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Richtek Technology Corporation

Financial Statements for the Years Ended December 31, 2008 and 2007 and Independent Auditors’ Report

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INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders Richtek Technology Corporation We have audited the accompanying balance sheets of Richtek Technology Corporation as of December 31, 2008 and 2007, and the related statements of income, changes in shareholders’ equity and cash flows for the years then ended. These financial statements are the responsibility of the Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and 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 Richtek Technology Corporation as of December 31, 2008 and 2007, and the results of its operations and its cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, requirements of the Business Accounting Law and Guidelines Governing Business Accounting relevant to financial accounting standards and accounting principles generally accepted in the Republic of China. As stated in Note 3 to the financial statements, effective January 1, 2008, the Corporation adopted the Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors” issued by the Accounting Research and Development Foundation of the Republic of China which requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than an appropriation of earnings.

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We have also audited the consolidated financial statements of Richtek Technology Corporation and subsidiaries as of and for the years ended December 31, 2008 and 2007 and have expressed in our report dated February 26, 2009 (not presented herewith) a modified unqualified opinion and an unqualified opinion, respectively, on the consolidated financial statements. February 26, 2009

Notice to Readers

The accompanying financial statements are intended only to present the financial position, results

of operations and cash flows in accordance with 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.

For the convenience of readers, the auditors’ report and the accompanying financial statements

have been translated into English from the original Chinese version prepared and used in the

Republic of China. If there is any conflict between the English version and the original Chinese

version or any difference in the interpretation of the two versions, the Chinese-language auditors’

report and financial statements shall prevail.

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RICHTEK TECHNOLOGY CORPORATION BALANCE SHEETS

DECEMBER 31, 2008 AND 2007

(In Thousands of New Taiwan Dollars, Except Par Value)

2008 2007 2008 2007

ASSETS Amount % Amount % LIABILITIES AND SHAREHOLDERS’ EQUITY Amount % Amount %

CURRENT ASSETS CURRENT LIABILITIES

Cash (Note 4) $ 1,429,928 27 $ 835,933 17 Notes and accounts payable $ 540,658 10 $ 612,273 13 Available-for-sale financial assets - current (Notes 2, 5 Income tax payable (Notes 2 and 15) 121,550 2 109,500 2 and 18) 457,053 9 1,344,217 28 Accrued payroll and bonus 84,567 2 71,061 1 Notes and accounts receivable, net (Notes 2, 6 and 19) 977,874 18 904,965 19 Bonuses payable to employees, directors and supervisors Other financial assets - current 1,528 - 3,521 - (Notes 2, 3 and 14) 318,610 6 - - Inventories, net (Notes 2 and 7) 1,028,104 19 667,747 14 Accrued expenses and other current liabilities (Notes 12 Deferred income tax assets - current (Notes 2 and 15) 103,830 2 74,588 1 and 19) 111,298 2 95,072 2 Prepaid expenses and other current assets (Note 19) 56,923 1 48,310 1

Total current liabilities 1,176,683 22 887,906 18 Total current assets 4,055,240 76 3,879,281 80

OTHER LIABILITIES LONG-TERM INVESTMENTS (Notes 2, 8 and 9) Accrued pension cost (Notes 2 and 13) 3,394 - 6,150 -

Investments accounted for using equity method 451,004 9 402,239 8 Guarantee deposits 19,200 1 49,773 1 Financial assets carried at cost 16,185 - - - Deferred credits - intercompany profits (Note 2) 427 - 1,418 -

Total long-term investments 467,189 9 402,239 8 Total other liabilities 23,021 1 57,341 1

PROPERTY, PLANT AND EQUIPMENT (Notes 2 and 10) Total liabilities 1,199,704 23 945,247 19

Cost Land 88,959 2 45,072 1 SHAREHOLDERS' EQUITY (Notes 2 and 14) Buildings 192,320 4 90,379 2 Capital stock Machinery and equipment 193,087 4 170,591 3 Capital stock - NT$10 par value Research and development 65,810 1 84,613 2 Authorized: 150,000 thousand shares Office equipment 53,975 1 50,206 1 Issued: 133,796 thousand shares in 2008 and 118,787 Leasehold improvements 6,249 - 12,245 - thousand shares in 2007 1,337,958 25 1,187,872 25 Other equipment 28,613 - 12,198 - To be issued 570 - - -

629,013 12 465,304 9 Capital surplus Accumulated depreciation (161,400 ) (3 ) (163,307 ) (3 ) Paid-in capital in excess of par value 112,095 2 112,095 2 Prepayments for business facilities 15,998 - 16,214 - Long term investment 3,870 - - -

Retained earnings Net property, plant and equipment 483,611 9 318,211 6 Legal reserve 477,574 9 300,456 6

Special reserve - - 885 - OTHER ASSETS Unappropriated earnings 2,181,900 41 2,315,174 48

Refundable deposits 15,070 - 17,790 - Cumulative translation adjustments 7,756 - 2,207 - Deferred charges, net (Notes 2 and 11) 193,484 4 126,047 3 Unrealized valuation gains on financial assets 1,801 - 9,316 - Deferred income tax assets - noncurrent (Notes 2 and 15) 102,386 2 126,625 3 Pledged bank deposits (Note 20) 6,248 - 3,059 - Total shareholders' equity 4,123,524 77 3,928,005 81

Total other assets 317,188 6 273,521 6

TOTAL $ 5,323,228 100 $ 4,873,252 100 TOTAL $ 5,323,228 100 $ 4,873,252 100 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 26, 2009)

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RICHTEK TECHNOLOGY CORPORATION

STATEMENTS OF INCOME

YEARS ENDED DECEMBER 31, 2008 AND 2007

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2008 2007

Amount % Amount %

GROSS SALES $ 6,868,747 101 $ 6,165,963 102 SALES RETURNS AND ALLOWANCES 59,980 1 103,890 2 NET SALES (Notes 2, 19 and 23) 6,808,767 100 6,062,073 100 COST OF SALES (Note 16) 4,140,027 61 3,486,115 57 GROSS PROFIT BEFORE REALIZED

(UNREALIZED) INTERCOMPANY PROFIT 2,668,740 39 2,575,958 43

REALIZED (UNREALIZED) INTERCOMPANY

PROFIT (Note 2) 1,376 - (1,030 ) -

GROSS PROFIT 2,670,116 39 2,574,928 43 OPERATING EXPENSES (Notes 16, 19 and 21)

Marketing 265,547 4 168,275 3 General and administrative 237,005 3 93,284 2 Research and development 651,865 10 453,342 7

Total operating expenses 1,154,417 17 714,901 12

OPERATING INCOME 1,515,699 22 1,860,027 31 NONOPERATING INCOME AND GAINS

Gains on disposal of financial assets, net (Note 2) 27,556 1 13,826 - Interest income 16,716 - 21,628 1 Subsidiary income (Note 2) 11,627 - 4,813 - Foreign exchange gain, net (Note 2) 9,656 - 6,982 - Rental income (Note 19) 151 - 2,999 - Others (Note 19) 11,057 - 17,112 -

Total nonoperating income and gains 76,763 1 67,360 1

NONOPERATING EXPENSES AND LOSSES

Equity in losses of equity-method investees, net (Notes 2 and 8)

102,536 2 75,668 1

Loss on obsolete inventories (Notes 2 and 7) 23,858 - 754 - Loss on disposal of inventories 7,776 - 4,493 - Loss on disposal of property, plant and equipment (Note 2)

323 - 117 -

Interest expenses 13 - 30 - (Continued)

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STATEMENTS OF INCOME


(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2008 2007

Amount % Amount %

Loss from sales of scrap $ - - $ 17,378 1 Others 6,877 - 4,708 -

Total nonoperating expenses and losses 141,383 2 103,148 2

INCOME BEFORE INCOME TAX 1,451,079 21 1,824,239 30 INCOME TAX (Notes 2 and 15) (107,737 ) (1 ) (53,063 ) (1 ) NET INCOME $ 1,343,342 20 $ 1,771,176 29 2008 2007

Before

Income

Tax

After

Income

Tax

Before

Income

Tax

After

Income

Tax

EARNINGS PER SHARE (Note 17)

Basic $ 10.85 $ 10.05 $ 13.72 $ 13.32 Diluted $ 10.60 $ 9.82 $ 13.58 $ 13.19

The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 26, 2009) (Concluded)

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STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY


(In Thousands of New Taiwan Dollars)

Common Stock Capital Surplus (Note 14) Others (Notes 2 and 14)

Issued Paid-in Capital Retained Earnings (Note 14) Cumulative Unrealized Total

Shares (in

Thousands) Amount

To Be Issued

(Note 14)

in Excess of

Par value

Long Term

Investments Legal Reserve Special Reserve

Unappropriated

Earnings Total

Translation

Adjustments

Gains on

Financial Assets

Shareholders'

