united radiant technology corporationacquisition of investments accounted for by the equity method...

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

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

United Radiant Technology Corporation

We have audited the accompanying balance sheets of United Radiant Technology Corporation as

of December 31, 2009 and 2008, and the related statements of income, changes in shareholders’

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.

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, the financial statements referred to above present fairly, in all material respects, the

financial position of United Radiant Technology Corporation as of December 31, 2009 and 2008,

and the results of its operations and its cash flows for the years then ended, in conformity with the

Guidelines Governing the Preparation of Financial Reports by Securities Issuers, 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.

As stated in Note 3 to the financial statements, on January 1, 2009, United Radiant Technology

Corporation adopted the newly revised Statement of Financial Accounting Standards No. 10 -

“Inventories”.

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We have also audited the consolidated financial statements of United Radiant Technology

Corporation and subsidiaries as of and for the years ended December 31, 2009 and 2008 and have

issued a modified unqualified opinion and an unqualified opinion, respectively, thereon in our

report (not presented herewith) dated March 9, 2010.

March 9, 2010

Notice to Readers

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

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

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

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

applied in the Republic of China.

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

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

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

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

report and financial statements shall prevail.

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UNITED RADIANT TECHNOLOGY CORPORATION

BALANCE SHEETS

DECEMBER 31, 2009 AND 2008

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

2009 2008 2009 2008

ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount %

CURRENT ASSETS CURRENT LIABILITIES

Cash (Note 4) $ 426,076 19 $ 642,993 27 Short-term bank loans (Note 14) $ 18,961 1 $ 30,175 1

Financial assets at fair value through profit or loss - Notes payable 3,793 - 1,734 -

current (Notes 2, 5 and 16) 31,780 2 - - Accounts payable (Note 25) 240,920 11 226,776 10

Available-for-sale financial assets - current (Notes 2 and 6) 4,563 - 2,147 - Accrued expenses (Notes 15 and 25) 101,461 4 93,665 4

Notes receivable (Note 2) 2,600 - 2,838 - Current portion of long-term liabilities (Notes 17 and 26) 28,125 1 57,536 2

Accounts receivable, net (Notes 2 and 7) 224,894 10 257,838 11 Other current liabilities 12,472 1 35,597 2

Accounts receivable - related parties (Notes 2 and 25) 47,533 2 49,456 2

Other receivable - less allowance for doubtful accounts of Total current liabilities 405,732 18 445,483 19

$16,391 thousand (Notes 2 and 25) 28,150 1 18,376 1

Inventories (Notes 2, 3 and 8) 195,500 9 246,130 10 LONG-TERM LIABILITIES

Deferred income tax assets - current (Notes 2 and 21) 51,680 2 72,175 3 Bonds payable (Notes 2, 16 and 26) 181,857 8 - -

Restricted assets - current (Notes 4 and 26) 4,000 - 4,000 - Long-term bank loans (Notes 17 and 26) 9,375 - 46,875 2

Other current assets (Notes 2 and 25) 20,874 1 13,546 1

Total long-term liabilities 191,232 8 46,875 2

Total current assets 1,037,650 46 1,309,499 55

OTHER LIABILITIES

INVESTMENTS (Note 2) Accrued pension cost (Notes 2 and 18) 19,983 1 21,046 1

Financial assets carried at cost - noncurrent (Note 10) 14,215 1 15,980 1 Guarantee deposits received 184 - 204 -

Investments accounted for by the equity method (Note 9) 458,079 20 238,246 10 Deferred credits - gains on intercompany transactions (Note 2) 252 - - -

Total investments 472,294 21 254,226 11 Total other liabilities 20,419 1 21,250 1

PROPERTY, PLANT AND EQUIPMENT (Notes 2, 11, 25 and Total liabilities 617,383 27 513,608 22

26)

Land 10,400 - 10,400 - SHAREHOLDERS’ EQUITY

Buildings 373,539 17 373,454 16 Common stock - NT$10 par value

Machinery and equipment 1,965,853 87 1,959,007 82 Authorized - 315,500 thousand shares

Other equipment 183,513 8 179,298 8 Issued and outstanding - 2009: 235,158 thousand shares;

Total cost 2,533,305 112 2,522,159 106 2008: 236,303 thousand shares 2,351,583 105 2,363,033 99

Less: Accumulated depreciation (1,915,889) (85 ) (1,764,295) (74 ) Capital surplus

Construction in progress and prepayments for equipment 39,299 2 25,325 1 Treasury stock transactions 3,502 - 3,490 -

Long-term investments 6,978 - 6,978 -

Net property, plant and equipment 656,715 29 783,189 33 Equity component of convertible bonds 36,540 2 - -

Retained earnings

INTANGIBLE ASSETS Accumulated deficit (762,098) (34 ) (504,296) (21 )

Computer software (Note 2) 5,436 - 3,392 - Equity adjustments

Cumulative translation adjustments 8,447 - 17,962 1

OTHER ASSETS Unrealized gain (loss) on financial instruments 1,828 - (871) -

Idle assets (Notes 2 and 12) - - - - Treasury stock - 2009: 883 thousand shares; 2008: 2,028

Refundable deposits 3,808 - 3,333 - thousand shares (10,584) - (22,022) (1 )

Deferred charges (Note 2) 4,849 - 12,313 1

Long-term notes and accounts receivable (Notes 2, 7 and 13) - - - - Total shareholders’ equity 1,636,196 73 1,864,274 78

Deferred income tax assets - noncurrent (Notes 2 and 21) 11,621 1 11,930 -

Restricted assets - noncurrent (Notes 4 and 26) 61,206 3 - -

Total other assets 81,484 4 27,576 1

TOTAL $ 2,253,579 100 $ 2,377,882 100 TOTAL $ 2,253,579 100 $ 2,377,882 100

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

(With Deloitte & Touche audit report dated March 9, 2010)

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STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2009 AND 2008

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

2009 2008

Amount % Amount %

GROSS SALES $ 1,292,889 101 $ 1,781,731 101

SALES RETURNS 9,863 1 11,353 1

SALES ALLOWANCES 1,607 - 6,683 -

NET SALES (Notes 2 and 25) 1,281,419 100 1,763,695 100

COST OF SALES (Notes 3, 8, 22 and 25) 1,371,764 107 1,928,499 110

GROSS LOSS (90,345) (7) (164,804) (10)

UNREALIZED INTERCOMPANY GAIN (Note 2) (5,879) - - -

REALIZED INTERCOMPANY GAIN (Note 2) 5,627 - 281 -

REALIZED GROSS LOSS (90,597) (7) (164,523) (10)

OPERATING EXPENSES (Notes 22 and 25)

Selling expenses 67,938 5 97,027 5

General and administrative expenses 65,871 5 74,622 4

Research and development expenses 10,320 1 10,364 1

Total operating expenses 144,129 11 182,013 10

OPERATING LOSS (234,726) (18) (346,536) (20)

NONOPERATING INCOME AND GAINS

Interest income 2,226 - 15,775 1

Gain on sale of investments, net (Note 2) - - 5,448 -

Exchange gain, net (Note 2) - - 13,310 1

Valuation gain on financial assets (Notes 2 and 5) 8,380 1 - -

Others (Notes 2 and 25) 9,437 1 26,024 2

Total nonoperating income and gains 20,043 2 60,557 4

NONOPERATING EXPENSES AND LOSSES

Interest expense (Notes 2 and 16) 1,814 - 7,277 -

Investment loss recognized under the equity method,

net (Notes 2 and 9) 14,376 1 5,425 -

Exchange loss, net (Note 2) 2,969 - - -

(Continued)

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STATEMENTS OF INCOME


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

2009 2008

Amount % Amount %

Valuation loss on financial liabilities (Notes 2 and 5) $ - - $ 13,863 1

Others (Notes 2, 10 and 22) 3,156 1 97,374 6

Total nonoperating expenses and losses 22,315 2 123,939 7

LOSS BEFORE INCOME TAX (236,998) (18) (409,918) (23)

INCOME TAX (Notes 2 and 21) 20,804 2 3,517 -

NET LOSS $ (257,802) (20) $ (413,435) (23)

2009 2008

Before

Income

Tax

After

Income

Tax

Before

Income

Tax

After

Income

Tax

LOSS PER SHARE (New Taiwan Dollars; Note 23)

