIESCONSOLIDATED BALANCE SHEETS (CONTINUED)
December 31, 2008 and 2007(Expressed in Thousands of New Taiwan Dollars)
LIABILITIES AND STOCKHOLDERS' EQUITY 2008 2007CURRENT LIABILITIES :
Short-term bank loans (Notes 4 and 10) $13,677,872 $5,034,639Financial liabilities at fair value through profit or loss - current (Notes 2, 4 and 10) 609,265 - Notes payable (Note 10) 637,351 35,063Accounts payable (Note 10)
Trade 14,607,965 27,815,934Others 2,932,043 1,194,692
Due to affiliates (Notes 5 and 10)Trade 2,546,088 2,866,821Others 522,563 194,337
Income tax payable (Notes 2, 4 and 10) 6,309 89,179Accrued expenses (Notes 3 and 10) 5,933,578 10,160,940Advances receipts (Notes 4, 5 and 7) 707,468 4,002,572Current portion of bonds payable (Notes 2, 4 and 10) 11,538,301 - Current portion of long-term bank loans (Notes 4, 5, 6 and 10) 18,580,490 23,907,982Other current liabilities 960,201 359,440
Total current liabilities 73,259,494 75,661,599LONG-TERM DEBT :
Financial liabilities at fair value through profit or loss - noncurrent - 1,614,104Derivative financial liabilities for hedging - noncurrent (Notes 2, 4 and 10) 26,496 6,500Bonds payable, net of noncurrent portion (Notes 2, 4, and 10) - 3,747,919Long-term bank loans, net of noncurrent portion (Notes 4, 5, 6 and 10) 26,856,742 44,562,227Long-term payable (Note 10) 317,411 345,735Long-term deferred revenue (Notes 4 and 5) 282,875 -
Total long-term debt 27,483,524 50,276,485RESERVE FOR INCREMENT TAX ON LAND REVALUATION (Notes 2 and 4) 26,793 26,793OTHER LIABILITIES :
Accrued pension liabilities (Notes 2 and 4) 2,166,623 2,260,296Deferred tax liabilities, net - noncurrent (Notes 2 and 4) 1,209,115 1,693,605Deferred credits (Notes 2 and 5) 1,018,341 228
Total other liabilities 4,394,079 3,954,129TOTAL LIABILITIES 105,163,890 129,919,006
STOCKHOLDERS' EQUITY :EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT
Capital : Common stock (Note 4) 94,809,598 88,361,574Capital stock to be registered - 5,376,188
Capital reserve: (Notes 2 and 4)Additional paid - in capital 27,410 27,410Long-term investments - 11,004Equity components of convertible bonds - 51,613
Retained earnings : (Note 4)Legal reserve 526,531 - Undistributed earnings (Accumulated deficits) (13,777,415) 5,265,309
Other items in stockholders' equity : (Notes 2 and 4)Cumulative translation adjustment 3,353,803 1,776,995Excess of additional pension liability over unrecognized prior service cost (296,094) (496,912)Unrealized loss on available-for-sale financial assets (3,579,603) (970,488)Unrealized (loss) gain on cash flow hedge (96,729) 6,337Unrealized incremental value from assets revaluation 669,467 669,467
Treasury stock (307,161) - TOTAL EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT COMPANY 81,329,807 100,078,497MINORITY INTEREST IN SUBSIDIARIES 1,486,351 1,405,374
TOTAL STOCKHOLDERS' EQUITY 82,816,158 101,483,871TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $187,980,048 $231,402,877
The accompanying notes are an integral part of the consolidated financial statements.
December 31
English Translation of a Report Originally Issued in Chinese
118
English Translation of a Report Originally Issued in ChineseCHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS For The Years Ended December 31, 2008 and 2007
(Expressed in Thousands of New Taiwan Dollars Except Per Share Information)
For the Years
2008 2007OPERATING REVENUES :
NET SALES $118,466,832 $159,396,538OPERATING COSTS : (Notes 4 and 5)
COST OF GOODS SOLD (114,337,244) (135,015,809) GROSS PROFIT INCLUDED UNREALIZED INTERCOMPANY PROFIT 4,129,588 24,380,729 REALIZED INTERCOMPANY PROFIT, NET (Notes 2, 4 and 5) 228 25 NET GROSS PROFIT 4,129,816 24,380,754 OPERATING EXPENSES : (Notes 4 and 5)
Selling and marketing (3,504,434) (2,848,018)General and administrative (5,548,638) (2,649,054)Research and development (4,352,759) (6,198,280)
Total (13,405,831) (11,695,352) OPERATING (LOSS) INCOME (9,276,015) 12,685,402 NON-OPERATING INCOME :
Interest income (Notes 4 and 10) 485,199 887,120Dividend income 26,768 - Gain on disposal of property, plant and equipment (Notes 2 and 5) 2,176,303 1,415Gain on disposal of investment (Note 2) 67,309 526,653Gain on foreign currency exchange, net (Note 2) - 809,581Recovery on decline in market value and obsolescence of inventory, net (Notes 2 and 4) - 35,000 Valuation gain on financial assets at fair value through profit or loss, net (Notes 2 and 10) - 350,015 Valuation gain on financial liabilities at fair value through profit or loss, net (Notes 2 and 10) 1,752,698 - Others (Note 5) 1,216,344 626,446
Total 5,724,621 3,236,230 NON-OPERATING EXPENSES :
Interest expenses (3,423,987) (4,528,453)Investment loss accounted for under equity method, net (Notes 2 and 4) (732,877) (367,143)Loss on disposal of property, plant and equipment (Notes 2 and 5) (25,533) (32,286)Loss on foreign currency exchange, net (Note 2) (269,102) - Provision loss on decline in market value and obsolescence of inventory, net (Notes 2 and 4) (2,468,089) - Impairment loss (1,342,287) (659,206)Valuation loss on financial assets at fair value through profit or loss, net (Notes 2 and 10) (718,389) - Valuation loss on financial liabilities at fair value through profit or loss, net (Notes 2 and 10) - (201,860)Others (1,140,319) (1,309,614)
Total (10,120,583) (7,098,562) (LOSS) INCOME BEFORE INCOME TAX (13,671,977) 8,823,070 INCOME TAX EXPENSES (Notes 2 and 4) (220,938) (195,660)NET (LOSS) INCOME $(13,892,915) $8,627,410ATTRIBUTABLE TO :
Stockholders of the parent company $(13,875,112) $8,703,353Minority interest (17,803) (75,943)
$(13,892,915) $8,627,410EARNINGS (LOSS) PER SHARE AVAILABLE TO :
COMMON STOCKHOLDERS OF THE PARENT COMPANY (Notes 2 and 4)BASIC (in dollars) $(1.47) $1.01DILUTED (in dollars) $(1.47) $0.91
The accompanying notes are an integral part of the consolidated financial statements.
Ended December 31
11
9
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EQU
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Bal
ance
at J
anua
ry 1
, 200
7$8
2,12
6,04
8
$-
$9,6
45,4
55$4
,028
,677
$103
,463
$572
,717
$-
$(
13,9
79,3
71)
$950
,036
$(56
2,90
6)$(
1,33
7,36
3)$(
49,1
45)
$642
,837
$-
$8
2,14
0,44
8$1
,330
,113
$83,
470,
561
Mak
e up
acc
umul
ated
def
icits
in 2
006
(Not
e 4)
T
rans
fer c
apita
l res
erve
use
d fo
r off
setti
ng a
ccum
ulat
ed d
efic
its(9
,645
,455
)
(4,0
28,6
77)
13,6
74,1
32
-
-
Net
inco
me
for t
he y
ear e
nded
Dec
embe
r 31,
200
78,
703,
353
8,
703,
353
(7
5,94
3)
8,62
7,41
0
Adj
ustm
ents
of u
ndis
tribu
ted
earn
ings
aris
ing
from
cha
nges
(8
8,83
6)
(88,
836)
(88,
836)
in o
wne
rshi
p pe
rcen
tage
in in
vest
ee a
ccou
nted
for u
nder
-
equi
ty m
etho
d (N
ote
2)-
Exer
cise
of e
mpl
oyee
sto
ck o
ptio
n (N
otes
2 a
nd 4
)54
0,70
027
,410
568,
110
568,
110
Dis
posa
l of l
ong-
term
inve
stm
ent u
nder
equ
ity m
etho
d(4
,042
)
(1
3,58
7)
(17,
629)
(17,
629)
Cum
ulat
ive
trans
latio
n ad
just
men
t (N
ote
2)82
6,95
9
826,
959
826,
959
Unr
ealiz
ed g
ain
on a
vaila
ble-
for-
sale
fina
ncia
l ass
ets (
Not
es 2
and
4)
380,
462
38
0,46
2
38
0,46
2
Prem
ium
by
issu
ing
stoc
k in
cas
h41
941
9
41
9
Unr
ealiz
ed re
valu
atio
n in
crem
ents
26,6
30
26
,630
26
,630
Unr
ealiz
ed g
ain
on c
ash
flow
hed
ge (N
ote
2)55
,482
55,4
82
916
56,3
98
Con
verti
ble
bond
s con
verte
d in
to c
omm
on s
tock
(Not
es 2
and
4)
6,23
5,52
64,
835,
488
(521
,104
)
(3
,132
,805
)
7,
417,
105
7,
417,
105
Exce
ss o
f add
ition
al p
ensi
on li
abili
ties o
ver u
nrec
ogni
zed
prio
r ser
vice
cos
t66
,988
66,9
88
66,9
88
(Not
es 2
and
4)
Prop
ortio
nal a
djus
tmen
ts o
n ex
cess
of a
dditi
onal
pen
sion
liab
ilitie
s ov
er(9
94)
(994
)
(9
94)
un
reco
gniz
ed p
rior s
ervi
ce c
ost i
n in
vest
ees a
ccou
nted
for u
nder
equ
ity
met
hod
Incr
ease
in m
inor
ity in
tere
st-
150,
288
150,
288
Bal
ance
at D
ecem
ber 3
1, 2
007
88,3
61,5
74
5,
376,
188
27,4
10
-
11
,004
51
,613
-
5,26
5,30
9
1,77
6,99
5
(4
96,9
12)
(9
70,4
88)
6,
337
669,
467
-
10
0,07
8,49
7
1,
405,
374
101,
483,
871
App
ropr
iatio
n of
200
7 ne
t inc
ome
Lega
l res
erve
(Not
e 4)
526,
531
(526
,531
)
-
-
Cas
h di
vide
nds
(Not
e 4)
(3,7
92,3
84)
(3,7
92,3
84)
(3
,792
,384
)
E
mpl
oyee
bon
uses
in c
ash
(Not
es 2
and
4)
(331
,714
)
(331
,714
)
(3
31,7
14)
Net
inco
me
(loss
) for
the
year
end
ed D
ecem
ber 3
1, 2
008
(13,
875,
112)
(13,
875,
112)
(17,
803)
(1
3,89
2,91
5)
Adj
ustm
ents
of u
ndis
tribu
ted
earn
ings
aris
ing
from
cha
nges
(1
1,00
4)
(6,2
30)
(1
7,23
4)
(1
7,23
4)
in o
wne
rshi
p pe
rcen
tage
in in
vest
ee a
ccou
nted
for u
nder
equi
ty m
etho
d (N
ote
2)
Cum
ulat
ive
trans
latio
n ad
just
men
t (N
ote
2)1,
576,
808
1,57
6,80
8
1,57
6,80
8
Unr
ealiz
ed lo
ss o
n av
aila
ble-
for-
sale
fina
ncia
l ass
ets
(Not
e 2)
(2,6
09,1
15)
(2,6
09,1
15)
(2
,609
,115
)
Unr
ealiz
ed lo
ss o
n ca
sh fl
ow h
edge
(Not
e 2)
(103
,066
)
(103
,066
)
(1
03,0
66)
Con
verti
ble
bond
s con
verte
d in
to c
omm
on s
tock
(Not
es 2
and
4)
1,07
1,83
6
(5
1,61
3)
(510
,753
)
509,
470
509,
470
Exce
ss o
f add
ition
al p
ensi
on li
abili
ties o
ver u
nrec
ogni
zed
prio
r ser
vice
cos
t20
1,78
3
20
1,78
3
20
1,78
3
(Not
es 2
and
4)
Prop
ortio
nal a
djus
tmen
ts o
n ex
cess
of a
dditi
onal
pen
sion
liab
ilitie
s ov
er(9
65)
(965
)
(9
65)
un
reco
gniz
ed p
rior s
ervi
ce c
ost i
n in
vest
ees a
ccou
nted
for u
nder
equi
ty m
etho
d
Com
mon
stoc
k to
be
regi
ster
ed c
onve
rted
into
regi
ster
ed c
omm
on st
ock
5,37
6,18
8(5
,376
,188
)-
-
Trea
sury
sto
ck p
urch
ased
(Not
es 2
and
4)
(307
,161
)
(307
,161
)
(3
07,1
61)
Incr
ease
in m
inor
ity in
tere
st-
98,7
80
98
,780
Bal
ance
at D
ecem
ber 3
1, 2
008
$94,
809,
598
$
- $2
7,41
0
$-
$
-
$-
$526
,531
$(13
,777
,415
)$3
,353
,803
$(29
6,09
4)$(
3,57
9,60
3)$(
96,7
29)
$669
,467
$(30
7,16
1)$8
1,32
9,80
7$1
,486
,351
$82,
816,
158
The
acco
mpa
nyin
g no
tes
are
an in
tegr
al p
art o
f the
con
solid
ated
fina
ncia
l sta
tem
ents
.
