(English Translation of Financial Report Originally Issued in Chinese)

Transcription

1 Stock Code:2356 (English Translation of Financial Report Originally Issued in Chinese) CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2015 AND 2014 (With Independent Accountants' Audit Report Thereon) Address:No. 66, Hou-gang Street, Shin-Lin District, Taipei, Taiwan, R.O.C. Telephone:

2 Table of contents Contents Page 1. Cover Page 1 2. Table of Contents 2 3. Representation Letter 3 4. Independent Auditors Report 4 5. Consolidated Balance Sheets 5 6. Consolidated Statements of Comprehensive Income 6 7. Consolidated Statements of Changes in Equity 7 8. Consolidated Statements of Cash Flows 8 9. Notes to the Consolidated Financial Statements (1)Overview 9 (2)Financial Statements Authorization Date and Authorization Process 9 (3)New Standards and Interpretations not yet Adopted (4)Significant Accounting Policies (5)Significant Accounting Judgments, Estimation, Assumptions, and Sources of Estimation Uncertainty (6)Explanation to Significant Accounts (7)Related Party Transactions 9~11 12~33 33~34 34~75 75~78 (8)Pledged Assets 78 (9)Significant Commitments and Contingencies 79~82 (10)Losses Due to Major Disasters 82 (11)Subsequent Events 82 (12)Other 82 2

3 Representation Letter The entities that are required to be included in the combined financial statements of Inventec Corporation as of and for the year ended December 31, 2015 under the Criteria Governing the Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises are the same as those included in the consolidated financial statements prepared in conformity with International Financial Reporting Standards No. 10 by the Financial Supervisory Commission, "Consolidated and Spearate Financial Statements." In addition, the information required to be disclosed in the combined financial statements is included in the consolidated financial statements. Consequently, Inventec Corporation and its Subsidiaries do not prepare a separate set of combined financial statments. Company name: Inventec Corporation Chairman: Tsu-Chin Lee Date: March 22,

4 Independent Auditors Report The Board of Directors of Inventec Corporation: We have audited the accompanying consolidated balance sheets of Inventec Corporation and its subsidiaries (the "Group") as of, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended. These financial statements are the responsibility of the Group's management. Our responsibility is to express an audit report based on our audits. We did not audit the financial statements of certain consolidated subsidiaries with the total assets of $72,686,249 thousand, representing 37% of the consolidated total assets as of December 31, 2014; and the net sales of $82,918,862 thousand, representing 19% of the consolidated net sales for the years ended December 31, Also, we did not audit the long-term investments of other companies which amounted to $(542,888) thousand, representing (0.28)% of the consolidated total assets as of December 31, 2014; and the related investment income of $44,090 thousand, representing 0.45% of the consolidated net income before tax for the years ended December 31, The financial statements of these subsidiaries and investees accounted for under the equity method were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts for these companies, were based solely on the reports of other auditors. We conducted our audits in accordance with the "Regulation Governing Auditing and Certification of Financial Statements by Certified Public Accountants" and the auditing standards generally accepted in the Republic of China. Those regulations and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatements. An audit 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 report of other auditors provide a reasonable basis for our opinion. 4

5 In our opinion, based on our audit and the reports of other auditors, the accompanying consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Consolidated Company as of, and the results of their operations and their cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations as endorsed by the Financial Supervisory Commission. We have also audited the non-consolidated financial statements of the Company as of and for the years ended, and have issued an unqualified audit report and a modified unqualified audit report thereon. KPMG CPA: Ying Ru, Chen Leou Fong, Yang Taipei, Taiwan, R.O.C. March 22, 2016 Note to Readers The accompanying financial statements are intended only to present the financial position, results of operations and cash flows in accordance with the International Financial Reporting Standards approved by the Financial Supervisory Commissions in the Republic of China and not those of any other jurisdictions. The standards, procedures, and practices to audit such financial statements are those generally accepted and applied in the Republic of China. The independent auditors' report and the accompanying financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language auditors report and financial statements, the Chinese version shall prevail. 4-1

