For AcBel 2004` ECB. (October 21, 2004 Issue)

OFFERING CIRCULAR
ACBEL POLYTECH INC.
(incorporated as a company limited by shares in Taiwan, Republic of China)
U.S.$60,000,000
Zero Coupon Convertible Bonds due 2009
Issue Price: 100%
The Zero Coupon Convertible Bonds due 2009 in an aggregate amount of U.S.$60,000,000 (the ‘‘Bonds’’), will be
issued in registered form by Acbel Polytech Inc. (‘‘We’’ or the ‘‘Company’’) in reliance on Regulation S under the U.S.
Securities Act of 1933, as amended (the ‘‘Securities Act’’).
The Bonds will be our direct, unconditional, unsecured and unsubordinated general obligations and will rank at
least pari passu in right of payment with all of our other unsecured and unsubordinated debt. Holders of the Bonds
(‘‘You’’ or the ‘‘Bondholders’’) may convert the Bonds into our common shares, par value NT$10 per share (the
‘‘Shares’’) at any time (subject to certain restrictions) on or after November 26, 2004 and prior to the close of business
(at the place the Bond is deposited for conversion) on September 27, 2009. Subject to availability and approvals from
relevant governmental authorities of the Republic of China (‘‘ROC’’), converting Bondholders may elect to receive the
Depositary Receipts representing the Shares (‘‘DRs’’) at a conversion rate to be determined. Conversion of the Bonds
into DRs is not currently available. The initial conversion price (the ‘‘Conversion Price’’) will be NT$30.6 per Share,
which is equivalent to U.S.$0.904 per Share, based on the fixed exchange rate of NT$33.834 = U.S.$1.00 (‘‘Fixed
Exchange Rate’’), subject to adjustment in the manner provided herein. In addition, the Conversion Price will be
adjusted from time to time in certain circumstances relating to the then prevailing closing price of the Shares relative to
the Conversion Price. The Shares are listed on the Taiwan Stock Exchange (the ‘‘TSE’’) under the stock code of 6282.
On October 20, 2004, the closing price of the Shares on the TSE was NT$28.6 per Share.
Unless the Bonds have been previously redeemed, repurchased and cancelled or converted, we will, at the option
of the Bondholders, redeem all or part of the Bonds held by that Bondholder on October 27, 2006 and October 27, 2007
at the principal amount. We will also, at the option of the holder of any Bond, redeem all but not part of the Bonds held
by that Bondholder at the principal amount if Shares officially cease to be listed or traded on the TSE for a period
exceeding five consecutive Trading Days. We have the option to redeem all or part of the Bonds on or at any time after
October 27, 2006 at their principal amount by giving a 40 days’ to 60 days’ notice of redemption to the Bondholders, if
the Closing Price of the Shares on the TSE in U.S. Dollars, calculated at the Prevailing Exchange Rate , for a period of
20 consecutive Trading Days is at least 130% of the Conversion Price in effect on each such Trading Day translated into
U.S. Dollars at the Fixed Exchange Rate. In addition, we may at any time redeem the outstanding Bonds in whole at
their principal amount in the event that more than 90% of the Bonds have been previously redeemed, repurchased and
cancelled or converted. In addition, the Bonds may be redeemed in whole at our option at the principal amount in the
event that certain changes relating to taxation result in additional costs to us. We will redeem the Bonds at their
principal amount at maturity on October 27, 2009, unless the Bonds have been previously redeemed, repurchased and
cancelled or converted.
For a discussion of certain factors that should be considered in connection with an investment in the Bonds,
see ‘‘Risk Factors’’ on page 9 herein.
Application has been made to list the Bonds on the Luxembourg Stock Exchange. It is expected that delivery of
the Bonds will be made in book entry form through the facilities of Euroclear and Clearstream, Luxembourg on October
27, 2004 (the ‘‘Closing Date’’). The listing of the Bonds on the Luxembourg Stock Exchange may subject us to the
European Union (the ‘‘EU’’) Transparency Directive, which may be implemented in a manner which is unduly
burdensome for us. In particular, we may be required to prepare our financial statements in accordance with
International Financial Reporting Standards for accounting periods beginning on or after January 1, 2005. Pursuant to
the Indenture, in those circumstances, we would be entitled to seek an alternative listing for the Bonds on a stock
exchange outside the EU approved in writing by the Trustee, such approval not to be unreasonably withheld or delayed.
The Bonds and the Shares to be issued upon conversion of the Bonds have not been and will not be offered or sold
within the United States or to, or for the account or benefit of, U.S. persons. The Bonds are not being offered in the ROC
or in the United States.
Sole Bookrunner and Lead Manager
Yuanta Core Pacific Securities (Hong Kong) Company Limited
Manager
Yuanta Core Pacific Securities Co., Ltd.
This Offering Circular is dated October 21, 2004
You should rely only on the information contained in this Offering Circular. Neither we, nor the Lead
Manager, have authorized anyone to provide you with different information. Neither we, nor the Lead
Manager, are making an offer of these securities in any state where the offer is not permitted. You should
not assume that the information contained in this Offering Circular is accurate as of any date other than the
date on the front cover of this Offering Circular. Our business, financial condition, results of operations and
prospects may have changed since that date.
The Bonds are subject to restrictions on transferability and resale and may not be transferred or resold
except as permitted under the U.S. Securities Act of 1933, as amended (the ‘‘Securities Act’’) and the
applicable securities laws of any state or other jurisdiction pursuant to a registration under those laws or
exemption from registration. As a prospective purchaser, you should be aware that you may be required to
bear the financial risks of this investment for an indefinite period of time. Please refer to the sections in this
Offering Circular entitled ‘‘Underwriting’’.
The Bonds will not be offered or sold to persons in the United Kingdom, except to persons whose
ordinary activities involve them in acquiring, holding, managing or disposing of investments (as principal or
agent) for the purposes of their businesses or otherwise in circumstances that have resulted and will not
result in an offer to the public in the United Kingdom within the meaning of the Public Offers of Securities
Regulations 1995. The Lead Manager has complied and will comply with the Financial Services and
Markets Act 2000 with respect to anything done by it in relation to the Bonds in, from or otherwise
involving the United Kingdom. Please refer to the sections in this Offering Circular entitled
‘‘Underwriting’’.
We accept responsibility for the information contained in this Offering Circular. To the best of our
knowledge, information and belief (having taken all reasonable care to ensure that such is the case), the
information contained in this Offering Circular is in accordance with the facts and does not omit anything
likely to affect the import of such information.
The Luxembourg Stock Exchange takes no responsibility for the contents of this Offering Circular,
makes no representation as to its accuracy or completeness and expressly disclaims any liability whatsoever
for any loss howsoever arising from or in reliance upon the whole or any part of the contents of this Offering
Circular.
The Bonds are offered in reliance upon an exemption from registration under the Securities Act for an
offer and sale of securities that does not involve a public offering in the United States. This Offering
Circular is personal to you and does not constitute an offer to any other person or to the public generally to
subscribe for or otherwise acquire the Bonds. In making a purchase of the Bonds, you will be deemed to
have made the acknowledgments, representations and agreements provided in the sections of this Offering
Circular entitled ‘‘Notice to Investors’’.
In making an investment decision regarding the Bonds, you must rely on your own examination of our
company and the terms of the offering, including the merits and risks involved. The contents of this
Offering Circular are not to be considered as legal, business, financial or tax advice. You should consult
your own counsel, accountants and other advisors as to legal, tax, business, financial and related aspects of a
purchase of the Bonds.
We reserve the right to withdraw this offering of Bonds prior to their issuance, and we and the Lead
Manager reserve the right to reject any commitment to subscribe for the Bonds, in whole or in part. We and
the Lead Manager also reserve the right to allot to you less than the full amount of Bonds sought by you.
The Lead Manager and some related entities may acquire for their own account a portion of the Bonds.
The laws of some jurisdictions may restrict the distribution of this Offering Circular and the offer and
sale of the Bonds or the shares issuable upon conversion of the Bonds. To purchase the Bonds, you must
comply with all applicable laws and regulations in force in any jurisdiction in which you purchase, offer or
resell the Bonds or possess this Offering Circular. You must also obtain any consent, approval or permission
required for your purchase, offer or sale of the Bonds under the laws and regulations in force in any
jurisdiction to which you are subject or in which you make such purchase, offer or resale. None of our
company, the Lead Manager and our respective representatives are making any representation to you or any
person regarding the legality of any investment in the Bonds, or the shares issuable upon conversion of the
Bonds, by you or any person under applicable legal investment or similar laws or regulations. This Offering
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Circular does not constitute an offer to sell to you or any person, or a solicitation of an offer from you or any
person to buy any of the Bonds, or the shares issuable upon conversion of the Bonds, in any jurisdiction
where it is unlawful to make such an offer or solicitation.
Yuanta Core Pacific Securities (Hong Kong) Company Limited, as Lead Manager, may engage
in transactions that stabilize, maintain or otherwise affect the price of the Bonds, covering
transactions and stabilizing transactions in the Bonds, during and after the offering of the Bonds.
Such stabilization, if commenced, may be discontinued at any time. For a description of these
activities, please refer to the section in this Offering Circular entitled ‘‘Underwriting’’.
Some of the market data included in this Offering Circular is based on independent industry
publications or other publicly available information (including certain publications of the Taiwan Stock
Exchange and other books, periodicals and internet websites). Although we believe that these independent
sources are reliable, we have not independently verified the accuracy or completeness of this information.
We take full responsibility to copy, extract and reproduce such publicly available documents upon
reasonable request.
All financial information, descriptions and other information in this Offering Circular regarding our
financial condition and results of operations are, unless otherwise indicated, presented on an consolidated
basis. Our consolidated and non-consolidated financial statements as of and for the years ended December
31, 2001, 2002 and 2003 have been audited. Our non-consolidated financial statements as of and for the six
months ended June 30, 2003 and 2004 have also been audited. All our financial statements have been
prepared in accordance with the ‘‘Rules Governing the Preparation of Financial Statements of Securities
Issuers’’, other applicable ROC laws and regulations, and generally accepted accounting principles in the
ROC, collectively referred to as ‘‘ROC GAAP’’ in this Offering Circular. ROC GAAP differs in many
important respects from generally accepted accounting principles in certain other countries. The material
differences between ROC GAAP and generally accepted accounting principles in the United States, or U.S.
GAAP, as applicable to us are discussed under ‘‘Summary of Principal Differences between ROC GAAP
and U.S. GAAP’’.
The listing of the Bonds on the Luxembourg Stock Exchange may subject us to the EU
Transparency Directive, which may be implemented in a manner which is unduly burdensome for us.
In particular, we may be required to prepare our financial statements in accordance with
International Financial Reporting Standards for accounting periods beginning on or after January
1, 2005. Pursuant to the Indenture, in those circumstances, we would be entitled to seek an alternative
listing for the Bonds on a stock exchange outside the EU approved in writing by the Trustee (such
approval not to be unreasonably withheld or delayed).
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NOTICE TO INVESTORS
The Bonds may not be offered or sold directly or indirectly in the ROC. The Bonds and the Shares
issuable upon conversion of the Bonds have not been and will not be registered under the Securities Act.
The Bonds and the Shares issuable upon conversion of the Bonds may not be offered or sold to any person in
the United States or to, or for the account or benefit of, U.S. persons except pursuant to an exemption from,
or in a transaction not subject to, the registration requirements of the Securities Act. In addition, no transfer
of any interest in the Global Certificate (as defined herein) may be made to any U.S. person outside the
United States or any person in the United States for a period of 40 days after the later of the commencement
of this offering and the latest closing date of this offering. Terms that are defined in Regulation S under the
Securities Act and used in this section have the meanings assigned in Regulation S.
Each purchaser of Bonds will be deemed to have represented and agreed as follows:
(1)
it is not a ‘‘U.S. person,’’ as such term is defined in Regulation S under the Securities Act, its
principal place of business is located outside of the United States and, as far as it is aware, its
purchase of the Bonds is not part of a plan or scheme to evade the registration requirements of
the Securities Act;
(2)
it does not reside within the ROC or maintain its principal place of business within the ROC;
(3)
it is purchasing the Bonds for its own account or for an account with respect to which it exercises
sole investment discretion, and it and any such account is outside the United States and is not a
U.S. person;
(4)
it acknowledges that neither the Bonds nor the Shares issued upon conversion of the Bonds have
been or will be registered under the Securities Act or with any securities regulatory authority of
any jurisdiction and may not be offered or sold within the United States except as set forth
below;
(5)
it understands and agrees that if in the future it decides to resell, pledge or otherwise transfer any
Bond or beneficial interest therein, or any Shares issued upon conversion of the Bonds, it may do
so only (i) in an offshore transaction meeting the requirements of Rule 903 or Rule 904 of
Regulation S under the Securities Act, (ii) pursuant to an exemption from registration under the
Securities Act, if available, or (iii) pursuant to an effective registration statement under the
Securities Act, and in each of cases (ii) and (iii), in accordance with applicable securities laws of
the states of the United States;
(6)
it has knowledge and experience in financial and business matters, including investment in
securities that have not been registered under the Securities Act or with any securities regulatory
authority of any jurisdiction, and it is capable of evaluating the merits and risks of its purchase
of the Bonds and is able to bear such risks;
(7)
it has not relied in connection with this investment upon any representations, warranties or
agreements given by us or we, or any of our agents, employees or affiliates, other than those set
forth in this Offering Circular;
(8)
if it is purchasing Bonds prior to the expiration of 40 days after the later of the commencement
of the offering and the latest closing date (the ‘‘distribution compliance period’’), it is purchasing
the Bonds in an offshore transaction meeting the requirements of Rule 903 or 904 of Regulation
S under the Securities Act and the Bonds will not be sold, pledged or otherwise transferred to, or
for the account or benefit of, any U.S. person outside the United States or any person in the
United States during the distribution compliance period;
(9)
it agrees to, and each subsequent holder is required to, notify any purchaser from it of a Bond or
beneficial interest therein of the resale restrictions referred to in sections (3) and (4) above, if
then applicable;
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(10) it understands that, except in the circumstances referred to under the heading ‘‘The Form of the
Bonds’’, the Bonds, and beneficial interests therein, will be represented by the Global
Certificate;
(11) it understands that the Global Certificate will bear a legend to the following effect (unless
otherwise agreed by us):
‘‘THIS SECURITY HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE
UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE ‘‘SECURITIES
ACT’’) OR WITH ANY SECURITIES REGULATORY AUTHORITY OF ANY
JURISDICTION OTHER THAN THE REPUBLIC OF CHINA AND, ACCORDINGLY,
MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED TO A U.S.
PERSON OR WITHIN THE UNITED STATES EXCEPT PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OR
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT.
THIS LEGEND MAY BE REMOVED AFTER THE EXPIRATION OF 40 DAYS FROM
THE ORIGINAL ISSUANCE OF THE U.S.$60,000,000 ZERO COUPON CONVERTIBLE
BONDS DUE 2009 OF ACBEL POLYTECH INC.’’; and
(12) it acknowledges that we, the Manager, the Trustee and the Agents (each as defined in ‘‘Terms
and Conditions of the Bonds’’) and others will rely upon the truth and accuracy of the foregoing
acknowledgements, representations and agreements; and if it is acquiring the Bonds as a
fiduciary or agent for one or more accounts, it represents that it has sole investment discretion
with respect to each such account and that it has full power to make the foregoing
acknowledgements, representations and agreements on behalf of each such account.
For further information about the requirements under the Indenture (as defined in ‘‘Terms and
Conditions of the Bonds’’) to effect exchanges or transfers of interests in the Global Certificate and of
Bonds in certificated form, see ‘‘The Form of the Bonds’’.
iv
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Offering Circular contains forward-looking statements that involve risks and uncertainties.
Forward-looking terminology include ‘‘may,’’ ‘‘will,’’ ‘‘expect,’’ ‘‘anticipate,’’ ‘‘estimate,’’ ‘‘continue,’’
‘‘believe,’’ ‘‘forecast,’’ ‘‘project’’ and other similar words. Statements that include such terminology are
forward-looking statements. Our actual results could differ materially from those anticipated in these
forward-looking statements as a result of the risks, uncertainties and assumptions discussed in the ‘‘Risk
Factors’’ and elsewhere in this Offering Circular. We undertake no obligation after the date of this Offering
Circular to update publicly any forward-looking statements for any reason, even if new information
becomes available or other events occur in the future which may affect information contained herein.
ENFORCEABILITY OF FOREIGN JUDGMENTS IN THE ROC
We are a company limited by shares incorporated under the ROC Company Law. Most of our
directors, executive officers, and supervisors are residents of the ROC and a substantial portion of our assets
and such persons are located in the ROC. As a result, it may not be possible for investors to effect service of
process upon us or such persons outside the ROC, or to enforce against any of the judgments obtained in
courts outside the ROC.
Any final judgment obtained against us or such persons in any court other than the courts of the ROC
in respect of any legal suit or proceeding arising out of or relating to the Bonds will be enforced by the
courts of the ROC without further review of the merits only if the court of the ROC in which enforcement is
sought is satisfied that:
"
the court rendering the judgment has jurisdiction over the subject matter according to the laws of
the ROC;
"
the judgment and the court procedure resulting in the judgment are not contrary to the public
order or good morals of the ROC;
"
if the court rendered the judgment by default and (i) process was duly served on us or such
persons in the jurisdiction of such court within a reasonable period in accordance with the laws
and regulations of such jurisdiction, or (ii) process was served on us or such persons with
judicial assistance of the ROC; and
"
judgments of the courts of the ROC are recognized and enforceable in the jurisdiction of the
court rendering the judgment on a reciprocal basis.
A party seeking to enforce a foreign judgment in the ROC would, except under limited circumstances,
be required to obtain foreign exchange approval from the Central Bank of China (‘‘CBC’’) for the payment
out of the ROC of any amounts recovered in connection with the judgment denominated in a currency other
than NT Dollars. See ‘‘Appendix B — Foreign Investment and Exchange Controls in the ROC’’.
v
TABLE OF CONTENTS
Summary . . . . . . . . . . . . . . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . . . . .
Use of Net Proceeds . . . . . . . . . . . . . . . . .
Market Price Information . . . . . . . . . . . . .
Dividends and Dividend Policy . . . . . . . .
Exchange Rates . . . . . . . . . . . . . . . . . . . .
Capitalization . . . . . . . . . . . . . . . . . . . . . .
Selected Financial Information . . . . . . . . .
Management’s Discussion and Analysis of
Our Financial Condition and Results of
Operation . . . . . . . . . . . . . . . . . . . . . . .
Our Business . . . . . . . . . . . . . . . . . . . . . .
Management and Employees . . . . . . . . . .
Principal Shareholders . . . . . . . . . . . . . . .
Changes in Issued Share Capital . . . . . . .
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Terms and Conditions of the Bonds . . . .
The Form of the Bonds . . . . . . . . . . . . .
Description of Our Shares . . . . . . . . . . .
Taxation . . . . . . . . . . . . . . . . . . . . . . . . .
Underwriting . . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . . . .
Independent Auditors . . . . . . . . . . . . . . .
General Information . . . . . . . . . . . . . . . .
Summary of Principal Differences
between ROC GAAP and U.S. GAAP . .
Index to Financial Statements . . . . . . . .
Appendix A — The Securities Market of
the ROC . . . . . . . . . . . . . . . . . . . . . . .
Appendix B — Foreign Investment and
Exchange Controls in the ROC . . . . . .
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CERTAIN DEFINED TERMS, CONVENTIONS AND CURRENCY OF PRESENTATION
Unless the context requires otherwise, references in this Offering Circular to ‘‘our company,’’ ‘‘we,’’
‘‘us’’ and ‘‘our’’ are to Acbel Polytech Inc. or Acbel Polytech Inc. and its consolidated subsidiaries, as the
context may require. References to ‘‘our common shares’’ or ‘‘our shares’’ are to our common shares, par
value NT$10.00 per share.
All references herein to ‘‘affiliate’’ are to a person that directly, or indirectly through one or more
intermediaries, controls or is controlled by, or is under common control with, the person specified, as these
terms are defined in Rule 405 under the Securities Act. All references herein to ‘‘Taiwan’’ or the ‘‘ROC’’
are to the island of Taiwan and other areas under the effective control of the Republic of China. All
references herein to the ‘‘ROC Government’’ or the ‘‘ROC Company Law’’ are references to the
government of the Republic of China and the Company Law of the Republic of China, respectively. All
references herein to ‘‘U.S. GAAP’’ are to accounting principles generally accepted in the United States. All
references herein to the ‘‘PRC’’ or ‘‘mainland China’’ are to the People’s Republic of China and do not
include Hong Kong, Macau or Taiwan. All references herein to the ‘‘SFB’’ are to the Securities and Futures
Bureau of the ROC. All references herein to the ‘‘TSE’’ are to the Taiwan Stock Exchange. All references
herein to the ‘‘GTSM’’ are to the GreTai Securities Market (previously known as the ROC Over-theCounter Securities Exchange or ‘‘OTC’’).
Any discrepancies in any table between totals and sums of the amounts are due to rounding.
We publish our financial statements in New Taiwan Dollars, the lawful currency of the ROC. Except
as otherwise indicated, all financial information set forth herein with respect to our various members has
been presented in New Taiwan Dollars. All references herein to ‘‘New Taiwan Dollars’’, ‘‘NT Dollars’’ and
‘‘NT$’’ are to New Taiwan Dollars, all references herein to ‘‘United States Dollars’’, ‘‘U.S. Dollars’’ and
‘‘U.S.$’’ are to United States Dollars, all references herein to ‘‘HK$’’ are to Hong Kong Dollars, all
= ’’ are to Japan Yen, all references herein to ‘‘Renminbi’’ or ‘‘RMB’’ are to
references herein to ‘‘JPY
Renminbi, all references herein to ‘‘S$’’ are to Singapore dollars, all references herein to ‘‘Ringgit’’ are to
Malaysian Ringgit, all references herein to ‘‘£’’ are to British Sterling, and all references to ‘‘Peso’’are to
Philippine Peso. All translations from New Taiwan Dollars to United States Dollars were made on the basis
of the average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S.
Dollar as certified by the Bank of Taiwan of NT$33.76 = U.S.$1.00 as of June 30, 2004. All amounts
translated into United States Dollars as described above are unaudited and are provided solely for the
convenience of the reader, and no representation is made that the NT Dollar or U.S. Dollar amounts referred
to herein could have been or could be converted into U.S. Dollars or NT Dollars, as the case may be, at any
particular rate, the above rates or at all. The exchange rate between the NT Dollar and the U.S. Dollar
quoted by Taipei Forex Inc. on October 20, 2004 was NT$33.834 = U.S.$1.00.
vi
SUMMARY
The following summary is qualified in its entirety by the more detailed information and financial
statements contained elsewhere herein.
Acbel
We are one of the leading developers, manufactures and sellers of power management systems and
devices in the world. Our power management systems are widely applied in information technology
industries and telecommunications and networking industries. Our power management products utilized in
these industries include AC-DC adapters, DC-DC converters, power supply modules, VRMs, and HSRs. In
addition, we started manufacturing PHS mode mobile phones since 2002. We sold, through a subsidiary,
Teampo Technology Co. Ltd. (‘‘Teampo Technology’’), electronic components on a trading basis.
However, after we disposed all of our shareholding in Teampo Technology in 2004, we no longer carry on a
business of sales of electronic parts and components. We continue being ranked as the best supplier of our
key customers such as Apple, Hitachi, IBM, NEC and NOKIA due to our achievement in critical items,
including technology innovation, quality, responsive, delivery and cost control.
We produce and market our power management products on a ‘‘grey box’’ or ‘‘black box’’ basis. On a
‘‘grey box’’ basis, we manufacture our products according to designs and layouts provided by our
customers; whereas on a ‘‘black box’’ basis, we not only manufacture but also design our products by
reference to the customers’ specifications. Our customers are mainly chassis makers and system integrators
and brand-name system providers who develop and produce information technology products such as
computers and computer peripherals, and telecommunications equipment and networking devices. Our
power management products are utilized by these customers as key components for their end products. Our
products are applied to the products of a number of industry leaders, whose trading names include Alcatel,
Apple, Cisco Systems, Dell, EMC2, Fujitsu, Hewlett-Packard, Hitachi, IBM, NCR, NEC, Nokia, Nortel,
Powerwave, Samsung, Schneider Electric, and Toshiba.
In order to take the advantage of lower labor costs and to attach to our customers, we gradually
increased our production capacity and volume outside of Taiwan, primarily in factories located in the PRC
and the Philippines. We own three manufacturing facilities in Taiwan and Dongguan City, Guangdong
Province, the PRC. In addition, our non-consolidated subsidiaries, Acbel Polytech (Philippines) Inc. and
AcTel Electronic (Dong Guan) Co., Ltd. produce our products on a contracted manufacturing basis in the
Philippines and the PRC. As a whole, we and our subsidiaries own a total of approximately 181,100 m2 of
manufacturing space. Our sales and marketing team are based in Europe, North America, Southeastern Asia,
and the greater China region, by which we provide direct sales functions. We have also established 20
warehouses and 11 after-sale and technical support centers throughout the world to provide our customers
with fast and convenient services in proximate locations.
Quality assurance and safety features are our main concerns when we manufacture and deliver our
power management products. We implement quality control at both the product design and commercial
production stages to ensure that our products meet customers’ satisfaction. Our corporate headquarters in
Taiwan and each of our and our subsidiary’s factories in Taiwan and the PRC have been accredited with
ISO9001 quality standards, TL9000 quality standards (for telecommunication industries), and OHSAS
18001 and ISO14001 environmental standards. The factory operated by our subsidiary in the Philippines has
also been accredited with ISO9001 and ISO14001 since 2002 and 2003, respectively. We have received
numerous vendor awards from our major customers, including IBM and Apple. All of our power
management products are designed to meet relevant international safety standards, such as UL, CSA and
TÜV, and comply with strict FCC Class B and CISPR Class II (EN55022) emission levels.
Our products have become more advanced and sophisticated over time, and many of our customers’
product development cycles have shortened in response to technological innovations and rapidly changing
market demands. We believe that continuous investment and efforts to reinforce our research and
development capabilities are key to maintaining our competitiveness in the markets for our existing
products and enhancing our market share and customer base for new products. We have design
headquarters, research and development laboratories and engineering laboratories in Taiwan, the PRC, and
the United States, which currently employ more than 440 research and development staff. As a result of our
research and development efforts, we have developed various innovative products that we believe with
market potentials.
1
Our consolidated net sales have grown at a compound annual growth rate of 24.7% from NT$8,268.3
million in 2000 to NT$16,045.5 million (U.S.$475.3 million) in 2003. For the six months ended June 30,
2004 we recorded non-consolidated net sales of NT$5,611.0 million (U.S.$166.2 million) and nonconsolidated after-tax net income of NT$735.2 million (U.S.$21.8 million), compared to NT$4,474.5
million and NT$618.9 million, respectively, for the same period in 2003.
Competitive Strengths
We believe that the following strengths contribute to our competitive position in the relevant markets:
"
Expertise in power management solutions that allows us to provide total integrated solutions
to the information technology and telecommunications and networking industries. We are
one of the few companies worldwide that concentrate on high-end industrial power supply unit
development, including the current slew rate, power range and power density, shape and
structure of the devices, and thermal properties to provide total power management solutions.
Our strong expertise and extensive know-how in power management and electronics
engineering, as a result, place us at the technological forefront in our product markets.
"
Highly reliable products and safety standards compliance. We manufacture power supply
products which are highly reliable and comply with a wide range of the commonly accepted
industrial safety standards and those adopted in different jurisdictions.
"
A value-added partner with industry leaders in the information technology and
telecommunications and networking industrial sectors. We work closely with our
customers to develop sophisticated power management solutions. This allows us to benefit
from, and contribute to, the customers’ strategic planning and standard-setting processes in the
early stages of product development.
"
Strong research and development programs and design capacity. We invest significant
resources in research and development, through in-house research and development activities,
joint development with major customers, vendors and suppliers and strong incentives to
employees, through which we are able to maintain our competitive edge.
"
Competitive cost structure due to our effective cost management and flexible operation
system. We enjoy economies of scale in our design and manufacturing process, customer
service and sourcing of raw materials and components. Moreover, in 2003, we have joined a
Group’s Preferred Vendor program to procure common raw materials, parts and components
with other three of our affiliates in the Kinpo Group. We believe our bargaining power against
vendors of raw materials is further enhanced by joining the GPV program.
"
Experienced professional management team. Our senior management is led by a core team of
professionals with an average experience of over 15 years of management experience in this
industry. As a result, we are able to capture the market opportunities by directing our research
and development and sales and marketing efforts to high growth areas.
2
Business Strategy
Our goal is to become a leading high-end power supply unit developer and manufacturer in the world.
In order to achieve this goal, we have implemented the following strategies:
"
Maintain position as a leading manufacturer of power supplies in information technology
industries and telecommunications and networking industries for which reliable electrical
power supply is required. We have demonstrated our ability to manufacture sophisticated
power management devices and systems, including high-end products such as DC-DC
converters, HSRs, VRMs and high power range products, in large volumes for customers who
prefer sourcing their components from a small number of high quality manufacturers. We aim to
focus our efforts on establishing long-term relationships with leading companies in high-growth
markets.
"
Focus on innovative products and continue to conduct research and development. Our
product markets are characterized by rapid technological changes, which in many circumstances
result in the rapid obsolescence of newly developed products. We therefore emphasize on the
development of innovative and market-oriented products that we believe with market potentials
and may generate good profit margins.
"
Establish strategic alliance with market leaders to improve technology and develop new
customers. We believe that strategic alliance arrangements may provide us with access to
leading-edge engineering and technology capabilities and to improve our services to the
customers in different sectors.
"
Provide value-added services to our customers. Customer service is our main concern. We
continually upgrade our services and introduce new services to our customers, by, for example,
setting up factories and logistic hubs in close proximity to those of our key customers and colocating factories, logistic hubs and warehouses to ensure rapid response to customer orders.
Corporate and Other Information
Our corporate headquarters and principal place of business are located at No. 159, Sec. 3, Tam-King
Rd., Tamsui, Taipei, Taiwan, ROC. Our telephone number and website are (8862) 2621-7672 and http://
www.acbel.com, respectively. Information and hyperlinks contained in our website are not and will not form
part of this Offering Circular.
The trustee of the Bonds will be JPMorgan Chase Bank, London Branch, whose office at the date
hereof is located at 9 Thomas More Street, London, E1W 1YT, United Kingdom.
3
The Offering
Issuer . . . . . . . . . . . . . . . .
Acbel Polytech Inc.
Bonds . . . . . . . . . . . . . . . .
U.S.$60,000,000 Zero Coupon Convertible Bonds due 2009 convertible
into our fully-paid common shares with a par value of NT$10 each
(‘‘Shares’’).
Issue Price . . . . . . . . . . . . .
100%.
The Offering . . . . . . . . . . .
The Bonds will not be offered or sold in the ROC or in the United States.
The Bonds will be offered only in offshore transactions in reliance on
Regulation S under the Securities Act.
Closing Date . . . . . . . . . . .
October 27, 2004.
Maturity Date . . . . . . . . . . .
October 27, 2009.
Status . . . . . . . . . . . . . . . .
The Bonds will be our direct, unconditional, unsecured and
unsubordinated obligations and will rank at least pari passu without
any preference or priority among themselves and shall at all times rank at
least equally with all our other present and future direct, unsecured and
unsubordinated obligations except as may be required by mandatory
provisions of the laws.
Interest . . . . . . . . . . . . . . .
No interest will be payable on the Bonds prior to maturity except in
certain circumstances where an Event of Default has occurred.
Withholding Tax . . . . . . . . .
Premium (if any) and interest (if any) payable on the Bonds to nonresidents of the ROC is subject to a withholding tax in the ROC equal to
20% of the gross amount of such premium (if any) and interest (if any).
We will pay such additional amounts as will result in the receipt by the
Bondholders of the amounts which would have been receivable in the
absence of such withholding or deduction.
Tax Redemption . . . . . . . . .
We may redeem all but not part of the Bonds at their principal amount in
the event of changes in the ROC taxation laws and regulations and/or the
application or interpretation thereof, which will result in additional costs
to us. See Condition 8(D) in ‘‘Terms and Conditions of the Bonds’’.
Conversion Price Reset . . . .
The Conversion Price shall be adjusted downward on September 25,
2006, September 25, 2007, September 25, 2008 and September 25, 2009
(the ‘‘Reset Dates’’ and each a ‘‘Reset Date’’) in the event that 107% of
the average closing price of the Shares on the TSE translated into U.S.
Dollars at the then Prevailing Rate (as defined herein) for 20 consecutive
Trading Days immediately prior to a Reset Date is lower than the
Conversion Price then in effect on the relevant Reset Date, converted into
U.S. Dollars at the Fixed Exchange Rate of NT$33.834 = U.S.$1.00;
provided that the Reset Price (as defined herein) (on a cumulative basis, if
applicable) shall not be less than 80% of the initial Conversion Price after
anti-dilution adjustments, if any. See ‘‘Terms and Conditions of the
Bonds — Conversion’’.
4
Conversion . . . . . . . . . . . . .
Subject to prior redemption and as otherwise provided herein, the Bonds
are convertible at any time on or after November 26, 2004 and prior to the
close of business (at the place at which the Bond is deposited for
conversion) on September 27, 2009, except during any Closed Period (as
defined herein), into Shares at a conversion price (subject to adjustment
in certain circumstances) (the ‘‘Conversion Price’’) of NT$30.6 per
Share, which is equivalent to U.S.$0.904 per Share, determined on the
basis of a Fixed Exchange Rate of NT$33.834 = U.S.$1.00. The
Conversion Price will be subject to adjustment for, among other things,
subdivision or consolidation of Shares, bonus issues of Shares, rights
issues, distributions of stock dividends and other dilution events.
Fractional Shares will not be issued or paid in cash, or by any other
means. For a fuller description, see ‘‘Terms and Conditions of the Bonds
— Conversion’’.
We shall as soon as practicable, and in any event within five Trading
Days (as defined herein) from the date the notification of the Conversion
Notice from the Principal Agent (as defined herein) is received by us or
our domestic stock transfer agent from the Principal Agent (as defined
herein), deliver the relevant Shares, either, to the extent permitted by laws
and at our election to the local agent appointed by the converting
Bondholder, a physical certificate or certificates for the relevant Shares,
or through book-entry transfer to the account registered in the name of
converting Bondholder or its designee at the Taiwan Securities Central
Depositary Co., Ltd.
Final Redemption . . . . . . . .
Unless previously redeemed, converted or repurchased and cancelled in
the circumstances referred to in ‘‘Terms and Conditions of the Bonds’’,
the Bonds will be redeemed at their principal amount in U.S. Dollars on
October 27, 2009. See ‘‘Withholding Tax’’ above and Condition 8(A) in
‘‘Terms and Conditions of the Bonds — Redemption, Purchase and
Cancellation’’.
Redemption at our Option . .
We may, having given not less than 40 nor more than 60 days’ notice to
the Bondholders, redeem all, or part only, of the Bonds on or at any time
after October 27, 2006 at their principal amount in the event that the
closing price (as defined herein) of the Shares on the TSE in U.S. Dollars,
calculated at the Prevailing Exchange Rate (as defined in Condition
8(B)), for each of the 20 consecutive Trading Days, the last of which
occurs not more than five days prior to the date on which notice of such
redemption is published, is at least 130% of the Conversion Price in effect
on each such Trading Day translated into U.S. Dollars at the Fixed
Exchange Rate of NT$33.834 = U.S.$1.00. We may, at any time, redeem
all (but not some) of the Bonds, upon not less than 40 nor more than 60
days’ notice being given to the Bondholders, at their principal amount if
at least 90% in principal amount of the Bonds have already been
redeemed, converted, or repurchased and cancelled. See ‘‘Terms and
Conditions of the Bonds — Redemption, Purchase and Cancellation —
Redemption at the Option of the Company’’.
Redemption at the option
of Bondholders . . . . . . . .
Until and unless previously redeemed, converted or repurchased and
cancelled, we will, at the Bondholder’s option, redeem all or part of the
Bondholder’s Bonds at their principal amount on October 27, 2006 and
October 27, 2007. We will also, at the option of the Bondholders, redeem
all of the Bonds at the principal amount if Shares cease to be traded or
listed on the TSE for a period exceeding five consecutive Trading Days.
See ‘‘Terms and Conditions of the Bonds — Redemption, Purchase and
Cancellation — Redemption at the Option of Bondholders’’.
5
Form and Registration
of the Bonds . . . . . . . . . .
The Bonds will be issued in registered form in the denomination of
U.S.$1,000 each. The Bonds will be offered and sold in principal amounts
of U.S.$1,000 or an integral multiple thereof. The Bonds will be
represented by a Global Certificate deposited with, and registered in the
name of a nominee for, a common depositary for Euroclear Bank S.A./
N.V. as operator of the Euroclear System (‘‘Euroclear’’) and Clearstream
Banking, société anonyme (‘‘Clearstream, Luxembourg’’). Beneficial
interests in the Global Certificate will be shown on, and transfers thereof
will be effected only through, records maintained by Euroclear and
Clearstream, Luxembourg and their participants. Except as described
herein, certificates for Bonds will not be issued in exchange for beneficial
interests in the Global Certificate.
Governing Law . . . . . . . . . .
The laws of the State of New York, U.S.A.
Trustee . . . . . . . . . . . . . . .
JPMorgan Chase Bank, London Branch
Listing . . . . . . . . . . . . . . . .
Application has been made to have the Bonds listed on the Luxembourg
Stock Exchange. Listing of the Bonds on the Luxembourg Stock
Exchange may subject us to the EU Transparency Directive, which
may be implemented in a manner which is unduly burdensome for us.
In particular, we may be required to prepare our financial statements
in accordance with International Financial Reporting Standards for
accounting periods beginning on or after January 1, 2005. Under
those circumstances, pursuant to the Indenture, we would be entitled
to seek an alternative listing for the Bonds on a stock exchange
outside the European Union approved in writing by the Trustee (such
approval not to be unreasonably withheld or delayed).
The Shares are listed on the TSE and application will be made for the
Shares issuable upon conversion of the Bonds to be listed on the TSE.
Use of net Proceeds. . . . . . .
The net proceeds from the offering of the Bonds, after deducting
management and underwriting fees, including selling concessions, are
estimated to be approximately U.S.$59,987,100. The net proceeds will be
used by us for our overseas purchase of raw materials.
6
SUMMARY FINANCIAL DATA
The following tables present our summary financial data. The summary consolidated financial data for
the years ended December 31, 2001, 2002 and 2003 is derived from our audited consolidated financial
statements and notes thereto, which have been included elsewhere in this Offering Circular. The summary
non-consolidated financial data for the six months ended June 30, 2003 and 2004 have been derived from
our audited non-consolidated financial statements and notes thereto that are included elsewhere in this
Offering Circular. Our financial statements were prepared using ROC GAAP and are not intended to present
the financial positions and results of operations and cash flows in accordance with accounting principles and
practices generally accepted in other countries and jurisdictions, including the U.S. and the United
Kingdom. ROC GAAP differs in many material respects from U.S. GAAP. For a discussion of these
differences, see ‘‘Summary of Principal Differences between ROC GAAP and U.S. GAAP’’ included
elsewhere in this Offering Circular. The summary financial data set forth below should be read in
conjunction with ‘‘Management’s Discussion and Analysis of Our Financial Condition and Results of
Operation’’ and our financial statements and the notes to those statements included elsewhere in this
Offering Circular.
Year ended December 31,
2001
NT$
Statement of Income Data:
ROC GAAP
Net sales . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Total operating expenses . . .
Operating income . . . . . . . .
Non-operating income . . . . .
Non-operating expenses . . . .
Income before tax . . . . . . . .
Income tax . . . . . . . . . . . . .
Net income. . . . . . . . . . . . .
Minority interest income . . .
Consolidated net income . . .
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Per Share Data:
Earnings per Share — (in dollars) . . .
10,456,189
8,811,499
1,644,690
1,301,082
343,608
231,740
174,463
400,885
52,558
348,327
—
348,327
0.94(2)
2002
2003
Six months ended June 30,
2003
2003
12,565,842
10,475,964
2,089,878
1,209,870
880,008
161,180
137,286
903,902
186,032
717,870
847
717,023
1.94(2)
16,045,522
12,989,673
3,055,849
1,429,601
1,626,248
170,768
129,388
1,667,628
339,685
1,327,943
12,715
1,315,228
475,282
384,765
90,517
42,346
48,171
5,058
3,832
49,397
10,062
39,335
377
38,958
3.56(2)
0.11(2)
4,474,494
3,334,943
1,139,551
518,488
621,063
124,607
20,553
725,117
106,209
618,908
—
—
NT$
2002
2003
NT$
NT$
(consolidated, audited)
5,611,018
4,331,025
1,279,993
594,192
685,801
197,512
7,600
875,713
140,490
735,223
—
—
1.50(3)
As of December 31,
2001
2004
2004
NT$
NT$
U.S.$(1)
NT$
NT$
U.S.$(1)
(consolidated, audited)
(non-consolidated, audited)
(in thousands, except per Share data)
1.78(3)
166,203
128,289
37,914
17,600
20,314
5,850
225
25,939
4,161
21,778
—
—
0.05(3)
As of June 30,
2003
U.S.$(1)
2003
2004
2004
NT$
NT$
U.S.$(1)
(non-consolidated, audited)
(in thousands)
Balance Sheet Data
ROC GAAP
Cash and cash equivalents . . .
Current assets . . . . . . . . . . . .
Long-term investments . . . . . .
Property, plant and equipment.
Total assets . . . . . . . . . . . . .
Current liabilities . . . . . . . . .
Total liabilities . . . . . . . . . . .
Stockholders’ equity . . . . . . .
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167,825
4,841,686
247,677
2,265,886
7,717,173
3,176,517
3,281,958
4,435,215
414,829
7,105,460
282,217
2,196,718
9,823,862
4,522,510
4,688,024
5,135,838
2,607,505
9,502,575
263,875
2,150,636
12,073,616
5,632,495
5,905,594
6,168,022
77,237
281,475
7,816
63,704
357,631
166,840
174,929
182,702
104,619
4,919,846
2,626,375
969,631
8,601,006
3,018,576
3,109,750
5,491,256
193,104
7,352,528
2,339,434
988,478
10,744,107
4,465,588
4,596,799
6,147,308
5,720
217,788
69,296
29,280
318,250
132,274
136,161
182,089
Notes:
(1)
Translated into United States Dollars using the average of buying and selling rates published by the Bank of Taiwan at June 30,
2004 of NT$33.76 = U.S.$1.00. Such translation amounts are unaudited and should not be construed as representations that the
NT Dollar amounts were, or have been, or could be, converted into U.S. Dollars at that or any other rate.
7
(2)
Earnings per Share are calculated by dividing net income by the weighted average number of Shares outstanding during each
year after adjusting retroactively for the effect of stock dividends and employee’ bonuses. No adjustment has been made with
respect to the stock dividends and capitalization of employees’ bonuses approved by the shareholders on April 29, 2004.
(3)
Earnings per Share are calculated by dividing net income by the weighted average number of Shares outstanding during each
six-month period after adjusting retroactively for the effect of stock dividends, including the stock dividends and capitalization
of employees bonus approved by the shareholders on April 29, 2004.
8
RISK FACTORS
Prior to making an investment decision, you should carefully consider the following risk factors, along
with the other matters set out in this Offering Circular. The following risk factors could affect our actual
results and could cause them to differ materially from estimates in any forward-looking statements given by
or on behalf us. ROC laws and regulations may differ from the laws and regulations in other countries.
Risks Relating to the Our Business
Our business is highly dependent on the information technology and telecommunications and networking
businesses.
Most of our sales are to customers in the information technologies and telecommunications and
networking industries. Therefore, our financial performance depends on our customers’ continued growth,
viability and financial stability. These customers in turn depend on the growth and viability of the
information technology and telecommunications and networking products, which are highly cyclical. These
industries are characterized by rapidly changing technologies and short product life cycles. The factors
affecting the information technology and telecommunications and networking industries in general, or any
of our major customers or competitors in particular, could have a material adverse effect on our results of
operations. Our success depends to a significant extent on the success achieved by our customers in
developing and marketing their products, some of which may be new and untested. If customers’ products
become obsolete or fail to gain widespread commercial acceptance, our business could be materially
adversely affected.
Our business depends on a small number of customers.
The markets for our products tend to be concentrated, with a large percentage of orders coming from a
relatively small number of customers. For 2002 and 2003, our largest five customers accounted for 39.8%
and 38.6%, respectively, of our net sales on a non-consolidated basis. Most of our key customers operate in
the cyclical information technologies and telecommunications and networking and other electronic
businesses and have in the past, and may in the future, vary order levels significantly from period to period.
In addition, as there are no long-term contract or purchase commitment made between us and our customers,
there can be no assurance that such customers or any other customers will continue to place orders with us
in the future at the same levels as in prior periods. The loss of one or more of our customers, or reduced
orders by our key customers, could adversely affect our results of operations.
We may experience shortages of raw materials and components.
We currently purchase certain of our key components and raw materials from a limited number of
suppliers. These suppliers’ capacity may be insufficient should our requirements increase. In addition, we
are, in certain circumstances, required to source certain key components from suppliers who have been
approved by our customers and we may not be able to obtain alternative satisfactory sources of supply
should such qualified suppliers be unable to supply it in the future. Accordingly, there can be no assurance
that shortages of supply will not occur in the future and that, if such shortages occur, we will be able to
obtain an adequate alternative supply of components and raw materials to meet production demand. If we
are unable to obtain sufficient components and raw materials on a timely basis, we could experience
manufacturing and shipping delays, which could adversely affect customer relationships and reduce sales. In
addition, there can be no assurance that we would be able to pass on increased costs of components and raw
materials to our customers.
We do not usually enter into long-term supply contracts with our customers and therefore our customers
may cancel their orders, change production quantities or delay production.
We do not generally enter into firm, long-term supply contracts with our customers and we continue to
experience reduced lead-times in customer orders. Customers may cancel their orders, change production
quantities or postpone production for a number of reasons. Cancellations, reductions or postponements by a
significant customer or by a group of customers could seriously adversely affect our results of operations.
9
In addition, we make significant decisions, including determining the levels of business that we will
seek and accept, production schedules, components and raw material procurement commitments, personnel
needs and other resource requirements, based on our estimates of customer requirements. The short-term
nature of our customers’ commitments and the possibility of rapid changes in demand for their products
reduce our ability to estimate accurately future customer requirements. On occasion, customers may require
rapid increases in production, which can stress our resources and reduce margins. Although we have
increased our manufacturing capacity and plans further increases, we may not have sufficient capacity at
any given time to meet our customers’ demands. In addition, because many of our costs and operating
expenses are relatively fixed, a reduction in customer demand could impact our gross margins and operating
income.
We may not be able to develop new products or keep pace with technological change.
Our future success will depend in part on our ability to develop and market products and
manufacturing processes which meet changing customer needs and to successfully anticipate or respond to
technological changes in manufacturing processes in cost-effective and timely ways. Many of our products
have short product life cycles due to frequent product introductions, rapidly changing technology and
evolving industry standards. There can be no assurance that we will be successful in developing new
products as a result of our research and development efforts or our cooperation with industry leaders or that
it will keep pace with technological changes taking place in the market. Failure to do so or delay in reacting
to the technological changes could have a material adverse effect on our business, or results of operations.
Our historical sales growth and historical margins may not be sustainable.
We recorded sales growth of 20.2% and 27.7% for the years 2002 and 2003, respectively, on a
consolidated basis. This level of sales growth may not be sustained in future periods. As we continue to
develop and expand our operations and production capacity, our operating costs and expenses will continue
to increase, putting pressure on gross margins and operating margins. In addition, competition could result
in price pressure, lower sales, reduced margins and lower market share, any of which could materially and
adversely affect our results of operations. Therefore, period-to-period comparisons of operating results may
not be meaningful and investors should not rely on the results of any period as an indication of future
performance.
The power management industry is highly competitive.
The power management industry in which we operate is highly competitive and includes hundreds of
companies with widely varying levels of engineering expertise and sophistication, some of which have
achieved substantial market share. General competition in the power management industry is characterized
by price erosion and rapid technological change. We compete with different companies, depending upon the
type of product or geographic area. A number of our competitors are much larger and have greater
manufacturing, financial, research and development and marketing resources than us. Some of these
competitors also carry product lines that we do not carry and provide services that we do not provide. No
assurance can be given that we will be able to continue to compete successfully in our relevant markets.
We may be involved in product liability claims and our insurance may not be adequate.
We may be liable if the utilization of any of our products causes bodily injury or property damage.
Although we carry product liability insurance in the amounts we believe to be adequate, no assurance can be
given that such insurance will adequately cover losses and liabilities that may be incurred by us. A
significant product liability judgment against us could have a material adverse effect on the results of our
operations.
We may be involved in intellectual property disputes.
We from time to time receive communications from third parties asserting patent rights of our
products and, in such circumstances, we enter into discussions with such parties as to their respective
positions and the terms of any possible licenses in respect of such patent rights. Although we actively seek
to protect the intellectual property rights for our products and our internal know-how, there can be no
assurance that claims will not be brought by third parties against us from time to time. Irrespective of the
10
validity or successful assertion of these claims, we could incur significant costs with respect to the defense
thereof which could have a material adverse effect on our business, financial condition, results of operation
and future prospects.
Our operating results may vary significantly.
We may experience significant fluctuations in our results of operations. The factors which contribute
to fluctuations include:
"
the timing of customer orders;
"
the volume of these orders relative to our capacity;
"
market acceptance of customers’ new products;
"
changes in demand for customers’ products and product obsolescence;
"
the timing of our expenditure in anticipation of future orders;
"
our effectiveness in managing manufacturing processes;
"
changes in the cost and availability of labor and components;
"
changes in our product mix;
"
changes in economic conditions; and
"
local factors and events that may affect our production volume, such as local holidays.
The markets for our customers’ products are subject to a certain degree of seasonality. These markets
exhibit particular strength toward the end of each year in connection with holiday season sales.
Accordingly, our third- and fourth-quarter revenues are usually higher, and our first- and second-quarter
sales are usually lower, than average.
We are subject to operational risks and our insurance may not be adequate.
The operation of manufacturing facilities involves many risks and hazards, including breakdown,
failure or substandard performance of equipment, delay in delivery of equipment or improper installation or
operation of equipment, difficulties in upgrading or expanding existing facilities to meet changing
manufacturing line technologies, capacity constraints, labor disturbances, fire, natural disasters such as
earthquakes or typhoons, environmental hazards and industrial accidents. The occurrence of material
operational problems, including but not limited to the above events, could adversely affect our
manufacturing plants. These problems could cause delivery delays and reduced output.
We maintain insurance typical in the corporate headquarters located in Taiwan and electronics
manufacturing industry in the PRC and the Philippines and in amounts that we believe to be adequate. Such
insurance, however, may not provide adequate coverage in certain circumstances. Although we currently
carry third party liability insurance to cover claims in respect of bodily injury or property or environmental
damage resulting from accidents on our property or relating to our operations, no assurance can be given
that such insurance will adequately cover losses and liabilities that may be incurred by us. A significant
claim against us could have a material adverse effect on our results of operations.
Our diversification into new businesses or product lines may not be successful.
We intend to diversify our products into high-wattage power supply modules and other higher valued
added products, such as PHS mobile telephones. In connection with these plans, we expect to incur
additional costs (including increased management attention) and to face intense competition in the relevant
markets from other companies, including those with more relevant technological and managerial
experience.
11
Our diversification into new businesses will put pressure on our managerial, technical, financial,
production, operational and other resources. To manage future growth, we must add production and
distribution capacity, enhance financing controls and hire additional skilled personnel as well as manage
relationships with a greater number of customers, suppliers, equipment vendors and other third parties.
There can be no assurance that we will be able to successfully compete in these businesses or
products; that demand for these new products will grow to the extent that we expect; or that these new
businesses and products will provide the returns that we expect. Moreover, there can be no assurance that
the implementation of such plan, including the management attention that such implementation is expected
to require, will not adversely affect our existing operations.
We may be unable to manage our growth effectively.
We have grown rapidly. Our ability to manage growth effectively will require us to continue to
implement and improve our operational, financial and management systems; continue to develop the
management skills of our managers; and continue to train, motivate and manage our employees. If we were
to fail to manage growth effectively, our results of operations could be adversely affected.
We are dependent on our ability to attract and retain qualified management and technical personnel.
Our success depends to a significant extent on the skills and efforts of key managerial and technical
and other employees and upon our ability to continue to attract, retain and motivate qualified personnel. We
compete with other electronics manufacturers as well as other manufacturing companies for technical and
other employees, and the competition for such employees is intense. There can be no assurance that we will
be able to continue to attract and retain the services of qualified employees essential for our growth. The
loss of the services of certain of these employees or an inability to attract or retain qualified employees
could have a material adverse effect on us.
Our business and management may be influenced by inter-relationships among us and our subsidiaries
and affiliates.
Our Chairman, Mr. Rock Hsu, effectively exercises significant influence over the Kinpo Group, to
which we are a member. Although our day-to-day operations are managed by a team of experienced
professionals, Mr. Hsu is, and is expected to remain, in a position to influence our operations and
management. Further, many of our subsidiaries and affiliates have common directors and supervisors, and
many of such companies engage in significant transactions with other members of the Group, including
sharing technologies, material and component procurement, design engineering and research and
development resources and providing us with sales and marketing channels. While we believe that our
operations are independent of our subsidiaries and affiliates, there can be no assurance that corporate
opportunities and resources will not be allocated within such companies in certain instances based on
considerations other than the best interest of us and our securityholders. Furthermore, there can be no
assurance that the relationships among us and our subsidiaries and affiliates will not change, and any
adverse change in or termination of our relationships with those other companies could have a material
adverse effect on us.
Certain existing shareholders have significant control of us, and the interests of these shareholders may
be inconsistent with the interests of the other shareholders.
As of September 30, 2004, Kinpo Electronics, Inc. owned 24.81% of our outstanding Shares and China
Development Industrial Bank owned 17.78% of our outstanding Shares. Accordingly, the Kinpo Electronics,
Inc. and China Development Industrial Bank have and will continue to have the ability to exercise a
controlling influence over our business and policy, including matters related to the management and
policies, the timing and distribution of dividends, and the election of the directors and supervisors of us.
These controlling shareholders may cause us to take actions with which other shareholders may not agree, or
which may not be consistent with the interests of other shareholders.
12
We are exposed to the risks of currency exchange rate fluctuations.
Historically, a majority of our operating costs and expenses have been denominated in U.S. Dollars,
and NT Dollars and our revenue has been denominated primarily in U.S. Dollars, Japanese Yen and NT
Dollars. Accordingly, a portion of our costs of sales, operating expenses and revenues are exposed to
fluctuations between the U.S. Dollar, Japanese Yen and NT Dollar. Although we attempt to mitigate the
effects of exchange rate fluctuations primarily through the use of foreign currency borrowings and forward
contracts, fluctuations in exchange rates may have an adverse impact on our future gross and operating
margins and results of operations. In addition, we have substantial investments in the PRC, and any
devaluation in the value of RMB may have an adverse impact on the value of such investments in the PRC.
We may be subject to changes in tax benefit and increased taxes.
We have structured our operations in a manner designed to maximize income in countries where tax
incentives have been extended to encourage foreign investment, such as the PRC or where income tax rates
are low. If the tax rates and policies applicable to us and our subsidiaries are rescinded or changed or if tax
authorities were to challenge successfully the manner in which profit are recognized among us and our
subsidiaries, our taxes could increase and our results of operations and cash flow could be adversely
affected.
Our operation may be adversely affected by natural disaster in the ROC.
Our present corporate headquarters located in Northern Taiwan are vulnerable to natural disasters.
Disruption of our operations, including work stoppages, power outages, fire, earthquakes or other natural
disasters, would cause delays in processing shipments of certain products, which could lead customers to
obtain products from other sources. For example, we have in the past experienced major power outages on
July 29 and September 21, 1999, each of which resulted in a brief suspension of production. In September
1999, a major earthquake occurred, with our epicenter in central Taiwan. The earthquake caused
interruptions to power supply and significant damage to buildings across Taiwan. As a result of the
earthquake, we were obliged to suspend our manufacturing operation in Taiwan for one day. After the 1999
earthquake, there were a number of earthquakes in Taiwan from 2000 to 2004 including one which attacked
Taiwan on October 15, 2004. Similar incidents may occur in the future, which could have a material adverse
effect on our results of operations.
Risks Relating to the Offering
The Bondholders’ ability to exercise their conversion rights may be limited.
The Bonds are convertible into Shares at the option of the converting Bondholders pursuant to the
terms of the Bonds. Purchasers of the Bonds will not be able to exercise their Conversion Right (as defined
in the Terms and Conditions of the Bonds) during the Closed Periods (as defined in the Terms and
Conditions of the Bonds). Under current ROC law, regulations and policy, PRC persons are not permitted to
convert the Bonds or to register as our shareholders.
Transfers of the Bonds and Shares are restricted.
Neither the Bonds nor the Shares have been, nor will they be, registered under the securities laws of
the United States or elsewhere and neither the Bonds nor the Shares may be publicly offered, sold, pledged
or otherwise transferred in any jurisdiction where such registration may be required. See ‘‘Underwriting’’.
The Bonds may not be offered or sold, directly or indirectly, in the ROC.
An active trading market for the Bonds may not develop.
The Bonds are a new issue of securities for which there is currently no trading market. We cannot
predict whether an active trading market for the Bonds will develop or be sustained. If an active trading
market were to develop, the Bonds could trade at prices that may be lower than the initial offering price.
Whether or not the Bonds could trade at lower prices depends on many factors, including:
"
prevailing interest rates and the markets for similar securities;
13
"
the price of our Shares;
"
general economic conditions; and
"
our financial conditions, historic financial performance and future prospects.
We have applied for listing of the Bonds on the Luxembourg Stock Exchange. If an active market for
the Bonds fails to develop or be sustained, the trading price of such Bonds could be materially adversely
affected.
A Bondholder or its designee requesting the conversion of the Bonds into the Shares may be required to
provide certain information to us, and failure to provide such information may result in a delay of the
conversion.
A Bondholder or its designee requesting the conversion of the Bonds into Shares may be required to
provide certain information to us or the Conversion Agent (as defined in the Terms and Conditions of the
Bonds), including the names and nationality of the person to be registered as the shareholder and the number
of Shares to be acquired by such person and the number of Shares acquired by such person in the past
through the date of conversion of the Bonds. Under applicable ROC laws, we are required to report to the
ROC SFB if the person to be registered as a shareholder (1) is our ‘‘related party’’ as defined in the ROC
Statement of Financial Accounting Standard No. 6, or (2) will hold, immediately following such conversion,
more than 10% of the total number of our Shares outstanding. Failure to provide such information may
result in a delay of the conversion of the Bonds.
Bondholders will be required to appoint several local agents in Taiwan if they convert the Bonds into
Shares, which may make ownership burdensome.
Bondholders (being either individuals or legal entities who are non-ROC persons) upon exercising
their conversion right will be required to register with TSE and will be required to appoint an agent in the
ROC for filing tax returns and making tax payments. Such agent (a ‘‘Tax Guarantor’’) will be required to
meet the qualifications set by the Ministry of Finance of the ROC (the ‘‘MOF’’) and to act as the guarantor
of the converting Bondholder’s tax payment obligations.
Under current ROC laws, repatriation of profits by holders of the Bonds is subject to the submission of
evidence of the appointment of a Tax Guarantor to, and approval thereof by, the tax authority or submission
of tax clearance certificates to the tax authority so long as the capital gains from securities transactions are
exempt from ROC income tax. Notwithstanding the above requirement for the appointment of a Tax
Guarantor or submission of tax clearance certificates as provided in the ROC regulations, the CBC has not
required submission of such evidence or tax clearance certificates as a condition to repatriation of sale
proceeds of Shares. However, there can be no assurance that the CBC will not require submission of such
evidence or tax clearance certificate in the future.
In addition, under current ROC law, such converting non-ROC holders of the Bonds are required to
appoint a local agent (with such qualifications as are set by the ROC SFB) to, among other things, open a
securities trading account with a local securities brokerage firm and a bank account, pay ROC withholding
tax, remit funds, exercise stockholders’ rights and perform such other actions as may be designated by such
holders. Further, the converting non-ROC holders of the Bonds are also required to appoint a custodian bank
to hold the securities and any cash proceeds in safekeeping, to make confirmations, to settle trades and to
report all relevant information. Without satisfying these requirements, converting non-ROC holders of the
Bonds who receive the Shares would not be able to hold or otherwise sell them on the TSE.
Bondholders will bear the risk of fluctuations in the price of our Shares.
The market price of the Bonds at any time will be affected by fluctuations in the price of our Shares. It
is impossible to predict whether the price of our Shares will rise or fall. Trading prices of our Shares will be
influenced by, among other things, our results of operations and political, economic, financial and other
factors that can affect the capital markets on which our Shares are traded and the financial services market
in Taiwan. Any decline in the price of our Shares would adversely affect the secondary market price of the
Bonds.
14
Bondholders will have no rights as shareholders until they acquire the Shares upon conversion of the
Bonds.
Unless and until the Bondholders acquire the Shares upon conversion of the Bonds, the Bondholders
will have no rights with respect to our Shares, including any voting rights or rights to receive any regular
dividends or other distributions with respect to the Shares. Bondholders who acquire our Shares upon
exercise of a Conversion Right (as defined in the Terms and Conditions of the Bonds) will be entitled to
exercise the rights of shareholders only as to actions for which the applicable record date occurs after the
Conversion Date (as defined in ‘‘Terms and Conditions of the Bonds’’).
Fluctuations in the exchange rate between the NT Dollar and the U.S. Dollar may have a material
adverse effect on the value of the Bonds in U.S. Dollar terms.
Although the principal amount of the Bonds is denominated in U.S. Dollars, our Shares are listed on
the TSE, which quotes and trades our Shares in NT Dollars. As a result, fluctuations in the exchange rate
between the NT Dollar and the U.S. Dollar will affect, among other things, the secondary market price of
the Bonds and the U.S. Dollar equivalent of our Shares received upon conversion of the Bonds.
We may be subject to the EU Transparency Directive and the Bonds may be listed on an alternative stock
exchange.
Listing of the Bonds on the Luxembourg Stock Exchange may subject us to the EU Transparency
Directive, which may be implemented in a manner which is unduly burdensome for us. In particular, we
may be required to prepare our financial statements in accordance with International Financial Reporting
Standards for accounting periods beginning on or after January 1, 2005. Under those circumstances,
pursuant to the Indenture, we may seek an alternative listing for the Bonds on a stock exchange outside the
EU approved in writing by the Trustee (such approval not to be unreasonably withheld or delayed). We
cannot assure you that your investment on the Bonds will not be impaired due to less liquidity of the
alternative stock exchange or at all.
Risk Relating to Shares
Sales of a significant portion of our Shares may adversely affect the price of the Bonds and the Shares.
The market price of the Bonds and the Shares could decline as a result of the sale of large number of
the Shares after this Offering or the perception that such sales could occur. If our major shareholders sell a
large number of our Shares after this offering, the market price of the Bonds and the Shares may be
depressed and the value of the investment could be substantially decreased.
Further issuance of Shares, including pursuant to stock dividends, employee stock bonuses and employee
stock options, could dilute the holdings and associated rights with respect to the Shares.
Our Articles of Incorporation provides that, if and when we distribute the dividends and employee
bonuses, we may distribute dividends in form of stock and the Shares as employee bonuses. Any distribution
of stock dividends by us or employee bonuses or further issuance of new Shares will effectively dilute the
holdings and associated rights of the Bondholders who convert the Bonds into Shares.
Risks Relating to the ROC
Disruptions in the ROC’s political environment could seriously harm our business.
Our principal executive office and a substantial portion of our assets are located in Taiwan and a
portion of our net operating revenues are derived from our operations in the ROC. Accordingly, the
financial condition and results of operations and the market price of the Shares may be affected by changes
in ROC governmental policies, taxation, inflation, interest rates, social instability and other political,
economic, diplomatic or social developments in or affecting ROC which are outside of our control.
The ROC has a unique international political status. The PRC government asserts sovereignty over
mainland China and Taiwan and does not recognize the legitimacy of the ROC government. The ROC
government resists sovereignty of the PRC and holds the ROC as a state with full sovereign power equal to
15
the PRC’s. Although significant economic and cultural relations have been established in recent years
between the ROC and the PRC, the government in the PRC has refused to renounce the possibility that it
may at some point use force to gain control over the ROC. Relations between the ROC and the PRC and
aspects of the ROC’s political environment could negatively affect our business and the market price of the
Shares.
The imposition of foreign exchange restrictions may have an adverse effect on foreign investors’ ability
to acquire ROC securities, including the Bonds and our Shares, or repatriate the interest, dividends or
sale proceeds from those securities.
