Table of Contents
Letter to Shareholders ...... 1
Company Overview
1. Company profile ...... 3 2. Corporate governance report ...... 5 3. Capital and shareholding ...... 18 4. Issuance of corporate bonds...... 19 5. Issuance of preferred shares...... 20 6. Issuance of global depositary receipts (GDR) ...... 20 7. Exercise of Employee stock options (ESOP)...... 21
Business Overview
1.Business activities...... 22 2.Market, production and sales...... 26 3.Employees...... 29 4.Spending on environmental protections ...... 30 5.Employees-employer relations ...... 30 6.Material contracts ...... 34
Financial Overview
1. Condensed balance sheets, statements of income, names of auditors, and audit opinions (2007– 2011)...... 35 2. Financial analysis (2007 – 2011)...... 36 3. 2011 financial statements ...... 38 4. 2011 consolidated financial statements ...... 72 5. Financial difficulties and corporate events encountered by the Company and affiliates in the past that have material impact on the financial status of the Company...... 78
Financial Status, Operating Performance and Risk Evaluation
1. Analysis of financial status...... 79 2. Analysis of operating performance...... 79 3. Cash flow analysis ...... 80 4. Effect of major capital spending on financial position and operations...... 80 5. Industry specific key performance indicator...... 80 6. Investment policy in the past year, return on investment analysis, improvement plan, and investment plan for the coming year ...... 80 7. Risk management and evaluation ...... 81 8. Other important events ...... 85 Importance Notice
1. Profiles on affiliates and subsidiaries ...... 86
Letter to Shareholders
Dear Shareholders,
The global economy in 2011 was mired in the spreading European debt crisis. The electronic industry as a whole was further hit in the year by the supply chain arising from the earthquake in Japan and the flood in Thailand. In spite of the adverse macro environment, Winbond, as a specialty memory solution provider, continued to lead the low to medium density memory products. In 2011, we experienced stable growth in shipment of specialty memory and flash memory, began delivering samples of 46nm DRAM and 58nm flash to clients in the fourth quarter. In the face of a market shaped by intense price competition and mismatch in supply and demand, we started to record loss in the second half of 2011. But we demonstrated resilience as a major low to medium density specialty memory solution supplier.
Financial Performance In 2011, we reported consolidated revenue of NT$34.697 billion, down 13% from last year. We also recorded a consolidated loss of NT$679 million or NT$0.23 loss per share in 2011. Regardless of the instable economic condition, Winbond was recognized by its financial structure, technology development, differentiated product strategies, and stable customer relationships. In September 2011, Winbond signed a syndicated loan agreement with 17 banks of NT$7 billion.
Technology and Product Development In the midst of a rapidly evolving market environment and intense competition, Winbond has achieved major progress in R&D and product innovation. Our 46nm specialty memory and 58nm flash memory have been in mass production since Q4 20110. As far as specialty memory is concerned, Winbond is the first company in Taiwan with own DRAM process development. Our independent R&D capability enables us to continuously improve cost structure, provide low power products and comprehensive technical support to customers, and enhance the competitiveness of our products. In flash memory, we continue to develop light and thin products with low pin count and introduce USON and WLBGA packages for low to medium capacity flash, which are currently the smallest serial flash packaging in the industry. We are able to continue to expand our market share in flash memory product by leveraging our flexible product mix. Our 12-inch fab in Taichung Science Park with a monthly capacity of 35,000 wafers brings stable quality and ensures reliable delivery to satisfy customer needs.
Business Development and Customer Relationship We also endeavor to expand end-product applications, seek a balanced development of 3C product applications. In 2011 when feature phones switched from Multi-Chip Package (MCP) to System-in-Package (SiP) platform, Winbond readily supported the needs of our leading clients with proprietary technology, which indirectly aided the smooth platform switch of feature phones. It also enabled our flash memory products to make a fast entry into the handset market and establish good relationships with our suppliers and clients. Riding on the advantage of providing total memory solution, we took the opportunity to grasp the opportunity in low to medium density handset market. In high-end market, we continue to develop industrial specifications and the automobile electronic market. The flood in Thailand disrupted the worldwide supply of hard disk drives. Winbond was also affected as reflected in the performance of sales. We are not merely a supplier to our clients, but also a partner who participates in the R&D and design works of the clients. Information exchange with other industries allows us to grasp the market trends and discern potential business opportunities. In another front, our longstanding efforts in fostering stable customer relationship give us the indispensable competitive advantage in the specialty memory market.
1 Business Management and Development Winbond continues in developing low to medium density memory solutions, while our subsidiary, Nuvoton Technology spun off from Winbond in 2008, focuses on logic IC products. Companies within Winbond Group produce synergy and collaborate in developing sales channels and expanding our business. Winbond also endeavors to enhance the system integration technology to assist clients in improving system functions, reducing costs and producing the added value of products.
Future Outlook Winbond works as a partner of its world-class brandname clients. Under the global deployment undertaking, our sales network will growth in emerging markets. Although the outlook for the global economy remains unclear, Winbond will not only focus on improving the quality of products and application mix but also continuously develop new customers and opportunities. Thanks to advanced technology and synergy in product operations, Winbond will continue to generate better results for our shareholders under the culture of “accountability, innovation, and synergy.”
Lastly, on behalf of the management of Winbond, I’d to thank the longstanding support and encouragement of our shareholders.
May you enjoy a prosperous year and good health
Chairman and CEO
2 Company Overview 1. Company profile 1.1 Company history Winbond Electronics Corp. is a company specializing in the design, manufacture and sale of specialty memory IC. From product design, research and development, wafer fabrication to worldwide marketing of own brand, Winbond endeavors to provide its global clientele the best low to medium density memory solution services. The Company was established in Hsinchu Science Park in Taiwan in September 1987 and listed on Taiwan Stock Exchange in 1995. The Company moved its headquarters to Central Taiwan Science Park in July 2008.. Winbond has three core business groups - DRAM Products, Flash Memory, and Memory IC Manufacturing while continuously seeking product and technological innovation to gain a competitive edge. Winbond’s core product lines include Specialty DRAM, Mobile RAM and NOR Flash. Our advantage of technological autonomy and prudent capacity strategy enables us to build a highly flexible production system to produce the synergy of product mix and allow us to meet the diverse demands of customers while building the brand advantage. Winbond specializes in the design of high-speed and low-power memory, and riding on the strength of having a 12-inch fab, offers a series of Mobile RAM and Specialty DRAM products that target at high-end clientele and quality-oriented applications with focuses on handheld devices, consumer electronics and computer peripherals markets. In the area of NOR flash products, we focus on “low to medium density” markets by offering a full portfolio of low to medium density parallel flash and serial flash. Our small-size flash memory packages offer the features of low pin count, small size and low cost. In addition to be a major supplier in HDD, PC and ODD markets, we also develope network and handset related application and endeavor to enter high-barrier markets. To provide clienteles around the world prompt services, Winbond has set up bases in the USA, Japan, China, and Hong Kong and is actively developing distributor networks in different countries to expand sales network. In the aspect of quality, Winbond implements rigorous process control and quality control, and strengthens yield analysis, supply chain management and customer satisfaction. The long-standing efforts in quality assurance have earned the good reputation and resulted in the accreditation of ISO 9001, TS 16949, QC 080000, ISO 14001, OHSAS 18001. In the future, Winbond will continue to provide customer-oriented services and concentrate our resources in markets in which the Company has a competitive edge. At the same time, under the guidance of core values of “accountability, innovation and synergy” and incorporating the spirit of corporate slogan of “We Deliver” in all operational activities, Winbond will make use of advanced semiconductor design and production technology coupled with the collective creativity and wisdom of employees to strive towards the goal of becoming an outstanding supplier of low to medium density special memory solutions.
3 1.2 Major business development in the past year In 2011, Winbond migrated the specialty DRAM to 65nm process, and further into 46nm DRAM and 58nm flash. Both process were developed on our own and started volume production in Q4 2011. The advanced process technology and cost advantage are expected to improve the profitability of the Company. Winbond has comprehensive security measures in place. Aside from committing to the safety of internal processes and the risk control for goods (cargo) and transport, we comply with the Framework of Standards to Secure and Facilitate Global Trade set out by the World Customs Organization (WCO SAFE), and EU Authorized Economic Operator (AEO) of European Commission and the standards of C-TRAP. In 2011, we received the AEO certificate from the Directorate General of Customs, Ministry of Finance that enables us to enjoy fast and preferential customs treatment, thereby enhance our competitiveness. To satisfy customer demands in a timely manner, Winbond set up a subsidiary in Suzhou China in June 2011 as an outpost for further deployment in the China market. For the sake of improving process technology and enhancing its long-term competitive advantage, Winbond signed a 5-year, NT$7 billion syndicated loan with 17 banks in Taiwan in September 2011. With funds in place, Winbond will be able to procure new equipment, undergo the conversion of process technology, and continue to provide its customers with total solutions.
1.3 Investment in affiliates in the past year and up to the date of report (1) In 2011 and 2012 up to the date of report, Winbond increased investment in Landmark Group Holding Ltd. (“Landmark”) by US$4,130,000. Landmark was established in British Virgin Island in July 2005. It is a wholly-owned subsidiary of Winbond with investment as its principal business. As of March 31, 2012, Landmark Group Holdings Ltd. has a paid-in capital of USD 16.29 million. Winbond owns 16,293,000 shares outstanding. (2) In 2011 and 2012 up to the date of report, Winbond increased investment in Winbond Int’l Corporation (“WIC”) by US$7,410,000. WIC was established in British Virgin Island in August 1995. It is a wholly-owned subsidiary of Winbond and its principal business is investment. As of March 31, 2012, WIC has a paid-in capital of USD 104.24 million. Winbond owns 104,240,000 shares outstanding. (3) To invest in Suzhou, China, Pine Capital Investment Ltd. was established in Hong Kong in January 2011 and its principal business is investment. As of March 31, 2012, Pine Capital has a paid-in capital of HKD10, 920,000. Winbond owns 100% of its 10,920,000 shares. (4) For the equity investments, please see page 87 of this report.
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2. Corporate governance report 2.1 Organizational structure and major business units 2.1.1 Organizational structure
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2.2 Profile of directors, supervisors and management 2.2.1 Directors and supervisors (1)
March 31, 2012
Title Name Date Ter Date Shared held when Shares currently held Shares held by Shares held in Education/work experience Other Other officer, director or supervisor elected m first elected spouse and minor the name of positi who is the spouse or a relative within elected children others ons Title Name Date the second degree Shares % Shares % Shares % Shares % Relatio Shares Shares Shares Shares Title Name (Note3) (Note4) (Note4) (Note4) nship Master in Electrical Engineering and Director and Chief Yun g Spouse Researcher of Management College of Administrative Chin Chairman Arthur Chiao 2011.06.22 3 years 1987.09.04 53,674,955 1.46% 54,474,955 1.48% 13,750,978 0.37% - - Note 9 Brothe Washington Univ. Officer Chiao r Chairman of Walsin Lihwa Corp. Supervisor Yu -Ch i Ph.D. in Electrical Engineering, Princeton Univ. Master in Business Management of Graduate School of Stanford Univ. General Director of Electronic Research Ching-Chu and Service Organization of the Director 2011.06.22 3 years 1993.03.25 10,067,591 0.27% 10,067,591 0.27% 53,058 0.00% - - Note 10 None. None. None. Chang International Technology Research Institute Vice Chairman of Winbond Electronics Corp. Chairman of Vanguard International
6 Semiconductor Corp (incumbent) Master in Business Administration of Matthew California Univ. at Santa Clara. Director Feng-Chiang 2011.06.22 3 years Note 5 100,000 0.00% 100,000 0.00% - - - - Note 11 None. None. None. Chairman of MiTAC International Corp. Miau (incumbent) Master in Applied Mathematics, Spouse Arthur Washington Univ. Brothe Chairman and CEO Chiao Director Yung Chin 2011.06.22 3 years 1996.04.09 10,450,537 0.28% 10,450,537 0.28% 57,775,396 1.57% - - Chief Auditor of Walsin Lihwa Corp. Note 12 r and Supervisor Chiao Vice President of Winbond Electronics sister Yu -Ch i Corp. in-law Wa ls in Lihwa Director 2011.06.22 3 years 1987.09.04 858,091,531 23.37% 858,091,531 23.30% - - - - - Note 13 - - - Corporation B.A. in International Trade, Feng Chia University Peter Chu Director Sales/International Department Manager of (Representati representati 2011.06.22 3 years 2011.06.22 ------Wa ls in Lihwa Corp. Note 14 None. None. None. ve of Walsin ve (Note 1) Director, President and Compensation Lihwa Corp.) Committee member of Global Brand Manufacture (incumbent) Father- Arthur son Director Ting-Piao Chairman and CEO Chiao Father- representati Chiao Director and Chief Yun g daught ve (Representati - - Note 6 -- - - 32,054,000 0.87% - - Honorary Chairman of Walsin Lihwa Corp. Note 15 Administrative Chin er in (former/Not ve of Walsin Officer Chiao law e 1) Lihwa Corp.) Supervisor Yu -Ch i Father- son Master in Physics, National Cheng Kung Univ. Researcher of High-Level Management Course of Harvard Business School Director Lu-Pao Hsu 2011.06.22 3 years 2000.03.01 8,000 0.00% 8,000 0.00% 3,316 0.00% - - Associate Professor of National Chiao Note 16 None. None. None. Tung Univ. Administrative Vice-Executive of Koninklijke Philips Electronics N.V., Managing Director of Walsin Lihwa Corp. Ph.D. in Electrical Engineering, University of Southern California Director Robert Hsu 2011.06.22 3 years 2002.05.17 1,510,524 0.04% 1,276,524 0.03% 99,038 0.00% - - President of Winbond Electronics Corp. Note 17 None. None. None. Director and President of Nuvoton Technology (incumbent) PhD. in Electrical Engineering, U.C. Berkeley Master in Management Science, Tong-Yi Stanford University Director 2011.06.22 3 years 2009.06.19 100,000 0.00% 100,000 0.00% - - - - Note 18 None. None. None. Chan BCD Semiconductor CEO President of Winbond Electronics Corp. (incumbent) M.S., Stanford University B.A., Princeton University Director Hong-Chi Yu 2011.06.22 3 years 2011.06.22 ------President of Union Electric Note 19 None. None. None. (Note 2) Director and President of Walton Advanced Engineering (incumbent) Master in Public Administration, San Brothe 7 Francisco State University Chairman and CEO Arthur r President of Walsin Lihwa Corp. Director and Chief Chiao Brothe Supervisor Chiao Yu-Chi 2011.06.22 3 years Note 7 22,859,166 0.62% 22,859,166 0.62% 4,661,776 0.13% - - Note 20 Chairman of HannStar Color Co. Administrative Yun g r and Chairman of HannsTouch Solution Officer Chin sister (incumbent) in-law Wang-Tsai Special Assistant to Chairman of Walsin Supervisor 2011.06.22 3 years Note 8 ------Note 21 None. None. None. Lin Lihwa Corp. (incumbent) Master in Business Administration, Kelley School of Business at Indiana University. Master in Science in Chemical Engineering, University of California, Los Angeles CFO at Winbond Electronics Corp. Hui-Ming Supervisor 2011.06.22 3 years 2005.06.10 250,000 0.01% 250,000 0.01% - - - - Chief Financial Officer of Taiwan Mobile Note 22 None. None. None. Cheng CFO at Fubon Financial Holdings Co., Limited. CFO at HTC Corporation Director, President and Compensation Committee member of Walsin Lihwa Corp. (incumbent) Note 1: Re-election of directors and supervisors was held on June 22, 2011, in which the representative of corporate director Walsin Lihwa Corporation changed its representative from Mr. Ting-Piao Chiao to Mr. Peter Chu. Note 2: One more director Mr. Hong-Chi Yu was added to the Board of Directors on June 22, 2011. Note 3: “Percentage” under “Shared held when elected” was based on then issued and outstanding shares common shares of 3,672,539,193 shares. Note 4: “Percentage” under “Shares currently held” was based on then issued and outstanding common shares of 3,683,407,193 shares as of March 31, 2012, including 3,177,000 shares exercised by employees under the employee stock option plan between January 1 and March 31, 2012 that are not yet registered for change of capital stock. Note 5: Mr. Matthew Feng-Chiang Miau has been a director of Winbond since May 6, 2003. He also served as a director from March 25, 1993 to Feb. 21, 1994 and from Mar. 30, 1994 to Jan. 29, 2003. Note 6: Mr. Ting-Piao Chiao was a Director of Winbond from Apr. 25, 1989 to Dec. 31, 1991 and from Mar. 25, 1993 to Jun. 21, 2011. Note 7: Supervisor Mr. Yu-Chi Chiao has been a supervisor of Winbond from April 9, 1996 to February 28, 2000, and from April 30, 2008 until now. Note 8: Mr. Wang-Tsai Lin has been a Supervisor of Winbond from September 4, 1987 to March 25, 1993, and from June 10, 2005 until now. Note 9: Mr. Arthur Yu-Cheng Chiao serves concurrently as the CEO of Winbond, Chairman and Compensation Committee member of Capella Microsystems, Chairman of Rui Hua Investment, Nuvoton Technology Co. and Ta Cherng Investment Co.; Vice Chairman and Vice CEO of Walsin Lihwa Corp; Director of Walsin Technology Corporation , United Biomedical, Inc., Asia, HannStar Color Co., Ltd., Kolin Cons. & Development Co., Ltd., Walsin Lihwa Holdings Co., Walsin Specialty Steel Corporation, Landmark Group Holdings Ltd, Winbond Int’l Corp., Winbond Electronics Corporation America, Newfound Asian Corp., Peaceful River Corp., Baystar Holdings Ltd., Nuvoton Investment Holding Ltd., Marketplace Management Limited, and Pigeon Creek Holding Co., Ltd.; management of Goldbond LLC; and the Supervisor of HannStar Display Co., Ltd. and MiTac International Corp., Compensation Committee convenor of Taiwan Cement and Compensation Committee member of Synnex Technology International. Note 10: Mr. Ching-Chu Chang serves concurrently as the supervisor of Fine Art Technology Co., Ltd.,and the Supervisor of Z-Com, Inc. Note 11: Mr. Matthew Feng-Chiang Miau serves concurrently as Chairman of Lienhwa Industrial Corporation, MiTac International Corp., MiTac INC, Synnex Technology International Corporation, Union Venture Capital Corp. and Union Technology Corp. Vice Chairman of MiTAC, and Director of MiTac Communication, Ares International Corp., MiTac Technology Corp., BOC Lienhwa Industrial Gases Corp. Note 12: Ms. Yung Chin serves concurrently as the Chief Administrative Officer of Winbond; Chairman of Pine Capital and Winbond Electronics (HK) Ltd.; Director and President of Rui Hua Investment; Director of Nuvoton Technology, Winbond Electronics Corp. America, Newfound Asian Corp., Peaceful River Corp., Nuvoton Electronics Technology (H.K.) Limited, Qing An Investment; and Supervisor of Yau Cheung Investment Limited, Winbond Electronics Corporation Japan, Nuvoton Technology (Shanghai) Corp. and Winbond (Suzhou) Integrated Circuit. Note 13: Walsin Lihwa Corporation serves concurrently as Director of Goldin Investment Co., Touch Micro-System Technology Corp., Kolin Cons. & Development Co., Ltd., Walsin Info-Electric Co., Concord Venture Capital Co., HannStar Color Co., Ltd., Concord Venture Capital Group, Walton Advanced Engineering, Inc., Walsin Technology Corporation, HannStar Board Corporation, HannStar Color Co. Ltd., Ta Cherng Investment Co., Kuang Tai Metal Industrial Co., Global Investment Holdings, and Zhong Tai Technology Development Engineering Co., Walsin Solar Technology and Min Maw Precision Industry Corp. Note 14: Mr. You-Yi Zhu serves concurrently as the Compensation Committee member of the Company; Director of Walsin Technology Corporation and HannStar Board Corporation; Supervisor of Walsin Lihwa Corp. and Info-Tek Corporation. Supervisor of Walsin Lihwa Corp. and Info-Tek Corporation. Note 15: Mr. Ting-Piao Chiao serves concurrently as Chairman of Goldin Investment Co.; Director of Chin Cherng Construction Co., Ltd. and HannStar Board Corporation. Note 16: Mr. Lu-Pao Hsu serves concurrently as Director of Diodes Incorporated, Director and Compensation Committee member of Vanguard International Semiconductor; Supervisor of Nuvoton Technology Co.; and Compensation Committee convenor of Walsin Lihwa Corp. Note 17: Mr. Robert Hsu serves concurrently as Chairman of Nuvoton Electronics Technology (H.K.) Limited, Nuvoton Technology (Shanghai) Corp.; Director of Winbond Int’l Corp., Landmark Group Holdings Ltd., Winbond Electronics Corporation Japan, Baystar Holdings Ltd., Nuvoton Technology (Shanghai) Corp., Winbond Technology (Nanjing) Co., Nuvoton Technology Corp. America, Nuvoton Technology Israel Ltd., Nuvoton Investment Holding Ltd., Marketplace Management Limited, Pigeon Creek Holding Co., Ltd., and Supervisor of Rui Hua Investment. Note 18: Mr. Tong-Yi Chan serves concurrently as Chairman of Winbond (Suzhou) Integrated Circuit; Director and Compensation Committee member of Walton Advanced Engineering; Director of Landmark Group Holdings Ltd., Winbond Int’l Corp., Mobile Magic Design Corp, Winbond Electronics Corporation America, Winbond Electronics Corporation Japan, Newfound Asian Corp., Peaceful River Corp., Baystar Holdings Ltd., Rui Hua Investment, Marketplace Management Limited, Pigeon Creek Holding Co., Ltd., Nuvoton Technology Corp. America and Pigeon Creek Holding Co., Ltd, Winbond (H.K.).
8 Note 19: Mr. Hong-Chi Yu serves concurrently as Chairman and President of Walton Advanced Engineering, Inc.; Independent Director of Advanced Microelectronic Products Inc.; Supervisor of Walsin Technology Co., Ltd., and HannStar Color Co. Ltd. Note 20: Mr. Yu-Chi Chiao serves concurrently as Chairman of HannStar Color Co. Ltd., Hannstar Display (Nanjing) and Hannspree Display Technology (Nanjing); Director and CEO of HannStar Display Corporation; Director of Bradford Ltd., HannSpirit (BVI)Holding Ltd., Brightstar Resources Ltd., Guang Bo Resources Co., Hannspree China Holdings Ltd., Hannstar Board Corporation and Walsin Lihwa Corp. Note 21: Mr. Wang-Tsai Lin serves concurrently as Director of Walsin Lihwa Corp., Goldin Investment Co., Powertek Energy Co., Concord Venture Capital Group, Chong Tai Technology Development Corp and Mr. Wang-Tsai Lin serves concurrently as Director of Walsin Lihwa Corp., Goldin Investment Co., Han Hsin Venture Capital Corp., Concord Venture Capital Group, eASPNet Taiwan Inc., and Chong Tai Technology Development Corp; Supervisor of Walsin Technology Co., Ltd., and Jin Cherng Construction Corp. Note 22: Mr. Hui-Ming Cheng serves concurrently as Director of ACME Electronics Corporation; and Supervisor of Ming Wen Investment Co., Ltd. and Green Garden Investment Corp.
Note 23: Directors who are representative of institutional shareholder and the major shareholders of institutional shareholders March 31, 2012 Name of institutional shareholder Major shareholders of institutional shareholder Deutsche Bank (4.25％), Ta Cherng Investment Co., Ltd. (2.53%), Chiao Yu-Chi (1.81%), Chiao Yu-Heng (1.65%), Morgan Stanley International Investment Account under the trust of Walsin Lihwa Corporation HSBC (1.62%), Shin Kong Life Insurance (1.52%), Chiao Yu-Hui (1.45%), Vanguard Emerging Markets Stock Index Fund under the trust of Standard Charter (1.40％), Hong Pai-Yung (1.36%), Walsin Lihwa Employee Welfare Committee (1.33%).
Note 24: Major shareholders in Note 23 who are institutional investor and their major shareholders March 31, 2012 Name of institutional shareholder Major shareholders of institutional shareholder
Walsin Lihwa (15.89%), Arthur Chiao (12.17%), Chiao Yu-Lon (12.17%), Chiao Yu-Heng (12.17%), Chiao Yu-Chi (12.17%), Yu Shiang Investment (10.89%), Win Investment Ta Cherng Investment Corp.(9.62%), Walsin Technology Co., Ltd. (7.23%), Jin Cherng Construction Corp (2.61%), and HannStar Color Co., Ltd. (2.40%).
Shin Kong Life Insurance Wholly owned by Shin Kong Financial Holding Company.
