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Farglory Land Dev Co (FLDS)

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Wednesday 06 July, 2011

Farglory Land Dev Co

Annual Financial Report

RNS Number : 8507J
Farglory Land Development Co., Ltd.
06 July 2011
 

 

 

 

 

 

 

 

 

 

 

FARGLORY LAND DEVELOPMENT CO., LTD.

 

CONSOLIDATED FINANCIAL STATEMENTS

AND REPORT OF INDEPENDENT ACCOUNTANTS

 

DECEMBER 31, 2009 AND 2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

REPORT OF INDEPENDENT ACCOUNTANTS

 

To: The Board of Directors and Stockholders

Farglory Land Development Co., Ltd.

 

We have audited the consolidated balance sheets of Farglory Land Development Co., Ltd. (the "Company") and its subsidiary as of December 31, 2009 and 2010 and the related consolidated statements of income, of changes in stockholders' equity and of cash flows for the years then ended, expressed in thousands of New Taiwan dollars. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the 2010 and 2009 financial statements of Farglory Life Insurance Co., Ltd. ("Farglory Life Insurance"), one of the long-term investments accounted for under the equity method. Those financial statements were audited by other auditors whose reports thereon were furnished to us and our opinion expressed herein, insofar as it relates to the amounts included in the consolidated financial statements relating to Farglory Life Insurance, is based solely on the reports of the other auditors.  The long-term investment in Farglory Life Insurance amounted to NT$73,920 thousand and NT$0 thousand as of December 31, 2009 and 2010, respectively; the related investment income for the year ended December 31, 2009 was NT$73,920 thousand and the related investment loss for the year ended December 31, 2010 was NT$54,520 thousand, respectively.

 

We conducted our audits in accordance with the "Regulations Governing the Examination of Financial Statements by Certified Public Accountants" and generally accepted auditing standards in the Republic of China. Those standards and rules 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 financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial

 

 

statement presentation. We believe that our audits and the reports of other auditors provide a reasonable basis for our opinion.

 

In our opinion, based on our audits and reports of other auditors, the consolidated financial statements referred to in the first paragraph present fairly, in all material respects, the consolidated financial position of the Company and its subsidiary as of December 31, 2009 and 2010, and the consolidated results of their operations and their cash flows for the years then ended, in conformity with the "Rules Governing the Preparation of Financial Statements by Securities Issuers" and generally accepted accounting principles in the Republic of China.

 

 

 

 

 

 

 

 

 

 

March 23, 2011

PricewaterhouseCoopers, Taiwan

 

 

 

 

 


FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

DECEMBER 31

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

 

 

 


        2009        

         2010      

ASSETS



Current Assets



 Cash and cash equivalents (Note 4(1))

$           714,031

$            779,359

Financial assets at fair value through profit or loss - current (Note 4(2))

921,054

2,962,793

 Notes receivable - third parties

114,483

174,664

 Notes receivable - related parties (Note 5)

264,950

272,500

 Accounts receivable - third parties

108,116

123,665

 Accounts receivable - related parties (Note 5)

193,710

50,429

 Other financial assets - current (Notes 5, 6 and 7)

325,297

327,707

 Inventories, net (Notes 4(3), 5 and 6)

42,132,671

33,175,371

 Construction in progress (Note 4(4))

229,434

506,367

 Less: Progress billings on uncompleted contracts (Note 4(4))

(            171,261)

(             404,412)

 Prepayments

232,054

322,084

 Deferred selling expenses (Note 5)

1,748,529

1,380,173

 Other current assets

             56,381

             35,905


         46,869,449

         39,706,605

    1.1 Funds and Investments



 Financial assets carried at cost - non-current (Notes 4(5),4(6) and 5)

-

457,680

Long-term equity investments accounted for under the equity method (Notes 4(6) and 5)

            277,524

            710,512


            277,524

          1,168,192

Property, Plant and Equipment, net (Notes 4(7) and 6)



 Cost



  Machinery

4,338

4,251

  Transportation equipment

229

-

  Office equipment

17,775

20,676

  Property held for lease - Land

620,480

644,207

  Property held for lease - Building

1,622,461

1,790,885

  Other equipment

              1,316

              1,523

 Cost and revaluation

2,266,599

2,461,542

 Less: accumulated depreciation

(            111,540)

(            137,644)


          2,155,059

          2,323,898

    1.2 Intangible Assets (Notes 4(8) and 6)



 Other intangible assets

            248,595

            226,511

    1.3 Other Assets



 Idle assets

792

785

 Refundable deposits (Notes 5 and 6)

9,081

8,288

 Long-term receivables (Note 4(9))

-

-

 Other assets - others (Notes 4(10), 4(14) and 6)

            355,356

           194,602


            365,229

           203,675

    1.4 TOTAL ASSETS

$        49,915,856

$       43,628,881

 

 

(Continued)



FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS (CONTINUED)

DECEMBER 31

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

 

 

 


        2009       

         2010      

    1.5 LIABILITIES AND STOCKHOLDERS' EQUITY

 

1.6   

Current Liabilities



 Short-term loans (Notes 4(11) and 6)

$         9,744,840

$         5,296,000

 Commercial papers payable (Notes 4(12) and 6)

314,641

19,993

 Financial liabilities at fair value through profit or loss - current (Notes 4(13) and 4(16))

249,581

76,607

 Notes payable - third parties

135,203

264,058

 Accounts payable - third parties

2,808,794

2,364,497

 Accounts payable - related parties (Note 5)

82,643

146,595

 Income tax payable  (Note 4(14))

415,486

1,095,098

 Accrued expenses

316,725

340,430

 Other payables - related parties (Note 5)

371,152

643,669

Other payables - third parties

135,193

258,795

Advances from customers (Notes 4(15) and 7)

9,737,059

5,586,870

 Current portion of long-term liabilities (Notes 4(16), 4(17) and 6)

635,684

880,669

 Warranty

225,444

214,653

 Deferred tax liability - current (Note 4(14))

469,428

48,473

 Other current liabilities

             13,281

             10,436


         25,655,154

         17,246,843

    1.7 Long-term Liabilities, net of current portion



 Bonds payable (Note 4(16))

453,605

-

 Long-term loans (Note 4(17))

            320,000

            555,000


            773,605

            555,000

    1.8 Other Liabilities



 Accrued pension liabilities (Note 4(18))

21,685

22,463

 Guaranty deposits received (Note 5)

65,126

80,782

 Other liabilities - others

             16,642

                  -


            103,453

            103,245

    1.9 Total Liabilities

         26,532,212

         17,905,088

Stockholders' Equity



 Capital stock



  Common stock (Note 4(19))

7,063,833

7,063,833

 Capital reserve (Note 4(20))



  Paid-in capital in excess of par value

1,230,160

1,230,160

  Paid-in capital in excess of par, convertible bonds

803,594

803,594

Gain on disposal of property

24,100

24,100

  Long-term investments (Notes 4(6) and 5)

92,589

38,256

  Paid-in capital - others

21,840

21,840

 Retained earnings



  Legal reserve (Note 4(21))

2,208,518

2,845,559

  Unappropriated earnings (Note 4(22))

11,924,359

13,743,434

 Other adjustments to stockholders' equity



  Cumulative translation adjustment

-

(             56,303)

 Minority interest

             14,651

              9,320

     1.10          Total Stockholders' Equity

         23,383,644

         25,723,793

Commitments and Contingent Liabilities (Notes 4(8), 5 and 7)



Significant Subsequent Events (Note 9)



TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$        49,915,856

$        43,628,881

 

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

See report of independent accountants dated March 23, 2011.



 

FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE)

 

 


        2009       

         2010      




Operating revenues



Rental revenue (Note 5)

$           241,700

$           237,866

 Construction revenue

         20,033,026

         19,822,721

Total operating revenues

         20,274,726

         20,060,587

Operating costs



Rental costs (Note 4(8))

(             88,565)

(             94,067)

 Construction costs(Notes 4(3), 4(25) and 5)

(         11,390,498)

(         11,427,025)

Total operating costs

(         11,479,063)

(         11,521,092)

Gross profit

          8,795,663

          8,539,495

Operating expenses (Notes 4(25) and 5)



 Selling and marketing expenses (Note 5)

(          1,112,278)

(          1,025,493)

 General and administrative expenses (Note 4(8))

(            525,954)

(            570,727)

Total operating expenses

(          1,638,232)

(          1,596,220)

Operating income

          7,157,431

          6,943,275

Non-operating income



 Interest income

6,256

         1,568

Investment income - equity method (Note 4(6))

71,636

-

Gain on disposal of investments (Notes 4(6), 4(23) and 5)

75,991

504,244

Gain on valuation of financial assets (Note 4(2))

7,499

      9,468

Gain on valuation of financial liabilities (Note 4(13))

-

111,546

 Other non-operating income

            160,939

             64,975

  Total non-operating income

            322,321

            691,801

Non-operating expenses



 Interest expense

(            107,149)

(                709)

 Investment loss - equity method (Note 4(6))

-

(            132,409)

 Loss on valuation of financial liabilities (Note 4(13))

(            112,448)

-

 Other non-operating expenses

(              9,074)

(            23,655)

  Total non-operating expenses

(            228,671)

(           156,773)

Income before income tax and minority interest

7,251,081

        7,478,303

Income tax expense (Note 4(14))

(            877,151)

(           782,813)

Consolidated net income

$         6,373,930

$        6,695,490

Attributable to:



Equity holders of the Company

$         6,370,407

$        6,694,416

Minority interest

              3,523

             1,074


$         6,373,930

$        6,695,490

 

(Continued)

 

 

 



 

FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF INCOME (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE)

 

 

 


                   2009                 

                     2010               

Earnings per share (Note 4(24))

 Before income tax

  After income tax 

 Before income tax

  After income tax 

Basic earnings per share (in dollars)



 Net income

$          10.26

$            9.02

$           10.59

$            9.48

Diluted earnings per share (in dollars)



 Net income

$          10.24

$            9.00

$           10.38

$            9.29

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

See report of independent accountants dated March 23, 2011.

 

 


 FARGLORY LAND DEVELPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31,

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

 

 



            Retained Earnings           





 

  Common Stock  

Capital

      Reserve    

Legal

     Reserve   

 Unappropriated

      Earnings     

      4(15))stments Cumulative

Translation

   Adjustments   

 Minority Interest

      Total      









                     2009              








Balance at January 1, 2009

$  7,063,833

 $ 2,172,283

$ 1,787,190

$  7,741,238

$         -

$   13,526

$18,778,070

Appropriations of earnings (Note A)

              

             

            

           

           

          

             

Legal reserve

            -

            -          

     421,328

(    421,328)

          -

          -

          -

Cash dividends

            -

            -

           -

(  1,765,958)

          -

          -

(   1,765,958)

Consolidated net income for 2009

            -

            -

           -

    6,370,407

          -

      3,523

   6,373,930

Distribution of cash dividends by the consolidated subsidiary

            -

            -

            -

            -

          -

(      2,398)

(       2,398)

Balance at December 31, 2009

$  7,063,833

 $ 2,172,283

$  2,208,518

 $ 11,924,359

 $         -

 $    14,651

$23,383,644









                     2010               








Balance at January 1, 2010

$  7,063,833

 $ 2,172,283

$ 2,208,518

$ 11,924,359

$         -

$   14,651

$23,383,644

Appropriations of earnings (Note B)

              

             

            

           

        

          

             

Legal reserve

           -            

            -

     637,041

(    637,041)

         -

          -

         -

Cash dividends

            -

            -

           -

 (  4,238,300)

          -

          -

(   4,238,300)

Adjustment for change in shareholding percentage in investee companies

            -

       4,007

           -

            -

         -

(      4,007)

            -

Sold holding percentage in investee companies

            -

(     58,340)

           -

            -

         -

          -

(      58,340)

Cumulative translation adjustments

            -

            -

           -

            -

(    56,303)

          -

(      56,303)

Consolidated net income for 2010

            -

            -

           -

    6,694,416

         -

      1,074

   6,695,490

Distribution of cash dividends by the consolidated subsidiary

            -

           -

           -

            -

          -

(      2,398)

(       2,398)

Balance at December 31, 2010

$  7,063,833

 $ 2,117,950

$ 2,845,559

 $ 13,743,434

($  56,303)

$     9,320

$25,723,793









Note A: Directors' and supervisors' remuneration amounting to $9,056 and employees' bonus amounting to $36,225 had been deducted from the Consolidated Statement of Income .
Note B: Directors' and supervisors' remuneration amounting to $13,014 and employees' bonus amounting to $86,762 had been deducted from the Consolidated Statement of Income.

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

See report of independent accountants dated March 23, 2011.


FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)


       2009      

        2010     




    1.11          Cash flows from operating activities



 Consolidated net income

$       6,373,930

$       6,695,490

 Adjustments to reconcile consolidated net income to net cash provided by operating activities:



  Realized profit on intercompany transactions

               -

(           16,352)

  Reversal of allowance for doubtful accounts

(            1,481)

(            1,183)

  Reversal of obsolescence and decline in market value of inventories

(          120,523)

(           11,826)

  Depreciation

          35,429

          34,310

  Amortization

         27,069

          29,304

  Loss (gain) on valuation of financial assets and liabilities

        104,949

(          121,014)

  (Gain) loss on long-term investments accounted for under the equity method

(           71,636)

         132,409

  Gain on disposal of investments

               -

(          504,244)

  Gain on disposal of real estate investments

(           75,991)

               -

  Amortization of discount on convertible bonds payable

          71,205

          59,161

  Loss from early-redemption of convertible bonds

               -

          16,904

  Constructive loss from consolidation in which the convertible bonds held by the subsidiary is considered to be redeemed

          2,584

               -

  Changes in assets and liabilities



    Financial assets at fair value through profit or loss - portfolio securities

(          121,707)

(       2,007,246)

    Notes receivable - third parties

(           50,756)

(           60,181)

    Notes receivable - related parties

(          264,950)

(            7,550)

    Accounts receivable - third parties

(           79,767)

          15,549

    Accounts receivable - related parties

        531,862

          143,281

    Other financial assets - current

          86,381

(            9,188)

    Inventories

(       1,181,184)

       8,927,401

    Excess of construction in progress over progress billings

(           29,319)

(           43,782)

    Prepayments

         230,571

(           90,030)

    Deferred selling expenses

         368,261

         368,356

    Other current assets

         229,151

           21,914

    Net change in deferred income taxes

         307,626

(          417,704)

    Notes payable - third parties

(          105,348)

          128,855

Accounts payable - third parties

(        1,279,501)

(          444,297)

Accounts payable - related parties

          62,845

         63,952

    Income tax payable

          60,659

         679,612

    Accrued expenses

         110,264

        23,705

    Other payables - related parties

          61,498

         272,517

Other payables - third parties

(           20,010)

          123,602

    Advances from customers

         915,164

(        4,150,189)

    Warranty

(            7,005)

(           10,791)

    Other current liabilities

(            7,340)

(            2,845)

    Accrued pension liabilities

             940

              778

    Others liabilities - others

(              387)

(              290)

Net cash provided by operating activities

        6,163,483

        9,807,290

                                               (Continued)





FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

FOR THE YEARS ENDED DECEMBER 31

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)


         2009      

       2010       




    1.12         



Cash flows from investing activities



 Decrease in other financial assets - current

$           15,191

$           6,778

 Proceeds from disposal of real estate investments

         180,382

              -

 Acquisition of property, plant and equipment

(             2,557)

(            4,279)

 Increase in financial assets carried at cost - non - current

               -

(          450,000)

 Increase in long-term investments

               -

(          641,100)

 Proceeds from sale of long-term investment

               -

         457,623

 Decrease in refundable deposits

           2,919

             793

Decrease in long-term receivables

            1,678

           1,183

 Increase in other assets - others

(             4,521)

(            8,023)

Net cash provided by (used in) investing activities

           193,092

(          637,025)

Cash flows from financing activities



  Decrease in short-term loans

(         4,187,780)

(        4,448,840)

  Decrease in commercial papers payable

(            59,793)

(          294,648)

  Increase in long-term loans

              -

        400,000

1.13            Repayment of long-term loans

(           120,000)

(          120,000)

  (Decrease) increase in guaranty deposits received

(             1,741)

         15,656

  Decrease in owner's drawing account

(            33,800)

               -

  Payment of cash dividends

(         1,765,958)

(        4,238,300)

  Payment of cash dividends to minority interests

(             2,398)

(            2,398)

  Redemption of convertible bonds

                  -

(          416,407)

Net cash used in financing activities

(         6,171,470)

(        9,104,937)

Net increase in cash and cash equivalents

         185,105

         65,328

Cash and cash equivalents at beginning of year

            528,926

          714,031

Cash and cash equivalents at end of year

$          714,031

$         779,359

Supplemental disclosures of cash flow information:



 Cash paid during the year for:



  Interest

$          266,236

$         156,211

Interest capitalized

(           220,832)

(          152,752)

Interest (excluding interest capitalized)

$           45,404

$           3,459

  Income tax

$          508,866

$         530,468

 Non-cash flows from investing and financing activities:



  Property held for lease transferred from inventories

$                -

$          41,726

  Inventories transferred from property held for lease

$          136,782

$              -

  Property held for lease transferred from other assets

$                -

$         156,868

  Other assets transferred from property held for lease

$          264,548

             -




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

See report of independent accountants dated March 23, 2011.


FARGLORY LAND DEVELOPMENT CO., LTD. AND SUBSIDIARY

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2009 AND 2010

 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, AND

UNLESS OTHERWISE STATED)

 

 

1. HISTORY AND ORGANIZATION

1)    The Company

Farglory Land Development Co., Ltd. (the "Company") was incorporated under the Company Law of the Republic of China ("ROC") in August 1978. The Company was renamed from Metropolitan Construction Co., Ltd. to Farglory Land Development Co., Ltd. in December 2005 after obtaining the approval from the regulatory agency. The Company is primarily engaged in selling and leasing commercial buildings and public housing constructed by commissioned construction contractors.  

The Company's shares had been traded on the GreTai Securities Market (formerly-Over-The -  

Counter Securities Exchange) since December 1999 and were transferred to be traded on the Taiwan Stock Exchange on August 6, 2007. As of December 31, 2010, the Company and its subsidiary had approximately 290 employees.

2)   Subsidiaries included in the consolidated financial statements

   Investor     

Name of the

    subsidiary     

 Major operating activities        

        Ownership (%)      

December 31,

    2009    

December 31,

      2010    

Farglory Land Development Co., Ltd.

Farglory Construction Co., Ltd. (Farglory Construction)

Construction contractor for both domestic and foreign civil as well as hydraulic engineering projects

97.95%

99.20%






3)  Subsidiaries not included in the consolidated financial statements: None.

4)  Adjustments for subsidiaries with different balance sheet dates and accounting policy: None.

5)  Special operating risks in foreign subsidiaries: None.

6)  Nature and extent of the restrictions on fund remittance from subsidiaries to the parent company: None.

7)  The parent company's shares held by subsidiaries: None.

8)  Information on new issuance of convertible bonds and common stock by subsidiaries: In August 31, 2010, the shareholders of the subsidiary resolved to issue common stocks in the amount of  $610,000.

 



2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The accompanying consolidated financial statements of the Company and its subsidiary (collectively referred herein as the "Group") are prepared in accordance with the "Rules Governing the Preparation of Financial Statements by Securities Issuers" and accounting principles generally accepted in the Republic of China. The Group's significant accounting policies are summarized below:

(1)    Basis for preparation of consolidated financial statements

All majority-owned subsidiaries and controlled entities are included in the consolidated financial statements. Effective January 1, 2008, the Company has prepared its consolidated financial statements on a quarterly basis. The income (loss) of the subsidiaries is included in the consolidated statement of income effective on the date the Company gains control over the subsidiaries. The income (loss) of the subsidiaries is excluded from the consolidated statement of income effective on the date the Company loses control over the subsidiaries.

Significant inter-company transactions, assets, and liabilities arising from inter-company transactions are eliminated.

(2)   Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise, they are classified as non-current assets:

a) Assets arising from operating activities that are expected to be realized or consumed, or are intended to be sold within the normal operating cycle;

b) Assets held mainly for trading purposes;

c) Assets that are expected to be realized within twelve months from the balance sheet date;

d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise, they are classified as non-current liabilities:

a) Liabilities arising from operating activities that are expected to be paid off within the normal operating cycle;

b) Liabilities arising mainly from trading activities;

c) Liabilities that are to be paid off within twelve months from the balance sheet date;

d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date.

C. Since the normal operating cycle from constructing to selling the properties is usually more than one year, the assets and liabilities relating to construction or long-term construction contracts are classified as current and non-current items based on the operating cycle. Other assets and liabilities are classified based on the period of one year.



 

(3)   Foreign currency transactions

A. The Group maintains its accounts in New Taiwan dollars. Transactions denominated in foreign currencies are translated into New Taiwan dollars at the spot exchange rates prevailing at the transaction dates. Exchange gains or losses due to the difference between the exchange rate on the transaction date and the exchange rate on the date of actual receipt and payment are recognized in the current year's profit or loss.

B. Monetary assets and liabilities denominated in foreign currencies are translated at the spot exchange rates prevailing at the balance sheet date. Exchange gains or losses are recognized in profit or loss.

C. For non-monetary assets and liabilities measured at fair value with differences recognized in profit or loss, any exchange component arising from translation at the spot rate prevailing at the balance sheet date shall be recognized in profit or loss. Conversely, for non-monetary assets and liabilities measured at fair value with differences recognized directly in equity, any exchange component arising from translation at the spot rate prevailing at the balance sheet date shall be recognized directly in equity. However, non-monetary items that are measured on a historical cost basis are translated using the exchange rate at the date of the transaction.

D. The financial statements of foreign subsidiaries are translated into New Taiwan dollars using the exchange rates at the balance sheet date except for equity accounts, which are translated at historical rates. Dividends are translated at the rates prevailing at the date of declaration. Profit and loss accounts are translated at weighted-average rates of the year. The resulting translation adjustments are recorded as "cumulative translation adjustments" under stockholders' equity, and recorded as a component of statement of income when sold or liquidated.

(4)   Financial assets and financial liabilities at fair value through profit or loss

A. Financial assets and financial liabilities at fair value through profit or loss are recognized and derecognized using the trade date accounting and are recognized initially at fair value.

B. These financial instruments are subsequently remeasured and stated at fair value, and the gain or loss is recognized in profit or loss. The fair values of listed stocks, OTC stocks, closed-end mutual funds, and depository receipts are determined by the closing prices at the balance sheet date. The fair value of open-end mutual funds is based on the net asset value at the balance sheet date.

C. For a derivative that does not meet the criteria for hedge accounting, it is initially recognized at fair value on the date the derivative contract is entered into and is subsequently remeasured at its fair value. If a derivative is a non-option derivative, the fair value initially recognized is zero.

D. For call options, put options, conversion price resetting options and non-equity conversion options embedded in bonds payable issued by the Company, please refer to Note 2 (17).

(5)   Allowance for doubtful accounts

Allowance for doubtful accounts is provided according to the evaluation of the collectibility of notes, accounts and other receivables, taking into account the bad debts incurred in prior years and the aging analysis of the receivables.

(6)   Inventories

     The inventories include "land held for construction", "construction in progress", and "buildings and land held for sale." In addition that the gains or losses occurring from construction contracts are recognized using the percentage of completion method, inventories are stated at cost and evaluated at the lower of cost or net realizable value at the end period. The individual item approach is used in the comparison of cost and net realizable value. The calculation of net realizable value is based on the estimated selling price in the normal course of business, net of estimated costs of completion and estimated selling expenses. The interest costs related to construction in progress are capitalized in accordance with the generally accepted accounting principles.

(7)   Long-term construction contracts

A. For the construction contracts that the Company enters into, the percentage of completion method is used when the construction lasts for more than one year and the profit or loss can be reliably estimated. Under the percentage of completion method, the percentage of completion is measured at the proportion that the costs incurred for work performed to date compared to the total estimated construction cost. For other construction contracts, the completed-contract method is used. When it is probable that the estimated contract costs will exceed the total contract price, under both methods, the expected loss is recognized immediately.

B. When the construction in progress exceeds the progress billings received under the same contract, the progress billings received is presented as a deduction from the construction in progress in arriving at the amount classified as current asset. When the progress billings received exceeds the construction in progress, the construction in progress is presented as a deduction from progress billings received under the same contract in arriving at the amount classified as current liability.

(8)   Deferred selling expense

The selling expenses related to the pre-sale of land and building are deferred until the gains and losses from the sale are recognized.

(9)   Financial assets carried at cost

A. The financial assets are recognized or derecognized using the trade date accounting and are recognized initially at fair value plus transaction costs that are directly attributable to the acquisition of the financial assets.

B. If there is any objective evidence that the financial assets are impaired, the impairment loss is recognized in profit or loss. Such impairment loss shall not be reversed.

(10) Long-term equity investments accounted for under the equity method

A. Long-term equity investments in which the Company holds more than 20% of the investee company's voting shares or has the ability to exercise significant influence on the investee company are accounted for under the equity method. The excess of the acquisition cost over the investee company's fair values of identifiable net assets is treated as goodwill. Goodwill is subject to impairment assessment annually. Retrospective adjustment for prior years is not required.

The excess of investee company's fair value of identifiable net assets over the acquisition cost is proportionately allocated as a reduction to the book values of each identifiable non-current asset. After allocating to each identifiable net asset, any remaining amount would be credited to extraordinary gains. Long-term equity investments in which the Company holds more than 50% of the investee company's voting shares or has the ability to control the investee's operational decisions are accounted for under the equity method and included in the quarterly  consolidated financial statements.

B. Upon the disposal of a long-term investment, the difference between the carrying amount and sales price is recorded as gain or loss from disposal of long-term investments. The capital reserve arising from long-term equity investment is transferred to gain or loss according to the disposal proportion.

C.        Exchange differences arising from translation of the financial statements of overseas investee companies accounted for under the equity method are recorded as "cumulative translation adjustments" under stockholders' equity. Please refer to Note 2 (3).

(11) Property, plant, and equipment

A.The property, plant, and equipment are stated at cost. Interest incurred on the loans used to bring the assets to the condition and location necessary for their intended uses are capitalized.

B. Depreciation is provided under the straight-line method based on the assets' estimated economic useful lives plus one year as salvage value. Salvage value of the fully depreciated assets that are still in use is depreciated based on the re-estimated economic useful lives. The estimated economic useful lives of property, plant, and equipment are set forth below:

Property held for lease - buildings

5060 years

Machinery and equipment

8 years

Transportation equipment

5 years

Office equipment

38 years

Other equipment

 5 years

C. Major improvements and renewals are capitalized and depreciated accordingly. Maintenance and repairs are expensed as incurred. The gains and losses from the sale or disposal of assets are recognized in profit or loss.

(12) Land-use right (shown as "other intangible assets")

The land-use right is the royalty paid to use the land for the construction of properties for leases or sale and is amortized over the effective period. During the construction period, the royalty is amortized to the construction cost. After the completion of the construction, the royalty is amortized to the rental cost based on the proportion of rented out properties. For the portion that has not yet been rented, the related royalty is amortized to operating expense. When a property is sold, the royalty is transferred to the operating cost based on the percentage of the property's construction cost over total construction cost.

(13) Idle assets

Property, plant, and equipment not used in operations are reclassified to "other assets" at the lower of the net realizable value or carrying amount. Depreciation provided on these assets is charged to non-operating expense.

(14) Deferred expenses (shown as "other assets - other")

The deferred expenses, including expenditures of computer software and leasehold decoration and maintenance are stated at cost, and are amortized over the shorter of the estimated useful lives or the lease periods using the straight-line method from 2 to 5 years.

(15) Impairment of non-financial assets

For an asset in which there is an indication of impairment, the Group estimates its recoverable amount and recognizes impairment loss if its recoverable amount is less than its carrying amount. The recoverable amount is the higher of the fair value less costs to sell and value in use. The fair value less costs to sell is the amount obtainable from the sale of the asset in an arm's length transaction after deducting any direct incremental disposal costs. The value in use is the present value of estimated future cash flows to be derived from continuing use of the asset and from its disposal at the end of its useful life. When the impairment no longer exists, the impairment loss recognized in prior years shall be reversed.

The recoverable amount of goodwill, intangible assets with indefinite useful lives, and intangible assets that have not yet been available for use are evaluated for impairment at least annually. Impairment loss is recognized whenever the recoverable amount of these assets is less than their respective carrying amount. Impairment loss of goodwill recognized in prior years is not reversed in the following years.

