non-consolidated - CHUNGHWA PICTURE TUBES, LTD.

CHUNGHWA PICTURE TUBES, LTD. 

Financial Statements 

For The Three-Month Period Ended 

March 31, 2003 And 2004 

With 

Review Report of Independent Auditors 

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a 

conflict between these financial statements and the original Chinese version or difference in interpretation between the 

two versions, the Chinese language financial statements shall prevail.

English Translation of a Report Originally Issued in Chinese 

Review Report of Independent Auditors 

To the Board of Directors and Stockholders of 

Chunghwa Picture Tubes, Ltd. 

We have reviewed the accompanying non-consolidated balance sheets of Chunghwa Picture Tubes, Ltd. (“the 

Company”) as of March 31, 2003 and 2004, and the non-consolidated related statements of operations, and cash flows 

for the three-month period ended. All these non-consolidated financial statements expressed in New Taiwan Dollars 

(“NT$” or “NTD”). These financial statements are the responsibility of the Company’s management. Our 

responsibility is to issue reports on these financial statements based on our review. 

Except as discussed in the following paragraph, we conducted our review in accordance with the statements for 

auditing standards No. 36 「Review of Financial Statements」 generally accepted in the Republic of China, which 

consist principally of applying analytical procedures to financial data and making inquiries of persons responsible for 

financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally 

accepted auditing standards in the Republic of China, the objective of which is the expression of an opinion regarding 

the financial statements taken as a whole. Accordingly, we do not express such an opinion. 

We were not unable to obtain reviewed financial statements supporting the company’s the long-term investments 

accounted for by the equity method amounted to NT$27,764,962 thousand (26.08% of total assets) and NT$27,200,163 

thousand (20.91% of total assets) as of March 31, 2003 and 2004, respectively; or its equity in investment income were 

NT$105,093 thousand (9.65% of loss before income tax) and NT$1,024,600 thousand (18.75% of income before 

income tax), respectively, which is included in net income for the three-month period ended March 31, 2003 and 2004 

as described in Notes 4 to the financial statements. 

Based on our review, except for the matters as referred to above and the effect of such adjustment, if any, as might have 

been determined to be necessary had we been able to obtain reviewed financial statements of the investee companies 

and to examine evidence regarding the long-term investment and investment income accounted for the equity method 

as stated in the third paragraph, we are not aware of any material modifications or adjustments that should be made to 

the non-consolidated financial statements referred to the first paragraph in order for them to be in conformity with 

“Criteria Governing the Preparation of Financial Reports by Securities Issuers” accounting principles generally 

accepted in the Republic of China . 

We have also reviewed the translations of New Taiwan dollar non-consolidated financial statements as of and for the 

three-month period ended March 31, 2004 into U.S. dollars (“USD” or “US$”) on the basis stated in Note 2.(20) to the 

non-consolidated financial statements and the U.S. dollars non-consolidated financial statements have been properly 

translated on such basis. The convenience translations should not be construed as representations that the New 

Taiwan dollar amounts have been, could have been or could in the future be, converted into U.S. dollars at this or any 

other exchange rate. 

April 26, 2004 

Taipei, Taiwan 

Republic of China 

Notice to Readers 

The accompanying financial statements are intended only to present the financial position and results of operations and 

cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not 

those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those 

generally accepted and applied in the Republic of China. 

1

(Draft, Subject to review by EY HK CMC) 

English Translation of Financial Statements Originally Issued in Chinese 


NON- CONSOLIDATED BALANCE SHEETS (UNAUDITED) 

MARCH 31, 2003 AND 2004 

(Expressed in Thousands of New Taiwan dollars and US dollars) 

New Taiwan dollars 

USD 

March 31, 

ASSETS 2003 2004 2004 

CURRENT ASSETS: 

Cash and cash equivalents (Notes 2 and 4) $11,602,305 $25,724,740 $779,537 

Short-term investments-net (Notes 2 and 4) 1,633,624 1,805,063 54,699 

Notes receivable-net (Notes 2 and 4) 256,932 38,254 1,159 

Accounts receivable-net (Notes 2 and 4) 

Trade 2,313,729 10,510,402 318,497 

Others 744,550 414,700 12,567 

Due from affiliates-net (Notes 2, 4 and 5) 

Trade 4,225,707 3,088,626 93,595 

Others 18,835 12,077 366 

Forward exchange contract receivable-net (Notes 2 and 4) 823 - - 

Other financial assets (Note 4) 173,750 - - 

Inventories-net (Notes 2 and 4) 3,772,501 3,982,979 120,696 

Prepayments 135,655 127,103 3,852 

Deferred tax assets-net (Notes 2 and 4) 311,674 - - 

Pledged time deposits-current (Notes 2 and 4) 185,736 127,600 3,867 

Total Current Assets 25,375,821 45,831,544 1,388,835 

LONG-TERM INVESTMENTS (Notes 2、4 and 6) 

Equity method 28,194,049 28,415,699 861,082 

Cost method 511,640 1,060,289 32,130 

Prepayment for long-term investment 20,000 - - 

Total long-term investment 28,725,689 29,475,988 893,212 

PROPERTY, PLANT AND EQUIPMENT: 

(Notes 2, 4, 5 and 6) 

Land 2,562,981 3,025,729 91,689 

Buildings 7,419,873 10,205,741 309,265 

Machinery and equipment 30,313,359 46,418,004 1,406,606 

Transportation equipment 315,735 314,941 9,544 

Furniture and fixtures 262,777 450,793 13,660 

Miscellaneous equipment 7,750,921 10,739,078 325,427 

Revaluation increment 57,192 57,192 1,733 

Total 48,682,838 71,211,478 2,157,924 

Less:Accumulated depreciation (17,010,197) (25,268,196) (765,703) 

Add: Prepayments on equipments and Construction 

in progress 17,013,581 6,611,948 200,362 

Property, plant and equipment-net 48,686,222 52,555,230 1,592,583 

INTANGIBLE ASSETS: 

Deferred pension cost (Notes 2 and 4) 269,967 236,221 7,158 

OTHER ASSETS: 

Refundable deposits 27,832 72,070 2,184 

Deferred charges (Notes 2, 4 and 5) 2,003,445 1,593,542 48,289 

Pledged time deposits-non-current - 3,850 117 

Others-net (Note 2, 4, 5 and 7) 1,370,419 332,457 10,074 

Total Other Assets 3,401,696 2,001,919 60,664 

TOTAL ASSETS $106,459,395 $130,100,902 $3,942,452 

2




NON-CONSOLIDATED BALANCE SHEETS (UNAUDITED)-(CONTINUED) 

March 31, 2003 AND 2004 

(Expressed in Thousands of New Taiwan dollars and US dollars) 


USD 

March 31, 

LIABILITIES AND STOCKHOLDERS' EQUITY 2003 2004 2004 

CURRENT LIABILITIES: 

Short-term loans (Note 4) $5,186,653 $1,133,913 $34,361 

Accounts payable 

Trade 5,132,704 8,687,099 263,245 

Others 3,919,209 1,251,450 37,923 

Due to affiliates (Note 5) 

Trade 2,465,069 3,979,435 120,589 

Others 1,572,796 249,437 7,559 

Accrued expenses 739,664 2,186,364 66,254 

Current portion of long-term debt (Note 4) 6,417,333 4,885,383 148,042 

Current liabilities 

Due to affiliates 79,995 63,272 1,917 

Others 116,594 277,829 8,419 

Total Current Liabilities 25,630,017 22,714,182 688,309 

LONG-TERM DEBT: 

Bonds payable (Notes 2 and 4) 8,019,562 7,994,319 242,252 

Long-term bank loans-net of current portion (Notes 4 and 6) 15,928,051 19,372,709 587,052 

Total Long-term Debt 23,947,613 27,367,028 829,304 

RESERVES FOR INCREAMENT TAX ON LAND 

REVALUATION 26,793 26,793 812 

OTHER LIABILITIES: 

Accrued pension liabilities (Notes 2 and 4) 1,200,027 1,556,413 47,164 

Deferred tax liabilities-net (Notes 2 and 4) 1,636,057 1,027,673 31,142 

Deferred gain on transactions with equity investee (Notes 4, 5 and 11) 1,483,378 1,291,070 39,123 

Total Other Liabilities 4,319,462 3,875,156 117,429 

Total Liabilities 53,923,885 53,983,159 1,635,854 

STOCKHOLDERS' EQUITY: 

Capital 

Common stock (Note 4) 51,062,011 61,161,545 1,853,380 

Capital reserves 

Additional paid-in capital (Notes 2 and 4) 4,331,090 7,218,664 218,748 

Additional paid-in convertible bonds (Notes 2 and 5) 1,833,671 3,686,629 111,716 

Reserve for assets revaluation (Note 4) 59,304 59,304 1,797 

Long-term investments (Note 4) 545,988 515,955 15,635 

Treasury stock - 744 22 

Retained earnings 

Legal reserve (Notes 2 and 4) 942,597 - - 

Special reserve (Notes 2 and 4) 1,981,158 - - 

Unappropriated retained earnings (accumulated deficits) (Notes 2 and 4) (4,688,976) 6,105,574 185,017 

Adjusting items in stockholders' equity: 

Unrealized loss on long-term investments (Notes 2 and 4) (3,698,542) (1,911,997) (57,939) 

Cumulative translation adjustments (Note 2) 1,456,128 479,779 14,539 

Excess of additional pension liability over unrecognized 

piror service cost (Notes 2 and 4) (41,920) (158,711) (4,810) 

Treasury stock (Notes 2 and 4) (1,246,999) (1,039,743) (31,507) 

Total Stockholders' Equity 52,535,510 76,117,743 2,306,598 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $106,459,395 $130,100,902 $3,942,452 

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

3




NON-CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) 

FOR THE THREE-MONTH PERIOD ENDED MARCH 31, 2003 AND 2004 

(Expressed in Thousands of New Taiwan Dollars and US Dollars Except Per Share Information) 


the three-month period ended March 31, 

2003 2004 2004 

OPERATING REVENUES: 

NET SALES (Notes 2, 4 and 5) $7,456,533 $22,366,937 $677,786 

OPERATING COSTS: 

COST OF GOODS SOLD (Notes 4 and 5) (7,939,322) (16,616,651) (503,535) 

GROSS PROFIT INCLUDED UNREALIZED INTERCOMPANY PROFIT (482,789) 5,750,286 174,251 

REALIZED INTERCOMPANY PROFIT-NET (Notes 4 and 5) 62,530 55,299 1,676 

NET GROSS PROFIT (LOSS) (420,259) 5,805,585 175,927 

OPERATING EXPENSES: (Notes 4 and 5) 

Selling and marketing (78,049) (208,502) (6,318) 

General and administrative (132,487) (215,048) (6,517) 

Research and development (590,082) (977,290) (29,615) 

Total (800,618) (1,400,840) (42,450) 

OPERATING INCOME (1,220,877) 4,404,745 133,477 

NON-OPERATING INCOME: 

Interest income 3,224 185 6 

Investment income recognized by equity method (Notes 2 and 4) 105,093 1,024,600 31,048 