Directors and supervisors (2) March 31, 2012 Has at least 5 years of work experience and meet one of the following professional Meet the independence criteria (Note 1) qualifications An instructor or higher A judge, public Having work experience 1 2 3 4 5 6 7 8 9 10 position in the prosecutor, attorney, in commerce, law, Number of other department of accountant, or other finance, or accounting or public companies in Criteria commerce, law, finance, professional or technical a profession necessary which the director Name accounting or other specialist related to the for the business of the also serves as an
department related to the needs of the Company Company independent business needs of the who has passed a director Company in a public or national examination and private junior college or received a certificate university therefor Arthur Chiao V V V V - Ching-Chu Chang V V V V V V V V - Matthew Feng-Chiang Miau V V V V V V V V V V - Yung Chin V V V V V V - Walsin Lihwa Corporation V V V V V V V - (Representative: Peter Chu)
Lu-Pao Hsu V V V V V V V V V V 1 9 Robert Hsu V V V V V V V V V - Tong-Yi Chan V V V V V V V V V - Hong-Chi Yu V V V V V V V V V V 1 Chiao Yu-Chi V V V V V - Wang-Tsai Lin V V V V V V V V - Hui-Ming Cheng V V V V V V V V - Note 1: If the director or supervisor meets any of the following criteria in the two years before being elected or during the term of office, please check “V” the corresponding boxes: (1) Not an employee of the Company or any of its affiliates; (2) Not a director or supervisor of the Company or any of its affiliates (the same does not apply if the person is an independent director of the Company or its parent company, or any subsidiary in which the Company holds, directly and indirectly, more than 50% of the voting shares). (3) Not a natural-person shareholder whose shareholding, together with those of his/her spouse, minor children, and shares held under others’ names, exceed 1% of the total number of outstanding shares of the Company, or ranks the person in the top ten shareholders of the Company. (4) Not a spouse, relative within second degree of kinship, or lineal relative within fifth degree of kinship of any of the persons in the preceding three paragraphs. (5) Not a director, supervisor or employee of a juristic-person shareholder that holds directly 5% or more of the total number of outstanding shares of the Company or ranks in the top five shareholders. (6) Not a director, supervisor, manager or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the Company. (7) Not a professional or an owner, partner, director, supervisor, manager or a spouse of the abovementioned who provides commercial, legal, financial, accounting services or consultation to the Company or an affiliate of the Company. (8) Not having a marital relationship or a relative within the second degree of kinship to any other director of the Company. (9) Not having any of the situations set forth in Article 30 of the Company Act of the R.O.C. (10) Not a government agency, juristic person, or its representative set forth in Article 27 of the Company Act of the R.O.C.
2.2.2 Profile of President, Vice Presidents, Assistant Vice Presidents, and Department Directors March 31, 2012 Manager who is the spouse Shares held by spouse and Shares held in the name or a relative within Title Date Shares held Manager who is the spouse or a relative Title Name children of others Education/work experience Name Date appointed the appointed within the second degree second degree Shares % (Note2) Shares % (Note2) Shares % (Note2) Title Name Relationship Master in Electrical Engineering and Researcher of CEO Arthur Chiao 2005.08.01 54,474,955 1.48% 13,750,978 0.37% - - Management College of Washington Univ. Note 6 None. None. None. Chairman of Walsin Lihwa Corp. PhD. in Electrical Engineering, U.C. Berkeley Master in Management Science, Stanford University President Tong-Yi Chan 2009.02.09 100,000 0.00% ---- Note 7 None. None. None. BCD Semiconductor CEO President of Winbond Electronics Corp. (incumbent) Executive BS in Electronic Physics, National Chiao Tung Vice Wilson Wen 2008.05.02 609 0.00% ---- Univ. President of Mobile Magic Design Corp. None. None. None. President CEO of Hannstar Display Corporation Vice MBA, Wharton School in University of President and Pennsylvania Chief James Wen 2004.03.16 160,000 0.00% ---- Note 8 None. None. None. President of Cathay Securities Investment Trust Financial Co., Ltd. Officer President of Mobile Magic Design Corp.
10 Director of Winbond Electronics Vice Yuan-Mow Su 2005.02.01 1,699,859 0.05% - - - - MSEE, University of Southern California Corporation America None. None. None. President Director of Winbond Integrated Circuit (Suzhou) Ph.D. Applied Physics, Harvard University, USA Vice Chen-Hsi Lin 2005.02.01 1,000 0.00% ---- Deputy Divisional Director of Corporate Marketing None. None. None. None. President and Central R&D, UMC Vice Ruey-Way Lin Note 3 788,411 0.02% 400 0.00% - - Ph.D. of Materials Science None. None. None. None. President Marketing Executive of Mobile Magic Design Corp. President of Winbond (Suzhou) Integrated Vice Circuit Company Pei-Ming Chen 2005.10.01 183,361 0.00% - - - - MS of E.E., University of Detroit, USA None. None. None. President Director and president of Pine Capital Investment Ltd. Director of Winbond Electronics Corporation America MS in Engineering Technology of National Taiwan Director of Winbond (H.K.) Vice University of Science and Technology Cheng- Kung Lin 2006.11.01 1,160,281 0.03% 161,539 0.00% - - Director of Winbond Integrated Circuit None. None. None. President Department Head and Assistant Vice President of (Suzhou) Winbond Electronics Ph.D. in Material Science and Engineering of Utah University Vice Vice President in technology and CTO of Sunny Chin-Fen Tsai 2011.11.01 ------None. None. None. None. President Optronics Corp. Vice President of Eversol Corp. Deputy Divisional Director of QRA, UMC Chief Eungjoon Park 2008.08.04 ------Master in Electrical Engineering, U.C. Berkeley President of Winbond Electronics None. None. None. Manager who is the spouse Shares held by spouse and Shares held in the name or a relative within Title Date Shares held Manager who is the spouse or a relative Title Name children of others Education/work experience Name Date appointed the appointed within the second degree second degree Shares % (Note2) Shares % (Note2) Shares % (Note2) Title Name Relationship Business Executive Vice President of Winbond Electronics Corporation America Officer Corp. America Executive Vice President of NexFlash Technologies Inc. Vice President of Azalea Microelectronics Corp. Division Director of ISSI/NexFlash Division Director of ICT Inc. Senior engineer, AMD MS in Electric Engineering, National Tsing Hua Assistant University R&D Deputy Executive of Mobile Magic Vice Shi-Yuan Wang 2005.08.01 525,656 0.01% 220,427 0.01% - - None. None. None. Junior Engineer, Industrial Technology and Design Corp. President Research Institute Ph.D. in Material Science, Cornell University Assistant Plant Manager, Hotai Co. Vice Hsing-Hua Wang Note 4 ------None. None. None. None. Deputy Director, R&D Dept., UMC President Senior Researcher at Hewlett Packard Supervisor of Search Marketing Co., Ltd. Assistant MBA, Indiana University Supervisor of Harbinger Venture III Vice Chiu-Yi Huang 2006.07.12 253,949 0.01% ---- Controller, Winbond Electronics Corp. None. None. None. Capital Corp President Vice President, Citibank Note 9
11 MS in Computer Engineering, University of California. CIM consultant at Hewlett Packard. Assistant Director of Automation Engineering at Hannstar Vice Wen-Gui Hsu Note 5 ------None. None. None. None. Display Corporation. President CIM Solution Architect at Campac. Senior CIM engineer at Mosel Vitelic. Senior CIM engineer at ProMOS. Assistant EMBA, National Tsing Hua University Vice Yi-Dar Chang 2007.10.01 1,390,074 0.04% 13,978 0.00% - - None. None. None. None. Equipment Engineering, ITRI-ERSO President Bachelor, Control Engineering, National Chiao Tung University Director of Memory Testing Division, Winbond Assistant Electronics Vice Chi-Lung Chou 2008.07.01 120,040 0.00% ---- None. None. None. None. Director of Flash Memory and Testing Engineering President Division, Winbond Electronics Assistant Manager of United Microelectronics Manager of Mosel Vitelic Inc. MS in Material Science and Engineering, National Assistant Taiwan University Vice Wen-Hua Lu 2011.07.01 1,098 0.00% 738 0.00% - - None. None. None. None. Assistant Researcher of Material and Chemical President Research Laboratories, ITRI Assistant M.S. in Industrial Engineering and System Vice Wen-Chang Hong 101.01.16 - - 6,000 0.00% - - None. None. None. None. Management, Chung Hua University President Department Master in Management Research Institute, Fu Jen Manager and Wen-Ying Liang 2008.08.18 20,000 0.00% ---- None. None. None. None. Catholic University Accounting Manager who is the spouse Shares held by spouse and Shares held in the name or a relative within Title Date Shares held Manager who is the spouse or a relative Title Name children of others Education/work experience Name Date appointed the appointed within the second degree second degree Shares % (Note2) Shares % (Note2) Shares % (Note2) Title Name Relationship Chief Note 1: Management is defined the same as the interpretation provided in the Ministry of Finance letter Tai-Cai-Zheng-San-Zi- 0920001301, including president, vice president, assistant vice president, chief financial officer and chief accounting officer. Note 2: “Percentage” under “Shares currently held” was based on then issued and outstanding common shares of 3,683,407,193 shares as of March 31, 2012, including 3,177,000 shares exercised by employees under the employee stock option plan between January 1 and March 31, 2012 that are not yet registered for change of capital stock. Note 3: Mr. Ruey-Way Lin served as a vice president of the Company from February 1, 2005 to March 21, 2011. His information disclosed in the table above is up to the date of his termination as a managerial officer of the Company. Note 4: Mr. Hsing-Hua Wang served as an assistance vice president of the Company from May 16, 2006 to June 30, 2011. His information disclosed in the table above is up to the date of his termination as a managerial officer of the Company. Note 5: Mr. Wen-Gui Hsu served as an assistant vice president of the Company from November 1, 2006 to March 28, 2012. His information disclosed in the table above is up to the date of his termination as a managerial officer of the Company. Note 6: Refer to Note 9 under Profile of Directors and Supervisors (1). Note 7: Refer to Note 18 under Profile of Directors and Supervisors (1). Note 8: VP James Wen serves concurrently as President ofPine Capital; Winbond Electronics Corporation Japan, Winbond Electronics Corporation America, Winbond Electronics (HK), Mobile Magic Design Corp., Winbond (Suzhou) Integrated Circuit, Winbond Technology (Nanjing), Nuvoton Investment Holding Ltd., Walton Cultural and Educational Foundation, Global Investment Holdings; and independent director of Ta-Ho Maritime Corporation. Note 9: Assistant VP Chiu-Yi Huang serves concurrently as Director of Winbond Electronics (HK), Supervisor of Mobile Magic Design Corp., and manager of Goldbond LLC.
12 2.3. Remunerations to directors, supervisors, president, and vice presidents in recent years 2.3.1 Director's remuneration December 31, 2011; Unit: NT$1,000; 1,000 shares Director's remuneration Pay received as an employee Ratio of total Shares Ratio of total (A), (A), (B), (C), subscribable (B), (C), and (D) (D), (E), (F) under Salary, bonus and Remuneratio Profit sharing Business expense to after-tax Profit sharing & bonus (G) (Note and (G) to employee Pension (B) special allowance Pension (F) (Note n (A) (Note (C) (Note 3) (D) (Note 4) income (Note 9) 6) after-tax stock options (Note 2) (E) (Note 5) 2) Remuneratio 1) (%) income (Note (H) (Note 7) n received 9) (%) from All All All companies All Title Name All All All All Investees compa compa All in consolidated All compa compani compani compani compani Winbond other than nies in nies in companies statements companie nies in Wi Wi es in es in es in es in Wi subsidiaries consoli consoli Wi in (Note 8) s in consoli nb nb consolid Winb consolid Winb consolid Winbon Winb consolid nb Win (I) (Note 10) dated dated nbo consolidat consolida dated on on ated ond ated ond ated d ond ated Stoc Stoc on bond statem stateme nd ed ted stateme d d statemen stateme stateme stateme Cash k Cash k d ents nts statements statement nts ts (Note nts nts nts bonus bonu bonus bonu (Note (Note (Note 8) s(Note 8) (Note 8) (Note 8) (Note 8) (Note 8) s s 8) 8) 8) Chairman Arthur Chiao ------184 270 -0.02 -0.04 8,685 8,685 ------1.05 -1.32 290 290 Ye s 156 Director Ching-Chu ------184 184 -0.02 -0.03 ------0.02 -0.03 -- None. - Chang Director Matthew Feng-Chiang ------127 127 -0.02 -0.02 ------0.02 -0.02 -- None. -
13 Miau Director Yung Chin ------127 213 -0.02 -0.03 5,427 5,427 89 89 - - - - -0.67 -0.84 270 270 None. - Walsin Lihwa Director ------Yes 875 Corporation Director Walsin Lihwa representat Corp.; ive representative: ------70 70 -0.01 -0.01 ------0.01 -0.01 -- Yes 36 Peter Chu (Note 11) Director Walsin Lihwa representat Corp.; ive representative: ------57 57 -0.01 -0.01 ------0.01 -0.01 -- Yes 57 Ting-Piao Chiao (Note 11) Director Lu-Pao Hsu - - - - - 547 127 213 -0.02 -0.11 ------0.02 -0.11 -- None. -
Director Robert Hsu - - - - - 547 184 270 -0.02 -0.12 - 5,623 - 189 - - 823 - -0.02 -1.10 -- None. -
Director Tong-Yi Chan ------127 127 -0.02 -0.02 7,600 7,600 ------0.92 -1.14 400 400 Yes 18
Director Hong-Chi Yu ------70 94 -0.01 -0.01 ------0.01 -0.01 -- Yes 3,500 Note 1: Remuneration to the director in the past year (including salary, additional pay, severance pay, bonuses and rewards). Note 2: Pension includes: a. Amount equal to 6% of the monthly salary paid into an account at the Bureau of Labor Insurance pursuant to the new pension system under the Labor Pension Act. b. Amount equal to 2% of the monthly salary deposited into an account at Bank of Taiwan under the name of the Company’s Pension Supervision Committee pursuant to the old pension system under the Labor Standards Act. c. Amount actually paid to the director in the year of retirement. Note 3: The amount is the proposed remuneration to directors according to the most recent earnings distribution that has been approved by the Board of Directors but has not been submitted to the shareholders’ meeting. Note 4: This is business expense of directors in the past year (including transportation allowance, special allowance, stipends, dormitory, and car). Note 5: All pays to the director who is also employee of the Company (including the position of president, vice president, other managerial officer and staff), including salary, additional pay, severance pay, bonuses, rewards, transportation allowance, special allowance, stipends, dormitory, and car. Note 6: For directors also working as an employee (including the position of president, vice president, other managerial officer and staff), the amount of the proposed profit sharing and bonus according to the most recent earnings distribution that has been approved by the Board of Directors but has not been submitted to the shareholders’ meeting. Note 7: 係 Shares subscribable under employee stock option plan by the director also working as an employee (including the position of president, vice president, other managerial officer and staff) as of the date of report (excluding shares already exercised). Note 8: The total pay to the director from all companies in the consolidated statements (including the Company). Note 9: Ratio of remuneration paid to directors is calculated based on the Company’s 2011 after-tax income in the amount of NT$843,291,000; ratio of remuneration paid to directors by all companies in the consolidated statements is calculated based on the 2011 consolidated after-tax income in the amount of NT$678,968,000. Note 10: a. This field shows the amount of remuneration a director of the Company receives from investees other than subsidiaries of the Company. b. The remuneration means pay, remuneration, employee bonus and business expense received by the director serving as a director, supervisor or manager of an investee of the Company other than subsidiaries. Note 11: Re-election of directors and supervisors was held on June 22, 2011, in which the representative of corporate director Walsin Lihwa Corporation changed its representative from Mr. Ting-Piao Chiao to Mr. Peter Chu.
2.3.2 Remuneration to supervisors December 31, 2011; Unit: NT$1,000 Supervisor’s Remuneration Ratio of total (A), (B), and (C) to after-tax income (%) (Note 5) Remuneration (A) (Note 1) Profit sharing (B) (Note 2) Business expense (C) (Note 3) Title Name Remuneration received from Investees All companies in All companies in All companies in All companies in other than subsidiaries (D) (Note 6) consolidated consolidated consolidated consolidated Winbond Winbond Winbond Winbond statements (Note statements (Note statements (Note statements (Note 4) 4) 4) 4)
14 Supervisor Chiao Yu-Chi - - - - 127 127 -0.02 -0.02 Yes 4,832
-0.02 -0.02 Supervisor Wang-Tsai Lin - -- -127 127 Ye s 36
- 127 127 -0.02 -0.02 Supervisor Hui-Ming Cheng -- - None. -
Note 1: Remuneration to supervisors in the past year (including salary, additional pay, severance pay, bonuses and rewards). Note 2: The amount is the proposed remuneration to supervisors according to the most recent earnings distribution approved by the Board of Directors, but this figure has not yet been submitted to the shareholders’ meeting. Note 3: This is business expense of supervisors in the past year (including transportation allowance, special allowance, stipends, dormitory, and car). Note 4: The total pay to supervisors from all companies in the consolidated statements (including the Company). Note 5: Ratio of remuneration paid to supervisors is calculated based on the Company’s 2011 after-tax income in the amount of NT$843,291,000; ratio of remuneration paid to supervisors by all companies in the consolidated statements is calculated based on the 2011 consolidated after-tax income in the amount of NT$678,968,000. Note 6: a. This field shows the amount of remuneration a supervisor of the Company receives from investees other than subsidiaries of the Company. b. The remuneration means pay, remuneration, employee bonus and business expense received by the supervisor serving as a director, supervisor or manager of an investee of the Company other than subsidiaries. 2.3.3 Remunerations to president and vice president December 31, 2011; Unit: NT$1,000; 1,000 shares
Ratio of total (A), (B), (C), and Shares subscribable under Bonus and special Salary (A) (Note 1) Pension (B) (Note 2) Employee bonus (D) (Note 4) (D) to after-tax income employee stock options allowance (C) (Note 3) Remuneration (%)(Note 7) (Note 5) received from All companies in All Investees Title Name All All All Winbond consolidated statements All companies companies other than companies in companies in companies in (Note 6) in consolidated in subsidiaries Winbond consolidated Winbond consolidated Winbond consolidated Winbond Winbond statements consolidated (Note 8) statements statements statements Stock Stock Cash bonus Cash bonus (Note 6) statements (Note 6) (Note 6) (Note 6) bonus bonus (Note 6) CEO Arthur Chiao Yes President Tong-Yi Chan Yes Executive Vice Wilson Wen None. President Vice President James Wen None. Vice President Yuan-Mow Su None. Vice President Chen-Hsi Lin None. 35,654 41,630 10,311 10,557 15,461 15,461 - - - - -7.28 -9.96 2,265 2,265 174 Ruey-Way Lin None. Vice President (Note 9) Vice President Pei-Ming Chen None. Cheng- Kung None. Vice President Lin
15 Chin-Fen Tsai None. Vice President (Note 10) Note 1: Salary, additional pay, and severance pay received by the president or vice president in the past year. Note 2: Pension includes: a. Amount equal to 6% of the monthly salary paid into an account at the Bureau of Labor Insurance pursuant to the new pension system under the Labor Pension Act. b. Amount equal to 2% of the monthly salary deposited into an account at Bank of Taiwan under the name of the Company’s Pension Supervision Committee pursuant to the old pension system under the Labor Standards Act. c. Amount actually paid to the president or vice president in the year of retirement. Note 3: Bonus, reward, transportation allowance, special allowance, stipends, dormitory, car and other pays received by the president or vice president in the past year. Note 4: The amount is the employee bonus (including stock bonus and cash bonus) to the president and vice presidents according to the most recent earnings distribution that has been approved by the Board of Directors but has not been submitted to the shareholders’ meeting. Note 5: Shares subscribable under employee stock option plan by the president or vice president as of the date of report (excluding shares already exercised). Note 6: The total pay to the president or vice president from all companies in the consolidated statements (including the Company). Note 7: Ratio of remuneration paid to president or vice president is calculated based on the Company’s 2011 after-tax income in the amount of NT$843,291,000; ratio of remuneration paid to president or vice president by all companies in the consolidated statements is calculated based on the 2011 consolidated after-tax income in the amount of NT$678,968,000. Note 8: a. This field shows the amount of remuneration the president or vice president of the Company receives from investees other than subsidiaries of the Company. b. The remuneration means pay, remuneration, employee bonus and business expense received by the president or vice president serving as a director, supervisor or manager of an investee of the Company other than subsidiaries. Note 9: Mr. Ruey-Way Lin served as a vice president of the Company from February 1, 2005 to March 21, 2011. His information disclosed in the table above is up to the date of his termination as a managerial officer of the Company. Note 10: Mr. Chin-Fen Tsai started working on November 1, 2011.
Names of presidents and vice presidents Range of remuneration paid to presidents and vice presidents Winbond All investees
17 3. Capital and shareholding
3.1 Major shareholders
(1) Names, shares and percentage of shareholding of shareholders with more than 5% of Company’s equity:
March 31, 2012 Shareholding Shares held Percentage Name of major shareholder Walsin Lihwa Corporation 858,091,531 23.30%
3.2 Market price, net value, earnings, dividends per share and related information (2010-2011) Unit: NT$ Item\Year 2010 2011 March 31, 2012 High 9.99 11.15 6.96 Market price per Low share(Note 1) 6.67 3.51 4.03 Average 8.59 7.89 5.77 Net value per Basic 10.20 9.61 - share(Note 2) Diluted （Note 6）（Note 6） - Earnings per Weighted average shares (1,000 shares) 3,651,328 3,666,391 - share Earnings per share 0.97 (0.23) - Cash dividend （Note 6）（Note 6） - Dividends per Retained earnings （Note 6）（Note 6） - Stock dividend share Capital surplus （Note 6）（Note 6） - Accumulated unpaid dividend （Note 6）（Note 6） - Price-Earnings ratio (Note 3) N/A N/A - Return analysis Price-Dividend ratio (Note 4) （Note 6）（Note 6） - Cash dividend yield (Note 5) （Note 6）（Note 6） - Note 1: Average market price are calculated based on year’s trading volume and trading value Note 2: Net value per share and earnings per share are calculated based on CPA-audited financial statements dated December 31,2011. Note 3: Price-Earnings ratio＝Year’s average per share closing price / earnings per share. Note 4: Price-Dividend ratio＝Year’s average per share closing price / cash dividend per share. Note 5: Cash dividend yield＝Cash dividend per share / year’s average per share closing price Note 6: The Company posted losses in 2010 and 2011, so there was no earnings distribution for the years.
18 3.3 Dividend policy and execution
(1) Dividend policy
Our dividend policy is made in accordance with the Company Act and the Articles of Incorporation of Winbond Electronics Corp. in consideration of factors including capital, financial structure, operating status, earnings, industry characteristics and cycle. The dividends shall be distributed in a prudent manner where appropriate retained earnings, stock dividend or cash dividend, or both are taken into consideration so as to ensure sustained development of the Company. The Company is in growing and expanding stage in an industry that requires intensive capital, technologies, and labors. Factoring in these industry characteristics, the dividend policy is highly dependent upon the future needs of capital expenditures and working capital. Thus any dividend distribution plan will give priority to cash dividend, whereas stock dividend can also be considered. Nevertheless, stock dividend to be distributed shall not be more than 50% of total dividends. The current dividend policy for retained earnings and dividends with respect to their conditions, timing, amount and type would be adjusted from time to time in accordance with economic and industrial fluctuations, and in particular, in view of the Company’s future development needs and profitability.
(2) Dividend distribution to be proposed to the shareholders’ meeting: The Company does not plan to distribute dividends for fiscal year 2011.
3.4 Effect of the proposed stock dividends (to be adopted by the Shareholders’ Meeting) on the operating performance and earnings per share:
Not applicable for the Company does not plan to distribute earnings for fiscal year 2011
3.5 Employee bonus and remuneration to directors and supervisors
(1) Information on employee bonus and remuneration to directors and supervisors provided in Company’s Articles of Incorporation
Under the Company Act and Winbond’s Articles of Incorporation, the Company shall, after covering prior years’ losses and paying all taxes and dues, set aside 10% of its surplus profit as statutory reserve until such reserve equals the paid-in capital. The Company shall also set aside special reserve as required by laws or the competent authority. The remainder surplus may be retained for business needs or otherwise distributed by the following principle:
1. 1-2% as remuneration to directors and supervisors;
2. 10-15% as bonus to employees; and
3. The remainder thereafter as dividends to stockholders. Cash dividend may not lower than 10% of total dividends to stockholders.
(2) Information on planned employee bonus as approved by the Board of Directors
Not applicable for the Company posts loss in 2011 and does not plan to distribute earnings for the year.
(3) Information on distribution of previous year’s earnings as employee bonus and remuneration to directors and supervisors
Not applicable for the Company posted loss in 2010 and did not distribute employee bonus or remuneration to directors and supervisors for the year.
