ASUSTEK COMPUTER INC. AND SUBSIDIARIES Consolidated Financial Statements and
Review Report of Independent Auditors
September 30, 2015 and 2014
------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.
~ 1 ~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 Independent Auditors’ Review Report
To the Board of Directors and Shareholders of
ASUSTEK COMPUTER INC.:
We have reviewed the accompanying consolidated balance sheets of ASUSTEK COMPUTER INC. and its subsidiaries as of September 30, 2015 and 2014, the related consolidated statements of comprehensive income for the periods from July 1 to September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, and of changes in equity and of cash flows for the nine-month periods ended September 30, 2015 and 2014. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express a conclusion on these consolidated financial statements based on our reviews. We did not review the financial statements of certain investments accounted for under equity method. These investments accounted for under equity method amounted to $0 thousand as of September 30, 2015 and 2014, and the share of profit and other comprehensive income of associates and joint ventures accounted for under equity method amounted to $0 thousand, $0 thousand, ($3,685) thousand, and $4,053 thousand for the periods from July 1 to September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. The financial statements of these investments accounted for under equity method were reviewed by other auditors whose reports thereon have been furnished to us and our conclusion expressed herein, insofar as it relates to the amounts included in the consolidated financial statements and information disclosed relative to these investments, is based solely on the reports of other auditors.
Except as explained in the followings paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 36, “Review of Financial Statements”. A review consists principally of inquiries of company personnel and analytical procedures applied to financial data. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
~ 2 ~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 The accompanying consolidated financial statements included certain non-significant consolidated subsidiaries and investments accounted for under equity method, whose statements reflect total assets amounting to $68,125,221 thousand and $62,170,663 thousand (including investments accounted for under equity method amounting to $275,359 thousand and $270,495 thousand), constituting 20% of total consolidated assets as of September 30, 2015 and 2014, respectively, total liabilities amounting to $21,347,704 thousand and $18,887,028 thousand, constituting 12% and 11% of total consolidated liabilities as of September 30, 2015 and 2014, respectively, and total comprehensive (loss) income amounting to ($195,400) thousand, ($824,964) thousand, ($2,284,868) thousand and ($1,630,747) thousand, constituting (5%), (15%), (14%) and (6%) of consolidated comprehensive income for the periods from July 1 to September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. These amounts and the related information disclosed in the accompanying consolidated financial statements were based on the unreviewed financial statements of such consolidated subsidiaries and investments accounted for under equity method.
Based on our reviews and the reports of the other auditors, except for the effect on the financial statements and related disclosures of such adjustments, if any, as might have been determined to be necessary had the financial statements of these non-significant consolidated subsidiaries and investments accounted for under equity method been reviewed by independent auditors as explained in the preceding paragraph, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above in order for them to be in conformity with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission.
PricewaterhouseCoopers, Taiwan November 11, 2015
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 in countries and jurisdiction other than the Republic of China. The standards, procedures and practices in the Republic of China governing the review of such consolidated 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 auditors 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. As the consolidated financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation.
~ 3 ~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 ASUSTEK COMPUTER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2015, DECEMBER 31, 2014 AND SEPTEMBER 30, 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) SEPTEMBER 30, 2014 SEPTEMBER 30, 2015 DECEMBER 31, 2014 (UNAUDITED) (UNAUDITED) (ADJUSTED) (ADJUSTED) ASSETS Notes AMOUNT % AMOUNT % AMOUNT % Current assets Cash and cash equivalents 6(1) $ 67,789,518 20 $ 79,113,855 22 $ 59,552,591 19 Financial assets at fair value through 6(2) 4,437,727 1 5,362,712 2 4,695,658 1 profit or loss - current Available-for-sale financial assets - 6(3) 285,476 - 113,400 - 115,027 - current Derivative financial assets for 6(5) 623,582 - 367,758 - 847,701 - hedging - current Notes receivable 6(6) 11,407,470 3 5,664,021 2 9,372,617 3 Trade receivables 6(6)(7) and 72,848,335 21 74,773,673 21 62,908,031 20 7 Other receivables 7 453,032 - 1,195,881 - 545,340 - Inventories 6(8) 98,422,625 29 100,619,550 29 101,692,768 32 Prepayments 8,573,588 3 7,556,294 2 8,147,158 3 Other current assets 8 130,071 - 146,583 - 289,619 - Total current assets 264,971,424 77 274,913,727 78 248,166,510 78
Non-current assets Available-for-sale financial assets - 6(3) 57,150,083 16 54,870,662 15 45,797,242 15 non-current Financial assets carried at cost - 6(4) 150,175 - 142,745 - 154,021 - non-current Investments accounted for under 6(9) 322,027 - 326,443 - 317,163 - equity method Property, plant and equipment 6(10) and 8 9,268,728 3 9,581,880 3 9,776,421 3 Intangible assets 6(11) 2,027,750 1 2,148,541 1 2,102,053 1 Deferred income tax assets 6(26) 7,998,883 2 7,777,513 2 7,380,872 2 Other non-current assets 6(12) and 8 3,088,205 1 2,660,002 1 2,565,768 1
Total non-current assets 80,005,851 23 77,507,786 22 68,093,540 22 TOTAL ASSETS $ 344,977,275 100 $ 352,421,513 100 $ 316,260,050 100
(Continued)
~4~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 ASUSTEK COMPUTER INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, 2015, DECEMBER 31, 2014 AND SEPTEMBER 30, 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) SEPTEMBER 30, 2014 SEPTEMBER 30, 2015 DECEMBER 31, 2014 (UNAUDITED) (UNAUDITED) (ADJUSTED) (ADJUSTED) LIABILITIES AND EQUITY Notes AMOUNT % AMOUNT % AMOUNT % Current liabilities Short-term borrowings 6(13) $ 3,625,180 1 $ 3,881,979 1 $ 4,256,247 1 Financial liabilities at fair value 6(2) 506,630 - 142,333 - 10,693 - through profit or loss - current Derivative financial liabilities for 6(5) 212,149 - 1,936 - - - hedging - current Notes and trade payables 6(7) and 7 72,697,687 21 85,147,155 24 71,824,311 23 Other payables - accrued expenses 6(7) and 7 41,613,473 12 41,741,477 12 38,487,235 12 Current income tax liabilities 5,465,204 2 5,517,953 2 4,590,110 2 Provisions for liabilities - current 6(16) and 9 37,175,976 11 36,430,428 11 34,476,392 11 Receipts in advance 603,973 - 751,041 - 813,684 - Current portion of long-term 6(14) 288,372 - 1,189,799 - 610,040 - borrowings Other current liabilities 7 4,378,915 1 4,183,250 1 3,666,167 1 Total current liabilities 166,567,559 48 178,987,351 51 158,734,879 50 Non-current liabilities Long-term borrowings 6(14) 1,313,827 1 400,971 - 615,412 - Deferred income tax liabilities 6(26) 7,465,368 2 7,239,556 2 7,724,681 3 Other non-current liabilities 296,945 - 270,572 - 228,267 - Total non-current liabilities 9,076,140 3 7,911,099 2 8,568,360 3 Total liabilities 175,643,699 51 186,898,450 53 167,303,239 53 Equity attributable to shareholders of the parent Share capital - common shares 6(17) 7,427,603 2 7,427,603 2 7,427,603 2 Capital surplus 6(18) 4,685,562 1 4,452,757 1 4,449,574 1 Retained earnings 6(19)(26) Legal reserve 29,799,035 9 27,851,994 8 27,851,994 9 Special reserve 699,230 - 699,350 - 699,350 - Unappropriated retained earnings 90,892,400 27 92,912,654 26 88,403,850 28 Other equity 6(3)(5)(20) 33,973,743 10 30,297,852 9 18,289,612 6 (26) Total equity attributable to 167,477,573 49 163,642,210 46 147,121,983 46 shareholders of the parent Non-controlling interest 6(28) 1,856,003 - 1,880,853 1 1,834,828 1 Total equity 169,333,576 49 165,523,063 47 148,956,811 47 TOTAL LIABILITIES AND EQUITY $ 344,977,275 100 $ 352,421,513 100 $ 316,260,050 100
The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2015.
~5~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 ASUSTEK COMPUTER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT EARNINGS PER SHARE DATA) (UNAUDITED) FOR THE THREE-MONTH PERIODS ENDED SEPTEMBER 30, FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 2014 (ADJUSTED) 2015 2014 (ADJUSTED) Items Notes AMOUNT % AMOUNT % AMOUNT % AMOUNT % Operating revenue 6(21) and 7 $ 119,315,891 100 $ 123,915,618 100 $ 339,612,346 100 $ 339,448,699 100 Operating costs 6(8)(15)(24)(25) and 7 ( 101,625,841 ) ( 85 ) ( 106,610,887 ) ( 86 ) ( 290,545,406 ) ( 85 ) ( 291,909,886 ) ( 86 ) Gross profit 17,690,050 15 17,304,731 14 49,066,940 15 47,538,813 14 Operating expenses 6(12)(15)(24)(25), 7 and 9 Selling expenses ( 6,095,493 ) ( 5 ) ( 6,465,658 ) ( 5 ) ( 17,375,319 ) ( 5 ) ( 17,460,220 ) ( 5 ) General and administrative expenses ( 2,992,248 ) ( 2 ) ( 1,594,557 ) ( 1 ) ( 7,017,049 ) ( 2 ) ( 5,771,655 ) ( 2 ) Research and development expenses ( 3,434,393 ) ( 3 ) ( 3,543,557 ) ( 3 ) ( 9,498,367 ) ( 3 ) ( 8,783,945 ) ( 2 ) Total operating expenses ( 12,522,134 ) ( 10 ) ( 11,603,772 ) ( 9 ) ( 33,890,735 ) ( 10 ) ( 32,015,820 ) ( 9 ) Operating profit 5,167,916 5 5,700,959 5 15,176,205 5 15,522,993 5 Non-operating income and expenses Other income 6(22) 1,974,468 2 1,834,501 1 2,875,677 1 2,207,926 1 Other gains (losses) 6(2)(3)(10)(23) ( 1,833,644 ) ( 2 ) 24,320 - ( 1,438,027 ) ( 1 ) 1,566,007 - Finance costs ( 85,695 ) - ( 24,476 ) - ( 278,705 ) - ( 103,185 ) - Share of profit of associates and joint ventures accounted for under equity 6(9) 10,430 - 5,102 - 14,019 - 15,304 - method Total non-operating income and expenses 65,559 - 1,839,447 1 1,172,964 - 3,686,052 1 Profit before income tax 5,233,475 5 7,540,406 6 16,349,169 5 19,209,045 6 Income tax expenses 6(26) ( 946,430 ) ( 1 ) ( 1,665,611 ) ( 1 ) ( 3,724,484 ) ( 1 ) ( 4,050,070 ) ( 1 ) Profit for the period $ 4,287,045 4 $ 5,874,795 5 $ 12,624,685 4 $ 15,158,975 5 Other comprehensive income Components of other comprehensive income that will not be reclassified to profit or loss Remeasurements of defined benefit plan 6(15)(20) $ - - $ - - $ 206 - $ - - Components of other comprehensive income that will be reclassified to profit or loss Financial statements translation differences of foreign operations 6(20) 3,209,396 3 755,419 1 1,539,799 - 721,739 - Unrealized gain (loss) on valuation of available-for-sale financial assets 6(3)(20) ( 3,432,915 ) ( 3 ) ( 2,056,541 ) ( 2 ) 2,328,804 1 10,749,281 3 Gain (loss) on effective portion of cash flow hedges 6(5)(20) 17,227 - 710,445 - 45,611 - 1,082,698 - Share of other comprehensive income of associates and joint ventures 6(9)(20) 320 - 86 - 160 - ( 553 ) - accounted for under equity method Income tax relating to the components of other comprehensive income 6(20)(26) ( 521,750 ) ( 1 ) 96,870 - ( 235,894 ) - ( 1,103,062 ) - Other comprehensive income for the period ( $ 727,722 ) ( 1 ) ( $ 493,721 ) ( 1 ) $ 3,678,686 1 $ 11,450,103 3 Total comprehensive income for the period $ 3,559,323 3 $ 5,381,074 4 $ 16,303,371 5 $ 26,609,078 8 Profit (loss) attributable to: Shareholders of the parent $ 4,215,081 4 $ 5,811,266 5 $ 12,553,592 4 $ 14,961,605 5 Non-controlling interest 71,964 - 63,529 - 71,093 - 197,370 - $ 4,287,045 4 $ 5,874,795 5 $ 12,624,685 4 $ 15,158,975 5 Total comprehensive income (loss) attributable to: Shareholders of the parent $ 3,477,226 3 $ 5,315,726 4 $ 16,229,483 5 $ 26,408,969 8 Non-controlling interest 82,097 - 65,348 - 73,888 - 200,109 - $ 3,559,323 3 $ 5,381,074 4 $ 16,303,371 5 $ 26,609,078 8 Earnings per share (In dollars): Basic earnings per share 6(27) $ 5.67 $ 7.82 $ 16.90 $ 20.14 Diluted earnings per share 6(27) $ 5.65 $ 7.80 $ 16.78 $ 20.03
The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2015.
~6~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 ASUSTEK COMPUTER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (UNAUDITED)
Equity attributable to shareholders of the parent Capital reserves Retained earnings Other equity interest Financial Unrealized statements gain on Gain (loss) translation valuation of on effective Gains (losses) on differences available-for- portion of remeasurements Common Share Legal Special Unappropriated of foreign sale financial cash flow of defined Non-controlling Total shares premium Others reserve reserve retained earnings operations assets hedges benefit plan Total interest equity
For the nine-month period ended September 30, 2014 (ADJUSTED) Balance at January 1, 2014 $ 7,427,603 $ 4,227,966 $ 224,271 $ 25,707,004 $ 699,350 $ 90,071,060 ( $ 271,393 ) $ 7,353,574 ( $ 234,997 ) ( $ 4,936 ) $ 135,199,502 $ 1,771,982 $ 136,971,484 Appropriations of 2013 earnings Legal reserve - - - 2,144,990 - ( 2,144,990 ) ------Cash dividends - - - - - ( 14,483,825 ) - - - - ( 14,483,825 ) - ( 14,483,825 ) Profit for the period - - - - - 14,961,605 - - - - 14,961,605 197,370 15,158,975 Other comprehensive income for the ------681,927 9,682,739 1,082,698 - 11,447,364 2,739 11,450,103 period Change in associates and joint - - ( 1,721 ) ------( 1,721 ) - ( 1,721 ) ventures accounted for under equity method Difference between proceeds from - - ( 942 ) ------( 942 ) - ( 942 ) acquisition or disposal of subsidiary and book value Changes in non-controlling interest ------( 137,263) ( 137,263 ) Balance at September 30, 2014 $ 7,427,603 $ 4,227,966 $ 221,608 $ 27,851,994 $ 699,350 $ 88,403,850 $ 410,534 $ 17,036,313 $ 847,701 ( $ 4,936 ) $ 147,121,983 $ 1,834,828 $ 148,956,811 For the nine-month period ended September 30, 2015 Balance at January 1, 2015 $ 7,427,603 $ 4,227,966 $ 224,791 $ 27,851,994 $ 699,350 $ 92,912,654 $1,940,298 $28,011,777 $ 365,822 ( $ 20,045 ) $ 163,642,210 $ 1,880,853 $ 165,523,063 Appropriations of 2014 earnings Legal reserve - - - 1,947,041 - ( 1,947,041 ) ------Cash dividends - - - - - ( 12,626,925 ) - - - - ( 12,626,925 ) - ( 12,626,925 ) Profit for the period - - - - - 12,553,592 - - - - 12,553,592 71,093 12,624,685 Other comprehensive income for the ------1,285,499 2,344,577 45,611 204 3,675,891 2,795 3,678,686 period Reversal of special reserve - - - - ( 120 ) 120 ------Change in associates and joint - - 306 ------306 - 306 ventures accounted for under equity method Difference between proceeds from - - 232,499 ------232,499 - 232,499 acquisition or disposal of subsidiary and book value Changes in non-controlling interest ------( 98,738) ( 98,738 ) Balance at September 30, 2015 $ 7,427,603 $ 4,227,966 $ 457,596 $ 29,799,035 $ 699,230 $ 90,892,400 $3,225,797 $30,356,354 $ 411,433 ( $ 19,841 ) $ 167,477,573 $ 1,856,003 $ 169,333,576
The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2015.