Gain on disposal of property, plant and equipment-net (Notes 2 and 5) - 1,766 53 

Gain on disposal and recovery on decline in market price of short-term 

investments-net (Note 4) - 112,192 3,400 

Reversal of provision for loss on decline in market value of 

inventory-net (Notes 2 and 4) 64,000 73,000 2,212 

Gain on foreign exchange-net (Note 2) 205,206 - - 

Others 80,696 56,107 1,700 

Total 458,219 1,267,850 38,419 

NON-OPERATING EXPENSES AND LOSSES: 

Interest expenses (252,634) (185,102) (5,609) 

Loss on disposal and decline in market price of short-term investments-net (72,356) - - 

Loss on disposal of property, plant and equipment-net (Notes 2 and 5) (665) - - 

Loss on foreign exchange-net (Note 2) - (23,826) (722) 

Others (Notes 2 and 4) (281) (472) (14) 

Total (325,936) (209,400) (6,345) 

INCOME (LOSS) BEFORE INCOME TAX (1,088,594) 5,463,195 165,551 

INCOME TAX BENEFITS (EXPENSES) (Notes 2 and 4) (37,500) (297,579) (9,017) 

NET INCOME (LOSS) $(1,126,094) $5,165,616 $156,534 

EARNINGS (LOSSES) PER SHARE AVAILABLE TO COMMON 

STOCKHOLDERS (Notes 2 and 4) 

Basic $(0.22) $0.87 $0.03 

Diluted $(0.22) $0.78 $0.02 

USD 


4




NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) 


(Expressed in Thousands of New Taiwan Dollars and US Dollars) 

New Taiwan Dollars 

USD 


2003 2004 2004 

CASH FLOWS FROM OPERATING ACTIVITIES: 

Net income (loss) $(1,126,094) $5,165,616 156,534 

Adjustments to reconcile net income to net cash provided 

by operating activities: 

Exchange rate effect (Note 2) (8,721) 347,595 10,533 

Depreciation (Note 2) 1,619,681 2,387,131 72,337 

Amortization (Note 2) 170,448 195,170 5,914 

Investment income recognized by equity method (Notes 2 and 4) (105,093) (1,024,600) (31,048) 

Cash dividend received from long-term investee accounted for under equity method - 54,000 1,636 

(Note 4) 

Unrealized gain on foreign exchange of long-term debt (Note 4) (8,040) (259,924) (7,876) 

Forfeited interest on convertible bonds - 1,728 52 

Transfer of property, plant and equipment to expense 29,895 30,030 910 

(Gain) Loss on disposal of property, plant and equipment (Note 2) 665 (1,766) (53) 

Gain on valuation of inventories (64,000) (73,000) (2,212) 

Amortization of premium on bonds payable - (26,424) (801) 

Decrease in notes receivable 125,576 91,765 2,781 

(Increase) decrease in accounts receivable-trade 578,437 (6,312,173) (191,278) 

(Increase) decrease in due from affiliates-trade (465,093) 3,018,157 91,459 

Increase in accounts receivable-others (487,296) (78,955) (2,393) 

Decrease in inventories 1,198,285 455,940 13,816 

Decrease forward exchange contract receivable 3,743 - - 

Increase in prepayments (71,002) (42,056) (1,274) 

Decrease in deferred tax assets 37,500 - - 

Increase in accounts payable 664,480 912,461 27,650 

Increase (decrease) in due to affiliates-trade (896,173) 2,824,509 85,591 

Increase (decrease) in accounts payable-other 2,417,026 (1,691,840) (51,268) 

Decrease in accrued expenses (467,326) (133,254) (4,038) 

Decrease in deferred credit (62,531) (55,298) (1,676) 

Increase in compensation interest payable 81,893 26,320 798 

Increase in accrued pension liabilities 64,834 74,083 2,245 

Payments for pension (195,330) (47,857) (1,450) 

Increase in deferred tax liabilities - 297,579 9,018 

Net cash provided by operating activities 3,035,764 6,134,937 185,907 

5




NON-CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)-(CONTINUED) 


(Expressed in Thousands of New Taiwan Dollars and US Dollars) 

New Taiwan Dollars 

USD 


2003 2004 2004 

CASH FLOWS FROM INVESTING ACTIVITIES: 

Increase (decrease) in pledged time deposits (32,736) 10,000 303 

Increase (decrease) in due from affiliates-others (10,049) 11,519 349 

Increase in deferred charges (158,480) (222,626) (6,746) 

Increase in short-term investments-net (672,177) (987,450) (29,923) 

Increase in other financial assets (34,630) - - 

Proceeds from disposal of property, plant and equipment 614,563 14,147 429 

Additions to property, plant and equipment (11,607,231) (3,287,875) (99,633) 

Increase in long-term investments (20,000) - - 

Increase in refundable deposits (14,676) (29,509) (894) 

Increase in other assets-others (154) - - 

Net cash used in investing activities (11,935,570) (4,491,794) (136,115) 

CASH FLOWS FROM FINANCING ACTIVITIES: 

Increase (decrease) in short-term loans 4,917,881 (13,797) (418) 

Increase (decrease) in due to affiliates-others 1,431,761 (52,211) (1,582) 

Redemption and discharge of bonds payable - (638,507) (19,349) 

Issuance of bonds payable - 7,983,530 241,925 

Increase in long-term bank loans 3,993,930 1,500,000 45,454 

Repayments of long-term bank loans (1,152,000) (1,152,000) (34,909) 

Increase in other current liabilities 48,746 163,406 4,952 

Increase in other current liabilities-due to affiliates 73,411 60,095 1,821 

Purchase of treasury stock (207,256) - - 

Net cash provided by financing activities 9,106,473 7,850,516 237,894 

EXCHANGE RATE EFFECT 8,721 (347,595) (10,533) 

INCREASE IN CASH AND CASH EQUIVALENTS 215,388 9,146,064 277,153 

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 11,386,917 16,578,676 502,384 

CASH AND CASH EQUIVALENTS, END OF PERIOD $11,602,305 $25,724,740 $779,537 

SUPPLEMENT DISCLOSURES OF CASH FLOWS 

INFORMATION: 

Interest expenses paid $252,634 $186,946 $5,665 

Income tax paid $210 $143 $4 

INVESTING AND FINANCING ACTIVITIES NOT 

AFFECTING CASH FLOWS: 

Current portion of long-term debt $6,417,333 $4,885,383 $148,042 

Property, plant and equipment transferred to fixed assets held for sale $- $48,173 $1,460 

Conversion of convertible bonds into common shares $- $3,614,891 $109,542 


6



NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS 


(UNAUDITED) 

(Expressed in Thousands of New Taiwan Dollars and US dollars Except Par Value, shares or Stated Otherwise) 

The reader is advised that these financial statements have been prepared originally in Chinese. If there is any conflict 

between these financial statements and the original Chinese version or any difference in interpretation between the two 

versions, the Chinese language financial statements shall prevail. 

1. ORGANIZATION AND OPERATIONS 

(1) Chunghwa Picture Tubes, Ltd. (the “Company”) was incorporated under the Company Law of the Republic of 

China (“ROC”) on May 4, 1971. The Company was permitted to list its shares on the ROC Gre Tai Securities 

Market (“GTSM”; formerly known as Over – The – Counter Securities Exchange) on March 2, 2000 and began 

trading on the Taiwan Securities Exchange (“TSE”) on September 17, 2001. On October 3 2003, the 

Company listed its shares on the Luxembourg Stock Exchange (“LSE”) in the form of Global Depositary 

Shares (GDSs). 

The main activities of the Company engage include the design, manufacture, sale, installation, maintenance 

service, import, export and agency service of the following products: 

cathode ray tubes (“CRT”), electron guns and related materials, parts and components; 

deflection yokes and related materials, parts and components; 

flat panel display and equipment related to CRT and thin film transistor liquid crystal displays 

(“TFT-LCD”); 

manufacture of machinery for power generation, transmission and distribution; 

manufacture of household electric appliance; 

manufacture of electronic parts and components; 

manufacture of mechanical equipment; 

manufacture of modeling equipment; and 

information technology services. 

(2) As of March 31, 2003 and 2004, the CPT employed 4,624 and 5,669 employees, respectively. 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 

The financial statements were prepared in conformity with the Criteria Governing the Preparation of Financial 

Reports by Securities Issuers (“Criteria”) and generally accepted accounting principles in the Republic of China. 

(“ROC GAAP”) 

7

The significant accounting policies are summarized as follows: 

(1) Cash equivalents 

The Company considers all highly liquid investments that are readily convertible to cash with insignificant 

interest rate risk with an original maturity period of three months or less when purchased to be cash 

equivalents. 

(2) Short-term Investments 

Short-term investments, which consist primarily of marketable securities such as publicly listed trading equity 

securities and open-end mutual funds, are recorded at cost when acquired and are stated at the lower of 

aggregate cost or market value at the balance sheet date. The amount by which aggregate cost exceeds 

market value is reported as non-operating expenses in the accompanying statements of operations. 

Subsequent, recoveries in market value are recognized as a gain to the extent that the market value does not 

exceed the original aggregate cost of the investment. 

(3) Allowance for Doubtful Accounts 

The allowance for doubtful accounts is provided based on the aging analysis and results of the Company’s 

evaluation of collectibility of the outstanding notes and accounts receivable. 

(4) Inventories 

Inventories are recorded at cost when acquired and are stated at the lower of cost or market value. Cost is 

determined using the weighted-average method. Market value of work-in-process and finished goods is 

determined on the basis of net realizable value. Market value of raw materials is determined on the basis of 

replacement cost. An allowance for loss on decline in market value and obsolescence is provided, when 

necessary. 

(5) Long-term investments 

Equity method: 

Investments in which the Company owns 20% or more of the voting shares of investees, or investments in 

which the Company owns less than 20% of the investee’s voting shares but is able to exercise significant 

influence over the investee’s operational decisions, are accounted for by the equity method. When there is a 

difference between the investment cost and the share of net assets of equity investees upon acquisition and the 

difference is arising from depreciable assets or goodwill, then the excess is amortized over a period of 5 years. 

If the difference is arising from under-valuation of land, then the excess of the market value over carrying 

amount of the land is charged to profit and loss account upon the revaluation or disposal of such land. 

Dividends received or receivable from equity investees are credited to investment cost. 

8

The Company discontinues the equity method of accounting when the Company’s share in the losses of an 

investee accumulates to the cost of investment unless the Company guarantees obligations of the investee, or is 

otherwise committed to provide further financial support for the investee Company. 

When the Company subscribes to additional shares of investee at a percentage different from its existing 

equity interest, the resulting difference between the carrying amount of the investment and the amount of the 

Company’s proportionate share in the investee’ net equity is recorded as an adjustment to capital reserve. If 

the capital reserve is not sufficient, then the excess will be charged to retained earnings. If there is new 

addition of capital reserve in the investee’s account, the Company will proportionately share the amount and 

increase its investments and capital reserve accordingly. 

The interim financial statements are not required to prepared for the consolidated financial statements by the 

Company. 

