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RT AGM Information 2020

Jun 17, 2020

52043_rns_2020-06-17_33dd6405-2790-4b6e-bd3a-45832bc1d5e3.pdf

AGM Information

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Stock Code: 2379

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Realtek Semiconductor Corp.

2020 Annual Shareholders’ Meeting

Meeting Handbook

(Translation)

Date: June 10, 2020

Table of Contents

Meeting Procedure ........................................................................................................................... 1 Meeting Agenda ............................................................................................................................... 2 1. Report Items ...................................................................................................................... 3 2. Ratification Items .............................................................................................................. 9 3. Discussion Items ............................................................................................................. 11 4. Extraordinary Motions .................................................................................................... 12 Attachment ..................................................................................................................................... 13 1. Independent Auditors’ Report and 2019 Consolidated Financial Statements ................ 13 2. Independent Auditors’ Report and 2019 Parent Company Only Financial Statements .. 27 3. Comparison table illustrating the original and amended texts of the Articles of Incorporation ................................................................................................................... 38 Appendix ........................................................................................................................................ 42 1. Articles of Incorporation ................................................................................................. 42 2. Rules of Procedures for Shareholders Meeting ............................................................... 48 3. Shareholding of Directors ............................................................................................... 52

Realtek Semiconductor Corp. 2020 Annual Shareholders’ Meeting Procedure

  1. Meeting Commencement Announced

  2. Chairman’s Address

  3. Report Items

  4. Ratification Items

  5. Discussion Items

  6. Extraordinary Motions

  7. Adjournment

1

Realtek Semiconductor Corp. 2020 Annual Shareholders’ Meeting Agenda

  1. Time: 9:00 a.m., June 10, 2020 (Wednesday)

  2. Place: No.1, Industry East 2[nd] Road, Science-Based Industrial Park, HsinChu Science Park Life Hub, Bach Conference Room

  3. Chairman: Yeh, Nan-Horng, Chairman

  4. Chairman’s Address

  5. Report Items

  6. (1) Business report of 2019

  7. (2) Audit Committee’s review report

  8. (3) To report 2019 employees’ compensation and directors’ remuneration

  9. (4) To report 2019 cash dividends distribution from retained earnings

  10. (5) To report cash distribution from capital surplus

  11. Ratification Items

  12. (1) 2019 business report and financial statements

  13. (2) Distribution of 2019 retained earnings

  14. Discussion Items

  15. (1) To revise the Articles of Incorporation

  16. Extraordinary Motions

  17. Adjourment

Remark: Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide a vote to be held on individual proposal, or on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal of the above ratification items and discussion items.

2

Report Items

Report 1: Business report of 2019

Explanation: Please refer to the following for the business report.

Business Report

Dear Shareholders, Ladies and Gentlemen:

1. 2019 Operating Results

Realtek delivered stellar operating results in 2019. The full-year consolidated revenues were NT$60.74 billion, a 32.6% growth from the previous year. Gross profit was NT$26.58 billion, up 29.9% from the year before. Net profit after tax was NT$6.79 billion, a 56.1% year-over-year increase. Earnings per share (EPS) was NT$13.36. According to IC Insights, 2019 global semiconductor market revenue was US$442.3 billion, a decline of 12.3% compared to 2018. Despite the macroeconomic impact of a weak memory market and uncertainties of the US-China trade war, Realtek banked on robust product technology, nimble market strategies, and concerted teamwork to produce excellent results. Realtek had the highest growth rate among the world’s top 50 semiconductor companies in 2019.

With global demand for connectivity devices of various types continuing to rise rapidly, IC companies must provide products that offer higher performance, are more integrated, and with lower power consumption. Realtek has accumulated a great deal of technological depth in connectivity and continues to make new advances to maintain its market-leading position. Amongst the 2019 top 100 domestic companies that submitted the most patent applications to Taiwan’s Intellectual Property Office, Realtek ranked sixth with 333 innovation patent applications. We incorporate these technological advances into new products that meet market needs and stimulate demand. At COMPUTEX Taipei 2019, Realtek won three major awards, including Best Choice Golden awards for our 8K Video Decoder and Processing IC (RTD2893) and our Bluetooth 5 ANC Smart Headset SoC (RTL8773B), and the Best Choice Category award for our Ultra-Low-Power Versatile IoT Solution (RTL8722DM). Particularly notable was the 8K Video Decoder and Processing IC, which led all COMPUTEX award winners by receiving the Best Choice of the Year award.

2. 2020 Business Plan

After outperforming the market in 2019, for 2020 Realtek will release even more competitive products and strengthen positioning of all product lines in order to maintain market growth and technological leadership. For wireless controllers, Realtek’s first generation Wi-Fi 6 (11ax) will begin mass production in 2020 for use in a variety of applications. Optimization of existing 11ac and 11n products will provide more solutions with a higher price-performance ratio, thereby consolidating the current customer base while expanding emerging applications and markets.

3

For IoT controllers, Realtek has a comprehensive set of single-chip SoCs integrating microcontroller, voice, and/or ISP processors. These are highly integrated, low power consumption products that feature strong security and comprehensive AI functions that can meet the changing needs of our various customer groups. Realtek’s IoT products are already wellknown and are projected to perform well in 2020 as the market quickly expands.

For Bluetooth peripheral products, Realtek’s True Wireless Stereo (TWS) single-chip was a favorite among consumers in 2019 and led market growth. In 2020, a new generation of TWS products with Active Noise Cancellation (ANC) will enable Realtek to maintain its position as the leader in Bluetooth audio, and to expand its market influence by working closely with supply chain and brand partners. Additionally, Realtek’s Bluetooth Low Power single-chip solutions are a popular choice for voice remote controllers and wearable applications, and should continue to see growth in 2020.

Regarding Ethernet, mass production of Realtek’s new generation of 2.5Gbps Ethernet Controllers for PC applications is already underway. With the upgrade of network infrastructure in countries around the world, it will also stimulate the demand for the new 2.5Gbps Ethernet in various connectivity products.

For switch controllers, in recent years Realtek has been actively developing smart switches. In addition to the research and development of Layer 3 managed switches and higher-speed switches, the 2.5G/5G/10G physical layer technologies are progressing synchronously in Realtek to advance both the depth and breadth of product offerings. In 2020, smart switches will become a primary driver of growth, surpassing unmanaged switches.

In automobile Ethernet products, Realtek is again riding on its technological advantages to lead the world in the release of second-generation products. Its high-port count switch controller, which integrates 100BASE-T1 and 1000BASE-T1 PHYs, is a favorite of European and American automobile OEM manufacturers and tire-1 suppliers. Our switch controllers are on the way to meeting future requirements of new generation automotive in-vehicle network backbones in 2022/2023; we expect this market will be one of the mid-to-long term growth drivers for Realtek.

For TV controllers, in 2019 Realtek products closely matched the needs of the end market to gain the support of customers and achieve steady growth. In 2020, to meet the demand for 8K signal broadcast transmission, Realtek is offering an award-winning 8K TV decoder that does not require changes to the existing TV architecture. Development of this solution has been welcomed by TV customers and resulted in many collaborative design-ins. Besides new 8K products, penetration of the 4K TV market continues, thereby providing further revenue growth opportunity in 2020.

PC product sales grew in 2019 due to extensive commercial PC upgrades and replacements. In 2020, the overall market is expected to be more tepid. Realtek continues, however, to upgrade and optimize its PC codecs, image signal processors, card reader controllers, and Type-C

4

controllers. At the same time, Realtek is developing non-PC applications based on its success in PC solutions. For example, in the consumer audio electronics market, Realtek’s unique low power chip design combined with power-saving software/hardware integrated design, smart audio power amplifiers, and programmable audio DSP are gradually finding their way into leading smartphone and electronic gaming brands. In recent years Realtek has developed highly integrated IP Camera single-chips in response to security and surveillance market demand. Target markets include consumer goods and smart home network monitoring devices. In 2020, Realtek will release a new generation of low power AI IP Camera controller with edge computing and H.264/H.265 encoding capabilities. Together, these products will provide consumers with a wide range of competitive solutions.

  1. Strategy for Future Development and Impact by Competitive, Regulatory, and Macro Conditions

The global semiconductor industry faced numerous challenges in 2019, including uncertainties due to the US-China trade war, a weak market for memory, and slowed growth for high-end mobile phones and automotive and industrial applications. Before the start of 2020, despite the ongoing trade war, increased demand from 5G and AI was expected to restore growth to the industry. However, the sudden outbreak of COVID-19 epidemic is adding another uncertainty to the economic environment. Throughout, Realtek continued developing key technologies to provide customers with the best connectivity solutions for diverse applications they use. In the future, we will uphold this principle. We will use years of technological experience as well as our agile and flexible management strategies to face up to all challenges and produce greater value for all shareholders. We hope you will continue moving ahead with us on this exciting journey.

Thank you for your care and support!

We wish you a healthy and prosperous future

Chairman: Yeh, Nan-Horng President: Chiu, Sun-Chien Controller: Chang, Jr-Neng

5

Report 2: Audit Committee’s review report

Explanation: Please refer to the following for the Audit Committee’s review report.

Audit Committee’s review report

The Company's 2019 business report, financial statements and distribution of retained earnings have been prepared by the Board of Directors. The financial statements also have been audited by Pricewaterhouse Coopers' with the opinion that they present fairly the Company’s financial position, operating performance, and cash flows. The Audit Committee has reviewed the business report, financial statements, and distribution of retained earnings, and found no irregularities. We hereby according to Securities and Exchange Act and Company Act submit this report.

To 2020 Annual Shareholders’ Meeting.

Realtek Semiconductor Corp.

Chairman of the Audit Committee: Ou Yang, Wen-Han

March 20, 2020

6

Report 3: To report 2019 employees’ compensation and directors’ remuneration Explanation:

  1. According to Article 18 of the Articles of Incorporation of the Company, if gained profits within a fiscal year, the Company shall allocate at a maximum of 3% of the profits as directors’ remuneration, and allocate no less than 1% of the profits as employees’ compensation.

  2. The Board of Directors resolved the distribution of 2019 employees’ compensation and directors’ remuneration as follows ：

Unit: NT dollars
Item Amount Profit Ratio
Employees’compensation 2,097,423,691 22.21%
Directors’ remuneration 119,828,246 1.27%

  • Note: Employees' compensation and directors' remuneration amount are consistent with the 2019 annual estimated expenses.

