Yageo Corporation and Subsidiaries. Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014 and Independent Auditors Report

Transcription

1 Yageo Corporation and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014 and Independent Auditors Report

2 INDEPENDENT AUDITORS REPORT The Board of Directors and Shareholders Yageo Corporation We have audited the accompanying consolidated balance sheets of Yageo Corporation (the Company ) and subsidiaries (collectively referred to as the Group ) as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. However, we did not audit the financial statements of a consolidated subsidiary, Yageo Europe Holding B.V. ( Yageo Europe ), as of and for the years ended December 31, 2015 and The total assets of this consolidated subsidiary were 12.18% (NT$5,793,603 thousand) and 12.20% (NT$6,283,413 thousand) of the consolidated total assets as of December 31, 2015 and 2014, respectively, and the total revenues of this consolidated subsidiary were 11.82% (NT$3,251,755 thousand) and 13.22% (NT$3,573,426 thousand) of the consolidated total revenues in 2015 and 2014, respectively. As disclosed in Note 13, we also did not audit the financial statements of some investees accounted for using the equity method. The total investments in these investees accounted for using equity method were 2.39% (NT$1,138,000 thousand) and 2.07% (NT$1,065,260 thousand) of the consolidated total assets as of December 31, 2015 and 2014, respectively, and the total share of the profit of associates was 2.48% (NT$113,328 thousand) and 1.59% (NT$77,049 thousand) of the consolidated profit before income tax in 2015 and 2014, respectively. The financial statements of the consolidated subsidiary and investees accounted for using equity method were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the investees amounts included herein, is based solely on the reports of the other auditors. We conducted our audits in accordance with the Regulations Governing the Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated 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 consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Yageo Corporation and its subsidiaries as of December 31, 2015 and 2014, and their consolidated financial performance and their consolidated cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China

3 We have also audited the financial statements of the parent company, Yageo Corporation, as of and for the years ended December 31, 2015 and 2014 on which we have issued a modified unqualified report. March 11, 2016 Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the auditors report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language auditors report and consolidated financial statements shall prevail

4 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) (Audit After Restated) ASSETS Amount % Amount % CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) $ 6,754, $ 6,412, Financial assets at fair value through profit or loss - current (Notes 4 and 7) 26,390-54,609 - Debt investments with no active market - current (Notes 4 and 9) 3,300, ,856, Notes receivable (Notes 4 and 10) 396, ,131 1 Accounts receivable (Notes 4 and 10) 8,356, ,704, Accounts receivable from related parties (Notes 4 and 29) 2,754-3,342 - Other receivables 216, ,189 - Other receivables from related parties (Note 29) 133, ,001 - Inventories (Notes 4 and 11) 5,297, ,505, Prepayment (Note 16) 222, ,043 1 Other current assets 76, ,906 - Total current assets 24,783, ,959, NONCURRENT ASSETS Available-for-sale financial assets - noncurrent (Notes 4 and 8) 2,378, ,650,276 5 Debt investments with no active market - noncurrent, net of current portion (Notes 4 and 9) 50,000-50,000 - Investments accounted for using the equity method (Notes 4 and 13) 2,632, ,909,342 6 Property, plant and equipment (Notes 4, 14 and 30) 14,212, ,926, Computer software (Note 4) 81,984-56,930 - Goodwill (Notes 4 and 15) 2,315, ,446,087 5 Deferred tax assets (Notes 4 and 23) 770, ,069,039 2 Refundable deposits 87,184-79,382 - Long-term prepayments for lease, net of current portion (Note 16) 86,525-89,578 - Other noncurrent assets 150, ,319 1 Total noncurrent assets 22,764, ,546, TOTAL $ 47,547, $ 51,505, LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Note 17) $ 10,058, $ 8,764, Short-term bills payable (Note 17) 499, ,877 1 Financial liabilities at fair value through profit or loss - current (Notes 4 and 7) 2,018-15,150 - Notes payable 9,100-11,769 - Accounts payable 4,079, ,279,691 8 Accounts payable to related parties (Note 29) 673, ,857 1 Other payables to related parties (Note 29) Other payables (Note 19) 2,943, ,987,361 6 Current tax liabilities (Notes 4 and 23) 750, ,106,518 2 Other current liabilities 161, ,566 1 Total current liabilities 19,179, ,773, NONCURRENT LIABILITIES Long-term borrowings (Notes 17 and 30) 2,500, ,400, Deferred tax liabilities (Notes 4 and 23) 239, ,931 1 Accrued pension liabilities (Notes 4 and 20) 290, ,662 1 Guarantee deposits received 39,255-34,020 - Total noncurrent liabilities 3,069, ,013, Total liabilities 22,249, ,786, EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY Share capital Common shares 6,515, ,678, Capital surplus Issuance of common shares 466, ,142,129 2 Conversion of bonds ,574 2 From share of changes in capital surplus of associates 63,603-26,275 - From employee share options 24,326-98,884 - Total capital surplus 554, ,022,862 4 Retained earnings Legal reserve 1,792, ,406,122 3 Special reserve 437, ,595 1 Unappropriated earnings 15,495, ,063, Total retained earnings 17,725, ,906, Other equity Exchange differences on translation of foreign operations 1,044, ,175,751 2 Unrealized loss on available-for-sale financial assets (437,084) (1) (191,024) - Total other equity 607, ,727 2 Treasury shares (215,300) Total equity attributable to owners of the Company 25,187, ,593, NONCONTROLLING INTERESTS 110, ,741 - Total equity 25,298, ,719, TOTAL $ 47,547, $ 51,505, The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 11, 2016) - 3 -