Cost method: 

Investments in which the Company owns less than 20% of the voting shares of investees or investments in 

which the Company owns more than 20% of the voting shares but does not have significant influence over 

the investee’s operational decisions are stated at cost except for investments in listed companies, which are 

stated at lower of aggregate cost or market value, with unrealized loss and subsequent recovery, net of 

related tax effect, recorded as a separate component of stockholders’ equity. If the Company receives cash 

dividends from the investees, the amount received will be treated as non-operating income. If there is 

permanent diminution in value of investment, then the Company recognizes it as non-operating loss. 

Stock dividends from both equity method investees and cost method investees are not treated as income, but 

an increase in the number of shares held. When long-term investments are sold, the costs of investments 

sold are determined using the weighted-average method. 

(6) Property, Plant and Equipment & Assets held for disposal 

a. Property, plant and equipment are stated at cost plus revaluation increment. 

b. Major renewals and improvements are capitalized, while ordinary maintenances and repairs are expensed 

as incurred. 

c. Gains or Losses from impairment or disposal of property, plant and equipment are recorded as 

non-operating income or expenses. 

d. Fixed assets held for sale are classified as other assets and stated at a value equal to the lower of net 

realizable value or net book value. When the asset has no net realizable value, the net book value of the 

assets is written off. 

9

e. Depreciation is provided by using the straight-line method over the following estimated useful lives: 

Buildings 

Machinery and equipment 

Transportation equipment 

Furniture and fixtures 

Miscellaneous equipment 

5-60 Years 

3-10 Years 

5 Years 

5 Years 

5-10 Years 

Additional depreciation is provided on the remaining salvage value of fully depreciated property, plant 

and equipment that are still in use over their remaining estimated economic lives. 

f. Interest expenses incurred in the period when such fixed assets are in construction or installation are 

capitalized. 

(7) Deferred charges 

Deferred charges, including technical cooperation fees, purchase software license, expenses for bond 

issue cost etc., except bond issue cost, are recorded at cost and amortized over 3~10 years using 

straight-line method. 

For the bonds issue cost, please see Note 2(8). 

(8) Convertible Bonds 

a. The excess of the stated redemption price of the convertible bonds over its par value is recognized as 

interest expense and interest payable using the interest method during the redemption period. If the 

bondholders do not exercise the redemption option by the expiry date, then CPT should amortize the 

interest premium, which has been recognized as a liability, over the period from the option expiration to 

the maturity date as a decrease of interest expense. 

Gains or losses from the Company’s early redemption or reacquisition from open market of the 

convertible bonds are treated as non-operating income or expenses. 

b. The book value approach is adopted when the bondholders exercise their conversion rights, where the 

bonds payable and related interest payable are transferred to common stock and capital reserve and there 

is no gain or loss resulted from such conversion. 

c. The related issuance costs for convertible bonds are recorded as deferred charges and are amortized over 

the redemption period. 

10

(9) Pension 

The Company’s pension plan is defined benefit plan. At each balance sheet date, it obtains the professional 

actuarial report from which it extracts related information of pension assets and liabilities for disclosure 

purpose. In addition, it also relies on the professional actuarial report to record the net pension cost in the 

statement of operation. The unrecognized net transition obligation is amortized over 15 years using the 

straight-line method. 

(10) Deferred gain on transaction with equity investee 

Unrealized intercompany gains and losses are eliminated under the equity method. Profit from sales of 

depreciable assets between the investee and the Company is amortized and recognized based on the assets’ 

economic service lives. Profit from other types of intercompany transactions is recognized when realized. 

Unrealized intercompany gains and losses arising from transactions between investees accounted for under 

the equity method are eliminated in proportion to the multiplication of the Group’s ownership percentages; 

while those arising from transactions between majority-owned subsidiaries are eliminated in proportion to the 

Group’s ownership percentage in the subsidiary that incurs a gain or loss. 

(11) Foreign currency transactions 

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

prevailing at the transaction dates. The resulting exchange gains or losses from settlement of such 

transactions are reflected in the accompanying non-consolidated statements of operations. At the balance 

sheet date, monetary assets and liabilities denominated in foreign currencies are translated using the exchange 

rate prevailing on that date. The resulting exchange gains or losses are credited to or charged against the 

current operations. 

For translation of foreign currency financial statements, please see Note 2 (12) above. 

(12) Translation of foreign currency financial statements 

The Company’s functional currency is the New Taiwan dollar. The Company’s subsidiaries record 

transaction in their respective local currencies. In the preparation of the non-consolidated financial 

statements, the financial statements of the foreign subsidiaries have been translated from their respective 

currencies to New Taiwan dollars as follows: 

(a) all assets and liabilities at exchange rates approximating those prevailing at the respective balance sheet 

date; 

11

(b) all stockholders’ equity accounts at historical exchange rates, except that retained earnings are brought 

forward from last year; 

(c) dividend income at exchange rate prevailing at the declaration date; and 

(d) profit and loss items at average exchange rates for the financial year. 

The gains or losses, net of related tax effect, resulting from the translation, are recorded as cumulative 

translation adjustments, a separate component of stockholders’ equity and be reported as part of gains or 

losses upon sale or liquidation of the subsidiaries. 

(13) Derivative financial instruments 

The notional / principal or contract amounts of the foreign currency option contracts entered into for hedging 

purposes are recorded in the memorandum and not recognized as either assets or liabilities on the contract 

dates. The gains or losses arising from settlement of such options are recorded in the statement of operations. 

The premiums paid or received for the call or put options are amortized using the straight-line method over the 

terms of contracts. 

(14) Treasury Stock 

When treasury stock is purchased, it is recorded at cost of acquisition. When treasury stock is obtained 

through donation, it is recorded at market value. Gain or loss from selling treasury stock is treated as an 

adjustment to capital reserve using the weighted average method. If the loss exceeds the capital reserve, the 

excess is charged to retained earnings. Treasury stock is shown as a deduction to stockholders’ equity. 

(15) Income tax 

The Company adopted interperiod and intraperiod income tax allocation. Tax effects on taxable temporary 

differences are recognized as deferred tax liabilities. Tax effects on deductible temporary differences, 

operating loss carryforwards and investment tax credits are recognized as deferred tax assets. Valuation 

allowance is provided on deferred tax assets when they are not certain to be realized. A deferred tax asset or 

liability should, according to the classification of its related asset or liability, be classified as current or 

non-current. However, if a deferred asset or liability is not directly related to an asset or liability, then the 

classification is based on the expected realization date of such deferred income tax asset or liability. The 

income tax expense or benefit for unrealized losses or gains that are not included in net income for the period, 

but are reported directly in the stockholders’ equity section should be an adjustment directly to stockholders’ 

equity item. 

12

Any tax credits arising from purchases of machinery, equipment and technology, research and development 

expenditures, and personnel training are recognized using the current method. 

Undistributed earnings generated after 1997 are subject to a 10% retained earning tax (10% tax) in compliance 

with the Income Tax Law of R.O.C. The 10% tax on undistributed earnings is recorded as income tax 

expense in the year of shareholder approval. 

(16) Earnings (loss) per common share 

Earnings (loss) per share (“EPS”) of common stock is computed by dividing net income (loss) for common 

stockholders by the weighted average number of common shares outstanding during the period on basic and 

diluted basis. 

The Company’s potentially dilutive securities include potential common shares related to the Company’s 

convertible bonds and employee stock options. Only basic EPS will be disclosed if there is no dilutive effect 

of convertible bonds and employee stock options. If a potential dilutive effect from the convertible bonds 

and employee stock options exist upon conversion of those bonds and exercise options to common stock, both 

Basic EPS and Diluted EPS will be disclosed. 

Whenever there is capital increases arising from transfer of retained earnings, capital reserves and bonuses to 

employees, the weighted-average outstanding shares are adjusted retroactively. 

(17) Revenue recognition 

The Company recognizes revenue when the earnings process is complete, as evidenced by an agreement with 

the customer, transfer of title and acceptance, if applicable, as well as fixed pricing and probable collectibility. 

(18) Convenience translation into US dollars 

The non-consolidated financial statements are stated in New Taiwan dollars (“NT$”). Translation of the first 

three months ended March 31, 2004 New Taiwan dollar amounts into US dollar (“US$”) amounts uses the 

noon buying rate of the Federal Reserve Bank of New York on March 31, 2004 of NT$33 to US$1 solely for 

the convenience of the readers. Such translation amounts are unreviewed. The convenience translations 

should not be construed as representations that the New Taiwan dollar amounts have been, could have been, 

or could in the future be, converted into U.S. dollars at this rate or any other rate of exchange. 

3. ACCOUNTING CHANGES 

None. 

13

4. BREAKDOWN OF SIGNIFICANT ACCOUNT BALANCES 

(1) Cash and cash equivalents 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Cash on hand $2,638 $6,110 $185 

Cash in banks-checking and saving account 10,809,767 25,023,374 758,284 

Cash equivalents: 

Short-term commercial papers 789,900 695,256 21,068 

Total $11,602,305 $25,724,740 $779,537 

Cash and Cash equivalents was not pledged. 

(2) Short-term investments 

New Taiwan dollars US dollars (Note 2) 

March 31, 2003 March 31, 2004 March 31, 2004 

Market 

Market 

Market 

Date items Cost 

value 

Cost 

value 

Cost 

value 

March 31, Open-end mutual funds $1,509,828 $1,472,771 $1,551,205 $1,568,086 $47,006 $47,518 

2003 Publicly listed trading equity 

securities 180,661 160,853 253,858 254,309 7,693 7,706 

Total 1,690,489 $1,633,624 1,805,063 $1,822,395 54,699 $55,224 

Less: Allowance for decline in 

market value (56,865) - - 

Net $1,633,624 $1,805,063 $54,699 

a. The market value of publicly listed trading equity securities is determined by the average closing price 

during the last month of the fiscal year. 

b. The market value for open-end mutual funds is determined by their net value at balance sheet date. 

c. The total gain and loss of short-term investments included recovery or loss on decline in market price of 

short-term investments and gain or loss on disposal of short-term investments amounted to NT$72,356 

and NT$112,192 for the three month period in 2003 and 2004, respectively. 

14

(3) Receivable 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Notes receivable $259,532 $38,644 $1,171 

Less: Allowance for doubtful accounts (2,600) (390) (12) 

Net $256,932 $38,254 $1,159 

Accounts receivable-trade $2,496,677 $10,782,402 $326,739 

Less: Allowance for doubtful accounts (182,948) (272,000) (8,242) 

Net $2,313,729 $10,510,402 $318,497 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Due from affiliate-trade $4,234,307 $3,117,626 $94,474 

Less: Allowance for doubtful accounts (8,600) (29,000) (879) 

Net $4,225,707 $3,088,626 $93,595 

(4) Other financial assets 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Credit linked notes-overseas convertible bonds $173,750 $- $- 

CPT’s investments in credit-linked notes (CLN) –overseas convertible bonds were purchased from Yuanta 

Asset Management Limited (Yuanta) of R.O.C. According to the contracts, CPT is entitled to interest 

income from Yuanta. Please see Note 10 for risk of CLN. 

