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 ...... 20 5. Issuance of preferred stocks ...... 20 6. Issuance of global depositary receipts (GDR) ...... 21 7. Exercise of employee stock option plan (ESOP) ...... 22 8. Mergers, acquisitions or issuance of new shares for acquisition of shares of other companies ...... 24 9. Implementation of capital allocation plan ...... 24
Business Overview
1. Business activities ...... 25 2. Market, production and sales ...... 29 3. Employees ...... 33 4. Spending on environmental protections ...... 33 5. Employees-employer relations ...... 34 6. Important contracts ...... 37
Financial Overview
1. Condensed balance sheets, statements of income, names of auditors, and audit opinions (2008 – 2012) ...... 38 2. Financial analysis (2008 – 2012) ...... 39 3. 2012 financial statements...... 41 4. 2012 consolidated financial statements ...... 76 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 ...... 83
Financial Status, Operating Performance and Risk Evaluation
1. Analysis of financial status ...... 122 2. Analysis of operating performance ...... 122 3. Cash flow analysis ...... 123 4. Effect of major capital spending on financial position and business operation ...... 123 5. Industry specific key performance indicator ...... 123 6. Investment policy in the past year, return on investment analysis, improvement plan, and investment plan for the coming year ...... 123 7. Risk management and assessment ...... 123 8. Other important events ...... 128
Important Notice
1. Profile on affiliates and subsidiaries ...... 129
Letter to Shareholders
Dear Shareholders,
In 2012, the supply glut of global memory industry was rectified through production cut and merger. As the industry approached an equilibrium, Winbond reported growth in the shipment of DRAM and NOR Flash products, while increasing the production weights of 46nm and 58nm processes for the year. Winbond continued its leading position in the low to medium density specialty memory and became the number-one supplier of Serial Flash worldwide.
Financial Performance We reported revenue of NT$25.419 billion in 2012, down 7% from last year. Our consolidated revenue including members of Nuvoton Technology Corp. etc. was NT$32.965 billion, a decrease of 5% as compared to the previous year. Net loss was NT$1.853 billion or NT$0.5 loss per share in 2012.
Technology and Product Development Winbond is a leading provider of specialty memory solutions, with a balanced DRAM and NOR Flash product portfolio. We endeavor to build diverse core competencies and focus on the development of products with high added value. With respect to NOR Flash, we continued to strengthen the specifications and functions, and gradually increased supply of 58nm products in order to maintain our leadership in the Serial Flash market. As far as the Specialty DRAM is concerned, the migration to 46nm process was on schedule. We actively moved into applications with high entry barrier markets, such as automobile, industrial applications and KGD (Known Good Die). In the area of Mobile RAM products, we assiduously developed low to medium density low-power DRAM products in applications of portable devices.
Our capital expenditure in 2013 will be used mainly on 46nm DRAM and 58nm Flash process technology migrations in order to keep competitive of our products. In addition to our own 12-inch fab with 35,000 wafers per month, we will outsource when capacity is insufficient and advanced technology process is required under fab-lite strategy.
Market Development We continued to cultivate first-tier customers worldwide by providing total low/medium-density memory solution used in the peripheral modules of mobile devices as well as network and automobile electronic applications. By focusing on the niche market and customer-oriented strategy, Winbond will make efforts to “timely to market”, “customer satisfaction”, and “processes improvement” to provide more comprehensive product solutions, world-class product quality and excellent customer services.
Future Outlook Looking into 2013, as smart phones, tablet computers, LCD TVs and network systems are expected to bring new opportunities and stronger demand for low/medium-density memory products, Winbond will persist technical and market innovation to timely respond to market opportunities, optimize product and client compatibility, and improve bottom line. We also urge our colleagues to create a work culture of accountability, innovation and synergy, to maximize the value of Company, and to generate outstanding business results on the basis of technological autonomy, core competence and sound financial structure.
1 On behalf of the management of Winbond, I would like to thank our shareholders for your support and encouragement.
My you have a prosperous year and good health.
Chairman and EO
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Company Overview 1. Company profile 1.1 Company history Winbond Electronics Corp. is a Specialty Memory IC Company engaged in design, manufacturing and sales services. From product design, research and development, wafer fabrication to marketing of brand name product, Winbond endeavors to provide its global clientele top quality of low to medium density memory solutions. The Company was established in September 1987 and listed on Taiwan Stock Exchange in 1995 with headquarter in Central Taiwan Science Park, Taichung, Taiwan.
Winbond has three core business groups - DRAM Product, NOR Flash, and Memory IC Manufacturing. It continuously seeks product and technological innovation to gain a competitive edge. Winbond’s core product lines include NOR Flash, Specialty DRAM and Mobile RAM. Our advantage of technological autonomy and prudent capacity strategy enable us to build a highly flexible production system to produce the synergistic effect of product mix and allow us to meet the diverse demands of customers while building the brand image.
In the area of NOR Flash memory products, we focus on “low to medium density” market by offering a full range of products of low to medium density Serial Flash. Our small-size flash memory packages offer the features of low pin count, small size and low cost. With considerable market share in computer peripheral markets, we also develop mobile device and consumer electronic related fields.
Winbond specializes in the design of high-performance and low-power memory, and riding on the strength of having a 12-inch fab, offers a whole series of Mobile RAM and Specialty DRAM products that target a top tier clientele and quality-oriented applications. Winbond’s products are used extensively in handheld devices, consumer electronics and computer peripherals. We also focus on high-barrier, high-quality applications, such as KGD, automobile and industrial electronics.
To provide clienteles around the world prompt services, Winbond has set up bases in the USA, Japan, China, and Hong Kong and is built distributor networks in different countries to broaden and deepen our sales network. In the aspect of quality, Winbond implements rigorous process control and quality control, and strengthens yield analysis, supply chain management to fill customer satisfaction. The long-standing efforts in quality assurance have earned the Company 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 technologies coupled with the collective creativity and wisdom of employees to strive towards to become an outstanding supplier of low to medium capacity special memory solutions.
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1.2 Major business development in the past year and up to the date of report Winbond continued to migrate technology processes. In 2012, we migrate part of the Specialty DRAM and Mobile RAM to self-developed 46nm process, and the NOR Flash to 58nm. The advanced process technology and the cost advantage are expected to enhance our product competitiveness and ward off the risk of price decline.
To satisfy customer demands in a timely manner, Winbond set up a subsidiary in Suzhou China in June of 2011 for further deployment in the China market. The subsidiary in Suzhou is also endowed with the functions of market development and consolidation of human resources for the business development in China market. It is expected to drive Winbond into a new market and will fortify Winbond’s sales network in China. The Suzhou subsidiary has commenced operation in January 2012.
For the sake of replenishing working capital and repaying existing loans, Winbond acquired a 3-year, NT$5 billion syndicated loan from 10 banks in Taiwan in November 2012. With funds in place and strong working capital, Winbond will be able to provide its customers with complete and steady products and services.
1.3 Investment in affiliates in the past year and up to the date of report
1. In November 2012, Winbond purchased 40,000,000 shares of Chih Xin Investment Corp., Ltd. (“Chih Xin Investment”) from Walsin Lihwa Co. Subsequently on December 31, 2012, Win Investment Co., Ltd. (“Win Investment”) merged with Chih Xin Investment with Win Investment being an extinguished company. Winbond acquired another 130,713,000 shares of Chih Xin Investment as a result of the merger. As of the date of report, Winbond owns 170,713,000 shares or 35% of Chih Xin equity shares.
2. For other equity investments, please see page 130 of this report
4 2. Corporate governance report 2.1 Organizational structure and major business units 2.1.1 Organizational structure
5 2.2 Profile of directors, supervisors and management 2.2.1 Directors and supervisors (1) March 31, 2013 Shares held in Education/work experience Other Other officer, director or supervisor who Shares held when Shares held by spouse Date Date Shares currently held the name of positi is the spouse or a relative within second elected and minor children Title Name electe Term first others ons degree d elected Shares % Shares % Shares % Shares % Relationshi Shares Shares Shares Shares Title Name (Note4) (Note4) (Note4) (Note4) p Master in Electrical Engineering and Director and Chief Yung Spouse 2011.06. Researcher of Management College of Administrative Chin Chairman Arthur Chiao 3 years 1987.09.04 53,674,955 1.46% 56,764,955 1.54% 14,750,978 0.40% - - Note 6 Brother 22 Washington Univ. Officer Chiao
Chairman of Walsin Lihwa Corp. Supervisor Yu-Chi Ph.D. in Electrical Engineering, Princeton Univ. Master in Business Management of Graduate School of Stanford Univ. General Director of Electronic Research Ching-Chu 2011.06. and Service Organization of the Director 3 years 1993.03.25 10,067,591 0.27% 10,067,591 0.27% 53,058 0.00% - - Note 7 None. None. None. Chang 22 International Technology Research Institute Vice Chairman of Winbond Electronics Corp. Chairman of Vanguard International Semiconductor Corp (incumbent) Master in Business Administration of Matthew 2011.06. California Univ. at Santa Clara. Director Feng-Chiang 3 years Note 3 100,000 0.00% 100,000 0.00% - - - - Note 8 None. None. None. 22 B.S. in Electrical Engineering, U.C. Miau Berkeley Master in Applied Mathematics, Spouse Arthur Washington Univ. 2011.06. Chairman and CEO Chiao Director Yung Chin 3 years 1996.04.09 10,450,537 0.28% 10,450,537 0.28% 61,065,396 1.66% - - Chief Auditor of Walsin Lihwa Corp. Note 9 Brother and 22 Supervisor Chiao Vice President of Winbond Electronics sister Yu-Chi Corp. in-law Walsin Lihwa 2011.06. Director 3 years 1987.09.04 858,091,531 23.37% 858,091,531 23.27% - - - - - Note 10 - - - Corporation 22 B.A. in International Trade, Feng Chia University and Advanced Management Peter Chu Program (AMP), University of Hawaii Director (Representati 2011.06. Sales/International Department Manager of representa- 3 years 2011.06.22 ------Note 11 None. None. None. ve of Walsin 22 Walsin Lihwa Corp. tive Lihwa Corp.) Director, President and Compensation Committee member of Global Brand Manufacture (incumbent)
6 Master in Physics, National Cheng Kung Univ. Researcher of High-Level Management Course of Harvard Business School 2011.06. Director Lu-Pao Hsu 3 years 2000.03.01 8,000 0.00% 8,000 0.00% 3,316 0.00% - - Associate Professor of National Chiao Note 12 None. None. None. 22 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 2011.06. Director Robert Hsu 3 years 2002.05.17 1,510,524 0.04% 979,524 0.03% 99,038 0.00% - - President of Winbond Electronics Corp. Note 13 None. None. None. 22 Director and President of Nuvoton Technology (incumbent) PhD. in Electrical Engineering, U.C. Berkeley Master in Management Science, Tong-Yi 2011.06. Stanford University Director 3 years 2009.06.19 100,000 0.00% 100,000 0.00% - - - - Note 14 None. None. None. Chan 22 BCD Semiconductor CEO President of Winbond Electronics Corp. (incumbent) M.S., Stanford University B.A., Princeton University 2011.06. Director Hong-Chi Yu 3 years 2011.06.22 ------President of Union Electric Note 15 None. None. None. 22 Director and President of Walton Advanced Engineering (incumbent) Master in Public Administration, San Brother Francisco State University Chairman and CEO Arthur
2011.06. President of Walsin Lihwa Corp. Director and Chief Chiao Supervisor Yu-Chi Chiao 3 years Note 4 22,859,166 0.62% 22,859,166 0.62% 4,661,776 0.13% - - Note 16 Brother and 22 Chairman of HannStar Color Co. Administrative Yung sister Chairman of HannsTouch Solution Officer Chin in-law (incumbent) Wang-Tsai 2011.06. Special Assistant to Chairman of Walsin Supervisor 3 years Note 5 ------Note 17 None. None. None. Lin 22 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 2011.06. Supervisor 3 years 2005.06.10 250,000 0.01% 250,000 0.01% - - - - Chief Financial Officer of Taiwan Mobile Note 18 None. None. None. Cheng 22 CFO at Fubon Financial Holdings Co., Limited. CFO at HTC Corporation Director, President and Compensation Committee member of Walsin Lihwa Corp. (incumbent) Note 1: “Percentage” under “Shared held when elected” was based on then issued and outstanding shares common shares of 3,672,539,193 shares. Note 2: “Percentage” under “Shares currently held” was based on then issued and outstanding common shares of 3,686,826,193 shares as of March 31, 2012, including 1,225,000 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.
7 Note 3: 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 4: 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 5: 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 6: Mr. Arthur Yu-Cheng Chiao serves concurrently as the CEO of Winbond, Chairman and Compensation Committee member of Capella Microsystems, Chairman of Nuvoton Technology Co. and Chih Xin Investment Corp., Vice Chairman of Walsin Lihwa Co.; 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 Supervisor of MiTac International Corp.; Independent Director and Compensation Committee convenor of Taiwan Cement and Independent Director and Compensation Committee member of Synnex Technology International. Note 7: Mr. Ching-Chu Chang serves concurrently as the supervisor of Fine Art Technology Co., Ltd., and the Supervisor of Z-Com, Inc. Note 8: 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. and Director of MiTac Communication, Ares International Corp., MiTac Technology Corp., BOC Lienhwa Industrial Gases Corp. Note 9: Ms. Yung Chin serves concurrently as the Chief Administrative Officer of Winbond; Chairman of Winbond (H.K.) and Winbond Electronics (HK) Ltd.; Director of Nuvoton Technology Co., Winbond Electronics Corp. America, Newfound Asian Corp., Peaceful River Corp., Nuvoton Electronics Technology (H.K.) Limited, and Qing An Investment; Supervisor of Yau Cheung Investment Limited, Winbond Electronics Corporation Japan, Nuvoton Technology (Shanghai) Corp. and Winbond (Suzhou) Integrated Circuit. Note 10: Walsin Lihwa Corporation serves concurrently as Director of Chih Xin Investment Corp., Touch Micro-System Technology Corp., Kolin Cons. & Development Co., Ltd., Walsin Info-Electric Co., Concord Venture Capital Group, Walsin Technology Corporation , Walton Advanced Engineering, Inc., HannStar Board Corporation, HannStar Color Co. Ltd., Global Investment Holdings, Kuang Tai Metal Industrial Co., Chip Advanced Materials Corp., I-Chi United Trading Corp.,, Zhong Tai Technology Development Engineering Co., Walsin Solar Technology and Min Maw Precision Industry Corp.; Supervisor of Touch Micro-System Technology Corp., Walsin Info-Electric Co., Taiwan High Speed Rail Corp., Walsin Solar Technology and Min Maw Precision Industry Corp. Note 11: 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. Note 12: Mr. Lu-Pao Hsu serves concurrently as Director of Diodes Incorporated, Supervisor of Nuvoton Technology Co.; and Compensation Committee convenor of Walsin Lihwa Corp. Note 13: 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 Electronics Technology ShenZhen) Limited, Winbond Technology (Nanjing) Co., Nuvoton Technology Corp. America, Nuvoton Technology Israel Ltd., Nuvoton Investment Holding Ltd.、Marketplace Management Limited, and Pigeon Creek Holding Co., Ltd. Note 14: 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., Marketplace Management Limited, Pigeon Creek Holding Co., Ltd., Nuvoton Technology Corp. America and Winbond (H.K.); CEO of Mobile Magic Design Corp. Note 15: 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 16: Mr. Yu-Chi Chiao serves concurrently as Chairman of HannStar Color Co. Ltd., Oriental Consortium Investment, 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., Hannspree International Holdings Ltd., Hannspree North America Holdings Ltd., Hannspree North America Inc., and HannStar Board Corporation. Note 17: Mr. Wang-Tsai Lin serves concurrently as Director of Walsin Lihwa Corp., Chih Xin Investment Corp., Powertek Energy Co., Concord Venture Capital Group, Chong Tai Technology Development Corp, Joint Success Enterprises Limited and Jin Cherng Business Management and Consulting Corp.; Supervisor of Walsin Technology Co., Ltd., and Jin Cherng Construction Corp. Note 18: 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 19: Directors who are representative of institutional shareholder and the major shareholders of institutional shareholders April 16, 2013 Name of institutional shareholder Major shareholders of institutional shareholder Deutsche Bank (4.44%), Chih Xin Investment Corp. (2.83%), Saudi Arabia Central Bank Investment Fund under the custody of JPMorgan Chase Bank N.A. Taipei Branch (2.53%), Vanguard Walsin Lihwa Corporation Emerging Markets Stock Index Fund under the trust of Standard Charter (1.86%), Chiao Yu-Chi (1.78%), Chiao Yu-Heng (1.64%), Dimension Emerging Market Evaluation Fund under the trust of Citibank (Taiwan) (1.54%), Chiao Yu-Hui (1.45%), Hong Pai-Yung (1.35%), Walsin Lihwa Employee Welfare Committee (1.33%).
Note 20: Major shareholders in Note 19 who are institutional investor and their major shareholders April 16, 2013 Name of institutional shareholder Major shareholders of institutional shareholder
Walsin Lihwa (43.93%), Winbond Electronics (35.19%), Arthur Chiao (3.14%), Chiao Yu-Lon (3.14%), Chiao Yu-Heng (3.14%), Chiao Yu-Chi (3.14%), Yu Shiang Investment (2.81%), Ta Cherng Investment Walsin Technology Co. (1.86%), HannStar Board Corporation (1.34%), Prosperity Dielectrics Co. (0.72%).
8 Directors and supervisors (2) March 31, 2013 Has at least 5 years of work experience and meet one of the following professional qualifications Meet the independence criteria (Note 1) An instructor or higher A judge, public prosecutor, Having work experience in 1 2 3 4. 5 6 7 8 9 10 position in the department of attorney, accountant, or commerce, law, finance, or Number of other commerce, law, finance, other professional or accounting or a profession Criteria public companies in accounting or other technical specialist related to necessary for the business of Name which the director also department related to the the needs of the Company the Company serves as an business needs of the who has passed a national independent director Company in a public or examination and received a private junior college or certificate therefor university Arthur Chiao V V V V 2 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 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, excluding members of compensation committee who exercise power in accordance with Article 7 of the Regulations Governing the Appointment and Exercise of Powers by the Compensation committee of a Company Whose Stock is Listed on the Stock Exchange or Traded Over the Counter. (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.
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2.2.2 Profile of President, Vice Presidents, Assistant Vice Presidents, and Department Directors March 31, 2013 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 CEO Arthur Chiao 2005.08.01 56,764,955 1.54% 14,750,978 0.40% - - of Management College of Washington Univ. Note 4 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 5 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 6 None. None. None. President of Cathay Securities Investment Trust Financial Co., Ltd. Officer President of Mobile Magic Design Corp. 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 None. None. None. None. President Marketing and Central R&D, UMC Marketing Executive of Mobile Magic Design Corp. President of Winbond (Suzhou) Integrated Vice Circuit Company Pei-Ming Chen 2005.10.01 361 0.00% - - - - MS of E.E., University of Detroit, USA None. None. None. President Director and president of Winbond Electronics (HK) Ltd. Director of Winbond Electronics Corporation America MS in Engineering Technology of National Director of Winbond (H.K.) Vice Taiwan 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 (Suzhou) of Winbond Electronics Ph.D. in Material Science and Engineering of Vice Chin-Fen Tsai 2011.11.01 ------Utah University None. None. None. None. President Vice President in technology and CTO of Sunny
10 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 Optronics Corp. Vice President of Eversol Corp. Deputy Divisional Director of QRA, UMC Master in Electrical Engineering, U.C. Berkeley Winbond Electronics Corp. Executive Vice President Chief Executive Vice President of NexFlash President of Winbond Electronics Business Eungjoon Park 2008.08.04 ------Technologies Inc. None. None. None. Corporation America Officer 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% 186,059 0.01% - - None. None. None. Junior Engineer, Industrial Technology and Design Corp. President Research Institute Assistant MBA, Indiana University Vice Chiu-Yi Huang 2006.07.12 473,949 0.01% - - - - Controller, Winbond Electronics Corp. Note 7 None. None. None. President Vice President, Citibank MS in Computer Engineering, University of California. CIM consultant at Hewlett Packard. Assistant Director of Automation Engineering at Hannstar Vice Wen-Gui Hsu Note 3 ------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 2008.07.01 240,040 0.01% - - - - 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 Wen-Chang Hong 2012.01.16 - - 6,000 0.00% - - None. None. None. None. Vice Management, Chung Hua University
11 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 President Assistant None. None. None. MS in Electric Engineering, National Tsing Hua Vice Mao-Hsiang Yen 2012.07.01 31,321 0.00% 15,975 0.00% - - None. University President Department Manager and Master in Management Research Institute, Fu Jen Wen-Ying Liang 2008.08.18 20,000 0.00% - - - - None. None. None. None. Accounting Catholic University 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 3,686,826,193 shares as of March 31, 2012, including 1,225,000 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. 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 4: Refer to Note 6 under Profile of Directors and Supervisors (1). Note 5: Refer to Note 14 under Profile of Directors and Supervisors (1). Note 6: VP James Wen serves concurrently as President of Winbond (H.K.); 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. Mr. Ting-Piao Chiao serves concurrently as Chairman of Chih Xin Investment Corp.; Note 7: Assistant VP Chiu-Yi Huang serves concurrently as Director of Winbond Electronics (HK), and Supervisor of Search Marketing Co., Harbinger Venture III Capital Corp and Mobile Magic Design Corp.; management of Goldbond LLC;
12 2.2.3 Remunerations to directors, supervisors, president, and vice presidents in recent years 2.2.3.1 Remuneration to directors December 31, 2012; Unit: NT$1,000; 1,000 shares Director's remuneration Pay received as an employee Ratio of total (A), Ratio of total (A), (B), (C), (D), (E), (B), (C), and (D) to Shares subscribable Shares obtained Salary, bonus and (F) and (G) to Remuneration (A) Pension (B) Profit sharing (C) Business expense after-tax income Profit sharing & bonus under employee through restricted special allowance Pension (F) after-tax income (Note 1) (Note 2) (Note 3) (D) (Note 4) (Note 10) (%) (G) (Note 6) stock options (H) stock award (I) (E) (Note 5) (Note 10) (Note 7) (Note 8) Remuneration All Title Name received from companies All All All All All All All All All All Investees other in con- companies companies companies companies companies companies companies Winbond companies companies companies than subsidiaries in con- in con- in con- in con- in con- in con- in con- solidated in con- in con- in con- (Note 11) Winbond Winbond Winbond Winbond Winbond Winbond Winbond Winbond Winbond Winbond solidated solidated solidated solidated solidated solidated solidated statements solidated solidated solidated statements statements statements statements statements statements statements (Note 9) statements statements statements (Note 9) (Note 9) (Note 9) (Note 9) (Note 9) (Note 9) (Note 9) Cash Stock Cash Stock (Note 9) (Note 9) (Note 9) bonus bonus bonus bonus Chairman Arthur Chiao ------360 456 -0.02 -0.03 7,094 7,094 ------290 290 - - -0.40 -0.47 Yes 55 Director Ching-Chu ------360 360 -0.02 -0.02 ------0.02 -0.02 None. - Chang Director Matthew Feng-Chiang ------360 360 -0.02 -0.02 ------0.02 -0.02 Yes 6 Miau Director Yung Chin ------360 456 -0.02 -0.03 5,531 5,531 91 91 - - - - 270 270 - - -0.32 -0.38 None. - Walsin Director Lihwa ------Yes 138 Corporation Director Walsin represent- Lihwa Corp.; 302 302 tative represent- (Note (Note - - - - 360 360 -0.04 -0.04 ------0.04 -0.04 None. - tative: 12) 12) Peter Chu Director Lu-Pao Hsu - - - - - 543 360 456 -0.02 -0.06 ------0.02 -0.06 None. - Director Robert Hsu - - - - - 543 360 456 -0.02 -0.06 - 5,323 - 185 - - 882 ------0.02 -0.46 None. - Director Tong-Yi ------360 360 -0.02 -0.02 8,134 8,134 ------400 400 - - -0.46 -0.53 Yes 28 Chan Director Hong-Chi ------360 360 -0.02 -0.02 ------0.02 -0.02 Yes 2,293 Yu
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.
13 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 distributionthat has been approved by the Board of Directors but has not been submitted to the shareholders’ meeting. Note 7: 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: Shares obtained through restricted stock award 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. Note 9: The total pay to the director from all companies in the consolidated statements (including the Company). Note 10: Ratio of total remuneration paid is computed based on the Company’s 2012 after-tax loss in the amount of NT$1,852,536,000; ratio of total remuneration paid by all companies in consolidated statement is computed based on 2012 consolidated net loss of NT$1,615,108,000. Note 11: 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 12: Remuneration paid to members of Compensation committee.
2.2.3.2 Remuneration to supervisors December 31, 2012; 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 other All companies in All companies in All companies in All companies in than subsidiaries (D) (Note 6) consolidated consolidated consolidated consolidated Winbond Winbond Winbond Winbond statements statements statements statement (Note 4) (Note 4) (Note 4) (Note 4) Supervisor Chiao Yu-Chi - - - - 360 360 -0.02 -0.02 Yes 8,002
-0.02 -0.02 Supervisor Wang-Tsai Lin - - - - 360 360 None. -
- 360 360 -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 total remuneration paid is computed based on the Company’s 2012 after-tax loss in the amount of NT$1,852,536,000; ratio of total remuneration paid by all companies in consolidated statement is computed based on 2012 consolidated net loss of NT$1,615,108,000. 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.