6 Consolidated Balance Sheets (Amounts Expressed in Thousands of New Taiwan Dollars) ASSETS Amount % Amount % Current Assets: 1100 Cash and cash equivalents (Notes (4) and (6)(a)) $ 37,123, ,731, Current financial assets at fair value through profit or loss (Notes (4) and (6)(b)) 221, , Current available-for-sale financial assets (Notes (4) and (6)(b)) 3,290, ,401, Accounts receivable, net (Notes (4) and (6)(c)) 60,343, ,281, Accounts receivable due from related parties, net (Notes (4), (6)(c) and (7)) 20,254-8,967, Other receivables (Notes (4), (6)(c) and (7)) 1,004, ,039, Inventories, manufacturing business, net (Notes (4) and (6)(d)) 28,959, ,772, Other current assets others (Notes (4) and (6)(k)) 2,613, ,463,204 2 Non-current assets: 133,577, ,098, Non-current available-for-sale financial assets (Notes (4) and (6)(b)) 331, , Non-current financial assets at cost (Notes (4) and (6)(b)) 502, , Investments accounted for using equity method (Notes (4) and (6)(e)) 532, , Property, plant, and equipment (Notes (4) and (6)(h)) 34,660, ,073, Investment property, net (Notes (4) and (6)(i)) 548, , Intangible assets (Notes (4) and (6)(j)) 872, , Other non-current assets (Notes (4), (6)(k) and (6)(o)) 4,720, ,433, ,168, ,602, TOTAL ASSETS $ 175,746, ,701, LIABILITIES AND EQUITY Amount % Amount % Current Liabilities: 2100 Short-term borrowings (Note (6)(l)) $ 7,744, ,859, Current financial liabilities at fair value through profit or loss (Notes (4) and (6)(b)) 88,985-41, Notes payable-related parties (Note (7)) 12,132-24, Accounts payable 58,582, ,231, Accounts payable-related parties (Note (7)) 27,239-6,712, Current tax liabilities 2,446, ,115, Other payables (Note (7)) 17,456, ,165, Long-term borrowings-current portion (Note (6)(l)) 266,800-15,232, Other current liabilities-others 8,993, ,571, Unearned revenue 3,154, ,713,152 1 Non-current Liabilities: 98,771, ,668, Long-term borrowings (Note (6)(l)) 11,293, ,005, Net defined benefit liabilities-non-current (Notes (4) and (6)(n)) 1,030, ,014, Other non-current liabilities-others (Notes (4), (6)(e) and (6)(o)) 1,752, ,590, ,075, ,610,879 3 Total Liabilities 112,847, ,278, Equity attributable to owners of parent: 3110 Ordinary share (Note (6)(p)) 35,874, ,874, Capital surplus (Note (6)(p)) 2,912, ,920, Retained earnings (Note (6)(p)) 14,883, ,773, Other equity (Note (6)(p)) 2,809, ,009,234 2 Total equity attributable to owners of parent 56,480, ,578, XX Non-controlling interests 6,418, ,844,752 4 Total Equity 62,898, ,422, TOTAL LIABILITIES AND EQUITY $ 175,746, ,701, The accompanying notes are an integral part of the consolidated financial statements. 5

7 Consolidated Statements of Comprehensive Income For the Years Ended (Amounts Expressed in Thousands of New Taiwan Dollars) Amount % Amount % 4110 Sales revenue (Notes (4), (6)(s) and (7)) $ 395,470, ,599, Operating costs (Notes (4) and (7)) 373,764, ,251, Gross profit from operation 21,705, ,348,338 5 Operating expenses: 6100 Selling expenses 2,688, ,926, Administrative expenses 4,792, ,800, Research and development 8,816, ,511, Total operating expenses 16,298, ,239,259 3 Operating profit 5,407, ,109,079 2 Non-operating income and expenses: 7010 Other income (Note (6)(u)) 2,112, ,864, Other gains and losses (Note (6)(u)) 676,152-1,015, Finance costs (Note (6)(u)) (914,173) - (1,251,417) Share of losses of associates and joint ventures accounted for using equity method (Notes (4) and (6)(e)) (97,605) - (56,450) - Total non-operating income and expenses 1,776, ,571, Profit before income tax 7,183, ,680, Less: Tax expenses (Notes (4) and (6)(o)) 2,208, ,015, Profit for the year 4,975, ,665,561 2 Other comprehensive income (loss): 8310 Items that will not be reclassified subsequently to profit or loss 8311 Remeasurement from the defined benefit plans (58,068) - (6,610) Share of other comprehensive income of associates and joint ventures 69 - (4,265) - accounted for using equity method 8349 Income tax expense related to items that will not be reclassified subsequently 9,781-1,194 - Total items that will not be reclassified subsequently to profit or loss (48,218) - (9,681) Items that may be reclassified subsequently to profit or loss 8361 Exchange differences on translation of foreign financial statements (640,299) - 1,472, Unrealized losses on available-for-sale financial assets 48, Share of other comprehensive income of associates and joint ventures 12,423-6,101 - accounted for using equity method 8399 Income tax benefit (expense) related to items that are or may be reclassified 381,929 - (109,140) - subsequently Total items that may be reclassified subsequently to profit or loss (197,402) - 1,369,507 - Other comprehensive income (loss), net of tax (245,620) - 1,359, Total comprehensive income $ 4,730, ,025,387 2 Profit attributable to: 8610 Owners of parent $ 5,563, ,097, Non-controlling interests (587,898) - (432,254) - $ 4,975, ,665,561 2 Comprehensive income attributable to: 8710 Owners of parent $ 5,315, ,455, Non-controlling interests (585,765) - (430,447) - $ 4,730, ,025,387 2 Earning per share attributable to stockholders of parent (Notes (4) and (6)(r)) 9750 Basic earnings per share (NT dollars) $ Diluted earnings per share (NT dollars) $ The accompanying notes are an integral part of the consolidated financial statements. 6

