oriental union chemical corporation and subsidiaries · 2013-06-04 · - 4 - oriental union...

Oriental Union Chemical Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2012 and 2011 and Independent Auditors’ Report

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REPRESENTATION LETTER

The affiliates of Oriental Union Chemical Corporation (OUCC), which should have been included

in the combined financial statements of OUCC and its affiliates as of and for the year ended

December 31, 2012 based on the “Regulations Governing The Preparation of Combined Financial

Statements of Public Companies and Their Affiliates” in the Republic of China (ROC), are the

same as those included in the consolidated financial statements of OUCC and its subsidiaries as of

and for the year ended December 31, 2012, prepared under the Statement of Financial Accounting

Standards (SFAS) No. 7, “Consolidated Financial Statements” in the ROC. The information

required to be disclosed in the combined financial statements has already been disclosed in the

above consolidated financial statements. Consequently, there is no need to prepare separate

combined financial statements of OUCC and its affiliates.

Very truly yours,

ORIENTAL UNION CHEMICAL CORPORATION

By

DOUGLAS TONG HSU

Chairman

March 15, 2013

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Oriental Union Chemical Corporation

We have audited the accompanying consolidated balance sheets of Oriental Union Chemical

Corporation and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated

statements of income, changes in stockholders’ equity and cash flows for the years then ended.

These consolidated financial statements are the responsibility of the Corporation’s management.

Our responsibility is to express an opinion on these consolidated 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 consolidated financial statements are free of material

misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and

disclosures in the consolidated financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating

the overall consolidated financial statement presentation. We believe that our audits provide a

reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material

respects, the financial position of Oriental Union Chemical Corporation and its subsidiaries as of

December 31, 2012 and 2011, and the results of their operations and their cash flows for the years

then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by

Securities Issuers and accounting principles generally accepted in the Republic of China.

March 15, 2013

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial

position, results of operations and cash flows in accordance with accounting principles and

practices generally accepted in the Republic of China and not those of any other jurisdictions.

The standards, procedures and practices to audit such consolidated financial statements are those

generally accepted and applied in the Republic of China.

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

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

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

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

auditors’ report and consolidated financial statements shall prevail.

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ORIENTAL UNION CHEMICAL CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2012 AND 2011

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

2012 2011 2012 2011

ASSETS Amount % Amount % LIABILITIES AND STOCKHOLDERS’ EQUITY Amount % Amount %

CURRENT ASSETS CURRENT LIABILITIES

Cash and cash equivalents (Notes 2, 4 and 23) $ 835,109 4 $ 1,513,243 7 Short-term loans (Note 13) $ 2,926,306 14 $ 2,140,443 10

Financial assets at fair value through profit or loss - current Short-term bills payable (Note 14) 27,086 - 30,188 -

(Notes 2, 5 and 22) 44,781 - 153,081 1 Accounts payable (Note 23) 700,748 3 715,618 3

Available-for-sale financial assets - current (Notes 2, 6 and 22) 108,163 1 208,642 1 Income tax payable (Notes 2 and 19) 90,770 1 425,475 2

Notes receivable, net of allowance for doubtful accounts of $447 Accrued expenses (Note 23) 153,538 1 211,067 1

thousand and $560 thousand at December 31, 2012 and 2011 Remuneration to directors and supervisors and bonus to employees

(Note 2) 74,114 - 98,028 - payable (Note 17) 33,181 - 75,037 1

Accounts receivable Payables on equipment 68,868 - 38,005 -

Related parties (Notes 2 and 23) 11,802 - 105,356 - Receipts in advance 41,645 - 68,017 -

Third parties, net of allowance for doubtful accounts of Long-term liabilities due within one year (Note 15) 174,240 1 - -

$4,801 thousand and $5,198 thousand at December 31, 2012 and Others 238,113 1 330,478 2

2011 (Note 2) 783,572 4 755,766 4

Inventories (Notes 2 and 7) 1,134,402 5 733,927 3 Total current liabilities 4,454,495 21 4,034,328 19

Other financial assets - current (Note 23) 598,224 3 623,665 3

Others 612,151 3 390,127 2 LONG-TERM LIABILITIES

Long-term bank loans (Note 15) 261,360 1 454,125 2

Total current assets 4,202,318 20 4,581,835 21

RESERVE FOR LAND REVALUATION INCREMENT TAX (Note 10) 341,231 2 341,231 2

INVESTMENTS (Note 2)

Investments accounted for by the equity method (Note 8) 4,108,072 20 4,245,137 20 OTHER LIABILITIES

Available-for-sale financial assets - noncurrent (Notes 6, 22 Accrued pension cost (Notes 2 and 16) 86,705 1 74,993 -

and 24) 2,343,551 11 2,393,303 11 Guarantee deposits 82,882 - 80,545 -

Financial assets carried at cost - noncurrent (Note 9) 1,777,130 8 1,621,130 7 Deferred income tax liabilities - noncurrent, net (Notes 2

and 19) 202,810 1 368,961 2

Total investments 8,228,753 39 8,259,570 38 Miscellaneous liabilities 2,158 - - -

PROPERTIES (Notes 2 and 10) Total other liabilities 374,555 2 524,499 2

Cost

Land 173,546 1 173,546 1 Total liabilities 5,431,641 26 5,354,183 25

Land improvements 247,074 1 247,074 1

Buildings 933,721 4 2,166,781 10 STOCKHOLDERS’ EQUITY (Notes 2 and 17)

Machinery and equipment 12,262,341 58 10,641,096 49 Capital stock, NT$10 par value

Other equipment 553,692 3 472,194 2 Authorized - 1,000,000 thousand shares and 820,000 thousand

14,170,374 67 13,700,691 63 shares in 2012 and 2011; issued - 885,703 thousand shares

Revaluation increment 2,445,070 11 2,450,131 11 and 805,185 thousand in 2012 and 2011 8,857,031 42 8,051,846 37

Cost and revaluation increment 16,615,444 78 16,150,822 74 Capital surplus 1,344,647 6 1,319,631 6

Less: Accumulated depreciation 10,111,681 48 9,601,520 44 Retained earnings

6,503,763 30 6,549,302 30 Legal reserve 2,204,538 10 1,916,256 9

Construction in progress and advance payments 378,877 2 418,064 2 Unappropriated earnings 2,319,394 11 3,870,476 18

Total retained earnings 4,523,932 21 5,786,732 27

Net properties 6,882,640 32 6,967,366 32 Other equity

Cumulative translation adjustments (51,096) - 166,757 1

INTANGIBLE ASSETS (Note 2) Net loss not recognized as pension cost (67,609) - (58,557) -

Computer software 15,900 - 4,804 - Unrealized gain on financial instruments 224,561 1 151,045 1

Land use rights 200,966 1 213,544 1 Unrealized revaluation increments 985,545 5 985,545 4

Treasury stock (90,356) (1) (90,356) (1)

Total intangible assets 216,866 1 218,348 1 Total other equity 1,001,045 5 1,154,434 5

OTHER ASSETS (Note 2) Total stockholders’ equity 15,726,655 74 16,312,643 75

Non-operating properties, net (Note 11) 1,190,161 6 1,190,243 6

Deferred charges, net (Note 12) 62,701 - 77,544 -

Miscellaneous assets (Notes 16, 19, 23 and 24) 374,857 2 371,920 2

Total other assets 1,627,719 8 1,639,707 8

TOTAL $ 21,158,296 100 $ 21,666,826 100 TOTAL $ 21,158,296 100 $ 21,666,826 100

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

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CONSOLIDATED STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2012 AND 2011

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

2012 2011

Amount % Amount %

SALES, NET (Notes 2 and 23) $ 13,410,837 100 $ 14,991,119 100

OTHER OPERATING REVENUE (LOSS) (Note 18) 13,864 - (56,898) -

TOTAL OPERATING REVENUE 13,424,701 100 14,934,221 100

COST OF SALES (Notes 7, 20 and 23) 11,431,844 85 11,672,035 78

GROSS PROFIT 1,992,857 15 3,262,186 22

OPERATING EXPENSES (Notes 20 and 23)

Selling and marketing 288,860 2 294,532 2

General and administrative 193,145 2 235,478 2

Research and development 144,593 1 144,658 1

Total operating expenses 626,598 5 674,668 5

OPERATING INCOME 1,366,259 10 2,587,518 17

NON-OPERATING INCOME AND GAIN

Gain on disposal of investments, net (Notes 2

and 23) 77,917 1 - -

Dividends (Note 2) 67,776 1 63,545 1

Interest income (Note 23) 32,604 - 25,789 -

Rents (Note 11) 28,218 - 31,417 -

Foreign exchange gain, net (Note 2) 21,481 - 91,832 1

Investment income recognized by the equity method,

net (Notes 2 and 8) - - 786,282 5

Others 84,805 1 39,505 -

Total non-operating income and gain 312,801 3 1,038,370 7

NON-OPERATING EXPENSES AND LOSSES

Investment loss recognized by the equity method, net

(Notes 2 and 8) 293,575 2 - -

Interest expense 48,731 1 28,491 -

Expenses related to non-operating properties

(Notes 2 and 20) 16,669 - 16,881 -

Loss on disposal of property, plant and equipment

(Note 2) 1,383 - 18,085 -

Impairment loss (Notes 2, 9 and 11) - - 39,026 1

Others 7,553 - 9,094 -

Total non-operating expenses and losses 367,911 3 111,577 1

(Continued)

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CONSOLIDATED STATEMENTS OF INCOME


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

2012 2011

Amount % Amount %

CONSOLIDATED INCOME BEFORE INCOME

TAX $ 1,311,149 10 $ 3,514,311 23

INCOME TAX EXPENSE (Notes 2 and 19) 158,395 1 631,488 4

CONSOLIDATED NET INCOME $ 1,152,754 9 $ 2,882,823 19

ATTRIBUTABLE TO

Stockholders of parent $ 1,152,754 9 $ 2,882,823 19

2012 2011

Before

Income

Tax

After

Income

Tax

Before

Income

Tax

After

Income

Tax

EARNINGS PER SHARE (Note 21)

Basic $ 1.48 $ 1.32 $ 3.97 $ 3.31

Diluted $ 1.48 $ 1.32 $ 3.96 $ 3.30

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

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY


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

Other Equity

Capital Surplus Unrealized

Paid-in Capital Retained Earnings Cumulative Net Loss Not (Loss) Gain on Unrealized

Long-term in Excess of Par Unappropriated Translation Recognized as Financial Revaluation

Capital Stock Investment Value Treasury Stock Total Legal Reserve Earnings Total Adjustments Pension Cost Instruments Increments Treasury Stock Total

BALANCE, JANUARY 1, 2011 $ 8,051,846 $ 39,745 $ 1,090,760 $ 159,119 $ 1,289,624 $ 1,706,593 $ 3,129,759 $ 4,836,352 $ (231,525 ) $ (46,597 ) $ 587,276 $ 137,715 $ (90,356 ) $ 14,534,335

Appropriations of 2010 earnings Legal reserve - - - - - 209,663 (209,663 ) - - - - - - -

Cash dividends - $2.4 per share - - - - - - (1,932,443 ) (1,932,443 ) - - - - - (1,932,443 )

Balance after appropriations 8,051,846 39,745 1,090,760 159,119 1,289,624 1,916,256 987,653 2,903,909 (231,525 ) (46,597 ) 587,276 137,715 (90,356 ) 12,601,892

Change in net loss not recognized as pension cost - - - - - - - - - (11,960 ) - - - (11,960 )

Change in unrealized (loss) gain on available-for-sale financial assets - - - - - - - - - - (362,402 ) - - (362,402 )

Adjustments due to change in investee's equity - - - - - - - - - - (73,829 ) - - (73,829 )

Cash dividends distributed to subsidiary - - - 30,007 30,007 - - - - - - - - 30,007

Revaluation increment on assets - - - - - - - - - - - 847,830 - 847,830

Consolidated net income in 2011 - - - - - - 2,882,823 2,882,823 - - - - - 2,882,823

Translation adjustments - - - - - - - - 398,282 - - - - 398,282

BALANCE, DECEMBER 31, 2011 8,051,846 39,745 1,090,760 189,126 1,319,631 1,916,256 3,870,476 5,786,732 166,757 (58,557 ) 151,045 985,545 (90,356 ) 16,312,643