14 2.2.3.3 Remunerations to president and vice president December 31, 2012; Unit: NT$1,000; 1,000 shares Ratio of total (A), (B), Bonus and special Shares subscribable Shares obtained through Salary (A) Pension (B) Employee bonus (D) (Note 4) (C), and (D) to allowance (C) under employee stock restricted stock award (Note 1) (Note 2) (Note 4) after-tax income (%) (Note 3) options (Note 5) (Note 6) Remuneration (Note 8) received from Title Name All All All All companies in All All All Investees other companies companies companies Winbond consolidated companies companies companies than subsidiaries in con- in con- in con- statements (Note 7) in con- in con- in con- Winbond Winbond Winbond Winbond Winbond Winbond (Note 9) solidated solidated solidated solidated solidated solidated Cash Stock Cash Stock statements statements statements statements statements statements bonus bonus bonus bonus (Note 7) (Note 7) (Note 7) (Note 7) (Note 7) (Note 7) CEO Arthur Chiao Yes President Tong-Yi Chan Yes Executive Vice Wilson Wen None. President Vice President James Wen None. 39,109 45,771 216 470 11,451 11,451 - - - - -2.74 -3.57 1,745 1,745 - - 83 Vice President Yuan-Mow Su None. Vice President Chen-Hsi Lin None. Vice President Pei-Ming Chen None. Vice President Cheng- Kung Lin None. Vice President Chin-Fen Tsai None. 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: Shares obtained through restricted stock award by president and vice presidents as of the date of report. Note 7: The total pay to the president or vice president from all companies in the consolidated statements (including the Company). Note 8: Ratio of total remuneration paid is computed based on the Company’s 2012 after-tax loss in the amount of NT$1,852,536,000; ratio of total remuneration paid by all companies in consolidated statement is computed based on 2012 consolidated net loss of NT$1,615,108,000. Note 9: 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.
Names of presidents and vice presidents Range of remuneration paid to presidents and vice presidents Winbond All investees 15 Arthur Chiao, Tong-Yi Chan, Wilson Wen, James Wen, Cheng- Kung Lin, Yuan-Mow Arthur Chiao, Tong-Yi Chan, Wilson Wen, James Wen, Yuan-Mow Su, NT$5,000,000 (inclusive)～NT$10,000,000 (exclusive) Su Chen-Hsi Lin, Pei-Ming Chen, Cheng- Kung Lin NT$10,000,000 (inclusive)～NT$15,000,000 (exclusive) NT$15,000,000 (inclusive)～NT$30,000,000 (exclusive) NT$30,000,000 (inclusive)～NT$50,000,000 (exclusive) NT$50,000,000 (inclusive)～NT$100,000,000 (exclusive) > NT$100,000,000 Total 9 people 9 people 16 2.3.4 Analysis of remunerations to directors, supervisors, president and vice presidents as a percentage of earnings in the last two years and description of the policy, standards and packages of remunerations, procedure for making such decision and relation to business performance: (1) Analysis of remunerations to directors, supervisors, president and vice presidents as a percentage of earnings in the last two years Total remuneration as a percentage of earnings (%) (Note 1) 2012 2011 Title All companies in All companies in Winbond Winbond consolidated statements consolidated statements Director -1.32% -2.00% -2.73% -4.59% Supervisor -0.06% -0.07% -0.05% -0.06% President and Vice -2.74% -3.57% -7.28% -9.96% President Note 1: Ratio of total remuneration paid is computed based on the Company’s 2012 after-tax loss in the amount of NT$1,852,536,000; ratio of total remuneration paid by all companies in consolidated statement is computed based on 2012 consolidated net loss of NT$1,615,108,000. (2) Starting December 2011, the remuneration of directors and supervisors will be decided according to the resolution passed by the Compensation Committee and the Board of Directors pursuant to the internal Rules for Remuneration and Performance Evaluation of Directors and Supervisors.(3) Pays to CEO, President and Vice Presidents were made in accordance with the internal payroll system and the result of performance review. Their retirements are handled in accordance with the internal rules for the retirement of managers. Starting December 2011, the remuneration of managerial officers will be decided according to the resolution passed by the Compensation Committee and the Board of Directors pursuant to the internal Rules for Remuneration and Performance Evaluation of Managerial Officers. 17 3. Capital and Shareholding 3.1 Sources of capital property other than cash is paid by subscribers March 31, 2013; Unit: shares; NTD Authorized capital Paid-in capital Remark Year/ Issue Subscriptions paid with Approval date and month price Shares Amount Shares Amount Source of capital (Note 1) property other number than cash 3/21/2012 Exercise of employee 2012.03 10 6,700,000,000 67,000,000,000 3,680,230,193 36,802,301,930 None. Zhong-Shang-Zi-#101 stock options: $69,230,000 0006000 5/17/2012 Exercise of employee 2012.05 10 6,700,000,000 67,000,000,000 3,683,407,193 36,834,071,930 None. Zhong-Shang-Zi-#101 stock options: $31,770,000 0011019 9/19/2012 Exercise of employee 2012.09 10 6,700,000,000 67,000,000,000 3,684,333,193 36, 843,331,930 None. Zhong-Shang-Zi-#101 stock options: $9,260,000 0021863 11/23/2012 Exercise of employee 2012.11 10 6,700,000,000 67,000,000,000 3,685,072,193 36,850,721,930 None. Zhong-Shang-Zi-#101 stock options: $7,390,000 0027729 3/18/2013 Exercise of employee 2013.03 10 6,700,000,000 67,000,000,000 3,685,601,193 36,856,011,930 None. Zhong-Shang-Zi-#102 stock options: $5,290,000 0006222 Note 1: The 5th issue of 50,000,000 units of employee stock options took effect on September 5, 2008 pursuant to Jin-Guan-Zhen (1) – 0970045576. The recipients may subscribe 1 common share for each unit and new shares were issued for the exercise of employee stock options. For details on actual issue and exercise, please refer to page 22. Note 2: As of March 31, 2013, 1,225,000 shares issued for employee stock options exercised have not completed registration, and Company’s paid-in capital was NT$36,868,261,930 with 3,686,826,193 shares issued. March 31, 102: Unit: shares Authorized capital Type of stock Shares issued and outstanding Remark Unissued shares Total (Note 1) Common 3,686,826,193 3,013,173,807 6,700,000,000 Listed stock shares Note 1: Shares issued and outstanding include 1,225,000 shares issued for employee stock options exercised between January 1 and March 31, 2013 that have not completed registration of change of capital. Note 2: Of the total capital amount, up to NT$5 billion may be used for issues of employee stock options, preferred stocks or corporate bonds with warrant for a total of 500 million shares with par value of NT$10 per share. Those shares may be issued in installments. The respective amount for the issue of employee stock options, preferred stocks or corporate bonds with warrant may be adjusted by resolution of the Board of Directors in view of the capital market situation and business needs. Note 3: Information on shelf registration: None. 3.2 Shareholder structure March 31, 2013 Quantity\ Foreign Government Financial Other juristic Individual Chinese investors shareholder institutions and Total (Note 2) agencies institutions persons investors (Note 1) structure foreigners Number 4 57 172 219,737 280 3 220,253 Shares held 27,701,435 5,338,639 926,761,679 2,214,169,923 512,854,142 375 3,686,826,193 Shareholding 0.75% 0.14% 25.14% 60.06% 13.91% 0.00% 100.00% Note 1: Chinese investors refer to Mainland Area individuals, juristic persons, groups, other institutions or companies based in a third area as provided in Article 3 of the Regulations Governing Investment by People in Mainland Area in Taiwan. Note 2: Shares held include 1,225,000 shares issued for employee stock options exercised between January 1 and March 31, 2013 that have not completed registration of change of capital. 18 3.3 Dispersion of equity ownership (1) Common stocks: March 31, 2013; par value of NT$10 per share Shares Number of shareholders Total shares held Shareholding (%) 1 ~ 999 59,769 21,150,787 0.57 1,000 ~ 5,000 101,566 245,586,855 6.66 5,001 ~ 10,000 27,684 227,512,705 6.17 10,001 ~ 15,000 8,387 107,454,102 2.92 15,001 ~ 20,000 7,265 137,786,681 3.74 20,001 ~ 30,000 5,464 143,197,803 3.88 30,001 ~ 50,000 4,459 184,048,962 4.99 50,001 ~ 100,000 3,223 237,539,649 6.44 100,001 ~ 200,000 1,342 192,695,657 5.23 200,001 ~ 400,000 576 163,024,688 4.42 400,001 ~ 600,000 194 95,306,760 2.59 600,001 ~ 800,000 66 46,159,938 1.25 800,001 ~ 1,000,000 57 51,673,219 1.40 > NT$1,000,001 201 1,833,688,387 49.74 Total (Note) 220,253 3,686,826,193 100.00 Note: Shares held include 1,225,000 shares issued for employee stock options exercised between January 1 and March 31, 2013 that have not completed registration of change of capital. (2) Preferred stocks: N/A. 3.4 List of major shareholders (1) Names, shares and percentage of shareholding of shareholders with more than 5% of equity: March 31, 2013 Name\shareholding of major shareholder Shares held Shareholding Walsin Lihwa Corporation 858,091,531 shares 23.27% 3.5 Stock price, net worth, earnings, dividends and related information (2011-2012) Unit: NT$ Item\Year 2011 2012 2013 up to March 31 High 11.15 6.96 6.34 Stock price Low 3.51 3.83 4.91 (Note 1) Average 7.89 5.26 5.80 Net worth per Basic 9.61 9.08 - share (Note 1) Diluted (Note 6) (Note 6) - Weighted average shares (1,000 Earnings per 3,666,391 3,676,698 - shares) share Earnings per share (0.23) (0.50) - Cash dividend (Note 6) (Note 6) - Dividends per Stock Earnings (Note 6) (Note 6) - share dividend 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: The year’s high and low market prices of common stock are provided, and the average price for the year is computed based on the year’s transaction amount and volume. Note 2: Net worth per share is computed based on the number of shares issued and outstanding at the end of the year. 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. 19 Note 6: The Company posted losses in 2011 and 2012, so there was no earnings distribution for those years. 3.6 Dividend policy and implementation status (1) Dividend policy Our dividend policy is set up 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, etc. 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 requires intensive capital, technologies, and manpower, and is currently in growth and expansion stage. Hence the distribution of earnings will factor in the future plans for 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 in principle. 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 2012. 3.7 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 2012. 3.8 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 ROC 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 earnings as legal reserve until such reserve equals the paid-in capital. Of the remainder plus undistributed earnings in prior years or of distributable earnings resulting from this year’s loss plus undistributed earnings in prior years, special reserve shall be set aside or reversed according to 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 where not less than 10% of the total dividends distributed shall be in the form of cash. (2) Basis for estimating the amount of employee bonuses and remuneration to directors/supervisors, basis for calculating the number of shares to be distributed as stock bonuses, and the accounting treatment of the discrepancy, if any, between the actual distributed amount and the estimated figure, for the current period: The Company posted loss in 2012 and does not plan to distribute earnings for the year. Hence employee bonus and remuneration to directors/supervisors were not estimated. (3) Information on planned employee bonus as approved by the Board of Directors Not applicable for the Company posts loss in 2012 and does not plan to distribute earnings for the year. (4) Information on actual distribution of employee bonus and remuneration to directors and supervisors in the previous year Not applicable for the Company posts loss in 2012 and does not plan to distribute earnings for the year. 3.9 Stock buyback: None. 4. Issuance of corporate bonds: None. 20 5. Issuance of preferred stocks: None. 6. Issuance of global depositary receipts (GDR) March 31, 2013 Date of issue February 5, 1999 Place of issue and trading Luxemburg Total amount US$333,502,000 November 18, 1999 – additional issue Offer price per unit February 5, 1999 – initial issue US$11.45 US$16.70 30,336,980 February 5, 1999 – initial issue 14,600,000 November 18, 1999 – additional issue 9,960,000 Total units issued July 7, 2000 – additional issue for the distribution of 2,108,252 free stock dividends June 1, 2001 additional issue for the distribution of 3,668,728 free stock dividends Source of underlying security Issuance of new shares for cash capital increase Underlying security 10 common shares of Winbond Dividends, interest distribution and relevant taxes of the underlying shares represented by the Rights and obligations of GDR GDRs shall be governed by the laws of the Republic of China, the Depository Agreement and holder the Custodial Agreement. Trustee None Depository bank Bank of New York Mellon Corp Custodial bank Bank International Commercial Bank Balance outstanding (units) 17,732 Fees incurred in issuance and the outstanding period of the Borne by Winbond Electronics Corp. GDRs Covenants of Depository The deposit, redemption and delivery of the underlying shares represented by the GDRs and the Agreement and Custodial re-issuance of the GDRs shall be governed by the laws of the Republic of China, Depository agreement Agreement and the Custodial Agreement. 2.32 High 2012 Low 1.33 Unit Average 1.61 price High 2.10 (US$) 2013 up to Low 1.69 March 31 Average 1.93 21 7. Exercise of employee stock option plan (ESOP) (1) Employee stock options outstanding and impact on the stockholders’ equity March 31, 2013 Tranche of ESOP Tranche 5 Date of approval by competent authorities September 5, 2008 First issue of Tranche 5 - October 29, 2008 Second issue of Tranche 5 - February 9, 2009 Date of grant (Note 4) 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 1.28% (%)(Note 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 - 30,112,000 Tranche 5 Second Issue - 207,000 Units exercised (shares) Tranche 5 Third Issue - 10,000 Tranche 5 Fourth Issue - 0 Tranche 5 First Issue - $90,938,240 Tranche 5 Second Issue - $660,330 Amount exercised (NT$) Tranche 5 Third Issue - $55,700 Tranche 5 Fourth Issue - $0 Tranche 5 First Issue - 7,393,000 Units unexercised (shares) Tranche 5 Second Issue - 400,000 (Note 2) Tranche 5 Third Issue - 27,000 Tranche 5 Fourth Issue - 697,000 Tranche 5 First Issue - $3.02 Tranche 5 Second Issue - $3.19 Exercise price for unexercised units (NTD) Tranche 5 Third Issue - $5.57 Tranche 5 Fourth Issue - $6.46 Units unexercised to total outstanding shares (%) 0.23% Give employees the incentive to stay on and build employee loyalty to work Impact on shareholders towards the best interest of the Company and shareholders. Note 1: “Total shares issued and outstanding” are based on 3,686,826,193 common shares of the Company issued as of March 31, 2013. Note 2: “Units unexercised” include expired employee stock options. 22 (2) Names of managerial officers receiving ESO and names of top ten employees receiving ESO, their exercise and subscription March 31, 2013 Exercised Unexercised Units vested Units as a unexercised Units exercised as percentage of as a a percentage of Exercise Title Name Units vested total shares Exercise Exercise amount Units Exercise percentage of Units total shares issued amount issued and price (NTD) (Note 4) price total shares and outstanding (NTD) outstanding issued and (Note 1) (Note 1) outstanding (Note 1) CEO Arthur Chiao President Tong-Yi Chan Executive Vice President Wilson Wen Vice President and Chief James Wen Financial Officer Vice President Yuan-Mow Su Vice President Chen-Hsi Lin Vice President Pei-Ming Chen Vice President Cheng-Kung Lin Chief Business Officer Eungjoon Park Managerial officer Assistant Vice President Shi-Yuan Wang 5,115,000 0.14% 2,550,000 3.02 7,701,000 0.07% 2,565,000 3.02~6.46 8,123,900 0.07% Assistant Vice President Chiu-Yi Huang Wen-Gui Hsu Assistant Vice President (Note 2) Assistant Vice President Yi-Dar Chang Assistant Vice President Chi-Lung Chou Assistant Vice President Wen-Hua Lu Assistant Vice President Wen-Chang Hong Assistant Vice President Mao-Hsiang Yen Department Manager and Wen-Ying Liang Accounting Chief Hsing-Hua Wang Staff Deputy Technical Director 280,000 0.01% ------(Note 3) Note 1: “Total shares issued and outstanding” are based on 3,686,826,193 common shares of the Company issued as of March 31, 2013. Note 2: Mr. Wen-Gui Hsu served as a managerial officer of the Company until 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 3: Mr. Hsing-Hua Wang departed on January 2, 2012. Note 4: “Units unexercised” include expired employee stock options. (3) Restricted stock awards: None. 23 8. Mergers, acquisitions or issuance of new shares for acquisition of shares of other companies (1) Resolutions adopted by the Board of Directors in the past year and up to the date of report approving a merger, acquisition, or issuance of new shares due to acquisition of shares of other companies: None. (2) Mergers, acquisitions or issuance of new shares due to acquisition of shares of other companies that have been completed in the past year and up to the date of report: None. 9. Implementation of capital allocation plan: Not applicable, for the Company was free of the situation of having any securities issuance that was uncompleted or completed in the most recent three years but has not yet fully yielded the planned benefits. 24 Business Overview 1. Business activities 1.1. Business Scope 1.1.1. Major business activities This company's main business items consist of memory product research and development, production, and sales. 1.1.2. Revenue breakdown by product mix Winbond carries DRAM and NOR Flash memory. 2012 revenue breakdown by product: Unit: NT$1,000 Product Sales revenue % DRAM product income 14,669,796 57.71 Flash memory product income 10,746,779 42.28 Other 2,244 0.01 Total 25,418,819 100.00 1.1.3. Description of product lines 1.1.3.1 DRAM products This company's DRAM products consist of: Specialty DRAM Mobile RAM This company's Specialty DRAM is chiefly used in the 3C, auto electronics, industrial electronics, and medical electronics fields. Specifications include 16Mb-2Gb specialty DRAM and KGD (Known Good Die). Mobile RAM products include 32Mb-256Mb pseudo SRAM and 128Mb-2Gb low-power DRAM. They are chiefly used in cell phones, low power mobile handheld devices, consumer electronics products, and network communications products. 1.1.3.2 NOR Flash memory products This company's Code Storage Flash Memory is widely used in PCs and peripherals (including hard drives, optical drives, and DVD players), mobile handheld devices and their peripheral modules, network communications products (wireless networks, modems) and consumer electronics (set-top boxes, TVs, DVD players, and monitors, etc.), industrial electronics, auto electronics, medical electronics, and household appliance modules, etc. specifications range from 512Kb-512Mb. Our product quality has improved steadily for many years, and our products have received the approval of top-notch customers in many application areas, who made Winbond the world's leading Serial Flash vendor in 2012. 1.1.4. New products and services under development Products Description Used in consumer electronics products, PC peripherals, network Medium and low density Specialty DRAM communications products, auto electronics products, industrial electronics products, and medical electronics products Used in cell phones, e-books, 3G/4G portable data cards, tablets, Medium and low density, low-power consumption Mobile MP3/PMP, portable industrial electronics products, and portable DRAM medical electronics equipment Used in PCs and their peripherals, mobile handheld devices and A full series of Serial Flash, medium/low density 3V Parallel their peripheral modules, network communications products, Flash, even higher density Code Storage Flash consumer electronics, industry electronics, auto electronics, medical electronics, and household appliance modules, etc. 25 1.2. Industry overview 1.2.1. Industry's current trends and future outlooks 1.2.1.1 DRAM (1) Current trends and future outlook for the specialty DRAM industry Demand perspective: In 2013, DRAM growth was chiefly driven by smart products and cloud-related applications, including smartphones, tablets, smart TVs, and network communications products. Of these, smartphones and tablets are still avidly sought by consumers, and have great potential sales growth. Due to replacement by smartphones and tablets, the global market for functional cell phones, PCs, electronic readers, digital cameras, and PMP/MP3 players will shrink in the future. In addition, as the world's population ages, demand for medical electronics equipment will increase steadily in the coming years. With regard to industrial electronics, rising factory wages around the world will encourage manufacturers to adopt robot production in order to reduce production costs. Automated production and medical electronics will also drive demand for industrial DRAM. Rising demand for robots will cause demand for industrial electronics products to increase. Supply perspective: Due to producers leaving the market, the retirement, sale, and transfer of capacity, and shrinking capital expenditures, supply and demand in the DRAM industry will reach an approximate balance in 2013. From a broad perspective, the industry bottomed out in 4Q of 2012, and began a gradual climb to the next peak. Standard DRAM prices will return to a level above manufacturing cost, and rising standard DRAM prices will drive price increases for niche DRAM. The DRAM industry will leave its past low in 2013, and head toward another up part of the cycle. (2) Current trends and future outlook for the Mobile RAM industry Demand perspective: In 2013, because of the accelerating replacement of functional cell phones with smartphones, global smartphone (brand + off-brand) sales volume may be able to grow by 40% to 1.1 billion units. Because tablets are replacing some demand for PCs, global tablet sales volume in 2013 (brand + off-brand) may be able to grow by 45% to 250 million units. Due to increasing app use by consumers, growing demand for multitasking, hardware specifications competition among cell phone system vendors, and Microsoft's introduction of Office 2013, will continue to boost the Mobile DRAM capacity of smartphones and tablets. The multiplier effect of terminal product sales growth plus increasing system memory capacity will sharply increase demand for Mobile DRAM. The rapid growth of Mobile DRAM will cause it to replace standard DRAM as the main driver of DRAM demand. In 2013, smartphones, tablets, mobile handheld devices, and peripheral modules will drive demand for Mobile DRAM and give Winbond impressive potential opportunities. Supply perspective: Global Mobile DRAM shipment volume can be largely attributed to three major DRAM vendors (Samsung, SK Hynix, Micron-Elpida), who enjoy an oligopoly. Unlike the planned production of standard DRAM, Mobile DRAM is produced after receiving orders (forecasts), which keeps supply and demand in a long-term state of balance. As a consequence, fluctuations in Mobile DRAM prices have remained relatively small. In 2013, the rebound in standard DRAM prices will help stabilize Mobile DRAM prices, and may even cause Mobile DRAM prices to rise during the second half of the year. 1.2.1.2NOR Flash NOR Flash Memory produced by the Company consists of Serial Flash, which is used in PCs and their peripherals, network communications products, consumer electronics, mobile handheld devices and peripheral product modules, industrial electronics, auto electronics, and medical electronics, etc. NOR Flash shipments exceeded 1.7 billion chips in 2012, making it the leading type of Serial Flash worldwide. Winbond's serial flash had a 32% market share worldwide in 2012.Drivers of growth in 2013 will include increased terminal product functions and introduction of new platforms. Apart from demand spurred by steadily increasing Flash Memory capacity, the use of large quantities of 1.8V Serial Flash in many mobile handheld devices and peripheral module products, and continued demand growth, will provide an important source of sales and profit growth in 2013. 26 1.2.2. Relationship with suppliers in the industry's supply chain From a perspective based on the industry's supply chain, the upstream portion consists chiefly 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 likewise varied but consist chiefly of suppliers of PCs and peripherals, printers, hard disks, displays, cell phones, network communications equipment, and set-top boxes. 1.2.3. Product trends and competition 1.2.3.1 DRAM In the area of Specialty DRAM, we began mass production of 4xnm products in 2012, and will extend its Fab-Lite strategy in 2013 by outsourcing more production. We are relying on advanced process technology at DRAM fabs to develop medium and high density products, which will increase the depth and breadth of our product lines. In Mobile RAM, we developed new 4xnm 64Mb Pseudo, 512Mb LP DDR, 1Gb LP DDR, 512Mb LP DDR2, 1Gb LP DDR2, and 2Gb LP DDR2 products in 2012. 1.2.3.2 NOR Flash We take a full range of Serial Flash as our chief target market, and are continuing to expand our high-density Code Storage Flash products, giving us an even more complete product line. We currently offer comprehensive product lines for all Serial Flash series (512Kb to 512Mb), including both high-speed and low-voltage products. Winbond had already become the world's leading Serial Flash vendor in 2012. Our global market share exceeds 32%. We are continuing to increase our share of applications markets including mobile handheld devices, peripheral modules, network communications, and consumer electronics such as LCD TV set-top boxes. In 2012, we completed conversion to the advanced 58nm process and began mass production, successfully shipped to customers, and continued large shipments. We will provide even more products with value-added functions in 2013, including Code Storage Flash products with even higher speeds, even greater capacity, and lower voltage, which we expect to reach the market during the second half of 2013. These new products are manifestations of our continued pursuit of progress, increased product competitiveness, expansion into new markets and development of new customers, and provision of optimized products. 1.3. Overview of Technology and R&D 1.3.1. R&D expenditures Unit: NT$1,000 Item 2012 2013 up to March 31 R&D Expenses 2,600,733 618,828 1.3.2. Successfully developed technologies and products 1.3.2.1 Product development R&D Achievements Future R&D Plan Low, medium, and high density 4xnm Mobile RAM Outsourced medium and high density 3xnm Mobile DRAM Low, medium, and high density 4xnm Specialty DRAM Outsourced medium and high density 3xnm Specialty DRAM 58nm 3V 256-512Mb Parallel Flash, 1.8V 256Mb Serial We are using more advanced manufacturing technologies for Flash mass production greater cost competitiveness; providing lower voltage and greater Products with even more value-added functions; high customization for more diversified applications; and developing speed, and low voltage products various specialty hi-speed flash products Code Storage Flash with even higher density Even more advanced process Code Storage Flash 27 1.3.2.2 Development of manufacturing processes In 2013, this company's Specialty DRAM and Mobile DRAM will employ advanced 3xnm process technology at contract wafer plants to develop new products. In 2013, apart from some low-density products, which will continue to be made using 12" 90nm process technology, mass production of our medium- and high-density Flash Memory products will shift to 58nm process technology. We will continue to hold our position as the world's leading Serial Flash producer, while also developing even more advanced Flash process technology, and new high-function and high-density Code Storage Flash products. 