YFY Inc. (Formerly Yuen Foong Yu Paper Mfg. Co., Ltd.) and Subsidiaries

Transcription

1 YFY Inc. (Formerly Yuen Foong Yu Paper Mfg. Co., ) and Subsidiaries Consolidated Financial Statements for the Years Ended December 31, 2015 and 2014 and Independent Auditors Report

2 DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES The companies required to be included in the consolidated financial statements of affiliates in accordance with the Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises for the year ended December 31, 2015 are all the same as the companies required to be included in the consolidated financial statements of parent and subsidiary companies as provided in International Financial Reporting Standard No. 10, Consolidated Financial Statements. Relevant information that should be disclosed in the consolidated financial statements of affiliates has all been disclosed in the consolidated financial statements of parent and subsidiary companies. Hence, we have not prepared a separate set of consolidated financial statements of affiliates. Very truly yours, YFY INC. (Formerly Yuen Foong Yu Paper Mfg. Co., ) By: MELODY CHIU Chairman March 18,

3 INDEPENDENT AUDITORS REPORT The Board of Directors and Shareholders YFY Inc. We have audited the accompanying consolidated balance sheets of YFY Inc. (the Company, formerly Yuen Foong Yu Paper Mfg. Co., ) and its subsidiaries 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 for 2015 and 2014 of Jupiter Prestige Group Holdings Limited and its subsidiaries, Lotus Ecoscings & Engineering Co.,, Cupid InfoTech Co.,, YFY Biotech Management Company, Systax Communication (H.K.) and Ever Growing Agriculture Biotech Co.,, and the financial statements for 2014 of CHP International (BVI) Corporation and its subsidiaries, and Hwa Fong Investment Co.; all of these companies are consolidated subsidiaries. The financial statements of these subsidiaries were audited by other auditors, whose reports have been furnished to us, and our opinion, insofar as it relates to the amounts included for these subsidiaries, is based solely on the reports of the other auditors. The assets of these subsidiaries as of December 31, 2015 and 2014 were about 1% (NT$1,145,190 and 9% (NT$10,163,884, respectively, of total consolidated assets. The net sales of these subsidiaries for 2015 and 2014 were about 1% (NT$696,948 and 5% (NT$2,750,272, respectively, of total consolidated net sales. In addition, the financial statements as of and for the years ended December 31, 2015 and 2014 of Taiwan Genome Sciences Co.,, an equity-method investee of the Company, were audited by other auditors. Thus, our opinion, insofar as it relates to the calculation of the Company s share in this investee s profit or loss and other comprehensive income, is based solely on the report of the other auditors. As of December 31, 2015 and 2014, the aggregate carrying values of this investee were NT$3,962 and NT$3,864, respectively. Included in the Company s net comprehensive income for 2015 and 2014 were the Company s equity of NT$97 in this investee s net profit and an equity of NT$553 in its net loss, respectively. 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

4 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 YFY Inc. 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, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations endorsed by the Financial Supervisory Commission of the Republic of China. We have also audited the financial statements of the parent company, YFY Inc., as of and for the years ended December 31, 2015 and 2014, on which we have issued a modified unqualified report. March 25, 2016 Notice to Readers The accompanying consolidated financial statements are intended only to present the financial position, financial performance 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 accepted and 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