8 Consolidated Statements of Changes in Equity For the Years Ended (Amounts Expressed in Thousands of New Taiwan Dollars) Equity Attributable to Owners of Parent Other Equity Interest Exchange Capital Stock Retained Earnings Differences on Translation of Unrealized Gains (Losses) Share Capital Capital Surplus Legal Reserve Unappropriated Retained Earnings Foreign Financial Statements on Available-for- Sale Financial Assets Total Equity Attributable to Owners of Parent Non-Controlling Interests Total Equity Balance at January 1, 2014 $ 35,874,751 2,895,677 6,936,854 7,488,577 1,495, ,155 54,837,123 6,975,065 61,812,188 Net income (loss) for the period ,097, ,097,815 (432,254) 6,665,561 Other comprehensive income (loss) for the period (9,951) 1,373,853 (5,883) 1,358,019 1,807 1,359,826 Total comprehensive income (loss) for the period ,087,864 1,373,853 (5,883) 8,455,834 (430,447) 8,025,387 Appropriation and distribution of retained earnings: Legal reserve appropriated ,417 (707,417) Cash dividends of ordinary share (5,739,960) - - (5,739,960) - (5,739,960) Changes in non-controlling interests , ,973 Others - 25, ,041 5,161 30,202 Balance at December 31, ,874,751 2,920,718 7,644,271 8,129,064 2,868, ,272 57,578,038 6,844,752 64,422,790 Net income (loss) for the period ,563, ,563,633 (587,898) 4,975,735 Other comprehensive income (loss) for the period (47,869) (264,790) 64,906 (247,753) 2,133 (245,620) Total comprehensive income (loss) for the period ,515,764 (264,790) 64,906 5,315,880 (585,765) 4,730,115 Appropriation and distribution of retained earnings: Legal reserve appropriated ,781 (709,781) Cash dividends of ordinary share (6,278,081) - - (6,278,081) - (6,278,081) Changes in non-controlling interests ,943 16,943 Others - (7,934) - (127,199) - - (135,133) 142,215 7,082 Balance at December 31, 2015 $ 35,874,751 2,912,784 8,354,052 6,529,767 2,604, ,178 56,480,704 6,418,145 62,898,849 The accompanying notes are an integral part of the consolidated financial statements. 7