  • Except directors’ remuneration is paid in cash, the employees’ compensation is paid in cash of NT $ 1,677,939,109 and in new issued shares of NT$419,484,582. The numbers of new issued shares are 2,589,411 shares, which are calculated based on the closing price NT$162 per share of 2020/03/19, prior to the board resolution date. The new issued shares from employees’ compensation have the same rights and obligations as the original shares. The employees’ entitled to receive employees’ compensation may include employees of subsidiary companies who meet certain requirements. The Chairman is authorized by the Board of Directors to determine the capital increase record date and other related matters.

7

Report 4: To report 2019 cash dividends distribution from retained earnings Explanation:

  1. The Board of Directors resolved that the 2019 cash dividends distribution from retained earnings is NT$ 4,596,163,875. According to the shares held by each shareholder in the shareholders’ register on cash dividend record date, the cash dividends to common shareholders is NT$9 per share.

  2. Due to the changes of outstanding shares caused by the Company’s subsequent events such as shares’ buyback, transfer or cancellation of treasury stocks or others, the cash distribution per share might be affected. The Chairman is authorized by the Board of Directors to adjust the distribution.

  3. The cash distribution to each shareholder is rounded down to one dollar (under one dollar is rounded down). The rounded down amounts are recognized as the Company’s other income.

  4. The Chairman is authorized by the Board of Directors to determine the cash dividend record date and payment date. .

Report 5: To report cash distribution from capital surplus Explanation:

  1. The Board of Directors resolved that pursuant to the Article 241 of the Company Act, the cash distribution from the capital surplus in excess of par value is NT$ 1,021,369,750. According to the shares held by each shareholder in the shareholders’ register on cash distribution record date, the cash distribution to common shareholders is NT$2 per share.

  2. Due to the changes of outstanding shares caused by the Company’s subsequent events such as shares’ buyback, transfer or cancellation of treasury stocks or others, the cash distribution per share might be affected. The Chairman is authorized by the Board of Directors to adjust the distribution.

  3. The cash distribution to each shareholder is rounded down to one dollar (under one dollar is rounded down). The rounded down amounts are recognized as the Company’s other income.

  4. The Chairman is authorized by the Board of Directors to determine the cash distribution record date and payment date.

8

Ratification Items

Proposal 1

Proposed by the Board of Directors

Subject: 2019 business report and financial statements. Approval is respectfully requested. Explanation: The 2019 annual financial statements have been audited by Pricewaterhouse Coopers' and the business report was approved by the Board of Directors. For the business report, independent auditors’ report and financial statement, please refer to pages 3-5, page 13-26, Attachment 1, and page 27-37, Attachment 2, of this handbook.

Resolution:

9

Proposal 2

Proposed by the Board of Directors Subject: Distribution of 2019 retained earnings. Approval is respectfully requested. Explanation: The distribution of 2019 retained earnings was approved by the Board of Directors.

Realtek Semiconductor Corporation Distribution of retained earnings 2019

Unit: NT dollars

2019
 Unit: NT dollars
Item Amount
2019 Net Income after taxes 6,790,282,678
Minus: Disposal of Equity Instruments measured at
fair value through other comprehensive income		 (41,212,290)
Minus: Appropriated for Legal Reserve (674,907,039)
Minus: Appropriated for Special Reserve (217,036,022)
2019 Earnings Available for Distribution 5,857,127,327
Plus: Previous Year’s Unappropriated Earnings 7,966,965,484
Cumulative Earnings Available for Distribution for
2019		 13,824,092,811
Items for Distribution:
Dividends to Shareholders(distributed in cash) (4,596,163,875)
Unappropriated Retained Earnings 9,227,928,936

According to No. 871941343 official letter issued by Ministry of Finance on April 30, 1998, distribution of retained earnings shall be used in specific identification method. The first priority of distribution of retained earnings is 2019 profit, then the following sequence adopted in last-in first-out method are the previous year’s part before 2019 if insufficiency based on the principles of the Company’s profit distribution.

Chairman: Yeh, Nan-Horng President: Chiu, Sun-Chien Controller: Chang, Jr-Neng

Resolution:

10

Discussion Items

Proposal 1

Proposed by the Board of Directors

Subject: To revise the Articles of Incorporation. Approval is respectfully requested. Explanation:

  1. Based on operation demand, the Company hereby proposes to amend part of the "Articles of Incorporation".

  2. The comparison table illustrating the original and amended texts of the "Articles of Incorporation" is available on page 38-41, Attachment 3 of this handbook.

Resolution:

Remark: Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide a vote to be held on individual proposal, or on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal of the above ratification items and discussion items.

11

Extraordinary Motions

Adjourment

12

Attachment

Attachment 1: Independent Auditors’ Report and 2019 Consolidated Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE PWCR19000228 To the Board of Directors and Shareholders of Realtek Semiconductor Corporation

Opinion

We have audited the accompanying consolidated balance sheets of Realtek Semiconductor Corporation and its subsidiaries (the “Group”) as at December 31, 2019 and 2018, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants (please refer to the Other matters section of our report), the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2019 and 2018, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Independent Accountant’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the report of the other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

13

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Group’s consolidated financial statements of the current period are stated as follows:

Existence of cash in banks

Description

Refer to Notes 4(6) and 4(9) of the consolidated financial statements for the accounting policies on cash and cash equivalents and time deposits that do not qualify as cash equivalents. The balance of cash and cash equivalents was NT$5,727,911 thousand, constituting 8% of the consolidated total assets as of December 31, 2019, as described in Note 6(1) of the consolidated financial statements. Time deposits that do not meet the definition of cash and cash equivalents, which refers to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value are classified as "financial assets at amortised cost - current”. The balance of these time deposits amounted to NT$39,558,054 thousand, constituting 54% of consolidated total assets, refer to Note 6(4) of the consolidated financial statements for the details. The abovementioned assets constituted 62% of the total assets, have a significant impact on the consolidated financial statements, the nature and usage of those bank accounts varies, and the Group transacts with various financial institutions, thus, audit of cash in bank was considered as one of the key audit matters.

14

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

  1. Obtained detailed listings of cash in banks. Sent confirmation letters to all financial institutions and reviewed special terms and agreements in order to ensure the existence and rights and obligations of cash in banks.

  2. Obtained an understanding of procedures for preparation and review of bank reconciliations, including validating unusual reconciling items.

  3. Obtained an understanding of the usage of the bank accounts as well as sampled and validated significant cash transactions to ensure they are operational in nature and there are no significant and unusual transactions.

Evaluation of inventories

Description

Refer to Note 4(14) of the consolidated financial statements for inventory evaluation policies, Note 5(2) for uncertainty of accounting estimates and assumptions of inventory evaluation and Note 6(6) for the details of inventories.

The Group is primarily engaged in researching, developing, manufacturing, selling of various integrated circuits and related application software. Inventories are stated at the lower of cost and net realizable value. Due to the balances of inventories are significant to the financial statements and the rapid technological changes in the industry, there is a higher risk of decline in market value and obsolescence of inventories. Thus, we considered the evaluation of inventories as one of the key audit matters.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

  1. Obtained an understanding of accounting policies on the provision of allowance for inventory valuation losses and assessed the reasonableness.

  2. Validated the accuracy of inventory aging report, as well as sampled and confirmed the consistency of quantities and amounts with detailed inventory listing, verified dates of movements with supporting documents and ensured the proper categorization of inventory aging report.

  3. Evaluated and confirmed the reasonableness of net realizable value for inventories through validating respective supporting documents.

15

Other matter – Reference to audits of other independent accountants

We did not audit the financial statements of certain consolidated subsidiaries and investments accounted for under equity method. Those financial statements were audited by other independent accountants, whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included in the financial statements and the information on the consolidated subsidiaries and investments accounted for using the equity method were based solely on the reports of other independent accountants. Total assets (including investments accounted for under the equity method amounted to NT$185,972 thousand and NT$261,628 thousand) of those consolidated subsidiaries amounted to NT$5,971,097 thousand and NT$6,469,495 thousand, constituting 8.13% and 11.11% of the consolidated total assets as of December 31, 2019 and 2018, respectively, and total operating revenues were both NT$0 thousand, both constituting 0% of the consolidated total operating revenues for the years then ended. Furthermore, according to the reports of other independent accountants, comprehensive losses of those investments accounted for under the equity method amounted to NT$19,443 thousand and NT$41,330 thousand, constituting 0.32% and 0.82% of comprehensive incomes for the years then ended, respectively.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion with other matter section on the parent company only financial statements of Realtek Semiconductor Corporation as at and for the years ended December 31, 2019 and 2018.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

16

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the Audit Committee, are responsible for overseeing the Group’s financial reporting process.

Independent accountant’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

17

  1. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

  2. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Group to cease to continue as a going concern.

  3. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

  4. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

18

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Lin, Yu-Kuan Tsang, Kwoh-Wah For and on behalf of PricewaterhouseCoopers, Taiwan March 20, 2020

19

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets December 31, 2019
Notes
AMOUNT
%
6(1)
$ 5,727,911
8
6(2)
74,012
-
6(4) and 8
39,558,054
54
6(5)
8,254,011
11
6(5) and 7
2,196,717
3
768,699
1
6(6)
7,391,535
10
318,652
1
64,289,591
88
6(3)
1,859,478
2
6(4) and 8
69,477
-
6(7)
185,972
-
6(8)
3,446,162
5
6(9)
1,403,245
2
6(10)
49,136
-
6(11)
1,952,960
3
6(27)
114,163
-
61,646
-
9,142,239
12
$ 73,431,830
100
(Continued)		 December 31, 2018 December 31, 2018
AMOUNT
$ 4,309,651
1,321,103
31,286,209
5,647,722
1,772,071
657,190
5,862,005
297,327
51,153,278
1,651,072
-
261,628
3,316,578
-
54,868
1,686,249
78,472
50,169
7,099,036
$ 58,252,314		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value through
profit or loss - current
1136
Financial assets at amortised cost -
current
1170
Accounts receivable, net
1180
Accounts receivable, net - related
parties
1200
Other receivables
130X
Inventories, net
1410
Prepayments
11XX
Total current assets
Non-current assets
1517
Financial assets at fair value through
other comprehensive income - non-
current
1535
Financial assets at amortised cost -
non-current
1550
Investments accounted for under
equity method
1600
Property, plant and equipment
1755
Right-of-use assets
1760
Investment property
1780
Intangible assets
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Total non-current assets
1XXX
Total assets		 7
2
54
10
3
1
10
1
88
3
-
-
6
-
-
3
-
-
12
100