5 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % OPERATING REVENUE (Notes 4 and 29) Net sales $ 27,512, $ 27,026, OPERATING COSTS (Notes 4, 11, 22 and 29) Cost of goods sold 20,973, ,979, GROSS PROFIT 6,538, ,047, OPERATING EXPENSES (Notes 4 and 22) Selling and marketing 1,439, ,485,346 6 General and administrative 1,187, ,178,600 4 Research and development 366, ,957 1 Total operating expenses 2,993, ,016, PROFIT FROM OPERATIONS 3,545, ,030, NONOPERATING INCOME Finance costs (Notes 4 and 22) (216,384) (1) (203,590) (1) Share of profit of associates (Note 4) 217, ,985 1 Interest income (Note 4) 441, ,377 2 Rental income (Notes 4 and 29) 20,484-21,745 - Gain on financial instruments at fair value through profit or loss (Note 4) 946, ,943 1 Impairment loss on property, plant and equipment (Notes 4, 14 and 22) (69,498) Other gains (Note 22) 197, ,809 1 Loss on financial instruments at fair value through profit or loss (Note 4) (520,218) (2) (170,637) (1) Total nonoperating income 1,017, ,632 3 PROFIT BEFORE INCOME TAX 4,563, ,834, INCOME TAX EXPENSE (Notes 4 and 23) 891, ,142 4 NET PROFIT FOR THE YEAR 3,672, ,895, (Continued) - 4 -

6 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (Notes 4 and 20) $ $ (7,755) - Share of the other comprehensive income of associates and joint ventures accounted for using the equity method (Note 4) (2,090) - (244) - Income tax relating to items that will not be reclassified subsequently to profit or loss (Notes 4 and 23) (972) - 1,318 - Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Notes 4 and 21) (153,408) - 705,556 3 Unrealized gain (loss) on available-for-sale financial assets (Notes 4 and 21) (267,906) (1) 53,359 - Share of the other comprehensive income of associates accounted for using the equity method (Notes 4 and 21) 15,885-98,508 - Income tax relating to items that may be reclassified subsequently to profit or loss (Notes 4 and 23) 26,943 - (136,502) - Other comprehensive income for the year, net of income tax (381,298) (1) 714,240 3 TOTAL COMPREHENSIVE INCOME FOR THE YEAR $ 3,290, $ 4,609, NET PROFIT ATTRIBUTABLE TO: Owners of the Company $ 3,630, $ 3,865, Noncontrolling interests 41,798-29,517 - $ 3,672, $ 3,895, TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Company $ 3,249, $ 4,577, Noncontrolling interests 40,920-31,516 - $ 3,290, $ 4,609, (Continued) - 5 -