9 Consolidated Statements of Cash Flows For the Years Ended (Amounts Expressed in Thousands of New Taiwan Dollars) Cash flows from operating activities: Profit before income tax $ 7,183,870 9,680,698 Adjustments to reconcile profit before income tax to net cash provided by operating activities: Depreciation expenses 3,976,246 3,813,990 Amortization expenses 964,995 1,222,212 Provisions for bad debt expenses 25,179 15,856 Interest expenses 914,173 1,251,417 Interest income (2,112,228) (2,864,110) Share-based payments 8,533 9,575 Share of losses of associates and joint ventures accounted for using equity method 97,605 56,450 (Gains) losses on disposal of property, plant, equipment and inventory property (136,531) 162,409 Gain on disposal of investments (331,861) (383,461) Impairment losses on financial assets - 109,590 Impairment losses on non-financial assets 140,379 1,454,743 Others (772) (38,264) Total adjustments to reconcile profit 3,545,718 4,810,407 Changes in operating assets and liabilities: Changes in operating assets: Decrease (increase) in financial assets held for trading 215,185 (227,010) Decrease in accounts receivable 11,810,327 6,006,396 Decrease (increase) in other receivables 2,596,999 (27,568) Decrease in inventories 2,892,534 8,914,388 Decrease (increase) in other current assets 1,610,970 (1,646,819) Total changes in operating assets 19,126,015 13,019,387 Changes in operating liabilities: Increase (decrease) in financial liabilities held for trading 48,343 (64,739) Decrease in notes payable (12,131) (26,239) Decrease in accounts payable (20,374,773) (31,253,048) Increase in other payables 3,370,735 2,366,838 Increase in other current liabilities 4,276,868 1,638,197 Decrease in net defined benefit liabilities-non-current (41,869) (30,129) Increase in deferred income 355, ,934 Total changes in operating liabilities (12,377,461) (26,787,186) Total changes in operating assets and liabilities 6,748,554 (13,767,799) Total adjustments 10,294,272 (8,957,392) Cash inflow generated from operations 17,478, ,306 Interests received 2,269,550 2,942,046 Interests paid (864,916) (944,491) Income taxes paid (1,861,137) (1,904,967) Net cash flows from operating activities 17,021, ,894 The accompanying notes are an integral part of the consolidated financial statements. 8

10 Consolidated Statements of Cash Flows (CONT'D) For the Years Ended (Amounts Expressed in Thousands of New Taiwan Dollars) Cash flows from investing activities: Acquisition of available-for-sale financial assets (23,452,524) (33,777,739) Proceeds from disposal of available-for-sale financial assets 28,952,230 29,491,624 Proceeds from capital reduction of available-for-sale financial assets 35,371 6,650 Proceeds from repayments of bond investment without active market - 208,740 Acquisition of financial assets at cost (55,595) (144,403) Proceeds from disposal of financial assets at cost - 1,268 Proceeds from capital reduction of financial assets at cost 88,354 - Acquisition of investments accounted for using equity method (367,399) (939) Proceeds from disposal of investments accounted for using equity method - 67,329 Acquisition of property, plant and equipment (3,762,999) (4,781,393) Proceeds from disposal of property, plant and equipment 250,519 93,680 Acquisition of intangible assets (239,988) (378,368) Net cash inflows from business combination 1,305,370 - (Increase) decrease in other non-current assets (145,720) 438,857 Net cash flows from (used in) investing activities 2,607,619 (8,774,694) Cash flows from financing activities: Decrease in short-term borrowings (8,351,998) (9,035,069) (Repayments) proceeds from long-term debt (4,659,943) 1,982,345 Increase in other non-current liabilities 13,762 19,090 Cash dividends paid (6,278,081) (5,739,960) Change in non-controlling interests 249,395 19,175 Net cash flows used in financing activities (19,026,865) (12,754,419) Effect of exchange rate changes on cash and cash equivalents (1,210,503) 1,512,290 Net decrease in cash and cash equivalents (608,110) (19,200,929) Cash and cash equivalents at beginning of period 37,731,741 56,932,670 Cash and cash equivalents at end of period $ 37,123,631 37,731,741 The accompanying notes are an integral part of the consolidated financial statements. 8-1

11 Notes to the Consolidated Financial Statements (Amounts Expressed in Thousands of New Taiwan Dollars, Unless Stated Otherwise) (1) Overview Inventec Co., Ltd. (the Company ) was organized in The Company engages primarily in the developing, manufacturing, processing and trading of computers and related products. The Company s registered office address is located at No. 66 Hou-gang Street, Shin-Lin District, Taipei, Taiwan, R.O.C. The shares of the Company became officially listed and traded on the Taiwan Stock Exchange in November The consolidated financial statements of the Company as of and for the year ended December 31, 2015 comprised the Company and its subsidiaries (together referred to as the Group and individually as Group entities ). The Group primarily is involed in the developing, computer hardware and software products, manufacturing, processing and trading of computers and related products, and sale of wired and wireless communication and digital accessory products. Please refer to Note 4(c) for details. (2) Financial Statements Authorization Date and Authorization Process The consolidated financial statements were authorized for issuance by the Board of Directors on March 22, (3) New Standards and Interpretations not yet Adopted (a) Impact of the 2013 version of the International Financial Reporting Standard ( IFRS ) endorsed by the Financial Supervisory Commissions R.O.C. ( FSC ). The Group has adopted the 2013 version of the IFRS endorsed by the FSC (excluding IFRS 9 Financial instruments) in preparing consolidated financial statements starting in The related new standards, interpretations and amendments issued by the International Accounting Standards Board ( IASB ) were as follows: New Standards and amendments Amended IFRS 1 Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters Amended IFRS 1 Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters Effective date per IASB July 1, 2010 July 1, 2011 Amended IFRS 1 Government Loans January 1, 2013 Amended IFRS 7 Disclosure-Transfers of Financial Assets July 1, 2011 Amended IFRS 7 Disclosure-Offsetting Financial Assets and Financial Liabilities January 1, 2013 IFRS10 Consolidated Financial Statements January 1, (Investment Entities amendments to be adopted on January 1, 2014.)