20

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities and Equity December31,2019
Notes
AMOUNT
%
6(13)
$ 18,966,042
26
6(21)
104,974
-
3,276
-
7,441,724
10
7
329,514
1
6(14)
10,746,168
15
7
87,293
-
828,790
1
84,328
-
6(21)
5,378,078
7
43,970,187
60
6(16)
1,075,809
2
6(27)
51,723
-
1,028,347
1
77,080
-
2,232,959
3
46,203,146
63
6(17)
5,080,955
7
6(18)
2,736,854
3
6(19)
4,902,176
7
-
-
14,716,036
20
6(20)
(
217,036)
-
27,218,985
37
9,699
-
27,228,684
37
$ 73,431,830
100		 December31,2018 December31,2018
AMOUNT
$ 14,526,311
148,696
8,657
5,635,986
249,869
7,542,208
69,047
601,614
-
3,719,866
32,502,254
999,868
22,310
-
80,983
1,103,161
33,605,415
5,080,955
3,236,659
4,467,099
600,443
10,850,172
401,964
24,637,292
9,607
24,646,899
$ 58,252,314		 %
Current liabilities
2100
Short-term borrowings
2130
Contract liabilities - current
2150
Notes payable
2170
Accounts payable
2180
Accounts payable - related parties
2200
Other payables
2220
Other payables - related parties
2230
Current income tax liabilities
2280
Lease liabilities - current
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2550
Provisions - non-current
2570
Deferred income tax liabilities
2580
Lease liabilities - non-current
2600
Other non-current liabilities
25XX
Total non-current liabilities
2XXX
Total liabilities
Equity
Share capital
3110
Common shares
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Undistributed earnings
Other equity
3400
Other equity interest
31XX
Equity attributable to holders of
the parent company
36XX
Non-controlling interest
3XXX
Total equity
3X2X
Total liabilities and equity		 25
-
-
10
1
13
-
1
-
6
56
2
-
-
-
2
58
9
5
8
1
19
-
42
-
42
100

21

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items YearendedDecember31
2019
2018
Notes
AMOUNT
%
AMOUNT
%
6(21) and 7
$ 60,744,006
100 $ 45,805,746
100
6(6) and 7
(
34,160,690 ) (
56) (
25,344,876 ) (
55)

26,583,316
44

20,460,870
45
6(25)(26) and 7






(
2,996,402 ) (
5) (
2,464,470 ) (
6)
(
1,699,212 ) (
3) (
1,263,689 ) (
3)
(
15,535,505 ) (
26) (
12,969,972 ) (
28)
12(2)
(
21,332 )
-

1,721
-
(
20,252,451 ) (
34) (
16,696,410 ) (
37)

6,330,865
10

3,764,460
8






6(22)

1,412,779
2

1,134,971
2
6(23)
(
323,685 )
- (
58,536 )
-
6(24)
(
160,254 )
- (
140,387 )
-
6(7)
(
23,833 )
- (
43,307 )
-

905,007
2

892,741
2

7,235,872
12

4,657,201
10
6(27)
(
445,497 ) (
1) (
306,420 ) (
1)
$ 6,790,375
11 $ 4,350,781
9
4000
Operating revenue
5000
Operating costs
5950
Gross profit
Operating expenses
6100
Selling expenses
6200
General and administrative
expenses
6300
Research and development
expenses
6450
Expected credit gains (losses)
6000
Total operating expenses
6900
Operating income
Non-operating income and
expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7060
Share of loss of associates and
joint ventures accounted for
under equity method
7000
Total non-operating income
and expenses
7900
Profit before income tax, net
7950
Income tax expense
8200
Net income for the year

(Continued)

22

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items Notes
6(20)
(
(
(
6(28)
6(28)		 YearendedDecember31 YearendedDecember31 YearendedDecember31 %



-

-
-

-

2
2
2
11

9
-
9

11
-
11


8.57
8.40
2019 2018
%
AMOUNT






- ($ 75,809 )
- (
165,659 )
-

1,977
- (
239,491)




1)
942,974

1)
942,974

1)$ 703,483
10 $ 5,054,264



11 $ 4,350,768
-

13
11 $ 4,350,781



10 $ 5,054,251
-

13
10 $ 5,054,264




13.36 $ 13.13 $		 2018
AMOUNT




$ -

227,352

4,390

231,742



891,954) (

891,954) (
$ 660,212) (
$ 6,130,163


$ 6,790,283

92
$ 6,790,375


$ 6,130,071

92
$ 6,130,163


$
Other comprehensive income, net
Components of other
comprehensive income that will
not be reclassified to profit or
loss
8311
Losses on remeasurements of
defined benefit plans
8316
Unrealised gains (losses) from
investments in equity
instruments measured at fair
value through other
comprehensive income
8320
Share of other comprehensive
income of associates and joint
ventures accounted for under
equity method, components of
other comprehensive income that
will not be reclassified to profit
or loss
8310
Total components of other
comprehensive income that
will not be reclassified to
profit or loss
Components of other
comprehensive income that will
be reclassified to profit or loss
8361
Cumulative translation
differences of foreign operation
8360
Total components of other
comprehensive (loss) income
that will be reclassified to
profit or loss
8300
Other comprehensive (loss)
income, net
8500
Total comprehensive income for
the year
Profit attributable to:
8610
Equity holders of the parent
company
8620
Non-controlling interest
Profit for the year
Comprehensive income
8710
Equity holders of the parent
company
8720
Non-controlling interest
Total comprehensive income
for the year
Earnings per share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share
$ $

23

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

2018
Balance at January 1, 2018
Modified retrospective approach adjustment
Balance at 1 January after adjustments
Net income for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Distribution of 2017 earnings
Legal reserve
Special reserve
Cash dividends
Employees' compensation transferred to
commom stock
Cash from capital surplus
Changes in equity of associates accounted for
under equity method
Cash dividends returned
Balance at December 31, 2018
2019
Balance at January 1, 2019
Net income for the year
Other comprehensive income (loss) for the year
Total comprehensive income (loss)
Distribution of 2018 earnings
Legal reserve
Special reserve
Cash dividends
Cash from capital surplus
Changes in equity of associates accounted for
under equity method
Disposal of investments in equity instruments
measured at fair value through other
comprehensive income
Cash dividends returned
Balance at December 31, 2019		 Notes Equityat tri butableto owners of t he parent Non-controlling
interest		 Totalequity
Commonshares Capitalsurplus Retained Earnings Financial statements
translation
differences of foreign
operations		 Unrealised gains
(losses) from
financial assets
measured at fair
value through other
comprehensive
income		 Unrealized gain on
available-for-sale
financial assets		 Total
Legal reserve Special reserve Undistributed
earnings
6(20)
6(20)
6(19)
6(18)
6(18)
6(18)
6(18)
6(20)
6(19)
6(18)
6(18)
6(20)
6(18)


$ 5,065,062
-
5,065,062
-
-
-
-
-
-
15,893
-
-
-
$
5,080,955
$ 5,080,955
-
-
-
-
-
-
-
-
-
-
$ 5,080,955		 $ 3,558,856
-
3,558,856
-
-
-
-
-
-
163,692
(
508,095 )
22,005
201
$
3,236,659
$ 3,236,659
-
-
-
-
-
-
(
508,095 )
8,064
-
226
$ 2,736,854		 $ 4,127,884
-
4,127,884
-
-
-
339,215
-
-
-
-
-
-
$
4,467,099
$ 4,467,099
-
-
-
435,077
-
-
-
-
-
-
$ 4,902,176		 $ -
-
-
-
-
-
-
600,443
-
-
-
-
-
$
600,443
$ 600,443
-
-
-
-
(
600,443 )
-
-
-
-
-
$ -		 $ 9,698,159
103,142
9,801,301
4,350,768
(
75,809 )
4,274,959
(
339,215 )
(
600,443 )
(
2,286,430 )
-
-
-
-
$
10,850,172
$ 10,850,172
6,790,283
-
6,790,283
(
435,077 )
600,443
(
3,048,573 )
-
-
(
41,212 )
-
$ 14,716,036		 ($ 813,163 )
-
(
813,163 )
-
942,974
942,974
-
-
-
-
-
-
-
$
129,811
$ 129,811
-
(
891,954 )
(
891,954 )
-
-
-
-
-
-
-
($ 762,143 )		 $ -
435,835
435,835
-
(
163,682 )
(
163,682 )
-
-
-
-
-
-
-
$
272,153
$ 272,153
-
231,742
231,742
-
-
-
-
-
41,212
-
$ 545,107		 $ 212,720
(
212,720 )
-
-
-
-
-
-
-
-
-
-
-
$
-
$ -
-
-
-
-
-
-
-
-
-
-
$ -		 $ 21,849,518
326,257
22,175,775
4,350,768
703,483
5,054,251
-
-
(
2,286,430 )
179,585
(
508,095 )
22,005
201
$
24,637,292
$ 24,637,292
6,790,283
(
660,212 )
6,130,071
-
-
(
3,048,573 )
(
508,095 )
8,064
-
226
$ 27,218,985		 $ 9,594
-
9,594
13
-
13
-
-
-
-
-
-
-
$
9,607
$ 9,607
92
-
92
-
-
-
-
-
-
-
$ 9,699		 $ 21,859,112
326,257
22,185,369
4,350,781
703,483
5,054,264
-
-
(
2,286,430 )
179,585
(
508,095 )
22,005
201
$
24,646,899
$ 24,646,899
6,790,375
(
660,212 )
6,130,163
-
-
(
3,048,573 )
(
508,095 )
8,064
-
226
$ 27,228,684

24

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
$ Adjustments
Adjustments to reconcile profit (loss)
Depreciation
6(25)
Amortization
6(11)(25)
Expected credit losses (gains)
12(2)
Interest expense
6(24)
Interest income
6(22)
(
Dividend income
6(22)
(
(Gain) loss on financial assets at fair value
through profit or loss
6(23)
(
Share of loss of associates and joint ventures
accounted for under equity method
6(7)
Loss (gain) on disposal of property, plant and
equipment
6(23)
Impairment loss
6(23)
Other intangible assets transferred to expenses
Changes in operating assets and liabilities
Changes in operating assets
Financial assets at fair value through profit or
loss - current
Accounts receivable, net
(
Accounts receivable, net - related parties
(
Other receivables
Inventories
(
Prepayments
(
Changes in operating liabilities
Contract liabilities - current
(
Notes payable
(
Accounts payable
Accounts payable - related parties
Other payables
Other payables - related parties
Advance receipts
Other current liabilities
Provisions - non-current
Accrued pension obligations
(		 2019
7,235,872
$ 700,806
1,019,785
21,332
(
160,254
1,277,211 ) (
30,150 ) (
5,764 )
23,833
157
(
189,483
526
1,241,327
(
2,627,248 )
425,122 ) (
24,884
(
1,529,530 ) (
21,325 ) (
43,722 )
5,381 )
1,805,738
79,645
(
3,149,058
18,246
-
1,671,139
102,181
2,466) (		 2018
4,657,201
544,084
994,852
1,721 )
140,387
989,290 )
32,942 )
19,240
43,307
133 )
-
7,698
583,466 )
23,602
495,111 )
25,846 )
349,516 )
27,418 )
45,527
26
1,058,645
41,886 )
1,514,253
29,123
6,203
939,774
98,438
2,507)