7 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share) Amount % Amount % EARNINGS PER SHARE (NEW TAIWAN DOLLARS; Note 24) Basic $ 5.48 $ 2.30 Diluted $ 5.45 $ 2.30 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 11, 2016) (Concluded) - 6 -

8 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) Equity Attributable to Owners of the Company Other Equity Exchange Unrealized Retained Earnings Differences on Gain (Loss) on Unappropriated Translating Available-for- Capital Surplus Earnings Foreign sale Financial Noncontrolling Share Capital (Notes 4, 21 Legal Reserve Special Reserve (Notes 4, 20 Operations Assets Treasury Stock Interests (Note 21) and 25) (Note 21) (Note 21) and 21) Total (Notes 4 and 21) (Notes 4 and 21) (Note 21) Total (Notes 4 and 21) Total Equity BALANCE, JANUARY 1, 2014 $ 15,437,159 $ 1,344,278 $ 1,261,160 $ 1,181,865 $ 9,889,602 $ 12,332,627 $ 509,298 $ (243,493 ) $ (172,215 ) $ 29,207,654 $ 117,553 $ 29,325,207 Effect of retrospective application of IAS 19 "Employee Benefits" and retrospective restatement (22,777 ) (22,777 ) (22,777 ) - (22,777 ) BALANCE AT JANUARY 1, 2014 AS RESTATED 15,437,159 1,344,278 1,261,160 1,181,865 9,866,825 12,309, ,298 (243,493 ) (172,215 ) 29,184, ,553 29,302,430 Capital reduction (15,395,087 ) (15,395,087 ) - (15,395,087 ) Cash dividends distributed by subsidiaries (23,328 ) (23,328 ) Appropriation of the 2013 earnings Legal reserve ,962 - (144,962) Special reserve (744,270) 744, Cash dividends distributed by the Company (223,879) (223,879) (223,879) - (223,879) Changes in capital surplus from investments in associates - 5, ,777-5,777 Recognition of compensation cost of employee share options - 10, ,312-10,312 Recognition of employee share options granted by the Company 293, , , ,664 Convertible bonds converted to common shares 6,917, , ,644,409-7,644,409 Net profit for the year ended December 31, ,865,532 3,865, ,865,532 29,517 3,895,049 Other comprehensive income for the year ended December 31, 2014, net of income tax (6,681 ) (6,681 ) 666,453 52, ,241 1, ,240 Buyback of treasury shares (607,444 ) (607,444 ) - (607,444 ) Cancellation of treasury shares (574,950 ) (166,781 ) - - (37,928 ) (37,928 ) , BALANCE, DECEMBER 31, ,678,919 2,022,862 1,406, ,595 14,063,177 15,906,894 1,175,751 (191,024 ) - 25,593, ,741 25,719,143 Cash dividends distributed by subsidiaries (44,167 ) (44,167 ) Cash distributed to non-controlling interests due to capital reduction by subsidiaries (11,708 ) (11,708 ) Appropriation of the 2014 earnings Legal reserve ,305 - (386,305) Cash dividends distributed by the Company (893,984) (893,984) (893,984) - (893,984) Changes in capital surplus from investments in associates accounted for by using equity method - 37, ,328-37,328 Issue of share dividends from capital surplus - (1,814,015 ) (1,814,015 ) - (1,814,015 ) Recognition of compensation cost of employee share options - 11, ,178-11,178 Recognition of employee share options granted by the Company 91, , , ,206 Net profit for the year ended December 31, ,630,267 3,630, ,630,267 41,798 3,672,065 Other comprehensive loss for the year ended December 31, 2015, net of income tax (2,812 ) (2,812 ) (131,548 ) (246,060 ) - (380,420 ) (878 ) (381,298 ) Buyback of treasury shares (1,402,222 ) (1,402,222 ) - (1,402,222 ) Cancellation of treasury shares (254,050 ) (18,183 ) - - (914,689 ) (914,689 ) - - 1,186, BALANCE, DECEMBER 31, 2015 $ 6,515,947 $ 554,298 $ 1,792,427 $ 437,595 $ 15,495,654 $ 17,725,676 $ 1,044,203 $ (437,084 ) $ (215,300 ) $ 25,187,740 $ 110,786 $ 25,298,526 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 11, 2016) - 7 -