12 Effective date New Standards and amendments per IASB IFRS 11 Joint arrangements January 1, 2013 IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 IFRS 13 Fair Value Measurement January 1, 2013 Amended IAS 1 Presentation of Items of Other Comprehensive Income July 1, 2012 Amended IAS 12 Deferred Tax: Recovery of Underlying Assets January 1, 2012 Amended IAS 19 Employee Benefits January 1, 2013 Amended IAS 27 Separate Financial Statements January 1, 2013 Amended IAS 32 Offsetting Financial Assets and Financial Liabilities January 1, 2014 IFRIC20- Stripping Costs in the Production Phase of a Surface Mine January 1, 2013 The Group had assessed that the 2013 version of the IFRS may not have any significant impact on the consolidated financial statements except for the following: A. IAS 1 Presentation of Financial Statements The other comprehensive income section is required to present line items which are classified by their nature, and are grouped between those items that will or will not be reclassified to profit or loss in subsequent periods. Allocation of income tax to two groups of items of other comprehensive is also required. The Group is expecting to change the presentation of comprehensive income statements in accordance with the standard. The Group has changed the presentation of comprehensive income statement along with its comparison periods in accordance with the standard. B. IFRS 12 Disclosure of Interests in Other Entities The Group will disclose any additional information about its subsidiaries accordingly by the standard; please refer to Note 6(e). C. IFRS 13 Fair value measurement The standard revised the definition of the fair value, provides a framework for measuring fair value, and requires the disclosures on fair value measurement. Under this standard, Group has increased its disclosures on the measurement of fair value (Please refer to note 6(w)) and postponed the adoption of the standard regarding fair value measurement during the transition period of IFRS 13. Comparative information need not be disclosed for periods before initial application. 10

13 (b) Impact of IFRSs issued by IASB but not yet endorsed by the FSC The 2013 version of the IFRS issued by the IASB but not yet endorsed by the FSC were as follows: IASB Effective New Standards, Interpretations and Amendments Date IFRS 9, Financial instruments January 1, 2018 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (amendments to IFRS 10 and IAS 28) Investment entities: Applying the Consolidation Exception (amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for acquisitions of interests in joint operations (amendments to IFRS 11) Not yet endosed by IASB January 1, 2016 January 1, 2016 IFRS 14 Regulatory deferral accounts January 1, 2016 IFRS 15 Revenue from contracts with customers January 1, 2018 IFRS16 Lease January 1, 2019 Disclosure initiative (amendments to IAS 1) January 1, 2016 Disclosure initiative (amendments to IAS 7) January 1, 2017 Recognition of deferred tax assets for unrealized losses (amendments to IAS 12) Clarification of Acceptable Methods of Depreciation and Amortization (amendments to IAS 16 and 38) January 1, 2017 January 1, 2016 Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016 Services related contributions from employees or third parties (amendments to IAS 19) July 1, 2014 Equity Method in Separate Financial Statements (amendments to IAS 27) January 1, 2016 Recoverable amount disclosures for non-financial assets (amendments to IAS 36) Novation of derivatives and continuation of hedge accounting (amendments to IAS 39) January 1, 2014 January 1, 2014 The Annual Improvements: and Cycles July 1, 2014 The Annual Improvements to IFRS: Cycles January 1, 2016 IFRIC 21, Levies January 1, 2014 As the standards and amendments above have not been endorsed by the FSC, the Group is in the process of assessing the impact on the financial position and results of operations. Related impact will be disclosed following the completion of its assessments. 11

