Hiwin Technologies Corporation and Subsidiaries Consolidated Financial Statements for the Six Months Ended June 30, 2014 and 2013 and Independent Accountants Review Report
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In Thousands of New Taiwan Dollars) June 30, 2014 December 31, 2013 June 30, 2013 (Reviewed) (Audited) (Reviewed) ASSETS Amount % Amount % Amount % CURRENT ASSETS Cash (Note 6) $ 2,246,912 8 $ 1,185,673 4 $ 1,235,275 5 Financial assets at fair value through profit or loss - current (Note 7) 77 - - - 756 - Notes receivable from unrelated parties, net (Notes 10 and 27) 157,163 1 141,709 1 155,389 - Notes receivable from related parties, net (Note 26) 5,644-69,275-17,795 - Trade receivables from unrelated parties, net (Note 10) 4,825,493 16 4,656,896 17 3,805,394 15 Trade receivables from related parties, net (Note 26) 26,991 - - - 20,336 - Inventories (Note 11) 4,454,622 15 3,960,986 15 4,221,881 17 Other current assets (Notes 6, 26 and 27) 601,426 2 370,849 1 176,381 1 Total current assets 12,318,328 42 10,385,388 38 9,633,207 38 NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Note 8) 17-16 - 15,060 - Held-to-maturity financial assets - non-current 3,258-3,369-3,369 - Financial assets measured at cost - non-current (Note 9) 360,954 1 360,954 1 339,954 1 Investments accounted for using equity method (Note 12) 103,527-99,181-88,018 - Property, plant and equipment (Notes 13, 15 and 27) 13,825,449 47 13,902,937 50 12,653,412 50 Deferred tax assets (Note 4) 125,121-136,389 1 174,171 1 Prepayments for machinery and equipment 2,486,295 8 2,337,571 8 2,231,733 9 Refundable deposits 226,148 1 222,087 1 18,760 - Other non-current assets (Notes 6, 10, 15 and 27) 174,385 1 163,096 1 98,039 1 Total non-current assets 17,305,154 58 17,225,600 62 15,622,516 62 TOTAL $ 29,623,482 100 $ 27,610,988 100 $ 25,255,723 100 LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Notes 14 and 27) $ 5,560,430 19 $ 5,120,653 19 $ 4,519,794 18 Financial liabilities at fair value through profit or loss - current (Note 7) 26-2,792-717 - Notes payable 7,509-20,518-12,449 - Trade payables to unrelated parties 1,901,422 6 1,868,197 7 1,595,435 6 Trade payables to related parties (Note 26) 127,825-90,075-107,433 - Other payables (Note 16) 1,153,114 4 1,029,653 4 869,957 4 Dividends payable 685,316 2 - - 665,355 3 Current tax liabilities (Note 4) 347,540 1 315,136 1 200,178 1 Current portion of long-term borrowings (Notes 14, 15 and 27) 1,132,847 4 1,252,797 4 1,029,697 4 Other current liabilities 159,524 1 118,764-107,313 - Total current liabilities 11,075,553 37 9,818,585 35 9,108,328 36 NON-CURRENT LIABILITIES Long-term borrowings (Notes 14 and 27) 5,708,903 19 5,210,736 19 5,110,926 20 Deferred tax liabilities (Note 4) 151,486 1 151,754 1 153,456 - Finance lease payables - non-current (Note 15) 409,294 1 420,165 1 430,887 2 Accrued pension liabilities (Note 4) 213,863 1 213,850 1 214,216 1 Guarantee deposits received 300-300 - 300 - Total non-current liabilities 6,483,846 22 5,996,805 22 5,909,785 23 Total liabilities 17,559,399 59 15,815,390 57 15,018,113 59 EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION Common stock 2,538,208 9 2,538,208 9 2,464,280 10 Stock dividend to be distributed 76,146 - - - 73,928 - Capital surplus- additional paid-in capital 308,630 1 308,630 1 308,630 1 Retained earnings Legal reserve 1,355,627 5 1,153,469 4 1,153,469 5 Special reserve - - 163,449 1 163,449 1 Unappropriated earnings 7,128,300 24 7,065,846 26 5,678,209 22 Other equity 2,830-2,154 - (33,950) - Total equity attributable to owners of the Corporation 11,409,741 39 11,231,756 41 9,808,015 39 NON-CONTROLLING INTERESTS 654,342 2 563,842 2 429,595 2 Total equity 12,064,083 41 11,795,598 43 10,237,610 41 TOTAL $ 29,623,482 100 $ 27,610,988 100 $ 25,255,723 100 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated August 11, 2014) - 3 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended June 30 For the Six Months Ended June 30 2014 2013 2014 2013 Amount % Amount % Amount % Amount % SALES (Note 26) $ 3,538,429 100 $ 2,803,323 100 $ 6,550,399 100 5,176,878 100 COST OF GOODS SOLD (Notes 11, 17, 19 and 26) 2,149,884 61 1,742,166 62 3,962,978 61 3,286,218 64 GROSS PROFIT 1,388,545 39 1,061,157 38 2,587,421 39 1,890,660 36 OPERATING EXPENSES (Notes 17, 19 and 26) Selling and marketing expenses 298,472 8 226,663 8 526,497 8 405,350 8 General and administrative expenses 272,199 8 95,612 3 498,437 7 476,675 9 Research and development expenses 207,267 6 152,282 6 369,077 6 256,880 5 Total operating expenses 777,938 22 474,557 17 1,394,011 21 1,138,905 22 PROFIT FROM OPERATIONS 610,607 17 586,600 21 1,193,410 18 751,755 14 NON-OPERATING INCOME AND EXPENSES Finance costs (Note 19) (44,251) (1) (37,420) (2) (85,753) (1) (74,340) (2) Other income (Notes 12 and 26) 18,094-26,726 1 34,267-32,267 1 Net foreign exchange gain (loss) (78,531) (2) 49,143 2 10,534-142,702 3 Other expenses (1,950) - (1,316) - (7,826) - (4,384) - Total non-operating income and expenses (106,638) (3) 37,133 1 (48,778) (1) 96,245 2 PROFIT BEFORE INCOME TAX 503,969 14 623,733 22 1,144,632 17 848,000 16 INCOME TAX EXPENSE (Notes 4 and 20) 213,778 6 215,385 8 355,947 5 263,245 5 NET PROFIT FOR THE PERIOD 290,191 8 408,348 14 788,685 12 584,755 11 (Continued) - 4 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Earnings Per Share) (Reviewed, Not Audited) For the Three Months Ended June 30 For the Six Months Ended June 30 2014 2013 2014 2013 Amount % Amount % Amount % Amount % OTHER COMPREHENSIVE INCOME Exchange differences on translating foreign operations $ (36,045) (1) $ 15,412 1 $ 1,254 - $ 8,736 1 Unrealized gain (loss) on available-for-sale financial assets (1) - 7,993-1 - 7,254 - Income tax benefit (expense) relating to the components of other comprehensive income 6,128 - - - (579) - - - Other comprehensive income (loss) for the period (29,918) (1) 23,405 1 676-15,990 1 TOTAL COMPREHENSIVE INCOME FOR THE PERIOD $ 260,273 7 $ 431,753 15 $ 789,361 12 $ 600,745 12 NET PROFIT ATTRIBUTABLE TO: Owners of the Corporation $ 328,387 9 $ 435,247 16 $ 862,625 13 $ 634,260 12 Non-controlling interests (38,196) (1) (26,899) (1) (73,940) (1) (49,505) (1) $ 290,191 8 $ 408,348 15 $ 788,685 12 $ 584,755 11 TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owners of the Corporation $ 298,469 8 $ 458,652 16 $ 863,301 13 $ 650,250 13 Non-controlling interests (38,196) (1) (26,899) (1) (73,940) (1) (49,505) (1) $ 260,273 7 $ 431,753 15 $ 789,361 12 $ 600,745 12 EARNINGS PER SHARE (Note 21) Basic $ 1.29 $ 1.71 $ 3.40 $ 2.50 Diluted $ 1.29 $ 1.71 $ 3.39 $ 2.49 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated August 11, 2014) (Concluded) - 5 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (In Thousands of New Taiwan Dollars, Except Dividends Per Share) (Reviewed, Not Audited) Common Stock Equity Attributable to Owners of the Corporation (Note 18) Other Equity Exchange Unrealized Retained Earnings Differences on Gain (Loss) on Stock Unappropriated Translating Available-for- Non-controlling Dividend to be Earnings Foreign Sale Financial Interests Distributed Capital Surplus Legal Reserve Special Reserve (Note 20) Operations Assets Total (Note 22) Total Equity BALANCE AT JANUARY 1, 2013 $ 2,464,280 $ - $ 308,630 $ 953,150 $ 132,863 $ 6,014,137 $ (45,404) $ (4,536) $ 9,823,120 $ 479,100 $ 10,302,220 Appropriation of 2012 earnings Legal reserve - - - 200,319 - (200,319) - - - - - Special reserve - - - - 30,586 (30,586) - - - - - Cash dividends - NT$2.7 per share - - - - - (665,355) - - (665,355) - (665,355) Share dividends - NT$0.3 per share - 73,928 - - - (73,928) - - - - - - 73,928-200,319 30,586 (970,188) - - (665,355) - (665,355) Net profit for the six months ended June 30, 2013 - - - - - 634,260 - - 634,260 (49,505) 584,755 Other comprehensive income (loss) for the six months ended June 30, 2013, net of income tax - - - - - - 8,736 7,254 15,990-15,990 Total comprehensive income (loss) for the six months ended June 30, 2013 - - - - - 634,260 8,736 7,254 650,250 (49,505) 600,745 BALANCE AT JUNE 30, 2013 $ 2,464,280 $ 73,928 $ 308,630 $ 1,153,469 $ 163,449 $ 5,678,209 $ (36,668) $ 2,718 $ 9,808,015 $ 429,595 $ 10,237,610 BALANCE AT JANUARY 1, 2014 $ 2,538,208 $ - $ 308,630 $ 1,153,469 $ 163,449 $ 7,065,846 $ 2,151 $ 3 $ 11,231,756 $ 563,842 $ 11,795,598 Appropriation of 2013 earnings Legal reserve - - - 202,158 - (202,158) - - - - - Reversal of special reserve - - - - (163,449) 163,449 - - - - - Cash dividends - NT$2.7 per share - - - - - (685,316) - - (685,316) - (685,316) Share dividends - NT$0.3 per share - 76,146 - - - (76,146) - - - - - - 76,146-202,158 (163,449) (800,171) - - (685,316) - (685,316) Changes in non-controlling interests - - - - - - - - - 164,440 164,440 Net profit for the six months ended June 30, 2014 - - - - - 862,625 - - 862,625 (73,940) 788,685 Other comprehensive income (loss) for the six months ended June 30, 2014, net of income tax - - - - - - 675 1 676-676 Total comprehensive income (loss) for the six months ended June 30, 2014 - - - - - 862,625 675 1 863,301 (73,940) 789,361 BALANCE AT JUNE 30, 2014 $ 2,538,208 $ 76,146 $ 308,630 $ 1,355,627 $ - $ 7,128,300 $ 2,826 $ 4 $ 11,409,741 $ 654,342 $ 12,064,083 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated August 11, 2014) - 6 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Six Months Ended June 30 2014 2013 CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax $ 1,144,632 $ 848,000 Adjustments for : Depreciation expenses 543,219 520,665 Impairment loss recognized on receivables 8,815 82,272 Finance costs 85,753 74,340 Unrealized foreign currency exchange loss (gain), net 13,132 (35,098) Impairment loss recognized on non-financial assets 460 12,052 Amortization expenses 7,364 8,705 Gain on disposal of investments - (3,575) Share of profit of associates accounted for using equity method (4,298) (2,638) Loss on disposal of property, plant and equipment 1,507 2,458 Net loss (gain) on fair value change of financial assets and liabilities at fair value through profit or loss (51) 1,583 Others 111 - Changes in operating assets and liabilities Financial instruments held for trading (2,792) (3,233) Notes receivable 48,863 12,829 Trade receivables (215,165) 527,054 Inventories (459,764) (450,988) Other current assets 111,512 (31,230) Notes payable (13,009) 9,364 Trade payables 67,702 (33,337) Accrued pension liabilities 13 118 Other payables (4,746) (76,192) Other current liabilities 40,283 36,342 Cash generated from operations 1,373,541 1,499,491 Interest paid (86,443) (65,070) Income taxes paid (313,520) (508,072) Net cash generated from operating activities 973,578 926,349 CASH FLOWS FROM INVESTING ACTIVITIES Payments for property, plant and equipment (190,105) (533,711) Increase in prepayments for machinery and equipment (329,788) (241,645) Decrease (increase) in other financial assets (341,590) 46,904 Proceeds from sale of available-for-sale financial assets - 20,672 Increase in other non-current assets (24,249) (12,231) Purchase of held-to-maturity financial assets - (3,369) Increase in refundable deposits (3,328) (2,422) Proceeds from disposal of property, plant and equipment 1,523 302 