Post on 08-Jun-2018
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ASUSTEK COMPUTER INC.
Financial Statements
June 30, 2011 and 2010
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For the convenience of readers and for information purpose only, the auditors’ report and the
accompanying financial statements have been translated into English from the original Chinese version
prepared and used in the Republic of China. In the event of any discrepancy between the English version
and the original Chinese version or any differences in the interpretation of the two versions, the
Chinese-language auditors’ report and financial statements shall prevail.
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Independent Auditors’ Report
To the Board of Directors and Shareholders of
ASUSTEK COMPUTER INC.:
We have audited the accompanying balance sheet of ASUSTEK COMPUTER INC. as of
June 30, 2011, and the related statements of income, of changes in stockholders’ equity and of
cash flows for the six-month period then ended. These financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit. We did not audit the financial statements of
certain long-term equity investments accounted for under the equity method. These long-term
equity investments amounted to $12,295,236,000 as of June 30, 2011, and the related
investment loss was $120,008,000 for the six-month period then ended. The financial
statements of these investee companies were audited by other auditors whose reports thereon
have been furnished to us, and our opinion herein insofar as it relates to the amounts included
for these investee companies, is based solely on the reports of other auditors. The financial
statements of ASUSTEK COMPUTER INC. as of and for the six-month period ended June
30, 2010 were audited by other auditors whose report dated August 11, 2010 expressed a
qualified opinion as the financial statements of certain long-term investments were not
audited by independent auditors.
Except for the matter discussed in the third paragraph, we conducted our audit in accordance
with the “Regulations Governing Auditing and Attestation of Financial Statements by
Certified Public Accountants” and generally accepted auditing standards in the Republic of
China. Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the
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 audit and the reports of other auditors provide a
reasonable basis for our opinion.
As described in Note 4(7) to the financial statements, certain long-term equity investments
accounted for under the equity method amounting to $14,454,545,000 and deferred credits
amounting to $869,104,000 as of June 30, 2011, and the related investment loss of
$57,172,000 recognized for the six-month period then ended were based on the investee
companies’ financial statements which were not audited by independent auditors.
In our opinion, based on our audit and the reports of other auditors, except for the effects of
such adjustments, if any, as might have been determined to be necessary had the investee
companies’ financial statements discussed in the third paragraph been audited, the financial
statements referred to in the first paragraph present fairly, in all material respects, the
financial position of ASUSTEK COMPUTER INC. as of June 30, 2011, and the results of its
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operations and its cash flows for the six-month period then ended in conformity with the
“Regulations Governing the Preparation of Financial Reports by Securities Issuers”,
“Business Entity Accounting Law”, “Regulation on Business Entity Accounting Handling”
and generally accepted accounting principles in the Republic of China.
As described in Note 4(7), ASUSTEK COMPUTER INC. spun off the OEM assets and
business (ASUSTEK COMPUTER INC.’s long-term equity investment in PEGATRON
CORPORATION) to PEGATRON INTERNATIONAL INVESTMENT CO. on June 1, 2010.
PEGATRON INTERNATIONAL INVESTMENT CO. then issued new shares to the
Company and its shareholders as consideration. Further, the Company had a capital reduction
of 85%.
We have also reviewed the consolidated financial statements of ASUSTEK COMPUTER
INC. and its subsidiaries as of and for the six-month period ended June 30, 2011. In our report
dated August 10, 2011, we expressed a qualified conclusion on the consolidated financial
statements as the financial statements of certain subsidiaries were not audited by other
auditors. The consolidated financial statements of ASUSTEK COMPUTER INC. and its
subsidiaries as of and for the six-month period ended June 30, 2010 were reviewed by other
auditors whose report dated August 11, 2010 expressed a qualified conclusion.
PricewaterhouseCoopers, Taiwan
August 10, 2011
The accompanying financial statements are intended only to present the financial position, results of
operations and cash flows in accordance with the accounting principles and practices generally
accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures
and practices to review such financial statements are those generally accepted and applied in the
Republic of China.
ASUSTEK COMPUTER INC.
BALANCE SHEETS
JUNE 30, 2011 AND 2010
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
JUNE 30, 2011 JUNE 30, 2010 JUNE 30, 2011 JUNE 30, 2010
AMOUNT % AMOUNT % AMOUNT % AMOUNT %
The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated August 10, 2011.
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ASSETS LIABILITIES AND STOCKHOLDERS' EQUITY Current Assets Current Liabilities
Cash and cash equivalents (Note 4(1)) $ 21,555,017 12 $ 16,867,739 10 Financial liabilities at fair value through Financial assets at fair value through profit or loss – current (Notes 4(2)(11)) $ 38,848 - $ 251,137 -
profit or loss - current (Note 4(2)) 9,484,515 5 5,821,008 3 Notes and accounts payable 43,897,327 25 30,691,260 19 Available-for-sale financial assets Notes and accounts payable – related parties (Note 5) 3,939,477 2 11,911,742 7
- current (Note 4(3)) 477,661 - 252,149 - Income tax payable (Note 4(17)) 1,730,820 1 1,042,068 1 Financial assets carried at cost - Accrued expenses (Note 5) 11,020,221 6 10,144,496 6
current (Note 4(4)) 372 - 41,162 - Dividend payable 8,638,233 5 - - Accounts receivable (Note 4(5)) 10,957,685 6 2,357,373 1 Receipts in advance (Note 5) 713,032 1 858,284 1 Accounts receivable - related parties (Note 5) 47,717,961 27 45,242,423 28 Current portion of bonds payable (Note 4(11)) 2,440,010 1 3,690,162 2 Other receivables (Note 5) 2,721,716 2 3,703,680 2 Other currents liabilities (Note 5) 61,279 - 97,929 - Inventories (Note 4(6)) 20,369,246 11 25,963,241 16 72,479,247 41 58,687,078 36 Prepayments (Note 7) 2,141,161 1 4,273,123 3 Other Liabilities Deferred income tax assets - current (Note 4(17)) 970,762 1 1,144,927 1 Deferred credits (Notes 4(7) and 5) 2,289,782 1 2,475,184 1 Other current assets - others 36,245 - 29,106 - Deferred income tax
116,432,341 65 105,695,931 64 liabilities - non-current (Note 4(17)) 1,957,240 1 1,704,087 1 Funds and Investments Other liabilities - others 12,996 - 6,121 -
Available-for-sale financial assets 4,260,018 2 4,185,392 2 - non-current (Note 4(3)) 7,487,271 4 5,090,250 3 Total Liabilities 76,739,265 43 62,872,470 38
Financial assets carried at cost - non-current (Note 4(4)) 118,860 - 445,519 - Stockholders' Equity
Long-term equity investments accounted for Capital (Note 4(13)) under the equity method (Note 4(7)) 50,765,350 29 45,451,540 28 Common stock 6,170,166 4 6,370,166 4
58,371,481 33 50,987,309 31 Stock dividends to be distributed 1,357,437 1 - - Property, Plant and Equipment (Note 4(8)) Additional paid-in capital (Note 4(14))
Cost Common stock share premium 4,138,802 2 4,241,172 3 Land 981,191 1 981,191 1 Others 298,224 - 199,512 - Buildings 2,312,517 1 2,421,641 1 Retained earnings (Note 4(15)) Instruments and equipment 460,465 - 916,064 1 Legal reserve 21,806,955 12 20,158,120 12 Other equipment 2,072,533 1 1,839,157 1 Undistributed earnings 67,731,098 38 68,723,774 42 5,826,706 3 6,158,053 4 Other adjustments to stockholders' equity
Less: Accumulated depreciation and impairment ( 2,247,665 ) ( 1 ) ( 1,933,350 ) ( 1 ) Cumulative translation adjustments ( 1,233,861 ) ( 1 ) 1,465,111 1 Prepayments for equipment 115,568 - 120,924 - Net loss not recognized as pension cost 11 - ( 769 ) -
3,694,609 2 4,345,627 3 Unrealized gain on financial instruments 2,245,408 1 73,740 - Intangible Asset Treasury stock - - ( 507,780 ) -
Computer software 90,230 - 96,002 - Unrealized gain on cash flow hedges ( 372,177 ) - 214,298 - 90,230 - 96,002 - Total stockholders' equity 102,142,063 57 100,937,344 62
Other Assets Leased assets (Note 4(9)) 96,679 - 98,087 - Refundable deposits (Note 6) 161,072 - 90,526 - Deferred expenses 34,916 - 86,371 - Other assets - others (Notes 4(10) and 7) - - 2,409,961 2
292,667 - 2,684,945 2 TOTAL LIABILITIES AND TOTAL ASSETS $ 178,881,328 100 $ 163,809,814 100 STOCKHOLDERS' EQUITY $ 178,881,328 100 $ 163,809,814 100
ASUSTEK COMPUTER INC. STATEMENTS OF INCOME
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30
2011 2010
AMOUNT % AMOUNT %
The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated August 10, 2011.
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Operating revenues (Note 5) Sales revenue $ 138,280,925 102 $ 146,375,511 101 Sales returns and allowances ( 2,687,561 ) ( 2 ) ( 998,748 ) ( 1 ) Net sales revenue 135,593,364 100 145,376,763 100 Operating costs (Notes 4(6) and 5) Cost of goods sold ( 126,188,817 ) ( 93 ) ( 136,914,383 ) ( 94 ) Gross profit 9,404,547 7 8,462,380 6 Change in unrealized inter-company profits ( 126,676 ) - ( 447,665 ) - Net gross profit 9,277,871 7 8,014,715 6 Operating expenses (Note 5) Selling ( 1,589,646 ) ( 1 ) ( 1,021,236 ) ( 1 ) General and administrative ( 919,043 ) ( 1 ) ( 877,135 ) ( 1 ) Research and development ( 2,381,822 ) ( 2 ) ( 2,308,604 ) ( 1 ) Total operating expenses ( 4,890,511 ) ( 4 ) ( 4,206,975 ) ( 3 ) Operating income 4,387,360 3 3,807,740 3 Non-operating income and gain Interest income 99,395 - 48,652 - Investment income accounted for under the equity
method (Note 4(7)) 3,218,333 2 5,566,048 4
Foreign currency exchange gain, net 606,096 1 108,610 - Others 91,009 - 220,157 - Total non-operating income and gain 4,014,833 3 5,943,467 4 Non-operating expense and loss Interest expense (Note 4(11)) ( 27,701 ) - ( 42,871 ) - Loss on valuation of financial liabilities, net
(Notes 4(2)(11)) ( 72,530 ) - ( 89,956 ) - Others ( 4,265 ) - ( 121,495 ) - Total non-operating expense and loss ( 104,496 ) - ( 254,322 ) - Income before income tax 8,297,697 6 9,496,885 7 Income tax expense (Note 4(17)) ( 1,281,765 ) ( 1 ) ( 1,238,334 ) ( 1 ) Net Income $ 7,015,932 5 $ 8,258,551 6 Before Tax A f t e r Ta x Before Tax A f t e r Ta x Earnings per share (In dollars)(Note 4(18))
Basic earnings per share $ 10.99 $ 9.30 $ 2.14 $ 1.86 Diluted earnings per share $ 10.76 $ 9.09 $ 2.08 $ 1.80
ASUSTEK COMPUTER INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
Capital Retained Earnings
Common stock
Stock
Dividends to be
Distributed
Additional
paid-in capital
Legal reserve
Undistributed
earnings
Cumulative
translation
adjustments
Net loss not
recognized as
pension cost
Unrealized gain
or loss on
financial
instruments
Treasury stock
Unrealized gain
on cash flow
hedges
Total
The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated August 10, 2011.