14 (4) Significant Accounting Policies The consolidated financial statements are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and the Chinese language, the Chinese version shall prevail. The significant accounting policies presented in the consolidated financial statements are summarized as follows: The significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements, except when otherwise indicated. ( a ) Statement of compliance These consolidated annual financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafter referred to the Regulations) and International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by FSC (hereinafter referred to as the IFRSs endorsed by FSC). ( b ) Basis of preparation 1.Basis of measurement The consolidated financial statements have been prepared on historical cost basis except for the following material items in the statement of financial position: 1) Financial instruments measured at fair value through profit or loss are measured at fair value; 2) Available-for-sale financial assets are measured at fair value; 3) Liabilities for cash-settled share-based payment arrangements are measured at fair value;and 4) The net defined benefit liability (or asset) is recognized as the fair value of plan assets, net of aggregation of the present value of the defined benefit obligation, with a limit based on a defined benefit asset as disclosed in Note 4(s). 2.Functional and presentation currency The functional currency of each entity of the Group is determined based on the primary economic environment in which the entity operates. The Group consolidated financial statements are presented in New Taiwan Dollar, which is the Company s functional currency. All financial information presented in New Taiwan Dollar has been rounded to the nearest thousand. ( c ) Basis of consolidation 1.Principle of preparation of the consolidated financial statements The consolidated financial statements comprise the Company and its subsidiaries. The Group controls an entity when it is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its control over the entity. 12

15 The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Intra-group balances and transactions, and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Income (losses) applicable to non controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group. Changes in the Group s ownership interest in a subsidiary that do not result in a loss of control are accounted for as equity transactions. Any differences between the Group s share of net assets before and after the change, and any considerations received or paid, are adjusted to or against the Group reserves. 2.List of subsidiaries in the consolidated financial statements Principal Shareholding Ratio Investor Name of Subsidiary activity Note The Company Inventec Corporation (Hong Kong) Ltd. Investing in Mainland China and import and export business % % Inventec Holding (North America) Corp. Investment of holding company in America % % Inventec (Cayman) Corp. Holding Company % % IEC (Cayman) Corporation Holding Company % % Inventec (Czech), s.r.o. Computer products assembly operations Inventec Development Japan Corporation Developing, designing and selling computer peripherals % % % % Inventec Investments Co., Ltd. Investment company % % The Company Inventec Investments Co., Ltd. Inventec Appliances Corp. and Inventec Energy Corporation Inventec Solar Energy Corporation Developing, production and selling of multi-crystalline solar cells % % The Company and Inventec Investments Co., Ltd. E-TON Solar Tech. Co., Ltd Manufacturing and selling of solar cells % % The Company, Inventec Energy Corporation Inventec Solar Energy Corporation and E-TON Solar Tech. Co., Ltd Manufacturing and selling of photovoltaic systems integration % % The Company Inventec Appliances Corp. Wireless terminal products % % The Company and Inventec Investments Co., Ltd. Inventec Corporation (Hong Kong) Ltd. Inventec Manufacturing (India) Private Limited Inventec (Tianjin) Electronics Co., Ltd. Inventec (Beijing) Electronics Technology Co., Ltd. Computer product assembles and warranty services Electronic product software and hardware development manufacturing % - % % % % % 13

16 Principal Shareholding Ratio Investor Name of Subsidiary activity Note Inventec (Cayman) Corp. Inventec (Shanghai) Corp. Electronic product software and hardware development manufacturing % % Inventec (Pudong) Corp % % Inventec (Pudong) Technology Corp % % Inventec (Shanghai) Service Co., Ltd % % Inventec Hi-Tech Corp % % Inventec Huan Hsin (Zhejiang) Technology Co., Ltd. Complete of the electronic computer and product and sale of external equipment Inventec (Chongqing) Corp. Assembly and sale of computer products % % % % Inventec (Shanghai) Corp. Inventec (Chongqing) Service Co., Ltd % % TPV-Inventa Holding Ltd. Holding Company % - % The board of Directors decided to terminate the joint venture agreement with TPV Technology Limited. The Company obtained all of the numbers of the board of directors of TPV-Inventa Holding Ltd. and obtain the controlling power in Inventec (Chongqing) Corp. Chongqing Rongjie Cloud Service Co., Ltd. Chongqing TaiYu Cloud Service Co., Ltd. TPV-Inventa Holding Ltd. Inventec Asset-Management (Shanghai) Corporation Equipment leasing, Storage, technological development and sale of computer % - % Chongqing Rongjie Cloud Service Co., Ltd. Software production % - % Chongqing TaiYu Cloud Service Co., Ltd % - % Chongqing YuYa Cloud Service Co., Ltd % - % TPV-Inventa Technology Co., Ltd. AIO PC % - % TPV-Inventa Technology (Fujian) Ltd % - % IEC (Cayman) Corporation Inventec Holding (North America) Corp. Inventec Technology (Chongqing) Corp. Inventec Electronics (USA) Corporation Inventec Manufacturing (North America) Corporation Inventec Configuration (North America) Corporation Inventec Distribution (North America) Corporation Computer software design and computer system integration service Computer product assembles and warranty services % % % % % % % % % % IEC Technologies, S. de R.L. de C.V % % E-TON Solar Tech. Co., Ltd Gloria Solar International Holding, Inc. Investment company % % Gloria Solar Adema Technologies, Inc. International Holding, Inc. Design and consulting service of photovoltaic systems Gloria Solar Co., Ltd. Manufacture and sale of photovoltaic modules % % % % 14