3.6 Stock buybacks: None
4. Issuance of corporate bonds: None
19 5. Issuance of preferred shares: None
6. Issuance of global depositary receipts (GDR) March 31, 2012 Date of issue February 5, 1999 Place of issue and trading Luxemburg Total amount US$333,502,000 February 5, 1999 – initial issue November 18, 1999 – additional issue Offer price per unit US$11.45 US$16.70 30,336,980 February 5, 1999 – initial issue 14,600,000 November 18, 1999 – additional issue 9,960,000 Total units issued July 7, 2000 – additional issue for the 2,108,252 distribution of stock dividends June 1, 2001 additional issue for the 3,668,728 distribution of stock dividends Source of underlying security Issuance of new shares for cash capital increase Underlying security 10 common shares of Winbond Dividends, interests distribution and relevant taxes of the underlying shares Rights and obligations of GDR represented by the GDRs shall be governed by the laws of the Republic of China, holder the Depositary Agreement and the Custodial Agreement. Trustee None Depository bank Bank of New York Mellon Corp Custodial bank Mega International Commercial Bank Balance outstanding (units) 62,130 Fees incurred in issuance and the Borne by Winbond Electronics Corp. outstanding period of the GDRs Important notice of Depository The deposit, redemption and delivery of the underlying shares represented by the Agreement and Custodial GDRs and the re-issuance of the GDRs shall be governed by the laws of the agreement Republic of China, Depositary Agreement and the Custodial Agreement. High 3.40 Market 2011 Low 1.16 price per Average 2.45 unit High 2.32 2012 up to (US$) Low 1.37 March 31 Average 1.82
20 7. Exercise of Employee Stock Option Plan (ESOP)
7.1 Employee stock options outstanding and impact on the stockholders’ equity March 31, 2012 Tranche of ESOP Tranche 5 Date of approval by competent September 5, 2008 authorities First issue of Tranche 5 - October 29, 2008 Second issue of Tranche 5 - February 9, 2009 Date of grant Third issue of Tranche 5 - April 29, 2009 Fourth issue of Tranche 5 - August 5, 2009 Tranche 5 First Issue - 45,764,000 Tranche 5 Second Issue - 614,000 Units granted Tranche 5 Third Issue - 77,000 Tranche 5 Fourth Issue – 894,000 Units granted to total shares issued and outstanding（%）(Note 1.29% 1) Tranche 5 First Issue -October 28, 2013 Tranche 5 Second Issue - February 8, 2014 Duration Tranche 5 Third Issue - April 28, 2014 Tranche 5 Fourth Issue - August 4, 2014 Exercise Issue new shares Tranche 5 First Issue - October 29, 2010:50% ; October 29, 2011:100% Tranche 5 Second Issue - February 9, 2011:50% ; February 9, 2012:100% Vesting schedule and quota (%) Tranche 5 Third Issue - April 29, 2011:50% ; April 29, 2012:100% Tranche 5 Fourth Issue – August 5, 2011:50% ; August 5, 2012:100% Tranche 5 First Issue -26,793,000 Tranche 5 Second Issue - 107,000 Units exercised (shares) Tranche 5 Third Issue – 10,000 Tranche 5 Fourth Issue – 0 Tranche 5 First Issue -$80,914,860 Tranche 5 Second Issue - $341,330 Amount exercised (NT$) Tranche 5 Third Issue – $55,700 Tranche 5 Fourth Issue – $0 Tranche 5 First Issue -10,779,000 Tranche 5 Second Issue - 500,000 Units unexercised (shares) Tranche 5 Third Issue – 47,000 Tranche 5 Fourth Issue – 707,000 Tranche 5 First Issue - $3.02 Exercise price for unexercised Tranche 5 Second Issue - $3.19 units (NTD) Tranche 5 Third Issue - $5.57 Tranche 5 Fourth Issue- $6.46 Units unexercised to total 0.33% outstanding shares (%) (Note 1) Give employees the incentive to stay on and build employee loyalty to work towards the Impact on shareholders best interest of the Company and shareholders Note 1: “Total shares issued and outstanding” are based on 3,683,407,193 common shares of the Company issued as of March 31, 2012
21 Business Overview 1. Business activities 1.1 Business Scope 1.1.1. Major business activities This company's main business activities consist of the research, development, production, and sale of semiconductor parts and components used in integrated circuits and other system products. 1.1.2. Revenue breakdown by product mix Winbond carries DRAM and NOR flash. 2011 revenue breakdown by product: Unit: NT$1,000 Product Sales revenue % DRAM product income 17,595,209 64.65 Flash memory product income 9,535,376 35.04 Others 83,869 0.31 Total 27,214,454 100.00
1.1.3. Description of product lines 1.1.3.1 DRAM products This company's DRAM products consist of: ySpecialty DRAM yMobile RAM yGraphics DRAM Company's specialty DRAM mainly applied in PC peripherals (such as hard drives, printers, etc.), network communications product (such as set-top boxes, modems, etc.) and consumer electronic product (such as digital cameras, TVs, DVD players, etc.). Specifications include 16Mb ~ 2Gb specialty DRAM and KGD (Known Good Die) Mobile RAM products include 32Mb ~ 256Mb Pseudo SRAM and 128Mb ~ 512Mb Low-Power DRAM. These are mainly applied in cell phones and light, compact, low-power handheld devices (such as GPS, etc.), consumer electronic products (such as TVs, etc.), and networking products. Graphics DRAM is primarily used in conjunction with graphics chips, and meets the need for high-speed image processing on a large scale. Product applications include VGA graphics cards, laptop computers, and game consoles, etc. 1.1.3.2 Flash memory (NOR flash) products This company's NOR Flash chiefly consists of medium/low density 32Mb ~ 128Mb Parallel Flash and under-128Mb Serial Flash; it is widely applied in 3C products, and chiefly used in PCs and peripherals (hard drives, optical drives, DVD players), feature phones, network communications products (wireless network products, modems) and consumer electronics (set-top boxes, TVs, etc.). An especially large percentage of flash memory is used in motherboards, and HDDs. We are one of the chief vendors of Serial Flash used in feature phone. 1.1.4. New products and services under development Products Description Used in consumer electronics products, PC peripherals, Low, medium, and high density Specialty DRAM network communications products, automotive electronics products, and industrial electronics products Low, medium, and high density, low power quasi-static Pseudo Application in mobile handsets and other portable devices SRAM Used in cell phones, e-book readers, 3G/4G portable data Low, medium, and high density, low power Mobile DRAM cards, and iPad/iPad-like portable electronics products High density, high-speed graphics DRAM Applied in mid-/high-end PC/NB, game consoles 1. High speed, medium/low density, 2.5V, 1.8V low voltage Used in desktops, laptops, optical drives, hard drives, PC
22 Serial Flash peripherals, broadband wireless communications, recordable 2. Use of 58nm process to produce high-speed, high/mid/low DVD players, set-top boxes, network communications, digital density, 3V, 2.5V, 1.8V low-voltage Serial Flash and high TV, cell phones, ISP products, e-books, mobile devices, tablet density 3V Parallel Flash PCs, and other consumer electronic products 3. The industry's smallest packaged USON and WLBGA 4. Develop 46nm process
1.2 Industry overview 1.2.1. Industry’s current status and future outlooks 1.2.1.1 DRAM (1) Current status and future outlooks for the Specialty DRAM industry yDemand Perspective: In 2012, the global economy will face different degrees of sovereign debt risk and economic downturn. Due to intensified awareness of risk, consumer behavior will affect demand in end markets. Global consumer electronic markets will exhibit slowing growth, stagnation, or even contraction in 2012. However, a small number of "killer apps" will enjoy growth as they will replace existing products at up growing rate. The chief killer apps in 2012 include those for smart phones, tablets, ultrabooks, smart TVs (including iTVs and Google TVs). Smart phones (including low-price smart phones) will accelerate the replacement of existing feature/non-branded cell phones, tablets will become more widespread with the introduction of the new iPad and low-price Kindle Fire, and ultrabooks will continue their 2011 trend of replacing laptops. Smart TVs will account for an increasing share of overall TV sales. In 2012, the "replacement effect" will take over from the past "market scale growth" effect and become the main driver of the industry's output. In addition, due to the replacement effect, DRAM sales are increasing rapidly due to the exponential jump in the content per box in cell phones and TVs. Looking forward into 2012, specialty DRAM growth will chiefly derive from increases in content per box. ySupply Perspective: In 2012, while supply of Commodity DRAM will still exceed demand, price risk will ease due to output reductions by some vendors and large drops in capital expenditures throughout the DRAM industry. The lower risk of price drops for Commodity DRAM will indirectly influence the outlook for Specialty DRAM. As a consequence, the risk of falling Specialty DRAM prices is expected to be less in 2012 than in 2011.
(2) Current status and future outlooks for the Mobile RAM industry yDemand Perspective: Mobile DRAM demand mainly comes from handsets, tablets, and mobile devices. According to IDC statistics, the volume of global cell phone shipments grew by an annual rate of 11.1% to 1.55 billion units in 2011 (not including no brand cell phones), and within this total, global smart phone shipment volume grew by an annual rate of 63% to 488 million units. It is expected that global smart phone shipment volume will grow by 50% to 730 million units in 2012, while tablets will grow by 50% to over 100 million units. Not only will the rapid growth of smart phones and tablets will not only increase use of Mobile DRAM in systems, the increased average content per box will also have a multiplier effect, significantly increasing Mobile DRAM demand. ySupply Perspective: Handheld device products are more heterogeneous than ordinary consumer electronic and PC products, product certification time is long, and entry barrier is high. So the price risk of Mobile DRAM is less than that of Commodity DRAM. Apart from this, the risk of Commodity DRAM price drops will be less in 2012 than in 2011, and stable Mobile DRAM price is expected. (3) Current status of the Graphics DRAM industry and future outlook yDemand Perspective: In 2011, global game console shipments fell by an annual rate of 8% to 39.5 million units. Because the Wii has entered the decline stage of its product life cycle, shipment volume fell by an annual rate of 28% from 16.85 million
23 units in 2010 to 12.10 million units in 2011. However, thanks to the introduction of Kinect and PS Move, X-Box 360 and PS3 shipments enjoyed growth of 5.2% and 3.7% to 13.58 million units and 13.81 million units respectively. Looking forward into 2012, the introduction of new Kinect Rush games with Pixar animation may enable X-Box 360 shipments to grow further. ySupply Perspective: Because Graphic memory has a high technological threshold and high entry barriers, there are few competitors in this market. As a result, Graphic memory price risk is determined by the competitiveness of existing suppliers. 1.2.1.2 NOR flash products Winbond produces parallel and serial NOR Flash. Serial Flash is used in PCs, HDDs, DVD players, CD/optical drives/ burners, wireless broadband networking, DSL modems, digital TVs, set-top boxes, e-book readers, ultra-low price cell phones, and other applications. Winbond is a leading supplier of NOR Flash in the world with exceeded 1.3 billion of shipments in 2011. Winbond's serial flash had a 33% market share worldwide in 2011. Looking forward into 2012, growth momentum will come from increased product functions and the introduction of new platforms. In addition to the increase memory density of PCs, new 1.8V Serial Flash and USON 2X3mm, large amounts of new small-package WLCSP products will be used in mobile devices and peripheral products, and Serial Flash will enter the mainstream through the new generation of low-price cell phones. Continued expansion of market share in communications, networking, and consumer electronic products are expected to drive revenue and profit growth in 2012.
1.2.2. Relationship with suppliers in the industry's supply chain From the industry's supply chain, the upstream portion mainly consists of raw material suppliers, who start with silicon wafers. The wafers are subjected to a series of manufacturing steps, including such early stage processes as lithography, rapid hi-temperature process, chemical vapor deposition, ion implantation, etching, chemical machinery polishing and grinding, and process control and monitoring, as well later stage processes such as packaging and testing. Because the types of applications are diverse, the types of down-stream customers are mainly the suppliers of PCs and peripherals, printers, hard disks, displays, cell phones, networking, and set-top boxes. 1.2.3. Product trends and competitions 1.2.3.1 DRAM With regard to Specialty DRAM, we began production of 4Xnm products throughout the second half of 2011, and improved 4Xnm product yield rate. The advanced technology migration is expected to enhance cost competitiveness and expediting the development of the high-entry-barrier specialty market. With regard to Mobile RAM, we successfully mass produced 65nm 512Mb LP DRAM, and 65nm 256Mb, 128Mb, and 64Mb Pseudo in 2011 and will migrate Mobile RAM products to 4Xnm in 2012. Since smart phones and tablets are in the rapid developments, Mobile DRAM demand still stays at high speed growth with relatively low price risk. 1.2.3.2 NOR Flash We are the worldwide leading supplier in Serial Flash with focus on medium/low density (less than 128Mb) Serial Flash. In the motherboard, laptop computer and hard drives markets, our flash market share has surpassed the 40%. For products applications related to optical disk players, our serial flash market share has exceeded one-half. In low-price cell phones, we also have a significant market share, and are currently speeding up the migration to 58nm process. We will introduce high-density 3V and low-voltage NOR Flash products during 2012 in order to provide customers better product performance. Winbond continues expanding its market share, entering new markets, and developing new customers. Serial Flash shipments grew by over 30% during 2011 Q1 and 2012 Q1. We have developed new 58nm process which is the most advanced process in the industry and have started volume shipments.
24 1.3 Overview of Technology and R&D 1.3.1. R&D expenditures Unit: NT$1,000 Item 2011 2012 up to March 31 R&D Expenses 2,548,520 666,440
1.3.2. Successfully developed technologies and products 1.3.2.1 Product development
R&D Achievements Future R&D Plan
y 1.8V low-power CRAM yHigh/medium/low density 4Xnm Mobile DRAM, and y 1.8 V low power Mobile DRAM high/medium/low density 4Xnm Specialty DRAM yMedium/high density 4Xnm Specialty DRAM y 58nm 3V 32 ~ 256Mb Serial Flash into mass yUse more advanced manufacturing technologies for more cost production competitive advantages; lower voltage and greater customization for y A full range of 3V and low voltage 2.5V and 1.8V more diversified applications; R&D into various specialty hi-speed 1Mb-256Mb Serial Flash products flash products y 58nm medium to high density Serial and Parallel Flash y Development of NAND using 46nm process
1.3.2.2 Development of manufacturing process We plan to speed up development of Specialty DRAM, Mobile DRAM, and Graphic DRAM in 2012, and continue to mass produce 4Xnm process products. With regard to NOR Flash in 2012, in addition to the mass production of some low-density products using 90nm process in our 12" fab, we will also migrate high/mid density product production to 58nm process, while striving to meet our yield rate target ahead of schedule. This will enhance Winbond's NOR Flash product competitiveness. We will continue to stay the position as the world's leading Serial Flash manufacturers with the development of new 46nm process.
1.4 Business plan - long-term and short-term Winbond is positioned as a professional specialty memory design, production, and sales company. In the short term, we will continue to expand our high-quality specialty memory, timely delivery, and technical service, while also vigorously expanding our product applications in order to pursue stable profits. As far as production technology is concerned, we will actively adopt advanced processes and improve yield rate in order to reduce production costs and become the first vendor in Taiwan to possess own developed DRAM technology. The 65nm process accounted for the greater part of our Specialty DRAM in 2011, and new 46nm process products went into mass production in the fourth quarter of 2011. We are continuing to convert Mobile RAM production to 65nm, and successfully started up mass production of 58nm Flash products during the fourth quarter of 2011. We maintain close collaborative relationships with major domestic and foreign HDD, TV, Networking, STB, MCP, and SiP international brand vendors, who use large numbers of our Specialty DRAM and Mobile RAM, and the quality of our products is widely recognized. We plan to focus on expanding sales of industrial and automotive electronic products in the future, and will concentrate on end applications with quality demanding and high gross margin. In the area of NOR Flash products, we will focus on the medium/low density market. Our products are widely used in PC peripherals (such as hard drives and optical drives), consumer electronics (TVs and set-top boxes, etc.), and networking product. Our Serial Flash successfully entered the feature phone market in 2011. We improved product mix to minimize the impact of weak global economy. Our strategy is to continue to diversify our product line and nimbly allocate production capacity to accommodate supply and demand conditions. Looking into the future, we will persist in expanding sales on high-quality, long-qualification, high entry-barrier markets, and will rely on our outstanding technical service and customer relations to consolidate our leading status in special memory solutions.
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2. Market, production and sales 2.1 Market analysis 2.1.1. Winbond’s sales break down by regions in 2011: Unit: NT$1,000 Region Sales Percentage Asia 25,693,371 94.70% America 812,808 3.00% Europe 624,039 2.30% Others 367 - Total 27,130,585 100.00%
2.1.2. Market share and growth potential 2.1.2.1 DRAM In 2012, we plan to accelerate development of 46nm Mobile DRAM products and actively enter the market for handheld device killer apps. In the area of Specialty DRAM, we will step up migration of the 46nm process in 2012 in order to cut costs. In addition, we will further strive to consolidate customer relations, and further boost our market share of high barrier to entry applications markets in order to improve the breadth of usage of our products and enhance our overall gross profit ratio. In the area of Pseudo SRAM, we will strive to boost our medium/high density Pseudo shipments and market share in 2012 in order to enhance our profitability.
2.1.2.2 NOR flash products Consolidation of the industry has initiated a shift toward advanced processes and greater production capacity. In addition, application systems are also employing growing memory capacity, which has led to an increasing shortage of medium/low density Serial Flash. Thanks to Serial Flash's pin count and cost advantages, it is being used in a growing range of applications, and the market will continue to grow. After many years of efforts, Winbond has become the leading supplier of flash memory. In conformity with the trends of the last few years, Winbond expanded its 12" 90nm Serial Flash capacity in 2010, and shipped close to 1 billion units; this gave Winbond a 35% global market share. Winbond became the world's leading producer of Serial Flash memory in the fourth quarter of 2010, which highlighted its lightning-fast conquest of the code storage market. Winbond plans to further expand its Parallel Flash product line in 2011, target the high-end networking and set-top box applications markets, and expand into the low-price cell phone market employing MCP products. After completing development of our 58nm process in the fourth quarter of 2011, we will continue to adopt the 58nm process in mass production in 2012, maintaining the dominant market status of our products. We will also continue to use the 58nm process to develop even higher density products, which will enable us to meet future market demand and expand our market share.
2.1.3. Competitive edge, favorable and adverse factors for long-term growth and response strategy 2.1.3.1 DRAM (1) Competitive niche Winbond has already become the leading vendor of specialty memory. Looking ahead to 2012, we will continue to use 4X/5Xnm advanced process technology to accelerate our development of highly competitive DRAM/Flash products, ensuring our core competitiveness. Our chief competitive weapons are our deep understanding of the industry and our highly-efficient execution. (2) Favorable and unfavorable factors affecting our development vision Favorable factors: yThe rapid growth of the smart phone and tablet markets will generate fast-growing demand for Mobile DRAM. yiTVs/Google/Smart TVs will significantly boost DRAM use in TV systems. yThere will be a major drop in capital expenditures throughout the DRAM industry. Unfavorable factors: yEconomy risk may affect consumer confidence, influencing demand in end markets; the growth of many applications is expected to slow in 2012.
26 yPC growth will come to a standstill, and use of DRAM in PC systems will slow, causing demand for Commodity DRAM to stagnate and making it harder for the industry utilize excess capacity. yPseudo will enter the decline stage, and Mobile DRAM will take over demand for Pseudo at an increasing rate. yNew competitors are entering the market (3) Response measures: yIncreasing emphasis on NOR Flash sales, consolidating resources, actively entering Mobile DRAM markets, raising sales portion in high entry-barrier market. yContinued advanced process migration to develop DRAM/Flash products.
2.1.3.2 NOR flash products (1) Competitive niche Winbond has currently made the medium/low density NOR Flash market its chief market target, and offers a complete line of Serial Flash products (1Mb-128Mb). Starting in 2009, Winbond quickly achieved mass production employing the 90nm process, and 58nm products are being shipped in large quantities. Winbond has devoted great attention to the NOR Flash market for many years, and has a market share of over 45% in the HDD, ODD, and PC markets. It has also extended its new-generation Serial Flash Qual I/O specifications to the low-price cell phone market, and has entered the automotive market, where it has received certification from leading manufacturers. (2) Favorable and unfavorable factors affecting our development vision Favorable factors: yWinbond shifted its whole NOR flash product line to 12" plant in 2010. Serial Flash shipments approached 1.3 billion units in 2011; quality and cost are highly regarded. y We provide complete NOR Flash product line, including 3V high speed Quad I/O Serial Flash, 2.5V/1.8V low voltage Serial Flash, and 3V high speed high density Parallel Flash. We introduced 3V/1.8V Serial Flash for use in cell phones and MCP products in 2011, and are continuing to mass produce products using the 58nm process—the industry's most advanced process. yWinbond has become a major supplier of NOR Flash to HDD manufacturers. We have captured more than half of the global PC and ODD markets, our share of the networking market share is also increasing, and we have successfully introduced NOR Flash for use in ultra-low prices cell phones. yWorking together with the world's leading chip vendors to determine standard specifications for the next generation of Serial Flash. yOur 12" wafer plant enables us to respond swiftly to changes in market demand. yWe simultaneously offer NOR flash and DRAM product lines, providing customers with the convenient of one-stop shopping. Unfavorable factors: yCompetitors are expanding their capacity, and cutting prices to capture market share. yThe fact that SLC NAND is replacing high density NOR Flash due to cost considerations will preclude an overall increase in NOR flash demand. (3) Response measures: yWe will accelerate mass production of 58nm products and development of next-generation 46nm products, which will continue to enhance our competitive advantage. yWe will adjust our product lineup in order to develop NOR Flash in the high profit margin, high density market. yWe will strive to expand our shares of the handset, networking, set-top box, and automotive markets. yWe will form alliances with world-leading Flash companies and design teams, enables us to provide even more advanced products and technical services. 2.2 Chief product manufacturing processes 2.2.1. Important application of core products Products Description DRAM: 1. Used in computer peripherals and consumer 1.Low/medium/high density SDR/DDR Specialty electronic products DRAM; medium to high density DDR2/DDR3 2. Used in handheld mobile devices and Specialty DRAM consumer electronic products 2. Pseudo SRAM, Low-Power DRAM 3. Used in electronic products with graphics and 3.High density GDDR3/GDDR5, DDR3 Graphic DRAM image processing functions. NOR Flash: Used in PCs and peripherals, consumer Medium and low density flash memory products electronics, and handheld mobile devices.
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2.2.2. Production processes The integrated circuits manufacturing process chiefly consists of five processes: IC design, mask production, wafer manufacturing, packaging, and testing (see flowchart below):
Define Standards Wafer Fabrication IC Packaging
IC design & layout System design & Final Testing design software design Wafer C.P. test
Mask Making
2.3 State of supply of chief raw materials Winbond's major raw materials and parts include silicon chips, chemicals used in processes, photoresist fluid, special gases, and targets, etc. The suppliers of these materials are located in the US, Japan, Germany, Korea, Malaysia, and Taiwan. All items have approved alternative suppliers, ensuring source, price, supply, and quality. Outsourced items include testing and packaging; we have at least five different approved suppliers for each item, which gives us considerable leeway for adjusting engineering capabilities, service quality, and product line.
2.4 Names of suppliers who accounted for more than 10% of the purchase by the Company in the last two years, and the amount of purchase to total purchase Unit: NT$1,000 2011 2010 Relationship with Item Name issuer Amount Percentage of Amount Percentage of total purchase % total purchase % 1 Supplier Z018 None. 728,908 19 672,267 17 2 Supplier Z023 None. - - 640,132 16 Other 3,044,380 81 2,703,762 67 Net purchase 3,773,288 100 4,016,161 100 Reasons for changes: Supplier Z018: Capacity increase, leading to increased purchases. Supplier Z023: No outsourced production in 2011 due to process conversion.
2.5 Names of customers who accounted for more than 10% of the sales in the last two years, and the amount of sales to total sales Unit: NT$1,000 2011 2010 Relationship Item Name with issuer Amount Percentage of Amount Percentage of net sales % net sales % Winbond Electronics (H.K.) 1 Subsidiary 5,008,443 18 3,569,758 11 Ltd. Other 22,206,011 82 28,285,704 89 Net sales 27,214,454 100 31,855,462 100 Reasons for changes: Winbond Electronics (H.K.) Ltd.: Sales increased 2011 compared with the same period of the previous year due to ongoing expansion of the Chinese market.
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2.6 Output volume and value in the last two years 1. Production quantity and value Unit: NT$1,000 Year 2011 2010 Output volume (note) Output volume (note) Core product/Output Value Value Wafer Die Wafer Die DRAM products 33 880,859 15,043,648 19 1,019,232 19,490,997 Flash products - 1,345,782 6,907,352 - 1,077,138 4,847,033 Other IC products - - -- 29 1,130 Other ------Total 33 2,226,641 21,951,000 19 2,096,399 24,339,160 Note: wafer production is measured in 1,000 pieces; die production is measured in 1,000 pieces.
2. Production capacity Units: 1,000 pcs Core product/Year 2011 2010 12-inch wafer 438 416
2.7 Sales volume and value in the last two years Unit: NT$1,000
Year 2011 2010
Domestic sale Export Domestic sale Export Core Sales volume (note) Sales Sales volume (note) Sales Sales volume (note) Sales Sales volume (note) Sales product/Sales Wafer Die Wafer Die Wafer Die Wafer Die
DRAM - 151,461 2,009,322 33 731,496 15,585,887 - 171,870 4,004,048 18.58 806,876 19,411,437
Flash - 221,305 1,467,218 - 1,081,869 8,068,158 - 214,242 1,454,719 - 804,171 6,943,223
Other IC ------products
Other - - 68,468 - - 15,401 - - 1,354 - - 40,681
Total - 372,766 3,545,008 33 1,813,365 23,669,446 - 386,112 5,460,121 18.58 1,611,047 26,395,341 Note: wafer sales are measured in 1,000 pieces; die sales are measured in 1,000 pieces.
3. Employees Year 2010 2011 2012 up to March 31 Technical personnel 1,123 1,250 1,236 (engineers) Administration and No. of 400 443 440 sales staff employees Assistant to 316 319 319 technicians Total 1,839 2,012 1,995 Average age 33.95 34.40 34.66 Average years of service 6.02 6.12 6.34 Ph.D. 1.36 1.34 1.30 Education Master 33.93 36.13 35.99 background University/College 55.08 53.78 53.83 (%) High school 9.52 8.65 8.72 Below high school 0.11 0.10 0.15
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4. Spending on environmental protections
4.1 There were no financial loss (including indemnities) or fines against the Company for polluting the environment in the past year and up to the date of report.
4.2 Working environment and safety measures
Abiding by the spirit of ISO 14001 environmental management systems, Winbond is committed to providing and maintaining a working environment commensurate with governmental laws and industrial practices. Winbond endeavors to comply with advanced international environmental protection standards and eliminate any foreseeable environmental risks through continuous improvements.