Appropriations of 2011 earnings

Legal reserve - - - - - 288,282 (288,282 ) - - - - - - -

Cash dividends - $2 per share - - - - - - (1,610,369 ) (1,610,369 ) - - - - - (1,610,369 ) Stock dividends - $1 per share 805,185 - - - - - (805,185 ) (805,185 ) - - - - - -

Balance after appropriations 8,857,031 39,745 1,090,760 189,126 1,319,631 2,204,538 1,166,640 3,371,178 166,757 (58,557 ) 151,045 985,545 (90,356 ) 14,702,274

Adjustment to capital surplus due to

nonproportional investment in investees' newly issued shares - 9 - - 9 - - - - - - - - 9

Change in net loss not recognized as pension cost - - - - - - - - - (9,052 ) - - - (9,052 )

Change in unrealized (loss) gain on available-for-sale financial assets - - - - - - - - - - 42,790 - - 42,790

Adjustments due to change in investee's equity - - - - - - - - - - 30,726 - - 30,726

Cash dividends distributed to subsidiary - - - 25,007 25,007 - - - - - - - - 25,007

Consolidated net income in 2012 - - - - - - 1,152,754 1,152,754 - - - - - 1,152,754

Translation adjustments - - - - - - - - (217,853 ) - - - - (217,853 )

BALANCE, DECEMBER 31, 2012 $ 8,857,031 $ 39,754 $ 1,090,760 $ 214,133 $ 1,344,647 $ 2,204,538 $ 2,319,394 $ 4,523,932 $ (51,096 ) $ (67,609 ) $ 224,561 $ 985,545 $ (90,356 ) $ 15,726,655

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

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CONSOLIDATED STATEMENTS OF CASH FLOWS


(In Thousands of New Taiwan Dollars)

2012 2011

CASH FLOWS FROM OPERATING ACTIVITIES

Consolidated net income $ 1,152,754 $ 2,882,823

Adjustments to reconcile net income to net cash provided by operating

activities:

Depreciation 569,567 509,672

Investment loss (income) recognized by the equity method, net 293,575 (786,282)

Cash dividend received from equity method investees 176,884 506,790

Deferred income taxes (166,151) 77,068

Valuation (gain) loss on financial instruments (74,298) 101,444

Provision for loss on inventories 44,412 21,320

Amortization 23,879 28,429

Gain on disposal of investments, net (9,594) (28,688)

Loss on disposal of properties, net 1,383 17,933

(Reversal of) allowance for doubtful receivables (510) 1,743

Impairment loss on financial assets carried at cost - 32,513

Impairment loss on non-operating properties - 6,513

Changes in operating assets and liabilities:

Financial assets held for trading 114,275 (55,874)

Notes receivable 24,027 (44,459)

Accounts receivable 66,145 (243,300)

Inventories (443,562) (360,949)

Other current assets 119,826 65,961

Accounts payable (14,870) 387,761

Income tax payable (334,705) 171,399

Accrued expenses (99,385) 63,997

Advance receipts (26,372) 6,619

Other current liabilities (92,365) 107,595

Accrued pension cost 7,095 1,497

Miscellaneous liabilities 2,158 (40,126)

Net cash provided by operating activities 1,334,168 3,431,399

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of properties (872,345) (1,467,531)

Acquisition of investments accounted for by the equity method (502,583) (4,000)

Proceeds from disposal of available-for-sale financial assets 324,122 -

Acquisition of financial assets carried at cost (156,000) (270,000)

Decrease in other financial assets - current 25,441 145,152

Acquisition of available-for-sale financial assets (22,458) (271,347)

Increase in intangible assets (14,412) (350)

(Increase) decrease in miscellaneous assets (7,372) 14,008

Increase in deferred charges (2,736) (49,998)

Proceeds from return of capital by investees - 4,410

Proceeds from sale of properties - 2,157

Net cash used in investing activities (1,228,343) (1,897,499)

(Continued)

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CONSOLIDATED STATEMENTS OF CASH FLOWS



2012 2011

CASH FLOWS FROM FINANCING ACTIVITIES

Cash dividends $ (1,585,362) $ (1,902,436)

Increase in short-term loans 785,863 1,148,566

(Decrease) increase in long-term bank loans (3,825) 110,391

(Decrease) increase in short-term bills payable (3,102) 30,188

Increase (decrease) in guarantee deposits 2,337 (893)

Net cash used in financing activities (804,089) (614,184)

EFFECT OF EXCHANGE RATE CHANGES 20,130 (63,477)

NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS

(678,134) 856,239

CASH AND CASH EQUIVALENTS ,BEGINNING OF YEAR 1,513,243 657,004

CASH AND CASH EQUIVALENTS ,END OF YEAR $ 835,109 $ 1,513,243

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

Interest paid $ 47,516 $ 27,682

Income tax paid $ 659,256 $ 383,102

CASH PAID FOR ACQUISITION OF PROPERTIES

Increase in properties $ 903,208 $ 1,322,311

Add: Payables on equipment, beginning of year 38,005 183,225

Less: Payables on equipment, end of year 68,868 38,005

Cash paid for acquisition of properties $ 872,345 $ 1,467,531

NON-CASH FINANCING ACTIVITIES

Long-term liabilities due within one year $ 174,240 $ -

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


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

1. ORGANIZATION AND OPERATIONS

Oriental Union Chemical Corporation (the “Corporation”) was incorporated in December 1975. It

manufactures and markets ethylene glycols, ethylene oxide, gas oxygen, gas nitrogen, liquid nitrogen,

liquid argon, monoethanolamine, ethylene carbonate, polyethylene glycol, polyoxyethylene lauryl ether and

methoxy polyethylene glycols. Its shares were listed on the Taiwan Stock Exchange (TSE) on October 21,

1987.

As of December 31, 2012 and 2011, the Corporation and subsidiaries had 506 and 510 employees,

respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements have been prepared in conformity with the Guidelines

Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally

accepted in the ROC.

For readers’ convenience, the accompanying consolidated 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. The Group’s significant accounting

policies are summarized as follows:

Consolidation

a. Basis of consolidation

The consolidated financial statements include the financial statements of the Corporation, its direct and

indirect subsidiaries with at least 50% stockholding and other investees controlled by the Corporation.

All significant transactions are eliminated upon consolidation.

b. Under the above basis of consolidation, the consolidated entities were as follows:

Percentage of

Ownership as of

December 31

Investor Subsidiary Nature of Business 2012 2011

The Corporation Ton Fu Investment Corp. (TFIC) Investment 100% 100%

Pacific Petrochemical (Holding)

Ltd. (PPL)

Investment 100% 100%

OUCC (Bermuda) Holding Ltd.

(OUCC (Bermuda))

Investment 100% 100%

OUCC (Bermuda) Oriental Petrochemical

(Yangzhou) Corporation

(OPYC)

Manufacturing and selling

ethanolamine (EA) and fatty

alcohol - polyoxyethylene ether

(AEO)

100% 100%

c. Subsidiaries not included in the consolidated financial statements: None.

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Foreign Currency Transactions and Translation of Foreign-currency Financial Statements

Non-derivative foreign-currency transactions are recorded in functional currency 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 that are measured at fair value are revalued

using prevailing exchange rates, with the exchange differences recognized in shareholders’ equity if the

changes in fair value are recognized in shareholders’ equity. 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

Corporation. Such adjustments are accumulated and reported as a separate component of stockholders’

equity.

The above prevailing exchange rates are based on the average of bid and ask rates of principal banks.

Accounting Estimates

Under above guidelines and principles, certain estimates and assumptions have been used for the allowance

for doubtful accounts, allowance for loss on inventories, depreciation of properties and non-operating

properties, intangible assets, deferred charges, income tax, impairment of assets, pension cost and bonuses

to employees, directors and supervisors, etc. Actual results may differ from these estimates.

Current/Noncurrent Assets and Liabilities

Current assets include cash and cash equivalents, and those assets held primarily for trading purposes or to

be realized, sold or consumed within one year from the balance sheet date. All other assets such as

properties and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for

trading purposes or to be settled within one year from the balance sheet date. All other liabilities are

classified as noncurrent.

Cash Equivalents

Short-term bills acquired with repurchase right and maturities of up to three months from the date of

purchase are classified as cash equivalents. The carrying value approximates fair value.

Financial Assets at Fair Value through Profit or Loss

Financial instruments at fair value through profit or loss are financial assets held for trading. On initial

recognition, the financial instruments are recognized at fair value plus transaction costs and are

subsequently measured at fair value with fair value changes recognized in profit or loss. All regular way

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

The fair value of financial instruments at fair value through profit or loss at the balance sheet date is

determined as follows: Listed stocks - at the closing price; open-ended mutual funds - at net asset values.

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Available-for-sale Financial Assets

On initial recognition, available-for-sale financial assets are recognized at fair value plus transaction costs.

When subsequently measured at fair value, the fair value changes are recognized directly in equity. The

cumulative gain or loss that was recognized in equity is recognized in profit or loss when an

available-for-sale financial asset is derecognized from the balance sheet. All regular way purchases or

sales of the financial instruments are recognized and derecognized on a trade date basis.

Cash dividends are recognized as dividend income upon the date of resolution of the stockholders, but are

accounted for as reductions to the original cost of investments if such dividends are declared on the

earnings of investees attributable to periods prior to the purchase of investments. Stock dividends are not

recognized as current income but are accounted for only as an increase in the number of shares held. 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. If

the amount of impairment loss decreases in the subsequent period, such decrease is recognized in equity.

The fair value of available-for-sale financial assets at the balance sheet date is determined as follows: (a)

listed stocks - at the closing price; (b) open-end mutual funds - at the net asset value.

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 the same with 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.

Impairment of Accounts Receivable

Accounts receivable are assessed for impairment at the end of each reporting period and considered to be

impaired when there is objective evidence that, as a result of one or more events that occurred after the

initial recognition of the accounts receivable, the estimated future cash flows of the asset have been

affected. Accounts receivable that are assessed as not impaired individually are further assessed for

impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable

could include the Corporation and subsidiaries’ past experience in the collection of payments, an increase in

the number of delayed payments, as well as observable changes in national or local economic conditions

that correlate with defaults on receivables. The amount of the impairment loss recognized is the difference

between the asset carrying amount and the present value of estimated future cash flows.

Impairment of Assets

An impairment loss should be recognized if the carrying value of assets (including properties, intangible

assets, nonoperating properties, deferred charges, and equity-method investments) exceeds their recoverable

amount, and this impairment loss should be charged to current income. An impairment loss recognized in

prior years can be reversed if there is a subsequent recovery in the estimates used to determine recoverable

amount since the last impairment loss was recognized. However, an impairment loss is reversed only to

the extent that the increased amount due to reversal does not exceed the carrying amount of an asset (net of

depreciation) had no impairment loss been recognized in prior years. If an asset has been revalued in

accordance with the laws, its impairment loss should first be deducted from the unrealized revaluation

increment under stockholders’ equity. The excess loss, if any, will then be recognized as loss in the

income statement. However, to the extent that an impairment loss on the same revalued asset was

previously recognized as a loss in the income statement because of insufficient revaluation surplus, a

reversal of that impairment loss is recognized as a gain in the income statement. Any excess in reversal

will be recognized as unrealized revaluation increment under stockholders’ equity.

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For long-term equity investments in which the Corporation and subsidiaries have significant influence but

with no control, the carrying amount of each investment is compared with its own recoverable amount for

the purpose of impairment testing.

Inventories

Inventories 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.

Investments Accounted for by the Equity Method

Long-term investments in which the Corporation and subsidiaries exercises significant influence over the

investees’ operating and financial policy decisions are accounted for by the equity method. Under this

method, the investment is initially stated at cost and subsequently adjusted for the Corporation and

subsidiaries’ share in the net income or net loss and other changes in stockholders’ equity of the investee

companies. Cash dividends received are accounted for as reductions in the carrying value of the

investments; while stock dividends received are accounted for only as increases in the number of shares

held.