(Continued)

25

REALTEK SEMICONDUCTOR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Cash inflow generated from operations
Receipt of interest
Receipt of dividend
Interest paid
Income tax paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at amortised cost
Proceeds from disposal of financial assets at
amortised cost
Acquisition of financial assets at fair value
through other comprehensive income
Proceeds from disposal of financial assets at fair
value through other comprehensive income
Proceeds from capital reduction of investee
accounted for under equity method
6(7)
Acquisition of property, plant and equipment
6(29)
Proceeds from disposal of property, plant and
equipment
Acquisition of intangible assets
6(29)
Acquisition of right-of-use assets
Increase in refundable deposits
(Increase) decrease in other non-current assets
Net cash flows used in investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings
Decrease in short-term borrowings
Repayment of principal portion of lease liabilities
6(30)
Guarantee deposits returned
6(30)
Cash dividends paid
6(19)
Cash dividends returned
Net cash flows from (used in) financing
activities
Effect of exchange rate
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
$ (
(
(
(
(
(
(
(
(
(
(
(
(
(
$		 Notes
$ (
(
(
(
(
(
(
(
(
(
(
(
(
(
$		 2019
11,476,347
$ 1,140,818
30,150
162,681 ) (
233,349) (
12,251,285
44,715,715 ) (
35,512,063
-
(
939
17,908
747,026 ) (
92
1,403,279 ) (
286,276 )
3,811 ) (
7,666)
11,632,771 ) (
148,524,088
144,084,357 ) (
76,732 )
1,437 ) (
3,556,668 ) (
226
805,120
(
5,374)
1,418,260
(
4,309,651
5,727,911
$		 2019
11,476,347
$ 1,140,818
30,150
162,681 ) (
233,349) (
12,251,285
44,715,715 ) (
35,512,063
-
(
939
17,908
747,026 ) (
92
1,403,279 ) (
286,276 )
3,811 ) (
7,666)
11,632,771 ) (
148,524,088
144,084,357 ) (
76,732 )
1,437 ) (
3,556,668 ) (
226
805,120
(
5,374)
1,418,260
(
4,309,651
5,727,911
$		 2018
7,572,524
793,055
32,942
138,521 )
66,250)
8,193,750
6,946,509 )
30,254
28,000 )
-
-
629,854 )
276
592,220 )
-
11,072 )
1,924
8,175,201)
146,563,258
150,089,571 )
-
278 )
2,794,525 )
201
6,320,915)
1,017,661
5,284,705 )
9,594,356
4,309,651
(
$ $

26

Attachment 2: Independent Auditors’ Report and 2019 Parent Company Only Financial Statements

REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE

To the Board of Directors and Shareholders of Realtek Semiconductor Corporation

Opinion

We have audited the accompanying parent company only balance sheets of Realtek Semiconductor Corporation (the “Company”) as at December 31, 2019 and 2018, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of other independent accountants (please refer to the Other matter section of our report), the accompanying parent company only financial statements present fairly, in all material respects, the financial position of the Company as at December 31, 2019 and 2018, and its financial performance and its cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the Republic of China (“ROC GAAS”). Our responsibilities under those standards are further described in the Independent Accountant’s Responsibilities for the Audit of the Parent Company Only Financial Statements section of our report. We are independent of the Company in accordance with the Code of Professional Ethics for Certified Public Accountants in the Republic of China (the “Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. Based on our audits and the reports of the other independent accountants, we believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

27

Key audit matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Key audit matters for the Company’s parent company only financial statements of the current period are stated as follows:

Valuation of inventories

Description

Refer to Note 4(13) of the parent company only financial statements for inventory valuation policies, Note 5(2) for uncertainty of accounting estimates and assumptions of inventory valuation and Note 6(3) for the details of inventories.

The Company is primarily engaged in researching, developing, manufacturing, selling of various integrated circuits and related application software. Inventories are stated at the lower of cost and net realizable value. Due to the balances of inventories are significant to the financial statements and the rapid technological changes in the industry, there is a higher risk of decline in market value and obsolescence of inventories. Thus, we considered the valuation of inventories as one of the key audit matters.

How our audit addressed the matter

We performed the following audit procedures in respect of the above key audit matter:

  1. Obtained an understanding of accounting policies on the provision for inventory valuation losses and assessed the reasonableness.

  2. Validated the accuracy of inventory aging report, as well as sampled and confirmed the consistency of quantities and amounts with detailed inventory listing, verified dates of movements with supporting documents and ensured the proper categorization of inventory aging report.

  3. Evaluated and confirmed the reasonableness of net realizable value for inventories through validating respective supporting documents.

28

Other matter – Reference to audits of other independent accountants

We did not audit the financial statements of certain investments accounted for under equity method. Those financial statements were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants. Investments accounted for under equity method amounted to NT$6,938,839 thousand and NT$6,900,458 thousand, constituting 10.29% and 12.78% of total assets as of December 31, 2019 and 2018, respectively. Comprehensive income amounted to NT$151,087 thousand and NT$108,408 thousand, constituting 2.46% and 2.14% of total comprehensive income for the years ended December 31, 2019 and 2018, respectively.

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the parent company only financial statements, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance, including the Audit Committee, are responsible for overseeing the Company’s financial reporting process.

Independent accountant’s responsibilities for the audit of the parent company only financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue a report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ROC GAAS will always detect

29

a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these parent company only financial statements.

As part of an audit in accordance with ROC GAAS, we exercise professional judgement and maintain professional skepticism throughout the audit. We also:

  1. Identify and assess the risks of material misstatement of the parent company only financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

  2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control.

  3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

  4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report to the related disclosures in the parent company only financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our report. However, future events or conditions may cause the Company to cease to continue as a going concern.

  5. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

30

  • 6.Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Lin, Yu-Kuan Tsang, Kwoh-Wah

For and on behalf of PricewaterhouseCoopers, Taiwan March 20, 2020

31

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Assets Notes
6(1)
8
6(2)
6(2) and 7
7
6(3)
8
6(4)
6(5)
6(6)
6(7)
6(21)		 December31,2019
AMOUNT
%
$ 3,333,828
5
28,736
-
-
-
6,588,225
10
1,227,255
2
20,417
-
5,729,653
8
5,820,326
9
205,329
-
22,953,769
34
-
-
64,885
-
38,503,441
57
3,019,258
5
1,091,607
2
1,652,722
2
114,163
-
46,151
-
44,492,227
66
$ 67,445,996
100		 December31,2018 December31,2018
AMOUNT
$ 3,333,828
28,736
-
6,588,225
1,227,255
20,417
5,729,653
5,820,326
205,329
22,953,769
-
64,885
38,503,441
3,019,258
1,091,607
1,652,722
114,163
46,151
44,492,227
$ 67,445,996		 AMOUNT
$ 1,553,365
29,061
61,401
4,307,547
1,033,782
42,641
2,688,329
4,096,647
149,935
13,962,708
936
-
35,911,991
2,863,756
-
1,160,549
78,472
14,444
40,030,148
$ 53,992,856		 %
Current assets
1100
Cash and cash equivalents
1110
Financial assets at fair value through
profit or loss - current
1136
Financial assets at amortised cost -
current
1170
Accounts receivable, net
1180
Accounts receivable, net - related
parties
1200
Other receivables
1210
Other receivables - related parties
130X
Inventories, net
1410
Prepayments
11XX
Total current assets
Non-current assets
1517
Financial assets at fair value through
other comprehensive income - non-
current
1535
Financial assets at amortised cost -
non-current
1550
Investments accounted for under
equity method
1600
Property, plant and equipment
1755
Right-of-use assets
1780
Intangible assets
1840
Deferred income tax assets
1900
Other non-current assets
15XX
Total non-current assets
1XXX
Total assets		 3
-
-
8
2
-
5
8
-
26
-
-
67
5
-
2
-
-
74
100

(Continued)

32

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Liabilities andEquity December 31, 2019
Notes
AMOUNT
%
6(8)
$ 18,604,770
28
6(15)
67,853
-
3,276
-
5,659,518
8
7
313,185
-
6(9)
9,929,669
15
7
55,690
-
820,495
1
30,417
-
6(15)
3,831,860
6
39,316,733
58
-
-
6(21)
51,723
-
781,678
2
6(10)
76,877
-
910,278
2
40,227,011
60
6(11)
5,080,955
7
6(12)
2,736,854
4
6(13)
4,902,176
7
-
-
14,716,036
22
6(14)
(
217,036)
-
27,218,985
40
9
$ 67,445,996
100		 December 31, 2018 December 31, 2018
AMOUNT
$ 14,526,311
110,764
8,657
3,793,276
228,279
6,867,842
38,283
578,088
-
2,581,910
28,733,410
519,016
22,310
-
80,828
622,154
29,355,564
5,080,955
3,236,659
4,467,099
600,443
10,850,172
401,964
24,637,292
$ 53,992,856		 %
Current liabilities
2100
Short-term borrowings
2130
Contract liabilities - current
2150
Notes payable
2170
Accounts payable
2180
Accounts payable - related parties
2200
Other payables
2220
Other payables - related parties
2230
Current income tax liabilities
2280
Lease liabilities - current
2300
Other current liabilities
21XX
Total current liabilities
Non-current liabilities
2550
Provisions - non-current
2570
Deferred income tax liabilities
2580
Lease liabilities - non-current
2600
Other non-current liabilities
25XX
Total non-current liabilities
2XXX
Total liabilities
Equity
Share capital
3110
Common shares
Capital surplus
3200
Capital surplus
Retained earnings
3310
Legal reserve
3320
Special reserve
3350
Undistributed earnings
Other equity
3400
Other equity interest
3XXX
Total equity
Significant contingent liabilities and
unrecognized contract commitments
3X2X
Total liabilities and equity		 27
-
-
7
-
13
-
1
-
5
53
1
-
-
-
1
54
10
6
8
1
20
1
46
100

33

REALTEK SEMICONDUCTOR CORPORATION

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars, except earnings per share amounts)

Items YearendedDecember31
2019
2018
Notes
AMOUNT
%
AMOUNT
%
6(15) and 7
$ 40,845,708
100
$ 32,194,291
100
6(3) and 7
(
24,643,053)(
60) (
18,906,196) (
59)

16,202,655
40

13,288,095
41
6(20)(21) and 7






(
1,887,715) (
5) (
1,646,985) (
5)
(
760,391) (
2) (
991,577) (
3)
(
12,212,926) (
30) (
9,955,350) (
31)
12(2)
(
25,618)
-

