opto tech corporation and report of independent … · 2011-06-30 · accumulated impairment (...
TRANSCRIPT
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OPTO TECH CORPORATION
FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT ACCOUNTANTS
DECEMBER 31, 2010 AND 2009
For the convenience of readers and for information purpose only, the auditors’ report and the
accompanying financial statements have been translated into English from the original Chinese version
prepared and used in the Republic of China. In the event of any discrepancy between the English
version and the original Chinese version or any differences in the interpretation of the two versions, the
Chinese-language auditors’ report and financial statements shall prevail.
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Report of Independent Accountants Translated from Chinese
(10)PWCR10003754
To the Board of Directors and Stockholders of Opto Tech Corporation
We have audited the accompanying balance sheets of Opto Tech Corporation as of December 31, 2010 and
2009, and the related statements of income, of changes in stockholders’ equity, and of cash flows for the years
then ended. 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.
We conducted our audits in accordance with the “Rules Governing the Examination of Financial
Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China.
Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Opto Tech Corporation as of December 31, 2010 and 2009, and the results of its operations
and its cash flows for the years then ended in conformity with the “Rules Governing the Preparation of
Financial Statements by Securities Issuers”, “Business Entity Accounting Law”, “Regulation on Business Entity
Accounting Handling” and generally accepted accounting principles in the Republic of China.
As discussed in Note 3 to the financial statements, effective January 1, 2009, the Company adopted the
amendments to R.O.C. SFAS No. 10, “Accounting for Inventories”.
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The Company has also prepared consolidated financial statements of Opto Tech Corporation and its
subsidiaries (not presented herein) as of and for the years ended December 31, 2010 and 2009. In our report
dated March 24, 2011, we expressed an unqualified opinion with explanatory paragraph on those consolidated
financial statements.
PricewaterhouseCoopers, Taiwan
March 24, 2011
The accompanying financial statements are not intended to present the financial position and results of operations and cash flows of the Company in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.
As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.
2010 2009 2010 2009ASSETS LIABILITIES AND STOCKHOLDERS' EQUITYCurrent Assets Current Liabilities Cash and cash equivalents (Note 4(1)) 2,655,171$ 2,928,311$ Short-term loans (Note 4(10)) 501,274$ 871,795$ Financial assets at fair value through profit or loss - current (Note 4(2)) 300,694 50,304 Financial liabilities at fair value through profit or loss - current (Note 4(2) 39 - Notes receivable - net 24,458 30,285 Notes payable 24,710 13,585 Notes receivable - related parties - net (Note 5) 489 - Accounts payable 931,350 727,348 Accounts receivable - net (Note 4(3)) 1,883,359 1,660,842 Accounts payable - related parties (Note 5) 798,395 628,423 Accounts receivable - related parties - net (Note 5) 167,827 185,547 Income tax payable (Note 4(18)) 17,103 - Other receivables (Note 4(18)) 22,024 11,735 Accrued expenses 368,336 236,877 Other receivables - related parties (Note 5) - 83,710 Other payables 96,935 48,053 Other financial assets - current (Note 6) 141,470 16,962 Unearned revenue collected in advance (Note 5) 27,591 58,855 Inventories - net (Note 4(4)) 1,350,533 1,077,622 Long-term liabilities - current portion (Note 4(11)) 660,714 335,714 Prepaid expenses 2,886 17,689 Other current liabilities 35,255 29,584 Prepayments 10,955 17,048 Total current liabilities 3,461,702 2,950,234 Deferred income tax assets - current (Note 4(18)) 52,119 66,890 Other current assets 3,067 2,614 Long-term Liability Total current assets 6,615,052 6,149,559 Long-term loans (Notes 4(11), 6 and 7) 1,266,272 1,914,886
1,266,272 1,914,886 Funds and Investments Available-for-sale financial assets - non-current (Note 4(5) 79,849 109,579 Other Liabilities Financial assets carried at cost - non-current (Note 4(6)) 573,262 580,738 Accrued pension liabilities (Note 4(12)) 149,089 109,573 Long-term investments - accounted for under the equity method (Note 4(7) 1,126,525 1,074,345 Guarantee deposits 50 76 Total funds and investments 1,779,636 1,764,662 Other liabilities - others(Note 4(7)) 4,126 90,901
Total other liabilities 153,265 200,550
Property, Plant and Equipment (Notes 4(8), 5 and 6) TOTAL LIABILITIES 4,881,239 5,065,670 Cost Land - 12,493 Stockholders' Equity Buildings 1,708,415 1,725,202 Capital Machinery 3,234,201 3,328,351 Common stock (Notes 4(13)(17)) 5,490,051 5,456,783 Utility facilities 954,340 939,806 Capital Reserves (Note 4(14)) Pollution prevention equipment 618,998 609,430 Paid-in capital in excess of par 315,058 304,558 Transportation equipment 4,751 6,223 Additional paid-in capital - treasury stock transactions (Note 4(16)) 60,625 60,625 Office equipment 47,550 74,581 Capital reserve from long-term investments 106,819 57,419 Other equipment 1,418,349 1,406,940 Capital reserve from employee stock options (Note 4(17)) 75,639 41,988 Cost and revaluation increments 7,986,604 8,103,026 Retained Earnings Less: Accumulated depreciation 5,339,008)( 5,239,886)( Legal reserve 148,030 126,982 Accumulated impairment 9,314)( 8,832)( Special reserve 42,914 113,890 Construction in progress and prepayments for equipment 445,086 153,261 Unappropriated earnings (Notes 4(15)(18)) 1,015,299 456,692 Total property, plant and equipment 3,083,368 3,007,569 Other Adjustments to Stockholders' Equity
Cumulative translation adjustments 7,678)( 65,466 Intangible asset Unrecognized pension cost (Note 4(12)) 93,124)( 59,214)( Deferred pension costs (Note 4(12)) 2,182 2,400 Unrealized gain or loss on available-for-sale financial assets (Note 4(5)) 52,220)( 25,371)(
Treasury stock (Note 4(16)) 26,699)( 26,699)(
Other assets TOTAL STOCKHOLDERS' EQUITY 7,074,714 6,573,119 Idle assets (Note 4(9)) 108,212 245,861 Deposits out 10,443 8,780 Commitments and Contingent Liabilities (Note 7) Deferred expenses (Note 5) 23,154 37,308 Deferred income tax assets - non-current (Note 4(18)) 333,906 422,650 Total other assets 475,715 714,599
TOTAL ASSETS 11,955,953$ 11,638,789$ TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY 11,955,953$ 11,638,789$
The accompanying notes are an integral part of these financial statementsSee report of independent accountants dated March 24, 2011.
OPTO TECH CORPORATIONBALANCE SHEETS
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)DECEMBER 31,
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OPTO TECH CORPORATION STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)
2010 2009
The accompanying notes are an integral part of these financial statements. See report of independent accountants dated March 24, 2011.
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Operating Revenues
Sales revenue $ 7,403,390 $ 5,348,973
Sales returns ( 11,573) ( 84,918)
Sales discounts ( 80,396) ( 84,847)
Net sales revenue (Note 5) 7,311,421 5,179,208
Other operating revenues 362,232 228,400
Total operating revenues 7,673,653 5,407,608
Operating Costs Cost of goods sold (Notes 4(4)(20) and 5) ( 5,503,286) ( 4,135,673)
Other operating costs ( 284,023) ( 187,906)
Total operating costs ( 5,787,309) ( 4,323,579)
Gross profit 1,886,344 1,084,029
Unrealized gain from intercompany transactions ( 4,125) ( 938)
Realized gain from intercompany transactions 938 2,410
Gross profit, net 1,883,157 1,085,501
Operating Expenses (Note 4(20)) Selling expenses ( 268,213) ( 123,576)
General and administrative expenses ( 606,197) ( 491,257)
Research and development expenses ( 155,995) ( 131,916)
Total operating expenses ( 1,030,405) ( 746,749)
Operating income 852,752 338,752
Non-operating income and gains Interest income 8,451 4,605
Investment income accounted for under the equity method (Note 4(7)) 108,705 -
Dividend income 6,981 9,414
Gain on sale of investments 408 5,560
Foreign exchange gain - 6,342
Gain on valuation of financial assets 391 -
Miscellaneous income (Note 5) 17,438 75,243
Total non-operating income and gains 142,374 101,164
Non-operating expenses and losses Interest expense ( 37,151) ( 45,863)
Investment loss accounted for under the equity method (Note 4(7)) - ( 58,284)
Other investment loss (Note 4(6)) ( 7,476) ( 2,794)
Loss on disposal of property, plant and equipment ( 5,778) ( 3,890)
Foreign exchange loss ( 86,908) -
Financing charges ( 2,500) ( 2,467)
Depreciation of idle assets ( 1,150) ( 4,177)
Impairment loss ( 42,685) ( 17,255)
Loss on valuation of financial assets - ( 1,834)
Loss on valuation of financial liabilities ( 39) -
Miscellaneous losses ( 929) ( 5,615)
Total non-operating expenses and losses ( 184,616) ( 142,179)
Income before income tax 810,510 297,737
Income tax expense (Note 4(18)) ( 122,395) ( 87,257)
Net income $ 688,115 $ 210,480
Before Tax After Tax Before Tax After Tax Basic earnings per share (Note 4(19))
Net income $ 1.48 $ 1.26 $ 0.57 $ 0.40
Diluted earnings per share (Note 4(19)) Net income $ 1.47 $ 1.25 $ 0.57 $ 0.40
Pro forma information based on the assumption that the Company’s shares held by its subsidiary are not treated as treasury stocks: Net income $ 801,873 $ 679,478 $ 317,170 $ 229,913
Basic earnings per share Net income $ 1.47 $ 1.24 $ 0.60 $ 0.44
Diluted earnings per share Net income $ 1.45 $ 1.23 $ 0.60 $ 0.44
OPTO TECH CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Capital Reserves Retained Earnings Other Adjustments to Stockholders’ Equity
Common stock
Paid-in capital in
excess of par
Additional paid-in capital - treasury stock transactions
Capital reserve from
long-term investments
Capital reserve from
employee stock
options Legal
reserve Special reserve
Unappropriated earnings
Unrealized gain or loss on
available-for-sale financial
assets
Cumulative translation
adjustments Unrecognized pension cost
Treasury stock
Total
Note 1: Directors'and supervisors’ remuneration of $8,183 and employees’ bonuses of $24,551 have been deducted from the statement of income. Note 2: Directors'and supervisors’ remuneration of $8,535 and employees’ bonuses of $25,605 have been deducted from the statement of income.
The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated March 24, 2011.
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Balance at January 1, 2009 $ 5,237,448 $ 89,417 $ 60,625 $ 60,315 $ 21,585 $ 92,095 $ 7,012 $ 518,913 ( $ 109,672 ) $ 86,300 ( $ 31,425) ( $ 26,699) $ 6,005,914 Distribution of 2008 earnings:
(Note 1) Legal reserve - - - - - 34,887 - ( 34,887) - - - - - Special reserve - - - - - - 106,878 ( 106,878) - - - - - Cash dividends - - - - - - - ( 130,936) - - - - ( 130,936) Changes in equity of investees
accounted for under the equity method:
Changes in capital reserve - - - ( 2,896) - - - - - - - - ( 2,896) Changes in cumulative
translation adjustments - - - - - - - - - ( 20,834) - - ( 20,834) Exercise of employee stock
options 32,255 - - - 20,403 - - - - - - - 52,658 Proceeds from capital increase
by cash 187,080 215,141 - - - - - - - - - - 402,221 Change in net loss on
unrecognized pension cost - - - - - - - - - - ( 27,789) - ( 27,789) Change in unrealized gain or
loss on available-for-sale financial assets - - - - - - - - 84,301 - - - 84,301
Net income for 2009 - - - - - - - 210,480 - - - - 210,480 Balance at December 31, 2009 $ 5,456,783 $ 304,558 $ 60,625 $ 57,419 $ 41,988 $ 126,982 $ 113,890 $ 456,692 ( $ 25,371 ) $ 65,466 ( $ 59,214) ( $ 26,699) $ 6,573,119 Balance at January 1, 2010 $ 5,456,783 $ 304,558 $ 60,625 $ 57,419 $ 41,988 $ 126,982 $ 113,890 $ 456,692 ( $ 25,371 ) $ 65,466 ( $ 59,214) ( $ 26,699) $ 6,573,119 Distribution of 2009 earnings:
(Note 2) Legal reserve - - - - - 21,048 - ( 21,048) - - - - - Special reserve - - - - - - ( 70,976) 70,976 - - - - - Cash dividends - - - - - - - ( 136,559) - - - - ( 136,559) Changes in equity of investees
accounted for under the equity method: Changes in capital reserve - - - 49,400 - - - - - - - - 49,400
Changes in cumulative translation adjustments - - - - - - - - - ( 73,144) - - ( 73,144)
Offset amount of retained earnings due to the insufficiency of recognized additional paid-in capital of investees - - - - - - - ( 42,877) - - - - ( 42,877)
Exercise of employee stock options 23,268 - - - 33,651 - - - - - - - 56,919
Increase in capital by cash infusion 10,000 10,500 - - - - - - - - - - 20,500
Change in net loss on unrecognized pension cost - - - - - - - - - - ( 33,910) - ( 33,910)
Change in unrealized gain or loss on available-for-sale financial assets - - - - - - - - ( 26,849 ) - - - ( 26,849)
Net income for 2010 - - - - - - - 688,115 - - - - 688,115 Balance at December 31, 2010 $ 5,490,051 $ 315,058 $ 60,625 $ 106,819 $ 75,639 $148,030 $ 42,914 $ 1,015,299 ( $ 52,220 ) ( $ 7,678) ( $ 93,124) ( $ 26,699) $ 7,074,714
OPTO TECH CORPORATION STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
2010 2009
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CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 688,115 $ 210,480
Adjustments to reconcile net income to net cash provided by operating activities
Bad debts expense (recovery of bad debts expense) 68,465 ( 57,615)
Depreciation of property, plant and equipment 502,494 504,313
Depreciation of idle assets 1,150 4,177
Amortization 21,209 24,192 Investment (income) loss accounted for under equity method
and cash dividends received ( 100,134) 65,493 Net (income) loss on valuation of financial assets and
liabilities ( 352) 1,834
Gain on price recovery of inventories ( 90,154) ( 73,112)
Reclassification to financial charges from deferred expenses 1,650 1,516
Impairment loss 42,685 17,255
Other investment loss 7,476 2,794
Gain on sale of investments ( 358) ( 5,560) Loss on disposal of property, plant and equipment and
deferred expenses 5,778 3,890
Compensation cost of employee stock options 19,327 -
Changes in assets and liabilities
(Increase) decrease in: Financial assets at fair value through profit or loss -
current ( 249,540) ( 49,996)
Notes receivable – net 5,827 3,667
Notes receivable – related parties – net ( 489) -
Accounts receivable – net ( 291,181) ( 349,589)
Accounts receivable – related parties – net 17,919 45,440
Other receivables ( 10,289) ( 712)
Other receivables – related parties 83,710 31,301
Inventories ( 182,757) 405,558
Prepaid expenses 14,803 ( 12,825)
Prepayments 6,093 2,735
Other current assets ( 453) ( 2,061)
Deferred income tax assets 103,515 86,673
Increase (decrease) in:
Notes payable 11,125 13,585
Accounts payable 204,002 199,594
Accounts payable – related parties 169,972 256,100
Income tax payable 17,103 -
Accrued expenses 131,459 ( 17,904)
Other payables 48,883 9,296
Unearned revenue collected in advance ( 31,264) 58,427
Other current liabilities 6,371 ( 2,406)
Accrued pension liabilities 5,824 3,820
Deferred credit - gain from intercompany transactions 3,187 ( 1,472)
Net cash provided by operating activities 1,231,171 1,378,888
(Continued)
OPTO TECH CORPORATION STATEMENTS OF CASH FLOWS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
2010 2009
The accompanying notes are an integral part of these financial statements. See report of independent accountants dated March 24, 2011.