The acquisition cost is allocated to the assets acquired and liabilities assumed on the basis of their fair

values at the date of acquisition, and the acquisition cost in excess of the fair value of the identifiable net

assets acquired is recognized as goodwill. Goodwill is not amortized. The fair value of the net

identifiable assets acquired in excess of 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 the respective fair values of the noncurrent assets, with any excess recognized as

an extraordinary gain.

The shares of the Corporation held by subsidiaries are treated as treasury stock. Dividends appropriated

by the Corporation are treated as deduction of investment income and adjustment of capital surplus -

treasury stock.

Properties and Non-operating Properties

Properties and non-operating properties are stated at cost plus revaluation increment less accumulated

depreciation and accumulated impairment loss. Major additions and improvements to properties are

capitalized, while costs of repairs and maintenance are expensed currently. Borrowing costs directly

attributable to the acquisition or construction of properties are capitalized as part of the cost of those assets.

Depreciation is provided on a straight-line basis over estimated useful lives as follows: Land

improvements, 7 to 25 years; buildings, 3 to 60 years; machinery and equipment, 3 to 20 years; and

miscellaneous equipment, 3 to 10 years. Properties still in use beyond their original estimated useful lives

are further depreciated by the original method over their re-estimated remaining lives. Depreciation of

revaluated assets is provided on a straight-line basis over their remaining estimated useful lives determined

at the time of revaluation.

The related cost (including revaluation increment), accumulated depreciation, accumulated impairment

losses and any unrealized revaluation increment of an item of properties are derecognized from the balance

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

losses in the year of disposal.

- 13 -

Intangible Assets

Computer software is amortized over 3 to 8 years; land use rights are amortized over 50 years.

Deferred Charges

Technology expenses are amortized over 8 years; test-run costs are amortized over 9 years; power lines are

amortized over 5 years; other deferred charges are amortized over 2 to 7 years.

Pension Costs

Pension costs under defined benefit pension plan are recognized on the basis of actuarial calculations, and

pension costs under defined contribution pension plan are recognized on the basis of actual contributions to

the individual pension accounts of employees during the employees’ service periods.

Income Tax

The Corporation and subsidiaries adopted interperiod and intraperiod tax allocation. Deferred income tax

assets and liabilities are recognized for the tax effects of temporary differences and unused investment tax

credits. Valuation allowance is provided for deferred income tax assets that are not certain to be realized.

A deferred tax asset or liability should be classified as current or noncurrent according to the classification

of the related asset or liability for financial reporting. However, if a deferred income tax asset or liability

cannot be related to an asset or liability in the financial statements, it should be classified as current or

noncurrent on the basis of the expected realization date of the temporary difference.

Tax credits for certain purchase of equipment and technology, research and development expenditures and

personnel training expenditures are accounted for by the flow-through method.

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

Income taxes of 10% on undistributed earnings are recorded as expense in the year when the stockholders

resolve to retain these earnings.

Treasury Stock

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

The Corporation’s stock held by subsidiaries is treated as treasury stock and reclassified from investments

accounted for using equity method to treasury stock. The recorded cost of the stock is based on its

carrying amount.

Revenue Recognition

Revenue from sales of goods is recognized when the Corporation and subsidiaries has transferred the

significant risk and rewards of ownership of goods to customers, primarily upon shipment, because the

earnings process has been completed and the economic benefits associated with the transaction have been

realized or are realizable.

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

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

imputed rate of interest.

- 14 -

3. EFFECTS OF CHANGE IN ACCOUNTING PRINCIPLES

Financial Instruments

The Corporation and subsidiaries adopted the newly revised SFAS No. 34 - “Financial Instruments:

Recognition and Measurement” on January 1, 2011. 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 Corporation and subsidiaries are

now covered by SFAS No. 34; (4) the requirement to disclose additional guidelines on impairment testing

of financial assets carried at amortized cost if the asset issuer or obligor has financial difficulties and the

terms of obligations pertaining to these difficulties have been modified; and (5) a debtor’s accounting

treatment for the modifications in the terms of the obligations. This accounting change had no effect on

consolidated net income for the year ended December 31, 2011.

4. CASH AND CASH EQUIVALENTS

December 31

2012 2011

Time deposits $ 732,363 $ 762,723

Demand deposits 64,321 434,827

Checking deposits 38,207 141,252

Petty cash 218 116

Short-term notes and bills with resale rights - 174,325

$ 835,109 $ 1,513,243

5. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS - CURRENT

December 31

2012 2011

Financial assets held for trading

Listed stocks - domestic $ 44,781 $ 153,081

6. AVAILABLE-FOR-SALE FINANCIAL ASSETS

December 31

2012 2011

Current Non-current Current Non-current

Beneficiary certificates of open-end

funds

$ 108,163 $ - $ 208,642 $ -

Listed stocks - domestic - 2,343,551 - 2,393,303

$ 108,163 $ 2,343,551 $ 208,642 $ 2,393,303

- 15 -

7. INVENTORIES, NET

December 31

2012 2011

Finished goods $ 794,660 $ 540,121

Work in process 23,604 15,250

Raw materials 316,138 178,556

$ 1,134,402 $ 733,927

As of December 31, 2012 and 2011, the allowance for inventory devaluation was $71,949 thousand and

$28,862 thousand, respectively.

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2012 and 2011

was $11,431,844 thousand and $11,672,035 thousand, respectively, which included $44,412 thousand and

$21,320 thousand write-downs of inventories.

8. INVESTMENTS ACCOUNTED FOR BY EQUITY METHOD

December 31

2012 2011

% of % of

Carrying Owner- Carrying Owner-

Value ship Value ship

Oriental Petrochemical (Shanghai) Corporation

(OPSC)

$ 3,548,933 39 $ 4,178,554 39

Far Eastern Union Petrochemical (Yangzhou)

Ltd. (FEUPY)

400,106 50 - -

Oriental Resource Development Ltd. (ORD) 149,773 30 57,387 30

Kuokuang Petrochemical Technology

Corporation, Ltd. (KPTC)

9,260 20 9,196 20

$ 4,108,072 $ 4,245,137

The Corporation invested in FEUPY through PPL, as of December 31, 2012, the accumulated investment in

FEUPY was US$14,000 thousand, which were approved by the Ministry of Economic Affairs on August

31, 2012.

As of December 31, 2012, the Corporation held 100% of PPL shares and the accumulated investment was

US$90,472 thousand. The Corporation held 39% of OPSC shares and 50% of FEUPY shares through

PPL, respectively.

The Corporation invested to establish OUCC (Bermuda) and establish OPYC through OUCC (Bermuda).

As of December 31, 2012, the Corporation held 100% of OUCC (Bermuda) and had made a total

investment of US$40,000 thousand. The ethanolamine factory of OPYC, with capacity of 40,000 tons,

started to manufacture in April 2011.

In July 2012, ORD reduced its capital to offset deficit, and then the Corporation increased investment of

$90,603 thousand in ORD in August 2012.

KPTC was still in construction stage and had not yet generated material profit or loss as of December 31,

2012. KPTC expects to engage in petrochemical business using petroleum and natural gas.

- 16 -

The investment (loss) income recognized by the equity method in 2012 and 2011 was as follows:

2012 2011

OPSC $ (287,721) $ 798,725

FEUPY (7,692) -

ORD 1,774 300

KPTC 64 (12,743)

$ (293,575) $ 786,282

9. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

December 31

2012 2011

% of % of

Carrying Owner- Carrying Owner-

Value ship Value ship

Domestic stocks

Oriental Petrochemical (Taiwan) Co., Ltd. $ 984,660 18 $ 984,660 18

Ding Shen Investment Co., Ltd. 396,000 18 270,000 18

Grand Cathay Venture Capital Co., Ltd. 240,059 17 240,059 17

Eminent Venture Capital Corporation 86,152 10 86,152 10

Eminent II Venture Capital Corporation 30,000 6 - -

Yue Ding Enterprise Corp. (YDEC) 27,925 5 27,925 5

Concord IV Venture Capital Corp. 7,742 3 7,742 3

Capital Venture Fund II Corp. 3,898 5 3,898 5

Tai An Technologies Corp. 694 5 694 5

$ 1,777,130 $ 1,621,130

The Corporation recognized impairment loss on the investment in Grand Cathay Venture Capital Co., Ltd.

of $26,608 thousand in 2011.

TFIC recognized impairment loss on the investment in Yue Ding Enterprise Corp. of $5,905 thousand in

2011.

The Corporation received $4,410 thousand from capital reduction of Concord IV Venture Capital

Corporation in the first half year of 2011.

The above equity investments which had no quoted market prices and had no fair values that could be

reliably measured were evaluated at cost.

- 17 -

10. PROPERTIES

December 31

2012 2011

Cost $ 14,170,374 $ 13,700,691

Revaluation increment

Land 1,417,915 1,417,915

Land improvements 73,085 73,085

Buildings 80,357 80,357

Machinery and equipment 873,281 878,312

Other equipment 432 462

2,445,070 2,450,131

Accumulated depreciation

Land improvements 288,963 284,634

Buildings 308,079 267,563

Machinery and equipment 9,086,881 8,646,920

Other equipment 427,758 402,403

10,111,681 9,601,520

Construction in progress and advance payments 378,877 418,064

$ 6,882,640 $ 6,967,366

The Corporation revalued its land in 1980, 1981 and 2011 and increased the value of properties, the reserve

for land value increment tax and unrealized valuation increment. The Corporation also revalued other

properties in 1982 in accordance with government regulations.

11. NON-OPERATING PROPERTIES, NET

December 31

2012 2011

Land $ 1,189,375 $ 1,189,375

Land improvements and Buildings 31,958 31,958

1,221,333 1,221,333

Less: Accumulated depreciation 24,659 24,577

Accumulated impairment 6,513 6,513

$ 1,190,161 $ 1,190,243

The land and the building are located in Xinsheng Section, Qianzhen District, and Chung-Lin Section,

Xiao-Gand District in Kaohsiung. Portions of the land and buildings are rented to third parties in the form

of operating lease. The rents are collected monthly.

The Corporation recognized an impairment loss of $6,513 thousand in the first quarter of 2011 because the

building located in Xinsheng Section, Qianzhen District became obsolete.

- 18 -

12. DEFERRED CHARGES, NET

December 31

2012 2011

Technical service fees $ 60,397 $ 73,252

Heat transfer media - 2,365

Others 2,304 1,927

$ 62,701 $ 77,544

13. SHORT-TERM LOANS

December 31

2012 2011

Unsecured $ 2,926,306 $ 2,140,443

Interest rate 1.03%-2.07% 1.00%-4.70%

Final repayment date 2013.1.25 2012.1.19

14. SHORT-TERM BILLS PAYABLE

December 31

2012 2011

Commercial paper $ 27,100 $ 30,200

Less: Unamortized discount 14 12

$ 27,086 $ 30,188

Interest rate 1.038% 0.988%

Final repayment date 2013.1.18 2012.1.18

15. LONG-TERM BANK LOANS

December 31

2012 2011

Unsecured $ 435,600 $ 454,125

Less: Current portion 174,240 -

$ 261,360 $ 454,125

The bank loan will be paid in U.S. dollars. As of December 31, 2012 and 2011, the balance of the loan

was both US$15,000 thousand. According to the bank loan contract, the Corporation has to repay interest

on schedule and repay principal in 5 installments starting from 2013. The maturity date is May 2015.

Interest rates were 0.79%-0.96% and 0.89% for the years ended December 31, 2012 and 2011, respectively.

- 19 -

16. PENSION

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

LPA, the Corporation makes monthly contributions to employees’ individual pension accounts at 6% of

monthly salaries and wages. Such pension costs were $6,256 thousand and $5,878 thousand for the years

ended December 31, 2012 and 2011, respectively.

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

basis of the length of service and average monthly salaries of the six months before retirement. The

Corporation contributes amounts equal to 10% 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 in the committee’s name.

OPYC makes pension contributions to employees’ personal accounts and recognize them as insurance

expenses.

TFIC has not set up retirement plan because it is served concurrently by the employees of the Corporation.