Engl
ish
Tran
slat
ion
of a
Rep
ort O
rigin
ally
Issu
ed in
Chi
nese
EQU
ITY
ATT
RIB
UTA
BLE
TO
STO
CK
HO
LDER
S' O
F TH
E PA
REN
T
RET
AIN
ED E
AR
NIN
GS
CA
PITA
LO
THER
ITEM
S IN
STO
CK
HO
LDER
S' E
QU
ITY
CA
PITA
L R
ESER
VESC
HU
NG
HW
A P
ICTU
RE
TUB
ES, L
TD. A
ND
SU
BSI
DIA
RIE
S
CO
NSO
LID
ATE
D S
TATE
MEN
TS O
F C
HA
NG
ES IN
STO
CK
HO
LDER
S' E
QU
ITY
For T
he Y
ears
End
ed D
ecem
ber 3
1, 2
008
and
2007
(Exp
ress
ed in
Tho
usan
ds o
f New
Tai
wan
Dol
lars
)
120
English Translation of a Report Originally Issued in Chinese
CONSOLIDATED STATEMENTS OF CASH FLOWSFor The Years Ended December 31, 2008 and 2007
2008 2007CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) after tax attributable to stockholders of the parent $(13,875,112) $8,703,353Net income (loss) after tax attributable to minority interest (17,803) (75,943)Total (13,892,915) 8,627,410Adjustments to reconcile net income (loss) after tax to net cash provided by operating activities:
Exchange rate effect (706,381) (250,171)Depreciation 25,393,156 25,975,564Amortization 2,653,444 2,366,615Loss on disposal of other assets (included in other income) (17,611) - Investment loss (income) accounted for under equity method, net 732,877 (367,145)Cash dividends received from long-term investees accounted for under equity method 249,714 75,548Gain on disposal of investment (67,309) (526,653)Unrealized gain on foreign currency exchange of long-term debt (133,848) (200,392)Impairment loss 1,342,287 21,278 (Gain) loss on disposal of property, plant and equipment, net (2,150,770) 30,871Gain on sales of intellectual property rights and recognition of long-term deferred revenue (1,008,658) - Provision loss (gain on recovery) on decline in market value and obsolescence of inventory, net 2,468,089 (35,000)Valuation loss on financial assets at fair value through profit or loss 718,389 201,860Valuation gain on financial liabilities at fair value through profit or loss (1,752,698) - Loss on exchange rate effect of financial liabilities 40,092 - Amortization of investments in debt securites with no active market (7,953) - Amortization of discount on commercial paper payable - long-term bank loans 84,407 83,870Amortization of discount on bonds payable 888,573 233,973Increase in financial assets at fair value through profit or loss (842,315) (1,155,376)(Increase) decrease in notes receivable (65,343) 174,404Decrease (increase) in accounts receivable - trade 17,333,896 (8,603,621)Increase in due from affiliates - trade (925,348) (278,896)Decrease (Increase) in accounts receivable - others 586,715 (117,101)Increase in due from affiliates - others (1,007,402) (189,863)(Increase) decrease in inventories (1,351,016) 6,989,143(Increase) decrease in prepayments (355,163) 200,214Decrease in prepayment for materials - noncurrent 987,765 625,307Decrease in financial liabilities at fair value through profit or loss - (1,139)Increase (decrease) in notes payable 602,288 (154,048)Decrease in accounts payable (13,207,969) (6,709,179)Decrease in due to affiliates - trade (320,733) (374,462)(Decrease) increase in accrued expenses (4,116,028) 1,696,216Increase (decrease) in accounts payable - others 1,737,351 (1,688,524)Increase (decrease) in due to affiliates - others 328,226 (1,335,915)(Decrease) increase in advances receipts (300,997) 974,520Decrease (increase) in deferred tax assets 3,074 (3,074)Increase (decrease) in deferred credit - affiliates 227,748 (25)Increase in accrued pension liabilities 481,947 443,041Payments for pension (340,093) (326,149)Increase in compensation interest payable - 92,122(Decrease) increase in income tax payable (53,709) 76,856Decrease in deferred tax liabilities - noncurrent (3,776) - Increase in other current liabilities 600,761 200,323 Net cash provided by operating activities 14,832,764 26,772,402
(Continued)
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIES
(Expressed in Thousands of New Taiwan Dollars)
For the YearsEnded December 31
121
(Continued) English Translation of a Report Originally Issued in Chinese
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)For The Years Ended December 31, 2008 and 2007(Expressed in Thousands of New Taiwan Dollars)
2008 2007CASH FLOWS FROM INVESTING ACTIVITIES :
Increase in due from affiliates - others $- $(1,052,839)(Increase) decrease in pledged time deposits (881,454) 322,225Increase in advance receipts for property, plant and equipment - 3,000,000 Increase in financial assets carried at cost - (584,206) Increase in investment in debt securities with no active market - (170,294) Increase in investment in associated companies (2,329,520) (2,223,894)Proceeds from disposal of investment 9,877 131,005Increase in deferred charges (960,529) (696,140)Increase in technology license fee (292,318) (4,736,882)Increase in computer software cost (57,587) (83,926)Increase in land use rights (12,221) (56,374)Proceeds from disposal of other assests 35,035 - Proceeds from disposal of convertible bonds investment 220,000 - Proceeds from disposal of property, plant and equipment, intellectual property and 2,194,518 29,924
land use rightsAcquisition of property, plant and equipment (9,158,627) (6,198,454)Decrease (increase) in refundable deposits 4,454 (885)Increase in prepayment of long-term investments (18,268) - Net cash used in investing activities (11,246,640) (12,320,740)
CASH FLOWS FROM FINANCING ACTIVITIES :Increase (decrease) in short-term bank loans 4,848,489 (5,128,528)Issuance of overseas convertible bonds 8,045,000 4,835,860Redemptions of convertible bonds - (7,510,408)Repayments of long-term bank loans (19,392,770) (15,161,010)Decrease in long-term payable (28,324) (4,983)Increase in minority interest 80,977 150,288Issuance of employee stock options exercised - 568,110Payments of cash dividends (3,792,214) - Payments of employees' bonuses (331,277) - Purchase of treasury stock (307,161) - Net cash used in financing activities (10,877,280) (22,250,671)
Effect of initial consolidation of subsidiaries - 30,174EXCHANGE RATE EFFECT 763,203 325,594DECREASE IN CASH AND CASH IN BANK (6,527,953) (7,443,241)CASH AND CASH IN BANK AT BEGINNING OF PERIOD 27,207,618 34,650,859CASH AND CASH IN BANK AT END OF PERIOD $20,679,665 $27,207,618SUPPLEMENT DISCLOSURES OF CASH FLOWS INFORMATION :
Interest expenses paid (excluding interest capitalized) $2,647,026 $4,453,052Income tax paid $303,808 $136,346
INVESTING AND FINANCING ACTIVITIES NOT AFFECTING CASH FLOWS :Current portion of long-term debt $42,541,276 $23,907,982Conversion of convertible bonds into common stock and paid-in capital $509,470 $7,938,209Property, plant and equipment transferred to disposal group classified as held for sale $- $1,965,078Financial assets at fair value through profit or loss reclassified to available-for-sale $1,136,164 $-
financial assetsINVESTING ACTIVITIES AFFECTING CASH FLOWS :
Decrease in property, plant and equipment, intellectual property and land use rights $6,508,518 $- Less : accounts receivable - others (1,314,000) - Less : advance receipts at beginning of period (3,000,000) - Proceeds from disposal of property, plant and equipment, intellectual property and $2,194,518 $-
land use rights
For the YearsEnded December 31
The accompanying notes are an integral part of the financial statements.
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIES
122
CHUNGHWA PICTURE TUBES, LTD. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years Ended December 31, 2008 and 2007
(Expressed in Thousands of New Taiwan Dollars Except for Par Value, Shares and Unless Otherwise Stated)
I. DESCRIPTION OF BUSINESS
Chunghwa Picture Tubes, Ltd. (“CPT”) was incorporated under the Company Law in the Republic of China (the “R.O.C.”) on May 4, 1971. The main activities of CPT and subsidiaries include the design, manufacture, sale, installation, maintenance service, import, export and agency service of thin film transistor liquid crystal displays (“TFT-LCD”), color filter (“CF”) and related materials, parts and components. As of December 31, 2008 and 2007, CPT and subsidiaries had 24,282 and 23,712 employees, respectively. The parent company of CPT is Tatung Co., Ltd. CPT is required to include the accounts of the following direct or indirect majority - owned subsidiaries in its consolidated financial statements:
Percentage of ownership (%)
Country of As of December
31, Name of Investor Name of Investee Business Nature Incorporation 2008 2007 Chunghwa Picture Tubes, Ltd. (“CPT”)
Chunghwa Picture Tubes (Bermuda) Ltd. (“CPTB”)
Investment holding
British 100 100
CPT and CPTB Chunghwa Picture Tubes (Labuan) Ltd. (“CPTL”)
Sales services and investment
holding
Malaysia 100 100
CPTB Dalemont Investment Ltd.
Investment holding
British Virgin Islands (“BVI”)
100 100
Daliant Investment Ltd.
Investment holding
BVI 100 100
Bangalor Investment Ltd.
Investment holding
BVI 100 100
Bensaline Investment Ltd.
Investment holding
BVI 100 100
New Kingston
Enterprise Limited (“NKEL”)
Investment holding
BVI 100 100
123
Percentage of ownership (%)
Country of As of December
31, Name of Investor Name of Investee Business Nature Incorporation 2008 2007 CPTB, CPTL and CPTM
Chunghwa Picture Tubes (Wujiang) Ltd. (“CPTW”)
Assembly final module of TFT-LCD
The People’s Republic of
China (“PRC”)
100 100
CPTB and CPTL Chunghwa Pictures Display Technology (Fujian) Ltd. (“FDT”)
Assembly final module of TFT-LCD
PRC 100 100
CPTB and CPTL Chunghwa Picture Display Technology (Shen-Zhen) Ltd. (“SDT”)
Assembly final module of TFT-LLD
PRC 100 100
CPTB CPT TPV Optical (Fujian) Co., Ltd. (“CTOC”)
Assembly final modules of TFT-LCD
PRC 80 80
CPTB and CPTL CPTF Optronics, Ltd. (“CPTFO”)
Manufacture and sales of color
cathode ray tubes (“CCRT”)
PRC 89.52 88.81
CPTB Chunghwa Picture Tubes (Malaysia) Sdn. Bhd. (“CPTM”)
Manufacture and sale of CCRT
Malaysia 100 100
CPTM Chunghwa Picture Tubes (Kampar) Sdn. Bhd. (“CPTK”)
Manufacture and sale of CCRT
Malaysia 100 100
CPTFO and NKEL
CPTF Visual Display (Fuzhou) Ltd. (“FVD”)
Manufacture components of
TFT-LCD
PRC 75.19 75.19
CPT Grand Cathay International Asset Management Co., Ltd.(Formerly Known as Grand Cathay Optronics Co., Ltd.)
Investment holding R.O.C. 100 100
CPTB Makolin Electronics (M) Sdn. Bhd.
Manufacture and sale of deflection
yokes
Malaysia 100 42
Prior to June 2007, Makolin was an associate of CPTB with shareholding of 42%. In June 2007, CPTB has obtained control over Makolin through controlling the Board of Directors; therefore, it is deemed to be a subsidiary and consolidated in CPTB financial statements for the year ended December 31, 2008.
12
4
Chu
nghw
a P.
T.
(Mal
aysi
a) S
dn.
Bhd
.
10.6
1%
61.7
3%
13.4
6%
The
follo
win
g di
agra
m p
rese
nts t
he re
latio
nshi
p an
d ow
ners
hip
perc
enta
ge a
mon
g C
PT a
nd su
bsid
iarie
s tha
t CPT
ow
ns o
ver 5
0% o
f vot
ing
com
mon
stoc
ks o
r ow
ns le
ss
than
50%
but
has
con
trol a
s of D
ecem
ber 3
1, 2
008:
Chu
nghw
a P.
T.
(Lab
uan)
Ltd
.
41.0
3%
Chu
nghw
a Pi
ctur
e Tu
bes,
Ltd.
Chu
nghw
a P.
T.
(Ber
mud
a) L
td.
CPT
F O
ptro
nics
Co.
, Lt
d.
Gra
nd C
atha
y In
tern
atio
nal
A
sset
Man
agem
ent C
o., L
td.
100.
00%
10
0.00
%
58.9
7%
78.9
1%
100.
00%
100.
00%
New
Kin
gsto
n En
terp
rises
Lim
ited
CPT
F V
isua
l D
ispl
ay (F
uzho
u)
Ltd.
CPT
TPV
Opt
ical
(F
ujia
n)
Co.
, Ltd
.
80.0
0%
100.
00%
C
hung
hwa
P.T.
(K
ampa
r) Sd
n. B
hd.
Dal
emon
t, D
alia
nt, B
anga
lor
and
Ben
salin
e In
vest
men
t Lt
d.
Chu
nghw
a P.
T.
(Wuj
iang
) Ltd
.
73.7
5%
100.
00%
88
.05%
Chu
nghw
a P.
T.
Dis
play
Tec
hnol
ogy
(Fuj
ian)
&
(She
n-Zh
en) L
td.
11.9
5%
5.74
%
20.5
1%
Mak
olin
Ele
ctro
nics
(M
) Sdn
. Bhd
.
100.
00%
125
II. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Generally Accepted Accounting Principles The consolidated financial statements have been prepared in accordance with “Guidelines Governing the Preparation of Financial Report by Securities Issuers” and accounting principles generally accepted in the Republic of China (collectively referred to as “R.O.C. GAAP”).
1. Principles of Consolidation Investees in which the Company, directly or indirectly, holds more than 50% of voting common stocks or less than 50% of voting common stocks but has substantial control, are accounted for under the equity method and consolidated into the Company’s financial statements. Significant intercompany balances and transactions among consolidated entities have been eliminated. Subsidiaries are fully consolidated from the date of acquisition, being the date on which the Company obtains control, and continue to be consolidated until the date that such control ceases. Minority interest in CPTF Optronics Co., Ltd. (10.48%) and CPT TPV Optical (Fujian) Co., Ltd (20%) is a component of separate the stockholders’ equity.
2. Foreign Currency Transactions and Translation The financial statements of the foreign subsidiaries are translated into NT dollars, with the local currency of each foreign subsidiary as its functional currency, at exchange rates in effect at the balance sheet date. Revenue and expense accounts are translated using a weighted average exchange rate for the relevant period. Equity accounts are translated using a historical exchange rate except for the beginning balance of the retained earnings, which is the translated amount from prior period carried forward; dividend is using the rate at the declared date. Difference in translation is recorded, net of tax effect, as a component of stockholders’ equity.
3. The Company maintains its accounting records in New Taiwan dollars ("NT dollars" or "NT$"). Non-derivative transactions denominated in foreign currencies are recorded in NT dollars using the exchange rates in effect at the date of the transactions. Monetary assets and liabilities denominated in foreign currencies are translated into NT dollars using the exchange rates in effect at the balance sheet date. The resulting foreign exchange gains or losses from settlement of such transactions or translations of monetary assets and liabilities are recorded in statements of operations.
Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value with changes in fair value recognized in profit or loss, are remeasured on the balance sheet date using the exchange rates prevailing as at that date, with the resulting exchange gains or losses recorded in the profit or loss. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value with changes in fair value recognized in stockholders equity, are remeasured at the exchange rate prevailing at the balance sheet date, with resulting exchange gains or losses recorded as adjustment items to stockholders’ equity. Non-monetary assets and liabilities denominated in foreign currencies that are measured at cost are remeasured at historical exchange rates. Foreign exchange gains or losses from settlement of non-monetary assets and liabilities are recorded in statements of operations.
126
4. Classification of Current and Noncurrent Assets and Liabilities Current assets are those expected to be converted to cash or cash in bank, sold or consumed within one year from the balance sheet date. Current liabilities are obligations expected to be due within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities.
5. Financial Assets and Liabilities
In accordance with R.O.C. Statement of Financial Accounting Standard (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” and the “Guidelines Governing the Preparation of Financial Reports by Securities Issuers”, financial assets are classified as either financial assets at fair value through profit or loss, financial assets measured at cost, investment in debt securities with no active market, derivative financial assets for hedging or available-for-sale financial assets. Financial liabilities are classified as fair value through profit or loss, derivate financial liabilities for hedging. When financial assets or liabilities are recognized initially, they are measured at fair value, plus transaction cost for all financial assets or liabilities not carried at fair value through profit or loss. All “regular way” purchases and sales of financial assets, stocks and funds investments are recorded using trade date (the date that the Company commits to purchase or sell the asset) accounting. “Regular way” purchases or sales are transactions of financial assets that require delivery of assets within the period established by regulation or convention in the marketplace. The remaining financial assets are recorded using settlement date accounting.
(1) Financial assets and financial liabilities at fair value through profit or loss This category has two sub-categories: financial assets or liabilities held for trading and those designated at fair value through profit or loss at inception.
Financial assets or liabilities at fair value through profit or loss are subsequently measured at fair value and changes in fair value are recognized in profit and loss. The Company shall not reclassify a derivative and any financial instrument out of the fair value through profit or loss category if upon initial recognition it was designated at fair value through profit or loss; and may, if a financial asset is no longer held for the purpose of selling or repurchasing it in the near term, reclassify that financial asset out of the fair value through profit or loss category if the requirements are met as follows: a. A financial asset that would have met the definition of loans and receivables may be reclassified out of the fair value through profit or loss category if the Company has the intention and ability to hold the financial asset for the foreseeable future or until maturity. b. A financial asset that would have not met the definition of loans and receivables may be reclassified out of the fair value through profit or loss category only in rare circumstances. The fair value of the financial asset on the date of reclassification becomes its new cost or amortized cost, as applicable. Any gain or loss already recognized in profit or loss shall not be reversed. The Company shall not reclassify any financial instrument into the fair value through profit or loss category after initial recognition.
