Macronix — Audit Report / Information 2014

Nov 14, 2014

Macronix International Co., Ltd.

Parent Company Only Financial Statements for the Years Ended December 31, 2013 and 2014 and Independent Auditors’ Report

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and the Stockholders Macronix International Co., Ltd.

We have audited the accompanying parent company only balance sheets of Macronix International Co., Ltd. (the “Company”) as of December 31, 2013 and 2014 and the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2013 and 2014. These parent company only financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the Rules Governing the Audit of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Those rules and standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the parent company only financial statements referred to above present fairly, in all material respects, the parent company only financial position of Macronix International Co., Ltd. as of December 31, 2013 and 2014 and its financial performance and its cash flows for the years ended December 31, 2013 and 2014, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

March 16, 2015

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent 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. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and financial statements shall prevail.

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY BALANCE SHEETS DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars)

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4, 6 and 31) Financial assets at fair value through profit or loss - current (Notes 4, 7 and 31) Notes receivable and trade receivables, net (Notes 4, 10 and 31) Receivables from related parties, net (Notes 4, 31 and 32) Other receivables (Notes 10, 31 and 32) Inventories (Notes 4 and 11) Other current assets (Note 16) Total current assets NON-CURRENT ASSETS Available-for-sale financial assets - non-current (Notes 4, 8 and 31) Financial assets measured at cost - non-current (Notes 4, 9 and 31) Investment accounted for using equity method (Notes 4, 12 and 31) Property, plant and equipment (Notes 4, 13 and 33) Intangible assets (Notes 4 and 14) Deferred tax assets (Notes 4 and 25) Other financial assets - non-current (Notes 4, 15, 31 and 33) Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term borrowings (Notes 17 and 31) Financial liability at fair value through profit or loss - current (Notes 4, 7 and 31) Notes payable and trade payables (Notes 18 and 31) Payables to related parties (Notes 31 and 32) Other payables (Notes 19 and 31) Payable for purchase of equipment (Note 31) Current tax liabilities (Notes 4 and 25) Provisions - current (Notes 4 and 20) Current portion of long-term borrowings (Notes 17, 31 and 33) Other current liabilities Total current liabilities NON-CURRENT LIABILITIES Long-term borrowings (Notes 17, 31 and 33) Accrued pension liabilities (Notes 4 and 21) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 22) Ordinary shares Capital surplus Retained earnings Accumulated deficit Other equity Treasury shares Total equity TOTAL		2013 Amount % $ 10,032,019 19 1,358 - 2,403,641 4 872,298 2 133,658 - 8,743,122 16 471,941 1 22,658,037 42 764,239 1 82,698 - 2,926,238 5 26,132,425 49 272,958 1 905,612 2 172,075 - 31,256,245 58 $ 53,914,282 100 $ 566,577 1 - - 1,996,384 4 186,927 - 2,128,022 4 428,987 1 352,048 1 117,876 - 7,648,233 14 48,839 - 13,473,893 25 10,935,406 20 825,606 2 600 - 11,761,612 22 25,235,505 47 35,214,730 65 344,166 - (7,178,843) (13) 457,785 1 (159,061) - 28,678,777 53 $ 53,914,282 100		2014
				Amount % $ 6,290,151 14 95 - 2,324,951 5 898,743 2 154,648 - 9,283,708 21 525,035 1 19,477,331 43 919,853 2 79,218 - 2,549,542 6 20,527,244 46 173,972 1 905,612 2 171,442 - 25,326,883 57 $ 44,804,214 100 $ 2,134,039 5 7,113 - 1,993,053 4 199,629 - 1,584,269 4 469,195 1 295,537 1 134,988 - 12,143,430 27 45,997 - 19,007,250 42 2,073,506 5 943,810 2 14,521 - 3,031,837 7 22,039,087 49 35,587,740 79 241,652 - (13,640,051) (30) 734,847 2 (159,061) - 22,765,127 51 $ 44,804,214 100

The accompanying notes are an integral part of the parent company only financial statements.

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars, Except Loss Per Share)

NET OPERATING REVENUE (Notes 4, 23 and 32) OPERATING COSTS (Notes 4, 11, 21, 24 and 32) GROSS PROFIT UNREALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GAIN ON TRANSACTIONS WITH SUBSIDIARIES AND ASSOCIATES (Note 4) REALIZED GROSS PROFIT OPERATING EXPENSES (Notes 4, 21, 24 and 32) Selling and marketing expenses General and administrative expenses Research and development expenses Total operating expenses LOSS FROM OPERATIONS NON-OPERATING INCOME AND EXPENSES Other income (Notes 24 and 32) Other gains and losses (Notes 12 and 24) Finance costs (Notes 4 and 24) Share of loss of subsidiaries and associates (Notes 4 and 12) Total non-operating income and expenses LOSS BEFORE INCOME TAX FROM CONTINUE OPERATIONS INCOME TAX (BENEFIT) EXPENSE (Notes 4 and 25) NET LOSS FOR THE YEAR		2013 Amount % $ 21,870,599 100 20,089,829 92 1,780,770 8 (1,408) - - - 1,779,362 8 833,280 4 1,542,549 7 5,070,260 23 7,446,089 34 (5,666,727) (26) 209,759 1 128,739 1 (334,896) (2) (642,647) (3) (639,045) (3) (6,305,772) (29) (125) - (6,305,647) (29)		2014
				Amount % $ 22,054,390 100 19,478,536 88 2,575,854 12 - - 1,893 - 2,577,747 12 852,105 4 1,477,721 7 5,992,108 27 8,321,934 38 (5,744,187) (26) 154,735 1 119,061 - (281,388) (1) (709,304) (3) (716,896) (3) (6,461,083) (29) 125 - (6,461,208) (29)

(Continued)

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars, Except Loss Per Share)

OTHER COMPREHENSIVE INCOME Exchange differences on translating foreign operations (Notes 4 and 22) Unrealized gain on available-for-sale financial assets (Notes 4 and 22) Other comprehensive income for the year, net of income tax TOTAL COMPREHENSIVE LOSS FOR THE YEAR LOSS PER SHARE (Note 26) Basic Diluted		2013 Amount % $ 53,644 - 57,945 1 111,589 1 $ (6,194,058) (28) $ (1.79) $ (1.79)		2014
				Amount % $ 76,364 - 410,511 2 486,875 2 $ (5,974,333) (27) $ (1.84) $ (1.84)

The accompanying notes are an integral part of the parent company only financial statements. (Concluded)

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2013 Legal reserve used to offset accumulated deficit Net loss for the year ended December 31, 2013 Other comprehensive income for the year ended December 31, 2013, net of income tax Total comprehensive income (loss) for the year ended December 31, 2013 Differences between the fair value and carrying amount from equity transactions of subsidiaries Issue of ordinary shares under employee share options Change in capital surplus from investments in subsidiaries accounted for using equity method BALANCE AT DECEMBER 31, 2013 Net loss for the year ended December 31, 2014 Other comprehensive income for year ended December 31, 2014, net of income tax Total comprehensive income (loss) for the year ended December 31, 2014 Issue of restricted stock to employees Compensation cost of restricted stock for employees Change in capital surplus from investments in subsidiaries accounted for using equity method BALANCE AT DECEMBER 31, 2014		Capital Stock Share (Thousands) Share Capital Capital Surplus 3,521,462 $ 35,214,623 $ 343,869 - - - - - - - - - - - - - - - 11 107 (13) - - 310 3,521,473 35,214,730 344,166 - - - - - - - - - 37,301 373,010 (102,752) - - - - - 238 3,558,774 $ 35,587,740 $ 241,652	Retained Earnings Accumulated Legal Reserve Deficit $ 2,695,275 $ (3,528,992) (2,695,275) 2,695,275 - (6,305,647) - - - (6,305,647) - (39,479) - - - - - (7,178,843) - (6,461,208) - - - (6,461,208) - - - - - - $ - $ (13,640,051)	Other Equity Exchange Differences on Unrealized Gain Translating from Unearned Foreign Available-for-sale Compensation of Operations Financial Assets Employees Treasury Shares $ (102,785) $ 448,981 $ - $ (159,061) - - - - - - - - 53,644 57,945 - - 53,644 57,945 - - - - - - - - - - - - - - (49,141) 506,926 - (159,061) - - - - 76,364 410,511 - - 76,364 410,511 - - - - (270,258) - - - 60,445 - - - - - $ 27,223 $ 917,437 $ (209,813) $ (159,061)	Total Equity $ 34,911,910 - (6,305,647) 111,589 (6,194,058) (39,479) 94 310 28,678,777 (6,461,208) 486,875 (5,974,333) - 60,445 238 $ 22,765,127
			Legal Reserve $ 2,695,275 (2,695,275) - - - - - - - - - - - - - $ -

The accompanying notes are an integral part of the parent company only financial statements.