The ROC government may impose foreign exchange restrictions in certain emergency situations,
including situations where there are sudden fluctuations in interest rates or exchange rates, where the ROC
government experiences extreme difficulty in stabilizing the balance of payments or where there are
substantial disturbances in the financial and capital markets in Taiwan. These restrictions may require
foreign investors to obtain the ROC government’s approval before acquiring ROC securities or repatriating
the interest or dividends from those securities or the proceeds from the sale of those securities. No assurance
can be given that these restrictions will not adversely affect, among other things, the secondary market price
of the Bonds.
The value of the Bonds and our Shares may be adversely affected by the volatility of the Taiwan securities
market.
The Taiwan securities market is smaller and more volatile than the securities markets in the United
States and in certain European and other countries. The TSE and the GTSM have experienced substantial
fluctuations in the prices and trading volumes of listed securities, and there are currently limits on the range
of daily price movements on the TSE and the GTSM. From time to time, the ROC regulatory agencies have
intervened in the Taiwan stock market during periods of extreme volatility. In the past decade, the TSE
Index peaked at 10,393.59 in February 2000, and reached a low of 3,411.68 in September 2001. During
2003, the TSE Index peaked at 6,182.2 on November 6, 2003, and reached a low of 4,044.7 on April 28,
2003. In addition, the TSE and the GTSM have experienced problems such as market manipulation, insider
trading and payment defaults. The recurrence of these or similar problems could adversely affect the market
price and liquidity of the securities of Taiwan companies, including our Shares. For more information,
please see ‘‘Appendix A — The Securities Market of the ROC’’.
Foreign exchange approvals may be required.
Under existing ROC law, foreign exchange approvals must be obtained from the CBC on a paymentby-payment basis for the conversion from NT Dollars into foreign currencies in connection with the
proceeds from the sale of subscription rights for newly issued Shares if the proceeds are in excess of
U.S.$100,000 per remittance. Although such approvals have been routinely granted in the past, there can be
no assurance that in the future any such approvals will be obtained in a timely manner or at all. In addition,
foreign persons may, subject to certain required documents, but without foreign exchange approval of the
CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its equivalent) for each
remittance. There can be no assurance that no requirement for approval of such remittance will continue
being applicable in the future. See ‘‘Appendix B — Foreign Investment and Exchange Controls in the ROC
— Overseas Corporate Bonds’’.
Financial reporting and accounting standards in the ROC differ from other countries.
We are subject to financial reporting requirements in the ROC that differ in significant respects from
those applicable to companies in certain other countries including the United States. In addition, our
financial statements are prepared in accordance with the ROC GAAP, which differ in certain material
respects from U.S. GAAP. See ‘‘Summary of Principal Differences Between ROC GAAP and U.S. GAAP’’.
Potential investors should consult their own professional advisers for an understanding of such differences
and how they might affect the financial information contained herein.
One difference between ROC GAAP and U.S. GAAP involves the accounting for bonus shares. In
2004, we paid employee bonuses of approximately 4.4% of after-tax profits from the previous year, less
legal reserves, in the form of Shares and expects that, subject to shareholder approval, it will pay all or some
of employee bonuses for the future periods in the form of Shares. Our shareholders have approved the
16
granting of an aggregate of 5,844,100 Shares in 2004 to our employees. In such case, the number of Shares
distributed is obtained by dividing the total nominal NT Dollar amount of the bonus by the value of the
Shares rather than their market value, which has generally been substantially higher than par value. Under
ROC GAAP, the distribution of employee bonus shares is treated as an allocation from retained earnings
when the distribution of employees bonuses is approved by the shareholders, and we are not required to, and
does not, book the value of the employee bonus shares as our expenses. Under U.S. GAAP, however, we
would be required to initially accrue the bonus as compensation costs when services are rendered. When
bonuses are approved by shareholders in the subsequent year, an additional compensation cost is recorded
for the difference between the par value and the fair market value/intrinsic value of the shares granted to
employees. Correspondingly, our net income and income per share calculated in accordance with U.S.
GAAP will be reduced.
The Shares issued under the employee share bonus scheme have a dilutive effect on existing
shareholders. However, the Conversion Price of the Bonds will be adjusted for such issuances.
The financial reporting requirements in Taiwan may differ from those in other jurisdictions.
There may be less publicly available information about us on a quarterly basis than is regularly
published by or about companies listed in other jurisdictions. Under ROC law, companies listed on TSE are
only required to file their consolidated financial statements on a yearly basis. Accordingly, our consolidated
quarterly financial statements, based on which investors could potentially make investment decisions, will
not be accessible to the public.
Risks relating to the PRC
A Substantial part of our operations are subject to the political and economic situation and legal
developments in the PRC.
Currently a substantial part of our operations are located in the PRC and we expect to make further
investments in the PRC in the future. We are also selling and marketing our products in the PRC.
Accordingly, our financial condition, results of operations and our future prospects are subject, to a
significant degree, to the political and economic situation and legal developments in the PRC. Prior to 1978,
the PRC operated under a central economic planning system. All production and economic activities in the
country were governed by the economic goals set out in the five-year plans and annual plans adopted by
central authorities. Since 1978, the PRC government has permitted foreign investment and implemented
economic reforms, gradually changing from a planned economy to a market-oriented economy. However,
many of the reforms and economic policies adopted or to be adopted by the PRC government are
unprecedented or experimental in nature and may have unforeseen results, which may have an adverse
effect on enterprises with substantial business in the PRC, including us.
Our result of operations are subject to risks associated with the PRC legal system.
Since 1979, many laws and regulations dealing with general economic matters or particular economic
activities have been promulgated in the PRC. However, enforcement of existing laws and regulations may
be uncertain and sporadic and implementation and interpretation thereof may be inconsistent. The PRC
judiciary is relatively inexperienced in enforcing the laws and regulations that currently exist, leading to a
degree of uncertainty as to the outcome of any litigation. Further, it may be difficult to obtain swift and
equitable enforcement or to obtain enforcement of a judgment by a court of another jurisdiction. The PRC’s
legal system is based on written statutes and, therefore, decided legal cases do not have binding legal effect,
although they are often followed by judges as guidance. The introduction of new PRC laws and regulations
and the interpretation of existing laws and regulations may be subject to policy changes reflecting domestic
political or social changes. As the PRC legal system develops, there can be no assurance that changes in
such legislation or interpretation thereof will not have a material adverse effect on our business, financial
condition, results of our operations and future prospects.
17
Political and economic policies of the PRC Government could affect our business and results of
operations.
Two of our facilities are located in the PRC, and are subject to the political, economic and social
conditions, laws, regulations and policies in the PRC. The economy of the PRC differs from the economies
of most developed countries in a number of respects, including:
"
its structure;
"
level of government involvement;
"
level of development;
"
level of capital reinvestment;
"
control of capital reinvestment;
"
control of foreign exchange; and
"
allocation of resources.
Before the adoption of reform and open policies beginning in 1978, China was primarily a planned
economy. Since that time, the PRC Government has been reforming the economic system, and has also
begun reforming the government structure in recent years. These reforms have resulted in significant
economic growth and social progress. Although China has pursued a policy of deregulation and marketbased reforms, the Chinese government continues to promulgate from time to time regulations and policies
that directly affect the development of the industries in which we conduct our business. Moreover, We
cannot predict whether changes in the PRC’s political, economic and social conditions, laws, regulations
and policies will have any adverse effect on our current or future business, results of operations or financial
condition. Moreover, all capital construction and expansion projects require a number of governmental
approvals, which may be subject to a variety of regulatory, economic and policy factors. Although we have
not in the past experienced any significant delay in obtaining approvals for our projects, we cannot assure
you that the PRC Government will not in the future implement policies or changes to the regulatory
approval process that could cause delay in or increase the costs of our expansion projects.
18
USE OF NET PROCEEDS
The net proceeds from the offering, net of management and underwriting commission, including
selling concessions, are approximately U.S.$59,987,100. We will use such net proceeds for our overseas
purchase of raw materials.
19
MARKET PRICE INFORMATION
The Shares have been listed on the TSE since September 8, 2003. The table below sets forth, for the
periods from September, 2003 to September, 2004, the high and low closing prices and the average daily
volume of trading activity on the TSE for the Shares (adjusted for the effects of rights issues, employee
bonus issues and stock dividends) and the high and low of the daily closing values of the TSE Index.
Closing price per Share
High
Low
Trading TSE Index
High
Low
(in thousands
of Shares)
(NT$)
2003
September (listed) .
October . . . . . . . .
November . . . . . .
December. . . . . . .
2004
January . . . . . . . .
February . . . . . . .
March . . . . . . . . .
April . . . . . . . . . .
May . . . . . . . . . .
June . . . . . . . . . .
July . . . . . . . . . . .
August . . . . . . . . .
September . . . . . .
Average daily
trading
volume
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
31.4
29.6
35.1
35.6
27.7
27.9
29.4
32.8
1,850
641
2,164
1,735
5,757.91
6,108.13
6,142.32
5,924.24
5,611.41
5,581.66
5,740.57
5,752.01
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
35.0
36.4
36.2
34.4
31.5
30.6
28.4
27.7
29.5
33.8
33.4
31.2
31.6
27.0
26.8
25.7
23.1
27.3
1,545
2,720
1,827
1,037
386
744
277
691
659
6,386.25
6,750.54
7,034.10
6,880.18
6,188.15
5,986.76
5,836.91
5,813.39
5,970.18
6,041.56
6,241.39
6,132.62
6,117.81
5,482.96
5,556.54
5,325.68
5,316.87
5,761.14
Source: Taiwan Stock Exchange, Bloomberg and TEJ.
On October 20, 2004, the reported closing price of the Shares was NT$28.6 per Share and the TSE
Index closed at 5,788.34.
20
DIVIDENDS AND DIVIDEND POLICY
The following table sets forth the cash dividends per Share and stock dividends per Share paid during
each of the years indicated for the Shares outstanding on the record date in respect of the distribution of
such dividends, excepted as otherwise noted.
2002 . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . .
2004 . . . . . . . . . . . . . . . . . . . . . . . . .
Cash dividend
per Share
Stock dividend
per Share(1)
(NT$)
(NT$)
—
0.75
2.00
1.00
1.00
1.00
Total number of
Shares issued as
stock dividend
30,090,000
33,273,000
36,922,900
Number of
outstanding
Shares on
record date
332,730,000
369,229,000
411,996,000
Note: (1) We declare stock dividends in a New Taiwan Dollar amount per Share, but the dividends were distributed to our
shareholders in the form of Shares. The amount of Shares distributed to each shareholder is calculated by multiplying
the dividend declared by the number of Shares held by the given shareholder, divided by the par value of NT$10 per
Share. Fractional Shares will be paid in cash.
We have historically paid dividends on the Shares with respect to the preceding year after approval by
the shareholders at the annual shareholders’ meeting. The form, frequency and amount of future cash or
stock dividends on the Shares will depend upon our earnings, cash flow, financial condition and other
factors.
According to Article 31 of our Articles of Incorporation, out of our profits for each fiscal year, after
having provided for income tax and the losses of the previous years, a legal reserve of 10% shall be set aside
and thereafter a special reserve in accordance with applicable laws and regulations when necessary, may be
further set aside. Any remainder profits will be distributed as follows:
"
2% thereof as remuneration for directors and supervisors;
"
5% thereof as bonuses to employees; and
"
the remaining profits as dividends for shareholders, which may be distributed to shareholders
after being appropriated in whole or in part as special reserve.
21
EXCHANGE RATES
Fluctuations in the exchange rate between NT Dollars and U.S. Dollars will affect the U.S. Dollar
equivalent of the NT Dollar price of the Shares on the TSE and, as a result, may affect the market price of
the Bonds.
The following table shows the exchange rates for New Taiwan Dollars expressed in New Taiwan
Dollars per U.S.$1.00.
Average
High
Low
At periodend(1)
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2001 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
32.27
31.23
33.80
33.24
33.20
35.16
31.46
30.28
32.27
31.46
33.08
34.95
2002
January . .
February .
March . . .
April . . . .
May . . . .
June . . . .
July . . . . .
August . . .
September
October . .
November
December.
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35.02
35.06
35.01
34.90
34.44
33.96
33.39
33.96
34.56
34.95
34.70
34.85
35.10
35.13
35.09
35.00
34.60
34.16
33.87
34.24
34.99
35.17
34.86
34.95
34.89
34.96
34.92
34.72
34.02
33.53
32.94
33.66
34.11
34.76
34.41
34.75
34.96
35.11
35.00
34.72
34.13
33.53
33.75
34.24
34.92
34.76
34.81
34.75
2003
January . .
February .
March . . .
April . . . .
May . . . .
June . . . .
July . . . . .
August . . .
September
October . .
November
December.
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34.60
34.78
34.71
34.82
34.71
34.62
34.40
34.31
33.93
33.88
34.04
34.05
34.81
34.85
34.79
34.94
34.80
34.70
34.58
34.47
34.14
34.00
34.21
34.16
34.46
34.74
34.60
34.76
34.62
34.52
34.25
34.16
33.72
33.70
33.97
33.97
34.69
34.75
34.75
34.85
34.71
34.61
34.41
34.16
33.75
33.96
34.20
33.97
2004
January . .
February .
March . . .
April . . . .
May . . . .
June . . . .
July . . . . .
August . . .
September
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33.67
33.22
33.31
33.00
33.51
33.64
33.89
34.12
33.92
33.97
33.35
33.46
33.37
33.71
33.77
34.20
34.20
34.03
33.28
33.10
33.03
32.80
33.20
33.43
33.70
34.05
33.81
33.38
33.35
33.03
33.37
33.37
33.76
34.13
34.05
33.98
Source: the Bank of Taiwan
(1)
Average of buying and selling exchange rates in Taipei for cable transfers in NT Dollars per U.S. Dollar as certified by
the Bank of Taiwan.
On October 20, 2004, the exchange rate quoted by Taipei Forex Inc. between the NT Dollar and the
U.S. Dollar was NT$33.834 = U.S.$1.00.
22
CAPITALIZATION
The following table sets forth our short-term and long-term debt and the capitalization as at December
31, 2003 on a consolidated basis and as adjusted to reflect the issuance of the Bonds as determined under
ROC GAAP. This table should be read in conjunction with our consolidated financial statements for the
year ended and as at December 31, 2003 included elsewhere in this Offering Circular, which were prepared
in accordance with ROC GAAP and which may differ in material respects from U.S. GAAP or the generally
accepted accounting principles of certain other countries. See ‘‘Summary of Principal Differences between
ROC GAAP and U.S. GAAP’’.
As at December 31, 2003
Actual
NT$
As adjusted
U.S.$
NT$
(consolidated)
(in thousands)
U.S.$
Short-term debt:
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,246,302
66,537
2,246,302
66,537
Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
2,246,302
66,537
2,246,302
66,537
Long-term debt:
The Bonds now being issued. . . . . . . . . . . . . . . . . . . . .
—
—
2,025,600
60,000
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2,025,600
60,000
3,692,290
1,014,447
113,143
—
1,362,907
109,369
30,049
3,351
—
40,371
3,692,290
1,014,447
113,143
—
1,362,907
109,369
30,049
3,351
—
40,371
Stockholders’ equity:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
Capital surplus . . . . . . . . . . . . . . . . . . . . . . . . . .
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . .
Unappropriated earnings. . . . . . . . . . . . . . . . . . . .
Cumulative translation adjustments & Unrecognized
pension costs . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
....
(14,765)
(438)
(14,765)
(438)
Total Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .
6,168,022
182,702
6,168,022
182,702
Total consolidated capitalization . . . . . . . . . . . . . . . . . .
8,414,324
249,239
10,439,924
309,239
23
The following table sets forth our non-consolidated short-term and long-term debt and our
capitalization as at June 30, 2004 and as adjusted to reflect the issuance of the Bonds.
As at June 30, 2004
Actual
NT$
U.S.$(1)
(non-consolidated)
(in thousands)
NT$
As adjusted
U.S.$(1)
Short-term debt:
Short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
581,397
17,221
581,397
17,221
Total short-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
581,397
17,221
581,397
17,221
Long-term debt:
The Bonds now being issued. . . . . . . . . . . . . . . . . . .
—
—
2,025,600
60,000
Total long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
2,025,600
60,000
.
.
.
.
.
4,119,960
1,014,447
244,665
14,765
762,330
122,037
30,049
7,247
437
22,581
4,119,960
1,014,447
244,665
14,765
762,330
122,037
30,049
7,247
437
22,581
Total Stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .
6,147,308
182,089
6,147,308
182,089
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . .
6,728,705
199,310
8,754,305
259,310
Stockholders’ equity:
Common stock . . . . . . .
Capital surplus . . . . . . .
Legal reserve . . . . . . . .
Special reserve . . . . . . .
Unappropriated earnings.
(1)
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New Taiwan Dollar amounts have been translated into U.S. Dollars using the average of buying and selling exchange
rates published by the Bank of Taiwan at June 30, 2004 of NT$33.76 = U.S.$1.00 solely for the convenience of the
reader.
Except as set forth above, there has been no material change in our consolidated capitalization since
December 31, 2003, nor has there been any material change in our non-consolidated capitalization since
June 30, 2004.
24
SELECTED FINANCIAL INFORMATION
The following tables present our selected financial information. The selected consolidated financial
information for the years ended December 31, 2001, 2002 and 2003 is derived from our audited
consolidated financial statements and notes thereto. We have include our audited consolidated financial
statements and notes as of and for the years ended December 31, 2001, 2002 and 2003 elsewhere in this
Offering Circular. The selected non-consolidated financial information for the six months ended June 30,
2003 and 2004 have been derived from our audited non-consolidated financial statements and notes thereto
that are included elsewhere in this Offering Circular. Our financial statements were prepared using ROC
GAAP and are not intended to present the financial position and results of operations and cash flows in
accordance with accounting principles and practices generally accepted in other countries and jurisdictions,
including the U.S. and the United Kingdom. ROC GAAP differs in many material respects from U.S.
GAAP. For a discussion of these differences, see ‘‘Summary of Principal Differences between ROC GAAP
and U.S. GAAP’’ included elsewhere in this Offering Circular. The selected financial information set forth
below should be read in conjunction with ‘‘Management’s Discussion and Analysis of Our Financial
Condition and Results of Operation’’ and our financial statements and the notes to those statements included
elsewhere in this Offering Circular.
Year ended December 31,
2001
NT$
Statement of Income Data:
ROC GAAP
Net sales . . . . . . . . . . . . . .
Cost of sales. . . . . . . . . . . .
Gross profit . . . . . . . . . . . .
Total operating expenses . . .
Operating income . . . . . . . .
Non-operating income . . . . .
Non-operating expenses . . . .
Income before tax . . . . . . . .
Income tax . . . . . . . . . . . . .
Net income. . . . . . . . . . . . .
Minority interest income . . .
Consolidated net income . . .
.
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.
.
.
Per Share Data:
Earnings per Share — . . . . . . . . .
2002
2003
2003
NT$
Balance Sheet Data
ROC GAAP
Cash and cash equivalents . . .
Current assets . . . . . . . . . . . .
Long-term investments . . . . . .
Property, plant and equipment.
Total assets . . . . . . . . . . . . .
Current liabilities . . . . . . . . .
Total liabilities . . . . . . . . . . .
Stockholders’ equity . . . . . . .
.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
167,825
4,841,686
247,677
2,265,886
7,717,173
3,176,517
3,281,958
4,435,215
2004
1.94(2)
3.56(2)
475,282
384,765
90,517
42,346
48,171
5,058
3,832
49,397
10,062
39,335
377
38,958
4,474,494
3,334,943
1,139,551
518,488
621,063
124,607
20,553
725,117
106,209
618,908
—
—
5,611,018
4,331,025
1,279,993
594,192
685,801
197,512
7,600
875,713
140,490
735,223
—
—
166,203
128,289
37,914
17,600
20,314
5,850
225
25,939
4,161
21,778
—
—
0.11(2)
1.50(3)
1.78(3)
0.05(3)
As of December 31,
2001
2004
NT$
NT$
U.S.$(1)
NT$
NT$
U.S.$(1)
(consolidated, audited)
(non-consolidated, audited)
(in thousands, except per Share data)
10,456,189 12,565,842 16,045,522
8,811,499 10,475,964 12,989,673
1,644,690 2,089,878 3,055,849
1,301,082 1,209,870 1,429,601
343,608
880,008 1,626,248
231,740
161,180
170,768
174,463
137,286
129,388
400,885
903,902 1,667,628
52,558
186,032
339,685
348,327
717,870 1,327,943
—
847
12,715
348,327
717,023 1,315,228
0.94(2)
Six months ended June 30,
2003
2002
2003
As of June 30,
2003
NT$
NT$
U.S.$(1)
(consolidated, audited)
(in thousands)
414,829 2,607,505
7,105,460 9,502,575
282,217
263,875
2,196,718 2,150,636
9,823,862 12,073,616
4,522,510 5,632,495
4,688,024 5,905,594
5,135,838 6,168,022
77,237
281,475
7,816
63,704
357,631
166,840
174,929
182,702
2003
2004
2004
NT$
NT$
U.S.$(1)
(non-consolidated, audited)
104,619
193,104
4,919,846 7,352,528
2,626,375 2,339,434
969,631
988,478
8,601,006 10,744,107
3,018,576 4,465,588
3,109,750 4,596,799
5,491,256 6,147,308
5,720
217,788
69,296
29,280
318,250
132,274
136,161
182,089
Notes:
(1)
Translated into United States Dollars using the average of buying and selling rates published by the Bank of Taiwan at
June 30, 2004 of NT$33.76 = U.S.$1.00. Such translation amounts are unaudited and should not be construed as
representations that the NT Dollar amounts were, or have been, or could be, converted into U.S. Dollars at that or any
other rate.
25
(2)
Earnings per Share are calculated by dividing net income by the weighted average number of Shares outstanding during
each year after adjusting retroactively for the effect of stock dividends and employee’ bonuses. No adjustment has been
made with respect to the stock dividends and capitalization of employees’ bonuses approved by the shareholders on April
29, 2004.
(3)
Earnings per Share are calculated by dividing net income by the weighted average number of Shares outstanding during
each six-month period after adjusting retroactively for the effect of stock dividends, including the stock dividends and
capitalization of employees bonus approved by the shareholders on April 29, 2004.
26
MANAGEMENT’S DISCUSSION AND ANALYSIS OF OUR
FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the discussion and analysis in conjunction with our consolidated financial statements
and our non-consolidated financial statements included elsewhere in this Offering Circular. Such financial
statements are English translations of the auditors’ report and financial statements in Chinese prepared for
and used in the ROC. The financial statements are not intended to present our financial position and results
of operations and cash flows and our consolidated subsidiaries and us, as the case may be, in accordance
with accounting principles and practices generally accepted in countries and jurisdictions other than those
in the ROC. The standards, procedures and practices utilized to audit such financial statements are those
generally accepted and applied in the ROC. See ‘‘Summary of Principal Differences between ROC GAAP
and U.S. GAAP’’. We have not quantified the effect of the differences that would arise in the event our
financial condition and results of operations were restated or reconciled to U.S. GAAP; however, some of
these differences could be material. See ‘‘Risk Factors — Risks Relating to the ROC — Financial reporting
and accounting standards in the ROC differ from other countries’’. This Offering Circular contains both our
consolidated financial statements of our and our consolidated subsidiaries and our non-consolidated
financial statements as of and for the years ended December 31, 2001, 2002 and 2003. It also contains our
non-consolidated financial statements as of and for the six months ended June 30, 2003 and 2004. It is not
possible to make direct comparisons between information contained in the consolidated financial statements
and non-consolidated financial statements. We are not required to, and do not prepare interim financial
statements on a consolidated basis.
This discussion and analysis contains forward-looking statements. These statements are subject to
certain risks and uncertainties, including those discussed below and in ‘‘Risk Factors’’, which could cause
actual results to differ materially from the expectations expressed in such forward-looking statements. You
are cautioned not to place undue reliance on any forward-looking statement.
Overview
We are one of the leading developers, manufactures and sellers of power management systems and
devices in the world. Our power management systems are widely applied in information technology
industries and telecommunications and networking industries. Our power management products utilized in
these industries include AC-DC adapters, DC-DC converters, power supply modules, VRMs, and HSRs. In
addition, we started manufacturing PHS mode mobile phones since 2002. We sold, through a subsidiary,
Teampo Technology Co., Ltd. (‘‘Teampo Technology’’), electronic components on a trading basis.
However, after we disposed all of our shareholding in Teampo Technology in 2004, we no longer carry on
such business. We continue being ranked as the best supplier of our key customers such as Apple, Hitachi,
IBM, NEC and NOKIA due to our achievement in critical items, including technology innovation, quality,
responsive, delivery and cost control.
We produce and market our power management products on a ‘‘grey box’’ or ‘‘black box’’ basis. On a
‘‘grey box’’ basis, we manufacture our products according to designs and layouts provided by our
customers; whereas on a ‘‘black box’’ basis, we not only manufacture but also design our products by
reference to the customers’ specifications. Our customers are mainly chassis makers and system integrators
and brand-name system providers who develop and produce information technology products such as
computers and computer peripherals, telecommunications equipment and networking devices. Our power
management products are utilized by these customers as key components for their end products. Our
products are applied to the products of a number of industry leaders, whose trading names include Alcatel,
Apple, Cisco Systems, Dell, EMC2, Fujitsu, Hewlett-Packard, Hitachi, IBM, NCR, NEC, Nokia, Nortel,
Powerwave, Samsung, Schneider Electric, and Toshiba.
Our sales and marketing team are based in Europe, North America, Southeastern Asia, and the greater
China region, by which we provide direct sales functions. We have also established 20 warehouses and 11
after-sale and technical support centers throughout the world to provide our customers with fast and
convenient services in proximate locations.
27
Basis of Presentation
This Offering Circular contains both our consolidated financial statements and our non-consolidated
financial statements as of and for the years ended December 31, 2001, 2002 and 2003. This Offering
Circular also contains our non-consolidated financial statements as of and for the six months ended June 30,
2003 and 2004.
The consolidated financial statements present our financial statements and those of our consolidated
subsidiaries on a consolidated basis, after eliminating all significant inter-company accounts and
transactions. We consolidate the financial statements of all our wholly-owned and majority-owned
subsidiaries, except as noted in the next paragraph. Our subsidiaries whose financial positions and operating
results are consolidated into our financial statements include Acbel Polytech Holdings Inc. (‘‘Acbel-BVI’’)
and Teampo Technology which is no longer a subsidiary of us after we transferred all of our equity interest
in it to Synnex in June and August 2004.
Under ROC GAAP, a company is required to consolidate financial results of any subsidiary whose
total assets or net sales exceed 10% of our non-consolidated total assets or net sales, as the case may be. A
subsidiary is defined as any corporation or other business entity more than 50% of the outstanding voting
stock of which is owned directly or indirectly by us. In addition, the ROC Securities and Futures
Commission requires us to consolidate the financial statements of each subsidiary whose total assets or net
sales exceed 3% of our non-consolidated total assets or net sales, if the total assets or net sales of all nonconsolidated subsidiaries of us exceed 30% of our non-consolidated total assets or net sales, as the case may
be.
Long-term investments of more than 20%, or any companies in which we own less than 20% but
whose operational decision may be significantly influenced by us, are accounted for under the equity
method.
In order to take the advantage of lower labor costs and to attach to our customers, we gradually
increased our production capacity and volume outside of Taiwan, primarily in factories located in the PRC
and the Philippines. We own two manufacturing facilities in Taiwan and Dongguan City, Guangdong
Province, the PRC. Our Dongguan Factory manufactures power management products for export sales. Our
subsidiary, AcTel Electronic (Dong Guan) Co., Ltd., also operates a production facilities in the same
location of our Dongguan Factory which manufactures power management products for domestic sales. In
addition, Acbel Polytech (Philippines) Inc., also one of our subsidiaries, operates a production factory in the
Philippines to produce power management products. Because neither AcTel Electronic (Dong Guan) Co.,
Ltd. nor Acbel Polytech (Philippines) Inc. is our consolidated subsidiary, their production factories produce
our products on a contracted manufacturing basis.
Revenue
We derived our revenue primarily from (1) the manufacture and sale of power management products,
such as AC-DC adapters, DC-DC converters, power supplies, open-frame power supply modules, VRMs and
HSRs, and (2) from the sales of electronic parts and components by our consolidated subsidiary, Teampo
Technology, which accounted for 61.9% and 38.1%, and 63.4% and 36.6% of our consolidated net sales in
2002 and 2003, respectively. However, after we disposed all of our shareholding in Teampo Technology in
June and August 2004, Teampo Technology is no longer a subsidiary of us. Consequently, we no longer
carry on the business of sales of electronic parts and components.
Our power management products are sold to the (1) chassis makers and system integrators and (2)
brand-name system providers who conduct their business in the information technologies and
telecommunications and networking industries. For 2003, sales made to chassis makers and system
integrators and brand-name system providers accounted for 57.0% and 43.0% of our non-consolidated net
sales. For our power management products, we recognize revenues when our products are delivered to our
customers, usually on a free-on-board basis.
28
With regard to our electronic parts and components trading business, we act as regional distributor for
principal electronic parts and components, particularly the integrated circuits (‘‘IC’’) components, by which
we purchase the electronic parts and components and sell them to value-added retailers, system integrators
or electronic products manufacturers. For our trading business, we recognize revenues upon issuance of
invoice to our customers.
The aggregated net sales increased from 2002 to 2003 due to significant increases in sales volume in
our power management products and electronic components, partially offset by decreases in the sale prices
of our products except for the high-power range products, which apply to high-end servers, storage and
mainframes.
Cost of Sales
Our cost of sales consists principally of:
"
overhead, including depreciation of property, plant and equipment and amortization of
intangible assets;
"
costs of raw materials, including semiconductors, PC boards, cores, ICs, capacitors, wires, metal
and plastic casing, and batteries;
"
labor costs; and
"
costs of purchasing of electronic parts and components for distribution.
Gross Margin
Gross margin equals to gross profit divided by net sales. Our gross margin for 2003 was 19.0%,
compared with 16.6% for 2002. Our gross margin on a consolidated basis increased between 2002 and 2003
mainly due to a change in product mix, of which sales of our power management products applied to
telecommunication equipment and networking devices and other high-power range products, usually having
significantly higher margin, consisted more percentage among our other products than in 2002. The change
in product mix was due to increase in global demands of high-power range products.
Operating Income
Our consolidated net operating income has increased between 2002 and 2003 from NT$880.0 million
in 2002 to NT$1,626.2 million (U.S.$48.2 million) in 2003. Operating margin was 7.0% in 2002 and 10.1%
in 2003.
Cost Reduction Initiatives
We seek to reduce our costs by (1) standardizing the components used in the manufacturing of our
products; (2) optimizing energy efficiency in product design; (3) optimizing manufacturing cost efficiency
during product design; and (4) participating in the Group’s Preferred Vendor, or GPV, program to enhance
our bargaining power of material and component procurement.
29
Geographic Markets
The following table sets forth the breakdown of our net sales and percentages of net sales revenue by
geographic regions:
Year ended December 31,
2001
%
Taiwan .
Asia . . .
America .
Europe . .
Others . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
3,733,429
3,410,258
2,148,579
1,146,419
17,504
Total . . . . . . . . . .
10,456,189
Six months ended June 30,
2002
2003
2003
%
%
(consolidated)
(NT$ thousands, except percentages)
35.7
32.6
20.5
11.0
0.2
4,939,602
4,011,061
2,257,821
1,341,714
15,644
39.3
31.9
18.0
10.7
0.1
100.0 12,565,842
3,433,873
7,722,593
3,152,445
1,553,573
183,038
21.4
48.2
19.6
9.7
1.1
100.0 16,045,522
100.0
1,157,534
776,750
1,631,755
799,262
109,193
2004
%
(non-consolidated)
25.9%
17.3%
36.5%
17.9%
2.4%
4,474,494 100.0%
942,617
2,051,758
1,753,358
758,920
104,365
%
16.8%
36.6%
31.2%
13.5%
1.9%
5,611,018 100.0%
Consolidated operating results
Results of Operations
The following table sets forth, for the periods indicated, certain financial data from our statements of
income, expressed in each case as a percentage of net sales revenue:
2001
Year ended December 31,
2002
%
%
(NT$ millions, except percentages)
2003
%
Power management products
Information Technology
High power range products . . . . . . . . . . . . .
PC and other IT applications. . . . . . . . . . . .
Telecommunications and networking . . . . . . . .
2,444.2
4,206.4
458.9
24
40
4
2,729.6
4,199.1
849.3
22
33
7
3,784.9
4,957.2
1,400.8
24
31
9
Electronic parts and components . . . . . . . . . . .
3,346.7
32
4,787.9
38
5,874.8
37
Others
...........................
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . .
—
8,811.5
—
84
—
10,476.0
—
83
27.9
12,989.7
—
81
Operating expenses
Selling . . . . . . . . . . . . . . .
General and administrative .
Research and development .
Total operating expenses . . . .
.
.
.
.
528.2
522.2
250.7
1,301.1
5
5
3
13
436.6
470.3
302.9
1,209.9
4
4
2
10
530.0
524.7
374.9
1,429.6
4
3
2
9
Operating income . . . . . . . . . . . . . . . . . . . . .
Non-operating income, including interest income
Non-operating expense, including interest
expense . . . . . . . . . . . . . . . . . . . . . . . . . .
343.6
231.7
3
3
880.0
161.2
7
1
1,626.2
170.8
10
—
174.5
2
137.3
1
129.4
—
Income before income tax . . . . . . . . . . . . . . .
400.9
4
903.9
7
1,667.6
10
Income tax . . . . . . . . . . . . . . . . . . . . . . . . . .
52.6
1
186.0
1
339.7
2
Net income. . . . . . . . . . . . . . . . . . . . . . . . . .
348.3
3
717.9
6
1,327.9
8
Minority interest income . . . . . . . . . . . . . . . .
—
—
0.9
—
12.7
—
Consolidated net income . . . . . . . . . . . . . . . .
348.3
3
717.0
6
1,315.2
8
(1)
(1)
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.
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.
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
including sales of PHS telephones.
30
2003 compared to 2002
Sales. Our consolidated total sales for 2003 increased from NT$12,747.8 million for 2002 to
NT$16,412.2 million (U.S.$486.1 million), an increase of 28.7% primarily resulting from increase in sales
volume in all of our products, including power management products and electronic parts and components.
Increases in sales volume were partially offset by the decreases of per unit price for each of our products,
except for high-power range power supply products.
Sales allowance and returns increased from NT$181.9 million for 2002 to NT$366.7 million for 2003,
primarily due to (1) increase in sales allowance to one of our major customers in 2003. We entered into a
sales agreement with one of our major customers to provide sales allowance in return for guaranteed
purchase volume and profit margin, and that the amount of sales allowance will increase proportionally with
the level of purchase and margin reached. In 2003, the level of purchase volume and margin reached is
higher than that of 2002, and consequently sales allowance to this customer in 2003 increased compared to
2002; and (2) increase in sales allowance made pursuant to the sales of electronic components in 2003.
Cost of sales. Cost of sales increased by 24.0% from NT$10,476.0 million in 2002 to NT$12,989.7
million (U.S.$384.8 million) in 2003. This increase was generally in line with the growth of total sales. Our
cost of sales includes primarily materials for power management products, factory overheads, including
depreciation and utilities, labor costs, and costs incurred in the purchase of electronic parts and components
for trading purposes. However, increases of our cost of sales were offset by savings in materials and other
manufacturing related costs in connection with high-power range products; sales of high-power range
products increased between 2002 and 2003.
Gross profit and gross margin. Gross profit increased by 46.2% from NT$2,089.9 million in 2002
to NT$3,055.8 million (U.S.$90.5 million) in 2003. Gross margins in 2002 and 2003 were 16.6% and
19.0%, respectively. Gross margin increased in 2003 due to a change in product mix, in which sales volumes
of our power management products with higher margin such as high-power range products increased
substantially.
Operating expenses. Total operating expenses in 2003 increased to NT$1,429.6 million (U.S.$42.3
million), from NT$1,209.9 million in 2002, an increase of 18.2%. The following factors are generally
attributable to the increases:
"
Selling and marketing expenses
Selling and marketing expenses increased by 21.4% in 2003 to NT$530.0 million (U.S.$15.7
million). The increase was attributable to (1) new establishments of our global logistic hubs in North
America, the United Kingdom and the Netherlands, and (2) new recruitment of sales staff persons who
are generally responsible for the development of new customers and promotion of our business.
"
General administrative expenses
General administrative expenses increased by 11.6% in 2003 to NT$524.7 million (U.S.$15.5
million). The increase was attributable to the increase of human resource expenses in 2003 and
expenses incurred in connection with our initial public offering in 2003.
"
Research and development expenses
Research and development expenses increased by 23.8% in 2003 to NT$374.9 million
(U.S.$11.1 million). The increase was attributable to our introduction of new models of our products
that further resulted in the increase of research and development personnel and material expenses for
testing and trial operation of new products. In addition, Teampo Technology established a new
research and development team of field application engineering in 2003 that a number of our
employees and expenses were re-allocated from other categories of expenses to research and
development expenses.
Operating expenses as a percentage of net sales decreased from 9.6% to 8.9% between 2002 and
2003.
31
Non-operating income. Total non-operating income increased to NT$170.8 million (U.S.$5.1
million) in 2003 compared to NT$161.2 million in 2002. The increase in non-operating income was
primarily attributable to the capital gains resulted from our disposal of 10% equity interests for Teampo
Technology, partly offset by the decreased payment of technical service income that lowered our income of
technical support services.
Non-operating expenses. Total non-operating expenses decreased to NT$129.4 million (U.S.$3.8
million) in 2003 compared to NT$137.3 million in 2002. The decrease was primarily attributable to (1)
decrease in interest expense resulting from the cut of interest rates regarding our short-term borrowings and
(2) increase in foreign exchange losses resulting from the depreciation of U.S. dollars against NT dollars
during 2003. These decreases were partly offset by a NT$44.6 million increase of losses in inventory
obsolescence.
Consolidated net income. Income before income tax increased to NT$1,667.6 million (U.S.$49.4
million) in 2003, compared to NT$903.9 million in 2002. Income tax expense was NT$339.7 million
(U.S.$10.1 million) in 2003, compared to a tax expense of NT$186.0 million in 2002. Consolidated net
income increased to NT$1,315.2 million (U.S.$39.0 million) in 2003, compared to NT$717.0 million in
2002.
2002 compared to 2001
Sales. Our consolidated total sales for 2002 increased from NT$10,661.8 million for 2001 to
NT$12,747.8 million, an increase of 19.6% primarily resulting from increase in sales volume electronic
parts and components distributed by our consolidated subsidiary, Teampo Technology, that was driven by
the sales growth of our customers in the electronic parts and components sector. In addition, sales of our
power management products also slightly increased by NT$668.5 million.
Sales allowance and returns decreased from NT$205.6 million for 2001 to NT$181.9 million for 2002,
mainly because of the improvement of the quality of our power management products and the utilization of
modulized components and products. However, these decreases were partly offset by the increases of sales
returns of the electronic parts and components distributed by Teampo Technology.
Cost of sales. Cost of sales increased by 18.9% from NT$8,811.5 million in 2001 to NT$10,476.0
million in 2002. This increase was generally in line with the growth of total sales. Our cost of sales includes
primarily materials for power management products, factory overheads, including depreciation and utilities,
labor costs, and costs incurred in the purchase of electronic parts and components for trading purposes.
Gross profit and gross margin. Gross profit increased by 27.1% from NT$1,644.7 million in 2001
to NT$2,089.9 million in 2002. Gross margins in 2001 and 2002 were 15.7% and 16.6%, respectively. Gross
margin increased in 2002 due to a change in product mix, in which sales volumes of our power management
products applied to telecommunication equipment and networking devices that are usually considered being
with higher margin increased substantially.
Operating expenses. Total operating expenses in 2002 decreased to NT$1,209.9 million from
NT$1,301.1 million in 2001, a decrease of 7.0%. The following factors are generally attributable to the
decreases:
"
Selling and marketing expenses
Selling and marketing expenses decreased by 17.3% in 2002 to NT$436.6 million. The decrease
was attributable to our recognition of losses in the doubtful account amounted to NT$90.0 million for
Vidar-SMS Co., Ltd. (‘‘VSMS’’) in 2001. VSMS was our affiliate and customer for power
management products, who ceased its business due to insolvency.
"
General administrative expenses
General administrative expenses decreased by 9.9% in 2002 to NT$470.3 million. We purchased
Dongguan Acbel Telecommunication Co., Ltd. in 1997 at a purchase price over the net value of the
company. Under ROC GAAP, differences between the purchase price and net value should be booked
as expenses that could be extended over a five-year period beginning from the year following the
purchase of the company. The last of these expenses was booked in 2002. Our general administrative
expenses in 2002 were therefore higher than in 2003.
32
"
Research and development expenses
Research and development expenses increased by 20.8% in 2002 to NT$302.9 million. The
increase was attributable to our introduction of new models of our products that further resulted in the
increase of research and development personnel and material expenses for testing and trial operation
of these new products.
Operating expenses as a percentage of net sales decreased from 12.4% to 9.6% between 2001 and
2002.
Non-operating income. Total non-operating income decreased by NT$70.6 million in 2002
compared to NT$231.7 million in 2001. The decrease in non-operating income was primarily attributable
to (1) the gains of foreign exchange resulted from the appreciation of the U.S. Dollar against NT Dollar in
2001, and (2) compensation charges on one of our major customers for cancellation of firm purchase orders
in 2001. The decrease was partially offset by capital gains on short-term investment in 2002.
Non-operating expenses. Total non-operating expenses decreased to NT$137.3 million in 2002
compared to NT$174.5 million in 2001. The decrease was primarily attributable to (1) decrease in interest
expense resulting from the cut of interest rates and (2) sales of our old equipment in 2001. These decreases
were partly offset by a NT$34.2 million increase of foreign exchange losses.
Consolidated net income. Income before income tax increased to NT$903.9 million in 2002,
compared to NT$400.9 million in 2001. Income tax expense was NT$186.0 million in 2002, compared to a
tax expense of NT$52.6 million in 2002. Consolidated net income increased to NT$717.0 million in 2002,
compared to NT$348.3 million in 2001.
Non-consolidated Operating Results
The following table sets forth, for the periods indicated, certain financial data from our statements of
operations, expressed in each case as a percentage of net sales revenue:
Six months ended June 30,
2003
2004
(NT$ millions, except percentages)
%
Power management products
Information Technology
High power range products . . . . . . . . . . . . . . . . . . . . . . . . . .
PC and other IT applications. . . . . . . . . . . . . . . . . . . . . . . . .
Telecommunications and networking . . . . . . . . . . . . . . . . . . . . .
%
1,727.5
2,146.1
599.2
39
48
13
2,307.6
2,383.9
919.5
41
43
16
Others(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.7
—
—
—
Cost of sales. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,334.9
75
4,331.0
77
.
.
.
.
195.9
166.4
156.2
518.5
4
4
3
11
215.7
193.6
184.9
594.2
4
4
3
11
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-operating expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
621.1
124.6
20.6
14
3
—
685.8
197.5
7.6
12
4
—
Income before income tax . . . . . . . . . . . . . . . . . . . . . . . . . . . .
725.1
17
875.7
16
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
106.2
2
140.5
3
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
618.9
15
735.2
13
Electronic parts and components . . . . . . . . . . . . . . . . . . . . . . . .
Operating expenses
Selling . . . . . . . . . . . . . . .
General and administrative .
Research and development .
Total operating expenses . . . .
(1)
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including sales of PHS telephones.
33
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.
Net revenues for the third quarter of 2004
Our unaudited non-consolidated net revenues for the third quarter of 2004 were NT$3,126.8 million,
representing increases of 19.6% from the comparable periods of 2003. We believe that the increases were
primarily due to increase in sales volume of our high-end high-power range products.
Six months ended June 30, 2004 compared to six months ended June 30, 2003
Sales. Our non-consolidated total sales revenue for the first six months of 2004 increased from
NT$4,559.0 million for the first six months of 2003 to NT$5,629.8 million (U.S.$166.8 million), an increase
of 23.5% primarily resulting from an increase in sales volume of our high-end high-power range products.
Sales allowance and returns decreased from NT$84.5 million for the first six months of 2003 to
NT$18.8 million for the first six months of 2004, primarily because since 2004, we have ceased payment of
sales allowance for guaranteed volume purchase.
Cost of sales. Cost of sales in the first six months of 2004 rose to NT$4,331.0 million (U.S.$128.3
million), an increase of 29.9%, compared to NT$3,334.9 million in the comparable period in 2003. Our sales
increased in the first six months of 2004. However, the margin generated thereby was off-set by the increase
in the cost of raw materials (such as metal product) and the processing fees paid to our subsidiary, AcbelBVI.
Gross profit and gross margin. Gross profit increased by 12.3% to NT$1,280.0 million (U.S.$37.9
million) in the first six months of 2004, compared to NT$1,139.6 million in the first six months of 2003.
Gross margins were 22.8% in the first six months of 2004, compared to 25.5% in the comparable period of
2003. The decrease was primarily due to the increase in our cost in the procurement of materials in 2004
comparing with the same period in 2003, whereas our selling prices dropped.
Operating expenses. Total operating expenses increased to NT$594.2 million (U.S.$17.6 million) in
the first six months of 2004, an increase of 14.6% over NT$518.4 million in the comparable period of 2003.
The following factors are generally attributable to the increases.
"
Selling and marketing expenses
Selling and marketing expenses increased by 10.1% in the first six months of 2004 to NT$215.6
million (U.S.$6.4 million). The increase was attributable to the increase of our sales and increases of
expenses associated with new establishment of our logistic hubs in North America, the United
Kingdom and the Netherlands and bad debt expense amounted to NT$14.5 million whereas that of
2003 for the same period amounted to only NT$4.7 million.
"
General administrative expenses
General administrative expenses increased by 16.3% in the first six months of 2004 to NT$193.6
million (U.S.$5.7 million). The increase was mainly attributable to our expenses in evaluating an
investment opportunity in Canada, such as fees payable to our professional advisers for due diligence,
which were incurred in the first quarter of 2004.
"
Research and development expenses
Research and development expenses increased by 18.4% in the first six months of 2004 to
NT$184.9 million (U.S.$5.5 million). The increase was mainly attributable to increases in safety
certification and testing fees in connection with our new products and an increase of research and
development personnel.
Non-operating income and expenses. Our non-consolidated non-operating income increased from
124.6 million for the first six months of 2003 to NT$197.5 million (U.S.$5.9 million) for the first six months
of 2004. The increase in the non-operating income was mainly attributable to the gains from our investment
in Acbel-BVI resulting from (1) increase in earnings in Acbel-BVI in 2004; (2) increase in foreign exchange
gain in Acbel-BVI; and (3) increase in our payment in contract manufacturing by 10.0% to Acbel-BVI.
34
The non-consolidated non-operating expenses for the first six months of 2004 decreased by 63.0% to
NT$7.6 million (U.S.$0.2 million) primarily due to the decreases of losses in obsolete inventory, and
partially offset by the decrease of our interest payment due to interest rate cut and our repayment of loans
during this accounting period.
Net Income. Income before income tax increased to NT$875.7 million (U.S.$25.9 million) for the
first six months of 2004, an increase of 20.8% over the comparable period of 2003. Income tax expense for
the first six months of 2004 increased to NT$140.5 million (U.S.$4.2 million) from NT$106.2 million in the
comparable period of 2003. Accordingly, net income increased to NT$735.2 million (U.S.$21.8 million),
representing an increase of 18.8% over the first six months of 2003.
Inventories and Receivables
Inventories and receivables are the principal components of our current assets. We require a
significant amount of working capital support, particularly as our sales continue to grow. Accordingly,
control of inventories and receivables is a key aspect of our business operations.
As of December 31, 2003 and June 30, 2004, our receivables, including accounts receivable and notes
receivable, totaled NT$4,024.4 million (U.S.$119.2 million) on a consolidated basis and NT$2,042.8
million (U.S.$60.5 million) on a non-consolidated basis. Average receivables turnover in 2002 and 2003 on
a consolidated basis and the first six months in 2004 on a non-consolidated basis were 81 days, 78 days and
68 days, respectively.
We invoice customers for power management products when goods are shipped. Credit terms for our
power management customers are generally from cash basis to 90 days. Credit terms for electronic parts and
components customers are generally from 60 days to 150 days. Our average inventories turnover in 2002
and 2003 on a consolidated basis and the first six months in 2004 on a non-consolidated basis were 56 days,
48 days and 45 days, respectively.
Liquidity and Capital Resources
We finance our business with cash from operations and long-term and short-term debts.
As of December 31, 2003, our cash and cash equivalents was NT$2,607.5 million (U.S.$77.2 million)
and short-term investment was NT$814.2 million (U.S.$24.1 million), in aggregate a net increase of
NT$922.3 million compared with that as of December 31, 2002. We held cash and cash equivalent in the
form of cash, primarily checking and savings accounts with banks and other financial institutions in Taiwan
and overseas. As of June 30, 2004, on a non-consolidated basis, our cash and cash equivalents was
NT$193.1 million (U.S.$5.7 million) and short-term investment was NT$3,862.9 million (U.S.$114.4
million).
Our operating activities provided net cash of NT$1,305.6 million (U.S.$38.7 million) in 2003. The net
cash was primarily derived from net income of NT$1,327.9 million (U.S.$39.3 million), plus working
capital changes during the period mainly including:
"
NT$258.5 million (U.S.$7.7 million) provided from depreciation and amortization of the assets;
"
NT$928.6 million (U.S.$27.5 million) provided from increase in accounts and notes payable;
"
NT$142.2 million (U.S.$4.2 million) provided from increase in corporate income tax; and
"
NT$138.7 million (U.S.$4.1 million) provided from increase in expenses payable and other
liquidity liabilities.
The net cash from operating activities was partially offset by working capital changes during the
period, including:
"
Increase of NT$1,169.3 million (U.S.$34.6 million) in accounts and notes receivable;
"
Increase of NT$280.2 million (U.S.$8.3 million) in inventories; and
35
"
Increases of NT$55.7 million (U.S.$1.6 million) in prepayment and other liquidity assets.
In the six months ended June 30, 2004, on a non-consolidated basis, our operating activities provided
net cash of NT$460.0 million (U.S.$13.6 million).
Net cash flows provided by our investing activities in 2003 amounted to NT$1,125.8 million
(U.S.$33.3 million), mainly consisting of NT$1,270.4 million (U.S.$37.6 million) provided by disposal of
short-term investments, partially offset by cash used for purchases of property, plant and equipment.
In the six months ended June 30, 2004, on a non-consolidated basis, net cash provided for our
investment activities was NT$2,671.2 million (U.S.$79.1 million), primarily resulting from increases in
short-term investment.
Net cash used for financing activities in 2003 was NT$238.7 million (U.S.$7.1 million), primarily
resulting from payment of cash dividends, employee bonus and remuneration to our directors and
supervisors.
In the six months ended June 30, 2004, on a non-consolidated basis, our net cash provided from
financing activities was NT$159.8 million (U.S.$4.7 million), mainly consisting of increase in short-term
borrowings.
We operate our own production facilities directly or through our subsidiaries and therefore require
significant amounts of capital to build, expand, modernize and maintain our facilities and equipment. Our
capital expenditures on a consolidated basis were NT$123.6 million in 2001, NT$100.0 million in 2002 and
NT$117.2 million (U.S.$3.5 million) in 2003.
2001
2002
2003
2004E
2005E
(NT$ million)
Land & buildings
Equipment . . . . .
Testing machines
Others . . . . . . . .
.
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.
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19.9
70.0
13.2
20.5
—
59.0
18.4
22.2
0.8
51.2
31.1
34.0
10.7
134.0
81.6
106.2
—
161.0
98.0
85.0
Total . . . . . . . . . . . . . . . . . . . . . . . . . . .
123.6
100.0
117.2
332.4
344.0
We believe that we will have sufficient resources available to meet our planned capital expenditure
requirements, as well as our present working capital requirements.
Inflation
We do not believe that inflation in Taiwan has had a material impact on our results of operations.
Inflation in Taiwan was approximately 0.20% and 0.28% in 2002 and 2003, respectively.
Quantitative and Qualitative Disclosures about Market Risk
The financial market risks to which we are exposed are principally risks relating to changes in
exchange rates and interest rates. To mitigate these risks, we enter into various financial instruments solely
for the purpose of hedging, and not for speculative purposes.
Foreign Currency Risk
A large portion of our consolidated and non-consolidated net sales are denominated in currencies other
than NT Dollars, mainly U.S. Dollars. Our expenses and costs for the procurement of machinery and
equipment are denominated in NT Dollars, Japanese Yen and U.S. Dollars. Accordingly, we are exposed to
movements in the exchange rates between the U.S. Dollar, Japanese Yen and NT Dollar. We recorded
consolidated net exchange losses, after netting the foreign exchange gains, of NT$34.2 million and NT$7.0
million (U.S.$0.2 million) in 2002 and 2003, respectively, reflecting the depreciation of the U.S. Dollar in
relation to the NT Dollar.
36
The effect of future changes in currency exchange rates on our results of operations cannot be
accurately predicted. In order to mitigate such risks, we attempt to balance to the extent possible the
currency of our revenues with the currency of costs and expenses. We are allowed by our internal rules to
enter into derivative financial instruments, including currency forward contracts and options, to hedge the
currency exchange rates movements and to protect against reductions in value and volatility of future cash
flows caused by changes in foreign exchange rates. As of September 30, 2004, we had the following
derivative contacts in effect:
(i)
Acbel
Derivative financial
instruments
Principal
amount
Trading period
Maturity
(U.S.$
thousands)
Foreign exchange forward
contract (short) . . . . . . .
Foreign exchange option
contract (long) . . . . . . .
Foreign exchange option
contract (short) . . . . . . .
(ii)
5,000 Aug. 19, 2004–
Sep. 23, 2004
4,000 July 12, 2004–
July 15, 2004
33,500 June 3, 2004–
July 27, 2004
Fair value
Credit risk
(NT$
thousands)
(NT$
thousands)
Oct. 25, 2004–
Nov. 30, 2004
Oct. 14, 2004–
Oct. 19, 2004
Oct. 6, 2004–
Nov. 29, 2004
61
61
(729)
—
1,195
1,195
Acbel-BVI
Derivative financial
instruments
Foreign exchange forward
contract (long) . . . . . . . .
Principal
amount
(U.S.$
thousands)
Trading period
4,500 Dec. 4, 2003–
Jan. 7, 2004
Maturity
Fair value
(NT$
thousands)
Oct. 12, 2004–
Dec. 9, 2004
Credit risk
(NT$
thousands)
5,374
5,374
(iii) Acbel Electronic (Dong Guan) Co., Ltd.
Derivative financial
instruments
Principal
amount
Trading period
Maturity
(U.S.$
thousands)
Foreign exchange forward
contract (short) . . . . . . . .
4,500 Oct. 8, 2003–
Jan. 8, 2004
Fair value
Credit risk
(NT$
thousands)
(NT$
thousands)
Oct. 11, 2004–
Dec. 9, 2004
(572)
—
Interest Rate Risk
We endeavor to manage our short- and long-term financing needs in such a way as to minimize the
amount of debt on our balance sheet at any time. As a result, we consider that our exposure to fluctuations in
interest rates historically has not been significant, and accordingly we have not entered into interest swaps
or other hedging arrangements. As of the date of this Offering Circular, we do not have any long-term debt
outstanding.
The following table shows our short-term bank loans outstanding at December 31, 2002 and 2003 :
Principal amount
Interest rate
(NT$ in millions)
2002 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(1)
2,345.9
2,246.3(1)
including NT$89.7 million secured loan and NT$2,156.6 million unsecured loan.
Income Tax
We are currently subject to a 25% statutory corporate income tax rate in Taiwan.
37
1.50%–5.58%
0.88%–5.52%
We benefit from tax incentives generally available to ROC companies, including tax credits ranging
from 20% to 30% of certain research and development and employee training expenses. Such programs
resulted in tax credits of approximately NT$68.9 million and NT$108.1 million (U.S.$3.2 million) in 2002
and 2003, respectively.
Under the ROC Income Tax Law of 1997, retained earnings from operations after January 1, 1998 that
are not distributed to shareholders by way of dividend for the relevant operating period are subject to a 10%
corporate income tax surcharge. If all or a portion of such retained earnings are subsequently distributed to
shareholders, ROC resident shareholders may credit their ratable portion of the corporate income tax
surcharge paid against their income tax liabilities in relation to such dividend income.
Recent Development
On April 29, 2004, for the purpose of creating competitive edge for Teampo Technology and
increasing investment profit in Teampo Technology, we entered into an agreement with Synnex Technology
International Corp. (‘‘Synnex’’), a professional electronic components and products channel operator in
Taiwan, to transfer 24,720,000 shares of Teampo Technology to Synnex in exchange for 10,300,000
common shares of Synnex. The shares transferred to Synnex constituted 50% of Teampo Technology’s
equity interest. The record date for such exchange is June 29, 2004. Subsequently in August 4, 2004, we
sold to Synnex our remaining 17,701,356 shares in Teampo Technology, which constituted 36% of Teampo
Technology’s equity interest. After closing those two transactions, we do not own any equity interest in
Teampo Technology and, therefore, we no longer carry on a business of sales of electronic parts and
components.
38
OUR BUSINESS
This Offering Circular contains certain forward-looking statements. When used in this Offering
Circular, the words ‘‘believes,’’ ‘‘intends,’’ ‘‘anticipates’’ and similar expressions are intended to identify
forward-looking statements. Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Such risks and uncertainties include the timing and
acceptance of new product introductions, the actions of our competitors and business partners, and those
discussed above under ‘‘Risk Factors,’’ and ‘‘Management’s Discussion and Analysis of Our Financial
Condition and Results of Operation’’.
Overview
We are one of the leading developers, manufactures and sellers of power management systems and
devices in the world. Our power management systems and devices are widely applied in information
technology industries and telecommunications and networking industries. Our power management products
utilized in these industries include AC-DC adapters, DC-DC converters, power supply modules, VRMs, and
HSRs. In addition, we started manufacturing PHS mode mobile phones since 2002. We sold, through a
subsidiary, Teampo Technology Co. Ltd. (‘‘Teampo Technology’’), electronic components on a trading
basis. However, after we disposed all of our shareholding in Teampo Technology in 2004, we no longer
carry on a business of sales of electronic parts and components. We continue being ranked as the best
supplier of our key customers such as Apple, Hitachi, IBM, NEC and NOKIA due to our achievement in
critical items, including technology innovation, quality, responsive, delivery and cost control.
We produce and market our power management products on a ‘‘grey box’’ or ‘‘black box’’ basis. On a
‘‘grey box’’ basis, we manufacture our products according to designs and layouts provided by our
customers; whereas on a ‘‘black box’’ basis, we not only manufacture but also design our products by
reference to the customers’ specifications. Our customers are mainly chassis makers and system integrators
and brand-name system providers who develop and produce information technology products such as
computers and computer peripherals, telecommunications equipment and networking devices. Our power
management products are utilized by these customers as key components for their end products. Our
products are applied to the products of a number of industry leaders, whose trading names include Alcatel,
Apple, Cisco Systems, Dell, EMC2, Fujitsu, Hewlett-Packard, Hitachi, IBM, NCR, NEC, Nokia, Nortel,
Powerwave, Samsung, Schneider Electric, and Toshiba.
In order to take the advantage of lower labor costs and to attach to our customers, we gradually
increased our production capacity and volume outside of Taiwan, primarily in factories located in the PRC
and the Philippines. We own two manufacturing facilities in Taiwan and Dongguan City, Guangdong
Province, the PRC. In addition, our non-consolidated subsidiaries, Acbel Polytech (Philippines) Inc. and
AcTel Electronic (Dong Guan) Co., Ltd., produce our products on a contracted manufacturing basis in the
Philippines and the PRC. As a whole, we and our subsidiaries own a total of approximately 1,950,000
square feet of manufacturing space in four plants. Our sales and marketing team are based in Europe, North
America, Southeastern Asia, and the greater China region, by which we provide direct sales functions. We
have also established 20 warehouses and 11 after-sale and technical support centers throughout the world to
provide our customers with fast and convenient services in proximate locations.
Quality assurance and safety features are our main concerns when we manufacture and deliver our
power management products. We implement quality control at both the product design and commercial
production stages to ensure that our products meet customers’ satisfaction. Our corporate headquarters in
Taiwan and each of our and our subsidiary’s factories in Taiwan and the PRC have been accredited with
ISO9001 quality standards, TL9000 quality standards (for telecommunication industries), and ISO14001
environmental standards. The factory operated by our Filipino subsidiary has also been accredited with
ISO9001 and ISO14001 since 2002 and 2003, respectively. We have received numerous vendor awards from
our major customers, including IBM and Apple. All of our power management products are designed to
meet relevant international safety standards, such as UL, CSA and TÜV, and comply with strict FCC Class
B and CISPR Class II (EN55022) emission levels.
Our products have become more advanced and sophisticated over time, and many of our customers’
product development cycles have shortened in response to technological innovations and rapidly changing
market demands. We believe that continuous investment and efforts to reinforce our research and
development capabilities are key to maintaining our competitiveness in the markets for our existing
39
products and enhancing our market share and customer base for new products. We have design
headquarters, research and development laboratories and engineering laboratories in Taiwan, the PRC and
the United States, which currently employ more than 440 research and development staff. As a result of our
research and development efforts, we have developed various innovative products that we believe with
market potentials.
Our consolidated net sales have grown at a compound annual growth rate of 24.7% from NT$8,268.3
million in 2000 to NT$16,045.5 million (U.S.$475.3 million) in 2003. For the six months ended June 30,
2004 we recorded non-consolidated net sales of NT$5,611.0 million (U.S.$166.2 million) and nonconsolidated after-tax net income of NT$735.2 million (U.S.$21.8 million), compared to NT$4,474.5
million and NT$618.9 million, respectively, for the same period in 2003.
Competitive Strengths
We believe that the following strengths contribute to our competitive position in the relevant markets:
Expertise in power management solutions that allows us to provide total integrated solutions to the
information technology and telecommunications and networking
The increasing complexity and demand of high power range and reliable products and the growing
trend among manufacturers to outsource development of power management solutions have stimulated
demand for total integrated solutions. We, by leveraging our expertise in power management and
manufacturing capabilities, provide integrated solutions by analyzing customers’ power management
requirements at the system and device level of the finished products, designing, simulating and prototyping
power management solutions and manufacturing, distributing and supporting these solutions to the
information technology products, telecommunications equipment and networking devices and their end
users.
Our strong expertise and extensive know-how in power management and electronics engineering place
us at the technological forefront in our product markets. We are one of the few companies worldwide that
concentrate on high-end industrial power supply unit development, including the current slew rate, power
range and power density, shape and structure of the devices, and thermal properties to provide total power
management solutions. As a result, we are one of a few power supply developers and manufacturers in the
world that carries a broad product line, from 3W to 6000W of power output.
Our strength in mechanical and electronics engineering also allows us to provide optimal power
management solutions to our customers according to most of the customers’ system requirements, making it
possible for customers to meet their time-to-market requirements, and to ramp up production rapidly to
commercial volumes.
Highly reliable products and safety standards compliance
Product safety is one of our major concerns. We manufacture power supply products which are highly
reliable and complying with a wide range of the commonly accepted industrial safety standards and EMC
adopted in different jurisdictions, including, IEC electronic standard license and UL safety standard license.
For example:
"
IEC 60950 (Information Technology Equipment, I.T.E.);
"
IEC 601-1 (Medical Equipment);
"
UL 1310 and CSA C22.2 No. 223 (Class 2 Equipment: power supply with extra low voltage and
limited output power); and
"
UL 60950 (safety on Information Technology Equipment)
As our testing laboratories are certified by the Underwriters Laboratories Inc. (‘‘UL’’) to perform inhouse test, we may provide efficient and reliable test for the products manufactured in our and our
subsidiaries’ manufacturing facilities.
40
A value-added partner with industry leaders in the information technology and telecommunications and
networking industrial sectors
We work closely with our customers to develop sophisticated power management solutions. We
believe that our close relationships with customers and their design and development teams, as well as our
manufacturing capabilities, allow us to meet customers’ needs and, through the engineering expertise and
experience, provide quality product solutions more quickly than our competitors. We have established close
supplier-customer relationships with some of the leading manufacturers of information technology products,
telecommunications equipment and networking devices. In many instances, we share the market and
technological intelligence with our customers to cement the relationships. Such leading names as Alcatel,
Apple, Cisco Systems, Dell, EMC2, Fujitsu, Hewlett-Packard, Hitachi, IBM, NCR, NEC, Nokia, Nortel,
Powerwave, Samsung, Schneider Electric, and Toshiba have placed us on their approved vendor lists in
recognition of our consistently high product quality and quick response time. Owing to our strong
technological and industrial know-how, we are continuously named as designated vendor by a number of
leading brand-name system providers, such as IBM, to engage in the joint development and design of the
power supply module of their new products and systems, respectively. The specifications of such new
products and systems can therefore be known to us before they are available to most of our competitors.