5,803
-
(
14,886,650)(
37) (
12,588,109) (
39)

1,316,005
3

699,986
2






6(16) and 7

194,391
-

112,353
1
6(17)
(
191,745)
- (
1,992)
-
6(18)
(
144,100)
- (
140,170)
-
6(4)

6,053,732
15

3,968,591
12

5,912,278
15

3,938,782
13

7,228,283
18

4,638,768
15
6(21)
(
438,000)(
1) (
288,000) (
1)
$
6,790,283
17
$
4,350,768
14
6(14)












$ -
- ($ 75,809)
-

-
- (
138)
-

231,742
-(
163,544) (
1)

231,742
-(
239,491) (
1)






(
891,954)(
2)

942,974
3
(
891,954)(
2)

942,974
3
($
660,212)(
2)$ 703,483
2
$
6,130,071
15
$
5,054,251
16








6(22)
$
13.36
$
8.57
6(22)
$
13.13
$
8.40
4000
Operating revenue
5000
Operating costs
5900
Gross profit
Operating expenses
6100
Selling expenses
6200
General and administrative expenses
6300
Research and development expenses
6450
Expected credit gains (losses)
6000
Total operating expenses
6900
Operating income
Non-operating income and expenses
7010
Other income
7020
Other gains and losses
7050
Finance costs
7070
Share of profit of associates and joint
ventures accounted for under equity
method
7000
Total non-operating income and
expenses
7900
Profit before income tax, net
7950
Income tax expense
8200
Net income for the year
Other comprehensive income, net
Components of other comprehensive
income (loss) that will not be reclassified
to profit or loss
8311
Losses on remeasurements of defined
benefit plans
8316
Unrealised losses from investments in
equity instruments measured at fair value
through other comprehensive income
8330
Share of other comprehensive income
(loss) of associates and joint ventures
accounted for under equity method
8310
Total other comprehensive income
(loss) that will not be reclassified to
profit or loss
Components of other comprehensive
income (loss) that will be reclassified to
profit or loss
8380
Share of other comprehensive (loss)
income of associates and joint ventures
accounted for under equity method
8360
Total other comprehensive (loss)
income that will be reclassified to
profit or loss
8300
Other comprehensive (loss) income for
the year
8500
Total comprehensive income for the year
Earnings Per Share (in dollars)
9750
Basic earnings per share
9850
Diluted earnings per share

34

Realtek Semiconductor Corporation PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Retained earnings Retained earnings Other equityinterest Other equityinterest
Unrealised gains
(losses) from
financial assets
Financial measured at fair
statements value through Unrealised gain or
translation other loss on available-
Undistributed differences of comprehensive for-sale financial
Notes Common shares Capital surplus Legal reserve Special reserve earnings foreign operations income assets Total equity
2018
Balance at January 1, 2018 $ 5,065,062 $ 3,558,856 $ 4,127,884 $ - $ 9,698,159 ($
813,163 )		 $
-		 $ 212,720 $ 21,849,518
Modified retrospective approach adjustment 6(14) - - - - 103,142 - 435,835 ( 212,720 ) 326,257
Balance at January 1 after adjustments 5,065,062 3,558,856 4,127,884 - 9,801,301 ( 813,163 ) 435,835 - 22,175,775
Net income for the year - - - - 4,350,768 - - - 4,350,768
Other comprehensive income (loss) 6(14) - - - - ( 75,809 ) 942,974 ( 163,682 ) - 703,483
Total comprehensive income (loss) - - - - 4,274,959 942,974 ( 163,682 ) - 5,054,251
Distribution of 2017 earnings 6(13)
Legal reserve - - 339,215 - ( 339,215 ) - - - -
Special reserve - - - 600,443 ( 600,443 ) - - - -
Cash dividends - - - - ( 2,286,430 ) - - - ( 2,286,430 )
Employees' compensation transferred to common stock 6(12) 15,893 163,692 - - - - - - 179,585
Cash dividends from capital surplus 6(12) - ( 508,095 ) - - - - - - ( 508,095 )
Changes in equity of associates accounted for under equity method 6(12) - 22,005 - - - - - - 22,005
Cash dividends returned 6(12) - 201 - - - - - - 201
Balance at December 31, 2018 $5,080,955 $3,236,659 $4,467,099 $ 600,443 $10,850,172 $
129,811		 $
272,153		 $ - $24,637,292
2019
Balance at January 1, 2019 $5,080,955 $3,236,659 $4,467,099 $ 600,443 $10,850,172 $
129,811		 $
272,153		 $ - $24,637,292
Net income for the year - - - - 6,790,283 - - - 6,790,283
Other comprehensive income (loss) 6(14) - - - - - ( 891,954 ) 231,742 - ( 660,212 )
Total comprehensive income (loss) - - - - 6,790,283 ( 891,954 ) 231,742 - 6,130,071
Distribution of 2018 earnings 6(13)
Legal reserve - - 435,077 - ( 435,077 ) - - - -
Special reserve - - - ( 600,443 ) 600,443 - - - -
Cash dividends - - - - ( 3,048,573 ) - - - ( 3,048,573 )
Cash dividend from capital surplus 6(12) - ( 508,095 ) - - - - - - ( 508,095 )
Changes in equity of associates accounted for using equity method 6(12) - 8,064 - - - - - - 8,064
Disposal of investments in equity instruments measured at fair value through 6(14)
other comprehensive income - - - - ( 41,212 ) - 41,212 - -
Cash dividends returned 6(12) - 226 - - - - - - 226
Balance at December 31, 2019 $5,080,955 $2,736,854 $4,902,176 $ - $14,716,036 ($
762,143 )		 $
545,107		 $ - $27,218,985

35

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Profit before tax
Adjustments
Adjustments to reconcile profit (loss)
Depreciation
Amortization
Expected credit losses (gains)
Impairment loss
Interest expense
Interest income
Dividend income
Loss on financial assets at fair value through
profit or loss
Share of gain of associates and joint ventures
accounted for under equity method
Gain on disposal of property, plant and
equipment
Other intangible assets transferred to expenses
Changes in operating assets and liabilities
Changes in operating assets
Accounts receivable, net
Accounts receivable, net - related parties
Other receivables
Other receivables, net - related parties
Inventories
Prepayments
Changes in operating liabilities
Contract liabilities - current
Notes payable
Accounts payable
Accounts payable - related parties
Other payables
Other payables - related parties
Provisions - non-current
Other current liabilities
Accrued pension obligations		 Notes
2019
2018
$ 7,228,283
$ 4,638,768
6(19)
562,805
470,049
6(19)
948,008
943,734
12(2)
25,618
(
5,803 )
6(17)
41,397
-
6(18)
144,100
140,170
6(16)
(
118,442 ) (
66,668 )
6(16)
(
406 ) (
812 )
6(17)
325
11,283
6(4)
(
6,053,732 ) (
3,968,591 )
6(17)
(
92 )
-
6(17)
526
7,698
(
2,304,342 )
527,028
(
195,427 )
53,312
27,106
(
23,639 )
(
2,420 ) (
67,713 )
(
1,723,679 )
227,773
(
55,394 )
97,207
(
42,911 )
21,541
(
5,381 )
26
1,866,242
10,137
84,906
(
54,388 )
3,019,851
1,310,009
17,407
6,126
(
519,016 )
84,591
1,249,950
397,579
(
2,470) (
2,507)

(Continued)

36

REALTEK SEMICONDUCTOR CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2019 AND 2018

(Expressed in thousands of New Taiwan dollars)

Cash inflow generated from operations
Receipt of interest
Receipt of dividends
Interest paid
Income taxes paid
Net cash flows from operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of financial assets at amortised cost
Proceeds from disposal of financial assets at
amortised cost
Proceeds from disposal of financial assets at fair
value through other comprehensive income
Proceeds from capital reduction of investee
accounted for under the equity method
Acquisition of cash dividends from investments
accounted for under equity method
Acquisition of property, plant and equipment
Proceeds from disposal of property, plant and
equipment
Acquisition of intangible assets
Acquisition of right-of-use assets
Increase in other receivables, net - related parties
Increase in refundable deposits
Increase in other non-current assets
Net cash flows (used in) from investing
activities
CASH FLOWS FROM FINANCING ACTIVITIES
Increase in short-term borrowings
Decrease in short-term borrowings
Repayment of principal portion of lease liabilities
Guarantee deposits returned
Cash dividends paid
Cash dividends returned
Net cash flows from (used in) financing
activities
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year		 Notes
2019
2018
$ 4,192,812
$ 4,756,910
113,560
66,401
406
812
(
146,526 ) (
138,304 )
(
201,871) (
48,920)
3,958,381
4,636,899
(
64,885 )
-
61,401
30,254
939
-
6(4)
17,908
-
2,750,826
5,436,741
6(23)
(
682,325 ) (
578,076 )
92
-
6(23)
(
1,399,800 ) (
581,659 )
(
286,276 )
-
(
3,038,904 ) (
1,797,119 )
(
1,722 ) (
7,988 )
(
29,985)
-
(
2,672,731)
2,502,153
147,831,650
146,563,258
(
143,753,191 ) (
150,089,571 )
6(24)
(
25,723 )
-
6(24)
(
1,481 ) (
304 )
6(13)
(
3,556,668 ) (
2,794,525 )
226
201
494,813
(
6,320,941)
1,780,463
818,111
1,553,365
735,254
$ 3,333,828
$ 1,553,365

37

Attachment 3: Comparison table illustrating the original and amended texts of the Articles of

Incorporation

Incorporation
Amended Version Original Version Reason
Article 1
The Company shall be incorporated
under the Company Act as a company
limited by shares named “Realtek
Semiconductor Corp.”. “Realtek
Semiconductor Corp.”is the Company’s
Article 1
The Company shall be incorporated
under the Company Act as a company
limited by shares named“Realtek
Semiconductor Corp.”.		 To add the
Company’s
English name