127
(2) Financial assets carried at cost Investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are carried at original cost, such as non-publicly traded stocks and private placement shares issued by public company, and derivatives which are linked to the price of the above equity investments.
(3) Investments in debt securities with no active market
Debt securities with no active market are non-derivative financial assets with fixed or determinable collections that are not quoted in an active market. When such investments are recognized initially, they are measured at fair value plus transaction cost. And such assets are carried at amortized cost using the effective interest method in the subsequent period. Gains and losses are recognized when these investments are derecognized or impaired, as well as through the amortization process. All regular way purchases and sales of financial assets are recognized on the trade date.
(4) Available-for-sale financial assets Available-for-sale financial assets are those non-derivative financial assets that are designated as available-for-sale or not classified as financial assets at fair value through profit or loss, financial assets carried at cost, or loans and receivables. Subsequent measurement is calculated at fair value. Unrealized gains and losses, net of tax, excluding impairment loss and exchange gain or loss arising from the translation of monetary financial assts denominated in foreign currencies, is recorded in other items in stockholders’ equity until such investment is derecognized, upon which time the cumulative gains or losses previously recognized in equity should be included in the statement of operations. Any difference between the initial carrying amount of an available-for-sale financial asset and the amount due at maturity is amortized using the effective interest method, with the amortization recognized in earnings.
(5) Financial liabilities
The Company recognizes all financial liabilities at amortized costs, except for financial liabilities at fair value through profit and loss and derivative financial liabilities for hedging. Such liabilities are measured at fair value. The fair value is determined by reference to the closing price on the balance sheet date for listed equity securities, convertible bonds and close-end mutual funds or the net asset value per unit for open-end mutual funds. The fair value of financial instruments with no active market, such as debt securities, mixed products, or certain derivatives are determined by using appropriate valuation method.
6. Impairment Financial assets
(1) Available-for-sale financial assets If an available-for-sale asset is impaired, an amount comprising the difference between its cost (net of any principal payment and amortization) and its current fair value or recoverable amount, less any impairment loss previously recognized in profit or loss, is transferred from equity to the
128
statement of operations. Reversal resulting from the reduction in the impairment loss of equity instruments classified as available-for-sale is not recognized in profit or loss but as an adjustment to stockholders’ equity. Reversals of impairment losses on debt instruments classified as available-for-sale are reversed through profit or loss if the increase in fair value of the instrument can be objectively related to an event occurring after the impairment loss was recognized in profit or loss.
(2) Financial assets carried at cost If there is the objective evidence that an impairment loss on an unquoted equity instrument that is not carried at fair value because its fair value cannot be reliably measured, or on a derivative asset that is linked to and must be settled by delivery of such an unquoted equity instrument has incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the current market rate of return for a similar financial asset. The reversals of such impairment loss on financial assets carried at cost are not allowed.
(3) Investment in debt securities without active market The Company recognizes an impairment loss if objective evidence of impairment loss exists. However, the impairment loss may be reversed if the amount of impairment loss subsequently decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, then the previously recognized impairment loss shall be reversed in profit or loss. The new cost basis as a result of the reversal cannot exceed what the amortized cost would have been had the impairment not been recognized at the date the impairment is reversed. Non-financial assets Pursuant to R.O.C. SFAS No. 35, the Company assesses indicators for impairment for all its assets within the scope of R.O.C. SFAS No. 35 at each balance sheet date. If impairment indicators exist, the Company shall then compare the carrying amount with the recoverable amount of the assets or the cash-generating unit (“CGU”) and write down the carrying amount to the recoverable amount where applicable. Recoverable amount is defined as the higher of fair value less costs to sell and value in use. For previously recognized losses, the Company shall assess, at each balance sheet date, whether there is any indication that the impairment loss may no longer exist or may have decreased. If there is any such indication, the Company has to recalculate the recoverable amount of the asset. If the recoverable amount increases as a result of the increase in the estimated service potential of the assets, the Company shall reverse the impairment loss to the extent that the carrying amount after the reversal would not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized for the assets in prior periods. In addition, a goodwill-allocated CGU or group of CGUs is tested for impairment each year, regardless of whether indicator for impairment exists. If an impairment test reveals that the carrying amount, including goodwill of the CGU or group of CGUs is greater than its recoverable amount, then an impairment loss is recognized. The impairment loss is first recorded against the goodwill allocated to the CGU, with any remaining loss allocated to other assets in
129
the CGU on a pro rata basis proportionate to their carrying amounts. The write-down of goodwill cannot be reversed in subsequent periods under any circumstances. Impairment loss /reversal are classified as non-operating losses/income.
7. Derecognizing of Financial Assets and Liabilities Financial assets A financial asset or a portion of the financial asset is derecognized, when the Company loses control of the contractual rights that comprise such asset or a portion of such asset. A transfer of a financial asset or a portion of the financial asset in which the Company surrenders control over such asset is regarded as a sale to the extent that consideration in transferring the asset is received in exchange. If a financial asset is transferred but the conditions for loss of control are not satisfied, then the Company accounts for the transaction as a secured borrowing. In that case, the Company’s right to reacquire the asset is not a derivative financial instrument. Financial liabilities An entire or part of a financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or it expires. Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.
8. Allowance for Doubtful Accounts The allowance for doubtful accounts is provided based on the aging analysis and results of the Company’s evaluation of collectibility of the outstanding notes and accounts receivable..
9. Inventories Inventories are recorded at cost when acquired and are stated at the lower of aggregate cost or market value. Cost is determined using the weighted-average method. Market value of work-in-process and finished goods is determined on the basis of net realizable value. Market value of raw materials is determined on the basis of replacement cost. An allowance for loss on decline in market value or obsolescence is provided when necessary.
10. Long-term Investments Accounted for under Equity Method (1) Investments in which the Company owns 20% or more of the voting shares of investees, or under
20% but is able to exercise significant influence over the investee’s operational decisions, are accounted for under equity method. However equity method is not required when preparing first and third quarter interim financial statements for a holding interest betweens 20% to 50% (considered significant influence), therefore no investment gain/loss from equity method is recognized. However, equity method must be applied for holding interest over 50% (considered controlling interest). Prior to January 1, 2006, the difference between the acquisition cost and the underlying equity in the investee’s net assets as of acquisition date was amortized over 5 years; however, effective from January 1, 2006, investment premiums, representing goodwill, are no longer amortized and is assessed for impairment at least on an annual basis; while investment discounts continue to be amortized over the remaining periods. Investment discounts generated
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after December 31, 2005, shall be allocated as a pro rata reduction of the amounts that otherwise would have been assigned to all of the acquired non-current assets. If any excess remains after reducing to zero the amounts that otherwise would have been assigned to those assets, that remaining excess shall be recognized as an extraordinary gain.
(2) For an equity investee in which the Company possesses control, such investee’s total losses will be fully recognized by the Company when the long-term investment becomes a credit balance unless other investors are obligated to and have the ability to assume a portion of the loss. Such credit balance shall first be offset by the advance (if any) made by the Company to the investee company, the remaining shall be recorded under other liabilities.
(3) When the Company subscribes to additional shares of an investee at a percentage different from its existing equity interest, the resulting difference between the carrying amount of the investment and the amount of the Company’s proportionate share in the investee’ net equity is recorded as an adjustment to the additional paid-in capital. If the additional paid-in capital is not sufficient, then the excess will be charged against retained earnings.
(4) Unrealized intercom any gains and losses are eliminated under equity method. Profit from sales of depreciable assets between the investee and the Company is amortized and recognized based on the assets’ economic life. Profit from other types of intercom any transactions is recognized when realized.
(5) When the investees pay cash dividends, the Company recognizes dividends as the deducted item of long-term investment. Gain or loss on disposal of long-term investments is based on the difference between selling price and book value of investments sold. Any amount of the investee’s additional paid-in capital and other adjustment items under stockholders’ equity recorded in the stockholders’ equity of the Company are eliminated in proportion to the percentage of ownership interests sold and recorded as gain or loss on disposal of investments.
(6) The Company is required to include the accounts of direct or indirect majority-owned subsidiaries in its consolidated financial statement. The investees which the Company owned over 50% voting shares or under 50% voting shares but exercised control over are majority-owned subsidiaries.
11. Property, Plant and Equipment
Property, plant and equipment are stated at cost plus revaluation increment and net of accumulated depreciation and/or accumulated impairment losses, if any. Major renewals and improvements are capitalized, while ordinary maintenances and repairs are expensed as incurred. When an item of property, plant and equipment is impaired, the impairment loss is first offset against the balance of revaluation increment of the asset under the stockholders’ equity, if any, with the remaining amount recognized in profit or loss.
The related cost (including revaluation increment), accumulated depreciation, accumulated impairment losses and any unrealized revaluation increment of an item of property, plant and equipment are derecognized from the balance sheet upon its disposal. Any gain or loss on disposal of the asset is included in non-operating gains or losses in the year of disposal.
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If due to certain legal restrictions barring CPT from owning the title of the land directly, such lands were classified as other assets.
Depreciation is provided by using the straight-line method over the following estimated useful lives:
Buildings 5 - 35 years Machinery and equipment 3 - 15 years Transportation equipment 5 - 7 years Furniture and fixtures 4 - 12 years Miscellaneous equipment 3 - 12 years
Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their newly estimated useful lives. When an impairment loss is recognized, the depreciation for the impaired asset will be recalculated based on the adjusted value over the estimated remaining useful lives. Interest incurred on loans used to finance the construction of property, plant and equipment is capitalized and depreciated accordingly
12. Noncurrent Assets Held for Sales Effective January 1, 2007, the Company adopted R.O.C SFAS No.38, “Accounting for Noncurrent Assets Held for Sale and Discontinued Operations.” Non-current assets or disposal group held for sale, are assets that are available for immediate sale in their present condition subject only to the terms that are usual and customary for such assets, and for which completion of a sale within one year is highly probable. These non-current assets will be transferred into current assets and cease to be depreciated but will be stated at the lower of carrying value or net fair value. Non-current assets classified as “held for sale” are presented as separate items on the balance sheet. An impairment loss, measured as the amount by which the carrying amount of a non-current asset held for sale exceeds its fair value is charged to current operations. A gain from any subsequent increase in fair value less costs to sell is recognized to the extent that it is not in excess of the cumulative impairment loss that was recognized in accordance with R.O.C. SFAS No.38 or previously in accordance with R.O.C. SFAS No35, “Impairment of Assets.”
13. Intangible Assets (1) Effective from January 1, 2007, the Company adopted R.O.C. SFAS NO.37, “Accounting for
Intangible Asset”. Intangible assets are stated initially at cost, net of accumulated amortization and impairment. Intangible assets with finite lives should be amortized on a systematic basis over their useful lives. The Company will assess the intangible assets for impairment in accordance with R.O.C. SFAS No.35 if impairment indicators exist.
(2) The Company’s R&D project has two phases, research and development. Expenditure on research shall be recognized as an expense when incurred. Development costs are capitalized if, and only if, all of the following conditions can be met:
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(a) the technical feasibility of completing the intangible asset. (b) its intention to complete the intangible asset and use or sell it. (c) its ability to use or sell the intangible asset. (d) the intangible asset is able to generate probable future economic benefits. (e) the availability of adequate technical, financial and other resources to complete the
development. (f) its ability to measure reliably the expenditure. The capitalized development costs should be assessed for impairment under R.O.C. SFAS No.35 at least annually.
(3) Technology license fees are amortized over 5 years or the term of the technology cooperation contract; while Computer software cost is amortized over 3 years.
14. Land Use Rights Subsidiaries leased their land from the government of the People’s Republic of China (“PRC”). The land use rights are amortized over the lease term of 50 years from the commencement of the business operation.
15. Deferred Charges Deferred charges, including shadow mask, expense of syndicated loan application and other charges are recorded at cost and amortized using the straight-line method over the following useful lives:
(1) Shadow mask – 2 years (2) Expense of syndicated loan application – the term of syndicated loan. (3) Other charges – 3 years
16. Convertible Bonds (1) For convertible bonds issued after January 1, 2006, the components of convertibles bonds with
an embedded derivative that is not clearly and closely related to the host contract are bifurcated by the Company on initial recognition. The liability component is measured first, and the difference between the proceeds of the bond issued and the fair value of the liability is accounted for as the equity component.
(2) The present value of the liability component is calculated using the market interest rate for
similar debt without conversion options until the day before the conversion date. The liability component is subsequently measured at amortized cost, and changes in fair value of the equity component are not recognized while changes in fair value of the embedded derivatives are reported in profit or loss. When the conversion option expires unexercised and at that time the market value of the common stock under conversion exceeds the put price, put premium should be credited to additional paid-in capital, if the market value is otherwise lower than the put price, then it is recognized in profit or loss.
(3) When the bondholder exercises the conversion option before bond maturity, the adjusted
carrying value of the debt components (including bonds and embedded derivatives) is credited to the capital stock account along with the carrying amount of the stocks converted.
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(4) Bond issuance costs were allocated proportionately to the equity and liability components and included under bond premium/discount amortized using the effective interest rate method.
(5) If the bondholder could exercise the conversion option within the next year, then the related
bonds and embedded derivatives should be reclassified as current liabilities; after the conversion option expires unexercised, the related portion of the bonds and embedded derivatives may be reclassified as noncurrent liabilities.
17. Pension (1) According to the Labor Standards Law, CPT has employees’ retirement plan which is a defined
benefit plan and has made monthly contributions based on fixed percent of these employees’ monthly wages since October, 1996. All regular employees are entitled to a defined benefit pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the Bank of Taiwan and hence, not associated with CPT. Therefore, fund assets are not to be included in CPT’s financial statements.
(2) The Labor Pension Act of R.O.C. (the Act), which adopts a defined contribution plan, became
effective on July 1, 2005. Employees eligible for the Labor Standards Law, a defined benefit plan, were allowed to elect either the pension calculation under the Act or continue to be subject to the pension calculation under the Labor Standards Law. Those employees that elected to be subject to the Act will have their seniority achieved under the Labor Standards Law retained upon election of the Act, and CPT will make monthly contributions of no less than 6% of these employees’ monthly wages to the employees’ individual pension accounts. CPT recognizes expenses from the defined contribution pension plan in the period in which the contribution becomes due.
(3) Under the plan, the net pension cost is computed based on an actuarial valuation in accordance with R.O.C. SFAS No. 18 “Accounting for Pensions”, which requires consideration of pension cost components such as employee service cost, interest cost, expected return on plan assets and amortization of net transition obligation. The unrecognized net transition obligation is amortized on the straight-line basis over the employees’ average remaining service period or 15 years.
18. Accounting for Derivative Financial Instruments and Hedging Activities
The Company recognized derivative as either assets (when the fair value is positive) or liabilities (when the fair value is negative) on the balance sheet and measured those instruments at fair value. Derivatives that are not qualified for hedge accounting criteria are accounted for as financial assets or liabilities held for trading with changes in fair value recognized in profit or loss. However if derivatives satisfy the hedge accounting criteria, they are accounted for using hedge accounting. The Company formally documents at inception all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking various accounting hedges. The documentation includes identification of the hedging instrument, the hedged item or transaction, the nature of the risk being hedged and how the entity will assess the hedging instrument's effectiveness in offsetting the exposure to changes in the hedged item's fair value and cash flow attributable to the hedged risk. Such hedges are expected to be highly effective in offsetting changes in fair value and cash flow of the hedged items. The Company assesses on an ongoing basis to determine that they actually have been highly effective throughout the financial reporting periods for which they were designated.