Equity

BALANCE, JANUARY 1, 2007 100,779 $ 1,007,788 $ - $112,095 $ - $176,202 $ 1,754 $ 1,431,224 $ 1,609,180 $ (885 ) $ 7,375 $ 2,735,553 Appropriation of prior year's earnings Legal reserve - - - - - 124,254 - (124,254 ) - - - - Special reserve - - - - - - (869 ) 869 - - - - Bonus to employees - cash - - - - - - - (70,149 ) (70,149 ) - - (70,149 ) Bonus to employees - stock 2,140 21,400 - - - - - (21,400 ) (21,400 ) - - - Remuneration to directors and supervisors - - - - - - - (16,500 ) (16,500 ) - - (16,500 ) Cash dividends - 50% - - - - - - - (504,456 ) (504,456 ) - - (504,456 ) Stock dividends - 15% 15,133 151,336 - - - - - (151,336 ) (151,336 ) - - -

Issuance of stock due to the exercise of employee stock options 735 7,348 - - - - - - - - - 7,348 Translation adjustment on investments accounted for using equity method

- - - - - - - - - 3,092 - 3,092

Valuation changes on available-for-sale financial assets - - - - - - - - - - 1,393 1,393 Equity in the valuation changes on available-for-sale financial assets held by equity method investees

- - - - - - - - - - 548 548

Net income in 2007 - - - - - - - 1,771,176 1,771,176 - - 1,771,176 BALANCE, DECEMBER 31, 2007 118,787 1,187,872 - 112,095 - 300,456 885 2,315,174 2,616,515 2,207 9,316 3,928,005 Appropriation of prior year's earnings Legal reserve - - - - - 177,118 - (177,118 ) - - - - Special reserve - - - - - - (885 ) 885 - - - - Bonus to employees - cash - - - - - - - (121,200 ) (121,200 ) - - (121,200 ) Bonus to employees - stock 2,870 28,700 - - - - - (28,700 ) (28,700 ) - - - Remuneration to directors and supervisors - - - - - - - (20,000 ) (20,000 ) - - (20,000 ) Cash dividends - 85% - - - - - - - (1,011,485 ) (1,011,485 ) - - (1,011,485 ) Stock dividends - 10% 11,900 118,998 - - - - - (118,998 ) (118,998 ) - - -

Issuance of stock due to the exercise of employee stock options 239 2,388 570 - - - - - - - - 2,958 Translation adjustment on investments accounted for using equity method

- - - - - - - - - 5,549 - 5,549

Adjustment arising from changes in percentage of ownership of investees

- - - - 3,870 - - - - - - 3,870

Valuation changes on available-for-sale financial assets - - - - - - - - - - (7,291 ) (7,291 ) Equity in the valuation changes on available-for-sale financial assets held by equity method investees

- - - - - - - - - - (224 ) (224 )

Net income in 2008 - - - - - - - 1,343,342 1,343,342 - - 1,343,342 BALANCE, DECEMBER 31, 2008 133,796 $ 1,337,958 $ 570 $112,095 $ 3,870 $477,574 $ - $ 2,181,900 $ 2,659,474 $ 7,756 $ 1,801 $ 4,123,524 The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 26, 2009)

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STATEMENTS OF CASH FLOWS



2008 2007

CASH FLOWS FROM OPERATING ACTIVITIES

Net income $ 1,343,342 $ 1,771,176 Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation 84,201 72,850 Amortization 83,455 54,115 Gains on disposal of available-for-sale financial assets, net (27,556 ) (13,826 ) Equity in losses of equity method investees, net 102,536 75,668 Loss on disposal of property, plant and equipment, net 323 117 Deferred credits - intercompany profits (991 ) 1,030 Deferred income tax assets (5,003 ) (53,444 ) Net changes in operating assets and liabilities

Notes and accounts receivable, net (72,909 ) (333,326 ) Other financial assets - current 1,993 (2,327 ) Inventories, net (360,357 ) (141,234 ) Prepaid expenses and other current assets (8,613 ) (6,905 ) Notes and accounts payable (71,615 ) 87,214 Income tax payable 12,050 66,266 Accrued payroll and bonus 13,506 4,277 Bonuses payable to employees, directors and supervisors 318,610 - Accrued expenses and other current liabilities 35,402 11,722 Accrued pension cost (2,756 ) (2,822 )

Net cash provided by operating activities 1,445,618 1,590,551

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisitions of: Available-for-sale financial assets (2,172,000 ) (1,647,500 ) Investments accounted for using the equity method (142,106 ) (312,313 ) Financial assets carried at cost (16,185 ) - Property, plant and equipment (271,566 ) (85,054 )

Proceeds from the disposal of: Available-for-sale financial assets 3,079,429 1,367,945 Property, plant and equipment 2,466 347 Deferred charges 103 -

Increase in deferred charges (150,995 ) (104,017 ) Decrease (increase) in refundable deposits 2,720 (8,021 ) Increase in pledged bank deposits (3,189 ) (59 )

Net cash provided by (used in) investing activities 328,677 (788,672 )

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in guarantee deposits (30,573 ) 8,640 Remuneration to directors and supervisors (20,000 ) (16,500 ) Cash dividends (1,011,485 ) (504,456 )

(Continued)

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STATEMENTS OF CASH FLOWS



2008 2007

Employees' profit sharing in cash $ (121,200 ) $ (70,149 ) Proceeds from the exercise of employee stock options 2,958 7,348

Net cash used in financing activities (1,180,300 ) (575,117 )

NET INCREASE IN CASH 593,995 226,762 CASH, BEGINNING OF YEAR 835,933 609,171 CASH, END OF YEAR $ 1,429,928 $ 835,933 SUPPLEMENTAL CASH FLOW INFORMATION

Income tax paid $ 100,690 $ 40,241 Interest paid $ 13 $ 30

CASH PAID FOR ACQUISITION OF PROPERTIES

Acquisition of property, plant, and equipment $ 252,390 $ 102,235 Decrease (increase) in payables to equipment suppliers (under accrued expenses and other current liabilities)

19,176 (17,181 )

$ 271,566 $ 85,054

The accompanying notes are an integral part of the financial statements. (With Deloitte & Touche audit report dated February 26, 2009) (Concluded)

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NOTES TO FINANCIAL STATEMENTS


(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. ORGANIZATION AND OPERATIONS

Richtek Technology Corporation (the “Corporation” or “Richtek”) was incorporated on September 18, 1998

and started operations on September 28, 1998. The Corporation’s shares have been listed on the Taiwan Stock Exchange since October 21, 2003.

The Corporation designs, tests and sells integrated circuits (ICs) and information software. As of December 31, 2008 and 2007, the Corporation had 454 and 368 employees, respectively.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The financial statements have been prepared in conformity with the Guidelines Governing the Preparation

of Financial Reports by Securities Issuers, Business Accounting Law, Guidelines Governing Business Accounting, and accounting principles generally accepted in the Republic of China (ROC). Under these guidelines, law and principles, certain estimates and assumptions have been used for the allowance for sales returns and discounts, allowance for doubtful accounts, allowance for loss on inventories, depreciation of properties, pension expenses, amortization of deferred charges and bonuses to employees, directors and supervisors, etc. Actual results may differ from these estimates.

For readers’ convenience, the accompanying financial statements have been translated into English from the

original Chinese version prepared and used in the ROC. If inconsistencies arise between the English version and the Chinese version or if differences arise in the interpretation between the two versions, the Chinese version of the financial statements shall prevail.

Significant accounting policies are summarized as follows:

Current and Noncurrent Assets and Liabilities

Current assets include cash and those assets expected to be realized, sold or consumed within one year from

the balance sheet date. All other assets such as property, plant and equipment and deferred charges are classified as noncurrent. Current liabilities are those to be settled within one year from the balance sheet date. All other liabilities are classified as noncurrent.

Available-for-sale Financial Assets

Available-for-sale financial assets are initially measured at fair value plus transaction costs that are directly attributable to the acquisition. At each balance sheet date subsequent to initial recognition, available-for-sale financial assets are remeasured at fair value, with changes in fair value recognized in equity until the financial assets are disposed of, at which time, the cumulative gain or loss previously recognized in equity is included in profit or loss for the year. All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis.

The fair values of open-end mutual funds are based on their net asset value as of the balance sheet date.

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If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. If, in a subsequent period, the amount of the impairment loss decreases, for equity securities, the previously recognized impairment loss is reversed to the extent of the decrease and recorded as an adjustment to shareholders’ equity.

Revenue Recognition, Accounts Receivable and Allowance for Doubtful Accounts

The Corporation recognizes revenue when product shipment is made, price is fixed or determinable, and

collectibility is reasonably assured. When products are outsourced for additional processing, the rewards of ownership and significant risks associated with the products have not been transferred; therefore, revenue is not recognized for such products. Allowances for sales returns and discounts are generally made on the basis of historical experience, management’s judgment, and related factors.

