EX-99.1 8 a2215596zex-99_1.htm EX-99.1

Exhibit 99.1

VisEra Holding Company and Subsidiary

Consolidated Financial Statements for the

Years Ended December 31, 2012, 2011 and 2010 and

Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Shareholders

VisEra Holding Company and Subsidiary

We have audited the accompanying consolidated financial statements of VisEra Holding Company and its subsidiary (the “Company”), which comprise the consolidated balance sheets as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in shareholders’ equity and cash flows for the years ended December 31, 2012, 2011 and 2010, and the related notes to the consolidated financial statements.

Management’s Responsibility for the Financial Statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the Republic of China; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of VisEra Holding Company and its subsidiary as of December 31, 2012 and 2011, and the consolidated results of their operations and their consolidated cash flows for the years December 31, 2012, 2011 and 2010 in conformity with accounting principles generally accepted in the Republic of China.

Emphasis-of-Matter

Accounting principles generally accepted in the Republic of China vary in certain significant respects from accounting principles generally accepted in the United States of America. The application of the latter would have affected the determination of net income for each of the three years in the period ended December 31, 2012 and the determination of shareholders’ equity and financial position as of December 31, 2012, 2011 and 2010, to the extent summarized in Note 18 to the consolidated financial statements.

/s/ Deloitte & Touche
Taipei, Taiwan
The Republic of China

June 19, 2013

VISERA HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2012 AND 2011

(In Thousands of U.S. Dollars, Except Par Value)

	2012					2011
	Amount			%		Amount			%
ASSETS

CURRENT ASSETS
Cash (Note 4)	$	95,511		33		$	108,067		40
Financial assets at fair value through profit or loss (Notes 2 and 5)	—			—		5			—
Notes and accounts receivable (Note 3)	304			—		281			—
Receivables from related parties (Notes 3 and 14)	31,262			11		13,585			5
Allowance for sales returns and discounts (Note 2)	(4,254		)	(1	)	(2,313		)	(1	)
Other receivables (Notes 3 and 14)	24,035			8		17,228			7
Inventories (Notes 2 and 6)	2,372			1		839			—
Deferred income tax assets (Notes 2 and 12)	1,392			—		1,079			1
Prepaid expenses and other current assets	435			—		249			—

Total current assets	151,057			52		139,020			52

LONG-TERM INVESTMENTS
Financial assets carried at cost (Notes 2 and 7)	16,335			5		16,335			6

PROPERTIES, NET (Notes 2, 8 and 14)	113,493			39		102,065			38

OTHER ASSETS
Assets leased to others (Notes 2 and 9)	8,851			3		9,436			4
Deferred charges, net (Note 2)	561			—		559			—
Deferred income tax assets (Notes 2 and 12)	1,394			1		1,114			—
Refundable deposits and others (Note 15)	478			—		529			—

Total other assets	11,284			4		11,638			4

TOTAL	$	292,169		100		$	269,058		100

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Financial liabilities at fair value through profit or loss (Notes 2 and 5)	$	124		—		$	10		—
Accounts payable	7,435			3		2,655			1
Income tax payable (Notes 2 and 12)	14,965			5		12,228			4
Accrued profit sharing to employees and bonus to directors	9,729			3		4,665			2
Payables to equipment suppliers	6,091			2		12,448			5
Accrued expenses and other current liabilities (Notes 2, 11 and 14)	12,526			4		8,613			3

Total current liabilities	50,870			17		40,619			15

OTHER LIABILITIES
Guarantee deposits	46			—		56			—

Total liabilities	50,916			17		40,675			15

EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE PARENT
Capital stock - $1 par value; authorized 120,000 thousand shares, and 87,500 thousand shares issued and outstanding	87,500			30		87,500			33
Capital surplus	21,160			7		20,981			8
Retained earnings	86,013			30		83,921			31
Cumulative translation adjustments (Note 2)	18,067			6		11,670			4

Total equity attributable to shareholders of the parent	212,740			73		204,072			76

MINORITY INTERESTS IN SUBSIDIARY (Note 2)	28,513			10		24,311			9

Total shareholders’ equity	241,253			83		228,383			85

TOTAL	$	292,169		100		$	269,058		100

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

VISERA HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands of U.S. Dollars)

	2012			2011			2010
	Amount		%	Amount		%	Amount		%

NET SALES (Notes 2 and 14)	$	146,996	100	$	138,717	100	$	103,623	100

COST OF GOODS SOLD (Notes 6, 13 and 14)	95,230		65	92,951		67	78,783		76

GROSS PROFIT	51,766		35	45,766		33	24,840		24

OPERATING EXPENSES (Notes 13 and 14)	10,669		7	11,550		8	10,640		10

INCOME FROM OPERATIONS	41,097		28	34,216		25	14,200		14

NON-OPERATING INCOME AND GAINS
Rental income (Notes 9 and 14)	3,032		2	1,333		1	1,399		1
Interest income (Note 17)	792		—	449		—	140		—
Dividend income	74		—	1,216		1	90		—
Foreign exchange gain, net (Note 2)	67		—	64		—	—		—
Income from the transfer of intellectual property (Notes 8 and 14)	—		—	20,409		15	—		—
Gain on disposal of property, net (Notes 2 and 8)	—		—	6,371		4	—		—
Valuation gain on financial instruments, net (Notes 2 and 5)	—		—	—		—	117		—
Others (Note 14)	974		1	296		—	171		—