Net cash used in investing activities (887,537) (725,500) (Continued) - 7 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars) (Reviewed, Not Audited) For the Six Months Ended June 30 2014 2013 CASH FLOWS FROM FINANCING ACTIVITIES Repayments of long-term borrowings $ (702,052) $ (457,210) Proceeds from short-term borrowings 437,108 186,439 Repayments of finance lease payable (10,556) (9,925) Changes in non-controlling interests 168,127 - Proceeds from long-term borrowings 1,085,740 - Net cash generated from (used in) financing activities 978,367 (280,696) EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES (3,169) (1,967) NET INCREASE (DECREASE) IN CASH 1,061,239 (81,814) CASH AT THE BEGINNING OF THE PERIOD 1,185,673 1,317,089 CASH AT THE END OF THE PERIOD $ 2,246,912 $ 1,235,275 The accompanying notes are an integral part of the consolidated financial statements. (With Deloitte & Touche review report dated August 11, 2014) (Concluded) - 8 -
HIWIN TECHNOLOGIES CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise) (Reviewed, Not Audited) 1. GENERAL INFORMATION Hiwin Technologies Corporation (the Corporation ) was incorporated on October 11, 1989. It manufactures and sells ballscrews, linear guideways, industrial robots, aerospace automation equipment parts, CNC (computer numerical control) milling machines and medical equipment. The Corporation was approved by the Securities and Futures Commission (renamed Securities and Futures Bureau (SFB) ) to become a public Corporation on April 16, 1997. The shares of the Corporation have been listed on the Taiwan Stock Exchange ( TSE ) since June 26, 2009. The consolidated financial statements are presented in the Corporation s functional currency, New Taiwan dollars. 2. APPROVAL OF FINANCIAL STATEMENTS The consolidated financial statements were approved by the board of directors on August 11, 2014. 3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS a. The 2013 version of the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) in issue but not yet effective Rule No. 1030010325 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 starting January 1, 2015. New, Amended and Revised Standards and Interpretations (the New IFRSs ) Effective Date Announced by IASB (Note) Improvements to IFRSs (2009) - amendment to IAS 39 January 1, 2009 and January 1, 2010, as appropriate Amendment to IAS 39 Embedded Derivatives Effective for annual periods ending on or after June 30, 2009 Improvements to IFRSs (2010) July 1, 2010 and January 1, 2011, as appropriate Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013 Amendment to IFRS 1 Limited Exemption from Comparative IFRS 7 July 1, 2010 Disclosures for First-Time Adopters Amendment to IFRS 1 Severe Hyperinflation and Removal of Fixed July 1, 2011 Dates for First-Time Adopters (Continued) - 9 -
New, Amended and Revised Standards and Interpretations (the New IFRSs ) Effective Date Announced by IASB (Note) Amendment to IFRS 1 Government Loans January 1, 2013 Amendment to IFRS 7 Disclosure - Offsetting Financial Assets and January 1, 2013 Financial Liabilities Amendment to IFRS 7 Disclosure - Transfer of Financial Assets July 1, 2011 IFRS 10 Consolidated Financial Statements January 1, 2013 IFRS 11 Joint Arrangements January 1, 2013 IFRS 12 Disclosure of Interests in Other Entities January 1, 2013 Amendments to IFRS 10, IFRS 11 and IFRS 12 Consolidated January 1, 2013 Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance Amendments to IFRS 10 and IFRS 12 and IAS 27 Investment January 1, 2014 Entities IFRS 13 Fair Value Measurement January 1, 2013 Amendment to IAS 1 Presentation of Other Comprehensive Income July 1, 2012 Amendment to IAS 12 Deferred tax: Recovery of Underlying January 1, 2012 Assets IAS 19 Employee Benefits January 1, 2013 IAS 27 Separate Financial Statements January 1, 2013 IAS 28 Investments in Associates and Joint Ventures January 1, 2013 Amendment to IAS 32 Offsetting Financial Assets and Financial January 1, 2014 Liabilities IFRIC 20 Stripping Costs in Production Phase of a Surface Mine January 1, 2013 (Concluded) Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after the respective effective dates. Except for the following, the initial application of the above 2013 IFRSs version has not had any material impact on the Group s accounting policies: 1) IFRS 10 Consolidated Financial Statements IFRS 10 replaces IAS 27 Consolidated and Separate Financial Statements and SIC 12 Consolidation - Special Purpose Entities. The Group considers whether it has control over other entities for consolidation. The Group has control over an investee if and only if it has i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee and iii) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee. 2) IFRS 13 Fair Value Measurement IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope. The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015. - 10 -