Information on the defined benefit pension plan is summarized as follows:

a. Net pension costs:

2012 2011

Service cost $ 12,560 $ 7,979

Interest cost 8,132 7,577

Projected return on plan assets (5,574) (5,178)

Amortization 10,609 9,569

Net pension costs $ 25,727 $ 19,947

b. Reconciliations of the fund status of the plan and accrued pension cost were as follows:

December 31

2012 2011

Benefit obligation

Vested $ 264,412 $ 255,524

Nonvested 98,847 88,705

Accumulated 363,259 344,229

Additional benefits based on future salaries 61,975 62,366

Projected 425,234 406,595

Fair value of plan assets (276,554) (269,236)

Funded status 148,680 137,359

Unrecognized net transition obligation - (2,986)

Unrecognized prior service cost (8,692) (10,142)

Unrecognized net loss (129,584) (120,923)

Additional liabilities 76,301 71,685

Accrued pension cost $ 86,705 $ 74,993

c. Vested benefits $ 307,757 $ 310,097

- 20 -

d. Actuarial assumptions:

2012 2011

Discount rate used in determining present values 1.875% 2.000%

Future salary increase rate 2.000% 2.000%

Expected rate of return on plan assets 1.875% 2.000%

17. STOCKHOLDERS’ EQUITY

a. Capital surplus

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 used to

offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed

as cash dividends or transferred to capital (limited to a certain percentage of the Corporation’s paid-in

capital and once a year).

The capital surplus from long-term investments, employee stock options and conversion options may

not be used for any purpose.

b. The Corporation’s Articles of Incorporation provide that 10% of net income (less any deficit) should be

set aside as legal reserve. In addition, the Corporation may set aside a special reserve in accordance

with applicable laws and regulations. A portion of the unappropriated earnings from both current year

and prior years may be retained taking into account the needs of the business. Any amount distributed

shall be made using the following ratio:

1) 60% as dividends;

2) 1% as remuneration to directors and supervisors;

3) 2% as bonus to employees; and

4) 37% as additional dividends.

The Corporation’s Articles of Incorporation provide that the Corporation shall determine dividend

payments taking into account cycles of the industry, capital demand in relation to specific products and

services, and changes in taxation regulations. Except for improving financial structure, supporting

investees, increasing capacity and other capital expenditure, the cash dividend should not be less than

10% of the total of the aforementioned dividends and additional dividends.

For the years ended December 31, 2012 and 2011, the bonus to employees was $21,914 thousand and

$49,805 thousand, respectively, and the remuneration to directors and supervisors was $10,957

thousand and $24,903 thousand, respectively. The bonus to employees and remuneration to directors

and supervisors represented 2% and 1%, respectively, of net income (net of the bonus and

remuneration). Material differences between such estimated amounts and the amounts proposed by

the board of directors in the following year are adjusted for in the current year. If the actual amounts

subsequently resolved by the shareholders differ from the proposed amounts, the differences are

recorded in the year of shareholders’ resolution as a change in accounting estimate. If a share bonus is

resolved to be distributed to employees, the number of shares is determined by dividing the amount of

the share bonus by the closing price (after considering the effect of cash and stock dividends) of the

shares of the day immediately preceding the shareholders’ meeting. The closing price is accounted in

accordance with Rule No. 1010059296 issued by the FSC on December 28, 2012. With no closing

price available, fair value will be evaluated in accordance with IFRS 2, “Share Based Payment” to

assess evaluation techniques.

- 21 -

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 translation

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. The

Corporation should also appropriate as special reserve, according to proportional investment, an amount

equivalent to stock price of the Corporation below the book value of Corporation shares held by

subsidiaries as of December 31, 2012. If the value of the Corporation’s stock increases, this special

reserve will be reversed to the extent of the increase proportional to investment.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Corporation’s

paid-in capital. Legal reserve may be used to offset deficit. If the Corporation has no deficit and the

legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to

capital or distributed in cash.

Under the Integrated Income Tax System, ROC-resident stockholders are allowed tax credit for the

income tax paid by the Corporation on earnings generated since 1998. Tax credits allocated to

stockholders are based on the balance of Imputation Credit Account (ICA) on the dividend distribution

date.

The appropriations of the earnings and dividends per share of 2011 and 2010 approved in the

shareholders’ meetings on June 5, 2012 and June 3, 2011, respectively, were as follows:

Appropriation of Earnings

Dividends Per Share

(NT$)

For For For For

Year 2011 Year 2010 Year 2011 Year 2010

Legal reserve $ 288,282 $ 209,663

Cash dividends 1,610,369 1,932,443 $ 2.0 $ 2.4 $ 2.4

Stock dividends 805,185 - 1.0 -

The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved

in the shareholders’ meetings on June 5, 2012 and June 3, 2011, respectively, were as follows:

Year Ended December 31

2011 2010

Bonus to

Employees

Remuneration

to Directors

and

Supervisors

Bonus to

Employees

Remuneration

to Directors

and

Supervisors

Amounts approved in

shareholders’ meetings

$ 49,805 $ 24,903 $ 39,844 $ 19,922

Amounts recognized in respective

financial statements

49,805 24,903 39,844 19,922

$ - $ - $ - $ -

The approved amounts of the bonus to employees and the remuneration to directors and supervisors

were no differences between the accrual amounts reflected in the financial statements.

- 22 -

The appropriations of earnings for 2012 had been proposed by the board of directors on March 15,

2013. The proposed appropriations and dividends per share were as follows:

Appropriation

of Earnings

Dividends Per

Share (NT$)

Legal reserve $ 115,275 -

Cash dividends 1,062,844 $ 1.2

Information on the bonus to employees, directors and supervisors is available on the Market

Observation Post System website of the Taiwan Stock Exchange.

c. Unrealized gains on financial instruments

Unrealized gains on financial instruments for the years ended December 31, 2012 and 2011 were

summarized as follows:

2012 2011

Available-for-sale financial assets

Balance, beginning of year $ 359,682 $ 722,084

Recognized in shareholders’ equity 42,790 (362,402)

Balance, end of year 402,472 359,682

Unrealized gains (losses) recognized on investments accounted

for by equity method

Balance, beginning of year (208,637) (134,808)

Recognized in shareholders’ equity 30,726 (73,829)

Balance, end of year (177,911) (208,637)

Unrealized gains on financial instruments $ 224,561 $ 151,045

d. Treasury stock

(Shares in Thousands)

Reasons of Buyback

Number of

Shares,

Beginning of

Year

Addition

During the

Year

Reduction

During the

Year

Number of

Shares, End

of Year

Year ended December 31, 2012

The Corporation’s shares held by

its subsidiaries 12,504 1,250 - 13,754

(Note)


The Corporation’s shares held by

its subsidiaries 12,504 - - 12,504

Note: Capitalization increased from retained earnings.

- 23 -

Under the Securities and Exchange Act, the number of issued shares purchased should not exceed 10%

of total issued shares, and the buyback cost should not exceed the sum of the retained earnings,

additional paid-in capital in excess of par value and realized capital surplus before transferring the

ownership of the stock. In addition, the Corporation shall neither pledge treasury stock nor exercise

shareholders’ rights on these shares. The subsidiaries holding treasury stock, however, retain

shareholders’ rights, except the rights to participate in any share issuance for cash and to vote.

18. OTHER OPERATING REVENUE OR LOSS

Operating revenue of the Corporation and subsidiaries (as presented in their separate income statements)

not classified into their main operations (as presented in the consolidated income statements) is presented as

other operating revenue (loss) in the consolidated statements of income as follows:

2012 2011

Sale of financial instruments at fair value through profit or loss $ 208,209 $ 349,261 Cost of financial instruments at fair value through profit or loss 276,532 320,573 (Loss) gain on sale of investments, net (68,323) 28,688 Dividends 7,889 15,858 Valuation gain (loss) on financial assets 74,298 (101,444) Other operating revenue (loss) $ 13,864 $ (56,898)

19. INCOME TAX

a. A reconciliation of income tax expense based on income before income tax at the statutory rate of 17%

and current income tax expense was as follows:


2012 2011

Income tax expense at the statutory rate $ 219,783 $ 588,214 Permanent differences (14,483) 3,591 Temporary differences 91,227 (77,356) Tax-exempt income (4,969) (14,880) Additional 10% tax on unappropriated earnings 17,899 - Current income tax payable $ 309,457 $ 499,569

Under Article 9-2 of the Statute for Upgrading Industries (SUI), the Corporation’s project for expansion

and production of ethanolamine is considered to have satisfied all the requirements. Thus, the

Corporation’s income generated from the expansion and production of its equipment is exempt from

income tax for five years from January 2, 2008, as approved by the Ministry of Finance.

As of December 2012 and 2011, income tax payable was net of prepaid income tax.

- 24 -

b. Income tax expense consisted of:

December 31

2012 2011

Current income tax payable $ 309,457 $ 499,569

Deferred income tax (166,151) 77,068

Prior year’s adjustments (3,218) 623

Withholding tax on appropriation of foreign investee 18,307 54,228

Income tax expense $ 158,395 $ 631,488

c. Net deferred income tax assets (liabilities) were as follows:

December 31

2012 2011

Deferred income tax liabilities - noncurrent

Depreciation $ (133,076) $ (111,463)

Gain recognized by the equity method (69,734) (257,498)

(202,810) (368,961)

Deferred income tax assets - noncurrent

Impairment loss on long-term investment 22,153 22,153

Impairment loss on non-operating properties 1,107 1,107

23,260 23,260

Less: Valuation allowance 23,260 23,260

- -

Net deferred income tax liabilities - noncurrent $ (202,810) $ (368,961)

d. Information on the Imputed Income Tax System is as follows:

1) Balances of imputation credit account (ICA):

December 31

2012 2011

The Corporation $ 404,553 $ 211,812

TFIC $ 53,440 $ 44,861

2) Imputation tax credit ratio (ICA ratio):

December 31

2012 2011

The Corporation 22.75% (Estimated) 16.85% (Actual)

TFIC - -

For distribution of earnings generated after January 1, 1998, the ratio for the imputation credits

allocated to shareholders of the Corporation is based on the balance of the ICA as of the date of

dividend distribution. The expected creditable ratio for the 2012 earnings may be adjusted,

depending on the ICA balance on the date of dividend distribution.

e. As of December 31, 2012 and 2011, the balances of the unappropriated earnings generated prior to

December 31, 1997 were both $280,202 thousand.

- 25 -

f. Income tax returns of the Corporation and TFIC through 2010 had been both examined and cleared by

the tax authority.

20. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES


2012 2011

Classified

as

Operating

Cost

Classified

as

Operating

Expenses

Classified

as Non-

operating

Expenses

and Losses Total

Classified

as

Operating

Cost

Classified

as

Operating

Expenses

Classified

as Non-

operating

Expenses

and Losses Total

Labor Cost

Salary $ 277,894 $ 167,311 $ - $ 445,205 $ 295,606 $ 207,452 $ - $ 503,058 Labor and health

insurance 20,087 10,156 - 30,243 17,422 9,258 - 26,680

Pension 21,663 13,730 - 35,393 18,632 10,701 - 29,333 Others 15,755 6,167 - 21,922 18,133 8,339 - 26,472

$ 335,399 $ 197,364 $ - $ 532,763 $ 349,793 $ 235,750 $ - $ 585,543

Depreciation $ 522,682 $ 46,803 $ 82 $ 569,567 $ 467,564 $ 42,025 $ 83 $ 509,672 Amortization 20,854 3,025 - 23,879 24,978 3,451 - 28,429

21. EARNINGS PER SHARE

EPS (NT$)

Amounts (Numerator) Shares Before After

Before After (Denominator) Income Income

Income Tax Income Tax (Thousand) Tax Tax


Basic earnings per share

Weighted-average number of outstanding

shares 885,703

Less: Reclassification of the Corporation’s

shares held by subsidiaries (13,754)

Net income to common shareholders $ 1,292,842 $ 1,152,754 871,949 $ 1.48 $ 1.32

Add: Effect of potential dilutive common

stock - bonus to employees - - 1,567

Diluted earnings per share

Income for the year attributable to common

shareholders plus effect of potential

dilutive common stock $ 1,292,842 $ 1,152,754 873,516 $ 1.48 $ 1.32


Basic earnings per share

Weighted-average number of outstanding

shares 885,703

Less: Reclassification of the Corporation’s

shares held by subsidiaries (13,754)

Net income to common shareholders $ 3,460,083 $ 2,882,823 871,949 $ 3.97 $ 3.31

Add: Effect of potential dilutive common

stock - bonus to employees - - 1,883

Diluted earnings per share

Income for the year attributable to common

shareholders plus effect of potential

dilutive common stock $ 3,460,083 $ 2,882,823 873,832 $ 3.96 $ 3.30

- 26 -

The Corporation should presume that the entire amount of the bonus to employees will be settled in shares

and the resulting potential shares should be included in the weighted average number of shares outstanding

used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is

estimated by dividing the entire amount of the bonus by the closing price of the shares at the balance sheet

date. Such dilutive effect of the potential shares should be included in the calculation of diluted EPS until

the shareholders resolve the number of shares to be distributed to employees at their meeting in the

following year.