Total non-operating income	4,939		3	30,138		21	1,917		1

NON-OPERATING EXPENSES AND LOSSES
Expenses related to assets leased to others	2,513		2	493		—	—		—
Depreciation expenses related to assets leased to others (Note 2)	1,127		1	202		—	29		—
Valuation loss on financial instruments, net (Notes 2 and 5)	218		—	184		—	—		—
Impairment loss (Notes 2 and 8)	—		—	3,639		3	—		—
Foreign exchange loss, net (Note 2)	—		—	—		—	87		—
Loss on disposal of property, net (Note 2)	—		—	—		—	36		—
Interest expense (Note 17)	—		—	—		—	1		—
Others	19		—	55		—	45		—

Total non-operating expenses	3,877		3	4,573		3	198		—

INCOME BEFORE INCOME TAX	42,159		28	59,781		43	15,919		15

INCOME TAX EXPENSE (Notes 2 and 12)	7,818		5	12,956		9	3,143		3

NET INCOME	$	34,341	23	$	46,825	34	$	12,776	12

ATTRIBUTABLE TO:
Shareholders of the parent	$	30,092	20	$	41,415	30	$	11,322	11
Minority interests	4,249		3	5,410		4	1,454		1

	$	34,341	23	$	46,825	34	$	12,776	12

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

VISERA HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands of U.S. Dollars)

	Equity Attributable to Shareholders of the Parent
	Capital Stock			Capital Surplus								Cumulative						Minority			Total
	Shares			Additional					Retained			Translation						Interests in			Shareholders’
	(In Thousands)	Amount		Paid-in Capital		Others			Earnings			Adjustments			Total			Subsidiary			Equity

BALANCE, JANUARY 1, 2010	87,500	$	87,500	$	20,790	$	231		$	31,184		$	4,712		$	144,417		$	16,314		$	160,731

Net income for 2010	—	—		—		—			11,322			—			11,322			1,454			12,776

Decrease in minority interests	—	—		—		—			—			—			—			(10		)	(10		)

Translation adjustments	—	—		—		—			—			7,149			7,149			927			8,076

BALANCE, JANUARY 1, 2011	87,500	87,500		20,790		231			42,506			11,861			162,888			18,685			181,573

Net income for 2011	—	—		—		—			41,415			—			41,415			5,410			46,825

Adjustment arising from changes of ownership percentage in subsidiary	—	—		—		(40		)	—			—			(40		)	40			—

Increase in minority interests	—	—		—		—			—			—			—			229			229

Translation adjustments	—	—		—		—			—			(191		)	(191		)	(53		)	(244		)

BALANCE, DECEMBER 31, 2011	87,500	87,500		20,790		191			83,921			11,670			204,072			24,311			228,383

Net income for 2012	—	—		—		—			30,092			—			30,092			4,249			34,341

Appropriations of prior years’ earnings
Cash dividends	—	—		—		—			(28,000		)	—			(28,000		)	—			(28,000		)

Adjustment arising from changes of ownership percentage in subsidiary	—	—		—		179			—			—			179			(179		)	—

Decrease in minority interests	—	—		—		—			—			—			—			(1,029		)	(1,029		)

Translation adjustments	—	—		—		—			—			6,397			6,397			1,161			7,558

BALANCE, DECEMBER 31, 2012	87,500	$	87,500	$	20,790	$	370		$	86,013		$	18,067		$	212,740		$	28,513		$	241,253

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

VISERA HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands of U.S. Dollars)

	2012			2011			2010

CASH FLOWS FROM OPERATING ACTIVITIES
Net income attributable to shareholders of the parent	$	30,092		$	41,415		$	11,322
Net income attributable to minority interests	4,249			5,410			1,454
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	23,026			25,054			22,513
Depreciation of assets leased to others	1,127			202			29
Impairment loss	—			3,639			—
Valuation loss (gain) on financial instruments, net	119			(220		)	290
Loss (gain) on disposal of property, net	—			(6,371		)	36
Deferred income taxes	(593		)	1,338			35
Changes in operating assets and liabilities
Decrease (increase) in:
Notes and accounts receivable	7			163			20
Receivables from related parties	(15,766		)	3,848			(2,748		)
Other receivables	(6,807		)	(16,950		)	42
Inventories	(1,533		)	2,405			(273		)
Prepaid expenses and other current assets	(186		)	(40		)	(151		)
Increase (decrease) in:
Accounts payable	4,780			(1,463		)	57
Income tax payable	2,737			9,063			2,831
Accrued profit sharing to employees and bonus to directors	5,064			2,637			1,979
Accrued expenses and other current liabilities	3,913			1,036			2,824

Net cash provided by operating activities	50,229			71,166			40,260

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of properties	(36,556		)	(33,534		)	(24,312		)
Acquisition of assets leased to others	(18		)	—			—
Increase in deferred charges	(253		)	(493		)	(136		)
Proceeds from disposal of property	—			23,594			36
Decrease (increase) in refundable deposits and others	51			110			(214		)