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES Loss before income tax Adjustments for: Depreciation expense Amortization expense Impairment loss recognized on trade receivables Finance costs Interest income Dividend income Compensation cost of employee restricted shares Share of loss of subsidiaries and associates Loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Unrealized gain on the transactions with subsidiaries and associates Realized gain on the transactions with subsidiaries and associates Loss (gain) on foreign currency exchange Changes in operating assets and liabilities Decrease in financial assets held for trading Decrease in notes receivable and trade receivables (Increase) decrease in receivables from related parties Increase in other receivables Increase in inventories Increase in other current assets Increase in financial liability held for trading Increase (decrease) in notes payable and trade payables (Decrease) increase in payables to related parties Decrease in other payables Increase in provisions Decrease in other current liabilities Increase in accrued pension liabilities Cash generated from operations Interest received Dividend received Interest paid Income tax paid Net cash (used in) generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from return of capital by financial assets measured at cost Payments to acquire investment accounted for by using equity method Net cash inflow on disposal of subsidiaries (Note 12) Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Increase in refundable deposits	2013 $ (6,305,772) 7,464,994 181,605 2,151 334,896 (109,274) (57,415) - 642,647 7,970 - 1,408 - 83,762 4,841 118,507 (58,254) (23,097) (1,945,207) (55,043) - 177,070 (43,837) (392,110) 47,058 (21,776) 106,992 162,116 114,405 57,415 (334,617) - (681) 8,775 (1,279,496) - (4,293,167) 3,704 -	2014 $ (6,461,083) 7,269,748 208,828 271 281,388 (46,696) (68,153) 60,445 709,304 9,468 (29,775) - (1,893) (95,535) 1,263 193,906 10,813 (21,879) (540,586) (52,648) 7,113 (43,371) 13,687 (552,845) 17,112 (2,928) 118,204 984,158 47,462 68,153 (283,104) (56,511) 760,158 3,481 - 30,558 (1,637,193) 6,174 (860) (Continued)

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars)

Decrease in refundable deposits Payments for intangible assets Decrease in other financial assets Increase in other non-current assets Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term borrowings Repayments of short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings Proceeds from guarantee deposits received Proceeds from exercise of employee stock options Net cash used in financing activities EFFECT OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH AND CASH EQUIVALENTS HELD IN FOREIGN CURRENCIES NET DECREASE IN CASH AND CASH EQUIVALENTS CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR	2013 $ 223 (138,693) 2,815 (427) (5,696,266) 1,724,911 (1,214,336) 2,800,000 (5,224,749) 470 94 (1,913,610) (150,834) (7,761,391) 17,793,410 $ 10,032,019	2014 $ 146 (109,842) 1,344 (111) (1,706,303) 3,593,320 (2,053,590) 2,739,172 (7,092,783) 13,921 - (2,799,960) 4,237 (3,741,868) 10,032,019 $ 6,290,151

The accompanying notes are an integral part of the parent company only financial statements.

(Concluded)

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NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2013 AND 2014 (In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

MACRONIX INTERNATIONAL CO., LTD.

1. GENERAL INFORMATION

Macronix International Co., Ltd. (the “Company”) was incorporated in the Republic of China (“ROC”) on December 9, 1989 and commenced business in December 1989. The Company operates principally as a designer, manufacturer and supplier of integrated circuits and memory chips. The Company also performs design, research and development, consultation and trade of relevant products.

The Company’s shares have been listed on the Taiwan Stock Exchange (TSE) since March 15, 1995. The Company listed a portion of its shares on the NASDAQ Stock Market in the form of American Depositary Shares (ADSs) in May 1996 but delisted on October 29, 2007.

The parent company only financial statements are presented in the Company’s functional currency, New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 16, 2015.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND INTERPRETATIONS

The Group has prepared and reported the consolidated financial statements under Taiwan-IFRS and published such financial statements since 2013. The date of transition to Taiwan-IFRS is January 1, 2012.

• a. The amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the Financial Supervisory Commission (FSC) not yet effective

Rule No. 1030029342 and Rule No. 1030010325 issued by the FSC on April 3, 2014, stipulated that the Company should apply the 2013 version of IFRS, IAS, IFRIC and SIC (collectively, the “IFRSs”) endorsed by the FSC and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers starting January 1, 2015.

New, Amended and Revised Standards and Interpretations (the “New IFRSs”) Improvements to IFRSs (2009) - amendment to IAS 39 Amendment to IAS 39 “Embedded Derivatives” Improvements to IFRSs (2010)	Effective Date Announced by IASB (Note)
	January 1, 2009 and January 1, 2010, as appropriate Effective for annual periods ended on or after June 30, 2009 July 1, 2010 and January 1, 2011, as appropriate (Continued)

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New, Amended and Revised Standards and Interpretations (the “New IFRSs”) “New IFRSs”) New IFRSs”) ”) )

New, Amended and Revised Effective Date Standards and Interpretations (the “New IFRSs”) “New IFRSs”) New IFRSs”) ”) ) Announced by IASB (Note) Annual Improvements to IFRSs 2009-2011 Cycle January 1, 2013 Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 July 1, 2010 Disclosures for First-time Adopters” Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed July 1, 2011 Dates for First-time Adopters” Amendment to IFRS 1 “Government Loans” January 1, 2013 Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and January 1, 2013 Financial Liabilities” Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” July 1, 2011 IFRS 11 “Joint Arrangements” January 1, 2013 IFRS 12 “Disclosure of Interests in Other Entities” January 1, 2013 Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated January 1, 2013 Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance” Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment January 1, 2014 Entities” IFRS 13 “Fair Value Measurement” January 1, 2013 Amendment to IAS 1 “Presentation of Other Comprehensive Income” July 1, 2012 Amendment to IAS 12 “Deferred Tax: Recovery of Underlying January 1, 2012 Assets” IAS 19 (Revised 2011) “Employee Benefits” January 1, 2013 IAS 27 (Revised 2011) “Separate Financial Statements” January 1, 2013 IAS 28 (Revised 2011) “Investments in Associates and Joint January 1, 2013 Ventures” Amendment to IAS 32 “Offsetting Financial Assets and Financial January 1, 2014 Liabilities” IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine” January 1, 2013 (Concluded)

Note: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after the respective effective dates.

Except for the following, whenever applied, the initial application of the above 2013 IFRSs version and the related amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers would not have any material impact on the Group’s accounting policies:

1) IFRS 12 “Disclosure of Interests in Other Entities”

IFRS 12 is a new disclosure standard and is applicable to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. In general, the disclosure requirements in IFRS 12 are more extensive than in the current standards.

• 2) Revision to IAS 28 “Investments in Associates and Joint Ventures”

Revised IAS 28 requires when a portion of an investment in an associate meets the criteria to be classified as held for sale, that portion is classified as held for sale. Any retained portion that has not been classified as held for sale is accounted for using the equity method. Under current IAS 28, when a portion of an investment in associates meets the criteria to be classified as held for sale, the entire investment is classified as held for sale and ceases to apply the equity method.

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• 3) IFRS 13 “Fair Value Measurement”

IFRS 13 establishes a single source of guidance for fair value measurements. It defines fair value, establishes a framework for measuring fair value, and requires disclosures about fair value measurements. The disclosure requirements in IFRS 13 are more extensive than those required in the current standards. For example, quantitative and qualitative disclosures based on the three-level fair value hierarchy currently required for financial instruments only will be extended by IFRS 13 to cover all assets and liabilities within its scope.

The fair value measurements under IFRS 13 will be applied prospectively from January 1, 2015.

• 4) Amendments to IAS 1 “Presentation of Items of Other Comprehensive Income”

The amendments to IAS 1 requires items of other comprehensive income to be grouped into those items that (1) will not be reclassified subsequently to profit or loss; and (2) may be reclassified subsequently to profit or loss. Income taxes on related items of other comprehensive income are grouped on the same basis. Under current IAS 1, there were no such requirements.