The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for

the issuance of employee stock bonuses distributed out of earnings for the year ended December 31, 2011

and stock dividends. This adjustment caused the basic and diluted after income tax EPS for the year ended

December 31, 2011 to decrease from $3.64 to $3.31 and from $3.63 to $3.30, respectively.

22. FINANCIAL INSTRUMENTS

a. Fair values of financial instruments

2012 2011

Non-derivative Financial

Instruments

Carrying

Value Fair Value Carrying

Value Fair Value

Asset

Financial assets at fair value

through profit or loss - current

$ 44,781 $ 44,781 $ 153,081 $ 153,081


- current

108,163 108,163 208,642 208,642


- noncurrent

2,343,551 2,343,551 2,393,303 2,393,303

b. The methods and assumptions applied in determining fair values of financial instruments were as

follows:

1) Financial assets at fair value through profit or loss and available-for-sale financial assets are based

on quoted prices in an active market at the balance sheet date.

2) The above financial instruments do not include cash and cash equivalents, notes and accounts

receivable, other financial assets - current, pledged time deposits, refundable deposits, short-term

loans, short-term bills payable, notes and accounts payable and guarantee deposits. The carrying

amounts of these financial instruments approximate their fair values because of their short

maturities.

c. The fair values of financial assets and liabilities were not simultaneously determined by quoted prices in

active markets and by estimations using valuation technique.

d. As of December 31, 2012 and 2011, financial assets exposed to fair value interest rate risk amounted to

$789,212 thousand and $987,718 thousand, respectively; financial liabilities exposed to fair value

interest rate risk amounted to $2,945,399 thousand and $2,170,631 thousand, respectively; financial

assets exposed to cash flow interest rate risk amounted to $64,321 and $437,775 thousand, respectively;

and financial liabilities exposed to cash flow interest rate risk amounted to $435,600 thousand and


- 27 -

e. As of December 31, 2012 and 2011, the interest income associated with financial assets and liabilities

other than those at fair value through profit or loss amounted $32,604 thousand and $25,789 thousand,

respectively, and the interest expense associated with financial assets and liabilities other than those at

fair value through profit or loss amounted $48,731 thousand and $28,491 thousand, respectively.

f. Financial risks:

1) Market risk

The financial assets held for trading and available-for-sale financial assets held by the Corporation

and subsidiaries are exposed to market risk due to changes in market prices.

2) Credit risk

Credit risk represents the potential impact to financial assets that the Corporation and subsidiaries

might encounter if counter-parties or third parties breach the contracts. Factors that affect credit

risk include credit concentration, components of financial instruments, contract amount and other

receivables. The Corporation and subsidiaries evaluated credit risk exposure as of December 31,

2012 and 2011 as both low because all counter-parties were reputable financial institutions with

good credit ratings and no derivative transactions occurred.

3) Liquidity risk

The operating funds are deemed sufficient to meet the cash flow demand, therefore, liquidity risk is

not considered to be significant.

The Corporation and subsidiaries’ investments in financial assets carried at cost have no active

markets; therefore, the liquidity risk is expected. The investments in held for trading and available

for sale assets are traded in active markets and can be disposed of quickly at the price close to their

fair values; therefore, significant liquidity risk is not expected.

4) Cash flow interest rate risk

The subsidiary’s long-term bank loans are floating-rate loans. The fluctuations of the market

interest rates have insignificant effects on the Corporation and subsidiaries.

23. RELATED-PARTY TRANSACTIONS

The significant transactions with related parties, except those stated separately in the consolidated financial

statements and in other notes, were summarized as follows:

a. Related parties and their relationships with the Corporation and subsidiaries

Relationship with

Related Party the Corporation and Subsidiaries

Far Eastern New Century Corp. (FENC) Same chairman

Oriental Petrochemical (Taiwan) Co., Ltd. (OPTC) The Corporation is one of its directors

Far Eastern International Bank (FEIB) The Corporation is one of its directors

Fu-Ming Transport Corp. (FMTC) The Chairman of FMTC is a director of the

Corporation.

Deutsche Far Eastern Asset Management Co., Ltd.

(DFEAMC)

The Chairman of DFEAMC is a director of

the Corporation

Asia Cement Corporation (ACC) A director of the Corporation.

(Continued)

- 28 -

Relationship with

Related Party the Corporation and Subsidiaries

OPSC Equity-method investee of PPL

Air Liquide Far Eastern (ALFE) Related party in substance

Far Eastern (Holding) Ltd. (PETH) Related party in substance

Far Eastern Industries (Wuxi) Ltd. (FEIW) Related party in substance

(Concluded)

b. Significant transactions with related parties were summarized as follows:

The prices and payment terms of these transactions were similar to those for third parties:

December 31 2012 2011

% of % of

Amount Total Amount Total

Cash in bank - FEIB $ 174,009 21 $ 36,271 2 Accounts receivable

FENC $ 6,173 1 $ 89,836 10 Others 5,629 - 15,520 2

$ 11,802 1 $ 105,356 12 Other financial assets - current

OPSC $ 598,224 100 $ 623,665 100

Other financial assets are short-term financing. There is no interest charge for OPSC.

December 31

2012 2011

% of % of


Miscellaneous assets

FEIB $ 56,389 15 $ 53,161 14 Accounts payable

FENC $ 76,008 11 $ - - ALFE 5,230 1 - -

$ 81,238 12 $ - - Accrued shipping expenses

FMTC $ 13,107 9 $ 14,725 7 Accrued expenses

PETH $ 9,373 6 $ 7,475 4

- 29 -


2012 2011

% of % of


Sales

FENC $ 1,068,242 8 $ 1,387,854 9

Others 102,960 1 123,097 1

$ 1,171,202 9 $ 1,510,951 10

Purchases FENC $ 76,008 1 $ - -

ALFE 60,620 - 63,247 1

$ 136,628 1 $ 63,247 1

Operating expenses

Salaries

PETH $ 20,546 3 $ 18,538 3

Interest income

FEIB $ 878 3 $ 1,151 4

FEIW - - 2,477 10

$ 878 3 $ 3,628 14

Security transaction

In 2012, the Corporation sold out its fund of DFEAMC for $126,919 thousand. The gain on disposal

of the funds was $26,919 thousand.

Guarantees

As of December 31, 2012 and 2011, guarantees provided to related parties were as follows:

December 31

2012 2011

OUCC (Bermuda) $ 4,007,520 $ 2,997,225

PPL 2,845,920 1,665,125

TFIC 871,200 450,000

OPYC 600,000 -

$ 8,324,640 $ 5,112,350

c. Compensation of directors, supervisors and management personnel.


2012 2011

Salaries $ 30,910 $ 29,031

Bonus 1,647 4,022

$ 32,557 $ 33,053

- 30 -

24. MORTGAGED OR PLEDGED ASSETS

The following assets had been pledged or mortgaged as collaterals for credit line of deposit overdraft, as

refundable deposits with the Harbor Bureau or Customs Bureau and as guarantee for sales.

December 31

2012 2011

Available for sale financial assets - noncurrent $ 87,361 $ 78,001

Certificates of deposits (classified as miscellaneous assets) 56,849 53,618

$ 144,210 $ 131,619

25. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

The significant commitments and contingencies as of December 31, 2012 were as follows:

a. Unused letters of credit and purchase guarantees from banking institution were $70,742 thousand and


b. The Corporation has a long-term ethylene purchase agreement with Chinese Petroleum Corporation,

Taiwan under which the Corporation is committed to purchase ethylene until December 31, 2012. The

purchase price under the agreement is in U.S. dollars.

c. The Corporation has a three-year agreement beginning from 2004, to sell ethylene glycols to major

customers, namely, FENC, Tainan Spinning Co., Ltd., and Shinkong Synthetic Fibers Corporation.

The agreement is automatically renewed for successive periods of three years unless otherwise

terminated by either party with prior notice. The determined price under the agreement is in U.S.

dollars.

d. In January 2000, the Corporation has signed a sixteen-year Ethylene Carbonate designated

production/sales agreement with Chimei Asahi Corp. (CAC), which was merged into Chi Mei

Corporation (CMC) since April 1, 2009, with total quantity up to 40,000 tons. Also, the Corporation

agrees to purchase from CAC qualified by-product of ethylene glycols that is produced during the

manufacturing process. The committed volume is 28,000 tons and the purchase price is determined by

agreed bases. The supplemental agreement has been signed on February 13, 2007, and both sides

agreed to increase the volume after expanding ethylene carbonate plants. Part of products will be sold

to CAC. Since 2011, both sides agreed that the Corporation could sell part of output to specific

purpose market.

26. ADDITIONAL DISCLOSURES

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

and investees:

a. Financings provided: Table 1 (attached).

b. Endorsements/guarantees provided: Table 2 (attached).

c. Marketable securities held: Table 3 (attached).

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

the paid-in capital: Table 4 (attached).

- 31 -

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

None.

f. Disposal of individual real estate at price of at least NT$100 million or 20% of the paid-in capital:

None.

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

Table 5 (attached).

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

None.

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

influence: Table 6 (attached).

j. Derivative financial transactions: None.

k. Investment in Mainland China:

1) Investee corporation name, the description of the primary business activity and products, issued

capital, nature of the relationship, capital inflow or outflow, ownership interest, gain or loss on

investment, amounts received on investment, and the limitation on investment: Table 7 (attached).

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

unrealized gain or loss: None.

l. Business relationships and significant intercompany transactions: Table 8 (attached).

27. OPERATING SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and

assessment of segment performance focuses on types of goods or services delivered or provided. The

Corporation and subsidiaries’ reportable segments under SFAS No. 41 - “Operating Segments” therefore

included departments are as follows:

Ethylene glycols business

Special chemicals business

Gas business

Investment

a. Segment revenues and results

Segment Revenue Segment Profit

Year Ended December 31 Year Ended December 31

2012 2011 2012 2011

Ethylene glycols business $ 8,969,243 $ 9,392,685 $ 1,284,394 $ 2,383,225

Special chemicals business 3,645,049 4,811,754 (86,451) 121,188

Gas business 796,545 786,680 197,539 188,511

Investment 13,864 (56,898) (29,223) (105,406)

Total operating segments $ 13,424,701 $ 14,934,221 $ 1,366,259 $ 2,587,518

(Continued)

- 32 -

Segment Revenue Segment Profit


2012 2011 2012 2011

Investment (loss) income

recognized by the equity

method, net

$ (293,575) $ 786,282

Gain on disposal of investment,

net

77,917 -

Dividend income 67,776 63,545

Interest expense (48,731) (28,491)

Interest income 32,604 25,789

Rental revenue 28,218 31,417

Foreign exchange gain, net 21,481 91,832

Non-operating properties

expenditure

(16,669) (16,881)

Impairment loss - (39,026)

Others 75,869 12,326

Income before income tax $ 1,311,149 $ 3,514,311

(Concluded)

Segment revenue reported above represents revenue generated from external customers. There were

no inter-segment sales during the years ended December 31, 2012 and 2011.