1.4. Business plan - long-term and short-term As the world's leading vendor of niche memory, Winbond focuses much of its attention on the medium- and low-density niche memory market, and provides DRAM and Flash Memory Total Solutions. Winbond offers outstanding product quality, highly competitive, innovative products, an emphasis on customer service, and attention to first-rate brand customers worldwide and mutual growth with applications markets. The following is a summary of our long- and short-term sales development plans: Our DRAM product lines will focus on core high-performance and low-power-consumption memory technologies, and we will provide 16Mb to 2Gb Specialty DRAM, 128Mb to 2Gb Low-Power DRAM, and 32Mb to 256Mb Pseudo SRAM. We will consolidate our presence in niche markets such as KGD (Known Good Die), auto electronics, industrial product, and MCP and SiP via comprehensive product solutions and long-term stable service. At the same time, we are actively promoting our Fab-Lite strategy, and taking advantage of the capacity and advanced process technology of external DRAM fabs to provide even more comprehensive product solutions. As far as our Flash Memory product line is concerned,we have already become the world's leading vendor of Serial Flash, and enjoy a 32% share of the global market. Serial Flash is chiefly used in PCs and peripherals, consumer electronics, mobile handheld devices, and peripheral module products, and we are actively expanding into such areas as industrial electronics, auto electronics, and medical electronics. We have received certification from leading international manufacturers, and expect to provide even higher density Code Storage Flash solutions in the future. Our company's long-term development goals include continuing to expand into the high-margin terminal product applications market, cultivating the world leading brand customers, and pursuing stable profits and growth. 28 2. Market, production and sales 2.1. Market analysis 2.1.1. Winbond’s sales breakdown by regions in 2012: Unit: NT$1,000 Region Sales Percentage Asia 23,890,194 93.99% Americas 993,147 3.91% Europe 532,933 2.10% Other 301 - Total 25,416,575 100.00% 2.1.2. Market share and growth potential 2.2.2.1 DRAM In 2013, we plan to accelerate development of outsourced3xnm products, and actively enter the mobile handheld device, auto electronics, industrial electronics, and medical electronics equipment markets. In the area of Specialty DRAM, apart from the outsourcing of 3xnm process products, we plan to further optimize our applications lineup in 2013, make structural adjustments to our profit sources, and achieve a stable long-term gross profit ratio. In Mobile RAM, we will strive to expand our medium- and high-density Mobile DRAM customer base and applications market in 2013, boost our shipment volume and market share, optimize our overall DRAM product lineup, and establish a business model ensuring long-term profitability. 2.1.2.2 NOR Flash Flash process and capacity are shifting toward high-density, and the Mb capacity of each system is continuing to increase. Thanks also to the pin count and cost effectiveness advantages of Serial Flash, Serial Flash applications will continue to grow, and the market will expand steadily. After many years of market expansion 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 Flash market. Winbond plans to further expand its parallel flash product line in 2011, target the high-end network communications and set-top box applications markets, and expand into the low-price cell phones market employing MCP products. We completed development of our 58nm process in the fourth quarter of 2011, and shifted mass production of our products to the 58nm process in 2012, maintaining the dominant status of our products. Our market share reached 32% in 2012, and we became the leading maker of Serial Flash. In 2013, we will continue to introduce even higher density products, meeting the market's demands and continuing to 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 niches We are a leading manufacturer of niche memory. In 2013, we outsourced 3xnm product production, developed highly-competitive DRAM products, and further optimized our applications lineup, while continuing to boost our core competitiveness. (2) Favorable and unfavorable factors affecting our development vision Favorable factors: 29 Supply and demand in the DRAM industry is reaching a balance, and rising standard DRAM prices will boost prices for niche DRAM. Mobile DRAM prices will also benefit from the surge in standard DRAM prices. The rapid growth smartphone and tablet sales will continue to boost the percentage of Mobile DRAM among overall DRAM shipments, accelerate the trend towards "non-standard DRAM," and lessen future DRAM price fluctuations. Consolidation of the industry will cause the format of competition to shift from "full market competition" to "oligopoly." Competitive actions will tend to become more rational, and there will be a shift away from destructive competition. With the slowing of Moore's law in the wake of the 2xnm process, the contribution of process miniaturization to DRAM supply growth will shrink. Unfavorable factors: The global economic recovery is still fragile, and the world economy will remain in a state of deleveraging in 2013. Some PC demand will be replaced by tablets, and since PC systems carry five times the DRAM used by tablets, this replacement effect will be unfavorable to DRAM demand growth. Growth in the DRAM capacity of PC systems is slowing, and the introduction of Windows 8 will not increase DRAM capacity. Rising standard DRAM prices will cause DRAM cost as a share of PC BoM to increase, and reduce the willingness of PC OEMs to increase DRAM capacity. (3) Response measures We will actively enter the mobile handheld device, auto electronics, industrial electronics, and medical electronics equipment markets, and further optimize our applications lineup. Continued adoption of advanced processes and development of DRAM products. 2.1.3.2NOR Flash (1) Competitive niches We are currently focusing on the medium/low density Flash market, and offer a complete Serial Flash product series (512Kb-512Mb). We have achieved mass production with the 58nm process since 2011, and are shipping large quantities of 58nm products. We are also developing high-density Code Storage Flash products. We have cultivated the Flash Memory market for many years, and possess a 32% share of the global Serial Flash market. Our shares of the low-price cell phone market, mobile handheld device and peripheral module, consumer electronics and network communications markets continue to increase, and we plan to make further inroads into the auto electronics and medical electronics markets, while obtaining certification from leading manufacturers. (2) Favorable and unfavorable factors affecting our development vision Favorable factors: Winbond shifted its whole NOR flash product line to its 12" plant in 2010. Serial flash shipments approached 1.7 billion units in 2012; quality and cost are highly regarded. We offer a comprehensive Flash product line, and are continuing mass production of 3V high speed Quad I/O Serial Flash, 2.5V/1.8V low-voltage Serial Flash and MCP products, 3V high-performance high-density Parallel Flash, and 58nm process products. We are currently developing even more advanced processes, and will continue to introduce Code Storage Flash products with even higher density. Our Flash products have a market share of over 40% in PCs and peripherals. Our market shares in consumer electronics, network communications, and mobile handheld devices and peripheral module products are also increasing, and we have successfully entered the industrial electronics, auto electronics, and medical electronics applications markets. Our introduction of high-density Serial Flash has given us an even more complete product lineup. We are working together with the world's leading chip vendors to determine standard specifications for the next generation of serial flash. Our 12" wafer plant enables us to respond swiftly to changes in market demand. We simultaneously offer flash and DRAM product lines, providing customers with the convenient of one-stop shopping. Unfavorable factors: Competitors are expanding their production volume and capacity, and cutting prices to capture market share. 30 Increasing demand for capacity, and the replacement of high-density NOR Flash and SLC NAND by eMMC NAND, will slow the growth in overall demand for NOR Flash and SLC NAND. (3) Response measures We have introduced the 58nm process and products with even more value-adding functions, and are producing high-density, high-speed, low-voltage products meeting customers' diverse needs. We are continuing develop advanced process technology, and our Flash—which is chiefly high-density Code Storage Flash—will continue to boost our competitive advantage. We will adjust our product lineup in order to develop the high profit margin, high capacity code storage Flash market. We will continue to increase our share of the cell phone, mobile handheld device and peripheral module, network communications, TV, set-top box, and auto electronics markets. We will form alliances with world-leading flash companies and design teams, enables us to provide even more advanced products and technical services. 2.2. Major product manufacturing processes 2.2.1. Major applications of core products Products Description DRAM: (1) Low/medium/high density SDR/DDR Specialty (1) Used in computer peripherals and consumer DRAM; medium to high density DDR2/DDR3 electronic products Specialty DRAM (2) Used in handheld mobile devices and consumer (2)Pseudo SRAM, Low-Power DRAM electronic products (3) High density GDDR3 Graphic DRAM (3) Used in electronic products with graphics and image processing functions. NOR Flash: Medium and low density flash memory and high-density Code-Storage Flash products. Used in PCs and peripheral, consumer electronics and mobile handheld devices and peripheral module product 2.2.2.Production processes The integrated circuit manufacturing process 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 31 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 2012 2011 Relationship with Item Name issuer Amount Percentage of Amount Percentage of total purchase % total purchase % 1 Supplier Z018 None. 503,661 11 728,908 19 Other 4,252,423 89 3,044,380 81 Net purchase 4,756,084 100 3,773,288 100 Reasons for changes: Supplier Z018: Allocated in accordance with the results of purchasing negotiations in order to reduce the amount of incoming shipments. 2.5. Names of customers who accounted for more than 10% of the sales in the last two years, and sales as a percentage of total sales Unit: NT$1,000 2012 2011 Relationship Item Name with issuer Amount Percentage of net Amount Percentage of net sales % sales % Winbond Electronics (H.K.) 1 Subsidiary 3,964,101 16 5,008,443 18 Ltd. Other 21,454,718 84 22,206,011 82 Net sales 25,418,819 100 27,214,454 100 Reasons for changes: Winbond Electronics (H.K.) Ltd.: We continue to expand our China market in 2012, and established Winbond Electronics (Suzhou) Ltd. Some customers placed orders with Winbond Suzhou as part of a shift toward domestic purchasing. 2.6. Output volume and value during the most recent two years 2.6.1. Production quantity and value Unit: NT$1,000 Year 2012 2011 Output volume (note) Output volume (note) Core products/Output Value Value Wafer Die Wafer Die DRAM 6 794,735 13,876,201 33 880,859 15,043,648 Flash 1 1,753,408 8,545,359 - 1,345,782 6,907,352 Total 7 2,548,143 22,421,560 33 2,226,641 21,951,000 Note: Wafer production is measured in 1,000 pieces; die production is measured in 1,000 pieces. 32 2.6.2. Production capacity Unit: 1,000 pieces Core products/Year 2012 2011 300mm wafers 431 438 2.7. Sales volume and value during most recent two years Unit: NT$1,000 Year 2012 2011 Product/ Domestic sales Exports Domestic sales Exports Sales volume Sales volume (note) Sales Sales volume (note) Sales Sales volume (note) Sales Sales volume (note) Sales and value Wafer Die Wafer Die Wafer Die Wafer Die DRAM - 195,693 2,910,087 6 613,198 11,759,709 - 151,461 2,009,322 33 731,496 15,585,887 Flash - 435,432 2,646,562 - 1,313,888 8,100,217 - 221,305 1,467,218 - 1,081,869 8,068,158 Other - - 60 - - 2,184 - - 68,468 - - 15,401 Total - 631,125 5,556,709 6 1,927,086 19,862,110 - 372,766 3,545,008 33 1,813,365 23,669,446 Note: Wafer sales are measured in 1,000 pieces; die sales are measured in 1,000 pieces. 3. Employees Year 2011 2012 2013 up to March 31 Technical personnel 1,250 1,249 1,246 (engineers) Administration and Number of 443 438 432 sales staff employees Assistant to 319 320 318 technicians Total 2,012 2,007 1,996 Average age 34.40 35.30 35.58 Average years of service 6.12 6.80 7.01 Ph.D. 1.34 1.25 1.25 Education Master 36.13 36.57 36.57 background University/College 53.78 53.31 53.31 (%) High school 8.65 8.67 8.67 Below high school 0.10 0.20 0.20 4. Spending on environmental protections 4.1. Losses due to environmental pollution (including compensation) and total fines during the most recent year and up to the annual report publication date: None. 4.2. Preventive measures taken to ensure a safe working environment and maintain employees' personal safety This company upholds the spirit of the ISO 14001 environmental management system, and pledges to provide and maintain a working environment better than required by law and industry practice. We also strive to comply with international environmental protection standards, and seek to eliminate possible environmental risks through continuous improvement. As a member of the global village, in line with the principle of environmentally-friendly design, we strive to develop green products and energy-consuming, low-pollution products that will fulfill our vision of sustainable corporate development. Throughout production operations, we rely on process optimization to reduce consumption of water and power, use of raw materials and parts, and pollution emissions for each output unit. In accordance with law, we have obtained all required environmental protection permits and licenses, and have established appropriate dedicated 33 management positions. Adequate recycling systems for process waste water exhaust gases, and solid wastes were incorporated during an early stage of the plant design process, enabling us to reduce resource losses and pollutant discharges. Thanks to our dedication to environmental protection, we have received honors such as the Green Business Award, National Outstanding Industrial Waste Reduction Factory and Contributing Group Award, and Industry Outstanding Voluntary Greenhouse Gas Emission Reduction Factory Award from agencies including the EPA and MOEA. Furthermore, we have also undertaken the health, safety, and risk management tasks prescribed in OHSAS 18001 and TOSHMS, and integrated our environmental, health, and safety management system in order to enhance our overall environmental management performance. We have received many honors over the years, including the Council of Labor Affairs' Friendly Workplace Award and the Central Taiwan Science Park Administration's Superior Labor Health and Safety Enterprise Award. Looking ahead to future, we will continue strengthen our spirit of corporate sustainability, while responding to increasing environmental consciousness by making appropriate environmental protection expenditures when needed, employing innovative technologies to improve the efficiency of pollution control equipment, and striving to minimize the environmental impact of production activities. 5. Employees-employer relations 5.1. Employee welfare, education and training, retirement system and implementation 5.1.1. Employee welfare This company has established an "Employee Welfare Committee," "retirement reserve fund supervisory committee," and "environmental, health, safety, and risk management committee," and employees can rely on channels such as labor-management conferences and improvement suggestion measures to communicate with management. 5.1.2. Employee training and education This company has established a complete, diversified learning environment in accordance with the Education and Training Management Procedures, and has trained several dozen in-house lecturers in line with the ideal of "respect for the individual and cultivation of professionalism." A total of 491 training classes were held in 2012, and were attended for a total of 31,916 person-hours. Employees took part in training a total of 12,957 person-times, training expenditures totaled NT$16.8 million, and the average training cost per employee was NT$8,400. The company's main learning channels included the following: (1) Training Programs: In accordance with demand, we formulate professional, QC, work safety, management, and general education and training classes on an annual basis, and hold classes in accordance with plans; employees may sign up to participate in these classes. The following is a summary of the various types of classes: A. We offer management development training activities in accordance with our management functions blueprint; these activities include high-level, mid-level, and basic-level new manager training and other elective classes. B. We offer common, QC, and work safety training in accordance with the company's quality policy, government laws, and overall demand. Examples of these training classes include working methods, statistical analysis methods, and emergency response safety training classes. C. Professional training is offered when our units have need of specific professional functions. Examples include R&D design classes, process testing classes, and international seminar sharing sessions. D. New employee training classes are geared to getting newcomers quickly up to speed, and include the employment system, corporate culture, and work adaptation classes. E. We conduct basic training assessments for direct personnel, including new employees, as well as continuing advanced professional skills assessments. 34 (2) Online classes: The company's training website provides information on various online classes. To ensure that learning is not limited to certain times or places, employees can access lecture notes from various types of classes online at any time. We offer the following types of online classes: Classes on the company environment and management system, etc.; classes on laws, regulations, and rules of conduct, and providing basic process training; language classes and other elective classes. (3) Lifelong learning: To encourage employers' continuing development and personal growth, in accordance with the In-service Continuing Education Regulations, we recommend that employees study for master's or Ph.D. degrees at Ministry of Education-accredited domestic universities or approved foreign universities, and the company will subsidize relevant costs. We also provide employees subsidies for enhancement and work-related skills training provided by an external or foreign organization. 5.1.3. Retirement system This company has drafted retirement regulations in line with the requirements of the Labor Standards Law and Labor Pension Act, has established a "retirement reserve fund supervisory committee," regularly monitors disbursements from the retirement reserve fund, and bears responsibility for the review of retirement applications. 5.2.Licensing of personnel involved in meaning the transparency of financial information: International certified internal auditor (CIA): 1 person. International certification in control self-assessor (CCSA): 1 person. 5.3. Labor-management harmony and employee rights maintenance measures 1. This company has drafted "labor-management conference implementation regulations," and regularly holds labor-management conference to discuss and negotiate issues of importance to essential. Items in conference resolutions must be dealt with fully by relevant units within a limited time. 2. This company has drafted "internal appeal regulations" intended to maintain employees' lawful rights and interests and help eliminate illegal and unreasonable treatment of employees, ensuring that employees enjoy a legally-compliant, reasonable, and fair working environment. 5.4 Losses due to labor-management disputes during the most recent year and up to the annual report publication date: None. 5.5 Estimated losses due to current and possible future labor-management disputes and response measures This company holds regular labor-management conferences to promote the exchange of views between labor and management. Labor and management have consistently maintained a state of consensus since the founding of this company, and no disputes have occurred. 5.6. Employee rules of conduct This company has drafted comprehensive rules of conduct to provide employees with standards for work ethics and conduct, protection of intellectual property rights/business secrets, and work orders. These rules, which are described below, can be viewed by employees via the document management system, announcements in relevant internal websites, or bulletin board messages. 1. Work ethics and conduct (1) Work rules: The Company’s regulations contain dedicated service rules and general principles for prevention of sexual harassment. (2) Workplace sexual harassment prevention regulations: In accordance with relevant government laws and regulations, The Company has explicitly drafted workplace sexual harassment prevention regulations and established a dedicated awareness website, and has adopted appropriate prevention, correction, and punishment measures. (3) Employment contracts: Specifies the requirement that employees faithfully perform their duties (4) Human resource management conduct guidelines: In accordance with relevant government laws and regulations and company regulations, we have drafted "human resource management conduct guidelines" 35 classes on such subjects as eliminating discrimination, fair treatment, and prohibition of involuntary labor. To ensure that everyone can work under fair and lawful conditions, all company employees receive extensive awareness of these guidelines. 2. Rules for protection of intellectual property rights and maintenance of business secrets (1) Work rules: The Company's regulations contain general principles for maintenance of the confidentiality of business secrets. (2) Employment contracts: Employment contracts specify requirements concerning confidentiality duties, document ownership, secret information, ownership of intellectual or industrial property, and non-compete terms. 3. Work orders (1) Division of responsibilities: The "guidelines for responsibility stratification" specify the division of responsibilities, and serve to guide the performance of on-the-job duties. (2) Duties of individual units: The mission of each unit is clearly defined. (3) Restrictions on the hiring of relatives: The "restrictions on the hiring of relatives" specify that relatives should not be hired to fill certain positions. This is intended to ensure that the effectiveness and efficiency of the company's internal management is not compromised unnecessarily by family relationships between employees. (4) Attendance management (a) "Request for leave regulations": These regulations explicitly state The Company's leave request principles and regulations. (b) "Domestic travel regulations" and "foreign travel regulations": To facilitate personnel management and activate substitute mechanisms, the company has established operating procedures for travel applications; To ensure that personnel taking business trips accomplish their missions, such personnel shall be given appropriate travel subsidies. (c) "Overtime regulations": These regulations explicitly specify The Company's overtime principles and standards. (d) "Regulations concerning work stoppages due to natural disasters and major accidents": These regulations explicitly state standards for work stoppages in the event of natural disasters and major accidents. (5) Performance management (a) "Performance management and evaluation regulations": These regulations seek to provide an understanding of employees' strengths and weaknesses, and help them to develop their personal abilities, by assessing the degree to which employees have achieved their personal goals; Employees' contributions to the organization are determined on the basis of mutual comparisons between peers. (b) "Performance guidance operating regulations": Performance guidance work seeks to enhance the productivity of the company as a whole. (6) Reward and penalty regulations The "Reward and penalty handling regulations" prescribe appropriate rewards or punishments for those employees who display superior performance or violate regulations, and have the intent of encouraging and maintaining on-the-job morale and order. (7) Manpower development (a) "In-service continuing education regulations": These regulations establish channels for continuing education, and have a goal of accumulating the human resources needed for the company's long-term operations. (b) "Regulations concerning application to participate in academic groups and organizations": Participation in academic groups and organizations participate can promote the diffusion of knowledge and experience, and help employees to find out about the newest information in their professional fields. (c) "Conference participation and management regulations": Participation in international conferences enables employees to acquire the newest information in their professional fields. (8) Communication channels (a) "Labor-management conference implementation regulations": These regulations enshrine the consensus and shared welfare of labor and management, promote teamwork for the sake of corporate development and employee welfare, establish an effective two-way communication system between labor and management, put an end to labor-management disputes, ensure harmonious labor-management relations, and encourage maximal productivity. (b) "Corporate internal appeal regulations": These regulations provide employees with channels expressing their views and making appeals directly to the company, maintain employees' rights and interests, and encourage communication of views. (c) "Employee suggestion regulations": Employee's ideas and creative thinking can help the company to 36 continue to improve. These regulations provide for rewards for employees who submit proposals concerning the company's operations, and are intended to encourage employees to contribute their intelligence and experience. 6. Important contracts Year and month of Nature of Restrictions Contracting parties contract start and Content contract Terms end Technical Licensing of 75nm and 58nm DRAM technology Qimonda AG of Germany 2007.06-2014.12 None. cooperation and reserving specific capacity (Note 1) Technical Licensing of 65nm DRAM technology and Qimonda AG of Germany 2008.04-2015.12 None. 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-permanent and equipment purchase, expanded licensing for Qimonda AG of Germany None. cooperation (Note 2) 90-65nm process technology, and settlement of insolvency procedure Technical 2010.04-permanent Licensing of 45 nm and 46 nm Buried Wordline Qimonda AG of Germany None. cooperation (Note 2) DRAM processes and equipment purchase Syndicated 16 banks in the consortium, including NT$7 billion syndicated loan for working capital 99.05-104.05 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. Syndicated 10 banks in the consortium, including NT$5 billion syndicated loan for operating funds 101.11-104.11 None. loan Chinatrust Commercial Bank and payment of existing financial liabilities Purchase of Acquisition of machinery and equipment needed Powerchip Semiconductor Corp. 101.12- permanent None. machinery for operations. 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 technologies from Qimonda AG becomes permanent after Winbond pays off royalties as agreed. 