Basic $ (1.01) $ (1.10) $ (1.75) $ (1.76)

Diluted $ (1.05) $ (1.13) $ (1.75) $ (1.76)

Pro forma loss assuming the Company’s shares held by its subsidiary were accounted for as an investment

instead of treasury stock is as follows:

2009 2008

NET LOSS $ (257,802) $ (413,435)

LOSS PER SHARE (New Taiwan Dollars)

Basic $ (1.10) $ (1.76)

Diluted $ (1.12) $ (1.76)


(With Deloitte & Touche audit report dated March 9, 2010) (Concluded)

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STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


(In Thousands of New Taiwan Dollars)

Other Equity (Note 2)

Issued and

Outstanding

Common Shares

Capital Surplus

(Notes 2, 16, 19

Retained Earnings

(Notes 2, 19, 20

and 21)

Cumulative

Translation

Unrealized Gain

(Loss) on Financial

Instruments Treasury Stock Total Shareholders'

(Note 20) and 20) Accumulated Deficit Adjustments (Note 19) (Note 20) Equity

BALANCE, JANUARY 1, 2008 $ 2,400,033 $ 6,978 $ (86,391) $ 3,280 $ 2,257 $ (60,002) $ 2,266,155

Retirement of treasury stock - 3,700 thousand shares (37,000) 3,490 (4,470) - - 37,980 -

Net loss in 2008 - - (413,435) - - - (413,435)

Change in translation adjustments - - - 14,682 - - 14,682

Adjustment due to changes in investee's equity in its investments - - - - (50) - (50)

Unrealized loss on available-for-sale financial assets - - - - (3,078) - (3,078)

BALANCE, DECEMBER 31, 2008 2,363,033 10,468 (504,296) 17,962 (871) (22,022) 1,864,274

Equity component of convertible bonds - 36,540 - - - - 36,540

Retirement of treasury stock - 1,145 thousand shares (11,450) 12 - - - 11,438 -

Net loss in 2009 - - (257,802) - - - (257,802)

Change in translation adjustments - - - (9,515) - - (9,515)

Adjustment due to changes in investee's equity in its investments - - - - 83 - 83

Unrealized gain on available-for-sale financial assets - - - - 2,616 - 2,616

BALANCE, DECEMBER 31, 2009 $ 2,351,583 $ 47,020 $ (762,098) $ 8,447 $ 1,828 $ (10,584) $ 1,636,196


(With Deloitte & Touche audit report dated March 9, 2010)

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STATEMENTS OF CASH FLOWS



2009 2008 CASH FLOWS FROM OPERATING ACTIVITIES

Net loss $ (257,802) $ (413,435) Adjustments to reconcile net loss to net cash provided by operating

activities

Deferred income tax 20,804 3,517 Depreciation 162,685 184,482 Amortization 16,072 28,065 Amortized discount on bonds payable 47 581 Unrealized (realized) intercompany gain 252 (281) Provision for doubtful accounts 728 5,128 Valuation loss (gain) on financial instruments (8,380) 13,863 Gain on sale of investments, net - (5,448) Provision for loss on inventories 5,583 249,729 Investment loss recognized under the equity method, net 14,376 5,425 Other loss on refundable deposits - 85,989 Impairment loss on financial assets carried at cost - noncurrent 1,765 2,400 Loss on disposal of property, plant and equipment, net 815 49 Gain on idle asset valuation (493) (1,262) Gain on redemption of convertible bonds - (12,064) Accrued pension cost (1,063) (1,829) Net changes in operating assets and liabilities

Notes receivable 238 390 Accounts receivable 24,070 114,956 Other receivables 295 (289) Inventories 45,047 20,273 Other current assets (7,328) 2,908 Notes payable 2,059 (625) Accounts payable 14,144 (16,641) Accrued expenses 7,796 (19,677) Other current liabilities (69) 10,362

Net cash provided by operating activities 41,641 256,566

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of available-for-sale financial assets 200 10,244 Acquisition of investments accounted for by the equity method (243,641) (92,715) Acquisition of property, plant and equipment (59,788) (35,834) Proceeds from disposal of property, plant and equipment 199 6 Increase in computer software (4,632) (2,534) Decrease (increase) in refundable deposits (475) 22,955 Increase in deferred charges (6,020) (17,793) Acquisition of available-for-sale financial assets - (10,000) Decrease in restricted assets - current - 2,000 Acquisition of financial assets carried at cost - (9,975) Proceeds from disposal of financial assets carried at cost - 13,459

Net cash used in investing activities (314,157) (120,187)

(Continued)

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STATEMENTS OF CASH FLOWS



2009 2008 CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in restricted assets - noncurrent $ (61,206) $ 440,300 Net increase (decrease) in short-term bank loans (11,214) 14,484 Repayments of long-term bank loans (66,911) (103,136) Decrease in guarantee deposits received (20) (15) Issuance of convertible bonds 194,950 - Redemption of convertible bonds - (472,843)

Net cash provided by (used in) financing activities 55,599 (121,210)

NET INCREASE (DECREASE) IN CASH (216,917) 15,169 CASH, BEGINNING OF YEAR 642,993 627,824 CASH, END OF YEAR $ 426,076 $ 642,993 SUPPLEMENTAL CASH FLOW INFORMATION

Interest paid $ 1,849 $ 7,288 NONCASH INVESTING AND FINANCING ACTIVITIES

Current portion of long-term liabilities $ 28,125 $ 57,536 Idle assets reclassified into property, plant and equipment $ - $ 132 Property, plant and equipment reclassified into intangible assets $ - $ 229

INVESTING ACTIVITIES AFFECTING BOTH CASH AND

NON-CASH ITEMS

Acquisition of property, plant and equipment $ 36,732 $ 44,713 Decrease (increase) in payables for equipment purchased 23,056 (8,879) Cash paid for acquisition of property, plant and equipment $ 59,788 $ 35,834

The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated March 9, 2010) (Concluded)

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NOTES TO FINANCIAL STATEMENTS


(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

United Radiant Technology Corporation (the “Company”) was incorporated in June 1990. It

manufactures, processes and sells various sizes of liquid crystal display panels, liquid display modules and

far infrared ray parts.

In August 1996, the Securities and Futures Commission (SFC, under the Financial Supervisory

Commission, Executive Yuan; renamed Securities and Futures Bureau effective July 1, 2004) approved the

trading of the Company’s common shares on the over-the-counter securities exchange in the Republic of

China (ROC).

The Company had 656 and 802 employees as of December 31, 2009 and 2008, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

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

Accounting, and accounting principles generally accepted in the ROC. Under these guidelines, law and

principles, certain estimates and assumptions have been used for the allowance for doubtful accounts,

allowance for loss on inventories, depreciation of property, plant and equipment, amortization of computer

software and other assets, asset impairment loss and pension cost, etc. Actual results may differ from

these estimates.

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:

Current and Noncurrent Assets and Liabilities

Current assets include cash 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.

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Financial Assets and Liabilities at Fair Value Through Profit or Loss

Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss

(FVTPL) include financial assets or financial liabilities held for trading and those designated as at FVTPL

on initial recognition. The Company recognizes a financial asset or a financial liability on its balance

sheet when the Company becomes a party to the contractual provisions of the financial instrument. A

financial asset is derecognized when the Company has lost control of its contractual rights over the

financial asset. A financial liability is derecognized when the obligation specified in the relevant contract

is discharged, cancelled or expired.

Financial instruments at FVTPL are initially measured at fair value plus transaction costs that are directly

attributable to the acquisition. At each balance sheet date subsequent to initial recognition, financial assets

or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly

in profit or loss in the year in which they arise. Cash dividends received subsequently (including those

received in the year of investment) are recognized as income for the year. On derecognition of a financial

asset or a financial liability, the difference between its carrying amount and the sum of the consideration

received and receivable or consideration paid and payable is recognized in profit or loss. All regular way

purchases or sales of financial assets are recognized and derecognized on a trade date basis.

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

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

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

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

publicly traded stocks - at closing prices; open-end mutual funds - at net asset values; and financial assets

and financial liabilities without quoted prices in an active market - at values determined using valuation

techniques.

Available-for-sale Financial Assets

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

attributable to the acquisition. At each balance sheet date subsequent to initial recognition,

available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in

equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously

recognized in equity is included in profit or loss for the year. All regular way purchases or sales of

financial assets are recognized and derecognized on a trade date basis.