Segment profit represents the profit earned by each segment without investment income or loss

recognized by the equity method, gain or loss on disposal of investments, dividend income, interest

expense, interest income, rental revenue, foreign exchange gain or loss, non-operating properties

expenditure, and impairment loss. This is the measure reported to the chief operating decision maker

for the purposes of resource allocation and assessment of segment performance.

b. Segment assets and liabilities

December 31

2012 2011

Segment assets

Ethylene glycols business $ 2,076,304 $ 1,847,713

Special chemicals business 3,905,626 2,947,825

Gas business 439,061 404,462

Investment 1,777,620 2,189,525

Others 12,959,685 14,277,301

Total segment assets $ 21,158,296 $ 21,666,826

Segment liabilities

Ethylene glycols business $ 633,760 $ 613,784

Special chemicals business 1,244,951 275,302

Gas business 61,865 46,650

Investment 1,777,620 2,877,118

Others 1,713,445 1,541,329

Total segment liabilities $ 5,431,641 $ 5,354,183

- 33 -

c. Other segment information

Depreciation and Amortization

Additions to

Noncurrent Assets


2012 2011 2012 2011

Ethylene glycols business $ 132,846 $ 125,958 $ 388,086 $ 179,407

Special chemicals business 350,259 306,012 474,029 1,169,277

Gas business 68,252 62,160 83,056 85,465

Others 42,089 43,971 73,714 1,283,413

$ 593,446 $ 538,101 $ 1,018,885 $ 2,717,562

d. Revenue from major products and services

The following is an analysis of the Corporation and subsidiaries’ revenue from its major products and

services:


2012 2011

Ethylene glycols business $ 8,969,243 $ 9,392,685

Special chemicals business 3,645,049 4,811,754

Gas business 796,545 786,680

Investment 13,864 (56,898) $ 13,424,701 $ 14,934,221

e. Geographical information

Geographical operating revenue of the Corporation and subsidiaries were as follows:


2012 2011

% to % to


Asia $ 13,279,430 99 $ 14,528,562 98

Africa 75,265 1 65,491 -

Europe 53,208 - 299,409 2

Oceania 14,930 - 37,159 -

America 1,868 - 3,600 -

$ 13,424,701 100 $ 14,934,221 100

f. Major customers


2012 2011

% to % to


Tainan Spinning, Ltd. $ 1,745,814 13 $ 1,631,101 11

Shinkong Synthetic Fibers Corporation 1,554,357 12 1,334,341 9

CMC 1,204,387 9 1,440,808 10

- 34 -

28. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND

LIABILITIES

The significant foreign-currency financial assets and liabilities were as follows:

(In Thousands of New Taiwan Dollars and Foreign Currencies)

December 31

2012 2011

Foreign New Taiwan Foreign New Taiwan

Currencies Exchange Dollars Currencies Exchange Dollars

(Thousands) Rate (Thousands) (Thousands) Rate (Thousands)

Financial assets

Monetary item

USD $ 29,571 29.04 $ 858,742 $ 32,550 30.28 $ 985,451

RMB 152,149 4.62 702,928 175,119 4.81 841,797

Investment accounted

for by the equity

method

USD 135,986 29.04 3,949,039 137,997 30.28 4,178,554

Financial liabilities

Monetary item

USD 81,255 29.04 2,359,645 85,873 30.28 2,600,234

EUR 12 38.49 462 3,191 39.18 125,023

RMB 9,957 4.62 46,001 - - -

29. PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING

STANDARDS

Under Rule No. 0990004943 issued by the FSC on February 2, 2010, the Corporation and subsidiaries

made pre-disclosure of their adoption of International Financial Reporting Standards (IFRSs) as follows:

a. On May 14, 2009, the FSC announced the “Framework for Adoption of IFRSs by Companies in the

ROC.” In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange

or traded on the Taiwan GreTai Securities Market or Emerging Stock Market should prepare their

consolidated financial statements in accordance with the Guidelines Governing the Preparation of

Financial Reports by Securities Issuers, IFRSs, International Accounting Standards, Interpretations and

Announcement of interpretations. To comply with this framework, the Corporation and subsidiaries

have set up a project team and made a plan to adopt the IFRSs. Leading the implementation of this

plan is the general manager. The main contents of the plan, anticipated schedule and status of

execution as of December 31, 2012 were as follows:

Contents of Plan

Responsible

Department

Status of

Execution

1) Establish the IFRSs taskforce Accounting Completed

2) Set up a work plan for IFRSs adoption Accounting Completed

(Continued)

- 35 -

Contents of Plan

Responsible

Department

Status of

Execution

3) Identify and analyze the differences between the existing

accounting policies and the accounting policies to be adopted

under IFRSs

Accounting Completed

4) Complete the identification of consolidated entities under

IFRSs


5) Assess exemptions that the Corporation and subsidiaries may

elect and the related impact under IFRS 1 - First-time

Adoption of IFRSs


6) Complete the adjustments that should be done to the

information technology systems.

MIS Completed

7) Complete the adjustments that should be done to the internal

controls.

Accounting/internal

audit

Completed

8) Determine IFRSs accounting policies Accounting Completed

9) Decide the exemptions under IFRS 1 to be elected by the

Corporation and subsidiaries


10) Complete the preparation of opening date balance sheet under

IFRSs


11) Complete comparative financial information based on IFRSs

for the year ended December 31, 2012


12) Complete adjustments to related internal control, including

financial reporting process

Accounting/internal

audit

Completed

(Concluded)

b. The Corporation and subsidiaries had determined the the material differences between the existing

accounting policies and the accounting policies to be adopted under IFRSs as follows:

1) Reconciliation of the balance sheet as of January 1, 2012

ROC GAAP Reconciliations IFRSs Notes

Assets

Other current assets $ 390,127 $ 15,807 $ 405,934 g), j)

Construction in progress and advance

payments

418,064 (11,264) 406,800 j)

Land use right 213,544 (213,544) - g)

Non-operating properties, net 1,190,243 (1,190,243) - f)

Investment properties - 1,992,233 1,992,233 f)

Deferred income tax assets - 22,614 22,614 c)

Miscellaneous assets 371,920 195,873 567,793 c), g)

(Continued)

- 36 -


Liabilities

Accrued expenses $ 211,067 $ 23,177 $ 234,244 b), c)

Reserve for land revaluation increment tax 341,231 (341,231) - e)

Accrued pension cost 74,993 58,030 133,023 c)

Deferred income tax liabilities 368,961 391,150 760,111 d), e)

Equities

Capital surplus 1,319,631 (39,745) 1,279,886 d)

Special reserve - 1,911,129 1,911,129

Unappropriated earnings 3,870,476 (97,289) 3,773,187

Cumulative translation adjustments 166,757 (166,757) -

Net loss not recognized as pension cost (58,557) 58,557 - c)

Unrealized gain on financial instruments 151,045 97,442 248,487 i)

Unrealized revaluation increment 985,545 (985,545) -

Treasury stock (90,356) (97,442) (187,798) i)

(Concluded)

2) Reconciliation of the balance sheet as of December 31, 2012


Assets

Other current assets $ 612,151 $ 8,059 $ 620,210 g), j)

Construction in progress and advance

payments

378,877 (3,690) 375,187 j)

Land use right 200,966 (200,966) - g)

Non-operating properties, net 1,190,161 (1,190,161) - f)

Investment properties - 1,992,151 1,992,151 f)

Deferred income tax assets - 26,929 26,929 c)

Miscellaneous assets 374,857 187,904 562,761 c), g)

Liabilities

Accrued expenses 153,538 21,193 174,731 b), c)

Reserve for land revaluation increment tax 341,231 (341,231) - e)

Accrued pension cost 86,705 70,978 157,683 c)

Deferred income tax liabilities 202,810 391,151 593,961 d), e)

Equities

Capital surplus 1,344,647 (39,754) 1,304,893 d)

Special reserve - 1,911,129 1,911,129

Unappropriated earnings 2,319,394 (123,117) 2,196,277

Cumulative translation adjustments (51,096) (152,187) (203,283) h)

Net loss not recognized as pension cost (67,609) 67,609 - c)

Unrealized gain on financial instruments 224,561 97,442 322,003 i)

Unrealized revaluation increment 985,545 (985,545) -

Treasury stock (90,356) (97,442) (187,798) i)

- 37 -

3) Reconciliation of the consolidated statement of comprehensive income for the year ended

December 31, 2012


Operating expenses $ 626,598 $ (9,080) $ 617,518 b), c)

Foreign exchange gain, net 21,481 (14,570) 6,911 h)

Income tax expense 158,395 123 158,518 c)

Other comprehensive income

Foreign currency translation reserve (217,853) 14,570 (203,283) k)

Actuarial losses on employee benefits - (24,660) (24,660) k)

Income tax (expense) benefit relating to

components of other comprehensive

income

- 4,192 4,192 k)

4) Recognition of special reserve on transition date

According to the Rule 1010012865 issued by the FSC on April 6, 2012, when an entity adopt IFRSs

for the first time, it should recognize special reserve in amount the same as the amount of unrealized

revaluation increment and cumulative translation adjustments reclassified to retained earnings to

reduce the amount to zero. However, if the amount of retained earnings brought by the first-time

adoption of IFRSs is insufficient or lesser, the special reserve should be recognized only in amount

equal to the retained earnings brought by the adoption of IFRSs. On subsequent usage, disposal or

reclassification of related assets, special reserve shall be reversed proportionally. As a result, the

Corporation and subsidiaries’ unrealized revaluation increment, cumulative translation adjustments,

and investment properties were recognized as deemed costs in the amount of $1,911,129 thousand

were transferred to retained earnings. The Corporation and subsidiaries recognized special reserve

at the same amount.

5) Exemptions from IFRS 1

IFRS 1 “First-time Adoption of International Financial Reporting Standards” established the

procedures for preparing an entity’s first consolidated financial statements in accordance with

IFRSs. According to IFRS 1, the Corporation and subsidiaries are required to determine the

accounting policies under IFRSs and retrospectively apply those accounting policies in its opening

balance sheet at the date of transition to IFRSs (January 1, 2012; the transition date), except the

optional exemptions and mandatory exceptions to such retrospective application provided under

IFRS 1. The main optional exemptions the Corporation and subsidiaries adopted are summarized

as follows:

a) Deemed cost

The Corporation and subsidiaries selected to use revaluation value of some land under ROC

GAAP as its deemed cost at the date of transition to IFRSs. As a result, the unrealized

revaluation increments were adjusted for a decrease of $985,545 thousand and retained earnings

were adjusted for an increase of $985,545 thousand. Since some investment properties

satisfied the requirements and proved to be sufficiently evidenced as being continuously rented

and able to generate medium-term to long-term cash inflow, the Corporation and subsidiaries

selected to use fair value as its deemed cost of some investment properties. Therefore, the cost

of investment properties was adjusted for an increase of $801,990 thousand, the deferred

income tax liabilities were adjusted for an increase of $14,814 thousand, and the retained

earnings were adjusted for an increase of $787,176 thousand. The rest of properties,

investment properties and intangible assets were valued under cost mode of IFRSs and the

relevant provisions were retrospectively applied.

- 38 -

b) Employee benefits

The Corporation and subsidiaries selected to recognize all cumulative actuarial gains and losses

in retained earnings as of January 1, 2011.

c) Cumulative translation differences

The Corporation and subsidiaries elected to reset the cumulative translation differences to zero

at the date of transition to IFRSs, and the reversal has been used to increase accumulated

earnings as of January 1, 2011. As a result, the cumulative translation adjustments were

adjusted for a decrease of $166,757 thousand, the deferred income tax liabilities were adjusted

for an increase of $28,349 thousand, and the retained earnings were adjusted for an increase of

$138,408 thousand.

6) Notes on the reconciliation of the significant differences:

As of December 31, 2012, based on the Corporation and subsidiaries’ assessments, the significant

differences between current accounting policies applied and IFRSs to be applied in the future in

preparing consolidated financial statements are stated as follows:

a) Classification of deferred income tax asset/liability and valuation allowance

Under ROC GAAP, allowance for deferred income tax assets is recognized through the

assessment of possibility of realization. After transferring to IFRSs, there is no allowance

account. Deferred income tax assets are recognized only when they are more likely than not to

be realized.

Under ROC GAAP, deferred income tax assets and liabilities are classified as current or

noncurrent according to the classification of the related assets or liabilities; those not related to

assets or liabilities should be classified as current or noncurrent on the basis of the expected

reversal date of the temporary difference. After transferring to IFRSs, all deferred income tax

assets and liabilities are classified as noncurrent.

