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					Spokesperson                                    Overseas Securities Exchange (GDR)
Name : Sophia Chiu                              London Stock Exchange
Title : President                               Disclosed information can be found
Tel : 886-2-2655-3333 ext. 3564                 at http://mops.twse.com.tw
E-mail : speaker@teco.com.tw

                                                Corporate Website
Deputy Spokesperson
                                                http://www. teco.com.tw
Name : Andy Chien
Title : Senior Manager
Tel : 886-2-2655-3333 ext. 3542                 Headquarter, Branches and Plant
E-mail : ir@teco.com.tw                         Headquarter
                                                Address: 5F., No. 19-9, San Chong Rd.,
Stock Transfer Agent                                      Nan Kang, Taipei, Taiwan, R.O.C.
                                                Tel: 886-2-2655-3333
Taishi International Bank
Address : No. 96, Jianguo N. Rd.,
Sec. 1, Taipei, Taiwan R.O.C.                   Plant Chung-Li
Tel : 886-2-2504-8125 ext. 6301 ~ 6306          No. 11 An-Tung Rd., Tao-Yuan County, Taiwan, R.O.C.
Website : www.taishinbank.com.tw                Tel: 886-3-452-5101

Auditors                                        Plant Kuan-Yin
PricewaterhouseCoopers, Taiwan                  No. 1568-1, Chung Shan Rd., Sec. 1, Kuan-Yin,
Auditors : Ping-Chiun Chih, Audrey Tseng        Taoyuan County, Taiwan, R.O.C.
Address : 27F., No. 333, Keelung Rd., Sec. 1,   Tel: 886-3-473-4901
          Taipei, Taiwan, R.O.C.
Tel : 886-2-2729-6666
Website : http://www.pwcglobal.com.tw           Plant Hu-Kou
                                                15, Chung-hwa Rd., Hsinchu Industrial Park,
                                                Hsinchu County, Taiwan, R.O.C.
                                                Tel: 886-3-598-1711
          A nnual R eport                                         CONTENTS

I.Letter to Shareholders                                                                                02
II. Company Profile
    2.1 Date of Incorporation                                                                           04
    2.2 Company History                                                                                 04

III. Corporate Governance Report
    3.1 Organization                                                                                    05
    3.2 Directors, Supervisors and Management Team                                                      07
    3.3 Implementation of Corporate Governance                                                          14
    3.4 Information on CPA fee                                                                          23
    3.5 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders              24
    3.6 Information Disclosing the Relationship between any of the Company’s
        Top Ten Shareholders                                                                            25
    3.7 Long-Term Investment Ownership                                                                  26
IV. Capital Overview
    4.1   Capital and Shares                                                                            27
    4.2   Issuance of Corporate Bonds                                                                   31
    4.3   Employee Stock Options                                                                        32
    4.4   Global Depository Shares                                                                      34
    4.5   Status of New Shares Issuance in Connection with Mergers and Acquisitions                     34
    4.6   Financing Plans and Implementation                                                            34
V. Operational Highlights
    5.1   Business Activities                                                                           35
    5.2   Market and Sales Overview                                                                     39
    5.3   Human Resources                                                                               46
    5.4   Information on Outlay for Environment Protection                                              46
    5.5   Labor Relations                                                                               51
    5.6   Important Contracts                                                                           53
VI. Financial Information
    6.1 Five-Year Financial Summary                                                                     54
    6.2 Five-Year Financial Analysis                                                                    56
    6.3 Supervisors’ Report in the Most Recent Year                                                     57
VII. Review of Financial Status, Operating Results, and Risk Management
    7.1 Analysis of Financial Status                                                                    58
    7.2 Analysis of Operation Results                                                                   58
    7.3 Analysis of Cash Flow                                                                           59
    7.4 Major Capital Expenditure Items                                                                 59
    7.5 Investment Policy in Last Year, Main Causes for Profits or Losses,
        Improvement Plans and the Investment Plans for the Coming Year                                  60
    7.6 Analysis of Risk Management                                                                     60
VIII. Special Disclosure
    8.1 Summary of Affiliated Companies                                                                 67
    8.2 Private Placement Securities in the Most Recent Years                                           72
    8.3 The Shares in the Company Held or Disposed of by Subsidiaries
        in the Most Recent Years                                                                        72
Financial Statements for the Years Ended December 31, 2011 and 2010,
and Independent Auditors’ Report                                                  73
Consolidated Financial Statements for the Years Ended December 31, 2011 and 2010,
and Independent Auditors’ Report                                                155

                                                                  TECO ELECTRIC & MACHINERY CO., LTD.   1
        2011
A n nual Re p o r t




             I. Letter to Shareholders
             Dear Shareholders,

             In the first half of 2011, the global economy scored a moderate growth but it
             slackened in the second half, due to impact of the European- and U.S.-debt
             crisis and the Thai flood. Despite the economic fluctuation and uncertainty, the
             company still fully grasped the opportunities of economic growth and raked in
             net profits which are the highest in recent years.

             A. Review of Business Performance in 2011
             Analysis of the company’s business performance in 2011 follows:

                                                                                                      Unit: NT$ thousand
                                                   2011                          2010                  Change
             Net revenue                        25,798,135                 23,244,789                     11%
             Operating income                    1,182,535                     978,079                    21%
             Net profits                         2,783,209                     2,491,686                  12%


             For net revenue, with the global economy having bottomed out and demand on the rise, order reception and
             shipment for motors and system automation products rose conspicuously and engineering construction revenue
             also increased, thanks to acquisition of Taitec Technology and completion of engineering projects. Home
             appliances and air conditioners grew steadily by taking advantage of the business opportunities related to
             conversion of domestic energy efficiency. Overall speaking, the company’s sales jumped over 11% in 2011.

             For operating income, the company continued to cut costs and curb expenses to create profits. In 2011, with
             increase of net revenue, operating expense rate dropped 2% thanks to proper control, thereby enabling the
             company’s operating income to rack up 21% growth.

             For net non-operating income, both dividend income and foreign-exchange benefits increased than last year but
             due to the write-off of impairment loss and less investment income accounted for under the equity method, the
             company’s net non-operating income decreased by NT$160 million compared to 2010.

             Regarding R&D, in 2011, the company successfully developed ODM servo drive, drive for 20KW electric-
             car in-wheel motor, IPM Sensor control technology for inverter A510, 100KVA PV high-factor photovoltaic
             converter, auto-motor water-cooled frame, control box for inverter air-conditioning, automated technology for
             conversion of 2D image to 3D image. We also obtained certification of 17 domestic and foreign technology
             patents.

             B. Outline of 2012 Business Plan
             Economic growth in 2012 will slacken, as the Cabinet-level Directorate General of Budget, Accounting, and
             Statistics predicts that Taiwan’s economy will grow 3.85% in 2012, lower than the 2011 level. However, home-
             appliances department has successfully completed the conversion to frequency-variable models and new energy-
             conserving models, which will boost sales growth of home appliances. In addition, engineering orders received




    2   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                        2011
                                                                                                         Annual Re p o r t




by the power business department last year are scheduled for completion this year, generating sales income. The
launch of new motor and system automation products will induce steady growth in domestic sales. For export,
with the U.S. economy gradually recovering, the U.S. subsidiary of the Company has received hefty orders,
which will boost export growth. In Europe, despite uncertain economic outlook, sales are also expected to grow,
thanks to the demand for the company’s new motor products. Plus new business opportunities in the Middle
East, Japan, and Southeast Asia, export will grow steadily.

The company’s operating goal in 2012 focuses on the expansion of sales growth. For new products, in addition
to the continuing development of motor for automobile and electric car, the industrial motor department will
actively develop 3.5 MW wind-power generator and 30,000 horsepower synchronizer. The system automation
department will develop large-scale industrial inverter and medium-voltage inverter. The home-appliances
department will develop new energy-conserving models and 1,000-ton centrifugal chiller. The various business
units are actively developing new products to cultivate new business opportunities. For new markets, the wind-
power department is actively tapping the wind-power markets of Southeast Asia and mainland China. The
subsidiary in the Middle East has completed the construction of factory, which has started mass production, in
the beginning of this year. Under the auspices of the seven-star project, the company will actively push sales
growth. In addition, the company will establish a marketing-oriented organization and seek acquisitions or
strategic alliances to sustain sales growth.

Thanks to the constant compliance with corporate governance, creation of shareholders’ maximum benefits
as the business goal, the company passed the “Evaluation of Corporate Governance System” by Taiwan
Corporate Governance Association in 2010. In 2011, the company was also selected as one of Taiwan’s top 100
brands because of excellent industrial motor, and net profit hit new high in recent years. In adherence with the
management concept of honesty and trustworthiness, the company will pursue high growth on sales and profits,
and fully pay back shareholders and investing public for their long-term patronage and support.




                                                                        President      Sophia Chiu
                                                                      TECO Electric & Machinery Co., Ltd




                                                                                                     www.teco.com.tw   3
        2011
A n nual Re p o r t




        II. Company Profile
        2.1 Date of Incorporation: June, 1956
        2.2 Company History
        1956   Established
        1970   Produced air conditioners and entered the home appliances market
        1986   Joint venture with Westinghouse Electric to form TECO Westinghouse Motor
        1989   Founded TECO Industry Malaysia Sdn. Bhd.
        1990   Founded Toshiba Compressor (Taiwan) Corp. with Toshiba
        1992   Established Yatec Engineering Corporation with Yaskawa Electric Manufacture Co., Ltd of Japan
        1995   Acquired Westinghouse Motor Co., Ltd (USA)
        1998   Founded TECO Electro Devices Co., Ltd. for manufacturing of stepping motors
               Founded TECO (Dong Guan) Air Conditioning Equipment Co., Ltd. for manufacturing and sales of
        1999
               commercial air conditioning
        2000   Founded Suzhou TECO Electric & Machinery Co., Ltd for the production and distribution of small motors
        2001   Established Smart Card Division for National Health Insurance IC-card project
               Founded Wuxi TECO with China Steel, Nippon Steel and Marubeni-Itochu Steel for production and
        2002
               distribution of large motors
               Wuxi TECO Electric & Machinery Co., Ltd commenced mass production
        2003
               Merged Tai-An Electric Co., Ltd.
               Exported large-sized LCD TV to Japan
        2004
               Established Jiangxi TECO Electric & Machinery Co., Ltd.
               Founded Yaskawa TECO Motor Engineering Corp. to expand to Japanese market
        2005
               Won bid of orange/blue line extension projects of TRTS project
               Strategic alliance with CTC to set up the first Wind Power Project in Texas, USA
        2006   Founded TECO (Vietnam) Electric & Machinery Co., Ltd.
               Founded TECO Electric & Machinery (Chin-Tao) Co., Ltd. to manufacture compressors
               Joint venture with South Korea’s Finetec Century in setting up a compressor manufacturing facility in
               Qingdao, China
        2007   Launch into Wind-Power Generation; introduce a 2MW Wind-Power generator
               Set up Asia Innovative Technology (Xiamen) to produce LCD monitors
               Announce the “TECO Go Eco” declaration to join the cause of reducing carbon emissions
               Founded Fujian TECO Precision Co., Ltd.
        2008   Asia Innovative Technology Co., Ltd.(Xiamen) commenced operation
               TECO Electric & Machinery (Chin-Tao) Co., Ltd. commenced production
               Completion of TECO Mexico plant
        2009   Inauguration of Qingdao TECO Century
               Inauguration of Tianjin operating center
               Inauguration of Fujian Teco Precision Co., Ltd.
        2010   Rollout of TECO’s first 2MW wind-power turbine
               Inauguration of TECO Sichuan Trading Co., Ltd.
               Formal operation of TECO’s large-scale 2MW wind turbine
               Completion the new plant of Tai-An Technology (Wuxi) Co., Ltd.
        2011
               Inauguration the new plant of TECO Middle East (TME)
               Acquired An Yang Electric Co., Ltd. and Taitec Technology Co., Ltd. to enhance the competitiveness




    4    TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                              2011
                                                                                                                 Annual Re p o r t




          III. Corporate Governance Report
          3.1 Organization

          3.1.1 Organization Chart



                                                           Chairman



                               Internal Audit Division                 Business Development Center


                                   Legal Division                          Secretariat Division



                                                           President



                                 Office of President


                      CRP Team                                               Finance Group

                Quality Assurance Dept
                                                                                           Asset Management Dept
                 Safety & Health Dept
                                                                                        Corporate Purchasing Division
              Information Technology Dept
                                                                                              Finance Division

                                                                                       Management Accounting Division
                            Human Resources Division




                                                                          Industrial
                             Green           Industrial                                                     Teco
Audio &      Household                                      Power         Product &          ECO                        Intelligent
                            Electric         Motors &                                                      Group
 Video       Appliances                                    Business         System          Energy                        System
                            Machine         Applications                                                 Research
 Group         Group                                        Group        Automation         Group                         Division
                             Group             Group                                                      Institute
                                                                            Group




                                                                                                          www.teco.com.tw    5
        2011
A n nual Re p o r t




             3.1.2 Major Corporate Functions


                      Business Unit                                            Operations
                                              Production and sales of medium to large-sized 3-phase motors, medium to
              Industrial Motors &             large-sized high-efficiency motors, medium to large-sized explosion-proof
              Applications                    motors, medium to large-sized inverter-duty motors, DC motor and medium
                                              to large-sized generators.
                                              Production and sales of single-phase motors, vehicle-used motors, permanet
                                              magnet motors, small-sized 3-phase motors, small-sized high-efficiency
              Green Electric Machine          motors, small-sized explosion-proof motors, small-sized inverter-duty
                                              motors, small-sized generators, die casting of steel and iron, small-sized
                                              coolant compressors.
                                              Production and sales of magnetic switches, molded-case circuit breakers,
              Industrial Products & System
                                              electronic relays, inverters and programmable logic controllers, servo
              Automation
                                              controllers.
                                              R&D, design, production, and sales of equipment and systems meant for
                                              the supply of electrical power; undertaking of projects related to power
                                              distribution and generation, alternative energy, and rail stations and depots.
                                              Air-conditioning equipment for specific environments such as clean rooms;
                                              design, construction, and management of electrical engineering systems for
              Power Business
                                              high-rise buildings; integration of air-conditioning and electrical engineering
                                              systems for hospitals and hotels; water pump stations and other related
                                              projects.
                                              Ultra-high voltage 161KV/69KV substations switchgears and installation
                                              projects.
                                              Production, assembly, and sales of and after-sale services for flat-panel TVs,
              Audio & Video
                                              LCD monitors, LCD TVs, DVD recorder/players, and PVRs.
                                              Production, assembly, sales, and repair of household air conditioners,
                                              refrigerators, washing machines, dehumidifiers, dryers, televisions, LCD
                                              monitors, air purifiers, small appliances, DVD recorders, stereo systems,
              Household Appliances
                                              health appliances, beauty appliances, freezer storages, low-temperature
                                              caged carts, freezers, chillers for machine tools, condensing units ;
                                              dealership of other domestic and foreign home appliances brands.
                                              Development, manufacturing, sales, and system integration of wind-power
              ECO Energy                      turbines, related equipments for solar power generators, wind/solar hybrid
                                              street lights.
                                              Research and development catering to requirements of the medium-to-long
              Teco Group Research Institute   term, short-term development of new products and technical support to
                                              members of the TECO group.
                                              Chip-embedded cards and systems integration for for financial, medical,
              Intelligent System              member royality, surveillance, e-invoice, public transportation ITS and
                                              RFID




    6   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                                                                                                                                      2011
                                                                                                                                                                                                                                                                                         Annual Re p o r t




3.2 Directors, Supervisors and Management Team
3.2.1 Directors and Supervisors
                                                                                                                                                                                                                                                                                                             April 30, 2012
                                                                                                                                                                                                                                                                                                        Executives, Directors
                                                                                                                                                                                                                    Shareholding
                                                                                                                                                Shareholding when                            Spouse & Minor                                                                                            or Supervisors who are
                                                                                                          Term            Date First                              Current Shareholding                               by Nominee
        Title                                  Name                               Date Elected                                                       Elected                                  Shareholding                          Experience (Education)                Other Position                spouses or within two
                                                                                                         (Years)        Elected(Note)                                                                               Arrangement
                                                                                                                                                                                                                                                                                                           degrees of kinship
                                                                                                                                                  Shares       %       Shares       %        Shares       %        Shares    %                                                                         Title Name Relation

                       Tong Ho Gloabl Investment Co., Ltd                                                                  2000.4.21               1,240,262 0.07% 2,240,262        0.12%            -         -                   Ph.D,                       Chairman of Tecom Co., Ltd. & TECO
 Chairman                                                                           2009.6.19                3                                                                                                                                                                                          -      -        -
                       Representative : C.K. Liu                                                                           2000.4.21                       -      -        -             -    1,22,018    0.01%                    University of Illinois      Holdings USA, Inc.,..

                                                                                                                                                                                                                                                               Chairman of
 Managing                                                                                                                                                                                                                          Master, University of
                       Theodore M.H. Huang                                          2009.6.19                3             1972.5.12             18,486,633 1.01% 18,486,633        1.00%    5,839,071    0.32%                                                An-Shin Food Service Co., Ltd. &         -      -        -
 Director                                                                                                                                                                                                                          Pennsylvania
                                                                                                                                                                                                                                                               TECO Australia Pty Limited

                                                                                                                                                                                                                                   Master, University of Tokyo Chairman of Great TECO Whirlpool
 Managing
                       Fred P.C. Huang                                              2009.6.19                3             1988.3.28             21,614,831 1.19% 21,614,831        1.17%      230,588    0.01%                    Bachelor,                   Co., Ltd. & Direcotr fo Tecom Co.,       -      -        -
 Director
                                                                                                                                                                                                                                   National Taiwan University Ltd.,..

                                                                                                                                                                                                                                                              Chairman of Sen Yeh Construction
 Managing                                                                                                                                                                                                                          Department of Economics,
                       John C.T. Huang                                              2009.6.19                3              1991.5.8             15,279,849 0.84% 15,279,849        0.83%    2,110,934    0.11%                                               Co., Ltd. & Wan Yu Development Co.,       -      -        -
 Director                                                                                                                                                                                                                          Fu Jen Catholic University
                                                                                                                                                                                                                                                              Ltd.

                                                                                                                                                                                                                                                              Adjunct Professor of Department of
 Managing &                                                                                                                                                                                                                        Ph.D.,
                                                                                                                                                                                                                                                              Accounting, National Taiwan University
 Independent           Hong Chang Chang                                             2009.6.19                3              2003.6.6                       -       -            -        -            -        -                   The Wharton School of the                                            -      -        -
                                                                                                                                                                                                                                                              & Independent Director of Fubon
 Director                                                                                                                                                                                                                          University of Pennsylvania
                                                                                                                                                                                                                                                              Finanacail Holdings


                                                                                                                                                                                                                                                              Chairman of Teco Westinghouse Motor
                       Creative Sensor Co., Ltd.                                                                           2009.6.19               9,000,000 0.49% 10,000,000       0.54%            -         -
 Director                                                                           2009.6.19                3                                                                                                                     National Taiwan University Company & TECO Electro Devices            -      -        -
                       Representative : S. C. Lin                                                                          2000.4.21                 332,245 0.02% 332,245          0.02%       40,434    0.00%
                                                                                                                                                                                                                                                              Co., Ltd.


                       Yaskawa Electric Corporation.                                                                       2006.6.15             29,541,089 1.62% 29,541,089        1.61%             -        -                   Nagoya Institute of         Director of Yaskawa Electric
 Director                                                                           2009.6.19                3                                                                                                                                                                                          -      -        -
                       Representative : Masao Kito                                                                         2007.4.30                      -      -         -             -            -        -                   Technology                  Corporation.


                                                                                                                                                                                                                                                               Chairman of Ping Tung Bus Lines Co.,
 Director              Hsien Sheng Kuo                                              2009.6.19                3             1982.3.27               9,126,238 0.50% 9,126,238        0.49%    1,573,020    0.09%                    Tamkang University                                                   -      -        -
                                                                                                                                                                                                                                                               Ltd. & Nantou Bus Lines Co., Ltd.

                                                                                                                                                                                                                                                               Chairman of Asia Pacific Telecom Co.,
                       Lien Chang Electronic Co., Ltd.                                                                     2009.6.19               4,173,000 0.23% 4,173,000        0.23%            -         -                   Master, University of
 Director                                                                           2009.6.19                3                                                                                                                                                 Ltd. & Taiwan Pelican Express Co.,       -      -        -
                       Representative : Sophia Chiu                                                                        2006.6.15                 655,475 0.04% 2,241,964        0.12%       16,987    0.00%                    Michigan, Ann-Arbor
                                                                                                                                                                                                                                                               Ltd…

                                                                                                                                                                                                                                                             Vice Chairman of TECO Electric &
                       Jung Gi Investment Co., Ltd.                                                                        1994.4.28               2,536,040 0.14% 2,536,040        0.14%             -        -
 Director                                                                           2009.6.19                3                                                                                                                     Ph.D, Muenchen University Machinery (Qingdao) Co., Ltd.              -      -        -
                       Representative: Emilie Sun                                                                          2000.4.21                 557,960 0.03% 557,960          0.03%             -        -
                                                                                                                                                                                                                                                             Director of Sichuan Teco Ltd.

                       Kuang Yuan Industrial Co., Ltd.                                                                     2009.6.19             23,093,919 1.27% 22,033,919        1.19%             -        -                   Master of University of     Senoir Consultant of UMC, Director of
 Director                                                                           2009.6.19                3                                                                                                                                                                                          -      -        -
                       Representative: Chung Te Chang                                                                      2009.6.19                      -      -         -             -            -        -                   Texas                       TECO Image Co., Ltd.


                       Mao Yang Co., Ltd.                                                                                  1994.4.28               3,524,893 0.19% 5,000,893        0.27%             -        -                   Minghsin University of
 Director                                                                           2009.6.19                3                                                                                                                                                 Chairman of Hong Tong Co., Ltd.          -      -        -
                       Representative: Yang-Hsiang Chang                                                                    2006.9.6                       -      -        -             -            -        -                   Science & Technology

                       Grand Pacific Investment & Development                                                                                                                                                                      National Taiwan University Chairman of Grand Pacific Investment
                                                                                                                           1997.5.24               5,649,428 0.31% 5,649,428        0.31%             -        -
 Director              Co., Ltd.                                                    2009.6.19                3                                                                                                                     Massachusetts Institute of & Development Co., Ltd.                   -      -        -
                                                                                                                           2007.3.1                        -      -        -             -            -        -
                       Representative: Mao-Nan Jian                                                                                                                                                                                Technology                 Director of Lianhwa Foods Co., Ltd.

                                                                                                                                                                                                                                   Former Director of TECO
                       Lien Chang Electronic Co., Ltd.                                                                     2009.6.19               4,173,000 0.23% 4,173,000        0.23%            -         -                                               Director of Lien Quan Investment &
 Director                                                                           2009.6.19                3                                                                                                                     Electric & Machinery Pte.                                            -      -        -
                       Representative: Chin San Chien                                                                      1997.5.24               5,417,181 0.30% 5,417,181        0.29%    1,285,214    0.07%                                                Development Co., Ltd.
                                                                                                                                                                                                                                   Ltd.

                                                                                                                                                                                                                                                               Chairman of Global Strategic Venture
                       Kuang Yuan Industrial Co., Ltd.                                                                     2009.6.19             23,093,919 1.27% 22,033,919        1.19%             -        -                   Ph.D.,Northwestern
 Director                                                                           2009.6.19                3                                                                                                                                                 Capital Co., Ltd. & Huan Xun Venture     -      -        -
                       Representative: Shih Chien Yang                                                                     2009.6.19                      -      -         -             -            -        -                   University, US
                                                                                                                                                                                                                                                               Capital Co., Ltd.

 Resident                                                                                                                                                                                                                          Master, National Cheng Chi Chairman of Tai Shin Investment Co.,
                       Tong Shung Wu                                                2009.6.19                3              2003.6.6                       -       -            -        -            -        -                                                                                        -      -        -
 supervisor                                                                                                                                                                                                                        University                 Ltd.


                       Tung Kuang Investment Co., Ltd.                                                                     2000.4.21             30,341,364 1.66% 30,341,364        1.64%             -        -                   Ph.D, Carnegie Mellon       Chairman of Pacific Venture Group
 Supervisor                                                                         2009.6.19                3                                                                                                                                                                                          -      -        -
                       Representative: Bo Yuan Wang                                                                        2003.6.6                 400,000 0.02 400,000            0.02%             -        -                   University                  and SerComm Corporation


                                                                                                                                                                                                                                                               Vice Professor of department of
                       Tung Kuang Investment Co., Ltd.                                                                     2000.4.21             30,341,364 1.66% 30,341,364        1.64%             -        -                   Ph. D. National Central
 Supervisor                                                                         2009.6.19                3                                                                                                                                                 Occupational Safety and Health at        -      -        -
                       Representative: Hsin –Yi Lin                                                                        2009.6.19                      -      -         -             -            -        -                   University
                                                                                                                                                                                                                                                               Chang Jung Christian University


Note: Date first elected: Denotes the first election date for institutional shareholder and representative respectively as a Director or Supervisor.




                                                                                                                                                                                                                                                                             www.teco.com.tw                           7
         2011
A n nual Re p o r t




     Professional qualifications and independence analysis of directors and supervisors
                                                                                                                                                                                          April 30, 2012
                                                Meet One of the Following Professional Qualification Requirements,                                                              Number of Other
                                                                                                                                       Independence Criteria(Note)
                                                       Together with at Least Five Years Work Experience                                                                        Public Companies
                             Criteria     An Instructor or Higher      A Judge, Public Prosecutor,   Have Work Experience in                                                    in Which the
                                          Position in a Department     Attorney, Certified Public    the Areas of Commerce,                                                     Individual is
                                          of Commerce, Law,            Accountant, or Other          Law, Finance, or                                                           Concurrently
                                          Finance, Accounting,         Professional or Technical     Accounting, or Otherwise                                                   Serving as an
                                          or Other Academic            Specialist Who has Passed     Necessary for the                                                          Independent
                                          Department Related to        a National Examination and    Business of the Company 1    2    3     4    5     6    7     8    9    10 Director
          Name                            the Business Needs of        been Awarded a Certificate
                                          the Company in a Public      in a Profession Necessary
                                          or Private Junior College,   for the Business of the
                                          College or University        Company
        Tong Ho Gloabl
        Investment Co., Ltd                                                                                    V            V          V     V    V     V    V    V     V
        Representative : C.K. Liu
        Theodore M.H. Huang                                                                                    V            V                     V          V    V     V    V             1
        Fred P.C. Huang                                                                                        V            V                     V          V    V     V    V
        John C.T. Huang                                                                                        V            V                V    V     V    V    V     V    V
        Hong Chang Chang                              V                                                        V            V     V    V     V    V     V    V    V     V    V             3
        Creative Sensor Co., Ltd.
                                                                                                               V                       V          V          V    V     V
        Representative : S. C. Lin
        Yaskawa Electric Corporation.
                                                                                                               V            V          V     V          V    V    V     V
        Representative : Masao Kito
        Hsien Sheng Kuo                                                                                        V            V                V    V     V    V    V     V    V
        Lien Chang Electronic Co., Ltd.
                                                                                                               V                       V     V    V          V    V     V
        Representative : Sophia Chiu
        Jung Gi Investment Co., Ltd.
        Representative: Emilie Sun                    V                                                        V            V          V     V    V          V    V     V
        Kuang Yuan Industrial Co., Ltd.
        Representative: Chung Te Chang                                                                         V            V          V     V    V     V    V    V     V                  1
        Mao Yang Co., Ltd.
        Representative: Yang-Hsiang,
                                                                                                               V            V          V     V    V     V    V    V     V
        Chang
        Grand Pacific Investment &
        Development Co., Ltd.
        Representative: Mao-Nan Jian                                                                           V            V          V     V    V     V    V    V     V
        Lien Chang Electronic Co., Ltd.
        Representative: Chin San Chien                                                                         V            V          V     V    V     V    V    V     V
        Kuang Yuan Industrial Co., Ltd.
        Representative: Shih Chien Yang                                                                        V            V          V     V    V     V    V    V     V                  1
        Tong Shung Wu                                                              V                           V            V          V     V    V     V    V    V     V    V
        Tung Kuang Investment Co., Ltd.
        Representative: Bo Yuan Wang                                                                           V            V          V     V    V     V    V    V     V                  1
        Tung Kuang Investment Co., Ltd.
        Representative: Hsin –Yi Lin                                                                           V            V          V     V    V     V    V    V     V
     Note: Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.
           1. Not an employee of the Company or any of its affiliates.
           2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its
              parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares.
           3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate
              amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings.
           4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs.
           5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares
              ranking in the top five in holdings.
           6. Not a director, supervisor, officer, or shareholder holding 5% or more of the share, of a specified company or institution that has a financial or business relationship with the Company.
           7. Not a professional individual who, or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that, provides commercial, legal,
              financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof.
           8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company.
           9. Not been a person of any conditions defined in Article 30 of the Company Law.
           10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Law.




    8       TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                          2011
                                                                                                                                          Annual Re p o r t




3.2.2 Management Team
                                                                                                                                            April 30, 2012

                                                                                                                                     Managers who are
                                                                             Shareholding
                                                              Spouse & Minor                                                         Spouses or Within
                                          Shareholding                        by Nominee
                              Date                             Shareholding                   Experience                              Two Degrees of
   Title        Name                                                         Arrangement                       Other Position
                            Effective                                                         (Education)                                Kinship

                                         Shares       %       Shares   %       Shares   %                                           Title Name Relation

                                                                                            Master,
            Chwen-Jy,                                                                                        Chairman of Asia
                                                                                            University of
President   Chiu             2005.6.1    2,241,946 0.122% 16,987 0.001%          -      -                    Pacific Telecom Co.,     -     -       -
                                                                                            Michigan, Ann-
            (Sophia Chiu)                                                                                    Ltd.
                                                                                            Arbor


                                                                                            National         Chairman of Teco
Executive S.C.
                             2000.7.1     332,245 0.018% 40,434 0.002%           -      -   Taiwan           Westinghouse             -     -       -
Consultant Lin
                                                                                            University       Motor Company


                                                                                            Master,          Chairman of
Vice        George                                                                          Stevens          Information
                             2001.8.1     618,130 0.033%           0 0.000%      -      -                                             -     -       -
President   Lien                                                                            Institute of     Technology
                                                                                            Technology       Total Service Corp.

                                                                                                             Chairman of
Assistant                                                                                   Master,
            George                                                                                           TECO Tianjin
Vice                         2001.7.1      56,564 0.003%           0 0.000%      -      -   University of                             -     -       -
            Huang                                                                                            Innovation
President                                                                                   Notre Dame
                                                                                                             Co., Ltd.


Assistant                                                                                   Master,          Chairman of
            Hung Hsiang
Vice                        1998.8.21    2,923,893 0.158%          0 0.000%      -      -   University of    TECO Electric &          -     -       -
            Lin
President                                                                                   Houston          Machinery Pte. Ltd.


Assistant                                                                                                    Director,
            Yu Kuang                                                                        Tatung
Vice                        2003.10.01    757,806 0.041% 28,622 0.002%           -      -                    Micropac (BVI)           -     -       -
            Wang                                                                            University
President                                                                                                    Worldwide


Assistant                                                                                   Ph.D,            Chairman of
            Steven
Vice                        2011.12.25            0       0        0       0     -      -   University       Yatec Engineering        -     -       -
            Chiang
President                                                                                   of Florida       Corporation




                                                                                                                                    www.teco.com.tw          9
           2011
A n nual Re p o r t




            3.2.3 Remuneration of Directors, Supervisors, President, and Vice President

            Remuneration of Directors(Including Independent Directors)
                                                                                                                                                                                                                                                                                                                         Unit: NT$ thousand

                                                                                                     Remuneration                                                                                                    Relevant remuneration received by directors who are also employees

                                                                                                                                                 Ratio of total remuneration                                                                                                                            Ratio of total compensation
                                                                                                                                                                             Salary, Bonuses, and                                                                                  Exercisable Employee
                                               Base Compensation(A)        Severance Pay(B)      Bonus to Directors(C)       Allowances(D)            (A+B+C+D) to net                                Severance Pay (F)                 Profit Sharing- Employee Bonus (G)                               (A+B+C+D+E+F+G) to net Compensation
                                                                                                                                                                                Allowances (E)                                                                                       Stock Options (H)
                                                                                                                                                         income(%)                                                                                                                                               income(%)          paid to directors
                                                                                                                                                                                                                                        Companies                Companies                                                   from an invested
    Code       Title          Name                                                                                                                                                                                                                                                                                                company
                                                           Companies                Companies                Companies                Companies                Companies                Companies                Companies                 in the                   in the               Companies                Companies
                                                                                                                                                                                                                                                                                                                               other than the
                                                              in the                   in the                   in the                   in the                   in the                   in the                   in the The company consolidated The company consolidated                in the                   in the
                                              The company consolidated The company consolidated The company consolidated The company consolidated The company consolidated The company consolidated The company consolidated             financial                financial The company consolidated The company consolidated company’s
                                                                                                                                                                                                                                        statements               statements                                                      subsidiary
                                                            financial                financial                financial                financial                financial                financial                financial                                                               financial                financial
                                                           statements               statements               statements               statements               statements               statements               statements Cash           Stock        Cash        Stock                statements               statements
                                                                                                                                                                                                                             Dividend         Dividend     Dividend     Dividend

                    Tong Ho Gloabl
                    Investment Co., Ltd                                                            Total:      Total:      Total:      Total:                                 Total:       Total:    Total:       Total:       Total:                       Total:
     1     Chairman                                -            -           -           -                                                           3.27%       3.28%                                                                             -                          -        -            -          3.64%        3.69%           Yes
                    Representative :                                                              89,096      89,096       2,052       2,100                                  7,028        8,228      108          108         3,037                        3,037
                    C.K. Liu

           Managing Theodore M.H.
     2
           Director Huang
           Managing
     3              Fred P.C. Huang
           Director
           Managing
     4              John C.T. Huang
           Director

                       Creative Sensor
                       Co., Ltd.
     5     Director
                       Representative :
                       S. C. Lin

                       Yaskawa Electric
                       Corporation.
     6     Director
                       Representative :
                       Masao Kito

                       Jung Gi Investment
                       Co., Ltd.
     7     Director
                       Representative:
                       Emilie Sun

     8     Director    Hsien Sheng Kuo

                       Mao Yang Co., Ltd.
                       Representative:
     9     Director
                       Yang-Hsiang
                       Chang

                       Lien Chang
                       Electronic Co., Ltd.
     10    Director    Representative:
                       Chin San Chien &
                       Sophia Chiu

                       Grand Pacific
                       Investment &
                       Development Co.,
     11    Director
                       Ltd.
                       Representative:
                       Mao-Nan Jian


                       Kuang Yuan
                       Industrial Co., Ltd.
     12    Director    Representative:
                       Chung Te Chang &
                       Shih Chien Yang

           Managing &
     13    Independent Hong Chang Chang
           Director

  Note: No actural retirees in 2011; the figures in this column refer to provision or earmarking for severance and retiretn funds.




   10          TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                              2011
                                                                                                                                                                                Annual Re p o r t




                                                                                            Name of Directors(Note 1)
                                                                     Total of (A+B+C+D)                                                   Total of (A+B+C+D+E+F+G)
               Bracket                                                              Companies in the                                                        Companies in the
                                                   The company                    consolidated financial                        The company                 consolidated financial
                                                                                           statements                                                              statements
Under NT$ 2,000,000                                          13                                13                                    13                                 13
NT$2,000,000 ~
                                                           5, 6, 9                           5, 6, 9                               5, 6, 9                            5, 6, 9
NT$5,000,000
NT$5,000,000 ~
                                                   2, 3, 4, 7, 8, 11                   2, 3, 4, 7, 8, 11                        3, 4, 7, 8, 11                     3, 4, 7, 8, 11
NT$10,000,000
NT$10,000,000 ~
                                                       1, 10, 12                            1, 10, 12                             1, 10, 12                          1, 10, 12
NT$15,000,000
NT$15,000,000 ~
                                                                                                                                      2                                  2
NT$30,000,000
NT$30,000,000 ~
NT$50,000,000
NT$50,000,000 ~
NT$100,000,000
Over NT$100,000,000
Number of Directors                                          13                                13                                    13                                 13
Note 1: Shown by code of Directors in the previous table



Remuneration of Supervisors
                                                                                                                                                                              Unit : NT$ thousand

                                                                                                        Remuneration                                                          Compensation
                                                                                                                                                           Ratio of total          paid to
                                                     Base Compensation(A)          Severance Pay(B)     Bonus to Directors(C)     Allowances(D)      remuneration (A+B+C+D) supervisors
                                                                                                                                                        to net income (%)         from an
 Code       Title             Name                                                         Companies              Companies              Companies                Companies      invested
                                                                  Companies in                                                                                                   company
                                                                                              in the                 in the                 in the                   in the
                                                                the consolidated   The                   The                    The                     The
                                                The company                               consolidated           consolidated           consolidated             consolidated other than the
                                                                     financial   company               company                company                 company                  company’s
                                                                                            financial              financial              financial                financial
                                                                   statements                                                                                                   subsidiary
                                                                                           statements             statements             statements               statements

        Resident
  1                   Tong Shung Wu                   -                   -           -             -       1,800      1,800         132         132      0.07%      0.07%
        supervisor

                                                                                                                                                                                      None
                                             Representative: Bo
                      Tung Kuang                                                                            Total:     Total:       Total:       Total:   Total:     Total:
   2    Supervisor                           Yuan Wang & Hsin-Yi          -           -             -
                      Investment Co., Ltd.                                                                  9,300      9,300         240          240     0.34%      0.34%
                                             Lin (Note 1)


(Note 1) Compensations for the supervistor should be publized, since over 50% of his shareholding has been mortgaged.



                                                                                                      Name of Supervisors (Note 1)
                            Bracket                                                                      Total of (A+B+C+D)
                                                                                          The company                       Companies in the consolidated
financial statements
Under NT$ 2,000,000                                                                            1                                                             1
NT$2,000,000 ~ NT$5,000,000
NT$5,000,000 ~ NT$10,000,000                                                                   2                                                             2
NT$10,000,000 ~ NT$15,000,000
NT$15,000,000 ~ NT$30,000,000
NT$30,000,000 ~ NT$50,000,000
NT$50,000,000 ~ NT$100,000,000
Over NT$100,000,000
Number of Supervisors                                                                          2                                                             2

Note 1: Shown by code of Supervisors in the previous table




                                                                                                                                                                      www.teco.com.tw               11
          2011
A n nual Re p o r t




  Compensation of President and Vice President
                                                                                                                                                                                                         Unit : NT$ thousand
                                                                                                                                                               Ratio of total                               Compensation
                                                                                             Bonuses and Allowances                                                                Exercisable Employee
                                                   Salary(A)           Severance Pay (B)                            Profit Sharing- Employee Bonus (D)   compensation (A+B+C+D)                               paid to the
                                                                                                      (C)                                                                             Stock Options
                                                                                                                                                            to net income(%)                              president and vice
                                                       Companies               Companies                Companies                       Companies in                  Companies               Companies president from an
   Code         Title           Name                                                                                                  the consolidated
                                                        in the con              in the con               in the con                                                    in the con              in the con invested company
                                              The                      The                     The                        The company                       The                     The
                                                         solidated               solidated                solidated                       financial                     solidated               solidated   other than the
                                            company                  company                 company                                                      company                 company
                                                         financial               financial                financial                      statements                     financial               financial     company’s
                                                       statements              statements               statements        Cash Stock Cash Stock                       statements              statements      subsidiary
                            Chwen-Jy,
                                              Total:       Total:     Total:      Total:       Total:       Total:         Total:        Total:
    1     President         Chiu                                                                                                                           1.66%        1.76%                                    Yes
                                             17,573       20,439      1,567       1,567       14,332       16,100         12,764        12,764
                            (Sophia Chiu)
          Executive
    2                       S.C. Lin
          Consultant
    3     Vice President George Lien
          Assistant Vice
    4                       George Huang
          President
          Assistant Vice    Hung Hsiang
    5
          President         Lin
          Assistant Vice    Yu Kuang
    6
          President         Wang
          Assistant Vice Steven
    7
          President      Chiang
  Note: No actural retirees in 2011; the figures in this column refer to provision or earmarking for severance and retiretn funds.




                                                                                                               Name of President and Vice President (Note 1)
                                               Bracket
                                                                                                         The company          Companies in the consolidated
                                       Under NT$ 2,000,000                                                            7                                                         7

                            NT$2,000,000 ~ NT$5,000,000                                                               6                                                         6

                           NT$5,000,000 ~ NT$10,000,000                                                       2, 3, 4, 5                                                  3, 4, 5

                           NT$10,000,000 ~ NT$15,000,000                                                              1                                                     1, 2

                           NT$15,000,000 ~ NT$30,000,000

                           NT$30,000,000 ~ NT$50,000,000

                        NT$50,000,000 ~ NT$100,000,000

                                       Over NT$100,000,000

                                       Number of Executives                                                           7                                                         7
  Note 1: Shown by code of Executives in the previous table




   12        TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                          2011
                                                                                                            Annual Re p o r t




                                                                                                   Unit : NT$ thousand
                                                      Employee
                                                                        Employee
                                                       Bonus- in                                Ratio of Total Amount
                    Title             Name                              Bonus- in      Total
                                                      Stock(Fair                                  to Net Income(%)
                                                                          Cash
                                                     Market Value)
                               Chwen-Jy, Chiu
              President
                               (Sophia Chiu)
              Executive
                               S.C. Lin
              Consultant

              Vice President   George Lien

              Assistant Vice
                               George Huang
              President
Executive     Assistant Vice                                              Total:       Total:
                               Hung Hsiang Lin                                                         0.54%
Officers      President                                                   14,962       14,962
              Assistant Vice
                               Yu Kuang Wang
              President
              Assistant Vice
                               Steven Chiang
              President

              Group Director   Andy Liu

              Group Director   Kevin Yeh




3.2.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents
      in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors,
      Presidents and Vice Presidents

                                                                                                   Unit : NT$ thousand
                                                                   Ratio of total remuneration paid to directors,
           Total remuneration paid to directors, supervisors,
  Year                                                             supervisors, presidents and vice presidents to
                    presidents and vice presidents
                                                                                    net income (%)
  2011                          164,917                                                 5.93%

  2010                          154,867                                                 6.22%


The company’s compensations are set according to levels offered by peers for the same positions, responsibilities of
the positions, and their contribution to the company in achieving its business goal. The determination of compensations
is based on the company’s guidelines for performance and compensations, which take into account the company’s
overall business performance, achievement of an employee’s personal performance goal, and his/her contribution to the
corporate performance, in order to reach reasonable levels of compensation. Year-end bonus is paid out according to a
fixed share of net profits, which can only be changed by a resolution of the board of directors.




                                                                                                       www.teco.com.tw    13
        2011
A n nual Re p o r t




             3.3 Implementation of Corporate Governance
             3.3.1 Board of Directors

             A total of 6 meetings of the board of directors were held in 2011, director and supervisor attendance was as follows:
                                                                                                    Attendance in                                  Attendance
                           Title                                     Name                                                      By Proxy                                   Remarks
                                                                                                      Person(B)                                    rate (%)B/A
                                                 Tong Ho Gloabl
                       Chairman                  Investment Co., Ltd                                          6                      0                  100 %
                                                 Representative : C.K. Liu
                 Managing Director               Theodore M.H. Huang                                          6                      0                  100 %
                 Managing Director               Fred P.C. Huang                                              4                      2                   67 %
                 Managing Director               John C.T. Huang                                              5                      0                   83 %
                   Managing &
                                                 Hong Chang Chang                                             6                      0                  100 %
               Independent Director
                                                 Creative Sensor Co., Ltd.
                         Director                                                                             0                      5                   0%
                                                 Representative : S. C. Lin
                                                 Yaskawa Electric Corporation.
                         Director                                                                             1                      5                  17 %
                                                 Representative : Masao Kito
                         Director                Hsien Sheng Kuo                                              2                      4                   33%

                                                 Lien Chang Electronic Co., Ltd.
                         Director                                                                             6                      0                  100 %
                                                 Representative : Sophia Chiu
                                                 Jung Gi Investment Co., Ltd.
                         Director                                                                             6                      0                  100 %
                                                 Representative: Emilie Sun
                                                 Kuang Yuan Industrial Co., Ltd.
                         Director                Representative: Chung Te                                     4                      2                  67 %
                                                 Chang
                                                 Mao Yang Co., Ltd.
                         Director                Representative: Yang-Hsiang                                  1                      5                   17%
                                                 Chang
                                                 Grand Pacific Investment &
                         Director                Development Co., Ltd.                                        6                      0                  100 %
                                                 Representative: Mao-Nan Jian
                                                 Lien Chang Electronic Co., Ltd.
                         Director                                                                             5                      1                   83%
                                                 Representative: Chin San Chien

                                                 Kuang Yuan Industrial Co., Ltd.
                         Director                                                                             5                      1                  83 %
                                                 Representative: Shih Chien Yang
             Other mentionable items:
             1. If there are the circumstances referred to in Article 14-3 of Securities and Exchange Act and resolutions of the directors’ meetings objected to by Independent Directors
                or subject to qualified opinion and recorded or declared in writing, the dates of meetings, sessions, contents of motions, all independents’ opinion and the Company’s
                response to independent directors’ opinion should be specified: None
             2. The executive conditions of Directors’ avoidance of motions in conflict of interest:
                     i. Director’s Name:
                        C.K. Liu (Chairman), Theodore M.H. Huang (Managing Director), Fred P.C. Huang (Managing Director), Shih Chien Yang (Director), Sophia Chiu (Director).
                        Contents of the case:
                        Plan to purchase the property of sixth floor, phase-1 B building, Nangang Software Park. (22-10 Board of Meeting, 2011.3.16)
                        Reason for avoidance of conflict of interest and the status of voting:
                        Since the aforementioned director also serves as director/supervisor of the targeted property of the case (Tecom Co., Ltd.), they left the meeting and abstained
                        from taking part in the voting. Mr. John C.T. Huang served as the acting chairperson for the meeting. Other directors passed the case without objection.
                     ii. Director’s Name: Sophia Chiu (Director).
                        Contents of the case:
                        Plan to match the share issuance by Asia Pacific Telecom Co., Ltd. invested by the company, for share listing on the Emerging Enterprise Market. (22-13 Board
                        of Meeting, 2011.8.22)
                        Reason for avoidance of conflict of interest and the status of voting:
                        Since the aforementioned director also serves as chairman of Asia Pacific Telecom Co., Ltd., she left the meeting and abstained from taking part in the voting.
                        Other directors passed the case without objection.




   14   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                          2011
                                                                                                                                                            Annual Re p o r t




3. Measures taken to strengthen the functionality of the Board:
   A. The company faithfully executed corporate governance and enhanced information transparency:
      i. In compliance with “guidelines for corporate governance” and “rules for meetings of board of directors,” as well as the instruction of the Financial Supervisory
         Commission (FSC No. 0980009090, Mar. 16, 2009), the company instituted the mechanism for “prevention of international trading” by formulating “procedure for
         handling major internal information,” so as to provide transparent and current information on Dec. 23, 2009.
      ii. Based on the principle of operating transparency, the company instantly posts major resolutions of the board of directors after its meeting on the Market
          Observation Post System. It accurately and timely publicizes various kinds of information according to legal requirements, so as to uphold shareholders’ interest
          and ascertain the company’s healthy management.
      iii. The company has installed Chinese- and English-language websites, designated specific persons for the collection and disclosure of corporate information, and
           implemented spokesperson’s system, to assure timely and proper disclosure of major information.
   B. Advanced study: The company arranges regular advanced-study courses for directors and supervisors, helping them obtain related information and retain the
      advantage and competence for core value and expertise.



3.3.2 Audit Committee ( Attendance of Supervisors for Board Meeting )

A. Audit Committee: The Company has not set up Audit Committee yet.

B. Attendance of Supervisors for Board Meetings

A total of 6 meetings of the board of directors were held in 2011. Supervisor attendance was as follows:
                                                                                                       Attendance in               Attendance
                     Title                                            Name                                                                             Remarks
                                                                                                          Person(B)                rate (%)B/A
         Resident supervisor                                   Tong Shung Wu                                     5                      83 %
                                                 Tung Kuang Investment Co., Ltd.
                Supervisor                                                                                       3                      50 %
                                                 Representative: Bo Yuan Wang
                                                 Tung Kuang Investment Co., Ltd.
                Supervisor                                                                                       6                     100 %
                                                 Representative: Hsin –Yi Lin

Other mentionable items:
1. Composition and responsibilities of supervisors:
 (1) Communication between supervisors and employees/shareholders:
    Supervisors have good communications with employees and shareholders, such as direct communication with shareholders during the annual shareholders’
    meeting. Email address of Supervisors: supervisor@teco.com.tw
 (2)Communications between supervisors and the Company's Chief Internal Auditor and CPA (e.g. the items, methods and results of the audits of corporate finance
    or operations, etc.):
    A. The company’s supervisors have direct communications channel with in-house auditing chief and certified public accountants. In compliance with the
       regulations of the regulator, they carry out check of the company’s finance and business status regularly, as well as communicate with management and
       governing units directly.
    B. In addition to the reception of monthly auditing report, supervisors can require auditing chief to make business report for them. Auditing chief also has to
       deliver business report on the quarterly meeting of the board of directors, assuring full communications on the execution and efficacy of auditing operation.
    C. Certified public accountants also report to supervisors on the result and finding of the auditing of financial statement every quarter.
2. If a supervisor expresses an opinion during a meeting of the Board of Directors, the dates of meetings, sessions, contents of motions, resolutions of the directors’
  meetings and the Company’s response to supervisor’s opinion should be specified: None




                                                                                                                                                    www.teco.com.tw           15
        2011
A n nual Re p o r t




           3.3.3 Corporate Governance Execution Status and Deviations from “ Corporate
                 Governance Best-Practice Principles for TWSE/GTSM Listed Companies”

                                                                                                                                                                        Discrepancy with “Corporate Governance Best-Practice
                                              Items                                                              Implementation status
                                                                                                                                                                      Principles for TWSE/GTSM Listed Companies “ and reasons
            A. Company’s shareholding structure and interests of shareholders
               a. Method for handling shareholders’ suggestions or disputes               a. The company has instituted stock-affairs units for tackling shareholders’ a. Compliance with “Corporate Governance Best-Practice
                                                                                             opinions or disputes.                                                        Principles for TWSE/GTSM Listed Companies “
               b. Grasp of the list of major shareholders and the ultimate controllers b. The company constantly grasps the list of major shareholders and the b. Compliance with “Corporate Governance Best-Practice
                  behind major shareholders                                                  ultimate controllers of major shareholders.                                  Principles for TWSE/GTSM Listed Companies “
               c. Method for the establishment of risk control mechanism and firewall c. There exist distinct separation between the personnel, assets, and c. Compliance with Compliance with “Corporate Governance Best-
                  vis-à-vis affiliates                                                       financial management between the company and its affiliates. The Practice Principles for TWSE/GTSM Listed Companies “
                                                                                             company regularly inpsects the accounts and internal control system of
                                                                                             affiliates and establishes proper risk control mechanism and firewall.
            B. Constitution and responsibilities of the board of directors
               a. Status for the institution of independent directors                     a. From the shareholders’ meeting on June 18, 2009, the company has a. The company has instituted one independent director during the
                                                                                             instituted one independent director, for taking part in the company’s shareholders’ meeting in 2009. According to the decree of the
                                                                                             management and the operation of investment evaluation committee FSC No. 1000010723, Mar. 22, 2011, the company has planned
                                                                                             and other committees.                                                        to institute three independent directors during the election for
                                                                                                                                                                          new directors at the shareholders’ meeting in 2012.
               b. Regularly evaluate the independence of certified public accountants b. The company replaced certified public accountants in 2003, 2007, b. Compliance with “Corporate Governance Best-Practice
                                                                                             and 2010, which was approved by fifth meeting of the 20th board of Principles for TWSE/GTSM Listed Companies”.
                                                                                             directors (2003.9.18), 10th meeting of the 21st board and directors
                                                                                             (2007.10.16), and fifth meeting of the 22nd board of directors
                                                                                             (2010.3.26).
            C. Establishment of communications channel with related parties               The company has maintained good communications channel with related Compliance with “Corporate Governance Best-Practice Principles
                                                                                          parties, including corresponding banks and other creditors, employees, for TWSE/GTSM Listed Companies “
                                                                                          consumers, suppliers, communities, in addition to respecting and
                                                                                          upholding their legal rights.
            D. Information publication
               a. The company sets up corporate website to disclose information on a. The company institutes website for disclosing the status of finance and Compliance with “Corporate Governance Best-Practice Principles
                  finance and corporate governance.                                          corporate governance. The address of the corporate website: www. for TWSE/GTSM Listed Companies “
               b. The company also publicizes information via other methods (such teco.com.tw
                  as the setup of English-language website, designation of specific b. The company institutes English-language website (http://www.teco.
                  persons for the collection and disclosure of company information, com.tw/en_version/index.asp), designates specific persons for the
                  implementation of spokesperson’s system, and posting of the collection and disclosure of corporate information, and implements
                  process of investors’ conference on the website).                          spokesperson’s system.
            E. The status of the operation of nomination, compensations and other The 22nd board of directors approved the establishment of “Salary and Compliance with “Corporate Governance Best-Practice Principles
               functional committees                                                      Compensations Committee” at its 13th meeting and the committee already for TWSE/GTSM Listed Companies “
                                                                                          held its first meeting on Dec. 30, 2011.
                                                                                          According to the decree of law, the company plans to establish “Auditing
                                                                                          Committee” after electing three independent directors during the
                                                                                          shareholders’ meeting for 2012, the members will be composed by all the
                                                                                          independent directors.
            F. Should the company has formulated guidelines for corporate governance according to “guidelines for corporate governance of listed company,” describe its operation and its difference with the latter.
               The company has formulated guidelines for corporate governance and reported its contents to shareholders’ meeting in 2009. It has fully implemented the regulations of the guidelines.
            G. Other important information conducive to the understanding of the company’s governance (such as employees’ interest, concern for employees, investor relationship, supplier relationship, the rights of related
                parties, advanced study of directors and supervisors, the implementation of risk management policy and risk appraisal criteria, implementation of client policy, and the taking out of liabilities insurance for directors
                and supervisors):
                a. The company has formed labor union, which convenes regulation and communication with the management, so as to uphold the interest of employees. Regarding investor relationship, the company has
                   established a specialized unit for regular disclosure of the company’s key business information, thereby enhancing transparency of corporate information, as well as feedback mechanism allowing investors to
                   express their opinions on corporate development. The company also actively takes part in investors’ conference, informing investors of the company’s current operational status and development plan.
                b. Attendance of directors in the meetings of board of directors is good and supervisors are also present.
                c. The company has taken out liabilities insurance for directors and supervisors.
                d. In 2011, the company’s directors undertook 39 hours of advanced study, supervisors 9 hours, and managerial staffers 57 hours.
            H. Should a company evaluate its corporate governance by itself or entrust specialized unit to undertake the evaluation, describe the evaluation outcome, major defects (or suggestions), and status of improvement.
                In 2010, the company passed the evaluation of “Taiwan Corporate Governance Association” according th the criteria of “CG6005 common version.”
               The association put forth the following suggestions:
               a. As members of the board of directors possess expertise in finance, accounting, and industry, the association suggested to convert professional external institutional directors as independent directors, to
                  strengthen the governance performance of the board of directors.
               b. The board of directors should evaluate the performance of ranking managers, to assure faithful implementation of the company’s development strategies in the short, medium, and long term.
               c. The company should formulate the group’s risk management policy and system, to as to monitor the company’s overall risk.
            Status of improvement:
               a. According to the decree of FSC No. 1000010723, Mar. 22, 2011, the company has planned to institute three independent directors during the election for new directors at the shareholders’ meeting in 2012.
               b. The 22nd board of directors approved the establishment of “Salary and Compensations Committee” at its 13th meeting (2011.8.22) and the committee already held its first meeting on Dec. 30, 2011. The
                  committee will regularly evaluate the performance of directors, supervisors, and managerial staffers, as well as the policy, system, standard, and structure of salary and compensations, before putting its proposal
                  to the board of directors for discussion.
               c. The company plans to elect three independent directors at shareholders’ meeting in 2012 and set up “auditing committee,” which will consist of those independent directors for supervising the following items:
               (a) Propriety of the company’s financial statement
               (b) The selection (dismissal) of certified public accountants, their independence and performance
               (c) Effective implementation of internal control
               (d) Compliance with related laws and regulations
               (e) Management of existing or potential risks.




   16   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                         2011
                                                                                                          Annual Re p o r t




3.3.4 Salary and Compensations Committee

The company’s “Salary and Compensations Committee” was established on Aug. 22, 2011. Members of the
salary and compensations committee are appointed by the board of directors and they would elect among
themselves one who will serve as the convener and chairperson of their meeting. Its operation is based on the
company’s “Charter for the Organization of Salary and Compensations Committee,” with the scope of its duties
including :

(1) Formulate and regularly review the performance of directors, supervisors, and managerial staffers, as well as
    the policy, system, standard, and organization of salary and compensations.
(2) Regularly evaluate and formulate the salary and compensations of directors, supervisors, and managerial
    staffers.

The company’s “Salary and Compensations Committee” convened once in the current year, with the status of
attendance as the following:


                                              Attendance                     Attendance rate
     Title                Name                                 By Proxy                            Remarks
                                             in Person(B)                      (%)【B/A】

  Chairman        Hong Chang , Chang                1              0               100 %

   Member                Cheng, Li                  1              0               100 %

   Member             Yung Ho, Chiu                 1              0               100 %




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          3.3.5 Social Responsibility

          Fulfillment of social responsibility: The company’s system, measures, and fulfillment for events related to social
          responsibility, including environmental protection, communal participation, social contribution, social services,
          public benefits, consumer rights, human rights, and security and hygienic.

                                                                                                                                                                               Difference with the guidelines
                                             Items                                                                     Concrete measures                                        for social responsibilities for
                                                                                                                                                                               listed companies and reasons
          A. Implementation of corporate governance
              a. Formulation of the policy or system for corporate social               a. The company has distinct social responsibility policy, complies with
                 responsibility and review of their implementation                         international norm, and designates specific unit to handle the issue on a
                                                                                           partial responsibility basis.
             b. Status for the institution of specialized unit, or unit on a partial-   b. The company regularly undertakes corporate ethic education and training
                responsibility basis, for pushing corporate social responsibility          (including promotion) for directors, supervisors, and employees.                             No difference
             c. Regular undertaking of education, training, and promotion on
                corporate ethics for directors, supervisors, and employees,
                associate the events with performance evaluation system for
                employees, and the establishment of an effective system for
                incentives and punishment.
          B. Environment for sustainable development
             a. Status for the dedication of the company to enhancing the               a. The use of environment-friendly coolant, environment-friendly foaming
                utilization efficiency of various resources and utilizing recycled         solution for refrigerators, and the recycling and reuse of paper boxes;
                materials in lowering the impact on the environment;
             b. Status of the company in establishing proper environmental-             b. Passage of the certification of ISO 14001, OHSAS18001, and TOSHMS.
                management system according to its industrial features;                                                                                                                 No difference
             c. Status of the company in the institution of specific environment-       c. The institution of specific safety and environment-protection unit and
                management unit or personnel to uphold environment;                        personnel;
             d. Status of the company in formulating carbon-abatement and               d. Pushing of greenhouse-gas inspection, plan for application for certification
                greenhouse-gases reduction strategy, in line with its concern for          in Q3, and formulation of energy-conservation and carbon-abatement
                climatic change on its operation.                                          program.
          C. Upholding of public benefits
             a. Status of the company in instituting proper management                  a. Posting of employee work rules, performance evaluation measures, rules
                methods and procedures concerning labor-related laws/                      for employee leave on corporate poster;
                regulations and the protection of the employees’ legal right;
             b. Status of the company in providing a safe and healthy working           b. Weekly publicity of health information, holding of fire-fighting safety drill and
                environment for employees and carrying out safety and health               health lectures every half a year, and holding of safety education training
                education for employees regularly;                                         and health promotion event annually;
             c. Status of the company in formulating and publicizing consumer           c. Adoption of the quality policy of “topnotch products and zero consumer
                interest policy and providing transparent and effective procedure          complaint”; provision of toll-free 365-days-a-year around-the-clock call
                                                                                                                                                                                        No difference
                for consumer complaints concerning its products and services;              center service and online repair request and inquiry service; instant
                                                                                           notification for accidents of designated products, according to the policy of
                                                                                           the Bureau of Standards, Metrology, and Inspection;
              d. Status of the company in cooperating with suppliers for jointly        d. Cooperation with suppliers in undertaking carbon-footprint certification;
                 fulfilling corporate social responsibility;
              e. Status of the company in participating in communal development e. Regular sponsoring of “TECO Sci-Tech Award,” via TECO Scientific and
                 and events of charity/public-benefit bodies via commercial         Technology Cultural Foundation, so as to encourage the development of
                 events, donation of physical goods, corporate volunteer service    Taiwan’s technological innovation; pushing of creativity education; and
                 or other professional services.                                    support for the sustainable development of aboriginal culture.
          D. Intensification of information disclosure
              a. Method of the company in disclosing information on relevant and a. Publicized TECO environmental report on the company’s website in 2009,
                 reliable corporate social responsibility;                          in compliance with the norm of GRI international certification.                         No difference
              b. Compilation of report on corporate social responsibility to b. Publicized 2010 corporate social responsibility report on the company’s
                 publicize its effort in pushing corporate social responsibility.   website in December 2011.
          E. Describe the operation of company’s guidelines for corporate social responsibility, should it exist, and its difference with “guidelines for corporate social responsibility for listed
             companies.”
              No difference
          F. Other key information conducive to the understanding of the operation of corporate social responsibility (such as system and measures, as well as their fulfillment, of the company
             concerning environmental protection, communal participation, social contribution, social service, public benefits, consumer interest, human right, safety and hygienic).
              The company publicized TECO corporate social responsibility report on the company’s website and didn’t have international certified body determine the grade of the report on
              corporate social responsibility yet.

          G. In case the company’s report on products or corporate social responsibility has passed the certification of related certification bodies, describe the inspection standards:
              a. The company’s corporate social responsibility report complies with the standards of GRI (The Global Reporting Initiative).
              b. The report covers mainly business performance, sustainable themes (including green energy development, new energy efficiency, environmental safety and hygienic system
                 management and outcome), employee care, customers’ and consumers’ care, and social care.




   18   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                      2011
                                                                                                        Annual Re p o r t




3.3.6 Adherence to the management principle of integrity and measures

The company adheres to the management principle of integrity according to the “guidelines for corporate social
responsibility of listed companies.”

3.3.7 Corporate Governance Guidelines and Regulations/ Disclosure Measures

The related regulations of TECO’s corporate governance were already disclosed on Market Observation Post
System, the item of “Related Regulations of Corporate Governance” under the list of “Corporate Governance”,
investors can log into (http://newmops.twse.com.tw) for more information.




                                                                                                   www.teco.com.tw   19
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             3.3.8 Other Important Information Regarding Corporate Governance

             1. The important information regarding corporate governance has been disclosed on Market Observation Post
                System (http://newmops.twse.com.tw) comforming to related regulations.