The Company will retrospectively apply the above amendments starting from 2015. Items not expected to be reclassified to profit or loss are remeasurements of the defined benefit plans. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, unrealized gains (loss) on available-for-sale financial assets, and share of the other comprehensive income (except the share of the remeasurements of the defined benefit plans) of associates accounted for using the equity method. However, the application of the above amendments will not result in any impact on the net profit for the year, other comprehensive income for the year (net of income tax), and total comprehensive income for the year.

• 5) Revision to IAS 19 “Employee Benefits”

Revised IAS 19 requires the recognition of changes in defined benefit obligations and in the fair value of plan assets when they occur, and hence eliminates the “corridor approach” permitted under current IAS 19 and accelerate the recognition of past service costs. The revision requires all remeasurements of the defined benefit plans to be recognized immediately through other comprehensive income in order for the net pension asset or liability to reflect the full value of the plan deficit or surplus. The Company has not determined how to present the remeasurements of defined benefit plans in the parent company only financial statements of changes in equity.

Furthermore, the interest cost and expected return on plan assets used in current IAS 19 are replaced with a “net interest” amount, which is calculated by applying the discount rate to the net defined benefit liability or asset. In addition, the revised IAS 19 introduces certain changes in the presentation of the defined benefit cost, and also includes more extensive disclosures.

In addition, revised IAS 19 changes the definition of short-term employee benefits. The revised definition is “employee benefits (other than termination benefits) that are expected to be settled wholly before twelve months after the end of the annual reporting period in which the employees render the related service”. The Company’s unused annual leave, which can be carried forward within 36 months after the end of the annual period in which the employee renders service and which is currently classified as short-term employee benefits, will be classified as other long-term employee benefits under revised IAS 19. Related defined benefit obligation of such other long-term benefit is calculated using the Projected Unit Credit Method. However, this change does not affect unused annual leave to be presented as a current liability in the parent company only balance sheet.

On initial application of the revised IAS 19 in 2015, the changes in cumulative employee benefit costs as of December 31, 2013 resulting from the retrospective application are adjusted to net defined benefit liabilities, deferred tax assets and retained earnings; the carrying amounts of

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inventories are not adjusted. In addition, in preparing the consolidated financial statements for the year ended December 31, 2015, the Company would elect not to present 2014 comparative information about the sensitivity of the defined benefit obligation.

The primary effects of the Group’s retrospective application of aforementioned amendments were as follows: As of January 1, 2014, accrued pension liabilities increased and accumulated deficit decreased both NT$101,932 thousand, and as of December 31, 2014, accrued pension liabilities increased by NT$94,535 thousand, accumulated deficit decreased by NT$101,932 thousand; and for the years ended December 31, 2014, the operating expenses and costs decreased by NT$3,207 thousand and NT$4,190 thousand , respectively.

• 6) Amendments to IFRS 7 “Disclosure - Offsetting Financial Assets and Financial Liabilities”

The amendments to IFRS 7 require disclosure of information about rights of offset and related arrangements (such as collateral posting requirements) for financial instruments under enforceable master netting arrangements and similar arrangements.

• 7) Amendments to IAS 32 “Offsetting Financial Assets and Financial Liabilities”

The amendments to IAS 32 clarify the requirements relating to the offset of financial assets and financial liabilities. Specifically, the amendments clarify the meaning of “currently has a legally enforceable right of set-off” and “simultaneous realization and settlement”.

• 8) Annual Improvements to IFRSs: 2009-2011 Cycle

Several standards including IFRS 1 “First-time Adoption of International Financial Reporting Standards”, IAS 1 “Presentation of Financial Statements”, IAS 16 “Property, Plant and Equipment”, IAS 32 “Financial Instruments: Presentation” were amended in this annual improvement.

The amendments to IAS 1 clarify that an entity is required to present a balance sheet as at the beginning of the preceding period when a) it applies an accounting policy retrospectively, or makes a retrospective restatement or reclassifies items in its financial statements, and b) the retrospective application, restatement or reclassification has a material effect on the information in the balance sheet at the beginning of the preceding period. The amendments also clarify that related notes are not required to accompany the balance sheet at the beginning of the preceding period.

The amendments to IAS 16 clarify that spare parts, stand-by equipment and servicing equipment should be recognized in accordance with IAS 16 when they meet the definition of property, plant and equipment and otherwise as inventory.

The amendments to IAS 32 clarify that income tax relating to distributions to holders of an equity instrument and to transaction costs of an equity transaction should be accounted for in accordance with IAS 12 “Income Taxes”.

The initial application of the amendments to the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSs version in 2015 is expected to have material effect on the parent company only balance sheet as of January 1, 2014. In preparing the parent company only financial statements for the year ended December 31, 2015, the Group would present the parent company only balance sheet as of January 1, 2014 in accordance of the above amendments to IAS 1 and disclose related information in accordance with IAS 8 “Accounting Policies, Changes in Accounting Estimates and Errors”, but not required to make disclosures about the line items of the balance sheet as of January 1, 2014.

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• b. New IFRSs in issue but not yet endorsed by the FSC

The Company has not applied the following New IFRSs issued by the IASB but not yet endorsed by the FSC. As of the date the consolidated financial statements were authorized for issue, the FSC has not announced their effective dates.

announced their effective dates.
New IFRSs Annual Improvements to IFRSs 2010-2012 Cycle Annual Improvements to IFRSs 2011-2013 Cycle Annual Improvements to IFRSs 2012-2014 Cycle IFRS 9 “Financial Instruments” Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of IFRS 9 and Transition Disclosures” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture” Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception” Amendment to IFRS 11 “Accounting for Acquisitions of Interests in Joint Operations” IFRS 14 “Regulatory Deferral Accounts” IFRS 15 “Revenue from Contracts with Customers” Amendment to IAS 1 “Disclosure Initiative” Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization” Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants” Amendment to IAS 19 “Defined Benefit Plans: Employee Contributions” Amendment to IAS 27 “The equity method of Separate Financial Statements” Amendment to IAS 36 “Impairment of Assets: Recoverable Amount Disclosures for Non-financial Assets” Amendment to IAS 39 “Novation of Derivatives and Continuation of Hedge Accounting” IFRIC 21 “Levies”	Effective Date Announced by IASB (Note 1)
	July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 4) January 1, 2018 January 1, 2018 January 1, 2016 (Note 3) January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2017 January 1, 2016 January 1, 2016 January 1, 2016 July 1, 2014 January 1, 2016 January 1, 2014 January 1, 2014 January 1, 2014

• Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods beginning on or after their respective effective dates.

• Note 2: The amendment to IFRS 2 applies to share-based payment transactions with grant date on or after July 1, 2014; the amendment to IFRS 3 applies to business combinations with acquisition date on or after July 1, 2014; the amendment to IFRS 13 is effective immediately; the remaining amendments are effective for annual periods beginning on or after July 1, 2014.

• Note 3: Prospectively applicable to transactions occurring in annual periods beginning on or after January 1, 2016.

• Note 4: Except the amendment to IFRS 5 is applied prospectively, the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

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The impending initial application of the above New IFRSs, whenever applied, would not have any material impact on the Company accounting policies, except for the following:

• 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

With regards to financial assets, all recognized financial assets that are within the scope of IAS 39 “Financial Instruments: Recognition and Measurement” are subsequently measured at amortized cost or fair value. Under IFRS 9, the requirement for the classification of financial assets is stated below.

For the Company’s debt instruments that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, the classification and measurement are as follows:

• a) For debt instruments held within a business model whose objective is to collect the contractual cash flows, the financial assets are measured at amortized cost and are assessed for impairment continuously with impairment loss, if any, recognized in profit or loss. Interest revenue is recognized in profit or loss by using the effective interest method;

• b) For debt instruments held within a business model whose objective is achieved by both the collection of contractual cash flows and the selling of financial assets, the financial assets are measured at fair value through other comprehensive income (FVTOCI) and are assessed for impairment. Interest revenue is recognized in profit or loss by using the effective interest method, and other gain or loss is recognized in other comprehensive income, except for impairment loss and foreign exchange gain and loss. When the debt instrument is derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for the above, all other financial assets are measured at fair value through profit or loss. However, the Group may make an irrevocable election to present subsequent changes in fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, and the cumulative gain or loss previously recognized in other comprehensive income cannot be reclassified from equity to profit or loss.