Sales are determined at fair value, taking into account related sales discounts agreed to by the Company and

its customers. Since the receivables from sales are collectible within one year and sales transactions are frequent, the fair value of receivables is equivalent to the nominal amount of cash to be received.

An allowance for doubtful accounts is provided on the basis of a review of the collectibility and of as well

as an examination of customers’ creditworthiness and the Corporation’s internal credit policies.

Inventories

Inventories include raw materials and supplies, work in process and finished goods, which are stated at the

lower of aggregate costs or market value. Inventories are recorded at weighted-average cost. Market value is the replacement cost for raw materials and supplies and the net realizable value for finished goods and work in process. Estimated losses on scrap and slow-moving items are recognized as an allowance for inventory obsolescence.

Investments Accounted for Using Equity Method

Stock investments in which the Corporation holds more than 20% common shares with voting rights or

exercises significant influence on investees’ operating and financial decisions are accounted for using the equity method.

When the Corporation subscribes for additional investee’s shares at a percentage different from its existing

ownership percentage, the resulting carrying amount of the investment in the investee differs from the amount of the Corporation’s share of the investee’s equity. The Corporation records such a difference as an adjustment to long-term investments with the corresponding amount charged or credited to capital surplus. If the amount of such adjustment made to debit capital surplus is more than the balance of capital surplus arising from long-term equity investment, then the resulting difference is debited to retained earnings.

If an investment is identified as significantly impaired, the carrying amount of the investment in excess of

its recoverable amount is recognized as impairment loss. The assessment for impairment is based on carrying value. For those investees over which the Corporation holds a controlling interest, the assessment of impairment is based on an estimation of the value in use of the cash-generating units of the consolidated investees.

Profits from downstream transaction with an equity-method investees that are not majority owned are

eliminated in proportion to the Corporation’s percentage of ownership in the investees; if the Company has control over the investee, all the profits are eliminated. Profits from upstream transactions with an equity-method investee are eliminated in proportion to the Company’s percentage of ownership in the investee.

All of the above deferred gains are realized upon the sale of the related products to third parties.

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Financial Assets Carried at Cost

Investments in equity instruments without a quoted market price in an active market and without fair value

can be reliably measured are carried at their original cost. Cash dividends are recognized as investment income upon resolution of shareholders of an investee but are accounted for as a reduction to the original cost of investment if such dividends are declared on the earnings of the investee attributable to the period prior to the purchase of the investment. Stock dividends are recorded as an increase in the number of shares held and do not affect investment income. The cost per share is recalculated based on the new total number of shares. If there is objective evidence which indicates that a financial asset is impaired, a loss is recognized. A subsequent reversal of such impairment loss is not allowed.

Property, Plant and Equipment

Property, plant and equipment are stated at cost less accumulated depreciation. Major additions and

improvements to property, plant and equipment are capitalized, while costs of maintenance and repairs are expensed currently.

If significant asset impairment is determined on the balance sheet date, the carrying amount of an asset in

excess of its recoverable amount is recognized as a loss. If the recoverable amount increases, the impairment loss reversal is recognized as a gain. However, the increased carrying amount of an asset due to impairment loss reversal should not exceed the carrying amount that would have been determined (net of depreciation) had no impairment loss been recognized for the asset in prior years.

Depreciation is calculated using the straight-line method over useful lives, which are initially estimated as

follows: land and buildings, 3 to 50 years; machinery and equipment, 3 years; research and development equipment, 3 years; and office equipment, 3 to 5 years; lease improvements are amortized over the rental period and miscellaneous equipment, 3 to 5 years. Property, plant and equipment still in use beyond their initially estimated useful lives are further depreciated over the newly estimated useful lives.

Upon sale or disposal of property, plant and equipment, the related cost and accumulated depreciation are

removed from the corresponding accounts, with any gain or loss credited or charged to nonoperating income in the year of sale or disposal.

Deferred Charges

Deferred charges primarily include photo masks, software and telephone devices. Amortization is

calculated using the straight-line method over three to five years. If significant asset impairment is determined on the balance sheet date, the carrying amount of an asset in

excess of its recoverable amount is recognized as a loss. If the recoverable amount increases, the impairment loss reversal is recognized as a gain. However, the increased carrying amount of an asset due to impairment loss reversal should not exceed the carrying amount that would have been determined (net of amortization) had no impairment loss been recognized for the asset in prior years.

Expenditure on research activities is recognized as an expense when incurred. An internally-generated

intangible asset arising from development activities is capitalized and then amortized on a straight-line basis over years if the recognition criteria for intangible asset have been met; otherwise, the development expenditure is recognized as an expense when incurred.

Capitalized and Other Expenditures

Expenditures of a certain amount that will benefit periods of more than two years are capitalized. Other

expenditures are recorded as expenses or losses.

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Pension Costs

Pension cost under a defined benefit plan is determined by actuarial valuations. Contributions made under

a defined contribution plan are recognized as pension cost during the year in which employees render services.

Subsidiary Income

Financing received by the Corporation from the government of certain products is recognized as subsidiary income when realized.

Income Tax

The Corporation uses the inter-period tax allocation method for income tax. Deferred income tax assets

and liabilities are recognized for the tax effects of temporary differences and unused tax credits. Valuation allowances are provided to the extent, if any, that it is more likely than not that deferred income tax assets will not be realized. A deferred tax asset or liability is classified as current or noncurrent in accordance with the classification of the related asset or liability. However, if a deferred tax asset or liability does not relate to an asset or liability in the financial statements, it is classified as current or noncurrent on the basis of the expected length of the realization or settlement period.

Tax credits for certain purchases of machinery, equipment and technology, research and development

expenditures and personnel training in important technology-based enterprises are recognized using the flow-through method.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax expense. According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as

income tax in the year the shareholders approve to retain the earnings. Foreign Currencies

Non-derivative foreign-currency transactions are recorded in New Taiwan dollars at the rates of exchange in

effect when the transactions occur. Exchange differences arising from settlement of foreign-currency assets and liabilities are recognized in profit or loss.

At the balance sheet date, foreign-currency monetary assets and liabilities are revalued using prevailing

exchange rates and the exchange differences are recognized in profit or loss. If the functional currency of an equity-method investee is a foreign currency, translation adjustments will

result from the translation of the investee’s financial statements into the reporting currency of the Company. Such adjustments are accumulated and reported as a separate component of shareholders’ equity.

Reclassification

Certain accounts in the financial statements as of and for the year ended December 31, 2007 have been reclassified to be consistent with the financial statements as of and for the year ended December 31, 2008.

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3. EFFECTS OF CHANGES IN ACCOUNTING PRINCIPLES

Effective January 1, 2008, the Corporation adopted Interpretation 2007-052, “Accounting for Bonuses to Employees, Directors and Supervisors” issued in March 2007 by the Accounting Research and Development Foundation (“ARDF”) of ROC, which requires companies to record bonuses paid to employees, directors and supervisors as an expense rather than as an appropriation of earnings. The adoption of this interpretation resulted in a decrease in net income and after income basic earnings per share of NT$291,462 thousand and NT$2.18, respectively, for the year ended December 31, 2008.

Effective January 1, 2008, the Corporation adopted Statement of Financial Accounting Standards No. 39,

“Accounting for Share-based Payment.” Such a change in accounting principle did not have any effect on the Corporation’s financial statements as of and for the year ended December 31, 2008.

4. CASH

December 31

2008 2007

Cash on hand and petty cash $ 1,298 $ 851 Checking accounts and deposits in banks 368,861 130,885 Time deposits 1,059,769 704,197 $ 1,429,928 $ 835,933

5. AVAILABLE-FOR-SALE FINANCIAL ASSETS - CURRENT

December 31

2008 2007

Open-end mutual funds $ 457,053 $ 1,344,217

6. NOTES AND ACCOUNTS RECEIVABLE, NET

December 31

2008 2007

Related parties RichTek USA, Inc. $ 516 $ 1,319 RichPower Microelectronics Corp. - 11,614 Third parties 996,013 910,687 Allowance for sales returns and discounts (16,456 ) (16,456 ) Allowance for doubtful accounts (2,199 ) (2,199 ) $ 977,874 $ 904,965

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7. INVENTORIES, NET

December 31

2008 2007

Finished goods $ 530,900 $ 272,319 Work in process 200,997 205,553 Raw materials and supplies 365,089 234,899 1,096,986 712,771 Allowance for loss on inventories (68,882 ) (45,024 ) $ 1,028,104 $ 667,747