~7~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 ASUSTEK COMPUTER INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (UNAUDITED)
FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 2014 (ADJUSTED)
Cash flows from operating activities Consolidated profit before income tax for the period $ 16,349,169 $ 19,209,045 Adjustments to reconcile consolidated profit before tax to net cash provided by (used in) operating activities Income and expenses that result in non-cash flows Depreciation 948,876 2,174,956 Amortisation 306,441 270,823 Bad debt provision 194,455 405,629 Net loss (gain) on financial assets or liability at fair value through profit or loss ( 994,837 ) ( 1,433,957 ) Share of profit of associates and joint ventures accounted for under equity ( 14,019 ) ( 15,304 ) method Gain on disposal of investments ( 65,562 ) ( 101,229 ) Others 70,401 92,063 Changes in assets/liabilities relating to operating activities Financial assets at fair value through profit or loss 4,289,938 7,981,172 Notes receivable ( 5,743,449 ) ( 2,348,581 ) Trade receivables 1,648,086 4,717,048 Other receivables ( 2,166,434 ) ( 1,907,121 ) Inventories 2,196,925 ( 24,483,953 ) Prepayments ( 208,548 ) ( 973,289 ) Other current assets 16,512 629,566 Financial liabilities at fair value through profit or loss ( 2,024,085 ) ( 1,202,967 ) Notes and trade payables ( 12,413,205 ) 6,490,077 Other payables - accrued expenses ( 676,898 ) ( 1,250,605 ) Provision for liabilities 745,548 2,026,959 Receipts in advance ( 147,068 ) 295,660 Other current liabilities 75,206 1,477,022 Other operating liabilities 21,520 21,885 Receipt of interest 485,949 457,941 Payment of interest ( 71,743 ) ( 196,734 ) Payment of income tax ( 4,163,586 ) ( 4,499,781 ) Net cash provided by (used in) operating activities ( 1,340,408 ) 7,836,325 Cash flows from investing activities Acquisition of available-for-sale financial assets ( 153,323 ) ( 134,386 ) Proceeds from disposal of available-for-sale financial assets 3,935 233,143 Acquisition of property, plant and equipment ( 617,980 ) ( 775,104 ) Acquisition of intangible assets ( 98,412 ) ( 148,140 ) Increase in refundable deposits ( 129,817 ) ( 74,410 ) Changes in other non-current assets ( 417,770 ) ( 978,513 ) Receipt of dividends 2,410,633 1,759,870 Others 17,557 7,732 Net cash provided by (used in) investing activities 1,014,823 ( 109,808 ) Cash flows from financing activities Decrease in short-term borrowings ( 326,066 ) ( 670,899 ) Proceeds from long-term borrowings 867,058 - Redemption of long-term borrowings ( 901,213 ) ( 303,543 ) Payment of cash dividends ( 12,626,925 ) ( 14,483,825 ) Disposal of ownership interests in subsidiaries (without losing control) 277,289 - Change in non-controlling interest ( 73,670 ) ( 138,476 ) Others 5,116 ( 30,895 ) Net cash provided by (used in) financing activities ( 12,778,411 ) ( 15,627,638 ) Effects due to changes in exchange rate 1,779,659 929,518 Decrease in cash and cash equivalents ( 11,324,337 ) ( 6,971,603 ) Cash and cash equivalents at beginning of the period 79,113,855 66,524,194 Cash and cash equivalents at end of the period $ 67,789,518 $ 59,552,591
The accompanying notes are an integral part of these consolidated financial statements. See review report of independent accountants dated November 11, 2015.
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ASUSTEK COMPUTER INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE NINE-MONTH PERIODS ENDED SEPTEMBER 30, 2015 AND 2014 (EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED) (UNAUDITED)
1. HISTORY AND ORGANIZATION (1) ASUSTEK COMPUTER INC. (ASUS or the Company) was established in the Republic of China (R.O.C.). The Company is primarily engaged in the design, R&D and sales of 3C products (including PCs, main boards, other boards and cards, tablet PCs, smart phones and other handheld devices, etc.). (2) The Company resolved to spin-off its OEM businesses on January 1, 2008. Pursuant to the Company’s resolution, the Company transferred its computer OEM, design and manufacture of computer cases and molds and non-computer OEM businesses to its spun-off subsidiaries, PEGATRON CORPORATION (PEGA) and UNIHAN CORPORATION, respectively. On June 1, 2010, however, the Company transferred further its OEM assets and business (the Company’s investments accounted for under equity method in PEGA) to the Company’s another investee, PEGATRON INTERNATIONAL INVESTMENT CO. LTD. (PII). PII issued new shares to the Company and its shareholders as consideration. On April 29, 2013, the Company disposed the partial shares of PEGA and reduced the ownership percentage to less than 20%. 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 November 11, 2015. 3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS (1) Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards as endorsed by the Financial Supervisory Commission (“FSC”) According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued by FSC on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taipei Exchange or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, ‘Financial instruments’) as endorsed by the FSC and Regulations Governing the Preparation of Financial Reports by Securities Issuers effective January 1, 2015 (collectively referred herein as “the 2013 version of IFRS”) in preparing the consolidated financial statements. The impact of adopting the 2013 version of IFRS is listed below: A. IAS 1, ‘Presentation of financial statements’ The amendment requires entities to separate items presented in OCI classified by nature into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions are met. If the items are presented before tax then the tax related to
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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 adjusted its presentation of the statement of comprehensive income. B. IFRS 12, ‘Disclosure of interests in other entities’ The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. Accordingly, the Group disclosed additional information about its interests in consolidated entities and unconsolidated entities accordingly. C. 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 from market participants’ perspective, and requires disclosures about fair value measurements. For non-financial assets only, fair value is determined based on the highest and best use of the asset. Based on the Group’s assessment, the adoption of the standard has no significant impact on its consolidated financial statements, and the Group disclosed additional information about fair value measurements accordingly. D. Disclosures - Transfers of financial assets (amendments to IFRS 7) The amendment enhances qualitative and quantitative disclosures for all transferred financial assets that are not derecognized and for any continuing involvement in transferred assets, existing at the reporting date. The Group includes qualitative and quantitative disclosures for all transferred financial assets. E. Article 11, Paragraph 2 of Regulations Governing the Preparation of Financial Reports by Securities Issuers The new regulation allows the Group to recognize the remeasurement amount of defined benefit plan as retained earnings or other equity. It cannot be reclassificated to income or retained earnings if it is recognized as other equity. As a result of the new regulation, retained earnings increased by $4,936 and $20,045, respectively, and other equity decreased by $4,936 and $20,045 at September 30, 2014 and December 31, 2014, respectively. (2) Effect of new issuances of or amendments to International Financial Reporting Standards as endorsed by the FSC but not yet adopted by the Group None. (3) International Financial Reporting Standards 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 IFRSs as endorsed by the FSC:
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Effective Date by International Accounting New Standards, Interpretations and Amendments 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, 2018 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 January 1, 2016 (amendments to IAS 16 and IAS 41) Defined benefit plans: employee contributions July 1, 2014 (amendments to IAS 19R) 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) Novation of derivatives and continuation of hedge accounting January 1, 2014 (amendments to IAS 39) IFRIC 21, “Levies” January 1, 2014 Improvements to IFRSs 2010-2012 July 1, 2014 Improvements to IFRSs 2011-2013 July 1, 2014 Improvements to IFRSs 2012-2014 January 1, 2016
The Group is assessing the potential impact on the financial position and results of operations of the new standards, interpretations and amendments above. The related impact will be disclosed when the Group completes the evaluation. 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 prepared by the Group 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.
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(2) Basis of preparation A. Except for the following significant 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) Liabilities on cash-settled share-based payment arrangements measured at fair value. (D) Defined benefit liabilities recognized based on the net amount of pension fund assets less present value of defined benefit obligation. B. The critical accounting estimates and assumptions used in preparation of financial statements and the critical judgements in applying the Group’s accounting policies are disclosed in Note 5. (3) Basis of consolidation A. Basis for preparation of consolidated financial statements (A) All subsidiaries are included in the Group’s consolidated financial statements. Subsidiaries are all entities (including structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries. (B) Inter-company transactions, balances and unrealized 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. That fair value is regarded as the fair value an initial recognition of a financial asset or the cost an initial recognition of the associate or join venture. 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
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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 (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark
ASUS ASUS COMPUTER Selling 3C products in North 100.00 100.00 100.00 Note1 INTERNATIONAL (ACI) America ASUS ASUS TECHNOLOGY Selling 3C products in Taiwan 100.00 100.00 100.00 INCORPORATION (ASUTC) ASUS AXUS MICROSYSTEMS INC. Manufacturing and selling RAID - - 84.99 (AXUS) products ASUS SHINEWAVE Developing, designing and 50.99 50.99 50.99 INTERNATIONAL INC. consulting about information (SWI) system software ASUS ASUS HOLLAND B. V. (ACH) Repairing 3C products 100.00 100.00 100.00 ASUS ASUS INTERNATIONAL Investing in 3C products and 100.00 100.00 100.00 Note1 LIMITED (AIL) computer peripheral business ASUS ASUSTEK HOLDINGS Investing in computer peripherals 100.00 100.00 100.00 LIMITED (AHL) business ASUS ASUS GLOBAL Selling 3C products 100.00 100.00 100.00 Note1 PTE. LTD. (ASGL) ASUS ASUS CLOUD Selling and consulting about 87.57 83.43 83.43 CORPORATION e-commerce service (ASUSCLOUD) ASUS INTERNATIONAL UNITED Developing, manufacturing and 56.72 56.72 56.72 TECHNOLOGY CO., LTD. selling ink-jet print heads and (TAIWAN) (IUT) ink-jet digital image output technology ASUS ASMEDIA TECHNOLOGY Designing, developing and 41.23 43.89 43.89 INC. (ASMEDIA) manufacturing high-speed analog circuit ASUS ASKEY COMPUTER CORP. Designing, manufacturing, 100.00 100.00 100.00 Note1 (ASKEY) repairing and selling communication products and computer peripheral spare parts ASUS HUA-CHENG VENTURE Investing in computer peripherals 100.00 100.00 100.00 CAPITAL CORP. (HCVC) business ASUS HUA-MIN INVESTMENT Investing in computer peripherals 100.00 100.00 100.00 CO., LTD. (HMI) business ASUS AGAIT TECHNOLOGY Designing and selling computer 100.00 100.00 100.00 CORPORATION (AGA) peripheral and smart vacuums ASUS ENERTRONIX, INC. (EN) Selling communication products 100.00 100.00 100.00 ASUS UPI SEMICONDUCTOR Designing and developing 37.50 37.50 37.50 CORP. (UPI) integrated circuits
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Ownership (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark ASUS AAEON TECHNOLOGY Manufacturing and selling 47.00 47.00 47.00 Note1 INC. (AAEON) industrial computers and computer peripherals ASUS ASUS DIGITAL Selling 3C products 100.00 100.00 100.00 INTERNATIONAL PTE. LTD. (ADI) SWI EMES (SUZHOU) CO., LTD. Developing, designing and 100.00 100.00 100.00 GROUP (EMES) consulting about information system software ASMEDIA GREAT EXTEND Investing in high-speed analog 100.00 100.00 100.00 GROUP INVESTMENT CORP. (GEI) circuit business ASKEY ASKEY INTERNATIONAL Selling and consulting about 100.00 100.00 100.00 GROUP CORP. (ASKEYI) communication products ASKEY DYNALINK Investing in communication 100.00 100.00 100.00 GROUP INTERNATIONAL business CORP. (DIC) ASKEY MAGIC INTERNATIONAL Investing in computer peripherals 100.00 100.00 100.00 Note1 GROUP CO., LTD. (MIC) business ASKEY ASKEY (VIETNAM) Manufacturing and selling 100.00 100.00 100.00 GROUP COMPANY LIMITED communication products (ASKEYVN) ASKEY MAGICOM Investing in communication 100.00 100.00 100.00 GROUP INTERNATIONAL business CORP. (MAGICOM) ASKEY ASKEY TECHNOLOGY Developing and selling 100.00 100.00 100.00 GROUP (SHANGHAI) LTD. communication products (ASKEYSH) ASKEY OPENBASE LIMITED (OB) Selling communication products 100.00 100.00 100.00 GROUP and computer peripherals ASKEY LEADING PROFIT CO., LTD. Selling communication products 100.00 100.00 100.00 GROUP (LP) and computer peripherals ASKEY UNI LEADER Selling communication products 100.00 100.00 100.00 GROUP INTERNATIONAL LTD. and computer peripherals (UNI) ASKEY ASKEY TECHNOLOGY Manufacturing and selling 100.00 100.00 100.00 GROUP (JIANGSU) LTD. communication products (ASKEYJS) ASKEY ASHINE TECHNOLOGY Manufacturing and selling - 100.00 100.00 GROUP (SUZHOU) LTD. (ASHINE) communication products ASKEY WISE ACCESS (HK) Investing in communication 100.00 100.00 100.00 GROUP LIMITED (WISE) business ASKEY SILIGENCE SAS Selling and consulting about 80.00 80.00 80.00 GROUP (SILIGENCE) communication products ASKEY ASKEY MAGICXPRESS Manufacturing and selling 100.00 100.00 100.00 GROUP (WUJIANG) CORP. communication products (ASKEYMWJ) ASKEY ASKEY COMMUNICATION Selling and consulting about 100.00 100.00 100.00 GROUP GMBH (ASKEYCG) communication products, hardware and software IUT INTERNATIONAL UNITED Investing in ink-jet print heads 100.00 100.00 100.00 GROUP TECHNOLOGY CO., LTD. and ink-jet digital image output (IUTS) technology business
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Ownership (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark HCVC ASMEDIA TECHNOLOGY Designing, developing, and 8.29 8.29 8.29 GROUP INC. (ASMEDIA) manufacturing high-speed analog circuit HCVC AAEON TECHNOLOGY Manufacturing and selling 9.00 9.00 9.00 Note1 GROUP INC. (AAEON) industrial computers and computer peripherals HCVC UPI SEMICONDUCTOR Designing and developing 9.54 9.54 9.54 GROUP CORP. (UPI) integrated circuits HCVC AXUS MICROSYSTEMS INC. Manufacturing and selling RAID - - 0.01 GROUP (AXUS) products HCVC SHINEWAVE Developing, designing and 0.01 0.01 0.01 GROUP INTERNATIONAL INC. consulting about information (SWI) system software HCVC INTERNATIONAL UNITED Developing, manufacturing and 0.01 0.01 0.01 GROUP TECHNOLOGY CO., LTD. selling ink-jet print heads and (TAIWAN) (IUT) ink-jet digital image output technology HMI UPI SEMICONDUCTOR Designing and developing 4.99 4.99 4.99 GROUP CORP. (UPI) integrated circuits HMI ASMEDIA TECHNOLOGY Designing, developing and 4.05 4.05 4.05 GROUP INC. (ASMEDIA) manufacturing high-speed analog circuit HMI AAEON TECHNOLOGY Manufacturing and selling 9.00 9.00 9.00 Note1 GROUP INC. (AAEON) industrial computers and computer peripherals AGA AGAITECH HOLDING LTD. Investing in computer peripherals 100.00 100.00 100.00 GROUP (AGAHL) business AGA AGAIT TECHNOLOGY Investing in computer peripherals 100.00 100.00 100.00 GROUP (H.K.) CORPORATION business LIMITED (AGAHK) AGA AGAIT TECHNOLOGY Selling smart vacuums 100.00 100.00 100.00 GROUP (SHENZHEN) LIMITED (AGASZ) AGA AGAIT INTELLIGENT Manufacturing smart vacuums 100.00 100.00 100.00 GROUP TECHNOLOGY (SHENZHEN) CO., LIMITED (AGAISZ) EN ENERTRONIX Manufacturing and selling 100.00 100.00 100.00 GROUP INTERNATIONAL computer peripherals LIMITED (ENIL) EN ENERTRONIX HOLDING Investing in computer peripherals 100.00 100.00 100.00 GROUP LTD. (ENHL) business EN ENERTRONIX (HUIZHOU) Manufacturing and selling 100.00 100.00 100.00 GROUP LTD. (ENHZ) computer peripheral spare parts AAEON AAEON ELECTRONICS, INC. Manufacturing and selling 100.00 100.00 100.00 GROUP (AAEONEI) industrial computers and computer peripherals AAEON AAEON DEVELOPMENT Investing in industrial computers 100.00 100.00 100.00 GROUP INCORPORATED and computer peripherals (AAEONDI) business AAEON AAEON TECHNOLOGY CO., Investing in industrial computers 100.00 100.00 100.00 GROUP LTD. (AAEONTCL) and interface cards business