9 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 4,563,375 $ 4,834,191 Adjustments for: Impairment loss on trade receivables 6,215 18,461 Depreciation expenses 1,982,007 1,907,722 Amortization expenses 36,051 49,634 Amortization of prepayments for lease 2,695 2,616 Amortization of prepayments 117, ,627 Compensation cost of employee share options 11,178 10,312 Net gain on fair value change of financial assets and liabilities held for trading (426,038) (86,306) Finance costs 216, ,590 Interest income (441,599) (556,377) Dividend income (74,090) (54,641) Exchange loss on bonds payable, net - 17,939 Share of profit of subsidiaries and associates (217,219) (181,985) (Gain) loss on disposal of property, plant and equipment, net 939 (3,848) Impairment loss on property, plant and equipment 69,498 - Loss on disposal of available-for-sale financial assets 92 - Write-down of inventories - 29,959 Reversal of write-down of inventories (29,294) - Net loss on unrealized foreign currency exchange 31,129 8,101 Changes in operating assets and liabilities: Financial assets held for trading 441,125 52,219 Notes receivable 155,700 41,226 Accounts receivable (652,556) (1,698,112) Accounts receivable from related parties Other receivables 1,338 (22,127) Other receivables from related parties (18,994) (28,921) Inventories 237,497 (864,209) Prepayments 35,467 (91,214) Other current assets 124,773 (96,508) Notes payable (2,669) 8,311 Accounts payable (238,641) 157,527 Accounts payable to related parties 226, ,092 Other payables 207, ,498 Other payables to related parties Other current liabilities (498,908) 390,063 Accrued pension liabilities (7,799) 27,185 Cash generated from operations 5,860,614 4,925,109 Interest received 436, ,486 Dividend received 74,090 54,641 Interest paid (219,463) (185,154) Income tax paid (956,004) (373,016) Net cash generated from operating activities 5,195,991 5,069,066 (Continued)

10 YAGEO CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds on sale of available-for-sale financial assets $ 11,917 $ - Proceeds on capital reduction of available-for-sale financial assets 7,199 7,999 Proceeds on sale of debt investments with no active market 2,556,385 1,559,579 Acquisition of associates - (6,587) Dividends received from associates 138,746 47,939 Proceeds on capital reduction of associates 408, ,107 Payments for property, plant and equipment (1,666,314) (1,404,406) Proceeds from disposal of property, plant and equipment 7,606 5,029 Payments for intangible assets (3,817) (49,408) Increase in other noncurrent assets (15,700) (32,547) Increase in refundable deposits (7,802) (8,615) Net cash generated from investing activities 1,436, ,090 CASH FLOWS FROM FINANCING ACTIVITIES Proceeds of short-term borrowings 1,294,001 3,178,006 Repayments of short-term bills payable - (200,000) Proceeds of long-term bank loans 2,500,000 6,400,000 Repayments of long-term bank loans (6,400,000) (7,400,000) Proceeds of guarantee deposits received 5,235 - Refund of guarantee deposits received - (1,791) Dividends paid to the owners of the Company (2,707,999) (223,879) Capital reduction - (15,395,087) Proceeds from employee share options 406, ,664 Payments for buyback of treasury shares (1,402,222) (607,444) Dividends paid to noncontrolling interests (55,875) (23,328) Net cash used in financing activities (6,360,654) (13,876,859) EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES 69, ,573 NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 341,333 (7,937,130) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 6,412,680 14,349,810 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 6,754,013 $ 6,412,680 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 11, 2016) (Concluded) - 9 -

11 YAGEO CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars Unless Stated Otherwise) 1. GENERAL INFORMATION Yageo Corporation (the Company ) was incorporated in 1987 in the Republic of China (ROC). The Company s shares are traded on the Taiwan Stock Exchange. The Company manufactures and sells passive components. The consolidated financial statements are presented in the Company s functional currency, the New Taiwan dollar. 2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the Company s board of directors on March 11, APPLICATION OF NEW AND REVISED STANDARDS, AMENDMENTS AND INTERPRETATIONS a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC Rule No and Rule No issued by the FSC on April 3, 2014, stipulated that the Group (i.e., the Company and its subsidiaries) should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the IFRSs ) endorsed by the FSC and the related amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers starting January 1, Except for the following, whenever applied, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSs version would not have any material impact on the Group s accounting policies: 1) IFRS 10 Consolidated Financial Statements IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. The Group considers whether it has control over other entities for consolidation. The Group has control over an investee if and only if it has i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee and iii) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. 2) IFRS 12 Disclosure of Interests in Other Entities IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries. In general, the disclosure requirements in IFRS 12 are more extensive, please refer to Note 12 for related disclosures