8. INVESTMENTS ACCOUNTED USING THE EQUITY METHOD

December 31

2008 2007

% of % of

Owner- Owner-

Amount ship Amount ship

Non-publicly traded stocks

Li-Yuh Investment Ltd. $ 176,564 100 $ 172,657 100 Ironman Overseas Co., Ltd. 106,744 100 99,916 100 Richstar Group Co., Ltd. 97,044 100 57,459 100 Richnex Microelectronics Corporation 49,381 80 49,836 100 Richtek Europe Holding B.V. 14,144 100 22,371 100 Richtek Holding International Limited 7,127 100 - - $ 451,004 $ 402,239 The Corporation invested in Li-Yuh Investment Ltd., Richstar Group Co., Ltd. and Richtek Europe Holding

B.V., which engage in investment activities. During 2008 and 2007, the corporation increased its investment in Li-Yuh Investment Ltd. by NT$140,000

thousand; in Richstar Group Co. Ltd. by US$4,000 thousand; and in Richtek Europe Holding B.V. by EUR500 thousand. As of December 31, 2008, the total investment of the Corporation in Li-Yuh Investment Ltd. was NT$190,000 thousand, that in Richstar Group Co., Ltd. was US$6,015 thousand and that in Richtek Europe Holding B.V. was EUR500 thousand and of which RichTek USA, Inc. and Richtek Europe B.V. were indirectly invested through Richstar Group Co., Ltd. and Richtek Europe Holding B.V., respectively. In addition, the Corporation increased its investment in Ironman Overseas Co., Ltd. (“Ironman”) by US$1,000 thousand in 2007. As of December 31, 2008, the total investment of the Corporation in Ironman was US$4,680 thousand, of which US$3,500 thousand was indirectly invested in mainland China through the incorporation of two subsidiaries, RichPower Microelectronics Corp and Li-We Technology Corp., through Cosmic-Ray Technology Limited. The two subsidiaries sell the Corporation’s products and provide consulting services to expand the Corporation’s market on the mainland. All of these overseas investments had been approved by the Investment Commission under the Ministry of Economic Affairs.

In December 2007, the Corporation invested NT$50,000 thousand in Richnex Microelectronics

Corporation, which designs and tests integrated circuits (ICs). Further, the Corporation subscribes for additional shares with the investments of NT$20,000 thousand and NT$10,000 thousand at a percentage different from its existing ownership in May and October 2008, respectively. As a result, the Corporation’s percentage of ownership decreased from 100% to 80%.

- 15 -

In January 2008, the Corporation invested US$500 thousand to establish Richtek Holding International Limited which engages in investment activities, and its branch in Japan which engages in selling of the Corporation’s products and providing consulting services.

On July 17, 2008, the Corporation’s subsidiary, Li-Yuh Investment Ltd., and Delta Electronics, Inc. jointly

invested in and established NeoEnergy Microelectronics, Inc. Li-Yuh Investment Ltd. invested NT$42,500 thousand and held 42.5% of ownership in NeoEnergy Microelectronics, Inc., which engages in the design and selling of integrated circuits (ICs), and information and software services.

The investment gains/(losses) in 2008 and 2007, which were calculated based on the investees’ financial

statements for the same reporting years as those of the Corporation and audited by the Corporation’s auditors, were as follows:

2008 2007

Li-Yuh Investment Ltd. $ 4,131 $ (75 ) Ironman Overseas Co., Ltd. (30,295 ) (31,494 ) Richstar Group Co., Ltd. (25,637 ) (42,486 ) Richnex Microelectronics Corporation (34,325 ) (164 ) Richtek Europe Holding B.V. (7,496 ) (1,449 ) Richtek Holding International Limited (8,914 ) - $ (102,536 ) $ (75,668 ) The net assets of the equity-method investees were as follows: 2008 2007

Total assets of the investees $ 488,007 $ 433,989 Total liabilities of the investees 24,660 31,750 Total net assets of the investees $ 463,347 $ 402,239 Total net assets at the Corporation’s proportionate interest in the investees $ 451,004 $ 402,239 The consolidated financial statements as of and for the years ended December 31, 2008 and 2007 included

all subsidiaries.

9. FINANCIAL ASSETS CARRIED AT COST - NONCURRENT

2008

% of

Owner-

Amount ship

Non-publicly traded common stocks

Nexcera Corporation Limited $ 16,185 6 In October 2008, the Corporation acquired the aforementioned stocks, which did not have a quoted market

price in an active market and whose fair value cannot be reliably measured, and therefore was measured at cost.

- 16 -

10. PROPERTY, PLANT AND EQUIPMENT, NET

Year Ended December 31, 2008

Item

Balance,

Beginning

of Year Additions Disposals

Reclassifi-

cation

Balance,

End of

Year

Cost Land $ 45,072 $ 43,887 $ - $ - $ 88,959 Buildings 90,379 92,851 448 9,538 192,320 Machinery and equipment 170,591 57,412 34,916 - 193,087 Research and development 84,613 15,029 33,832 - 65,810 Office equipment 50,206 20,223 16,454 - 53,975 Lease improvements 12,245 3,929 387 (9,538 ) 6,249 Other equipment 12,198 19,275 2,860 - 28,613 Prepayments for business facilities 16,214 (216 ) - - 15,998 481,518 $ 252,390 $ 88,897 $ - 645,011 Accumulated depreciation Buildings 7,142 $ 4,785 $ 447 $ 3,583 15,063 Machinery and equipment 82,339 42,445 34,916 - 89,868 Research and development 42,748 19,936 33,086 - 29,598 Office equipment 22,064 10,819 14,814 - 18,069 Lease improvements 3,692 2,414 - (3,583 ) 2,523 Other equipment 5,322 3,802 2,845 - 6,279 163,307 $ 84,201 $ 86,108 $ - 161,400 $ 318,211 $ 483,611


Item

Balance,

Beginning


Balance,

End of

Year

Cost Land $ 45,072 $ - $ - $ 45,072 Buildings 90,684 - 305 90,379 Machinery and equipment 146,102 31,116 6,627 170,591 Research and development 78,472 24,684 18,543 84,613 Office equipment 39,832 18,289 7,915 50,206 Lease improvements 12,236 7,582 7,573 12,245 Other equipment 7,960 4,350 112 12,198 Prepayments for business facilities - 16,214 - 16,214 420,358 $ 102,235 $ 41,075 481,518 Accumulated depreciation Buildings 5,372 $ 2,075 $ 305 7,142 Machinery and equipment 53,132 35,834 6,627 82,339 Research and development 40,227 20,654 18,133 42,748 Office equipment 21,197 8,728 7,861 22,064 Lease improvements 7,649 3,616 7,573 3,692 Other equipment 3,491 1,943 112 5,322 131,068 $ 72,850 $ 40,611 163,307 $ 289,290 $ 318,211

- 17 -

11. DEFERRED CHARGES, NET


Item

Balance,

Beginning


Balance,

End of

Year Amortization

Cost Photo masks $ 157,435 $ 130,254 $ 26,681 $ 261,008 3 years Software 44,714 20,741 132 65,323 3 years Telephone devices 805 - - 805 5 years 202,954 $ 150,995 $ 26,813 327,136 Accumulated amortization Photo masks 61,049 $ 64,377 $ 26,681 98,745 Software 15,478 18,917 29 34,366 Telephone devices 380 161 - 541 76,907 $ 83,455 $ 26,710 133,652 $ 126,047 $ 193,484


Item

Balance,

Beginning


Balance,

End of

Year Amortization

Cost Photo masks $ 108,005 $ 72,685 $ 23,255 $ 157,435 3 years Software 13,522 31,192 - 44,714 3 years Telephone devices 665 140 - 805 5 years 122,192 $ 104,017 $ 23,255 202,954 Accumulated amortization Photo masks 41,675 $ 42,629 $ 23,255 61,049 Software 4,132 11,346 - 15,478 Telephone devices 240 140 - 380 46,047 $ 54,115 $ 23,255 76,907 $ 76,145 $ 126,047

12. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

December 31

2008 2007

Payables on engineering experiment and products research $ 25,966 $ 21,069 Payables on commission and marketing promotion 19,464 16,840 Payables on service fee 6,921 4,996 Payables on software maintenance 6,360 - Payables on customs and transportation 3,971 6,266 Payables on machinery and equipment 3,140 22,316 Others 45,476 23,585 $ 111,298 $ 95,072

- 18 -

13. PENSION PLANS

The pension plan under the Labor Pension Act (the “LPA”) is a defined contribution plan. Based on the

LPA, the Corporation makes monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages. Such pension costs were NT$18,390 thousand and NT$14,580 thousand for the years ended December 31, 2008 and 2007, respectively.

The Corporation has a defined benefit plan under the Labor Standards Law, which provides benefits based

on an employee’s length of service and average monthly gross salary of the six months before retirement. The Corporation contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. The pension fund is deposited with the Bank of Taiwan (The Central Trust of China was merged into the Bank of Taiwan in July 2007) in the committee’s name.