Under ROC GAAP, one taxable entity’s current deferred liabilities and assets should be offset

and presented on a net basis, the same for noncurrent deferred liabilities and assets. After

transferring to IFRSs, an entity shall offset deferred tax assets and deferred tax liabilities if, and

only if: (a) the entity has a legally enforceable right to set off current tax assets against current

tax liabilities; and (b) the deferred tax assets and the deferred tax liabilities relate to income

taxes levied by the same taxation authority on either: (i) the same taxable entity; or (ii) different

taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to

realize the assets and settle the liabilities simultaneously, in each future period in which

significant amounts of deferred tax liabilities or assets are expected to be settled or recovered.

b) Employee benefits - accrued vacation

Under ROC GAAP, there is no such rule. Usually, the salary related to vacation is recognized

when paid. After transferring to IFRSs, accumulative paid-vacation should be recognized

when service is rendered and right of future paid-vacation accumulates. On the other hand,

non-accumulative paid-vacation should be recognized when it is taken.

Due to the accumulative paid-vacation, as of December 31, 2012 and January 1, 2012, the

accrued expense was adjusted for an increase of $20,471 thousand and $19,869 thousand,

respectively, and the retained earnings were adjusted for a decrease of $20,471 thousand and

$19,869 thousand, respectively. For the year ended 2012, salary expense was adjusted for an

increase of $602 thousand.

- 39 -

c) Employee benefits - actuarial gains and losses on defined benefit pension plan

Under ROC GAAP, the unrecognized net benefit obligation that resulted from the adoption of

SFAS No. 18 should be amortized on a straight-line basis over the average remaining

employees’ service period and included in pension cost. After transferring to IFRSs, this is not

applicable under IAS No. 19 “Employee Benefits”, and therefore, the unrecognized transition

net benefit obligation should be written off into retained earnings directly.

Under ROC GAAP, companies recognize actuarial gain/loss through corridor approach or other

fast recognition method. The amortization should be recognized as gain/loss. After

transferring to IFRSs, companies are allowed to recognize actuarial gain/loss as other

comprehensive income/loss or current gain/loss. The Corporation and subsidiaries choose to

recognize actuarial gain/loss as other comprehensive income/loss, and shall not be reclassified

to profit or loss in a subsequent period.

As of December 31, 2012 and January 1, 2012, the Corporation and subsidiaries performed the

actuarial valuation under IAS No. 19 - “Employee Benefits” and adjusted related accounts under

IFRS 1 “First-time Adoption of International Financial Reporting Standards.” As a result,

deferred pension cost was adjusted for a decrease of $8,693 thousand and $13,128 thousand,

respectively, accrued expense was adjusted for an increase of $722 thousand and $3,308

thousand, respectively, accrued pension cost was adjusted for an increase of $70,978 thousand

and $58,030 thousand, respectively, deferred income tax assets were adjusted for an increase of

$26,929 thousand and $22,614 thousand, respectively, net loss not recognized as pension cost

was adjusted for a decrease of $67,609 thousand and $58,557 thousand, respectively, and

retained earnings were adjusted for a decrease of $121,073 thousand and $110,409 thousand,

respectively. Pension cost and income tax expense for the year ended December 31, 2012

were also adjusted for a decrease of $9,682 thousand and an increase of $123 thousand,

respectively.

d) Adjustments of the parent company (investor) when it did not acquire newly issued shares from

subsidiaries (affiliated companies) proportionally and APIC - investment.

Under ROC GAAP, when the Corporation and subsidiaries subscribe for its investee’s newly

issued shares at a percentage different from its percentage of ownership in the investee, the

Corporation and subsidiaries record 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.

After transferring to IFRSs, a transaction that results in a change in ownership interest in

affiliated companies, but no loss of significant influence, is deemed acquisition or disposal of

shares; a transaction that results in a change in ownership interest in subsidiaries, but no loss of

control, is deemed equity transaction. Furthermore, according to “Q&A on IFRSs adoption”

published by the Taiwan Stock Exchange, APIC which does not conform with IFRSs, Company

Law and related Rule issued by the Ministry of Economic Affairs should be adjusted on

transition date.

According to “Q&A on IFRSs adoption” published by the Taiwan Stock Exchange, the

Corporation and subsidiaries did not adjust retrospectively but reclassified APIC - investments

to retained earnings. As of December 31, 2012 and January 1, 2012, APIC - investments were

adjusted for a decrease of $39,754 thousand and $39,745 thousand, respectively, deferred

income tax liabilities were adjusted for an increase of $6,757 thousand and $6,756 thousand,

respectively, and retained earnings were adjusted for an increase of $32,997 thousand and


- 40 -

e) Reserve for land revaluation increment tax

According to current Guidelines Governing the Preparation of Financial Reports by Securities

Issuers, the reserve for land value increment tax from land revaluation increment should be

recognized as long-term liabilities. After transferring to IFRSs, corporations selecting to use

value after land revaluation as deemed cost during first adoption of IFRSs should reclassify

relevant reserve for land value increment tax as deferred income tax - land value increment tax.

As of December 31, 2012 and January 1, 2012, the reserve for land value increment tax was

both adjusted for a decrease of $341,231 thousand, and the deferred income tax was both

adjusted for an increase of $341,231 thousand.

f) Investment properties

Under ROC GAAP, properties for rental purpose are classified as other assets. Under IFRSs,

property held for earning rental revenue or value appreciation or both, are classified as

investment properties. Therefore, the aforementioned other assets were reclassified to

investment properties.

g) Land use right

Under ROC GAAP, land use right is classified as intangible asset. After transferring to IFRSs,

land use right is under the scope of IAS No. 17 - “Lease,” and should be treated as prepaid lease

payment. Prepaid lease payment is classified as current or noncurrent according to the time

when the prepaid lease payment is recognized as expense. At December 31, 2012 and January

1, 2012, land use rights in the amounts of $4,369 thousand and $4,535 thousand were

reclassified to other current assets, respectively; and land use rights of $196,597 thousand and

$209,901 thousand were reclassified to other assets, respectively.

h) Foreign operation functional currency

Under ROC GAAP, functional currency is determined comprehensively by various indicators.

After transferring to IFRSs, IAS No. 21 - “The effects of changes in foreign exchange rates”

requires to consider priority key indicators first and then secondary indicators. As a result, the

Corporation’s cumulative translation differences were adjusted for an increase of $14,570

thousand. In addition, Under IFRS No. 1 - “First-time Adoption of International Financial

Reporting Standards,” the Corporation and subsidiaries adjusted the translation differences from

$166,757 thousand to zero at the date of transition to IFRSs. The cumulative translation

differences were adjusted for a decrease of $152,187 thousand. According to the

aforementioned adjustments, net foreign exchange gain and foreign currency translation reserve

under other comprehensive income were adjusted for a decrease of $14,570 thousand and an

increase of $14,570 thousand, respectively.

i) Treasury stocks transaction

Under ROC GAAP, specifically SFAS No. 30 - “Accounting for Treasury Stocks,” the

Corporation and subsidiaries recognize the value of their stock at the time of adoption of SFAS

No. 30 as the book value of treasury shares held by subsidiaries; in this way, the recognized

amount may not equal to the original investment cost paid by subsidiaries. However, under

IFRSs, the Corporation should adjust the amount of treasury shares to the subsidiaries’ original

investment cost and record it as a deduction in stockholders’ equity.

j) Prepayments for equipment

Under ROC GAAP, prepayments for equipment are recognized under properties and equipment.

Under IFRSs, prepayments for equipment should be recognized as prepayments and classified

as current or noncurrent according to expected realization period of the assets.

- 41 -

k) Reclassification of line items in the consolidated statement of comprehensive income

After transferring to IFRSs, the Corporation and subsidiaries recognized accrued employee

vacation expense of $602 thousand. The Corporation and subsidiaries recalculated the defined

benefit pension plan on the basis of the requirements of IAS No. 19 - “Employee Benefits.”

Pension cost was adjusted for a decrease of $9,682 thousand. Income tax expense was

adjusted for an increase of $123 thousand. The foreign operation functional currency was

redetermined and therefore the foreign exchange gain - net was adjusted for a decrease of

$14,570 thousand, foreign currency translation reserve, actuarial losses on employee benefits,

and income tax benefit relating to components of other comprehensive income were adjusted for

an increase of $14,570 thousand, $24,660 thousand, and $4,192 thousand, respectively.

c. The Corporation’s aforementioned assessment is based on the 2010 version of IFRSs translated by

ARDF and the Guidelines Governing the Preparation of Financial Reports by Securities Issuers issued

by the FSC on December 22, 2011. However, the assessment result may be impacted as the FSC may

issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to

comply with the adoption of IFRSs. Actual results may differ from these assessments.

30. THE AFFILIATED CORPORATION RELATED INFORMATION: NONE

- 42 -

TABLE 1

ORIENTAL UNION CHEMICAL CORPORATION AND INVESTEES

FINANCINGS PROVIDED

YEAR ENDED DECEMBER 31, 2012


Financing Corporation

Name Borrower

Financial Statement

Account

Maximum

Balance for

the Period

Ending

Balance Balance Used Interest Rate

Financing

Provided

Transaction

Amounts

Reasons for

Short-term

Financing

Allowance

for Bad Debt

Collateral Financing Limit

for Each

Borrowing

Corporation

Financing

Corporation’s

Financing Amount

Limits

Item Value

PPL OPSC Accounts receivable -

related parties

$ 613,595 $ 598,224 $ 598,224 - Necessary for

short-term

financing

$ - Operating

capital

$ - - - 15% of net worth of

the Corporation

$2,358,998

40% of net worth of

the Corporation

$6,290,662

OUCC (Bermuda) OPYC Accounts receivable -

related parties

1,766,411 1,274,856 1,274,856 - Necessary for

short-term

financing

- Operating

capital

- - - 15% of net worth of

the Corporation

$2,358,998

40% of net worth of

the Corporation

$6,290,662

- 43 -

TABLE 2


ENDORSEMENTS/GUARANTEES PROVIDED



Endorsement/

Guarantee Provider

Guaranteed Party

Limits on Each

Guaranteed Party’s

Endorsement/

Guarantee Amounts

Maximum

Balance for the

Period

Ending Balance Ending Used Value of

Collateral

Ratio of

Accumulated

Amount of Collateral

to Net Equity Shown

in the Latest

Financial Statements

Maximum Collateral/

Guarantee Amounts

Allowable Name Nature of Relationship

The Corporation TFIC Subsidiary 50% of net worth of the

Corporation

$7,863,328

$ 650,000 $ 600,000 $ 27,100 $ - 3.82% 100% of net worth of the

Corporation

$15,726,655

PPL Subsidiary 50% of net worth of the

Corporation

$7,863,328

3,368,925 2,845,920 284,592 - 18.10% 100% of net worth of the

Corporation

$15,726,655

OUCC (Bermuda) Subsidiary 50% of net worth of the

Corporation

$7,863,328

4,618,460 4,007,520 1,890,504 - 25.48% 100% of net worth of the

Corporation

$15,726,655

OPYC Subsidiary 50% of net worth of the

Corporation

$7,863,328

871,200 871,200 662,112 - 5.54% 100% of net worth of the

Corporation

$15,726,655

- 44 -

TABLE 3


MARKETABLE SECURITIES HELD

DECEMBER 31, 2012


Holding Corporation Name Marketable Securities Type and Issuer Relationship with the

Holding Corporation Financial Statement Account

December 31, 2012

Note Shares/Units

(Thousands) Carrying Value

Percentage of

Ownership

Market Value or

Net Asset Value

The Corporation Deutsche Far Eastern DWS Asia High Yield

Income Fund

The Chairman is a director

of the Corporation


- current

5,000 $ 55,565 - $ 55,565 Note 1

HSBC Global Themes Fund of Funds - Same as above 5,755 52,598 - 52,598 Note 1 Far Eastern International Commercial Bank The Corporation is one of

its director


- noncurrent

45,913 534,886 2 534,886 Note 2

Far Eastern Department Stores Ltd. Same chairman Same as above 13,686 412,625 1 412,625 Note 2 Far Eastern New Century Corp. Same chairman Same as above 6,491 214,857 - 214,857 Note 2 Asia Cement Corp. A director of the

Corporation

Same as above 15,282 570,793 - 570,793 Note 2

Everest Textile Co., Ltd. The Chairman of Everest

Textile Corp. is a director

of the Corporation

Same as above 36,213 263,630 8 263,630 Notes 2 and 5

Oriental Petrochemical (Taiwan) Co., Ltd. The Corporation is one of

its director

Financial assets carried at cost -

noncurrent

137,964 984,660 18 1,088,492 Note 3

Grand Cathay Venture Capital Co., Ltd. - Same as above 26,667 240,059 17 246,529 Note 3 Eminent Venture Capital Corporation - Same as above 10,000 86,152 10 128,170 Note 3 Eminent II Venture Capital Corporation - Same as above 3,000 30,000 6 29,701 Note 3 Concord IV Venture Capital Corp. - Same as above 1,029 7,742 3 5,764 Note 3 Capital Venture Fund II Corp. - Same as above 1,500 3,898 5 8,557 Note 3 Tai An Technologies Corp. - Same as above 222 694 5 2,724 Note 3 CDIB Biotechnology USA Fund - Same as above 600 - 10 2,877 Note 3

Pacific Petrochemical (Holding) Ltd. Subsidiary Investments accounted for using

equity method

87 4,413,912 100 4,580,841 Note 4

Ton Fu Investment Corp. Subsidiary Same as above 114,299 805,493 100 1,284,117 Note 4 OUCC (Bermuda) Holding Ltd. Subsidiary Same as above 15 583,990 100 583,990 Note 4 Oriental Resource Development Ltd. Equity-method investee Same as above 14,675 149,773 30 149,773 Note 4 Kuokuang Petrochemical Technology

Corporation, Ltd.