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Balance at January 1, 2010 $ 42,467,775 $ - $ 30,237,586 $ 18,910,213 $ 77,615,158 $ 1,490,885 ( $ 3,202 ) $ 2,159,201 $ - $ 306,361 $173,183,977 Appropriations and distributions of 2009
earnings (Note 4(15)) Legal reserve - - - 1,247,907 ( 1,247,907 ) - - - - - - Cash dividends - - - - ( 8,918,232 ) - - - - - ( 8,918,232 ) Cumulative translation adjustments - - - - - 74,787 - - - - 74,787 Adjustments to investee company's
stockholders' equity - - 25,636 - - - ( 1 ) ( 318,796 ) - ( 92,063 ) ( 385,224 ) Changes in unrealized gain on financial
assets - - - - - - - ( 529,249 ) - - ( 529,249 ) Adjustments to spin off and capital
reduction ( 36,097,609 ) - ( 25,798,854 ) - ( 6,983,398 ) ( 99,230 ) 2,402 ( 1,221,037 ) - - ( 70,197,726 ) Purchase of treasury stock - - - - - - - - ( 510,885 ) - ( 510,885 ) Treasury stock retirement - - - - ( 398 ) - - - 3,105 - 2,707 Proceeds from disposal of long-term
investments accounted for under the equity method - - ( 23,684 ) - - ( 1,331 ) 32 ( 16,379 ) - - ( 41,362 )
Net income for the six-month period ended June 30, 2010 - - - - 8,258,551 - - - - - 8,258,551
Balance at June 30, 2010 $ 6,370,166 $ - $ 4,440,684 $ 20,158,120 $ 68,723,774 $ 1,465,111 ( $ 769 ) $ 73,740 ( $ 507,780 ) $ 214,298 $100,937,344 Balance at January 1, 2011 $ 6,270,166 $ - $ 4,482,124 $ 20,158,120 $ 74,802,015 ( $ 1,066,766 ) $ 11 $ 1,197,335 $ - $ 200,655 $106,043,660 Appropriations and distributions of 2010
earnings (Note 4(15)) Legal reserve - - - 1,648,835 ( 1,648,835 ) - - - - - - Dividends transferred to common stock - 1,357,437 - - ( 1,357,437 ) - - - - - - Cash dividends - - - - ( 8,638,233 ) - - - - - ( 8,638,233 ) Cumulative translation adjustments - - - - - ( 167,118 ) - - - - ( 167,118 ) Adjustments to investee company's
stockholders' equity - - 21,984 - - - - ( 5,877 ) - ( 572,832 ) ( 556,725 ) Changes in unrealized gain on financial
assets - - - - - - - 1,053,950 - - 1,053,950 Purchase of treasury stock - - - - - - - - ( 2,609,422 ) - ( 2,609,422 ) Cancellation of treasury stock ( 100,000 ) - ( 67,078 ) - ( 2,442,344 ) - - - 2,609,422 - - Proceeds from disposal of long-term
investments accounted for under the equity method - - ( 4 ) - - 23 - - - - 19
Net income for the six-month period ended June 30, 2011 - - - - 7,015,932 - - - - - 7,015,932
Balance at June 30, 2011 $ 6,170,166 $ 1,357,437 $ 4,437,026 $ 21,806,955 $ 67,731,098 ( $ 1,233,861 ) $ 11 $ 2,245,408 $ - ( $ 372,177 ) $102,142,063
ASUSTEK COMPUTER INC.
STATEMENTS OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)
FOR THE SIX-MONTH PERIODS ENDED JUNE 30,
2011 2010
The accompanying notes are an integral part of these financial statements.
See report of independent accountants dated August 10, 2011.
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Cash flows from operating activities Net income $ 7,015,932 $ 8,258,551 Adjustments to reconcile net income to net cash provided by operating
activities Depreciation and amortization 618,731 517,019 Gain on valuation of financial liabilities, net ( 67,046 ) ( 146,527 ) Cash dividends received from long-term investee companies
accounted for under the equity method 800,194 4,005,594 Investment income accounted for under the equity method ( 3,218,333 ) ( 5,566,048 ) Changes in assets and liabilities Financial assets at fair value through profit or loss - current ( 1,347,117 ) 7,414,819 Notes and accounts receivable (including related parties) ( 7,786,159 ) ( 791,714 ) Other receivables (including related parties) ( 75,578 ) 2,360,505 Inventories ( 4,788,949 ) ( 10,875,746 ) Prepayments and other current assets 4,923,995 256,979 Notes and accounts payable (including related parties) 3,639,614 5,078,537 Income tax payable 414,278 ( 1,435,185 ) Accrued expenses, receipts in advance and other current liabilities 1,224,672 784,298 Deferred credits 126,676 447,665 Deferred income tax assets and liabilities ( 3,213 ) 420,748 Others 387,736 199,979 Net cash provided by operating activities 1,865,433 10,929,474 Cash flows from investing activities Increase in available-for-sale financial assets ( 56,000 ) - Proceeds from disposal of available-for-sale financial assets 45,615 47,293 Increase in long-term equity investments accounted for under the equity
method ( 2,752,096 ) ( 277 ) Proceeds from disposal of long-term investments accounted for under the
equity method - 717,885 Proceeds from disposal from capital reduction - 1,057,650 Acquisition of property, plant and equipment ( 333,059 ) ( 497,499 ) Increase in deferred expenses and intangible assets ( 28,577 ) ( 14,532 ) Other assets - other 8,614 ( 2,400,804 ) Others ( 1,491 ) 52,040 Net cash used in investing activities ( 3,116,994 ) ( 1,038,244 ) Cash flows from financing activities Redemption of treasury stock ( 2,609,422 ) ( 510,885 ) Payment of cash dividends - ( 8,918,232 ) Others 1,110 3,536 Net cash used in financing activities ( 2,608,312 ) ( 9,425,581 ) Net (decrease) increase in cash and cash equivalents ( 3,859,873 ) 465,649 Cash and cash equivalents at beginning of period 25,414,890 16,402,090 Cash and cash equivalents at end of period $ 21,555,017 $ 16,867,739 Supplemental disclosures of cash flow information Cash paid during the period for interest $ - $ 5 Cash paid during the period for income tax $ 1,302,400 $ 2,252,771 Investing and financing activities that result in non-cash flows: Bonds payable - payable in one year $ 2,440,010 $ 3,690,162
Dividends payable $ 8,638,233 $ - Dividends transferred to common stock $ 1,357,437 $ -
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ASUSTEK COMPUTER INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,
EXCEPT AS OTHERWISE INDICATED)
1. HISTORY AND ORGANIZATION
(1) ASUSTEK COMPUTER INC. (ASUS or the Company) was established on April 2, 1990. The
Company‟s common shares are listed on the Taiwan Stock Exchange (TSE). Its main activities are
to produce, design and sell notebook PCs, main boards, CD-ROMs and add-on cards.
(2) The Company resolved to spin-off its OEM businesses on January 1, 2008. Pursuant to the
Company‟s resolution, the Company transferred its computer and non-computer OEM businesses
to its spun-off subsidiaries, PEGA and UNIHAN, respectively. On June 1, 2010, however, the
Company transferred further its OEM assets and business (the Company‟s long-term equity
investment in PEGA) to the Company‟s another investee, PII. PII issued new shares to the
Company and its shareholders as consideration.
(3) The Company‟s headcount totaled 3,805 and 3,456 employees as of June 30, 2011 and 2010,
respectively.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with the “Regulations Governing the Preparation
of Financial Reports by Securities Issuers”, “Business Entity Accounting Law”, “Regulation on
Business Entity Accounting Handling” and generally accepted accounting principles in the Republic of
China. The Company‟s significant accounting policies are as follows:
(1) Foreign currency transactions and translation of financial statements in foreign currencies
A. Transactions involving non-derivative financial instruments denominated in foreign currencies
are recorded in New Taiwan dollars at the rates of exchange in effect when the transactions
occurred. Translation gain or loss arising from the settlement of assets and liabilities
denominated in foreign currencies are included in profit or loss in the year of actual
settlement.
B. Monetary assets and liabilities denominated in foreign currencies are remeasured at the
balance sheet date using the exchange rates in effect on that date, with related exchange gain
and loss included in the statement of income.
C. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair
value through stockholders‟ equity are remeasured at the exchange rate prevailing at the
balance sheet date, with related exchange gain or loss recorded as cumulative translation
adjustment in stockholders‟ equity. Non-monetary assets and liabilities denominated in foreign
currencies that are measured at fair value through profit or loss are remeasured at the exchange
rate prevailing at the balance sheet date, with related exchange gain or loss recorded in the
statement of income. Non-monetary assets and liabilities denominated in foreign currencies
that are measured at cost are remeasured at the historical exchange rate.
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D. Long-term investments in foreign investees, which are accounted for under the equity method,
are stated on the basis of stockholders‟ equity in the foreign-currency financial statements of
investees. Translation gain or loss from long-term investments is recognized as cumulative
translation adjustment in stockholders‟ equity.
(2) Classification of current and non-current assets and liabilities
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.
(3) Financial instruments
A. In accordance with SFAS No. 34, “Financial Instruments: Recognition and Measurement” and
the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”,
financial assets are classified as financial assets at fair value through profit or loss, financial
assets carried at cost, or available-for-sale financial assets, as appropriate. Financial liabilities
are classified either as financial liabilities at fair value through profit or loss, or as financial
liabilities at cost.