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

those of financial assets at FVTPL.

Cash dividends are recognized on the ex-dividend date, except for dividends distributed from the

pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not

recognized as investment income but are recorded as an increase in the number of shares. The total

number of shares subsequent to the increase is used for recalculation of cost per share.

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

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

recognized directly in equity. If the fair value of a debt instrument classified as available for sale

subsequently increases as a result of an event which occurred after the impairment loss was recognized, the

decrease in impairment loss is reversed to profit.

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Revenue Recognition, Trade Receivables and Allowance for Doubtful Accounts

Revenue from sales of goods is recognized when the Company has transferred to the buyer the significant

risks and rewards of ownership of goods, primarily upon shipment, because the earnings process has been

completed and the economic benefits associated with the transaction have been realized or are realizable.

The Company does not recognize sales revenue on materials delivered to subcontractors because this

delivery does not involve a transfer of risks and rewards of materials ownership.

Revenue is measured at the fair value of the consideration received or receivable and represents amounts

agreed between the Company and the customers for goods sold in the normal course of business, net of

sales discounts and volume rebates. For trade receivables due within one year from the balance sheet date,

as the nominal value of the consideration to be received approximates its fair value and transactions are

frequent, the fair value of the consideration is not determined by discounting all future receipts using an

imputed rate of interest.

Allowance for doubtful accounts is determined on the basis of the evaluation of the collectibility and aging

of receivables as well as prior loss experience.

The aging of receivables exceeding twelve months will be reclassified into overdue receivables.

Inventories

Inventories include raw materials, supplies and spare parts, finished goods, merchandise and work in

process. Before January 1, 2009, inventories were stated at the lower of cost or market value (replacement

cost or net realizable value). Any write-down was made on a total-inventory basis. Market value meant

replacement cost for raw materials and supplies and net realizable value for finished goods and work in

process. As stated in Note 3, effective January 1, 2009, inventories are stated at the lower of cost or net

realizable value. Inventory write-downs are made by item, except where it may be appropriate to group

similar or related items. Net realizable value is the estimated selling price of inventories less all estimated

costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and

adjusted to approximate weighted-average cost on the balance sheet date.

Financial Assets Carried at Cost

Investments in equity instruments with no quoted prices in an active market and with fair values that cannot

be reliably measured, such as non-publicly traded stocks and stocks traded in the Emerging Stock Market,

are measured at their original cost. The accounting treatment for dividends on financial assets carried at

cost is similar to that for dividends on available-for-sale financial assets. An impairment loss is

recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss

is disallowed.

Investments Accounted for by the Equity Method

Investments in which the Company holds 20 percent or more of the investees’ voting shares or exercises

significant influence over the investees’ operating and financial policy decisions are accounted for by the

equity method.

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

in the investee’s equity was amortized by the straight-line method over 5 years. Effective January 1, 2006,

pursuant to the revised Statement of Financial Accounting Standard (“SFAS”), the acquisition cost is

allocated to the assets acquired and liabilities assumed based on their fair values at the date of acquisition,

and the excess of the acquisition cost over the fair value of the identifiable net assets acquired is recognized

as goodwill. Goodwill is not being amortized. The excess of the fair value of the net identifiable assets

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

(except for financial assets other than investments accounted for by the equity method, noncurrent assets

held for sale, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to

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

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

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

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

amount continues to be amortized over the remaining year.

Profits from downstream transactions with an equity-method investee are eliminated in proportion to the

Company’s percentage of ownership in the investee; however, if the Company has control over the

investee, all the profits are eliminated. Profits from upstream transactions with an equity-method investee

are eliminated in proportion to the Company’s percentage of ownership in the investee. All of these

deferred profits are realized upon product or other sales to third parties.

When the Company subscribes for its investee’s newly issued shares at a percentage different from its

percentage of ownership in the investee, the Company records the change in its equity in the investee’s net

assets as an adjustment to investments, with a corresponding amount credited or charged to capital surplus.

When the adjustment should be debited to capital surplus, but the capital surplus arising from long-term

investments is insufficient, the shortage is debited to retained earnings.

The Company’s stock held by its subsidiaries is treated as treasury stock; related gains or losses are

recognized using treasury stock method. Dividends distributed to subsidiaries are offset against

investment income and result in adjustments to capital surplus - treasury stock transactions.

When the Company’s share in losses of an investee over which the Company has control exceeds its

investment in the investee, unless the other shareholders of the investee have assumed legal or constructive

obligations and have demonstrated the ability to make payments on behalf of the investee, the Company has

to bear all of the losses in excess of the capital contributed by shareholders of the investee. If the investee

subsequently reports profits, such profits are first attributed to the Company to the extent of the excess

losses previously borne by the Company.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Borrowing costs directly

attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the

cost of those assets. Major additions and improvements are capitalized, while repairs and maintenance are

expensed currently.

Depreciation is provided on a straight-line basis over estimated useful lives as follows: Buildings - 9 to 40

years; machinery and equipment - 1 to 10 years; and other equipment - 1 to 20 years. Property, plant and

equipment still in use beyond their original estimated useful lives are further depreciated over their newly

estimated useful lives.

The related cost and accumulated depreciation of property, plant and equipment are derecognized from the

balance sheet upon asset disposal. Any gain or loss on disposal of the asset is included in nonoperating

gains or losses in the year of disposal.

Computer Software

These represent the initial costs, which are amortized using the straight-line method over three years.

Idle Assets

Property, plant and equipment not used in operations are classified as idle assets and stated at the lower of

net realizable value or book value. The related cost and accumulated depreciation are written off and any

cost in excess of net realizable value is recognized as loss.

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Deferred Charges

Deferred charges include cable reimbursement and molding expenses, which are stated at acquisition cost.

Deferred charges are amortized on a straight-line method over the estimated useful life of one to three

years.

Impairment of Assets

If the recoverable amount of an asset (mainly property, plant and equipment, computer software, idle assets,

deferred charges, and investments accounted for by the equity method) is estimated to be less than its

carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment

loss is charged to earnings unless the asset is carried at a revalued amount, in which case the impairment

loss is treated as a deduction to the unrealized revaluation increment.

If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but

the increased carrying amount may not exceed the carrying amount that would have been determined had

no impairment loss been recognized for the asset in prior years.

For the purpose of impairment testing, goodwill is allocated to each of the relevant cash-generating units

(CGUs) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has

been allocated is tested for impairment annually or whenever there is an indication that the CGU may be

impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment is

allocated to first reduce the carrying amount of the goodwill allocated to the CGU and then to the other

assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an

impairment loss on goodwill is disallowed.

Pension Cost

Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under

a defined contribution plan are recognized as pension cost during the year in which employees render

services.

Convertible Bonds

For convertible bonds issued on or after January 1, 2006, the Company first determines the carrying amount

of the liability component by measuring the fair value of a similar liability that does not have an associated

equity component, then determines the carrying amount of the equity component, representing the equity

conversion option, by deducting the fair value of the liability component from the fair value of the

convertible bonds as a whole. The liability component (excluding embedded derivatives) is measured at

amortized cost using the effective interest method, while the embedded non-equity derivatives are measured

at fair value. Upon conversion, the Company uses the aggregate carrying amount of the liability and

equity components of the bonds at the time of conversion as a basis to record the common shares issued.

Under the newly released Statements of Financial Accounting Standards No. 34 - “Financial Instruments:

Recognition and Measurement” and No. 36 - “Financial Instruments: Disclosure and presentation,”

transaction costs of bonds issued on or after January 1, 2006 are allocated in proportion to the liability and

equity components of the bonds.

Treasury Stock

Treasury stock is stated at cost and shown as a deduction to arrive at shareholders’ equity.

The Company accounts for its stock held by subsidiaries as treasury stock. The recorded cost of the stock

is based on its carrying amount as of January 1, 2002.

- 14 -

Income Tax

The Company applies the inter-year allocation for its income tax, whereby deferred income tax assets and

liabilities are recognized for the tax effects of temporary differences, unused loss carryforwards and unused

tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that

deferred income tax assets will not be realized. 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 current or noncurrent based on the expected length of time before it is realized or settled.

Tax credits for purchases of machinery, equipment and technology, research and development expenditures,

and personnel training expenditures are recognized using the flow-through method.

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

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as

income tax in the year the shareholders approve to retain the earnings.