15

(5) Inventories 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Raw materials and supplies $1,680,379 $2,229,864 $67,571 

Work in process 1,882,648 1,207,634 36,595 

Finished goods 615,474 582,481 17,651 

Total 4,178,501 4,019,979 121,817 

Less: Allowance for the decline in market value of 

inventory (406,000) (37,000) (1,121) 

Net $3,772,501 $3,982,979 $120,696 

As of March 31, 2003 and 2004, insurance coverage for inventories was NT$3,222,687 and NT$4,443,152, 

respectively. 

(6) Long-term investments 

March 31, 2003 

Percentage of 

Investee 

New Taiwan 

dollars 

ownership or 

voting right 

Equity Method 

Nonpublic euqity securities: 

Chunghwa P.T. (Bermuda) Ltd. $26,590,020 100.00% 

Chunghwa P.T. (Labuan) Ltd. 1,174,942 100.00% 

Shang Chih Investment Co., Ltd. 31,157 25.00% 

Forward Electronics Co., Ltd. 397,930 24.22% 

Sub-total 28,194,049 

Cost Method-the lower of cost or market value 

Publicly listed trading equity securities: 

Tatung Co., Ltd. 1,531,059 1.87% 

Less : Allowance for loss on long-term investment (1,019,419) 

Net 511,640 

Prepayment investment-Grand Cathay Optronics Co., Ltd. 20,000 

Total $28,725,689 

16

March 31, 2004 

Percentage of 

Investee 

New Taiwan 

dollars 

US dollars 

(Note 2) 

Ownership or 

voting right 

Equity Method 

Nonpublic equity securities: 

Chunghwa P.T. (Bermuda) Ltd. $26,218,457 $794,499 100.00% 

Chunghwa P.T. (Labuan) Ltd. 981,706 29,749 41.03% 

Shang Chih Investment Co., Ltd. 35,050 1,062 25.00% 

Toppan Chunghwa Electronics Co., Ltd. 20,000 606 100.00% 

Grand Cathay Optronics Co., Ltd. 748,197 22,673 30.00% 

Sub-total 28,003,410 848,589 

Publicly listed trading equity securities: 

Forward Electronics Co., Ltd. 412,289 12,493 23.48% 

Sub-total 28,415,699 861,082 

Cost Method-the lower of cost or market value 

Tatung Co., Ltd. 1,531,059 46,396 1.87% 

Less : Allowance for loss on long-term 

investment (470,770) (14,266) 

Net 1,060,289 32,130 

Total $29,475,988 $893,212 

a. Details of changes in long-term investments 

Grand 

C.P.T. 

C.P.T. 

S.C. 

Cathay, 

Bermuda 

Labuan 

Investment 

Forward 

Ltd. 

Toppan 

Balance at January 1, 2003 $26,865,510 $1,089,422 $31,157 $397,930 $- $- 

Investment income recognized by equity 

method for the three month period ended 

March 31, 2003 18,668 86,425 - - - - 

Unrealized loss on long-term investments (272,346) - - - - - 

Cumulative translation adjustments (21,812) (905) - - - - 

Balance at March 31, 2003 $26,590,020 $1,174,942 $31,157 $397,930 $- $- 

17

Balance at January 1, 2004 $24,834,339 $929,686 $35,050 $412,289 $20,000 $802,197 

Investment income-recognized by equity 

method for the three month period ended 

March 31, 2004 922,552 102,048 - - - - 

Unrealized gain on long-term investments 1,206,572 - - - - - 

Cumulative translation adjustments (745,006) (50,028) - - - - 

Cash divided received from long-term 

investee accounted for under equity 

method - - - - - (54,000) 

Balance at March 31, 2004 $26,218,457 $981,706 $35,040 $412,289 $20,000 $748,197 

Investment costs $3,779,727 $211,536 $25,000 $382,500 $20,000 $576,960 

b. In the first three months of 2003, the Company invested in Grand Cathay Optronics Co., Ltd. The 

authorized capital and paid-in capital of Grand Cathay Optronics Co., Ltd. was 20,000, consisting of 

2,000,000 shares with a par value at NT$10 each. 

c. The board of directors of the Company resolved to purchase Toppan Chunghwa Electronics Co., Ltd. from 

Chunghwa Picture Tubes (Bermuda) Ltd. for organization restructure. Due to the transaction was 

organization restructure, the Company’s held cost were the same as carrying amount of CPTB. 

d. CPT established through intermediary investment companies incorporated in Bermuda, Labuan and other 

countries, several wholly-owned subsidiaries in PRC, They are CPTF Optronics Co., Ltd. (formerly 

known as Chunghwa P.T. (Fuzhou) Ltd.), Chunghwa P.T. (Wujiang) Ltd., Fujian Fujia Electronics Co., 

Ltd. and Fujian JVC Electronics Co., Ltd. The aforementioned investments have been approved by the 

Foreign Investment of Affairs of Ministry of Economic (MOE), R.O.C. 

e. The income tax expense or benefit resulted from adjustments of long-term investment that are not 

included in the statements of operations of the period is reported directly in stockholders’ equity section as 

follows: 

The movements of unrealized loss on long-term investments are as follows: 

Overseas subsidiaries of the 

Company 

The Company 

New Taiwan Dollar 

Stock of 

Tatung Co. 

Stock of other 

listed company 

Stock of 

Tatung Co. Total 

Balance at January 1, 2003 $2,078,473 $1,221,346 $924,384 $4,224,203 

Increase for the three-month 

period ended March 31, 2003 101,463 170,883 95,035 367,381 

Less: related tax effect (544,984) (348,058) - (893,042) 

Net $1,634,952 $1,044,171 $1,019,419 $3,698,542 

18

Balance at January 1, 2004 $1,947,376 $1,180,833 $851,476 $3,979,685 

Recovery for the three-month 

period ended March 31, 2004 (684,551) (522,022) (380,706) (1,587,279) 


Net $947,119 $494,108 $470,770 $1,911,997 

US dollars (Note 2) 

Balance at January 1, 2004 $59,011 $35,783 $25,802 $120,596 

Recovery for the three-month (20,744) (15,819) (11,536) (48,099) 

period ended March 31, 2003 

Balance at March 31, 2004 38,267 19,964 14,266 72,497 


Net $28,700 $14,973 $14,266 $57,939 

The movements of cumulative translation adjustments are as follows: 

Overseas Subsidiaries of the 

Company 

The Company 

New Taiwan Dollar 

Chunghwa P.T. Chunghwa P.T. 

Forward 

Electronics Co., 

(Bermuda) Ltd. (Labuan) Ltd. Ltd. 

Total 

Balance at January 1, 2003 $1,782,076 $176,031 $4,585 $1,962,692 

Decrease for the three-month 

period ended March 31, 2003 (21,812) (905) - (22,717) 

Less: related tax benefit (440,066) (43,781) - (483,847) 

Net $1,320,198 $131,345 $4,585 $1,456,128 

Balance at January 1, 2004 $1,279,793 $150,297 $3,487 $1,433,577 


period ended March 31, 2004 (745,006) (50,028) - (795,034) 


Net $401,090 $75,202 $3,487 $479,779 

US dollars (Note 2) 

Balance at January 1, 2004 $38,782 $4,554 $106 $43,442 


period ended March 31, 2004 (22,576) (1,516) - (24,092) 

Balance at December 31, 2004 16,206 3,038 106 19,350 

Less: related tax effect (4,051) (760) - (4,811) 

Net $12,155 $2,278 $106 $14,539 

19

(7) Property, Plant and Equipment 

a. According to the government's regulation on asset revaluation, the Company revalued its property, plant 

and equipment in 1978, 1979, and 1981. As a result NT$88,005 was added to total assets and 

NT$59,304 (net of reserve for increment tax on land revaluation of NT$28,701) was credited to capital 

reserve. As of March 31, 2004, the revalued assets amounted to NT$57,192. 

b. The insurance coverage on property, plant and equipment as of March 31, 2003 and 2004 was 

NT$59,171,930 and NT$48,459,467, respectively. 

(8) Deferred charges 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Technical cooperation fees $149,009 $- $- 

Technical cooperation fees (TFT-LCD modules) 761,305 577,335 17,495 

Technical cooperation fees (Plasma display panels, or 

881,521 766,539 23,229 

PDP modules) 

Expense of bond issue 141,848 167,125 5,064 

Others 69,762 82,543 2,501 

Total $2,003,445 $1,593,542 $48,289 

(9) Other assets - other 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Land 

Padeh, Taoyuan $247,992 $247,992 $7,515 

Yangmei, Taoyuan 36,292 36,292 1,099 

Assets held for disposal 1,348,211 48,173 1,460 

Less: allowance for loss on valuation (262,076) - - 

Total $1,370,419 $332,457 $10,074 

a. As of March 31, 2004, due to legal restriction, of ROC the Company had not been able to register as the 

legal owner of certain part (3.150323 hectares) of the farm lands as purchased by the Company. 

Accordingly, such lands were temporarily held in trust by third parties. However, in order to protect the 

Company’s interest, it has kept control of the sellers’ chop, land purchase agreement and the title deeds. 

20

. Since late 2000, in order to implement the overall production plan, the Company began to relocate some of 

its production equipments related CRT to CPTF Optronics Co., Ltd. or decided to sell them. Such 

equipments were recorded as other assets held for sale at the lower of net realizable value and carrying 

value on the book. As of March 31, 2004, all production equipments related CRT in Taiwan has already 

been relocated or disposal. 

(10) Short-term loans 

US dollars 


(Note 2) 

March 31, 

Items 2003 2004 2004 Collateral 

Usance L/C loan $4,213,145 $1,133,913 $34,361 None 

Unsecured loan 973,508 - - 

$5,186,653 $1,133,913 $34,361 

Interest rates of short-term loans ranged from 0.43%-6.70% and 0.42%-1.58% for the three-month period 

ended March 31, 2003 and 2004, respectively. 

(11) Bonds payable 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Zero Euro convertible bonds, issued in 2002 and due 

2007 $2,780,000 $- $- 

Add: Compensation interest payable 179,657 - - 

Subtotal 2,959,657 - - 

Euro convertible bonds, issued in 2002 and due 2007 at 

0.25% 4,995,313 1,570,987 47,606 

Add: Compensation interest payable 64,592 76,223 2,310 

Subtotal 5,059,905 1,647,210 49,916 

Credit Enhanced Zero Coupon Convertible Bonds, 

issued in 2004 and due 2005 - 6,141,003 186,091 

Add: Compensation interest payable - 206,106 6,245 

Subtotal - 6,347,109 192,336 

Unsecured ROC domestic bonds payable 2,500,000 - - 

Total 10,519,562 7,994,319 242,252 

Less: Current portion of bonds payable (2,500,000) - - 

Net $8,019,562 $7,994,319 $242,252 

21

The significant terms of the Euro Convertible Bonds are as follows: 

Issued in 2002 and due 

2007 at Zero 

Issued in 2002 and due 2007 

at 0.25% 

Issued in 2004 and due 

2005 at Zero 

Amount US$80,000 US$143,750 US$230,000 

Period 

5 years 

(2002.2.1 to 2007.2.1) 

5 years 

(2002.11.19 to 2007.11.19) 

22 months 

(2003.1.13 to 2005.11.13) 

Place of trading 

Europe, Asia and 



Luxembourg Stock 

Luxembourg Stock Exchange 

Luxembourg Stock 

Exchange 

Exchange 

Coupon rate - 0.25% - 

Conversion period 

Bondholders may convert 

Bondholders may convert the 

Bondholders may convert 

the bonds to the 

bonds to the Company’s 

the bonds to the 

Company’s common shares 

common shares 30 days after 

Company’s common 

30 days after the issuance 

the issuance or 30 days 

shares 30 days after the 

or 30 days before maturity 

before maturity of the bonds. 

issuance or 30 days before 

of the bonds. 