Net cash used in investing activities	(36,776		)	(10,323		)	(24,626		)

(Continued)

VISERA HOLDING COMPANY AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands of U.S. Dollars)

	2012			2011			2010

CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid	$	(28,000	)	$	—		$	—
Increase (decrease) in guarantee deposits received	(10		)	8			12
Decrease in minority interests	(3,369		)	(794		)	(10		)

Net cash provided by (used in) financing activities	(31,379		)	(786		)	2

NET INCREASE (DECREASE) IN CASH	(17,926		)	60,057			15,636

EFFECT OF EXCHANGE RATE CHANGES ON CASH	5,370			337			2,217

CASH BEGINNING OF YEAR	108,067			47,673			29,820

CASH END OF YEAR	$	95,511		$	108,067		$	47,673

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid for interest	$	—		$	—		$	1
Cash paid for income tax	$	6,364		$	2,067		$	214

INVESTING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS
Cash paid for acquisition of properties
Total acquisition	$	30,199		$	40,936		$	25,213
Increase (decrease) in payables to equipment suppliers	6,357			(7,402		)	(901		)

	$	36,556		$	33,534		$	24,312

NONCASH FINANCING ACTIVITIES
Profit sharing to employees issued in stock	$	2,340		$	1,023		$	—

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

(Concluded)

VISERA HOLDING COMPANY AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2012, 2011 AND 2010

(In Thousands of U.S. Dollars, Unless Specified Otherwise)

1. GENERAL

VisEra Holding Company (VisEra Holding) was incorporated on March 31, 2005 in the Cayman Islands, and is engaged in investing in companies involved in the design, manufacture, and other related business in the semiconductor industry.

As of December 31, 2012 and 2011, VisEra Holding and its subsidiary had 819 and 773 employees, respectively.

2. SIGNIFICANT ACCOUNTING POLICIES

The consolidated financial statements are presented in conformity with the accounting principles generally accepted in the Republic of China (R.O.C.).

Principles of Consolidation

The accompanying consolidated financial statements include the accounts of VisEra Holding and VisEra Technology Company, Ltd. (VisEra Technology), a direct investee of VisEra Holding. As of December 31, 2012 and 2011, VisEra Holding owns 86.94% and 88.00% of VisEra Technology’s common shares, respectively. All intercompany balances and transactions are eliminated upon consolidation.

VisEra Technology is located in the R.O.C., and mainly engaged in manufacturing electronic spare parts and in researching and developing, designing, manufacturing and selling of color filter, wafer level optics and compact camera module, and high power LED packaging.

Minority interests in subsidiary, VisEra Technology, are presented under minority interests in subsidiary in the consolidated financial statements.

VisEra Holding and VisEra Technology are hereinafter referred to collectively as the “Company.”

Use of Estimates

The preparation of consolidated financial statements in conformity with the aforementioned principles requires management to make reasonable assumptions and estimates of matters that are inherently uncertain. The actual results may differ from management’s estimates.

Classification of Current and Noncurrent Assets and Liabilities

Current assets are those held for trading purposes and assets expected to be converted to cash, sold or consumed within one year from the balance sheet date. Current liabilities are obligations incurred for trading purposes and obligations expected to be settled within one year from the balance sheet date. Assets and liabilities that are not classified as current are noncurrent assets and liabilities, respectively.

Financial Assets and Liabilities at Fair Value through Profit or Loss

Derivatives that do not meet the criteria for hedge accounting are initially recognized at fair value, with transaction costs expensed as incurred. At each balance sheet date, the derivatives are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. A regular way purchase or sale of financial assets is accounted for using trade date accounting.

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.

Revenue Recognition

The Company recognizes revenue when evidence of an arrangement exists, the rewards of ownership and significant risk of the goods has been transferred to the buyer, price is fixed or determinable, and collectability is reasonably assured. Provisions for estimated sales returns and other allowances are recorded in the year the related revenue is recognized, based on historical experience, management’s judgment, and any known factors that would significantly affect the allowance.

Sales prices are determined using the fair market value taking into account related sales discounts agreed by the Company and its customers. Since the receivables from sales are collectible within one year and such transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash to be received.

Inventories

Inventories consist of raw materials, work-in-process and finished goods and are stated at the lower of cost or net realizable value. Inventory write-downs are made item 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 for which the Company does not exercise significant influence and with quoted prices in an inactive 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. An impairment loss is recognized when there is objective evidence that the asset is impaired. A subsequent reversal of this impairment loss is disallowed.

Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares.

Properties and Assets Leased to Others

Properties and assets leased to others are stated at cost less accumulated depreciation and impairment. Major additions, renewals, betterments are capitalized, while maintenance and repairs are expensed in the year incurred.

Depreciation is calculated using the straight-line method over estimated service lives, which are initially estimated as follows: buildings - 5 to 20 years; machinery and equipment - 3 to 5 years; office equipment - 3 to 5 years; transportation equipment - 5 years; other equipment - 3 years; and assets leased to others - 20 years.

When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the amount previously recognized as impairment would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of depreciation, if no impairment loss was recognized.