             2. Advanced studies for directors and supervisors in 2011:
                   Title                   Name                   Date                 Organizer                          Training Course                Time
                           Tong Ho Global Investment Co., Ltd                Chunghwa Corpporate           Corporate Social Responsibility and
             Chairman                                           2011.12.2                                                                                3 hrs
                           Representative: C.K. Liu                          Governance Association        Uncompromising Integrity
                                                                             Chinese National
                                                                                                           Sustainable Innovation and
                                                                2011.5.19    Association of Industry and                                                 3 hrs
                                                                                                           Competitiveness of the Enterprise
                                                                             Commerce, Taiwan
             Managing
                           Theodore M.H. Huang                               Chunghwa
             Director
                                                                             Corpporate                    Corporate Social Responsibility and
                                                                2011.12.2                                                                                3 hrs
                                                                             Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
             Managing                                                        Corpporate                    Corporate Social Responsibility and
                           Fred P.C. Huang                      2011.12.2                                                                                3 hrs
             Director                                                        Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
             Managing                                                        Corpporate                    Corporate Social Responsibility and
                           John C.T. Huang                      2011.12.2                                                                                3 hrs
             Director                                                        Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
                                                                                                           In the Face of the Global Financial Crisis,
             Independent                                                     Corpporate
                           Hong Chang, Chang                    2011.12.13                                 Review the Physical Value of the              3 hrs
             Director                                                        Governance
                                                                                                           Financial Industry
                                                                             Association
                                                                             Securities &                  Explanatory Meeting for Executives for
                                                                2011.7.15                                                                                3 hrs
                                                                             Futures Institute             Adoption of IFRSs by the Enterprise
                           Lien Chang Electric Co., Ltd.
             Director      Representative:                                   Chunghwa
                           Chwen-Jy, Chiu (Sophia Chiu)                      Corpporate                    Corporate Social Responsibility and
                                                                2011.12.2                                                                                3 hrs
                                                                             Governance                    Uncompromising Integrity
                                                                             Association

                                                                             Chunghwa
                           Jung Gi Investment Co., Ltd.                      Corpporate                    Corporate Social Responsibility and
             Director                                           2011.12.2                                                                                3 hrs
                           Representative: Emilie Sun                        Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
                           Kuang Yuan Industrial Co., Ltd.                   Corpporate                    Corporate Social Responsibility and
             Director                                           2011.12.2                                                                                3 hrs
                           Representative: Chung Te, Chang                   Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
                           Grand Pacific Investment
                                                                             Corpporate                    Corporate Social Responsibility and
             Director      & Development Co., Ltd.              2011.12.2                                                                                3 hrs
                                                                             Governance                    Uncompromising Integrity
                           Representative: Mao-Nan, Jian
                                                                             Association
                                                                             Chunghwa
                           Lien Chang Electronic Co., Ltd.                   Corpporate                    Corporate Social Responsibility and
             Director                                           2011.12.2                                                                                3 hrs
                           Representative: Chin San, Chien                   Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
                           Kuang Yuan Industrial Co., Ltd.                   Corpporate                    Corporate Social Responsibility and
             Director                                           2011.12.2                                                                                3 hrs
                           Representative: Shih Chien, Yang                  Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
             Resident                                                        Corpporate                    Corporate Social Responsibility and
                           Tong Shung Wu                        2011.12.2                                                                                3 hrs
             Supervisor                                                      Governance                    Uncompromising Integrity
                                                                             Association
                                                                             Chunghwa
                           Tung Kuang Investment CO., Ltd.                   Corpporate                    Corporate Social Responsibility and
             Supervisor                                         2011.12.2                                                                                3 hrs
                           Representative: Bo Yuan, Wang                     Governance                    Uncompromising Integrity
                                                                             Association

                                                                             Chunghwa
                           Tung Kuang Investment CO., Ltd.                   Corpporate                    Corporate Social Responsibility and
             Supervisor                                         2011.12.2                                                                                3 hrs
                           Representative: Hsin-Yi, Lin                      Governance                    Uncompromising Integrity
                                                                             Association




   20   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                   2011
                                                                                                                    Annual Re p o r t




3. Advanced studies for managing staffers in 2011:
       Title          Name              Date             Organizer                    Traning course                 Time
                                                   Securities &           Explanatory Meeting for Executives for
                                      2011.7.15                                                                     3 hrs
                                                   Futures Institute      Adoption of IFRSs by the Enterprise
                                                   Chunghwa
President        Sophia Chiu
                                                   Corpporate             Corporate Social Responsibility and
                                      2011.12.2                                                                     3 hrs
                                                   Governance             Uncompromising Integrity
                                                   Association
                                                   Chunghwa
                                                   Corpporate             Corporate Social Responsibility and
Vice President   George Lien          2011.12.2                                                                     3 hrs
                                                   Governance             Uncompromising Integrity
                                                   Association
                                                   Chunghwa
Assistant Vice                                     Corpporate             Corporate Social Responsibility and
                 Hung Hsiang, Lin     2011.12.2                                                                     3 hrs
President                                          Governance             Uncompromising Integrity
                                                   Association
                                                   Chunghwa
Assistant Vice                                     Corpporate             Corporate Social Responsibility and
                 Steven Chiang        2011.12.2                                                                     3 hrs
President                                          Governance             Uncompromising Integrity
                                                   Association
                                                   Chunghwa
Assistant Vice                                     Corpporate             Corporate Social Responsibility and
                 Yu Kuang, Wang       2011.12.2                                                                     3 hrs
President                                          Governance             Uncompromising Integrity
                                                   Association
                                                                       Explanation and Analysis for International
                                                   Accounting Research Accounting Criteria 2011 Part I-II:
                                    2011.8.11~8.12
                                                   and Development     Criteria for Financial-Statement           24 hrs
                                    2011.9.20~9.21
                                                   Foundation          Compilation, Income, Assets, Liabilities,
Group Director   Andy Liu
                                                                       Equity, and Income Tax.
                                                   Accounting Research Further Study for the Accounting
                                     2011.9.5~9.6 and Development      Executives of Issuers,                     12 hrs
                                                   Foundation          Securities Firms, and Stock Exchange
                                                                          Advanced Seminars on Practical Affairs
                                                   Securities & Futures
Group Director   Kevin Yeh            2011.11.23                          for Directors and Supervisors             3 hrs
                                                   Institute
                                                                          (Including Independent Ones)


3.3.9 Internal Control System

Please refer to page 30 of the Chinese annual report.

3.3.10 In the recent year and up to the publication of the annual report, legal penalties
       for the company and internal staffers, penalties of internal staffers by the
       company for violation of internal control system and regulation, major defects
       and improvement status

None




                                                                                                                www.teco.com.tw   21
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             3.3.11 Major Resolutions of Shareholders’ Meeting and Board Meetings
                             The board of managing directors resolved to float overseas convertible bonds, at a ceiling of US$200 million and
             2011/3/15       for a five-year term. The raised fund will be used for the planning of overseas investments and the adjustment of
                             financial structure.
                             (1) The board of directors passed the financial report for 2010 with revenue NT$ 23,244,789,000, earnings after-
                                 tax NT$1.38 per share, and the related data of the report will be submitted to 2011 shareholders’ meeting for
                                 approval.
             2011/3/16
                             (2) The Board of Directors resolved to hold the 2011 Annual Shareholders’ Meeting on June 10, 2011,
                                 where shareholders would deliberate on a proposed cash dividend of NT$0.8 per share, or a total of
                                 NT$1,466,865,000.
                             The board of directors passed the merger with affiliates “An Yang Electric Co., Ltd.” and “Taitec Technology
             2011/5/31       Co., Ltd.”, so as to consolidate the company’s internal and external resources, to enhance the organization’s
                             operating efficiency, and boost cost competitiveness. The base date for the merger is set on July 1, 2011.
                             Shareholders’ meeting
                             (1) Acknowledged 2010 business report and financial statement.
             2011/06/10      (2) Acknowledged 2010 earnings disribution, amounting to NT$0.80 per share for cash dividend payment.
                             (3) Approved amendment to “Articles of Incorporation”
                             (4) Approved rename and amendment to “Rules Governing Election of Directors and Supervisors”
                             (1) The board of directors set the “ex-dividend base date” on June 30, 2011, paying out cash dividend of
             2011/06/10
                                 NT$1,466,865,532, or NT$0.80 per share, and setting the dividend payout date on July 29, 2011.
                             (1) The board of directors acknowledged the financial statement for the first half of 2011, certified by certified
                                 public accountants, showing revenue of NT$12,364,673,000 and after-tax net profit of NT$0.81 per share.
             2011/08/22
                             (2) The board of directors passed the appointment of Mr. Hong Chang, Chang, Mr. Cheng Li and Mr. Yung Ho,
                                 Chiu as the members of the first “Salary and Compensations Committee.”
                             (1) The board of directors passed the financial report for 2011 with revenue NT$ 25,798,135,000, earnings after-
                                 tax NT$1.54 per share, and the related data of the report will be submitted to 2012 shareholders’ meeting for
                                 approval.
                             (2) The Board of Directors resolved to hold the 2012 Annual Shareholders’ Meeting on June 15, 2012,
             2012/3/20           where shareholders would deliberate on a proposed cash dividend of NT$0.9 per share, or a total of
                                 NT$1,654,922,000.
                             (3) The board of directors resolved to invest US$800,000 in mainland China for the establishment of TECO
                                 Shanghai Trade Co., Ltd. in charge of the marketing planning and business promotion for electrical machinery
                                 and other related products.
                             (1) The board of directors resolved to issue the third domestic unsecured convertible corporate bonds, at a
                                 ceiling of NT$3 billion in par value and for a term of three years. The raised fund will be used in repaying
             2012/5/2            banking loans and reducing interest payment.
                             (2) The board of directors screened and approved the list of three independent directors, according article 192-1
                                 of Company Law.



                                Resolution of 2011 Shareholder's Meeting
              Number                                                                                     Implementation
                                                (June 10,2011)
                          Acknowledged 2010 Business Report and                     ※ The proposal was approved with no objections by the
                 1
                          Financial Statements                                         participating Shareholders.
                                                                                    1. The proposal was approved with no objections by the
                          Approved cash dividend payout of NT$0.80 per                participating Shareholders.
                 2
                          share for the distribution of 2010 profits.               2. Ex-Dividend base Date: 2011/06/30.
                                                                                     Cash Dividend Payout date: 2011/07/29.
                                                                                    ※ The proposal was approved with no objections by the
                 3        Approval of amendment to “Articles of Incorporation”
                                                                                      participating Shareholders.
                          Approval of rename and amendment to                       ※ The proposal was approved with no objections by the
                 4
                          “Rules Governing Election of Directors and Supervisors”     participating Shareholders.




   22   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                             2011
                                                                                                             Annual Re p o r t




3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor
       Dissenting to Important Resolutions Passed by the Board of Directors

None

3.3.13 Resignation or Dismissal of Personnel Involved in Preparation of Financial Reports

None


3.4 Information on CPA fee
3.4.1 Information on CPA


        Name of accounting firm                     CPA names                      Auditing period    Note

     Pricewaterhouse Coopers, Taiwan     Ping-Chiun Chih       Audrey Tseng              2011



3.4.2 Table of brackets for CPA fees

                                       Fee item
                                                     Auditing fee             Non-auditing fee       Total
Fee brackets
 1          Lower than NT$2 M.                                                       V                V

 2          NT$2-4 M.

 3          NT$4-6 M.

 4          NT$6-8 M.

 5          NT$8-10 M.

 6          NT$10 M. and higher                            V                                          V


3.4.3 Non-inspection fees for CPAs, accounting firms, and its affiliates account for over
      one quarter of inspection fee: Nil

3.4.4 Replacement of accounting firm and auditing fee for the replacement year is
      lower than amount in the year prior to the replacement: Nil

3.4.5 Auditing fee decreases by over 15% from the previous year: Nil

3.4.6 Information on replacement of CPA: Not applicable

3.4.7 Information on service of the company’s chairman, president, and financial or
      accounting managers at the accounting firm or its affiliates in the most recent
      year :
None




                                                                                                       www.teco.com.tw   23
        2011
A n nual Re p o r t




             3.5 Changes in Shareholding of Directors, Supervisors, Managers and
                 Major Shareholders
                                                                                                                               Unit: Share
                                                                                      2011                   As of Apr. 30, 2012
                                                                                              Pledged                        Pledged
                         Title                      Name                  Holding                           Holding
                                                                                               Holding                        Holding
                                                                         Increase                          Increase
                                                                                              Increase                       Increase
                                                                        (Decrease)                        (Decrease)
                                                                                             (Decrease)                     (Decrease)
                                      Tong Ho Gloabal Investment
             Chairman                 Co., Ltd.                              -                   -            -             (1,710,000)
                                      Representative : C. K. Liu
             Managing Director        Theodore M. H. Hunag                   -                   -            -                  -
             Managing Director        Fred P. C. Huang                       -                   -            -                  -
             Managing Director        John C. T. Huang                       -                   -            -                  -
             Managing & Independent
                                    Hung Chang Chang                         -                   -            -                  -
             Director
                                      Creative Sensor Co., Ltd.
             Director                                                   (1,600,000)              -        2,600,000              -
                                      Representative : S. C. Lin
                                      Yaskawa Electric
             Director                 Corporation                            -                   -            -                  -
                                      Representative : Masao Kito
             Director                 Hisen Sheng Kuo                        -                   -            -                  -
                                      Lien Chang Electronic Co., Ltd.
             Director                 Representative :                       -                   -            -                  -
                                      Sophia Chiu / Chin San Chien
                                      Jung Gi Investment Co., Ltd.
             Director                                                        -                   -            -                  -
                                      Representative : Emilie Sun
                                      Kuang Yuan Industrial Co., Ltd.
             Director                 Representative : Chung Te              -                   -            -             (7,350,000)
                                      Chang/Shih Chien Yang
                                      Mao Yang Co., Ltd.
             Director                 Representative: Yang-Hsiang        1,476,000               -            -                  -
                                      Chang
                                      Grand Pacific Investment &
             Director                 Development Co., Ltd.                  -                   -            -                  -
                                      Representative: Mao-Nan Jian
             Resident supervisor      Tong Shung Wu                          -                   -            -                  -
                                      Tung Ho Global Investment
                                      Co., Ltd.
             Supervisor                                                      -                   -            -             (15,142,000)
                                      Representative: Bo Yuan
                                      Wang & Hsin –Yi Lin
             President                Sophia Chiu                         386,489                -        1,200,000              -
             Executive Consultant     S. C. Lin                              -                   -            -                  -
             Vice President           George Lien                         350,975                -            -                  -
             Management               George Huang                           -                   -            -                  -
             Management               Hung Hsiang Lin                    (231,723)               -            -                  -
             Management               Yu Kuang Wang                       401,748                -            -                  -
             Major Shareholder        None                                   -                   -            -                  -
             Note 1: Shareholders with more than 10% holdings shall be noted as “Major Shareholder” and listed seperately




   24   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                 2011
                                                                                                                                   Annual Re p o r t




3.5.1 Shares Transfer with Related Parties
                                                                             Relationship between
                                                                                 Transferee and
                                                                                                                     Transaction Price
    Name        Reason of Transfer Date of Transaction     Transferee        Directors, Supervisors,    Shares
                                                                                                                          (NTD)
                                                                              Managers and Major
                                                                                  Shareholders
                                                            Not Applicable


3.5.2 Shares Pledge with Related Parties
                                                    Relationship between Transferee and                Shares    Shares
          Reason of      Date of                                                                                                Pledged
 Name                                Transferee Directors, Supervisors, Managers and Major Shares holding        Pledged
           Pledge      Transaction                                                                                              Amount
                                                                Shareholders                             %         %
                                                            Not Applicable


3.6 Information Disclosing the Relationship between any of the
    Company’s Top Ten Shareholders
                                                                                                                           April 30, 2012
                                                                                                        The relationship
                                                                                        Shareholding   between any of the
                                                 Shareholding       Spouse & Minor       by Nominee          Company’s
                    Name                                                                                                       Remarks%
                                                                                        Arrangement      Top Ten Share
                                                                                                           holders
                                                Shares       %      Shares      %      Shares      %    Name Relation
IShare MSCI Emerging Market Index Fund        32,387,000   1.76%        -        -        -        -         -         -           -

Tong Kuang Investment Co., Ltd.               30,341,364   1.64%        -        -        -        -         -         -           -

Vanguard Emerging Market Stock Index Fund     29,829,000   1.62%

Yaskawa Electric Corporation                  29,541,089   1.60%        -        -        -        -         -         -           -

Dimensional Emerging Markets Value Fund       26,184,725   1.42%

Stichting Pensioenfonds ABP                   25,088,833   1.36%        -        -        -        -         -         -           -

Kuang Yuan Industrial Co., Ltd.               22,033,919   1.19%        -        -        -        -         -         -           -

Fubon Insurance Co., Ltd.                     21,733,763   1.18%        -        -        -        -         -         -           -

Fred P. C. Huang                              21,614,831   1.17% 230,588 0.01%            -        -         -         -           -

Government of Singapore                       21,036,000   1.14%        -        -        -        -         -         -           -




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            3.7 Long-term Investments Ownership
                                                                                                              As of December 31, 2011
                                                                                          Direct / Indirect
                                                                                           Ownership by
                                                               Ownership by TECO                                   Total Investment
                                  Investee                                             Directors, Supervisors
                                                                                         and Management
                                                                Shares        %         Shares          %          Shares        %
            Tong Dai Co., Ltd.                                  5,290,800    92.63%              0      0.00%       5,290,800   92.63%

            Great TECO Whirlpool Co., Ltd.                     11,940,000    60.00%              0      0.00%      11,940,000   60.00%

            TECO International Investment Co., Ltd.            47,700,000    100.00%             0      0.00%      47,700,000 100.00%

            TECO Holding, USA                                       1,680    100.00%             0      0.00%           1,680 100.00%

            TECO Electric & Machinery Pte Ltd. Singapore        7,200,000    90.00%       800,000      10.00%       8,000,000 100.00%

            TECO Electric Europe Ltd.                           4,500,000    100.00%             0      0.00%       4,500,000 100.00%
            Tong An Assets Management & Development
                                                               99,344,444    100.00%             0      0.00%      99,344,444 100.00%
            Co., Ltd.
            Appliance (HK) Ltd.                                 1,499,999    99.99%              0      0.00%       1,499,999   99.99%

            Tong An Investment Co., Ltd.                      358,918,560    99.60%     1,441,440       0.40%     360,360,000 100.00%

            TECO Electro Devices Co., Ltd.                     15,386,949    62.57%       371,324       1.51%      15,758,273   64.08%

            Tecnos International Consultant Co., Ltd.           2,876,000    57.52%       538,000      10.76%       3,414,000   68.28%

            Tong Tai Jung Co., Ltd.                             3,960,000    60.00%              0      0.00%       3,960,000   60.00%

            UVG Co., Ltd.                                     224,982,346    100.00%             0      0.00%     224,982,346 100.00%

            Information Technology Total Services Co., Ltd.    12,123,248    60.62%     2,135,250      10.68%      14,258,498   71.30%

            Tesen Electric & Machinery Co., Ltd.               20,000,000    100.00%             0      0.00%      20,000,000 100.00%

            GD TECO Taiwan Co., Ltd.                           22,400,000    100.00%             0      0.00%      22,400,000 100.00%

            Taian-Jaya Electric Sdn. Bhd.                        950,000     95.00%              0      0.00%        950,000    95.00%

            Yatec Engineering Corp.                             7,799,996    64.95%              0      0.00%       7,799,996   64.95%

            Taian (Subic) Electric Co., Inc.                   17,131,155    76.70%              0      0.00%      17,131,155   76.70%

            Taian (Malaysia) Electric Sdn. Bhd.                13,113,235    66.85%              0      0.00%      13,113,235   66.85%

            An Tai International Investment Co., Ltd.          15,000,000    100.00%             0      0.00%      15,000,000 100.00%

            Micropac (BVI)                                      6,883,591    100.00%             0      0.00%       6,883,591 100.00%

            Taian-Etacom Technology Co., Ltd.                   7,033,000    84.73%              0      0.00%       7,033,000   84.73%

            Taian Electric Co., Ltd.                             100,000     100.00%             0      0.00%        100,000 100.00%

            Media Vision Inc.                                  16,361,660    78.63%              0      0.00%      16,361,660   78.63%

            E-Joy International Co., Ltd.                       5,000,000    79.37%              0      0.00%       5,000,000   79.37%

            A-Ok Technical Co., Ltd.                            1,300,000    86.67%              0      0.00%       1,300,000   86.67%

            TECO Technology (Vietnam) Co., Ltd.                          0   100.00%             0      0.00%               0 100.00%

            Titco International Corporation                     1,400,000    100.00%             0      0.00%       1,400,000 100.00%

            TECO (Philippines) 3C & Appliances, Inc.             651,000     60.00%              0      0.00%        651,000    60.00%

            An-Sheng Travel Co., Ltd.                            480,000     19.20%     1,440,000      57.60%       1,920,000   76.8%

            Taiwan Pelican Express Co., Ltd.                   42,454,700    49.37% 10,103,800         11.75%      52,558,500   61.12%




   26   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                             2011
                                                                                                                             Annual Re p o r t




IV. Capital Overview
4.1 Capital and Shares

4.1.1 Source of Capital

A. Type of Stock
                                                                                                   April 30, 2012 / Unit: Share
                                                      Authorized Capital
      Share Type                                                                                                Remarks
                               Issued Shares           Un-issued Shares             Total Shares
    Common Share                1,845,189,915              1,185,360,085            3,030,550,000                    -


B. Information for Shelf Registration
             Preparing to Issue Amount               Issued Amount
                                                                                                            Issue Period
Securities                    Authorized                                      Purpose and Effect for Issued
                                                                                                            for Unissued Remarks
  Type       Total Shares      Amount            Shares            Price                Shares
                                                                                                               Shares
                                (NTD)
                                                                             Retain talents needed by the
                                                                            company, motivate employees
 Employee                                                                                                     Expiration
                                                                            and enhance their identification
   stock 50 million shares NT$500 million 22,024,000 shares NT$220,240,000                                       date:
                                                                           with the company, so as to create
  options                                                                                                    Dec. 26, 2013
                                                                             benefits for the company and
                                                                                      shareholders


4.1.2 Status of Shareholders
                                                                                                                   April 30, 2012
                                                                             Foreign
                                                            Other                              Domestic
                   Government Financial                                    Institutions
      Item                                                 Juridical                            Natural                  Total
                    Agencies  Institutions                                  & Natural
                                                            Person                             Persons
                                                                             Persons
  Number of
                           3                74               166                550              92,757              93,550
Shareholders
Shareholding
                     4,263,636        57,767,427          184,883,232 721,125,086 877,150,534 1,845,189,915
    (shares)
  Percentage           0.23%               3.13%            10.02%           39.08%             47.54%              100.00%




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             4.1.3 Shareholding Distribution Status

             The par value for each share is NT$10
                                                                                                 April 30, 2012
                 Class of Shareholding
                                          Number of Shareholders   Shareholding (Shares)    Percentage
                        (Unit : Share)
                           1 ~ 999                   35,851             11,166,816            0.61%
                        1,000 ~ 5,000                37,751             89,015,659            4.82%
                       5,001 ~ 10,000                9,207              71,138,174            3.86%
                       10,001 ~ 15,000               3,187              39,419,475            2.14%
                       15,001 ~ 20,000               1,902              34,836,925            1.89%
                       20,001 ~ 30,000               1,872              46,852,052            2.54%
                       30,001 ~ 40,000                779               27,449,387            1.49%
                       40,001 ~ 50,000                591               27,250,195            1.48%
                      50,001 ~ 100,000               1,146              81,997,496            4.44%
                      100,001 ~ 200,000               533               74,692,271            4.05%
                      200,001 ~ 400,000               284               79,345,037            4.30%
                      400,001 ~ 600,000               111               53,783,256            2.91%
                      600,001 ~ 800,000               55                38,010,833            2.06%
                  800,001 ~ 1,000,000                 44                38,623,596            2.09%
                      1,000,001 or over               237              1,131,608,743         61.33%
                            Total                    93,550            1,845,189,915         100.00%



             4.1.4 List of Major Shareholders
                                Shareholder's Name                         Shares          Percentage
             IShare MSCI Emerging Market Index Fund                      32,387,000          1.76%
             Tong Kuang Investment Co., Ltd.                             30,341,364          1.64%
             Vanguard Emerging Market Stock Index Fund                   29,829,000          1.62%
             Yaskawa Electric Corporation                                29,541,089          1.60%
             Dimensional Emerging Markets Value Fund                     26,184,725          1.42%
             Stichting Pensioenfonds ABP                                 25,088,833          1.36%
             Kuang Yuan Industrial Co., Ltd.                             22,033,919          1.19%
             Fubon Insurance Co., Ltd.                                   21,733,763          1.18%
             Fred P. C. Huang                                            21,614,831          1.17%
             Government of Singapore                                     21,036,000          1.14%




   28   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                           2011
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4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share
                                                                                                                          Unit: NT$
                                                                                                    Year to Date as of April
                        Item                                  2010                   2011
                                                                                                            30, 2012
Market Price per Share (Note 3)
 Highest Market Price                                          20.15                 22.80                    22.50
 Lowest Market Price                                           11.80                 15.30                    17.75
 Average Market Price                                          15.40                 18.88                    20.11
Net Worth per Share
 Before Distribution                                           19.55                 20.18                    20.76
 After Distribution                                            18.74                 Note 1                   Note 2
Earnings per Share
 Weighted Average Shares (thousand shares)                  1,801,691              1,811,438                1,837,847
 Earnings Per Share                                            1.38                   1.54                     0.31
Dividends per Share
 Cash Dividends                                                0.80               0.90(Note 1)                Note 2
 Stock Dividends
  .Dividends from Retained Earnings                             -                      -                        -
  .Dividends from Capital Surplus                               -                      -                        -
 Accumulated Undistributed Dividends                            -                      -
Return on Investment
 Price / Earnings Ratio (Note 4)                               11.16                 12.26                          -
 Price / Dividend Ratio (Note 5)                               19.25                 Note 1                   Note 2
 Cash Dividend Yield Rate (Note 6)                             0.05                  Note 1                   Note 2
Note 1: Pending for Shareholders' approval
Note 2: Pending for Shareholders' and Board of Directors' approval
Note 3: List the highest and lowest market price in each year and calculate average market price by total trading volume/total
        trading shares
Note 4: Price / Earnings Ratio = Average Market Price / Earnings per Share
Note 5: Price / Dividend Ratio = Average Market Price / Cash Dividends per Share
Note 6: Cash Dividend Yield Rate = Cash Dividends per Share / Average Market Price


4.1.6 Dividend Policy and Implementation Status


A. Dividend Policy

TECO deals in a line of business characterized by steady growth, but many of its investees have yet to take
off. Therefore, its distribution of earnings must take into account the need for further expansion and more
reinvestments going forward. After legal and special reserves are set aside, 1% to 5% of the remaining earnings
in a given year will be appropriated for remunerations to Directors and Supervisors, and 1% to 10% for
employee bonuses. In principle, 80% of the remainder and retained earnings from the previous year will be
drawn upon as dividend payments to shareholders. Of all dividend payments, cash generally accounts for 50%
but must not run below 5%


B. Proposed Distribution of Dividend

Cash dividend of NT$0.90 per share.



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             4.1.7 Impact on Company’s business performance, EPS and ROI from the stock grant
                   proposed by Shareholders Meeting:

             Not applicable.


             4.1.8 Employee Bonus and Directors' and Supervisors' Remuneration


             A. Information Relating to Employee Bonus and Directors’ and Supervisors’ Remuneration
                in the Articles of Incorporation

                Earnings in a given year, if any, must be first drawn upon to pay taxes and make up for cumulative
                losses,followed by the appropriation of legal and special reserves. Out of the remaining portion:
                a.1% to 5% as compensation for directors and supervisors.;
                b.1% to 10% as bonus for employee.


             B. Estimate of Employee Bonus and Directors’ and Supervisors’ Remuneration
                a. Foundation of estimation
                  1. Amount of net income
                  2. Requirement of legal reserve
                  3. Regulations in Article of Corporation
                  4. Historical record of distribution
                b. Foundation of share calculation for stock dividend: Not Applicable
                c. No difference between total amount paid and number of estimation

             C. Profit Distribution of Year 2011 Approved in Board of Directors Meeting for Employee
                Bonus and Directors’ and Supervisors’ Remuneration

                a.Recommended Distribution of Employee Bonus and Directors’ and Supervisors’ Remuneration:
                                                                                                       (NT$ thousand)
                 Employee Bonus – in Cash                                                                $ 225,440
                 Employee Bonus – in Stock                                                                       0
                 Directors' and Supervisors' Remuneration                                                  100,196
                 Total                                                                                   $ 325,636

                No difference from the number of estimation


                b.Ratio of Recommended Employee Stock Bonus to Capitalization of Earnings:

                 Not applicable

                c.Recounted EPS after Recommended Distribution of Employee Bonus and Directors’ and Supervisors’
                  Remuneration: (NT$ thousands)

                 Not applicable (already expensed)




   30   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                         2011
                                                                                                          Annual Re p o r t




D. Information of 2010 Earnings Set Aside to Employee Bonus and Directors’ and
   Supervisors’ Remuneration:                                       Unit:NT$ thousand
                                Amount recommended by   Amount resolved by the
                                  the Board of Diretors  Shareholders’ Meeting
     Employee Bonus - Cash              202,327                202,327
    Directors' and Supervisors'
                                         89,923                 89,923
      Remuneration – Cash
                Total                   292,250                292,250
   The actual distribution of employee bonus and directors’ and supervisors’ remuneration above is parallel
   with the recommended resolution of the Board of Directors.


4.1.9 Buyback of Treasury Stock

None


4.2 Issuance of Corporate Bonds

4.2.1 Issuance of Corporate Bonds
A. The company floated the first overseas unsecured convertible corporate bonds in 2011, with a five-year term
   and at a ceiling of US$200 million, and the raised fund is for overseas investments and overseas procurement
   of materials. The plan was approved by the Financial Supervisory Commission (FSC, No. 1000028470, June
   29, 2011).
B. Due to the fluctuation of the global stock market in the second half of 2011, the fund-raising plan did not be
   completed by the deadline of Dec. 28, 2011. The company notified the FSC, which agreed to nullify the plan
   (FSC, No. 1000064378, Jan. 5, 2012).

4.2.2 Convertible Corporate Bond

None

4.2.3 Filing Report for the Issuance of Corporate Bonds

None

4.2.4 Data on Corporate Bonds with Option for Share Subscription

None




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             4.3 Employee Stock Options

             4.3.1 Issuance of Employee Stock Options
                                                                                                           April 30, 2012
                                                                                                 st
                                    Type of Stock Option (Note 2)                            1        Tranche (Note 5)
             Regulatory approval date                                                                  2007/12/24
             Issue date (Note 4)                                                                       2007/12/26
             Units issued                                                                                50,000
             Option shares to be issued as a percentage of outstanding shares                            2.62%
             Duration                                                                                   6 years
             Conversion measures (Note 3)                                                             New Issuance
             Conditional conversion periods and percentages                                              Note 6
             Converted shares (Share)                                                                  22,024,000
             Exercised amount (NT$)                                                                   220,240,000
             Number of shares yet to be converted (share)                                              27,976,000
             Adjusted exercise price for those who have yet to exercise their rights (NT$)               12.70
             Unexercised shares as a percentage of total issued shares                                   1.52%
             Impact on possible dilution of shareholdings (NT$ 000)                                     563,628
             Note 1: Employee stock options include undergoing issuance options via public or private placement.
                     Public-placement stock options refer to those already approved by the organization and
                     private-placement stock options refer to those already approved by the board of directors.
             Note 2: The number of columns can be adjusted according to the number of issuances.
             Note 3: Specify delivery of existing shares or new shares.
             Note 4: Fill in separately issuances with different dates.
             Note 5: Mark issuance via private placement.
             Note 6: Period and share for restrictive subscription


                        Exercise Schedule                       Percentage could be exercised(Cumulative)
                        More than 2 years                                         40%
                        More than 3 years                                         70%
                        More than 4 years                                         100%




   32   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                           2011
                                                                                                                                             Annual Re p o r t




4.3.2 List of Executives Receiving Employee Stock Options and the Top 10 Employees
      with Options Valued in Excess of NT$30 Million

                                       No. of Option   Option                 Exercised (Note 2)                       Unexercised (Note 2)
         Title                            Shares     Shares As a          Strike     Amount As percentage           Strike     Amount As percentage
                           Name                                  No. of                                    No. of
       (Note 1)                         (Thousand Percentage of           Price        (NT$      of Shares          Price        (NT$       of Shares
                                                                 Shares                                    Shares
                                          shares) Shares lssued           (NT$) thousand)         lssued            (NT$) thousand)          lssued

President            Sophia Chiu

Executive Consultant S.C. Lin

Vice President       George Lien

Assistant Vice
                     George Huang
President
Assistant Vice                                                            12.7~
                     Hung Hsiang Lin      6,142       0.33%      1,615             20,568       0.09%      4,527    12.7      57,493        0.25%
President                                                                  13.2
Assistant Vice
                     Yu Kuang Wang
President
Assistant Vice
                     Steven Chiang
President

Group Director       Andy Liu

Group Director       Kevin Yeh

Employees                                                                          None
Note 1: Include managerial staffers and employees (specify those already leave the company or die), specify
            individual names and titles. The obtaining and subscription of stock options can be disclosed in an
            aggregate manner.
Note 2: The number of columns can be adjusted according to the number of issuance.




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             4.4 Global Depositary Shares
                                 Issuance Date                                        March 28, 1997
                               Listing & Exchange                                         London
                                  Issue Amount                                       US$107,643,862
                                    Offer Price                                          US$20.08
                                    Issue Unit                                           5,539,880
                               Underlying Security                     Newly issued common shares from rights offer
                        Total Shares of Underlying Security                     55,398,800 common shares
                       Rights & Obligations of GDS Holders                 Same as Holders of Common Shares
                                     Trustee                                               None
                                 Depositary Bank                                 Bank of New York Mellon
                                 Custodian Bank                             Mega International Commercial Bank
                           Outstanding Balance                                         47,945 GDSs
               Apportionment of expenses for the issuance and
                                                                                    Mainly by the issuer
                                maintenance
               Important terms and conditions of depositary and   Depositary bank acts on behalf of GDS holders; custodian
                               custodian contracts                    bank holds on to the underlying common shares
                                                        Highest                             7.66
                                         2011           Lowest                             5.00
                    Market
                                                        Average                            6.43
                      Price
                                                        Highest                            7.38
                      (US$)       Year to date as of
                                                        Lowest                             5.87
                                   March 31, 2012
                                                        Average                            6.71



             4.5 Status of New Shares Issuance in Connection with Mergers and
                 Acquisitions

             None

             4.6 Financing Plans and Implementation

             Incompletion of previous issuances of securities or private share placement or those completed in the recent
             three years but without evident benefits: Nil




   34   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                        2011
                                                                                                         Annual Re p o r t




V. Operational Highlights
5.1 Business Activities

5.1.1 Business Scope

A. Business Scope


                 Business Scope                                              Sales %
                Industrial Products                                            59%
                 Home Appliances                                               27%
                    Construction                                                8%
                      Others                                                    6%
                       Total                                                   100%


B. New products development

(1) Industrial Products Business:
    Motor for industrial large gas compressor, medium and large motor conforming to new ultra-high efficiency
    of the U.S., medium and large permanent magnetic generator, doubly-fed generator, electric-car motor,
    direct-current brushless motor for air conditioner, CNS anti-explosion motor, small motor conforming to new
    ultra-high efficiency of the U.S.

(2) Home-appliances business:
    Energy-saving and environment-friendly inverter air-conditioner, low-temperature caged cart, high energy-
    efficiency inverter refrigerator, multi-connection commercial inveter air conditioner, centrifugal chiller,
    multi-connection VRF system inverter air conditioner, elevator air-conditioning system, Low-temperature
    logistics freezer, cooler for tooling machine, Ultra-low temperature freezing cabinet, remote control system
    for smart appliances, large-sized LCD TV, Taiwan-specification H.264 HDTV, and LED backlit TV.

(3) The wind-power business targets mainly at 2MW wind-power turbine and plans for 3MW offshore wind
    power system. Meanwhile the Company also develops KW-level small wind-power generators featuring
    vertical- and horizontal axis, wind power converter and photovoltaic power converter.

5.1.2 Industry Overview

A. Industrial Product Business
    Thanks to extensive industrial and consumption application, global demand for motor is steady, especially
    in view of the excellent evaluation of Taiwan-made motor on the global market. Therefore, motor has been
    a mainstream heavy-machinery export item. In response to the energy-conservation and carbon-abatement
    policy of various governments, the development of motor still focuses on high efficiney and low carbon
    emission.




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             B. Wind-Power Industry:
             (1) Due to limited natural resources, soaring energy prices, and global warming, energy conservation and
                 carbon abatement has become a global current. Governments worldwide have encouraged the development
                 of renewable energy via legal means. It’s estimated that current wind-power generation cost has been
                 comparable to the cost of fossil fuel-fired power generation, making it most cost-effective renewable energy.

             (2) There are two trends in the development of wind-power turbine: One is large scale and offshore models.
                 1.5MW and 2MW are mainstream on-shore models, 3MW models are of both on-shore and offshsore usage,
                 while over 3MW models are mainly installed offshore. Various system suppliers have been rolling out models
                 with ever larger capacities. Secondly, 50KW and smaller models are mainly applied in buildings, farms,
                 fishing ponds, and communities. The diversified power sources can greatly enhance the reliability of power
                 grid and demand for wind-power generators has been on the rise, along with the settlement of wholesale
                 prices for the purchase of wind-power electricity.

             (3) China is one of the fastest-developing wind-power markets in the world and had become the largest market
                 in accumulated installed capacity and newly installed capacity in the world at the end of 2010, overtaking the
                 U.S. Afterwards, China is stressing the quality control of wind turbines and expansion of export markets. In
                 quality control, it emphasizes the need for LVRT (low voltage ride-through) in linking to the grid and plans to
                 strengthen the strength of power grid during the period of the 12th five-year economic development plan, so
                 as to assure steady output of wind-power generation in northwestern and northern China. If Taiwanese firms
                 can demonstrate their consistent quality control and long-standing overseas marketing experience, they will
                 be able to obtain cost edge in penetrating the international market.

             (4) Offshore wind power is also a development focus of various countries. Europe has an early start in this field
                 and has achieved various concrete results. China is carrying out a number of items, mainly for R&D and
                 demonstration. The Taiwanese government also encourages domestic firms to develop exemplary offshore
                 wind power generation.

             C. Home-Appliances Industry
             (1) Application of inverter technology in home appliances
                 Energy conservation and environment-protection is a major appeal in product development at present. The
                 technology of direct current and variable-frequency, as well as the application of environment-friendly
                 coolant in home appliances can lead to the achievement of high COP value, which embodies the care of
                 enterprises for “energy conservation” and “environmental protection.” Under the leadership of TECO,
                 domestic home-appliances manufacturers have also launched various variable-frequency models, which have
                 become increasingly receptive among consumers, despite their higher prices.

             (2) Application of micro/nano technology in home appliances
                 Data of the ITIS Plan of IEK of Industrial Technology Research Institute (ITRI) show that functions and
                 added value of traditional home appliances can be augmented via the application of micron/nanometer
                 technology, such as the application of MEMS sensor in white goods and small home appliances (such as
                 hair dryer). In addition, with the gradual maturity of nanometer materials technology, some home appliances
                 manufacturers have begun to apply nanometer materials in home appliances and lighting products,
                 highlighting the selling points of deodorant, fresh preservation, anti-germ, and self-cleansing, for the
                 attraction of consumers with high regard for product functions and quality. Examples include air conditioners
                 and air purifiers. TECO and some domestic peers have launched products embracing nanometer silver photo
                 catalyst, such as air purifiers and air conditioners, due to the deodorant and anti-germ effect of the material.



   36   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                         2011
                                                                                                          Annual Re p o r t




(3) Development of network home appliances market
    ITIS Plan of ITRI’s IEK show that the scope of Internet application has gradually extended from study and
    bedroom to kitchen through mobile handset devices, such as white goods and portable small home appliances
    in kitchen with Internet-access function. Those products boast the function of Internet-based information
    retrieval and management. Most manufacturers believe that Internet-access function is a key feature for home
    appliances in the future. There is no difficulty for producing such products at present, but a major concern
    among manufacturers is the standards for interface.

5.1.3 Research and Development

A. The company spent NT$779,957,000 on R&D in 2011.

(1) Industrial Motors Category
    1. The AC/DC propelling motor of Taiwan’s large-scale oceanic research ship “Oceanic Research No. 5,”
       which is an ocean-going ship with 2,700 deadweight ton
    2. Heat-resistance research on water-jacketed case and iron core, applicable in motor and generator, which is
       publicized in the periodical of IEEE
    3. High-efficiency explosion-proof motor IEC Ex e, Ex n, Ex tD, which has passed the testing of Australian
       certification body and obtained Taiwan Excellence Award
    4. Smart energy-saving pump motor, which obtained Taiwan Excellence Award
    5. Pan-European high-efficiency energy-saving electric motor, which obtained Taiwan Excellence Award and
       successfully penetrated the European market
    6. Successful development of new series of products for large and industrial high-efficiency motors to
       13000HP.
    7. Successful development of water-jacketed 2MW DFIG wind turbine
    8. Liquid-cooled 35-150KW high power-factor electric-car permanent-magnetic motor series
    9. Liquid-cooled 80-180KW high power-factor electric-car induction motor series
    10. Industrial-use 3.0kW-100kW permanent server motor series
    11. High-efficiency quiet direct-drive motor for washing-machine (Taiwan Excellence Awards)
    12. Direct-drive in-wheel motor for electric-car
    13. High-efficiency motor IE4 NEMA, medium- and large-horsepower series (100HP)
    14. High-efficiency Motor IE3 JIS series (100 HP), which hits the market ahead of Japanese rivals

(2) System Automation Category
    1. Second-generation economy-class JSDE + four-type server drive, JSDL single-board server drive
    2. Japanese ODM standard TA8480/economy-class TA8481 server drive
    3. Double-axis water-spray/gas-spray loom JSDMT professional server control
    4. Drive for 20KW in-wheel motor of electric-car
    5. Inverter A510 IPM Sensor Control Technique
    6. High power-factor 100KVA photovoltaic power converter (including optimal power-factor tracking control
       technology and island detecting technology)
    7. Auto-use motor water-cooled frame CP80, CP180 design/thermal current and structural analysis
    8. Electric-control box 20A for inverter air-conditioning (compared with 10 models in the market)
    9. Electric-control box 30A for inverter air-conditioning (compared with two models in the market)
    10. New automatic suspended circuit switch




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             (3) Signal processing and Videotex Category
                 1. Automated image conversion from 2D to 3D technology, used in application software for embedded
                    system and supportive of Android mobile phone
                 2. 2D/3D table order system
                 3. TL3253TRE, TL4252TRE (50% power saving than existing models, Taiwan Excellence Award, 2012)
                 4. Whole-series 24”-42” LED backlight LCD
                 5. Three-phase optical pasting massive-production and testing technique

             (4) Freezing and Air-Conditioning Category
                 1. Whole-series new energy-efficiency refrigerator
                 2. Whole series of high EER first-tier energy-saving air-conditioner
                 3. High EER models for whole series of commercial air conditioners
                 4. Low-temperature logistics freezer
                 5. Ultra-low temperature freezing cabinet
                 6. 50A inverter air-conditioning control substrate
                 7. 20kW high 20kW high static-pressure pipe layer, for export to Australia
                 8. Vertical air conditioner, for export to Japan
                 9. Low-watt air conditioner, for export to Indonesia

             B. Future R&D Projects:
                • Control technology for permanent-magnet motor
                • Inverter technology for home appliances
                • Tooling machine cooler related products
                • Cold-chain related products
                • Technology for energy-saving permanent-magnetic motor and medium and large permanent magnetic
                  generator
                • Motor for industrial-use large gas compressor
                • U.S. new ultra-high power-factor small, medium, and large motor
                • High voltage explosion-proof motor
                • Ultra-high efficiency motor
                • Direct-drive motor
                • In-wheel motor for electric vehicle
                • Direct-drive wind-power generator
                • Electric/hybrid auto-motor drive
                • High power-factor photovoltaic inverter
                • Analysis of structure and thermal current of auto electric machine/wind-generator
                • Inverter for small wind-power generator
                • Technology for energy-saving permanent-magnet servo motor for oil pump
                • Drive for BLAC compressor
                • High-end servo drive
                • General- purpose drive for induction/permanent-magnet motor
                • Displaying and conversion technology for 3D advertisement machine
                • 3D-image bare-vision multi-angle conversion technology
                • Android net TV and interactive server




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5.1.4 Long-term and Short-term Development

For industrial motor business, the company’s long-term goal is to become the world’s best motor manufacturer.
In the short run, with the company’s factories in Wuxi, Jiangxi, and Fujian of China, as well as TECO Yaskawa
in Japan and new operation in the Middle East, gradually manifesting their benefits, the company will continue
its global deployment, enhance manufacturing and cost-control capability, accelerate the establishment of
strategic alliances with partners in mainland China, Europe, the U.S., and Japan, so as to augment its global
market share. In line with the government’s promotion of alternative energy, the company has established a joint
venture in China, A-Tech TECO, for producing wind-power generator, which has become a leading manufacturer
of the product in Greater China.

For wind-power equipment, the company’s long-term goal is become one of the world’s 10 largest
manufacturers. In the short term, rapidly obtain certification and highly reliable performance record, to pave the
way for foraying into the Chinese market. Establish local supply chain for components and parts; seek cross-
Taiwan Strait technological and business cooperation, for development of offshore wind-power generation.
TECO has obtained TFC2000 onshore wind-turbine certification. Test of LVRT (low-voltage ride-through)
technology, a highly regarded technology in China, will be carried out by Electric Power Research Institute in
the third quarter. Meanwhile, the company will endeavor to obtain local certifications for system in China.

For home appliances, in the long run, the company aspires to become the leading brand in Taiwan and actively
penetrate overseas air-conditioning market. For LCD TV, the short-term plan is to establish a cross-strait
division-of-labor system and strive for OEM (original equipment manufacturer) orders from major international
firms, thereby expanding its shares in the world and Taiwan.

In other aspects, backed by abundant experience of electric machinery of buildings, mass rapid transit system,
and high-speed rail, the company will dedicate to winning large-scale businesses for office buildings, rapid mass
transit system, and rail engineering. The company has sold high-voltage gas insulation switch to Taiwan Power
Co., and in addition to continue seeking business from Taipower, the company will also actively explore the
private market.

5.2 Market and Sales Overview

5.2.1 Market Analysis

A. Sales (Service) Region
   The company is shipping industrial products to such major regions as America, Europe, Australia, Japan,
   China and Taiwan, and targets to extend the reach to the Middle East and India. Home appliances are shipped
   mainly to the domestic market, with minor markets including Australia, Southeast Asia, Singapore, and
   Japan. The company plans to tap the home-appliances markets in China, Vietnam, and Indonesia. For wind-
   power products, in addition to the Chinese market, the company is set sight on the markets of Southeast Asia,
   New Zealand, and Australia, where awareness of clean energy has emerged.

B. Market Share (%) of Major Product Categories
(1) Industrial Product
    The company boasts 50% domestic market share in general prupose sector and also offers customers custom
    motor featuring special usage and specifications, with the capacity reaching 30,000 horsepower in induction
    motors, ranking Top 5 around the world.


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             (2) Wind-power business
                 The first wind-power turbine was erected in Inner Mongolia of China in 2010 and completed linkage with
                 grid for power generation in March 2011. Also, the company completed wind-turbine certification, and
                 arranged LVRT (low-voltage ride-through) certification in China, fulfilling whole-year power generation
                 under rigorous environment. Successfully forayed into Southeast Asian market in 2011 and obtained orders in
                 Vietnam.

             (3) Home Appliances and Air Conditioner
                 The company is one of the top three makers of home appliances and air conditioners in Taiwan, with market
                 share reaching 9% for household air conditioners, 14% for refrigerators, 15% for washing machines, 10% for
                 LCD, and 35% for commercial-use air conditioners.

             C. Market Trend of Major Product Categories
             (1) Industrial Products
                 TECO originated from motor production, which has remained a core part of the company’s operation,
                 offering the dynamism for Taiwan’s industrial development. After years of effort since the company’s
                 inception, it has set up various production and marketing bases through the world. It ranks among the world’s
                 top five heavy-electrical equipment suppliers and has hit world-class level, in terms of quality, variety,
                 production scale, and sales channel.

                In 2011, thanks to rapid global economic recovery, demand for low-voltage motors surged, overstraining
                supply. Plus pickup in the demand at the cement and steel sectors, sales grew over 10% in volume in the year.

                In 2012, the company will continue strengthen marketing and production integration, so as to boost market
                share and cut cost. It will also develop new products, continue integrating domestic and overseas resources in
                tapping the OEM market, and solicit public construction and domestic and overseas engineering projects, in
                the hope of achieving double-digit growth.

             (2) Wind-Power Business
                 Due to global warming and drastic climate changes, countries worldwide have begun to emphasize the
                 use of renewable energy by setting up development goal for renewable energy, in order to cut emission of
                 greenhouse gases. Among renewable energies, wind power is most cost-effective. Therefore, the European
                 Union targets raising the share of wind power to 50% of total electricity supply by 2030.

                Despite its high entry barrier, TECO is ready to tap the market by integrating its solid R&D strength in
                the fields of machinery and electricity. The company has successfully made inroads into the wind turbine
                assembly market in the U.S. and has developed 2MW permanent-magnet wind-power turbine bearing own
                brand, the first such product made by Taiwan which boasts high local content rate. This wind turbine system
                boasts solid structure and complete lineup, capable for meeting the needs of areas featuring strong typhoon
                or cool climate, suits both 50/60Hz enabling global use, and can easily meet the rigorous demands for
                connection to grids of countries worldwide.

                TECO will root its wind power business on Taiwan and set sight on China, combining Taiwan’s advantage in
                quality control and China’s huge market potential. It will establish wind turbine assembly plants near wind
                farms and foster local supply chains, so as to save on transportation cost and facilitate the management and
                maintenance for up to 20 years, thereby augmenting the utilization rate of wind turbine and maximizing




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   profits. In addition, the company will integrate cross-Taiwan strait technological strength in the joint
   development of next-generation offshore wind turbine which suits the Asian climate.

(3) Home Appliances
    Growth of market demand for home appliances is limited, since they are mature products. In addition
    to existing products, the company will develop or introduce new products with high added value or key
    components/parts, such as large-size (52” and larger) LCD TV, LED TV, inverter refrigerator with high EF
    value, muti-temperature-layer refrigerator, DD inverter washing machine and external-rotor motor (key
    component), photo-catalyst air purifier, DC inverter air conditioner with high COP value, inverter electric-
    control substrate (key component), remote-control SAA(Smart Appliance Alliance) air conditioner, and air
    conditioner with nano bamboo-charcoal filer and other home appliances with health appeal. The purpose is to
    expand sales channel and increase revenue and profit with differentiated products.

   Meanwhile, the company has been constantly rolling out new models for industry-use air-conditioning and
   freezing products, such as package air conditioner, central air conditioning equipment, flooded water chiller,
   centrifugal water chiller, inverter multi-evaporator VRF air conditioner, and train air conditioner, thereby
   creating optimal and the most comfortable workplace for domestic and overseas industries. The company
   also offers various air-conditioning and freezing engineering service with cutting-edge technology, to help
   with industrial upgrading.

   Along with the development of new technologies and the increasing convenience of the Internet, information
   products have integrated with home appliances, giving birth to information appliances. The company will
   marry its decades-long experience for home appliances with cutting-edge information technologies of the
   members of the group in developing information appliances suited to market needs, thereby creating every
   larger profits for shareholders.

   Besides domestic market, the company has also made major inroads into the international market, following
   years of strenuous effort, especially for LCD TV and air conditioner which have enjoyed very good sales to
   Southeast Asia, Australia, and Europe. In the future, along with increase in national income and the advent of
   the information age, the company will continue to launch various even more human-friendly new products,
   so as to meet market demand.

D. Favorable and Unfavorable Factors in the Long-range Future and Countermeasures
(1) Industrial Product
    The company’s industrial product has won very good repute, in terms of quality and function, in the
    industry. It has established a far-reaching operation network on both domestic and overseas fronts, including
    production and marketing bases in the U.S., China, and Southeast Asia, and marketing offices in Japan,
    Europe, and Australia. However, rapid change in the business climate and the transformation of economic
    conditions and industrial structure has posed major challenge to the company’s future development.

   Favorable and unfavorable factors for industrial product business, along with countermeasures follow:
   a. Favorable factors
      • Good brand image
      • Higher production scale and market share than peers
      • Solid market channel
      • Reliable quality




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                   • Complete product lineup
                   • Huge market potential of the greater China market, for which the company has established a firm
                     foothold in China
                b. Unfavorable factors
                   • Low-price competition from imported products in the domestic market due to WTO membership
                   • Market saturation leading to price competition among machinery firms and increasingly rigorous demand
                     for price and delivery by buyers
                   • Transplantation of traditional machinery firms to China and other countries, due to their declining
                     competitiveness and demand of emigrated downstream customers
                c. Countermeasures
                   • Reduce cost, shorten delivery schedule, enhance competitive edge, and boost market share.
                   • Accelerate new-product development, develop products with high added value, and establish a production
                     system featuring cross-strait division of labor.
                   • Increase overseas marketing offices and establish an effective service network.
                   • Strive for emerging business opportunities related to environmental production and energy conservation.
                   • Join hands with foreign engineering firms in soliciting project orders.

             (2) Wind Power Business
                 a. Favorable factors
                    • The company has established good repute for industrial product in the field of wind-power business,
                      capable of achieving synergy effect readily by integrating the resources of the group.
                    • The U.S. subsidiary already has the experience for contract assembly of complete wind turbine, which
                      can be copied in any other region of the world.
                    • The company boasts complete product lineup and cutting-edge technology, capable of meeting the
                      rigorous demands for connection to grid in the future. Its products suit both 50/60Hz, facilitating logistics
                      work and cost control.
                    • The company has sound communications channel with its affiliates worldwide, enabling it a firm grasp of
                      the latest development in renewable-energy laws/regulations and demands of grids worldwide.
                 b. Unfavorable factors
                    • Insufficient domestic supply chain for components and parts of wind turbine, complicating the effort for
                      cost/delivery control
                    • Shortage of domestic R&D talents for wind tubine, impeding technological development
                    • Saturation of domestic onshore wind power market and difficulty in obtaining the testing ground, which
                      postpones certification schedule
                    • Chinese wind-power equipment firms resort to low-price competition to tap the overseas markets, thereby
                      disrupting the market order.
                 c. Countermeasures
                    • Set up Asian supply chain by utilizing the wind-power production capacity of China and Korea, thereby
                      gaining a local edge.
                    • Establish joint R&D team with Industrial Technology Research Institute, capitalizing on the latter’s
                      electrical-machinery talents to facilitate technological development, and solicit Chinese talents released
                      from its tightening policy, to facilitate deployment in the Chinese market in the next stage.
                    • Seek legal testing grounds on both sides of the Taiwan Strait and tap the Chinese market via strategic
                      alliance with China Datang Corp. and Xiang Tan Electric.
                    • Set up logistics team to strengthen local services and cut maintenance cost.
                    • Take advantage of Taiwan offshore model wind farm, tap related domestic resources and integrate the
                      relative strengthness between Cross straits to develop the technology which can adapt to the unique
                      environment in Tawian Strait.

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(3) Home Appliances and Air-Conditioning Business
    a. Favorable factors
       • TECO can capitalize on its good brand image and support of the group’s resources, facilitating the
         demonstration of synergy effect.
       • The company has pioneered the rollout of around-the-clock service and expanded its sales channel,
         strengthening its competitive niche.
       • The company has joined “The R&D Alliance of the Smart Home-Appliances Industry,” giving it a ready
         access to information on smart home appliances and online digital communications technology.
       • Conform to MIT logo and first-tier energy-saving model, one step ahead of peers.
    b. Unfavorable factors
       • Home appliances/household air conditioning market has saturated, featuring acute competition and low
         margin.
       • WTO membership entails tariff cuts, bringing in competition from renowned brands of Japan, the U.S.,
         Korea, and China.
       • The Taiwanese market is limited in scale and it’s difficult to develop the global branding, due to high
         expense for marketing own brands and insufficient price competitiveness.
       • Competition from hypermarkets and chain sales channels impacts the traditional channel of agents.
       • The current of bilateral or regional free-trade agreements in recent years has posed major challenge to
         Taiwan.
    c. Countermeasures
       • Expand product lineup and cut cost via OEM (original equipment manufacturer) strategic alliance,
         thereby raising market share.
       • Capitalize on China’s low-cost edge and embrace SKD (semi knock-down) production mode, so as to
         boost the cost competitiveness of some products.
       • Grasp product development trend in domestic and overseas markets via the operation of product panel
         and new-product review sessions, thereby introducing innovative products timely.
       • Plan differentiated products tailored to the needs of the targeted customers of different channels.
       • Step up assistance for agents for strengthening their management and store outlets, thereby enhancing
         their competitiveness.
       • Establish directly owned store outlets gradually.




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             5.2.2 The Production Procedures of Main Products
             Industrial Products:
                                      Products                                    Use               Production Process
             High-efficiency motors, single-phase motors, low- and
             high-voltage 3-phase motors, synchronous motors,
             explosion-proof motors, brake motors, variable-pole                              Casting, Stamping ,
             motors, gear-reducing motors, crane motors, high-                                Electrical Engineering,
                                                                       Provision of power for
             temperature exhaust gas fan motors, inverter-duty motors,                        Mechanical Engineering,
                                                                       industrial production
             high-thrust motors, steel-cased motors, aluminum-                                Design, Planning,
             cased motors, eddy-current motors, wound rotor motors,                           Assembly, Integration
             submersible motors, DC motors, ventilation blowers,
             wind-powered generators.


             Wind Power Products:
                           Products                       Use                         Production Process
             2.0MW PMSG (Permanent Magnetic                   Casting, Stamping , Electrical Engineering, Mechanical
                                                 Power supply
             Synchronous Generator) wind turbine              Engineering, Design, Planning, Assembly, Integration

                                                     Decentralized Casting, Stamping , Electrical Engineering, Mechanical
             KW level wind turbine
                                                     power supply Engineering, Design, Planning, Assembly, Integration


             Home Appliances & Air Conditioners:
                                          Products                                        Use          Production Process

             Window-type, vertical-type, air conditioner with high COP value,
             inverter-type air conditioners with new environment-friendly
             coolant and SAA-compliant smart air conditioners; “FUZZY”
             Internet refrigerators, infrared remote-controlled refrigerators, Household,
                                                                                                       Design, Planning,
             inverter-type refrigerators; refrigerator with high EF value , DD Commercial,
                                                                                                       Assembly,
             inverter washing machines; oxygen-generating air-conditioning Industrial
                                                                                                       Integration
             equipment; dehumidifiers; dryers; small appliances; Low- applications
             temperature roller conveyor for home-delivery operation,elevator
             air-conditioning, cooler for tooling machine, movable CDC air
             conditioner, low-temperature logistics freezer; PC cooling modules

             LCD Monitors, LED TVs, DVD Players, Recordable DVD players,                               Design, Planning,
                                                                         Home entertainment
             Stereo Systems                                                                            Assembly

                                                                                  Commercial,
             Chillers for centralized air-conditioning systems, package air
                                                                                  Industrial           Design, Planning,
             conditioners, split-type air conditioners, inverter multi-evaporator
                                                                                  Applications;        Assembly,
             VRF air conditioner, train air-conditioning systems, centrafigual
                                                                                  Transportation       Integration
             chiller
                                                                                  systems




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5.2.3 Major Suppliers and Clients

A. Major Suppliers Information for the Last Two Calendar Years
                                                                                                              Unit:NT$ thousand
                   2010                                     2011                    Year to Date as of March 31
                           Relation                              Relation                                     Relation
 Company                              Company                               Company
             Amount Percent with                  Amount Percent   with                   Amount Percent         with
   Name                                 Name                                  Name
                            Issuer                                Issuer                                        Issuer
  Tesen                                Tesen                                 Tesen
 Electric &                Affiliated Electric &                 Affiliated Electric &                        Affiliated
            2,731,533 15%                        2,481,985 12%                           558,222       11%
 Machinery                 Company Machinery                     Company Machinery                            Company
 Co., Ltd.                            Co., Ltd.                             Co., Ltd.
Note 1: Major suppliers mean each commanding 10%-plus share of annual order volume.


B. Major Clients (each commanding 10%-plus share of annual order volume) Information for the Last Two Calendar
   Years
                                                                                                              Unit:NT$ thousand
                       2010                                   2011                             Year to Date as of March 31
                                     Relation                              Relation                                      Relation
        Company                                 Company                                   Company
                       Amount Percent with                  Amount Percent   with                       Amount Percent     with
         Name                                    Name                                       Name
                                      Issuer                                Issuer                                        Issuer
                                                Teco                                        Teco
 Teco Westinghouse               Affiliated                                  Affiliated                                 Affiliated
                   2,296,505 10%            Westinghouse 2,697,480 10%                  Westinghouse 957,538 15%
   Motor Co., Ltd.               Company                                     Company                                    Company
                                            Motor Co, Ltd.,                             Motor Co, Ltd.,

5.2.4 Production over the Last Two Years
                                                                                                    Unit: Units; NT$ thousand
                         Year                    2010                                               2011
              Output
                                 Capacity       Quantity           Amount        Capacity          Quantity           Amount
Major Products
Motor                            1,080,000        681,116       8,060,005        1,080,000           652,569         9,197,097

Compressor                         285,600       186,310           328,262          71,400            35,485            72,767

System Automation                3,000,000      2,334,740       1,897,346        3,000,000         2,518,528         2,328,905

Total                            4,365,600      3,202,166     10,285,613         4,151,400         3,206,582        11,598,769




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             5.2.5 Shipments and Sales over the Last Two Years
                                                                                                                           Unit: Units; NT$ thousand

              Shipments     Year                             2010                                                       2011
                                            Local                          Export                      Local                          Export
                  & Sales
                                   Quantity         Amount          Quantity    Amount        Quantity         Amount          Quantity    Amount
             Major Products
             Motor & System
                                   2,637,578    5,837,111       1,464,446       8,012,826     2,963,798     6,202,095          1,589,411   9,068,021
             Automation
             Home Appliacne &
                                    734,606     6,216,159            103,148        575,727    810,738      6,017,361           175,516        985,504
             Air Conditioner
             Construction                       964,878                                                  2,097,968
             Service                            230,029                                                    312,762
             Other                    28,152 1,408,059                                           20,466 1,114,423
                     Total         3,400,336 14,656,235         1,567,594       8,588,553     3,795,002 15,744,610          1,764,927 10,053,525


             5.3 Human Resources
                                                                                                                         Year to Date as of
                                     Year                                      2010                 2011
                                                                                                                         February 28, 2012
                          Number of Employees                                  2603                 2726                        2695
                             Average Age                                       37.7                 38.07                      38.22
                        Average Years of Service                               11.06                11.38                      11.51
                                            Ph.D.                                17                   19                          20
                                          Masters                               254                  315                         299
                  Education          Bachelor’s Degree                         1226                 1305                        1303
                                     Senior High School                         883                  863                         857
                                     Below Senior High School                   223                  224                           216


             5.4 Information on Outlays for Environmental Protection
             A. Loss from environmental pollution in recent two years
                                                                                              2010                                 2011
             a. State of pollution (kind and extent)                                          Nil                                   Nil
             b.Compensation recipients or penalizing units                                    Nil                                   Nil
             c.Compensation amount or penalty                                                 Nil                                   Nil
             d.Other loss                                                                     Nil                                   Nil

             B. Countermeasures
             a. Improvement measures planned
             1. Improvement plan for environmental-protection equipment
                 Installation of new environmental-protection equipment, waste reduction by strengthening the maintenance of
                 existing equipment and improvement of production process, improvement of workplace, promotion of energy
                 conservation, recycle and reuse of waste water, and reuse of waste materials, so as to prevent emission of
                 pollutants and comply with legal requirements.

             2. Plan for management improvement
                 Continue pushing ISO14001 environment management system, pinpoint sections in the operational process
                 (covering the entire product life which includes production, sales, the usage of product, and its disposal)
                 which produce impact on the environment and improve the emission of pollutants, thereby alleviating the
                 environmental impact and augmenting environmental performance.

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   Continue pushing OHSAS 18001 vocational safety and hygiene management system and the passage of the
   certification of TOSHMS by the Council of Labor Affairs; incorporate safety and hygiene management into
   the corporate management culture; strengthen the site reviews on environment protection and safety/hygiene;
   indentify the unsecure environment and situations and make improvements ; regularly hold environmental-
   protection and safety/hygiene training, fire-fighting drill and drill emergency response; regularly inspect
   operating environment and physical examination of employees, so as to lower the hazards of risk of
   workplace and prevent the occurrence of vocational disaster.

3. Continue pushing the program for checking and reduction greenhouse-gas emission
    In response to global climate change, the company began to check greenhouse-gas emission in 2005 and has
    already applied for and passed ISO14064 greenhouse-gas emission certification since 2011. The company
    started to push energy-conservation and carbon-abatement program, in 2006, especially power usage in
    the second category, which has been participated all the factories and staff units. The company has also
    established energy-conservation task force and hired experts to help with diagnosis and offer advices for the
    execution of the program.

   The company has spared no effort in pushing the “TECO GO ECO” program and shifting both industrial
   and consumer product lines towards energy conservation and warming resistance, in addition to engaging
   in the major green R&D projects of wind-power generator, hybrid car, motor for electric car and production
   of green products (such as permanent magnet & high-efficiency motors, home appliances, air conditioners,
   washing machines, and refrigerators).

4. Corporate social responsibility report of TECO
    Sustainable development for enterprise is an indispensable mindset for corporate management in the new
    century. At the time when enterprises are facing rigorous challenges, they need to rethink the direction and
    strategy for their sustainable development and manifest their management performance via corporate social
    responsibility report. The report covers information on the three major aspects of economy, society, and
    environment, so as to improve external image and help communicate with related parties. Corporate social
    responsibility report is TECO’s second time to issue nonfinancial information report, with the purpose
    of manifesting the company’s methods, achievements, and related strategies and goals of the company in
    fulfilling social responsibilities in a transparent and open manner for the social public and related parties. The
    report mainly covers various acts and performance figures concerning environmental protection, corporate
    governance, social participation, and concern for employees, clients, and consumers.




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             5. Projected capital outlay for environmental protection in the next three years
               (1) Planned procurement of anti-pollution equipment and outlays
                  i. Plans in next three years

                             2012                                  2013                                   2014


             Improvement of dust collector          Improvement of dust collector          Improvement of dust collector


             Renewal of filters for air polluant Renewal of filters for air polluant Renewal of filters for air pollutant

             Improvement of waste-water and Improvement of waste-water and Improvement of waste-water and
             peripheral equipment           peripheral equipment           peripheral equipment

             Improvement of waste gas and           Improvement of waste gas and           Improvement of waste gas and
             coating equipment                      coating equipment                      coating equipment
                                                    Improvement engineering for            Improvement engineering for
             Improvement engineering for
                                                    platform for sampling of air           platform for sampling of air
             infrared oven
                                                    pollutants                             pollutants
             Improvement engineering for            Improvement of anti-pollution
             platform for sampling of air           equipment for paint-spraying           Repair and renovation of boiler
             pollutants                             room
             Improvement of anti-pollution
             equipment for paint-spraying           Repair and renovation of boiler        Installation of T5 fluorescent light
             room

             Repair and renovation of boiler        Installation of T5 fluorescent light


             Installation of T5 fluorescent light

             Installation of energy-saving
             lights for emergent exits

             Installation of partition board for
             electric-control box


                  ii. Projected outlays (Unit: NT$ thousand)
                             2012                                        2013                                       2014
                         $ 18,297                                     $ 9,961                                    $ 9,106




   48   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                             2011
                                                                                                              Annual Re p o r t




 (2) Expected improvements
     i. Cut emission of air pollutants and waste water to the level in compliance with legal requirement.
     ii. Push cut on industrial waste by reducing output of waste materials, strengthening mechanism for the
         recycle of waste materials, implementing control for emission reduction.
     iii. Establish energy-conservation and carbon-abatement task force, which will pinpoint equipment with
          larger energy consumption and areas with higher power consumption, as well as formulate feasible
          energy conservation programs after consulting experts/scholars and push their execution, thereby
          slashing carbon emission.
     iv. Promote the reduction on emission of green house gas and dedicate to the development of energy-
          conserving environment-friendly products, to alleviate the impact on the environment and fulfill
          corporate social responsibility.
     v. Install high-efficiency power-saving lighting to enhance the efficiency of existing lighting equipment and
         adopt proper power deployment and control circuit to save power.
     vi. Improve existing fire-fighting equipment, renovate layout of pipelines, install automatic fire alarm
          system, and intensify workplace safety, so as to prevent fire loss.
     vii. Carry out risk evaluation for workplace, site review and self check system so as to assure the provision
           of a safe workplace.
     viii. Strengthen the safety of electricity box by installing partition panel and clearly indicating the position
            of usage.