3) Amendment to IAS 1 Presentation of Items of Other Comprehensive Income The amendment to IAS 1 requires items of other comprehensive income to be grouped into those items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified subsequently to profit or loss. Income taxes on related items of other comprehensive income are grouped on the same basis. Under current IAS 1, there were no such requirements. The Group will apply the above amendments in presenting the consolidated statement of comprehensive income, starting from the year 2015. Items not expected to be reclassified to profit or loss are the actuarial gain (loss) arising from defined benefit plans and share of the actuarial gains (loss) arising from defined benefit plans of associates accounted for using the equity method. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, and unrealized gains (loss) on available-for-sale financial assets. As of the date the consolidated financial statements were approved, the Group was continuingly to assess other possible impacts that the application of the 2013 IFRSs version will have on the Group's financial position and financial performance, and will disclose these other impacts when the assessment is completed. b. New IFRSs in issue but not yet endorsed by FSC The Group has not applied the following New IFRSs issued by the IASB but not yet endorsed by the FSC. As of the date the consolidated financial statements were approved, the FSC had not announced their effective dates. New IFRSs Effective Date Announced by IASB (Note 1) Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 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 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, 2017 Amendments to IAS 16 and IAS 38 Clarification of Acceptable January 1, 2016 Methods of Depreciation and Amortization Amendments to IAS 16 and IAS 41 Agriculture: Bearer Plants January 1, 2016 Amendment to IAS 19 Defined Benefit Plans: Employee July 1, 2014 Contributions Amendment to IAS 36 Impairment of Assets: Recoverable Amount January 1, 2014 Disclosures for Non-financial Assets Amendment to IAS 39 Novation of Derivatives and Continuation of January 1, 2014 Hedge Accounting IFRIC 21 Levies January 1, 2014 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates. Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014. - 11 -
The initial application of the above New IFRSs has not had any material impact on the Group s accounting policies, except for the following: 1) IFRS 9 Financial Instruments Recognition and measurement of financial assets With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 Financial Instruments: Recognition and Measurement are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below. For the Group s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, their classification and measurement are as follows: a) For debt instruments, if they are held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss recognized in profit or loss, if any. Interest revenue is recognized in profit or loss by using the effective interest method; b) For debt instruments, if they are held within a business model whose objective is achieved by both collecting contractual cash flows and selling 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. 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. 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. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction. For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss. - 12 -
Recognition and measurement of financial liabilities As for financial liabilities, the main changes in the classification and measurement relate to the subsequent measurement of financial liabilities designated as at fair value through profit or loss. The amount of change in the fair value of such financial liability attributable to changes in the credit risk of that liability is presented in other comprehensive income and the remaining amount of change in the fair value of that liability is presented in profit or loss, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. If the above accounting treatment would create or enlarge an accounting mismatch in profit or loss, the Group presents all gains or losses on that liability in profit or loss. 2) Annual Improvements to IFRSs: 2010-2012 Cycle Several standards including IFRS 3 Business Combinations and IFRS 8 Operating Segments were amended in this annual improvement. IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IAS 39 or IFRS 9. Changes in fair value should be recognized in profit or loss. The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have similar economic characteristics. The amendment also clarifies that a reconciliation of the total of the reportable segments assets to the entity s assets should only be provided if the segments assets are regularly provided to the chief operating decision-maker. IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial. IAS 24 was amended to clarify that a management entity providing key management personnel services to the Group is a related party of the Group. Consequently, the Group is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required. 3) Annual Improvements to IFRSs: 2011-2013 Cycle Several standards including IFRS 13 were amended in this annual improvement. The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32. 4) Amendments to IAS 16 Clarification of Acceptable Methods of Depreciation and Amortization The entity should use appropriate depreciation and amortization method to reflect the pattern in which the future economic benefits of the property, plant and equipment and intangible asset are expected to be consumed by the entity. - 13 -
