Asus (Financial Year)

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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.


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 %



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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


STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010


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



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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


STATEMENTS OF CASH FLOWS

FOR THE SIX-MONTH PERIODS ENDED JUNE 30, 2011 AND 2010


FOR THE SIX-MONTH PERIODS ENDED JUNE 30,

2011 2010



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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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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~


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)


ASUS PORTUGAL, SOCIEDADE UNIPESSOAL

LDA. (ACPT)


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)


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~


AGAITECH HOLDING LTD. (AGAHL) Subsidiary of the Company

AGAIT TECHNOLOGY (SHENZHEN) LIMITED

(AGASZ)


AGAIT TECHNOLOGY (H.K.) CORPORATION

LIMITED (AGAHK)


ENERTRONIX INTERNATIONAL LIMITED

(ENIL)


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)


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)


AAEON TECHNOLOGY (SUZHOU) INC.

(AAEONSZ)


ACBZ REPRESENTAIVE COMERCIAL

LTDA. (ACBZ)


ASUSTEK COMPUTER (CHONGQING) CO.,

LTD. (ACCQ)


BIG PROFIT LIMITED (BP) Subsidiary of the Company

FAMOUSE STAR INVESTMENTS LIMITED (FSI) Subsidiary of the Company

ASKEY TECHNOLOGY (JIANGSU) LTD.

(ASKEYJS)


ASON TECHNOLOGY (SUZHOU) LTD. (ASON) Subsidiary of the Company

ASHINE TECHNOLOGY (SUZHOU) LTD.

(ASHINE)


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)



ASIAROCK TECHNOLOGY LIMITED (ASIAROCK) Subsidiary of investee accounted for under the


AZUREWAVE TECHNOLOGIES, INC. (AZURE) Subsidiary of investee accounted for under the


ABILITY ENTERPRISE CO., LTD. (ABILITY) Subsidiary of investee accounted for under the


CASETEK COMPUTER (SUZHOU) CO., LTD.

(CASE)



~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.


AMA PRECISION INC. (AMAP) Subsidiary of investee accounted for under the


PEGATRON JAPAN INC. (PJ) Subsidiary of investee accounted for under the


PEGATRON CZECH S.R.O. (PCZ) Subsidiary of investee accounted for under the


ASFLY TRAVEL SERVICE LIMITED (ASFLY) Subsidiary of investee accounted for under the


CORE-TEK (SHANGHAI) LIMITED (CORE) Subsidiary of investee accounted for under the


POWTEK (SHANGHAI) CO., LTD. (POW) Subsidiary of investee accounted for under the


UNIHAN CORPORATION (UNIHAN) Subsidiary of investee accounted for under the


KAEDAR ELECTRONICS (KUNSHAN) CO.,

LTD. (KAEDARKS)



ASUSPOWER CORPORATION (ASUSP) Subsidiary of investee accounted for under the


MAINTEK COMPUTER (SUZHOU) CO., LTD.

(MAIN)



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)


PEGATRON INTERNATIONAL INVESTMENT

CO., LTD. (PII)


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

Documents

Asus (Financial Year)