12 3) IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive, for example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope. The fair value measurements under IFRS 13 will be applied prospectively from January 1, Refer to Note 28 for related disclosures. 4) Amendments to IAS 1 Presentation of Items of Other Comprehensive Income The amendments to IAS 1 requires items of other comprehensive income to be grouped into those items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified subsequently to profit or loss. Income taxes on related items of other comprehensive income are grouped on the same basis. Under current IAS 1, there were no such requirements. The Group retrospectively applied the above amendments starting in Items not expected to be reclassified to profit or loss are remeasurements of the defined benefit plans and the share of remeasurement of the defined benefit plans of associates accounted for using the equity method. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, unrealized gains (loss) on available-for-sale financial assets and share of the other comprehensive income (except the share of the remeasurements of the defined benefit plans) of associates accounted for using the equity method. However, the application of the above amendments will not result in any impact on the net profit for the year, other comprehensive income for the year (net of income tax), and total comprehensive income for the year. 5) Revision to IAS 19 Employee Benefits Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminates the corridor approach permitted under current IAS 19 and accelerate the recognition of past service costs. The revision requires all remeasurements of the defined benefit plans to be recognized immediately through other comprehensive income in order for the net pension asset or liability to reflect the full value of the plan deficit or surplus. Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced with a net interest amount, which is calculated by applying the discount rate to the net defined benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in the presentation of the defined benefit cost, and also includes more extensive disclosures. In addition, revised IAS 19 changes the definition of short-term employee benefits. The revised definition is employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service. The Group s unused annual leave, which can be carried forward within 24 months after the end of the annual period in which the employee renders service and which is currently classified as short-term employee benefits, will be classified as other long-term employee benefits under revised IAS 19. Related defined benefit obligation of such other long-term benefit is calculated using the Projected Unit Credit Method. However, this change does not affect unused annual leave to be presented as a current liability in the consolidated balance sheet

13 On initial application of the revised IAS 19, the changes in cumulative employee benefit costs as of December 31, 2013 resulting from the retrospective application are adjusted to net defined benefit liabilities, investments accounted for using the equity method, deferred tax assets and retained earnings. In addition, in preparing the consolidated financial statements for the year ended December 31, 2015, the Group elects not to present 2014 comparative information about the sensitivity of the defined benefit obligation. The impact in the current year is set out below: Impact on Assets, Liabilities Equity and Total Comprehensive Income As Originally Stated Adjustments Arising from Initial Application Restated December 31, 2014 Investments accounted for using the equity method $ 2,909,348 $ (6) $ 2,909,342 Deferred tax assets $ 1,060,703 $ 8,336 $ 1,069,039 Net defined benefit liabilities $ 281,041 $ 28,621 $ 309,662 Retained earnings $ 14,083,468 $ (20,291) $ 14,063,177 For the year ended December 31, 2014 General and administrative expenses $ 1,182,107 $ (3,507) $ 1,178,600 Income tax expense $ 938,121 $ 1,021 $ 939,142 Net profit for the year $ 3,892,563 $ 2,486 $ 3,895,049 January 1, 2014 Investments accounted for using the equity method $ 2,775,861 $ (6) $ 2,775,855 Deferred tax assets $ 1,195,591 $ 9,357 $ 1,204,948 Net defined benefit liabilities $ 251,678 $ 32,128 $ 283,806 Retained earnings $ 9,889,602 $ (22,777) $ 9,866,825 b. New IFRSs in issue but not yet endorsed by the FSC On March 10, 2016, the FSC announced the scope of the 2016 version of IFRSs to be endorsed and will take effect from January 1, The scope includes all IFRSs that were issued by the IASB before January 1, 2016 and have effective dates on or before January 1, 2017, which means the scope excludes those that are not yet effective as of January 1, 2017 such as IFRS 9 Financial Instruments and IFRS 15 Revenue from Contracts with Customers and those with undetermined effective date. In addition, the FSC announced that the Group should apply IFRS 15 starting January 1, As of the date the consolidated financial statements were authorized for issue, the FSC has not announced the effective dates of other new, amended and revised standards and interpretations