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The ineffective portion of derivative financial assets and liabilities for hedging is also categorized as held for trading and the gain or loss is reported in earning immediately. Hedges which meet the strict criteria for hedge accounting are accounted for as follows:
(1) Fair value hedges Fair value hedges are hedges of the Company's exposure to changes in the fair value of a recognized asset or liability or an unrecognized firm commitment, or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect profit or loss. For fair value hedges, the carrying amount of the hedged item is adjusted for gains and losses attributable to the risk being hedged, the derivative is remeasured at fair value and gains and losses from both are taken to profit or loss.
(2) Cash flow hedges
Cash flow hedges are a hedge of the exposure to variability in cash flows that is attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss. The effective portion of the gain or loss on the hedging instrument is recognized directly in equity, while the ineffective portion is recognized in profit or loss immediately. Amounts taken to equity are transferred to the statement of operations when the hedged transaction affects profit or loss, such as when hedged financial income or financial expense is recognized or when a forecast sale or purchase occurs. Where the hedged item is the cost of a non-financial asset or liability, the amounts taken to equity are transferred to the initial carrying amount of the non-financial asset or liability.
(3) Hedge of a net investment in a foreign operation
Hedge of a net investment in a foreign operation is a hedge of the exposure to changes in foreign currency of a net investment in a foreign operation. The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity. The amount recognized in stockholders’ equity is recognized in profit or loss when disposal of the foreign operation.
19. Stock Compensation
In accordance with Accounting Research and Development Foundation interpretation Nos.92-070~072, CPT accounted for employee stock options granted on or before December 31, 2007, using the intrinsic value method. Under the intrinsic value method, deferred compensation for options granted to employees is equal to its intrinsic value determined as the difference between the exercise price of the option and the fair value of the underlying stock at the date of grant or amendment. CPT is required to adopt R.O.C. SFAS No. 39 “Accounting for Share-Based Payment”, for employee stock options granted on or after January 1, 2008, using the fair value method. In accordance with R.O.C. SFAS No. 39, share-based payment transaction is measured by reference to the fair value of the equity instruments at the grant date; the fair value is determined by an external expert using an appropriate pricing model.
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20. Treasury Stock In accordance with R.O.C. SFAS No.30, “Accounting for Treasury Stock”, treasury stock held by CPT is accounted for under the cost method. The cost of treasury stock is shown as a deduction to stockholders’ equity, while any gain or loss from selling treasury stock is treated as an adjustment to additional paid-in capital.
21. Income Tax (1) The Company adopted an inter-period and intra-period income tax allocation method to
recognize income tax. Tax effects on taxable temporary differences are recognized as deferred tax liabilities. Tax effects on deductible temporary differences, operating loss carryforward and investment tax credits are recognized as deferred tax assets. Valuation allowance is provided based on the expected realization of the deferred tax assets. A deferred tax asset or liability should, according to the classification of its related asset or liability, be classified as current or non-current. However, if a deferred tax asset or liability is not directly related to an asset or a liability, then the classification is based on the expected realization date of such deferred income tax asset or liability. The income tax expense or benefit for unrealized losses or gains that are not included in profit or loss for the period, but reported directly in stockholders’ equity, should also be adjusted directly in stockholders’ equity.
(2) Undistributed earnings generated after 1997 are subject to a 10% additional retained earning tax (10% additional tax) in compliance with the Income Tax Law of R.O.C. The 10% additional tax is recorded as income tax expense in the year in which stockholders have resolved that CPT’s earnings shall be retained.
(3) According to R.O.C. SFAS No.12, “Accounting for Income Tax Credits”, CPT recognizes the tax credits arising from purchases of machinery, equipment and technology, research and development expenditures, employee training, and certain equity investment in the period when such purchases, expenditures and training occur.
(4) According to the implemented Alternative Minimum Tax Act (AMT), which became effective from January 1, 2006, the Company will be subject to a 10% additional AMT if the income tax payable determined pursuant to the income tax law of R.O.C. is below the minimum amount prescribed under the AMT Act. The impact of AMT has been considered in the calculation of the Company’s income tax for the current reporting period.
(5) The income tax for each consolidated entities shall be filed on an individual basis with the relevant country and shall not be filed on a consolidated basis. The consolidated income tax expense is the total of income tax expenses for all consolidated entities.
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22. Employees’ Bonuses and Directors and Supervisors’ Remunerations In accordance with Accounting Research and Development Foundation interpretation No. 96-052 effective from January 1, 2008, share-based employee bonuses and remunerations paid to directors and supervisors are charged to expense at fair value and are no longer accounted for as a reduction of retained earnings.
23. Revenue Recognition The Company recognizes revenue when the earnings process is complete, as evidenced by an agreement with the customer, transfer of title and acceptance, if applicable, as well as fixed or determinable pricing and reasonably assured collectibility Recognition of dividend When cash dividends on equity securities are declared from pre-acquisition profits (for example, in the year of investment), those dividends are credited against the cost of the equity securities as recovery of acquisition costs rather than recognized as investment income except for cash dividends from financial assets at fair value through profit or loss. Receipts of cash dividends declared in the subsequent years are recognized as investment income on the date of ex-dividend or the date of stockholders’ meeting. However, if the accumulated cash dividends distributed exceed the accumulated net incomes or losses for the time period starting from the investment acquisition date to the prior year end, then the amount in excess shall be credited to the cost of the equity securities rather than recognized as investment income. Stock dividends are not recognized as investment income but instead are recorded as an increase in the number of shares held. The Company recalculated the average cost or carrying amount of its holding shares after receiving stock dividends.
24. Earnings (Loss) Per Share Earnings per share is computed according to R.O.C. SFAS No. 24, “Earnings Per Share.” The Company presents basic earnings per share and diluted earnings per share information. Basic earnings per share is computed by dividing the net income (loss) attributable to common stockholders by the weighted-average number of common shares outstanding during the current reporting period. When calculating diluted earnings per share, the numerator includes or adds back potential common stock dividends, interest and other conversion revenues (expenses). The denominator includes all potentially dilutive common shares. When the Company has such situations like capital increase by cash, convertible bonds converted into common stocks, exercise of stock options and buyback of treasury stocks, the Company shall recalculate weighted average outstanding shares based on outstanding terms of the above situations. The weighted-average outstanding shares shall be retroactively adjusted for capital increases arising from transfer of retained earnings, capital reserves and bonuses to employees.
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III. REASONS AND EFFECTS FOR CHANGES IN ACCOUNTING POLICIES 1. Effective from January 1, 2007, the Company adopted R.O.C. SFAS No.37, “Accounting for
intangible assets” (SFAS No.37). The adoption of R.O.C. SFAS No.37 did not have a material effect on the Company’s consolidated financial statements.
2. Effective from January 1, 2008, the Company adopted R.O.C. SFAS No. 39, “Accounting for
Share-Based Payment” to account for share-based payments. This change in accounting principles had no effect on consolidated net loss or loss per share for the year ended December 31, 2008 and consolidated total assets as of December 31, 2008.
3. Effective from January 1, 2008, the Company adopted Accounting Research and Development
Foundation interpretation No. 96-052 to account for share-based employees’ bonuses and remunerations paid to directors and supervisors. The adoption had no effect on consolidated net loss or loss per share for the year ended December 31, 2008 and consolidated total assets as of December 31, 2008.
4. Effective from July 1, 2008, the Company adopted amendments to R.O.C SFAS No.34,
“Financial Instruments: Recognition and Measurement” to reclassify its financial instruments. The adoption resulted in a favorable effect on consolidated net loss in the amount of NT$583,278, thereby decreasing consolidated loss per share by NT$0.06 for the year ended December 31, 2008.
IV. DETAILS OF SIGNIFICANT ACCOUNTS BALANCES
1. Cash and cash in bank As of December 31, 2008 2007 Cash:
Cash on hand $3,307 $6,510 Cash in banks - checking and savings account 10,054,457 15,233,928 Cash in banks - time deposits 10,621,901 11,967,180
Total $20,679,665 $27,207,618
2. Financial assets and liabilities at fair value through profit or loss As of December 31,
2008 2007 Assets
Financial assets held for trading: Funds $245,028 $1,343,856 Foreign currency forward exchange contracts 144,243 141,594 Convertible bonds - option 120,830 -
Financial assets designated at fair value through profit or loss: R.O.C. convertible bonds - listed company 543,991 652,861 Prepayment - Domestic convertible bonds -
unlisted company - 40,000 Less: non-current portion - (40,000)
Total $1,054,092 $2,138,311
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Liabilities Financial liability held for trading:
Interest rate swap contracts $229,082 $- Financial liabilities designated at fair value through profit or loss:
Liability components of convertible bonds - embedded derivative contracts
380,183
1,614,104
Less: non-current portion - (1,614,104) Current $609,265 $-
Detailed information of the derivative financial instruments above refers to Note 10.
3. Derivative financial assets and liabilities for hedging
As of December 31, 2008 2007
Assets Interest rate swap contract $- $93,279 Less : non-current portion - (85,182) Current $- $8,097
Liabilities Interest rate swap contract - current $26,496 $6,500 Less: non-current portion (26,496) (6,500) Current $- $-
Detailed information of the derivative financial instruments above refers to Note 10.
4. Financial assets carried at cost - current
As of December 31 2008 2007
Domestic convertible bonds $- $229,706
The investment that does not have a quoted market price in an active market and its fair value cannot be reliably measured is carried at original cost.
5. Investment in debt securities with no active market
As of December 31, 2008 2007
Domestic convertible bonds $125,648 $170,294 Less; non-current portion (38,525) - Current $87,123 $170,294
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6. Receivable, net As of December 31, 2008 2007 Notes receivable $361,394 $296,078 Less: Allowance for doubtful accounts (140) (167)
Net $361,254 $295,911 As of December 31, 2008 2007
Accounts receivable-trade $10,296,390 $26,879,646 Less: Allowance for doubtful accounts (1,277,473) (526,833)
Net $9,018,917 $26,352,813
As of December 31, 2008 2007 Due from affiliates-trade $4,307,984 $3,274,150 Less: Allowance for doubtful accounts (266,000) (30,000)
Net $4,041,984 $3,244,150
In order to improve working capital, CPT entered into accounts receivable factoring agreements on December 12, 2006, without recourse, together with Chinatrust Commercial Bank, Taipei Fubon Bank, Cathay United Bank, Hua Nan Bank and Chang Hwa Bank amounted up to US$600,000,000. Related information with respect to these agreements was as follows: As of December 31, 2008 2007 Prepaid proceeds from factor $- $400,040 Due from factor (Note1) - 74,457 Amounts derecognized of accounts receivable $- $474,497
The range of interest rate of prepaid proceeds - 5.7188%-6.6108%
Credit line - US $600,000
Promissory note (Note2) - US $90,000
Note 1: The amount of due from factor was classified as “accounts receivable – others”. Note 2: The promissory note was issued as the security of future commercial dispute. Note 3: The primary transfer criteria of due from factor: The term of accounts receivable
factoring is without recourse, but the Company is responsible for the risk other than the credit risk of debtors.
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7. Inventories, net As of December 31, 2008 2007 Raw materials and supplies $1,890,050 $2,559,435 Work in process 2,907,808 2,752,654 Finished goods 8,133,135 6,685,480 Raw materials in transit 391,055 - Total 13,322,048 11,997,569 Less: Allowance for decline in market value and
obsolescence (2,789,618) (348,066)
Net $10,532,430 $11,649,503
8. Investment in associated companies (1) Details of investment in associated companies and subsidiaries are as follow:
As of December 31, 2008 2007
Investee
Amount Percentage
of Ownership
(%)
Amount
Percentage of
Ownership (%)
Unlisted Company Toppan Chunghwa Electronics Co., Ltd. $809,013 22.49 $952,761 22.49 Sintronic Technology Inc. - - 417,118 19.09 Subtotal 809,013 1,369,879
Listed Company Forward Electronics Co., Ltd. 525,736 15.33 530,036 15.41 Giantplus Technology Co., Ltd. 4,474,923 32.22 - - Sintronic Technology Inc. 443,697 16.68 - - Xiamen Overseas Chinese Electronic Co., Ltd.
- 27.00
812,704 27.00
Subtotal 5,444,356 1,342,740 Prepayment on investment 215,814 2,397,546 Total $6,469,183 $5,110,165
(2) The Company holds less than 20% of an investee’s voting shares for some of the long-term
equity investments listed above. However, if the Company and its affiliates altogether own 20% or more of the investee’s voting shares, it is usually evident that the Company has significant influence and the investee should be accounted for under equity method.
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(3) The Company recognized investment loss of $732,877 for long-term equity investments under equity method for the year ended December 31, 2008. The Investment loss of $20,072 for the year ended December 31, 2008, and the related long-term investment balances of $5,283,936 as of December 31, 2008 are determined based on the investees’ financial statements audited by other auditors.
(4) On November 5, 2007, the Board of Directors of CPT resolved to subscribe 128,315,000
common shares of Giantplus Technology Co., Ltd. totaling $4,529,520 (unit price: $35.3 per share) through private placement, representing around 1/3 of the outstanding shares of Giantplus Technology Co., Ltd. As of December 31, 2007, CPT had paid $2,200,000 to Giantplus Technology Co., Ltd. as prepaid long-term investment under equity method. On January 2, 2008, CPT paid the remaining balances $2,329,520 to complete the transaction and acquired 32.82% voting rights of common stocks of Giantplus Technology, Co., Ltd. In addition, under applicable R.O.C. law, such common stocks are subject to the restrictions of prohibiting trade and exchange on the stock exchange in Taiwan for the period of the three years following the date of issuance of such common stocks
9. Available-for-sale financial assets - noncurrent
As of December 31, 2008 2007
Listed Companies
Amount
Percentage of
Ownership (%)
Amount
Percentage of
Ownership (%)
Tatung Co., Ltd. $5,836,563 4.91 $5,238,780 4.91 Country Heights Holding Berhad 605,948 17.41 605,948 17.41 Less: Cumulative translation
adjustment (112,809) (448,649)
Valuation allowance (4,077,463) (1,197,032) Total $2,252,239 $4,199,047
10. Financial assets carried at cost - noncurrent
As of December 31, 2008 2007
Name of Investee
Amount
Percentage of
Ownership (%)
Amount
Percentage of
Ownership (%)
Mines Golf Resort Berhad $124,255 10.00 $124,255 10.00 Fuzhou Jieyi Electronics Co., Ltd. 4,897 14.25 4,897 14.25 Private placement shares-listed
company 262,500 3.25 262,500 3.25 Private placement shares -unlisted
company 92,000 - 92,000 Convertible bonds - option 1,475 - Less: Cumulative translation
adjustment 4,233 (12,954) Total $489,360 $470,698
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11. Property, plant and equipment (1) In accordance with relevant regulations of R.O.C., CPT revalued its property, plant and
equipment in 1978, 1979, and 1981. As a result, a total of $88,005 was added to total assets and $59,304 (net of reserve for incremental tax on land revaluation of $28,701) was credited to other items in stockholders’ equity. As of December 31, 2008, the revalued assets amounted to $57,192.
(2) In accordance with related regulations in Malaysia, CPTM revalued its land with a revaluation
increase of US$16,414 which was added to total assets and credited to deferred income tax liabilities of US$18 and other items in stockholders’ equity of US$16,396.
(3) Interest expense (before deducting capitalized amounts of $0 and $14,216 for the years ended
December 31, 2008 and 2007) for the years ended December 31, 2008 and 2007 was $3,423,987 and $4,542,669, respectively. The interest rates of capitalized interest for the year ended December 31, 2007 ranged from 6.0725% to 6.2750%.
