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CSC — Audit Report / Information 2012
Mar 26, 2013
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Download source fileChina Steel Corporation and Subsidiaries
Consolidated Financial Statements for the
Years Ended December 31, 2012 and 2011 and
Independent Auditors’ Report
INDEPENDENT AUDITORS’ REPORT
The Board of Directors and the Stockholders
China Steel Corporation
We have audited the accompanying consolidated balance sheets of China Steel Corporation (the “Corporation”) and its subsidiaries as of December 31, 2012 and 2011, and the related consolidated statements of income, changes in stockholders’ equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of the Corporation and its subsidiaries as of December 31, 2012 and 2011, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China.
March 22, 2013
Notice to Readers
The accompanying consolidated financial statements are intended only to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally accepted and applied in the Republic of China.
For the convenience of readers, the auditors' report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors' report and consolidated financial statements shall prevail. As stated in Note 2 to the consolidated financial statements, the additional footnote disclosures that are not required under generally accepted accounting principles were not translated into English.
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Par Value)
| 2012 | 2011 | 2012 | 2011 | |||||||||||||||
| ASSETS | Amount | % | Amount | % | LIABILITIES AND STOCKHOLDERS’ EQUITY | Amount | % | Amount | % | |||||||||
| CURRENT ASSETS | CURRENT LIABILITIES | |||||||||||||||||
| Cash and cash equivalents (Notes 2 and 4) | $ 20,545,123 | 3 | $ 17,480,092 | 3 | Short-term loans and overdraft (Notes 19 and 34) | $ 25,637,077 | 4 | $ 59,918,010 | 10 | |||||||||
| Financial assets at fair value through profit or loss - current (Notes 2, 5 | Commercial paper payable (Notes 20 and 34) | 28,679,430 | 5 | 22,357,900 | 4 | |||||||||||||
| and 32) | 3,635,688 | - | 3,124,636 | - | Financial liabilities at fair value through profit or loss - current (Notes | |||||||||||||
| Available-for-sale financial assets - current (Notes 2, 6 and 32) | 4,763,787 | 1 | 5,375,249 | 1 | 2, 5 and 32) | 4,362 | - | 90 | - | |||||||||
| Held-to-maturity financial assets - current (Notes 2, 10 and 32) | - | - | 60,550 | - | Hedging derivative liabilities - current (Notes 2, 7 and 32) | 240,380 | - | 53,331 | - | |||||||||
| Hedging derivative assets - current (Notes 2, 7 and 32) | 45,950 | - | 115,768 | - | Notes payable (Notes 27 and 33) | 261,617 | - | 1,066,418 | - | |||||||||
| Notes receivable, net (Notes 8, 27 and 33) | 1,490,986 | - | 1,901,604 | - | Accounts payable (Notes 27 and 33) | 10,332,163 | 2 | 10,131,244 | 2 | |||||||||
| Accounts receivable, net (Notes 2, 3, 8, 27 and 33) | 10,560,747 | 2 | 10,213,979 | 2 | Income tax payable (Notes 2 and 29) | 2,098,608 | - | 3,376,691 | - | |||||||||
| Other receivables (Note 29) | 1,530,801 | - | 2,346,521 | - | Accrued expenses (Notes 21 and 26) | 12,477,514 | 2 | 13,912,683 | 2 | |||||||||
| Other financial assets - current (Notes 2, 14 and 32) | 4,237,454 | 1 | 3,710,158 | 1 | Other payables (Note 2) | 9,175,241 | 2 | 8,456,717 | 1 | |||||||||
| Inventories (Notes 2, 9 and 27) | 84,282,534 | 14 | 115,961,466 | 19 | Bonds payable - current portion (Notes 22 and 32) | 11,272,543 | 2 | 11,270,086 | 2 | |||||||||
| Deferred income tax assets - current (Notes 2 and 29) | 2,058,931 | - | 3,623,367 | 1 | Long-term debt - current portion (Notes 23, 32 and 34) | 20,979,088 | 3 | 11,715,737 | 2 | |||||||||
| Restricted assets - current (Notes 4 and 34) | 6,942,080 | 1 | 6,906,442 | 1 | Deferred income tax liabilities - current (Notes 2 and 29) | 8,941 | - | - | - | |||||||||
| Others | 4,775,299 | 1 | 5,776,246 | 1 | Others (Notes 2, 9 and 27) | 7,018,591 | 1 | 6,546,124 | 1 | |||||||||
| Total current assets | 144,869,380 | 23 | 176,596,078 | 29 | Total current liabilities | 128,185,555 | 21 | 148,805,031 | 24 | |||||||||
| INVESTMENTS | LONG-TERM LIABILITIES | |||||||||||||||||
| Financial assets at fair value through profit or loss - noncurrent (Notes 2, | Financial liabilities at fair value through profit or loss - noncurrent | |||||||||||||||||
| 5 and 32) | 259 | - | 23,979 | - | (Notes 2, 5 and 32) | 1,739 | - | - | - | |||||||||
| Available-for-sale financial assets - noncurrent (Notes 2, 6 and 32) | 3,579,165 | 1 | 3,369,657 | 1 | Hedging derivative liabilities - noncurrent (Notes 2, 7 and 32) | 86,829 | - | 42,475 | - | |||||||||
| Held-to-maturity financial assets - noncurrent (Notes 2, 10 and 32) | 185,159 | - | 109,171 | - | Bonds payable (Notes 22 and 32) | 47,069,227 | 8 | 37,944,340 | 6 | |||||||||
| Hedging derivative assets - noncurrent (Notes 2, 7 and 32) | 6,983 | - | 124,920 | - | Long-term debt (Notes 23, 32 and 34) | 92,255,495 | 15 | 75,533,461 | 13 | |||||||||
| Financial assets carried at cost - noncurrent (Notes 2, 11 and 32) | 12,449,537 | 2 | 10,603,195 | 2 | Long-term notes payable (Notes 24 and 32) | 31,783,731 | 5 | 24,813,719 | 4 | |||||||||
| Bond investments with no active market - noncurrent (Notes 2, 12 and 32) | 3,536,086 | 1 | 4,050,222 | 1 | ||||||||||||||
| Investments accounted for by the equity method (Notes 2 and 13) | 2,606,530 | - | 2,618,993 | - | Total long-term liabilities | 171,197,021 | 28 | 138,333,995 | 23 | |||||||||
| Investments in real estate (Note 2) | 381,905 | - | 381,905 | - | ||||||||||||||
| Prepaid long-term stock investments | 12,942 | - | 10,000 | - | RESERVE FOR LAND VALUE INCREMENT TAX (Note 15) | 10,240,123 | 2 | 10,194,138 | 2 | |||||||||
| Other financial assets - noncurrent (Notes 2, 14 and 32) | 33,943 | - | 2,119,688 | - | ||||||||||||||
| OTHER LIABILITIES | ||||||||||||||||||
| Total investments | 22,792,509 | 4 | 23,411,730 | 4 | Accrued pension cost (Note 26) | 722,667 | - | 754,105 | - | |||||||||
| Deferred income tax liabilities - noncurrent (Notes 2 and 29) | 1,074,759 | - | 543,499 | - | ||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT (Notes 2, 7, 14, 15 and 34) | Others | 972,505 | - | 946,910 | - | |||||||||||||
| Land | 20,136,446 | 3 | 19,469,760 | 3 | ||||||||||||||
| Land improvements | 4,382,861 | 1 | 4,385,107 | 1 | Total other liabilities | 2,769,931 | - | 2,244,514 | - | |||||||||
| Buildings | 85,530,928 | 14 | 76,278,334 | 12 | ||||||||||||||
| Machinery and equipment | 460,321,046 | 74 | 427,093,330 | 70 | Total liabilities | 312,392,630 | 51 | 299,577,678 | 49 | |||||||||
| Transportation equipment | 21,184,928 | 3 | 19,648,382 | 3 | ||||||||||||||
| Other equipment | 18,248,914 | 3 | 17,722,397 | 3 | STOCKHOLDERS’ EQUITY OF PARENT COMPANY (Notes 2, 7, 14, 15, 28 | |||||||||||||
| Spare parts | 10,243,979 | 2 | 9,516,929 | 2 | and 34) | |||||||||||||
| Total cost | 620,049,102 | 100 | 574,114,239 | 94 | Capital stock - NT$10 par value, authorized 17,000,000 thousand shares | |||||||||||||
| Revaluation increment | 49,368,751 | 8 | 49,437,838 | 8 | Common shares - issued 15,272,477 thousand shares and 15,046,209 | |||||||||||||
| Cost and revaluation increment | 669,417,853 | 108 | 623,552,077 | 102 | thousand shares as of December 31, 2012 and 2011, respectively | 152,724,765 | 25 | 150,462,093 | 25 | |||||||||
| Less: Accumulated depreciation | 340,666,791 | 55 | 317,415,604 | 52 | Preferred shares - issued 38,268 thousand shares | 382,680 | - | 382,680 | - | |||||||||
| Accumulated impairment | 405,559 | - | 443,719 | - | Total capital stock | 153,107,445 | 25 | 150,844,773 | 25 | |||||||||
| 328,345,503 | 53 | 305,692,754 | 50 | Capital surplus | 36,673,528 | 6 | 36,247,705 | 6 | ||||||||||
| Construction in progress and prepayments for equipment | 108,359,520 | 18 | 96,851,192 | 16 | Retained earnings | 68,356,193 | 11 | 80,051,881 | 13 | |||||||||
| Other equity | ||||||||||||||||||
| Net property, plant and equipment | 436,705,023 | 71 | 402,543,946 | 66 | Unrealized revaluation increment | 26,750,124 | 4 | 26,757,590 | 4 | |||||||||
| Unrealized gain on financial instruments | 2,458,247 | - | 3,020,919 | - | ||||||||||||||
| INTANGIBLE ASSETS (Notes 2 and 16) | 3,303,202 | - | 2,246,170 | - | Cumulative translation adjustments | (393,229 ) | - | 17,192 | - | |||||||||
| Net loss not recognized as pension cost | (184,893 ) | - | (230,590 ) | - | ||||||||||||||
| OTHER ASSETS | Treasury stock - 309,816 thousand shares and 295,065 thousand shares as of | |||||||||||||||||
| Assets leased to others, net (Notes 2, 17 and 34) | 2,920,089 | 1 | 3,065,847 | 1 | December 31, 2012 and 2011, respectively | (8,415,348 ) | (1 ) | (8,122,461 ) | (1 ) | |||||||||
| Idle assets, net (Notes 2, 18 and 34) | 2,715,449 | - | 2,111,960 | - | Total other equity | 20,214,901 | 3 | 21,442,650 | 3 | |||||||||
| Refundable deposits (Note 32) | 431,779 | - | 428,431 | - | ||||||||||||||
| Deferred income tax assets - noncurrent (Notes 2 and 29) | 3,080,214 | 1 | - | - | Total stockholders’ equity of parent company | 278,352,067 | 45 | 288,587,009 | 47 | |||||||||
| Restricted assets - noncurrent (Notes 4 and 34) | 324,819 | - | 335,660 | - | ||||||||||||||
| Deferred charges and others (Notes 2 and 26) | 749,524 | - | 945,793 | - | MINORITY INTEREST | 27,147,291 | 4 | 23,520,928 | 4 | |||||||||
| Total other assets | 10,221,874 | 2 | 6,887,691 | 1 | Total stockholders’ equity | 305,499,358 | 49 | 312,107,937 | 51 | |||||||||
| TOTAL | $ 617,891,988 | 100 | $ 611,685,615 | 100 | TOTAL | $ 617,891,988 | 100 | $ 611,685,615 | 100 |
The accompanying notes are an integral part of the consolidated financial statements.
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
| 2012 | 2011 | |||||||
| Amount | % | Amount | % | |||||
| OPERATING REVENUES (Notes 2, 5, 13, 33 and 36) | $ 358,536,702 | 100 | $ 401,026,616 | 100 | ||||
| OPERATING COSTS (Notes 2, 5, 9, 13, 30 and 33) | 339,161,858 | 95 | 364,429,151 | 91 | ||||
| GROSS PROFIT | 19,374,844 | 5 | 36,597,465 | 9 | ||||
| REALIZED GAIN FROM AFFILIATES | 31,236 | - | 33,390 | - | ||||
| REALIZED GROSS PROFIT | 19,406,080 | 5 | 36,630,855 | 9 | ||||
| OPERATING EXPENSES (Note 30) | ||||||||
| Research and development | 1,683,491 | 1 | 1,746,706 | - | ||||
| Selling | 4,585,976 | 1 | 4,666,332 | 1 | ||||
| General and administrative | 5,121,636 | 1 | 6,026,874 | 2 | ||||
| Total operating expenses | 11,391,103 | 3 | 12,439,912 | 3 | ||||
| OPERATING INCOME | 8,014,977 | 2 | 24,190,943 | 6 | ||||
| NONOPERATING INCOME AND GAINS | ||||||||
| Interest income (Note 32) | 422,510 | - | 333,668 | - | ||||
| Dividend income | 288,315 | - | 319,067 | - | ||||
| Gain on sale of investments, net (Note 6) | 1,183,827 | 1 | 47,415 | - | ||||
| Exchange gain, net | 479,626 | - | 610,982 | - | ||||
| Reversal of impairment loss, net (Notes 2, 11, 17 and 18) | 4,932 | - | 264,656 | - | ||||
| Others (Notes 2, 5, 17 and 33) | 1,065,981 | - | 1,228,717 | 1 | ||||
| Total nonoperating income and gains | 3,445,191 | 1 | 2,804,505 | 1 | ||||
| NONOPERATING EXPENSES AND LOSSES | ||||||||
| Interest expense (Notes 15 and 32) | 2,790,260 | 1 | 2,059,062 | 1 | ||||
| Investment loss recognized under equity method, net (Note 13) | 230,005 | - | 434,947 | - | ||||
| Others (Notes 2, 5 and 30) | 758,970 | - | 1,136,456 | - | ||||
| Total nonoperating expenses and losses | 3,779,235 | 1 | 3,630,465 | 1 | ||||
| INCOME BEFORE INCOME TAX | 7,680,933 | 2 | 23,364,983 | 6 | ||||
| INCOME TAX (Notes 2 and 29) | 1,291,426 | - | 2,534,793 | 1 | ||||
| NET INCOME | $ 6,389,507 | 2 | $ 20,830,190 | 5 |
(Continued)
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Earnings Per Share)
| 2012 | 2011 | |||||||
| Amount | % | Amount | % | |||||
| ATTRIBUTABLE TO | ||||||||
| Stockholders of parent company | $ 5,811,490 | $ 19,493,679 | ||||||
| Minority interest | 578,017 | 1,336,511 | ||||||
| $ 6,389,507 | $ 20,830,190 |
| 2012 | 2011 | |||||||
| Before Income Tax | After Income Tax | Before Income Tax | After Income Tax | |||||
| EARNINGS PER SHARE (Note 31) | ||||||||
| Basic | $ 0.41 | $ 0.38 | $ 1.40 | $ 1.34 | ||||
| Diluted | $ 0.40 | $ 0.38 | $ 1.39 | $ 1.33 |
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Except Dividends Per Share)
| Other Equity | ||||||||||||||||||||||||||||
| Unrealized | ||||||||||||||||||||||||||||
| Issued | Retained Earnings | Unrealized | Gain on | Cumulative | Net Loss not | Total | ||||||||||||||||||||||
| Common | Preferred | Capital | Legal | Special | Unappropriated | Revaluation | Financial | Translation | Recognized as | Treasury | Minority | Stockholders’ | ||||||||||||||||
| Shares | Shares | Surplus | Reserve | Reserve | Earnings | Total | Increment | Instruments | Adjustments | Pension Cost | Stock | Interest | Equity | |||||||||||||||
| BALANCE, JANUARY 1, 2011 | $ 135,279,009 | $ 382,680 | $ 20,072,476 | $ 49,070,526 | $ 7,615,701 | $ 37,651,735 | $ 94,337,962 | $ 21,873,940 | $ 2,374,377 | $ (101,443 ) | $ (117,015 ) | $ (8,151,621 ) | $ 22,652,167 | $ 288,602,532 | ||||||||||||||
| Appropriation of 2010 earnings (Note 28) | ||||||||||||||||||||||||||||
| Legal reserve | - | - | - | 3,758,683 | - | (3,758,683 ) | - | - | - | - | - | - | - | - | ||||||||||||||
| Cash dividends to preferred stockholders - NT$1.99 per share | - | - | - | - | - | (76,153 ) | (76,153 ) | - | - | - | - | - | - | (76,153 ) | ||||||||||||||
| Cash dividends to common stockholders - NT$1.99 per share | - | - | - | - | - | (26,920,523 ) | (26,920,523 ) | - | - | - | - | - | - | (26,920,523 ) | ||||||||||||||
| Stock dividends to preferred stockholders - NT$0.5 per share | 19,134 | - | - | - | - | (19,134 ) | (19,134 ) | - | - | - | - | - | - | - | ||||||||||||||
| Stock dividends to common stockholders - NT$0.5 per share | 6,763,950 | - | - | - | - | (6,763,950 ) | (6,763,950 ) | - | - | - | - | - | - | - | ||||||||||||||
| Issuance of common stock for cash (Note 28) | 8,400,000 | - | 15,338,755 | - | - | - | - | - | - | - | - | - | - | 23,738,755 | ||||||||||||||
| Compensation cost of share-based payment | - | - | 98,826 | - | - | - | - | - | - | - | - | - | - | 98,826 | ||||||||||||||
| Net income in 2011 | - | - | - | - | - | 19,493,679 | 19,493,679 | - | - | - | - | - | 1,336,511 | 20,830,190 | ||||||||||||||
| Change in unrealized gain on available-for-sale financial assets | - | - | - | - | - | - | - | - | 141,223 | - | - | - | - | 141,223 | ||||||||||||||
| Change in unrealized revaluation increment (Note 15) | - | - | - | - | - | - | - | 4,739,111 | - | - | - | - | - | 4,739,111 | ||||||||||||||
| Adjustment from changes in equity recognized under equity method | - | - | 78,147 | - | - | - | - | 144,539 | 251,529 | - | (113,575 ) | 83 | - | 360,723 | ||||||||||||||
| Foreign exchange gain on translation of foreign-currency financial statements | - | - | - | - | - | - | - | - | - | 180,788 | - | - | - | 180,788 | ||||||||||||||
| Foreign exchange loss on hedge of a net investment in a foreign operation | - | - | - | - | - | - | - | - | - | (62,153 ) | - | - | - | (62,153 ) | ||||||||||||||
| Change in unrealized gain on financial instruments for cash flow hedging | - | - | - | - | - | - | - | - | 253,790 | - | - | - | - | 253,790 | ||||||||||||||
| Disposal of the Corporation’s shares held by subsidiaries (Note 28) | - | - | 106,638 | - | - | - | - | - | - | - | - | 404,810 | 404,642 | 916,090 | ||||||||||||||
| Cash dividends paid by the Corporation to subsidiaries | - | - | 552,863 | - | - | - | - | - | - | - | - | - | 334,670 | 887,533 | ||||||||||||||
| Purchase of the Corporation’s shares by subsidiaries | - | - | - | - | - | - | - | - | - | - | - | (375,733 ) | (304,548 ) | (680,281 ) | ||||||||||||||
| Adjustment of minority interest | - | - | - | - | - | - | - | - | - | - | - | - | (902,514 ) | (902,514 ) | ||||||||||||||
| BALANCE, DECEMBER 31, 2011 | 150,462,093 | 382,680 | 36,247,705 | 52,829,209 | 7,615,701 | 19,606,971 | 80,051,881 | 26,757,590 | 3,020,919 | 17,192 | (230,590 ) | (8,122,461 ) | 23,520,928 | 312,107,937 | ||||||||||||||
| Appropriation of 2011 earnings (Note 28) | ||||||||||||||||||||||||||||
| Legal reserve | - | - | - | 1,949,368 | - | (1,949,368 ) | - | - | - | - | - | - | - | - | ||||||||||||||
| Cash dividends to preferred stockholders - NT$1.25 per share | - | - | - | - | - | (47,835 ) | (47,835 ) | - | - | - | - | - | - | (47,835 ) | ||||||||||||||
| Cash dividends to common stockholders - NT$1.01 per share | - | - | - | - | - | (15,196,671 ) | (15,196,671 ) | - | - | - | - | - | - | (15,196,671 ) | ||||||||||||||
| Stock dividends to preferred stockholders - NT$0.15 per share | 5,740 | - | - | - | - | (5,740 ) | (5,740 ) | - | - | - | - | - | - | - | ||||||||||||||
| Stock dividends to common stockholders - NT$0.15 per share | 2,256,932 | - | - | - | - | (2,256,932 ) | (2,256,932 ) | - | - | - | - | - | - | - | ||||||||||||||
| Net income in 2012 | - | - | - | - | - | 5,811,490 | 5,811,490 | - | - | - | - | - | 578,017 | 6,389,507 | ||||||||||||||
| Change in unrealized gain on available-for-sale financial assets | - | - | - | - | - | - | - | - | (292,373 ) | - | - | - | - | (292,373 ) | ||||||||||||||
| Change in unrealized revaluation increment (Note 15) | - | - | - | - | - | - | - | (3,699 ) | - | - | - | - | - | (3,699 ) | ||||||||||||||
| Adjustment from changes in equity recognized under equity method | - | - | 114,069 | - | - | - | - | (3,767 ) | 6,430 | - | 45,697 | (7,462 ) | - | 154,967 | ||||||||||||||
| Foreign exchange loss on translation of foreign-currency financial statements | - | - | - | - | - | - | - | - | - | (688,584 ) | - | - | - | (688,584 ) | ||||||||||||||
| Foreign exchange gain on hedge of a net investment in a foreign operation | - | - | - | - | - | - | - | - | - | 278,163 | - | - | - | 278,163 | ||||||||||||||
| Change in unrealized gain on financial instruments for cash flow hedging | - | - | - | - | - | - | - | - | (276,729 ) | - | - | - | - | (276,729 ) | ||||||||||||||
| Disposal of the Corporation’s shares held by subsidiaries (Note 28) | - | - | 3,200 | - | - | - | - | - | - | - | - | 18,493 | 26,722 | 48,415 | ||||||||||||||
| Cash dividends paid by the Corporation to subsidiaries | - | - | 308,554 | - | - | - | - | - | - | - | - | - | 189,439 | 497,993 | ||||||||||||||
| Purchase of the Corporation’s shares by subsidiaries | - | - | - | - | - | - | - | - | - | - | - | (303,918 ) | (243,985 ) | (547,903 ) | ||||||||||||||
| Adjustment of minority interest | - | - | - | - | - | - | - | - | - | - | - | - | 3,076,170 | 3,076,170 | ||||||||||||||
| BALANCE, DECEMBER 31, 2012 | $ 152,724,765 | $ 382,680 | $ 36,673,528 | $ 54,778,577 | $ 7,615,701 | $ 5,961,915 | $ 68,356,193 | $ 26,750,124 | $ 2,458,247 | $ (393,229 ) | $ (184,893 ) | $ (8,415,348 ) | $ 27,147,291 | $ 305,499,358 |
The accompanying notes are an integral part of the consolidated financial statements.
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
| 2012 | 2011 | |||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||
| Net income | $ 6,389,507 | $ 20,830,190 | ||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||
| Depreciation | 28,472,930 | 26,138,374 | ||
| Amortization | 224,527 | 342,382 | ||
| Deferred income tax | (831,063 ) | (884,969 ) | ||
| Realized gain from affiliates | (31,236 ) | (33,390 ) | ||
| Provision for loss on inventories | 2,957,291 | 5,109,070 | ||
| Investment loss recognized under equity method, net | 229,786 | 435,181 | ||
| Cash dividends received from equity method investees | 61,357 | 49,712 | ||
| Gain on sale of investments | (1,388,735 ) | (314,108 ) | ||
| Impairment loss on financial assets | 70,255 | 133,459 | ||
| Impairment loss on non-financial assets | 30,028 | 14,853 | ||
| Reversal of impairment loss on non-financial assets | (39,773 ) | (353,305 ) | ||
| Compensation cost of share-based payment | - | 101,522 | ||
| Loss on purchase commitments | 1,207,659 | 642,388 | ||
| Others | (507,180 ) | 555,381 | ||
| Net changes in operating assets and liabilities | ||||
| Financial instruments held for trading | (102,045 ) | 524,897 | ||
| Notes receivable | 410,618 | (5,653 ) | ||
| Accounts receivable | (346,768 ) | (2,390,864 ) | ||
| Other receivables | 782,655 | (352,065 ) | ||
| Inventories | 29,036,689 | (31,410,614 ) | ||
| Other current assets | 1,000,947 | 579,218 | ||
| Notes payable | (804,801 ) | 590,148 | ||
| Accounts payable | 200,919 | 2,478 | ||
| Income tax payable | (1,209,803 ) | (1,894,141 ) | ||
| Accrued expenses | (1,438,896 ) | (1,859,921 ) | ||
| Other payables | (1,900,382 ) | 604,801 | ||
| Other current liabilities | 471,166 | (632,907 ) | ||
| Net cash provided by operating activities | 62,945,652 | 16,522,117 | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||
| Acquisition of financial assets designated as at fair value through profit or loss | (5,459,020 ) | (15,264,074 ) | ||
| Proceeds from disposal of financial assets designated as at fair value through profit or loss | 5,225,317 | 16,554,121 | ||
| Acquisition of available-for-sale financial assets | (5,151,785 ) | (5,759,289 ) | ||
| Proceeds from disposal of available-for-sale financial assets | 7,043,002 | 6,390,619 | ||
| Acquisition of held-to-maturity financial assets | (81,930 ) | (8,828 ) | ||
| Proceeds from disposal of held-to-maturity financial assets | 59,155 | 39,351 | ||
| Acquisition of financial assets carried at cost | (2,632,577 ) | (4,581,248 ) | ||
| Proceeds from disposal of financial assets carried at cost | 514,475 | 217,707 | ||
| Proceeds from the capital reduction on financial assets carried at cost | 47,448 | 22,566 | ||
| Acquisition of bond investments with no active market | (29,211 ) | (14,221 ) |
(Continued)
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
| 2012 | 2011 | |||
| Proceeds from disposal of bond investments with no active market | $ - | $ 1,439 | ||
| Acquisition of investments accounted for by the equity method | (277,000 ) | (152,669 ) | ||
| Proceeds from disposal of investments accounted for by the equity method | 9,033 | 13,460 | ||
| Increase in prepaid long-term stock investments | (13,119 ) | (10,000 ) | ||
| Net cash outflow for acquisition of subsidiaries | (125,724 ) | (426,558 ) | ||
| Proceeds from the capital reduction on investments accounted for by the equity method | 26,950 | - | ||
| Decrease (increase) in other financial assets | 1,254,318 | (915,013 ) | ||
| Acquisition of property, plant and equipment | (62,548,268 ) | (57,197,713 ) | ||
| Proceeds from disposal of property, plant and equipment | 66,578 | 61,384 | ||
| Increase in refundable deposits | (3,347 ) | (208,405 ) | ||
| Increase in restricted assets | (24,797 ) | (1,049,981 ) | ||
| Increase in intangible assets | (1,201,034 ) | (80,551 ) | ||
| Decrease in other assets | 57,573 | 106,061 | ||
| Net cash used in investing activities | (63,243,963 ) | (62,261,842 ) | ||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||
| Increase (decrease) in short-term loans and overdraft | (34,196,112 ) | 12,814,866 | ||
| Increase in commercial paper payable | 6,321,530 | 5,495,913 | ||
| Issuance of bonds payable | 20,595,100 | 19,700,000 | ||
| Repayments of bonds payable | (11,275,000 ) | (13,700,000 ) | ||
| Proceeds from long-term debt | 55,328,586 | 15,774,514 | ||
| Repayments of long-term debt and restructured loans payable | (28,258,485 ) | (9,629,482 ) | ||
| Increase in long-term notes payable | 6,970,012 | 19,417,060 | ||
| Increase in other liabilities | 54,636 | 75,016 | ||
| Cash dividends paid by parent company | (14,738,479 ) | (26,103,400 ) | ||
| Issuance of common stock for cash | - | 23,738,755 | ||
| Purchase of parent company's shares by subsidiaries | (547,903 ) | (680,281 ) | ||
| Disposal of parent company's shares held by subsidiaries | 48,415 | 916,090 | ||
| Increase (decrease) in minority interest | 3,061,042 | (1,437,316 ) | ||
| Net cash provided by financing activities | 3,363,342 | 46,381,735 | ||
| NET INCREASE IN CASH AND CASH EQUIVALENTS | 3,065,031 | 642,010 | ||
| CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR | 17,480,092 | 16,838,082 | ||
| CASH AND CASH EQUIVALENTS, END OF YEAR | $ 20,545,123 | $ 17,480,092 | ||
| SUPPLEMENTAL CASH FLOW INFORMATION | ||||
| Interest paid | $ 3,421,283 | $ 2,867,376 | ||
| Capitalized interest | (718,816 ) | (786,209 ) | ||
| Interest paid (excluding capitalized interest) | $ 2,702,467 | $ 2,081,167 | ||
| Income tax paid | $ 3,332,292 | $ 5,313,903 | ||
(Continued)
CHINA STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars)
| 2012 | 2011 | |||
| INVESTING AND FINANCING ACTIVITIES AFFECTING BOTH CASH AND NON-CASH ITEMS | ||||
| Cash paid for acquisition of property, plant and equipment | ||||
| Acquisition of property, plant and equipment | $ 63,951,432 | $ 53,159,934 | ||
| Decrease (increase) in payable for equipment purchased | (1,403,164 ) | 4,037,779 | ||
| $ 62,548,268 | $ 57,197,713 | |||
| Cash dividends paid to stockholders | ||||
| Total cash dividends payable to stockholders | $ 15,244,506 | $ 26,996,676 | ||
| Cash dividends paid by parent company to subsidiaries | (497,993 ) | (887,533 ) | ||
| Increase in dividends payable | (8,034 ) | (5,743 ) | ||
| $ 14,738,479 | $ 26,103,400 | |||
| NON-CASH FINANCING ACTIVITIES | ||||
| Current portion of long-term liabilities | $ 32,251,631 | $ 22,985,823 |
The accompanying notes are an integral part of the consolidated financial statements. (Concluded)
CHINA STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2012 AND 2011
(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)
1. ORGANIZATION AND OPERATIONS
China Steel Corporation (the “Corporation”) was incorporated on December 3, 1971. It manufactures and sells steel products and engages in mechanical, communications, and electrical engineering.