As a citizen of the global village and guided by the belief in environment-oriented design, Winbond is dedicated to the development of green products and the applications of energy-saving and low-pollution electronic products to achieve the goal of sustainable development.
Through preventative actions like process optimization, we continuously improve manufacturing process by reducing consumption of electricity, water and materials per unit output and minimizing the emission/discharge of major pollutants. We acquire all necessary permits as required by law and personnel have been charged to manage the environmental matters. During the fab construction stage, the treatments of waste water, gases and solid waste have been incorporated into the recycling systems to curtail the attrition of resources and generation of pollutants.
Our persistent efforts in environment protection have gained recognition and awards from the Environmental Protection Administration and Ministry of Economic Affairs, including Outstanding Environmental Protection Award, National Industrial Waste Reduction Excellence Award, and Green House Gases Voluntary Reduction Award. Our Creation Road Site has also been conferred an Environment Honorary Award from the Environmental Protection Administration for receiving the Corporate Environmental Protection Award three years consecutively.
Winbond also incorporates OHSAS 18001 in safety, health and environmental management and integrates those tasks into a SHE management system to enhance the efficiency and performance of total environmental management.
Looking into the future, holding onto the spirit of sustainable development and responding to the increasingly heightened awareness to environmental protection, Winbond will continue to allocate appropriate outlay on environmental protection and adopt innovative technology to boost the efficiency of pollution control and treatment facilities as we endeavor to minimize possible impact on the environment brought about by production activities.
5. Employees- employer relations
5.1 Employee welfare, education and training, retirement system and implementation
5.1.1. Employee welfare
The Company has organized the “Employee Welfare Committee”, “Pension Fund Supervisory Committee”, “Labor Safety and Hygiene Committee”. The communication channel between employees and management is open through the company e-newsletter, labor-management meeting, and the proposition system.
5.1.2. Employee training and education
30 The Company has created a diverse learning environment for the employees in accordance with the internal “Education and Training Procedure” to achieve the goal of “Respect Each Individual While Cultivating Professional Skills.” In 2011, the company held 4,121 hours of 313 training courses for 7,560 persons/times, expense of training relatives was NT$11.06 million. The employee learning channels include:
(1) Training programs: Programs on professional skills, quality control, work safety, management and common knowledge are planned each year according to needs. Courses are offered according to the designed programs for employees to take part.
(2) E-environment: The Company offers different online training programs through the company training website. Employees can learn without the constraints of time and space. All class materials are available online.
(3) Life-time learning: To encourage all employees to develop and grow continuously, the Company recommends employees to enroll in master and doctoral programs offered by accredited universities in the country and abroad in accordance with the internal “On-the-Job Continuing Education Rules” with company subsidy. Grants are also given to employees taking part in different training programs organized by outside institutions for them to enrich themselves with work-related knowledge and skills or develop their language proficiency.
5.1.3. Retirement plan
The Company has drafted a retirement plan in accordance with the Labor Standards Law and formed a Pension Fund Supervision Committee to oversee the appropriation of fund reserve and take charge of the review of retirement applications.
5.2 Licensing of personnel involved in the transparency of financial information
Certified internal auditor: Two persons
Certified information systems auditor: One person
Certification in control self-assessment: One perosn
5.3 Labor-management agreement and practices for protecting employee benefits
1. The Company has drawn up the Labor-Management Meeting Procedure and holds such meetings periodically to consult and discuss employee-related issues. Related departments are assigned to deal with the issues resolved in the meeting within a specific period of time.
2. To provide the employees with a legal, reasonable and fair work environment, the Company has drafted the Internal Complaint Procedure to safeguard the rights and interests of the employees and assist them in the complaint of illegal or unreasonable treatments.
5.4 Losses due to labor disputes in most recent year and up to the date of report: None.
5.5 Estimated losses from employees- employer dispute and response measures
The Company holds regular employees- employer meetings to promote exchange of views and reach consensus on issues that may arise. Since the Company’s inception, there have been no material disputes between employees and employer.
31 5.6 Employee code of conduct
The company has comprehensive rules in place for employee code of conduct in relation to work ethics, protection of intellectual property rights/trade secrets and order at workplace as elaborated follows:
5.6.1. Work ethics
(1) Work rules: A specific section is dedicated to service guidelines and the general guideline for the prevention of sexual harassment.
(2) Rules for the prevention of sexual harassment at workplace: The rules are instituted in accordance with applicable regulations that make explicit declaration of the Company against sexual harassment at workplace and relevant measures on its prevention, correction and punishment of the offenders.
(3) Employment contract: The contract has a clause on loyalty and honest execution of duties.
5.6.2. Protection of intellectual property rights and confidentiality of business secrets
(1) Work rules: A specific section is dedicated to the general rules for confidentiality of business secrets.
(2) Employment contract: The contract has clauses on confidentiality, ownership of documents, confidential information, intellectual or industrial property rights, and non-competition.
5.6.3. Order at workplace
(1) Authority and responsibility: The “Guidelines for Hierarchy of Responsibilities” defines the authority and responsibility of employees at all levels and provides the guidelines in the performance of duties.
(2) Job functions of all departments: Proper divisions of labor and job descriptions of all functions are well defined.
(3) Restriction on recruiting relatives: The Company has instituted the “Instructions for Avoiding the Recruitment of Relatives” whereby employees at certain positions should excuse themselves from hiring when their relatives are involved to keep management efficiency and effectiveness from undue influence of kinship relationship between employees.
(4) Attendance management
A. The “Leave Rules” specify the principle for taking leave and related rules.
B. “Rules for Domestic Business Trip” and “Rules for Overseas Business Trip” specify the procedure for making application before taking business trips to facilitate management and activate the agency mechanism; proper travel subsidy is provided for personnel on business trip to help them accomplish their missions.
C. “Overtime Rules” specify the principle and rules for taking overtime.
D. “Rules for Day Off in the Event of Natural Disaster and Emergency” specify the standards for day off in the event of (or after) a natural disaster or emergency accident.
32 (5) Performance management
A. “Rules for Performance Management and Review” aims at understanding the strength and weakness of respective employees and helping them develop their capabilities through the achievement of their own goals; employees are also evaluated against the performance of their peers at work to determine individual contribution to the organization.
B. “Performance Supervision Operating Rules” aim at upgrading the overall productivity of the company through the supervision of employee performance.
(6) Reward and punishment
The “Reward and Punishment Rules” provide reward and punishment for outstanding performers and rule offenders in the company so as to boost and maintain work morale and to uphold order at the workplace.
(7) Human resources development
A. The “On-the-Job Continuing Education Rules” are established to create proper channels for continuing education to train talents needed by the long-term operation of the company.
B. “Rules for Applying to Participate in Academic Organizations”: Employees can broaden their knowledge and experience and keep abreast of the latest information in respective professional fields through participation in academic organizations.
(8) Communication channels
A. The “Labor-Management Meeting Rules” aim at building the corporate consensus of “Sharing Glory and Shame” and encouraging concerted efforts in for business development and employee welfare; establishing proper channels for communications between employees and management to avoid dispute; and promoting harmonious labor-management relation to enhance productivity.
B. “Rules for Filing Complaints” provide the channel for all employees to express their opinions and file complaints so as to uphold the rights and privileges of the employees and promote communication within the Company.
C. “Proposition Rules” aim at helping the Company to make continuous improvement through the collective wisdom and creativity of employees, and rewarding propositions that help the overall operation of the Company so as to encourage employees to contribute their wisdom and experience.
33 6. Material contracts Restri Nature of Contracting parties Term of contract Content ction contract clause s Technical Licensing of 80nm DRAM technology and Qimonda AG of Germany 2006.08 ~ 2011.06 None. cooperation reserving specific capacity (Note 1) Technical Licensing of 75nm and 58nm DRAM technology Qimonda AG of Germany 2007.06 ~ 2014.12 None. cooperation and reserving specific capacity (Note 1) Syndicated Eight lending banks, including Chinatrust 2007.09 ~ 2011.12 NT$5 billion syndicated loan working capital None. loan Commercial Bank Foundry Winbond obtains long-term foundry service from Vanguard International Semiconductor 2008.01 ~ 2011.12 None. service Vanguard International Semiconductor Technical Licensing of 65nm DRAM technology and None. Qimonda AG of Germany 2008.04 ~ 2015.12 cooperation reserving specific capacity (Note 1) Syndicated 11 banks in the consortium, including 2008.06 ~ 2013.06 NT$7.7 billion syndicated loan for the 12-inch fab None. loan Chinatrust Commercial Bank Syndicated 9 banks in the consortium, including 2009.07 ~ 2012.07 NT$3.7 billion syndicated loan working capital None. loan Bank of Taiwan. Licensing of graphics DRAM process technology Technical 2009.08 ~ and equipment purchase, expanded licensing for Qimonda AG of Germany None. cooperation permanent (Note 2) 90-65nm process technology, and settlement of insolvency procedure Technical 2010.04 ~ Licensing of 45 nm and 46 nm Buried Wordline Qimonda AG of Germany None. cooperation permanent (Note 2) DRAM processes and equipment purchase Syndicated 16 banks in the consortium, including NT$7 billion syndicated loan for working capital 2010.05 ~ 2015.06 None. loan Bank of Taiwan. and 12-inch fab Syndicated 17 banks in the consortium, including 2011.09 ~ 2016.09 NT$7 billion syndicated loan for the 12-inch fab None. loan Bank of Taiwan. Note 1: Winbond and Qimonda AG entered an agreement in August 2009 to terminate the prior agreement on reserving specific capacity. Note 2: The licensing of 90 ~ 45nm process technology from Qimonda AG becomes permanent after Winbond has paid off royalties as agreed.
34 Financial Overview 1. Condensed balance sheets, statements of income, names of auditors, and audit opinions (2007-2011) 1.1 Condensed balance sheets Unit: NT$1,000 Financial information: FY2007 - FY2011 Item\Year 2007 2008 2009 2010 2011 Current assets 33,331,620 14,711,865 12,833,810 15,092,984 14,627,508 Funds and long-term 11,278,403 6,067,232 4,932,326 5,188,566 4,951,855 investments Fixed assets 45,263,397 48,574,062 42,048,999 38,633,321 34,491,667 Intangible assets 1,209,645 565,545 1,530,973 1,059,078 548,754 Other assets 3,977,653 3,457,755 3,816,552 3,815,609 3,751,588 Total Assets 95,060,718 73,376,459 65,162,660 63,789,558 58,371,372 Current Basic 27,282,150 15,702,411 15,854,667 15,885,703 14,668,433 liabilities Diluted 27,282,150 15,702,411 15,854,667 15,885,703 14,668,433 Long-term liabilities 16,000,000 19,033,333 15,116,660 10,124,990 7,966,663 Other liabilities 923,097 386,406 337,296 337,728 380,776 Basic 44,205,247 35,122,150 31,308,623 26,348,421 23,015,872 Total liabilities Diluted 44,205,247 35,122,150 31,308,623 26,348,421 23,015,872 Paid-in capital 37,906,612 37,273,812 36,564,972 36,693,502 36,802,302 Capital surplus 17,864,197 13,007,928 13,181,004 2,303,944 2,232,519 Retained Basic (4,818,337) (7,364,903) (15,977,842) (1,640,149) (2,483,440) earnings (accumulated Diluted (4,818,337) (7,364,903) (15,977,842) (1,640,149) (2,483,440) loss) Unrealized gain (loss) on 212,215 (4,559,530) (254,377) (51,936) (1,449,394) financial products Cumulative translation 473,190 519,091 446,667 242,163 359,900 adjustments Treasury stock (782,406) (622,089) (106,387) (106,387) (106,387) Total Basic 50,855,471 38,254,309 33,854,037 37,441,137 35,355,500 shareholders’ Diluted 50,855,471 38,254,309 33,854,037 37,441,137 35,355,500 equity Note 1: The 2011 financial data have been approved by the Board of Directors on February 8, 2012, but have not yet been submitted to the shareholders’ meeting. Note 2: The financial information for FY 2007 to FY 2011 was audited and certified by accountants. 1.2 Condensed statements of income Unit: NT$1,000 Financial information: FY2007 - FY2011 Item\Year 2007 2008 2009 2010 2011 Sales revenue 32,104,435 21,828,011 19,532,712 31,855,462 27,214,454 Gross profit (loss) 1,988,737 (2,486,609) (2,947,940) 6,262,200 3,068,716 Operating income (loss) (3,703,041) (6,435,130) (5,994,677) 3,158,724 (621,385) Non-operating income and 1,269,708 1,383,733 130,917 1,284,334 330,195 gain Non-operating expense and 3,378,814 2,313,506 2,749,179 892,062 552,101 loss Income (loss) before tax (5,812,147) (7,364,903) (8,612,939) 3,550,996 (843,291) Income tax expense - - - - - Net income (loss) (5,812,147) (7,364,903) (8,612,939) 3,550,996 (843,291) Earnings (loss) per share (1.57) (2.00) (2.36) 0.97 (0.23) (NT$) Note 1: The 2011 financial data have been approved by the Board of Directors on February 8, 2012, but have not yet been submitted to the shareholders’ meeting. Note 2: The financial information for FY 2007 to FY 2011 was audited and certified by accountants.
35 1.3 Names of auditors and audit opinions (2007 – 2011) Year CPA Audit opinion 2007 C. C. Lu and W. C. Lin Unqualified opinion 2008 C. C. Lu and M. Y. Chiu Unqualified opinion 2009 C. C. Lu and M. Y. Chiu Modified unqualified opinion (Note 1 and Note 2) 2010 C. C. Lu and M. Y. Chiu Modified unqualified opinion (Note 2) 2011 K. T. Hong and K. C. Wu Modified unqualified opinion (Note 2) Note 1: The CPA issued a modified unqualified opinion in their audit report for the Company’s financial statements because the Company adopts the newly revised Statements of Financial Accounting Standard No. 10 – Inventories starting January 1, 2009. Note 2: The CPA issued a modified unqualified opinion in their 2009-2011 audit reports because the financial statements of some investee companies accounted for by equity method were audited by other CPA.
2. Financial analysis (2007 - 2011) Financial analysis (2007 - 2011) Item\Year 2007 2008 2009 2010 2011 Financial Debt-to-assets ratio (%) 46.50 47.86 48.04 41.30 39.43 structure Long-term fund to fixed assets ratio (%) 147.70 117.93 116.46 123.12 125.60 Current ratio (%) 122.17 93.69 80.94 95.00 99.72 Solvency Quick ratio (%) 101.18 64.94 48.78 58.41 54.34 Times interest earned - - - 6.90 - Receivables turnover ratio (times) 5.86 7.54 8.58 10.45 8.22 Average days of collection 62 48 43 35 44 Inventory turnover ratio (times) 5.40 5.44 5.37 5.18 4.12 Operating Payables turnover ratio (times) 9.47 9.35 7.60 7.22 7.29 ability Average days of sales 68 67 68 70 89 Fixed assets turnover ratio (times) 0.65 0.46 0.43 0.78 0.74 Total assets turnover ratio (times) 0.34 0.25 0.28 0.49 0.44 Return on assets (%) (5.52) (8.02) (11.72) 6.28 (0.80) Return on shareholder‘s equity (%) (10.78) (16.52) (23.88) 9.96 (2.31) Percentage to Operating income (9.77) (17.26) (16.39) 8.60 (1.68) Profitability paid-in capital Income before tax (15.33) (19.75) (23.55) 9.67 (2.29) (%) Net profit margin (%) (18.10) (33.74) (44.09) 11.14 (3.09) Earnings per share (NT$) (1.57) (2.00) (2.36) 0.97 (0.23) Cash flow ratio (%) 39.98 17.38 29.09 71.32 65.00 Cash flows Cash flow adequacy ratio (%) 80.98 60.27 48.93 64.22 89.85 Cash reinvestment ratio (%) 9.21 3.15 5.73 12.83 10.19 Operating leverage (3.19) (0.74) (0.96) 5.07 (20.02) Leverage Financial leverage 0.81 0.88 0.90 1.23 0.59 Reasons for changes in financial ratios exceeding 20%: 1. Decrease in receivables turnover ratio was mainly due to decrease in sales revenue in 2011 amid global economic slowdown. 2. Decrease in inventory turnover ratio was due to decrease in the sale of wafer in 2011, and in addition, increase in capacity and average wafer start that led to rise in inventory and decrease in turnover ratio. 3. Decrease in return on assets, return on shareholder’s equity, percentage of operating income to paid-in capital, percentage of income before tax to paid-in capital, net profit margin and earnings per share, which were brought about by price competition in the market in 2011 that led to lower gross profit and loss after tax. 4. Increase in cash flow adequacy ratio was mainly due to decrease in total capital expenditure in the past five years. 5. Decrease in cash reinvestment ratio was mainly due to increase in the gross amount of fixed assets in 2011. Note 1: Financial data from 2007 to 2011 have been audited by certified public accountant. Note 2: Computation formulas used in financial analysis: 1. Financial structure (1) Debt-to-asset ratio = total liabilities / total assets. (2) Long-term fund to fixed assets ratio＝(net shareholders’ equity + long-term debt) / net fixed assets. 2. Solvency (1) Current ratio = current assets / current liabilities. (2) Quick ratio = (current assets – inventory – prepaid expense) / current liabilities.
36 (3) Time interest earned = net income before income tax and interest expense / current interest expense. 3. Operating ability (1) Receivable (including accounts receivable and business-related notes receivable) turnover ratio = net operating revenue / average balance of receivable of the period (including accounts receivable and business-related notes receivable). (2) Average days of collection ＝365 / receivables turnover ratio. (3) Inventory turnover ratio＝cost of goods sold / average amount of inventory. (4) Payable (including accounts payable and business-related notes payable) turnover ratio = cost of goods sold / average balance of payable of the period (including accounts payable and business-related notes payable). (5) Average days of sales ＝365 / inventory turnover ratio. (6) Fixed assets turnover ratio＝net sales / net average fixed assets. (7) Total assets turnover ratio＝net sales / total average assets. 4. Profitability (1) Return on assets ＝ [net income + interest expense (1-tax rate)] / average total assets. (2) Return on shareholder’s equity＝ net income / net average shareholders’ equity. (3) Net profit margin＝ net income / net sales. (4) Earnings per share＝(net income – dividend to preferred stock) / weighted average of shares issued. 5. Cash flows (1) Cash flow ratio = new cash flows from operating activities / current liabilities. (2) Cash flow adequacy ratio = net cash flows from operating activities in the past five years / (capital expenditure + increase in inventory + cash dividend) in the past five years. (3) Cash reinvestment ratio = (net cash flows from operating activities –cash dividend) / (gross fixed assets + long-term investment + other assets + working capital). 6. Leverage (1) Operating leverage＝(net operating income － variable operating cost and expenses) / operating income. (2) Financial leverage＝operating income / (operating income － interest expense)
37 Winbond Electronics Corporation
Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors’ Report 3. 2011 financial statements
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders Winbond Electronics Corporation
We have audited the accompanying balance sheets of Winbond Electronics Corporation (the “Company”) as of December 31, 2011 and 2010, and the related statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. Certain long-term investments were accounted for under the equity method based on financial statements as of and for the years ended December 31, 2011 and 2010 of the investees, which were audited by other auditors. Our opinion, insofar as it relates to such investments, is based solely on the reports of other auditors. The investments in such investees amounted to zero and NT$21,598 thousand as of December 31, 2011 and 2010, respectively; investment (loss) income amounted to NT$(1,341) thousand and NT$1,577 thousand for the years then ended, respectively.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards, and accounting principles generally accepted in the Republic of China.
38 We have also audited the consolidated balance sheets of Winbond Electronics Corporation and its subsidiaries as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended (not presented herewith), and have expressed in our report thereon an unqualified opinion with explanatory paragraphs dated February 8, 2012.
February 8, 2012
Notice to Readers
The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and financial statements shall prevail. Also, as stated in Note 2 to the financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.