The number 

The number of common 

maturity of the bonds. 

of common shares (or the 

shares received is determined 

The number of common 

number of the certificates) 

by dividing the principle 

shares received is 

received is determined by 

amount over conversion 

determined by dividing 

dividing the principle 

price. 

No cash payment will 

the principle amount over 

amount over conversion 

be made for fractional share. 

conversion price. No cash 

price. No cash payment 

(The exchange rate is fixed at 

payment will be made for 

will be made for fractional 

$34.57 to US$1) 

fractional share. (The 

share. (The exchange rate is 

exchange rate is fixed at 

fixed at $35.076 to US$1) 

$33.83 to US$1) 

Conversion price and 

The conversion price is $45 

The conversion price is 

The conversion price is 

adjustment 

per share and will be 

$15.53 per share and will be 

$16.46 per share and will 

adjusted if number of the 

adjusted if number of the 

be adjusted if number of 

Company’s common stocks 

Company’s common stocks 

the Company’s common 

changes after the issuance 

changes after the issuance of 

stocks changes after the 

of the bonds. 

the bonds. As of March 31, 

issuance of the bonds. 

2004 the conversion price 

was adjusted to NT$15.36 

per share. 

22

Company’s redemption 

rights 

After 2 years of issuance 

of bonds, the Company 

may redeem the bonds 

at 100% of the unpaid 

principle amount 

outstanding if the 

closing price of the 


stock on TSE equals to 

130% or above of the 

conversion price in 

effect on each trading 

day for a period of 20 

consecutive trading 

days, or the bonds not 

yet converted or bought 

back amounted to 

US$5,000 or below. 

After 2 years of issuance 

of bonds, the Company 

may redeem the bonds at 

100% of the unpaid 


outstanding if the closing 

price of the Company’s 

common stock on TSE 

equals to 125% or above 

of the conversion price in 

effect on each trading day 

for a period of 20 

consecutive trading days, 

or the bonds not yet 

converted or bought back 

amounted to US$5,000 or 

below. 

After 2 years of 

issuance of bonds, the 

Company may redeem 

the bonds at 100% of 

the unpaid principle 

amount outstanding if 

the closing price of the 


stock on TSE equals to 

120% or above of the 

conversion price in 

effect on each trading 

day for a period of 20 

consecutive trading 

days, or the bonds not 

yet converted or 

bought back amounted 

to US$1,000 or below. 

The Company may 

redeem the bonds at 



outstanding if there is a 

change in legislation, 

resulting in an increase 

in tax liabilities of the 

Company. 


redeem the bonds at 100% 

of the unpaid principle 

amount outstanding if 

there is a change in 

legislation, resulting in an 

increase in tax liabilities 

of the Company. 


redeem the bonds at 



outstanding if there is 

a change in legislation, 

resulting in an increase 

in tax liabilities of the 

Company. 

Bondholders’ option 

rights 

After the issuance of 2 

years and 3 years, the 

bondholders have the 

right to require the 

Company to repurchase 

the bonds at a price 

equal to 109% and 

100%, respectively. 


months and 3 years, the 

bondholders have the 

right to require the 

Company to repurchase 

the bonds at a price equal 

to 103.84% and 110.19%, 

respectively. 


year, the bondholders 

have the right to 

require the Company 

to repurchase the 

bonds at a price equal 

to 100%. 

The bondholders may 

demand the Company to 

redeem the bonds if 

trading of the 

Company’s shares is 

restricted on the TSE. 


demand the Company to 

redeem the bonds if 

trading of the Company’s 

shares is restricted on the 

TSE. 


demand the Company 

to redeem the bonds if 

trading of the 

Company’s shares is 

restricted on the TSE. 

23

Converting status 

All bonds have been 

Bond amount to US $36,780 

Bond amount to US 

discharged or redeemed 

and US $59,500 was 

$44,460 was converted by 

bonds. 

converted by bondholders’ 

bonds holders’ into 

into 84,661,771 and 

91,377,905 common 

133,913,671 preference 

shares for the three-month 

shares for the three month 

period ended March 31, 

period ended March 31, 2003 

2004. 

and 2004, respectively. 

To obtain funds for long-term working capital needs and to improve financial structures, the Company 

issued unsecured ROC domestic bonds of NT$5,000,000 with a term of five year in 1998. The bonds 

bear an annual coupon interest rate at 8.1% calculated semiannually. The interests are paid once a year. 

The principal of the bonds shall be repaid in two equal annual installments on December 16, 2002 and 

December 16, 2003, respectively. The outstanding amount of unsecured domestic bonds has been repaid 

as of March 31, 2004. 

(12) Long-term debt 

US dollars 


(Note 2) 

March 31, 

2003 2004 2004 

Bank term loans-secured $19,845,384 $24,258,092 $735,094 

Less: current portion (3,917,333) (4,885,383) (148,042) 

Net $15,928,051 $19,372,709 $587,052 

Interest rates 1.9503%-2.5951% 1.7918%~2.5423% 

A. The long-term bank loans are to be repaid in NT$ or foreign currency quarterly, or semiannually, or upon 

maturity before February 2010. In accordance with the loan agreements, the Company is required to 

maintain certain financial ratio covenants. 

B. The long-term bank loans were guaranteed by the President of the Company. In addition, these loans are 

secured by the mortgage of the Company’s land, building, machinery and equipment. 

(13) Accrued pension liability and deferred pension cost 

A. The Company has a funded defined benefit pension plan covering all regular employees. Effective from 

October 1996, as required by the ROC Labor Standard Law, the Company makes monthly contributions to 

the pension fund at the rate of certain percentage of base salaries as approved by the ROC government. 

The pension fund is administered by the employee committee and deposited in the committee's name, with 

Central Trust of China, a ROC government entity. 

24

B. The Company based on annual actuarial report to provide for its pension liability. Regarding 

unrecognized transitional obligation, it has been amortized over 15 years using the straight-line method. 

C. The Company adopted the ROC SFAS No.18 "Accounting for Pensions". The details of net pension 

cost for the three-month period ended March 31, 2003 and 2004 were as follows: 

Three-month period ended March 31, 


US dollars 

(Note 2) 

2003 2004 2004 

Balance $1,380,750 $1,632,538 $49,471 

Net pension cost 64,833 74,083 2,245 

Actual payment (195,330) (47,857) (1,450) 

Accrued pension liability 1,250,253 1,658,764 50,266 

Less: Current portion (50,226) (102,351) (3,102) 

Long-term portion-net of current portion $1,200,027 $1,556,413 $47,164 

The interim financial statements are not required to follow the principles outlined in the ROC SFAS 

No.18. 

(14) Deferred gain on transaction with equity investee 

A. As of March 31, 2003 and 2004 , the balances of deferred gain on transaction with equity investee were as 

follows: 

Transaction item 

New Taiwan Dollars Inventories Fixed assets Stock Total 

Balance at January 1, 2003 $573,533 $26,634 $942,055 $1,542,222 

Increase in unrealized gain 34,407 5,048 - 39,455 

Amortized and realized (96,937) (1,362) - (98,299) 

Balance at March 31, 2003 $511,003 $30,320 $942,055 $1,483,378 

Balance at January 1, 2004 $363,164 $42,622 $942,055 $1,347,841 

Increase in unrealized gain 17,234 - - 17,234 

Amortized and realized (72,533) (1,472) - (74,005) 

Balance at March 31, 2004 $307,865 $41,150 $942,055 $1,291,070 

US Dollars (Note 2) $9,329 $1,247 $28,547 $39,123 

25

B. The Company sold its short-term investments through stock exchange to its subsidiaries with a gain of 

NT$942,055. The unrealized gain resulted from such transaction was deferred . 

(15) Capital 

a. The authorized capital of the Company on January 1, 2003 was NT$64,100,000 with the number of shares 

at 6,410,000 thousand shares and par value at NT$10 each, respectively. Six billion shares out of the total 

authorized capital were reserved for further issuance upon conversion of employee stock options. 

b. On June 6, 2003, the stockholders of CPT resolved that additional paid-in capital of NT$639,128, together 

with legal reserve of NT$942,597 and special reserve of NT$1,981,158, were used to offset accumulated 

deficits. In addition, CPT resolved to increase the authorized capital to NT$85,000,000, divided into 

8,500,000,000 shares at par value of NT$10. Six hundred million shares out of the above total 

authorized capital were reserved for further issuance upon exercise of employee stock options. 

On October 2, 2003, 500 million shares were issued in ROC at a premium price of NT$15.3 per share. 

Another 200 million shares were issued for GDS offering purposes. These 200 million shares together 

with the 300 million existing shares held by CPT’s major stockholder, Tatung Co., Ltd., were utilized for 

20,000 thousand units of GDS (each unit representing 25 common shares) listed on the Luxembourg stock 

Exchange. Such increase of capital has been approved by the Government of ROC. 

On December 15, 2003, the Board of Directors resolved to increase the capital by 700 million shares by a 

domestic offering at a premium price of NT$20.6 per share. The effective date of the issuance will be 

May 6, 2004. 

c. According to the terms of the Indenture governing the Company’s 0.25% convertible bonds due 2007, and 

Credit Enhanced Convertible Bonds due 2005 at Zero, the shares issued for the conversion of these bonds 

on March 31, 2004 amounted to 218,575,442 and 91,377,905 shares, respectively. After the conversion, 

the total issued capital increased to $61,161,545. 

d. On May 14, 2002, the Company was authorized by the relevant government authorities of ROC to issue 

employee stock option plan (the “2002 plan”). The maximum number of options to be granted under the 

plan was 400,000,000 units, with each unit representing one common share of stock. Settlement upon 

the exercise of the stock options will be made through the issuance of new shares by the Company . The 

grant period for options is five years and an optionee may exercise their options in accordance with 

certain schedules as prescribed by the plan starting from two years after the grant. 

26

Detailed information relevant to the 2002 plan is disclosed as follows: 

Total number of 

options granted 

Exercise price 

Date of grant (in thousands) (NT dollars) 

September 5, 2002 100,308 $13.35 

January 2, 2003 165,710 $11.90 

(16) Capital Reserve 

Capital reserve, including additional paid-in capital, donation receipt and other miscellaneous items resulted 

from applying generally accepted accounting principles in ROC, can be used to offset a deficit except for the 

capital reserve arising from the application of the equity method of accounting on long-term investments. 