6. Expected effect of improvement
  (1) Effect on net profits
      i. Avoidance of loss from fines
      ii. Avoidance of loss from suspension of operation
      iii. Avoidance of disputes for environmental pollution
      iv. Cut production cost via reduction of environmental-protection outlays, thanks to waste abatement and
           pollution prevention.
  (2) Effect on competitiveness status
      i. Augment the corporate image and meet the expectation of related parties.
      ii. Comply with the global environmental-protection trend, avoid trade barriers, and boost sales
          opportunities.

b. Failure to adopt countermeasures
      1. Failure to adopt improvement measures: Nil
      2. State of pollution: Nil
      3. Possible loss and compensation amount: Nil

C. Workplace and Protection Measures for the Personal Safety of Employees
   a. Special environmental-protection and safety/hygiene units are presented at every department, factory, and
      the headquarters.
      Specialized units and staffers are instituted to handle affairs related to environmental protection and
      safety/hygiene and practices related to safety/hygiene affairs are carried out regularly, according to legal
      requirement.




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                b. Environmental-protection and safety/hygiene training, are conducted regularly:
                   New employees and employees shifted to new positions must undertake safety/hygiene training courses,
                   whose duration and contents comply with legal requirement. Only trained personnel with necessary
                   licenses can operate dangerous machines or equipment, such as overhead traveling crane, forklift, organic
                   solvent, boiler, and high-pressure gases. Specialized staffers or technicians all must undertake retraining
                   regularly.
                c. Detection of operating environment
                   According to “Enforcement Measures for Detecting Laborers’ Operating Environment,” detect the
                   operating environment for chemical and physical elements, with the former including carbon dioxide,
                   dust particle, and organic solution, and the latter including noise and overall temperature index. Entrust
                   qualified operating-environment detecting institutions to carry out the detection periodically, to assure
                   compliance of the operating environment with law/regulation.
                d. Health care and management
                   Employee health is the largest assets of the company. Medical rooms are instituted at various departments
                   and factories. In addition to furnished with doctors for providing medical consulting, the Company also set
                   up the dedicated nurses for caring employees’ health. Organize health classes, publicize health information
                   and organize health-improvement activities. According to “rules for protection employees’ health,” the
                   company also conducts common and special physical examinations, to assure the health of employees.
                e. Fire-fighting drill and emergency-response drill for special workplaces are held regularly:
                   Ordinary fire-fighting drill takes place every half a year and covers such training items as team
                   organization, practice, response to emergency and post-accident handling. Emergency-response drill for
                   special workplaces is conducted every year, in order to train employees’ capability in handling accidents.
                f. Certification of the safety and hygiene management system and acknowledgement of its performance
                   The safety and hygiene management system of various departments and plants has passed the certification
                   of the Bureau of Standards, Metrology, and Inspection, under the Ministry of Economic Affairs, according
                   to “OHSAS 18001-2007 version” and the Council of Labor Affairs according to “TOSHMS.” Its
                   performance has also been acknowledged by the CLA.
                g. Pushing Globally Harmonized System of Chemicals
                   To highlight dangerous and hazardous substances, safety labels for materials have been installed in
                   workplaces, where updated information on the safety of materials is available as reference for employees.
                   According to revised management measures, change in raw materials and production process cannot be
                   made before the approval of management, collection of information on materials’ safety, and completion of
                   training of related employees.
                h. Continue pushing the program for checking and reducing greenhouse-gas emission
                   To cope with global climate change, the company started to push energy-conservation and carbon-
                   abatement program in 2006, especially power usage in the second category, which has been participated by
                   all the factories and staff units. The company has also established energy-conservation task force and hired
                   experts to help with diagnosis and offer advices for the execution of the program. In addition, the company
                   has been conducting check of greenhouse-gas emission since 2005 and continuing pushing statistics and
                   applying for greenhouse-gas certification of ISO 14064.




   50   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                       2011
                                                                                                        Annual Re p o r t




5.5 Labor Relations
A. The company’s various employee welfare measures, advanced study, training, and retirement system, along
   with their execution, as well as labor-management agreements and various employee-benefit protection
   measures follow:

   a. Employee welfare measures
      The company has high regard for employee welfare and work safety constantly, as evidenced by the setup
      of employee welfare committee back in 1964, which handles various employee welfare measures, so that
      employees can share the profits of the company. The company’s welfare measures follow:
   1. Employee welfares provided by the company
      (1) Marriage and funeral subsidy
      (2) Physical examination for employees
      (3) Company uniform
      (4) Dividend sharing and stock option
      (5) Year-end bonus
      (6) Retirement fund
      (7) Meal subsidy
      (8) Labor insurance, health insurance, group insurance, and accident insurance
      (9) Preferential rates for purchase of the company’s products
   2. Welfare measures provided by the employee welfare committee
      (1) Subsidy for travel, marriage, funeral, and hospitalization
      (2) Group parties
      (3) Birthday gift
      (4) Childbirth subsidy
      (5) Gifts for three major festivals
      (6) Scholarship for employees’ children
      (7) Other employee welfares

   b. Advanced study, education, and training
      The company appropriates 0.1% of its annual revenue for employee training, which is included in the
      annual corporate plan, holding regular courses on professional and management knowledge for employees
      at various positions and cultivating excellent talents with aggressive working attitude and innovative
      concept, according to training plans for various stages for their career.

     In 2011, the company held courses on executive training, common knowledge, professional capability,
     and company policy, which boasted 14,894 persons of attendance, on top of 458 persons of attendance for
     outside courses. Every employee received 21.79 hours of training on average.

   c. Retirement system and its implementation
      The company has formulated “measures for labor retirement,” in compliance with legal requirements,
      according to which the company appropriate a certain amount of fund to be deposited into a specialized
      account at the Central Trust of China for care of employees after their retirement. For employees who
      embrace labor-pension system after July 1, 2005, the company appropriates a sum equivalent to 6% of their
      monthly pays, set according to an official pay scale, to their individual accounts at the Labor Insurance
      Bureau every month.




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                d. Labor-management agreements and protection measures for employee benefits
                  The company has enjoyed harmonious labor-management relationship, thanks to open-minded
                  management style of executives and the understanding of company policy by laborers.

                  The company set up TECO employee welfare committee in April 1964, in charge of various employee
                  welfare affairs, which was followed by the establishment of TECO labor union in July, 1974. In March
                  1980, the company’s factories initiated labor-management meeting, in order to boost working efficiency,
                  improve labor conditions, and bridge the opinions of management and labor. The company has reported to
                  the regulator for the establishment of those organizations, which have been functioning normally over the
                  past years.

                  To safeguard the interests of both labor and management and assure their harmonious relationship, the
                  company signed a group contract with representatives of the labor union on December 28, 1981, which was
                  then forwarded to and approved by the regulator.

                  In 1999, the company was granted the “national good labor-management relationship business award”
                  and “exemplary labor-management meeting award” by the Council of Labor Affairs and the “good labor-
                  management relationship award” by the Taoyuan County government. In 2009, it passed the certification
                  for healthy workplace by the Bureau of Health Promotion and in 2010 it was granted the award of
                  “national manpower innovation” by the Council of Labor Affairs and “excellent award for healthy
                  workplace” by Taipei city government, in acknowledgement of the company’s effort in achieving a
                  harmonious and co-prosperous relationship between labor and management.

                e. Guidelines for employee behavior or ethics
                   1. To uphold the working order at workplace and clearly define the rights and obligations of labor and
                      management, the company has formulated “employee working rules,” which has been approved by
                      the regulator and publicized as the guidance for the company in employee management. The rules
                      set out clear regulations on employees’ position, title, employment, leave, service, salary, reward and
                      punishment, evaluation, promotion, welfare, layoff, compensation for vocational injuries, and retirement.
                   2. The company expects every employee to do his/her best to contribute to the achievement of the
                      company’s business goal and enhance his/her ethical standard. It, therefore, has formulated “behavioral
                      guidelines,” with major contents including:
                      (1) Strictly forbid employees to take, without approval of their superiors, gifts from suppliers, their
                          agents, their employees, or any individual with business relationship with the company.
                      (2) The company’s internal information (or information related to the company’s interest or business),
                          be it in the aspect of technology, finance, or business, is the company’s business secret, for which
                          employees have the obligation of confidentiality and cannot leak it to any outside party. In addition,
                          after leaving the company, employees still have to abide by the confidentiality obligation according
                          to the principle of integrity and refrain from leaking the company’s secrets or utilize them in
                          engaging in illegal competition.
                      (3) Political donation: Employees should not donate to or sponsor via other means political candidates
                          under the name of the company or its affiliated institutions.

             B. The company had not incurred any loss from labor-management dispute as of the date for the publication of
                the annual report and expects no such loss in the future.




   52   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                  2011
                                                                                                                                                    Annual Re p o r t




5.6 Important Contracts
           Agreement                     Counterparty                        Period                            Major contents                   Restrictions
1.Joint-venture contract         ROYAL Co., Ltd.                 Signed on March 1,1991          Run family-oriented restaurants in Taiwan          Nil
                                                                                                 Set up Tecnos International Consultant Co.,
                                                                                                 Ltd. for engagement in vocational training,
2.Joint-venture contract         TECHNOS Co., Ltd. and others Signed on Sep. 1, 1998             management consulting, wholesale of                Nil
                                                                                                 business machines, wholesale of information
                                                                                                 software, and international trade.
3.Patent licensing               Eastman Kodak Company           Mar. 15, 2002-Dec. 31, 2023     OLED                                               Nil
                                                                One year after the starting of
                                                                shipment, should any party
                                                                fail to notify contrary opinion
                                                                three months before the ending Rights and obligations for agency for
                                 Tecoson Industrial and others,
4. Agency contract                                              of the contract, the contract   home appliances, electric motor, and air            Nil
                                 totaling 667 companies
                                                                will be extended by one year    conditioners.
                                                                automatically, an arrangement
                                                                which will be repeated
                                                                afterwards.
                                                                                                Setup of Far Eastern ETC Co., Ltd. with
5. Joint-venture contract        Far Eastern ETC                Signed on Nov. 15, 2004         Far EasTone Telecommunications Co., Ltd.,           Nil
                                                                                                SYSTEX Corporation and MITAC Inc.
                                                                                                Setup of Qingdao TECO Century
6.Joint-venture contract         Finetec Century Corporation Signed on Dec. 18, 2007                                                                Yes
                                                                                                Refrigeration Technology Co., Ltd
                                 Great TECO Motor(PTE)
                                 Ltd., China Steel Asia Pacific                                 Setup of Qingdao TECO Precision
7.Joint-venture contract                                        Signed on Dec. 31, 2007                                                             Yes
                                 Holdings PTE Ltd. and                                          Mechatronics Co., Ltd.
                                 Marubeni-Itochu Steel Inc
8.Syndicated-loan contract       Taishin Bank and others         Jan. 28, 2008-Jan. 28, 2013     Mid-term revolving loan                            Yes
                                                               Signed the contract with the
                                                               client on Feb. 26, 2008, with the Undertake CU02 engineering work for
9. Work contract                Continental Engineering Corp.                                                                                       Nil
                                                               project scheduled for completion Taoyuan Airport Access MRT syste.
                                                               on June 15, 2014.
                                A-TECH Wind Power (Jiangxi)                                      Setup of TECO A-TECH (Wind Power) Co.,
10. Joint-venture contract                                     Signed on Sep. 10, 2010                                                              Nil
                                Co.,Ltd.                                                         Ltd.
                                Asia Renewable                                                   Landing 30 units of TFC2000 wind turbines
11. Wind Turbine Sales Contract                                Signed on May. 1, 2011                                                               Nil
                                Energy Corporation                                               from Vietnam
                                                                                                 Undertake electric-machinery engineering for
12. Construction contract       Chung-Lu Construction Co.,Ltd. Signed on June 10, 2011           the BOT (build-operate-transfer) project of        Nil
                                                                                                 “Songshan tobacco plant cultural park.”
                                                                                                 Undertake the construction of the
13. Work contract               Li Jin Engineering Co.,Ltd.    Signed on Aug. 5, 2011                                                               Nil
                                                                                                 headquarters building of Hua Nan Bank.




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             VI. Financial Information
             6.1 Five-Year Financial Summary
             6.1.1 Condensed Balance Sheet
                                                                                                              Unit: NT$ thousand
                                        Year                    Five-Year Financial Summary                       Year-to-date
                                                                                                                   2012.3.31
             Item                                 2007         2008         2009         2010         2011          (Note 2)
             Current assets                     15,330,987   15,139,663   12,014,298   12,233,833   15,077,804     13,065,257
             Funds & Long-term
                                                35,949,393   34,351,199   36,677,573   37,390,876   38,932,580     39,462,860
             investments
             Fixed assets                        3,740,816    4,125,458    3,717,337    3,487,379    3,539,116      3,550,565
             Intangible assets                    317,552      171,434      126,333       81,232        36,131         36,131
             Other assets                        2,775,744    2,666,831    2,774,507    2,476,630    2,296,432      2,265,420
             Total assets                       58,114,492   56,454,585   55,310,048   55,669,950   59,882,063     58,380,233
                                 Before
                                                 9,954,170   10,391,993    6,593,727    7,810,702    9,204,638      7,726,640
             Current             distribution
             liabilities         After
                                              12,134,274     11,303,576    7,596,491    9,279,193    Note 1          Note 1
                                 distribution
             Long-term liabilities               9,301,155   11,409,324   11,849,900   10,699,790   11,948,671     11,199,348
             Other liabilities                   1,853,409    1,361,998    1,313,486    1,349,296    1,541,809      1,544,569
                                 Before
                                              21,214,913     23,269,494   19,863,292   19,965,967   22,801,297     20,576,736
                                 distribution
             Total liabilities
                                 After
                                              23,395,017     24,181,077   20,866,056   21,434,458    Note 1          Note 1
                                 distribution
             Capital stock                      19,105,779   18,231,659   18,231,659   18,313,129   18,388,019     18,437,009
             Capital surplus                     5,925,095    5,769,153    5,818,896    5,832,183    5,764,454      5,686,656
                                 Before
                                                 6,909,578    6,563,413    7,608,927    9,097,849   10,412,568     10,973,758
             Retained            distribution
             earnings            After
                                                 4,729,474    5,651,830    6,606,163    7,629,358    Note 1          Note 1
                                 distribution
             Unrealized gain or loss on
             financial                           1,877,546    (647,994)     355,696      (28,538)    (789,841)      (440,077)
             instruments
             Cumulative translation
                                                 1,083,512    1,158,985    1,191,466     248,393     1,081,867        922,452
             adjustments
             Net loss unrecognized as
                                                  (37,137)    (178,386)     (68,895)     (68,040)     (85,308)        (85,308)
             pension cost (Note 1)
                                 Before
             Total                            36,899,579     33,185,091   35,446,756   35,703,983   37,080,766     37,803,497
                                 distribution
             shareholders’
             equity              After
                                              34,719,475     32,273,508   34,443,992   34,235,492    Note 1          Note 1
                                 distribution
             Note 1: Earnings distribution has not yet to be approved by shareholders’ meeting.
             Note 2: Financial data as of March 31, 2012 had been audited by certified public accountants.




   54   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                  2011
                                                                                                                     Annual Re p o r t




6.1.2 Condensed Statement of Income
                                                                                                     Unit: NT$ thousand

                              Year                   Five-Year Financial Summary                              Year-to-date
                                                                                                               2012.3.31
                                        2007        2008            2009          2010             2011
Item                                                                                                            (Note 1)

Operating revenue                    27,858,345 28,871,715 22,210,105 23,244,789 25,798,135                     6,261,170
Gross profit                          4,087,656    4,540,286      4,140,657      4,447,422      4,700,215       1,197,695
Income from operations                  891,139     916,407         816,021       978,079       1,182,535         401,386
Non-operating income                  3,178,635    1,987,625      2,138,293      2,270,060      2,204,399         364,015
Non-operating expenses                1,051,521    1,202,418        890,861       435,072         527,838          119,226
Income from operations of
                                      3,018,253    1,701,614      2,063,453      2,813,067      2,859,096         646,175
continued segments - before tax
Income from operations of
continued                             2,708,876    1,833,939      1,957,096      2,491,686      2,783,210         561,190
segments - after tax
Income from discontinued
                                               -            -                -           -                -                 -
departments
Extraordinary gain or loss                     -            -                -           -                -                 -
Cumulative effect of accounting
                                               -            -                -           -                -                 -
principle changes
Net income                            2,708,876    1,833,939      1,957,096      2,491,686      2,783,210         561,190
Earnings per share                         1.46         1.00           1.09           1.38            1.54            0.31
Note 1: Financial data as of March 31, 2012 had been audited by certified public accountants.


6.1.3 Auditors’ Opinions from 2007 to 2011


    Year                     CPA Firm                           CPA's Name                        Auditing Opinion

    2007       PricewaterhouseCoopers, Taiwan       Wen-Hong Kao, Ping-Chiun Chih            Modified Unqualified Opinion

    2008       PricewaterhouseCoopers, Taiwan       Wen-Hong Kao, Ping-Chiun Chih            Modified Unqualified Opinion

    2009       PricewaterhouseCoopers, Taiwan       Ping-Chiun Chih, Wen-Hong Kao            Modified Unqualified Opinion

    2010       PricewaterhouseCoopers, Taiwan       Ping-Chiun Chih, Audrey Tseng            Modified Unqualified Opinion

    2011       PricewaterhouseCoopers, Taiwan       Ping-Chiun Chih, Audrey Tseng            Modified Unqualified Opinion




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             6.2 Five-Year Financial Analysis

                                                                  Year          Financial analysis in the past five years
                                                                                                                                    Year-to-date
                                                                         2007         2008       2009        2010           2011     2012.3.31
             Item
             Financial       Ratio of liabilities to assets               36.58        41.23      35.91       35.89         38.08        35.25
             structure (%)   Ratio of long-term capital to fixed assets 1,235.04 1,080.96 1,272.33 1,330.62 1,385.36                  1,380.14
                             Current ratio                               153.63      145.65      182.21     156.49      163.81          169.09
             Solvency (%)    Quick ratio                                  94.84        94.77     117.99       100.2     102.46          109.17
                             Times interest earned ratio                  12.35         6.91      12.46       36.52         28.24        21.97
                             Accounts receivable turnover (turns)          4.52         4.64        3.71       4.95          4.49         4.36
                             Average collection period                    80.82        78.63      98.33       73.77         81.33        83.62
                             Inventory turnover (turns)                    6.03         6.19        4.46       5.19          4.98         4.87
             Operating
                             Accounts payable turnover (turns)             4.48         4.47        3.94       4.20          4.01         4.18
             ability
                             Average days in sales                        60.54        59.01      81.92       70.38         73.27        74.98
                             Fixed assets turnover (turns)                 7.38         7.34        4.97       6.18          6.75         6.58
                             Total assets turnover (turns)                 0.48         0.50        0.35       0.40          0.41         0.40
                             Return on total assets (%)                    4.99         3.64       3.74        4.61          4.97         4.11
                             Return on stockholders' equity (%)            7.31         5.23       5.70        7.00          7.65         6.07
                             Ratio to issued       Operating income        4.66         5.37       4.48        5.35          6.44         8.74
             Profitability
                             capital (%)            Pre-tax income        15.80        10.78      11.32       15.40         15.56        14.06
                             Profit ratio (%)                              9.72         6.35      10.04       11.18         11.74         9.76
                             Earnings per share ($)                        1.44         1.00       1.09        1.38          1.54         1.24
                             Cash flow ratio (%)                             19        18.17      62.81       27.89         14.63        31.41
             Cash flow       Cash flow adequacy ratio (%)                 61.71        68.94      89.02       72.24          83.8        71.88
                             Cash reinvestment ratio (%)                   1.07         0.05       5.70        2.11         -0.21         1.21
                             Operating leverage                            5.72         5.68       5.97        5.35          4.81         3.45
             Leverage
                             Financial leverage                            1.43         1.52       1.28        1.09          1.10         1.08
            Explain reasons for changes in various financial ratios in the recent two years:
            1. Decrease in times interest earned ratio:mainly resulting from the increase of short-term borrowings, which increases interest
               expenses.
            2. Decreasing case flow ratio comparing to Y2010:mainly because the cash flow from operation in Y2011, NTD 1.347 billion, is
               NTD 0.836 billion lower than the figure of Y2010.
            3. Decreasing cash reinvestment ratio comparing to Y2010:mainly because the decrease in net cash inflow of operation and
               increase in cash-dividend payout in Y2011 compared with the figure in Y2010.




   56   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                           2011
                                                                                                            Annual Re p o r t




6.3 Supervisors’ Inspection Report in the Most Recent Year


                            TECO Electric & Machinery Co., Ltd.
                                 Supervisors’ Inspection Report

                       (This English version is only a translation of the Chinese version.)




To: General Shareholders Meeting 2012

The undersigned having duly inspected and approved the business report, financial statements for 2011 and the
proposed profit distribution plan prepared and proposed by the Board of Directors, with the financial statements
having been audited and certified by Certified Public Accountants Chih Ping-Chiun and Audrey Tseng with
Pricewaterhouse Coopers with the Independent Auditor’s Report Produced, hereby submit this report pursuant to
Article 219 of the Company Act.




                                                        Resident Supervisor: Tong Shung Wu




                                                        Supervisor: Hsin-Yi Lin




                                                        Supervisor: Bo Yuan Wang




                                                                                              Date: March 20, 2012




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             VII. Review of Financial Status, Operating Results,
                  and Risk Management
             7.1 Analysis of Financial Status
                                                                                                                                             Unit: NT$ thousand
                                                     Year                                                                  Difference
                                                                 2011.12.31                2010.12.31                                                   Remark
             Item                                                                                                     Amount                  %
             Current Assets                                      $15,077,804               $12,233,833                $2,843,971             23          Note 1
             Fixed Assets                                          3,539,116                 3,487,379                     51,737             1
             Other Assets                                          2,296,432                 2,476,630                 (180,198)             (7)
             Total Assets                                         59,882,063                55,669,950                 4,212,113              8
             Current Liabilities                                   9,204,638                 7,810,702                 1,393,936             18
             Long-term Liabilities                                11,948,671                10,699,790                 1,248,881             12
             Total Liabilities                                    22,801,297                19,965,967                 2,835,330             14          Note 2
             Capital stock                                        18,388,019                18,313,129                     74,890             -
             Capital surplus                                       5,764,454                 5,832,183                   (67,729)            (1)
             Retained Earnings                                    10,412,568                 9,097,849                 1,314,719             14          Note 3
             Total Stockholders' Equity                           37,080,766                35,703,983                 1,376,783              4
             Note 1: Increase on Current assets: Due to parts of the constructions in process in the year were close to the completion.
             Note 2: Increase on Total liabilities: Increased long-term borrowings to enhance investment in core business and obtain stable capital resources.
             Note 3: Increase on Retained earnings: Due to large-scale increase in profit in the year than the previous year.


             7.2 Analysis of Operating Results
             7.2.1 Analysis of Operating Results
                                                                                                                                             Unit: NT$ thousand
                                                      Year                                                              Difference
                                                                     2011                  2010                                                       Remark
              Item                                                                                             Amount                  %
             Gross Sales                                          26,845,420             24,114,617
             Less: Sales Returns & Allowances                    (1,047,285)              (869,828)
             Net Sales                                            25,798,135             23,244,789           2,553,346                11
             Cost of Sales                                      (21,099,038)           (18,814,730)         (2,284,308)               (12)
             Gross Profit                                          4,699,097              4,430,059             269,038                 6
             Realized(Unrealized) Profit from
                                                                         1,118                17,363
             Intercompany Transactions
             Gross Profit - Net                                    4,700,215              4,447,422             252,793                 6
             Operating Expenses                                  (3,517,680)            (3,469,343)             (48,337)               (1)
             Operating Income                                      1,182,535                978,079             204,456                21              Note 1
             Non-operating Income and Gains                        2,204,399              2,270,060             (65,661)               (3)
             Non-operating Expenses and Losses                     (527,838)              (435,072)             (92,766)              (21)             Note 2
             Income Before Tax                                     2,859,096              2,813,067               46,029                2
             Tax Benefit (Expense)                                   (75,886)             (321,381)             245,495                76              Note 3
             Net Income                                            2,783,210              2,491,686             291,524                12              Note 4
             Analysis and explanation for changes:
             1. Demand for motor increased and home appliances and system automation department both racked large growth. Meanwhile, thanks to increased
                added value for products resulting from R&D effort, Gross Profit – Net increased. Effort in cutting cost, reducing expenses, and exercising budget
                control further dampened Operating Expenses, leading to increase in Operating Income.
             2. The main reason is from impairment loss.
             3. The main reason is provisional different in income tax resulting from net change in deferred income-tax assets (liabilities).
             4. Overall speaking, the net profit in the year increased.


             7.2.2 Change in gross profit: No need of analysis since the change is less than 20%.


   58   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                           2011Annual Re p o r t




7.3 Analysis of Cash Flow

7.3.1 Cash Flow Analysis for the Current Two Years
                                             Year
                                                             2011                        2010                Variance (%)
Item
Cash Flow Ratio (%)                                         14.63                        27.89                  -47.54
Cash Flow Adequacy Ratio (%)                                    83.8                     72.24                  16.00
Cash Reinvestment Ratio (%)                                  -0.21                       2.11                      -
Analysis and explanation for changes in ratios :
1. In 2011, cash flow ratio declined than 2010, due to decrease of net cash flow from operation activities to NT$1.347 billion,
   NT$0.836 billion lower than 2010’s NT$2.183 billion.
2. In 2011, net cash flow adequacy ratio increased than 2010, due to net cash flow in the recent five years increased.
3. In 2011, cash investment ratio declined than 2010, due to decrease in net cash inflow from operation and increased cash-
   dividend payout.



7.3.2 Cash Flow Analysis for the Coming Year
                                                                                                             Unit: NT$ thousand
  Cash and Cash           Estimated Net                                                    Remedy for Cash Deficit
                                                                        Cash Surplus
   Equivalents,             Cash Flow          Estimated Cash
                                                                          (Deficit)
 Beginning of Year       from Operating       Outflow (Inflow)(3)                    Investment Plans Financing Plans
                                                                         (1)+(2)-(3)
        (1)                Activities(2)
       2,613,623            1,743,278               2,256,613             2,100,288              -                     -
1. Analysis of change in cash flow in the current year :
   (1) Operation activities: In view of slow economic recovery in Europe and the U.S., continuing rise in crude-oil prices, and
       conservative global consumption, the company still harbors a cautious outlook for sales and profits. However, thanks to
       steady growth of core business, business activities in the current year can still generate net cash inflow.
   (2) Investment activities: To expand core business, the company will adjust investment plan according to economic status
       and continue review long-term equity investment outside core business, for disposal at proper timing, so as to generate
       profits to support core-business investment. Investment activities are expected to continue generate net cash outflow
       this year.
   (3) Financing activities: Since cash inflow from operation and self-owned capital will be used to repay bank borrowings, it is
       expected that financing activities in the coming year will generate net cash outflow.


2. Remedy for Cash Deficit and Liquidity Analysis: Not Applicable

7.4 Major Capital Expenditure Items

7.4.1 Major Capital Expenditure Items and Source of Capital
                                                                                                             Unit: NT$ thousand
                                           Actual or                                  Actual or Expected Capital Expenditure
                      Actual or Planned
       Project                          Planned Date of           Total Capital
                      Source of Capital                                                 2010          2011         2012~2013
                                          Completion
2010 Capital
Expenditure –           Working Capital        2010/12/31              183,859         183,859                             -
Equipment Renewal
2011 Capital
Expenditure –           Working Capital        2011/12/31              385,251            -          221,421
Equipment Renewal
2012 Capital
Expenditure –           Working Capital       2012/12/31               487,070            -             -              487,070
Equipment Renewal




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             7.4.2 Expected Benefits

             In addition to increasing the output of industrial products and home appliances, the above equipment renewal
             projects are expected to help reduce production costs and improve the quality of products.

             7.5 Investment Policy in Last Year, Main Causes for Profits or Losses,
                 Improvement Plans and the Investment Plans for the Coming Year

             A. Equity Investment Policy
                In line with changes in domestic and global economies, as well as the current of energy conservation and
                alternative energy in public construction and infrastructural engineering, the company focuses its new equity
                investment on its core businesses of heavy electrical equipment and home appliances, as well as wind-power
                generator industry.

             B. Major reasons for profits or loss:
                The company listed NT$1,656,739,000 of investment returns on the basis of equity method in 2011,
                NT$1,765,514,000 in 2010 and NT$1,179,968,000 in 2009 respectively. It mainly came from increased
                profits generated by investments in industrial mortors business.

             C. Investment plan for the next year
                In the coming one year, investments will focus on core business, with major projects including investment in
                the factory for the assembly of wind-power turbines in China, and continue seeking opportunities to further
                integrate electric-machinery sales channels in Chinese and overseas markets.



             7.6 Analysis of Risk Management

             7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on
                   Corporate Finance, and Future Response Measures

             A. Interest policies differ in major regions in the world. The U.S., Japan, Europe, and the U.K. all embrace non-
                traditional quantitative easing policy to bolster economic growth; emerging markets, such as India and Brazil,
                cut interest rates to cope with inflationary pressure. With the annual increase rate of CPI in China dropping
                to 4% in February, the market expects China to cut interest rates to support economic growth. Driven by oil-
                price and power rate hikes, Taiwan has resorted to higher interest rate and currency appreciation to dampen
                import-driven inflation. The Central Bank of China continues to mop up idle fund in the market via open
                market operation, boosting the lending cost of NT-dollar loans. The company has made proper adjustment
                in NT-dollar and foreign-currency positions timely, so as to lower interest rate payment. In addition, it has
                constantly revised its loaning strategy, in conformance to market changes.

             B. Due to prolonged European-debt crisis and the 2nd operation twist of the U.S., global funds flow to emerging
                markets, driving up the exchange rate of the NT dollar. The company embraced a natural hedging strategy via
                change in assets and liabilities, and carried out substantial risk hedging via trading in forward forex. In the
                future, the company will monitor changes in forex market more closely and undertake risk-hedging moves in
                a steady manner, so as to cut fluctuation of exchange rates on the company’s profits.




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C. Owing to oil embargo for Iran and the democratic movement in North Africa, crude-oil supply drops, which,
   plus gradual recovery of the global economy, prevents sharp decline in the prices of raw materials. However,
   they didn’t affect the company’s profits, since the company procures metallic materials mostly via negotiation
   according to contracts. However, it is expected that inflation will rise again after economic recovery. In the
   future, the company will continue carefully evaluate the trend of basic-metal prices and former the optimal
   procurement strategy according to the business need.

D. As the global economy has yet to recover fully, the company will closely monitor change in interest rate,
   exchange rate, and inflation, as well as its effect on the company’s income, thereby embracing adequate risk-
   hedging measures timely.



7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect
      to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees,
      and Derivatives Transactions

A. The company abstains from high-risk and high leveraged investments.

B. In 2011, the company didn’t extend loan.

C. In 2011, the outstanding amount of the endorsement and guarantee extended by the company reached
   NT$822,995,000, for the company’s subsidiaries, affiliates, and business partners. Since the company retains
   majority seats on the board of directors of its subsidiaries and appoints their management, it has absolute
   control and grasp of their operations, slashing the risk of endorsement and guarantee for them. In addition, the
   company regularly gets hold of its subsidiaries’ financial statement and business status data for analysis of its
   profit level and evaluation of the risk for endorsement and guarantee, enabling it to embrace measures to cut
   risk in advance. In recent years, these subsidiaries gained steady profit growth, gradually lowering the risk of
   endorsement and guarantee extended by the company.

D. In 2011, derivatives held by the company were mainly exchange-rate and interest-rate swaps, whose
   corresponding traders were mainly international financial institutions with outstanding credit. In addition,
   the company traded with many financial institutions to diversify risks, minimizing the possibility for default.
   Therefore, credit risk for the company in derivatives trading is very low. Moreover, derivatives held by the
   company are mainly for the purpose of risk hedging and the ensuing income/loss can be offset by the income/
   loss in the risk-hedging category, minimizing the market risk.

E. The company has formulated a number of investment guidelines for cutting risk, including “Procedure for
   the Acquisition and Disposal of Assets,” “Procedure for Lending Capital to the Others,” “Procedure for the
   Endorsement and Guarantee,” and “Procedure for the Trading and Disposal of Derivatives.”




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             7.6.3 Future Research & Development Projects and Corresponding Budget

             TECO derives its growth momentum from R&D. In the wake of the launch of the “seven star” plan, from 2010
             the company pooled the R&D strength and marketing experience of its R&D units in Taiwan, the U.S. and
             China, and cooperated with industrial, government, and academic units in stepping into the sector of green
             energy. The company has initiated a number of key R&D projects in the aspects of wind-power generation,
             PV inverter, rare-earth permanent magnet motor, and in-wheel motor. For the R&D of new technologies and
             new products in the medium- and long-term and the short-term business need of the improvement in price-
             performance ratio, the TECO R&D team has been actively cultivating its technological strength via the
             search of external resources, such as technological consultation, cooperation, and transfer. On the basis of
             existing core technologies, such as electric-machinery control and design, electronic control and design, and
             information/communications technology, integrate new market needs, industrial specifications, new-materials
             application, sensor-application technology, wireless-network technology, and green-industry technology, thereby
             coordinating overall R&D strategy and technological planning.

             The company formulates its future R&D plan on the following bases:
             A. Grasp and analysis of industrial development, government policy, and market trend;
             B. The establishment and rooting of key technologies;
             C. Competitiveness relative to rivals in Europe, the U.S., and Japan;
             D. Global market positioning and technological integration;
             E. Grasp of R&D progress and quality.

             Therefore, in 2012 TECO will dedicate to the R&D of:
             A. High-efficiency motor
             B. Low energy-consumption inverter refrigerator
             C. Permanent-magnet four-wheel in-wheel motor and drive
             D. Permanent-magnet two-wheel in-wheel motor and drive
             E. All series wind-power generator and drive
             F. Medium-voltage inverter
             G. Communication application softwares for smart phone
             H. Recognition technology for equipment operation, environment and electrical parameters.

             The goal is to develop products conforming to new European specifications in the existing market, seek high
             value-added innovative applications in existing sales channels, and strive for commercialization of emerging
             technologies and new market opportunities.

             The company’s general research institute oversees the overall R&D strategy, technology deployment and
             ongoing product R&D, with an eye on technological deployment and product development in short-, medium-,
             and long-term, including:




   62   TECO ELECTRIC & MACHINERY CO., LTD.
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 Term of R&D                Focus                                             Major R&D items
                                                High-performance servo motor and drive
                                                Inverter DD washing machine
                                                Super premium motor
                                                Permanent-magnet motor and drive
                                                Control for servo system

               Develop new-product              High rotational-speed motor
               application market, Enhance      Multi-unit commercial-use package air conditioning unit
Short-term     performance of existing
               products & Enhance product       Technology of sinusoidal sensorless drive
               profitability and market share   Servo parameter automatic adjusting technology
                                                Net TV
                                                Roof energy development technology
                                                Wind-power LVRT technology
                                                (HEV) HEV (hybrid electric vehicle) motor and drive
                                                Energy-saving inverter refrigerator
                                                Medium- and high-voltage inverter
                                                Advanced inverter technology
                                                Large high-efficiency motor (FSR)
               Accumulation of core             Hydraulic motor for hybrid injection molding machine
               technological strength
Mid-term                                        R&D of wind-power technology
               & Development of new
               technological strength           Application technology of digital home in smart phone
                                                Remote monitoring technology of motor and generator
                                                Internet-related technology for system automation products
                                                Commercial air-conditioning for train
                                                Rare-earth in-wheel motor and drive for electrical vehicle
                                                Super-conductivity motor and generator
                                                R&D for new-generation digital home appliances systems
               Deployment in new business
Long-term                                       Micro-electric system in large high-efficiency power system
               scope
                                                R&D for new-generation industrial servo system
                                                Regional market oriented R&D for industrial technology
                                                R&D for integrated and innovative technology


7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to
      Corporate Finance and Sales

None




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             7.6.5 Effects of and Response to Changes in Technology and in Industry Relating to
                   Corporate Finance and Sales

             In line with the social trend of fewer offspring and advanced age, as well as the need of green energy, the
             company has taken into account the global development trend, own technological strength, and growth potential
             of related industries. Therefore, in addition to strengthening its technological edges of high-performance motor,
             application of environment-friendly coolant in home appliances, and energy-saving frequency-variable products,
             the company added the R&D of rare-earth permanent-magnet electric machinery, gave an impetus to InnoCup
             rewards, formulated three-year technological development roadmap for several aspects, and maps out their
             achievement strategy and timetable since 2011.

             In green energy, there include in-wheel motors for electric vehicles, wind-power generators, PV inverters and
             green home appliances.

             From 2012, adding the software development for applications in digital home-related home appliances and smart
             phones, cooperation with mobile-communications carriers, clean-energy control and security products for digital
             homes, strengthened technological cooperation with affiliates, active pursuit of technological cooperation with
             foreign firms, and accumulation of R&D strength, so as to meet the long-term need of the society.

             7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and
                   the Company’s Response Measures

             The company has been pursuing sustained growth via “pluralized management” and “global deployment,” and
             has been striving to project a quality corporate image for a globalized group by manifesting in-depth social care
             via TECO Foundation and rigorous demand for quality and service. The company’s crisis management plan
             covers its production bases worldwide and has helped the company respond properly to the ordeal of major
             incidents in recent years, thanks to the company’ constant effort in fostering crisis-management capability. In the
             future, the company will continue simulating the outbreak of major incidents and formulate response plans, in
             order to safeguard the interests of shareholders.

             7.6.7 Expected Benefits from Risks Relating to and Response to Merger and Acquisition
                   Plans

             A. Benefits for Acquiring Taitec Technology Co., Ltd.

             (1) The acquisition of Taitec Technology Co., Ltd. is based on the consideration of management strategy, in order
                 to strengthen the completeness of the product lineup of the Power Business Group. The incorporation of
                 Taitec Technology Co., Ltd.’s GIS technology resources and the experience of its engineering department can
                 facilitate the pushing of engineering business and the solicitation of business opportunities related to private
                 high-voltage grid market.
             (2) The incorporation of Taitec into TECO group can lead to effective utilization of TECO’s resources. In
                 addition to the intensified discussion with Toshiba of Japan in lowering the cost of GIS, the move can bolster
                 the effort in exploring domestic and foreign suppliers, thereby enhancing the competitiveness of high-voltage
                 GIS products.




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                                                                                                            Annual Re p o r t




B. Benefits for Acquiring An Yang Electric Co., Ltd.
(1) The acquisition of An Yang Electric Co., Ltd. by the equipment department leads to the integration of
    the production and sales of switchboards, boosting the overall operating efficiency of the equipment
    department. The merger of the production/R&D units of both parties leads to the optimal deployment of
    technical manpower for the innovation and improvement of equipment, thereby enhancing the quality and
    competitiveness of products.
(2) Thanks to the advantageous conditions of TECO group for procurement and finance, the incorporation of
    the production of switchboard into the equipment department can boost the clout of price negotiation with
    suppliers, thereby lowering product cost and boosting business competitiveness.

C. Expectation for Improved Benefits
After the merger, the operating scale expands and the product lineup becomes more complete, boosting the
capacity for order reception. The merger can lead to steady growth in sales and profits, creating a synergy effect,
which will become increasing apparent in the coming years.



7.6.8 Expected Benefits from Risks Relating to and Response to Factory Expansion Plans

The Company has no ongoing factory expansion projects.

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources
      and Excessive Customer Concentration

A. Of the company’s suppliers, only one, TESEN Electronic Co., Ltd., accounts for over 10% share in the latest
   year, which, however, poses no risk for the company’s in the control of input supply, since TESEN is 100%
   owned by the company.
B. Of the company’s customers, only one, TECO-Westinghouse Motor Co., Ltd., accounts for over 10% share
   in the company’s sales in the latest one year, thanks to the phenomenal growth of motor sales in America.
   TECO-Westinghouse, however, is a 100%-owned subsidiary of the company, which has absolute control of its
   operation. In addition, its shares in the company’s sales both reached 10% in the recent two years, which are
   not very high, giving no reason for concern for sale concentration.

7.6.10 Effects of Risks Relating to and Response to Large Share Transfers or Changes
       in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of
       over 10%

The company doesn’t have a shareholder with over 10% of shareholding and there is no massive share transfer or
swap among the company’s directors and supervisors in the latest year.

7.6.11 Effects of Risks Relating to and Response to Changes in Control over the
       Company

None




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             7.6.12 For litigation and non-litigation cases, specify the company and directors,
                    super visors, president, chief executive, and major shareholders with over
                    10% of shareholding, as well as affiliates. For major litigation, non-litigation, or
                    administrative disputes with major effects on the interests of shareholders or stock
                    prices, disclose the facts, target value, starting dates for litigation, major parties
                    involved, and the status of the cases up to the publication of the yearbook:

             None

             7.6.13 Other Major Risks

             None




   66   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                           2011
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VIII. Special Disclosure
8.1 Summary of Affiliated Companies
8.1.1 Chart of Affiliated Companies
                92.63%                                       100%                                    100%
                         Tong Tai Co., Ltd.                          Tasia (PET) Ltd.                       Sankyo Co., Ltd.

                60.00% Great TECO Whirlpool                                                          100% TECO Technology &
                       Co., Ltd.                                                                          Marketing Center Co., Ltd.
                64.95%                                      68.03%
                         Yatec Engineering Corp.                     Taiwan Pei Li Tone Co., Ltd.

                  100% TECO Electric Europe                  100% TECO Capital Investment
                       Ltd.                                       Co., Ltd.
                                                                                                     100%
                  100% TECO International                    100% TECO Capital Investment                   Qingdao TECO
                       Investment Co., Ltd.                       (SAMOA) Co., Ltd.                         Innovative Co., Ltd.
                                                   0.20%
                99.60% Tong An Investment                   50.00% Jack Property Service &
    TECO               Co., Ltd.                                   Management Company
                                                            30.00%
  Electric &                                        0.20%
  Machinery                                                        Tecoson Industrial                100% Tecoson HK Co., Ltd.
   Co., Ltd     86.67% A-OK Technical Co., Ltd              70.00% Development

                                                             100% Asia Air Tech                      100% TECO (Dong Guang) Air              50% Ecolectric
                                                                  Industrial Co.,Ltd                      Conditioning Equipment                 International Co., Ltd.
                  100% U.V.G.Investment
                       Co.,Ltd                               100%
                                                                     Great Teco, S.L.
                  100% Tesen Electric &                     99.99% TECO Australia Pty. Ltd.          100% TECO (New Zealand)
                       Machinery Co., Ltd.                                                                Limited
                76.70% Taian (Subic) Electric                100%                                    100% Suzhou TECO Electric &
                       Co., Ltd.                                     Great Teco Motor (PTE) Ltd.
                                                                                                          Machinery Co., Ltd.
                84.73% Taian-Etacom                          100% TECO Industrial ( Malaysia)       82.35% Wuxi TECO Electric &
                       Technology Co., Ltd.                       Sdn. Bhd.                                Machinery Co., Ltd.
                                                                                                                                        15%
                  100% GD TECO Taiwan Co.,                   100% P.T TECO Elektro Indonesia        76.67% Jiangxi TECO Electric &
                       Ltd.                                                                                Machinery Co., Ltd.

                60.00%
                         Tong Tai Jung Co., Ltd.
                                                             100% Teco Electric & Machinery         85.31% QingDao TECO Precision
                                                                  B.V.                                     Mechatronics Co., Ltd.

                                                             100% Asia Electric&Machinery            100% Fujian TECO Precision
                                                                  (PTE) LTD.                              Co., Ltd.
                                                    10%
                   90% TECO Electric &                       100% Tong Yuan Electronic               100% TECO Group Science-
                       Machinery (Pte) Ltd.                       &Machinery Sdn.Bhd.                     Technology (Hang Zhou)
               100.00% An Tai International                 87.50% P.T Teco                          100% Nasnchang Dong-Huan
                       Investmet Co., Ltd.                         Multiguna Electro                      Management & Consulting

                                                              55% Teco Electronic & Machinery        100% NanchangTECO Electric &
                                                                  (THAI) Co.,Ltd.                         Machinery Co., Ltd.
                                                   10.76%
                57.52% Tecnos International                  100% STE Marketing SDN. BHD.            100% Xiamen TECO Technology
                       Consultant Co., Ltd.                                                               Co., Ltd.
                                                   19.20%
                19.20% An-Sheng Travel Co.,                   60% Teco (Vietnam) Electronic &         50% Qingdao TECO Century
                       Ltd.                        19.20%         Machinery Company Ltd.                  Advanced High-tech
                                                   19.20%
               100.00% Taian Electric Co., Ltd.              100% TYM Electric and                   100% Asia Innovative
                                                                  Machinery Sdn. Bhd.
                                                                                                          Technology Co., Ltd.
                99.99% TECO Appliance (HK)                   100%                                    100% Tianjin TECO
                       Co., Ltd.                                     Antech Automation Corp.
                                                                                                          Technology Co., Ltd

                95.00% Taian-Jaya Electric Sdn,             49.99% Hubbell-Taian Co., Ltd.           100% Jiangxi TECO
                       Bhd.                                                                               AirConditioning Equipment
                                                                                                          Co., Ltd
                60.00% TECO (PHILIPINES)                     100% Hubbell-Anmex
                       3C & APPLIANCES, INC.                      International(s) Pte.Ltd


                  100% TECO Holding USA Inc.                 100% TECO Westinghouse Motor
                                                                  Industrial Canada
               100.00% Titco International
                       Corporation
                78.63%                                       100% TECO Westinghouse Motor            100% Teco Westinghouse Motor
                         Media Vision Inc.                        Company                                  Company S. A. de C. V.
                                                    1.51%
                62.57% TECO Electro Devices                  100% Teco Electronic Devices            100% Taichang TECO Electro
                       Co., Ltd.                                  Co.,Ltd.                                Device Co.

                79.37% E-Joy International Co.,
                       Ltd.

                  100% Micropac(BVI)Worldwide                100% An-Tai International               100% Tai-An Technology
                                                                  Investment (Singapore) Co.,             (Wuxi) Co., Ltd.
                                                                  Ltd.
                66.85% Taian (Malaysia) Electric
                       Sdn. Bhd.                                                                                                                 Teco Sichuan
                                                                                                                                            100% Trading Co., Ltd.
               100.00% TECO Technology                       100%
                                                                     Universal Mail Service Ltd.
                       (Vietnam) Co., Ltd.
                                                    0.42%
                60.62% Information Technology                100%
                       Total Service Co., Ltd.                       Unison Service Corporation
                                                   10.26%                                            100%
                                                             100% Information Technology                    Information Technology Total
                       Tong-An Asset                                                                        Service (Hang Zhou) Co., Ltd.
               100.00% Management                                 Total Service (BVI) Co., Ltd.
                       & Develoement Co., Ltd.                                                       100% Information Technology                  Information Technology Total
                                                    1.09%                                                 (Wuxi) Co., Ltd.                   100% Service (Xiamen) Co., Ltd.
                49.37% Taiwan Pelican Express
                       Co.,Ltd.
                                                   10.66%
                                                             100% Pelecanus Express Pte. Ltd.        100% Beijing Pelican Express
                                                                                                          Co., Ltd.

                                                            54.83% GreyBack International
                                                                   Property Inc.




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        8.1.2 Information Regarding Affiliated Companies
                                                                                                                              Unit: NT$ thousand
                                                                    Date of       Paid-in
                                    Company                                                                      Major Business
                                                                 Incorporation    Capital
        Tong Dai Co., Ltd.                                          1972.06       57,120    Sales of Motors
        Great TECO Whirlpool Co., Ltd.                              1970.07      199,000 Distributor of Whirlpool Home Appliances
        TECO International Investment Co., Ltd.                     1989.06      477,000 Investment Activity
        TECO Holding USA Inc.                                       1995.03      808,568 Investment and Trading in USA
                                                                                         Sales of Motors in Singapore and Other Countries
        TECO Electric & Machinery (Pte) Ltd. Singapore              1972.09      186,480
                                                                                         Nearby
        TECO Electric Europe Limited                                1992.03      210,285 Sales of Motors in Europe
        Tong-An Assets Management & Development Co., Ltd.           1997.07      993,444 Real Estate Business
        Tong-An Investment Co., Ltd.                                1998.08      3,603,600 Investment Activity
        TECO Electro Devices Co., Ltd.                              1998.03      245,926 Manufacture of Stepping Motors
        Tecnos International Consultant Co., Ltd.                   1998.06       50,000    Business Consulting and Human Resource Services
        Tong Tai Jung Co., Ltd.                                     1996.04       66,000    Sales of Motors
        United View Investment Co., Ltd. (UVG)                      1999.08      6,811,453 Investment Holding Company
        Information Technology Total Services Co., Ltd.             1990.12      199,990 Sales of Software
        Tesen Electric & Machinery Co., Ltd.                        2001.03      200,000 Manufacture of Home Appliance
        GD TECO Taiwan Co., Ltd.                                    2002.02      224,000 Sale agent of telephone card and IC chip
        Yatec Engineering Corporation                               1993.01      120,100 Electric System Development and Service
        Taian (Subic) Electric Co., Inc.                            1997.03      202,564 Manufacture and Sales of electric equipment
        Taian (Malaysia) Electric Sdn. Bhd.                         1989.03      187,244 Manufacture and Sales of electric equipment
        An-Tai International Investment Co., Ltd.                   1990.09      150,000 Investment Activity
        Micropac (BVI) Worldwide                                    1993.03      208,404 International Trading
        Taian-Etacom Technology Co., Ltd.                           1999.12       83,000 Manufacture of Bus Way Components
                                                                                         Manufacture of Wired and Wireless Telcommunication
        Media Vision Inc.                                         2004.06.21     208,086
                                                                                         Equipments
        E-Joy International Co., Ltd.                             2004.06.25     63,000 Distributor of Home Appliance
        A-Ok Technical Co., Ltd.                                  2004.10.07      15,000    Repair of Home Appliance
        Taiwan Pelican Express Co., Ltd.                          1999.09.10     860,000 Home Delivery Service
        Tasia (Pte) Ltd.                                            1995.12       24,755    Investment Activity
                                                                                            Investment and Trading Activities in Southeast Asia and
        Tecoson Industrial Development (Singapore)                  1993.02       38,505
                                                                                            Hong Kong
        Tecoson HK Co., Ltd.                                        1993.06       15,598    Investment Activity
        Asia Air Tech Industrial (Pte) Ltd.                         1999.06      257,342 Investment Activity
        TECO (Dong Guang) Air Conditioning Equipment Co., Ltd.    1999.11.09     336,095 Manufacture of Air Conditioning Equipment
        TECO Australia Pty. Ltd.                                    1993.04      922,050 Sales of Motors and Home Appliance in Australia
        TECO New Zealand Ltd.                                       1983.04       70,899    Sales of Home Appliances
        Great Teco Motor Ltd.                                     2000.01.27     3,135,107 Investment Activity
        Suzhou TECO Electric & Machinery Co., Ltd.                2000.02.18     179,121 Manufacture and Sales of Motors
        Wuxi TECO Electric & Machinery Co., Ltd.                     2002        1,136,943 Manufacture and Sales of Motors
        TECO Industrial (Malaysia) Sdn. Bhd.                        1989.06      719,238 Manufacture and Sales of Motors in Malaysia
        P.T TECO Elektro, Indonesia                               1997.08.14     770,511 Sales of Home Appliances in Indonesia
                                                                                         Investment and Trading Activities in Southeast Asia and
        Tong Yuan Electronic & Machinery Sdn. Bhd.                  1987.12      23,863
                                                                                         Hong Kong
                                                                                         Investment and Trading Activities in Southeast Asia and
        P.T TECO Multiguna Electro                                  1983.06      25,026
                                                                                         Hong Kong
                                                                                         Investment and Trading Activities in Southeast Asia and
        TECO Electronic & Machinery (Thai) Co., Ltd.                1987.04      57,882
                                                                                         Hong Kong
        TECO Westinghouse Motor Company                             1988.01      624,432 Sales of Motors in USA
        TECO Westinghouse Motor Industrial, Canada                  1995.12       32,756    Sales of Motors
        TECO Electro Devices Co., Ltd.                              1998.03       75,992    General Trading and Investment Activities


   68     TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                               2011
                                                                                                                                 Annual Re p o r t




                                                                Date of      Paid-in
                              Company                                                                  Major Business
                                                             Incorporation   Capital
Taichang TECO Electro Devices Co., Ltd.                         2001.12      131,524 Manufacture and Sales of Stepping Motors
An-Tai International Investment (Singapore) Co., Ltd.           1993.03      647,017 Professional Investment Company
Tai-An Technology (Wuxi) Co., Ltd.                              2000.07      566,576 Manufacture and Sales of Optical Fiber
Asia Electric & Machinery Pte Ltd.                            2000.06.05     1,464,880 Investments in Home Appliances Business
Jack Property Service & Management Company                    2000.04.13      30,250   Real estate management service
Great Teco, S.L.                                                2003.01       23,508   Sales of Home Appliances
Nanchang TECO Electric & Machinery Co., Ltd.                  2003.11.10     545,060 Manufacture and Sales of Air Conditioning
Sankyo Co, Ltd.                                               1992.02.14      11,718   Sales of Home Appliances
TECO Electronic & Machinery B.V.                              2005.04.18      25,859 Sales of Motors and AV (LCD TV) in Europe
                                                                                     Investment and Trading Activities in Southeast Asia and
STE Marketing Sdn. Bhd.                                         1987.12       84,190
                                                                                     Hong Kong
Jiangxi TECO Electric & Machinery Co., Ltd.                     2005.06      428,377 Manufacture and Sales of Motors
Qingdao TECO Precision Mechatronics Co., Ltd                    2006.12      2,023,252 Manufacture and Sales of Compressors
TECO Westinghouse Motor Company S.A. de C.V                     2005.12       44,021   Manufacture and Sales of Motors
Xiaman TECO Technology Co., Ltd.                                2006.11       23,480   Sales of Motors and Home Appliances
TYM Electric & Machinery Sdn. Bhd.                              2006.06       4,773    Sales of Motors
TECO (Vietnam) Electronic & Machinery Co., Ltd.                 2005.04       55,352   Manufacture and Sales of Motors
TECO Technology (Vietnam) Co., Ltd.                             2006.08       37,502   Manufacture and Sales of electric equipment
Asia Innovative Technology (Xiamen) Co., Ltd.                   2006.12      672,881 R&D and Manufacture of LCD monitor
TECO Group Science-Technology (Hang Zhou) Co., Ltd.             2007.06       10,854   R&D of Electronic Devices and Automation control
Tianjin TECO Technology Co., Ltd                              2010.01.22      16,313   Operation Center in Central China
Jiangxi TECO Air Conditioning Equipment Co., Ltd.             2010.02.05     177,069 Manufacture and sales of Air Conditioners
TECO Sichuan Trading Co., Ltd.                                2010.08.25      28,662   Sales of Home Appliances
Titco International Corporation                                 2007.12       14,000   Sales of Software
Qingdao TECO Century Advanced High-tech Mechatronics Co.,
                                                                2008.03      688,022 Manufacture and Sales of Compressors
Ltd.
Fujian TECO Precision Co., Ltd.                                 2008.05      401,769 Sales and Production of Motors and Generators
Teco Appliance (HK) Co., Ltd.                                 1991.02.12      5,849    Sales of Home Appliances

Taian Electric Co., Ltd.                                      2004.03.17      1,000    Manufacture and Sales of electric equipment

Taiwan Pei Li Tone Co., Ltd.                                  2001.07.27      7,350    Home Delivery Business
An-Sheng Travel Co., Ltd.                                     2005.03.15      25,000   Travel Business
                                                                                       Import, export and sales of power distributors, lighting
Hubbell-Taian Co., Ltd.                                       1991.08.22      27,200
                                                                                       and explosion-proof tools
Antech Automation Corp.                                       1991.09.01      1,000    Sales of System Automation Products (Buy/Sell)
Hubbel-Anmex International(s) Pte. Letd.                      2006.01.26      23,976   Sales of Electronic Products
Universal Mail Service Ltd.                                     1989.12       13,000   Business Docunment Processing
Unison Service Corporation                                      2001.08       17,000   Software, Data Processing and Information Provision
Information Technology Total Service (BVI) Co., Ltd.            2001.03       46,655   Investment Acitivities
Information Technology Total Service (Hang Zhou) Co., Ltd.      2002.10       2,570    Software, Data Processing and Information Provision
Information Technology (Wuxi) Co., Ltd.                         2004.08       11,861   Software, Data Processing and Information Provision
Information Technology Total Service (Xiamen) Ltd.              2007.12       4,777    Software, Data Processing and Information Provision
GreyBack International Property Inc.                          2007.02.28      30,279   Real Estate Business Management and Development
Taian-Jaya Electric Sdn. Bhd.                                 1988.06.07      9,545    Manufacture and Sales of Motors
Nanchang Dong-Huan Management & Consulting Co., Ltd.          2008.01.07      3,434    Investment Activities
TECO CAPITAL INC.                                             2008.04.15      21,340   Investment Activities
                                                                                       Sales of Air Conditioners of TECO (Dong Guang) in
Ecolectric International Co., Ltd.                            1997.04.10      23,885
                                                                                       Shanghai and Zhejiang
TECO (PHILIPINES) 3C & APPLIANCES, INC.                       2008.08.22      7,012    Sales of Air Conditioners and Home Appliance
Pelecanus Express Pte, Ltd                                    2010.04.19      15,138   Investment Activities
                                                                                       Merchant and Management Service for Science Park’s
Qingdao TECO Innovation Co., Ltd.                             2010.08.11      62,508
                                                                                       Development and Operation
TECO Technology & Marketing Center Co., Ltd.                  2011.04.01      11,718   Investment Activities
TECO Capital Investment (SAMOA) Co., Ltd.                     2011.01.18      60,551   Holding Company
Beijing Pelican Express Co., Ltd.                             2010.10.13      14,309   Storge Services


                                                                                                                           www.teco.com.tw        69
        2011
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         8.1.3 Operational Highlights of Affiliated Companies
                                                                                                                                           Unit: NT$ thousand
                                                                              Total      Total                          Operating Net Profit /
                               Company                           Capital                           Net Worth Net Sales                         PS(NT$)
                                                                             Assets    Liabilities                       Income     Loss
         Tong Dai Co., Ltd.                                        57,120      470,513    274,324     196,189 1,121,374     73,405     61,331     10.74
         Great TECO Whirlpool Co., Ltd.                           199,000     303,867      69,479     234,388     166,596    -101,000    -106,821     -5.37
         Tecnos International Consultant Co., Ltd.                 50,000     167,050     110,457      56,593     933,948       7,363      7,108       1.42
         TECO Electric Europe Limited                             210,285     172,225     141,564      30,661     266,231       3,601      3,441       0.76
         TECO International Investment Co., Ltd.                  477,000     852,456       4,933     847,523      41,196      35,275     40,123       0.84
         TECO Electro Devices Co., Ltd.                           245,926     579,050     146,692     432,358     521,060      16,055     48,288       1.97
         TECO Electric & Machinery (Pte) Ltd. Singapore           186,480    3,076,850    570,716    2,506,134   2,515,323    365,087    239,118
         Tong Tai Jung Co., Ltd.                                   66,000     348,979     212,679     136,300     776,242      37,798     33,122       5.02
         Information Technology Total Services Co., Ltd.          199,990     440,154     190,917     209,237     628,908      32,440     24,005       1.20
         UVG Investment Co., Ltd.                                6,811,453   7,733,995    180,084    7,553,911     -45,159     -45,380    -41,452     -1.84
         Tong-An Investment Co., Ltd.                            3,603,600   4,215,268     35,516    4,179,752    276,541     217,518    217,272       0.60
         TECO Holding USA Inc.                                    808,568    7,789,493   2,572,540   5,216,953   8,412,165   1,155,157   744,776
         TECO Westinghouse Motor Company                          624,432    6,163,880   2,482,954   3,680,926   6,654,940    793,727    502,930
         An-Tai International Investment Co., Ltd.                150,000     648,673         132     648,541      26,694      22,870     25,561       1.70
         Taian (Subic) Electric Co., Inc                          202,564     260,669      80,813     179,856     281,956         599        267       0.04
         Taian (Malaysia) Electric Sdn. Bhd.                      187,244      15,027         259      14,768           0        -179       -148      -0.01
         Taian-Etacom Technology Co., Ltd.                         83,000     428,259     340,138      88,121     422,971      16,595     16,966       0.20
         Tasia (PTE) Ltd.                                          24,755     369,973      22,419     347,554     578,813       6,542        140
         Tong Yuan Electric & Machinery Sdn. Bhd.                  23,863      61,441           0      61,441           0        -124       -124
         Teco Electronic & Machinery (THAI) Co.,Ltd.               57,882     245,119      80,108     165,011     331,744      29,772      26,114
         TECO Australia Pty. Ltd.                                 922,050    2,459,754    774,000    1,685,754   3,075,609    424,246    189,359
         TECO Industrial Malaysia Sdn. Bhd.                       719,238     620,977     118,325     502,652     756,426      10,321     17,460
         P.T TECO Elektro, Indonesia                              770,511     429,972      18,256     411,716       5,972      -19,063    24,240
         Asia Air Tech Industrial (PTE) Ltd.                      257,342     141,649       5,767     135,882      -17,989     -18,156    -18,156
         Tecoson Industrial Development (Singapore)                38,505     134,147     105,102      29,045     213,366       3,442      -2,025
         TECO Westinghouse Motor Industrial, Canada                32,756    2,054,766    524,625    1,530,141   2,175,189    360,801    273,368
         Antech Automation Corp.                                     1,000      1,771           0       1,771           0           4        881       8.81
         An-Tai International Investment (Singapore) Co., Ltd.    647,017    1,771,464    783,971     987,493     253,614     100,942     93,600
         Tecoson HK Co., Ltd.                                      15,598       18,311          0       18,311    213,621       -2,444     -2,002
         TECO (Dong Guang) Air Conditioning Equipment Co.,
                                                                  336,095     182,042      41,405     140,637      80,202     -959,397    -17,989
         Ltd.
         Micropac (BVI) Worldwide                                 208,404     955,667         320     955,347      93,595      93,543     93,543
         Taian Technology (Wuxi) Co., Ltd                         566,576    1,723,871    752,764     971,107    2,420,772    106,047     92,883
         Great Teco Motor Ltd.                                   3,135,107   3,603,124      1,210    3,601,914    -156,485    -156,793   -161,002
         Suzhou TECO Electric & Machinery Co., Ltd                179,121     636,073     447,602     188,471    1,238,852     -15,866    -28,145
         Universal Mail Service Ltd.                               13,000        4,330      2,639        1,691       4,861        121        123       0.09
         INFORMATION TECHNOLOGY TOTAL SERVICE
                                                                   46,655      62,546      10,475      52,071           0        -554       1,590
         (BVI) Co., Ltd.
         Tong-An Assets Management & Development Co.,
                                                                  993,444    5,799,798   1,113,563   4,686,235    193,687      69,996     63,994       0.64
         Ltd.
         P.T. TECO Multiguna Electro                               25,026     462,481     124,162     338,319     623,277      83,276     68,234
         Yatec Engineering Corporation                            120,100     403,787     183,788     219,999     728,533      29,690     28,503       2.37
         TECO New Zealand Limited                                  70,899      72,773     145,019      -72,246     89,078       1,087       2,707
         Asia Electric & Machinery                               1,464,880    688,250        1,874    686,376     -148,571    -148,876   -148,876
         Wuxi TECO Electric & Machinery Co., Ltd                 1,136,943   3,255,675   1,502,390   1,753,285   3,833,503    201,027    200,684
         GD TECO Taiwan Co., Ltd.                                 224,000     128,756     107,329      21,427     248,269       -7,803     -7,516     -0.34
         Tesen Electric & Machinery Co., Ltd.                     200,000     295,731     143,700     152,031    2,498,693       5,977      1,751      0.09
         Teco Electronic Devices Co.,Ltd.                           75,992    256,287           0     256,287           0          -75    32,153




   70   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                   2011
                                                                                                                                     Annual Re p o r t




                                                                    Total      Total                         Operating Net Profit /
                       Company                         Capital                           Net Worth Net Sales                        PS(NT$)
                                                                   Assets    Liabilities                      Income     Loss
Taichang TECO Electro Devices Co., Ltd.                 131,524      397,565    144,004     253,561  534,615     22,724     31,617
Unison Service Corporation                               17,000      19,759      41,187      -21,428    108,867     -11,108     -8,147   -4.79
Information Technology Total Service (Hang Zhu) Ltd.       2,570      6,490       7,477        -987           0      -1,196     -1,530
Taian Electric Co., Ltd.                                   1,000        896           0         896           0         -12        -11   -0.11
Media Vision Inc.                                       208,086      89,466      31,097      58,369           0       -153     48,532    0.23
E-Joy International Co., Ltd.                            63,000      40,567      46,810       -6,243    164,794      -6,733     -5,721   -0.91
A-Ok Technical Co., Ltd.                                 15,000      64,090      46,120      17,970     281,831     11,224     10,665     7.11
Jack Property Service & Management Co., Ltd.             30,250     176,471      67,136     109,335     265,218     22,858     19,858    6.56
Great Teco, S.L.                                         23,508      26,991       9,228      17,763      41,771        421        423
Nanchang TECO Electric & Machinery Co., Ltd.            545,060     107,411      72,692      34,719      92,062     -11,664     -1,395
Sankyo Co., Ltd.                                          11,718    339,403     324,072      15,331     564,707     10,533      6,991
Teco Netherlands                                         25,859     312,612     491,096     -178,484    572,557     -17,792    45,965
STE Marketing SDN. BHD                                   84,190     396,443     107,894     288,549     529,821     35,490     30,069
Jiangxi TECO Electric & Machinery Co., Ltd.             428,377    1,858,562   1,347,942    510,620     988,762     35,031     50,252
Qingdao TECO Precision Mechatronics Co., Ltd           2,023,252   2,198,959    917,501    1,281,458    912,885    -267,813   -281,324
Teco Westinghouse Motor Company S. A. de C. V.           44,021     276,870     275,749       1,121     393,672     96,579      -6,531
Xiaman TECO Technology Co., Ltd.                         23,480      44,716      21,373      23,343     166,941       -914       -914
TYM Electric & Machinery Sdn. Bhd.                         4,773    127,288      21,688     105,600     163,618     18,493     16,703
Teco (Vietnam) Electronic & Machinery Company Ltd.       55,352     175,293      95,536      79,757     198,153     24,165     22,776
TECO Technology (Vietnam) Co., Ltd.                      37,502     222,762     234,293      -11,531     66,356      -3,926     -3,201
Asia Innovative Technology (Xiamen) Co., Ltd.           672,881    1,001,550    686,183     315,367    1,108,880    -99,969    -91,138
Qingdao TECO Century Advanced High-tech
                                                        688,022     662,455     223,351     439,104     150,979    -102,923   -108,298
Mechatronics Co., Ltd.
Fujian TECO Precision Co., Ltd.                         401,769     415,464     137,773     277,691      47,772     -52,605    -53,395
Nanchang Dong-Huan Management & Consulting
                                                           3,434      6,052      11,650       -5,598      5,895       -832       -838
Co., Ltd.
Teco Appliance (HK) Co., Ltd.                              5,849      2,974           0       2,974           0          0          0
Taiwan Pei Li Tone Co., Ltd.                               7,350      1,850           0       1,850           0          0          2     0.00
An-Sheng Travel Co., Ltd.                                25,000      16,147         893      15,254      41,219      -1,312     -1,083    0.00
Hubbell-Taian Co., Ltd.                                  27,200      98,401      22,299      76,102     122,561     17,665     17,496     6.43
Hubbel-Anmex International(s) Pte. Letd.                 23,976      16,137       1,207      14,930      14,095      2,425      2,371
Information Technology (Wuxi) Co., Ltd.                   11,861     19,766       7,045      12,721      29,495        690        557
Information Technology Total Service (Xiamen) Ltd.         4,777     11,587      10,362       1,225      17,124       -627       -504
GreyBack International Property Inc.                     30,279      75,016      46,919      28,097       1,469      -1,005     -2,120
Titco International Corporation                          14,000       2,776           0       2,776           0          0          0     0.00
Teco Group Science-Technology (Hang Zhou) Co.,
                                                         10,854      17,922         533      17,389       2,469      -2,193     -2,196
Ltd.
Taian-Jaya Electric Sdn. Bhd.                              9,545    108,845         601     108,244     134,670     11,197      8,341
TECO CAPITAL INC.                                        21,340       5,780           0       5,780           0          0      -6,300
Ecolectric International Co., Ltd.                       23,885      69,935      48,907      21,028     151,986      4,403      4,357
TECO (PHILIPINES) 3C & APPLIANCES, INC.                    7,012     63,010      58,327       4,683      55,310        578        160
Taiwan Pelican Express Co., Ltd.                        860,000    1,572,549    707,060     865,489    2,467,753   256,017    215,476     2.51
Tianjin TECO Technology Co., Ltd.                        16,313      34,874      13,524      21,350      75,522      -1,430     -1,417
Jiangxi TECO Air Conditioning Equipment Co., Ltd.       177,069     252,410     120,231     132,179     407,118     -32,059    -32,786
TECO Sichuan Trading CO.,LTD.                            28,662      37,642      17,622      20,020       42,116     -5,550     -5,171
Pelecanus Express Pte. Ltd.                              15,138      15,042           0      15,042           0         -36        -35
Qingdao TECO Innovation Co., Ltd.                        62,508      33,604       2,937      30,667           0          0     -21,586
TECO Technology & Marketing Center Co., Ltd.              11,718     29,180      24,506       4,674      12,907      -6,625     -6,671   -2.22
TECO Capital Investment (SAMOA) Co., Ltd.                60,551      30,851           0      30,851           0          0     28,859
Beijing Pelican Express Co., Ltd.                        14,309       9,250       1,996       7,254       2,631      -6,688     -6,688




                                                                                                                               www.teco.com.tw   71
        2011
A n nual Re p o r t




             8.2 Private Placement Securities in the Most Recent Years

             None


             8.3 The Shares in the Company Held or Disposed of by Subsidiaries in the
                 Most Recent Years
                                                                                                                                                               Unit: NT$ thousand; Shares; %
                                                                                                                                                                    Endorsement Amount
                                                       Shareholding     Date of                       Shares and                Shareholdings &
               Name of       Stock capital    Fund                                  Shares and amount             Investment                                          amount     loaned
                                                        ratio of the acquisition or                     amount                 amount in the most   Mortgage
              subsidiary       collected     source                                      acquired                  gain (loss)                                      made for the to the
                                                         company      disposition                     disposed of                 recent year
                                                                                                                                                                     subsidiary subsidiary
             Tong An
                                             Working                  Successive    19,540,052Shares                            19,540,052Shares
             Investment       3,603,600                  99.60%                                             -           -                        16,561,052Shares        -            -
                                             Capital                  Acquisition           $232,969                                    $397,640
             Co., Ltd.
             An Tai
             International                   Working                  Successive     2,825,748Shares                             2,825,748Shares
                               150,000                   100.00%                                            -           -                             None            80,000          -
             Investment                      Capital                  Acquisition            $26,308                                     $57,504
             Co., Ltd.