B. The Company accounts for purchases and sales of financial assets on the trade date, or the date
when the Company commits to purchase or sell the asset. At initial recognition, financial
assets are recognized at fair value plus, in the case of investments that are not reported at fair
value through profit or loss, directly attributable transaction costs.
(A) Financial assets measured at fair value through profit or loss
These financial assets are subsequently measured at fair value with changes in fair value
recognized in profit and loss. Stocks of listed companies, convertible bonds and
closed-end funds are measured at closing prices at the balance sheet date. Open-end funds
are measured at the unit price of the net assets at the balance sheet date.
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(B) Available-for-sale financial assets
Available for sale financial assets are those non-derivative financial assets that are
designated as available for sale or not classified as financial assets at fair value through
profit or loss, held-to-maturity financial assets, or loans and receivables. These assets are
then measured at fair value. The gain or loss arising from change in fair value, excluding
impairment loss and exchange gain or loss from the translation of monetary financial
assets denominated in foreign currencies, is recognized in a separate component of
stockholders‟ equity until such investment is reclassified or disposed of, upon which the
cumulative gain or loss previously charged to stockholders‟ equity is transferred to current
profit or loss.
(C) Financial assets carried at cost
Equity investments without reliable market prices, including emerging and other unlisted
stocks, are measured at cost. If objective evidence of impairment exists, the Company
recognizes impairment loss, which is not reversed in subsequent periods.
C. Subsequent to initial recognition, the Company measures all financial liabilities at amortized
cost except for financial liabilities at fair value through profit or loss, which are measured at
fair value.
(4) Notes and accounts receivable and other receivables
A. Notes and accounts receivable are claims resulting from the sales of goods or services. Other
receivables are those arising from transactions other than the sale of goods or services. Before
December 31, 2010, allowance for doubtful accounts is provided according to the evaluation
of the collectibility of notes and accounts receivable and other receivables, taking into account
the bad debts incurred in prior years and the aging analysis of the receivables.
B. Effective January 1, 2011, notes and accounts receivable and other receivables are recognized
initially at fair value and subsequently measured at amortized cost using the effective interest
method, less provision for impairment. A provision for impairment is established when there
is objective evidence that the receivables are impaired. The amount of the provision is the
difference between the asset‟s carrying amount and the present value of estimated future cash
flows, discounted at the original effective interest rate. When the fair value of the asset
subsequently increases and the increase can be objectively related to an event occurring after
the impairment loss was recognized in profit or loss, the impairment loss shall be reversed to
the extent of the loss previously recognized in profit or loss. Such recovery of impairment
loss shall not make the asset‟s carrying amount greater than its amortized cost where no
impairment loss was recognized. Subsequent recoveries of amounts previously written off
are recognized in profit or loss.
(5) Inventories
The costs of inventories consist of those necessary expenditures incurred in bringing each item of
inventory to its usable condition and location. Cost is calculated on a weighted-average basis.
Inventories are valued at the lower of cost or net realizable value. Net realizable value by item is
determined based on the estimated selling price in the ordinary course of business, less estimated
costs of completion and costs to sell.
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(6) Long-term equity investments accounted for under equity method
A. Long-term investments are accounted for under the equity method when the percentage of
ownership held by the Company and its subsidiaries exceeds 20% or if the Company and its
subsidiaries own less than 20% of the investee‟s common stock but have significant influence
on the investee‟s operations. If an investee company accounted for under the equity method
issues new shares and the Company does not purchase new shares proportionately, then the
investment percentage, and therefore the equity in net assets of the investee, will be changed.
The effect of such change is adjusted against the additional paid-in capital resulting from
long-term equity investments or retained earnings.
B. The difference between the cost of the investment and the amount of underlying equity in net
assets of an investee attributed to depreciable, depletable, or amortizable assets is amortized
over the estimated remaining economic years. The difference attributed to the carrying amount
in excess of or lower than the fair value of assets is written off entirely when the difference
disappear. The cost of investment in excess of the fair value of identifiable net assets is
recognized as goodwill and is no longer amortized. The difference attributed to the fair value
of identifiable net assets in excess of the cost of investment causes a proportional decrease in
the carrying amount of non-current assets. When the carrying amount of non-current assets is
reduced to zero, the remaining difference is recorded as extraordinary gain or loss.
C. When the equity of long-term equity investment under the equity method including unrealized
gain on financial instruments, foreign currency translation adjustments, net loss not recognized
as pension cost, and unrealized losses on cash flow hedges is changed, the changes in
percentage of ownership are reflected in those related accounts and long-term equity
investment under the equity method.
D. Unrealized inter-company profit or loss resulting from transactions between the Company and
investees accounted for under the equity method are accounted in unrealized gain on
inter-affiliate accounts and deferred until realized.
E. The investees over which the Company has control are accounted for under the equity method.
The Company prepares consolidated financial statements on a quarterly basis.
(7) Property, plant and equipment, leased assets and idle assets
A. Property, plant and equipment are stated at cost. Cost associated with significant additions,
improvements, and replacements to property, plant and equipment are capitalized.
Expenditures for regular repairs and maintenance are charged against operating income.
B. Property, plant and equipment leased to other parties under operating leases are classified as
leased assets. The related depreciation is provided under the straight-line method based on the
assets‟ estimated useful lives and accounted for as a reduction of rental income. Property, plant
and equipment not currently used in operations are transferred to idle assets. The cost,
accumulated depreciation, and accumulated impairment of the original assets not currently
used in operations are all transferred to idle assets, and depreciated.
C. Depreciation is provided under the straight-line method over the estimated lives of the assets.
Salvage value of the fully depreciated assets that are still in use is depreciated over the
re-estimated useful lives. The estimated useful lives of buildings are 3~50 years, machinery
and equipment are 3~8 years and other equipment are 1~15 years.
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(8) Intangible assets and deferred expenses
Intangible assets represent computer software, which are amortized using the straight-line method
over 3 years. Deferred expenses represent office decorations, which are amortized using the
straight-line method over 2 ~ 5 years.
(9) Impairment of non-financial assets
A. The Company assesses all applicable assets subject to Statement of Financial Accounting
Standards („SFAS‟) No. 35 for indication of impairment at the balance sheet date. If any
indication of impairment exists, the Company then compares the carrying amount with the
recoverable amount of the assets or the cash-generating unit (“CGU”) and writes down the
carrying amount to the recoverable amount. If the recoverable amount of an asset other than
goodwill has increased as a result of the increase in its estimated service potential, the
Company reverses the impairment loss to the extent that the carrying amount after the reversal
would not exceed the amount (net of amortization or depreciation) that would otherwise result
had no impairment loss been recognized in prior periods.
B. The Company assesses the goodwill and intangible assets that have indefinite lives or that are
not yet available for use periodically on an annual basis and recognizes an impairment loss on
the carrying value in excess of the recoverable amount. The loss is first recorded against the
goodwill allocated to the CGU, with any remaining loss allocated to other assets on a pro rata
basis proportionate to their carrying amounts. The write-down of goodwill cannot be
reversed in subsequent periods under any circumstances.
(10) Convertible bonds payable
Bonds issued after January 1, 2006 are accounted for in accordance with SFAS No. 36 and
Interpretations (95) 290, (97) 331 and (98) 046 by the Accounting Research and Development
Foundation (ARDF) as follows:
A. The issuance costs are allocated to the related liability and equity components in proportion of
the initially recognized amounts.
B. Convertible bonds bearing a clause on conversion price adjustment based on stock market
price do not include the equity component. For the liability components, the fair value of the
conversion right and call/put option is determined first, and then the book value of main debt
component is determined based on the net amount of the issuance price after deducting the fair
value of the call/put option and conversion right with a clause on price adjustment.
C. Convertible bonds are subsequently measured at amortized cost. Derivatives with call/put
options and conversion rights with a clause on price adjustment are recognized as “financial
liabilities at fair value through profit or loss” and are subsequently measured at fair value.
Movements in the fair value of the derivatives are recognized as “gain/(loss) on valuation of
financial liabilities”.
D. If the bondholder exercises the right to convert the bonds ahead of the maturity date of the
bond, the book value of the liability component is adjusted to the value on the conversion date,
which serves as the basis for the recording of the issuance of common stock so that no
conversion gain and loss is recognized thereon.
~13~
E. If the bondholder is eligible to exercise the put option within one year, the bonds payable are
reclassified as current liability. When the put option expires, those bonds payable are
reclassified as long-term liability if the liability meets the definition of long-term liability.
(11) Pension
A. 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, and amortization of unrecognized net transition
obligation and gain or loss on plan assets. Unrecognized net transition obligation is amortized
on a straight-line basis over the employees‟ remaining service period.
B. Under the defined contribution pension plan, net periodic pension costs are recognized as
incurred.
(12) Income tax
A. Income tax is calculated on the basis of accounting income. The differences between the tax
bases and the book values of assets and liabilities are recorded as deferred tax using the
enacted tax rates for the periods in which the deferred tax is expected to be reversed. The tax
effects from taxable temporary differences are recognized as deferred tax liabilities, while the
deductible temporary differences and investment tax credits are accounted for as deferred tax
assets, which are assessed for an allowance for deferred tax assets based on future realization.
B. Deferred income tax assets or liabilities are classified as current or non-current based on the
classification of items that resulted in the deferred item or based on the timing of the expected
reversal, for certain transactions not directly related to an asset or liability. When a change in
the tax laws is enacted, the deferred tax liability or asset is recomputed accordingly in the
period of change. The difference between the new amount and the original amount, that is,
the effect of changes in the deferred tax liability or asset, is recognized as an adjustment to
current income tax expense (benefit).
C. Over or under provision of prior years‟ income tax liabilities is included in current year‟s
income tax.
D. The 10% additional income tax on unappropriated earnings is recorded as current income tax
expense in the year when the shareholders resolve not to distribute the earnings.
E. Current income tax is the higher of current income tax payable or the Alternative Minimum
Tax (“AMT”) calculated by applying the Income Basic Tax Act (“IBTA”). The Company has
taken into consideration the impact of the AMT in the determination of its current income tax
expense and its future impact when estimating the realizable value of the deferred tax assets.
~14~
(13) Treasury stock
A. When a company acquires its outstanding shares as treasury stock, the acquisition cost should
be debited to the treasury stock account (a contra account under stockholders‟ equity) if the
shares are purchased.