5 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) ASSETS Amount % Amount % CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) $ 2,380,644 2 $ 2,773,107 2 Financial assets at fair value through profit or loss (Notes 4 and 7) 987, ,498 1 Available-for-sale financial assets (Notes 4 and 8) 4,274, ,445,583 5 Debt investments with no active market (Notes 4, 6 and 30) 1,014, ,098,257 2 Notes receivable (Notes 4, 11 and 30) 3,490, ,562,471 2 Accounts receivable (Notes 4 and 11) 11,075, ,513,311 9 Accounts receivable (Notes 4 and 29) 17, ,671 - Inventories (Notes 4 and 12) 9,761, ,295,393 8 Biological assets (Notes 4 and 13) 3,622, ,990,129 3 Prepayments 1,183, ,127 1 Other current assets (Notes 4, 9, 29 and 30) 1,907, ,772 1 Total current assets 39,714, ,326, NON-CURRENT ASSETS Financial assets at fair value through profit or loss, net of current portion (Notes 4 and 7) ,799 - Available-for-sale financial assets, net of current portion (Notes 4 and 8) 9,709, ,909, Financial assets measured at cost (Notes 4 and 10) 1,733, ,644,056 1 Debt investments with no active market, net of current portion (Notes 4 and 24) 400, Investments accounted for using the equity method (Notes 4 and 15) 6,814, ,030,903 6 Property, plant and equipment (Notes 4, 16 and 30) 47,178, ,616, Investment properties (Notes 4, 17 and 30) 2,803, ,599,734 2 Goodwill (Notes 4 and 5) 507, ,566 - Deferred tax assets (Notes 4 and 23) 551, ,040 1 Long-term prepayments for lease (2) 1,206, ,098,119 1 Prepayments for equipment 2,029, ,480 1 Other non-current assets (2) 742, ,774 1 Total non-current assets 73,676, ,967, TOTAL $ 113,390, $ 112,293, LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Notes 18 and 30) $ 10,403,060 9 $ 12,266, Short-term bills payable (Note 18) 11,279, ,151,138 6 Notes payable 2,002, ,601 - Accounts payable 6,363, ,820,407 5 Accounts payable to related (9) 70, ,104 - Other payables (5) 2,702, ,555,281 2 Current tax liabilities (Notes 4 and 23) 175, ,788 - Current portion of long-term borrowings and bonds payable (Notes 18, 19 and 30) 448, ,727,645 2 Other current liabilities (Notes 4, 7 and 9) 1,540, ,145,705 1 Total current liabilities 34,985, ,050, NON-CURRENT LIABILITIES Long-term borrowings, net of current portion (Notes 18 and 30) 28,002, ,613, Deferred tax liabilities (Notes 4 and 23) 3,396, ,399,296 3 Net defined benefit liabilities (Notes 4 and 20) 1,558, ,232,893 1 Other non-current liabilities 170, ,797 - Total non-current liabilities 33,128, ,408, Total liabilities 68,113, ,458, EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 21) Share capital 16,603, ,603, Capital surplus 685, ,282 - Retained earnings Legal reserve 3,191, ,131,658 3 Special reserve 4,031, ,031,432 4 Unappropriated earnings 5,500, ,038,592 5 Total retained earnings 12,723, ,201, Other equity 5,533, ,332,893 8 Total equity attributable to owners of the Company 35,546, ,756, NON-CONTROLLING INTERESTS 9,730, ,078,710 9 Total equity 45,277, ,835, TOTAL $ 113,390, $ 112,293, The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2016) - 4 -

6 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) 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) 2014 (Audited after 2015 Restatement) Amount % Amount % OPERATING REVENUE (Notes 4 and 29) Sales $ 55,459, $ 53,834, Other operating revenue 8,120, ,061, Total operating revenue 63,579, ,896, OPERATING COSTS (Notes 3, 12, 20, 22 and 29) Cost of goods sold 47,540, ,519, Other operating cost 5,374, ,983,261 8 Total operating costs 52,915, ,503, GROSS PROFIT 10,664, ,393, GAIN (LOSS) ARISING FROM CHANGES IN FAIR VALUE LESS COSTS TO SELL BIOLOGICAL ASSETS (Notes 4 and 13) (740) - 33,001 - OPERATING EXPENSES (Notes 3, 20, 22 and 29) Selling and marketing 5,113, ,180,565 8 General and administrative 3,716, ,493,007 6 Research and development 148, ,225 - Total operating expenses 8,978, ,796, PROFIT FROM OPERATIONS 1,685, ,599 1 NON-OPERATING INCOME AND EXPENSES Finance costs (Notes 4 and 22) (892,141) (1) (871,811) (1) Share of profit of associates (Notes 4 and 15) 150, ,851 - Interest income 247, ,261 - Dividend income 602, ,264 1 Other income (9) 457, ,607 1 Loss on disposal of property, plant and equipment (8,742) - (37,698) - Gain on disposal of investments (Notes 4, 26 and 29) 195, ,133 - Foreign exchange gain (loss) (603,262) (1) 145,734 - Other losses (88,126) - (94,668) - (Continued) - 5 -

7 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) 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) 2014 (Audited after 2015 Restatement) Amount % Amount % Loss arising on financial instruments at FVTPL (Notes 4 and 28) $ (71,842) - $ (41,786) - Impairment loss recognized on financial assets (Notes 4 and 10) (48,206) - (9,955) - Total non-operating income and expenses (58,509) - 617,932 1 PROFIT BEFORE INCOME TAX 1,627, ,247,531 2 INCOME TAX EXPENSE (Notes 3, 4 and 23) (445,044) (1) (383,474) (1) NET PROFIT FOR THE YEAR 1,182, ,057 1 OTHER COMPREHENSIVE INCOME (LOSS) (Notes 3, 4 and 21) Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans (306,598) (1) (114,623) - Share of the other comprehensive income (loss) of associates (3,798) - 6,638 - (310,396) (1) (107,985) - Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (258,802) - 1,742,460 3 Unrealized gain (loss) on available-for-sale financial assets (3,402,530) (5) 3,955,972 7 Cash flow hedges 16,221 - (2,999) - Share of the other comprehensive income (loss) of associates (306,049) (1) 825,688 1 (3,951,160) (6) 6,521, Other comprehensive income (loss) for the year, net of income tax (4,261,556) (7) 6,413, TOTAL COMPREHENSIVE INCOME (LOSS) FOR THE YEAR $ (3,079,362) (5) $ 7,277, (Continued) - 6 -

8 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) 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) 2014 (Audited after 2015 Restatement) Amount % Amount % NET PROFIT ATTRIBUTABLE TO: Owners of the Company $ 501,904 1 $ 594,779 1 Non-controlling interests 680, ,278 - $ 1,182,194 2 $ 864,057 1 TOTAL COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO: Owners of the Company $ (3,611,713) (6) $ 6,685, Non-controlling interests 532, ,460 1 $ (3,079,362) (5) $ 7,277, EARNINGS PER SHARE (New Taiwan dollars; 4) Basic $ 0.30 $ 0.36 Diluted $ 0.30 $ 0.36 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2016) (Concluded) - 7 -

9 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) 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 Differences on Gain (Loss) on Share Capital Retained Earnings Translating Available-for- Share Capital Surplus Unappropriated Foreign sale Financial Cash Flow Non-controlling (Thousands) Amount Treasury Stock Form Merger Other Total Legal Reserve Special Reserve Earnings Total Operations Assets Hedges Total Interests Total Equity BALANCE AT JANUARY 1, ,660,372 $ 16,603,715 $ 14,947 $ 293,124 $ 150,814 $ 458,885 $ 3,070,603 $ 4,031,432 $ 6,252,108 $ 13,354,143 $ 1,247,564 $ 1,935,199 $ (4,074 ) $ 33,595,432 $ 9,973,410 $ 43,568,842 Appropriation of the 2013 earnings Legal reserve ,055 - (61,055) Cash dividends distributed by the Company (664,148) (664,148) (664,148) - (664,148) Cash dividends distributed by subsidiaries (196,020 ) (196,020 ) Adjustments for the changes in equity in associates ,959 2, (19,805 ) (19,805 ) (16,846 ) (988 ) (17,834 ) Partial acquisition of interests in subsidiaries ,990 63, , , ,219 Adjustments for the changes in equity in subsidiaries ,448 92, (37 ) (37 ) ,411 (414,381 ) (321,970 ) Net profit for the year ended December 31, , , , , ,057 Other comprehensive income for the year ended December 31, 2014, net of income tax (63,250) (63,250) 1,756,546 4,399,331 (1,673) 6,090, ,182 6,413,136 Total comprehensive income for the year ended December 31, , ,529 1,756,546 4,399,331 (1,673) 6,685, ,460 7,277,193 BALANCE AT DECEMBER 31, ,660,372 16,603,715 14, , , ,282 3,131,658 4,031,432 6,038,592 13,201,682 3,004,110 6,334,530 (5,747 ) 39,756,572 10,078,710 49,835,282 Appropriation of the 2014 earnings Legal reserve ,262 - (60,262) Cash dividends distributed by the Company (664,148) (664,148) (664,148) - (664,148) Cash dividends distributed by subsidiaries (296,799 ) (296,799 ) Adjustments for the changes in equity of associates ,082 42, (1,465 ) (1,465 ) ,617 2,644 43,261 Partial acquisition of interests in subsidiaries ,287 19, ,287 (577,930 ) (558,643 ) Adjustments for the changes in equity of subsidiaries ,605 5, ,605 (8,168 ) (2,563 ) Net profit for the year ended December 31, , , , ,290 1,182,194 Other comprehensive income for the year ended December 31, 2015, net of income tax (314,323) (314,323) (280,019) (3,532,903) 13,628 (4,113,617) (147,939) (4,261,556) Total comprehensive loss for the year ended December 31, , ,581 (280,019 ) (3,532,903 ) 13,628 (3,611,713 ) 532,351 (3,079,362 ) BALANCE AT DECEMBER 31, ,660,372 $ 16,603,715 $ 14,947 $ 293,124 $ 377,185 $ 685,256 $ 3,191,920 $ 4,031,432 $ 5,500,298 $ 12,723,650 $ 2,724,091 $ 2,801,627 $ 7,881 $ 35,546,220 $ 9,730,808 $ 45,277,028 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2016) - 8 -

10 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) (Audited after Restatement) CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 1,627,238 $ 1,247,531 Adjustments for: Depreciation and amortization expenses 3,473,770 3,241,007 Impairment loss recognized on accounts receivable 1, ,655 Net loss on fair value change of financial instruments at fair value through profit or loss 71,842 41,786 Finance costs 892, ,811 Interest income (247,177) (234,261) Dividend income (602,366) (436,264) Share of profit of associates (150,480) (235,851) Loss on disposal of property, plant and equipment 8,742 37,698 Net gain on disposal of investments (195,881) (158,133) Impairment loss on financial assets 48,206 9,955 Write-down (reversal of write-down) of inventories 31,070 (45,247) Net unrealized loss (gain) on foreign currency exchange 814,093 (219,980) Loss (gain) on changes in fair value less cost to sell biological assets 740 (33,001) Other items 2,565 - Changes in operating assets and liabilities Notes receivable (922,158) (187,212) Accounts receivable (437,193) (1,568,289) Accounts receivable 390,531 (86,304) Inventories (456,431) (79,328) Biological assets (706,480) (165,964) Prepayments (217,627) (2,875) Other current assets (951,780) 49,928 Notes payable 1,855,576 92,387 Accounts payable 422, ,565 Accounts payable to related (555,219) 194,758 Other payables 113,671 40,709 Other current liabilities 572,849 94,399 Net defined benefit liabilities 16,387 (35,505) Cash generated from operations 4,901,234 2,853,975 Interest received 170, ,689 Dividends received 756, ,642 Interest paid (876,497) (708,715) Income tax paid (453,938) (444,838) Net cash generated from operating activities 4,498,510 2,449,753 (Continued) - 9 -

11 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) (Audited after Restatement) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial instruments at fair value through profit or loss $ (18,660,044) $ (14,810,185) Proceeds of the sale of financial instruments at fair value through profit or loss 18,502,089 14,800,791 Purchase of available-for-sale financial assets (32,588) (1,639,635) Proceeds on sale of available-for-sale financial assets 88,582 1,260,984 Purchase of debt investments with no active market (400,000) (734,935) Proceeds on sale of debt investments with no active market 1,053,998 - Purchase of financial assets measured at cost (261,237) (530,306) Proceeds on sale of financial assets measured at cost 157,156 30,104 Proceeds of the return of capital upon investees capital reduction on financial assets measured at cost 23,670 29,386 Payments to acquire financial assets for hedging (7,205) - Proceeds on sale of financial assets for hedging - 3,828 Proceeds on sale of investments accounted for using the equity method Acquisition of subsidiaries (50,092) (85,608) Net cash outflow on disposal of subsidiaries (6,775) (87,059) Proceeds on return of capital on investments accounted for using the equity method - 1,400 Payments for property, plant and equipment (4,602,832) (4,886,516) Proceeds from disposal of property, plant and equipment 55, ,621 Payments for investment properties (13,219) (17,344) Proceeds from the disposal of investment properties 89, ,215 Increase in prepayments for equipment (1,439,026) (441,997) Increase in prepayments for lease (188,715) (113,099) Decrease (increase) in other non-current assets 158,566 (271,760) Net cash used in investing activities (5,532,521) (7,141,115) CASH FLOWS FROM FINANCING ACTIVITIES Repayments of short-term borrowings (1,717,438) (1,085,975) Proceeds from short-term bills payable 5,108, ,341 Repayments of bond payables (1,250,000) (1,250,000) Proceeds of long-term borrowings 140,186 6,646,695 Decrease in other non-current liabilities (16,870) (8,571) Cash dividends paid (664,148) (664,148) Decrease in non-controlling interest (953,395) (525,203) Net cash generated from activities 646,704 3,800,139 (Continued)

12 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars) (Audited after Restatement) EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES $ (5,156) $ 97,764 NET DECREASE IN CASH AND CASH EQUIVALENTS (392,463) (793,459) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 2,773,107 3,566,566 CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR $ 2,380,644 $ 2,773,107 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche audit report dated March 25, 2016) (Concluded)

13 YFY INC. (FORMERLY YUEN FOONG YU PAPER MFG. CO., LTD.) 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 YFY Inc. (the Company, formerly Yuen Foong Yu Paper Mfg. Co., ) was incorporated in Kaohsiung in February The Company s shares have been listed on the Taiwan Stock Exchange (TSE) since February The Company originally manufactured, packaged, tested and sold various integrated circuit products. To increase its competitiveness and sales through organization restructuring and specialization, the Company spun off the assets, liabilities, and operations of its consumer products and packaging segments to its subsidiaries, YFY Consumer Products Co., in October 2007 and YFY Packaging Inc. in September In addition, the Company spun off the assets, liabilities and operations of its paper and cardboard business segment to Chung Hwa Pulp Co., (CHPC) and acquired the shares issued by CHPC on October 1, After this transaction, CHPC became a subsidiary of the Company, and the Company became an investment holding company, with investment and holding as its main business. 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 18, APPLICATION OF NEW, AMENDED AND REVISED STANDARDS 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 Financial Supervisory Commission (FSC) on April 3, 2014 stipulated that the Group 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,

14 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 12 Disclosure of Interests in Other Entities IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries and associates. In general, the disclosure in IFRS 12 are more extensive; please refer to Notes 14 and 15 for related disclosures. 2) 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. 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. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of the other comprehensive income (except the share of the remeasurements of the defined benefit plans) of subsidiaries and associates accounted for using the equity method. However, the application of the above amendments will not have 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. 3) 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. 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 not adjusted to cumulative employee benefit cost. In addition, in preparing the consolidated financial statements for the year ended December 31, 2015, the Group elected not to present 2014 comparative information about the sensitivity of the defined benefit obligation

15 The impact in the prior year is set out below: As Originally Stated Adjustments Arising from Initial Application Restated Impact on total comprehensive income for the year ended December 31, 2014 Operating costs $ (51,504,502) $ 1,500 $ (51,503,002) Operating expenses (8,788,421) (8,376) (8,796,797) Income tax expense (384,643) 1,169 (383,474) Total effect on net loss for the year (60,677,566) (5,707) (60,683,273) Items that will not be reclassified to profit or loss: Remeasurements of defined benefit plan (120,330) 5,707 (114,623) Total effect on other comprehensive income for the year, net of income tax (120,330) 5,707 (114,623) Total effect on total comprehensive income for the year $ (60,797,896) $ - $ (60,797,896) Net profit attributable to: Owners of the Company $ (6,304) Non-controlling interests 597 Impact on earnings per share: For the year ended December 31, 2014 $ (5,707) Basic $ 0.36 $ - $ 0.36 Diluted $ 0.36 $ - $ 0.36 b. New IFRSs in issue but not yet endorsed by the FSC On March 10, 2016, the FSC announced the scope of IFRSs to be endorsed and will take effect from January 1, Within this scope are all IFRSs that had been issued by the IASB before January 1, 2016 and have effective dates on or before January 1, 2017, and outside this scope are those IFRS 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 dates. 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 had not yet announced the effective dates of other new, amended and revised standards and interpretations

16 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 () 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 14 Regulatory Deferral Accounts January 1, 2016 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 27 Equity Method in Separate Financial January 1, 2016 Statements 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. : 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,

17 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: 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: 1) 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; 2) 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 accounts receivable that do not constitute a 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

18 Hedge accounting The main changes in hedge accounting amended the application for hedge accounting to better reflect the entity s risk management activities. Compared with IAS 39, the main changes include: (1) enhancing types of transactions eligible for hedge accounting, specifically broadening the risk eligible for hedge accounting of non-financial items; (2) changing the way hedging derivative instruments are accounted for to reduce profit or loss volatility; and (3) replacing retrospective effectiveness assessment with the principle of economic relationship between the hedging instrument and the hedged item. 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 that are measured at fair values. 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; inputs by level are described 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). 3) Level 3 inputs are unobservable inputs on the asset or liability. c. Classification of current and non-current 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, unless the asset is restricted from being exchanged or used to settle a liability for at least 12 months after the reporting period. Current liabilities include: 1) Liabilities held primarily for the purpose of trading;

19 2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; 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. 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. Assets and liabilities that are not classified as current are classified as non-current. d. Basis of consolidation Principles for preparing consolidated financial statements The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company. 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 or 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 intra-group 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 losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group s interests and the noncontrolling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the noncontrolling 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. When the Group loses control of a subsidiary, a gain or loss is recognized in profit or loss and is calculated as the difference between (i) the aggregate of the fair value of the consideration received and any investment retained in the former subsidiary at its fair value at the date when control is lost and (ii) the assets (including any goodwill) and liabilities and any noncontrolling interests of the former subsidiary at their carrying amounts at the date when control is lost. The Group accounts for all amounts recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Group had directly disposed of the related assets or liabilities. The fair value of any investment retained in the former subsidiary at the date when control is lost is regarded as the fair value on initial recognition for subsequent accounting under IAS 39 Financial Instruments: Recognition and Measurement, or, when applicable, as the cost on initial recognition of an investment in an associate. See Note 14 and Tables 8 and 9 for more information on subsidiaries (including the percentage of ownership and main business)

20 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 acquiree, and the fair value of the acquirer s previously held equity interest in the acquiree over the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. If, after re-assessment, the net of the acquisition-date amounts of the identifiable assets acquired and liabilities assumed exceeds the sum of the consideration transferred, the amount of any noncontrolling interests in the acquiree and the fair value of the acquirer s previously held interest in the acquiree, the excess are recognized immediately in profit or loss as a bargain purchase gain. Non-controlling interests that are present ownership interests and entitle their holders to a proportionate share of the entity s net assets in the event of liquidation may be initially measured either at fair value or at the non-controlling interests proportionate share of the recognized amounts of the acquiree s identifiable net assets. The choice of measurement basis is made on a transaction-by-transaction basis. Other types of non-controlling interests are measured at fair value. Where the consideration the Group transfers in a business combination includes assets or liabilities resulting from a contingent consideration arrangement, the contingent consideration is measured at its acquisition-date fair value and considered as part of the consideration transferred in a business combination. Changes in the fair value of the contingent consideration that qualify as measurement period adjustments are adjusted retrospectively, with the corresponding adjustments being made against goodwill or gain on bargain purchase. Measurement period adjustments are adjustments that arise from additional information obtained during the measurement period about facts and circumstances that existed as of the acquisition date. Measurement period does not exceed one year from the acquisition date. 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. Non-monetary 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 non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary 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. Non-monetary items that are measured at historical cost in a foreign currency are not retranslated. For the purposes of presenting consolidated financial statements, the assets and liabilities of the Group s foreign operations (including of the subsidiaries and associates operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income attributed to the owners of the Company and noncontrolling interests as appropriate

21 On the disposal of a foreign operation involving loss of control over a subsidiary or loss of significant influence over an associate, 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 noncontrolling 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. g. Inventories Inventories consist of raw materials, supplies, finished goods and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at weighted-average cost on the balance sheet date. h. Investments in subsidiaries The Company uses the equity method to account for its investments in subsidiaries. A subsidiary is an entity that is controlled by the Company. Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company s share of the equity of subsidiaries. Changes in the Company s ownership interest in a subsidiary that do not result in the Company s losing control over the subsidiary are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the consideration paid or received. When the Company s share of losses of a subsidiary exceeds its interest in that subsidiary (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Company s net investment in the subsidiary), the Company continues recognizing its share of further losses. Any acquisition cost in excess of the Company s share of the net fair value of the identifiable assets and liabilities of a subsidiary at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. If the Company s share of the net fair value of the identifiable assets and liabilities exceeds the acquisition cost, this excess is recognized immediately in profit or loss. The Company assesses its investment for any impairment by comparing the carrying amount with the recoverable amount as estimated on the basis of the a subsidiary s entire financial statements. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes a reversal of impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period

22 When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of previous investment at the date when control is lost is recognized as gain or loss in profit or loss. In addition, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would have been required had the Company directly disposed of the related assets or liabilities. Profits or losses resulting from downstream transactions are fully eliminated only in the parent company s financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are also recognized only in the parent company s financial statements to the extent of interests in the subsidiaries that are not related to the Company. i. Investment in associates An associate is an entity over which the Group has significant influence and that is not a subsidiary. Under the equity method, investments in an associate are initially recognized at cost and adjusted thereafter to recognize the Group s share of the profit or loss and other comprehensive income of the associate. The Group also recognizes the changes in the Group s share of equity of associates. Any acquisition cost in excess of the Group s share of the net fair value of the identifiable assets and liabilities of an associate at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. If the Group s share of the net fair value of the identifiable assets and liabilities exceeds acquisition cost, after reassessment, this excess is recognized immediately in profit or loss. When the Group subscribes for additional new shares of the associate at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group s proportionate interest in the associate. The Group records such a difference as an adjustment to investments, with the corresponding amount charged or credited to capital surplus - changes in the Group s share of equity of associates. If the Group s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings. When the Group s share of losses of an associate and a joint venture equals or exceeds its interest in that associate (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Group s net investment in the associate), the Group discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Group has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate. The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized forms part of the carrying amount of the investment. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases. The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Group accounts for