Consolidated - CHUNGHWA PICTURE TUBES, LTD.

Tax credits arising from purchases of machinery, equipment and technology, research and development
expenditures, and employee training are recognized in the year that such purchases, expenditures and training
occur.
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 is recorded as income tax expense at the time stockholders resolve that
the Company’s earnings shall be retained.
Derivative financial instruments
Foreign currency forward exchange contracts:
Foreign currency forward exchange contracts entered into to manage currency risks are recorded at the spot rate at
the date of inception. The premium or discount of the forward exchange contract is amortized over the life of the
contract. Gains or losses on these contracts resulting from actual settlement are charged or credited to consolidated
statement of operations on settlement date. At the balance sheet date, the receivables and payables of the foreign
currency forward exchange contracts are offset and the resulting balances are recorded as either assets or liabilities.
The difference between the spot rate at the date of inception and the spot rate at balance sheet date is reflected in the
consolidated statement of operations.
Foreign currency option contracts:
Premiums and discounts on option contract are recorded at cost. The gains or losses arising from settlement of
such options are recorded in the consolidated statement of operations on settlement date. The premiums paid or
received for the call or put options are amortized using the straight-line method over the terms of contracts.
The carrying amount of outstanding call or put options at the balance sheet date is adjusted based on the rate of
exchange prevailing at the balance sheet date with differences included in the consolidated statement of operations.
Interest rate swap contracts:
No accounting entry is prepared for interest rate swap contracts at the contract date. Upon the settlement of the
contract, the actual amount received or paid is credited to or charged against current year income.
Earnings per common share
The Company presents basic earnings per share if a simple capital structure exists; or both basic earnings per share
and diluted earnings per share if a complex capital structure exists. Basic earnings per share is equal to the net
income attributable to common stock divided by the weighted-average number of common shares. When
calculating diluted earnings per share, the numerator includes or adds back potential common stock dividends,
interest and other conversion revenues (expenses). The denominator includes all potentially diluted common shares.
The weighted-average outstanding shares shall be retroactively adjusted for capital increases arising from transfer
of retained earnings, capital reserves and bonuses to employees.
Revenue recognition and allowance for sales discounts
The Company recognizes revenue when the earnings process is complete, as evidenced by an agreement with the
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