The amended IAS 16 Property, Plant and Equipment requires that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The amended standard does not provide any exception from this requirement. An entity should apply the aforementioned amendments prospectively for annual periods beginning on or after the effective date. 5) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 Revenue, IAS 11 Construction Contracts and a number of revenue-related interpretations. When applying IFRS 15, an entity shall recognize revenue by applying the following steps: Identify the contract with the customer; Identify the performance obligations in the contract; Determine the transaction price; Allocate the transaction price to the performance obligations in the contracts; and Recognize revenue when the entity satisfies a performance obligation. When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application. As of the date the consolidated financial statements were approved, the Group is continuingly to 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 IAS 34 Interim Financial Reporting as endorsed by the FSC. Disclosure information included in the consolidated financial statements is less than those required in a complete set of annual financial statements. b. Basis of consolidation Subsidiaries included in consolidated financial statements Investor Investee Main Business June 30, 2014 % of Ownership December 31, 2013 June 30, 2013 The Corporation Hiwin Corporation, U.S.A. ( Hiwin USA ) Hiwin Corporation, Japan ( Hiwin Japan ) Hiwin GmbH Manufacture and sale of aerospace parts, ballscrews, linear guideways and industrial robots Manufacture and sale of aerospace parts, ballscrews, linear guideways and industrial robots Manufacture and sale of aerospace parts, ballscrews, linear guideways and industrial robots 100 100 100 100 100 100 100 100 100 (Continued) - 14 -
Investor Investee Main Business June 30, 2014 % of Ownership December 31, 2013 June 30, 2013 The Corporation Hulk Energy Technology Co., Ltd. ( Hulk ) Hiwin Singapore Pte. Ltd. ( Hiwin Singapore ) Hiwin Corporation ( Hiwin Korea ) Hiwin Technologies (China) Corporation ( Hiwin China ) Research, development, design, manufacture and sale of solar cell, electronic components, electric power supply, electric transmission and power distribution machinery products Manufacture and sale of aerospace parts, ballscrews, linear guideways and industrial robots Manufacture and sale of aerospace parts, ballscrews, linear guideways and industrial robots Manufacture and sale of ballscrews, linear guideways and industrial robots Hiwin GmbH HIWIN S.R.L. Sale of aerospace parts, ballscrews, linear guideways and industrial robots 48 49 48 100 100-100 100-100 - - 100 100 100 (Concluded) Except the financial statements of Hiwin GmbH for the six months ended June 30, 2014 were reviewed by the independent accountant, the remaining subsidiaries are non-significant subsidiaries, its financial statements have not been reviewed. c. Other significant accounting policies The same accounting policies of these consolidated financial statements have been followed as were applied in the preparation of the Group s consolidated financial statements for the year ended December 31, 2013, except for those described below. 1) Retirement benefit costs Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-time events. 2) Income taxes Income tax expense is the sum of the tax currently payable and deferred tax. Interim period income taxes are assessed on an annual basis and calculated by applying to an interim period's pre-tax income the tax rate that would be applicable to expected total annual earnings. 5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY The same critical accounting judgments and key sources of estimation uncertainty of consolidated financial statements have been followed in these consolidated financial statements as were applied in the preparation of the consolidated financial statements for the year ended December 31, 2013. - 15 -
6. CASH June 30, December 31, June 30, 2014 2013 2013 Cash on hand $ 1,572 $ 1,793 $ 1,308 Cash in bank 2,640,093 1,237,819 1,290,221 2,641,665 1,239,612 1,291,529 Less: Pledged time deposits Current (classified as other current assets) (366,580) (26,908) (11,888) Non-current (classified as other non-current assets) (28,173) (27,031) (44,366) Deposit interest rate per annum (%) $ 2,246,912 $ 1,185,673 $ 1,235,275 Cash in bank 0.00-2.00 0.00-1.80 0.00-1.85 Pledged time deposits 0.17-3.35 0.53-1.36 0.53-1.36 7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS The financial assets and liabilities at fair value through profit or loss were derivative financial instruments of foreign exchange forward contracts. At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows: June 30, 2014 Currency Maturity Date Notional Amount Sell EUR/NTD 2014.8.14-2014.9.26 EUR690/NTD28,092 Sell USD/NTD 2014.8.15 USD500/NTD14,980 Sell GBP/NTD 2014.8.15-2014.9.19 GBP120/NTD6,100 Sell JPY/NTD 2014.7.11-2014.9.16 JPY35,000/NTD10,287 December 31, 2013 Sell EUR/NTD 2014.1.17-2014.4.13 EUR2,970/NTD122,126 Sell USD/NTD 2014.1.16-2014.3.3 USD8,400/NTD250,152 Sell GBP/NTD 2014.1.20-2014.3.20 GBP208/NTD10,221 June 30, 2013 Sell EUR/NTD 2013.7.1-2013.9.18 EUR4,220/NTD165,327 Sell USD/NTD 2013.7.1-2013.9.25 USD9,600/NTD287,092 Sell JPY/NTD 2013.7.10-2013.11.15 JPY89,000/NTD27,450 Sell GBP/NTD 2013.7.18-2013.9.9 GBP240/NTD11,093 The Group entered into foreign exchange forward contracts to manage exposures due to exchange rate fluctuations of foreign currency denominated assets and liabilities. - 16 -