The shares of the Corporation and its subsidiaries, including China Steel Structure Co., Ltd., China Steel Chemical Corporation, China Hi-Ment Corporation, China Ecotech Corporation and Chung Hung Steel Corporation Ltd., have been listed on the Taiwan Stock Exchange. The shares of the subsidiary Thintech Materials Technology Co., Ltd. have been traded on the Taiwan GreTai Securities Market since November 20, 2012. The subsidiary Dragon Steel Corporation has issued shares to the public.
As of December 31, 2012 and 2011, the Ministry of Economic Affairs (“MOEA”), Republic of China owned both 20.05% of the Corporation’s issued common stock.
As of December 31, 2012 and 2011, the Corporation and its subsidiaries had about 23,000 and 22,200 employees, respectively.
For the years ended December 31, 2012 and 2011, all the subsidiaries that comprised the consolidated financial statements and their changes are listed as follows:
| Percentage of Ownership (%) | ||||||||||
| December 31 | Additional | |||||||||
| Name of Investor | Name of Investee | Main Business | 2012 | 2011 | Descriptions | |||||
| China Steel Corporation | China Steel Express Corporation (CSE) | Ocean freight forwarding | 100 | 100 | ||||||
| C. S. Aluminium Corporation (CAC) | Production and sale of aluminum and other non-ferrous metal | 100 | 100 | |||||||
| Gains Investment Corporation (GIC) | General investment | 100 | 100 | |||||||
| China Prosperity Development Corporation | Real estate sale, rental and development service | 100 | 100 | |||||||
| China Steel Asia Pacific Holdings Pte Ltd. (CSAPH) | Investment holding company | 100 | 100 | |||||||
| China Steel Global Trading Corporation (CSGT) | Steel product agency and trading service | 100 | 100 | |||||||
| China Steel Machinery Corporation (CSMC) | Manufacture of machinery and equipment | 74 | 74 | Direct and indirect ownerships amounted to 100% | ||||||
| China Steel Security Corporation | Guard security and system security | 100 | 100 | |||||||
| Info-Champ Systems Corporation (ICSC) | Design and sale of IT hardware and software | 100 | 100 | |||||||
| CSC Steel Australia Holdings Pty Ltd. (CSCAU) | Investment holding company | 100 | 100 | |||||||
| Horng Yih Investment Corporation | General investment | 100 | 100 | |||||||
| Long Yuan Fa Investment Corporation | General investment | 100 | 100 | |||||||
| Goang Yaw Investment Corporation | General investment | 100 | 100 | |||||||
| Himag Magnetic Corporation | Manufacture and trading of magnetic powder | 50 | 50 | Direct and indirect ownerships amounted to 85% | ||||||
| Dragon Steel Corporation (DSC) | Manufacture and sale of steel product | 100 | 100 |
(Continued)
| Percentage of Ownership (%) | ||||||||||
| December 31 | Additional | |||||||||
| Name of Investor | Name of Investee | Main Business | 2012 | 2011 | Descriptions | |||||
| China Steel Management Consulting Corporation | Business management consultant | 100 | 100 | |||||||
| China Ecotek Corporation (CEC) | Electrical engineering and co-generation | 48 | 49 | Refer to a. below | ||||||
| China Steel Chemical Corporation (CSCC) | Production and sale of coal chemistry and specialty chemicals | 29 | 29 | Refer to a. below | ||||||
| Chung Hung Steel Corporation Ltd. (CHSC) | Manufacture and sale of steel product | 29 | 29 | Direct and indirect ownerships amounted to 41%, and refer to a. below | ||||||
| China Hi-Ment Corporation (CHC) | Manufacture and sale of slag powder and blast furnace cement, and waste disposal | 20 | 20 | Direct and indirect ownerships amounted to 35%, and refer to a. below | ||||||
| China Steel Structure Co., Ltd. (CSSC) | Design, manufacture and sale of steel structure | 33 | 33 | Direct and indirect ownerships amounted to 37%, and refer to a. below | ||||||
| China Steel Sumikin Vietnam Joint Stock Company (CSVC) | Manufacture of steel product | 51 | 51 | |||||||
| China Steel Corporation India Pvt. Ltd. | Manufacture and sale of steel product (electromagnetic steel coil) | 100 | - | Investment in January 2012 | ||||||
| Winning Investment Corporation (WIC) | General investment | - | - | Indirect ownership was 58% | ||||||
| Eminent Venture Capital Corporation (EVCC) | General investment | - | - | Indirect ownership was 55% | ||||||
| China Steel Express Corporation | CSE Transport Corporation (Panama) | Ocean freight forwarding | 100 | 100 | ||||||
| CSEI Transport Corporation (Panama) | Ocean freight forwarding | 100 | 100 | |||||||
| Transyang Shipping Pte Ltd. | Ocean freight forwarding | 51 | 51 | |||||||
| Transglory Investment Corporation (TIC) | General investment | 50 | 50 | Direct and indirect ownerships amounted to 100% | ||||||
| C.S. Aluminium Corporation | ALU Investment Offshore Corporation | Industry investment | 100 | 100 | ||||||
| ALU Investment Offshore Corporation | United Steel International Development Corp. | Industry investment | 65 | 65 | Direct and indirect ownerships amounted to 79% | |||||
| United Steel International Development Corp. | Ningbo Huayang Aluminium-Tech Co., Ltd. | Manufacture and sale of aluminum alloy material | 100 | 100 | ||||||
| Gains Investment Corporation | Eminence Investment Corporation | General investment | 100 | 100 | ||||||
| Gainsplus Asset Management Inc. | General investment | 100 | 100 | |||||||
| Mentor Consulting Corporation | General investment consulting service | 100 | 100 | |||||||
| AmbiCom Technology, Inc. | Wholesale of office machinery and equipment | 80 | 80 | |||||||
| Betacera Inc. (BETA) | Manufacture, processing and trading of electronic ceramics | 48 | 48 | Refer to a. below | ||||||
| Universal Exchange Inc. | Software programming | 64 | 57 | |||||||
| Thintech Materials Technology Co., Ltd. (TMTC) | Target material and bimetal material tube sale | 33 | 36 | Direct and indirect ownerships amounted to 42% and 46% as of December 31, 2012 and 2011, respectively, and refer to b. below |
(Continued)
| Percentage of Ownership (%) | ||||||||||
| December 31 | Additional | |||||||||
| Name of Investor | Name of Investee | Main Business | 2012 | 2011 | Descriptions | |||||
| Eminence Investment Corporation | Shin-Mau Investment Corporation | General investment | 30 | 30 | Direct and indirect ownerships amounted to 100% | |||||
| Gau Ruel Investment Corporation | General investment | 25 | 25 | Direct and indirect ownerships amounted to 100% | ||||||
| Ding Da Investment Corporation | General investment | 30 | 30 | Direct and indirect ownerships amounted to 100% | ||||||
| Chiun Yu Investment Corporation | General investment | 25 | 25 | Direct and indirect ownerships amounted to 100% | ||||||
| Shin-Mau Investment Corporation | Horng Chyuan Investment Corporation | General investment | 5 | 5 | Direct and indirect ownerships amounted to 100% | |||||
| Chi Yih Investment Corporation | General investment | 5 | 5 | Direct and indirect ownerships amounted to 100% | ||||||
| Gau Ruel Investment Corporation | Lih Ching Loong Investment Corporation | General investment | 5 | 5 | Direct and indirect ownerships amounted to 100% | |||||
| Sheng Lih Dar Investment Corporation | General investment | 4 | 4 | Direct and indirect ownerships amounted to 100% | ||||||
| Ding Da Investment Corporation | Jiing Cherng Fa Investment Corporation | General investment | 4 | 4 | Direct and indirect ownerships amounted to 100% | |||||
| Betacera Inc. | Lefkara Ltd. | Electronic ceramics trading | 100 | 100 | ||||||
| Lefkara Ltd. | Shang Hai Xike Ceramic Electronic Co., Ltd. | Manufacture and sale of electronic ceramics | 100 | 100 | ||||||
| Betacera (Su Zhou) Co., Ltd. | Manufacture and sale of electronic ceramics | 100 | 100 | |||||||
| Suzhou Betacera Technology Co., Ltd. | Manufacture and sale of life-saving equipment for aviation and shipping | 100 | 100 | |||||||
| Thintech Materials Technology Co., Ltd. | Thintech International Limited (TTIL) | International trading and investment service | 100 | 100 | ||||||
| Thintech Global Limited | International trading and investment service | 100 | 100 | |||||||
| Thintech United Limited | Investment holding company | 100 | - | Investment in April 2012 | ||||||
| Thintech International Limited | Nantong Zhongxing Materials Technology Co., Ltd. (NZMTCL) | Manufacture, processing and trading of target material | 47 | 47 | Refer to a. below | |||||
| Thintech Global Limited | Taicang Thintech Materials Co., Ltd. | Manufacture, processing and trading of target material | 100 | 100 | ||||||
| Thintech United Limited | Thintech United Metal Resources (Taicang) Co., Ltd. | Refining, purification and sale of metal | 65 | - | Investment in April 2012 | |||||
| China Prosperity Development Corporation | CK Japan Co., Ltd. | Real estate sale and rental | 80 | - | Established in January 2012; direct and indirect ownerships amounted to 100% | |||||
| China Steel Asia Pacific Holdings Pte Ltd. | CSC Steel Holdings Berhad (CSHB) | Investment holding company | 46 | 46 | Refer to a. below | |||||
| Changzhou China Steel Precision Materials Corporation (CCSPMC) | Manufacture and sale of titanium-nickel alloy and non-ferrous metal | 70 | 70 | |||||||
| Qingdao China Steel Precision Metals Co., Ltd. | Steel cutting and processing | 60 | - | Investment in December 2012; direct and indirect ownerships amounted to 70% |
(Continued)
| Percentage of Ownership (%) | ||||||||||
| December 31 | Additional | |||||||||
| Name of Investor | Name of Investee | Main Business | 2012 | 2011 | Descriptions | |||||
| CSC Steel Holdings Berhad | CSC Steel Sdn. Bhd. | Manufacture and sale of steel product | 100 | 100 | ||||||
| Group Steel Corp. (M) Sdn. Bhd. | Manufacture and sale of steel product | 100 | 100 | |||||||
| CSC Bio-Coal Sdn. Bhd. (formerly Ornaconstruction Corp. Sdn. Bhd.) | Manufacture biomass coal | 100 | 100 | |||||||
| CSC Steel Sdn. Bhd. | Constant Mode Sdn. Bhd. | General investment | 100 | 100 | ||||||
| China Steel Global Trading Corporation | Chung Mao Trading (SAMOA) Co., Ltd. | Investment and trading service | 100 | 100 | ||||||
| CSGT (Singapore) Pte. Ltd. | Steel product agency and trading service | 100 | 100 | |||||||
| Chung Mao Trading (BVI) Co., Ltd. | Steel product agency and trading service | 53 | 53 | |||||||
| Wabo Global Trading Corporation | Steel product agency and trading service | 44 | 44 | Direct and indirect ownerships amounted to 50% | ||||||
| CSGT International Corporation (CIC) | Investment and trading service | 100 | 100 | |||||||
| Chung Mao Trading (SAMOA) Co., Ltd. | CSGT (Shanghai) Co., Ltd. | Steel product agency and trading service | 100 | 100 | ||||||
| Chung Mao Trading (BVI) Co., Ltd. | CSGT Hong Kong Limited | Steel product agency and trading service | 100 | 100 | ||||||
| CSGT International Corporation | CSGT Metals Vietnam Joint Stock Company | Steel cutting and processing | 45 | 45 | Direct and indirect ownerships amounted to 50% | |||||
| Wabo Global Trading Corporation | CSGT Japan Co., Ltd. | Steel product agency and trading service | 100 | 100 | ||||||
| China Steel Machinery Corporation | China Steel Machinery Holding Corporation | General investment | 100 | - | Investment in November 2012 | |||||
| China Steel Security Corporation | Steel Castle Technology Corporation | Firefighting equipment wholesaling | 100 | 100 | ||||||
| China Steel Management and Maintenance for Building Corporation | Building management | 100 | - | Investment in January 2012 | ||||||
| Info-Champ Systems Corporation | Info-Champ System (B.V.I.) | Information service | 100 | 100 | ||||||
| Info-Champ System (B.V.I.) | Wuham InfoChamp I.T. Co., Ltd. | Software programming | 100 | 100 | ||||||
| CSC Steel Australia Holdings Pty Ltd. | CSC Sonoma Pty Ltd. | General investment | 100 | 100 | ||||||
| Himag Magnetic Corporation | Himag Magnetic (Belize) Corporation | Magnetic powder trading | 100 | 100 | ||||||
| China Ecotek Corporation | CEC International Corp. | General investment | 100 | 100 | ||||||
| CEC Development Co. | General investment | 100 | 100 | |||||||
| China Ecotek Construction Corporation | Construction, interior design and decoration, and retail and wholesale of building materials | 100 | - | Investment in October 2012 | ||||||
| CEC International Corp. | China Ecotek India Private Limited | Planning, maintenance and management of eco-construction and eco-equipment | 100 | - | Investment in November 2012 | |||||
| CEC Development Co. | China Ecotek Vietnam Company Ltd. (CEVC) | Engineering design and construction | 100 | 100 | ||||||
| Xiamen Ecotek PRC Co., Ltd. | Metal materials agency and trading service | 100 | 100 | |||||||
| China Steel Chemical Corporation | Ever Glory International Co., Ltd. (EGI) | International trading | 100 | 100 | ||||||
| Ever Wealthy Investment Corporation (EWIC) | General investment | 100 | 100 | |||||||
| Ever Wealthy Investment Corporation | Ever Earning Investment Company | General investment | 51 | 51 | Direct and indirect ownerships amounted to 100% |
(Continued)
| Percentage of Ownership (%) | ||||||||||
| December 31 | Additional | |||||||||
| Name of Investor | Name of Investee | Main Business | 2012 | 2011 | Descriptions | |||||
| Chung Hung Steel | Taiwan Steel Corporation | Manufacture of steel product | 100 | 100 | ||||||
| Corporation Ltd. | Hung Kao Investment Corporation | General investment | 100 | 100 | ||||||
| Hung Li Steel Corporation Ltd. (HLSC) | Steel product processing | 100 | 100 | |||||||
| China Hi-Ment Corporation | Union Steel Development Corp. | Manufacture and trading of metal powder and ore powder, and gift trading | 93 | 93 | ||||||
| Pao Good Industrial Co., Ltd. | Slag powder processing and trading | 51 | 51 | |||||||
| Yu Cheng Lime Corporation (YCC) | Manufacture of other non-metal mineral product | 90 | - | Investment in March 2012 | ||||||
| China Steel Structure Co., Ltd. | United Steel Constructure Corporation | Contract project of civil engineering and construction engineering, and steel structure installation | 100 | 100 | ||||||
| China Steel Structure Investment Pte Ltd. | General investment | 100 | 100 | |||||||
| United Steel Constructure Corporation | United Steel Investment Holding Co., Ltd. | General investment | 100 | 100 | ||||||
| United Steel Investment Pte Ltd. | General investment | 100 | 100 | |||||||
| Lian Chuan Construction Consultation (Shanghai) Co., Ltd. | Engineering technology consulting | 100 | 100 | |||||||
| United Steel Construction Vietnam Co., Ltd. | Civil engineering construction and other business contract and management | 100 | 100 | |||||||
| United Steel Development Co., Ltd. | Construction development and rental business | 100 | 100 | |||||||
| United Steel Investment Holding Co., Ltd. | United Steel International Co., Ltd. | General investment | 100 | 100 | ||||||
| United Steel International Co., Ltd. | United Steel Engineering and Construction Co., Ltd. | Civil engineering construction and other business contract and management | 100 | 100 | ||||||
| China Steel Structure Investment Pte Ltd. | China Steel Structure Holding Co., Ltd. | General investment | 63 | 63 | Direct and indirect ownerships amounted to 100% | |||||
| China Steel Structure Holding Co., Ltd. | China Steel Structure Investment Co., Ltd. | General investment | 100 | 100 | ||||||
| China Steel Structure Investment Co., Ltd. | Chung-Kang Steel Structure (Kunshan) Co., Ltd. | Steel structure installation, consulting and steel plate cutting | 100 | 100 |
(Concluded)
Explanations for subsidiaries which are less than 50% owned but included in the consolidated entities are as follows:
a. The actual operations of CEC, CSCC, CHSC, CHC, CSSC, BETA and NZMTCL are controlled by the respective board of directors. The Corporation and its subsidiaries jointly had more than half of the seats in the board of directors of CEC, CSCC, CHSC, CHC, CSSC, BETA and NZMTCL. The actual operation of CSHB is also controlled by the board of directors. The Corporation’s subsidiaries had control of more than half of the voting rights in the board of directors. Therefore, the Corporation had control-in-substance over the aforementioned entities and included them in the consolidated entities.
b. The chairmen and general managers of TMTC are designated by the Corporation and its subsidiaries in order to control its finance, operation, and human resources. Therefore, the Corporation had control-in-substance over the aforementioned entity and included it in the consolidated entities.
In June 2011, the subsidiaries DSC, CEC and EWIC, etc. further invested NT$228,678 thousand in the subsidiary CSSC, acquiring 8,100 thousand shares, which increased the Corporation’s total equity in CSSC to 37%.
The subsidiary CHC invested NT$128,000 thousand to acquire 108 thousand shares (90% shareholding) of YCC from Chien Tai Cement Co., Ltd. through open competitive bidding on March 28, 2012. The fair value of the assets and liabilities of the investee at the date of investment was as follows:
| Current assets | $ 5,459 | |||
| Property, plant and equipment | 189,587 | |||
| Other assets | 433 | |||
| Current liabilities | (5,078 ) | |||
| Reserve for land value increment tax | (45,985 ) | |||
| Other liabilities | (2,194 ) | |||
| Minority interest | (14,222 ) | |||
| Purchase price | 128,000 | |||
| Less: Cash acquired on the acquisition date | 2,276 | |||
| Net cash outflow for acquisition of YCC | $ 125,724 |
The acquisition of YCC by CHC was accounted for as a purchase as prescribed by Statement of Financial Accounting Standards (SFAS) No. 25, “Business Combination - Accounting Treatment under Purchase Method.” Assuming the shareholding was acquired on January 1, 2011, pro forma consolidated operating result would not have significant impact on the Corporation and its subsidiaries’ consolidated statements of income.
The subsidiary CSAPH acquired equity of CCSPMC in January 2011 and the subsidiary TTIL acquired equity of NZMTCL in December 2011. The fair value of the assets and liabilities of the investees at the date of investment was as follows:
| Current assets | $ 535,956 | |||
| Property, plant and equipment | 705,463 | |||
| Intangible assets | 128,490 | |||
| Current liabilities | (5,701 ) | |||
| Minority interest | (409,790 ) | |||
| Purchase price | 954,418 | |||
| Less: Equity acquired in prior years | 22,817 | |||
| Cash acquired on the acquisition date | 505,043 | |||
| Net cash outflow for acquisition of CCSPMC and NZMTCL | $ 426,558 |
Both the acquisition of CCSPMC by CSAPH and the acquisition of NZMTCL by TTIL were accounted for as a purchase as prescribed by SFAS No. 25, “Business Combination - Accounting Treatment under Purchase Method.” Assuming the shareholding was acquired on January 1, 2011, pro forma consolidated operating result would not have significant impact on the Corporation and its subsidiaries’ consolidated statements of income.
The Corporation’s shares are acquired and held by subsidiaries for investment purpose.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements have been prepared in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and accounting principles generally accepted in the Republic of China (“ROC GAAP”).
For readers’ convenience, the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretations between the two versions, the Chinese version of the consolidated financial statements shall prevail. However, the accompanying consolidated financial statements do not include English translation of the additional footnote disclosures that are not required under generally accepted accounting principles but are required by the Securities and Futures Bureau for their oversight purposes.
Significant accounting policies are summarized as follows:
Basis of Consolidation
As stated in Note 1, the Corporation included in the consolidated financial statements all investees in which it has control-in-substance. All significant intercompany transactions (including sidestream transactions) and balances are eliminated upon consolidation.
Foreign-currency Transactions and Translation of Foreign-currency Financial Statements
The Corporation and its subsidiaries use their functional currency as their reporting currency.
Non-derivative foreign-currency transactions are recorded in functional currency at the exchange rates in effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss.
At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing exchange rates and the exchange differences are recognized in profit or loss.
At the balance sheet date, foreign-currency nonmonetary assets and liabilities that are measured at fair value are revalued using prevailing exchange rates, with the exchange differences treated as follows:
a. Recognized in stockholders’ equity if the changes in fair value are recognized in stockholders’ equity;
b. Recognized in profit and loss if the changes in fair value are recognized in profit or loss.
Foreign-currency nonmonetary assets and liabilities that are carried at cost continue to be stated at historical exchange rates at trade dates.
The financial statements of foreign subsidiaries are translated into New Taiwan dollars at the following exchange rates: Assets and liabilities - at exchange rates prevailing on balance sheet date; stockholders’ equity - at historical exchange rates; dividends - at the exchange rate prevailing on the dividend declaration date; income and expenses - at average exchange rates for the year. The resulting translation adjustments are recorded as a separate component of stockholders’ equity.
If the functional currency of an equity-method investee is a foreign currency, translation adjustments will result from the translation of the investee’s financial statements into the reporting currency of the Corporation. Such adjustments are accumulated and reported as a separate component of stockholders’ equity.
Accounting Estimates
Under above guidelines and principles, certain estimates and assumptions have been used for the allowance for doubtful accounts, provision for loss on inventories, depreciation, impairment loss on assets, reserve for construction guaranties, loss on commitments, pension, loss on pending litigations, income tax, bonuses to employees and remuneration to directors and supervisors, etc. Actual results may differ from these estimates.
Current and Noncurrent Assets and Liabilities
Current assets include cash and cash equivalents and those assets held primarily for trading purposes or to be realized, sold or consumed within one year from the balance sheet date. All other assets such as property, plant and equipment and intangible assets are classified as noncurrent. Current liabilities are obligations incurred for trading purposes or to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent.
For the Corporation and its subsidiaries’ construction related business, which has an operating cycle of over one year, the length of the operating cycle is the basis for classifying the Corporation and its subsidiaries’ construction assets and liabilities as current or noncurrent.
Cash Equivalents
Cash equivalents are highly liquid instruments with maturities of three months or less when acquired and subject to insignificant risk of changes in value resulting from interest rate fluctuations.
Financial Assets and Liabilities at Fair Value Through Profit or Loss
Financial instruments classified as financial assets or financial liabilities at fair value through profit or loss (“FVTPL”) include financial assets or financial liabilities held for trading and those designated as at FVTPL on initial recognition. The Corporation and its subsidiaries recognize financial assets or financial liabilities on the balance sheet when the Corporation and its subsidiaries become parties to the contractual provisions of the financial instrument. A financial asset is derecognized when the Corporation and its subsidiaries have lost control of their contractual rights over the financial asset. A financial liability is derecognized when the obligation specified in the relevant contract is discharged, cancelled or expired.
Financial instruments at FVTPL are initially measured at fair value. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at FVTPL are recognized immediately in profit or loss. At each balance sheet date subsequent to initial recognition, financial assets or financial liabilities at FVTPL are remeasured at fair value, with changes in fair value recognized directly in profit or loss in the year in which they arise. Cash dividends received subsequently (including those received in the year of investment) are recognized as income for the year. On derecognition of a financial asset or a financial liability, the difference between its carrying amount and the sum of the consideration received and receivable or consideration paid and payable is recognized in profit or loss. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
A derivative that does not meet the criteria for hedge accounting is classified as a financial asset or a financial liability held for trading. If the fair value of the derivative is positive, the derivative is recognized as a financial asset; otherwise, the derivative is recognized as a financial liability.
Fair values of financial assets and financial liabilities at the balance sheet date are determined as follows: Mutual funds - at net asset values; publicly traded stocks - at closing prices; bonds - at prices quoted by the Taiwan GreTai Securities Market; and financial assets and financial liabilities without quoted prices in an active market and those acquired through private placement and not transferred freely in public market - at values determined using valuation techniques.
Available-for-sale Financial Assets
Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.
The recognition, derecognition and the fair value bases of available-for-sale financial assets are the same with those of financial instruments at FVTPL.
Cash dividends are recognized as investment income on the ex-dividend date, except for dividends distributed from the pre-acquisition profit, which are treated as a reduction of investment cost. Stock dividends are not recognized as investment income but are recorded as an increase in the number of shares. The total number of shares subsequent to the increase is used for recalculation of cost per share. The difference between the initial cost of a debt instrument and its maturity amount is amortized using the straight - line method, with the amortized interest recognized in profit or loss.
An impairment loss is recognized when there is objective evidence that the financial asset is impaired. Any subsequent decrease in impairment loss for an equity instrument classified as available-for-sale is recognized directly in equity. If the fair value of a debt instrument classified as available-for-sale subsequently increases as a result of an event which occurred after the impairment loss was recognized, the decrease in impairment loss is reversed to profit.
Held-to-maturity Financial Assets
Held-to-maturity financial assets are carried at amortized cost using the effective interest method (Straight-line method can be used if there is no significant difference). Held-to-maturity financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. Profit or loss is recognized when the financial assets are derecognized, impaired, or amortized. All regular way purchases or sales of financial assets are accounted for using a trade date basis.
An impairment loss is recognized when there is objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment’s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years.
Hedge Accounting
Derivatives and other financial assets that are designated and effective as hedging instruments are measured at fair value, with subsequent changes in fair value recognized either in profit or loss, or in shareholders’ equity, depending on the nature of the hedging relationship.
Hedge accounting recognizes the offsetting effects on profit or loss arising from the changes in the fair values of the hedging instrument and the hedged item as follows:
a. Fair value hedge
The Corporation and its subsidiaries use derivative and non-derivative financial instruments to hedge exchange rate fluctuations of investments. The gain or loss from remeasuring the hedging instrument at fair value and the gain or loss on the hedged item attributable to the hedged risk are recognized in profit or loss.
b. Cash flow hedge
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity. The amount recognized in stockholders’ equity is recognized as the original cost of the asset or liability if the hedged forecast transaction results in the recognition of a non-financial asset or a non-financial liability, or recognized in profit or loss if the hedged forecast transaction affects profit or loss. However, if all or a portion of a loss recognized in stockholders’ equity is not expected to be recovered in the future period, the amount that is not expected to be recovered is reclassified into current profit or loss.
c. Hedge of a net investment in a foreign operation
The portion of the gain or loss on the hedging instrument that is determined to be an effective hedge is recognized in stockholders’ equity. The amount recognized in stockholders’ equity is recognized in profit or loss upon the disposal of the foreign operation.
The Corporation and its subsidiaries use the hedge activities to control the risks of the exchange rate fluctuations and interest rate fluctuations.
Financial Assets Carried at Cost
Investments in non-publicly traded stocks, stocks traded in the Emerging Stock Market and certificates of entitlement are measured at their original cost. The accounting treatment for dividends on financial assets carried at cost is the same with that for dividends on available-for-sale financial assets. An impairment loss is recognized when there is objective evidence that the asset is impaired. A reversal of this impairment loss is disallowed.
Bond Investments with No Active Market
Bond investments with fixed or determinable payments and with no quoted prices in active market are carried at amortized cost. These financial assets are initially recognized at fair value plus transaction cost that are directly attributable to the acquisition. Profit or loss is recognized when the financial assets are derecognized, impaired or amortized.