Information about the defined benefit plan was summarized as follows:

a. Components of net periodic pension cost:

2008 2007

Service cost $ 119 $ 88 Interest cost 2,245 1,522 Projected return on plan assets (521 ) (393 ) Amortization 1,420 711 $ 3,263 $ 1,928 b. Reconciliation of the funded status of the plan and accrued pension cost: December 31

2008 2007

Benefit obligation Vested benefit obligation $ - $ - Non-vested benefit obligation 24,789 21,789 Accumulated benefit obligation 24,789 21,789 Additional benefit based on future salaries 26,391 42,345 Projected benefit obligation 51,180 64,134 Fair value on plan assets (26,289 ) (19,525 ) Funded status 24,891 44,609 Unrecognized net transitional obligation (1,628 ) (1,731 ) Unrecognized net loss (19,869 ) (36,728 ) Accrued pension cost $ 3,394 $ 6,150 Vested benefit $ - $ - c. Actuarial assumptions

2008 2007

Discount rate used in determining present values 2.50% 3.50% Future salary increase rate 3.50% 6.00% Expected rate of return on plan assets 2.50% 2.50%

- 19 -

2008 2007

d. Contribution and payment status Contributions to the fund $ 6,019 $ 4,750 Payments from the fund $ - $ -

14. SHAREHOLDERS’ EQUITY

Capital To Be Issued

Stock options exercised by employees during the fourth quarter of 2008 resulted in additional issuance of 57

thousand shares, which are expected to be registered in March 2009. Capital Surplus

Under the Company Law, capital surplus can only be used to offset a deficit. However, the capital surplus

from shares issued in excess of par may be capitalized, which however is limited to a certain percentage of the Corporation’s paid-in capital and once a year.

Appropriation of Earnings and Dividend Policy

The Corporation’s Articles of Incorporation provide that, when allocating the net profits for each fiscal year,

the Corporation should first offset its deficits in previous years, appropriate 10% of profits as legal reserve, and retain special reserve(s) pursuant to applicable laws. The remainder, combined with unappropriated earnings in previous years, should be appropriated as follows under a resolution passed at the shareholders’ meeting:

a. Bonus to employees of no less than 5%, which may include bonus in stock to subsidiaries’ employees

under certain conditions; b. Remuneration to directors and supervisors of up to 3%; and c. Remainder, as dividends, which are allocated according to share percentage. Earnings appropriation is approved by the shareholders in, and given effect to in the financial statements of,

the year following the year of earnings generation. The distribution of dividends should take into consideration the Corporation’s profit condition. Profits of

the Corporation may be distributed as cash dividend or stock dividend, with stock dividend not to exceed 50% of total distribution. This distribution should be based on a board of directors’ proposal approved at a shareholders’ meeting.

For the year ended December 31, 2008, the Corporation has recorded bonuses to employees, directors and

supervisors with an estimate based on historical experience. Bonuses to employees were estimated at 25% of net income after appropriation to legal reserve and bonuses to directors and supervisors were estimated at an amount of NT$16,500 thousand. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders’ resolution as a change in accounting estimate. If stock bonuses are resolved to be distributed to employees, the number of shares is determined by dividing the amount of bonuses by the closing price of the shares on the day preceding the shareholders’ meeting after considering the effect of cash and stock dividends.

- 20 -

Based on a directive issued by the Securities and Futures Bureau, an amount equal to the net debit balance of certain shareholders’ equity accounts (for example, cumulative translation adjustments and unrealized gain or loss on financial instruments, but excluding treasury stocks) shall be transferred from unappropriated earnings to a special reserve. Distribution of earnings should only be made after the special reserve is appropriated. Any special reserve appropriated may be reversed to the extent of the reversal of the net debit balance.

Pursuant to the Company Law, legal reserve should be appropriated until the reserve equals the

Corporation’s paid-in capital. The reserve may be used to offset a deficit, or be distributed as dividends and bonuses for the portion in excess of 50% of the paid-in capital if the Corporation has no unappropriated earnings and the reserve balance has exceeded 50% of the Corporation’s paid-in capital. The Company Law also prescribes that, when the reserve has reached 50% of the Corporation’s paid-in capital, up to 50% of the reserve may be transferred to capital.

Under the Integrated Income Tax System, resident shareholders (including corporate shareholders) are

allowed tax credits for the income tax paid by the Corporation on earnings generated. An imputation credit account (ICA) is maintained by the Corporation to monitor the balances of the income tax paid and the tax credit allocated to each shareholder.

The appropriation of earnings for 2007 and 2006 was approved in the shareholders’ meetings held on June

13, 2008 and June 8, 2007, respectively. The appropriations, including that of dividends per share, were as follows:

Dividends Per Share

Appropriation of Earnings (NT$)

For Fiscal For Fiscal For Fiscal For Fiscal

Year 2007 Year 2006 Year 2007 Year 2006

Legal reserve $ 177,118 $ 124,254 $ - $ - Reversal of the special reserve (885 ) (869 ) - - Bonus to Employees - cash 121,200 70,149 - - Bonus to Employees - stock 28,700 21,400 - - Remuneration to directors and supervisors 20,000 16,500 - - Cash dividends 1,011,485 504,456 8.5 5.0 Stock dividends 118,998 151,336 1.0 1.5 $ 1,476,616 $ 887,226 The aforementioned appropriations of earnings were consistent with the resolutions of the meetings of

Board of Directors held on April 29, 2008 and April 26, 2007, respectively. As of February 26, 2009, the date of the accompanying auditors’ report, the Board of Directors had not

resolved the appropriation of earnings for 2008. Information on appropriations of bonus to employees, directors and supervisors proposed at the Board of Directors’ meetings and resolved in shareholders meetings can be accessed online through the Market Observation Post System on the website of the Taiwan Stock Exchange.

Employee Stock Option Plans

The Corporation’s Employee Stock Option Plans were approved by the Securities and Futures Supervisory

Commission (now Securities and Futures Bureau, or SFB) on August 27, 2002 and May 8, 2003, with 2,600 and 1,900, respectively, as the maximum number of options authorized to be granted. Each option entitles the holder to subscribe for 1,000 common shares. If all options are exercised, there would be 4,500 thousand common shares are expected to be issued. The options under the plans are valid for six years and exercisable at certain percentages after the second anniversary of the grant date. The options are granted at a price stipulated in the plans and should be revised if there is any change in the outstanding shares. Issuance of stock dividends and other influential factors were considered in deciding the exercise prices.

- 21 -

Information about outstanding stock options in 2008 and 2007 were as follows: 2008 2007

Weighted- Weighted-

average average

Number of Exercise Number of Exercise

Options Price (NT$) Options Price (NT$)

Balance, beginning of year 774 $ 10 1,517 $ 10 Options exercised (296 ) 10 (735 ) 10 Options canceled (79 ) 10 (8 ) 10 Balance, end of year 399 774 As of December 31, 2008, information about outstanding and exercisable options was as follows:

Options Outstanding Options Exercisable

Weighted- Weighted- Weighted-

average average average

Range of Remaining Exercise Exercise

Exercise Number of Contractual Price Number of Price Price (NT$) Options Life (Years) (NT$/Share) Options (NT$/Share) $ 10 110 0.42 $ 10 110 $ 10 10 289 0.67 10 289 10 399

Cumulative Translation Adjustments

For the years ended December 31, 2008 and 2007, movements of cumulative translation adjustments were as follows:

2008 2007

Exchange differences arising from the translation of the financial statements of foreign operations Balance, beginning of year $ 2,207 $ (885 ) Recognized in shareholders’ equity 5,549 3,092 Balance, end of year $ 7,756 $ 2,207

- 22 -

Unrealized Gain or Loss on Financial Instruments

For the years ended December 31, 2008 and 2007, movements of unrealized gain or loss on financial instruments were as follows:

Available-

for-sale

Financial

Assets

Recognized

through

Equity-

method

Investments Total

Year ended December 31, 2008 Balance, beginning of year $ 8,768 $ 548 $ 9,316 Recognized in shareholders’ equity 20,265 (224 ) 20,041 Removed from shareholders’ equity and recognized in earnings (27,556 ) - (27,556 ) Balance, end of year $ 1,477 $ 324 $ 1,801

Year ended December 31, 2007 Balance, beginning of year $ 7,375 $ - $ 7,375 Recognized in shareholders’ equity 15,219 548 15,767 Removed from shareholders’ equity and recognized in earnings (13,826 ) - (13,826 ) Balance, end of year $ 8,768 $ 548 $ 9,316

15. INCOME TAX

a. A reconciliation of income tax expense based on “income before income tax” at the statutory rate of 25% and income tax expense was as follows:

2008 2007

Income tax expense based on “income before income tax” at the statutory rate of 25% $ 362,760 $ 456,050 Tax effect of the adjusting items: Permanent differences Tax-exempt income (255,168 ) (363,067 ) Others 659 (3,397 ) Temporary differences 23,671 15,974 Investment tax credits used (64,079 ) (49,693 ) Additional 10% income tax on unappropriated earnings 29,456 35,445 Income tax currently payable 97,299 91,312 Net changes in deferred income tax assets Investment tax credits (19,468 ) (41,339 ) Temporary differences (5,464 ) 2,053 Valuation allowance 19,929 (14,158 ) Adjustments for prior years’ income tax 15,441 15,195 Income tax expense $ 107,737 $ 53,063