Deferred Charges

Deferred charges consist of certain intangibles and other assets including technology license fees and computer software. These charges are amortized as follows: technology license fees - 5 years and computer software - 3 years. When an indication of impairment is identified, any excess of the carrying amount of an asset over its recoverable amount is recognized as a loss. If the recoverable amount increases in a subsequent period, the previously recognized impairment loss would be reversed and recognized as a gain. However, the adjusted amount may not exceed the carrying amount that would have been determined, net of amortization, if no impairment loss was recognized.

Expenditures related to research activities and those related to development activities that do not meet the criteria for capitalization are charged to expenses when incurred.

Pension Costs

For employees under defined contribution pension plans, pension costs are recorded based on the actual contributions made to employees’ individual pension accounts.

Income Tax

The Company uses the inter-period tax allocation method for income tax. Deferred income tax assets and liabilities are recognized for the tax effects of temporary differences 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 according to the classification of the related asset or liability for financial reporting. If a deferred tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.

Any tax credits arising from research and development expenditures are recognized using the flow-through method.

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

Income tax of 10% on unappropriated earnings of VisEra Technology is accrued in the year the earnings were generated and adjusted to the amount not appropriated by shareholders in the following year.

Share-based Payment Transaction

The share-based payment plan of the Company is a cash-settled share-based payment plan. The services acquired and the liability incurred are measured at the fair value of the liability and the compensation cost is expensed on a straight-line basis over the vesting period in which the employees render service. Until the liability is settled, the Company remeasures the fair value of the liability at the end of each balance sheet date and at the date of settlement with any changes in fair value recognized in profit or loss for the year by applying an option pricing model.

Foreign-currency Transactions

Foreign currency transactions other than derivative contracts are recorded in U.S. dollars at the rates of exchange in effect when the transactions occur. Exchange gains or losses derived from foreign currency transactions or monetary assets and liabilities denominated in foreign currencies are recognized in current income. At the end of the year, assets and liabilities denominated in foreign currencies are revalued at the prevailing exchange rates with the resulting gains or losses recognized in current income.

Translation of Foreign-currency Financial Statements

The financial statements of foreign subsidiary are translated into U.S. dollars at the following exchange rates: Assets and liabilities - current rates at year-end; shareholders’ equity - historical rates; income and expenses - average rates during the year. The resulting translation adjustments are recorded as a separate component of shareholders’ equity.

3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

On January 1, 2011, the Company prospectively adopted the newly revised Statement of Financial Accounting Standards (SFAS) No. 34, “Financial Instruments: Recognition and Measurement” issued by Accounting Research and Development Foundation (ARDF) in the R.O.C. 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 the 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 accounting change did not have a significant effect on the Company’s financial statements as of and for the year ended December 31, 2011.

4. CASH

	December 31
	2012		2011

Time deposits	$	94,689	$	106,444
Cash and deposits in bank	822		1,623

	$	95,511	$	108,067

5. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

	December 31
	2012		2011

Trading financial assets

Forward exchange contracts	$	—	$	5

Trading financial liabilities

Forward exchange contracts	$	124	$	10

The Company entered into derivative contracts for the years ended December 31, 2012, 2011 and 2010 to manage exposures due to exchange rate and interest rate fluctuations.

Outstanding forward exchange contract as of December 31, 2012 and 2011 was as follows:

			Contract Amount
	Currency	Maturity Date	(In Thousands)

December 31, 2012

Buy	NT$/US$	February 8, 2013	NT$1,263,729/US$43,500

December 31, 2011

Buy	NT$/US$	February 6, 2012	NT$575,258/US$19,000

For the years ended December 31, 2012, 2011 and 2010, changes in fair value related to derivative financial instruments recognized in earnings were net losses of $218 thousand and $184 thousand and a net gain of $117 thousand, respectively.

6. INVENTORIES

	December 31
	2012		2011

Finished goods	$	85	$	95
Work in process	755		426
Raw materials	1,532		318

	$	2,372	$	839

As of December 31, 2012 and 2011, the allowance for inventory devaluation was $4,168 thousand and $3,955 thousand, respectively.

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2012, 2011 and 2010 was $95,230 thousand, $92,951 thousand and $78,783 thousand, respectively. The cost of goods sold for the years ended December 31, 2012, 2011 and 2010 included $572 thousand, $314 thousand and $5,557 thousand loss on write-downs of inventories, respectively. The reserve for inventories write-downs in the amount of $516 thousand, $2,319 thousand and nil was relieved for the years ended December 31, 2012, 2011 and 2010, respectively, when the related inventory items were scrapped or sold.

7. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

	December 31
	2012		2011

Emerging market stocks	$	16,335	$	16,335

The above equity investments, which had quoted prices in an inactive market and of which fair values could not be reliably measured, were carried at cost.