B. When a company‟s treasury stock is retired, the treasury stock account should be credited, and
the capital surplus-premium on stock account and capital stock account should be debited
proportionately according to the share ratio. An excess of the carrying value of treasury
stock over the sum of its par value and premium on stock should first be offset against capital
surplus from the same class of treasury stock transactions, and the remainder, if any, debited to
retained earnings. An excess of the sum of the par value and premium on stock of treasury
stock over its carrying value should be credited to additional paid-in capital from the same
class of treasury stock transactions.
C. The cost of treasury stock is accounted for on a weighted-average basis.
(14) Employees‟ bonuses and directors‟ and supervisors‟ remuneration and share-based payment
Pursuant to Interpretation (96) 052 issued by the ARDF, the costs of employees‟ bonuses and
directors‟ and supervisors‟ remuneration are accounted for as expenses and liabilities, provided
that such recognition is required under legal or constructive obligation and the amounts can be
estimated reasonably. However, if the accrued amounts for employees‟ bonuses and directors‟ and
supervisors‟ remuneration are significantly different from the distributed amounts resolved by the
Board of Directors, then the differences shall be adjusted in current year‟s gain or loss (the year of
recognition) and, if the accrued amounts for employees‟ bonus and directors‟ and supervisors‟
remuneration are significantly different from the actual distributed amounts resolved by the
stockholders at their annual stockholders‟ meeting subsequently, the differences shall be
recognized as gain or loss in the following year treated as accounting estimate difference. In
addition, according to Interpretation (97) 127 issued by the ARDF, the Company calculates the
number of shares of employees‟ stock bonus based on the closing price of the Company‟s
common stock at the previous day of the stockholders‟ meeting held in the year following the
financial reporting year, and after taking into account the effects of ex-rights and ex-dividends.
The Company adopts SFAS No. 39 to account for the transfer of equity instruments from
shareholders to the Group‟s employees.
(15) Earnings per share
A. Earnings per share of common stock is computed based on the weighted-average number of
common shares outstanding during the period. Earnings per share for prior period is
retroactively adjusted to reflect the effects of new shares issued from the capitalization of
additional paid-in capital or retained earnings.
B. The convertible bonds and employee stock bonuses which have not yet been approved in the
stockholders‟ meeting are potential common shares. Only basic earnings per share is disclosed
if there is no dilutive effect. Otherwise, both basic and diluted earnings per share are
disclosed. For the purpose of calculating diluted earnings per share, the potential common
shares are deemed to have been converted into common stock at the beginning of the period,
and the effect on net income of the additional common shares outstanding is considered
accordingly.
~15~
(16) Revenues, costs and expenses
The Company recognizes revenue when the earning process has been significantly completed,
which means the revenue has been realized or is readily realizable and earned. Cost is recognized
when the related revenue is accrued; expenses are recognized as current expenses when incurred.
(17) Use of estimates
The preparation of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the amounts of
assets and liabilities and the disclosures of contingent assets and liabilities at the date of the
financial statements and the amounts of revenues and expenses during the reporting period.
Actual results could differ from those assumptions and estimates.
(18) Spin-off transaction
The Company resolved to spin off its OEM assets and businesses. The Company adopted
Interpretations (91) 128, (92) 106 and (92) 107 issued by the ARDF to account for its spin-off
transactions. Since the transferee company continues the transferor company‟s economic activities,
the Company did not record any gain or loss from the said spin-off transaction but has adjusted
the net assets and long-term equity investment related additional paid-in capital and other equity
account against retained earnings or other components.
(19) Operating segments
In accordance with SFAS No. 41, “Segment reporting”, operating segments are reported in a
manner consistent with the internal reporting provided to the chief operating decision-maker.
3. CHANGES IN ACCOUNTING PRINCIPLES
(1) Notes and accounts receivable
Effective January 1, 2011, the Company adopted the amendments of SFAS No. 34, “Accounting
for Financial Instruments”. Under this standard, a provision for impairment (bad debt) of accounts
and notes receivable and other receivables is established when there is objective evidence that
they are impaired. This change in accounting principle had no significant effect on the net income
for the six-month period ended June 30, 2011.
(2) Operating segments
Effective January 1, 2011, the Company adopted SFAS No. 41, “Segment Reporting”, replacing
the original SFAS No. 20, “Disclosure of Segment Financial Information”. The segment
information for the six-month period ended June 30, 2010 has been prepared retrospectively. This
change in accounting principle had no significant effect on the net income and earnings per share
for the six-month periods ended June 30, 2011 and 2010.
~16~
4. DETAILS OF SIGNIFICANT ACCOUNTS
(1) Cash and cash equivalents
(2) Financial instruments
The financial instruments held by the Company are as follows:
A. For the six-month periods ended June 30, 2011 and 2010, the Company recognized net
financial assets gain on valuation of $22,676 and $1,496, respectively, and net financial
liabilities loss on valuation of $72,530 and $89,956, respectively.
B. The trading items and contract information of derivatives are as follows:
The main purpose of the Company‟s entering into foreign currency contracts was to hedge
foreign currency risk from operating activities. As of June 30, 2011 and 2010, the Company
did not meet the criteria for hedge accounting.
C. Please see Note 4(11) on Bonds payable.
2011/6/30 2010/6/30
Petty cash and cash on hand 250$ 263$
Checking and demand deposits 19,555 392,244
Time deposits 21,535,212 16,475,232
21,555,017$ 16,867,739$
Items 2011/6/30 20101/6/30
Current:
Financial assets measured at fair value through
profit or loss:
Open-end funds 9,376,515$ 5,821,008$
Convertible bonds 108,000 -
9,484,515$ 5,821,008$
Financial liabilities measured at fair value
through profit or loss:
Call/put options and conversion 23,610$ 139,296$
right - convertible bonds
Forward exchange contracts 15,238 111,841
38,848$ 251,137$
Contract Amount Contract Amount
(Nominal principal) (Nominal principal)
Items (in thousands) Contract Period (in thousands) Contract Period
Derivative financial liabilities
Forward exchange contracts USD 120,000 2011.05~2011.08 USD 518,000 2010.05~2010.09
2011/6/30 2010/6/30
~17~
(3) Available-for-sale financial assets
For available-for-sale financial assets, the amount of gain (loss) recognized directly in equity was
$1,053,950 and $(529,249) for the six-month periods ended June 30, 2011 and 2010, respectively.
(4) Financial assets carried at cost
A. The above investments were measured at cost since there are no public quotes in active
markets and their fair value cannot be measured reliably.
Items 2011/6/30 2010/6/30
Current:
Stocks of listed companies
AZURE 308,802$ -$
EDISON 31,800 -
NUVOTON 29,832 -
D-LINK - 252,149
ENE 52,453 - ALCOR MICRO 54,774 -
477,661$ 252,149$
Non-Current:
Stocks of listed companies
ADVANTECH 7,428,244$ 5,030,808$ Others 59,027 59,442
7,487,271$ 5,090,250$
Items 2011/6/30 2010/6/30
Current:
Stocks of unlisted companies
AZUREWAVE CAYMAN 372$ 372$
EDISON - 40,000 GREENASUS - 790
372$ 41,162$
Non-current:
Stocks of unlisted companies
AZURE -$ 202,660$
AMTRUST CAPITAL I 100,000 100,000
LEDLINK 31,500 -
UPI SEMICONDUCTOR 24,500 -
NUVOTON - 45,000 Others 1 135,000
156,001 482,660 Less: provision for impairment 37,141)( 37,141)(
118,860$ 445,519$
~18~
B. GREENASUS and AZUREWAVE CAYMAN began their liquidation procedures in December
and October 2009, respectively. The Company has discontinued applying the equity method
in accordance with related regulations. In addition, the Company and its subsidiaries lost
significant influence on AZURE on June 1, 2010, the spin-off date, and accordingly
discontinued applying the equity method.
C. After evaluating and comparing the carrying value of financial assets carried at cost and the
recoverable amount, no impairment loss was recognized for the six-month periods ended June
30, 2011 and 2010.
(5) Accounts receivable
(6) Inventories
The amount of inventories recognized as net loss (gain) amounted to $229,366 and ($526,176), of
which ($229,266) and $533,251 were recognized as (increase) deduction from cost of sales due to
a (loss) reversal of inventory cost to its net realizable value for the six-month periods ended June
30, 2011 and 2010, respectively.
2011/6/30 2010/6/30
Accounts receivable 11,105,902$ 2,413,501$
Less: allowance for doubtful accounts 148,217)( 56,128)(
(provision for impairment)
10,957,685$ 2,357,373$
2011/6/30 2010/6/30
Raw materials 6,014,734$ 6,865,323$
Work in process 1,455,220 1,306,690
Finished goods 753,395 508,825
Merchandise inventory 14,203,744 18,424,259
Inventories in transit 62,694 712,947
22,489,787 27,818,044
Less: allowance for inventory valuation 2,120,541)( 1,854,803)(
loss and obsolescence
20,369,246$ 25,963,241$
~19~
(7) Long-term equity investments
A. Details of long-term equity investments accounted for under the equity method are as follows:
B. The investment (loss) income recognized under the equity method amounted to ($57,172) and
$532,389 for the six-month periods ended June 30, 2011 and 2010, respectively which were
determined based on the investees‟ unaudited financial statements. As of June 30, 2011 and
2010, the related long-term equity investments (deferred credits) amounted to $14,454,545
($869,104) and $14,644,548 ($822,862), respectively.
C. On June 1, 2010, the Company transferred the OEM assets and business (the Company‟s
long-term equity investment in PEGA) to PII. PII then issued new shares to the Company and
its shareholders as consideration. The Company then obtained 25% ownership of the
consolidated PEGA and PII (PII is the dissolved company.) The long-term investment
decreased by $70,197,726 after this transaction.
D. AHL decreased its capital and the Company received a return of capital amounting to
$1,061,951 for the six-month period ended June 30, 2010.
E. SYT had a cash capital increase on January 10, 2010, and the Company invested $2,500,400.
After the capital increase, the Company held 45,120,000 shares of SYT, representing 47%
ownership.
F. The unrealized loss on financial assets resulting from long-term equity investments (including
unrealized gain on cash flow hedge) were $578,709 and $410,859 for the six-month periods
ended June 30, 2011 and 2010, respectively.
G. The Company received cash dividends during the six-month periods ended June 30, 2011 and
2010 amounting to $800,194 and $4,005,594, respectively, accounted for as a deduction from
long-term equity investment.
H. As approved by the authorities and in compliance with the related regulations, SYT had
obtained 86,220,000 shares of AAEON, and the merger record date was set on June 1, 2011.