Foreign Currencies

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

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

assets and liabilities are recognized in profit or loss.

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

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

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

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

treated as follows:

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

b. Recognized in profit and loss if the changes in fair value are 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.

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

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

Such adjustments are accumulated and reported as a separate component of shareholders’ equity.

Reclassifications

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

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

December 31, 2009.

- 15 -

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

Accounting for Inventories

On January 1, 2009, the Company adopted the newly revised Statement of Financial Accounting Standard

No. 10 - “Inventories”. The main revisions are (1) inventories are stated at the lower of cost or net

realizable value, and inventories are written down to net realizable value by item except when the grouping

of similar or related items is appropriate; (2) unallocated overheads are recognized as expenses in the period

in which they are incurred; and (3) abnormal costs, write-downs of inventories and any reversal of

write-downs are recorded as cost of goods sold for the period. This accounting change resulted in an

increase of $41,272 thousand in loss before income tax and net loss and an increase of NT$0.18 in after

income tax basic loss per share for the year ended December 31, 2009. For comparison purposes, the

Company reclassified nonoperating losses of $249,729 thousand to cost of goods sold for the year ended

December 31, 2008.

Accounting for Bonuses to Employees, Directors and Supervisors

In March 2007, the Accounting Research and Development Foundation issued Interpretation No. 2007-052,

which requires companies to recognize bonuses paid to employees, directors and supervisors as

compensation expenses beginning January 1, 2008. These bonuses were previously recorded as

appropriations from earnings. This accounting change had no effect on net loss and after income tax basic

loss per share for 2009.

4. CASH

2009 2008

Cash on hand $ 100 $ 100

Cash in banks

Checking accounts 20 19

Demand deposits 69,942 89,382

Foreign-currency deposits 34,614 86,288

Time deposits 386,606 471,204

491,282 646,993

Less: Restricted assets - current (4,000) (4,000)

Restricted assets - noncurrent (61,206) -

$ 426,076 $ 642,993

5. FINANCIAL INSTRUMENTS AT FVTPL

2009 2008

Financial assets held for trading

Including embedded financial instruments of domestic convertible

bonds (Note 16) $ 31,780 $ -

Net income (loss) on financial assets and liabilities held for trading for the years ended December 31, 2009

and 2008 were $8,380 thousand and $(13,863) thousand, respectively.

- 16 -

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS - CURRENT

2009 2008

Domestic quoted stocks $ 4,263 $ 1,647

Bonds 300 500

$ 4,563 $ 2,147

7. ACCOUNTS RECEIVABLE

2009 2008

Accounts receivable $ 226,948 $ 261,314

Less: Allowance for doubtful accounts (2,054) (3,476)

$ 224,894 $ 257,838

The movements of allowance for doubtful accounts were as follows:

Years Ended December 31

2009 2008

Accounts

Receivable

Overdue

Receivable

Accounts

Receivable

Overdue

Receivable

Balance, beginning of year $ 3,476 $ 52,550 $ 3,963 $ 50,923 Provision (reversal of provision)

for doubtful accounts

(1,422) 2,150 (487) 2,224 Amounts written off - (43,881) - (597) Balance, end of year $ 2,054 $ 10,819 $ 3,476 $ 52,550

Overdue receivables consisted of long-term notes and accounts receivable.

8. INVENTORIES

2009 2008

Finished goods $ 53,517 $ 102,970

Work in process 39,580 45,774

Raw materials 98,667 93,811

Supplies and spare parts 3,736 3,575

$ 195,500 $ 246,130

As of December 31, 2009 and 2008, the allowance for inventory devaluation was $264,692 thousand and

$325,084 thousand, respectively.

The cost of inventories recognized as cost of goods sold in the years ended December 31, 2009 and 2008

was $1,371,764 thousand and $1,928,499 thousand, respectively, which included $5,583 thousand and

$249,729 thousand, respectively, due to write-downs of inventories.

- 17 -

9. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD

2009 2008

Carrying % of Carrying % of

Unlisted Companies Amount Ownership Amount Ownership

United Radiant Technology (H.K.)

Co., Ltd. (URT HK)

$ 13,347 100 $ 27,826 100 United Radiant Technology GmbH

Deutschland (URT GmbH)

3,296 60 2,857 60 United Radiant Investment &

Development Corporation (URI)

10,827 100 10,748 100 Firsthill Limited (“Firsthill”) 441,193 100 207,399 100 468,663 248,830 Transferred to treasury stock (10,584) (10,584) $ 458,079 $ 238,246

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

Company’s investment in United Radiant Electric Technology (Suzhou) Limited (“United Radiant

[Suzhou]”). This investment was made through Firsthill, established in the British Virgin Islands, and

then Firsthill invested in United Radiant, Ltd., established in Mauritius. United Radiant (Suzhou) plans to

manufacture, process and sell LCD monitors and modules. As of December 31, 2009, the capital of

Firsthill, United Radiant, Ltd. and United Radiant (Suzhou) was US$13,500 thousand each.

Investment income (loss) recognized under the equity method was as follows:


2009 2008

URT HK $ (14,295) $ (3,865)

URT GmbH 447 (865)

URI 79 (368)

Firsthill (607) (327)

$ (14,376) $ (5,425)

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

of December 31, 2008 and 2007 and the related equity in net income or loss for the years then ended, had

been audited, except those of URT GmbH. The Company believes that, had URT GmbH’s financial

statements been audited, any adjustments arising would have had no material effect on the Company’s

financial statements.

The Company prepares consolidated financial statements, which include the following: (a) all direct and

indirect subsidiaries; (b) all investees over which the Company has direct or indirect control over the

investees’ personnel, financial and operating policy decisions; and (c) other companies over which the

Company can exercise significant control through other ways. Thus, the accounts of the subsidiaries,

URT HK, URI, and Firsthill were included in the Company’s consolidated financial statements and those of

an indirect subsidiary, United Radiant, Ltd., were included in Firsthill’s consolidated financial statements,

and United Radiant (Suzhou) were included in United Radiant, Ltd.’s consolidated financial statements,

will all of the financial statements for the years ended December 31, 2009 and 2008. A Company

subsidiary, URT GmbH, was not consolidated in 2009 and 2008 because neither its total assets nor total

sales were material to the Company.

- 18 -

10. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

2009 2008

Unlisted Companies

Rodan (Taiwan) Ltd. (“Rodan”) $ 1,769 $ 1,769

Viking Tech Corporation (“Viking”) 3,187 3,187

Emmt System Corporation (“Emmt”) 1,526 3,291

Chung Yo Department Store Co., Ltd. (“Chung Yo”) 158 158

Topunion Globaltek Inc. (“Topunion”) 7,575 7,575

Metrodyne Co., Ltd. (“Metrodyne”) - -

Kin Son Electronic Co., Ltd. (“Kin Son”) - -

Optic North America (“Optic”) - -

$ 14,215 $ 15,980

The above equity investments, which had no quoted prices in an active market and which had fair values

that could not be reliably measured, were carried at cost.

In 1998, the Company sold its holding of Rodan’s 3,000 thousand shares and received the proceeds of this

sale. However, Rodan applied for approval for its stock to become a TIGER (Taiwan Innovating Growth

Entrepreneurs) stock; thus, some of the stocks sold earlier by the Company were deposited in a government

securities regulatory agency, and 2,434 thousand shares of Rodan’s stock sold (which decreased to 1,094

thousand shares after Rodan’s capital decrease in 2006) could not be transferred to the buyer. Because of

the Company’s sale of Rodan’s 3,000 thousand shares, these shares were not included in financial assets

carried at cost - noncurrent.

Offset its accumulated deficits, Emmt reduced its capital under resolutions passed at the shareholders’

meeting in 2009. Thus, the Company recognized an impairment loss of $1,765 in 2009.

Topunion had had an accumulated deficit in past years continually. Thus, the Company recognized an

investment loss of $2,400 thousand in 2008. In 2009, Topunion no longer had a deficit.