This allows us to benefit from, and contribute to, the customers’ strategic planning and standard-setting
processes in the early stages of product development. This joint development process provides us with upto-date market information, and allows us to have input into new product decisions, ensuring that our new
products are tailored to and responsive to the end users’ needs.
Strong research and development programs and design capacity
We invest significant resources in research and development, through in-house research and
development activities, joint development with major customers, vendors and suppliers and strong
incentives to employees. The focus of our in-house research and development activities is new product
development, electronic circuit design, thermal application and production efficiency improvement.
Through cooperation and co-development of new power management solutions with our major customers,
we are able to design and produce sophisticated power supply modules and devices that meet the customers’
needs on a timely basis. Through cooperation with our vendors and suppliers, we are able to introduce new
power management devices that are cost-efficient and suitable for mass production. Our research and
development department currently employs more than 440 research and development staff, of whom 28 hold
post-graduate degrees. As of September 30, 2004, we owned 44 patents and had other 24 patents pending as
a result of our research and development efforts. Approximately 2.0% of our consolidated net sales are used
in the research and development currently; we plan to increase the research and development expenditures
in accordance with our expansion plan in the following few years.
Competitive cost structure due to our effective cost management and flexible operation system
We enjoy economies of scale in our design and manufacturing process, customer service and sourcing
of raw materials and components. Our component standardization and circuit design optimization practices
also enhances our capabilities to produce our product in a cost-efficient manner. Since many of our products
use a substantial number of the same materials and components, such as diodes, PC boards, cores, ICs,
capacitors, wires, metal and plastic casing, we have greater leverage in negotiations with key suppliers. In
addition, since 2003, we have joined a Group’s Preferred Vendor, or GPV, program to procure common raw
materials, parts and components with other three of our affiliates in the Kinpo Group. We believe our
bargaining power against vendors of high-quality materials is further enhanced by joining the GPV program.
We also maintain our position as a low cost producer of AC-DC adapters, DC-DC converters, power
supplies, open-frame power supply modules, VRMs, and HSRs by expanding our production facilities in
low cost jurisdictions such as mainland China. In addition, our suppliers of key components have also been
expanding their production infrastructure in the PRC, allowing us to manage our supplies and costs more
effectively.
Our mode of operation is highly flexible. We focus on provision of more reasonable and effective
supply chain management because we believe that efficient logistic services are required by our customers.
We have, according to our customers’ request or based on our own evaluation, established 20 logistic hubs
around the world to provide just-in-time services to our customers.
41
Experienced professional management team
Our senior management is led by a core team of professionals in the fields of management, finance
and engineering, with an average experience of over 15 years of management experience in this industry. As
a result, we are able to capture the market opportunities by directing our research and development and sales
and marketing efforts to high growth areas. We believe that we have the leadership we need to continue to
leverage our core strengths in the future.
Business Strategy
Our goal is to become a leading high-end power management system developer and manufacturer in
the world. In order to achieve this goal, we have implemented the following strategies:
Maintain position as a leading manufacturer of power supplies in information technology and
telecommunication and networking
We believe that our position as a leading manufacturer of power management products for information
technology products, telecommunication equipment, and networking devices has provided us with
significant competitive advantages. We have demonstrated our ability to manufacture sophisticated
power management devices and systems, including high-end products such as DC-DC converters, HSRs,
VRMs and high power range products, in large volumes for customers who prefer sourcing their
components from a small number of high quality manufacturers. We believes that our established reputation
as a reliable supplier of quality products provides us with the opportunity to sell a broader range of products
to our existing customers and to increase our sales of power supply units and other products in industries
such as information technology, telecommunications and networking, and overall electronics in which there
are opportunities to increase our market share. We aim to focus our efforts on establishing long-term
relationships with leading companies in high-growth markets.
Focus on innovative products and continue to conduct research and development
Our product markets are characterized by rapid technological change, which in many circumstances
resulting in the rapid obsolescence of newly developed products. We believe that effective research and
development and technological innovation are key to our continuous success. We therefore emphasize on
the development of innovative and market-oriented products that we believe with market potentials and may
generate good profit margins. Our research and development efforts are principally directed toward
upgrading our manufacturing technologies and processes, as well as developing new technologies for the
introduction of more advanced and new products.
In the past 20 years, we have developed expertise and experiences in power management technologies.
We have injected a substantial amount of resources to improve our manufacturing technology, engineering
and design capabilities on a continuing basis. Currently, we have more than 440 research and development
staff working around the world in five locations. To keep abreast of evolving industry standards and market
developments, we work closely with our customers to develop products tailored to customers’ desired
specifications and features. In addition, we have for many years maintained research collaborations with
leading public or private educational institutions in Taiwan and elsewhere to conduct joint research and
development.
Part of our research and development efforts also devote to introduction of new products that may not
be immediate relevant to power management but we believe with market potentials. An example to our
recent research and development is the PHS mode mobile telephone. We launched our first PHS mobile
telephone in October 2002 and value the prospect of the product very highly.
Establish strategic alliance with market leaders to improve technology and develop new customers
We will keep exploring the opportunity to form solid strategic alliance with market leaders in different
sectors to improve our services to the customers. We believe that strategic alliance arrangements may
provide us with access to leading-edge engineering and technology capabilities. The alliance, if formed, is
likely to enable us to expand our customer base, as well as to enhance the quality, technological
sophistication, cost efficiency and time to market of our products.
42
Provide value-added services to our customers
In addition to technological innovation, customer service is our main concern. We therefore
continually upgrade existing services and introduce new services to our customers, in addition to
manufacturing and design of our products. We will continue to set up factories and logistic hubs in close
proximity to those of our key customers. Co-location of factories and logistic hubs and warehouses ensures
rapid response to changing customer orders, which is a key factor of selection of suppliers for some of our
major customers. We operate a quality control cycle in our production line, which conducts a random
inspection of all finished products and a shopfloor online tracking system. With this tracking system, our
customers can track the status and quality of work in process for their products in our facilities. In addition,
we also provide our key customers with on-site engineering services.
Our History and Organization
We were founded on July 29, 1981, named Leadtorn Industrial Inc. We are incorporated under the
ROC Company Law and duly registered with the ROC Ministry of Economics Affairs under the registration
code of 12341051. Our original business line mainly focused on sales of electronic components on a trading
basis. In 1996, we started our manufacturing business of power management systems and devices and
related components by purchasing Acbel Plant from Vidar-SMS Co., Ltd. (‘‘VSMS’’). After such
acquisition, we changed our official name to API Technology Co., Ltd. Since then, we had engaged a dual
core business operation and maintained two business units: Electronic Components Division and Power
Supply Division.
Since 1997, we had initiated a series of expansion plans to penetrate markets of Singapore, the United
Kingdom and the PRC by establishing subsidiaries overseas, including Acbel Polytech Holding Inc., Acbel
Polytech (Singapore) Pte Ltd. and Dongguan Acbel Telecommunication Co., Ltd.. Further in 1998, we
established Assure Power Industry Technology Sdn.Bhd in Malaysia, Acbel (USA) Polytech Inc. in the
United States and Acbel Electronic (Dong Guan) Co., Ltd. in the PRC.
In 1998, we changed our official English name from API Technology Co., Ltd., which is still a wellknown power supply brand in the United States, to Acbel Polytech Inc. In 2000, we expanded our operations
in the Philippines by acquiring the EMC Computer Systems Philippines Inc. from Data General (Hong
Kong) Ltd. and in 2001 spinned off our Electronic Components Division and related business to Teampo
Technology Co., Ltd. For the purpose of creating competitive edge for Teampo Technology and increasing
investment profit in Teampo Technology, we transferred all of our shareholding in Teampo Technology to
Synnex. As a result, we do not own any equity interest in Teampo Technology and, therefore, no longer
carry on a business of sales of electronic parts and components. See ‘‘Management’s Discussion and
Analysis of Our Financial Condition and Result of Operation — Recent Development’’.
Our shares were listed on the GreTai Securities Market (‘‘GTSM’’, former ROC Over-the-Counter
Stock Market, or OTC) on December 26, 2002. Since September 8, 2003, our shares have been traded on the
TSE under the trading code of 6282. Since then, the highest closing price of our shares quoted on the TSE
was NT$36.4 per share, on February 20, 25 and 27, 2004, and the lowest closing price of our shares quoted
on the TSE was NT$23.1 per share, on August 4, 2004.
43
The following diagram shows our corporate structure as of September 30, 2004, together with details
of our direct and indirect equity interests in such subsidiaries. See ‘‘Our Business — Principal Subsidiaries
and Affiliates’’.
Acbel Polytech Inc.
Acbel Polytech
Holdings Inc.
(100%)
Acbel Polytech
(Singapore) Pte Ltd.
(100%)
Acbel Polytech
(UK) Co. Ltd.
(100%)
Acbel Polytech
(USA) Inc. (100%)
Acbel Polytech
(Malaysia) Sdn. Bhd.
(100%)
Acbel Polytech
(Philippines) Inc.
(100%)
CK Holdings Inc.
(40%)
60%
Acbel Electronic
(Dong Guan) Ltd.
(100%)
AcTel Electronic
(Dong Guan) Co., Ltd.
(100%)
40%
CSA Holdings Inc.
(64%)
(1)
The financial statements of these companies have been consolidated with those of ours in the Consolidated Financial
Statements. See ‘‘Management’s Discussion and Analysis of Our Financial Condition and Results of Operation — Basis
of Presentation’’ and Note 2 to the Consolidated Financial Statements as of and for the years ended 2001, 2002 and 2003
for a discussion of principles of consolidation.
(2)
After disposing all of our equity interest in Teampo Technology, we do not own any equity interest in Teampo
Technology or Teampo Technology (HK) Ltd. directly or indirectly.
Our corporate headquarters and principal place of business are located at No. 159, Sec. 3, Tam-King
Rd., Tamsui, Taipei, Taiwan, ROC. Our telephone number and website are (886 2) 2621-7672 and http://
www.acbel.com, respectively. Information and hyperlinks contained in our website are not and will not
form part of this Offering Circular.
Principal Applications and Products
We provide total and value-added power management solutions to our customers. We have the power
management device design and manufacture know-how to first analyze customers’ power management
needs at the device- and system-level, then to design, simulate and prototype power management products
and to finally manufacture, distribute and support these solutions around the world.
We design, manufacture and sell both standardized and customized power management products. We
seek to become a strategic supplier to our customers and to differentiate ourselves from the competitors by
offering a higher level of service to our customers. Our customers are mainly in the industries of
information technology and telecommunications and networking. We currently offer a broad range of power
supply products from AC-DC adapters, DC-DC converters, power supplies, open-frame power supply
modules, VRMs, to HSRs to these customers which are utilized in a broad range of their products. By
leveraging our expertise in electronic design and manufacturing engineering, we also design, produce and
sell PHS mobile telephones under a private labeling basis. Before we disposed our equity interest in it, we
also sold electronic parts and components, mainly consist of integrated circuit (‘‘IC’’) components, on a
trading basis through our subsidiary, Teampo Technology. We distribute most of our power management
products under the APITM or AcbelTM brands on either a ‘‘grey box’’ or a ‘‘black box’’ basis.
44
The table below sets out our consolidated and non-consolidated total net sales and percentages by
product applications of our power management products for the period indicated:
Year ended December 31,
2001
NT$’000
2002
Six months ended June 30,
2003
2003
2004
%
NT$’000
%
(consolidated)
NT$’000
%
NT$’000
%
NT$’000
(non-consolidated)
%
2,444,211
23.4
2,729,585
21.7
3,784,917
23.6
1,727,483
38.6
2,307,596
41.1
4,206,390
40.2
4,199,127
33.4
4,957,203
30.9
2,146,082
48.0
2,383,944
42.5
458,892
4.4
849,239
6.8
1,400,750
8.7
599,208
13.4
919,478
16.4
Electronic parts and
components . . . . . . . . .
3,346,696
32.0
4,787,876
38.1
5,874,769
36.6
—
—
—
—
Others(1) . . . . . . . . . . . . .
—
—
15
—
27,883
0.2
1,721
—
—
—
Net sales . . . . . . . . . . . . .
10,456,189 100.0
Power management products
Information Technology
— High power range
products . . . . . . . .
— PC and other IT
applications . . . . . .
Telecommunications and
networking . . . . . . . . . .
(1)
12,565,842 100.0
16,045,522 100.0
4,474,494 100.0
5,611,018 100.0
including sales of PHS telephones.
Principal applications
Information technology (‘‘IT’’). Substantially all information technology products utilize power
management systems and devices. Information technology is defined to include the sector of high-powerrange power management products, such as the power management products used in storage systems,
mainframes and high-end servers, and another sector include personal computers and other information
products, such as entry servers.
High power range products. Our products that are used in the information technology products
utilizing high-power-range power management systems include power supply modules with a power range
of 800W to 3,000W.
For the years ended December 31, 2002 and 2003, sales of our products which were applied to high
power range products accounted for 21.7% and 23.6%, respectively, of our consolidated total net sales. For
the six months ended June 30, 2004, sales of our products which were applied to high power range products
accounted for 41.1% of our non-consolidated total net sales, compared to 38.6% in the comparable period of
2003.
PC and other IT applications. Our products that are used on PCs or other IT applications mainly
include AC-DC adapters and power supply modules with a power range of 90W to 800W.
For the years ended December 31, 2002 and 2003, sales of products which are applied to PCs and
other IT applications accounted for 33.4% and 30.9%, respectively, of our consolidated total net sales. For
the six months ended June 30, 2004, sales of our products which applied to PCs and other IT applications
accounted for 42.5% of our non-consolidated total net sales, compared to 48.0% in the comparable period of
2003.
Telecommunications and networking. Power management is critical to telecommunication
equipment and networking devices. Manufacturers of telecommunication equipment and networking
devices continue to seek for reliable source of electric power to ensure the communication quality and
reliability. We continue to develop high-quality power management systems for our customers in the
telecommunications and networking industries. Our power management products used in the
telecommunications and networking industries mainly include DC-DC converters for telecommunications
base stations and networking equipment, HSRs for telecommunications equipment, and VRMs for
networking systems such as routers, and motherboard used on servers.
45
For the years ended December 31, 2002 and 2003, sales of our products which were applied to
telecommunication equipment and networking devices accounted for 6.8% and 8.7%, respectively, of our
consolidated total net sales. For the six months ended June 30, 2004, sales of our products which were
applied to telecommunication equipment and networking devices accounted for 16.4% of our nonconsolidated total net sales, compared to 13.4% in the comparable period of 2003.
Principal products
AC-DC adapters and DC-DC converters. We produce AC-DC adapters and DC-DC converters for
notebook computers and other mobile devices, utilizing hybrid circuits, thin film, system monitoring
circuitries, and specific ICs to increase power density and reliability at reduced cost. These products feature
PFC and power management functions for energy saving. DC-DC converters convert a DC voltage into
another higher or lower voltage. They are used in computer, networking, telecommunications and industrial
sectors to generate multiple outputs from one DC source. We also produce high density converters for
CPUs. AC-DC adapters convert AC to DC. Many models of our AC-DC adapters are designed to receive
full-range input from 90 volts to 270 volts, a feature which enables electronic devices to gain universal
power supplies worldwide. All of our adapters and converters provide stabilization protection against
voltage variations and short circuits and can produce stable voltage, current and power output to meet
customer-specific applications.
Our DC-DC converters are mainly applied to the telecommunications equipment such as mobile base
stations, and other industrial applications such as medical instruments. Main applications of our AC-DC
adapters include notebook computers, LCD monitors and CD-RW drives.
Power supply modules. We have developed, produced and sold power supplies for desktop
computers, computer peripherals and other information technology products since our inception. Currently,
we are one of world’s leading manufacturers of high-power and high-end power supplies on both ‘‘black
box’’ and ‘‘grey box’’ basis.
The power supplies covert AC into DC and are commonly used in desktop computers, workstations,
serves, computer networks, computer peripherals, modems, fax machines, photo-copying machines,
interactive televisions, satellite receivers and mobile phase base stations in order to provide stable DC
voltage and protection against voltage variation, unstable current, short-circuits and power line disturbance.
The majority of power supply manufacturers in the market generally produce power supplies which focus on
applications for notebook computers, desktop computers, entry servers, and computer peripherals which
provide an average of approximately 90–600W in power range. Compared to those manufacturers, we have
a higher exposure in high-end power application areas, such as high-end server, data storage system,
mainframes power management system. Our design capability enables us to provide power supplies
management system up to 6,000W in power range. All of our power supplies are in compliance with
international safety standards.
A portion of our power supply modules are supplied to our customers in an ‘‘open frame’’ form. Our
open-frame power supply modules are power supplies to be installed in finished electronic goods or
information appliances. Main applications of our open-frame power supply modules include set-top box,
printers, networking switching hubs, satellite receivers, medical instruments and industrial equipments.
Voltage Regulator Modules, or VRMs. VRM is a compact device or circuit that regulates the
voltage fed to the microprocessor applied on servers and telecommunication systems. The power supply of
most of these systems converts power from 12 or lower volt rail to a voltage below 1.85 volts or as low as
0.9 volts, which are required by microprocessors.
Our VRM products are voltage ID, or VID, programmable. As such, the microprocessor can program
our VRM to provide the correct voltage during power-up. Main applications of our VRM products are for
networking systems, such as routers and motherboards of servers.
High-frequency Switching Mode Rectifiers, or HSRs. We produce and sell HSRs mainly for
telecommunications equipment. HSRs supply standard DC power to the telecommunications equipment
which is converted from AC to DC. Different from adapters that supply relatively lower wattage of DC
powers to information technology products, such as personal computers (‘‘PCs’’), HSRs generally supply
46
high voltage (48 volts or 24 volts) in high wattage (from 600 watts to 6,000 watts) to telecommunications
equipment. We believe that HSRs will be one of our most important products in the next few years because
the technological barriers of this product are relatively higher than our other products.
Applications of our principal power management products are illustrated below:
Power management products
Main applications
DC-DC converters . . . . . . . . . . . . . . . for telecommunications base stations, datacom such as switches and routers and other
industrial applications
AC-DC adapters . . . . . . . . . . . . . . . . for Notebook computers, LCD devices and CD-RW drives
Power supply modules . . . . . . . . . . . . for desktop PCs, storage systems server and mainframes and POS devices
Open-frame power supply modules . . . for printers, set-top boxes, networking switching hubs, satellite receivers, medical
instruments and industrial equipments
VRMs . . . . . . . . . . . . . . . . . . . . . . . for networking systems, such as routers and motherboard used on servers
HSRs. . . . . . . . . . . . . . . . . . . . . . . . for telecommunication equipment
New and Other Products
New products
We commenced in a new product line of PHS mode mobile telephones in October 2002 to supply the
PRC market. We obtained the majority of the PHS technologies from one of the major PHS mobile
telecommunication technology developer in Japan. Our PHS mobile telephone products are supplied to a
number of PRC mobile phone makers and local mobile telecommunication carriers on a private labeling
basis. Currently, only one model of PHS mobile phones is available to our customers. We plan to introduce
three more models, including those with high-end TFT-LCD screens and camera functions, by the end of
2004 or early 2005.
Other products
In addition to the development and manufacture of power management devices and PHS mobile
telephones, we, through our consolidated subsidiary, Teampo Technology, distributed and sold primary
integrated circuits components for notebooks computers, wireless communications and opto-electronics
products.
Teampo Technology was operated as one of our business units before August 2001. In August 2001, it
was incorporated as an independent entity and one of our major subsidiaries to carry the original business
lines it did before spin-off. In June and August 2004, we entered into an agreement with Synnex to transfer
our equity interest in Teampo Technology to Synnex and thereafter we do not own any equity interest in
Teampo Technology. As a result, we ceased to conduct trading business for IC components. See
‘‘Management’s Discussion and Analysis of Our Financial Condition and Results of Operation — Recent
Development.’’
Sales and Marketing
We have a global sales network, consisting of a direct sales force and customer service
representatives. To conduct our sales and marketing activities, we have 13 sales offices and 11 technical
support and after-sale service centers located in North America, including United States and Canada;
Southeastern Asia, including Malaysia and the Philippines; Europe, in Scotland; the PRC; and Taiwan. Our
sales offices are located in proximity to our key customers. Each sales office is responsible for providing
sales and customer support and maintaining existing customer relationships. However, all purchase orders
are placed to and processed by our headquarters in Taiwan. As of September 30, 2004, we had 124 sales
staff persons worldwide. We also use independent sales representatives who operate on a commission basis
in the United State, the United Kingdom and the PRC.
47
The following table sets forth the breakdown of our net sales and percentages of net sales to different
regions:
Year ended December 31,
2001
2002
%
Taiwan .
Asia . . .
America .
Europe . .
Others . .
.
.
.
.
.
.
.
.
.
.
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.
.
.
3,733,429
3,410,258
2,148,579
1,146,419
17,504
Total . . . . . . . . . . . . . .
10,456,189
35.7
32.6
20.5
11.0
0.2
Six months ended June 30,
2003
2003
%
%
(consolidated)
(NT$ thousands, except percentages)
4,939,602
4,011,061
2,257,821
1,341,714
15,644
100.0 12,565,842
39.3
31.9
18.0
10.7
0.1
2004
%
(non-consolidated)
%
3,433,873
7,722,593
3,152,445
1,553,573
183,038
21.4 1,157,534
48.2
776,750
19.6 1,631,755
9.7
799,262
1.1
109,193
25.9
942,617
17.3 2,051,758
36.5 1,753,358
17.9
758,920
2.4
104,365
16.8
36.6
31.2
13.5
1.9
100.0 16,045,522
100.0 4,474,494
100.0 5,611,018
100.0
Customers
We sell our products to two major categories of customers, namely (i) EMS, chassis makers and
system integrators and (ii) brand-name system providers. Chassis makers and system integrators are
historically our biggest customers. However, we have started focusing on system manufacturers to supply
high-end power management devices and modules to them.
EMS, chassis makers and systems integrators
Electronic Manufacturing Services, or EMS, are manufacturers who produce electronic products
globally for brand-name system vendors on an OEM or ODM basis. Chassis makers and systems integrators
are principally regional PC and telecommunication system assemblers who supply either complete systems
or sub-systems to their customers on an original equipment manufacturing or original design manufacturing
basis. Chassis makers and system integrators purchase parts and components, including our products, from
various sources, and assemble them into a complete system, typically for sale under their own brand names
or on a private labeling basis. Our products are manufactured and supplied to the customers based on their
periodic purchase orders. In some cases, we enter into master contracts with our chassis maker and systems
integrator customers and the OEMs, and these customers typically provide us with a rolling forecast in
advance. Key customers in this category include Foxconn, Fujitsu, Flextronics, Celestica, Logitrade and
Quanta.
Brand-name system provider
Our brand-name system provider customers include some of the world’s top-tier brand-name personal
computers, telecommunications equipment, networking devices and consumer electronics vendors. We have
design contracts and logistic contracts with our brand-name system providers. We do not generally enter
into long-term production contracts with these customers, and they typically give us a rolling forecast of
three to four months in advance, and firm orders are placed with us four to six weeks in advance. With
respect to each key system manufacturer customer, we designate a dedicated team to be responsible for
customer relationship maintenance, new business development, negotiation of terms and conditions for new
orders and internal resource allocation. Customers in this category include IBM, EMC2, HPQ, NOKIA and
Apple.
Delivery
We generally distribute our products directly to customers from our factories or through our
warehouses. We use third party commercial freight delivery services or other delivery methods selected in
consultation with our customers. We have not experienced difficulties in meeting our customers’ needs in
this way. We usually take two to four weeks from receipt of orders to deliveries of products to customers.
In recent years, certain customers have required us to establish ‘‘just-in-time’’ logistic hubs near the
customers’ own production facilities. In such cases it has been our practice to lease space in commercial
warehouse facilities rather than to establish our own warehouses. We therefore have established 20
48
warehouses in Ireland, Scotland, Hungary, Korea, Japan, Singapore, Malaysia, the Philippines, the United
States, Canada, Mexico, the PRC and Taiwan. To date, we have not experienced any difficulty in meeting
the requirements of our customers in this respect.
Raw Material and Components
Most of our raw materials and components are supplied by third parties, which account for
approximately 88.0% of our non-consolidated costs of goods sold, which do not account for the income
from the sales of electronic components by Teampo Technology. Principal components and raw materials
include semiconductors, PC boards, cores, ICs, capacitors, wires, metal and plastic casing, and batteries. In
general, we purchase these components and raw materials from multiple suppliers pursuant to purchase
orders. We believe that our relations with principal suppliers are stable.
We take into consideration our projected production requirements, orders received, and procurement
lead time to determine the level of supply of components and raw materials in stock. We also review the
adequacy of our stock on a weekly basis to ensure that our production will not be interrupted by temporary
shortages. In the event any of the single source suppliers fails to provide adequate supply continuously, we
believe that our design engineers will at times be able to redesign the specific product, or work with other
producers to assist them to produce the same components, so as to mitigate the reliance on the single source
suppliers involved. In addition, we believe that to the extent that we continue to gain greater market share,
our suppliers will desire to maintain a close business relationship with us in order to gain their own
substantial market shares in component supply. For certain components, such as power semiconductors and
cores, we believe that we are one of the largest customers to a certain suppliers and, therefore, that it has
certain advantages in terms of bargaining power.
In order to enhance our bargaining power for the procurement of raw materials and components, we
joined the Group’s Preferred Vendor, or GPV, program with other three of our affiliates. Suppliers of
common key raw materials and components will be contacted jointly by us and our affiliates for the
negotiation of terms and conditions of supply, including prices. We believe that the GPV program has been
effectively enhanced our bargaining power of material and component procurement, as well as our ability to
control the cost.
Competition
The principal markets in which we compete are those for power management products. The market is
global, with industry leaders principally in Taiwan, the United States and Japan, but with production sites
and ultimate customers located throughout the world. We sell a substantial portion of our products on ‘‘grey
box’’ or ‘‘black box’’ basis, and therefore we compete for orders with other manufacturers supply their
products in either a ‘‘grey box’’ or ‘‘black box’’ basis, or both. Many of our products have relatively short
product cycles due to rapidly changing technology and evolving industry standards. There has been a
consistent downward trend in product prices, as advancement in technological know-how and sustained
competition compels producers to lower prices in order to retain market shares.
The markets for our products are highly competitive and somewhat concentrated, with a large
percentage of orders coming from a relatively small number of companies. We compete for orders with
major international companies, some of which have greater financial, technical, marketing and other
resources than us. We compete in different product lines to various degrees on the basis of price, product
quality and reliability, product features, product system compatibility, customized design and sales and
technical support. We believe that most of our customers prefer to sourcing products from a relatively small
number of outside vendors, and therefore consistent high quality execution of orders received is necessary
to foster customer loyalty, earn repeat orders and increase its market share. Our ability to compete
successfully is also subject to other factors both within and outside of our control, including successful and
timely development of new products, design innovation, efficient manufacturing of products which meet
required quality standards, pricing, as well as industry supply and demand trends and general economic
conditions. Our business is particularly dependent on demand for information technology products, such as
computers and networking products, and telecommunication equipment.
49
Production and Accreditation
The basic production processes for our power management products consist of surface mounting,
automatic insertion, manual insertion, PC board inspection, wave soldering, final assembly, in-circuit tests,
burn-in tests and inspection, function testing, final testing and packaging. We have a team of quality control
staff whose duty is to monitor design and production processes in order to ensure our quality standards for
each process have been met. These employees include line inspectors who work with members of the
production staff to conduct examination and testing during the production process.
We have set up our quality engineering department to conduct quality review at the design stage. Our
quality engineers and manufacturing engineers are highly involved during the product design stage to
evaluate the quality, reliability and manufacturing feasibility of the products. Before mass production,
reliability tests are conducted to ensure satisfactory performance during the designed useful life spans of
such products.
Most of our products are approved for self-test and certification by UL under TCP and CSA and are
tested by our automatic testing system to help ensuring their effectiveness and reliability. The corporate
headquarters in Taiwan and each of our production facilities have been accredited with ISO9001 quality
standards, TL9000 quality standards (for telecommunication industries), and ISO14001 environmental
standards. The facilities of our subsidiary in the Philippines have also been accredited with ISO9001 and
ISO14001 since 2002 and 2003, respectively. The ISO is an organization formed by delegates from member
countries to establish international quality assurance standards for engineering and manufacturing
processes. The ISO standards have been adopted by more than 60 countries. The certification process
involves subjecting the production processes and the quality management systems at our factories to review
and surveillance for various periods. The ISO certifications also provide independent verification to
customers as to the quality standards in our manufacturing processes. The Occupational Health and Safety
Assessment Series (‘‘OHSAS’’) specification 18001 has been developed in response to urgent customer
demand for a recognizable occupational health and safety management system standard, which consists of
construction materials testing, mechanical and chemical testing with respect to buildings and industrial
products and environmental monitoring and testing. OHSAS 18001 has been developed to be compatible
with the ISO9001 quality management system and ISO14001 environmental management system standards,
in order to facilitate the integration of quality, environmental and occupational health and safety
management systems by organization, if they wish to do so.
Research and Development
To meet our customers’ needs and to contribute to our continued success, we continually engage in
research and development activities. We currently employ more than 440 staff worldwide to provide inhouse research and development service to selected key customers. In addition, we operate five laboratories
in Taiwan, the PRC and the United States.
As of September 30, 2004, our design headquarters had a team of 314 staff and focus on the research
and development relating to server, middle-efficiency power supply modules, PC, notebook adaptors, DCDC converters and VRMs. Our PRC laboratory focuses on research and development in high-efficiency
power supply with a team of 127 staff. Our engineering lab in the United States, the Sunnyvale Lab, has six
consultants and provides research and development service in DC-DC converter and VRMs to our
customers.
In conducting our research and development activities, we work closely with the customers. This close
involvement of the research and development teams with customers at each stage of the design and
development process positions us at the leading edge of technological innovation in the manufacture of
power management systems and devices.
Our research and development achievements include:
"
Successfully completed 600W’s N+1 Redundant power product for servers;
"
Successfully completed 150W, 200W, 350W, 500W’s high-end low profile 1U power supply;
50
"
Successfully improved the existing 54V/50A and 54V/100A rectifier efficiency to 91%, with
power factor up to 0.99;
"
Successfully developed 60W, 65W, 90W and 120W adapters for notebooks;
"
Successfully completed 42W-60W power supply module for 17’’ LCD monitors and 190W open
frame power supply for major kind of LCD PCs;
"
Successfully enhanced the applicability of DC-DC modules and PSU products and completed
20V to 60V wide input range DC-DC modules and completed -48V/+24V dual input PSU
products;
"
Successfully completed 186W/inch3 high power density and 94% high efficiency 1000W PFC
modules;
"
Successfully completed super high power density (91%) low voltage high current half brick
150W DC-DC converters for network system power requirement;
"
Completed designs of VRM 9.X and VRM 10.X, low voltage high current power supply products
for network systems and new generation CPU, which have been approved by Intel and IBM; and
"
Successfully introduced the power supply automated testing system design for all mainframe
computers.
For 2002 and 2003, we expended NT$302.9 million and NT$374.9 million (U.S.$11.1 million),
respectively, on research and development activities on a consolidated basis.
Quality Assurance Policy
All of our products undergo necessary testings, such as electronic magnetic interference testing,
required by the safety and environmental protection regulations of all major countries. In addition to that, to
meet our customers’ satisfaction, we also operate a quality control cycle in our production line, which
conduct a random inspection of all finished products, and a shopfloor online tracking system. With this
tracking system, our customers can track the status and the quality of work in progress for their products in
our facilities in Taiwan and the PRC on a real time basis.
Customer awards
We have received numerous vendor awards from our major customers. The following table sets forth
significant awards we have received:
Customer
IBM — Charlotte . . . . . . . .
TEC . . . . . . . . . . . . . . . . .
NCR — Atlanta . . . . . . . . .
NCR — RSG . . . . . . . . . . .
SNI — Singapore . . . . . . . .
Wincor Nixdorf — Singapore
Fujitsu . . . . . . . . . . . . . . . .
Nokia — NSP. . . . . . . . . . .
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Award
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Appreciation Award
Supplier Contribution Award
Key Supplier Award
Outstanding Supplier Award
Best In Class
Value for WN
Excellent Products and Services
Supplier Excellent Performance
51
Year
1997
1997
1997
1998
1999
2001
2001
2002
Production Facilities
The following map indicates the worldwide locations of our and our subsidiaries’ production facilities,
research and development teams, sales and marketing forces and logistics hubs.
We and our subsidiaries currently maintain four manufacturing facilities in Taiwan, the PRC and the
Philippines. The following table sets out the location and certain information regarding these plants.
Plant
Location
Approximate
production
space
Number of
production
lines
Owned or
leased
(m2)
ROC
Tamsui Factory . . . . . . . . . . . . . .
PRC
Acbel-Dongguan Factory . . . . . . .
AcTel-Dongguang Factory . . . . . .
Philippines
Quezon Factory. . . . . . . . . . . . . .
159 Tam-king Road, Sec. 3,
Tamsui, Taipei
15,800
4
owned
No. 13-16, Nong Yeh Road, Hong
Yeh Industrial District, Tang Xia
Town, Dong Guan City, Guang
Dong Province, China 523710
130,000
17
owned
No. 13-16/1, Nong Yeh 11 Road,
Hong Yeh Industrial District, Tang
Xia Town, Dong Guan City, Guang
Dong Province, China 523710
26,000
1
owned
1000 Aurora Blvd., Cubao, Quezon
City, Metro Manila
9,300
4
owned
Our Tamsui Factory started in July 1982 and now has approximately 850 workers. It was accredited
with ISO9001 in March 1993, TL9000 in September 2001, ISO14001 in December 1997 and OHSAS 18001
in December 2001. Currently, our Tamsui Factory has four main loading lines, two DC-DC lines, one CPE
line, one multi-function line, one HSR line and one auto insertion and SMD line, with total capacity per
month of 200,000 units.
Our Acbel-Dongguan Factory started in September 1994 and now has approximately 5,000 workers. It
was accredited with ISO9002 in August 1995, ISO9001 in October 2001, TL9000 in July 2002, ISO14001 in
February 2000 and OHSAS 18001 in March 2003. Currently, our Acbel-Dongguan Factory has 17 main
loading lines, one cable assembly, three HSR line, one magnetic parts line and one automatic insertion,
SMD and sub-assembly line, with total capacity per month of 1,250,000 units.
52
Our AcTel-Dongguang Factory started in 2002 and now has approximately 50 workers. It was
accredited with ISO9001 and TL9000 in 2002. Currently, our AcTel-Dongguang Factory has one production
line, with total capacity per month of 50,000 units.
Our Quezon Factory started in December 1977 and now has approximately 550 workers. It was
accredited with ISO9002 in June 1992, ISO9001 in February 2002 and ISO14001 in May 2003 and OHSAS
18001 in March 2003. Currently, our Quezon Factory has four main loading lines, two testing lines, one auto
insertion line and one SMD line. Total capacity of our Quezon Factory is 150,000 units per month.
Intellectual Property
Our operational success will depend, in part, on the ability to develop, acquire and protect our
intellectual property, principally related to proprietary manufacturing processes and techniques. As of
September 30, 2004, we owned 44 patents in the United States, ROC, Japan, the EU and the PRC, and had
24 pending patent applications in the ROC, the United States, Japan, EU and the PRC.
We expect to continue to file patent applications when appropriate to protect our proprietary
technologies. We also may need to enforce our patents or other intellectual property rights or to defend
ourselves against claimed infringement of the rights of others in litigation which could incur substantial
expenses.
We have registered 29 trademarks in ROC, the United States, the EU, Japan, the United Kingdom,
Hong Kong, and the PRC, and have 12 pending trademark applications in ROC, the United States, Canada,
the Philippines, Hong Kong and the PRC.
We seek to execute confidentiality and non-disclosure agreements with our customers and consultants
in the ordinary course of our business and to limit access to and distribution of our proprietary information.
Environmental Matters
Our manufacturing processes involve loading, assembly, testing and packaging with limited
environmental concerns. These processes generate no liquid waste nor gaseous emission and limited
amount of solid waste. Therefore, under the regulations concerning protection of the environment of ROC,
we are not required to apply for permission for gaseous emission or for dispose of toxic waste. However, for
environmental protection purposes, we have complied with the Waste Electronics and Electrical Equipment
Directive of EU and the Restriction of Hazardous Substance in our manufacturing and waste disposal
processes. We have also introduced a lead-free manufacturing process depending on customers’ demand.
We have not been subject to any material fines or legal action involving non-compliance with any
relevant environmental regulations, nor are we aware of any threatened or pending action by any
environmental regulatory authority in Taiwan, the PRC or the Philippines.
We have placed emphasis on the protection of the environment and have adopted abatement and
recycling programs generally accepted in the industry for all our industrial processes. Our Taiwan facilities
have been accredited with ISO14001 since 1997; the Dongguan facilities have been accredited with
ISO14001 since 2000.
Legal Proceedings
Neither we nor any of our subsidiaries is involved in any litigation or other proceedings the outcome
of which we believe might, individually or taken as a whole, adversely and materially affect our financial
results or operations.
Insurance
We maintain insurance policies with independent third parties in respect of properties (covering
earthquake, typhoon, flood, theft and other accidents), goods in transit, employee fiduciary, business
liability (covering premises operation, products liability, contractual liability, premises medical payments,
excess auto liability, employer’s liability, etc.) and business interruption.
53
While we believe our insurance policies to be adequate and in line with industry norms in Taiwan,
significant damage to any of our business risk, whether as a result of earthquake or other causes, could have
a material adverse effect on us. Insurance coverage on our property, plant, equipment and goods (including
goods in transit), on a consolidated basis, amounted to approximately NT$17,975,105,034 as of September
30, 2004. Currently, we carry a Directors and Officers and Company Reimbursement Elite Insurance Policy
(D&O) amounted to U.S.$5,000,000. In addition, we have insurances policies covering our product
liabilities and others common in the industries in which we conduct our business.
Principal Subsidiaries and Affiliates
The information sets forth below reflects our direct and indirect equity interests in our subsidiaries and
affiliates as of June 30, 2004.
Company
Main business
Acbel Polytech Holdings Inc. . Investment Holding Company
Acbel Polytech (Singapore) Pte Investment Holding Company
Ltd.(2) . . . . . . . . . . . . . . .
Acbel Polytech (Malaysia) Sdn. Business Consultant on power
Bhd.(2) . . . . . . . . . . . . . . .
supply business
Acbel Polytech (USA) Inc.(2) . Consulting on power supply
business
Acbel Polytech (UK) Co.,
Consulting on power supply
Ltd.(2) . . . . . . . . . . . . . . .
business
Acbel Polytech (Philippines)
SPS Processing
Inc.(2) . . . . . . . . . . . . . . .
Acbel Electronic (Dong Guan) Power supply refining and
Limited(3) . . . . . . . . . . . . .
manufacturing business
AcTel Electronic (Dong Guan) Power supply refining and
Co., Ltd.(3) . . . . . . . . . . . .
manufacturing business
CK Holdings Inc.(4) . . . . . . . . Investment Holding Company
CSA Holdings Inc.(4) . . . . . . . Investment Holding Company
Teampo Technology Co., Ltd. . Wholesaling and Retailing of
Electronic Components
Teampo Technology (HK)
Wholesaling and Retailing of
Ltd.(5) . . . . . . . . . . . . . . .
Electronic Components
Place of
incorporation
British Virgin
Islands
Singapore
Our direct and
indirect equity
interest(1)
Total paid-in
capital
U.S.$61,400,000
100%
S$85,214,000
100%
Ringgit100,000
100%
U.S.$50,000
100%
£3
100%
Peso74,875,000
100%
PRC
U.S.$39,150,000
100%
PRC
U.S.$1,000,000
100%
Philippines
Philippines
ROC
Peso12,500,000
Peso20,000,000
NT$494,080,000
40%
64%
36%
Hong Kong
HK$100,000
36%
Malaysia
U.S.A.
UK
Philippines
Note:
(1)
There has no material change in our direct and indirect equity interests in each of our principal subsidiaries and affiliates
since June 30, 2004, except that Teampo Technology and Teampo-HK are no longer be our consolidated subsidiary after
we disposed all of our shareholding on it in August 2004. See ‘‘Management’s Discussion and Analysis of Our Financial
Condition and Results of Operation — Recent Development’’.
(2)
Acbel-SGP, Acbel-Malaysia, Acbel-USA, Acbel-UK and Acbel-PHI are wholly owned subsidiaries of Acbel-BVI.
(3)
Acbel-Dongguan and AcTel-Dongguang are wholly-owned subsidiaries of Acbel-SGP.
(4)
CK holds 60% of shares of CSA.
(5)
Teampo-HK is a wholly owned subsidiary of Teampo Technology Co., Ltd.
Acbel Polytech Holdings Inc. (‘‘Acbel-BVI’’) was established in British Virgin Islands on June 18,
1997, with the paid-in capital of U.S.$61,400,000 as of June 30, 2004. Its registered office is Box 957
Offshore Incorporations Centre, Road Town, Tortola, B.V.I. and Acbel-BVI is an investment holding
company.
Acbel Polytech (Singapore) Pte Ltd. (‘‘Acbel-SGP’’) was established in Singapore on August 8, 1997,
with the paid-in capital of S$85,214,000 as of June 30, 2004. Its registered office is 10 Collyer Quay, #1908 Ocean Building, Singapore 049315 and Acbel-SGP is an investment holding company.
54
Acbel Polytech (Malaysia) Sdn. Bhd. (‘‘Acbel-Malaysia’’) was established in Malaysia on February
26, 1998, with the paid-in capital of Ringgit 100,000 as of June 30, 2004. Its registered office is 7. Jalan 1/
149J Sri Petaling Kuala Lumper 57000, Malaysia. It engages in marketing consulting on the power supply
business.
Acbel Polytech (USA) Inc. (‘‘Acbel-USA’’) was established in the United States on June 19, 1998,
with the paid-in capital of U.S.$50,000 as of June 30, 2004. Its registered office is 251 Dominion Drive,
Suite 103, Morrisville, North Carolina 27560, U.S.A. Acbel-USA is a consulting firm providing consulting
and marketing service relating to power supply.
Acbel Polytech (UK) Co., Ltd. (‘‘Acbel-UK’’) was established in the United Kingdom on December 2,
1997, with the paid-in capital of £3 as of June 30, 2004. Its registered office is 7-10 Chandos Street,
Cavendish Square, London W1M 9DE, U.K. Acbel-UK is a consulting firm providing consulting and
marketing service relating to power supply.
Acbel Polytech (Philippines) Inc. (‘‘Acbel-PHI’’) was established in the Philippines on January 9,
2001, with the paid-in capital of Peso74,875,000 as of June 30, 2004. Its registered office is 1000 Aurora
Blvd., Cubao, Quezon City, Philippines 1109. It engages in power supply refining and manufacturing
business.
Acbel Electronic (Dong Guan) Limited (‘‘Acbel-Dongguan’’) was established in PRC on September
25, 1998, with the paid-in capital of U.S.$39,150,000 as of June 30, 2004. Its registered office is No.17-28,
Hong Yeh Rd., Hong Yeh Industrial District, Tang Xia Town, Dong Guan City, Guang Dong Province,
China 523710. It engages in power supply refining and manufacturing business.
AcTel Electronic (Dong Guan) Co., Ltd. (‘‘AcTel-Dongguang’’) was established in PRC on December
14, 2001, with the paid-in capital of U.S.$1,000,000 as of June 30, 2004. Its registered office is No. 13-16/1,
Nong Yeh 11 Road, Hong Yeh Industrial District, Tang Xia Town, Dong Guan City, Guang Dong Province,
China 523710. It engages in power supply refining and manufacturing business.
CK Holdings Inc. (‘‘CK’’) was established on October 2, 2001, with the paid-in capital of
Peso12,500,000 as of June 30, 2004. Its registered office is 30/F, Citibank Tower, 8741 Paseo de Roxas,
Makati City, Philippines. CK is an investment holding company.
CSA Holdings Inc. (‘‘CSA’’) was established on September 27, 2001, with the paid-in capital of Peso
20,000,000 as of June 30, 2004. Its registered office is 30/F, Citibank Tower, 8741 Paseo de Roxas, Makati
City, Philippines. CSA is an investment holding company.
Teampo Technology Co., Ltd. (‘‘Teampo Technology’’) was established in ROC on July 5, 2001, with
the paid-in capital of NT$494,080,000 as of June 30, 2004. Its registered office is 11 Fl., 99 Nan-King East
Road, Sec. 5. It engages in wholesale and retail business of electronic components. After we disposed our
equity interest in Teampo Technology in August 2004, Teampo Technology is no longer a subsidiary of us.
Teampo Technology (HK) Ltd. (‘‘Teampo-HK’’) was established on September 26, 1998, with the
paid-in capital of HK$100,000 as of June 30, 2004. Its registered office is Flat A, 14/F, Kut Shing Building,
8 Kut Shing Street, Chaiwan, HK. It engages in wholesale and retail business of electronic components.
After we disposed our equity interest in Teampo Technology in August 2004, Teampo-HK is no longer a
subsidiary of us.
Related Party Transactions
We, our subsidiaries and certain of our affiliates, in the ordinary course of business or from time to
time, enter into transactions with each other. We believe that all such transactions were based on general
commercial practice. See Note 14 to the ‘‘Non-consolidated Financial Statements as at and for the six
months ended June 30, 2003 and 2004’’, and Note 15 to the ‘‘Consolidated Financial Statements as at and
for the years ended December 31, 2001, 2002 and 2003’’.
55
MANAGEMENT AND EMPLOYEES
Directors
Our board of directors is elected by the shareholders in a general meeting at which a quorum,
consisting of a majority of all issued and outstanding common shares, is present. The Chairman is elected by
the board from among the directors. Our nine-member board of directors is responsible for the management
of our business.
The term of office for our directors is three years from the date of election. Directors may serve any
number of consecutive terms and may be removed from office at any time by the approval of at least twothirds of the Shares represented at a shareholders’ meeting in which a quorum of at least a majority of all
issued and outstanding Shares are represented. Normally, all board members are elected at the same time,
except where the posts of one-third or more of the directors are vacant, at which time a special meeting of
shareholders will be convened to elect directors to fill the vacancies.
The following table sets forth the name of each of our current directors, his/her position, the
percentage of Shares held, the business address and other significant positions and qualifications held by
him/her.
Name
Position
Rock S.H. Hsu . . . . . . . . . . . . .
Chairman
Hsien-Min Kuo(2) . . . . . . . . . . .
Percent of
Shares held(1)
Business address
Qualification
0.56%
11/F, No. 60, Nan-king
East Road, Section 5,
Taipei 105, Taiwan
B.S. of National Taiwan
Normal University
Director
24.81%
10/F, No. 99, Nan-king
East Road, Section 5,
Taipei 105, Taiwan
B.S. of National Taiwan
University
Hong-Jen Chuang(3) . . . . . . . . . .
Director
0.58%
8/F, No. 267, Xinyi Road,
Section 4, Taipei 106,
Taiwan
B.S. of Soochow
University
Po-Chang Chen(4) . . . . . . . . . . .
Director
0.37%
P.O. Box 1109 GT, Grand
Cayman, Cayman
Island, B.W.I.
M.B.A. of National Sun
Yat-sen University
Shin Chen(5) . . . . . . . . . . . . . . .
Director
17.78%
14/F, No. 199, Section 2,
Anhe Road,
Taipei 106, Taiwan
Ph.D. of Nova
Southeastern
University
Chien-Min Lee(6) . . . . . . . . . . . .
Director
0.00%
3/F, No. 9, Lane 150, Sec.
5, Roosevelt Road,
Taipei 116, Taiwan
E.M.B.A of National
Taiwan University
David C.S. Kao. . . . . . . . . . . . .
Director
0.45%
6/F–1, No. 72–9, Ren-ai
Road, Section 2,
Taipei 100, Taiwan
B.S. of National Cheng
Kung University
Tony C.K. Wan. . . . . . . . . . . . .
Director
0.31%
2/F, No. 11, Alley 9, Lane B.S. of National Chiao
105, Tianmu E. Road,
Tung University
Taipei 111, Taiwan
Chi-Chia Hsieh(6) . . . . . . . . . . .
Director
0.06%
No. 2, Zhucun 2nd Road,
Hsinchu 300, Taiwan
(1)
As of September 30, 2004
(2)
Nominated by Kinpo Electronics, Inc.
(3)
Nominated by Hyield Venture Capital Co., Ltd.
(4)
Nominated by Gold Technology Limited.
56
Ph.D. of University of
Antaclara
(5)
Nominated by China Development Industrial Bank
(6)
Independent director
Supervisors
We currently have three supervisors, each serving a three-year term. Supervisors are typically elected
at the time when directors are elected. The supervisors’ duties and powers include investigation of our
business and financial condition, inspection of our corporate records, verification and review of financial
statements presented by our board of directors at the shareholders’ meetings, convening of shareholders’
meetings under certain circumstances, representing us in negotiations with our directors and notification,
when appropriate, to the board of directors or the director(s) to cease acting in contravention of any
applicable law or regulation, our Articles of Incorporation (the ‘‘Articles’’) or any resolution adopted at a
shareholders’ meeting. Each supervisor is elected by our shareholders and cannot concurrently serve as a
director, management officer or other staff member. For a public company, such as us, the ROC Company
Law requires that at least two supervisors be in office at all times and that a supervisor’s term of office be
no more than three years.
The following table sets forth the name of each of our current supervisors, the percentage of Shares
held, the business address and other significant positions and qualification held by him/her.
Name
Position
Percent of
Shares held(1)
Business address
Qualification
Ping-Ho Chiu . . . . . . . . . . . . . .
Supervisor
0.10%
3/F, No.9, Lane 124,
Chongqing S. Road,
Section 3, Taipei 100,
Taiwan
B.S. of National Chung
Hsing University
Hui Ling Wang(2) . . . . . . . . . . .
Supervisor
17.78%
8/F, No.2, Lane 66, Siwei
Road, Da-an District,
Taipei 106, Taiwan
M.B.A. of University of
Texas at Arlington
Shih Fang Hu(3)
Supervisor
0.00%
6/F, No.135, Nanchang
Road, Section 1,
Taipei 100, Taiwan
M.B.A. of National
Cheng Chi University
. . . . . . . . . . . . . .
(1)
As of September 30, 2004
(2)
Nominated by China Development Industrial Bank
(3)
Independent supervisor
In accordance with ROC Law, each of our directors and supervisors owes fiduciary duties to all
shareholders. Currently, we have two independent directors and one independent supervisor. However, the
right of our shareholders to bring shareholders’ suits against us or the board of directors under ROC Law are
much more limited than those of the shareholders of U.S. corporations. Therefore, our public shareholders
may have more difficulty in protecting their rights in connection with actions taken by our management
members of the board of directors or controlling shareholders than they would as shareholders of a U.S.
corporation.
57
Executive Officers
The following table sets forth information relating to our executive officers. All executive officers
listed below can be contacted at our registered office.
Name
Position
Highest education
Years with us
David C.S. Kao. . . . . . . . . . . . . . . . . .
President
B.S., National Cheng Kung
University
8
Tony C.K. Wan. . . . . . . . . . . . . . . . . .
Senior Vice President
B.S., National Chiao Tung
University
8
Walter Chang . . . . . . . . . . . . . . . . . . .
Vice President
B.S., National Cheng Kung
University
8
Joe Chang . . . . . . . . . . . . . . . . . . . . .
Vice President
Master, University of
Northeastern
8
Sander Fann . . . . . . . . . . . . . . . . . . . .
Vice President
B.S., National Tamkang
University
8
Harry Lee . . . . . . . . . . . . . . . . . . . . .
Vice President
B.S., Chung Yuan Christian
University
8
Hesse Uang . . . . . . . . . . . . . . . . . . . .
Assistant Vice President
Diploma, Far East College
8
Danny Wang . . . . . . . . . . . . . . . . . . .
Senior Manager
Diploma, National Taiwan
University of Science
and Technology
8
Vincent Lien . . . . . . . . . . . . . . . . . . .
Assistant Vice President
B.S., Tatung College
2
Rock S.H. Hsu, aged 60, joined us in 1996 and has served as our Chairman since1996. Currently, Mr.
Hsu also serves as chairman of Compal Electronics, Inc., Kinpo Electronics, Inc., Teleport Access Services,
Inc., and Savecom International Inc. and director of Teampo Technology Co., Ltd., Toppoly Optoelectronics
Corp. and China Development Financial Holding Corp. Mr. Hsu graduated with a B.S. degree from the
Taiwan Normal University.
Hsien-Min Kuo, aged 52, joined us in 1996 and has served as our director since 2003. Currently, Mr.
Kuo also serves as director of Teampo Technology Co., Ltd. and Swenc Inc., and supervisor of International
Semiconductor Technology Ltd. Mr. Kuo graduated with a B.S. degree from the Department of Electrical
Engineering, National Taiwan University.
Hong-Jen Chuang, aged 52, joined us in 1998 and has served as our director since 2003. Currently,
Mr. Chuang also serves as director of Teampo Technology Co., Ltd. Mr. Chuang graduated with a B.S.
degree from the Department of Accounting, National Soochow University.
Po-Chang Chen, aged 40, joined us in 1998 and has served as our director since 2003. Currently, Mr.
Chen also serves as director of Soft-world International Corp. Mr. Chen graduated with a M.B.A. degree
from the National Sun Yat-Sen University.
Shih Chen, aged 56, has served as our director since 2004. Currently, Mr. Chen also serves as
chairman of CDIB Knowledge-Based Economy Venture Capital Co., Ltd. and Equity Inc. and also as
director of Compal Electronics, Inc., New Century Infocomm Tech Co., Ltd. and Photronics Semiconductor
Mask Corp. Mr. Chen graduated with a Ph.D. degree from the Nova Southeastern University.
Chien-Min Lee, aged 60, joined us in 2002 and has served as our director since 2003. Currently, Mr.
Lee also serves as director of Lead Electronics Inc. Mr. Lee graduated with an Executive M.B.A. degree
from the National Taiwan University.
David C.S. Kao, aged 54, joined us in 1996 and has served as our director and president since 1996.
Mr. Kao graduated with a B.S. degree from the National Cheng Kung University.
58
Chi-Chia Hsieh, aged 60, joined us in 1998 and has served as our director since 2003. Currently, Mr.
Hsieh also serves as deputy chairman of Microelectronics Technology Inc. and director of Kopin Taiwan
Corporation. Mr. Hsieh graduated with a Ph.D. degree from the University of Antaclara.
Tony C.K. Wan, aged 51, joined us in 1996 and has served as our director since 2003 and vice
president since 1995. Mr. Wan graduated with a B.S. degree from the Department of Communication
Engineering, National Chiao Tung University.
Ping-Ho Chiu, aged 57, joined us in 1997 and has served as our supervisor since 2003. Currently, Mr.
Chiu also serves as director and vice president of Kinpo Electronics, Inc. and supervisor of Teampo
Technology Co., Ltd. Mr. Chiu graduated with a B.S. degree from the Department of Business
Administration, National Chung Hsing University.
Hui-Ling Wang, aged 41, joined us in 2002 and has served as our supervisor since 2003. Currently,
Ms. Wang also serves as director of LC United Chemical Corporation, WIN Semiconductors Corp., CDIB
Technology Consulting Ltd. and supervisor of Luminous Town Electric Co., Ltd. Ms. Wang graduated with
a M.B.A. degree from the University of Texas at Arlington.
Shih-Fan Hu, aged 50, joined us in 1997 and has served as our supervisor since 2003. Currently, Mr.
Hu also serves as chairman and president of CW Management Consulting Ltd. and supervisor of Precision
Silicon Group, RayComm Microwave Technologies, Inc. and BESTCOM Infotech Corp. Mr. Hu graduated
with a M.B.A. degree from the National Cheng-chi University.
Walter Chang, aged 43, joined us in 1996 and has served as our vice president since 2000. Before
joining us, Mr. Chang was an assistant vice president of Hua Ho Financial Consultants Co., Ltd. Mr. Chang
graduated with a bachelor’s degree from the National Chiao Tung University.
Joe Chang, aged 48, joined us in 1996 and has served as our vice president since 2002. Mr. Chang
graduated with a master’s degree from the University of Northeastern.
Sander Fann, aged 47, joined us in 1996 and has served as our vice president since 2002. Before
joining us, Mr. Fann was a consultant of Uppermost Electronic Co., Ltd. Mr. Fann graduated with a
bachelor’s degree from the National Tamkang University.
Harry Lee, aged 46, joined us in 1996 and has served as our vice president since 2002. Before joining
us, Mr. Lee has served as a consultant with Uppermost electronic Industries Co., Ltd. Mr. Lee graduated
with a bachelor’s degree from the Chung Yuan Christian University.
Hesse Uang, aged 48, joined us in 1996 and has served as our assistant vice president since 1998. Mr.
Uang graduated with a diploma from Far East College.
Danny Wang, aged 45, joined us in 1996 and has served as our senior manager since 2002. Mr. Wang
graduated with a diploma from the National Taiwan University of Science and Technology.
Vincent Lien, aged 45, joined us in 2003 when served as our assistant vice president. Before joining
us, Mr. Lien was the Assistant Vice President of general administrative division of Phihong Technology
Co., Ltd. Mr. Lien graduated with a bachelor’s degree from Tatung College.
Compensation of Directors, Supervisors and Executive Officers
For 2003, we paid to our directors, supervisors and executive officers NT$72,073,920 in aggregate
cash remuneration.
Interests of Management in Certain Transactions
Several of the our directors, supervisors and executive officers also serve as directors, supervisors or
executive officers of companies with which we do business. These companies include our affiliates. We
conduct these transactions on an arms-length basis. See Note 15 in the ‘‘Notes to Consolidated Financial
Statements as of and for the years ended December 31, 2001, 2002 and 2003’’.
59
Employees
Overview
We had the following number of employees on a consolidated basis as of the period indicated:
As of September
30,
As of December 31,
2002
Administrative . . . . . . . .
Research and development
Manufacturing . . . . . . . .
Sales and marketing. . . . .
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.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2003
2004
.
.
.
.
262
303
3,272
152
220
352
4,133
168
234
441
5,173
126
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,908
4,771
5,974
As of September 30, 2004, all of our employees worked on a full-time basis. The average age of the
employees is 34.1 years old. None of our employees is represented by collective bargaining organization,
such as a union, or subject to any bargaining agreements.
As of September 30, 2004, 52.5% of our research and development personnel held a bachelor’s degree
or higher educational qualification and 61.8% of our senior to mid-ranking management and administration
personnel held a bachelor’s degree or higher educational qualification. We have placed considerable
importance on the recruitment, training and retention of a team of qualified and experienced engineers to
improve our competitive ability.
Our employees in the ROC are not unionized and neither we nor any of our subsidiaries have
experienced any significant labor disputes in the past five years.
Employee Remuneration
Employee salaries are reviewed annually. Salaries are adjusted based on industry standards, inflation,
operation results and individual performance. In addition, employees may also participate in annual profit
distribution pursuant to Article 31 of the Articles.
Article 31 of the Articles provide that after we pay all taxes, recover any past losses and allocate legal
reserve, 2% of the net profit shall be allocated as directors and supervisors’ remuneration and 5% of the net
profit shall be allocated to employees as employee bonuses in the form of cash or shares. In addition, the
ROC laws require that employees be given preemptive rights to subscribe for between 10% to 15% of any
rights issues or share offerings of us, except issuance in connection with exercises of employee stock
options, exercises of warrants, conversion of bonds, mergers and spin-offs or by way of a private placement.
60
PRINCIPAL SHAREHOLDERS
In so far as known to us, as of June 30, 2004, there is no person other than our directors and
supervisors who, directly or indirectly, is interested in 10% or more of our share capital.
61
CHANGES IN ISSUED SHARE CAPITAL
The following table shows the increases in our issued share capital since incorporation:
Date of issue
Type of issue
Par value of Shares
Number of issued
Shares
Number of Shares
outstanding after
issuance
August 1981 . . . . . . Incorporation
NT$10
200,000
200,000
November 1984. . . . Rights issue
NT$10
200,000
400,000
February 1986. . . . . Rights issue
NT$10
600,000
1,000,000
October 1987 . . . . . Rights issue
NT$10
1,500,000
2,500,000
October 1989 . . . . . Rights issue
NT$10
500,000
3,000,000
March 1990 . . . . . . Rights issue
NT$10
3,000,000
6,000,000
June 1991. . . . . . . . Rights issue
NT$10
6,000,000
12,000,000
July 1994 . . . . . . . . Rights issue
NT$10
2,000,000
14,000,000
September 1996 . . . Rights issue
NT$10
91,000,000
105,000,000
October 1997 . . . . . Rights issue, capitalization of stock
dividends and capitalization of
employee bonuses
NT$10
50,340,000
155,340,000
September 1998 . . . Rights issue, capitalization of stock
dividends, capitalization of
employee bonuses and
capitalization of legal reserve
NT$10
94,360,000
249,700,000
September 1999 . . . Capitalization of stock dividends,
capitalization of employee
bonuses and capitalization of
legal reserve
NT$10
51,200,000
300,900,000
September 2002 . . . Capitalization of stock dividends
and capitalization of employee
bonuses
NT$10
31,830,000
332,730,000
August 2003 . . . . . . Capitalization of stock dividends
and capitalization of employee
bonuses
NT$10
36,499,000
369,229,000
July 2004 . . . . . . . . Capitalization of stock dividends
and capitalization of employee
bonuses
NT$10
42,767,000
411,996,000
62
TERMS AND CONDITIONS OF THE BONDS
The following terms and conditions (except for the sentences in italics) will be endorsed on the
Definitive Certificates issued in respect of the Bonds. The Global Certificate contains provisions which
apply to the Bonds when they are represented by the Global Certificate, some of which modify the effect of
the terms and conditions set out below. See ‘‘The Form of the Bonds’’.
The issue of U.S.$60,000,000 Zero Coupon Convertible Bonds Due 2009 (the ‘‘Bonds’’) of Acbel
Polytech Inc. (the ‘‘Company’’) was authorized by resolutions of the board of directors of the Company
adopted on April 29, 2004. The Bonds are constituted by an indenture (the ‘‘Indenture’’) to be dated as of
October 27, 2004 and to be made between the Company and JPMorgan Chase Bank, London Branch (the
‘‘Trustee’’), which term includes any successor trustee under the Indenture for the holders of the Bonds (the
‘‘Bondholders’’). The Company will enter into a paying and conversion agency agreement (the ‘‘Agency
Agreement’’) to be dated as of October 27, 2004 with the Trustee, JPMorgan Chase Bank, London Branch
as the principal, paying, transfer and conversion agent (the ‘‘Principal Agent’’) and J.P. Morgan Bank
Luxembourg S.A., as the registrar (the ‘‘Registrar’’), paying, transfer and conversion agent, appointed
thereunder (the ‘‘Paying Agent’’, the ‘‘Conversion Agent’’ and the ‘‘Transfer Agent’’ and such expression
shall include the Principal Agent) in relation to the Bonds. The Registrar, the Principal Agent, the Paying
Agent, the Conversion Agent and the Transfer Agent together are referred to as the ‘‘Agents’’. The
statements in these Terms and Conditions (‘‘Conditions’’) include summaries of, and are subject to, the
detailed provisions of the Indenture. Copies of the Indenture and the Agency Agreement are available for
inspection during normal business hours at the principal office of the Trustee, being at the date hereof at
Trinity Tower, 9 Thomas More Street, London E1W 1YT, England, and at the specified offices of each of
the Agents. The Bondholders are entitled to the benefit of the Indenture and are bound by, and are deemed
to have notice of, all the provisions of the Indenture and the Agency Agreement.
1.
Status
The Bonds constitute direct, unconditional, unsubordinated and (subject to the provisions of Condition
3) unsecured general obligations of the Company and be ranked at least equally among themselves and
(subject to Condition 3) with all other present and future direct, unconditional, unsubordinated and
unsecured obligations of the Company, except as may be required by mandatory provisions of law.
2.
Form, Denomination and Title
(A) Form and Denomination
The Bonds will be issued in registered form, without coupons, in denominations of U.S.$1,000
and integral multiples thereof. The Bonds will be offered and sold in principal amounts of U.S.$1,000
or an integral multiple thereof and will be transferable in principal amounts of U.S.$1,000 or an
integral multiple thereof. The Bonds are not issuable in bearer form. The Bonds will initially be
represented by a global certificate (the ‘‘Global Certificate’’) deposited with, and registered in the
name of a nominee for, a common depositary for Euroclear Bank S.A./N.V., as operator of the
Euroclear System (‘‘Euroclear’’) and Clearstream Banking, société anonyme (‘‘Clearstream,
Luxembourg’’).