An impairment loss is recognized when there is objective evidence that the investment is impaired. The impairment loss is reversed if an increase in the investment’s recoverable amount is due to an event which occurred after the impairment loss was recognized; however, the adjusted carrying amount of the investment may not exceed the carrying amount that would have been determined had no impairment loss been recognized for the investment in prior years.
Impairment and Factoring of Accounts Receivable
a. Impairment of Accounts Receivable
Accounts receivable are assessed for impairment at the end of each reporting period and considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the accounts receivable, the estimated future cash flows of the asset have been affected. Objective evidence of impairment includes:
1) Significant financial difficulty of the debtor;
2) Occurrence of overdue accounts receivable;
3) High probability of bankruptcy or financial re-organization of the debtor.
Accounts receivable that are assessed as not impaired individually are further assessed for impairment on a collective basis. Objective evidence of impairment for a portfolio of accounts receivable could include the Corporation and its subsidiaries’ past experience of collecting payments, an increase in the number of delayed payments, as well as observable changes in national or regional economic conditions that correlate with defaults on receivables.
The amount of impairment loss recognized is the difference between the asset carrying amount and the present value of estimated future cash flows, after taking into account the related collateral or guarantees, discounted at the receivable’s original effective interest rate. The carrying amount of accounts receivable is reduced through the use of an allowance account.
b. Factoring of Accounts Receivable
Factoring of accounts receivable would be accounted for as a sale of receivables if the following three conditions are met:
1) The accounts receivable have been isolated from the Corporation and its subsidiaries - put presumptively beyond the control of the Corporation and its subsidiaries.
2) The transferees have obtained the right to pledge or exchange the accounts receivable, and there is no condition which constrains the transferees from taking advantage of its right to pledge or exchange and provides more than a trivial benefit to the Corporation and its subsidiaries.
3) The transferor does not maintain effective control over the transferred assets through either of the following: (i) an agreement that both entitles and obligates the transferor to repurchase or redeem them before their maturity and (ii) the ability to unilaterally cause the holder to return specific assets.
If the three conditions are met, the difference between the proceeds and the carrying value of the accounts receivable is recognized as a loss and recorded as nonoperating expenses and losses.
Impairment of Assets
If the recoverable amount of an asset (mainly property, plant and equipment, intangible assets, other assets and investments accounted for by the equity method) is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is charged to earnings unless the asset is carried at a revalued amount, in which case the impairment loss is first treated as a deduction to the unrealized revaluation increment and any remaining loss is charged to earnings.
If an impairment loss subsequently reverses, the carrying amount of the asset is increased accordingly, but the increased carrying amount may not exceed the carrying amount that would have been determined had no impairment loss been recognized on the asset in prior years. A reversal of an impairment loss is recognized in earnings, unless the asset is carried at a revalued amount, in which case the reversal of the impairment loss is first recognized as gains to the extent that an impairment loss on the same revalued asset was previously charged to earnings. Any excess amount is treated as an increase in the unrealized revaluation increment.
For the purpose of impairment testing, goodwill is allocated to each of the relevant cash-generating units (“CGUs”) that are expected to benefit from the synergies of the acquisition. A CGU to which goodwill has been allocated is tested for impairment annually or whenever there is an indication that the CGU may be impaired. If the recoverable amount of the CGU becomes less than its carrying amount, the impairment should first reduce the carrying amount of the goodwill allocated to the CGU and then reduce the other assets of the CGU pro rata on the basis of the carrying amount of each asset in the CGU. A reversal of an impairment loss on goodwill is disallowed.
For equity method investments on which the Corporation and its subsidiaries have significant influence but with no control, the carrying amount (including goodwill) of each investment is compared with its own recoverable amount to determine impairment loss.
Allowance for Sales Discount
An allowance for sales discount is recognized on the basis of management’s judgment and relevant factors.
Inventories
Inventories consist of raw materials, supplies, fuel, finished products, work in process, raw materials and supplies in transit, construction in process, etc. Inventories are stated at the lower of cost or net realizable value. Inventory write-downs are made on item by item basis. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and expenses necessary to make the sale. Inventories, except for construction in process recorded in accordance with the accounting for long-term construction contracts, are recorded at moving average cost or weighted-average cost. Unallocated fixed overheads on idle capacity are currently recognized as operating costs when actual production is significantly lower than normal production or the equipment is idle.
Investments Accounted for by the Equity Method
Investments in which the Corporation and its subsidiaries hold 20 percent or more of the investees’ voting rights or exercise significant influence over the investees’ operating and financial decisions are accounted for by the equity method.
The cost of an investment shall be analyzed and the cost of investment in excess of the fair value of identifiable net assets acquired, representing goodwill, shall not be amortized. The fair value of the net identifiable assets of the investee in excess of the investment cost is used to reduce the fair value of each of the noncurrent assets of the investee (except for financial assets other than investments accounted for by the equity method, deferred income tax assets, prepaid pension or other postretirement benefit) in proportion to the respective fair values of the noncurrent assets, with any excess recognized as an extraordinary gain.
Profits from downstream and upstream transactions with an equity-method investee are eliminated in proportion to the Corporation’s percentage of ownership in the investee.
When the Corporation and its subsidiaries subscribe for its investee’s newly issued shares at a percentage different from its current percentage of ownership in the investee, the Corporation and its subsidiaries record the change in its equity in the investee’s net assets as an adjustment to investments, with a corresponding amount credited or debited to capital surplus. When the adjustment should be debited to capital surplus, but the capital surplus from long-term investments is insufficient, the shortage is debited to retained earnings.
When the Corporation’s share in losses of an investee over which the Corporation has significant influence equals its investment in that investee plus any advances made to the investee, the Corporation discontinues applying the equity method. The Corporation continues to recognize its share in losses of the investee if (a) the Corporation commits to provide further financial support to the investee or (b) the losses of the investee are considered to be temporary and sufficient evidence shows forthcoming return to profitability.
The Corporation’s shares held by subsidiaries are recorded as treasury stock. The Corporation’s dividends distributed to subsidiaries are debited to investment income and adjusted to capital surplus - treasury stock transaction.
Investments in Real Estate
Investments in real estate are stated at the lower of cost or market value. Cost of investment in real estate includes the purchase price and direct expenses in acquiring the real estate.
Property, Plant and Equipment
Property, plant and equipment, except for land, are stated at cost or cost plus revaluation increment less accumulated depreciation and accumulated impairment. Borrowing costs directly attributable to the acquisition or construction of property, plant and equipment are capitalized as part of the cost of those assets. Major additions, renewals and improvements are capitalized, while costs of maintenance and repairs are expensed currently.
Spare parts are intended for use in the repairs of machinery and equipment. Depreciation of major spare parts is calculated by the straight-line method over the shorter of useful lives of supported equipment or their own useful lives, whereas depreciation of rollers is calculated based on their level of wear.
Depreciation of the machineries in the recycling plant of the subsidiary CHC is calculated by the working-hour method. Others are calculated by the straight-line method over service lives estimated as follows: land improvements, 5 to 40 years; buildings, 2 to 60 years; machinery and equipment, 2 to 25 years; transportation equipment, 2 to 25 years; and other equipment, 2 to 50 years. Depreciation of revalued assets is provided on a straight-line basis over their remaining estimated useful lives determined at the time of revaluation. Property, plant and equipment still in use beyond their original estimated useful lives are further depreciated over their new estimated useful lives.
Upon disposal of property, plant and equipment, the related cost (including revaluation increment), accumulated depreciation and accumulated impairment are derecognized. Any gain or loss on disposal of the asset is included in nonoperating gains or losses in the year of disposal. The related unrealized revaluation increment is transferred to nonoperating income and gains.
Intangible Assets
Identifiable intangible assets (including computer software, carbon dioxide emission permit, nitrogen oxide emission reduction and land use right) acquired are initially recorded at cost and amortized over estimated useful lives ranging from 3 to 99 years.
Assets Leased to Others and Idle Assets
Assets leased to others and idle assets are stated at the lower of cost less accumulated depreciation and accumulated impairment or recoverable value. Depreciation is calculated by the straight-line method over 20 to 60 years.
Deferred Charges
Deferred charges consist of compensation cost of land use, etc. and are amortized over 2 to 44 years.
Loss on Purchase Commitments
The Corporation and its subsidiaries recognize accrued losses on purchase commitments under noncancelable purchasing contracts for raw materials when the unavoidable costs of meeting the obligations under the contracts are in excess of the expected profit from the contracts. The accrued losses on purchase commitments are recorded as other payables. The estimated loss is recognized as operating costs.
Reserve for Construction Guarantee
Reserve for construction guarantee is recognized based on expected maintenance expenditures and warranty expenses occurring during the construction period and the warranty period. Actual maintenance expenditures and warranty expenses are debited to the reserve for construction guarantee and the excess are recognized as expenses when incurred.
Pension Cost
Pension cost under defined benefit plan is determined by actuarial valuations and recorded as expenses.
Contributions made under a defined contribution plan are recognized as pension cost during the year in which employees render services.
Income Tax
The Corporation and its subsidiaries apply the intra-year and inter-year allocation methods to their income tax, whereby (1) a portion of income tax expense is charged or credited directly to shareholders’ equity; and (2) deferred income tax assets and liabilities are recognized for the tax effects of temporary differences, unused loss carryforward and unused tax credits. Valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of its related asset or liability. However, if a deferred income tax asset or liability does not relate to an asset or liability in the financial statements, then it is classified as either current or noncurrent based on the expected length of time before it is realized or settled.
If the Corporation and its subsidiaries can control the timing of the reversal of a temporary difference arising from the difference between the book value and the tax basis of a long-term equity investment in a foreign subsidiary or joint venture and if the temporary difference is not expected to reverse in the foreseeable future and will, in effect, exist indefinitely, then a deferred tax liability or asset is not recognized.
Any tax credit arising from purchases of machinery and equipment and investments in important technology-based enterprises is recognized using the flow-through method.
Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.
According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.
Foreign subsidiaries calculate income tax according to the local income tax law.
Share-based Compensation
Employee stock options granted on or after January 1, 2008 are accounted for under SFAS No. 39, “Accounting for Share-based Payment.” Under the statement, the value of the stock options granted, which is equal to the best available estimate of the number of stock options expected to vest multiplied by the grant-date fair value, is expensed on a straight-line basis over the vesting year, with a corresponding adjustment to capital surplus - employee stock options. The estimate is revised if subsequent information indicates that the number of stock options expected to vest differs from previous estimates.
Treasury Stock
Reacquired issued shares of the Corporation are recorded as treasury stock at cost and shown as a deduction in stockholders’ equity.
The Corporation accounts for its stock held by subsidiaries as treasury stock. The recorded cost of the stock is based on its carrying amount as of January 1, 2002 and reclassified to treasury stock. Shares of the Corporation that were acquired and held by less than 50%-owned subsidiaries of the Corporation after January 1, 2002 are reclassified to treasury stock at the acquisition cost.
Revenue Recognition
Revenues from sales of goods are recognized when the significant risks and rewards of ownership of the goods are transferred to customers as follows: domestic sales - when products are delivered out of the Corporation and its subsidiaries’ premises to customers; exports - when products are loaded onto vessels. Freight revenues are recognized according to the proportion of the voyage days used to contracted voyage of each ship. Revenues from steel structure contracts and construction contracts are recognized in accordance with the accounting standards for long-term construction contracts, which provide completed-contract method and percentage-of-completion method. Advance collections based on construction progress are recorded as advance construction receipts. The excess of construction in process over advance construction receipts is recorded as current assets while the excess of advance construction receipts over construction in process is recorded as current liabilities.
Revenues are measured at fair value, which is the discounted present value of the price (net of commercial discounts and quantity discounts) agreed to by the Corporation and its subsidiaries with customers. But if the related receivable is due within one year, the difference between its present value and undiscounted amount is immaterial, and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash to be received.
Service revenues are recognized according to the contract and the percentage of completion of the service. If a service contract is estimated to bear a loss prior to completion, the Corporation and its subsidiaries recognize the full amount of the loss immediately. However, if the loss is estimated to be smaller in future years, the difference is reversed and recognized as a gain in the year of determination.
3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES
Financial Instruments
Starting January 1, 2011, the Corporation and its subsidiaries adopted the newly revised SFAS No. 34, “Financial Instruments: Recognition and Measurement.” The main revisions are as follows: (1) impairment of finance lease receivables is now covered by SFAS No. 34; (2) the scope of the applicability of SFAS No. 34 to insurance contracts is amended; (3) loans and receivables originated by the enterprise are now covered by SFAS No. 34; (4) additional guidelines on impairment of financial assets carried at amortized cost when the debtor has financial difficulties and the terms of obligations have been modified; and (5) accounting treatment by a debtor for modifications in the terms of obligations is included. This accounting change did not have a significant impact on the Corporation and its subsidiaries’ consolidated financial statements as of and for the year ended December 31, 2011.
Operating Segments
Starting January 1, 2011, the Corporation and its subsidiaries adopted the newly issued SFAS No. 41, “Operating Segments.” The requirements of the statement are based on the information about the components of the Corporation and its subsidiaries that management uses to make decisions about operating matters. SFAS No. 41 requires identification of operating segments on the basis of internal reports that are regularly reviewed by the Corporation’s chief operating decision maker in order to allocate resources to the segments and assess their performance. This statement supersedes SFAS No. 20, “Segment Reporting” and the Corporation and its subsidiaries conformed to the disclosure requirement and provided the operating segments disclosure in the consolidated financial statements accordingly.
4. CASH AND CASH EQUIVALENTS
| December 31 | ||||
| 2012 | 2011 | |||
| Cash on hand | $ 24,001 | $ 30,091 | ||
| Checking accounts and demand deposits | 5,645,882 | 4,102,723 | ||
| Time deposits | 12,653,019 | 10,576,729 | ||
| Cash equivalents - commercial paper and bonds | 2,222,221 | 2,770,549 | ||
| $ 20,545,123 | $ 17,480,092 |
Foreign bank deposits of the Corporation were as follows:
| December 31 | ||||
| 2012 | 2011 | |||
| Japan - IYO Bank and Mega International Commercial Bank (in thousands of JPY) | ￥ 2,817 | ￥ 1,877 | ||
| Singapore - Daiwa Securities SMBC (in thousands of JPY) | 37,218 | 37,221 | ||
| ￥ 40,035 | ￥ 39,098 | |||
| India - Standard Chartered Bank (in thousands of INR) | Rs 3,392 | ￥ 6,626 | Rs - | |
| Represented by N.T. dollars (in thousands) | $ 15,265 | $ 15,272 |
As of December 31, 2012 and 2011, time deposits with maturities of over one year were zero and NT$2,900 thousand, respectively.
The Corporation cooperated with the MOEA on “Advanced TE Conversion Materials and Systems used in Waste Heat Recovery of Steel Making Industry” and other projects. Deposits for these projects were NT$45,059 thousand (NT$19,636 thousand recorded as restricted assets - current and NT$25,423 thousand recorded as restricted assets - noncurrent) and NT$53,748 thousand (NT$28,750 thousand recorded as restricted assets - current and NT$24,998 thousand recorded as restricted assets - noncurrent) as of December 31, 2012 and 2011, respectively.
5. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS
a. Financial instruments at fair value through profit or loss included:
| December 31 | ||||
| 2012 | 2011 | |||
| Financial assets held for trading | ||||
| Mutual funds | $ 963,769 | $ 1,091,136 | ||
| Quoted stocks | 744,231 | 349,448 | ||
| Structured notes | 38,517 | 60,592 | ||
| Forward exchange contracts | 4,644 | 28,967 | ||
| 1,751,161 | 1,530,143 | |||
| Financial assets designated as at FVTPL | ||||
| Mutual funds | 1,740,313 | 1,309,001 | ||
| Structured notes | 104,871 | 245,334 | ||
| Quoted stocks | 29,562 | 54,032 | ||
| Convertible bonds | 10,040 | 10,105 | ||
| 1,884,786 | 1,618,472 | |||
| 3,635,947 | 3,148,615 | |||
| Less: Noncurrent portion | 259 | 23,979 | ||
| $ 3,635,688 | $ 3,124,636 | |||
(Continued)
| December 31 | ||||
| 2012 | 2011 | |||
| Financial liabilities held for trading | ||||
| Forward exchange contracts | $ 6,065 | $ 90 | ||
| Options (Note 22) | 36 | - | ||
| 6,101 | 90 | |||
| Less: Noncurrent portion | 1,739 | - | ||
| $ 4,362 | $ 90 |
(Concluded)
b. The purpose of the financial assets designated as at FVTPL is to reduce the accounting inconsistency between investment income and interest expense. Those assets are managed as a group and the performance is evaluated on fair value basis, in accordance with the Corporation and its subsidiaries’ documented risk management and investment strategy.
c. The Corporation and its subsidiaries entered into forward exchange contracts to manage exposures due to exchange rate fluctuations. However, the forward exchange contract does not meet the criteria for hedge accounting; thus, it is classified as a financial asset or a financial liability held for trading.
Outstanding forward exchange contracts as of December 31, 2012 and 2011 were as follows:
| Currency | Maturity Date | Contract Amount (In Thousands) | ||||
| December 31, 2012 | ||||||
| Buy | NTD/USD | January 2013 - April 2014 | NTD986,351/USD33,879 | |||
| Buy | NTD/EUR | November 2013 | NTD70,247/EUR1,906 | |||
| Buy | NTD/JPY | February 2013 - December 2014 | NTD33,145/JPY92,540 | |||
| Sell | USD/NTD | January 2013 | USD7,231/NTD211,033 | |||
| Sell | HKD/NTD | January 2013 | HKD17,614/NTD66,318 | |||
| December 31, 2011 | ||||||
| Buy | NTD/USD | June 2012 | NTD30,165/USD1,000 | |||
| Buy | NTD/JPY | October 2012 - December 2014 | NTD296,821/JPY832,860 | |||
| Sell | USD/NTD | January 2012 | USD2,127/NTD64,762 | |||
| Sell | HKD/NTD | January 2012 | HKD19,998/NTD77,897 |
d. For the year ended December 31, 2011, precious metals futures contracts were entered to manage risks due to price fluctuations on precious metals. There was no outstanding precious metals futures contract as of December 31, 2011. The Corporation and its subsidiaries did not enter into any precious metals futures contract during the year ended December 31, 2012.
e. The valuation gains (losses) on financial instruments at FVTPL for the years ended December 31, 2012 and 2011 were as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Financial assets held for trading | $ 77,975 | $ (269,279 ) | ||
| Financial assets designated as at FVTPL | 38,251 | 16,187 | ||
| Financial liabilities held for trading | (9,005 ) | (3,784 ) | ||
| $ 107,221 | $ (256,876 ) |
The above valuation gains (losses) on financial instruments were recorded as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Operating revenues | $ 89,338 | $ 376 | ||
| Operating costs | - | (302,474 ) | ||
| Nonoperating income and gains | 26,978 | 49,382 | ||
| Nonoperating expenses and losses | (9,095 ) | (4,160 ) | ||
| $ 107,221 | $ (256,876 ) |
6. AVAILABLE-FOR-SALE FINANCIAL ASSETS
| December 31 | ||||
| 2012 | 2011 | |||
| Domestic quoted stocks | $ 4,206,122 | $ 4,366,090 | ||
| Mutual funds | 1,956,298 | 2,350,840 | ||
| Overseas quoted stocks | 1,596,310 | 1,604,541 | ||
| Private-placement domestic shares | 584,222 | 377,429 | ||
| Structured notes | - | 46,006 | ||
| 8,342,952 | 8,744,906 | |||
| Less: Current portion | 4,763,787 | 5,375,249 | ||
| $ 3,579,165 | $ 3,369,657 |
The Corporation continually sold the shares of Taiwan Semiconductor Manufacturing Company from September 2012 and the gain on sale of the investment was NT$1,091,815 thousand, recorded as nonoperating income and gains.
The Corporation borrowed foreign-currency bank loans to hedge exchange rate fluctuation risks on the overseas quoted stocks in Maruichi Steel Tube Ltd. and Yodogawa Steel Works, Ltd. (Notes 23 and 32). Adjustments for change in valuation arising from exchange difference were recognized in profit or loss.
In May 2011, the subsidiary EVCC invested in Taiwan Liposome Company, Ltd. through its private placement and in September 2010, the Corporation invested in Reichi Precision Co., Ltd. through its private placement. According to the Securities Exchange Act, the securities which the Corporation and its subsidiaries acquired by private placement could be transferred freely in public market only after holding those shares for three years starting from the delivery date.
7. HEDGING DERIVATIVE FINANCIAL INSTRUMENTS
The Corporation and its subsidiaries entered into forward exchange and interest rate swap contracts to manage cash flow exposures arising from exchange rate fluctuations on foreign-currency capital expenditures contracts and sales and purchases contracts as well as from interest rate fluctuations on bank loans.
Outstanding forward exchange contracts as of December 31, 2012 and 2011 were as follows:
| Currency | Period for Generating Cash Flows and Maturity Date | Contract Amount (In Thousands) | ||||
| December 31, 2012 | ||||||
| Buy | NTD/USD | January 2013 - March 2016 | NTD6,887,840/USD235,043 | |||
| Buy | NTD/EUR | April 2013 - March 2014 | NTD357,293/EUR8,974 | |||
| Buy | NTD/JPY | January 2013 - June 2015 | NTD1,450,688/JPY3,809,251 | |||
| Buy | NTD/GBP | January 2014 - January 2015 | NTD212,200/GBP4,557 | |||
| Sell | JPY/NTD | January 2013 | JPY1,000,000/NTD339,200 | |||
| December 31, 2011 | ||||||
| Buy | NTD/USD | January 2012 - September 2015 | NTD7,326,416/USD248,477 | |||
| Buy | NTD/EUR | March 2012 - December 2013 | NTD749,840/EUR17,867 | |||
| Buy | NTD/JPY | January 2012 - June 2015 | NTD2,095,837/JPY5,609,882 | |||
| Buy | NTD/GBP | January 2012 - January 2015 | NTD449,199/GBP9,584 | |||
| Sell | USD/NTD | January 2012 - April 2012 | USD1,171/NTD35,415 |
Outstanding interest rate swap contracts as of December 31, 2012 were as follows:
| Contract Amount (In Thousands) | Maturity Date | Range of Interest Rates Paid | Range of Interest Rates Received | |||
| NTD9,277,000 | February 2017 - July 2018 | 0.988% - 1.14% | 0.887% - 0.891% |
Movements of hedging derivative financial instruments for the years ended December 31, 2012 and 2011 were as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Balance, beginning of year | $ 144,882 | $ (572,060 ) | ||
| Unrealized gain (loss) of valuation | (483,128 ) | 125,172 | ||
| Transferred to profit and loss | (4,593 ) | (1,041 ) | ||
| Transferred to construction in progress and prepayments for equipment | 68,563 | 592,811 | ||
| Balance, end of year | $ (274,276 ) | $ 144,882 |
As of December 31, 2012 and 2011, the balances of hedging derivative assets (liabilities) were as follows:
| December 31 | ||||
| 2012 | 2011 | |||
| Hedging derivative assets - current | $ 45,950 | $ 115,768 | ||
| Hedging derivative assets - noncurrent | 6,983 | 124,920 | ||
| Hedging derivative liabilities - current | (240,380 ) | (53,331 ) | ||
| Hedging derivative liabilities - noncurrent | (86,829 ) | (42,475 ) | ||
| $ (274,276 ) | $ 144,882 |
The valuation gain (loss) was recognized as unrealized gain on financial instruments in stockholders’ equity and minority interest.
8. NOTES AND ACCOUNTS RECEIVABLE, NET
| December 31 | ||||
| 2012 | 2011 | |||
| Notes receivable | $ 1,490,986 | $ 1,901,604 | ||
| Less: Allowance for doubtful accounts | - | - | ||
| $ 1,490,986 | $ 1,901,604 | |||
| Accounts receivable | $ 10,621,016 | $ 10,383,382 | ||
| Less: Allowance for doubtful accounts | 57,957 | 168,880 | ||
| Allowance for sales discounts | 2,312 | 523 | ||
| $ 10,560,747 | $ 10,213,979 |
Movements of the allowance for doubtful accounts were as follows:
| Years Ended December 31 | ||||||
| 2012 | 2011 | |||||
| Accounts Receivable | Notes Receivable | Accounts Receivable | ||||
| Balance, beginning of year | $ 168,880 | $ 1,883 | $ 371,113 | |||
| Deduct: Reversal | 110,720 | 1,883 | 202,036 | |||
| Written off | 203 | - | 197 | |||
| Balance, end of year | $ 57,957 | $ - | $ 168,880 |
The Corporation and the subsidiaries CHSC and CSCC entered into accounts receivable factoring agreements (without recourse) with Mega International Commercial Bank, Bank of Taiwan and Taipei Fubon Bank. Under the agreements, the Corporation and the subsidiaries CHSC and CSCC are empowered to sell accounts receivable to the banks upon the delivery of products to customers and are required to complete related formalities at the next banking day.
The related information for the Corporation, CHSC and CSCC’s sale of accounts receivable for the years ended December 31, 2012 and 2011 was as follows:
| Transaction Counter-party | Advances Received at Year - Beginning | Receivables Sold | Amounts Collected by Bank | Advances Received at Year-end | Interest Rate on Advances Received (%) | Credit Line (In Billions of NT$) | ||||||
| Year ended December 31, 2012 | ||||||||||||
| Mega International Commercial Bank | $ 4,786,918 | $ 12,955,904 | $ 13,247,235 | $ 4,495,587 | 1.24-1.52 | $12.0 | ||||||
| Bank of Taiwan | 1,509,756 | 3,428,554 | 3,695,356 | 1,242,954 | 1.24-1.52 | 3.0 | ||||||
| $ 6,296,674 | $ 16,384,458 | $ 16,942,591 | $ 5,738,541 | |||||||||
(Continued)
| Transaction Counter-party | Advances Received at Year - Beginning | Receivables Sold | Amounts Collected by Bank | Advances Received at Year-end | Interest Rate on Advances Received (%) | Credit Line (In Billions of NT$) | ||||||
| Year ended December 31, 2011 | ||||||||||||
| Mega International Commercial Bank | $ 5,222,519 | $ 13,514,755 | $ 13,950,356 | $ 4,786,918 | 1.06-1.51 | $12.0 | ||||||
| Bank of Taiwan | 923,545 | 3,417,866 | 2,831,655 | 1,509,756 | 1.14-1.51 | 3.0 | ||||||
| Taipei Fubon Bank | 63,716 | - | 63,716 | - | - | 0.4 | ||||||
| $ 6,209,780 | $ 16,932,621 | $ 16,845,727 | $ 6,296,674 |
(Concluded)
9. INVENTORIES
| December 31 | ||||
| 2012 | 2011 | |||
| Finished products | $ 17,898,814 | $ 20,507,155 | ||
| Work in process | 26,371,771 | 42,420,528 | ||
| Raw materials | 20,047,336 | 33,003,894 | ||
| Supplies | 8,370,304 | 7,368,245 | ||
| Fuel | 386,925 | 429,227 | ||
| Raw materials and supplies in transit | 3,487,346 | 3,426,273 | ||
| Construction in progress (net of billing on contracts NT$43,080,132 thousand and NT$35,923,955 thousand as of December 31, 2012 and 2011, respectively) | 7,202,264 | 8,145,013 | ||
| Others | 517,774 | 661,131 | ||
| $ 84,282,534 | $ 115,961,466 |
As of December 31, 2012 and 2011, the allowance for inventory devaluation was NT$4,519,281 thousand and NT$6,433,511 thousand, respectively, and recorded as reduction in inventories. The cost of inventories recognized as operating costs for the years ended December 31, 2012 and 2011 was NT$339,096,416 thousand and NT$364,063,646 thousand, respectively, (the difference between this cost and the operating costs in consolidated statements of income is due to costs not related to inventories, including investment loss recognized under equity method, impairment loss, and valuation loss on financial instruments, which were recognized by investment companies), which included the following items:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Provision for loss on inventories | $ 2,957,291 | $ 5,109,070 | ||
| Loss on purchase commitments | 1,207,659 | 642,388 | ||
| Loss on idle capacity | 17,383 | 8,354 | ||
| Income from scrap sales | (745,037 ) | (919,847 ) | ||
| Gain on physical inventory | (315,048 ) | (30,253 ) | ||
| $ 3,122,248 | $ 4,809,712 |
Significant construction contracts as of December 31, 2012 and 2011 were as follows:
| Expected Year to Complete | Construction in Progress | Advance Construction Receipts | Contract Price | Estimated Total Cost | Percentage of Completion (%) | Accumulated Construction Gain (Loss) | ||||||
| December 31, 2012 | ||||||||||||
| Year 2013 | $ 9,980,991 | $ 9,744,112 | $ 17,392,386 | $ 17,217,561 | 0-99 | $ 27,088 | ||||||
| Year 2014 | 407,290 | 616,900 | 1,269,523 | 1,263,810 | 0-36 | 1,838 | ||||||
| Year 2015 | 364,254 | 671,454 | 1,623,450 | 1,604,428 | 22 | 4,258 | ||||||
| Year 2020 | 3,201 | - | 4,284,935 | 4,343,971 | - | (59,036 ) | ||||||
| December 31, 2011 | ||||||||||||
| Year 2012 | 17,986,992 | 15,861,636 | 21,805,909 | 21,548,503 | 17-99 | 241,988 | ||||||
| Year 2014 | 1,401,538 | 67,690,807 | 237,223,809 | 236,653,479 | 0-16 | (7 ) | ||||||
| Year 2015 | 237,044 | 569,773 | 1,540,348 | 1,522,300 | 15 | 2,775 |
Advance construction receipts (net of construction in progress of NT$23,273,763 thousand and NT$16,476,342 thousand as of December 31, 2012 and 2011, respectively) were NT$3,646,058 thousand and NT$2,283,830 thousand as of December 31, 2012 and 2011, respectively, and included in other current liabilities.