- 23 -

b. Movements of Income tax payable were as follows: 2008 2007

Balance, beginning of year $ 109,500 $ 43,234 Current income tax expense 97,299 91,312 Income tax paid (100,690 ) (40,241 ) Adjustments for prior years’ income tax 15,441 15,195 Balance, end of year $ 121,550 $ 109,500 c. Net deferred income tax assets were as follows: December 31

2008 2007

Current Investment tax credits $ 82,027 $ 58,609 Temporary differences 21,803 15,979 $ 103,830 $ 74,588 Noncurrent Investment tax credits $ 138,318 $ 142,268 Temporary differences - 360 Valuation allowances (35,932 ) (16,003 ) $ 102,386 $ 126,625 The above deferred income tax assets were computed at a 25% tax rate. d. Movements of deferred income tax assets were as follows: 2008 2007

Balance,

Beginning

of Year

Recognized

in

Statement

of Income

Balance,

End of

Year

Balance,

Beginning

of Year

Recognized

in

Statement

of Income

Balance,

End of

Year

Temporary differences Unrealized sales allowance $ 4,114 $ - $ 4,114 $ 5,078 $ (964 ) $ 4,114 Unrealized loss on inventories 11,256 5,965 17,221 11,068 188 11,256 Others 969 (501 ) 468 2,246 (1,277 ) 969 $ 16,339 $ 5,464 $ 21,803 $ 18,392 $ (2,053 ) $ 16,339 Unused tax credits Investment tax credits $ 200,877 $ 19,468 $ 220,345 $ 159,538 $ 41,339 $ 200,877

e. Integrated income tax information was as follows: December 31

2008 2007

Balance imputation credit account (ICA) $ 44,683 $ 19,653 The expected and actual creditable ratios for the distribution of the earnings of 2008 and 2007 were

2.05% and 5.12%, respectively. The imputation credits allocated to the shareholders are based on the balance of the imputation credit

account (ICA) as of the date of dividend distribution. The expected creditable ratio for 2008 may be adjusted depending on the ICA balance on the date of dividend distribution.

- 24 -

f. As of December 31, 2008, investment tax credits were as follows:

Total Remaining

Creditable Creditable Expiry

Regulatory Basis of Tax Credits Item Amounts Amounts Year

Statute for Upgrading Industries Purchase of machinery and $ 2,986 $ - 2008 equipment 4,601 4,601 2009 2,797 2,797 2011 $ 10,384 $ 7,398 Research and development $ 22,576 $ - 2008 expenditures 28,673 28,673 2009 38,348 38,348 2010 100,012 61,495 2011 84,431 84,431 2012 $ 274,040 $ 212,947

g. As of December 31, 2008, the profits generated from the following expansion and construction projects

are exempt from income tax for a five-year period:

Expansion of Construction Project Tax-Exemption Period

Second expansion of the first manufacturing plant January 1, 2004 to December 31, 2008 Third expansion of the first manufacturing plant January 1, 2005 to December 31, 2009 Fourth expansion of the first manufacturing plant June 1, 2006 to May 31, 2010 Fifth expansion of the first manufacturing plant January 1, 2007 to December 31, 2011 Sixth expansion of the first manufacturing plant January 1, 2008 to December 31, 2012 h. The tax returns through 2005 had been assessed by the tax authorities.

16. LABOR COST, DEPRECIATION AND AMORTIZATION EXPENSES

2008 2007

Classified

as Cost of

Sales

Classified

as

Operating

Expenses Total

Classified

as Cost of

Sales

Classified

as

Operating

Expenses Total

Labor cost Wage and salary $ 101,999 $ 557,975 $ 659,974 $ 77,125 $ 244,824 $ 321,949 Pension 5,590 16,063 21,653 4,685 11,823 16,508 Meal 2,503 6,479 8,982 2,192 5,363 7,555 Welfare 2,372 5,479 7,851 1,922 4,665 6,587 Employee insurance 6,168 20,228 26,396 5,275 16,319 21,594 Others 398 1,919 2,317 314 1,197 1,511 $ 119,030 $ 608,143 $ 727,173 $ 91,513 $ 284,191 $ 375,704 Depreciation $ 49,378 $ 34,823 $ 84,201 $ 41,244 $ 31,606 $ 72,850 Amortization $ 42 $ 83,413 $ 83,455 $ 41 $ 54,074 $ 54,115

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17. EARNINGS PER SHARE

Earnings per share (EPS) was computed as follows:

Number of EPS (NT$)

Amounts (Numerator) Shares Before After

Before After (Denominator) Income Income

Income Tax Income Tax (In Thousands) Tax Tax

2008 Basic EPS Income attributable to common shareholders $ 1,451,079 $ 1,343,342 133,680 $ 10.85 $ 10.05 Effect of dilutive potential common stocks Bonus to employees - - 2,554 Employee stock options - - 602 Diluted EPS Income available to common shareholders (including effect of dilutive potential common stock) $ 1,451,079 $ 1,343,342 136,836 $ 10.60 $ 9.82 2007 Basic EPS Income available to common shareholders $ 1,824,239 $ 1,771,176 132,943 $ 13.72 $ 13.32 Effect of dilutive potential common stocks Employee stock options - - 1,346 Diluted EPS Income available to common shareholders (including effect of dilutive potential common stock) $ 1,824,239 $ 1,771,176 134,289 $ 13.58 $ 13.19

The Corporation should presume that the entire amount of the bonus to employee will be settled in shares

and the resulting potential shares should be included in the weighted average number of shares outstanding used in the calculation of diluted EPS, if the shares have a dilutive effect. The number of shares is estimated by dividing the amount of bonus to employees by the closing price of the common stocks on the balance sheet date. Such effect of dilutive potential common stocks needs to be included in the calculation of diluted EPS until the shares of employee bonus are resolved in the shareholders’ meeting in the following year.

The average number of shares outstanding for EPS calculation was adjusted retroactively for the issuance of

stock dividends and stock bonuses (Note 14). The retroactive adjustment caused the basic and diluted EPS after income tax in 2007 to decrease from NT$14.98 to NT$13.32 and NT$14.83 to NT$13.19, respectively.

18. FINANCIAL INSTRUMENTS a. Fair values of financial instruments were as follows (there were no derivative transactions in 2008 and

2007): December 31

2008 2007

Carrying Carrying

Amount Fair Value Amount Fair Value

Assets Available -for-sale financial assets - current $ 457,053 $ 457,053 $ 1,344,217 $ 1,344,217 Financial assets carried at cost - non-current 16,185 - - -

- 26 -

b. Methods and assumptions used in determining fair values of financial instruments: 1) The aforementioned financial assets do not include cash, receivables, other financial assets - current,

refundable deposits, pledged bank deposits, payables and guarantee deposits. Such assets are expected to be converted to cash, sold or consumed in very short term, and therefore their carrying amounts approximate their fair values.

2) Fair values of available-for-sale financial assets were based on their quoted prices in active markets. 3) Financial assets carried at cost are investments in non-publicly traded stocks, which do not have

quoted market prices in an active market and entail an unreasonably high cost to obtain verifiable fair values. Therefore, no fair value is presented.

c. As of December 31, 2008 and 2007, financial assets exposed to fair value interest rate risk and cash

flow interest rate risk were as follows:

December 31

2008 2007

Fair value interest rate risk Financial assets $ 1,105,212 $ 1,511,143 Cash flow interest rate risk Financial assets $ 741,658 $ 126,320 d. Interest income from financial assets that were not measured at fair values and of which changes in fair

values were not recognized in earnings were NT$16,716 thousand and NT$21,628 thousand in 2008 and 2007, respectively.

e. Financial risks 1) Market risk. The available-for-sale open-end mutual funds held by the Corporation are exposed to

risks on changes in interest rates and market prices. 2) Credit risk. The Corporation will incur a loss if the counter-parties or third-parties breach the

related contracts, which are affected by such factors as the concentrations of credit risk, components of financial instruments, contract amounts, and other receivables on the contracts. Thus, contracts with positive fair values on the balance sheet date are evaluated for credit risk. Since the counter-parties to the asset transactions are reputable financial institutions, management believes its exposure to default by those parties is low.

3) Liquidity risk. The Corporation has sufficient operating capital to meet the cash demand upon

settlement of contract obligations. Thus, the cash flow risk is low. 4) Cash flow interest rate risk. The Corporation doesn’t have any assets and liabilities related to the

changes of interest rate in the long-term period. Thus, the Corporation expected no significant cash flow interest rate risk exits.