Owners of interests in the Bonds will not be entitled to receive definitive physical certificates
(the ‘‘Definitive Certificates’’) in respect of their Bonds except in the limited circumstances
described in the Global Certificate. In the event that certificates do become issuable, a Definitive
Certificate will be issued to each Bondholder in respect of its registered holding of Bonds. Each Bond
and each Definitive Certificate will be serially numbered with an identifying number which will be
recorded on the relevant Definitive Certificate and in the register of Bondholders which the Company
will procure to be kept by the Registrar.
(B)
Title
The Bonds will be registered instruments, title to which will pass only by transfer and
registration in the register of Bondholders. The registered holder of any Bond will (except as
otherwise required by law) be treated as its absolute owner for all purposes (whether or not it is
overdue and regardless of any notice of ownership, trust or any interest in it or any writing on, or the
63
theft or loss of, the Definitive Certificates issued in respect of it) and no person will be liable for so
treating the holder. In these Conditions, ‘‘Bondholder’’ and (in relation to a Bond) ‘‘holder’’ mean the
person in whose name a Bond is registered.
3.
Negative Pledge
So long as any of the Bonds remain outstanding (as defined in the Indenture) or any amount is due
under or in respect of any Bond or otherwise under the Indenture, the Company shall not, and shall ensure
that none of its Principal Subsidiaries (as defined below), if any, will, create or permit to be outstanding any
mortgage, charge, pledge, lien or other form of encumbrance (each an ‘‘Encumbrance’’) upon the whole or
any part of its, or, as the case may be, any such Principal Subsidiary’s, if any, undertaking, property, assets
or revenues, present or future, to secure for the benefit of the holders of any International Investment
Securities (as defined below) (i) payment of any sum due in respect of any such International Investment
Securities, (ii) any payment under any guarantee of any such International Investment Securities or (iii) any
payment under any indemnity or other like obligation relating to any such International Investment
Securities without in any such case at the same time according to the Bonds, either the same security as is
granted to or is outstanding in respect of such International Investment Securities, guarantee, indemnity or
other like obligation or such other security as shall be approved by an Extraordinary Resolution (as defined
in the Indenture) of the Bondholders.
As used herein, the term ‘‘International Investment Securities’’ means bonds, debentures, notes or
investment securities of the Company or any other person evidencing indebtedness with a maturity of not
less than one year from the date thereof which (i) either (a) are by their terms payable, or confer a right to
receive payment, in any currency other than New Taiwan Dollars or (b) are denominated or payable in New
Taiwan Dollars and more than 50% of the aggregate principal amount thereof is initially distributed outside
Taiwan, the Republic of China (the ‘‘ROC’’) by or with the authorization of the issuer thereof and (ii) are
for the time being, or are capable of being, quoted, listed, ordinarily dealt in or traded on any stock
exchange, quotation system or over-the-counter or other similar securities market outside the ROC.
‘‘Principal Subsidiary’’ means any Subsidiary which engages in manufacturing, production and
distribution businesses, (i) whose net operating revenues, as shown by the latest audited accounts
(consolidated in the case of a company which itself has subsidiaries) of such Subsidiary, are at least 10% of
the net operating revenues of the Company and its consolidated Subsidiaries as shown by the latest audited
consolidated accounts of the Company or (ii) whose total assets, as shown by the latest audited accounts
(consolidated in the case of a company which itself has subsidiaries) of such Subsidiary are at least 10% of
the total assets of the Company and its consolidated Subsidiaries as shown by the latest audited consolidated
accounts of the Company, which may be acquired or formed by the Company from time to time during the
term of the Bonds.
‘‘Subsidiary’’ means any corporation or other business entity more than 50% of the outstanding voting
stock of which is for the time being owned directly or indirectly by the Company.
4.
No Interest
No interest will be payable on the Bonds, except as provided in Condition 10.
5.
Transfers of Bonds; Issue of Definitive Certificates
(A) Transfers
Subject to Condition 5(D) below, a Bond may be transferred by delivering the individual
Definitive Certificate(s) evidencing that Bond duly endorsed and accompanied by a form of transfer,
duly completed and signed, at the specified office of any Transfer Agent (if a Definitive Certificate
has been issued) or, in the case of a Bond represented by the Global Certificate, delivery at such office
of a form of transfer obtainable from any of the Transfer Agents (the ‘‘Form of Transfer’’), duly
completed and executed and any other evidence that such Transfer Agent may reasonably require. In
the case of a transfer of only part of a holding of Bonds in respect of which a Definitive Certificate is
issued, a new Definitive Certificate shall be issued to the transferee in respect of the part transferred
and a further new Definitive Certificate in respect of the balance of the holding not transferred shall be
issued to the transferor. The Form of Transfer is available at the specified office of the Transfer Agent.
64
Transfers of interests in the Bonds evidenced by the Global Certificate will be effected in
accordance with the rules of the relevant clearing systems.
(B)
Delivery of New Definitive Certificates
Each new Definitive Certificate to be issued upon a transfer of Bonds shall be available for
delivery upon receipt by the Transfer Agent at its specified office of the relevant Definitive Certificate
and the Form of Transfer. Delivery of the new Definitive Certificates shall be made at the specified
office of such Transfer Agent to whom the relevant Definitive Certificate and the Form of Transfer
shall have been surrendered or delivered or, at the option of the holder making such delivery or
surrender as aforesaid and as specified in the relevant Form of Transfer or otherwise in writing, be
mailed within five Business Days of receipt by the Transfer Agent of the relevant Definitive
Certificates and the Form of Transfer by uninsured post at the risk of the holder(s) entitled to the new
Definitive Certificates to such address as may be so specified, unless such holder(s) request(s)
otherwise and pay(s) in advance to the relevant Transfer Agent the costs of such other method of
delivery and/or such insurance as it may specify.
Except in the limited circumstances described in the Global Certificate, owners of interests in
the Bonds represented by the Global Certificate will not be entitled to receive Definitive Certificates
(if issued) in respect of their individual holdings of the Bonds.
For the purposes of this Condition 5, ‘‘Business Day’’ means a day (other than a Saturday or
Sunday) on which banks are open for business in the ROC, Luxembourg and the city in which the
specified office of the relevant Transfer Agent with whom a Definitive Certificate is deposited or
surrendered in connection with a transfer, conversion or redemption is located.
(C)
Formalities Free of Charge
Transfers of the Bonds will be effected without charge by or on behalf of the Company or any
Transfer Agent, but only upon prior payment (or the giving of such indemnity as such Transfer Agent
may require in respect) of any tax or other governmental charges which may be imposed in relation
thereto.
(D) Restricted Transfer Periods
No Bondholder may require the transfer of a Bond to be registered (i) during the period of 15
days ending on the due date for any payment of principal and premium (if any) on the Bond; (ii) after
such Bond has been called for redemption pursuant to Condition 8(B) or 8(D); (iii) after the
Conversion Notice (as defined in Condition 6(B)(i)) and the individual Definitive Certificates in
respect of such Bond (if issued) have been deposited for conversion pursuant to Condition 6; or (iv)
following exercise of the Bondholder’s put option pursuant to Condition 8(C).
(E)
Regulations
All transfers of Bonds and entries on the register of Bondholders will be made subject to the
detailed regulations concerning transfer of Bonds (the ‘‘Regulations’’) set forth in the Agency
Agreement. The Regulations may be changed by the Company, with the prior written approval of the
Trustee and the Registrar. A copy of the Regulations will be available at the office of the Paying,
Conversion and Transfer Agent in Luxembourg.
6.
Conversion
On exercise of the Conversion Right (as defined in Condition 6(A)(i)), each converting Bondholder
pursuant to the election made by such Bondholder may: (i) elect to receive Shares in Taiwan, or (ii) in the
event the Company establishes a depositary receipt facility following the closing and subject to compliance
with the terms and conditions of the deposit agreement established with such depositary receipt facility and
the relevant laws and regulations and obtain the approval from relevant ROC governmental authorities,
elect to receive depositary shares representing the interests in the Shares and the Bondholder may direct the
65
Company to procure that Shares transferred and delivered upon conversion of the Bonds are deposited with
the custodian for the DR Depositary (as defined in Condition 6(A)(i)) for the issuance and delivery of the
DRs (as defined in Condition 6(A)(i)) by the DR Depositary.
In the event that the Company establishes a depositary receipt facility, it may procure additional
Shares for deposit with the custodian for the DR Depositary subject to compliance with the terms and
conditions of the deposit agreement and applicable laws, regulations and approvals of ROC governmental
authorities. Such Shares could be procured by issuing new Shares, subject to compliance with applicable
ROC laws and regulations and the Company’s Articles of Incorporation.
In the event the Company does establish a depositary receipt facility, the procedure for Bondholders
to convert the Bonds into DRs will be substantially similar to the conversion procedure for Bondholders to
convert the Bonds into Shares. In each case, the Bondholder will deposit the individual Definitive
Certificate (if issued) in respect of a Bond and the Conversion Notice (as defined in Condition 6(B)(i)) with
the Conversion Agent. However, in the case of conversion into DRs, the Bondholder will direct that all or
some only of the Shares issuable upon conversion be deposited with the relevant DR Depositary for issuance
of DRs.
The Company shall, within five Trading Days (as defined in Condition 8(B)) from the date the
notification of the Conversion Notice is received by the Company or its domestic stock transfer agent from
the Principal Agent, issue and deliver the Shares in the book-entry form converted from the Bonds to the
converting Bondholder or its designee, subject to the requirements relating to the conversion in the
Indenture and in these terms and conditions being satisfied.
The Indenture provides, in summary, that the term ‘‘Shares’’ means, when used to refer to the class or
classes of the Company’s capital stock into which the Bonds are convertible and when used in certain other
instances, only the Company’s common shares, NT$10 par value per share, but that when used elsewhere,
including in Condition 6(C), such term also includes shares of any other class or classes of the share capital
of the Company authorized after the date of the Indenture which have no preference in respect of dividends
or of amounts payable in the event of any voluntary or involuntary liquidation or winding-up of the
Company.
(A) Conversion Right
(i) Conversion Period: Each Bondholder has the right during the Conversion Period (as defined
below) to convert any Bond into Shares, credited as fully paid, and may, if a depositary receipt facility
has been established and depositary receipts representing the Shares (‘‘DRs’’) have been issued, and
subject to compliance with the terms and conditions of the relevant deposit agreement, direct in the
Conversion Notice (as defined in Condition 6(B)(i)) that all or some only of the Shares issuable upon
conversion be deposited with the relevant DR depositary (the ‘‘DR Depositary’’) for issuance of DRs
on and subject to the terms set forth herein (the ‘‘Conversion Right’’). Subject to and upon
compliance with the provisions of this Condition, the Conversion Right attaching to any Bond may be
exercised, at the option of the holder thereof and as and to the extent provided herein, at any time on or
after November 26, 2004 and prior to the close of business (at the place where the Conversion Notice
and the individual Definitive Certificate (if issued) in respect of such Bond are deposited for
conversion) on September 27, 2009 (or if such date shall not be a business day, on the immediately
preceding business day at such place) (but in no event thereafter), or, if such Bond shall have been
called for redemption prior to that date, then up to the close of business (at the place aforesaid) on the
seventh day prior to the date fixed for redemption thereof (or if such day shall not be a business day at
such place, on the immediately preceding business day at such place) (the ‘‘Conversion Period’’);
provided, however, that the Conversion Right during any Closed Period shall be suspended and the
Conversion Period shall not include any such Closed Period. ‘‘Closed Period’’ shall mean any period
during which, under the laws of the ROC or otherwise, the Company shall close its shareholders
register, which period includes (a) 60 days prior to the date of the annual general meeting of
shareholders (‘‘AGM’’), (b) 30 days prior to an extraordinary shareholders’ meeting, (c) the period
from the third Trading Day (as defined in Condition 8(B)) prior to the Company’s notification to the
Taiwan Stock Exchange (the ‘‘TSE’’) in respect of a record date (and the relevant closure of the
shareholders’ register) for determining the identity of shareholders entitled to receive annual dividend
distribution or other rights or benefits to the date of the relevant record date, (d) 5 days prior to the
date of distribution of any rights or benefits to shareholders; or (e) such other periods determined by
66
ROC law applicable from time to time that the Company is required to close its shareholders’ register.
The Company shall procure that the Bondholders and the Trustee are given not less than 40 days’ nor
more than 60 days’ prior notice of any Closed Period in accordance with Condition 15.
Under current ROC law, regulation and policy, PRC persons are not permitted convert the
Bonds or to register as a shareholder of the Company. Under current ROC law, a PRC person means
an individual holding a passport issued by the People’s Republic of China (‘‘PRC’’), a resident of any
area of China under the effective control or jurisdiction of the PRC (but not including a special
administrative region of the PRC such as Hong Kong or Macau, if so excluded by applicable laws of
the ROC), any agency or instrumentality of the PRC and any corporation, partnership and other entity
organized under the laws of any such area or controlled or beneficially owned by any such person,
resident, agency or instrumentality.
Under current ROC Law, a non-ROC converting Bondholder when exercising his Conversion
Right to convert the Bonds into Shares is required (unless the Bondholder has the option under these
Conditions to elect, and elects to receive DRs with respect to the Bonds to be converted. In such case,
the Shares will be delivered to and deposited with a custodian appointed by the relevant DR
Depositary) will be required to register with the TSE and will be required to appoint a local agent in
the ROC with such qualifications as are set by the Securities and Futures Bureau of the ROC (the
‘‘ROC SFB’’), to open a securities trading account with a local securities brokerage firm and a New
Taiwan Dollar bank account, pay ROC withholding taxes, remit funds, exercise shareholders’ rights
and perform such other matters as may be designated by such converting Bondholder (or its designee),
on behalf of and as agent for such converting Bondholder (or its designee). In addition, such non-ROC
converting Bondholder must also appoint a custodian bank to hold the securities and cash proceeds
for safekeeping, make confirmation and settlement, and report all relevant information. Under
existing ROC laws and regulations, without opening such accounts, an investor in the Bonds would
not be able to receive, hold, sell or otherwise transfer the Shares into which the Bonds may have been
converted on the TSE or otherwise. See ‘‘Appendix B — Foreign Investment and Exchange Controls in
the ROC’’ and ‘‘Description of the Shares’’.
(ii) Number of Shares and/or DRs Issuable on Conversion: The number of Shares to be issued
upon conversion of any Bond will be determined by dividing the principal amount of the Bond by the
Conversion Price (as defined below) in effect on the Conversion Date as defined in Condition 6(B)(ii)
(translated into NT Dollars at the Fixed Exchange Rate of NT$33.834 = U.S.$1.00). Fractional Shares
will not be issued or paid in cash, or in any other means. The number of DRs to be issued upon
conversion of any Bond (if applicable) will be determined by dividing the principal amount of the
Bond by the Conversion Price (as defined in Condition 6(A)(iii)) in effect on the Conversion Date, and
multiplying or dividing, as the case may be, the Conversion Price by the number of Shares represented
by each DR on the Conversion Date.
If a Definitive Certificate or Definitive Certificates in respect of more than one Bond shall be
deposited for conversion at any one time by the same Bondholder, the number of Shares (and/or DRs,
if applicable) to be issued upon conversion thereof will be calculated on the basis of the aggregate
principal amount of the Bonds in respect of which the Definitive Certificate(s) were so deposited.
Fractions of Shares (and/or DRs, if applicable) will not be issued on conversion, and cash adjustments
will not be made in respect thereof by the Company. Notwithstanding the foregoing, in the event of a
consolidation or reclassification of Shares (and DRs, if applicable) by operation of law or otherwise
occurring after October 27, 2004 the Company will upon conversion of the Bonds pay in U.S. Dollars
a sum equal to such portion of the principal amount of the Bond or Bonds converted as corresponds to
any fraction of a Share (and/or DR, if applicable) not issued as aforesaid if such sum exceeds U.S.$10.
For the purpose of calculating the amount of such payment, the Company shall use the exchange rate
referred to in this Condition 6(A)(ii).
(iii) Initial Conversion Price: The price at which Shares will be issued upon conversion (the
‘‘Conversion Price’’) will initially be NT$30.6 per Share, which is equivalent to U.S.$0.904 per Share
based on the Fixed Exchange Rate of NT$33.834 = U.S.$1.00 but will be subject to adjustment in the
manner provided in Conditions 6(C) and 6(D). The price at which DRs will be issued upon conversion,
in the event that the Company establishes a depositary receipt facility, will be determined by
multiplying, or dividing, as the case may be, the Conversion Price by the number of Shares
represented by each DR on the Conversion Date and will be subject to adjustment in the manner
67
provided in Conditions 6(C) and 6(D). In the event that a depositary receipt facility is established and
DRs may be issued upon conversion, the term ‘‘Conversion Price’’ shall be understood to mean the
price at which DRs will be issued or the price at which Shares will be issued, as the situation dictates.
(iv) Revival on Default: Notwithstanding the provisions of Condition 6(A)(i), if there shall be
default in making payment in full in respect of any Bond which shall have been called for redemption
prior to October 27, 2009 on the date fixed for redemption thereof, the Conversion Right attaching to
such Bond will continue to be exercisable up to and including the close of business (at the place where
the relevant individual Definitive Certificate (if issued) in respect of such Bond and the Conversion
Notice (as defined in Condition 6(B)(i)) are deposited for conversion) on the date upon which the full
amount of the monies payable in respect of such Bond has been duly received by the Trustee or the
Principal Agent and notice of such receipt has been duly given to the Bondholders.
(B)
Conversion Procedure
(i) Exercise Procedure: To exercise the Conversion Right attaching to any Bond, the holder
thereof must complete, execute and deposit at its own expense between 9 : 00 a.m. and 3 : 00 p.m.
(local time at the specified office referred to below) on any business day (as defined below) during the
Conversion Period at the specified office of a Conversion Agent outside of the ROC, a notice of
conversion (a ‘‘Conversion Notice’’) in duplicate, duly completed and signed, in the then current form
obtainable from the specified office of any Conversion Agent, together with the relevant individual
Definitive Certificate (if issued) and any certificates and other documents as may be required under
the law of the ROC or the jurisdiction in which such Conversion Agent is located and any amount to
be paid by the Bondholder. A Conversion Notice, or the relevant individual Definitive Certificate (if
issued), deposited outside the hours specified above or on a day which is not a business day at the
place of the specified office of the relevant Conversion Agent shall for all purposes be deemed to have
been deposited with the Conversion Agent between 9 : 00 a.m. to 3 : 00 p.m. on the next business day.
Bondholders who deposit a Conversion Notice during a Closed Period will not be permitted to
convert their Bonds until the Trading Day (as defined in Condition 8(B)) following the last day of the
Closed Period which (if all other conditions to convert have been fulfilled) will be the Conversion
Date for such Bonds. Such Bondholders or the relevant DR Depositary, as applicable, will not be
registered as holders of Shares until the Conversion Date.
If a DR facility has been established and DRs have been issued and subject to the compliance
with the terms and conditions of the deposit agreement and applicable laws and regulations of the
ROC and approved by ROC governmental authorities, the Conversion Notice may contain an option
for the Bondholder to elect to receive Shares and/or DRs upon such conversion. The Conversion
Notice shall contain, inter alia, an appointment of a local agent by such converting Bondholder and an
irrevocable instruction to exchange for Shares issued pursuant to Condition 6(B)(iii), as soon as Shares
are available. A Conversion Notice once deposited may not be withdrawn without the consent in
writing of the Company. The Company shall immediately notify in writing the Conversion Agents,
Principal Agent and Trustee of such written consent of the Company accompanied by the relevant
Conversion Notice. The price at which such Bonds will be converted will be the Conversion Price in
effect on the Conversion Date.
In this Condition, ‘‘business day’’ means a day on which commercial banks are open for
business in New York, London, Taipei and in the place where the Conversion Agent with whom the
relevant individual Definitive Certificate (if issued) and the Conversion Notice are deposited is open
for business.
The Company may have certain disclosure obligations and reporting obligations under ROC
laws and regulations if;
(i)
the person to be registered as a shareholder is a ‘‘related party’’ of the Company under
Statements of Financial Accounting Standard No. 6 of the ROC and such person
beneficially owns the Shares issued upon the conversion of Bonds; or
68
(ii)
the person to be registered as a shareholder owns the Shares issued upon the conversion of
Bonds and such Shares exceed 10% of the total number of Shares expected to be issued
upon conversion of all the Bonds at the initial Conversion Price.
As a result of such disclosure obligations, the Conversion Agents may, at the written request of
the Company, require the converting Bondholders to disclose the name of the person to be registered
as the shareholder and to provide proof of identity and genuineness of any signature and other
documents as a condition precedent to the conversion of the Bonds. The conversion of Bonds may be
delayed until the relevant Conversion Agent receives the requested information and satisfactory
evidence of the compliance with all laws and regulations by the Bondholders. The information the
Bondholder is required to provide may include the name and nationality of the person to be registered
as shareholder and the total number of Shares which such person has or will receive in connection
with the Bonds such person is converting or has converted in the past.
For the avoidance of doubt, any additional information which the Company may request the
Conversion Agent to obtain from the converting Bondholders so as to comply with its disclosure and
reporting obligations under this Condition (other than that which is required to be provided by the
Bondholders under the Conversion Notice as set out in Exhibit A to the Agency Agreement as
applicable at the time when such request is made by the Company) shall not be considered as any
certificate or other documents as may be required under applicable law or otherwise pursuant to this
Condition 6 or a relevant deposit agreement for the purposes of the determination of the ‘‘Conversion
Date’’ by the Principal Agent or the Converting Agent under section 6(d)(iii) of the Agency
Agreement.
(ii) Taxes and Expenses; Deposit Date and Conversion Date: As conditions precedent to
conversion, together with the Conversion Notice, the Bondholder must (A) pay to the relevant
Conversion Agent all stamp, issue, registration, excise and similar taxes or duties or transfer costs (if
any) arising on conversion in the country in which the Bond is deposited for conversion, or payable in
any jurisdiction consequent upon the issue or delivery of Shares (and/or DRs, if applicable) or any
other property or cash upon conversion to or to the order of a person other than the converting
Bondholder and (B) if any such amounts are payable, provide the Conversion Agent with the relevant
payment information and payment details required by the Conversion Agent. For the avoidance of
doubt, the Conversion Agent is under no obligation to determine whether a Bondholder is liable to pay
any stamp, issue, registration or similar taxes or duties or the amounts payable (if any) arising on
conversion in the country in which Bonds are deposited as aforesaid or payable in any jurisdiction
consequent upon the issue or delivery of Shares and/or DRs (if applicable) or any property or cash.
Except as aforesaid, the Company will pay the expenses arising in the ROC on the issue of Shares
(and/or DRs, if applicable), on conversion of Bonds and all charges of the Conversion Agents (and the
relevant DR Depositary, if applicable) in connection therewith as provided in the Indenture and
Agency Agreement. The date on which any Definitive Certificate and the Conversion Notice (in
duplicate) relating thereto, together with any certificates and other documents as may be required
under applicable law or otherwise pursuant to this Condition 6 or a relevant deposit agreement (if
applicable), are deposited with a Conversion Agent and the payments, if any, required to be paid by
the Bondholder are made is hereinafter referred to as the ‘‘Deposit Date’’. The ‘‘Conversion Date’’
applicable to a Bond shall mean the next day following the Deposit Date, which day both is a Trading
Day (as defined in Condition 8(B)) and occurs during the Conversion Period. Bondholders who
deposit a Conversion Notice during a Closed Period will not be permitted to convert their Bonds until
the Trading Day following the last day of that Closed Period.
(iii) Holder of Record: With effect from the opening of business in the ROC on the Conversion
Date, the Company will deem the converting Bondholder (or its designee) as indicated in the
Conversion Notice to have become the holder of record of the number of Shares to be issued upon
such conversion to such holder (disregarding any retroactive adjustment of the Conversion Price
referred to below prior to the time such retroactive adjustment shall have become effective) and at
such time, subject to Condition 6(B)(v), the rights of such converting Bondholder as a Bondholder
with respect to such Bonds converted shall cease (except rights arising under Condition 6(B)(iv) and
6(B)(vi)).
69
In the event that a converting Bondholder has the option under these Conditions to elect, and
elects, to receive DRs, with effect from the opening of business in the ROC on the Conversion Date,
the Company will deem the relevant DR Depositary to have become the holder of record of the
number of Shares represented by such DRs to be issued upon such conversion (disregarding any
retroactive adjustment of the Conversion Price referred to below prior to the time such retroactive
adjustment shall have become effective) and upon delivery by the relevant DR Depositary to the
Bondholder of the number of DRs into which the Bonds are convertible, subject to Condition 6(B)(v),
the rights of such converting Bondholder as a Bondholder with respect to such Bonds converted shall
cease (except rights arising under Condition 6(B)(iv) and 6(B)(vi)).
(iv) Availability of Shares: The Company shall, for the benefit of Bondholders, ensure that
sufficient Shares are available as soon as possible, but in any event within five Trading Days from the
date the notification of the Conversion Notice is received by the Company or its domestic stock
transfer agent from the Principal Agent.
(v) Delivery of Shares and/or DRs: On the Conversion Date or as soon as practicable thereafter
the Company will register the converting Bondholder (or its designee) or the relevant DR Depositary
(or its designee), as applicable, in the Company’s register of shareholders as the owner of the number
of Shares to be issued pursuant to Condition 6(B)(iii) upon conversion of such Bonds, but in any case
with effect on and from the Conversion Date and, subject to any applicable limitations then imposed
by ROC laws and regulations, according to the request made in the relevant Conversion Notice,
procure that, as soon as practicable, and in any event within five Trading Days from the date the
notification of the Conversion Notice is received by the Company or its domestic stock transfer agent
from the Principal Agent, deliver to the local agent appointed by the converting Bondholder, and/or to
the relevant custodian, as agent for the relevant DR Depositary (if the converting Bondholder has the
option under these Conditions to elect, and elects, to receive DRs), a certificate in physical or bookentry form or certificates for the relevant Shares, by electronic credit to the account established by the
relevant local agent for the conversion of the Bonds, through the facilities of the Taiwan Securities
Central Depositary Co., Ltd., registered in the name specified for that purpose in the relevant
Conversion Notice, together with any other property or cash (including, without limitation, cash
payable pursuant to Condition 6(A)(ii)) required to be delivered upon conversion and such
assignments and other documents (if any) as may be required by law to effect the delivery thereof.
If the converting Bondholder has not created the required account, the Company will deliver the
Shares after such account has been set up. For the purpose of this Condition 6(B)(v), the term
‘‘Trading Day’’ shall has the same meaning with that under Condition 8(B).
In the event that a converting Bondholder has the option under these Conditions to elect, and
elects, to receive DRs on exercise of its Conversion Right, the Company agrees to deliver to and
deposit with the relevant custodian, as agent for the relevant DR Depositary, a sufficient number of
Shares to represent the DRs such Bondholder is entitled to receive upon conversion. Such Shares will
be registered in the name of the relevant DR Depositary or its nominee and deposited in accordance
with the terms of the relevant deposit agreement.
(vi) Retroactive Adjustment of Conversion Price: If the Conversion Date in relation to any
Bond shall be on or after a date with effect from which an adjustment to the Conversion Price takes
retroactive effect pursuant to any of the provisions referred to in Condition 6(C) and the Indenture and
the relevant Conversion Date falls on a date when the relevant adjustment has not been reflected in the
Conversion Price, the Company will, within 20 days after the effective date of such adjustment of the
Conversion Price, issue and deliver (to the local agent appointed by the converting Bondholder and/or,
if applicable, to the relevant custodian, as agent for the relevant DR Depositary) such number of
Shares as is equal to the excess of the number of Shares that would have been required to be issued
upon conversion of such Bond if the relevant retroactive adjustment had been made as at the said
Conversion Date over the number of Shares previously issued pursuant to such conversion, and in such
event and in respect of such number of Shares, references in Condition 6(B)(v) to the Conversion Date
shall be deemed to refer to the date upon which such retroactive adjustment becomes effective
(disregarding the fact that it becomes effective retroactively). Fractions of Shares will not be issued
and no cash adjustment will be made in respect thereof.
70
(vii) Dividends and Other Entitlements: To the extent permitted under the laws and regulations
of the ROC, the converting Bondholders will be entitled to the annual dividend distributions or other
benefits if the Conversion Date falls prior to the third Trading Day (as defined in Condition 8(B))
before the Company’s notification to the TSE in respect of a record date (and the relevant closure of
shareholders’ register) for determining the identity of shareholders who are entitled to such dividend
distributions.
(viii) Conversion Agents: The Company reserves the right, subject to the provisions of the
Agency Agreement, at any time to vary or terminate the appointment of any Conversion Agent and to
appoint further or other Conversion Agents; provided that the Company will at all times maintain a
Conversion Agent having specified offices in London, the United Kingdom and, so long as the Bonds
are listed on the Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so
require, in Luxembourg. Notice of any such termination or appointment and of any changes in the
specified offices of the Conversion Agents will be given promptly by the Company to the Bondholders
in accordance with Condition 15 and to the Luxembourg Stock Exchange.
(C)
Adjustments to Conversion Price
The Conversion Price will be subject to adjustment in the circumstances described below:
(i)
If the Company shall (1) make a free distribution of Shares, (2) make a bonus issue of
Shares, (3) subdivide its outstanding Shares, (4) consolidate its outstanding Shares into a
smaller number of Shares, or (5) re-classify any of its Shares into other securities of the
Company, then the Conversion Price shall be appropriately adjusted so that the holder of
any Bond, in respect of the Conversion Date which occurs after the coming into effect of
the adjustment described in this subsection (i), shall be entitled to receive the number of
Shares and/or other securities of the Company which he would have held or have been
entitled to receive after the happening of any of the events described above had such Bond
been converted immediately prior to the happening of such event (or, if the Company has
fixed a prior record date for the determination of shareholders entitled to receive any such
free distribution or bonus issue of Shares or other securities issued upon any such division,
consolidation or re-classification, immediately prior to such record date), but without
prejudice to the effect of any other adjustment to the Conversion Price made with effect
from the date of the happening of such event (or such record date) or any time thereafter.
An adjustment made pursuant to this Condition 6(C)(i) shall become effective immediately
on the relevant event referred to above becoming effective or, if a record date is fixed
therefore, immediately after such record date; provided that in the case of a free
distribution or bonus issue of Shares which must, under applicable law of the ROC, be
submitted for approval to a general meeting of shareholders or be approved by a meeting of
the board of directors of the Company before being legally paid or made, and which is so
approved after the record date fixed for the determination of shareholders entitled to
receive such distribution or issue, such adjustment shall, immediately upon such approval
being given by such meeting, become effective retroactively to immediately after such
record date.
(ii)
If the Company shall declare a dividend in Shares, then the Conversion Price shall be
appropriately adjusted so that the holder of any Bond, in respect of the Conversion Date
which occurs after the coming into effect of the adjustment described in this subsection
(ii), shall be entitled to receive the number of Shares and/or other securities of the
Company which he would have held or have been entitled to receive after the date when
such dividend is declared had such Bond been converted immediately prior to the
happening of such event (or, if the Company has fixed a prior record date for the
determination of shareholders entitled to receive such dividend, immediately prior to such
record date), but without prejudice to the effect of any other adjustment to the Conversion
Price made with effect from the date of the happening of such event (or such record date)
or any time thereafter. No account is to be taken of, or credit given for, the par value of
Shares issued in a stock dividend in calculating the appropriate Conversion Price
adjustment, so that the full dilutive effect is provided for.
71
An adjustment made pursuant to this Condition 6(C)(ii) shall become effective
immediately upon the relevant event referred to above becoming effective or, if a record
date is fixed therefore, immediately after such record date; provided that in the case of a
dividend in Shares which must, under applicable law of the ROC, be submitted for
approval to a general meeting of shareholders before being legally paid or made, and which
is so approved after the record date fixed for the determination of shareholders entitled to
receive such dividend, such adjustment shall, immediately upon such approval being given
by such meeting, become effective retroactively to immediately after such record date.
(iii) If the Company shall grant, issue or offer to the holders of Shares rights or warrants
entitling them to subscribe for or purchase Shares, or to subscribe for or purchase any
securities convertible into or exchangeable for Shares, at a consideration per Share
receivable by the Company which is fixed:
(a)
on or prior to the record date for the determination of shareholders entitled to
subscribe for or purchase such Shares or convertible or exchangeable securities and
is less than the Current Market Price (as defined below) per Share at such record
date, or
(b)
after the record date mentioned above and is less than the Current Market Price per
Share on the date the Company fixed such consideration,
then the Conversion Price in effect (in the case of (a) above) on the record date for the
determination of shareholders entitled to receive such rights or warrants on the date the
Company fixes the said consideration shall be adjusted in accordance with the following
formula:
NCP = OCP x
N+v
N+n
where:
NCP =
the Conversion Price after such adjustment.
OCP =
the Conversion Price before such adjustment.
N
=
the number of Shares outstanding at the close of business in the ROC (in a case
within (a) above) on such record date or (in a case within (b) above) on the date
the Company fixes the said consideration.
n
=
the number of Shares initially to be issued upon exercise of such rights at the
said consideration.
v
=
the number of Shares which the aggregate consideration receivable by the
Company would purchase at such Current Market Price per Share specified in
(a) or, as the case may be, (b) above.
Subject as provided below, such adjustment shall become effective (a) where no
applications for such warrants (in the case of warrants) are required, from shareholders
entitled to the same, upon their issue, and (b) where applications from shareholders entitled
to the same are required as aforesaid, and in the case of convertible or exchangeable
securities by shareholders entitled to the same pursuant to such rights, immediately after
the latest date for the submission of such applications for such rights or warrants or (if
later) immediately after the Company fixes the said consideration but applied retroactively
to immediately after the record date mentioned above.
If, in connection with a grant, issue or offer to the holders of Shares of rights or warrants
entitling them to subscribe for or purchase Shares or convertible or exchangeable
securities, any Shares or convertible or exchangeable securities or warrants which are not
subscribed for or purchased by the shareholders entitled thereto are underwritten by other
72
persons prior to the latest date for the submission of applications for such Shares or
convertible or exchangeable securities or warrants, an adjustment shall be made to the
Conversion Price in accordance with the above provisions which shall become effective
immediately after the date the underwriters agree to underwrite the same or (if later)
immediately after the Company fixes the said consideration but retroactively to
immediately after the record date mentioned above.
If, in connection with a grant, issue or offer to the holders of Shares of rights or warrants
entitling them to subscribe for or purchase Shares or convertible or exchangeable
securities, any Shares or convertible or exchangeable securities or warrants which are not
subscribed for or purchased by the underwriters who have agreed to underwrite as referred
to above or by the shareholders entitled thereto (or persons to whom shareholders have
transferred such rights or the right to purchase such warrants) who have submitted
applications for such Shares or convertible or exchangeable securities or warrants as
referred to above are offered to and/or subscribed by others, no further adjustment shall be
made to the Conversion Price by reason of such offer and/or subscription.
(iv) If the Company shall distribute to the holders of Shares evidences of indebtedness, or
shares of capital stock of the Company (other than Shares), assets (excluding regular
periodic dividends in cash) or rights or warrants to subscribe for or purchase Shares or
securities (excluding those mentioned in Condition 6(C)(iii) above), then the Conversion
Price in effect on the record date for the determination of shareholders entitled to receive
such distribution shall be adjusted in accordance with the following formula:
NCP = OCP x
CMP – fmv
CMP
where:
NCP and OCP have the meanings assigned in Condition 6(C)(iii) above.
CMP =
the Current Market Price per Share on the record date for the determination of
shareholders entitled to receive such distribution.
fmv =
the fair market value (as determined by the Company and notified to the
Trustee or, if pursuant to applicable law of the ROC such determination is to be
made by application to a court of competent jurisdiction, as determined by such
court or by an appraiser appointed by such court) of the portion of the
evidences of indebtedness, equity share, capital shares of capital stock, assets,
rights or warrants so distributed applicable to one Share less any consideration
payable for the same by the relevant shareholder (unless the fair market value
takes into account the amount payable by the relevant shareholder).
In making a determination of the fair market value of any such evidences of indebtedness,
shares of capital stock, assets, rights or warrants, the Company shall consult a leading
independent securities company or bank in Taipei City, Taiwan selected by the Company
and shall take fully into account the advice received from such company or bank.
Such adjustment shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution, provided that (a) in the
case of such a distribution which must, under applicable law of the ROC, be submitted for
approval to a general meeting of shareholders or be approved by a meeting of the board of
directors of the Company before such distribution may legally be made and is so approved
after the record date fixed for the determination of shareholders entitled to receive such
distribution, such adjustment shall, immediately upon such approval being given by such
meeting, become effective retroactively to immediately after such record date and (b) if the
fair market value of the evidences of indebtedness, shares of capital stock, assets, rights or
warrants so distributed cannot be determined until after the record date fixed for the
73
determination of shareholders entitled to receive such distribution, such adjustment shall,
immediately upon such fair market value being determined, become effective retroactively
to immediately after such record date.
(v)
If the Company shall issue any securities (other than the Bonds and those mentioned in
Condition 6(C)(iii) above) convertible into or exchangeable for Shares at less than the then
Current Market Price or of rights or warrants (other than those mentioned in Condition
6(C)(iii) above) to subscribe for or purchase Shares at less than the then Current Market
Price or to subscribe for or purchase securities convertible into or exchangeable for Shares
at less than the then Current Market Price per Share on the date in the ROC on which the
Company fixes the said consideration (or, if the issue of such securities is subject to
approval by a general meeting of shareholders, on the date on which the board of directors
of the Company fixes the consideration to be recommended at such meeting) then the
Conversion Price in effect immediately prior to the date of issue of such convertible or
exchangeable securities shall be adjusted in accordance with the following formula:
NCP = OCP x
N+v
N+n
where:
NCP and OCP have the meanings assigned thereto in Condition 6(C)(iii) above.
N
=
the number of Shares outstanding at the close of business in the ROC on the day
immediately prior to the date of such issue.
n
=
the number of Shares to be issued upon conversion or exchange of such
convertible or exchangeable securities at the initial conversion or exchange
price or rate.
v
=
the number of Shares which the aggregate consideration receivable by the
Company would purchase at such Current Market Price per Share.
Such adjustment shall become effective as of the calendar day in the ROC corresponding to
the calendar day at the place of issue on which such convertible or exchangeable securities
are issued.
(vi) If the Company shall issue any Shares (other than (a) Shares issued on conversion or in
exchange for any convertible or exchangeable bonds, including the Bonds, or (b) in any of
the circumstances described in Condition 6(C)(i) or (ii) above, but including Shares issued
pursuant to any employee bonus or profit-sharing arrangements) for a consideration per
Share receivable by the Company less than the Current Market Price per Share on the date
in the ROC on which the Company fixes the said consideration (or, if the issue of such
Shares is subject to approval by a general meeting of shareholders, on the date on which
the board of directors of the Company fixes the consideration to be recommended at such
meeting) then the Conversion Price in effect immediately prior to the date of issue of such
additional Shares shall be adjusted in accordance with the following formula:
NCP = OCP x
N+v
N+n
where:
NCP and OCP have the meanings assigned in Condition 6(C)(iii) above.
N
=
the number of Shares outstanding at the close of business in the ROC on the day
immediately prior to the date of issue of such additional Shares;
n
=
the number of additional Shares issued as aforesaid.
74
v
=
the number of Shares which the aggregate consideration receivable by the
Company would purchase at such Current Market Price per Share.
It being understood, for the avoidance of doubt, that in the case of adjustments required as
a result of Shares issued pursuant to employee bonus or profit-sharing arrangements, ‘‘v’’
shall be equal to 0 with the effect that no account is taken of, or credit given for, the par
value of the Shares so issued in calculating the appropriate Conversion Price adjustment,
so that the full dilutive effect is provided for.
Such adjustment shall become effective as of the calendar day in the ROC of the issue of
such additional Shares, or, in the case of an issue to employees under any employee bonus
or profit sharing arrangements which is announced at the same time as a stock dividend,
such adjustment shall become effective as of the record date for that stock dividend.
No adjustment will be made to the Conversion Price as a result of the issue of Shares to the
shareholders of a company that is to be merged into the Company as consideration for the
merger.
(vii) If the Company shall grant, issue or offer options, warrants or rights to subscribe for or
purchase Shares or securities convertible into or exchangeable for Shares and the
consideration per Share receivable by the Company (other than as described above) shall
be less than the Current Market Price per Share on the date in the ROC on which the
Company fixes the said consideration (or, if the offer, grant or issue of such rights, options
or warrants is subject to approval by a general meeting of shareholders, on the date on
which the board of directors of the Company fixes the consideration to be recommended at
such meeting) then the Conversion Price in effect immediately prior to the date of the
offer, grant or issue of such rights, options or warrants shall be adjusted in accordance with
the following formula:
NCP = OCP x
N+v
N+n
where:
NCP and OCP have the meanings assigned in Condition 6(C)(iii) above.
N
=
the number of Shares outstanding at the close of business in the ROC on the day
immediately prior to the date of such issue.
n
=
the number of Shares to be issued on exercise of such rights or warrants and (if
applicable) upon conversion or exchange of such convertible or exchangeable
securities at the said consideration.
v
=
the number of Shares which the aggregate consideration receivable by the
Company would purchase at such Current Market Price per Share.
Such adjustment shall become effective as of the calendar day in the ROC corresponding to
the calendar day at the place of issue on which such rights or warrants are issued.
(viii) If the Company shall pay or make any dividend or distribution in cash in amount of or
more than 15% of then outstanding capital of the Company, in such case, the Conversion
Price shall be adjusted in accordance with the following formula:
NCP = OCP x
M – (C–1.5)
M
where:
NCP and OCP shall have the meanings assigned in Condition 6(C)(iii) above.
75
M
=
the current market price per Share on such record date.
C
=
the amount of cash so distributed applicable to one Share.
where a cash dividend or distribution is announced which is to be, or may at the election of
a holder or holders of Shares be, satisfied by the issue or delivery of Shares or other
property or assets, then for the purposes of the above formula the dividend or distribution
in question shall be treated as a dividend or distribution of (1) the cash dividend or
distribution so announced or (2) the fair market value on the date of announcement of such
dividend or distribution, of such Shares or other property or assets to be issued or delivered
in satisfaction of such dividend or distribution (or which would be issued if all holders of
Shares elected therefor, regardless of whether any such election is made) if the fair market
value of such Shares or other property or assets is greater than the cash dividend or
distribution so announced.
Such adjustment shall become effective on the record date for the determination of
shareholders entitled to receive such dividend or distribution in cash.
(ix) If (x) the rights of conversion or exchange, purchase or subscription attaching to any
options, rights or warrants to subscribe for or purchase Shares or any securities convertible
into or exchangeable for, or which carry rights to subscribe for or purchase Shares are
modified (other than pursuant to and as provided in the terms and conditions of such
options, rights, warrants or securities) or (y) any other event or circumstance has occurred
which would have in the determination of the Company an analogous effect to any of the
events in Condition 6(C)(i) to (vii) above, then the Company shall notify the Trustee
thereof and the Company shall consult with a leading independent securities company or
commercial bank in Taipei selected by the Company as to what adjustment, if any, should
be made to the Conversion Price to preserve the value of the Conversion Right of
Bondholders and will make any such adjustment.
For the purposes of this Condition 6(C), the ‘‘Current Market Price’’ per Share on any date
means the lowest among the average Closing Prices (as defined in below) of the Shares on the TSE
translated into U.S. Dollars at the prevailing rate for 10, 15, 20 Trading Days (as defined in Section
8(n) of the Indenture) before such day. If the Company has more than one class of share capital
comprising Shares, then the relevant Current Market Price for Shares shall be the price for that class of
Shares the issue of which (or of rights or warrants in respect of, or securities convertible into or
exchangeable for, that class of Shares) gives rise to the adjustment in question. For purposes of this
Condition 6(C), the ‘‘Closing Price’’ of the Shares for each Trading Day shall be the last reported
transaction price of the Shares on the TSE for such day or, if no transaction takes place on such day,
the last available reported transaction price of the Shares on the TSE in effect on the Trading Day
immediately preceding such day or, if the Shares are not listed or admitted to trading on such
exchange, the average of the closing bid and offered prices of Shares for such day as furnished by a
leading independent securities firm licensed to trade on the TSE selected from time to time by the
Company. The term ‘‘Trading Day’’ shall have the same meaning with that under Condition 8(B).
No adjustment will be made where such adjustment would be less than 1% of the Conversion
Price then in effect; provided, however, that any adjustment that would otherwise be required to be
made will be carried forward and taken into account in determining any subsequent adjustment. Any
adjustment will be notified promptly by the Company to the Bondholders in accordance with
Condition 15 and to the Luxembourg Stock Exchange.
The Indenture provides that the Conversion Price may be reduced, as a result of any adjustment
required by this Condition 6(C), below the par value of the Shares for the time being to the extent
permitted by ROC law, provided that any Shares issued on conversion of Bonds at such reduced
Conversion Price would be legally issued and non-assessable Shares.
The Trustee will not be obliged to monitor whether any event has occurred which might fall
within Condition 6(C)(i) to (ix) above and until it has actual knowledge by way of express notice in
writing from the Company to the contrary, shall be entitled to assume that none has.
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(D) Conversion Price Reset
The Conversion Price shall be adjusted (the ‘‘Adjusted Conversion Price’’) on September 25,
2006, September 25, 2007, September 25, 2008 and September 25, 2009 (the ‘‘Reset Dates’’ and each
a ‘‘Reset Date’’), in the event that 107% of the average closing price of the Shares on the TSE for 20
consecutive Trading Days immediately prior to a Reset Date (the ‘‘Average Closing Price’’)
translated into U.S. Dollars at the then Prevailing Rate (defined below) is less than the Conversion
Prices then in effect on the relevant Reset Date, in accordance with the following formula:
Adjusted Conversion Price =
Fixed Exchange Rate
Prevailing Rate
x Average Closing Price x 107%
Such Adjusted Conversion Price shall be rounded upwards, if necessary, to the nearest NT$0.10,
provided that:
(i)
any adjustment to the Conversion Price pursuant to this Condition 6(D) shall be limited so
that the Conversion Price adjusted in accordance with this Condition 6(D) shall not be less
than 80% of the initial Conversion Price (as adjusted to reflect any adjustments required
under Condition 6(C) above which may have occurred prior to the relevant Reset Date);
(ii)
the provisions of Condition 6(C) shall apply mutatis mutandis to this Condition 6(D) to
ensure that appropriate adjustments shall be made to any Closing Price to reflect any
adjustments made to the Conversion Price in accordance with Condition 6(C) during the
period of calculation of the Average Closing Price;
(iii) the Conversion Price shall not be reduced below the par value of the Shares (currently
NT$10 per share) unless, under applicable law then in effect, the Bonds could be converted
at such reduced Conversion Price into legally issued, fully-paid and non-assessable Shares;
and
(iv) for the avoidance of doubt (x) any adjustments to the Conversion Price made pursuant to
this Condition 6(D) shall only be downward adjustments and (y) an adjustment may be
made in respect of a Reset Date notwithstanding that an adjustment may have been made in
respect of a preceding Reset Date, if any.
The ‘‘Prevailing Rate’’ for the translation of the Closing Prices shall be the arithmetic average
of the closing rate for the purchase of U.S. Dollars with NT Dollars quoted by Taipei Forex Inc. at the
close of business on each day of the 20 consecutive Trading Days preceding the relevant Reset Date.
For the purpose of the formula in this Condition, the Prevailing Rate shall be expressed as the number
of NT Dollars per U.S.$1.00. The ‘‘Fixed Exchange Rate’’ is NT$33.834 = U.S.$1.00.
Any such adjustment shall become effective as of the relevant Reset Date. Any adjustment will
be notified promptly by the Company to the Bondholders in accordance with Condition 15 and to the
Luxembourg Stock Exchange.
(E)
Mergers; Disposals
The Company will not merge, amalgamate or consolidate with or into any other corporation or
entity where the Company is not the continuing entity or sell or transfer all, or substantially all, of the
assets of the Company, whether as a single transaction or a number of transactions, related or not, to
any corporation, entity or person or to one or more members of any group under the common control
of any corporation, entity or person unless the Company shall have notified the Bondholders of such
event in accordance with Condition 15 and the Company and such corporation, entity or person shall
have executed an indenture supplemental to the Indenture in form and substance satisfactory to the
Trustee providing that such corporation, entity or person shall assume the obligations of the Company
under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then
outstanding shall be convertible into the class and amount of shares and other securities, cash and
other property receivable upon such consolidation, amalgamation, merger, sale or transfer by a holder
of the number of Shares (and/or DRs, if applicable) into which such Bond would have been
convertible immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming
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for such purpose that the Bonds were convertible at the time of such consolidation, amalgamation,
merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the
Indenture. Such supplemental indenture will provide for adjustments which will be as nearly
equivalent as may be practicable to the adjustments provided for in the foregoing provisions to this
Condition. The above provisions of this Condition 6(E) will apply in the same way to any subsequent
or further consolidations, amalgamations, mergers, sales or transfers.
(F)
Conversion Undertakings
(i) Depositary receipts: Subject to the ROC SFB’s separate approval, if required, the Company
may, at its option, but is not required to, make arrangements satisfactory to the Trustee for the Bonds
to be converted into depositary receipts or other scrip evidencing Shares. Any such arrangements shall
be in addition to the provisions of these Conditions relating to conversion into Shares.
The Company has not at the date of this Offering Circular established or authorized the
establishment of any depositary receipt facility. Accordingly, conversion into DRs is not currently
available. If in the future a depositary receipt facility is established or authorized by the Company, the
Company will, to the extent permitted by applicable laws and regulations and approvals of ROC
governmental authorities, make arrangements satisfactory to the Trustee for Shares issued upon
conversion of Bonds to be accepted for deposit (at the option of the converting Bondholder) into such
depositary receipt facility, subject always to the terms of such depositary receipt facility, which terms
may include certification or other requirements as conditions to the acceptance for deposit of Shares
issued upon conversion of Bonds. There can be no assurance that the Company will in the future
establish or authorize any depositary receipt facility or that any arrangements for the deposit of
Shares into such depositary receipt facility would be available to all Bondholders.
The Company shall give notice to the Conversion Agents, the Principal Agent, the Trustee and
the Bondholders in accordance with Condition 15 and to the Luxembourg Stock Exchange within 14
days of the establishment of any depositary receipt facility.
(ii) Closed Periods: The Company undertakes to ensure that any Closed Period is as short a
period as is reasonably practicable having regard to applicable ROC laws and regulation and practices.
(G) Notice of Change in Conversion Price
As soon as practicable after the Conversion Price is adjusted in accordance with 6(c), the
Company shall give notice to the Bondholders in accordance with Condition 15 of any change in the
Conversion Price. Any such notice relating to a change in the Conversion Price shall set forth the
event giving rise to the adjustment, the Conversion Price prior to such adjustment, the adjusted
Conversion Price and the effective date of such adjustment. All such notices shall be copied to the
Trustee and the Agents.
7.
Payments
(A) Principal, Premium (if any) and Interest (if any)
Payment of principal, premium (if any) and interest (if any) will be made against surrender of the
relevant certificate at the specified office of any Agent by transfer to the registered account of the
Bondholder or by U.S. Dollar check drawn on a bank in The City of New York, U.S.A., mailed
(provided that the Principal Agent shall have received the relevant funds in full from the Company in
accordance with the Agency Agreement) to the registered address of the Bondholder if it does not
have a registered account. Payments of principal and premium will only be made after surrender of the
relevant individual Definitive Certificate (if issued) at the specified office of any Agent.
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(B)
Registered Accounts
A Bondholder’s registered account means the U.S. Dollar account maintained by or on behalf of
it with a bank in The City of New York, U.S.A., details of which appear on the register of Bondholders
at the close of business on the second business day (as defined in Condition 7(F)) before the due date
for payment and a Bondholder’s registered address means its address appearing on the register of
Bondholders at that time.
(C)
Fiscal Laws
All payments are subject in all cases to any applicable fiscal or other laws and regulations in the
place of payment, but without prejudice to the provisions of Condition 9. No commissions or expenses
shall be charged to the Bondholders in respect of such payments.
(D) Payment Initiation
Where payment is to be made by transfer to a registered account, payment instructions (for value
the due date or, if that date is not a business day, for value the next following business day) will be
initiated and, where payment is to be made by check, the check will be mailed (provided that the
Principal Agent shall have received the relevant funds in full from the Company in accordance with
the Agency Agreement), on the later of the due date for payment and the business day on which the
relevant Definitive Certificate is surrendered (if applicable) at the specified office of an Agent.
(E)
Payment Delay
Bondholders will not be entitled to any interest or other payment for any delay after the due date
in receiving the amount due if the due date is not a business day, if the Bondholder is late in
surrendering its Definitive Certificate (if applicable) or if a check mailed in accordance with this
Condition arrives after the due date for payment.
(F)
Business Days
In this Condition, ‘‘business day’’ means a day on which commercial banks are open for
business in The City of New York, U.S.A. and London, United Kingdom and, in the case of the
surrender of a Definitive Certificate, in the place where the Definitive Certificate is surrendered.
(G) Partial Payments
If the amount of principal and premium which is due on the Bonds is not paid in full, the
Registrar will annotate the register of Bondholders with a record of the amount of principal and/or
premium, in fact paid.
Distribution of payments with respect to the Global Certificates held through Euroclear or
Clearstream, Luxembourg will be made to the holders holding through participants of Euroclear or
Clearstream, Luxembourg, as the case may be, and will be credited by Euroclear or Clearstream,
Luxembourg, as the case may be, to the cash accounts of the participants of Euroclear or Clearstream,
Luxembourg, in accordance with the relevant system’s rules and procedures, to the extent received by
the Principal Agent.
8.
Redemption, Purchase and Cancellation
(A) Redemption at Maturity
Unless previously redeemed, converted or repurchased and cancelled as herein provided, the
Company will redeem the Bonds at their principal amount in U.S. Dollars on October 27, 2009 (the
‘‘Maturity Date’’). The Bonds may be redeemed in whole or in part prior to that date only as provided
in Conditions 8(B), (C) and (D) below (but without prejudice to Condition 10).
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(B)
Redemption at the Option of the Company
On or at any time after October 27, 2006, the Company may, having given not less than 40 days’
nor more than 60 days’ notice to the Bondholders (with a copy of such notice to be sent to the
Luxembourg Stock Exchange) in accordance with Conditions 8(H) and 15 (which notice will be
irrevocable), redeem all or part of the Bonds at their principal amount if the closing price of the Shares
translated into U.S. Dollars at the Prevailing Exchange Rate for each of the 20 consecutive Trading
Days, the last of which occurs not more than five days prior to the date upon which notice of such
redemption is published, is at least 130% of the Conversion Price then in effect, translated into U.S.
Dollars at the Fixed Exchange Rate of NT$33.834 = U.S.$1.00, on each such Trading Day. If there
shall occur an event giving rise to a change in the Conversion Price during any such 20 Trading Day
period, appropriate adjustments for the relevant days shall be made. If the closing price cannot be
determined for one or more consecutive Trading Days, such day or days will be disregarded in the
relevant calculation and will be deemed not to have existed when ascertaining such 20 Trading Day
period.
Notwithstanding the foregoing paragraph, the Company may, at any time, redeem all but not
some of the Bonds, upon not less than 40 nor more than 60 days’ notice to the Bondholders, at their
principal amount if at least 90% in principal amount of the Bonds has already been redeemed,
converted, or purchased and cancelled. Notice of the same shall be also given by the Company to the
Luxembourg Stock Exchange.
Upon the expiry of any such notice, the Company will be bound to redeem the Bonds to which
such notice relates at the price aforesaid applicable at the date fixed for redemption.
The term ‘‘Trading Day’’ means a day on which the TSE is open for business but does not
include a day when (a) no last transaction price or closing bid and offered prices (as referred to below)
are reported and (b) (if the Shares are not listed or admitted to trading on such exchange) no closing
bid and offered prices (as referred to below) are furnished as aforesaid. The ‘‘closing price’’ of the
Shares for each Trading Day shall be the last reported transaction price of the Shares on the TSE for
such day or, if no transaction takes place on such day, the last available reported transaction price of
the Shares on the TSE in effect on the Trading Day immediately preceding such day or, if the Shares
are not listed or admitted to trading on such exchange, the average of the closing bid and offered
prices of Shares for such day as furnished by a leading independent securities firm licensed to trade on
the TSE selected by the Company for the purpose. The term ‘‘Prevailing Exchange Rate’’ in this
Condition 8(B) means the closing rate of U.S. Dollars to NT Dollars quoted by Taipei Forex Inc. at the
close of business on any relevant Trading Day.
(C)
Redemption at the Option of Bondholders
(i) Unless previously redeemed, converted or repurchased and cancelled as herein provided, the
Company will, at the option of the holder of any Bond, redeem all or part of the Bonds held by that
Bondholder on October 27, 2006 and October 27, 2007 (each a ‘‘Put Date’’) at their principal amount.
(ii) Delisting Put Right: Unless previously redeemed, converted or repurchased and cancelled
as herein provided, the Company will, at the option of the holder of any Bond, redeem all but not part
of the Bonds held by that Bondholder at their principal amount (as defined below) on the 30th business
day after notice has been given to Bondholders (the ‘‘Delisting Put Date’’), in the event that the
Company’s Shares cease being traded or listed on the TSE for a period exceeding consecutive five
Trading Days.
To exercise such option the holder must deposit the individual Definitive Certificate in respect
of such Bond (if issued) with any Agent and a duly completed redemption notice in the form
obtainable from any of the Agents (x) in the case where paragraph (i) above applies, not more than 60
nor less than 20 days prior to the relevant Put Date or (y) in the event that the Company’s Shares cease
being traded or listed on the TSE, any day which is not less than 10 business days prior to the
Delisting Put Date. No Bond so deposited may be withdrawn (except as provided in the Agency
Agreement) without the prior written consent of the Company and such written consent must be
notified by the Company to the Principal Agent no later than seven days prior to the relevant Put Date
or the Delisting Put Date. The Company shall give the Bondholders not more than 70 nor less than 30
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days’ notice (a copy of which to be sent to the Luxembourg Stock Exchange) of the commencement of
the period for the deposit of individual Definitive Certificates (if issued) for redemption and the
redemption notice (a copy of which to be sent to the Luxembourg Stock Exchange) pursuant to
paragraph (C)(i) in accordance with Condition 15. Notice of the same shall be also given by the
Company to the Luxembourg Stock Exchange.
For the purpose of this Condition 8(C), ‘‘business day’’ shall mean a day on which commercial
banks are open for business in London and New York City.
(D) Redemption for Taxation Reasons
At any time, the Company may, having given not less than 40 nor more than 60 days’ notice to
the Bondholders in accordance with Conditions 8(H) and 15 (which notice shall be irrevocable)
redeem all but not some of the Bonds at their principal amount (as defined in Condition 8(C)(ii)), if (i)
the Company determines immediately prior to the giving of such notice that it has or will become
obliged to pay additional amounts as provided or referred to in Condition 9 as a result of any change
in, or amendment to, the laws or regulations of the ROC or any political subdivision or any authority
thereof or therein having power to tax, or any change in the general application or official
interpretation of such laws or regulations, which change or amendment becomes effective on or after
October 27, 2004 and (ii) such obligation cannot be avoided by the Company taking reasonable
measures available to it, provided that no such notice of redemption shall be given earlier than 90 days
prior to the earliest date on which the Company would be obliged to pay such additional amounts were
a payment in respect of the Bonds then due. Prior to the giving of any notice of redemption pursuant to
this paragraph, the Company shall deliver to the Trustee a certificate signed by two directors of the
Company stating that the obligation referred to in (i) above cannot be avoided by the Company taking
reasonable measures available to it and the Trustee shall be entitled to accept such certificate as
sufficient evidence of the satisfaction of the conditions precedent set out in (ii) above, in which event
it shall be conclusive and binding on the Bondholders. Bonds in respect of which a notice of
redemption has been given under Condition 8(B) and Condition 8(C) shall not be affected by any
notice given subsequently under this Condition 8(D).
(E)
Repurchase
The Company or its wholly-owned subsidiaries may at any time and from time to time
repurchase Bonds in the open market or otherwise. Bonds so repurchased will be surrendered and
deemed cancelled and may not be reissued or resold.
(F)
Selection of Bonds
In the case of redemption of some only of the Bonds pursuant to Condition 8(B), where
individual Definitive Certificates have been issued, the Bonds to be redeemed will be selected
individually by lot by the Principal Agent, in such place as the Trustee shall approve and in such
manner as the Trustee shall deem to be appropriate and fair not more than 60 days and not less than 30
days prior to the date fixed for redemption or, where the Bonds are represented by a Global
Certificate, in accordance with the relevant rules of the relevant clearing system.
(G) Cancellation
All Bonds which are redeemed or converted or purchased and surrendered to any Agent will
forthwith be cancelled in accordance with the provisions of the Agency Agreement. Definitive
Certificates in respect of all Bonds cancelled will be forwarded to or to the order of the Principal
Agent and such Bonds may not be reissued or resold.
(H) Redemption Notices
All notices to Bondholders given by or on behalf of the Company pursuant to this Condition 8
will specify the date fixed for redemption, the redemption price, the Conversion Price as at the date of
the relevant notice, the Closing Price of the Shares and the aggregate principal amount of the Bonds
outstanding as at the latest practicable date prior to the publication of the notice and, in the case of a
partial redemption, a list of the Bonds called for redemption.
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9.
Taxation
(A) All payments of principal, premium (if any) and interest (if any) by the Company will be made
free and clear of and without any deduction or withholding for or on account of any present or
future taxes, duties, assessments or governmental charges of whatever nature imposed, levied,
collected, withheld or assessed by or on behalf of the government of the ROC or any authority
thereof or therein having power to tax, unless deduction or withholding of such taxes, duties,
assessments or governmental charges is compelled by law.
(B)
Where such withholding or deduction is in respect of ROC withholding tax on premium (if any)
or interest payments at the rate of up to and including 20%, the Company will increase the
amount of premium (if any) or interest (if any) paid by it to the extent required so that the net
amount of premium (if any) or interest (if any) received by Bondholders (without prejudice to
Condition 7) would be equal to the amounts which would have been receivable in the absence of
any such withholding or deduction.
(C)
In the event that any such withholding or deduction in respect of principal or any additional
withholding or deduction in excess of 20% in respect of interest (if any) or premium if any is
required, the Company will pay such additional amounts by way of principal, premium if any
and interest (if any), as will result in the receipt by the Bondholders of the amounts which would
have been receivable in the absence of any such withholding or deduction, except that no such
additional amounts shall be payable in respect of any Bond:
(i)
to, or on behalf of, a holder who is subject to such taxes, duties, assessments or
governmental charges in respect of such Bond by reason of his being connected with the
ROC otherwise than merely by holding such Bond or by the receipt of principal in respect
of the Bond; or
(ii)
if the individual Definitive Certificate in respect of such Bond (if issued) is surrendered
more than 30 days after the relevant date except to the extent that the holder would have
been entitled to such additional amount on surrendering the relevant Definitive Certificate
for payment on the last day of such 30 day period. For this purpose, the ‘‘relevant date’’ in
relation to any Bond means (a) the due date for payment in respect thereof or (b) (if the full
amount of the monies payable on such due date has not been received by the Trustee or the
Principal Agent on or prior to such due date) the date on which notice is duly given to the
Bondholders that such monies have been so received.
(D) References in these Conditions to principal, premium or interest shall be deemed also to refer to
any increased or additional amounts which may be payable in respect thereof under this
Condition or any undertaking given in addition to or substitution for it under the Indenture.
10.