17 Principal Shareholding Ratio Investor Name of Subsidiary activity Note Inventec Appliances Corp. Inventec Appliances (Cayman) Holding Corp. Holding Company % % Inventec Appliances (Cayman) Holding Corp. Inventec Appliances (Cayman) Holding Corp. Inventec Appliances (USA) Distribution Corp. Inventec Appliances Corporation USA, Inc. Customer information service Inventec Electronics (Shanghai) Co.Ltd. Marketing promotion % % Telecommunication research Inventec Appliances (Pudong) Corp. Electronic communication and products manufacturing % % % % % % Inventec Appliances (Nanjing) Corp % % Inventec (Nanjing) Electronics Co. Ltd. house leasing % % Inventec Appliances (Nanjing) System Corp. Electronic communication and products manufacturing Inventec Appliances (XI'AN) Corporation Telecommunication research and service % % % % Inventec Appliances (Nanchang) Corporation % % Inventec Electronics (Shanghai) Co.Ltd. Inventec Appliances (Shang Hai) Co., Ltd. Development and consultation on software and hardware; as well as selling of electronic products % - % 3.Subsidiaries excluded from the consolidated financial statements: None. ( d ) Foreign Currency 1.Foreign currency transaction Transactions in foreign currencies are translated to the respective functional currencies of Group entities at exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are retranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functional currency at the beginning of the period adjusted for the effective interest and payments during the period, and the amortized cost in foreign currency translated at the exchange rate at the end of the period. Non monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated to the functional currency at the exchange rate at the date that the fair value was determined. Non-monetary items in a foreign currency that are measured based on historical cost are translated using the exchange rate at the date of translation. Foreign currency differences arising on retranslation are recognized in profit or loss, except for those differences relating to available-for-sale equity investment which are recognized in other comprehensive income. 15

18 2.Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to the reporting currency at exchange rates at the reporting date. The income and expenses of foreign operations are translated at average exchange rate. Translation differences are recognized in other comprehensive income, and presented in the foreign currency translation reserve in equity. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to profit or loss as part of the gain or loss on disposal. When the Group dispose of any part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interest. When the Group dispose of only part of investment in an associate or joint venture that includes a foreign operation while retaining significant or joint control, the relevant proportion of the cumulative amount is reclassified to profit or loss. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign currency gains and losses arising form such items are considered to form parts of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the translation reserve in equity. ( e ) Classification of current and non-curent assets and liabilities An asset is classified as current under one of the following criteria, and all other assets are classified as non-current. 1.It expects to realize the asset or intends to sell or consume it, in its normal operating cycle; 2.It holds the asset primarily for the purpose of trading; 3.It expectes to realize the asset within twelve months after the reporting period; or 4.The asset is cash and its cash equivalent (as defined in IAS 7) unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period. A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current. 1.It expects to settle the liability in its normal operating cycle; 2.It holds the liability primarily for the purpose of trading; 3.The liability is due to be settled within twelve months after the reporting period; or 4.It does not have any unconditional right to defer settlement of the liability for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. 16

19 ( f ) Cash and cash equivalents Cash comprise cash balances and call deposits. Cash equivalents with maturities of twelve months or less from the acquisition date are subject to an insingnificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Time deposits which are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes, are reported as cash equivalents. ( g ) Financial instruments Financial assets and financial liabilities are initially recognized when the Group become a party to the contractual provisions of the instruments. 1.Financial assets Financial assets are classified into the following categories: financial assets at fair value through profit or lss, loans and receivables, and available-for-sale financial assets. 1) Financial assets are at fair value through profit or loss A financial asset is classified in this category if they are classified as held-for-trading or is designated as such on initial recognition. Financial assets are classified as held-for-trading if they are acquired principally for the purpose of selling in the short term. The Group designate financial assets, other than ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: A.Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise. B.Performance of the financial asset is evaluated on a fair value basis. C.A hybrid instrument contains one or more embedded derivatives. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend and interest income, are recognized in profit or loss, under non-operating income and expense. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting. Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortised cost, and are included in financial assets measured at cost. 17