37 Financial Overview 1. Condensed balance sheets, statements of income, names of auditors, and audit opinions (2008-2012) 1.1 Condensed balance sheets Unit: NT$1,000 Financial information: FY2008 - FY2012 Item\Year 2008 2009 2010 2011 2012 Current assets 14,711,865 12,833,810 15,092,984 14,724,139 15,804,738 Funds and 6,067,232 4,932,326 5,188,566 4,951,855 5,508,898 long-term investments Fixed assets 48,574,062 42,048,999 38,633,321 34,396,036 28,396,274 Intangible assets 565,545 1,530,973 1,059,078 548,754 38,430 Other assets 3,457,755 3,816,552 3,815,609 3,751,588 3,810,639 Total Assets 73,376,459 65,162,660 63,789,558 58,371,372 53,558,979 Current Basic 15,702,411 15,854,667 15,885,703 14,668,433 13,009,438 liabilities Diluted 15,702,411 15,854,667 15,885,703 14,668,433 13,009,438 Long-term liabilities 19,033,333 15,116,660 10,124,990 7,966,663 6,550,000 Other liabilities 386,406 337,296 337,728 380,776 527,102 Basic 35,122,150 31,308,623 26,348,421 23,015,872 20,086,540 Total liabilities Diluted 35,122,150 31,308,623 26,348,421 23,015,872 20,086,540 Paid-in capital 37,273,812 36,564,972 36,693,502 36,802,302 36,856,012 Capital surplus 13,007,928 13,181,004 2,303,944 2,232,519 2,199,126 Retained Basic (7,365,903) (15,977,842) (1,640,149) (2,483,440) (4,335,976) earnings (accumulated Diluted (7,364,903) (15,977,842) (1,640,149) (2,483,440) (4,335,976) loss) Unrealized gain (loss) on 4,559,530 (254,377) (51,936) (1,449,394) (1,408,417) financial products Cumulative translation 519,091 446,667 242,163 359,900 268,081 adjustments Treasury stock (622,089) (106,387) (106,387) (106,387) (106,387) Total Basic 38,254,309 33,854,037 37,441,137 35,355,500 33,472,439 shareholders’ equity Diluted 38,254,309 33,854,037 37,441,137 35,355,500 33,472,439 Note 1: The 2012 financial data have been approved by the Board of Directors on February 6, 2013, but have not yet been submitted to the shareholders’ meeting. Note 2: The financial information for FY 2008 to FY 2012 was audited and certified by accountants. 1.2 Condensed statements of income Unit: NT$1,000 Financial information: FY2008 - FY2012 Item\Year 2008 2009 2010 2011 2012 Sales revenue 21,828,011 19,532,712 31,855,462 27,214,454 25,418,819 Gross profit (loss) (2,486,609) (2,947,940) 6,262,200 3,064,955 1,943,103 Operating income (loss) (6,435,130) (5,994,677) 3,158,724 (625,146) (2,016,000) Non-operating income and 1,383,733 130,917 1,284,334 330,195 625,860 gain Non-operating expense and 2,313,506 2,749,179 892,062 548,340 462,396 loss Income (loss) before tax (7,364,903) (8,612,939) 3,550,996 (843,291) (1,852,536) Income tax expense - - - - - Net income (loss) (7,364,903) (8,612,939) 3,550,996 (843,291) (1,852,536) Earnings (loss) per share (2.00) (2.36) 0.97 0.23 (0.50) (NT$) Note 1: The 2012 financial data have been approved by the Board of Directors on February 6, 2013, but have not yet been submitted to the shareholders’ meeting. Note 2: The financial information for FY 2008 to FY 2012 was audited and certified by accountants. 38 1.3 Names of auditors and audit opinions (2008 – 2012) Year CPA Audit 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) 2012 K. T. Hong and K. C. Wu Unqualified opinion 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 (2008 - 2012) Financial analysis (2008 - 2012) Item\Year 2008 2009 2010 2011 2012 Financial Debt-to-assets ratio (%) 47.86 48.04 41.30 39.43 37.50 structure Long-term fund to fixed assets ratio (%) 117.93 116.46 123.12 125.95 140.94 Current ratio (%) 93.69 80.94 95.00 100.37 121.48 Solvency Quick ratio (%) 64.94 48.78 58.41 54.34 64.00 Times interest earned - - 6.90 - - Receivables turnover ratio (times) 7.54 8.58 10.45 8.22 7.54 Average days of collection 48 43 35 44 48 Inventory turnover ratio (times) 5.44 5.37 5.18 4.07 3.46 Operating Payables turnover ratio (times) 9.35 7.60 7.22 7.29 6.61 ability Average days of sales 67 68 70 89 105 Fixed assets turnover ratio (times) 0.46 0.43 0.78 0.74 0.80 Total assets turnover ratio (times) 0.25 0.28 0.49 0.44 0.45 Return on assets (%) (8.02) (11.72) 6.28 (0.80) (2.77) Return on shareholder‘s equity (%) (16.52) (23.88) 9.96 (2.31) (5.38) Percentage to Operating income (17.26) (16.39) 8.60 (1.69) (5.46) Profitability paid-in capital (%) Income before tax (19.75) (23.55) 9.67 (2.29) (5.02) Net profit margin (%) (33.74) (44.09) 11.14 (3.09) (7.28) Earnings per share (NT$) (2.00) (2.36) 0.97 (0.23) (0.50) Cash flow ratio (%) 17.38 29.09 71.32 64.81 43.92 Cash flows Cash flow adequacy ratio (%) 60.27 48.93 64.22 89.78 89.30 Cash reinvestment ratio (%) 3.15 5.73 12.83 10.16 5.81 Operating leverage (0.74) (0.96) 5.07 (19.90) (4.71) Leverage Financial leverage 0.88 0.90 1.23 0.59 0.84 Reasons for changes in financial ratios exceeding 20%: 1. Decrease in receivables turnover ratio was mainly due to decrease in sales revenue in 2012 amid global economic slowdown. 2. Decrease in inventory turnover ratio was due to decrease in the sale of wafer in 2012, 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 2012 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 2012. Note 1: Financial data from 2008 to 2012 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. 39 (2) Quick ratio = (current assets – inventory – prepaid expense) / current liabilities. (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) 40 Winbond Electronics Corporation Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors’ Report 3. 2012 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, 2012 and 2011, 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 year ended December 31, 2011 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 as of December 31, 2011; investment loss amounted to NT$1,341 thousand for the year then ended. 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 provide a reasonable basis for our opinion. In our opinion, based on our audits and the report 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, 2012 and 2011, 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. - 41 - We have also audited the consolidated balance sheets of Winbond Electronics Corporation and its subsidiaries as of December 31, 2012 and 2011, 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 and an unqualified opinion with explanatory paragraphs dated February 6, 2013, respectively. February 6, 2013 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. - 42 - WINBOND ELECTRONICS CORPORATION BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 2012 2011 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 3,707,404 7 $ 3,812,987 7 Short-term loans (Note 13) $ 2,716,474 5 $ 1,539,592 3 Financial assets at fair value through profit or loss, current (Notes 2 Short-term bills payable (Note 14) 499,376 1 199,763 - and 5) 23,551 - 1,703 - Notes payable 812,253 2 849,714 1 Available-for-sale financial assets, current (Notes 2 and 8) 704,091 2 707,542 1 Accounts payable 2,798,923 5 2,640,929 5 Notes receivable, net (Notes 2 and 6) 286 - 382 - Payable on equipment 125,116 - 632,910 1 Accounts receivable, net (Notes 2 and 6) 3,004,575 6 2,447,898 4 Accrued expenses and other payables 1,551,004 3 1,623,695 3 Accounts receivable from related parties, net (Notes 6 and 22) 578,568 1 701,771 1 Current portion of long-term liabilities (Note 15) 4,483,330 9 7,158,327 12 Other financial assets, current 160,902 - 85,609 - Other current liabilities 22,962 - 23,503 - Inventories (Notes 2 and 7) 7,107,687 13 6,427,420 11 Deferred income tax assets, current (Notes 2 and 20) 147,000 - 210,000 - Total current liabilities 13,009,438 25 14,668,433 25 Other current assets 370,674 1 328,827 1 LONG-TERM LIABILITIES Total current assets 15,804,738 30 14,724,139 25 Long-term debt (Note 15) 6,550,000 12 7,966,663 13 FUND AND INVESTMENTS OTHER LIABILITIES Available-for-sale financial assets, noncurrent (Notes 2 and 8) 64,530 - 64,800 - Accrued pension liabilities (Notes 2 and 16) 193,077 - 154,308 1 Financial assets carried at cost, noncurrent (Notes 2, 9 and 22) 56,481 - 61,855 - Reserve for product guarantee (Note 2) 102,297 - 94,271 - Long-term equity investments at equity method (Notes 2 and 10) 5,387,887 10 4,825,200 9 Other liabilities - others 231,728 1 132,197 - Total fund and investments 5,508,898 10 4,951,855 9 Total other liabilities 527,102 1 380,776 1 PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 11) Total liabilities 20,086,540 38 23,015,872 39 Cost Land 799,147 1 799,147 1 STOCKHOLDERS’ EQUITY Buildings 16,357,176 31 16,148,157 28 Common stock (Note 17) 36,856,012 69 36,802,302 63 Machinery and equipment 66,351,722 124 64,599,851 111 Capital surplus Other equipment 2,560,421 5 2,504,366 4 Treasury stock transaction 1,971,862 4 1,971,862 3 Total cost 86,068,466 161 84,051,521 144 Adjustment on long-term equity investments under equity method 27,868 - 23,913 - Accumulated depreciation (57,765,137) (108) (49,782,156) (85) Stock option (Notes 2 and 18) 9,285 - 13,960 - Construction in progress and prepayments on purchase of equipment 92,945 - 125,671 - Others 190,111 - 222,784 1 Accumulated deficit (4,335,976) (8) (2,483,440) (4) Property, plant and equipment, net 28,396,274 53 34,395,036 59 Other equity Cumulative translation adjustments (Note 2) 268,081 - 359,900 1 INTANGIBLE ASSETS (Notes 2 and 12) 38,430 - 548,754 1 Unrealized loss on financial instruments (Note 2) (1,408,417) (3) (1,449,394) (3) Treasury stock (Notes 2 and 17) (106,387) - (106,387) - OTHER ASSETS Refundable deposits 73,522 - 80,455 - Total stockholders’ equity 33,472,439 62 35,355,500 61 Deferred income tax assets, noncurrent (Notes 2 and 20) 3,595,000 7 3,532,000 6 Others 142,117 - 139,133 - Total other assets 3,810,639 7 3,751,588 6 TOTAL $ 53,558,979 100 $ 58,371,372 100 TOTAL $ 53,558,979 100 $ 58,371,372 100 The accompanying notes are an integral part of the financial statements. - 43 - WINBOND ELECTRONICS CORPORATION STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) 2012 2011 Amount % Amount % NET SALES $ 25,418,819 100 $ 27,214,454 100 COST OF SALES (Note 7) 23,475,716 92 24,149,499 89 GROSS PROFIT 1,943,103 8 3,064,955 11 OPERATING EXPENSES Selling expenses 675,400 3 606,800 2 General and administrative expenses 682,970 3 534,781 2 Research and development expenses 2,600,733 10 2,548,520 9 Total operating expenses 3,959,103 16 3,690,101 13 LOSS FROM OPERATIONS (2,016,000) (8) (625,146) (2) NON-OPERATING INCOME AND GAINS Interest income 18,901 - 24,163 - Investment income recognized under equity method (Note 10) 423,149 2 131,829 1 Investment income - - 24,668 - Gain on disposal of property, plant and equipment (Note 2) 4,483 - 926 - Gain on disposal of investments - - 7,027 - Foreign exchange gain (Note 2) - - 58,373 - Reversal of allowance for doubtful accounts 68,209 - 13,000 - Gain on valuation of financial instruments (Note 5) 93,806 1 - - Others 17,312 - 70,209 - Total non-operating income and gains 625,860 3 330,195 1 NON-OPERATING EXPENSES AND LOSSES Interest expense 362,797 2 425,495 2 Other investment loss (Note 9) 2,922 - 9,680 - Loss on disposal of property, plant and equipment (Note 2) 27 - 1,006 - Loss on disposal of investment 17,856 - - - Foreign exchange loss (Note 2) 56,097 - - - Loss on valuation of financial instruments (Note 5) - - 88,854 - Others 22,697 - 23,305 - Total non-operating expenses and losses 462,396 2 548,340 2 (Continued) - 44 - WINBOND ELECTRONICS CORPORATION STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) 2012 2011 Amount % Amount % LOSS BEFORE INCOME TAX $ (1,852,536) (7) $ (843,291) (3) INCOME TAX EXPENSE (Notes 2 and 20) - - - - NET LOSS $ (1,852,536) (7) $ (843,291) (3) 2012 2011 Before After Before After Income Income Income Income Tax Tax Tax Tax LOSS PER SHARE (Notes 2 and 21) Basic loss per share $ (0.50) $ (0.50) $ (0.23) $ (0.23) Proforma amount, assuming common shares held by subsidiaries were not treated as treasury stock: 2012 2011 Before After Before After Income Tax Income Tax Income Tax Income Tax NET LOSS $ (1,852,536) $ (843,291) BASIC LOSS PER SHARE $(0.50) $(0.50) $(0.23) $(0.23) The accompanying notes are an integral part of the financial statements. (Concluded) - 45 - WINBOND ELECTRONICS CORPORATION STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Capital Surplus Adjustments on Long-term Other Equity Equity Unrealized Investments Cumulative Loss on Treasury Stock under Equity Accumulated Translation Financial Common Stock Transaction Method Stock Option Others Deficit Adjustments Instruments Treasury Stock Total BALANCE, JANUARY 1, 2011 $ 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 Net loss for 2012 - - - - - (1,852,536) - - - (1,852,536) Changes in translation adjustments ------(92,184) - - (92,184) Changes in unrealized gain on financial instruments ------110,462 - 110,462 Capital surplus from investee under equity method - - 76 ------76 Issuance of stock from exercising employee stock options (Note 17) 53,710 - - (4,816) (32,673) - - - - 16,221 Write-off stockholders' equity due to subsidiary merged (Note 10) - - 3,879 - - - 365 (69,485) - (65,241) Compensation cost of employee stock options (Note 18) - - - 141 - - - - - 141 BALANCE, DECEMBER 31, 2012 $ 36,856,012 $ 1,971,862 $ 27,868 $ 9,285 $ 190,111 $ (4,335,976) $ 268,081 $ (1,408,417) $ (106,387) $ 33,472,439 The accompanying notes are an integral part of the financial statements. - 46 - WINBOND ELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,852,536) $ (843,291) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 8,489,074 9,680,099 Amortization 529,041 523,434 Reversal of allowance for doubtful accounts (68,209) (13,000) (Gain) loss on decline in market value and obsolescence and abandonment of inventories (69,515) 486,680 Loss (gain) on disposal of investments, net 17,856 (7,027) Investment income recognized under equity method, net (423,149) (131,829) Impairment losses on financial assets carried at cost 2,922 9,680 Cash dividends from equity method investees 215,254 379,860 Net (gains) losses on disposal of property, plant and equipment (4,456) 80 Compensation cost of employee stock options 141 4,472 Net changes in operating assets and liabilities Financial assets at fair value through profit or loss, current (21,848) 54,403 Notes receivable 96 970 Accounts receivable (574,969) 613,230 Accounts receivable from related parties 122,828 (275,204) Other financial assets, current (75,294) (10,165) Inventories (610,752) (1,476,316) Other current assets (41,847) 121,595 Other assets (14,768) (35,090) Notes payable (37,460) (287,725) Accounts payable 157,993 650,223 Accrued expenses and other payables (72,691) 71,863 Other current liabilities (541) (58,644) Other liabilities 46,695 48,638 Net cash provided by operating activities 5,713,865 9,506,936 CASH FLOWS FROM INVESTING ACTIVITIES Acquisitions of property, plant and equipment (3,018,234) (5,965,461) Acquisition of long-term investments under equity method (403,856) (376,670) Acquisition of available-for-sale financial assets (86,915) (316,826) Acquisition of financial assets carried at cost (58,950) - Proceeds from disposal of available-for-sale financial assets 71,285 - Proceeds from disposal of financial assets carried at cost 62,708 335 Proceeds from capital return of long-term investments under equity method 188,874 - Proceeds from disposal of property, plant and equipment 24,584 4,448 Net cash used in investing activities (3,220,504) (6,654,174) (Continued) - 47 - WINBOND ELECTRONICS CORPORATION STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM FINANCING ACTIVITIES Increase (decrease) in short-term loans 1,176,883 (12,223) Increase in short-term bills payable 299,613 199,763 Increase in long-term debt 3,200,000 5,000,000 Repayment of long-term debt (7,291,660) (8,491,670) Proceeds from exercise of employee stock options 16,220 32,902 Net cash used in financing activities (2,598,944) (3,271,228) NET DECREASE IN CASH AND CASH EQUIVALENTS (105,583) (418,466) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 3,812,987 4,231,453 CASH AND CASH EQUIVALENTS, END OF YEAR $ 3,707,404 $ 3,812,987 SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION Cash paid for interest during the year $ 420,219 $ 549,022 SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities $ 4,483,330 $ 7,158,327 Change in cumulative translation adjustments $ (92,184) $ 117,737 Unrealized gain (loss) on financial instruments $ 110,462 $ (1,397,458) Acquisitions of available-for-sale financial assets offset by accounts receivable $ 86,501 $ - Capital surplus from investee under equity method $ 76 $ 1 Write-off stockholders' equity due to subsidiary merged $ (65,241) $ - CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Net increase in acquisition of property, plant and equipment $ 2,510,440 $ 5,518,277 Add payable for property, plant and equipment, beginning of year 632,910 1,080,094 Less payable for property, plant and equipment, end of year (125,116) (632,910) Cash payment for acquisitions of property, plant and equipment $ 3,018,234 $ 5,965,461 The accompanying notes are an integral part of the financial statements. (Concluded) - 48 - WINBOND ELECTRONICS CORPORATION NOTES TO FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (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 2,007 and 2,012 employees in the Company as of December 31, 2012 and 2011, respectively. 2. SIGNIFICANT ACCOUNTING POLICIES The accompanying financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the ROC. For readers’ convenience, the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the financial statements shall prevail. Significant accounting policies are summarized as follows: Foreign Currencies Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in current income or loss. At the balance sheet date, foreign-currency nonmonetary assets and liabilities (e.g., equity instruments) which are measured at fair value shall be revalued using prevailing exchange rates. The exchange differences treated as recognized in shareholders’ equity if the changes in fair value are recognized in shareholders’ equity; recognized in profit and loss if the changes in fair value is recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade 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. - 49 - Accounting Estimates In preparing financial statements in conformity with these guidelines, law and principles, the Company is required to make some estimates and assumptions that could affect the amounts of allowance for doubtful accounts, allowance for loss on inventories, 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 commercial paper with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value. Financial Assets 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 regular way purchases or sales of financial assets, derivative financial instrument are recognized on a settlement date basis, others are recognized on 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 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. 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. - 50 - 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 regular way purchases or sales of available-for-sale financial assets are recorded on a 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. Open-end mutual funds are stated at net asset values at the balance sheet date. 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 significant 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. A merger or acquisition transaction is accounted for by purchase method. When equity investment is made with an asset other than cash, the fair value of the asset given up or of the shares acquired is measured objectively. - 51 - If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. For long-term equity investments for which the Company has significant influence but with no control, the carrying amount of each investment is compared with its own recoverable amount for the purpose of impairment testing. For long-term equity investments for which the Company has control, the carrying amount is compared with the relevant cash-generating units (“CGUs”) of the consolidated financial statements. 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: 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, accumulated depreciation and accumulated amortized 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. - 52 - 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. Loss Per Share Basic loss per share is calculated by dividing net loss applicable to common stock by the weighted average number of shares outstanding. Share-based Compensation 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 - stock 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. Reclassifications Certain accounts in the financial statements as of and for the year ended December 31, 2011 have been reclassified to conform to the presentation of the financial statements as of and for the year ended December 31, 2012. - 53 - 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. 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 disclose in the consolidated financial statements as of and for the year ended December 31, 2011. 4. CASH AND CASH EQUIVALENTS December 31 2012 2011 Cash on hand $ 230 $ 230 Checking account 30,184 1,036 Demand deposit 330,586 102,956 Time deposit 1,618,004 3,071,752 Short-term bills 1,728,400 637,013 $ 3,707,404 $ 3,812,987 Time deposits in the amounts of $70,733 thousand and $77,836 thousand as of December 31, 2012 and 2011, 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 2012 2011 Financial assets at fair value through profit or loss, current Forward exchange contracts $ 23,551 $ 1,703 For the years ended December 31, 2012 and 2011, the Company’s entered into derivative contracts to manage exposures due to exchange rate and interest rate fluctuation. The financial risk management objective of the Company is to minimize risks due to changes in fair value or cash flows. - 54 - Outstanding forward exchange contracts as of December 31, 2012 and 2011 were as follows: Contract Amount Currencies Maturity Date (In Thousands) December 31, 2012 Sell forward exchange contracts USD to NTD 2013.01.03-2013.03.14 USD116,000/NTD3,378,206 Sell forward exchange contracts NTD to USD 2013.02.07 NTD289,220/USD10,000 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 The transactions of financial instruments at fair value through profit or loss resulted in net gains of $93,806 thousand and net losses of $88,854 thousand for the years ended December 31, 2012 and 2011, respectively. 6. NOTES AND ACCOUNTS RECEIVABLE December 31 2012 2011 Notes receivable $ 286 $ 382 Accounts receivable $ 3,083,063 $ 2,726,898 Less allowance for doubtful accounts (78,488) (279,000) $ 3,004,575 $ 2,447,898 Accounts receivable from related parties (Note 22) $ 578,568 $ 701,771 7. INVENTORIES December 31 2012 2011 Finished goods $ 1,505,625 $ 1,606,347 Work-in-process 5,321,377 4,517,692 Raw materials and supplies 263,894 289,609 Inventories in transit 16,791 13,772 $ 7,107,687 $ 6,427,420 As of December 31, 2012 and 2011, the allowance for inventory devaluation was $876,268 thousand and $985,877 thousand, respectively. Gain on recovery of loss of inventory and loss on write-down of inventories of $69,515 thousand and $486,680 thousand were recognized as the cost of sales for the years ended December 31, 2012 and 2011, respectively. Gain on recovery of decline in market value amounted to $109,608 thousand in the year ended December 31, 2012, due to net realizable value improvement. - 55 - Unallocated fixed manufacturing costs were recognized as cost of sales in the years ended December 31, 2012 and 2011 amounted to $513,589 thousand and $548,177 thousand, respectively. 8. AVAILABLE-FOR-SALE FINANCIAL ASSETS December 31 2012 2011 Ownership Ownership Amount Percentage Amount Percentage Listed stocks Walton Advanced Engineering Inc. $ 420,526 10 $ 480,601 10 Hannstar Display Corporation 192,061 2 123,082 1 Walsin Technology Corporation 91,504 2 103,859 2 Private-placement shares of listed company Hannstar Display Corporation 64,530 1 64,800 1 768,621 772,342 Less current portion (704,091) (707,542) $ 64,530 $ 64,800 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. In September 2012, Hannstar Display Corporation carried out a capital reduction to offset a deficit, and the proportion of capital reduction is 50%. The Company deducted 27,000 thousand private-placement shares of Hannstar Display Corporation. As of December 31, 2012, the Company had 27,000 thousand of Hannstar Display Corporation’s private-placement shares. 9. FINANCIAL ASSETS CARRIED AT COST December 31 2012 2011 Ownership Ownership Amount Percentage Amount Percentage Harbinger Venture III Capital Corp. $ 43,228 5 $ - - YH Bio Explore & Application Co., Ltd. - - 35,520 3 Vita Genomic, Inc. - - 13,082 3 Others 13,253 - 13,253 - $ 56,481 $ 61,855 a. 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. b. The Company assessed the recoverable amount of the above financial assets; as a result, the Company recognized an impairment loss of $2,922 thousand, recorded as “other investment loss” for the year ended December 31, 2012. - 56 - c. In September 2012, the Company acquired 4,080 thousand shares of Harbinger Venture III Capital Corp. at $10.60 per share from related-party Win Investment Corporation (the price was determined by the investee’s net value). As of December 31, 2012, the Company held 4,080 thousand shares of the investee with a 5% ownership interest. d. In September 2012, the Company acquired 2,495 thousand shares of Dynacard Co., Ltd. from related-party Win Investment Corporation (the price was determined by the investee’s net value). As of December 31, 2012, the Company sold all of its shares in the investee. 10. LONG-TERM EQUITY INVESTMENTS AT EQUITY METHOD December 31 2012 Original 2011 Investment Carrying Ownership Carrying Ownership Cost Value Percentage Value Percentage Nuvoton Technology Corporation (“NTC”) $ 727,548 $ 1,854,961 61 $ 1,705,202 61 Chin Xin Investment 1,723,588 1,654,103 35 - - Winbond Int’l Corporation (“WIC”) 3,269,237 1,546,387 100 1,596,774 100 Landmark Group Holdings Ltd. (“Landmark”) 325,728 240,659 100 372,360 100 Mobile Magic Design Corporation (“MMDC”) 50,000 54,093 100 50,910 100 Pine Capital Investment Limited (“PCI”) 41,398 37,684 100 42,805 100 Newfound Asian Corp. (“NAC”) 208,960 - 100 - 100 Winbond Electronics (H.K.) Limited (“WEHK”) 1,948 - 100 - 100 Win Investment Corporation (“Win”) - - - 1,057,149 100 $ 6,348,407 $ 5,387,887 $ 4,825,200 Equity in (losses) gains of equity method investees was summarized as follows: Years Ended December 31 2012 2011 NTC $ 383,019 $ 259,730 WIC 16,599 (108,116) Landmark (13,733) (37,508) MMDC 3,126 4,364 PCI (3,590) (1,005) NAC (261) (263) WEHK (1,083) 5,764 Win 39,072 8,863 $ 423,149 $ 131,829 The financial statements for the year ended December 31, 2011 of CFP Technology Corp. (“CFP”) were audited by other auditors. In August 2011, Win sold partial investments of 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, 2012, the balance of PCI’s capital account amounted to HK$10,920 thousand and the Company held a 100% ownership interest directly. - 57 - In September 2012, the board of directors of Landmark Company resolved capital reduction amounted to $188,874 thousand. In November 2012, the Company bought 40,000 thousand shares of Chin Xin Investment from related-party Walsin Lihwa Corporation. On December 31, 2012, Win Investment, a subsidiary of the Company was merged into Chin Xin Investment, and accordingly Win Investment was dissolved. The Company acquired 130,713 thousand shares of Chin Xin Investment after such merger. As of December 31, 2012, the Company had 170,713 thousand shares of Chin Xin Investment with a 35% ownership interest. The Company has written off $65,241 thousand of stockholders' equity due to the abovementioned merger transaction. The unrealized valuation loss on financial assets recognized as stockholders’ equity amounted to $277,475 thousand as of December 31, 2012. As of December 31, 2012, fair value of publicly traded stocks of NTC accounted for under equity method was $4,026,519 thousand. 11. PROPERTY, PLANT AND EQUIPMENT Accumulated depreciation of property, plant and equipment consisted of the following: December 31 2012 2011 Buildings $ 6,998,943 $ 5,745,036 Machinery and equipment 48,531,960 42,006,660 Others 2,234,234 2,030,460 $ 57,765,137 $ 49,782,156 Capitalized interest for the years ended December 31, 2012 and 2011 amounted to $49,146 thousand and $122,224 thousand, respectively. The interest rates of interest capitalized were 2.62%-2.70% and 2.59%-2.70%, respectively. As of December 31, 2012 and 2011, the carrying value of $20,557,599 thousand and $20,906,790 thousand of land and 12-inch Fab manufacturing facilities were pledged to secure long-term debt. Please refer to Note 15 to the financial statements. 