Events of Default
The Trustee at its discretion may, and if so requested in writing by the holders of not less than 25% in
principal amount of the Bonds then outstanding or if so directed by an Extraordinary Resolution shall (but
subject to it first being indemnified or secured by the holders to its satisfaction), give notice in writing to the
Company that the Bonds are immediately due and payable, if any of the following events (an ‘‘Event of
Default’’) shall have occurred and be continuing:
(i)
there is failure to pay the principal of or any premium on any of the Bonds within 15 business
days after the same shall become due and payable in accordance with these Conditions; or
(ii)
the Company defaults in performance or observance of or compliance with any of its other
obligations (other than the covenant to pay the principal, premium or interest (if any) in respect
of the Bonds) set out in the Bonds or the Indenture which default is incapable of remedy or, if
such default is capable of remedy, such default is not remedied within 30 days after written
notice of such default shall have been given to the Company by the Trustee; or
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(iii) any other present or future indebtedness of the Company, or any of its Principal Subsidiaries (as
defined in Condition 3), for or in respect of monies borrowed or raised becomes (or becomes
capable of being declared) due and payable prior to its stated maturity by reason of an event of
default (howsoever described), or any such indebtedness is not paid when due or, as the case may
be, within any applicable grace period originally provided for, or the Company or any of its
Principal Subsidiaries fails to pay when due any amount payable by it under any present or
future guarantee or indemnity or arrangement or obligation having a like or similar effect
(howsoever described) for any monies borrowed or raised by any person, provided that the
aggregate amount of the relevant indebtedness and guarantees in respect of which one or more
events mentioned above in this Condition 10(iii) have occurred and is continuing equals or
exceeds U.S.$5,000,000 or its equivalent in any other currency (determined as provided below),
and provided further that where two or more of the Company and/or its Principal Subsidiaries
are/is liable for the payment of the same relevant indebtedness or guarantee (whether liable
jointly and severally, by way of guarantee, surety or otherwise), any such amount shall be
counted once only; or
(iv) an execution by a court having jurisdiction is levied or enforced or sued out, or other legal
enforcement process is levied or sued out upon, commenced or issued upon, against or in respect
of the whole or any substantial part of the undertaking, property, assets or revenues of the
Company or any of its Principal Subsidiaries and in any such case is not discharged or stayed
within 60 days of having been so levied, sued out, commenced or issued, unless the Company or
such Principal Subsidiary is contesting such proceedings in accordance with relevant laws and
regulations; or
(v)
any person entitled to the benefit thereof shall institute appropriate legal proceedings to enforce
any Encumbrance upon the whole or any substantial part of the assets or revenues of the
Company or any Principal Subsidiary and the same is not stayed, discharged, released or
satisfied (as the case may be) within 60 days of such proceedings, unless the Company or such
Principal Subsidiary is contesting such proceedings in accordance with relevant laws and
regulations; or
(vi) the Company becomes bankrupt or insolvent, or consents to or suffers the appointment of an
administrator, liquidator (except for the purpose of and followed by a voluntary solvent
reorganization, merger, consolidation, amalgamation or other similar arrangement the terms of
which have previously been approved by the Trustee or an Extraordinary Resolution of the
Bondholders) or receiver (or other similar official) in bankruptcy or insolvency of the Company
or in respect of the whole or any substantial part of the undertakings, property, assets or revenues
of the Company or the Company stops, suspends or threatens to stop or suspend payment of all
or a material part of its debts; or
(vii) an order issued by a court with competent jurisdiction is made or an effective resolution passed
by the Company for the winding-up or dissolution of the Company (except for the purpose of
and followed by a solvent reconstruction, merger, consolidation, amalgamation or other similar
arrangement the terms of which are approved by the Trustee or an Extraordinary Resolution of
the Bondholders); or
(viii) the Company shall merge, amalgamate or consolidate with any other corporation or entity (with
the Company not being the continuing entity) or shall sell or dispose of substantially all its
business or assets whether as a single transaction or a number of transactions, related or not, to
any person, unless the Company shall have notified the Bondholders of such event in accordance
with Condition 15 (with a copy of such notice sent to the Luxembourg Stock Exchange, provided
that the Bonds are listed on the Luxembourg Stock Exchange and the rules thereof so require)
and the Company and such corporation, entity or person shall have executed an indenture
supplemental to the Indenture in form and substance satisfactory to the Trustee and the Agents
providing that such corporation, entity or person shall assume the obligations of the Company
under the Bonds, the Indenture and the Agency Agreement and providing that each Bond then
outstanding shall be convertible into the class and amount of Shares and other securities, cash
and other property receivable upon such consolidation, amalgamation, merger, sale or transfer
by a holder of the number of Shares into which such Bond would have been convertible
immediately prior to such consolidation, amalgamation, merger, sale or transfer (assuming for
83
such purpose that the Bonds were convertible at the time of such consolidation, amalgamation,
merger, sale or transfer) at the Conversion Price as adjusted from time to time pursuant to the
Indenture; provided that such agreement by such other person shall not be required if such
assumption shall be effective by operation of law; or
(ix) any governmental authority or agency condemns, seizes, compulsorily purchases or expropriates
all or a substantial part of the assets or shares of the Company; or
(x)
proceedings shall have been initiated against the Company or any of its Principal Subsidiaries
under any applicable bankruptcy, insolvency or reorganization law and such proceedings shall
not have been discharged or stayed within a period of 60 days, unless the Company or such
Principal Subsidiary is contesting such proceedings in accordance with relevant laws and
regulations; or
For the purposes of Condition 10 (iii) above, any indebtedness which is in a currency other than U.S.
Dollars shall be translated into U.S Dollars at the spot rate for the sale of U.S. Dollars against the purchase
of the relevant currency quoted by any leading bank in the relevant market selected by the Trustee on any
day when the Trustee requests such a quotation for such purposes. If no direct spot rate is available, a rate
shall be calculated by reference to the cross-rates through U.S. Dollars and relevant currencies.
Upon any such notice being given to the Company by the Trustee, the Bonds will immediately become
due and payable at 100% of their principal amount, and overdue interest on the amounts due, from the date
on which such amounts first become due, shall be payable, to the extent permitted by law, at the rate of
4.5% per annum.
The term ‘‘business day’’ for the purpose of this Condition 10 means a day (other than a Saturday or
Sunday) on which commercial banks and foreign exchange markets are open for business in Taipei, Taiwan,
ROC.
11.
Prescription
Claims in respect of (a) principal and premium (if any) and (b) interest (if any) will become
unenforceable after 10 years (in the case of (a)) and five (5) years (in the case of (b)), from the relevant date
for payment in respect thereof.
Under the ROC law, claims in respect of (a) principal and (to the extent not deemed as interest)
premium (if any) and (b) premium (if any and deemed as interest) and default interest will become
unenforceable after 15 years and 5 years, respectively, from the relevant date for payment in respect
thereof.
12.
Enforcement
At any time after the Bonds shall have become due and payable, the Trustee may, at its discretion and
without further notice, take such proceedings against the Company as it may think fit to enforce payment of
the Bonds together with premium with respect thereto and to enforce the provisions of the Indenture, but it
will not be bound to take any such proceedings unless (a) it shall have been so requested in writing by the
holders of at least 25% in principal amount of the Bonds then outstanding or so directed by an Extraordinary
Resolution and (b) it shall first have been indemnified and/or secured to its satisfaction. No Bondholder will
be entitled to proceed directly against the Company, unless the Trustee, having become bound to do so, fails
to do so and such failure shall have continued for a period of 60 days and no direction inconsistent with such
written request or Extraordinary Resolution has been given to the Trustee during such 60-day period by the
holders of a majority in principal amount of the outstanding Bonds.
13.
Meetings of Bondholders, Modification and Waiver
(A) Meetings
The Indenture contains provisions for convening meetings of Bondholders to consider any matter
affecting their interests, including the sanctioning by Extraordinary Resolution of a modification of
the Bonds or the provisions of the Indenture. The quorum for passing an Extraordinary Resolution will
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be two or more persons holding or representing over 50% in principal amount of the Bonds for the
time being outstanding or, at any such meeting which has been adjourned, two or more persons being
or representing Bondholders whatever the principal amount of the Bonds so held or represented unless
the business of such meeting includes consideration of proposals, inter alia, (i) to modify the maturity
date of the Bonds, (ii) to reduce or cancel the amount of principal, premium or interest (if any) payable
in respect of the Bonds, (iii) to change the currency of payment of the Bonds, (iv) to modify or cancel
the right to convert the Bonds into Shares (except in accordance with Condition 6(B) and 13(B)) or to
modify the circumstances in which the Bonds may be redeemed or converted at the option of the
Company or to shorten the Conversion Period, (v) to modify the provisions relating to the resetting of
the Conversion Price, (vi) to modify the provisions concerning the quorum required at any meeting of
the Bondholders or the majority required to pass an Extraordinary Resolution or sign a resolution in
writing, in which case the consent of each Bondholder is required. An Extraordinary Resolution
passed at any meeting of Bondholders will be binding on all Bondholders, whether or not they are
present at the meeting, and will be conclusive and binding upon all future Bondholders.
The Indenture provides that a written resolution signed by or on behalf of the holders of not less
than 90% of the aggregate principal amount of Bonds outstanding shall be as valid and effective as a
duly passed Extraordinary Resolution, except for any Extraordinary Resolutions for the purpose of (x)
sanctioning the exchange or substitution of the Bonds of, or the conversion of the Bonds into, shares,
bonds, or other obligations or securities of the Company or any other body corporate formed or to be
formed, (y) approving the substitution of any entity for the Company (or any previous substitute) as
principal debtor under the Indenture or (z) making any modification to the provisions of the Indenture
as set out in (i) to (vi) in the above paragraph, in which case such resolutions shall be signed by or on
behalf of the Bondholders representing 100% in principal amount of the Bonds.
The Company shall prepare a supplement to this Offering Circular and notify the Bondholders
(and the Luxembourg Stock Exchange) in accordance with Condition 15 in respect of any proposed
Extraordinary Resolution relating to items (i) to (vi) above in this Condition 13(A).
(B)
Modification of Conversion Right
Notwithstanding Condition 13(A)(iv) above, the Trustee may agree, without the consent of the
Bondholders, to any modification to or variation of the Conversion Rights (including modification of
and additions to the declarations and statements to be made by Bondholders in a Conversion Notice)
which is in its opinion necessary or desirable to effect or facilitate conversion as contemplated in these
Conditions or to comply with mandatory provisions of applicable laws and which is not, in its opinion,
materially prejudicial to the interests of the Bondholders. The Trustee’s agreement may be subject to
any condition which the Trustee requires including, but not limited to, obtaining, at the sole expense
of the Company, an opinion of a merchant or investment bank or legal or other expert. Any such
modification shall be binding on all the Bondholders. The Company shall prepare a supplement to this
Offering Circular and notify the Bondholders of such modification in accordance with Condition 15
and to the Luxembourg Stock Exchange.
(C)
Other Modifications and Waivers
The Trustee may (but shall not be in any way be obligated to) agree, without the consent of the
Bondholders, to (i) any modification (except as mentioned above) of, or the waiver or authorization of
any breach or proposed breach of, the Bonds or the Indenture which is not, in the opinion of the
Trustee, materially prejudicial to the interests of the Bondholders or (ii) any modification of the Bonds
or the Indenture which, in the Trustee’s opinion, is of a formal, minor or technical nature or to correct
a manifest error or to comply with mandatory provisions of law. In connection with such modification,
waiver or authorization, the Trustee may require (at the sole expense of the Company) a certificate
from the Company certifying, and a legal opinion advising the Trustee, that the modification, waiver
or authorization is of a formal, minor or technical nature or to correct a manifest error or to comply
with mandatory provisions of law. Any such modification, waiver or authorization will be binding on
the Bondholders and, unless the Trustee agrees otherwise, any such modification will be notified by
the Company to the Bondholders in accordance with Condition 15 and to the Luxembourg Stock
Exchange.
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(D) Exercise of Trustee’s Functions
In connection with the exercise of its functions, powers, trusts, authorities and discretions
(including but not limited to those in relation to any proposed modification, authorization or waiver)
the Trustee shall have regard to the interests of the Bondholders as a class and shall not have regard to
the consequences of such exercise for individual Bondholders. No Bondholders shall be entitled to
require, nor shall any Bondholder be entitled to claim, from the Company or the Trustee, any
indemnification or payment in respect of any tax or other consequences of any such exercise upon
individual Bondholders.
14.
Replacement of Definitive Certificates
If any Definitive Certificate is mutilated, defaced, destroyed, stolen or lost, it may be replaced at the
specified office of the Registrar upon payment by the claimant of such costs as may be incurred in
connection therewith and on such terms as to evidence and indemnity as the Company or the Registrar may
reasonably require (which terms will require, inter alia, that if such Definitive Certificate is subsequently
deposited for conversion into Shares there shall be paid to the Company on demand such costs at the Fixed
Exchange Rate of NT$33.834 for each U.S.$1.00 of the principal amount of such Bond). Mutilated or
defaced Definitive Certificates must be surrendered before replacements will be issued.
15.
Notices
In addition to the provisions set forth in the Global Certificate, if applicable, all notices to
Bondholders shall be validly given if in writing in English and mailed to them at their respective addresses
in the register of Bondholders maintained by the Registrar, and, so long as the Bonds are listed on the
Luxembourg Stock Exchange and the rules of that exchange so require, published in a leading newspaper
having general circulation in Luxembourg (which is expected to be the Luxemburger Wort).
Any such notice shall be deemed to have been given on the later of the date of such publication and the
seventh day after being so mailed.
16.
Indemnification
The Indenture contains provisions for the indemnification of the Trustee and for its relief from
responsibility, including provisions relieving it from taking proceedings to enforce payment unless
indemnified to its satisfaction.
17.
Agents
The names of the initial Agents and Registrar and their specified offices are set out at the end of this
Offering Circular. The Company reserves the right, subject to the provisions of the Agency Agreement, at
any time to vary or terminate the appointment of further or other Agents, provided that the Company will at
all times maintain Agents having specified offices in London and so long as the Bonds are listed on the
Luxembourg Stock Exchange and the rules of the Luxembourg Stock Exchange so require, an agent in
Luxembourg, a Registrar and a Principal Agent. Notice of any such termination or appointment, of any
changes in the specified offices of the Agents or of any change in the identity or specified office of the
Registrar or the Principal Agent will be given promptly in accordance with Condition 15 by the Company to
the Bondholders, the Trustee and the Luxembourg Stock Exchange.
18.
Governing Law and Jurisdiction
(A) Governing Law
The Indenture and the Bonds are governed by and shall be construed in accordance with the laws
of the State of New York, U.S.A.
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(B)
Jurisdiction
The courts of the State of New York sitting in the Borough of Manhattan, The City of New York,
and the federal courts of the United States sitting in the Borough of Manhattan, The City of New York,
have non-exclusive jurisdiction to settle any disputes which may arise out of or in connection with the
Indenture or the Bonds and accordingly any legal action or proceedings arising out of or in connection
with the Indenture or the Bonds (‘‘Proceedings’’) may be brought in such courts. The Company has in
the Indenture irrevocably, for the benefits of the Trustee and the Bondholders submitted to the
jurisdiction of such courts.
(C)
Agent for Service of Process
The Company has irrevocably appointed Law Debenture Corporate Services Inc. at 767 Third
Avenue, New York, New York 10017 as its authorized agent for service of process in New York in
any Proceedings.
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THE FORM OF THE BONDS
The Bonds will be issued in registered form, in denominations of U.S.$1,000 and integral multiples
thereof. The Bonds are not issuable in bearer form.
The Bonds will be represented by a global certificate (the ‘‘Global Certificate’’) which will be
deposited with, and registered in the name of a nominee for, a common depositary for Euroclear and
Clearstream, Luxembourg. Upon the issuance of the Global Certificate, Euroclear and Clearstream,
Luxembourg will credit, on their internal systems, the respective principal amounts of the individual
beneficial interests in the Bonds represented by the Global Certificate to the accounts of persons who have
accounts with Euroclear and Clearstream, Luxembourg (‘‘participants’’). These accounts will initially be
designated by or on behalf of the Lead Manager. Ownership of beneficial interests in the Global Certificate
will be limited to participants and persons who hold interests through participants. Beneficial interests in the
Global Certificates will be shown on, and transfers thereof will be effective only through, records
maintained by Euroclear and Clearstream, Luxembourg and their participants.
We expect that Euroclear and Clearstream, Luxembourg, or their nominees, upon receipt of any
payment of principal, premium (if any) or interest (if any) in respect of the Bonds represented by the Global
Certificate will credit the accounts of the participants with payments of principal, premium (if any) or
interest (if any) on the date payable in amounts proportionate to their respective interests in such Bonds as
shown on the records of Euroclear and Clearstream, Luxembourg or their nominees. We also expect that
payments by such participants to owners of beneficial interests in the Bonds held through such participants
will be governed by standing instructions and customary practices. Such payments will be the responsibility
of the participants.
Payments, transfers, exchanges and other matters relating to interests in the Bonds may be subject to
various policies and procedures adopted by Euroclear and Clearstream, Luxembourg from time to time.
Transfers between participants in Euroclear and Clearstream, Luxembourg, and conversions through
participants in Euroclear and Clearstream, Luxembourg, will be effected in the ordinary way in accordance
with the rules and operating procedures of Euroclear and Clearstream, Luxembourg. None of the Company,
the Trustee, the Agents or any of their respective agents will have any responsibility or liability for the
performance by Euroclear and Clearstream, Luxembourg or their participants of their respective obligations
under the rules and procedures governing their operations, or for payments made on account of, or records
relating to, interests in the Bonds held through Euroclear and Clearstream, Luxembourg and their
participants.
Owners of interests in the Bonds will not be entitled to receive definitive physical certificates in
respect of their interests in the Bonds except in the limited circumstances described below under ‘‘The
Global Certificate — Registration of title’’.
The holder of a registered Bond in definitive certificated form may transfer or exchange such Bond by
surrendering it at the office or agency maintained by us for such purpose in London, which offices will
initially be the offices of the Paying Agents maintained in London or such other offices as may be notified
by the Trustee from time to time.
Any such Bond in physical certificated form issued prior to the 41st day following the original
issuance of the Bonds shall bear the legend set out under ‘‘Notice to Investors’’.
The Global Certificate
The Global Certificate contains provisions which apply to the Bonds that are represented by the
Global Certificate, some of which modify the effect of the Terms and Conditions of the Bonds (the
‘‘Conditions’’) set out in this Offering Circular. Terms defined in the Conditions have the same meaning in
the paragraphs below. The following is a summary of those provisions:
Meetings
The registered holder (as defined in the Conditions) of the Global Certificate will be treated as being
two persons for the purposes of any quorum requirements of a meeting of Bondholders and, at any such
meeting, as having one vote in respect of each U.S.$1,000 in principal amount of Bonds for which the
88
Global Certificate is issued. The Trustee may allow a person with an interest in Bonds in respect of which
the Global Certificate has been issued to attend and speak at a meeting of Bondholders on appropriate proof
of his identity and interest.
Cancellation
Cancellation of any Bond following its redemption, conversion or purchase by us will be effected by a
reduction in the principal amount of the Bonds in the register of Bondholders.
Trustee’s powers
In considering the interests of Bondholders while the Global Certificate is registered in the name of a
nominee for a clearing system, the Trustee may, without being obliged to do so, have regard to any
information provided to it by such clearing system or its operator as to the identity (either individually or by
category) of its accountholders with entitlements to Bonds and may consider such interests as if such
accountholders were the holders of the Bonds.
Conversion
Subject to the requirements of Euroclear and Clearstream, Luxembourg, the Conversion Right
attaching to a Bond in respect of which the Global Certificate is issued may be exercised by the presentation
to or to the order of the Principal Agent of one or more Conversion Notices duly completed by or on behalf
of a holder of a book-entry interest in the Bond. Deposit of the Global Certificate with the Principal Agent
together with the relevant Conversion Notice shall not be required. The exercise of the Conversion Right
shall be notified by the Principal Agent to the Registrar and the holder of the Global Certificate.
Payment
Payments of principal, premium (if any) and interest (if any) in respect of Bonds represented by the
Global Certificate will be made without presentation or if no further payment is to be made in respect of the
Bonds, against presentation and surrender of the Global Certificate to or to the order of the Principal Agent
or such other Paying Agent as shall have been notified to the Bondholders for such purpose.
Notices
So long as the Bonds are represented by the Global Certificate and the Global Certificate is held on
behalf of Euroclear and Clearstream, Luxembourg or the Alternative Clearing System (as defined below),
notices to Bondholders may be given by delivery of the relevant notice to Euroclear and Clearstream,
Luxembourg, for communication by them to entitled accountholders except that so long as the Bonds are
listed on the Luxembourg Stock Exchange or the Alternative Stock Exchange (as defined in the Indenture)
and the rules of that exchange so requires, notices shall also be published in a leading newspaper having
general circulation in Luxembourg (which is expected to be Luxembourg Wort) or the place at which the
Alternative Stock Exchange is located.
Redemption at the option of the Company
Any drawing of Bonds required under Condition 8(F) in the event that we exercise our call option
pursuant to Condition 8(B) in respect of less than the aggregate principal amount of Bonds in respect of
which the Global Certificate is issued shall be made in accordance with the relevant rules of the clearing
system. Notices will be made by the Company in accordance with the previous paragraph.
Redemption at the option of Bondholders
The Bondholders’ put option in Condition 8(C) may be exercised by the holders of the Global
Certificate giving notice to the Principal Agent of the principal amount of Bonds in respect of which the
option is exercised and presenting the Global Certificate for endorsement or exercise within the time limits
specified in Condition 8(C).
89
Registration of title
Definitive Certificates in definitive form for individual holdings of Bonds will not be issued in
exchange for interests in Bonds in respect of which the Global Certificate is issued, except in case that (a)
either Euroclear or Clearstream, Luxembourg (or any clearing system designated by the Company and
approved in writing by the Trustee (the ‘‘Alternative Clearing System’’) on behalf of which the Bonds
evidenced by the Global Certificate may be held) is closed for business for a continuous period of 14 days
(other than by reason of holidays, statutory or otherwise) or announces an intention permanently to cease
business or does in fact do so, or (b) the Bonds become immediately due and payable in accordance with the
provisions of Condition 10 or if in connection with judicial proceedings brought by the Trustee, the Trustee
has been advised that it is necessary or appropriate for Definitive Certificates to be executed and delivered.
Transfers
Transfers of interests in the Bonds with respect to which the Global Certificate is issued shall be
effected through the records of the relevant clearing system and its participants in accordance with the
Conditions, the Agency Agreement and the rules and procedures of the relevant clearing system.
Enforcement
For the purposes of enforcement of the provisions of the Indenture against the Trustee, the persons
named in a certificate of the holder of the Bonds in respect of which the Global Certificate is issued shall be
recognized as the beneficiaries of the trusts set out in the Indenture, to the extent of the principal amount of
their interest in the Bonds set out in the certificate of the holder, as if they were themselves the holders of
Bonds in such principal amounts.
90
DESCRIPTION OF OUR SHARES
The following is a summary of information relating to our share capital, including the material
provisions of our Articles, the ROC Securities and Exchange Law (the ‘‘Securities and Exchange Law’’)
and regulations promulgated thereunder and the ROC Company Law, all as currently in effect.
General
As of June 30, 2004, our authorized share capital was NT$6,200,000,000, divided into 620,000,000
common shares (the ‘‘Shares’’) with a par value of NT$10 per Share. As of June 30, 2004, the paid-in
capital was NT$4,119,960,000, all of which are issued, outstanding and fully paid in registered form. In the
annual meeting of Shareholders of 2004, the Shareholders have resolved to capitalize stock dividends and
employee bonuses into 42,767,000 Shares. As fixed by our board of directors, the record date is June 16,
2004.
Under the ROC Company Law, any change in our authorized share capital, including decreases in
authorized share capital, requires an amendment to our Articles, which in turn requires approval at the
shareholders’ meeting. Authorized but unissued Shares may be issued subject to the ROC Company Law
and the Articles, upon terms that the board of directors may determine.
We have one class of Shares. Pursuant to the ROC Company Law, a company may not issue preferred
stock unless authorized by the Articles. There is no such authorization in our Articles.
Our Board of Directors resolved on August 10, 2004 to acquire our Shares up to 10,000,000 Shares in
the open market from August 11, 2004 to October 10, 2004 for the purpose of transferring to our employees.
The purchase price range is from NT$20 to NT$30 per Share. As of October 4, 2004, we have acquired
10,000,000 Shares in total, which accounted for 2.43% of then outstanding Shares of us.
The Articles of Incorporation
According to Article 2 of our Articles, we can engage in any business that is not prohibited or
restricted under the ROC Law.
Dividends and Distribution
Under the ROC Company Law, except under certain limited circumstances, an ROC company is not
permitted to distribute dividends or make any other distributions to shareholders in any year in which we
have no earnings.
The ROC Company Law also requires that out of our annual earnings, less prior years’ losses, if any,
and outstanding tax, 10% of which shall be set aside as legal reserve. Allocation to legal reserve need not be
made when the accumulated legal reserve equals the paid-in capital. Apart from the aforesaid legal reserve,
a company may appropriate another sum as a special reserve in accordance with applicable laws and
regulations when necessary. Pursuant to the Article 31 of our Articles, we have set aside the required legal
reserve and may appropriate a special reserve for reduction in shareholders’ equity. Article 31 of our
Articles provide that any of our remainder profits will be distributed as follows: (1) 2% as remunerations for
directors and supervisors, (2) 5% for employee bonuses and (3) the remaining profits for shareholders’
dividends after being appropriated in whole or in part as special reserve.
At each of our annual ordinary shareholders’ meeting, the board of directors submits to the
shareholders for their approval any proposal for the distribution of a dividend or the making of any other
distribution to shareholders from our earnings (subject to compliance with the requirements mentioned
above) for the preceding fiscal year.
New Shares and Preemptive Rights
New Shares may only be issued with the prior approval of the board of directors. If the issuance of any
new Shares will result in any change in the authorized share capital, we are also required under the ROC
Law to amend the Articles and obtain approval of the shareholders. In addition, we must also obtain the
approval of, and submit a registration with, the Ministry of Economic Affairs and ROC SFB.
91
Under the ROC Company Law, when we issue new Shares for cash, existing shareholders who are
listed on the shareholders’ register as of the record date have preemptive rights to subscribe for the new
issue in proportion to their existing shareholdings, while our employees, whether or not they are existing
shareholders, have a similar right to subscribe for 10% to 15% of the new issue. Any new Shares that remain
unsubscribed at the expiration of the subscription period may be offered to the public or specific persons at
the discretion of our board of directors. The foregoing provisions regarding preemptive rights of existing
shareholders and employees do not apply to Shares issued upon the conversion of the Bonds.
In addition, in accordance with the ROC Securities and Exchange Law, when we intend to offer new
Shares for cash, it must conduct a public offering of at least 10% of the Shares to be sold, except under
certain circumstances or when exempted by the ROC SFB. This percentage can be increased by a resolution
passed at shareholders’ meeting, which would diminish the number of new Shares subject to the preemptive
rights of existing shareholders. In addition, the preemptive right provisions will not apply to offerings of
new shares through a private placement approved in a shareholders’ meeting.
Meetings of Shareholders
Our ordinary meeting of shareholders is usually held in Taipei County, ROC, as determined by the
board of directors, within six months of the end of each calendar year. Extraordinary meetings of
shareholders may be convened by resolutions of the board of directors whenever they consider it necessary,
and they must do so if requested in writing by shareholders holding not less than 3% of the paid-in capital
who have held these Shares for more than one year. Extraordinary meetings of shareholders may also be
convened by one of supervisors under certain circumstances. Notice in writing of ordinary and extraordinary
shareholders’ meetings stating the place, time and purpose thereof must be dispatched to each of our
shareholder at least 30 days and 15 days, respectively, prior to the date set for the meeting.
Voting Rights
Under the ROC Company Law, a shareholder has one vote for each common share except for treasury
shares. Except as otherwise provided by law, a resolution can be adopted by the holders of at least a
majority of the Shares represented at a shareholders’ meeting at which the holders of a majority of all issued
and outstanding Shares are present. In accordance with the ROC Company Law, the election of directors
and supervisors at a shareholders’ meeting is by means of cumulative voting unless the articles of
incorporation of a company provide otherwise. In all matters, except for the election of directors and
supervisors, a shareholder must cast all of his votes in the same direction. Our Articles do not provide other
election methods. Ballots for the election of directors are casted separately from those for the election of
supervisors. Candidates for the offices of directors and supervisors may be nominated at the shareholders’
meeting at which ballots for the election are cast. Any shareholder who has a personal interest in a matter to
be discussed at the shareholders’ meeting, the outcome of which may impair our interests, shall not vote or
exercise voting rights on behalf of another shareholder on such matter. Under the ROC Company Law, the
approval by at least a majority of the Shares represented at a shareholders’ meeting in which a quorum of at
least two-thirds of all issued and outstanding Shares are presented is required for major corporation actions,
including:
"
amendment to the Articles;
"
transfer of the whole or a substantial part of our business or assets;
"
execution, amendment or termination of any contract that leases our whole business, mandate of
our operation to other persons, or operation of the business frequently for the joint interest of us
and other persons;
"
taking over of the whole of the business or assets of any other company which would have a
significant impact on our operations;
"
distribution of any stock dividend;
"
the dissolution or amalgamation of a company;
"
the merger or spin-off; and
92
"
the removal of directors or supervisors.
Alternatively, the ROC Company Law provides that in the case of a public company, such as us, a
resolution may be adopted by the holders of at least two-thirds of the Shares represented at a meeting of
shareholders at which holders of at least a majority of issued and outstanding Shares are present. However,
if a controlling company holds not less than 90% of its subordinate company’s outstanding shares, the
controlling company’s merger with the subordinate company can be approved by board resolution adopted
by majority consent at a meeting with two-thirds of directors present.
A shareholder may be represented at an ordinary or extraordinary meeting by proxy if a valid proxy
form is delivered to us five days before the commencement of the ordinary or extraordinary shareholders’
meeting. Except for trust enterprises or stock affair agents approved by the ROC SFB, a person who holds a
proxy for two or more shareholders who together hold more than 3% of the total issued Shares, the votes of
those shareholders in excess of 3% of the outstanding Shares shall not be counted.
Under the ROC Company Law, we may set a record date and shall close the register of shareholders
for a specified period immediately prior to and including the record date in order to determine the
shareholders and pledgees that are entitled to rights pertaining to the Shares. The specified period required
for the respective record date is as follows:
"
ordinary shareholders’ meeting — sixty days;
"
extraordinary shareholders’ meeting — thirty days; and
"
relevant record date for distribution of dividends, bonuses or other interests — five days.
Other Rights of Shareholders
Under the ROC Company Law, our dissenting shareholders are entitled to appraisal rights in the event
of amalgamation, spin-off and various other major corporate actions within 20 days of shareholders’
resolution approving the event. A dissenting shareholder may request us to redeem all of the Shares owned
by such shareholder at a fair price to be determined by mutual agreement. If an agreement cannot be
reached, the valuation will be determined by a court order. For amalgamation or spin off, a dissenting
shareholder may exercise its appraisal right by serving written notice on us before or during the related
shareholders’ meeting or by raising and registering its objection in the shareholders’ meeting. For other
major corporate actions, a dissenting shareholder may exercise its appraisal right by serving written notice
on us before the related shareholders’ meeting and by raising and registering its objection in the
shareholders’ meeting.
In addition to appraisal rights, within 30 days after the date of the shareholders’ meeting, any
shareholder has the right to annul any resolution adopted at a shareholders’ meeting where the procedures or
the method of resolution were legally defective. However, if the court is of the opinion that such violation is
not material and does not affect the result of the resolution, the court may reject or dismiss the shareholder’s
lawsuit. If the substance of a resolution adopted at a shareholders’ meeting contradicts any applicable law or
regulation or the Articles, a shareholder may bring a suit to determine the validity of such resolution.
Shareholders may bring suit against directors and supervisors under the following circumstances:
"
Shareholders who have continuously held 3% or more of the total number of issued and
outstanding Shares for a period of one year or longer may request in writing that a supervisor
institute an action against a director on our behalf. In case the supervisor fails to institute an
action within 30 days after receiving such request, the shareholders may institute an action on
our behalf. In the event that shareholders institute an action, a court may, upon application of the
defendant, order such shareholders to furnish appropriate security.
"
In the event that any director, supervisor, officer or shareholder holds more than 10% of the
issued and outstanding Shares and their respective spouse and minor children and/or nominees
sells Shares within six months after the acquisition of such Shares, or repurchases the Shares
within six months after the sale, we may make a claim for recovery of any profits realized from
the sale and purchase. If the board of directors or the supervisors fail to make a claim for
93
recovery, any shareholder may request that the board of directors or the supervisors to make such
claim within 30 days. After such 30-day period, the requesting shareholder will have the right to
make a claim for such recovery and our directors and supervisors will be jointly and severally
liable for damages suffered by us as a result of their failure to exercise the right of claim.
In addition, one or more shareholders who have held more than 3% of our issued and outstanding
Shares for over a year may require our board of directors to convene an extraordinary shareholders’ meeting
by sending a written request to the board of directors.
Annual Financial Statements
Under the ROC Company Law, for a period of at least 10 days before the ordinary shareholders’
meeting, our annual audited financial statements must be available at our principal office in Taipei, the
ROC, for inspection by the shareholders. According to the regulations of the ROC SFB, we are required to
publish its annual, semi-annual and quarterly non-consolidated financial statements.
Transfers of Common Shares
Under the ROC Company Law, a public company, such as us, may issue individual share certificates,
one master or no certificate at all to evidence common shares. Under the ROC Company Law, when
individual share certificates are issued and delivered to the shareholders, the transfer of the Shares (in
registered form) is effected by endorsement and delivery of share certificates. If we decide to issue one
master certificate to represent the total shares issued in that issuance, the transfer of the Shares will be
carried out on the book-entry system. In order to assert shareholders’ rights against us, the transferee must
have his name and address registered on our register of shareholders. Shareholders are required to register
their respective specimen seal or chop with us. The settlement of trading of the Shares is normally carried
out on the book-entry system maintained by Taiwan Securities Central Depository Co., Ltd.
Acquisition by Us of Our Own Common Shares
Under the ROC Company Law, an ROC company could not acquire its own shares except for minor
exceptions.
In addition, under the ROC Securities and Exchange Law, we may, pursuant to a board resolution
adopted by a majority consent at a meeting attended by more than two-thirds of the directors and pursuant to
the procedures prescribed by the ROC SFB, purchase its Shares on the TSE or by a tender offer for the
following purposes:
"
for transfer of Shares to its employees;
"
to meet the exercise of conversion rights for Shares by holders of bonds with warrants, preferred
shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants
issued by us; and
"
for maintaining its credit and its shareholders’ equity.
Shares purchased by us for the purpose set out in the first two items of the preceding paragraph shall
be deemed cancelled if not transferred to the intended transferees within 3 years of the relevant purchase.
Shares purchased by us for the purpose set out in the last item of the preceding paragraph shall be cancelled,
and we are required to amend the registration of its issued paid-in capital to reflect such cancellation within
6 months of such purchase.
The total Shares so purchased by us shall not exceed 10% of its total issued and outstanding Shares. In
addition, the total amount for purchase of the Shares shall not exceed the aggregate amount of the retained
earnings, the premium from stock issues and the realized portion of the capital reserve.
94
The Shares purchased by us shall not be pledged or hypothecated. In addition, we may not exercise
any shareholders’ rights attaching to such Shares. Our affiliates (as defined in Article 369-1 of the ROC
Company Law), directors, supervisors, managers and their respective spouses and minor children and/or
nominees are prohibited from selling the Shares held by them during the period in which we purchase our
own Shares.
In addition to the share purchase restriction, the ROC Company Law further provides that our
subsidiaries may not acquire our Shares or the shares of our majority-owned subsidiaries if the majority of
the outstanding voting shares or paid-in capital of such subsidiary is directly or indirectly held by us.
Liquidation Rights
In the event of our liquidation, the assets remaining after payment of all debts, liquidation expenses,
taxes and distributions to holders of preferred shares, if any, will be distributed pro rata to the shareholders
in accordance with the ROC Company Law.
Transfer Restrictions
The number of Shares that each of our director, supervisor, manager or significant shareholder (i.e. a
shareholder who, together with his or her spouse, minor children or nominees, holds more than 10% of the
Shares) can sell or transfer on the TSE daily is limited by the ROC Securities and Exchange Law. Further,
they may sell or transfer the Shares on the TSE only after reporting to the ROC SFB at least three days
before the transfer, provided that such reporting is not required if the number of Shares transferred does not
exceed 10,000.
Limitation on Shareholdings in Us and Reporting Obligations
The ROC Securities and Exchange Law requires each director, supervisor, manager or significant
shareholder (i.e., a shareholder who, together with his/her spouse, minor children or nominees, holds more
than 10% of our issued Shares) to report any change in that person’s shareholding to us before each fifth day
of each month and we shall report the same to the ROC SFB before the fifteenth day of each month. Such
persons are also required to report to us immediately the pledge of their Shares and we shall report the same
to the ROC SFB within five days from the pledge date. A person or a person who along with other persons
(as defined under the ROC SFB regulations) acquires more than 10% of our issued and outstanding Shares
shall report to the ROC SFB, within ten days from the acquisition date, the acquisition purpose, funding
sources and other information required by the ROC SFB.
Register of Shareholders
China Trust Commercial Bank, Transfer Agency currently acts as our Share registrar and maintains
our register of shareholders at its offices in Taipei, Taiwan, and enters transfers of Shares in such register
upon presentation of, among other documents, certificates in respect of the transferred Shares. The
registered office of our Share registrar is at 1F., No.3, Songshou Rd., Sinyi District, Taipei, Taiwan, ROC.
95
TAXATION
The Bonds may be deemed by taxing authorities in various jurisdictions to be issued with original
issue discount. Prospective investors should consult their own adviser concerning the tax consequences of
an investment in Bonds or Shares.
ROC Taxation of Non-Residents
The following is a summary under present law of the principal ROC tax consequences of the
ownership and disposition of Bonds and Shares to a Non-ROC Resident Individual or Non-ROC Resident
Entity that holds Bonds or Shares (each a ‘‘Non-ROC Holder’’). As used in the preceding sentence, a
‘‘Non-ROC Resident Individual’’ is a foreign national individual who owns Bonds or Shares and is not
physically present in the ROC for 183 days or more during any calendar year and a ‘‘Non-ROC Resident
Entity’’ is a profit seeking corporation or a non-corporate body that owns Bonds or Shares and is organized
under the laws of a jurisdiction other than the ROC and has no fixed place of business or other permanent
establishment in the ROC.
Dividends on the Shares
Dividends (whether in cash or Shares) declared by us out of retained earnings and paid out to NonROC Holders of Shares are normally subject to ROC income tax collected by way of withholding at the time
of distribution. The current rate of withholding for Non-ROC Holder is 20% of the amount of the
distribution in the case of cash dividends or the par value of the Shares distributed in the case of stock
dividends. Distributions of stock dividends declared by us out of capital reserves are not subject to
withholding tax. In accordance with the ROC Income Tax Law, a 10% retained earnings tax will be imposed
on a company for its after-tax earnings generated after January 1, 1998 which are not distributed in the
following year. The retained earnings tax so paid will further deduct the retained earnings available for
future distribution. When we declare dividends out of those retained earnings, a maximum amount of up to
10% of the declared dividends will be credited against the 20% withholding tax imposed on the Non-ROC
Holder.
Capital Gains
Under current ROC law, gain realized upon the sale or other disposition of securities is exempt from
ROC income tax. This exemption will apply to a sale or other disposition of Bonds or Shares.
ROC Law currently provides no specific provisions regarding the ROC income tax consequences of a
conversion of Bonds into Shares. Without further clarification from the ROC tax authorities, it is impossible
to conclude definitively that gain on the conversion of Bonds into Shares will not be deemed as taxable
gain, additional interest income (subject to the 20% withholding tax) or otherwise subject to other ROC
taxes. Transfers of Bonds by Non-ROC Holders are regarded as transactions outside the ROC and thus any
gains derived therefrom are not subject to ROC income tax.
Securities Transaction Tax
The ROC Government imposes a securities transaction tax that will apply to sales of Shares. The
transaction tax, which is payable by the seller, is levied on sales of Shares at the rate of 0.3% of the
transaction price and on sales of corporate bonds at the rate of 0.1% of the sales proceeds. According to a
special exemption granted pursuant to the amended Statute for Upgrading Industries effective as of
February 1, 2002, securities transaction tax otherwise be imposed on the sale of the corporate bonds by the
above referenced law has been suspended for all sales of corporate bonds and financial debentures, which
occur between February 1, 2002 and December 31, 2009.
There is no ROC stamp, issue or registration tax imposed on the issuance of Shares upon conversion of
the Bonds. However, securities transaction tax, gift tax and/or income tax may be imposed in relation to the
Bondholder’s designation of other person to be holder of the Shares upon the conversion of the Bonds.
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Inheritance Tax and Gift Tax
ROC inheritance tax is payable on any property within the ROC of a deceased Non-ROC Resident
Individual, and ROC gift tax is payable on any property within the ROC donated by a Non-ROC Resident
Individual. Inheritance tax is currently imposed at rates ranging from 2% of the first NT$600,000 to 50% of
amounts in excess of NT$100,000,000. Gift tax is imposed at rates ranging from 4% of the first NT$600,000
donated to 50% of amounts donated in excess of NT$45,000,000. Under ROC inheritance and gift tax laws,
the Bonds and Shares will be deemed to be located in the ROC without regard to the location of the owner.
Tax Treaty
At present, the ROC has income tax treaties with, among other countries, Indonesia, Singapore, New
Zealand, Australia, South Africa, Gambia, Swaziland, Malaysia, Macedonia, The Netherlands, United
Kingdom and Vietnam. It is unclear whether a Non-ROC Holder will be considered to own Bonds or Shares
for the purposes of such treaties. Accordingly, a holder of Bonds or Shares who is otherwise entitled to the
benefit of a treaty should consult its own tax advisers concerning eligibility for benefit under the treaty with
respect to Bonds or Shares.
Withholding Tax on Payments of Premium
Premium (if any) and interest (if any) payable on the Bonds to the Non-ROC Holders is subject to a
withholding tax in the ROC currently equal to 20% of the gross amount of such premium (if any) and
interest (if any) at the time of payment.
Subscription Rights
Distributions of statutory subscription rights for the Shares in compliance with the ROC Company
Law are not subject to ROC tax. Proceeds derived from sales of statutory subscription rights evidenced by
securities are currently exempted from income tax but are subject to securities transaction tax, currently at
the rate of 0.3% of the gross amount received. Proceeds derived from sales of statutory subscription rights
that are not evidenced by securities are subject to capital gains tax at the rate of (i) 25% of the gains realized
for Non-ROC Resident Entities, and (ii) 35% of the gains realized for Non-ROC Resident Individuals.
Subject to compliance with ROC Law, we have the sole discretion to determine whether statutory
subscription rights are evidenced by securities or not.
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UNDERWRITING
Yuanta Core Pacific Securities (Hong Kong) Company Limited (the ‘‘Lead Manager’’) and Yuanta
Core Pacific Securities Co., Ltd. (together with the Lead Manager, the ‘‘Managers’’, and each a
‘‘Manager’’) have, pursuant to a Subscription Agreement dated October 20, 2004 (the ‘‘Subscription
Agreement’’) agreed with us to subscribe and purchase the Bonds at an aggregate of U.S.$60,000,000
principal amount less the combined management and underwriting commission and selling fee.
We have agreed in the Subscription Agreement to indemnify each Manager with certain liabilities,
including the liabilities under the Securities Act, in connection with the offering of the Bonds.
We have agreed in the Subscription Agreement that, except for otherwise permitted by relevant laws
and regulations, for a period of 90 days from the date of the Subscription Agreement, neither we nor any
person acting on our behalf will issue, offer, pledge, sell, contract to sell, grant any option to purchase or
otherwise dispose of, any equity securities, or any securities convertible or exchangeable for equity
securities, or any rights, warrants or options to subscribe for our equity securities, or apply to the ROC SFB
in connection with any of such offering or sale during such 90-day period, in any case outside of Taiwan or
denominated in a currency other than NT Dollars, other than pursuant to employee benefit plans or
employee stock option plans or distributions of dividends or employee bonuses in the form of Shares and
conversion of the Bonds or the issue of Shares to sponsor any DR facility, in any such case without the prior
written consent of the Lead Manager, such consent may not be unreasonably withheld.
Each of Kinpo Electronics, Inc. and China Development Industrial Bank agreed that for a period of 90
days after the date of the Subscription Agreement, it will not, without the prior written consent of the Lead
Manager, on behalf of the Manager, announce their intention to, directly or indirectly, issue, offer, sell,
contract to sell, grant any option to purchase or otherwise dispose of or any Shares, any GDSs representing
Shares, or deposit any Shares or any securities convertible into or exchangeable or exercisable for GDSs or
Shares in any depositary receipt facility.
The Bondholders who purchase the Bonds from the Managers may be required to pay stamp taxes and
other charges in accordance with the laws and practice of the country of purchase in addition to the issue
price of the Bonds.
Selling Restrictions
No action has been or will be taken in any jurisdiction that would permit a public offering of the
Bonds or the Shares issuable upon conversion of the Bonds, or the possession, circulation or distribution of
this Offering Circular or any other material relating to us, the Bonds or the Shares issuable upon conversion
of the Bonds, in any jurisdiction where action for the purpose is required. Accordingly, neither the Bonds
nor any Shares issuable upon conversion of the Bonds may be offered or sold, directly or indirectly, and
neither this Offering Circular nor any other offering material or advertisements in connection with the
Bonds or the Shares issuable upon conversion of the Bonds may be distributed or published, in or from any
country or jurisdiction, except in compliance with any applicable rules and regulations of any such country
or jurisdiction.
United States
Each Manager has acknowledged and agreed that the Bonds and the Shares to be issued upon
conversion of the Bonds have not been and will not be registered under the Securities Act, and may not (i) as
part of their distribution at any time or (ii) prior to the 40th day after the closing of the offering of the Bonds
be offered or sold within the United States or to, or for the account or benefit of, U.S. persons. The Bonds
are being offered and sold outside the United States to non-U.S. persons in reliance on Regulation S.
In addition, until 40 days after the closing of the offering of the Bonds, an offer or sale of the Bonds or
the Shares to be issued upon conversion of the Bonds within the United States by any dealer (whether or not
participating in the offering) may violate the registration requirements of the Securities Act.
98
United Kingdom
Each Manager has represented and agreed that:
(1)
it has not offered or sold and prior to the date six months after the issue of the Bonds and will not
offer or sell any Bonds to persons in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of investments (as principal
or agent) for the purposes of their businesses or otherwise in circumstances which have not
resulted and will not result in an offer to the public in the United Kingdom within the meaning of
the Public Offer of Securities Regulations 1995;
(2)
it has complied and will comply with all applicable provisions of the Financial Services and
Markets Act 2000 with respect to anything done by it in relation to the Bonds in, from or
otherwise involving the United Kingdom; and
(3)
it has only issued or passed onto any person in the United Kingdom any document received by it
in connection with the issue of the Bonds, if that person is of a kind described in Articles 19, 47
or 49 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as
amended) or is a person to whom such document may otherwise lawfully be issued or passed on.
The ROC
Each Manager has acknowledged and agreed that the Bonds may not be offered, sold or delivered in
the ROC, as part of the distribution of the Bonds.
Hong Kong
Each Manager has represented and agreed that:
(1)
it has not offered or sold and will not offer or sell in Hong Kong, by means of any document, any
Bonds other than (i) to persons whose ordinary business is to buy or sell shares or debentures
(whether as principal or agent) or (ii) in circumstances which do not constitute an offer to the
public within the meaning of the Companies Ordinance (Cap. 32) of Hong Kong; and
(2)
it has not issued or had in its possession for the purposes of issue and will not issue or have in its
possession for the purposes of issue any advertisement, invitation or document relating to the
Bonds, whether in Hong Kong or elsewhere, which is directed at, or the contents of which are
likely to be accessed or read by, the public in Hong Kong (except if permitted to do so under the
securities laws of Hong Kong) other than with respect to Bonds which are or are intended to be
disposed of only to persons outside Hong Kong or only to ‘‘professional investors’’ within the
meaning of the Securities and Futures Ordinance (Cap. 571) and any rules made thereunder.
Japan
The Bonds and Shares have not been and will not be registered under the Securities and Exchange Law
of Japan. Accordingly, each Manager has represented and agreed that it has not, directly or indirectly,
offered or sold and will not, directly or indirectly, offer or sell any Bonds or Shares in Japan or to, or for the
benefit of, any resident of Japan, except that each Manager may offer and sell such Bonds or Shares
pursuant to an exemption from the registration requirements of, and otherwise in compliance with the
Securities and Exchange Law of Japan and other applicable laws and regulations of Japan. As used in this
paragraph, ‘‘resident of Japan’’ means any person resides in Japan, including any corporation or other
entity organized under the laws of Japan.
Singapore
Each Manager has acknowledged and agreed that this Offering Circular has not been and will not be
registered as a prospectus with the Monetary Authority of Singapore. Accordingly, each Manager has
represented and agreed that it has not offered or sold and will not offer or sell any Bonds nor has it
circulated or distributed nor will it circulate or distribute this Offering Circular or any other offering
document or material relating to the Bonds, directly or indirectly, (i) to persons in Singapore other than
99
under circumstances in which such offer or sale does not constitute an offer or sale of the Bonds to the
public in Singapore or (ii) to the public or any member of the public in Singapore other than pursuant to, and
in accordance with the conditions of, an exemption invoked under subdivision (4) of Division 1 of Part XIII
of the Securities and Futures Act, Chapter 289 of Singapore and to persons to whom the Bonds may be
offered or sold under such exemption.
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LEGAL MATTERS
Certain legal matters with respect to the Bonds will be passed upon for us by Baker & McKenzie,
Taipei Office, and for the Lead Manager by Baker & McKenzie, Hong Kong Office. Baker & McKenzie,
Hong Kong Office will rely upon Baker & McKenzie, Taipei Office with respect to certain matters of ROC
law. Baker & McKenzie, Taipei Office will rely upon Baker & McKenzie, Hong Kong Office with respect
to certain matters of United States federal and New York Law.
INDEPENDENT AUDITORS
Our audited consolidated and non-consolidated financial statements as of December 31, 2001, 2002
and 2003 and for the years then ended, and audited non-consolidated financial statements as of June 30,
2003 and 2004 and for the six month periods then ended, have been included herein in reliance upon the
reports of KPMG Certified Public Accounts (‘‘KPMG’’), independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
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GENERAL INFORMATION
Registered Office and Principal Place of Business
We are registered with the Ministry of Economic Affairs of the ROC under a uniform registration
number of 12341051. Our registered office is located at No. 159, Sec. 3, Tam-King Rd., Tamsui, Taipei,
Taiwan, ROC.
Company Confirmation
We, having made all reasonable inquiries, confirms that this Offering Circular contains all information
with respect to us, we and our subsidiaries taken as a whole, the Bonds, and the Shares which is material in
the context of the issue and offering of the Bonds (including all information required by applicable laws of
the ROC); that the information contained herein (save as set out below) is true and accurate in all material
respects and is not misleading; that the opinions and intentions expressed herein are honestly held and have
been reached after considering all relevant circumstances and are based on reasonable assumptions; that
there are no other facts, the omission of which would, in the context of the issue and offering of the Bonds,
make this Offering Circular as a whole or any of such information or the expression of any such opinions or
intentions misleading in any material respects; that all reasonable inquiries have been made by us to verify
the accuracy of such information; and that this Offering Circular does not contain an untrue statement of a
material fact or omit to state a material fact required to be stated herein or necessary in order to make the
statements herein, in the light of the circumstances under which they are made, not misleading. We accept
responsibility accordingly. Information provided herein with respect to the ROC, its political status and
economy and its securities market, has been derived from government and other public sources, including
GTSM Monthly Review and Status of Securities Listed on Taiwan Stock Exchange, and we accept
responsibility only for accurately extracting information from such sources.
Authorizations
The offering of the Bonds was authorized and approved by our board of directors on April 29, 2004
and approved by the ROC SFB on June 4, 2004. We also obtained approvals from the ROC SFB for an
three-month extension of the Offering.
Our Business Scope
According to Article 2 of our Articles, we can engage in any business that is not prohibited or
restricted under the ROC Law.
Listing and Trading
Application has been made to the Luxembourg Stock Exchange for the listing of, and permission to
deal in, the Bonds. Our Articles and a legal notice will be lodged at the trade and commerce register in
Luxembourg prior to the listing. If the Bonds are listed on the Luxembourg Stock Exchange, a copy of this
Offering Circular will be available free of charge at the specified office of the listing sponsor. As long as the
Bonds are listed on the Luxembourg Stock Exchange, we will maintain a paying agent, a conversion agent
and a transfer agent in London and Luxembourg. The listing of the Bonds on the Luxembourg Stock
Exchange may subject us to the EU Transparency Directive, which may be implemented in a manner which
is unduly burdensome for us. In particular, we may be required to prepare our financial statements in
accordance with International Financial Reporting Standards for accounting periods beginning on or after
January 1, 2005. Pursuant to the Indenture, in those circumstances, we would be entitled to seek an
alternative listing for the Bonds on a stock exchange outside the EU, approved in writing by the Trustee
(such approval not to be unreasonably withheld or delayed).
Documents Available
Copies (and certified English translations where the documents are not in English) of the following
documents may be inspected and freely obtainable at the specified office of the Paying Agent during normal
business hours in Luxembourg (or the place at the Alternative Stock Exchange is located in the event of
Alternative listing) for as long as the Bonds are listed on the Luxembourg Stock Exchange or the Alternative
Stock Exchange:
"
our Articles;
102
"
a copy of our annual reports of the independent accountants, containing our audited consolidated
financial statements as at and for the years ended December 31, 2001, 2002 and 2003 and
audited non-consolidated financial statements as at and for the years ended December 31, 2001,
2002 and 2003, and audited non-consolidated six-month ended June 30, 2003 and 2004;
"
the Subscription Agreement relating to the Bonds; and
"
the Indenture constituting the Bonds (which includes the form of the Global Certificate) and the
Paying and Conversion Agency Agreement (which includes the Regulations concerning transfer
of Bonds).
Our financial statements for and as of September 30, 2004 will not be available in the ROC until the
end of October 2004. Copies of this Offering Circular and our most recent annual financial statements and
our quarterly and semi-annual financial statements (in each case in English), will be available during normal
business hours at the specified office of the Paying Agent in Luxembourg free of charge for as long as the
Bonds are listed on the Luxembourg Stock Exchange or the Alternative Stock Exchange. All notices,
including all financial notices concerning us and notices of our general meetings, to holders of the Bonds
will be published in a daily newspaper of general circulation (which is expected to be the Luxemburger
Wort).
According to the rules and regulations promulgated by the ROC Securities and Futures Bureau (‘‘ROC
SFB’’), we are not required to and do not prepare interim financial statements on a consolidated basis.
Paying and Conversion Agents
We will at all times maintain paying and conversion agents having specified offices in London and so
long as the Bonds are listed on the Luxembourg Stock Exchange or the Alternative Stock Exchange,
Luxembourg or the place where the Alternative Stock Exchange is located (as the case may be). The names
of the initial agents and their specified offices are set out at the end of this Offering Circular.
No Material Adverse Change
Except as disclosed herein, there has been no material adverse change in our financial position and our
subsidiaries since December 31, 2003, the date of the latest audited financial statements contained herein.
Governing Law
The Subscription Agreement, the Paying and Conversion Agency Agreement and the Indenture in
connection with the offering are governed by the laws of the State of New York, the United States.
Clearance
The Bonds have been accepted for clearance by Euroclear and Clearstream, Luxembourg. Relevant
clearance and settlement information for the Bonds is set forth below:
Common Code:
ISIN:
019427579
XS0194275797
Litigation
We are not involved in any legal or arbitration proceedings which may have, or have had in the past
twelve months, a material adverse effect on the consolidated financial position of us and our subsidiaries,
taken as a whole, and which are material in the context of the issue of the Bonds, nor are we aware that any
such proceedings are pending or threatened.
Depositary Receipt Facility
We have not at the date of this Offering Circular established or authorized the establishment of any
depositary receipt facility. Accordingly, conversion into DRs is not currently available.
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SUMMARY OF PRINCIPAL DIFFERENCES BETWEEN ROC GAAP
AND
U.S. GAAP
Our accompanying financial statements have been prepared in accordance with generally accepted
accounting principles in the Republic of China differ in certain respects from U.S. GAAP. A brief
description of certain significant differences between ROC and U.S. GAAP are set out below. The
regulatory organizations that promulgate ROC GAAP and U.S. GAAP have projects ongoing that could
have a significant impact on future comparisons such as between ROC GAAP and U.S. GAAP, including
those specifically related to us or to the industry in which we operate. Had we undertaken to identify the
differences specifically affecting the financial statements which are not provided in the following summary.
Accordingly, there can be no assurance that this summary of certain significant differences between ROC
GAAP and U.S. GAAP provides a complete description of all differences which may have a significant
impact on our accompanying financial statements. U.S. GAAP is generally more restrictive and
comprehensive than ROC GAAP regarding the recognition and measurement of transactions, account
classification and disclosure requirements. No attempt has been made in this summary to identify
disclosure, presentation or classification differences that would affect the manner in which transactions and
events are reflected in our financial statements or the notes thereto.
Certain principal differences between ROC GAAP and U.S. GAAP which would affect the
determination of net income and equity of the Company are as follows:
ROC GAAP
U.S. GAAP
Presentation of non-consolidated financial statements
Under ROC GAAP, non-consolidated financial statements of a
company are presented as the primary financial statements and
consolidated financial statements as supplemental financial
statements. Therefore, our June 30, 2004 financial statements are
unconsolidated.
Under U.S. GAAP, parent-company-only non-consolidated
financial statements are not allowed to be presented as the
primary financial statements for any period.
Bonuses to Employees, Directors and Supervisors
According to ROC regulations and our Articles of Incorporation,
a portion of distributable earnings should be set aside as bonuses
to employees, directors and supervisors. Bonuses to directors and
supervisors are always paid in cash. However, bonuses to
employees may be granted in cash or shares or both. All of these
appropriations, including share bonuses which are valued at par
value of NT$10, are charged against retained earnings under ROC
GAAP, after such appropriations are formally approved by the
shareholders in the following year.
All bonuses and remuneration are charged to current income in
the year incurred. Shares issued as part of these bonuses are
recorded at fair market value. Since the amount and form of such
bonuses are not finally determinable until a shareholders’ meeting
in the subsequent year, the total amount of the aforementioned
bonuses is initially accrued based on management’s estimate
regarding the amount to be paid based on the company’s estimate
regarding the amount to be paid based on the company’s Articles
of Incorporation. Any difference between the initially accrued
amount and the fair market value of the bonuses settled by the
issuance of the shares is recognized in the year of approval by
shareholders.
Stock dividends
Under ROC GAAP, stock dividends are recorded as a reduction to
its retained earning for the par value of the stock issued, and a like
amount is recorded to the capital stock account.
Under U.S. GAAP, stock dividends are recorded as a reduction to
retained earnings based on the fair value of the stock issued, and a
like amount is recorded to the capital stock and capital surplus
accounts.
Capital Surplus
Under ROC GAAP, the following items are treated as capital
surplus: (a) premium on issuance of shares; (b) revaluation
increment on properties; and (c) the value of the assets of a
company acquired in a merger in excess of assumed liabilities and
the consideration paid for shares of such company in connection
with the acquisition.
Under U.S. GAAP item (a) of the preceding column is the same as
in ROC GAAP; items (b) and (c) of the preceding column are not
permitted.
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ROC GAAP
U.S. GAAP
Under ROC GAAP, a company is required to include in its annual
consolidated financial statements only those subsidiaries which
are directly or indirectly over 50% owned. For subsidiaries (i)
with total assets and operating revenues which are less than 10%
of the Company’s non-consolidated total assets and operating
revenues, respectively, or (ii) which are in a negative equity
position, the company has the option of whether or not to
consolidate such subsidiaries. Irrespective of the above test, if the
combined revenues and total assets of all such non-consolidated
subsidiaries exceeds 30% of the company’s non-consolidated total
assets or operating revenues, then each individual subsidiary with
total assets or operating revenues greater than 3% of the
company’s respective non-consolidated amounts shall be
consolidated. In addition, under the Company Law in the
Republic of China, the company is required to include in its
consolidated financial statements the financial statements of its
less-than-majority owned investee companies if the company has
the ability to control the human resources, finance or operations
of the investee companies.
Under U.S. GAAP, the parent company’s consolidated financial
statements generally include the financial statements of majorityowned subsidiaries, unless (i) control is considered temporary or
(ii) control does not rest with the majority owner.
Consolidation
In January 2003, the U.S. Financial Accounting Standards Board
(‘‘FASB’’) issued FASB Interpretation (‘‘FIN’’) NO. 46,
‘‘Consolidation of Variable Interest Entities, an interpretation of
ARB No. 51’’. FIN No. 46 requires existing unconsolidated
variable interest entities, as defined in the Interpretation, to be
consolidated by their primary beneficiaries if the entities do not
effectively disperse risks among parties involved. Variable
interest entitles that effectively disperse risks will not be
consolidated unless a single party holds an interest or
combination of interests that effectively recombines risks that
were previously dispersed.
Investment in Debt and Equity Securities
Investments in debt securities and short-term investments are
stated at the lower of amortized cost or market value. Long-term
investments in listed equity securities that represent less than 20%
of the investee’s common stock ownership are stated at the lower
of cost or market value, and unrealized losses are deducted from
stockholders’ equity. Long-term investments in non-listed equity
securities that represent less than 20% of the investee’s common
stock ownership are stated at cost, subject to a permanent
impairment test.
Investment in debt and marketable equity securities are classified
in one of three categories: trading, held-to-maturity, or availablefor-sale. Debt and marketable equity securities classified as
trading securities are reported at fair value with unrealized gains
and losses included in earnings; debt securities classified as heldto-maturity securities are reported at amortized cost; and, debt
and marketable equity securities classified as available-for-sale
securities are reported at fair value with unrealized gains and
losses reported in accumulated other comprehensive income.
Stock dividends received are recorded as an increase in voting
stock not as investment income.
Stock dividends received are recorded as investment income
based on the fair value of the stock.
Depreciation of fixed assets
In practice, depreciation is generally provided using the guideline
service lives as prescribed by the ROC Tax Authorities plus one
additional year as salvage value.
Depreciation is provided over the asset’s estimated useful life. No
additional depreciation is provided on fully depreciated assets
which continue to be used in the business.
ROC SFB regulations applicable to public companies require that
when fixed assets have been fully depreciated over the prescribed
service life and the underlying asset continues to be used, the
remaining unamortized value (i.e., the salvage value portion) is
depreciated over the asset’s remaining economic life.
Revaluation of fixed assets
ROC GAAP permits property, plant and equipment to be recorded
at cost or at cost plus appreciation in respect of assets revalued in
accordance with ROC government regulations.
Upward revaluation of assets is not permitted.
105
ROC GAAP
U.S. GAAP
Impairment of long-lived assets or long-lived assets to be
disposed
ROC GAAP has no specific standards which address impairment
of long-lived assets; normally such assets would be carried at cost
less accumulated depreciation.
Under U.S. GAAP, U.S. SFAS No.121, ‘‘Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of’’ (‘‘SFAS No. 121’’), as amended by U.S. SFAS
No. 144 ‘‘Accounting for the Impairment or Disposal of LongLived Assets’’ (‘‘SFAS No. 144’’), requires entities to perform
separate calculations for assets to be held and used to determine
whether recognition of an impairment loss is required, and if so,
to measure the impairment. If the sum of the expected future cash
flows, undiscounted and without interest charges, is less than an
asset’s carrying amount, an impairment loss is recognized; if the
sum of the expected future cash flows, undiscounted and without
interest charges, is greater than an asset’s carrying amount, an
impairment loss cannot be recognized. Measurement of an
impairment loss is based on the fair value of the asset. U.S. SFAS
No. 121, as amended by U.S. SFAS No. 144, also requires that
long-lived assets and certain identifiable intangibles to be
disposed of be reported at the lower of carrying amount or fair
value less cost to sell.
Deferred Income Tax
Under ROC Statement of Financial Accounting Standards No.22,
‘‘Accounting for Income Tax’’ (SFAS No.22), current tax
liabilities are recognized for estimated taxes payable for the
current period. ROC GAAP requires that all temporary
differences between the carrying values of assets and liabilities
and their respective tax bases be recognized as deferred income
tax liabilities or assets. A valuation allowance is provided on
deferred income tax assets to the extent that it is not ‘‘more likely
than not’’ such deferred income tax assets will be realized. A
change in tax rate or law requires an adjustment to such deferred
income tax assets and liabilities in the period of enactment, and is
reported as part of results of operations.
The requirements under U.S. Statement of Financial Accounting
Standards (‘‘SFAS’’) No. 109, ‘‘Accounting for Income Taxes’’,
are similar to ROC SFAS No. 22. Application of the ‘‘more likely
than not’’, criteria related to the recognition of a deferred income
tax asset valuation allowance may result in a difference between
U.S. and ROC GAAP.
Compensated absences
ROC GAAP has no specific accounting practice regarding
compensated absences.
Compensated absences must be accrued based on the liability for
employees’ rights to receive compensation for future absences
when certain conditions are met.
Accounting for Pensions
Under SFAS No. 18, the annual pension provision is recognized
as a charge to the statement of income over the employees’
service period. SFAS No.18 focuses on the plan’s benefit formula
as the basis for determining the benefit earned, and therefore the
cost incurred for each year. The determination of the benefit
earned is actuarially determined, and includes components for
service cost, time value of money, return on plan assets and gains
or losses from changes in previous assumptions. In certain cases,
a minimum liability is recognized through a direct charge to
stockholder’s equity. Also upon the adoption of SFAS No. 18, the
initial difference between the projected benefit obligation and the
fair value of the plan assets are recognized in the statement of
income over the average expected employees’ service period.