(4) On November 5, 2007, in order to provide more diversified products and quality services to lift
up industry positions in small-medium sized application market, CPT’s Board of Directors decided to dispose of generation 3 (“G3”) TFT-LCD fab. located in Taiwan to Giantplus Technology Co., Ltd. for $6,500,520 (included intellectual property of $1,435,000, land use rights of $294,661 and building and equipment of $4,770,859). Net gain from disposing the intellectual property and building and equipment amounted to $4,135,972 (include gain on disposal of fixed assets of $2,805,780 and non-operating income-other income of $1,330,191). CPT transferred the gain on disposal of fixed assets of $920,857 and other income of $436,568 to deferred credits based on CPT’s proportionate shares in the net equity of Giantplus Technology Co., Ltd. as intercompany profit on the transaction. The deferred credits will be released as gain on disposal of fixed assets and other income in the future over these assets’ economic service lives. For the year ended then December 31, 2008, CPT transferred deferred credits to gain on disposal of fixed assets of $229,942 and other income of $109,142. Unrealized intercompany gain on disposal of land use rights of $294,661 was amortized over the contractual life and recognized as other income of $5,893 for the year ended December 31, 2008. The remainder was booked in long-term deferred revenue of $282,875 and other current liability of $5,893.
CPT has received $3,000,000 in cash in 2007 and $1,693,770 in the first quarter of 2008, respectively. Furthermore, the remaining payment of $1,806,750 should be calculated at the present value of $1,792,278 (minus unrealized interest revenue of $104,809 and sales tax of $90,337). The balance was recorded as other accounts receivable - current of $673,598 and non-current of $1,118,680. These payments should be paid in 11 quarterly installments of $164,250 from April 7, 2008. As of December 31, 2008, outstanding balance recorded under accounts receivable - others - current amounted to $714,828 and $560,063 as accounts receivable - others – noncurrent
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(5) In order to strengthen competitive advantage through vertical integration, CPT’s Board of Directors resolved to sign a definitive agreement to purchase Gen 3.5 and Gen 4.5 color filter fab of Sintek Co., Ltd. factories in April 2007. The transaction price of the assets including plant, property, machinery equipment, lands and associated miscellaneous equipment is $2,300,000. As of December 31, 2008, CPT had paid $2,089,050 to Sintek Co., Ltd.
12. Intangible Asset
Intangible assets as of December 31, 2008 and 2007 consisted of the following: For the year ended December 31, 2008
Items Beginning
balance Additions AmortizationExchange
rate Ending
balance Technology license fees $4,776,040 $292,318 $1,380,279 $(948) $3,687,131Computer software cost 55,950 57,587 35,846 - 77,691Land use right 315,589 12,221 8,345 27,361 346,826Deferred pension cost 101,238 - 33,746 - 67,492
Total $5,248,817 $362,126 $1,458,216 $26,413 $4,179,140
For the year ended December 31, 2007
Items Beginning
balance Additions AmortizationExchange
rate Ending balance
Technology license fees $901,315 $4,736,882 $823,513 $(38,644) $4,776,040Computer software cost 16,333 83,926 44,309 - 55,950Land use right 244,711 56,374 7,539 22,043 315,589Deferred pension cost 134,983 - 33,745 - 101,238
Total $1,297,342 $4,877,182 $909,106 $(16,601) $5,248,817
The intangible assets mainly consist of license fees related to TFT-LCD and computer software cost.
13. Deferred charges
As of December 31, Items 2008 2007
Shadow mask $841,314 $1,344,206 Expense of syndicated loan application 117,709 135,163 Others 115,484 175,334 Total $1,074,507 $1,654,703
14. Other assets - others
As of December 31, 2008, due to legal restriction of R.O.C., CPT had not been able to register as the legal owner of certain farmlands (0.347118 hectares amounting to $35,755) purchased by CPT. Accordingly, such lands were temporarily held in trust by third parties. However, in order to protect CPT’s interest, CPT has kept control of the title deeds.
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15. Impairment loss As of December 31,
Items 2008 2007 Fixed assets $1,092,287 $637,928 Financial assets carried at cost - noncurrent - 21,278 Investment in associated companies and subsidiaries 250,000 - Total $1,342,287 $659,206
16. Short-term bank loans
As of December 31, Items 2008 2007
Usance L/C loan $173,286 $659,068 Unsecured loan 13,504,586 4,375,571 Total $13,677,872 $5,034,639 Interest rates 1.35%~5.89% 0.42%~7.29%
17. Bonds payable
As of December 31, 2008 2007 Zero Coupon Convertible Bonds, issued in 2006 and
due 2011 - Debt components, net $- $572,528
Zero Coupon Convertible Bonds, issued in 2007 and due 2012 - Debt components, net
4,162,441 3,175,391
Zero Coupon Convertible Bonds, issued in 2008 and due 2014 - Debt components, net
7,375,860 -
Less: Current portion of bonds payable (11,538,301) - Bonds payable, net of current portion $- $3,747,919
The significant terms of the Convertible Bonds are as follows: Zero Coupon Convertible
Bonds, issued in 2006 and due 2011
Zero Coupon Convertible Bonds, issued in 2007 and
due 2012
Zero Coupon Convertible Bonds, issued in 2008 and
due 2014 ．Amount: US$250 million US$150 million US$250 million
．Issue price: 100% 100% 100%
．Duration: 5 years (2006.7.14 to 2011.7.14)
5 years (2007.10.02 to 012.10.02)
6 years (2008.01.31 to2014.01.31)
．Place of trading:
Singapore Stock Exchange
Singapore Stock Exchange
Singapore Stock Exchange
．Coupon rate:
- - -
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．Conversion period:
Bondholders may convert the bonds to CPT’s common shares during a period 30 days after the issuance and 30 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $32.345= US$1).
Bondholders may convert the bonds to CPT’s common shares during a period 40 days after the issuance and 7 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $32.897= US$1).
Bondholders may convert the bonds to CPT’s common shares during a period 3 months after the issuance and 7 days before the maturity. The number of common shares received by the bondholders is determined by dividing the principal amount over conversion price. No cash payment will be made for fractional shares. (The exchange rate is fixed at $33.08= US$1).
．Conversion price and adjustment:
The conversion price is $7.89 per share and will be adjusted if number of CPT’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $6.83 per share.
The conversion price is $10.35 per share and will be adjusted if number of CPT’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $9.75 per share.
The conversion price is $8.5 per share and will be adjusted if number of CPT’s common stock changes after the issuance of the bonds. As of December 31, 2008, the conversion price was $6.52 per share.
．CPT’s redemption rights:
On and after January 14, 2008, CPT may redeem the bonds at a gross yield of 2.75% on a semi-annual basis of the unpaid principal amount outstanding if the closing price of the CPT’s common stock on TSE is equal to 125% or above of the conversion price in effect on each trading day for a period of 20 consecutive trading days, or the bonds not yet converted or bought back amounted to less than 10% of the aggregate principal amount originally issued.
On and after April 2, 2009, CPT may redeem the bonds at 100% basis of the unpaid principal amount outstanding if the closing price of the CPT’s common stock on TSE is equal to 130% or above of the conversion price in effect on each trading day for a period of 20 consecutive trading days, or the bonds not yet converted or bought back amounted to less than 10% of the aggregate principal amount originally issued.
On and after January 31, 2011, CPT may redeem all or some of the unpaid principal amount outstanding if the closing price of the CPT’s common stock on TSE is equal to 150% or above of the conversion price in effect on each trading day for a period of 30 consecutive trading days.
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Zero Coupon Convertible Bonds, issued in 2006 and
due 2011
Zero Coupon Convertible Bonds, issued in 2007 and
due 2012
Zero Coupon Convertible Bonds, issued in 2008 and
due 2014 CPT may redeem the
bonds at a gross yield of 2.75% on a semi-annual basis of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of CPT.
CPT may redeem the bonds at 100% of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of CPT.
CPT may redeem the bonds at 100% of the unpaid principal amount outstanding if there is a change in legislation, resulting in an increase in tax liabilities of CPT.
3 CPT may redeem the bonds at 114.63% of coupon price on maturity
3 CPT may redeem the bonds at 120% of coupon price on maturity
3 CPT may redeem the bonds at 139.34% of coupon price on maturity
．Bondholders’ option rights:
On January 14, 2008, the bondholders have the right to require CPT to redeem the bonds at a price equal to 104.18% of the principal amount. The Company may redeem the bonds at 114.63% of coupon price on maturity.
On April 2, 2009, the bondholders have the right to require CPT to redeem the bonds at a price equal to 106.903% of the principal amount. The bondholders have demand CPT to redeem the bonds at the above price to the amount US$140,350 million.The Company may redeem the bonds at 120% of coupon price on maturity.
On and after July 31, 2009, January 31, 2011 and January 31, 2012, the bondholders have the right to require CPT to redeem the bonds at a price equal to 105.91%、112.16% and 125.01% of the principal amount. The Company may redeem the bonds at 139.34% of coupon price on maturity.
The bondholders may demand CPT to redeem the bonds if trading of CPT’s shares is restricted on the TSE.
The bondholders may demand CPT to redeem the bonds if trading of CPT’s shares is restricted on the TSE.
The bondholders may demand CPT to redeem the bonds if trading of CPT’s shares is restricted on the TSE.
．Converting status:
All bonds have been converted to common shares.
The bondholders have applied to exercise the conversion right of US$9,550 with 30,354 thousand shares as of December 31, 2008.
The bondholders have not applied to exercise the conversion right as of December 31, 2008.
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18. Long-term bank loans As of December 31,
Items 2008 2007 Unsecured syndicate loan $7,127,128 $14,258,161 Secured loan 36,154,240 51,520,497 Subtotal 43,281,369 65,778,658
Commercial paper payable (note 1) 2,181,600 2,727,200 Less: Unamortized discount on commercial paper
payable (25,736) (35,649)
Subtotal 2,155,864 2,691,551 Less: current portion (18,580,490) (23,907,982) reclassified to other current liability (note 2) Net $26,856,742 $44,562,227 Interest rates 2.60%~6.05% 2.60%~6.89%
Note 1: The L/C facility and commercial paper payable is revolving within the credit limit of
the syndicated loan. CPT classified the L/C loan and commercial paper payable as long-term bank loans because the term of the syndicated loan is over 12 months and CPT intends to refinance the syndicated loan.
Note 2: CPT has been informed by the syndicate banks on April 28, 2009, of their approval to reschedule the long-term bank loans. Therefore, payment schedule for certain current portion of bank loans amounted to $9,883,070 as payable in one year’s time as of December 31, 2008, have been postponed for one year.
Certain of the long-term bank loans were jointly guaranteed by the former President of CPT. Detail information of the long-term bank loans above refers to Note 6.
19. Pension (1) Pension expenses:
For the years ended December 31 Type of pension plan 2008 2007
Defined benefit pension plan $277,618 $251,706 Defined contribution pension plan 204,329 191,335
Total $481,947 $443,041
(2) Funded defined benefit pension plan: (A)Details of net periodic pension cost of defined benefit pension plan for the years ended
December 31, 2008 and 2007 are as follows: 2008 2007 Employee service cost $100,527 $99,993 Interest cost 103,608 92,995 Expected return on plan assets (10,885) (10,348) Amortization of net transition obligation 33,746 33,746 Amortization of actuarial gain or loss 50,622 35,320
Total $277,618 $251,706
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(B)The reconciliation statements of reporting funded status of the defined benefit pension plan as of December 31, 2008 and 2007 are as follow:
December 31 2008 2007 Pension obligation
Vested $221,560 $210,837 Non-Vested 2,186,459 2,384,397
Accumulated benefit obligation 2,408,019 2,595,234 Additional benefits based on future salaries 252,349 592,716 Projected benefit obligation 2,660,368 3,187,950 Fair value of plan assets (241,396) (334,938) Funded status 2,418,972 2,853,012 Unamortized net transition obligation (67,492) (101,238) Unrealized loss on pension assets (535,975) (1,078,124) Deferred pension cost 67,492 101,238 Excess of additional pension liability over
unrecognized prior service cost 283,626 485,408
Accrued pension liability $2,166,623 $2,260,296 Vested benefits $231,211 $219,896
The major actuarial assumptions are as follows:
As of December 31, 2008 2007
Discount rate 3.25% 3.25% Rate of increase in future compensation levels 2.00% 1.00% Expected long-term rate of return on plan assets 3.25% 3.25%
(4) Effective from October 1996, as required by R.O.C. Labor Standard Law, CPT makes monthly
contributions to a pension fund at pre-determined percentage of salaries paid. The pension fund is administered by the employee committee and deposited, under the committee's name, with Bank of Taiwan. As of December 31, 2008 and 2007, the balances were $234,900 and $328,290, respectively.
(5) CPT’s subsidiaries have various defined contribution pension plans. Under these plans, the
subsidiaries have to make periodical contributions to pension account maintained with local governments and recognized it as current expense.
20. Capital (1) The authorized and issued capital of CPT were $125,000,000 (including 700 million shares
reserved for future exercise of employee stock options) and $82,126,048, divided into12,500,000 thousand shares and 8,212,605 thousand shares, respectively, each at par value of $10.
(2) In 2007, CPT issued 1,107,101 thousand shares and 54,070 thousand shares for the conversion
of CPT’s convertible bonds and stock options exercised, respectively. Total issued common stock after the conversion and exercise was $93,737,762.
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(3) For the year ended December 31, 2008, CPT issued 107,184 thousand shares for the conversion of CPT’s convertible bond.
(4) As of December 31, 2008, the authorized and issued capital of CPT were $125,000,000
(including 700 million shares reserved for future exercise of employee stock options) and $94,809,598, divided into 12,500,000 thousand shares and 9,480,960 thousand shares, respectively, each at par value of $10.
21. Stock compensation
CPT has four stock option plans (“2002 Plan”, “2004 Plan”, “2007 Plan” and “2008 Plan”) approved by Securities and Futures Bureau of Financial Supervisory Commission on May 14, 2002, April 29, 2004, May 24, 2007, and December 23, 2008, respectively. These stock option plans granted options to purchase CPT’s common shares at the market price of the grant date to qualified employees of CPT or any of its domestic or foreign subsidiaries. Stock options expire in five years from the grant date and vest over service periods that range from two to four years. CPT is authorized to grant options for up to 400,000 units, 233,982 units, 100,000 units and 100,000 units under the 2002 Plan, 2004 Plan, 2007 Plan, and 2008 Plan, respectively. Each unit entitles an optionee to subscribe to 1 share of CPT’s common stock and has the contractual life of 5 years. An optionee may exercise the options in accordance with certain schedules as prescribed by the plan starting 2 years from the grant date. If there is any change in the equity structure of CPT, the exercise price for each issued stock option plan will be adjusted. In accordance with “The rule of stock option”, if the exercise price is equal to the closing price of common stock at the grant date, no compensation expense is recognized.