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CASH FLOWS FROM INVESTING ACTIVITIES
(Decrease) increase in restricted cash and cash equivalents ($ 124,508) $ 43,252
Increase in financial assets carried at cost - ( 3,205)
Proceeds from disposal of financial assets carried at cost 1 5,556
Proceeds from disposal of available-for-sale financial assets 2,778 -Increase in long-term investments accounted for under the equity method ( 108,629) -
Acquisition of property, plant and equipment ( 609,270) ( 202,561) Proceeds from disposal of property, plant and equipment and
deferred expenses 123,784 1,443
Increase in deposits out ( 1,663) ( 7,677)
Increase in deferred expenses ( 14,176) ( 24,188)
Net cash used in investing activities ( 731,683) ( 187,380)
CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans ( 370,521) ( 201,790)
(Decrease) increase in long-term loans (including long-term loans maturing within one year) ( 323,614) 567,700
Decrease in guarantee deposits ( 26) ( 14)
Exercise of employee stock options 37,592 52,658
Proceeds from capital increase by cash infusion 20,500 402,221
Payments of cash dividends ( 136,559) ( 130,936)
Net cash (used in) provided by financing activities ( 772,628) 689,839
Net (decrease) increase in cash and cash equivalents ( 273,140) 1,881,347
Cash and cash equivalents at beginning of year 2,928,311 1,046,964
Cash and cash equivalents at end of year $ 2,655,171 $ 2,928,311
Supplemental disclosures of cash flow information
Interest paid $ 41,042 $ 54,763
Less: Interest capitalized ( 3,040) ( 3,628)
Interest paid (net of interest capitalized) $ 38,002 $ 51,135
Income tax paid $ 761 $ -
Investing and financing activities not affecting cash flows
Long-term liabilities maturing within one year $ 660,714 $ 335,714
Reclassification of property, plant and equipment to deferred expenses $ 2,811 $ 3,968
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OPTO TECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2010 AND 2009
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,
EXCEPT AS OTHERWISE INDICATED)
1. HISTORY AND ORGANIZATION
Opto Tech Corporation (the “Company”) was incorporated as a company limited by shares under the
provisions of the Company Law of the Republic of China (R.O.C.) on December 21, 1983. The
shares of the Company have been traded on the Taiwan Stock Exchange since May 2, 1995. The
Company is primarily engaged in the manufacture and sales of semiconductor components as well
as research and development, design, manufacture and sales of systems products. As of December
31, 2010, the Company had approximately 1,360 employees.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements of the Company are prepared in accordance with the “Rules
Governing the Preparation of Financial Statements by Securities Issuers”, “Business Entity
Accounting Law”, “Regulation on Business Entity Accounting Handling” and generally accepted
accounting principles in the Republic of China. The Company’s significant accounting policies are
summarized below:
1) Translation of financial statements of foreign subsidiaries
Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars using the
exchange rates prevailing at the balance sheet date. Equity accounts are translated at historical
rates except for beginning retained earnings, which is carried forward from prior year’s balance.
Dividends are translated at the rates prevailing at the date of declaration. Profit and loss accounts
are translated at weighted-average rates during the year. The resulting translation differences are
included in “cumulative translation adjustments” under stockholders’ equity.
2) Foreign currency transactions
A. The Company maintains its accounts in New Taiwan dollars. Transactions denominated in
foreign currencies are translated into New Taiwan dollars at the spot exchange rates prevailing
at the transaction dates. Exchange gains or losses due to the difference between the exchange
rate on the transaction date and the exchange rate on the date of actual receipt and payment are
recognized in current year’s profit or loss.
B. Receivables, other monetary assets and liabilities denominated in foreign currencies are
translated at the spot exchange rates prevailing at the balance sheet date. Exchange gains or
losses are recognized in profit or loss.
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C. At the end of the period, foreign currency non-monetary assets and liabilities at fair value
through profit or loss are evaluated at the spot exchange rates prevailing at the balance sheet
date. Any exchange gain or loss resulting from the evaluation shall be recognized in current
period’s profit or loss. Conversely, foreign currency non-monetary assets and liabilities at fair
value through stockholders’ equity are evaluated at the spot exchange rates prevailing at the
balance sheet date. Any exchange gain or loss resulting from the evaluation shall be
recognized in stockholders’ equity. However, non-monetary items that are measured not based
on the fair value are evaluated using the historical exchange rates at the date of the transaction.
3) Criteria for classifying current or non-current assets and liabilities
A. Assets that meet one of the following criteria are classified as current assets; otherwise they
are classified as non-current assets:
a) Assets arising from operating activities that are expected to be realized or consumed, or
are intended to be sold within the normal operating cycle;
b) Assets held mainly for trading purposes;
c) Assets that are expected to be realized within twelve months from the balance sheet date;
d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that
are to be exchanged or used to pay off liabilities more than twelve months after the
balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise
they are classified as non-current liabilities:
a) Liabilities arising from operating activities that are expected to be paid off within the
normal operating cycle;
b) Liabilities arising mainly from trading activities;
c) Liabilities that are to be paid off within twelve months from the balance sheet date;
d) Liabilities for which the repayment date cannot be extended unconditionally to more than
twelve months after the balance sheet date.
4) Cash and cash equivalents
Cash equivalents represent highly liquid investments that meet the following requirements:
A. Readily convertible to cash; and
B. With maturities less than three months and which are subject to insignificant risk of changes in
value resulting from fluctuations in interest rates.
The Company’s statement of cash flows is prepared on the basis of cash and cash equivalents.
5) Financial assets and financial liabilities at fair value through profit or loss
A. Financial assets and financial liabilities at fair value through profit or loss are recognized and
derecognized using trade date accounting and are recognized initially at fair value.
B. These financial assets and financial liabilities are subsequently remeasured and stated at fair
value and the gain or loss is recognized in profit or loss. The fair value of open-end mutual
funds is based on the net asset value at the balance sheet date.
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6) Available-for-sale financial assets
A. Available-for-sale financial assets are recognized and derecognized using trade date
accounting and are initially stated at fair value plus transaction costs that are directly
attributable to the acquisition of the financial asset.
B. The financial assets are remeasured and stated at fair value, and the gain or loss is recognized
in equity, until the financial asset is derecognized, at which time the cumulative gain or loss
previously recognized in equity shall be recognized in profit or loss. The fair values of listed
stocks and OTC stocks are based on the closing prices quoted in the Taiwan Stock Exchange
and the GreTai Securities Market at the balance sheet date.
C. If there is any objective evidence that the financial asset is impaired, the cumulative loss that
had been recognized directly in equity shall be transferred from equity to profit or loss. When
the fair value of an equity instrument subsequently increases, impairment losses recognized
previously in profit or loss shall be reversed and recognized as adjustments in equity.
7) Financial assets carried at cost
A. Investment in unquoted equity instruments is recognized or derecognized using trade date
accounting and is stated initially at its fair value plus transaction costs that are directly
attributable to the acquisition of the financial asset.
B. If there is any objective evidence that the financial asset is impaired, the impairment loss is
recognized in profit or loss. Such impairment loss shall not be reversed when the fair value of
the asset subsequently increases.
8) Accounts receivable
Accounts receivable are claims resulting from the sale of goods or services. The fair value of
accounts receivable is calculated based on the imputed interest rate. Accounts receivable which
are collectible within one year, and where the difference between the fair value and the value at
maturity is insignificant are measured at carrying value.
9) Allowance for doubtful accounts
Allowance for doubtful accounts is provided according to the evaluation of the collectibility of
notes, accounts and other receivables, taking into account the bad debts incurred in prior years
and the aging analysis of the receivables.
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10) Inventories
The perpetual inventory system is adopted for inventory recognition. Inventories are stated at
cost. The cost is determined using the weighted-average method. Fixed manufacturing costs are
allocated on the basis of the normal capacity of production equipment. At the end of period,
inventories are evaluated at the lower of cost or net realizable value, and the individual item
approach is used in the comparison of cost and net realizable value. The calculation of net
realizable value is based on the estimated selling price in the normal course of business, net of
estimated costs of completion and estimated selling expenses. Allowance for slow moving items
is provided when necessary.
11) Long-term equity investments accounted for under the equity method
A. Long-term equity investments in which the Company holds more than 20% of the investee
company’s voting shares or has the ability to exercise significant influence on the investee’s
operational decisions are accounted for under the equity method. The excess of the initial
investment cost over the acquired net asset value of the investee attributable to goodwill is no
longer amortized, effective January 1, 2006. Retrospective adjustment of the amount of
goodwill amortized in previous year(s) is not required.
B. Long-term equity investments in which the Company holds more than 50% of the voting
shares of the investees or has significant control ability on the investees’ operations are
accounted for under the equity method and included in the quarterly consolidated financial
statements.
C. Effective January 1, 2005, if the Company has the control ability over the investees, the
Company recognizes all the losses incurred by such entities that will not be covered by other
stockholders. When the operations of such investees become profitable, the Company
recognizes the profits until the amount of losses previously recognized by the Company is
fully recovered.
D. The unrealized gains (losses) on the downstream transactions between the Company and the
investees accounted for under the equity method are eliminated at period-end according to the
Company’s percentage of shareholding in these investees. Where the Company has
controlling power over the investees, the unrealized gains (losses) are eliminated in full
amount and are recognized only when they are realized. Additionally, the unrealized gains
(losses) on the upstream transactions and sidestream transactions between the Company and
the investees accounted for under the equity method are eliminated based on the Company’s
equivalent percentage of shareholding in these investees.
E. Exchange differences arising from translation of the financial statements of overseas investee
companies accounted for under the equity method are recorded as “cumulative translation
adjustments” under stockholders’ equity.
F. The accounting policy on impairment of long-term investments accounted for under the equity
method is described in Note 2(14).
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12) Property, plant and equipment
A. Property, plant and equipment are stated at cost. Interests incurred on the loans used to bring
the assets to the condition and location necessary for their intended uses are capitalized.
B. Depreciation is provided under the straight-line method based on the assets’ estimated
economic service lives. Salvage value of the fully depreciated assets that are still in use is
depreciated based on the re-estimated economic service lives. The estimated useful lives are
30~50 years for buildings and 3~10 years for the other property, plant and equipment.
C. Major improvements and renewals are capitalized and depreciated accordingly. Maintenance
and repairs are expensed as incurred.
D. Property, plant and equipment that are idle or have no value in use are reclassified to “other
assets” at the lower of the fair value less costs to sell or book value. The resulting difference is
included in current operations. Depreciation provided on these assets is charged to
non-operating expense.
E. The accounting policy on impairment of property, plant and equipment is described in Note
2(14).
13) Deferred assets
Deferred assets, which mainly consist of telephone line installation, mold, computer software
expenses and expenses related to commercial papers, are amortized on a straight-line basis over
their estimated useful lives of 2~21 years.
14) Impairment of non-financial assets
The Company recognizes impairment loss when there is indication that the recoverable amount
of an asset is less than its carrying amount. The recoverable amount is the higher of the fair
value less costs to sell or value in use. The fair value less costs to sell is the amount obtainable
from the sale of the asset in an arm’s length transaction after deducting any direct incremental
disposal costs. The value in use is the present value of estimated future cash flows to be derived
from continuing use of the asset and from its disposal at the end of its useful life. When the
impairment no longer exists, the impairment loss recognized in prior years shall be recovered.
The recoverable amount of goodwill shall be evaluated periodically. Impairment loss will be
recognized whenever there is indication that the recoverable amount of these assets is less than
their respective carrying amount. Impairment loss on goodwill is not recoverable in the
following years.
15) Warranty
Warranty is estimated based on historical experience. Service warranty expense is included in
the current year’s operating expense.
16) Pension plan
Under the defined benefit pension plan, net periodic pension costs are recognized in accordance
with the actuarial calculations. Net periodic pension costs include service cost, interest cost,
expected return on plan assets, and amortization of unrecognized net transition obligation and
gains or losses on plan assets. Unrecognized net transition obligation is amortized on a
~ 14 ~
straight-line basis over 25 years. Under the defined contribution pension plan, net periodic
pension costs are recognized as incurred.