Under U.S. GAAP, the annual pension provision is recognized in
accordance with SFAS No. 87. U.S. SFAS No. 87 is substantially
similar to ROC SFAS No. 18. However, the unrecognized
transitional asset/liability balance, representing the initial
difference between the projected benefit obligation and the fair
value of plan assets upon adoption of ROC SFAS No. 18, would
be different under U.S. SFAS No. 87 as U.S. SFAS No. 87 would
have been implemented prior to December 31, 1995.
With respect to the pension plan disclosure, under ROC GAAP,
disclosure of changes in plan assets and benefit obligations is not
required.
With respect to the pension plan disclosure, under U.S. GAAP,
changes in plan assets and benefit obligations are required to be
disclosed.
Retained Earnings Tax
Companies in the ROC are subject to 10% surtax on profits
retained and earned after December 31, 1997. If the retained
profits are distributed to the shareholders in the following fiscal
year, the tax can be avoided. Under ROC GAAP, income tax
expense is recorded in the statement of income in the following
fiscal year if the earnings are not distributed to the shareholders.
Under U.S. GAAP, income tax expense related to the 10% surtax
on undistributed retained earnings is recorded in the statement of
income in the year that the profits were earned based on
management’s estimate of the amount of earnings to be retained.
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ROC GAAP
U.S. GAAP
Accounting for derivative instruments
There are no definitive accounting standards under ROC GAAP
which address accounting for derivative financial instruments
such as foreign currency options, futures, interest rate of foreign
currency swaps except for forward exchange contracts. The
accounting treatment of forward exchange contracts is similar to
U.S. SFAS No. 52.
Under U.S. GAAP, accounting for derivative financial
instruments is in large part determined by the purpose for which
the instrument was entered into. In general, derivative financial
instruments which are entered into for speculative or trading
purposes (or which do not meet the criteria for accounting for
such items as hedges), rather than to hedge exposures to risk, are
accounted for at fair value with all gains and losses recognized
currently in earnings.
Derivative financial instruments which (i) are entered into in
order to hedge certain exposures and (ii) meet defined criteria in
order to be classified as hedges, are accounted for in a manner so
as to offset the gains and losses applicable to the derivative
financial instrument against the gains and losses on the
transaction or commitment which is being hedged (i.e. either by
recording the gains and losses on derivative financial instruments
currently when they are used as hedges of existing (on-balance
sheet) transactions or by deferring the gains and losses on
derivative financial instruments when they are used as hedges of
committed or anticipated transactions). In addition, U.S. GAAP
also defines the concept of embedded derivatives which may now
exist due to a broader definition of a derivative instrument.
Embedded derivatives are accounted for in the same manner as
any other derivatives.
Comprehensive income
Under ROC GAAP, there is no requirement to present
comprehensive income.
Comprehensive income and its components (revenues, expenses,
gains and losses) must be presented in a full set of financial
statements under U.S. GAAP. Comprehensive income includes all
changes in stockholders’ equity during a period except those
resulting from investments by or distributions to owners,
including certain items not included in the current results of
operations.
Computer Software Developed or Obtained for Internal Use
There are no specific accounting guidelines related to costs of
computer software developed or obtained for internal use.
U.S. GAAP has detailed rules regarding the accounting treatment
for internal-use software costs. AICPA Statement of Position 98-1
specifies the requirements for the capitalization of internal-use
computer software costs.
Earnings Per Share
A company computes earnings per share based on the weighted
average number of outstanding shares. The number of outstanding
shares is retroactively adjusted for stock dividends and new
common stock issuance issued through unappropriated earnings
and capital surplus. If a dilutive effect does not exist, only basic
EPS is disclosed; otherwise, diluted EPS shall be disclosed in
addition to basic EPS.
Under U.S. GAAP, when a simple capital structure exists, basic
earnings per share is based on the weighted average number of
shares outstanding.
When a complex capital structure exists, diluted earnings per
share is based on the weighted average number of shares
outstanding plus the number of additional shares that would have
been outstanding if dilutive potential common shares had been
issued, with appropriate adjustments to income or loss that would
result from the assumed conversions of those potential common
shares. The materiality of the dilutive effect is not considered.
Basic and diluted earnings per share calculations are not
retroactively adjusted for new common stock issuance issued
through unappropriated earnings and capital surplus.
Provision for Inventory Obsolescence and Devaluation
A provision for inventory obsolescence and devaluation is
recorded when management determines that the market values of
inventories are less than their cost basis, and is included as a
component of non-operating expenses. Under ROC GAAP, such
provisions can be reversed in whole or in part if management
further determines that the market values of inventories are
greater than their cost basis.
Under U.S. GAAP, provisions for inventory obsolescence and
devaluation become a permanent adjustment to the carrying
amount of the specific inventory whose market values are less
than their cost basis, as deemed by management. Obsolescence
and devaluation provision adjustments are included as part of cost
of goods sold under U.S. GAAP, and cannot be reversed once they
are recorded.
107
ROC GAAP
U.S. GAAP
Gains on Disposition of Property, Plant and Equipment
For all prior periods through December 31, 2001, gains on the
dispositions of property, plant and equipment are first credited to
non-operating income and then transferred, after deducting the
applicable income tax, to capital surplus in the surplus in the
applicable fiscal year. After December 31, 2001, transfers to
capital surplus are not allowed.
Share dividends are recorded as a reduction to retained earnings
based on the fair value of the shares issued, and a like amount is
recorded to the capital stock and capital surplus accounts.
Any gains on the dispositions of property, plant and equipment
are credited to income, with no transfer ot capital surplus.
Functional Currency
The local currency of NT$ is the functional currency of the
company.
Management must make an assessment of the functional currency
of a company and its subsidiaries. Such assessment is based on
the primary economic environment in which the company and/or
its subsidiaries operates.
Shipping revenue received
Shipping revenue received from customers is accounted as a
reduction of selling expenses.
In accordance with EITF 00-10, shipping revenue received from
customers is recorded as revenue.
The information set forth above does not in any way attempt to quantify the effects of the
aforementioned differences between ROC GAAP and U.S. GAAP and the impact such differences would
have on net income or shareholders’ equity under U.S. GAAP.
108
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INDEX TO FINANCIAL STATEMENTS
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-2
Consolidated Balance Sheets as of December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . .
F-3
Consolidated Statements of Income for the years ended December 31, 2001, 2002 and 2003 . . . . .
F-5
Consolidated Statements of Changes in Stockholders’ Equity
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-6
Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-7
Notes to Consolidated Financial Statements as of and
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-8
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-1
Non-Consolidated Balance Sheets as of December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . .
N-2
Non-Consolidated Statements of Income
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-4
Non-Consolidated Statements of Changes in Stockholders’ Equity
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-5
Non-Consolidated Statements of Cash Flows
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-6
Notes to Non-Consolidated Financial Statements
for the years ended December 31, 2001, 2002 and 2003 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-7
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-1
Non-Consolidated Balance Sheets as of June 30, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-2
Non-Consolidated Statements of Income
for the six months ended June 30, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-4
Non-Consolidated Statements of Changes in Stockholders’ Equity
for the six months ended June 30, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-5
Non-Consolidated Statements of Cash Flows
for the six months ended June 30, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-6
Notes to Non-Consolidated Financial Statements as of and
for the six months ended June 30, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-7
F-1
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Acbel Polytech Inc.
We have audited the accompanying consolidated balance sheets of Acbel Polytech Inc. and
subsidiaries as of December 31, 2001, 2002 and 2003, and the related consolidated statements of income,
changes in stockholders’ equity, and cash flows for the years then ended. These consolidated financial
statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits.
We conducted our audits in accordance with Republic of China generally accepted auditing standards
and the ‘‘Rules Governing Auditing and Certification of Financial Statement by Certified Public
Accountants’’. 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 audits provide a reasonable
basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material
respects, the financial position of Acbel Polytech Inc. and subsidiaries as of December 31, 2001, 2002 and
2003, and the results of their operations and their cash flows for the each of years then ended, in conformity
with Republic of China generally accepted accounting principles.
The accompanying consolidated financial statements as of and for the year ended December 31, 2003,
have been translated into United States dollars solely for the convenience of the readers. We have audited
the translation, and in our opinion, the consolidated financial statements expressed in New Taiwan dollars
have been translated into United States dollars on the basis set forth in note 2(n) of the notes to the
consolidated financial statements.
KPMG
Certified Public Accountants
Taipei, Taiwan
January 27, 2004, except for note 2(n) as to which the date is June 30, 2004
---------------------------------------------------------------------------------------------------The accompanying consolidated 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 audit such consolidated financial statements are those generally accepted and
applied in the Republic of China.
F-2
ACBEL POLYTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
2001
2002
NT$
NT$
.
.
.
$ 167,825
—
2,316,756
$ 414,829
2,084,524
2,373,599
$ 2,607,505
814,157
3,205,533
$ 77,237
24,116
94,951
.
.
.
376,609
30,498
1,632,026
481,485
7,088
1,565,135
818,883
76,543
1,845,348
24,256
2,267
54,661
.
317,972
178,800
134,606
3,987
4,841,686
7,105,460
9,502,575
281,475
247,677
282,217
263,875
7,816
761,722
1,122,387
483,071
150,628
404,335
753,930
1,138,402
520,743
166,381
425,442
748,226
1,215,803
570,192
196,566
407,651
22,163
36,013
16,890
5,823
12,075
2,922,143
(667,182)
10,925
3,004,898
(811,993)
3,813
3,138,438
(998,981)
11,179
92,964
(29,591)
331
2,265,886
2,196,718
2,150,636
63,704
Intangible assets — deferred pension cost
(note 10) . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
6,532
193
Other assets:
Idle assets, net (note 8) . . . . . . . . . . . . . . .
Deferred expenses and other (note 12) . . . . .
Consolidated debits . . . . . . . . . . . . . . . . . .
118,290
211,921
31,713
77,002
162,465
—
67,239
82,759
—
1,992
2,451
—
361,924
239,467
149,998
4,443
$7,717,173
$9,823,862
$12,073,616
$357,631
ASSETS
Current assets:
Cash and cash equivalents (note 3) . . . . . .
Short-term investments (note 4). . . . . . . . .
Notes and accounts receivable, net (note 5)
Notes and accounts receivable — related
parties, net (note 15) . . . . . . . . . . . . . .
Other current financial assets . . . . . . . . . .
Inventories, net (note 6) . . . . . . . . . . . . . .
Prepaid expenses and other current assets
(notes 12 and 16) . . . . . . . . . . . . . . . .
Long-term equity investments (note 7) . . . . . .
Property, plant and equipment (note 8):
Land and land usage rights . . . . . . . . .
Buildings . . . . . . . . . . . . . . . . . . . . .
Machinery . . . . . . . . . . . . . . . . . . . .
Test equipment . . . . . . . . . . . . . . . . .
Other equipment . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less: accumulated depreciation . . . . . . . . .
Prepayments for purchase of equipment . . . .
Total assets . . . . . . . . . . . . . . . . . . . . .
2003
NT$
See accompanying notes to consolidated financial statements.
F-3
US$
ACBEL POLYTECH INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS — (Continued)
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
LIABILITIES AND STOCKHOLDERS’
EQUITY
Current liabilities:
Short-term loans (note 9) . . . . . . . . . . . . . .
Notes and accounts payable . . . . . . . . . . . .
Accounts payable — related parties (note 15)
Income tax payable . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities
(note 14) . . . . . . . . . . . . . . . . . . . . . . .
2001
2002
NT$
NT$
2003
NT$
US$
$ 1,521,874
950,169
197,626
—
$2,345,892
1,332,071
227,146
120,706
$ 2,246,302
2,244,927
242,934
262,908
$ 66,537
66,497
7,196
7,788
506,848
496,695
635,424
18,822
3,176,517
4,522,510
5,632,495
166,840
42,232
63,209
—
56,127
62,194
47,193
70,196
45,033
157,870
2,079
1,334
4,676
105,441
165,514
273,099
8,089
Total liabilities . . . . . . . . . . . . . .
3,281,958
4,688,024
5,905,594
174,929
Stockholders’ equity (note 11):
Common stock . . . . . . . . . . . . . . . . . . . . .
3,009,000
3,327,300
3,692,290
109,369
1,013,076
1,013,076
1,013,076
30,008
1,371
1,371
1,371
41
1,014,447
1,014,447
1,014,447
30,049
6,608
407,796
41,440
758,276
113,143
1,362,907
3,351
40,371
414,404
799,716
1,476,050
43,722
Other liabilities:
Accrued pension cost and other (note 10) . . .
Deferred income tax liability (note 12). . . . .
Minority interest . . . . . . . . . . . . . . . . . . . .
Capital surplus
Paid-in capital in excess of par value . . . .
Gain on disposal of property, plant and
equipment . . . . . . . . . . . . . . . . . . . .
Retained earnings:
Legal reserve . . . . . . . . . . . . . . . . . . . .
Unappropriated retained earnings. . . . . . .
Foreign currency translation adjustments
(note 7) . . . . . . . . . . . . . . . . . . . . . . . .
Total stockholders’ equity . . . . . .
Commitments and contingencies
(notes 15 and 17) . . . . . . . . . . . . . . . . . . .
Total liabilities and stockholders’
equity . . . . . . . . . . . . . . . . . . . . .
(2,636)
(5,625)
(14,765)
(438)
4,435,215
5,135,838
6,168,022
182,702
$ 7,717,173
$9,823,862
$12,073,616
$357,631
See accompanying notes to consolidated financial statements.
F-4
ACBEL POLYTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars, except net income per share,
which is expressed in New Taiwan dollars and US dollars)
2001
NT$
2002
NT$
2003
NT$
US$
Gross sales (note 15). . . . . . . . . . . . . . . . . . .
Less: Sales returns and allowances . . . . . . .
$10,661,804
205,615
$12,747,771
181,929
$16,412,231
366,709
$486,144
10,862
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (notes 15 and 18). . . . . . . . . . . .
10,456,189
8,811,499
12,565,842
10,475,964
16,045,522
12,989,673
475,282
384,765
.....
1,644,690
2,089,878
3,055,849
90,517
.....
.....
.....
528,238
522,167
250,677
436,620
470,307
302,943
529,959
524,728
374,914
15,698
15,543
11,105
1,301,082
1,209,870
1,429,601
42,346
343,608
880,008
1,626,248
48,171
65,725
13,286
—
87,714
—
—
35,372
83,394
—
—
76,380
55,020
—
—
2,262
1,630
5,814
59,201
—
42,414
—
39,368
—
1,166
231,740
161,180
170,768
5,058
111,573
80,445
39,177
1,160
—
7,416
11,753
348
—
—
23,311
39,579
34,214
12,679
—
2,532
6,993
57,309
—
14,156
207
1,698
—
419
174,463
137,286
129,388
3,832
Net income before income tax expense .
Income tax expense (note 12) . . . . . . . . . . . .
400,885
52,558
903,902
186,032
1,667,628
339,685
49,397
10,062
Net income after income tax . . . . . . . . . . . . .
Minority interest in net income of subsidiaries
348,327
—
717,870
847
1,327,943
12,715
39,335
377
$ 1,315,228
$ 39,958
$
$
Gross profit. . . . . . . . . . . . . . . .
Operating expenses (notes 15 and 18):
Selling . . . . . . . . . . . . . . . . . . . . . .
Administrative . . . . . . . . . . . . . . . .
Research and development . . . . . . . .
Operating income . . . . . . . . . . . . . . . .
Nonoperating income:
Gain on foreign currency exchange, net
(note 14) . . . . . . . . . . . . . . . . . . . . . . .
Gain on inventory value recoveries . . . . . . .
Gain on sale of investments . . . . . . . . . . . .
Technical service income . . . . . . . . . . . . . .
Investment income under the equity method,
net (note 7) . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonoperating expenses and losses:
Interest expense . . . . . . . . . . . . . . . . . . . .
Investment loss under the equity method, net
(note 7) . . . . . . . . . . . . . . . . . . . . . . . .
Loss on foreign currency exchange, net
(note 14) . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory obsolescence . . . . . .
Loss on sale of property, plant and equipment
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . .
$
Basic net income per share (note 13) . . . . . . .
Basic net income per share calculated by
adjusting stock dividends declared
retroactively . . . . . . . . . . . . . . . . . . . . . .
$
348,327
$
717,023
$1.16
$
2.15
0.94
$
1.94
See accompanying notes to consolidated financial statements.
F-5
3.56
0.11
ACBEL ACBEL POLYTECH INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
Foreign
currency
translation
Unappropriated adjustments
Retained earnings
Balance as of January 1,
2001 . . . . . . . . . . . . . .
Appropriation of 2000 net
income:
Legal reserve . . . . . . . .
Net income for 2001 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2001 . . . . . . . . . . . . . .
Appropriation of 2001 net
income:
Legal reserve . . . . . . . .
Stock dividends. . . . . . .
Employees’ bonuses
(cash and stock) . . . .
Directors’ and
supervisors’
remuneration . . . . . .
Adjustment due to
nonproportional
investment in investee’s
increase in capital . . . . .
Net income for 2002 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2002 . . . . . . . . . . . . . .
Appropriation of 2002 net
income:
Legal reserve . . . . . . . .
Dividends (cash and
stock) . . . . . . . . . . .
Employees’ bonuses (cash
and stock) . . . . . . . .
Directors’ and
supervisors’
remuneration . . . . . .
Adjustment due to
nonproportional
investment in investee’s
increase in capital . . . . .
Net income for 2003 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2003 . . . . . . . . . . . . . .
Common
stock
Capital
surplus
Legal
reserve
NT$
NT$
NT$
$3,009,000
$1,014,447
—
—
—
—
6,608
—
—
—
—
—
3,009,000
1,014,447
6,608
407,796
—
300,900
—
—
34,832
—
(34,832)
(300,900)
17,400
—
—
—
—
—
—
$
—
Total
NT$
NT$
$
$(19,156) $4,070,368
66,077
(6,608)
348,327
NT$
US$
$120,568
—
—
—
348,327
—
10,318
16,520
16,520
489
4,435,215
131,375
—
—
—
—
—
—
(17,416)
—
(16)
—
—
(6,967)
—
(6,967)
(206)
—
—
—
—
(6,428)
717,023
—
—
(6,428)
717,023
(191)
21,239
—
—
—
—
(2,989)
(2,989)
(89)
3,327,300
1,014,447
41,440
758,276
(5,625)
—
—
71,703
(71,703)
—
332,730
—
—
(582,276)
—
(249,546)
32,260
—
—
(32,266)
—
(6)
—
—
—
(12,906)
—
(12,906)
(382)
—
—
—
—
—
—
(11,446)
1,315,228
—
—
(11,446)
1,315,228
(339)
38,958
—
—
—
—
(9,140)
(271)
$3,692,290
$1,014,447
$113,143
$1,362,907
(2,636)
(9,140)
152,128
—
—
$(14,765) $6,168,022
See accompanying notes to consolidated financial statements.
F-6
5,135,838
(7,392)
—
$182,702
ACBEL POLYTECH INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . .
Minority interest in net income of subsidiaries
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization. . . . . . . . .
Investment loss under the equity method,
net . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on sale of long-term investments . . .
Increase in notes and accounts receivable .
Decrease (increase) in inventories, net . . .
Decrease (increase) in prepaid expense and
other current assets . . . . . . . . . . . . . .
Increase (decrease) in notes and accounts
payable . . . . . . . . . . . . . . . . . . . . . .
Increase in accrued expenses and other
current liabilities . . . . . . . . . . . . . . . .
Increase (decrease) in income tax payable
Decrease in net deferred income tax assets
Other . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by operating activities
Cash flows from investing activities:
Decrease (increase) in short-term investments
Additions to property, plant and equipment. .
Acquisition of long-term equity investments .
Decrease (increase) in deferred expenses
and other . . . . . . . . . . . . . . . . . . . . . . .
Cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . .
Cash flows from financing activities:
Increase (decrease) in short-term loans . . . . .
Cash dividends, employees’ bonuses, and
directors’ and supervisors’ remuneration. .
Increase in minority interest . . . . . . . . . . . .
2001
2002
NT$
NT$
2003
NT$
US$
$348,327
—
$717,023
847
$1,315,228
12,715
$38,958
377
348,327
717,870
1,327,943
39,335
304,772
250,908
258,483
7,656
—
—
(403,750)
820,283
7,416
—
(161,719)
64,075
(97,781)
11,753
(35,529)
(1,169,332)
(280,213)
348
(1,052)
(34,637)
(8,300)
103,954
(55,710)
(1,650)
(70,141)
411,422
928,644
27,507
120,017
(2,213)
20,445
32,078
21,768
88,785
57,613
22,254
138,729
142,202
13,288
25,305
4,109
4,212
394
750
1,584,346
1,305,563
38,672
(2,084,524)
(103,100)
(43,914)
1,270,367
(120,938)
—
37,629
(3,582)
—
(23,643)
(700)
1,072,037
—
(183,559)
(223,655)
(19,611)
(426,825)
(695,915)
—
—
29,968
(2,201,570)
1,125,786
824,018
(6,983)
47,193
33,347
(99,590)
(2,950)
(262,458)
123,375
(7,774)
3,654
(238,673)
(7,070)
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . .
(695,915)
864,228
Net increase (decrease) in cash and cash
equivalents . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of year
(50,703)
218,528
247,004
167,825
2,192,676
414,829
64,949
12,288
2,607,505
77,237
Cash and cash equivalents at end of year . . .
$167,825
414,829
Supplementary disclosures of cash flow
information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . .
$114,422
$ 70,971
$
38,309
$ 1,135
$
$ 39,611
$ 187,150
$ 5,544
Income taxes . . . . . . . . . . . . . . . . . . . .
106
See accompanying notes to consolidated financial statements.
F-7
ACBEL POLYTECH INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars unless otherwise specified)
(1)
ORGANIZATION
Acbel Polytech Inc. (the Company, originally named ‘‘Leadtorn Industrial Inc.’’) was incorporated as
a company limited by shares in July 1981. The Company acquired the ‘‘API Division’’ of Vidar SMS Co.,
Ltd. in September 1996, and changed its name to Acbel Polytech Inc. The Company transferred the
‘‘Components Division’’ to its subsidiary ‘‘Teampo Technology Co. Ltd.’’ on August 1, 2001. The business
activities of the Company are the manufacture and sale of power supplies. The Company’s common shares
were listed on the Taiwan Stock Exchange (TSE) on September 8, 2003.
Consolidated subsidiaries that are directly owned by the Company comprised the following as of
December 31, 2003 :
Teampo Technology Co., Ltd. (Teampo) was incorporated as a company limited by shares on June 28,
2001. Teampo acquired the ‘‘Components Division’’ of the Company in August 1999. As of December 31,
2003, the Company owned 82% of Teampo’s outstanding common stock, amounting to $494,080. The major
activities of Teampo are the retail and wholesale sale of electronic components.
The Company established Acbel Polytech Holding Inc. (Acbel-BVI) as an overseas holding company.
As of December 31, 2003, the Company owned 100% of Acbel-BVI’s authorized common stock, amounting
to US$61,400,000.
With the approval of the Investment Commission of the Ministry of Economic Affairs, the Company
invested in Dong Guan Acbel Telecommunication Co., Ltd. (Acbel-PRC), Acbel Electronic (Dong Guan)
Co., Ltd. (API-PRC), and Actel Electronic (Dong Guan) Co., Ltd. (Actel-Dong Guan) through its 100%
owned subsidiary Acbel Polytech (Singapore) Pte. Ltd. (Acbel-SGP). The major business activities of those
investee companies are the manufacture and sale of power supplies. In order to integrate capacity and
increase management efficiency, Acbel-PRC was dissolved based on the resolution of Acbel-SGP’s board of
directors on October 14, 2003. The net assets after liquidation of Acbel-PRC were transferred to API-PRC
as an additional investment. In addition, Acbel-BVI invested in Acbel Polytech (HK) Inc. (Acbel-HK) and
owned 100% of Acbel-HK’s outstanding shares on September 26, 1997. Acbel-BVI sold 100% of its shares
of Acbel-HK to Teampo on August 1, 2001. Thereafter, Acbel-HK changed its name to Teampo Technology
(HK) Co., Ltd. (Teampo-HK). The major activities of Teampo-HK are the trading of electronic components.
As of December 31, 2003, the number of employees hired by the Company, Teampo and Acbel-BVI
was approximately 5,247.
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements are prepared in accordance with accounting
principles and practices generally accepted in the ROC. The significant accounting policies and
measurement basis adopted in preparing the accompanying consolidated financial statement are
summarized as follows:
(a)
Accounting principles and consolidation policy
The consolidated financial statements include the accounts of its subsidiaries in which more than
50% of the shares are owned by the Company and its subsidiaries and in which total assets or sales
exceed 10% of the Company’s total assets or sales. If the total assets or sales of a subsidiary are less
than 10% of the Company’s total assets or sales, then the subsidiary is accounted for under the equity
method of accounting.
F-8
Since the total assets and sales of Acbcl Polytech (Philippines) Inc. (Acbel-PHI), Acbel Polytech
(Malaysia) SDN BHD, Acbel (USA) Polytech Inc., Acbel Polytech (UK) Co., Ltd., CSA Holding Inc.
and Actel-Dong Guan do not exceed 10% of the Company’s total assets and sales, respectively, the
financial statements of these subsidiaries have not been consolidated in the accompanying
consolidated financial statements.
The consolidated financial statements include the accounts of Acbel, Acbel-BVI, and Teampo
(jointly call the Group). All significant inter-company accounts and transactions have been eliminated.
The differences between the cost of investments and the amount of underlying equity in net assets of
the consolidated subsidiaries cannot be allocated to any specific asset or liability and are being
amortized by using the straight-line method over five years and treated as a consolidated debit of longterm equity investments, which is included in other assets in the accompanying consolidated financial
statements.
(b)
Foreign currency transactions and translation
The functional currency of each group company is its respective local currency. The Company’s
reporting currency is the New Taiwan dollar. Foreign currency transactions are translated at the rates
prevailing on the transaction dates. Foreign currency receivables and payables are translated into New
Taiwan dollars or local currency at the approximate market rate of exchange prevailing on the balance
sheet date. The resulting unrealized gains or losses are included in current operations.
The Group’s forward exchange contracts are intended to hedge the risks of changes in foreign
currency exchange rates. Forward exchange contract receivables and payables are recorded in New
Taiwan dollars at the spot rate on the date of contract inception, and the balances on the balance sheet
date are translated into New Taiwan dollars at the prevailing spot rate. Gains or losses resulting from
translation on the balance sheet date are recognized as nonoperating income or losses. The discount or
premium on a forward exchange contract is amortized over the life of the contract.
If a foreign currency options contract is intended to hedge the risks of changes in foreign
currency exchange rates, the related assets or liabilities are not recorded on the date of contract
inception, and exchange gains or losses resulting from settlement are recognized as nonoperating
income or losses. The related premiums received or paid are accounted for as advance receipts or
prepaid expenses. Gains or losses resulting from exercise are recognized as nonoperating income or
losses.
(c)
Cash equivalents
Cash equivalents represent investments in commercial paper purchased under repurchase
agreements with a maturity of three months or less from the date of investment.
(d)
Allowance for doubtful accounts
The allowance for doubtful accounts is based on an aging analysis and the likelihood of
collection of the Company’s accounts receivable balances.
(e)
Short-term investments
Short-term investments represent investments in open-end mutual funds, which are stated at the
lower of cost or market value. The cost of sales is determined by using the weighted-average method.
Market values of open-end mutual funds are based on their net asset value on the balance sheet date.
(f)
Inventories
Inventories are stated at the lower of cost or market value. Market value is based either on
replacement cost or on net realizable value.
F-9
(g)
Long-term investments
Long-term equity investments are accounted for under the equity method if the Group owns
more than 20% of the investee’s common stock. Difference between the cost of investment and the
amount of underlying equity in net assets of an investee is amortized using the straight-line method
over five years. If an investee company accounted for under the equity method issues new shares and
the Group does not purchase new shares proportionately, then the investment percentage, and
therefore the equity in net assets for the investment, will be changed. Such difference shall be used to
adjust capital surplus or retained earnings and long-term equity investments.
Unrealized inter-company profits or losses resulting from transactions between the Group and
nonconsolidated investees accounted for under the equity method are deferred until realized, or are
amortized based on the useful lives of the assets that give rise to such unrealized profits or losses.
The Group’s investment accounted for under the equity method will have differences arising
from the foreign currency translations. The differences, net of the related income taxes, are recorded
as foreign currency translation adjustments in the consolidated statements of changes in stockholders’
equity. When a foreign operating company is sold, the translation adjustments will be included under
the calculation of net income.
(h)
Property, plant and equipment, rental assets and idle assets
The expenditures for obtaining land usage rights, including charges for land usage rights and
related expenses, are capitalized and amortized as rental expenses by using the interest method over
the contract period of 50 years.
Property, plant and equipment are stated at cost. Excluding land, depreciation of property, plant
and equipment is provided using the straight-line method over the estimated useful lives of the
respective assets.
Property, plant and equipment leased to other parties through operating lease arrangements are
classified as rental assets. Gain (loss) on disposal of property, plant and equipment is recorded as nonoperating income (loss). Depreciation related to rental assets is accounted for as a reduction of rental
income.
The useful lives of respective assets are summarized as follows:
1.
Office equipment: 3 years
2.
Buildings: 3–30 years
3.
Machinery and test equipment: 6–8 years
4.
Other equipment: 3–6 years
Unused land and buildings resulting from movement of plant are transferred to idle assets, and
the related depreciation expense is recognized as nonoperating losses. Leasehold improvements are
amortized by using the straight-line method over the shorter of the estimated useful lives or the
contract periods.
(i)
Deferred expenses
Costs of computer software and mold equipment are amortized by using the straight-line method
over three and two years, respectively. Charges for royalties are deferred and amortized over the
contract periods.
F-10
(j)
Retirement plan
The Company and Teampo have established an employee noncontributory pension plan covering
all regular employees. According to this plan, employees are eligible for retirement or are required to
retire after meeting certain age or service requirements. The retirement benefits are lump-sum
payments and are determined principally by the length of service of the employees. Payments of
employee retirement benefits are based on the years of service and average salary six months before
the employee’s retirement. Each employee will earn two months’ salary for the first 15 years of
service and one month’s salary for each service year after the sixteenth year. The total number of
months each employee can earn is limited to 45 months.
The Company and Teampo have made monthly cash contributions of 2.5% and 2.1%,
respectively, of salaries and wages incurred to a pension fund maintained with the Central Trust of
China. Retirement benefits are paid first from the fund and then by the Company if the fund is
insufficient.
The Company and Teampo have their pension plan actuarially valued on the year-end date and
recognize net periodic pension cost, including service costs, interest cost, expected return on plan
assets, and amortization of net unrecognized transition costs over the average remaining service period
of employees, of 17 years and 24 years, respectively.
The major business of both Acbel-BVI and Acbel-SGP is investment. No official employees
were hired by those companies. Teampo-HK does not need to pay pensions. According to PRC
government regulations, API-PRC under its defined contribution pension plan, has made a monthly
cash contribution of salaries and wages to a pension fund based on the statutory percentage and
recognized it as current expense.
(k)
Income tax
Income tax is calculated based on accounting income. The amount of deferred tax liabilities or
assets is calculated by applying the provisions of enacted tax law to determine the amount of tax
payable or refundable, currently or in future years. The tax effects of taxable temporary differences are
recorded as deferred tax liabilities. The tax effects of deductible temporary differences and tax credits
are recognized as deferred tax assets. An allowance is provided on deferred tax assets that may not be
realized in the future.
Deferred tax assets or liabilities are classified as current or noncurrent based on the classification
of the asset or liability that resulted in the deferred item or, on certain transactions not directly related
to an asset or liability, the timing of recognition of the deferred item for income tax purposes.
Investment tax credits are accounted for using the flow-through method. Therefore, deferred
income tax assets resulting from investment tax credits are recognized in the year in which the credit
arises.
The 10% surtax on undistributed earnings of the Company and Teampo are recorded as current
income tax expense after the resolution to appropriate retained earnings is approved in a stockholders’
meeting.
(l)
Revenue recognition
Revenue from sales of products is recognized at the time products are delivered and the related
risks and titles transferred to customers. Provision for sale returns and allowances is recorded as a
deduction from sales of products when incurred. The related cost is recognized when the sales occur.
(m) Earnings per share
Earnings per share are computed based on the weighted-average number of common shares
outstanding during the year. Earnings per share for prior years are retroactively adjusted to reflect the
effect of stock dividends issued by transferring capital surplus, retained earnings, and employees’
bonuses in the current year.
F-11
(n)
Convenience translation into US dollars
The consolidated financial statements are stated in New Taiwan dollars. Translation of the 2003
New Taiwan dollar amounts into US dollar amounts is included solely for the convenience of the
readers, using the noon buying rate provided by the Bank of Taiwan on June 30, 2004, of NT$33.76 to
US$1. The convenience translations should not be construed as representations that the New Taiwan
dollar amounts have been, could have been, or could in the future be, converted into US dollars at this
rate or any other rate of exchange.
(3)
CASH AND CASH EQUIVALENTS
December 31,
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Checking accounts and demand deposits. . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper purchased under repurchase agreements
(4)
2001
2002
NT$
NT$
$
$
893
97,132
69,800
—
1,152
212,396
201,281
—
$167,825
$414,829
2001
NT$
2002
NT$
2003
NT$
$
US$
16,794
254,542
162,993
2,173,176
$2,607,505
$
498
7,540
4,828
64,371
$77,237
SHORT-TERM INVESTMENTS
December 31,
(5)
2003
NT$
US$
Open-end mutual funds . . . . . . . . . . . . . . . . . . . . . . .
$—
$2,084,524
$814,157
$24,116
Market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$—
$2,084,569
$814,795
$24,135
NOTES AND ACCOUNTS RECEIVABLE — THIRD PARTIES
December 31,
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful debts . . . . . . . . . . . . . . .
allowance for sales discounts . . . . . . . . . . . . . .
$
2001
2002
NT$
NT$
95,308
2,252,735
2,348,043
(31,287)
—
$2,316,756
F-12
$ 114,777
2,287,195
2,401,972
(20,873)
(7,500)
$2,373,599
2003
NT$
$ 144,225
3,084,732
3,228,957
(6,425)
(16,999)
$3,205,533
US$
$ 4,272
91,372
95,644
(190)
(503)
$94,951
(6)
INVENTORIES
Raw materials . . . . . . . . . . . . . . . . . . . .
Work-in-process . . . . . . . . . . . . . . . . . .
Finished goods . . . . . . . . . . . . . . . . . . .
Merchandise inventory — electronic parts
Inventories in transit . . . . . . . . . . . . . . .
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.
December 31,
2002
NT$
NT$
$ 639,192
138,156
276,525
591,239
44,280
Insurance coverage for inventories . . . . . . . . . . . . . . . .
2003
NT$
$ 318,498
124,282
251,601
870,308
60,628
1,689,392
(57,366)
Less: allowance for inventory loss . . . . . . . . . . . . . . .
(7)
2001
US$
$ 634,475
44,379
310,341
873,220
87,535
1,625,317
(60,182)
$ 18,794
1,314
9,192
25,866
2,593
1,949,950
(104,602)
57,759
(3,098)
$1,632,026
$1,565,135
$1,845,348
$ 54,661
$2,700,000
$2,775,000
$3,400,000
$100,711
LONG-TERM EQUITY INVESTMENTS
December 31,
2001
Ownership
Amount
%
Under the equity method:
Acbel-PHI . . . . . . . . . . .
Actel-Dong Guan . . . . . .
Others . . . . . . . . . . . . . .
Foreign currency
translation adjustments .
2002
Ownership
Amount
NT$
100
—
—
$
$229,783
—
2,082
NT$
100
100
—
$227,062
30,094
11,209
2003
Ownership
%
Amount
NT$
100
100
US$
$232,477
12,784
11,351
$6,886
379
336
231,865
268,365
256,612
7,601
15,812
13,852
7,263
215
$247,677
$282,217
$263,875
$7,816
Net investment income (losses) on long-term equity investments accounted for under the equity
method for the years ended December 31, 2001, 2002 and 2003, amounted to NT$5,814, NT$(7,416), and
NT$(11,753) (US$348), respectively. The calculation of these income (loss) amounts was based on the
investees’ audited financial statements.
(8)
PROPERTY, PLANT AND EQUIPMENT, RENTAL ASSETS, AND IDLE ASSETS
(a)
On November 28, 1998, a subsidiary of Acbel-BVI, Acbel-PRC, entered into an agreement with
the government authority of Tang Xia Town, Dong Guan City, Guang Dong Province, People’s
Republic of China, to acquire land usage rights, plant and the related equipment. The contract
period extends from January 1998 to January 2047, totaling 50 years. According to the contract,
total expenditures for obtaining land usage rights amounted to NT$15,114 (US$448)
(RMB3,779,000), plant and the related equipment amounted to NT$72,863 (US$2,158)
(RMB18,755,000), and the related annual administrative expense was RMB5 per M2 based on
the area of land used, with a 10% increment every five years.
(b)
On September 28, 1998, a subsidiary of Acbel-BVI, API-PRC, entered into an agreement with
the government authority of Tang Xia Town, Dong Guan City, Guang Dong Province, People’s
Republic of China, to acquire land usage rights. The contract period extends from September 1,
1998, to August 31, 2048, totaling 50 years. According to the contract, total expenditures for
obtaining land usage rights amounted to NT$104,722 (US$3,102 or RMB26,181,000) and the
related annual administrative expense was RMB5 per M2 based on the area of land used, with a
10% increment every five years.
F-13
(c)
The idle assets were as follows:
Cost:
Land usage rights . . . . . . . . . . . . . . . . . . . . . . .
Building. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: accumulated depreciation . . . . . . . . . . . . .
2001
December 31,
2002
NT$
NT$
2003
NT$
US$
$ 13,905
143,990
(39,605)
$ 8,161
72,629
(3,788)
$ 6,348
65,519
(4,628)
$ 188
1,941
(137)
$118,290
$77,002
$67,239
$1,992
In order to improve capacity and management performance, the whole production line was
transferred from Acbel-PRC to API-PRC in 2001. Acbel-PRC was dissolved based on the resolution of
Acbel-SGP’s board of directors on October 14, 2003, and the net assets after liquidation of Acbel-PRC
were transferred to API-PRC, as an additional investment. The rest of Acbel-PRC’s plant and
equipment not used were transferred to idle assets.
(d)
(9)
As of December 31, 2001, 2002 and 2003, property, plant and equipment, rental assets, and idle
assets were insured for NT$1,767,000, NT$1,688,000 and NT$1,609,000 (US$47,660),
respectively.
SHORT-TERM LOANS
Usance letters of credit . . . . . .
Commercial paper payable, net .
Secured loans . . . . . . . . . . . . .
Credit loans . . . . . . . . . . . . . .
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Unused short-term credit lines. . . . . . . . . . . . . . . . . . .
2001
December 31,
2002
NT$
NT$
2003
NT$
US$
$ 451,681
358,888
138,520
572,785
$ 931,021
578,592
—
836,279
$1,542,118
414,484
89,700
200,000
$ 45,679
12,277
2,657
5,924
$1,521,874
$2,345,892
$2,246,302
$ 66,537
$3,130,000
$4,615,000
$9,057,000
$268,276
Annual interest rates on short-term loans in 2001, 2002 and 2003 ranged from 1.00% to 8.08%, 1.50%
to 5.58% and 0.88% to 5.52%, respectively. Acbel-PRC provided time deposits of US$4,000 in 2001 and
API-PRC provided time deposits of RMB12,000,000 (US$1,423) in 2003 as collateral for secured loans,
please see footnote 16.
F-14
(10) PENSIONS
The Company and Teampo made an actuarial valuation of their respective pension plans on December
31, 2001, 2002 and 2003. The reconciliation of the funded status and accrued pension costs was as follows:
December 31,
2001
2002
NT$
NT$
NT$
Benefit obligations:
Vested benefit obligations . . . . . . . . . . . . . . . . . . .
Nonvested benefit obligations . . . . . . . . . . . . . . . . .
$ (13,433)
(89,167)
$ (16,150)
(119,119)
$ (31,270)
(158,059)
$ (926)
(4,682)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . .
Projected compensation increase . . . . . . . . . . . . . . . . .
(102,600)
(101,368)
(135,269)
(69,567)
(189,329)
(55,748)
(5,608)
(1,651)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . .
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . .
(203,968)
93,533
(204,836)
107,590
(245,077)
124,596
(7,259)
3,691
Funded status . . . . . . . . . . . . . . . . .
Unrecognized net pension loss . . . . .
Unrecognized net transition obligation
Additional accrued pension liability . .
.
.
.
.
(110,435)
60,245
8,693
—
(97,246)
33,764
7,968
—
(120,481)
49,607
7,243
(6,532)
(3,568)
1,469
214
(193)
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . .
$ (41,497)
$ (55,514)
$ (70,163)
$(2,078)
2001
2002
NT$
NT$
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2003
US$
The net pension costs consisted of the following:
Service cost . . .
Interest cost . . .
Actual return on
Amortization . .
........
........
plan assets
........
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2003
NT$
US$
$14,022
9,287
(1,842)
(1,569)
$17,444
9,674
(2,449)
1,159
$16,218
7,638
(3,779)
1,267
$480
226
(112)
38
$19,898
$25,828
$21,344
$632
Actuarial assumptions were as follows:
2001
The Company
Teampo
Discount rate . . . . . . . . .
Future salary increase rate
Expected long-term rate of
return on plan assets . .
2002
The Company
Teampo
2003
The Company
Teampo
5.00%
5.00%
5.00%
5.00%
3.75%
3.00%
3.50%
3.50%
3.50%
2.00%
3.50%
3.00%
5.00%
5.00%
3.75%
3.50%
3.50%
3.50%
The vested benefits were approximately NT$20,993, NT$22,410 and NT$40,590 (US$1,202) as of
December 31, 2001, 2002 and 2003, respectively. The actual payment of pension expense amounted to
NT$12,373 in 2001. No pension was paid in 2002 and 2003.
API-PRC recognized pension cost of NT$7,672, NT$6,724 and NT$7,490 (US$222) in 2001, 2002 and
2003, respectively.
(11) STOCKHOLDERS’ EQUITY
(a)
Capital
Pursuant to the resolution of the stockholders’ meeting held on June 25, 2002, the Company
increased its capital through the issuance of stock dividends by transferring retained earnings
amounting to NT$300,900 and employee stock bonuses amounting to NT$17,400. The newly issued
shares totaled 31,830 thousand shares.
F-15
Based on a resolution at the annual stockholders’ meeting held on June 18, 2003, the Company
declared cash dividend amounting to NT$249,546 (US$7,392) and increased its capital through the
issuance of stock dividends by transferring retained earnings amounting to NT$332,730 (US$9,856)
and employees’ bonuses amounting to NT$32,260 (US$956). The newly issued shares totaled 36,499
thousand shares. The registration procedure related to this issuance has been completed.
As of December 31, 2001, 2002 and 2003, the total common stock authorized was NT$3,700,000
(US$109,597) at par value of 10 New Taiwan dollars per share.
(b)
Capital surplus
Pursuant to the ROC Company Law, capital surplus can only be used to offset a deficit or to
increase share capital. A cash dividend can not be declared out of capital surplus. According to SFB
regulations, capital increases effected by transferring additional paid-in capital in excess of par value
should not exceed 10% of total common stock outstanding. In addition, a capital increase by
transferring paid-in capital in excess of par value can occur only once, commencing in the following
year.
(c)
Special reserve
According to the Company’s articles of incorporation, unrealized foreign currency exchange
gains accounted for under Statement of Financial Accounting Standards No. 14 must be set aside as a
special reserve before appropriation. The special reserve shall be transferred to retained earnings upon
realization.
(d)
Legal reserve and limitation on distribution of retained earnings
Based on the Company’s articles of incorporation, 10% of annual net income after tax is to as a
legal reserve, and of the remaining balance, was set 2% be set aside as remuneration to the directors
and supervisors, and 5% as bonus to employees, after offsetting prior years’ deficits, if any. (Based on
the original articles of incorporation of the Company amended on June 28, 2003, 10% of annual net
income after tax was to be set aside as a legal reserve, less than 2% as remuneration to the directors
and supervisors and 5% as bonus to employees, after offsetting prior years’ deficits, if any.) The
remaining balance can be distributed as dividends to stockholders after special reserves are
appropriated, if any. The Company may opt to distribute stock dividends instead of cash dividends to
retain working capital based on the overall capital plan, if the Company has annual distributable
earnings.
Based on Achel-BVI’s articles of incorporation, the board of directors can decide to set aside
reserves before distributing dividends from annual earnings. Under the two circumstances below,
Acbel-BVI can distribute dividends based on a resolution of the board of directors.
(i)
Acbel-BVI will be able to satisfy its liabilities as they become due in the ordinary course of
its business; and
(ii)
the realizable value of the total assets of Acbel-BVI will not be less than the sum of its
total liabilities and capital.
Based on Teampo’s articles of incorporation, 10% of annual net income after tax is to be set
aside as legal reserve, 2% as remuneration to the directors and supervisors (less than 2% as
remuneration to the directors and supervisors before the articles were amended on June 29, 2003), and
can not be lower than 5% of bonus to employees, after offsetting prior years’ deficits, if any. The
remaining balance can be distributed as dividends and bonus after special reserves are appropriated, if
any.
F-16
(e)
In 2002 and 2003, the employees’ bonuses and directors’ remuneration appropriated from the
distributable retained earnings in 2001 and 2002 were as follows:
2001
Shares
(in thousands)
2002
Amount
Shares
(in thousands)
NT$
Employees’ bonuses — stock (par value) . . . . .
— cash . . . . . . . . . . . . . .
Directors and supervisors’ remuneration . . . . . .
1,740
—
—
Amount
NT$
$17,400
16
6,967
3,226
—
—
$24,383
$32,260
6
12,906
$45,172
The newly issued shares from the above distribution were 0.58% and 0.97% of outstanding
shares on December 31, 2001 and 2002.
If the above distribution were recorded as expenses in 2001 and 2002, the pro forma information
on net income per share in 2001 and 2002 would be as follows:
2001
Net income per share — after retroactive
adjustments (expressed in New Taiwan dollars) .
2002
Before tax
After tax
Before tax
After tax
NT$
NT$
NT$
NT$
$0.98
0.88
2.25
1.82
Earnings distribution of fiscal year 2003 is still subject to being determined by a meeting of the
board of directors and approved in a stockholders’ meeting.
The related information on distribution of employees’ bonuses and directors and supervisors’
remuneration in 2003 will be posted in the ‘‘Market Observation Post System’’ after the Company’s
stockholders’ meeting is held.
(12) INCOME TAX
(a)
Pursuant to ROC Income Tax Law, income tax is filed separately by each company of the Group.
(b)
Acbel-BVI acts as a holding company of the Company for overseas investment. Revenue from
outside BVI is free of income tax based on the local commercial regulations. According to the
PRC Tax Law, a subsidiary of Acbel-BVI, API-PRC, can, from the year in which it begin to
make profits, be exempted from income tax in the first and second years and allowed a 50%
reduction in the third to fifth years, with a minimum operating period over 10 years. However,
API-PRC must pay back the amount of tax exemption and tax reduction if the actual operating
period is less than 10 years. No income tax expense was incurred by Acbel-BVI and AP-PRC
due to tax exemption under local tax laws in 2001, 2002 and 2003.
F-17
(c)
The operations of the Company and Teampo are subject to an income tax rate of 25%. The
Group’s domestic income tax expense in 2001, 2002 and 2003 consisted of the following:
Current income tax expense . . . . . . . . . . . . . . . .
10% surtax on unappropriated earnings . . . . . . . .
Deferred income tax expense (benefit):
Loss carryforward . . . . . . . . . . . . . . . . . . . .
Allowance for inventory obsolescence . . . . . .
Unrealized sales discounts . . . . . . . . . . . . . .
Decrease in valuation allowance . . . . . . . . . .
Decrease (increase) in investment tax credits .
Decrease in loss reserve on outward investment
Recovery (over the limit) of allowance for bad
debts . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in investment income recognized under
equity method (overseas) . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
(d)
2001
2002
NT$
NT$
NT$
2003
$31,702
411
$128,419
—
$319,938
9,411
$ 9,477
279
32,113
128,419
329,349
9,756
77,371
—
—
—
(27,378)
—
—
—
—
—
47,789
(14,518)
—
(11,181)
(28,995)
(2,108)
74,202
—
—
(331)
(859)
(63)
2,198
—
(30,197)
29,842
6,595
(5,946)
—
(5,500)
—
(21,582)
—
(639)
20,445
57,613
10,336
306
$52,558
$186,032
$339,685
$10,062
US$
—
—
Deferred tax assets (liabilities) comprised the following:
December 31,
Deferred tax assets:
Allowance for bad debt over the
Provision for inventory loss . . .
Investment tax credits . . . . . . .
Allowance for sales discounts . .
Pension cost over the limitation
Other . . . . . . . . . . . . . . . . . . .
limitation .
........
........
........
........
........
.
.
.
.
.
.
.
.
.
.
.
.
Less: valuation allowance . . . . . . . . . . . . . .
Deferred tax liabilities:
Investment income recognized under
method (overseas) . . . . . . . . . . .
Loss reserve on outward investment.
Other . . . . . . . . . . . . . . . . . . . . . .
the equity
.......
.......
.......
2001
2002
NT$
NT$
$ 32,026
14,084
121,991
—
10,274
2,967
2003
NT$
US$
$ 2,184
14,960
74,202
1,875
13,703
885
$ 1,376
26,141
—
30,870
15,571
725
$
41
774
—
914
461
22
181,342
(20,254)
107,809
(14,840)
74,683
(12,732)
2,212
(377)
161,088
92,969
61,951
1,835
$(28,094)
(35,238)
(9,937)
$(41,474)
(20,720)
(569)
$(21,871)
(20,720)
(2,442)
$ (608)
(614)
(72)
(73,269)
(62,763)
(45,033)
(1,334)
Net deferred income tax assets . . . . . . . . . . . . . .
$ 87,819
$30,206
$16,918
$501
Net deferred income tax assets — current. . . . . . .
Net deferred income tax liabilities — noncurrent . .
$151,028
(63,209)
$92,400
(62,194)
$61,951
(45,033)
$1,835
(1,334)
$ 87,819
$30,206
$16,918
$ 501
(e)
The ROC tax authorities have assessed the Company’s income tax returns through 2001.
(f)
Beginning in 1998, the corporate income tax paid at the corporate level can be used to offset the
resident shareholders’ individual income tax. The amount of imputation credit which
shareholders can claim depends on total corporate income tax paid at the corporate level.
F-18
Beginning in 1998, corporations have been required to set up an imputation credit account (ICA)
to keep track of the corporate income taxes paid and the imputation credit they have allocated
for shareholders. In addition, the creditable ratio, which represents the imputation credit per
dollar of accumulated retained earnings, shall be calculated for resident shareholders when
corporations declare dividends. Calculation of the ICA balance as of December 31, 2001, 2002
and 2003, and the creditable ratio for 2001, 2002 and 2003 was as follows:
December 31,
2001
2002
NT$
NT$
Year of unappropriated retained earnings:
1998 and after . . . . . . . . . . . . . . . . . . . . . .
$407,796
$758,276
$1,362,907
$40,371
Imputation credit account balance . . . . . . . . . . . .
$
$ 11,790
$
$ 2,604
116
2001
Creditable ratio for earnings distribution
to resident shareholders . . . . . . . . . . . . . .
2003
NT$
2002
US$
87,896
2003
3.75%
13.03%
22.91%
(actual)
(actual)
(estimated)
(13) NET INCOME PER SHARE
2001
2002
2003
Before
income tax
After
income tax
Before
income tax
After
income tax
Before
income tax
NT$
NT$
NT$
NT$
NT$
NT$
Net income. . . . . . . . . . .
$400,885
$348,327
$903,902
$717,023
$1,667,628
$1,315,228
$ 38,958
Weighted-average number
of shares outstanding
(thousands). . . . . . . . .
300,900
300,900
332,730
332,730
369,229
369,229
369,229
Basic net income per share
before retroactive
adjustments (New
Taiwan dollars and US
dollars) . . . . . . . . . . .
$
Weighted-average number
of shares outstanding,
after retroactive
adjustments (thousands)
Basic net income per share
after retroactive
adjustments (New
Taiwan dollars) . . . . . .
1.33
$
369,229
$
1.09
1.16
$
369,229
$
0.94
2.72
$
369,229
$
F-19
2.45
2.15
369,229
$
1.94
$
4.52
After income tax
$
3.56
US$
$
0.11
(14) RELATED INFORMATION ABOUT FINANCIAL INSTRUMENTS
(a)
Derivative financial instruments
As of December 31, 2001, 2002 and 2003, the Group’s derivative financial instruments contracts
were as follows:
1.
Foreign currency options and forward exchange contracts (in thousands of dollars)
December 31, 2001
Financial Instruments
Foreign currency options
sold . . . . . . . . . . . . .
Foreign currency Options
bought . . . . . . . . . . .
Nominal
amount
Transaction
period
USD 9,000 August 1–
December 27,
2001
USD2,000 October 19–
October 24,
2001
Maturities
Strike rate
Fair value
Credit risk
January 31–June
28, 2002
USD/
NTD34.732–37.0
NTD(1,671)
NTD—
January 24–
USD/
January 28, 2002 NTD34.73–34.75
NTD1
NTD1
December 31, 2002
Financial Instruments
Foreign currency options
sold . . . . . . . . . . . . .
Forward foreign exchange
contracts sold . . . . . .
Forward foreign exchange
contracts sold . . . . . .
Forward foreign exchange
contracts bought . . . .
Foreign currency options
sold . . . . . . . . . . . . .
Foreign currency options
bought . . . . . . . . . . .
2.
Nominal
amount
Transaction
period
USD22,000 September
27–December
19, 2002
USD37,000 September
22–December
9, 2003
USD12,000 September 4–
December 2,
2003
USD7,000 December 4,
2003
Maturities
January 17–June
9, 2003
Strike rate
Credit risk
NTD1,457
NTD1,457
USD/ NTD(11,326)
NTD33.541–
34.024
January 5–
USD
NTD539
December 8,
/RMB 8.2063–
2004
8.2947
June 8–
USD/
NTD655
December 8,
RMB7.9671–
2004
8.1481
USD63,000 July 31–
January 6–March
USD/
NTD12,001
December 29, 25, 2004
NTD33.18–35.20
2003
USD46,000 September
January 6–March
USD/
NTD8,944
22–December 25, 2004
NTD33.18–
29, 2003
34.135
—
January 6–March
25, 2004
USD/
NTD 35.3–36.0
Fair value
539
655
NTD12,001
NTD8,944
Credit risk
The amount of the credit risk is a potential loss of the Group if the counterpart involved in
that transaction defaults. Since the Group derivative financial instrument agreements are entered
into with financial institutions with good credit ratings, management does not believe that there
is significant credit risk from these transactions.
3.
Market risk
The purpose of the derivative financial instruments is to hedge the exchange rate and
interest rate risk. Therefore, the gains or losses resulting from changes in exchange rates and
interest rate will be offset by those from the hedged item. Management believes that the related
market risk is not significant.
F-20
4.
Liquidity risk (in thousands of dollars)
The Group will have cash inflows and outflows within the periods shown below. There are
no financing risks due to expected sufficient foreign currency received from accounts receivable.
Management believes that the cash flow risk is not significant because contracted option and
contracted foreign currency exchange rates are fixed. Management believes that the cash flow
risk of foreign currency option contracts is not significant because these contracts are settled in
net amount on the exercise date.
December 31, 2003
Financial instruments
Date
Forward exchange contracts — sold. . . . .
Forward exchange contracts — sold. . . . .
Forward exchange contracts — bought . . .
5.
January 6–March 25, 2004
January 5–December 8, 2004
June 8–December 8, 2004
Cash outflow
USD37,000
USD12,000
RMB56,412
Cash inflow
NTD1,244,610
RMB99,306
USD7,000
The categories and objectives of the derivatives, and strategies to accomplish the
underlying objectives
The derivative financial instrument contracts held by the Group are for the purpose of
hedging the risks that may result from changes in exchange rates of foreign currency assets and
liabilities and interest rates rather than for the purpose of trading. The hedging strategies of the
Group are to hedge the market risk to the highest extent possible. The Group uses derivatives
that are highly correlated to the changes in fair values of the hedged items as hedging
instruments.
6.
Presentation of financial statements
The receivables and payables derived from foreign currency forward contracts were offset
against each other, and the net amount was accounted for as other current assets or liabilities.
The net forward foreign currency exchange contracts payable was NT$12,435 as of December
31, 2003.
The premiums received and paid resulting from foreign currency option contracts were
offset against each other, and the net amount was recorded as other current liabilities. The
unamortized balance was NT$842, NT$2,838 and NT$1,270 (US$38) as of December 31, 2001,
2002 and 2003, respectively.
The exchange gain resulting from derivative financial instruments for the years ended
December 31, 2001, 2002 and 2003, amounting to $2,618, $3,740 and $26,657 (US$807),
respectively, was included in nonoperating income in the accompanying consolidated statements
of income.
7.
Fair value of derivative financial instruments
The fair value of a derivative is the expected receivable or payable amount assuming that
the contract is terminated on the balance sheet date. Generally, the unrealized gain or loss on
open contracts is included in the fair value. The above fair value estimates were based on quotes
from financial institutions.
F-21
(b)
Nonderivative financial instruments
As of December 31, 2001, 2002 and 2003, the book values of nonderivative financial
instruments not the same as market values were as follows:
December 31,
2001
Nonderivative financial
instruments:
Short-term investments.
Long-term equity
investments . . . . . .
2002
2003
Book
value
Fair
value
Book
value
Fair
value
NT$
NT$
NT$
NT$
Book value
NT$
Fair value
US$
NT$
US$
—
—
2,084,524
2,084,569
814,157
24,116
814,795
24,135
247,677
—
282,217
—
263,875
7,816
—
—
The fair values of financial instruments are estimated based on the following assumptions:
(i)
The book values of short-term financial instruments — cash and cash equivalents, notes
and accounts receivable, short-term loans, notes and accounts payable, and accrued
expenses — were similar to their fair market values on the balance sheet date.
(ii)
The fair values of short-term investments are based on quoted market prices.
(iii) All of the Group’s long-term equity investments consist of non-listed equity securities. No
market prices are available for these investments. As of December 31, 2001, the original
cost of these investment amounted to NT$226,225. As of December 31, 2002 and 2003, the
original cost of these investments amounted to NT$270,139 (US$8,002).
(15) RELATED-PARTY TRANSACTIONS
(a)
Names of the related parties and relationships
Related Party
Relationship
Acbel-PHI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acbel Polytech (USA) Inc. (Acbel-USA) . . . . . . . . . . . . . . .
Compal Electronic Inc. (Compal) . . . . . . . . . . . . . . . . . . . .
Acbel-BVI 100%-owned subsidiary
Acbel-BVI 100%-owned subsidiary
Compal’s chairman of board of directors is the same
as the Company’s, and its subsidiary is a
stockholder of the Company.
The chairman of the board of directors of its parent
company is the same as the Company’s.
The chairman of the board of directors of its parent
company is the same as the Company’s.
Its chairman of the board of directors is the same as
the Company’s.
Its subsidiary is a director of the Company.
Acbel-SGP’s 100%-owned subsidiary
Vidars had significant influence to the Company
before June 2001.
Compal Electronics Technology (Kun Shan) Co., Ltd. (CET) .
Compal Information (Kun Shan) Co., Ltd. (CIC) . . . . . . . . . .
Cal-Comp Electronics (Thailand) Public (Cal-Comp-Thailand)
Forteq Integration Inc. (Forteq) . . . . . . . . . . . . . . . . . . . . . .
Actel Electronic (Dong Guan) Inc. (Actel-Dong Guan) . . . . . .
Vidars — SMS Co., Ltd. (Vidar SMS) . . . . . . . . . . . . . . . . .
F-22
(b)
Summary of significant transactions with related parties
1.
Sales
2001
% of
net sales
Foxteq . . . .
Compal . . .
CET . . . . .
CIC . . . . . .
Cal-CompThailand
Vidar SMA.
Other . . . . .
2002
Amount
% of
net sales
2003
% of
net sales
Amount
.
.
.
.
11
4
—
—
....
....
....
1
—
—
86,524
5,337
48,696
1
—
—
69,514
—
40,833
—
—
—
77,126
—
68,185
2,285
—
2,020
16
$1,710,100
17
$2,077,211
14
$2,344,432
$69,444
.
.
.
.
.
.
.
.
.
.
.
.
6
9
1
—
NT$
$ 730,188
1,074,131
162,545
—
Amount
NT$
$1,103,935
465,608
—
—
5
4
4
1
NT$
$ 796,471
590,006
713,228
99,416
US$
$23,592
17,476
21,126
2,945
There were no significant differences in the terms of collection and pricing on sales to
related parties and other customers.
2.
Purchases
2001
% of net
purchase
Acbel-PHI . . . . .
Other . . . . . . . . .
2002
Amount
5
1
NT$
$334,883
1,190
6
$336,073
% of net
purchase
2003
% of net
purchase
Amount
5
—
NT$
$497,997
—
5
$497,997
Amount
6
—
NT$
$744,551
—
US$
$22,054
—
6
$744,551
$22,054
Except that the payment term for Acbel-PHI is subject to its capital requirement, there
were no significant differences in payment period and purchase price between related parties and
other suppliers.
3.
Service expense
The overseas nonconsolidated subsidiaries provided the Group market consulting and
product maintenance and repair services. The details of service expense in 2001, 2002 and 2003
were as follows:
Acbel-USA. . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
F-23
2001
2002
NT$
NT$
2003
NT$
US$
$30,937
12,711
$49,588
14,650
$58,887
15,264
$1,744
452
$43,648
$64,238
$74,151
$2,196
4.
Notes and accounts receivable (payable), and other receivables
The balances resulting from the above sales, purchases, and other transactions as of
December 31, 2001, 2002 and 2003, were as follows:
2001
%
2002
Amount
%
NT$
Notes and accounts receivable:
Compal . . . . . . . . . . . . . . . .
CET . . . . . . . . . . . . . . . . . .
CIC . . . . . . . . . . . . . . . . . . .
Foxteq . . . . . . . . . . . . . . . . .
Cal-Comp-Thailand . . . . . . . .
Vidar SMS . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful
debts . . . . . . . . . . . . .
.
.
.
.
.
.
.
7
—
—
5
2
3
—
.
(3)
Accounts payable:
Acbel-PHI . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . .
5.
2003
Amount
%
Amount
NT$
$196,106
—
—
128,309
59,911
72,801
3,485
(84,003)
NT$
US$
5
9
—
2
—
—
1
$131,741
258,714
—
65,430
—
—
25,600
6
9
2
2
—
—
1
$252,025
345,633
80,916
89,517
7,308
—
43,484
$ 7,465
10,238
2,397
2,652
216
—
1,288
—
—
—
—
—
14
$376,609
17
$481,485
20
$818,883
$24,256
16
1
$188,038
9,588
15
—
$227,146
—
10
—
$241,909
1,025
$ 7,166
30
17
$197,626
15
$227,146
10
$242,934
$ 7,196
Guarantees
As of December 31, 2001, 2002 and 2003, the details of bank loan guarantees the Company
provided to related parties were as follows:
2001
NT$
Acbel-Dong Guan . . . . . . . . . . . .
2002
NT$
$—
2003
NT$
—
US$
82,203
2,435
(16) PLEDGED ASSETS
Assets
Restricted Assets:
— Pledged time deposits . . . . . .
Subject
Short-term loans
F-24
2001
December 31,
2002
NT$
NT$
$142,400
2003
NT$
—
48,000
US$
1,422
(17) COMMITMENTS AND CONTINGENCIES
1.
As of December 31, 2003, the unused balance of L/Cs and the undue payment for equipment
purchase contracts amounted to NT$408,070 (US$12,087).
2.
The Group entered into an operating lease agreement to lease office space. According to the
agreement, the future lease payments are as follows:
Year
Amount
NT$
2004 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2005 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
US$
$8,097
1,680
$240
50
$9,777
$290
(18) OTHER
(a)
License agreement
The Company made a license agreement with RO Associates, Inc. (RO). According to the
agreement, the Company will obtain a license to manufacture and sell DC-DC converters. The contract
period is from February 9, 1999, to June 30, 2005. The initial license royalties amounted to US$1,800.
In addition, the Company must pay to RO ongoing license royalties equal to a fixed percentage of the
net sales resulting from the sales of the product mentioned above from July 1, 2002. (b) Employee
expenses, depreciation expenses, and amortization expenses in 2001, 2002 and 2003 were as follows:
2001
Cost of
Operating
sales
expenses
NT$
NT$
356,310
2002
2003
Cost of
Operating
Total
sales
expenses
Total
NT$
NT$
NT$
NT$
NT$
384,956
741,266
316,841
421,797
738,638
314,670
9,320
541,101
16,028
855,771
25,348
1,392
Cost of sales
Operating expenses
US$
NT$
US$
Total
NT$
US$
Employee expenses
Salaries and wages .