12. INTANGIBLE ASSET December 31 2012 2011 Deferred technical assets, net $ 38,430 $ 548,754 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. - 58 - 13. SHORT-TERM LOANS December 31 2012 2011 Interest Rate Amount Interest Rate Amount Materials procurement loans 1.11%-1.70% $ 154,374 1.09%-2.73% $ 1,539,592 Bank lines of credit 1.33%-1.87% 2,562,100 - - $ 2,716,474 $ 1,539,592 14. SHORT-TERM BILLS PAYABLE December 31 2012 Bills Financial 2011 Corporation Interest Rate Amount Amount Commercial paper payable China bills 0.85% $ 200,000 $ 200,000 MEGA bills 1.15% 300,000 - Less unamortized discount on (624) (237) commercial paper payable $ 499,376 $ 199,763 15. LONG-TERM DEBT December 31 2012 2011 Period Interest Rate Amount Amount Chinatrust Commercial Bank syndication 2008.06.27- 2.68%-2.70% $ 1,283,330 $ 3,849,990 agreement (II) 2013.06.27 Bank of Taiwan syndication agreement (I) 2009.07.27- - - 2,775,000 2012.07.27 Bank of Taiwan syndication agreement (II) 2010.06.18- 2.97%-3.11% 4,850,000 6,000,000 2015.06.18 Bank of Taiwan syndication agreement (III) 2011.12.23- 2.49%-2.63% 2,900,000 2,500,000 2016.12.23 Chinatrust Commercial Bank syndication 2012.12.27- 2.65% 2,000,000 - agreement (III) 2015.12.27 11,033,330 15,124,990 Less current portion of long-term debt (4,483,330) (7,158,327) $ 6,550,000 $ 7,966,663 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. - 59 - 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. d. The agreement was fully redeemed on July 27, 2012. 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 part a and b, which amounted to $3.3 billion and $3.5 billion, respectively, the total line of credit $6.8 billion. 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. 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. Chinatrust Commercial Bank Syndication Agreement (III) a. On November 19, 2012, the Company entered into a syndication agreement, amounting to $5 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 six months from December 27, 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 (II), (III) and Chinatrust Commercial Bank Syndication Agreement (III) 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. - 60 - 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 $89,666 thousand and $81,040 thousand for the years ended December 31, 2012 and 2011, 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 2012 2011 Service cost $ 17,276 $ 14,485 Interest cost 18,930 17,929 Expected return on plan assets (9,687) (9,949) Amortization, net 8,867 5,720 Net pension cost $ 35,386 $ 28,185 b. The assumptions used in determining the actuarial present value of the projected benefit obligation were as follows: December 31 2012 2011 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% c. Reconciliation of funded status of the plan and accrued pension liabilities was summarized as follows: December 31 2012 2011 Benefit obligation Vested benefit obligation $ 334,645 $ 181,956 Accumulated benefit obligation 683,759 622,254 Projected benefit obligation 928,140 855,929 Funded status Projected benefit obligation (928,140) (855,929) Fair value of plan assets 490,682 492,265 Funded status (437,458) (363,664) Unrecognized net transition obligation 8,500 9,767 Unrecognized net gain 252,788 199,589 Intangible asset - deferred pension cost (16,907) - Accrued pension liabilities $ (193,077) $ (154,308) - 61 - 17. STOCKHOLDERS’ EQUITY Common Stock December 31 2012 2011 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) 3,685,601 3,680,230 Par value (in dollars) $ 10 $ 10 Capital $ 36,856,012 $ 36,802,302 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. Employees executed the stock options at $3.02 per share totaling 5,371 thousand shares during the year of 2012. As of December 31, 2012, the balance of the Company’s capital account amounted to $36,856,012 thousand, divided into 3,685,601 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, 2012. 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”. The Company loss of the year ended 2011, so the stockholders’ meeting is not assigned. The relevant information is available on MOPS. And the Company were operating loss of the year 2012, it is not estimated bonus to employees, directors and supervisors. - 62 - Treasury Stock Treasury stock transactions for the year ended December 31, 2012 were summarized as follows: Treasury Treasury Stock Held as Stock Held as Increase Decrease of of January 1, During the During the December 31, Purpose of Buyback 2012 Year Year 2012 Common shares held by subsidiaries 7,518,364 - - 7,518,364 Treasury stock transactions for the year ended December 31, 2011 were summarized as follows: Treasury Treasury Stock Held as Stock Held as Increase Decrease of of January 1, During the During the December 31, Purpose of Buyback 2011 Year Year 2011 Common shares held by subsidiaries 7,518,364 - - 7,518,364 As of December 31, 2012 and 2011, Winbond’s subsidiary - Baystar Holdings Ltd. (BHL) held 7,518,364 shares of the Company’s common stock which amounted to $106,387 thousand. The purpose to hold the share, in order to maintain stockholder’s equity. The shares held by BHL were treated as treasury stocks. The Company’s stock held by subsidiaries is treated as treasury stock, and the holders are entitled to the rights of stockholders, except for the right to participate in the Company’s share issuance for cash and vote in stockholders’ meeting. 18. EMPLOYEE STOCK OPTION In 2008 and 2009, the Company granted employee stock warrants in the quantity of 45,764 thousand and 1,585 thousand units, respectively. Each individual employee stock warrant is granted the right to purchase the Company’s new issued one common share. The warrants were granted to qualified employees of the Company and its subsidiaries. The warrants granted are valid for 5 years and exercisable at certain percentages after the second anniversary year from the grant date. The warrants were granted at an exercise price equal to the closing price of the Company’s common shares listed on the Taiwan Stock Exchange on the grant date. For any subsequent changes in the Company’s paid-in capital, the exercise price and the number of options are adjusted accordingly. - 63 - Employee stock warrants were summarized as follows: Years Ended December 31 2012 2011 Weighted Weighted Average Average Number of Exercise Number of Exercise Options (In Price Options (In Price Employee Stock Warrants Thousands) (NT$) Thousands) (NT$) Outstanding balance, beginning of year 15,516 $ 3.20 27,459 $ 3.12 Warrants granted - - - - Warrants exercised (5,371) 3.02 (10,880) 3.02 Warrants cancelled - - - - Warrants expired (371) 3.49 (1,063) 3.05 Outstanding balance, end of year 9,774 3.28 15,516 3.20 Warrants exercisable, end of year 9,751 3.28 14,596 3.11 Information about outstanding warrants was as follows: December 31 2012 2011 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 0.9 $3.02-$6.46 1.87 The Company used the fair value method to evaluate the option using Black-Scholes model, the assumptions and proforma result were as follows: Grant-date share price (NT$) $3.02-$6.46 Exercise price (NT$) $3.02-$6.46 Expected volatility 52.03%-74.48% Expected duration (years) 3.75 Expected dividend yield 0% Risk-free interest rate 0.94%-1.95% Compensation costs recognized under the fair value method were $141 thousand and $4,472 thousand for the years ended December 31, 2012 and 2011, respectively. - 64 - 19. PERSONNEL EXPENSE, DEPRECIATION, AND AMORTIZATION Year Ended December 31, 2012 Classified as Classified as Non-operation Classified as Operation Expenses and Cost of Sales Expenses Losses Total Personnel expense Salary $ 1,233,322 $ 799,780 $ - $ 2,033,102 Insurance 95,920 52,128 - 148,048 Pension 78,486 46,566 - 125,052 Others 6,850 3,698 - 10,548 $ 1,414,578 $ 902,172 $ - $ 2,316,750 Depreciation $ 8,372,380 $ 116,694 $ - $ 8,489,074 Amortization $ - $ 510,324 $ 18,717 $ 529,041 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 20. INCOME TAX Components of income tax expense (credit) were summarized as follows: Years Ended December 31 2012 2011 Current income tax credit $ (377,000) $ (165,000) Deferred income tax assets and valuation allowance adjustment 377,000 165,000 Income tax expense $ - $ - - 65 - Components of deferred income tax assets were as follows: December 31 2012 2011 Deferred income tax assets Net operating loss carryforwards $ 4,387,000 $ 3,994,000 Investment tax credits 648,000 2,119,000 Allowance for inventory devaluation losses 148,000 167,000 Allowance for doubtful accounts 7,000 42,000 Unrealized reserve for product guarantee 18,000 17,000 Unrealized exchange loss - 1,000 Unrealized investment loss 6,000 6,000 Deferred income tax assets 5,214,000 6,346,000 Less valuation allowance (1,464,000) (2,604,000) 3,750,000 3,742,000 Deferred income tax liabilities Unrealized gain on financial instruments (4,000) - Unrealized exchange gains (4,000) - Deferred income tax assets, net 3,742,000 3,742,000 Deferred income tax assets, current (under other current assets) (147,000) (210,000) Deferred income tax assets, noncurrent (under other assets) $ 3,595,000 $ 3,532,000 A reconciliation of income tax credit based on loss before income tax at statutory rate of 17% and income tax loss was as follows: Years Ended December 31 2012 2011 Income tax credit at statutory rate $ (315,000) $ (143,000) Decrease in tax resulting from Unrealized investment income (71,000) (23,000) Tax-exempt income on disposal of domestic investments - (1,000) Others 9,000 2,000 Current income tax credit (377,000) (165,000) Provision for deferred tax assets (60,000) 90,000 Income tax loss $ (437,000) $ (75,000) The Company’s investment tax credits and operating loss carryforwards as of December 31, 2012 were as follows: Investment Tax Operating Loss Expiry Year Credits Carryforwards 2013 $ 409,000 $ 286,000 2014-2022 239,000 4,101,000 $ 648,000 $ 4,387,000 - 66 - The information of the integrated income tax was as follows: December 31 2012 2011 Balance of imputation credit account $ 252,935 $ 217,239 Undistributed earnings for the years of 1997 and before $ - $ - Undistributed deficit for the years of 1998 and thereafter $ (4,335,976) $ (2,483,440) The tax returns through 2010, except 2009, have been assessed by the tax authorities. As of December 31, 2012, the Company has tax refund receivable under other assets - others amounted to $7,136 thousand which occurred in 2012 and years prior to 2011. 21. LOSS PER SHARE Calculation of loss per share was summarized as follows: Year Ended December 31, 2012 Amounts (Numerator) Shares Loss Per Share (NT$) Before After (Denominator) Before After Tax Tax (In Thousands) Tax Tax Basic loss per share Net loss attributed to common shareholders $ (1,852,536) $ (1,852,536) 3,676,698 $ (0.50) $ (0.50) 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) Proforma amount, assuming common shares were not treated as treasury stock: Year Ended December 31, 2012 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 $ (1,852,536) $ (1,852,536) 3,684,216 $ (0.50) $ (0.50) 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) 3,673,910 $ (0.23) $ (0.23) - 67 - 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, 2012 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 Win Investment Corporation (“Win”) (Note) The Company holds a 100% ownership interest directly Winbond Electronics (Suzhou) Limited (“WECN”) The Company holds a 100% ownership interest indirectly 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 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 Advanced Engineering (Suzhou) Inc. (“Walton Related party in substance (Suzhou)”) Note: As of December 31, 2012, Win was merged into Chin Xin Investment. Major transactions with related parties were summarized below: Sales Years Ended December 31 2012 2011 WEHK $ 3,964,101 $ 5,008,443 WECJ 2,284,033 2,058,803 WECN 217,583 - WECA 177,813 146,446 GBM (Dongguan) 153,402 38,030 NTC 79,893 38,309 GBM - 88,117 Others 482 12 $ 6,877,307 $ 7,378,160 - 68 - Manufacturing Expenses Years Ended December 31 2012 2011 Walton $ 1,559,452 $ 1,395,376 Walton (Suzhou) 582,901 571,541 MMDC 2,563 20,081 $ 2,144,916 $ 1,986,998 Selling Expenses Years Ended December 31 2012 2011 WECA $ 112,054 $ 68,224 WECJ 7,801 9,823 $ 119,855 $ 78,047 General and Administrative Expenses Years Ended December 31 2012 2011 Walsin $ 7,891 $ 8,062 Research and Development Expenses Years Ended December 31 2012 2011 WECA $ 260,166 $ 176,860 MMDC 119,917 108,968 WECJ 67,785 55,163 NTC - 500 $ 447,868 $ 341,491 Service Revenue (Recorded as “Non-operating Income and Gains - Others”) Years Ended December 31 2012 2011 MMDC $ 396 $ 396 - 69 - Accounts Receivable December 31 2012 2011 WEHK $ 413,799 $ 558,870 WECJ 87,568 121,316 WECN 44,975 - GBM (Dongguan) 14,915 14,073 Others 17,311 7,512 $ 578,568 $ 701,771 Other Financial Assets, Current and Other Current Assets December 31 2012 2011 NTC $ 3,026 $ 2,202 MMDC 99 99 Walsin 20 1,438 $ 3,145 $ 3,739 Refundable Deposits December 31 2012 2011 NTC $ 440 $ 440 Walsin 203 203 $ 643 $ 643 Notes and Accounts Payable December 31 2012 2011 Walton $ 394,197 $ 547,613 Walton (Suzhou) 137,081 165,665 Walsin 2,654 2,113 $ 533,932 $ 715,391 - 70 - Other Payables December 31 2012 2011 WECA $ 135,610 $ 165,469 MMDC 52,095 58,040 WECJ 12,040 12,662 Walton 6,199 9,326 Walsin 1,076 2,496 Walton (Suzhou) 288 33 NTC - 2,202 $ 207,308 $ 250,228 The related party transactions were conducted under normal terms. Security Transactions The Company’s sale of investment to related parties in 2012 was summarized as follows: Shares Disposal Related Party Securities Name (Thousands) Selling Price Gain Win YH Bio Explore & Application 6,955 $ 36,472 $ 952 Co., Ltd. Win Vita Genomic, Inc. 1,115 10,065 (96) $ 46,537 $ 856 The above selling prices were determined in accordance with the investee’s net value. The Company deferred these gains on disposal of investment to the subsidiary. The Company’s purchase of investment from related parties in 2012 was summarized as follows: Shares Purchase Related Party Securities Name (Thousands) Cost Walsin Chin Xin Investment 40,000 $ 403,856 Win Harbinger Venture III Capital Corp. 4,080 43,228 Win Dynacard Co., Ltd. 2,495 12,138 $ 459,222 The above purchase prices were determined in accordance with the investee’s net value. The gain or loss of the transactions have been fully deferred. Financing The board of directors of WECA consented to lend up US$14,000 thousand to the Company. As of December 31, 2012 and 2011, no amount was drawn. - 71 - 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 Gain NTC Machinery and equipment $ 235 $ 46 $ 189 Guarantee a. Please refer to Note 24. b. As of December 31, 2012, the chairman of the Company is a joint guarantor of the long-term debt - Bank of Taiwan syndication agreement (II). Please refer to Note 15. Compensation Information of Directors, Supervisors, and Management Personnel Years Ended December 31 2012 2011 Salary $ 44,000 $ 50,579 Bonus and special compensation 16,718 18,004 $ 60,718 $ 68,583 Total compensation expense for the years ended December 31, 2012 and 2011 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, 2012 were approximately US$2,035 thousand and JPY3,900 thousand. - 72 - 25. DISCLOSURES FOR FINANCIAL INSTRUMENTS Fair Value of Financial Instruments Carrying value and fair value of financial instruments were summarized as follows: December 31 2012 2011 Carrying Value Fair Value Carrying Value Fair Value Nonderivative financial instruments Assets Available-for-sale financial assets (current and noncurrent) $ 768,621 $ 768,621 $ 772,342 $ 772,342 Liabilities Long-term debt (including current portion) 11,033,330 11,033,330 15,124,990 15,124,990 Derivative financial instruments Financial assets at fair value through profit or loss, current Forward exchange contracts 23,551 23,551 1,703 1,703 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. 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. 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, 2012 and 2011, the discount rates used in determining the fair values were 2.86% and 3.24%, respectively. - 73 - 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, 2012 Quoted Market Price in Active Other Method Market of Valuation Total Assets Financial assets at fair value through profit or loss, current $ - $ 23,551 $ 23,551 Available-for-sale financial assets, current and noncurrent 704,091 64,530 768,621 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 Valuation gains (losses) arising from changes in fair value of financial instruments determined using valuation techniques were $21,848 thousand and $(54,403) thousand for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $9,192 thousand and $11,200,934 thousand, respectively. Financial assets and liabilities exposure to fair value risk that resulted from interest rate changes amounted to $3,407,945 thousand and $3,048,246 thousand, respectively, as of December 31, 2012. 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. Adjustment of stockholders’ equity due to the fair value changes of available-for-sale financial assets amounted to $1,130,942 thousand and $1,040,306 thousand as of December 31, 2012 and 2011, 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. - 74 - 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 $112,009 thousand per year. 26. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES Information of financial assets and liabilities, which were denominated in foreign currencies, with significant influence on the Company was as follows: December 31 2012 2011 Foreign New Taiwan Foreign New Taiwan Currencies Exchange Dollars Currencies Exchange Dollars (Thousands) Rate (Thousands) (Thousands) Rate (Thousands) Financial assets Monetary items USD $ 171,780 29.04 $ 4,988,486 $ 139,235 30.275 $ 4,215,347 EUR 951 38.49 36,586 2,049 39.18 80,298 JPY 316,678 0.3364 106,531 2,264,748 0.3906 884,611 RMB 46,856 4.6202 216,483 - - - Investment accounted for by the equity method USD 61,537 29.04 1,787,046 65,042 30.275 1,969,134 Financial liabilities Monetary items USD 72,005 29.04 2,091,023 107,175 30.275 3,244,717 EUR 1,264 38.49 48,656 2,197 39.18 86,063 JPY 747,460 0.3364 251,445 2,336,787 0.3906 912,749 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. - 75 - Winbond Electronics Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors’ Report 4. 2012 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, 2012 and 2011, 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 year ended December 31, 2011 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 as of December 31, 2011; investment loss amounted to NT$1,341 thousand for the year then ended. 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 consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits 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, 2012 and 2011, 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 6, 2013 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. - 76 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 2012 2011 ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount % CURRENT ASSETS CURRENT LIABILITIES Cash and cash equivalents (Notes 2 and 4) $ 5,814,928 10 $ 6,002,597 10 Short-term loans (Note 13) $ 2,716,474 5 $ 1,681,092 3 Financial assets at fair value through profit or loss, current Short-term bills payable (Note 14) 499,376 1 199,763 - (Notes 2 and 5) 28,721 - 3,676 - Notes payable 812,253 1 849,713 1 Available-for-sale financial assets, current (Notes 2 and 8) 704,091 1 902,713 1 Accounts payable 3,421,866 6 3,211,805 5 Notes receivable, net (Notes 2 and 6) 327 - 534 - Payable on equipment 173,632 - 650,233 1 Accounts receivable, net (Notes 2 and 6) 4,608,920 8 4,113,894 7 Accrued expenses and other payables 2,187,998 4 2,151,012 4 Accounts receivable from related parties, net (Notes 6 and 22) 46,073 - 50,639 - Current portion of long-term liabilities (Note 15) 4,483,330 8 7,158,327 12 Other financial assets, current 214,172 - 139,144 - Other current liabilities 78,085 - 68,865 - Inventories (Notes 2 and 7) 8,108,677 15 7,272,562 12 Deferred income tax assets, current (Notes 2 and 20) 222,356 1 281,638 - Total current liabilities 14,373,014 25 15,970,810 26 Other current assets 532,212 1 420,635 1 LONG-TERM LIABILITIES Total current assets 20,280,477 36 19,188,032 31 Long-term debt (Note 15) 6,550,000 12 7,966,663 13 FUND AND INVESTMENTS OTHER LIABILITIES Available-for-sale financial assets, noncurrent (Notes 2 and 8) 64,530 - 353,997 1 Accrued pension liabilities (Notes 2 and 16) 417,477 1 368,676 1 Financial assets carried at cost, noncurrent (Notes 2 and 9) 604,185 1 1,245,403 2 Reserve for product guarantee (Note 2) 119,902 - 94,271 - Long-term equity investments at equity method (Notes 2 and 10) 1,727,128 3 65,092 - Other liabilities - others 100,778 - 99,146 - Total fund and investments 2,395,843 4 1,664,492 3 Total other liabilities 638,157 1 562,093 1 PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 11) Total liabilities 21,561,171 38 24,499,566 40 Cost Land 870,460 2 873,493 1 EQUITY ATTRIBUTABLE TO STOCKHOLDERS OF THE PARENT Buildings 20,067,447 36 19,963,440 33 Common stock (Note 17) 36,856,012 66 36,802,302 60 Machinery and equipment 78,216,631 139 76,529,259 126 Capital surplus Other equipment 2,888,473 5 2,822,391 5 Treasury stock transaction 1,971,862 4 1,971,862 3 Total cost 102,043,011 182 100,188,583 165 Adjustment on long-term equity investments under equity method 27,868 - 23,913 - Accumulated depreciation (73,119,244) (130) (65,165,653) (107) Stock option (Notes 2 and 18) 9,285 - 13,960 - Construction in progress and prepayments on purchase of equipment 97,347 - 126,609 - Others 190,111 - 222,784 1 Accumulated deficit (4,335,976) (8) (2,483,440) (4) Property, plant and equipment, net 29,021,114 52 35,149,539 58 Other equity Cumulative translation adjustments (Note 2) 268,081 - 359,900 - INTANGIBLE ASSETS (Notes 2 and 12) 183,310 - 639,191 1 Unrealized loss on financial instruments (Note 2) (1,408,417) (2) (1,449,394) (2) Treasury stock (Notes 2 and 17) (106,387) - (106,387) - OTHER ASSETS Refundable deposits 148,981 - 160,149 - Equity attributable to stockholders of the parent 33,472,439 60 35,355,500 58 Deferred income tax assets, noncurrent (Notes 2 and 20) 3,996,998 7 3,992,639 7 Others 192,414 1 130,607 - MINORITY INTEREST 1,185,527 2 1,069,583 2 Total other assets 4,338,393 8 4,283,395 7 Total stockholders’ equity 34,657,966 62 36,425,083 60 TOTAL $ 56,219,137 100 $ 60,924,649 100 TOTAL $ 56,219,137 100 $ 60,924,649 100 The accompanying notes are an integral part of the consolidated financial statements. - 77 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) 2012 2011 Amount % Amount % NET SALES $ 32,965,283 100 $ 34,696,850 100 COST OF SALES (Note 7) 27,804,925 84 28,640,415 83 (UNREALIZED) REALIZED INTERCOMPANY PROFIT (74) - 266 - GROSS PROFIT 5,160,284 16 6,056,701 17 OPERATING EXPENSES Selling expenses 1,001,627 3 968,768 3 General and administrative expenses 1,126,746 4 954,961 3 Research and development expenses 4,299,021 13 4,306,307 12 Total operating expenses 6,427,394 20 6,230,036 18 LOSS FROM OPERATIONS (1,267,110) (4) (173,335) (1) NON-OPERATING INCOME AND GAINS Interest income 43,825 - 39,942 - Investment income recognized under equity method (Note 10) 14,458 - 11,963 - Investment income 47,133 - 84,119 - Gain on disposal of property, plant and equipment (Note 2) 21,184 - 7,690 - Gain on disposal of investments - - 69,880 - Foreign exchange gain (Note 2) - - 45,765 - Reversal of allowance for doubtful accounts 67,586 - 8,872 - Gain on valuation of financial instruments (Note 5) 103,647 1 - - Others 36,793 - 88,583 1 Total non-operating income and gains 334,626 1 356,814 1 NON-OPERATING EXPENSES AND LOSSES Interest expense 364,983 1 430,307 1 Other investment loss (Note 9) 25,030 - 86,902 - Loss on disposal of property, plant and equipment (Note 2) 3,629 - 2,960 - Loss on disposal of investment 30,733 - - - Foreign exchange loss (Note 2) 55,538 - - - Loss on valuation of financial instruments (Note 5) - - 154,790 1 Others 27,674 - 35,125 - Total non-operating expenses and losses 507,587 1 710,084 2 (Continued) - 78 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Except Loss Per Share) 2012 2011 Amount % Amount % LOSS BEFORE INCOME TAX $ (1,440,071) (4) $ (526,605) (2) INCOME TAX EXPENSE (Notes 2 and 20) (175,037) (1) (152,363) - NET LOSS $ (1,615,108) (5) $ (678,968) (2) ATTRIBUTED TO Stockholders of the parent $ (1,852,536) (6) $ (843,291) (2) Minority interest 237,428 1 164,323 - $ (1,615,108) (5) $ (678,968) (2) 2012 2011 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 PER SHARE (Notes 2 and 21) Basic loss per share $ (0.39) $ (0.50) $ (0.14) $ (0.23) Proforma amount, assuming common shares held by subsidiaries were not treated as treasury stock: 2012 2011 After Income After Income Before Tax and Before Tax and Income Tax Attributed to Income Tax Attributed to and Minority Stockholders and Minority Stockholders Interest of the Parent Interest of the Parent NET LOSS $ (1,440,071) $ (1,852,536) $ (526,605) $ (843,291) BASIC LOSS PER SHARE $ (0.39) $ (0.50) $ (0.14) $ (0.23) The accompanying notes are an integral part of the consolidated financial statements. (Concluded) - 79 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) Capital Surplus Other Equity Adjustments on Long-term Equity Investments Cumulative Unrealized Loss Treasury Stock under Equity Accumulated Translation on Financial Minority Common Stock Transaction Method Stock Option Others Deficit Adjustments Instruments Treasury Stock Interests Total BALANCE, JANUARY 1, 2011 $ 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 Net loss for 2012 - - - - - (1,852,536) - - - 237,428 (1,615,108) Changes in translation adjustments ------(92,184) - - - (92,184) Changes in unrealized gain on financial instruments ------110,462 - - 110,462 Capital surplus from investee under equity method - - 76 ------76 Write-off stockholders' equity due to subsidiary merged (Note 10) - - 3,879 - - - 365 (69,485) - - (65,241) Issuance of stock from exercising employee stock options (Note 17) 53,710 - - (4,816) (32,673) - - - - - 16,221 Compensation cost of employee stock options (Note 18) - - - 141 ------141 Changes in minority interests ------(121,484) (121,484) BALANCE, DECEMBER 31, 2012 $ 36,856,012 $ 1,971,862 $ 27,868 $ 9,285 $ 190,111 $ (4,335,976) $ 268,081 $ (1,408,417) $ (106,387) $ 1,185,527 $ 34,657,966 The accompanying notes are an integral part of the consolidated financial statements. - 80 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM OPERATING ACTIVITIES Net loss $ (1,615,108) $ (678,968) Adjustments to reconcile net loss to net cash provided by operating activities Depreciation 8,651,002 9,863,064 Amortization 573,864 571,933 Reversal of allowance for doubtful accounts (67,586) (8,872) Loss on decline in market value and obsolescence and abandonment of inventories 158 496,359 Loss (gain) on disposal of investments 30,733 (69,880) Investment income recognized under equity method (14,458) (11,963) Cash dividends from equity method investees 6,566 - Impairment losses on financial assets carried at cost 25,030 86,902 Net gain on disposal of property, plant and equipment (17,555) (4,730) Compensation cost of employee stock options 198 4,808 Net changes in operating assets and liabilities Financial assets at fair value through profit or loss (25,044) 60,450 Notes receivable 207 1,700 Accounts receivable (513,941) 299,968 Accounts receivable from related parties 4,566 (11,594) Other financial assets, current (75,111) (31,605) Inventories (836,273) (1,394,921) Other current assets (111,577) 203,880 Deferred income tax assets 54,923 42,962 Other assets 7,224 (13,769) Notes payable (37,460) (287,726) Accounts payable 210,061 707,387 Accrued expenses and other payables 28,423 (268,280) Other current liabilities 9,220 (51,856) Other liabilities 66,300 74,634 Net cash provided by operating activities 6,354,362 9,579,883 CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of property, plant and equipment (3,126,853) (6,102,573) Acquisition of investments under equity method (403,856) - Acquisition of available-for-sale financial assets (86,915) (748,232) Acquisition of financial assets carried at cost (1,158) - Proceeds from disposal of investments accounted for by equity method - 47,527 Proceeds from disposal of available-for-sale financial assets 315,037 135,810 Proceeds from disposal of financial assets carried at cost 16,552 2,078 Proceeds from capital return of financial assets carried at cost 8,617 48,653 Proceeds from disposal of property, plant and equipment 48,145 12,687 Acquisition of intangible assets (89,382) (81,809) Net cash used in investing activities (3,319,813) (6,685,859) (Continued) - 81 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) 2012 2011 CASH FLOWS FROM FINANCING ACTIVITIES Increase in short-term loans $ 1,035,383 $ 65,277 Increase in short-term bills payable 299,613 199,763 Proceeds from long-term debt 3,200,000 5,000,000 Repayment of long-term debt (7,291,660) (8,491,670) Decrease in minority interest (166,417) (174,035) Proceeds from exercise of employee stock options 16,220 32,902 Net cash used in financing activities (2,906,861) (3,367,763) EFFECT OF EXCHANGE RATE CHANGES (57,269) 72,245 EFFECT OF DISPOSAL SUBSIDIARIES (258,088) - NET DECREASE IN CASH AND CASH EQUIVALENTS (187,669) (401,494) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 6,002,597 6,404,091 CASH AND CASH EQUIVALENTS, END OF YEAR $ 5,814,928 $ 6,002,597 SUPPLEMENTAL CASH FLOW INFORMATION Interest paid $ 422,819 $ 553,428 Income tax paid $ 102,782 $ 104,058 NONCASH INVESTING AND FINANCING ACTIVITIES Current portion of long-term liabilities $ 4,483,330 $ 7,158,327 Change in cumulative translation adjustments $ (92,184) $ 117,737 Unrealized gain (loss) on financial instruments $ 110,462 $ (1,397,458) Write-off stockholders' equity due to subsidiary merged $ (65,241) $ - Capital surplus from investee under equity method $ 76 $ 1 Acquisition of available-for-sale financial assets offset by accounts receivable $ 86,501 $ - CASH PAYMENT FOR ACQUISITIONS OF PROPERTY, PLANT AND EQUIPMENT Net increase in acquisition of property, plant and equipment $ 2,650,252 $ 5,658,231 Add payable for property, plant and equipment, beginning of year 650,233 1,094,575 Less payable for property, plant and equipment, end of year (173,632) (650,233) Cash payment for acquisitions of property, plant and equipment $ 3,126,853 $ 6,102,573 (Continued) - 82 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars) As of December 31, 2012, fair values of assets and liabilities of Win Investment Corporation (WIN), a subsidiary was merged by Chin Xin Investment are summarized as follows: Cash and cash equivalents $ 258,088 Available-for-sale financial assets 433,932 Financial assets carried at cost 620,154 Other current assets and other assets 51,409 Other current liabilities (33) Net assets of WIN on merger date $ 1,363,550 Net cash used in disposal subsidiaries WIN $ 258,088 The accompanying notes are an integral part of the consolidated financial statements. (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 - 83 - WINBOND ELECTRONICS CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2012 AND 2011 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) 1. ORGANIZATION AND OPERATIONS Winbond Electronics Corporation (“Winbond”) was incorporated in the Republic of China (the “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. An initial public offering of Winbond’s common stocks was made on October 18, 1995, and the stocks are traded on the Taiwan Stock Exchange. There are 3,625 and 3,621 employees in Winbond and its subsidiaries (the “Company”) as of December 31, 2012 and 2011, respectively. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the ROC. For the convenience of readers, 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 financial statements shall prevail. However, the accompanying consolidated 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. Significant accounting policies are summarized as follows: Principles of Consolidation Winbond’s investees in which ownership interest is over 50% or with control ability are included in the consolidated financial statements. All significant intercompany balances and transactions have been eliminated upon consolidation. The consolidated entities (collectively, the “Company”) are summarized as follows: Capital Name (In Thousands) Basis for Consolidation Winbond Int’l Corporation (“WIC”) US$ 104,240 Winbond holds 100% ownership interest Winbond Electronics Corp. America US$ 58,917 WIC holds 100% ownership interest (“WECA”) Landmark Group Holdings Ltd. US$ 10,313 Winbond holds 100% ownership interest (“Landmark”) Winbond Electronics Corp. Japan JPY 148,500 Landmark holds 100% ownership interest (“WECJ”) Peaceful River Corp. (“PRC”) US$ 10,720 Landmark holds 100% ownership interest (Note 1) Winbond Electronics (HK) Limited HK$ 500 Winbond holds 100% ownership interest (“WEHK”) Pine Capital Investment Limited (“PCI”) HK$ 10,920 Winbond holds 100% ownership interest (Continued) - 84 - Capital Name (In Thousands) Basis for Consolidation Winbond Electronics (Suzhou) Limited RMB 8,639 PCI holds 100% ownership interest (“WECN) Mobile Magic Design Corporation NT$ 50,000 Winbond holds 100% ownership interest (“MMDC”) Nuvoton Technology Corporation NT$ 2,075,544 Winbond holds 61% ownership interest (“NTC”) Marketplace Management Ltd. US$ 8,328 NTC holds 100% ownership interest (“MML”) Goldbond LLC (“GLLC”) US$ 44,338 MML holds 100% ownership interest Nuvoton Electronics Technology RMB 16,555 GLLC holds 100% ownership interest (Shanghai) Limited (“NTSH”) Winbond Electronics (Nanjing) Ltd. RMB 4,046 GLLC holds 100% ownership interest (“WENJ”) Pigeon Creek Holding Co., Ltd. US$ 13,868 NTC holds 100% ownership interest (“PCH”) Nuvoton Technology Corp. America US$ 6,050 PCH holds 100% ownership interest (“NTCA”) Nuvoton Investment Holding Ltd. US$ 21,000 NTC holds 100% ownership interest (“NIH”) Nuvoton Technology Israel Ltd. ILS 1 NIH holds 100% ownership interest (“NTIL”) Nuvoton Electronics Technology (H.K.) HK$ 107,400 NTC holds 100% ownership interest Limited (“NTHK”) Nuvoton Electronics Technology RMB 46,434 NTHK holds 100% ownership interest (“Shenzhen”) Limited (“NTSZ”) Win Investment Corporation (“WIN”) NT$ - (Note 2) Newfound Asian Corp. (“NAC”) US$ 6,555 Winbond holds 100% ownership interest Baystar Holdings Ltd. (“BHL”) US$ 22,590 NAC holds 100% ownership interest (Concluded) Note 1: In September 2012, Landmark acquired 100% ownership interest of PRC from WIN. Note 2: WIN was merged by Chin Xin Investment on December 31, 2012. Foreign Currencies Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions occur. At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in current income or loss. At the balance sheet date, foreign-currency nonmonetary assets and liabilities (e.g., equity instruments) which are measured at fair value shall be revalued using prevailing exchange rates. The exchange differences treated as recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity; recognized in profit and loss if the changes in fair value is recognized in profit or loss. Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at exchange rates at trade 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. - 85 - Accounting Estimates In preparing consolidated 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 loss on inventories, 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 commercial paper with maturities of less than three months from the date of purchase are classified as cash equivalents. The carrying amount approximates fair value. Financial Instruments 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 regular way purchases or sales of financial assets, derivative financial instrument are recognized on a settlement date basis, and others are recognized on a 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 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. 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. - 86 - 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 regular way purchases or sales of available-for-sale financial assets are recorded on a 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 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. Open-end mutual funds are stated at net asset values at the balance sheet date. 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 significant 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. A merge or acquisition transaction is accounted for by purchase method. When equity investments is made with an asset other than cash, the measurement of fair value is determined by the asset given up or the shares acquired, of which is more objective and reliable. - 87 - If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. For long-term equity investments for which the Company has significant influence but with no control, the carrying amount of each investment is compared with its own recoverable amount for the purpose of impairment testing. 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: 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, accumulated depreciation and accumulated amortized 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. - 88 - 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. Loss Per Share Basic loss per share is calculated by dividing net loss applicable to common stock by the weighted average number of shares outstanding. Share-based Compensation 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 - stock 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. Winbond’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. Reclassifications Certain accounts in the consolidated financial statements as of and for the year ended December 31, 2011 have been reclassified to conform to the presentation of the consolidated financial statements as of and for the year ended December 31, 2012. - 89 - 3. EFFECTS OF 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 consolidated financial statements for the year ended December 31, 2011. 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, please refer to Note 27 to the consolidated financial statements. 4. CASH AND CASH EQUIVALENTS December 31 2012 2011 Cash on hand $ 713 $ 640 Cash in bank 1,319,076 1,451,014 Time deposit 2,750,739 3,799,930 Short-term bills 1,744,400 751,013 $ 5,814,928 $ 6,002,597 Time deposits in the amounts of $132,160 thousand and $139,964 thousand as of December 31, 2012 and 2011, respectively, were pledged to secure land lease agreement, purchase orders of materials, customs tariff obligations and sales deposits and are reclassified as refundable deposits. 5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS December 31 2012 2011 Financial assets at fair value through profit or loss, current Listed stocks $ 3,533 $ 3,461 Forward exchange contracts 25,188 215 $ 28,721 $ 3,676 For the years ended December 31, 2012 and 2011, the Company’s entered into derivative contracts to manage exposures due to exchange rate and interest rate fluctuation. The financial risk management objective of the Company is to minimize risks due to changes in fair value or cash flows. - 90 - Outstanding forward exchange contracts as of December 31, 2012 and 2011 were as follows: Contract Amount Currencies Maturity Date (In Thousands) December 31, 2012 Sell forward exchange contracts USD to NTD 2013.01.03-2013.03.14 USD137,000/NTD3,989,235 Sell forward exchange contracts NTD to USD 2013.02.07 NTD289,220/USD10,000 December 31, 2011 Sell forward exchange contracts USD to NTD 2012.01.03-2012.03.02 USD62,000/NTD1,875,747 Sell forward exchange contracts USD to JPY 2012.01.05 USD925/JPY72,000 The transactions of financial instruments at fair value through profit or loss resulted in net gains of $103,647 thousand and net losses of $154,790 thousand for the years ended December 31, 2012 and 2011, respectively. 6. NOTES AND ACCOUNTS RECEIVABLE December 31 2012 2011 Notes receivable $ 327 $ 534 Accounts receivable $ 4,721,523 $ 4,426,386 Less allowance for doubtful accounts (112,603) (312,492) $ 4,608,920 $ 4,113,894 Accounts receivable from related parties (Note 22) $ 46,073 $ 50,639 7. INVENTORIES December 31 2012 2011 Finished goods $ 1,643,222 $ 1,720,658 Work-in-process 6,091,663 5,123,038 Raw materials and supplies 357,001 398,506 Inventories in transit 16,791 30,360 $ 8,108,677 $ 7,272,562 As of December 31, 2012 and 2011, the allowance for inventory devaluation was $1,245,240 thousand and $1,331,172 thousand, respectively. Loss on write-down of inventories of $158 thousand and $496,359 thousand were recognized as the cost of sales for the years ended December 31, 2012 and 2011, respectively. Gain on recovery of decline in market value amounted to $85,930 thousand in the year ended December 31, 2012, due to net realizable value improvement. - 91 - Unallocated fixed manufacturing costs were recognized as cost of sales in the years ended December 31, 2012 and 2011 amounted to $513,589 thousand and $548,177 thousand, respectively. 8. AVAILABLE-FOR-SALE FINANCIAL ASSETS December 31 2012 2011 Ownership Ownership Amount Percentage Amount Percentage Listed stocks Walton Advanced Engineering Inc. $ 420,526 10 $ 480,601 10 Hannstar Display Corporation 192,061 2 168,612 2 Walsin Technology Corporation 91,504 2 103,859 2 Walsin Lihwa Corporation - - 143,880 - Emerging Memory & Logic Solutions Inc. - - 140,738 7 Japan Material Co., Ltd. - - 14,097 1 Capella Microsystems, Inc. - - 69,563 2 Chaintech Corp. - - 5,760 - Private-placement shares of listed company Hannstar Display Corporation 64,530 1 129,600 2 768,621 1,256,710 Less current portion (704,091) (902,713) $ 64,530 $ 353,997 In January 2011, the Company acquired 108,000 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 approved by the controlling authorities. In September 2012, Hannstar Display Corporation carried out a capital reduction to offset a deficit, at a 50% capital reduction. The Company deduced 54,000 thousand private-placement shares of Hannstar Display Corporation. There were 27,000 thousand of Hannstar Display Corporation’s private-placement shares held by the Company are decreased due to WIN (dissolved company) was merged by Chin Xin Investment on December 31, 2012. As of December 31, 2012, the Company had 27,000 thousand of Hannstar Display Corporation’s private-placement shares. 9. FINANCIAL ASSETS CARRIED AT COST December 31 2012 2011 Ownership Ownership Amount Percentage Amount Percentage LTIP Trust Fund $ 394,944 - $ 411,740 - United Industrial Gases Co., Ltd. 81,081 4 154,867 8 Harbinger III Venture Capital Corp. 39,808 5 39,678 5 Strategic Value Fund II 1,967 24 15,752 24 Ta Cherng Investing Co. - - 199,870 10 (Continued) - 92 - December 31 2012 2011 Ownership Ownership Amount Percentage Amount Percentage Walsin Color Corporation $ - - $ 121,197 9 YH Bio Explore & Application Co., Ltd. - - 83,011 8 Others 86,385 - 219,288 - $ 604,185 $ 1,245,403 (Concluded) a. 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. b. The Company assessed the recoverable amount of the above financial assets; as a result the Company recognized an impairment loss of $25,030 thousand and $86,902 thousand, recorded as “other investment loss” for the years ended December 31, 2012 and 2011, respectively. 10. LONG-TERM EQUITY INVESTMENTS AT EQUITY METHOD December 31 2012 2011 Original Investment Carrying Ownership Carrying Ownership Cost Value Percentage Value Percentage Chin Xin Investment $ 1,723,588 $ 1,654,103 35 $ - - Nyquest Technology Co., Ltd. (“Nyquest”) 28,808 73,025 29 65,092 30 $ 1,752,396 $ 1,727,128 $ 65,092 Equity in gains (losses) of equity method investee was summarized as follows: Years Ended December 31 2012 2011 Nyquest $ 14,458 $ 13,304 CFP Technology Corp. (“CFP) - (1,341) $ 14,458 $ 11,963 The financial statements for the year ended December 31, 2011 of CFP were audited by other auditors. In August 2011, the Company sold partial investments of CFP. As the Company’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”. Nyquest was incorporated in 2006 and mainly engaged in the manufacture and sale of computer related products. In July 2011, the Company sold 900 thousand shares of Nyquest at $35 per share to non-related parties and recognized a disposal income of $18,885 thousand that was included in gain on disposal of investments in 2011. As of December 31, 2012, the Company had 4,815 thousand shares, with a 29% ownership interest in Nyquest. - 93 - In November 2012, the Company bought 40,000 thousand shares of Chin Xin Investment from related-party Walsin Lihwa Corporation. On December 31, 2012, Win Investment, a subsidiary of the Company was merged with Chin Xin Investment, and accordingly Win Investment was dissolved. The Company acquired 130,713 thousand shares of Chin Xin Investment after such merger. As of December 31, 2012, the Company had 170,713 thousand shares of Chin Xin Investment with a 35% ownership interest. The Company has written off $65,241 thousand of stockholders' equity due to the above-mentioned merger transaction. The unrealized valuation loss on financial assets recognized as stockholders’ equity amounted to $277,475 thousand as of December 31, 2012. 11. PROPERTY, PLANT AND EQUIPMENT Accumulated depreciation of property, plant and equipment consisted of the following: December 31 2012 2011 Buildings $ 10,507,177 $ 9,259,781 Machinery and equipment 60,110,008 53,606,482 Other equipment 2,502,059 2,299,390 $ 73,119,244 $ 65,165,653 Capitalized interest for the years ended December 31, 2012 and 2011 amounted to $49,146 thousand and $122,224 thousand, respectively. The interest rates of interest capitalized were 2.62%-2.70% and 2.59%-2.70%, respectively. As of December 31, 2012 and 2011, the carrying value of $20,557,599 thousand and $20,906,790 thousand of land and 12-inch Fab manufacturing facilities were pledged to secure long-term debt, respectively. Please refer to Note 15 to the consolidated financial statements. 12. INTANGIBLE ASSET December 31 2012 2011 Deferred technical assets, net $ 179,372 $ 638,357 Others 3,938 834 $ 183,310 $ 639,191 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. - 94 - 13. SHORT-TERM LOANS December 31 2012 2011 Interest Rate Amount Interest Rate Amount Bank lines of credit 1.33%-1.87% $ 2,562,100 1.89%-2.58% $ 141,500 Materials procurement loans 1.11%-1.70% 154,374 1.09%-2.73% 1,539,592 $ 2,716,474 $ 1,681,092 14. SHORT-TERM BILLS PAYABLE December 31 2012 Bills Financial 2011 Corporation Interest Rate Amount Amount Commercial paper payable China bills 0.85% $ 200,000 $ 200,000 MEGA bills 1.15% 300,000 - Less unamortized discount on (624) (237) commercial paper payable $ 499,376 $ 199,763 15. LONG-TERM DEBT December 31 2012 2011 Period Interest Rate Amount Amount Chinatrust Commercial Bank syndication 2008.06.27- 2.68%-2.70% $ 1,283,330 $ 3,849,990 agreement (II) 2013.06.27 Bank of Taiwan syndication agreement (I) 2009.07.27- - - 2,775,000 2012.07.27 Bank of Taiwan syndication agreement (II) 2010.06.18- 2.97%-3.11% 4,850,000 6,000,000 2015.06.18 Bank of Taiwan syndication agreement (III) 2011.12.23- 2.49%-2.63% 2,900,000 2,500,000 2016.12.23 Chinatrust Commercial Bank syndication 2012.12.27- 2.65% 2,000,000 - agreement (III) 2015.12.27 11,033,330 15,124,990 Less current portion of long-term debt (4,483,330) (7,158,327) $ 6,550,000 $ 7,966,663 Chinatrust Commercial Bank Syndication Agreement (II) a. On June 4, 2008, Winbond 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. - 95 - Bank of Taiwan Syndication Agreement (I) a. On July 15, 2009, Winbond 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 to the consolidated financial statements for collateral on bank borrowing and Note 22 to the consolidated financial statements for the joint guarantor. d. The agreement was fully redeemed on July 27, 2012. Bank of Taiwan Syndication Agreement (II) a. On May 31, 2010, Winbond 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 part a and b, which amounted to $3.3 billion and $3.5 billion, respectively, the total line of credit $6.8 billion. 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 to the consolidated financial statements collateral on bank borrowing and Note 22 to the consolidated financial statements for the joint guarantor. Bank of Taiwan Syndication Agreement (III) a. On September 19, 2011, Winbond 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 to the consolidated financial statements for collateral on bank borrowing. Chinatrust Commercial Bank Syndication Agreement (III) a. On November 19, 2012, Winbond entered into a syndication agreement, amounting to $5 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 six months from December 27, 2014 until maturity. c. Please refer to Note 11 to the consolidated financial statements for collateral on bank borrowing. Winbond 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 (II), (III) and Chinatrust Commercial Bank Syndication Agreement (III) 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. - 96 - 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 $140,268 thousand and $129,544 thousand for the years ended December 31, 2012 and 2011, respectively. The Company has 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 2012 2011 Service cost $ 27,621 $ 27,848 Interest cost 33,879 35,352 Expected return on plan assets (18,907) (20,125) Amortization, net 14,509 11,362 Net pension cost $ 57,102 $ 54,437 b. The assumptions used in determining the actuarial present value of the projected benefit obligation were as follows: December 31 2012 2011 Discount rate 1.75%-2.25% 2.00%-2.25% Expected long-term rate of return on plan assets 2.00% 2.00% Rate of increase in compensation 1.00%-3.00% 1.00%-3.00% c. Reconciliation of funded status of the plan and accrued pension liabilities was summarized as follows: December 31 2012 2011 Benefit obligation Vested benefit obligation $ 644,650 $ 373,292 Accumulated benefit obligation 1,369,212 1,213,549 Projected benefit obligation 1,790,366 1,606,975 Funded status Projected benefit obligation (1,790,366) (1,606,975) Fair value of plan assets 957,810 951,013 Funded status (832,556) (655,962) Unrecognized net transition obligation 90,308 97,217 Unrecognized net gain 341,678 190,069 Deferred pension cost (16,907) - Accrued pension liabilities $ (417,477) $ (368,676) - 97 - 17. STOCKHOLDERS’ EQUITY Winbond’s Common Stock December 31 2012 2011 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) 3,685,601 3,680,230 Par value (in dollars) $ 10 $ 10 Capital $ 36,856,012 $ 36,802,302 As of December 31, 2011, the balance of Winbond’s capital account amounted to $36,802,302 thousand, divided into 3,680,230 thousand shares at par $10.00 per share. Employees executed the stock option at $3.02 per share totaling 5,371 thousand shares during the year of 2012. As of December 31, 2012, the balance of Winbond’s capital account amounted to $36,856,012 thousand, divided into 3,685,601 thousand shares at par $10.00 dollars per share. Walsin Lihwa is a major stockholder of Winbond and held approximately 23% ownership interest in Winbond as of December 31, 2012. According to the Company Law of the ROC and Winbond’s Articles of Incorporation, if Winbond has surplus earnings at the end of a fiscal year, after covering all losses incurred in prior years and paying all taxes, Winbond 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 Winbond. 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 Winbond at the end of a fiscal year if the losses can be fully covered by the undistributed retained earnings, Winbond 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 Winbond 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”. The Company was loss of the year ended 2011, so the stockholders’ meeting in not assigned. The relevant information is available on MOPS. And the Company were operating loss of the year 2012, it is not estimated bonus to employees, directors and supervisors. - 98 - Treasury Stock Treasury stock transactions for the year ended December 31, 2012 were summarized as follows: Treasury Treasury Stock Held as Stock Held as Increased Decreased of of January 1, During the During the December 31, Purpose of Buyback 2012 Year Year 2012 Common shares held by subsidiaries 7,518,364 - - 7,518,364 Treasury stock transactions for the year ended December 31, 2011 were summarized as follows: Treasury Treasury Stock Held as Stock Held as Increased Decreased of of January 1, During the During the December 31, Purpose of Buyback 2011 Year Year 2011 Common shares held by subsidiaries 7,518,364 - - 7,518,364 As of December 31, 2012 and 2011, Winbond’s subsidiary - Baystar Holdings Ltd. (BHL) held 7,518,364 shares of Winbond’s common stock which amounted to $106,387 thousand. The purpose of holding the shares was to maintain stockholder’s equity. The shares held by BHL were treated as treasury stocks. Winbond’s stock held by subsidiaries is treated as treasury stock, and the holders are entitled to the rights of stockholders, except for the right to participate in Winbond’s share issuance for cash and vote in stockholders’ meeting. 18. EMPLOYEE STOCK OPTION In 2008 and 2009, Winbond granted employee stock warrants in the quantity of 45,764 thousand and 1,585 thousand units, respectively. Each individual employee stock warrant is granted the right to purchase Winbond’s new issued one common share. The warrants were granted to qualified employees of Winbond and its subsidiaries. The warrants granted are valid for 5 years and exercisable at certain percentages after the second anniversary year from the grant date. The warrants were granted at an exercise price equal to the closing price of Winbond’s common shares listed on the Taiwan Stock Exchange on the grant date. For any subsequent changes in Winbond’s paid-in capital, the exercise price and the number of options are adjusted accordingly. - 99 - Employee stock warrants were summarized as follows: Years Ended December 31 2012 2011 Weighted Weighted Number of Average Number of Average Options (In Exercise Price Options (In Exercise Price Employee Stock Warrants Thousands) (NT$) Thousands) (NT$) Outstanding balance, beginning of year 15,516 $ 3.20 27,459 $ 3.12 Warrants granted - - - - Warrants exercised (5,371) 3.02 (10,880) 3.02 Warrants cancelled - - - - Warrants expired (371) 3.49 (1,063) 3.05 Outstanding balance, end of year 9,774 3.28 15,516 3.20 Warrants exercisable, end of year 9,751 3.28 14,596 3.11 Information about outstanding warrants was as follows: December 31 2012 2011 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 0.90 $3.02-$6.46 1.87 Winbond used the fair value method to evaluate the option using Black-Scholes model, the assumptions and proforma result were as follows: Grant-date share price (NT$) $3.02-$6.46 Exercise price (NT$) $3.02-$6.46 Expected volatility 52.03%-74.48% Expected duration (years) 3.75 Expected dividend yield 0% Risk-free interest rate 0.94%-1.95% Compensation costs recognized under the fair value method were $198 thousand and $4,808 thousand for the years ended December 31, 2012 and 2011, respectively. - 100 - 19. PERSONNEL EXPENSE, DEPRECIATION, AND AMORTIZATION Year Ended December 31, 2012 Classified as Classified as Non-operation Classified as Operation Expenses and Cost of Sales Expenses Losses Total Personnel expense Salary $ 1,877,264 $ 2,546,280 $ - $ 4,423,544 Insurance 142,821 152,646 - 295,467 Pension 110,186 161,263 - 271,449 Others 10,165 44,910 - 55,075 $ 2,140,436 $ 2,905,099 $ - $ 5,045,535 Depreciation $ 8,483,615 $ 164,784 $ 2,603 $ 8,651,002 Amortization $ - $ 555,148 $ 18,716 $ 573,864 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 $ 1,783,498 $ 2,393,995 $ - $ 4,177,493 Insurance 133,954 140,209 - 274,163 Pension 113,247 162,565 - 275,812 Others 9,764 42,926 - 52,690 $ 2,040,463 $ 2,739,695 $ - $ 4,780,158 Depreciation $ 9,703,620 $ 156,858 $ 2,586 $ 9,863,064 Amortization $ - $ 558,823 $ 13,110 $ 571,933 20. INCOME TAX Components of income tax expense (credit) were summarized as follows: Years Ended December 31 2012 2011 Current income tax credit $ (209,252) $ (55,797) Deferred income tax assets and valuation allowance adjustment 361,796 171,234 Others 22,493 36,926 Income tax expense $ 175,037 $ 152,363 - 101 - Components of deferred income tax assets were as follows: December 31 2012 2011 Deferred tax assets Net operating loss carryforwards $ 4,857,328 $ 4,504,203 Investment tax credits 1,175,366 2,783,976 Allowance for inventory devaluation losses 211,000 167,000 Other temporary differences 265,125 338,990 Deferred income tax assets 6,508,819 7,794,169 Less valuation allowance (2,281,465) (3,519,892) 4,227,354 4,274,277 Deferred income tax liabilities Unrealized gain on financial instruments (4,000) - Unrealized exchange gains (4,000) - Deferred income tax assets, net 4,219,354 4,274,277 Deferred income tax assets, current (222,356) (281,638) Deferred income tax assets, noncurrent $ 3,996,998 $ 3,992,639 A reconciliation of income tax credit base on loss before income tax at statutory rate and current income tax credit was as follows: Years Ended December 31 2012 2011 Income tax credit at statutory rate $ (147,929) $ (30,444) Increase (decrease) in tax resulting from Tax-exempt income on disposal of domestic investments (71,000) (8,090) Other permanent difference 9,677 (17,263) Current income tax credit $ (209,252) $ (55,797) Winbond and NTC’s investment tax credits and operating loss carryforwards as of December 31, 2012 were as follows: Investment Tax Operating Loss Expiry Year Credit Carryforwards 2013 $ 615,000 $ 286,000 2014-2022 240,000 4,101,000 $ 855,000 $ 4,387,000 As of December 31, 2012, WECA has operating loss carryforwards of US$15,990 thousand, which will expire in 2025. The information of the imputation credit of Winbond was as follows: December 31 2012 2011 Balance of Imputation Credit Account $ 252,935 $ 217,239 Undistributed earnings for the years of 1997 and before $ - $ - Accumulated deficit for the years of 1998 and thereafter $ (4,335,976) $ (2,483,440) - 102 - Winbond’s income tax returns through 2010, except 2009, have been assessed by the tax authority. As of December 31, 2012, Winbond has tax refund receivable under other assets - others amounted to $7,136 thousand which occurred in 2012 and years prior to 2012. 