8. PROPERTIES, NET

	December 31
	2012			2011

Machinery and equipment	$	163,262		$	122,066
Buildings	63,021			58,974
Office equipment	3,379			2,979
Transportation equipment	60			58
Other equipment	474			291
Construction in progress	4,775			12,373
	234,971			196,741
Accumulated depreciation and impairment	(121,478		)	(94,676		)

	$	113,493		$	102,065

In June 2011, the sale and transfer agreement of intellectual property and equipment for wafer-level lens was entered into by and between the Company and Omnivision International Holding Ltd. (Omnivision) and Omnivision Semiconductor (Shanghai), Co., Ltd. (Omnivision Semiconductor). The transfer of intellectual property, equipment and certain key employees was completed, and the Company had no further obligation in connection with this agreement by the end of December 2011. The net gain on disposal of equipment and income from the transfer of intellectual property for the year ended December 31, 2011 was $6,128 thousand and $20,409 thousand, respectively. As of December 31, 2012, the Company received $26,000 thousand, and remaining amount of $18,000 thousand will be paid in 2013. At the date of the report, $9,000 thousand has been received. As of December 31, 2012 and 2011, $16,923 thousand, which is net of a discount of $1,077 thousand, is recorded in “Other receivables.”

The Company recognized an impairment loss of $3,639 thousand in the year ended December 31, 2011 because of the downturn of LED market, which caused a decrease in estimated cash inflows from the use of the related machinery and resulted in the recoverable amount of the machinery being lower than its carrying amount. In January 2013, the Company entered into an agreement with C-ONE Technology Corporation and expected to sell the related machinery in 2013.

9. ASSETS LEASED TO OTHERS

The Company entered into an operating lease agreement for part of a plant, equipment and related facilities located in Hsinchu Science Park to Taiwan Omnivision Optoelectronics Technologies Company Limited (Omnivision Optoelectronics). The leased period is November 1, 2011 to October 31, 2013 with monthly payment of $289 thousand. From March 1, 2012, the monthly payment was reduced from $289 thousand to $246 thousand.

The Company also entered into an operating lease agreement for part of a plant, equipment and related facilities located in Hsinchu Science Park to Xintec Inc. (Xintec). The leased period was March 1, 2008 to June 30, 2011 with monthly payment of $126 thousand.

10. PENSION PLANS

The pension plan under the Labor Pension Act (the “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. Such pension costs were $919 thousand, $1,000 thousand and $943 thousand for the years ended December 31, 2012, 2011 and 2010, respectively.

11. SHARE-BASED PAYMENT TRANSACTION

The cash-settled share-based plan (“share-based plan”) was resolved by the Board of Directors on June 15, 2012. The shares may be granted to qualified employees of the Company. The aforementioned plan is valid for ten years and exercisable at certain percentages subsequent to the next date of the grant date. The Company settles the transaction in cash. When the qualified employees retire, die or become disabled due to occupational hazard, the shares will be fully vested immediately.

The share-based plan of Company for the year ended December 31, 2012 was as follows:

		Share-based Plan for the Year Ended
		December 31, 2012

Grant date		2012.6.15
Grant number (share)		2,000,000
Contractual life		10 years
Vested conditions		4 years’ service
Actual turnover rates		—
Estimated future turnover rates		—
Exercise price of grant date ($/share)		$1.0

Information about the Company’s share-based plan was as follows:

		Weighted-
		average
	Number of	Exercise Price
	Shares	(US$)
Year ended December 31, 2012

Balance, beginning of year	—	$	—
Shares granted	2,000,000	1.0

Balance, end of year	2,000,000	0.9

Exercisable balance, end of year	400,000	0.9

The aforementioned exercise prices have been adjusted to reflect the distribution of earnings by the Company in accordance with the share-based plan.

The Company uses the Black-Scholes model to remeasure the fair value of the share-based payment transaction at the balance sheet date. As of December 31, 2012, the valuation assumptions were as follow:

Share price on measurement date ($/share)		$1.0
Exercise price ($/share)		$0.9
Expected volatility		42.96%-43.84%
Expected life		4.73-6.45 years
Expected dividend yield		—
Risk free interest rate		0.94%-1.11%

The share price on the measurement date was determined based on the income-based approach. The expected volatility was calculated based on the historical stock prices of the comparative companies of the Company.

For the year ended December 31, 2012, the Company recognized compensation cost of the above share-based plan in the amount of $365 thousand. As of December 31, 2012, the carrying amount of the liability of the share-based plan and the intrinsic value of the liability of the share-based plan, which had already met the vesting terms, were in the amount of $365 thousand and $41 thousand, respectively. The weighted-average remaining contractual life is 9.5 years.

12. INCOME TAX

a. A reconciliation of income tax expense based on “income before income tax” at the statutory rate and income tax currently payable was as follows:

	Years Ended December 31
	2012			2011			2010

Income tax expense based on “income before income tax” at statutory rate	$	7,512		$	11,205		$	2,691
Tax effect of the following:
Temporary and permanent differences	(483		)	802			979
Additional tax at 10% on unappropriated earnings	1,444			2,515			1,142
Income tax credits	(751		)	(2,974		)	(1,889		)

Income tax currently payable	$	7,722		$	11,548		$	2,923

b. Income tax expense consisted of the following:

	Years Ended December 31
	2012			2011			2010

Income tax currently payable	$	7,722		$	11,548		$	2,923
Adjustments for prior years	595			21			2
Net changes in deferred income tax assets
Temporary differences	117			(542		)	(689		)
Investment tax credits	—			3,674			(16,388		)
Loss carryforwards	—			—			806
Valuation allowance	(616		)	(1,745		)	16,489

Income tax expense	$	7,818		$	12,956		$	3,143

In May 2010, the R.O.C. Legislative Yuan passed the amendment of Article 5 of the Income Tax Law, which reduces a profit-seeking enterprise’s income tax rate from 20% to 17%, effective 2010. VisEra Technology recalculated its deferred tax assets and liabilities in accordance with the amended Article and recorded the resulting difference as an income tax benefit or expense.