Labor and health
insurance . . . . .
18,917
18,058
36,975
12,511
20,945
33,456
18,515
548
28,495
844
47,010
Pension expense . . .
8,150
17,260
25,410
8,150
17,678
25,828
7,052
209
14,292
423
21,344
632
Other . . . . . . . . . . .
17,577
27,375
44,952
30,150
70,157
100,307
13,570
402
104,716
3,102
118,286
3,504
Depreciation expenses . .
211,683
25,425
237,108
147,242
33,805
181,047
154,027
4,562
42,573
1,261
196,600
5,823
Amortization expenses . .
21,629
46,035
67,664
12,705
57,156
69,861
10,678
316
51,205
1,517
61,883
1,833
F-25
(19) SEGMENT INFORMATION
(a)
Industrial information
The Group is engaged in a single industry; thus, no industrial information is provided.
(b)
Geographic information
2001
Taiwan
Asia
Eliminations
Consolidated
Revenue from third parties . . . . . . . . . . . . . . . . .
Revenue from the parent company and subsidiaries
$ 9,566,940
1,004,924
$
889,249
10,588,056
—
(11,592,980)
$10,456,189
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .
$10,571,864
$11,477,305
$(11,592,980)
$10,456,189
Segment income . . . . . . . . . . . . . . . . . . . . . . . .
$
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
496,043
$
(78,291)
$10,601
$
—
(33,282)
$
$ (111,573)
Investment income . . . . . . . . . . . . . . . . . . . . . .
5,814
Consolidated income before income tax . . . . . . . .
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . .
506,644
$
$ 5,774,000
$ 2,698,240
$ (1,002,744)
400,885
$ 7,469,496
Long-term investments . . . . . . . . . . . . . . . . . . . .
247,677
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,717,173
2002
Taiwan
Asia
Eliminations
Consolidated
Revenue from third parties . . . . . . . . . . . . . . . . .
Revenue from the parent company and subsidiaries
$11,196,923
1,572,799
$1,368,919
8,439,213
—
(10,012,012)
$12,565,842
—
Total revenues . . . . . . . . . . . . . . . . . . . . . . . . .
$12,769,722
$9,808,132
$(10,012,012)
$12,565,842
Segment income . . . . . . . . . . . . . . . . . . . . . . . .
$
973,591
$
18,172
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
$
(71,588)
$
(8,857)
—
$991,763
(80,445)
Investment loss . . . . . . . . . . . . . . . . . . . . . . . . .
(7,416)
Consolidated income before income tax . . . . . . . .
Identifiable assets . . . . . . . . . . . . . . . . . . . . . . .
$
$ 8,016,242
$2,719,166
$ (1,193,763)
903,902
$ 9,541,645
Long-term investments . . . . . . . . . . . . . . . . . . . .
282,217
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 9,823,862
F-26
2003
Taiwan
NT$
Asia
NT$
Eliminations
NT$
Revenue from third parties . . . . .
Revenue from the parent company
and subsidiaries . . . . . . . . . .
$14,664,958
$ 1,380,564
2,183,372
10,880,468
Total revenues . . . . . . . . . . . . .
$16,848,330
$12,261,032
Segment income . . . . . . . . . . . .
$ 1,662,880
$
55,678
Interest expense . . . . . . . . . . . .
$
$
(5,777)
(33,400)
—
Consolidated
NT$
US$
$16,045,522
$475,282
(13,063,840)
—
—
$(13,063,840)
$16,045,522
$475,282
$ 1,718,558
$ 50,905
$
(39,177)
$ (1,160)
(11,753)
(348)
—
Investment loss . . . . . . . . . . . . .
Consolidated income before
income tax . . . . . . . . . . . . . .
$ 1,667,628
$ 49,397
$11,809,741
$349,815
Long-term investments . . . . . . . .
263,875
7,816
Total assets . . . . . . . . . . . . . . .
$12,073,616
$357,631
Identifiable assets . . . . . . . . . . .
(c)
$10,201,524
$ 3,304,088
$ (1,695,871)
Export sales
Export sales to geographic areas are summarized as follows:
Destination area
Asia . . .
Americas
Europe . .
Other . . .
(d)
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
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.
.
.
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.
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.
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.
.
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.
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.
.
.
.
.
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.
.
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.
.
.
.
.
.
.
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.
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.
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.
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.
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.
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.
.
.
2001
2002
NT$
NT$
2003
NT$
US$
$3,410,258
2,148,579
1,146,419
17,504
$4,011,061
2,257,821
1,341,714
15,644
$ 7,722,593
3,152,445
1,553,573
183,038
$228,750
93,378
46,018
5,422
$6,722,760
$7,626,240
$12,611,649
$373,568
Major clients
Sales to individual customers generating over 10% of the total consolidated revenue in 2001,
2002 and 2003 are summarized as follows:
2001
% of
net sales
2002
Amount
% of
net sales
NT$
A Company . . . . . . . . .
B Company . . . . . . . . .
2003
Amount
% of
net sales
NT$
Amount
NT$
US$
7
11
$ 700,347
1,103,935
8
6
$1,031,198
730,188
7
5
$1,044,167
812,870
$30,929
24,078
18
$1,804,282
14
$1,761,386
12
$1,857,037
$55,007
F-27
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Acbel Polytech Inc.
We have audited the accompanying nonconsolidated balance sheets of Acbel Polytech Inc. as of
December 31, 2001, 2002 and 2003, and the related nonconsolidated statements of income, changes in
stockholders’ equity, and cash flows for the years 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 audits.
We conducted our audits in accordance with Republic of China generally accepted auditing standards
and the ‘‘Rules Governing Auditing and Certification of Financial Statements by Certified Public
Accountants’’. 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 audits provide a reasonable
basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the
financial position of Acbel Polytech Inc. as of December 31, 2001, 2002 and 2003, and the results of its
operations and its cash flows for each of the years then ended, in conformity with Republic of China
generally accepted accounting principles.
The accompanying nonconsolidated financial statements as of and for the year ended December 31,
2003, have been translated into United States dollars solely for the convenience of the readers. We have
audited the translation, and in our opinion, the nonconsolidated financial statements expressed in New
Taiwan dollars have been translated into United States dollars on the basis set forth in note 2(n) of the notes
to the financial statements.
KPMG
Certified Public Accountants
Taipei, Taiwan
January 27, 2004, except for note 2(n) as to which the date is June 30, 2004
---------------------------------------------------------------------------------------------------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
audit such financial statements are those generally accepted and applied in the Republic of China.
N-1
ACBEL POLYTECH INC.
NONCONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
ASSETS
Current assets:
Cash and cash equivalents (note 3) . . . . . . . . . . . .
Short-term investments (note 4). . . . . . . . . . . . . . .
Notes and accounts receivable, net (note 5) . . . . . .
Notes and accounts receivable — related parties, net
(note 15) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other receivables — related parties (note 15) . . . . .
Inventories, net (note 6) . . . . . . . . . . . . . . . . . . . .
Other current financial assets . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets (note 13) .
2001
2002
NT$
NT$
US$
96,399
—
1,502,267
$ 294,215
2,039,524
1,391,919
$2,244,490
789,157
1,917,275
$ 66,484
23,376
56,791
293,380
295,837
988,434
21,411
152,379
124,733
2,600
676,144
6,215
98,204
237,483
—
925,218
1,574
72,358
7,034
—
27,406
47
2,143
Total current assets . . . . . . . . . . . . . . . . . . . .
3,350,107
4,633,554
6,187,555
183,281
Long-term equity investments (note 7) . . . . . . . . . . .
2,212,209
2,571,409
2,634,454
78,035
657,000
189,730
140,582
150,627
39,411
657,000
189,730
145,633
166,381
37,553
672,165
210,484
149,614
196,566
38,364
19,910
6,235
4,432
5,822
1,136
1,177,350
(183,934)
1,108
1,196,297
(228,544)
480
1,267,193
(282,934)
6,236
37,535
(8,381)
185
Net property, plant and equipment . . . . . . . . .
994,524
968,233
990,495
29,339
Intangible assets — deferred pension cost (note 10) .
—
—
6,532
193
Other assets:
Rental assets, net (note 8) . . . . . . . . . . . . . . . . . .
Deferred expenses and other . . . . . . . . . . . . . . . . .
31,377
121,707
30,975
80,895
298
63,206
9
1,872
153,084
111,870
63,504
1,881
$6,709,924
$8,285,066
$9,882,540
$292,729
Property, plant and
Land . . . . . . . . .
Buildings . . . . . .
Machinery . . . . .
Test equipment . .
Other equipment .
equipment (note 8):
...............
...............
...............
...............
...............
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less: accumulated depreciation . . . . . . . . . . . . . .
Prepayment for purchase of equipment . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . .
$
2003
NT$
See accompanying notes to financial statement.
N-2
ACBEL POLYTECH INC.
NONCONSOLIDATED BALANCE SHEETS — (Continued)
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 9) . . . . . . . . . . . . . . . . .
Notes and accounts payable . . . . . . . . . . . . . . .
Accounts payable — related parties (note 15) . . .
Income tax payable (note 13) . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . .
.
.
.
.
.
2001
2002
NT$
NT$
2003
NT$
US$
.
.
.
.
.
$ 543,496
642,159
758,379
16,033
209,682
$ 964,258
906,377
819,187
99,015
242,853
$ 398,212
1,659,828
972,123
224,424
345,912
$ 11,795
49,166
28,795
6,648
10,246
Total current liabilities . . . . . . . . . . . . . . .
2,169,749
3,031,690
3,600,499
106,650
Other liabilities:
Accrued pension cost and other (note 10) . . . . . . . .
Deferred income tax liability (note 13). . . . . . . . . .
41,628
63,332
55,344
62,194
68,772
45,247
2,037
1,340
104,960
117,538
114,019
3,377
Total liabilities . . . . . . . . . . . . . . . . . . . . .
2,274,709
3,149,228
3,714,518
110,027
Stockholders’ equity (note 11):
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . .
3,009,000
3,327,300
3,692,290
109,369
Capital surplus:
Paid-in capital in excess of par value . . . . . . . . .
Gain on disposal of property, plant and equipment
1,013,076
1,371
1,013,076
1,371
1,013,076
1,371
30,008
41
1,014,447
1,014,447
1,014,447
30,049
6,608
407,796
41,440
758,276
113,143
1,362,907
3,351
40,370
414,404
799,716
1,476,050
43,721
Retained earnings:
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . .
Unappropriated retained earnings. . . . . . . . . . . .
Foreign currency translation adjustments (note 7) . .
(2,636)
(5,625)
(14,765)
(437)
Total stockholders’ equity . . . . . . . . . . . . .
4,435,215
5,135,838
6,168,022
182,702
Commitments and contingencies (notes 15 and 16)
Total liabilities and stockholders’ equity . . .
$6,709,924
$8,285,066
$9,882,540
$292,729
See accompanying notes to financial statement.
N-3
ACBEL POLYTECH INC.
NONCONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars, except net income per share,
which is expressed in New Taiwan dollars and US dollars)
2001
NT$
2002
NT$
Gross sales (note 15). . . . . . . . . . . . . . . . . . . . . . . .
Sales returns and allowances . . . . . . . . . . . . . . . . .
$9,085,171
176,765
$7,881,220
103,254
$10,302,300
131,547
$305,163
3,897
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,908,406
7,777,966
10,170,753
301,266
Cost of sales (notes 15 and 17). . . . . . . . . . . . . . . . .
7,701,421
6,211,321
7,744,779
227,407
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . .
1,206,985
1,566,645
2,425,974
71,859
Operating expenses (note 17):
Selling expenses (note 15) . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . .
473,829
256,712
233,021
310,468
268,946
275,319
397,590
350,416
338,879
11,777
10,380
10,038
963,562
854,733
1,086,885
32,195
Operating income . . . . . . . . . . . . . . . . . . . . .
243,423
711,912
1,339,089
39,664
Nonoperating income:
Investment income under equity method, net (note 7)
Gain on sale of investments (note 7) . . . . . . . . . . .
Consulting service income . . . . . . . . . . . . . . . . . .
Gain on foreign currency exchange, net (note 14) . .
Other (note 15) . . . . . . . . . . . . . . . . . . . . . . . . . .
26,382
6,850
87,714
81,696
45,762
53,518
34,768
83,394
—
33,453
168,524
82,804
55,020
—
13,113
4,992
2,453
1,630
—
389
248,404
205,133
319,461
9,464
75,983
—
—
28,619
32,143
1,813
—
6,082
9,458
5,154
31,288
7,631
280
153
927
226
104,602
40,038
53,531
1,586
Income before income tax. . . . . . . . . . . . . . . .
Income tax expense (note 13) . . . . . . . . . . . . . . . . .
387,225
38,898
877,007
159,984
1,605,019
289,791
47,542
8,584
Net income . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 348,327
$ 717,023
$ 1,315,228
$ 38,958
Basic net income per share (note 12) . . . . . . . . . . . .
$
1.16
$
2.15
$
$
Basic net income per share calculated by adjusting
stock dividends declared retroactively . . . . . . . . .
$
0.94
$
1.94
Nonoperating expenses and losses:
Interest expenses . . . . . . . . . . . . . . . .
Loss on foreign currency exchange, net
Provision for inventory obsolescence . .
Other . . . . . . . . . . . . . . . . . . . . . . . .
....
(note
....
....
...
14)
...
...
.
.
.
.
.
.
.
.
2003
NT$
See accompanying notes to financial statement.
N-4
US$
3.56
0.11
ACBEL POLYTECH INC.
NONCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
Common
stock
Capital
surplus
Legal
reserve
Unappropriated
Foreign
currency
translation
adjustments
NT$
NT$
NT$
NT$
NT$
$3,009,000
$1,014,447
—
—
—
—
6,608
—
—
—
—
—
3,009,000
1,014,447
6,608
407,796
—
300,900
—
—
34,832
—
(34,832)
(300,900)
17,400
—
—
—
—
—
—
Retained earnings
Balance as of January 1,
2001 . . . . . . . . . . . . . .
Appropriation of 2000 net
income:
Legal reserve . . . . . . . .
Net income for 2001 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2001 . . . . . . . . . . . . . .
Appropriation of 2001 net
income:
Legal reserve . . . . . . . .
Stock dividends. . . . . . .
Employees’ bonuses
(cash and stock) . . . .
Directors’ and
supervisors’
remuneration . . . . . .
Adjustment due to
nonproportional
investment in investee’s
increase in capital . . . . .
Net income for 2002 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2002 . . . . . . . . . . . . . .
Appropriation of 2002 net
income:
Legal reserve . . . . . . . .
Dividends (cash and
stock) . . . . . . . . . . .
Employee’ bonuses (cash
and stock) . . . . . . . .
Directors’ and
supervisors’
remuneration . . . . . .
Adjustment due to
nonproportional
investment in investee’s
increase in capital . . . . .
Net income for 2003 . . . . .
Foreign currency translation
adjustments . . . . . . . . .
Balance as of December 31,
2003 . . . . . . . . . . . . . .
$
—
$
66,077
(6,608)
348,327
Total
NT$
US$
$(19,156) $4,070,368
$120,568
—
—
—
348,327
—
10,318
16,520
16,520
489
4,435,215
131,375
—
—
—
—
—
—
(17,416)
—
(16)
—
—
(6,967)
—
(6,967)
(206)
—
—
—
—
(6,428)
717,023
—
—
(6,428)
717,023
(191)
21,239
—
—
—
—
(2,989)
(2,989)
(89)
3,327,300
1,014,447
41,440
758,276
(5,625)
—
—
71,703
(71,703)
—
332,730
—
—
(582,276)
—
(249,546)
32,260
—
—
(32,266)
—
(6)
—
—
—
(12,906)
—
(12,906)
(382)
—
—
—
—
—
—
(11,446)
1,315,228
—
—
(11,446)
1,315,228
(339)
38,958
—
—
—
—
(9,140)
(271)
$3,692,290
$1,014,447
$113,143
$1,362,907
See accompanying notes to financial statement.
N-5
(2,636)
(9,140)
5,135,838
152,128
—
—
$(14,765) $6,168,022
(7,392)
—
$182,702
ACBEL POLYTECH INC.
NONCONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars)
2001
NT$
2002
NT$
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization. . . . . . . . . . . . . .
Change in allowance for inventory loss . . . . . . .
Investment income recognized under the equity
method . . . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in notes and accounts
receivable . . . . . . . . . . . . . . . . . . . . . . . . .
Decrease (increase) in inventories . . . . . . . . . . .
Decrease (increase) in prepaid expenses and other
current assets . . . . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in notes and accounts payable
Increase (decrease) in accrued expenses and other
current liabilities . . . . . . . . . . . . . . . . . . . . .
Increase in accrued pension cost . . . . . . . . . . . .
Decrease in net deferred income tax assets . . . . .
Gain on sale of long-term equity investments . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
545,558
1,382,597
Cash provided by operating activities . . . . .
1,891,638
$348,327
$717,023
$1,315,228
$38,958
97,127
(9,176)
89,738
31,288
2,658
927
(26,382)
(53,518)
(168,524)
(4,992)
278,995
321,465
(638,106)
(280,362)
(18,901)
(8,305)
30,559
(476,224)
6,586
325,026
(190)
906,387
(6)
26,848
(27,900)
9,446
22,768
—
5,945
116,153
13,716
61,647
—
1,803
228,468
13,928
13,378
(35,529)
(3,665)
6,767
413
396
(1,052)
(108)
1,876,847
1,472,039
43,603
(2,039,524)
1,250,367
37,037
(295,341)
(18,642)
(638,754)
—
(11,911)
(14,235)
293,237
(26,847)
(315,099)
—
13,916
(18,493)
Cash provided by (used in) investing
activities . . . . . . . . . . . . . . . . . . . . . . . .
(978,883)
(2,092,810)
Cash provided by (used in) financing
activities . . . . . . . . . . . . . . . . . . . . . . . .
US$
97,040
(20,096)
Cash flows from investing activities:
Decrease (increase) in short-term investments . . .
Decrease (increase) in other receivables — related
parties . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions to property, plant and equipment. . . . .
Additions to long-term equity investments . . . . .
Proceeds on sale of long-term equity investments
Decrease (increase) in refundable deposits . . . . .
Increase in deferred expenses and other . . . . . . .
Cash flows from financing activities:
Increase (decrease) in short-term loans . . . . . . . .
Directors and supervisors’ remuneration and
employees’ bonuses . . . . . . . . . . . . . . . . . . .
Cash dividends . . . . . . . . . . . . . . . . . . . . . . . .
2003
NT$
—
(900,005)
(500)
—
2,600
(44,744)
—
125,000
3,692
(30,175)
77
(1,325)
—
3,703
109
(894)
1,306,740
420,762
(6,983)
—
38,707
(566,046)
(16,767)
(12,912)
(249,546)
(382)
(7,392)
(828,504)
(24,541)
(900,505)
413,779
Net increase in cash and cash equivalents . . . . . . . .
Cash and cash equivalents at beginning of year . . . .
12,250
84,149
197,816
96,399
1,950,275
294,215
57,769
8,715
Cash and cash equivalents at end of year . . . . . . . .
$ 96,399
$294,215
$2,244,490
$66,484
Supplementary disclosures of cash flow information:
Cash paid during the year for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 77,413
$ 32,719
$
$
$
$ 15,355
$ 151,004
Income taxes . . . . . . . . . . . . . . . . . . . . . . .
98
See accompanying notes to financial statement.
N-6
9,655
286
$ 4,473
ACBEL POLYTECH INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2002 AND 2003
(expressed in thousands of New Taiwan dollars and US dollars unless otherwise specified)
(1)
ORGANIZATION
Acbel Polytech Inc. (the Company, originally named ‘‘Leadtorn Industrial Inc.’’) was incorporated as
a company limited by shares in July 1981. The Company acquired the ‘‘API Division’’ of Vidar SMS Co.,
Ltd. in September 1996, and changed its name to Acbel Polytech Inc. The Company transferred the
‘‘Components Division’’ to its subsidiary ‘‘Teampo Technology Co. Ltd.’’ on August 1, 2001. The business
activities of the Company are the manufacture and sale of power supplies. The Company’s common shares
were listed on the Taiwan Stock Exchange (TSE) on September 8, 2003.
As of December 31, 2003, the number of employees of the Company was approximately 841.
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying financial statements are prepared in accordance with accounting principles and
practices generally accepted in the Republic of China (ROC). The significant accounting policies and
measurement basis adopted in preparing the accompanying financial statements are summarized as follows:
(a)
Foreign currency transactions
The Company maintains its books in New Taiwan dollars. Foreign currency transactions are
recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. All assets
and liabilities denominated in foreign currencies are translated into New Taiwan dollars at the
exchange rates prevailing on the balance sheet date. Gains or losses resulting from settlement or
translation are recognized as nonoperating income or losses.
The Company’s forward exchange contracts are intended to hedge the risks of changes in foreign
currency exchange rates. Forward exchange contract receivables and payables are recorded in New
Taiwan dollars at the spot rate on the date of contract inception, and the balances on the balance sheet
date are translated into New Taiwan dollars at the prevailing spot rate. Gains or losses resulting from
translation on the balance sheet date are recognized as nonoperating income or losses. The discount or
premium on a forward exchange contract is amortized over the life of the contract.
If a foreign currency options contract is intended to hedge the risks of changes in foreign
currency exchange rates, the related assets or liabilities are not recorded on the date of contract
inception, and exchange gains or losses resulting from settlement are recognized as nonoperating
income or losses. The related premiums received or paid are accounted for as advance receipts or
prepaid expenses. Gains or losses resulting from exercise are recognized as nonoperating income or
losses.
(b)
Cash equivalents
Cash equivalents represent investments in commercial paper purchased under repurchase
agreements with a maturity of three months or less from the date of investment.
(c)
Short-term investments
Short-term investments represent investments in open-end mutual funds, which are stated at the
lower of cost or market value. The cost of sales is determined by using the weighted-average method.
Market values of open-end mutual funds are based on their net asset value on the balance sheet date.
(d)
Allowance for doubtful accounts
The allowance for doubtful accounts is based on an aging analysis and the likelihood of
collection of the Company’s accounts receivable balances.
N-7
(e)
Inventories
Inventories are stated at the lower of cost or market value. Market value is based either on
replacement cost or on net realizable value.
(f)
Long-term investments
Long-term investments are accounted for under the equity method when the percentage of
ownership exceeds 20%. Differences between the attributable net equity of the investee and the cost of
the investment accounted for by the equity method which arise at the time investments are made are
deferred and amortized to income or expenses over a period of five years. 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 for the
investment, will be changed. Such difference shall be used to adjust capital surplus or retained
earnings, and long-term equity investments.
Unrealized inter-company profits or losses resulting from transactions between the Company and
its investees accounted for under the equity method are deferred until realized, or are amortized based
on the useful lives of the assets that give rise to such unrealized profits or losses.
The financial statements of majority-owned subsidiaries (more than 50%) are consolidated into
the Company’s financial statements at the end of each fiscal year, except for those whose total assets
and revenues do not exceed 10% of the Company’s total assets and revenues. However, a subsidiary
with operating revenue and total assets not exceeding 10% of the Company’s non-consolidated
operating revenue and total assets is not consolidated. Nevertheless, if the combined revenues or total
assets of all such nonconsolidated subsidiaries exceed 30% of the Company’s nonconsolidated total
assets or operating revenues, then each individual subsidiary with total assets or operating revenues
greater than 3% of the Company’s respective nonconsolidated amount shall be consolidated. Such
subsidiaries shall be included in the consolidated financial statements thereafter, unless the percentage
of the combined total assets or operating revenues for all such subsidiaries decreases to less than 20%
of the Company’s corresponding nonconsolidated amount.
The Company’s investment in foreign operating companies accounted for under the equity
method will have differences arising from the foreign currency translations. The differences, net of the
related income taxes, are recorded as foreign currency translation adjustments in the statements of
changes in stockholders’ equity. When a foreign operating company is sold, the translation
adjustments will be included under the calculation of net income.
(g)
Property, plant and equipment
Property, plant and equipment are stated at cost. Excluding land, depreciation of property, plant
and equipment is provided using the straight-line method over the estimated useful lives of the
respective assets.
Property, plant and equipment leased to other parties through operating lease arrangements are
classified as rental assets. Depreciation related to rental assets is accounted for as a reduction of rental
income.
The useful lives of respective assets are summarized as follows:
1.
Buildings: 3–30 years
2.
Machinery and test equipment: 6–8 years
3.
Other equipment: 3–6 years
N-8
(h)
Deferred expenses
Costs of computer software and mold equipment are amortized using the straight-line method
over three and two years, respectively. Charges for royalties are deferred and amortized over the
contract periods.
(i)
Retirement plan
The Company has established an employee noncontributory pension plan covering all regular
employees. According to this plan, employees are eligible for retirement or are required to retire after
meeting certain age or service requirements. The retirement benefits are lump-sum payments and are
determined principally by the length of service of the employees. Payments of employee retirement
benefits are based on the years of service and average salary six months before the employee’s
retirement. Each employee will earn two months’ salary for the first 15 years of service and one
month’s salary for each service year after the sixteenth year. The total number of months each
employee can earn is limited to 45 months.
The Company has made monthly cash contributions of 2.5% of salaries and wages incurred to a
pension fund maintained with the Central Trust of China. Retirement benefits are paid first from the
fund and then by the Company if the fund is insufficient.
The Company has its pension plan actuarially valued on the year-end date and recognizes net
periodic pension cost, including services costs, interest cost, expected return on plan assets and
amortization of net unrecognized transition costs over the average remaining service period of
employees (17 years).
(j)
Income tax
Income tax is calculated based on accounting income. The amount of deferred tax liabilities or
assets is calculated by applying the provisions of enacted tax law to determine the amount of tax
payable or refundable, currently or in future years. The tax effects of taxable temporary differences are
recorded as deferred tax liabilities. The tax effects of deductible temporary differences and tax credits
are recognized as deferred tax assets. An allowance is provided on deferred tax assets that may not be
realized in the future.
Deferred tax assets or liabilities are classified as current or noncurrent based on the classification
of the asset or liability that resulted in the deferred item or, on certain transactions not directly related
to an asset or liability, the timing of recognition of the deferred item for income tax purposes.
Investment tax credits are accounted for using the flow-through method. Therefore, deferred
income tax assets resulting from investment tax credits are recognized in the year in which the credit
arises.
The 10% surtax on undistributed earnings is recorded as current income tax expense after the
resolution to appropriate retained earnings is approved in a stockholders’ meeting.
(k)
Revenue recognition
Revenue derived from product sales is recognized when products are shipped and the significant
risks and rewards of ownership are transferred to the buyer.
(l)
Purchase transactions
The Company’s subsidiary Acbel Ploytech Holdings Inc. (Acbel-BVI) provides raw materials to
its subsidiary in mainland China to use in manufacturing. The Company then purchases back the
finished goods through Acbel-BVI and sells them directly to its clients. Although the title to the raw
materials has been transferred, the risk of the raw materials still exists. Pursuant to SFB regulation #6
(00747), the transaction should be regarded as the Company’s providing materials to Acbel-BVI to
manufacture products. The raw materials provided to its subsidiary in China that were not resold to the
Company were recorded as the Company’s inventories.
N-9
(m) Earnings per share
Earnings per share are computed based on the weighted-average number of common shares
outstanding during the year. Earnings per share for prior years are retroactively adjusted to reflect the
effect of stock dividends issued by transferring capital surplus, retained earnings and employees’
bonuses in the current year.
(n)
Convenience translation into US dollars
The nonconsolidated financial statements are stated in New Taiwan dollars. Translation of the
2003 New Taiwan dollar amounts into US dollar amounts are included solely for the convenience of
the readers, using the noon buying rate provided by the Bank of Taiwan on June 30, 2004, of
NT$33.76 to US$1. The convenience translations should not be construed as representations that the
New Taiwan dollar amounts have been, could have been, or could in the future be, converted into US
dollars at this rate or any other rate of exchange.
(3)
CASH AND CASH EQUIVALENTS
Cash on hand . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Checking accounts and demand deposits. . . . . . . . . . . .
Time deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper purchased under repurchase agreements
2001
December 31,
2002
NT$
NT$
$
294
26,305
69,800
—
$
$96,399
(4)
227
117,018
176,970
—
$294,215
2003
NT$
$
US$
371
70,943
—
2,173,176
$2,244,490
$
11
2,101
—
64,372
$66,484
SHORT-TERM INVESTMENTS
December 31,
(5)
2001
2002
NT$
NT$
2003
NT$
US$
Open-end mutual funds . . . . . . . . . . . . . . . . . . . . . . .
$ —
$2,039,524
$789,157
$23,376
Market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ —
$2,039,568
$789,795
$23,394
NOTES AND ACCOUNTS RECEIVABLE — THIRD PARTIES
December 31,
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful debts . . . . . . . . . . . . . . .
$
2001
2002
NT$
NT$
10,183
1,523,345
1,533,528
(31,261)
$1,502,267
N-10
$
28,593
1,371,516
1,400,109
(8,190)
$1,391,919
2003
NT$
$
3,623
1,917,922
1,921,545
(4,270)
$1,917,275
US$
$
107
56,810
56,917
(126)
$56,791
(6)
INVENTORIES
Raw materials . . . . .
Work-in-process . . .
Finished goods . . . .
Inventories in transit
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2001
December 31,
2002
NT$
NT$
NT$
$625,885
137,441
266,569
8,852
$317,982
124,066
250,453
24,781
$631,795
43,627
305,561
16,661
1,038,747
(50,313)
Less: allowance for inventory loss . . . . . . . . . . . . . . .
717,282
(41,138)
$988,434
(7)
2003
US$
997,644
(72,426)
$676,144
$925,218
$18,714
1,292
9,051
494
29,551
(2,145)
$27,406
(a)
As of December 31, 2001, 2002 and 2003, inventories were insured for NT$1,900,000,
NT$1,459,000 and NT$1,676,000 (US$49,645), respectively.
(b)
The above inventories included raw materials provided to the subsidiary in mainland China that
were not resold to the Company. The net value of these raw materials was NT$521,325,
NT$230,146 and NT$346,668 (US$10,269) as of December 31, 2001, 2002 and 2003,
respectively.
LONG-TERM EQUITY INVESTMENTS
December 31,
2002
2001
Under the equity method:
Acbel-BVI . . . . . . . . .
Teampo Technology Co.
Ltd. (Teampo). . . . .
Amount
Ownership
Amount
Ownership
%
NT$
%
NT$
%
Amount
NT$
US$
100
$1,882,062
100
$1,896,636
100
$1,933,825
$57,282
100
332,783
94
680,398
82
712,441
21,103
2,646,266
78,385
2,214,845
Foreign currency
translation
adjustments . . . . . .
2003
Ownership
2,577,034
(2,636)
$2,212,209
(5,625)
$2,571,409
(11,812)
$2,634,454
(350)
$78,035
(a)
The Company established Acbel-BVI as a holding company in June 1996 and invested in
companies as factories in mainland China through a 100%-owned subsidiary, Acbel Polytech
(Singapore) Pte Ltd.
(b)
Net investment income on long-term equity investments accounted for under the equity method
for the years ended December 31, 2001, 2002 and 2003, amounted to NT$26,382, NT$53,518
and NT$168,524 (US$4,992), respectively. The calculation of this income was based on the
investees’ audited financial statements.
(c)
The Company did not subscribe the newly issued shares of Teampo in proportion to its
ownership percentage in 2002 and 2003, and the respective differences of NT$6,428 and
NT$11,446 (US$339) resulting from the change in percentage of ownership were reflected by
decreasing retained earnings.
(d)
The Company disposed of 5,000,000 share of Teampo (approximately 10% of ownership) in
2003. The related gains resulting from disposal, amounting to NT$35,529 (US$1,052), were
included in gain on sales of investments in the accompanying statement of income.
N-11
(8)
PROPERTY, PLANT AND EQUIPMENT, AND RENTAL ASSETS
No property, plant and equipment, and rental assets were provided as collateral for bank loans. As of
December 31, 2001, 2002 and 2003, property, plant and equipment, and rental assets were insured for
NT$396,000, NT$385,000 and NT$322,902 (US$9,778), respectively.
(9)
SHORT-TERM LOANS
December 31,
Usance letters of credit . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper payable, net . . . . . . . . . . . . . . . . . .
Credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unused short-term credit lines. . . . . . . . . . . . . . . . . . .
$
2001
2002
NT$
NT$
24,472
259,024
260,000
$
—
299,258
665,000
2003
NT$
$
US$
58,403
199,809
140,000
$ 1,730
5,919
4,146
$543,496
964,258
398,212
12,058
$2,480,000
$2,278,000
$2,927,000
$86,700
Annual interest rates on short-term loans in 2001, 2002 and 2003 ranged from 1.00% to 8.08%, 1.50%
to 3.20%, and 1.10% to 1.95%, respectively.
(10) PENSIONS
The Company made an actuarial valuation of its pension plan on December 31, 2001, 2002 and 2003.
The reconciliation of the funded status and accrued pension costs was as follows:
December 31,
2001
2002
NT$
NT$
NT$
Benefit obligations:
Vested benefit obligations . . . . . . . . . . . . . . . . . . .
Nonvested benefit obligations . . . . . . . . . . . . . . . . .
$(13,433)
(86,270)
$(16,150)
(114,821)
$(31,270)
(151,780)
Accumulated benefit obligation . . . . . . . . . . . . . . . . . .
Projected compensation increase . . . . . . . . . . . . . . . . .
(99,703)
(95,888)
(130,971)
(66,454)
(183,050)
(50,897)
(5,422)
(1,508)
Projected benefit obligation . . . . . . . . . . . . . . . . . . . .
Plan assets at fair value . . . . . . . . . . . . . . . . . . . . . . .
(195,591)
85,597
(197,425)
98,539
(233,947)
114,311
(6,930)
3,386
Funded status . . . . . . . . . . . . . . . . .
Unrecognized net pension loss . . . . .
Unrecognized net transition obligation
Additional accrued pension liability . .
.
.
.
.
(109,994)
60,206
8,693
—
(98,886)
36,107
7,968
—
(119,636)
50,186
7,243
(6,532)
(3,544)
1,486
214
(193)
Accrued pension cost . . . . . . . . . . . . . . . . . . . . . . . . .
$(41,095)
$(54,811)
$(68,739)
$(2,037)
.
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2003
US$
$
(926)
(4,496)
The net pension costs consisted of the following:
Service cost . . .
Interest cost . . .
Actual return on
Amortization . .
........
........
plan assets
........
.
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Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . .
N-12
2001
2002
NT$
NT$
2003
NT$
US$
$13,396
9,130
(1,840)
(1,571)
$16,244
9,255
(2,031)
1,159
$14,315
7,379
(3,584)
1,474
$424
218
(106)
44
$19,115
$24,627
$19,584
$580
Actuarial assumptions were as follows:
2001
Discount rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Future salary increase rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected long-term rate of return on plan assets . . . . . . . . . . . . . . . . . .
5.00%
5.00%
5.00%
2002
3.75%
3.00%
3.75%
2003
3.50%
2.00%
3.50%
The vested benefit was approximately NT$20,993, NT$22,410 and NT$40,590 (US$1,202) as of
December 31, 2001, 2002 and 2003, respectively. The actual payment of pension expense for the year ended
December 31, 2001, amounted to NT$12,373. No pension expense was paid for the years ended December
31, 2002 and 2003.
(11) STOCKHOLDERS’ EQUITY
(a)
Capital
Pursuant to the resolution of the stockholders’ meeting held on June 25, 2002, the Company
increased its capital through the issuance of stock dividends by transferring retained earnings
amounting to NT$300,900 and employee stock bonuses amounting to NT$17,400. The newly issued
shares totaled 31,830 thousand shares.
Based on a resolution at the annual stockholders’ meeting held on June 18, 2003, the Company
declared cash dividend amounting to NT$249,547 (US$7,392) and increased its capital through the
issuance of stock dividends by transferring retained earnings amounting to NT$332,730 (US$9,856)
and employees’ bonuses amounting to NT$32,260 (US$956). The newly issued shares totaled 36,499
thousand shares. The registration procedure related to this issuance has been completed.
As of December 31, 2001, 2002 and 2003, the total common stock authorized was NT$3,700,000
(US$109,597) at par value of 10 New Taiwan dollars per share.
(b)
Capital surplus
Pursuant to the ROC Company Law, capital surplus can only be used to offset a deficit or to
increase share capital. A cash dividend can not be declared out of capital surplus. According to SFB
regulations, capital increases effected by transferring additional paid-in capital in excess of par value
should not exceed 10% of total common stock outstanding. In addition, a capital increase by
transferring paid-in capital in excess of par value can occur only once, commencing in the following
year.
(c)
Special reserve
According to the Company’s articles of incorporation, unrealized foreign currency exchange
gains accounted for under Statement of Financial Accounting Standards No. 14 must be set aside as a
special reserve before appropriation. The special reserve shall be transferred to retained earnings upon
realization.
(d)
Legal reserve and limitation on distribution of retained earnings
Based on the Company’s articles of incorporation, 10% of annual net income after tax is to be set
aside as a legal reserve, the remaining balance was set 2% as remuneration to the directors and
supervisors, and 5% as bonus to employees, after offsetting prior years’ deficits, if any. Based on the
original articles of incorporation of the Company, amended on June 28, 2003, 10% of annual net
income after tax is to be set aside as a legal reserve, less than 2% as remuneration to the directors and
supervisors, and 5% as bonus to employees, after offsetting prior years’ deficits, if any.
The remaining balance can be distributed as dividends to stockholders after special reserves are
appropriated, if any.
The Company may opt to distribute stock dividends instead of cash dividends to retain working
capital based on the overall capital plan, if the Company has annual distributable earnings.
N-13
The remaining balance if any, can be distributed as cash dividends. However, the Company may
opt to revise the distribution proportion of cash dividends if the retained earnings and working capital
are sufficient in the future.
(e)
In 2002 and 2003, the employees’ bonuses, directors’ and supervisors’ remuneration
appropriated from the distributable retained earnings in 2001 and 2002 were as follows:
2001
Shares
(in
thousands)
Employees’ bonuses
— stock (par value) . . . . . . . . . . . . . . . . . .
— cash . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors’ and supervisors’ remuneration . . . . . . .
$1,740
—
—
2002
Amount
Shares
Amount
NT$
(in
thousands)
NT$
$17,400
16
6,967
$3,226
—
—
$24,383
$32,260
6
12,906
$45,172
The newly issued shares from the above distribution were 0.58% and 0.97% of outstanding
shares on December 31, 2001 and 2002.
If the above distribution were recorded as expenses in 2001 and 2002, the pro forma information
on net income per share in 2001 and 2002 would be as follows:
2001
Before tax
NT$
Net income per share — after retroactive
adjustments (expressed in New Taiwan dollars) .
$0.98
2002
After tax
NT$
$0.88
Before tax
NT$
$2.25
After tax
NT$
$1.82
Earnings distribution of fiscal year 2003 is still subject to being determined by a meeting of the
board of directors and approved in a stockholders’ meeting.
The related information on distribution of employees’ bonuses and directors’ and supervisors’
remuneration in 2003 will be posted in the ‘‘Market Observation Post System’’ after the Company’s
stockholders’ meeting is held.
N-14
(12) NET INCOME PER SHARE
2001
Before
After
income tax income tax
2002
Before
After
income tax income tax
NT$
NT$
NT$
NT$
Net income. . . . . . . . . . .
$387,225
$348,327
$877,007
Weighted-average number
of shares outstanding
(thousands). . . . . . . . .
300,900
300,900
Basic net income per share
before retroactive
adjustments (New
Taiwan dollars and US
dollars) . . . . . . . . . . .
$1.29
Weighted-average number
of shares outstanding,
after retroactive
adjustments (thousands)
369,229
Net income per share after
retroactive adjustments
(New Taiwan dollars) .
$
1.05
$
2003
Before
income tax
After income tax
NT$
NT$
$717,023
$1,605,019
$1,315,228
$38,958
332,730
332,730
369,229
369,229
369,229
$1.16
$2.64
$2.15
$4.35
$3.56
$0.11
369,229
369,229
369,229
0.94
$
2.38
$
US$
1.94
(13) INCOME TAX
(a)
The Company’s income is subject to an income tax rate of 25%. The income tax expense in
2001, 2002 and 2003 was as follows:
Current income tax expense . . . . . . . . . . . . . . . .
10% surtax on unappropriated earnings . . . . . . . .
Deferred income tax expense (benefit):
Provision for inventory loss . . . . . . . . . . . . .
Decrease in investment tax credit . . . . . . . . .
Recovery (over the limit) of allowance for
doubtful debts. . . . . . . . . . . . . . . . . . . . .
Increase (decrease) in loss reserve for outward
investment . . . . . . . . . . . . . . . . . . . . . . .
Unrealized sales allowance . . . . . . . . . . . . . .
Increase in valuation allowance . . . . . . . . . . .
Other deferred income tax benefits . . . . . . . .
Income tax expense . . . . . . . . . . . . . . . . . . . . . .
N-15
2001
2002
NT$
NT$
NT$
2003
$15,307
823
$ 95,929
2,408
$268,090
8,323
$7,941
247
16,130
98,337
276,413
8,188
77,371
(27,378)
—
47,789
(7,822)
74,202
(232)
2,198
(30,197)
29,842
3,560
106
7,662
—
—
(4,690)
(14,518)
—
—
(1,466)
—
(26,620)
(5,358)
(24,584)
—
(789)
(159)
(728)
22,768
61,647
13,378
396
$38,898
$159,984
$289,791
$8,584
US$
(b)
Deferred tax assets (liabilities) comprised the following:
Deferred tax assets:
Allowance for inventory loss . .
Investment tax credits . . . . . . .
Unrealized sales allowance . . . .
Pension cost over the limitation
Other . . . . . . . . . . . . . . . . . . .
.
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2001
December 31,
2002
NT$
NT$
$ 12,578
121,991
—
10,274
32,801
the equity
.......
.......
.......
$ 10,284
74,202
—
13,703
2,694
US$
$ 18,106
—
26,620
15,571
1,951
$ 536
—
789
461
58
177,644
(20,254)
100,883
(14,840)
62,248
(9,482)
1,844
(281)
157,390
86,043
52,766
1,563
$(28,094)
(35,238)
(8,562)
$(22,988)
(20,720)
(18,486)
$(21,575)
(20,720)
(2,952)
$ (639)
(614)
(87)
(71,894)
(62,194)
(45,247)
(1,340)
7,519
Less: valuation allowance . . . . . . . . . . . . . .
Deferred tax liabilities:
Investment income recognized under
method (overseas) . . . . . . . . . . .
Loss reserve on outward investment.
Other . . . . . . . . . . . . . . . . . . . . . .
2003
NT$
Net deferred income tax assets . . . . . . . . . . . . . .
$ 85,496
23,849
223
Net deferred income tax assets — current. . . . . . .
Net deferred income tax liabilities — noncurrent . .
$148,828
(63,332)
$ 86,043
(62,194)
$ 52,766
(45,247)
$1,563
(1,340)
$ 85,496
$ 23,849
$ 7,519
$ 223
(c)
The ROC tax authorities have assessed the Company’s income tax returns through 2001.
(d)
Beginning in 1998, the corporate income tax paid at the corporate level can be used to offset the
resident shareholders’ individual income tax. The amount of imputation credit which
shareholders can claim depends on total corporate income tax paid at the corporate level.
Beginning in 1998, corporations have been required to set up an Imputation Credit Account
(ICA) to keep track of the corporate income taxes paid and the imputation credit they have
allocated for shareholders. In addition, the creditable ratio, which represents the imputation
credit per dollar of accumulated retained earnings, shall be calculated for resident shareholders
when corporations declare dividends. Calculation of the ICA balance as of December 31, 2001,
2002 and 2003, and the creditable ratio for 2001, 2002 and 2003 was as follows:
December 31,
2001
2002
NT$
NT$
Year of unappropriated retained earnings:
1998 and after . . . . . . . . . . . . . . . . . . . . . .
$407,796
$758,276
$1,362,907
$40,370
Imputation credit account balance . . . . . . . . . . . .
$
$ 11,790
$
$ 2,601
116
2001
Creditable ratio for earnings distribution to resident
shareholders . . . . . . . . . . . . . . . . . . . . . . . . .
N-16
2002
2003
NT$
87,796
2003
3.75%
13.03%
22.91%
(actual)
(actual)
(estimated)
US$
(14) RELATED INFORMATION ABOUT FINANCIAL INSTRUMENTS
(a)
Derivative financial instruments
1.
Foreign currency options and forward exchange contracts (in thousands of dollars)
December 31, 2001
Financial Instruments
USD put Options sold . .
USD put Options bought
Nominal
amount
Transaction
period
USD 9,000 August 1–
December 27,
2001
USD 2,000 October 19–
October 24,
2001
Maturities
Strike rate
January 31– June
28, 2002
USD/NTD
34.732–37.0
January 24–
January 28, 2002
USD/NTD
34.73–34.75
Fair value
NTD (1,671)
NTD 1
Credit risk
NTD —
NTD 1
December 31, 2002
Financial Instruments
USD put options sold. . .
Nominal
amount
Transaction
period
Maturities
USD 22,000 September 27, January 17, –
– December
June 9, 2003
19, 2002
Strike rate
USD/NTD 35.3–
36.0
Fair value
NTD 1,457
Credit risk
NTD 1,457
December 31, 2003
Financial Instruments
USD forward foreign
exchange contracts
sold . . . . . . . . . . . . .
USD put options sold. . .
USD put options bought .
2.
Nominal
amount
Transaction
period
USD 37,000 September 22
–December 9,
2003
USD 63,000 July 31 –
December 29,
2003
USD 46,000 September 22
–December
29, 2003
Maturity
January 6,–
March 25, 2004
Strike rate
Fair value
USD/NTD NTD (11,326)
33.541–34.024
Credit risk
—
January 6,–
March 25, 2004
USD/NTD
33.18–35.20
NTD 12,001
NTD 12,001
January 6,–
March 25, 2004
USD/NTD
33.18–34.135
NTD 8,944
NTD 8,944
Credit risk
The amount of the credit risk is a 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 financial institutions with good credit ratings, management
does not believe that there is significant credit risk from these transactions.
3.
Market risk
The purpose of the derivative financial instruments is to hedge the exchange rate and
interest rate risk. Therefore, the gains or losses resulting from changes in exchange rates and
interest rate will be offset by those from the hedged item. Management believes that the related
market risk is not significant.
N-17
4.
Liquidity risk (in thousands of dollars)
The Company will have cash inflows and outflows within the periods shown below. There
are no financing risks due to expected sufficient foreign currency received from accounts
receivable. Management believes that the cash flow risk is not significant because contracted
option and contracted foreign currency exchange rates are fixed. Management believes that the
cash flow risk of foreign currency option contracts is not significant because these contracts are
settled in net amount on the exercise date.
December 31, 2003
Financial instruments
Date
USD forward exchange contracts . .
5.
January 6–March 25, 2004
Cash outflow
USD 37,000
Cash inflow
NTD 1,244,610
The categories and objectives of the derivatives, and strategies to accomplish the
underlying objectives
The derivative financial instrument contracts held by the Company are for the purpose of
hedging the risks that may result from changes in exchange rates of foreign currency assets and
liabilities and interest rates rather than for the purpose of trading. The hedging strategies of the
Company are to hedge the market risk to the highest extent possible. The Company uses
derivatives that are highly correlated to the changes in fair values of the hedged items as hedging
instruments.
6.
Presentation of financial statements
The receivables and payables derived from foreign currency forward contracts were offset
against each other, and the net amount was accounted for as other current assets or liabilities.
The net forward foreign currency exchange contracts payable was NT$12,685 (US$376) as of
December 31, 2003.
The premiums received and paid resulting from foreign currency option contracts were
offset against each other, and the net amount was recorded as other current liabilities. The
unamortized balance were NT$842, NT$2,838 and NT$1,270 (US$38) as of December 31, 2001,
2002 and 2003, respectively.
The exchange gain resulting from derivative financial instruments for the years ended
December 31, 2001, 2002 and 2003, amounting to NT$2,618, NT$ $3,740 and NT$26,551
(US$786), respectively, was included in nonoperating income in the accompanying statements of
income.
7.
Fair value of derivative financial instruments
The fair value of a derivative is the expected receivable or payable amount assuming that
the contract is terminated on the balance sheet date. Generally, the unrealized gain or loss on
open contracts is included in the fair value. The above fair value estimates were based on quotes
from financial institutions.
N-18
(b)
Nonderivative financial instruments
As of December 31, 2001, 2002 and 2003, the book values of nonderivative financial
instruments not the same as market value were as follows:
December 31,
2001
Nonderivative financial
instruments:
Short-term investments.
Long-term equity
investments . . . . . .
2002
2003
Book
value
Fair
value
Book
value
Fair
value
NT$
NT$
NT$
NT$
Book value
NT$
US$
Fair value
NT$
US$
—
—
2,039,524
2,039,568
789,157
23,896
789,795
23,394
2,212,209
—
2,571,409
—
2,634,454
79,772
—
—
The fair values of financial instruments are estimated based on the following assumptions:
(i)
The book values of short-term financial instruments — cash and cash equivalents, notes
and accounts receivable, short-term loans, notes and accounts payable, and accrued
expenses — were similar to their fair market values on the balance sheet date.
(ii)
The fair values of short-term investments are based on quoted market prices.
(iii) The fair values of long-term loans were based on the book value because of their floating
rate.
(iv) All of the Company’s long-term equity investments consist of non-listed equity securities.
No market prices are available for these investments. As of December 31, 2001, 2002 and
2003, the original cost of these investments amounted to NT$2,152,797, NT$2,467,896
and NT$2,405,180 (US$71,243), respectively.
(15) RELATED-PARTY TRANSACTIONS
(a)
Names of the related parties and relationships
Related Party
Relationship
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teampo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acbel Polytech (Singapore) Pte. Ltd. (Acbel-SGP) . . . . .
Acbel-BVI Acbel Polytech Philippines Inc. (Acbel-PHI) .
Acbel Polytech (USA) Inc. (Acbel-USA) . . . . . . . . . . .
Teampo Technology (H.K.) Co. Ltd. (Teampo-HK) . . . .
Compal Electronics Inc. (Compal) . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Foxteq Integration Inc. (Foxteq) . . . . . . . . . . . . . . . . . . .
Vidars — SMS Co., Ltd. (Vidar SMS) . . . . . . . . . . . . . . .
N-19
100%-owned subsidiary
Subsidiary
100% owned by
100% owned by Acbel-BVI
100% owned by Acbel-BVI
Subsidiary of Teampo
Compal’s chairman of the board of directors is the same
as the Company’s.
Its subsidiary is a Company director.
Vidars had significant influence to the Company before
June 2001.
(b)
Summary of significant transactions with related parties
1.
Sales
2001
% of net
sales
2002
Amount
% of net
sales
Amount
NT$
Foxteq . . . .
Teampo-HK
Compal . . .
Vidar SMS .
Other . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2003
% of net
sales
NT$
Amount
NT$
US$
12
6
3
—
1
$1,103,935
513,408
308,630
5,283
111,583
9
—
2
—
1
$730,188
333
178,713
—
21,367
8
—
3
—
—
$ 796,471
—
260,566
—
41,652
$23,592
—
7,718
—
1,234
22
$2,042,839
12
$930,601
11
$1,098,689
$32,544
There were no significant differences in the terms of collection and pricing on sales to
related parties and other customers.
2.
Purchases
2001
% of net
purchase
2002
Amount
% of net
purchase
NT$
Acbel-PHI .
Teampo-HK
Teampo . . .
Other . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
2003
Amount
% of net
purchase
NT$
Amount
NT$
US$
6
—
—
1
$334,883
11,002
—
55,166
11
5
2
—
$497,997
196,327
60,056
14,488
12
—
8
—
$ 744,551
9,092
487,741
—
$22,054
269
14,447
—
7
$401,051
18
$768,868
20
$1,241,384
$36,770
There were no significant differences in payment period and purchase price between
related parties and other suppliers, except that the payment period for Acbel-PHI is subject to its
capital requirements.
3.
Processing with related parties
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . .
2001
2002
NT$
NT$
NT$
2003
$824,783
$782,903
$815,201
US$
$24,147
The Company supplies materials to the assembly factory in mainland China (Acbel
Electronic (Dong Guan) Co., Ltd.) to manufacture products through Acbel-BVI. The Company
then purchases back the finished goods after assembly from Acbel Electronic (Dong Guan) Co.,
Ltd. through Acbel-BVI. The raw materials provided by the Company and purchased back as
finished goods amounted to NT$4,404,599, NT$4,085,119 and NT$5,176,630 (US$153,336) in
2001, 2002 and 2003, respectively. The recognized revenue and costs resulting from those
transactions are offset in the accompanying financial statements, and the difference is treated as
assembly expense. The Company settles the receivables together with the payables in respect of
the above transaction after the monthly closing of these balances.
4.
Asset transactions
Due to the transfer of the Components Division, the Company sold inventories of
electronic components and office equipment amounting to NT$610,962 at book value to Teampo
on August 1, 2001. As of December 31, 2001 and 2002, the related receivables amounting to
$273,508 and $0, respectively, were recorded as other receivables — related parties.
N-20
5.
Consulting service income
The Company provided Teampo with maintenance of the financial accounting and
information system in 2001 and 2002. The service income amounting to NT$5,000 and
NT$6,000 was treated as nonoperating income in 2001 and 2002, respectively.
6.
Service expense
The overseas subsidiaries provided the Company market consulting and product
maintenance and repair services. The details of service expense in 2001, 2002 and 2003 were
as follows:
Acbel-USA. . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.
2001
2002
NT$
NT$
2003
NT$
US$
$30,937
12,711
$49,588
14,650
$58,887
15,264
$1,744
452
$43,648
$64,238
$74,151
$2,196
Notes, accounts receivable (payable), and other receivables
The balances resulting from the above sales, purchases, and other transactions as of
December 31, 2001, 2002 and 2003, were as follows:
2001
Amount
NT$
%
Notes and accounts receivable:
Foxteq . . . . . . . . . . . . . . . . .
Teampo-HK . . . . . . . . . . . . .
Vidar SMS . . . . . . . . . . . . . .
Compal . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . .
Less: allowance for doubtful
debts . . . . . . . . . . . . .
Accounts payable:
Acbel-BVI . . . .
Teampo-HK . . .
Acbel-PHI . . . .
Other . . . . . . . .
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.
7
5
4
3
2
.
(5)
.
.
.
.
Other receivable:
Teampo . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . .
$128,309
84,025
72,801
49,277
42,971
(84,003)
2002
Amount
NT$
%
2003
Amount
NT$
US$
%
4
—
—
4
—
$ 65,430
—
—
58,978
325
4
—
—
7
—
—
—
—
$ 89,517
—
—
143,222
5,586
$ 2,652
—
—
4,242
165
(842)
(25)
16
$293,380
8
$124,733
11
$237,483
$ 7,034
40
—
13
1
$557,830
1,177
188,038
11,334
29
4
13
1
$500,811
65,120
227,146
26,110
27
—
9
1
$715,527
—
241,909
14,687
$21,195
—
7,165
435
54
$758,379
47
$819,187
37
$972,123
$28,795
100
—
295,341
496
95
5
2,104
496
—
—
—
—
—
—
100
$295,837
100
2,600
—
N-21
$
$
—
$
—
8.
Financing
The Company had no financing activities with related parties in 2003 and 2001. In 2002,
the Company’s loans to related parties were as follows:
2002
Maximum
balance
Teampo . . . . .
Ending
balance
$440,000
Interest
rate
—
4%
Interest
income
Period
2002.3.1–2002.9.30
Interest
receivable
5,524
—
The Company did not retain any collateral from Teampo.
9.
Guarantees
As of December 31, 2001, 2002 and 2003, the Company provided bank loan guarantees to
related parties as follows:
December 31,
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . .
Teampo . . . . . . . . . . . . . . . . . . . . . . . . .
Acbel-SGP . . . . . . . . . . . . . . . . . . . . . . .
10.
2001
2002
NT$
NT$
2003
NT$
US$
$1,036,500
150,000
—
$ 790,801
425,435
125,959
$629,370
250,047
—
$18,642
7,407
—
$1,186,500
$1,342,195
$879,417
$26,049
Transfer of business employees
In 2001, the Company transferred the Components Division business and 60 employees to
Teampo. Teampo agreed to recognized their years of service in the Company. Therefore, based
on the actuarial report, the Company in December 2001 paid Teampo the accrued pension
liabilities amounting to NT$7,553.
(16) COMMITMENTS AND CONTINGENCIES
The Company’s significant commitments and contingencies as of December 31, 2003, are summarized
below:
1.
The undue payment for equipment purchase contracts amounted to NT$2,970 (US$88).
2.
See note 15 for guarantees made to related parties.
(17) OTHER
(a)
License agreement
The Company made a license agreement with RO Associates, Inc. (RO). According to the
agreement, the Company will obtain a license to manufacture and sell DC-DC converters. The contract
period is from February 9, 1999 to June 30, 2005. The initial license royalties amounted to US$1,800.
In addition, the Company must pay to RO ongoing license royalties equal to a fixed percentage of the
net sales resulting from the sales of the product mentioned above beginning July 1, 2002.
N-22
(b)
Employee expenses, depreciation expenses, and amortization expenses in 2001, 2002 and
2003 were as follows:
2001
2002
Cost of
Operating
sales
expenses
NT$
NT$
136,293
2003
Cost of
Operating
Total
sales
expenses
Total
NT$
NT$
NT$
NT$
NT$
294,258
430,551
174,094
329,536
503,630
149,100
4,416
434,516
12,871
583,616
17,287
1,144
Cost of sales
Operating expenses
US$
NT$
Total
US$
NT$
US$
Employee expenses
Salaries and wages .
Labor and health
insurance . . . . .
10,483
16,408
26,891
11,884
45,794
57,678
16,331
484
22,270
660
38,601
Pension expense . . .
6,567
12,548
19,115
8,150
16,477
24,627
7,052
209
12,532
391
19,584
580
Other . . . . . . . . . . .
13,144
42,770
55,914
17,589
36,704
54,293
6,180
183
44,814
1,327
50,994
1,510
Depreciation expenses . .
35,488
15,859
51,347
34,926
14,987
49,913
31,030
919
20,875
618
51,905
1,537
Amortization expenses . .
4,073
41,620
45,693
4,127
43,087
47,214
1,406
42
36,427
1,079
37,833
1,121
(18) SEGMENT INFORMATION
(a)
Industrial information
The Company is engaged in a single industry; thus, no industrial information is provided.
(b)
Geographic information
The Company has no overseas operating segments; thus, no geographic information is provided.
(c)
Export sales
Export sales to geographic areas are summarized as follows:
Destination area
Asia . . .
Americas
Europe . .
Other . . .
(d)
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.
2001
2002
NT$
NT$
2003
NT$
US$
$3,034,416
2,148,579
1,146,419
17,504
$1,922,160
2,257,821
1,341,714
15,644
$2,814,557
3,152,445
1,553,573
183,038
$ 83,370
93,378
46,018
5,422
$6,346,918
$5,537,339
$7,703,613
$228,188
Major clients
Sales to individual customers generating over 10% of the total revenue are summarized as
follows:
2001
% of
net sales
2002
Amount
% of
net sales
NT$
A Company . . . . . . . . . . . . .
B Company . . . . . . . . . . . . .
2003
Amount
% of
net sales
NT$
Amount
NT$
US$
8
12
$ 700,347
1,103,935
13
10
$1,031,198
730,188
30
13
$1,044,167
812,870
$30,929
24,078
20
$1,804,282
23
$1,761,386
43
$1,857,037
$35,007
N-23
This page is intentionally left blank
INDEPENDENT AUDITORS’ REPORT
The Board of Directors
Acbel Polytech Inc.:
We have audited the accompanying balance sheets of Acbel Polytech, Inc. as of June 30, 2003 and
2004, and the related statements of income, changes in stockholders’ equity, and cash flows for the sixmonth periods 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 audits.
Except for the facts stated in the third paragraph, we conducted our audits in accordance with auditing
standards generally accepted in the Republic of China and the ‘‘Guidelines for Certified Public
Accountants’ Examinations and Reports on Financial Statements’’. Those rules require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As stated in note 6 to the financial statements, the long-term equity investments accounted for under
the equity method amounting to NT$2,626,375,000 and NT$2,339,434,000 as of June 30, 2003 and 2004,
respectively, and the related investment income of NT$55,997,000 and NT$124,443,000 recognized for the
six-month periods ended June 30, 2003 and 2004, respectively, were based on the investee companies’
unaudited financial statements.
In our opinion, except for the effects of such adjustments, if any, as might have been determined to be
necessary had the investee companies’ financial statements discussed in the third paragraph been audited,
the financial statements referred to in the first paragraph present fairly, in all material respects, the financial
position of Acbel Polytech, Inc. as of June 30, 2003 and 2004, and the results of its operations and its cash
flows for the six-month periods then ended, in conformity with accounting principles generally accepted in
the Republic of China.
The accompanying nonconsolidated financial statements as of and for the six-month period ended
June 30, 2004, have been translated into United States dollars solely for the convenience of the readers. We
have audited the translation, and in our opinion, the nonconsolidated financial statements expressed in New
Taiwan dollars have been translated into United States dollars on the basis set forth in note 2(n) of the notes
to the financial statements.
KPMG
Certified Public Accountants
Taipei, Taiwan
August 4, 2004, except for note 2(n), as to which the date is June 30, 2004
---------------------------------------------------------------------------------------------------The accompanying financial statements are intended only to present the financial position, results of
operations and cash flows in accordance with the accounting principles and practices generally accepted in
the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to
audit such financial statements are those generally accepted and applied in the Republic of China.
P-1
ACBEL POLYTECH INC.
BALANCE SHEETS
JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars)
2003
2004
NT$
ASSETS
Current assets:
Cash and cash in bank . . . . . . . . . . . . . . . . . . . . .
Short-term investments (note 3). . . . . . . . . . . . . . .
Notes and accounts receivable, net (note 4) . . . . . .
Notes and accounts receivable — related parties, net
Other current financial assets (note 13) . . . . . . . . .
Inventories, net (note 5) . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets (note 12) .
4,919,846
7,352,528
217,788
Long-term equity investments (note 6) . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2,626,375
2,339,434
69,296
657,000
210,484
146,215
175,704
37,681
672,165
210,484
153,238
209,753
40,107
19,910
6,235
4,539
6,213
1,188
1,227,084
(258,593)
1,140
1,285,747
(309,852)
12,583
38,085
(9,178)
373
Net property, plant and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
969,631
988,478
29,280
Other assets:
Rental assets, net (note 7) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred expenses and other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
15,542
69,612
218
63,449
6
1,880
85,154
63,667
1,886
$8,601,006
$10,744,107
$318,250
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.
.
Less: accumulated depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepayment for purchase of equipment . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
P-2
$
$
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
193,104
3,862,946
1,794,963
247,875
11,710
1,191,692
50,238
$ 104,619
2,027,514
1,504,166
85,462
6,683
1,135,360
56,042
equipment (note 7):
...............
...............
...............
...............
...............
.
.
.
.
.
.
.
US$
.
.
.
.
.
.
.
Property, plant and
Land . . . . . . . . .
Buildings . . . . . .
Machinery . . . . .
Test equipment . .
Other equipment .
.......
.......
.......
(note 14)
.......
.......
.......
NT$
5,720
114,424
53,168
7,342
347
35,299
1,488
ACBEL POLYTECH INC.
BALANCE SHEETS — Continued
JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars)
2003
2004
NT$
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Short-term loans (note 8) . . . . . . . . . . . . . . . . . . . . . .
Notes and accounts payable . . . . . . . . . . . . . . . . . . . .
Accounts payable — related parties (note 14) . . . . . . . .
Income tax payable (note 12) . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities (note 13) .
Cash dividends payable (note 10) . . . . . . . . . . . . . . . .
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.
.
US$
581,397
1,513,110
1,096,813
189,026
346,784
738,458
$ 17,221
44,820
32,488
5,599
10,272
21,874
.
.
.
.
.
.
$ 340,474
1,272,669
808,279
106,218
241,389
249,547
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,018,576
4,465,588
132,274
Other liabilities:
Accrued pension cost (note 9) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income tax liability (note 12). . . . . . . . . . . . . . . . . . . . . . . . . . .
59,020
32,154
68,493
62,718
2,029
1,858
91,174
131,211
3,887
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,109,750
4,596,799
136,161
Stockholders’ equity (note 10):
Common stock:
Common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stock dividends and bonuses to be distributed . . . . . . . . . . . . . . . . . . . .