39 WINBOND ELECTRONICS CORPORATION
BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010 2011 2010 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount %
CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 3,812,987 7 $ 4,231,453 7 Short-term loans (Note 13) $ 1,539,592 3 $ 1,551,815 2 Financial assets at fair value through profit or loss, Short-term bills payable (Note 14) 199,763 - - - current (Notes 2 and 5) 1,703 - 56,106 - Notes payable 849,714 1 1,137,439 2 Available-for-sale financial assets, current (Notes 2 and 8) 707,542 1 1,318,675 2 Accounts payable 2,640,929 5 1,990,706 3 Notes receivable, net (Notes 2 and 6) 382 - 1,352 - Payable on equipment 632,910 1 1,080,094 2 Accounts receivable, net (Notes 2 and 6) 2,447,898 4 3,048,128 5 Accrued expenses and other payables 1,623,695 3 1,551,832 3 Accounts receivable from related parties, net (Notes 6 Current portion of long-term liabilities (Note 15) 7,158,327 12 8,491,670 13 and 22) 701,771 1 421,556 1 Other current liabilities 23,503 - 82,147 - Other financial assets, current 85,609 - 75,444 - Inventories (Notes 2 and 7) 6,330,789 11 5,365,848 8 Total current liabilities 14,668,433 25 15,885,703 25 Deferred income tax assets, current (Notes 2 and 20) 210,000 - 124,000 - Other current assets 328,827 1 450,422 1 LONG-TERM LIABILITIES Long-term debt (Note 15) 7,966,663 13 10,124,990 16 Total current assets 14,627,508 25 15,092,984 24 OTHER LIABILITIES FUND AND INVESTMENTS Accrued pension liabilities (Notes 2 and 16) 154,308 1 139,041 - Available-for-sale financial assets, noncurrent (Notes 2 Reserve for product guarantee (Note 2) 94,271 - 59,943 - and 8) 64,800 - - - Other liabilities - others 132,197 - 138,744 - Financial assets carried at cost, noncurrent (Notes 2 and 9) 61,855 - 71,887 - 40 Long-term equity investments at equity method (Notes 2 Total other liabilities 380,776 1 337,728 - and 10) 4,825,200 9 5,116,679 8 Total liabilities 23,015,872 39 26,348,421 41 Total fund and investments 4,951,855 9 5,188,566 8 STOCKHOLDERS’ EQUITY PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 11) Common stock (Note 17) 36,802,302 63 36,693,502 58 Cost Capital surplus Land 799,147 1 799,147 1 Treasury stock transaction 1,971,862 3 1,971,862 3 Buildings 16,148,157 28 15,893,685 25 Adjustment on long-term equity investments under equity Machinery and equipment 64,599,851 111 59,490,856 93 method 23,913 - 23,912 - Other equipment 2,600,997 4 2,763,623 5 Stock option (Notes 2 and 18) 13,960 - 20,104 - Total cost 84,148,152 144 78,947,311 124 Others 222,784 1 288,066 1 Accumulated depreciation (49,782,156) (85) (40,368,920) (64) Retained earnings Construction in progress and prepayments on purchase of Accumulated deficit (2,483,440) (4) (1,640,149) (3) equipment 125,671 - 54,930 - Other equity Cumulative translation adjustments (Note 2) 359,900 1 242,163 - Property, plant and equipment, net 34,491,667 59 38,633,321 60 Unrealized loss on financial instruments (Note 2) (1,449,394) (3) (51,936) - Treasury stock (Notes 2 and 17) (106,387) - (106,387) - INTANGIBLE ASSETS (Notes 2 and 12) 548,754 1 1,059,078 2 Total stockholders’ equity 35,355,500 61 37,441,137 59 OTHER ASSETS Refundable deposits 80,455 - 76,004 - Deferred income tax assets, noncurrent (Notes 2 and 20) 3,532,000 6 3,618,000 6 Others 139,133 - 121,605 -
Total other assets 3,751,588 6 3,815,609 6
TOTAL $ 58,371,372 100 $ 63,789,558 100 TOTAL $ 58,371,372 100 $ 63,789,558 100
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) WINBOND ELECTRONICS CORPORATION
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)
2011 2010 Amount % Amount %
NET SALES $ 27,214,454 100 $ 31,855,462 100
COST OF SALES (Note 7) 24,145,738 89 25,593,074 80
UNREALIZED INTERCOMPANY PROFIT - - (188) -
GROSS PROFIT 3,068,716 11 6,262,200 20
OPERATING EXPENSES Selling expenses 606,800 2 438,996 1 General and administrative expenses 534,781 2 545,405 2 Research and development expenses 2,548,520 9 2,119,075 7
Total operating expenses 3,690,101 13 3,103,476 10
(LOSS) INCOME FROM OPERATIONS (621,385) (2) 3,158,724 10
NON-OPERATING INCOME AND GAINS Interest income 24,163 - 13,902 - Investment income recognized under equity method (Note 10) 131,829 1 412,573 1 Investment income 24,668 - 5,754 - Gain on disposal of property, plant and equipment (Note 2) 926 - 37,997 - Gain on disposal of investments (Note 10) 7,027 - 678,307 2 Foreign exchange gain (Note 2) 58,373 - - - Reversal of allowance for doubtful accounts 13,000 - - - Gain on valuation of financial instruments (Note 5) - - 111,512 1 Others 70,209 - 24,289 -
Total non-operating income and gains 330,195 1 1,284,334 4
NON-OPERATING EXPENSES AND LOSSES Interest expense 425,495 2 602,251 2 Other investment loss 9,680 - - - Loss on disposal of property, plant and equipment (Note 2) 1,006 - 18,020 - Foreign exchange loss (Note 2) - - 231,372 1 Loss on valuation of financial instruments (Note 5) 88,854 - - - Others 27,066 - 40,419 -
Total non-operating expenses and losses 552,101 2 892,062 3 (Continued)
41 WINBOND ELECTRONICS CORPORATION
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)
2011 2010 Amount % Amount %
(LOSS) INCOME BEFORE INCOME TAX $ (843,291) (3) $ 3,550,996 11
INCOME TAX EXPENSE (Notes 2 and 20) - - - -
NET (LOSS) INCOME $ (843,291) (3) $ 3,550,996 11
2011 2010 Before After Before After Income Income Income Income Tax Tax Tax Tax
(LOSS) EARNINGS PER SHARE (Notes 2 and 21) Basic (loss) earnings per share $ (0.23) $ (0.23) $ 0.97 $ 0.97 Diluted (loss) earnings per share $ (0.23) $ (0.23) $ 0.97 $ 0.97
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) (Concluded)
42 WINBOND ELECTRONICS CORPORATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
Retained Capital Surplus Earnings Other Equity Adjustments on Long-term Paid-in Capital Equity Unrealized in Excess of Par Investments Cumulative Loss on - Common Treasury Stock under Equity Accumulated Translation Financial Common Stock Stock Transaction Method Stock Option Others Deficit Adjustments Instruments Treasury Stock Total
BALANCE, JANUARY 1, 2010 $ 36,564,972 $ 10,786,697 $ 1,971,862 $ 37,424 $ 16,196 $ 368,825 $ (15,977,842) $ 446,667 $ (254,377) $ (106,387) $ 33,854,037
Offsetting accumulated deficit (Note 17) - (10,786,697) - - - - 10,786,697 - - - -
Net income for 2010 ------3,550,996 - - - 3,550,996
Changes in translation adjustments ------(204,504) - - (204,504)
Changes in unrealized loss on financial instruments ------202,441 - 202,441
Capital surplus from investee under equity method - - - 2,688 ------2,688
43 Adjustment to capital surplus due to disposal of investments - - - (16,200) ------(16,200)
Issuance of stock from exercising employee stock options (Note 17) 128,530 - - - (8,955) (80,759) - - - - 38,816
Compensation cost of employee stock options (Note 18) - - - - 12,863 - - - - - 12,863
BALANCE, DECEMBER 31, 2010 36,693,502 - 1,971,862 23,912 20,104 288,066 (1,640,149) 242,163 (51,936) (106,387) 37,441,137
Net loss for 2011 ------(843,291) - - - (843,291)
Changes in translation adjustments ------117,737 - - 117,737
Changes in unrealized loss on financial instruments ------(1,397,458) - (1,397,458)
Issuance of stock from exercising employee stock options (Note 17) 108,800 - - - (10,616) (65,282) - - - - 32,902
Capital surplus from investee under equity method - - - 1 ------1
Compensation cost of employee stock options (Note 18) - - - - 4,472 - - - - - 4,472
BALANCE, DECEMBER 31, 2011 $ 36,802,302 $ - $ 1,971,862 $ 23,913 $ 13,960 $ 222,784 $ (2,483,440) $ 359,900 $ (1,449,394) $ (106,387) $ 35,355,500
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) WINBOND ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (843,291) $ 3,550,996 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation 9,680,099 10,325,474 Amortization 523,434 493,533 (Reversal of) provision for allowance for doubtful accounts (13,000) 12,000 Loss on decline in market value and obsolescence and abandonment of inventories 482,919 55,225 Gain on disposal of investments, net (7,027) (678,307) Investment income recognized under equity method, net (131,829) (412,573) Impairment losses on financial assets carried at cost 9,680 - Cash dividends from equity method investees 379,860 249,367 Net losses (gains) on disposal of property, plant and equipment 80 (19,977) Net loss on obsolescence of spare parts 3,761 153 Compensation cost of employee stock options 4,472 12,863 Net changes in operating assets and liabilities Financial assets at fair value through profit or loss, current 54,403 (38,854) Notes receivable 970 3,834 Accounts receivable 613,230 (883,014) Accounts receivable from related parties (275,204) 19,730 Other financial assets, current (10,165) 14,941 Inventories (1,447,859) (905,479) Other current assets 121,595 134,562 Other assets (35,090) (3,696) Notes payable (287,725) (123,605) Accounts payable 650,223 (703,436) Accrued expenses and other payables 71,863 140,101 Other current liabilities (58,644) 63,971 Other liabilities 48,638 22,320
Net cash provided by operating activities 9,535,393 11,330,129
CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment (5,993,918) (7,376,431) Acquisition of long-term investments under equity method (376,670) (393,247) Acquisition of available-for-sale financial assets (316,826) - Proceeds from disposal of long-term investments under equity method - 1,229,740 Proceeds from disposal of available-for-sale financial assets - 394,339 Proceeds from disposal of financial assets carried at cost 335 - Proceeds from disposal of property, plant and equipment 4,448 38,821
Net cash used in investing activities (6,682,631) (6,106,778) (Continued)
44 WINBOND ELECTRONICS CORPORATION
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010
CASH FLOWS FROM FINANCING ACTIVITIES (Decrease) increase in short-term loans $ (12,223) $ 226,646 Increase in short-term bills payable 199,763 - Increase in long-term debt 5,000,000 3,500,000 Repayment of long-term debt (8,491,670) (7,616,673) Proceeds from exercise of employee stock options 32,902 38,816
Net cash used in financing activities (3,271,228) (3,851,211)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (418,466) 1,372,140
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,231,453 2,859,313
CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,812,987 $ 4,231,453
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest during the year $ 549,022 $ 653,198
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities $ 7,158,327 $ 8,491,670 Cumulative translation adjustments $ 117,737 $ (204,504) Unrealized (loss) gain on financial instruments $ (1,397,458) $ 202,441 Adjustment to capital surplus due to disposal of investments $ - $ (16,200) Capital surplus from investee under equity method $ 1 $ 2,688
CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Net increase in acquisition of property, plant and equipment $ 5,546,734 $ 6,928,793 Add payable for property, plant and equipment, beginning of year 1,080,094 1,527,732 Less payable for property, plant and equipment, end of year (632,910) (1,080,094) Cash payment for acquisitions of property, plant and equipment $ 5,993,918 $ 7,376,431
The accompanying notes are an integral part of the financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) (Concluded)
45 WINBOND ELECTRONICS CORPORATION
NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION AND OPERATIONS
Winbond Electronics Corporation (the “Company”) was incorporated in the Republic of China (“ROC”) on September 29, 1987 and is engaged in the design, development, manufacture and marketing of Very Large Scale Integration (“VLSI”) integrated circuits (“ICs”) used in a variety of microelectronic applications. In addition to its own products, the Company offers a foundry service for other Taiwanese and foreign IC producers and designers. An initial public offering of the Company’s common stocks was made on October 18, 1995, and the stocks are traded on the Taiwan Stock Exchange.
There are 2,012 and 1,839 employees in the Company as of December 31, 2011 and 2010, respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements were prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the ROC. Significant accounting principles are summarized as follows:
For the convenience of readers, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language financial statements shall prevail. However, the accompanying financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes.
Transaction in Foreign Currencies and Translation of Foreign Currency Financial Statements
Foreign currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the balance sheet date, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income or loss.
Foreign non-currency assets and liabilities (e.g., equity instrument) which are measured at fair value shall be revalued at the balance sheet date exchange rates. The related translation adjustment on available-for-sale financial assets is included in stockholders’ equity; and the translation adjustment on financial instrument at fair value through profit or loss is recorded in current year’s profit or loss. Financial assets carried at cost are measured at historical rate on the transaction dates.
Long-term equity investments denominated in foreign currencies are restated at the balance sheet date exchange rates. The related translation adjustments are reported as an adjustment of stockholders’ equity.
The aforesaid balance sheet date exchange rates are based on the middle prices of the major transaction banks.
46 Accounting Estimates
In preparing financial statements in conformity with these guidelines and principles, the Company is required to make some estimates and assumptions that could affect the amounts of allowance for doubtful accounts, allowance for inventory devaluation, property depreciation and impairment, tax, pension liabilities and product guarantee, etc. Actual results may differ from these estimates.
Current/Noncurrent Assets and Liabilities
Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent.
Cash and Cash Equivalents
Cash includes unrestricted cash on hand and cash in bank. Government bonds under repurchase agreements and notes acquired with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value.
Financial Instrument at Fair Value through Profit or Loss
Financial instruments at fair value through profit or loss include financial assets and financial liabilities held for trading purpose. Upon initial recognition, they are recognized at the fair values plus transaction costs. After initial recognition, they are measured at fair values and the changes in the fair values are recognized as profits or losses. Cash dividends received are recorded as dividends revenue, including the dividends received in the year of acquisition. When the financial instruments are disposed of, the difference between carrying amount and the price received or paid is recognized as the profit or loss. All purchases and sales of financial assets are recorded on the trade date basis.
Derivatives that are not subject to measurement under hedge accounting are classified as financial assets or financial liabilities at fair value through profit or loss. The positive fair values of derivatives are recognized as financial assets; negative fair values are recognized as financial liabilities.
The fair value of open-end mutual fund is the published fair value per unit at the balance sheet date. Marketable securities are stated at the closing price at the balance sheet date.
Impairment of Accounts Receivable
Allowance for doubtful accounts is determined by the Company’s management based on the evaluation of the probability of collection of notes and accounts receivable. The Company determines the amount of allowance for doubtful accounts by examining the aging analysis of outstanding accounts receivable and current trends in the credit quality of its customers as well as its internal credit policies.
As discussed in Note 3 to the financial statements, on January 1, 2011, the Company adopted the third-time revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” One of the main revisions is that the impairment of receivables originated by the Company should be subject to the provisions of SFAS No. 34. The Company evaluates for indication of impairment of accounts receivable at the end of each reporting period. When objective evidence indicates that the estimated future cash flow of accounts receivable decreases as a result of one or more events that occurred after initial recognition of the accounts receivable, such accounts receivable are deemed to be impaired.
47 Inventories
Inventories consist of raw materials, supplies, finished goods and work-in-process. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on item-by-item basis. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and necessary selling cost.
Available-for-sale Financial Assets
Available-for-sale financial assets are initially recognized at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. After initial recognition, they are measured at fair value and the changes in fair value of available-for-sale financial assets are recorded as an adjustment of stockholders’ equity. When the financial assets are disposed of, the related accumulated fair value changes are taken out of stockholders’ equity and recognized in the profit and loss. All purchases and sales of available-for-sale financial assets are recorded on the trade date basis.
Stock dividends are recorded as an increase in the number of shares and do not affect investment income or the carrying amount of the investment.
The fair value of open-end mutual fund is the published fair value per unit at the balance sheet date. Marketable securities are stated at the closing price at the balance sheet date. Private-placement common shares of listed company are stated at the closing price at the balance sheet date but adjusted for the effects of transferred restriction.
If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to stockholders’ equity; for debt securities, the amount of the decrease is recognized in earnings, provided that the decrease is clearly attributable to an event which occurred after the impairment loss was recognized.
Financial Assets Carried at Cost
Equity investment for which do not have a quoted market price in an active market and whose fair value cannot be reliably measured, such as non-publicly traded stocks, are carried at their original cost. Accounting policies for dividends received are similar to those for available-for-sale financial assets.
An impairment loss is recognized if there is objective evidence of impairment; subsequent reversal of such impairment loss is not allowed.
Long-term Equity Investments Accounted for Using Equity Method
Investments in corporations in which the Company’s ownership interest is over 20% or the Company exercises influence on the operating and financial policy decision are accounted for by the equity method.
When equity investments are made, the excess of the purchase cost over the fair value of net assets representing goodwill will not be amortized, but will be tested for impairment periodically, or more frequently, if events or changes in circumstances indicate that such carrying value may not be recoverable.
When the Company subscribes for additional investee shares at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment in the investee will differ from the amount of the Company’s share of the investee’s net equity. The Company records such difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. If the balance of the capital surplus account relating to a long-term equity investment is not sufficient to absorb such an adjustment, any excess is charged against retained earnings.
48 If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. For those investees over which the Company exercises significant influence on their operating and financial decision, the assessment of impairment is based on carrying value. For those investees over which the Company has control ability, the assessment of impairment is based on cash-generating units of the consolidated company as a whole.
Property, Plant and Equipment
Property, plant and equipment are stated at cost less accumulated depreciation and impairment. Expenditures that would increase the value or extend the useful lives of property, plant and equipment are capitalized.
Interest is capitalized during the construction period of property, plant and equipment until a qualifying asset is substantially completed and ready for its intended use.
Depreciation is provided on the straight-line method over the following estimated useful lives of the related assets, plus one additional year for salvage:
Buildings 5 to 20 years Machinery and equipment 5 years Other equipment 3 to 5 years
Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their new estimated useful lives.
When an indication of significant impairment is determined, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in the future period, the subsequent reversal of the impairment loss would be recognized as a gain. However, the increased carrying amount of an asset due to reversal of an impairment loss should not exceed the carrying amount that would have been determined (net of depreciation), had no impairment loss been recognized for the assets in prior years.
Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are removed from the accounts and any related gain or loss is included in non-operating income or non-operating expenses.
Intangible Assets
Intangible assets are stated at acquisition cost less accumulated amortization and included in assets. Such assets are amortized over three to five years from the commencement of production using the straight-line method. If the assets’ future benefits are impaired, the excess of carrying amount will be recognized in current loss to present the fair value of the assets.
Reserve for Product Guarantee
For potential product risk, the Company accrues reserve for product guarantee based on the commitment to specific customers.
Benefit Pension Plan
For employees under defined contribution plans, pension costs are recorded based on the actual contributions made to employee’s personal pension accounts. For employees under defined benefit pension plans, pension costs are recorded based on actuarial calculations.
49 Income Tax
The Company uses an inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effect of temporary differences, operating loss carryforwards and investment tax credits. Valuation allowances are provided when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable for the period plus or minus the change during the period in deferred tax assets and liabilities.
Income tax credits, such as for purchase of machinery, research and development expenses and training expenses, are recognized as deduction of current income tax expense.
Income tax on unappropriated earnings at a rate of 10% is expensed in the year of stockholder approval which is the year subsequent to the year the earnings are generated.
Earnings (Loss) Per Share
Basic earnings (loss) per share is calculated by dividing net income (loss) applicable to common stock by the weighted average number of shares outstanding. For a diluted basis, net earnings and shares outstanding are adjusted for diluted potential common stock.
Share-based Compensation
Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting period, with a corresponding adjustment to capital surplus - options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.
Treasury Stock
The cost of shares purchased or fair value of shares donated by outside parties is charged to the treasury stock account.
Upon reissuance, the discrepancy between the cost of the treasury shares and the price received is reflected in stockholders’ equity accounts.
The Company’s stock held by subsidiaries is also treated as treasury stock.
Revenue Recognition
Sales are recognized when titles of products and risks of ownership are transferred to customers.
3. CHANGES IN ACCOUNTING PRINCIPLES
Financial Instruments
On January 1, 2011, the Company adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions include (1) finance lease receivables are now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the Company are now covered by SFAS No. 34; (4) additional guidelines on impairment testing of financial assets carried at amortized cost when a debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations. This adoption did not result in material effect on the financial statements for the year ended December 31, 2011.
50
Operating Segments
On January 1, 2011, the Company adopted the newly issued SFAS No. 41, “Operating Segments.” The statement requires that segment information be disclosed based on the information about the components of the Company that management uses to make operating decisions. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Company's chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20, “Segment Reporting.” For this accounting change, the Company restated the segment information as of and for the year ended December 31, 2010 to conform to the disclosures in the consolidated financial statements as of and for the year ended December 31, 2011.
4. CASH AND CASH EQUIVALENTS
December 31 2011 2010
Cash on hand $ 230 $ 230 Checking account 1,036 1,651 Demand deposit 102,956 182,525 Time deposit 3,071,752 3,084,675 Short-term bills 637,013 962,372
$ 3,812,987 $ 4,231,453
Time deposits in the amounts of $77,836 thousand and $74,799 thousand as of December 31, 2011 and 2010, respectively, were pledged to secure purchase orders of materials and customs tariff obligations and are included in refundable deposits.
5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
December 31 2011 2010
Forward exchange contracts $ 1,703 $ 56,106
For the years ended December 31, 2011 and 2010, the Company’s strategy for forward exchange contracts is to hedge its exposures to fluctuations of foreign exchange rate. The Company’s financial risk management objective is to hedge most of the market price risk and cash flows risk.
Outstanding forward exchange contracts as of December 31, 2011 and 2010 were summarized as follows:
Contract Amount Currencies Maturity Date (In Thousands)
December 31, 2011
Sell forward exchange contracts USD to JPY 2012.01.05 USD925/JPY72,000 Sell forward exchange contracts USD to NTD 2012.01.05-2012.02.02 USD41,000/NTD1,241,738
December 31, 2010
Sell forward exchange contracts USD to NTD 2011.01.06-2011.02.10 USD58,000/NTD1,738,941 Sell forward exchange contracts NTD to USD 2011.02.10 NTD148,375/USD5,000
51
The transactions of financial instruments at fair value through profit or loss resulted in net losses of $88,854 thousand and net gains of $111,512 thousand for the years ended December 31, 2011 and 2010, respectively.
6. NOTES AND ACCOUNTS RECEIVABLE
December 31 2011 2010
Notes receivable $ 382 $ 1,352
Accounts receivable $ 2,726,898 $ 3,340,128 Less allowance for doubtful accounts (279,000) (292,000)
$ 2,447,898 $ 3,048,128
Accounts receivable from related parties (Note 22) $ 701,771 $ 421,556
7. INVENTORIES December 31 2011 2010
Finished goods $ 1,606,347 $ 1,565,163 Work-in-process 4,517,692 3,655,389 Raw materials and supplies 192,978 145,296 Inventories in transit 13,772 -
$ 6,330,789 $ 5,365,848
As of December 31, 2011 and 2010, the allowance for inventory devaluation was $980,297 thousand and $519,382 thousand, respectively.
Write-down losses of inventories of $482,919 thousand and $55,225 thousand were included in the cost of sales for the years ended December 31, 2011 and 2010, respectively.
8. AVAILABLE-FOR-SALE FINANCIAL ASSETS
December 31 2011 2010 Ownership Ownership Amount Percentage Amount Percentage Listed stocks Walton Advanced Engineering Inc. $ 480,601 10 $ 750,940 10 Hannstar Display Corporation 123,082 1 345,971 1 Walsin Technology Corporation 103,859 2 221,764 2 Private-placement shares of listed company Hannstar Display Corporation 64,800 1 - - 772,342 1,318,675 Less Current portion (707,542) (1,318,675)
$ 64,800 $ -
52
In January 2011, the Company acquired 54,000 thousand private-placement shares of Hannstar Display Corporation. According to Securities and Exchange Act, the private-placement shares of Hannstar Display Corporation could be resold freely in an active market only after three years from the delivery date and permitted by the controlling authorities.
9. FINANCIAL ASSETS CARRIED AT COST
December 31 2011 2010 Ownership Ownership Amount Percentage Amount Percentage
YH Bio Explore & Application Co., Ltd. (“Previously Vita Genomic Inc.”) $ 35,520 3 $ 45,200 3 Vita Genomic, Inc. 13,082 3 13,434 3 Others 13,253 - 13,253 -
$ 61,855 $ 71,887
The Company’s financial assets carried at cost do not have a quoted market price in an active market, and the fair value cannot be reliably measured. Impairment loss is evaluated periodically.
10. LONG-TERM EQUITY INVESTMENTS AT EQUITY METHOD
December 31 2011 Original 2010 Investment Carrying Ownership Carrying Ownership Cost Value Percentage Value Percentage
Nuvoton Technology Corporation (“NTC”) $ 727,548 $ 1,705,201 61 $ 1,807,858 61 Winbond Int’l Corporation (“WIC”) 3,269,237 1,596,774 100 1,427,681 100 Win Investment Corporation (“Win”) 790,118 1,057,149 100 1,583,389 100 Landmark Group Holdings Ltd. (“Landmark”) 514,602 372,360 100 251,520 100 Mobile Magic Design Corporation (“MMDC”) 50,000 50,909 100 46,229 100 Pine Capital Investment Limited (“PCI”) 41,398 42,805 100 - - Newfound Asian Corp. (“NAC”) 208,960 1 100 1 100 Winbond Electronics (H.K.) Limited (“WEHK”) 1,948 1 100 1 100
$ 5,603,811 $ 4,825,200 $ 5,116,679
Equity in (losses) gains of equity method investees was summarized as follows:
Years Ended December 31 2011 2010
NTC $ 259,730 $ 606,539 WIC (108,116) (321,268) Win 8,863 185,368 Landmark (37,508) (64,082) (Continued)
53
Years Ended December 31 2011 2010
MMDC $ 4,364 $ 5,807 PCI (1,005) - NAC (263) (345) WEHK 5,764 554
$ 131,829 $ 412,573 (Concluded)
The investment income (loss) for the years ended December 31, 2011 and 2010 were recognized based on the investees’ audited financial statements. The financial statements for the years ended December 31, 2011 and 2010 of CFP Technology Corp. (“CFP”) were audited by other auditors. The investments in such investee amounted to zero and $21,598 thousand as of December 31, 2011 and 2010, respectively; investment (loss) income amounted to $(1,341) thousand and $1,577 thousand for the years then ended, respectively.
In August 2011, Win sold partial investments in CFP. As Win’s ownership interest in CFP was less than 20% and could not have significant influence over CFP, Win reclassified its investment in CFP as financial assets carried at cost.
Pine Capital Investment Limited (“PCI”) was incorporated in January 2011. PCI’s principal activity is to invest in various businesses. As of December 31, 2011, the balance of PCI’s capital account amounted to HK$10,920 thousand and the Company held a 100% ownership interest directly.
The realized portion of unrealized valuation gain or loss on financial assets in the stockholders’ equity amounted to a loss of $409,088 thousand and a gain of $125,212 thousand as of December 31, 2011 and 2010.
In January 2010, the Company sold 2,980 thousand shares of NTC at $28 per share. In September 2010, the Company sold 23,000 thousand shares at $50 per share for public offering of NTC’s IPO. The gain on aforesaid disposal was $867,747 thousand, recorded as “gain on disposal of investments” for the year ended December 31, 2010.
As of December 31, 2011, fair value of publicly traded stocks of NTC accounted for under equity method was $2,665,353 thousand.
11. PROPERTY, PLANT AND EQUIPMENT
Accumulated depreciation of property, plant and equipment consisted of the following:
December 31 2011 2010
Buildings $ 5,745,036 $ 4,518,471 Machinery and equipment 42,006,660 34,187,446 Others 2,030,460 1,663,003
$ 49,782,156 $ 40,368,920
Capitalized interest for the years ended December 31, 2011 and 2010 amounted to $122,224 thousand and $52,119 thousand, respectively. The interest rates of interest capitalized were 2.59%-2.70% and 1.57%-1.70%, respectively.
54
As of December 31, 2011 and 2010, the carrying value of $20,906,790 thousand and $27,883,229 thousand of 12-inch Fab manufacturing facilities was pledged to secure long-term debt. Please refer to Note 15.
12. INTANGIBLE ASSET
December 31 2011 2010
Deferred technical assets, net $ 548,754 $ 1,059,078
In connection with certain technical transfer agreements, the Company made technical transfer fee payments. Such deferred assets are amortized over three to five years from the commencement of production using the straight-line method and tested for impairment periodically.
13. SHORT-TERM LOANS
December 31 2011 2010 Interest Rate Amount Interest Rate Amount
Materials procurement loans 1.09%-2.73% $ 1,539,592 1.00%-2.45% $ 1,316,815 Bank lines of credit - - 1.67% 235,000
$ 1,539,592 $ 1,551,815
14. SHORT-TERM BILLS PAYABLE
December 31 2011 2010 Interest Rate Amount Interest Rate Amount
Commercial paper payable 0.92% $ 200,000 - $ - Less unamortized discount on commercial paper payable (237) -
$ 199,763 $ -
15. LONG-TERM DEBT
December 31 2011 2010 Period Interest Rate Amount Amount
Chinatrust Commercial Bank syndication 2007.12.28- - $ - $ 5,000,000 agreement (I) 2011.12.28 Chinatrust Commercial Bank syndication 2008.06.27- 2.59%-2.70% 3,849,990 6,416,660 agreement (II) 2013.06.27 Bank of Taiwan syndication agreement (I) 2009.07.27- 3.16%-3.33% 2,775,000 3,700,000 2012.07.27 (Continued)
55
December 31 2011 2010 Period Interest Rate Amount Amount
Bank of Taiwan syndication agreement (II) 2010.06.18- 2.75%-2.97% $ 6,000,000 $ 3,500,000 2015.06.18 Bank of Taiwan syndication agreement (III) 2011.12.23- 2.49% 2,500,000 - 2016.12.23 15,124,990 18,616,660 Less current portion of long-term debt (7,158,327) (8,491,670)
$ 7,966,663 $ 10,124,990 (Concluded)
Chinatrust Commercial Bank Syndication Agreement (I) a. In September 2007, the Company entered into a syndication agreement, amounting to $5 billion, with a group of financial institutions to finance the working capital. b. The principal will be repaid every six months from June 28, 2011 until maturity. c. The principal was fully paid on December 28, 2011.
Chinatrust Commercial Bank Syndication Agreement (II) a. On June 4, 2008, the Company entered into a syndication agreement, amounting to $7.7 billion, with a group of financial institutions to procure equipment for 12-inch Fab. b. The principal will be repaid every six months from December 27, 2010 until maturity. c. Please refer to Note 11 for collateral on bank borrowing.