Under Article 10 of the Statute for Industrial Innovation (SII) legislated and effective in May 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that year in the R.O.C. This incentive is retroactive to January 1, 2010 and effective until December 31, 2019.

c. Net deferred income tax assets consisted of the following:

	December 31
	2012			2011

Current deferred income tax assets
Temporary differences	$	1,392		$	1,079

Noncurrent deferred income tax assets
Temporary differences	$	1,394		$	1,715
Investment tax credits	14,861			14,634
Valuation allowance	(14,861		)	(15,235		)

	$	1,394		$	1,114

d. For VisEra Technology, income tax returns through 2010 have been examined and cleared by the local tax authorities.

e. As of December 31, 2012, income tax credits under R.O.C. tax laws and related regulations comprised of:

Laws and Statutes	Tax Credit Source	Total Creditable Amount		Remaining Creditable Amount		Expiry Year

Statute for Upgrading Industries	Research and development expenditures	$	409	$	—	2013

Statute for Upgrading Industries	Investments in tax credit	$	4,423	$	4,070	2013
		10,791		10,791		2014

		$	15,214	$	14,861

f. The profit generated from the following project of the Company is exempt from income tax for a five-year period:

		Tax-exemption Period

Construction and expansion of 2009		2011 to 2015

13. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES

	Years Ended December 31
	2012						2011						2010
	Classified as		Classified as				Classified as		Classified as				Classified as		Classified as
	Cost of		Operating				Cost of		Operating				Cost of		Operating
	Sales		Expenses		Total		Sales		Expenses		Total		Sales		Expenses		Total

Labor cost
Salary	$	27,771	$	6,543	$	34,314	$	23,625	$	7,055	$	30,680	$	18,284	$	6,161	$	24,445
Labor and health insurance	1,478		388		1,866		1,280		365		1,645		1,107		346		1,453
Pension	719		200		919		779		221		1,000		689		254		943
Meals	703		133		836		505		94		599		476		104		580
Welfare benefit	86		29		115		79		29		108		68		25		93
Others	29		500		529		280		142		422		324		77		401

	$	30,786	$	7,793	$	38,579	$	26,548	$	7,906	$	34,454	$	20,948	$	6,967	$	27,915

Depreciation	$	22,720	$	33	$	22,753	$	24,417	$	141	$	24,558	$	20,727	$	366	$	21,093
Amortization	$	186	$	87	$	273	$	418	$	78	$	496	$	1,164	$	256	$	1,420

14. RELATED PARTY TRANSACTIONS

The Company engages in business transactions with the following related parties:

a. Omnivision, joint venture investor of VisEra Holding.

b. Taiwan Semiconductor Manufacturing Company Limited (TSMC), joint venture investor of VisEra Holding.

c. Xintec, a subsidiary of TSMC.

d. Global UniChip Corporation (GUC). Prior to July 2011, GUC was a subsidiary of TSMC. Since July 2011, GUC is an equity method investee of TSMC.

e. Vanguard International Semiconductor Corporation (Vanguard), an equity-method investee of TSMC.

f. Omnivision Semiconductor, a subsidiary of Omnivision.

g. Omnivision Optoelectronics, a subsidiary of Omnivision.

h. Silicon Optronics Inc, (Silicon Optronics), an equity-method investee of Omnivision.

Transactions with the aforementioned parties, excluding those disclosed in other notes, are summarized as follows:

	2012			2011			2010
	Amount		%	Amount		%	Amount		%
For the year

Sales
Omnivision	$	143,251	97	$	133,209	96	$	97,455	94
TSMC	812		1	1,020		1	1,810		2
Xintec	23		—	55		—	63		—
Vanguard	7		—	117		—	62		—
Omnivision Optoelectronics	6		—	388		—	—		—
GUC	1		—	—		—	1		—
Omnivision Semiconductor	—		—	5		—	—		—
Silicon Optronics	—		—	—		—	228		—

	$	144,100	98	$	134,794	97	$	99,619	96

(Continued)

	2012			2011			2010
	Amount		%	Amount		%	Amount		%

Purchases
TSMC	$	115	—	$	137	—	$	30	—
Omnivision	77		—	58		—	91		—
Xintec	—		—	224		1	1,855		2

	$	192	—	$	419	1	$	1,976	2

Acquisition of properties
TSMC	$	305	1	$	—	—	$	—	—
Xintec	—		—	—		—	141		1

	$	305	1	$	—	—	$	141	1

Disposal of properties
Omnivision Optoelectronics	$	—	—	$	20,563	87	$	—	—
Omnivision Semiconductor	—		—	1,906		8	—		—
Omnivision	—		—	587		2	—		—
Xintec	—		—	378		1	—		—

	$	—	—	$	23,434	98	$	—	—

Operating expenses
Omnivision	$	134	1	$	108	1	$	201	2
TSMC	—		—	138		1	1		—
Xintec	—		—	3		—	56		—