(16) Construction warranty (shown as "warranty")

Construction warranty is accrued based on the potential warranty expenditure over the warranty period under construction contracts. When the actual warranty expenses occur, the warranty liability will be debited. If the warranty liability is not sufficient, the rest of the expenditures will be recorded as the current expense.

(17) Convertible bonds

A. For the bonds payable embedded in conversion option, put option, call option and price resetting option issued after January 1, 2006, the issuer of the financial instruments shall separate the issuance price on initial recognition into financial asset and financial liability according to the contractual terms. These instruments are accounted for as follows:

(A) The premium or discount arising from the issuance of the convertible bonds is amortized over the period from the date of issuance to maturity date using the straight-line method and is recorded as interest expense.

(B) The net values assigned to the derivative features (conversion option, put option, call option, and price resetting option) embedded in the convertible bonds are accounted for as "financial assets or financial liabilities at fair value through profit or loss". Such financial assets or liabilities are subsequently remeasured at fair value on the balance sheet dates, with the resulting differences recognized as "gain or loss on valuation of financial assets or financial liabilities". The fair value of the put option upon expiration is recognized in profit or loss for the period. The reduction of fair value due to the reset of conversion price is recognized in "gain or loss" in the current period.

(C) When the conversion option is exercised, the liability components (including the bonds as well as the separately recognized embedded derivatives) shall be remeasured at fair value on the conversion date, and the resulting difference shall be recognized in profit or loss for the period. The carrying amount for the common stock issued upon conversion shall be based on the fair value of the above-mentioned liability components of the bonds.

(D) Costs incurred on issuance of convertible bonds are proportionally charged to the liability components based on initially recognized costs.

B.In the event that the bondholders may exercise put options within the following year, the underlying bonds payable shall be reclassified to current liabilities. The bonds payable whose put options are unexercised during the exercisable period shall be reversed to non-current liabilities.

(18) Pension plan

Under the defined benefit pension plan, net periodic pension costs are recognized in accordance with the actuarial calculations. Net periodic pension costs include service cost, interest cost, expected return on plan assets, amortization of unrecognized net transition obligation and gains or losses on plan assets. Unrecognized net transition obligation is amortized on a straight-line basis over the average remaining service years. Under the defined contribution pension plan, the contribution amounts are recognized as net periodic pension costs incurred under the accrual basis.

(19) Income tax

A. The Group uses inter-period as well as intra-period tax allocation for income tax. Any over-provision or under-provision on prior years' income tax liabilities is recorded as current year's income tax expense. As a result of the change in the tax law, the deferred tax assets and deferred tax liabilities should be remeasured in the year the tax law is enacted. The impact of change in tax rate is recognized as income tax expense (benefit) for income from continuing operations in the current period.

B. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve the distribution of earnings.

(20) Share-based payment ─ employee compensation plan

For share-based payment with the grant date on or after January 1, 2008, the Company shall measure the services received during the vesting period by reference to the fair value of the equity instruments granted and account for those amounts as payroll expenses during that period. In accordance with ARDF 96-267 prescribed by the R.O.C. Accounting Research and Development Foundation, shares reserved for employees to purchase under the Company Law Article 267 paragraph 1, are measured at fair value on the grant date and the resulting amount recognized as payroll expenses.

(21) Bonuses to employees and remuneration to directors and supervisors

Effective January 1, 2008, pursuant to ARDF 96-052 of the R.O.C. Accounting Research and Development Foundation, dated March 16, 2007, "Accounting for Bonuses to Employees and Remuneration to Directors and Supervisors", the estimated bonuses to employees and remuneration to directors and supervisors are accounted for as expenses and liabilities, provided that such liabilities are required under legal or constructive obligation and those amounts can be estimated reasonably. However, if the accrued amounts for bonuses to employees and remuneration to directors and supervisors are different from the actual distributed amounts resolved at the stockholders' meeting subsequently, the differences shall be recognized as income or expenses in the following year.

(22) Revenue and cost recognition

A. Profit/loss from property sales

The Company commissions contractors to construct properties for the pre-completion contracts the Company enters into with customers for the sale of developed properties. If the construction meets the requirements for the use of the percentage of completion method, the profit or loss is recognized based on the percentage of completion of the project. Other constructions are accounted for under the completed-contract method under which the cost and the profit or losses are recognized when the ownership is transferred and the property is delivered. However, the profit or loss is also recognized when the property is delivered (or the ownership is transferred) before the balance sheet date the ownership is transferred (or the property is delivered) before the issuance date of the financial statements.

B. Rental income

Rental income is recognized monthly. The related cost is recognized as incurred and when related income is recognized. Expenses are recognized as incurred under the accrual basis.

C.        Others

Except for the long-term construction contracts, revenues are recognized when the earning process is substantially completed and are realized or realizable. The related cost is recognized as incurred when related income is recognized. Expenses are recognized as incurred under the accrual basis.

(23) Use of estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make measurement, assessment, and disclosure, including the use of assumptions and estimates, for amounts and contingencies reported in the financial statements. Actual results could differ from assumptions and estimates.

3.  EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

Inventories

Effective January 1, 2009, the Group adopted R.O.C. SFAS No. 10, "Accounting for Inventory". The adoption has no effect on the consolidated net income for the year ended December 31, 2009.

 

4.  SUMMARY OF SIGNIFICANT ACCOUNTS

1)  Cash and cash equivalents


                 December 31,                 


       2009       

       2010      

Cash on hand and petty cash

$           2,610

$           2,158

Checking deposits

        10,071

       65,272

Savings deposits

          701,350

          711,929


$         714,031

$         779,359

 

2) Financial assets at fair value through profit or loss


                 December 31,                 


       2009       

       2010      

Financial assets held for trading:


Listed stocks

$              10

$              10

Beneficiary certificates

          921,000

        2,958,430


      921,010

     2,958,440

Valuation adjustments

               44

            4,353


$         921,054

$       2,962,793

 

The Group recognized net gains in the amount of NT$7,499 and NT$9,468 for the years ended December 31, 2009 and 2010, respectively.

 

 


3)  Inventories


            December 31,          


     2009    

     2010    

Prepayment for land

 



Neihu District, Tanmei Section 5, Taipei City.

$      34,685

$    19,246

Beitou District, Qiyan Section 6 , Taipei City.

            -

      156,823

Banqiao District, Jiangzicul Section, Disankan Section, New Taipei City.

         -

 

        9,986

 

Fengtian Section, Bade City, Taoyuan County.

  -

614,720

Neihu District, Jiuzong Section, Taipei City.

118,338

 -

Wenshan District, Muzha Section 1, Taipei City.

           5,400  

           -


      158,423

     800,775

Prepayment for transferable building bulk  

      716,201 

     516,504

Land held for construction



Sanmin District, Dagang Section, Kaohsiung City.

      294,030

      294,030

Wanhua District, Wanda Section 2, Taipei City.

      115,204

       25,945

Xinzhuang Distict, An-tai Section, New Taipei City.

       7,949

   2,012,821

Junghe District, Hua-jhong Section New Taipei City.(Gongjiaojiao Section)

     104,026

     104,026

Wenshan District, Shihchien Section 2, Taipei City.

      41,290

      41,290

Wenshan District, Muzha Section 1, Taipei City.

     492,068

     521,290

Wenshan District, Muzha Section 3, Taipei City.

           -

      49,680

Beitou District, Wenlin Section 1, Taipei City.

   1,381,213

           -

Shilin District, Lanya Section 3, Taipei City.

      94,984

      94,984

Neihu District, Tanmei Section 5, Taipei City.

   1,351,316

   1,503,243

Zhongshan District, Changchun Section 2, Taipei City.

     707,620

           -

Neihu District, Jiuzong Section, Taipei City.

     355,843

           -

Xinzhuang District, Fudousin Section 1, New Taipei City.

   3,206,195

  11,251,576

Nangang District, Nangang Section 3, Taipei City.

Linkou District, Shinlin Section,New Taipei City

       56,108

      199,709

       56,421

            -

Zhongzheng District, Zhongzheng Section 1, Taipei City.

         98,298

       98,314

Linkou District, Lishing Section, New Taipei City.

211,136

-

Sanchong District, Sangchong Pu Section, Tong'an Cuo Setion, New Taipei City.

-

 15,897

Banqiao District, Jiangzicul Section, Disankan Section,

New Taipei City.

            -

     289,056


    8,716,989

  16,358,573

Less: Allowance for decline in market value and obsolescence

 

(      173,210)     

 

(     173,210)       


    8,543,779

  16,185,363




 

 



 

Construction in progress


             December 31,         


     2009    

     2010    

 

E2 U Town

     201,365

     702,479

Farglory Jimei (Sanchong District, Chongxin Section 1 )

     186,062

           -

Farglory Shanglin Yuan

  10,704,632

           -

The Glory of Future

      75,798

     276,293

Farglory The Sun

   3,097,830

           -

Farglory Asia One

2,066,436

   2,999,483

Farglory Fortuna

   2,698,548

   2,871,936

Farglory New City-Seasons Garden

    1,533,234

           -

Farglory New City-Chateau

   1,264,463

           -

Farglory Great Future

   4,041,574

           -

Tanmei Section 5, No.99

           -

68,632

Farglory New City-Imperial Garden (Tanmei Section 5, No. 67-70, 74-76)

     381,119   

   1,346,649

Farglory ASAHI

(Jilin Section 4, No. 671-3, etc.)

      963,707

    1,186,819

Farglory New City-Fujimi Garden (Tanmei Section 5, No. 72)

        4,072

            -

Farglory Grand Palace II

(Wenlin Section 1)

            -

    1,832,068

Farglory New City - Palazzo Milano

            -

      739,323

Farglory New City -Symphonic Garden

            -

      324,147

Farglory Switzerland Economy Trade Center (Neihu District, Jiuzong Section, No.  

93-3,93-10~12, etc.)

            -

    1,056,983


   27,218,840

   13,404,812

 

 

 

 

 

 

 



 


              December 31,         


     2009    

     2010  

Buildings and land held for sale

Office development in Taipei City

    590,560

    179,324

Farglory Tokyo Tech. Headquarter

    

    

Farglory Geneva Tech. Center

          

          

Farglory Manhattan Tech. Center

         

         

Farglory New Land

 

 

Residential development in Taipei City

     101,782

    499,279

Farglory Tianmu

     

     

Farglory E-Lounge



Farglory Shanglin Yuan



Farglory New City-Chateau

Farglory New City-Fujimi Garden



Residential development in New Taipei City

   4,780,019

  1,611,953

Farglory University Cambridge



Farglory Future House I



Farglory University Fenglu Ш



Farglory University Harvard



Farglory Future House II



Farglory University Yale



Farglory Taipei Parkview



Farglory Great Future



Farglory Jimei



Residential development in Kaohsiung County

      57,532

           -

Farglory Chengching Lake Villa

                            

            


5,529,893

    2,290,556

Less: Allowance for decline in market value and obsolescence

 

(      34,465)          

 

(      22,639)       


   5,495,428           

   2,267,917


$ 42,132,671

$ 33,175,371

 

The cost of inventories recognized as expense and included in constructional costs for the years ended December 31, 2009 and 2010 were as follows: 


   For the years ended December 31,   


    2009    

    2010    

Cost of inventories sold

$ 11,511,021

$ 11,438,851

Reversal of decline in market value and obsolescence of inventory

 

(     120,523)   

 

(      11,826)  


$ 11,390,498

$ 11,427,025

The Company reversed previously written-down inventory in the years ended December 31, 2009 and 2010. The Company has sold the buildings and land held for sale that were written down in the previous years.

 

 

A.  As of December 31, 2009 and 2010, construction contracts that met the requirements to use the percentage of completion method are listed as follows:


                     December 31, 2009                           


  Contract sales

(VAT excluded)

Estimated total

construction cost

Percentage of
 completion

Expected year of  completion 

Accumulated construction

   profit  

H40A Farglory Shanglin Yuan

$  12,317,609

$   6,489,764

87.95%

2010

$5,125,622

H52A Farglory The Sun

    4,203,128

    2,615,073

71.98%

2010

1,143,069

H63A Farglory New City-Seasons Garden

    2,388,147

    1,327,178

62.68%

2010

   630,499

H66A Farglory Great Future

    5,337,091

4,718,468

62.15%

2010

946,320

 

 

                                                              

                     December 31, 2010                            


Contract sales

(VAT excluded)

Estimated total

construction cost

Percentage of
 completion

Expected year of

completion

Accumulated construction
   profit  

H69A Farglory New

City-Imperial Garden

$  1,885,494

$   1,142,876

77.44%

2011

$  496,898

H61A Farglory Asia One

   4,852,164

    3,582,003

36.20%

2011

   472,869







B.   For the years ended December 31, 2009 and 2010, the interest capitalized as cost of inventory amounted to NT$220,832 and NT$152,752, respectively. Annual interest rates used for capitalization for the years ended December 31, 2009 and 2010 were 2.08%~2.89% and 2.03%~2.83%, respectively.

C.  For details of pledged assets, please refer to Note 6.

4) Construction in progress and progress billings on uncompleted contracts

A. The details of construction in progress and progress billings on uncompleted contracts are as follows:


          December 31, 2009           


 

 Construction

    in progress     

Progress billings on

uncompleted

     contracts    

Excess of construction in progress over progress billings:


BT   Jhonghe District, BT Project, New Taipei City

$         95,329

$       67,026

  H45B Farglory Resort III

          74,984

        65,723

  O5   Farglory Complex Building

          59,121

        38,512

 

$        229,434

$      171,261

 



 


                   December 31, 2010            


 

       Construction

          in progress   

    Progress billings on

    uncompleted

     contracts       

Excess of construction in progress over progress billings:



BT  Jhonghe District, BT Project, New Taipei City

$       297,312   

$      288,698

O3  Farglory Financial Center

        209,055

       115,714


$       506,367

$      404,412

B. The details of significant uncompleted contracts are as follows: 


                    December 31, 2009                    


Contract Price

(VAT excluded)

Estimated total

construction cost

Percentage of completion

Expected year of completion

Accumulated

construction

    profit   

Percentage of completion method -

  BT  Jhonghe District, BT Project, New Taipei

      City

$   297,627

$   290,186

32.03%

2011

$    2,383

 H45B Farglory Resort III

    86,477

     84,315

86.71%

2010

    1,875

O5   Farglory Complex Building

   128,375

  125,165

46.05%

2010

1,478

 


                    December 31, 2010                    


Contract Price

(VAT excluded)

Estimated total

construction cost

Percentage of completion

Expected year of completion

Accumulated

construction

   profit   

Percentage of completion method -

  BT   Jhonghe District, BT Project, New Taipei City   

$   297,627

 

$   293,908

 

99.89%

 

2011

 

$    3,714

 

  O3   Farglory Financial Center           

 

2,857,143

2,785,714  

7.32%       

2012    

      5,226

5)  Financial assets carried at cost - non-current


             December 31,               


        2009      

       2010      

Public offering stock

Farglory Life Insurance Co., Ltd. (Farglory Life Insurance)

$              -

$        7,680

Unlisted stock

 Yuan Jing Solar Technology Co., Ltd.