English name.
Article 2
The scope of business of the Company
shall be as follows:
1. CC01080 Electronic Parts and
Components Manufacturing
2. I501010 Product Designing
3. F401010 International Trade
4. I301010 Service of information
software.
5. I301020 Data Processing Services
6. CC01101 Restrained Telecom Radio
Frequency Equipments and Materials
Manufacturing (Radio transmitters,
radio transceivers, radio receivers,
industrial, scientific, medical radiation
machines, and other machines with
radio radiant energy only)
7. F401021 Restrained Telecom Radio
Frequency Equipments and Materials
Import (Radio transmitters, radio
transceivers, radio receivers, industrial,
scientific, medical radiation machines,
and other machines with radio radiant
energy only)
8. CF01011 Medical Materials and
Equipment Manufacturing
9. F108031 Wholesale of Drugs,
Medical Goods
10. F208031 Retail sale of Medical
Equipments
(1) Researching, designing, developing,		 Article 2
The scope of business of the Company
shall be as follows:
1. CC01080 Electronic Parts and
Components Manufacturing
2. I501010 Product Designing
3. F401010 International Trade
4. I301010 Service of information
software.
5. I301020 Data Processing Services
6. CC01101 Restrained Telecom Radio
Frequency Equipments and Materials
Manufacturing (Radio transmitters,
radio transceivers, radio receivers,
industrial, scientific, medical radiation
machines, and other machines with
radio radiant energy only)
7. F401021 Restrained Telecom Radio
Frequency Equipments and Materials
Import (Radio transmitters, radio
transceivers, radio receivers, industrial,
scientific, medical radiation machines,
and other machines with radio radiant
energy only)
(1) Researching, developing, producing,
manufacturing, and selling various
integrated circuits.
(2) Providing application design,
testing, maintenance and technical
consulting services of the software and
hardware for various integrated circuit
products.
(3) Researching, developing and selling
various intellectual property
(4) Also engaged in trading business in
relation to the business of the Company.		 Operation
demand

manufacturing, and selling the
following products:
1. various integrated circuits
2. hearing aids with tinnitus mask
function
3. bone conduction hearing aid
4. Picture archiving and
communications system.
(2) Providing application design,

38

Amended Version Original Version Reason
testing, maintenance and technical
consulting services of the software and
hardware for the above products.
(3) Researching, developing and selling
various intellectual property
(4) Also engaged in trading business in
relation to the business of the Company.
Article 18
If gained profits within a fiscal year, the
Company shall allocate at a maximum
of 3% of the profits as directors’
remuneration, and allocate no less than
1% of the profits as employees’
compensation. However, in case of the
accumulated losses, certain profits shall
first be reserved to cover the
accumulated losses, and then allocate
employees’ compensation and directors’
remuneration according to the
proportion in the preceding paragraph.
The distribution of employees'
compensation in the preceding
paragraph shall be in cash or in stock,
and shall be resolved with a consent of a
majority of the directors present at a
meeting attended by over two-thirds of
the total directors. The distribution of
director's remuneration and employee’
compensation shall be reported to the
shareholders meeting.
The employees entitled to receive
employees’ compensation may include
the employees of subsidiaries of the
Company meeting certain specific
requirements. The requirements are
determined by the board of directors or
its authorized person.
The Company belongs to the integrated
circuit design industry and is in the
growth phase of the enterprise life
cycle. After consideringthe long-term
Article 18
If gained profits within a fiscal year, the
Company shall allocate at a maximum
of 3% of the profits as directors’
remuneration, and allocate no less than
1% of the profits as employees’
compensation. However, in case of the
accumulated losses, certain profits shall
first be reserved to cover the
accumulated losses, and then allocate
employees’ compensation and directors’
remuneration according to the
proportion in the preceding paragraph.
The distribution of employees'
compensation in the preceding
paragraph shall be in cash or in stock,
and shall be resolved with a consent of a
majority of the directors present at a
meeting attended by over two-thirds of
the total directors. The distribution of
director's remuneration and employee’
compensation shall be reported to the
shareholders meeting.
The employees entitled to receive
employees’ compensation may include
the employees of subsidiaries of the
Company meeting certain specific
requirements. The requirements are
determined by the board of directors or
its authorized person.
The Company belongs to the integrated
circuit design industry and is in the
growth phase of the enterprise life
cycle. After consideringthe long-term

To revise
dividend
policy for
retained
earnings
distribution

39

Amended Version Original Version Reason
business development of the Company,
matching future investment fund
requirements, and the long-term
financial planning of the Company, if
there are profits at the end of fiscal year,
the Company shall first offset the
accumulated losses with profits after
tax, and then shall contribute 10% of
profit as legal reserve, unless the
accumulated legal reserve has reached
the amount of the Company’s total
capital, and contribute or reverse special
reserve in accordance with relevant laws
or regulation by the competent
authority. If there are net profits
remained, the remaining net profits and
the retained earnings from previous
years shall be distributed as
shareholders’ dividend after the
distribution proposal is prepared by the
board of directors. In case the
distribution is in the form of issuing
new shares, the distribution proposal
shall be approved at a shareholders
meeting. In case the distribution is in
the form of cash, the distribution
proposal shall be approved by the board
of directors with authorization. After
considering financial, business and
operational factors, the Company may
distribute the whole of distributable
earnings of the current year, and may
also distribute whole or part of the
reserves in accordance with the law or
the regulation by the competent
authority.The dividend distributed to
shareholders shall not be less than 50%
of the increased distributable retained
earnings for the current year.
When distributingdividends, the main


business development of the Company,
matching future investment fund
requirements, and the long-term
financial planning of the Company, if
there are profits at the end of fiscal year,
the Company shall first offset the
accumulated losses with profits after
tax, and then shall contribute 10% of
profit as legal reserve, unless the
accumulated legal reserve has reached
the amount of the Company’s total
capital, and contribute or reverse special
reserve in accordance with relevant laws
or regulation by the competent
authority. If there are net profits
remained, the remaining net profits and
the retained earnings from previous
years shall be distributed as
shareholders’ dividend after the
distribution proposal is prepared by the
board of directors. In case the
distribution is in the form of issuing
new shares, the distribution proposal
shall be approved at a shareholders
meeting. In case the distribution is in
the form of cash, the distribution
proposal shall be approved by the board
of directors with authorization. After
considering financial, business and
operational factors, the Company may
distribute the whole of distributable
earnings of the current year, and may
also distribute whole or part of the
reserves in accordance with the law or
the regulation by the competent
authority.
When distributing dividends, the main
consideration is the Company's future
expansion of operating scale and
requirement of cash flow. The cash

40

Amended Version Original Version Reason
consideration is the Company's future
expansion of operating scale and
requirement of cash flow. The cash
dividends shall not be less than 10% of
the total dividends distributed to
shareholders in the current year.
According to Article 240, Paragraph 5,
and Article 241, Paragraph 2 of the
Company Act, the Company authorizes
the distributable dividends, legal
reserve, and capital reserve in whole or
in part may be paid in cash after a
resolution has been adopted by a
majority vote at a meeting of the board
of directors attended by two-thirds of
the total number of directors, and in
addition thereto a report of such
distribution shall be submitted to the
shareholders meeting.		 dividends shall not be less than 10% of
the total dividends distributed to
shareholders in the current year.
According to Article 240, Paragraph 5,
and Article 241, Paragraph 2 of the
Company Act, the Company authorizes
the distributable dividends, legal
reserve, and capital reserve in whole or
in part may be paid in cash after a
resolution has been adopted by a
majority vote at a meeting of the board
of directors attended by two-thirds of
the total number of directors, and in
addition thereto a report of such
distribution shall be submitted to the
shareholders meeting.
Article 20
The Articles of Incorporation hereof
were established on Oct. 16, 1987; 1st
amended on Sep. 25, 1989; (omitted)
32nd amended on Jun. 12, 2019; 33rd
amended on Jun. 10, 2020.		 Article 20
The Articles of Incorporation hereof
were established on Oct. 16, 1987; 1st
amended on Sep. 25, 1989; (omitted)
32nd amended on Jun. 12, 2019.		 To add
amendment
date.

41

Appendix

Appendix 1

Realtek Semiconductor Corporation Articles of Incorporation

(Translation)

I. General Provisions

  • Article 1 The Company shall be incorporated under the Company Act as a company limited by shares named “Realtek Semiconductor Corp.”.

  • Article 2 The scope of business of the Company shall be as follows: 1. CC01080 Electronic Parts and Components Manufacturing

  • I501010 Product Designing

  • F401010 International Trade

  • I301010 Service of information software.

  • I301020 Data Processing Services

  • CC01101 Restrained Telecom Radio Frequency Equipments and Materials Manufacturing (Radio transmitters, radio transceivers, radio receivers, industrial, scientific, medical radiation machines, and other machines with radio radiant energy only)

  • F401021 Restrained Telecom Radio Frequency Equipments and Materials Import (Radio transmitters, radio transceivers, radio receivers, industrial, scientific, medical radiation machines, and other machines with radio radiant energy only)

  • (1) Researching, developing, producing, manufacturing, and selling various integrated circuits.

  • (2) Providing application design, testing, maintenance and technical consulting services of the software and hardware for various integrated circuit products.

  • (3) Researching, developing and selling various intellectual property

  • (4) Also engaged in trading business in relation to the business of the Company.

  • Article 3 The Company is headquartered in Hsinchu Science-Based Industrial Park, Taiwan, Republic of China, and when necessary, upon approval of the Board of Directors and the competent authorities, may establish branch offices within or outside the territory of the Republic of China.

  • Article 4 Public announcements of the Company shall be made in accordance with Article 28 of the Company Act.

  • (1) The Company's domestic and foreign investment transactions shall be resolved by the board of directors, and are not subject to the restriction of Article 13 of the Company Act.

  • (2) The Company upon approval of the Board of Directors may provide endorsement and guarantee to others.

II. Shares

  • Article 5 The authorized capital of the Company is NT$8,900,000,000, divided into 890,000,000 common shares, and may be paid-up in installments. Among the above capital, a total of NT$800,000,000, divided into 80,000,000 shares at par value NT$10 each share, is reserved for issuing employee stock warrants, and

42

may be issued in installments in accordance with the resolution of the Board of
Directors.
Article 5-1 To issue employee stock warrants with the exercise price lower than the closing
price of the Company stocks as of the issuing date, the Company is required to
obtain the consent of a majority of the shareholders present who represent two-
thirds or more of the total number of outstanding shares. The Company is
allowed to register multiple issues over a period of 1 year from the date of the
shareholders meeting resolution.
Article 5-2 To transfer treasury shares to employees at less than the average actual share
repurchase price, the Company is required to obtain the consent of a majority
of the shareholders present who represent two-thirds or more of the total number
of outstanding shares at the most recent shareholders meeting.
Article 6 The share certificates of the Company shall be all name-bearing share
certificates, which shall be signed or sealed by three or more directors of the
Company, and issued after duly authentication pursuant to the law.
The Company’s shareholder services follow the Regulations Governing the
Administration of Shareholder Services of Public Companies issued by the
competent authority.
The Company may be exempted from printing share certificates if the shares are
registered with the centralized securities depository enterprise.