Distribution of cash dividends using capital reserve is not allowed. 

(17) Legal Reserve 

The Company Law in the Republic of China stipulates that companies must retain at least 10% of their annual 

earnings, as defined in the Law, until such retention equals the amount of paid-in capital. This retention is 

accounted as a legal reserve upon approval at the shareholders’ meeting. 

Once the legal reserve equals one-half of the paid-in capital, 50% of the reserve may be transferred to common 

stock. The legal reserve cannot be distributed as cash dividends to shareholders; however, it can be used at 

any time to replenish deficit. 

(18) Special Reserve 

In accordance with certain regulations of the ROC government, a special reserve must be provided for 

unrealized losses on long-term investments, excess of additional pension liability over unrecognized prior 

service cost, and foreign cumulative translation adjustment that are accounted for as deductions to 

stockholders’ equity. The reserve amount must be within certain regulated limit. Once the aforementioned 

deductions to stockholders’ equity are reversed, the related reserve can be reversed to distributable earnings. 

(19) Distributions of earnings 

Pursuant to the Company’s Articles of Incorporation, current year’s earnings before tax, if any, shall be 

distributed in the following order: 

(a) payment of all taxes; 

27

(b) offset prior years’ operation losses; 

(c) set aside 10% of the remaining amount after deducting (a) and (b) as legal reserve; 

(d) set aside special reserve in accordance with regulation prescribed by the ROC government or reverse 

special reserve previously provided; and 

(e) after deduction items (a), (b), (c) and (d) from current year’s earnings, any portion of the remaining 

amount is allocated as follows: 5%-7% as employees’ bonus, and 93%-95% as distributable earnings. 

The information regarding 2003 the proposal of earnings distribution (or makeup accumulated deficits) 

and resolution of stockholders’ meeting will be posted on the website of “Market observation post 

system” (mops. tse.com.tw) of TSE. 

(20) Treasury stock 

a. The Company purchased its own shares from open market. The purpose and ending balance of treasury 

stocks were as follows: 

Unit: thousand shares 

Number of Shares Bought Back 

Purpose Beginning Addition Disposal Ending 

Three-month period ended March 31, 2003 

Future issuance to employees as bonuses 53,412 16,000 - 69,412 


Future issuance to employees as bonuses 53,412 - - 53,412 

b. Pursuant to the resolution of the Board of Directors’ meeting of Company held in 2000 and 2002, 

respectively, total treasury stocks purchased by the Company as of March 31, 2004 were 104,463 

thousand shares (amount $2,197,987). Out of such treasury stocks, 51,051 thousand shares (amount 

$1,158,244) were transferred to employees and the remaining 53,412 thousand shares (amount $1,039,743) 

have not yet been transferred. 

c. According to Stock Exchange Regulations in the ROC, the Company is prohibited from pledging its 

treasury stock. The treasury stock does not possess voting rights or rights to receive dividends for 

holding such treasury stock. The treasury stock should be transferred to employees with in three years 

after the purchase. If treasury stock is not transferred after three years, it will be treated as not issued 

and the Company is required to notify the Government of ROC to change the capital status. 

28

(21) Operating revenue 


New Taiwan dollars US dollars (Note 2) 

2003 2004 2004 

CPT & CDT $986,525 $356,821 $10,813 

TFT LCD 5,884,127 21,405,504 648,651 

STN LCD 92,628 178,491 5,409 

Others 493,253 426,121 12,913 

Net Total $7,456,533 $22,366,937 $677,786 

(22) Personnel, depreciation and amortization expenses 

The Company’s personnel, depreciation and amortization expenses are summarized as follows: 


2003 2004 

Operating 

cost 

Operating 

expense Total 

Operating 

cost 

Operating 

expense Total 

Personnel expenses 

Salaries 594,485 173,867 768,352 877,645 164,289 1,041,934 

Staff health insurance 40,296 9,932 50,228 49,139 10,116 59,255 

Pension 50,225 14,478 64,703 61,090 11,392 72,482 

Depreciation 1,575,303 44,378 1,619,681 2,341,420 45,711 2,387,131 

Amortization 279 170,169 170,448 1,001 194,169 195,170 

(23) Income tax 

a. The ROC income tax authorities have assessed the income tax returns of the Company through 1999. 

b. There is no taxation charge on the profit on the Company due to the following: 

 

The Company is entitled to an income tax exemption for a period of five consecutive years for the 

income generated by sales of its TFT-LCD and 17 inches color display tubes. Following are details 

of the Company’s effective tax exemption periods: 

Tax exemption products 

TFT-LCD and 17 inches color display tubes 

Tax exemption period 

2000~2004 

TFT-LCD 

2002~2006 

29

In September 2003, the Company obtained the approval letter for claiming tax exemption in respect 

of setting its headquarter in Taiwan. 

c. The provision for income tax expenses consisted of: 


US dollars 


(Note 2) 

2003 2004 2004 

Income tax-current $- $- $- 

Income tax-deferred 36,265 (400,463) (12,135) 

Unrealized losses on long-term 

investments of foreign investee 

companies (68,086) 301,643 9,141 

Cumulative translation adjustment (5,679) (198,759) (6,023) 

Income tax expenses $(37,500) $(297,579) $(9,017) 

d. Significant components of the Company’s net deferred tax assets and liabilities on March 31, 2003 and 

2004 were as follows: 

US dollars 

New Taiwan dollars (Note 2) 

March 31, 

Components of deferred tax assets and liabilities 2003 2004 2004 

Deferred tax assets: 

Allowance for bad debts $31,061 $28,508 $864 

Employees’ welfare fund 4,090 1,401 42 

Pension expense 207,285 248,289 7,524 

Unrealized loss on decline of inventory value 101,500 9,250 280 

Unrealized intercomany losses 135,331 87,254 2,644 

Unrealized loss on Long-term investments 893,041 480,409 14,558 

Investment tax credit deferred to future years 4,686,740 5,303,683 160,718 

Unrealized loss on foreign exchange-net 5,755 22,892 694 

Operating loss carryforwards 1,918,989 1,602,545 48,562 

Others 76,659 9,202 279 

Compensation interest payable 41,512 20,047 607 

Total deferred tax assets $8,101,963 $7,813,480 $236,772 

30

Deferred tax liabilities: 

Investment income (3,959,686) (2,502,445) (75,832) 

Translation adjustment from long-term investments 

of overseas investee (483,847) (158,764) (4,811) 

Total deferred tax liabilities $(4,443,533) $(2,661,209) $(80,643) 

f. Deferred tax assets-current $1,390,916 $286,112 $8,670 

Valuation allowance-current (1,079,242) (286,112) (8,670) 

Net deferred tax assets-current $311,674 $- $- 

g. Deferred tax assets-non-current $6,711,047 $7,527,368 $228,102 

Valuation allowance-non-current (3,903,571) (5,893,832) (178,601) 

Net deferred tax assets-non-current 2,807,476 1,633,536 49,501 

Deferred tax liabilities-non-current (4,443,533) (2,661,209) (80,643) 

Net deferred tax liabilities-non-current $(1,636,057) $(1,027,673) $(31,142) 

h. As of March 31, 2004, the amount of unused investment tax credit arising from purchase of machinery for 

the automation of production and pollution control, expenditure for research development and training 

personnel and estimated tax losses can be carried forward in the future are summarized as follows: 

Investment tax credits item 

Investment tax 

credits 

unused investment tax 

credits 

Expiration Year 

Investment tax credits in production 

equipment $1,496,593 $1,496,593 2007 

198,558 198,558 2006 

2,121,532 2,121,532 2005 

$3,816,683 $3,816,683 

Investment tax credits in research and 

development expenditure, employee 

training expenditure $74,107 $74,107 2008 

361,834 361,834 2007 

508,712 508,712 2006 

317,989 317,989 2005 

323,565 224,358 2004 

$1,586,207 $1,487,000 

Tax loss carryforward $192,798 $192,798 2008 

94,509 94,509 2007 

1,315,238 1,315,238 2006 

$1,602,545 $1,602,545 

31

i. The integrated income tax information were as follows: 

US dollars 


March 31, 

2003 2004 2004 

Imputation credit account (ICA) $83,673 $61,639 1,868 

Unappropriated retained eamings (accumulated 

deficits) $(4,688,976) $6,105,574 $185,017 

The actual or expected creditable ratio for earnings distribution to ROC resident stockholders in 2003 and 

2004 are 0% and 6.03%, respectively. 

(24) Earnings (Losses) per share 

The following table sets forth the computation of the Company’s basic and diluted earnings per share: 


US dollars 

2003 2004 

(Note 2) 

Numerator: 

Net income(loss) $(1,126,094) $5,165,616 $156,534 

Numerator for basic and diluted earnings (losses) per 

share-income available to ordinary stockholders $(1,126,094) $5,168,577 $156,624 

Denominator: 

Denominator for basic earnings (losses) per share-weighted 

average shares (in thousands) 5,122,201 5,912,548 

Effect on dilutive securities (in thousands) - 754,194 

Denominator for diluted earnings losses per share-adjusted 

weighted average shares and assumed conversions (in 

thousands) 5,122,201 6,666,742 

Basic earnings (losses) per share $(0.22) $0.87 $0.03 

Diluted earnings (losses) per share $(0.22) $0.78 $0.02 

Since the Company recorded a loss from continuing operations for the three month period ended March 31, 

2003 the diluted loss per share is the same as basic, as any potentially dilutive securities would be antidilutive 

to continuing operations. 

32

(25) Technical cooperation agreement 

The term of 

the contract 

TFT-LCD 

Advanced Display Inc. April 1997 

| 

July 2006 

Content 

1. The Company is required to pay fees for using the 

technologies by installment. 

2. The Company is required to pay royalty fees based 

on certain percentage of net sales of the related 

products for continuing use of exclusive technology. 

3. ADI has the right to purchase not more than 15% of 

the total products from the Company at 90% of 

average selling price. The Company bears the 

shipping costs of the products to locations 

designated by ADI. 

Sharp Corporation January 2002 

| 

December 2006 


technologies by one time. 




Semiconductor Energy 

Laboratory Co., Ltd. 

January 2004 

| 

December 2008 






Hitachi January 2003 

| 

December 2010 






PDP 

Mitsubishi Electric Corporation October 1999 

| 

September 2006 






33

The Company along with five other companies of the same industry have signed an Agreement for Joint 

Ownership of Patent Right with Industrial Technology Research Institute (ITRI). According to the 

Agreement, ITRI agrees to share the ownership of TFT-LCD and related patent with contracting parties for 

seven years. ITRI will become the sole owner of the TFT-LCD patent right upon expiry of the agreement. 

The cost of the patent is amortized over the term of the patent agreement. 

The Company, Mitsubishi Electric Corporation and Advanced Display Inc. (a subsidiary of Mitsubishi Electric 

Corporation) have signed an Agreement for Joint Ownership of TFT-LCD’s Patent right and using 

technologies. The Company is obtained the patent after pay fees for using the technologies. 