10. HELD-TO-MATURITY FINANCIAL ASSETS
| December 31 | ||||
| 2012 | 2011 | |||
| Guarantee debt certificates | $ 174,123 | $ 177,341 | ||
| Structured notes | 140,691 | 122,035 | ||
| 314,814 | 299,376 | |||
| Less: Accumulated impairment | 129,655 | 129,655 | ||
| 185,159 | 169,721 | |||
| Less: Noncurrent portion | 185,159 | 109,171 | ||
| $ - | $ 60,550 |
- As for the guarantee debt certificates, the maturity dates are from June 2014 to May 2021, interest is charged by the agreed formula, and actual interest rate was both zero as of December 31, 2012 and 2011.
b. As of December 31, 2012 and 2011, the maturity dates of the structured notes are from February 2018 to May 2024 and form April 2012 to February 2018, respectively. Interest is charged by the agreed formula and actual interest rate was 0-7.3% and 0-2.29% as of December 31, 2012 and 2011, respectively.
11. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT
| December 31 | ||||
| 2012 | 2011 | |||
| Unquoted common stocks | ||||
| Nacional Minerios S.A. | $ 3,268,550 | $ 3,268,550 | ||
| KJTC Pty Ltd. | 1,400,774 | - | ||
| Dongbu Metal Co., Ltd. | 1,276,092 | 1,276,092 | ||
| Industrial Bank of Taiwan | 1,000,000 | 1,000,000 |
(Continued)
| December 31 | ||||
| 2012 | 2011 | |||
| CDIB & Partners Investment Holding Corporation | $ 553,630 | $ 553,630 | ||
| Brighton-Best International (Taiwan) Inc. | 272,563 | 272,563 | ||
| Yieh United Steel Corp. | 257,600 | 257,600 | ||
| Taiwan Rolling Stock Co., Ltd. | 202,048 | 202,048 | ||
| Qingdao TECO Precision Mechatronics Co., Ltd. | 163,170 | 170,109 | ||
| Riselink Venture Capital Corp. | 124,950 | 150,000 | ||
| Aptos Technology Inc. | 106,286 | 76,286 | ||
| Hanoi Steel Center Co., Ltd. | 103,687 | 108,097 | ||
| TaiGen Biopharmaceuticals Holdings Limited | 94,239 | 108,549 | ||
| Adimmune Corporation (AC) | - | 265,762 | ||
| Taiwan High Speed Rail Corporation (THSRC) | - | - | ||
| Others | 1,668,726 | 1,673,299 | ||
| 10,492,315 | 9,382,585 | |||
| Unquoted preferred stocks | 318,385 | 393,331 | ||
| Certificate of entitlement | ||||
| Formosa Ha Tinh Steel Corporation | 1,628,911 | 817,353 | ||
| Shanghai Bao Shan Lian Steel Products Co., Ltd. | 9,926 | 9,926 | ||
| 1,638,837 | 827,279 | |||
| $ 12,449,537 | $ 10,603,195 |
(Concluded)
The above equity investments, which were unquoted stocks and certificate of entitlement and over which the Corporation and its subsidiaries had no significant influence, were carried at cost.
In November 2011, the Corporation acquired 4,751 thousand common shares (1% shareholding) of Nacional Minerios S.A. by investing NT$3,268,550 thousand (JPY8.5 billion). Nacional Minerios S.A. mainly engages in iron ore mining.
In July 2012, the subsidiary CSCAU invested NT$1,422,376 thousand (AUD45,858 thousand) in KJTC Pty Ltd. and acquired 13% shareholding of common shares. KJTC Pty Ltd. mainly engages in mining investment.
AC’s shares held by the Corporation and the subsidiaries CSCC and GIC were listed on the Taiwan Stock Exchange in May 2012; therefore, this investment was reclassified as available-for-sale financial assets - current.
In September 2003, the Corporation acquired 100,000 thousand Preferred B shares (representing 4% of ownership) of THSRC for NT$1,000,000 thousand. Dividend on these shares is at 5%, payable on a nonparticipating and cumulative basis. These shares with six years duration could be extended for 13 months prior to 3 months from the due date. In April 2005 and August 2004, the Corporation acquired additional 505,370 thousand Preferred C shares of THSRC for NT$3,199,944 thousand and NT$1,499,997 thousand, respectively. These shares, representing 19% of ownership, which may be converted to common shares within four years from the acquisition date, have a 9.5% dividend in the first two years and zero percent in the next two years. At the end of four years, if the Corporation does not convert the Preferred C shares into common shares and THSRC cannot redeem the shares, the unredeemed shares would be entitled to receive 4.71% dividend. In the second half of 2008, the Corporation evaluated and recognized an impairment loss of NT$4,738,926 thousand on the investments in preferred shares of THSRC. In order to use tax credits under the Act for Promotion of Private Participation in Infrastructure Projects, the Corporation converted THSRC’s preferred shares to 605,370 thousand common shares in August 2009. THSRC mainly builds and operates public transportation systems.
From June 2011, the Corporation continually invested a total of NT$1,628,911 thousand (USD55,000 thousand) in Formosa Ha Tinh Steel Corporation and acquired 5% ownership. The main business of Formosa Ha Tinh Steel Corporation is manufacture and trading of steel products.
Other financial assets carried at cost include Xiamen Chou Yuan Precision Mechatronic Co., Ltd., Twi Pharmaceuticals, Inc., Savior Lifetec Corporation and etc.
12. BOND INVESTMENTS WITH NO ACTIVE MARKET - NONCURRENT
| December 31 | ||||
| 2012 | 2011 | |||
| Unquoted preferred stocks - overseas | ||||
| East Asia United Steel Corporation (EAUS) - Preferred A | $ 3,364,000 | $ 3,906,000 | ||
| Others | 15,594 | 14,817 | ||
| Subordinated financial bonds | 120,000 | 120,000 | ||
| Bonds | 36,492 | 9,405 | ||
| $ 3,536,086 | $ 4,050,222 |
In May 2003, the Corporation signed a slab production joint-venture contract with Sumitomo Metal Industries, Ltd. (had changed title to Nippon Steel & Sumitomo Metal Corporation in October 2012) and Sumitomo Corporation. In July 2003, the joint venture company EAUS was established. The Corporation invested in EAUS JPY10 billion (Notes 23 and 32). The Corporation thus has a stable supply of slab from this joint venture. The Corporation also signed a contract with the subsidiary CHSC to transfer the purchasing right of slabs from EAUS, and the Corporation receives royalty on this contract based on the volume purchased by CHSC.
13. INVESTMENTS ACCOUNTED FOR BY THE EQUITY METHOD
| December 31 | ||||||||
| 2012 | 2011 | |||||||
| Amount | % of Ownership | Amount | % of Ownership | |||||
| Unquoted companies | ||||||||
| Kaohsiung Arena Development Corporation (KADC) | $ 772,724 | 29 | $ 770,611 | 29 | ||||
| Kaohsiung Rapid Transit Corporation (KRTC) | 484,124 | 32 | 845,244 | 32 | ||||
| Hsin Hsin Cement Enterprise Corp. (HHCEC) | 399,878 | 39 | 354,798 | 39 | ||||
| Chateau International Development Co., Ltd. (CIDC) | 262,470 | 20 | 224,599 | 23 | ||||
| Eminent II Venture Capital Corporation | 247,510 | 46 | - | - | ||||
| Ascentek Venture Capital Corp. | 184,747 | 39 | 165,871 | 39 | ||||
| Others | 255,077 | 257,870 | ||||||
| $ 2,606,530 | $ 2,618,993 |
In December 2011, the Corporation invested additional NT$155,919 thousand in HHCEC. Consequently, the Corporation’s total equity in HHCEC is 39%, including 31% directly owned and 8% indirectly owned through CHC.
Investment income (loss) under the equity method for the years ended December 31, 2012 and 2011 was as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| KRTC | $ (361,120 ) | $ (482,514 ) | ||
| HHCEC | 45,100 | (16,637 ) | ||
| KADC | 34,738 | 37,894 | ||
| CIDC | 29,571 | 32,553 | ||
| Others | 21,925 | (6,477 ) | ||
| $ (229,786 ) | $ (435,181 ) |
Net investment losses of NT$230,005 thousand and NT$434,947 thousand were recorded as nonoperating expenses and losses, and NT$219 thousand and NT$234 thousand were recorded as operating revenue and operating cost for the years ended December 31, 2012 and 2011, respectively.
- OTHER FINANCIAL ASSETS
| December 31 | ||||
| 2012 | 2011 | |||
| Hedging foreign-currency deposits | $ 4,257,415 | $ 5,829,846 | ||
| Structured time deposits | 13,982 | - | ||
| 4,271,397 | 5,829,846 | |||
| Less: Current portion | 4,237,454 | 3,710,158 | ||
| $ 33,943 | $ 2,119,688 |
For the purpose of managing cash flow risk arising from exchange rate fluctuations due to purchasing imported equipment, the Corporation and its subsidiaries purchased foreign-currency deposits and entered into forward exchange contracts (Note 7). As of December 31, 2012 and 2011, the balance of the foreign-currency deposits, which were designated as hedging instruments and were purchased for expired forward exchange contracts, was NT$4,257,415 thousand (JPY2.1 billion, USD110,290 thousand and EUR 9,278 thousand) and NT$5,829,846 thousand (JPY2.3 billion, USD158,963 thousand, EUR 3,147 thousand and GBP18 thousand), respectively.
The unrealized loss of NT$238,962 thousand and unrealized gain of NT$246,242 thousand on the above deposits designated as hedging instruments were recognized as unrealized gain on financial instruments in stockholders’ equity and minority interest for the years ended December 31, 2012 and 2011, respectively. The unrealized gain on financial instruments of NT$65,169 thousand and the unrealized loss on financial instruments NT$39,172 thousand in stockholders’ equity and minority interest were transferred to construction in progress and prepayments for equipment for the years ended December 31, 2012 and 2011, respectively.
As of December 31, 2012 and 2011, cash outflows would be expected from aforementioned contracts during the periods from 2013 to 2015 and from 2012 to 2015, respectively.
15. PROPERTY, PLANT AND EQUIPMENT
| Cost | Revaluation Increment | Total | ||||
| December 31, 2012 | ||||||
| Cost and revaluation increment | ||||||
| Land | $ 20,136,446 | $ 39,546,244 | $ 59,682,690 | |||
| Land improvements | 4,382,861 | 492,076 | 4,874,937 | |||
| Buildings | 85,530,928 | 2,400,272 | 87,931,200 | |||
| Machinery and equipment | 460,321,046 | 6,890,553 | 467,211,599 | |||
| Transportation equipment | 21,184,928 | 8,018 | 21,192,946 | |||
| Other equipment | 18,248,914 | 31,588 | 18,280,502 | |||
| Spare parts | 10,243,979 | - | 10,243,979 | |||
| 620,049,102 | 49,368,751 | 669,417,853 | ||||
| Accumulated depreciation | ||||||
| Land improvements | 3,805,725 | 474,923 | 4,280,648 | |||
| Buildings | 28,968,838 | 1,998,610 | 30,967,448 | |||
| Machinery and equipment | 273,939,864 | 6,890,356 | 280,830,220 | |||
| Transportation equipment | 12,358,345 | 8,015 | 12,366,360 | |||
| Other equipment | 8,967,868 | 31,579 | 8,999,447 | |||
| Spare parts | 3,222,668 | - | 3,222,668 | |||
| 331,263,308 | 9,403,483 | 340,666,791 | ||||
| Accumulated impairment | ||||||
| Land | 25,546 | - | 25,546 | |||
| Buildings | 10,115 | - | 10,115 | |||
| Machinery and equipment | 128,166 | - | 128,166 | |||
| Other equipment | 241,732 | - | 241,732 | |||
| 405,559 | - | 405,559 | ||||
| Construction in progress and prepayments for equipment | 108,359,520 | - | 108,359,520 | |||
| $ 396,739,755 | $ 39,965,268 | $ 436,705,023 | ||||
| December 31, 2011 | ||||||
| Cost and revaluation increment | ||||||
| Land | $ 19,469,760 | $ 39,381,304 | $ 58,851,064 | |||
| Land improvements | 4,385,107 | 492,990 | 4,878,097 | |||
| Buildings | 76,278,334 | 2,415,863 | 78,694,197 | |||
| Machinery and equipment | 427,093,330 | 7,107,072 | 434,200,402 | |||
| Transportation equipment | 19,648,382 | 8,991 | 19,657,373 | |||
| Other equipment | 17,722,397 | 31,618 | 17,754,015 | |||
| Spare parts | 9,516,929 | - | 9,516,929 | |||
| 574,114,239 | 49,437,838 | 623,552,077 | ||||
| Accumulated depreciation | ||||||
| Land improvements | 3,738,790 | 472,304 | 4,211,094 | |||
| Buildings | 26,725,930 | 1,947,219 | 28,673,149 | |||
| Machinery and equipment | 254,800,001 | 7,106,796 | 261,906,797 | |||
| Transportation equipment | 11,834,213 | 8,987 | 11,843,200 | |||
| Other equipment | 7,829,587 | 31,608 | 7,861,195 | |||
| Spare parts | 2,920,169 | - | 2,920,169 | |||
| 307,848,690 | 9,566,914 | 317,415,604 |
(Continued)
| Cost | Revaluation Increment | Total | ||||
| Accumulated impairment | ||||||
| Land | $ 11,826 | $ - | $ 11,826 | |||
| Buildings | 4,999 | - | 4,999 | |||
| Machinery and equipment | 127,304 | - | 127,304 | |||
| Other equipment | 299,590 | - | 299,590 | |||
| 443,719 | - | 443,719 | ||||
| Construction in progress and prepayments for equipment | 96,851,192 | - | 96,851,192 | |||
| $ 362,673,022 | $ 39,870,924 | $ 402,543,946 |
(Concluded)
Information about capitalized interest on the purchase of property, plant and equipment for the years ended December 31, 2012 and 2011 was disclosed as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Interest expense before capitalization | $ 3,532,413 | $ 2,837,096 | ||
| Less: Capitalized interest - construction in progress and prepayments for equipment | 742,153 | 778,034 | ||
| Interest expense through income statement | $ 2,790,260 | $ 2,059,062 | ||
| Capitalization annual rates | 0.8904%-1.60% | 0.88%-1.89% |
Information on the Corporation’s revaluation of its property, plant and equipment and patents was disclosed as follows:
| Revaluation Increment | Reserve for Land Value Increment Tax | Unrealized Revaluation Increment | ||||
| In 1981 and 1994, the Corporation revalued its property, plant and equipment and patents | $ 17,662,343 | $ 3,370,813 | $ 14,291,530 | |||
| In 2005, the government revised the land value increment tax law to reduce the tax rate | - | (1,196,189 ) | 1,196,189 | |||
| In 2008, the Corporation revalued its land in accordance with current assessed land value | 26,913,284 | 6,502,342 | 20,410,942 | |||
| Capitalization as capital stock | - | - | (13,952,356 ) | |||
| Retirement or sale | (1,143,675 ) | (3,500 ) | (37,974 ) | |||
| Tax effect | - | - | (36,576 ) | |||
| Balance, January 1, 2011 | 43,431,952 | 8,673,466 | 21,871,755 | |||
| In 2011, the Corporation revalued its land in accordance with current assessed land value | 6,088,169 | 1,338,450 | 4,749,719 | |||
| Retirement or sale in 2011 | (634,263 ) | - | (10,608 ) | |||
| Balance, December 31, 2011 | 48,885,858 | 10,011,916 | 26,610,866 | |||
| Retirement or sale in 2012 | (221,166 ) | - | (3,699 ) | |||
| Balance, December 31, 2012 | $ 48,664,692 | $ 10,011,916 | $ 26,607,167 |
The subsidiary CSSC revalued its buildings with the base date of December 31, 2009. In September 2010, the revaluation increments approved by the tax authorities were NT$12,862 thousand, of which NT$2,020 thousand was credited to equity as unrealized revaluation increment in proportion to the ownership percentage of the Corporation.
Subsidiaries CHSC and HLSC revalued their land in September 2011, increasing the total increment on land revaluation by NT$539,119 thousand. After the deduction of the reserve for land value increment tax of NT$182,222 thousand, the net increment of NT$356,897 thousand was credited to unrealized revaluation increment. The Corporation credited NT$102,643 thousand to equity as unrealized revaluation increment in proportion to the ownership percentage.
16. INTANGIBLE ASSETS
| Identifiable Intangible Assets | Goodwill | Total | ||||
| Year ended December 31, 2012 | ||||||
| Balance, beginning of year | $ 1,842,655 | $ 403,515 | $ 2,246,170 | |||
| Addition | 1,267,039 | - | 1,267,039 | |||
| Reduction | (207,741 ) | (2,266 ) | (210,007 ) | |||
| Balance, end of year | $ 2,901,953 | $ 401,249 | $ 3,303,202 | |||
| Year ended December 31, 2011 | ||||||
| Balance, beginning of year | $ 1,705,839 | $ 403,274 | $ 2,109,113 | |||
| Addition | 211,445 | 241 | 211,686 | |||
| Reduction | (74,629 ) | - | (74,629 ) | |||
| Balance, end of year | $ 1,842,655 | $ 403,515 | $ 2,246,170 |
Identifiable intangible assets included land use right, carbon dioxide emission permit and nitrogen oxide emission reduction, etc. and goodwill was mainly arising from acquisition of DSC by the Corporation in October 2008.
17. ASSETS LEASED TO OTHERS, NET
| December 31 | ||||
| 2012 | 2011 | |||
| Cost | ||||
| Land | $ 2,779,755 | $ 2,920,878 | ||
| Buildings | 210,572 | 210,572 | ||
| 2,990,327 | 3,131,450 | |||
| Accumulated depreciation | ||||
| Buildings | 61,413 | 56,778 | ||
| Accumulated impairment | ||||
| Land | 8,825 | 8,825 | ||
| $ 2,920,089 | $ 3,065,847 |
On June 30, 2010, the subsidiary CHSC signed a land lease contract with a third party on the Kaohsiung Long Dong Section (book value NT$2,640,958 thousand). The lease term provided that the construction period cannot exceed 14 months and the operating period is 20 years (starting date of the operation was August 2011). The rent is calculated monthly in accordance with the contract during the construction period and the operating period. For the years ended December 31, 2012 and 2011, the rental income was NT$71,048 thousand and NT$47,794 thousand, respectively, and recorded as nonoperating income and gains.
In August 2011, considering the changes in economic environment and land repotting, the subsidiary CHSC re-appraised the Kaohsiung Long Dong Section and Taipei office, and reversed NT$182,127 thousand of impairment loss, recorded as nonoperating income and gains.
18. IDLE ASSETS, NET
| December 31 | ||||
| 2012 | 2011 | |||
| Land | $ 3,131,555 | $ 3,131,555 | ||
| Machinery and equipment | 1,593,902 | 753,227 | ||
| Less: Accumulated depreciation | 287,123 | 77,881 | ||
| Accumulated impairment | 1,722,885 | 1,694,941 | ||
| $ 2,715,449 | $ 2,111,960 |
Idle assets were unused land and equipment.
In August 2011, considering the changes in economic environment and land repotting, the subsidiary CHSC authorized real estate appraisers to re-appraise the Kaohsiung Long Hua Section, Tainan Kuo An Section and Shin Bin Industrial District and reversed NT$164,844 thousand of impairment loss, recorded as nonoperating income and gains. The subsidiary HLSC acquired the collaterals of Jenn An Steel Co., Ltd. Parts of the machinery and equipment in the collaterals were reclassified from property, plant and equipment to idle assets due to their not-in-operation status.
19. SHORT-TERM LOANS AND OVERDRAFT
| December 31 | ||||
| 2012 | 2011 | |||
| Unsecured loans - interest at 0.5425%-7.8% p.a. and 0.78%-4.8% p.a. as of December 31, 2012 and 2011, respectively | $ 21,263,916 | $ 50,615,146 | ||
| Letters of credit - interest at 0.5338%-1.48% p.a. and 0.7357%-1.499% p.a. as of December 31, 2012 and 2011, respectively | 3,130,015 | 6,076,920 | ||
| Bank overdraft - interest at 0.5%-6.16% p.a. and 0.5%-7.32% p.a. as of December 31, 2012 and 2011, respectively | 1,141,481 | 3,225,944 | ||
| Secured loans - interest at 5.88%-6.16% p.a. | 101,665 | - | ||
| $ 25,637,077 | $ 59,918,010 |
The amount of USD131,733 thousand (NT$3,825,526 thousand), which is included in the above unsecured loans as of December 31, 2012, was used to hedge the exchange rate fluctuations on investment in CSVC (Note 32).
20. COMMERCIAL PAPER PAYABLE
| December 31 | ||||
| 2012 | 2011 | |||
| Commercial paper - interest at 0.73%-1.38% p.a. and 0.45%-1.158% p.a. as of December 31, 2012 and 2011, respectively | $ 28,699,900 | $ 22,368,800 | ||
| Less: Unamortized discounts | 20,470 | 10,900 | ||
| $ 28,679,430 | $ 22,357,900 |
The above commercial paper was secured by Mega Bills Finance Corporation, China Bills Finance Corporation, International Bills Finance Corporation, Taching Bill Finance Ltd., Grand Bills Finance Corp., Dah Chung Bills Finance Corp., Taiwan Cooperative Bank, Taiwan Cooperative Bills Finance Corporation, Taiwan Finance Corporation, Chinatrust Commercial Bank, Bank of Taiwan, Taipei Fubon Bank, E.Sun Bank, Taishin International Bank, etc.
21. ACCRUED EXPENSES
| December 31 | ||||
| 2012 | 2011 | |||
| Salaries and incentive bonus | $ 5,791,500 | $ 6,348,237 | ||
| Repair and construction | 1,099,327 | 829,554 | ||
| Bonus to employees, and remuneration to directors and supervisors | 782,026 | 1,918,073 | ||
| Reserve for construction guarantee | 764,562 | 868,015 | ||
| Others | 4,040,099 | 3,948,804 | ||
| $ 12,477,514 | $ 13,912,683 |
22. BONDS PAYABLE
| December 31 | ||||
| 2012 | 2011 | |||
| 5-year unsecured bonds - issued at par by the Corporation in: | ||||
| December 2008; repayable in December 2012 and December 2013; interest at 2.08% p.a., payable annually | $ 6,475,000 | $ 12,950,000 | ||
| December 2008; repayable in December 2012 and December 2013; interest at 2.42% p.a., payable annually | 4,800,000 | 9,600,000 | ||
| October 2011; repayable in October 2015 and October 2016; interest at 1.36% p.a., payable annually | 9,300,000 | 9,300,000 | ||
| 7-year unsecured bonds - issued at par by the Corporation in: | ||||
| December 2008; repayable in December 2014 and December 2015; interest at 2.30% p.a., payable annually | 7,000,000 | 7,000,000 | ||
| October 2011; repayable in October 2017 and October 2018; interest at 1.57% p.a., payable annually | 10,400,000 | 10,400,000 | ||
| August 2012, repayable in August 2018 and August 2019; interest at 1.37% p.a., payable annually | 5,000,000 | - | ||
| 10-year unsecured bonds - issued at par by the Corporation in: | ||||
| August 2012, repayable in August 2021 and August 2022; interest at 1.50% p.a., payable annually | 15,000,000 | - |
(Continued)
| December 31 | ||||
| 2012 | 2011 | |||
| Liability component of unsecured domestic convertible bonds - issued by CEC | $ 425,100 | $ - | ||
| 58,400,100 | 49,250,000 | |||
| Add: Accrued interest | 916 | - | ||
| Less: Issuance cost of bonds payable | 44,475 | 35,574 | ||
| Unamortized discount on bonds payable | 14,771 | - | ||
| Current portion | 11,272,543 | 11,270,086 | ||
| $ 47,069,227 | $ 37,944,340 |
(Concluded)
In February 2012, the subsidiary CEC issued NT$600,000 thousand of 3-year unsecured domestic convertible bonds with face value of NT$100 thousand each and zero interest coupon; the bond issuance had been approved by the government. The issuance cost was NT$4,900 thousand and the proceeds were used to increase operating capital and indirectly invest in CEVC. During the period of one month after the issuance date and 10 days before the maturity date, bondholders may request CEC to convert the bonds into its common shares. During the period of one month after the issuance date and 40 days before the maturity date, if the closing price of CEC’s shares in the secondary financial market is higher than 130% of the conversion price for 30 consecutive trading days or when the outstanding convertible bonds are less than 10% of initial issued convertible bonds, CEC may redeem by cash the remaining bonds at their face value. On the repurchase date (February 20, 2014), two years after the issuance date, bondholders may request CEC to repurchase the bonds at their face value plus interest (100.501% of face value). As of December 31, 2012, the convertible bonds with NT$174,900 thousand face value have been converted into 3,090 thousand shares of CEC’s common stock.
According to SFAS No. 34 and No. 36, the subsidiary CEC has separately accounted for the embedded derivatives and the host contract - bonds payable. The embedded derivatives, including put options and call options, were recognized in financial liabilities at fair value through profit or loss (Note 5) and measured at fair value.
23. LONG-TERM DEBT
| December 31 | ||||
| 2012 | 2011 | |||
| Syndicated bank loans | ||||
| Bank of Taiwan and other banks loan to CHSC | ||||
| Repayable in 13 equal semiannual installments from March 2013 to March 2019, interest at 1.5856% p.a. | $ 6,980,000 | $ - | ||
| Repayable in March 2019 with a revolving credit, interest at 1.6047%-1.611% p.a. | 4,500,000 | - | ||
| Mega International Commercial Bank and other banks loan to CHSC | ||||
| Repayable in 14 equal semiannual installments from April 2007 to October 2013 and repaid early in March 2012; interest at 1.4535% p.a. | - | 1,714,286 |
(Continued)
| December 31 | ||||
| 2012 | 2011 | |||
| Bank of Taiwan and other banks loan to DSC | ||||
| Repayable in 14 equal semiannual installments from January 2012 to July 2018, interest at 1.3173%-1.3589% p.a. and 1.2786%-1.3189% p.a. as of December 31, 2012 and 2011, respectively | $ 44,314,000 | $ 51,700,000 | ||
| Repayable in 10 equal semiannual installments from August 2012 to February 2017, interest at 1.5173%-1.5653% p.a. and 1.4908%-1.5379% p.a. as of December 31, 2012 and 2011, respectively | 18,000,000 | 500,000 | ||
| Taiwan Cooperative Bank and other banks loan to HLSC | ||||
| Repayable in June 2015 with a revolving credit, interest at 1.5381%-1.5782% p.a. and 1.5021%-1.5455% p.a. as of December 31, 2012 and 2011, respectively | 2,400,000 | 2,400,000 | ||
| Mortgage loans | ||||
| Due on various dates through April 2032, interest at 0.5625%-1.8007% p.a. and 0.5625%-1.71% p.a. as of December 31, 2012 and 2011, respectively | 16,970,602 | 17,914,900 | ||
| Bank loans | ||||
| Due on various dates through June 2017, interest at 0.50229%-4.78964% p.a. and 0.535%-5.65328% p.a. as of December 31, 2012 and 2011, respectively | 20,240,552 | 13,144,397 | ||
| 113,405,154 | 87,373,583 | |||
| Less: Syndicated loan fee | 170,571 | 124,385 | ||
| Current portion | 20,979,088 | 11,715,737 | ||
| $ 92,255,495 | $ 75,533,461 |
(Concluded)
a. In December 2011, the subsidiary CHSC entered into a syndicated credit facility agreement with Bank of Taiwan and 11 other banks for a NT$16 billion credit line, which consists of NT$7 billion secured loans with a non-revolving credit line and NT$9 billion unsecured loans with a revolving credit line. Under the agreement, the Corporation and its related parties should collectively hold at least 30% of the CHSC’s issued shares and control CHSC’s operation. Starting 2012, CHSC should meet some financial ratios and criteria.