The impairment of financial assets

IFRS 9 requires that impairment loss on financial assets is recognized by using the “Expected Credit Losses Model”. The credit loss allowance is required for financial assets measured at amortized cost, financial assets mandatorily measured at FVTOCI, lease receivables, contract assets arising from IFRS 15 “Revenue from Contracts with Customers”, certain written loan commitments and financial guarantee contracts. A loss allowance for the 12-month expected credit losses is required for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

For purchased or originated credit-impaired financial assets, the Group takes into account the expected credit losses on initial recognition in calculating the credit-adjusted effective interest rate. Subsequently, any changes in expected losses are recognized as a loss allowance with a corresponding gain or loss recognized in profit or loss.

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• 2) Amendments to IAS 36 “Recoverable Amount Disclosures for Non-Financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made some consequential amendments to the disclosure requirements in IAS 36 “Impairment of Assets”, introducing a requirement to disclose in every reporting period the recoverable amount of an asset or each cash-generating unit. The amendment clarifies that such disclosure of recoverable amount is required only when an impairment loss has been recognized or reversed during the period. Furthermore, the company is required to disclose the discount rate used in measurements of the recoverable amount based on fair value less costs of disposal measured using a present value technique.

• 3) New issued IFRIC 21 “Levies”

IFRIC 21 provides guidance on when to recognize a liability for a levy imposed by a government. It addresses the accounting for a liability whose timing and amount is certain and the accounting for a provision whose timing or amount is not certain. The Company accrues related liability when the transaction or activity that triggers the payment of the levy occurs. Therefore, if the obligating event occurs over a period of time (such as generation of revenue over a period of time), the liability is recognized progressively. If an obligation to pay a levy is triggered upon reaching a minimum threshold (such as a minimum amount of revenue or sales generated), the liability is recognized when that minimum threshold is reached.

• 4) Annual Improvement to IFRSs 2010-2012 Cycle

Several standards including IFRS 2 “Share-Based Payment”, IFRS 3 “Business Combinations” and IFRS 8 “Operating Segments” were amended in this annual improvement.

The amended IFRS 2 changes the definitions of “vesting condition” and “market condition” and adds definitions for “performance condition” and “service condition”. The amendment clarifies that a performance target can be based on the operations (i.e. a non-market condition) of the Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group.

IFRS 3 was amended to clarify that contingent consideration should be measured at fair value, irrespective of whether the contingent consideration is a financial instrument within the scope of IFRS 9 or IAS 39. Changes in fair value should be recognized in profit or loss.

The amended IFRS 8 requires an entity to disclose the judgments made by management in applying the aggregation criteria to operating segments, including a description of the operating segments aggregated and the economic indicators assessed in determining whether the operating segments have “similar economic characteristics”. The amendment also clarifies that a reconciliation of the total of the reportable segments’ assets to the entity’s assets should only be provided if the segments’ assets are regularly provided to the chief operating decision-maker.

IFRS 13 was amended to clarify that the issuance of IFRS 13 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting, if the effect of not discounting is immaterial.

IAS 24 was amended to clarify that a management entity providing key management personnel services to the Company is a related party of the Group. Consequently, the Company is required to disclose as related party transactions the amounts incurred for the service paid or payable to the management entity for the provision of key management personnel services. However, disclosure of the components of such compensation is not required.

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• 5) Annual Improvement to IFRSs 2011-2013 Cycle

Several standards, including IFRS 3, IFRS 13 and IAS 40 “Investment Property”, were amended in this annual improvement.

IFRS 3 was amended to clarify that IFRS 3 does not apply to the accounting for the formation of all types of joint arrangements in the financial statements of the joint arrangement itself.

The scope in IFRS 13 of the portfolio exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis was amended to clarify that it includes all contracts that are within the scope of, and accounted for in accordance with, IAS 39 or IFRS 9, even if those contracts do not meet the definitions of financial assets or financial liabilities within IAS 32.

IAS 40 was amended to clarify that IAS 40 and IFRS 3 are not mutually exclusive and application of both standards may be required to determine whether the investment property acquired is acquisition of an asset or a business combination.

• 6) Amendments to IAS 16 and IAS 38 “Clarification of Acceptable Methods of Depreciation and Amortization”

The entity should use appropriate depreciation and amortization method to reflect the pattern in which the future economic benefits of the property, plant and equipment and intangible asset are expected to be consumed by the entity.

The amended IAS 16 “Property, Plant and Equipment” requires that a depreciation method that is based on revenue that is generated by an activity that includes the use of an asset is not appropriate. The amended standard does not provide any exception from this requirement.

The amended IAS 38 “Intangible Assets” requires that there is a rebuttable presumption that an amortization method that is based on revenue that is generated by an activity that includes the use of an intangible asset is not appropriate. This presumption can be overcome only in the following limited circumstances:

• 1) in which the intangible asset is expressed as a measure of revenue (for example, the contract that specifies the entity’s use of the intangible asset will expire upon achievement of a revenue threshold); or

• 2) when it can be demonstrated that revenue and the consumption of the economic benefits of the intangible asset are highly correlated.

An entity should apply the aforementioned amendments prospectively for annual periods beginning on or after the effective date.

• 7) IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersede IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations.

When applying IFRS 15, an entity shall recognize revenue by applying the following steps:

• Identify the contract with the customer;

• Identify the performance obligations in the contract;

• Determine the transaction price;

• Allocate the transaction price to the performance obligations in the contracts; and

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• Recognize revenue when the entity satisfies a performance obligation.

When IFRS 15 is effective, an entity may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying this Standard recognized at the date of initial application.

• 8) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets between an Investor and its Associate or Joint Venture”

The amendments stipulated that, when the company sells or contributes assets that constitute a business (as defined in IFRS 3) to an associate or joint venture, the gain or loss resulting from the transaction is recognized in full. Also, when the company loses control of a subsidiary that contains a business but retains significant influence or joint control, the gain or loss resulting from the transaction is recognized in full.

Also, when the company loses control of a subsidiary that does not contain a business but retains significant influence or joint control in an associate or a joint venture, the gain or loss resulting from the transaction is recognized only to the extent of the unrelated investors’ interest in the associate or joint venture, i.e. the entity’s share of the gain or loss is eliminated.

• 9) Annual Improvements to IFRSs: 2012-2014 Cycle

Several standards, including IFRS 5 “Non-current assets held for sale and discontinued operations”, IFRS 7 and IAS 19, were amended in this annual improvement.

IFRS 5 was amended to clarify that reclassification between non-current assets (or disposal group) “held for sale” and non-current assets “held for distribution to owners” does not constitute a change to a plan of sale or distribution. Therefore, previous accounting treatment is not reversed. The amendment also explains that assets that no longer meet the criteria for “held for distribution to owners” and do not meet the criteria for “held for sale” should be treated in the same way as assets that cease to be classified as held for sale.

The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred financial asset. In addition, the amendments clarify that the offsetting disclosures are not explicitly required for all interim periods; however, the disclosures may need to be included in condensed interim financial statements to comply with IAS 34 under specific conditions.

IAS 19 was amended to clarify that the depth of the market for high quality corporate bonds used to estimate discount rate for post-employment benefits should be assessed by the market of the corporate bonds denominated in the same currency as the benefits to be paid, i.e. assessed at currency level (instead of country or regional level).

10) Amendment to IAS 1 “Disclosure Initiative”

The amendment clarifies that the consolidated financial statements should be prepared for the purpose of disclosing material information. To improve the understandability of its consolidated financial statements, the Group should disaggregate the disclosure of material items into their different natures or functions, and disaggregate material information from immaterial information.

The amendment further clarifies that the Group should consider the understandability and comparability of its consolidated financial statements to determine a systematic order in presenting its footnotes.

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Except for the above impact, as of the date the parent company only financial statements were authorized for issue, the Group is continuingly assessing the possible impact that the application of other standards and interpretations will have on the Group’s financial position and financial performance, and will disclose the relevant impact when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of Compliance

The accompanying parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (the “Accounting Standards Used in Preparation of the Parent Company Only Financial Statements”).

• b. Basis of Preparation

The accompanying parent company only financial statements have been prepared on the historical cost basis except for financial instruments that are measured at fair values. Historical cost is generally based on the fair value of the consideration given in exchange for the assets.