- 27 -

19. RELATED PARTY TRANSACTIONS

Related-party transactions, in addition to those disclosed in other notes, are summarized as follows: a. Related parties: Related Party Relationship with the Corporation

Ironman Overseas Co., Ltd. (“Ironman”) Subsidiary Richnex Microelectronics Corporation (“Richnex”) Subsidiary Richtek Europe Holding B.V. (“Richtek Europe”) Subsidiary Richstar Group Co., Ltd. (“Richstar”) Subsidiary RichTek USA, Inc. (“RichTek USA”) Indirect subsidiary RichPower Microelectronics Corp. (“RichPower”) Indirect subsidiary Li-We Technology Corp. (“Li-We”) Indirect subsidiary NeoEnergy Microelectronics, Inc. (“NeoEnergy”) Indirect investee accounted for using equity

method b. Related-party transactions: 2008 2007

Amount % Amount %

For the year Net sales RichPower $ 12,649 - $ 17,990 - RichTek USA 1,624 - 5,585 - $ 14,273 - $ 23,575 - Commissions Ironman $ 40,046 15 $ 27,051 16 Li-We 12,301 5 16,521 10 RichTek USA 3,939 1 - - Richtek Europe 163 - 11,890 7 $ 56,449 21 $ 55,462 33 Rental income Richnex $ 144 95 $ - - NeoEnergy 7 5 - - $ 151 100 $ - - Proceed from disposal of property, plant and equipment Richnex $ 1,680 68 $ - - NeoEnergy 767 31 - - $ 2,447 99 $ - - Service income Richstar $ 723 7 $ - - RichPower 611 5 - - $ 1,334 12 $ - -

- 28 -

2008 2007

Amount % Amount %

At end of year Accounts receivable RichTek USA $ 516 - $ 11,614 - RichPower - - 1,319 - $ 516 - $ 12,933 - Accrued expense Ironman $ 2,567 3 $ 4,322 - Richtek Europe 77 - - - RichTek USA 19 - 789 - $ 2,663 3 $ 5,111 - Payment terms and transaction terms for the commissions and rental income with related parties are

determined in accordance with mutual agreement. Terms of transactions between the Corporation and its related parties were made at normal commercial

prices and terms with reference to the costs and market prices. As of December 31, 2008, the endorsements provided by the Corporation to related parties were as

follows:

Amount

Richnex $ 30,000 Richstar 25,000 $ 55,000 c. Compensation of directors, supervisors and management personnel: Years Ended

December 31

2008 2007

Salaries $ 49,587 $ 53,181 Incentives 5,720 9,323 Bonus 55,340 169,272 $ 110,647 $ 231,776 Information about the compensation for the year ended December 31, 2007 includes bonuses to

directors, supervisors and management personnel for which the appropriation of earnings was resolved in the annual shareholders meeting in 2008.

- 29 -

20. PLEDGED OR MORTGAGED ASSETS

The following asset had been pledged or mortgaged as collaterals in line with certain customs requirements: December 31

2008 2007

Pledged bank deposits $ 6,248 $ 3,059 21. COMMITMENTS AND CONTINGENCIES

As of December 31, 2008, the Corporation was leasing factory buildings, a marketing office, research and

development software and vehicles from third parties under renewable operating lease agreements expiring in July 2012. Rent is paid monthly, subject to any adjustments made in the agreements.

Future lease minimal payments were as follows: Year Amount

2009 $ 21,561 2010 5,459 2011 1,170 2012 227 $ 28,417 22. ADDITIONAL DISCLOSURES

Except for the following, the Corporation had no other significant transactions, investees and investments

for which disclosure is required by the Securities and Futures Bureau: a. Endorsement/guarantee provided: Table 1 (attached) b. Marketable securities held: Table 2 (attached) c. Marketable securities acquired and disposed of at costs or prices of at least NT$100 million or 20% of

the paid-in capital: Table 3 (attached) d. Acquisition of investment or individual real estate at costs of at least NT$100 million or 20% of the

paid-in capital: Table 4 (attached) e. Names, locations, and related information of investees on which the Corporation exercises significant

influence: Table 5 (attached) f. Information about derivatives of investees over which the Corporation has a controlling interest:

None. g. Information on investment in Mainland China 1) The name of the investee in mainland China, the main businesses and products, its issued capital,

method of investment, information on inflow or outflow of capital, percentage of ownership, equity in the net gain or net loss, ending balance and the limitation on investment: Table 6 (attached)

- 30 -

2) Significant direct or indirect transactions with the investee, its prices and terms of payment and unrealized gain or loss: Please see Notes 8 and 19.

23. SEGMENT INFORMATION

a. Industry The Corporation mainly designs and sells integrated circuits, which does not involve multiple industries,

and therefore segment information does not apply. b. Department financial information: Not applicable c. Area financial information: the Corporation does not have operations in foreign countries. d. Export sales The Corporation exports mainly to other Asian countries. The export sales for the years ended

December 31, 2008 and 2007 were NT$2,965,883 thousand and NT$2,685,310 thousand, respectively. e. Major customers representing at least 10% of total net sales were as follows:

2008 2007

Amount % Amount %

Client A $ 1,302,603 19 $ 715,667 12 B 801,824 12 538,200 9 C 698,019 10 686,709 11 D 668,612 10 756,168 12 E 624,632 9 606,083 10

- 31 -

TABLE 1


ENDORSEMENT/GUARANTEE PROVIDED YEAR ENDED DECEMBER 31, 2008


Endorsee

Number Name of Endorsor Name Relationship

Upper Limit of

Endorsement to a

Single Entity

(Notes 1 and 2)

Upper Limit of

Endorsement Balance

During the year

Ending Balance of

Endorsement

Amount of

Endorsement

Collateralized by

Assets

Cumulative Amount of

Endorsement as a

Percentage of Net Asset

Value in the Most

Recent Financial

Statement

Upper Limit of

Endorsement

(Note 3)

1 Richtek Technology Richnex Microelectronics Corporation 80% owned subsidiary $824,705 $30,000 $30,000 $ - 1% $2,061,762

Corporation Richstar Group Co., Ltd. 100% owned subsidiary 824,705 25,000 25,000 - 1%

Note 1: The amount endorsed to a single entity by the Corporation shall not exceed 20% of the net asset value at the end of the year. Note 2: The aforementioned limit does not apply to 100% owned subsidiaries. Note 3: The total amount endorsed by the Corporation shall not exceed 50% of net asset at the end of the year.

- 32 -

TABLE 2


MARKETABLE SECURITIES HELD

DECEMBER 31, 2008


December 31, 2008

Holding Company Name Marketable Securities Type and

Name/Issuer

Relationship with

the Holding

Company

Financial Statement Account Shares

(Thousands/

Units)

Carrying Value Percentage of

Ownership (%)

Market Value or

Net Asset Value

Note

Richtek Technology Corporation ING Taiwan Bond Fund - Available-for-sale financial assets 17,864 $ 278,013 - $ 278,013 Note 1 Dresdner Bond DAM Fund - Available-for-sale financial assets 8,368 100,044 - 100,044 Note 1 PCA Well Pool Bond Fund - Available-for-sale financial assets 4,440 57,461 - 57,461 Note 1 Capital Safe Fund - Available-for-sale financial assets 1,401 21,535 - 21,535 Note 1 Li-Yuh Investment Ltd. - common stock Subsidiary Investments accounted for using equity method 19,000 176,564 100 176,564 Note 3 Ironman Overseas Co., Ltd. - common stock Subsidiary Investments accounted for using equity method 5,680 106,744 100 106,744 Note 3 Richstar Group Co., Ltd. - common stock Subsidiary Investments accounted for using equity method 6,015 97,044 100 97,044 Note 3 Richnex Microelectronics Corporation -

common stock Subsidiary Investments accounted for using equity method 8,000 49,381 80 49,381 Note 3

Richtek Europe Holding B.V. - common stock Subsidiary Investments accounted for using equity method 500 14,144 100 14,144 Note 3 Richtek Holding International Limited -

common stock Subsidiary Investments accounted for using equity method 5 7,127 100 7,127 Note 3

Nexcera Corporation Limited - common stock Investee Financial assets carried at cost - noncurrent 500 16,185 6 16,185 Note 2 Li-Yuh Investment Ltd. ING Taiwan Income Fund - Available-for-sale financial assets - current 965 15,788 - 15,788 Note 1 NeoEnergy Microelectronics, Inc. - common

stock Subsidiary Investments accounted for using equity method 4,250 39,857 43 39,857 Note 3

ENE Technology Inc. - common stock Investee Financial assets carried at cost - noncurrent 1,578 75,000 2 43,950 Note 4 RichWave Technology Corp. - common stock Investee Financial assets carried at cost 3,973 30,747 12 30,747 Note 2 Lirlink Technology Corp. - common stock Investee Financial assets carried at cost 500 5,000 10 5,000 Note 2 Taiwan Electrets Electronics Corporation

Limited - common stock Investee Financial assets carried at cost - noncurrent 1,000 10,000 6 10,000 Note 2

Ironman Overseas Co., Ltd. Cosmic-Ray Technology Limited Subsidiary Investments accounted for using equity method 4,530 74,132 100 74,132 Note 3 Richstar Group Co., Ltd. RichTek USA, Inc. Subsidiary Investments accounted for using equity method 1,000 13,745 100 13,745 Note 3 Richtek Europe Holding B.V. Richtek Europe B.V. Subsidiary Investments accounted for using equity method 300 4,679 100 4,679 Note 3 Cosmic-Ray Technology Limited RichPower Microelectronics Corp. Subsidiary Investments accounted for using equity method - 40,464 100 40,464 Note 3 Li-We Technology Corp. Subsidiary Investments accounted for using equity method - 32,139 100 32,139 Note 3

Note 1: Based on the net asset value as of December 31, 2008. Note 2: Based on carrying value of investment as of December 31, 2008. Note 3: Based on audited financial data as of December 31, 2008. Note 4: The market value was based on the closing price as of December 31, 2008. Note 5: As of December 31, 2008, the above marketable securities had not been pledged or mortgaged.