11. PROPERTY, PLANT AND EQUIPMENT

2009

Balance,

Beginning of

Year Additions Disposals Reclassification

Balance, End

of Year

Cost

Land $ 10,400 $ - $ - $ - $ 10,400 Buildings 373,454 85 - - 373,539 Machinery and equipment 1,959,007 8,275 (11,225) 9,796 1,965,853 Other equipment 179,298 2,421 (387) 2,181 183,513 2,522,159 10,781 (11,612) 11,977 2,533,305 Construction in progress and

prepayments for equipment

25,325 25,951 - (11,977) 39,299 2,547,484 $ 36,732 $ (11,612) $ - 2,572,604 Accumulated depreciation Buildings 146,823 $ 16,929 $ - $ - 163,752 Machinery and equipment 1,480,877 133,388 (10,225) - 1,604,040 Other equipment 136,595 11,875 (373) - 148,097 1,764,295 $ 162,192 $ (10,598) $ - 1,915,889 $ 783,189 $ 656,715

- 19 -

2008

Balance,

Beginning of

Year Additions Disposals Reclassification

Balance, End

of Year

Cost

Land $ 10,400 $ - $ - $ - $ 10,400

Buildings 372,198 528 - 728 373,454

Machinery and equipment 1,941,658 7,632 - 9,717 1,959,007

Other equipment 166,896 11,592 (354) 1,164 179,298

2,491,152 19,752 (354) 11,609 2,522,159

Construction in progress and

prepayments for equipment

11,172 24,961 - (10,808) 25,325

2,502,324 $ 44,713 $ (354) $ 801 2,547,484

Accumulated depreciation

Buildings 129,907 $ 16,916 $ - $ - 146,823

Machinery and equipment 1,325,313 154,505 - 1,059 1,480,877

Other equipment 125,123 11,932 (299) (161) 136,595

1,580,343 $ 183,353 $ (299) $ 898 1,764,295

$ 921,981 $ 783,189

12. IDLE ASSETS

2009 2008

Cost $ 20,727 $ 20,727

Less: Accumulated depreciation (19,803) (19,310)

Allowance for loss (924) (1,417)

$ - $ -

13. LONG-TERM NOTES AND ACCOUNTS RECEIVABLE

2009 2008

Overdue receivables $ 10,819 $ 52,550

Less: Allowance for doubtful accounts (10,819) (52,550)

$ - $ -

14. SHORT-TERM BANK LOANS

The letter of credit loans were due in 180 days; interest rates were 1.3193% to 1.579% in 2009 and 1.602%

to 2.96% in 2008.

- 20 -

15. ACCRUED EXPENSES

2009 2008

Salaries payable $ 17,625 $ 17,766

Bonuses 12,778 4,339

Expendables in factory, etc. 39,338 41,887

Others 31,720 29,673

$ 101,461 $ 93,665

16. BONDS PAYABLE

2009 2008

Third domestic secured convertible bonds $ 181,857 $ -

In December 2009, the Company made a third issue of domestic convertible bonds amounting to $200,000

thousand to build factories, buy machinery and equipment and make investments.

Terms of the convertible bonds are summarized as follows:

Issue date: December 28, 2009

Maturity: December 28, 2012

Aggregate par value: $200,000 thousand

Coupon interest rate: 0%

Due payment: The bondholders may ask to put or to convert bonds into shares in

accordance with laws and regulations or the Company may call the

bonds according to the Company’s rules; otherwise, principal is

repayable in cash at one time upon maturity.

Put option for bondholders: Face value of bonds, with reserve for put premium. On December 28,

2011 at 102.01% (actual premium rate 1%)

Call right of bond issuer: The Company has the right to call and retire all or part of the bonds if

the closing price of the Company’s common stock exceeds 30% of the

prevailing conversion price for 30 consecutive trading days and if the

aggregate par value of outstanding bonds is less than $20,000 thousand.

The amount collected is equal to a gross yield in cash.

Conversion price: NT$7.98 (in dollars) per share.

Conversion period: The bondholders may request the Company to convert their bonds into

the Company’s common stock between after the third month from the

issue date and the 10th day before maturity, except when share transfer

is prohibited by law.

- 21 -

Under Statement of Financial Accounting Standards No. 36 - “Financial Instruments: Disclosure and

Presentation,” the Company isolated the liability components of the bonds from their equity instrument

components, as follows:

2009

NT$

Par value of convertible bonds $ 200,000

Initial recognized amount on financial assets of

convertible bonds (Note 5)

23,400

Liability component of secured domestic

convertible bonds

(36,540)

186,860

Unamortized transaction costs (5,050)

Initial recognized amount of convertible bonds 181,810

Amortization 47

$ 181,857

17. LONG-TERM BANK LOANS

2009 2008

Secured loans

Repayable in 26 quarterly installments of $4,650 thousand each

from April 2003 to June 2009, with last quarterly installment of

$3,750 thousand; some repayments were ahead of schedule, so

repayments to resume in July 2007; interest rates at 3.69%

$ -

$ 8,400


from July 2007 to March 2011; interest rates at 1.5% in 2009

and 3.69% in 2008

37,500

84,375

Unsecured loans


from April 2007 to October 2009, with a first quarterly

installment of $901 thousand; interest rates at 4.2%

-

11,636

37,500 104,411

Less: Current portion (28,125) (57,536)

Noncurrent portion $ 9,375 $ 46,875

The Company entered into a secured loan agreement, effective 2006, with the Taiwan Cooperative Bank.

The loan terms and conditions are as follows:

a. Minimum current ratio of 1.0;

b. Interest coverage ratio of at least 1.5.

The Company should maintain the financial ratios mentioned above. Otherwise, the Company should

improve its financial structure in six months starting from April 30 of the next fiscal year, and it should pay

fees at 0.2% of the balance of the previous year’s bank loans.

- 22 -

18. PENSION PLANS

The pension plan under the Labor Pension Act (LPA) is a defined contribution plan. Based on the LPA,

the Company makes monthly contributions to employees’ individual pension accounts at 6% of monthly

salaries and wages. Related pension costs were $13,093 thousand in 2009 and $13,092 thousand in 2008.

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

the basis of the length of service and average salary of the six months before retirement. The Company

contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the

pension fund monitoring committee. The pension fund is deposited in the Bank of Taiwan (the Central

Trust of China, the government-designated custodian of pension funds, merged with the Bank of Taiwan in

July 2007, with the Bank of Taiwan as the survivor entity) in the committee’s name. The Company

proposed the Management Employees Pension Plan in 2008 and will contribute the related pension fund for

the management employees in 2009. The Company recognized pension costs of $3,503 thousand for 2009

and $10,406 thousand for 2008.

Other information on the defined benefit plan is as follows:

a. Components of net pension cost

2009 2008

Service cost $ 2,222 $ 2,287

Interest cost 2,498 2,004

Projected return on plan assets (1,840) (1,680)

Amortization 163 (19)

$ 3,043 $ 2,592

b. Reconciliation of funded status of the plans and accrued pension cost as of December 31, 2009 and

2008

2009 2008

Benefit obligation

Vested benefit obligation $ 2,367 $ 2,373

Non-vested benefit obligation 58,959 53,986

Accumulated benefit obligation 61,326 56,359

Additional benefit based on future salaries 30,723 34,496

Projected benefit obligation 92,049 90,855

Fair value of plan assets (64,400) (64,658)

Funded status 27,649 26,197

Unrecognized net transitional obligation (1,060) (1,222)

Unrecognized net loss (6,606) (3,929)

Accrued pension cost $ 19,983 $ 21,046

Vested benefit $ 2,859 $ 3,037

- 23 -

c. Actuarial assumptions as of December 31, 2009 and 2008

2009 2008

Discount rate used in determining present values 2.00% 2.75%

Future salary increase rate 2.75% 3.00%

Expected rate of return on plan assets 2.00% 2.75%

2009 2008

d. Contributions to the fund $ 4,106 $ 4,421

e. Payments from the fund $ 4,785 $ 738

19. SHAREHOLDERS’ EQUITY

Capital Surplus

Under the Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus

from shares issued in excess of par (additional paid-in capital from issuance of common shares, conversion

of bonds and treasury stock transactions) and donations may be capitalized, which however is limited to a

certain percentage of the Company’s paid-in capital and once a year. Also, the capital surplus from

long-term investments may not be used for any purpose.

Appropriation of Earnings and Dividend Policy

Under the Company’s Articles of Incorporation, annual earnings should first be used to pay income tax and

offset any prior years’ deficit. From any remainder, 10% should be appropriated as legal reserve. Any

special reserve should be appropriated or reversed in accordance with the law. Dividends should be

appropriated at 10% of the face value of stock. Any remaining balance should be appropriated as follows:

a. 18% as bonuses to employees;

b. 6% as remuneration to directors and supervisors; and

c. 76% as dividends.