In September 2006, the subsidiary CHSC entered into a syndicated credit facility agreement with Mega International Commercial Bank and 20 other banks for a NT$14 billion credit line, which consists of NT$6 billion secured loans with a non-revolving credit line and NT$8 billion unsecured loans with a revolving credit line. As of December 31, 2012, CHSC has revoked the credit line of NT$8 billion.
In May 2010, the subsidiary HLSC entered into a syndicated credit facility agreement with Taiwan Cooperative Bank and 13 other banks for a NT$6 billion credit line, which consists of NT$3.5 billion secured loan with a revolving credit line and NT$2.5 billion unsecured loan with a revolving credit line. No unsecured loan was used as of December 31, 2012. Under the agreement, CHSC and its related parties should hold at least 51% of the HLSC’s issued shares and have over half of the seats in the board of directors and supervisors. Starting 2010, HLSC should meet some financial ratios and criteria.
The amounts referring to the above financial ratios and criteria should be based on audited annual financial statements. If CHSC and HLSC breach the agreements, they should take remedial measures within six months from the next day of the financial statements’ declaration date; otherwise, they need to adjust the interest rate and the rate of the guarantee fee in accordance with the agreement. As of December 31, 2012, CHSC and HLSC were in compliance with the syndicated credit facility agreement. As of December 31, 2012, the Corporation held directly and indirectly 41% equity of CHSC and had all of the seats in the board of directors and controlled its operation; CHSC held 100% equity of HLSC and had all of the seats in the board of directors and supervisors.
b. In July 2012, the subsidiary DSC entered into a syndicated credit facility agreement with Bank of Taiwan and 17 other banks for a NT$35 billion credit line, which consists of NT$30 billion secured loan with a non-revolving credit line and NT$5 billion secured commercial paper with a revolving credit line. No secured loan was used as of December 31, 2012. Under the agreement, the Corporation and its related parties should collectively hold at least 80% of DSC’s issued shares and have half of the seats or more in the board of directors. Starting 2012, DSC should meet some financial ratios and criteria.
In February 2008, the subsidiary DSC entered into a syndicated credit facility agreement with Bank of Taiwan and 13 other banks for a NT$51.7 billion credit line. Under the agreement, the Corporation should hold at least 40% of DSC’s issued shares and have half of the seats or more in the board of directors. In December 2009, DSC entered into another syndicated credit facility agreement with Bank of Taiwan and 12 other banks for a NT$20 billion credit line. Under the agreement, the Corporation should hold at least 80% of DSC’s issued shares and have half of the seats or more in the board of directors. Starting from the year that the plant, equipment and related facilities of the investment project for hot rolled plant of the phase II integrated steel mill are completed and can be used for mass production, but not later than 2012, DSC should meet some financial ratios and criteria.
The amounts referring to the above financial ratios and criteria should be based on audited annual financial statements. If DSC breaches the financial ratios or the agreements, the management bank can, based on the decision by majority of banks, immediately terminate the credit line, declare DSC’s outstanding principal and interest to maturity as due, and request DSC to immediately settle. As of December 31, 2012, DSC was in compliance with the syndicated credit facility agreement. As of December 31, 2012, the Corporation held 100% equity of DSC and had all of the seats in the board of directors.
c. The above bank loans include those obtained by the Corporation in Japanese yen, Australian dollar and U.S. dollars to hedge the exchange rate fluctuations on investments in EAUS, CSCAU and CSVC (Note 32) and on the available-for-sale financial assets in Maruichi Steel Tube Ltd. and Yodogawa Steel Works, Ltd. (Notes 6 and 32).
24. LONG-TERM NOTES PAYABLE
| December 31 | ||||
| 2012 | 2011 | |||
| Long-term notes - interest at 0.79%-1.238% p.a. and 0.77%-1.212% p.a. as of December 31, 2012 and 2011, respectively | $ 26,800,000 | $ 24,830,000 | ||
| Secured commercial paper in syndicated bank loans - interest at 1.205% p.a. | 5,000,000 | - | ||
| Less: Unamortized discounts | 16,269 | 16,281 | ||
| $ 31,783,731 | $ 24,813,719 |
The Corporation and its subsidiaries entered into fixed rate commercial paper contracts with bills finance corporations and banks. The duration of the contracts is three to five years and the cycle of issuance is fifteen to sixty days, during which the Corporation and its subsidiaries only have to pay service fees and interests. Therefore, the Corporation and its subsidiaries recorded those commercial papers issued as long-term notes payable.
The subsidiary DSC issued secured commercial paper in syndicated bank loans with the duration of seven years (Note 23).
The above long-term notes were secured by Bank of Kaohsiung, Australia and New Zealand Bank, Mega International Commercial Bank and etc.
25. RESTRUCTURED LOANS PAYABLE (ONLY AS OF DECEMBER 31, 2011)
The subsidiary DSC has confirmed its repayment plan according to its reorganization plan. Restructured loans payable are classified by payment scheme and by loan term, recorded as current liabilities or long-term liabilities.
Restructured loans payable for the year ended December 31, 2011 was as follows:
| Secured Loans | Unsecured Loans | DSC Recorded as Restructured Loans Payable | Adjustments on Allocation of Acquisition Cost for DSC | Total Restructured Loans Payable After Allocation of Acquisition Cost | ||||||
| Year ended December 31, 2011 | ||||||||||
| Balance, beginning of year | $ 3,349,544 | $ 1,232,989 | $ 4,582,533 | $ (13,135 ) | $ 4,569,398 | |||||
| Repayment during the year | (3,349,544 ) | (1,232,989 ) | (4,582,533 ) | - | (4,582,533 ) | |||||
| Adjustments on allocation of acquisition cost for DSC | - | - | - | 13,135 | 13,135 | |||||
| Balance, end of year | $ - | $ - | $ - | $ - | $ - |
According to the reorganization plan, interest rates of the secured loans and the unsecured loans were 2.15% and 2% respectively.
The repayment scheme for the above restructured loans payable is to pay NT$200 million for loan principals on June 30 and December 30 each until 2014. DSC should pay creditors of secured loans and unsecured loans proportionally. Interests are calculated monthly and paid quarterly. According to the reorganization plan, DSC can pay off the loans payable in advance. Thus, DSC has paid off all restructured loans by the end of March 2011.
26. PENSION PLANS
The pension plan under the Labor Pension Act (the “LPA”) is a defined contribution plan. Based on the LPA, the Corporation and its domestic subsidiaries make monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. The pension plan under local regulations for foreign subsidiaries is also a defined contribution plan. Such pension costs of the Corporation and its domestic subsidiaries were NT$378,216 thousand and NT$359,459 thousand for the years ended December 31, 2012 and 2011, respectively.
The Corporation and its domestic subsidiaries have retirement plan in accordance with the Labor Standards Law of the ROC. Retirement benefits are based on employee’s length of service and his/her average salaries and wages of the last six months before retirement. The Corporation and its domestic subsidiaries make contributions, equal to a certain percentage of salaries, to a pension fund, which are deposited in the Bank of Taiwan in the name of, and administered by the employees’ pension supervisory fund committee. The Corporation and the subsidiaries, such as CSGT, ICSC, CHC and etc., also made contributions, equal to a certain percentage of salaries of management personnel, to another pension fund, which are deposited and administered by the officers’ pension fund management committee. Such pension costs of the Corporation and its domestic subsidiaries for the years ended December 31, 2012 and 2011 were NT$1,011,668 thousand and NT$1,298,431 thousand, respectively.
Under SFAS No. 18, pension information of the Corporation and its domestic subsidiaries based on actuarial calculation was as follows:
a. Components of net pension cost
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Service cost | $ 798,140 | $ 868,231 | ||
| Interest cost | 528,264 | 608,418 | ||
| Projected return on plan assets | (450,993 ) | (451,523 ) | ||
| Amortization | 118,435 | 221,814 | ||
| Settlement loss | 17,822 | 51,491 | ||
| Net pension cost | $ 1,011,668 | $ 1,298,431 |
b. Reconciliation of the funded status of the plan and accrued pension cost
| December 31 | ||||
| 2012 | 2011 | |||
| Benefit obligation | ||||
| Vested benefit obligation | $ 20,554,740 | $ 19,516,929 | ||
| Non-vested benefit obligation | 3,074,198 | 3,281,618 | ||
| Accumulated benefit obligation | 23,628,938 | 22,798,547 | ||
| Additional benefits based on future salaries | 4,081,998 | 4,115,786 | ||
| Projected benefit obligation | 27,710,936 | 26,914,333 | ||
| Fair value of plan assets | (23,048,237 ) | (22,563,466 ) | ||
| Funded status | 4,662,699 | 4,350,867 | ||
| Unamortized prior service cost | (94,190 ) | (83,920 ) | ||
| Unrecognized net asset at transition | 28,132 | 35,125 | ||
| Unrecognized net transition obligation | (14,371 ) | (18,369 ) | ||
| Unamortized net loss | (4,203,481 ) | (3,875,613 ) | ||
| Additional pension liability | 427,381 | 436,013 | ||
| Accrued pension cost (included in accrued expenses or prepaid pension cost) | (83,503 ) | (89,998 ) | ||
| Accrued pension cost | $ 722,667 | $ 754,105 | ||
| Vested benefits | $ 22,505,656 | $ 22,351,277 |
c. Actuarial assumptions
| December 31 | ||||
| 2012 | 2011 | |||
| Discount rate used in determining present values | 1.50%-2.25% | 2.00%-2.75% | ||
| Future salary increase rate | 1.00%-3.00% | 1.00%-3.00% | ||
| Expected rate of return on plan assets | 1.75%-2.25% | 2.00%-2.75% |
27. MATURITY ANALYSIS OF ASSETS AND LIABILITIES
The subsidiaries CSMC, CEC, CSSC and their subsidiaries classified their assets and liabilities of the construction operations as well as machinery and equipment of the manufacturing operations as current and noncurrent according to the length of the operating cycle. Maturity analysis of the related assets and liabilities was as follows:
| Due Within One Year | Due After One Year | Total | ||||
| December 31, 2012 | ||||||
| Assets | ||||||
| Notes and accounts receivable, net | $ 11,993,672 | $ 58,061 | $ 12,051,733 | |||
| Inventories | 83,138,318 | 1,144,216 | 84,282,534 | |||
| $ 95,131,990 | $ 1,202,277 | $ 96,334,267 | ||||
| Liabilities | ||||||
| Notes and accounts payable | $ 10,566,215 | $ 27,565 | $ 10,593,780 | |||
| Advance construction receipts in excess of construction in progress (included in other current liabilities) | 1,737,014 | 1,909,044 | 3,646,058 | |||
| $ 12,303,229 | $ 1,936,609 | $ 14,239,838 | ||||
| December 31, 2011 | ||||||
| Assets | ||||||
| Notes and accounts receivable, net | $ 12,102,876 | $ 12,707 | $ 12,115,583 | |||
| Inventories | 114,469,512 | 1,491,954 | 115,961,466 | |||
| $ 126,572,388 | $ 1,504,661 | $ 128,077,049 | ||||
| Liabilities | ||||||
| Notes and accounts payable | $ 11,160,370 | $ 37,292 | $ 11,197,662 | |||
| Advance construction receipts in excess of construction in progress (included in other current liabilities) | 1,107,454 | 1,176,376 | 2,283,830 | |||
| $ 12,267,824 | $ 1,213,668 | $ 13,481,492 |
28. STOCKHOLDERS’ EQUITY OF PARENT COMPANY
a. Capital stock
In August 2012 and July 2011, the Corporation issued 226,268 thousand and 678,308 thousand common shares through capitalization of retained earnings of NT$2,262,672 thousand and NT$6,783,084 thousand, respectively; the capital increases have been registered with the government.
The Corporation’s board of directors approved an issuance of 840,000 thousand new shares with NT$10 par value at issuance price of NT$28.3248 per share, and the record date of capital increase was on August 1, 2011. The capital increase has been registered with the government. Total proceeds, net of issuance cost, exceeded par value by NT$15,338,755 thousand, recorded as additional paid-in capital under capital surplus. The 763,668 thousand shares of the new shares were through issuance of 38,183,400 units of global depository receipts (GDR). Each unit represents 20 shares of the Corporation’s common stock. The remaining 76,332 thousand shares were allocated for employees; for employees of the Corporation, 74,305 thousand shares, and for employees of the subsidiaries, 2,027 thousand shares. These options were vested immediately. In August 2011, all the above options were exercised.
In August 2011, options granted to employees were priced by the Black-Scholes model, and the inputs to the model were as follows:
| Grant-date share price (NT$) | 29.65 | |||
| Transferred price (NT$) | 28.3248 | |||
| Expected volatility | 7.19% | |||
| Expected duration life (day) | 2 | |||
| Risk-free interest rate | 0.67% |
In August 2011, the Corporation recognized compensation expense of NT$98,826 thousand and recognized a capital surplus of NT$2,437 thousand from granting stock option to employees of subsidiaries.
b. Treasury stock
| Thousand Shares | December 31 | |||||||||
| Beginning | Thousand | Book | ||||||||
| Purpose of Treasury Stock | of Year | Addition | Reduction | Shares | Value | |||||
| Year ended December 31, 2012 | ||||||||||
| Shares acquired and held by subsidiaries | 295,065 | 15,552 | 801 | 309,816 | $ 8,415,348 | |||||
| Year ended December 31, 2011 | ||||||||||
| Shares acquired and held by subsidiaries | 284,762 | 26,679 | 16,376 | 295,065 | $ 8,122,461 |
The Corporation’s shares acquired and held by subsidiaries are accounted for as treasury stock (subsidiaries recorded those shares as available-for-sale financial assets - current and available-for-sale financial assets - noncurrent). The Corporation’s shares held by more than 50%-owned subsidiaries are not allowed to participate in the Corporation’s capital increase in cash and have no voting rights; other rights are the same as other common stockholders. The increase of treasury stock was due to acquisition of the Corporation’s shares by subsidiaries in which the Corporation has less than 50% shareholding and the Corporation’s capital increase from retained earnings. The decrease of treasury stock was mainly due to subsidiaries’ sale of the Corporation’s shares and change in percentage of ownership.
For the years ended December 31, 2012 and 2011, the subsidiaries sold 1,769 thousand shares and 29,274 thousand shares of the Corporation for proceeds of NT$48,415 thousand and NT$916,090 thousand, respectively. For the years ended December 31, 2012 and 2011, the proceeds of treasury stock sold, calculated by shareholding percentage, amounted to NT$21,693 thousand and NT$511,448 thousand, and after deducting book values, resulted in the amounts of NT$3,200 thousand and NT$106,638 thousand, recorded as capital surplus, respectively. As of December 31, 2012 and 2011, the market values of the treasury shares calculated by combined holding percentage were NT$8,473,457 thousand and NT$8,497,875 thousand, respectively.
c. Overseas depositary receipts
In May 1992, February 1997, October 2003 and August 2011, for the purpose of working capital expansion and in accordance with the instruction of the ROC’s MOEA, the largest shareholder of the Corporation, the Corporation issued 126,512,550 units of GDR. The depositary receipts then increased by 6,844,969 units resulting from the capital increase out of retained earnings. Each unit represents 20 shares of the Corporation’s common stock and the issued GDRs account for the Corporation’s common shares totaling 2,667,150,644 shares (including 264 fractional shares). Under relevant regulations, the GDR holders may also request the conversion to the shares represented by the GDR. The foreign investors may also request the reissuance of such depositary receipts within the originally approved units. As of December 31, 2012 and 2011, the outstanding depositary receipts were 2,930,471 units and 3,396,550 units, equivalent to 58,609,704 common shares (including 284 fractional shares) and 67,931,271 common shares (including 271 fractional shares), which represented 0.38% and 0.45% of the outstanding common shares, respectively.
d. Preferred stock
Preferred stockholders have the following entitlements and obligation:
1) 14% annual dividends, with dividend payments ahead of those to common stockholders;
2) Preference over common stock in future payment of dividends in arrears;
3) The sequence and percentage of appropriation of residual property are the same with common stocks.
4) The same rights as common stockholders, except the right to vote for directors and supervisors; and
5) Redeemable by the Corporation and convertible to common stock by preferred stockholders with the ratio of 1:1.
e. Capital surplus
Capital surplus comprised the following:
| December 31 | ||||
| 2012 | 2011 | |||
| Additional paid-in capital | $ 31,154,766 | $ 31,154,766 | ||
| Treasury stock transactions | 4,947,307 | 4,635,553 | ||
| Long-term stock investments | 563,356 | 449,287 | ||
| Others | 8,099 | 8,099 | ||
| $ 36,673,528 | $ 36,247,705 |
The capital surplus from shares issued in excess of par and treasury stock transactions may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to capital (limited to a certain percentage of the Corporation paid-in capital and once a year). The capital surplus for long-term stock investments accounted for under the equity method may not be used for any purpose.
f. Appropriation of retained earnings and dividend policy
The Corporation’s Articles of Incorporation provides that the annual net income, less any deficit, should be appropriated in the following order:
1) 10% as legal reserve;
2) Preferred stock dividends at 14% of par value;
3) Of the remainder, 0.15% as remuneration to directors and supervisors and 8% as bonus to employees.
4) Common stock dividends at 14% of par value; and
5) The remainder, if any, as additional dividends divided equally between the holders of preferred and common stocks.
The board of directors should propose the appropriation of earnings. If necessary, it may, after appropriating for preferred stock dividends, propose to appropriate a special reserve or to retain certain earnings. These proposals should be submitted to the stockholders’ meeting for approval.
The Corporation is required to appropriate a special reserve from annual earnings for any net debit balance resulting from adjustments to parts of the stockholders’ equity (including unrealized revaluation increment, unrealized gain (loss) on financial instruments, unrecognized net loss on pension cost and cumulative translation adjustments, excluding treasury stock held by the Corporation). Besides, if the market price of the Corporation’s common shares held by subsidiaries is lower than the carrying value of the Corporation’s shares held by subsidiaries, the Corporation should appropriate a special reserve equal to the difference between market price and carrying value multiplied by the percentage of ownership. The Corporation may release a portion of this special reserve when such debit balances are partially or fully reversed. As of December 31, 2012, the Corporation had fully reversed the special reserve for net debit balance for the adjustments to stockholders’ equity, and the remaining unreversed special reserve was held for the capital demand of certain expansion projects.
The Corporation’s steel business is in a phase of stable growth; thus, 75% or more of the appropriation for dividends should be in cash and 25% or less in stock.
Estimated bonus to employees and remuneration to directors and supervisors were as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Bonus to employees | $ 414,141 | $ 1,399,259 | ||
| Remuneration to directors and supervisors | 7,765 | 26,236 | ||
| $ 421,906 | $ 1,425,495 |
The bonus to employees and remuneration to directors and supervisors were calculated based on the percentages provided by the Corporation’s Articles of Incorporation and accrued based on past experiences. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate.
If bonus shares are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonus by the closing price (after considering the effect of cash and stock dividends) of the shares at the date preceding the stockholders’ meeting.
Legal reserve shall be appropriated until it has reached the Corporation’s paid-in capital. This reserve may be used to offset a deficit. When the Corporation incurs no loss and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may be transferred to capital or distributed in cash.
The Corporation’s stockholders in their June 2012 and 2011 meetings approved the following appropriations of the 2011 and 2010 earnings, respectively.
| Dividends Per Share | ||||||||
| Appropriation of Earnings | (NT dollars) | |||||||
| 2011 | 2010 | 2011 | 2010 | |||||
| Legal reserve | $ 1,949,368 | $ 3,758,683 | ||||||
| Preferred stocks | ||||||||
| Cash dividends | 47,835 | 76,153 | $ 1.25 | $ 1.99 | ||||
| Stock dividends | 5,740 | 19,134 | 0.15 | 0.50 | ||||
| $ 1.40 | $ 2.49 | |||||||
| Common stocks | ||||||||
| Cash dividends | 15,196,671 | 26,920,523 | $ 1.01 | $ 1.99 | ||||
| Stock dividends | 2,256,932 | 6,763,950 | 0.15 | 0.50 | ||||
| $ 19,456,546 | $ 37,538,443 | $ 1.16 | $ 2.49 |
The bonus to employees and the remuneration to directors and supervisors for 2011 and 2010 approved in the aforementioned stockholders’ meetings were as follows (settled by cash):
| Years Ended December 31 | ||||||||
| 2011 | 2010 | |||||||
| Remuneration | Remuneration | |||||||
| Bonus to Employees | to Directors and Supervisors | Bonus to Employees | to Directors and Supervisors | |||||
| Amounts approved in stockholders’ meetings | $ 1,399,259 | $ 26,236 | $ 2,701,965 | $ 50,662 | ||||
| Amounts recognized in respective financial statements | 1,399,259 | 26,236 | 2,701,965 | 50,662 | ||||
| Difference | $ - | $ - | $ - | $ - |
The appropriations of earnings for 2012 had been proposed in the board of directors’ meeting on March 22, 2013. The appropriations and dividends per share were as follows:
| Appropriation of Earnings | Dividends Per Share (NT Dollars) | |||
| Legal reserve | $ 581,149 | |||
| Preferred stocks | ||||
| Cash dividends | 49,748 | $ 1.3 | ||
| Stock dividends | 3,827 | 0.1 | ||
| $ 1.4 | ||||
| Common stocks | ||||
| Cash dividends | 6,108,990 | $ 0.4 | ||
| Stock dividends | 1,527,248 | 0.1 | ||
| $ 8,270,962 | $ 0.5 |
On March 22, 2013, the board of directors proposed the bonus to employees of NT$414,141 thousand and the remuneration to directors and supervisors of NT$7,765 thousand for 2012. The amounts proposed were the same as the amounts recognized in the financial statements for the year ended December 31, 2012.
The 2012 appropriations of earnings, bonus to employees and remuneration to directors and supervisors will be resolved by the stockholders in their meeting scheduled for June 19, 2013.
Information about the appropriations of earnings, bonus to employees and remuneration to directors and supervisors is available on the Market Observation Post System website of the Taiwan Stock Exchange.
g. Unrealized revaluation increment
Unrealized revaluation increment comprised the following:
| December 31 | ||||
| 2012 | 2011 | |||
| Revaluation increment of property, plant and equipment (Note 15) | $ 26,607,167 | $ 26,610,866 | ||
| Recognized in proportion to the ownership percentage in long-term stock investments | 142,957 | 146,724 | ||
| $ 26,750,124 | $ 26,757,590 |
h. Unrealized gain on financial instruments
For the years ended December 31, 2012 and 2011, movements of unrealized gain on financial instruments were as follows:
| Available- for-sale Financial Assets | Equity- method Investments | Unrealized Gain or Loss on Cash Flow Hedging | Total | |||||
| Year ended December 31, 2012 | ||||||||
| Balance, beginning of year | $ 3,079,773 | $ (341,916 ) | $ 283,062 | $ 3,020,919 | ||||
| Recognized in stockholders’ equity | 799,442 | 6,430 | (217,380 ) | 588,492 | ||||
| Transferred to profit or loss | (1,091,815 ) | - | - | (1,091,815 ) | ||||
| Transferred to construction in progress and prepayments for equipment | - | - | (59,349 ) | (59,349 ) | ||||
| Balance, end of year | $ 2,787,400 | $ (335,486 ) | $ 6,333 | $ 2,458,247 | ||||
| Year ended December 31, 2011 | ||||||||
| Balance, beginning of year | $ 2,938,550 | $ (593,445 ) | $ 29,272 | $ 2,374,377 | ||||
| Recognized in stockholders’ equity | 141,223 | 251,529 | 235,618 | 628,370 | ||||
| Transferred to construction in progress and prepayments for equipment | - | - | 18,172 | 18,172 | ||||
| Balance, end of year | $ 3,079,773 | $ (341,916 ) | $ 283,062 | $ 3,020,919 |
For the years ended December 31, 2012 and 2011, unrealized gain (loss) on financial instruments in cash flow hedge was as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Unrealized gain (loss) on cash flow hedging | $ (261,904 ) | $ 283,877 | ||
| Tax effect | 44,524 | (48,259 ) | ||
| Net (recognized in stockholders’ equity) | $ (217,380 ) | $ 235,618 | ||
| Unrealized loss (gain) on cash flow hedging instruments transferred to construction in progress and prepayments for equipment | $ (71,505 ) | $ 21,894 | ||
| Tax effect | 12,156 | (3,722 ) | ||
| Net (transferred out of stockholders’ equity) | $ (59,349 ) | $ 18,172 |
i. Cumulative translation adjustments
Changes in composition of cumulative translation adjustments for the years ended December 31, 2012 and 2011 were as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Balance, beginning of year | $ 17,192 | $ (101,443 ) | ||
| Recognized in stockholders’ equity | (410,421 ) | 118,635 | ||
| Balance, end of year | $ (393,229 ) | $ 17,192 |
29. INCOME TAX
a. A reconciliation of income tax based on consolidated income before income tax and income tax for the years ended December 31, 2012 and 2011, respectively, was as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Income tax at the statutory rate | $ 1,403,918 | $ 4,137,580 | ||
| Tax effect of adjusting items | ||||
| Permanent differences | ||||
| Loss (gain) on valuation of financial instruments and on disposal of investments, net | (235,354 ) | 4,800 | ||
| Dividend income allotted by domestic investees | (142,885 ) | (217,622 ) | ||
| Tax-exempt income | (58,152 ) | (68,034 ) | ||
| Reversal of impairment loss on assets | (9,828 ) | (60,055 ) | ||
| Others | (113,819 ) | 127,080 | ||
| Temporary differences | ||||
| Difference between tax reporting and financial reporting - revenue | 124,478 | 1,261 |
(Continued)
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Difference between tax reporting and financial reporting - depreciation methods | $ 100,945 | $ 116,864 | ||
| Unrealized (realized) provision for loss on inventories | (316,675 ) | 712,531 | ||
| Realized loss on construction and service commitments | (67,488 ) | (137,631 ) | ||
| Unrealized (realized) loss on purchase commitments | (47,515 ) | 66,838 | ||
| Others | (233,226 ) | (203,111 ) | ||
| Investment tax credits used | (4,004,600 ) | (14,082 ) | (1,657,127 ) | |
| Loss carryforwards used | (1,935 ) | (38,964 ) | ||
| Tax benefit from loss carryforwards | 1,331,085 | 449,288 | ||
| Additional income tax under the Alternative Minimum Tax Act | 4,830 | 8,173 | ||
| Additional 10% income tax on unappropriated earnings | 34,794 | 51,685 | ||
| Income tax currently payable | 1,759,091 | 3,293,556 | ||
| Tax separately levied on interest from short-term bills | - | 2 | ||
| Adjustments for prior years’ tax | 363,398 | 126,204 | ||
| Current income tax expense | 2,122,489 | 3,419,762 | ||
| Deferred tax - temporary differences, investment tax credits, and loss carryforwards included | (831,063 ) | (884,969 ) | ||
| $ 1,291,426 | $ 2,534,793 |
(Concluded)
b. Changes in income tax payable
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Balance, beginning of year | $ 3,376,691 | $ 6,272,105 | ||
| Current income tax expense | 2,122,489 | 3,419,762 | ||
| Payment in the current year | (3,332,292 ) | (5,313,903 ) | ||
| Deferred income tax assets used for linked tax filing | - | (1,165,973 ) | ||
| Transferred to other receivables | (68,280 ) | 164,700 | ||
| Balance, end of year | $ 2,098,608 | $ 3,376,691 |
The Corporation adopted the linked tax system for tax filing with subsidiary - DSC since 2009. Deferred income tax assets used for linked tax filing is that the investment tax credits and loss carryforwards of DSC were used by the Corporation when the linked tax was filed.