8. AVAILABLE-FOR-SALE FINANCIAL ASSETS June 30, December 31, June 30, 2014 2013 2013 Domestic quoted stocks Gallant Precision Machining Co., Ltd. ( Gallant ) $ 17 $ 16 $ 15,060 9. FINANCIAL ASSETS MEASURED AT COST June 30, December 31, June 30, 2014 2013 2013 Domestic unlisted common shares Sunengine Corporation Ltd. (Sunengine) $ 81,346 $ 81,346 $ 76,246 Hiwin Mikrosystem Corp. (Hiwin Mikrosystem) 37,922 37,922 22,022 Taichung International Country Club 2,100 2,100 2,100 King Kong Iron Work Ltd. - - - 121,368 121,368 100,368 Overseas unlisted common shares Kaland Holdings Corp. (Kaland) 236,266 236,266 236,266 Hiwin (Schweiz) GmbH 3,320 3,320 3,320 $ 360,954 $ 360,954 $ 339,954 The Investment Commission of Ministry of Economic Affairs (MOEA) approved the Corporation s investment in Suzhou YIFU Finance Leasing Co., Ltd. (YIFU Finance). The investment in the amount of US$8,168 thousand was made through investing Kaland and Cheer Tone Group Limited in British Virgin Islands (BVI). YIFU Finance mainly engages in finance leasing services. Management believed that the fair value of the above unlisted equity investments held by the Group cannot be reliably measured due to the very wide range of reasonable fair value estimates; therefore they were measured at cost less impairment at the end of reporting period. 10. NOTES RECEIVABLE AND TRADE RECEIVABLES Notes receivable from unrelated parties June 30, December 31, June 30, 2014 2013 2013 Notes receivable $ 158,129 $ 143,059 $ 156,732 Less: Allowance for impairment loss (966) (1,350) (1,343) Trade receivables from unrelated parties $ 157,163 $ 141,709 $ 155,389 Trade receivables $ 4,876,340 $ 4,701,585 $ 4,064,427 Less: Allowance for impairment loss (50,847) (44,689) (259,033) $ 4,825,493 $ 4,656,896 $ 3,805,394-17 -
The average credit period on sales of goods was 90 to 150 days. In determining the recoverability of a trade receivable, the Group considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. The Group recognized an allowance for impairment loss of 100% against all receivables over 180 days because historical experience had been that receivables that are past due beyond 180 days were not recoverable. Allowance for impairment loss was recognized against trade receivables between 31 days and 180 days based on estimated irrecoverable amounts determined by reference to past default experience of the counterparties and an analysis of their current financial position. Movements in the allowance for impairment loss recognized on notes receivable and trade receivables were as follows (other receivables were classified as other non-current assets): Notes Receivable For the Six Months Ended June 30 2014 2013 Other Notes Receivables Receivable Trade Receivables Trade Receivables Balance at January 1 $ 1,350 $ 44,689 $ 101,579 $ 1,470 $ 176,357 Add: Impairment losses recognized (reversed) on receivables (384) 6,487 2,712 (127) 82,399 Less: Amounts written off as uncollectible - (384) - - - Effect of exchange rate changes - 55 - - 277 Balance at June 30 $ 966 $ 50,847 $ 104,291 $ 1,343 $ 259,033 The aging of trade receivables that were impaired was as follows: June 30, December 31, June 30, 2014 2013 2013 31-60 days $ 39,766 $ 105,412 $ 502,022 61-120 days 334,219 141,989 556,265 121-180 days 4,340 4,741 105,091 More than 180 days 6,869 9,403 28,321 $ 385,194 $ 261,545 $ 1,191,699 The above aging of trade receivables before deducting the allowance for impairment loss was based on the past due date. 11. INVENTORIES June 30, December 31, June 30, 2014 2013 2013 Merchandise $ 1,672 $ 604 $ 448 Finished goods 2,162,235 1,772,837 1,842,047 Work in process 1,184,413 1,124,389 1,068,882 Raw materials and supplies 923,766 905,096 1,162,917 Inventory in transit 182,536 158,060 147,587 $ 4,454,622 $ 3,960,986 $ 4,221,881-18 -
The cost of inventories recognized as cost of goods sold for the three months ended June 30, 2014 and 2013 and for the six months ended June 30, 2014 and 2013 included inventory write-downs (reversal of inventory write-downs) of $(3,282) thousand, $2,907 thousand, $460 thousand and $12,052 thousand, respectively. Previous write-downs were reversed as a result of disposal of the write-downs inventories. 12. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD June 30, December 31, June 30, Investments in associates 2014 2013 2013 Unlisted companies Mega Fabs Motion Systems Ltd. (Mega Fabs) $ 65,133 $ 63,099 $ 56,822 HIWIN S.R.O. 38,394 36,082 31,196 $ 103,527 $ 99,181 $ 88,018 As at the end of the reporting period, the proportions of ownership and voting rights in associates held by the Group were as follows: June 30, December 31, June 30, Name of Associate 2014 2013 2013 Mega Fabs 40% 40% 40% HIWIN S.R.O. 32% 32% 32% Investments accounted for using equity method and the share of profit or loss for the six months ended June 30, 2014 and 2013 were calculated based on the financial statements that have not been reviewed. Management believes there is no material impact on the equity method accounting or the calculation of the share of profit or loss, from the financial statements that have not been reviewed. 13. PROPERTY, PLANT AND EQUIPMENT Beginning Balance Additions Disposals For the Six Months Ended June 30, 2014 Reclassified Amount Translation Adjustments Ending Balance Cost Land $ 2,476,839 $ 25,807 $ - $ 658,527 $ (379) $ 3,160,794 Buildings and improvements 5,676,072 15,563-28,500 (1,602) 5,718,533 Machinery and equipment 7,714,402 115,036 (175,078) 123,116 69 7,777,545 Transportation equipment 104,841 12,795 (5,421) 504 (112) 112,607 Leased assets 530,529 - - - 3 530,532 Leasehold improvements 51,866 2,567 (100) 356 673 55,362 Miscellaneous equipment 910,278 58,967 (25,815) 57,444 294 1,001,168 Construction in progress 38,206 88,050 - (28,856) (851) 96,549 Prepayments for land and buildings 658,527 - - (658,527) - - 18,161,560 $ 318,785 $ (206,414) $ 181,064 $ (1,905) 18,453,090 (Continued) - 19 -