21. LOSS PER SHARE Year Ended December 31, 2012 Amounts (Numerator) Loss Per Share (NT$) After Income After Income Before Income Tax and Before Income Tax and Tax and Attributed to Shares Tax and Attributed to Minority Stockholders (Denominator) Minority Stockholders Interest of the Parent (In Thousands) Interest of the Parent Basic loss per share Net loss attributed to common shareholders $ (1,440,071) $ (1,852,536) 3,676,698 $ (0.39) $ (0.50) Year Ended December 31, 2011 Amounts (Numerator) Loss Per Share (NT$) After Income After Income Before Income Tax and Before Income Tax and Tax and Attributed to Shares Tax and Attributed to Minority Stockholders (Denominator) Minority Stockholders Interest of the Parent (In Thousands) Interest of the Parent Basic loss per share Net loss attributed to common shareholders $ (526,605) $ (843,291) 3,666,391 $ (0.14) $ (0.23) Proforma amount, assuming common shares of parent held by subsidiaries were not treated as treasury stock: Year Ended December 31, 2012 Amounts (Numerator) Loss Per Share (NT$) After Income After Income Before Income Tax and Before Income Tax and Tax and Attributed to Shares Tax and Attributed to Minority Stockholders (Denominator) Minority Stockholders Interest of the Parent (In Thousands) Interest of the Parent Basic loss per share Net loss attributed to common shareholders $ (1,440,071) $ (1,852,536) 3,684,216 $ (0.39) $ (0.50) Year Ended December 31, 2011 Amounts (Numerator) Loss Per Share (NT$) After Income After Income Before Income Tax and Before Income Tax and Tax and Attributed to Shares Tax and Attributed to Minority Stockholders (Denominator) Minority Stockholders Interest of the Parent (In Thousands) Interest of the Parent Basic loss per share Net loss attributed to common shareholders $ (526,605) $ (843,291) 3,673,910 $ (0.14) $ (0.23) - 103 - 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 Winbond’s chairman and Walsin holds a 23% ownership of Winbond as of December 31, 2012 Nyquest Technology Co., Ltd (“Nyquest”) An equity-method investee Global Brands Manufacture Ltd. (“GBM”) GBM’s chairman is one of the immediate family members of Winbond’s chairman Walton Advanced Engineering Inc. (“Walton “) Walton’s chairman is one of the immediate family members of Winbond’s chairman. Winbond is one of the Walton’s directors Global Brands Manufacture (Dongguan) Ltd. Related party in substance (“GBM (Dongguan)”) Walton Advanced Engineering (Suzhou) Inc. Related party in substance (“Walton (Suzhou)”) Major transactions with related parties were summarized below: Sales Years Ended December 31 2012 2011 Nyquest $ 212,401 $ 217,818 GBM (Dongguan) 153,402 38,030 GBM - 88,117 Others 651 14,249 $ 366,454 $ 358,214 Purchase Years Ended December 31 2012 2011 Nyquest $ 4,179 $ 4,403 Manufacturing Expenses Years Ended December 31 2012 2011 Walton $ 1,559,452 $ 1,395,376 Walton (Suzhou) 582,901 571,541 $ 2,142,353 $ 1,966,917 - 104 - General and Administrative Expenses Years Ended December 31 2012 2011 Walsin $ 7,891 $ 8,062 Research and Development Expense Years Ended December 31 2012 2011 Nyquest $ 174 $ - Notes and Accounts Receivable December 31 2012 2011 Nyquest $ 31,109 $ 36,506 GBM (Dongguan) 14,915 14,068 Others 49 65 $ 46,073 $ 50,639 Other Financial Assets, Current and Other Current Assets December 31 2012 2011 Walsin $ 20 $ 1,438 Refundable Deposits December 31 2012 2011 Walsin $ 203 $ 203 Notes and Accounts Payable December 31 2012 2011 Walton $ 394,197 $ 547,613 Walton (Suzhou) 137,081 165,665 Others 3,061 2,639 $ 534,339 $ 715,917 - 105 - Other Payables December 31 2012 2011 Walton $ 6,199 $ 9,326 Others 1,567 2,529 $ 7,766 $ 11,855 The related-party transaction was conducted under normal terms. Security Transactions The Company’s purchase of investment from related parties in 2012 was summarized as follows: Shares Related-party Securities Name (Thousand) Purchase Cost Walsin Chin Xin Investment 40,000 $403,856 Guarantee a. Please refer to Note 24 to the consolidated financial statements. b. As of December 31, 2012, the chairman of Winbond is a joint guarantor of the long-term debt - Bank of Taiwan syndication agreement (II). Please refer to Note 15 to the consolidated financial statements. Compensation Information of Directors, Supervisors, and Management Personnel Years Ended December 31 2012 2011 Salary $ 136,718 $ 158,219 Bonus and special compensation 45,423 45,474 $ 182,141 $ 203,693 Total compensation expense for the years ended December 31, 2012 and 2011 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 The Company’s amounts available under unused letters of credit as of December 31, 2012 were approximately US$2,035 thousand and JPY3,900 thousand. - 106 - 25. DISCLOSURES FOR FINANCIAL INSTRUMENTS Fair Value of Financial Instruments Carrying value and fair value of financial instruments were summarized as follows: December 31 2012 2011 Carrying Fair Carrying Fair Value Value Value Value Nonderivative financial instruments Assets Financial assets at fair value through profit or loss, current $ 3,533 $ 3,533 $ 3,461 $ 3,461 Available-for-sale financial assets (current and noncurrent) 768,621 768,621 1,256,710 1,256,710 Liabilities Long-term debt (including current portion) 11,033,330 11,033,330 15,124,990 15,124,990 Derivative financial instruments Financial assets at fair value through profit or loss, current Forward exchange contracts 25,188 25,188 215 215 Methods and assumptions used in determining fair values 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. b. The fair values of financial instruments at fair value through profit or loss and available-for-sale financial assets are 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. 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, 2012 and 2011, the discount rate used in determining the fair values is 2.86% and 3.24%, respectively. - 107 - 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, 2012 Quoted Market Price in Active Other Method Market of Valuation Total Assets Financial assets at fair value through profit or loss, current $ 3,533 $ 25,188 $ 28,721 Available-for-sale financial assets, current and noncurrent 704,091 64,530 768,621 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 $ 3,461 $ 215 $ 3,676 Available-for-sale financial assets, current and noncurrent 1,127,110 129,600 1,256,710 Valuation gains (losses) arising from changes in fair value of financial instruments determined using valuation techniques were $24,973 thousand and $(60,010) thousand for the years ended December 31, 2012 and 2011, respectively. As of December 31, 2012, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $15,920 thousand and $11,200,934 thousand, respectively. Financial assets and liabilities exposure to fair value risk that resulted from interest rate changes amounted to $4,611,379 thousand and $3,048,246 thousand, respectively, as of December 31, 2012. As of December 31, 2011, financial assets and liabilities exposure to cash flow risk that resulted from interest rate changes amounted to $280,648 thousand and $15,463,475 thousand, respectively. Financial assets and liabilities exposure to fair value risk that resulted from interest rate changes amounted to $4,410,259 thousand and $1,542,370 thousand, respectively, as of December 31, 2011. Adjustment of stockholders’ equity due to the fair value changes of available-for-sale financial assets amounted to $1,130,942 thousand and $1,449,394 thousand as of December 31, 2012 and 2011, 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. - 108 - 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 $112,009 thousand per year. 26. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES Information of financial assets and liabilities, which were denominated in foreign currencies, with significant influence on the Company was as follows: December 31 2012 2011 Foreign New Taiwan Foreign New Taiwan Currencies Exchange Dollars Currencies Exchange Dollars (Thousands) Rate (Thousands) (Thousands) Rate (Thousands) Financial assets Monetary items USD $ 238,052 29.04 $ 6,913,019 $ 198,558 30.275 $ 6,011,352 EUR 951 38.49 36,586 2,075 39.18 81,307 JPY 646,039 0.3364 217,328 2,617,609 0.3906 1,022,438 RMB 99,603 4.6202 460,188 38,935 4.8049 187,081 ILS 35,355 7.7845 275,217 28,287 7.925 224,175 AUD - - - 2,706 30.735 83,169 Non-monetary item USD 15,281 29.04 443,766 16,140 30.275 488,647 KRW - - - 5,351,246 0.0263 140,738 Financial liabilities Monetary items USD 80,871 29.04 2,348,480 114,872 30.275 3,477,755 EUR 1,270 38.49 48,866 2,197 39.18 86,063 JPY 795,581 0.3364 267,633 2,398,822 0.3906 936,980 ILS 5,136 7.7845 39,978 3,082 7.925 24,425 - 109 - 27. OPERATING SEGMENT FINANCIAL INFORMATION a. Basic information of operating segment The Company’s reportable segments under SFAS No. 41 are as follows: 1) Segment of DRAM IC product The DRAM IC product segment engages mainly in the manufacturing, selling, researching, designing and after-sales service of Mobile RAM, Specialty DRAM, Graphic DRAM and Commodity DRAM. 2) Segment of Flash IC product The Flash IC product segment engages mainly in the manufacturing, selling, researching, designing and after-sales service of Flash IC product. 3) Segment of Logic IC product The Logic IC product segment engages mainly in the manufacturing, selling, researching, designing and after-sales service of Logic IC product. Principles of measuring reportable segments, profit, assets and liabilities: 1) The significant accounting principles of each operating segment are the same as those stated in Note 2 to the consolidated financial statements. The Company’s operating segment profit or loss represents the profit or loss earned by each segment. The profit or loss is controllable by segment managers and is the basis for assessment of segment performance. 2) Individual segment assets are disclosed as zero since those measures are not reviewed by the chief operating decision maker. Major liabilities are arranged based on the capital cost and deployment of the whole company, which are not controlled by individual segment managers. b. Segment revenues and operating results Segment Revenue Segment Profit and Loss Years Ended December 31 Years Ended December 31 2012 2011 2012 2011 DRAM IC product $ 14,804,286 $ 17,953,304 $ (1,280,224) $ (745,663) Flash IC product 10,811,168 9,440,302 901,824 1,729,434 Logic IC product 7,348,191 7,299,233 712,687 546,545 Total segment revenue 32,963,645 34,692,839 334,287 1,530,316 Others 1,638 4,011 1,638 4,011 Total net sales $ 32,965,283 $ 34,696,850 Unallocated expenses Administrative and supporting expenses (791,072) (629,601) Sales and other common expenses (811,963) (1,078,061) Total operating (loss) income (1,267,110) (173,335) (Continued) - 110 - Segment Revenue Segment Profit and Loss Years Ended December 31 Years Ended December 31 2012 2011 2012 2011 Non-operating gains and losses Interest income (expense), net $ (321,158) $ (390,365) Investment income recognized under equity method 14,458 11,963 Investment income (loss) 22,103 (2,783) Gain on disposal of property, plant and equipment 17,555 4,730 (Loss) gain on disposal of investments (30,733) 69,880 Foreign exchange (loss) gain (55,538) 45,765 Reversal of allowance for doubtful accounts 67,586 8,872 Valuation gain (loss) on financial instruments 103,647 (154,790) Other income (losses) 9,119 53,458 Loss before tax $ (1,440,071) $ (526,605) (Concluded) c. Geographical information The Company’s net sales and the non-current assets by geographical location are detailed below. Years Ended December 31 2012 2011 Non-current Non-current Assets Net Sales Assets Net Sales Asia $ 29,145,955 $ 30,672,773 $ 35,639,946 $ 32,407,678 United States 233,976 1,501,960 279,391 1,383,826 Europe - 660,024 - 762,320 Others - 130,526 - 143,026 $ 29,379,931 $ 32,965,283 $ 35,919,337 $ 34,696,850 Non-current assets excluded those classified as held for sale, financial instruments, deferred tax assets, and pension liabilities. d. Major customers information No revenue from any individual customer exceeded 10% of the Company’s net sales for the years ended December 31, 2012 and 2011. - 111 - 28. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS Under Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Company pre-discloses the following information on the adoption of International Financial Reporting Standards (IFRSs) as follows: a. On May 14, 2009, the FSC announced the “Framework for Adoption of International Financial Reporting Standards by Companies in the ROC.” In this framework, starting 2013, companies with shares listed on the TSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare their financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, and the Interpretations as well as related guidance translated by the ARDF and issued by the FSC. To comply with this framework, the Company has set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this plan is the vice-president of Winbond. The main contents of the plan, time schedule and status of execution as of December 31, 2012 were as follows: Contents of Plan Responsible Department Status of Execution Assessing phase (2010.01.01-2011.12.31) Setting up a project team and making a Accounting division Completed plan to adopt the IFRSs Processing the first phase internal Accounting division Completed training for employees Comparing and analyzing the difference Accounting division Completed between the existing accounting policies and IFRSs Assessing the adjustments for the Accounting division Completed existing accounting policies Assessing the adoption of IFRS 1 Accounting division Completed “First-time Adoption of International Financial Reporting Standards” Assessing the adjustments for the Information division Completed information systems Assessing the adjustments for the internal Related departments Completed controls Preparing phase (2011.01.01-2012.12.31) Deciding how to adjust existing Accounting division Completed accounting policies according to IFRSs Deciding how to adopt IFRS1 “First-time Accounting division Completed Adoption of International Financial Reporting Standards” Adjusting related information systems Information division Completed Adjusting internal controls Related departments Completed Processing the second phase internal Accounting division Completed training for employees (Continued) - 112 - Contents of Plan Responsible Department Status of Execution Implementing phase (2012.01.01-2013.12.31) Testing the operation of related Information division Completed information system Collecting materials and preparing to Accounting division 2012 comparative draw up the opening balance for balance financial statement sheet and comparative financial has been completed statements Drawing up financial statements Accounting division Positively executing according to IFRSs (Concluded) b. The Company assessed, the significant differences between the Company’s current accounting policies under R.O.C. GAAP and the one’s under IFRSs as follows: 1) Reconciliation of consolidated balance sheet as of January 1, 2012 Effect of Transition to IFRSs Recognition and R.O.C. GAAP Measurement Presentation IFRSs Item Amount Different Difference Amount Item Note Assets Current assets Current assets Cash and cash $ 6,002,597 $ - $ (106,916 ) $ 5,895,681 Cash and cash Note 1 equivalents equivalents Financial assets at fair 3,676 - - 3,676 Financial assets at fair value through profit or value through profit or loss, current loss, current Available-for-sale 902,713 - - 902,713 Available-for-sale financial assets, financial assets, current current Notes receivable, net 534 - - 534 Notes receivable, net Accounts receivable, net 4,113,894 - - 4,113,894 Accounts receivable, net Accounts receivables 50,639 - - 50,639 Account receivables from related parties, from related parties, net net Other financial assets, 139,144 - 106,916 246,060 Other financial assets, Note 1 current current Inventories 7,272,562 - - 7,272,562 Inventories Deferred income tax 281,638 - (281,638 ) - - Note 2 assets, current Other current assets 420,635 - - 420,635 Other current assets Total current assets 19,188,032 - (281,638 ) 18,906,394 Total current assets Fund and investments Noncurrent assets Available-for-sale 353,997 - - 353,997 Available-for-sale financial assets, financial assets, noncurrent noncurrent Financial assets carried at 1,245,403 56,264 - 1,301,667 Financial assets carried at Note 3 cost, noncurrent cost, noncurrent Long-term equity 65,092 - - 65,092 Long-term equity investments at equity investments at equity method method Total fund and 1,664,492 56,264 - 1,720,756 investments Property, plant and 35,149,539 - - 35,149,539 Property, plant and equipment equipment Intangible assets 639,191 - - 639,191 Intangible assets Other assets Refundable deposits 160,149 - - 160,149 Refundable deposits Deferred income tax 3,992,639 - 281,638 4,274,277 Deferred income tax Note 2 assets, noncurrent assets, noncurrent Others 130,607 - - 130,607 Others Total other assets 4,283,395 - 281,638 4,565,033 Total $ 60,924,649 $ 56,264 $ - $ 60,980,913 Total (Continued) - 113 - Effect of Transition to IFRSs Recognition and R.O.C. GAAP Measurement Presentation IFRSs Item Amount Different Difference Amount Item Note Liabilities and stockholder’s equity Current liabilities Current liabilities Short-term loans $ 1,681,092 $ - $ - $ 1,681,092 Short-term loans Short-term bills payable 199,763 - - 199,763 Short-term bills payable Notes payable 849,713 - - 849,713 Notes payable Accounts payable 3,211,805 - - 3,211,805 Accounts payable Payable on equipment 650,233 - - 650,233 Payable on equipment Accrued expenses and 2,151,012 60,601 - 2,211,613 Accrued expenses and Note 4 other payables other payables Current portion of 7,158,327 - - 7,158,327 Current portion of long-term liabilities long-term liabilities Other current liabilities 68,865 - - 68,865 Other current liabilities Total current liabilities 15,970,810 60,601 - 16,031,411 Total current liabilities Long-term liabilities Noncurrent liabilities Long-term debt 7,966,663 - - 7,966,663 Long-term debt Other liabilities Accrued pension 368,676 362,076 - 730,752 Accrued pension Note 5 liabilities liabilities Reserve for product 94,271 - - 94,271 Reserve for product guarantee guarantee Others 99,146 - - 99,146 Others Total other liabilities 562,093 362,076 - 924,169 Total liabilities 24,499,566 422,677 - 24,922,243 Total liabilities Equity attributable to Stockholders’ equity stockholders of the parent Common stock 36,802,302 - - 36,802,302 Common stock Capital surplus 2,232,519 (21,460 ) - 2,211,059 Capital surplus Note 6 Accumulated deficit (2,483,440 ) 65,182 - (2,418,258 ) Accumulated profit and loss Others Others Cumulative translation 359,900 (359,900 ) - - Cumulative translation Note 7 adjustments adjustments Unrealized loss on (1,449,394 ) (12,576 ) - (1,461,970 ) Unrealized loss on Note 8 financial financial instruments instruments Treasury stock (106,387 ) - - (106,387 ) Treasury stock Equity attributable to 35,355,500 (328,754 ) - 35,026,746 Equity attributable to stockholders of the stockholders of the parent parent Minority interest 1,069,583 (37,659 ) - 1,031,924 Non-controlling interest Note 9 Total stockholders’ equity 36,425,083 (366,413 ) - 36,058,670 Total stockholders’ equity Total $ 60,924,649 $ 56,264 $ - $ 60,980,913 Total (Concluded) Note 1: The Company’s long-term time deposits, in accordance with the IFRSs are classified as other financial assets, current. Please see Note 5) d). Note 2: Deferred income tax assets - current, in accordance with IFRSs is classified as non-current items. Please see Note 5) a). Note 3: The translation of functional currency of subsidiaries retroact and adjust financial asset carried at cost. Please see Note 5) g). Note 4: Under IAS No. 19, the Company recognized as an expense when employees provide service to increase their paid vocation. Please see Note 5) b). Note 5: Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted. Please see Note 5) c). - 114 - Note 6: The changes of investment percentage arise from the investment company not subscribing for new shares issued by the investee; the increase or decrease in the investment company’s equity is adjusted in the capital surplus. In accordance with the IFRSs of the above-mentioned capital surplus should be retrospective adjustment to accumulated losses. Please see Note 5) e). Note 7: In accordance with IFRS 1, the Company elected to set to zero its cumulative translation adjustment in stockholders’ equity by reclassifying the amount to retained earnings at the date of transition to IFRS. Please see Note 4). Note 8: The translation of functional currency of subsidiaries retroact and adjust unrealized loss on financial instruments. Please see Note 5) g). Note 9: The equity of subsidiaries was decreased, so non-controlling interest was adjusted retroactively. 2) Reconciliation of consolidated balance sheet as of December 31, 2012 Effect of Transition to IFRSs Recognition and R.O.C. GAAP Measurement Presentation IFRSs Item Amount Different Difference Amount Item Note Assets Current assets Current assets Cash and cash $ 5,814,928 $ - $ (104,015 ) $ 5,710,913 Cash and cash Note 1 equivalents equivalents Financial assets at fair 28,721 - - 28,721 Financial assets at fair value through profit or value through profit or loss, current loss, current Available-for-sale 704,091 - - 704,091 Available-for-sale financial assets, financial assets, current current Notes receivable, net 327 - - 327 Notes receivable, net Accounts receivable, net 4,608,920 - - 4,608,920 Accounts receivable, net Accounts receivable 46,073 - - 46,073 Accounts receivable from related parties, from related parties, net net Other financial assets, 214,172 - 104,015 318,187 Other financial assets, Note 1 current current Inventories 8,108,677 - - 8,108,677 Inventories Deferred income tax 222,356 - (222,356 ) - - Note 2 assets, current Other current assets 532,212 - - 532,212 Other current assets Total current assets 20,280,477 - (222,356 ) 20,058,121 Total current assets Fund and investments Noncurrent assets Available-for-sale 64,530 - - 64,530 Available-for-sale financial assets, financial assets, noncurrent noncurrent Financial assets carried at 604,185 74,403 - 678,588 Financial assets carried at Note 3 cost, noncurrent cost, noncurrent Long-term equity 1,727,128 (595 ) - 1,726,533 Long-term equity Notes 4 and 5 investments at equity investments at equity method method Total fund and 2,395,843 73,808 - 2,469,651 investments Property, plant and 29,021,114 - - 29,021,114 Property, plant and equipment equipment - - 80,747 80,747 Investment property Note 6 Intangible assets 183,310 - - 183,310 Intangible assets Other assets Refundable deposits 148,981 - - 148,981 Refundable deposits Deferred income tax 3,996,998 - 222,356 4,219,354 Deferred income tax Note 2 assets, noncurrent assets, noncurrent Others 192,414 (16,907 ) (80,747 ) 94,760 Others Note 6 Total other assets 4,338,393 (16,907 ) 141,609 4,463,095 Total $ 56,219,137 $ 56,901 $ - $ 56,276,038 Total (Continued) - 115 - Effect of Transition to IFRSs Recognition and R.O.C. GAAP Measurement Presentation IFRSs Item Amount Different Difference Amount Item Note Liabilities and stockholders’equity Current liabilities Current liabilities Short-term loans $ 2,716,474 $ - $ - $ 2,716,474 Short-term loans Short-term bills payable 499,376 - - 499,376 Short-term bills payable Notes payable 812,253 - - 812,253 Notes payable Accounts payable 3,421,866 - - 3,421,866 Accounts payable Payable on equipment 173,632 - - 173,632 Payable on equipment Accrued expenses and 2,187,998 70,361 - 2,258,359 Accrued expenses and Note 7 other payables other payables Current portion of 4,483,330 - - 4,483,330 Current portion of long-term liabilities long-term liabilities Other current liabilities 78,085 (256 ) - 77,829 Other current liabilities Note 5 Total current liabilities 14,373,014 70,105 - 14,443,119 Total current liabilities Long-term liabilities Noncurrent liabilities Long-term debt 6,550,000 - - 6,550,000 Long-term debt Other liabilities Accrued pension 417,477 525,280 - 942,757 Accrued pension Note 8 liabilities liabilities Reserve for product 119,902 - - 119,902 Reserve for product guarantee guarantee Others 100,778 3,947 - 104,725 Others Total other liabilities 638,157 529,227 - 1,167,384 Total liabilities 21,561,171 599,332 - 22,160,503 Total liabilities Equity attributable to Stockholders’ equity stockholders of the parent Common stock 36,856,012 - - 36,856,012 Common stock Capital surplus 2,199,126 (21,784 ) - 2,177,342 Capital surplus Note 4 Accumulated deficit (4,335,976 ) (94,774 ) - (4,430,750 ) Accumulated deficit Others Others Cumulative translation 268,081 (349,829 ) - (81,748 ) Cumulative translation Note 9 adjustments adjustments Unrealized loss on (1,408,417 ) - - (1,408,417 ) Unrealized loss on financial financial instruments instruments Treasury stock (106,387 ) - - (106,387 ) Treasury stock Equity attributable to 33,472,439 (466,387 ) - 33,006,052 Equity attributable to stockholders of the stockholders of the parent parent Minority interest 1,185,527 (76,044 ) - 1,109,483 Non-controlling interest Note 10 Total stockholders’ equity 34,657,966 (542,431 ) - 34,115,535 Total stockholders’ equity Total $ 56,219,137 $ 56,901 $ - $ 56,276,038 Total (Concluded) Note 1: The Company’s long-term time deposits, in accordance with the IFRSs are classified as other financial assets, current. Please see Note 5) d). Note 2: Deferred income tax assets - current in accordance with IFRSs is classified as non-current items. Please see Note 5) a). Note 3: The translation of functional currency of subsidiaries retroact and adjust financial asset carried at cost. Please see Note 5) g). Note 4: The changes of investment percentage arise from the investment company not subscribing for new shares issued by the investee; the increase or decrease in the investment company’s equity is adjusted in the capital surplus. In accordance with the IFRSs of the above-mentioned capital surplus should be retrospective adjustment to accumulated losses. Convert into IFRSs, the company decreased $339 thousands in long-term equity investment at equity method, and $21,784 thousands in capital surplus. Please see Note 5) e). Note 5: Unrealized profit from downstream transactions with an equity-method investee is $256 thousand. It would convert from other current liabilities to long-term equity investment. Please see Note 5) f). - 116 - Note 6: A property held under an operating lease was reclassified from other assets to investment property. Please see Note 5) g). Note 7: Under IAS No. 19, the Company recognized as an expense when employees provide service to increase their paid vocation. Please see Note 5) b). Note 8: Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted. According IAS No. 19, the Company reclassified unrecognized actuarial loss into accumulated loss, which increase $362,072 thousands in accrued pension liabilities. Furthermore, under IAS No. 9, the Company reclassified net pension cost and difference in actuarial loss into other comprehensive income, which increase $163,208 thousands in accrued pension liabilities. Above all the accrual pension liabilities increased $525,280 thousands. Please see Note 5) c). Note 9: In accordance with IFRS 1, the Company elected to set to zero its cumulative translation adjustment in stockholders’ equity by reclassifying the amount to retained earnings at the date of transition to IFRS. The cumulative translation adjustment decrease $359,900 thousands. Otherwise, the tranlative in function currency which increase $10,071 thousands in cumulative translation adjustments. Please see Note 5) e). Note 10: The equity of subsidiaries was decreased, so non-controlling interest was adjusted retroactively. 