20 2) Available-for sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated as available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on available-for -sale debt instruments, are recognized in other comprehensive income and presented in the fair value reserve in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, under non-operating income and expense. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting. Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortised cost, and are included in financial assets measured at cost. Dividend income is recognized in profit or loss on the date that the Group s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. Such dividend income is included in other income of non-operating income and expenses. Interest income from investment in bond security is recognized in profit or loss, under other income of non-operating income and expenses. 3) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables, other receivables, and investment in debt security with no active market. Such assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortised cost using the effective interest method, less any impairment losses other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting. Interest income is recognized in profit or loss, under non-operating income and expense. 4) Impairment of financial assets Except for financial assets at fair value through profit or loss, other financial assets are assessed for impairment at each reporting date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event ) and that loss event (or events) has an impact on the estimated future cash flows of the financial assets that can be estimated reliably. 18

21 Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Group on terms that the Group would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment. All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Group use historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than those suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset s original effective interest rate. An impairment loss in respect of a financial asset measured at cost is calculated as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss is not reversible in subsequent periods. An impairment loss in respect of a financial asset is deducted from the carrying amount, except for trade receivables, for which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance accounts are recognized in profit or loss. Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. If, in a subsequent period, the amount of impairment loss of financial assets measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date. Impairment losses recognized on available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. 19

22 Provision for doubtful accounts is recorded as general and administrative expenses. The impairment loss on financial assets other than accounts receivable is recorded as other gains and losses under non-operating income and expenses. 5) Derecognition of financial assets Financial assets are derecognized when the contractual rights of the cash inflow from the asset are terminated, or when the Group transfer substantially all the risks and rewards of ownership of financial assets. On derecognition of a financial asset in its entity, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity unrealized gains or losses from available for sale financial assets are recognized in profit or loss, under non-operating income and expenses. 2.Financial liabilities and equity instruments 1) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if it is classified as held-for-trading or is designated as such on initial recognition. A financial liability is classified as held-for-trading if it is acquired principally for the purpose of selling in the short term. The Group designates financial liabilities, other than the ones classified as held-for-trading, as at fair value through profit or loss at initial recognition under one of the following situations: A.Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on a different basis; B.Performance of the financial liabilities is evaluated on a fair value basis; C.A hybrid instrument contains one or more embedded derivatives. Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value and changes therein, which take into account any interest expense, are recognized in profit or loss, under non-operating income and expenses. The Group provides and designates financial guarantee contracts and loan commitments as at fair value through profit or loss. Any gains and losses are recognized in profit or loss, under non-operating income and expenses. 20

23 2) Other financial liabilities Financial liabilities not classified as held-for-trading, or designated as at fair value through profit or loss, which comprise of loans and borrowings, and trade and other payables, are measured at fair value plus any directly attributable transaction cost at the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, under non-operating income and expenses. 3) Derecognition of financial liabilities A financial liability is derecognized when its contractual obligation has been discharged or cancelled, or expires. The difference between the carrying amount of a financial liability removed and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, and under non-operating income and expenses. 4) Offsetting of financial assets and liabilities The Group presents financial assets and liabilities on a net basis when the Group has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously. 3.Derivative financial instruments The Group holds derivative financial instruments to hedge its foreign currency and interest rate fluctuation exposures. Derivatives are recognized initially at fair value and attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss, under non-operating income and expenses. When the fair value of derivative instrument is positive, it is classified as a financial asset; otherwise, it is classified as a financial liability. For derivatives that are linked to investments in equity instruments that do not have a quoted market price in an active market and must be settled by delivery of such unquoted equity instruments, such derivating that are classified as financial assets are measured at amortized cost, and are included in financial assets measured at cost, and are included in financial liabilities measured at cost. Embedded derivatives are separated from the host contract and are accounted for separately when the economic characteristics and risk of the host contract and the embedded derivatives are not closely related, and the host contract is measured as at fair value through profit or loss. ( h ) Inventories Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses. 21