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Ownership (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark AAEON AAEON TECHNOLOGY Manufacturing and selling 100.00 100.00 100.00 GROUP (EUROPE) B. V. industrial computers and (AAEONEU) computer peripherals AAEON AAEON TECHNOLOGY Manufacturing and selling 100.00 100.00 100.00 GROUP GMBH (AAEONG) industrial computers and computer peripherals AAEON AAEON INVESTMENT CO., Investing in industrial computers 100.00 100.00 100.00 GROUP LTD. (AAEONI) and computer peripherals business AAEON AAEON TECHNOLOGY Manufacturing and selling 94.20 94.20 94.20 GROUP SINGAPORE PTE. LTD. industrial computers and (AAEONSG) computer peripherals AAEON AAEON TECHNOLOGY Manufacturing and selling 100.00 100.00 100.00 GROUP (SUZHOU) INC. industrial computers and (AAEONSZ) interface cards AAEON ONYX HEALTHCARE INC. Manufacturing and selling 85.00 85.00 85.00 GROUP (ONYX) industrial computers and computer peripherals AAEON ONYX HEALTHCARE USA, Manufacturing and selling 85.00 85.00 85.00 GROUP INC. (ONYXHU) industrial computers and computer peripherals AAEON ONYX HEALTHCARE Manufacturing and selling 85.00 85.00 85.00 GROUP EUROPE B. V. (ONYXHE) industrial computers and computer peripherals AAEON ONYX HEALTHCARE Selling industrial computers and 85.00 85.00 - GROUP (SHANGHAI) LTD. computer peripherals (ONYXSH) UPI UBIQ SEMICONDUCTOR Designing, developing and 100.00 100.00 100.00 GROUP CORP. (UBIQ) selling integrated circuits UPI UPI SEMICONDUCTOR Selling integrated circuits and 100.00 100.00 100.00 GROUP CORPORATION (HK) LTD. investing in technical support (UPIHK) consulting business UPI UPI-SEMICONDUCTOR Selling integrated circuits and 100.00 100.00 100.00 GROUP CORPORATION technical support consulting (SHENZHEN) LTD. (UPISZ) UPI UPI SOLUTIONS CO., LTD. Selling integrated circuits and 100.00 - - GROUP (UPIJP) investing in technical support consulting business ASUSCLOUD ASUS CLOUD Investing in commerce service 100.00 100.00 100.00 GROUP SINGAPORE PTE. LTD. (ASUSCLOUDSG) ASUSCLOUD ASUS CLOUD (TIANJIN) Selling and consulting about 100.00 100.00 100.00 GROUP INFORMATION e-commerce service TECHNOLOGY CO., LTD. (ASUSCLOUDTJ) ASUSCLOUD ASUS CLOUD Selling and consulting about 100.00 100.00 100.00 GROUP (LUXEMBOURG) e-commerce service S. A R. L (ASUSCLOUDLB) AHL WAVEFACE HOLDING Investing in cloud solutions - 77.78 77.78 GROUP COMPANY LIMITED business (WAVEFACEH)
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Ownership (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark AIL DEEP DELIGHT LIMITED Investing in computer peripherals 100.00 100.00 100.00 GROUP (DDL) business AIL CHANNEL PILOT LIMITED Investing in 3C business 100.00 100.00 100.00 Note1 GROUP (CHANNEL) AIL UNIMAX HOLDINGS Investing in automotive 100.00 100.00 100.00 GROUP LIMITED (UHL) electronics and computer peripherals business AIL ASUS TECHNOLOGY PTE. Selling 3C products 100.00 100.00 100.00 Note1 GROUP LIMITED (ASTP) AIL ASUS MIDDLE EAST FZCO Marketing and repairing 3C 100.00 100.00 100.00 GROUP (ACAE) products in Middle East AIL ASUS EGYPT L. L. C. (ACEG) Marketing 3C products in Egypt 100.00 100.00 100.00 GROUP AIL ASUS COMPUTER GMBH Marketing and selling 3C products in 100.00 100.00 100.00 GROUP (ACG) Germany AIL ASUS COMPUTER Marketing 3C products in 100.00 100.00 100.00 GROUP BENELUX B. V. (ACBNL) Netherlands, Belgium and Luxembourg AIL ASUS FRANCE SARL (ACF) Marketing 3C products in France 100.00 100.00 100.00 GROUP AIL ASUSTEK (UK) LIMITED Marketing 3C products in United 100.00 100.00 100.00 GROUP (ACUK) Kindom AIL ASUS TECHNOLOGY Marketing and repairing 3C 100.00 100.00 100.00 GROUP (HONG KONG) LIMITED products in Hong Kong (ACHK) AIL ASUS KOREA CO., LTD. Marketing and repairing 3C 100.00 100.00 100.00 GROUP (ACKR) products in South Korea AIL ASUSTEK COMPUTER(S) Repairing 3C products in 100.00 100.00 100.00 GROUP PTE. LTD. (ACSG) Singapore AIL ASUS POLSKA SP. Z O. O. Marketing 3C products in Polska 100.00 100.00 100.00 GROUP (ACPL) AIL ASUS TECHNOLOGY Marketing and repairing 3C 100.00 100.00 100.00 GROUP PRIVATE LIMITED (ACIN) products in India AIL ASUS TECHNOLOGY Selling 3C products 100.00 100.00 100.00 GROUP HOLLAND B. V. (ACNL) AIL ASUS TECHNOLOGY Repairing 3C products in Vietnam 100.00 100.00 100.00 GROUP (VIETNAM) CO., LTD. (ACVN) AIL ASUSTEK ITALY S. R. L. Marketing 3C products in Italy 100.00 100.00 100.00 GROUP (ACIT) AIL ASUS IBERICA S. L. (ACIB) Marketing 3C products in Spain 100.00 100.00 100.00 GROUP AIL ASUS TECHNOLOGY Researching and developing 100.00 100.00 100.00 GROUP (SUZHOU) CO., LTD. 3C products (ACSZ) AIL ASUS JAPAN Selling 3C products in Japan 100.00 100.00 100.00 GROUP INCORPORATION (ACJP) AIL ASUS COMPUTER CZECH Marketing 3C products in Czech 100.00 100.00 100.00 GROUP REPUBLIC S. R. O. (ACCZ) Republic AIL ASUSTEK COMPUTER Selling 3C products in China 100.00 100.00 100.00 GROUP (SHANGHAI) CO., LTD. (ACSH)
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Ownership (%) Investor Subsidiary Main business activities 2015/09/30 2014/12/31 2014/09/30 Remark AIL ASUS CZECH SERVICE Repairing 3C products in Europe 99.59 99.59 99.59 GROUP S. R. O. (ACCZS) AIL ASUS SERVICE AUSTRALIA Repairing 3C products in Australia 100.00 100.00 100.00 GROUP PTY LIMITED (ASAU) AIL ASUS AUSTRALIA PTY Marketing 3C products in Australia 100.00 100.00 100.00 GROUP LIMITED (ACAU) AIL ACBZ IMPORTACAO Selling 3C products in Brazil 100.00 100.00 100.00 GROUP E COMERCIO LTDA. (ACBZ) AIL ASUS INDIA PRIVATE Selling 3C products in India 100.00 100.00 100.00 GROUP LIMITED (ASIN) AIL ASUS ISRAEL Marketing 3C products in Israel 100.00 100.00 100.00 GROUP (TECHNOLOGY) LTD. (ACIL) AIL ASUSTEK COMPUTER Selling 3C products in China 100.00 100.00 100.00 GROUP (CHONGQING) CO., LTD. (ACCQ) AIL ASUS PERU S. A. C (ACPE) Marketing 3C products in Peru 100.00 100.00 100.00 GROUP AIL ASUS SERVICE INDONESIA Repairing 3C products in Asia-pacific 100.00 100.00 100.00 GROUP PTE. LTD. (ASID) AIL ASUS HOLDINGS MEXICO, Selling 3C products in Mexico 100.00 100.00 100.00 GROUP S. A. DE C. V. (ACMH) AIL ASUS MEXICO, S. A. DE Marketing 3C products in Mexico 100.00 100.00 100.00 GROUP C. V. (ACMX) AIL ASUS PORTUGAL, Marketing 3C products in Portugal 100.00 100.00 100.00 GROUP SOCIEDADE UNIPESSOAL LDA. (ACPT) AIL ASUS HUNGARY SERVICES Marketing and repairing 3C 100.00 100.00 100.00 GROUP LIMITED LIABILITY products in Hungary COMPANY (ACHU) AIL ASUS SWITZERLAND Marketing 3C products in 100.00 100.00 100.00 GROUP GMBH (ACCH) Switzerland AIL ASUS NORDIC AB (ACN) Marketing 3C products in 100.00 - - GROUP North Europe AIL ASUS COMPUTER Marketing 3C products in 100.00 - - GROUP COLOMBIA S. A. S. (ACCO) Columbia AIL UNIMAX ELECTRONICS Manufacturing and selling 100.00 100.00 100.00 GROUP INCORPORATION (UEI) automotive electronics and computer peripherals AIL ASUS COMPUTER Repairing 3C products 100.00 100.00 100.00 GROUP (SHANGHAI) CO., LTD. (ACS) AIL ASUS INVESTMENTS Leasing real estate 100.00 100.00 100.00 Note2 GROUP (SUZHOU) CO., LTD. (ACISZ) ACH ASUS CZECH SERVICE Repairing 3C products in Europe 0.41 0.41 0.41 GROUP S. R. O. (ACCZS) Note1: The subsidiary had been identified as significant subsidiary and its financial statements had been reviewed by independent auditors under the regulations of the authority. Note2: The Chinese name of ACISZ was changed to 华硕置业(苏州)有限公司 from 2014/9 on.
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C. Subsidiaries not included in the consolidated financial statements: None. D. Adjustments for subsidiaries with different end of the financial reporting period: None. E. Significant restrictions on its ability to transfer the assets and liabilities to other entities within the Group: None. F. Subsidiaries that have non-controlling interests that are material to the Group: Non-controlling interests in each subsidiary is immaterial to the Group. (4) Foreign currency translation 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 currency”). The consolidated financial statements are presented in “New Taiwan Dollars (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 are re-translated at the exchange rates prevailing at the end of the financial reporting period. Exchange differences arising upon re-translation are recognized in profit or loss. (C)Non-monetary assets and liabilities denominated in foreign currencies at fair value through profit or loss are re-translated at the exchange rates prevailing at the end of the financial reporting period. The translation differences are recognized in profit or loss as part of the fair value gain or loss. Non-monetary assets and liabilities at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the end of the financial reporting period. The 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 other foreign exchange gains and losses based on the nature of those transactions are presented in the statement of comprehensive income within “other gains (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: a.Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the end of the financial reporting period;
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b.Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and c. All resulting exchange differences are recognized in other comprehensive income. (B)When the 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 still retains partial interests 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 to the non-controlling interest in this foreign operation. In addition, if the Group still retains partial interests 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 these foreign operations. (5) Classification of current and non-current items A. Assets that meet one of the following criteria are classified as 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 end of the financial reporting period; (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 end of the financial reporting period. Otherwise they are classified as non-current assets. B. Liabilities that meet one of the following criteria are classified as 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 end of the financial reporting period; (D)Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the end of the financial reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification. Otherwise they are classified as non-current liabilities.
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(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 can be classified as cash equivalents if they meet the criteria mentioned above and are held for short-term cash commitments in operational purpose. (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 financial assets 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 selling 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 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 either designated in this category or not classified in any of the other categories. B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting. C. 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. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in “financial assets measured at cost”. (9) Loans and receivables Trade receivables 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. Trade
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receivables are initially recognized at fair value and subsequently measured at amortised cost using the effective interest method, less provision for impairment. Due to the insignificant discount effect on the non-interest bearing short-term receivables, they are measured at the original invoice amount. (10) Impairment of financial assets A. The Group assesses at the end of the financial reporting period whether there is objective evidence that a 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 (a “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. B. The criteria that the Group uses to determine whether there is objective evidence of 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)The Group granted the borrower a concession that a lender would not otherwise consider for economic or legal reasons relating to the borrower’s financial difficulty; (D)It becomes probable that the borrower will enter bankruptcy or other financial reorganization; (E)The disappearance of an active market for that financial asset because of financial difficulties; (F)Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local unfavorable economic conditions that correlate with defaults on the assets in the group; (G)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 (H)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 impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets: (A) Financial assets measured at amortised 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
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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 amortised 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) Financial assets measured at 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 current market return rate of similar financial asset, and is recognized in profit or loss. Impairment loss recognized for this category shall not be reversed subsequently. Impairment loss is recognized by adjusting the carrying amount of the asset through the use of an impairment allowance account. (C) 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 can be reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed in 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) Derecognition of financial assets The Group derecognizes a financial asset when one of the following conditions is met: A. The contractual rights to receive cash flows from the financial asset expire. B. The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset. C. To transfer the contractual rights to receive cash flows of ownership of the financial asset but the Group has not retained the control of financial asset. (12) Lease receivables/ leases (lessor) An operating lease is a lease that all the risks and rewards incidental to ownership of the leased assets are not transferred to the lessees. Lease income from an operating lease (net of any
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incentives given to the lessee) is recognized in profit or loss on a straight-line basis over the lease term. (13) Inventories Inventories are stated at the lower of cost and net realizable value. Cost is determined using the weighted-average method. The cost of finished goods and work in process comprises raw materials and other direct/indirect costs. 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. (14) Investments accounted for under 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% 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 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, including any other unsecured receivables, 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 change in ownership interests in the associate 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 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
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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 and as capital surplus 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. If it still retains significant influence over this associate, then the amounts previously recognized in other comprehensive income and as capital surplus in relation to the associate are reclassified to profit or loss proportionately. (15) 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, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred. C. Except for land which is not depreciated, other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant, it should be depreciated separately. D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if appropriate, at the end of the financial reporting period. If expectations for the assets’ residual values and useful lives differ from previous estimates or the patterns of consumption of the assets’ future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors”, from the date of the change. The estimated useful lives of buildings are 5~60 years, machinery and equipment are 1~10 years and miscellaneous equipment are 1~15 years. (16) Leased assets/ leases (lessee) An operating lease is a lease that the lessor assumes substantially all the risks and rewards incidental to ownership of the leased asset. Payments made under an operating lease (net of any incentives received from the lessor) are recognized in profit or loss on a straight-line basis over the lease term.