17) Income tax
A. Inter-period and intra-period income taxes are allocated in accordance with the R.O.C. SFAS
No. 22, “Accounting for Income Taxes”. Over or under provision of prior years’ income tax
liabilities is included in current period’s income tax.
B. Investment tax credits arising from expenditures incurred on acquisitions of equipment or
technology, research and development, employees’ training, and equity investments are
recognized in the year the related expenditures are incurred.
C. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as
income tax expense in the year the stockholders resolve to retain the earnings.
D. When a change in the tax laws is enacted, the deferred tax liability or asset should be
recomputed accordingly in the period of change. The difference between the new amount and
the original amount, that is, the effect of changes in the deferred tax liability or asset, should
be recognized as an adjustment to income tax expense (benefit) for income from continuing
operations in the current period.
18) Treasury stock
A. When the Company acquires its issued stocks, the cost is debited as “treasury stock” and
recognized as a reduction to stockholders’ equity. Treasury stocks acquired are stated at cost
using the weighted-average method.
B. Upon disposal of the treasury stock, if the disposal price exceeds the cost of the treasury stock,
the difference is credited to “capital reserve – treasury stock”. If the disposal price is less than
the cost, the difference is debited to the capital reserve arising from the treasury stock of the
same class. Where the capital reserve is insufficient to cover the difference, the remaining
amount is charged against retained earnings.
C. Upon registration of cancellation, a credit to “treasury stock”, and a debit to “common stock”
and “capital reserve-additional paid-in capital in excess of par” is recognized, which is in
proportion to shareholding. Except for the book value sum of “common stock” and “capital
reserve-additional paid-in capital in excess of par”, the related gain is credited to “capital
reserve-treasury stock transaction” and any loss is offset against this capital reserve account.
However, when the balance of this capital reserve account is insufficient to offset the loss,
then the remaining amount is charged against retained earnings.
D. The Company’s shares held by its subsidiaries are accounted for as treasury stock.
19) Share-based payment - employee compensation plan
A. The employee stock options granted from January 1, 2004 through December 31, 2007 are
accounted for in accordance with EITF 92-070, EITF 92-071 and EITF 92-072 “Accounting
for Employee Stock Options” as prescribed by the Accounting Research and Development
Foundation, R.O.C., dated March 17, 2003. Under the share-based employee compensation
plan, compensation cost is recognized using the intrinsic value method and pro forma
~ 15 ~
disclosures of net income and earnings per share are prepared in accordance with the R.O.C.
SFAS No. 39, “Accounting for Share-based Payment”.
B. For the grant date of the share-based payment agreements set on or after January 1, 2008, the
Company shall measure the services received during the vesting period by reference to the fair
value of the equity instruments granted and account for those amounts as payroll expenses
during that period.
20) Employees’ bonuses and directors’ and supervisors’ remuneration
Effective January 1, 2008, pursuant to EITF 96-052 of the Accounting Research and
Development Foundation, R.O.C., dated March 16, 2007, “Accounting for Employees’ Bonuses
and Directors’ and Supervisors’ Remuneration”, the costs of employees’ bonuses and directors’
and supervisors’ remuneration are accounted for as expenses and liabilities, provided that such
recognition is required under legal or constructive obligation and the amounts can be estimated
reasonably. However, if the accrued amounts for employees’ bonuses and directors’ and
supervisors’ remuneration are different from the actual distributed amounts resolved by the
stockholders at their annual stockholders’ meeting subsequently, the differences shall be
recognized as gain or loss in the following year. In addition, according to EITF 97-127 of the
Accounting Research and Development Foundation, R.O.C., dated March 31, 2008, “Criteria for
Listed Companies in Calculating the Number of Shares of Employees’ Stock Bonus”, the
Company calculates the number of shares of employees’ stock bonus based on the closing price
of the Company's common stock at the previous day of the stockholders’ meeting held in the
year following the financial reporting year, and after taking into account the effects of ex-rights
and ex-dividends.
21) Revenues and expenses
Revenues are recognized when the earning process is substantially completed and are realized or
realizable. Costs and expenses are recognized as incurred.
22) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts of
assets and liabilities and the disclosures of contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses during the reporting period.
Actual results could differ from those assumptions and estimates.
23) Settlement date accounting
If an entity recognizes financial assets using settlement date accounting, any change in the fair
value of the asset to be received during the period between the trade date and the settlement date
is recognized in profit or loss for financial assets or liabilities classified as at fair value through
profit or loss.
~ 16 ~
3. CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 2009, the Company adopted the amendments to R.O.C. SFAS No. 10,
“Accounting for Inventories”. As a result of this change in accounting principle, operating costs and
non-operating income and gains related to inventories decreased by $73,112 and $67,606,
respectively, for the year ended December 31, 2009. In addition, investment loss increased by
$1,483 due to the subsidiaries’ adoption of the amendments to R.O.C. SFAS No. 10. Overall, net
income increased by $3,590 and earnings per share increased by $0.01 for the year ended December
31, 2009.
4. DETAILS OF SIGNIFICANT ACCOUNTS
1) Cash and cash equivalents
December 31,
2010 2009
Cash on hand $ 100 $ 100
Checking and demand deposits 824,371 775,727
Time deposits 1,210,700 797,484
Cash equivalents - Repurchase bonds 620,000 1,355,000
$ 2,655,171 $ 2,928,311
2) Financial assets and financial liabilities at fair value through profit or loss
December 31,
2010 2009Financial assets at fair value through profit or loss -current
Financial assets held for trading
Funds $ 300,000 $ 50,000
Adjustment of financial assets held for trading
Funds 327 -
Currency swap 367 -
Forward exchange contracts - 304
$ 300,694 $ 50,304Financial liabilities at fair value through profit or loss - current
Adjustment of financial liabilities held for trading
Forward exchange contracts $ 39 $ -
3) Accounts receivable
December 31,
2010 2009
Accounts receivable $ 2,037,774 $ 1,748,720
Less: Allowance for doubtful accounts ( 154,415) ( 87,878)
$ 1,883,359 $ 1,660,842
~ 17 ~
4) Inventories
December 31,
2010 2009Raw materials $ 655,200 $ 519,135
Supplies 180,110 116,649
Work in process 191,738 190,734
Semi-finished goods 178,488 179,288
Finished goods 449,187 466,159
1,654,723 1,471,965Less: Allowance for obsolescence
and market value decline ( 304,190) ( 394,343)
$ 1,350,533 $ 1,077,622
The related expenses and losses of inventories are as follows:
For the years ended December 31,
2010 2009
Cost of goods sold $ 5,736,441 $ 4,188,566
Gain on price recovery of inventories ( 90,154) ( 73,112)
Others ( 143,001) 20,219
$ 5,503,286 $ 4,135,673
5) Available-for-sale financial assets
December 31,
2010 2009
Non-current items:
Listed (TSE and OTC) stocks
United Radiant Technology Corp. $ 132,069 $ 132,069
AXT, Inc. - 2,881
132,069 134,950
Adjustment of available-for-sale financial assets ( 52,220) ( 25,371)
$ 79,849 $ 109,579
~ 18 ~
6) Financial assets carried at cost
December 31,
2010 2009
Non-current items:
Unlisted stocks
Nichia Corp. $ 379,252 $ 379,252
Lu Zhu Development Co., Ltd. 126,963 127,648
Giga Epitaxy Technology Corp. 33,000 33,000
Shin-Etsu Opto Electronic Co., Ltd. 20,000 20,000
Oriental System Technology Inc. 8,698 13,206
Formosa Industrial Computing, Inc. 5,349 7,632
$ 573,262 $ 580,738
A. The above investments were measured at cost since these have no quoted prices and their fair
value cannot be measured reliably.
B. For the year ended December 31, 2010, the Company recognized impairment loss of $4,508,
$2,283 and $685 on its investment in Oriental System Technology Inc., Formosa Industrial
Computing, Inc. and Lu Zhu Development Co., Ltd, respectively, because the value of the
Company had been impaired, and recovery was unlikely.
C. For the year ended December 31, 2009, the Company recognized impairment loss of $2,794
on its investment in Pictologic Inc., because the value of the Company had been impaired,
and recovery was unlikely.
D. On July 24, 2009, the Company did not agree with the division of Omniad Media
Incorporation. Pursuant to the Company Law, the Company exercised the right of purchase
request. Omniad Media Incorporation purchased the Company’s stocks, and paid the common
stocks of Top Increasing Technology Co., Ltd. to the Company as compensation.
~ 19 ~
7) Long-term investments accounted for under the equity method
A. Information on long-term investments as of December 31, 2010 and 2009 are summarized
below:
December 31, 2010 December 31, 2009
Investee company
Carrying
amount
% of
ownership
Carrying
amount
% of
ownership
OPTO Technology International
Group Co., Ltd. $ 694,962 100.00% $ 783,744 100.00%
Viking Tech Corporation 132,934 9.90% 117,603 9.90%
Jyu Shin Investment Co., Ltd. 231,344 100.00% 112,153 100.00%
Ho Chung Investment Co., Ltd. 67,285 100.00% 60,845 100.00%
Source Ever limited - 100.00% - -
Opto Tech (H.K.) Co., Ltd. - - - -
Opto Tech (Macao) Co., Ltd. - - - -
$ 1,126,525 $1,074,345
Shown as “other liability – other”:
CS Bright Corporation $ - - ($ 89,964) 28.37%
B. Investment income (loss) accounted for under the equity method for the years ended
December 31, 2010 and 2009 is set forth below:
For the years ended December 31,
Investee company 2010 2009
OPTO Technology
International Group Co., Ltd. ($ 68,225) ($ 62,876)
Viking Tech Corporation 22,924 4,163
Jyu Shin Investment Co., Ltd. 38,732 2,475
Ho Chung Investment Co., Ltd. 17,170 ( 4,277)
Source Ever limited - -
Opto Tech (H.K.) Co., Ltd. - ( 187)
Opto Tech (Macao) Co., Ltd. - 9,586
CS Bright Corporation 98,104 ( 7,168)
$ 108,705 ($ 58,284)
C. CS Bright Corporation covered its losses by reducing capital on August 23, 2010. After the
capital reduction, the holding shares of the Company decreased from 1,962,883 to 1. On
August 24, 2010, CS Bright Corporation then increased its capital, but the Company did not
participate in the capital increase. Therefore, the ownership ratio decreased to 0.00002%. On
November 25, 2010, the Company sold the remaining 1 share to Jyu Shin investment Co. Ltd.,
which was a subsidiary of the Company, and the holding shares of the Company decreased to
0. On the other hand, Jyu Shin investment Co. Ltd., which was a 100% owned subsidiary of
~ 20 ~
the Company, participated in the capital increase of CS Bright Corporation, and the
ownership was 94.02%. On November 11, 2010, Jyu Shin investment Co. Ltd. acquired the
outside shares, and the ownership increased to 99.87%. Because the Company had the control
ability over CS Bright Corporation, the Company recognized the entire losses incurred by
such entity that would not be covered by other stockholders. As of December 31, 2009, the
related balance of the long-term investment was ($89,964), which was shown as “other
liability – other”.
D. Source Ever Limited, an offshore trading company in the British Virgin Islands (BVI) and a
100% owned subsidiary of the Company, was incorporated on April 26, 2010.
E. To improve the group’s operating efficiency, the Company reorganized on November 1, 2009.
The Company’s subsidiaries, Opto Tech (H.K.) Co., Ltd. and Opto Tech (Macao) Co., Ltd.,
became the subsidiaries of Opto Tech (Cayman) Co., Ltd. (a subsidiary of the Company).
After the reorganization, these subsidiaries became indirect subsidiaries of the Company.
F. In April 2008, the Company invested in Jyu Shin Investment Co., Ltd., a 100% owned
subsidiary, by contributing 6,200 thousand shares of Viking Tech Corporation. As a result, the
Company’s direct ownership percentage in Viking Tech Corporation was reduced to below
20%. However, as Jyu Shin Investment Co., Ltd. owns the 6,200 thousand shares of Viking
Tech Corporation, the total ownership percentage in Viking Tech Corporation exceeded 20%.
Accordingly, the Company’s investment in Viking Tech Corporation is accounted for under
the equity method.
8) Property, plant and equipment
December 31, 2010
Asset Initial cost Accumulateddepreciation
Accumulated impairment Carrying value
Buildings $ 1,708,415 ($ 571,649) ($ 59) $ 1,136,707
Machinery 3,234,201 ( 2,254,735) ( 9,074) 970,392
Utility facilities 954,340 ( 800,007) - 154,333
Pollution prevention facilities 618,998 ( 565,008) - 53,990
Transportation equipment 4,751 ( 3,460) ( 64) 1,227
Office equipment 47,550 ( 29,720) ( 19) 17,811
Other equipment 1,418,349 ( 1,114,429) ( 98) 303,822
Construction in progress and prepayments for equipment 445,086 - - 445,086
$ 8,431,690 ($5,339,008) ($ 9,314) $ 3,083,368
~ 21 ~
December 31, 2009
Asset Initial cost Accumulateddepreciation
Accumulated impairment Carrying value
Land $ 12,493 $ - $ - $ 12,493
Buildings 1,725,202 ( 521,273) ( 59) 1,203,870
Machinery 3,328,351 ( 2,351,474) ( 8,306) 968,571
Utility facilities 939,806 ( 715,375) - 224,431
Pollution prevention facilities 609,430 ( 547,568) - 61,862
Transportation equipment 6,223 ( 4,606) ( 64) 1,553
Office equipment 74,581 ( 60,416) ( 282) 13,883
Other equipment 1,406,940 ( 1,039,174) ( 121) 367,645
Construction in progress and prepayments for equipment 153,261 - - 153,261
$ 8,256,287 ($5,239,886) ($ 8,832) $ 3,007,569
Interest capitalized to property, plant and equipment amounted to $3,040 and $3,628 for the years
ended December 31, 2010 and 2009, respectively.