III. Shareholders Meetings

Article 7 Registration of stock transfer shall be suspended within sixty days prior to any
general shareholders meeting, thirty days prior to any special shareholders
meeting, or within five days prior to the record date for distributing dividends,
bonuses, or other benefits.
Article 8 Shareholders meetings of the Company are of two types, general meeting and
special meeting. General meeting shall be convened once a year within six
months of the end of a fiscal year, and shareholders shall be notified thirty days
prior to the scheduled meeting date. Special meeting shall be convened whenever
necessary, and shareholders shall be notified fifteen days prior to the scheduled
meeting date.
Article 9 In case the shareholder is unable to attend the Shareholders meeting, the
shareholder may appoint a proxy to attend the meeting by presenting a proxy
document with signature or seal and stating therein the scope of power
authorized to the proxy.
Unless otherwise provided in the relevant regulation, the shareholders’
appointment of proxies to attend the meeting shall follow the Regulations
Governing the Use of Proxies for Attendance at Shareholder Meetings of Public
Companies issued by the Competent Authority.
The voting rights at a shareholders meeting may be exercised by way of
electronic means. A shareholder exercising voting rights at a shareholders
meeting by way of electronic means shall be deemed to have attended the said
shareholders meeting in person. The related matters are handled in accordance
with the relevant regulation.
Article 10 Each share is entitled to one voting right, unless otherwise provided in the
Company Act.
Article 11 Unless otherwise provided in the Company Act, the resolutions at a shareholders
meeting shall be adopted by a majority of the shareholders present who represent

43

half or more of the total number of outstanding shares. The resolution of the proposal at a shareholders meeting shall be decided by the chairman by way of voting or solicitation. Except for the proposals without objection from any shareholder after solicitation by the chairman are deemed approval, the chairman shall decide that a vote to be held on whole or part of the proposals at the same time before extraordinary motions with the ballots to be counted separately for each proposal.

IV. Directors

Article 12 The number of directors of the Company shall be between seven (7) to thirteen
(9), and the board of directors is authorized to determine the number of directors.
In the board, the number of independent directors shall be no less than three (3).
Directors shall be elected by adopting a candidate nomination system. The
election of independent directors and non-independent directors shall be held
together, provided the elected number of independent directors and non-
independent directors shall be calculated separately. The professional
qualifications, restrictions on shareholdings and concurrent office held, method
of nomination and election, and other matters for compliance with respect to
independent directors shall be in accordance with relevant regulation by the
Competent Authority. Directors are elected from among the nominees listed in
the roster of director candidates at a shareholders meeting. The term of office for
directors is three (3) years and the directors are eligible for re-election.
Article 12-1 The Company is allowed to purchase liability insurance for directors and
managers. The board of directors is authorized to decide the insurance coverage.
Article 13 The board of directors shall be formed by directors. The directors shall elect from
among themselves a chairman by a majority approval in a meeting attended by
over two-thirds of the directors. A vice chairman may be elected depending on
the demand of business.
The chairman internally presides over the shareholders meeting and the board of
directors, and externally represents the Company.
Meetings of the Board of Directors shall be convened by the Chairman.
However, the first meeting after the re-election of directors shall be convened in
accordance with the article 203 of the Company Act. Notice of the meeting shall
be delivered in writing, by email, or by fax with the proposed agenda specified.
The chairman presides over the board of directors. In case the chairman is on
leave or cannot exercise his duty, the vice chairman shall act on his behalf. In
case of no vice chairman elected or the vice chairman is on leave or cannot
exercise his duty as well, the chairman shall designate one of the directors to act
on his behalf. In case of no designation, the board shall elect from among
directors as the acting chairman. In case a meeting of the board of directors is
proceeded via visual communication network, then the directors taking part in
such a visual communication meeting shall be deemed to have attended the
meeting in person.
Article 13-1 The Company forms an Audit Committee, consisting of all independent directors.
The number, term of office, powers, rules of procedure for meetings of the audit
committee, and resources to be provided by the Company when the audit
committee exercises its powers, shall be in accordance with the Company’s audit
committee charter.
Article 14 The duties and responsibilities of the Board of Directors shall be as follows:

44

  1. Review the following matters raised by the general manager:

  2. 1-1. The Company's operating principles, and medium and long-term development plans.

  3. 1-2. Annual budget and implementation supervision.

  4. 1-3. Annual report and final statements.

  5. 1-4. Capital increase and decrease plan.

  6. 1-5. Important contracts with others.

  7. 1-6. Company charters and important business rules.

  8. 1-7. Branch establishment, reorganization or withdrawal.

  9. 1-8. Major capital expenditure plan.

  10. 1-9. Other matters issued for review.

  11. Review of distribution of earnings or offset of losses.

  12. Review of the Company's articles of incorporation or amendments.

  13. Appointment and dismissal of general manager, financial supervisor, and audit supervisor.

  14. Implementation of the resolution of the shareholders meeting.

  15. Convening of the shareholders meeting and business report at the shareholders meeting.

  16. Other businesses that should be handled in accordance with the laws.

  17. Article 15 Directors shall attend the meeting of the Board in person. In case that a director is unable to attend a board meeting, he/she may appoint one of the other directors as his/her proxy to attend the meeting. A director may accept the appointment to act as the proxy referred to in the preceding paragraph of one other director only.

  18. Article 15-1 The directors’ remuneration is authorized to be decided by the board of directors based on the directors’ degree of involvement and contribution to the Company’s business operation, as well as on usual level of the industry.

V. Managers

  • Article 16 The Company shall appoint general manager, whose appointment, discharge, and remuneration shall be in accordance with the provisions in Article 29 of the Company Act.

VI. Accounting

  • Article 17 The Company’s fiscal year shall be from January 1 to December 31 of each calendar year. At the end of each fiscal year, the board of directors shall have the following documents prepared and submitted to the shareholders meeting for approval.

  • Business report

  • Financial statements

  • Proposal for distribution of earning or offset of losses

  • Article 18 If gained profits within a fiscal year, the Company shall allocate at a maximum of 3% of the profits as directors’ remuneration, and allocate no less than 1% of the profits as employees’ compensation. However, in case of the accumulated losses, certain profits shall first be reserved to cover the accumulated losses, and then allocate employees’ compensation and directors’ remuneration according to the proportion in the preceding paragraph.

The distribution of employees' compensation in the preceding paragraph shall be in cash or in stock, and shall be resolved with a consent of a majority of the

45

directors present at a meeting attended by over two-thirds of the total directors. The distribution of director's remuneration and employee’ compensation shall be reported to the shareholders meeting.

The employees entitled to receive employees’ compensation may include the employees of subsidiaries of the Company meeting certain specific requirements. The requirements are determined by the board of directors or its authorized person.

The Company belongs to the integrated circuit design industry and is in the growth phase of the enterprise life cycle. After considering the long-term business development of the Company, matching future investment fund requirements, and the long-term financial planning of the Company, if there are profits at the end of fiscal year, the Company shall first offset the accumulated losses with profits after tax, and then shall contribute 10% of profit as legal reserve, unless the accumulated legal reserve has reached the amount of the Company’s total capital, and contribute or reverse special reserve in accordance with relevant laws or regulation by the competent authority. If there are net profits remained, the remaining net profits and the retained earnings from previous years shall be distributed as shareholders’ dividend after the distribution proposal is prepared by the board of directors. In case the distribution is in the form of issuing new shares, the distribution proposal shall be approved at a shareholders meeting. In case the distribution is in the form of cash, the distribution proposal is authorized to be approved by the board of directors. After considering financial, business and operational factors, the Company may distribute the whole of distributable earnings of the current year, and may also distribute whole or part of the reserves in accordance with the law or the regulation by the competent authority.

When distributing dividends, the main consideration is the Company's future expansion of operating scale and requirement of cash flow. The cash dividends shall not be less than 10% of the total dividends distributed to shareholders in the current year.

According to Article 240, Paragraph 5, and Article 241, Paragraph 2 of the Company Act, the Company authorizes the distributable dividends, legal reserve, and capital reserve in whole or in part may be paid in cash after a resolution has been adopted by a majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors, and in addition thereto a report of such distribution shall be submitted to the shareholders meeting.

VII. Supplementary Provisions

Article 19 For matters not provided herein, provisions in the Company Act shall govern. Article 20 The Articles of Incorporation hereof were established on Oct. 16, 1987; 1st amended on Sep. 25, 1989; 2nd amended on Oct. 7, 1989; 3rd amended on Dec. 5, 1990; 4th amended on Jun. 26, 1991; 5th amended on Jun. 27, 1992; 6th amended on Jun. 26, 1993; 7th amended on Apr. 2,1994; 8th amended on May 20, 1995; 9th amended on May 4, 1996; 10th amended on Jan. 21, 1997; 11th amended on May 5, 1997; 12th amended on May 19, 1998; 13th amended on Apr. 30, 1999; 14th amended on Jun. 9, 2000; 15th amended on May 30, 2001; 16th amended on Jun. 3, 2002; 17th amended on Jun. 9, 2003; 18th amended on Jun. 1, 2004; 19th amended on Jun. 13, 2005; 20th amended on Jun. 12, 2006; 21st amended on Jun. 11,2007; 22nd amended on Jun. 13, 2008; 23rd amended

46

on Jun. 10, 2009; 24th amended on Jun. 15, 2010; 25th amended on Jun. 15, 2011; 26th amended on Jun. 12, 2012; 27th amended on Jun. 21, 2013; 28th amended on Jun. 24, 2014; 29th amended on Jun. 7, 2016; 30th amended on Jun. 8, 2017; 31st amended on Jun. 5, 2018; 32nd amended on Jun. 12, 2019.