Cash dividends should be appropriated on the basis of the current year’s business results and capital

condition and are subject to the shareholders’ approval. Cash dividend should be at least 10% of the

dividends and bonuses to shareholders. If cash dividend is less than NT$0.10 (in dollars) per share, stock

dividends will be issued instead.

The Company should appropriate from retained earnings a special reserve equal to the debit balance of any

shareholder’s equity account other than deficit.

Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance

of certain shareholders’ equity accounts (including unrealized revaluation increment, unrealized gain or loss

on financial instruments, net loss not recognized as pension cost, cumulative transaction adjustments) shall

be transferred from unappropriated earnings to a special reserve. Any special reserve appropriated may be

reversed to the extent of the decrease in the net debit balance.

Legal reserve shall be appropriated until it has reached the Company’s paid-in capital. This reserve may

be used to offset a deficit. When the legal reserve has reached 50% of the Company’s paid-in capital, up

to 50% thereof may be transferred to paid-in capital.

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed tax credits

equal to their proportionate share of the income tax paid by the Company.

- 24 -

The Company had accumulated deficits in 2009 and 2008; thus, there was no estimation of the bonus to

employees and the remuneration to directors and supervisors.

Information on the appropriation of earnings is available on the Market Observation Post System website of

the Taiwan Stock Exchange.

Unrealized Gain or Loss on Financial Instruments

For the years ended December 31, 2009 and 2008, movements of unrealized gain or loss on financial

instruments were as follows:

2009 2008

Balance, beginning of year $ (871) $ 2,257

Recognized in shareholders’ equity 2,616 (3,034)

From investments accounted for by the equity method 83 (50)

Transferred to profit or loss - (44)

Balance, end of year $ 1,828 $ (871)

20. TREASURY STOCK

Purpose of Treasury Stock

Number of

Shares,

Beginning of

Year

Addition

During the

Year

Reduction

During the

Year

Number of

Shares, End of

Year

Year ended December 31, 2009

For transfer to employees 1,145 - (1,145) - Company’s shares held by its

subsidiaries

883 - - 883 2,028 - (1,145) 883


For transfer to employees 4,845 - (3,700) 1,145

Company’s shares held by its

subsidiaries

883 - - 883

5,728 - (3,700) 2,028

The Company’s shares held by its subsidiaries as of December 31, 2009 and 2008 were as follows:

Subsidiary

Shares

(In Thousands)

Carrying

Amount Market Value

December 31, 2009

URI 883 $ 7,292 $ 7,292

December 31, 2008

URI 883 $ 1,669 $ 1,669

- 25 -

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

shareholders’ rights on these shares, such as rights to dividends and to vote. The subsidiaries holding

treasury stock, however, retain shareholders’ rights, except the rights to participate in any share issuance for

cash and to vote.

21. INCOME TAX

a. A reconciliation of income tax expense based on loss before income tax at the 25% statutory rate and

income tax expense was as follows:


2009 2008

Income tax expense at the 25% statutory rate $ (59,250) $ (102,479)

Tax effect of adjusting items:

Permanent differences (21) 22,125

Temporary differences (7,089) 17,979

Loss carryforwards 66,360 62,375

Current income tax expense - -

Deferred income tax expense

Provision for loss on inventories 15,098 (24,580)

Unrealized intercompany gains (63) 70

Provision (reversal of provision) for doubtful accounts 10,620 (577)

Unrealized exchange gain (loss), net (1,571) 3,806

Investment loss recognized under the equity method (11,577) (1,264)

Unrealized loss on idle asset valuation 123 315

Recognized pension costs in excess of amount deductible for

income tax purposes 242 356

Unrealized valuation loss on financial instruments 2,096 4,578

Investment tax credits 13,738 3,584

Loss carryforwards (26,383) (56,282)

Unrealized cost of goods sold (5,658) -

Effect of tax law changes on deferred income tax 64,685 -

Adjustment in valuation allowance due to changes in tax laws ( 46,489) -

Others (540) (535)

Adjustment in valuation allowance 6,483 74,046

Income tax expense $ 20,804 $ 3,517

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

which extends the operating losses carryforward period from five years to ten years.

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

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

recalculated its deferred tax assets and liabilities in accordance with this amendment and recorded the

resulting difference as a deferred income tax benefit or expense.

- 26 -

b. Deferred income tax assets (liabilities) were as follows:

2009 2008

Current

Allowance for loss on slow-moving and devaluated inventory $ 52,938 $ 81,271


Provision for doubtful accounts 1,954 13,062

Unrealized exchange (gain) loss 163 (1,367)

Unrealized cost of goods sold 4,526 -

Unrealized intercompany gain 50 -

Unrealized valuation gain on financial instruments (1,677) -

Others 790 271

Less: Valuation allowance (10,006) (38,310)

$ 51,680 $ 72,175

Noncurrent

Loss carryforwards $ 161,961 $ 135,578

Investments loss recognized under the equity method 27,938 23,346


Impairment loss 5,310 6,637

Recognized pension costs in excess of amount deductible for

income tax purposes

4,600 5,992

Loss on idle asset valuation 185 354

Others 7 183

Less: Valuation allowance (194,961) (166,172)

$ 11,621 $ 11,930

c. As of December 31, 2009, investment tax credits and loss carryforwards comprised:

Tax Creditable

Remaining

Creditable

Expiry

Laws and Statutes Tax Credit Source Amount Amount Year

Statute for Upgrading Industries Machinery and equipment $ 2,323 $ 2,323 2010

Research and development 619 619 2010

Machinery and equipment 179 179 2011

Research and development 520 520 2011

Machinery and equipment 704 704 2012

Research and development 1,414 1,414 2012

Machinery and equipment 1,742 1,742 2013

Research and development 2,022 2,022 2013

Income Tax Law Loss carryforwards 182,984 182,984 2013

Loss carryforwards 110,274 110,274 2016



Under the Statute for Upgrading Industries, the maximum investment tax credit that may be used as

offset against income tax liabilities is only up to 50% of the Company’s annual income tax payable.

But in the year of expiry, there will be no such limit.

d. The tax returns through 2007 have been assessed by the tax authorities.

- 27 -

e. Information on integrated income tax was as follows:

December 31

2009 2008

Unappropriated earnings generated before January 1, 1998 $ - $ -

Unappropriated earnings generated on and after January 1, 1998 (762,098) (504,296)

$ (762,098) $ (504,296)

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

shareholders both amounted to $5,740 thousand.

As of December 31, 2008 and 2007, the Company had no allocation of imputation credits to

shareholders due to accumulated deficit.

22. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES

2009 2008

Classified as Classified as Classified as Classified as

Operating Operating Operating Operating

Costs Expenses Total Costs Expenses Total

Personnel expense

Salary $ 182,443 $ 62,507 $ 244,950 $ 219,266 $ 63,250 $ 282,516

Pension 12,788 3,808 16,596 12,425 11,073 23,498

Insurance 18,558 5,383 23,941 19,900 4,527 24,427

Other 11,149 2,484 13,633 13,926 2,572 16,498

Depreciation 155,546 7,139 162,685 176,639 7,843 184,482

Amortization 14,504 1,568 16,072 26,408 1,657 28,065

23. LOSS PER SHARE (“LPS”)

LPS (NT$)

Net Loss (Numerator) Shares Before After

Before After (Denominator) Income Income

Income Tax Income Tax (In Thousands) Tax Tax


Basic LPS

Loss for the year attributable to

common shareholders $ (236,998) $ (257,802) 234,275 $ (1.01) $ (1.10)

Effect of dilutive potential common

stock

Convertible bonds (8,333) (6,249) 275

Diluted LPS


common shareholders plus effect of

potential dilutive common stock $ (245,331) $ (264,051) 234,550 $ (1.05) $ (1.13)


Basic LPS


common shareholders $ (409,918) $ (413,435) 234,275 $ (1.75) $ (1.76)

Diluted LPS


common shareholders plus effect of

potential dilutive common stock $ (409,918) $ (413,435) 234,275 $ (1.75) $ (1.76)

- 28 -

For the loss per share calculation, the common shares held by the subsidiaries and treasury stock purchased

amounted to 883 thousand shares in 2009 and 2,028 thousand shares in 2008, which were subtracted from

the weighted-average of outstanding common stock shares.