9) Idle assets
December 31, 2010
Cost Accumulateddepreciation
Accumulated impairment Carrying value
Machinery $ 1,353,294 ($ 318,153) ($ 926,929) $ 108,212
December 31, 2009
Cost Accumulateddepreciation
Accumulated impairment Carrying value
Machinery $ 2,226,455 ($ 527,856) ($1,452,738) $ 245,861
10) Short-term loans
December 31,
2010 2009
Unsecured loans $ 501,274 $ 871,795
Interest rate 0.69%-1.69% 0.82%-2.44% `
~ 22 ~
11) Long-term loans
December 31,
Bank Credit line Period 2010 2009 Syndicated loans with 8 financial
institutions including Taishin International Bank $ 2,000,000
2008.02.15~
2013.03.06 $ 1,601,986 $ 1,930,600
Yuanta Commercial Bank 200,000
2009.05.26~
2012.05.26 150,000 200,000
Ta Chong Bank 200,000
2009.10.01~
2011.10.01 125,000 70,000
China Development Industrial Bank 100,000
2009.11.19~
2011.05.19 50,000 50,000
1,926,986 2,250,600
Less: Current portion ( 660,714) ( 335,714)
$ 1,266,272 $ 1,914,886
A. On February 15, 2008, the Company signed a mortgage contract with a credit limit of $2
billion with 8 banks, including Taishin International Bank, and paid the loans used for plants
and commercial papers to Taiwan Cooperative Bank. At the same time, the Company
transferred the mortgaged assets, which was originally pledged to Taiwan Cooperative Bank,
to the 8 banks including Taishin International Bank.
B. Pursuant to the syndicated loan facility agreement entered into by the Company with Taishin
International Bank and 7 other banks, the Company is required to maintain certain financial
ratios at agreed rates during the period of the syndicated loan facility agreement. Please refer
to Note 7.
C. Please refer to Note 6 for details of the collateral.
12) Pension plans
A. The Company has a non-contributory and funded defined benefit pension plan in accordance
with the Labor Standards Law, covering all regular employees. Under the defined benefit
pension plan, two units are accrued for each year of service for the first 15 years and one unit
for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are
based on the number of units accrued and the average monthly salaries and wages of the last 6
months prior to retirement. The Company contributes monthly an amount equal to 7.76% of
the employees’ monthly salaries and wages to the retirement fund deposited with Bank of
Taiwan. The pension costs under the defined benefit pension plan for the years ended
December 31, 2010 and 2009 were $29,487 and $14,980, respectively. The fund balance with
Bank of Taiwan was $211,345 and $194,452 as of December 31, 2010 and 2009, respectively.
~ 23 ~
The following sets forth the pension information based on the actuarial report:
a) Actuarial assumptions
For the years ended December 31,
2010 2009
Discount rate 2.00% 2.25%
Expected rate of return on plan assets 2.00% 2.25%
Rate of compensation increase 3.5% 3.5%
Unrecognized net transition obligation is amortized on a straight-line basis over 25 years.
b) Funded status of the pension plan
December 31,
2010 2009
Benefit obligation
Vested benefit obligation ($ 176,782) ($ 137,592)
Non-vested benefit obligation ( 183,652) ( 166,433)
Accumulated benefit obligation ( 360,434) ( 304,025)
Effect of future salary increments ( 187,442) ( 169,088)
Projected benefit obligation ( 547,876) ( 473,113)
Fair value of plan assets 211,345 194,452
Funded status ( 336,531) ( 278,661)
Unrecognized net transition obligation ( 2,182) ( 2,399)
Unrecognized gain on plan assets 284,929 233,101
Additional minimum pension liability ( 95,305) ( 61,614)
Accrued pension liabilities ($ 149,089) ($ 109,573)
Vested benefit $ 242,682 $ 197,088
c) Net pension cost comprises the following:
For the years ended December 31,
2010 2009
Service cost $ 14,990 $ 10,840
Interest cost 10,645 7,870
Expected rate of return on plan assets ( 4,375) ( 5,229)
Amortization of unrecognized loss on plan assets 8,445 1,717
Amortization of unrecognized net transition obligation ( 218) ( 218)
Net pension cost $ 29,487 $ 14,980
B. Effective July 1, 2005, the Company established a funded defined contribution pension plan
(the “New Plan”) under the Labor Pension Act. Employees have the option to be covered
under the New Plan. Under the New Plan, the Company contributes monthly an amount based
on 6% of the employees’ monthly salaries and wages to the employees’ individual pension
accounts at the Bureau of Labor Insurance. The benefits accrued are portable when
~ 24 ~
employment is terminated. The pension costs under the defined contribution pension plan for
the years ended December 31, 2010 and 2009 were $25,077 and $21,791, respectively.
13) Common stock
On June 16, 2009, the Company’s stockholders during their meeting resolved to increase its
capital by cash infusion through the private equity method. With the price per share at $21.5, the
Company issued 18,708 thousand shares amounting to $402,221, and set the record date on July
31, 2009. With the price per share at $20.5, the Company issued 1,000 thousand shares amounting
to $20,500, and set the record date on June 8, 2010. The rights and obligations of the common
stocks issued is the same with those that have been issued for the restriction of ownership transfer.
Besides, the common stocks cannot be applied for listing unless they have been turned over for
three years and applied for initial public offerings. As of December 31, 2010, the Company’s
authorized capital was $10,000,000, and paid-in capital was $5,490,051, consisting of 549,005
thousand shares of common stock with a par value of $10 (in dollars) per share.
14) Capital reserve
The R.O.C. Securities and Exchange Law requires that capital reserve shall be exclusively used to
cover any accumulated deficit or to increase capital and shall not be used for any other purpose.
However, capital reserve arising from paid-in capital in excess of par value on issuance of
common stock and donations can be capitalized once a year, provided that the Company has no
accumulated deficit and the amount to be capitalized does not exceed 10% of the paid-in capital.
15) Retained earnings
A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first
be distributed as follows:
1) Offset prior years’ operating losses.
2) 10% of the remaining amount shall be set aside as legal reserve, unless the accumulated
legal reserve equals the total capital of the Company.
3) Appropriation of the remainder shall be proposed by the Board of Directors and resolved
by the stockholders.
4) Bonus distributed to the employees and shareholders, and remuneration paid to the
directors and supervisors should account for 15%, 80% and 5%, respectively, of the total
distributed amount.
B. The Company operates in the high-tech industry and its business life cycle is in the growth
stage. In view of its capital expenditure demand and comprehensive financial plan for
continuous development, the Company issues both stock and cash dividends. The proportion
of dividends to be distributed in stocks and cash is determined based on the Company’s rate of
growth and capital expenditures. However, the amount of cash dividends shall not be lower
than 20% of the dividends distributed.
C. Pursuant to the regulation of the Financial Supervisory Commission, Executive Yuan, R.O.C.,
if there are any negative stockholders’ equity items recorded by the Company, such as
unrealized losses on the decline in market value of available-for-sale financial assets,
~ 25 ~
cumulative translation adjustments, and unrecognized pension cost (except for treasury stock),
the Company is required to set aside a special reserve from the current after-tax net income
and the unappropriated retained earnings accumulated for previous years with an amount
equal to the total amount of the negative items. For the negative stockholders’ equity items
which occurred in previous years, the special reserve is set aside from the previous years’
unappropriated retained earnings. Additionally, if the market value of the Company’s shares
held by its subsidiaries is less than their book value, an amount equal to the Company’s
proportionate share of the difference should also be set aside as special reserve. If there is a
subsequent recovery in the market value, a reversal based on the Company’s equity interest
should be made to the special reserve.
D. Legal reserve can only be used to cover accumulated losses or to increase capital. Legal
reserve can be used to increase capital only if the accumulated amount of legal reserve is more
than 50% of paid-in capital, and the amount is limited to 50% of its balance.
E. The appropriation of 2009 and 2008 earnings had been resolved at the stockholders’ meeting
on June 15, 2010 and June 16, 2009, respectively. Details are summarized below:
2009 2008
Amount
Dividends per share
(in dollars)
Amount
Dividends per share
(in dollars) Legal reserve $ 21,048 $ 34,887
Special reserve ( 70,976) 106,878
Cash dividends 136,559 $ 0.25 130,936 $ 0.25
Total $ 86,631 $ 272,701
The appropriations of 2009 earnings are the same with that of the resolution of the Board of
Directors on April 21, 2010.
F. The estimated amounts of employees’ bonus and directors’ and supervisors’ remuneration for
the year ended December 31, 2010 are $102,938 and $34,313, respectively, based on 15% and
5% (as prescribed in the Company’s Articles of Incorporation) of net income for the year
ended December 31, 2010, after taking into account the legal reserve and other factors. The
calculation of shares of stock bonus distributed is based on the closing price of the Company’s
common stock at the previous day of the 2011 stockholders’ meeting after taking into account
the effects of ex-rights and ex-dividends. The estimated amounts of employees’ bonus and
directors’ and supervisors’ remuneration are recognized as operating expenses for the year
ended December 31, 2010. Whereas, if the estimated amounts are different from the amounts
approved by the stockholders subsequently, the difference is recognized as gain or loss in
2011. The actual appropriation of 2009 earnings as mentioned in the paragraph above, and the
employees’ bonus and directors’ and supervisors’ remuneration for the year ended December
31, 2009 resolved by the stockholders during their meeting are the same with the amount
recognized in the financial statements for the year ended December 31, 2009.
~ 26 ~
G. As of March 24, 2011, the appropriation of 2010 earnings had not been resolved by the Board
of Directors. Information on the appropriation of the Company’s earnings as resolved by the
Board of Directors and approved by the stockholders will be posted in the “Market
Observation Post System” at the website of the Taiwan Stock Exchange.
16) Treasury stock
A. Pursuant to the R.O.C. Securities and Exchange Law, the number of shares bought back as
treasury stock should not exceed 10% of the number of the Company’s issued and outstanding
shares and the amount bought back should not exceed the sum of retained earnings, paid-in
capital in excess of par value and realized capital reserve. As of December 31, 2010, the
shares bought back as treasury stock amounted to $0.
B. Pursuant to the R.O.C. Securities and Exchange Law, treasury stocks should be reissued to the
employees within 3 years and shares not reissued within the three-year period are to be retired.
Treasury shares to enhance the Company’s credit rating and stockholders’ equity should be
retired within 6 months of acquisition.
C. As of December 31, 2010 and 2009, the total number of the Company’s shares held by its
subsidiary, Ho Chung Investment Co., Ltd., was both 1,107 thousand shares with an average
book value of $24.11 (in dollars) per share, and fair value of $20.80 and $28.60 (in dollars)
per share, respectively.
17) Employee stock options
The Company recognized compensation costs under the stock-based employee compensation plan
for the years ended December 31, 2010 and 2009 amounting to $19,327 and $0, respectively. The
exercise price under the stock-based employee compensation plan is based on the closing price of
the Company’s common stock at the grant date and is subject to adjustments due to changes in the
number of common shares and issuance of cash dividends. The vesting period of the Company’s
employee stock option plan is 7 years. The employees may exercise the stock options in
installment within a period of 2 years after the stock options are granted.
A. Details of the employee stock options are set forth below:
For the years ended December 31, 2010 2009
Stock options No. of shares (in thousands)
Weighted- average
exercise price (in dollars)
No. of shares (in thousands)
Weighted- average
exercise price (in dollars)
Options outstanding at beginning of year 11,850 $ 25.30 15,737 $ 23.51
Options granted 13,910 22.00 - -
Options exercised ( 2,327) 16.16 ( 3,225) 16.33
Options revoked ( 1,455) ( 662)
Options outstanding at end of year 21,978 11,850
Options exercisable at end of year 6,275 7,477
~ 27 ~
B. Details of the employee stock options outstanding as of December 31, 2010 and 2009 are set
forth below:
Stock options outstanding as at
December 31, 2010 Stock options exercisable as at
December 31, 2010
Range of exercise price
(in dollars) No. of shares (in thousands)
Weighted- average expected remaining
vesting period(in years)
Weighted- average
exercise price (in dollars)
No. of shares (in thousands)
Weighted- average
exercise price (in dollars)
$ 16.10 - - $ 16.10 - $ 16.10
27.70 8,272 4 27.70 6,275 27.70
22.00 13,706 7 22.00 - 22.00
Stock options outstanding as at
December 31, 2009 Stock options exercisable as at
December 31, 2009
Range of exercise price
(in dollars) No. of shares (in thousands)
Weighted- average expected remaining
vesting period(in years)
Weighted- average
exercise price (in dollars)
No. of shares (in thousands)
Weighted- average
exercise price (in dollars)
$ 16.30 2,473 1 $ 16.30 2,473 $ 16.30
27.70 9,377 5 27.70 5,004 27.70
On June 16 and July 24, 2009, the Board of Directors of the Company approved the issuance
of employee stock options authorized in 2004 and 2007. The exercise prices were adjusted
from $16.50 and $27.90 to $16.30 and $27.70, respectively, on July 8 and August 1, 2009.
On June 15, 2010, the Board of Directors of the Company approved the issuance of employee
stock options authorized in 2004. The exercise price was adjusted from $16.30 to $16.10, on
July 12, 2010. The exercise price of the options authorized in 2007 remains the same.