When preparing the parent company only financial statements, the Company account for subsidiaries and associates by using the equity method. In order to agree with the amount of net income, other comprehensive income and equity attributable to shareholders of the parent in the consolidated financial statements, the differences of the accounting treatment between the parent company only basis and the consolidated basis are adjusted under the heading of investments accounted for using equity method, share of profits of subsidiaries and associates and share of other comprehensive income of subsidiaries and associates in the parent company only financial statements.

• c. Classification of current and non-current assets and liabilities

Current assets include:

• 1) Assets held primarily for the purpose of trading;

• 2) Assets expected to be realized within twelve months after the reporting period; and

• 3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period.

Current liabilities include:

• 1) Liabilities held primarily for the purpose of trading;

• 2) Liabilities due to be settled within twelve months after the reporting period, even if an agreement to refinance, or to reschedule payments, on a long-term basis is completed after the reporting period and before the consolidated financial statements are authorized for issue; and

• 3) Liabilities for which the Group does not have an unconditional right to defer settlement for at least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

Assets and liabilities that are not classified as current are classified as non-current.

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d. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies other than the entity’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or translation are recognized in profit or loss in the period in which they arise except for:

• 1) Exchange differences on foreign currency borrowings relating to assets under construction for future productive use, which are included in the cost of those assets when they are regarded as an adjustment to interest costs on those foreign currency borrowings;

• 2) Exchange differences on transactions entered into in order to hedge certain foreign currency risks; and

• 3) Exchange differences on monetary items receivable from or payable to a foreign operation for which settlement is neither planned nor likely to occur (therefore forming part of the net investment in the foreign operation), which are recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investments.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Exchange differences arising on the retranslation of non-monetary items are included in profit or loss for the period except for exchange differences arising from the retranslation of non-monetary items in respect of which gains and losses are recognized directly in other comprehensive income, in which case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not retranslated.

For the purposes of presenting parent company only financial statements, the assets and liabilities of the Company’s foreign operations (including of the subsidiaries and associates currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income.

• e. Inventories

Inventories consist of raw materials, supplies, finished goods, merchandise and work-in-process and are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except where it may be appropriate to group similar or related items. Net realizable value is the estimated selling price of inventories less all estimated costs of completion and costs necessary to make the sale. Inventories are recorded at standard cost and adjusted to approximate weighted - average cost on the balance sheet date.

• f. Investments accounted for using equity method

Investments in subsidiaries and associates are accounted for by the equity method.

• 1) Investment in subsidiaries

Subsidiaries are the entities controlled by the Company.

Under the equity method, the investment is initially recognized at cost and the carrying amount is increased or decreased to recognize the Company’s share of the profit or loss and other

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comprehensive income of the subsidiary after the date of acquisition. Besides, the Company also recognizes the Company’s share of the change in other equity of the subsidiary.

Changes in the Company’s ownership interests in subsidiaries that do not result in the Company’s loss of control over the subsidiaries are accounted for as equity transactions. Any difference between the carrying amounts of the investment and the fair value of the consideration paid or received is recognized directly in equity.

When the Company’s share of losses of a subsidiary equals or exceeds its interest in that subsidiary (which includes any carrying amount of the investment in subsidiary accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the subsidiary), the Company continues recognizing its share of further losses.

When the Company ceases to have control over a subsidiary, any retained investment is measured at fair value at that date and the difference between the previous carrying amount of the subsidiary attributable to the retained interest and its fair value is included in the determination of the gain or loss. Furthermore, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

The acquisition cost in excess of the acquisition-date fair value of the identifiable net assets acquired is recognized as goodwill. Goodwill is not amortized. The acquisition-date fair value of the net identifiable assets acquired in excess of the acquisition cost is recognized immediately in profit or loss.

Profits and losses from downstream transactions with a subsidiary are eliminated in full. Profits and losses from upstream with a subsidiary and sidestream transactions between subsidiaries are recognized in the Company’s financial statements only to the extent of interests in the subsidiary that are not related to the Company.

2) Investment in associates

An associate is an entity over which the Company has significant influence and that is neither a subsidiary nor an interest in a joint venture.

The results and assets and liabilities of associates and jointly controlled entities are incorporated in these consolidated financial statements using the equity method of accounting. Under the equity method, an investment in an associate and jointly controlled entity is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the associate and jointly controlled entity.

When the Company subscribes for additional new shares of the associate and jointly controlled entity at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the associate and jointly controlled entity. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus. If the Company’s ownership interest is reduced due to the additional subscription of the new shares of associate and jointly controlled entity, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and jointly controlled entity is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

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When the Company’s share of losses of an associate and jointly controlled entity equals or exceeds its interest in that associate and jointly controlled entity (which includes any carrying amount of the investment accounted for by the equity method and long-term interests that, in substance, form part of the Company’s net investment in the associate and jointly controlled entity), the Company discontinues recognizing its share of further losses. Additional losses and liabilities are recognized only to the extent that the Company has incurred legal obligations, or constructive obligations, or made payments on behalf of that associate and jointly controlled entity.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of an associate and jointly controlled entity recognized at the date of acquisition is recognized as goodwill, which is included within the carrying amount of the investment and is not amortized. Any excess of the Company’s share of the net fair value of the identifiable assets and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

The Company discontinues the use of the equity method from the date on which it ceases to have significant influence and joint control. The difference between the previous carrying amount of the associate (and the jointly controlled entity) attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the jointly controlled entity. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the jointly controlled entity on the same basis as would be required if that associate had directly disposed of the related assets or liabilities.

When the Company transacts with its subsidiaries, profits and losses resulting from the transactions with the subsidiaries are recognized in the Company’s parent company only financial statements only to the extent of interests in the subsidiaries that are not owned by the Company.

• g. Property, plant and equipment

Property, plant and equipment are stated at cost, less subsequent accumulated depreciation and subsequent accumulated impairment loss.

Freehold land is not depreciated.

Depreciation is recognized using the straight-line method. Each significant part is depreciated separately. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

Any gain or loss arising on the disposal or retirement of an item of property, plant and equipment is determined as the difference between the sales proceeds and the carrying amount of the asset and is recognized in profit or loss.

h. Intangible assets

• 1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at cost and subsequently measured at cost less accumulated amortization and accumulated impairment loss. Amortization is recognized on a straight-line basis. The estimated useful life, residual value, and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis. The residual value of an intangible asset with a finite useful life shall be assumed to be zero unless the Company expects to dispose of the intangible asset before the end of its economic life. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

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• 2) Internally-generated intangible assets - research and development expenditure

Expenditure on research activities is recognized as an expense in the period in which it is incurred.

• 3) Derecognition of intangible assets

Gains or losses arising from derecognition of an intangible asset, which are measured as the difference between the net disposal proceeds and the carrying amount of the asset, are recognized in profit or loss when the asset is derecognized.

• i. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Company reviews the carrying amounts of its tangible and intangible assets, excluding goodwill to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss. When it is not possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. When a reasonable and consistent basis of allocation can be identified, corporate assets are also allocated to the individual cash-generating units; otherwise they are allocated to the smallest group of cash-generating units for which a reasonable and consistent allocation basis can be identified.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are tested for impairment at least annually, and whenever there is an indication that the asset may be impaired.

Recoverable amount is the higher of fair value less costs to sell and value in use. If the recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable amount.

When an impairment loss subsequently reverses, the carrying amount of the asset or a cash-generating unit is increased to the revised estimate of its recoverable amount, but only to the extent of the carrying amount that would have been determined had no impairment loss been recognized for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

• j. Financial instruments

Financial assets and liabilities are recognized when the Company becomes a party to the contractual provisions of the instruments.

Financial assets and liabilities are initially measured at fair values. Transaction costs that are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a trade date basis or settlement date basis.

• 1) Measurement category

Financial assets are classified into the following categories: Financial assets at fair value through profit or loss, available-for-sale financial assets, and loans and receivables.

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• a) Financial assets at fair value through profit or loss

Financial assets are classified as at fair value through profit or loss when the financial asset is either held for trading or it is designated as at fair value through profit or loss.

• i. A financial asset other than a financial asset held for trading may be designated as at fair value through profit or loss upon initial recognition when doing so results in more relevant information and if:

• i) Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• ii) The financial asset forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated on a fair value basis, in accordance with the Company’s documented risk management or investment strategy, and information about the grouping is provided internally on that basis; or

• iii) A contract contains one or more embedded derivatives, the entire combined contract asset or liability can be designated as at fair value through profit or loss.