After the merger, SYT was the surviving company, and SYT has been approved by the
authorities on July 4, 2011 to change its name to AAEON.
Percentage Percentage
Carrying of Carrying of
Investee company amount ownership amount ownership
PEGA 21,078,323$ 24.45 22,786,712$ 23.99
AIL 13,278,463 100.00 10,065,887 100.00
ASKEY 9,060,336 100.00 8,893,294 100.00
SYT 2,626,373 47.00 - -
HCVC 1,179,672 100.00 1,052,117 100.00
ASUTC 809,206 100.00 625,770 100.00
HMI 761,314 100.00 209,262 100.00
AHL 662,581 100.00 615,279 100.00
Others 1,309,082 1,203,219
50,765,350$ 45,451,540$
2011/6/30 2010/6/30
~20~
(8) Property, plant and equipment
A. After evaluating and comparing the carrying value of property, plant and equipment and its
recoverable amount, the Company recognized loss on impairment of $335,171 and $0 for the
six-month periods ended June 30, 2011 and 2010, respectively.
B. Property, plant and equipment are not pledged as collateral.
(9) Leased assets
Leased assets are not pledged as collateral.
Accumulated
depreciation
Initial cost and impairment Book value
Land 981,191$ -$ 981,191$
Buildings 2,312,517 367,008)( 1,945,509
Instruments and equipment 460,465 302,492)( 157,973
Other equipment 2,072,533 1,578,165)( 494,368
Prepayments for equipment 115,568 - 115,568
5,942,274$ 2,247,665)($ 3,694,609$
2011/6/30
Accumulated
depreciation
Initial cost and impairment Book value
Land 981,191$ -$ 981,191$
Buildings 2,421,641 428,548)( 1,993,093
Instruments and equipment 916,064 671,597)( 244,467
Other equipment 1,839,157 833,205)( 1,005,952
Prepayments for equipment 120,924 - 120,924
6,278,977$ 1,933,350)($ 4,345,627$
2010/6/30
2011/6/30 2010/6/30
Initial cost
Land 38,233$ 38,233$ Buildings 80,731 80,731
118,964 118,964
Less: accumulated depreciation - buildings 22,285)( 20,877)(
96,679$ 98,087$
~21~
(10) Idle assets
A. There is no indication of cash flow in future years for idle assets which are currently not used
for operations; therefore, the Company recognized the net fair value as the recoverable amount.
After evaluating and comparing the carrying value of idle assets and their recoverable amount,
the Company recognized the loss on impairment of $0 and $6,211 for the six-month periods
ended June 30, 2011 and 2010, respectively.
B. Idle assets are not pledged as collateral.
(11) Bonds payable
The details of domestic unsecured convertible bonds are as follows:
A. The Company issued the redeemable domestic unsecured convertible bonds on November 7,
2006. The main issuance terms of that are as follows:
(A) Total amount of the convertible bonds at issuance: $12,000,000
(B) Nominal rate: 0%
(C) Duration of issuance: 5 years (from November 7, 2006 to November 7, 2011)
2011/6/30 2010/6/30
Other equipment 1,338,232$ 1,336,601$
Less: accumulated depreciation 1,028,773)( 1,028,773)(
Less: accumulated impairment 309,459)( 307,828)(
-$ -$
2011/6/30 2010/6/30
Aggregate principal amount 12,000,000$ 12,000,000$
Accumulated converted amount 7,000)( 7,000)(
Accumulated redeemed amount 9,533,600)( 8,187,100)(
Discount on bonds payable 19,390)( 115,738)(
2,440,010 3,690,162
Less: convertible bonds payable- 2,440,010)( 3,690,162)( Less: redeemable within one year
Total -$ -$
2011/6/30 2010/6/30
Debt-component embedded derivative:
-call/put option and conversion option -$ 26,261$
- price/reset
-conversion rights 23,610 113,035
23,610$ 139,296$
2011/1/1~6/30 2010/1/1~6/30
Gain on valuation of financial liabilities 80,914$ 146,527$
Interest expense 27,700$ 42,866$
~22~
(D) Conversion period: Each bondholder has the right to convert all or from time to time any
portion of its convertible bonds into common shares during the conversion period (up to
31 days after the original issue date to 10 days before the maturity date).
(E) Conversion price and adjustment: The conversion price is $105.4 (in dollars) per common
share initially. The conversion price will be adjusted upon the occurrence of an increase in
the number of common shares. On June 24, 2010, the Company adjusted further the
conversion price to $345.8 (in dollars), considering the effect of capital reduction.
(F) Call option: The Company could redeem the convertible bonds at par value at any time
during the period from December 8, 2006 to September 28, 2011, under the following
conditions: the closing price of the common shares on each of 30 consecutive trading days
reaches or exceeds 50% of the conversion price, or the outstanding balance of the bonds is
less than 10% of the original issuance.
(G) Put option: Each bondholder has the right to put the convertible bonds at par value after
the 3rd and 4th year.
B. The fair value of non-equity convertible options, put options, call options and resetting options
embedded in bonds payable was separated from bonds payable, and was recognized in
“Financial assets or liabilities at fair value through profit or loss” in accordance with SFAS No.
34.
(12) Pension
A. Effective from 1995, the Company adopted SFAS No. 18, “Accounting for Pensions”. The
funding status of the pension plan as of December 31, 1995 was measured on an actuarial
basis. In accordance with SFAS No. 18, net pension cost was recognized from January 1, 1996.
Because the accrued pension liability was equal to the funding status of the pension plan, no
unrecognized transitional net assets or net obligations shall be amortized in the future. In
addition, except for a few foreign employees, the Company had settled its financial obligations
to its employees under the pension plan accounted for based on SFAS No. 18 at December 31,
2007.
B. Effective July 1, 2005, the Company has established a funded defined contribution pension
plan (the “New Plan”) under the Labor Pension (the “Act”) for all employees except for few
foreign employees. Under the New Plan, the Company contributes monthly an amount based
on not less than 6% of the employees‟ monthly salaries and wages to the employees‟
individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are
portable when the employees are terminated. The pension costs under defined contribution
pension plan for the six-month periods ended June 30, 2011 and 2010 were $68,501 and
$65,927, respectively.
C. For the six-month period ended June 30, 2011, the Company obtained approval from the Labor
Affairs Bureau, Taipei, for the suspension of the monthly contributions to the pension fund for
foreign employees under the Labor Standards Law.
(13) Common stock
A. As of June 30, 2011, the Company‟s authorized capital was $47,500,000, consisting of
4,750,000,000 shares of common stock (including 50,000,000 shares which were reserved for
~23~
employee stock options), and the paid-in capital was $6,170,166 with a par value of $10 (in
dollars) per share.
B. In order to maximize the efficiency of the own-brand business and to diversify the OEM
business, the Company held a special shareholders‟ meeting on February 9, 2010 and resolved
to decrease its authorized capital by 85% and transfer its OEM business. The record date for
the capital reduction and transfer is June 1, 2010. The capital reduction, which amounted to
$36,097,609, was authorized by Financial Supervisory Commission, Executive Yuan, on April
9, 2010. The registration procedures related to the reduction were completed on June 21, 2010.
C. On June 6, 2011, the shareholders resolved to declare stock dividends of $1,357,437 (which
was recognized as "Stock dividends to be distributed"). The capital increase has been approved
by the Financial Supervisory Commission, Executive Yuan, The Company announced August
6, 2011 as the ex-right (ex-dividend) record date.
D. As of June 30, 2011, the Company issued Global Depositary Receipts (GDRs), of which
4,787,000 units of the GDRs are now listed on the London Stock Exchange. Per unit of GDR
represents 5 shares of the Company‟s common stock and total GDRs represent 23,934,000
shares of the Company‟s common stock. The terms of GDR are as follows:
(A) Voting rights
GDR holders may, pursuant to the Depositary Agreement and the relevant laws and
regulations of the R.O.C., exercise the voting rights pertaining to the underlying common
shares represented by the GDRs.
(B) Dividends, stock warrants and other rights
GDR holders and common shares holders are all entitled to receive dividends. The
Depositary may issue new GDRs in proportion to GDRs holding ratios or raise the number
of shares of common stock represented by each unit of GDR or sell stock dividends on
behalf of GDR holders and distribute selling income to them in proportion to their GDRs
holding ratios.
(14) Additional paid-in capital
The Securities and Exchange Act requires that capital reserve shall be exclusively used to cover
accumulated deficit or to increase capital and shall not be used for any other purpose. However,
capital reserve arising from paid-in capital in excess of par value on issuance of common stock
and donations can be capitalized once a year, provided that the Company has no accumulated
deficit and the amount to be capitalized does not exceed 10% of the paid-in capital.
(15) Retained earnings
A. According to the Company‟s articles of incorporation, annual net income after covering prior
years‟ losses, if any, should be distributed as follows: 10% as legal reserve, an appropriate
amount as special reserve according to relevant regulation or as required by the government,
10% of capital stock as capital interest, no less than 1% as employees‟ bonuses, and no more
than 1% as directors‟ and supervisors‟ bonuses. When the employees‟ bonuses are distributed
in stock, the recipients must include the employees of subsidiaries. After the distribution of
earnings, the remaining earnings, if any, may be appropriated according to a resolution
adopted in the stockholders‟ meeting.
~24~
B. The Company is facing a rapidly changing industrial environment, with the life cycle of the
industry in the growth phase. In light of the long-term financial plan of the Company and the
demand for cash by the stockholders, the Company should distribute cash dividends of not less
than 10% of the total dividends declared.
C. Except for covering accumulated deficit or increasing capital, the legal reserve shall not be
used for any other purpose. Capitalization of the legal reserve is permitted, provided that the
balance of the reserve exceeds 50% of the Company‟s paid-in capital and the amount
capitalized does not exceed 50% of the balance of the reserves.
D. The appropriation of 2010 and 2009 earnings had been resolved at the stockholders‟ meeting
on June 9, 2011 and April 22, 2010, respectively. Details are summarized as follows:
(A) The appropriation of 2010 earnings stated above is the same as that proposed by the Board
of Directors on April 20, 2011.
(B) There was no difference between the actual amounts of employees‟ bonuses and directors‟
and supervisors‟ remuneration for 2010 and 2009 with the amounts accrued as expenses in
the 2010 and 2009 financial statements.
E. The Company estimates the amount of employees‟ bonuses and directors‟ and supervisors‟
remuneration according to the Company Law and the Company‟s articles of incorporation.