The Company, Mitsubishi Electric Corporation and Advanced Display Inc. provided that these parties shall 

have no right to grant a license under any patent right to any third party without the prior written consent of 

the other joint owner of patent right. 

5. RELATED PARTY TRANSACTIONS 

(1) Related parties and relationship: 

Related parties 

Tatung Co., Ltd. 

Forward Electronic Co., Ltd. 

Toppan Chunghwa Electronics Co., Ltd. 

Tatung Chugai Precious Metals Co., Ltd. 

Tatung Atherton Co. 

Taiwan Telecommunication Industry Co., Ltd. 

Tatung-FDK Co., Ltd. 

Tatung Fine Chemical Co., Ltd. (formerly known as 

Tatung Coatings Co., Ltd.) 

Shang Chih International Express Co., Ltd. (formerly 

knows as Shang Chih Container Terminal Co., Ltd.) 

Tatung OTIS Elevator Co., Ltd. 

Tatung-Fanuc Robotics Company 

Tatung Co. of Japan, Inc. 

Tatung (U.K.) Ltd. 

Tatung (Thailand) Co., Ltd. 

Tatung Co. of America, Inc. 

Tatung Consumer Products (Taiwan) Co., Ltd. 

Kuender Company Co., Ltd. 

Tatung Okuma Co., Ltd. 

Tatung Electronics (Singapore) Pte Ltd. 

Tatung System Technology Inc. 

Chunghwa P.T. (Bermuda) Ltd. 

Relationship 

The Company's major stockholder and represented on the 

Company’s board of Directors 

An investee accounted for using equity method 

An investee accounted for using equity method 

Subsidiary of Tatung Co., Ltd. 

















A wholly owned subsidiary of the Company 

34

CPTF Optronics Co., Ltd. 

Chunghwa P.T. (Wujiang) Ltd. 

Chunghwa P.T. (Malaysia) Sdn. Bhd. 

Chunghwa P.T. (U.K.) Ltd. 

Chunghwa P.T. (Kampar) Sdn. Bhd. 

Chunghwa P.T. (Labuan) Ltd. 

Dalemont Investment Ltd. 

Daliant Investment Ltd. 

Bangalor Investment Ltd. 

Bensaline Investment Ltd. 

Makolin Electronics (M) Sdn. Bhd. 

Fujian Fujia Electronics Co., Ltd. 

Tokyo Toshiba Corporation 

Tatung University 

Tatung Information Technology (Jiang Su) Co., Ltd. 

Tatung Telecom Corporation 

TISNet Technology Inc. 

Lin, Chieng-Hon 

A subsidiary of the Company’s subsidiary 










The Company's affiliated companies 

The Company’s affiliated company accounted for using 

equity method 

The stockholder of Tatung Co., Ltd. 

The stockholder of Tatung Co., Ltd. 

Investee of Tatung Co., Ltd. 



The Chairman of board of directors and President of the 

Company (Position held since April 8, 2003) 

(2) Significant transactions with related parties: 

a. Operating Revenue 

US dollars 


(Note 2) 


2002 2003 

Percentage 

Percentage 

Name of Related Parties Amount of account Amount of account Amount 

Tatung Co., Ltd. $205,845 2.76 $18,239 0.08 $553 

Tatung (Thailand) Co., Ltd. 93,994 1.26 36,716 0.17 1,113 

Tatung Information Technology 

(Jiang Su) Co., Ltd. - - 3,004,550 13.43 91,047 

Chunghwa P.T. (Labuan) Ltd. 3,728,818 50.01 822,476 3.68 24,923 

Chunghwa P.T. (Kampar) Sdn. Bhd. 90,672 1.22 90,250 0.40 2,735 

Others 65,827 0.88 20,328 0.09 616 

Total $4,185,156 56.13 $3,992,559 17.85 $120,987 

There are no significant differences between prices sold to related parties and prices sold to ordinary 

customers. The comparison of collection terms between related parties and ordinary customers are 

summarized as follows: 

35


2003 2004 

Region Related parties Ordinary customers Related parties Ordinary customers 

Overseas 

Cash payment with 




60~120 days 

30~60 days 

60~120 days 

30~60 days 

D/A with 75 days 

D/A with 75 days 

L/C with 30~45 days L/C with 30~45 days 

ROC 





Domestic 

30~60 days 

30~60 days 

30~60 days 

30~60 days 

b. Purchases 

US dollars 


(Note 2) 


2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (Labuan) Ltd. $687 0.02 $5,210,356 43.97 $157,890 

Forward Electronics Co., Ltd. 69,411 1.78 16,709 0.14 506 

Others 8,004 0.20 2,884 0.03 87 

Total $78,102 2.00 $5,229,949 44.14 $158,483 

There are no significant differences between prices of inventory purchased from related parties and prices 

of inventory purchased from ordinary suppliers. The comparison of terms of payment between related 

parties and ordinary suppliers are summarized as follows: 

2003 2004 

Region Related parties Ordinary suppliers Related parties Ordinary suppliers 

Overseas T/T 30~180 days L/C, T/T 30~180 days T/T 30~180 days L/C, T/T 30~180 days 

ROC Domestic 30~60 days after QC 30~120 days after QC 30~60 days after QC 30~180 days after QC 

The operating revenues and purchases referred to above did not include the components sold to 

Chunghwa P.T. (Labuan) Ltd. for further process and then purchased back by the company. The 

resulting decreases of operating revenue and cost of purchase amounted to Nil and NT$13,145,277 for the 

three-month period ended March 31, 2003 and 2004, respectively. 

36

c. Fixed asset addition 

US dollars 


(Note 2) 


2003 2004 

Percentage 

Percentage 


Tatung Co., Ltd. $256,884 2.21 $118,870 3.61 $3,602 

Others 34,463 0.30 6,223 0.19 188 

Total $291,347 2.51 $125,093 3.80 $3,790 

d. Fixed asset disposal 

The amounts of assets disposed asset to related parties are summarized as follows: 


Deferred gain on 

sale of fixed assets 

Name of Related Parties Selling price Book value with equity investee 

Chunghwa P.T. (Labuan) Ltd. $611,347 $606,299 $5,048 

Chunghwa P.T. (Malaysia) Sdn. Bhd. 2,883 2,883 - 

Total (NT$) $614,230 $609,182 $5,048 


Gain on sale of 

Name of Related Parties Selling price Book value fixed assets 

Chunghwa P.T. (Malaysia) Sdn. Bhd. $913 $913 $- 

Tatung Co., Ltd. $790 $790 $- 

e. Expenditures 

US dollars 


(Note 2) 


2002 2003 

Percentage 

Percentage 

Name of Related Parties 

Amount of account Amount of account Amount 

Tatung Co. of Japan, Inc. $5,230 0.15 $2,338 0.04 $71 

Tatung Co. Ltd. 1,615 0.05 8,472 0.16 257 

Toppan Chunghwa Electronics Co., Ltd. 2,805 0.08 4,125 0.08 125 

Tatung System Technology Inc. 1,489 0.04 3,732 0.07 113 

Chunghwa P.T. (Labuan) Ltd. - - 3,004 0.06 91 

Others 1,861 0.05 1,213 0.02 37 

Total $13,000 0.37 $22,884 0.43 $694 

37

(1) The above expenditure incurred in connection with the purchases of materials, products or services 

from related parties. 

(2) The Company purchased certain raw material and components from Japan through the Company’s 

subsidiary, Tatung Co. of Japan, Inc. which charges the Company commission on such services. 

The total raw material purchased from this subsidiary amounted to NT$1,743,475 and NT$832,419 

for three-month period ended March 31, 2003 and March 31, 2004, respectively. The commission 

charged, included in the aforementioned purchase amount, amounted to NT$5,230 and NT$2,338 for 

the corresponding periods accordingly. 

f. Non-operating income-others 

US dollars 


(Note 2) 


2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (Malaysia) Sdn. Bhd. $105 0.13 $251 0.45 $8 

Chunghwa P.T. (Kampar) Sdn. Bhd. 412 0.51 435 0.78 13 

Chunghwa P.T. (Labuan) Ltd. 1,098 1.36 289 0.51 9 

Tatung System Technology Inc. 38 0.05 - - - 

Tatung Co., Ltd. 501 0.62 98 0.17 3 

Total $2,154 2.67 $1,073 1.91 $33 

g. Accounts Receivable-Trade 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Tatung Co., Ltd. $113,321 2.67 $10,825 0.35 $328 

Tatung (Thailand) Co., Ltd. 125,262 2.96 36,471 1.17 1,105 

Tatung Information Technology 

(Jiang Su) Co., Ltd. - - 2,803,868 89.94 84,966 

Chunghwa P.T. (Labuan) Ltd. 3,878,864 91.61 218,257 7.00 6,614 

Chunghwa P.T. (U.K.) Ltd. 68,281 1.61 - - - 

Others 48,579 1.15 48,205 1.54 1,461 

Total 4,234,307 100.00 3,117,626 100.00 94,474 

Less:Allowance for doubtful accounts (8,600) (0.20) (29,000) (0.93) (879) 

Net $4,225,707 99.80 $3,088,626 99.07 $93,595 

38

h. Due from affiliates – others 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (Bermuda) Ltd. $12,459 66.15 $6,614 54.77 $200 

Toppan Chunghwa Electronics Co., 

Ltd. 5,167 27.43 3,957 32.76 120 

Chunghwa P.T. (Labuan) Ltd. 1,203 6.39 1,203 9.96 37 

Others 6 0.03 303 2.51 9 

Total $18,835 100.00 $12,077 100.00 $366 

i. Accounts payable-Trade 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Forward Electronics Co., Ltd. $28,169 1.14 $9,042 0.23 $274 

Tatung Co. of Japan, Inc. 2,401,529 97.42 1,262,384 31.72 38,254 

Chunghwa P.T. (Labuan) Ltd. - - 2,658,134 66.80 80,550 

Others 35,371 1.44 49,875 1.25 1,511 

Total $2,465,069 100.00 $3,979,435 100.00 $120,589 

j. Due to affiliates-others 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (Labuan) Ltd. $- - $2,986 1.20 $91 

Tatung Co., Ltd. - - 31,949 12.81 968 

Tatung Co. of Japan, Inc. 1,554,146 98.82 209,369 83.94 6,345 

Tatung Telecom Corporation 1,418 0.09 2,546 1.02 77 

Others 17,232 1.09 2,587 1.03 78 

Total $1,572,796 100.00 $249,437 100.00 $7,559 

39

k. Other current liabilities 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (Labuan) Ltd. $3,733 4.67 $3,164 5.00 $96 

Chunghwa P.T. (Malaysia) Sdn. Bhd. 74,979 93.73 58,281 92.11 1,766 

Others 1,283 1.60 1,827 2.89 55 

Total $79,995 100.00 $63,272 100.00 $1,917 

l. Deferred gain on transaction with equity investee 

US dollars 


(Note 2) 

March 31, 

2003 2004 

Percentage 

Percentage 


Chunghwa P.T. (U.K.) Ltd. $112,913 7.61 $- - $- 

Chunghwa P.T. (Malaysia) Sdn. Bhd. 171,953 11.59 143,739 11.13 4,356 

Chunghwa P.T. (Labuan) Ltd. 256,457 17.29 196,351 15.21 5,950 

Chunghwa P.T. (Bermuda) and 

Dalemont Investment Sdn. Bhd. 942,055 63.51 942,055 72.97 28,547 

Chunghwa P.T. (Kampar) Sdn. Bhd. - - 8,925 0.69 270 

Total $1,483,378 100.00 $1,291,070 100.00 $39,123 

m. Guarantee 

The amount of the Company provided guarantee to its subsidiaries for the loans at March 31, 2004 were 

as follows: 

Name of Related Parties Amount Purpose 

Chunghwa P.T. (Bermuda) Ltd. USD 70,000 thousands Working Capital 

Chunghwa P.T. (U.K.) Ltd. USD 5,000 thousands 〃 

Chunghwa P.T. (U.K.) Ltd. GBP 800 thousands 〃 

CPTF Optronics Co., Ltd. USD 13,000 thousands 〃 

Chunghwa P.T. (Labuan) Ltd. USD 60,000 thousands 〃 

Toppan Chunghwa Electronics Co., Ltd. NTD 330,000 thousands 〃 

n. The loans were jointly secured by the President of the Company. Please see Notes 4.(9) and (11). 