Bank of Taiwan Syndication Agreement (I) a. On July 15, 2009, the Company entered into a syndication agreement, amounting to $3.7 billion, with a group of financial institutions to fund the long-term loan payments and finance the working capital. b. The principal will be repaid every three months from October 27, 2011 until maturity. c. Please refer to Note 11 for collateral on bank borrowing and Note 22 for the joint guarantor.
Bank of Taiwan Syndication Agreement (II) a. On May 31, 2010, the Company entered into a syndication agreement, with a group of financial institutions to procure equipment for 12-inch Fab and fund the long-term loan payments, credit line was divided into two parts, which amounted to $3.5 billion, respectively. b. Part A will be repaid every six months from December 18, 2012 until maturity; part B will be repaid from June 18, 2012 at 20%, 20% and 60% of the principal, respectively. c. Please refer to Note 11 for collateral on bank borrowing and Note 22 for the joint guarantor.
56 Bank of Taiwan Syndication Agreement (III)
a. On September 19, 2011, the Company entered into a syndication agreement, amounting to $7 billion, with a group of financial institutions to procure equipment for 12-inch Fab.
b. The principal will be repaid every six months from June 23, 2014 until maturity.
c. Please refer to Note 11 for collateral on bank borrowing.
The Company is required to maintain certain financial covenants, including current ratio, debt ratio and tangible net equity, on June 30 and December 31 during the tenors of the loans. Additionally, the principal and interest coverage should be also maintained on December 31 during the tenors of the loans except for the interest coverage ratio of Bank of Taiwan syndication agreement which should be maintained on June 30 and December 31. The computations of financial ratios mentioned above are done based on the audited consolidated financial statements.
16. PENSION PLAN
The Company has defined contribution plan based on the “Labor Pension Act.” According to the Act, the Company has made monthly contributions equal to 6% of each employee’s monthly salaries to employee’s individual pension accounts. Such pension costs were $81,040 thousand and $67,195 thousand for the years ended December 31, 2011 and 2010, respectively.
The Company has a defined benefit pension plan covering all eligible employees. Based on the Labor Standards Law of the Republic of China, the Company’s policy is to fund the plan at 2% of employees’ salaries and wages. The fund is administered by a Pension Fund Administration Committee and is deposited in the Bank of Taiwan in the committee’s name.
Pension information on the defined benefit plan was summarized as follows:
a. The components of net pension cost:
Years Ended December 31 2011 2010
Service cost $ 14,485 $ 17,186 Interest cost 17,929 16,254 Expected return on plan assets (9,949) (7,391) Amortization, net 5,720 2,693
Net pension cost $ 28,185 $ 28,742
b. The assumptions used in determining the actuarial present value of the projected benefit obligation were as follows:
December 31 2011 2010
Discount rate 2.25% 2.25% Expected long-term rate of return on plan assets 2.00% 2.00% Rate of increase in compensation 3.00% 3.00%
57 c. Reconciliation of funded status of the plan and accrued pension liabilities was summarized as follows:
December 31 2011 2010
Benefit obligation Vested benefit obligation $ 181,956 $ 133,967 Accumulated benefit obligation 622,254 570,799 Projected benefit obligation 855,929 800,023 Funded status Projected benefit obligation (855,929) (800,023) Fair value of plan assets 492,265 494,238 Funded status (363,664) (305,785) Unrecognized net transition obligation 9,767 11,034 Unrecognized net gain 199,589 155,710
Accrued pension liabilities $ (154,308) $ (139,041)
17. STOCKHOLDERS’ EQUITY
Common Stock
December 31 2011 2010
Authorized capital Shares (in thousand shares) 6,700,000 6,700,000 Par value (in dollars) $ 10 $ 10 Capital $ 67,000,000 $ 67,000,000
Outstanding capital Shares (in thousand shares) 3,680,230 3,669,350 Par value (in dollars) $ 10 $ 10 Capital $ 36,802,302 $ 36,693,502
As of December 31, 2010, the balance of the Company’s capital account amounted to $36,693,502 thousand, divided into 3,669,350 thousand shares at par $10.00 dollars per share.
Employees executed the stock options at $3.02-$5.57 per share totaling 10,880 thousand shares during the year of 2011. As of December 31, 2011, the balance of the Company’s capital account amounted to $36,802,302 thousand, divided into 3,680,230 thousand shares at par $10.00 dollars per share. Walsin Lihwa is a major stockholder of the Company and held approximately 23% ownership interest in the Company as of December 31, 2011.
58 According to the Company Law of the ROC and the Company’s Articles of Incorporation, if the Company has surplus earnings at the end of a fiscal year, after covering all losses incurred in prior years and paying all taxes, the Company shall set aside 10% of said earnings as legal reserve. However, legal reserve need not be made when the accumulated legal reserve equals the paid-in capital of the Company. After setting aside or reversing special reserve pursuant to applicable laws and regulations and orders of competent authorities from (1) the remaining amount plus undistributed retained earnings; or (2) the differences between the undistributed retained earnings and the losses suffered by the Company at the end of a fiscal year if the losses can be fully covered by the undistributed retained earnings, the Company shall distribute the remaining amount (if not otherwise set aside as special reserve and reserved based on business needs) in the following order: a. 1% to 2% as remuneration to directors and supervisors; b. 10% to 15% as bonus to employees; c. The remaining amount as bonus to shareholders. Not less than 10% of the total shareholders bonus shall be distributed in form of cash.
“Employees” referred to in Item b of the proceeding paragraph, when distributing the stock bonus, include the employees of subsidiaries of the Company meeting certain criteria. It is authorized to the Board of Directors to determine the above “certain criteria” or the Board of Directors may authorize the Chairman to ratify the above “certain criteria”.
On June 18, 2010, the Company’s regular stockholders’ meeting approved to offset deficits by capital surplus amounted to $10,786,697 thousand.
Treasury Stock
Treasury stock transactions for the year ended December 31, 2011 were summarized as follows:
Treasury Treasury Stock Held as Increase Decrease Stock Held as of January 1, During the During the of December Purpose of Buyback 2011 Year Year 31, 2011
Common shares held by subsidiaries 7,518,364 - - 7,518,364
Treasury stock transactions for the year ended December 31, 2010 were summarized as follows:
Treasury Treasury Stock Held as Increase Decrease Stock Held as of January 1, During the During the of December Purpose of Buyback 2010 Year Year 31, 2010
Common shares held by subsidiaries 7,518,364 - - 7,518,364
As of December 31, 2011, Winbond’s subsidiary - Baystar Holdings Ltd. (BHL) held 7,518,364 shares of the Company’s common stock which amounted to $106,387 thousand. The shares held by BHL were treated as treasury stocks.
The Company’s stock held by subsidiaries is treated as treasury stock, and the holders are entitled to the rights of stockholders, except for the right to participate in the Company’s share issuance for cash and vote in stockholders’ meeting.
59 18. EMPLOYEE STOCK OPTION
In 2008 and 2009, the Company granted employee stock warrants in the quantity of 45,764 thousand and 1,585 thousand units, respectively. Each individual employee stock warrant is granted the right to purchase the Company’s new issued one common share. The warrants were granted to qualified employees of the Company and its subsidiaries. The warrants granted are valid for 5 years and exercisable at certain percentages after the second anniversary year from the grant date. The warrants were granted at an exercise price equal to the closing price of the Company’s common shares listed on the Taiwan Stock Exchange on the grant date. For any subsequent changes in the Company’s paid-in capital, the exercise price and the number of options are adjusted accordingly.
Employee stock warrants were summarized as follows:
Years Ended December 31 2011 2010 Weighted Weighted Average Average Number of Exercise Number of Exercise Options (In Price Options (In Price Employee Stock Warrants Thousands) (NT$) Thousands) (NT$)
Outstanding balance, beginning of year 27,459 $ 3.12 43,387 $ 3.10 Warrants granted - - - - Warrants exercised (10,880) 3.02 (12,853) 3.02 Warrants cancelled - - - - Warrants expired (1,063) 3.05 (3,075) 3.21
Outstanding balance, end of year 15,516 3.20 27,459 3.12
Warrants exercisable, end of year 14,596 3.11 6,726 3.02
Information about outstanding warrants was as follows:
December 31 2011 2010 Weighted Average Weighted Average Remaining Remaining Range of Exercise Contractual Life Range of Exercise Contractual Life Price (NT$) (Years) Price (NT$) (Years)
$3.02-$6.46 1.87 $3.02-$6.46 2.86
The Company used the fair value method to evaluate the option using Black-Scholes model, the assumptions and proforma result were as follows:
Grant-date share price (NT$) $3.02-$6.46 Exercise price (NT$) $3.02-$6.46 Expected volatility 52.03%-74.48% Expected life (years) 3.75 Expected dividend yield 0% Risk-free interest rate 0.94%-1.95%
Compensation costs recognized under the fair value method were $4,472 thousand and $12,863 thousand for the years ended December 31, 2011 and 2010, respectively.
60 19. PERSONNEL EXPENSE, DEPRECIATION, AND AMORTIZATION
Year Ended December 31, 2011 Classified as Classified as Non-operation Classified as Operation Expenses and Cost of Sales Expenses Losses Total
Personnel expense Salary $ 1,174,666 $ 713,232 $ - $ 1,887,898 Insurance 88,412 45,174 - 133,586 Pension 80,185 39,226 - 119,411 Others 6,595 3,333 - 9,928
$ 1,349,858 $ 800,965 $ - $ 2,150,823
Depreciation $ 9,579,362 $ 100,737 $ - $ 9,680,099 Amortization $ - $ 510,324 $ 13,110 $ 523,434
Year Ended December 31, 2010 Classified as Classified as Non-operation Classified as Operation Expenses and Cost of Sales Expenses Losses Total
Personnel expense Salary $ 1,123,272 $ 717,573 $ - $ 1,840,845 Insurance 72,452 38,176 - 110,628 Pension 60,539 35,398 - 95,937 Others 5,936 3,028 - 8,964
$ 1,262,199 $ 794,175 $ - $ 2,056,374
Depreciation $ 10,232,739 $ 92,735 $ - $ 10,325,474 Amortization $ - $ 471,895 $ 21,638 $ 493,533
20. INCOME TAX
Components of income tax expense (credit) were summarized as follows:
Years Ended December 31 2011 2010
Current income (credit) tax expense $ (165,000) $ 424,000 Deferred income tax assets and valuation allowance adjustment 165,000 (424,000)
Income tax expense $ - $ -
61 Components of deferred income tax assets were as follows:
December 31 2011 2010
Deferred income tax assets Net operating loss carryforwards $ 3,994,000 $ 3,998,000 Investment tax credits 2,119,000 2,973,000 Allowance for inventory devaluation losses 167,000 87,000 Allowance for doubtful accounts 42,000 43,000 Unrealized reserve for product guarantee 17,000 11,000 Unrealized exchange loss 1,000 4,000 Unrealized investment loss 6,000 4,000 Deferred income tax assets 6,346,000 7,120,000 Less valuation allowance (2,604,000) (3,368,000) 3,742,000 3,752,000 Deferred income tax liabilities Unrealized gain on financial instruments - (10,000) Deferred income tax assets, net 3,742,000 3,742,000 Deferred income tax assets, current (under other current assets) (210,000) (124,000)
Deferred income tax assets, noncurrent (under other assets) $ 3,532,000 $ 3,618,000 a. In May 2010, Article 5 of the Income Tax Law of the Republic of China was amended to reduce the income tax rate of profit-seeking enterprises from 20% to 17%. The amendment was effective on January 1, 2010. b. Under Article 10 of the Statute for Industrial Innovation (SII) passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019.
A reconciliation of income tax expense (credit) based on (loss) income before income tax at statutory rate of 17% and income tax payable (operating loss carryforwards) was as follows:
Years Ended December 31 2011 2010
Income tax (credit) expense at statutory rate $ (143,000) $ 604,000 Decrease in tax resulting from Unrealized investment income (23,000) (71,000) Tax-exempt income on disposal of domestic investments (1,000) (116,000) Others 2,000 7,000 Current income tax (credit) expense (165,000) 424,000 Provision for deferred tax assets 90,000 (22,000) $ (75,000) 402,000 Operating loss carryforwards (402,000)
Income tax payable $ -
62 The Company’s investment tax credits and operating loss carryforwards as of December 31, 2011 were as follows:
Investment Tax Operating Loss Expiry Year Credits Carryforwards
2012 $ 1,425,000 $ - 2013 455,000 288,000 2014-2021 239,000 3,706,000
$ 2,119,000 $ 3,994,000
The information of the integrated income tax was as follows:
December 31 2011 2010
Balance of imputation credit account $ 217,239 $ 174,853 Undistributed earnings for the years of 1997 and before $ - $ - Undistributed deficit for the years of 1998 and thereafter $ (2,483,440) $ (1,640,149)
The Company’s income tax returns through 2007 have been examined and approved by the tax authority.
As of December 31, 2011, the Company has tax refund receivable under other assets - others amounted to $25,986 thousand which occurred in 2011 and years prior to 2011.
21. (LOSS) EARNINGS PER SHARE
Calculation of earnings (loss) per share was summarized as follows:
Year Ended December 31, 2011 Amounts (Numerator) Shares Loss Per Share (NT$) Before After (Denominator) Before After Tax Tax (In Thousands) Tax Tax
Basic loss per share Net loss attributed to common shareholders $ (843,291) $ (843,291) 3,666,391 $ (0.23) $ (0.23)
Year Ended December 31, 2010 Amounts (Numerator) Shares Earnings Per Share (NT$) Before After (Denominator) Before After Tax Tax (In Thousands) Tax Tax
Basic earnings per share Net income attributed to common shareholders $ 3,550,996 $ 3,550,996 3,651,328 $ 0.97 $ 0.97 Effect of dilutive potential common stock Employee stock option - - 17,130
Dilutive earnings per share Net income plus dilutive effect $ 3,550,996 $ 3,550,996 3,668,458 $ 0.97 $ 0.97
63 22. RELATED PARTY TRANSACTIONS
The names and relationships of related parties are as follows:
Related Party Relationship with the Company
Walsin Lihwa Corporation (“Walsin”) Walsin’s chairman is one of the immediate family members of the Company’s chairman and Walsin holds a 23% ownership in the Company as of December 31, 2011 Winbond Electronics (H.K.) Limited (“WEHK”) The Company holds a 100% ownership interest directly Mobile Magic Design Corporation (“MMDC”) The Company holds a 100% ownership interest directly Winbond Electronics Corporation America (“WECA”) The Company holds a 100% ownership interest indirectly Winbond Electronics Corporation Japan (“WECJ”) The Company holds a 100% ownership interest indirectly Nuvoton Technology Corporation (“NTC”) The Company holds a 61% ownership interest directly and 1% ownership interest indirectly Walton Advanced Engineering Inc. (“Walton”) Walton’s chairman is one of the immediate family members of the Company’s chairman. The Company is a director of Walton. Global Brands Manufacture Ltd. (“GBM”) GBM’s chairman is one of the immediate family members of the Company’s chairman Global Brands Manufacture (Dongguan) Ltd. (“GBM Related party in substance (Dongguan)”) Walton Chaintech Corp. (“Walton Chaintech”) Related party in substance Walton Advanced Engineering (Suzhou) Inc. (“Walton Related party in substance (Suzhou)”)
Major transactions with related parties were summarized below:
Sales
Years Ended December 31 2011 2010
WEHK $ 5,008,443 $ 3,569,758 WECJ 2,058,803 2,151,418 WECA 146,446 187,131 GBM 88,117 - NTC 38,309 35,532 GBM (Dongguan) 38,030 - Walton Chaintech - 539,449 Others 12 229
$ 7,378,160 $ 6,483,517
Purchase
Years Ended December 31 2011 2010
NTC $ - $ 1,130
64 Manufacturing Expenses
Years Ended December 31 2011 2010
Walton $ 1,395,376 $ 1,478,790 Walton (Suzhou) 571,541 393,560 MMDC 20,081 10,043
$ 1,986,998 $ 1,882,393
Selling Expenses
Years Ended December 31 2011 2010
WECA $ 68,224 $ - WECJ 9,823 436
$ 78,047 $ 436
General and Administrative Expenses
Years Ended December 31 2011 2010
Walsin $ 8,062 $ 8,677
Research and Development Expenses
Years Ended December 31 2011 2010
WECA $ 176,860 $ - MMDC 108,968 140,102 WECJ 55,163 - NTC 500 517
$ 341,491 $ 140,619
Service Revenue (Recorded as “Non-operating Income and Gains - Others”)
Years Ended December 31 2011 2010
MMDC $ 396 $ 396
Notes Receivable
December 31 2011 2010
NTC $ - $ 1,033
65 Accounts Receivable
December 31 2011 2010
WEHK $ 558,870 $ 315,478 WECJ 121,316 103,326 Others 21,585 2,752
$ 701,771 $ 421,556
Other Financial Assets, Current and Other Current Assets
December 31 2011 2010
NTC $ 2,202 $ 2,669 Walsin 1,438 1,429 MMDC 99 99
$ 3,739 $ 4,197
Refundable Deposits
December 31 2011 2010
NTC $ 440 $ - Walsin 203 203
$ 643 $ 203
Notes and Accounts Payable
December 31 2011 2010
Walton $ 547,613 $ 460,029 Walton (Suzhou) 165,665 62,348 Walsin 2,113 4,207
$ 715,391 $ 526,584
Other Payables December 31 2011 2010
WECA $ 165,469 $ 26,796 MMDC 58,040 65,426 WECJ 12,662 - Walton 9,326 3,700 Walsin 2,496 2,638 NTC 2,202 129 Others 33 111
$ 250,228 $ 98,800
66
Deposits Received
December 31 2011 2010
NTC $ - $ 957
The related party transactions were conducted under normal terms.
Financing a. The board of directors of WECA consented to lend up to US$14,000 thousand to the Company. As of December 31, 2011, no amount was drawn. b. Financing from related-party was summarized as follows:
Year Ended December 31, 2010 Maximum Interest Balance Ending Balance Interest Rate % Expense
WECA $ 407,820 $ - 2.83-3.08 $ 9,349
Property Transactions
The Company’s sale of property to related parties was summarized as follows:
Year Ended December 31, 2011 Carrying Disposal Related Party Sales Items Selling Price Value Income
NTC Machinery and equipment $ 235 $ 46 $ 189
Year Ended December 31, 2010 Carrying Disposal Related Party Sales Items Selling Price Value Income
NTC Other equipment $ 300 $ - $ 300
Guarantee a. Please refer to Note 24. b. As of December 31, 2011, the chairman of the Company is a joint guarantor of the long-term debt - Bank of Taiwan syndication agreement (I) and (II). Please refer to Note 15.
Compensation Information of Directors, Supervisors, and Management Personnel
Years Ended December 31 2011 2010
Salary $ 50,579 $ 40,435 Bonus and special compensation 18,004 25,288
$ 68,583 $ 65,723
67 Total compensation expense for the years ended December 31, 2011 and 2010 included salaries, duty allowance, retirement pension and income from exercise of employee stock options.
23. PLEDGED AND COLLATERALIZED ASSET
Please refer to Note 4, Note 11 and Note 15.
24. COMMITMENTS AND CONTINGENCIES
Letters of Credit
Amounts available under unused letters of credit as of December 31, 2011 were approximately US$5,005 thousand, JPY323,464 thousand and EUR115 thousand.
Guarantee
As of December 31, 2011, the Company guaranteed $500,000 thousand for its subsidiary, Win Investment Corporation.
25. DISCLOSURES FOR FINANCIAL INSTRUMENTS
Fair Value of Financial Instruments
Carrying value and fair value of financial instruments were summarized as follows:
December 31 2011 2010 Carrying Value Fair Value Carrying Value Fair Value
Nonderivative financial instruments
Assets Available-for-sale financial assets (current and noncurrent) $ 772,342 $ 772,342 $ 1,318,675 $ 1,318,675 Liabilities Long-term debt (including current portion) 15,124,990 15,124,990 18,616,660 18,616,660
Derivative financial instruments
Financial assets at fair value through profit or loss, current Forward exchange contracts 1,703 1,703 56,106 56,106
Methods and assumptions used in determining fair value of financial instruments were summarized as follows:
a. The fair value of cash and cash equivalents, notes and accounts receivable, other financial assets, refundable deposits, short-term loans, notes and accounts payable, and other payables, approximates their carrying value due to the short-term maturities of these financial instruments.
68 b. The fair value of financial instruments at fair value through profit or loss and available-for-sale financial assets is quoted by market price. The fair value of forward exchange contracts is measured, according to its specific contract’s settlement rate, by the middle exchange rate and the discount rate quoted by Reuters. The fair value of foreign exchange option contracts is measured, according to its specific contract’s settlement rate, by the discount rate and volatility quoted by underwriting bank. c. Available-for-sale financial assets which are private - placement shares are based on their quoted prices in an active market but adjusted for effects of any transferred restriction. d. The Company’s financial assets carried at cost do not have a quoted market price in an active market, and the fair value cannot be reliably measured. e. The fair values of long-term debt are estimated by discounted cash flow analysis, based on the Company’s current rates for long- term borrowings with similar types. As of December 31, 2011 and 2010, the discount rates used in determining the fair values were 3.24% and 3.13%, respectively.
The fair value of financial instruments that used the quoted market price in active market or other method of valuation is summarized as follows:
December 31, 2011 Quoted Market Price in Active Other Method Market of Valuation Total
Assets Financial assets at fair value through profit or loss, current $ - $ 1,703 $ 1,703 Available-for-sale financial assets, current and noncurrent 707,542 64,800 772,342
December 31, 2010 Quoted Market Price in Active Other Method Market of Valuation Total
Assets Financial assets at fair value through profit or loss, current $ - $ 56,106 $ 56,106 Available-for-sale financial assets, current and noncurrent 1,318,675 - 1,318,675
Valuation (losses) gains arising from changes in fair value of financial instruments determined using valuation techniques were $(54,403) thousand and $38,854 thousand for the years ended December 31, 2011 and 2010, respectively.
As of December 31, 2011, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $272,836 thousand and $15,463,475 thousand, respectively. Financial assets and liabilities exposure to fair value risk that resulted from interest rate changes amounted to $3,513,764 thousand and $1,400,870 thousand, respectively, as of December 31, 2011.
As of December 31, 2010, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $263,841 thousand and $13,716,785 thousand, respectively. Financial assets and liabilities exposure to fair value risk that resulted from interest rate changes amounted to $3,858,005 thousand and $6,451,690 thousand, respectively, as of December 31, 2010.
69 Adjustment of stockholders’ equity due to the fair value changes of available-for-sale financial assets amounted to $1,040,306 thousand and $177,148 thousand as of December 31, 2011 and 2010, respectively.
Financial Risk Information
a. Market risk
All the derivative financial instruments the Company entered into are forward exchange contracts in order to hedge changes in fair value of foreign-currency assets and liabilities. The fair value of forward exchange contracts will fluctuate because of changes in foreign exchange rates.
b. Credit risk
The Company is exposed to the credit risk that counter-parties or third-parties may breach the contracts. The risk results from the concentrations of credit risk, elements, contract price, and accounts receivable. The Company requested its major transaction parties to provide collaterals or other rights to reduce such risk.
c. Liquidity risk
The Company has sufficient operating capital to meet the cash demand for the contracts. Thus, the fund-raising and cash flow risks are not material.
d. Cash flow risk on change of interest rate
The Company’s long-term debt is with floating interest rate. Effective rate and future cash flow of the Company will fluctuate as a result of changes in market interest rate. If the market interest rate increases by 1%, the cash outflow will increase by $154,635 thousand per year.
26. OTHERS
Information of financial assets and liabilities, which were denominated in foreign currencies, with significant influence on the Company was as follows:
December 31 2011 2010 Foreign New Taiwan Foreign New Taiwan Currencies Exchange Dollars Currencies Exchange Dollars (Thousands) Rate (Thousands) (Thousands) Rate (Thousands)
Financial assets
Monetary items USD $ 139,235 30.275 $ 4,215,347 $ 140,857 29.13 $ 4,103,162 EUR 2,049 39.18 80,298 2,246 38.92 87,429 JPY 2,264,748 0.3906 884,611 1,859,681 0.3582 666,138 Investment accounted for by the equity method USD 65,042 30.275 1,969,134 57,645 29.13 1,679,202
Financial liabilities
Monetary items USD 107,175 30.275 3,244,717 93,809 29.13 2,732,646 EUR 2,197 39.18 86,063 1,981 38.92 77,093 JPY 2,336,787 0.3906 912,749 2,076,677 0.3582 743,866
70 27. OPERATING SEGMENT FINANCIAL INFORMATION
The Company has provided the operating segments disclosure in the consolidated financial statements.
28. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
The Company has disclosure information for the adoption of International Financial Reporting Standards (IFRSs) in the consolidated financial statements.
71 Winbond Electronics Corporation and Subsidiaries
Consolidated Financial Statements for the Years Ended December 31, 2011 and 2010 and Independent Auditors’ Report
4. 2011 consolidated financial statements
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and Stockholders Winbond Electronics Corporation
We have audited the accompanying consolidated balance sheets of Winbond Electronics Corporation and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of income, changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. Certain long-term investments were accounted for under the equity method based on financial statements as of and for the years ended December 31, 2011 and 2010 of the investees, which were audited by other auditors. Our opinion, insofar as it relates to such investments, is based solely on the reports of other auditors. The investments in such investees amounted to zero and NT$21,598 thousand as of December 31, 2011 and 2010, respectively; investment (loss) income amounted to NT$(1,341) thousand and NT$1,577 thousand for the years then ended, respectively.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2011 and 2010, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and accounting principles generally accepted in the Republic of China.