C. The following sets forth the pro forma net income and earnings per share based on the
assumption that the compensation cost is accounted for using the fair value method for the
stock options granted (amended) on or after January 1, 2007:
For the years ended December 31, 2010 2009
Net income Net income stated in the statement of income $ 688,115 $ 210,480
Pro forma net income $ 673,959 171,283
Basic earnings per share(EPS)
(in dollars)
EPS stated in the statement of income
$ 1.26 $ 0.40
Pro forma EPS $ 1.23 $ 0.33
Diluted EPS (in dollars)
EPS stated in the statement of income $ 1.25 $ 0.40
Pro forma EPS $ 1.22 $ 0.33
~ 28 ~
For the stock options granted (amended) on or after January 1, 2007 with the compensation
cost accounted for using the fair value method, their fair value on the grant date is estimated
using the Black-Scholes option-pricing model. The weighted-average parameters used in the
estimation of the fair value are as follows:
For the years ended December 31,
2010 2009
Risk-free interest rate 2.77% 2.77%
Expected vesting period 7 years 6.5 years
Expected price volatility 44.40% 44.40%
Dividend yield rate 0.00% 0.00% 18) Income tax
A. The income tax refundable and income tax expense are reconciled as follows:
For the years ended December 31,
2010 2009
Income tax expense from continuing operations $ 122,395 $ 87,257
Income tax expense overstated - 779
(Less) add : Net change in deferred income tax assets ( 47,085) 7,379
Income tax effect of revised tax law ( 56,430) ( 94,052)
Prepaid and withholding taxes from foreign income which will not be realized ( 1,016) ( 1,363)
Prepaid and withholding taxes ( 761) ( 1,669)
Income tax refundable, shown as “other receivables” ($ 17,103) ($ 1,669)
B. Deferred income tax assets and liabilities
December 31,
2010 2009
Deferred income tax assets – current $ 105,320 $ 126,282
Deferred income tax assets – non-current 466,510 623,483
Valuation allowance ( 185,805) ( 260,225)
$ 386,025 $ 489,540
~ 29 ~
C. Details of temporary differences, loss carryforwards and investment tax credits resulting in
deferred income tax assets and liabilities are as follows:
December 31,
2010 2009
Amount Tax effect Amount Tax effect Current items:
Unrealized gains on sales to affiliated companies $ 4,125 $ 701 $ 938 $ 188
Unrealized losses on foreign exchange transactions 45,684 7,766 1,739 348
Unrealized gains on valuation of financial assets and liabilities ( 655) ( 111) ( 304) ( 61)
Loss on inventory value decline 280,218 47,637 370,371 74,074
Over provision of allowance for bad debts 260,420 44,271 233,776 46,755
Service warranty expense 29,739 5,056 24,891 4,978
Less: Valuation allowance ( 53,201) ( 59,392)
$ 52,119 $ 66,890
Non-current items:
Investment loss $ 140,772 $ 23,931 $ 142,595 $ 28,519
Impairment loss 171,053 29,079 484,030 96,806
Net pension costs 48,999 8,329 43,175 8,634
Loss carryforwards 1,509,375 256,594 1,588,016 317,603
Investment tax credits 148,577 171,921
Less: Valuation allowance ( 132,604) ( 200,833)
$ 333,906 $ 422,650
~ 30 ~
D. The Company is eligible for investment tax credits under the Statute for Upgrading Industry.
Details as of December 31, 2010 are as follows:
Year of
approval Qualifying item
Total tax
credits
Unused tax
credits
Final year
tax credits
are due
2007 Research and development $ 43,707 $ 43,707 2011
Machinery and equipment 13,036 13,036 〞
Employees’ training 598 598 〞
$ 57,341 $ 57,341
2008 Research and development $ 35,833 $ 35,833 2012
Machinery and equipment 21,847 21,847 〞
Employees’ training 453 453 〞
$ 58,133 $ 58,133
2009 Research and development $ 23,402 $ 23,402 2013
Machinery and equipment 5,688 5,688 〞
Employees’ training 257 257 〞
29,347 29,347
2010 Machinery and equipment $ 3,756 $ 3,756 2014
$ 148,577 $ 148,577
E. As of December 31, 2010, losses available to be carried forward were as follows:
Year in which loss was incurred
Amount filed/approved
Losses available to be
carried forwardUnused loss
carryforwards
Final year lossescan be
carried forward
2003 $ 467,252 $ 79,433 $ 50,473 2013
2004 861,121 146,391 146,391 2014
2005 162,697 27,658 27,658 2015
2008 119,259 20,274 20,274 2018
2009 69,400 11,798 11,798 2019 $ 1,679,729 $ 285,554 $ 256,594
F. As of December 31, 2010, the Company’s income tax returns through 2008 have been
assessed and approved by the Tax Authority.
~ 31 ~
G. Details of unappropriated retained earnings as of December 31, 2010 and 2009 are
summarized below:
December 31,
2010 2009
On or after January 1, 1998
Earnings subjected to 10% income tax $ 327,184 $ 246,212
Earnings not subjected to 10% income tax 688,115 210,480
$ 1,015,299 $ 456,692
H. The Company, in accordance with Regulation No. 273 issued by the R.O.C. Accounting
Research and Development Foundation on December 31, 1998, discloses the following
information:
December 31,
2010 2009 Balance of shareholders account of
deductible tax $ 3,020 $ 1,957
2010 Expected creditable tax ratio 1.98%
2009 Actual creditable tax ratio 0.43%
I. The Company’s equipment expansion is entitled to a four-year exemption on income tax
under Article 15 of the Act for Establishment and Administration of Science Parks prior to
amendment. Details as of December 31, 2010 are as follows:
Approval date and no.
Date of tax-exempt related equipment ready for production
Tax-exempt period
Cost of tax-exempt related equipment
Gung-Jung-Tz No. 0930012176 on May 5, 2004 May 4, 2004
January 1, 2008 ~ December 31, 2011 $ 657,913
Gung-Jung-Tz No. 0950008215 on March 31, 2006 March 29, 2006
January 1, 2010 ~ December 31, 2013 396,132
$ 1,054,045
~ 32 ~
19) Earnings per share
For the year ended December 31, 2010
Weighted-average
outstanding
Net income common shares Earnings per share (in dollars)
Before tax After tax (in thousands) Before tax After tax Basic earnings per share
Net income attributable to common stockholders $ 810,510 $ 688,115 545,902 $ 1.48 $ 1.26
Dilutive effect of common stock equivalents:
Stock options - - 810
Employees’ bonus - - 4,949
Diluted earnings per share
Net income attributable to common stockholders plus dilutive effect of common stock equivalents $ 810,510 $ 688,115 551,661 $ 1.47 $ 1.25
For the year ended December 31, 2009
Weighted-average
outstanding
Net loss common shares Earnings per share (in dollars)
Before tax After tax (in thousands) Before tax After tax
Basic earnings per share Net income attributable to
common stockholders $ 297,737 $ 210,480 523,903 $ 0.57 $ 0.40
Dilutive effect of common stock equivalents:
Stock options - - 1,088
Employees’ bonus - - 895
Diluted income per share
Net income attributable to common stockholders plus dilutive effect of common stock equivalents $ 297,737 $ 210,480 525,886 $ 0.57 $ 0.40
~ 33 ~
20) Personnel, depreciation and amortization expenses
Personnel, depreciation and amortization expenses are summarized as follows:
For the year ended December 31, 2010
Operating
cost Operating expense
Non-operating expenses and
losses Total
Personnel expenses
Salaries $ 504,204 $ 411,290 $ - $ 915,494
Labor and health insurance 43,466 18,959 - 62,425
Pension 32,181 22,383 - 54,564
Others 14,786 5,993 - 20,779
$ 594,637 $ 458,625 $ - $ 1,053,262
Depreciation $ 364,236 $ 138,258 $ 1,150 $ 503,644
Amortization $ 12,595 $ 8,614 $ - $ 21,209
For the year ended December 31, 2009
Operating
cost Operating expense
Non-operating expenses and
losses Total
Personnel expenses
Salaries $ 381,012 $ 257,632 $ - $ 638,644
Labor and health insurance 35,322 17,812 - 53,134
Pension 21,765 15,006 - 36,771
Others 9,046 3,505 - 12,551
$ 447,145 $ 293,955 $ - $ 741,100
Depreciation $ 332,729 $ 171,584 $ 4,177 $ 508,490
Amortization $ 15,364 $ 8,828 $ - $ 24,192
~ 34 ~
5. RELATED PARTY TRANSACTIONS 1) Names of the related parties and their relationship with the Company
Names of related parties Relationship with the Company
Ho Chung Investment Co., Ltd. (Ho Chung Investment) Subsidiary of the Company
Jyu Shin Investment Co., Ltd. (Jyu Shin Investment) Subsidiary of the Company
Opto Technology International Group Co., Ltd. (Opto) Subsidiary of the Company
Source Ever Ltd. Subsidiary of the Company
CS Bright Corporation (CSB) Indirect subsidiary of the Company; subsidiary of Jyu Shin Investment Co., Ltd. (Note 1)
Graceful Business Co., Ltd. (Graceful) Indirect subsidiary of the Company; subsidiary of Opto (liquidated in July 2009)
Opto Tech (Cayman) Co., Ltd. (Cayman) Indirect subsidiary of the Company; subsidiary of Opto
Opto Grand (Cayman) Co., Ltd. (Opto Grand) Indirect subsidiary of the Company; subsidiary of Opto
Bright Investment International Ltd. (Bright) Indirect subsidiary of the Company; subsidiary of CSB
Everyung Investment Ltd. (Everyung) Indirect subsidiary of the Company; subsidiary of Bright
Opto Tech (H.K.) Co., Ltd. (Opto H.K.) Indirect subsidiary of the Company; subsidiary of Cayman (Note 2)
Opto Tech (Macao) Co., Ltd. (Opto Macao) Indirect subsidiary of the Company; subsidiary of Cayman (Note 2)
Opto Tech (Suzhou) Co., Ltd. (Opto Tech Suzhou) Indirect subsidiary of the Company; subsidiary of Cayman
Opto Tech Semiconductor (Ningbo) Co., Ltd. (Opto Tech Ningbo)
Indirect subsidiary of the Company; subsidiary of Opto Grand
Opto Plus Technology Co., Ltd. (Opto Plus) Indirect subsidiary of the Company; subsidiary of Everyung
Viking Tech Corporation (Viking Tech) Investee of the Company accounted for under the equity method
United Radiant Technology Corp. (United Radiant) The Company is a director of United Radiant.
Oriental System Technology Inc. (OST) The Company is a supervisor of OST
Shin-Etsu Opto Electronic Co., Ltd. (Shin-Etsu Opto) The Company is a director of Shin-Etsu Opto
Giga Epitaxy Technology Corp. (Giga Epitaxy Tech) The Company is a director of Giga Epitaxy Tech
Lu Zhu Development Co., Ltd. (Lu Zhu) The Company is a director of Lu Zhu
Lanyo Technology Co., Ltd. (Lanyo Tech) The Company is a director of Lanyo Tech but recalled on March 20, 2009
Shunag Xin Investment Consulting Co., Ltd. (Shunag Xin)
Shunag Xin is a director of the Company
Nichia Taiwan Corp. Nichia Taiwan Corp. is a director of the Company
Hitachi, Ltd. Hitachi, Ltd. is a director of the Company
Nichia Corp. Nichia Corp. is the parent company of
Nichia Taiwan Corp.
Note 1: The Company was reorganized on August 24, 2010. This company (formerly a subsidiary of the
Company) became the subsidiary of Jyu Shin Investment Co., Ltd.
Note 2: The Company was reorganized on November 1, 2009. This company (formerly a
subsidiary of the Company) became the subsidiary of Opto Tech (Cayman) Co., Ltd.
~ 35 ~
2) Significant related party transactions and balances
A. Sales
For the years ended December 31,
2010 2009
Amount % of net sales Amount % of net sales
Nichia Taiwan Corp. $ 346,990 5 $ 240,120 4
Shin-Etsu Opto 299,913 4 165,565 3
Opto Plus 23,446 - 29,274 1
Nichia Corp. 21,791 - 6,732 -
Opto Tech Suzhou 7,068 - 27,197 1
Opto Macao 5,441 - 14,264 -
OST 1,171 - 660 -
United Radiant 410 - - -
$ 706,230 9 $ 483,812 9
The selling prices charged to the above related parties are not materially different from those
charged to non-related parties. For the years ended December 31, 2010 and 2009, the credit
term is 45~136 days and 46~100 days for related parties, and both 90~150 days for
non-related parties.
The unrealized gains (losses) on the transactions between the Company and its affiliated
companies have been eliminated.
B. Purchases
For the years ended December 31,
2010 2009
Amount % of net
purchases Amount % of net
purchases
Nichia Taiwan Corp. $ 1,350,575 28 $ 821,539 26
Shin-Etsu Opto 363,775 7 228,704 7
Nichia Corp. 193,101 4 110,091 4
Opto Tech Suzhou 32,476 1 10,478 -
OST 13,501 - 9,298 -
CSB 7,383 - 1,301 -
Viking Tech 178 - 258 -
$ 1,960,989 40 $ 1,181,669 37
The purchase prices charged by the above related parties are not materially different from
those charged by non-related parties. For the years ended December 31, 2010 and 2009, the
credit term was 90~120 days and 75~120 days for the related parties, and both 90~120 days
for non-related parties.
~ 36 ~
C. Notes receivable December 31,
2010 2009
Amount % of notes receivable Amount
% of notes receivable
OST $ 489 2 $ - -
D. Accounts receivable
December 31,
2010 2009
Amount % of accounts
receivable Amount % of accounts
receivable
Nichia Taiwan Corp. $ 116,685 6 $ 109,585 6
Shin-Etsu Opto 44,648 2 64,977 4
Opto Plus 3,621 - 1,928 -
Opto Tech Suzhou 2,572 - 9,394 1
OST 441 - 316 -
United Radiant 283 - - -
Opto Macao 31 - - -
CSB - - 83,710 5
168,281 8 269,910 16Less: Allowance for doubtful
accounts ( 454) - ( 653) -Reclassified to other accounts receivable - - ( 83,710) ( 5)
$ 167,827 8 $ 185,547 11
As of December 31, 2010 and 2009, the accounts receivable from CS Bright Corporation was
reclassified to other receivables because it exceeded the normal credit term.
E. Other receivables December 31,
2010 2009
Amount % of other receivables Amount
% of other receivables
CSB $ - - $ 83,710 88Less: Allowance for doubtful
accounts - - - -
$ - - $ 83,710 88
~ 37 ~
F. Accounts payable
December 31,
2010 2009
Amount % of accounts
payable Amount % of accounts
payable Nichia Taiwan Corp. $ 627,032 37 $ 485,298 36
Shin-Etsu Opto 106,116 6 86,117 6
Nichia Corp. 56,593 3 53,290 4
OST 4,975 - 3,398 -
CSB 2,349 - - -
Opto Tech Suzhou 1,257 - 136 -
Viking Tech 73 - 184 -
$ 798,395 46 $ 628,423 46
G. Unearned revenue collected in advance
December 31,
2010 2009
Amount
% of unearned revenue
collected in advance Amount
% of unearned revenue
collected in advance
Opto Macao $ 1,938 7 $ - -
Shin-Etsu Opto 27 - - -
$ 1,965 7 $ - -
H. Disposal of assets
For the year ended December 31, 2010 Asset Selling price Gain (loss) on disposal
Opto Tech Suzhou Deferred assets (LED mold)
$ 1,309 ($ 91)
OST Machinery 25 4
$ 1,334 ($ 87)
For the year ended December 31, 2009: None.