3,327,300
364,990
4,119,960
—
122,037
—
3,692,290
4,119,960
122,037
1,013,076
1,371
1,013,076
1,371
30,008
41
1,014,447
1,014,447
30,049
113,143
—
678,032
244,665
14,765
762,330
7,247
437
22,581
791,175
1,021,760
30,265
Capital surplus (note 10):
Paid-in capital in excess of par value . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of property, plant and equipment. . . . . . . . . . . . . . . . .
Retained earnings (note 10):
Legal reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Special reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unappropriated retained earnings. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign currency translation adjustments (note 6) . . . . . . . . . . . . . . . . . . .
(6,656)
$
NT$
(8,859)
(262)
Total stockholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5,491,256
6,147,308
182,089
Commitments and contingencies (notes 14 and 15)
Total liabilities and stockholders’ equity . . . . . . . . . . . . . . . . . . . . . .
$8,601,006
$10,744,107
$318,250
See accompanying notes to financial statements.
P-3
ACBEL POLYTECH INC.
STATEMENTS OF INCOME
SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars,
except net income per share which is expressed in New Taiwan dollars and US dollars)
2003
NT$
2004
NT$
US$
Gross sales (note 14). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Sales returns and allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$4,558,997
84,503
$5,629,831
18,813
$166,760
557
Net sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of sales (notes 14 and 17). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4,474,494
3,334,943
5,611,018
4,331,025
166,203
128,289
Gross profit. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,139,551
1,279,993
37,914
Operating expenses (note 17):
Selling expenses (note 14) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Administrative expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Research and development expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . .
195,909
166,425
156,154
215,647
193,614
184,931
6,388
5,735
5,477
518,488
594,192
17,600
621,063
685,801
20,314
55,997
24,336
10,439
33,835
124,443
23,666
23,314
26,089
3,686
700
691
773
124,607
197,512
5,850
6,770
11,852
1,931
2,596
4,655
349
77
138
10
20,553
7,600
225
Income before income tax. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income tax expense (note 12) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
725,117
106,209
875,713
140,490
25,939
4,161
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 618,908
$ 735,223
$ 21,778
Basic net income per share (note 11) . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.86
$
$
Basic net income per share calculated by adjusting
dividends declared retroactively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
1.50
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Nonoperating income:
Investment income under equity method, net (note 6).
Gain on sale of investments (note 6) . . . . . . . . . . . .
Gain on foreign currency exchange, net (note 13) . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
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.
.
.
Nonoperating expenses and losses:
Interest expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Provision for inventory obsolescence . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
See accompanying notes to financial statements.
P-4
1.78
0.05
ACBEL POLYTECH INC.
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars)
Retained earnings
Balance as of January 1, 2003. . .
Stock
Foreign
bonuses to
currency
Common
be
Capital
Legal
Special
stock
Distributed
Surplus
Reserve
Reserve
Unappropriated
adjustments
NT$
NT$
NT$
NT$
NT$
NT$
NT$
$1,014,447
$ 41,440
$
$3,327,300
$
—
translation
—
$ 758,276
Total
NT$
$ (5,625)
US$
$5,135,838
$152,128
Appropriation:
Legal reserve . . . . . . . . . . . . .
—
—
—
71,703
—
(71,703)
—
—
—
Stock dividends. . . . . . . . . . . .
—
332,730
—
—
—
(332,730)
—
—
—
—
32,260
—
—
—
(32,266)
—
(6)
—
remuneration . . . . . . . . . . .
—
—
—
—
—
(12,906)
—
(12,906)
(382)
Cash dividends . . . . . . . . . . . .
—
—
—
—
—
(249,547)
—
(249,547)
(7,392)
—
—
—
—
—
618,908
—
618,908
18,333
adjustments . . . . . . . . . . . . . .
—
—
—
—
—
—
(1,031)
Balance as of June 30, 2003 . . . .
$3,327,300
$364,990
$1,014,447
$113,143
$
—
$ 678,032
$ (6,656)
$5,491,256
$162,656
Balance as of January 1, 2004. . .
$3,692,290
$
$1,014,447
$113,143
$
—
$1,362,907
$(14,765)
$6,168,022
$182,702
Employees’ bonuses (cash and
stock) . . . . . . . . . . . . . . . .
Directors and supervisors’
Net income for the six-month period
ended June 30, 2003. . . . . . . .
Foreign currency translation
—
(1,031)
(31)
Appropriation:
Legal reserve . . . . . . . . . . . . .
—
—
—
131,522
—
(131,522)
—
—
—
Stock dividends. . . . . . . . . . . .
369,229
—
—
—
—
(369,229)
—
—
—
Special reserve . . . . . . . . . . . .
—
—
—
—
14,765
(14,765)
—
—
—
58,441
—
—
—
—
(58,447)
—
(6)
—
remuneration . . . . . . . . . . .
—
—
—
—
—
(23,379)
—
(23,379)
(692)
Cash dividends . . . . . . . . . . . .
—
—
—
—
—
(738,458)
—
(738,458)
(21,874)
—
—
—
—
—
735,223
—
735,223
21,778
adjustments . . . . . . . . . . . . . .
—
—
—
—
—
—
5,906
5,906
175
Balance as of June 30, 2004 . . . .
$4,119,960
—
$1,014,447
$244,665
$14,765
$ 762,330
$6,147,308
$182,089
Employees’ bonuses (cash and
stock) . . . . . . . . . . . . . . . .
Directors’ and supervisors’
Net income for the six-month period
ended June 30, 2004. . . . . . . .
Foreign currency translation
$
See accompanying notes to financial statements.
P-5
$ (8,859)
ACBEL POLYTECH INC.
STATEMENTS OF CASH FLOWS
SIX-MONTH PERIODS ENDED JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars)
2003
Cash flows from operating activities:
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization. . . . . . . . . . . . . . . . . . . . . . . . . . .
Gain on disposal of short-term investment . . . . . . . . . . . . . . . . . .
Investment income recognized under the equity method . . . . . . . . .
Decrease (increase) in notes and accounts receivable . . . . . . . . . . .
Increase in inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increase in other current financial assets. . . . . . . . . . . . . . . . . . . .
Increase (decrease) in notes and accounts payable . . . . . . . . . . . . .
Increase (decrease) in income tax payable . . . . . . . . . . . . . . . . . .
Increase (decrease) in accrued expenses and other current liabilities.
Increase (decrease) in accrued pension cost. . . . . . . . . . . . . . . . . .
Net change in net deferred income tax assets . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NT$
....
$618,908
$735,223
.
.
.
.
.
.
.
.
.
.
.
.
45,823
(24,336)
(55,997)
(72,976)
(459,216)
(420)
355,384
7,201
(14,376)
3,676
11,890
467
48,821
(23,666)
(124,443)
111,920
(266,474)
(10,136)
(22,028)
(35,398)
872
(246)
32,605
12,991
1,446
(701)
(3,686)
3,315
(7,893)
(300)
(652)
(1,049)
26
(7)
966
384
416,028
460,041
13,627
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.
Cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . .
Cash flows from investing activities:
Decrease (increase) in short-term investments .
Decrease in other receivable — related parties
Additions to property, plant and equipment. . .
Acquisition of long-term equity investments . .
Decrease (increase) in refundable deposits . . .
Increase in deferred expenses and other . . . . .
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2004
NT$
.
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.
.
.
.
.
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.
.
.
.
.
.
.
.
.
.
.
.
Cash provided by (used in) investing activities . . . . . . . . . . . . . . . .
US$
$21,778
36,346
2,551
(12,868)
—
2,719
(10,588)
(2,581,279)
—
(25,186)
(49,381)
(743)
(14,644)
(76,460)
—
(746)
(1,463)
(22)
(433)
18,160
(2,671,233)
(79,124)
Cash flows from financing activities:
Increase (decrease) in short-term loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
Directors and supervisors’ remuneration and employees’ bonuses. . . . . . . . .
(623,784)
—
183,185
(23,379)
5,426
(693)
Cash provided by (used in) financing activities . . . . . . . . . . . . . . .
(623,784)
159,806
4,733
Net decrease in cash and cash in bank . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash in bank at beginning of year . . . . . . . . . . . . . . . . . . . . . . .
(189,596)
294,215
(2,051,386)
2,244,490
(60,764)
66,484
Cash and cash in bank at end of year . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$104,619
$193,104
$ 5,720
Supplementary disclosures of cash flow information:
Cash paid during the period for:
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Supplementary disclosures of noncash investing and financing activities:
Long-term equity investments transferred to short-term investments . . . . . . .
7,041
2,170
$ 87,118
$137,377
$ 4,069
$
$468,844
$13,888
$
—
Accrued employee’s bonuses and directors’ remuneration . . . . . . . . . . . . . .
$ 12,912
$
Cash dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$249,547
$738,458
See accompanying notes to financial statements.
P-6
64
6
—
$21,874
ACBEL POLYTECH INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2003 AND 2004
(expressed in thousands of New Taiwan dollars and US dollars unless otherwise specified)
(1)
ORGANIZATION
Acbel Polytech Inc. (the Company, originally named ‘‘Leadtorn Industrial Inc.’’) was incorporated as
a company limited by shares in July 1981. The Company acquired the ‘‘API Division’’ of Vidar SMS Co.,
Ltd. in September 1996, and changed its name to Acbel Polytech Inc. The Company transferred the
‘‘Components Division’’ to its subsidiary ‘‘Teampo Technology Co. Ltd.’’ on August 1, 2001. The business
activities of the Company are the manufacture and sale of power supplies. The Company’s common shares
were listed on the Taiwan Stock Exchange (TSE) on September 8, 2003.
As of June 30, 2004, the number of employees hired by the Company was approximately 900.
(2)
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements are prepared in accordance with accounting principles and practices generally
accepted in the Republic of China. The significant accounting policies and measurement basis adopted in
preparing the accompanying financial statements are summarized as follows:
(a)
Foreign currency transactions
The Company maintains its books in New Taiwan dollars. Foreign currency transactions are
recorded in New Taiwan dollars at the exchange rates prevailing on the transaction dates. All assets
and liabilities denominated in foreign currencies are translated into New Taiwan dollars at the
exchange rates prevailing on the balance sheet date. Gains or losses resulting from settlement or
translation are recognized as nonoperating income or losses.
The Company’s forward exchange contracts are intended to hedge the risks of changes in foreign
currency exchange rates. Forward exchange contract receivables and payables are recorded in New
Taiwan dollars at the spot rate on the date of contract inception, and the balances on the balance sheet
date are translated into New Taiwan dollars at the prevailing spot rate. Gains or losses resulting from
translation on the balance sheet date are recognized as nonoperating income or losses. The discount or
premium on a forward exchange contract is amortized over the life of the contract.
If a foreign currency options contract is intended to hedge the risks of changes in foreign
currency exchange rates, the related premiums received or paid are accounted for as advance receipts
or prepaid expenses. Gains or losses arising from a change in the fair value of the options contract on
the balance sheet date are recognized as nonoperating income or losses.
(b)
Short-term investments
Short-term investments represent investments in listed stocks and open-end mutual funds, which
are stated at the lower of cost or market value. The cost of sales is determined by using the weightedaverage method. Market values of listed stock are based on the average closing price of the last month
of the accounting period. Market values of open-end mutual funds are based on their net asset value on
the balance sheet date.
(c)
Allowance for doubtful accounts
The allowance for doubtful accounts is based on an aging analysis and the likelihood of
collection of the Company’s accounts receivable balances.
(d)
Inventories
Inventories are stated at the lower of cost or market value. Market value is based either on
replacement cost or on net realizable value.
P-7
(e)
Long-term investments
Long-term investments are accounted for under the equity method when the percentage of
ownership exceeds 20%. Differences between the attributable net equity of the investee and the cost of
the investment accounted for by the equity method which arise at the time investments are made are
deferred and amortized to income or expenses over a period of five years. 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 for the
investment, will be changed. Such difference shall be used to adjust capital surplus or retained
earnings, and long-term equity investments.
Unrealized inter-company profits or losses resulting from transactions between the Company and
its subsidiaries and investees accounted for under the equity method are deferred until realized, or are
amortized based on the useful lives of the assets that give rise to such unrealized profits or losses.
The financial statements of foreign subsidiaries and investees accounted for under the equity
method and reported in foreign currencies are translated into local currency on the balance sheet date.
Translation differences resulting from translation of the financial statements into local currency, net of
income taxes, are recorded as foreign currency translation adjustments, a separate component of
stockholders’ equity. The related translation adjustments will be included in the gain or loss on
disposal of investment when the foreign subsidiary is sold or liquidated.
(f)
Property, plant and equipment
Property, plant and equipment are stated at cost. Excluding land, depreciation of property, plant
and equipment is provided using the straight-line method over the estimated useful lives of the
respective assets.
Property, plant and equipment leased to other parties through operating lease arrangements are
classified as rental assets. Depreciation related to rental assets is accounted for as a reduction of rental
income.
The useful lives of respective assets are summarized as follows:
(g)
1.
Buildings: 3~30 years
2.
Machinery and test equipment: 6~8 years
3.
Other equipment: 3~6 years
Deferred expenses
Costs of computer software and mold equipment are amortized using the straight-line method
over three and two years, respectively. Charges for royalties are deferred and amortized over the
contract periods.
(h)
Retirement plan
The Company has established an employee noncontributory pension plan covering all regular
employees. According to this plan, employees are eligible for retirement or are required to retire after
meeting certain age or service requirements. The retirement benefits are lump-sum payments and are
determined principally by the length of service of the employees. Payments of employee retirement
benefits are based on the years of service and average salary six months before the employee’s
retirement. Each employee will earn two months’ salary for the first 15 years of service and one
month’s salary for each service year after the sixteenth year. The total number of months each
employee can earn is limited to 45 months.
The Company has made monthly cash contributions of 2.5% of salaries and wages incurred to a
pension fund maintained with the Central Trust of China. Retirement benefits are paid first from the
fund and then by the Company if the fund is insufficient.
P-8
The Company has its pension plan actuarially valued on the year-end date and recognizes net
periodic pension cost, including services costs, interest cost, expected return on plan assets and
amortization of net unrecognized transition costs over the average remaining service period of
employees (17 years).
(i)
Income tax
Income tax is calculated based on accounting income. The amount of deferred tax liabilities or
assets is calculated by applying the provisions of enacted tax law to determine the amount of tax
payable or refundable, currently or in future years. The tax effects of taxable temporary differences are
recorded as deferred tax liabilities. The tax effects of deductible temporary differences and tax credits
are recognized as deferred tax assets. An allowance is provided on deferred tax assets that may not be
realized in the future.
Deferred tax assets or liabilities are classified as current or noncurrent based on the classification
of the asset or liability that resulted in the deferred item or, on certain transactions not directly related
to an asset or liability, the timing of recognition of the deferred item for income tax purposes.
Investment tax credits are accounted for using the flow-through method. Therefore, deferred
income tax assets resulting from investment tax credits are recognized in the year in which the credit
arises.
The 10% surtax on undistributed earnings is recorded as current income tax expense after the
resolution to appropriate retained earnings is approved in a stockholders’ meeting.
(j)
Revenue recognition
Revenue derived from product sales is recognized when products are shipped and the significant
risks and rewards of ownership are transferred to the buyer.
(k)
Purchase transactions
The Company’s subsidiary Acbel Ploytech Holdings Inc (Acbel-BVI) provides raw materials to
its subsidiary in mainland China to use in manufacturing. The Company then purchases back the
finished goods through Acbel-BVI and sells them directly to its clients. Although the title to the raw
materials has been transferred, the risk of the raw materials still exists. Pursuant to SFB regulation #6
(00747), the transaction should be regarded as the Company’s providing materials to Acbel-BVI to
manufacture products. The raw materials provided to its subsidiary in China that were not resold to the
Company were recorded as the Company’s inventories.
(l)
Earnings per share
Earnings per share are computed based on the weighted-average number of common shares
outstanding during the year. Earnings per share for prior years are retroactively adjusted to reflect the
effect of stock dividends issued by transferring capital surplus, retained earnings and employees’
bonuses in the current year.
(m) Convenience translation into US dollars
The financial statements are stated in New Taiwan dollars. Translation of the 2004 New Taiwan
dollar amounts into US dollar amounts are included solely for the convenience of the readers, using
the noon buying rate provided by the Bank of Taiwan on June 30, 2004, of $33.76 New Taiwan dollars
to 1 US dollars. The convenience translations should not be construed as representations that the New
Taiwan dollar amounts have been, could have been, or could in the future be, converted into US
dollars at this rate or any other rate of exchange.
P-9
(3)
SHORT-TERM INVESTMENTS
June 30,
2003
2004
NT$
Open-end mutual funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Listed stocks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: allowance for losses on valuation of short-term investments . . . . .
Market value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(4)
NT$
US$
$2,028,603
—
(1,089)
$3,390,317
472,629
—
$100,424
14,000
—
$2,027,514
$3,862,946
$114,424
$2,027,514
$3,952,445
$117,075
NOTES AND ACCOUNTS RECEIVABLE — THIRD PARTIES
June 30,
2003
2004
NT$
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,874
1,507,970
Less: allowance for doubtful debts . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,512,844
(8,678)
$1,504,166
(5)
NT$
$
US$
44,317
1,770,234
1,814,551
(19,588)
$1,794,963
$ 1,312
52,436
53,748
(580)
$53,168
INVENTORIES
June 30,
2003
Raw materials . . . . .
Work-in-process . . .
Finished goods . . . .
Inventories in transit
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Less: allowance for inventory loss . . . . . . . . . . . . . . . . . . . . . . . . . . .
2004
NT$
NT$
$642,233
75,015
414,453
56,648
$737,902
91,762
377,721
61,388
1,188,349
(52,989)
1,268,773
(77,081)
$1,135,360
$1,191,692
US$
$21,857
2,718
11,188
1,819
37,582
(2,283)
$35,299
(a)
As of June 30, 2003 and 2004, inventories were insured for NT$1,534,000 and NT$1,676,000
(US$49,645), respectively.
(b)
The above inventories included raw materials provided to the subsidiary in mainland China that
were not resold to the Company. The net value of these raw materials was NT$348,399 and NT
$402,695 (US$11,928) as of June 30, 2003 and 2004, respectively.
P-10
(6)
LONG-TERM EQUITY INVESTMENTS
June 30,
2003
Ownership
%
2004
Amount
Ownership
%
Amount
NT$
Under the equity method:
Acbel Polytech Holdings Inc. (AcbelBVI) . . . . . . . . . . . . . . . . . . . . .
Teampo Technology Co. Ltd.
(Teampo) . . . . . . . . . . . . . . . . . .
NT$
US$
100
$1,893,264
100
$2,015,519
$59,701
94
739,767
36
335,727
9,945
2,351,246
69,646
2,633,031
Foreign currency translation
adjustments
(6,656)
(11,812)
$2,626,375
(7)
(350)
$2,339,434
$69,296
(a)
The Company established Acbel-BVI as a holding company in June 1996 and invested in
companies as factories in mainland China through a 100%-owned subsidiary, Acbel Polytech
(Singapore) Pte Ltd.
(b)
Net investment income on long-term equity investments accounted for under the equity method
for the six-month periods ended June 30, 2003 and 2004, amounted to NT$55,997 and
NT$124,443 (US$3,686), respectively. The calculation of this income was based on the
investees’ unaudited financial statements.
(c)
On June 29, 2004, the effective date of stock exchange, the Company obtained 10,300 thousand
shares of Synnex Technology Corporation (Synnex) in exchange for 24,720 thousand of the
Company’s shares of Teampo. The Company therefore decreased the ownership of Teampo from
86% to 36%. The book value of stock amounting to NT$468,844 (US$13,888) used to exchange
for the stock of Synnex was transferred to short term investments, including transaction charges
of NT$3,785 (US$112).
PROPERTY, PLANT AND EQUIPMENT AND RENTAL ASSETS
No property, plant and equipment and rental assets were provided as collateral for bank loans. As of
June 30, 2003 and 2004, property, plant and equipment and rental assets were insured for NT$385,000 and
NT$$310,900 (US$9,209), respectively.
(8)
SHORT-TERM LOANS
June 30,
2003
2004
NT$
Usance letters of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commercial paper payable, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Credit loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unused short-term credit lines. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
611
199,863
140,000
NT$
$
22,860
229,819
328,718
US$
$
677
6,807
9,737
$ 340,474
$ 581,397
$ 17,221
$2,594,000
$3,439,000
$101,866
Annual interest rates on short-term loans for the six-month periods ended June 30, 2003 and 2004,
ranged from 1.2% to 1.8% and 1.08% to 1.75%, respectively.
P-11
(9)
PENSIONS
Six-month period ended June 30,
2003
2004
NT$
NT$
US$
Net pension cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
9,792
$ 12,205
$ 361
Pension fund deposits in Central Trust of China on balance sheet date . . .
$104,155
$118,215
$3,502
Accrued pension liability on balance sheet date . . . . . . . . . . . . . . . . . . .
$ 59,020
$ 68,493
$2,029
Vested benefit on balance sheet date . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,506
$ 43,096
$1,277
(10) STOCKHOLDERS’ EQUITY
(a)
Capital
Based on a resolution at the annual stockholders’ meeting held on June 18, 2003, the Company
declared cash dividends amounting to NT$249,547 and increased its capital through the issuance of
stock dividends by transferring retained earnings amounting to NT$332,730 and employees’ bonuses
amounting to NT$32,260. The newly issued shares totaled NT$36,499 thousand shares.
Pursuant to the resolution of the stockholders’ meeting held on April 29, 2004, the Company
increased the authorized common stock to NT$6,200,000 (US$183,649), declared cash dividends
amounting to NT$738,458 (US$21,874), and increased its capital through the issuance of stock
dividends by transferring retained earnings amounting to NT$369,229 (US$10,937) and employees’
bonuses amounting to NT$58,441 (US$1,731). The newly issued shares totaled 42,767 thousand
shares, and the effective date of share issuance was June 16, 2004. The registration procedure related
to this issuance has been completed.
As of June 30, 2003 and 2004, the authorized common stock was NT$3,700,000 and
NT$6,200,000 (US$183,649), respectively, at par value of 10 New Taiwan dollars per share.
(b)
Capital surplus
Pursuant to the ROC Company Law, capital reserve can only be used to offset a deficit or to
increase share capital. A cash dividend can not be declared out of capital reserve. According to SFB
regulations, capital increases effected by transferring additional paid-in capital in excess of par value
should not exceed 10% of total common stock outstanding. In addition, a capital increase by
transferring paid-in capital in excess of par value can occur only once, commencing in the following
year.
(c)
Special reserve
According to the Company’s articles of incorporation, unrealized foreign currency exchange
gains accounted for under Statement of Financial Accounting Standards No. 14 must be set aside as a
special reserve before appropriation. The special reserve shall be transferred to retained earnings upon
realization.
(d)
Legal reserve and limitation on distribution of retained earnings
Based on the Company’s articles of incorporation, 10% of annual net income after offsetting
prior years’ deficits is to be set aside as a legal reserve, and of the remaining balance, 2% is distributed
as remuneration to the directors and supervisors, and 5% as bonus to employees
The remaining balance can be distributed as dividends to stockholders after special reserves are
appropriated, if any.
P-12
Based on the Company’s current dividend policy, part of the distributable earnings may first be
distributed by the way of stock dividends for financing purposes. The remaining balance may be
distributed as cash dividends to stockholders. However, the Company may opt to revise the
distribution proportion of cash dividends if the retained earnings and working capital are sufficient in
the future.
According to SFB regulations, when there is a negative amount in stockholders’ equity during
the year, an amount equal to the negative amount must be appropriated as special reserve from
retained earnings before distribution. The special reserve will be available for dividend distribution
only after the related stockholders’ equity reduction has been reversed.
(11) NET INCOME PER SHARE
Net income per share for the six-month periods ended June 30, 2003 and 2004, was computed as
follows:
Six-month period ended
June 30, 2003
Before
After
income tax income tax
Six-month period ended
June 30, 2004
Before
income tax
After income tax
NT$
NT$
NT$
NT$
US$
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$725,117
$618,908
$875,713
$735,223
$21,778
Weighted-average number of shares outstanding
(thousands). . . . . . . . . . . . . . . . . . . . . . . . . . . . .
332,730
332,730
411,996
411,996
411,996
Net income per share before retroactive adjustments
(New Taiwan dollars) . . . . . . . . . . . . . . . . . . . . .
$
2.18
$
1.86
Weighted-average number of shares outstanding
(thousands), after retroactive adjustments . . . . . . . .
411,996
411,996
Net income per share after retroactive adjustments (New
Taiwan dollars) . . . . . . . . . . . . . . . . . . . . . . . . . .
1.76
1.50
$
2.13
$
1.78
$
0.05
(12) INCOME TAX
(a)
The purchase of machinery through proceeds from common stock issuance met the prescribed
criteria under the ‘‘Statute for Upgrading Industries’’ in the following years:
Year
Tax exemption products
Tax exemption chosen
Tax exemption period
2002 . . .
Power Supply products
Tax exemption on the Company’s
corporate income taxes for
five years
January 1, 2003~December 31,
2007
2003 . . .
Research and design technology
for power supply products
Tax exemption on the Company’s
corporate income taxes for
five years
Subject to approval from tax
authorities
P-13
(b)
The Company’s income is subject to an income tax rate of 25%. The income tax expense was as
follows:
Six-month
period ended
June 30, 2003
NT$
Current income tax expense . . . . . . . . . . . . . . . . . . . . . . . . .
10% surtax on unappropriated earnings . . . . . . . . . . . . . . . . .
Deferred income tax expense:
Provision for inventory loss . . . . . . . . . . . . . .
Decrease in investment tax credit . . . . . . . . . .
Investment loss on long-term equity investment,
Unrealized sales allowance . . . . . . . . . . . . . . .
Increase (decrease) in valuation allowance . . . .
Other deferred income tax benefits . . . . . . . . .
...
...
net
...
...
...
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(c)
$ 85,996
8,323
$ 58,886
48,999
$1,744
1,451
94,319
107,885
3,195
(2,963)
74,202
(843)
(22,916)
(5,358)
(30,232)
(1,163)
—
20,424
—
17,343
(3,999)
(34)
—
605
—
514
(119)
11,890
32,605
966
$106,209
$140,490
$4,161
The reconciliation of the differences between expected income tax computed at the statutory
income tax rate and income tax expenses are summarized as follows:
Six-month
period ended
June 30, 2003
NT$
Expected income tax on income before tax . . . . . . . . . . . . . .
Domestic investment income recognized under equity method .
Gain on disposal of securities exempt from tax . . . . . . . . . . .
Investment tax credits . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
Income tax expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(d)
Six-month period ended
June 30, 2004
NT$
US$
Six-month period ended
June 30, 2004
NT$
US$
$181,269
(14,842)
(6,084)
(35,693)
(18,441)
$218,918
(10,687)
(5,917)
(30,072)
(31,752)
$6,485
(317)
(175)
(891)
(941)
$106,209
$140,490
$4,161
Deferred tax assets (liabilities) as of June 30, 2003 and 2004, comprised the following:
June 30,
2003
NT$
Deferred tax assets:
Allowance for inventory loss . .
Unrealized sales allowance . . . .
Pension cost over the limitation
Other . . . . . . . . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred tax liabilities:
Investment income recognized under the equity method (overseas).
Loss reserve on outward investment. . . . . . . . . . . . . . . . . . . . . .
$ 13,247
22,916
14,747
2,685
$ 19,270
26,620
17,095
1,472
US$
$ 571
789
506
43
53,595
(9,482)
64,457
(26,825)
1,909
(794)
44,113
37,632
1,115
(11,434)
(20,720)
(41,998)
(20,720)
(1,244)
(614)
(32,154)
(62,718)
(1,858)
$(25,086)
$ (743)
$37,632
(62,718)
$1,115
(1,858)
$(25,086)
$ (743)
Net deferred income tax assets (liabilities) . . . . . . . . . . . . . . . . .
$ 11,959
Net deferred income tax assets — current. . . . . . . . . . . . . . . . . .
Net deferred income tax liabilities — noncurrent . . . . . . . . . . . . .
$44,113
(32,154)
$ 11,959
P-14
2004
NT$
(e)
The ROC tax authorities have assessed the Company’s income tax returns through 2001.
(f)
Imputation credit account and creditable ratio.
Beginning in 1998, the corporate income tax paid at the corporate level can be used to offset the
resident shareholders’ individual income tax. The amount of imputation credit which
shareholders can claim depends on total corporate income tax paid at the corporate level.
Beginning in 1998, corporations have been required to set up an imputation credit account (ICA)
to keep track of the corporate income taxes paid and the imputation credit they have allocated
for shareholders. In addition, the creditable ratio, which represents the imputation credit per
dollar of accumulated retained earnings, shall be calculated for resident shareholders when
corporations declare dividends.
The ICA balance as of June 30, 2004 and 2003, and the creditable ratio for 2003 and 2002 are as
follows:
June 30,
2003
2004
NT$
NT$
US$
Year of unappropriated retained earnings:
1998 and after . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$678,032
$777,095
$23,018
Imputation credit account balance . . . . . . . . . . . . . . . . . . . . . .
98,822
4,503
133
Creditable ratio for earnings distribution to resident shareholders.
2003
2004
13.03% (actual)
16.53% (actual)
(13) RELATED INFORMATION ABOUT FINANCIAL INSTRUMENTS
(a)
Derivative financial instruments
As of June 30, 2003 and 2004, the details of the derivative financial instruments were as follows:
1.
Foreign currency options and forward exchange contracts (in thousands of New Taiwan
and US dollars)
June 30, 2003
Financial Instruments
USD forward foreign
exchange contracts
sold . . . . . . . . . . . .
USD put options sold. .
USD put options bought
Nominal
amount
Transaction
period
Maturities
USD6,000 June 18,
2003
July 18~July
21, 2003
USD101,500 January
23~June 27,
2003
USD1,000 June 27,
2003
July
8~December
31, 2003
July 15, 2003
P-15
Strike rate
USD/NTD
34.485~34.515
USD/NTD
34.9~35.5
USD/NTD
34.85
Fair value
NTD(625)
Credit
risk
—
NTD1,769 NTD1,769
NTD(14)
—
June 30, 2004
Financial Instruments
USD forward foreign
exchange contracts
sold . . . . . . . . . . . .
USD forward foreign
exchange contracts
sold . . . . . . . . . . . .
USD put options sold. .
USD put options sold. .
USD put options bought
USD put options bought
2.
Nominal
amount
Transaction
period
Maturities
Strike rate
Fair value
USD34,000 January
July 9~August
14~June 10, 16, 2004
2004
USD1,000 June 4, 2004 August 6, 2004
USD/NTD
32.996~33.600
NTD(16,518)
USD86,500 January
14~June
2004
USD2,500 June
10~June
2004
USD36,000 January
14~June
2004
USD2,500 June
10~June
2004
USD/NTD
32.688~34.100
17,
July 6~October
7, 2004
11,
August 16,
2004
10,
July 6~August
17, 2004
11,
August 16,
2004
USD/JPY
111
NTD704
Credit
risk
—
NTD704
NTD7,709 NTD7,709
USD/JPY
111~111.25
NTD(412)
USD/NTD
32.688~33.55
NTD7,466 NTD7,466
USD/JPY
111~111.25
NTD1,126 NTD1,126
Credit risk
The amount of the credit risk is a potential loss of the Company if the counterpart involved
in that transaction defaults. Since the Company’s derivative financial instrument agreements are
entered into with financial institutions with good credit ratings, management does not believe
that there is significant credit risk from these transactions.
3.
Market risk
The purpose of the derivative financial instruments is to hedge the exchange rate and
interest rate risk. Therefore, the gains or losses resulting from changes in exchange rates and
interest rate will be offset by those from the hedged item. Management believes that the related
market risk is not significant.
4.
Liquidity risk (in thousands of dollars)
The Company will have cash inflows and outflows within the periods shown below. There
are no financing risks due to expected sufficient foreign currency received from accounts
receivable. Management believes that the cash flow risk is not significant because contracted
option and contracted foreign currency exchange rates are fixed. Management believes that the
cash flow risk of foreign currency option contracts is not significant because these contracts are
settled in net amount on the exercise date.
June 30, 2003
Financial instruments
Date
USD forward exchange contracts sold
July 18~July 21,
2003
P-16
Cash
outflow
USD6,000
Cash inflow
NTD207,000
June 30, 2004
Financial instruments
Date
USD forward exchange contracts sold
July 9~August
16, 2004
August 6, 2004
USD forward exchange contracts sold
5.
Cash
outflow
Cash inflow
USD34,000
NTD1,130,247
USD1,000
JPY111,000
The categories and objectives of the derivatives, and strategies to accomplish the
underlying objectives
The derivative financial instrument contracts held by the Company are for the purpose of
hedging the risks that may result from changes in exchange rates of foreign currency assets and
liabilities and interest rates rather than for the purpose of trading. The hedging strategies of the
Company are to hedge the market risk to the highest extent possible. The Company uses
derivatives that are highly correlated to the changes in fair values of the hedged items as hedging
instruments.
6.
Presentation of financial statements
The receivables and payables derived from foreign currency forward contracts were offset
against each other, and the net amount was accounted for as other current financial assets or
liabilities. The net forward foreign currency exchange contracts receivable and payable were
payable of NT$840 and receivable of NT$3,593 (US$106) as of June 30, 2003 and 2004,
respectively.
The net exchange gain resulting from derivative financial instruments for the six-month
periods ended June 30, 2003 and 2004, amounting to NT$9,584 and NT$19,588 (US$580),
respectively, was included in nonoperating income in the accompanying statements of income.
7.
Fair value of derivative financial instruments
The fair value of a derivative is the expected receivable or payable amount assuming that
the contract is terminated on the balance sheet date. Generally, the unrealized gain or loss on
open contracts is included in the fair value. The above fair value estimates were based on quotes
from financial institutions.
(b)
Nonderivative financial instruments
As of June 30, 2003 and 2004, the book values of nonderivative financial instruments not the
same as market value were as follows:
June 30, 2003
Nonderivative financial
instruments:
Short-term investments.
Long-term equity
investments . . . . . .
June 30, 2004
Book value
Fair value
Book value
NT$
NT$
$2,027,514
$2,027,514
$3,862,946
$114,424
$3,952,445
$117,075
2,626,375
—
2,339,434
69,296
—
—
NT$
Fair value
US$
NT$
US$
The fair values of financial instruments are estimated based on the following assumptions:
(i)
The book values of short-term financial instruments — cash and cash in bank, notes and
accounts receivable, short-term loans, notes and accounts payable, and accrued expenses
— were similar to their fair market values on the balance sheet date.
P-17
(ii)
The fair values of equity securities and open-end mutual fund are based on the average
closing price of the last month of the accounting period and the net asset value on the
balance sheet date, respectively.
(iii) None of the Company’s long-term equity investments are public listed. No publicly quoted
prices are available for these investments.
(14) RELATED-PARTY TRANSACTIONS
(a)
Names of the related parties and relationships
Related Party
Relationship
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teampo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acbel Polytech (Singapore) Pte. Ltd. (Acbel-SGP) .
Acbel Polytech Philippines Inc. (Acbel-PHI) . . . . .
Acbel Polytech (USA) Inc. (Acbel-USA) . . . . . . .
Teampo Technology (H.K.) Co. Ltd. (Teampo-HK)
Compal Electronics Inc. (Compal) . . . . . . . . . . . .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Foxteq Integration Inc. (Foxteq) . . . . . . . . . . . . . . . . .
(b)
100%-owned subsidiary
Investee company accounted for under the equity method
100% owned by Acbel-BVI
100% owned by Acbel-BVI
100% owned by Acbel-BVI
Subsidiary of Teampo
Compal’s chairman of the board of directors is the same as
the Company’s
Its subsidiary is a Company director.
Summary of significant transactions with related parties
1.
Sales
Six-month period ended
June 30, 2003
% of net
sales
Amount
Six-month period ended
June 30, 2004
% of net
sales
Amount
NT$
Foxteq . . . . . . . . . . . . . . . .
Compal . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . .
NT$
US$
4
1
—
$156,750
67,681
8,230
9
1
—
504,482
80,066
2,214
14,943
2,372
65
5
$232,661
10
586,762
17,380
There were no significant differences in the terms of collection and pricing on sales to
related parties and other customers.
2.
Purchases
Six-month period ended June
30, 2003
% of net
purchase
Amount
Six-month period ended
June 30, 2004
% of net
purchase
Amount
NT$
Acbel-PHI . . . . . . . . . . . . .
Teampo . . . . . . . . . . . . . . .
Teampo-HK . . . . . . . . . . . .
NT$
US$
12
8
—
$362,186
231,417
4,722
9
7
—
387,281
280,286
—
11,472
8,302
—
20
$598,325
16
667,567
19,774
There were no significant differences in payment period and purchase price between
related parties and other suppliers, except that the payment period for Acbel-PHI is subject to its
capital requirements.
P-18
3.
Processing with related parties
Six-month
period ended
June 30, 2003
NT$
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Six-month period ended
June 30, 2004
NT$
$341,543
US$
339,461
10,055
The Company supplies materials to the assembly factory in mainland China (Acbel
Electronic (Dong Guan) Co., Ltd.) to manufacture products through Acbel-BVI. The Company
then purchases back the finished goods after assembly from Acbel Electronic (Dong Guan) Co.,
Ltd. through Acbel-BVI. The raw materials provided by the Company and purchased back as
finished goods amounted to NT$2,207,307 and NT$2,891,124 (US$85,638) for the six-month
periods ended June 30, 2003 and 2004, respectively. The recognized revenue and costs resulting
from those transactions are offset in the accompanying financial statements, and the difference is
treated as assembly expense. The Company settles the receivables together with the payables in
respect of the above transaction after the monthly closing of these balances.
4.
Service expense
The overseas subsidiaries provided market consulting and product maintenance and repair
services. The details of service expense for the six-month periods ended June 30, 2003 and 2004,
were as follows:
Six-month
period ended
June 30, 2003
NT$
Acbel-USA. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
Six-month period ended
June 30, 2004
NT$
US$
$30,919
7,997
15,627
3,271
463
97
$38,916
18,898
560
Notes and accounts receivable (payable)
The balances resulting from the above sales, purchases, and other transactions as of June
30, 2004 and 2003, were as follows:
June 30,
2003
%
Notes and accounts
receivable: . . . .
Foxteq . . . . . . .
Compal . . . . . .
Other . . . . . . . .
10
2
—
—
$ 197,022
46,813
4,040
—
5,836
1,386
120
—
Less: allowance for
doubtful debts. . . .
5
$85,462
12
$ 247,875
7,342
22
10
7
—
$462,680
205,205
140,153
241
25
10
7
—
$ 644,956
261,886
189,971
—
19,104
7,757
5,627
—
39
$808,279
42
$1,096,813
32,488
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
US$
$49,756
35,532
234
(60)
.
.
.
.
.
.
.
.
Amount
NT$
3
2
—
—
.
.
.
.
.
.
.
.
%
.
.
.
.
Accounts payable:
Acbel-BVI . . . .
Acbel-PHI . . . .
Teampo . . . . . .
Other . . . . . . . .
.
.
.
.
2004
Amount
NT$
.
.
.
.
.
.
.
.
P-19
6.
Guarantees
As of June 30, 2003 and 2004, the Company provided bank loan guarantees to related
parties as follows:
June 30, 2003
Acbel-BVI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Teampo . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acbel-SGP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 30, 2004
NT$
NT$
US$
$554,480
254,714
125,600
1,108,968
169,050
—
32,849
5,007
—
$934,794
1,278,018
37,856
(15) COMMITMENTS AND CONTINGENCIES
The Company’s significant commitments and contingencies as of June 30, 2004, are summarized
below:
1.
The unused balance of the Company’s letters of credit and the nondue payment for overseas
equipment purchase contracts was NT$47,507 (US$1,407).
2.
See note 14 for guarantees made to related parties.
(16) SUBSEQUENT EVENTS
The Company sold 17,701 thousand shares of Teampo stock for NT$25 per share on August 2, 2004.
The gain of this transaction was NT$102,112 (US$3,025).
(17) OTHER
(a)
License agreement
The Company made a license agreement with RO Associates, Inc. (RO). According to the
agreement, the Company will obtain a license to manufacture and sell DC-DC converters. The contract
period is from February 9, 1999, to June 30, 2005. The initial license royalties amounted to US$1,800.
In addition, the Company must pay to RO ongoing license royalties equal to a fixed percentage of the
net sales resulting from the sales of the product mentioned above beginning July 1, 2002.
(b)
Issuance of overseas on secured convertible bonds
In order to meet the needs of overseas procurement of raw materials, diversify, and globalize its
funding channel, the Company’s board of directors determined to issue overseas unsecured convertible
bonds with an upper limit of US$60,000 on April 29, 2004. The application for issuance was approved
by the SFB on June 4, 2004. As of June 30, 2004, the convertible bonds were not issued.
P-20
(c)
Employee expenses, depreciation expenses, and amortization expenses for six-month
periods ended June 30, 2003 and 2004, were as follows:
Six-month period ended June
30, 2003
Employee expenses
Salaries and
wages . . . . .
Labor and health
insurance . . .
Pension expense
Other . . . . . . . .
Depreciation
expenses . . . . .
Amortization
expenses . . . . .
Cost of
sales
Operating
expense
Total
NT$
NT$
NT$
Six-month period ended
June 30, 2004
Cost of sales
NT$
Operating expense
US$
NT$
US$
Total
NT$
US$
$ 74,508
205,928
280,436
78,445
2,324
236,307
7,000
314,752
9,324
5,201
3,553
3,556
10,884
6,239
19,328
16,085
9,792
22,884
5,104
3,554
2,126
151
105
63
12,207
8,651
25,362
362
256
751
17,311
12,205
27,488
513
361
814
15,880
10,601
26,481
14,889
441
12,161
360
27,050
801
761
18,581
19,342
717
21
21,054
624
21,771
645
P-21
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APPENDIX A — THE SECURITIES MARKET OF THE ROC
The information presented in this appendix has been extracted from publicly available documents
which have not been prepared or independently verified by us, the Manager, the Trustee, the Agents or any
of their respective affiliates or advisors in connection with the offering.
In 1960, the ROC Government established the Securities and Exchange Commission to supervise and
control all aspects of the securities market. The Securities and Exchange Commission of the ROC was
restructured in early 1997 and renamed as the ROC SFC. In the 1970’s and the early 1980’s, the ROC
Government implemented a number of steps designed to upgrade the quality and importance of the ROC
securities market, such as encouraging listing on the TSE and establishing an over-the-counter market. In
the mid-1980’s, the ROC Government began to revise its laws and regulations in a manner designed to
facilitate the gradual internationalization of the ROC securities market. Prior to July 1, 2004, the Ministry of
Finance (‘‘MOF’’) was responsible for supervising and regulating Taiwan’s banking, securities, insurance
and bills finance industries, including financial holding companies. Different subordinated agencies under
the MOF (the Bureau of Monetary Affairs, the Securities and Future Commission and the Department of
Insurance) undertake the responsibility of regulating banking, securities, insurance and bills finance
industries separately.
However, due to the inadequacy of such consolidated supervision, the Executive Yuan has formulated
the Executive Yuan Financial Supervision Committee Organizational Act to establish a single financial
supervisory agency and such Act has taken effect since July 1, 2004. Under this Act, the financial
supervision relating to banking, securities, insurance, bills finance industries and financial holding
companies, which were previously conducted by different regulatory agencies under the MOF, is transferred
to the Financial Supervisory Commission (‘‘FSC’’), an independent agency under the Executive Yuan of the
ROC government.
On and after July 1, 2004, three subordinated bureaus under the FSC, the Bureau of Monetary Affairs,
Securities and Futures Bureau (‘‘ROC SFB’’) and Insurance Bureau, are responsible for supervising and
regulating Taiwan’s banking, securities, insurance and bills finance industries, including financial holding
companies.
The Taiwan Stock Exchange
In 1961, the ROC SFB established the TSE to provide a marketplace for securities trading. The TSE is
a corporation owned by government-controlled entities and private banks and enterprises. The TSE is
independent of entities transacting business through it, each of which pays a user’s fee. Generally, all
transactions in listed securities by brokers, traders and integrated securities firms must be made through the
TSE.
The TSE commenced operations in 1962. During the early 1980s, the ROC SFB actively encouraged
new listings on the TSE and the number of listed companies grew from 119 in 1983 to 669 by December 31,
2003. As of December 31, 2003, the market capitalization of companies listed on the TSE was
approximately NT$12,868 billion.
Historically, Taiwan companies have listed only shares and bonds on the TSE. However, the ROC
SFB has encouraged companies to list other types of securities. In 1988, the ROC SFB permitted the
issuance of the Taiwan’s first exchangeable bonds. Since 1989, there have been offerings of domestic
convertible bonds and convertible preferred shares. In addition, beneficiary units evidencing beneficiary
interests in closed-end investment funds and debt instrument issued by international financial institutions,
such as Asian Development Bank, warrants and Taiwan depositary receipts are also listed on the TSE.
The TSE requirements for listing are based on the following company attributes:
"
the number and distribution of stockholders;
"
length of time in business;
"
amount of capital; and
A-1
"
profitability.
However, special listing criteria apply to technology companies and key businesses engaging in
national economic development.
The GreTai Securities Market
To complement the TSE, the GTSM was established in September 1982 on the initiative of the ROC
SFB to encourage the trading of securities of companies who do not qualify for listing on the TSE. As of
September 30, 2004, 454 companies have listed equity securities on the GTSM and the total market
capitalization of those companies was NT$1,201 billion.
In addition, the Emerging Market was established on January 2, 2002 on the initiative of the ROC SFB
to encourage trading of securities of companies that do not qualify for listing on the TSE or the GTSM. The
price of shares is decided by negotiation between securities firms and investors. As of December 31, 2003,
248 companies have registered equity securities on the Emerging Market.
The following table sets forth, for the periods indicated, certain information relating to the GTSM
Index:
Number of listed
companies at
period end
Period ended
Trading
value
Index high
Index low
Index at
period end
(in millions of NT Dollars)
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
............
............
............
............
............
............
............
............
............
(until September
...
...
...
...
...
...
...
...
...
30)
.
.
.
.
.
.
.
.
.
.
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.
41
79
114
176
264
300
333
384
423
454
2,796
453,509
2,310,659
1,198,158
1,899,925
4,479,663
2,326,889
2,794,724
2,059,385
2,986,113
101.96
234.83
343.99
281.41
207.18
329.47
136.23
163
117.99
160.13
94.02
99.92
210.22
163.89
138.99
99.86
106.74
89.71
79.56
105.24
101.96
233.09
245.05
165.80
207.18
104.93
136.23
94.38
117.31
112.74
Sources: GTSM Monthly Review; GTSM Data Base; Taiwan Economic Journal
Taiwan Stock Exchange Index
The TSE Index is calculated on the basis of a wide selection of listed shares weighted according to the
number of shares outstanding. This weighted average method is also used for the Standard and Poor’s Index
in the United States and the Nikkei Stock Average in Japan. The TSE Index is compiled by dividing the
market value by the base day’s total market value for the index shares. The TSE Index is the oldest and most
widely quoted market index in Taiwan.
The weighting of shares in the index is fixed as long as the number of shares outstanding remains
constant. When the total number of shares outstanding changes, the weight of each stock is adjusted. Stock
splits and stock dividends are adjusted automatically. Cash dividends are not included in the calculation.
A-2
The following table shows for the periods indicated information relating to the TSE Index.
Number of listed
companies at
period End
Period Ended
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
............
............
............
............
............
............
............
............
............
............
............
............
............
(until September
...
...
...
...
...
...
...
...
...
...
...
...
...
30)
.
.
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221
56
285
313
347
375
404
437
462
474
584
638
669
661
Index high
4,305.22
5,391.63
6,070.56
7,183.75
7,051.49
6,982.81
10,116.84
9,277.09
8,608.91
10,202.20
6,104.24
6,462.30
6,142.32
7,034.1
Index Low
3,316.26
3,327.67
3,135.56
5,194.63
4,503.37
4,690.22
6,820.35
6,251.38
5,475.00
8,349.91
3,446.26
3,850.04
4,139.50
5,316.87
Index at
period End
3,377.06
4,600.67
6,070.56
7,124.66
5,173.73
6,933.94
8,187.27
6,418.43
8,448.84
8,842.63
5,551.24
4,452.45
5,890.69
5,845.69
Source: Status of Securities Listed on Taiwan Stock Exchange and Taiwan Economic Journal
As indicated above, the performance of the TSE has in recent years been characterized by extreme
price volatility.
Price Limits, Commissions, Transaction Tax and Other Matters
The TSE has placed limits on block trading and on the range of daily price movements. Transactions
that involve 500 trading lots or more must be registered and executed pursuant to certain TSE guidelines.
Fluctuations in the price of stock traded on the TSE are currently subject to a restriction of 7% above and
below the previous day’s closing price (or reference price set by the TSE if the previous day’s closing price
is not available because of lack of trading activity) in the case of equity securities, and 5% in the case of
debt securities. Brokerage commissions are proposed by the TSE and approved by the ROC SFB. The
current approved maximum brokerage commission is 0.1425% of the transaction price for equity securities;
however, a lower rate may be charged to clients by securities firms at their sole discretion, provided that
they must report such rate to the TSE. A securities transaction tax, currently levied at the rate of 0.3% of the
transaction price, is payable by the seller of equity securities and a tax at the rate of 0.1% of the transaction
price is payable by the seller of debt securities other than government bonds. Such securities transaction
taxes are withheld at the time of the transaction giving rise to such taxes. According to the amended Statute
for Upgrading Industries effective as of February 1, 2002, no securities transaction tax will be imposed on
the sale of the corporate bonds and financial debentures, including Bonds from February 1, 2002 to
December 31, 2009. Sales of shares of companies listed on the TSE are currently sold in lots of 1,000
shares. Odd lot trading, or the purchase or sale of less than 1,000 shares, can be conducted in after-hours
trading. Investors who desire to sell odd lots of shares of a listed company occasionally experience delays in
effecting such sales.
Regulation and Supervision
The ROC SFB has extensive regulatory authority over companies listed on the TSE, companies whose
shares are traded on the GTSM and unlisted public-issue companies. Such companies are generally required
to obtain approval from, or registration with, the ROC SFB for all securities offerings. The ROC SFB has
promulgated regulations requiring, unless otherwise exempted, periodic reporting of financial and operating
information by all public-issue companies. In addition, the ROC SFB is responsible for the establishment of
standards for financial reporting and carries out licensing and supervision with respect to the other
participants in the ROC securities markets. The ROC SFB has responsibility for implementation of the ROC
Securities and Exchange Law and for overall administration of governmental policies in the ROC securities
markets. It has extensive regulatory authority over the offering, issuing and trading of securities. In
addition, the ROC Securities and Exchange Law specifically empowers the ROC SFB to promulgate rules
under certain circumstances.
A-3
The ROC Securities and Exchange Law prohibits market manipulation. It permits a company to
recover certain short swing trading profits made through purchases and sales within six months by directors,
managerial personnel, supervisors and shareholders, together with their spouses, minor children and
nominees, holding 10% or more of our shares, as well as spouses, minor children and nominees of these
parties. The ROC Securities and Exchange Law prohibits trading by ‘‘insiders’’ based on non-public
information that materially affects share price movement. Pursuant to the ROC Securities and Exchange
Law, the term ‘‘insiders’’ includes directors, supervisors, managers and shareholders (together with their
spouses, minor children and nominees) having more than 10% or more shareholding, as well as spouses,
minor children and nominees of the parties, or any person who has learned such information due to an
occupational or controlling relationship with the issuing company and any person who has learned such
information from any of the foregoing. Sanctions can include prison terms. In addition, damages may be
awarded to persons injured by the transaction.
The ROC Securities and Exchange Law also imposes criminal liability on certified public accountants
and lawyers who make false certifications in their examination and audit of a company’s contracts, reports
and other evidentiary documents that are related to securities transactions. ROC SFB regulations require
that financial reports of listed companies be audited by accounting firms consisting of at least three certified
public accountants and be signed by at least two certified public accountants.
The ROC Securities and Exchange Law also provides for, among other things, regulations relating to
public offerings of securities; measures to strengthen the capital structure of issuers; civil liability for
material misstatements or omissions made by issuers; more stringent regulation of the securities activities of
officers, supervisors, directors and major shareholders of issuers; regulations regarding tender offers; and a
significant expansion of the prohibitions against insider trading, including the imposition of treble civil
damages and criminal sanctions.
The ROC SFB does not have criminal or civil enforcement powers under the ROC Securities and
Exchange Law. Criminal actions may be pursued only by prosecutors. Under ROC law, civil actions may
only be brought by plaintiffs who assert that they have suffered damages. The ROC SFB is directly
empowered to curb abuses and violations of applicable laws and regulations only through administrative
measures.
In addition to providing a market for securities trading, the TSE has primary responsibility for
reviewing applications by issuers to list securities on the TSE and the GTSM has primary responsibility for
reviewing applications by issuers to list securities on the GTSM. The ROC SFB reviews all securities
offerings by listed companies. If issuers of listed securities violate relevant laws and regulations or
encounter significant difficulties, the TSE and the GTSM may, with the approval of the ROC SFB, delist
securities of such issuers.
A-4
APPENDIX B — FOREIGN INVESTMENT AND EXCHANGE CONTROLS IN THE ROC
The information presented in this appendix has been extracted from publicly available documents
which have not been prepared or independently verified by us, the Manager, the Trustee, the Agents or any
of their respective affiliates or advisors in connection with the offering.
Foreign Investment
Historically, foreign investment in the ROC securities market has been restricted. From 1983 onwards,
however, the ROC Government has from time to time enacted legislation and adopted regulations to make it
possible for non-ROC persons (other than PRC person) to invest in the ROC securities market.
On September 30, 2003, the ROC Executive Yuan approved the amendment to Regulations Governing
Investment in Securities by Overseas Chinese and Foreign National (‘‘Regulations’’) which took effect on
October 2, 2003. According to the Regulations, the ROC SFB abolished the mechanism of the so called
‘‘qualified foreign institutional investors’’ and ‘‘general foreign investor’’ as stipulated in the Regulations
before the amendment.
Under the Regulations, foreign investors are classified as ‘‘onshore foreign investors’’ and ‘‘offshore
foreign investors’’ according to their respective geographical location. Both onshore and offshore foreign
investors are allowed to invest in ROC securities after they register with the TSE. The Regulations further
classify foreign investors into foreign institutional investor and foreign individual investors. ‘‘Foreign
institutional investors’’ refer to those investors incorporated and registered in accordance with foreign laws
outside the ROC (i.e., offshore foreign institutional investors) or their branches set up and recognized within
the ROC (i.e., onshore foreign institutional investors). In addition, offshore foreign institutional investors
have to apply for a prior approval from the CBC for foreign exchange conversion purpose before they can
register with TSE. This requirement was further abolished by an amendment to the Regulations dated June
15, 2004. Currently, offshore overseas Chinese and foreign institutional investors are no longer required to
apply for CBC’s approval. Offshore overseas Chinese and foreign individual investors are not required to
apply for the CBC’s approval, but a maximum investment quota will be separately set by the ROC SFB after
consultation with the CBC. On the other hand, foreign institutional investors are not subject to any ceiling
for investment in the ROC securities market.
Overseas Corporate Bonds
Since 1989, the ROC SFB has approved a series of overseas corporate bond issues (‘‘OCBs’’) by ROC
companies listed on the TSE in offerings directed outside the ROC. Since December 1994, the ROC SFB
has also permitted ROC companies whose shares are traded on the GTSM to issue and offer OCBs. In 2002,
the ROC SFB further permitted public-issue companies to issue OCBs on a private placement basis.
Under the current ROC laws and policies, OCBs can be converted by bondholders (other than PRC
persons) into shares of the relevant ROC companies or (subject to the ROC SFB approval) may be converted
into depositary receipts issued under the sponsorship of the same ROC company or the shares of other
companies, in case of exchangeable bonds.
Under current ROC law, a non-ROC converting bondholder when exercising the conversion right to
convert the bonds into shares of an ROC company is required to register with TSE and is required to appoint
a local agent (with such qualifications as are set by the ROC SFB) to open a securities trading account with
a local brokerage firm, pay ROC withholding taxes, remit funds, exercise shareholders’ rights and perform
such other actions as may be designated by such converting bondholder, on behalf of and as agent for such
converting bondholder. In addition, the converting bondholder is required to appoint a custodian bank to
hold the securities and cash proceeds in safekeeping, make confirmations and settle trades and report all
relevant information and such converting bondholder is also required to appoint a tax guarantor for filing
tax returns and making tax payments.
Unless otherwise limited by the CBC, an ROC Company may, without obtaining further approvals
from the CBC or any other government authority of the ROC, convert NT Dollars to other currencies,
including U.S. Dollars, in respect of the proceeds of the redemption of the Bonds or payment of interest on,
or the repayment of principal upon maturity of, the Bonds. However, a converting bondholder must obtain
B-1
prior approval from the Central Bank of China on a payment-by-payment basis for conversion from NT
Dollars into other currencies in respect of the proceeds from the sale of subscription rights for newly issued
Shares if the proceeds is in excess of U.S.$100,000 per remittance.
In addition, a non-ROC converting bondholder may, through its local agent and without obtaining
prior approval from the CBC, convert NT Dollars into foreign currencies of net proceeds realized from the
sale of the converted shares or any stock dividends relating to such shares, or any cash dividend or other
cash distribution in respect of such shares, as well as for inward remittances of subscription payments in
connection with a rights offering and tax payment.
Depositary Receipts
In April 1992, the ROC SFB promulgated regulations permitting ROC companies with securities listed
on the TSE, with the prior approval of the ROC SFB, to sponsor the issuance and sale to foreign investors of
depositary receipts. Depositary receipts evidence depositary shares representing deposited shares of ROC
companies. In December 1994, a series of new regulations (the ‘‘New Regulations’’) was promulgated by
the ROC FSC further allowing companies whose shares are traded on the GTSM to sponsor, upon approval
by the ROC SFB, the issuance and sale of depositary receipts. In 2002, the ROC SFB further permitted
public companies to participate the issuance of depository receipts on a private placement basis.
The New Regulations, as amended, provide that any depositary receipt holder may, immediately
request the depositary bank either to cause the underlying shares to be sold in the ROC and distribute the
proceeds of such sale to the depositary receipt holder or after registration with TSE by the converting
depositary receipts holders to withdraw the underlying shares from the depositary receipt facility and
deliver such shares to such holder. A citizen of the PRC or an entity organized under the laws of the PRC is
not permitted to withdraw and hold the Shares.
Under existing ROC laws and regulations, a depositary may, without obtaining further approvals from
the CBC or any other government authority or agency of the ROC, convert NT Dollars into other currencies,
including U.S. Dollars, in respect of the proceeds of the sale of shares represented by depositary receipts or
received as stock dividends in respect of such shares and deposited into the depositary receipt facility and
any cash dividends or distributions received in respect of such shares. In addition, a depositary may convert
inward remittances of payments into NT Dollars for purchases of underlying shares for deposit in the
depositary receipt facility against the creation of additional depositary receipts. With respect to conversion
from NT Dollars into foreign currencies in respect of the proceeds from the sale of subscription rights for
new shares, proceeds in excess of U.S.$100,000 per remittance may not be remitted overseas unless CBC
approval is obtained. In addition, a depositary receipt holder may, after becoming a holder of shares, convert
NT Dollars into other currencies for proceeds from the sale of any underlying shares withdrawn from the
depositary receipt facility and delivered to the depositary receipt holder and for conversion from foreign
currencies into NT Dollars for subscription payments in respect of rights offering. A depositary must obtain
foreign exchange approval from the CBC on a payment-by-payment basis for conversion from NT Dollars
into foreign currencies in respect of the proceeds from the sale of subscription rights for new shares. It is
expected that the CBC will grant such foreign exchange approval as a routine matter.
A non-ROC depository receipt holder wishing to withdraw shares represented by depository receipts
in order to hold the shares is required to register with TSE and is required to appoint a qualified local agent
to, amongst other things, open a securities account with a local securities brokerage firm, pay ROC
withholding tax, remit funds and exercise shareholders’ rights. In addition, the withdrawing holder is also
required to appoint a custodian bank to hold the securities and any cash proceeds in safekeeping, to make
confirmations, to settle trades and to report all relevant information. Without making these appointments
and opening these accounts, the withdrawing holder would be unable to hold or subsequently sell shares
withdrawn from a depository receipt facility on the TSE or otherwise. Furthermore, the withdrawing holder
is required to appoint a tax guarantor in the ROC for filing tax returns and making tax payments.
Foreign Investment Approval
In addition to the investment permitted under the Overseas Rules, under existing ROC laws and
regulations relating to foreign investment, investors (both institutional and individual) who are not ROC
persons and wish to make direct investment in the shares of ROC companies are required to submit a
Foreign Investment Approval (‘‘FIA’’) application to the Investment Commission of the MOEA or other
B-2
government authority. The Investment Commission or such other government authority reviews each FIA
application and approves or disapproves each application after consultation with other government agencies
(such as the CBC and the ROC SFB). Under current law, any non-ROC person possessing an FIA may remit
capital for the approved investment and is entitled to repatriate annual net profits, interest and cash
dividends attributable to such investment. Stock dividends, investment capital and capital gains attributable
to such investment may be repatriated after approvals of the Investment Commission or other government
authorities have been obtained.
Prohibited and Restricted Industries
In addition to the general restriction against direct investment by non-ROC persons in shares of ROC
companies, non-ROC persons are currently prohibited from investing in certain industries in the ROC
pursuant to the Negative List as amended by the Executive Yuan from time to time. The prohibition on
foreign investment in the prohibited industries specified in the Negative List is absolute and provides no
specific exemption from its application. Pursuant to the Negative List, certain other industries are restricted
so that non-ROC persons may invest in such industries only up to a specified level and with the specific
approval of the relevant competent authority which is responsible for enforcing the relevant legislation
which the Negative List is intended to implement. Our business is not in a prohibited or restricted industry
under the Negative List.
Exchange Controls
The ROC’s Foreign Exchange Control Statute and regulations thereunder provide that all foreign
exchange transactions must be executed by banks designated to handle such business by the ROC MOF and
by the CBC. Current regulations favor trade-related foreign exchange transactions.
Consequently, foreign currency earned from exports of merchandise and services may now be retained
and used freely by exporters, and all foreign currency needed for the import of merchandise and services
may be purchased freely from the designated banks for conducting foreign exchange.
For non-trade related foreign exchange transactions, ROC companies and resident individuals may
also, without foreign exchange approval, remit into and out of the ROC foreign currencies of up to U.S.$50
million (or its equivalent) and U.S.$5 million (or its equivalent), respectively, in each calendar year.
Furthermore, any remittance of foreign currency into the ROC by an ROC company or resident individual in
a year will be offset by the amount remitted out of the ROC by the company or individual (as applicable)
within its annual quota and will not use up its annual inward remittance quota to the extent of such offset.
The above limits apply to remittance involving a conversion between NT Dollars and U.S. Dollars or other
foreign currencies. A requirement is also imposed on all enterprises to register medium-and-long-term
foreign debt with the Central Bank of China.
In addition, foreign persons may, subject to certain required documents, but without foreign exchange
approval of the CBC, remit outside and into the ROC foreign currencies of up to U.S.$100,000 (or its
equivalent) for each remittance. The above limit applies only to remittances involving a conversion between
NT Dollars and U.S. Dollars or other foreign currencies.
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OUR REGISTERED OFFICE
Acbel Polytech Inc.
No. 159, Sec. 3
Tam-King Rd., Tamsui
Taipei, Taiwan
ROC
TRUSTEE
JPMorgan Chase Bank, London Branch
9 Thomas More Street
London, E1W 1YT
United Kingdom
REGISTRAR
J.P. Morgan Bank Luxembourg S.A.
5 rue Plaetis L-2338
Luxembourg Grund
PRINCIPAL, PAYING, TRANSFER AND CONVERSION AGENT
JPMorgan Chase Bank, London Branch
9 Thomas More Street
London E1W 1YT
United Kingdom
OUR AUDITORS
KPMG
6th Floor, 156 Min Sheng E. Road, Sec. 3
Taipei, Taiwan
LEGAL ADVISORS
TO THE TRUSTEE
Baker & McKenzie
(Hong Kong Office)
14/F, Hutchison House
10 Harcourt Road
Hong Kong
LEGAL ADVISORS
TO THE LEAD MANAGER
Baker & McKenzie
(Hong Kong Office)
14/F, Hutchison House
10 Harcourt Road
Hong Kong
OUR ROC LEGAL ADVISORS
Baker & McKenzie
(Taipei Office)
15/F, 168, Tun Hwa N. Road
Taipei 105, Taiwan, ROC
LUXEMBOURG PAYING, TRANSFER, CONVERSION AND LISTING AGENT
J.P. Morgan Bank Luxembourg S.A.
5 rue Plaetis L-2338
Luxembourg Grund
Printed by ROMAN 9248-1