- 33 -

TABLE 3


MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL

YEAR ENDED DECEMBER 31, 2008


Beginning Balance Acquisition Disposal Ending Balance

Company Name Marketable Securities Type and

Name/Issuer Financial Statement Account

Counter-

party

Nature of

Relationship Shares

(Thousands)

Amount

(Note)

Shares

(Thousands) Amount

Shares

(Thousands) Amount

Carrying

Value

Gain on

Disposal

Shares

(Thousands)

Amount

(Note)

Richtek Technology Corporation Capital Safe Fund Available-for-sale financial assets - - 16,714 $ 252,850 13,812 $ 210,000 29,125 $ 443,900 $ 440,742 $ 3,158 1,401 $ 21,535 ING Taiwan Income Fund Available-for-sale financial assets - - 14,434 232,205 23,042 372,000 37,476 606,147 602,807 3,340 - - PCA Well Pool Bond Fund Available-for-sale financial assets - - 15,647 199,102 16,705 215,000 27,912 360,000 356,157 3,843 4,440 57,461 The Rsit Enhanced Bond Fund Available-for-sale financial assets - - 16,560 185,581 7,572 85,000 24,132 273,196 270,000 3,196 - - ING Taiwan Select Fund Available-for-sale financial assets - - 8,855 101,900 3,454 40,000 12,309 143,095 141,470 1,625 - - SinoPac Bond Fund Available-for-sale financial assets - - 7,205 94,571 2,661 35,000 9,866 130,982 129,000 1,982 - - ING Taiwan Bond Fund Available-for-sale financial assets - - 5,148 78,806 51,133 790,000 38,417 593,500 590,587 2,913 17,864 278,013 Dresdner Bond DAM Fund Available-for-sale financial assets - - 8,597 101,225 8,368 100,000 8,597 102,697 100,000 2,697 8,368 100,044 NITC Bond Fund Available-for-sale financial assets - - 160 26,740 477 80,000 637 107,283 106,304 979 - - The Forever Fund Available-for-sale financial assets - - - - 11,223 165,000 11,223 166,191 165,000 1,191 - -

Note: Including unrealized valuation gain of financial instruments.

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TABLE 4


ACQUISITION OF INVESTMENT OR INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL YEAR ENDED DECEMBER 31, 2008


Prior Transaction made by Related Counter-party Company Name Object Date Amount Payment Counter Party Relationship

Owner Relationship Transfer Date Amount Market Price Purpose Others

Richtek Technology

Corporation Land and buildings 2008.3.17 $135,020 $135,020 Winsome Company - - - - $ - Quoted by

professional institution: $137,860

For operating uses -

- 35 -

TABLE 5


NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE CORPORATION EXERCISES SIGNIFICANT INFLUENCE

DECEMBER 31, 2008


Investment Amount Balance as of December 31, 2008

Investor Company Investee Company Location Main Businesses and Products Dec. 31, 2008 Dec. 31, 2007

Shares

(Thousands)

% of

Ownership

Carrying

Value

Net Income

(Loss) of the

Investee

Investment

Gain (Loss) Note

Richtek Technology Corporation Li-Yuh Investment Ltd. Hsin-chu, Taiwan Investment $ 190,000 $ 190,000 19,000 100 $ 176,564 $ 4,131 $ 4,131 Subsidiary Ironman Overseas Co., Ltd. British Virgin Islands,

Tortola Investment 189,184 155,679 5,680 100 106,744 (30,295 ) (30,295 ) Subsidiary

Richstar Group Co., Ltd. British Virgin Islands, Tortola

Investment 195,444 132,986 6,015 100 97,044 (25,637 ) (25,637 ) Subsidiary

Richnex Microelectronics Corporation Hsin-chu, Taiwan Product design 80,000 50,000 8,000 80 49,381 (38,110 ) (34,325 ) Subsidiary Richtek Europe Holding B.V. Netherlands Investment 23,114 23,114 500 100 14,144 (7,496 ) (7,496 ) Subsidiary Richtek Holding International Limited B.V.I. Investment 16,141 - 5 100 7,127 (8,914 ) (8,914 ) Subsidiary Li-Yuh Investment Ltd. NeoEnergy Microelectronics, Inc. Hsin-chu, Taiwan Designing and testing integrated circuits

(ICs) and provide information and software services

42,500 - 4,250 43 39,857 (6,219 ) (2,643 ) Investee accounted for using equity method

Ironman Overseas Co., Ltd. Cosmic-Ray Technology Limited SAMOA Investment 151,248 117,743 4,530 100 74,132 (33,857 ) (33,857 ) Subsidiary Richstar Group Co., Ltd. RichTek USA, Inc. USA California Selling ICs and providing related consulting 132,490 132,490 1,000 100 13,745 (42,273 ) (42,273 ) Subsidiary Richtek Europe Holding B.V. Richtek Europe B.V. Netherlands Selling ICs and providing related consulting 13,869 6,934 300 100 4,679 (7,908 ) (7,908 ) Subsidiary Cosmic-Ray Technology Limited RichPower Microelectronics Corp. Shanghai, China Selling ICs and providing related consulting 100,001 100,001 - 100 40,464 (18,438 ) (18,438 ) Subsidiary Li-We Technology Corp. Guangdong, China Selling ICs and providing related consulting 50,230 16,725 - 100 32,139 (15,431 ) (15,431 ) Subsidiary

- 36 -

TABLE 6


INFORMATION ON INVESTMENT IN MAINLAND CHINA

FOR THE YEAR ENDED DECEMBER 31, 2008


Investment Flows

Investee Company Main Businesses and

Products

Total Amount

of Paid-in

Capital

(US$ and RMB

in Thousands)

Investment

Type

Accumulated

Outflow of

Investment

from Taiwan as

of

January 1, 2008

(US$ in

Thousands)

Outflow

(US$ in

Thousands)

Inflow

Accumulated

Outflow of

Investment

from Taiwan as

of December 31,

2008 (US$ in

Thousands)

Percentage of

Ownership in

Investment

Investment

Loss

(Note 2)

Carrying Value

as of

December 31,

2008

Accumulated

Inward

Remittance of

Earnings as of

December 31,

2008

RichPower Microelectronics Corp.

(Shanghai) Selling integrated circuits (ICs)

and providing related consulting

$ 100,001 (US$ 3,000 )

Note 1 $ 100,001 (US$ 3,000 )

$ - $ -

$ 100,001 (US$ 3,000 )

100% $ (18,438 ) $ 40,464 $ -

Li-We Technology Corp.

(Guangdong) Selling ICs and providing

related consulting 50,230 (US$ 1,500 )

Note 1 16,725 (US$ 500 )

33,505 (US$ 1,000 )

- 50,230 (US$ 1,500 )

100% (15,431 ) 32,139 -

Con Dien (Xi’an) Hi-Tech

Ceramics Corporation Manufacturing and selling fine

ceramics 71,825 (RMB15,001 )

Note 1 - 16,185 (US$ 500 )

- 16,185 (US$ 500 )

6% - 16,185 -

Accumulated Investment in Mainland

China as of December 31, 2008

(US$ in Thousands)

Investment Amount Authorized by

the Investment Commission, MOEA

(US$ in Thousands)

Upper Limit on Investment

(US$ in Thousands)

$166,416 (US$5,000)

$182,816 (US$5,500)

$2,474,114 (Note 3)

Note 1: The investments were made through a company in a third region. Note 2: The amount recognized was based on audited financial statements. Note 3: This limit was 60% of net asset value, based on the “Guidelines Governing the Approval of Investments or Technical Cooperation in Mainland China,” which were amended by the Investment Commission under the Ministry of Economic

Affairs on August 22, 2008.

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