               -

      450,000

MagnaChip Semiconductor Ltd.

               -

             -


$              -

$      457,680

 



 

A. In July 2009, due to financial difficulty, MagnaChip filed for financial relief under Chapter 11 of the United States Bankruptcy Code in the District Court of Delaware (the "Court"), USA. According to the debt repayment scheme of MagnaChip approved by the Court, MagnaChip had reduced the number of shares that the Company invested to zero. As such, the Company was certain it would not be able to retrieve its original investment in MagnaChip in the amount of NT$66,365. The Company had assessed its investment in MagnaChip to be permanently impaired and recognized impairment loss of NT$64,395 in 2005.

B.  The Company sold partial shares of Farglory Life Insurance Co., Ltd. and reclassified the remaining investment to financial assets carried at cost - non-current. Please refer to Note 4 (6) D.

6) Long-term equity investments accounted for under the equity method

A. Details of long-term equity investments accounted for under the equity method are set forth below:


Ownership



percentage at

          December 31,        

 

          Investee companies         

December 31,

      2010    

 

      2009   

 

     2010   

Farglory Life Insurance Co., Ltd. (Farglory Life Insurance)

     -

 $     73,920

 $         -

Farglory Dome Co., Ltd. (Farglory Dome)

 30.00%

      203,604

     127,141

Straits Construction Investment(Holdings) Ltd. (Straits Construction)   

 

 20.00% 

            -

 

     583,371

 



$    277,524

$   710,512

 

B. Investment gain or loss accounted for under the equity method for the years ended December 31, 2009 and 2010 which are based solely on the reports of the independent accountants of these investee companies are set forth below:


For the years ended December 31,


     2009    

    2010    

Investee companies    



Farglory Life Insurance

$     73,920

($    54,520)

Farglory Dome   

(      2,284)

(     76,463)

Straits Construction

           -

(      1,426)


$     71,636

($   132,409)




C. The Company invested in Farglory Dome when it was established in September 2006. The Company made a commitment to the Taipei City Government that its shareholdings in Farglory Dome would not be less than 20%. In October 2006, Farglory Dome signed the "Taipei Cultural Gym Area - Big-sized Indoor Gym Development Plan" with the Taipei City Government. Under this agreement, Farglory Dome shall obtain construction permit within 12 months after the agreement date. Furthermore, Farglory Dome shall complete the construction and obtain the usage permit within three years after obtaining the construction permit. However, because the Taipei City Government did not submit the land until March 31, 2009, Farglory Dome was not able to complete the construction, pass required environmental and field investigation, and obtain related permits as scheduled. Farglory Dome referred the delayed submission of the land to arbitration with the Arbitration Association of R.O.C. in October 2009, and requested that the rental to be paid to the Taipei City Government be postponed. This case is currently in arbitration. On September 10, 2009, the Control Yuan of R.O.C. questioned the significant flaws of the Public Construction Commission, Executive Yuan and the Taipei City Government in this project. Accordingly, the Taipei City Government revoked the original resolution for the contract. Farglory Dome applied for remedy procedures to the Public Construction Commission, Executive Yuan. The Public Construction Commission, Executive Yuan ruled that the Taipei City Government shall not revoke the original resolution for the contract. On June 8, 2010, the Taipei City Government asked Farglory Dome to obtain the construction permit before June 30, 2010. On August 6, 2010, Farglory Dome received a notice from the Taipei City Government indicating that the Taipei City Government had agreed to extend the deadline for Farglory Dome to make proper improvement before December 31, 2010. On March 3, 2011, the Taipei City Government extended the deadline again to July 3, 2011.

Farglory Dome passed the environmental and field investigation on December 9, 2010. Farglory Dome's management expected to recognize the impairment loss for the construction. Therefore, the Company recognized the investment loss according to its ownership percentage in Farglory Dome.

D. In September 2010, the Company sold 54,000 (in thousands) common shares of Farglory Life Insurance Co., Ltd., one of the long-term equity investments accounted for under the equity method, for NT$457,623 (which excluded the security transaction tax amounting to NT$1,377), and recognized disposal gain of NT$504,244 (which included the proportionally deducted part of the capital reserve). Since the Company no longer had the ability to exercise a significant influence on Farglory Life Insurance Co., Ltd. after the sale, the remaining investment in Farglory Life Insurance Co., Ltd. was reclassified to financial assets carried at cost - non-current in the amount of NT$7,680.

E. The Company applied to invest in real estate development in China, which are set forth below:

         Investee Companies          

Date approved by

Investment Board,

 Ministry of Economic Affairs

Investment        

  Amount

( in thousands)

Farglory Land Development Ltd., Tianjin

2010/5/31

US$50,000

Farglory Land Development Ltd., Hangchou

2010/7/21

US$50,000

Farglory Land Development Ltd., Suzhou

2010/7/30

US$50,000

Straits Investment Ltd., Nanjing

2010/11/10

US$39,000

Straits Construction Investment Ltd.

2010/7/21

2010/11/10

US$20,000

US$19,000



 

7) Property, plant and equipment


               December 31, 2009               


   Original

    cost    

  Accumulated

  depreciation

    Net

  Book value 

 Machinery

$    4,338

($     4,046)

$        292

 Transportation equipment

        229

(        197)

         32

 Office equipment

     17,775

(      7,962)

      9,813

 Property held for lease - Land

    620,480

            -

    620,480

 Property held for lease - Building

  1,622,461

(     98,671)

  1,523,790

 Other equipment

     1,316

(        664)

         652


$2,266,599

($   111,540)

$  2,155,059

 


               December 31, 2010               


   Original

    cost    

  Accumulated

  depreciation

    Net

  Book value 

 Machinery

$    4,251

($     4,017)

$        234

 Office equipment

     20,676

(     10,599)

     10,077

 Property held for lease - Land

    644,207

           -

    644,207

 Property held for lease - Building

  1,790,885

(    122,139)

  1,668,746

 Other equipment

     1,523

(        889)

         634


$2,461,542

($   137,644)

$  2,323,898

 

A.  The H47A Farglory University Harvard project (originally classified as "inventories") planned to lease out the commercial space and parking lot. This project was completed in 2008 and the related costs of construction amounting to NT$408,946 was transferred from construction in progress to property held for lease. As of December 31, 2010, its book value was $399,910. The Company entered into a 15-year leasing contract with Taiwan Carrefour Co., Ltd. on July 10, 2009.

B.   Part of the Company's fixed assets was pledged as security for short-term or long-term loans and commercial papers payable. For details of pledged assets, please refer to Note 6.

8) Intangible assets


                   December 31,                


         2009         

           2010          

Land use right

 $              441,686

 $           441,686

Others

         146

        146

Less: Accumulated amortization

(               193,237)

(            215,321)


 $              248,595

 $           226,511

 

A.   The details of accumulated amortization were as follows:



 


          For the years ended December 31,        


       2009       

       2010      

Accumulated amortization, January 1

 $         171,153

 $         193,237

Amortization for current period

           22,084

           22,084

Accumulated amortization, December 31

 $         193,237

 $         215,321

B. In 2000, the Company entered into a 40-year lease with the Chi-Seng Water Management Research & Development Foundation of Taipei City for the land use right of the lot located on Xihu Section 4 No. 102 in Neihu. In addition, the Company has to make an annual rental payment based on 8% of the land value declared by the government each year. The rent payments were recognized as lease cost and administration expense based on the proportion of rental space.

C. For details of pledged assets, please refer to Note 6.

9) Long-term receivables


                December 31,              

 


      2009       

       2010      

Receivables

 $          68,018

 $          66,835

Less: Allowance for bad debts

(           68,018)

(           66,835)


 $               -

 $               -

The above receivables were mainly accounts receivable overdue or under litigation.

10) Other assets


                December 31,              

 


      2009       

       2010      

 

Metropolitan Headquarter building

 $         343,546

 $         186,678

 

Deferred tax assets - non-current

        3,251

           -

 

Computer software

        3,651

       5,328

 

Others

            4,908

             2,596

 


 $         355,356

 $         194,602

A.  The Metropolitan Headquarter building was constructed under the land use right based on the contract signed with the Chi-Seng Water Management Research & Development Foundation of Taipei City in 2000. The construction was completed in 2003.  The construction costs accounted for as other assets consisted of the unleased portions of the building as of December 31, 2009 and 2010, respectively.

B.   For details of Metropolitan Headquarter building as a pledge, please refer to Note 6.

11) Short-term loans


                December 31,              

 


      2009       

       2010      

 

Secured loans

$       9,282,940

$       5,096,000

 

Unsecured loans

          461,900

          200,000

 


$       9,744,840

$       5,296,000

 

Annual interest rates

    1.00% - 3.44%       

    1.00% - 2.30%

For details of pledged assets, please refer to Note 6.

12) Commercial papers payable

 


                December 31,              


      2009       

       2010      

 

Commercial papers

$         315,000     

$          20,000

 

Less: Unamortized discount

(              359)

(                7)

 


$         314,641

$          19,993

 

Annual interest rates

  1.788%-1.938% 

  1.538%-1.938% 

For details of pledged assets, please refer to Note 6.

13)  Financial liabilities at fair value through profit or loss


                 December 31,             


      2009       

       2010      

Financial liabilities held for trading:


Interest rate swap

$           3,431

$               -

Options-domestic convertible bonds

          329,880

          268,453


         333,311

       268,453

Fair value adjustment

(           83,730)

(          191,846)


$         249,581

$          76,607

The Company recognized net loss in the amount of NT$112,448 for the year ended December 31, 2009, and recognized net gain in the amount of NT$111,546 for the year ended December 31, 2010.

14)  Income tax


                 December 31,            


       2009       

       2010      

Income tax expense

$          877,151

$         782,813

Over (under) provision of prior year's income tax

(             9,321)

       5,228

Net change in deferred income tax

86,651

      509,980

Impact of temporary difference arising from different tax rate between current and realized year

 

(           290,645)

 

(           61,626)

Impact of change in the tax rate

(           103,632)

(           30,650)

Refundable tax of the subsidiary

-

       9,563

Prepaid income tax

(           144,718)

(          120,210)

Income tax payable

$          415,486

$       1,095,098

 


A.  Income tax expenses for 2009 and 2010 included the 10% additional income tax expense on the undistributed earnings of 2008 and 2009 in the amounts of NT$206,951 and NT$151,171, respectively.

 

 

 

 

 

B.   As of December 31, 2009 and 2010, deferred income tax assets and liabilities were as follows:

 


           December 31,          


     2009     

      2010     

Deferred income tax assets

 $    106,957

  $       84,972

Deferred income tax liabilities

($    521,487)

($       88,818)

Valuation allowance

 ($     51,647)

($       44,627)




C.  As of December 31, 2009 and 2010, details of the deferred tax assets and liabilities are listed as follows:


        December 31, 2009        

                          Item                             

    Amount  

   Tax Effect  

Current:



Impact of temporary difference



  Provision for obsolescence and decline in market value of inventory

 $    207,675

 $       41,535

  Provision for warranty

      225,444

         45,089

  Unrealized profit on inter-company transactions

          387

             77

  Deferred revenue recognition

(   2,607,436)

(       521,487)



(       434,786)

Less: Valuation allowance for deferred income tax assets


(        34,642)

Deferred income tax liabilities - net - current


($      469,428)




Non-current:



Impact of temporary difference



  Pension expense

 $     20,541

  $        4,108

  Allowance for doubtful accounts- long-term receivables

       64,486

        12,897

  Unrealized profit on inter-company transactions

     16,255

          3,251



         20,256

Less: Valuation allowance for deferred income tax assets


(        17,005)

Deferred income tax assets - net - noncurrent


 $        3,251



 


       December 31, 2010        

                          Item                             

    Amount  

   Tax Effect  

Current:



Impact of temporary difference



  Provision for obsolescence and decline in market value of inventory

$     195,849

 $       33,295

  Provision for warranty

      214,653

         36,496

  Unrealized profit on inter-company transactions

            -

              -

  Deferred revenue recognition

(     522,458)

(        88,818)



(        19,027)

Less: Valuation allowance for deferred income tax assets


(        29,446)

Deferred income tax liabilities - net - current


($       48,473)




Non-current:


Impact of temporary difference



  Pension expense

      $      22,463

$        3,819

  Allowance for doubtful accounts- long-term receivables

       66,835

         11,362

  Unrealized profit on inter-company transactions

            -

              -



         15,181

Less: Valuation allowance for deferred income tax assets


(        15,181)

Deferred income tax assets - net - noncurrent


 $            -




D.  For 2009 and 2010,the income from land sales, which is exempt from income tax, amounted to NT$2,736,507, and NT$8,182,020, respectively.

E.   As of December 31, 2010, the Company and its subsidiary's income tax returns for the years through 2007 and 2008 have been assessed and approved by the Tax Authority, respectively.

 

 


15) Advances from customers


             December 31,        


      2009     

      2010     

Advance receipts - Land

$     4,418,664

$     2,464,261

Advance receipts - Buildings

      5,318,395

      3,122,609


$     9,737,059

$     5,586,870

16) Bonds payable

 


             December 31,        


     2009     

     2010     

Convertible bonds-secured- III

$      500,000

$      500,000

Convertible bonds-unsecured- IV

651,600

      271,600

Less: Discount

(       182,311)

(        55,931)


     969,289

      715,669

Less: Current portion

(       515,684

(       715,669


$      453,605

$            -

A. The Company issued domestic secured convertible bonds - III and domestic unsecured convertible bonds-IV on June 30, 2008. The major terms of the issuance are as follows:

(1)  Total issued amount: NT$500,000 of secured convertible bonds and NT$1,000,000 of unsecured convertible bonds.

(2)  Coupon rate: 0%

(3)  Redemption term: The bondholders have the rights to request the Company to redeem the bonds or to convert the bonds into common shares. The Company also has the right to redeem the bonds. The bonds will be redeemed for cash on the maturity date.

