~1~ ASUSTEK COMPUTER INC. Financial Statements June 30, 2011 and 2010 -------------------------------------------------------------------------------------------------------------------------------- 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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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
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))
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))
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.
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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.
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(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.
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(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.
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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