Beginning Balance Additions Disposals For the Six Months Ended June 30, 2014 Reclassified Amount Translation Adjustments Ending Balance Accumulated depreciation and impairment Buildings and improvements $ 669,742 $ 65,119 $ - $ - $ (656) $ 734,205 Machinery and equipment 3,192,932 431,719 (173,514) (1,208) 153 3,450,082 Transportation equipment 49,539 9,578 (5,090) - (1) 54,026 Leased assets 1,263 - - - 2 1,265 Leasehold improvements 15,918 2,622 (100) - 289 18,729 Miscellaneous equipment 329,229 63,489 (24,680) 1,208 88 369,334 4,258,623 $ 572,527 $ (203,384) $ - $ (125) 4,627,641 $ 13,902,937 $ 13,825,449 (Concluded) Beginning Balance Additions Disposals For the Six Months Ended June 30, 2013 Reclassified Amount Translation Adjustments Ending Balance Cost Land $ 1,438,143 $ 20,8177 $ - $ 157,056 $ 317 $ 1,615,693 Buildings and improvements 4,964,806 96,752 (3,553) 521,231 3,626 5,582,862 Machinery and equipment 7,391,695 110,794 (125,604) 322,496 851 7,700,232 Transportation equipment 87,982 9,390 (1,930) 2,165 86 97,693 Leased assets 530,497 - - - 41 530,538 Leasehold improvements 33,555 9,200-758 (761) 42,752 Miscellaneous equipment 716,670 46,263 (10,601) 83,076 1,305 836,713 Construction in progress 420,551 171,161 - (549,516) 125 42,321 Prepayments for land and buildings 295,917 - - (157,064) 85 138,938 15,879,816 $ 463,737 $ (141,688) $ 380,202 $ 5,675 16,587,742 Accumulated depreciation and impairment Buildings and improvements 543,670 $ 60,735 $ (3,553) $ - $ 1,151 602,003 Machinery and equipment 2,690,073 420,611 (123,232) - (511) 2,986,941 Transportation equipment 37,352 8,168 (1,930) - (210) 43,380 Leased assets 1,230 - - - (845) 385 Leasehold improvements 14,700 1,532 - - 98 16,330 Miscellaneous equipment 240,163 54,708 (10,213) - 633 285,291 3,527,188 $ 545,754 $ (138,928) $ - $ 316 3,934,330 $ 12,352,628 $ 12,653,412 The above items of property, plant and equipment, except leased land which is not depreciated, were depreciated on a straight-line basis over the estimated useful life of the asset: Buildings and improvements Main buildings Electrical power equipment Engineering system Machinery and equipment Machinery equipment Inspection equipment Transportation equipment Miscellaneous equipment Leasehold improvements 25-55 years 35 years 8-55 years 3-20 years 3-10 years 2-10 years 2-15 years 2-15 years - 20 -
Refer to Note 27 for the carrying amount of property, plant and equipment pledged by the Group to secure borrowings granted to the Group. 14. BORROWINGS a. Short-term borrowings Secured borrowings June 30, December 31, June 30, 2014 2013 2013 Loans for export sales $ 1,000,000 $ 1,051,102 $ 1,071,252 Usance letters of credit 97,045 117,300 121,896 Working capital loans 38,224 27,866 4,648 Loans secured by notes receivable 27,161 26,385 14,335 1,162,430 1,222,653 1,212,131 Unsecured borrowings Line of credit borrowings 4,398,000 3,898,000 3,307,663 Rate of interest per annum (%) $ 5,560,430 $ 5,120,653 $ 4,519,794 Loans for export sales 0.73-1.24 0.75-1.31 0.81-1.32 Usance letters of credit 0.83-1.59 0.78-1.48 0.75-1.27 Working capital loans 1.25-1.79 1.80-1.81 1.88-3.00 Loans secured by notes receivable 1.48-1.50 1.50 1.48-1.50 Line of credit borrowings 1.06-1.20 1.06-1.15 1.06-1.65 b. Long-term borrowings Secured borrowings June 30, December 31, June 30, 2014 2013 2013 Secured loans $ 5,640,156 $ 5,279,254 $ 4,821,819 Syndicated loans 680,000 763,000 1,098,000 Unsecured borrowings Unsecured loans 500,000 400,000 200,000 6,820,156 6,442,254 6,119,819 Less: Current portion (1,111,253) (1,231,518) (1,008,893) Long-term borrowings $ 5,708,903 $ 5,210,736 $ 5,110,926 Rate of interest per annum (%) Secured loans 1.37-6.24 0.90-6.24 0.90-6.24 Syndicated loans 1.58 1.58 1.58 Unsecured loans 1.28 1.28 1.30-21 -
To meet the requirements of long-term financial plans, working capital needs, and capital project expenditures, the Corporation entered into a $4.3 billion syndicated loan agreement with 13 banks, led by Taiwan Bank, in October 2006. The loan period was from 3 to 10 years, depending on the loan type, starting from the first loan drawdown. As of June 30, 2014, December 31, 2013 and June 30, 2013, the Corporation had borrowed $0.68 billion, $0.763 billion and $1.098 billion, respectively. Under the loan agreement, the Corporation commits: (a) current ratio no lower than 100%, debt ratio no higher than 150%, interest coverage ratio at least 150% and tangible net equity ratio at certain level, based on the Corporation s annual unconsolidated financial statements; and (b) not dispose of important assets and rights, buy back treasury stocks, decrease issued capital, merge with other companies, split off or reduce the collaterals unless there is written approval from a majority of the syndicated banks. According to the terms of the loan agreement, in case the Corporation fails to meet the above requirements regarding financial ratios, the Corporation should seek improvement within 6 months based on semiannual unconsolidated financial statements. If the situation did not improve after the evaluation, the Corporation should pay extra interest of 0.25% for the unpaid principal retroactive from the start date of default to the date the deficiency has been resolved. Also, the banks have the rights to call the loan from the Corporation. 