I. Loans granted to related parties
Loans granted to related parties as of December 31, 2010 and 2009 are as follows:
December 31,
2010 2009 Opto Tech Suzhou $ 306,390 $ 368,460
CSB 227,430 143,040
Opto Macao 87,540 144,380
Opto Plus 43,770 -
$ 665,130 $ 655,880
~ 38 ~
J. Compensation of key management
For the years ended December 31,
2010 2009 Salary $ 18,042 $ 17,290
Bonus 2,906 1,950
Expense for performing the business 4,243 3,658
Appropriation of earnings 20,300 4,353
$ 45,491 $ 27,251
(1) Salaries include salaries and wages, job allowances, pension, and severance pay.
(2) Bonuses include all kinds of incentives.
(3) Expenses for performing the business include transportation fee, special fund, all kinds of
allowances, and benefits provided such as housing and vehicles.
(4) Appropriation of earnings is the estimated amounts of employees’ bonus and directors’ and
supervisors’ remuneration for the years ended December 31, 2010 and 2009.
(5) Please refer to the Company’s annual report for more details.
6. PLEDGED ASSETS
The Company’s assets pledged as collateral as of December 31, 2010 and 2009 are as follows:
Carrying value Purpose
December 31,
2010 December 31,
2009 Creditor Bank Type
Buildings $ 982,588 $ 1,019,300 Taishin International Bank and 7 other banks
Long-term loans
Restricted assets – Special account for payment
123,970 16,962 Taishin International Bank and 7 other banks
Long-term loans
Restricted assets – Time deposits
17,500 - Chang Hwa Commercial Bank
Loans granted for subsidiaries
$ 1,124,058 $ 1,036,262
7. COMMITMENTS AND CONTINGENT LIABILITIES
A. Please refer to Note 5 for details of the endorsements and guarantees provided to subsidiaries.
B. As of December 31, 2010, the guarantees provided by the Company through banks were as
follows:
Guarantor Nature of Guarantee Amount
Chang Hwa Commercial Bank Customs duty $ 20,000
~ 39 ~
C. As of December 31, 2010, the outstanding letters of credit issued for the importation of raw
materials and machinery were as follows:
Currency Amount NTD $ 197,467
USD 4,961
JPY 32,501
D. As of December 31, 2010, the Company had signed major contracts for the purchase of case
facilities. Details are as follows:
Case Currency Total amount Paid amount Unpaid amountTetrad epitaxy facility USD $ 6,300 $ 3,150 $ 3,150
During the second quarter of 2010, the total price of the contract was increased by USD $1,700
due to a revision of the contract.
E. The Company had entered into an agreement to lease land from Hsinchu Science Park for the
period from 1997 to 2029. Total rent payable as of December 31, 2010, are as follows:
Year Amount 2011 $ 16,205
2012 17,678
2013 17,678
2014 17,678
2015 17,678
After 2015 (Note) 61,489
$ 148,406
Note: Total rent payable of $80,513 was discounted based on the standard rate of Bank of Taiwan
of 2.676% as of December 31, 2010.
F. Pursuant to the syndicated loan facility agreement entered into by the Company with Taishin
International Bank and 7 other banks, the Company is required to maintain its current ratio at
100% or above, debt ratio at 150% or below, interest coverage ratio at 300% or above and net
value of tangible assets at $0.5 billion or above. If the Company breaches the above debt
covenants, it is required to propose specific plans for improvement and the related details.
However, the Company may request for a waiver and it may be exempted from the breach after a
resolution by the majority of the banks.
G. As of December 31, 2010, and 2009, the promissory notes issued by the Company for loans,
performance guarantee for purchases and loans granted for subsidiaries amounted to $9,918,836
and $9,232,309, respectively.
8. SIGNIFICANT DISASTER LOSS
None.
9. SIGNIFICANT SUBSEQUENT EVENTS
None.
~ 40 ~
10. OTHERS
1) Financial statement presentation
Certain accounts in the December 31, 2009 financial statements were reclassified to conform
with the December 31, 2010 financial statement presentation.
~ 41 ~
2) The fair values of the financial instruments
December 31, 2010 December 31, 2009
Fair value Fair value
Book value
Quotations in an
active market
Estimated
using a
valuation
technique Book value
Quotations in an
active market
Estimated
using a
valuation
technique
Non-derivative financial instruments
Assets
Financial assets with fair values equal to book values $ 4,897,865 $ - $ 4,897,865 $ 4,920,011 $ - $ 4,920,011
Financial assets at fair value through profit or loss 300,327 300,327 - 50,000 50,000 -
Available-for-sale financial assets 79,849 79,849 - 109,579 109,579 -
Financial assets carried at cost 573,262 - - 580,738 - -
Deposits out 10,443 - 10,443 8,780 - 8,780
Liabilities
Financial liabilities with fair values equal to book values 3,416,969 - 3,416,969 2,891,379 - 2,891,379
Long-term loans 1,266,272 - 1,266,272 1,914,886 - 1,914,886
Guarantee deposits 50 - 50 76 - 76
Derivative financial instruments
Assets
Financial assets at fair value through profit or loss
Currency swap contracts 367 367 - - - -
Forward exchange contracts - - - 304 304 -
Liabilities
Financial liabilities at fair value through profit or loss
Forward exchange contracts 39 39 - - - -
~ 42 ~
The methods and assumptions used to estimate the fair values of the above financial instruments
are summarized below:
A. The fair values of short-term financial instruments were determined based on their carrying
values because of the short maturities of the instruments. This method was applied to cash and
cash equivalents, notes and accounts receivable (including related parties), other receivables
(including related parties), other financial assets – current, other current assets, short-term
loans, notes and accounts payable (including related parties), accrued expenses, other
payables, long-term liabilities with maturity within one year and other current liabilities.
B. Since quoted market prices are available for available-for-sale financial assets, the fair values
are determined by the quoted market price.
C. The fair value of deposits out and guarantee deposits is the book value since the amount is
insignificant.
D. The fair value of long-term loans is based on the present value of expected future cash flows.
Since long-term loans have floating interest rates, the carrying value is equivalent to the fair
value.
E. Since quoted market prices are available for derivative financial assets and liabilities, the fair
values are determined by the quoted market price.
3) As of December 31, 2010 and 2009, the financial assets with fair value risk due to the change of
interest amounted to $1,848,200 and $2,152,484, respectively, and the financial liabilities with
fair value risk due to the change of interest were both $0. As of December 31, 2010 and 2009,
the financial assets with cash flow risk due to the change of interest were $702,718 and
$564,792, respectively, and the financial liabilities with cash flow risk due to the change of
interest were $2,428,260 and $3,122,395, respectively.
4) For available-for-sale financial assets, during the years ended December 31, 2010 and 2009, the
amount of gain or loss recognized directly in equity were ($26,849) and $84,301, respectively.
5) Procedure of financial risk control and hedge
A. The primary financial products the Company holds in addition to derivative instruments
include bank loans, capital leases and cash and cash equivalents. The Company meets
operating capital needs through these financial instruments. The Company also holds other
financial assets and liabilities, such as accounts receivable and payable resulting from
operating activities.
B. The key risks of the financial instruments of the Company are exchange rate risk, credit risk
and liquidity risk. To meet its risk management objectives, the Company adopts the following
strategies to control financial risk:
(A) Exchange rate risk
The Company is exposed to exchange rate risk because some of its purchases or sales are
denominated in foreign currencies. The percentage of foreign currency denominated
purchases and sales over total purchases and sales of the Company are estimated to be
66% and 77%, respectively.
~ 43 ~
(B) Price risk
The price risk of the Company is low.
(C) Credit risk
Before making trades with third parties, the Company has to follow credit assessment
procedures based on its credit policy, and evaluates the recovery of accounts receivable
and notes receivable continuously.
The credit risk of other financial assets (including cash and cash equivalents, financial
assets at fair value through profit or loss and available-for-sale financial assets) mainly
results from the risk of failing to meet the contract requirements by the counterparty. The
maximum credit risk is equal to the book value.
(D) Liquidity risk
The Company maintains sufficient capital and reaches the objective of flexible use and
stabilization of capital through bank loans and cash and cash equivalents. As of December
31, 2010 and 2009, current loans are 48% and 39% of the total loans, respectively.
6) Information of material financial risk
A. Financial investments in equity: Financial assets at fair value through profit or loss – current,
financial assets carried at cost – non-current and
available-for-sale financial assets – non-current.
(A) Market risk
The financial investments in equity of the Company are affected by the change in market
prices. However, the Company has set stop-loss limits and it is expected that there will be
no significant market risk.
As the Company’s financial assets carried at cost are not affected by the change in market
prices, it is expected that there will be no significant market risk.
~ 44 ~
The business that the Company is engaged in is related to several non-functional
currencies, and is influenced by the fluctuation of exchange rates. The information of
assets and liabilities dominated in foreign currencies, which are significantly affected by
the fluctuation of exchange rates is as follows:
December 31,
2010 2009
Foreign currency Exchange rate
Foreign currency
Exchange rate
Financial Assets
Currency item
USD:NTD $ 58,249 29.0800 $ 44,239 31.9400
JPY:NTD 1,670,921 0.3562 479,830 0.3452Long-term
investments-accounted for under the equity method
USD:NTD 23,857 29.0800 24,500 31.9900
Financial Liabilities
Currency item
USD:NTD 35,790 29.1800 32,592 32.0400
JPY:NTD 1,767,235 0.3602 847,504 0.3492
(B) Credit risk
The Company invests in financial assets at fair value through profit or loss and
available-for-sale financial assets in listed market and GreTai Securities Market or makes
trade through underwriters. In addition, when investing in financial assets at fair value
through profit or loss, available-for-sale financial assets and financial assets carried at
cost, the Company has evaluated the credit standing of the counterparties and does not
expect any non-fulfillment of the terms of the contract. Therefore, the credit risk is low.
(C) Liquidity risk
All financial assets at fair value through profit or loss and available-for-sale financial
assets of the Company have quoted prices in active markets and therefore it is expected
that the Company can quickly sell the financial assets in the market at prices close to their
fair values.
There is no active market for financial assets carried at cost of the Company, so the
Company expects to have liquidity risk.
(D) Cash flow risk due to the change of interest
As the Company has no significant interest-bearing assets, cash flows are substantially
independent of changes in market interest rates.
~ 45 ~
B. Receivables: Notes receivable (including related parties), accounts receivable (including
related parties) and other receivables (including related parties).
(A) Market risk
The receivables of the Company are all due within one year. Therefore, there is no
significant market risk.
(B) Credit risk
The debtors of the Company have good credit standing. Thus, there is no significant
credit risk.
(C) Liquidity risk
The receivables of the Company are all due within one year. Therefore, there is no
significant liquidity risk.
(D) Cash flow risk due to the change of interest
The receivables of the Company are all due within one year. There is no cash flow risk
due to the change of interest.
C. Loans: Long-term loans (including loans maturing within one year or one operating cycle).
(A) Market risk
The loans of the Company are operating advances with floating interest. Thus, there is no
significant market risk.
(B) Credit risk
None.
(C) Liquidity risk
The working capital of the Company is sufficient to cover the loans, so it expects no
significant liquidity risk.
(D) Cash flow risk due to the change of interest
The loans of the Company are financial instruments with floating interest and therefore
the change in market interest will result in the change in the effective interest of financial
instruments in debts and will result in the fluctuation of future cash flows.
~ 46 ~
7) Information on derivative financial instruments
The transaction of derivative financial instruments during the year ended December 31, 2010 is as follows (in thousands of dollars): Terms of transaction Future cash flows
Derivative financial instruments
Par value, amount of the contract or nominal principal
Date of contract
Date of performance
Price of performance/
agreed exchange rate
Loss recognized for the year ended December
31, 2010 Cash outflow Cash inflow
Advanced forward exchange contracts
USD$ 1,000
2010.12.02
2010.12.02~2011.01.06
$ 30.325
($ 39)
USD$ 1,000 $ 30,325
Currency swap contracts
USD$ 1,000
2010.12.17
2010.12.17~2011.06.21
29.855
367
29,855 USD 1,000
$ 328
~ 47 ~
11. SUPPLEMENTARY DISCLOSURES 1) Significant transactions
A. Loans granted during the year ended December 31, 2010:
Number
(Note 1)
Creditor Borrower General
ledger account
Maximum outstanding
balance during
the year ended
December 31, 2010
Balance atDecember 31, 2010
Interest rate
Nature of loan
(Note 2)
Business relationship
Reason for short-term financing
Allowancefor doubtful
accounts
Limit on loans
granted to a single
party (Note 3)
Ceiling on total loans
granted (Note 4)
Nature of loan
Amount oftransactions
with the borrower
Collateral
Item Value
0 Opto Tech Corp.
CS Bright Crop.
Other receivables –related parties
$ 83,710 $ - - 2 - $ - Operating needs
$ -
None $ - $ 353,736 $ 707,471
1 CS BrightCrop.
Opto Plus Other receivables –related parties
78,191 49,477 5.000% 1 Sales Purchases
26,748
(69,430)
None
-(Note 5)
〞
- 69,430 -
(Note 6)
Note 1: The numbers filled in for the loans provided by the Company or subsidiaries are as follows:
(1) The Company is “0”.
(2) The subsidiaries are numbered in order starting from “1”.
Note 2: Relationship with the borrower is classified into the following categories:
(1) The borrower having business relationship is numbered as “1”.
(2) The borrower having the needs of short-term financing is numbered as “2”.
Note 3: Limit on loans granted to a single party, which has the needs of short-term financing with the Company should not exceed 5% of the Company’s latest net asset value. Besides, limit on loans granted to a single
party, which has business relationship with the subsidiaries should not exceed total amount that the two sides trade in the recent year.