   72   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                  2011
                                                                                   Annual Re p o r t




               TECO ELECTRIC & MACHINERY CO., LTD.

               NON-CONSOLIDATED FINANCIAL STATEMENTS

                AND REPORT OF INDEPENDENT ACCOUNTANTS

               DECEMBER 31, 2011 AND 2010




For the convenience of readers and for information purpose only, the auditors’ report
and the accompanying financial statements have been translated into English from the
original Chinese version prepared and used in the Republic of China. In the event of
any discrepancy between the English version and the original Chinese version or any
differences in the interpretation of the two versions, the Chinese-language auditors’
report and financial statements shall prevail.



                                                                               www.teco.com.tw   73
        2011
A n nual Re p o r t




                                   REPORT OF INDEPENDENT ACCOUNTANTS

                To TECO Electric & Machinery Co., Ltd.

                We have audited the accompanying non-consolidated balance sheets of TECO Electric
                & Machinery Co., Ltd. as of December 31, 2011 and 2010, and the related
                non-consolidated statements of income, of changes in stockholders’ equity and of cash
                flows for the years then ended. These non-consolidated financial statements are the
                responsibility of the Company’s management. Our responsibility is to express an
                opinion on these non-consolidated financial statements based on our audits. As
                descirbed in Note 4(9) to the non-consolidated financial statements, we did not audit the
                financial statements of certain investee companies accounted for under the equity
                method. These long-term equity investments amounted to $6,589,659,000 and
                $5,765,239,000, constituting 11% and 10% of the related total assets as of December 31,
                2011 and 2010, respectively, the related credit investment balance amounted to
                $4,955,000 and $414,000, both constituting 0% of the related total assets as of
                December 31, 2011 and 2010, respectively, and the related investment income
                amounted to $549,238,000 and $514,775,000, constituting 19% and 18% of the related
                net income before tax for the years then ended. The financial statements of these
                investee companies were audited by other auditors whose reports thereon have been
                furnished to us and our opinion expressed herein, insofar as it relates to the amounts
                included in the non-consolidated financial statements and information disclosed in Note
                11 relative to these investees, is based solely on the reports of the other auditors.

                We conducted our audits in accordance with the “Rules Governing the Examination of
                Financial Statements by Certified Public Accountants” and generally accepted auditing
                standards in the Republic of China. Those rules and standards require that we plan and
                perform the audit to obtain reasonable assurance about whether the financial statements
                are free of material misstatement. An audit includes examining, on a test basis,
                evidence supporting the amounts and disclosures in the financial statements. An audit
                also includes assessing the accounting principles used and significant estimates made by
                management, as well as evaluating the overall financial statement presentation. We
                believe that our audits and the reports of the other auditors provide a reasonable basis
                for our opinion.

                In our opinion, based on our audits and the reports of the other auditors, the
                non-consolidated financial statements referred to in the first paragraph present fairly, in
                all material respects, the financial position of TECO Electric & Machinery Co., Ltd. as
                of December 31, 2011 and 2010, and the results of its operations and its cash flows for
                the years then ended, in conformity with the “Rules Governing the Preparation of
                Financial Statements by Securities Issuers” and generally accepted accounting
                principles in the Republic of China.




                                                            1


   74   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                    2011
                                                                                                      Annual Re p o r t




We have also audited the consolidated financial statements of TECO Electric &
Machinery Co., Ltd. and subsidiaries (not presented herein) as of and for the years
ended December 31, 2011 and 2010. In our report dated March 20, 2012, we
expressed an unqualified opinion with an explanatory paragraph thereon.

The non-consolidated financial statements of TECO Electric & Machinery Co., Ltd. as
of and for the year ended December 31, 2011 expressed in US dollars are presented
solely for the convenience of the reader and were translated from the New Taiwan dollar
financial statements using the exchange rate of NT$30.28 to US$1.00 as of December
31, 2011. This basis of translation is not in accordance with generally accepted
accounting principles in the Republic of China.




PricewaterhouseCoopers, Taiwan
March 20, 2012
The accompanying non-consolidated financial statements are not intended to present the financial
position and results of operations and cash flows in accordance with accounting principles generally
accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and
practices in the Republic of China governing the audit of such non-consolidated financial statements may
differ from those generally accepted in countries and jurisdictions other than the Republic of China.
Accordingly, the accompanying non-consolidated financial statements and report of independent
accountants are not intended for use by those who are not informed about the accounting principles or
auditing standards generally accepted in the Republic of China, and their applications in practice.



                                                   2
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                                                                                                                                                    TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                    NON-CONSOLIDATED BALANCE SHEETS
                                                                                                                                                                  DECEMBER 31,
                                                                                                                                                                                                                                                                                                            A n nual Re p o r t
                                                                                                                                                                                                                                                                                                                   2011
                                                                                                                                                   (EXPRESSED IN THOUSANDS OF DOLLARS)
                                                                                                                  New Taiwan Dollars                     US Dollars                                                                                      New Taiwan Dollars              US Dollars
                                                                                                           2010        %         2011            %          2011                                                                                  2010         %          2011   %           2011
                                                                                                                                                    (Unaudited - Note 2)                                                                                                             (Unaudited - Note 2)
                                      ASSETS                                                                                                                             LIABILITIES AND STOCKHOLDERS' EQUITY
                                      Current Assets                                                                                                                     Current Liabilities
                                         Cash and cash equivalents (Notes 4(1) and 10)                                                                                     Short-term loans (Note 10)
                                         Financial assets at fair value through profit or loss – current                                                                   Financial liabilities at fair value through profit or loss - current
                                            (Notes 4(2) and 10)                                                                                                               (Notes 4(15) and 10)
                                         Notes receivable, net (Notes 3, 4(4) and 10)                                                                                      Notes payable (Note 10)
                                         Notes receivable, net - related parties (Notes 3, 5 and 10)                                                                       Notes payable - related parties (Notes 5 and 10)
                                         Accounts receivable, net (Notes 3, 4(5) and 10)                                                                                   Accounts payable (Note 10)
                                         Accounts receivable, net - related parties (Notes 3, 4(9),                                                                        Accounts payable - related parties (Notes 5 and 10)
                                            5 and 10)                                                                                                                      Income tax payable (Note 4(16))
                                         Other receivables (Notes 3 and 10)                                                                                                Accrued expenses (Notes 4(22), 5 and 10)




TECO ELECTRIC & MACHINERY CO., LTD.
                                         Other receivables - related parties (Notes 3, 4(9), 5 and 10)                                                                     Other payables (Note 10)
                                         Other financial assets - current (Notes 6 and 10)                                                                                 Receipts in advance
                                         Inventories (Note 4(6))                                                                                                           Partial construction billings (Notes 4(7) and 5)
                                         Construction in progress (Notes 4(7) and 5)                                                                                       Less: Construction in progress (Notes 4(7) and 5)
                                         Less: Partial construction billings (Notes 4(7) and 5)                                                                            Other current liabilities (Note 5)
                                         Prepaid expenses                                                                                                                Total current liabilities
                                         Deferred income tax assets - current (Note 4(16))                                                                               Long-term Liability
                                         Other current assets                                                                                                              Long-term loans (Notes 4(17), 6 and 10)
                                      Total current assets                                                                                                               Reserve
                                      Funds and Investments                                                                                                                Land value incremental reserve (Note 4(10))
                                         Available-for-sale financial assets - non-current (Notes 4(3),                                                                  Other Liabilities
                                            4(8) and 10)                                                                                                                   Accrued pension liabilities (Note 4(18))
                                         Financial assets carried at cost - non-current (Notes 4(3),                                                                       Guarantee deposits received (Note 10)
                                            4(14) and 10)                                                                                                                  Deferred income tax liabilities - net (Note 4(16))
                                         Long-term equity investments accounted for under the equity                                                                       Other liabilities (Notes 4(9) and 5)
                                            method (Notes 4(9) and 5)                                                                                                    Total other liabilities
                                      Total funds and investments                                                                                                        Total liabilities
                                      Property, Plant and Equipment (Notes 4(10), 6 and 7)                                                                               Stockholders' Equity
                                         Cost                                                                                                                              Capital (Note 4(19))
                                            Land                                                                                                                              Common stock
                                            Buildings                                                                                                                         Stock subscriptions received in advance
                                            Machinery and equipment                                                                                                        Capital reserves (Note 4(20))
                                            Transportation equipment                                                                                                          Paid-in capital in excess of par value
                                            Other equipment                                                                                                                   Treasury stock
                                         Revaluation increments                                                                                                               Long-term investments
                                         Cost and revaluation increments                                                                                                      Net assets from merger
                                         Less: Accumulated depreciation                                                                                                       Others
                                         Construction in progress and prepayments for equipment                                                                            Retained earnings (Note 4(22))
                                      Total property, plant and equipment                                                                                                     Legal reserve
                                      Intangible Asset                                                                                                                        Undistributed earnings
                                         Deferred pension costs (Note 4(18))                                                                                               Other stockholders’ equity adjustments
                                      Other Assets                                                                                                                            Cumulative translation adjustments (Note 4(16))
                                         Leased assets (Notes 4(11), 5 and 6)                                                                                                 Unrecognized pension cost (Note 4(18))
                                         Idle assets (Note 4(12))                                                                                                             Unrealized gain or loss on financial instruments (Notes 4(8),
                                         Refundable deposits (Note 10)                                                                                                          4(9) and 10)
                                         Deferred expenses                                                                                                                    Unrealized revaluation increments (Notes 4(8) and 4(10))
                                         Long-term notes and accounts receivable (Notes 4(13) and 10)                                                                         Treasury stock (Notes 4(9) and 4(24))
                                         Deferred income tax assets - non-current (Note 4(16))                                                                           Total stockholders' equity
                                         Other assets                                                                                                                    Commitments and contingent liabilities (Notes 5, 7 and 10)
                                      Total other assets                                                                                                                 Subsequent events (Note 4(22))

                                      TOTAL ASSETS                                                                                                                             TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

                                                                                                                                 The accompanying notes are an integral part of these non-consolidated financial statements
                                                                                                                                             See report of independent accountants dated March 20, 2012.

                                                                                                                                                                                3
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                                                TECO ELECTRIC & MACHINERY CO., LTD.
                                              NON-CONSOLIDATED STATEMENTS OF INCOME
                                                 FOR ELECTRIC ENDED DECEMBER 31,
                                                TECOTHE YEARS& MACHINERY CO., LTD.
                               (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
                                              NON-CONSOLIDATED STATEMENTS OF INCOME
                                                 FOR THE YEARS ENDED DECEMBER 31,
                               (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)
                                                                                                           New Taiwan Dollars                       US Dollars
                                                                                                 2010           %             2011        %            2011
                                                                                                                                                (Unaudited - Note 2)
                                                                                                           New Taiwan Dollars                       US Dollars
Operating revenues (Note 5)
                                                                                                2010            %             2011        %            2011
 Sales
                                                                                                                                                (Unaudited - Note 2)
 Sales returns
Operating revenues (Note 5)
 Sales discounts
 Sales
  Net returns
 Sales sales
 Construction revenue
 Sales discounts
 Service revenue
  Net sales
  Total operating revenues
 Construction revenue
Operating costs (Notes 4(6), 4(18), 4(22), 4(25) and 5)
 Service revenue
  Total goods sold
 Cost ofoperating revenues
 Construction cost
Operating costs (Notes 4(6), 4(18), 4(22), 4(25) and 5)
 Cost of cost
 Service goods sold
  Total operating costs
 Construction cost
Gross profit
 Service cost
Unrealized intercompany profit (Note 5)
  Total operating costs
Realized intercompany profit
Gross profit
Gross profit, net
Operating intercompany profit (Note 5)
Unrealizedexpenses (Notes 4(18), 4(22), 4(25) and 5)
Realized intercompany profit
  Selling expenses
Gross profit, net
  General and administrative expenses
Operating expenses (Notes 4(18), 4(22), 4(25) and 5)
  Research and development expenses
  Selling expenses
    Total operating expenses
  General and administrative expenses
Operating income
  Research and development expenses
Non-operating income
    Total operating expenses
 Interest income
Operating income
 Investment income accounted for under the equity method (Note 4(9))
Non-operating income
 Dividend income
 Interest income
 Gain on disposal of investments
 Investment income accounted for under the equity method (Note 4(9))
 Foreign exchange gain, net (Note 5)
 Dividend income
 Rental income (Note 5)
 Gain on disposal of investments
 Gain on valuation of financial assets, net (Note 4(2))
 Foreign exchange gain, net (Note 5)
 Gain on valuation of financial liabilities, net (Note 4(15))
 Rental income (Note 5)
 Miscellaneous income
 Gain on valuation of financial assets, net (Note 4(2))
  Total non-operating income
 Gain on valuation of financial liabilities, net (Note 4(15))
Non-operating expenses
 Miscellaneous income
 Interest expense
  Total non-operating income
 Other investment loss
Non-operating expenses
 Loss on expense of property, plant and equipment
 Interest disposal
 Foreign exchangeloss net (Note 5)
 Other investment loss,
 Financing expenses property, plant and equipment
 Loss on disposal of
 Impairment loss (Note 4(14))
 Foreign exchange loss, net (Note 5)
 Loss on valuation of financial liabilities, net (Note 4(15))
 Financing expenses
 Miscellaneous expenses (Note 4(25))
 Impairment loss (Note 4(14))
  Total non-operating expenses
 Loss on valuation of financial liabilities, net (Note 4(15))
Income before income tax(Note 4(25))
 Miscellaneous expenses
Income tax expense (Note 4(16))
  Total non-operating expenses
Net income
Income before income tax
Income tax expense (Note 4(16))                                                         Income before       Net       Income before    Net     Income before      Net
Net income
Earnings per share (Note 4(23))                                                           income tax      Income        income tax    income     income tax      income
Basic earnings per share                                                                Income before       Net       Income before    Net     Income before      Net
 Net income
Earnings per share (Note 4(23))                                                           income tax      Income        income tax    income     income tax      income
Diluted earning per share
Basic earnings per share
 Net income
 Net income
Diluted earning per share
 Net income
Pro forma information under the assumption that the subsidiaries' investment in the Company is not treated as treasury stock:
Net income
Basic earnings per share
Pro forma information under the assumption that the subsidiaries' investment in the Company is not treated as treasury stock:
 Net income
Net income
Diluted earningper share
Basic earnings per share
 Net income
 Net income
Diluted earning per share
 Net income




                                  The accompanying notes are an integral part of these non-consolidated financial statements.
                                               See report of independent accountants dated March 20, 2012.
                                  The accompanying notes are an integral part of these non-consolidated financial statements.
                                                                            4
                                               See report of independent accountants dated March 20, 2012.

                                                                                   4
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                                                                                                                                                                 TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                                                                                                                                                                                          2011
                                                                                                                                                  NON-CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
                                                                                                                                                           FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
                                                                                                                                                                (EXPRESSED IN THOUSANDS OF DOLLARS)

                                                                                                                    Capital                                                      Retained Earnings                                                    Other Equity Adjustments
                                                                                                                                  Stock
                                                                                                                              subscriptions                                                                                                                           Unrealized gain or          Unrealized
                                                                                                         Common                received in          Capital                                      Undistributed        Cumulative translation      Unrecognized         loss on financial          revaluation   Treasury
                                                                                                          stock                 advance            reserves             Legal reserve              earnings              adjustments               pension cost          instruments              increments     stock     Total
                                      2010-New Taiwan Dollars
                                      Balance at January 1, 2010
                                      Appropriations of 2009 net income (Note):
                                        Legal reserve
                                        Cash dividends
                                      Exercise of employee stock options
                                      Effect of changes in ownership percentage of investee
                                        companies




TECO ELECTRIC & MACHINERY CO., LTD.
                                      Effect of changes in increase of unrealized gain or loss on
                                        financial instruments
                                      Effect of changes in increase of investees' unrealized gain or
                                        loss on financial instruments
                                      Foreign currency translation adjustments
                                      Effect of changes in unrecognized pension cost
                                      Effect of changes in investees' unrecognized pension
                                        cost
                                      Net income for 2010
                                      Balance at December 31, 2010
                                      2011-New Taiwan Dollars
                                      Balance at January 1, 2011
                                      Appropriations of 2010 net income (Note):
                                        Legal reserve
                                        Cash dividends
                                      Exercise of employee stock options
                                      Effect of changes in ownership percentage of investee
                                        companies
                                      Effect of changes in decrease of unrealized gain or loss on
                                        financial instruments
                                      Effect of changes in capital reserves of investee companies
                                      Effect of changes in increase of investees' unrealized gain or
                                        loss on financial instruments
                                      Foreign currency translation adjustments
                                      Effect of changes in unrecognized pension cost
                                      Effect of changes in investees' unrecognized pension
                                        cost
                                      Net income for 2011
                                      Balance at December 31, 2011




                                      Note: Directors’ and supervisors’ remuneration amounting to $89,923 and $70,459, and employees’ bonus amounting to $202,327 and $158,532 had been deducted from the non-consolidated statements of income for the years ended December 31, 2010 and 2009, respectively.




                                                                                                                                                                                        (Continued)


                                                                                                                                                                                             5
                                                                                                                                              TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                          NON-CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
                                                                                                                                             FOR THE YEAR ENDED DECEMBER 31, 2011
                                                                                                                                             (EXPRESSED IN THOUSANDS OF DOLLARS)
                                                                                                Capital                                               Retained Earnings                                                          Other Equity Adjustments
                                                                                                              Stock
                                                                                                          subscriptions                                                                                                                          Unrealized gain or          Unrealized
                                                                                     Common                received in              Capital                                  Undistributed       Cumulative translation      Unrecognized         loss on financial          revaluation    Treasury
                                                                                      stock                  advance               reserves          Legal reserve             earnings              adjustments             pension cost           instruments              increments      stock     Total
                  2011-US Dollars (Unaudited-Note 2)
                  Balance at January 1, 2011
                  Appropriations of 2010 net income (Note):
                    Legal reserve
                    Cash dividends
                  Exercise of employee stock options
                  Effect of changes in ownership percentage of investee
                    companies
                  Effect of changes in decrease of unrealized gain or loss on
                    financial instruments
                  Effect of changes in capital reserves of investee companies
                  Effect of changes in increase of investees' unrealized gain or
                    loss on financial instruments
                  Foreign currency translation adjustments
                  Effect of changes in increase of unrecognized pension cost
                  Effect of changes in decrease of investees' unrecognized pension
                    cost
                  Net income for 2011
                  Balance at December 31, 2011



                  Note: Directors’ and supervisors’ remuneration amounting to $89,923 and $70,459, and employees’ bonus amounting to $202,327 and $158,532 had been deducted from the non-consolidated statements of income for the years ended December 31, 2010 and 2009, respectively.




                                                                                                                           The accompanying notes are an integral part of these non-consolidated financial statements.
                                                                                                                                        See report of independent accountants dated March 20, 2012.

                                                                                                                                                                         6




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                                                                    TECO ELECTRIC & MACHINERY CO., LTD.
                                                                NON-CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                     FOR THE YEARS ENDED DECEMBER 31,
                                                                   (EXPRESSED IN THOUSANDS OF DOLLARS)

                                                                                                             New Taiwan Dollars              US Dollars
                                                                                                      2010                        2011           2011
                                                                                                                                         (Unaudited-Note 2)
             Cash flows from operating activities
               Net income
                  Adjustments to reconcile net income to net cash provided by operating
                    activities
                     Gain on valuation of financial assets
                     (Gain) loss on valuation of financial liabilities
                     Bad debts provision (reversal of allowance for doubtful accounts)
                     Provision for decline in value of inventories
                     Investment income accounted for under the equity method
                     Cash dividends from investee companies accounted for under the
                      equity method
                     Gain on disposal of investments, net
                     Other investment loss
                     Impairment loss
                     Depreciation, amortization and loss on disposal of property, plant
                      and equipment, net
                     Changes in assets and liabilities
                        Financial assests at fair value through profit or loss-current
                        Notes receivable
                        Notes receivable-related parties
                        Accounts receivable
                        Accounts receivable-related parties
                        Other receivables
                        Other receivables-related parties
                        Other financial assets-current
                        Inventories
                        Construction in progress, net
                        Prepaid expenses
                        Deferred income tax assets (liabilities), net
                        Other current assets
                        Notes payable
                        Notes payable-related parties
                        Accounts payable
                        Accounts payable-related parties
                        Income tax payable
                        Accrued expenses and other payables
                        Receipts in advance
                        Other current liabilities
                        Accrued pension liabilities
                        Other liabilities
                           Net cash provided by operating activities
             Cash flows from investing activities
               (Increase) decrease in pledged fixed deposits
               Proceeds from disposal of financial assets carried at cost-non-current
               Increase in financial assets carried at cost-non-current, net
               Proceeds from disposal of long-term equity investments accounted for under
                 the equity method
               Increase in long-term equity investments accounted for under the equity
                 method
               Proceeds from disposal of property, plant and equipment
               Acquisition of property, plant and equipment
               Decrease (increase) in refundable deposits
               Increase in deferred expenses
                           Net cash used in investing activities




                                                                                        (Continued)




                                                                                            7




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                                                                                           2011
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                    TECO ELECTRIC & MACHINERY CO., LTD.
             NOTES TO NON-CONSOLIDATED FINANCIAL STATEMENTS
                         DECEMBER 31, 2011 AND 2010
             (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,
                      EXCEPT AS OTHERWISE INDICATED)


1.   HISTORY AND ORGANIZATION
     TECO Electric & Machinery Co., Ltd. (the Company) was incorporated on June 12, 1956
     under the provisions of the Company Law of the Republic of China (R.O.C.) as a
     company limited by shares. The Company primarily engages in the manufacture,
     installation, wholesale, retail of various types of electrical and mechanical equipment,
     general mechanical equipment, air-conditioning units, electronic equipment,
     telecommunication equipment, office equipment, and home appliances. In 2003, Taian
     Electric & Machinery Co., Ltd. was merged with the Company. In 2011, An Yang
     Electric Co., Ltd. and Taitec Technology Co., Ltd. were merged with the Company. As
     of December 31, 2011, the Company had approximately 3,100 employees.
2.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     The accompanying non-consolidated financial statements are prepared in conformity with
     the “Rules Governing the Preparation of Financial Statements by Securities Issuers” and
     generally accepted accounting principles in the Republic of China. The Company’s
     significant accounting policies are summarized as follows:
     (1)   Foreign currency transactions
           A. Transactions denominated in foreign currencies are translated into functional
              currency at the spot exchange rates prevailing at the transaction dates.
              Exchange gains or loss due to the difference between the exchange rate on the
              transaction date and the exchange rate on the date of actual receipt and payment
              are recognized in current year’s profit or loss.
           B. Receivables, other monetary assets and liabilities denominated in foreign
              currencies are translated at the spot exchange rates prevailing at the balance
              sheet date. Exchange gains or losses are recognized in profit or loss.
           C. When a gain or loss on a non-monetary item is recognized in profit or loss, any
              exchange component of that gain or loss shall be recognized in profit or loss.
              Conversely, when a gain or loss on a non-monetary item is recognized directly in
              equity, any exchange component of that gain or loss shall be recognized directly
              in equity. However, non-monetary items that are measured on a historical cost
              basis are translated using the exchange rate at the transaction date.
     (2)   Criteria for classifying current or non-current items


                                                9




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                            A. Assets that meet one of the following criteria are classified as current assets;
                               otherwise, they are classified as non-current assets:
                               a. Assets expected to be realized, used or intended to be sold during the normal
                                  course of business;
                               b. Assets held mainly for trading purposes;
                               c. Assets expected to be realized within 12 months from the balance sheet date;
                               d. Unrestricted cash and cash equivalents.
                            B. Liabilities that meet one of the following criteria are classified as current
                               liabilities; otherwise, they are classified as non-current liabilities:
                               a. Liabilities incurred within the Company’s operating activities and expected to
                                  be paid during the normal course of business;
                               b. Liabilities incurred mainly for trading activities;
                               c. Liabilities expected to be paid within 12 months from the balance sheet date;
                             d. Liabilities for which the repayment date cannot be extended unconditionally
                                to more than 12 months after the balance sheet date.
                      (3) Cash and cash equivalents
                            Cash and cash equivalents are short-term, highly liquid investments which are
                            readily convertible to known amounts of cash and which are subject to insignificant
                            risk of changes in value resulting from fluctuations in interest rates.
                      (4)   Financial assets and financial liabilities at fair value through profit or loss
                            A. Derivative financial instruments are recognized and derecognized using
                               settlement date accounting. These financial instruments are recognized initially
                               at fair value.
                            B. Derivative financial instruments that do not qualify for hedge accounting are
                               initially recognized at fair value at the balance sheet date, and the gain or loss is
                               recognized immediately in profit or loss.
                      (5) Available-for-sale financial assets
                            A. Available-for-sale financial assets are recognized and derecognized using trade
                               date accounting and are recognized initially at its fair value plus transaction
                               costs that are directly attributable to the acquisition of the financial asset.
                            B. The financial assets are remeasured and stated at fair value, and the unrealized
                               gain or loss is recognized in equity. The gains or losses are recognized
                               immediately when the financial assets are derecognized. The fair value of
                               listed and OTC stocks is based on latest quoted fair prices at the balance sheet
                               date. The fair value of open-end funds is based on the net asset value at the
                               balance sheet date.



                                                                  10




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     C. If there is any objective evidence that the financial asset is impaired, the
        impairment loss is recognized in profit or loss. If, in a subsequent period, the
        amount of the impairment loss decreases, the previously recognized impairment
        loss shall be reversed as equity adjustments.
(6) Financial assets and financial liabilities carried at cost
     A. Financial assets and financial liabilities carried at cost are recognized and
        derecognized using trade date accounting and are recognized initially at its fair
        value plus transaction costs that are directly attributable to the acquisition or
        issuance of the financial assets or financial liabilities.
     B. If there is any objective evidence that the financial assets are impaired, the
        impairment loss is recognized in profit or loss. Such impairment loss cannot
        be reversed.
(7) Settlement date accounting
     Any change in the fair value during the period between the trade date and the
     settlement date / balance sheet date is not recognized for financial assets carried at
     cost or amortized cost. For financial assets and financial liabilities at fair value
     through profit or loss, the change in fair value is recognized in profit or loss. For
     available-for-sale financial assets, the change in fair value is recognized directly in
     equity.
(8) Notes, accounts and other receivables
    A. Notes, accounts and other receivables are initially recognized at fair value and
        subsequently amortized using the effective interest method. Receivables are
        assessed at end of each reporting period when there is objective evidence that,
        as a result of one or more events that occurred after the initial recognition of the
        receivable, the estimated future cash flows of the asset have been affected.
    B. Starting from January 1, 2011, the amount of the impairment loss recognized is
        the difference between the asset’s carrying amount and the present value of
        estimated future cash flows, after taking into account the related collateral and
        guarantees, discounted at the receivable’s original effective interest rate. The
        carrying amount of the receivable is reduced through the use of an allowance
        account.
(9) Allowance for doubtful accounts
     Before January 1, 2011, allowance for doubtful accounts was provided based on an
     evaluation of the collectibility of ending balances of various receivables, taking into
     account the bad debts incurred in prior years and the aging analysis of the
     receivables.




                                          11




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                      (10) Inventories we




                           The perpetual inventory system is adopted for inventory recognition. Inventories
                           are stated at cost. The cost is determined using the weighted-average method.
                           Fixed manufacturing overhead is allocated over the normal capacity of the
                           production equipment. If production fluctuates over interim periods, the cost
                           variances resulting from such fluctuation are deferred in the interim statements. At
                           the end of year, inventories are evaluated at the lower of cost or net realizable value,
                           and the individual item approach is used in the comparison of cost and net realizable
                           value. The calculation of net realizable value is based on the estimated selling
                           price in the normal course of business, net of estimated costs of completion and
                           estimated selling expenses.
                      (11) Construction in progress and partial construction billings
                           A. Construction in progress are stated at cost and the related interests are
                              capitalized in accordance with the generally accepted accounting principles in
                              the Republic of China.
                           B. If the balance of construction in progress exceeds the balance of partial
                              construction billings, partial construction billings is deducted from construction
                              in progress and presented as current assets. If the balance of partial
                              construction billings exceeds the balance of construction in progress,
                              construction in progress is deducted from partial construction billings and
                              presented as current liabilities.
                      (12) Long-term equity investments accounted for under the equity method
                           A. Long-term equity investments in which the Company holds more than 20% of the
                              investee company's voting shares or has the ability to exercise significant
                              influence on the investee’s operational decisions are accounted for under the
                              equity method. The excess of the initial investment cost over the acquired net
                              asset value of the investee attributable to goodwill is no longer amortized and
                              carries on tests of impairment every year, effective January 1, 2006.
                              Retrospective adjustment of the amount of goodwill amortized in previous years
                              is not required. The excess of acquired net asset value of investee over the
                              initial investment cost is allocated proportionately and applied as a reduction to
                              the book value of identifiable non-current assets, and any remaining amount of
                              such excess after this allocation is credited to extraordinary gains. However,
                              negative goodwill acquired prior to December 31, 2005 is continuously
                              amortized.
                           B. Investment loss on the non-controlled entities over which the Company has the
                              ability to exercise significant influence is recognized to the extent that the amount
                              of long-term investments in such investees is written down to zero. However, if


                                                                12




   84   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                              2011
                                                                                              Annual Re p o r t




       the Company continues to provide endorsements, guarantees or financial support
       for such investees, the investment loss is recognized continuously in proportion to
       the Company’s equity interest in such investees. In the case of controlled
       entities, the Company recognizes all the losses incurred by such entities that will
       not be covered by other stockholders. When the operations of such investees
       become profitable, the profit shall be allocated to the Company to the extent that
       the amount of losses previously recognized by the Company is fully recovered.
    C. The capital reserve and long-term equity investment amounts are adjusted by the
       variance between the investment cost and net assets of the investee due to the
       disproportionate acquisition or decrease of shares in connection with the capital
       increase or decrease by the investee company. If the balance of capital reserve
       from long-term investment is not sufficient to cover the amount, it is then charged
       to retained earnings.
    D. The financial statements of foreign investments accounted for under the equity
       method are translated into New Taiwan dollars. The Company recognizes its
       proportionate share in the translation adjustment based on its percentage of
       ownership in the investee company, which is recorded in the cumulative
       translation adjustment account in stockholders’ equity.
    E. All majority-owned subsidiaries and controlled entities are consolidated when the
       Company and its subsidiaries own more than 50% of the investee company’s
       voting shares or have the ability to exercise control.
(13) Property, plant and equipment
    A. With the exception of certain fixed assets which are carried at government
       revaluation increments, property, plant and equipment are stated at cost.
       Interests incurred on the loans used to bring the assets to the condition and
       location necessary for their intended uses are capitalized. The land value
       incremental reserve resulting from the revaluation increment is recorded as
       long-term liability.
    B. Depreciation is provided on the average method over the estimated useful lives of
       the assets. The estimated useful lives of fixed assets are 2 to 60 years.
    C. Major renewals and improvements are capitalized and depreciated accordingly.
       Maintenance and repairs are expensed as incurred. When an asset is sold or
       retired, the cost and accumulated depreciation are removed from the respective
       accounts and the resulting gain or loss is included in current non-operating
       income (expense).
    D. Fixed assets not used in operations are reclassified as other assets and the related
       depreciation is charged to non-operating expense.



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                          E. When transferring the Company’s land to a wholly-owned subsidiary, the land
                             revaluation balance and the related land value increment tax and reserve are
                             transferred and no gain or loss is recognized.
                      (14) Deferred charges
                           Deferred charges are stated at cost and amortized over the estimated useful
                           economic lives based on the straight-line method.
                      (15) Impairment of non-financial assets
                           A. Impairment loss is recognized when the recoverable amount of an asset is less
                              than its book value. The recoverable amount is the higher of the fair value less
                              costs to sell and value in use of an asset. When the impairment no longer exists,
                              the impairment loss recognized in prior years shall be recovered.
                           B. The recoverable amount of goodwill should be estimated at the same date each
                              year, and the impairment loss on goodwill is not recoverable.
                      (16) Long-term liabilities
                           Long-term liabilities maturing within 12 months after the balance sheet date are
                           classified as long-term, if they meet the following two requirements: (a) The
                           Company intends to refinance or extend their maturity dates beyond 12 months; and
                           (b) the Company has refinanced or extended the maturity date before the balance
                           sheet date.
                      (17) Retirement plan
                           A. Under the defined benefit pension plan, net periodic pension costs are
                              recognized in accordance with the actuarial calculations. Net periodic pension
                              costs include service cost, interest cost, expected return on plan assets,
                              amortization of unrecognized net transition obligation and gains or losses on
                              plan assets. The unrecognized net transition obligation is amortized equally
                              over 18 years.
                           B. Under the defined contribution pension plan, net periodic pension costs are
                              recognized as incurred.
                      (18) Income tax
                           A. Income tax is provided based on accounting income after adjusting for
                              permanent differences. The provision for income tax includes deferred tax
                              resulting from items reported in different periods for tax and financial reporting
                              purposes. Over or under provision of prior years' income tax liabilities is
                              included in the current year's income tax expense. When a change in the tax
                              laws is enacted, the deferred tax liability or asset is recomputed accordingly in
                              the period of change. The difference between the new amount and the original


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        amount, that is, the effect of changes in the deferred tax liability or asset, is
        reported as an adjustment to current income tax expense (benefit).
     B. Income tax credits arising from the acquisition of equipment or technology, and
        expenditures for research and development, employee training and development
        and investment in qualified stocks are recorded as deferred income tax assets
        and credited to income tax expense in the period the related expenditures are
        incurred.
     C. An additional 10% corporate income tax is recognized if the current earnings are
        not distributed in the following year. The 10% additional corporate income tax
        is recorded as income tax expense after the appropriation of earnings is approved
        by the stockholders.
     D. Based on the “Income Basic Tax Act”, if the regular income tax is equal or more
        than the basic tax, the income tax payable shall be calculated in accordance with
        the Income Tax Act and other relevant laws. Whereas, if the regular income
        tax is below the basic tax, the income tax payable shall be equal to the basic tax.
        The difference between the regular income tax and basic tax shall not be subject
        to deductions of investment tax credits granted under the provisions of other
        laws.
(19) Treasury stock
     A. Treasury stock is stated at cost, which is accounted for on a weighted-average
        basis, and the amount is charged against retained earnings.
     B. If the grant date of treasury stock reserved for employees was after January 1,
        2008, the treasury stock shall be accounted for in accordance with the R.O.C.
        SFAS No. 39, “Accounting for Share-based Payment”.
     C. Upon retirement of treasury stock, if the acquisition cost is above the book
        value, the difference should be credited to “capital reserve-treasury stock”. If
        the acquisition cost is below the book value, the difference should first be offset
        against capital reserve from the same class of treasury stock transactions, and
        the remainder, if any, is debited to retained earnings.
     D. The Company's common stock owned by its subsidiary is treated the same as
        treasury stock.
(20) Share-based payment-employee compensation plan
     A. The employee stock options granted from January 1, 2004 through December 31,
        2007 are accounted for in accordance with EITF 92-070, EITF 92-071, EITF
        92-072 of the Accounting Research and Development Foundation, R.O.C., dated
        March 17, 2003, “Accounting for Employee Stock Options”. Under the
        share-based employee compensation plan, compensation cost is recognized


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                              using the intrinsic value method and pro forma disclosures of net income and
                              earnings per share are prepared under the fair value method.
                           B. For employee stock options granted after January 1, 2008, the Company shall
                              measure the services received and recognize as salaries during the vesting period
                              by using the fair value of the equity instruments granted.
                      (21) Employees’ bonuses and directors’ and supervisors’ remuneration
                           The costs of employees’ bonuses and directors’ and supervisors’ remuneration are
                           accounted for as expenses and liabilities, provided that such recognition is required
                           under legal or constructive obligation and the amounts can be estimated reasonably.
                           However, if the accrued amounts for employees’ bonuses and directors’ and
                           supervisors’ remuneration are significantly different from the actual distributed
                           amounts resolved by the stockholders at their annual stockholders’ meeting
                           subsequently, the differences shall be recognized as gain or loss in the following
                           year. In addition, according to EITF 97-127 of the Accounting Research and
                           Development Foundation, R.O.C., dated March 31, 2008 “Criteria for Listed
                           Companies in Calculating the Number of Shares of Employees’ Stock Bonus”, the
                           Company calculates the number of shares of employees’ stock bonus based on the
                           closing price of the Company’s common stock at the previous day of the
                           stockholders’ meeting held in the year following the financial reporting year, after
                           taking into account the effects of ex-rights and ex-dividends.
                      (22) Revenues, costs and expenses
                           A. Sales revenue is recognized when the earning process is substantially completed
                              and payment is realized or realizable.
                           B. Service revenue is recognized based on the percentage-of-completion method.
                              Any expected loss on a contract is recognized as cost or expense immediately.
                           C. Percentage-of-completion method is adopted if the gains (losses) on long-term
                              construction contracts can be reasonably estimated, otherwise, the completed
                              contract method is adopted. When the estimated contract costs exceed the
                              contract price, the resulting loss is included in the current net income under both
                              methods.
                           D. Expenses are recorded as incurred.
                      (23) Use of estimates
                           The preparation of financial statements in conformity with generally accepted
                           accounting principles in the Republic of China requires management to make
                           estimates and assumptions that affect the reported amounts of assets and liabilities
                           and the disclosures of contingencies at the date of the financial statements and the
                           amounts of revenues and expenses during the reporting period. Actual results


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           could differ from those assumptions and estimates.
     (24) Operating segments
           The operating segment information disclosed in these financial statements is
           consistent with that reported in the Company’s management reports. The chief
           operating decision-maker, which is the Company’s Board of Directors, is
           responsible for distributing resources to each operating segment and evaluating
           their performance. In accordance with R.O.C. SFAS No. 41, "Operating
           Segments", the Company discloses the information in the consolidated financial
           statements and not in the separate financial statements.
     (25) Convenience translation into US dollars (unaudited)
           The Company maintains its accounting records and prepares its financial statements
           in New Taiwan dollars. The United States dollar amounts disclosed in the 2011
           financial statements are presented solely for the convenience of the readers and
           were translated into US dollars using the exchange rate of US$1: NT$30.28 on
           December 31, 2011. Such translation amounts are unaudited and should not be
           construed as representation that the New Taiwan dollar amounts represent, have
           been, or could be converted into United States dollars at that or any other rate.
3.   CHANGES IN ACCOUNTING PRINCIPLES
     (1)   Notes, accounts and other receivables
           Effective January 1, 2011, the Company adopted the newly amended R.O.C. SFAS
           No. 34, "Financial Instruments: Recognition and Measurement". Impairment loss
           (bad debts allowance) is recognized when there is objective evidence of impairment
           for notes, accounts and other receivables. There is no significant impact on the net
           income for the year ended December 31, 2011 as a result of this change in
           accounting principle.
     (2)   Operating segments
           Effective January 1, 2011, the Company adopted the newly issued R.O.C. SFAS No.
           41, "Operating Segment" which supersedes R.O.C. SFAS No. 20, "Segment
           Reporting". The Company restated the operating segment information for the year
           ended December 31, 2010. This change in accounting principle had no impact on
           the net income and earnings per share for the years ended December 31, 2011 and
           2010.




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                4.    DETAILS OF SIGNIFICANT ACCOUNTS
                      (1)   Cash and cash equivalents
                                                                                            December 31,
                                                                                     2011                  2010
                            Cash on hand
                            Cash in banks
                            Cash equivalents


                            Cash equivalents are short-term notes with maturities within three months from the
                            date of investment.
                      (2)   Financial assets at fair value through profit or loss
                                                                                            December 31,
                                                                                     2011                  2010
                            Current items:
                             Held for trading
                              Derivative financial instruments

                            A. The Company recognized net gain on valuation of financial assets amounting to
                               $25,240 and $5,945 for the years ended December 31, 2011 and 2010,
                               respectively.
                            B. The information on trading nature and contract of derivative financial
                               instruments are as follows:
                                                                  December 31, 2011
                                                                                     Contract amount
                                        Nature              Contract period         (Notional amount)      Fair value
                                Forward exchange:
                                BUY USD/SELL TWD           Jan. 9~Feb. 9, 2012      USD
                                SELL USD/BUY TWD           Jan. 9~Feb. 9, 2012      USD
                                SELL EUR/BUY USD               Jan. 3, 2012         EUR
                                SELL AUD/BUY USD           Jan. 4~ Jan. 5, 2012     AUD




                            C. The Company entered into forward exchange contracts to hedge the change of
                               exchange rate arising from export sales. However, the transaction did not
                               qualify for hedge accounting, therefore it was classified as held for trading, and
                               accounted for at fair value through profit or loss.




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(3) Financial assets carried at cost
                                                                December 31, 2011
                                               Number of Percentage
                                                  shares       of       Original    Period-end
                 Names of investees          (in thousands) ownership      Cost       balance
    Non-current items:
    A. Emerging stocks
       1. Taiwan High Speed Railway
           Corporation
       2. CANDO Corporation
       3. Industrial Bank of Taiwan
       4. Asia Pacific Telecom Group Co.,
           Ltd.

    B. Unlisted stocks
       1. Far Eastern Electronic Toll
           Collection Co., Ltd.
       2. Pacific Venture Partners Fund
       3. Pacific Technology Partners Fund
       4. Others




                                                                December 31, 2010
                                               Number of Percentage
                                                  shares       of       Original    Period-end
                 Names of investees          (in thousands) ownership      Cost       balance
    Non-current items:
    A. Emerging stocks
       1. Taiwan High Speed Railway
           Corporation
       2. CANDO Corporation
       3. Industrial Bank of Taiwan

    B. Unlisted stocks
       1. Far Eastern Electronic Toll
           Collection Co., Ltd.
       2. Taiwan Pelican Express Co., Ltd.
       3. Asia Pacific Telecom Group Co.,
           Ltd.
       4. Pacific Technology Partners Fund
       5. Pacific Venture Partners Fund
       6. Others


    Note: Represents preferred stocks.




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                            A. The above investments held by the Company were measured at cost since the fair
                               value cannot be measured reliably.
                            B. The Company recognized the impairment of financial assets carried at cost-Far
                               Eastern Electronic Toll Collection amounting to $200,750 for the year ended
                               December 31, 2011.
                            C. As of December 31, 2011 the Company transferred the shares of Toppoly
                               Optoelectronics Corporation to Chimei Innolux Corporation (formerly Innolux
                               Display Corporation) because of the merger, and reclassified the investment to
                               available-for-sale financial assets as the fair value can be measured reliably and
                               based on the investment intention of the management.
                      (4)   Notes receivable-net
                                                                                         December 31,
                                                                                    2011              2010
                            Notes receivable
                            Less: allowance for doubtful accounts

                  (5)       Accounts receivable-net
                                                                                         December 31,
                                                                                  2011                  2010
                            Accounts receivable
                            Less: allowance for doubtful accounts

                  (6)       Inventories-net
                                                                          December 31, 2011
                                                                           Allowance for
                                                           Cost           decline in value       Book value
                            Raw materials
                            Work in process
                            Finished goods
                            Inventory in transit


                                                                          December 31, 2010
                                                                           Allowance for
                                                           Cost           decline in value       Book value
                            Raw materials
                            Work in process
                            Finished goods
                            Inventory in transit

                            Except for cost of goods sold, the inventories recognized as operating costs amounted
                            to $11,758 and $33,088 for the years ended December 31, 2011 and 2010,
                            respectively.




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(7)   Construction in progress-net
      A.   The balance of construction in progress which exceeded partial construction
           billings is as follows:
                                                              December 31,
                                                        2011                2010
           Construction in progress
           Partial construction billings

      B.   The balance of partial construction billings which exceeded construction in
           progress is as follows:
                                                               December 31,
                                                        2011                  2010
           Partial construction billings
           Construction in progress




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                      C. As of December 31, 2011 and 2010, cumulative gain (loss) recognized under
                         the percentage-of-completion method for major contracts are summarized as
                         follows:
                                                                       December 31, 2011
                                           Expected                       Estimated Percentage Cumulative
                                          completion       Contract        contract      of     gain (loss)
                          Construction       date           price           cost    completion recognized

                         Construction A    June 2012   $    2,258,773 $     2,179,006     91%       $    72,815
                         Construction B    June 2012        1,312,199       1,243,511     99%            68,562
                         Construction C    June 2012        1,273,788       1,170,356     99%           102,244
                         Construction D    Dec. 2012        1,165,517       1,204,406     89%   (        38,889)
                         Construction E    May 2013         1,004,215        923,463      55%            44,282
                         Construction F    May 2013           968,571        891,086       1%            44,847
                         Construction G    Dec. 2012          938,373       1,525,748     96%   (       587,375)
                         Construction H    Dec. 2012          621,282        674,470      98%   (        53,188)
                         Construction I    Dec. 2012          612,805        598,334      98%            14,157
                         Construction J    May 2013           556,190        506,133       2%             1,109


                                                                      December 31, 2010
                                         Expected                         Estimated Percentage Cumulative
                                        completion         Contract        contract      of     gain (loss)
                           Construction    date             price           cost    completion recognized

                         Construction A    Jan. 2012   $    2,010,224 $     1,931,848     91%       $    71,683
                         Construction B    June 2011        1,312,199       1,243,511     99%            68,462
                         Construction C    June 2011        1,226,644       1,127,036     95%            94,363
                         Construction D    Dec. 2012        1,094,783       1,133,672     85%   (        38,889)
                         Construction E    May 2013           938,452        863,024      12%             9,334
                         Construction G    Dec. 2012          871,128       1,458,503     95%   (       587,375)
                         Construction H    June 2011          621,282        674,470      96%   (        53,188)
                         Construction I    June 2011          612,805        598,334      97%            14,037




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(8) Available-for-sale financial assets
     Non-current items:
                                                                  December 31, 2011
                                          Number of Percentage
                                          shares (in    of       Original    Period-end   Market
      Names of investees                  thousands) ownership     Cost       balance     value
 Listed and OTC stocks
 1. Chimei Innolux Corporation
 2. Taiwan Cogeneration Corporation
 3. Cathay Financial Holdings
 4. AU Optronics Corporation
 5. United Micro Electronics Co., Ltd.
 6. Others

 Adjustment of available-for-sale financial assets



                                                                 December 31, 2010
                                          Number of Percentage
                                          shares (in    of       Original    Period-end   Market
      Names of investees                  thousands) ownership     Cost       balance     value
 Listed and OTC stocks
 1. Chimei Innolux Corporation
 2. Taiwan Cogeneration Corporation
 3. Cathay Financial Holdings
 4. AU Optronics Corporation
 5. United Micro Electronics Co., Ltd.
 6. Others

 Adjustment of available-for-sale financial assets




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                                                                                                                                                                                                                                                                                     2011

                                      (9) Long-term equity investments accounted for under the equity method
                                                                                                                                                                                                                                                      Unit: thousand shares
                                          A. The details are as follows:                                                              December 31, 2011                                                              December 31, 2010
                                                                                                                   Percentage                Investment                                        Percentage                Investment
                                                                                                       Number          of       Original      income           Period-end   Market   Number       of        Original       income        Period-end          Market
                                                      Names of investees                               of shares   ownership      cost          (loss)           balance     value   of shares ownership      cost          (loss)         balance            value
                                          a. Investments accounted for under the equity method:
                                             1. Tung Pei Industrial Co., Ltd.
                                             2. Tecom Co., Ltd.
                                             3. Tong Dai Co., Ltd.
                                             4. Great Teco Whirlpool Co., Ltd.




TECO ELECTRIC & MACHINERY CO., LTD.
                                             5. Teco International Investment Co., Ltd.
                                             6. Teco Holding USA Inc.
                                             7. Teco Electric & Machinery (Pte) Ltd.
                                             8. Tong-An Investment Co., Ltd.
                                             9. Teco Electro Devices Co., Ltd.
                                           10. United View Global Investment Co., Ltd.
                                           11. GD Teco Taiwan Co., Ltd.
                                           12. Taian (Subic) Electric Co., Inc.
                                           13. Micropac (BVI)
                                           14. Tong-an Assets Management & Development Co., Ltd.
                                           15. Yatec Engineering Corporation
                                           16. Media Vision Inc.
                                           17. Lien Chang Electronic Enterprise Co., Ltd.
                                           18. An-Tai International Investment Co., Ltd.
                                           19. Century Development Corporation
                                           20. Teco Vietnam Electric Co., Ltd.
                                           21. Vmax Telecom Co., Ltd.
                                           22. Information Technology Total Services Co., Ltd.
                                           23. Tesen Electric & Machinery Co., Ltd.
                                           24. Taiwan Pelican Express Co., Ltd.
                                           25. Others


                                          Less: credit balance of long-term investments (gross amount before
                                                offset of notes receivable-related parties, other
                                                receivables-related parties or other liabilities)


                                          Note: Market value is the same as period-end balance.




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                                                                                         Annual Re p o r t




     B. The investment income totaling $549,238 and $514,775 for the years
        ended December 31, 2011 and 2010, respectively, were based on the
        investees’ financial statements which were audited by other auditors. As
        of December 31, 2011 and 2010, the related investments were stated at
        $6,589,659 and $5,765,239, respectively, and the related investments with
        credit balance were $4,955 and $414, respectively.
     C. As of December 31, 2011 and 2010, the Company's common stocks
        owned by its subsidiaries, Tong-An Investment Co., Ltd. and others, with a
        total cost of $346,912 (22,366,000 shares) for both years, were treated as
        treasury stock.
(10) Property, plant and equipment

                                     Original   Revaluation   Accumulated     Net book
                                      cost       increment    depreciation     Value
     December 31, 2011
     Land
     Buildings
     Machinery and equipment
     Transportation equipment
     Miscellaneous equipment


     Prepayments for fixed assets



     December 31, 2010
     Land
     Buildings
     Machinery and equipment
     Transportation equipment
     Miscellaneous equipment


     Prepayments for fixed assets




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                           A. Certain assets were appraised in the years 1961, 1974 and 1980, and the
                              revaluation increment was recorded as other equity adjustment. As of
                              December 31, 2011 and 2010, the balance of revaluation increment was
                              both $285,272.
                           B. For the years ended December 31, 2011 and 2010, capitalized interest
                              amounted to $362 and $137, respectively.
                           C. Certain fixed assets are pledged for borrowings and letters of credit.
                              Please refer to Note 6, “Details of pledged assets”.
                      (11) Leased assets

                                                    Original        Accumulated    Accumulated       Net book
                           December 31, 2011         cost           depreciation    impairment        value
                           Land
                           Buildings
                           Machinery and
                            equipment
                           Miscellaneous
                            equipment


                                                    Original        Accumulated    Accumulated       Net book
                           December 31, 2010         cost           depreciation    impairment        value
                           Land
                           Buildings
                           Machinery and
                            equipment
                           Miscellaneous
                            equipment


                           A. Leased assets mainly consist of property, plant, and equipment located in
                              Quanying of Taoyuan County, Hsinchuang of New Taipei city, Sanchong
                              Road at Nankang District and Songjiang Road at Zhongshan District of
                              Taipei City.
                           B.Certain leased assets are pledged for borrowings and letters of credit. Please
                             refer to Note 6, “Details of pledged assets”.




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  (12) Idle assets
                                                              December 31,
                                                           2011           2010
       Farm land-Taoyuan County
       Farm land-Yunlin County

       Less: accumulated impairment

       The Company was unable to transfer the title of certain farmland to the
       Company’s name due to legal restrictions. As of December 31, 2011 and
       2010, the land title was registered under an individual’s name. The Company
       entered into an agreement to secure the title and the first mortgage right.
  (13) Long-term notes and accounts receivable
                                                              December 31,
                                                           2011           2010
       Overdue receivables
       Less: allowance for doubtful accounts


  (14) Impairment of assets

       A. For the years ended December 31, 2011 and 2010, the impairment loss
          recognized is as follows:
                                                         Recognized in
                                                      statement of income
                                                    2011              2010
       Impairment loss on:
       Financial assets carried at cost-non-current
       B. The impairment loss on financial assets carried at cost-non-current was
          recognized as the recoverable amount was less than the book value.
  (15) Financial liabilities at fair value through profit or loss
                                                                December 31,
                                                           2011            2010
       Current items:
         Held for trading
            Derivative instruments
       A. The Company recognized gain (loss) on valuation of financial liabilities
          amounting to $5,843 and ($5,843) for the years ended December 31, 2011
          and 2010, respectively.
B. The information on trading nature and contract of derivatives financial instruments are


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                          as follows:
                                                                        December 31, 2010
                                                                                   Contract amount
                                   Nature                Contract period          (Notional amount)   Fair Value
                          Forward exchange:
                          SELL AUD/BUY USD             Jan. 14~Feb. 25, 2011      AUD
                          SELL USD/BUY TWD             Mar. 4~ Mar. 17, 2011      USD
                          BUY USD/SELL TWD             Mar. 4~ Mar. 17, 2011      USD



                      C. The Company entered into forward exchange contracts to hedge the change of
                          exchange rate arising from export sales. However, the transaction did not qualify for
                          hedge accounting, therefore, it was classified as held for trading and accounted for at
                          fair value through profit or loss.
                  (16) Income tax
                       A. Deferred income tax assets and liabilities:
                                                                                           December 31,
                                                                                        2011           2010
                         Current
                          Deferred income tax assets
                          Less: valuation allowance

                           Deferred income tax liabilities

                         Non-current
                          Deferred income tax assets
                          Less: valuation allowance

                           Deferred income tax liabilities




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                                                                                     2011
                                                                                      Annual Re p o r t




B. The components of deferred income tax assets and liabilities are as follows:

                                                         December 31, 2011
                                                        Amount       Tax effect
  Current
   Deferred income tax assets
    Investment tax credits
    Unrealized intercompany profit
    Unrealized expenses
    Over provision of allowance for doubtful
     accounts
    Provision for decline in value of inventories

    Less: valuation allowance

    Deferred income tax liabilities
     Others

  Non-current
   Deferred income tax assets
    Investment tax credits
    Impairment loss
    Tax benefit of loss carryforwards
    Difference resulting from different useful
      lives of fixed assets between financial and
      tax basis
    Permanent loss on long-term investments

    Less: valuation allowance

    Deferred income tax liabilities
     Investment income from foreign
       investments
     Others




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                                                                           December 31, 2010
                                                                         Amount        Tax effect
                       Current
                        Deferred income tax assets
                         Investment tax credits
                         Unrealized intercompany profit
                         Unrealized expense
                         Over provision of allowance for doubtful
                          accounts
                         Provision for decline in value of inventories
                         Others

                        Less : valuation allowance


                       Non-current
                        Deferred income tax assets
                         Investment tax credits
                         Impairment loss
                         Tax benefit of loss carryforwards
                         Difference resulting from different useful
                           lives of fixed assets between financial and
                           tax basis
                         Permanent loss on long-term investments

                        Less: valuation allowance

                        Deferred income tax liabilities
                         Investment income from foreign investments
                         Others




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  102   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                         2011
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C.The reconciliation between income tax expense and income tax payable are
  as follows:
                                                           2011           2010
  Current year income tax expense based on
    statutory income
  Tax effect of permanent differences
  Tax effect of investment tax credits
  Over provision for income tax payable in prior
    year and net change in deferred income tax
    (liabilities) assets
  Effect of change in income tax rate
  Current income tax expense
  Effect of Income Basic Tax Act
  Additional 10% corporate tax on undistributed
   earnings
  Income tax expense
  Less: Net changes in deferred income tax
           liabilities
         Under provision for income tax payable in
           prior years
         Foreign income tax paid
         Paid and prepaid income tax
  Income tax payable payable
D.As of December 31, 2011, the Company’s income tax returns through 2009
  have been assessed and approved by the Tax Authority.
E. As of December 31, 2011, the unused investment tax credits and tax benefit
   of loss carryforwards amounted to $299,785 and $184,006, respectively.
   The details are as follows:
                                                             Unused
                                                           investment     Year of
            Qualified expenditures         Total credits   tax credits   expiration
  Automated production equipment,
   transportation construction projects,
   investments in important technology
   companies, research & development
   expenditures and employees’ training
   expenditures
                                                             Unused       Year of
            Qualified expenditures         Total credits   tax credits   expiration
  Tax benefit of loss carryforwards




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                      (17) Long-term loans
                                                                                  December 31,
                                                                          2011                    2010
                           Long-term loans
                           Commercial papers payable
                           Less: unamortized discount


                           Interest rates

                           A. Under the long-term contracts with certain financial institutions, the
                              Company is required to maintain certain financial ratios and capital
                              requirements as well as meet certain restrictions relative to significant asset
                              acquisitions or disposals.
                           B. As of December 31, 2011 and 2010, a portion of loans due within one year
                              were classified as long-term as these were refinanced before the balance
                              sheet date.
                      (18) Retirement plan
                           A. The Company has a non-contributory and funded defined benefit plan in
                              accordance with the R.O.C. Labor Standards Law, covering all regular
                              employees before the implementation of the Labor Pension Act on July 1,
                              2005. The defined benefit plan will continue to cover the employees who
                              choose to remain with the defined benefit plan. Upon retirement, pension
                              payments are calculated based on total years of service and average salary
                              of the last six months prior to retirement. Two base units are earned for
                              the first 15 years of service and one unit for each additional year thereafter,
                              with a maximum of 45 units. The Company contributes 6% of the
                              employees’ monthly salary to an independent retirement trust fund, with the
                              Bank of Taiwan, the trustee.
                           B. The related assumptions used for the actuarial valuation are as follows:
                                                                                 2011               2010
                              Discount rate
                              Average salary increase rate
                              Expected return rate on plan assets




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  104   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                      2011
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C. The reconciliation between the funded status and accrued pension liability as
    of December 31, 2011 and 2010 are summarized as follows:
                                                          December 31,
                                                       2011            2010
   Benefit obligation:
    Vested benefit obligation
    Non-vested benefit obligation
    Accumulated benefit obligation
    Additional benefits based on future
       salary increases
    Projected benefit obligation
   Fair value of plan assets
   Funded status
   Unrecognized transition obligation
   Prior service cost unamortized
   Unrecognized net pension loss
   Additional pension liability
   Accrued pension liability
   Vested obligation

D. The components of net pension cost for the years ended December 31, 2011 and
   2010 are as follows:
                                                      2011               2010
   Service cost
   Interest cost
   Expected return on plan assets
   Unrecognized transition obligation
   Prior service cost amortized
   Unrecognized net pension loss amortized


E. Effective July 1, 2005, the Company established a defined contribution pension
   plan under the R.O.C. Labor Pension Act for eligible employees holding
   Republic of China citizenship. The Company deposits the pension amount
   based on 6% of the employees’ monthly salary into each employee’s personal
   pension account with the Bureau of Labor Insurance. The pension cost under
   this plan amounted to $69,457 and $61,432 for the years ended December 31,
   2011 and 2010, respectively.




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                      (19) Common stock
                           A. As of December 31, 2011, the Company’s issued and outstanding capital
                              amounted to $18,375,519, with a par value of $10 (in dollars) per share.
                           B. As of December 31, 2011, 4,988,000 shares of employee stock options had
                              been exercised, but the registration procedure for 1,250,000 shares has not
                              yet been completed.
                           C. On December 17, 1996, the Board of Directors of the Company adopted a
                              resolution that allows certain stockholders to issue 5,540 thousand units of
                              global depository receipts (GDRs), represented by 55,399 thousand shares of
                              common stock. A unit of GDR represents 10 shares of common stock.
                              After obtaining approval from SFB, these GDRs were listed on the
                              Securities Exchange of London, with total proceeds of US$107,644,000.
                              The issuance of GDRs were presented by issuing common shares, therefore,
                              there is about 7% dilutive effect on the common shares’ equity. The main
                              terms and conditions of the GDRs are as follows:
                              a. Voting rights
                                GDR holders may, pursuant to the Depositary Agreement and the relevant
                                laws and regulations of the R.O.C., exercise the voting rights pertaining to
                                the underlying common shares represented by the GDRs.
                              b. Redemption of the underlying common shares represented by the GDRs
                                When the holders of the GDRs request the Depositary to redeem the GDRs
                                in accordance with the relevant R.O.C. regulations and the provisions in
                                the Depositary Agreement, the Depositary may (i) deliver the underlying
                                common shares represented by the GDRs to the GDR holders, or (ii) sell
                                the underlying common shares represented by the GDRs in the R.O.C.
                                stock market on behalf of the GDR holder. The payment of proceeds
                                from such sale shall be made subject to the relevant R.O.C. laws and
                                regulations and the provisions in the Depositary Agreement.
                              c. Distribution of dividends, preemptive rights and other rights GDR holders
                                 own the same rights as common shareholders.
                              d. There were 48 thousand units outstanding, representing 479 thousand
                                 common shares as of December 31, 2011.
                      (20) Capital reserve
                           The R.O.C. Company Law requires that the capital reserve shall be exclusively
                           used to offset against accumulated deficit or increase capital and shall not be



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  106   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                    2011
                                                                                                     Annual Re p o r t




     used for any other purpose. Capital reserve from paid-in capital in excess of
     par value and donated surplus can be transferred to common stock up to an
     annual limit of 10% of total common stock.
(21) Share-based payment-employee compensation plan
     A. As of December 31, 2011, the Company’s share-based payment plans are as
        follows:
        (A) Treasury stock transferred to employees:

                                                     Grant quantity
            Type of arrangement    Grant date (in thousands of shares) Vesting conditions
                   Plan 1         Apr. 6, 2006         3,359           Vested immediately
                   Plan 2         Jan. 4, 2007         8,106                    "
                   Plan 3         Mar. 30, 2007        4,021                    "
                   Plan 4         Oct. 3, 2007         8,286                    "

        (B) Employee stock options:

                                             December 31, 2011
                                                                   Actual Estimated future
                              Grant     Contract      Vesting     turnover    turnover
              Grant date     quantity    period      conditions      rate         rate
                           50,000 units              2 years’
             Dec. 26, 2007    (Note)    6 years       service           3%           5%

                                              December 31, 2010
                                                                       Actual Estimated future
                             Grant     Contract       Vesting         turnover    turnover
             Grant date     quantity    period       conditions          rate         rate
                          50,000 units               2 years’
            Dec. 26, 2007    (Note)    6 years        service          5.7%          5%

            Note: Each unit entitles the holder to subscribe for 1,000 shares of the
                  Company’s common stock.