3) Reconciliation of consolidated statement of comprehensive income for the year ended December 31, 2012 Effect of Transition R.O.C. GAAP to IFRSs IFRSs Item Amount Amount Amount Item Note Net sale $ 32,965,283 $ - $ 32,965,283 Net sale Cost of sales 27,804,925 (2,628 ) 27,802,297 Cost of sales Notes 1 and 2 Less: Unrealized gain on (74 ) 74 - - Note 2 inter-affiliate Gross profit 5,160,284 2,702 5,162,986 Gross profit Operating expense 6,427,394 4,588 6,431,982 Total operating expense Note 1 Loss from operations (1,267,110 ) (1,886 ) (1,268,996 ) Loss from operations Non-operation income and expense (172,961 ) (2,629 ) (175,590 ) Non-operation income and expense Notes 3 and 4 Loss before income tax (1,440,071 ) (4,515 ) (1,444,586 ) Loss before income tax Income tax expense (175,037 ) - (175,037 ) Income tax expense Net loss $ (1,615,108 ) $ (4,515 ) (1,619,623 ) Net loss (93,274 ) Exchange differences on translating foreign operations 53,553 Net valuation gain on available-for-sale financial assets (187,984 ) Defined benefit obligation’s actuarial gain and losses (227,705 ) Other comprehensive income for the period, net of tax effect $ (1,847,328 ) Total comprehensive income for the period Note 1: For the year ended December 31, 2012, the Company increased “salary expenses” by $9,760 thousand. Pension cost and other comprehensive income for the year ended December 31, 2012 were also adjusted for a decrease of $7,874 thousand and $187,984 thousand, respectively. Please see Note 5) b and c). Note 2: In accordance with IFRSs, the Company reclassified unrealized gain on inter-affiliate to cost of sales as a reduction in comprehensive income. - 117 - Note 3: Long-term equity investments accounted for under the equity method caused equity changes. This situation will be recognized as capital surplus under R.O.C. GAAP, but under IFRSs shall recognized as investment gain, so we shall adjust investment gain $190 thousand. Please see Note 5) e). Note 4: Change of functional currency of subsidiaries shall retroact and adjust, as a result, it increase available-for-sale financial assets. The Company disposed of financial assets, so it will increase investment loss $12,576 thousand. Otherwise, the Company recognized gain on exchange $8,841 thousand, which is from subsidiary’s capital reduction. 4) Exemptions from IFRS 1 IFRS 1, “First-time Adoption of International Financial Reporting Standards,” establishes the procedures for the Company’s first consolidated financial statements prepared in accordance with IFRSs. According to IFRS 1, the Company is required to determine the accounting policies under IFRSs and retrospectively apply those accounting policies in its opening balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date); except for optional exemptions to such retrospective application provided under IFRS 1. The main optional exemptions the Company adopted are summarized as follows: a) Share-based payment. The Company elected to take the optional exemption from applying IFRS 2, “Share-based Payment,” retrospectively for the shared-based payment transactions granted and vested before January 1, 2012. b) Employee benefits. The Company elected to recognize all cumulative actuarial gains and losses in retained earnings as of January 1, 2012. c) Cumulative translation difference. The Company elected to set to zero its cumulative translation adjustment in stockholders’ equity by reclassifying the amount to retained earnings at the date of transition to IFRS. d) Compound financial instrument. Compound financial instrument issued in the past, part of its liabilities does not exit at the time of conversion to IFRSs day, so the Company chose not to be traced back to financial instrument into two equity component. e) Borrowing costs. The Company selected meet the elements of the assets of the borrowing costs. Its capitalization start date occurs after the conversion to IFRSs day began to apply the IAS No. 23. “borrowing cost”. The above exemption option on the Company’s financial statement have been incorporated into following. 5) Notes to the reconciliation of the significant differences: The Company-specific areas of possible material differences between the existing accounting policies and the accounting policies to be adopted under IFRSs were as follows: a) Deferred income tax asset/liability Under R.O.C. GAAP, valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. In accordance with IAS No. 12, “Income Taxes,” deferred tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits and the valuation allowance account is no longer used. - 118 - In addition, under R.O.C. GAAP, a deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as either current or noncurrent based on the expected length of time before it is realized or settled. Under IFRSs, a deferred tax asset or liability is classified as noncurrent asset or liability. As of December 31, 2012 and January 1, 2012, the amounts reclassified from deferred income tax assets to noncurrent assets were $222,356 thousand and $281,638 thousand, respectively. b) Short-term employee benefits Short-term employee benefits under R.O.C. GAAP are not expressly stipulated and usually recorded when paid. After the date of transition to IFRS, it is recognized as an expense when employees provided services to increase their paid vacation. As of December 31, 2012 and January 1, 2012, the Company increased accounts payable by $70,361 thousand and $60,601 thousand for short-term employee benefits. In addition, for the year ended December 31, 2012, the Company increased “salary expenses” by $9,760 thousand. c) Employee benefits - gain or loss on actuarial valuation on defined benefit plan According to SFAS No. 18, the unrecognized transition obligation due to first adoption of SFAS No. 18, “Accounting for Pension,” should be amortized over the expected remaining working lives of employees. On the date of transition to IFRSs, the retained earnings should be adjusted for unrecognized transition obligation. Under R.O.C. GAAP, when using the corridor approach, actuarial gains and losses should be amortized over the expected average remaining working lives of the participating employees. Under IAS No. 19, “Employee Benefits,” the Company elects to recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The subsequent reclassification to earnings is not permitted. As of December 31, 2012 and January 1, 2012, the Company performed the actuarial valuation under IAS No. 19, “Employee Benefits,” and recognized the valuation difference directly to retained earnings under the requirement of IFRS 1; accrued pension liabilities was adjusted for an increase of $525,280 thousand and $362,076 thousand, respectively. Pension cost and other comprehensive income for the year ended December 31, 2012 were also adjusted for a decrease of $7,874 thousand and $187,984 thousand, respectively. d) Reclassification of long-term time deposit Under R.O.C. GAAP, time deposit is classified as cash which must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Under IFRSs, time deposits are held for the purpose of meeting short-term cash commitments is classified as cash and cash equivalents and others is classified as other financial assets. As of December 31, 2012 and January 1, 2012 the amounts reclassified from cash and cash equivalents to other financial assets were $104,015 thousand and $106,916 thousand, respectively. e) Investments and capital surplus - long-term equity investments when associates/subsidiaries issue new shares and the shareholder is not subscribing in accordance with its percentage of shares of the investee/parent company. - 119 - According to R.O.C. GAAP, the changes of investment percentage arise from the investment company not subscribing for new shares issued by the investee in accordance with its percentage of ownership before the new subscription; the increase or decrease in the investment company’s equity is adjusted in the “capital surplus and “long-term equity investment.” Under IFRSs, such transaction is deemed a disposal and aforementioned difference is recognized in the same accounts accordingly. In addition, according to “Q&A for adopting IFRSs” issued by the TSE, accounts that do not conform to IFRSs or not covered under the Company Law as well as capital surplus items required by the Ministry of Economics Affairs should be adjusted at the date of transition to IFRSs. As of January 1, 2012, the Company recorded different amount as above mentioned, capital surplus was adjusted for a decrease of $21,460 thousand. As of December 31, 2012, the Company recorded different amount as above mentioned, long-term equity investment at equity method was adjusted for a decrease of $339 thousand and capital surplus was adjusted for a decrease of $21,784 thousand in addition, other gains and losses was adjusted for an increase of $190 thousand. f) Downstream transactions with an equity-method investee Under R.O.C. GAAP, profit from downstream transactions with an investee without equity-method are eliminated in proportion to the Company’s percentage of ownership in the investee. Under IFRSs, unrealized profit reclassify to sales, cost of sales and investment income recognized under equity-method. As of December 31, 2012, the Company recorded different amount as above mentioned, long-term equity investment at equity and other current liabilities were adjusted for a decrease both of $256 thousand. g) Translation of functional currency of foreign operations Under R.O.C. GAAP, various indicators are comprehensively adopted to identify functional currency. Under IFRSs, IAS No. 21 “The Effects of Changes in Foreign Exchange Rates” rules that the primary indicators should be considered first and then the secondary indicators in the determination of functional currency. According to the rules, the overseas associates and subsidiaries change their functional currency from U.S. dollars to N.T. dollars and adjust retroactively the balances of assets and liabilities in N.T. dollars at the date of transition to IFRSs. As of December 31, 2012 and January 1, 2012, the financial assets carried at cost of the Company increased by $74,403 thousand and $56,264 thousand, respectively; loss on valuation of financial instruments of the Company increased by zero and $12,576 thousand, respectively. h) Investment property Under R.O.C. GAAP, a property held under an operating lease may be classified as other assets, under IFRSs, property held to earn rentals or capital appreciation or both should be reclassified to investment property. As of December 31, 2012 and January 1, 2012, the Company’s properties held under operating leases reclassified to investment property were $80,747 thousand and zero, respectively. - 120 - c. Special reserve recognized at the date of transition According to Rule No. 1010012865 issued by the Financial Supervisory Commission (FSC) on April 6, 2012, in the first-time adoption of IFRSs, the Company is required to record special reserve equal to the total amount of unrealized revaluation increments and cumulative translation differences under stockholders` equity reclassified to retained earnings in accordance with IFRS 1; however, if the amount of the credit adjustments to retained earnings at the date of transition to IFRSs is smaller than the total amount of unrealized revaluation increments and cumulative translation differences, only the amount of the credit adjustments to retained earnings is reclassified to special reserve. Reserve is reversed proportionately when using, disposing and reclassifying the related assets. As of January 1, 2012, the amount of accumulated deficit was recognized losses, so the Company did not recognize special reserve. d. The Company’s aforementioned assessment is based on the 2010 version of IFRSs translated by the ARDF and on the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued by the FSC on December 22, 2011. However, the assessment result may be impacted as the FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with IFRSs. Actual results may differ from these assessments. - 121 - Financial Status, Operating Performance and Risk Evaluation 1. Analysis of financial status Unit: NT$1,000 Item\Year 2012 2011 Amount Change (%) Current assets 15,804,738 14,724,139 1,080,599 7 Funds and long-term 5,508,898 4,951,855 557,043 11 investments Fixed assets 28,396,274 34,395,036 (5,998,762) (17) Intangible assets 38,430 548,754 (510,324) (93) Other assets 3,810,639 3,751,588 59,051 (2) Total Assets 53,558,979 58,371,372 4,812,393 (8) Current liabilities 13,009,438 14,668,433 1,658,995 (11) Long-term liabilities 6,550,000 7,966,663 1,416,663 (18) Other liabilities 527,102 380,776 146,326 38 Total liabilities 20,086,540 23,015,872 2,929,332 (13) Paid-in capital 36,856,012 36,802,302 53,710 - Capital surplus 2,199,126 2,232,519 (33,393) (1) Accumulated loss 4,335,976 2,483,440 1,852,536 75 Equity adjustment 1,246,723 1,195,881 (50,842) 4. Total shareholders’ equity 33,472,439 35,355,500 1,883,061 (5) Main reasons for significant changes: 1. Decrease in intangible assets was due to amortization of technology assets. 2. Increase in accumulated loss was due to operating loss incurred in 2012. 2. Analysis of operating performance Unit: NT$1,000 Item\Year 2012 2011 Amount Change (%) Net sales 25,418,819 27,214,454 1,795,635 (7) Operating cost 23,475,716 24,149,499 (673,783) 3 Gross profit 1,943,103 3,064,955 1,121,852 (37) Operating expenses 3,959,103 3,690,101 269,002 7 Operating loss 2,016,000 (625,146) 1,390,854 222 Non-operating income and gain 625,860 330,195 295,665 90 Non-operating expense and loss 462,396 548,340 (85,944) (16) Loss before tax 1,852,536 (843,291) 1,009,245 120 Income tax expense - - - - Net loss 1,852,536 (843,291) 1,009,245 120 Main reasons for significant changes: 1. Decrease in gross profit and increase in operating loss were mainly due to price drop and decrease in OEM income in 2012. 2. Increase in non-operating income and gain was mainly due to increase in investment profit in 2012. 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 units in 2013. 122 3. Cash flow analysis Unit: NT$1m Remedial measures for Cash outflow due to Cash balance, Cash inflow from operating cash deficit investing and financing Cash surplus beginning activities Investment Financial activities plan plan 3,813 5,713. (5,819) 3,707 - - 1. Analysis on the cash flow changes of the current year: (1) Operating activities: Operating activities produced a net cash inflow of NT$57 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$26 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): Net cash inflow from operating activities in the coming year is projected to be NT$6.4 billion, and net cash outflow due to investing and financing activities is projected to be NT$5.5 billion for primarily capital expense and loan 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 estimated Total funding spending Project Actual or expected source of funds completion need 2011 2012 date Expansion of capacity Bank loan, capitalization of retained 2013 8,606 5,742. 2,864 and process 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 2012 Output of 12-inch wafer Approx. 430,000 wafers Average in-line yield 98.9% 6. Investment policy in the past year, profit/loss analysis, improvement plan, and investment plan for the coming year (1) Investment policy: The Company makes investment in the hope to boost business performance in principle. (2) Investment profit or loss in recent years: The Company recognized NT$400 million of gain on equity investment in 2012 as the Company’s subsidiaries reported stable revenue and profits. (3) Investment plan for the next year: The Company will formulate investment plan in view of operating needs of the Company and invested enterprises. 7. Risk management and evaluation 7.1 Impact of interest rate and exchange rate changes and inflation on Company’s profit and response measures 123 (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 does not make endorsement/guarantee for other companies or individuals. 7.3 Future R&D projects and estimated R&D expenditure R&D project/product Estimated R&D expenditure Low to medium density specialty DRAM Medium to high density and low-power mobile DRAM R&D expenditures for 2013 are projected at 58nm process for more new products with additional functions, high capacity, high NT$26 billion. speed and low voltage Development of advanced process for high-capacity flash used for code storage 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 2012. 7.5 Impact of recent technological and market changes on the Company’s finance and business, and response measures 124 Winbond began the volume production of 4Xnm specialty DRAM and mobile RAM 2012. In 2013, we plan to outsource the production of 3xnm medium to high density low-power mobile DRAM and specialty DRAM, targeting the handset market, and in addition, will actively develop other high-barrier markets. Winbond has successfully launched its flash memory and serial flash products into the application markets of PC and peripherals, consumer electronics, mobile handheld devices and peripheral modules, industrial electronics, automobile electronics, and medical electronics. Our 32% market share in 2012 made us the market leader worldwide. We began volume production of 58nm process in Q4 2011 and will continue to launch new 58nm products to enhance our competitive advantage. 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 MCP, and higher capacity code storage flash products planned for the latter half of 2013 will help the Company expand the breadth of product lines and make headways into the mobile handheld devices and peripherals to meet the diverse needs of customers and enhance our competitiveness and profitability. The demands for PC computing are expected to slow down and will gradually switch to mobile computing. 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 in mobile handheld devices and peripheral modules will bring many new opportunities for the capacity expansion of our memory products. In response to the evolvement and demands of PC and peripherals, network communication and consumer electronic products, mobile handheld devices and peripheral modules, industrial electronics, automobile electronics and medical electronics, and in the continuing efforts to enhance the competitiveness of our products, we have been accelerating the rollout of complete series of 58nm flash since 2012 to enhance the competitive edge of our products. We will also endeavor in developing the high profit margin KGD market while developing advanced processes mainly for high-capacity code storage flash 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 mixes 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 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 125 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. I am involved in 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 126 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. The oral argument phase has started, but not yet concluded. Thus my appointed attorney and I are not in the position to assess the results of the trial at the present time. (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. I am involved in 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. The oral argument phase has started, but not yet concluded. Thus my appointed attorney and I are not in the position to assess the results of the trial at the present time. (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. (3) With respect to pending litigious, non-litigious or administrative lawsuit events as of April 10, 2013 involving corporate director of the Company Walsin Lihwa Corporation (“Walsin”): Solarion AG (a German company), an investee of Walsin filed an arbitration claim with DIS (the German Institution of Arbitration) against Walsin, requesting the termination of technical cooperation agreement and 127 seeking liquidated damages and other losses from Walsin. Based on the recommendations of Walsin’s German lawyers made in view of German company law and insolvency law, the parties have reached consensus and entered a settlement agreement on April 9, 2013 to resolve all disagreements and disputes between the parties. The terms of the settlement agreed by the parties will not produce material impact on the operations and finance of Walsin. An evaluation of the aforementioned lawsuit by the Company concludes that because the lawsuit is an affair of the corporate 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. 7.14 Other significant risks and response measures: None. 8. Other important events: None. 128 Important Notice 1. Profiles on affiliates and subsidiaries 1.1 Consolidated business report 1.1.1 Corporate affiliation chart December 31, 2012 129 1.1.2 Profile of individual subsidiary Dec. 31, 2012; 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$10.313 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 Flemming House,Wickhams Cay, P.O. Box 662, Peaceful River Corporation 1997.03.12 US$10,720 Investments Road Town, Tortola, British Virgin Islands 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 1998.07.01 US$58,917 Corporation America 19904, Delaware semiconductor 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 2008.06.13 2, No 378 Kwun Tong Road, Kowloon, Hong HKD 500 Ltd. and 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 Winbond Electronics (Suzhou) No.8, Zhao Feng Road, Huaqiao Town, Kunshan 2011.06.11 RMB 8,639 of 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” Science-Based Industrial Park fab production, testing, and OEM Marketplace Management P. O. Box 957, Offshore Incorporations Centre, 2000.07.28 US$8,328 Investments Limited Road Town, Tortola, British Virgin Islands Goldbond LLC 2000.09.22 1912 Capitol Ave, Cheyenne, WY 82001 US$43,675 Investments Revision, testing and technology Nuvoton Electronics 2001.03.30 27F, No. 2299, Yen An W. Road, Shanghai RMB 16,555 consultation service on IC, system and Technology (Shanghai) Ltd. 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 2008.05.01 US$6,050 Corporation America DE 19808, Delaware semiconductor parts and components Nuvoton Electronics Unit 9-11, 22F, Millennium City 2, No 378 Post-delivery service of semiconductor 1989.04.04 HKD 107,400 Technology (H.K.) Ltd. Kwun Tong Road, Kowloon, Hong Kong parts 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 Technology (Shenzhen) Ltd. Yi Tian Road, Futian District, Shenzhen City equipment, 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 In vestments Ltd. Virgin Islands Design, sales and service of Nuvoton Technology Israel Ltd. 2005.03.22 8 Hasadnaot Street, Herzlia B,46130 Israel ILS 1 semiconductor parts and components 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 130 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, 2012; 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 Director Landmark Group Holdings Ltd. Representative - Tatsuo Okamoto 100% 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 Director Winbond International Corporation Representative - Yung Chin 100% (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 Director Winbond Electronics Corp. Representative - Pei-Ming Chen 500,000 100% Winbond Electronics (H.K.) Ltd. Director Winbond Electronics Corp. Representative - James Wen (Note1) 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 Director Winbond Electronics Corp. Representative - Tung-Yi Chan 5,000,000 100% Mobile Magic Design Corporation Director Winbond Electronics Corp. Representative - James Wen (Note1) 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 420,328 Director Chi-Lin Wea - - Director Gary Y.Cheng - - Director Eric Chen - - Director David Huang - - Director Yu-Chun Hong - - Nuvoton Technology Corp. Supervisor Yang-Kun Lai - - Supervisor Chao-Ming Meng - - Supervisor Lu-Pao Hsu - - President Robert I.S. Hsu 420,328 - 131 Shares held Name of enterprise Title Name or Representative Shares % Director Nuvoton Technology Corp. Representative - Arthur Yu-Cheng Chiao 8,327924 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 Director Goldbond LLC Representative - Robert I.S. Hsu (Note6) 100% 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 Director Pigeon Creek Holding Co., Ltd. Representative - Stephen R. M. Huang 100% 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% Director Nuvoton Technology Corp. Representative - Hsiang-Yun Fan (Note1) Nuvoton Electronics Technology (H.K.) Ltd. 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% Director Nuvoton Electronics Tech. (H.K.) Ltd. Representative - Hsiang-Yun Fan Nuvoton Electronics Technology (Shenzhen) Ltd. Supervisor Nuvoton Electronics Tech. (H.K.) Ltd. Representative - His-Yung Lin President Bosco Chi-Sing Law (Note7) - 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 6,555,000 Newfound Asian Corporation Director Winbond Electronics Corp. Representative - Tung-Yi Chan 100% (Note1) Director Winbond Electronics Corp. Representative - Yung Chin 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 132 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. 133 1.1.5 Business overview of affiliates and subsidiaries Dec. 31, 2012 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. 299,490 240,849 190 240,659 9,065 (13,733) (13,733) (1.33) Winbond Electronics Corporation Japan 49,955 328,696 133,638 195,058 2,575,000 27,369 24,182 8,142.09 Peaceful River Corporation 311,309 56,791 12,239 44,552 29 (18,929) (18,929) (1.77) Winbond International Corporation 3,027,130 1,578,098 31,711 1,546,387 17,203 16,599 16,599 0.16 Winbond Electronics Corporation America 1,710,955 1,222,108 39,321 1,182,787 591,119 17,022 17,203 5,609.06 Mobile Magic Design Corporation 50,000 70,777 16,684 54,093 122,480 3,727 3,126 0.63 Winbond Electronics (H.K.) Ltd. 1,874 437,383 456,312 (18,929) 3,763,829 (2,613) (1,083) (2.17) Pine Capital Investmenr Ltd. 40,917 38,110 426 37,684 1 (3,590) (3,590) (0.33) Winbond Electronics (Suzhou) Ltd. 39,913 88,073 51,177 36,896 243,869 (4,027) (3,081) (註 1) Nuvoton Technology Corp. 2,075,544 4,822,790 1,782,302 3,040,488 7,160,090 714,289 627,703 3.02 Marketplace Management Limited 241,843 76,368 40 76,328 0 (12,763) (12,763) (1.53) Goldbond LLC 1,287,565 77,862 1,977 75,885 3,205 (12,467) (12,467) (註 1) Nuvoton Electronics Technology (Shanghai) Ltd. 76,486 86,719 8,953 77,766 34,624 (13,266) 3,201 (註 1) Winbond Technologies (Nanjing) Ltd. 18,691 1,397 3,234 (1,837) 0 0 2 (註 1) Pigeon Creek Holding Co., Ltd. 402,725 154,432 13,494 140,938 5,674 5,478 5,478 0.40 Nuvoton Technology Corporation America 175,692 228,286 74,560 153,726 617,611 13,831 5,674 93.79 Nuvoton Electronics Technology (H.K.) Ltd. 402,428 496,119 88,555 407,564 1,818,636 (1,353) 617 0.01 Nuvoton Electronics Technology (Shenzhen) Ltd. 214,534 212,767 11,346 201,421 66,808 (6,604) 270 (註 1) Nuvoton Investment Holding Ltd. 609,840 263,770 27 263,743 18,954 18,676 18,676 0.89 Nuvoton Technology Israel Ltd. 8 321,148 58,643 262,505 525,428 20,209 18,954 18,954.02 Newfound Asian Corporation 190,357 60,909 40 60,869 0 (261) (261) (0.04) Baystar Holdings Ltd. 656,014 38,172 40 38,132 0 (119) (119) (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 134