The employees‟ bonuses and directors‟ and supervisors‟ remuneration were estimated and
recognized based on a specific percentage approved by the management in accordance with
the Company‟s articles of incorporation. The Company recognized employees‟ bonuses of
$284,866 and $339,776, and directors‟ and supervisors‟ remuneration of $56,973 and $67,955
for the six-month periods ended June 30, 2011 and 2010, respectively. The number of shares
of the dividend distribution is based on the closing price of the day before the stockholders‟
meeting date and considering the effect of ex-rights and ex-dividends. Differences between
the amounts approved in the stockholders‟ meeting and those recognized in the financial
statements, if any, are accounted for as changes in accounting estimates and recognized as
profit or loss in the year of distribution.
Dividends Dividends
per share per share
Amount (in dollars) Amount (in dollars)
Cash dividends 8,638,233$ 14.00$ 8,918,232$ 2.10$
Stock dividends 1,357,437 2.20 - -
Directors' and 142,125 69,844
supervisors'
remuneration
Employees' cash 710,625 698,438
bonus
2010 2009
~25~
(16) Treasury stock
A. In order to maintain the Company‟s credibility and stockholders‟ interest, the Company based on the
Securities and Exchange Act No. 28(2) to purchase of treasury stock for the six-month periods ended
June 30, 2010 and 2011, respectively. Movements of treasury stock were as follows:
B. Pursuant to the Company Act, the Company purchased 54,000 shares, amounting to $3,105, from
shareholders who disagreed with the transfer of the Company‟s OEM business. However, the Company
subsequently disposed those shares in the open market after they were purchased.
C. Pursuant to the Securities and Exchange Act, the number of shares bought back as treasury
stock should not exceed 10% of the number of the Company‟s issued and outstanding shares
and the amount bought back should not exceed the sum of retained earnings, paid-in capital in
excess of par value and realized capital reserve.
D. Pursuant to the Securities and Exchange Act, treasury stock should not be pledged as collateral
and is not entitled to dividends before it is reissued.
E. Pursuant to the Securities and Exchange Act, treasury stock for the purpose of enhancing the
Company‟s credit worthiness and stockholders‟ right should be retired within six months after
acquisition.
(17) Income tax
A. According to the amended tax law issued on May 27, 2009, the statutory income tax rate was
reduced from 25% to 20%, effective January 1, 2010. However, further amendment of this tax
law was made and announced on June 15, 2010, under which, the statutory income tax rate has
been reduced further to 17%. The Company is subject to income tax rate at a statutory rate of
17% for the six-month periods ended June 30, 2011 and 2010. The Company is also subject to
the “Income Basic Tax Act” to calculate income tax. The components of income tax expense
of the Company for the six-month periods ended June 30, 2011 and 2010 are as follows:
Shares Shares
(in thousands) Amount (in thousands) Amount
Beginning of the period - -$ - -$
Addition 10,000 2,609,422 2,090 507,780
Cancellation 10,000)( 2,609,422)( - -
Ending of the period - -$ 2,090 507,780$
2011/1/1~6/30 2010/1/1~6/30
~26~
B. The income tax computed on pre-tax financial income at the statutory rate was reconciled with
the income tax expense as follows:
2011/1/1~6/30 2010/1/1~6/30
Current income tax 800,593$ 817,586$
10% additional income tax on 484,385 -
unappropriated earnings
1,284,978 817,586
Deferred income tax expense (benefit):
Increase in unrealized sales profit on 21,535)( 89,533)(
inter-affiliate accounts
Decrease in unrealized purchase discounts 79,842)( 203,826)(
(Increase) decrease in inventory 38,975)( 106,651
valuation loss
Increase in investment income under 70,014 667,864
the equity method
Decrease in unrealized accrued expense 2,026 921
Tax effect resulting from change in - 98,675)(
income tax rate
Others 65,099 37,346
3,213)( 420,748
Income tax expense 1,281,765$ 1,238,334$
2011/1/1~6/30 2010/1/1~6/30
Income tax calculated on pre-tax financial 1,410,609$ 1,614,470$
income
10% additional income tax on 484,385 -
unappropriated earnings
Investment tax credits 430,913)( 383,466)(
Tax effect of correction of minimum tax 431,700)( -
Effect of change in income tax rate - 20,762)(
Unrealized valuation gain or loss 11,831 17,516
Difference between prior year's income tax 273,884 11,422)(
estimation and assessed results
Effect of change in exchange rate 46,190)( 4,922
Others 9,859 17,076
Income tax expense 1,281,765$ 1,238,334$
~27~
C. The components of deferred income tax assets (liabilities) are as follows:
D. The tax authorities have examined the Company‟s income tax returns through 2008 except for
the year 2006. The tax authorities assessed the Company for additional income tax of
$870,587 for the years 1996, 1998 and 2008. The Company disagreed with the assessment and
filed formal tax appeals. The additional income tax liability for these assessments was
recognized in current income tax.
E. The Company recalculated the disposal costs of stock dividends received at their par value in
accordance with the Tai-Cai-Shui Letter No. 09900179790 of the Ministry of Finance, dated
August 6, 2010, and applied with the tax authority for correction of 2008 income tax return.
The correction resulted in income tax refundable amounting to $431,700.
F. Imputation credit account and creditable ratio
G. Unappropriated retained earnings
2011/6/30 2010/6/30
Deferred income tax assets:
Unrealized sales profit 241,515$ 280,895$ Unrealized purchase discounts 516,073 367,855
Inventory provisions 360,492 315,316
Unrealized accrued expenses 145,741 210,667
Others 52,616 23,994
1,316,437 1,198,727
Deferred income tax liabilities:
Investment income recognized under the 2,009,848)( 1,551,779)(
equity method (overseas)
Others 293,067)( 206,108)(
2,302,915)( 1,757,887)(
986,478)($ 559,160)($
2011/6/30 2010/6/30
Net deferred income tax assets - current 970,762$ 1,144,927$
Net deferred income tax liabilities - 1,957,240)( 1,704,087)(
non-current
986,478)($ 559,160)($
2011/6/30 2010/6/30
ICA balance 13,286,468$ 11,720,021$
2010 (Expected) 2009 (Actual)
Creditable ratio for earnings distribution 18.01% 20.34%
2011/6/30 2010/6/30
Earnings generated in and before 1997 -$ 2,858,368$ Earnings generated in and after 1998 67,731,098 65,865,406
67,731,098$ 68,723,774$
~28~
(18) Earnings per share
Weighted-
average
outstanding
common shares
Before tax After tax (in thousands) Before tax After tax
Basic earnings per share:
Net income 8,297,697$ 7,015,932$ 754,791 10.99$ 9.30$
Dilutive effect of common
stock equivlents:
Convertible bonds 53,214)( 53,214)( 7,112
Employees' bonus - - 4,095
Net income attributable to
common stockholders
plus dilutive effect of
common stock
equivalents 8,244,483$ 6,962,718$ 765,998 10.76$ 9.09$
2011/1/1~6/30
Earnings per share
Amount (in dollars)
Weighted-
average
outstanding
common shares
Before tax After tax (in thousands) Before tax After tax
Basic earnings per share:
Net income 9,496,885$ 8,258,551$ 4,446,977 2.14$ 1.86$
Dilutive effect of common
stock equivalents:
Convertible bonds 103,661)( 103,661)( 60,511
Employees' bonus - - 12,245
Net income attributable to
common stockholders
plus dilutive effect of
common stock
equivalents 9,393,224$ 8,154,890$ 4,519,733 2.08$ 1.80$
2010/1/1~6/30
Earnings per share
Amount (in dollars)
~29~
(19) Personnel, depreciation, and amortization expenses
Personnel, depreciation, and amortization expenses are summarized as follows:
5. RELATED PARTY TRANSACTIONS
(1) Names and relationships of the related parties
Operating Operating
Operating cost expense Total Operating cost expense Total
Personnel expenses
Salaries 92,829$ 2,876,952$ 2,969,781$ 80,027$ 2,296,027$ 2,376,054$
Labor and health 3,984 108,777 112,761 3,401 86,224 89,625
insurance
Pension 2,259 66,242 68,501 2,463 63,464 65,927
Others 3,082 66,058 69,140 4,078 69,017 73,095
Depreciation 455,538 102,413 557,951 284,693
105,205 389,898
Amortization 156 60,624 60,780 334 126,787 127,121
2011/1/1~6/30 2010/1/1~6/30
Related Party Relationship with the Company
ASUS COMPUTER INTERNATIONAL (ACI) Subsidiary of the Company
ASKEY COMPUTER CORP. (ASKEY) Subsidiary of the Company
AXUS MICROSYSTEMS INC. (AXUS) Subsidiary of the Company
SHINEWAVE INTERNATIONAL INC. (SWI) Subsidiary of the Company
ASUS HOLLAND B.V. (ACH) Subsidiary of the Company
ASUSTEK HOLDINGS LIMITED (AHL) Subsidiary of the Company
ASUS INTERNATIONAL LIMITED (AIL) Subsidiary of the Company
ASUSCHANNEL CORPORATION (ASUSCH) Subsidiary of the Company
ASUS TECHNOLOGY INCORPORATION (ASUTC) Subsidiary of the Company
ASMEDIA TECHNOLOGY INC. (ASMEDIA) Subsidiary of the Company