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                  a. Details of the employee stock options are set forth below:

                                                                                 For the years ended December 31,
                                                                          2011                                 2010
                                                                           Weighted-average                           Weighted-average
                                                         No. of shares       exercise price      No. of shares         exercise price
                            Stock options                (in thousands)       (in dollars)       (in thousands)          (in dollars)
                        Options outstanding at
                         beginning of the year
                        Options granted
                        Distribution of stock
                         dividends / adjustments
                         for number of shares
                         granted for one unit of
                         option
                        Options abandoned
                        Options exercised
                        Options outstanding at end
                         of the year
                        Options exercisable at end
                         of the year
                        Options authorized but not
                         granted at end of the year
                        Options revoked

                      b. Details of the employee stock options outstanding are set forth below:

                                                                        December 31, 2011
                                                          Stock options outstanding                     Stock options exercisable
                                                            Weighted-average
                            Range of                             expected        Weighted-average                      Weighted-average
                          exercise price   No. of shares        remaining           exercise price    No. of shares     exercise price
                           (in dollars)    (in thousands)     vesting period         (in dollars)    (in thousands)       (in dollars)
                                                                  years
                                                                        December 31, 2010
                                                          Stock options outstanding                     Stock options exercisable
                                                            Weighted-average
                            Range of                             expected        Weighted-average                      Weighted-average
                          exercise price   No. of shares        remaining           exercise price    No. of shares     exercise price
                           (in dollars)    (in thousands)     vesting period         (in dollars)    (in thousands)       (in dollars)
                                                                  years




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                                                                                           2011
                                                                                           Annual Re p o r t




          c. Before January 1, 2008, the Company adopted the Black-Scholes
            option-pricing model to estimate the fair value of the stock options.
            The weighted-average parameters are as follows:
                                                              December 26, 2007
                Stock price per share (in dollars)                             $ 15.1
                Exercise price per share (in dollars)                            15.1
                Expected price volatility                                     34.99%
                Expected vesting period                                       6 years
                Dividends yield rate                                                 0%
                Risk-free interest rate                                           2.42%
                Fair value per share (in dollars)                                 $ 5.75
     B. The pro forma net income are $2,747,365 and $2,461,787, and earnings per
        share are $1.52 (in dollars) and $1.37 (in dollars) per share for the years
        ended December 31, 2011 and 2010, respectively, based on the assumption
        that the compensation cost is accounted for using the fair value method for
        the stock options granted before the adoption of R.O.C. SFAS No. 39,
        “Accounting for Share-based Payment”.
(22) Retained earnings and legal reserve
     A.   As stipulated in the Company’s Articles of Incorporation, the current
          earnings, if any, shall be distributed in the following order:
          (a) Payment of taxes and duties.
          (b) Covering prior years’ accumulated deficit, if any.
          (c) After deducting items (a) and (b), set aside 10% of the remaining
              amount as legal reserve.
          (d) Set aside a certain amount as special reserve, if any.
          (e)     After deducting items (a) to (d), appropriating 1%~5% of remaining
                  earnings as directors’ and supervisors’ compensation.
          (f)     After deducting items (a) to (d), appropriating 1%~10% of remaining
                  earnings as employees’ bonuses.
          (g) Distributing the remaining amount plus prior years’ retained earnings
              to shareholders according to their shareholding percentage. The
              distribution rate is principally 80%, of which cash dividend shall
              account for 5%~50% of the distributed amount.
          (h) The Company may grant the employees of subsidiaries employee
              bonuses as described above if certain criteria prescribed by the Board
              of Directors are met.



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                       B. The Company’s dividend policy is summarized below:
                          As the Company operates in a volatile business environment and is in the
                          stable growth stage, the residual dividend policy is adopted taking into
                          consideration the Company’s financial structure, operating results and
                          future expansion plans.
                       C. Except for covering accumulated deficit or issuing new stocks or cash to
                          shareholders in proportion to their share ownership, the legal reserve shall
                          not be used for any other purpose. The use of legal reserve for the
                          issuance of stocks or cash to shareholders in proportion to their share
                          ownership is permitted, provided that the balance of the reserve exceeds
                          25% of the Company’s paid-in capital.
                       D.   (1) The appropriation of 2010 and 2009 earnings had been approved by the
                                shareholders during their meeting on June 10, 2011 and June 18, 2010,
                                respectively, as follows:
                                                              2010                 2009
                                                                Dividends              Dividends
                                                                per share               per share
                                                      Amount (in dollars) Amount (in dollars)
                                Legal reserve       $ 249,169             $ 195,710
                                Cash dividends       1,468,490 $      0.80 1,002,764 $        0.55
                            (2) The appropriation of 2011 earnings had been proposed by the Board of
                                Directors on March 20, 2012. Details are summarized below:
                                                                              2011
                                                                               Dividends per share
                                                              Amount                (in dollars)
                                Legal reserve        $            278,321
                                Cash dividends                  1,654,922 $                      0.90
                                As of March 20, 2012, the 2011 earnings appropriation and
                                capitalization of capital reserve had not been approved by the
                                stockholders.
                       E.   The estimated employees’ bonus amounted to $202,327 and $158,532, and
                            the estimated directors’ and supervisors’ remuneration amounted to
                            $89,923 and $70,459 for the years ended December 31, 2010 and 2009,
                            respectively. The appropriation of 2010 earnings was different with that
                            approved by the Board of Directors on March 16, 2011 totaling $1,624.
                            The difference is attributed to stock options exercised between March 16,
                            2011 and the ex-right date the shareholders approved the appropriation of
                            2010 earnings which increased the number of shares.


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                                                                                     Annual Re p o r t




F.   The estimated employees’ bonus amounted to $225,440 and $202,327, and
     the estimated directors’ and supervisors’ remuneration amounted to
     $100,196 and $89,802 for the years ended December 31, 2011 and 2010,
     respectively, which are recognized as operating costs and operating
     expenses based on the net income within the range stipulated in the
     Company’s Articles of Incorporation in consideration of the legal reserve
     and other factors. Information on the appropriation of the Company’s
     employees’ bonus and directors’ and supervisors’ remuneration as
     proposed by the Board of Directors and approved by the stockholders will
     be posted in the “Market Observation Post System” at the website of the
     Taiwan Stock Exchange.
G.   As of December 31, 2011 and 2010, the undistributed earnings are as
     follows:
                                                         December 31,
                                                  2011             2010
     Before December 31, 1997
     On or after January 1, 1998
      (a) Earnings that have not been
           imposed 10% tax
      (b) Earnings that have been imposed
           10% tax


H. As of December 31, 2011 and 2010, the imputation tax credit account
   balance were $298,710 and $203,100, respectively, and the estimated and
   actual creditable tax ratio in 2011 and 2010 were 5.27% and 7.20%,
   respectively.




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                      (23)Earnings per share
                          A. Earnings per share for common stockholders are as follows:
                                                                       For the year ended December 31, 2011
                                                                                Weighted average
                                                                                  outstanding        Earnings per share
                                                           Net income            common shares           (in dollars)
                                                    Before tax     After tax      (in thousands) Before tax After tax
                               Basic earnings per share (EPS)
                                  Net income
                               Common stock
                                 equivalents
                                 with potential
                                 dilutive effect:
                                 Employee stock
                                 options
                                 Employees’
                                 bonus
                               Diluted EPS
                               Net income


                                                                       For the year ended December 31, 2010
                                                                                Weighted average
                                                                                  outstanding        Earnings per share
                                                           Net income            common shares           (in dollars)
                                                    Before tax     After tax      (in thousands) Before tax After tax
                               Basic earnings per share (EPS)
                                  Net income
                               Common stock
                                 equivalents
                                 with potential
                                 dilutive effect:
                                 Employee stock
                                 options
                                 Employees’
                                 bonus
                               Diluted EPS
                               Net income




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                                                                                                   Annual Re p o r t




B. Pro forma information assuming that the Company’s common stocks owned
   by its subsidiaries are not treated as treasury stock are as follows:
                                            For the year ended December 31, 2011
                                                     Weighted average
                                                        outstanding       Earnings per share
                                Net income             common shares          (in dollars)
                         Before tax     After tax       (in thousands) Before tax After tax
  Basic earnings per share (EPS)
    Net income
  Common stock
    equivalents with
    potential dilutive
    effect:
    Employee stock
    options
    Employees’
     bonus
  Diluted EPS
  Net income


                                            For the year ended December 31, 2010
                                                     Weighted average
                                                       outstanding       Earnings per share
                                Net income            common shares          (in dollars)
                         Before tax     After tax      (in thousands) Before tax After tax
  Basic earnings per share (EPS)
    Net income
  Common stock
    equivalents with
    potential dilutive
    effect:
    Employee     stock
    options
    Employees’
     bonus
  Diluted EPS
  Net income




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                  (24) Treasury stock
                       As of December 31, 2011 and 2010, the Company’s common stock owned by its
                       subsidiaries both amounted to $346,912. The shares, total cost and market value of
                       the Company’s common stocks owned by its subsidiaries are as follows:

                                                                                          December 31, 2011
                                                                              Shares            Cost     Market value
                                                                         (in thousands)     (in dollars)  ( in dollars )
                        Tong-An Investment Co., Ltd.
                        An-Tai International Investment Co., Ltd.



                                                                                          December 31, 2010
                                                                              Shares            Cost     Market value
                                                                         (in thousands)     (in dollars)  ( in dollars )
                        Tong-An Investment Co., Ltd.
                        An-Tai International Investment Co., Ltd.




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   114   TECO ELECTRIC & MACHINERY CO., LTD.
                  (25) Personnel expenses, depreciation and amortization
                                                                                        For the years ended December 31,
                                                                           2011                                                 2010
                                                                   Operating expenses                                  Operating expenses
                                                                      (including                                            (including
                                                       Operating     miscellaneous                        Operating        miscellaneous
                                                        costs         expenses)              Total         costs            expenses)       Total

                       Personnel expenses
                        Salaries
                        Employees’ bonuses and
                         directors’ and supervisors’
                         remuneration
                        Labor and health insurances
                        Pension
                        Others
                       Depreciation
                       Amortization




www.teco.com.tw
                                                                                                                                                          2011




115
                                                                                  43
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      2011
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             5.    RELATED PARTY TRANSACTIONS
                   (1) Names and relationship of related parties
                    Names of related parties       Relationship with the Company                Names of related parties     Relationship with the Company
             Teco Nanotech Co., Ltd.                An investee company accounted       Taiwan Pelican Express              An investee company accounted
                   (Teco Nanotech)                    for under the equity method            Co., Ltd. (Pelican)              for under the equity method
             Teco International                                                         United View Global Investment
                   Investment Co., Ltd.                                                      Co., Ltd. (UVG)
                   (Teco International)                                                Titco International Corp.
             Tong-An Assets Management &                                                     (Titco)
                   Development Co., Ltd.                                                Vmax Telecom Co., Ltd.
                   (Tong-An Assets)                                                          (Vmax)
             Tong Dai Co., Ltd.                                                         Media Vision Inc. (Media Vision)
                   (Tong Dai)                                                           TKS Venture Capital Co., Ltd.          The investee company was
             Tesen Electric &                                                                (TKS Venture)                      liquidated in March 2010
                   Machinery Co., Ltd.                                                  Taian Electric Co., Ltd.            An investee company accounted
                   (Tesen)                                                                   (Taian)                          for under the equity method
             Information Technology                                                     Lien Chang Electronic Enterprise
                   Total Services Co., Ltd.                                                  Co., Ltd. (Lien Chang)
                   (ITTS)                                                              Yatec Engineering
             Tong Tai Jung Co., Ltd.                                                         Corporation (Yatec)
                   (Tong Tai Jung)                                                      An-Tai International
             Teco Electro Devices                                                            Investment Co., Ltd.
                   Co., Ltd. (Teco Electro)                                                 (An-Tai)
             Teco Electric &                                                            Micropac (BVI) (Micropac)
                   Machinery (Pte) Ltd.                                                 A-Ok Technical Co., Ltd.
                   (Teco Singapore)                                                          (A-Ok Technical)
             Teco Electric Co., Ltd.                                                    Taian-Etacom Technology
                   (Teco Europe)                                                             Co., Ltd. (Taian-Etacom)
             Teco Holding USA Inc.                                                      Taian Shen Electric Co., Ltd.
                   (Teco Holding)                                                            (Taian Shen)
             Royal Host Taiwan Co., Ltd.                                                Perkilangen Elektrik Taian
                   (Royal)                                                                   Jaya Sdn. Bhd.
             GD Teco Taiwan Co., Ltd.                                                        (Perkilangen)
                   (GD Teco)                                                            Taian (Subic) Electric Co.,
             Tung Pei Industrial Co., Ltd.                                                   Inc. (Taian Subic)
                   (Tung Pei)                                                           PT. Taian Electronic
             Great Teco Whirlpool                                                            Indonesia (PT. Taian)
                   Co., Ltd.                                                            Taian (Malaysia) Electric
                   (Teco Whirlpool)                                                          Sdn., Bhd. (Taian Malaysia)
             Tecom Co., Ltd. (Tecom)                                                    An Yang Electric Co., Ltd.         The investees were merged with the
             Tecnos International                                                            (An Yang)                           Company in July 2011.
             Consultant Co., Ltd.                                                       E-Joy International Co., Ltd.       An investee company accounted
                   (Tecnos)                                                                  (E-Joy International)            for under the equity method
             Tong-An Investment                                                         An-Sheng Travel Co., Ltd.
                   Co., Ltd. (Tong-An)                                                       (An Sheng)
             E-Value Commerce Co., Ltd.                                                 Yaskawa Teco Motor
                  (E-Value)                                                                  Engineering Co. (Yaskawa)
             Samwha Industrial                                                          Teco Vietnam Electric Co.,
                   Systems Co., Ltd.                                                         Ltd. (Teco Vietnam)
                  (Samwha)                                                             Teco Appliance (H.K.) Co., Ltd.
             Solidtec Consulting Inc.                                                        (Teco Appliance)
                 (Solidtec)                                                             United Development Corporation
             Taitec Technology Co., Ltd.          The investees were merged with the          Ltd. (United Development)
                    (Taitec)                            Company in July 2011.           Le-Li Co., Ltd.
             Fibrelight Reflexion (HK) Limited        The investee company was               (Le-Li)
                   (Fibrelight HK)                      liquidated in Dec. 2010



                                                                                       44




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                                                                                                                                                       Annual Re p o r t




       Names of related parties            Relationship with the Company               Names of related parties             Relationship with the Company
Flexion Optical Fibre Limited                            Note                                                                     the equity method
   (Flexion UK)                                                                 Antech Automation Corp.                     An indirect investee company
Century Development Corporation             An investee company accounted            (Antech)                                    accounted for under
   (Century Development)                      for under the equity method       An-Hubbell-Taian Co., Ltd.                        the equity method
Creative Sensor Inc.                                                                 (An-Hubbell)
   (Creative Sensor)                                                            Gorich Technology Co., Ltd.
TECO (PHILIPPINES) 3C &                                                              (Gorich)
   APPLIANCES, INC.                                                             Tension Envelope Taiwan
   (TECO 3C)                                                                         Co., Ltd. (Tension)
TA Associates International Pte. Ltd.                                           Universal Mailing Service
   (TA Associates)                                                                   Co., Ltd. (Universal)
Teco Westinghouse Motor                      An indirect investee company       Teco Australia Pty. Ltd.
   Industrial-Canada                              accounted for under               (Teco Australia)
   (Teco Westinghouse Canada)                      the equity method            Teco Information
Teco Westinghouse Motor                                                              International Investment
   Company (Teco Westinghouse)                                                       Corp. (Teco Information)
Teco Industrial                                                                 Strong Development Co.
   (Malaysia) Sdn. Bhd.                                                              (Strong)
   (Teco Malaysia)                                                              Jack Property Service &
Tecoson HK Co., Ltd.                                                                 Management
   (Tecoson HK)                                                                      Company (Jack Property)
Wuxi Teco                                                                       Tai-An Technology (Wuxi)
   Electric & Machinery                                                              Co., Ltd. (Tai-An Wuxi)
   Co., Ltd. (Wuxi Teco)                                                        Teron Electric (Huizhou) Co., Ltd.
Suzhou Teco                                                                          (Teron)
   Electric & Machinery                                                         Teco (Dong Guang) Air Conditioning
   Co., Ltd. (Suzhou Teco)                                                           Equipment Co., Ltd.
Nan Chang Teco Electronic &                                                          (Teco Dong Guang)
   Machinery Co., Ltd.                                                          Unison Service Corporation
   (Nanchang Teco)                                                                   (Unison)
Taichang Teco Electro                                                           Tecoson Industrial
   Devices Co.                                                                       Development Ltd. (Tecoson)
   (Taichang Teco)                                                              Teco Electronic Devices Co., Ltd.
Jiangxi Teco Electric and                                                            (Teco Devices)
   Machinery Co., Ltd.                                                          Nanchang Dong-Huan Management
   (Jiangxi Teco)                                                                    & Consulting Co., Ltd.
QingDao Teco Precision                                                               (Nanchang Dong-Huan)
   Mechtronics Co., Ltd.                                                        Teco Inc. (Teco Inc.)
   (QingDao Teco)                                                               Great Teco, S.L.
Xiamen Teco Technology                                                          Jason Technology (Asia) Co., Ltd.
   Co., Ltd. (Xiamen Teco)                                                           (Jason Technology)
Sichuan Teco Changhong                                                          Tasia (Pte) Ltd. (Tasia)
   Precision Co., Ltd.                                                          Tong Yuan Electronic & Machinery
   (Sichuan Teco)                                                                    Sdn. Bhd. (Tong Yuan)
Asia Innovative Technology Co., Ltd.                                            P.T Teco Multiguna Electro
   (Xiamen An-Tai)                                                                   (Teco Multiguna)
An-Tai International                                                            Asia Air Tech Industrial Co., Ltd.
     Investment Co., Singapore                                                       (AAT)
     (An-Tai Singapore)                                                         Great Teco Motor Ltd. (GTM)
An-Shin Food Service Co., Ltd.               The director is the same as the    Great Teco Investment Co., Ltd. (GTI)
     (An-Shin)                                 chairman of the Company          Teco Electronic & Machinery Co.,
                                                                                     Ltd. (Teco THAI)
Note : The Company did not invest in the capital increase of Flexion UK in September, 2010 resulting in the loss of significant influence. As a result,
      Flexion UK is no longer a related party after the capital increase.




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                      Names of related parties            Relationship with the Company          Names of related parties         Relationship with the Company
             Information Technology Total                  An indirect investee company    Asia Pacific Telecom Co., Ltd.           The chairman is the same as
                    Service (BVI) (ITTS BVI)                    accounted for under            (Asia Pacific Telecom)                the CEO of the Company
             Information Technology Total Service                the equity method         Teco Image System Co., Ltd.               Related party in substance
                    (Hang Zhu) Co., Ltd.                                                       (Teco Image)
                    (ITTS Hang Zhu)                                                       Baycom Opto-Electronics
             Advanced Innovative Marketing Inc.                                                Technology Co., Ltd.
                    (AIM)                                                                      (Baycom)
             Tecma Information Systems Sdn. Bhd.                                           Kuenling Machinery                          An investor in a joint
                    (TECMA)                                                                    Refrigerating CO., Ltd.            venture with the Company (Note)
             Asia Electric & Machinery (Pte) Ltd.                                              (Kuenling Refrigerating)
                    (Asia PTE)                                                            Yuban & Co. (Yuban)
             STE Marketing Sdn. Bhd                                                        Tecom International                            Same chairman
                    (STEM)                                                                     Investment Co., Ltd.
             Sankyo Co., Ltd. (Sankyo)                                                         (Tecom International)
             Teco Electronic & Machinery B.V.                                              Teco Sichuan trading Co., Ltd.          An indirect investee company
                    (Teco Netherlands)                                                         (Teco Sichuan)                           accounted for under
             TYM Electric & Machinery Sdn. Bhd.                                                                                          the equity method
                    (TYM)                                                                 Jiangxi Teco-Lead PM Generator
             Ching Chi International Limited                                                   Manufacturing Co., Ltd.
                    (Ching Chi)                                                           Qingdao Teco precision
             P.T Teco Elektro Indonesia                                                        Mechatronics co., Ltd.
                    (P.T Teco)                                                            TECO Middle East Electric and
             Teco Group Science-Technology                                                     Machinery Limited Co.
                    (Hang Zhou) Co., Ltd.                                                      (TME)
                    (Teco Hang Zhou)                                                      Information Technology Total Services
             Qingdao TECO Century Advanced                                                          (Xiamen) Ltd. (ITTS Xiamen)
                    High-tech Mechtronics Co., Ltd.                                        Tianjlh Teco Technology Co., Ltd.
                    (TECO Century)                                                              (Tianjih Teco Air)
             Fujian Teco Precision Co ., Ltd.                                              Jiangxi Teco Air Conditioning
                    (Fujian Teco)                                                               Equipment Co., Ltd.
             Information Technology Total Services                                         Teco Westinghouse Motor Company
                    (Wuxi) Co., Ltd. (ITTS Wuxi)                                                S. A. de C. V.
                                                                                           TTMC Co., Ltd.


             Note     According to EITF 99-371 of the Accounting Research and Development Foundation, Kuenling Refrigerating and Yuban & Co. were no longer
                      related parties after the EITF was released.




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   118   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                  2011
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(2) Significant transactions and balances with related parties
   A.Sales
                                                     For the years ended December 31,
                                                      2011                     2010
                                                           % of net                % of net
                                                           operating               operating
                                                 Amount    revenues      Amount    revenues
      Teco Westinghouse
      Teco Australia
      Teco Singapore
      Teco Westinghouse Canada
      Tong Dai
      Tong Tai Jung
      Teco Netherlands
      Sankyo
      Taian Shen
      Teco Europe
      Yatec
      Asia Innovative
      TWMM
      E-Joy
      Taian-Etacom
      Wuxi Teco
      Others

      The sales terms, including pricing and collection, were negotiated in
      consideration of cost, market, competitors and other factors. The unrealized
      gain from downstream sales amounting to $372,691 and $373,809 for the years
      ended December 31, 2011 and 2010, respectively, had been eliminated and listed
      as other current liabilities.
   B. Construction revenue
                                                    For the years ended December 31,
                                                    2011                      2010
                                                        % of net                 % of net
                                                        operating                operating
                                             Amount     revenues       Amount revenues
      Century Development
      Others

      These construction revenues are recognized under the percentage-of-completion
      method according to the construction contracts, which were negotiated in
      consideration of the general market price and other factors.


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                      C. Purchases
                                                             For the years ended December 31,
                                                            2011                        2010
                                                                 % of net                    % of net
                                                                 operating                   operating
                                                     Amount        costs         Amount        costs
                         Tesen
                         Wuxi Teco
                         Teco Malaysia
                         Suzhou Teco
                         Tai-An Wuxi
                         Taian Subic
                         An Yang
                         GD Teco
                         Asia Innovative
                         QingDao Teco
                         Kuenling
                          Refrigerating
                         Others

                        The purchase terms, including pricing and payments, were negotiated in
                        consideration of the general market price and other factors.
                      D. Shipping expense
                                                          For the years ended December 31,
                                                          2011                         2010
                                                                  % of                        % of
                                                                shipping                    shipping
                                                     Amount     expenses         Amount     expenses
                        Pelican
                        The shipping terms, including pricing and payments, were negotiated in
                        consideration of the market price and other factors.
                      E. Service expense
                                                          For the years ended December 31,
                                                           2011                        2010
                                                                     % of                      % of
                                                                   service                  service
                                                      Amount       expense      Amount       expense
                        A-Ok Technical
                        The service terms, including pricing and payments, were negotiated in
                        consideration of the cost, market, competitors and other factors.



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F. Compensation of directors and management personnel
  Total compensation expenses were $172,406 and $146,838 for the years ended
  December 31, 2011 and 2010, respectively, including estimated bonuses to be
  appropriated from 2011 earnings with the actual amount to be finalized and approved
  upon the resolution of the shareholders during their meeting in 2011. The other
  information will be available in the annual report for the shareholders’ meeting.
G. Notes receivable-net
                                                              December 31,
                                            2011                               2010
                                                     % of notes                     % of notes
                                                     receivable                     receivable
                                                     (including                     (including
                                  Amount           related parties)   Amount      related parties)
   Tong Dai
   Tong Tai Jung
   Others




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                      H. Accounts receivable-net
                                                                                    December 31,
                                                                           2011                      2010
                                                                                 % of                      % of
                                                                               accounts                  accounts
                                                                              receivable                receivable
                                                                              (including                (including
                                                                                related                   related
                                                                  Amount         parties)   Amount        parties)
                        Teco Westinghouse
                        Asia Innovative
                        Teco Australia
                        Sankyo
                        Teco Singapore
                        Teco Westinghouse Canada
                        Teco Netherlands
                        Others

                        Add: foreign exchange (loss) gain, net

                        Less: reclassified to other receivables

                        Less: allowance for doubtful accounts
                              credit balance of long-term
                                 equity investments


                        As of December 31, 2011 and 2010, accounts receivable amounting to $239,875
                        and $73,380, respectively, were reclassified to other receivables as their aging were
                        over the normal credit term.




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  122   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                    2011
                                                                                                    Annual Re p o r t




I. Other receivables
 (A) Overdue accounts receivable:
                                                             December 31,
                                                2011                          2010
                                                    % of other                     % of other
                                                    receivables                    receivables
                                                     (including                      (including
                                 Amount           related parties) Amount        related parties)
      Asia Innovative
      Others

      Less: allowance for
             doubtful accounts



 (B) Others
                                                               December 31,
                                                2011                           2010
                                                    % of other                    % of other
                                                    receivables                   receivables
                                                     (including                     (including
                                  Amount          related parties)   Amount     related parties)
      Teco Nanotech
      QingDao Teco
      Tesen
      Others

      Less: allowance for
            doubtful accounts
           credit balance of
             long-term equity
             investments


      Other receivables - others mainly consist of receivables from sale of materials
      and leased property, etc.




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                      J. Partial construction billings
                                                                                   December 31,
                                                                       2011                             2010
                                                                          % of partial                   % of partial
                                                                          construction                   construction
                                                         Amount              billings      Amount           billings
                         Century Development
                         Others

                         Partial construction billings are receipts in advance from the air conditioner and
                         the cybernation construction of Nan-Kang Software Park.
                      K. Notes payable
                                                                                   December 31,
                                                                   2011                             2010
                                                                            % of notes                  % of notes
                                                                              payable                     payable
                                                                            (including                  (including
                                                         Amount           related parties)   Amount   related parties)
                         Pelican
                         Others


                      L. Accounts payable
                                                                             December 31,
                                                                2011                        2010
                                                                   % of accounts             % of accounts
                                                                       payable                   payable
                                                                     (including                (including
                                                         Amount    related parties)  Amount  related parties)
                         Wuxi Teco
                         Asia Innovative
                         Suzhou Teco
                         Teco Malaysia
                         Others




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  124   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                               2011
                                                                                               Annual Re p o r t




M. Accrued expenses
                                                       December 31,
                                           2011                       2010
                                              % of accrued                 % of accrued
                                                expenses                     expenses
                                               (including                   (including
                                    Amount   related parties)  Amount     related parties)
   Tong-An Assets
   Others


N. Endorsements and guarantees
                                                                    December 31,
                                                             2011                  2010
   Teco International
   GD Teco
   TME
   An-Tai
   Teco Holding
   Taitec
   Teco Westinghouse
   Others


O. Collaterals provided by the subsidiary
   The Company had sold certain assets in 2003 to its wholly-owned subsidiary,
   Tong-An Assets. As part of these assets have been pledged for bank loans, with
   the consent of the financial institutions, Tong-An Assets will continue to pledge
   these assets as collaterals for the Company’s loans. As of December 31, 2011 and
   2010, the credit line amounted to $0 and $1,001,074, respectively.
P. Operating lease transactions
                                                            For the years ended December 31,
        Location        Leased property       Lessee              2011              2010
   Taoyuan               Land, building     Tesen, etc.
                          and equipment
   Nankang, Taipei          Building         Vmax, etc.
   Songjiang, Taipei                        An-Shin, etc.
   Others               Land, building      Pelican, etc.
                         and equipment

   Rent was determined by negotiation and was collected pursuant to the provisions
   set forth in the contract.



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                        Q. Property transactions
                           (A) The Company rented assets in Quanying and Chungli of Taoyuan County
                               from Tong-An Assets for self-use or rentals. For the years ended December
                               31, 2011 and 2010, the rent expense was $53,689 and $53,941, respectively.
                               As of December 31, 2011 and 2010, unpaid rent amounted to $22,745 and
                               $113,182 (listed as accrued expenses), respectively.
                           (B) The Company sold a number of compressors (listed as machinery and
                               equipment and other equipment) to QingDao Teco in July, 2011. The contract
                               amounted to $54,558, and gain on disposal of property, plant and equipment
                               amounted to $9,360. As of December 31, 2011, $52,019 had not been
                               received (listed as other receivables-related parties).
                      6. DETAILS OF PLEDGED ASSETS
                                                                December 31,
                                        Assets               2011          2010             Purpose
                         Pledged assets-
                          Other financial assets-current                           Exercise guarantee for
                             Time deposits                                          construction
                          Fixed assets and leased assets
                             Land                                                  Long-term loans, short-term
                             Buildings                                              loans and letter of credit


                      7. COMMITMENTS AND CONTINGENT LIABILITIES
                        In addition to those disclosed in Note 5, the significant commitments and contingent
                        liabilities of the Company are as follows:
                        (1) As of December 31, 2011, the outstanding letters of credit for the materials and
                            equipment purchases was $571,962.
                        (2)As of December 31, 2011, the total purchase contracts for machinery and
                           equipment with various companies amounted to $42,710, of which $29,660 had
                           been paid (listed as prepayment for equipment).
                      8. MAJOR CATASTROPHE
                        None.
                      9. SUBSEQUENT EVENTS
                        None.
                      10.OTHERS
                        (1) Certain accounts in the December 31, 2010 financial statements were reclassified
                            to conform with the December 31, 2011 financial statement presentation.




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  126   TECO ELECTRIC & MACHINERY CO., LTD.
                  (2) The fair values of financial instruments

                                                                                                  December 31, 2011                      December 31, 2010
                                                                                                           Fair value                              Fair value
                                                                                                                Estimated                                 Estimated
                                                                                                   Quotations    using a                  Quotations       using a
                                                                                                   in an active valuation                 in an active    valuation
                                                                                     Book value        market technique     Book value       market       technique
                      Non-derivative financial instruments
                      Assets
                       Financial assets with fair values equal to book values
                       Available-for-sale financial assets
                       Financial assets carried at cost
                      Liabilities
                       Financial liabilities with fair values equal to book values
                      Derivative financial instruments
                      Assets
                       Financial assets with fair values equal to book values
                        Forward exchange contracts
                      Liabilities
                       Financial liabilities at fair value through profit or loss
                        Forward exchange contracts




                                                                                       55




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      2011
A n nual Re p o r t




                        The methods and assumptions used to estimate the fair values of the above financial
                        instruments are summarized as follows:
                         A. For short-term instruments, the fair values were determined based on their
                            carrying values because of the short maturities of the instruments. This
                            method was applied to cash and cash equivalents, notes and accounts receivable
                            (including related parties), other receivables (including related parties), other
                            financial assets-current, short-term loans, notes and accounts payable
                            (including related parties), accrued expenses and other payables (including
                            related parties).
                         B. For refundable deposits, long-term loans (including current portion) and
                            guarantee deposits received, the fair value was determined based on their
                            carrying values because the discounted values are approximately the same as
                            the carrying values.
                         C. The fair value of financial assets at fair value through profit or loss and
                            available-for-sale financial assets was based on quotations in the active market.
                         D. The fair value of derivative financial instruments which include unrealized
                            gains or losses on unsettled contracts was determined based on the amount to
                            be received or paid assuming that the contract was settled as of the reporting
                            date. The fair value was provided by the counterparty financial institution.
                      (3) For available-for-sale financial assets, the amount of gain (loss) recognized directly
                          in equity during the years ended December 31, 2011 and 2010 was ($761,303) and
                          ($384,234), respectively. As of December 31, 2011 and 2010, the financial
                          liabilities with cash flow risk due to the change of interest amounted to
                          $11,987,731 and $10,699,790, respectively.




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                                                                                             Annual Re p o r t




(4) Procedure of financial risk control and hedge
   A. The main objective of financial risk control and hedge strategy is to reduce the
      loss of assets or liabilities resulting from the exchange rate and interest rate
      fluctuations.   The Company achieves financial hedge by entering into
      derivatives and all activities of hedge follow the principles listed below to
      achieve risk control:
      (a) Nature hedge.
      (b) Not eroding the profit of the main business.
      (c) Not entering into financial instruments other than the transaction currency.
      (d) To execute the stop-loss point.
      (e) To execute the operating process.
   B. In monitoring control, the Board of Directors enacted procedures and authorized
      the management to operate in compliance with the operating strategy and to
      ensure that the risk of these transactions is within the tolerable range of the
      Company. If any unusual event occurs, necessary actions should be taken and
      reported to the Board of Directors immediately.




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                                                                                                                                                              A n nual Re p o r t
                                                                                                                                                                     2011

                                      (5) Information of major financial risk
                                          A. Market risk
                                             (a) Some of the Company’s transactions are conducted in foreign currencies, which are subject to exchange rate
                                                 fluctuations. The information on foreign currency denominated assets and liabilities are as follows:

                                                                              December 31, 2011                                  December 31, 2010
                                                         Foreign currencies       Exchange rate             Foreign currencies       Exchange rate
                                                         ( (in thousands)           (in dollar)    NTD      ( (in thousands)           (in dollar)   NTD




TECO ELECTRIC & MACHINERY CO., LTD.
                                               Financial Assets
                                               Monetary items
                                               USD
                                               AUD
                                               EUR
                                               JPY
                                               Long-term equity
                                               investments accounted
                                               for under the equity method
                                               USD
                                               SGD
                                               VND
                                               MYD
                                               Financial Liabilities
                                               Monetary items
                                               USD
                                               JPY




                                                                                                  58
                                                                                        2011
                                                                                         Annual Re p o r t




  (b) The investments in equity financial instruments owned by the Company
      are exposed to price risk, but the possibility of market risk is low as a
      result of the setting of a stop-loss point.
  (c) The loans mostly belong to adjustable rate mortage and the Company
      adjusts the loan position at market rates. Therefore, the Company
      expects no significant market risk.
  (d) The Company’s major import and export transactions are conducted in
      foreign currencies. The change in fair value will be caused by fluctuations
      in the foreign exchange rate. However, the amounts and periods of the
      Company’s accounts receivable and accounts payable are equivalent, so
      the market risk could be offset. If the gap is raised, the Company would
      adopt the forward contract to hedge the risk, so the Company estimates
      there would be no market risk.
B. Credit risk
  (a) The equity financial instruments have active markets and are transacted
      with financial institutions which are all in good credit standing.
      Therefore, the credit risk is low.
  (b) The Company’s receivables are all approved as a result of rigorous credit
      review procedures, and some of which are required to have adequate
      insurance or provide necessary collaterals. Therefore, the Company
      expects no significant credit risk.
  (c) Loan guarantees provided by the Company are in compliance with the
      Company’s “Procedures for Provision of Endorsements and Guarantees”
      and are provided to affiliated companies and investees which the
      Company owns directly or indirectly more than 50% ownership or with
      which the Company has normal business transactions. As the Company
      is aware of the credit conditions of these companies, it has not required to
      provide collateral for the loan guarantees. In the event that these
      companies fail to comply with banks’ loan agreements, the maximum loss
      to the Company is equal to total loan guarantee amount.
C. Liquidity risk
  The Company’s investments in equity financial instruments which have active
  markets are expected to be sold easily and quickly in the market at the price
  close to the fair value. The Company’s investments in equity financial



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                         instruments without active markets are exposed to liquidity risk.
                       D. Cash flow risk due to changes in interest rate
                         The loans are mostly issued at floating interest rate. Accordingly, the future
                         cash flow will fluctuate with the yield rate of these debt instruments.
                         Therefore, there is cash flow risk due to changes in interest rate.




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  132   TECO ELECTRIC & MACHINERY CO., LTD.
                  11. DISCLOSURE OF INVESTEE COMPANY INFORMATION
                     (1) Significant intercompany transactions
                     A. Loan granted during the year ended December 31, 2011: None.
                     B. Endorsements and guarantees provided during the year ended December 31, 2011:
                      Name of the company                                                         Maximum                                 Ratio of
                                                   Parties being guaranteed
                       providing guarantee                                                        guarantee     Outstanding Guarantee accumulated
                                                                    Relationship    Limit of     amount for      guarantee     amount    guarantee         Ceiling of the
                                                                      with the   guarantee for the year ended    amount at      with    amount to net outstanding guarantee
                      Number                                          Company      such party   December 31, December 31, collateral value of the to the respective party
                     (Note 1)     Name               Name             (Note 2)      (Note 3)        2011           2011        placed    Company              (Note 3)              Note
                         0     The Company Teco Holding                   1      $ 7,416,153 $        231,080 $            - $        -      -        $    22,248,460               None
                                             Teco Westinghouse            3          7,416,153        199,528              -          -      -             22,248,460               None
                                             Taitec                       1          7,416,153        199,600              -          -      -             22,248,460               None
                                             An-Tai                       1          7,416,153         80,000         80,000          -   0.22%            22,248,460               None
                                             GD Teco                      1          7,416,153        100,000       100,000           -   0.27%            22,248,460               None
                                             Teco International           1          7,416,153        100,000       100,000           -   0.27%            22,248,460               None
                                             Others                 1 2 3 4          7,416,153        542,995       542,995           -   1.46%            22,248,460               None
                                                                                     7,416,153                $     822,995                                 22,248,460              None

                     Note 1: Number 0 represents the Company, and the subsidiaries are numbered starting from “1”.
                     Note 2: Number 1 represents the Company directly owns over 50% shares of the subsidiary.
                             Number 2 represents the Company and its subsidiaries directly and indirectly own over 50% shares of the subsidiary.
                             Number 3 represents the Company directly or indirectly through its subsidaries owns over 50% shares of the subsidiary.
                             Number 4 represents the Company has business relationship with the party.
                     Note 3: In accordance with the Company’s policy, the total guarantee amount of the Company shall not exceed 60% of the Company’s net assets, and the guarantee to a
                             single party shall not exceed 20% of the Company’s net assets.




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                                                                                                                                                                                                                  A n nual Re p o r t
                                                                                                                                                                                                                         2011



                                      C. Marketable securities held by the Company at December 31, 2011:
                                         For available-for-sale financial assets, financial assets carried at cost and long-term equity investments accounted for under the equity method held by the Company,
                                         please refer to Notes 4(3), 4(8) and 4(9).




TECO ELECTRIC & MACHINERY CO., LTD.
                                      D. Acquisition or disposal of the same security with the accumulated cost exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                  Name and       Beginning balance             Addition                     Disposal                        Ending balance
                                                   Type and name      General relationship Number of                    Number of              Number of                                Number of
                                       Acquirer/    of marketable      ledger        with      shares (in                shares (in            shares (in Selling Book Disposal          shares (in
                                         seller       securities      account counterparty thousands)       Amount thousands) Amount thousands) price value               gain          thousands) Amount
                                      The              Stock 1         Note 1        Issue         29,848 $ 301,943           7,199 $ 129,587           - $     - $   - $      -             37,047 $ 431,530
                                      Company                                      company
                                                                                    /None
                                                       Stock 2         Note 2 Ministry of          34,229      362,356      16,646     332,027          -       -     -        -             50,875     694,383
                                                                                  Economic                                           (Note 3)
                                                                                    Affairs
                                                                                    /None
                                      Note 1: Financial assets carried at cost - non-current.
                                      Note 2: Long-term equity investments accounted for under the equity method.
                                      Note 3: Consists of the cost of $294,135, investment income and change in other adjustments of $37,892.
                                      E. Acquisition of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.

                                      F. Disposal of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.




                                                                                                                      62
                  G. Purchases from or sales to related parties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                                                                                            Notes or accounts receivable
                                                                                              Transaction terms                                                      (payable)
                                                                                                                               Differences in transaction                  Percentage of
                                                                                                      Percentage                terms compared to third                    total notes or
                                                               Relationship                             of total                    party transaction                         accounts
                      Purchaser/                                  with the       Purchases             purchases    Credit                                                   receivable
                        Seller Name of related party             Company           (sales)    Amount (sales)         term      Unit price     Credit term    Amount          (payable)    Remark
                                  Tesen                  An investee accounted Purchases Note 2         Note 2     30 days      Note 1          Note 1     $            -)        -
                      The
                                                            for under the equity
                      Company
                                                                  method
                                  Taian Subic                                                                                                             (      77,719)        (1%)
                                  An Yang                                                                          75 days                                             -          -
                                  GD Teco                                                                                                                 (      45,298)        (1%)
                                  Wuxi Teco                An indirect investee                                                                                Note 3          Note 3
                                                           accounted for under
                                                            the equity method
                                  Teco Malaysia
                                  Suzhou Teco
                                  Tai-An Wuxi                                                                                                             (      44,851)        (1%)
                                  Asia Innovative                                                                                                              Note 3          Note 3
                                  Teco Singapore         An investee accounted      Sales                          90 days
                                                            for under the equity
                                                                  method
                                  Tong Dai
                                  Tong Tai Jung
                                  Taian Shen                                                                                                                     27,171)         1%
                                  Teco Europe                                                                                                                    79,853)
                                  Yatec                                                                                                                          52,474)
                                  E-Joy International                                                                                                            41,014)
                                  Taian-Etacom                                                                                                                  102,486)         2%
                                  Teco Westinghouse        An indirect investee                                                                                Note 3          Note 3
                                                           accounted for under
                                                            the equity method
                                  Teco Australia
                                  Teco Westinghouse
                                   Canada
                                  Teco Netherlands
                                                                                                  (Continued)




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TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                               Notes or accounts receivable
                                                                                                               Transaction terms                                                        (payable)
                                                                                                                                                  Differences in transaction                 Percentage of
                                                                                                                   Percentage                      terms compared to third                   total notes or
                                                                         Relationship                                of total                         party transaction                         accounts
                                      Purchaser/                           with the               Purchases        purchases           Credit                                                  receivable
                                        Seller Name of related party      Company                  (sales)  Amount (sales)              term     Unit price     Credit term     Amount         (payable)    Remark
                                                 Sankyo              An indirect investee           Sales   Note 2   Note 2           90 days     Note 1          Note 1          Note 3         Note 3
                                      The
                                                                     accounted for under
                                      Company
                                                                      the equity method
                                                 Asia Innovative
                                                 Teco Westinghouse
                                                                                                                                                                                    20,706)       -
                                                  Motor
                                                 Wuxi Teco                                                                                                                          37,206)      1%

                                      Note 1: The terms, including prices, payment and collection, were negotiated in consideration of cost, market, competitors, etc.
                                      Note 2: Please refer to Notes 5(2) A and C.
                                      Note 3: Please refer to Notes 5(2) G, H, K and L.
                  H. Receivable from related parties exceeding $100,000 or 20% of the Company’s capital at December 31, 2011:
                                                                                                                          Overdue receivable
                      Name of                         Relationship with the       Balance of receivable       Turnover                         Subsequent   Allowance for
                      creditor  Name of related party       Company                from related parties         rate    Amount Action adopted collections doubtful accounts
                     The       Taian-Etacom               An investee        Notes, accounts $         102,496 1.34    $      -         -     $      28,630
                     Company                           accounted for under receivable and other
                                                        the equity method       receivables
                               Tong Tai Jung                                Notes and accounts         183,685 3.15           -         -           117,321
                                                                                 receivable
                               Tong Dai                                                                228,470 3.60           -         -          129,042

                                 Teco Singapore                                  Accounts and other          255,637   5.56             -           -        254,663
                                                                                    receivables
                                 Teco Nanotech                                          Other                114,454    -               -           -        114,454
                                                                                     receivables
                                 Teco Westinghouse         An indirect investee Accounts receivable          816,431   4.05             -           -        744,459
                                                           accounted for under
                                                            the equity method
                                 Teco Westinghouse                              Accounts and other           228,193   4.75             -           -        215,068
                                  Canada                                           receivables
                                 Teco Australia                                                              365,295   5.28             -           -        313,536
                                 Teco Netherlands                                                            197,966   2.69            -           -          85,718
                                 QingDao Teco                                                                120,721     -             -           -          12,686
                                 Sankyo                                                                      283,221   2.00       60,100    In the process    96,217
                                                                                                                                             of collection
                                 Asia Innovative                                                             496,228   0.51      162,785                     154,870 Total amount was
                                                                                                                                                                          $57,826

                     I. Derivative financial instruments undertaken during the year ended December 31, 2011: Please refer to Notes 4(2) and (15).




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                                              (2) Information of investee companies
                                                    A. Information of investee companies:
                                                                                                                 Initial investment investor                             Held by the investor                                           Investment income (loss)
                                                                                                                                                                                                            Net income (loss) of the       recognized by the
                                                                                                                                                                                                                    investee                    investor
                                                                                                                                                           Number of Percentage
                                       Name of    Name of                                                                                                   shares (in     of                Book
                                       investor   investee     Location    Main operating activities    Currency 2011.12.31 Currency 2010.12.31            thousands)   ownership Currency   value    Currency              Amount   Currency           Amount   Remark
                                      The       Tung Pei      Taiwan      Manufacturing of bearings      TWD $        12,293 TWD $        12,293             39,145,044   31.14    TWD     $ 1,917,774 TWD                 $ 928,580) TWD              $ 289,129) None
                                      Company
                                                Tecom         Taiwan      Manufacturing of key           TWD         151,410     TWD            151,410     80,602,050    27.11       TWD        173,587     TWD       (     572,381)    TWD       (     171,527) None




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                            telephone system and
                                                                            non-key service unit
                                                                            telephone system
                                                Teco          Taiwan      Distribution of Whirlpool’s    TWD          42,167     TWD             42,167     11,940,000      60        TWD        140,633     TWD       (     106,821)    TWD       (      65,448) None
                                                 Whirlpool                  home appliances
                                                                            products in Taiwan
                                                Teco            Taiwan    Invested various               TWD         100,013     TWD            100,013     4,4770,000     100        TWD        849,815     TWD              40,937)    TWD              41,028) None
                                                  International             investments
                                                Teco Holding U.S.A        Manufacturing and              TWD         726,428     TWD            726,428          1,680     100        TWD       5,213,944    TWD             744,776)    TWD             745,746) None
                                                 and its                    distribution of motors
                                                 subsidiaries               and generators, and
                                                                            investment and trading
                                                                            in USA
                                                Teco          Singapore   Distribution of the            TWD         112,985     TWD            112,985      7,200,000      90        TWD       2,094,302    TWD             239,118)    TWD             215,206) None
                                                 Singapore                  Company’s motor
                                                 and its                    products in Singapore
                                                 subsidiaries
                                                Tong-An       Taiwan      Various investments            TWD       2,490,000     TWD           2,490,000   358,918,560     99.6       TWD       3,803,427    TWD             210,426)    TWD             211,438) None
                                                Teco Electro Taiwan       Manufacturing of Stepping      TWD         128,496     TWD             128,496    15,386,949    62.57       TWD         269,779    TWD              48,288)    TWD              29,908) None
                                                                            Motors
                                                UVG and its Cayman        Manufacturing and              TWD       7,282,697     TWD           7,232,701   224,982,346     100        TWD       7,498,949    TWD       (      99,359)    TWD       (      98,287) None
                                                subsidiaries Islands        distribution of the
                                                                            Company’s motor
                                                                            products and home
                                                                            appliances, and
                                                                            investment holdings
                                                Information Taiwan        E-business service, mailing    TWD         121,232     TWD            121,232     12,123,248    60.62       TWD        126,839     TWD              24,005)    TWD              14,552) None
                                                 Technology                 and data management
                                                 Total
                                                 Services
                                                Tesen       Taiwan        Manufacturing and sales of     TWD         200,000     TWD            200,000     20,000,000     100        TWD        140,399     TWD               1,751)    TWD      (         129) None
                                                                           home appliances
                                                                                                                                               (Continued)




                                                                                                                                                    66
                             A-1. Information of investee companies (continued):

                                                                                         Initial investment investor                         Held by the investor                                             Investment income
                                                                                                                                                                                Net income (loss) of the     (loss) recognized by
                                                                                                                                                                                        investee                  the investor
                                                                                                                               Number of Percentage
                   Name of      Name of                                                                                         shares (in     of                   Book
                   investor     investee     Location     Main operating activities Currency 2011.12.31 Currency 2010.12.31    thousands)   ownership Currency      value    Currency           Amount   Currency       Amount Remark
                  The       Lien Chang      Taiwan        Manufacturing of Color     TWD $       117,744 TWD $       117,744     37,542,159 33.84%     TWD $          523,384 TWD          ($     43,328) TWD          ($ 14,597) None
                  Company                                   Flybacks Transformers,
                                                            Mono Flyback
                                                            Transformers and
                                                            Mono Deflection yokes
                             Tong Dai         Taiwan      Distribution of the        TWD          22,444 TWD          22,444     5,290,000   92.63%       TWD        181,723     TWD               61,331)   TWD            56,808) None
                                                            Company’s motor
                                                            products in Taichung
                             Teco Vietnam Vietnam         Manufacturing and sales    TWD         264,111 TWD         264,111            -     100%        TWD        143,784     TWD       (        3,201)   TWD       (    3,912) None
                                                            of motors
                             Vmax Telecom Taiwan          Sales of                   TWD         150,900 TWD         150,900    15,090,000    7.55%       TWD         69,009     TWD       (     515,874)    TWD       ( 38,923) None
                                                            telecommunications
                                                            equipped with wireless
                             Yatec            Taiwan      Development and            TWD          92,389 TWD          92,389     7,799,996   64.95%       TWD        142,207     TWD               28.503)   TWD            17,995) None
                                                            maintenance of various
                                                           electric appliances
                             Tong-An Assets Taiwan        Real estate business       TWD       2,111,889 TWD       2,111,889    99,344,444    100%        TWD       4,686,236    TWD               63,994)   TWD            63,994) None
                             Taian Subic      Philippines Manufacturing and sales    TWD         165,819 TWD         165,819    17,131,155                TWD         137,313    TWD                  267)   TWD               585)
                                                                                                                                              76.7%                                                                                 None
                                                            of switches
                             Micropac and     British     International trading      TWD         214,527 TWD         214,527     6,883,591    100%        TWD        976,352     TWD               93,543)   TWD            86,055) None
                              its              Virgin
                              subsidiaries     Islands
                             Century          Taiwan      Development and            TWD         673,801 TWD         379,666    50,874,780   21.39%       TWD        694,383     TWD              119,700)   TWD            37,629) None
                              Development                   management of
                                                           industrial park
                             An-Tai           Taiwan      Investment holdings        TWD         150,000 TWD         150,000   150,000,000    100%        TWD        598,101     TWD               25,561)   TWD            25,561) None
                              International
                             Pelican          Taiwan      Logistics and              TWD         450,471 TWD         150,471    42,454,700   49.37%       TWD        427,256     TWD             215,476)    TWD           145,926) None
                                                            distribution services
                  Tung Pei   Tung Pei         Samoa       Investment holdings        TWD         646,343 TWD         646,343    23,031,065    100%        TWD       1,309,011    TWD             143,283)    TWD           143,283) None
                              (Samoa)
                              Industrial Co.,
                              Ltd.

                                                                                                                       (Continued)




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                                                    A-2. Information of investee companies (continued):
                                                                                                                Initial investment investor                        Held by the investor                                             Investment income
                                                                                                                                                                                                       Net income (loss) of the    (loss) recognized by
                                                                                                                                                                                                               investee                 the investor
                                                                                                                                                     Number of Percentage
                                         Name of                                        Main operating                                                shares (in     of                    Book
                                         investor      Name of investee Location            activities    Currency 2011.12.31 Currency 2010.12.31    thousands)   ownership Currency       value   Currency            Amount   Currency Amount Remark
                                      Tecom          Tecom International Taiwan Investment holdings        TWD $       100,000 TWD $       100,000     12,000,000   100%     TWD          $ 168,106 TWD           ($     12,641) TWD     $ 12,641) None
                                                      Investment Co.,




TECO ELECTRIC & MACHINERY CO., LTD.
                                                      Ltd.
                                                     Vmax Telecom Co., Taiwan Sales of                     TWD         779,195 TWD         779,195    77,919,480   38.96%       TWD          209,751    TWD       (     515,874)   TWD      ( 200,983) None
                                                       Ltd.                          telecommunications
                                                                                     equipped with
                                                                                     wireless
                                                     Baycom               Taiwan Manufacturing and         TWD         359,659 TWD         429,208    12,483,600   28.64%       TWD          146,333    TWD              10,084)   TWD            2,792) None
                                                      Opto-electronics               sales of optical
                                                      Technology Co.Ltd              telecom products
                                      Tong-An        Creative Sensor Inc. Taiwan Manufacturing and         TWD          87,464 TWD          69,738     7,913,310    6.23%       TWD          180,409    TWD             132,222)   TWD           15,896) None
                                                                                     sales of electric
                                                                                     components
                                                     Century              Taiwan Development and           TWD         201,757 TWD         194,119    14,926,722    6.28%       TWD          187,588    TWD             119,576)   TWD            7,506) None
                                                      Development                    management of
                                                                                     industrial park
                                      Lien           Gen Mao              Taiwan Investment holdings       TWD         150,000 TWD         150,000    17,520,000    100%        TWD          121,905    TWD       (      17,286)   TWD      (   17,286) None
                                       Chang          International Corp.
                                                     Gen Mao              Singapore Investment holdings    TWD         507,495 TWD         507,495    24,318,224    81.4%       TWD          550,944    TWD       (     120,621)   TWD      ( 103,726)
                                                                                                                                                                                                                                                            None
                                                     (Singapore)
                                      Century        Centurytech          Taiwan Construction and sales    TWD          98,170 TWD          98,170    10,000,000    100%        TWD          152,586    TWD       (      23,335)   TWD      (   22,051) None
                                      Development Construction and                    of related raw
                                                      Management Corp.                materials
                                      Teco           Teco Electro         British   Trading and            TWD          88,108 TWD          93,679     2,510,000    100%        TWD          254,933    TWD              31,455)   TWD           31,238) None
                                       Electro        Devices Co., Ltd.    Virgin     investment holdings
                                                                           Islands
                                      Teco           Century              Taiwan Development and           TWD         179,222 TWD         179,222    14,412,118    6.06%       TWD          192,168    TWD             119,576)   TWD                    -) None
                                       Singapore      Development                    management of
                                                                                     industrial park
                                      Teco           Creative Sensor Inc. Taiwan Manufacturing and         TWD          62,641 TWD          45,800     4,644,447    3.66%       TWD          106,177    TWD             132,222)   TWD            4,562) None
                                       International                                 sales of electric
                                                                                     components




                                                                                                                                              68
                  B. Loan granted during the year ended December 31, 2011:
                                                                                                                                                                            Limit on
                                                                                Balance                             Amount of              Allowance                         loans      Ceiling
                                                          General      Maximum at Dec.                             transactions Reason for     for       Collateral        granted to   on total
                   Number                                  ledger       balance 31, 2011 Interest                      with     short-term doubtful                          single      loans
                   (Note 1)    Creditor     Borrower      account       amount (Note 5) rate            Nature      borrowers financing accounts        Item      Value      party      granted Remark
                      1       Tong-An     Le-Li Co.,        Other      $    34,000 $   34,000   2.5%   Short-term $         -   Additional   $    - Commercial $ 5,000 $       50,000 $ 200,000 Note 6
                                           Ltd.          receivables                                    financing               operating             Paper
                                                                                                                                 capital
                      2       U. V. G.    Teco              Other          394,632         -    1.51% Short-term            -   Additional        -       -            -      449,937    749,895 Note 7
                                           Netherlands   receivables                                   financing                operating
                                                                                                                                 capital
                      3       Teco       Teco Vietnam       Other           56,871         -    2.35% Short-term            -   Additional        -      -             -      141,898    236,496 Note 8
                               Singapore                 receivables                                  financing                 operating
                                                                                                                                 capital
                      4       An-Shen     Le-Li Co.,        Other            4,900         -    4.00% Short-term            -   Additional        -      -             -        6,101      4,576 Note 9
                                           Ltd.          receivables                                  financing                 operating
                                                                                                                                 capital

                  Note 1: Number “0” represents the Company, and the subsidiaries are numbered starting from “1”.
                  Note 2: In accordance with U.V.G.’s policy, the total guarantee amount shall not exceed 10% of U.V.G.’s net assets, and the guarantee to a single party shall not exceed 6% of
                          U.V.G.’s net assets.
                  Note 3: In accordance with Teco Singapore’s policy, the total guarantee amount shall not exceed 10% of Teco Singapore’s net assets, and the guarantee to a single party shall not
                          exceed 6% of Teco Singapore’s net assets.
                  Note 4: In accordance with An-Shen policy, the total guarantee amount shall not exceed 40% of An Yang’s net assets, and the guarantee to a single party shall not exceed 30%.
                  Note 5: The credit line approved by the Board of Directors.
                  Note 6: Tong-An actual loaned to Le-Li $34,000 on December 31, 2011.
                  Note 7: U. V. G. actual loaned to Teco Netherlands $274,260 on December 31, 2011.
                  Note 8: Teco Singapore actual loaned to Teco Vietnam $36,651 on December 31, 2011.
                  Note 9: An-Shen actual loaned to Le-Li $0 on December 31, 2011.




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                                      C.aEndorsements and guarantees provided during the year ended December 31, 2011:
                                                  Guarantor               Parties being guaranteed                                                                     Ratio of
                                                                                                                       Maximum       Outstanding                     accumulated Ceiling of the
                                                                                      Relationship with    Limit of   outstanding     guarantee       Guarantee       guarantee    outstanding




TECO ELECTRIC & MACHINERY CO., LTD.
                                          Number                                        the endorser/   guarantee for  guarantee    amount at Dec.   amount with amount to net guarantee to the
                                          (Note 1)      Name          Name                guarantor       such party amount in 2011   31, 2011     collateral placed    value    respective party Remark
                                             1     Tong-An Assets Greyback                 Note 2        $ 468,624 $        23,470 $       23,312 $               -     0.50%    $      937,247    None
                                                                    International
                                             2     Teco Singapore STE Marketing            Note 2            472,992             45,945   $      45,006                 -       1.90%            1,418,976     None

                                             3      Teco           TWMM                    Note 2            368,093             62,814   $      40,313                 -       1.10%              736,185     None
                                                      Westinghouse

                                         Note 1: Number “0” represents the Company, and the subsidiaries are numbered starting from “1”.
                                         Note 2: An investee accounted for under the equity method.
                                         Note 3: In accordance with Tong-An Assets’ policy, the total guarantee amount shall not exceed 20% of Tong-An Assets’ net assets, and the guarantee to a single party shall
                                                 not exceed 10% of Tong-An Assets’ net assets.
                                         Note 4: In accordance with Teco Singapore’s policy, the total guarantee amount shall not exceed 60% of the Teco Singapore’s net assets, and the guarantee to a single party
                                                 shall not exceed 20% of the Teco Singapore’s net assets.
                                         Note 5: In accordance with Teco Westinghouse policy, the total guarantee amount shall not exceed 20% of the Jack Property’s net assets, and the guarantee to a single party
                                                 shall not exceed 10% of the Teco Westinghouse net assets.




                                                                                                                            70
                  D. Marketable securities held by the Company at December 31, 2011:
                                                                                                                                                      December 31, 2011
                                                                             Name of                                    General   Number of
                                               Type of marketable          marketable         Relationship with the      ledger    shares (in                          Market
                       Name of investor            securities               securities          security issuers        account   thousands)    Book value Percentage   value    Remark
                    (1)Teco International   Common Stock                   Stock 1, etc.              None              Note 1        23,532    $   426,814     -     $ 426,814
                                                                           Stock 2, etc.                                Note 4          5,591       147,012     -        147,012
                                                                           Stock 3, etc.                                Note 2            411         15,513    -         15,513
                                                                                            An investee accounted for   Note 5          4,644       106,177 3.66%         65,487
                                                                             Stock 4
                                                                                             under the equity method
                                                                           Stock 5, etc.                                               5,480         54,079    -             54,079
                    (2) Tong-An             Common Stock                      Stock 6    Subsidiary of the Company      Note 1        19,540        348,790 1.06%           348,790
                                                                              Stock 7    Related party in substance                    9,197        124,612 8.17%           124,612
                                                                              Stock 1               None                              16,486        938,051 0.51%           938,051
                                                                              Stock 8                                                  1,150        108,560 0.03%           108,560
                                                                           Stock 9, etc.                                               5,732        251,764    -            251,764
                                                                          Stock 10, etc.                                Note 3         6,756         94,025    -             94,025
                                                                          Stock 11, etc.                                Note 2         3,267         97,379    -             97,379
                                                                              Stock 2                                   Note 4        14,840        350,505 12.86%          350,505
                                                                          Stock 12, etc.                                              49,313        459,104    -            459,104
                                            Beneficiary Certificates       Fund 1, etc                                  Note 3         7,834         76,897    -             76,897
                                                                           Fund 2, etc.                                 Note 4         2,444         80,994    -             80,994
                                            Common Stock                      Stock 4    An investee accounted for      Note 5         7,913        180,409   6.23%         111,578
                                                                                          under the equity method
                                                                             Stock 13                                                 14,927        187,588   6.28%         187,588
                                                                          Stock 14, etc.                                              43,406        213,735      -          213,735
                   Note 1: Available-for-sale financial assets-non-current.                    Note 4: Financial assets carried at cost-non-current.
                   Note 2: Financial assets at fair value through profit or loss-current.      Note 5: Long-term equity investment accounted for under the equity method.
                   Note 3: Available-for-sale financial assets-current.                        Note 6: Financial assets carried at cost -current.

                                                                                              (Continued)



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                                      D-1. Marketable securities held by the Company at December 31, 2011 (continued):
                                                                                                                                                                              December 31, 2011
                                                                                                  Name of                                       General   Number of
                                                                      Type of marketable         marketable           Relationship with the      ledger    shares (in
                                              Name of investor             securities            securities             security issuers        account   thousands) Book value Percentage Market value Remark
                                           (3)UVG                   Beneficiary Certificates       Fund 3                     None              Note 4                - $     8,607    -   $     8,607
                                                                    Common Stock                  Stock 15                                      Note 1              11        2,647    -         2,647
                                                                                                  Stock 16          An investee accounted for   Note 5        30,000      1,685,622 99.99%   1,685,622




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                     under the equity method
                                                                                                  Stock 17                                                   25,323       367,531     99.50%        367,531
                                                                                                  Stock 18                                                   71,350       397,273     94.69%        397,273
                                                                                                  Stock 19                                                   10,078       135,882    100.00%        135,882
                                                                                                  Stock 20                                                  131,513     3,601,914    100.00%      3,601,914
                                                                                                  Stock 21                                                      800       232,691    10.00%         232,691
                                                                                                  Stock 22                                                   44,898       686,376    100.00%        686,376
                                                                                                   Others                                                    21,020        42,570       -            42,570
                                           (4) Micropac (BVI)       Common Stock                  Stock 23          An investee accounted for   Note 5        9,575       987,455    100.00%        987,455
                                                                                                                     under the equity method
                                           (5) An-Tai               Common Stock                  Stock 24                                                     2,973       63,449        -           63,449
                                               International
                                                                                                   Stock 6    Subsidiary of the Company         Note 1         2,826       50,440     0.15%          50,440
                                                                                                   Stock 7    Related party in substance                       1,469       19,907     1.31%          19,907
                                                                                                   Stock 9                                                     2,979      469,161    10.12%         469,161
                                                                                                  Stock 25               None                   Note 2             -        1,174        -            1,174
                                                                                                Stock 26, etc                                   Note 4           485        2,771        -            2,771
                                           (6) Teco Holding         Common Stock                  Stock 27    An investee accounted for         Note 5            27    3,680,926    100.00%      3,680,926
                                                                                                               under the equity method
                                                                                                  Stock 28                                                     1,104    1,561,368    100.00%      1,561,368

                                           Note 1: Available-for-sale financial assets-non-current.                                Note 4: Financial assets carried at cost-non-current.
                                           Note 2: Financial assets at fair value through profit or loss-current.                  Note 5: Long-term equity investment accounted for under the equity method.
                                           Note 3: Available-for-sale financial assets-current.                                    Note 6: Financial assets carried at cost -current.

                                                                                                               (Continued)

                                                                                                                              72
                  D-2. Marketable securities held by the Company at December 31, 2011 (continued):
                                                                              Name of                                    General                     December 31, 2011
                                                                                                                                   Number of
                                                    Type of marketable       marketable       Relationship with the       ledger    shares (in
                            Name of investor            securities           securities          security issuers        account   thousands) Book value Percentage Market value Remark
                       (7) Tong-An Assets         Common Stock                Stock 29      An investee accounted for    Note 5            263 $   15,406 54.83%      $   15,406
                                                                                             under the equity method
                                                                               Stock 30               None               Note 4              1       304,010    10.00%          304,010
                       (8) Jack Property          Beneficiary Certificates   Fund 4, etc.                                Note 2          2,828         41,143      -              41,143
                                                  Common Stock                              An investee accounted for    Note 5            480          2,929   19.20%             2,929
                                                                               Stock 31
                                                                                             under the equity method
                       (7) Teco Electro           Common Stock                 Stock 32                                                  2,510       254,933 100.00%            254,933

                                                                               Stock 7         Related party in substance Note 1               200           2,713 0.18%            2,713
                       (10) ITTS                  Common Stock                 Stock 33                   None              Note 4               31              47 1.43%              47
                                                                                               An investee accounted for Note 5              7,041          82,787     -          82,787
                                                                                Stock 34, etc.
                                                                                                under the equity method
                       (11) Teco Singapore          Common Stock                Stock 35, etc.                                               1,333          13,261 1.77%          13,261
                                                                                   Stock 13                                                 14,412         192,168 6.06%         192,168
                                                                                   Stock 2                None              Note 4           1,116         155,812 0.97%         155,812
                                                                                   Stock 36                                                       -             297    -              297
                       (12) Taian Malaysia          Common Stock                   Stock 37                                                       5               - 48.00%              -
                       (13) Teco Whirlpool          Beneficiary Certificates        Fund 5                None              Note 2           1,768          21,301     -          21,301
                       (14)Taiwan Pelican           Common Stock                               An investee accounted for Note 5                   -          8,722 100.00%          8,722
                             Express                                               Stock 38    under the equity method
                                                                                   Stock 2                None              Note 4           1,360         192,896 1.17%         192,896
                                                                                   Stock 39                                 Note 6           2,400          29,952 2.00%          29,952
                       (15) Tecnos                  Beneficiary Certificates        Fund 6                                  Note 2           1,658          20,006     -          20,006
                       (16) Teco Australia          Common Stock                   Stock 2                                  Note 4             564          80,097 0.49%          80,097
                      Note 1: Available-for-sale financial assets-non-current.                               Note 4: Financial assets carried at cost-non-current.
                      Note 2: Financial assets at fair value through profit or loss-current.                 Note 5: Long-term equity investment accounted for under the equity method.
                      Note 3: Available-for-sale financial assets-current.                                   Note 6: Financial assets carried at cost -current.