Financial assets at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss.

Investments in equity instruments under financial assets at fair value through profit or loss that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are subsequently measured at cost less any identified impairment loss at the end of each reporting period and are presented in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss.

• ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as available-for-sale or are not classified as loans and receivables, held-to-maturity investments or financial assets at fair value through profit or loss.

Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method, dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and accumulated under the heading of investments revaluation reserve. When the investment is disposed of or is determined to be impaired, the cumulative gain or loss previously accumulated in the investments revaluation reserve is reclassified to profit or loss.

Available-for-sale equity investments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured and derivatives that are linked to and must be settled by delivery of such unquoted equity investments are measured at cost less any identified impairment loss at the end of each reporting period and are recognized in a separate line item as financial assets carried at cost. If, in a subsequent period, the fair value of the financial assets can be reliably measured, the financial assets are remeasured at fair value. The difference between carrying amount and fair value is recognized in other

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comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

iii. Loans and receivables

Loans and receivables (including cash and cash equivalent, trade receivables, other receivables and long-term receivables) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalent includes highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

• 2) Impairment of financial assets

Financial assets, other than those at fair value through profit or loss, are assessed for indicators of impairment at the end of each reporting period. Financial assets are considered to be impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the investment have been affected.

Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables, and other situation.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the financial asset’s original effective interest rate.

For financial assets measured at amortized cost, 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 was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant financial difficulty of the issuer or counterparty, breach of contract, such as a default or delinquency in interest or principal payments, it becoming probable that the borrower will enter bankruptcy or financial re-organization, or the disappearance of an active market for that financial asset because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or losses previously recognized in other comprehensive income are reclassified to profit or loss in the period.

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income.

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For financial assets that are carried at cost, the amount of the impairment loss is measured as the difference between the asset’s carrying amount and the present value of the estimated future cash flows discounted at the current market rate of return for a similar financial asset. Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables and long-term receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable and long-term receivables are considered uncollectible, it is written off against the allowance account and recognized in profit or loss. Subsequent recoveries of amounts previously written off are credited against the allowance account.

• 3) Derecognition of financial assets

The Company derecognizes a financial asset only when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the financial asset to another entity.

On derecognition of a financial asset in its entirety, the difference between the financial asset’s carrying amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity is recognized in profit or loss.

Equity instruments

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct issue costs.

Repurchase of the Company’s own equity instruments is recognized in and deducted directly from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issue or cancellation of the Company’s own equity instruments.

Financial Liabilities

• 1) Subsequent measurement

Except the following situation, all the financial liabilities are measured at amortized cost using the effective interest method:

• a) Financial liabilities at fair value through profit or loss

Financial liabilities are classified as at fair value through profit or loss when the financial liability is held for trading.

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 31.

• 2) Derecognition of financial liabilities

The difference between the carrying amount of the financial liability derecognized and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

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Derivative financial instruments

The Company enters into a variety of derivative financial instruments to manage its exposure to foreign exchange rate risks, including foreign exchange forward contracts.

Derivatives are initially recognized at fair value at the date the derivative contracts are entered into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized in profit or loss immediately. Unless the derivative is designated and effective as a hedging instrument, in which event the timing of the recognition in profit or loss depends on the nature of the hedge relationship. When the fair value of derivative financial instruments is positive, the derivative is recognized as a financial asset; when the fair value of derivative financial instruments is negative, the derivative is recognized as a financial liability.

• k. Provision

Provisions are measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. Provisions are measured at the discounted cash flow for settling the obligation.

l. Revenue Recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Sales returns are recognized at the time of sale provided the seller can reliably estimate future returns and recognizes a liability for returns based on previous experience and other relevant factors.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

• a) The Company has transferred to the buyer the significant risks and rewards of ownership of the goods;

• b) The Company retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold;

• c) The amount of revenue can be measured reliably;

• d) It is probable that the economic benefits associated with the transaction will flow to the Company; and

• e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Company does not recognize sales revenue on materials delivered to subcontractors because this delivery does not involve a transfer of risks and rewards of materials ownership.

• 2) Rendering of services

Service income is recognized when services are provided.

Revenue from a contract to provide services is recognized by reference to the stage of completion of the contract. The stage of completion of the contract is determined by the contractual rates as labor hours and direct expenses are incurred.

• 25 -

3) Royalties

Royalty revenue is recognized on an accrual basis in accordance with the substance of the relevant agreement provided that it is probable that the economic benefits will flow to the Company and the amount of revenue can be measured reliably. Royalty arrangements that are based on production, sales and other measures are recognized by reference to the underlying arrangement.

• 4) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment has been established provided that it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits will flow to the Company and the amount of income can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

m. Leasing

Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases.

• 1) The Company as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease. Contingent rents arising under operating leases are recognized as income in the period in which they are incurred.

• 2) The Company as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term. Contingent rents arising under operating leases are recognized as an expense in the year in which they are incurred.

• n. Borrowing Cost

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which they are incurred.

o. Retirement Benefit Costs

Payments to defined contribution retirement benefit plans are recognized as an expense when employees have rendered service entitling them to the contributions.

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method. Actuarial gains and losses that exceed 10% of the greater of the present value of the Company’s defined benefit obligation and the fair value of plan assets as at the end of the prior year are amortized over the expected average remaining working lives of the participating employees. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

• 26 -

The retirement benefit obligation recognized represents the present value of the defined benefit obligation as adjusted for unrecognized actuarial gains and losses and unrecognized past service cost, and as reduced by the fair value of plan assets. Any asset resulting from this calculation is limited to the unrecognized actuarial losses and past service cost, plus the present value of available refunds and reductions in future contributions to the plan.

• p. Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for post-employment benefits except that all past service cost and actuarial gains and losses are recognized immediately.

• q. Share-based Payment Arrangements

Equity-settled share-based payments to employees are measured at the fair value of the equity instruments at the grant date.

The fair value determined at the grant date of the equity-settled share-based payments is expensed on a straight-line basis over the vesting period, based on the Company’s estimate of equity instruments that will eventually vest, with a corresponding increase in capital surplus - employee share options. The fair value determined at the grant date of the equity-settled share-based payments is recognized as an expense in full at the grate date when the share options granted vest immediately.

Restricted shares for employees are measured at fair value on the date of grant, with a corresponding increase in capital surplus - restricted shares for employees. Dividends paid to employees on the restricted shares that do not need to be returned if employees resign in the vesting period, are recognized as expenses when the dividends are declared with a corresponding adjustment in capital surplus - restricted shares for employees.

At the end of each reporting period, the Company revises its estimate of the number of equity instruments expected to vest. The impact of the revision of the original estimates is recognized in profit or loss such that the cumulative expense reflects the revised estimate, with a corresponding adjustment to the capital surplus - employee share options.

• r. Treasury Stock

The parent company’s stock held by subsidiaries is reclassified to treasury stock from investment accounted for using equity method and recognized with the original investment cost. Cash dividends earned by subsidiaries were write-off with investment income and adjust capital surplus-treasury stock transaction.

s. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

• 1) Current tax

According to the Income Tax Law, an additional tax at 10% of unappropriated earnings is provided for as income tax in the year the shareholders approve to retain the earnings.

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax provision.

• 27 -

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the parent company only financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carry forward and unused tax credits for purchases of machinery, equipment and technology, and research and development expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries, except where the Company is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible temporary differences associated with such investments and interests are only recognized to the extent that it is probable that there will be sufficient taxable profits against which to utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the year in which the liability is settled or the asset realized, based on tax rates (and tax laws) that have been enacted or substantively enacted by the end of the reporting period. The measurement of deferred tax liabilities and assets reflects the tax consequences that would follow from the manner in which the company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

3) Current and deferred tax for the year

Current and deferred tax are recognized in profit or loss, except when they relate to items that are recognized in other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income or directly in equity, respectively.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Company’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the year in which the estimate is revised if the revision affects only that year or in the year of the revision and future year if the revision affects both current and future year.