15. FINANCE LEASE PAYABLES June 30, December 31, June 30, 2014 2013 2013 Land; the term of lease is from September 2003 to September 2027; rentals are paid monthly, imputed discount rate: 2.71%, 2.91% and 3.054% $ 430,888 $ 441,444 $ 451,691 Less: Current portion (21,594) (21,279) (20,804) Noncurrent portion $ 409,294 $ 420,165 $ 430,887 In September 2003, January 2006 and September 2007, the Corporation signed land lease contract with Industrial Development Bureau (IDB), Ministry of Economic Affairs. The parcels of land, measuring 50,683, 18,004 and 5,602 square meters, are located in Yunlin Technology Industrial Park. Rentals were calculated by annual rental rate based on land market price. The market price was $9,408, $10,517 and $11,409 per square meter on the contract date. The annual rental rates are subject to adjustment twice a year on January 1 and July 1 according to long-term loan interest rate promulgated by the Executive Yuan. The adjustment also takes consumer price index into account annually. The annual rental rate was 4.2% since December 2012. The aforementioned land lease contract concluded and signed by the Corporation and IDB provides that the first two years rental would be free, and 60% of the rental for third and fourth years, and 80% for fifth and sixth years will be payable. Moreover, according to the regulations of land leasing in Yunlin Technology Industrial Park, the lease period should be at least for 6 years and should not be longer than 20 years. The Corporation has an option to buy the land from IDB during the period of the lease. Price to be paid will be based on the market price at the contract date and on the Industry Development Fund of this area. However, the rentals paid and the deposits provided would be deductible. The Corporation provided time deposits as collaterals in the amount of $11,576 thousand, recorded as other non-current assets, which should be returned by IDB without interest at the end of the land lease contract. - 22 -
The finance lease obligations as of June 30, 2014 are summarized as follows: Year Amount The second half year of 2014 $ 16,935 2015 33,869 2016 33,869 2017 33,869 2018 33,869 $ 152,411 The aggregate rentals (include the bargain purchase price) and present value of finance lease obligations discounted at 2.71%, 2.91% and 3.054% for future years are summarized as follows: Year Future Value Present Value 2019-2023 $ 342,582 $ 285,616 2024-2027 21,180 17,833 $ 363,762 $ 303,449 16. OTHER PAYABLES June 30, December 31, June 30, 2014 2013 2013 Payable for salaries and bonus $ 414,336 $ 440,600 $ 319,824 Payable for bonus to employees 239,326 169,033 211,912 Payable for remuneration to directors and supervisors 35,278 83,965 25,385 Payable for annual leave 74,548 65,889 64,316 Payable for purchase of land, building and equipment 156,335 27,655 36,280 Others 233,291 242,511 212,240 $ 1,153,114 $ 1,029,653 $ 869,957 17. RETIREMENT BENEFIT PLANS Employee benefit expenses in respect of the Corporation s defined benefit retirement plans were calculated using the actuarially determined pension cost discount rate as of December 31, 2013 and 2012, and recognized in the following line items in their respective periods: For the Three Months Ended June 30 For the Six Months Ended June 30 2014 2013 2014 2013 Operating cost $ 1,713 $ 1,513 $ 3,426 $ 3,028 Selling and marketing expenses 42 50 87 105 General and administrative expenses 136 142 268 289 Research and development expenses 94 106 193 216 $ 1,985 $ 1,811 $ 3,974 $ 3,638-23 -
18. EQUITY a. Common stock June 30, December 31, June 30, 2014 2013 2013 Numbers of shares authorized (in thousands) 300,000 300,000 300,000 Shares authorized $ 3,000,000 $ 3,000,000 $ 3,000,000 Number of shares issued and fully paid (in thousands) 253,821 253,821 246,428 Shares issued $ 2,538,208 $ 2,538,208 $ 2,464,280 Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right to dividends. b. Capital surplus The capital surplus arising from shares issued in excess of par (including share premium from issuance of common shares) may be used to offset a deficit; in addition, when the Corporation has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Corporation s capital surplus and once a year). c. Retained earnings and dividend policy The Corporation s Articles of Incorporation provide that the annual net income, less any deficit and taxes, should be appropriated as follows: 1) 10% as legal reserve; 2) For special reserve; 3) At most 6% as dividends; 4) Of the remainder, at most 5% as remuneration to directors and supervisors and at most 10% as bonus to employees; however, it should not be lower than 1%. The Corporation needs to evaluate its cash position and take capital expenditure and working capital requirements into account in determining the type of dividend (cash or stock). Cash dividends will be paid when working capital requirements are fulfilled; otherwise, stock dividends will be distributed. For the six months ended June 30, 2014 and 2013, the bonus to employees was $69,293 thousand and $49,469 thousand, respectively, and the remuneration to directors and supervisors was $34,647 thousand and $24,734 thousand, respectively. The bonus to employees and remuneration to directors and supervisors represented 10% and 5%, respectively, of net income (net of the bonus and remuneration) after 6% dividends. Material differences between such estimated amounts and the amounts proposed by the board of directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the shareholders differ from the proposed amounts, the differences are recorded in the year of shareholders resolution as a change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the shareholders meeting. The Corporation appropriates or reverses a special reserve in accordance with Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC on April 6, 2012 and the directive entitled Questions and Answers on Special Reserves Appropriated Following the Adoption of IFRSs. Distributions can be made out of any subsequent reversal of the debit to other equity items. - 24 -