ECAREME TECHNOLOGIES, INC. (ECAREME) Subsidiary of the Company
INTERNATIONAL UNITED TECHNOLOGY CO.,
LTD. (TAIWAN) (IUT)
Subsidiary of the Company
HUA-CHENG VENTURE CAPITAL CORP. (HCVC) Subsidiary of the Company
HUA-MIN INVESTMENT CO., LTD. (HMI) Subsidiary of the Company
AGAIT TECHNOLOGY CORPORATION (AGA) Subsidiary of the Company
ENERTRONIX, INC. (EN) Subsidiary of the Company
SHUO-YANG TECHNOLOGY INC. (SYT) Subsidiary of the Company (Note 6)
CHANNEL PILOT LIMITED (CHANNEL) Subsidiary of the Company
ASUS TECHNOLOGY PTE. LIMITED (ASTP) Subsidiary of the Company
ASUS TECHNOLOGY (HONG KONG) LIMITED (ACHK) Subsidiary of the Company
ASUS COMPUTER BENELUX B.V. (ACBNL) Subsidiary of the Company
ASUS COMPUTER GMBH (ACG) Subsidiary of the Company
ASUS FRANCE SARL (ACF) Subsidiary of the Company
~30~
Related Party Relationship with the Company
ASUSTEK (UK) LIMITED (ACUK) Subsidiary of the Company
ASUS KOREA CO., LTD. (ACKR) Subsidiary of the Company
ASUSTEK COMPUTER (S) PTE. LTD. (ACSG) Subsidiary of the Company
ASUS POLSKA SP. Z O.O. (ACPL) Subsidiary of the Company
ASUS TECHNOLOGY PRIVATE LIMITED (ACIN) Subsidiary of the Company
ASUS TECHNOLOGY HOLLAND B.V. (ACNL) Subsidiary of the Company
ASUS TECHNOLOGY (VIETNAM) CO. LTD. (ACVN) Subsidiary of the Company
ASUSTEK ITALY S.R.L. (ACIT) Subsidiary of the Company
ASUS MIDDLE EAST FZCO (ACAE) Subsidiary of the Company
ASUS IBERICA S.L. (ACIB) Subsidiary of the Company
ASUS TECHNOLOGY (SUZHOU) CO., LTD. (ACSZ) Subsidiary of the Company
ASUSTEK COMPUTER (SHANGHAI) CO., LTD. (ACSH) Subsidiary of the Company
ASUS JAPAN INCORPORATION (ACJP) Subsidiary of the Company
ASUS COMPUTER CZECH REPUBLIC S.R.O. (ACCZ) Subsidiary of the Company
ASUS EGYPT L. L. C. (ACEG) Subsidiary of the Company
ASUS CZECH SERVICE S.R.O. (ACCZS) Subsidiary of the Company
DEEP DELIGHT LIMITED (DDL) Subsidiary of the Company
ASUS COMPUTER CORPORATION (ACBVI) Subsidiary of the Company
ASUS SERVICE AUSTRALIA PTY LIMITED (ASAU) Subsidiary of the Company
ASUS AUSTRALIA PTY LIMITED (ACAU) Subsidiary of the Company
UNIMAX HOLDINGS LIMITED (UHL) Subsidiary of the Company
UNIMAX ELECTRONICS INCORPORATION (UEI) Subsidiary of the Company
CENTRAL TEC ASIA LIMITED (CTEC) Subsidiary of the Company
ASUS COMPUTER (SHANGHAI) CO., LTD. (ACS) Subsidiary of the Company
ASUS HUNGARY SERVICES LIMITED
LIABILITY COMPANY (ACHU)
Subsidiary of the Company
ASUS PORTUGAL, SOCIEDADE UNIPESSOAL
LDA. (ACPT)
Subsidiary of the Company
ASUS SWITZERLAND GMBH (ACCH) Subsidiary of the Company
EMES (SUZHOU) CO., LTD. (EMES) Subsidiary of the Company
GREAT EXTEND INVESTMENT CORP. (GEI) Subsidiary of the Company
INTERNATIONAL UNITED TECHNOLOGY CO.,
LTD. (IUTS)
Subsidiary of the Company
MOBOSTAR TECHNOLOGY LIMITED (MOBO) Subsidiary of the Company
ASKEY INTERNATIONAL CORP. (ASKEYI) Subsidiary of the Company
DYNALINK INTERNATIONAL CORP. (DIC) Subsidiary of the Company
MAGIC INTERNATIONAL CO., LTD. (MIC) Subsidiary of the Company
ASKEY (VIETNAM) COMPANY LIMITED (ASKEYVN) Subsidiary of the Company
MAGICOM INTERNATIONAL CORP. (MAGICOM) Subsidiary of the Company
ASKEY TECHNOLOGY (SHANGHAI) LTD. (ASKEYSH) Subsidiary of the Company
LEADING PROFIT CO., LTD. (LP) Subsidiary of the Company
UNI LEADER INTERNATIONAL LTD. (UNI) Subsidiary of the Company
OPENBASE LIMITED (OB) Subsidiary of the Company
~31~
Related Party Relationship with the Company
AGAITECH HOLDING LTD. (AGAHL) Subsidiary of the Company
AGAIT TECHNOLOGY (SHENZHEN) LIMITED
(AGASZ)
Subsidiary of the Company
AGAIT TECHNOLOGY (H.K.) CORPORATION
LIMITED (AGAHK)
Subsidiary of the Company
ENERTRONIX INTERNATIONAL LIMITED
(ENIL)
Subsidiary of the Company
ENERTRONIX HOLDING LIMITED (ENHL) Subsidiary of the Company
ENERTRONIX (HUIZHOU) LTD. (ENHZ) Subsidiary of the Company
AAEON TECHNOLOGY INC. (AAEON) Subsidiary of the Company (Note 6)
AAEON ELECTRONICS, INC. (AAEONEI) Subsidiary of the Company
AAEON SYSTEMS, INC. (AAEONSI) Subsidiary of the Company
AAEON DEVELOPMENT, INC. (AAEONDI) Subsidiary of the Company
AAEON TECHNOLOGY CO., LTD. (AAEONTCL) Subsidiary of the Company
AAEON TECHNOLOGY (EUROPE) B.V.
(AAEONEU)
Subsidiary of the Company
AAEON TECHNOLOGY GMBH (AAEONG) Subsidiary of the Company
AAEON INVESTMENT, CO., LTD. (AAEONI) Subsidiary of the Company
ONYX HEALTHCARE INC. (ONYX) Subsidiary of the Company
AAEON TECHNOLOGY SINGAPORE PTE. LTD.
(AAEONSG)
Subsidiary of the Company
AAEON TECHNOLOGY (SUZHOU) INC.
(AAEONSZ)
Subsidiary of the Company
ACBZ REPRESENTAIVE COMERCIAL
LTDA. (ACBZ)
Subsidiary of the Company
ASUSTEK COMPUTER (CHONGQING) CO.,
LTD. (ACCQ)
Subsidiary of the Company
BIG PROFIT LIMITED (BP) Subsidiary of the Company
FAMOUSE STAR INVESTMENTS LIMITED (FSI) Subsidiary of the Company
ASKEY TECHNOLOGY (JIANGSU) LTD.
(ASKEYJS)
Subsidiary of the Company
ASON TECHNOLOGY (SUZHOU) LTD. (ASON) Subsidiary of the Company
ASHINE TECHNOLOGY (SUZHOU) LTD.
(ASHINE)
Subsidiary of the Company
PEGATRON CORPORATION (PEGA) Investee evaluated under the equity method
(Note 1)
PIOTEK COMPUTER (SUZHOU) CO., LTD.
(PIOTEK) (Note 4)
Subsidiary of investee accounted for under the
equity method (Note 1)
PIOTEK (H.K.) TRADING LIMITED
(PIOTEKHK) (Note 4)
Subsidiary of investee accounted for under the
equity method (Note 1)
ASIAROCK TECHNOLOGY LIMITED (ASIAROCK) Subsidiary of investee accounted for under the
equity method (Note 1)
AZUREWAVE TECHNOLOGIES, INC. (AZURE) Subsidiary of investee accounted for under the
equity method (Note 1)
ABILITY ENTERPRISE CO., LTD. (ABILITY) Subsidiary of investee accounted for under the
equity method (Note 1)
CASETEK COMPUTER (SUZHOU) CO., LTD.
(CASE)
Subsidiary of investee accounted for under the
equity method (Note 1)
~32~
Note 1: Subsidiary of the Company before May 31, 2010.
Note 2: Investee accounted for under the equity method before May 31, 2010.
Note 3: Subsidiary of investee accounted for under the equity method from June 1 to December 30, 2010.
Note 4: BOARDTEK (H.K.) TRADING LIMITED and BOARDTEK COMPUTER (SUZHOU) CO., changed their names to PIOTEK (H.K.) TRADING LIMITED and PIOTEK COMPUTER (SUZHOU) CO., respectively, in 2010.
Note 5: Subsidiary of the Company before May 31, 2010. PII was dissolved on June 10, 2010.
Note 6: AAEON merged with SYT on June 1, 2011 with SYT as the surviving company.
Note 7: Subsidiary of the Company before June 29, 2011.
Related Party Relationship with the Company
AMA PRECISION INC. (AMAP) Subsidiary of investee accounted for under the
equity method (Note 1)
PEGATRON JAPAN INC. (PJ) Subsidiary of investee accounted for under the
equity method (Note 1)
PEGATRON CZECH S.R.O. (PCZ) Subsidiary of investee accounted for under the
equity method (Note 1)
ASFLY TRAVEL SERVICE LIMITED (ASFLY) Subsidiary of investee accounted for under the
equity method (Note 1)
CORE-TEK (SHANGHAI) LIMITED (CORE) Subsidiary of investee accounted for under the
equity method (Note 1)
POWTEK (SHANGHAI) CO., LTD. (POW) Subsidiary of investee accounted for under the
equity method (Note 1)
UNIHAN CORPORATION (UNIHAN) Subsidiary of investee accounted for under the
equity method (Note 1)
KAEDAR ELECTRONICS (KUNSHAN) CO.,
LTD. (KAEDARKS)
Subsidiary of investee accounted for under the
equity method (Note 1)
ASUSPOWER CORPORATION (ASUSP) Subsidiary of investee accounted for under the
equity method (Note 1)
MAINTEK COMPUTER (SUZHOU) CO., LTD.
(MAIN)
Subsidiary of investee accounted for under the
equity method (Note 1)
RIH LI INTERNATIONAL LIMITED (RIHLI) Subsidiary of investee accounted for under the
equity method
ASINT TECHNOLOGY CORPORATION (ASINT) Investee evaluated under the equity method
LITEMAX ELECTRONICS INC. (LITEMAX) Investee evaluated under the equity method
EXCELLIANCE MOS CORPORATION (EMC) Investee evaluated under the equity method
POTIX CORPORATION (CAYMAN) (POTIXC) Investee evaluated under the equity method
WUJIANG WILL STAR INVESTMENTS LIMITED
(WJWS)
Non-related parties of the Company (Note 7)
ASAP INTERNATIONAL CO., LTD. (ASAPHK) Non-related parties of the Company
(Notes 1 and 3)
SHANGHAI INDEED TECHNOLOGY CO.,
LTD. (SHINDEED)
Non-related parties of the Company (Note 2)
PEGATRON INTERNATIONAL INVESTMENT
CO., LTD. (PII)
Non-related parties of the Company (Note 5)
Directors, supervisors, and key management of the Company Directors, supervisors, and key management of
the Company
Others (related parties with non-significant transactions) Related parties under the definition of
SFAS No. 6
~33~
(2) Significant related party transactions
A. Sales
(A) The sales prices of related party transactions were decided on the basis of the economic
environment and market competition in each sales area. The terms of the transactions are
O/A 90 days or open account 30 to 90 days. The terms of the above transactions are not
different from those with third parties.