Note 4: Total amount of loans of the Company should not exceed 10% of the net value of the Company’s latest net asset value, and total amount of loans of the subsidiaries should not exceed 20% of the net values of
the subsidiaries’ latest net asset values.
Note 5: The balance of loans amounting to $49,447, which CS Bright Corp. (the subsidiary of Opto Tech Corp.) granted to Opto Plus (the indirect subsidiary of Opto Tech Corp.) was overdue. In accordance with EITF
93-036 and EITF 76-069, the parent company’s accounts receivable from its subsidiaries should not be recognized as allowance for doubtful accounts. Instead, the doubtful accounts should be recognized as
investment loss.
Note 6: At first, the amount of loans which CS Bright Corp. (the subsidiary of Opto Tech Corp.) granted to Opto Plus (the indirect subsidiary of Opto Tech Corp.) did not exceed the ceiling on total loans granted.
However, due to disadvantageous operating conditions and decreasing net asset value of CS Bright Corp., the loans granted have exceeded the limit.
~ 48 ~
B. Endorsements and guarantees provided for the year ended December 31, 2010:
Number
(Note 1) Endorser/ guarantor
Party being endorsed/
guaranteed
Relationship with the endorser/ guarantor (Note 2)
Limit on endorsements/
guarantees provided for a single party
(Note 3)
Maximum outstanding endorsement/
guarantee amount during the year ended
December 31, 2010
Outstanding endorsement/
guarantee amount atDecember 31, 2010
Amount of endorsements/
guarantees secured with collateral
Ratio of accumulatedendorsement/
guarantee amount to net asset value of
the Company
Ceiling on total amount of endorsements/
guarantees provided (Note 3)
0 Opto Tech Corp
Opto Tech (Suzhou) Co., Ltd.
3 $ 1,414,943 $ 370,415 $ 306,390 $ - 4.33 $ 3,537,357
0 〞. CS Bright Corp. 3 1,414,943 230,460 227,430 - 3.21 3,537,357
0 〞 Opto Tech (Macao) Co., Ltd.
3 1,414,943 144,945 87,540 - 1.24 3,537,357
0 〞 Opto Plus Technology Co., Ltd.
3 1,414,943 48,052 43,770 - 0.62 3,537,357
$ 665,130 9.40
Note 1: The numbers filled in for the endorsements and guarantees provided by the Company or subsidiaries are as follows:
(1) The Company is “0”.
(2) The subsidiaries are numbered in order starting from “1”.
Note 2: Relationship with the endorser/guarantor is classified into the following categories:
(1) Having business relationship.
(2) The Company owns more than 50% voting shares of the endorsed/guaranteed company.
(3) The Company and its subsidiaries jointly own more than 50% voting shares of the endorsed/guaranteed company.
(4) The endorsed/guaranteed company directly or indirectly owns more than 50% voting shares of the endorser/guarantor.
(5) Mutual guarantees in the same trade due to construction undertaking pursuant to the contracts.
(6) Due to joint venture, each shareholder provides guarantees for the company in proportion to its ownership.
Note 3: Under the Company’s “Procedures for Provision of Endorsements and Guarantees”, the Company’s total guarantees and endorsements to others should not exceed 50% of the Company’s net asset value, and
total guarantees and endorsements provided for a single party should not exceed 20% of the Company’s net asset value. The calculation is shown below:
(1) 7,074,714 thousand dollars × 20% = 1,414,943 thousand dollars
(2) 7,074,714 thousand dollars × 50% = 3,537,357 thousand dollars
~ 49 ~
C. Marketable securities held as at December 31, 2010:
As of December 31, 2010
Securities held by
Type of marketable securities Name of marketable securities
Relationship of the securities issuer with the Company
General ledger account
Number of shares(in thousands) Book value
Ownership (%)
Market value or equity per share
(in dollars)
Remark Opto Tech Corp. stock United Radiant Technology
Corp. The Company is the
director of this company.
Available-for-sale financial assets-non-current
8,882 $ 79,849 5.59 $ 79,849 None
〞 〞 AXT, Inc. None. 〞 124 - - - Note
79,849
〞 〞 Nichia Corp. This company is the parent company of Nichia Taiwan Corp.
Financial assets carried at cost-non-current
10 379,252 0.47 $ 677,301 None
〞 〞 Lu Zhu Development Co., Ltd.
The Company is the director of this company.
〞 15,870 126,963 6.38 126,378 〞
〞 〞 Giga Epitaxy Technology Corp.
The Company is the director of this company.
〞 3,300 33,000 4.55 29,636 〞
〞 〞 Shin-Etsu Opto Electronic Co., Ltd.
The Company is the director of this company.
〞 2,000 20,000 10.00 63.294 〞
〞 〞 Oriental System Technology Inc.
The Company is the supervisor of this company.
〞 1,966 8,698 14.14 9,040 〞
〞 〞 Formosa Industrial Computing, Inc.
None 〞 699 5,349 4.49 5,394 〞
〞 〞 Top Increasing Technology Co., Ltd.
None 〞 10,000 - 16,67 - 〞
〞 〞 Mentor Data System, Inc. None. 〞 4,509 - 19.19 - 〞
〞 〞 Pictologic Inc. None 〞 400 - 1.71 2,656 〞
〞 〞 Lanyo Technology Co., Ltd. None. 〞 120 - 7.75 510 〞
〞 〞 Action Media Technologies Inc.
None.
〞 75 - 1.96
-
〞
$ 573,262
Note: The shares of AXT, Inc, which are owned by the Company are preferred stocks.
~ 50 ~
As of December 31, 2010
Securities held by
Type of marketable securities Name of marketable securities
Relationship of the securities issuer with the Company
General ledger account
Number of shares(in thousands) Book value
Ownership (%)
Market value or equity per share
(in dollars)
Remark Opto Tech Corp. stock Opto Technology
International Group Co., Ltd.
Subsidiary of the Company
Long-term investment accounted for under equity method
28,770 $ 694,962 100.00 $ 694,962 Note 1
〞 〞 Ho Chung Investment Corp. Subsidiary of the Company
〞 23,830 67,285 100.00 67,285 None
〞 〞 Jyu Shin Investment Co., Ltd. Subsidiary of the Company
〞 12,569 231,344 100.00 231,344 〞
〞 〞 Viking Tech Corporation Investee of the Company accounted for under the equity method
〞 7,209 132,934 9.90 132,934 〞
〞 〞 Source Ever Limited Subsidiary of the Company
〞 - - 100.00 - Note 2
〞 〞 CS Bright Corp. Indirect subsidiary of the Company
〞 - - - - Note 3
Jyu Shin Investment Co., Ltd.
stock CS Bright Corp. Subsidiary of the Company
Long-term investment accounted for under equity method
4,994 103,494 99.87 103,494 Note 3
〞 〞 Viking Tech Corporation Investee of the Company accounted for under the equity method
〞 6,198 110,673
8.51 110,673 None
Ho Chung Investment Corp.
stock Opto Tech Corp. Parent company of the Company
Financial assets at fair value through profit or loss - current
1,107 23,031 0.20 23,031 〞
〞 〞 Viking Tech Corporation Investee of the Company accounted for under the equity method
Long-term investment accounted for under equity method
2,726 50,343 3.74 50,343 〞
〞 〞 VML Technologies B.V. Investee of the Company accounted for under the equity method
〞 6 - 25.00 - 〞
〞 〞 Brilliance Semiconductor, Inc.
None Financial assets carried at cost-non-current
15 293 0.06 - 〞
Note 1: On October 21, 2010, the Company increased its capital by USD 2,000 thousand dollars by cash to its subsidiary - Opto Technology International Group Co., Ltd.
Note 2: Source Ever Limited, an offshore trading company in BVI and a 100% owned subsidiary of the Company, was incorporated on April 26, 2010.
Note 3: CS Bright Corp. covered losses by reducing its capital on August 23, 2010. After the capital reduction, the holding shares of the Company decreased from 1,962,883 to 1. On August 24, 2010, CS Bright Corp. then increased its capital, but the Company did not participate in the capital increase. Therefore, the ownership ratio decreased to 0.00002%. On November 25, 2010, the Company sold the remaining 1 share to Jyu Shin investment Co. Ltd., which was the subsidiary of the Company, and the holding shares of the Company decreased to 0. On the other hand, Jyu Shin investment Co., Ltd., which was a 100% owned subsidiary of the Company, participated in the capital increase of CS Bright Corp., and the ownership was 94.02%, and the number of shares amounted to 4,701 thousand. On November 11, 2010, Jyu Shin investment Co. Ltd. acquired the outside shares, and the ownership increased to 99.87%.
~ 51 ~
As of December 31, 2010
Securities held by
Type of marketable securities Name of marketable securities
Relationship of the securities issuer with the Company
General ledger account
Number of shares(in thousands) Book value
Ownership (%)
Market value or equity per share
(in dollars)
Remark CS Bright Corp. stock Bright Investment
International Ltd. Subsidiary of the
Company Long-term investment
accounted for under equity method
USD 4,980 $ 889 100.00 $ 889 None
Bright Investment International Ltd.
stock Everyung Investment Ltd. Subsidiary of the Company
Long-term investment accounted for under equity method
USD 4,980 USD 1,729 71.43 USD 1,729 Note 1
Everyung Investment Ltd.
stock Opto Plus Technology Co., Ltd.
Subsidiary of the Company
Long-term investment accounted for under equity method
USD 6,980 USD 2,420 100.00 USD 2,420 Note 2
Opto Technology International Group Co., Ltd.
stock Opto Tech (Cayman) Co., Ltd.
Subsidiary of the Company
Long-term investment accounted for under equity method
USD 6,670 USD 906 100.00 USD 906 None
〞 〞 Opto Grand (Cayman) Co., Ltd.
〞 〞 USD 20,000 USD 22,145 100.00 USD 22,145 〞
〞 〞 Everyung Investment Ltd. 〞 〞 USD 2,000 USD 692 28.57 USD 692 Note 1
Opto Tech (Cayman) Co., Ltd.
stock Opto Tech (Suzhou) Co., Ltd. Subsidiary of the Company
Long-term investment accounted for under equity method
USD 6,000 USD 132 100.00 USD 132 None
〞 〞 Opto Tech (H.K.) Co., Ltd. 〞 〞 USD 288 USD 283 100.00 USD 283 〞
〞 〞 Opto Tech (Macao) Co., Ltd. 〞 〞 USD 372 USD 480
100.00 USD 480 〞
Opto Grand (Cayman) Co., Ltd
stock Opto Tech Semiconductor (Ningbo) Co., Ltd.
Subsidiary of the Company
Long-term investment accounted for under equity method
USD 20,000 USD 22,131 100.00 USD 22,131 〞
Note 1: On October 26, 2010, Opto Technology International Group Co., Ltd. increased its capital by USD 2,000 thousand dollars by cash to its subsidiary - Everyung Investment Ltd., and the ownership is 28.57%.
Therefore, the ownership of Everyung Investment Ltd., which is held by Bright Investment International Ltd. decreased to 71.43%.
Note 2: On November 4, 2010, Everyung Investment Ltd. increased its capital by USD 2,000 thousand dollars by cash to its subsidiary of the company - Opto Plus Technology Co., Ltd.
D. Acquisition or sale of the same security with the accumulated cost exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2010: None.
E. Acquisition of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2010: None.
F. Disposal of real estate properties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2010: None.
~ 52 ~
G. Purchases from or sales to related parties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2010:
Transaction
Differences in transaction terms compared to third
party transactions Notes/accounts
receivable (payable)
Purchaser/seller Counterparty Relationship with the Company Purchases
(sales)
Amount
Percentage of
total purchases
(sales) Credit term Unit price Credit term
Balance
Percentage of total
notes/accounts receivable (payable)
Opto Tech Corp. Nichia Taiwan Corp.
This company is the director of theCompany
Purchases $ 1,350,575 28- 120 days equivalent to normal transaction
- ($ 627,032) ( 37)
Opto Tech Corp. Shin-Etsu Opto Electronic Co., Ltd.
The Company is the director of thiscompany
〞 363,775 7- 90 days 〞 - ( 106,116) ( 6)
Opto Tech Corp. Nichia Corp. Nichia Corp. is the parent company of Nichia Taiwan Corp.
〞 193,101 4- 120 days 〞 - ( 56,593) ( 3)
Opto Tech Corp. Nichia Taiwan Corp. This company is the director of the Company
Sales ( 346,990) ( 5) 136 days 〞 - 116,685 6
Opto Tech Corp. Shin-Etsu Opto Electronic Co., Ltd.
The Company is the director of thiscompany
〞 ( 299,913) ( 4) 90 days 〞 - 44,648 2
H. Receivables from related parties exceeding $100 million or 20% of the Company’s paid-in capital during the year ended December 31, 2010:
Creditor Counterparty Relationship with the
Company
Balance as at December 31,
2010 Turnover rate
Overdue receivables Amount collectedsubsequent to the
balance sheet date
Allowance for doubtful accounts Amount Action taken
Opto Tech Corp. Nichia Taiwan Corp. This company is the director of the Company
$ 116,685 3.07 $ - - $ - $ -
I. Derivative financial instruments undertaken during the year ended December 31, 2010: Please refer to Note 10(7).
~ 53 ~
2) Information on investee companies for the year ended December 31, 2010
Investee Location Main activities
Initial investment amount
Shares held as at December 31, 2010
Net income (loss) of the
investee
Investment income (loss)
recognized by the
Company Remark
Balance as at
12/31/10 Balance
as at 12/31/09 No. of shares(in thousands)
Ownership (%) Book value
Opto Tech Corp. holds—
Opto Technology International Group Co., Ltd.
Cayman Islands
Holding Company $ 946,104 $ 884,484 28,770 100.00 $ 694,962 ($ 68,225) ($ 68,225) Subsidiary of the Company
Ho Chung Investment Co., Ltd.
Taiwan Investment business 288,300 288,300 23,830 100.00 67,285 8,533 17,170
Subsidiary of the Company
Jyu Shin Investment Co., Ltd.