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                                      E. Acquisition or disposal of the same security with the accumulated cost exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:

                                                                                                      Beginning balance                       Addition                           Disposal                             Ending balance
                                                           Type and name General      Name and      Number of                         Number of              Number of                                            Number of
                                           Acquirer/        of marketable  ledger relationship with shares (in                         shares (in            shares (in     Selling       Book          Disposal shares (in
                                              seller          securities  account   counterparty    thousands) Amount                 thousands)     Amount thousands)       price        value           gain    thousands)   Amount
                                         Tong-An               Stock 2    Note 1      Non-open           12,740 $ 52,650                     2,100 $ 297,855            - $         -$                 -$       -     14,840 $    350,505




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                    market /None
                                                               Stock 8    Note 2    Open market           2,957 206,103                      2,323   162,498           4,130     310,022        260,041    49,981       1,150       108,560
                                                                                        /None                                                      (Note 4)
                                                               Fund 1     Note 3                         11,464 114,875                     13,978   140,436          21,096     211,930        211,551       379       4,346        43,760
                                                                                                                                                   (Note 5)
                                                               Stock 1        Note 2                            20,626     872,478               -   279,296            4,140    226,225        213,723    12,502      16,486       938,051
                                                                                                                                                   (Note 6)
                                         Taiwan Pelican        Stock 2        Note 1       Non-open                -            -            1,360   192,896          -                  -             -         -      1,360       192,896
                                                                                         market /None
                                         Note 1: Financial assets carried at cost-non-current.
                                         Note 2: Available-for-sale financial assets-non-current.
                                         Note 3: Available-for-sale financial assets-current.
                                         Note4: Consists of the cost of $158,476, recognized changes in market prices of $4,022.
                                         Note5: Consists of the cost of $140,480, recognized changes in market prices of ($44).
                                         Note6: Recognized changes in market prices.
                                      F. Acquisition of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                                                                    If the counterparty is a related party, information as
                                                                                                                                  to the last transaction of the property is disclosed below:                     Reason for
                                                                                                                               Original owner                                                       Basis or     acquisition of
                                                                                                                  Relationship who sold the Relationship of the Date of the                        reference     properties and
                                             Property      Property    Date of   Transaction Status of              with the property to the        original owner       original               used in setting status of the    Other
                                          acquired by      acquired  transaction    amount   payment Counterparty Company       counterparty with the Company transaction Amount                   the price       properties commitments
                                        Tong-An           Land and    2011.3.25 $ 185,320 Fully paid   Tecom     Related party Century                   Note          1999.10.26 $153,498        Real estate    For operating   None
                                          Assets           building                                                                    Development                                              appraisal report
                                        Note: An investee accounted for under the equity method
                                      G. Disposal of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.




                                                                                                                                      74
                  H.Purchases from or sales to related parties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: except the transaction with the Company (please
                     refer to Note 11(1)G).
                                                                                                                                                                                Notes /Accounts payable
                      Purchases’ or                        Relationship                       Transactioning situation                          Different situation                  (receivables)
                                           Name of           with the                                          Ratio of                                                                     Ratio of Notes
                           sales’                                                                            purchases’                                       Credit                      /Accounts payable
                         company         related party      Company           Situation       Amount            (sales’)    Credit days     Per price         period         Balance         (receivables)
                      Tai-An Wuxi       Taichang Teco      Related party       Sales       ($ 180,594)           (7%)           60            Note             Note       $ 28,337                 11%
                                        Taian Subic                                        ($ 170,202)           (7%)                         Note             Note       $ 69,988                 26%
                      Note: The sale prices for transactions with A and B have no similar transactions to compare with, and transaction terms are negotiated in consideration of different factors.
                   I. Receivable from related parties exceeding $100,000 or 20% of the Company’s capital at December 31, 2011:
                        Name of        Name of           Relationship with the              Balance of receivable                                   Overdue receivable             Subsequent       Allowance for
                        creditor     related party             Company                       from related parties           Turnover rate      Amount          Action adopted       collections doubtful accounts
                      Wuxi Teco          Teco         Subsidiary of the Company Accounts receivable $ 599,765                         1.85 $ 218,148          In the process of    $    203,238 $
                                                                                                                                                                  collection
                      Asia                                                                                        162,671             1.35                                         $    149,351
                       Innovative
                      Teco                                                                                        112,358             5.42                                         $    112,358
                       Malaysia
                      Suzhou Teco                                                                                 148,453             4.84         48,081     In the process of    $    118,976
                                                                                                                                                                  collection

                     U.V.G          Teco                                           Other receivables           274,260
                                     Netherlands




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TECO ELECTRIC & MACHINERY CO., LTD.
                                      J. Derivative financial instruments undertaken during the year ended December 31, 2011:
                                         a. Objective: The companies entered into certain forward exchange contracts to hedge the risk of foreign currency fluctuation for foreign currency denominated monetary assets and
                                            liabilities.
                                         b. Market risk: The market risk as a result of currency fluctuation is offset by the gains or losses from the assets or liabilities being hedged.
                                         c. Credit risk: All derivative financial instruments were purchased from reputable international financial institutions. Thus, the risk of default on the contracts by these financial institutions
                                            is low.
                                         d. Liquidity risk: The notional amount of forward exchange contracts entered were not material. Thus, there is no significant liquidity risk.
                                         e. Cash flow risk due to changes in interest rate: The companies did not enter into any derivative contract that is interest rate related. Thus, no cash flow risk due to change in interest rate
                                            is expected.
                                         f. Details are as follows:
                                                                                                                                                     Future projected cash flow
                                                   Company                  Contract Type             Notional Amount          Fair value
                                                                                                                                           Net cash provided           Net cash used
                                                Taichang Teco        Forward exchange contract      USD           413,000      ($    644) USD            443 RMB                2,798,000
                                         g. The book value at December 31, 2011:
                                                                                               General ledger account                                     Book value
                                               Taichang Teco      Financial liabilities at fair value through profit or loss-current                 ($             644)
                  (3) DISCLOSURE OF INFORMATION ON INVESTMENTS IN MAINLAND CHINA
                      A. Basic information (Note 6):
                                                                                         Investment remitted                                                        Accumulated
                                                                                             or received                                                             investment
                          Name of                                          Accumulated during the period Accumulated Direct and           Investment     Balance of    income
                         investee in                                         investment                       investment    indirect     income (loss) investment at received at
                          Mainland                               Investment balance at                       balance as of percentage    recognized in    Dec. 31,    Dec. 31,
                           China        Main activities  Capital   method Jan. 1, 2011 Remitted Received Dec. 31, 2011 of ownership          2011          2011         2011     Remark
                      Teco           Manufacturing      $ 268,799 Note l    $ 188,139 $          - $      -   $    188,139   100%       ($     17,989) $     140,637 $         - Note 3
                       (Dong Guan) and sales of
                                       air-conditioning
                                       mechanical
                                       equipment
                      Suzhou Teco Manufacturing           143,255 Note l         143,255         -        -        143,255   100%       (     28,145)      188,471           -   Note 3
                                       and sales of
                                       motors
                      Kuen Ling      Manufacturing of     181,713 Note l          39,525         -        -         39,525    17%              5,711)       48,986      3,484    Note 3
                       (Shanghai)      air conditioners
                      Wuxi Teco      Manufacturing        977,616 Note l         768,259         -        -        768,259 82.35%            157,753)    1,443,829           -   Note 3
                                       and sales of
                                       motors
                      Taian (Wuxi) Manufacturing          495,213 Note 2         205,551         -        -        205,551   100%             92,883)      971,105           -   Note 3
                                       and sales of
                                       optical fiber
                      Tai-An         International          6,324 Note 2           6,324         -        -          6,324   100%                  -)           -            -   Note 5
                       (Shanghai)      import and
                                       export trading
                      Nanchang       Manufacturing        456,293 Note l         456,293         -        -        456,293   100%       (      1,394)       34,717           -   Note 3
                      Teco             and sales of
                                       home appliances
                      Hang Zhou      Manufacturing        129,840 Note l          19,117         -        -         19,117    15%                  -)       18,165           -   None
                         Xizi-Iuk      and sales of
                                       parking
                                       equipment
                      Jiangxi Teco Manufacturing          290,172 Note l         192,256         -        -        192,256 91.67%             46,024)      468,086           -   Note 3
                                       and sales of
                                       motors
                                                                                   (Continued)




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                                      A-1: Basic information (Note 6) (continued):

                                                                                                                Investment remitted                                                          Accumulated
                                                                                                                    or received                                                               investment
                                              Name of                                              Accumulated during the period Accumulated Direct and         Investment      Balance of      income
                                             investee in                                            investment                         investment    indirect  income (loss)   investment     received at
                                              Mainland                                   Investment balance at                        balance as of percentage recognized in   at Dec. 31,     Dec. 31,
                                               China       Main activities     Capital     method Jan. 1, 2011 Remitted Received Dec. 31, 2011 of ownership        2011           2011           2011     Remark
                                           QingDao       Manufacturing        $ 1,764,453 Note l    $ 1,505,255 $       - $        - $ 1,505,255      85.31% ($     239,998)   $1,093,212)   $          - Note 3




TECO ELECTRIC & MACHINERY CO., LTD.
                                            Teco          and sales of dyes
                                           Xiamen Teco Sales of motors                20,590   Note l     20,590        -         -      20,590      100%     (        ,914)                          -   Note 3
                                                          and home                                                                                                                 23,343)
                                                          appliances
                                           Kuen Yuan     Manufacturing               149,629   Note l     10,285        -         -      10,285       17%             2,820)      28,505)             -   Note 3
                                            (Suzhou)      and sales of
                                                          air-conditioning
                                                          mechanical
                                                          equipment
                                           Sichuan Teco Manufacturing                582,600   Note l    121,980        -         -     121,980       25%     (      25,808)      73,869)             -   Note 4
                                                          and sales of
                                                          air-conditioning
                                                          mechanical
                                                          compressor
                                           Xiamen        Distribution of             467,577   Note l    467,577        -         -      467,577     100%     (      78,106)     329,019)             -   Note 3
                                            An-Tai        LCD
                                           Teco Han Zou Development and                9,837   Note l     9,837         -         -        9,837     100%     (       1,195)      17,388)             -   Note 3
                                                          consulting of
                                                          device products
                                           Nanchang      Business                      3,222   Note l      3,222        -         -        3,222     100%     (        ,838) (      5,598)            -   Note 5
                                            Dong-Huan management
                                                          consulting
                                           Teco Century Manufacturing                680,938   Note l    340,469        -         -      340,469     50%      (      54,149)     219,552)             -   Note 3
                                                          and sales of
                                                          compressor
                                           Fujian Teco Manufacturing                 391,843   Note l    391,843        -         -      391,843     100%     (      53,395)     277,691)             -   Note 3
                                                          and sales of
                                                          electric
                                                          components

                                                                                                        (Continued)



                                                                                                            78
                  A-1: Basic information (Note 6) (continued):

                                                                                                 Investment remitted                                                        Accumulated
                                                                                                     or received     Accumulated                                             investment
                          Name of                                                 Accumulated      during the period investment Direct and       Investment     Balance of     income
                         investee in                                               investment                        balance as of indirect    income (loss)    investment received at
                          Mainland                                    Investment balance at Jan.                       Dec. 31,    percentage recognized in     at Dec. 31, Dec. 31,
                            China      Main activities        Capital   method       1, 2011     Remitted Received       2011     of ownership      2011           2011         2011    Remark
                       Ecolectric   Distribution of air      $ 24,004 Note 2     $            - $        - $       - $          -     35%      ($      2,480)    $    7,360 $         - Note 3
                        Internationalconditions
                                    Central China area
                       Teco (Tianjin)                             15,990   Note 2        15,990         -         -      15,990      100%      (       1,417)      21,350           -   Note 3
                        Innovation  Operation center
                                    Manufacturing
                       Teco (Jang Xi)                             79,813   Note 2        79,913         -         -      79,813      100%      (     32,786)      132,179           -   Note 3
                                     and sales of
                                     air-conditioning
                                     mechanical
                                     equipment
                       Teco Sichuan Sale of home                  26,522   Note 1              -        -         -            -     100%      (       5,172)      20,018           -   Note 3
                        Trading      appliances
                       Jiangxi      Manufacturing and            107,315   Note l        12,638    50,227         -      62,865       45%      (       8,311)      54,002           -   Note 3
                        Teco-Lead    sales of wind
                                     generator
                       Qingdao Teco Science Park                  59,444   Note 2        19,194    40,250         -      59,444      100%      (     21,586)       30,667           -   Note 3
                                     development and
                                     business
                                     operations
                                     consulting services




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                                      A-2: Basic information (Note 6) (continued):
                                                                        Accumulated amount of remittance    Investment amount approved by the      Ceiling on investment in Mainland China
                                                  The company           from Taiwan to Mainland China as Investment Commission of the Ministry imposed by the Investment Commission of the
                                                                            of Dec. 31, 2011 (Note 6)          of Economic Affairs (Note 6)         Ministry of Economic Affairs (Note 7)
                                           Teco (Dong Guan)             $                         188,139 $                              287,275 $                                 23,244,451
                                           Suzhou Teco                                            143,255                                143,255                                   23,244,451
                                           Kuen Ling (Shanghai)                                    39,525                                 43,127                                   23,244,451
                                           Wuxi Teco                                              768,259                                793,904                                   23,244,451
                                           Taian (Wuxi)                                           205,551                                495,213                                   23,244,451




TECO ELECTRIC & MACHINERY CO., LTD.
                                           Tai-An (Shanghai)                                         6,324                                  6,951                                  23,244,451
                                           Nanchang Teco                                          456,293                                478,430                                   23,244,451
                                           Hang Zhou                                                19,117                                20,190                                   23,244,451
                                              Xizi-Iuk
                                           Jiangxi Teco                                           192,256                                   325,832                                    23,244,451
                                           QingDao Teco                                         1,505,255                                 1,643,047                                    23,244,451
                                           Xiamen Teco                                             20,590                                    20,590                                    23,244,451
                                           Sichuan Teco                                           121,980                                   121,980                                    23,244,451
                                           Xiamen An-Tai                                          467,577                                   467,577                                    23,244,451
                                           Teco Han Zou                                             9,837                                     9,837                                    23,244,451
                                           Nanchang                                                 3,222                                     3,222                                    23,244,451
                                            Dong-Huan
                                           Teco Century                                           340,469                                   340,469                                    23,244,451
                                           Fujian Teco                                            391,843                                   391,843                                    23,244,451
                                           Teco (Tianjin) innovation                               15,990                                    15,990                                    23,244,451
                                           Teco (Jang Xi)                                          79,813                                    79,813                                    23,244,451
                                           Jiangxi Teco-Lead                                       62,865                                    62,865                                    23,244,451
                                          Note 1: Invest in the new company in Mainland China through a holding company registered in a country other than Taiwan and Mainland China.
                                          Note 2: Invest in the current company in Mainland China through a holding company registered in a country other than Taiwan and Mainland China.
                                          Note 3: The amount recognized was based on the audited financial statements.
                                          Note 4: The amount recognized was based on the unaudited financial statements as total assets, operating revenues or net income of the investee was
                                                   not significant.
                                          Note 5: The amount did not include Kuen Yuan (Suzhou), Ecolectric International, and Teco Sichuan Trading which was indirectly invested.
                                          Note 6: The accounts of the Company are maintained in New Taiwan dollars. Transactions denominated in foreign currencies are translated into New
                                                   Taiwan dollars at the spot exchange rates prevailing at the transaction dates.
                                          Note 7: The amount disclosed was based on Investment Commission, MOEA Regulation No. 09704604680 announced on August 29, 2008.


                                                                                                               80
                  B. Significant transactions with the investee company in Mainland China (Note):
                     Accounts receivable and accounts payable arising due to significant transactions with the investee company are listed below. For the detailed
                     information, please see Note 5.

                                    Name of investee in Mainland China                           Sales            Purchases          Accounts payable    Accounts receivable
                     Teco (Dong Guan)                                                      $                -   $        4,090      $                 - $                    -
                     Suzhou Teco                                                                     11,294             518,721                 148,453                   983
                     Wuxi Teco                                                                      113,605             966,051                 599,765                37,206
                     Taian (Wuxi)                                                                    19,683             352,142                  44,851                 9,138
                     Jiangxi Teco                                                                          -             13,452                  20,761                 7,938
                     Xiamen An-Tai                                                                  166,500             113,666                 162,671               490,483
                     QingDao Teco                                                                     2,276              81,837                  12,405                12,686
                     Teco (Jang Xi)                                                                     105              33,964                   3,467                     -
                     Fujian Teco                                                                        308               6,922                   3,677                   140

                     Note: The terms, including prices and collection, are negotiated in consideration of cost, market, competitors, etc.
                  C. Guarantee information provided to investee company in Mainland China: None.




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                      12.SEGMENT FINANCIAL INFORMATION
                        In accordance with R.O.C. SFAS No. 41, “Operating Segments”, segment
                        information is only disclosed in the consolidated financial statements.




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               TECO ELECTRIC & MACHINERY CO., LTD.

                AND SUBSIDIARIES

               CONSOLIDATED FINANCIAL STATEMENTS

                AND REPORT OF INDEPENDENT ACCOUNTANTS

               DECEMBER 31, 2011 AND 2010




For the convenience of readers and for information purpose only, the auditors’ report
and the accompanying financial statements have been translated into English from the
original Chinese version prepared and used in the Republic of China. In the event of
any discrepancy between the English version and the original Chinese version or any
differences in the interpretation of the two versions, the Chinese-language auditors’
report and financial statements shall prevail.



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                                  REPORT OF INDEPENDENT ACCOUNTANTS

               To TECO Electric & Machinery Co., Ltd.

               We have audited the accompanying consolidated balance sheets of TECO Electric &
               Machinery Co., Ltd. and subsidiaries as of December 31, 2011 and 2010, and the related
               consolidated statements of income, of changes in stockholders’ equity and of cash flows
               for the years then ended. These consolidated financial statements are the responsibility
               of the Company’s management. Our responsibility is to express an opinion on these
               consolidated financial statements based on our audits. As described in Note 2(1) to the
               consolidated financial statements, we did not audit the financial statements of certain
               consolidated subsidiaries whose statements reflect total assets of $5,661,726,000 and
               $5,101,230,000, both constituting 8% of total consolidated assets as of December 31,
               2011 and 2010, respectively, and total operating revenues of $5,042,684,000 and
               $4,799,872,000, both constituting 11% of total consolidated operating revenues for the
               years then ended. Further, as described in Note 4(9) to the consolidated financial
               statements, we also did not audit the financial statements of certain investee companies
               accounted for under the equity method. These long-term equity investments amounted
               to $3,577,157,000 and $3,382,437,000, both constituting 5% of total consolidated assets
               as of December 31, 2011 and 2010, respectively, the related credit investment balance
               amounted to $4,721,000 and $0, both constituting 0% of total consolidated assets as of
               December 31, 2011 and 2010, respectively, and the related investment income
               amounted to $288,346,000 and $210,159,000, constituting 10% and 8% of total
               consolidated net income for the years then ended. The financial statements of these
               consolidated subsidiaries and investees accounted for under the equity method were
               audited by other auditors whose reports thereon have been furnished to us and our
               opinion expressed herein, insofar as it relates to the amounts included in the
               consolidated financial statements and information disclosed in Note 11 relative to these
               consolidated subsidiaries and investees, is based solely on the reports of the other
               auditors.

               We conducted our audits in accordance with the “Rules Governing the Examination of
               Financial Statements by Certified Public Accountants” and generally accepted auditing
               standards in the Republic of China. Those rules and standards require that we plan and
               perform the audit to obtain reasonable assurance about whether the financial statements
               are free of material misstatement. An audit includes examining, on a test basis,
               evidence supporting the amounts and disclosures in the financial statements. An audit
               also includes assessing the accounting principles used and significant estimates made by
               management, as well as evaluating the overall financial statement presentation. We
               believe that our audits and the reports of the other auditors provide a reasonable basis
               for our opinion.




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In our opinion, based on our audits and the reports of the other auditors, the
consolidated financial statements referred to in the first paragraph present fairly, in all
material respects, the financial position of TECO Electric & Machinery Co., Ltd. and
subsidiaries as of December 31, 2011 and 2010, and the results of their operations and
In our opinion, based on then ended, in the reports of the other auditors, the
their cash flows for the yearsour audits andconformity with the “Rules Governing the
Preparation of Financial Statements by to in the first paragraph present fairly, in all
consolidated financial statements referred Securities Issuers” and generally accepted
accounting principles in the Republic of China.
material respects, the financial position of TECO Electric & Machinery Co., Ltd. and
subsidiaries as of December 31, 2011 and 2010, and the results of their operations and
The consolidated financial statements of TECO Electric & Machinery Co., Ltd. and
their cash flows for the years then ended, in conformity with the “Rules Governing the
subsidiaries as of and for the year ended December 31, 2011 expressed in US dollars are
Preparation of Financial Statements by Securities Issuers” and generally accepted
presented solely for the convenience of the reader and were translated from the New
accounting principles in the Republic of China.
Taiwan dollar financial statements using the exchange rate of NT$30.28 to US$1.00 as
The consolidated financial statements translation is not & Machinery Co., Ltd. and
of December 31, 2011. This basis of of TECO Electric in accordance with generally
accepted accounting principles in the Republic of China.
subsidiaries as of and for the year ended December 31, 2011 expressed in US dollars are
presented solely for the convenience of the reader and were translated from the New
Taiwan dollar financial statements using the exchange rate of NT$30.28 to US$1.00 as
of December 31, 2011. This basis of translation is not in accordance with generally
accepted accounting principles in the Republic of China.




PricewaterhouseCoopers, Taiwan
March 20, 2012
The accompanying consolidated financial statements are not intended to present the
financial position and results of operations and cash flows in accordance with
accounting principles generally accepted in countries and jurisdictions other than the
PricewaterhouseCoopers, Taiwan
Republic of China. The standards, procedures and practices in the Republic of China
March 20, 2012
governing the audit consolidated financial financial statements intended to present the
The accompanying of such consolidated statements are not may differ from those
generally position andcountries of operations andother than the in accordance with
financial accepted in results and jurisdictions cash flows Republic of China.
accounting principles generally accepted in countries and statements other than of
Accordingly, the accompanying consolidated financial jurisdictions and report the
independent China. Theare not intended for use by practices inare not informed China
Republic of accountants standards, procedures and those who the Republic of about
the accounting audit of such auditing standards generally accepted in the Republic of
governing the principles or consolidated financial statements may differ from those
generally their applications in practice.
China, andaccepted in countries and jurisdictions other than the Republic of China.
Accordingly, the accompanying consolidated financial statements and report of
independent accountants are not intended for use by those who are not informed about
the accounting principles or auditing standards generally accepted in the Republic of
                                                                                www.teco.com.tw 157
China, and their applications in practice.2
158
                                                                                                                                      TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                                                                                                                                CONSOLIDATED BALANCE SHEETS
                                                                                                                                                           DECEMBER 31,
                                                                                                                                             (EXPRESSED IN THOUSANDS OF DOLLARS)
                                                                                                                 New Taiwan Dollars                  US Dollars                                                                                         New Taiwan Dollars              US Dollars
                                                                                                            2010      %           2011        %         2011                                                                                     2010         %        2011   %             2011
                                      ASSETS                                                                                                    (Unaudited -Note 2) LIABILITIES AND STOCKHOLDERS' EQUITY                                                                          ( Unaudited - Note 2 )
                                                                                                                                                                                                                                                                                                           A n nual Re p o r t
                                                                                                                                                                                                                                                                                                                  2011
                                      Current Assets                                                                                                                Current Liabilities
                                       Cash and cash equivalents (Notes 4(1) and 10)                                                                                 Short-term loans (Notes 4(15), 6 and 10)
                                       Financial assets at fair value through profit or loss-current                                                                 Financial liabilities at fair value through profit or loss-current
                                           (Notes 4(2) and 10)                                                                                                         (Notes 4(16) and 10)
                                       Available-for-sale financial assets-current (Notes 4(3), 6 and 10)                                                            Notes payable (Note 10)
                                       Financial assets carried at cost-current (Notes 4(8), 6 and 10)                                                               Notes payable-related parties (Notes 5 and 10)
                                       Notes receivable–net (Notes 4(4), 6 and 10)                                                                                   Accounts payable (Note 10)
                                       Notes receivable, net-related parties (Notes 5 and 10)                                                                        Accounts payable-related parties (Notes 5 and 10)
                                       Accounts receivable, net (Notes 4(5), 6 and 10)                                                                               Income tax payable (Note 4(17))
                                       Accounts receivable, net-related parties (Notes 5 and 10)                                                                     Accrued expenses (Notes 5 and 10)
                                       Other receivables (Notes 4(17) and 10)                                                                                        Other payables (Note 10)
                                       Other receivables-related parties (Notes 5 and 10)                                                                            Receipts in advance
                                       Other financial assets-current (Notes 6 and 10)                                                                               Partial construction billings (Notes 4(7) and 5)
                                       Inventories, net (Notes 4(6) and 6)                                                                                           Less: Construction in progress (Notes 4(7) and 5)
                                       Construction in progress (Notes 4(7) and 5)                                                                                   Long-term liabilities-current portion (Notes 4(18), 6 and 10)




TECO ELECTRIC & MACHINERY CO., LTD.
                                       Less: Partial construction billings (Notes 4(7) and 5)                                                                        Liability under capital lease-current (Note 4(10))
                                       Prepaid expenses                                                                                                              Other current liabilities (Note 5)
                                       Deferred income tax assets-current (Note 4(17))                                                                              Total current liabilities
                                       Other current assets                                                                                                         Long-term Liabilities
                                      Total current assets                                                                                                           Long-term loans (Notes 4(18), 6 and 10)
                                      Funds and Investments                                                                                                          Liability under capital lease -non-current (Note 4(10))
                                       Available-for-sale financial assets-non-current                                                                              Total long-term liabilities
                                           (Notes 4(3), 6 and 10)                                                                                                   Reserve
                                       Financial assets carried at cost-non-current                                                                                  Land value incremental reserve (Note 4(10))
                                           (Notes 4(8), 4(14), 6 and 10)                                                                                            Other Liabilities
                                       Long-term equity investments accounted for under                                                                              Accrued pension liabilities (Note 4(19))
                                           the equity method (Notes 4(9) , 5 and 6)                                                                                  Guarantee deposits received (Note 10)
                                       Prepayments for long-term investments (Note 4(9))                                                                             Deferred income tax liabilities-non-current (Note 4(17))
                                      Total funds and investments                                                                                                    Other liabilities (Note 5)
                                      Property, Plant and Equipment (Notes 4(10), 4(14), 6 and 7)                                                                   Total other liabilities
                                       Cost                                                                                                                         Total Liabilities
                                         Land
                                         Buildings                                                                                                                           Stockholders' Equity
                                         Machinery and equipment                                                                                                             Capital (Notes 4(20) and 4(22))
                                         Transportation equipment                                                                                                              Common stock
                                         Leased assets                                                                                                                         Subscription for common stock received in advance
                                         Leasehold improvements                                                                                                               Capital reserves (Note 4(21))
                                         Other equipment                                                                                                                       Paid-in capital in excess of par value
                                       Revaluation increments                                                                                                                  Treasury stock
                                       Cost and revaluation increments                                                                                                         Long-term investments
                                       Less: Accumulated depreciation                                                                                                          Net assets from merger
                                             Accumulated impairment                                                                                                            Others
                                       Construction in progress and prepayments for equipment                                                                                Retained earnings (Note 4(23))
                                      Total property, plant and equipment,net                                                                                                  Legal reserve
                                      Intangible Assets                                                                                                                        Undistributed earnings
                                       Deferred pension costs (Note 4(19))                                                                                                   Other equity adjustments
                                       Other intangible assets                                                                                                                 Cumulative translation adjustments (Note 4(17))
                                      Total intangible assets                                                                                                                  Unrecognized pension cost (Note 4(19))
                                      Other Assets                                                                                                                             Unrealized gain or loss on financial instruments
                                       Leased assets (Notes 4(11) and 6)                                                                                                         (Notes 4(3), 4(9) and 10)
                                       Idle assets (Note 4(12) )                                                                                                               Unrealized revaluation increments (Note 4(10))
                                       Refundable deposits (Note 10)                                                                                                           Treasury stock (Notes 4(9), 4(25) and 6)
                                       Deferred expenses
                                       Long-term notes and accounts receivable (Note 4(13))                                                                                   Minority interests
                                       Deferred income tax assets-non-current (Note 4(17))                                                                                   Total Stockholders' Equity
                                       Other assets                                                                                                                          Commitments and contingent liabilities (Notes 4(10), 5, 7 and 10)
                                      Total other assets                                                                                                                     Subsequent events (Notes 4(23) and 9)
                                      TOTAL ASSETS                                                                                                                           TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY
                                                                                                                                      The accompanying notes are an integral part of these consolidated financial statements.
                                                                                                                                                 See report of independent accountants dated March 20, 2012.

                                                                                                                                                                             3
                                                                                                                                                         2011
                                                                                                                                                         Annual Re p o r t




                                   TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                           CONSOLIDATED STATEMENTS OF INCOME
                                            FOR THE YEARS ENDED DECEMBER 31,
                          (EXPRESSED IN THOUSANDS OF DOLLARS, EXCEPT EARNINGS PER SHARE DATA)

                                                                                                 New Taiwan Dollars                            US Dollars
                                                                                       2010          %             2011              %            2011
                                                                                                                                            Unaudited-Note 2
Operating revenues (Notes 4(26) and 5)
 Sales
 Sales returns
 Sales discount
  Net sales
 Financial instrument sales revenue, net
 Construction revenue
 Service revenue
  Total operating revenues
Operating costs (Notes 4(6), 4(19), 4(23), 4(27) and 5)
 Cost of goods sold
 Construction cost
 Service cost
  Total operating costs
Gross profit
Unrealized intercompany profit (Note 5)
Realized intercompany profit
Net gross profit
Operating expenses (Notes 4(19), 4(23), 4(27) and 5)
 Selling expenses
 General and administrative expenses
 Research and development expenses
  Total operating expenses
Operating income
Non-operating income
 Interest income (Note 5)
 Investment income accounted for under the equity method (Note 4(9))
 Dividend income
 Gain on disposal of property, plant and equipment
 Gain on disposal of investments
 Foreign exchange gain, net
 Rental income (Note 5)
 Gain on valuation of financial assets, net (Note 4(2))
 Gain on valuation of financial liabilities, net (Note 4(16))
 Miscellaneous income
  Total non-operating income
Non-operating expenses
 Interest expense
 Other investment loss
 Foreign exchange loss, net
 Financing expenses
 Depreciation on idle assets (Note 4(27))
 Impairment loss (Notes 4(8) and 4(14))
 Loss on valuation of financial assets, net (Note 4(2))
 Loss on valuation of financial liabilities, net (Note 4(16))
 Miscellaneous expenses (Note 4(27))
  Total non-operating expenses
Income before income tax
Income tax expense (Note 4(17))
Consolidated net income
Attributable to:
 Equity holders of the Company
 Minority interests

                                                                                Income before      Net     Income before      Net        Income before        Net
                                                                                 Income Tax      Income     Income Tax      Income        Income Tax        Income
Earnings per share (Note 4(24))
Basic earnings per share
 Equity holders of the Company
Diluted earnings per share
 Equity holders of the Company




                                  The accompanying notes are an integral part of these consolidated financial statements.
                                              See report of independent accountants dated March 20, 2012.




                                                                        4                                                                       www.teco.com.tw      159
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                                                                                                                                TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                                                                                                            CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
                                                                                                                                                                                                                                                                                                      A n nual Re p o r t
                                                                                                                                                                                                                                                                                                             2011
                                                                                                                                   FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010
                                                                                                                                        (EXPRESSED IN THOUSANDS OF DOLLARS)

                                                                                               Capital                                         Retained Earnings                                Other Equity Adjustments
                                                                                                    Subscription
                                                                                                    for common                                                                                                   Unrealized
                                                                                                         stock                                                                Cumulative                       gain or loss on    Unrealized
                                                                                        Common         received          Capital                          Undistributed        translation     Unrecognized       financial       revaluation      Treasury          Minority
                                                                                         stock       in advance          reserves       Legal reserve      earnings           adjustments       pension cost    instruments       increments         stock           interest             Total
                                      2010-New Taiwan dollars
                                      Balance at January 1, 2010
                                      Appropriations of 2009 net income (Note)
                                         Legal reserve
                                         Cash dividends
                                      Exercise of employee stock options




TECO ELECTRIC & MACHINERY CO., LTD.
                                      Effect of changes in ownership percentage of
                                        investee companies
                                      Effect of changes in unrealized gain on
                                        financial instruments
                                      Effect of changes in investees’ unrealized
                                        gain on financial instruments
                                      Foreign currency translation adjustments
                                      Effect of changes in unrecognized pension
                                        cost
                                      Effect of changes in investees’ unrecognized
                                        pension cost
                                      Effect of changes in minority interests
                                      Consolidated net income for 2010
                                      Balance at December 31, 2010

                                      2011-New Taiwan dollars
                                      Balance at January 1, 2011
                                      Appropriations of 2010 net income (Note)
                                         Legal reserve
                                         Cash dividends
                                      Exercise of employee stock options
                                      Effect of changes in ownership percentage of
                                        investee companies
                                      Effect of changes in unrealized gain on
                                        financial instruments
                                      Effect of changes in capital reserves of
                                        investee companies
                                      Effect of changes in investees’ unrealized gain
                                        on financial instruments
                                      Foreign currency translation adjustments
                                      Effect of changes in unrecognized pension
                                        cost
                                      Effect of changes in investees’ unrecognized
                                        pension cost
                                      Effect of changes in minority interests
                                      Consolidated net income for 2011
                                      Balance at December 31, 2011

                                      Note: For the years ended December 31, 2010 and 2009, directors’ and supervisors’ remuneration amounting to $89,923 and $70,459, respectively, and employees’ bonus amounting to $202,327 and $158,532, respectively, had been deducted from the consolidated
                                            statement of income.
                                                                                                                                                                (Continued)

                                                                                                                                                                     5
                                                                                                          TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                                                                                CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (CONTINUED)
                                                                                                                  FOR THE YEAR ENDED DECEMBER 31, 2011
                                                                                                                 (EXPRESSED IN THOUSANDS OF DOLLARS)

                                                                           Capital                                          Retained Earnings                                  Other Equity Adjustments
                                                                                 Subscription
                                                                                 for common                                                                                                     Unrealized
                                                                                      stock                                                                 Cumulative                        gain or loss on   Unrealized
                                                                    Common          received          Capital                           Undistributed       translation       Unrecognized       financial      revaluation      Treasury          Minority
                                                                     stock         in advance        reserves        Legal reserve       earnings           adjustments        pension cost     instruments     increments        stock            interest            Total
                  2011-US dollars (Unaudited-Note 2)
                  Balance at January 1, 2011
                  Appropriations of 2010 net income (Note)
                     Legal reserve
                     Cash dividends
                  Exercise of employee stock options
                  Effect of changes in ownership percentage of
                    investee companies
                  Effect of decrease in unrealized gain on
                    financial instruments
                  Effect of changes in capital reserves of
                    investee companies
                  Effect of changes in investees’ unrealized
                    gain on financial instruments
                  Foreign currency translation adjustments
                  Effect of changes in unrecognized pension
                    cost
                  Effect of changes in investees’ unrecognized
                    pension cost
                  Effect of changes in minority interests
                  Consolidated net income for 2011
                  Balance at December 31, 2011

                  Note: For the years ended December 31, 2010 and 2009, directors’ and supervisors’ remuneration amounting to $2,970 and $2,327, respectively, and employees’ bonus amounting to $6,683 and $5,236, respectively, had been deducted from the consolidated statement
                        of income.




                                                                                                        The accompanying notes are an integral part of these consolidated financial statements.
                                                                                                                    See report of independent accountants dated March 20, 2012.



                                                                                                                                                  6




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                                                                                                                                                                                                                                                                                            2011




161
                                                                                                                                                                                                                                                                                      Annual Re p o r t
      2011
A n nual Re p o r t




                                                              TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                                                    CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                       FOR THE YEARS ENDED DECEMBER 31,
                                                                     (EXPRESSED IN THOUSANDS OF DOLLARS)

                                                                                                          New Taiwan Dollars       US Dollars

                                                                                                                               (Unaudited-Note 2)
              Cash flows from operating activities
                Consolidated net income
                  Adjustments to reconcile consolidated net income to net cash provided
                     by operating activities:
                     Loss (gain) on valuation of financial assets
                     (Gain) loss on valuation of financial liabilities
                     Bad debts provision
                     Provision for decline in value of inventories
                     Investment income accounted for under the equity method
                     Cash dividends from investee companies accounted for under the
                      equity method
                     Gain on disposal of investments, net
                     Other investments loss
                     Impairment loss
                     Depreciation, amortization and loss on disposal of property,
                      plant and equipment, net
                     Changes in assets and liabilities:
                        Financial assets at fair value through profit or loss-current
                        Notes receivable
                        Notes receivable-related parties
                        Accounts receivable
                        Accounts receivable-related parties
                        Other receivables-related parties
                        Other receivables
                        Other financial assets-current
                        Inventories
                        Construction in progress, net
                        Prepaid expenses
                        Deferred income tax assets (liabilities), net
                        Other current assets - other
                        Notes payable
                        Notes payable-related parties
                        Accounts payable
                        Accounts payable-related parties
                        Income tax payable
                        Accrued expenses and other payables
                        Receipts in advance
                        Other current liabilities
                        Accrued pension liabilities
                        Other liabilities
                          Net cash provided by operating activities


              Cash flows from investing activities
                Decrease (increase) in available-for-sale financial assets-current
                (Increase) decrease in other receivables-related parties
                (Increase) decrease in pledged fixed deposits
                Proceeds from disposal of available-for-sale financial assets-non-current
                Increase in available-for-sale financial assets-non-current
                Proceeds from disposal of financial assets carried at cost-non-current
                Increase in financial assets carried at cost-non-current
                Proceeds from disposal of long-term equity investments accounted for
                  under the equity method
                Increase in long-term equity investments accounted for under the equity
                   method, net
                Proceeds from disposal of property, plant and equipment
                Acquisition of property, plant, and equipment
                Increase in other intangible assets and deferred expenses
                Increase in refundable deposits
                Decrease in long-term notes and accounts receivable
                Increase (decrease) in other assets - other
                          Net cash used in investing activities




                                                                                            (Continued)




                                                                                                7




  162   TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                    2011
                                                                                                                                                      Annual Re p o r t




                                                TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                                                CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
                                                         FOR THE YEARS ENDED DECEMBER 31,
                                                       (EXPRESSED IN THOUSANDS OF DOLLARS)


                                                                                                         New Taiwan Dollars                  US Dollars

                                                                                                                                        (Unaudited-Note 2)
Cash flows from financing activities
  Increase in short-term loans
  Increase (decrease) in long-term loans
  Decrease in guarantee deposits received
  Payment of cash dividends
  Proceeds from exercise of employee stock options
           Net cash used in financing activities
Exchange rate effect
Net increase in cash and cash equivalents
Cash and cash equivalents at beginning of the year
Cash and cash equivalents at end of the year

Supplemental disclosures of cash flow information
  Interest (net of amount capitalized) paid during the year
  Income tax paid during the year

Investing activities that resulted in partial cash flows
  Disposal of available-for-sale financial assets-non-current
  Add: other receivables at beginning of the year
  Less: other receivables at end of the year
  Cash received

  Increase in available-for-sale financial assets-non-current
  Add: other payables at beginning of the year
  Less: other payables at end of the year
  Cash paid

  Acquisition of property, plant and equipment
  Add: other payables at beginning of the year
        liability under capital lease at beginning of the year
  Less: other payables at end of the year
        liability under capital lease at end of the year
  Cash paid

  Disposal of long-term equity investments accounted for
   under the equity method
  Add: other receivables at beginning of the year
  Less: other receivables at end of the year
  Cash received




                                              The accompanying notes are an integral part of these consolidated financial statements.
                                                          See report of independent accountants dated March 20, 2012.




                                                                                        8




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      2011
A n nual Re p o r t




                           TECO ELECTRIC & MACHINERY CO., LTD. AND SUBSIDIARIES
                               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                         DECEMBER 31, 2011 AND 2010
                             (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,
                                      EXCEPT AS OTHERWISE INDICATED)


                1.    HISTORY AND ORGANIZATION
                      TECO ELECTRIC & MACHINERY CO., LTD. (the Company) was incorporated on
                      June 12, 1956 under the provisions of the Company Law of the Republic of China
                      (R.O.C.) as a company limited by shares. The Company primarily engages in the
                      manufacture, installation, wholesale, retail of various types of electrical and mechanical
                      equipment, general mechanical equipment, air-conditioning units, electronic equipment,
                      telecommunication equipment, office equipment, and home appliances. In 2003, Taian
                      Electric & Machinery Co., Ltd. was merged with the Company. In 2011, An Yang
                      Electric Co., Ltd. and Taitec Technology Co., Ltd. were merged with the Company. As of
                      December 31, 2011, the Company and its subsidiaries included in the consolidated
                      financial statements had approximately 13,000 employees.
                2.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
                      The accompanying consolidated financial statements of the Company and its subsidiaries
                      (collectively referred herein as the Group) are prepared in conformity with the “Rules
                      Governing the Preparation of Financial Statements by Securities Issuers” and generally
                      accepted accounting principles in the Republic of China. The Group’s significant
                      accounting policies are summarized as follows:
                      (1) Basis for preparation of consolidated financial statements
                         A. Principle on preparation of consolidated financial statements
                            All majority-owned subsidiaries wherein the Group owns more than 50%
                            ownership and controlled entities are included in the consolidated financial
                            statements. Effective January 1, 2008, the Group prepares consolidated financial
                            statements on a quarterly basis, and the proportionate consolidation method is
                            applied to the jointly controlled entity at the balance sheet date. The income (loss)
                            of the subsidiaries is included in the consolidated statement of income effective on
                            the date the Group gains control over the subsidiaries. The income (loss) of the
                            subsidiaries is excluded from the consolidated statement of income effective the
                            date on which the Group loses control over the subsidiaries. Significant
                            inter-company transactions, assets and liabilities arising from inter-company
                            transactions are eliminated.



                                                               9




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                                                                                                      Annual Re p o r t




B. Subsidiaries included in the consolidated financial statements
    (A)The details are as follows:
                                                                               % of shares held
                                                                                as of Dec. 31,
               Subsidiary                 Relationship    Main activities       2011    2010      Remark
  1. Teco Holding USA Inc.                   Note 1      Holding company       100%    100%
     (1) Teco Westinghouse Motor             Note 2      Manufacturing and 100%        100%
          Company                                        sales of motors and
                                                         generators
        A.Teco Westinghouse Motor            Note 3               "            100%    100%
             Company S.A. de C.V.
     (2) Teco Westinghouse Motor             Note 2               "            100%    100%
          Industrial Canada
  2. United View Global Investment           Note 1      Holding company       100%    100%
      Co., Ltd.
     (1) Great Teco Motor (PTE) Ltd.         Note 2               "            100%    100%
        A. Suzhou Teco Electric &            Note 3      Manufacturing and 100%        100%
             Machinery Co., Ltd.                         sales of motors and
                                                         generators

        B. Wuxi Teco Electric &              Note 3               "            82.35% 82.35%
            Machinery Co., Ltd.
        C. Jiangxi Teco Electric &           Note 3      Manufacturing and 91.67% 91.67%
            Machinery Co., Ltd.                          sales of motors
        D. Qingdao Teco Precision            Note 3      Manufacturing and 85.31% 85.31%
            Mechatronics Co., Ltd.                       sales of motors


        E. Fujian Teco Precision Co.,        Note 3      Manufacturing and 100%        100%
            Ltd.                                         sales of electric
                                                         components
     (2) Asia Air Tech Industrial (Pte)      Note 2      Holding company       100%    100%
          Ltd.
        A. Teco (Dong Guang) Air             Note 3      Manufacturing and 100%        100%
             Conditioning                                sales of
             Equipment Co., Ltd.                         air-conditioning
                                                         mechanical
                                                         equipment
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                                                                                         % of shares held
                                                                                          as of Dec. 31,
                            Subsidiary              Relationship    Main activities       2011    2010      Remark
                  (3) Teco Australia Pty. Ltd.         Note 2      Manufacturing and 99.99% 99.99%
                                                                   sales of motors and
                                                                   home appliances
                      A. Teco (New Zealand)            Note 3                "           100%    100%
                          Limited
                  (4) P.T Teco Elektro Indonesia       Note 2                "           100%    100%
                  (5) Teco Industrial (Malaysia)       Note 2      Manufacturing and 100%        100%
                       Sdn. Bhd.                                   sales of motors


                  (6) Tecoson Industrial               Note 2      Investment in         100%    100%
                       Development                                 South-East Asia
                                                                   and Hong Kong
                      A. Tecoson HK Co., Ltd.          Note 3      Various               100%    100%
                                                                   investments
                  (7) Asia Electric and Machinery      Note 2      Holding company       100%    100%
                       (Pte) Ltd.
                      A. Nanchang Teco Electric        Note 3      Manufacturing and 100%        100%
                          & Machinery Co., Ltd.                    sales of home
                                                                   appliances
                      B. Xiamen Teco Technology        Note 3      Distribution of       100%    100%
                          Co., Ltd.                                motors and home
                                                                   appliances
                      C. Asia Innovative               Note 3      Distribution of       100%    100%
                          Technology Co., Ltd.                     LCD
                      D. Qingdao Teco Century          Note 3      Manufacturing         50%      50%       Note 5
                          Advanced High-tech                       and sales of
                          Mechatronics Co., Ltd.                   centrifugal
                                                                   compressor and
                                                                   centrifugal chiller
                      E. Tianjin Teco Technology       Note 3      Operations center     100%    100%
                          Co., Ltd.                                in Central China




                                                     11




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                                                                         % of shares held
                                                                          as of Dec. 31,
             Subsidiary              Relationship    Main activities      2011    2010      Remark
     F. Jiangxi TECO Air                Note 3      Manufacturing and 100%       100%
            Conditioning Equipment                  sales of various
           Co., Ltd.                                air-conditioning
                                                    units
  (8) Great Teco, S.L.                  Note 2      Distribution of      100%    100%
                                                    LCD
  (9) Teco Electronic &                 Note 2               "           100% 100%
       Machinery B.V.
3. Tesen Electric & Machinery Co.,      Note 1      Manufacturing and 100%       100%
    Ltd.                                            sales of home
                                                    appliances
4. Tong-An Assets Management &          Note 1      Real estate business 100%    100%
    Development Co., Ltd.

5. Teco Electric Europe Limited         Note 1      Distribution of      100%    100%
                                                    motors
6. Teco Electric & Machinery (Pte)      Note 1               "           100%    100%
    Ltd.
  (1) Tong Yuan Electronic &            Note 2      Sales of motors in   100%    100%
       Machinery Sdn. Bhd.                          Singapore
  (2) P.T Teco Multiguna Electro        Note 2               "           87.5% 87.5%
  (3) Teco (Thai) Co.                   Note 2               "            55%     55%
  (4) STE Marketing Sdn. Bhd.           Note 2               "           100%    100%
  (5) Teco (Vietnam) Electric &         Note 2      Manufacturing of      60%     60%
       Machinery Company Ltd.                       motors
  (6) TYM Electric & Machinery          Note 2      Distribution of      100%    100%
       Sdn. Bhd.                                    motors
7. Tong Dai Co., Ltd.                   Note 1               "           92.63% 92.63%
8. Tong Tai Jung Co., Ltd.              Note 1               "            60%     60%
9. Teco Electro Devices Co., Ltd.       Note 1      Manufacturing and 64.08% 64.36%
                                                    sales of motors

   (1) Teco Electro Devices Co.,        Note 2      Trading and         100%     100%
        Ltd.                                        various investments


                                      12




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                                                                                             % of shares held
                                                                                              as of Dec. 31,
                              Subsidiary               Relationship    Main activities        2011    2010      Remark
                         A. Taichang Teco Electro         Note 3      Manufacturing and 100%         100%
                             Devices Co.                              sales of motors
                10. Yatec Engineering Corporation         Note 1      Development and        64.95% 64.95%
                                                                      maintenance of
                                                                      various electric
                                                                      appliances
                11. Taian (Subic) Electric Co., Inc.      Note 1      Manufacturing and 76.7% 76.7%
                                                                      sales of switches
                12. An Yang Electric Co., Ltd.            Note 1      Manufacturing and        -     65.4%      Note 6
                                                                      sales of electricity
                                                                      distribution
                                                                      machines

                13. Taian-Etacom Technology Co.,          Note 1      Manufacturing of 84.73% 84.73%
                     Ltd.                                             busway and related
                                                                      components
                14. Taitec Technology Co., Ltd.           Note 1      Manufacturing of         -     100%       Note 6
                                                                      electricity
                                                                      distribution
                                                                      machines
                15. Taian (Malaysia) Electric Sdn.        Note 1      Manufacturing of       66.85% 66.85%
                     Bhd.                                             switches
                16. Micropac (BVI) Worldwide              Note 1      International          100%    100%
                                                                      trading
                      (1) An-Tai International            Note 2      Investment             100%    100%
                         AInvestment(Singapore)                       holdings
                         ACo., Ltd.


                         A. Tai-An Technology             Note 3      Manufacturing and 100%         100%
                            (Wuxi) Co., Ltd.                          sales of fiber
                                                                      electric equipment
                             a. Teco Sichuan              Note 3      Sales of home          100%    100%
                                Trading Co., Ltd.                     appliances



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                                                                          % of shares held
                                                                           as of Dec. 31,
            Subsidiary               Relationship     Main activities      2011    2010      Remark
17. Great Teco Whirlpool Co., Ltd.      Note 1      Distribution of        60%     60%
                                                    Whirlpool’s home
                                                    appliances
18. E-Joy International Co., Ltd.       Note 1      Wholesale and         79.37% 79.37%
                                                    retail of electric
                                                    appliances
19. A-Ok Technical Co., Ltd.            Note 1      Repair of electric    86.67% 86.67%
                                                    appliances
20. Media Vision Inc.                   Note 1      Design of             78.63% 78.63%
                                                    telecommunica-
                                                    tions equipped with
                                                    wires and wireless

21. Information Technology Total        Note 1      E-business service, 71.30% 65.29%
     Services Co., Ltd.                             mailing and data
                                                    management


22. GD Teco Taiwan Co., Ltd.            Note 1      Manufacturing of      100%    100%
                                                    IC projects
23. Teco International Investment       Note 1      Various               100%    100%
     Co., Ltd.                                      investments
    (1) Tasia (Pte) Ltd.                Note 2                "           100%    100%
       A. Sankyo Co., Ltd.              Note 3      Sales of home         100%    100%
                                                    appliances
24. Tong-An Investment Co., Ltd.        Note 1      Various               100%    100%
                                                    investments
   (1) Jack Property Service &          Note 2      Building               50%     50%
       Management Company                           management
                                                    servicing
   (2) Teco Capital Investment          Note 2      Holding company       100%    100%
       (SAMOA) Co., Ltd.
       A. Qingdao TECO                  Note 3      Science Park
          Innovation Co., Ltd.                      development and
                                                    business operations
                                                    consulting services

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                                                                                          % of shares held
                                                                                           as of Dec. 31,
                              Subsidiary               Relationship    Main activities     2011    2010      Remark
                 25. Tecnos International Consultant      Note 1      Business            68.28% 68.28%
                       Co., Ltd.                                      management
                                                                      consulting
                 26. An-Tai International Investment      Note 1      Various             100%    100%
                      Co., Ltd.                                       investments
                 27. Taiwan Pelican Express Co.,          Note 4      Delivery and        61.12% 39.71%
                      Ltd.                                            logistic services
                      (1) Pelecanus Express Pte. Ltd      Note 2      Holding company     100%    100%
                         A. Beijing Pelican Express       Note 3      Storage services    100%    100%
                             Co., Ltd.

                 28. Teco Technology (Vietnam)      Note 1    Manufacturing and 100%              100%
                      Co., Ltd.                               sales of motors
                 Note 1: The Company holds more than 50% of the investees’ voting stock.
                 Note 2: The subsidiaries hold more than 50% of the investees’ voting stock.
                 Note 3: The indirect subsidiaries hold more than 50% of the investees’ voting stock.
                 Note 4: The Company holds more than 50% of the investees’ ownership if the
                         preferred stock is converted to common stock. The Company has converted
                         the preferred stock to common stock in October 2, 2011.
                 Note 5: In accordance with R.O.C. SFAS No. 31, “Interests in Joint Ventures”, the
                         Company adopted the proportionate consolidation method to consolidate the
                         jointly controlled entity.
                 Note 6: The investees were merged with the Company in July 2011.
                 (B) Total operating revenues of $5,042,684 and $4,799,872 for the years ended
                     December 31, 2011 and 2010, respectively, total assets of $5,661,726 and
                     $5,101,230 as of December 31, 2011 and 2010, respectively, were accounted for
                     based on the subsidiaries’ financial statements that were audited by other auditors.




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C. Subsidiaries changed in the consolidated financial statements:
  Subsidiaries included in the consolidated financial statements:

                                                                      % of shares held
                                                                     as of December 31,
               Subsidiary            Relationship Main activities      2011      2010     Remark
  1. Teco Capital Investment               Note 1        Note 3       100%      100%       Note 4
       (SAMOA) Co., Ltd.
  2. Qingdao TECO Innovation Co.,          Note 2        Note 3       100%      100%          "
       Ltd.
  3. Beijing Pelican Express Co.,          Note 2        Note 3       100%      100%          "
       Ltd.
  Note 1: The subsidiaries hold more than 50% of the investees’ voting stock.
  Note 2: The indirect subsidiaries hold more than 50% of the investees’ voting stock.
  Note 3: Please refer to Note 2(1)B(A).
  Note 4: The subsidiaries were included in the consolidated financial statements as
          their respective total assets and operating revenues exceed the materiality
          threshold of the Company’s total assets and operating revenues.
  Subsidiaries excluded in the consolidated financial statements:

                                                                      % of shares held
                                                                     as of December 31,
               Subsidiary            Relationship Main activities      2011      2010     Remark
  1. An Yang Electric Co., Ltd.            Note 5   Manufacturing       -       65.4%      Note 6
                                                    and sales of
                                                    electricity
                                                    distribution
                                                    machines
  2. Taitec Technology Co., Ltd.             "      Manufacturing       -       100%          "
                                                    of electricity
                                                    distribution
                                                    machines
  Note 5: The Company holds more than 50% of the investees’ voting stock.
  Note 6: The investees were merged with the Company in July 2011.




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                      D. Subsidiaries not included in the consolidated financial statements
                                       Subsidiary                   Ownership (%) Reason for non-consolidation
                        1. Teco Appliance (HK) Co., Ltd.               99.99%                  Note
                        2. Taian Electric Co., Ltd.                     100%                       "
                        3. Taiwan Pei Li Tone Co., Ltd.                68.03%                      "
                        4. Antech Automation Corp.                      100%                       "
                        5. An-Sheng Travel Co., Ltd.                    76.8%                      "
                        6. Hubbell-Taian Co., Ltd.                     49.99%                      "
                        7. Hubbell-Anmex International(s) Pte.          100%                       "
                            Ltd.
                        8. Information Technology Total Service         100%                       "
                            (BVI) Co., Ltd.
                        9. Universal Mail Service Ltd.                  100%                       "
                        10. Unison Service Corporation                  100%                       "
                        11. Information Technology Total                100%                       "
                             Service (Hang Zhu) Co., Ltd.
                        12. Information Technology (Wuxi) Co.,          100%                       "
                             Ltd.
                        13. Information Technology Total                100%                       "
                             Service (Xiamen) Ltd.
                        14. Grey back International Property Inc.      54.83%                      "
                        15. Titco International Corporation             100%                       "
                        16. Teco Group Science-Techology                100%                       "
                             (Hang Zhou) Co., Ltd.
                        17. Nanchang Dong-Huan Management               100%                       "
                             & Consulting Co., Ltd.
                        19. Taian-Jaya Electric Sdn. Bhd.                95%                       "
                        20. Tecocapital Investment Co., Ltd.            100%                       "
                        21. Ecolectric International Co., Ltd.           50%                       "
                        22. TECO (PHILIPINES) 3C &                       60%                       "
                             APPLIANCES, INC.
                        23. TTMC Co., Ltd.                              100%                     "
                        Note: The above subsidiaries were not included in the consolidated financial statements
                              as their respective total assets and operating revenues did not exceed the
                              materiality threshold of the Company’s total assets and operating revenues.
                        E. Adjustments for subsidiaries with different balance sheet dates: None.
                         F. Adjustments for subsidiaries with different accounting policy: None.
                         G. Special operating risks in foreign subsidiaries: None.
                         H. Nature and extent of the restrictions on fund remittance from subsidiaries to the
                            parent company: None.

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    I. Contents of subsidiaries’ securities issued by the parent company: Please refer to
        Note 4(25).
    J. Information on convertible bonds and common stock issued by subsidiaries:None.
(2) Translation of financial statements of foreign subsidiaries
   Assets and liabilities of foreign subsidiaries are translated into New Taiwan dollars
   using the exchange rates at the balance sheet date. Equity accounts are translated
   at historical rates except for beginning retained earnings, which is carried forward
   from prior year’s balance. Dividends are translated at the rates prevailing at the
   date of declaration. Profit and loss accounts are translated at weighted-average
   rates of the year. The resulting translation differences are included in “cumulative
   translation adjustments” under stockholders’ equity.
(3) Foreign currency transactions
   A. Transactions denominated in foreign currencies are translated into functional
      currency at the spot exchange rates prevailing at the transaction dates.
      Exchange gains or loss due to the differece between the exchange rate on the
      transaction date and the exchange rate on the date of actual receipt and payment
      are recognized in current year’s profit or loss.
   B. Receivables, other monetary assets and liabilities denominated in foreign
      currencies are translated at the spot exchange rates prevailing at the balance
      sheet date. Exchange gains or losses are recognized in profit or loss.
   C. When a gain or loss on a non-monetary item is recognized in profit or loss, any
      exchange component of that gain or loss shall be recognized in profit or loss.
      Conversely, when a gain or loss on a non-monetary item is recognized directly in
      equity, any exchange component of that gain or loss shall be recognized directly
      in equity. However, non-monetary items that are measured on a historical cost
      basis are translated using the exchange rate at the transaction date.
(4) Criteria for classifying current or non-current items
    A. Assets that meet one of the following criteria are classified as current assets;
       otherwise, they are classified as non-current assets:
       (A) Assets expected to be realized, used or intended to be sold during the normal
           course of business;
       (B) Assets held mainly for trading purposes;
       (C) Assets expected to be realized within 12 months from the balance sheet date;
       (D) Unrestricted cash and cash equivalents.




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                            B. Liabilities that meet one of the following criteria are classified as current
                               liabilities; otherwise, they are classified as non-current liabilities:
                               (A) Liabilities incurred within the Company’s operating activities and expected
                                   to be paid during the normal course of business;
                               (B) Liabilities incurred mainly for trading activities;
                               (C) Liabilities expected to be paid within 12 months from the balance sheet date;
                               (D) Liabilities for which the repayment date cannot be extended unconditionally
                                   to more than 12 months after the balance sheet date.
                      (5)   Cash and cash equivalents
                            Cash and cash equivalents are short-term, highly liquid investments which are
                            readily convertible to known amounts of cash and which are subject to insignificant
                            risk of changes in value resulting from fluctuations in interest rates.
                      (6) Financial assets and financial liabilities at fair value through profit or loss
                            A. Equity instruments are recognized and derecognized using trade date accounting,
                               whereas, derivative financial instruments are recognized and derecognized using
                               settlement date accounting. These financial instruments are recognized
                               initially at fair value.
                            B. These financial instruments are subsequently remeasured and stated at fair value,
                               and the gain or loss is recognized in profit or loss. The fair value of listed and
                               OTC stocks is based on latest quoted fair prices at the balance sheet date. The
                               fair value of open-end funds is based on the net asset value at the balance sheet
                               date.
                            C. Derivative financial instruments that do not qualify for hedge accounting are
                               initially recognized at fair value at the balance sheet date, and the gain or loss is
                               recognized immediately in profit or loss.
                            D. Effective July 1, 2008, the Group adopted the amended R.O.C. SFAS No. 34,
                               which permits an entity to reclassify non-derivative financial assets (other than
                               those designated at fair value through profit or loss by the entity upon initial
                               recognition) out of the fair value through profit or loss category in particular
                               circumstances.
                      (7) Available-for-sale financial assets
                            A. Available-for-sale financial assets are recognized and derecognized using trade
                               date accounting and are recognized initially at its fair value plus transaction
                               costs that are directly attributable to the acquisition of the financial asset.
                            B. The financial assets are remeasured and stated at fair value, and the unrealized
                               gain or loss is recognized in equity. The gains or losses are recognized
                               immediately when the financial assets are derecognized. The fair value of

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         listed and OTC stocks is based on latest quoted fair prices at the balance sheet
         date. The fair value of open-end funds is based on the net asset value at the
         balance sheet date.
      C. If there is any objective evidence that the financial asset is impaired, the
         impairment loss is recognized in profit or loss. If, in a subsequent period, the
         amount of the impairment loss decreases, the previously recognized impairment
         loss shall be reversed as equity adjustments.
(8)   Financial assets and financial liabilities carried at cost
      A. Financial assets and financial liabilities carried at cost are recognized and
         derecognized using trade date accounting and are recognized initially at its fair
         value plus transaction costs that are directly attributable to the acquisition or
         issuance of the financial assets or financial liabilities.
      B. If there is any objective evidence that the financial assets are impaired, the
         impairment loss is recognized in profit or loss. Such impairment loss cannot
         be reversed.
(9) Settlement date accounting
      Any change in the fair value during the period between the trade date and the
      settlement date / balance sheet date is not recognized for financial assets carried at
      cost or amortized cost. For financial assets and financial liabilities at fair value
      through profit or loss, the change in fair value is recognized in profit or loss. For
      available-for-sale financial assets, the change in fair value is recognized directly in
      equity.
(10) Notes, accounts and other receivables
     A. Notes, accounts and other receivables are initially recognized at fair value and
         subsequently amortized using the effective interest method. Impairment is
         deducted from the receivable balance, and assessed at the end of each reporting
         period when there is objective evidence that, as a result of one or more events
         that occurred after the initial recognition of the receivable, the estimated future
         cash flows of the asset have been affected.
     B. Starting from January 1, 2011, the amount of the impairment loss recognized is
         the difference between the asset’s carrying amount and the present value of
         estimated future cash flows, after taking into account the related collateral and
         guarantees, discounted at the receivable’s original effective interest rate. The
         carrying amount of the receivable is reduced through the use of an allowance
         account.
(11) Allowance for doubtful accounts
      Before January 1, 2011, allowance for doubtful accounts was provided based on an
      evaluation of the collectibility of ending balances of various receivables, taking into

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                           account the bad debts incurred in prior years and the aging analysis of the
                           receivables.
                      (12) Inventories
                           The perpetual inventory system is adopted for inventory recognition. Inventories
                           are stated at cost. The cost is determined using the weighted-average method.
                           Fixed manufacturing overhead is allocated over the normal capacity of the
                           production equipment. If production fluctuates over interim periods, the cost
                           variances resulting from such fluctuation are deferred in the interim statements.
                           At the end of year, inventories are evaluated at the lower of cost or net realizable
                           value, and the individual item approach is used in the comparison of cost and net
                           realizable value. The calculation of net realizable value is based on the estimated
                           selling price in the normal course of business, net of estimated costs of completion
                           and estimated selling expenses.
                      (13) Construction in progress and partial construction billings
                           A. Construction in progress are stated at cost and the related interests are
                              capitalized in accordance with the generally accepted accounting principles in
                              the Republic of China.
                           B. If the balance of construction in progress exceeds the balance of partial
                              construction billings, partial construction billings is deducted from construction
                              in progress and presented as current assets. If the balance of partial
                              construction billings exceeds the balance of construction in progress,
                              construction in progress is deducted from partial construction billings and
                              presented as current liabilities.
                       (14)Long-term equity investments accounted for under the equity method
                           A. Long-term equity investments in which the Company holds more than 20% of
                              the investee company's voting shares or has the ability to exercise significant
                              influence on the investee’s operational decisions are accounted for under the
                              equity method. The excess of the initial investment cost over the acquired net
                              asset value of the investee attributable to goodwill is no longer amortized and
                              carries on tests of impairment every year, effective January 1, 2006.
                              Retrospective adjustment of the amount of goodwill amortized in previous years
                              is not required. The excess of acquired net asset value of investee over the
                              initial investment cost is allocated proportionately and applied as a reduction to
                              the book value of identifiable non-current assets, and any remaining amount of
                              such excess after this allocation is credited to extraordinary gains. However,
                              negative goodwill acquired prior to December 31, 2005 is continuously
                              amortized.
                           B. Investment loss on the non-controlled entities over which the Company has the
                              ability to exercise significant influence is recognized to the extent that the

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        amount of long-term investments in such investees is written down to zero.
        However, if the Company continues to provide endorsements, guarantees or
        financial support for such investees, the investment loss is recognized
        continuously in proportion to the Company’s equity interest in such investees.
        In the case of controlled entities, the Company recognizes all the losses incurred
        by such entities that will not be covered by other stockholders. When the
        operations of such investees become profitable, the profit shall be allocated to
        the Company to the extent that the amount of losses previously recognized by
        the Company is fully recovered.
     C. The capital reserve and long-term equity investment amounts are adjusted by
        the variance between the investment cost and net assets of the investee due to
        the disproportionate acquisition or decrease of shares in connection with the
        capital increase or decrease by the investee company. If the balance of capital
        reserve from long-term investment is not sufficient to cover the amount, it is
        then charged to retained earnings.
     D. The financial statements of foreign investments accounted for under the equity
        method are translated into New Taiwan dollars. The Company recognizes its
        proportionate share in the translation adjustment based on its percentage of
        ownership in the investee company, which is recorded in the cumulative
        translation adjustment account in stockholders’ equity.
(15) Property, plant and equipment
     A. With the exception of certain fixed assets which are carried at government
        revaluation increments, property, plant and equipment are stated at cost.
        Interests incurred on the loans used to bring the assets to the condition and
        location necessary for their intended uses are capitalized. The land value
        incremental reserve resulting from the revaluation increment is recorded as
        long-term liability.
     B. Depreciation is provided on the average method over the estimated useful lives
        of the assets. The estimated useful lives of fixed assets are 2 to 60 years.
     C. If the lease contract qualifies as a capital lease, the lessee should capitalize the
        leased property as an asset and recognize the lease liability. If the lease
        contract contains a bargain purchase option or allows the transfer of ownership
        at the end of the term, then the depreciation should be determined based on the
        leased property’s useful economic lives.
     D. Major renewals and improvements are capitalized and depreciated accordingly.
        Maintenance and repairs are expensed as incurred. When an asset is sold or
        retired, the cost and accumulated depreciation are removed from the respective
        accounts and the resulting gain or loss is included in current non-operating
        income (expense).
     E. Fixed assets not used in operations are reclassified as other assets and the
        related depreciation is charged to non-operating expense.