Under Article 10 of the Statute for Industrial Innovation (SII) passed by the Legislative Yuan in April 2010, a profit-seeking enterprise may deduct up to 15% of its research and development expenditures from its income tax payable for the fiscal year in which these expenditures are incurred, but this deduction should not exceed 30% of the income tax payable for that fiscal year. This incentive took effect from January 1, 2010 and is effective till December 31, 2019, and the investment tax credits under earlier regulations can be used in the current and next four years. The investment tax credits used every year shall not exceed 50% of the total tax payable, but the full remaining creditable amount can be used at the expiration year.
c. Deferred income tax assets and liabilities were as follows:
| December 31 | ||||
| 2012 | 2011 | |||
| Current | ||||
| Deferred income tax assets | ||||
| Unrealized provision for loss on inventories | $ 736,922 | $ 1,050,482 | ||
| Investment tax credits | 432,129 | 1,928,171 | ||
| Unrealized loss on construction and service commitments | 270,239 | 329,627 | ||
| Unrealized reserve for construction guarantee | 129,976 | 147,563 | ||
| Difference between tax reporting and financial reporting - revenue recognition | 117,651 | 2,088 | ||
| Unrealized sales allowance | 70,642 | 65,068 | ||
| Unrealized loss on purchase commitments | 61,691 | 106,310 | ||
| Estimated preferential severance pay | 57,156 | 84,905 | ||
| Loss carryforwards | 2,554 | 42,867 | ||
| Others | 312,721 | 223,909 | ||
| 2,191,681 | 3,980,990 | |||
| Less: Valuation allowance | 109,338 | 330,304 | ||
| 2,082,343 | 3,650,686 | |||
| Deferred income tax liabilities | ||||
| Difference between tax reporting and financial reporting - inventory | (17,065 ) | (21,236 ) | ||
| Others | (15,288 ) | (6,083 ) | ||
| (32,353 ) | (27,319 ) | |||
| Total deferred income tax assets - current, net | 2,049,990 | 3,623,367 | ||
| Noncurrent | ||||
| Deferred income tax assets | ||||
| Investment tax credits | 3,654,668 | 1,606,179 | ||
| Loss carryforwards | 2,052,654 | 733,091 | ||
| Impairment loss on financial assets | 958,242 | 958,292 | ||
| Unrealized gain from affiliates | 155,486 | 164,690 | ||
| Others | 797,648 | 695,978 | ||
| 7,618,698 | 4,158,230 | |||
| Less: Valuation allowance | 2,954,984 | 2,035,131 | ||
| 4,663,714 | 2,123,099 | |||
| Deferred income tax liabilities | ||||
| Difference between tax reporting and financial reporting - depreciation methods | (1,398,371 ) | (1,501,472 ) | ||
| Foreign investment income | (1,169,795 ) | (1,087,162 ) | ||
| Others | (90,093 ) | (77,964 ) | ||
| (2,658,259 ) | (2,666,598 ) | |||
| Total deferred income tax assets (liabilities) - noncurrent, net | 2,005,455 | (543,499 ) | ||
| Total deferred income tax assets | $ 4,055,445 | $ 3,079,868 |
The above deferred income tax assets (liabilities) were recorded as follows:
| December 31 | ||||
| 2012 | 2011 | |||
| Deferred income tax assets - current | $ 2,058,931 | $ 3,623,367 | ||
| Deferred income tax assets - noncurrent | 3,080,214 | - |
(Continued)
| December 31 | ||||
| 2012 | 2011 | |||
| Deferred income tax liabilities - current | $ (8,941 ) | - | $ - | |
| Deferred income tax liabilities - noncurrent | (1,074,759 ) | (543,499 ) | ||
| $ 4,055,445 | $ 3,079,868 |
(Concluded)
Under the Statute for Upgrading Industries, the Corporation and its subsidiaries recognized investment tax credits from purchases of machinery and equipment and investments in important technology-based enterprises. As of December 31, 2012, investment tax credits comprised:
| Tax Credit Source | Total Creditable and Remaining Creditable Amount | Expiry Year | ||
| Purchase of machinery and equipment | $ 4,086,797 | 2016 |
As of December 31, 2012, the subsidiaries had unused loss carryforwards of NT$12,084,648 thousand (tax amounted to NT$2,055,208 thousand), with expiry years from 2013 to 2022.
The Corporation’s income tax returns through 2008 and the subsidiaries’ income tax returns through 2008 to 2011 have been examined by the tax authorities.
d. Information about integrated income tax was as follows:
| December 31 | ||||
| 2012 | 2011 | |||
| Imputation credit account (ICA) | $ 24,717 | $ 211,179 | ||
| Unappropriated earnings generated before January 1, 1998 | 15,440 | 15,440 |
The creditable ratio for distribution of 2012 and 2011 earnings was 7.05% (estimated) and 17.84%, respectively.
For distribution of earnings generated after January 1, 1998, the ratio for the imputation credits allocated to domestic shareholders of the Corporation is based on the balance of the ICA as of the date of dividend distribution. Nonresident stockholders, including holders of overseas depository receipts, are allowed only a tax credit from the 10% income tax on unappropriated earnings, which can be used to offset withholding income tax on dividends paid. The expected creditable ratio for the 2012 earnings may be adjusted, depending on the ICA balance on the date of dividend distribution.
30. PERSONNEL, DEPRECIATION AND AMORTIZATION EXPENSES
| Years Ended December 31 | ||||||||||||||||
| 2012 | 2011 | |||||||||||||||
| Operating Cost | Operating Expense | Others | Total | Operating Cost | Operating Expense | Others | Total | |||||||||
| Personnel | ||||||||||||||||
| Salary | $ 18,574,472 | $ 4,291,486 | $ 785,743 | $ 23,651,701 | $ 21,004,770 | $ 4,693,623 | $ 735,475 | $ 26,433,868 | ||||||||
| Labor and health insurance | 1,194,463 | 228,382 | 57,446 | 1,480,291 | 1,110,721 | 204,337 | 44,826 | 1,359,884 | ||||||||
| Pension and consolation costs | 1,141,661 | 339,969 | 57,071 | 1,538,701 | 1,337,840 | 372,550 | 33,078 | 1,743,468 | ||||||||
| Others | 1,123,981 | 443,033 | 53,752 | 1,620,766 | 1,251,807 | 405,557 | 63,453 | 1,720,817 | ||||||||
| $ 22,034,577 | $ 5,302,870 | $ 954,012 | $ 28,291,459 | $ 24,705,138 | $ 5,676,067 | $ 876,832 | $ 31,258,037 | |||||||||
| Depreciation | $ 27,743,059 | $ 630,961 | $ 98,910 | $ 28,472,930 | $ 25,497,430 | $ 593,422 | $ 47,522 | $ 26,138,374 | ||||||||
| Amortization | 170,680 | 49,438 | 4,409 | 224,527 | 293,511 | 45,004 | 3,867 | 342,382 |
31. EARNINGS PER SHARE
| Shares | Earnings Per Share | |||||||||
| Amount (Numerator) | (Denominator) | (Dollars) | ||||||||
| Before Tax | After Tax | (Thousand) | Before Tax | After Tax | ||||||
| Year ended December 31, 2012 | ||||||||||
| Consolidated net income attributable to the Corporation’s stockholders | $ 6,130,571 | $ 5,811,490 | ||||||||
| Less: Dividends on preferred shares | (56,517 ) | (53,575 ) | ||||||||
| Basic EPS | ||||||||||
| Consolidated net income attributable to the Corporation’s common stockholders | 6,074,054 | 5,757,915 | 14,962,661 | $ 0.41 | $ 0.38 | |||||
| Effect of dilutive potential common stock | ||||||||||
| Add: Bonus to employees | - | - | 38,979 | |||||||
| Diluted EPS | ||||||||||
| Consolidated net income attributable to the Corporation’s common stockholders plus effect of potential dilutive common stock | $ 6,074,054 | $ 5,757,915 | 15,001,640 | 0.40 | 0.38 | |||||
| Year ended December 31, 2011 | ||||||||||
| Consolidated net income attributable to the Corporation’s stockholders | $ 20,284,693 | $ 19,493,679 | ||||||||
| Less: Dividends on preferred shares | (55,749 ) | (53,575 ) | ||||||||
| Basic EPS | ||||||||||
| Consolidated net income attributable to the Corporation’s common stockholders | 20,228,944 | 19,440,104 | 14,482,986 | 1.40 | 1.34 | |||||
| Effect of dilutive potential common stock | ||||||||||
| Add: Dividends on preferred shares | 55,749 | 53,575 | 38,268 | |||||||
| Bonus to employees | - | - | 92,101 | |||||||
| Diluted EPS | ||||||||||
| Consolidated net income attributable to the Corporation’s common stockholders plus effect of potential dilutive common stock | $ 20,284,693 | $ 19,493,679 | 14,613,355 | 1.39 | 1.33 |
Preferred shares were not included in the calculation of diluted EPS for the year ended December 31, 2012 because of their anti-dilutive effect.
The Accounting Research Development Foundation (ARDF) issued Interpretation 2007-052 that requires corporations to recognize bonuses paid to employees, directors and supervisors as compensation expenses beginning January 1, 2008. These bonuses were previously recorded as appropriations from earnings. If the Corporation may settle the bonus to employees by cash or shares, the Corporation should presume that the entire amount of the bonus will be settled in shares and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of bonus by the closing price of the shares at the balance sheet date. The dilutive effect of the shares should be considered until the stockholders resolve the number of shares to be distributed to employees in their meeting in the following year.
The weighted average number of shares outstanding for EPS calculation has been retroactively adjusted for the issuance of stock dividends distributed out of earnings for the year ended December 31, 2012. The adjustment caused the basic and diluted after income tax EPS for the year ended December 31, 2011 to decrease from NT$1.36 to NT$1.34 and from NT$1.35 to NT$1.33, respectively.
32. FINANCIAL INSTRUMENTS
a. As of December 31, 2012 and 2011, the information of fair values was as follows:
| December 31 | ||||||||
| 2012 | 2011 | |||||||
| Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||
| Non-derivative financial instruments | ||||||||
| Consolidated assets | ||||||||
| Financial assets at fair value through profit or loss (including noncurrent) | $ 3,631,303 | $ 3,631,303 | $ 3,119,648 | $ 3,119,648 | ||||
| Available-for-sale financial assets (including noncurrent) | 8,342,952 | 8,342,952 | 8,744,906 | 8,744,906 | ||||
| Held-to-maturity financial assets (including noncurrent) | 185,159 | 185,159 | 169,721 | 169,721 | ||||
| Financial assets carried at cost | 12,449,537 | 10,603,195 | ||||||
| Bond investments with no active market | 3,536,086 | 3,536,086 | 4,050,222 | 4,050,222 | ||||
| Other financial assets (including noncurrent) | 4,271,397 | 4,271,397 | 5,829,846 | 5,829,846 | ||||
| Refundable deposits | 431,779 | 431,779 | 428,431 | 428,431 | ||||
| Consolidated liabilities | ||||||||
| Bonds payable (including current portion) | 58,341,770 | 58,680,301 | 49,214,426 | 49,927,381 | ||||
| Long-term debt (including current portion) | 113,234,583 | 113,234,583 | 87,249,198 | 87,249,198 | ||||
| Long-term notes payable | 31,783,731 | 31,783,731 | 24,813,719 | 24,813,719 | ||||
| Derivative financial instruments | ||||||||
| Consolidated assets | ||||||||
| Financial assets at fair value through profit or loss (including noncurrent) | 4,644 | 4,644 | 28,967 | 28,967 | ||||
| Hedging derivative assets (including noncurrent) | 52,933 | 52,933 | 240,688 | 240,688 | ||||
| Consolidated liabilities | ||||||||
| Financial liabilities at fair value through profit or loss (including noncurrent) | 6,101 | 6,101 | 90 | 90 | ||||
| Hedging derivative liabilities (including noncurrent) | 327,209 | 327,209 | 95,806 | 95,806 |
b. Methods and assumptions used to estimate the fair values of financial instruments were as follows:
1) The carrying values of cash and cash equivalents, notes and accounts receivable, other receivables (excluding tax refund receivable), restricted assets, short-term loans and overdraft, commercial paper payable, notes and accounts payable, accrued expenses and other payables, approximate fair value because of the short maturities of these instruments.
2) The fair values of financial instruments at fair value through profit or loss, available-for-sale financial assets and hedging derivative financial instruments are determined at their market value. If there is no market value available for reference, the fair values are determined through valuation techniques. For stocks acquired through private placement and not transferred freely in public market, fair values are determined by using valuation techniques adopted by the Corporation based on information from the Market Observation Post System, the Taiwan Stock Exchange, etc. and calculated by using the Black-Scholes Model. For hedging derivative instruments, the information used by the Corporation and its subsidiaries for determining assumptions applied in valuation is consistent with that used by market participants and is obtained from financial institutions. For fair values of financial instruments denominated in foreign currencies and foreign exchange contracts, the translations to New Taiwan dollars use exchange rates based on the buying rates quoted by the Central Bank and on the rates quoted by Reuters.
3) Financial assets carried at cost issued by non-public corporations have no active market price and their verifiable fair value cannot be determined at a reasonable cost. Therefore, no fair value is presented.
4) The fair values of held-to-maturity financial assets and bond investments with no active market are determined at their carrying values.
5) The fair values of refundable deposits are determined at their carrying values.
6) The fair values of foreign currency deposits, included in other financial assets, and long-term liabilities are determined by the present values of future cash flows. If there is market price available for reference, the fair values are determined based on the market price. If there is no market price available for reference, the values are discounted at the interest rates of similar long-term debt and the floating-rate of foreign currency deposits available to the Corporation and its subsidiaries. Discount rates as of December 31, 2012 and 2011 were 0.2%-4.78964 % and 0.35%-5.65328%, respectively.
c. Fair values of the financial assets and financial liabilities based on quoted market prices or using valuation technique were as follows:
| Amount Determined by Quoted Market Price | Amount Determined by Using Valuation Technique | |||||||
| December 31 | December 31 | |||||||
| 2012 | 2011 | 2012 | 2011 | |||||
| Consolidated assets | ||||||||
| Financial assets at fair value through profit or loss (including noncurrent) | $ 3,487,915 | $ 2,813,722 | $ 148,032 | $ 334,893 | ||||
| Available-for-sale financial assets (including noncurrent) | 7,758,730 | 8,321,471 | 584,222 | 423,435 | ||||
| Held-to-maturity financial assets (including noncurrent) | - | - | 185,159 | 169,721 | ||||
| Bond investments with no active market | - | - | 3,536,086 | 4,050,222 | ||||
| Other financial assets (including noncurrent) | - | - | 4,271,397 | 5,829,846 | ||||
| Hedging derivative assets (including noncurrent) | - | - | 52,933 | 240,688 | ||||
| Refundable deposits | - | - | 431,779 | 428,431 | ||||
| Consolidated liabilities | ||||||||
| Financial liabilities at fair value through profit or loss (including noncurrent) | - | - | 6,101 | 90 | ||||
| Hedging derivative liabilities (including noncurrent) | - | - | 327,209 | 95,806 | ||||
| Bonds payables (including current portion) | 58,680,301 | 49,927,381 | - | - | ||||
| Long-term debt (including current portion) | - | - | 113,234,583 | 87,249,198 | ||||
| Long-term notes payable | - | - | 31,783,731 | 24,813,719 |
d. Valuation gains and losses arising from changes in fair value of financial instruments determined using valuation techniques were valuation loss NT$7,200 thousand and valuation gain NT$25,778 thousand for the years ended December 31, 2012 and 2011, respectively.
e. As of December 31, 2012 and 2011, financial liabilities exposed to cash flow interest rate risk amounted to NT$170,655,391 thousand and NT$171,980,927 thousand, respectively, and financial liabilities exposed to fair value interest rate risk amounted to NT$87,021,200 thousand and NT$71,572,326 thousand, respectively.
f. The Corporation and its subsidiaries’ total interest income and expenses (inclusive of capitalized interest) which were incurred from other than financial assets and liabilities at fair value through profit or loss were NT$413,999 thousand and NT$3,532,413 thousand, respectively, for the year ended December 31, 2012 and NT$333,668 thousand and NT$2,837,096 thousand, respectively, for the year ended December 31, 2011.
g. Financial risks
1) Market risk
Market risk includes exchange rate risk, fair value risk of interest rate change, and market price risk. The Corporation had loans in foreign currencies to hedge the exchange rate fluctuations on its long term investment in foreign currencies, thus, the exchange rate risk can be hedged naturally. The Corporation issued bonds with fixed interest rate, but the fair value of the bonds payable may be influenced by market interest rate change. If market interest rate increases or decreases by 1%, the fair value of bonds payable will decrease or increase by about NT$2,701,541 thousand.
The Corporation and its subsidiaries hold mutual funds and publicly traded stocks which are subject to market price risk. The market price risk of mutual funds is considered insignificant because the fair value of mutual funds has little fluctuation. If the share price of publicly traded stocks increases or decreases by 1%, the fair value will increase or decrease by about NT$71,604 thousand.
2) Credit risk
Credit risk represents the potential loss that would be incurred by the Corporation and its subsidiaries if the counter-parties breach contracts. Financial instruments with positive fair values at the balance sheet date are evaluated for credit risk. The counter-parties to the foregoing financial instruments are reputable financial institutions and business organizations. Management does not expect the Corporation and its subsidiaries’ exposure to default by those parties to be material.
Endorsements/guarantees provided to the consolidated entities as of December 31, 2012 were as follows:
| Endorsement/Guarantee Provider | Counter-party | Ending Balance | ||
| China Steel Corporation | Dragon Steel Corporation | USD 399,565 thousand | ||
| CSC Steel Australia Holding Pty Ltd. | AUD 359,314 thousand | |||
| China Steel Structure Co., Ltd. | United Steel Constructure Corporation | NTD 1,105,000 thousand | ||
| Chung-Kang Steel Structure (Kunshan) Co., Ltd. | NTD 319,440 thousand | |||
| United Steel Construction Vietnam Co., Ltd. | NTD 319,440 thousand | |||
| United Steel Constructure Corporation | China Steel Structure Co., Ltd. | NTD 5,795,827 thousand | ||
| China Steel Global Trading | Chung Mao Trading (SAMOA) Co. | USD 3,000 thousand | ||
| Corporation | CSGT International Corporation | USD 3,200 thousand | ||
| China Steel Express Corporation | CSE Transport Corporation (Panama) | USD 111,000 thousand | ||
| CSEI Transport Panama Corp. (Panama) | USD 49,976 thousand | |||
| China Prosperity Development Corporation | CK Japan Co., Ltd. | JPY 1,750,000 thousand |
3) Liquidity risk
The Corporation and its subsidiaries have sufficient operating capital to meet future cash needs. Therefore, the cash flow risk is low.
Financial assets at fair value through profit or loss and available-for-sale financial assets could be sold readily in the active market or secondary financial market at prices approximating fair value. There are liquidity risks for the stocks acquired through private placement and not transferred freely in public market, financial assets carried at cost, bond investments with no active market and held-to-maturity financial assets because no quoted active market prices are available.
4) Cash flow interest rate risk
Market interest rate change will influence the effective interest rate of the financial instruments which have cash flow risk of the interest rate change, and make future cash flow fluctuate. If the market interest rate increases by 1%, cash outflow of the Corporation and subsidiaries will increase by about NT$1,706,554 thousand.
h. Fair value, net investment in foreign operation and cash flow hedge
The Corporation and its subsidiaries including CSMC, DSC, CSGT, CAC and CEC have debts denominated in foreign currencies, bank deposits - foreign-currency and forward contracts to effectively hedge the exchange rate fluctuations on the investments in EAUS, Maruichi Steel Tube Ltd., Yodogawa Steel Works Ltd., CSCAU, CSVC, capital expenditures and sales and purchases contracts. The subsidiary DSC purchased interest rate swap contracts to effectively hedge the interest rate fluctuations on bank loans.
| Designated Hedging Instrument | ||||||||
| Changes in Fair Value | ||||||||
| Years Ended December 31 | ||||||||
| Hedge Type | Hedged Item | Financial Instrument | 2012 | 2011 | ||||
| Fair value hedge | Investments in EAUS (recorded as bond investments with no active market - noncurrent) | Debt in JPY | $ 536,580 | $ (320,265 ) | ||||
| Fair value hedge | Investments in Maruichi Steel Tube Ltd. (recorded as available-for-sale financial assets - noncurrent) | Debt in JPY | 140,920 | (84,110 ) | ||||
| Fair value hedge | Investments in Yodogawa Steel Works, Ltd. (recorded as available-for-sale financial assets - noncurrent) | Debt in JPY | 65,798 | (39,273 ) | ||||
| Hedge of a net investment in a foreign operation | Investment in CSCAU (one of consolidated entities and the amount was eliminated) | Debt in AUD | 9,428 | (17,466 ) | ||||
| Hedge of a net investment in a foreign operation | Investment in CSVC (one of consolidated entities and the amount was eliminated) | Debt in USD | 268,735 | (44,687 ) | ||||
| Cash flow hedge | Contracts for purchasing machinery and equipment | Bank deposit - foreign-currency | (238,962 ) | 246,242 | ||||
| Cash flow hedge | Contracts for purchasing machinery and equipment, contracts for selling and purchasing goods and bank loans | Forward exchange and interest rate swap contracts | (483,128 ) | 125,172 |
The fair values of the above hedging instruments would approximate their carrying values. The exchange rate fluctuations of the above fair value hedged items and financial instruments were recorded as gain or loss in the current period. The exchange rate fluctuations of hedged items and financial instruments on hedge of a net investment in a foreign operation and cash flow were recorded as adjustments to stockholders’ equity.
As of December 31, 2012 and 2011, the fair values of the above foreign currency deposits on cash flow hedge were NT$4,257,415 thousand and NT$5,829,846 thousand, respectively, recorded as other financial assets (including noncurrent) (Note 14).
33. RELATED PARTY TRANSACTIONS
a. Related parties
| Related Parties | Relationship with the Corporation | |
| Kaohsiung Rapid Transit Corporation | Equity method investee | |
| Kaohsiung Arena Development Corp. | Equity method investee | |
| TaiAn Technologies Corporation | Equity method investee | |
| Hsin Hsin Cement Enterprise Co. (HHCEC) | Equity method investee | |
| Kaohsiung Port Cargo Handling Services Corp. | Equity investee of the Corporation’s subsidiary | |
| China Synthetic Rubber Corporation (CSRC) | Director of the Corporation’s subsidiary | |
| Taiwan Cement Corp. (TCC) | Director of the Corporation’s subsidiary | |
| Asia Cement Corp. | Director of the Corporation’s subsidiary | |
| Universal Cement Corp. | Director of the Corporation’s subsidiary | |
| Southeast Cement Co., Ltd. | Director of the Corporation’s subsidiary | |
| RSEA Engineering Corp. | Director of the Corporation’s subsidiary, dismissed in June 2011 | |
| Great Grandeul Steel Co., Ltd. | Director of the Corporation’s subsidiary | |
| Dai-Ichi High Frequency Co., Ltd. | Director of the Corporation’s subsidiary | |
| Hua Eng Wire & Cable Co., Ltd. | Director of the Corporation’s subsidiary | |
| CTCI Corporation | Supervisor of the Corporation’s subsidiary | |
| Chun Yu Corporation | Supervisor of the Corporation’s subsidiary | |
| Chia Hsin Cement Corporation | Supervisor of the Corporation’s subsidiary | |
| Berlin Co., Ltd. (BC) | Supervisor of the Corporation’s subsidiary, elected in June 2011 | |
| CSBC Corporation Taiwan (CSBC) | The Corporation is its director | |
| Tang Eng Iron Works Co., Ltd. (TEI) | The Corporation is its director | |
| Adimmune Corp. | The Corporation is its supervisor | |
| International Carbide Technology Co., Ltd. | The Corporation’s subsidiary is its director | |
| Shanghai Summit Metal Products Co., Ltd. | The Corporation’s subsidiary is its director | |
| Pacific Harbour Stevedoring Corp. | The Corporation’s subsidiary is its director and supervisor | |
| CSC Educational Foundation | Foundation established mainly from the Corporation’s donation | |
| Others | Substantial control and significant influence over investees, but no material transaction |
b. Significant related-party transactions were as follows:
Sales
Sales to related parties (including CSBC, CSRC, etc.) were NT$7,017,537 thousand (2% of operating revenues) and NT$8,093,549 thousand (2% of operating revenues), respectively, for the years ended December 31, 2012 and 2011.
Purchases
Purchases from related parties (including HHCEC, TCC, etc.) were NT$563,400 thousand and NT$1,531,918 thousand, respectively, for the years ended December 31, 2012 and 2011.
Sales to and purchases from related parties were made under normal terms applied to similar transactions in the market.
Other revenues
Other revenues that pertained to professional services, construction and other services to related parties (including TEI and etc.) were NT$756,471 thousand and NT$786,626 thousand, respectively, for the years ended December 31, 2012 and 2011. These were recorded in operating revenues and nonoperating income and gains.
Balances at year-end
1) Notes and accounts receivable
Notes and accounts receivable from related parties were NT$1,124,843 thousand (9% of account balance, including CSBC, TCC, etc.) and NT$854,577 thousand (7% of account balance, including CSBC, TCC, etc.), respectively, as of December 31, 2012 and 2011.
2) Notes and accounts payable
Notes and accounts payable to related parties were NT$232,475 thousand (2% of account balance, including BC, HHCEC, etc.) and NT$226,769 thousand (2% of account balance, including BC, HHCEC, etc.), respectively, as of December 31, 2012 and 2011.
c. Compensation of directors, supervisors and management personnel
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Salaries | $ 257,092 | $ 280,977 | ||
| Incentives | 104,327 | 119,921 | ||
| Bonus | 36,129 | 56,275 | ||
| Others | 3,646 | 4,312 | ||
| $ 401,194 | $ 461,485 |
34. MORTGAGED OR PLEDGED ASSETS
As of December 31, 2012 and 2011, the Corporation and its subsidiaries’ assets mortgaged or pledged as collateral for long-term bank loans, short-term bank loans and overdraft, performance guarantees, bankers’ acceptance bills, etc. were as follows (listed according to their carrying amounts):
| December 31 | ||||
| 2012 | 2011 | |||
| Net property, plant and equipment | $ 158,415,486 | $ 132,608,027 | ||
| Restricted assets - demand and time deposits | 7,221,840 | 7,188,354 | ||
| Stocks (Note) | 5,959,565 | 6,672,960 | ||
| Idle assets, net | 749,922 | 823,086 | ||
| Assets leased to others, net | 135,068 | 162,881 | ||
| $ 172,481,881 | $ 147,455,308 |
Note: Stocks of the Corporation were pledged by the subsidiaries WIC and TIC and were recorded as treasury stock in the consolidated financial statements.
35. SIGNIFICANT COMMITMENTS AND CONTINGENCIES AS OF DECEMBER 31, 2012
In addition to those disclosed in Note 23, significant commitments and contingencies of the Corporation and its subsidiaries as of December 31, 2012 were as follows:
a. The Corporation and its subsidiaries provide letters of credits of NT$3.7 billion guaranteed by financial institutions for several construction and lease contracts, and guarantee notes of NT$74.2 billion to banks and owners for loans, purchase agreements and warranty.
b. Unused letters of credit to import materials and machinery amounted to NT$16.9 billion.
c. Property purchase and construction contracts of NT$36.5 billion were signed but not yet recorded.
d. Construction contracts of NT$36.4 billion were not yet completed.
e. The Corporation and its subsidiaries entered into raw material purchase contracts with suppliers in Australia, Brazil, Canada, United States, Bahrain, Japan and domestic companies with contract terms of 1 to 10 years. Contracted annual purchases of 9,730,000 metric tons of coal, 20,530,000 metric tons of iron ore, and 2,750,000 metric tons of limestone are at prices negotiable with the counter parties. Purchase commitments as of December 31, 2012 were USD12.6 billion (including 13,000,000 metric tons of coal, 84,130,000 metric tons of iron ore, and 760,000 metric tons of limestone).
f. Endorsements/guarantees provided to the consolidated entities as of December 31, 2012 were as follows:
| Endorsement/Guarantee Provider | Counter-Party | Ending Balance | ||
| China Steel Corporation | Dragon Steel Corporation | USD 399,565 thousand | ||
| CSC Steel Australia Holding Pty Ltd. | AUD 359,314 thousand | |||
| China Steel Structure Co., Ltd. | United Steel Constructure Corporation | NTD 1,105,000 thousand | ||
| Chung-Kang Steel Structure (Kunshan) Co., Ltd. | NTD 319,440 thousand | |||
| United Steel Construction Vietnam Co., Ltd. | NTD 319,440 thousand | |||
| United Steel Constructure Corporation | China Steel Structure Co., Ltd. | NTD 5,795,827 thousand | ||
| China Steel Global Trading | Chung Mao Trading (SAMOA) Co. | USD 3,000 thousand | ||
| Corporation | CSGT International Corporation | USD 3,200 thousand | ||
| China Steel Express Corporation | CSE Transport Corporation (Panama) | USD 111,000 thousand | ||
| CSEI Transport Panama Corp. (Panama) | USD 49,976 thousand | |||
| China Prosperity Development Corporation | CK Japan Co., Ltd. | JPY 1,750,000 thousand |
36. OPERATING SEGMENT INFORMATION
Starting from January 1, 2011, the Corporation and its subsidiaries adopted the newly issued SFAS No. 41, “Operating Segments.” According to the internal reports that are regularly reviewed by the Corporation’s chief operating decision maker in order to allocate resources to the segments and assess their performance, the reportable segments are identified as follows:
a. China Steel Corporation (CSC) - manufactures and sells steel products and engages in mechanical, communications and electrical engineering.
b. Dragon Steel Corporation (DSC) - processes, manufactures and sells H-beam, billet, slab and coil.
c. Chung Hung Steel Corporation Ltd. (CHSC) - processes, manufactures and sells coil, pipe, tube and other steel products.
d. China Steel Chemical Corporation (CSCC) - produces, processes and sells coal tar distillation products, light oil products and coke products, and also engages in the commerce of related upstream and downstream merchandise.
e. China Steel Express Corporation (CSE) - ships bulk merchandise, such as iron ore and coal.