	$	134	1	$	249	2	$	258	2

Consulting service revenue
Xintec	$	29	2	$	166	56	$	38	22

Rental income
Omnivision Optoelectronics	$	3,032	100	$	577	43	$	—	—
Xintec	—		—	756		57	1,399		100

	$	3,032	100	$	1,333	100	$	1,399	100

Income from the transfer of intellectual property Omnivision	$	—	—	$	20,409	100	$	—	—

As of December 31

Accounts receivable, net of allowance for sales returns and discounts
Omnivision	$	27,141	100	$	10,963	96	$	15,075	99
TSMC	42		—	46		1	136		1
Omnivision Optoelectronics	1		—	395		3	—		—
Vanguard	—		—	9		—	16		—
Omnivision Semiconductor	—		—	5		—	—		—
Xintec	—		—	1		—	39		—
GUC	—		—	—		—	1		—

	$	27,184	100	$	11,419	100	$	15,267	100

Other receivables
Omnivision	$	18,010	75	$	16,923	98	$	—	—
Omnivision Optoelectronics	758		3	119		1	—		—
Xintec	—		—	17		—	165		59

	$	18,768	78	$	17,059	99	$	165	59

(Continued)

	2012			2011			2010
	Amount		%	Amount		%	Amount		%

Accrued expenses
TSMC	$	5	—	$	24	—	$	4	—
Omnivision	2		—	—		—	101		1
Xintec	—		—	—		—	78		1

	$	7	—	$	24	—	$	183	2

(Concluded)

The sales prices and payment terms to related parties were not significantly different from those of sales to third parties. There is no comparable transaction with the other related parties transactions of which the terms were determined in accordance with related contractual agreements.

15. PLEDGED OR MORTGAGED ASSETS

The Company provided refundable deposits as collateral mainly for land lease agreements and customs guarantee. As of December 31, 2012 and 2011, the aforementioned refundable deposits amounted to $429 thousand and $411 thousand, respectively.

16. SIGNIFICANT LONG-TERM LEASES

VisEra Technology leases parcel of land from the Science Park Administration. These operating leases will expire in 2025.

As of December 31, 2012, future lease payments were as follows:

Year	Amount

2013	$	390
2014	390
2015	390
2016	390
2017	390
2018 and thereafter	3,126

	$	5,076

17. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments

	December 31
	2012				2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial assets

Cash	$	95,511	$	95,511	$	108,067	$	108,067
Financial assets at fair value through profit or loss	—		—		5		5

(Continued)

	December 31
	2012				2011
	Carrying Amount		Fair Value		Carrying Amount		Fair Value

Financial assets

Notes and accounts receivable	$	128	$	128	$	134	$	134
Receivables from related parties	27,184		27,184		11,419		11,419
Other receivables	24,035		24,035		17,228		17,228
Financial assets carried at cost	16,335		—		16,335		—

Financial liabilities

Accounts payable	7,435		7,435		2,655		2,655
Payables to equipment suppliers	6,091		6,091		12,448		12,448
Financial liabilities at fair value through profit or loss	124		124		10		10

(Concluded)

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, and payables.

2) The fair values of those derivative instruments designed as at fair value through profit or loss are determined using valuation techniques incorporating estimates and assumptions that were consistent with prevailing market conditions.

3) Financial assets carried at cost have quoted prices in an inactive market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

c. As of December 31, 2012 and 2011, financial assets exposed to fair value interest rate risk amounted to $94,689 thousand and $102,487 thousand, respectively; financial liabilities amounted to $124 thousand and $10 thousand, respectively. As of December 31, 2012 and 2011, financial assets exposed to cash flow interest rate risk amounted to $1,245 thousand and $5,991 thousand, respectively.

d. As of December 31, 2012, 2011 and 2010, the interest income and interest expense associated with financial assets other than those at fair value through profit or loss were as follows:

	Years Ended December 31
	2012		2011		2010

Total interest income	$	792	$	449	$	140
Total interest expense	$	—	$	—	$	1

e. Financial risks

1) Market risk

The derivative financial instruments categorized as financial assets/liabilities at fair value through profit or loss are mainly used to hedge the exchange rate fluctuations of foreign-currency assets and liabilities; therefore, the market risk of derivatives is expected be offset by the foreign exchange risk of these hedged items.

2) Credit risk

Credit risk represents the potential loss that would be incurred by the Company if the counter-parties or third-parties breached contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties or third-parties to the foregoing financial instruments are reputable financial institutions, business organizations, and government agencies. Management believes that the Company’s exposure to default by those parties is low. The amount of maximum credit risk exposure is the carrying amount of financial assets held by the Company.

3) Liquidity risk

The Company’s operating funds are deemed sufficient to meet the cash flow demand, therefore, liquidity risk is not considered to be significant.

4) Cash flow interest rate risk

The Company does not have long-term assets and loans related to changes of interest rates. Thus, no cash flows will be affected by changes in market interest rates.