40

o. The Company leased portions its plants to Toppan Chunghwa Electronics Co., Ltd. with generated rental 

revenue NT$3,559 and NT$3,639 for the three-month ended March 31, 2003 and 2004, respectively. The 

related receivables (recorded in due from affiliates-others) were NT$5,167 and NT$3,957 as of March 31, 

2003 and 2004, respectively. In addition, the Company charged Toppan Chunghwa Electronics Co., Ltd. 

Managements fees of NT$11,342 and NT$7,787 for the three-month ended March 31, 2003 and 2004, 

respectively, which was recorded as a deduction of expenditure of production, R&D and SG&A expenses. 

6. ASSETS PLEDGED OR MORTGAGED 

As at March 31, 2003 and 2004, the following assets were mortgaged to the banks, the customs and tax authority 

as collateral for bank loans and other credit facilities: 

Book Value 

US dollars 


Accounts Creditors 2003 2004 2004 

Building(carrying amount) (Note) Bank of Taiwan $2,198,386 $2,221,830 $67,328 

Machinery and equipment (carrying amount) Chiao Tung Bank 2,379,824 18,060,990 547,303 

Machinery and equipment (carrying amount) Bank of Taiwan 18,223,491 13,582,493 411,591 

(Note) 

Pledged time deposit General Office of 73,000 55,000 1,667 

the ROC Customs 

Pledged time deposit 

The ROC 

government of 

Keelung Country - 12,600 382 


Hua Nan Commercial 

Bank, Ltd. - 3,850 116 


Hua Nan Commercial 

Bank, Ltd. - 60,000 1,818 

Pledged time deposit Bank of Taiwan 112,736 - - 

Long-term investments 

ROC Tax 

-Tatung Co., Ltd. Authorities 251,314 - - 

$23,238,751 $33,996,763 $1,030,205 

(Note): The properties (Machinery and building) are pledged as collateral against borrowing with Bank of Taiwan. 

The Company has been repaid of the loan, while the corresponding pledges has not been done yet. 

41

7. COMMITMENTS AND CONTINGENT LIABILITIES 

a. The Company’s unused letters of credit were approximately USD$107,216, JPY$1,231,782, and CHF$138 as 

of March 31, 2004. 

b. The promissory notes issued for bank loans as disclosed in Note 5(2) amounted to NT$27,138,223. 

8. SIGNIFICANT DISASTER LOSS 

NONE. 

9. SIGNIFICANT SUBSEQUENT EVENT (UNAUDITED) 

The Board of Directors approved an employee stock option schemes at the meeting on April 20, 2004. 

at the date of this report, the relevant government of ROC has not approved yet. 

However, 

10. Other 

A. Disclosure of Financial Instruments 

1. Derivative Financial Instruments: 

(1) Foreign currency option contracts 

Types of derivative financial instruments, purpose of holding the derivative financial instruments, and 

the strategy for achieving the hedging purpose: 

The purpose of holding foreign currency option contracts is to hedge exchange rate fluctuation risks. 

The Company’s derivative financial instruments are foreign currency option contracts which are used 

to hedge against the risk of exchange rate fluctuation (hedging against accounts payable in Japanese 

Yen and British Pound or accounts receivable in US dollars and British Pound). The Company’s 

hedging strategy is to mitigate most of its market price risk. Derivative financial instruments 

selected for hedging purposes are anti-correlated with the fluctuation of the market value of 

derivatives hedged. Derivatives are evaluated periodically. 

42

(2) Details of contract amount or Notional amount: 

Unit:thousands 

March 31, 

2003 2004 

Financial instrument 

Contract amount or 

notional amount 

Contract amount or 

notional amount 

Forward foreign currency exchange contract USD$5,000 - 

Purchased foreign currency options- hedging (Buy 

NT$/Sell USD) USD126,000 USD429,000 

Purchased foreign currency options- hedging (Buy JP 

¥/Sell USD) USD1,360,060 USD5,841,350 

Purchased foreign currency options- hedging (Buy 

GBP/Sell GBP) - GBP24,100 

(3) Transaction risks relating to derivate instruments: 

Credit risk relating to derivative instrument: 

Credit risk represents the risk of loss that would be recognized at reporting date if counterparties 

failed to perform. The Company entered into the above derivative contracts with major 

international foreign banks or reputable local banks. The likelihood of default by the 

counterparties is considered remote. 

Market price risk relating to derivative instrument: 

Market price risk represents the accounting loss that would be recognized at the reporting date 

for the derivative financial instruments due to the changes in foreign exchange rates. In order to 

mitigate the risk, the Company has entered into forward foreign currency exchange contracts and 

foreign currency option contracts. As the Company’s derivative financial instruments are for 

hedging purposes, the gains or losses due to changes in foreign exchange rates will be offset by 

the hedged items. As a result, market price risk is considered minimal. 

Liquidity risk、cash flow risk and the uncertainty of future cash needs: 

Liquidity risk is the risk of being unable to settle the derivative contracts on schedule. In order 

to mitigate the risk, the Company’s has entered into forward foreign currency exchange contracts 

and foreign currency option contracts. The Company’s working capital is enough for the needs 

of cash upon the settlement of contracts, when there is cash inflows or cash outflows. As such, 

there is no significant liquidity risk for the related cash flows. Furthermore, the exchange rates 

of the forward exchange contract are fixed at the inception, so there is no significant cash flow 

risk. 

43

(4) Presentation of derivative instruments in the financial statements: 

The notional amount of the foreign currency option contracts entered into hedging purpose is not 

recognized as either assets or liabilities on the contract dates. The premium paid and received for 

these contract were nil as of March 31, 2004. 

2. Disclosures of risks for investments in credit-linked notes: 

Contract Amount: 

As of March 31, 2004, and amount of credit-linked notes was zero. 

Transaction risks relating to investments in credit-linked notes: 

(a) Credit Risk: 

Default from the issuers of underlying overseas convertible bonds might cause the value of 

investment reduced to zero. The Company reduced the credit risk to a minimum level by 

selecting the underlying overseas convertible bonds whose issuers are standing in good financial 

position and are willing to provide financial information to the public. 

(b) Market Risk: 

There is no market risk for the underlying investment except for the fluctuations in the exchange 

rate of US Dollar to NT Dollar. 

(c) Liquidity Risk: 

Liquidity risk means that the Company is unable to have the credit-linked notes redeemed before 

their maturity. Since the maturity period of the Company’s underlying investments were within 

one year, it is expected that the liquidity risk is reduced to a minimum level. 

(d) Presentation of investments in credit-linked notes in the financial statements: 

The Company received interest income of approximately NT$1,382 and nil from investments in 

credit-linked notes for three-month period ended March 31, 2003 and 2004, respectively. 

B. Fair value of financial instruments: 

44

1. Fair value of financial instruments: 


March 31, 

Non – derivative 2003 

Financial assets Book Value Fair value 

Cash and cash equivalents $11,602,305 $11,602,305 

Receivables, net 7,559,753 7,559,753 

Long-term investments, net 28,725,689 28,725,689 

Refundable deposits 27,832 27,832 

Short-term investments, net 1,633,624 1,633,624 

Pledged time deposits 185,736 185,736 

Other deferred charges 2,003,445 2,003,445 

Financial liabilities Book Value Fair value 

Short-term loans $5,186,653 $5,186,653 

Payables 13,829,442 13,829,442 

Other current liabilities 196,589 196,589 

Bond payable (including current portion) 10,519,562 10,519,562 

Long-term debt (including current portion) 19,845,384 19,845,384 


March 31, 

2003 

Derivatives Book value Fair value 

Hedging: 

Foreign currency options, net $51,640,585 $51,640,585 

Forward exchange contract, net 823 823 


March 31, 


Financial assets Book value Fair value 

Cash and cash equivalents $25,724,740 $25,724,740 

Receivables, net 14,064,059 14,064,059 

Long-term investments, net 29,475,988 29,475,988 

Refundable deposits 72,070 72,070 

Short-term investments, net 1,805,063 1,822,395 

Pledged time deposits 131,450 131,450 

Other deferred charges 1,593,542 1,593,542 

45 

New Taiwan dollars

March 31, 


Financial assets Book value Fair value 

Short-term loans 1,133,913 1,133,913 

Payables 16,353,785 16,353,785 

Other current liabilities 341,101 341,101 

Bonds payable (including current portion) 7,994,319 7,994,319 

Long-term debt (including current portion) 24,258,092 24,258,092 


March 31, 

2004 

Derivatives Book value Fair value 

Hedging: 

Foreign currency options, net $208,997,360 $208,997,360 

The methods and assumptions used to measure the fair value of financial instruments are as follows: 

The carrying amount of cash and cash equivalents, receivables, refundable deposits, pledged time deposits, 

deferred charges, short-term bank loans, payables and other current liabilities approximate fair value 

because of short maturity of these instruments. 

Short-term investments and long-term investments are measured based on quoted market prices for these 

instruments. If market prices are unavailable, fair values are measured based on financial or other 

information. 

The fair values of long-term bank loans due beyond one-year approximate carrying amounts as the 

long-term bank loans with bear interest at variable rates. The fair value of bonds payable is determined 

based on the sum of the carrying value of the bonds payable and accrued interest payable. 

The fair value of individual forward foreign currency exchange contracts is determined based on using the 

exchange rates listed by bank. The fair value of option contracts is determined based on the market price 

provided by bank. 

11. Litigation 

L.G. Philips LCD. Co., Ltd. (LGP) filed suit for patent infringement against the Company. The suit alleges that 

certain TFT-LCD products currently utilized by the Company infringe patents registered by LGP in the Taiwan 

and U.S. At the date of this report, due to the nature of the litigation, the Company cannot predict the ultimate 

outcome of the lawsuit. The Company believes that the suits will not a significant impact on its operations. 

46

non-consolidated - CHUNGHWA PICTURE TUBES, LTD.

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