Detailed information relevant to the employee stock options was disclosed as follows:
Date of grant
Total number of options granted
Total number of options outstanding as of December 31,
2008 Exercise price
(in NT$)
Plan May 17, 2004 113,821 72,120 14.6 2004 plan
September 30, 2004 72,349 48,488 12.5 2004 planMarch 22, 2005 46,430 28,158 10.4 2004 planMay 30, 2006 100,000 91,050 8.00 2007 plan
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(1) A summary of CPT’s stock option activity and the related information for the years ended December 31, 2008 and 2007 was shown below:
For the year ended December 31, 2008 2002 Plan 2004 Plan 2007 Plan
Options
Weighted-Average Exercise
Price (in
dollars)
Options
(in thousand shares)
Weighted- Average Exercise
Price (in
dollars)
Options
Weighted-Average Exercise
Price (in dollars)
Outstanding, beginning of period
28,815 $10.50 155,584 $13.13 95,609 $8.44
Granted - - - - - - Exercised - - - - - - Forfeited (28,815) 10.50 (6,818) 13.28 (4,559) 8.00 Outstanding, end of period - $- 148,766 $13.12 91,050 $8.00
For the year ended December 31, 2007 2002 Plan 2004 Plan 2007 Plan
Options
Weighted-Average Exercise
Price (in
dollars)
Options
Weighted- Average Exercise
Price (in
dollars)
Options
Weighted-Average Exercise
Price (in dollars)
Outstanding, beginning of period
146,600 $11.05 181,632 $13.46 - $-
Granted - - - - 100,000 8.44 Exercised (52,821) 10.50 (1,249) 10.80 - - Forfeited (64,964) 11.74 (24,799) 12.54 (4,391) 8.44 Outstanding, end of period 28,815 $10.50 155,584 $13.53 95,609 $8.44
(2) Information with respect to the outstanding options of CPT as of December 31, 2008 and 2007
was as follows: December 31, 2008 Outstanding options at balance sheet
date Options Exercisable
Range of
Exercise Prices (in dollars)
Options
Weighted-Average Remaining
Contractual Life
(in years)
Weighted-Average Exercise
Price (in dollars)
Number of Exercisable Options
Weighted-Average Exercise
Price (in dollars)
2004 Plan $10.40 - $14.60 148,766 0.66 $13.12 141,727 $13.26 2007 Plan $8.00 91,050 3.41 8.00 - -
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As of December 31, 2008 Outstanding options at balance sheet
date Options Exercisable
Range of
Exercise Prices (in dollars)
Options
Weighted-Average Remaining
Contractual Life
(in years)
Weighted-Average Exercise
Price (in dollars)
Number of Exercisable Options
Weighted-Average Exercise
Price (in dollars)
2002 Plan $10.50 28,815 0.01 $10.50 28,815 $10.50 2004 Plan $10.80 - $15.00 155,584 1.66 13.53 115,747 13.51 2007 Plan $8.44 95,609 4.39 8.44 - -
(3) No compensation was recognized because that the exercise price of CPT’s stock options are
equal to the market price at the grant date for the years ended December 31, 2008 and 2007. Had CPT used the fair value method to account for its stock options, compensation cost for the years ended December 31, 2008 and 2007 would have been $111,323 and $123,398, respectively. Pro forma net income (loss) and earnings (loss) per share are disclosed below as if CPT had accounted for its employee stock options under the fair value method.
For the years ended December 31
2008 2007 Net income (loss) as reported attributable to the parent company $(13,875,112) $8,703,353Pro forma net income (loss) $(13,986,435) $8,579,955Basic earnings (loss) per share as reported attributable to the
parent company (in dollars) $(1.47) $1.02
Pro forma basic earnings (loss) per share (in dollars) $(1.48) $1.00Diluted earnings (loss) per share as reported attributable to the
parent company (in dollars) $(1.47) $0.92
Pro forma diluted earnings (loss) per share (in dollars) $(1.48) $0.90
The fair value of these options was calculated at the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions for the years ended: Stock option plans 2002 Plan 2004 Plan 2007 Plan Dividend yield: 3.84% 3.84% 0.00% Expected volatility: 37.68% 37.68% 33.58% Risk-free interest rate: 1.00% 1.00% 2.26% Expected life: 3.875 years 3.875 years 3.875 years
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22. Treasury stock (1) CPT bought back its own shares from the open market for the year ended December 31, 2008
as follows: For the year ended December 31, 2008 (In thousands of shares)
For the year ended December 31 Purpose Beginning Increase Decrease Ending
For transfer to employees - 44,000 - 44,000 (2) CPT bought back its own shares until the end of August, 2008. According to the Securities and
Exchange Law of R.O.C. the total shares of treasury stock shall not exceed 10% of CPT’s issued stock, and the total purchase amount shall not exceed the sum of the retained earnings, additional paid-in capital-premiums, and realized additional paid-in capital.
(3) In compliance with Securities and Exchange Law of R.O.C., treasury stock should not be
pledged, nor should it be entitled to voting rights or receiving dividends. 23. Capital reserve
According to R.O.C. Company Law, capital reserve can only be used for making up accumulated deficits if the legal reserve is insufficient for making up such deficits. Capital reserve derived from additional paid-in capital and donation from stockholders can also be used to increase common stock if CPT does not have accumulated deficits. The distribution of stock dividends can be made only once a year and cannot exceed 10% of issued capital.
24. Legal reserve
According to R.O.C. Company Law, CPT must retain at least 10% of its annual earnings as legal reserve until such reserve equals the amount of capital. Once the legal reserve equals one-half of the paid-in capital, 50% of the reserve may be transferred to common stock. The legal reserve can be used to make up deficit.
25. Special reserve
In accordance with R.O.C. Securities and Futures Bureau (“SFB”) regulations, a special reserve must be provided for unrealized loss on available-for-sale financial assets, excess of additional pension liability over unrecognized prior service cost and cumulative translation adjustment and unrealized loss for cash flow hedge that are accounted for as deductions to stockholders’ equity. Once the aforementioned deductions to stockholders’ equity are reversed, the related reserve can be reversed to distributable earnings.
26. Distributions of earnings and Dividends policy Pursuant to CPT’s Articles of Incorporation, current year’s earnings before tax, if any, shall be distributed in the following order: (a) payment of all taxes; (b) make up prior years’ operation losses; (c) set aside 10% of the remaining amount after deducting (a) and (b) as legal reserve; (d) set aside special reserve in accordance with local regulation or reverse special reserve
previously provided; and
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(e) after deduction of items (a), (b), (c) and (d) from current year’s earnings, the remaining is allocated as follows: no higher than 1% as directors’ and supervisors’ remuneration; 1%-10% as employees’ bonuses, and 90%-99% as distributable earnings.
CPT is engaged in high-tech industry and the cycle of high-tech industry is currently experiencing the growth stage. In order to expand scale and improve its strength to compete with other major companies in the world, CPT adopts a policy of residual dividends. CPT shall base its budget on capital expenditure and the demands of the funding, taking into account the balance of retained earnings, to determine dividends or bonuses provided; however, cash dividends shall not be less than 10% of the sum of the stock dividends and cash dividends and adjusted based on current year’s profit and future year’s funding demand.
On June 13, 2007, CPT’s stockholders resolved that capital reserve of $13,674,132 was used for making up accumulated deficits. On June 13, 2008, CPT’s stockholders had resolved to distribute earnings, the detail information was as follows: 2007 Amount Dividend per share Legal reserve $526,531 $- Cash dividends 3,792,384 0.4 Employees’ bonuses in cash 331,714 -
The appropriation of 2008 earnings has not yet been recommended by the Board of Directors as of the date of the Report of Independent Auditors. Information on the Board of Directors’ recommendations and stockholders’ approval can be obtained from the “Market Observation Post System” on the website of TSE. On April 6, 2009, CPT’s Board of Directors resolved to offset accumulated deficits as of December 31, 2008, with legal reserve and additional paid-in capital by $526,531 and $27,410, respectively.
27. Personnel, depreciation and amortization expenses
For the years ended December 31 2008 2007 Operating
cost Operating
expenses
Total Operating
cost Operating expenses
Total
Personnel expenses:
Salaries $6,859,156
$1,124,633
$7,983,789
$8,081,248
$1,316,430
$9,397,678
Staff labor/health insurance
326,961 55,186 382,147 351,403 58,449 409,852
Pension 441,788 114,362 556,150 415,769 81,165 496,934Other personnel expenses
238,639 121,276 359,915 258,696 80,196 338,892
Depreciation 24,928,379
464,777 25,393,156
24,847,145
490,491 25,337,636
Amortization 909,701 1,743,743 2,653,444 596,926 1,769,689 2,366,615
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28. Income tax (1) The consolidated income tax expense is calculated based on the relevant effective tax rate
applicable for each individual company’s location. The income tax for each consolidated entities shall be filed on an individual basis with the relevant country and shall not be filed on a consolidated basis.
(2) R.O.C. income tax authorities have examined the income tax returns of CPT through 2004. The
2001 and 2004 income tax return have been assessed by the tax authorities and loss carryforward, investment tax credit in research and development expenditure and income tax exemption in 2001 and 2004 had been decreased and therefore due to dispute in the eligibility of using research and development expenditure for tax deduction, an additional tax payable for 2004 of $46,659 was imposed. However, CPT disagreed with the outcome and had filed a tax appeal.
CPT believed that it will not have an adverse material effect on the financial statements and therefore has not accrued an additional tax liability. Furthermore, in prior year a valuation of allowance have been recorded against deferred tax assets for loss carryforward and investment tax credit in research and development expenditure; therefore, there is no significant impact on the current year income tax expense.
(3) There is no taxation charge on the profit of CPT for the year ended December 31, 2008 due to
the followings:
CPT was entitled to an income tax exemption for a period of five consecutive years for the income generated by sales of its TFT-LCD.
Details of CPT’s effective tax exemption periods are as follows:
Tax-exempted products Tax exemption period TFT-LCD 2004～2008 TFT-LCD 2008～2012 TFT-LCD 2010～2014 CF 2006～2012
(4) CPT obtained the approval letter for applying tax exemption in respect of setting its
headquarters in Taiwan.
(5) CPTF Optronics Co., Ltd., Chunghwa Picture Tubes (Wujiang) Ltd., CPT Display technology (Fujian) Ltd., CPTF Visual Display (Fuzhou) Ltd., CPT Display technology (Shen-Zhen) Ltd. and CPT TPV Optical (Fujian) Co., Ltd. are exempted from income tax in the first two profit making years, net of previous years’ losses, and allowed a 50% reduction in the next three years under the original PRC’s tax regulation. In addition, CPTF Optronics Co., Ltd. is entitled to a reduced tax rate of 10% as its annual value of export goods has reached 70% of the total annual production value.
Since 2008, PRC’s tax regulation has been modified. Enterprises which use 15% tax rate to calculate income tax have 5 years transition. Since 2008, the above enterprises are required to be levied an increasing income tax rate of by 2% annually. The enterprises which originally have the benefic of the income tax exemption continue to enjoy the benefic until the end of the tax-exemption period.
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(6) The provision for income tax expenses consists of the following: December 31 2008 2007 Income (loss) before income tax $(13,869,117) $8,754,901The tax effects of taxation adjustments:
Permanent differences and tax-exempt income (59,342) (551,469)Temporary differences 7,251,682 (633,096)Operating loss carryforward 6,676,777 (7,570,336)
Taxable income - -Income basic tax 5,995 51,548Income tax calculated by Alternative Minimum Tax Act (AMT) (5,995) (22,023)Income tax-current (note) - 29,525Income tax calculated by Alternative Minimum Tax Act (AMT) 5,995 22,023Income tax payable – deferred
Investment tax credits (341,072) (1,540,734)Operating loss carryforward (1,669,194) (1,931,460)Temporary differences (1,829,513) (176,816)
Valuation allowances 3,839,779 3,649,010Subtotal 5,995 51,548Income tax expenses resulting from Consolidated subsidiaries 214,943 144,112Income tax expenses $220,938 $195,660
Note: CPT will be subject to a 10% AMT if the income tax payable determined pursuant to the income tax law of R.O.C. is below the minimum amount prescribed under the AMT Act.
(7) Significant components of CPT’s deferred tax assets and liabilities as of December 31, 2008
and 2007 were as follows: December 31,
2008 2007
Components
Amount Income tax
effect
Amount Income tax
effect Deferred tax assets:
Investment tax credits $- $6,555,002 $- $6,213,930Allowance for bad debts 1,523,126 380,782 288,098 72,024Unrealized loss on decline in market
value and obsolescence of inventory 1,720,000 430,000 280,000 70,000
Unrealized loss on foreign currency exchange, net
1,082,995 270,749 116,389 29,097
Deferred credits 227,975 56,994 245,348 61,337Expense capitalization - - 7,750 1,938Deferred pension expense 1,537,689 384,422 1,392,431 348,108Operating loss carryforward 21,366,245 5,341,561 14,689,468 3,672,367Unrealized law – related expenses 2,400,000 600,000 - -Unrealized loss on available-for-sale
financial assets of overseas investee companies
2,442,671 610,668 906,174 226,544
Unrealized interest expenses on interest rate swap contracts
754,185 188,546 352,219 88,056
Subtotal 14,818,724 10,783,401Deferred tax assets resulting from
consolidated subsidiaries 3,776 57,393
Total $14,822,500 $10,840,794
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December 31, 2008 2007
Components
AmountIncome tax
effect
Amount Income tax
effect Deferred tax liabilities:
Overseas investment income accounted for under the equity method
$8,541,999 $(2,135,500) $10,009,781 $(2,502,445)
Cumulative translation adjustments 1,848,597 (462,150) 2,343,152 (585,789)Unrealized loss on financial assets and
liabilities at fair value through profit or loss, net
1,111,496 (277,874) 281,393 (70,348)
Unrealized gain on cash flow hedge - - 8,449 (2,112)Subtotal (2,875,524) (3,160,694)
Total $(2,875,524) $(3,160,694)
As of December 31, (8) 2008 2007 Deferred tax assets - current $5,858,592 $398,517
Valuation allowance - current (5,580,718) (325,095) Deferred tax assets - net - current 277,874 73,422 Deferred tax liabilities - current (277,874) (70,348) Net deferred tax assets - current $- $3,074
As of December 31,
(9) 2008 2007 Deferred tax assets - noncurrent $8,963,908 $10,442,277
Valuation allowance - noncurrent (7,575,373) (9,045,536) Deferred tax assets - net - noncurrent 1,388,535 1,396,741 Deferred tax liabilities - noncurrent (2,597,650) (3,090,346) Net deferred tax liabilities - noncurrent $(1,209,115) $(1,693,605)
(10) Details of unused investment tax credits and tax operating loss carryforward as of December
31, 2008 were as follows:
Regulation of R.O.C.
Item Tax credit Unused
tax credit Expiration
year Statute for Upgrading $274,125 $274,125 2012
Industries 535,341 535,341 2011 708,263 708,263 2010 4,901,006 4,901,006 2009
Investment tax credit in production equipment, research and developmentexpenditure, and employee
raining expenditure 136,267 136,267 2008
$6,555,002 $6,555,002
Income Tax Law Tax loss carryforward $6,786,474 $6,786,474 2018 13,479,893 13,479,893 2016 7,986,117 1,099,878 2015 $28,252,484 $21,366,245
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(11) The integrated income tax information of CPT is as follows: December 31, 2008 2007
Imputation credit account (ICA) $28,444 $85,339 Retained earnings (accumulated deficits) $(13,777,415) $5,265,309 Creditable ratio - 1.62%
29. Earnings (loss) per share
CPT’s capital structure is a complex structure. When calculating the potential common shares, the effect of convertible bonds and employees’ stock options is considered. However, these potential common shares were not included in the computation of diluted loss per share for the year ended 2008 due to their anti-dilutive effect and thereby the basic loss per share is equal to diluted loss per share.