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(17) Investment property An investment property is stated initially at its cost and measured subsequently using the cost model. Except for land, investment property is depreciated on a straight-line basis over its estimated useful life of 5~50 years. (18) Intangible assets A. Goodwill arises in a business combination accounted for by applying the acquisition method. B. Other intangible assets, mainly trademark and computer software, are amortised on a straight-line basis over their estimated useful lives of 1~10 years. (19) Impairment of non-financial assets A. The Group assesses at the end of the financial reporting period the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or decrease, the impairment loss shall be reversed to the extent of the loss previously recognized in profit or loss. However, the reversal should not exceed the carrying amount, net of depreciation or amortisation had the impairment not been recognized. B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and intangible assets that have not yet been available for use shall be evaluated periodically. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. Impairment loss of goodwill previously recognized in profit or loss shall not be reversed in the following years. (20) Borrowings Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortised cost, any difference between the proceeds net of transaction costs, and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method. (21) Notes and trade payables Notes and trade payables are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortised cost using the effective interest method. Due to the insignificant discount effect on the non-interest bearing short-term payables, they are measured at the original invoice amount. (22) Financial liabilities at fair value through profit or loss A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition.
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Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges. Financial liabilities 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 a documented risk management policy. B. Financial liabilities at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognized in profit or loss. (23) Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability specified in the contract is discharged, cancelled or expires. (24) Offsetting financial assets and financial liabilities Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. (25) Derivative financial instruments and hedging activities A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss. B. The Group designates certain derivatives as either: (A) Hedges of the change in fair value of recognized assets or liabilities or an unrecognized firm commitment (fair value hedge); or (B) Hedges of the variability in cash flow associated with a recognized asset or liability or a highly probable forecast transaction (cash flow hedge). C. The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading
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derivatives are classified as current assets or liabilities. E. Cash flow hedge (A) The effective portion of changes in the fair value of derivatives that are designated and qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income within “other gains (losses)”. (B) When the forecast transaction that is hedged results in the recognition of a non-financial asset or financial liability, the gains and losses previously deferred in other comprehensive income are reclassified into profit or loss in the periods when the asset acquired or the liability assumed affects profit or loss. The deferred amounts are ultimately recognized in sales revenue. (C) When a hedging instrument expires, is sold, cancelled, executed, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income. When a forecast transaction occurs or is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred to profit or loss in the periods when the hedged forecast cash flow affects profit or loss. (26) Provisions for liabilities Provisions are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation at the end of the financial reporting period, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses. (27) Employee benefits A. Short-term employee benefits Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service. B. Pensions (A) Defined contribution plans For defined contribution plans, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.
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(B) Defined benefit plans a. The liability recognized in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the end of the financial reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in such corporate bonds, the Group uses interest rates of government bonds (at the end of the financial reporting period) instead. b. Remeasurement arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as other equity. c. Prior service costs are recognized immediately in profit or loss. d. Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation 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-off events. Also, the related information is disclosed accordingly. (C) Termination benefits Termination benefits are employee benefits provided in exchange for the termination of employment as a result from either the Group’s decision to terminate an employee’s employment before the normal retirement date, or an employee’s decision to accept an offer of redundancy benefits in exchange for the termination of employment. The Group recognizes expense as it can no longer withdraw an offer of termination benefits or it recognizes related restructuring costs, whichever is earlier. Benefits that are expected to be due more than 12 months after financial reporting date shall be discounted to their present value. (D) Employees’, directors’ and supervisors’ remuneration Employees’, directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees’, directors’ and supervisors’ remuneration are different from the actual distributed amounts as resolved by the shareholders at their shareholders’ meeting subsequently, the differences should be recognized based on the accounting for changes in estimates. The Group calculates the number of shares of employees’ stock
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remuneration based on the fair value per share at the previous day of the shareholders’ meeting held in the year following the financial reporting year, and after taking into account the effects of ex-rights and ex-dividends. (28) Employee share-based payment A. For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at the end of the financial reporting period. And ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest. B. Restricted stocks: (A) The issued subsidiary uses the date notifying employees the number of shares of employees’ stock bonus as the grant date. (B) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period. (C) For restricted stocks where those stocks do not restrict distribution of dividends to employees and employees are not required to return the dividends received if they resign during the vesting period, the Group recognizes the fair value of the dividends received by the employees who are expected to resign during the vesting period as compensation cost at the date of dividends declared. (D) For restricted stocks where employees have to pay to acquire those stocks, if employees resign during the vesting period, they must return the stocks to the issued subsidiaries and the issued subsidiaries must refund their payments on the stocks, the issued subsidiary recognizes the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognizes the payments from the employees who are expected to be eventually vested with the stocks in ’capital surplus – others’. (29) Income tax A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.
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B. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the financial reporting period in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the shareholders resolve to retain the earnings. C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the financial reporting period and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled. D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At the end of the financial reporting period, unrecognized and recognized deferred income tax assets are reassessed. E. Current income tax assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realize the asset and settle the liability simultaneously. F. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from research and development expenditures to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilized. G. The interim period income tax expense is calculated according to pretax income times effective income tax rate, and the related information is disclosed accordingly.
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(30) Dividends Dividends are recorded in the Company’s financial statements in the period in which they are approved by the Company’s shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance. (31) Revenue recognition Sales of goods A. The Group is primarily engaged in the selling of 3C products. Revenue is measured at the fair value of the consideration received or receivable taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group’s activities. Revenue arising from the sales of goods should be recognized when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied. B. The Group offers customers volume discounts and right of return for defective products. The Group estimates such discounts and returns based on historical experience. Provisions for such liabilities are recorded when the sales are recognized. The volume discounts are estimated based on the anticipated annual sales quantities. (32) Business combinations A. The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair value or the present ownership instruments’ proportionate share in the recognized amounts of the acquiree’s identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value. B. If the total of the fair values of the consideration of acquisition and any non-controlling interest in the acquiree as well as the acquisition-date fair value of any previous equity interest in the acquiree is higher than the fair value of the Group’s share of the identifiable net assets acquired
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and liabilities assumed, the difference is recorded as goodwill, if the total of the fair values of the consideration of acquisition and any non-controlling interest in the acquiree as well as the acquisition-date fair value of any previous equity interest in the acquiree is higher than the fair value of the Group’s share of the identifiable net assets acquired and liabilities assumed, the difference is recorded as profit. (33) Operating segments Operating segments are reported in a manner consistent with the internal management reports provided to the chief operating decision-maker. The chief operating decision-maker is responsible for allocating resources and assessing performance of the operating segments. 5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY The preparation of these consolidated financial statements requires management to make critical judgements in applying the Group’s accounting policies and make critical assumptions at the end of the financial reporting period and estimates concerning future events. The resulting accounting estimates and assumptions might be different from the actual results, and will be continually evaluated and adjusted based on historical experience and other factors; and the related information is addressed below: (1) Critical judgements in applying the Group’s accounting policies A. Financial assets - impairment of equity investments The Group follows the guidance of IAS 39 to determine whether a financial asset - equity investment is impaired. This determination requires significant judgement. In making this judgement, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. B. Investment property The Group uses the main part of the investment property to earn rentals or for capital appreciation and others for its own use. When the portions cannot be sold separately and cannot be leased separately under finance lease, the property is classified as investment property only if the own-use portion accounts for less than 50% of the property. C. Revenue recognition on a net/gross basis The determination of whether the Group is acting as principal or agent in a transaction is based on an evaluation of the Group’s exposure to the significant risks and rewards associated with the sale of goods in accordance with the business model and substance of the transaction. Where the Group acts as a principal, the amount received or receivable from customers is recognized as revenue on a gross basis. Where the Group acts as an agent, net revenue is recognized representing commissions earned. The following characteristics of a principal are used as indicators to determine whether the
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Group shall recognize revenue on a gross basis: (A) The Group has primary responsibilities for the goods or services it provides; (B) The Group bears inventory risk; (C) The Group has the latitude in making price, either directly or indirectly. (D) The Group bears credit risk of customers. (2) Critical accounting estimates and assumptions A. Estimation of sales returns and discounts The Group estimates discounts and returns based on historical results and other known factors. Provisions for such liabilities are recorded as a deduction item to sales revenues when the sales are recognized. The Group reassesses the reasonableness of estimates of discounts and returns periodically. As of September 30, 2015, provisions for discounts and sales returns amounted to $17,642,042. B. Estimation of provisions for warranty The Group estimates provisions for warranty based on historical results. Provisions for such liabilities are recorded as costs. The Group reassesses the reasonableness of estimates of provisions for warranty periodically. As of September 30, 2015, provisions for warranty amounted to $11,918,679. C. Impairment assessment of goodwill The impairment assessment of goodwill relies on the Group’s subjective judgement, including identifying cash-generating units, allocating assets and liabilities as well as goodwill to related cash-generating units, and determining the recoverable amounts of related cash-generating units. D. Evaluation of inventories Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on the end of the financial reporting period, and writes down the cost of inventories to the net realizable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be material changes to the evaluation. As of September 30, 2015, the carrying amount of inventories was $98,422,625. 6. DETAILS OF SIGNIFICANT ACCOUNTS (1) Cash and cash equivalents 2015/09/30 2014/12/31 2014/09/30 Cash on hand and petty cash $ 7,256 $ 8,398 $ 10,085 Checking accounts and demand deposits 47,779,691 25,036,126 24,349,438 Time deposits 20,002,407 54,069,021 35,192,644 Others 164 310 424 $ 67,789,518 $ 79,113,855 $ 59,552,591
The Group has no cash and cash equivalents pledged to others.
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(2) Financial assets and liabilities at fair value through profit or loss 2015/09/30 2014/12/31 2014/09/30 Current items: Financial assets held for trading Open-end funds $ 4,067,499 $ 4,373,664 $ 3,585,026 Listed and OTC stocks 196,448 176,298 183,418 Convertible bonds 77,132 131,535 82,946 Non-hedging derivatives 96,648 681,215 844,268 $ 4,437,727 $ 5,362,712 $ 4,695,658
Current items: Financial liabilities held for trading Non-hedging derivatives $ 506,630 $ 142,333 $ 10,693
A. The Group recognized net gain (loss) on derivative financial instruments held for trading amounting to ($135,177) and $1,209,041, $996,518 and $1,387,008 and net gain (loss) on non-derivative financial instruments held for trading amounting to ($658) and $6,690, ($1,681) and $46,949 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. B. The unexpired contracts are as follows: 2015/09/30 2014/12/31 Contract amount Contract amount (Nominal principal) (Nominal principal) (in thousands) Contract period (in thousands) Contract period Derivative financial assets: Forward exchange contracts -EUR/USD EUR 6,100 2015/05-2016/05 EUR 374,000 2014/10-2015/03 -NOK/USD NOK 48,948 2015/08-2015/11 NOK 25,781 2014/12-2015/01 -RUB/USD RUB 662,208 2015/09-2015/11 RUB 2,197,640 2014/11-2015/01 -AUD/USD AUD 6,600 2015/09-2015/11 AUD - - -JPY/USD JPY 1,170,525 2015/08-2016/02 JPY 2,953,855 2014/12-2015/02 -GBP/USD GBP 15,880 2015/07-2015/11 GBP 46,700 2014/09-2015/03 -CHF/USD CHF - - CHF 12,472 2014/11-2015/03 -SEK/USD SEK 48,965 2015/09-2016/01 SEK 161,163 2014/10-2015/04 -CNH/USD CNH - - CNH 70,203 2014/12-2015/01 -MXN/USD MXN 131,386 2015/09-2015/10 MXN 168,368 2014/10-2015/03 -CAD/USD CAD 21,840 2015/08-2015/11 CAD - - -THB/USD THB 142,000 2015/09-2015/10 THB - - -USD/NTD USD 315 2015/09-2015/11 USD - - Currency option contracts -AUD/USD AUD 42,000 2015/08-2016/01 AUD - - -EUR/USD EUR - - EUR 141,000 2014/09-2015/04 -JPY/USD JPY - - JPY 6,959,400 2014/10-2015/03
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2015/09/30 2014/12/31 Contract amount Contract amount (Nominal principal) (Nominal principal) (in thousands) Contract period (in thousands) Contract period Derivative financial liabilities: Forward exchange contracts -EUR/USD EUR 271,400 2015/03-2016/06 EUR - - -GBP/USD GBP - - GBP 1,000 2014/12-2015/03 -RUB/USD RUB 1,898,590 2015/09-2015/10 RUB 1,913,300 2014/12-2015/01 -AUD/USD AUD 2,200 2015/09-2015/11 AUD - - -SEK/USD SEK 78,386 2015/08-2015/11 SEK - - -JPY/USD JPY 4,247,545 2015/08-2016/02 JPY 200,000 2014/12-2015/01 -BRL/USD BRL 126,603 2015/09-2015/10 BRL - - -SGD/USD SGD 4,556 2015/09-2015/10 SGD - - Currency option contracts -JPY/USD JPY 21,753,600 2015/07-2016/01 JPY - - -EUR/USD EUR 208,000 2015/03-2015/12 EUR - - -CNH/USD CNH 3,681,678 2015/09-2016/01 CNH - - -USD/NTD USD 19 2015/09-2015/10 USD - -
2014/09/30 Contract amount (Nominal principal) (in thousands) Contract period Derivative financial assets: Forward exchange contracts -EUR/USD EUR 392,000 2014/07-2014/12 -NOK/USD NOK 59,807 2014/08-2014/10 -RUB/USD RUB 1,000,000 2014/09-2014/10 -AUD/USD AUD 9,800 2014/09-2014/10 -JPY/USD JPY 3,789,120 2014/08-2014/11 -GBP/USD GBP 37,700 2014/07-2015/01 -SEK/NTD SEK 66,018 2014/08-2014/11 Currency option contracts -AUD/USD AUD 39,000 2014/09-2014/12 -EUR/USD EUR 122,000 2014/09-2015/01 -JPY/USD JPY 8,457,150 2014/09-2015/01 Derivative financial liabilities: Forward exchange contracts -EUR/USD EUR 40,000 2014/09-2014/12 -GBP/USD GBP 15,400 2014/09-2014/12 -USD/NTD USD 2,000 2014/09-2014/12 Currency option contracts -EUR/USD EUR 58,500 2014/09-2015/01 -JPY/USD JPY 5,370,300 2014/09-2015/02
(A) Forward exchange contracts The Group entered into forward exchange contracts to sell various forward foreign currencies to hedge exchange rate risk of import and export proceeds. However, these forward exchange contracts are not accounted for under hedge accounting.
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(B) Currency option contracts The Group entered into currency option contracts to buy or sell various foreign currencies rights at agreed price in the future to hedge exchange rate risk of import and export proceeds. However, these currency option contracts are not accounted for under hedge accounting. C. The Group has no financial assets at fair value through profit or loss pledged to others. (3) Available-for-sale financial assets
2015/09/30 2014/12/31 2014/09/30 Current items: Listed and OTC stocks $ 280,939 $ 157,616 $ 161,547 Unlisted and non-OTC stocks 30,000 - - 310,939 157,616 161,547 Valuation adjustment 37,083 9,933 8,381 Accumulated impairment ( 62,546) ( 54,149) ( 54,901) $ 285,476 $ 113,400 $ 115,027 Non-current items: Listed and OTC stocks $ 26,605,324 $ 26,627,782 $ 26,593,859 Unlisted and non-OTC stocks 311,237 309,083 405,442 Convertible bonds 7,575 7,575 7,575 26,924,136 26,944,440 27,006,876 Valuation adjustment 30,364,274 28,061,764 18,922,603 Accumulated impairment ( 138,327) ( 135,542) ( 132,237) $ 57,150,083 $ 54,870,662 $ 45,797,242
A. The Group recognized ($3,428,851) and ($1,850,629), $2,344,577 and $9,682,739 in other comprehensive income for fair value change and reclassified ($18,421) and $48,982, ($27,341) and $69,617 from equity to profit or loss for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. B. After evaluating and comparing the carrying amount of available-for-sale financial assets and its recoverable amounts, the Group recognized impairment loss amounting to $3,488 and $16,471, $8,397 and $20,897 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. C. The Group has no available-for-sale financial assets pledged to others. (4) Financial assets measured at cost 2015/09/30 2014/12/31 2014/09/30 Non-current items: Unlisted and non-OTC stocks $ 291,608 $ 285,606 $ 295,973 Private fund 65,945 59,308 54,965 357,553 344,914 350,938 Accumulated impairment ( 207,378) ( 202,169) ( 196,917) $ 150,175 $ 142,745 $ 154,021
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A. In accordance with the Group’s intention, its investment in unlisted and non-OTC stocks and the private fund should be classified as “available-for-sale financial assets”. However, as the investments are not traded in active market, and no sufficient industry, financial information and investment portfolio of the private fund can be obtained, the fair value of the investments cannot be measured reliably. Thus, the Group classified those funds as “financial assets measured at cost”. B. The Group has no financial assets measured at cost pledged to others. (5) Hedge accounting
2015/09/30 2014/12/31 2014/09/30 Assets (Liabilities) Assets (Liabilities) Assets (Liabilities) Current items: Forward exchange contracts $ 623,582 $ 367,758 $ 847,701 -cash flow hedges Forward exchange contracts ( 212,149) ( 1,936) - -cash flow hedges $ 411,433 $ 365,822 $ 847,701
Cash flow hedges: Fair value of Derivative derivative instruments instruments Period of Period of gain (loss) designated as designated as anticipated expected to be Hedged item hedges hedges cash flow recognized 2015/09/30 Expected transactions Forward exchange $ 411,433 2015/10-2016/03 2015/10-2016/03 contracts 2014/12/31 Expected transactions Forward exchange 365,822 2015/01-2015/03 2015/01-2015/03 contracts 2014/09/30 Expected transactions Forward exchange 847,701 2014/08-2014/12 2014/08-2014/12 contracts A. The hedged highly probable forecast transactions denominated in foreign currency are expected to occur during the next 12 months. Amounts accumulated in “other comprehensive income” as of September 30, 2015 are recycled into profit or loss in the periods when the hedged asset acquired or the hedged liability assumed affects profit or loss. The Group has assessed that the effect of profit or loss arising from ineffective cash flow hedge is insignificant as the Group was effective mostly in executing the hedge transactions for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively.
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B. Information on gain or loss arising from cash flow hedges recognized in profit or loss and other comprehensive income:
For the three-month periods ended September 30, 2015 2014 Amount adjusted in other $ 17,227 $ 710,445 comprehensive income (loss) Amount transferred from other 371,388 ( 562,908) comprehensive income to profit (loss)
For the nine-month periods ended September 30, 2015 2014 Amount adjusted in other $ 45,611 $ 1,082,698 comprehensive income (loss) Amount transferred from other 2,007,616 ( 426,041) comprehensive income to profit (loss) C. The unexpired contracts are as follows: 2015/09/30 2014/12/31 Contract amount Contract amount (Nominal principal) (Nominal principal) (in thousands) Contract period (in thousands) Contract period Derivative financial assets for hedging: Forward exchange contracts -EUR/USD EUR 900,000 2015/05-2016/03 EUR 300,000 2014/11-2015/03 -GBP/USD GBP 102,000 2015/07-2016/03 GBP - - -NOK/USD NOK - - NOK 30,000 2014/12-2015/02 -JPY/USD JPY 4,000,000 2015/08-2016/03 JPY 5,000,000 2014/12-2015/02 -SEK/USD SEK 200,000 2015/08-2015/12 SEK 25,000 2014/12-2015/01 -AUD/USD AUD 15,000 2015/09-2015/10 AUD 10,000 2014/10-2015/01 -TRY/USD TRY - - TRY 5,000 2014/12-2015/02 -RUB/USD RUB 2,000,000 2015/06-2015/10 RUB - - Derivative financial liabilities for hedging: Forward exchange contracts -EUR/USD EUR 425,000 2015/07-2016/03 EUR - - -NOK/USD NOK - - NOK 20,000 2014/12-2015/01 -JPY/USD JPY 15,500,000 2015/06-2016/03 JPY 1,800,000 2014/12-2015/03 -RUB/USD RUB 4,000,000 2015/09-2015/11 RUB - -
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2014/09/30 Contract amount (Nominal principal) (in thousands) Contract period Derivative financial assets for hedging: Forward exchange contracts -EUR/USD EUR 350,000 2014/09-2014/11 -GBP/USD GBP 30,000 2014/08-2014/11 -NOK/USD NOK 20,000 2014/08-2014/10 -JPY/USD JPY 1,000,000 2014/08-2014/10 -SEK/USD SEK 10,000 2014/08-2014/10 -AUD/USD AUD 60,000 2014/08-2014/12 -RUB/USD RUB 4,500,000 2014/08-2014/11 (6) Notes and trade receivables 2015/09/30 2014/12/31 2014/09/30 Notes receivable $ 11,407,470 $ 5,664,021 $ 9,372,617 Trade receivables 78,237,987 80,701,708 70,004,374 89,645,457 86,365,729 79,376,991 Less: allowance for sales returns ( 2,328,238) ( 3,149,850) ( 4,208,899) and discounts Less: allowance for doubtful accounts ( 3,061,414) ( 2,778,185) ( 2,887,444) (accumulated impairment) $ 84,255,805 $ 80,437,694 $ 72,280,648
A. The aging analysis of trade receivables that were past due but not impaired is as follows: 2015/09/30 2014/12/31 2014/09/30 Less than 90 days $ 13,334,183 $ 11,656,002 $ 9,782,159 Between 91 and 180 days 419,642 231,056 387,080 More than 181 days 80,216 47,492 115,370 $ 13,834,041 $ 11,934,550 $ 10,284,609
The above aging analysis is based on overdue days, and there was no significant change for the credit quality of the above receivables after the assessment and they were still considered collectible, so the Group had no impairment concern. B. Individual assessment of impaired trade receivables: (A) Impaired but not past due 2015/09/30 2014/12/31 2014/09/30 Gross amount $ 1,907 $ 4,309 $ 766
(B) Impaired and past due 2015/09/30 2014/12/31 2014/09/30 Gross amount $ 3,059,507 $ 2,773,876 $ 2,886,678
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(C) Movements for allowance for doubtful accounts (accumulated impairment) of trade receivables are as follows: 2015 Individual provision Group provision Total At January 1 $ 1,951,749 $ 826,436 $ 2,778,185 Recognition (reversal) 49,696 144,759 194,455 Write-offs ( 784) ( 7,270) ( 8,054) Net exchange differences 72,157 24,671 96,828 $ 2,072,818 $ 988,596 $ 3,061,414 At September 30 2014 Individual provision Group provision Total At January 1 $ 1,844,756 $ 583,419 $ 2,428,175 Recognition (reversal) ( 710) 413,217 412,507 Write-offs ( 648) ( 3,931) ( 4,579) Reclassifications ( 89,656) 89,656 - Net exchange differences 36,746 14,595 51,341 $ 1,790,488 $ 1,096,956 $ 2,887,444 At September 30 C. The credit quality of trade receivables that are neither past due nor impaired based on the Group’s Credit Quality Control Policy is as follows: 2015/09/30 2014/12/31 2014/09/30 Group 1 $ 29,786,564 $ 34,629,000 $ 29,287,651 Group 2 29,227,730 28,210,123 23,335,771 $ 59,014,294 $ 62,839,123 $ 52,623,422
Group 1: Insured, or guaranteed by the third party, or the trading object is the associate. Group 2: Neither insured and guaranteed by the third party, nor the trading object is the associate. (7) Offsetting financial assets and financial liabilities A. The Group has assets (fair value of $39,173,745, $44,167,318 and $40,919,675 on September 30, 2015, December 31, 2014 and September 30, 2014, respectively) and liabilities (fair value of $38,113,887, $55,564,503 and $44,969,611 on September 30, 2015, December 31, 2014 and September 30, 2014, respectively) with certain companies that meet the offsetting criteria in paragraph 42 of IAS 32, resulting in the presentation of a net amount for at trade receivables, trade payables and other payables – accrued expenses. For certain transactions, the Group has received cash or financial assets from those companies as collateral, and accordingly, it does not meet the offsetting criteria in paragraph 42 of IAS 32. However, under the associated collateral agreement, the collateral can be set off against the net amount of the assets and liabilities in the case of default and insolvency or bankruptcy.
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B. Financial assets and financial liabilities subject to master netting arrangements are as follows: Offsetting trade receivables, notes payable, trade payables and other payables - accrued expenses Amounts of Amounts of Gross financial financial Not set off Gross Gross amounts of assets liabilities in the amounts of amounts of financial presented in presented in balance sheet： financial financial liabilities set the balance the balance collateral assets liabilities off sheet sheet received 2015/09/30 $ 39,173,745 ($ 38,113,887) ($ 35,783,990) $ 3,389,755 ($ 2,329,897) ($ 30,000) 2014/12/31 44,167,318 ( 55,564,503) ( 44,102,900) 64,418 ( 11,461,603) ( 20,000) 2014/09/30 40,919,675 ( 44,969,611) ( 40,905,262) 14,413 ( 4,064,349) ( 20,000) (8) Inventories
2015/09/30 Allowance for Cost valuation loss Book value Raw materials $ 48,502,830 ($ 4,930,450) $ 43,572,380 Work in process 2,887,096 ( 245,277) 2,641,819 Finished goods 2,855,815 ( 435,577) 2,420,238 Merchandise inventories 58,113,930 ( 8,992,261) 49,121,669 Inventories in transit 666,519 - 666,519 $ 113,026,190 ($ 14,603,565) $ 98,422,625
2014/12/31 Allowance for Cost valuation loss Book value Raw materials $ 39,450,289 ($ 4,619,779) $ 34,830,510 Work in process 2,260,007 ( 182,585) 2,077,422 Finished goods 3,375,201 ( 358,058) 3,017,143 Merchandise inventories 66,843,117 ( 7,556,713) 59,286,404 Inventories in transit 1,408,071 - 1,408,071 $ 113,336,685 ($ 12,717,135) $ 100,619,550
2014/09/30 Allowance for Cost valuation loss Book value Raw materials $ 44,752,886 ($ 3,981,945) $ 40,770,941 Work in process 3,092,263 ( 178,969) 2,913,294 Finished goods 2,726,595 ( 333,456) 2,393,139 Merchandise inventories 60,274,435 ( 7,037,277) 53,237,158 Inventories in transit 2,378,236 - 2,378,236 $ 113,224,415 ($ 11,531,647) $ 101,692,768
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Except for costs of goods sold, the inventories recognized as increase in operating costs amounted to $271,686 and $193,556, $2,032,642 and $1,095,398, of which $26,973 and $176,549, $1,692,633 and $969,435 pertain to the decline in value of inventories for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. (9) Investments accounted for under equity method 2015/09/30 2014/12/31 2014/09/30 Associates: Others $ 322,027 $ 326,443 $ 317,163
A. The Group’s share of the operating results in all individually immaterial associates are summarized below: For the three-month periods ended September 30, 2015 2014 Profit for the period $ 12,670 $ 25,119 Other comprehensive income (loss) ( 7,935) 383 for the period - net of income tax Total comprehensive income (loss) $ 4,735 $ 25,502
for the period
For the nine-month periods ended September 30, 2015 2014 Profit for the period $ 29,339 $ 85,128 Other comprehensive income (loss) ( 5,078) 323 for the period - net of income tax Total comprehensive income (loss) $ 24,261 $ 85,451
B. The fair value of the Group’s associates which have quoted market price is as follows: 2015/09/30 2014/12/31 2014/09/30 Others $ 194,333 $ 262,789 $ 272,317
C. As of September 30, 2015 and 2014, the investments accounted for under equity method amounted to $275,359 and $270,495, respectively, and the share of comprehensive income amounted to $10,750 and $5,188, $17,864 and $10,698 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively, which were determined based on the investees’ unreviewed financial statements.
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(10) Property, plant and equipment Machinery Miscellaneous Land Buildings and equipment equipment Total At January 1, 2015 Cost $ 2,075,767 $ 6,574,840 $ 5,181,823 $ 7,553,605 $21,386,035 Accumulated depreciation - ( 2,288,984) ( 2,978,219) ( 6,536,952) ( 11,804,155) and impairment $ 2,075,767 $ 4,285,856 $ 2,203,604 $ 1,016,653 $ 9,581,880 At January 1, 2015 $ 2,075,767 $ 4,285,856 $ 2,203,604 $ 1,016,653 $ 9,581,880 Acquisitions - 2,784 351,554 259,142 613,480 Disposals - ( 314) ( 4,672) ( 21,210) ( 26,196) Depreciation - ( 174,829) ( 437,952) ( 336,095) ( 948,876) Impairment - - ( 198) ( 2,279) ( 2,477) Reclassifications - 22,000 ( 1,828) 19,749 39,921 Net exchange differences 2,610 21,850 ( 24,702) 9,612 9,370 Effects due to changes in - - - 1,626 1,626 consolidated entities At September 30, 2015 $ 2,078,377 $ 4,157,347 $ 2,085,806 $ 947,198 $ 9,268,728 At September 30, 2015 Cost $ 2,078,377 $ 6,657,380 $ 5,462,416 $ 7,659,980 $21,858,153 Accumulated depreciation - ( 2,500,033) ( 3,376,610) ( 6,712,782) ( 12,589,425) and impairment $ 2,078,377 $ 4,157,347 $ 2,085,806 $ 947,198 $ 9,268,728
Machinery Miscellaneous Land Buildings and equipment equipment Total At January 1, 2014 Cost $ 2,067,214 $ 6,474,369 $ 5,483,009 $ 7,017,449 $21,042,041 Accumulated depreciation - ( 2,013,717) ( 3,509,440) ( 4,772,201) ( 10,295,358) and impairment $ 2,067,214 $ 4,460,652 $ 1,973,569 $ 2,245,248 $ 10,746,683 At January 1, 2014 $ 2,067,214 $ 4,460,652 $ 1,973,569 $ 2,245,248 $ 10,746,683 Acquisitions - 2,451 267,811 504,842 775,104 Disposals - - ( 6,463) ( 6,928) ( 13,391) Depreciation - ( 179,381) ( 408,466) ( 1,587,109) ( 2,174,956) Impairment - - ( 17,728) - ( 17,728) Reclassifications - 4,416 309,956 123,332 437,704 Net exchange differences 1,547 11,997 8,585 876 23,005 At September 30, 2014 $ 2,068,761 $ 4,300,135 $ 2,127,264 $ 1,280,261 $ 9,776,421 At September 30, 2014 Cost $ 2,068,761 $ 6,496,511 $ 5,985,077 $ 7,519,829 $22,070,178 Accumulated depreciation - ( 2,196,376) ( 3,857,813) ( 6,239,568) ( 12,293,757) and impairment $ 2,068,761 $ 4,300,135 $ 2,127,264 $ 1,280,261 $ 9,776,421
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A. After evaluating and comparing the carrying amount of property, plant and equipment and its recoverable amounts, the Group recognized impairment loss amounting to $2,477 and $0, $2,477 and $17,728 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. B. Information about the property, plant and equipment that are pledged to others as collateral is provided in Note 8. (11) Intangible assets
Trademark Computer software Goodwill Others Total At January 1, 2015 Cost $ 358,750 $ 1,543,095 $ 1,181,339 $ 651,991 $ 3,735,175 Accumulated amortisation ( 3,392) ( 1,100,948) ( 49,441) ( 432,853) ( 1,586,634) and impairment $ 355,358 $ 442,147 $ 1,131,898 $ 219,138 $ 2,148,541 At January 1, 2015 $ 355,358 $ 442,147 $ 1,131,898 $ 219,138 $ 2,148,541 Acquisitions - 88,684 - 17,023 105,707 Amortisation ( 51) ( 160,547) - ( 69,756) ( 230,354) Reclassifications - 1,539 - 2,700 4,239 Net exchange differences - ( 381) - ( 2) ( 383) At September 30, 2015 $ 355,307 $ 371,442 $ 1,131,898 $ 169,103 $ 2,027,750 At September 30, 2015 Cost $ 358,750 $ 1,520,452 $ 1,181,048 $ 671,358 $ 3,731,608 Accumulated amortisation ( 3,443) ( 1,149,010) ( 49,150) ( 502,255) ( 1,703,858) and impairment $ 355,307 $ 371,442 $ 1,131,898 $ 169,103 $ 2,027,750
Trademark Computer software Goodwill Others Total At January 1, 2014 Cost $ 358,664 $ 1,323,629 $ 1,181,832 $ 623,617 $ 3,487,742 Accumulated amortisation ( 3,257) ( 935,079) ( 49,934) ( 340,316) ( 1,328,586) and impairment $ 355,407 $ 388,550 $ 1,131,898 $ 283,301 $ 2,159,156 At January 1, 2014 $ 355,407 $ 388,550 $ 1,131,898 $ 283,301 $ 2,159,156 Acquisitions - 123,709 - 24,431 148,140 Amortisation ( 44) ( 121,580) - ( 70,379) ( 192,003) Reclassifications - ( 12,734) - ( 390) ( 13,124) Net exchange differences - ( 101) - ( 15) ( 116) At September 30, 2014 $ 355,363 $ 377,844 $ 1,131,898 $ 236,948 $ 2,102,053 At September 30, 2014 Cost $ 358,664 $ 1,422,213 $ 1,181,362 $ 646,735 $ 3,608,974 Accumulated amortisation ( 3,301) ( 1,044,369) ( 49,464) ( 409,787) ( 1,506,921) and impairment $ 355,363 $ 377,844 $ 1,131,898 $ 236,948 $ 2,102,053
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A. The impairment assessment of goodwill relies on the managements’ subjective judgement, including identifying cash-generating units and determining the recoverable amounts of related cash-generating units. The recoverable amount is determined based on the value-in-use and industry standard, the value-in-use calculations use cash flow projections based on financial budgets approved by the management covering a five-year period, and industy standard calculations are determined by reference to the business market value in consideration of the similar industries with the similar products, capital and operating revenues, etc. B. Management determined budgeted gross margin and growth rate based on past performance and its expectations of market development. The market valuation used are consistent with the similar industries. The discount rates used reflect specific risks relating to the relevant operating segments and the time value of currency in real market. (12) Long-term prepaid rents ( shown as “Other non-current assets” ) 2015/09/30 2014/12/31 2014/09/30 Land use right $ 1,441,655 $ 1,445,620 $ 1,409,602 In February, 2014, September, 2013, April, 2010, November, 2008, October, 2006, and July, 2002, the Group signed a land use right contract with Suzhiu City Government, Shanghai City Government, Chongqing City Government and Wujiang City Government, for use of the land for a period of 40~50 years. All rentals had been paid on the contract dates. The Group recognized rental expenses of $9,132 and $9,452, $27,107 and $24,279 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. (13) Short-term borrowings Type of borrowings 2015/09/30 Interest rate range Collateral Bank borrowings Credit borrowings $ 3,625,180 0.79%~1.65% -
Type of borrowings 2014/12/31 Interest rate range Collateral Bank borrowings Credit borrowings $ 3,881,979 0.81%~1.84% -
Type of borrowings 2014/09/30 Interest rate range Collateral Bank borrowings Credit borrowings $ 4,256,247 0.80%~2.15% -
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(14) Long-term borrowings Borrowing period and Interest rate Type of borrowings repayment term range Collateral 2015/09/30 Credit borrowings - installment-repayment Mega International 2014.10~2017.09, 1.51%~ - $ 986,100 Commercial Bank payable in 2 semi-annual 1.67% installments, commencing 2 years after the initial date of borrowing The Shanghai Commercial 2012.11~2015.11, 1.33%~ - 287,613 & Savings Bank payable in 2 semi-annual 1.54% installments, commencing 2 years after the initial date of borrowing Bank of Taiwan 2015.08~2017.08, 1.55% - 240,000 payable at maturity date, commencing 2 years after the initial date of borrowing Others 2012.05~2017.05 2.42%~ Buildings 88,486 2.47% 1,602,199 Less: current portion of ( 288,372) long-term borrowings $ 1,313,827
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Borrowing period and Interest rate Type of borrowings repayment term range Collateral 2014/12/31 Credit borrowings - installment-repayment Mega International 2012.08~2015.08, 2.00%~ - $ 633,000 Commercial Bank payable in 3 semi-annual 2.61% installments, commencing 2 years after the initial date of borrowing Mega International 2014.10~2016.10, 1.67% - 316,500 Commercial Bank payable in 2 years, commencing after the initial date of borrowing The Shanghai Commercial 2012.11~2015.11, 1.33%~ - 553,875 & Savings Bank payable in 2 semi-annual 1.54% installments, commencing 2 years after the initial date of borrowing Others 2012.05~2017.05 2.42%~ Buildings 87,395 2.47% 1,590,770 Less: current portion of ( 1,189,799) long-term borrowings $ 400,971
Borrowing period and Interest rate Type of borrowings repayment term range Collateral 2014/09/30 Credit borrowings - installment-repayment Mega International 2013.02~2015.08, 2.00%~ - $ 608,400 Commercial Bank payable in 3 semi-annual 2.44% installments, 2 years after the initial date of borrowing The Shanghai 2012.11~2015.11, 1.33%~ - 532,350 & Savings Bank payable in 2 semi-annual 1.36% installments, 2 years after the initial date of borrowing Others 2011.05~2017.05 2.42%~ Buildings 84,702 2.47% 1,225,452 Less: current portion of ( 610,040) long-term borrowings $ 615,412
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Under the borrowing contracts, the company’s subsidiaries who signed the contracts are required to maintain certain covenants semi-annually agreed by both sides, and the bank can inspect at any time when necessary. As of September 30, 2015, December 31, 2014 and September 30, 2014, the company’s subsidiaries who signed the contracts did not violate any of the covenants specified in the contract. (15) Pensions A. Defined benefit pension plans (A) The Company and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees’ monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. (B) The pension costs under the defined benefit pension plans of the Group were $2,534 and $2,563, $8,207 and $8,153 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. (C) Expected contribution to the defined benefit pension plans of the Group for the year ending December 31, 2016 are $308. B. Defined contribution pension plans (A) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (New Plan) under the Labor Pension Act, covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees’ monthly salaries and wages to the employees’ individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment. (B) The Company’s mainland subsidiaries have a defined contribution plan. Monthly contributions to an independent fund administered by the government in accordance with the pension regulations in the People’s Republic of China are based on certain percentage of employees’ monthly salaries and wages. Other than the monthly contributions, the Group has no further obligations. (C) The pension costs under the defined contribution pension plans of the Group were $357,425 and $264,564, $894,286 and $701,913 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively.
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(16) Provisions for liabilities
Provisions for Provisions for Provisions for sales returns legal claims warranty and discounts and royalty Total At January 1, 2015 $ 11,454,228 $ 18,708,316 $ 6,267,884 $ 36,430,428 Recognition (reversal) 11,981,558 24,410,560 1,463,865 37,855,983 Write-offs ( 11,836,217) ( 25,929,911) ( 366,867) ( 38,132,995) Net exchange differences 319,110 453,077 250,373 1,022,560 At September 30, 2015 $ 11,918,679 $ 17,642,042 $ 7,615,255 $ 37,175,976
Provisions for Provisions for Provisions for sales returns legal claims warranty and discounts and royalty Total At January 1, 2014 $ 10,773,970 $ 16,581,206 $ 5,094,257 $ 32,449,433 Recognition (reversal) 9,324,026 29,536,538 746,573 39,607,137 Write-offs ( 9,992,542) ( 27,596,956) ( 525,903) ( 38,115,401) Net exchange differences 138,200 301,462 95,561 535,223 At September 30, 2014 $ 10,243,654 $ 18,822,250 $ 5,410,488 $ 34,476,392
Analysis of total provisions: 2015/09/30 2014/12/31 2014/09/30 Current $ 37,175,976 $ 36,430,428 $ 34,476,392
A. Provisions for warranty The Group provides warranties on 3C products sold. Provision for warranty is estimated based on these products’ historical warranty data. A provision is recognized as current when it is expected to be used in one year. B. Provisions for sales returns and discounts The Group allows sales returns and gives discounts on 3C products sold. Provision for sales returns and discounts is estimated based on these products’ historical data and other known factors. A provision is recognized as current when it is expected to be used in one year. C. Provisions for legal claims and royalty The Group recognizes provision for legal claims or royalty fees made by the patentees against the Group. After taking appropriate legal advice, the management evaluates the probable claimable fees accrued as provision for liabilities. The provision charge is recognized in profit or loss within operating costs and expenses. (17) Common shares A. As of September 30, 2015, the Company’s authorized capital was $47,500,000, consisting of 4,750,000,000 shares of common stock (including 50,000,000 shares which were reserved for employee stock options), and the paid-in capital was $7,427,603, with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
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The number of the Company’s ordinary shares outstanding at the beginning and ending for the nine-month periods ended September 30, 2015 and 2014 are both 742,760,280. B. As of September 30, 2015, the Company issued Global Depositary Receipts (GDRs), of which 5,685,000 units of the GDRs are now listed on the Luxembourg Stock Exchange (The Board of Directors authorized to transfer its GDRs from the London Stock Exchange to the Luxembourg Stock Exchange on January 30, 2013, and the change had taken effect on March 28, 2013). Per unit of GDR represents 5 shares of the Company’s common stock and total GDRs represent 28,424,000 shares of the Company’s common stock. The terms of GDR are as follows: (A) Voting rights GDR holders may, pursuant to the Depositary Agreement and the relevant laws and regulations of the R.O.C., exercise the voting rights pertaining to the underlying common shares represented by the GDRs. (B) Dividends, stock warrants and other rights GDR holders and common shareholders are all entitled to receive dividends. The Depositary may issue new GDRs in proportion to GDRs holding ratios or raise the number of shares of common stock represented by each unit of GDR or sell stock dividends on behalf of GDR holders and distribute proceeds to them in proportion to their GDRs holding ratios. (18) Capital surplus Pursuant to the R.O.C. Company Law, capital surplus arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the legal reserve is insufficient.
2015/09/30 2014/12/31 2014/09/30 Share premium $ 4,227,966 $ 4,227,966 $ 4,227,966 Difference between proceeds from acquisition 459,023 226,524 226,524 or disposal of subsidiary and book value Changes in associates and joint ventures ( 1,427) ( 1,733) ( 4,916) accounted for under equity method $ 4,685,562 $ 4,452,757 $ 4,449,574
(19) Retained earnings A. Under the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be used to pay all taxes and offset prior years’ operating losses and then 10% of the remaining amount shall be set aside as legal reserve. When such legal reserve amounts to the total authorized capital, the Company shall not be subject to this requirement. The Company may then appropriate or reverse a certain amount as special reserve according to the demand for the
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business or relevant regulations. After the distribution of earnings, the remaining earnings and prior years’ undistributed earnings may be appropriated according to a resolution of the Board of Directors adopted in the shareholders’ meeting. B. The Company is facing a rapidly changing industrial environment, with the life cycle of the industry in the growth phase. In light of the long-term financial plan of the Company and the demand for cash by the shareholders, the Company should distribute cash dividends of not less than 10% of the total dividends declared. C. Except for covering accumulated deficit, increasing capital or payment of cash in proportion to ownership percentage, the legal reserve shall not be used for any other purpose. The amount capitalized or the cash payment shall be limited to the portion of legal reserve which exceeds 25% of the paid-in capital. D. (A) In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the end of the financial reporting period before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings. (B) The amounts previously set aside by the Company as special reserve on initial application of IFRSs in accordance with Jin-Guan-Zheng-Fa-Zi Letter No. 1010012865, dated April 6, 2012, shall be reversed proportionately when the relevant assets are used, disposed of or reclassified subsequently. E. As resolved by the shareholders on June 17, 2014, the Company recognized cash dividends distributed to owners amounting to $14,483,825 ($19.5 (in dollars) per share) for the appropriation of 2013 earnings. On June 12, 2015, the shareholders resolved to distribute cash dividends amounting to $12,626,925 ($17 (in dollars) per share) for the appropriation of 2014 earnings. F. For the information relating to employees’ remuneration (bonuses) and directors’ and supervisors’ remuneration, please refer to Note 6(25). (20) Other equity items Gain (loss) on Unrealized gain Financial statements effective portion on valuation of translation Remeasurement of cash flow available-for-sale differences of of defined hedges financial assets foreign operations benefit plans Total At January 1, 2015 $ 365,822 $ 28,011,777 $ 1,940,298 ($ 20,045) $ 30,297,852 -the Company - 2,410,814 1,697,241 - 4,108,055 -Subsidiaries 45,611 ( 66,263) ( 411,876) 204 ( 432,324) -Associates - 26 134 - 160 At September 30, 2015 $ 411,433 $ 30,356,354 $ 3,225,797 ($ 19,841) $ 33,973,743
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Gain (loss) on Unrealized gain Financial statements effective portion on valuation of translation Remeasurement of cash flow available-for-sale differences of of defined hedges financial assets foreign operations benefit plans Total At January 1, 2014 ($ 234,997) $ 7,353,574 ($ 271,393) ($ 4,936) $ 6,842,248 -the Company - 9,386,280 782,619 - 10,168,899 -Subsidiaries 1,082,698 296,462 ( 100,352) - 1,278,808 -Associates - ( 3) ( 340) - ( 343) At September 30, 2014 $ 847,701 $ 17,036,313 $ 410,534 ($ 4,936) $ 18,289,612 (21) Operating revenue For the three-month periods ended September 30, 2015 2014 Sales revenue $ 119,315,891 $ 123,915,618
For the nine-month periods ended September 30, 2015 2014 Sales revenue $ 339,612,346 $ 339,448,699
(22) Other income For the three-month periods ended September 30, 2015 2014 Interest income $ 129,908 $ 133,817 Dividend income 1,844,560 1,700,684 $ 1,974,468 $ 1,834,501
For the nine-month periods ended September 30, 2015 2014 Interest income $ 475,851 $ 457,941 Dividend income 2,399,826 1,749,985 $ 2,875,677 $ 2,207,926
(23) Other gains (losses) For the three-month periods ended September 30, 2015 2014 Net gains (losses) on non-derivative ($ 658) $ 6,690 financial instruments Net gains (losses) on derivative ( 135,177) 1,209,041 financial instruments Net currency exchange gains (losses) ( 1,905,713) ( 1,495,034) Gains (losses) on disposal of investments ( 14,934) 65,454 Other net gains (losses) 222,838 238,169 ($ 1,833,644) $ 24,320
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For the nine-month periods ended September 30, 2015 2014 Net gains (losses) on non-derivative ($ 1,681) $ 46,949 financial instruments Net gains (losses) on derivative 996,518 1,387,008 financial instruments Net currency exchange gains (losses) ( 3,026,019) ( 708,133) Gains (losses) on disposal of investments 65,562 101,229 Other net gains (losses) 527,593 738,954 ($ 1,438,027) $ 1,566,007
(24) Costs and expenses by nature For the three-month periods ended September 30, 2015 2014 Operating Operating Operating Operating costs expenses Total costs expenses Total Employee benefit $ 807,792 $ 5,233,301 $ 6,041,093 $ 899,915 $ 5,567,000 $ 6,466,915 expenses Depreciation 145,044 147,747 292,791 478,077 164,622 642,699 Amortisation 7,249 96,396 103,645 7,722 81,438 89,160 For the nine-month periods ended September 30, 2015 2014 Operating Operating Operating Operating costs expenses Total costs expenses Total Employee benefit $ 2,500,242 $ 15,154,705 $ 17,654,947 $ 2,576,679 $ 13,906,151 $ 16,482,830 expenses Depreciation 464,007 484,869 948,876 1,676,026 498,930 2,174,956 Amortisation 19,257 287,184 306,441 22,828 247,995 270,823 (25) Employee benefit expenses For the three-month periods ended September 30, 2015 2014 Wages and salaries $ 5,226,675 $ 5,776,772 Labor and health insurance 335,051 326,306 Pension 359,959 267,127 Other personnel expenses 119,408 96,710 $ 6,041,093 $ 6,466,915
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For the nine-month periods ended September 30, 2015 2014 Wages and salaries $ 15,422,561 $ 14,499,041 Labor and health insurance 1,033,002 987,956 Pension 902,493 710,066 Other personnel expenses 296,891 285,767 $ 17,654,947 $ 16,482,830
A. According to the Articles of Incorporation of the Company, when distributing earnings, the Company shall distribute bonuses to the employees and pay remuneration to the directors and supervisors that account for no less than 1% and no more than 1%, respectively, of the total distributed amount. However, in accordance with the Company Act amended on May 20, 2015, a company shall distribute employee remuneration, based on the current year’s profit condition, in a fixed amount or a proportion of profits. On July 22, 2015, the Board of Directors proposed to make the amendment relative to the appropriation of the Company’s employees’ remuneration in the Company’s Articles of Incorporation as follows: The employees’ remuneration is based on the current year’s earnings, which should be used first to cover accumulated deficit, if any, and then the remaining balance shall be distributed: no less than 1% as employees’ remuneration, and no more than 1% as directors’ and supervisors’ remuneration. The amendment has not been resolved by shareholders. B. For the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, employees’ remuneration (bonuses) was accrued at $294,729 and $298,118, $903,926 and $725,193, respectively; while directors’ and supervisors’ remuneration was accrued at $15,512 and $15,690, $47,575 and $38,168, respectively. The aforementioned amounts were recognized in salary expenses. The expenses recognized for the year of 2015 were accrued based on the earnings of current year; the expenses recognized for the year of 2014 were accrued based on the net income of 2014 and the percentage specified in the Articles of Incorporation of the Company, taking into account other factors such as legal reserve. The number of shares of the dividend distribution is based on the closing price of the day before the shareholders’ meeting date and considering the effect of ex-rights and ex-dividends. There was no difference between the proposed amounts of employees’ bonuses amounting to $956,495 and directors’ and supervisors’ remuneration amounting to $50,342 by the shareholders with the amounts accrued as expenses in the 2014 financial statements. Information about the appropriation of employees’ bonus and directors’ and supervisors’ remuneration by the Company as proposed by the Board of Directors and resolved by the stockholders is posted in the “Market Observation Post System”.
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(26) Income tax A. Income tax expense (A) Components of income tax expense: For the three-month periods ended September 30, 2015 2014 $ 946,430 $ 1,665,611 Income tax expense For the nine-month periods ended September 30, 2015 2014 $ 3,724,484 $ 4,050,070 Income tax expense There is no significant difference between current income tax and income tax expense for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014. (B) The income tax relating to components of other comprehensive income is as follows: For the three-month periods ended September 30, 2015 2014 Changes in fair value of ($ 4,311) ($ 204,902) available-for-sale financial assets Currency translation differences 526,061 108,032 $ 521,750 ($ 96,870) For the nine-month periods ended September 30, 2015 2014 Changes in fair value of ($ 14,829) $ 1,065,660 available-for-sale financial assets Currency translation differences 250,723 37,402 $ 235,894 $ 1,103,062 B. The Tax Authority has examined the Company’s income tax returns through 2013. C. Unappropriated retained earnings: 2015/09/30 2014/12/31 2014/09/30 Earnings generated in and after 1998 $ 90,892,400 $ 92,912,654 $ 88,403,850
D. Imputation credit account (ICA) and creditable ratio: 2015/09/30 2014/12/31 2014/09/30 (A) ICA balance $ 13,008,718 $ 13,200,713 $ 11,719,240
2014 (Expected) 2013 (Actual) (B) Creditable ratio for earnings distribution 16.60% 16.17%
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(27) Earnings per share For the three-month period ended September 30, 2015 Weighted average number of ordinary Amount shares outstanding Earnings per share after income tax (shares in thousands) (in dollars) Basic earnings per share Profit attributable to ordinary $ 4,215,081 742,760 $ 5.67 shareholders of the parent Diluted earnings per share Assumed conversion of all dilutive - 3,200 potential ordinary shares - employees’ bonus Profit attributable to ordinary $ 4,215,081 745,960 $ 5.65 shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares For the three-month period ended September 30, 2014 Weighted average number of ordinary Amount shares outstanding Earnings per share after income tax (shares in thousands) (in dollars) Basic earnings per share Profit attributable to ordinary $ 5,811,266 742,760 $ 7.82 shareholders of the parent Diluted earnings per share Assumed conversion of all dilutive - 2,501 potential ordinary shares - employees’ bonus Profit attributable to ordinary $ 5,811,266 745,261 $ 7.80 shareholders of the parent plus assumed conversion of all dilutive
potential ordinary shares
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For the nine-month period ended September 30, 2015 Weighted average number of ordinary Amount shares outstanding Earnings per share after income tax (shares in thousands) (in dollars) Basic earnings per share Profit attributable to ordinary $ 12,553,592 742,760 $ 16.90 shareholders of the parent Diluted earnings per share Assumed conversion of all dilutive - 5,318 potential ordinary shares - employees’ bonus Profit attributable to ordinary $ 12,553,592 748,078 $ 16.78 shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares For the nine-month period ended September 30, 2014 Weighted average number of ordinary Amount shares outstanding Earnings per share after income tax (shares in thousands) (in dollars) Basic earnings per share Profit attributable to ordinary $ 14,961,605 742,760 $ 20.14 shareholders of the parent Diluted earnings per share Assumed conversion of all dilutive - 4,357 potential ordinary shares - employees’ bonus Profit attributable to ordinary $ 14,961,605 747,117 $ 20.03 shareholders of the parent plus assumed conversion of all dilutive potential ordinary shares (28) Transactions with non-controlling interest Disposal of equity interest in a subsidiary (without losing control) In July and August, 2015, the Group disposed of 2.66% shares of its subsidiary - ASMEDIA at total cash consideration of $277,289. The carrying amount of non-controlling interest in ASMEDIA was $34,245 at the disposal date. This transaction resulted in an increase in the equity attributable to owners of the parent by $243,047. The effect of changes in interests in ASMEDIA on the equity attributable to owners of the parent for the three-month periods ended September 30, 2015 is shown below:
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For the three-month period ended September 30, 2015 Consideration received from non-controlling interest $ 277,289 Carrying amount of non-controlling interest disposed ( 34,245) Other equity 3 Capital surplus - difference between proceeds from acquisition $ 243,047
or disposal of subsidiary and book value (29) Operating leases The Group leases offices, warehouse and parking lots under operating lease agreements. The Group recognized rental expenses of $246,512 and $259,264, $780,630 and $729,602 for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, respectively. Information about the future aggregate minimum lease payments under non-cancellable operating leases is provided in Note 9. 7. RELATED PARTY TRANSACTIONS (1) Parent and ultimate controlling party The Company’s shares are widely held, so there is no ultimate parent or controlling party. (2) Significant transactions and balances with related parties A. Sales of goods: For the three-month periods ended September 30, 2015 2014 Sales of goods -Associates $ 153 $ 29,704 -Others 249 381 $ 402 $ 30,085
For the nine-month periods ended September 30, 2015 2014 Sales of goods -Associates $ 833 $ 44,021 -Others 1,018 1,546 $ 1,851 $ 45,567
The terms of the above transactions are due 30 to 90 days after the date of delivery, open account 60 days or negotiated by both parties, which are similar to those for third parties.
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B. Purchases of goods and services: For the three-month periods ended September 30, 2015 2014 Purchases of goods -Associates $ 16,635 $ 25,404 -Others 181,883 130,701 Purchases of services -Associates 31 11 -Others 5,032 5,247 $ 203,581 $ 161,363
For the nine-month periods ended September 30, 2015 2014 Purchases of goods -Associates $ 27,975 $ 29,321 -Others 522,611 518,659 Purchases of services -Associates 185 638 -Others 16,057 15,879 $ 566,828 $ 564,497
Purchase terms are open account 45 to 120 days, 45 to 90 days after the date of acceptance or within 1 to 6 months, which are similar to those for third parties. C. Trade receivables and other receivables:
2015/09/30 2014/12/31 2014/09/30 Trade receivables -Associates $ 58 $ 215 $ 249 -Others 261 351 402 319 566 651 Other receivables -Associates 5,087 356 - -Others - 40 210 5,087 396 210 $ 5,406 $ 962 $ 861
The trade receivables arise mainly from sales transactions, unsecured in nature and bear no interest.
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D. Trade payables and other items of current liabilities:
2015/09/30 2014/12/31 2014/09/30 Trade payables -Associates $ 15,846 $ 430 $ 7,679 -Others 147,080 75,763 74,484 162,926 76,193 82,163 Other items of current liabilities -Associates 15 83 9 -Others 41 - - 56 83 9 $ 162,982 $ 76,276 $ 82,172
The trade payables arise mainly from purchase transactions and bear no interest. (3) Chief management compensation For the three-month periods ended September 30, 2015 2014 Salaries and other short-term employee $ 376,831 $ 364,214 benefits Post-employment benefits 1,737 1,202 $ 378,568 $ 365,416
For the nine-month periods ended September 30, 2015 2014 Salaries and other short-term employee $ 1,108,940 $ 896,764 benefits Post-employment benefits 4,415 3,502 $ 1,113,355 $ 900,266
8. PLEDGED ASSETS Book Value Pledged assets Items 2015/09/30 2014/12/31 2014/09/30 Purposes Other current assets Pledged restricted deposits $ 198,203 $ 206,706 $ 317,631 Note and other non-current and refundable deposits assets Property, plant and Buildings 105,344 103,517 100,181 Bank loans equipment $ 303,547 $ 310,223 $ 417,812 Note: Pledged for customs, performance bond, security decided by court, pledged for project plan, etc.
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9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS (1) Contingencies A. Lawsuits for infringement of intellectual property rights (A) Several patentees filed lawsuits or investigations for patent infringement including LAN chip, the patent of Blu-Ray, thermal management method and device, products of wireless, notebooks, Eee PC, Wireless, multi-core ARM processor products, Google Chrome, products with the image resizing and scanning format conversion, GaN LED products, DVD player subtitle, UMTS network devices, Google Map, router, Pad, desktop, transceiver, mobile payment, Bluetooth products, interactive communication device and visual voicemail against the Group. These lawsuits or investigations are currently under investigation in a California court, in a Texas court, in a Delaware court, in a Massachusetts court, in a Florida court, in a New York court, in an India court, in a Spain court and in a Germany court. The Group cannot presently determine the ultimate outcome of these lawsuits, but has already recognized the possible loss in the financial statements. (B) Several patentees filed lawsuits or investigations for patent infringement including Padfone series, LED of NEXUS 7, turbo core, DVD player restriction technology, the function for eliminating noise, Display Port, Wireless multiplex data transmission system, lithium battery product, image thumbnail, connector of main board, products of voice echo cancellation, smart lock for Android 5.0, notebooks and websites against the Group. These lawsuits or investigations are currently under investigation in a Texas court, in a California court, in a New York court, in a Colorado court, in a Germany court, in a Korea court, in a Taiwan court and International Trade Commission. The Group cannot presently determine the ultimate outcome and effect of these lawsuits. B. A plaintiff filed a criminal suit against the subsidiary, ASMEDIA, and a supplementary civil action against the Company and its subsidiary, ASMEDIA, for infringement of patents. The Company and its subsidiary, ASMEDIA, have appointed an attorney to deal with the cases through the legal process and go through subsequent related matters. The lawsuit is currently under examination in Taiwan Taipei District Court. The plaintiff also filed a lawsuit for patent infringement and trade secret misappropriation against the Company and its subsidiaries, ASMEDIA and ACI, in August, 2014. The lawsuit has gone to trial, but the Company and its subsidiaries cannot presently determine the outcome of the lawsuit. The Group however expects that the above cases will have no material effect on its operating and financial position.
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(2) Commitments Operating lease commitments The Group leases offices, warehouse and parking lots under non-cancellable operating lease agreements. The future aggregate minimum lease payments are as follows: 2015/09/30 2014/12/31 2014/09/30 Less than 1 year $ 420,762 $ 423,244 $ 394,174 Between 1 and 2 years 361,117 304,424 262,278 Between 2 and 3 years 181,380 214,240 192,854 Between 3 and 4 years 107,802 56,936 51,973 More than 4 years 30,740 38,773 36,752 10. SIGNIFICANT DISASTER LOSS: None. 11. SIGNIFICANT EVENTS AFTER THE END OF THE FINANCIAL REPORTING PERIOD: None. 12. OTHERS (1) Capital management The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the liability ratio. This ratio is calculated as total liabilities by total assets. Total liabilities is calculated as “current liabilities plus non-current liabilities” as shown in the consolidated balance sheets. During 2015, the Group’s strategy was to maintain the liability ratio within reasonable security range, which was unchanged from 2014. The liability ratios are as follows: 2015/09/30 2014/12/31 2014/09/30 Total liabilities $ 175,643,699 $ 186,898,450 $ 167,303,239 Total equity 169,333,576 165,523,063 148,956,811 Total assets $ 344,977,275 $ 352,421,513 $ 316,260,050 Liability ratio 50.91% 53.03% 52.90% (2) Financial instruments A. Fair value information of financial instruments Cash and cash equivalents, notes/trade receivables, other receivables, refundable deposits, short-term borrowings, notes/trade payables, other payables - accrued expenses, other current liabilities and guarantee deposits received are reasonably approximate to the fair value. Regarding the long-term borrowings (including current portion), the borrowing rate is approximate to the current market rate. Therefore, the fair value is reasonably approximate to the fair value. Please refer to Note 12(3) for the fair value information of financial instruments
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measured at fair value. B. Financial risk management policies (A) The Group’s operating activities expose the Group to a variety of financial risks, including market risk (including foreign exchange risk, price risk and interest rate risk), credit risk and liquidity risk. The Group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial position and financial performance. The Group uses variety of derivative financial instruments to hedge certain risk exposures. Please refer to Notes 6(2) and 6(5). (B) The Group’s key financial plans are all reviewed by the board of directors under the related principles and internal control system. When executing the financial plans, the Group’s treasury departments will follow the financial operating procedures in accordance with the overall financial risk management and proper segregation of duties. C. Nature and degree of significant financial risks (A) Market risk Foreign exchange risk a. The Group operates internationally and is exposed to foreign exchange risk arising from various currency exposures, primarily with respect to the USD, EUR and CNY. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations. b. The management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, the Group uses derivative financial instruments to hedge, like forward exchange contracts, currency option contracts, etc. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency. c. The Group has certain investments in foreign operations, whose net assets are exposed to foreign currency translation risk. d. For hedging recognized assets or liabilities denominated in foreign currencies or the highly probable forecast transactions, the Group adopts the foreign exchange contracts and other derivative financial instruments to hedge the fair value risk and cash flow risk due to foreign exchange rate fluctuations. The Group monitors at any time and pre-sets a “stop loss“ amount to limit its foreign exchange risk. e. The Group’s businesses involve some non-functional currency operations (the Company’s and certain subsidiaries’ functional currency is NTD; other certain subsidiaries’ functional currency is USD, EUR, CNY, etc). Non-monetary items are assessed to have no significant impact on the Group. The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:
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2015/09/30 Foreign Sensitivity Analysis currency Extent Effect on Effect on other amount Book value of profit comprehensive (In dollars) Exchange rate (NTD) variation or loss income (Foreign currency: functional currency) Financial assets Monetary items USD:NTD $ 2,416,348,937 32.870 $ 79,425,390 1% $ 794,254 $ - EUR:USD 211,845,333 36.920 7,821,242 1% 78,212 - CNY:USD 1,128,638,128 5.177 5,842,988 1% 58,430 - Financial liabilities Monetary items USD:NTD 3,942,766,771 32.870 129,598,744 1% 1,295,987 - EUR:USD 43,213,802 36.920 1,595,436 1% 15,954 - CNY:USD 1,900,052,973 5.177 9,836,622 1% 98,366 -
2014/12/31 Foreign Sensitivity Analysis currency Extent Effect on Effect on other amount Book value of profit comprehensive (In dollars) Exchange rate (NTD) variation or loss income (Foreign currency: functional currency) Financial assets Monetary items USD:NTD $ 2,109,682,988 31.650 $ 66,771,467 1% $ 667,715 $ - EUR:USD 239,740,889 38.471 9,222,970 1% 92,230 - CNY:USD 3,507,846,662 5.093 17,863,657 1% 178,637 - Financial liabilities Monetary items USD:NTD 4,470,444,947 31.650 141,489,583 1% 1,414,896 - EUR:USD 58,576,963 38.471 2,253,489 1% 22,535 - CNY:USD 1,513,078,484 5.093 7,705,329 1% 77,053 - 2014/09/30 Foreign Sensitivity Analysis currency Extent Effect on Effect on other amount Book value of profit comprehensive (In dollars) Exchange rate (NTD) variation or loss income (Foreign currency: functional currency) Financial assets Monetary items USD:NTD $ 1,979,366,416 30.420 $ 60,212,326 1% $ 602,123 $ - EUR:USD 235,840,357 38.590 9,101,079 1% 91,011 - CNY:USD 2,000,514,906 4.934 9,870,541 1% 98,705 - Financial liabilities Monetary items USD:NTD 4,010,294,840 30.420 121,993,169 1% 1,219,932 - EUR:USD 60,949,392 38.590 2,352,037 1% 23,520 - CNY:USD 1,923,931,588 4.934 9,492,678 1% 94,927 -
~65~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 f. Net currency exchange losses (including realized and unrealized) arising from significant foreign exchange variation on the monetary items held by the Group for the three-month periods ended September 30, 2015 and 2014, and for the nine-month periods ended September 30, 2015 and 2014, amounted to $1,905,713 and $1,495,034, $3,026,019 and $708,133, respectively. Price risk a. The Group is exposed to equity securities price risk because of investments held by the Group either as available-for-sale on stock investments or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group. b. The prices of the Group’s investments in equity securities would change due to the change of the future value of investee companies. If the prices of these equity securities had increased by 1% with all other variables held constant, non-operating revenues for the nine-month periods ended September 30, 2015 and 2014 would have increased by $1,964 and $1,834, respectively. Other comprehensive income - unrealized gain on valuation of available-for-sale financial assets would have increased by $574,280 and $459,047, respectively. The Group is exposed to equity securities price risk because of investments held by the Group and classified on the consolidated balance sheet either as available-for-sale or at fair value through profit or loss. The Group has no price risk of merchandise inventories. To manage its price risk arising from investments in equity securities, the Group diversifies its portfolio. Diversification of the portfolio is done in accordance with the limits set by the Group. Interest rate risk a. The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at variable rates expose the Group to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Group to fair value interest rate risk. During the nine-month periods ended September 30, 2015 and 2014, the Group’s borrowings at variable rate were denominated in USD and NTD. b. The Group analyses its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Group calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions. The Group expects no significant interest rate risk would arise. c. At September 30, 2015 and 2014, if interest rates on borrowings had been 1 basis point (0.01%) higher with all other variables held constant, non-operating expenses for the
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nine-month periods ended September 30, 2015 and 2014 would have been $509 and $859 higher, respectively, mainly as a result of higher interest expense on floating rate borrowings. (B) Credit risk a. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments on the contract obligations. The maximum exposure to credit risk is the carrying amount of all financial instruments. According to the Group’s credit policy, each operating entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Internal risk control assesses the credit quality of the customers, taking into account their financial position, past experience and other factors. Individual risk limits are set by the board of directors based on internal or external ratings. The utilization of credit limits is regularly monitored. Credit risk arises mainly from cash and cash equivalents, derivative financial instruments, deposits and short-term financial products guaranteed income with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. For banks and financial institutions, only those with a rating of “A” class above as evaluated by an independent party are accepted as counterparties. b. No credit limits were exceeded during the nine-month periods ended September 30, 2015 and 2014, and the management does not expect any significant losses from non-performance by these counterparties. c. The credit quality information of financial assets that are neither past due nor impaired, the ageing analysis of financial assets that were past due but not impaired and the individual analysis of financial assets that had been impaired is provided in the statement for each type of financial assets as described in Note 6. (C) Liquidity risk a. Cash flow forecasting is performed in the operating entities of the Group and aggregated by the Group treasury. The Group treasury monitors rolling forecasts of the Group’s liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants on any of its borrowing facilities. Such forecasting takes into consideration the Group’s cash flow plans and compliance with internal balance sheet ratio targets. b. The Group treasury invests surplus cash in demand deposits, time deposits and marketable securities, choosing instruments with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts. At September 30, 2015, December 31, 2014 and September 30, 2014, the Group held financial assets at fair value through profit or loss of $4,341,079, $4,681,497 and $3,851,390, respectively, that are expected to readily generate cash inflows for managing liquidity risk.
~67~ WorldReginfo - 262b7ed5-4d98-4b1e-84ba-a6851f736518 c. The table below analyses the Group’s non-derivative financial liabilities and derivative financial liabilities into relevant maturity groupings based on the remaining period at the end of the financial reporting period to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows. 2015/09/30 Less than 1 Between 1 Between 2 More than year and 2 years and 3 years 3 years Total Non-derivative financial liabilities: Short-term borrowings $ 3,625,180 $ - $ - $ - $ 3,625,180 Notes and trade payables 72,697,687 - - - 72,697,687 Other payables 41,613,473 - - - 41,613,473 - accrued expenses Long-term borrowings 288,372 1,229,137 84,690 - 1,602,199 (including current portion) Other financial liabilities 1,535,131 - - - 1,535,131 Derivative financial liabilities: Forward exchange 497,266 - - - 497,266 contracts Currency option contracts 221,513 - - - 221,513 2014/12/31 Less than 1 Between 1 Between 2 More than year and 2 years and 3 years 3 years Total Non-derivative financial liabilities: Short-term borrowings $ 3,881,979 $ - $ - $ - $ 3,881,979 Notes and trade payables 85,147,155 - - - 85,147,155 Other payables 41,741,477 - - - 41,741,477 - accrued expenses Long-term borrowings 1,189,799 319,425 2,924 78,622 1,590,770 (including current portion) Other financial liabilities 382,639 - - - 382,639 Derivative financial liabilities: Forward exchange 144,269 - - - 144,269 contracts
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2014/09/30 Less than 1 Between 1 Between 2 More than year and 2 years and 3 years 3 years Total Non-derivative financial liabilities: Short-term borrowings $ 4,256,247 $ - $ - $ - $ 4,256,247 Notes and trade payables 71,824,311 - - - 71,824,311 Other payables 38,487,235 - - - 38,487,235 - accrued expenses Long-term borrowings 610,040 535,161 2,811 77,440 1,225,452 (including current portion) Other financial liabilities 512,982 - - - 512,982 Derivative financial liabilities: Forward exchange 8,901 - - - 8,901 contracts Currency option contracts 1,792 - - - 1,792 d. The Group does not expect the timing of occurrence of the cash flows estimated through the maturity date analysis to be significantly earlier, nor expect the actual cash flow amount to be significantly different. (3) Fair value information A. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. Level 3: Unobservable inputs for the asset or liability.
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B. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities is as follows: 2015/09/30 Level 1 Level 2 Level 3 Total Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Open-end funds $ 4,067,499 $ - $ - $ 4,067,499 Listed and OTC stocks 196,448 - - 196,448 Convertible bonds 77,132 - - 77,132 Forward exchange contracts - 92,585 - 92,585 Currency option contracts - 4,063 - 4,063 Derivative financial assets - 623,582 - 623,582 for hedging Available-for-sale financial assets Listed and OTC stocks 57,136,647 - - 57,136,647 Unlisted and non-OTC stocks - 263,776 27,561 291,337 Convertible bonds - - 7,575 7,575 $ 61,477,726 $ 984,006 $ 35,136 $ 62,496,868 Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts $ - $ 285,117 $ - $ 285,117 Currency option contracts - 221,513 - 221,513 Derivative financial liabilities - 212,149 - 212,149 for hedging $ - $ 718,779 $ - $ 718,779
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2014/12/31 Level 1 Level 2 Level 3 Total Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Open-end funds $ 4,373,664 $ - $ - $ 4,373,664 Listed and OTC stocks 176,298 - - 176,298 Convertible bonds 131,535 - - 131,535 Forward exchange contracts - 636,512 - 636,512 Currency option contracts - 44,703 - 44,703 Derivative financial assets - 367,758 - 367,758 for hedging Available-for-sale financial assets Listed and OTC stocks 54,733,840 - - 54,733,840 Unlisted and non-OTC stocks - 210,209 32,438 242,647 Convertible bonds - - 7,575 7,575 $ 59,415,337 $ 1,259,182 $ 40,013 $ 60,714,532 Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts $ - $ 142,333 $ - $ 142,333 Derivative financial liabilities - 1,936 - 1,936 for hedging $ - $ 144,269 $ - $ 144,269
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2014/09/30 Level 1 Level 2 Level 3 Total Assets: Recurring fair value measurements Financial assets at fair value through profit or loss Open-end funds $ 3,585,026 $ - $ - $ 3,585,026 Listed and OTC stocks 183,418 - - 183,418 Convertible bonds 82,946 - - 82,946 Forward exchange contracts - 801,660 - 801,660 Currency option contracts - 42,608 - 42,608 Derivative financial assets - 847,701 - 847,701 for hedging Available-for-sale financial assets Listed and OTC stocks 45,284,789 - - 45,284,789 Unlisted and OTC stocks - 574,958 44,947 619,905 Convertible bonds - - 7,575 7,575 $ 49,136,179 $ 2,266,927 $ 52,522 $ 51,455,628 Liabilities: Recurring fair value measurements Financial liabilities at fair value through profit or loss Forward exchange contracts $ - $ 8,901 $ - $ 8,901 Currency option contracts - 1,792 - 1,792 $ - $ 10,693 $ - $ 10,693
C. The methods and assumptions the Group used to measure fair value are as follows: (a) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics: Listed and OTC stocks Open-end fund Convertible bond Market quoted price Closing price Net asset value Closing price (b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the financial reporting date. (c) For high-complexity financial instruments, the fair value is measured by using self-developed valuation model based on the valuation method and technique widely used within the same industry. The valuation model is normally applied to derivative financial
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instruments, debt instruments with embedded derivatives or securitised instruments. Certain inputs used in the valuation model are not observable at market, and the Group must make reasonable estimates based on its assumptions. (d) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate. (e) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group’s financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk. In accordance with the Group’s management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The pricing and inputs information used during valuation are carefully assessed and adjusted based on current market conditions. D. GLOBALWAFERS CO., LTD, has been listed on the OTC from September 25, 2015, therefore, the Group has transferred the fair value from Level 2 to Level 1 at the end of month when the event occurred. For the nine-month period ended September 30, 2014, there was no transfer between Level 1 and Level 2. E. The following chart is the movement of Level 3: For the nine-month period ended September 30, 2015 Equity instrument Debt instruments Total At January 1 $ 32,438 $ 7,575 $ 40,013 Gains (losses) recognized in net other 864 - 864 comprehensive income (loss) (Note 2) Disposals ( 5,741) - ( 5,741) At September 30 $ 27,561 $ 7,575 $ 35,136 For the nine-month period ended September 30, 2014 Equity instrument Debt instruments Total At January 1 $ 47,846 $ - $ 47,846 Gains (losses) recognized in ( 500) - ( 500) profit or loss (Note 1) Gains (losses) recognized in net other ( 2,399) - ( 2,399) comprehensive income (loss) (Note 2) Acquisitions - 7,575 7,575 At September 30 $ 44,947 $ 7,575 $ 52,522 Note 1: Recorded as other gains (losses). Note 2: Recorded as unrealized valuation of available-for-sale financial assets.
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F. There was no transfer into or out from Level 3 during the nine-month periods ended September 30, 2015 and 2014. G. The investment segment is in charge of valuation procedures for fair value measurements being categorized within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the source of information is independent, reliable and in line with other resources and any other necessary adjustments to the fair value. The investment segment cooperatively set up valuation policies, valuation processes and rules for measuring fair value of financial instruments and investment property and ensure compliance with the related requirements in IFRS. H. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement: Significant Range Relationship Fair value at Valuation unobservable (weighted of inputs to September 30, 2015 technique input average) fair value Equity instruments: Unlisted and $ 27,561 Net asset Not applicable Not applicable The higher the non-OTC stocks value net asset value, the higher the fair value Debt instruments: Convertible bonds $ 7,575 Net asset Not applicable Not applicable The higher the value net asset value, the higher the fair value I. The Group has carefully assessed the valuation models and assumptions used to measure fair value; therefore, the fair value measurement is reasonable. However, use of different valuation models or assumptions may result in measurement differences. 13. OPERATING SEGMENT INFORMATION (1) General information Management has determined the reportable operating segments based on the reports reviewed by the Board of Directors that are used to make strategic decisions. There is no material change in the basis for formation of entities and division of segments in the Group or in the measurement basis for segment information in this period.
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(2) Measurement basis The Group uses the operating profit as the measurement for operating segment profit and the basis of performance assessment. The accounting policies of the operating segments and the accounting policies described in Note 4 of the consolidated financial statements are the same. (3) Segment information The segment information provided to the chief operating decision-maker for the reportable segments is as follows:
For the nine-month period ended September 30, 2015 3C Brand Others Total Revenues from external customers $ 311,064,927 $ 28,547,419 $ 339,612,346 Revenues from other segments $ 1,466,484 $ 6,446,086 - (Note 1) Segment income $ 14,468,106 $ 732,102 $ 15,200,208 Total assets (Note 2) $ - $ - $ - For the nine-month period ended September 30, 2014 3C Brand Others Total Revenues from external customers $ 308,905,430 $ 30,543,269 $ 339,448,699 Revenues from other segments $ 299,276 $ 6,502,949 - (Note 1) Segment income $ 14,463,256 $ 1,077,780 $ 15,541,036 Total assets (Note 2) $ - $ - $ - Note 1: The intra-segment revenues have been eliminated to $0. Note 2: Because the Group’s segment assets are not provided to the chief operating decision-maker, such items are not required to be disclosed. (4) Reconciliation for segment income A. The intra-segment transactions are based on fair value. The revenues from external customers reported to the chief operating decision-maker are measured in a manner consistent with the consolidated statements of comprehensive income. B. The reconciliation of the reportable operating segment’s profit (others are the same as consolidated statements of comprehensive income) is as follows: For the nine-month periods ended September 30, 2015 2014 Reportable operating segments’ profit $ 15,200,208 $ 15,541,036 before adjustment Unallocated profit (loss) ( 24,003) ( 18,043) Reportable operating segments’ profit $ 15,176,205 $ 15,522,993
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