All the convertible bonds were tested using the if-converted method. Thus, the shares corresponding to

these bonds were not included in the calculation of the diluted loss per share.

24. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments

December 31

2009 2008

Carrying

Value

Fair

Value

Carrying

Value

Fair

Value

Nonderivative financial

instruments

Assets

Available-for-sale financial

assets - current

$ 4,563 $ 4,563

$ 2,147

$ 2,147

Financial assets carried at

cost - noncurrent

14,215 -

15,980

-

Liabilities

Bonds payable 181,857 181,857 - -

Long-term bank loans

(including current portion)

37,500 37,500

104,411

104,411

Derivative financial instruments

Domestic - financial assets at

fair value through profit or

loss - current

$ 31,780 $ 31,780

-

-

b. Methods and assumptions used to estimate the fair values of financial instruments were as follows:

1) The carrying amounts of the following short-term financial instruments approximate their fair

values because of their short maturities: cash, receivables, restricted assets, refundable deposits,

payables, short-term bank loans and guarantee deposits received.

2) Fair values of financial instruments designated as at FVTPL and available-for-sale financial assets

are based on their quoted prices in an active market. For those instruments with no quoted market

prices, their fair values are determined using valuation techniques incorporating estimates and

assumptions consistent with those generally used by other market participants to price financial

instruments.

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

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

no fair value is presented.

4) For bonds payable, fair values are based on the present value of expected cash flows.

5) Fair values of long-term bank loans (including current portion) are estimated using the present value

of future cash flows discounted at interest rates the Company may obtain for similar types of

borrowings. Discount rates used ranged is 1.5%.

- 29 -

c. The fair values of the Company’s financial instruments that used the published price quotations in an

active market are as follows:

2009 2008

Assets

Available-for-sale financial assets - current $ 4,263 $ 1,647

d. On the valuation of financial instruments with fair values determined using valuation techniques, gain

were $8,380 thousand in 2009 and losses were $13,863 thousand in 2008.

e. Financial assets (liabilities) with fair value interest rate risk or cash flow interest rate risk were as

follows:

2009 2008

Fair value risk

Bonds payable $ 181,857 $ -

Cash in banks(including restricted assets) 386,606 471,204

Cash flow risk

Cash in banks 104,556 175,670

Short-term loans 18,961 30,175

Long-term bank loans(including current portion) 37,500 104,411

f. For 2009 and 2008 the interest income (expense) associated with financial assets (liabilities) other than

those at FVTPL was as follows:

2009 2008

Interest income $ 2,226 $ 15,775

Interest expense 1,814 7,277

g. Financial risks

1) Market risk

Market risk refers to the exposure of fluctuations of market exchange rates and interest rates. The

Company did not use derivative financial instruments. Thus, market risk is considered insignificant.

2) Credit risk

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

counter-parties breach financial instrument contracts. Financial instruments with positive fair

values at the balance sheet date are evaluated for credit risk. The counter-parties to the foregoing

financial instruments are reputable financial institutions and business organizations. Management

does not expect the Company’s exposure to default by those parties to be material.

3) Liquidity risk

The Company’s operating funds are deemed sufficient to meet cash flow demand, therefore,

liquidity risk is not considered to be significant.

- 30 -

The Company’s investments in available-for-sale financial assets are almost traded in active

markets and can be disposed of quickly at close to their fair values. However, the Company’s

investments in financial assets carried at cost have no active markets; thus, its liquidity risk is

expected to be high.

4) Cash flow interest rate risk

The Company’s short and long-term loans are floating-rate loans. When the market interest rate

increases by one percentage point, the Company’s cash outflow will increase by $565 thousand a

year.

25. RELATED-PARTY TRANSACTIONS

a. Related parties and their relationships with the Company:

Related Party Relationship with the Company

URT HK Wholly owned subsidiary

URT GmbH Wholly owned subsidiary

URI Wholly owned subsidiary

Firsthill Wholly owned subsidiary

United Radiant Ltd. Wholly owned subsidiary of Firsthill

United Radiant (Suzhou) Wholly owned subsidiary of United Radiant, Ltd.

b. Significant transactions with related parties:


2009 2008

Amount % Amount %

1) Sales

URT HK $ 82,054 7 $ 111,957 7

URT GmbH 2,678 - 20,753 1

$ 84,732 7 $ 132,710 8

The prices of goods sold to URT HK were similar to these for third parties. Collection periods for

third parties and related parties were one month to three months, except that for URT HK, which is 150

days. As of December 31, 2009 and 2008, accounts receivable from URT HK amounted to $70,189

thousand and $59,984 thousand, respectively, of which $22,676 thousand and $12,607 thousand were

reclassified into other receivable because it exceeded the normal credit term for its capital needs.

Related information is shown in the accompanying Table 1 - Financings Provided.


2009 2008

Amount % Amount %

2) Cost of sales - purchase and processing

cost

URT HK $ 3,614 - $ 11,464 1

URT GmbH - - 375 -

$ 3,614 - $ 11,839 1

- 31 -

The prices and terms of the purchases from related parties approximate those given by third parties;

except those for URT HK, for which accounts receivable and payable are netted monthly.


2009 2008

Amount % Amount %

3) Operating expense - commission

URT GmbH $ 701 6 $ 1,087 7

4) Nonoperating income and gains - others

URT HK $ 2,362 25 $ 2,098 8

5) Property transactions

In 2009, the Company sold property, plant and equipment to URT HK for $199 thousand.

Because the sale was at book value, the Company had no gain or loss.

December 31

2009 2008

Amount % Amount %

6) Accounts receivable

URT HK $ 70,189 148 $ 59,984 121

URT GmbH 20 - 2,079 4

70,209 148 62,063 125

Less: Other receivables (22,676) (48) (12,607) (25)

$ 47,533 100 $ 49,456 100

7) Other current assets

Firsthill $ 561 3 $ 467 3

URT HK - - 3,598 27

United Radiant Ltd. 1 - 74 1

United Radiant (Suzhou) 65 - 42 -

$ 627 3 $ 4,181 31

8) Accounts payable

URT GmbH $ 75 - $ 75 -

9) Accrued expenses

URT GmbH $ 629 1 $ 545 1

- 32 -

c. Compensation of directors, supervisors and management personnel:


2009 2008

Salaries $ 8,303 $ 8,624

Bonus 10 -

$ 8,313 $ 8,624

26. MORTGAGED OR PLEDGED ASSETS

The Company’s assets mortgaged or pledged as collateral for taxation of internal sales, bank loans, and

convertible bonds were as follows:

December 31

2009 2008

Restricted assets - current $ 4,000 $ 4,000

Property, plant and equipment, net 210,345 499,993

Restricted assets - noncurrent 61,206 -

$ 275,551 $ 503,993

27. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

In addition to those disclosed in other notes, significant commitments and contingencies of the Company as

of December 31, 2009 were as follows:

a. Unused letters of credit for purchases of raw materials and machinery and equipment amounted to

approximately $7,965 thousand.

b. The Company had a commitment to buy machinery and equipment for $24,697 thousand, of which

$18,569 thousand had been paid.

c. The Company had rented plants and office from the Economic Bureau of the Taichung Export

Processing Zone and Emmt System Corporation. The estimated minimum rental expenses for future

years are as follows:

Year Rent Payable

2010 $ 2,061

2011 852

2012 852

2013 852

2014 852

2015 and after 1,740

$ 7,209

- 33 -

28. ADDITIONAL DISCLOSURES

Following are the additional disclosures required by the Securities and Futures Bureau for the Company and

its investees:

a. Financings provided: Table 1 (attached).

b. Endorsements/guarantees provided: None.

c. Marketable securities held: Table 2 (attached).

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

paid-in capital: Table 3 (attached).

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

None.

f. Disposal of individual real estate at prices of at least $100 million or 20% of the paid-in capital: None.

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

None.

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

None.

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

influence: Table 4 (attached).

j. Derivative transactions of investees over which the Company has a controlling interest: None.

k. Investments in Mainland China

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

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

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

investment in Mainland China: Table 5 (attached).

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

unrealized gain or loss: None.

3) Endorsements, guarantees or collateral directly or indirectly provided to the investees: None.

4) Financings directly or indirectly provided to the investees: None.

5) Other transactions that significantly impacted current year’s profit or loss or financial position:

None.