1) Information about revenues, results from continuing operations, assets, liabilities and other information of the Corporation and its subsidiaries was as follows:
| CSC | DSC | CHSC | CSCC | CSE | Other Segments | Adjustment and Elimination | Consolidated | |||||||||
| Year ended December 31, 2012 | ||||||||||||||||
| Revenues from other than consolidated entities | $ 191,151,906 | $ 47,820,050 | $ 38,992,927 | $ 7,742,201 | $ 691,043 | $ 72,138,575 | $ - | $ 358,536,702 | ||||||||
| Revenues among consolidated entities | 16,041,199 | 16,234,464 | 3,165,554 | 514,343 | 4,025,803 | 54,114,146 | (94,095,509 ) | - | ||||||||
| Total revenues | $ 207,193,105 | $ 64,054,514 | $ 42,158,481 | $ 8,256,544 | $ 4,716,846 | $ 126,252,721 | $ (94,095,509 ) | $ 358,536,702 | ||||||||
| Operating profit (loss) | $ 2,689,574 | $ (1,955,714 ) | $ (3,386,886 ) | $ 2,080,064 | $ 1,314,159 | $ 10,270,794 | $ (2,997,014 ) | $ 8,014,977 | ||||||||
| Interest income | 109,872 | 12,007 | 1,383 | 18,825 | 9,868 | 272,506 | (1,951 ) | 422,510 | ||||||||
| Investment income recognized under equity method, net | 2,353,103 | 8,269 | - | 135,780 | 1,957,782 | 1,764,285 | (6,219,219 ) | - | ||||||||
| Nonoperating income and gains | 2,811,303 | 56,493 | 310,850 | 62,670 | 16,388 | 7,356,847 | (7,591,870 ) | 3,022,681 | ||||||||
| Interest expense | (1,358,092 ) | (890,101 ) | (252,754 ) | (2,034 ) | (6,381 ) | (282,848 ) | 1,950 | (2,790,260 ) | ||||||||
| Investment loss recognized under equity method, net | - | - | (100,262 ) | - | - | (37,257 ) | (92,486 ) | (230,005 ) | ||||||||
| Nonoperating expenses and losses | (475,189 ) | (47,862 ) | (45,602 ) | (7,442 ) | (323 ) | 713,937 | (896,489 ) | (758,970 ) | ||||||||
| Income before income tax | 6,130,571 | (2,816,908 ) | (3,473,271 ) | 2,287,863 | 3,291,493 | 20,058,264 | (17,797,079 ) | 7,680,933 | ||||||||
| Income tax | 319,081 | (513,492 ) | (60 ) | 314,245 | 112,234 | 1,006,801 | 52,617 | 1,291,426 | ||||||||
| Net income | $ 5,811,490 | $ (2,303,416 ) | $ (3,473,211 ) | $ 1,973,618 | $ 3,179,259 | $ 19,051,463 | $ (17,849,696 ) | $ 6,389,507 | ||||||||
| Identifiable assets | $ 278,295,362 | $ 199,211,928 | $ 28,865,010 | $ 4,915,920 | $ 6,278,262 | $ 125,295,185 | $ (27,576,209 ) | $ 615,285,458 | ||||||||
| Investments accounted for by the equity method | 148,970,411 | 95,925 | 4,996,845 | 2,364,946 | $ | 6,250,901 | 34,639,999 | (194,712,497 ) | 2,606,530 | |||||||
| Total assets | $ 427,265,773 | $ 199,307,853 | $ 33,861,855 | $ 7,280,866 | $ | $ 12,529,163 | $ 159,935,184 | $ (222,288,706 ) | $ 617,891,988 | |||||||
| Total liabilities | $ 148,913,706 | $ 106,630,091 | $ 24,959,058 | $ 903,699 | $ 1,659,272 | $ 41,488,718 | $ (12,161,914 ) | $ 312,392,630 | ||||||||
| Depreciation | $ 17,708,945 | $ 5,934,292 | $ 1,604,659 | $ 221,352 | $ 396,826 | $ 2,679,976 | $ (73,120 ) | $ 28,472,930 | ||||||||
| Amortization | $ 42,193 | $ 43,902 | $ - | $ - | $ 48 | $ 60,537 | $ 77,847 | $ 224,527 | ||||||||
| Addition to property, plant and equipment | $ 21,866,042 | $ 20,981,984 | $ 1,490,644 | $ 171,358 | $ 2,743,072 | $ 16,698,332 | $ - | $ 63,951,432 | ||||||||
| Year ended December 31, 2011 | ||||||||||||||||
| Revenues from other than consolidated entities | $ 225,001,120 | $ 51,316,615 | $ 41,425,412 | $ 8,164,806 | $ 692,438 | $ 74,426,225 | $ - | $ 401,026,616 | ||||||||
| Revenues among consolidated entities | 15,374,899 | 22,535,788 | 4,209,317 | 750,310 | 3,233,910 | 55,435,697 | (101,539,921 ) | - | ||||||||
| Total revenues | $ 240,376,019 | $ 73,852,403 | $ 45,634,729 | $ 8,915,116 | $ 3,926,348 | $ 129,861,922 | $ (101,539,921 ) | $ 401,026,616 | ||||||||
| Operating profit (loss) | $ 14,598,981 | $ 2,037,487 | $ (3,226,512 ) | $ 2,377,837 | $ 1,235,876 | $ 7,891,556 | $ (724,282 ) | $ 24,190,943 | ||||||||
| Interest income | 121,480 | 16,529 | 1,377 | 17,313 | 17,979 | 162,700 | (3,710 ) | 333,668 | ||||||||
| Investment income recognized under equity method, net | 5,151,451 | 3,437 | 121,907 | 152,988 | 1,974,421 | 2,133,424 | (9,537,628 ) | - | ||||||||
| Nonoperating income and gains | 1,602,052 | 62,777 | 831,094 | 107,890 | 29,337 | 10,774,290 | (10,936,603 ) | 2,470,837 | ||||||||
| Interest expense | (769,406 ) | (898,614 ) | (158,381 ) | (2,622 ) | - | (220,614 ) | (9,425 ) | (2,059,062 ) | ||||||||
| Investment loss recognized under equity method, net | - | - | - | - | - | (45,504 ) | (389,443 ) | (434,947 ) | ||||||||
| Nonoperating expenses and losses | (419,865 ) | (46,570 ) | (9,171 ) | (13,658 ) | - | 534,768 | (1,181,960 ) | (1,136,456 ) | ||||||||
| Income before income tax | 20,284,693 | 1,175,046 | (2,439,686 ) | 2,639,748 | 3,257,613 | 21,230,620 | (22,783,051 ) | 23,364,983 | ||||||||
| Income tax | 791,014 | 95,735 | 8,230 | 392,953 | 364,024 | 964,464 | (81,627 ) | 2,534,793 | ||||||||
| Net income | $ 19,493,679 | $ 1,079,311 | $ (2,447,916 ) | $ 2,246,795 | $ 2,893,589 | $ 20,266,156 | $ (22,701,424 ) | $ 20,830,190 | ||||||||
| Identifiable assets | $ 294,681,997 | $ 192,892,905 | $ 31,042,649 | $ 5,098,208 | $ 5,280,086 | $ 109,935,985 | $ (29,865,208 ) | $ 609,066,622 | ||||||||
| Investments accounted for by the equity method | 127,252,843 | 95,540 | 5,209,889 | 2,262,614 | 6,213,215 | 32,261,696 | (170,676,804 ) | 2,618,993 | ||||||||
| Total assets | $ 421,934,840 | $ 192,988,445 | $ 36,252,538 | $ 7,360,822 | $ 11,493,301 | $ 142,197,681 | $ (200,542,012 ) | $ 611,685,615 | ||||||||
| Total liabilities | $ 133,347,831 | $ 113,847,209 | $ 23,725,435 | $ 1,110,590 | $ 890,879 | $ 41,035,610 | $ (14,379,876 ) | $ 299,577,678 | ||||||||
| Depreciation | $ 16,064,667 | $ 5,654,841 | $ 1,559,053 | $ 183,403 | $ 255,518 | $ 2,502,562 | $ (81,670 ) | $ 26,138,374 | ||||||||
| Amortization | $ 42,364 | $ 76,551 | $ 7,030 | $ - | $ 48 | $ 141,062 | $ 75,327 | $ 342,382 | ||||||||
| Addition to property, plant and equipment | $ 16,081,479 | $ 30,263,957 | $ 1,489,887 | $ 557,686 | $ 54,505 | $ 4,712,420 | $ - | $ 53,159,934 |
2) Revenues from major products and services of the Corporation and its subsidiaries were as follows:
| Years Ended December 31 | ||||
| 2012 | 2011 | |||
| Steel products | $ 294,957,019 | $ 336,623,057 | ||
| Non-ferrous materials | 36,246,281 | 39,611,488 | ||
| Construction revenues | 16,746,039 | 15,022,644 | ||
| Freight and service revenues | 5,976,407 | 5,753,360 | ||
| Others | 4,610,956 | 4,016,067 | ||
| $ 358,536,702 | $ 401,026,616 |
3) Geographical information
The Corporation and its subsidiaries operate in four principal geographical areas - Taiwan, Malaysia, China and Vietnam. The Corporation and its subsidiaries’ revenues from continuing operations from external customers and information about its non-current assets by geographical location were detailed below.
| Revenues from External Customers | Non-current Assets | |||||||
| Years Ended December 31 | December 31 | |||||||
| 2012 | 2011 | 2012 | 2011 | |||||
| Taiwan | $ 337,363,846 | $ 378,530,306 | $ 420,560,422 | $ 395,525,153 | ||||
| Malaysia | 10,365,341 | 11,155,876 | 2,577,604 | 2,585,382 | ||||
| China | 5,117,446 | 5,521,987 | 4,424,461 | 3,903,538 | ||||
| Vietnam | 1,166,151 | 1,326,678 | 13,207,110 | 3,392,052 | ||||
| Others | 4,523,918 | 4,491,769 | 6,338,850 | 6,250,458 | ||||
| $ 358,536,702 | $ 401,026,616 | $ 447,108,447 | $ 411,656,583 |
Non-current assets excluded those classified as financial instruments, deferred tax assets and post-employment benefit assets.
4) Information about major customers
No revenue from any individual customer exceeds 10% of the Corporation and its subsidiaries’ total revenues for the years ended December 31, 2012 and 2011.
37. EXCHANGE RATE INFORMATION OF FOREIGN-CURRENCY FINANCIAL ASSETS AND LIABILITIES
The significant foreign-currency financial assets and liabilities were as follows:
| December 31 | ||||||||||||
| 2012 | 2011 | |||||||||||
| Foreign | New Taiwan | Foreign | New Taiwan | |||||||||
| Currencies (Thousands) | Exchange Rate | Dollars (Thousands) | Currencies (Thousands) | Exchange Rate | Dollars (Thousands) | |||||||
| Monetary financial assets | ||||||||||||
| USD | $ 553,749 | 29.04 | $ 16,080,877 | $ 425,901 | 30.275 | $ 12,894,138 | ||||||
| JPY | 12,888,040 | 0.3364 | 4,335,537 | 13,419,592 | 0.3906 | 5,241,692 | ||||||
| MYR | 346,287 | 9.101 | 3,151,557 | 323,285 | 9.148 | 2,957,413 | ||||||
| CNY | 511,159 | 4.66 | 2,382,001 | 562,518 | 4.807 | 2,704,024 | ||||||
| INR | 1,936,265 | 0.5298 | 1,025,833 | - | - | - |
(Continued)
| December 31 | ||||||||||||
| 2012 | 2011 | |||||||||||
| Foreign | New Taiwan | Foreign | New Taiwan | |||||||||
| Currencies (Thousands) | Exchange Rate | Dollars (Thousands) | Currencies (Thousands) | Exchange Rate | Dollars (Thousands) | |||||||
| Non-monetary financial assets | ||||||||||||
| JPY | $ 4,550,000 | 0.3364 | $ 1,530,620 | $ 4,102,120 | 0.3906 | $ 1,602,288 | ||||||
| AUD | 46,437 | 30.165 | 1,400,774 | - | - | - | ||||||
| Monetary financial liabilities | ||||||||||||
| USD | 611,782 | 29.04 | 17,766,147 | 442,663 | 30.275 | 13,401,608 | ||||||
| JPY | 15,647,422 | 0.3364 | 5,263,793 | 14,041,070 | 0.3906 | 5,484,442 | ||||||
| CNY | 722,058 | 4.66 | 3,364,791 | 799,027 | 4.807 | 3,840,924 |
(Concluded)
Derivative Financial Instruments
| Currency | Contract Exchange Rate | Contract Amount (In Thousands) | ||||
| December 31, 2012 | ||||||
| Forward exchange contracts - buy | NTD/USD | 27.208-30.874 | NTD7,874,191/USD268,922 | |||
| Forward exchange contracts - buy | NTD/EUR | 36.852-45.462 | NTD427,540/EUR10,880 | |||
| Forward exchange contracts - buy | NTD/JPY | 0.306779-0.3913 | NTD1,483,833/JPY3,901,791 | |||
| Forward exchange contracts - buy | NTD/GBP | 45.7-46.68 | NTD212,200/GBP4,557 | |||
| Forward exchange contracts - sell | USD/NTD | 29.046-29.25 | USD7,231/NTD211,033 | |||
| Forward exchange contracts - sell | JPY/NTD | 0.3385-0.3401 | JPY1,000,000/NTD339,200 | |||
| Forward exchange contracts - sell | HKD/NTD | 3.755-3.774 | HKD17,614/NTD66,318 | |||
| December 31, 2011 | ||||||
| Forward exchange contracts - buy | NTD/USD | 27.208-31.57 | NTD7,356,581/USD249,477 | |||
| Forward exchange contracts - buy | NTD/EUR | 39.3-46.432 | NTD749,840/EUR17,867 | |||
| Forward exchange contracts - buy | NTD/JPY | 0.3415-0.3913 | NTD2,392,658/JPY6,442,742 | |||
| Forward exchange contracts - buy | NTD/GBP | 45.7-47.36 | NTD449,199/GBP9,584 | |||
| Forward exchange contracts - sell | USD/NTD | 29.334-30.45 | USD3,298/NTD100,177 | |||
| Forward exchange contracts - sell | HKD/NTD | 3.889-3.92 | HKD19,998/NTD77,897 |
- PRE-DISCLOSURE FOR ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS
According to the Rule No. 0990004943 issued by the Financial Supervisory Commission (FSC) on February 2, 2010, the Corporation and its subsidiaries’ pre-disclosure information on the adoption of International Financial Reporting Standards (IFRSs) was as follows:
a. On May 14, 2009, the FSC announced the “Framework for Adoption of International Financial Reporting Standards by Companies in the ROC.” In this framework, starting 2013, companies with shares listed on the Taiwan Stock Exchange Corp., Taiwan GreTai Securities Market or Emerging Stock Market should prepare their consolidated financial statements in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, International Financial Reporting Standards, International Accounting Standards, Interpretations, and related guidance issued by the FSC. To comply with this framework, the Corporation has set up a project team and made a plan to adopt IFRSs. Leading the implementation of this plan is Vice President of the Finance Division. The main contents of the plan, anticipated schedule and status of execution as of December 31, 2012 were as follows:
| Contents of Plan | Responsible Department | Status of Execution | ||
| 1) Planning and identification stage (2009.04.01-2010.12.31) | ||||
| • Establish the IFRSs task force | Accounting department | Finished | ||
| • Set up a work plan for IFRSs adoption | Accounting department | Finished | ||
| • Complete the identification of GAAP differences | Accounting department | Finished | ||
| • Complete the identification of consolidated entities under IFRSs | Accounting department | Finished | ||
| 2) Evaluation and determination stage (2010.01.01-2011.12.31) | ||||
| • Complete the impact evaluation of optional exemptions in IFRS1“First-time Adoption of International Financial Reporting Standards” | Accounting department | Finished | ||
| • Complete the impact evaluation of the IT systems | IT department | Finished (unaudited) | ||
| • Determine IFRSs accounting policies | Accounting department | Finished | ||
| • Determine the selection of optional exemptions in IFRS1 “First-time Adoption of International Financial Reporting Standards” | Accounting department | Finished | ||
| 3) Implementation and review stage (2011.01.01-2013.12.31) | ||||
| • Complete the impact evaluation of the modification to the relevant internal controls | Internal audit office | In progress (unaudited) | ||
| • Complete the preparation of opening date financial position under IFRSs | Accounting department | Finished | ||
| • Prepare comparative financial information under IFRSs for 2012 | Accounting department | In progress | ||
| • Complete the modification of the relevant internal controls (including financial reporting process and related IT systems) | Internal audit office, Accounting department and IT department | In progress (unaudited) |
b. As of December 31, 2012, the material differences between the existing accounting policies and the accounting policies to be adopted under IFRSs and their effects were as follows:
1) Reconciliation of consolidated balance sheets as of January 1, 2012: Table 1.
2) Reconciliation of consolidated balance sheets as of December 31, 2012: Table 2.
3) Reconciliation of consolidated statements of income for the year ended December 31, 2012: Table 3.
4) Appropriation for special reserve at the date of transition to IFRSs
In accordance with Order No. 1010012865 issued by the FSC on April 6, 2012, at the first-time adoption of IFRSs, an entity shall appropriate to special reserve the amount of increase in retained earnings that resulted from unrealized revaluation increment and cumulative translation differences (gain) because of the entity’s use of exemptions under IFRS 1. However, if the amount of the increase in retained earnings that resulted from all IFRSs adjustments is smaller than the amount of unrealized revaluation increment and cumulative translation differences (gain) reclassified to retained earnings, only the amount of the increase in retained earnings that resulted from all IFRSs adjustments will be appropriated to special reserve. The special reserve will be reversed in proportion to the usage, disposal or reclassification of the related assets.
As of January 1, 2012, the Corporation and its subsidiaries reclassified unrealized revaluation increment of NT$26,757,590 thousand and cumulative translation differences of NT$17,192 thousand to retained earnings. However, the increase in retained earnings from all IFRSs adjustments was smaller than the amounts of unrealized revaluation increment and cumulative translation differences; therefore, the Corporation and its subsidiaries appropriated NT$21,636,278 thousand, the increase in retained earnings from all IFRSs adjustments at the first-time adoption of IFRSs, to special reserve. For the year ended December 31, 2012, the Corporation and its subsidiaries reversed NT$2,988 thousand of special reserve in proportion to the usage, disposal or reclassification of the related assets.
5) Exemptions from IFRS 1
IFRS 1, “First-time Adoption of International Financial Reporting Standards,” establishes the procedures for first consolidated financial statements prepared in accordance with IFRSs. According to IFRS 1, the Corporation and its subsidiaries are required to determine the accounting policies under IFRSs and retrospectively apply those accounting policies in their opening consolidated balance sheets at the date of transition to IFRSs (January 1, 2012), except for optional exemptions to such retrospective application provided under IFRS 1. The main optional exemptions the Corporation and its subsidiaries adopted are summarized as follows:
a) Business combinations
The Corporation and its subsidiaries elected not to apply IFRS 3, “Business Combination,” retrospectively to business combinations that occurred before the date of transition to IFRSs. Therefore, the carrying amounts of goodwill, assets, liabilities and minority interest generated from past business combinations in the opening consolidated balance sheets remain the same as their carrying amounts under ROC GAAP as of December 31, 2011.
The above exemption also applies to past acquisitions of investments in associates.
b) Share-based payment
The Corporation and its subsidiaries elected the exemption from applying IFRS 2, “Share-based Payment,” retrospectively for the shared-based payment transactions granted and vested before the date of transition to IFRSs.
c) Deemed cost
The Corporation and its subsidiaries elected to use ROC GAAP revaluations of the designated property, plant and equipment and investment property at the date of transition to IFRSs as deemed cost at the date of revaluation.
d) Employee benefits
The Corporation and its subsidiaries elected to recognize all cumulative actuarial gains and losses relating to employee benefits in retained earnings at the date of transition to IFRSs.
e) Cumulative translation differences
The Corporation and its subsidiaries elected to deem the cumulative translation differences on all foreign operations as zero and recognized the amount in retained earnings at the date of transition to IFRSs.
f) Designation of previously recognized financial assets and liabilities
The Corporation and its subsidiaries elected to designate previously recognized financial assets carried at cost as financial assets at fair value through profit or loss and available-for-sale financial assets at the date of transition to IFRSs.
The effects arising from the above exemptions are stated in 6) Notes to the significant reconciliation items of transition to IFRSs.
6) Notes to the significant reconciliation items of transition to IFRSs:
The material differences between the existing accounting policies and the accounting policies to be adopted under IFRSs were as follows:
Presentation difference
A Time deposits with deposit terms of over three months
Under ROC GAAP, time deposits that can be withdrawn at any moment without detriment to the principal are classified as cash.
Under IFRSs, cash equivalents are defined as investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Therefore, only short-term investments, such as those with maturity of three months or less from the date of acquisition, normally qualify for classification as cash equivalents. Under IFRSs, time deposits with deposit terms of over three months are reclassified as other financial assets.
As of December 31, 2012 and January 1, 2012, the amounts reclassified from cash to other financial assets were NT$2,444,389 thousand and NT$5,348,764 thousand, respectively.
B Deferred income tax assets/liabilities
Under ROC GAAP, valuation allowance is provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. Under IFRSs, deferred income tax assets are only recognized to the extent that it is probable that there will be sufficient taxable profits, and valuation allowance account is not used.
In addition, under ROC GAAP, deferred tax assets or liabilities are classified as current or noncurrent in accordance with the classification of their related assets or liabilities. However, if deferred income tax assets or liabilities do not relate to assets or liabilities in the financial statements, they are classified as either current or noncurrent based on the expected length of time before they are realized or settled. Under IFRSs, deferred tax assets or liabilities are classified as noncurrent assets or liabilities.
As of December 31, 2012 and January 1, 2012, the amounts reclassified from current deferred income tax assets to noncurrent assets were NT$2,058,931 thousand and NT$3,623,367 thousand, respectively; the amounts reclassified from current deferred income tax liabilities to noncurrent liabilities were NT$8,941 thousand and zero, respectively.
C Classification of property, plant and equipment, assets leased to others and idle assets
Under ROC GAAP, assets leased to others are classified under property, plant and equipment or other assets, and idle assets are classified under other assets. Under IFRSs, the aforementioned items are classified as investment property or property, plant and equipment according to their nature.
As of December 31, 2012 and January 1, 2012, the amounts reclassified from assets leased to others under property, plant and equipment to investment property were NT$3,945,199 thousand and NT$3,827,965 thousand, respectively; the amounts reclassified from assets leased to others under other assets to property, plant and equipment were zero and NT$27,533 thousand, respectively; the amounts reclassified from assets leased to others under other assets to investment property were NT$2,920,089 thousand and NT$3,038,314 thousand, respectively; the amounts reclassified from idle assets under other assets to property, plant and equipment were NT$1,273,506 thousand and NT$670,017 thousand, respectively; the amounts reclassified from idle assets under other assets to investment property were both NT$1,441,943 thousand.
D Unrealized revaluation increment/reserve for land value increment tax
Under current Guidelines Governing the Preparation of Financial Reports by Securities Issuers, reserve for land value increment tax recognized due to revaluation on land is classified as long-term liabilities.
Under IFRSs, ROC GAAP revaluations are selected as deemed cost for the designated land at the date of transition to IFRSs; thus, the related reserve for land value increment tax should be reclassified to deferred income tax liabilities - land value increment tax.
As of January 1, 2012, the Corporation and its subsidiaries adjusted unrealized revaluation increment to retained earnings under the requirement of IFRS 1. The amount adjusted from unrealized revaluation increment to retained earnings was NT$26,757,590 thousand. As of December 31, 2012 and January 1, 2012, the amounts reclassified from reserve for land value increment tax to deferred income tax liabilities - land value increment tax were NT$10,240,123 thousand and NT$10,194,138 thousand, respectively.
Recognition and measurement difference
(a) Financial assets carried at cost
Under current Guidelines Governing the Preparation of Financial Reports by Securities Issuers, shares that are not listed on the Taiwan Stock Exchange Corporation or Taiwan GreTai Securities Market and of which the holder has no significant influence over the investee should be classified as financial assets carried at cost.
Under IFRSs, financial assets should be classified as financial assets at fair value through profit or loss and measured at fair value if they meet the definition of held for trading. Equity instruments that are designated as available-for-sale financial assets or are not designated as at FVTPL should be classified as available-for-sale financial assets and measured at fair value.
As of December 31, 2012 and January 1, 2012, the amounts reclassified from financial assets carried at cost to financial assets at fair value through profit or loss and available-for-sale financial assets were NT$12,449,537 thousand and NT$10,603,195 thousand, respectively; financial assets at fair value through profit or loss were adjusted for an increase of NT$304,655 thousand and NT$315,040 thousand, respectively; available-for-sale financial assets were adjusted for an increase of NT$14,606,157 thousand and NT$12,974,988 thousand, respectively; unrealized gain on available-for-sale financial assets was adjusted for an increase of NT$2,416,134 thousand and NT$2,685,896 thousand, respectively.
(b) Defined benefit pension plans
Under ROC GAAP, actuarial gains and losses should be accounted for under the corridor approach which resulted in the deferral of gains and losses. When using the corridor approach, actuarial gains and losses should be amortized in profit or loss over the average remaining service period of those employees who are still in service and expected to receive pension benefits. Under IFRSs, the Corporation and its subsidiaries should carry out actuarial valuation on defined benefit plans in accordance with IAS No. 19, “Employee Benefits,” and will recognize actuarial gains and losses immediately in full in the period in which they occur, as other comprehensive income. The actuarial gains and losses recognized in other comprehensive income are recognized immediately in retained earnings in the statement of changes in equity. The subsequent reclassification to profit or loss is not permitted.
Under ROC GAAP, there is no requirement for other long-term employee benefits (other than pensions). Under IFRSs, actuarial gains and losses should all be recognized immediately in profit or loss.
Under ROC GAAP, unrecognized net transition obligation, resulting from first-time adoption of SFAS No. 18, “Accounting for Pensions,” should be amortized in pension cost by the straight-line method over the average remaining service period of those employees who are still in service and expected to receive pension benefits. Due to no transition application under IAS No. 19, “Employee Benefits,” unrecognized net transition obligation and related amounts should be all recognized in retained earnings at the date of transition to IFRSs.
Under ROC GAAP, minimum pension liability is the minimum amount of pension liability that is required to be recognized on the balance sheets. If the accrued pension liability recorded on the books is less than the minimum amount, the difference shall be recognized. Under IFRSs, there is no requirement for minimum pension liability.
At the date of transition to IFRSs, the Corporation and its subsidiaries performed the actuarial valuation on defined benefit plans under IAS No. 19, “Employee Benefits,” and recognized the valuation difference under the requirement of IFRS 1. As of December 31, 2012 and January 1, 2012, accrued pension cost was adjusted for an increase of NT$6,716,615 thousand and NT$6,916,895 thousand, respectively; net loss not recognized as pension cost was adjusted for a decrease of NT$184,893 thousand and NT$230,590 thousand, respectively; deferred income tax assets were adjusted for an increase of NT$1,205,875 thousand and NT$1,219,725 thousand, respectively; retained earnings were adjusted for a decrease of NT$5,576,947 thousand and NT$5,662,987 thousand, respectively. Pension cost for the year ended December 31, 2012 was also adjusted for a decrease of NT$104,295 thousand (decrease of operating costs NT$19,177 thousand, research and development expenses NT$42 thousand, selling expenses NT$1,328 thousand, general and administrative expenses NT$78,953 thousand and nonoperating expenses and losses NT$4,795 thousand).
(c) Treasury stock
Under ROC GAAP, stocks of the parent company held by its subsidiaries are accounted for as its own treasury stock. The Corporation first adopted ROC SFAS No. 30, “Accounting for Treasury Stock,” which required that the recorded cost of the stock should be based on its carrying amount as of January 1, 2002 and reclassified to treasury stock. The carrying amount of the stock may not be the same as its original acquisition cost.
Under IFRSs, treasury stock should be recorded initially at acquisition cost and shown as a deduction in stockholders’ equity. There is no transition application; thus, the treasury stock and related accounts in the statement of changes in equity should be retrospective.
As of January 1, 2012, the Corporation adjusted the treasury stock retrospectively, and the major effects were as follow: Capital surplus was increased by NT$385,962 thousand, retained earnings were decreased by NT$141,373 thousand, unrealized gain on available-for-sale financial assets was increased by NT$112,926 thousand and treasury stock was increased by NT$167,784 thousand.
(d) Offset of deferred income tax
Under ROC GAAP, the current deferred income tax liabilities and assets of the same taxable entity should be offset against each other and presented as a net amount; the same for the noncurrent deferred income tax liabilities and assets.
Under IFRSs, an entity should offset deferred income tax assets and deferred income tax liabilities only if:
i. The entity has a legally enforceable right to set off current tax assets against current tax liabilities; and,
ii. The deferred income tax assets and the deferred income tax liabilities related to income taxes levied by the same taxation authority on either:
i) The same taxable entity; or
ii) Different taxable entities which intend either to settle current tax liabilities and assets on a net basis, or to realize the assets and settle the liabilities simultaneously, in each future period in which significant amounts of deferred income tax liabilities or assets are expected to be settled or recovered.
c. The Corporation and its subsidiaries have made the above assessments in accordance with (a) the 2010 version of the IFRSs translated by the ARDF and issued by the FSC and (b) the Guidelines Governing the Preparation of Financial Reports by Securities Issuers amended and issued by the FSC on December 22, 2011. These assessments may be changed as the FSC may issue new rules governing the adoption of IFRSs, and as other laws and regulations may be amended to comply with the adoption of IFRSs. Therefore, actual results may differ from these assessments.
TABLE 1
CHINA STEEL CORPORATION AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED BALANCE SHEETS
AS OF JANUARY 1, 2012
(In Thousands of New Taiwan Dollars)
| Assets | Liabilities And Stockholders’ Equity | |||||||||||||||||||||||||
| Effects of Transition to IFRSs | Effects of Transition to IFRSs | |||||||||||||||||||||||||
| Recognition and | Recognition and | |||||||||||||||||||||||||
| ROC GAAP | Presentation | Measurement | IFRSs | ROC GAAP | Presentation | Measurement | IFRSs | |||||||||||||||||||
| Item | Amount | Difference | Difference | Amount | Item | Note | Item | Amount | Difference | Difference | Amount | Item | Note | |||||||||||||
| CURRENT ASSETS | CURRENT ASSETS | CURRENT LIABILITIES | CURRENT LIABILITIES | |||||||||||||||||||||||
| Cash and cash equivalents | $ 17,480,092 | $ (5,348,764 ) | $ - | $ 12,131,328 | Cash and cash equivalents | A | Short-term loans and overdraft | $ 59,918,010 | $ - | $ - | $ 59,918,010 | Short-term loans and overdraft | ||||||||||||||
| Financial assets at fair value through profit or | 3,124,636 | - | 315,040 | 3,439,676 | Financial assets at fair value through profit or | (a) | Commercial paper payable | 22,357,900 | - | - | 22,357,900 | Commercial paper payable | ||||||||||||||
| loss - current | loss - current | Financial liabilities at fair value through | 90 | - | - | 90 | Financial liabilities at fair value through | |||||||||||||||||||
| Available-for-sale financial assets - current | 5,375,249 | - | 14,462 | 5,389,711 | Available-for-sale financial assets - current | (a) | profit or loss - current | profit or loss - current | ||||||||||||||||||
| Held-to-maturity financial assets - current | 60,550 | - | - | 60,550 | Held-to-maturity financial assets - current | Hedging derivative liabilities - current | 53,331 | - | - | 53,331 | Hedging derivative liabilities - current | |||||||||||||||
| Hedging derivative assets - current | 115,768 | - | - | 115,768 | Hedging derivative assets - current | Notes payable | 1,066,418 | - | - | 1,066,418 | Notes payable | |||||||||||||||
| Notes receivable, net | 1,901,604 | - | - | 1,901,604 | Notes receivable, net | Accounts payable | 10,131,244 | - | - | 10,131,244 | Accounts payable | |||||||||||||||
| Accounts receivable, net | 10,213,979 | - | - | 10,213,979 | Accounts receivable, net | Income tax payable | 3,376,691 | - | - | 3,376,691 | Current tax liabilities | |||||||||||||||
| - | - | 8,716,229 | - | 8,716,229 | Construction contracts receivable | Accrued expenses | 13,912,683 | (13,912,683 ) | - | - | - | |||||||||||||||
| Other receivables | 2,346,521 | (452,975 ) | - | 1,893,546 | Other receivables | Other payables | 8,456,717 | 12,403,015 | - | 20,859,732 | Other payables | |||||||||||||||
| - | - | 453,304 | - | 453,304 | Current tax assets | - | - | 2,810,630 | - | 2,810,630 | Provisions | |||||||||||||||
| Other financial assets - current | 3,710,158 | 12,192,130 | - | 15,902,288 | Other financial assets - current | A | Bonds payable - current portion | 11,270,086 | - | - | 11,270,086 | Bonds payable - current portion | ||||||||||||||
| Inventories | 115,961,466 | (8,716,229 ) | 32,272 | 107,277,509 | Inventories | Long-term debt - current portion | 11,715,737 | - | - | 11,715,737 | Long-term debt - current portion | |||||||||||||||
| Deferred income tax assets - current | 3,623,367 | (3,623,367 ) | - | - | - | B | Others | 6,546,124 | (1,300,962 ) | (80,349 ) | 5,164,813 | Others | ||||||||||||||
| Restricted assets - current | 6,906,442 | (6,906,442 ) | - | - | - | Total current liabilities | 148,805,031 | - | (80,349 ) | 148,724,682 | Total current liabilities | |||||||||||||||
| Others | 5,776,246 | (329 ) | 1,232 | 5,777,149 | Others | |||||||||||||||||||||
| Total current assets | 176,596,078 | (3,686,443 ) | 363,006 | 173,272,641 | Total current assets | LONG-TERM LIABILITIES | LONG-TERM LIABILITIES | |||||||||||||||||||
| Hedging derivative liabilities - noncurrent | 42,475 | - | - | 42,475 | Hedging derivative liabilities - noncurrent | |||||||||||||||||||||
| INVESTMENTS | INVESTMENTS | Bonds payable | 37,944,340 | - | - | 37,944,340 | Bonds payable | |||||||||||||||||||
| Financial assets at fair value through profit or | 23,979 | - | - | 23,979 | Financial assets at fair value through profit or | Long-term debt | 75,533,461 | - | - | 75,533,461 | Long-term debt | |||||||||||||||
| loss - noncurrent | loss - noncurrent | Long-term notes payable | 24,813,719 | - | - | 24,813,719 | Long-term notes payable | |||||||||||||||||||
| Available-for-sale financial assets - noncurrent | 3,369,657 | - | 12,960,526 | 16,330,183 | Available-for-sale financial assets - noncurrent | (a) | Total long-term liabilities | 138,333,995 | - | - | 138,333,995 | Total long-term liabilities | ||||||||||||||
| Held-to-maturity financial assets - noncurrent | 109,171 | - | - | 109,171 | Held-to-maturity financial assets - noncurrent | |||||||||||||||||||||
| Hedging derivative assets - noncurrent | 124,920 | - | - | 124,920 | Hedging derivative assets - noncurrent | RESERVE FOR LAND VALUE | 10,194,138 | (10,194,138 ) | - | - | - | D | ||||||||||||||
| Financial assets carried at cost - noncurrent | 10,603,195 | - | (10,603,195 ) | - | - | (a) | INCREMENT TAX | |||||||||||||||||||
| Bond investments with no active market - | 4,050,222 | - | - | 4,050,222 | Bond investments with no active market - | |||||||||||||||||||||
| noncurrent | noncurrent | OTHER LIABILITIES | OTHER LIABILITIES | |||||||||||||||||||||||
| Investments accounted for by the equity method | 2,618,993 | - | (10,479 ) | 2,608,514 | Investments accounted for by the equity method | Accrued pension cost | 754,105 | - | 6,916,895 | 7,671,000 | Accrued pension cost | (b) | ||||||||||||||
| Investments in real estate | 381,905 | (381,905 ) | - | - | - | Deferred income tax liabilities - noncurrent | 543,499 | 10,194,138 | 2,342,512 | 13,080,149 | Deferred income tax liabilities | B, D, (d) | ||||||||||||||
| Prepaid long-term stock investments | 10,000 | (10,000 ) | - | - | - | Others | 946,910 | - | - | 946,910 | Others | |||||||||||||||
| Other financial assets - noncurrent | 2,119,688 | 398,736 | - | 2,518,424 | Other financial assets - noncurrent | A | Total other liabilities | 2,244,514 | 10,194,138 | 9,259,407 | 21,698,059 | Total other liabilities | ||||||||||||||
| Total investments | 23,411,730 | 6,831 | 2,346,852 | 25,765,413 | Total investments | |||||||||||||||||||||
| Total liabilities | 299,577,678 | - | 9,179,058 | 308,756,736 | Total liabilities | |||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | PROPERTY, PLANT AND EQUIPMENT | |||||||||||||||||||||||||
| Cost and revaluation increment | 623,552,077 | (3,554,278 ) | 181,113 | 620,178,912 | Cost | STOCKHOLDERS’ EQUITY OF PARENT | EQUITY ATTRIBUTABLE TO | |||||||||||||||||||
| Less: Accumulated depreciation | 317,415,604 | (276,865 ) | 11,330 | 317,150,069 | Less: Accumulated depreciation | COMPANY | SHAREHOLDERS OF THE PARENT | |||||||||||||||||||
| Accumulated impairment | 443,719 | (274,540 ) | - | 169,179 | Accumulated impairment | Capital stock | 150,844,773 | - | - | 150,844,773 | Capital stock | |||||||||||||||
| 305,692,754 | (3,002,873 ) | 169,783 | 302,859,664 | C | Capital surplus | 36,247,705 | - | (63,109 ) | 36,184,596 | Capital surplus | (c) | |||||||||||||||
| Construction in progress and prepayments | 96,851,192 | (721,960 ) | 212,309 | 96,341,541 | Construction in progress and equipment to be | |||||||||||||||||||||
| for equipment | inspected | Retained earnings | Retained earnings | |||||||||||||||||||||||
| Net property, plant and equipment | 402,543,946 | (3,724,833 ) | 382,092 | 399,201,205 | Net property, plant and equipment | Legal reserve | 52,829,209 | - | - | 52,829,209 | Legal reserve | |||||||||||||||
| Special reserve | 7,615,701 | - | 21,636,278 | 29,251,979 | Special reserve | 4) | ||||||||||||||||||||
| INTANGIBLE ASSETS | 2,246,170 | (598,605 ) | (21,224 ) | 1,626,341 | INTANGIBLE ASSETS | Unappropriated earnings | 19,606,971 | - | - | 19,606,971 | Unappropriated earnings | D, (b),( c), 4) | ||||||||||||||
| - | - | 8,690,127 | - | 8,690,127 | INVESTMENT PROPERTY | C | Total retained earnings | 80,051,881 | - | 21,636,278 | 101,688,159 | Total retained earnings | ||||||||||||||
| OTHER ASSETS | OTHER ASSETS | Other equity | Other equity | |||||||||||||||||||||||
| Assets leased to others, net | 3,065,847 | (3,065,847 ) | - | - | - | C | Unrealized revaluation increment | 26,757,590 | - | (26,757,590 ) | - | - | D | |||||||||||||
| Idle assets, net | 2,111,960 | (2,111,960 ) | - | - | - | C | Unrealized gain on financial instruments | 3,020,919 | (317,084 ) | 2,803,837 | 5,507,672 | Unrealized gain from available-for-sales | (a), (c) | |||||||||||||
| Refundable deposits | 428,431 | - | - | 428,431 | Refundable deposits | financial assets | ||||||||||||||||||||
| Deferred income tax assets - noncurrent | - | 3,623,367 | 3,483,564 | 7,106,931 | Deferred income tax assets | B, (b), (d) | - | - | 317,084 | - | 317,084 | Cash flow hedging reserve | ||||||||||||||
| Restricted assets - noncurrent | 335,660 | (335,660 ) | - | - | - | Cumulative translation adjustments | 17,192 | - | (17,192 ) | - | Foreign currency translation reserve | |||||||||||||||
| Deferred charge and others | 945,793 | 1,203,023 | (18,744 ) | 2,130,072 | Others | Net loss not recognized as pension cost | (230,590 ) | - | 230,590 | - | - | (b) | ||||||||||||||
| Total other assets | 6,887,691 | (687,077 ) | 3,464,820 | 9,665,434 | Total other assets | Treasury stock | (8,122,461 ) | - | (167,784 ) | (8,290,245 ) | Treasury stock | (c) | ||||||||||||||
| Total other equity | 21,442,650 | - | (23,908,139 ) | (2,465,489 ) | Total other equity | |||||||||||||||||||||
| Total stockholders’ equity of parent | 288,587,009 | - | (2,334,970 ) | 286,252,039 | Total equity attributable to shareholders of | |||||||||||||||||||||
| company | the parent | |||||||||||||||||||||||||
| MINORITY INTEREST | 23,520,928 | - | (308,542 ) | 23,212,386 | NONCONTROLLING INTERESTS | |||||||||||||||||||||
| Total stockholders’ equity | 312,107,937 | - | (2,643,512 ) | 309,464,425 | Total shareholders’ equity | |||||||||||||||||||||
| TOTAL | $ 611,685,615 | $ - | $ 6,535,546 | $ 618,221,161 | TOTAL | TOTAL | $ 611,685,615 | $ - | $ 6,535,546 | $ 618,221,161 | TOTAL |
TABLE 2
CHINA STEEL CORPORATION AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2012
(In Thousands of New Taiwan Dollars)
| Assets | Liabilities And Stockholders’ Equity | |||||||||||||||||||||||||
| Effects of Transition to IFRSs | Effects of Transition to IFRSs | |||||||||||||||||||||||||
| Recognition and | Recognition and | |||||||||||||||||||||||||
| ROC GAAP | Presentation | Measurement | IFRSs | ROC GAAP | Presentation | Measurement | IFRSs | |||||||||||||||||||
| Item | Amount | Difference | Difference | Amount | Item | Note | Item | Amount | Difference | Difference | Amount | Item | Note | |||||||||||||
| CURRENT ASSETS | CURRENT ASSETS | CURRENT LIABILITIES | CURRENT LIABILITIES | |||||||||||||||||||||||
| Cash and cash equivalents | $ 20,545,123 | $ (2,444,389 ) | $ 3 | $ 18,100,737 | Cash and cash equivalents | A | Short-term loans and overdraft | $ 25,637,077 | $ - | $ - | $ 25,637,077 | Short-term loans and overdraft | ||||||||||||||
| Financial assets at fair value through profit or | 3,635,688 | - | 304,655 | 3,940,343 | Financial assets at fair value through | (a) | Commercial paper payable | 28,679,430 | - | - | 28,679,430 | Commercial paper payable | ||||||||||||||
| loss - current | profit or loss - current | Financial liabilities at fair value through | 4,362 | - | - | 4,362 | Financial liabilities at fair value through profit | |||||||||||||||||||
| Available-for-sale financial assets - current | 4,763,787 | - | 21,228 | 4,785,015 | Available-for-sale financial assets - current | (a) | profit or loss - current | or loss - current | ||||||||||||||||||
| Hedging derivative assets - current | 45,950 | - | - | 45,950 | Hedging derivative assets - current | Hedging derivative liabilities - current | 240,380 | - | - | 240,380 | Hedging derivative liabilities - current | |||||||||||||||
| Notes receivable, net | 1,490,986 | - | - | 1,490,986 | Notes receivable, net | Notes payable | 261,617 | - | - | 261,617 | Notes payable | |||||||||||||||
| Accounts receivable, net | 10,560,747 | - | - | 10,560,747 | Accounts receivable, net | Accounts payable | 10,332,163 | - | - | 10,332,163 | Accounts payable | |||||||||||||||
| - | - | 7,432,666 | - | 7,432,666 | Construction contracts receivable | |||||||||||||||||||||
| Other receivables | 1,530,801 | (56,646 ) | - | 1,474,155 | Other receivables | Income tax payable | 2,098,608 | - | 209 | 2,098,817 | Current tax liabilities | |||||||||||||||
| - | - | 58,085 | - | 58,085 | Current tax assets | Accrued expenses | 12,477,514 | (12,477,514 ) | - | - | - | |||||||||||||||
| Other financial assets - current | 4,237,454 | 9,286,260 | - | 13,523,714 | Other financial assets - current | A | Other payables | 9,175,241 | 11,316,624 | - | 20,491,865 | Other payables | ||||||||||||||
| Inventories | 84,282,534 | (7,432,666 ) | 17,150 | 76,867,018 | Inventories | - | - | 2,176,179 | - | 2,176,179 | Provisions | |||||||||||||||
| Deferred income tax assets - current | 2,058,931 | (2,058,931 ) | - | - | - | B | Bonds payable - current portion | 11,272,543 | - | - | 11,272,543 | Bonds payable - current portion | ||||||||||||||
| Restricted assets - current | 6,942,080 | (6,942,080 ) | - | - | - | Long-term debt - current portion | 20,979,088 | - | - | 20,979,088 | Long-term debt - current portion | |||||||||||||||
| Others | 4,775,299 | (1,439 ) | 1,862 | 4,775,722 | Others | Deferred income tax liabilities - current | 8,941 | (8,941 ) | - | - | - | B | ||||||||||||||
| Total current assets | 144,869,380 | (2,159,140 ) | 344,898 | 143,055,138 | Total current assets | Others | 7,018,591 | (1,015,289 ) | 1,414 | 6,004,716 | Others | |||||||||||||||
| Total current liabilities | 128,185,555 | (8,941 ) | 1,623 | 128,178,237 | Total current liabilities | |||||||||||||||||||||
| INVESTMENTS | INVESTMENTS | |||||||||||||||||||||||||
| Financial assets at fair value through profit or | 259 | - | - | 259 | Financial assets at fair value through | LONG-TERM LIABILITIES | LONG-TERM LIABILITIES | |||||||||||||||||||
| loss - noncurrent | profit or loss - noncurrent | Financial liabilities at fair value through | 1,739 | - | - | 1,739 | Financial liabilities at fair value through | |||||||||||||||||||
| Available-for-sale financial assets - noncurrent | 3,579,165 | - | 14,584,929 | 18,164,094 | Available-for-sale financial assets - noncurrent | (a) | profit or loss - noncurrent | profit or loss - noncurrent | ||||||||||||||||||
| Held-to-maturity financial assets - noncurrent | 185,159 | - | - | 185,159 | Held-to-maturity financial assets - noncurrent | Hedging derivative liabilities - noncurrent | 86,829 | - | - | 86,829 | Hedging derivative liabilities - noncurrent | |||||||||||||||
| Hedging derivative assets - noncurrent | 6,983 | - | - | 6,983 | Hedging derivative assets - noncurrent | Bonds payable | 47,069,227 | - | - | 47,069,227 | Bonds payable | |||||||||||||||
| Financial assets carried at cost - noncurrent | 12,449,537 | - | (12,449,537 ) | - | - | (a) | Long-term debt | 92,255,495 | - | - | 92,255,495 | Long-term debt | ||||||||||||||
| Bond investments with no active market - | 3,536,086 | - | - | 3,536,086 | Bond investments with no active market - | Long-term notes payable | 31,783,731 | - | - | 31,783,731 | Long-term notes payable | |||||||||||||||
| noncurrent | noncurrent | Total long-term liabilities | 171,197,021 | - | - | 171,197,021 | Total long-term liabilities | |||||||||||||||||||
| Investments accounted for by the equity method | 2,606,530 | - | 10,303 | 2,616,833 | Investments accounted for by the equity method | |||||||||||||||||||||
| Investments in real estate | 381,905 | (381,905 ) | - | - | - | RESERVE FOR LAND VALUE INCREMENT | 10,240,123 | (10,240,123 ) | - | - | - | D | ||||||||||||||
| Prepaid long-term stock investments | 12,942 | (12,942 ) | - | - | - | TAX | ||||||||||||||||||||
| Other financial assets - noncurrent | 33,943 | 425,028 | - | 458,971 | Other financial assets - noncurrent | A | ||||||||||||||||||||
| Total investments | 22,792,509 | 30,181 | 2,145,695 | 24,968,385 | Total investments | OTHER LIABILITIES | OTHER LIABILITIES | |||||||||||||||||||
| Accrued pension cost | 722,667 | - | 6,716,615 | 7,439,282 | Accrued pension cost | (b) | ||||||||||||||||||||
| PROPERTY, PLANT AND EQUIPMENT | PROPERTY, PLANT AND EQUIPMENT | Deferred income tax liabilities - noncurrent | 1,074,759 | 10,249,064 | 1,598,297 | 12,922,120 | Deferred income tax liabilities | B, D, (d) | ||||||||||||||||||
| Cost and revaluation increment | 669,417,853 | (2,978,870 ) | 181,113 | 666,620,096 | Cost | Others | 972,505 | - | - | 972,505 | Others | |||||||||||||||
| Less: Accumulated depreciation | 340,666,791 | (186,819 ) | 18,090 | 340,498,062 | Less: Accumulated depreciation | Total other liabilities | 2,769,931 | 10,249,064 | 8,314,912 | 21,333,907 | Total other liabilities | |||||||||||||||
| Accumulated impairment | 405,559 | (188,784 ) | - | 216,775 | Accumulated impairment | |||||||||||||||||||||
| 328,345,503 | (2,603,267 ) | 163,023 | 325,905,259 | C | Total liabilities | 312,392,630 | - | 8,316,535 | 320,709,165 | Total liabilities | ||||||||||||||||
| Construction in progress and prepayments | 108,359,520 | (2,215,076 ) | 283,336 | 106,427,780 | Construction in progress and equipment to be | |||||||||||||||||||||
| for equipment | inspected | STOCKHOLDERS’ EQUITY OF PARENT | EQUITY ATTRIBUTABLE TO | |||||||||||||||||||||||
| Net property, plant and equipment | 436,705,023 | (4,818,343 ) | 446,359 | 432,333,039 | Net property, plant and equipment | COMPANY | SHAREHOLDERS OF THE PARENT | |||||||||||||||||||
| Capital stock | 153,107,445 | - | - | 153,107,445 | Capital stock | |||||||||||||||||||||
| INTANGIBLE ASSETS | 3,303,202 | (1,725,856 ) | (41,439 ) | 1,535,907 | INTANGIBLE ASSETS | Capital surplus | 36,673,528 | - | (97,531 ) | 36,575,997 | Capital surplus | (c) | ||||||||||||||
| - | - | 8,689,136 | - | 8,689,136 | INVESTMENT PROPERTY | C | ||||||||||||||||||||
| Retained earnings | Retained earnings | |||||||||||||||||||||||||
| OTHER ASSETS | OTHER ASSETS | Legal reserve | 54,778,577 | - | - | 54,778,577 | Legal reserve | |||||||||||||||||||
| Assets leased to others, net | 2,920,089 | (2,920,089 ) | - | - | - | C | Special reserve | 7,615,701 | - | 21,633,290 | 29,248,991 | Special reserve | 4) | |||||||||||||
| Idle assets, net | 2,715,449 | (2,715,449 ) | - | - | - | C | Unappropriated earnings | 5,961,915 | - | 194,806 | 6,156,721 | Unappropriated earnings | D, (b), (c), 4) | |||||||||||||
| Refundable deposits | 431,779 | - | - | 431,779 | Refundable deposits | Total retained earnings | 68,356,193 | - | 21,828,096 | 90,184,289 | Total retained earnings | |||||||||||||||
| Deferred income tax assets - noncurrent | 3,080,214 | 2,058,931 | 2,690,659 | 7,829,804 | Deferred income tax assets | B, (b), (d) | ||||||||||||||||||||
| Restricted assets - noncurrent | 324,819 | (324,819 ) | - | - | - | Other equity | Other equity | |||||||||||||||||||
| Deferred charge and others | 749,524 | 3,885,448 | (28,195 ) | 4,606,777 | Others | Unrealized revaluation increment | 26,750,124 | - | (26,750,124 ) | - | - | D | ||||||||||||||
| Total other assets | 10,221,874 | (15,978 ) | 2,662,464 | 12,868,360 | Total other assets | Unrealized gain on financial instruments | 2,458,247 | 280,266 | 2,545,290 | 5,283,803 | Unrealized gain from available-for-sales | (a), (c) | ||||||||||||||
| financial assets | ||||||||||||||||||||||||||
| - | - | (280,266 ) | - | (280,266 ) | Cash flow hedging reserve | |||||||||||||||||||||
| Cumulative translation adjustments | (393,229 ) | - | (24,591 ) | (417,820 ) | Foreign currency translation reserve | |||||||||||||||||||||
| Net loss not recognized as pension cost | (184,893 ) | - | 184,893 | - | - | (b) | ||||||||||||||||||||
| Treasury stock | (8,415,348 ) | - | (166,949 ) | (8,582,297 ) | Treasury stock | (c) | ||||||||||||||||||||
| Total other equity | 20,214,901 | - | (24,211,481 ) | (3,996,580 ) | Total other equity | |||||||||||||||||||||
| Total stockholders’ equity of parent | 278,352,067 | - | (2,480,916 ) | 275,871,151 | Total equity attributable to shareholders of | |||||||||||||||||||||
| company | the parent | |||||||||||||||||||||||||
| MINORITY INTEREST | 27,147,291 | - | (277,642 ) | 26,869,649 | NONCONTROLLING INTERESTS | |||||||||||||||||||||
| Total stockholders’ equity | 305,499,358 | - | (2,758,558 ) | 302,740,800 | Total shareholders’ equity | |||||||||||||||||||||
| TOTAL | $ 617,891,988 | $ - | $ 5,557,977 | $ 623,449,965 | TOTAL | TOTAL | $ 617,891,988 | $ - | $ 5,557,977 | $ 623,449,965 | TOTAL | |||||||||||||||
TABLE 3
CHINA STEEL CORPORATION AND SUBSIDIARIES
RECONCILIATION OF CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2012
(In Thousands of New Taiwan Dollars)
| Effects of Transition to IFRSs | ||||||||||||
| ROC GAAP | Presentation | Recognition and Measurement | IFRSs | |||||||||
| Item | Amount | Difference | Difference | Amount | Item | NOTE | ||||||
| OPERATING REVENUES | $ 358,536,702 | $ - | $ (200,202 ) | $ 358,336,500 | OPERATING REVENUES | |||||||
| OPERATING COSTS | 339,161,858 | - | (171,284 ) | 338,990,574 | OPERATING COSTS | (b) | ||||||
| GROSS PROFIT | 19,374,844 | - | (28,918 ) | 19,345,926 | GROSS PROFIT | |||||||
| REALIZED GAIN FROM AFFILIATES | 31,236 | - | - | 31,236 | REALIZED GAIN FROM AFFILIATES | |||||||
| REALIZED GROSS PROFIT | 19,406,080 | - | (28,918 ) | 19,377,162 | REALIZED GROSS PROFIT | |||||||
| OPERATING EXPENSES | OPERATING EXPENSES | |||||||||||
| Research and development | 1,683,491 | - | (42 ) | 1,683,449 | Research and development | (b) | ||||||
| Selling | 4,585,976 | - | (3,331 ) | 4,582,645 | Selling | (b) | ||||||
| General and administrative | 5,121,636 | 86,009 | (90,222 ) | 5,117,423 | General and administrative | (b) | ||||||
| Total operating expenses | 11,391,103 | 86,009 | (93,595 ) | 11,383,517 | Total operating expenses | |||||||
| OPERATING INCOME | 8,014,977 | (86,009 ) | 64,677 | 7,993,645 | OPERATING INCOME | |||||||
| NONOPERATING INCOME AND GAINS | NONOPERATING INCOME AND GAINS | |||||||||||
| Interest income | 422,510 | - | - | 422,510 | Interest income | |||||||
| Dividend income | 288,315 | - | (16 ) | 288,299 | Dividend income | |||||||
| Gain on sale of investments, net | 1,183,827 | - | 15,402 | 1,199,229 | Gain on sale of investments, net | |||||||
| Exchange gain, net | 479,626 | - | (282 ) | 479,344 | Exchange gain, net | |||||||
| Reversal of impairment loss, net | 4,932 | (4,932 ) | - | - | Reversal of impairment loss, net | |||||||
| Others | 1,065,981 | (19,480 ) | 7,861 | 1,054,362 | Others | |||||||
| Total nonoperating income and gains | 3,445,191 | (24,412 ) | 22,965 | 3,443,744 | Total nonoperating income and gains | |||||||
| NONOPERATING EXPENSES AND LOSSES | NONOPERATING EXPENSES AND LOSSES | |||||||||||
| Interest expense | 2,790,260 | - | - | 2,790,260 | Interest expense | |||||||
| Investment loss recognized under equity method, net | 230,005 | - | (1,922 ) | 228,083 | Equity in losses of equity method investees, net | |||||||
| Others | 758,970 | (110,421 ) | 31,557 | 680,106 | Others | (b) | ||||||
| Total nonoperating expenses and losses | 3,779,235 | (110,421 ) | 29,635 | 3,698,449 | Total nonoperating expenses and losses | |||||||
| INCOME BEFORE INCOME TAX | 7,680,933 | - | 58,007 | 7,738,940 | INCOME BEFORE INCOME TAX | |||||||
| INCOME TAX | 1,291,426 | - | 13,956 | 1,305,382 | INCOME TAX | |||||||
| NET INCOME | $ 6,389,507 | $ - | $ 44,051 | $ 6,433,558 | NET INCOME | |||||||
| ATTRIBUTABLE TO | ATTRIBUTABLE TO | |||||||||||
| Stockholders of parent company | $ 5,811,490 | $ 5,894,806 | Stockholders of the parent | |||||||||
| Minority interest | 578,017 | 538,752 | Noncontrolling interest | |||||||||
| $ 6,389,507 | $ 6,433,558 |