February 8, 2012 Notice to Readers
The accompanying consolidated financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors’ report and consolidated financial statements shall prevail. Also, as stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.
72 WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010 2011 2010 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount %
CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 6,002,597 10 $ 6,404,091 10 Short-term loans (Note 13) $ 1,681,092 3 $ 1,615,815 2 Financial assets at fair value through profit or loss, current Short-term bills payable (Note 14) 199,763 - - - (Notes 2 and 5) 3,676 - 64,126 - Notes payable 849,713 1 1,137,439 2 Available-for-sale financial assets, current (Notes 2 and 8) 902,713 1 1,805,148 3 Accounts payable 3,211,805 5 2,504,418 4 Notes receivable, net (Notes 2 and 6) 534 - 2,234 - Payable on equipment 650,233 1 1,094,575 1 Accounts receivable, net (Notes 2 and 6) 4,113,894 7 4,404,990 7 Accrued expenses and other payables 2,151,012 4 2,431,889 4 Accounts receivable from related parties, net (Notes 6 and 22) 50,639 - 39,045 - Current portion of long-term liabilities (Note 15) 7,158,327 12 8,491,670 13 Other financial assets, current 139,144 - 107,539 - Other current liabilities 68,865 - 120,721 - Inventories (Notes 2 and 7) 7,175,931 12 6,301,862 9 Deferred income tax assets, current (Notes 2 and 20) 281,638 - 197,627 - Total current liabilities 15,970,810 26 17,396,527 26 Other current assets 420,635 1 624,515 1 LONG-TERM LIABILITIES Total current assets 19,091,401 31 19,951,177 30 Long-term debt (Note 15) 7,966,663 13 10,124,990 15
FUND AND INVESTMENTS OTHER LIABILITIES Available-for-sale financial assets, noncurrent (Notes 2 and 8) 353,997 1 218,251 - Accrued pension liabilities (Notes 2 and 16) 368,676 1 338,958 1 Financial assets carried at cost, noncurrent (Notes 2 and 9) 1,245,403 2 1,364,104 2 Reserve for product guarantee (Note 2) 94,271 - 59,943 - Long-term equity investments at equity method (Notes 2 and 10) 65,092 - 86,346 - Other liabilities - others 99,146 - 88,558 -
Total fund and investments 1,664,492 3 1,668,701 2 Total other liabilities 562,093 1 487,459 1
73 PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 11) Total liabilities 24,499,566 40 28,008,976 42 Cost Land 873,493 1 870,681 1 EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT Buildings 19,963,440 33 19,676,678 30 Common stock (Note 17) 36,802,302 60 36,693,502 55 Machinery and equipment 76,529,259 126 71,437,614 107 Capital surplus Other equipment 2,919,022 5 3,056,347 5 Treasury stock transaction 1,971,862 3 1,971,862 3 Total cost 100,285,214 165 95,041,320 143 Adjustment on long-term equity investments under equity method 23,913 - 23,912 - Accumulated depreciation (65,165,653) (107) (55,681,912) (84) Stock option (Notes 2 and 18) 13,960 - 20,104 - Construction in progress and prepayments on purchase of equipment 126,609 - 57,814 - Others 222,784 1 288,066 - Retained earnings Property, plant and equipment, net 35,246,170 58 39,417,222 59 Accumulated deficit (2,483,440) (4) (1,640,149) (2) Other equity INTANGIBLE ASSETS (Notes 2 and 12) 639,191 1 1,128,628 2 Cumulative translation adjustments (Note 2) 359,900 - 242,163 - Unrealized loss on financial instruments (Note 2) (1,449,394) (2) (51,936) - OTHER ASSETS Treasury stock (Notes 2 and 17) (106,387) - (106,387) - Refundable deposits 160,149 - 152,460 1 Deferred income tax assets, noncurrent (Notes 2 and 20) 3,992,639 7 4,119,612 6 Equity attributable to stockholders of the parent 35,355,500 58 37,441,137 56 Others 130,607 - 137,850 - MINORITY INTEREST 1,069,583 2 1,125,537 2 Total other assets 4,283,395 7 4,409,922 7 Total stockholders’ equity 36,425,083 60 38,566,674 58
TOTAL $ 60,924,649 100 $ 66,575,650 100 TOTAL $ 60,924,649 100 $ 66,575,650 100
The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche audit report dated February 8, 2012)
WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)
2011 2010 Amount % Amount %
NET SALES $ 34,696,850 100 $ 39,934,358 100
COST OF SALES (Note 7) 28,636,654 83 30,147,853 76
REALIZED INTERCOMPANY PROFIT 266 - 73 -
GROSS PROFIT 6,060,462 17 9,786,578 24
OPERATING EXPENSES Selling expenses 968,768 3 897,901 2 General and administrative expenses 954,961 3 1,008,787 3 Research and development expenses 4,306,307 12 4,174,696 10
Total operating expenses 6,230,036 18 6,081,384 15
(LOSS) INCOME FROM OPERATIONS (169,574) (1) 3,705,194 9
NON-OPERATING INCOME AND GAINS Interest income 39,942 - 22,412 - Investment income recognized under equity method (Note 10) 11,963 - 24,510 - Investment income 84,119 - 51,984 - Gain on disposal of property, plant and equipment (Note 2) 7,690 - 49,907 - Gain on disposal of investments (Note 10) 69,880 - 819,284 2 Foreign exchange gain (Note 2) 45,765 - - - Reversal of allowance for doubtful accounts 8,872 - - - Gain on valuation of financial instruments (Note 5) - - 134,782 1 Others 88,583 1 29,563 -
Total non-operating income and gains 356,814 1 1,132,442 3
NON-OPERATING EXPENSES AND LOSSES Interest expense 430,307 1 596,451 1 Other investment loss (Note 9) 86,902 - 17,171 - Loss on disposal of property, plant and equipment (Note 2) 2,960 - 18,432 - Foreign exchange loss (Note 2) - - 259,669 1 Loss on valuation of financial instruments (Note 5) 154,790 1 - - Others 38,886 - 45,738 -
Total non-operating expenses and losses 713,845 2 937,461 2 (Continued)
74 WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars, Except (Loss) Earnings Per Share)
2011 2010 Amount % Amount %
(LOSS) INCOME BEFORE INCOME TAX $ (526,605) (2) $ 3,900,175 10
INCOME TAX EXPENSE (Notes 2 and 20) (152,363) - (123,509) (1)
NET (LOSS) INCOME $ (678,968) (2) $ 3,776,666 9
ATTRIBUTED TO Stockholders of the parent $ (843,291) (2) $ 3,550,996 9 Minority interest 164,323 - 225,670 -
$ (678,968) (2) $ 3,776,666 9
2011 2010 After After Before Income Tax Before Income Tax Income Tax and Income Tax and and Attributed to and Attributed to Minority Stockholders Minority Stockholders Interest of the Parent Interest of the Parent
(LOSS) EARNINGS PER SHARE (Notes 2 and 21) Basic (loss) earnings per share $ (0.14) $ (0.23) $ 1.07 $ 0.97 Diluted (loss) earnings per share $ (0.14) $ (0.23) $ 1.06 $ 0.97
The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) (Concluded)
75 WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
Retained Capital Surplus Earnings Other Equity Adjustments on Long-term Paid-in Capital Equity in Excess of Par Investments Cumulative Unrealized Loss - Common Treasury Stock under Equity Accumulated Translation on Financial Minority Common Stock Stock Transaction Method Stock Option Others Deficit Adjustments Instruments Treasury Stock Interests Total
BALANCE, JANUARY 1, 2010 $ 36,564,972 $ 10,786,697 $ 1,971,862 $ 37,424 $ 16,196 $ 368,825 $(15,977,842) $ 446,667 $ (254,377) $ (106,387) $ 561,619 $ 34,415,656
Offsetting accumulated deficit (Note 17) - (10,786,697) - - - - 10,786,697 - - - - -
Net income for 2010 ------3,550,996 - - - 225,670 3,776,666
Changes in translation adjustments ------(204,504) - - - (204,504)
Changes in unrealized loss on financial instruments ------202,441 - - 202,441
Capital surplus from investee under equity method - - - 2,688 ------2,688
Adjustment to capital surplus due to disposal of investments - - - (16,200) ------(16,200)
Issuance of stock from exercising employee stock options (Note 17) 128,530 - - - (8,955) (80,759) - - - - - 38,816 76 Compensation cost of employee stock options (Note 18) - - - - 12,863 ------12,863
Changes in minority interests ------338,248 338,248
BALANCE, DECEMBER 31, 2010 36,693,502 - 1,971,862 23,912 20,104 288,066 (1,640,149) 242,163 (51,936) (106,387) 1,125,537 38,566,674
Net loss for 2011 ------(843,291) - - - 164,323 (678,968)
Changes in translation adjustments ------117,737 - - - 117,737
Changes in unrealized loss on financial instruments ------(1,397,458) - - (1,397,458)
Capital surplus from investee under equity method - - - 1 ------1
Issuance of stock from exercising employee stock options (Note 17) 108,800 - - - (10,616) (65,282) - - - - - 32,902
Compensation cost of employee stock options (Note 18) - - - - 4,472 ------4,472
Changes in minority interests ------(220,277) (220,277)
BALANCE, DECEMBER 31, 2011 $ 36,802,302 $ - $ 1,971,862 $ 23,913 $ 13,960 $ 222,784 $ (2,483,440) $ 359,900 $ (1,449,394) $ (106,387) $ 1,069,583 $ 36,425,083
The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche audit report dated February 8, 2012)
WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010
CASH FLOWS FROM OPERATING ACTIVITIES Net (loss) income $ (678,968) $ 3,776,666 Adjustments to reconcile net (loss) income to net cash provided by operating activities Depreciation 9,863,064 10,524,025 Amortization 571,933 548,651 (Reversal of) provision for allowance for doubtful accounts (8,872) 14,987 Loss on decline in market value and obsolescence and abandonment of inventories 492,598 104,031 Gain on disposal of investments (69,880) (819,284) Investment income recognized under equity method (11,963) (24,510) Impairment losses on financial assets carried at cost 86,902 17,171 Net gain on disposal of property, plant and equipment (4,730) (31,475) Loss on obsolescence of spare parts 3,761 153 Compensation cost of employee stock options 4,808 13,856 Net changes in operating assets and liabilities Financial assets at fair value through profit or loss, current 60,450 (38,561) Notes receivable 1,700 2,952 Accounts receivable 299,968 (999,129) Accounts receivable from related parties (11,594) 98,652 Other financial assets, current (31,605) 20,600 Inventories (1,366,666) (1,189,708) Other current assets 203,880 90,464 Deferred income tax assets 42,962 49,779 Other assets (13,769) (4,974) Notes payable (287,726) (123,605) Accounts payable 707,387 (899,842) Accrued expenses and other payables (268,280) 341,270 Other current liabilities (51,856) 88,953 Other liabilities 74,634 52,091
Net cash provided by operating activities 9,608,138 11,613,213
CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (6,130,828) (7,477,111) Acquisition of available-for-sale financial assets (748,232) (190,437) Acquisition of financial assets carried at cost - (30,000) Proceeds from disposal of long-term investments under equity method 47,527 - Proceeds from disposal of available-for-sale financial assets 135,810 399,858 Proceeds from disposal of financial assets carried at cost 2,078 44,890 Proceeds from capital refund by financial assets carried at cost 48,653 4,898 Proceeds from disposal of property, plant and equipment 12,687 51,365 Acquisition of intangible assets (81,809) (26,734)
Net cash used in investing activities (6,714,114) (7,223,271) (Continued)
77 WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2011 AND 2010 (In Thousands of New Taiwan Dollars)
2011 2010
CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans $ 65,277 $ 140,645 Increase in short-term bills payable 199,763 - Proceeds from long-term debt 5,000,000 3,500,000 Repayment of long-term debt (8,491,670) (7,616,673) (Decrease) increase in minority interest (174,035) 1,302,071 Proceeds from exercise of employee stock options 32,902 38,816
Net cash used in financing activities (3,367,763) (2,635,141)
FOREIGN EXCHANGE ADJUSTMENT 72,245 (98,135)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (401,494) 1,656,666
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,404,091 4,747,425
CASH AND CASH EQUIVALENTS, END OF YEAR $ 6,002,597 $ 6,404,091
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest during the year $ 553,428 $ 647,615 Cash paid for income tax during the year $ 104,058 $ 68,534
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities $ 7,158,327 $ 8,491,670 Cumulative translation adjustments $ 117,737 $ (204,504) Unrealized (loss) gain on financial instruments $ (1,397,458) $ 202,441 Adjustment to capital surplus due to disposal of investment $ - $ (16,200) Capital surplus from investee under equity method $ 1 $ 2,688
CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Net increase in acquisition of property, plant and equipment $ 5,686,486 $ 7,021,914 Add payable for property, plant and equipment, beginning of year 1,094,575 1,549,772 Less payable for property, plant and equipment, end of year (650,233) (1,094,575) Cash payment for acquisitions of property, plant and equipment $ 6,130,828 $ 7,477,111
The accompanying notes are an integral part of the consolidated financial statements.
(With Deloitte & Touche audit report dated February 8, 2012) (Concluded)
5. Financial difficulties and corporate events encountered by the Company and affiliates in the past year and up to the date of report that have material impact on the financial status of the company: None
78 Financial Status, Operating Performance and Risk Evaluation 1. Analysis of financial status Unit: NT$1,000 Item\Year 2011 2010 Change(amount) Change (%) Current assets 14,627,508 15,092,984 (465,476) (3) Funds and long-term 4,951,855 5,188,566 (236,711) (5) investments Fixed assets 34,491,667 38,633,321 (4,141,654) (11) Intangible assets 548,754 1,059,078 (510,324) (48) Other assets 3,751,588 3,815,609 (64,021) (2) Total Assets 58,371,372 63,789,558 (5,418,186) (8) Current liabilities 14,668,433 15,885,703 (1,217,270) (8) Long-term liabilities 7,966,663 10,124,990 (2,158,327) (21) Other liabilities 380,776 337,728 43,048 13 Total liabilities 23,015,872 26,348,421 (3,332,549) (13) Paid-in capital 36,802,302 36,693,502 108,800 - Capital surplus 2,232,519 2,303,944 (71,425) (3) Accumulated loss (2,483,440) (1,640,149) (843,291) 51 Equity adjustment (1,195,881) 83,840 (1,279,721) (1,526) Total shareholders’ equity 35,355,500 37,441,137 (2,085,637) (6) Reasons for changes exceeding 20%: 1. Decrease in intangible assets was due to amortization of technology assets. 2. Decrease in long-term liabilities was mainly due to repayment of loans. 3. Increase in accumulated loss was due to operating loss incurred in 2011. 4. Decrease in equity adjustment was mainly due to loss in the valuation of available-for-sale financial assets. 2. Analysis of operating performance Unit: NT$1,000 Item\Year 2011 2010 Change(amount) Change (%) Net sales 27,214,454 31,855,462 (4,641,008) (15) Operating cost 24,145,738 25,593,074 (1,447,336) (6) Less: Unrealized intercompany gain - (188) 188 (100) Gross profit 3,068,716 6,262,200 (3,193,484) (51) Operating expenses 3,690,101 3,103,476 586,625 19 Operating income (loss) (621,385) 3,158,724 (3,780,109) (120) Non-operating income and gain 330,195 1,284,334 (954,139) (74) Non-operating expense and loss 552,101 892,062 (339,961) (38) Income (loss) before tax (843,291) 3,550,996 (4,394,287) (124) Income tax expense - - - - Net income (loss) (843,291) 3,550,996 (4,394,287) (124)
Reasons for changes exceeding 20%: 1. Decrease in unrealized intercompany gain was mainly due to the transfer of unrealized sales profit from downstream transactions to realized gain in 2010. 2. Decrease in gross profit and operating income was mainly due to decrease in sales prices that led to decrease in gross profit. 3. Decrease in non-operating income and gain was mainly due to decrease in gain in the amount of NT$300 million on equity-based investment recognized in 2011 as compared to 2010, and in addition, due to decrease in gain of NT$600 million on the disposal of investment. 4. Decrease in non-operating expense and loss was mainly due to decrease in long-term debt in 2011 that reduced interest expense by NT$200 million, and in addition, decrease in exchange loss in the amount of NT$200 million. Sales forecast for the coming year and main reasons for the forecast of growth in sales: Based on current market performance, future market demands and the Company’s capacity, we project that the outputs of 12-inch wafer (equivalent) could reach 410,000 pieces in 2012.
79 3. Cash flow analysis Unit: NT$1m Remedial measures for Cash balance, Cash inflow from operating Cash outflow due to investing cash deficit Cash surplus beginning activities and financing activities Investment Financial plan plan 4,231 9,535 (9,953) 3,813 - - 1. Analysis on the cash flow changes of the current year: (1) Operating activities: Operating activities produced a net cash inflow of NT$9.5 billion. (2) Investing activities: Purchase of production equipment for the plant in Taichung Science Park produced a net cash outflow of NT$6 billion. In addition, equity investment produced a cash outflow of approx. NT$700 million. (3) Financing activities: Net cash outflow of NT$3.3 billion primarily resulted from repayment of long- and short-term borrowing. 2. Remedial action for cash deficit and liquidity analysis: N/A. 3. Cash flow analysis for the coming year (note): Cash flow from operating activities in the coming year is projected to be NT$6.8 billion, and cash outflow is projected to be NT$6.9 billion for primarily capital expense and debts repayment. Note: Unaudited figures. 4. Effect of major capital spending on financial position and business operation
4.1 Utilization of fund on major capital spending and sources of funds Unit: NT$1m Actual or Actual or expected status of spending Actual or estimated Total funding Project expected source completion need 2007 2008 2009 2010 2011 2012 2013 of funds date Expansion Bank loan, of capacity capitalization of and process retained 2013 33,783 1,060 12,330 3,805 6,922 5,742 3,279 645 upgrade earnings or operating profit
4.2 Anticipated benefit
Expanded capacity, accelerated upgrade of process technology, and sustained market share. 5. Industry-specific key performance indicator
Performance indicator 2011 Output of 12-inch wafer Approx. 440,000 pieces Average in-line yield 98.6%
6. Investment policy in the past year, profit/loss analysis, improvement plan, and investment plan for the coming year
6.1 Investment policy: The Company invests primarily are in the hope of enhancing business performance. 6.2 Investment profit or loss in recent years: The Company recognized NT$100 million of gain on equity investment in 2011 as the Company’s subsidiaries reported stable revenue and profits. 6.3 Investment plan for the next year: The Company will formulate investment plan in view of the R&D spending needs of the invested enterprises.
80 7. Risk management and evaluation
7.1 Impact of interest rate and exchange rate changes and inflation on Company’s profit and response measures
(1) Interest rate change The Company currently has both variable-rate and fixed-rate long-term loans. The Company keeps constant watch of and analyze the impact of interest rate fluctuation in the financial markets on cash flows associated with the Company’s loans and would take response actions in view of actual needs.
(2) Exchange rate change The Company exports most of its products. Because the products are denominated mostly in USD, the Company frequently has net inflow of USD. As the exchange rate of NTD to USD fluctuates considerably recently, the Company engaged in hedging on the basis of exchange rate at the time of book entry by selling USD and selling forwards. The exchange gains (losses) on the disposal of USD are within controllable range. The Company will continue this hedging policy in the hope to minimize the impact of exchange rate fluctuation on Company profit. In addition, as machinery and equipment purchased by the Company this year will need to be paid in different foreign currencies later on, the Company will engage in necessary hedging transactions in consideration of the payment term and changes in the international financial markets to minimize the impact of exchange rate changes on Company profit.
(3) Inflation The inflation problem has not been serious in recent years and hence has had limited impact on Company’s profit.
7.2 Policies of engaging in high-risk, high-leverage investments, lending to others, providing endorsement and guarantee, and derivatives transactions, profit/loss analysis, and future response measures
(1) The Company does not engage in any high-risk, high-leverage investment. The Company’s derivatives trading policy aims to minimize the risk of fair value fluctuation for assets and liabilities actually owned by the Company under the objective of economic hedge. Under this principle, all derivatives trading undertaken by the Company correspond to the real positions held by the Company. Any gain or loss resulting from derivative transactions and hedged positions during the period arises from difference in time of disposing a real position and the time a gain or loss on a derivative trading is realized. Such gain or loss is insignificant. Other than those derivatives transactions described above, the Company does not engage in other high-risk derivatives transactions and will continue to observe the principle of hedging only positions actually owned by the Company. (2) The Company does not extend loans to other companies or individuals. (3) The Company only provides endorsement/guarantee for some subsidiaries over which the Company has controlling power in line with their business needs. The current amount of endorsements/guarantees made by the Company accounts for a very low percentage of the Company’s net worth, and hence has limited impact on the Company. The Company carries out endorsements and guarantees operations in accordance with its Rules for Endorsements and Guarantees.
7.3 Future R&D projects and estimated R&D expenditure
R&D project/product Estimated R&D expenditure Low, medium, and high density Specialty DRAM R&D expenditures for Medium to high density and low-power Mobile DRAM 2012 are projected at 58nm process for high-speed, high-density NOR flash NT$2.6 billion.
46nm process for Flash
7.4 Major changes in government policies and laws at home and broad and the impact on Company finance and business
The Company finance and business are not affected by major changes in government policies and laws at home and abroad in 2011.
81 7.5 Impact of recent technological and market changes on the Company’s finance and business, and response measures
Winbond began the volume production of 4Xnm Specialty DRAM in the latter half of 2011. In 2012, we plan to use 4Xnm process to develop medium, high density Low-Power Mobile DRAM, targeting the handset market, and in addition, light, thin, short and small handheld devices market.
The 4Xnm products will be the main force behind the improvement of cost structure of our Specialty DRAM in 2012. In 2012, Winbond will actively expand the high-barrier market and boost the market share.
Winbond’s NOR flash memory has been a consistent market leader in the applications of computer, DVD player, and hard disk drive. Using the advanced processes of 12-inch fab, Winbond has successfully launched the SPI flash products in various applications, and reached another peak in the fourth quarter of 2010 to become No. 1 SPI flash supplier in the world. We began volume production of 58nm process in Q4 2011 and will continue to launch new 58nm products to enhance our competitive advantage in 2012. Aside from developing the high profit margin KGD market, the volume productions of 2.5V/1.8V low-voltage, medium and low density Serial Flash and 3V high-speed, high-density Parallel Flash and 1.8V, 3V NOR flash MCP will help the Company expand the breadth of product lines and make headways into the portable devices and handset markets to maintain the competitiveness and profitability of our products.
The demands for PC are expected to slow down, although the trend of notebook replacing desktop computers remains unchanged. Driven by the falling prices of TFT LCD, the penetration of high-frequency LED/LCD TV, Smart TV, and 3D TV will increase further in 2012. New applications, including the massive use of new1.8V Serial Flash and USON2X3mm as well as new smaller-packaged WLCSP in mobile devices, will bring many new opportunities for the capacity expansion of our memory products.
In response to the evolvement and demands of desktop/notebook computer, network communication and consumer electronic products, and in the continuing efforts to enhance the competitiveness of our products, Winbond will accelerate the rollout of complete series of 58nm flash in 2012 to enhance the competitive edge of our products. We will also endeavor in developing the high profit margin KGD market to maintain the competitiveness and profitability of our products.
7.6 Impact of corporate image change on risk management and response measures
Winbond believes in honesty and integrity in business practice. We emphasize honest dealing with customers and rigorously demand self-discipline and compliance with internal rules from employees. We are committed to information disclosure and financial transparency, and utilize all kinds of communication channels to help shareholders, institutional investors and the general public know more about Winbond and win their recognition and support for our management philosophy and directions. In addition, we have departments set up to take charge of investor relations, employee relationship, internal audit, risk management, quality management, and customer service. Those departments work closely with related business units to unite the resources and strength throughout the company. In case of any contingency, the Company’s senior officer will act as the convenor and promptly set up a crisis response team to quickly address the crisis, and prepare readiness plans to prevent and control all kinds of latent risks. As of the date of report, the Company is free of corporate image change event that calls for prompt actions in crisis management.
7.7 Expected benefits and potential risks of merger and acquisition
The Company does not any merger and acquisition plan in the last year and up to the date of report.
7.8 Expected benefits and potential risks of capacity expansion
All undertakings of expansion and construction of new-generation fab have had feasibility evaluation done by relevant professional teams before the project is proceeded. The purpose of fab expansion is to enhance the process technology and reduce production costs so as to fend off market competition and make headway into end-market applications. In light of the high market volatility of the memory industry, we will watch closely the market movement and supply-demand situation. We will take a prudent approach to capacity allocation, and opt for a diversity of optimal product mix to keep our production plans flexible. We will also adopt advanced process to optimize the cost structure in the efforts to minimize the risk associated with market volatility. Financially, we will plan our future expansion and the necessary capital expenditure and funds in a prudent manner. We will also draw up sound business plans to lower the
82 risk of incurring heavy debt. We believe we will have sufficient profit and cash flows to meet the additional investment needs and repayment obligations. Our technical team consists of wafer fabrication experts and IC design experts with dozens of years of experience in related fields. We also import advanced processes from abroad and embark on R&D with our own technology. Our 46nm DRAM and 58nm flash processes have been successfully validated in Q4 2011 and entered into volume production. The switch to high-end process is expected to improve our cost control capacity and augment the possibility of product expansion. To sum up, Winbond will endeavor in fending off the risk of market volatility from the aspects of product, finance and technology, and in the process, maximize our profitability.