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                           F. When transferring the Company’s land to a wholly-owned subsidiary, the land
                               revaluation balance and the related land value increment tax and reserve are
                               transferred and no gain or loss is recognized.
                      (16) Intangible assets
                           Intangible assets are stated at cost. For goodwill, please refer to Note 2(14)A.
                           Other intangible assets are amortized on the straight-line basis over their estimated
                           useful economic lives.
                      (17) Deferred charges
                           Deferred charges are stated at cost and amortized over the estimated useful
                           economic lives based on the straight-line method.
                      (18) Impairment of non-financial assets
                           A. Impairment loss is recognized when the recoverable amount of an asset is less
                              than its book value. The recoverable amount is the higher of the fair value less
                              costs to sell and value in use of an asset. When the impairment no longer
                              exists, the impairment loss recognized in prior years shall be recovered.
                           B. The recoverable amount of goodwill should be estimated at the same date each
                              year, and the impairment loss on goodwill is not recoverable.
                      (19) Long-term liabilities
                           A. Long-term liabilities maturing within 12 months after the balance sheet date are
                              classified as long-term, if they meet the following two requirements: (a) The
                              Company intends to refinance or extend their maturity dates beyond 12 months;
                              and (b) the Company has refinanced or extended the maturity date before the
                              balance sheet date.
                           B. Long-term liabilities have to be reclassified as short-term, if the Company does
                              not comply with the terms of the contract such that liabilities have to be paid
                              immediately. However, long-term liabilities can be classified as long-term, if
                              the creditors agree to extend their maturity dates beyond 12 months, and the
                              Company has the ability to correct the breach of the contract.
                      (20) Retirement plan
                           A. Under the defined benefit pension plan, net periodic pension costs are
                               recognized in accordance with the actuarial calculations. Net periodic pension
                               costs include service cost, interest cost, expected return on plan assets,
                               amortization of unrecognized net transition obligation and gains or losses on
                               plan assets. The unrecognized net transition obligation is amortized equally
                               over 18 years.
                           B. Under the defined contribution pension plan, net periodic pension costs are
                               recognized as incurred.
                      (21) Income tax

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     A. Income tax is provided based on accounting income after adjusting for
         permanent differences. The provision for income tax includes deferred tax
         resulting from items reported in different periods for tax and financial reporting
         purposes. Over or under provision of prior years' income tax liabilities is
         included in the current year's income tax expense. When a change in the tax
         laws is enacted, the deferred tax liability or asset is recomputed accordingly in
         the period of change. The difference between the new amount and the original
         amount, that is, the effect of changes in the deferred tax liability or asset, is
         reported as an adjustment to current income tax expense (benefit).
     B. Income tax credits arising from the acquisition of equipment or technology, and
         expenditures for research and development, employee training and development
         and investment in qualified stocks are recorded as deferred income tax assets
         and credited to income tax expense in the period the related expenditures are
         incurred.
     C. An additional 10% corporate income tax is recognized if the current earnings
         are not distributed in the following year. The 10% additional corporate income
         tax is recorded as income tax expense after the appropriation of earnings is
         approved by the stockholders.
     D. Based on the “Income Basic Tax Act”, if the regular income tax is equal or more
         than the basic tax, the income tax payable shall be calculated in accordance with
         the Income Tax Act and other relevant laws. Whereas, if the regular income
         tax is less than basic tax, the income tax payable shall be equal to the basic tax.
         The difference between the regular income tax and basic tax shall not be subject
         to deductions of investment tax credits granted under the provisions of other
         laws.
(22) Treasury stock
     A. Treasury stock is stated at cost, which is accounted for on a weighted-average
        basis, and the amount is charged against retained earnings.
     B. If the grant date of treasury stock reserved for employees was after January 1,
        2008, the treasury stock shall be accounted for in accordance with the R.O.C.
        SFAS No. 39, “Accounting for Share-based Payment”.
     C. Upon retirement of treasury stock, if the acquisition cost is above the book value,
        the difference should be credited to “capital reserve-treasury stock”. If the
        acquisition cost is below the book value, the difference should first be offset
        against capital reserve from the same class of treasury stock transactions, and the
        remainder, if any, is debited to retained earnings.
     D. The Company's common stock owned by its subsidiary is treated the same as
        treasury stock.
(23) Share-based payment - employee compensation plan

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                           A. The employee stock options granted from January 1, 2004 through December 31,
                              2007 are accounted for in accordance with EITF 92-070, EITF 92-071 and EITF
                              92-072 of the Accounting Research and Development Foundation, R.O.C., dated
                              March 17, 2003, “Accounting for Employee Stock Options”, prescribed by the
                              R.O.C. Accounting Research and Development Foundation. Under the
                              share-based employee compensation plan, compensation cost is recognized
                              using the intrinsic value method and pro forma disclosures of net income and
                              earnings per share are prepared under the fair value method.
                           B. For employee stock options granted after January 1, 2008, the Group shall
                              measure the services received and recognize as salaries during the vesting
                              period by using the fair value of the equity instruments granted.
                      (24) Employees’ bonuses and directors’ and supervisors’ remuneration
                           The costs of employees’ bonuses and directors’ and supervisors’ remuneration are
                           accounted for as expenses and liabilities, provided that such recognition is required
                           under legal or constructive obligation and the amounts can be estimated reasonably.
                           However, if the accrued amounts for employees’ bonuses and directors’ and
                           supervisors’ remuneration are significantly different from the actual distributed
                           amounts resolved by the stockholders at their annual stockholders’ meeting
                           subsequently, the differences shall be recognized as gain or loss in the following
                           year.
                      (25) Revenue, costs and expenses
                           A. Sales revenue is recognized when the earning process is substantially completed
                              and payment is realized or realizable.
                           B. Service revenue is recognized based on the percentage-of-completion method.
                              Any expected loss on a contract is recognized as cost or expense immediately.
                           C. Percentage-of-completion method is adopted if the gains (losses) on long-term
                              construction contracts can be reasonably estimated, otherwise, the completed
                              contract method is adopted. When the estimated contract costs exceed the
                              contract price, the resulting loss is included in the current net income under both
                              methods.
                           D. Expenses are recorded as incurred.
                      (26) Use of estimates
                           The preparation of financial statements in conformity with generally accepted
                           accounting principles in the Republic of China requires management to make
                           estimates and assumptions that affect the reported amounts of assets and liabilities
                           and the disclosures of contingencies at the date of the financial statements and the
                           amounts of revenues and expenses during the reporting period. Actual results
                           could differ from those assumptions and estimates.
                      (27) Operating segments

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      The operating segment information disclosed in these financial statements is
      consistent with that reported in the Group’s management reports. The chief
      operating decision-maker, which is the Company’s Board of Directors, is
      responsible for distributing resources to each operating segment and evaluating their
      performance. In accordance with R.O.C. SFAS No. 41, "Operating Segments", the
      Group discloses the information in the consolidated financial statements and not in
      the separate financial statements.
3. CHANGES IN ACCOUNTING PRINCIPLES
  (1) Notes, accounts and other receivables
      Effective January 1, 2011, the Group adopted the newly amended R.O.C. SFAS No.
      34, "Financial Instruments: Recognition and Measurement". Impairment loss (bad
      debts allowance) is recognized when there is objective evidence of impairment for
      notes, accounts and other receivables. There is no significant impact on the
      consolidated net income for the year ended December 31, 2011 as a result of this
      change in accounting principle.
  (2) Operating segments
      Effective January 1, 2011, the Group adopted the newly amended R.O.C. SFAS No.
      41, "Operating Segments" to supersede R.O.C. SFAS No. 20, "Segment Reporting".
      The Group restated the operating segment information for the year ended December
      31, 2010. This change in accounting principle had no impact on the consolidated
      net income and earnings per share for the years ended December 31, 2011 and
      2010.
4. DETAILS OF SIGNIFICANT ACCOUNTS
  (1) Cash and cash equivalents
                                                                    December 31,
                                                             2011               2010
       Cash on hand
       Cash in banks
       Cash equivalents


      Cash equivalents are short-term notes with maturities within three months from the
      date of investment.




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               (2)    Financial assets at fair value through profit or loss
                                                                                        December 31,
                                                                                 2011                  2010
                      Current items:
                       Held for trading
                        Listed and OTC stocks
                        Beneficiary certificates
                        Derivative financial instruments

                       Adjustment of held for trading


                      A. The Group recognized net (loss) gain on valuation of financial assets amounting to
                         ($10,332) and 4,037 for the years ended December 31, 2011 and 2010,
                         respectively.
                      B. The information on trading nature and contract of derivative financial instruments
                         are as follows:
                                                                 December 31, 2011
                                                                                  Contract amount        Fair
                                Nature                  Contract period          (Notional amount)       Value
                         Forward exchange:
                         BUY USD/SELL TWD           Jan. 9, 2012~Feb. 9, 2012    USD
                         SELL USD/BUY TWD           Jan. 9, 2012~Feb. 9, 2012    USD
                         SELL EUR/BUY USD                  Jan. 3, 2012          EUR
                         SELL AUD/BUY USD           Jan. 4, 2012~ Jan. 5, 2012   AUD



                                                                      December 31, 2010
                                                                                  Contract amount         Fair
                                 Nature                 Contract period          (Notional amount)        Value
                         Forward exchange:
                         BUY TWD /SELL USD                 Jan. 6, 2012          USD

                      C. The Group entered into forward exchange contracts to hedge the change of
                         exchange rate arising from export sales. However, the transaction did not qualify
                         for hedge accounting, therefore it was classified as held for trading, and accounted
                         for at fair value through profit or loss.




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(3) Available-for-sale financial assets
                                                                        December 31, 2011
                                            Number of
                                             shares (in Percentage of     Original          Period-end         Market
          Names of investees                thousands) ownership           cost              balance            value
     Current items:
     A. Listed and OTC stocks
        1.Chimei Innolux Corporation
        2. Others

     B. Fund

     Adjustment of available-for-sale financial assets


     Non-current items:
     Listed and OTC stocks
     1.Chimei Innolux Corporation
     2. Far Eastone Telecommunications
         Co., Ltd.
     3. TECO Image Systems Co., Ltd.
     4. Chung Hsin Electric & Machinery
         MFG. Co.
     5. An-Shin Food Service Co., Ltd.
     6. Waterland Financial Holdings
     7. Taiwan Mobile Co., Ltd.
     8. Taiwan Cogeneration Corporation
     9. Cathay Financial Holdings
     10 AU Optronics Corporation
     11. United Micro Electronics Co.,
           Ltd.
     12. Others

     Adjustment of available-for-sale financial assets




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                                                                              December 31, 2010
                                                   Number of
                                                   shares (in Percentage of    Original       Period-end        Market
                Names of investees                 thousands) ownership         cost            Balance          value
             Current items:
             A. Listed and OTC stocks
                1. Chimei Innolux Corporation
                2. Others

             B. Fund

             Adjustment of available-for-sale financial assets


             Non-current items:
             Listed and OTC stocks
             1 Chimei Innolux Corporation
             2. Far Eastone Telecommunications
                 Co., Ltd.
             3. TECO Image Systems Co., Ltd.
             4. Taiwan Mobile Co., Ltd.
             5. Waterland Financial Holdings
             6. Chung Hsin Electric & Machinery
                 MFG. Co.
             7. Taiwan Cogeneration Corporation
             8. Cathay Financial Holdings
             9. AU Optronics Corporation
             10. United Micro Electronics Co.,
                 Ltd.
             11. Others

             Adjustment of available-for-sale financial assets

                      A. The Group transferred certain financial assets carried at cost to available-for-sale
                         financial assets amounting to $551,596 (including unrealized loss on financial
                         instruments of $451,204) for the year ended December 31, 2011, due to the fair
                         value can be measured reliably and based on the investment intention of the
                         management.
                      B. The Group reclassified certain financial assets at fair value through profit or loss
                         into availabe-for-sale financial assets amounting to $110,010 on July 1, 2008, in
                         accordance with R.O.C. SFAS No. 34, issued in October 2008. The details are
                         as follows:




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         (a) As of December 31, 2011 and 2010, the fair value and the book value of the
             reclassified financial assets which had not been derecognized are as follows:
                                                                      December 31,
                                                              2011                      2010
             Listed and OTC stocks
         (b) The information of the fair value recognized in income statement or equity is
             as follows:
                                                For the years ended December 31,
                                                 2011                     2010
                                        Recognized       Recognized    Recognized in    Recognized
                                       in profit or loss  in equity    profit or loss    in equity
             Listed and OTC stocks
             If the financial assets had not been reclassified, the Group would have
             recognized the income (loss) on valuation of financial assets after July 1, 2008
             as follows:
                                                                                  Amount
             July 1, 2008~December 31, 2010
             January 1, 2011~December 31, 2011


      C. Certain financial assets are pledged for borrowings and commercial papers
         payable. Please refer to Note 6, “Details of pledged assets”.
(4)   Notes receivable-net
                                                                         December 31,
                                                              2011                  2010
      Notes receivable
      Less: allowance for doubtful accounts


      Certain notes receivable are pledged for borrowings.              Please refer to Note 6,
      “Details of pledged assets”.
(5)   Accounts receivable-net
                                                                         December 31,
                                                              2011                   2010
       Accounts receivable
       Less: allowance for doubtful accounts




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                        Certain accounts receivable are pledged for borrowings.   Please refer to Note 6,
                        “Details of pledged assets”.
                  (6)    Inventories-net
                                                                        December 31, 2011
                                                                          Allowance
                                                                         for decline in
                                                                 Cost        value          Book value
                         Raw materials
                         Work in process
                         Finished goods
                         Inventory in transit
                         Merchandise inventories


                                                                        December 31, 2010
                                                                          Allowance
                                                                         for decline in
                                                                 Cost        value          Book value
                         Raw materials
                         Work in process
                         Finished goods
                         Inventory in transit
                         Merchandise inventories



                         1. Except for cost of goods sold, the inventories recognized as operating costs
                            amounted to $82,920 and $53,210 for the years ended December 31, 2011 and
                            2010, respectively.
                         2. Certain inventories are pledged for borrowings. Please refer to Note 6,
                            “Details of pledged assets”.
                  (7)   Construction in progress-net
                        A. The balance of construction in progress which exceeded partial construction
                           billings is as follows:
                                                                             December 31,
                                                                        2011                2010
                           Construction in progress
                            Partial construction billings




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B. The balance of partial construction billings which exceeded construction in
   progress is as follows:
                                                               December 31,
                                                        2011                      2010
   Partial construction billings
   Construction in progress



C. As of December 31, 2011 and 2010, cumulative gain (loss) recognized under the
   percentage-of-completion method for major contracts are summarized as follows:
                                             December 31, 2011
                       Expected               Estimated    Percentage        Cumulative
                      completion    Contract   contract        of             gain (loss)
      Construction       date        price      cost       completion        recognized
    Construction A    June 2012    $ 2,258,773 $   2,179,006    91%           $     72,815
    Construction B    June 2012     1,312,199      1,243,511    99%                 68,562
    Construction C    June 2012     1,273,788      1,170,356    99%                102,244
    Construction D    Dec. 2012     1,165,517      1,204,406    89%      (          38,889)
    Construction E    May 2013      1,004,215       923,463     55%                 44,282
    Construction F    May 2013        968,571       891,086      1%                      847
    Construction G    Dec. 2012       938,373      1,525,748    96%      (         587,375)
    Construction H    Dec. 2012       621,282       674,470     98%      (          53,188)
     Construction I   Dec. 2012       612,805       598,334     98%                 14,157
     Construction J   May 2013        556,190       506,133      2%                  1,109


                                             December 31, 2010
                       Expected               Estimated    Percentage        Cumulative
                      completion    Contract   contract        of             gain (loss)
      Construction       date        price      cost       completion        recognized
    Construction A    Jan. 2012 $ 2,010,224 $      1,931,848    91%      $          71,683
    Construction B    June 2011 1,312,199          1,243,511    99%                 68,462
    Construction C    June 2011    1,226,644       1,127,036    95%                 94,363
    Construction D    Dec. 2012    1,094,783       1,133,672    85%      (          38,889)
    Construction E    May 2013       938,452        863,024     12%                  9,334
    Construction F    Dec. 2012      871,128       1,458,503    95%      (         587,375)
    Construction G    June 2011      621,282        674,470     96%      (          53,188)
    Construction H    June 2011      612,805        598,334     97%                 14,037




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             (8)      Financial assets carried at cost
                                                                                            December 31, 2011
                                                                      Number of Percentage
                                                                         shares       of        Original      Period-end
                             Names of investees                     (in thousands) ownership      cost          balance
           Current item:
           Unlisted stock
             Evergreen Air Cargo Service Corporation

           Non-current items:
           A. Emerging stocks
               1. Taiwan High Speed Railway Corporation
               2. CANDO Corporation
               3. Industrial Bank of Taiwan
              4. Asia Pacific Telecom Group Co., Ltd.
              5.Others

           B. Unlisted stocks
              1. Fubon Multimedia Technology Co., Ltd.
              2. Far Eastern Electronic Toll Collection Co., Ltd.
              3. Straits Construction Investment (Holdings) Ltd.
              4. Baycom Opto-Electronics Technology Co., Ltd.
              5. Topcell Solar International Co., LTD.
              6. Pacific Venture Group
              7 Pacific Technology Partners Fund
              8. Others

           C. Private equity fund
           Total




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                                                                                 December 31, 2010
                                                           Number of Percentage
                                                              shares       of        Original      Period-end
                Names of investees                       (in thousands) ownership     cost           balance
Current item:
Unlisted stock
  Evergreen Air Cargo Service Corporation
Non-current items:
A. Emerging stocks
    1. Taiwan High Speed Railway Corporation
    2. CANDO Corporation
    3. Industrial Bank of Taiwan
   4. Others


B. Unlisted stocks
   1. Far Eastern Electronic Toll Collection Co., Ltd.
   2. Straits Construction Investment (Holdings) Ltd.
   3. Asia Pacific Telecom Group Co., Ltd.
   4. Pacific Venture Group
   5. Pacific Technology Partners Fund
   6. Baycom Opto-Elatronics Technology Co., Ltd.
   7. Others

C. Private equity fund
Total

A. The above investments held by the Group were measured at cost since the fair value
   cannot be measured reliably.
B. The Group recognized impairment on financial assets carried at cost –Far Eastern Electronic
   Toll Collection Co., Ltd., amounting to $200,705 for the year ended December 31, 2011.

C. As of December 31, 2011, the Group transferred the shares of Toppoly Optoelectronics
   Corporation to Chimei Innolux Corporation (formerly Innolux Display Corporation)
   because of the merger, and reclassified the investment to available-for-sale financial assets
   as the fair value can be measured reliably and based on the investment intention of the
   management.
D. Certain financial assets are pledged for commercial papers payable.          Please refer to Note
   6, “Details of pledged assets”.




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             (9)      Long-term equity investments accounted for under the equity method
                      A. The details are as follows:
                                                                                                          December 31, 2011
                                                                            Number      Percentage               Investment
                                                                            of shares       of       Original      income     Period-end   Market
                             Names of investees                          (in thousands) ownership      cost         (loss)     balance      value
                a. Investments accounted for under the equity method:
                   1. Tung Pei Industrial Co., Ltd.
                   2. Tecom Co., Ltd.
                   3. Creative Sensor Inc.
                   4. Lien Chang Electronic Enterprise Co., Ltd.
                   5. Century Development Corporation
                   6. Vmax Telecom Co., Ltd.
                   7. Others

                Less: credit balance of long-term investments (gross amount before
                      offset of other receivables-related parties)

                b. Prepayments for long-term investments
                    Tecocapital Investment Co., Ltd.

                                                                                                          December 31, 2010
                                                                            Number      Percentage               Investment
                                                                            of shares       of       Original      income     Period-end   Market
                             Names of investees                          (in thousands) ownership      cost         (loss)     balance      value
                Investments accounted for under the equity method:
                   1. Tung Pei Industrial Co., Ltd.
                   2. Tecom Co., Ltd.
                   3. Creative Sensor Inc.
                   4. Lien Chang Electronic Enterprise Co., Ltd.
                   5. Century Development Corporation
                   6. Vmax Telecom Co., Ltd.
                   7. Others

                Less: credit balance of long-term investments (gross amount before
                         offset of other receivables-related parties)




                        B. The investment income totaling $288,346 and $210,159 for the years ended
                           December 31, 2011 and 2010, respectively, were based on the investees’
                           financial statements which were audited by other auditors. As of December 31,
                           2011 and 2010, the related investments were stated at $3,577,157 and
                           $3,382,437, respectively, and the related investments with credit balance were
                           $4,721 and $0, respectively.
                        C. The Group owns a jointly controlled entity-Qingdao TECO Century Advanced
                           High-tech Mechatronics Co., Ltd., and presents the consolidated financial
                           statements separately by category. As of December 31, 2011 and 2010, the
                           paid-in capital of the investee was both $680,938. The parties’ proportionate
                           share of assets, liabilities, revenues and expenses as of and for the years ended
                           December 31, 2011 and 2010 are as follows:



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                                         As of and for the years ended December 31,
                                                  2011                   2010
   Current assets
   Non-current assets
   Current liabilities
   Non-current liabilities
   Operating revenues
   Operating costs and other income or
     expense, net

D. As of December 31, 2011 and 2010, the Company's common stocks owned by
   its subsidiaries, Tong-An Investment Co., Ltd. and others, both with a total cost
   of $346,912 (22,366,000 shares), were treated as treasury stock.
E. Certain long-term equity investments accounted for under the equity method are
   pledged for borrowings. Please refer to Note 6, “Details of pledged assets”.




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192
                                      (10) Property, plant and equipment
                                                                                                                                                    A n nual Re p o r t
                                                                                                                                                           2011

                                                                                           Revaluation   Accumulated     Accumulated     Net
                                                                           Original cost    increment     depreciation    impairment   book value
                                          December 31, 2011
                                          Land
                                          Buildings
                                          Machinery and equipment




TECO ELECTRIC & MACHINERY CO., LTD.
                                          Transportation equipment
                                          Leased assets
                                          Leasehold improvements
                                          Miscellaneous equipment


                                          Prepayments for fixed assets



                                          December 31, 2010
                                          Land
                                          Buildings
                                          Machinery and equipment
                                          Transportation equipment
                                          Leased assets
                                          Leasehold improvements
                                          Miscellaneous equipment


                                          Prepayments for fixed assets


                                                                                                    37
                                                                                      2011
                                                                                       Annual Re p o r t




A. Certain assets were appraised in the years 1961, 1974 and 1980, and the
   revaluation increment was recorded as other equity adjustment. As of
   December 31, 2011 and 2010, the balance of revaluation increment was
   both $3,784,916.
B. For the years ended December 31, 2011 and 2010, capitalized interest
   amounted to $543 and $18,979, respectively.
C. Certain lease contracts of the subsidiaries qualified as capital lease were
   recognized in accordance with R.O.C. SFAS No. 2, “Leases”. The terms
   and restrictions on the leased property are as follows:
   (1) The lease period is from January 1, 2008 to May 31, 2014, and total
       liabilities amounted to $896,176, which was determined based on the
       building cost of the leased assets and the related capitalized interests.
       The payment is negotiated between both parties. As of December 31,
       2011 and 2010, the unpaid balance was as follows:
                                                       December 31,
                                                2011                  2010
       Liabilities under capital lease
       Less: current portion


   (2) The total leased assets amounting to $885,440 cannot be pledged
       during the lease period to ensure the rights and the obligation between
       both sides.
D. Certain fixed assets are pledged for borrowings and letters of credit.
   Please refer to Note 6, “Details of pledged assets”.




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                      (11) Leased assets
                                                  Original        Accumulated      Accumulated       Net book
                                                   cost           depreciation     impairment         value
                           December 31, 2011
                           Land
                           Buildings
                           Machinery and
                            equipment
                           Miscellaneous
                            equipment



                           December 31, 2010
                           Land
                           Buildings
                           Machinery and
                            equipment
                           Miscellaneous
                            equipment


                           A. Leased assets mainly consist of property, plant, and equipment located in
                              Quanying of Taoyuan County, Hsinchuang of New Taipei City, Sanchong
                              Road at Nankang District and Songjiang Road at Zhongshan District of
                              Taipei City.
                           B. Certain leased assets are pledged for borrowings and letters of credit.
                              Please refer to Note 6, “Details of pledged assets”.
                      (12) Idle assets
                                                                                  December 31,
                                                                           2011               2010
                           Farm land-Taoyuan County
                           Farm land-Yunlin County
                           Buildings, net
                           Machinery and equipment, net

                           Less: accumulated impairment

                           The Company was unable to transfer the title of certain farmland to the
                           Company’s name due to legal restrictions. As of December 31, 2011 and

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     2010, the land title was registered under an individual’s name. The Company
     entered into an agreement with the said individual to secure the title and the
     first mortgage right.
(13) Long-term notes and accounts receivable
                                                          December 31,
                                                        2011           2010
     Overdue receivables
     Less: allowance for doubtful accounts


(14) Impairment of assets

     A. For the years ended December 31, 2011 and 2010, the impairment loss
        recognized is as follows:

                                                            Recognized in
                                                       statement of income
                                                      2011               2010
     Impairment loss on:
     Fixed assets-Motor Division
     Financial assets carried at cost-non-current



     B. The impairment loss on fixed assets and financial assets carried at cost -
        non-current was recognized as the recoverable amount was below the book
        value.

(15) Short-term loans
                                                          December 31,
                                                       2011            2010
      Credit loans
      Secured loans

      Interest rates




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                      (16) Financial liabilities at fair value through profit or loss

                                                                                        December 31,
                                                                                   2011             2010
                          Current items:
                           Held for trading
                             Derivative financial instruments
                          A.The Group recognized gain (loss) on valuation of financial liabilities
                            amounting to $5,865 and ($6,334) for the years ended December 31, 2011
                            and 2010, respectively.
                          B.The information of derivatives are as follows:
                                                                         December 31, 2011
                                                                              Contract amount
                                                           Contract              (Notional
                                  Nature                    period                amount)        Fair value
                          Forward exchange :
                           SELL RMB/BUY USD                   Jan. 1, 2012              USD    413,000    ($          644)

                                                                              December 31, 2010
                                                                                   Contract amount
                                                               Contract               (Notional
                                   Nature                       period                 amount)                 Fair value
                          Forward exchange :
                           SELL AUD/BUY USD          Jan. 14,2011~Feb.25, 2011          AUD   2,500,000   ($         1,033)
                           SELL USD/BUY TWD          Mar. 4, 2011~ Mar. 17, 2011        USD   3,700,000   (          3,774)
                           BUY USD/SELL TED          Mar. 4, 2011~ Mar. 17, 2011        USD   3,700,000   (          1,036)
                           BUY USD/SELL RMB          July 13, 2011~ Nov. 9, 2011        USD   1,244,000   (           666)
                                                                                                          ($         6,509)

                          C.The Group entered into forward exchange contracts to hedge the change of
                            exchange rate arising from export sales. However, the transaction did not
                            qualify for hedge accounting, therefore, it was classified as held for trading
                            and accounted for at fair value through profit or loss.




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(17) Income tax
     A.Deferred income tax assets and liabilities:
                                                            December 31,
                                                     2011             2010
       Current
        Deferred income tax assets
        Less: valuation allowance

         Deferred income tax liabilities

       Non-current
        Deferred income tax assets
        Less: valuation allowance

         Deferred income tax liabilities




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                      B.The components of deferred income tax assets and liabilities are as follows:

                                                                             December 31, 2011
                                                                           Amount        Tax effect
                         Current
                          Deferred income tax assets
                           Investment tax credits
                           Unrealized expenses
                           Provision for decline in value of inventories
                           Over provision of allowance for doubtful
                             accounts
                           Others

                          Less: valuation allowance

                          Deferred income tax liabilities
                           Others

                         Non-current
                          Deferred income tax assets
                           Investment tax credits
                           Tax benefit of loss carryforwards
                           Impairment loss
                           Difference resulting from different useful
                             lives of fixed assets between financial and
                             tax basis
                           Permanent loss on long-term investments
                           Others

                          Less: valuation allowance

                          Deferred income tax liabilities
                           Investment income from foreign
                             investments
                           Others




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                                                                                 Annual Re p o r t




                                                    December 31, 2010
                                                  Amount        Tax effect
Current
 Deferred income tax assets
  Investment tax credits
  Provision for decline in value of inventories
  Unrealized expenses
  Over provision of allowance for doubtful
    accounts
  Tax benefit of loss carryforwards
  Others

 Less: valuation allowance

 Deferred income tax liabilities
  Others

Non-current
 Deferred income tax assets
  Investment tax credits
  Impairment loss
  Tax benefit of loss carryforwards
  Difference resulting from different useful
    lives of fixed assets between financial and
    tax basis
  Permanent loss on long-term investments
  Others

 Less: valuation allowance

 Deferred income tax liabilities
  Investment income from foreign
    investments
  Others




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                      C.The reconciliation between income tax expense and income tax payable
                        (refundable) are as follows:
                                                                            2011            2010
                        Current year income tax expense based on
                          statutory income
                           statutory income
                        Tax effect of permanent differences
                        Tax effect of investment tax credits
                        Over (under) provision for income tax
                           payable in prior year and net change in
                           deferred income tax assets (liabilities)
                        Effect of change in income tax rate
                        Current income tax expense
                        Effect of Income Basic Tax Act
                        Additional 10% corporate tax on
                           undistributed earnings
                        Income tax expense
                        Add: Over provision for income tax payable
                                 in prior years
                               Others
                        Less: Paid and prepaid income tax
                               Net change in deferred income tax
                                  assets (liabilities)
                               Foreign income tax paid

                        Income tax refundable (listed as other
                          receivables)
                        Income tax payable



                      D.As of December 31, 2011, the Company and its subsidiaries’ income tax
                        returns through various years between 2008 and 2010, respectively, have
                        been assessed and approved by the Tax Authority.
                      E. Certain subsidiaries’ products are entitled to a five-year exemption on
                         income tax under the “Incentives for Emerging, Important Strategic
                         Industries in Manufacturing and Technology Services”, which expires in
                         December 2012.
                      F. Under the People’s Republic of China (PRC) tax regulations, the
                         Company’s subsidiaries in Mainland China are exempt from corporate
                         income tax for the first and second profit-making years and are subject to a

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       50% reduction of corporate income tax from the third through fifth
       profit-making years. Certain Company’s subsidiaries are eligible for the
       tax exemption.
     G.As of December 31, 2011, the unused investment tax credits and tax benefit
       of loss carryforwards amounted to $319,949 and $334,840, respectively.
       The details are as follows:
                                                                  Unused
                                                                investment      Year of
               Qualified expenditures          Total credits     tax credits   expiration
          Transportation construction                                            2012
          projects, investments in important
          technology companies, research &
          development expenditures and                                           2013
          employees’ training expenditures                                       2014




                                                                  Unused        Year of
               Qualified expenditures          Total credits    tax credits    expiration
       Tax benefit of loss carryforwards                                         2013
                                                                                 2014
                                                                                 2015
                                                                                 2016
                                                                                 2017
                                                                                 2018
                                                                                 2019

(18) Long-term loans
                                                               December 31,
                                                   2011                        2010
     Long-term loans
     Less: current portion

     Commercial papers payable
     Less: unamortized discount



     Interest rates

     A. Under the long-term contracts with certain financial institutions, the Group
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                              is required to maintain certain financial ratios and capital requirements as
                              well as meet certain restrictions relative to significant asset acquisitions or
                              disposals.
                           B. As of December 31, 2011 and 2010, a portion of loans due within one year
                              were classified as long-term as these were refinanced before the balance
                              sheet date.
                      (19) Retirement plan
                           A. The Group has non-contributory and funded defined benefit plan in
                              accordance with the R.O.C. Labor Standards Law, covering all regular
                              employees before the implementation of the Labor Pension Act on July 1,
                              2005. The defined benefit plan will continue to cover the employees who
                              choose to remain with the defined benefit plan. Upon retirement, pension
                              payments are calculated based on total years of service and average salary
                              of the last six months prior to retirement. Two base units are earned for
                              the first 15 years of service and one unit for each additional year thereafter,
                              with a maximum of 45 units. The Group contributes 2%~6% of the
                              employees’ monthly salary to an independent retirement trust fund, with
                              the Bank of Taiwan, the trustee.
                           B. The related assumptions used for the actuarial valuation are as follows:
                                                                              2011              2010
                              Discount rate                                1.90%~6.00%       1.75%~2.25%
                              Average salary increase rate                 0.50%~5.00%       1.75%~5.00%
                              Expected return rate on plan assets          1.90%~2.50%       1.00%~2.75%




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C. The reconciliation between the funded status and accrued pension liability
   as of December 31, 2011 and 2010 are summarized as follows:
                                                         December 31,
                                               2011                2010
  Benefit obligation:
   Vested benefit obligation
   Non-vested benefit obligation
   Accumulated benefit obligation
   Additional benefits based on future
     salary increases
   Projected benefit obligation
  Fair value of plan assets
  Funded status
  Unrecognized transition obligation
  Prior service cost unamortized
  Unrecognized net pension loss
  Additional pension liability
  Accrued pension liability
  Vested obligation

D. The components of net pension cost for the years ended December 31, 2011
   and 2010 are as follows:

                                                  2011              2010
  Service cost
  Interest cost
  Expected return on plan assets
  Unrecognized transition obligation
  Prior service cost amortized
  Unrecognized pension loss amortized
  Curtailment and settlement income


E. Effective July 1, 2005, the Group established a defined contribution
   pension plan under the R.O.C. Labor Pension Act for eligible employees
   holding Republic of China citizenship. The Group deposits the pension
   amount based on 6% of the employees’ monthly salary into each
   employee’s personal pension account with the Bureau of Labor Insurance.

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                             The pension cost under this plan amounted to $179,510 and $170,200 for
                             the years ended December 31, 2011 and 2010, respectively.
                          F. The Company’s subsidiaries in Mainland China have a funded defined
                             contribution plan.    Monthly contributions to an independent fund
                             administered by the government in accordance with the pension regulations
                             in the PRC are based on employees’ monthly salaries and wages. The
                             pension costs under this plan amounted to $92,311 and $98,731 for the
                             years ended December 31, 2011 and 2010, respectively.
                      (20) Common stock
                          A. As of December 31, 2011, the Company’s issued and outstanding capital
                             amounted to $18,375,519, with a par value of $10 (in dollars) per share.
                          B. As of December 31, 2011, 4,988,000 shares of employee stock options had
                             been exercised, but the registration procedure for 1,250,000 shares has not
                             yet been completed.
                          C. On December 17, 1996, the Board of Directors of the Company adopted a
                             resolution that allows certain stockholders to issue 5,540 thousand units of
                             global depository receipts (GDRs), represented by 55,399 thousand shares
                             of common stock. A unit of GDR represents 10 shares of common stock.
                             After obtaining approval from SFB, these GDRs were listed on the
                             Securities Exchange of London, with total proceeds of US$107,644,000.
                             The issuance of GDRs were presented by issuing common shares, therefore,
                             there is about 7% dilutive effect on the common shares’ equity. The main
                             terms and conditions of the GDRs are as follows:
                             (A) Voting rights
                                 GDR holders may, pursuant to the Depositary Agreement and the
                                 relevant laws and regulations of the R.O.C., exercise the voting rights
                                 pertaining to the underlying common shares represented by the GDRs.
                             (B) Redemption of the underlying common shares represented by the GDRs
                                 When the holders of the GDRs request the Depositary to redeem the
                                 GDRs in accordance with the relevant R.O.C. regulations and the
                                 provisions in the Depositary Agreement, the Depositary may (i) deliver
                                 the underlying common shares represented by the GDRs to the GDR
                                 holders, or (ii) sell the underlying common shares represented by the
                                 GDRs in the R.O.C. stock market on behalf of the GDR holder. The
                                 payment of proceeds from such sale shall be made subject to the
                                 relevant R.O.C. laws and regulations and the provisions in the
                                 Depositary Agreement.

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        (C) Distribution of dividends, preemptive rights and other rights
            GDR holders own the same rights as common shareholders.
        (D) There were 48 thousand units outstanding, representing 479 thousand
            common shares as of December 31, 2011.
(21) Capital reserve
     The R.O.C. Company Law requires that the capital reserve shall be
     exclusively used to offset against accumulated deficit or to increase capital
     and shall not be used for any other purpose. Capital reserve from paid-in
     capital in excess of par value and donated surplus can be transferred to
     common stock up to an annual limit of 10% of total common stock.
(22) Share-based payment-employee compensation plan
     A. As of December 31, 2011 and 2010, the Company’s share-based payment
        plans are as follows:
       (A) Treasury stock transferred to employees:

                                                        Grant quantity
                                                        (in thousands
           Type of arrangement    Grant date                of shares)    Vesting conditions
                 Plan 1           Apr. 6, 2006                            Vested immediately
                 Plan 2           Jan. 4, 2007                                     "
                 Plan 3           Mar. 30, 2007                                    "
                 Plan 4           Oct. 3, 2007                                     "

       (B) Employee stock options:

                                               December 31, 2011
                                             Contract         Vesting           Actual    Estimated future
              Grant date    Grant quantity   period          conditions      turnover rate turnover rate
                             50,000 units                      2 years’
            Dec. 26, 2007       (Note)       6 years           service          3.0%            5%


                                               December 31, 2010
                                             Contract         Vesting           Actual    Estimated future
              Grant date    Grant quantity   period          conditions      turnover rate turnover rate
                             50,000 units                      2 years’
            Dec. 26, 2007       (Note)       6 years           service          5.7%            5%

           Note: Each unit entitles the holder to subscribe to 1,000 shares of the
                 Company’s common stock.



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                      a. Details of the employee stock options are set forth below:

                                                                                     For the years ended December 31,
                                                                                2011                               2010
                                                                                  Weighted-average                Weighted-average
                                                                   No. of shares   exercise price  No. of shares     exercise price
                                   Stock options                   (in thousands)   (in dollars)   (in thousands)     (in dollars)
                        Options outstanding at beginning of the
                         year
                        Options granted
                        Distribution of stock dividends /
                         adjustments for number of shares
                         granted for one unit of option
                        Options abandoned
                        Options exercised
                        Options outstanding at end of the year
                        Options exercisable at end of the year
                        Options authorized but not granted at
                         end of the year
                        Options revoked

                      b. Details of the employee stock options outstanding are set forth below:
                                                                      December 31, 2011
                                                             Stock options outstanding                   Stock options exercisable
                                                               Weighted-average
                               Range of                             expected       Weighted-average                    Weighted-average
                             exercise price    No. of shares       remaining         exercise price    No. of shares    exercise price
                              (in dollars)    (in thousands)     vesting period        (in dollars)   (in thousands)      (in dollars)
                         $       12.70            22,504           2 years       $          12.70         22,504       $         12.70
                                                                      December 31, 2010
                                                             Stock options outstanding                   Stock options exercisable
                                                               Weighted-average
                               Range of                             expected       Weighted-average                    Weighted-average
                             exercise price    No. of shares       remaining         exercise price    No. of shares    exercise price
                              (in dollars)    (in thousands)     vesting period        (in dollars)   (in thousands)      (in dollars)
                         $       13.20            34,643           3 years       $          13.20         24,237       $         13.20
                      c. Before January 1, 2008, the Company adopted the Black-Scholes
                         option-pricing model to estimate the fair value of the stock options. The
                         weighted-average parameters are as follows:

                         Issue date                                                           December 26, 2007
                         Stock price per share (in dollars)                                                   $ 15.1
                         Exercise price per share (in dollars)                                                  15.1
                         Expected price volatility                                                                34.99%
                         Expected vesting period                                                                  6 years
                         Dividends yield rate                                                                         0%
                         Risk-free interest rate                                                                   2.42%
                         Fair value per share (in dollars)                                                         $ 5.75


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     B. The pro forma consolidated net income are $2,747,365 and $2,461,787
        and earnings per share attributable to equity holders of the Company are
        $1.52 and $1.37 (in dollars) per share for the years ended December 31,
        2011 and 2010, respectively, based on the assumption that the
        compensation cost is accounted for using the fair value method for the
        stock options granted before the adoption of R.O.C. SFAS No. 39,
        “Accounting for Share-based Payment”.
(23) Retained earnings and legal reserve
     A. As stipulated in the Company’s Articles of Incorporation, the current
        earnings, if any, shall be distributed in the following order:
          (a) Payment of taxes and duties.
          (b) Covering prior years’ accumulated deficit, if any.
          (c) After deducting items (a) and (b), set aside 10% of the remaining
              amount as legal reserve.
          (d) Set aside a certain amount as special reserve, if any.
          (e) After deducting items (a) to (d), appropriating 1%~5% of remaining
              earnings as directors’ and supervisors’ compensation.
          (f) After deducting items (a) to (d), appropriating 1%~10% of remaining
              earnings as employees’ bonuses.
          (g) Distributing the remaining amount plus prior years’ retained earnings
              to shareholders according to their shareholding percentage. The
              distribution rate is principally 80%, of which cash dividend shall
              account for 5% ~ 50% of the distributed amount.
          (h) The Company may grant the employees of subsidiaries employee
              bonuses as described above if certain criteria prescribed by the Board
              of Directors are met.
     B.    The Company’s dividend policy is summarized below:
           As the Company operates in a volatile business environment and is in the
           stable growth stage, the residual dividend policy is adopted taking into
           consideration the Company’s financial structure, operating results and
           future expansion plans.
     C.    Legal reserve can only be used to cover accumulated losses or to increase
           capital. Legal reserve can be used to increase capital only if the
           accumulated amount of legal reserve is more than 25% of paid-in capital,
           and the amount is limited to 25% of its balance.
     D.    (A) The appropriation of 2010 and 2009 earnings had been approved by
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                            the shareholders during their meeting on June 10, 2011 and June 18, 2010,
                            respectively, as follows:

                                                              2010                         2009
                                                                      Dividends                   Dividends
                                                                      per share                   per share
                                                        Amount        (in dollars)   Amount       (in dollars)
                            Legal reserve
                            Cash dividends


                            (B) The estimated appropriation of 2011 earnings proposed by the Board
                                of Directors on March 20, 2012, is as follows:
                                                                   December 31, 2011
                                                                              Dividends per share
                                                              Amount             (in dollars)
                                Legal reserve        $              278,321
                                Cash dividends                    1,654,922 $                 0.90
                            As of March 20, 2012, the appropriation of 2011 earnings had not been
                            approved by the Board of Directors.
                       E. The estimated employees’ bonus amounted to $202,327 and $158,532,
                          and the estimated directors’ and supervisors’ remuneration amounted to
                          $89,923 and $70,459 for the years ended December 31, 2010 and 2009,
                          respectively. The appropriation of 2010 earnings was different with that
                          approved by the Board of Directors on March 16, 2011 totaling $1,624.
                          The difference is attributed to stock options exercised between March 16,
                          2011 and the ex-right date the shareholders approved the appropriation of
                          2010 earnings which increased the number of shares.
                       F.   The Group’s estimated employees’ bonus amounted to $329,541 and
                            $263,997, and the estimated directors’ and supervisors’ remuneration
                            amounted to $135,450 and $116,386 for the years ended December 31,
                            2011 and 2010, respectively, which are recognized as operating costs and
                            operating expenses based on the net income within the range stipulated in
                            the Group’s Articles of Incorporation in consideration of the legal reserve
                            and other factors. Information on the appropriation of the Company’s
                            employees’ bonus and directors’ and supervisors’ remuneration as
                            proposed by the Board of Directors and approved by the stockholders
                            will be posted in the “Market Observation Post System” at the website of
                            the Taiwan Stock Exchange.


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     G.    As of December 31, 2011 and 2010, the undistributed earnings are as
           follows:
                                                                      December 31,
                                                               2011                  2010
           Before December 31, 1997
           On or after January 1, 1998
             (a) Earnings that have not been
                  imposed 10% tax
             (b) Earnings that have been imposed
                  10% tax



     H.    As of December 31, 2011 and 2010, the imputation tax credit account
           balance were $298,710 and $203,100, respectively, and the estimated and
           actual creditable tax ratio in 2011 and 2010 were 5.27% and 7.20%,
           respectively.
(24) Earnings per share
     Earnings per share for common stockholders are as follows:
                                                       For the year ended December 31, 2011
                                                                        Weighted
                                      Consolidated net income            average
                                       attributable to equity          outstanding       Earnings per share
                                      holders of the Company         common shares         (in dollars)
                                      Before tax       After tax     (in thousands)  Before tax After tax
     Basic earnings per share (EPS)
       Consolidated net income
     Common stock equivalents
      with potential dilutive
      effect:
       Employee stock options
       Employees’ bonus
     Diluted EPS
       Consolidated net income




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                                                                          For the year ended December 31, 2010
                                                                                         Weighted
                                                       Consolidated net income            average
                                                        attributable to equity          outstanding      Earnings per share
                                                       holders of the Company        common shares          (in dollars)
                                                       Before tax       After tax      (in thousands) Before tax After tax
                      Basic earnings per share (EPS)
                        Consolidated net income
                      Common stock equivalents
                       with potential dilutive
                       effect:
                        Employees’ stock options
                        Employees’ bonus
                      Diluted EPS
                        Consolidated net income
                 (25) Treasury stock
                      As of December 31, 2011 and 2010, the Company’s common stock owned by
                      its subsidiaries amounted to $346,912. The shares, total cost and market
                      value of the Company’s common stocks owned by its subsidiaries are as
                      follows:
                                                                                     December 31, 2011
                                                                              Shares         Cost Market value
                                                                         (in thousands) (in dollars) (in dollars)
                      Tong-An Investment Co., Ltd.
                      An-Tai International Investment Co., Ltd.



                                                                                     December 31, 2010
                                                                              Shares         Cost Market value
                                                                         (in thousands) (in dollars) (in dollars)
                      Tong-An Investment Co., Ltd.
                      An-Tai International Investment Co., Ltd.

                 (26) Securities sales revenue and cost
                                                                                  For the years ended December 31,
                                                                                     2011                  2010
                      Short-term securities sales revenue
                      Long-term securities sales revenue

                      Short-term securities cost
                      Long-term securities cost



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  210   TECO ELECTRIC & MACHINERY CO., LTD.
                  (27) Personnel expenses, depreciation and amortization


                                                                                    For the years ended December 31,
                                                                       2011                                               2010
                                                                      Operating
                                                                      expenses                                     Operating expenses
                                                                     (including                                          (including
                                                        Operating   non-operating                     Operating        non-operating
                                                          costs       expenses)          Total          costs            expenses)      Total
                        Personnel expenses
                         Salaries
                         Employees’ bonus and
                          directors’ and supervisors’
                          remuneration
                         Labor and health insurances
                         Pension
                         Others
                        Depreciation
                        Amortization




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           5.   RELATED PARTY TRANSACTIONS
                (1) Names and relationship of related parties
                Names of related parties            Relationship with the Company                  Names of related parties            Relationship with the Company
           Teco Nanotech Co., Ltd.                 An investee company accounted for      Gorich Technology Co., Ltd. (Gorich)          An indirect investee company
                (Teco Nanotech)                         under the equity method           Tension Envelope Taiwan Co., Ltd.            accounted for under the equity
           Royal Host Taiwan Co., Ltd.                                                        (Tension)                                            method
                (Royal)                                                                   Universal Mailing Service Co., Ltd.
           Tung Pei Industrial Co., Ltd.                                                       (Universal)
                (Tung Pei)                                                                Teco Information International
           Tecom Co., Ltd. (Tecom)                                                              Investment Corp.
           E-Value Commerce Co., Ltd.                                                           (Teco Information)
                (E-Value)                                                                 Strong Development Co. (Strong)
           Samwha Industrial Systems Co.,                                                 Unison Service Corporation (Unison)
                Ltd. (Samwha)                                                             Taiwan Pei Li Tone Co., Ltd.
           Solidtec Consulting Inc. (Solidtec)                                                  (Pei Li Tone)
           E-Tone Technology Co., Ltd.                                                    Information Technology Total Services
                (E-Tone)                                                                        (Hang Zhu) Co., Ltd.
           Creative Sensor Inc.                                                                 (ITTS Hang Zhu)
                (Creative Sensor)                                                         Information Technology (Wuxi) Co.,
           TKS Venture Capital Co., Ltd.             (The company was liquidated in            Ltd. (ITTS Wuxi)
                (TKS Venture)                                 March 2010)                 Royal Park Co., Ltd. (Royal Park)
           Taian Electric Co., Ltd. (Taian)                                               An-Hubbell-Taian Co., Ltd.
           Taian Shen Electric Co., Ltd.           An investee company accounted for           (An-Hubbell)
                (Taian Shen)                            under the equity method           Tai-An International Trading
           Perkilangen Electric Aian Jaya Sdn.                                                 (Shanghai) Co., Ltd.
                Bhd. (Perkilangen)                                                             (Tai-An (Shanghai))
           PT. Taian Electronic Indonesia                                                 Antech Automation Corp.
                (PT. Taian)                                                                    (Antech)
           An-Sheng Travel Co., Ltd.                                                      Sichuan Teco Changltong Precision
                (An Sheng)                                                                     Co., Ltd. (Sichuan Teco)
           Teco Appliance (H.K.) Co., Ltd.                                                Jason Technology (Asia) Co., Ltd.
               (Teco Appliance)                                                                (Jason Technology)
           Century Development Corporation                                                Information Technology Total Service
                (Century Development)                                                          (BVI) Co., Ltd. (ITTS BVI)
           United Development Corporation                                                 Hubbell-Anmex International(s) Pte.
                Ltd. (United Development)                                                      Ltd. (Hubbell Anmex)
           FibreLight Reflexion (HK) Limited         (The company was liquidated in       Unison Services (BVI) Corporation
                (FibreLight HK)                             December 2010)                     (Unison Services)
           Flexion Optical Fibre Limited                        (Note)                    GreyBack International Property Inc.
                (Flexion UK)                                                                   (GreyBack)
           Lien Chang Electronic Enterprise        An investee company accounted for      Ching Chi International Limited
                Co., Ltd. (Lien Chang)                  under the equity method                (Ching Chi)
           Titco International Corporation                                                Teco Group Science-Technology
                (Titco)                                                                       (Hang Zhou) Co., Ltd.
           Yaskawa Teco Motor Engineering                                                      (Teco Hang Zhou)
               Co. (Yaskawa)                                                              Ecolectric International Co., Ltd.
           Vmax Telecom Co., Ltd. (Vmax)                                                       (Ecolectric International)
           TECO (PHILIPPINES) 3C &                                                        Nanchang Dong-Huan Management
               APPLIANCES, INC.                                                                & Consulting Co., Ltd.
               (TECO 3C)                                                                       (Nanchang Dong-Huan)
           TA Associates International Pte Ltd.                                           Jianxi Teco-Lead PM Generetor
              (TA Associates)                                                              Manufacturing Co., Ltd.
           Note The Company did not invest in the capital increase of Flexion UK in September, 2010 resulting in the loss of significant influence. As a result, Flexion UK
                 is no longer a related party after the capital increase.




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  212   TECO ELECTRIC & MACHINERY CO., LTD.
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                                                                                                                                         Annual Re p o r t




     Names of related parties         Relationship with the Company             Names of related parties            Relationship with the Company
Information Technology Total           An indirect investee company      Teco Image System Co., Ltd.                  Related party in substance
    Service (Xiamen) Ltd.              accounted for under the equity       (Teco Image)
     (ITTS Xiamen)                                method                 Baycom Opto-electronics Technology
Tecocapital Investment Co.. Ltd.                                            Co., Ltd. (Baycom)
    (Tecocapital)                                                        Tecom International Investment                    Same chairman
TECO Middle East Electric and                                               Co., Ltd. (Tecom International)
   Machinery Limited Co. (TME)                                           Asia Pacific Telecom Co., Ltd.                The chairman is the same
TTMC Co,.Ltd.                                                                (Asia Pacific Telecom)                   as the CEO of the Company
MOS Burger Australia Pty Ltd.            The director is the same as     An-Shin Food Service Co., Ltd.               The director is the same as
    ( Australia MOS )                     the managing director of            (An-Shin)                              the chairman of the Company
                                               the Company
Kuenling Machinery Refrigerating           An investor in a joint
   Co., Ltd.                             venture with the Company
   (Kuenling Refrigerating)                        (Note)
Yuban & Co. (Yuban)
Finetec Century Corporation            An indirect investee company
  (Finetec Century)                    accounted for under the equity
                                                  method

Note   According to EITF 99-371 of the Accounting Rresearch and Development Foundation, Kuenling Refrigerating and Yuban & Co. were no longer related
       parties after the EITF was released.




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                  (2)   Significant transactions and balances with related parties
                        A. Sales
                                                                          For the years ended December 31,
                                                                           2011                    2010
                                                                              % of net                 % of net
                                                                              operating                operating
                                                                 Amount       revenues     Amount       revenues
                            Taian Shen
                            Others


                            The sales terms, including pricing and collections, were negotiated in
                            consideration of cost, market, competitors and other factors. The unrealized gain
                            from downstream sales amounting to $6,952 and $1,151 for the years ended
                            December 31, 2011 and 2010, respectively, have been eliminated and listed as
                            other current liabilities.
                        B. Construction revenue
                                                                      For the years ended December 31,
                                                                        2011                   2010
                                                                            % of net                % of net
                                                                           operating                operating
                                                                 Amount     revenues     Amount     revenues
                            Century Development

                            These construction revenues are recognized under the percentage of completion
                            method according to construction contracts, which were negotiated in
                            consideration of the general market price and other factors.
                        C. Purchases
                                                                      For the years ended December 31,
                                                                        2011                   2010
                                                                            % of net                % of net
                                                                           operating                operating
                                                                 Amount      costs       Amount        costs
                            Yaskawa
                            Kuenling Refrigerating
                            Others


                            The purchase terms, including pricing and payment, were negotiated in
                            consideration of the general market price and other factors.




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                                                                                               Annual Re p o r t




D. Compensation of directors and management personnel
     Total compensation expenses were $384,188 and $352,762 for the years ended
     December 31, 2011 and 2010, respectively, including estimated bonuses to be
     appropriated from 2011 earnings with the actual amount to be finalized and
     approved upon the resolution of the shareholders during their meeting in 2011.
     The other information will be available in the annual report for the shareholders’
     meeting.
E. Notes receivable-net
                                                          December 31,
                                                2011                   2010
                                                   % of notes              % of notes
                                                   receivable               receivable
                                                   (including               (including
                                                     related                  related
                                         Amount      parties)     Amount      parties)
     Century Development
     Others


F.   Accounts receivable-net
                                                          December 31,
                                                  2011                    2010
                                                        % of                        % of
                                                      accounts                    accounts
                                                     receivable                  receivable
                                                     (including                  (including
                                                       related                     related
                                         Amount        parties)    Amount           parties)
     TME
     Others

     Less: allowance for doubtful
            accounts



G. Other receivables
     (1) Financing
                                   For the year ended December 31, 2011
                          Maximum balance     Ending           Interest      Interest
                           Date  Amount       Balance Rate     Income       Receivable
        Royal          Dec. 2011




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                                                      For the year ended December 31, 2010
                                              Maximum balance      Ending          Interest      Interest
                                               Date    Amount      Balance   Rate    Income     Receivable
                            Royal          Jan. 2010


                         (2) Others
                                                                                December 31,
                                                                     2011                    2010
                                                                        % of other               % of other
                                                                        receivables              receivables
                                                                         (including               (including
                                                                           related                  related
                                                              Amount       parties)    Amount       parties)
                            Teco Nanotech
                            Others

                            Less: allowance for doubtful
                                   accounts
                                  credit balance of
                                   long-term equity
                                   investments


                            Other receivables mainly consist of receivables from leased property, etc.
                      H. Notes payable
                                                                               December 31,
                                                                     2011                   2010
                                                                        % of notes              % of notes
                                                                          payable                 payable
                                                                        (including               (including
                                                                           related                 related
                                                              Amount      parties)    Amount       parties)
                         Kuenling Refrigerating
                         Others




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I.   Accounts payable
                                                                 December 31,
                                                     2011                        2010
                                                              % of                     % of
                                                            accounts                 accounts
                                                            payable                   payable
                                                          (including                (including
                                                            related                   related
                                           Amount            parties)     Amount       parties)
     Tung Pei
     Others


J.   Partial construction billings
                                                                 December 31,
                                                     2011                         2010
                                                              % of                          % of
                                                             partial                       partial
                                                          construction                  construction
                                             Amount         billings       Amount         billings
      Century Development

      Partial construction billings are receipts in advance from the air conditioner and the
      cybernation construction of Nan-Kang Software Park.
K.    Receipts in advance (listed as other liabilities)
                                                                  December 31,
                                                      2011                       2010
                                                               % of                         % of
                                                               other                        other
                                             Amount         liabilities   Amount         liabilities
      Tecom International

      The receipts in advance represent the initial payment for the proposed sale of the
      shares of Baycom Opto-Electronics Technology Co., Ltd. to Tecom International.
      The selling price was determined by negotiation. As of March 20, 2012, the
      contract deadline had expired. However, Tecom International had not completed
      the transaction, and had not requested for a refund of the above.
L.   Endorsements and guarantees
                                                                  December 31,
                                                      2011                       2010
      TME
      Others




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                      M.   Operating lease transactions
                                                                                For the years ended December 31,
                              Location        Leased property      Lessee           2011              2010
                           Nankang, Taipei   Building       Vmax, etc.
                           Taoyuan           Land, building Teco Nanotech,
                                              and equipment etc.
                           Songjiang, Taipei Building       An-Shin, etc.
                           Other              Building          An-Shin, etc.


                           Rent was determined by negotiation and was collected pursuant to the provisions set
                           forth in the contract.




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6.   DETAILS OF PLEDGED ASSETS
                                                             December 31,
                       Assets                             2011              2010           Purpose
     Pledged assets-
      Available-for-sale financial assets-current
       Chimei Innolux Corporation                                                  Commercial papers payable
                                                                                      and short-term loans
      Notes receivable                                                                 Short-term loans
      Accounts receivable                                                              Letters of credit
      Other financial assets-current
       Demand deposits                                                              Performance bonds and
                                                                                          guarantees

       Time deposits                                                                Merchandise loans and
                                                                                       purchase guarantee
       Certificate of deposits                                                       Exercise guarantee for
                                                                                    construction and lawsuits
      Inventories                                                                       Letters of credit
      Available-for-sale financial assets
       -non-current
        Teco Image System Co., Ltd.                                                Commercial papers payable
                                                                                      and short-term loans
       Far Eastone Telecommunications Co.,
         Ltd.
       Waterland Financial Holdings
      Financial assets carried at cost-current
       Evergreen Air Cargo Service Corporation                                     Provisional seizure of fire
                                                                                      indemnification and
                                                                                       performance bond
      Financial assets carried at cost-non-current
       Baycom Opto-electronics Technology
         Co., Ltd.
      Long-term equity investments accounted
       for under the equity method
       Creative Sensor                                                                  Short-term loans
       Century Development

      Fixed assets and leased assets
       Land                                                                            Long-term loans,
                                                                                      short-term loans and
                                                                                        letters of credit
       Buildings
       Machinery and miscellaneous equipment                                            Long-term loans
       Construction in progress and                                                     Short-term loans
         prepayments for equipment
      Treasury stock




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                      7.    COMMITMENTS AND CONTINGENT LIABILITIES
                            In addition to those disclosed in Notes 4(10), 4(18) and 5, the significant
                            commitments and contingent liabilities of the Group are as follows:
                            (1) As of December 31, 2011, the outstanding letters of credit for materials and
                                equipment purchases was $727,124.
                            (2) As of December 31, 2011, the total purchase contracts for machinery and
                                equipment with various companies amounted to $365,539, of which $171,733
                                had been paid (listed as prepayment for equipment).
                            (3) The Company’s subsidiaries have entered into lease agreements for the plants,
                                warehouse and offices. As of December 31, 2011, the future minimum
                                rental payments are as follows:
                                                Lease period                                 Amount
                               January 1, 2012~December 31, 2012
                               January 1, 2013 and afterwards




                      8.    MAJOR CATASTROPHE
                            None.
                      9.    SUBSEQUENT EVENTS
                            None.
                      10.   OTHERS
                            (1) Certain accounts in the 2010 consolidated financial statements were
                                reclassified to conform with the 2011 consolidated financial statement
                                presentation.




                                                                65




  220   TECO ELECTRIC & MACHINERY CO., LTD.
                  (2) Fair values of financial instruments
                                                                                              December 31, 2011                             December 31, 2010
                                                                                                        Fair value                                     Fair value
                                                                                                                  Estimated                                     Estimated
                                                                                               Quotations           using a                 Quotations            using a
                                                                                               in an active        valuation                in an active        valuation
                                                                                   Book value     market          technique    Book value      market           technique
                    Non-derivative financial instruments
                    Assets
                     Financial assets with fair values equal to book values
                     Financial assets at fair value through profit or loss
                     Available-for-sale financial assets
                     Financial assets carried at cost
                    Liabilities
                     Financial liabilities with fair values equal to book
                        values
                    Derivative financial instruments
                    Assets
                     Financial assets at fair value through profit or loss
                        Forward exchange contracts
                    Liabilities
                      Financial liabilities at fair value through profit or loss
                        Forward exchange contracts




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                         The methods and assumptions used to estimate the fair values of the above
                         financial instruments are summarized as follows:
                         A. For short-term instruments, the fair values were determined based on their
                            carrying values because of the short maturities of the instruments. This
                            method was applied to cash and cash equivalents, notes and accounts
                            receivable (including related parties), other receivables (including related
                            parties), other financial assets-current, short-term loans, notes and accounts
                            payable (including related parties), accrued expenses and other payables
                            (including related parties).
                         B. For refundable deposits, long-term loans (including current portion) and
                            guarantee deposits received, the fair value was determined based on their
                            carrying values because the discounted cash values are approximately the
                            same as the carrying values.
                         C. The fair value of financial assets at fair value through profit or loss and
                            available-for-sale financial assets was based on quotations in the active
                            market.
                          D. The fair value of derivative financial instruments which include unrealized
                              gains or losses on unsettled contracts was determined based on the amount
                              to be received or paid assuming that the contract was settled as of the
                              reporting date. The fair value was provided by the counterparty financial
                              institution.
                      (3) For available-for-sale financial assets, the amount of gain (loss) recognized
                          directly in equity during the years ended December 31, 2011 and 2010 was
                          ($761,303) and ($384,234), respectively. As of December 31, 2011 and 2010,
                          the financial liabilities with cash flow risk due to the change of interest
                          amounted to $13,631,976 and $12,312,292, respectively.




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(4) Procedure of financial risk control and hedge
   The main objective of financial risk control and hedge strategy is to reduce the
   loss of assets or liabilities resulting from the exchange rate and interest rate
   fluctuations. The Group achieves financial hedge by entering into derivatives
   and all activities of hedge follow the principles listed below to achieve risk
   control:
   (a) Nature hedge.
   (b) Not eroding the profit of the main business.
   (c) Not entering into financial instruments other than the transaction currency.
   (d) To execute the stop-loss point.
   (e) To execute the operating process.
   In monitoring control, the Board of Directors enacted procedures and authorized
   management to operate in compliance with the operating strategy and to ensure
   that the risk of these transactions is within the tolerable range of the Group. If
   any unusual event occurs, necessary actions should be taken and reported to the
   Board of Directors immediately.
(5) Information of major financial risk
   A. Market risk
      (a) Some of the Company’s transactions involve non-functional currencies.
          The foreign currency denominated assets and liabilities which are
          significantly influenced by the effect of exchange rate fluctuation are as
          follows:
                                    December 31, 2011                     December 31, 2010
                               Foreign                               Foreign
                              currency                              currency
                               amount          Exchange rate         amount         Exchange rate
                           (in thousands)         (in dollars)   (in thousands)       (in dollars)
        Financial assets
        Monetary items
          USD:TWD
          USD:RMB
          JPY:TWD
          USD:CAD
          USD:SGD




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                                                            December 31, 2011                  December 31, 2010
                                                       Foreign                            Foreign
                                                      currency                           currency
                                                       amount         Exchange rate       amount         Exchange rate
                                                   (in thousands)      (in dollars)   (in thousands)       (in dollars)
                           Financial liabilities
                           Monetary items
                             USD:TWD
                             JPY:TWD
                             USD:CAD
                             USD:RMB
                             USD:AUD



                        (b) The investments in equity financial instruments owned by the Group are
                            exposed to price risk, but the possibility of market risk is low as a result of
                            the setting of a stop-loss point.
                        (c) The loans mostly belong to adjustable rate mortage and the Group adjusts
                            the loan position at market rates. Therefore, the Group expects no
                            significant market risk.
                        (d) The Group’s major import and export transactions are conducted in
                            foreign currencies. The change in fair value will be caused by
                            fluctuations in the foreign exchange rate. However, the amounts and
                            periods of the Group’s accounts receivable and accounts payable are
                            equivalent, so the market risk could be offset. If the gap is raised, the
                            Group would adopt the forward contract to hedge the risk, so the Group
                            estimates there would be no market risk.
                      B. Credit risk
                         (a) The equity financial instruments have active markets and are transacted
                             with financial institutions which are all in good credit standing.
                             Therefore, the credit risk is low.
                         (b) The receivables are all approved as a result of rigorous credit review
                             procedures, and some of which are required to have adequate insurance or
                             provide necessary collaterals.     Therefore, the Group expects no
                             significant credit risk.
                         (c) Loan guarantees provided by the Group are in compliance with the
                             Group’s “Procedures for Provision of Endorsements and Guarantees” and
                             are provided to affiliated companies and investees which the Group owns


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                                                                                      Annual Re p o r t




       directly or indirectly more than 50% ownership or with which the Group
       has normal business transactions. As the Group is aware of the credit
       conditions of these companies, it has not required to provide collateral for
       the loan guarantees. In the event that these companies fail to comply
       with banks’ loan agreements, the maximum loss to the Group is equal to
       the total loan guarantee amount.
C. Liquidity risk
   The investments in equity financial instruments which have active markets
   are expected to be sold easily and quickly in the market at the price close to
   the fair value. The investments in equity financial instruments without
   active markets are exposed to liquidity risk.
D. Cash flow risk due to changes in interest rate
   The loans are mostly issued at floating interest rate.   Accordingly, the future
   cash flow will fluctuate with the yield rate of these debt instruments.
   Therefore, there is cash flow risk due to changes in interest rate.