• 28 -

• a. Estimated impairment of trade receivables

When there is objective evidence of impairment loss, the Company takes into consideration the estimation of future cash flows. 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 (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. Where the actual future cash flows are less than expected, a material impairment loss may arise.

b. Write-down of inventory

Net realizable value of inventory is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. The estimation of net realizable value was based on current market conditions and the historical experience of selling products of a similar nature. Changes in market conditions may have a material impact on the estimation of net realizable value.

c. Fair value of financial instruments

As described in Note 31, the Company’s management uses its judgment in selecting an appropriate valuation technique for financial instruments that do not have quoted market price in an active market. Valuation techniques commonly used by market practitioners are applied. For derivative financial instruments, assumptions were based on quoted market price and market rates adjusted for specific features of the instruments. The estimation of fair value of listed equity instruments traded in emerging market and unlisted equity instruments was based on the analysis in relation to the financial position and the operation results of investees, recent transaction prices, prices of same equity instruments not quoted in active markets, quoted prices of similar instruments in active markets, valuation multiples of comparable entities, including assumptions based on unobservable market prices or rates. As of December 31, 2013 and 2014, the carrying amount of these equity instruments was NT$82,698 thousand and NT$79,218 thousand, respectively. Note 31 provides detailed information about the key assumptions used in the determination of the fair value of financial instruments. The Company’s management believes that the chosen valuation techniques and assumptions used are appropriate in determining the fair value of financial instruments.

• d. Impairment Assessment on Investment Using Equity Method

The Company immediately recognizes impairment loss on its net investment in associate when there is any indication that the investment may be impaired and the carrying amount may not be recoverable. The Company’s management evaluates impairment based on the estimated future cash flows expected to be generated by the associate, including growth rate of sales and capacity of production facilities estimated by the associate’s management. The Company also takes into consideration the market conditions and industry development to evaluate the appropriateness of assumptions.

e. Useful lives of property, plant and equipment

As described in Note 4 (7), the Company reviews the estimated useful lives of property, plant and equipment at each balance sheet date.

• 29 -

f. Income taxes

As of December 31, 2013 and 2014, the carrying amount of deferred tax assets in relation to unused tax losses both were NT$905,612 thousand. As of December 31, 2013 and 2014, no deferred tax asset has been recognized on tax losses of NT$3,149,141 thousand and NT$3,935,221 thousand, respectively, due to the deductible temporary differences, unused loss carryforwards and unused investment. The realizability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.

• g. Recognition and measurement of defined benefit plans

Accrued pension liabilities and the resulting pension expense under defined benefit pension plans are calculated using the Projected Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and long-term average future salary increase. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

h. Revenue recognition

The Company recognizes revenue when the conditions described in Note 4 (12) are satisfied. The Company also records a provision for estimated future returns and other allowances in the same year the related revenue is recorded. Provision for estimated sales returns and other allowances is generally made and adjusted at a specific percentage based on historical experience and any known factors that would significantly affect the allowance, and the Company periodically reviews the adequacy of the percentage used.

As of December 31, 2013, and 2014, the Company recognized provisions for estimated sales returns and other allowances of NT$58,031 thousand and NT$72,273 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
Cash on hand Checking accounts and demand deposits Cash equivalent Time deposits		December 31
		2013 $ 71 1,821,948 8,210,000 $ 10,032,019	2014 $ 50 1,540,101 4,750,000 $ 6,290,151

The market rate intervals of cash in bank and bank overdrafts at the end of the reporting period were as follows:

follows:
Bank balance	December 31
	2013 2014 0.001%-1.13% 0.001%-0.95%

• 30 -

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL Financial assets held for trading Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts Financial liabilities at FVTPL Financial liabilities held for trading Derivative financial liabilities (not under hedge accounting) Foreign exchange forward contracts		December 31	December 31
		2013 $ 1,358 $ -	2014 $ 95 $ 7,113

At the end of the reporting period, outstanding foreign exchange forward contracts not under hedge accounting were as follows:

			Contract Amount
Contract	Currency	Maturity Date	(In Thousands)
December 31, 2013
Sell	USD/NTD	2014.01	USD6,000/NTD179,924
December 31, 2014
Sell	USD/NTD	2015.01	USD18,000/NTD562,947

The Company entered into foreign exchange forward contracts during 2013 and 2014 to manage exposures to exchange rate fluctuations of foreign currency denominated assets and liabilities. However, those contracts did not meet the criteria of hedge effectiveness and therefore were not accounted for by using hedge accounting.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

AVAILABLE-FOR-SALE FINANCIAL ASSETS
Non-current Domestic investments Listed shares		December 31
		2013 $ 764,239	2014 $ 919,853

• 31 -

9. FINANCIAL ASSETS MEASURED AT COST

FINANCIAL ASSETS MEASURED AT COST
Non-current Domestic unlisted common shares Classified according to financial asset measurement categories Available-for-sale financial assets		December	31
		2013 $ 82,698 $ 82,698	2014 $ 79,218 $ 79,218

Management believed that the fair value of the above unlisted equity investments held by the Company cannot be reliably measured due to the significant range of reasonable fair value estimates, therefore, they were measured at cost less impairment at the end of the reporting period.

10. NOTES RECEIVABLE, TRADE RECEIVABLES AND OTHER RECEIVABLES

Notes receivable Operating Trade receivables Trade receivables Less: Allowance for impairment loss Other receivables Tax receivable Others		December 31	December 31
		2013 $ 1,129 2,402,512 - 2,402,512 $ 2,403,641 $ 123,146 10,512 $ 133,658	2014 $ 790 2,324,432 (271) 2,324,161 $ 2,324,951 $ 144,076 10,572 $ 154,648

a. Trade Receivables

The average credit period for sales of goods was 60 days. In determining the recoverability of a trade receivable, the Company evaluates each customer’s credibility and financial position and considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period.

Before accepting any new customer, the Company uses an internal credit scoring system to assess the potential customer’s credit quality and defines credit limits by customer.

Of the trade receivables balance (see aging analysis below) that are past due at the end of the reporting period, the Company had not recognized an allowance for impaired notes receivable and trade receivables because there had not been a significant change in credit quality and the amounts were still considered recoverable.

• 32 -

Age of receivables that were past due but not impaired was as follows:

Less than 60 days 61-120 days Over 121 days		December 31	December 31
		2013 $ 7,131 - 168,532 $ 175,663	2014 $ 37,889 6,315 1,255 $ 45,459

Above analysis was based on the past due date.

As of December 31, 2014, the Company did not hold collateral for most of the receivables.

Movements in the allowance for impairment loss recognized on trade receivables were as follows:

Individually Assessed Impairment Collectively Assessed Impairment Balance at January 1, 2014 $ - $ - Add: Impairment losses recognized on receivables 271 - Balance at December 31, 2014 $ 271 $ -	Total $ - 271
	$ 271

• b. Notes Receivable and other receivables

No allowance for impairment loss of notes receivable and other receivables was recognized since the notes receivable and other receivables of the Company were not past due and the Company assessed that there was no uncertainty of recoverability.

11. INVENTORIES

INVENTORIES
Finished goods and merchandise Work in progress Raw materials		December 31
		2013 $ 1,093,157 7,331,773 318,192 $ 8,743,122	2014 $ 1,141,708 7,854,856 287,144 $ 9,283,708

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2013 and 2014 was NT$20,089,829 thousand and NT$19,478,536 thousand, respectively. The cost of inventories recognized as cost of goods sold for the year ended December 31, 2013 and 2014 included inventory write-downs of NT$923,178 thousand and NT$1,048,834 thousand, respectively.

• 33 -

12. INVESTMENT ACCOUNTED FOR USING EQUITY METHOD

INVESTMENT ACCOUNTED FOR USING EQUITY METHOD
Investment in subsidiaries Investment in associates Non-listed Company Macronix America Inc. (“MXA”) Macronix (BVI) Co., Ltd. (“MXBVI”) Hui Ying Investment Ltd. (“Hui Ying”) Run Hong Investment Ltd. (“Run Hong”) Infomax Communication Inc. (“INFOMAX”) Mxtran Inc. (“Mxtran”) MoDiotek Co., Ltd. (“MoDioTek”) Magic Pixel Inc. (“MPI”)		December 31
		2013 $ 2,926,238 - $ 2,926,238 $ 249,700 1,440,549 24,985 42,887 920,261 133,981 59,624 54,251 $ 2,926,238	2014 $ 2,515,532 34,010 $ 2,549,542 $ 217,532 1,577,739 24,238 28,969 629,458 37,596 34,010 - $ 2,549,542

The percentage subsidiaries’ and associates’ ownerships and voting right held by the Company:

MXA MXBVI Hui Ying Run Hong INFOMAX Mxtran MoDioTek (Note 28) MPI (Note 28)	December 31
	2013 2014 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 97.25% 97.25% 89.16% 89.16% 74.18% 20.61% 78.27% -

The Company had 74.18% equity in MoDioTek before the new share issuance; the Company did not subscribe for MoDioTek’s additional new shares at its existing ownership percentage and the Company’s equity decreased to 20.61%. The Company no longer had control over MoDioTek and did not consolidate but recognized the investment by the equity method from April 23, 2014.