14 The Group has not applied the following New IFRSs issued by the IASB but not yet endorsed by the FSC. New IFRSs Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs Cycle July 1, 2014 Annual Improvements to IFRSs Cycle January 1, 2016 (Note 3) IFRS 9 Financial Instruments January 1, 2018 Amendments to IFRS 9 and IFRS 7 Mandatory Effective Date of January 1, 2018 IFRS 9 and Transition Disclosures Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: January 1, 2016 Applying the Consolidation Exception Amendment to IFRS 11 Accounting for Acquisitions of Interests in January 1, 2016 Joint Operations IFRS 15 Revenue from Contracts with Customers January 1, 2018 IFRS 16 Leases January 1, 2019 Amendment to IAS 1 Disclosure Initiative January 1, 2016 Amendment to IAS 7 Disclosure Initiative January 1, 2017 Amendments to IAS 12 Recognition of Deferred Tax Assets for January 1, 2017 Unrealized Losses Amendments to IAS 16 and IAS 38 Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants January 1, 2016 Amendment to IAS 19 Defined Benefit Plans: Employee July 1, 2014 Contributions Amendment to IAS 36 Impairment of Assets: Recoverable Amount January 1, 2014 Disclosures for Non-financial Assets Amendment to IAS 39 Novation of Derivatives and Continuation of January 1, 2014 Hedge Accounting IFRIC 21 Levies January 1, 2014 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1,

15 The initial application of the above New IFRSs, whenever applied, would not have any material impact on the Group s accounting policies, except for the following: 1) IFRS 9 Financial Instruments Recognition and measurement of financial assets With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Group s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows: a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method; b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss. Except for above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss. The impairment of financial assets IFRS 9 requires that impairment loss on financial assets is recognized by using the Expected Credit Losses Model. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 Revenue from Contracts with Customers, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction. For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss

16 2) Amendment to IAS 36 Recoverable Amount Disclosures for Non-financial Assets In issuing IFRS 13 Fair Value Measurement, the IASB made consequential amendment to the disclosure requirements in IAS 36 Impairment of Assets, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that such disclosure of recoverable amounts is required only when an impairment loss has been recognized or reversed during the period. Furthermore, the Group is required to disclose the discount rate used in measurements of the recoverable amount based on fair value less costs of disposal measured using a present value technique. 3) IFRIC 21 Levies IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government. It addresses the accounting for a liability whose timing and amount is certain and the accounting for a provision whose timing or amount is not certain. The Group accrues related liability when the transaction or activity that triggers the payment of the levy occurs. Therefore, if the obligating event occurs over a period of time (such as generation of revenue over a period of time), the liability is recognized progressively. If an obligation to pay a levy is triggered upon reaching a minimum threshold (such as a minimum amount of revenue or sales generated), the liability is recognized when that minimum threshold is reached. 4) Annual Improvements to IFRSs: Cycle Several standards including IFRS 2 Share-based Payment, IFRS 3 Business Combinations and IFRS 8 Operating Segments were amended in this annual improvement. The amended IFRS 2 changes the definitions of vesting condition and market condition and adds definitions for performance condition and service condition. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group. The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have similar economic characteristics. The amendment also clarifies that a reconciliation of the total of the reportable segments assets to the entity s assets should only be provided if the segments assets are regularly provided to the chief operating decision-maker. IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial. IAS 24 was amended to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required