(4)  Issuance terms: Three years for secured convertible bonds, from June 30, 2008 to June 30, 2011, and five years for unsecured convertible bonds, from June 30, 2008 to June 30, 2013. 

(5)  Conversion periods: The bonds are convertible anytime from one month after the issuance date to ten days before the maturity date.

(6)  Conversion price: The initial conversion price per share was set at NT$114. The conversion price will be adjusted or reset according to the issuance contract when the number of the Company's ordinary shares is changed or if, for a period of 20 consecutive trading days, the average closing price of the Company's shares is equal to or less than 90% of the initial conversion price. Effective January 19, 2011, the reset conversion price is NT$78.73.

(7) Redemption at the option of issuer:

a.  During the period from the day six months after the issuance of the bonds to 40 days before the maturity date of the bonds, the Company may redeem all of the outstanding bonds at face value by cash at any time within 30 trading days following the period of 30 consecutive trading days during which the closing price of the Company's shares is equal to or above 50% of the latest conversion price.

b.  During the period from the day six months after the issuance of the bonds to 40 days before the maturity date of the bonds, the Company may redeem all of the outstanding bonds at face value by cash at any time after the amount of the outstanding bonds becomes less than 10% of the initial issuance amount.

(8) Redemption at the option of bondholders:

a. Under the terms of the secured convertible bonds-III, the bondholders have the right to require the Company to redeem the bonds by cash at the price of face value plus interest on redemption of 3.03% of the face value upon the passing of three years after the issuance of bonds.

   b. Under the terms of the unsecured convertible bonds-IV, the bond-holders have the right to require the Company to redeem the bonds by cash at the price of face value plus interest on redemption of 3.02% and 4.57% of the face value upon the passing of two years and three years after the issuance of bonds, respectively.

(9) Bonds redeemed and cancelled by the Company: As of December 31, 2010, the Company had early redeemed by cash and cancelled the unsecured convertible bonds-IV in the amount of NT$324,200. The Company had early-redemption gain in the amount of NT$43,769 and recognized the amount of NT$26,432 as extraordinary income after deducting income tax in the amount of NT$17,337 for the year ended 2008.

(10) Bonds redeemed and cancelled by the Company per the bondholders' request: As of December 31, 2010, as requested by the bondholders, the Company had redeemed and cancelled the unsecured convertible bonds-IV in the amount of NT$404,200. The Company recognized redemption loss in the amount of NT$16,904 as other non-operating expenses for the year ended December 31, 2010.

B. The non-equity conversion options, put options, call options and conversion price resetting options embedded in convertible bonds- III and IV were separated from these bonds and recognized as "financial assets or liabilities at fair value through profit or loss" in accordance with R.O.C. SFAS No. 34 upon issuance of these bonds because the economic characteristics and risks of these embedded derivatives are not closely related to those of the host debt contract. As of December 31, 2010, the effective annual interest rates of the bonds after separation ranged between 2.12% and 3.12%.

C. For details of pledged assets, please refer to Note 6.



 

17) Long-term loans


           December 31,        

            

     2009    

     2010     

Secured loans

$     440,000

$     720,000

Less: current portion

(      120,000)

(      165,000)


$     320,000

$     555,000

Annual interest rates  

 2.90%~3.24%

 1.80%~2.90%

 

A. The loans are repayable by installments from 2011 to 2015.

B. For details of pledged assets, please refer to Note 6.

18) Retirement plan

A.The Company and its subsidiary participate in a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees for services provided prior to July 1, 2005, and employees who choose to remain in the defined benefit pension plan subsequent to the enforcement of the Labor Pension Act on July 1, 2005. Under the defined benefit pension plan, employees are entitled to two base points for every year of service for the first 15 years and one base point for each additional year thereafter, up to a maximum of 45 base points. The pension payment to employees is computed based on years of service and average salaries or wages of the last six months prior to approved retirement. The Company and its subsidiary contribute an amount equal to 2% of salaries and wages paid each month to a pension fund. The pension fund is administered by a pension fund monitoring committee (the "Committee") and deposited under the Committee's name in the Bank of Taiwan.

The following sets forth the pension information based on the actuarial report:

a.    Actuarial assumptions

 

                                                                        2009

    2010  

Discount rate

2.00%

2.00%

 

Future salary increase rate

3.00%

3.00%

 

Expected rate of return on plan assets

2.00%

2.00%

 

 



 

b.   The funded status of the pension plan is listed as follows:


             December 31,           


      2009      

      2010     

Benefit obligation:



Vested benefit obligation

($         1,457)

($          3,875)

Non-vested benefit obligation

(         37,855)

(          43,051)

Accumulated benefit obligation

(         39,312)

(          46,926)

Additional benefit based on future salaries

(         17,031)

(          18,194)

Projected benefit obligation

(         56,343)

(          65,120)

Fair value of plan assets

          32,314

           34,721

Funded status

(         24,029)

(          30,399)

Unrecognized transition obligation

      2,371

         2,032

Unrecognized net actuarial losses

7,671

  14,225

Others

        493

         492

Prepaid pension-subsidiary

(          8,191)

(           8,813)

Accrued pension liability

($        21,685)

($         22,463)

Vested benefit

($         1,742)

($          4,765)

c.    The components of net periodic pension costs are as follows:


    For the years ended  December 31,  


      2009      

      2010     

Service cost

$          1,149

$          1,048

Interest cost

1,510

           1,127

Expected return on plan assets

(           1,033)

(            666)

Amortization of unrecognized net transition obligations

 

339

 

        339

Amortization of unrecognized loss

6

        178

Others

             713

            622

Net periodic pension cost

$          2,684

$         2,648

 



B. Pursuant to the new "Labor Pension Act" enacted on July 1, 2005, the Company and itssubsidiary have each set up a defined contribution pension plan. For domestic employees who choose to participate in the defined contribution pension plan, the Company contributes 6% of the employees' salaries and wages each month to the employees' individual pension accounts at the Bureau of Labor Insurance. The net pension costs recognized under the defined contribution plan amounted to NT$11,149 and NT$10,787, for the years ended December 31, 2009 and 2010, respectively.

19) Capital stock

A. As of December 31, 2010, the Company's authorized capital was NT$10,000,000, and total contributed capital was NT$7,063,833 consisting of 706,383 thousand shares with a par value of NT$10 per share.

B. On January 19, 2011, the Company issued an additional 65 million common shares for the issuance of 32.5 million units of global depository receipts (GDRs).  The issuance of GDRs was approved by the Central Bank (November 2, 2010 No.0990051697) and the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan (December 1, 2010 No.0990064701). The GDRs amounting to US$158,945 (thousand dollars) were issued overseas and traded on the London Stock Exchange. The main terms and conditions of the GDRs are as follows:

   (1) Voting rights

Holders of GDRs have no rights to directly exercise voting rights or attend the Company's stockholders' meeting. However, should uniform decision be reached by holders of at least 51% of the GDRs outstanding, with regards to issues proposed at meeting of shareholders, the depository bank or agency should vote in the same direction. If the condition is not met, the voting right is delegated to the representatives. 

(2) Sale and withdrawal of GDRs

Under current R.O.C. law, depository agency may not forward the shares represented by the GDRs to the holders until the initial issuance of GDRs. A holder of GDRs may convert GDRs to shares of common stocks or sell the corresponding shares of common stock through the depository bank after the issuance date.

(3) Dividends

GDR holders are entitled to receive dividends the same way as the holders of common stock subject to the terms of the Deposit Agreement and applicable laws of the R.O.C.

20) Capital reserve

Pursuant to the R.O.C. Securities and Exchange Law, for capital reserve arising from donations and from paid-in capital in excess of par value on issuance of common stocks, an amount equal to up to 10% of the contributed capital can be capitalized, if there is no accumulated deficit and the remainder is restricted to cover deficit.  Further, accumulated deficit shall be first covered by retained earnings before capital reserve can be used to cover any accumulated deficit.

21)  Legal reserve

Pursuant to the Company Law, 10% of the current year's earnings, after payment of all taxes and after offsetting accumulated deficits, shall be appropriated as legal reserve, until the accumulated amount of legal reserve is equal to the issued share capital. Legal reserve can only be used to offset accumulated deficit except when the legal reserve has reached 50% of the Company's issued share capital, the amount up to 50% thereof can be appropriated as stock dividends upon shareholders' approval. As of December 31, 2010, the amount of legal reserve has been accumulated from the appropriation of prior years' earnings as of 2009.

22) Retained earnings

A. In accordance with the Company Law, 10% of the current year's earnings, after payment of all taxes and after offsetting accumulated deficits, shall be set aside as legal reserve. Afterwards, an amount shall be appropriated as special reserve in accordance with applicable legal or regulatory requirements. Appropriation of the remainder plus prior years' unappropriated earnings shall be proposed by the Board of Directors to be resolved during the meeting of the stockholders. The Company will take into consideration its future business plans and capital expenditures in determining the amounts of earnings to be retained and to be distributed. Distribution should be in the following order:

a.  0% to 2% as remuneration to directors and supervisors,

b.  2% as bonuses to employee, including employees of affiliate companies per the criteria set by the Board of Directors or other authorized party; and

c.  96% to 98% as dividends to shareholders, either as share dividends or cash dividends. However, cash dividends shall account for at least 50% of the total dividends distributed, and the proportion shall be determined by taking into account the Company's investment plan and financial structure.

B. On distribution of retained earnings, in addition to the appropriation to legal reserve, the Company shall also set aside a special reserve from retained earnings for any reductions of the stockholders' equity as of the end of the current year under Article 41, paragraph 1 of the R.O.C. Securities and Exchanges Law.

C. Resolutions were adopted at the stockholders' meeting in June 2009 and 2010, respectively, for the appropriation of 2008 and 2009 earnings as follows:



 


             For the years ended December 31,            

           2008           

           2009          


 

   Amount   

Dividends

  per share 

 

  Amount   

Dividends

  per share 

Legal reserve

$     421,328

 

$   637,041


Cash dividends

  1,765,958

$       2.5

4,238,300

$      6.0

Remunerations to directors and supervisors

        - -

(Note1)

-

(Note2)

Cash bonuses to employees

          -   

(Note1)

          -

(Note2)

   

$   2,187,286  


$ 4,875,341


Note 1: At the stockholders' meeting in 2009, a resolution was adopted to appropriate employees' cash bonus and directors' and supervisors' remuneration in the amounts of $36,225 and $9,056, respectively, for 2008.

Note 2: At the stockholders' meeting in 2010, a resolution was adopted to appropriate employees' cash bonus and directors' and supervisors' remuneration in the amounts of $86,762 and $13,014, respectively, for 2009.

Information on whether the Board of Directors resolves and the stockholders approve the distribution of the Company's earnings will be posted in the "Market Observation Post System" on the website of the Taiwan Stock Exchange.

D. The estimated amounts of cash bonuses to employees and remuneration to directors  and supervisors were as follows:


   For the years ended December 31, 

      2009      

      2010     

Cash bonuses to employees

$        72,450

$        86,512

Remunerations to directors and supervisors

         18,112

         12,977

   

$        90,562

$        99,489

The estimated bonuses to employees and remunerations to directors and supervisors were determined based on a certain percentage of net income and taking into account the legal reserve and other factors prescribed by the Company's Articles of Incorporation (2% and 0.5% of after-tax earnings of 2009 for the year ended December 31, 2009, respectively; 2% and 0.3% of after-tax earnings of 2010 for the year ended December 31, 2010, respectively). The estimated amounts were recognized as operating expenses for the years ended December 31, 2009 and 2010.  If the estimated amounts differ from the amounts approved by the stockholders, the difference is recognized as income or expenses in 2010 and 2011.

The difference, resulting in expenses of NT$9,214, between the amounts recognized in 2009 (cash bonuses to employees of NT$72,450 and remunerations to directors and supervisors of NT$18,112) and the amount resolved by the stockholders was adjusted in the statement of income of 2010.



 

E.  As of December 31, 2010, the Company's imputation tax credit account balance amounted to NT$742,112 as calculated based on the ending balance at the date of divided distribution and the estimated credible tax ratio of 13.39% for the year of 2010. The distribution of 2009 earnings has been carried out, and the actual credible tax ratio was 9.02% in 2009 and the expected credit tax ratio was 13.39% in 2010. The Company's undistributed earnings derived before and after the adoption of the imputation tax system amounted to NT$18,527 and NT$13,724,907, respectively.

23) Disposal gain of investments

In 2008, Farglory Construction acquired real estate investments of A36 Nan-Hai Ming Yuan project amounting to NT$126,841 under a property-sharing joint-development arrangement, and disposed this property in stages in 2009. Disposal gain amounting to NT$75,991 was recognized as other non-operating income for the year ended December 31, 2009.


24) Earnings per share

 


               For the year ended December 31, 2009                 




Outstanding shares at the end of the period

 (in thousands)





Earnings per

    share (in dollars)  


           Amount           


     Before

   income tax   

    After

   income tax   

Before income tax

After income tax

Basic earnings per share:






Consolidated net income attributable to common stockholders

$  7,247,558

$  6,370,407

$    706,383

$  10.26

$   9.02

Dilutive effect of common stock equivalents:






Bonuses to employees

           -

            -

       1,057



Diluted earnings per share:






Net income plus the dilutive effect of common stock equivalents

 $  7,247,558

$  6,370,407

$    707,440

 $  10.24

 $   9.00

 



 


                For the year ended December 31, 2010                 




Outstanding shares at the end of the period

 (in thousands)





Earnings per

   share (in dollars)  


           Amount           


     Before

   income tax 

    After

   income tax 

Before income tax

After income tax

Basic earnings per share:






Consolidated net income attributable to stockholders

$  7,477,229

$  6,694,416

$    706,383

$ 10.59

$   9.48

Dilutive effect of common stock equivalents:






Convertible bonds

(     32,050)

(      32,050)

       9,713



Bonuses to employees

           -

            -

       1,177



Diluted earnings per share:






Net income plus the dilutive effect of common stock equivalents

 $  7,445,179

$  6,662,366

$    717,273

 $ 10.38

 $   9.29

 

 

Effective January 1, 2008, the diluted EPS computation is performed under the assumption that bonuses to employees will be distributed in the form of shares, and if dilutive, those estimated shares would be included in the weighted-average number of common shares outstanding during the year. When calculating basic EPS, the number of shares issued for bonuses to employees is included in the weighted-average number of common shares outstanding during the year of the stockholders' meeting which resolves and confirms the share bonuses to employees from prior years' earnings. Since the issuance of share bonuses to employees are no longer distribution of stock dividends, the calculation of basic EPS and diluted EPS for all periods presented shall not be adjusted retroactively.


25)Personnel and depreciation expenses

Personnel and depreciation expenses incurred by function for 2009 and 2010 are as follows:


         For the year ended December 31, 2009        

        Nature             

 Operating costs   

Operating expenses

    Total     

Personnel expenses:




Salaries

$     152,311

$     283,129

$    435,440

Insurance

          8,145

          9,744

       17,889

Pension

          5,951

          7,882

       13,833

Other personnel expenses

          3,091

         17,292

       20,383

Depreciation

32,549

 2,880

35,429

Amortization

       21,190

       5,879

       27,069






         For the year ended December 31, 2010        

        Nature           

 Operating costs   

Operating expenses

    Total     

Personnel expenses:




Salaries

$     121,664

$     311,851

$    433,515

Insurance

          7,774

         10,469

       18,243

Pension

          5,414

          8,021

       13,435

Other personnel expenses

          2,881

        16,477

       19,358

Depreciation

31,255

3,055

34,310

Amortization

       19,166

         10,138

       29,304







































 

5.  RELATED PARTY TRANSACTIONS

1) Names of related parties and their relationship with the Company

 

      Names of related parties        

    Relationship with the Company    

Farglory Dome Co., Ltd. (Farglory Dome)

Investee accounted for under the equity method

Fareast Land Development Co., Ltd.

 (Fareast Land Development)

Common Chairman

Shin Yu Investment Ltd.

  (Shin Yu Investment)

Common Chairman

Farglory International Investment Co., Ltd.

(Farglory International Investment)

Common Chairman

Farglory Hotel Co., Ltd.( Farglory Hotel)

(Formerly Farglory Ocean Park & Resort Co., Ltd.)

Affiliate

Tung Yuan Construction Co., Ltd.

(Tung Yuan Construction)

Farglory Free Trade Zone Co., Ltd. (Farglory Free Trade Zone)

Farglory Leasing Co., Ltd.

 (Farglory Leasing)

Farglory Realty Co., Ltd.

(Farglory Realty)

Farglory Life Insurance Co., Ltd.

  (Farglory Life Insurance)

(Note)

Yuan Xiang Development Co., Ltd.

(Yuan Xiang Development)

Chairman of Yuan Xiang is Farglory Free Trade Zone's chairman

Yan Jan Investment Co., Ltd.

(Yan Jan Investment)

Chairman of the Company is one of Yan Jan Investment's director

Chao Teng Hsiung

The Company's chairman

Chao Wen Chia

Son of the Company's chairman

Chao Shin Ching

 

Note:In September, 2010, since the Company partially disposed its investment in Farglory Life Insurance and lost its ability to exercise significant influence on Farglory Life Insurance, the investment is no longer accounted for under the equity method.   

 

 

 



 

2) Significant transactions with related parties

A. Sales


                           For the years ended December 31,     


      2009       

       2010      


    Amount

     % 

    Amount

   


    Type   





Farglory Free Trade Zone

Construction contract

$  25,578

-

$       -

-

Farglory Life Insurance

Construction contract

   154,450

1

263,645

1

Yuan Xiang Development

Construction contract

    51,254

  -

    18,805

  -


$ 231,282

   1

 $ 282,450

  1

1. For construction contracts commissioned from related parties, the contract prices were negotiated according to estimated construction cost plus reasonable management fee and profit.  Payments were based on terms stated in the contracts.

2. The details of contract price and progress billings on uncompleted contracts with related parties are as follows:


             December 31, 2009        


Contract price

  (VAT excluded) 

   Amount billed    

Yuan Xiang Development

$          86,477

 

$          65,723

Farglory Life Insurance

          426,002

          105,538


$         512,479

$         171,261


             December 31, 2010           


Contract price

  (VAT excluded) 

   Amount billed   

Farglory Life Insurance

$         297,627

$         288,698

B. Purchases and commission of construction contract

1. Purchases

    For the years ended December 31,   


      2009     

      2010     


   Amount 

  % 

   Amount 

  % 


    Type   





Tung Yuan Construction

Construction contract

$1,098,719

     9

$  536,547

     3

2. Commission of construction contracts

As of December 31, 2009 and 2010, contract prices and billed amounts were as follows:

 

 


                  December 31, 2009                  


  Contract price 

  Amount billed 

 Amount unbilled

 

Tung Yuan Construction

$     1,628,249

$    1,098,719

$       529,530

 

                  December 31, 2010                  

 


  Contract price 

  Amount billed 

 Amount unbilled

 

Tung Yuan Construction

$     1,023,636

$        81,891

$       941,745

 

For the construction contracts commissioned with related parties, the project price was negotiated according to the estimated construction cost plus reasonable management fee and profit. Payments were based on terms stated in the contracts.

C. Notes receivable


                     December 31,                   


          2009         

          2010         


     Amount    

     %   

     Amount    

     %   

Farglory Free Trade Zone

$      251,228   

66

$      251,228

56

Farglory Life Insurance

13,479

4

21,272

5

Others

           2433

       -

             -

       -


$      264,9500

      70

$      272,500

      61

D. Accounts receivable


                     December 31,                   


          2009         

          2010          


     Amount    

     %   

     Amount    

     %   

Farglory Life Insurance

$       90,737

30

$       47,475

27

Yuan Xiang Development

       102,973

      34

         2,954

       2


$      193,710

      64

$       50,429

      29


                     December 31,                                  

 


          2009         

          2010          

 

Project retention receivables

$               193,710

$                50,429

 

Receivables with collection term over one year

$                38,604

$                 6,759

 




 

Expected collection periods:



 


                     December 31,                   


          2009         

          2010          

2010

$               155,106

$                     -

 

2011

     38,604

             43,670

 

2012

                      -

                  6,759

 


$               193,710

$                50,429

 



 

E. Accounts payable


                   December 31,                  


          2009         

          2010        


     Amount  

     %  

     Amount    

    %  

Tung Yuan Construction

$       82,643

3

$       142,924

6

Farglory Hotel

-

-

3,608

-

Others

             -

       -

             63

      -


$       82,643

       3

$       146,595

      6

F. Other receivables (classified as "other financial assets - current")


                   December 31,                  


          2009        

          2010         

Farglory Dome

$                 5,000

$                     -

Chao Wen Chia

6,073

6,426

Chao Shin Ching

3,775

9,683

Others

                  1,765

                    359


$                16,613

$                16,468

Other receivables mainly consisted of commission receivables on land as well as amounts paid on behalf of related parties.

G. Other payables


                   December 31,                  


          2009        

           2010       

Farglory Realty

$               242,406

$               425,007

Farglory Life Insurance

6,414

166

Yan Jan Investment

6,405

-

Farglory Hotel

15,967

20,629

Chao Wen Chia

60,505

99,966

Chao Shin Ching

38,153

97,383

Others

                  1,302

                    518


$               371,152

$               643,669

Other payables mainly consisted of sales commission payables, lease payables, and payments received on behalf of related parties on land sales from revenue-sharing joint development arrangements.

H. Rental agreements

1. Rental revenues:


            For the years ended December 31,         


          2009        

          2010        

Farglory Dome

$                20,346

$                14,832

Chao Wen Chia

10,796

12,098

Chao Shin Ching

                    944

                    614

Others

$                32,086

$                27,544

The refundable deposits received as at December 31, 2009 and 2010 amounted to NT$5,084 and NT$5,476, respectively.

2. Rental costs:


            For the years ended December 31,        


          2009        

          2010        

Fareast Land Development

$                22,066

$                22,066

Others

                    672

                  1,054


$                22,738

$                23,120

3. Refundable deposits:


                   December 31,                   


          2009        

          2010        

Fareast Land Development

$                 5,792

$                 5,792

Others

                      -

                      -


$                 5,792

$                 5,792

I. Borrowings from related parties:


           For the year ended December 31, 2009          

     Name      

Maximum

  balance  

Ending

  balance

Interest

   rate  

Interest

 expenses

Ending balance of interest

  payable 

Chao Teng Hsiung

$ 150,300

$       -

$       -

$       -

$        -

 


           For the year ended December 31, 2010         

     Name      

Maximum

  balance  

Ending

  balance

Interest

   rate   

Interest

 expenses

Ending balance of interest

  payable 

Chao Teng Hsiung

$  29,500

$       -

$       -

$       -

$        -

 

The above borrowings from related parties were non-interest bearing and were not secured by collateral.

J. Sales commission and advertising expenditures (classified as "deferred selling expenses" and "selling expenses"):

 


           For the years ended December 31,         


          2009        

          2010         

Farglory Realty

$               744,596

$             1,421,339



 

K.The following sets forth the salaries and remuneration information of key management, such as directors, supervisors, general manager and vice general manager, etc.

 


         For the years ended December 31,          


          2009        

         2010        

Salaries

$                6,880

$               10,564

Bonuses

                 7,729

                10,014

Management service fees

                 1,560

                 1,560

Appropriation of earnings

                14,099

                18,240


$               30,268

$               40,378

L. Property transactions

1. In August, 2010, the Company purchased "transferable of Building Bulk" located in Da-An section Chin-Hwa strip of Taipei City from the Chairman of the Board, Chao Teng Hsiung, and the contract price was NT$48,891. 

2. In September 2010, the Company sold 54,000 (in thousands) common shares of Farglory Life Insurance to Shin Yu Investment in the amount of NT$457,623 (which excluded the security transaction tax amounting to NT$1,377, and recognized disposal gain in the amount of NT$504,244 (which included the proportionally deducted part of the capital reserve).  

M. Commitments

As of December 31, 2009 and 2010, the Company had the following joint development contracts signed with related parties:

                                         December 31, 2009                                     

  Name of project 

  Builder 

  Landowner 

  Nature 

Contract
signing year

 

Expected

Year of completion

 

 

Refundable

  deposit 

 

Xinguang Rd.

The company

Chao Teng Hsiung

Revenue-

sharing joint development arrangement

2007

To be determined

$  20,000

 

Farglory Great Future

Farglory Life Insurance

2008

2010

44,000

 

Farglory New City- Seasons Garden

Farglory Life Insurance

2008

2010

26,875

 

The Glory of Future

Farglory Life Insurance

2009

2013

43,000

 

 

 

 

 







 








 

 

                                          December 31, 2010                                    

Name of project

   Builder   

  Landowner 

     Nature     

Contract
signing year

 

Expected

Year of completion

 

 

 Refundable

   deposit   

 

Xinguang Rd.

The Company

Chao Teng Hsiung

Revenue-sharing joint development arrangement

2007

To be determined

$  20,000

The Glory of Future

Farglory Life Insurance

2009

2012

86,000

6. PLEDGED ASSETS

As of December 31, 2009 and 2010, the carrying amounts of pledged assets were as follows:



          December 31,        

    Assets   

        Purpose      

     2009     

     2010    

Other financial assets-current



 -Time deposit

Provisional seizure guarantees and solar energy subsidy guarantees 

$      3,700

$      3,869

 -Sinking account

Project management funds

     30,907

     23,960

Inventories

Short-term loan , commercial papers payable and bonds payable guarantees

 23,225,666

 23,780,613

Property, plant and equipment

Short-term and long-term loans and commercial papers payable guarantees

  1,606,123

  2,259,755

Intangible assets

Short-term and long-term loans guarantees

    248,449

    226,365

Refundable deposits

Court lodgment for security of debt

485

485

Other assets - other assets

Short-term and long-term loans guarantees

     343,546

     186,678



$ 25,458,876

$ 26,481,725

7. COMMITMENTS AND CONTINGENT LIABILITIES

As of December 31, 2010, other than those mentioned in Notes 4 (8) and 5, other commitments and contingent liabilities were as follows:

1) The Company has entered into pre-completion contracts for the sale of developed property amounting to NT$27,023,671, of which NT$5,586,870 has been received. 

2) The Company has entered into contracts for the purchase of land but wherein it has not received the legal title amounting to NT$892,795, of which NT$800,727 has been paid.

3) The subsidiary has issued promissory notes amounting to NT$11,396 for construction undertaking.

4) The Company had the following joint construction contracts signed with third parties:

 

 

 

 

 

                                         December 31,2010                                        

  Name of project    

 Builder

    Landowner  

   Nature    

Contract

signing

   year   

Expected

year of completion

Refundable

  deposit 

Real estate lots in Taishan Township, Taishan Section 1, No. 158-1.and Sin Hua Section , Xinzhuang District, New Taipei City.

The Company

Yuan Ding gas station and Mr. Lin

Property-

sharing joint development arrangement

2006

To be determined

$     570

Farglory New City-Imperial Garden

Mr. Lan etc.

2006~2010

2011

31,048

Real estate lots in Neihu District, Tanmei Section 5, No. 85, 117, 126 and 127.

Mr. Lin etc.

2006

To be determined

2,134

Real estate lots in Neihu District, Tanmei Section 5, No. 149 and 151.

Mr. Chen etc.

2007~2009

To be determined

17,542

Farglory Jimei

Mr. Li etc.

2007

Note

6,098

Real estate lots in Wenshan District, Muzha Section 1, No. 394, 398 and 400~404.

Mr. Yen etc.

2008~2010

To be determined

8,657

Real estate lots in Xinzhuang District, Fudousin section 1, No. 317.

Mr. Chen etc.

2009~2010

To be determined

383

Real estate lots in Xinyi District, Yaxiang section 1, No. 599 etc.

Mr. Hsieh etc.

2009

To be determined

4,994

Real estate lots in Neihu District, Tanmei section 5, No. 99

Mr. Kuo etc.

2010

To be determined

17,000

Farglory New City -Symphonic Garden

 

Mr. Chen

2010

2012

8,800

Farglory Switzerland Economy Trade Center

Mr. Chen etc.


2010

2012

11,070

Real estate lots in Junghe District, Hua-jhong Section

Mr. Tsai etc.

2010

2013

  10,770







$119,066

NoteThe project was completed in June 2010.