29. SEGMENT INFORMATION

a. Industry information: The Company’s sole business is the manufacture and sale of various sizes of

liquid crystal displays.

b. Geographic area: The Company has no overseas operations.

- 34 -

c. Export sales


Area 2009 2008

America $ 487,033 $ 516,663

Europe 382,798 394,564

Southeast Asia 219,735 621,609

Australia 1,270 -

$ 1,090,836 $ 1,532,836

d. Major clients


2009 2008

Names Amount % Amount %

A Company $ 374,552 29 $ 371,410 21

B Company 170,089 13 129,357 7

C Company 30,581 2 231,978 13

- 35 -

TABLE 1


FINANCINGS PROVIDED

YEAR ENDED DECEMBER 31, 2009


No. Financing

Company Counter-party

Financial

Statement

Account

Maximum

Balance for

the Year

Ending

Balance Interest Rate

Type of

Financing

Transaction

Amount

Reason for

Short-term

Financing

Allowance for

Bad Debt

Collateral Financing

Limit for Each

Borrowing

Company

(Note 1)

Financing

Company’s

Financing

Amount Limit

(Note 2)

Item Value

0 United Radiant

Technology

Corporation

(the “Company”)

URT HK Other

receivable

$ 30,709 $ 22,676 - Short-term

Financing

$ 82,054 Turnover for

working

capital

$ - - - $ 163,620 $ 490,859

Note 1: Based on 10% of the Company’s net asset value.

Note 2: Based on 30% of the Company’s net asset value.

- 36 -

TABLE 2


MARKETABLE SECURITIES HELD

DECEMBER 31, 2009

(In Thousands, Unless Stated Otherwise)

Holding Company’s Name Marketable Securities Type and

Issuer/Name

Security Issuer’s Relationship

with the Holding Company Financial Statements Account

December 31, 2009

Shares/Units Carrying Amount Percentage of

Ownership

Market Value or

Net Asset Value

United Radiant Technology Corporation Stock

Opto Tech Corporation Director Available-for-sale financial assets - current 149 $ 4,263 - $ 4,263

URT HK Wholly owned subsidiary Investments accounted for by the equity method 36,490 13,347 100 13,347

URT GmbH Wholly owned subsidiary Investments accounted for by the equity method 90 3,296 60 3,296

URI Wholly owned subsidiary Investments accounted for by the equity method 1,000 243 100 243

Firsthill Wholly owned subsidiary Investments accounted for by the equity method 13,500 441,193 100 441,193

Rodan The same director Financial assets carried at cost - noncurrent 632 1,769 4 3,968

Viking The same chairman Financial assets carried at cost - noncurrent 198 3,187 - 3,238

Emmt None Financial assets carried at cost - noncurrent 174 1,526 1 1,781

Chung Yo None Financial assets carried at cost - noncurrent 61 158 - -

Topunion None Financial assets carried at cost - noncurrent 14 - 7 -

Metrodyne None Financial assets carried at cost - noncurrent 950 7,575 13 6,353

Kin Son None Financial assets carried at cost - noncurrent 1 - - -

Optic None Financial assets carried at cost - noncurrent 3,915 - 17 -

Bond

Chinfonbank Subordinated

Financial Debt

None Available-for-sale financial assets - current 30 300 - 300

URT HK Stock

New Ocean Green Energy

Holdings Ltd.

None Available-for-sale financial assets - noncurrent 23 85 - 85

URI Stock

The Company Parent company Financial assets at fair value through profit or

loss - current

883 7,292 - 7,292

Opto Tech Corporation Director of parent company Financial assets at fair value through profit or

loss - current

10 286 - 286

Topunion None Financial assets carried at cost - noncurrent 50 425 1 334

Firsthill Stock

United Radiant, Ltd. Wholly owned subsidiary of

Firsthill

Investments accounted for by the equity method 13,500 441,805 100 441,805

United Radiant Ltd. Share certificate

United Radiant (Suzhou) Wholly owned subsidiary of

United Radiant, Ltd.

Investments accounted for by the equity method - 440,258 100 440,258

- 37 -

TABLE 3


MARKETABLE SECURITIES ACQUIRED OR DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL



Holding Company Marketable Securities Type

and Issuer/Name

Financial Statement

Account Counter-party

Nature of

Relationship

Beginning Balance Acquisition Disposal Ending Balance (Note 3)

Shares/Units

(In Thousands) Amount

Shares/Units


Shares/Units


Carrying

Amount

Gain (Loss) on

Disposal

Shares/Units


Share certificate

United Radiant

Technology

Corporation

Firsthill Investments accounted for by

the equity method

(Note 1) (Note 2) 6,010 $ 207,399 7,490 $ 243,641 - $ - $ - $ - 13,500 $ 441,193

Firsthill United Radiant, Ltd. Investments accounted for by

the equity method

(Note 1) (Note 2) 6,010 207,867 7,490 243,641 - - - - 13,500 441,805

United Radiant, Ltd. United Radiant (Suzhou) Investments accounted for by

the equity method

(Note 1) (Note 2) - 206,160 - 243,641 - - - - - 440,258

Note 1: Share issuance for cash.

Note 2: See Note 25 to the financial statements.

Note 3: Including investment gains or losses based on equity-method.

- 38 -

TABLE 4


NAMES, LOCATIONS, AND RELATED INFORMATION ON INVESTEE ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE



Investor Company Investee Company Location Main Businesses and Products

Investment Amount Balance as of December 31, 2009 Net Income

(Loss) of the

Investee

Investment

Income (Loss)

Recognized

Note December 31,

2009

December 31,

2008

Shares (In

Thousands)

Percentage of

Ownership

Carrying

Amount

The Company URT HK Hong Kong Processes and sells various sizes of liquid crystal

display panels, liquid display modules and far

infrared ray parts.

$ 152,558 $ 152,558 36,490 100 $ 13,347 $ (14,297) $ (14,295) Subsidiary

URT GmbH Germany Sells various sizes of liquid crystal display

panels, liquid display modules and far infrared

ray parts.

1,685 1,685 90 60 3,296 746 447 Subsidiary

URI Hsinchu, Taiwan Makes investments 10,010 10,010 1,000 100 243 79 79 Subsidiary

Firsthill British Virgin Islands Makes investments 435,714 192,073 13,500 100 441,193 (607) (607) Subsidiary

Firsthill United Radiant Ltd. Mauritius Makes investments 435,714 192,073 13,500 100 441,805 (447) (447) Indirect subsidiary

United Radiant, Ltd. United Radiant (Suzhou) Suzhou China Processes and sells various sizes of liquid crystal

display panels, liquid display modules and far

infrared ray parts.

435,264 191,623 - 100 440,258 (325) (325) Indirect subsidiary

- 39 -

TABLE 5


INFORMATION ON INVESTMENT IN MAINLAND CHINA


(In Thousands of New Taiwan Dollars and US Dollars)

Investee Company Main Businesses and

Products

Total Amount of

Paid-in Capital

Method of

Investment

Accumulated

Outflow of

Investment from

Taiwan as of

January 1, 2009

Investment Flows Accumulated

Outflow of

Investment from

Taiwan as of

December 31,

2009

Percentage of

Ownership

Investment

Income (Loss)

Recognized

(Note 2)

Carrying

Amount as of

December 31,

2009

Accumulated

inward

Remittance of

Earnings as of

December 31,

2009

Outflow Inflow

United Radiant, Ltd. Processes and sells various

sizes of liquid crystal

display panels liquid display

modules and far infrared ray

parts

US$ 13,500 Note 1 $ 191,623

(US$ 6,010)

$ 243,641

(US$ 7,490)

$ - $ 435,264

(US$ 13,500)

100 $ (325) $ 440,258 $ -

Accumulated Investment in

Mainland China as of

December 31, 2009

Investment Amount Authorized

by the Investment Commission,

MOEA

Upper Limit on Investment

(Note 3)

$ 435,264

(US$ 13,500)

$ 435,264

(US$ 13,500)

$ 981,718

Note 1: The investment was made through a subsidiary incorporated in a third area.

Note 2: The recognized equity in the investee’s net income or loss was based on the investee’s audited financial statement as of and for the year ended December 31, 2009.

Note 3: The related regulation refers is the “Regulations for Screening of Applications to Engage in Technical Corporation in Mainland China” issued by the Investment Commission of the Ministry of Economic Affairs.

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