18. SUMMARY OF SIGNIFICANT DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES FOLLOWED BY THE COMPANY AND GENERALLY ACCEPTED ACCOUNTING PRINCIPLES IN THE UNITED STATES OF AMERICA

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the R.O.C. (R.O.C. GAAP), which differ in certain respects from accounting principles generally accepted in the United States of America (U.S. GAAP):

VisEra Technology accrues compensation expense related to profit sharing to employees, directors and supervisors during the period the earnings arise, and its Articles of Incorporation provide the profit sharing to employees may be distributed in its shares. The number of shares is determined based on the compensation expense recorded during the period the earnings arise divided by the net asset value per share of VisEra Technology at the balance sheet date. However, under U.S. GAAP, the amount of compensation expense shall be the product of the number of shares estimated to be issued and the fair value of the shares. Therefore, any difference between the compensation expense recorded and the fair value of the shares distributed at the date of stock distribution gives rise to adjustments to U.S. GAAP. There was no profit sharing granted to employees in shares during 2012.

The following reconciles consolidated net income under R.O.C. GAAP as reported in the consolidated financial statements to the consolidated net income under U.S. GAAP, giving effect to the difference listed above.

	Years Ended December 31
	2012		2011			2010

Net income

Consolidated net income based on R.O.C. GAAP	$	34,341	$	46,825		$	12,776
Adjustments:
Profit sharing to employees	—		(2,484		)	(1,119		)

Consolidated net income based on U.S. GAAP	$	34,341	$	44,341		$	11,657

	Years Ended December 31
	2012		2011		2010

Attributable to
Shareholders of the parent	$	30,092	$	39,229	$	10,337
Noncontrolling interests	4,249		5,112		1,320

	$	34,341	$	44,341	$	11,657

The Company reports comprehensive income (loss) in accordance with the guidance related to reporting comprehensive income for U.S. GAAP purposes. The guidance related to reporting comprehensive income requires that in addition to net income (loss), a company should report other comprehensive income (loss) consisting of the changes in equity of the Company during the year from transactions and other events and circumstance from nonowner sources. It includes all changes in equity during the year except those resulting from investments by shareholders and distribution to shareholders. The other comprehensive income for the Company includes unrealized gains and losses relating to the translation of financial statements maintained in foreign currencies.

Statements of comprehensive income for the years ended December 31, 2012, 2011 and 2010 are as follows:

	Years Ended December 31
	2012		2011			2010

Consolidated net income based on U.S. GAAP	$	34,341	$	44,341		$	11,657
Other comprehensive income (loss), net of tax:
Translation adjustments, net of tax expense of nil
VisEra Holding	6,397		(191		)	7,149
Noncontrolling interests	1,161		(53		)	927

Consolidated comprehensive income	$	41,899	$	44,097		$	19,733

Attributable to
Shareholders of the parent	$	36,489	$	39,038		$	17,486
Noncontrolling interests	5,410		5,059			2,247

	$	41,899	$	44,097		$	19,733

The aforementioned GAAP difference does not give effect to the balance of shareholders’ equity. However, the GAAP difference changes the components of shareholders’ equity. Summarized shareholders’ equity in accordance with U.S. GAAP is as follows:

	Years Ended December 31
	2012		2011		2010

Changes in equity based on U.S. GAAP

Balance, beginning of year	$	228,383	$	181,573	$	160,731
Net income for the year	34,341		44,341		11,657
Common shares issued as profit sharing to employees
VisEra Holding	—		2,186		985
Noncontrolling interests	—		298		134

(Continued)

	Years Ended December 31
	2012			2011			2010

Cash dividends to common shareholders	$	(28,000	)	$	—		$	—
Adjustment arising from changes of ownership percentage in subsidiary
VisEra Holding	179			(40		)	—
Noncontrolling interests	(179		)	40			—
Increase (decrease) in noncontrolling interest	(1,029		)	229			(10		)
Translation adjustments
VisEra Holding	6,397			(191		)	7,149
Noncontrolling interests	1,161			(53		)	927

Balance, end of year	$	241,253		$	228,383		$	181,573

Attributable to
Shareholders of the parent	$	212,740		$	204,072		$	162,888
Noncontrolling interests	28,513			24,311			18,685

	$	241,253		$	228,383		$	181,573

(Concluded)

The Company applies R.O.C. SFAS No. 17, “Statement of Cash Flows.” Its objectives and principles are similar to those set out under U.S. GAAP. The principal differences between the two standards relate to classification. Changes in refundable deposits under cash flows from investing activities under R.O.C. GAAP are reclassified to operating activities under U.S. GAAP. Changes in guarantee deposits under cash flows from financing activities under R.O.C. GAAP are reclassified to operating activities under U.S. GAAP. Summarized cash flow data by operating, investing and financing activities in accordance with U.S. GAAP guidance related to statement of cash flows are as follows:

	Years Ended December 31
	2012			2011			2010

Net cash inflow (outflow) from:
Operating activities	$	50,201		$	71,177		$	40,233
Investing activities	(36,758		)	(10,326		)	(24,587		)
Financing activities	(31,369		)	(794		)	(10		)
Change in cash	(17,926		)	60,057			15,636
Cash at the beginning of year	108,067			47,673			29,820
Effect of exchange rate changes	5,370			337			2,217

Cash at the end of year	$	95,511		$	108,067		$	47,673