5) The following is a summary of major litigations of the Company and its subsidiary as of December 31, 2010:  

a)  For the "Metro Park" construction undertaken by the subsidiary, a lawsuit was filed in 1998 by Liang Guei Ruei and 78 other individuals against the subsidiary, Taipei Rapid Transit Corporation as well as other companies involved in the construction, a total of eight parties, for damages caused to the neighborhood housing and foundation. The joint liability lawsuit claims for compensation amounting to NT$31,611. Taiwan Banqiao District Court dismissed the case. Some of the plaintiffs filed an appeal with the Taiwan High Court which was also dismissed.  The second appeal was made with the Supreme Court of R.O.C. In July 2005, the Supreme Court overruled the decision made by the Taiwan High Court. The case was passed back to the Taiwan High Court. In November 2009, the Taiwan High Court ruled that Taipei Rapid Transit Corporation should pay plaintiffs NT$10,731. However, for the subsidiary's part, the dismissed decision previously ruled by Taiwan High Count remained effective; the plaintiffs of the case can make an appeal again.

b)  The "Farglory Tian-Mu" construction undertaken by the subsidiary and Founding Construction and Development Co., Ltd. damaged the neighborhood housing during the construction period.  The total damage assessed amounted to NT$22,788.  The subsidiary shall be liable for 51% of total damage, which amounts to NT$11,622 and Founding Construction and Development Co., Ltd. shall be liable for 49% of total damage, which amounts to NT$11,166.  In order to avoid delay of obtaining usage permit, the subsidiary quickly settled with the victims.  The subsidiary paid the victims on behalf of Founding Construction and Development Co., Ltd. in the amount of NT$10,611 (excluding NT$555 for the resident "Fong-Pin"), which was the amount Founding Construction and Development Co., Ltd. shall be liable.  The victims agreed to transfer the creditors' rights (Founding Construction and Development Co., Ltd.'s liabilities) to the subsidiary.  In March 2009, the subsidiary filed a lawsuit against Founding Construction and Development Co., Ltd., claiming for damages in the amount of NT$10,074. In May, 2010, the Taiwan Shihlin District Court ruled that Founding Construction and Development Co., Ltd. shall pay the subsidiary NT$10,074 plus interest. However, Founding Construction and Development Co., Ltd. filed an appeal with the Supreme Court of R.O.C, and the case is currently in trial. In addition, the subsidiary filed another lawsuit against Founding Construction and Development Co., Ltd. for the creditor's right relating to the payment to the victim, Mr. Hsieh, in the amount of NT$538, and the case is currently in trial in the Taiwan Taipei District Court.

8. SIGNIFICANT CATASTROPHE:

None.

9. SIGNIFICANT SUBSEQUENT EVENTS:

(1) For the subsequent event related to the "Taipei Cultural Gym Area - Big-sized Indoor Gym Development Plan" signed by Farglory Dome and the Taipei City Government, please refer to Note 4 (6) C.

(2) On January 19, 2011, the Company issued additional common shares for the issuance of global depository receipts (GDRs). For details of GDRs, please refer to Note 4 (19) B.

 

 

 

 

 

10. OTHERS

(1)   As of December 31, 2009 and 2010, the amounts of assets and liabilities relating to construction contracts of the Company and its subsidiary classified in current accounts based on the operating cycle are as follows:

 


             December 31,        


     2009   

     2010  

Inventories

$  42,132,671

$ 33,175,371

Accounts receivable

38,604

6,759

Construction in progress

229,434

506,367

Other financial assets - current

300,657

262,846

Deferred selling expenses

1,748,529

1,380,173

Short-term loans

3,664,000

2,761,000

Advances from customers

9,737,059

5,586,870

Progress billings on uncompleted contracts

171,261

404,412


(2)    Fair value of financial instruments

 


                 December 31, 2009                

                    December 31, 2010                    


 

 

Carrying amount

              Fair value        


              Fair value              

     Market    

    Estimate   

Carrying amount

     Market    

      Estimate    

A.   Non-derivative financial instruments:



Assets



 Financial assets with fair value equal to carrying amount

$ 1,720,587

$          -

$  1,720,587

$  1,728,324

$          -

$   1,728,324

 Financial assets at fair value through profit or loss

   921,054

   921,054

          -

 2,962,793

   2,962,793

          -

 Refundable deposits

9,081

          -

      9,081

8,288

          -

      8,288

Liabilities






Financial liabilities with fair value equal to carrying amount

$13,909,191

$          -

$ 13,909,191

$  9,334,037

$          -

$   9,334,037

Long-term loans ( including current portion )

   440,000

          -

     440,000

    720,000

          -

     720,000

Bonds payable ( including current portion )

    969,289

          -

     969,289

    715,669

          -

     715,669

Guaranty deposits received

65,126

          -

 65,126

80,782

          -

80,782

B.  Derivative financial instruments:







Liabilities







 Interest rate swaps

$      3,431

$          -

$      3,431

$          -

$          -

$           -

 Options embedded in convertible bonds

 246,150

          -

     246,150

 76,607

          -

      76,607

 


The methods and assumptions used to estimate the fair values of the above financial instruments are summarized below:

A. For short-term financial instruments, due to their short maturities, the carrying amounts approximate their fair values.  This applies to cash and cash equivalents, notes and accounts receivable, other financial assets - current (including restricted assets and  refundable deposits received on construction projects), short-term loans, commercial papers payable, notes and accounts payable.

B. Fair values for financial assets at fair value through profit or loss were based on the quoted price in an open market.

C. Fair values for long-term loans (including the portion of long-term liabilities due within one year) were estimated based on the discounted expected future cash flows.  Discount rate was determined based on the Company's borrowing rate.

D. Fair values for convertible bonds were estimated based on the present value of expected future cash flows. Discount rates were determined based on the initial effective interest rate of the convertible bonds with similar issue conditions as that of the Company.

E. Fair values for refundable deposits and guaranty deposits received were estimated based on the present value of expected future cash flows. Discount rates were determined based on the one-year certificate deposit interest rate offered by the Postal Remittances and Savings Bank. However, they were not estimated when the amount was not significant.

F. The fair values of interest rate swaps were determined based on amounts estimated to be received or paid assuming that the contracts were settled as of the reporting date. The fair values of derivative instruments embedded in convertible bonds were estimated using a valuation method. The estimations and assumptions used in the valuation method by the Company are consistent with those used by the market participants when determining the price of financial instruments.

(3) Information on significant financial instruments gains/losses and equity items

For the years ended December 31, 2009 and 2010, the Group's total interest expenses for financial liabilities that were not at fair value through profit or loss amounted to  NT$308,467 and NT$150,027, respectively.

(4) Information on interest rate risk positions

As of December 31, 2009 and 2010, the Group's financial assets subjected to fair value risk due to the change in interest rate amounted to NT$9,081 and NT$8,288, respectively. The financial liabilities subjected to fair value risk due to the change in interest rate amounted to NT1,037,846 and NT$796,451, respectively. The financial liabilities subjected to cash flow risk due to the change in interest rate were amounted to NT$10,499,481 and NT$6,035,993, respectively.



(5) Financial risk management

The major financial risk that the Group was mainly exposed to the risk associated with investing in financial instruments. The Group had established a stringent risk management policy, by which all financial investment activities were evaluated for potential market risk, credit risk, liquidity risk and cash flow risk and investments decisions were made based on policy to minimal risk exposure.

(6) Information on significant financial risk

A. Equity financial instruments

a)     Market risk

The equity financial instruments held by the Group were subject to the fluctuations in market prices. With stop orders in place to limit losses, the Group did not expect to be subject to significant market risk.

b) Credit risk

For financial assets with fair value through profit or loss, as the Group had carried out the transactions through the Taiwan Stock Exchange and GreTai Securities Market. These transactions are carried out only with counterparties with good credit standing and breaches of agreements is not expected. Thus, the likelihood that credit risk would arise is remote.

c) Liquidity risk

The financial assets with fair value through profit or loss held by the Group were traded in active markets and it was expected that these financial assets would be readily sold at amounts approximate to their fair values.

d) Cash flow risk due to the fluctuation of interest rate

The equity financial instruments held by the Group were not interest-bearing instruments, and thus, the Group was not subject to cash flow risk arising from the fluctuation of the interest rate.

B. Notes and accounts receivable

a) Market risk

As the notes and accounts receivable held by the Group was due within one year or one operating cycle, it was assessed that the Group was not exposed to significant market risk.

b) Credit risk

The accounts receivable with third parties held by the Group was covered by safe guard. As for the receivables with related parties, the counterparties are evaluated to be of good credit standing. Therefore, it was assessed that the Group was not exposed to significant credit risk from receivables.



 

c) Liquidity risk

It was assessed that Group was not exposed to significant liquidity risk as the Group's notes and accounts receivable were all due within one year or one operating cycle.

d) Cash flow risk due to the fluctuation of interest rate

It was assessed that the Group was not exposed to significant cash flow risk due to change in interest rate as the notes and accounts receivable of Group's receivables were all due within one year or one operating cycle.

C. Loans

a)  Market risk

Loans of the Group were with floating interest rate, and thus the Group did not expect to be exposed to significant market risk.

b)  Credit risk

It was assessed that theGroup was not exposed to significant credit risk.

c)  Liquidity risk

As the working capital of the Group was considered sufficient to support its funding needs, the Group did not expect to be exposed to significant liquidity risk.

d)  Cash flow risk due to the fluctuation of the interest rate

Loans of the Group were with floating interest rate, and thus the effective interest rate on the loan fluctuated according to changes in market interest rate, causing the expected future cash flow to fluctuate.

D.  Notes and accounts payable

a)  Market risk

It was assessed that theGroup was not exposed to significant market risk as the Group's notes and accounts payable were due within one year or one operating cycle.

b)  Credit risk

It was assessed that the Group was not exposed to significant credit risk.

c)  Liquidity risk

It was assessed that theGroup was not exposed to significant liquidity risk as the Group's notes and accounts payable were due within one year or one operating cycle, and the working capital of the Group was considered sufficient in meeting its funding needs.

d)  Cash flow risk due to the fluctuation in interest rate

It was assessed that the Group was not exposed to significant cash flow risk arising from the change in the interest rate as the Group's notes and accounts payable were due within one year or one operating cycle.

E.   Bonds payable

a) Market risk

The fair values of the options embedded in the zero-coupon convertible bonds issued by the Company, including conversion option, call option and put option were affected by fluctuations in market equity prices. As the Company can exercise the call option to lower its exposure to market risk, it did not expect to be exposed to significant market risk.  

b) Credit risk

As the debt instruments issued by the Company were secured by Taiwan Cooperative Bank, there is no credit risk associated with the instruments.

c) Liquidity risk

It was assessed that the Company was not exposed to significant liquidity risk as the Company's working capital was sufficient to meet its funding needs.

d) Cash flow risk due to the fluctuation of the interest rate

As the bonds issued by the Company were zero-coupon bonds, there was no significant cash flow risk due to the change in the interest rate.

F. Interest rate swaps


   December 31, 2009     

   December 31, 2010    



Contracts

  amount 

Nominal

Principal

Contracts

  amount

Nominal

principal

 

Interest Rate Swaps

$    3,431

$300,000

$       -

$      -

 

a)  Market risk

The Company evaluated the market risk of interest rate swap transactions based on the estimations made by the counterparties using a reasonable valuation model and considering relevant data and market price at the pricing date. Transaction losses shall be within the expected range.

b)   Credit risk

The counterparties to the interest rate swaps consisted of reputable international financial institutions. In addition, the Company also dealt with multiple counterparties to achieve the risk diversification. Thus, the possibility of default by the counterparties was assessed to be minimal.



 

c)  Liquidity risk

It was assessed that the Company was not exposed to significant liquidity risk, as the working capital of the Company was considered sufficient for its funding needs

d)  Cash flow risk due to the fluctuation of interest rate

For interest rate swaps, if the market interest rate was within the pre-agreed range, the contract would be considered as a fixed interest rate instrument and there would be no cash flow risk. If the market interest rate fell outside of the pre-agreed range, the contract would be considered as a floating interest rate instrument and the interest rate stated in the contract would fluctuate according to the market interest rate which would thus cause future cash flow to fluctuate.

 

G. Other significant events or matters relating to the presentation of the consolidated financial statements: None

 


11.    ADDITIONAL DISCLOSURE REQUIRED BY SFB

A. Information on significant transactions

Pursuant to the disclosure requirements under the Securities and Exchange Regulations, significant transactions for the period from January 1 to December 31 of 2010 were as follows:

1) Loans to others attributed to financing activities as of December 31, 2010: None

2) Endorsements and guarantees provided by the Company to others as of December 31, 2010: None

3) Details of marketable securities held as of December 31, 2010:

Name of the

  company    

Type of investment

   Name of investee companies    

Relationship with the

     Company    

 General ledger

  accounts    

                                     December 31, 2010                   

Number of shares

(1,000 units

/in thousands)

 

   Carrying  amount     

Percentage of   company's

ownership

Market value or

      net worth   










Farglory Land Development Co., Ltd.

Stock

Farglory Construction Co., Ltd.

Subsidiary

Long-term equity investments accounted for under the equity method

99,199

$    1,248,521

99.20%

$     1,318,368


Farglory Dome Co., Ltd.

The investee company accounted for under the equity method

        21,000

         127,141

30.00%

      127,017


Straits Construction Investment (Holdings) Ltd.

              2

         583,371

20.00%

        583,371







$    1,959,033


$    2,028,756


Stock

Farglory Life Insurance Co., Ltd.

Affiliate

Financial assets carried at cost - non-current

31,698

$         6,880

3.15%



Yuan Jing Solar Technology

Co., Ltd.

None

45,000

         450,000

14.75%








$       456,880























 

Name of the   company    

Type of investment

   Name of investee companies    

Relationship with the

     Company    

 General ledger

  accounts    

                                     December 31, 2010                            

Number of shares

(1,000 units

/in thousands)

 

   Carrying  amount     

Percentage of   company's

ownership

Market value or

      net worth  

Farglory Land Development Co., Ltd.

Depository receipts

SITC Money Fund

None

Financial assets at fair value through profit or loss - current

821

$       140,000


$       140,373


Hua Nan Chi-Lin Bond Fund

11,919

136,800


137,159


RSIT Enhanced Bond Fund

6,975

80,000


80,029


Paradigm Pion Fund

14,445

160,000


160,017


TLG Solomon Bond Fund

6,441

77,766


77,965


Mega Diamond Bond Fund

7,536

90,000


90,297


ING Taiwan Select Bond Fund

15,307

180,000


180,057


Yuanta Wan-Tai Fund

13,135

190,400


190,661


Fuh Hwa Bond Fund

19,524

270,000


270,696


PCA Well Pool Fund

7,688

100,000


100,146


UPAMC James Bond Fund

1,280

20,468


20,515


Polaris Te-Li Bond Fund

3,842

60,000


60,097


Hua Nan Feng- Hsiang Bond Fund.