Taiwan Investment business 125,687 78,678 12,569 100.00 231,344 38,732 38,732 Subsidiary of the Company
CS Bright Corporation Taiwan Manufacture and Sales of Displays, SMD Lamps and other LED related products
- 577,247 - - - 54,939 98,104 Subsidiary of the Company
Note 1 Note 2
Source Ever Limited B.V.I. International trading - - - 100.00 - - - Subsidiary of the Company
Note 3 Viking Tech
Corporation Taiwan R&D, Manufacture and Sales of SMD Chip
Resistor, DIP Power Resistor, High Frequency Ceramic Chip Inductor, SMD Ferrite Inductor, Power Inductor, Capacitor Integrated Passive Devices
291,301 291,301 7,209 9.90 132,934 229,635 22,924 Long-term investment
accounted for under equity
method Note 1: For the year ended December 31, 2010, the Company recognized investment income of $ 14,394 from its subsidiary, CS Bright Corporation, based on the Company’s ownership. Besides, the Company received
$83,710 from China Semiconductor Corporation, which was originally evaluated as uncollectible, and was recognized as investment income. Note 2: CS Bright Corporation covered losses by reducing capital on August 23, 2010. After the capital reduction, the holding shares of the Corporation decreased from 1,962,883 to 1. On August 24, 2010, CS Bright
Corporation then increased capital, but the Corporation did not participate in the capital increase. Therefore, the ownership ratio decreased to 0.00002%. On November 25, 2010, the Company sold the remaining 1 share to Jyu Shin investment Co. Ltd., which is the subsidiary of the Company, and the holding shares of the Company decreased to 0.
Note 3: Source Ever Limited, an offshore trading company in BVI and a 100% owned subsidiary of the Company, was incorporated on April 26, 2010.
~ 54 ~
Investee Location Main activities
Initial investment amount
Shares held as at December 31, 2010
Net income (loss) of the
investee
Investment income (loss)
recognized by the
Company Remark
Balance as at
12/31/10 Balance
as at 12/31/09 No. of shares(in thousands)
Ownership (%) Book value
Ho Chung Investment Co., Ltd. holds—
CS Bright Corporation Taiwan Manufacture and Sales of Displays, SMD Lamps and other LED related products
$ - $ 25,285 - - $ - $ 54,939
$ 10,372 Long-term investment
accounted for under equity
method (Note 1)
Viking Tech Corporation
Taiwan R&D, Manufacture and Sales of SMD Chip Resistor, DIP Power Resistor, High Frequency Ceramic Chip Inductor, SMD Ferrite Inductor, Power Inductor, Capacitor Integrated Passive Devices
49,068 49,068 2,726 3.74 50,343 229,635 8,593 Long-term investment
accounted for under equity
method VML Technologies B.V.
Holland Manufacture and Design of system products 37,436 37,436 6 25.00 - ( 6,317) ( 2,092) Long-term investment
accounted for under equity
method Jyu Shin Investment Co., Ltd. holds—
CS Bright Corporation Taiwan Manufacture and Sales of Displays, SMD
Lamps and other LED related products 50,170 - 4,994 99.87 103,494 54,939 19,544 Subsidiary of
the Company (Note 1)
Viking Tech Corporation
Taiwan R&D, Manufacture and Sales of SMD Chip Resistor, DIP Power Resistor, High Frequency Ceramic Chip Inductor, SMD Ferrite Inductor, Power Inductor, Capacitor Integrated Passive Devices
78,651 78,651 6,198 8.51 110,673 229,635 19,538 Long-term investment
accounted for under equity
method CS Bright Corporation holds—
Gigantic Pacific Investments Ltd.
B.V. I. Investment business - 281,707 - - - 26,158
26,158 Indirect subsidiary (Note 2)
Bright Investment International Ltd.
B.V. I. Investment business 168,421 168,421 USD 4,980 100.00 889 8,776 8,776 Indirect subsidiary
Note 1: CS Bright Corporation covered losses by reducing its capital on August 23, 2010. After the capital reduction, the holding shares of Ho Chung Investment Co., Ltd. decreased from 2,528,473 to 0. On August 24, 2010, CS Bright Corporation then increased its capital, but Ho Chung Investment Co., Ltd. did not participate in the capital increase. Therefore, the ownership ratio decreased to 0%. On the other hand, Jyu Shin investment Co., Ltd., which was a 100% owned subsidiary of the Company, participated in the capital increase of CS Bright Corporation, and the ownership was 94.02%, and the number of shares amounted to 4,701 thousands. On November 11, 2010, Jyu Shin investment Co. Ltd. acquired the outside shares, and the ownership increased to 99.87%.
Note 2: Gigantic Pacific Investments Ltd., an indirect subsidiary of CS Bright Corporation, was liquidated in October, 2010.
~ 55 ~
Investee Location Main activities
Initial investment amount
Shares held as at December 31, 2010
Net income (loss) of the
investee
Investment income (loss)
recognized by the
Company Remark
Balance as at
12/31/10 Balance
as at 12/31/09 No. of shares(in thousands)
Ownership (%) Book value
Gigantic Pacific Investments Ltd. holds—
Shaoxing Yilida Electronics Co., Ltd.
China Manufacture and Sales of LED and Electronic Products
USD$ - USD$ 5,069 USD$ - - USD$ - USD$ - USD$ - Indirect
subsidiary (Note 1)
Bright Investment International Ltd. holds—
Everyung Investment Ltd.
B.V. I. Investment business USD 4,980 USD 4,980 USD 4,980 71.43 USD 1,729
USD 241
USD 278 Indirect subsidiary
Everyung Investment Ltd. holds—
Opto Plus Technology Co., Ltd.
China Manufacture and Sales of LED and Electronic Products
USD 6,980 USD 4,980 USD 6,980 100.00 USD 2,420
USD 241
USD 241 Indirect subsidiary
Opto Technology International Group Co., Ltd. holds—
Opto Tech (Cayman) Co., Ltd.
Cayman Islands
Holding Company USD 6,670 USD 6,670 USD 6,670 100.00 USD 906
(USD 1,286) (USD 1,286) Indirect subsidiary
Opto Grand (Cayman) Co., Ltd.
Cayman Islands
Holding Company USD 20,000 USD 20,000 USD 20,000 100.00 USD 22,145
(USD 841) (USD 841) Indirect subsidiary
Everyung Investment Ltd.
B.V. I. Investment business USD 2,000 - USD 2,000 28.57 USD 692
USD 241 (USD 38) Indirect subsidiary (Note 2)
Opto Tech (Cayman) Co., Ltd. holds—
Opto Tech (Suzhou) Co., Ltd.
China Research, Design and Manufacture of LED Display, Wireless Communication Equipment and related parts
Opto Tech (Hong Kong) Co., Ltd.
Hong Kong International trading USD 6,000 USD 6,000 USD 6,000 100.00 USD 132
(USD 1,526) (USD1,526) Indirect subsidiary
Opto Tech (Macao) Co., Ltd.
Macao International trading USD 288 USD 288 USD 288 100.00 USD 283
(USD 1) (USD 1) Indirect subsidiary
Opto Grand (Cayman) Co., Ltd. holds—
USD 372 USD 372 USD 372 100.00 USD 480
USD 241 USD 241 Indirect subsidiary
Opto Tech Semiconductor (Ningbo) Co., Ltd.
China Manufacture and Sales of LED and Electronic products
USD 20,000 USD 20,000 USD 20,000 100.00 USD 22,131
(USD 841) (USD 841) Indirect subsidiary
Note 1: Shaoxing Yilida Electronics Co., Ltd., an indirect subsidiary of CS Bright Corp., was liquidated in January 2010.
Note 2: On October 26, 2010, Opto Technology International Group Co., Ltd. increased its capital by USD 2,000 thousand dollars by cash to its subsidiary - Everyung Investment Ltd., and the ownership ratio is 28.57%.
~ 56 ~
2) Information on Mainland China investments
A. Information on Mainland China investments for the year ended December 31, 2010
Investee in Mainland China Main activities Paid-in capital
Investment method
Accumulated amount of
remittance to Mainland China as of January 1, 2010
Amount remittedto Mainland China
during the year
Amount remitted back to Taiwan during
the year
Accumulated amount of remittance to
Mainland China as of December 31, 2010
Ownership held by the Company (direct and indirect)
Investment income (loss) recognized by the Company for the year
(Note 2)
Book value of investments in
Mainland China as of December
31, 2010
Accumulated amount of
investment income remitted back to
Taiwan as of December 31, 2010
Opto Tech (Suzhou) Co., Ltd.
Research, Design and Manufacture of LED Display, Wireless Communication Equipment and related parts
$ 207,510
USD 6,000
Note 1(2) $ 207,510
USD 6,000
$ - $ -
$ 207,510
USD 6,000
100.00% ($ 48,096)
(USD 1,526)
$ 3,845
USD 132
$ -
Opto Tech Semiconductor (Ningbo) Co., Ltd.
Manufacture and Sales of LED and Electronic products
651,721
USD 20,000
Note 1(2) 651,721
USD 20,000
- - 651,721
USD 20,000
100.00% ( 26,506)
(USD 841)
644,676
USD 22,131
-
Shaoxing Yilida Electronics Co., Ltd. (Note 3)
〞
176,753
USD 5,069
Note 1(2) 176,753
USD 5,069
- 33,225
USD 1,037
143,528
USD 4,032
- -
USD -
-
-
-
Opto Plus Technology Co., Ltd.
〞
168,617
USD 4,980
Note 1(2) 168,617
USD 4,980
61,620
USD 2,000
- 230,237
USD 6,980
99.87% 7,596
USD 241
70,495
USD 2,420
-
Accumulated amount of remittance from Taiwan to Mainland China as of December 31, 2010
Investment amount approved by the Investment Commission of the
Ministry of Economic Affairs (MOEA)
Ceiling on investments in Mainland China imposed by
the Investment Commission of MOEA
$ 1,232, 996 USD 35,000 $ 4,244,828
Note 1: The investment methods are classified into five categories as follows:
(1) Remitting investment funds to the investee company in Mainland China through the third area.
(2) Setting up a company in the third area, which then invested in the investee company in Mainland China.
(3) Through investing in an existing company in the third area, which then invested in the investee company in Mainland China.
(4) Directly investing in the investee company in Mainland China.
(5) Other.
Note 2: The investment income or loss was recognized by indirect weighted ownership based on the financial statements of these investees which were not audited by the independent accountants of the parent company for the corresponding
periods.
Note 3: Shaoxing Yilida Electronics Co., Ltd., an indirect subsidiary of CS Bright Corp., was liquidated in January 2010.
B. The significant events occurring due to investment through the third area and the investees in Mainland China for the year ended December 31, 2010 were as follows:
(1)The Company sold semi-finished goods and finished goods of LED to Opto Tech (Suzhou) Co., Ltd. during the year ended December 31, 2010, amounting to $7,068, comprising 0.09% of net sales of the Company. As of December 31, 2010,
accounts receivable from Opto Tech (Suzhou) Co., Ltd. was $2,572, comprising 0.13% of the accounts receivable of the Company. The Company sold semi-finished goods to Opto Plus Technology Co., Ltd., amounting to $23,446,
comprising 0.31% of net sales of the Company. As of December 31, 2010, accounts receivable from Opto Plus Technology Co., Ltd. was $3,621, comprising 0.18% of the accounts receivable of the Company.
(2)The Company purchased semi-finished goods from Opto Tech (Suzhou) Co., Ltd. during the year ended December 31, 2010, amounting to $32,476, comprising 0.67% of net purchases of the Company. As of December 31, 2010, accounts
payable from Opto Tech (Suzhou) Co., Ltd. was $1,257, comprising 0.07% of the accounts payable of the Company.
~ 57 ~
12. SEGMENT INFORMATION
1) Financial information by industry
For the year ended December 31, 2010
Semiconductor
department System
department Other
department Total Operating income from
the parent company $ 6,766,969 $ 906,673 $ 11 $ 7,673,653
Gains and losses from departments
$ 925,392 ($ 40,638) ($ 138,322)
$ 746,432
Gains and losses from investments
101,229
Interest expenses ( 37,151)
Income before income tax from continuing operations
$ 810,510
Identifiable assets $ 4,391,569 $ 497,153 $ 5,287,595 $ 10,176,317
Funds and long-term investments
1,779,636
Total assets $ 11,955,953
Depreciation $ 318,534 $ 29,179 $ 155,931 $ 503,644
Capital expenditures $ 535,726 $ 8,469 $ 79,251 $ 623,446
For the year ended December 31, 2009
Semiconductor
department System
department Other
department Total Operating income from
the parent company $ 4,570,277 $ 837,253 $ 78 $ 5,407,608
Gains and losses from departments
$ 402,592 $ 38,346 ($ 36,260)
$ 404,678
Gains and losses from investments
( 61,078)
Interest expenses ( 45,863)
Income before income tax from continuing operations
$ 297,737
Identifiable assets $ 3,661,597 $ 563,430 $ 5,649,100 $ 9,874,127
Funds and long-term investments
1,764,662
Total assets $ 11,638,789
Depreciation $ 283,480 $ 29,890 $ 195,120 $ 508,490
Capital expenditures $ 164,851 $ 24,048 $ 37,850 $ 226,749
~ 58 ~
2) Financial information by geographic area
The Company has no overseas operations. Therefore, R.O.C. SFAS No. 20, “Disclosure of
Segment Financial Information” is not applicable.
3) Export sales by geographic area for the years ended December 31, 2010 and 2009
For the years ended December 31, Area 2010 2009
Southeast Asia $ 3,428,595 $ 2,409,527
Northeast Asia 740,295 556,247
America 481,244 492,893
Europe 43,930 155,776
Others (all of them are less than 10%) 98,280 56,673
$ 4,792,344 $ 3,671,116
4) Information on major customers
The customers accounting for more than 10% of the Company’s operating revenues for the years
ended December 31, 2010 and 2009 are set forth below:
For the year ended December 31, 2010
Customer
Sales amount
% of total
operating revenues Sales department
Company A $ 977,000 12.73 Semiconductor department
Company B 834,520 10.88 Semiconductor department
For the year ended December 31, 2009
Customer
Sales amount
% of total
operating revenues Sales department
Company A $ 644,677 11.92 Semiconductor department