Equity-method investee Same as above 10,946 9,260 20 9,260 Note 4

Ton Fu Investment Corp. Visual Photonics Epitaxy Co., Ltd. - Financial assets at fair value

through profit or loss

90 3,204 - 3,204 Note 2

Toiflex Scientific Co., Ltd. - Same as above 90 3,285 - 3,285 Note 2 Taiwan Cooperative Bank - Same as above 702 11,473 - 11,473 Note 2

(Continued)

- 45 -

Holding Corporation Name Marketable Securities Type and Issuer Relationship with the

Holding Corporation Financial Statement Account

December 31, 2012

Note Shares/Units

(Thousands) Carrying Value

Percentage of

Ownership

Market Value or

Net Asset Value

Ton Fu Investment Corp. PTI Technology Inc. - Financial assets at fair value

through profit or loss

198 $ 9,296 - $ 9,296 Note 2

Hu Lane Associate Inc. - Same as above 200 9,438 - 9,438 Note 2 E Ink Holdings Inc. - Same as above 365 8,085 - 8,085 Note 2 The Corporation Treasury stock Available-for-sale financial assets

- noncurrent

13,754 478,624 1 478,624 Note 2

Far Eastern International Commercial Bank The Chairman of the

Corporation is FEIC’s

supervisor

Same as above 23,122 269,368 1 269,368 Note 2

Everest Textile Co., Ltd. The chairman of Everest

Textile Corp. is the

Corporation’s parent

Corporation’s director

Same as above 10,631 77,392 2 77,392 Note 2

Yue Ding Enterprise Corp. Related party in substance

Financial assets carried at cost -

noncurrent

2,974 27,925 5 45,264 Note 3

Ding Shen Investment Co., Ltd. Related party in substance Same as above 39,600 396,000 18 404,890 Note 3 PPL OPSC Equity-method investee Investments accounted for using

equity method

Note 6 US$ 127,957 39 RMB 804,272 Note 4

FEUPY Equity-method investee Same as above Note 6 US$ 13,778 50 RMB 86,600 Note 3 OUCC (Bermuda) OPYC Subsidiary Same as Above Note 6 US$ 22,363 100 RMB 140,563 Note 4

Note 1: The net asset value of the fund as of December 31, 2012.

Note 2: The market value was calculated at closing price on December 31, 2012 provided by the Taiwan Stock Exchange.

Note 3: The net asset value was calculated based on investees’ unaudited financial statements as of December 31, 2012 or latest financial statements.

Note 4: The net asset value was calculated based on investees’ audited financial statements as of December 31, 2012.

Note 5: A total of 12,000 thousand shares of stock had been mortgaged to the financial institution.

Note 6: This is not a company limited by shares.

(Concluded)

- 46 -

TABLE 4


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



Corporation Name Marketable Securities Type and

Name Financial Statement Account Counterparty

Nature of

Relationship

Beginning Balance Acquisition Disposal Ending Balance

Shares

(Thousand) Amount

Shares

(Thousand) Amount

Shares

(Thousand) Amount

Carrying

Value

Gain (Loss)

on Disposal

Shares

(Thousand) Amount

The Corporation Deutsche Far Eastern DWS Taiwan

Thematic Fund

Available-for-sale financial

assets - current

DFEAMC The Chairman is a

director of the

Corporation

10,000 $ 113,400

(Note 1)

- $ - 10,000 $ 126,919 $ 100,000 $ 26,919 - $ -

Far Eastern New Century Corp. Available-for-sale financial

assets - noncurrent

Stock market Same chairman 9,515 334,455

(Note 2)

814 22,458 4,027 149,304 125,141 24,163 6,491

(Note 3)

214,857

(Note 4)

Note 1: The amount included the unrealized gain adjustment of $13,400 thousand.


Note 3: The shares included the distribution of stock dividends of 189 thousand shares.


- 47 -

TABLE 5


TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL



Corporation Name Related Party Nature of Relationship

Transaction Details Abnormal Transaction Note/Accounts Payable

or Receivable Note

Purchase/

Sale Amount

% to

Total Payment Terms Unit Price Payment Terms

Ending

Balance

% to

Total

The Corporation Far Eastern New Century

Corp.

Same chairman Sales $ (1,068,242) (9%) Same with unrelated parties - - $ 6,173 1%

- 48 -

TABLE 6


NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE


(In Thousands of New Taiwan Dollars or Foreign Currency)

Investor Corporation Investee Corporation Location Main Businesses and

Products

Original Investment Amount Balance as of December 31, 2012 Net Income

(Loss) of the

Investee

Investment

Gain (Loss) Note December 31,

2012

December 31,

2011

Shares

(Thousand)

Percentage of

Ownership Carrying Value

The Corporation PPL British Virgin Islands Investment US$ 90,472 US$ 76,472 87 100 $ 4,413,912 US$ (11,595) $ (342,897)

TFIC Taipei City, ROC Enterprise and financial

institution investments

$ 860,000 $ 860,000 114,299 100 805,493 $ 35,941 10,934

OUCC (Bermuda). British Bermuda Islands Investment US$ 40,000 US$ 40,000 15 100 583,990 US$ (11,669) (345,084)

ORD Taipei City, ROC Recycling and medical

apparatus manufacturing

180,603 90,000 14,675 30 149,773 5,899 1,774

Kuokuang Petrochemical Technology

Corporation Ltd.

Taipei City, ROC Petroleum and petrochemical

products

109,463 109,463 10,946 20 9,260 323 64

PPL OPSC Shanghai, China Manufacture and sale of pure

terephthalic acid

US$ 75,886 US$ 75,886 Note 39 US$ 127,957 RMB (159,060) N/A

FEUPY Yangzhou, China Manufacture and sale of

ethylene glycol, and

ethylene oxide

US$ 14,000 US$ - Note 50 US$ 13,778 RMB (3,284) N/A

OUCC (Bermuda) OPYC Yangzhou, China Manufacturing and selling

ethanolamine (EA) and

alcohol ethoxylates (AEO)

US$ 40,000 US$ 40,000 Note 100 US$ 22,363 RMB (66,799) N/A

Note: This is not a company limited by shares.

- 49 -

TABLE 7


INVESTMENT IN MAINLAND CHINA


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

Investee Corporation Main Businesses and Products Total Amount of

Paid-in Capital Investment Type

Accumulated

Outflow of

Investment from

Taiwan as of

January 1, 2012

Investment Flows Accumulated

Outflow of

Investment from

Taiwan as of

December 31, 2012

Percentage of

Ownership in

Investment

Investment

Gain (Loss)

(Note 1)

Carrying Value

as of

December 31, 2012

Accumulated

Inward Remittance

of Earnings as of

December 31, 2012 Outflow Inflow

OPSC Manufacture and sale of purified terephthalic

acid

US$ 197,310 Indirect US$ 75,886 US$ - US$ - US$ 75,886 39% $ (287,721)

(Note 2)

$ 3,715,863 $ -

OPYC Manufacturing and selling ethanolamine (EA)

and alcohol ethoxylates (AEO)

US$ 40,000 Indirect US$ 40,000 US$ - US$ - US$ 40,000 100% (312,945)

(Note 2)

649,424 -

FEUPY Manufacture and sale of ethylene glycol,

diethylene glycol, triethylene glycol and

ethylene oxide

US$ 28,000 Indirect US$ - US$ 14,000 US$ - US$ 14,000 50% (7,692)

(Note 3)

400,106 -

Accumulated Investment in Mainland China as of

December 31, 2012

Investment Amounts Authorized by

Investment Commission, MOEA Upper Limit on Investment

US$129,886 US$215,886 (Note 1)

Note 1: The Corporation obtained certificate No. 10100024160 from Industrial Development Bureau, Ministry of Economic Affairs according to the “Regulations Governing the Approval of Investment or Technical Cooperation in Mainland China”, the accumulation of fund is not limited.

Note 2: Based on financial statements audited by the international CPA firm cooperating with the ROC CPA firm.

Note 3: Based on audited financial statements.

- 50 -

TABLE 8


BUSINESS RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS



No. Corporation Name Counterparty

Transaction Details

Flow of

Transactions

(Note)

Account Amount Transaction Terms

Percentage to

Consolidated

Total

Operating

Revenues or

Total Assets

0 The Corporation PPL 1 Other current assets $ 1,085 Based on terms agreed by both parties -

PPL 1 Non-operating income 1,085 Based on terms agreed by both parties -

OUCC (Bermuda) 1 Other current assets 8,519 Based on terms agreed by both parties -

OUCC (Bermuda) 1 Non-operating income 8,519 Based on terms agreed by both parties -

TFIC 1 Other current assets 222 Based on terms agreed by both parties -

TFIC 1 Rental income 108 Based on terms agreed by both parties -

TFIC 1 Non-operating income 211 Based on terms agreed by both parties -

1 PPL The Corporation 2 Accrued expenses 1,085 Based on terms agreed by both parties -

The Corporation 2 Operating expenses 1,085 Based on terms agreed by both parties -

2 OUCC (Bermuda) The Corporation 2 Accrued expenses 8,519 Based on terms agreed by both parties -

The Corporation 2 Operating expenses 8,519 Based on terms agreed by both parties -

OPYC 3 Other financial assets - current 1,274,856 Based on terms agreed by both parties 6%

3 TFIC The Corporation 2 Accrued expenses 222 Based on terms agreed by both parties -

The Corporation 2 Operating expenses 319 Based on terms agreed by both parties -

4 OPYC OUCC (Bermuda) 3 Short-term loans 1,274,856 Based on terms agreed by both parties 6%

Note: 1. Parent to subsidiary.

2. Subsidiary to parent.

3. Between subsidiaries.

- 51 -

TABLE 9


BUSINESS RELATIONSHIPS AND SIGNIFICANT INTERCOMPANY TRANSACTIONS



No. Corporation Name Counterparty

Transaction Details

Flow of

Transactions

(Note)

Account Amount Transaction Terms

Percentage to

Consolidated

Total

Operating

Revenues or

Total Assets

0 The Corporation OUCC (Bermuda) 1 Non-operating income $ 6,194 Based on terms agreed by both parties -

PPL 1 Non-operating income 2,922 Based on terms agreed by both parties -

TFIC 1 Rental income 108 Based on terms agreed by both parties -

TFIC 1 Non-operating income 97 Based on terms agreed by both parties -

1 PPL The Corporation 2 Operating expenses 2,922 Based on terms agreed by both parties -

2 OUCC (Bermuda) The Corporation 2 Operating expenses 6,194 Based on terms agreed by both parties -

3 TFIC The Corporation 2 Operating expenses 205 Based on terms agreed by both parties -

Note: 1. From parent to subsidiary.

2. From Subsidiary to parent

3. Between subsidiaries.

oriental union chemical corporation and subsidiaries · 2013-06-04 · - 4 - oriental union...

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