5,121

80,000


80,018


Capital An-Wen Bond Fund

9,062

140,000


140,131


Fubon Chi-Hsiang Fund

3,323

50,000


50,019


Jin-Ding Bond Fund

2,766

40,000


40,059


Taishin Lucky Fund

4,689

         50,000


          50,016







1,865,434


$     1,868,255



Add: Valuation adjustments




          2,821









$    1,868,255

 

 


 

 









Name of the

  company    

Type of investment

   Name of investee companies    

Relationship with the

     Company    

 General ledger

     accounts    

                                     December 31, 2010                   

Number of shares

(1,000 units

/in thousands)

 

   Carrying  amount    

Percentage of   company's

ownership

Market value or

     net worth    

Farglory Construction Co., Ltd.

Stock

Farglory Free Trade Zone Co., Ltd.

Main shareholders of Farglory Free Trade Zone is the same as that of the Company's shareholders

Financial assets at fair value through profit or loss - current

            -

$          10

0.00%

$          16


Depository receipts

PCA Well Pool Fund

None

12,685

       165,000


       165,230


Mega Diamond Bond Fund

6,524

        78,000


        78,182


Yuanta Wan-Tai Fund

9,807

       142,081


       142,348


FSITC Bond Fund

5,671

        65,040


        65,058


Polaris Te-Li Bond Fund

7,610

       118,875


       119,034


Capital An-Wen Bond Fund

8,745

       135,000


       135,221


Hua Nan Feng- Hsiang Bond Fund.

8,265

       129,000


       129,154


Polaris De-Bao Fund

8,693

       100,000


       100,118


SITC Money Fund

  586

       100,000


       100,125


Paradigm Pion Fund

5,421

        60,000


        60,052







     1,093,006


 $ 1,094,538



Add: Valuation adjustments




         1,532









$   1,094,538




Stock

Farglory Life Insurance Co., Ltd.

Affiliate

Financial assets carried at cost - non-current

          957

$         800  

0.00%






















 

4) Accumulated additions and disposals of individual marketable security exceeding the amount of NT$100,000 or 20% of the Company's contributed capital: ( thousand shares/units) January 1, 2010 - December 31, 2010.

Name

of the

   investor    

        Name of

       the securities      

General ledger

 accounts  

Counterparty

Relationship with

the investor     

      Beginning balance 

          Additions        

                      Disposals                          

    Ending balance       

Number of  shares  

  Amount  

Number of

  shares  

   Amount   

Number of

   shares  

Sales Price

Carrying

  amount   

Gain (loss)

on disposal

Number of

  shares  

  Amount   

Farglory Land

Development

Co., Ltd.

FSITC Bond Fund

Financial assets at fair value through profit or loss - current

N/A

N/A

-

$        -

19,851

$290,000

19,851

$290,240

$290,000

$   240

-

$      -


SITC Money Fund

-

       -

1,642

280,000

821

140,277

140,000

     277

821

140,000


ING Taiwan Hong-Yang Fund

-

       -

17,678

290,000

17,678

290,446

290,000

     446

-

-


RSIT Enhanced Bond Fund

-

       -

25,325

290,000

18,350

210,191

210,000

     191

6,975

80,000


Cathay Bond Fund

-

       -

23,410

280,000

23,410

280,112

280,000

      112

-

-


Prudential Financial Bond Fund

-

       -

19,149

290,000

19,149

290,226

290,000

      226

-

-


DWS Taiwan Bond Fund

-

       -

25,945

290,000

25,945

290,097

290,000

       97

-

-


PCA Well Pool Fund

6,162

80,000

13,079

170,000

11,553

150,015

150,000

      15

7,688

100,000


Taishin Lucky Fund

-

       -

22,553

240,000

17,864

190,148

190,000

     148

4,689

50,000


UPAMC James Bond Fund

-

       -

17,505

  280,000

16,225

259,856

 259,532

     324

1,280

 20,468


Hua Nan Chi-Lin Bond Fund

6,975

      80,000

25,271

290,000

20,327

233,319

233,200

     119

11,919

136,800


Capital An-Wen Bond Fund

14,922

230,000

9,062

140,000

14,922

230,046

230,000

46

9,062

140,000


Polaris Te-Li Fund

8,336

130,000

12,810

200,000

17,304

270,165

270,000

     165

3,842

60,000


Polaris Te-Pao Fund

-

       -

24,382

280,000

24,382

280,378

280,000

     378

-

-

 

 













































Name

of the

   investor    

         Name of

       the securities      

General ledger

   accounts  

Counterparty

Relationship with

the investor     

      Beginning balance     

          Additions        

                      Disposals                          

    Ending balance       

Number of

    shares  

   Amount   

Number of

  shares  

   Amount    

Number of

   shares  

Sales Price

Carrying

   amount    

Gain (loss)

on disposal

Number of

  shares  

  Amount    

Farglory Land

Development

Co., Ltd.

Mega Diamond Fund

Financial assets at fair value through profit or loss - current

N/A

N/A

-

$       -

22,620

$ 270,000

15,084

$ 180,024

$180,000

 $  24

7,536

$ 90,000


TLG Solomon Bond Fund

-

       -

23,192

280,000

16,751

202,411

202,234

     177

6,441

77,766


Fuh Hwa Bond Fund

-

       -

20,971

 290,000

1,447

 20,005

  20,000

   5

19,524

270,000


HSBC Fu-Tai Bond Fund

-

       -

18,883

290,000

18,883

290,127

290,000

     127

-

-


HSBC Fu-Tai Bond Fund II

-

       -

17,210

250,000

17,210

250,134

250,000

     134

-

-


ING Taiwan Select Bond Fund

3,206

  50,000

14,733

  230,000

17,939

280,003

  280,000

       3

-

     -


Yuanta Wan-Tai Fund

-

       -

19,317

280,000

6,182

89,720

89,600

     120

13,135

190,400


Shin Kong Chi-Li Fund

-

       -

16,277

280,000

16,277

280,256

280,000

      256

-

-


Hua Nan Feng- Hsiang Bond Fund

6,420

100,000

11,537

180,000

12,836

200,212

200,000

     212

5,121

80,000


Paradigm Pion Fund

-

       -

24,393

270,000

9,948

110,091

110,000

      91

14,445

160,000


IBT 1699 Bond Fund

-

       -

22,456

290,000

22,456

290,142

290,000

     142

-

-


Ta-Chong Bond Fund

-

       -

21,372

290,000

21,372

290,206

290,000

     206

-

-


SinoPac Bond Fund

-

       -

20,970

280,000

20,970

280,181

280,000

     181

-

-


Jih Sun Bond Fund

-

       -

20,518

290,000

20,518

290,374

290,000

      374

-

-


Manulife Wan Li Bond Fund

-

       -

21,255

280,000

21,155

280,124

280,000

     124

-

-

 

 

 

 















Name

of the

   investor    

         Name of

       the securities      

General ledger

   accounts  

Counterparty

Relationship with

the investor     

      Beginning balance     

          Additions        

                      Disposals                          

    Ending balance       

Number of

    shares  

   Amount   

Number of

  shares  

   Amount    

Number of

   shares  

  Sales Price  

Carrying

   amount    

Gain (loss)

on disposal

Number of

  shares  

  Amount    

Farglory Land Development Co., Ltd.

UNION Bond Fund

Financial assets at fair value through profit or loss - current

N/A

N/A

      -

$       -

11,091

$  140,000

11,091

$ 140,078

$140,000

$  78

-

$      -


KGI Victory Fund

-

       -

26,132

290,000

26,132

290,057

290,000

57

-

-


Fuh Hwa You Li Fund

-

       -

8,518

110,000

8,518

110,108

110,000

     108

-

-


Allianz Glbl Inv Bond Fund

-

       -

24,172

290,000

24,172

290,079

290,000

      79

-

-


TLG Mei Bang Bond Fund

-

       -

24,758

290,000

24,758

290,032

290,000

      32

-

-


PineBridge Bond Fund

-

       -

9,856

 130,000

9,856

130,006

130,000

   6

-

     -


JF Taiwan Bond Fund

-

       -

17,722

280,000

17,722

280,030

280,000

      30

-

-


Jin-Ding Bond Fund

-

       -

20,058

290,000

17,292

250,012

250,000

      12

2,766

40,000


JF Taiwan First Bond Fund

-

       -

19,928

290,000

19,928

290,119

290,000

    119

-

-


Shin Kong Chi-Shin Fund

3,376

50,000

15,156

225,000

18,532

275,214

275,000

    214

-

-


ING Taiwan Select Bond Fund

5,115

60,000

15,307

180,000

5,115

60,003

60,000

        3

15,307

180,000


Fubon Chi-Hsiang Fund

-

       -

16,640

250,000

13,317

200,142

200,000

    142

3,323

50,000


Farglory Life Insurance Co., Ltd.

Financial assets carried at cost - non-current

(Note A)

Shin Yu Investment Ltd.

Chairman of Shin Yu Investment   is the same as that of the Company

85,698

  73,120

-

     -

54,000

457,623

 66,240

(Note B)

504,244

(NoteC)

 

31,698

6,880

 

 






























Name

of the

   investor    

         Name of

       the securities      

General ledger

   accounts  

Counterparty

Relationship with

the investor     

      Beginning balance     

          Additions        

                      Disposals                          

    Ending balance       

Number of

   shares  

   Amount   

Number of

  shares  

   Amount    

Number of

   shares  

Sales Price

Carrying

   amount    

Gain (loss)

on disposal

Number of

  shares  

  Amount    

Farglory Land

Development

Co., Ltd.

Yuan Jing Solar  Technology Co., Ltd.

Financial assets carried at cost - non-current

(Note A)

N/A

N/A

-

$        -

45,000

$  450,000

-

 $       -

$       -

$      -

45,000

$ 450,000


Straits Construction Investment(Holdings) Ltd.

Long-term equity investments accounted for under the equity method

-

       -

2

641,100

-

       -

-

       -

2

641,100

Farglory

Construction

Co., Ltd.

PCA Well Pool Fund

Financial assets at fair value through profit or loss - current

N/A

N/A

3,081

40,000

13,455

175,000

3,851

50,010

50,000

10

12,685

165,000


Yuanta Wan-Tai Fund

3,110

45,000

12,421

180,000

5,724

83,023

82,919

104

9,807

142,081


Polaris Te-Li Fund

-

       -

15,688

245,000

8,078

126,229

126,125

104

7,610

118,875


Hua Nan Feng- Hsiang Bond Fund

-

       -

9,611

150,000

1,346

21,017

21,000

17

8,265

129,000


Polaris Te-Pao Fund

-

       -

8,693

100,000

-

-

-

-

8,693

100,000


SITC Money Fund

-

       -

586

100,000

-

-

-

-

586

100,000


Paradigm Pion Fund

-

       -

13,553

150,000

8,132

90,032

90,000

32

5,421

60,000


Capital An-Wen Bond Fund

-

       -

8,745

135,000

-

-

-

-

8,745

135,000


RSIT Enhanced Bond Fund

2,273

26,000

13,966

160,000

10,568

121,061

120,960

101

5,671

65,040

Note A: Please refer to Note 4 (6) D.

Note B: Including investment loss of NT$54,520 which was recognized under equity method and cost of disposal of long-term investment of NT$11,720. 

Note C: Including gain from proportionally deducted part of the capital reserve of NT$58,340.

5) Acquisition of real estate exceeding the amount of  NT$100,000 or 20% of the Company's contributed capital from January 1, 2010 - December 31, 2010 :

            

 

 

 

 

 

 

    If the counterparty is a related party, information pertaining previous transactions on the property is disclosed below:   

 


 Acquisition purpose and current status

  on usage 

 

Acquiring

 Company   

Type of Property

Date of

 Transaction   

Transaction

   amount 

Payment

  status 

 Counterparty    

Relationship

with the

  Company   

Original owner who sold the property to the

  counterparty 

Relationship of the original owner with the

  Company

Date of the

original

transaction  

 Amount         

Basis for price determination        

    Other 

 commitments 

Farglory Land

Development

Co., Ltd.

Land held for construction

January, 2010

$ 2,002,524

Paid

Taiwan Banqiao

District Court

None

-

-

-

$   -

Bid

Construction

None


January, 2010

    2,665,476

Mr. Lin

-

-

-

      -

Appraisal report


April, 2010

      101,928

Mr. Chen

-

-

-

      -

Negotiated Price


July, 2010

1,496,425

New Taipei City Government

-

-

-

      -

Bid


July, 2010

517,113

-

-

-

      -


July, 2010

990,305

-

-

-

      -


July, 2010

1,219,569

-

-

-

      -


August, 2010

251,456

Mr. Chen etc.

-

-

-

      -

Negotiated Price


October, 2010

183,022

-

-

-

      -


November, 2010

1,192,171

New Taipei City Government

-

-

-

      -

Bid


Prepayment

for land

December, 2010

614,720

Taoyuan County Government

-

-

-

      -

 

 



 

6) Disposals of real estates exceeding the amount of NT$100,000 or 20% of the Company's contributed capital :

            January 1, 2010 - December 31, 2010

Acquiring

   Company    

 Type of Property

Acquisition

    date    

 

  Book value 

Transaction

   amount  

      Collection status     

 

Gain on

   disposal 

  Counterparty  

Relationship of the original owner with

 the Company 

 

Disposal

   purpose    

Basis for price

determination         

 

Other

commitments

 

Farglory

Land

Development

Co., Ltd.

Land held for

construction

November 19,2009

$ 202,203

$   219,113

Received full amount according to the contract

$  16,910

Person A

N/A

Obtain gain on disposal

Negotiated Price

None

 


May 8, 2008,

May 21 , 2009

  310,929

356,869

Received full amount

according to the contract

   45,940

Person B

 


December 21, 2009

  215,894

219,703

Received full amount

according to the contract

   3,809

Person C

 


January 18~ April 23, 2007

  714,654

1,543,190

Received full amount

according to the contract

 828,513

Cathy Life Insurance Co., Ltd.

 


July 20, 2005

   57,771

144,800

Received $115,840 according to the contract

Note A

China Television Co., Ltd.

 


February 28, 2007

   89,322

100,533

Received full amount

according to the contract

   11,211

Person D

 


Property held for lease 

September 10, 1992,

February 7, 1996

  105,946

115,000

Received $22,890 according to the contract

Note B

Person E

 


Construction in process ,buildings and land held for sale

N/A

N/A