For the year ended December 31, 2008 Amount Earnings (loss) per share
Net income
Net loss attributable to stockholders of the parent
company
Shares expressed
in thousands
Net income
Net income attributable to stockholders of the parent
company Loss per share-basic $(13,892,915) $(13,875,112) 9,449,716 $(1.47) $(1.47) Loss per share - diluted $(13,892,915) $(13,875,112) 9,449,716 $(1.47) $(1.47)
For the year ended December 31, 2007 Amount Earnings (loss) per share
Net income
Net income attributable
to stockholders of the parent
company
Shares expressed
in thousands
Net income
Net income attributable to stockholders of the parent
company Earnings per share - basic
$8,627,410 $8,703,353 8,562,625 $1.01 $1.02
Effect of dilutive potential shares
Convertible bonds 32,173 32,173 955,769 Stock options 24,532 Earnings per share - diluted
$$8,659,583 $8,735,526 9,542,926 $0.91 $0.92
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30. Technology and purchase agreement
Contracting party The term of the contract
The content of repayment
Technical agreement TFT-LCD
Advanced Display Inc. (ADI) April 1997 ｜
June 2010
1. CPT is required to pay licensing fees on installment basis for using the technologies.
2. CPT is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
3. ADI has the right to purchase no more than 15% of the total products from CPT at 90% of average selling price. CPT bears the shipping costs of the products to locations designated by ADI.
Sharp Corporation January 2002｜
June 2011
1. CPT is required to pay licensing fees (one time payment) for using the technologies.
2. CPT is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Hitachi Ltd. January 2003 ｜
December 2010
1. CPT is required to pay licensing fees on installment basis for using the technologies.
2. CPT is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Semiconductor Energy Laboratory Co., Ltd. (SEL)
January 2004｜
December 2008
1. CPT is required to pay licensing fees on installment basis for using the technologies.
2. CPT is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Industrial Technology Research Institute (ITRI)
May 2002 |
May 2009
CPT is required to pay licensing fees on installment basis for using the technologies.
Mitsubishi Electric Corporation and Advanced Display Inc.
During the patent period
beginning November 2002
CPT is required to pay licensing fees on installment basis for using the technologies.
Guardian Industries Corp. May 2006 |
1. CPT is required to pay licensing fees on installment basis for using the
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Contracting party
The term of the contract
The content of repayment
April 2011 technologies. 2. CPT is required to pay royalty fees
based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Toshiba Matsushita Display
Technology Co., Ltd. (‘ TMD’)
April 2007 |
February 2012
1. CPT is required to pay licensing fees on installment basis for using the technologies.
2. CPT is required to pay royalty fees based on a pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
LG. Display Co. Ltd. October 2007|
September 2014
CPT is required to pay royalty fees based on pre-determined percentage of net sales of the related products for continuing use of exclusive technology.
Purchase agreement Corning Display Technologies
Taiwan Co., Ltd (“Corning Taiwan”)
April 2005 ｜
March 2011
1. Corning Taiwan will guarantee to supply materials of TFT-LCD to CPT for 6 generation fabrication.
2. CPT is required to make prepayments on installment basis to Corning Taiwan to be deductible from subsequent purchase.
V. RELATED PARTY TRANSACTIONS
1. Name and relationship:
Name of related party Relationship with the Company
Tatung Co. The Company’s major stockholder and represented on the Company’s board of directors
Forward Electronics Co., Ltd. An investee accounted for under equity method
Toppan Chunghwa Electronics Co., Ltd. An investee accounted for under equity method
Giantplus Technology Co., Ltd. An investee accounted for under equity method
Xiamen Overseas Chinese Electronic Co., Ltd. An investee accounted for under equity method
Sintronic Technology Inc. An investee accounted for under equity method
Taiwan Telecommunication Industry Co., Ltd. Subsidiary of Tatung Co., Ltd. Tatung Fine Chemical Co., Ltd. Subsidiary of Tatung Co., Ltd. Shang Chih International Express Co., Ltd. Subsidiary of Tatung Co., Ltd.
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Name of related party
Relationship with the Company
Tatung-Fanuc Robotics Company Subsidiary of Tatung Co., Ltd. Tatung Co. of Japan, Inc. Subsidiary of Tatung Co., Ltd. Tatung (U.K.) Ltd. Subsidiary of Tatung Co., Ltd. Tatung (Thailand) Co., Ltd. Subsidiary of Tatung Co., Ltd. Tatung Co. of America, Inc. Subsidiary of Tatung Co., Ltd. Tatung Consumer Products (Taiwan) Co., Ltd. Subsidiary of Tatung Co., Ltd. Tatung System Technology Inc. Subsidiary of Tatung Co., Ltd. Tatung electronics (Singapore) Pte. Ltd. Subsidiary of Tatung Co., Ltd. Tatung Information (Singapore) Pte. Ltd. Subsidiary of Tatung Co., Ltd. Toes Opto-Mechatronics Co.,Ltd Subsidiary of Tatung Co., Ltd. Tatung Chungai Precious Metals Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Atherton Co. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Telecom Corporation An investee of Tatung Co., Ltd. accounted for
under equity method Tatung OTIS Elevator Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Kuender Company Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Okuma Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method Elitegroup Computer Systems Co., Ltd. An investee of Tatung Co., Ltd. accounted for
under equity method TIS Net Technology Inc. An investee of Tatung Co., Ltd. accounted for
under equity method Tatung Information Technology (Jiang Su)
Co., Ltd. Subsidiary of subsidiary of Tatung Co., Ltd.
Green Energy Technology Inc., Ltd. Subsidiary of subsidiary of Tatung Co., Ltd. Jean Co., Ltd. Chairman is one of the immediate family
members of the Company’s Chairman Jeffrey Investment Ltd. Subsidiary of Jean Co., Ltd. Jean (M) Sdn. Bhd., Malaysia Subsidiary of Jean Co., Ltd. K-tronics, Inc. Subsidiary of subsidiary of Jean Co., Ltd. Tatung University The major stockholder of Tatung Co., Ltd. Lin, Wei-Shan etc. (9 people) Directors of the CPT On, Tian-Fa etc. (5 people) Supervisors of the CPT Cion, Chuang-Yi etc. (11 people) Main Management of the CPT Tatung Co. The Company’s major stockholder and
represented on the Company’s board of directors
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2. Significant transactions with related parties: (1) Operating revenue
For the years ended December 31 2008 2007
Name of Related party Amount % Amount % Xiamen Overseas Chinese Electronic Co., Ltd. $3,798,817 3.21 $3,764,143 2.36Tatung Co. 2,207,818 1.86 5,659,868 3.55Tatung Information Technology (Jiang Su) Co., Ltd. 1,780,872 1.50 52,877 0.03Elitegroup Computer Systems Co., Ltd. 1,670,953 1.41 1,266,859 0.79Giantplus Technology Co., Ltd. 1,420,042 1.20 - - Jean Co., Ltd. 1,249,453 1.05 1,837,597 1.15Jeffrey Investment Ltd. 239,118 0.20 2,420,190 1.52K-tronics, Inc. 55,488 0.05 153,735 0.10Tatung Co. of America, Inc. - - 65,565 0.04Others 21,103 0.02 7,047 - Total $12,443,664 10.68 $15,227,881 9.54
There are no significant differences between selling prices to related parties and prices to arms length customers. The comparison of collection terms between related parties and arms length customers is summarized as follows:
For the years ended December 31, 2008 2007
Region Related Party Arms length customer
Related Party Arms length customer
Overseas O/A 90-120days
Cash payment with 30-90 days
L/C 30-65 days
O/A 90-120 days
Cash payment with 30-90 days
L/C 30-65 days At sight At sight R.O.C. Domestic O/A
90-120days Cash payment with
30-60 days At sight
O/A 90-120 days
Cash payment with 30-60 days
At sight
(2) Purchases For the years ended December 31, 2008 2007
Name of Related Party Amount % Amount % Giantplus Technology Co., Ltd. $1,609,101 1.41 $- Forward Electronics Co., Ltd. 374,342 0.33 216,538 0.16Suzhou Forward Electronics Technology Co., Ltd. 2,846,717 2.49 2,819,740 2.09Others 50,081 0.04 96,501 0.07Total $4,880,241 4.27 $3,132,779 2.32
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There are no significant differences between purchase prices from related parties and purchase prices from arms length suppliers. The comparison of terms of payment between related parties and arms length suppliers is summarized as follows:
For the years ended December 31, 2008 2007
Region
Related Party
Arms length supplier
Related Party
Arms length supplier
Overseas T/T 30-360 days
T/T 30-360 days L/C 30-180 days
T/T 30-360 days
T/T 30-360 daysL/C 30-180 days
R.O.C. Domestic 30-60days after QC
30-210 days after QC
30-60days after QC
30-210days after QC
(3) Fixed asset addition
For the years ended December 31, Name of Related party 2008 2007
Tatung Co., Ltd. $1,097,174 $81,442 Toes Opto-Mechatronics Co,. Ltd. 194,342 309,926 Tatung System Technology Inc. 30,225 22,053 Others 30,501 11,081 Total $1,352,242 $424,502
(4) Operating and manufacturing expenditures
(A) The expenditure incurred in connection with the purchase of materials, products or services from related parties amounted to $72,696 and $47,897 for the years ended December 31, 2008 and 2007, respectively.
(B) The Company purchased certain raw material, components and equipment from Japan through Tatung Co. of Japan, Inc., which charges the Company commissions for such services. The total raw material and equipment purchased through Tatung Co. of Japan, Inc. amounted to $2,795,750 and $2,085,193 for the years ended December 31, 2008 and 2007, respectively. The commission charged, included in the aforementioned purchase amount, amounted to $35,920 and $0 for the corresponding periods, respectively.
(5) Disposal on fixed asset and intellectual property rights The Company didn’t disposal of any fixed asset to related parties for the year ended December
31, 2007. The selling price and loss on sale of fixed asset disposed by CPT to Sintronic Technology Inc. amounted to $1,831 and $(272) for the year ended December 31, 2008. Note: Detail information regarding disposal of fixed asset and intellectual property rights to
Giantplus technology Co., Ltd. for the year ended December 31, 2008 is per Note 4(11).
(6) Notes receivable As of December 31, 2008 2007
Name of Related party Amount % Amount % Xiamen Overseas Chinese Electronic Co., Ltd. $- - $150,290 51.00
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(7) Due from affiliates - trade - net As of December 31, 2008 2007
Name of Related party Amount % Amount % Xiamen Overseas Chinese Electronic Co., Ltd. $2,352,463 15.33 $786,038 2.61Tatung Co. 1,254,055 8.17 1,869,212 6.20Elitegroup Computer Systems Co., Ltd. 358,865 2.34 88,975 0.29Giantplus Technology Co., Ltd. 189,273 1.23 - - Jean Co., Ltd. 123,322 0.80 377,300 1.25Jeffrey Investment Ltd. - - 74,609 0.25K-tronics, Inc. - - 48,824 0.16Others 30,006 0.19 29,192 0.10Total 4,307,984 28.06 3,274,150 10.86Allowance for doubtful accounts (266,000) (30,000) $4,041,984 $3,244,150
(8) Due from affiliates - others As of December 31, 2008 2007
Name of Related party Amount % Amount % General： Tatung Co. $- - $3,827 0.14Toppan Chunghwa Electronics Co., Ltd. 17,778 0.43 10,993 0.41Sintronic Technology Co., Ltd. 27,217 0.66 26,324 0.98Sintronics Technology (Suzhou) Co., Ltd. - - 26,394 0.98Giantplus Technology Co., Ltd. 714,828 17.40 - - Xiamen Overseas Chinese Electronic Co., Ltd. - - 141,463 5.25Financing： Xiamen Overseas Chinese Electronic Co., Ltd. 2,306,506 56.14 1,200,798 44.59Total $3,066,329 74.63 $1,409,799 52.35
(9) Long-term receivable-related party
As of December 31, 2008 2007
Name of related party Amount % Amount % Giantplus Technology Co., Ltd. $560,063 100.00 $- -
(10) Due to affiliates – trade
As of December 31, 2008 2007
Name of related party Amount % Amount % Tatung Co. of Japan, Inc. $1,111,371 6.48 $1,758,056 5.73Suzhou Forward Electronics Technology Co., Ltd. 1,026,402 5.98 1,043,042 3.40Elitegroup Computer Systems Co., Ltd. 174,474 1.02 - - Giantplus Technology Co., Ltd. 130,286 0.76 - - Others 103,555 0.60 65,723 0.21Total $2,546,088 14.84 $2,866,821 9.34
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(11) Due to affiliates - others As of December 31,
2008 2007 Name of related party Amount % Amount %
Tatung Co. $330,607 9.58 $- - Toes Opto-Mechatronics Co., Ltd. 96,652 2.80 65,293 Tatung Co. of Japan, Inc. 78,638 2.28 125,690 9.80Tatung System Technology Inc. 14,569 0.42 - - Others 2,097 0.06 3,354 0.26Total $522,563 15.14 $194,337 15.15
(12) Deferred credit
As of December 31, 2008 2007
Name of related party Amount % Amount % Giantplus Technology Co., Ltd. $1,018,341 100.00 $- - Sintronic Technology Co., Ltd. - - 228 100.00Total $1,018,341 100.00 $228 100.00
(13) Certain of the long-term bank loans were jointly guaranteed by the Chairman of CPT. Please
refer to note 4 (18). (14) CPT leased portions of its plants to Toppan Chunghwa Electronics Co., Ltd. That rental
revenue of $39,194 and $30,678 for the years ended December 31, 2008 and 2007, respectively. The related receivables (recorded in due from affiliates-others) were $17,778 and $10,993 as of December 31, 2008 and 2007, respectively. In addition, CPT charged Toppan Chunghwa Electronics Co., Ltd. management fee of $93,595 and $87,041 for the years ended December 31, 2008 and 2007, respectively, which were recorded as a deduction of operating expense.
(15) CPT leased portions of its plants to Sintronic Technology Inc. That rental revenue of $25,493
and $34,424 for the years ended December 31, 2008 and 2007, respectively. The related receivables (recorded in due from affiliates-others) were $14,548 and $26,324 as of December 31, 2008 and 2007, respectively. In addition, CPT charged Sintronic Technology Inc. management fee of $48,365 and $41,479 for the years ended December 31, 2008 and 2007, respectively, which were recorded as a deduction of operating expense.
(16) CPT sold its investment in associated companies, Shang Chih Investment Co., Ltd. to Tatung
Co. in third quarter of 2007. The selling price and gain on disposal of investments amounted to $59,400 and $114,789, respectively.
(17) Information of Remunerations for the main management:
The main management of CPT contains the chairman, supervisor and vice-president. The payment of salaries, prize, special expenses and bonuses for the main management amounted to $66,617 and $101,435 for the years ended December 31, 2008 and 2007, respectively. The detailed information of management’s remunerations is in the annual report of stockholders’ meeting.
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VI. ASSETS PLEDGED OR MORTGAGED As of December 31, 2008 and 2007, the following assets were mortgaged to several banks, customs and government agencies as collateral for bank loans, credit facilities and other purposes:
Carrying amount As of December 31,
Accounts Purpose 2008 2007 Machinery, equipment collateral for bank loans $43,871,943 $54,483,867Building collateral for bank loans 4,037,915 5,524,454 Pledged time deposit collateral for building 1,276,115 394,661 Total $49,185,973 $60,402,982
VII. COMMITMENTS AND CONTINGENCIES
General matters: As of December 31, 2008, the following commitments and contingencies were not reflected in above consolidated financial statements:
1. Unused letters of credit of CPT were approximately USD 330, JPY 240,232, and CHF 790 as of December 31, 2008.
2. CPT issued promissory notes are as follows: Items Amount
Bank loans NT$52,023,244 US$373,500
Account receivable factoring US$90,000 Employee’s dormitory NT$1,500
The promissory notes for accounts receivable factoring above was terminated on March 12, 2009
3. CPT leases land from the Central Taiwan Science Park. The term of lease agreement is from May 15, 2006 to December 31, 2025. Due to TFT-LCD market downturn, the aforementioned lease has been ceased temporarily in December 2006. However, CPT is applying to obtain another leased land in process.