17 5) Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortization The entity should use appropriate depreciation and amortization method to reflect the pattern in which the future economic benefits of the property, plant and equipment and intangible asset are expected to be consumed by the entity. The amended IAS 16 Property, Plant and Equipment requires that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The amended standard does not provide any exception from this requirement. The amended IAS 38 Intangible Assets requires that there is a rebuttable presumption that an amortization method that is based on revenue that is generated by an activity that includes the use of an intangible asset is not appropriate. This presumption can be overcome only in the following limited circumstances: a) In which the intangible asset is expressed as a measure of revenue (for example, the contract that specifies the entity s use of the intangible asset will expire upon achievement of a revenue threshold); or b) When it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated. An entity should apply the aforementioned amendments prospectively for annual periods beginning on or after the effective date. 6) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 Revenue, IAS 11 Construction Contracts and a number of revenue-related interpretations from January 1, When applying IFRS 15, an entity shall recognize revenue by applying the following steps: Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contracts; and Recognize revenue when the entity satisfies a performance obligation. When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application. 7) Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture The amendments stipulated that, when an entity sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate, the gain or loss resulting from the transaction is recognized in full. Also, when an entity loses control of a subsidiary that contains a business but retains significant influence, the gain or loss resulting from the transaction is recognized in full

18 Conversely, when an entity sells or contributes assets that do not constitute a business to an associate, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors interest in the associate, i.e. the entity s share of the gain or loss is eliminated. Also, when an entity loses control of a subsidiary that does not contain a business but retains significant influence in an associate, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors interest in the associate, i.e. the entity s share of the gain or loss is eliminated. 8) Annual Improvements to IFRSs: Cycle Several standards including IFRS 5 Noncurrent assets held for sale and discontinued operations, IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement. IAS 19 was amended to clarify that the depth of the market for high quality corporate bonds used to estimate discount rate for post-employment benefits should be assessed by the market of the corporate bonds denominated in the same currency as the benefits to be paid, i.e. assessed at currency level (instead of country or regional level). 9) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealized Losses The amendment clarifies that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Group expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows. In addition, in determining whether to recognize a deferred tax asset, the Group should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses to deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendment also stipulates that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Group s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Group will achieve this, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences. Except for the above impact, as of the date the consolidated financial statements were authorized for issue, the Group is continuously assessing the possible impact that the application of other standards and interpretations will have on the Group s financial position and financial performance, and will disclose the relevant impact when the assessment is completed. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES a. Statement of compliance The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed by the FSC. b. Basis of preparation The consolidated financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value

19 The fair value measurements are grouped into Levels 1 to 3 on the basis of the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety; these inputs are described by level as follows: 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities; 2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and 3) Level 3 inputs are unobservable inputs for the asset or liability. c. Classification of current and noncurrent assets and liabilities Current assets include: 1) Assets held primarily for the purpose of trading; 2) Assets expected to be realized within twelve months after the reporting period; and 3) Cash and cash equivalents. Current liabilities include: 1) Liabilities held primarily for the purpose of trading; 2) Liabilities due to be settled within twelve months after the reporting period; and 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Assets and liabilities that are not classified as current are classified as noncurrent. d. Basis of consolidation The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries, including structured entities). Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company. All intragroup transactions, balances, income and expenses are eliminated in full upon consolidation. The total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this attribution results in the non-controlling interests having a deficit balance. Changes in the Group s ownership interests in subsidiaries that do not result in the Group s losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company

20 See Note 12 and Table 6 and 7 for more information on the subsidiaries (including the percentages of ownership and main businesses). e. Business combinations Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related costs are generally recognized in profit or loss as incurred. Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any noncontrolling interests in the acquire, and the fair value of the acquirer s previously held equity interest in the acquire over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. f. Foreign currencies In preparing the financial statements of each individual group entity, transactions in currencies other than the entity s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise except for: Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investments. Nonmonetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of nonmonetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of nonmonetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income. Nonmonetary items that are measured at historical cost in a foreign currency are not retranslated. For the purpose of presenting consolidated financial statements, the functional currencies of the Company and the Group entities (including subsidiaries and associates in other countries that use currency different from the currency of the Company) are translated into the presentation currency - New Taiwan dollars as follows: Assets and liabilities are translated at the exchange rates prevailing at the end of the reporting period; income and expense items are translated at the average exchange rates for the period. The resulting currency translation differences are recognized in other comprehensive income (attributed to the owners of the Company and non-controlling interests as appropriate). On the disposal of a foreign operation (i.e. a disposal of the Company s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss. In relation to a partial disposal of a subsidiary that does not result in the Company losing control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss