INNOLUX CORPORATION AND SUBSIDIARIES

Transcription

1 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2014 AND For the convenience of readers and for information purpose only, the auditors report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors report and financial statements shall prevail.

2 REPORT OF INDEPENDENT ACCOUNTANTS To the Board of Directors and Stockholders of : We have audited the accompanying consolidated balance sheets of and its subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We did not audit the financial statements of certain consolidated subsidiaries and investments accounted for under equity method for the year ended December 31, Those statements reflect NT$5,130,451,000, constituting 1% of the consolidated total assets as of December 31, 2013, and total operating revenues was NT$0 for the year then ended. Those financial statements and the information disclosed in Note 13 were audited by other independent accountants whose reports thereon have been furnished to us, and our opinion expressed herein is based solely on the audit reports of the other independent accountants. We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and generally accepted auditing standards in the Republic of China. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits and the reports of other independent accountants provide a reasonable basis for our opinion. In our opinion, based on our audits and the reports of other independent accountants, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of and subsidiaries as of December 31, 2014 and 2013, and their financial performance and cash flows for the years then ended in conformity with the Regulations Governing the Preparations of Financial Statements by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission. ~1~

3 and its subsidiaries current liabilities have exceeded its current assets by NT$9,754,686,000 as of December 31, As set forth in Note 12(4), management has designed a turnaround plan to improve the Company s operating efficiency. We have also audited the separate financial statements of as of and for the years ended December 31, 2014 and 2013, and have expressed an unqualified opinion on such financial statements. PricewaterhouseCoopers, Taiwan February 10, The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. ~2~

4 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars) Assets Notes Current assets Cash and cash equivalents 6(1) $ 70,989,741 $ 44,137,818 Financial assets at fair value through profit 6(2) or loss - current 52, ,703 Available-for-sale financial assets - current 6(3) 220,000 - Accounts receivable, net 6(5) 70,976,005 66,358,291 Accounts receivable, net - related parties 7 6,112,400 2,049,985 Other receivables 7 2,849,589 4,255,683 Inventory 6(6) 33,787,842 50,524,156 Prepayments 1,441,603 1,194,871 Other financial assets - current 8 2,284,870 2,544,567 Other current assets 666, ,895 Total current assets 189,380, ,701,969 Non-current assets Financial assets at fair value through profit 6(2) or loss - non-current 605, ,603 Available-for-sale financial assets - 6(3) non-current 5,137,117 3,952,530 Investments accounted for under equity 6(7) method 2,364,225 4,919,134 Property, plant and equipment 6(8), 7 and 8 233,609, ,505,759 Investment property, net 6(9) 693, ,850 Intangible assets 6(10) 20,219,137 21,214,994 Deferred income tax assets 6(25) 17,778,516 18,123,869 Other financial assets - non-current 8 11,160,082 12,327,722 Other non-current assets 1,567,991 1,035,455 Total non-current assets 293,135, ,498,916 Total assets $ 482,516,555 $ 508,200,885 (Continued) ~3~

5 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars) Current liabilities Liabilities and Equity Notes The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountants dated February 10, ~4~ Short-term borrowings 6(11) $ 22,526,999 $ 31,179,767 Financial liabilities at fair value through profit or loss - current 6(2) Derivative financial liabilities for hedging - 6(4) current 605, ,097 1,351 - Accounts payable 74,954,439 65,435,586 Accounts payable - related parties 7 5,252,946 8,756,243 Other payables 7 23,912,180 20,715,595 Current income tax liabilities 582, ,482 Provisions - current 6(15) 3,133,489 1,949,029 Long-term liabilities, current portion 6(12) 66,162, ,097,708 Other current liabilities 2,004,157 2,309,244 Total current liabilities 199,135, ,586,751 Non-current liabilities Derivative financial liabilities for hedging - 6(4) non-current - 21,918 Long-term borrowings 6(12) 42,293,423 - Deferred income tax liabilities 6(25) 477, ,708 Other non-current liabilities 9 11,438,618 12,104,654 Total non-current liabilities 54,209,621 13,036,280 Total liabilities 253,345, ,623,031 Equity attributable to owners of the parent Share capital - common stock 6(16) 99,545,364 91,094,288 Capital surplus 6(17) 99,584,369 96,058,741 Retained earnings 6(18) Legal reserve 509,272 2,328,981 Special reserve 1,144,229 - Unappropriated retained earnings 24,979,173 5,092,716 Other equity interest 6(19) 1,927,656 ( 1,531,497) Equity attributable to owners of the parent 227,690, ,043,229 Non-controlling interest 1,481,373 1,534,625 Total equity 229,171, ,577,854 Significant contingent liabilities and unrecognized contract commitments Significant events after the balance sheet date 9 6(12)(16) and 11 Total liabilities and equity $ 482,516,555 $ 508,200,885

6 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars) Items Notes Sales revenue 7 $ 428,661,898 $ 422,730,500 Operating costs 6(6)(23)(24) and 7 ( 378,276,897) ( 384,971,385) Net operating margin 50,385,001 37,759,115 Operating expenses 6(23)(24) Selling expenses ( 3,224,079) ( 2,974,223) General and administrative expenses ( 6,810,443) ( 7,169,974) Research and development expenses ( 12,177,083) ( 12,265,650) Total operating expenses ( 22,211,605) ( 22,409,847) Operating profit 28,173,396 15,349,268 Non-operating income and expenses Other income 6(20) 2,734,952 2,627,868 Other gains and losses 6(21) ( 5,130,475) ( 7,166,774) Finance costs 6(22) ( 3,309,347) ( 5,103,230) Share of profit/(loss) of associates and joint ventures accounted for under equity method 65,814 ( 63,779) Total non-operating income and expenses ( 5,639,056) ( 9,705,915) Profit before income tax 22,534,340 5,643,353 Income tax expense 6(25) ( 857,432) ( 548,334) Profit for the year $ 21,676,908 $ 5,095,019 Other comprehensive income (net) Financial statements translation differences of foreign operations $ 3,078,767 $ 2,712,774 Unrealized gain on valuation of 6(3) available-for-sale financial assets 284,946 16,772 Cash flow hedges 6(4) ( 278,458) 79,477 Actuarial loss on defined benefit plan 6(13) ( 55,790) ( 11,870) Share of other comprehensive income of associates and joint ventures accounted for under equity method 81,659 36,122 Income tax relating to the components of 6(25) other comprehensive income 48,369 26,242 Other comprehensive income for the year, net of tax $ 3,159,493 $ 2,859,517 Total comprehensive income for the year $ 24,836,401 $ 7,954,536 Profit attributable to: Owners of the parent $ 21,676,759 $ 5,102,568 Non-controlling interest 149 ( 7,549) Total $ 21,676,908 $ 5,095,019 Other comprehensive income attributable to: Owners of the parent $ 24,844,853 $ 7,953,076 Non-controlling interest ( 8,452) 1,460 Total $ 24,836,401 $ 7,954,536 Earnings per share (in dollars) 6(26) Basic earnings per share $ 2.31 $ 0.57 Diluted earnings per share $ 2.28 $ 0.57 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountants dated February 10, ~5~

7 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated) Notes Common stock Capital surplus Legal reserve Equity attributable to owners of the parent Retained Earnings Financial statements translation differences of Unappropriated foreign Special reserve earnings operations Other equity interest Unrealized gain (loss) on available-forsale financial assets Changes in gain (loss) on cash flow hedge Employee unearned compensatio n Total Non-controlling interest Total 2013 Balance at January 1, 2013 $ 79,129,708 $ 119,677,980 $ 2,328,981 $ - ($ 27,308,220 ) ($ 2,818,705 ) ($ 1,609,513 ) $ 423,629 $ - $ 169,823,860 $ 1,533,165 $ 171,357,025 Capital surplus offset against accumulated deficit - ( 27,308,220 ) ,308, Global depositary receipt issued 6(16) for cash 11,250,000 3,269, ,519,051-14,519,051 Issuance of restricted stock to 6(14) employees 725, , ( 754,166) 158, ,306 Cancellation of restricted stock to employees ( 10,680 ) 10, Compensation related to 6(14) share-based payment - 189, , , ,874 Changes in net equity of long-term equity investments - 32, ,062-32,062 Profit for the year ,102, ,102,568 ( 7,549) 5,095,019 Other comprehensive income for 6(19) the year ( 9,852 ) 2,740,631 65,168 54,561-2,850,508 9,009 2,859,517 Balance at December 31, 2013 $ 91,094,288 $ 96,058,741 $ 2,328,981 $ - $ 5,092,716 ($ 78,074 ) ($ 1,544,345 ) $ 478,190 ( $387,268) $ 193,043,229 $ 1,534,625 $ 194,577, Balance at January 1, 2014 $ 91,094,288 $ 96,058,741 $ 2,328,981 $ - $ 5,092,716 ($ 78,074 ) ($ 1,544,345 ) $ 478,190 ( $387,268) $ 193,043,229 $ 1,534,625 $ 194,577,854 Capital issued for cash 6(16) 8,500,000 2,125, ,625,000-10,625,000 Appropriations of 2013 earnings: 6(18) Legal reserve ,272 - ( 509,272 ) Special reserve ,144,229 ( 1,144,229 ) Cash dividends ( 90,495 ) ( 90,495) - ( 90,495 ) Cash paid from capital surplus 6(18) - ( 1,266,944 ) ( 1,266,944) - ( 1,266,944 ) Capital surplus offset against 6(18) accumulated deficit - 2,328,981 ( 2,328,981 ) Cancellation of restricted stock to employee ( 48,924 ) 48, Changes in restricted stock to employees - 47, ( 43,951) 3,223-3,223 Compensation related to 6(14) share-based payment - 289, , , ,227 Changes in net equity of long-term equity investments - ( 47,030 ) ( 47,030) - ( 47,030 ) Changes in non-controlling interests ( 44,800) ( 44,800 ) Profit for the year ,676, ,676, ,676,908 Other comprehensive income for 6(19) the year ( 46,306 ) 3,161, ,498 ( 231,120) - 3,168,094 ( 8,601) 3,159,493 Balance at December 31, 2014 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ($ 1,259,847 ) $ 247,070 ( $142,515) $ 227,690,063 $ 1,481,373 $ 229,171,436 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountants dated February 10, ~6~

8 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars) Notes CASH FLOWS FROM OPERATING ACTIVITIES Consolidated profit before tax for the year $ 22,534,340 $ 5,643,353 Adjustments to reconcile net income to net cash provided by operating activities Income and expenses having no effect on cash flows Depreciation and amortization 6(23) 60,899,556 77,851,438 Compensation related to share-based payment 6(24) 578, ,874 Provision for doubtful accounts 6(5) Share of profit (loss) of associates and joint ventures accounted for under equity method ( 65,814 ) 63,779 Gain from disposal of investments 6(21) ( 794,041 ) ( 1,977,799 ) Loss on disposal of property, plant and equipment 6(21) 179, ,658 Impairment loss 6(21) 351, ,828 Interest expense 6(22) 3,586,581 5,051,960 Interest income 6(20) ( 328,633 ) ( 293,741 ) Dividend income ( 39,958 ) ( 58,897 ) Unrealized foreign exchange loss (gain) 1,417,004 ( 310,450 ) Changes in assets/liabilities relating to operating activities Net changes in assets relating to operating activities Financial assets /liabilities at fair value through profit or loss 198,617 ( 1,275,676 ) Accounts receivable ( 4,618,534 ) 8,336,807 Accounts receivable - related parties ( 4,062,415 ) 6,500,243 Other receivables ( 1,047,816 ) 734,595 Inventories 16,736,314 ( 8,456,587 ) Prepayments ( 246,732 ) ( 226,676 ) Other current assets ( 257,414 ) ( 123,046 ) Net changes in liabilities relating to operating activities Derivative financial liabilities for hedging ( 299,025 ) ( 399,357 ) Accounts payable 9,518,853 ( 16,066,134 ) Accounts payable - related parties ( 3,503,297 ) ( 4,958,074 ) Other payables 4,070, ,050 Provisions - current 1,184, ,253 Other current liabilities ( 290,486 ) 513,119 Other non-current liabilities ( 721,826 ) 3,133,498 Cash generated from operations 104,980,099 76,863,471 Cash paid for income tax ( 768,062 ) ( 974,312 ) Net cash provided by operating activities 104,212,037 75,889,159 (Continued) ~7~

9 INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (Expressed in thousands of New Taiwan dollars) Notes CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of available-for-sale financial assets ($ 240,167 ) ($ 916,909 ) Proceeds from disposal of available-for-sale financial assets 802,524 3,963,684 Proceeds from disposal of financial assets carried at cost - non-current - 192,758 Proceeds from disposal of non-current assets held for sale - 279,312 Acquisition of investment accounted for under equity method ( 73,500 ) - Proceeds from disposal of investment accounted for under equity method 1,685, ,185 Proceeds from capital reduction of investments accounted for under equity method 59,451 - Decrease in other financial assets 464, ,407 Acquisition of property, plant and equipment 6(27) ( 20,526,552 ) ( 18,370,343 ) Proceeds from disposal of property, plant and equipment 6(27) 4,253,209 1,174,898 Acquisition of intangible assets ( 18,140 ) ( 157,781 ) (Increase) decrease in other non-current assets ( 22,070 ) 29,586 Interest received 368, ,391 Dividends received 64, ,765 Net cash used in investing activities ( 13,183,151 ) ( 12,161,047 ) CASH FLOWS FROM FINANCING ACTIVITIES Decrease in short-term borrowings ( 8,881,219 ) ( 14,499,547 ) Decrease in short-term notes and bills payable - ( 699,430 ) Payment of long-term borrowings ( 61,671,395 ) ( 51,589,030 ) Payment of bonds payable - ( 2,000,000 ) Decrease in accrued lease payments - ( 980,000 ) Stock issued for cash 6(16) 10,625,000 14,519,051 Cash dividends paid 6(18) ( 90,495 ) - Cash paid from capital surplus ( 1,266,944 ) - Proceeds from issuance of restricted stock to employees 6(14) - 181,315 Repurchase from issuance of restricted stock to employees ( 7,754 ) ( 8,260 ) Changes in non-controlling interests ( 44,800 ) - Interest paid ( 3,608,923 ) ( 5,586,134 ) Net cash used in financing activities ( 64,946,530 ) ( 60,662,035 ) Effect of changes in foreign currency exchange 769, ,764 Increase in cash and cash equivalents 26,851,923 3,239,841 Cash and cash equivalents at beginning of year 44,137,818 40,897,977 Cash and cash equivalents at end of year $ 70,989,741 $ 44,137,818 The accompanying notes are an integral part of these consolidated financial statements. See report of independent accountants dated February 10, ~8~

10 INNOLUX CORPORATION AND SUBSIDIARIES NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (All amounts expressed in thousands of New Taiwan dollars) 1. HISTORY AND ORGANIZATION (1) (the Company ) was organized on January 14, 2003 under the Act for Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company was listed on the Taiwan Stock Exchange (the TSEC ) in October The Company merged with TPO Displays and Chi Mei Optoelectronics on March 18, 2010, with the Company as the surviving entity. (2)The Company and its subsidiaries (the Group ) are engaged in the research, development, design, manufacture and sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD. 2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION These consolidated financial statements were authorized for issuance by the Board of Directors on February 10, APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards ( IFRS ) as endorsed by the Financial Supervisory Commission ( FSC ) None. (2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group According to Financial-Supervisory-Securities-Auditing No issued on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taiwan GreTai Securities Market or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, Financial instruments ) as endorsed by the FSC and the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" effective January 1, 2015 (collectively referred herein as the 2013 version of IFRSs ) in preparing the consolidated financial statements. The related new standards, interpretations and amendments are listed below: New Standards, Interpretations and Amendments Limited exemption from comparative IFRS 7 disclosures for first-time adopters (amendment to IFRS 1) Effective Date by International Accounting Standards Board July 1, 2010 ~9~

11 New Standards, Interpretations and Amendments Based on the Group s assessment, the adoption of the 2013 version of IFRS has no significant impact on the consolidated financial statements of the Group, except the following: A.IAS 19, Employee benefits Under the revised standard, net interest expense or income, calculated by applying the discount rate to the net defined benefit asset or liability, replace the finance charge and expected return on plan assets. Additional disclosures are also required. B.IAS 1, Presentation of financial statements The amendment requires entities to separate items presented in other comprehensive income (OCI) classified by nature into two groups on the basis of whether they may be reclassified to profit or loss subsequently when specific conditions are met. If the items are presented before tax then the tax related to each of the two groups of OCI items (those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly, the Group will adjust its presentation of the statement of comprehensive income. Effective Date by International Accounting Standards Board Severe hyperinflation and removal of fixed dates July 1, 2011 for first-time adopters (amendment to IFRS 1) Government loans (amendment to IFRS 1) January 1, 2013 Disclosures-Transfers of financial assets July 1, 2011 (amendment to IFRS 7) Disclosures-Offsetting financial assets and financial January 1, 2013 liabilities (amendment to IFRS 7) IFRS 10, Consolidated financial statements January 1, 2013 (Investment entities: January 1, 2014) 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 Presentation of items of other comprehensive income July 1, 2012 (amendment to IAS 1) Deferred tax: recovery of underlying assets January 1, 2012 (amendment to IAS 12) IAS 19 (revised), Employee benefits January 1, 2013 IAS 27 (revised), Separate financial statements January 1, 2013 Investments in associates and joint ventures January 1, 2013 (amendment to IAS 28) Offsetting financial assets and financial liabilities January 1, 2014 (amendment to IAS 32) IFRIC 20, Stripping costs in the production phase January 1, 2013 of a surface mine Improvements to IFRSs 2010 January 1, 2011 Improvements to IFRSs January 1, 2013 ~10~

12 C.IFRS 12, Disclosure of interests in other entities The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. The Group will disclose additional information about its interests in consolidated entities and unconsolidated entities accordingly. D.IFRS 13, Fair value measurement The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard sets out a framework for measuring fair value using the assumptions that market participants would use when pricing the asset or liability; for non-financial assets, fair value is determined based on the highest and best use of the asset. The standard requires disclosures about fair value measurements. Based on the Group s assessment, the adoption of the standard has no significant impact on its consolidated financial statements and the Group will disclose additional information about fair value measurements accordingly. Based on the Group s assessment, the adoption of the 2013 version of IFRSs has no significant impact on the consolidated financial statements of the Group. (3) IFRSs issued by IASB but not yet endorsed by the FSC New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRS as endorsed by the FSC: New Standards, Interpretations and Amendments Effective Date by International Accounting Standards Board IFRS 9, Financial instruments January 1, 2018 Sale or contribution of assets between an investor and its associate January 1, 2016 or joint venture (amendments to IFRS 10 and IAS 28) Investment entities: applying the consolidation exception January 1, 2016 (amendments to IFRS 10, IFRS 12 and IAS 28) Accounting for acquisition of interests in joint operations January 1, 2016 (amendments to IFRS 11) IFRS 14, Regulatory deferral accounts January 1, 2016 IFRS 15, Revenue from contracts with customers January 1, 2017 Disclosure initiative (amendments to IAS 1) January 1, 2016 Clarification of acceptable methods of depreciation and amortisation January 1, 2016 (amendments to IAS 16 and IAS 38) Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016 Defined benefit plans: employee contributions July 1, 2014 (amendments to IAS 19) Equity method in separate financial statements January 1, 2016 (amendments to IAS 27) Recoverable amount disclosures for non-financial assets January 1, 2014 (amendments to IAS 36) ~11~

13 The Group is assessing the impact of the new standards and interpretations above and the impact will be disclosed when the assessment is complete. 4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement These consolidated financial statements are the consolidated financial statements prepared by the Group in accordance with the Rules Governing the Preparation of Financial Statements by Securities Issuers and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the IFRSs ). (2) Basis of preparation A.Except for the following items, these consolidated financial statements have been prepared under the historical cost convention: (a)financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss. (b)available-for-sale financial assets measured at fair value. (c)defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligations. B.The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the IFRSs ) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5. (3) Basis of consolidation New Standards, Interpretations and Amendments A.Basis for preparation of consolidated financial statements Effective Date by International Accounting Standards Board Novation of derivatives and continuation of hedge accounting January 1, 2014 (amendments to IAS 39) IFRIC 21, Levies January 1, 2014 Improvements to IFRSs July 1, 2014 Improvements to IFRSs July 1, 2014 Improvements to IFRSs January 1, 2016 (a)all subsidiaries are included in the Group s consolidated financial statements. Subsidiaries are ~12~

14 all entities over which the Group has the power to govern the financial and operating policies. In general, control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. (b)inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group. (c)profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. (d)changes in a parent s ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity. (e)when the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary are reclassified to profit or loss on the same basis as would be required if the related assets or liabilities were disposed of. That is, when the Group loses control of a subsidiary, all gains or losses previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss, if such gains or losses would be reclassified to profit or loss when the related assets or liabilities are disposed of. B.Subsidiaries included in the consolidated financial statements: Ownership (%) Main Business December 31, Name of Investor Name of Subsidiary Activities Description Bright Information Investment holdings ( a ) Holding Gold Union Investments Investment holdings Golden Achiever Investment holdings International Holding Investment holdings Keyway Investment Investment holdings Management Limited Landmark International Investment holdings ~13~

15 Ownership (%) Main Business December 31, Name of Investor Name of Subsidiary Activities Description Toppoly Optoelectronics Investment holdings (B.V.I.) Hong Kong Investment holdings Holding (Former TPO Hong Kong Holding ) Leadtek Global Group Order swapping Limited company Yuan Chi Investment Investment company Co., InnoJoy Investment Investment company Chi Mei Optoelectronics Distribution company ( c ) (Singapore) Pte Optoelectronics Europe B.V. (Former Chi Mei Optoelectronics Europe B.V.) Investment and distribution company Bright Information Holding Gold Union Investments Golden Achiever International Optoelectronics Japan Co., (Former Chi Mei Optoelectronics Japan Co., ) Chi Mei El Kunpal Optoelectronics Ningbo Display VAP Optoelectronics (Nanjing) Corp. Investment and distribution company Production and distribution company Processing company Processing company Processing company Holding Rockets Holding Investment holdings Suns Holding Investment holdings Lakers Trading Order swapping company Distribution company Keyway Investment Ningbo Logistics Warehousing company Management Limited Foshan Logistics Warehousing company Landmark International Ningbo Optoelectronics Ningbo Technology Processing company Processing company ~14~

16 Ownership (%) Main Business December 31, Name of Investor Name of Subsidiary Activities Description Landmark International Toppoly Optoelectronics (B.V.I.) Hong Kong Holding Optoelectronics Europe B.V. Optoelectronics Japan Co., Rockets Holding Suns Holding Foshan Optoelectronics (Former Nanhai Chi Mei Electronics ) Nanhai Chi Mei Optoelectronics Toppoly Optoelectronics (Cayman) Optoelectronics Hong Kong Holding (Former TPO Displays Hong Kong Holding ) Hong Kong (Former TPO Displays Hong Kong ) Technology Europe B.V. (Former TPO Displays Europe B.V.) Technology Japan Co., (Former TPO Displays Japan K.K.) Technology USA Inc. (Former TPO Displays USA Inc.) Chi Mei Optoelectronics Germany GmbH Optoelectronics USA, Inc. Processing company ( b ) Processing company ( b ) Investment holdings Investment holdings Order swapping company Investment and R&D company Distribution company Distribution company After sales service company Distribution company Best China Investments Investment holdings Mega Chance Investment holdings Investments Magic Sun Investment holdings Stanford Developments Investment holdings Sonics Trading Order swapping ( c ) company Nets Trading Investment company Warriors Technology Investment company Investments ~15~

17 Ownership (%) Main Business December 31, Name of Investor Name of Subsidiary Activities Description Toppoly Optoelectronics (Cayman) Optoelectronics Hong Kong Holding Technology Europe B.V. Best China Investments Mega Chance Investments Magic Sun Stanford Developments Asiaward Investment Sun Dynasty Development (a)in July, 2014, the Company obtained the remaining 43% interest of its subsidiary, Bright Information Holding, and the transaction was accounted as equity transaction. (b)in June, 2013, the Board of Directors of the Company adopted a resolution for the merger of two wholly-owned subsidiaries, Foshan Optoelectronics and Nanhai Chi Mei Optoelectronics, with Foshan Optoelectronics as the surviving company. Effective date of this merger was January 1, 2014, and it was accounted for as a reorganization. (c)chi Mei Optoelectronics (Singapore) Pte, Sonics Trading, and Innocom Technology (Xiamen) ceased operations and were all liquidated in the first quarter of C.Subsidiaries not included in the consolidated financial statements: None. D.Adjustments for subsidiaries with different balance sheet dates: None. E.The restrictions on fund remittance from subsidiaries to the parent company: None. (4) Foreign currency translation Nanjing Technology (Former TPO Displays (Shinepal) Nanjing Optoelectronics Shanghai Optoelectronics Technology Germany GmbH (Former TPO Displays Germany GmbH) Asiaward Investment Main Dynasty Investment Sun Dynasty Development Innocom Technology (Shenzhen) Innocom Technology (Xiamen) Innocom Technology (Chengdu) Co., Distribution company Processing company Processing company Testing and maintenance company Investment holdings Investment holdings Investment holdings Processing company Processing company ( c ) Processing company Items included in the financial statements of each of the Group s entities are measured using the currency of the primary economic environment in which the entity operates (the functional ~16~

18 currency ). The consolidated financial statements are presented in NTD, which is the Company s functional and the Group s presentation currency. A.Foreign currency transactions and balances (a)foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise, except when deferred in other comprehensive income as qualifying cash flow hedges. (b)monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss. (c)non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions. (d)all foreign exchange gains and losses are presented in the statement of comprehensive income under other gains and losses. B.Translation of foreign operations (a)the operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows: i.assets and liabilities for each balance sheet presented are translated at the exchange rate prevailing at the dates of that balance sheet; ii.income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; iii.all resulting exchange differences are recognized in other comprehensive income. (b)when a foreign operation partially disposed of or sold is an associate, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group retains partial interest in the former foreign associate after losing significant influence over the former foreign associate, such transactions should be accounted for as disposal of all interest in these foreign operations. (c)when the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred ~17~

19 to the non-controlling interest in this foreign operation. In addition, if the Group retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation. (5) Classification of current and non-current items A.Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets: (a)assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle; (b)assets held mainly for trading purposes; (c)assets that are expected to be realized within twelve months from the balance sheet date; (d)cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date. B.Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities: (a)liabilities that are expected to be paid off within the normal operating cycle; (b)liabilities arising mainly from trading activities; (c)liabilities that are to be paid off within twelve months from the balance sheet date; (d)liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. 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. (6) Cash equivalents Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits and bonds sold under repurchase agreements that meet the above criteria and held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents. (7) Financial assets at fair value through profit or loss A.Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of sale in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition: (a)hybrid (combined) contracts; or (b)they eliminate or significantly reduce a measurement or recognition inconsistency; or (c)they are managed and their performance is evaluated on a fair value basis, in accordance with ~18~

20 a documented risk management or investment strategy. B.On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting. C.Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss. (8) Available-for-sale financial assets A.Available-for-sale financial assets are non-derivatives that are designated in this category. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting. B.Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income. (9) Loans and receivables Accounts receivable are loans and receivables originated by the entity. They are created by the entity by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable which are non-interest bearing are subsequently measured at initial invoice amount as the effect of discounting is insignificant. (10) Impairment of financial assets A.The Group assesses at each balance sheet date whether there is objective evidence that an individual financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of an individual financial asset or group of financial assets that can be reliably estimated. B.The objective evidence that the Group uses to determine whether there is an impairment loss is as follows: (a)significant financial difficulty of the issuer or debtor; (b)a breach of contract, such as a default or delinquency in interest or principal payments; (c)information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or (d)a significant or prolonged decline in the fair value of an investment in an equity instrument below its cost. C.When the Group assesses that there has been objective evidence of impairment and an ~19~

21 impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets: (a)financial assets measured at amortized cost The amount of the impairment loss is measured as the difference between the asset s carrying amount and the present value of estimated future cash flows discounted at the financial asset s original effective interest rate, and is recognized in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account. (b)available-for-sale financial assets The amount of the impairment loss is measured as the difference between the asset s acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, and is reclassified from other comprehensive income to profit or loss. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account. (11) Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labor, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses. (12) Investments accounted for under the equity method / associates A.Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 per cent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost. B.The Group s share of its associates post-acquisition profits or losses is recognized in profit or ~20~

22 loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group s share of losses in an associate equals or exceeds its interest in the associate, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate. C.When changes in an associate s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Group s ownership percentage of the associate, the Group recognizes all the change in equity in capital surplus in proportion to its ownership. D.Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group. E.In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group s ownership percentage of the associate but maintains significant influence on the associate, then capital surplus and investments accounted for under the equity method shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of. F.Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss. G.When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. H.When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are reclassified to profit or loss. If it retains significant influence over this associate, then the amounts previously recognized as capital surplus in relation to the associate are reclassified to profit or loss proportionately. (13) Property, plant and equipment A.Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized. B.Subsequent costs are included in the asset s carrying amount or recognized as a separate asset, ~21~