4. Legal process:
CPT currently involved in certain lawsuits is summary as follow:
(1) Anvik Corporation and related matters: In February 2007, Anvik Corporation filed a patent infringement suit in the United States District Court of New York against CPT, Tatung Company and Tatung Company of America (the “Tatung Companies”). The lawsuit alleged CPT and Tatung Companies of using the photo-masking equipment and the patented methods performed by such system in producing TFT-LCD panel without permission. CPT contested that CPT had no presence, transacted business or directed product in New York State that related to the claim. However the Court has not yet made any ruling on the matter.
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(2) Honeywell International Inc and Honeywell Intellectual Properties Inc related matters: In March 2007, CPT has been sued for patent infringement involving the driver IC outsourced from other component suppliers by Honeywell International Inc. and Honeywell Intellectual Properties Inc. CPT intends to vigorously defend the action. The lawsuit has been settled out of court in the second conciliation procedures on April 7, 2009. CPT has agreed to pay US $350 to settle the case.
Antitrust: From December 2006 to February 2007, CPT received notices together with other competitive companies under investigation by the Antitrust Division of the U.S. Department of Justice (D.O.J.), European Commission (“EC”), Canadian Bureau of Competition (“CBC”), and Japan Fair Trade Commission (“JFTC”) for involving in price-fixing behavior in the TFT-LCD industry. During November 2007, CPT received plaint of antitrust civil class action for CRT and a criminal summons from the U.S. Department of Justice (D.O.J.), which accused CPT together with other companies had been involved in price-fixing and supply-controlling. Therefore, CPT has been under investigation with the Antitrust Act. On November 13, CPT made the compromise with D.O.J and agreed to pay US$65,000 in 6 installments. (previous 5 installments of US$11,000 and final installment of US$10,000) CPT has engaged legal representatives to defend the above suits and believes that these suits will not have a material adverse effect on CPT’s result of operations or financial condition.
VIII. SIGNIFICANT DISASTER LOSS NONE.
IX. SIGNIFICANT SUBSEQUENT EVENTS
NONE.
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X. Financial Instruments 1. Fair value of financial instruments:
December 31, 2008 Fair value
Non-derivative
Carrying amount
Determined by quoted
price
Determined by valuation
technique Financial assets:
Cash and cash in bank $20,679,665 $20,679,665 $-Financial assets at fair value through profit or
loss - current 245,028 245,028 -
Investment in debt securities with no active market - current
87,123 - 87,123
Notes and accounts receivable, net 18,090,829 - 18,090,829Available-for-sale financial assets - non-current
2,252,239 2,252,239 -
Long-term investment under equity method 6,253,369 2,529,743 809,013Financial assets carried at cost - non-current 489,360 - 489,360Pledged time deposits 1,276,115 - 1,276,115Refundable deposits 94,324 - 94,324Investment in debt securities with no active market noncurrent
38,525 - 38,525
Financial liabilities: Short-term bank loans 13,677,872 - 13,677,872Payable 27,185,897 - 27,185,897Bonds payable (including current portion) 11,538,301 - 14,028,743Long-term bank loans (including current portion) 45,437,232 - 45,437,232Long-term payable 317,411 - 317,411
December 31, 2008
Fair value
Derivative
Carrying amount
Determined by quoted
price
Determined by valuation
technique Financial assets: Financial assets at fair value through profit or
loss:
Foreign currency forward exchange contracts $144,243 $- $144,243 Domestic convertible bonds 543,991 - 543,991
Convertible bonds 120,830 - 120,830
Financial liabilities: Financial liabilities at fair value through profit
or loss:
Liability components of convertible bonds-embedded derivative contract
380,183 - 380,183
Interest rate swap contracts 229,082 - 229,082Derivative financial liabilities for hedging:
Interest rate swap contracts 26,496 - 26,496
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December 31, 2007 Fair value
Non-derivative
Carrying amount
Determined by quoted
price
Determined by valuation technique
Financial assets: Cash and cash in bank $27,207,618 $27,207,618 $- Financial assets at fair value through profit
or loss - current 1,343,856 1,343,856 - Investment in debt securities with no active
market-current 170,294 - 170,294 Notes and accounts receivables, net 32,585,947 - 32,585,947 Available-for-sale financial assets - non - current 4,199,047 4,199,047 - Long-term investment under equity method 2,712,619 3,941,087 1,369,879 Financial assets carried at cost - non - current 470,698 - 470,698 Pledged time deposits 394,661 - 394,661 Refundable deposits 98,778 - 98,778
Financial liabilities: Short-term bank loans 5,034,639 - 5,034,639 Payables 42,356,966 - 42,356,966 Bonds payable (including current portion) 3,747,919 - 3,520,802 Long-term bank loans (including current portion) 68,470,209 - 68,470,209 Long-term payable 345,735 345,735
Derivative
Financial assets: Financial assets at fair value through profit or
loss: Foreign currency forward exchange contracts $141,594 $- $141,594 Domestic convertible bonds 692,861 652,861 40,000
Financial assets carried at cost: Convertible bonds 229,706 - 229,706
Derivative financial assets for hedging: Interest rate swap contracts 93,279 - 93,279
Financial liabilities: Financial liabilities at fair value through
profit or loss:
Liability components of convertible bonds-embedded derivative contract
1,614,104 - 1,614,104
Derivative financial liabilities for hedging: Interest rate swap contracts 6,500 - 6,500
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The methods and assumptions used by the Company to determine the above fair value of financial instruments are as follows:
(1) The carrying value of short-term financial instruments, such as cash and cash in bank, receivables, short-term bank loans and payables approximate fair value because of short maturity of these instruments.
(2) The fair values of financial assets at fair value through profit or loss, such as listed equity
securities, open-end mutual funds and available-for-sale financial assets are based on their quoted market price or the net asset value per unit. If there is no quoted price, the Company uses the valuation method to estimate their fair value.
(3) The fair values of investment in debt securities with no active market and long-term investment
are based on market values if they have quoted price, such as listed companies. If quoted price is not obtainable, then the fair values are estimated based on their financial information.
(4) The fair values of pledged time deposits, refundable deposits and long-term payment are based
on their book values which approximate present value.
(5) The fair values of long-term bank loans due within one year approximate carrying amount as loans bear interest at variable rates. The fair values of the non-current portion of the loans are determined based on the discounted future cash flows. The discount rate used is the interest rate for bank loans with similar terms and conditions. The fair values of convertible bonds are determined based on their market price which was provided by financial institution.
(6) The fair values of derivative financial instruments were based on valuation techniques
provided by the financial institution.
(7) As of and for the years ended December 31, 2008 and 2007, the derivative instruments for hedging but failed to meet the criteria of hedge accounting were classified as held for trading and the related gain or loss reported in earnings is as follows:
December 31
Items 2008 2007 Financial assets held for trading - current $144,243 $141,594
For the year ended December 31
Items 2008 2007 Valuation Gain on financial assets at fair value through profit or loss
$144,243 $141,594
2. Financial risk management and hedging strategy:
Financial risk: Besides derivative financial instruments, the Company held other kinds of financial instruments for its capital demand such as short-term and long-term bank loans, bonds payable,
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cash and cash in bank, receivable and payable arising from operating activities. The Company made transactions of derivatives, such as interest rate swap and forward contracts of foreign currency in order to hedge the interest rate and exchange rate risk arising from financing with the banks. The Company’s financial instruments are mainly exposed to the following financial risks: cash flow risk on interest, market risk, credit risk, and liquidity risk. The risk management policy is as follows:
(1) Cash flow risk on interest The Company’s long-term bank loans are subject to floating interest rate and therefore exposed to the risk that the future cash flows will fluctuate because of changes in market interest rates. The derivative financial instruments are used to hedge floating interest rate of long-term bank loans. As of December 31, 2008 and 2007, the expected cash flows of derivative financial instruments were as follows:
Financial Instruments Period Cash outflow Cash inflow
2008.12.31 Interest rate swap contracts April 2009 ~ March 2010 $441,685 $264,555 2007.12.31 Interest rate swap contracts January 2008 ~ March 2010 $276,888 $329,758
Note: The interest swap portion is calculated based on the latest floating interest rate specified in the contract.
(2) Market risk
Market risk is a potential loss arising from adverse movements of market price, such interest rates, exchange rates and equity securities. Investment in equity financial instruments owned by the Company and Zero coupon Convertible Bonds issued are both exposed to market price risk and interest rate risk. In addition, open-end mutual funds and listed equity securities of the Company, managed by professional or reputable financial institutes (the Company has entered into investment management agreements with fund managers), were categorized as financial assets at fair value through profit or loss for trading purpose.
The Company operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to New Taiwan Dollars. Gains or losses due to changes in foreign exchange rates will be offset by foreign monetary assets and liabilities accordingly. In addition, the Company also entered into foreign currency forward exchange contracts to hedge the risk.
(3) Credit risk Credit risk is the risk that counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The credit risk of the Company consists principally of investment in listed equity securities, mutual funds, convertible bonds and trade receivables. The credit risk is considered minimal by only depositing cash with
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reputable financial institutions and diversification of credit risk to mitigate financial loss through potential counterparty failure. Investments of funds are made only with companies with high credit rating and the investments are also diversified to reduced concentration of credit risks.
The majority of the Company’s trade receivables are derived from sales to original design manufacturing or reputable companies. There are also policies of the Company to provide allowance for outstanding accounts and the Company regularly reviews them.
(4) Liquidity risk
Liquidity risk is the risk of unable to settle the contracts on schedule. As of December 31,2008, current liabilities of the Company exceeded current assets and liquidity risk is depended on whether the Company could obtain enough funding from operation growth. However, the Company controls its cash position by regularly monitoring suitable fund-raising channel or receivables factoring. Since the Company’s financial assets at fair value through profit or loss or available-for-sale financial assets all have active market, the Company should be able to liquidate them for cash at a price approximating their fair value.
Measurement of effectiveness of hedge relationship: The Company entered into interest rate swap contracts to hedge exposures from the impact of interest rate changes primarily arising from its borrowing activities in New Taiwan dollars at floating rates. All above derivative instruments are designated as cash flow hedge.
As of December 31, 2008, the designation of cash flow hedging instruments is as follows:
Item Instruments for Hedging
Fair Value Maturity Period
NTD long-term bank loans with floating rate
Interest rate swap contracts
$(26,496) 2009~2010
As of December 31, 2007, the designation of cash flow hedging instruments is as follows:
Item Instruments for Hedging
Fair Value Maturity Period
NTD long-term bank loans with floating rate
Interest rate swap contracts
$78,682 2008~2010
Gain or loss generated from cash flow hedging instruments was recognized as adjustments in equity accounts as follows:
Item December 31, 2008 December 31, 2007 Adjustment in equity account $105,178 $95,418
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3. Information of derivative financial instruments as of December 31, 2008 and 2007 as follows: Embedded derivatives of compound financial instrument:
contract amount or notional amount Item December 31, 2008 December 31, 2007
Financial assets held for trading Domestic Convertible Bonds - option $120,830 $- Financial assets at fair value through profit or loss Domestic Convertible Bonds – Listed stock $330,319 $414,442 Financial assets carried at cost Domestic Convertible Bonds - option $1,475 $229,706
The convertible bonds of CPT are hybrid financial instruments with embedded derivatives that are not clearly and closely related to the host contracts. However because CPT is unable to measure the embedded derivative separately at acquisition, the fair value of the embedded derivative is the difference between the fair value of the hybrid instrument and the fair value of the host contract, or CPT designates the entire hybrid contract as at fair value through profit or loss. Foreign currency forward exchange contracts: December 31, 2008
contract amount or notional amount Maturity period Buy USD / Sell NTD US$36,750 2009.07 - 2010.07 Buy NTD / Sell USD US$11,000 2009.01 Buy JPY / Sell USD US$34,000 2009.01~2009.04
December 31, 2007
contract amount or notional amount Maturity period Buy USD / Sell NTD US$61,250 2008.07 - 2010.07
Interest rate swap transactions:
Maturity period
Contract amount or notional amount
Payable on Fixed Interest Rate
Receivables on FloatingInterest Rate
December 31, 2008 2009.04~2010.03 $9,500,000 1.39%~3.49% 2.22%~2.32% 2009.04~2010.03 $10,100,000 1.65%~3.98% 2.23%~2.31% December 31, 2007 2009.04~2010.3 $9,500,000 1.39%~2.34% 2.21%~2.26% 2009.04~2010.3 $10,100,000 3.21%~5.70% 2.19%~2.22%
4. Derivative financial instruments transaction of investees:
As of December 31, 2008 and 2007, the information of derivative financial instruments transaction of investee were as follow:
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Grand Cathy International Asset Management Co., Ltd. Embedded derivatives of compound financial instrument:
Contract amount or notional amount Item December 31, 2008 December 31, 2007
Financial assets at fair value through profit or loss Domestic convertible bonds-listed company $213,672 $247,312
CPTF Optronics Co., Ltd. Interest rate swaps transactions: December 31, 2008: None.
Maturity period
Contract amount or notional amount
Payable on Fixed Interest Rate
Receivables on FloatingInterest Rate
December 31, 2007 March 2008~March 2010 US$30,000 4.08%~4.28% 6.07%~6.26% The investee company entered into interest rate swap contracts to hedge exposures from the impact of interest rate changes primarily arising from its borrowing activities. All above derivative instruments are designated to hedge the abovementioned risk.
As of December 31, 2007, the expected cash flows of derivative financial instruments were as follows:
Financial Instruments Period Cash outflow Cash inflow Interest rate swap contracts January 2008 ~ March 2010 RMB 14,168 RMB 20,884
Note: The interest swap portion is calculated based on the latest floating interest rate specified in the contract.
CPT TPV Optical Co., Ltd. Foreign currency forward exchange contracts: December 31, 2008: None. Financial instruments Contract amount or notional amount Maturity period December 31, 2007 Buy USD/ Sell RMB US$6,000 2008.01~2008.06
Chunghwa P. T. Display Technology (Fujian) Ltd. Foreign currency forward exchange contracts: December 31, 2008: None.
Financial Instruments Contract amount or notional amount Maturity period December 31, 2007 Buy USD/ Sell RMB US$1,000 2008.01 The investee company entered into foreign currency forward exchange contracts and designated them under fair value hedge, in order to hedge exposures from foreign currency exchange rate risk arising from assets or liabilities denominated in foreign currencies (market price risk).
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5. Reclassified financial assets information: (1) The amount and reason for reclassifications of financial assets
Some of the CPT’s financial assets classified as held-for-trading are no longer for near-term trading, but did not meet the definition of loans and receivables. However based on the relevant guidance issued by International Accounting Standard Board, Financial Supervisory Commission and Accounting Research and Development Foundation, CPT believes that the recent international and domestic economy condition had constituted “the rare circumstances” described by the reclassification amendments in R.O.C. SFAS No. 34, thus CPT reclassified some financial assets originally classified held for trading to available-for-sale category, amounted to $1,136,164.
(2) The book value and fair value of reclassified financial assets as follows:
Book value Fair value Available-for-sale financial assets $621,884 $621,884
(3) The amount of fair value movement of financial assets reclassified recognized in profit or loss
or stockholders’ equity is as follows: $(644,002) was recognized in profit or (loss) for the year ended December 31, 2008, for financial assets reclassified.
(4) The fair value movement of financial assets reclassified but not yet derecognized is as follows: Originally classified as financial assets held for trading
Amount recognized in profit (loss) before reclassification
Amount recognized in profit (loss) after reclassification
For the year ended December 31, 2008 $(1,227,280) $(644,002)
6. Other
Certain comparative amounts have been reclassified to conform to the current year’s presentation.
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