47

Appendix 2

Realtek Semiconductor Corporation Rules of Procedures for Shareholders Meeting (Translation)

Article 1 The rules of procedures for the Company's shareholders meetings, except as
otherwise provided by law, regulation, or the articles of incorporation, shall be as
provided in these Rules.
Article 2 Shareholders and their proxies (collectively, "shareholders") shall attend
shareholders meetings based on attendance cards, sign-in cards, or other
certificates of attendance. Solicitors soliciting proxy forms shall also bring
identification documents for verification.
Attending shareholders may hand in a sign-in card in lieu of signing in. The
number of shares in attendance shall be calculated according to the shares
indicated by the sign-in cards handed in plus the number of shares whose voting
rights are exercised by correspondence or electronic means.
Article 3 Attendance and voting at shareholders meetings shall be calculated based on
numbers of shares.
With respect to resolutions of shareholders meetings, the number of shares held
by a shareholder with no voting rights shall not be calculated as part of the total
number of issued shares.
When the Company holds a shareholders meeting, the shareholders may
exercise voting rights by electronic or correspondence means. Shareholders
who exercise his/her votes by way of electronic means shall be in accordance
with the Company Act, Securities and Exchange Act, and Regulations
Governing the Administration of Shareholder Services of Public Companies, to
exercise voting rights on the electronic voting platform designated by the
Company. Shareholders exercising voting rights by electronic means will be
deemed to have attended the meeting in person.
Shareholder who are not able to attend the shareholders meeting in person may
appoint a proxy to attend the meeting by providing the proxy form issued by
this Company and stating the scope of the proxy's authorization.
A shareholder may issue only one proxy form and appoint only one proxy for
any given shareholders meeting, and shall deliver the proxy form to this
Corporation before 5 days before the date of the shareholders meeting. When
duplicate proxy forms are delivered, the one received earliest shall prevail
unless a declaration is made to cancel the previous proxy appointment.
After a proxy form has been delivered to this Corporation, if the shareholder
intends to attend the meeting in person or to exercise voting rights by
correspondence or electronically, a written notice of proxy cancellation shall be
submitted to this Corporation before 2 business days before the meeting date. If
the cancellation notice is submitted after that time, votes cast at the meeting by
the proxy shall prevail.
After a shareholder has exercised voting rights by electronic means, in the event
the shareholder intends to attend the shareholders meeting in person, a written
declaration of intent to retract the voting rights already exercised under the
preceding paragraph shall be made known to the Company, by the same means
by which the voting rights were exercised, before 2 business days before the
date of the shareholders meeting. If the notice of retraction is submitted after

48

that time, the voting rights already exercised by electronic means shall prevail.
When a shareholder has exercised voting rights both by electronic means and
by appointing a proxy to attend a shareholders meeting, the voting rights
exercised by the proxy in the meeting shall prevail.
Article 4 Unless otherwise provided by law or regulation, the Company's shareholders
meetings shall be convened by the board of directors.
The venue for a shareholders meeting shall be the premises of the Company, or
a place easily accessible to shareholders and suitable for a shareholders
meeting. The meeting may begin no earlier than 9 a.m. and no later than 3 p.m.
Full consideration shall be given to the opinions of the independent directors
with respect to the place and time of the meeting.
Article 5 If a shareholders meeting is convened by the board of directors, the meeting
shall be chaired by the chairman of the board. When the chairman of the board
is on leave or for any reason unable to exercise the powers of the chairman, the
vice chairman shall act in place of the chairman; if there is no vice chairman or
the vice chairman also is on leave or for any reason unable to exercise the
powers of the vice chairman, the directors shall select from among themselves
one person to serve as chair.
If a shareholders meeting is convened by a party with power to convene but
other than the board of directors, the convening party shall chair the meeting.
When there are two or more such convening parties, they shall mutually select a
chair from among themselves.
Article 6 The Company may appoint its attorneys, certified public accountants, or related
persons retained by it to attend a shareholders meeting in a non-voting capacity.
Staff handling administrative affairs of a shareholders meeting shall wear
identification cards or arm bands.
Article 7 The Company shall make completed audio and video recording of the
proceedings of the shareholders meeting. The recorded materials of the
preceding paragraph shall be retained for at least 1 year.
Article 8 The chairman shall call the meeting to order at the appointed meeting time.
However, when the attending shareholders do not represent a majority of the
total number of issued shares, the chairman may announce a postponement,
provided that no more than two such postponements, for a combined total of no
more than 1 hour, may be made.
If the quorum is not met after two postponements, but the attending
shareholders represent one third or more of the total number of issued shares, a
tentative resolution may be adopted pursuant to Article 175, paragraph 1 of the
Company Act.
When, prior to conclusion of the meeting, the attending shareholders represent a
majority of the total number of issued shares, the chairman may resubmit the
tentative resolution for a vote by the shareholders meeting pursuant to Article
174 of the Company Act.
Article 9 If a shareholders meeting is convened by the board of directors, the meeting
agenda shall be set by the board of directors. The meeting shall proceed in the
order set by the agenda, which may not be changed without a resolution of the
shareholders meeting.
The provisions of the preceding paragraph apply mutatis mutandis to a
shareholders meeting convened by a party with the power to convene that is not
the board of directors.
The chairman may not declare the meeting adjourned prior to completion of

49

deliberation on the meeting agenda of the preceding two paragraphs (including
extraordinary motions), except by a resolution of the shareholders meeting. If
the chairman declares the meeting adjourned in violation of the rules of
procedure, the other members of the board of directors shall promptly assist the
attending shareholders in electing a new chair in accordance with statutory
procedures, by agreement of a majority of the votes represented by the
attending shareholders, and then continue the meeting. After adjournment,
shareholders are not allowed to elect another chairman to continue the meeting
at the original place or another place.
Article 10 Before speaking, an attending shareholder must specify on a speaker's slip the
subject of the speech, his/her shareholder account number (or attendance card
number), and account name. The order in which shareholders speak will be set
by the chairman. A shareholder in attendance who has submitted a speaker's slip
but does not actually speak shall be deemed to have not spoken. When the
content of the speech does not correspond to the subject given on the speaker's
slip, the spoken content shall prevail. When an attending shareholder is
speaking, other shareholders may not speak or interrupt unless they have sought
and obtained the consent of the chairman and the shareholder that has the floor.
The chairman shall stop any violation.
Article 11 Attending shareholders' enquiries on the matters set out in the agenda shall be
made after all the reported matters have been read or reported by the chairman
or his designated person. Except with the consent of the chairman, a
shareholder may not speak more than twice on the same proposal, and a single
speech may not exceed 5 minutes. If the shareholder's speech violates the rules
or exceeds the scope of the agenda item, the chairman may terminate the
speech.
Article 12 When a juristic person is appointed to attend as proxy, it may designate only
one person to represent it in the meeting. When a juristic person shareholder
appoints two or more representatives to attend a shareholders meeting, only one
of the representatives so appointed may speak on the same proposal.
Article 13 After an attending shareholder has spoken, the chairman may respond in person
or direct relevant personnel to respond.
Article 14 The chairman shall allow ample opportunity during the meeting for explanation
and discussion of proposals and of amendments or extraordinary motions put
forward by the shareholders. When the chairman is of the opinion that a
proposal has been discussed sufficiently to put it to a vote, the chairman may
announce the discussion closed and call for a vote.
Article 15 Vote monitoring and counting personnel for the voting on a proposal shall be
appointed by the chairman, provided that all monitoring personnel shall be
shareholders of the Company. Immediately after vote counting has been
completed, the results of the voting shall be announced on-site at the meeting
and be recorded.
The ballot of voting at the shareholders meeting shall be deemed void if one of
the following conditions are found by all of the vote monitoring personnel:
(1) The Ballot was not prepared or issued by the company.
(2) No meaning is marked on the ballot or the ballot in the ballot box is not for
the designated motion.
(3) The ballot is not placed in the ballot box.
(4) The ballot is not recognizable due to damaged or handwriting blurred.
(5) The ballot has been altered or written with other characters or symbols.

50

(6) Both for and against are marked on the ballot.
If there is a dispute from shareholders on the voting process, the vote counting
method, the validity of the votes, etc., the chairman shall make a determination.
Article 16 When a meeting is in progress, the chairman may announce a break based on
time considerations.
Article 17 Except as otherwise provided in the Company Act and in the articles of
incorporation, the passage of a proposal shall require an affirmative vote of a
majority of the voting rights represented by the attending shareholders.
The resolution of the shareholders meeting shall be decided by the chairman by
way of voting or solicitation. Except for the proposals without objection from
any shareholders after solicitation by the chairman are deemed approval, the
chairman shall decide that a vote to be held on whole or part of the proposals at
the same time before extraordinary motions with the ballots to be counted
separately for each proposal.
If no objection from any shareholders after solicitation by the chairman, the
resolution shall be deemed approval with the same effect as the resolution by
voting.
Article 18 When there is an amendment or an alternative to a proposal, the chair shall
present the amended or alternative proposal together with the original proposal
and decide the order in which they will be put to a vote. When any one among
them is passed, the other proposals will then be deemed rejected, and no further
voting shall be required.
The discussion and voting order of the shareholders' proposals in the
extraordinary motions shall be determined by the chairman. Those belonging to
the same type of motions shall be merged by the chairman.
Article 19 The chairman may direct the proctors or security personnel to help maintain
order at the meeting place. When proctors or security personnel help maintain
order at the meeting place, they shall wear an identification card or arm band.
At the place of a shareholders meeting, if a shareholder attempts to speak
through any device other than the public address equipment set up by the
Company, the chairman may prevent the shareholder from so doing.
When a shareholder violates the rules of procedure and defies the chairman's
correction, obstructing the proceedings and refusing to heed calls to stop, the
chairman may direct the proctors or security personnel to escort the shareholder
from the meeting.
Article 20 When a meeting is in progress, if a force majeure event occurs, the chairman
may rule the meeting temporarily suspended and announce a time when, in
view of the circumstances, the meeting will be resumed.
If the meeting venue is no longer available for continued use and not all of the
items (including extraordinary motions) on the meeting agenda have been
addressed, the shareholders meeting may adopt a resolution to resume the
meeting at another venue.
Article 21 These Rules shall be implemented after adoption by shareholders meetings.
Amendments based on demand of these Rules are authorized to the board of
directors.

51

Appendix 3

Shareholding of Directors

Shareholding of Directors Shareholding of Directors Shareholding of Directors Shareholding of Directors Shareholding of Directors
Record date: April 12,2020
Position Name Date
Elected		 Shares Shareholding
Ratio(%)
Chairman Cotek Pharmaceutical Industry Co., Ltd.
Representative: Yeh,Nan-Horng		 2018.06.05 22,146,604
4.34%
Vice
Chairman		 Forehead International Co., Ltd.
Representative: Chiu,Sun-Chien		 2018.06.05 5,023,359
0.98%
Director Forehead International Co., Ltd.
Representative: Chern,Kuo-Jong		 2018.06.05 5,023,359
0.98%
Director Sonnen Limited
Representative: Yeh,Po-Len		 2018.06.05 66,000
0.01%
Director Sonnen Limited
Representative: Huang,Yung-Fang		 2018.06.05 66,000
0.01%
Director Ni, Shu-Ching 2018.06.05 6,308,389
1.24%
Independent
Director		 Chen, Fu-Yen 2018.06.05 0 0
Independent
Director		 Wang, Chun-Hsiung 2018.06.05 0 0
Independent
Director		 Ou Yang, Wen-Han 2018.06.05 563,688 0.11%
Total 34,108,040

Total shares issued as of April 12, 2020: 510,684,875 common shares

Note ： The Company’s Directors are required by the law to hold in the aggregate not less than 16,341,916 shares. As of April 12, 2020, the shareholdings of all Directors (not including Independent Directors) were 33,544,352 shares.

52

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