Spokesperson Neili Texturizing Plant Name: Humphrey Cheng Address: 2 Yuan Dong Rd., Neili, Chungli, Title: Corporate Management President Taiwan, R.O.C Tel: 886-2-27338000 #8969 Tel: 886-3-4555136 Fax: 886-2-27367184 E-mail: [email protected] Hukou Mill Address: 30, Hexing Rd., Hukou, Hsinchu, Taiwan, R.O.C Deputy Spokesperson Tel: 886-3-5997135 Name: David Wang Title: Chief Financial Officer Yilan Garment Factory Tel: 886-2-27338000 #8735 Address: No. 49, Sec. 6, Jiaosi Rd., Jiaosi, Fax: 886-2-27358175 Yilan, Taiwan R.O.C E-mail: [email protected] Tel: 886-3-9881411 Headquarters, Branches & Plants Common Share Transfer Agent and Registrar Headquarters Address: 36F, Taipei Metro Tower, 207, Oriental Securities Corporation Tun Hwa South Rd., Sec.2, Taipei, Taiwan, Address: 3F, 86, Chung Ching South Rd., R.O.C. Sec. 1, Taipei, Taiwan Tel: 886-2-27338000 Tel: 886-2-23618608 Website: http://www.osc.com.tw Plants Hsinpu Chemical Fiber Plant Address: 369, Yadong Sec., Wen Shan Rd., Auditors Hsinpu, Hsinchu, Taiwan R.O.C. Deloitte & Touche Tel: 886-3-5882511 Auditors: Cho Ming Hsing, CPA, Huang Shu Chieh, CPA Kuanyin Chemical Fiber Plant Address: 12F, Hung Tai Century Tower, 156 Address: 3, Jingjian 6th Rd., Kuanyin Min Sheng East Rd., Sec.3, Taipei, Taiwan Industrial Park, Kuanyin, Taoyuan, Taiwan Tel.: 886-2-25459988 R.O.C. Website: http://www.deloitte.com.tw Tel: 886-3-4832720 Overseas Securities Exchange Kuanyin Dyeing and Finishing Plant Luxembourg Stock Exchange Address: 1, Kuojiang 2nd Rd., Kuanyin, Disclosed information can be found at Hsulin, Taoyuan, Taiwan R.O.C. http://www.bourse.lu Tel: 886-3-2729055 Corporate Website http://www.fenc.com The English version is the translation of the Chinese version and if there is any discrepancy between this English translation and the Chinese text of this document, the Chinese text shall prevail. Far Eastern New Century Annual Report 2013 Contents I. LETTER TO SHAREHOLDERS.........................................................................................1 II. COMPANY PROFILE..........................................................................................................7 1. DATE OF INCORPORATION ........................................................................................................ 7 2. COMPANY HISTORY................................................................................................................... 7 III. CORPORATE GOVERNANCE REPORT ..........................................................................9 1. ORGANIZATION.......................................................................................................................... 9 2. DIRECTORS, SUPERVISORS AND MANAGEMENT TEAM ......................................................... 11 3. IMPLEMENTATION OF CORPORATE GOVERNANCE ................................................................. 23 4. AUDIT FEES ............................................................................................................................. 36 5. INFORMATION FOR CHANGE OF CPA ..................................................................................... 36 6. THE COMPANY’S CHAIRMAN, PRESIDENTS AND MANAGERS RESPONSIBLE FOR FINANCE OR ACCOUNTING WHO HAVE HELD A POSITION IN THE CPA OFFICE OR ITS AFFILIATES WITHIN THE LATEST ONE YEAR .......................................................................................................... 36 7. SHAREHOLDING TRANSFERRED OR PLEDGED BY DIRECTORS, SUPERVISORS, MANAGEMENT, AND MAJOR SHAREHOLDERS WHO HOLDS 10% OF THE COMPANY SHARES OR MORE...... 37 8. TOP TEN SHAREHOLDERS BEING THE RELATED PARTY AS DEFINED IN STATEMENT OF FINANCIAL ACCOUNTING STANDARDS .................................................................................... 38 9. SHAREHOLDING PROPORTION OF FENC TO INVESTEES ...................................................... 40 IV. CAPITAL OVERVIEW.......................................................................................................41 1. CAPITAL AND SHARES ............................................................................................................ 41 2. CORPORATE BONDS ............................................................................................................... 46 3. PREFERRED SHARES.............................................................................................................. 49 4. ISSUANCE OF OVERSEAS DEPOSITORY RECEIPTS ................................................................ 49 5. EMPLOYEE STOCK OPTIONS .................................................................................................. 49 6. EMPLOYEE RESTRICTED STOCK OPTIONS ............................................................................ 