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                                      (6) Intercompany transactions eliminated
                                                                                                                                    For the year ended December 31, 2011
                                                                                                                                                           Teco
                                                                                          Teco Holding                                                 International
                                                                                             and its    UVG and its         Teco                          and its        Tong-An             Tong-An
                                                 Transactions eliminated        Teco       subsidiaries subsidiaries       Singapore       Tesen       subsidiaries       Assets            Investment         Others (Note)
                                              A. Long-term investments
                                                  and stockholders’ equity




TECO ELECTRIC & MACHINERY CO., LTD.
                                              B. Receivables and payables
                                              C. Profit and loss accounts
                                                (a) Sales and purchases
                                                (b) Unrealized inter-
                                                     company profit
                                                (c) Others

                                                                                                                                   For the year ended December 31, 2010
                                                                                                                                                          Teco
                                                                                          Teco Holding                                                International
                                                                                             and its    UVG and its         Teco                         and its        Tong-An              Tong-An
                                                 Transactions eliminated        Teco       subsidiaries subsidiaries       Singapore      Tesen        subsidiaries      Assets             Investment         Others (Note)
                                              A. Long-term investments
                                                  and stockholders’ equity
                                              B. Receivables and payables
                                              C. Profit and loss accounts
                                                (a) Sales and purchases
                                                (b) Unrealized inter-
                                                     company profit
                                                (c) Others
                                             Note: The respective balance sheet accounts or profit and loss accounts of each subsidiary eliminated did not exceed 3% of the Group’s consolidated total assets or consolidated
                                             total operating revenues.




                                                                                                                                    71
                  11.   DISCLOSURE OF INVESTEE COMPANY INFORMATION
                        (1) Significant intercompany transactions
                           A. Loan granted during the year ended December 31, 2011: None.
                           B. Endorsements and guarantees provided during the year ended December 31, 2011:
                               Name of the company                                                            Maximum                                       Ratio of
                                                             Parties being guaranteed
                                providing guarantee                                                            guarantee      Outstanding Guarantee accumulated
                                                                            Relationship      Limit of        amount for       guarantee      amount       guarantee        Ceiling of the
                                                                              with the      guarantee for the year ended       amount at       with      amount to net outstanding guarantee
                              Number                                          Company        such party     December 31, December 31, collateral value of the to the respective party
                              (Note 1)      Name               Name           (Note 2)        (Note 3)           2011            2011         placed       Company             (Note 3)          Note
                                 0      The Company Teco Holding                  1         $ 7,416,153 $          231,080 $              - $        -         -       $    22,248,460          None
                                                       Teco Westinghouse          3                                199,528                -          -         -                                None
                                                       Taitec                     1                                199,600                -          -         -                                None
                                                       An-Tai                     1                                 80,000          80,000           -      0.22%                               None
                                                       GD Teco                    1                                100,000        100,000            -      0.27%                               None
                                                       Teco International         1                                100,000        100,000            -      0.27%                               None
                                                       Others               1 2 3 4                                542,995        542,995            -      1.46%                               None
                                                                                                                            $     822,995                                                       None
                             Note 1: Number “0” represents the Company, and the subsidiaries are numbered starting from”1”.
                             Note 2: Number “1” represents the Company directly owns over 50% shares of the subsidiary.
                                     Number “2” represents the Company and its subsidiaries directly and indirectly own over 50% shares of the subsidiary.
                                     Number “3” represents the Company directly or indirectly through its subsidaries owns over 50% shares of the subsidiary.
                                     Number “4” represents the Company has business relationship with the party.
                             Note 3:In accordance with the Company’s policy, the total guarantee amount of the Company shall not exceed 60% of the Company’s net assets, and the guarantee to a single party
                                     shall not exceed 20% of the Company’s net assets.




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                                      C. Marketable securities held by the Company at December 31, 2011:
                                                                                                                                                                        December 31, 2011
                                                          Type of        Name of                                                                   Number of
                                            Name of      marketable     marketable         Relationship with                                          shares
                                            investor     securities     securities            the issuers          General ledger account        (in thousands) Book value   Percentage   Market value   Remark
                                         The Company Common           Stock 1            An investee company Long-term equity investments               39,145 $1,917,774     31.14%          Note




TECO ELECTRIC & MACHINERY CO., LTD.
                                                      Stock                             accounted for under the accounted for under the equity
                                                                                            equity method                  method
                                                                      Stock 2                                                                           80,602    173,587     27.11%      $   201,505
                                                                      Stock 3                                                                            5,291    181,723     92.63%          Note
                                                                      Stock 4                                                                           11,940    140,633    60.00%
                                                                      Stock 5                                                                           47,700    849,815    100.00%
                                                                      Stock 6                                                                                2 5,213,944     100.00%
                                                                      Stock 7                                                                            7,200 2,094,302      90.00%
                                                                      Stock 8                                                                          358,919 3,803,427      99.60%
                                                                      Stock 9                                                                           15,387    269,779     62.57%
                                                                      Stock 10                                                                         224,982 7,498,949     100.00%
                                                                      Stock 11                                                                          22,400     16,427    100.00%
                                                                      Stock 12                                                                          17,131    137,313     76.70%
                                                                      Stock 13                                                                           6,984    976,352    100.00%
                                                                      Stock 14                                                                          99,344 4,686,236     100.00%
                                                                      Stock 15                                                                           7,800    142,207     64.95%

                                        Note: Market value is the same as book value.




                                                                                                                               73
                  C-1. Marketable securities held by the Company at December 31, 2011 (continued):
                                                                                                                                                      December 31, 2011
                                       Type of    Name of                                                                        Number of
                          Name of     marketable marketable             Relationship with                                           shares
                          investor    securities securities                the issuers            General ledger account       (in thousands) Book value   Percentage   Market value   Remark
                       The Company Common         Stock 16            An investee company            Long-term equity                 16,362 $    45,896    78.63%           Note
                                    Stock                         accounted for under the equity investments accounted for
                                                                             method               under the equity method
                                                  Stock 17                                                                            37,542     523,384    33.84%      $    267,676
                                                  Stock 18                                                                            15,000     598,101   100.00%           Note
                                                  Stock 19                                                                            50,875     694,383    21.39%
                                                  Stock 20                                                                                 -     143,784   100.00%
                                                  Stock 21                                                                            15,090      69,009     7.55%
                                                  Stock 22                                                                            12,123     126,839    60.62%
                                                  Stock 23                                                                            20,000     140,399   100.00%
                                                  Stock 24                                                                            42,455     427,256    49.37%
                                                  Stock 25, etc                                                                                  586,228                    547,826
                                                  Stock 26                   None               Available-for-sale financial          31,200     380,642     0.43%           Note
                                                                                                    assets-non-current
                                                  Stock 27                                                                            40,479     514,087     0.31%
                                                  Stock 28                                                                             2,373      30,847     0.03%
                                                  Stock 29                                                                            11,527     219,021     1.96%
                                                  Stock 30                                                                             1,520      49,688     0.01%
                                                  Stock 31, etc                                                                                   22,731
                                                  Stock 32                                       Financial assets carried at         475,151 4,699,793       7.30%
                                                                                                     cost-non-current
                                                  Stock 33                                                                            37,047     431,530     4.08%
                                                  Stock 34                                                                            51,924     500,000     2.17%

                       Note: Market value is the same as book value.

                                                                                                         (Continued)
                                                                                                             74




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                                      C-2. Marketable securities held by the Company at December 31, 2011 (continued):




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                                                          December 31, 2011
                                                           Type of    Name of                                                                         Number of
                                              Name of     marketable marketable            Relationship with                                             shares
                                              investor    securities securities               the issuers              General ledger account       (in thousands) Book value   Percentage    Market value   Remark
                                           The Company Common         Stock 35                   None                 Financial assets carried at          55,907 $ 158,553      13.64%          Note
                                                        Stock                                                             cost-non-current
                                                                      Stock 36        The chairman of the investee                                         24,943     48,389      0.76%
                                                                                      is the same as the CEO of the
                                                                                                Company
                                                                      Stock 37, etc              None                                                                222,213
                                                          Beneficiary Fund 1                                                                                          67,830
                                                          Certificates
                                                                       Fund 2                                                                                        129,509

                                          Note: Market value is the same as book value.
                  D. Acquisition or disposal of the same security with the accumulated cost exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                 Name and       Beginning balance              Addition                     Disposal                      Ending balance
                                  Type and name      General relationship Number of                    Number of               Number of                              Number of
                      Acquirer/    of marketable      ledger        with      shares (in                shares (in             shares (in Selling Book Disposal        shares (in
                        seller       securities      account counterparty thousands)       Amount      thousands) Amount thousands) price value           gain        thousands)    Amount
                     The              Stock 33        Note 1        Issue         29,848 $    301,943        7,199 $ 129,587            - $     - $   - $      -           37,047 $ 431,530
                     Company                                      company
                                                                   /None
                                     Stock 19         Note 2 Ministry of          34,229      362,356       16,646     332,027          -       -     -        -           50,875    694,383
                                                                  Economic                                           (Note 3)
                                                                Affairs/None
                     Note 1: Financial assets carried at cost - non-current.
                     Note 2: Long-term equity investments accounted for under the equity method.
                     Note 3: Consists of the cost of $294,135, investment income and change in other adjustments of $37,892.


                  E. Acquisition of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.
                  F. Disposal of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.




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                                      G. Purchases from or sales to related parties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                                                                                                                      Notes or accounts
                                                                                                                 Transaction terms                       Differences in              receivable (payable)
                                                                                                                                                       transaction terms                         Percentage of
                                                                                                                              Percentage             compared to third party                    total notes and
                                                                               Relationship                                    of total                   transaction                              accounts
                                         Purchaser/ Name of related              with the        Purchases                    purchases Credit                                                    receivable
                                           Seller           party               Company            (sales)       Amount         (sales)    term   Unit price Credit term           Amount          (payable)      Remark
                                         The        Tesen                      An investee       Purchases     $ 2,481,985       12%      30 days   Note        Note           $           -            -
                                         Company Taian Subic               accounted for under                     352,142        1%                                           (     77,719 )         (1%)




TECO ELECTRIC & MACHINERY CO., LTD.
                                                    An Yang                 the equity method                      144,638        1%      75 days                                          -            -
                                                    GD Teco                                                        139,574        1%                                           (     45,298 )         (1%)
                                                    Wuxi Teco             An indirect investee                     966,051        1%                                           (    599,765 )        (11%)
                                                    Teco Malaysia         accounted for under                      565,769        1%                                           (    112,358 )         (2%)
                                                    Suzhou Teco             the equity method                      518,721        2%                                           (    148,453 )         (3%)
                                                    Tai-An Wuxi                                                    352,142        1%                                           (     44,851 )         (1%)
                                                    Asia Innovative                                                113,666         -                                           (    162,671 )         (3%)
                                                    Teco Singapore             An investee          Sales     ( 1,244,914)       (5%)    90 days                                    255,089 )          5%
                                                    Tong Dai              accounted for under                 (    935,641)      (4%)                                               228,470 )          4%
                                                    Tong Tai Jung           the equity method                 (    688,332)      (2%)                                               183,685 )          3%
                                                    Taian Shen                                                (    263,035)      (1%)                                                27,171 )          1%
                                                    Teco Europe                                               (    191,313)      (1%)                                                79,853 )          1%
                                                    Yatec                                                     (    179,550)      (1%)                                                52,474 )          1%
                                                    E-Joy International                                       (    135,383)        -                                                 41,014 )          1%
                                                    Taian-Etacom                                              (    134,744)        -                                                102,486 )          2%
                                                    Teco Westinghouse An indirect investee                    ( 2,697,480)      (10%)                                               816,431 )         15%
                                                    Teco Australia        accounted for under                 ( 1,820,875)       (7%)                                               364,728 )          7%
                                                    Teco Westinghouse the equity method
                                                      Canada                                                  ( 1,168,846)      (4%)                                                 228,068 )        4%
                                                    Teco Netherlands                                          (    481,813)     (2%)                                                 197,700 )        4%
                                                    Sankyo                                                    (    425,104)     (2%)                                                 276,179 )        5%
                                                    Asia Innovative                                           (    166,500)     (1%)                                                 490,483 )        9%
                                                    Teco Westinghouse                                                                                                                        )
                                                      Motor                                                   (    148,110)     (1%)                                                  20,706 )         -
                                                    Wuxi Teco                                                 (    113,605)        -                                                  37,206 )        1%
                                         Note: The terms, including prices, payment and collection, were negotiated in consideration of cost, market, competitors, etc.




                                                                                                                                 77
                  H. Receivable from related parties exceeding $100,000 or 20% of the Company’s capital at December 31, 2011:
                                                                                                                                      Overdue receivable                     Allowance for
                         Name of                         Relationship with the       Balance of receivable       Turnover                                     Subsequent        doubtful
                         creditor  Name of related party       Company                from related parties         rate            Amount Action adopted      collections       accounts
                        The       Taian-Etacom               An investee        Notes, accounts      $ 102,496 1.34                $     -       -             $    28,630
                        Company                           accounted for under receivable and other
                                                           the equity method      receivables
                                  Tong Tai Jung                                Notes and accounts         183,685 3.15                         -    -             117,321
                                                                                   receivables
                                  Tong Dai                                                                228,470 3.60                     -        -             129,042

                                    Teco Singapore                                  Accounts and other          255,637   5.56             -        -             254,663
                                                                                       receivables
                                    Teco Nanotech                                          Other                114,454    -               -        -             114,454
                                                                                        receivables
                                    Teco Westinghouse        An indirect investee   Account receivable          816,431   4.05             -        -             744,459
                                                              accounted for under
                                                              the equity method
                                    Teco Westinghouse                               Accounts and other          228,193   4.75             -        -             215,068
                                    Canada                                             receivables
                                    Teco Australia                                                              365,295   5.28             -        -             313,536
                                    Teco Netherlands                                                            197,966   2.69            -         -              85,718
                                    Sankyo                                                                      283,221   2.00        60,100 In the process        96,217
                                                                                                                                              of collection
                                    Asia Innovative                                                             496,228   0.51       162,785                      154,870 Total amount was
                                                                                                                                                                               $57,826
                  I. Derivative financial instruments undertaken during the year ended December 31, 2011: Please refer to Notes 4(2) and (14)




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                                      (2) Information of investee companies
                                          A. Information of investee companies:
                                                                                                                          Initial investment investor                                  Held by the investor                                              Investment income (loss)
                                                                                                                                                                                                                            Net income (loss) of the        recognized by the
                                                                                                                                                                                                                                    investee                     investor
                                                                                                                                                                        Number of      Percentage
                                            Name of      Name of                                                                                                         shares (in        of                  Book
                                            investor     investee     Location    Main operating activities    Currency   2011.12.31      Currency      2010.12.31      thousands)     ownership Currency      value        Currency        Amount       Currency       Amount      Remark
                                           The     Tung Pei          Taiwan      Manufacturing of bearings      TWD       $     12,293     TWD          $     12,293     39,145,044      31.14      TWD       $ 1,917,774    TWD           $ 928,580      TWD           $ 289,129   None
                                           Company




TECO ELECTRIC & MACHINERY CO., LTD.
                                                   Tecom             Taiwan      Manufacturing of key           TWD            151,410     TWD               151,410     80,602,050      27.11      TWD          173,587     TWD       ( 572,381 )        TWD       (     171,527) None
                                                                                   telephone system and
                                                                                   non-key service unit
                                                                                   telephone system
                                                       Teco          Taiwan      Distribution of Whirlpool’s    TWD             42,167     TWD                42,167     11,940,000       60        TWD          140,633     TWD       ( 106,821 )        TWD       (      65,448) None
                                                        Whirlpool                  home appliances
                                                                                   products in Taiwan
                                                       Teco           Taiwan     Invested various               TWD            100,013     TWD               100,013     4,4770,000      100        TWD          849,815     TWD              40,937      TWD              41,028   None
                                                        International              investments
                                                       Teco Holding U.S.A        Manufacturing and              TWD            726,428     TWD               726,428           1,680     100        TWD        5,213,944     TWD             744,776      TWD             745,746   None
                                                        and its                    distribution of motors
                                                        subsidiaries               and generators, and
                                                                                   investment and trading
                                                                                   in USA
                                                       Teco          Singapore   Distribution of the            TWD            112,985     TWD               112,985      7,200,000       90        TWD        2,094,302     TWD             239,118      TWD             215,206   None
                                                        Singapore                  Company’s motor
                                                        and its                    products in Singapore
                                                        subsidiaries
                                                       Tong-An       Taiwan      Various investments            TWD           2,490,000    TWD              2,490,000   358,918,560       99.6      TWD        3,803,427     TWD             210,426      TWD             211,438   None
                                                       Teco Electro Taiwan       Manufacturing of Stepping      TWD             128,496    TWD                128,496    15,386,949      62.57      TWD          269,779     TWD              48,288      TWD              29,908   None
                                                                                   Motors
                                                       UVG and its Cayman        Manufacturing and              TWD           7,282,697    TWD              7,232,701   224,982,346      100        TWD        7,498,949     TWD       (      99,359 )    TWD       (      98,287) None
                                                       subsidiaries Islands        distribution of the
                                                                                   Company’s motor
                                                                                   products and home
                                                                                   appliances, and
                                                                                   investment holdings
                                                       Information Taiwan        E-business service, mailing    TWD            121,232     TWD               121,232     12,123,248      60.62      TWD          126,839     TWD              24,005      TWD              14,552   None
                                                        Technology                 and data management
                                                        Total
                                                        Services
                                                       Tesen       Taiwan        Manufacturing and sales of     TWD            200,000     TWD               200,000     20,000,000      100        TWD          140,399     TWD               1,751      TWD       (         129) None
                                                                                  home appliances
                                                                                                                                                             (Continued)




                                                                                                                                                                 79
                  A-1. Information of investee companies (continued):

                                                                                             Initial investment investor                               Held by the investor                                           Investment income
                                                                                                                                                                                          Net income (loss) of the   (loss) recognized by
                                                                                                                                                                                                  investee                the investor
                                                                                                                                         Number of Percentage
                       Name of      Name of                                                                                               shares (in     of                   Book
                       investor     investee     Location     Main operating activities Currency 2011.12.31 Currency 2010.12.31          thousands) ownership Currency        value    Currency   Amount   Currency             Amount Remark
                      The       Lien Chang      Taiwan        Manufacturing of Color     TWD $       117,744 TWD $       117,744           37,542,159 33.84%   TWD $            523,384 TWD     ($ 43,328 ) TWD                ($ 14,597) None
                      Company                                   Flybacks Transformers,
                                                                Mono Flyback
                                                                Transformers and
                                                                Mono Deflection yokes
                                 Tong Dai         Taiwan      Distribution of the        TWD          22,444 TWD          22,444           5,290,000   92.63%       TWD        181,723     TWD            61,331     TWD            56,808   None
                                                                Company’s motor
                                                                products in Taichung
                                 Teco Vietnam Vietnam         Manufacturing and sales    TWD         264,111 TWD         264,111                  -     100%        TWD        143,784     TWD       (     3,201 )   TWD       (     3,912) None
                                                                of motors
                                 Vmax Telecom Taiwan          Sales of                   TWD         150,900 TWD         150,900          15,090,000                TWD         69,009     TWD       ( 515,874 )     TWD       ( 38,923) None
                                                                telecommunications                                                                      7.55%
                                                                equipped with wireless
                                 Yatec            Taiwan      Development and            TWD          92,389 TWD          92,389           7,799,996   64.95%       TWD        142,207     TWD            28.503     TWD            17,995   None
                                                               maintenance of various
                                                               electric appliances
                                 Tong-An Assets Taiwan        Real estate business       TWD       2,111,889 TWD       2,111,889          99,344,444    100%        TWD       4,686,236    TWD            63,994     TWD            63,994   None
                                 Taian Subic      Subic Bay, Manufacturing and sales     TWD         165,819 TWD         165,819          17,131,155                TWD         137,313    TWD               267     TWD               585
                                                                                                                                                        76.7%                                                                                None
                                                  Philippines of switches
                                 Micropac and British         International trading      TWD         214,527 TWD         214,527           6,883,591    100%        TWD        976,352     TWD            93,543     TWD            86,055   None
                                  its              Virgin
                                  subsidiaries     Islands
                                 Century          Taiwan      Development and            TWD         673,801 TWD         379,666          50,874,780   21.39%       TWD        694,383     TWD           119,700     TWD            37,629   None
                                  Development                  management of
                                                               industrial park
                                 An-Tai           Taiwan      Investment holdings        TWD         150,000 TWD         150,000         150,000,000    100%        TWD        598,101     TWD            25,561     TWD            25,561   None
                                  International
                                 Pelican          Taiwan      Logistics and              TWD         450,471 TWD         150,471          42,454,700   49.37%       TWD        427,256     TWD           215,476     TWD           145,926   None
                                                               distribution services
                      Tung Pei   Tung Pei         Samoa       Investment holdings        TWD         646,343 TWD         646,343          23,031,065    100%        TWD       1,309,011    TWD           143,283     TWD           143,283   None
                                  (Samoa)
                                  Industrial Co.,
                                  Ltd.




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                                      A-2. Information of investee companies (continued):

                                                                                                              Initial investment investor                         Held by the investor                                             Investment income
                                                                                                                                                                                                      Net income (loss) of the    (loss) recognized by
                                                                                                                                                                                                              investee                 the investor
                                                                                                                                                    Number of Percentage
                                        Name of                                         Main operating                                               shares (in    of                     Book
                                         investor      Name of investee Location           activities   Currency 2011.12.31 Currency 2010.12.31     thousands) ownership Currency         value   Currency            Amount      Currency Amount Remark
                                      Tecom          Tecom International Taiwan     Investment holdings TWD $        100,000 TWD $       100,000      12,000,000 100%     TWD            $ 168,106 TWD               $ 12,641      TWD $ 12,640 None
                                                      Investment Co.,




TECO ELECTRIC & MACHINERY CO., LTD.
                                                      Ltd.
                                                     Vmax Telecom Co., Taiwan       Sales of             TWD         779,195 TWD         779,195     77,919,480   38.96%       TWD          209,751    TWD       ( 515,874 )       TWD     ( 200,983) None
                                                      Ltd.                            telecommunication
                                                                                      equipped with
                                                                                      wireless
                                                     Baycom               Taiwan    Manufacturing and    TWD         359,659 TWD         429,208     12,483,600   28.64%       TWD          146,333    TWD             10,084      TWD          2,792    None
                                                      Opto-electronics                sales of optical
                                                      Technology Co.Ltd               telecom products
                                      Tong-An        Creative Sensor Inc. Taiwan    Manufacturing and    TWD          87,464 TWD          69,738      7,913,310    6.23%       TWD          180,409    TWD            132,222      TWD         15,896    None
                                                                                      sales of electric
                                                                                      components
                                                     Century              Taiwan    Development and      TWD         201,757 TWD         194,119     14,926,722    6.28%       TWD          187,588    TWD            119,576      TWD          7,506    None
                                                      Development                     management of
                                                                                      industrial park
                                      Lien           Gen Mao              Taiwan    Investment holdings TWD          150,000 TWD         150,000     17,520,000    100%        TWD          121,905    TWD       (     17,286 )    TWD     (   17,286) None
                                       Chang          International Corp.
                                                     Gen Mao              Singapore Investment holdings TWD          507,495 TWD         507,495     24,318,224    81.4%       TWD          550,944    TWD       ( 120,621 )       TWD     ( 103,726)
                                                                                                                                                                                                                                                         None
                                                     (Singapore)
                                      Century        Centurytech          Taiwan    Construction and     TWD          98,170 TWD          98,170     10,000,000    100%        TWD          152,586    TWD       (     23,335 )    TWD     (   22,051) None
                                      Development Construction and                     sales of related
                                                      Management Corp.                 raw materials
                                      Teco           Teco Electro         British   Trading and          TWD          88,108 TWD          93,679      2,510,000    100%        TWD          254,933    TWD             31,455      TWD          31,238 None
                                       Electro        Devices Co., Ltd.    Virgin      investment
                                                                           Islands     holdings
                                      Teco           Century              Taiwan    Development and      TWD         179,222 TWD         179,222     14,412,118    6.06%       TWD          192,168    TWD            119,576      TWD               -   None
                                       Singapore      Development                     management of
                                                                                      industrial park
                                      Teco           Creative Sensor Inc. Taiwan    Manufacturing and    TWD          62,641 TWD          45,800      4,644,447    3.66%       TWD          106,177    TWD            132,222      TWD          4,562    None
                                       International                                 sales of electric
                                                                                     components




                                                                                                                                               81
                  B.Loan granted during the year ended December 31, 2011:
                                                                                                                                                                         Limit on
                                                                             Balance                              Amount of              Allowance                        loans      Ceiling
                                                       General      Maximum at Dec.                              transactions Reason for     for       Collateral       granted to   on total
                    Number                              ledger       balance 31, 2011 Interest                       with     short-term doubtful                         single      loans
                    (Note 1) Creditor    Borrower      account       amount (Note 5) rate             Nature      borrowers financing accounts       Item      Value      party      granted      Remark
                        1    Tong-An    Le-Li Co.,       Other      $    34,000 $    34,000   2.5%   Short-term $         -   Additional $      - Commercial $ 5,000 $      50,000 $ 200,000      Note 6
                                        Ltd.          receivables                                     financing               operating             Paper
                                                                                                                               capital
                        2    U. V. G.   Teco            Other           394,632     394,632 1.51% Short-term              -   Additional        -      -            -      449,937    749,895     Note 7
                                        Netherlands   receivable                                   financing                  operating
                                                                                                                               capital
                        3    Teco      Teco             Other            56,871      56,871 2.35% Short-term              -   Additional        -      -            -      141,898    236,496     Note 8
                             Singapore Vietnam        receivable                                   financing                  operating
                                                                                                                               capital
                        4    An-Shen    Le-Li Co.,      Other             4,900          -    4.00% Short-term            -   Additional        -      -            -        6,101        4,576   Note 9
                                        Ltd.          receivable                                     financing                operating
                                                                                                                               capital
                    Note 1: Number “0” represents the Company, and the subsidiaries are numbered starting from “1”.
                    Note 2: In accordance with U.V.G.’s policy, the total guarantee amount shall not exceed 10% of U.V.G.’s net assets, and the guarantee to a single party shall not
                            exceed 6% of U.V.G.’s net assets.
                    Note 3: In accordance with Teco Singapore’s policy, the total guarantee amount shall not exceed 10% of Teco Singapore’s net assets, and the guarantee to a single
                            party shall not exceed 6% of Teco Singapore’s net assets.
                    Note 4: In accordance with An Shen’s policy, the total guarantee amount shall not exceed 10% of An Shen’s net assets, and the guarantee to a single party shall not
                            exceed 6% of An Shen’s net assets.
                    Note 5: The amount approved by the Board.
                    Note 6: Tong-An actual loaned to Le-Li $34,000 on December 31, 2011.
                    Note 7: U. V. G. actual loaned to Teco Netherlands $274,260 on December 31, 2011.
                    Note 8: Teco Singapore actual loaned to Teco Vietnam $36,651 on December 31, 2011.
                    Note 9: An-Shen actual loaned to Le-Li $0 on December 31, 2011.




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                                      C.Endorsements and guarantees provided during the year ended December 31, 2011:

                                                 Guarantor                Parties being guaranteed                                                                    Ratio of




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                         Limit of    Maximum        Outstanding                     accumulated Ceiling of the
                                                                                      Relationship with guarantee   outstanding      guarantee       Guarantee       guarantee     outstanding
                                         Number                                         the endorser/    for such    guarantee     amount at Dec.   amount with amount to net guarantee to the
                                         (Note 1)      Name           Name                guarantor        party  amount in 2011     31, 2011     collateral placed    value    respective party Remark
                                            1     Tong-An Assets Greyback                  Note 2       $ 468,624 $        23,470 $      23,312 $                 -    0.50%     $       937,247 None
                                                                   International
                                            2     Teco Singapore STE Marketing              Note 2           472,992            45,945 $        45,006                  -      1.90%              1,418,976    None

                                            3     Teco           TWMM                       Note 2           368,093            62,814 $        40,313                  -      1.10%                736,185    None
                                                    Westinghouse
                                        Note 1: Number “0” represents the Company, and the subsidiaries are numbered starting from “1”.
                                        Note 2: An investee accounted for under the equity method.
                                        Note 3: In accordance with Tong-An Assets’ policy, the total guarantee amount shall not exceed 20% of Tong-An Assets’ net assets, and the guarantee to a single party shall not
                                                exceed 10% of Tong-An Assets’ net assets.
                                        Note 4: In accordance with Teco Singapore’s policy, the total guarantee amount shall not exceed 60% of the Teco Singapore’s net assets, and the guarantee to a single party shall
                                                not exceed 20% of the Teco Singapore’s net assets.
                                        Note 5: In accordance with Teco Westinghouse policy, the total guarantee amount shall not exceed 20% of the Jack Property’s net assets, and the guarantee to a single party shall
                                                not exceed 10% of the Teco Westinghouse net assets.
                  D. Marketable securities held by the company at December 31, 2011:

                                                                  Name of                                     General                              December 31, 2011
                                             Type of marketable marketable         Relationship with the       ledger      Number of shares
                        Name of investor         securities       securities         security issuers         account       (in thousands)     Book value   Percentage Market value Remark
                     (1)Teco International   Common Stock       Stock 38, etc              None               Note 1                  23,532    $   426,814      -      $ 426,814
                                                                Stock 39, etc                                 Note 4                   5,591        147,012      -          147,012
                                                                Stock 40, etc                                 Note 2                     411         15,513      -           15,513
                                                                  Stock 41      An investee accounted for     Note 5                   4,644        106,177 3.66%            65,487
                                                                                 under the equity method
                                                                 Stock 42, etc.                                                       5,480          54,079    -            54,079
                     (2) Tong-An             Common Stock          Stock 43. Subsidiary of the Company            Note 1             19,540         348,790 1.06%          348,790
                                                                   Stock 44     Related party in substance                            9,197         124,612 8.17%          124,612
                                                                   Stock 38               None                                       16,486         938,051 0.51%          938,051
                                                                   Stock 45                                                           1,150         108,560 0.03%          108,560
                                                                 Stock 46, etc                                                        5,732         251,764    -           251,764
                                                                 Stock 26, etc                                    Note 3              6,756          94,025    -            94,025
                                                                 Stock 47, etc.                                   Note 2              3,267          97,379    -            97,379
                                                                   Stock 39                                       Note 4             14,840         350,505 12.86%         350,505
                                                                 Stock 36, etc.                                                      49,313         459,104    -           459,104
                                             Beneficiary            Fund 3                                        Note 3              7,834          76,897    -            76,897
                                             Certificates
                                                                    Fund 4                                        Note 4              2,444          80,994      -          80,994
                                             Common Stock          Stock 41     An investee accounted for         Note 5              7,913         180,409   6.23%        111,578
                                                                                under the equity method
                                                                       Stock 19                                                      14,927         187,588   6.28%        187,588
                                                                     Stock 24, etc                                                   43,406         213,735      -         213,735
                     Note 1: Available-for-sale financial assets-non-current.
                     Note 2: Financial assets at fair value through profit or loss-current.
                     Note 3: Available-for-sale financial assets-current.
                     Note 4: Financial assets carried at cost-non-current.
                     Note 5: Long-term equity investment accounted for under the equity method.

                                                                                                      (Continued)




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                                      D-1. Marketable securities held by the company at December 31, 2011 (continued):
                                                                                                                                                                                                                        A n nual Re p o r t
                                                                                                                                                                                                                               2011

                                                                          Type of           Name of                                       General                              December 31, 2011
                                                                         marketable        marketable        Relationship with the         ledger      Number of shares
                                               Name of investor          securities        securities          security issuers           account       (in thousands)     Book value  Percentage Market value Remark
                                           (3)UVG                    Beneficiary            Fund 5                   None                 Note 4                       -    $    8,607      -      $    8,607
                                                                     Certificates
                                                                     Common Stock           Stock 48                                          Note 1                 11          2,647      -           2,647
                                                                                            Stock 49      An investee accounted for           Note 5             30,000      1,685,622   99.99%     1,685,622
                                                                                                          under the equity method




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                            Stock 50                                                             25,323        367,531   99.50%       367,531
                                                                                            Stock 51                                                             71,350        397,273   94.69%       397,273
                                                                                            Stock 52                                                             10,078        135,882   100.00%      135,882
                                                                                            Stock 53                                                            131,513      3,601,914   100.00%    3,601,914
                                                                                            Stock 7                                                                 800        232,691   10.00%       232,691
                                                                                            Stock 54                                                             44,898        686,376   100.00%      686,376
                                                                                             Others                                                              21,020         42,570      -          42,570
                                           (4) Micropac (BVI)        Common Stock           Stock 55      An investee accounted for           Note 5              9,575        987,455   100.00%      987,455
                                                                                                           under the equity method
                                           (5)An-Tai International   Common Stock          Stock 56, etc                                                          2,973         63,449       -         63,449
                                                                                             Stock 43      Subsidiary of the Company          Note 1              2,826         50,440    0.15%        50,440
                                                                                             Stock 44       Related party in substance                            1,469         19,907    1.31%        19,907
                                                                                             Stock 46                                                             2,979        469,161    10.12%      469,161
                                                                                           Stock 57, etc              None                    Note 2                  -          1,174       -          1,174
                                                                                           Stock 58, etc                                      Note 4                485          2,771       -          2,771
                                           (6) Teco Holding           Common Stock           Stock 59       An investee accounted for         Note 5                 27      3,680,926   100.00%    3,680,926
                                                                                                             under the equity method
                                                                                             Stock 60                                                             1,104      1,561,368   100.00%    1,561,368
                                           Note 1: Available-for-sale financial assets-non-current.
                                           Note 2: Financial assets at fair value through profit or loss-current.
                                           Note 3: Available-for-sale financial assets-current.
                                           Note 4: Financial assets carried at cost-non-current.
                                           Note 5: Long-term equity investment accounted for under the equity method.

                                                                                                                                  (Continued)
                                                                                                                                         85
                  D-2. Marketable securities held by the company at December 31, 2011 (continued):
                                                    Type of          Name of                                     General                            December 31, 2011
                                                  marketable        marketable      Relationship with the         ledger      Number of shares
                           Name of investor        securities       securities          security issuers         account       (in thousands)    Book value  Percentage Market value Remark
                       (7) Tong-An Assets       Common Stock         Stock 61      An investee accounted for     Note 5                    263    $    15,406 54.83%     $    15,406
                                                                                   under the equity method
                                                                     Stock 62                None                    Note 4                 1         304,010   10.00%       304,010
                       (8) Jack Property        Beneficiary         Fund 6, etc.                                     Note 2             2,828          41,143      -          41,143
                                                Certificates
                                                Common Stock         Stock 63      An investee accounted for         Note 5               480           2,929   19.20%         2,929
                                                                                    under the equity method
                       (9)Teco Electro          Common Stock          Stock 64                                                          2,510         254,933 100.00%        254,933
                                                                      Stock 44     Related party in substance        Note 1               200           2,713 0.18%            2,713
                       (10) ITTS                Common Stock          Stock 65               None                    Note 4                31              47 1.43%               47
                                                                    Stock 66, etc. An investee accounted for         Note 5             7,041          82,787    -            82,787
                                                                                    under the equity method
                       (11) Teco Singapore      Common Stock        Stock 67, etc.                                                      1,333          13,261   1.77%         13,261
                                                                     Stock 19                                                          14,412         192,168   6.06%        192,168
                                                                     Stock 39                None                    Note 4             1,116         155,812    0.97%       155,812
                                                                     Stock 68                                                               -             297       -            297
                       (12) Taian Malaysia      Common Stock         Stock 69                                                               5               -   48.00%             -
                       (13) Teco Whirlpool      Beneficiary           Fund 7                 None                    Note 2             1,768          21,301       -         21,301
                                                Certificates
                       (14)Taiwan Pelican       Common Stock         Stock 70      An investee accounted for         Note 5                  -          8,722 100.00%          8,722
                             Express                                               under the equity method
                                                                     Stock 39                 None                   Note 4             1,360         192,896   1.17%        192,896
                                                                     Stock 71                                        Note 6             2,400          29,952   2.00%         29,952
                       (15) Tecnos              Beneficiary           Fund 8                                         Note 2             1,658          20,006      -          20,006
                                                Certificates
                       (16) Teco Australia      Common Stock            Stock 39                                     Note 4               564          80,097   0.49%         80,097
                      Note 1: Available-for-sale financial assets-non-current.
                      Note 2: Financial assets at fair value through profit or loss-current.
                      Note 3: Available-for-sale financial assets-current.
                      Note 4: Financial assets carried at cost-non-current.
                      Note 5: Long-term equity investment accounted for under the equity method.
                      Note 6: Financial assets carried at cost-current.

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                                      E. Acquisition or disposal of the same security with the accumulated cost exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                                            Beginning balance              Addition                                  Disposal                          Ending balance
                                                            Type and name General          Name and      Number of                  Number of                      Number of                                        Number of
                                            Acquirer/        of marketable ledger relationship with shares (in                      shares (in                      shares (in   Selling      Book         Disposal shares (in
                                               seller          securities      account counterparty      thousands)     Amount thousands) Amount                   thousands)     price       value          gain thousands) Amount
                                         Tong-An                Stock 2        Note 1       Non-open          12,740 $ 52,650          2,100 $ 297,855                       - $         - $       -       $     -     14,840 $ 350,505
                                                                                          market /None
                                                                Stock 8        Note 2     Open market          2,957       206,103       2,323 162,498                 4,130     310,022        260,041     49,981          1,150     108,560




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                              /None                                               (Note4)
                                                                 Fund 1        Note 3                         11,464       114,875     13,978 140,436                 21,096     211,930        211,551        379          4,346       43,760
                                                                                                                                                  (Note5)
                                                                Stock 1        Note 2                         20,626       872,478             - 279,296               4,140     226,225        213,723     12,502         16,486     938,051
                                                                                                                                                 (Note 6)
                                         Taiwan Pelican         Stock 2        Note 1       Non-open                -             -      1,360 192,896                      -            -             -            -       1,360     192,896
                                                                                          market /None
                                         Note 1: Financial assets carried at cost-non-current.
                                         Note 2: Available-for-sale financial assets-non-current.
                                         Note 3: Available-for-sale financial assets-current.
                                         Note 4: Consists of the cost of $158,476, recognized changes in market prices of $4,022.
                                         Note 5: Consists of the cost of $140,480, recognized changes in market prices of ($44).
                                         Note 6: Recognized changes in market prices.
                                      F. Acquisition of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011:
                                                                                                                                    If the counterparty is a related party, information as
                                                                                                                                  to the last transaction of the property is disclosed below:                         Reason for
                                                                                                                               Original owner                                                        Basis or       acquisition of
                                                                                                                  Relationship who sold the        Relationship of Date of the                      reference       properties and
                                             Property      Property    Date of   Transaction Status of              with the   property to the the original owner original                        used in setting    status of the    Other
                                          acquired by      acquired  transaction    amount   payment Counterparty Company       counterparty with the Company transaction Amount                     the price        properties   commitments
                                        Tong-An           Land and    2011.3.25   $ 185,320 Fully paid Tecom     Related party Century                  Note          1999.10.26 $153,498           Real estate     For               None
                                          Assets           building                                                                      Development                                             appraisal report   operating
                                        Note: An investee accounted for under the equity method

                                      G. Disposal of real estate properties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: None.
                                      H.Purchases from or sales to related parties exceeding $100,000 or 20% of the Company’s capital during the year ended December 31, 2011: except the transaction with the
                                        Company (please refer to Note 11(1)G).




                                                                                                                                    87
                                                                                                                                                                                      Notes /Accounts payable
                      Purchases’ or                          Relationship                        Transactioning situation                           Different situation                     (receivables)
                          sales’             Name of           with the                                        Ratio of                                                                             Ratio of Notes
                                                                                                              purchases’                                                                          /Accounts payable
                        company            related party      Company           Situation        Amount         (sales’)      Credit days       Per price     Credit period         Balance          (receivables)
                     Tai-An Wuxi          Taichang Teco      Related party       Sales      ($    180,594)       (7%)              60             Note             Note        $         28,337          11%
                                       Taian Subic                                       ($ 170,202)         (7%)                           Note            Note         $       69,988           26%
                    Note: The sale prices for transactions with A and B have no similar transactions to compare with, and transaction terms are negotiated in consideration of different factors.
                  I. Receivable from related parties exceeding $100,000 or 20% of the Company’s capital at December 31, 2011:
                      Name of         Name of           Relationship with the               Balance of receivable            Turnover               Overdue receivable                Subsequent      Allowance for
                      creditor      related party             Company                        from related parties              rate             Amount           Action adopted       collections    doubtful accounts
                    Wuxi Teco                       Subsidiary of the Company       Accounts receivable      $   599,765        1.85        $    218,148        In the process of    $     203,238 $
                                          Teco                                                                                                                      collection
                    Asia                                                                                         162,671        1.35                                                 $     149,351
                     Innovative
                    Teco                                                                                         112,358        5.42                                                 $     112,358
                     Malaysia
                    Suzhou Teco                                                                                  148,453        4.84               48,081       In the process of    $     118,976
                                                                                                                                                                    collection
                    U.V.G               Teco                                         Other receivables           274,260
                                      Netherlands
                  J. Derivative financial instruments undertaken during the year ended December 31, 2011:
                    a. Objective: The companies entered into certain forward exchange contracts to hedge the risk of foreign currency fluctuation for foreign currency denominated monetary assets
                       and liabilities.
                    b. Market risk: The market risk as a result of currency fluctuation is offset by the gains or losses from the assets or liabilities being hedged.
                    c. Credit risk: All derivative financial instruments were purchased from reputable international financial institutions.      Thus, the risk of default on the contracts by these
                       financial institutions is low.
                    d. Liquidity risk: The notional amount of forward exchange contracts entered were not material.         Thus, there is no significant liquidity risk.
                    e. Cash flow risk due to changes in interest rate: The companies did not enter into any derivative contract that is interest rate related.    Thus, no cash flow risk due to change in
                       interest rate is expected.




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TECO ELECTRIC & MACHINERY CO., LTD.
                                      f. Details are as follows:
                                                                                                                                                    Future projected cash flow
                                                Company                  Contract Type               Notional Amount          Fair value
                                                                                                                                          Net cash provided         Net cash used
                                             Taichang Teco         Forward exchange contract       USD           413,000       ($    644) USD          443 RMB               2,798,000


                                      g. The book value at December 31, 2011:
                                                                                              General ledger account                                     Book value
                                             Taichang Teco                Financial liabilities at fair value through profit or loss-current        ($             644)
                  (3) DISCLOSURE OF INFORMATION ON INVESTMENTS IN MAINLAND CHINA
                    A.Basic information (Note 6):

                                                                                         Investment remitted                                                   Accumulated
                                                                                             or received                                                        investment
                          Name of                                           Accumulated during the period Accumulated Direct and       Investment Balance of      income
                         investee in                                         investment                       investment    indirect  income (loss) investment received at
                          Mainland                                Investment balance at                      balance as of percentage recognized in at Dec. 31, Dec. 31,
                           China       Main activities    Capital   method Jan. 1, 2011 Remitted Received Dec. 31, 2011 of ownership      2011         2011        2011    Remark
                       Teco (Dong    Manufacturing       $ 268,799 Note l   $    188,139 $       - $       -  $    188,139   100%     ($   17,989) $ 140,637 $           - Note 3
                        Guan)         and sales of
                                      air-conditioning
                                      mechanical
                                      equipment
                       Suzhou Teco   Manufacturing         143,255   Note l      143,255           -     -       143,255    100%     (     28,145)    188,471          -   Note 3
                                      and sales of
                                      motors
                       Kuen Ling     Manufacturing of      181,713   Note l       39,525           -     -        39,525    17%             5,711      48,986     3,484    Note 3
                        (Shanghai)    air conditioners
                       Wuxi Teco     Manufacturing         977,616   Note l      768,259           -     -       768,259   82.35%         157,753    1,443,829         -   Note 3
                                      and sales of
                                      motors
                       Taian (Wuxi) Manufacturing          495,213   Note 2      205,551           -     -       205,551    100%           92,883     971,105          -   Note 3
                                      and sales of
                                      optical fiber
                       Tai-An        International           6,324   Note 2        6,324           -     -         6,324    100%                -           -          -   Note 5
                        (Shanghai)    import and
                                      export trading
                       Nanchang Teco Manufacturing         456,293   Note l      456,293           -     -       456,293    100%     (     1,394)      34,717          -   Note 3
                                      and sales of
                                      home appliances
                       Hang Zhou     Manufacturing         129,840   Note l       19,117           -     -        19,117    15%                 -      18,165          -   None
                          Xizi-Iuk    and sales of
                                      parking
                                      equipment
                       Jiangxi Teco  Manufacturing         290,172   Note l      192,256           -     -       192,256   91.67%          46,024     468,086          -   Note 3
                                      and sales of
                                      motors




                                                                                     (Continued)
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                                      A-1.Basic information (Note 6) (continued):

                                                                                                                Investment remitted                                                         Accumulated
                                                                                                                    or received                                                              investment
                                             Name of                                               Accumulated during the period Accumulated Direct and        Investment     Balance of       income
                                            investee in                                             investment                        investment    indirect  income (loss)   investment     received at
                                             Mainland                                    Investment balance at                       balance as of percentage recognized in   at Dec. 31,     Dec. 31,
                                              China       Main activities      Capital     method Jan. 1, 2011 Remitted Received Dec. 31, 2011 of ownership       2011           2011           2011     Remark
                                          QingDao       Manufacturing         $ 1,764,453 Note l    $ 1,505,255 $       - $       - $ 1,505,255      85.31% ($     239,998)   $1,093,212    $          - Note 3




TECO ELECTRIC & MACHINERY CO., LTD.
                                          Teco           and sales of dyes
                                          Xiamen Teco Sales of motors                20,590   Note l     20,590        -        -        20,590     100%      (       914)         23,343            -   Note 3
                                                         and home
                                                         appliances
                                          Kuen Yuan     Manufacturing               149,629   Note l     10,285        -        -        10,285      17%             2,820         28,505            -   Note 3
                                           (Suzhou)      and sales of
                                                         air-conditioning
                                                         mechanical
                                                         equipment
                                          Sichuan Teco Manufacturing                582,600   Note l    121,980        -        -       121,980      25%      (    25,808)       73,869              -   Note 4
                                                         and sales of
                                                         air-conditioning
                                                         mechanical
                                                         compressor
                                          Xiamen        Distribution of             467,577   Note l    467,577        -        -       467,577     100%      (    78,106)      329,019              -   Note 3
                                           An-Tai        LCD
                                          Teco Han Zou Development and                9,837   Note l      9,837        -        -         9,837     100%            1,195        17,388              -   Note 3
                                                         consulting of
                                                         device products
                                          Nanchang      Business                      3,222   Note l      3,222        -        -         3,222     100%      (       838) (       5,598)            -   Note 4
                                           Dong-Huan management
                                                         consulting
                                          Teco Century Manufacturing                680,938   Note l    340,469        -        -       340,469      50%     (      54,149)     219,552              -   Note 3
                                                         and sales of
                                                         compressor
                                          Fujian Teco Manufacturing                 391,843   Note l    391,843        -        -       391,843     100%     (      53,395)     277,691              -   Note 3
                                                         and sales of
                                                         electric
                                                         components

                                                                                                             (Continued)



                                                                                                                  91
                  A-2.Basic information (Note 6) (continued):
                                                                                                Investment remitted                                                           Accumulated
                                                                                                    or received     Accumulated                                                investment
                           Name of                                               Accumulated      during the period investment Direct and        Investment     Balance of       income
                         investee in                                              investment                        balance as of    indirect  income (loss)    investment     received at
                          Mainland                                   Investment balance at Jan.                       Dec. 31,     percentage recognized in     at Dec. 31,     Dec. 31,
                            China      Main activities       Capital   method       1, 2011     Remitted Received       2011      of ownership      2011           2011           2011     Remark
                       Ecolectric   Distribution of air     $ 24,004 Note 2     $            - $        - $       - $          -       35%     ($      2,480)    $    7,360   $          - Note 3
                        Internationalconditions
                                    Central China area
                       Teco (Tianjin)                            15,990   Note 2        15,990          -        -       15,990      100%      (      1,417)        21,350             -   Note 3
                        Innovation  Operation center
                                    Manufacturing
                       Teco (Jang Xi)                            79,813   Note 2        79,913          -        -       79,813      100%      (     32,786)       132,179             -   Note 3
                                     and sales of
                                     air-conditioning
                                     mechanical
                                     equipment
                       Teco Sichuan Sale of home                 26,522   Note 1              -         -        -             -     100%      (      5,172)        20,018             -   Note 3
                        Trading      appliances
                       Jiangxi      Manufacturing and           107,315   Note l        12,638     50,227        -       62,865      45%       (       8,311)       54,002             -   Note 3
                        Teco-Lead    sales of wind
                                     generator
                       Qingdao Teco Science Park                 59,444   Note 2        19,194     40,250        -       59,444      100%      (     21,586)        30,667             -   Note 3
                                     development and
                                     business
                                     operations
                                     consulting services




                                                                                         (Continued)




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                                      A-3.Basic information (Note 6) (continued):
                                                                        Accumulated amount of remittance    Investment amount approved by the      Ceiling on investment in Mainland China
                                                  The company           from Taiwan to Mainland China as Investment Commission of the Ministry imposed by the Investment Commission of the
                                                                            of Dec. 31, 2011 (Note 6)          of Economic Affairs (Note 6)         Ministry of Economic Affairs (Note 7)
                                           Teco (Dong Guan)             $                         188,139 $                              287,275 $                                 23,244,451
                                           Suzhou Teco                                            143,255                                143,255                                   23,244,451
                                           Kuen Ling (Shanghai)                                     39,525                                43,127                                   23,244,451
                                           Wuxi Teco                                              768,259                                793,904                                   23,244,451
                                           Taian (Wuxi)                                           205,551                                495,213                                   23,244,451




TECO ELECTRIC & MACHINERY CO., LTD.
                                           Tai-An (Shanghai)                                         6,324                                  6,951                                  23,244,451
                                           Nanchang Teco                                          456,293                                478,430                                   23,244,451
                                           Hang Zhou                                                19,117                                20,190                                   23,244,451
                                              Xizi-Iuk
                                           Jiangxi Teco                                           192,256                                 325,832                                    23,244,451
                                           QingDao Teco                                         1,505,255                               1,643,047                                    23,244,451
                                           Xiamen Teco                                             20,590                                  20,590                                    23,244,451
                                           Sichuan Teco                                           121,980                                 121,980                                    23,244,451
                                           Xiamen An-Tai                                          467,577                                 467,577                                    23,244,451
                                           Teco Han Zou                                             9,837                                   9,837                                    23,244,451
                                           Nanchang                                                 3,222                                   3,222                                    23,244,451
                                            Dong-Huan
                                           Teco Century                                           340,469                                 340,469                                    23,244,451
                                           Fujian Teco                                            391,843                                 391,843                                    23,244,451
                                           Teco (Tianjin) innovation                               15,990                                  15,990                                    23,244,451
                                           Teco (Jang Xi)                                          79,813                                  79,813                                    23,244,451
                                           Jiangxi Teco-Lead                                       62,865                                  62,865                                    23,244,451
                                           Note 1: Invest in the new company in Mainland China through a holding company registered in a country other than Taiwan and Mainland China.
                                           Note 2: Invest in the current company in Mainland China through a holding company registered in a country other than Taiwan and Mainland China.
                                           Note 3: The amount recognized was based on the audited financial statements.
                                           Note 4: The amount recognized was based on the unaudited financial statements as total assets, operating revenues or net income of the investee was not
                                                   significant.
                                           Note 5: The amount did not include Kuen Yuan (Suzhou), Sichuan Teco and Ecolectric International, which were indirectly invested.
                                           Note 6: The accounts of the Company are maintained in New Taiwan dollars. Transactions denominated in foreign currencies are translated into New Taiwan
                                                   dollars at the spot exchange rates prevailing at the transaction dates.
                                           Note 7: The amount disclosed was based on Investment Commission, MOEA Regulation No. 09704604680 announced on August 29, 2008.




                                                                                                                   93
                  B. Significant transactions with the investee company in Mainland China (Note):
                     Accounts receivable and accounts payable arising due to significant transactions with the investee company are listed below. For the detailed information, please
                     see Note 5.
                                   Name of investee in Mainland China                          Sales             Purchases       Accounts payable        Accounts receivable
                     Teco (Dong Guan)                                                     $                -   $          4,090    $                -   $                    -
                      Suzhou Teco                                                                    11,294            518,721                148.453                     983
                     Wuxi Teco                                                                      113,605            966,051                599.765                  37,206
                     Taian (Wuxi)                                                                    19,683            352,142                 44.851                   9,138
                     Jiangxi Teco                                                                          -             13,452                20.761                   7,938
                     Xiamen An-Tai                                                                  166,500             113,666               162.671                 490,483
                     QingDao Teco                                                                     2,276              81,837                12.405                  12,686
                     Teco (Jang Xi)                                                                     105              33,964                 3.467                       -
                     Fujian Teco                                                                        308               6,922                 3.677                     140

                    Note: The terms, including prices and collection, are negotiated in consideration of cost, market, competitors, etc.
                  C. Guarantee information provided to investee company in Mainland China: None.




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                                      (4) Significant intercompany transactions
                                         A. For the year ended December 31, 2011:
                                                                                                                                                                    Transactions
                                                                                                                                                                                                Percentage of
                                                                                                                                                                                              consolidated total
                                                                                                                                                                                              operating revenues
                                               Number                                                              Relationship        General ledger                         Transaction       or total assets
                                              (Note 1)      Company name                  Counterparty              (Note 2)               account        Amount                 terms              (Note 3)
                                                 0           The Company                Tong Tai Jung                    a           Notes and accounts $  183,685              Note 4                 -




TECO ELECTRIC & MACHINERY CO., LTD.
                                                                                                                                        receivables
                                                 0                                        Tong Dai                                                         228,470                                      -
                                                 0                                     Teco Singapore                                Accounts and other    225,637                                      -
                                                                                                                                        receivables
                                                 0                                Teco Westinghouse Canada                                                 228,193                                      -
                                                 0                                   Teco Westinghouse                               Accounts receivable   816,431                                     1%
                                                 0                                      Teco Australia                               Accounts and other    365,295                                      -
                                                                                                                                        receivables
                                                 0                                    Teco Netherlands                                                     197,966                                      -
                                                 0                                        Sankyo                                                           283,221                                      -
                                                 0                                     Qingdao TECO                                                        120,721                                      -
                                                 0                                         An-Tai                                           .              496,228                                      -
                                                 1             Wuxi Teco               The Company                      b            Accounts receivable   599,765                                      -
                                            Note 1: The numbers filled for intercompany transactions are as follows:
                                                   (a) The parent company is numbered “0”.
                                                   (b) The subsidiaries are numbered starting from “1”.
                                            Note 2: Relationship with the transaction company:
                                                   (a) The parent company to the subsidiary.
                                                   (b) The subsidiary to the parent company.
                                                   (c) The subsidiary to the subsidiary.
                                            Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                                                    total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                                            Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.

                                                                                                                   (Continued)

                                                                                                                        95
                  A-1. For the year ended December 31, 2011 (continued):
                                                                                                                                               Transactions
                                                                                                                                                                           Percentage of
                                                                                                                                                                         consolidated total
                                                                                                                                                                         operating revenues
                         Number                                                              Relationship         General ledger                         Transaction       or total assets
                        (Note 1)      Company name                 Counterparty               (Note 2)              account               Amount            terms              (Note 3)
                           2          Xiamen An-Tai               The Company                      b            Accounts receivable $       162,671        Note 4                 -
                           3           Suzhou Teco                                                                                          148,453                               -
                           4          Teco Malaysia                                                                                         112,358                               -
                           5              U.V.G                 Teco Netherlands                   c             Other receivables          274,260                               -
                           0           The Company               Teco Singapore                    a                   Sales              1,244,914                              3%
                           0                                        Tong Dai                                                                935,641                              2%
                           0                                      Tong Tai Jung                                                             688,332                              1%
                           0                                          Yatec                                                                 179,550                               -
                           0                                          E-Joy                                                                 135,383                               -
                           0                                       Teco Europe                                                              191,313                               -
                           0                                   Teco Westinghouse                                                          2,697,480                              5%
                           0                                      Teco Australia                                                          1,820,875                              4%
                           0                                   Teco Westinghouse                                                            148,110                               -
                                                                     Mexico
                            0                               Teco Westinghouse Canada               a                   Sales              1,168,846                              2%
                      Note 1: The numbers filled for intercompany transactions are as follows:
                             (a) The parent company is numbered “0”.
                             (b) The subsidiaries are numbered starting from “1”.
                      Note 2: Relationship with the transaction company:
                             (a) The parent company to the subsidiary.
                             (b) The subsidiary to the parent company.
                             (c) The subsidiary to the subsidiary.
                      Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                              total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                      Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.
                                                                                             (Continued)


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                                      A-2. For the year ended December 31, 2011 (continued):
                                                                                                                                                                     Transactions
                                                                                                                                                                                               Percentage of
                                                                                                                                                                                             consolidated total
                                                                                                                                                                                            operating revenues
                                             Number                                                              Relationship         General ledger                        Transaction        or total assets
                                            (Note 1)      Company name                Counterparty                (Note 2)              account             Amount             terms               (Note 3)
                                               0           The Company              Teco Netherlands                   a                  Sales           $   481,813         Note 4                  -
                                               0                                        Sankyo                                                                425,104                                 -




TECO ELECTRIC & MACHINERY CO., LTD.
                                               0                                       Wuxi Teco                                                              113,605                                 -
                                               0                                     Taian-Etacom                                                             134,744                                 -
                                               0                                     Xiamen An-Tai                                                            166,500                                 -
                                               6              An Yang                The Company                      b                Construction           144,638                                 -
                                                                                                                                         revenue
                                               7               Tesen                                                                      Sales               2,481,985                             5%
                                               8           Taian (Subic)                                                                                        209,023                              -
                                               9             GD Teco                                                                                            139,574                              -
                                               2          Xiamen An-Tai                                                                                         113,666                              -
                                               4          Teco Malaysia                                                                                         565,769                             1%
                                               1            Wuxi Teco                                                                                           966,051                             2%
                                               3           Suzhou Teco                                                                                          518,721                             1%
                                               10          Taian (Wuxi)                                                                                         352,142                              -
                                               10                                    Taichang TECO                    c                                         180,594                              -
                                               10                                     Taian (Subic)                                                              17,202                              -
                                          Note 1: The numbers filled for intercompany transactions are as follows:
                                                 (a) The parent company is numbered “0”.
                                                 (b) The subsidiaries are numbered starting from “1”.
                                          Note 2: Relationship with the transaction company:
                                                 (a) The parent company to the subsidiary.
                                                 (b) The subsidiary to the parent company.
                                                 (c) The subsidiary to the subsidiary.
                                          Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                                                  total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                                          Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.

                                                                                                                      97
                  B. For the year ended December 31, 2010:
                                                                                                                                             Transactions
                                                                                                                                                                         Percentage of
                                                                                                                                                                       consolidated total
                                                                                                                                                                       operating revenues
                       Number                                                              Relationship         General ledger                         Transaction       or total assets
                      (Note 1)      Company name                  Counterparty              (Note 2)                 account       Amount                 terms              (Note 3)
                         0           The Company                  Tong Dai                       a            Notes and accounts $  306,829              Note 4                 -
                                                                                                                  receivables
                         0                                      Tong Tai Jung                                 Notes, accounts and   217,266                                     -
                                                                                                               other receivables
                         0                                Teco Westinghouse Canada                            Accounts receivable   263,776                                     -
                         0                                   Teco Westinghouse                                Accounts and other    514,145                                    1%
                                                                                                                  receivables
                         0                                      Teco Singapore                                                      192,334                                     -
                         0                                         Sankyo                                                           115,721                                     -
                         0                                      Teco Australia                                                      324,571                                     -
                         0                                     Teco Netherlands                                                     159,750                                     -
                         0                                      Xiamen An-Tai                                                       199,326                                     -
                         1            Wuxi Teco                 The Company                      b                                  446,260                                    1%
                         2          Tong-An Assets                                                            Accounts receivable   117,790                                     -
                    Note 1: The numbers filled for intercompany transactions are as follows:
                           (a) The parent company is numbered “0”.
                           (b) The subsidiaries are numbered starting from “1”.
                    Note 2: Relationship with the transaction company:
                           (a) The parent company to the subsidiary.
                           (b) The subsidiary to the parent company.
                           (c) The subsidiary to the subsidiary.
                    Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                            total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                    Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.




                                                                                           (Continued)
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                                      B-1. For the year ended December 31, 2010 (continued):
                                                                                                                                                                  Transactions
                                                                                                                                                                                              Percentage of
                                                                                                                                                                                            consolidated total
                                                                                                                                                                                            operating revenues
                                             Number                                                              Relationship         General ledger                        Transaction       or total assets
                                            (Note 1)      Company name                Counterparty                (Note 2)              account             Amount             terms              (Note 3)
                                               0           The Company            Teco Westinghouse                    a                  Sales           $ 2,296,505         Note 4                5%




TECO ELECTRIC & MACHINERY CO., LTD.
                                               0                                     Teco Australia                                                         1,320,156                               3%
                                               0                                    Teco Singapore                                                          1,190,141                               3%
                                               0                               Teco Westinghouse Canada                                                       970,344                               2%
                                               0                                       Tong Dai                                                               846,977                               2%
                                               0                                   Teco Netherlands                                                           569,771                               1%
                                               0                                     Tong Tai Jung                                                            649,451                               1%
                                               0                                      Wuxi Teco                                                               158,395                                -
                                               0                                        Sankyo                                                                164,306                                -
                                               3              An Yang                The Company                      b                Construction           574,248                               1%
                                                                                                                                         revenue
                                               4             Tesen                                                                        Sales               2,731,533                             6%
                                               1            Wuxi Teco                                                                                           840,829                             2%
                                          Note 1: The numbers filled for intercompany transactions are as follows:
                                                 (a) The parent company is numbered “0”.
                                                 (b) The subsidiaries are numbered starting from “1”.
                                          Note 2: Relationship with the transaction company:
                                                 (a) The parent company to the subsidiary.
                                                 (b) The subsidiary to the parent company.
                                                 (c) The subsidiary to the subsidiary.
                                          Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                                                  total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                                          Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.



                                                                                                                 (Continued)


                                                                                                                      99
                  B-2. For the year ended December 31, 2010 (continued):
                                                                                                                                                 Transactions
                                                                                                                                                                           Percentage of
                                                                                                                                                                         consolidated total
                                                                                                                                                                        operating revenues
                         Number                                                              Relationship         General ledger                        Transaction        or total assets
                        (Note 1)      Company name                Counterparty                (Note 2)              account              Amount            terms               (Note 3)
                           5          Teco Malaysia               The Company                      b                  Sales            $   538,761        Note 4                 1%
                           6           QingDao Teco                                                                                        261,875                               1%
                           7             GD Teco                                                                                           124,004                                -
                           8           Taian (Subic)                                                                                       154,845                                -
                           9           Suzhou Teco                                                                                         340,815                               1%
                          10           Taian (Wuxi)                                                                                        323,299                               1%
                      Note 1: The numbers filled for intercompany transactions are as follows:
                             (a) The parent company is numbered “0”.
                             (b) The subsidiaries are numbered starting from “1”.
                      Note 2: Relationship with the transaction company:
                             (a) The parent company to the subsidiary.
                             (b) The subsidiary to the parent company.
                             (c) The subsidiary to the subsidiary.
                      Note 3: Regarding the ratio of transaction amount to consolidated total operating revenues or total assets, it is computed based on the ending balance to consolidated
                              total assets for balance sheet accounts and based on accumulated amount to consolidated total operating revenues for income statement accounts.
                      Note 4: The terms, including prices and collection, were negotiated in consideration of cost, market, competitors, etc.




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            12.       SEGMENT FINANCIAL INFORMATION
                      A. General information
                         The Company operates and makes decisions on the basis of products and service line, which
                         the Company uses to identify reportable segments.
                         The Company’s reportable segments include motor division and the home appliance division.
                         The motor division primarily engages in the manufacturing and sales of motors and
                         generators. The home appliance division primarily engages in the manufacturing,
                         installation, sales and service of home appliances.

                      B. Segment performance
                         The Company uses the operating income as the basis for segment performance assessment.
                         The operating income excludes non-recurring expenditures, unrealized gain or loss on
                         financial instruments, interest income and interest expenses.




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