7.9 Risks associated with over-concentration in purchase or sale and response measures
Purchasing from a sole supplier offers the advantage of price negotiation power, but it also carries the risk of over-concentration that the Company may not receive timely delivery when the supplier’s plant has an accident or the supplier has financial or quality problems. The Company has at least two key suppliers for all of its main materials and hence does not have the concern of over-concentration in purchasing.
Concentration in sales was a result of adjustment of customer structure and long-term strategic cooperation. The Company has credit management and internal control and audit systems in place, and hence does not run the risk of over-concentration in sales.
7.10 Impact of mass transfer of equity by or change of directors, supervisors, or shareholders holding more than 10% interest on the Company, associated risks and response measures
The Company is free of the aforementioned situation in recent years up to the date of report.
7.11 Impact of change of management rights on the Company, associated risk and response measures
The Company is free of the aforementioned situation in recent years up to the date of report.
7.12 Material litigious or non-litigious events
7.12.1 Concluded or pending litigious, non-litigious or administrative litigation event as of the date of report:
The Company and its U.S. subsidiary are accused of violating the U.S. antitrust law on price-fixing involving Winbond’s DRAM products sold in the U.S. and are named as co-defendants in a class action suit in the U.S. federal court. Currently only the class action suit with the state attorney generals and the indirect purchasers is in process, and the suit has reached settlement, pending the court’s approval.
7.12.2 The outcome of concluded or pending litigious, non-litigious, or administrative litigation events involving the director, supervisor, president, de facto responsible person, major shareholders holding more than 10% interest, or subsidiary of the Company (1) With respect to pending litigious events as of the date of report, Winbond Chairman Arthur Chiao has made a reply to the Company as follows: A.Only one pending lawsuit as of the date of your company’s annual report. B. Description of the lawsuit: (A) Facts, amount of claim, lawsuit start date, main parties concerned: The Securities and Futures Investor Protection Center (“SFIPC”) filed a lawsuit with Taiwan Taipei District Court on April 27, 2005 over misrepresentation of the financial statements of Pacific Electric Wire & Cable Co., Ltd. (“Pacific Electric”). The lawsuit names myself and others (including other directors, supervisors and accounting firm) as co-defendants on grounds that I acted as a director of Pacific Electric between 1999 and 2001 and SFIPC requests compensation for damages from the co-defendants (Case No.:Taiwan Taipei District Court (referred to as “Taipei District Court” hereunder) 94-Jing-Zi-#22). When SFIPC first initiated the action on April 27, 2005, it sought compensation in the amount of NT$7,910,422,313 from 277 defendants. SFIPC later added Fubon Life Insurance and Hsing Yo Investment to the list of defendants on June 21, 2005 that brought the number of defendants to 279. SFIPC subsequently made several expansions and reductions of claim due to increase in the number of people who appoint SFIPC as their representative in the class action suit and settlement reached with several defendants. Thus the court has been in the stage of procedural examination for a long time. So far, SFIPC has reached settlement with 248 defendants involving total settlement amount of NT$196,100,000. The court started the trial phase in 2009.
83 (B) Current status: This case is currently in the first stance proceedings in Taipei District Court. (C) My and my attorney’s views and action plan on the case: The case is still in first instance proceedings and oral argument before the court has not started. Thus my appointed attorney and I are not in the position to assess the results of the trial. (D) Possible maximum loss and possible amount of indemnification received from the case: Based on the settlement information provided by SFIPC, the amount of settlement reached between SFIPC and individual director or supervisor of Pacific Electric ranges between NT$12,330,000 and NT$26,000,000. Thus even if I am later found to be liable for damages as a director of Pacific Electric at one time, my liability should not be too far off the amounts of settlement described above. C. I am not financially strapped or losing my good credit standing as of the date of this reply. An evaluation of the aforementioned lawsuit by the Company concludes that because the lawsuit is a personal affair of the chairman and does not involve the Company’s finance or business, it is not expected to have any material impact on the interests of the Company’s shareholders or stock price. (2) With respect to pending litigious events as of the date of report, Winbond Director Yung Chin has made a reply to the Company as follows: A. Only one pending lawsuit as of the date of your company’s annual report. B. Description of the lawsuit: (A) Facts, amount of claim, lawsuit start date, main parties concerned: The Securities and Futures Investor Protection Center (“SFIPC”) filed a lawsuit with Taiwan Taipei District Court on April 27, 2005 over misrepresentation of the financial statements of Pacific Electric Wire & Cable Co., Ltd. (“Pacific Electric”). The lawsuit names myself and others (including other directors, supervisors and accounting firm) as co-defendants on grounds that I acted as a supervisor of Pacific Electric from 1999 to September 24, 2001 and SFIPC requests compensation for damages from the co-defendants (Case No.: Taiwan Taipei District Court (referred to as “Taipei District Court” hereunder) 94-Jing-Zi-#22). When SFIPC first initiated the action on April 27, 2005, it sought compensation in the amount of NT$7,910,422,313 from 277 defendants. SFIPC later added Fubon Life Insurance and Hsing Yo Investment to the list of defendants on June 21, 2005 that brought the number of defendants to 279. SFIPC subsequently made several expansions and reductions of claim due to increase in the number of people who appoint SFIPC as their representative in the class action suit and settlement reached with several defendants. Thus the court has been in the stage of procedural examination for a long time. So far, SFIPC has reached settlement with 248 defendants involving total settlement amount of NT$196,100,000. The court started the trial phase in 2009. (B) Current status: This case is currently in the first stance proceedings in Taipei District Court. (C) My and my attorney’s views and action plan on the case: The case is still in first instance proceedings and oral argument before the court has not started. Thus my appointed attorney and I are not in the position to assess the results of the trial. (D) Possible maximum loss and possible amount of indemnification received from the case: Based on the settlement information provided by SFIPC, the amount of settlement reached between SFIPC and individual director or supervisor of Pacific Electric ranges between NT$12,330,000 and NT$26,000,000. Thus even if I am later found to be liable for damages for I was once a director of Pacific Electric, my liability should not be too far off the amounts of settlement described above. C. I am not financially strapped or losing my good credit standing as of the date of this reply. An evaluation of the aforementioned lawsuit by the Company concludes that because the lawsuit is a personal affair of the director and does not involve the Company’s finance or business, it is not expected to have any material impact on the interests of the Company’s shareholders or stock price.
7.13 Risk management organization framework
The Company’s risk management tasks are dispersed among different functions inside the Company. The Company has established sound internal management guidelines and operating procedures, and has developed comprehensive plans and processes for risk aversion, loss prevention and crisis management. In addition, the Company’s management keeps continuous watch over changes in the macroeconomic environment that might affect the Company business and operations, and has assigned staff to make planning and formulate response actions against all kinds of contingencies to reduce operational uncertainties to the minimum.
84 7.14 Other significant risks and response measures: None.
8. Other important events: None.
85 Important Notice
1. Profiles on affiliates and subsidiaries
1.1 Consolidated business report
1.1.1 Corporate affiliation chart December 31, 2011
86 1.1.2 Profile of individual subsidiary Dec. 31, 2011; Unit: NT$1,000 Date of Name of enterprise Address Paid-in capital Principal business or core products establishment Palm Grove House, P. O. Box 438, Road Town, Landmark Group Holdings Ltd. 2005.07.25 US$16,293 Investments Tortola, British Virgin Islands Research, development and sales of Winbond Electronics No. 2 Ueno-Bld.,7-18 , 3 chome, Shinyokohama 2001.01.05 JPY 148,500 semiconductor parts and components, and Corporation Japan Kohoku-ku, Yokohama-shi, 222-0033, Japan after-sale service Winbond International Flemming House, Wickhams Cay, P.O. Box 662, 1995.08.28 US$104,240 Investments Corporation Road Town, Tortola, British Virgin Islands Winbond Electronics 32 Loockerman Square, suite L-100, Dover, Kent Design, sales and service of semiconductor 1998.07.01 US$58,917 Corporation America 19904, Delaware parts and components Research, development, design, Mobile Magic Design 2F, No. 40, Industrial East 4th Road, Hsinchu 2003.07.25 NT$50,000 manufacturing and sales of Pseudo RAM Corporation Science-Based Industrial Park and Low-Power SDRAM Unit 9-11, 22F, JOS Tower Millennium City Winbond Electronics (H.K.) Sales and service of semiconductor parts and 2008.06.13 2, No 378 Kwun Tong Road, Kowloon, Hong HKD 500 Ltd. components Kong Unit 9-11, 22F, JOS Tower Millennium City Pine Capital Investment Ltd. 2011.01.12 2, No 378 Kwun Tong Road, Kowloon, Hong HKD 10,920 Investments Kong Research, design, development and sales of Winbond Electronics (Suzhou) No.8, Zhao Feng Road, Huaqiao Town, Kunshan 2011.06.11 RMB 8,639 integrated circuit and equipments, and Ltd. City, Jiangsu Province, China after-sale service Research, design, development, No. 4, Yan Hsing 3rd Road, Hsinchu Nuvoton Technology Corp. 2008.04.09 NT$2,075,544 manufacturing and sales of logic IC, 6” fab Science-Based Industrial Park production, testing, and OEM Marketplace Management P. O. Box 957, Offshore Incorporations Centre, 2000.07.28 US$7,665 Investments Limited Road Town, Tortola, British Virgin Islands
Goldbond LLC 2000.09.22 1912 Capitol Ave, Cheyenne, WY 82001 US$43,675 Investments
Nuvoton Electronics Revision, testing and technology consultation 2001.03.30 27F, No. 2299, Yen An W. Road, Shanghai RMB 16,555 Technology (Shanghai) Ltd. service on IC, system and related software
Winbond Technology (Nanjing) Suite 413-40, Gao Xing Technology Industrial Computer software services (except for IC 2005.09.21 RMB 4,046 Ltd. Development Zone Office Building, Nanjing design)
Flemming House, Wickhams Cay, P.O. Box 662, Pigeon Creek Holding Co., Ltd. 1997.03.12 US$13,868 Investments Road Town, Tortola, British Virgin Islands
Nuvoton Technology 2711 Centerville Road, Suite 400, Wilmington, Design, sales and service of semiconductor 2008.05.01 US$6,050 Corporation America DE 19808, Delaware parts and components
Nuvoton Electronics Unit 9-11, 22F, Millennium City 2, No 378 Post-delivery service of semiconductor parts 1989.04.04 HKD 107,400 Technology (H.K.) Ltd. Kwun Tong Road, Kowloon, Hong Kong and components Computer software services (except for IC Nuvoton Electronics 1502,15F, New World Business Center at 6009 2007.02.16 RMB 46,434 design), computer and peripheral equipment, Technology (Shenzhen) Ltd. Yi Tian Road, Futian District, Shenzhen City and wholesale of software 3rd Floor, Omar Hodge Building, Wickhams Cay Nuvoton Investment Holding 2005.03.21 I,PO Box 362, Road Town, Tortola, British US$21,000 Investments Ltd. Virgin Islands Design, sales and service of semiconductor Nuvoton Technology Israel Ltd. 2005.03.22 8 Hasadnaot Street, Herzlia B,46130 Israel ILS 1 parts and components
5F, No. 192, Ching Yeh 1st Road, Zhong Shan Win Investment Corp. 1997.07.29 NT$1,800,000 Investments District, Taipei
Flemming House, Wickhams Cay, P.O. Box 662, Peaceful River Corporation 1997.03.12 US$10,720 Investments Road Town, Tortola, British Virgin Islands
Flemming House, Wickhams Cay, P.O. Box 662, Newfound Asian Corporation 1997.03.12 US$6,555 Investments Road Town, Tortola, British Virgin Islands Flemming House, Wickhams Cay, P.O. Box 662, Baystar Holdings Ltd. 1998.08.18 US$22,590 Investments Road Town, Tortola, British Virgin Islands
87
1.1.3 Profiles on shareholders deemed to have dominant-subordinate relations： None
1.1.4 Profiles of directors, supervisors and presidents of affiliates and subsidiaries
Dec. 31, 2011; Unit: shares Shares held Name of enterprise Title Name or Representative Shares % Director Winbond Electronics Corp. Representative - Arthur Yu-Cheng Chiao 16,293,000 Landmark Group Holdings Ltd. Director Winbond Electronics Corp. Representative - Tung-Yi Chan 100% (Note1) Director Winbond Electronics Corp. Representative - Robert I.S. Hsu Director Landmark Group Holdings Ltd. Representative - Tung-Yi Chan Director Landmark Group Holdings Ltd. Representative - Robert I.S. Hsu 2,970 100% Director Landmark Group Holdings Ltd. Representative - Tatsuo Okamoto Winbond Electronics Corporation Japan (Note1) Director Landmark Group Holdings Ltd. Representative - James Wen Supervisor Landmark Group Holdings Ltd. Representative - Yung Chin President Tatsuo Okamoto -- Director Winbond Electronics Corp. Representative - Arthur Yu-Cheng Chiao 104,240,000 Winbond International Corporation Director Winbond Electronics Corp. Representative - Tung-Yi Chan 100% (Note1) Director Winbond Electronics Corp. Representative - Robert I.S. Hsu
Chairman Winbond International Corporation Representative - Kuang-Yi Chiu Director Winbond International Corporation Representative - Arthur Yu-Cheng Chiao Director Winbond International Corporation Representative - Tung-Yi Chan 3,067 100% Director Winbond International Corporation Representative - Yung Chin (Note1) Winbond Electronics Corporation America Director Winbond International Corporation Representative - Yuan-Mou Su Director Winbond International Corporation Representative - Pei-Ming Chen Director Winbond International Corporation Representative - James Wen
President Eungjoon Park --
Chairman Winbond Electronics Corp. Representative - Yung Chin 500,000 100% Director Winbond Electronics Corp. Representative - Pei-Ming Chen (Note1) Winbond Electronics (H.K.) Ltd. Director Winbond Electronics Corp. Representative - James Wen Director Winbond Electronics Corp. Representative – Jessica C. Huang President Pei-Ming Chen -- Chairman Winbond Electronics Corp. Representative - Yung Chin 10,920,000 Director Winbond Electronics Corp. Representative - Tung-Yi Chan 100% Pine Capital Investment Ltd. (Note1) Director Winbond Electronics Corp. Representative – Cheng-Kung Lin President James Wen -- Chairman Pine Capital Investment Ltd. Representative - Tung-Yi Chan Director Pine Capital Investment Ltd. Representative – James Wen Director Pine Capital Investment Ltd. Representative - Yuan-Mou Su (Note2) 100% Winbond Electronics (Suzhou) Ltd. Director Pine Capital Investment Ltd. Representative - Cheng-Kung Lin Supervisor Pine Capital Investment Ltd. Representative - Yung Chin President Pei-Ming Chen (Note2) - Chairman Winbond Electronics Corp. Representative - Wilson Wen 5,000,000 100% Director Winbond Electronics Corp. Representative - Tung-Yi Chan (Note1) Mobile Magic Design Corporation Director Winbond Electronics Corp. Representative - James Wen Supervisor Winbond Electronics Corp. Representative - Jessica C. Huang President Yuan-Mow Su -- Chairman Winbond Electronics Corp. Representative - Arthur Yu-Cheng Chiao 126,620,087 Director Winbond Electronics Corp. Representative - Yung Chin 61% (Note1) Director Winbond Electronics Corp. Representative - Keh-Shew Lu Nuvoton Technology Corp Director Robert I.S. Hsu 447,328
Director Chi-Lin Wea -- Director Gary Y.Cheng --
88 Shares held Name of enterprise Title Name or Representative Shares % Director Eric Chen -- Director David Huang -- Director Yu-Chun Hong - - Supervisor Yang-Kun Lai -- Nuvoton Technology Corp. Supervisor Chao-Ming Meng --
Supervisor Lu-Pao Hsu --
President Robert I.S. Hsu 447,328 - Director Nuvoton Technology Corp. Representative - Arthur Yu-Cheng Chiao 7,665,289 Marketplace Management Limited Director Nuvoton Technology Corp. Representative - Robert I.S. Hsu 100% (Note1) Director Nuvoton Technology Corp. Representative - Tung-Yi Chan Manager (Note 3) Marketplace Management Limited Representative -Arthur Yu-Cheng Chiao Manager Goldbond LLC Marketplace Management Limited Representative - Jessica C. Huang (Note4) 100% (Note 3) Marketplace Management Limited Representative - Hsiang-Yun Fan Manager (Note 3) Chairman Goldbond LLC Representative - Robert I.S. Hsu Director Goldbond LLC Representative - Stephen R. M. Huang (Note5) 100% Nuvoton Electronics Technology (Shanghai) Ltd. Director Goldbond LLC Representative - Hsiang-Yun Fan Supervisor Goldbond LLC Representative - Yung Chin President Mau-Sen Chen (Note5) - Chairman Goldbond LLC Representative - Stephen R. M. Huang (Note6) 100% Director Goldbond LLC Representative - Robert I.S. Hsu Winbond Technology (Nanjing) Ltd. Director Goldbond LLC Representative - James Wen President Mau-Sen Chen (Note6) - Director Nuvoton Technology Corp. Representative - Arthur Yu-Cheng Chiao 13,867,925 Pigeon Creek Holding Co., Ltd. Director Nuvoton Technology Corp. Representative - Tung-Yi Chan 100% (Note1) Director Nuvoton Technology Corp. Representative - Robert I.S. Hsu Chairman Pigeon Creek Holding Co., Ltd. Representative - Wen Chu Director Pigeon Creek Holding Co., Ltd. Representative - Robert I.S. Hsu 60,500 100% Director Pigeon Creek Holding Co., Ltd. Representative - Stephen R. M. Huang Nuvoton Technology Corporation America (Note1) Director Pigeon Creek Holding Co., Ltd. Representative - Tung-Yi Chan Director Pigeon Creek Holding Co., Ltd. Representative - Hsiang-Yun Fan President Saleel Awsare -- Director Nuvoton Technology Corp. Representative - Arthur Yu-Cheng Chiao 21,000,000 Nuvoton Investment Holding Ltd. Director Nuvoton Technology Corp. Representative - Robert I.S. Hsu 100% (Note1) Director Nuvoton Technology Corp. Representative – James Wen Chairman Nuvoton Investment Holding Ltd. representative – His-Jung Tsai Director Nuvoton Investment Holding Ltd. representative - Por-Yuan Huang Director Nuvoton Investment Holding Ltd. representative – Hsiang-Yun Fan 1,000 100% Nuvoton Technology Israel Ltd. Director Nuvoton Investment Holding Ltd. representative - Robert I.S. Hsu (Note1) Director Nuvoton Investment Holding Ltd. representative – Biranit Levany Director Nuvoton Investment Holding Ltd. representative – Erez Naory President Por-Yuan Huang -- Chairman Nuvoton Technology Corp. Representative - Robert I.S. Hsu Director Nuvoton Technology Corp. Representative - Yung Chin 107,400,000 100% Nuvoton Electronics Technology (H.K.) Ltd. Director Nuvoton Technology Corp. Representative - Hsiang-Yun Fan (Note1) Director Nuvoton Technology Corp. Representative -Bosco Chi-Sing Law President Nuvoton Technology Corp. Representative -Bosco Chi-Sing Law -- Chairman Nuvoton Electronics Tech. (H.K.) Ltd. Representative - Stephen R. M. Huang Director Nuvoton Electronics Tech. (H.K.) Ltd. Representative - Robert I.S. Hsu (Note7) 100% Nuvoton Electronics Technology (Shenzhen) Ltd. Director Nuvoton Electronics Tech. (H.K.) Ltd. Representative - Hsiang-Yun Fan Supervisor Nuvoton Electronics Tech. (H.K.) Ltd. Representative - His-Yung Lin President Bosco Chi-Sing Law (Note7) -
89 Shares held Name of enterprise Title Name or Representative Shares % Chairman Winbond Electronics Corp. Representative - Arthur Yu-Cheng Chiao Director Winbond Electronics Corp. Representative - Tung-Yi Chan 180,000,000 100% Win Investment Corp. Director Winbond Electronics Corp. Representative - Yung Chin (Note1) Supervisor Winbond Electronics Corp. Representative - Robert I.S. Hsu President Yung Chin -- Director Win Investment Corp. Representative - Arthur Yu-Cheng Chiao 10,720,000 Peaceful River Corporation Director Win Investment Corp. Representative - Tung-Yi Chan (Note1) 100% Director Win Investment Corp. Representative - Yung Chin Director Winbond Electronics Corp. Representative - Arthur Yu-Cheng Chiao Newfound Asian Corporation Director Winbond Electronics Corp. Representative - Tung-Yi Chan 6,555,000 100% Director Winbond Electronics Corp. Representative - Yung Chin (Note1) Director Newfound Asian Corporation Representative - Arthur Yu-Cheng Chiao 22,590,000 Baystar Holdings Ltd. Director Newfound Asian Corporation Representative - Tung-Yi Chan 100% (Note1) Director Newfound Asian Corporation Representative - Robert I.S. Hsu Note 1: Institutional Shareholder Note 2: Winbond Electronics (Suzhou)Ltd. is not share issuing limited liability companies. Note 3: Goldbond LLC adopts the manager system. Note 4: Goldbond LLC is not share issuing limited liability companies. Note 5: Nuvoton Electronics Technology (Shanghai) Ltd. is not share issuing limited liability companies. Note 6: Winbond Technology (Nanjing) Ltd., is not share issuing limited liability companies. Note 7: Nuvoton Electronics Technology (Shenzhen) Ltd. is not share issuing limited liability companies.
90 1.1.5 Business overview of affiliates and subsidiaries Dec. 31, 2011 Unit: NT$1,000 Net earnings Total Operating Net Profit Name of enterprise Capital Total Assets Book Value Revenue (loss) per liabilities Profit (loss) (loss) share (NTD) Landmark Group Holdings Ltd. 493,271 374,444 2,084 372,360 10,769 (37,508) (37,508) (2.30)
Winbond Electronics Corporation Japan 58,004 370,917 163,731 207,186 2,356,274 21,166 10,529 3,545.12
Winbond International Corporation 3,155,866 1,628,491 31,717 1,596,774 10,280 (108,116) (108,116) (1.04)
Winbond Electronics Corporation America 1,783,718 1,249,220 33,447 1,215,773 512,694 19,465 7,105 2,316.60
Mobile Magic Design Corporation 50,000 71,993 21,084 50,909 129,050 4,805 4,364 0.87
Winbond Electronics (H.K.) Ltd. 1,949 591,689 610,243 (18,554) 5,059,935 5,954 5,764 11.53
Pine Capital Investmenr Ltd. 41,398 42,885 80 42,805 66 (1,005) (1,005) (0.09)
Winbond Electronics (Suzhou) Ltd. 41,508 41,518 10 41,508 － － － (註 1)
Nuvoton Technology Corp. 2,075,544 4,392,717 1,597,567 2,795,150 7,090,283 559,605 425,746 2.05
Marketplace Management Limited 232,067 72,622 126 72,496 － (58,125) (58,125) (7.58)
Goldbond LLC 1,322,261 79,557 7,801 71,756 839 (57,724) (57,724) (註 1)
Nuvoton Electronics Technology (Shanghai) Ltd. 79,544 79,812 2,169 77,643 53,581 (454) 840 (註 1)
Winbond Technologies (Nanjing) Ltd. 19,438 1,450 3,363 (1,913) － － (1) (註 1)
Pigeon Creek Holding Co., Ltd. 419,851 155,350 13,512 141,838 5,816 5,609 5,609 0.40
Nuvoton Technology Corporation America 183,164 209,336 54,905 154,431 666,629 14,729 5,816 96.13
Nuvoton Electronics Technology (H.K.) Ltd. 418,538 532,427 109,400 423,027 2,685,580 5,361 5,425 0.05
Nuvoton Electronics Technology (Shenzhen) Ltd. 222,623 218,705 9,945 208,760 62,052 (2,584) 37 (註 1)
Nuvoton Investment Holding Ltd. 635,775 249,252 86 249,166 18,418 18,335 18,335 0.87
Nuvoton Technology Israel Ltd. 8 289,086 41,436 247,650 547,743 27,946 18,377 18,377.06
Win Investment Corp. 1,800,000 1,197,655 142,061 1,055,594 103,199 9,182 9,182 0.05
Peaceful River Corporation 324,548 77,047 12,225 64,822 42 (62,887) (62,887) (5.87)
Newfound Asian Corporation 198,453 61,192 62 61,130 － (263) (263) (0.04)
Baystar Holdings Ltd. 683,912 31,917 62 31,855 － (129) (129) (0.01) Note 1: Goldbond LLC, Nuvoton Electronics Technology (Shanghai) Ltd. Winbond Technology (Nanjing) Ltd., and Nuvoton Electronics Technology (Shenzhen) Ltd., Winbond Electronics (Suzhou) Ltd. are not share issuing limited liability companies Note 2: Exchange rates of items of “total assets and total liabilities”: 1 USD= 30.275 NTD；1JPY= 0.3906 NTD；1RMB= 4.8049 NTD; 1 ILS= 7.9250 NTD Note 3: Exchange rates of items of “profit and loss”：1 USD=29.39 NTD；1 JPY= 0.3689 NTD；1 RMB = 4.5485NTD; 1 ILS= 8.2226 NTD
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