49 7. SHARE ISSUED FOR MERGER OR ACQUISITION ..................................................................... 49 8. FUND UTILIZATION PLANS AND STATUS ................................................................................. 49 V. OPERATIONAL HIGHLIGHTS .........................................................................................50 1. BUSINESS ACTIVITIES ............................................................................................................. 50 2. OVERVIEW OF MARKET, PRODUCTION, AND SALES MARKET ANALYSIS .............................. 57 3. INFORMATION ABOUT EMPLOYEES......................................................................................... 62 4. EXPENSES ON ENVIRONMENTAL PROTECTION ...................................................................... 62 Letter to Shareholders 5. EMPLOYEE WELFARE ............................................................................................................. 63 6. IMPORTANT CONTRACTS AND AGREEMENTS......................................................................... 65 VI. FINANCIAL INFORMATION ........................................................................................66 1. FIVE-YEAR FINANCIAL SUMMARY .......................................................................................... 66 2. FINANCIAL RATIO ANALYSIS FOR THE PRECEDING FIVE YEARS ........................................... 70 3. SUPERVISORS’ REPORT.......................................................................................................... 76 4. IMPACT OF THE FINANCIAL DISTRESS OCCURRED TO THE COMPANY AND AFFILIATES IN THE RECENT YEARS UNTIL THE ANNUAL REPORT BEING PUBLISHED......................................... 76 5. FINANCIAL CONSOLIDATED REPORT IN RECENT YEAR ......................................................... 77 6. FINANCIAL REPORT IN RECENT YEAR.................................................................................... 87 VII. REVIEW AND ANALYSIS OF THE FINANCIAL CONDITION, PERFORMANCE AND RISK MANAGEMENT ..................................................................................................96 1. REVIEW AND ANALYSIS OF FINANCIAL CONDITIONS.............................................................. 96 2. REVIEW AND ANALYSIS OF FINANCIAL PERFORMANCES....................................................... 97 3. REVIEW AND ANALYSIS OF CASH FLOW ................................................................................ 97 4. MAJOR CAPITAL EXPENDITURES IN RECENT YEARS AND IMPACTS ON FINANCIAL AND OPERATIONAL SITUATIONS..................................................................................................... 98 5. INVESTMENT POLICIES IN RECENT YEARS............................................................................. 99 6. SOURCES OF RISKS AND EVALUATIONS ................................................................................ 99 7. OTHERS................................................................................................................................. 101 VIII. SPECIAL DISCLOSURE............................................................................................ 102 1. AFFILIATED COMPANIES ....................................................................................................... 102 2. PRIVATE PLACEMENT SECURITIES IN THE MOST RECENT YEARS ...................................... 119 3. THE COMPANY'S SHARES HELD OR DISPOSED BY SUBSIDIARIES IN RECENT YEARS UNTIL THE ANNUAL REPORT BEING PUBLISHED ............................................................................ 120 4. OTHER SUPPLEMENTARY INFORMATION .............................................................................. 120 5. PURSUANT TO THE ARTICLE 36-2-2 OF SECURITY EXCHANGE ACT, EVENT HAVING MATERIAL IMPACT ON SHAREHOLDERS' EQUITY OR SHARE PRICE IN THE MOST RECENT YEAR UNTIL THE ANNUAL REPORT BEING PUBLISHED........................................................ 120 Far Eastern New Century Annual Report 2013 I. Letter to Shareholders Dear Shareholders, This past year has seen many fluctuations in the global economy. Political and economical concerns have hindered the global economy’s recovery while unprecedented weather conditions have caused further complications. Despite this, noticeable improvements throughout the US, Europe and Japan paint a much brighter picture for 2014. Although the dust has settled in Europe, questions still remain regarding the Eurozone’s ability to return to its previous strength. Moving forward, although many economists suggest that 2014 will be a better year, we remain cautious about the direction of the economy as the US tapers its quantitative easing (QE) policies. Political unrest and uncertainty have plagued