(B) The unrealized gain resulting from the above transactions as of June 30, 2011 and 2010
was $1,420,678 and $1,652,322, respectively, which was recognized as deferred credits.
B. Purchases (including purchases on behalf)
Purchase terms are open account 30 to 60 days or 7 to 90 days from receipt of goods and were
similar to those for third party customers.
C. Cost, processing, and rework expenses, etc.
Amount % Amount %
ASTP 126,264,294$ 93 135,351,204$ 93
ASUTC 6,356,533 5 6,373,787 4
Others 376,473 - 184,136 1
132,997,300$ 98 141,909,127$ 98
2011/1/1~6/30 2010/1/1~6/30
Amount % Amount %
PEGA 66,325,535$ 32 105,733,694$ 50
ASINT 1,515,797 1 2,949,925 1
Others 2,023,787 1 1,830,105 1
69,865,119$ 34 110,513,724$ 52
2011/1/1~6/30 2010/1/1~6/30
2011/1/1~6/30 2010/1/1~6/30
Items Amount Amount
PEGA Processing and rework expenses,
etc.
1,111,437$ 1,278,905$
Others 25,336 12,686
1,136,773$ 1,291,591$
~34~
D. Notes and accounts receivable
The Company reclassified accounts receivable from related parties which were overdue for
three months to other receivables – related parties amounting to $355 and $308,659 as of
June 30, 2011 and 2010, respectively.
E. Notes and accounts payable
F. Other receivables from affiliated companies (non-financing)
G. Accrued expenses, other current liabilities and receipts in advance
H. Commitments
Endorsements and guarantees provided for the related party are as follows:
6. PLEDGED ASSETS
Amount % Amount %
ASTP 46,445,137$ 79 43,649,617$ 92
ASUTC 1,234,942 2 1,498,772 3
Others 37,882 - 94,034 -
47,717,961$ 81 45,242,423$ 95
2011/6/30 2010/6/30
Amount % Amount %
PEGA 2,976,685$ 6 10,951,293$ 25
Others 962,792 2 960,449 2
3,939,477$ 8 11,911,742$ 27
2011/6/30 2010/6/30
Amount % Amount %
Others 766$ - 330,586$ 9
2011/6/30 2010/6/30
Amount % Amount %
PEGA 732,208$ 6 567,106$ 5
Others 421,349 4 469,590 5
1,153,557$ 10 1,036,696$ 10
2011/6/30 2010/6/30
2011/6/30 2010/6/30
PEGA -$ 9,645,000$
Pledged assets Item 2011/6/30 2010/6/30 Purpose
Guarantee deposits Pledged time deposit 150,025$ 81,979$ Guarantee for import duty
Book Value
~35~
7. COMMITMENTS AND CONTINGENCIES
(1) See Note 5 for guarantees made to the related party.
(2) Lawsuits for infringement of intellectual property rights
A. In January 2007, a Japanese company filed a lawsuit against the Company and its US
subsidiary for infringement of intellectual property rights. In May and September 2007,
another plaintiff, a US company, also filed a lawsuit against the Company and its US
subsidiary for patent infringement and violation of trade secrets. These lawsuits are currently
under investigation in a Utah court in the US. The Japanese company has withdrawn the
lawsuit, and the Company is waiting for the court‟s final written judgment.
B. In July 2009, a US B company filed a lawsuit against the Company‟s US subsidiary and other
third parties for patent infringement of flash memory chips. In July 2009, B company also
filed an investigation with the United Sates International Trade Commission (ITC) against the
Company‟s suppliers and its customers. In 2010, B Company and Supplier S have reached a
settlement.
C. In February 2011, a US patentee, GO Company, filed a lawsuit with the United States District
Court of Delaware (“Court”) against several defendants including the Company‟s client, GA
Company, alleging infringement, among others, of its patent. Based on the contract
previously signed by the Company and GA Company, the Company has a guaranty liability to
GO Company for the event above, and shall bear the lawyer‟s fees. This case is currently on
trial at the Court.
D. Several patentees filed lawsuits or investigations for patent infringement against the Company.
These lawsuits or investigations are currently under investigation in a Delaware court, in an
East Texas court, in a California court, in a Florida court and in a Shanghai court. The
outcome of these lawsuits is not certain. The Company continuously evaluates the possible
loss, and a provision has been estimated and recognized in the books.
(3) To ensure the supply of raw materials, the company entered into an agreement with a supplier for a
guaranteed quantity of materials supply at a discount to market price or at an agreed price. The
payment was recognized as prepayment of $457,154 as of June 30, 2011, and separately recognized
as prepayment of $3,196,803 and other assets-other of $2,402,625 as of June 30, 2010.
(4) The Company entered into operating lease contracts for its offices and parking spaces. Future lease
payments under those leases are as follows:
2014 134,631
Year Amount
2012 105,053$
2013 205,922
~36~
8. SIGNIFICANT DISASTER LOSS: NONE.
9. SUBSEQUENT EVENTS: NONE.
10. OTHERS
(1) Financial statement presentation
Certain accounts in the June 30, 2010 financial statements were reclassified to conform with the
June 30, 2011 financial statement presentation.
(2) Fair values of the financial instruments
Estimated Estimated
Quotations using a Quotations using a
in an active valuation in an active valuation
Book value market technique Book value market technique
Financial instruments
Non-derivative financial instruments
Assets
Financial assets at fair value through profit or loss 9,484,515$ 9,484,515$ -$ 5,821,008$ 5,821,008$ -$
Available-for-sale financial assets - current 477,661 477,661 - 252,149 252,149 -
Available-for-sale financial assets - non-current 7,487,271 7,487,271 - 5,090,250 5,090,250 -
Financial assets caried at cost - current 372 - - 41,162 - -
Financial assets caried at cost - non-current 118,860 - - 445,519 - -
Liabilities
Bonds payable - current 2,440,010 - 2,440,955 3,690,162 - 3,698,193
Derivative financial instruments
Liabilities
Financial liabilities at fair value through profit or
loss Forward exchange contract 15,238 - 15,238 111,841 - 111,841
Liabilities for derivative financial instruments 23,610 - 23,610 139,296 - 139,296
embedded in convertible bonds
2011/6/30 2010/6/30
Fair value Fair value
~37~
The methods and assumptions used to estimate the fair values of the above financial instruments
are summarized below:
A. The above financial instruments exclude cash and cash equivalents, notes/accounts receivable
(including related parties), other receivables (including related parties), refundable deposits,
notes/accounts payable (including related parties), accrued expenses, dividends payable, other
current liabilities and guarantee deposits received. For such financial instruments, the fair
values were determined based on their carrying values because of the short maturities of the
instruments.
B. The fair values of financial instruments at fair value through profit or loss and
available-for-sale financial instruments are based on quoted market prices in an active market.
If the market for a financial instrument is not active, an entity establishes fair value by using a
valuation technique. The Company uses estimates and assumptions that are consistent with
information that market participants would use in setting a price for these financial
instruments.
C. The fair value of convertible bonds payable is not available, and a valuation technique is used.
The assumptions used in the said valuation are the same as those used by financial market
traders when quoting their prices. However, the fair value is not expected to equal future
cash outflow.
D. The fair values of derivative financial instruments which include unrealized gains or losses on
unsettled contracts were determined based on the amounts to be received or paid assuming that
the contracts were settled as of the reporting date.
E. Financial assets carried at cost and held to maturity are invested in unquoted equity
instruments and mutual fund bond obligations whose fair value cannot be estimated.
(3) Procedure of financial risk control
The management can effectively control significant market risks after appropriately taking into
consideration the economic environment, competition, and changes of market value risk by
setting the goal of risk management.
(4) Information of material financial risk
A. Market risk
(A) The main currency for purchases and sales of the Company is the US dollar. The
Company uses the principle of natural hedge to mitigate the risk and utilizes spot or
forward exchange contracts and currency option contracts to hedge foreign currency risk.
The forward exchange and currency option contracts‟ duration corresponds to the
Company‟s foreign currency assets‟ and liabilities‟ due date and future cash flows. The
exchange gain and loss resulting from foreign currency assets and liabilities will be offset
by the exchange gain and loss resulting from the hedged item.
(B) The open-end funds and stocks of listed companies held by the Company are classified as
financial assets measured at fair value through profit or loss and available-for-sale
financial assets. As these assets are measured at fair value, the Company has risk
exposure related to changes in fair value in an equity securities market.
(C) Information of significant foreign currency denominated assets and liabilities:
~38~
B. Credit risk
(A) Credit risk means the potential loss of the Company if the counterparty involved in that
transaction defaults. Since the Company‟s derivative financial instrument agreements are
entered into with international financial institutions with good credit ratings, management
believes that there is no significant credit risk from these transactions.
(B) The primary potential credit risk is from financial instruments like cash, bank deposits,
equity securities under non-equity method, and accounts receivable. The Company
deposits cash in different financial institutions. Equity securities under non-equity method
were funds and listed stocks issued by companies with good credit ratings. The
Company manages credit risk exposure related to each financial institution and believes
that there is no significant concentration of credit risk of cash and equity securities. The
customers of the Company have good credit and profit records. The Company evaluates
the financial condition of these customers in order to reduce credit risk of accounts
receivable.
C. Liquidity risk
(A) The Company adjusts its funding mainly through corporate bonds, cash and bank deposits.
The Company maintains funding sufficient to fulfill all contract obligations, and thereby
expects no significant liquidity risk would arise from lack of funding.
(B) The Company invests in funds and listed stocks, which are traded in active markets and
are expected to be readily converted into certain amount of cash approximate to their fair
values in the market. The Company has lower funding risk for forward exchange
contracts and currency option contracts because sufficient working capital is maintained
to fulfill contract obligations, and lower cash flow risk as the exchange rate of those
contracts was known.
(C) The Company is expected to have liquidity risk since investments in equity instruments
carried at cost have no active market.
Foreign Currency Foreign Currency
(in dollars) Rate NTD (in dollars) Rate NTD
Financial assets
Monetary item
USD 2,092,266,854$ 28.725 60,100,365$ 1,601,120,870$ 32.15 51,476,036$
Long-term investments
accounted for under
the equity method
USD 476,360,607 28.725 13,683,458 332,260,882 32.15 10,682,187
Financial liabilities
Monetary item
USD 1,768,208,528 28.725 50,791,790 1,073,593,487 32.15 34,516,031
2011/6/30 2010/6/30