In September 2014, the Company sold all of its 78.27% equity in MPI to MoDioTek for the price of NT$30,558 thousand, and the gain on disposal of investment was NT$16,789 thousand.

The disclosure of disposal of MoDiotek and MPI is recorded separately in 2014 consolidated financial statement and note 29. The detail of indirect holding investment by parent company is described in note 36.

The summarized financial information in respect of the Group’s associates is set out below:

	December 31,
	2014
Total assets	185,720
Total liabilities	20,661

• 34 -

	For the Year
	Ended
	December 31,
	2014
Revenue	42,333
Loss for the year	(125,680)
Other comprehensive income	(125,485)
Share of loss and other comprehensive income of associates for the
year	(38,040)

The investments accounted for by the equity method and the share of loss and other comprehensive income of those investments for the year ended December 31, 2013 and 2014 were based on the subsidiaries’ and associates’ audited finangial statements for the same year.

13. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2013 Additions Disposals Reclassification Balance at December 31, 2013 Accumulated depreciation and impairment Balance at January 1, 2013 Disposals Depreciation expense Reclassification Balance at December 31, 2013 Carrying amounts at December 31, 2013 Cost Balance at January 1, 2014 Additions Disposals Reclassification Balance at December 31, 2014 Accumulated depreciation and impairment Balance at January 1, 2014 Disposals Depreciation expense Reclassification Balance at December 31, 2014 Carrying amounts at December 31, 2014	Freehold Land $ 598,076 - - - $ 598,076 $ - - - - $ - $ 598,076 $ 598,076 - - - $ 598,076 $ - - - - $ - $ 598,076	Buildings $ 21,981,271 - (6,385 ) 467,888 $ 22,442,774 $ (15,488,634 ) 6,385 (1,211,125 ) 3 $ (16,693,371) $ 5,749,403 $ 22,442,774 - (11,098 ) 400,302 $ 22,831,978 $ (16,693,371 ) 8,889 (1,208,832 ) - $ (17,893,314) $ 4,938,664	Machinery Equipment $ 76,913,234 - (217,066 ) 1,743,246 $ 78,439,414 $ (60,321,113 ) 206,101 (5,320,776 ) (29,863) $ (65,465,651) $ 12,973,763 $ 78,439,414 - (271,734 ) 2,566,407 $ 80,734,087 $ (65,465,651 ) 258,301 (5,087,549 ) (119,597) $ (70,414,496) $ 10,319,591	Research and Development Equipment $ 5,801,459 - (64,600 ) 240,518 $ 5,977,377 $ (1,817,472 ) 64,581 (848,679 ) 29,860 $ (2,571,710) $ 3,405,667 $ 5,977,377 - (36,935 ) 144,505 $ 6,084,947 $ (2,571,710 ) 36,935 (900,268 ) 119,597 $ (3,315,446) $ 2,769,501	Transportation Equipment $ 30,653 - (1,427 ) - $ 29,226 $ (15,246 ) 737 (3,892 ) - $ (18,401) $ 10,825 $ 29,226 - (1,785 ) 1,200 $ 28,641 $ (18,401 ) 1,785 (3,943 ) - $ (20,559) $ 8,082	Leasehold Improvements $ 2,419 - - - $ 2,419 $ (2,419 ) - - - $ (2,419) $ - $ 2,419 - - - $ 2,419 $ (2,419 ) - - - $ (2,419) $ -	Miscellaneous Equipment $ 1,022,410 - (16,318 ) 60,539 $ 1,066,631 $ (895,245 ) 16,318 (80,522 ) - $ (959,449) $ 107,182 $ 1,066,631 - (51,229 ) 53,807 $ 1,069,209 $ (959,449 ) 51,229 (69,156 ) - $ (977,376) $ 91,833	Advance Payments and Construction in Progress $ 1,464,928 4,334,772 - (2,512,191) $ 3,287,509 $ - - - - $ - $ 3,287,509 $ 3,287,509 1,680,209 - (3,166,221) $ 1,801,497 $ - - - - $ - $ 1,801,497	Total $ 107,814,450 4,334,772 (305,796 -
									$ 111,843,426
									$ (78,540,129 294,122 (7,464,994 -
									$ (85,711,001
									$ 26,132,425
									$ 111,843,426 1,680,209 (372,781 -
									$ 113,150,854
									$ (85,711,011 357,139 (7,269,748 -
									$ (92,623,610
									$ 20,527,244

Impairment assessment was performed in the years ended December 31, 2013 and 2014, but no impairment was recognized.

The above items of property, plant and equipment were depreciated on a straight-line basis over the following estimated useful life of the asset:

following estimated useful life of the asset:
Buildings
Main buildings	21 years
Electronic equipment	11 years
Facility equipment	6 years
Machinery equipment	4-6 years
Research and development equipment	6 years
Transportation equipment	5-6 years
Leasehold improvements	6 years
Miscellaneous equipment	3-6 years

• 35 -

Refer to note 33 for the carrying amount of property, plant and equipment pledged by the Company to secure long-term bank loans granted to the Company.

14. INTANGIBLE ASSETS

Cost Balance at January 1, 2013 Additions Disposals Balance at December 31, 2013 Accumulated amortization Balance at January 1, 2013 Amortization expense Disposals Balance at December 31, 2013 Carrying amounts at December 31, 2013 Cost Balance at January 1, 2014 Additions Disposals Balance at December 31, 2014 Accumulated amortization Balance at January 1, 2014 Amortization expense Disposals Balance at December 31, 2014 Carrying amounts at December 31, 2014	Software $ 459,473 138,693 (52,884) $ 545,282 $ (143,885) (181,323) 52,884 $ (272,324) $ 272,958 $ 545,282 109,842 (52,683) $ 602,441 $ (272,324) (208,828) 52,683 $ (428,469) $ 173,972	Patents $ 1,271 - (1,271) $ - $ (989) (282) 1,271 $ - $ - $ - - - $ - $ - - - $ - $ -	Total $ 460,744 138,693 (54,155) $ 545,282 $ (144,874) (181,605) 54,155 $ (272,324) $ 272,958 $ 545,282 109,842 (52,683) $ 602,441 $ (272,324) (208,828) 52,683 $ (428,469) $ 173,972

The above items of intangible assets were amortized on a straight-line basis over the following estimated useful life of the asset:

useful life of the asset:
Software	3	years
Patents	3	years

• 36 -

15. OTHER FINANCIAL ASSETS

Non-current Restricted time deposits Refundable deposits Long-term receivables OTHER ASSETS Current Spare parts Prepayments Others BORROWINGS a. Short-term borrowings Unsecured borrowings Letter of credit loan Unsecured loan Range of effective rate			December 31
			2013 2014 $ 164,177 $ 164,177 2,786 3,497 5,112 3,768 $ 172,075 $ 171,442 December 31
			2013 2014 $ 340,707 $ 350,070 119,807 174,965 11,427 - $ 471,941 $ 525,035 December 31
	2013 2014 $ 566,577 $ 535,039 - 1,599,000 $ 566,577 $ 2,134,039 0.76%-0.88% 1.09%-1.92%

16. OTHER ASSETS

17. BORROWINGS

• 37 -

b. Long-term borrowings

Secured borrowings Bank loans Unsecured borrowings Bank loans Less: Current portion Less: Bank transaction fee Long-term borrowings Range of effective interest rate Maturity Date Floating rate borrowings Secured syndicated loan denominated in NT$ Repayable semi-annually from December 2012 to December 2015. Unsecured syndicated loan denominated in NT$ Pay off in December 2015. Unsecured bank borrowing denominated in NT$ Repayable in two installments from March 2015 to July 2015 according to the loan agreement. Unsecured bank borrowing denominated in NT$ Repayable quarterly from December 2014 to March 2016. Unsecured bank borrowing denominated in NT$ Repayable semi-annually from March 2013 to September 2015. Secured bank borrowing denominated in NT$ Repayable quarterly from January 2015 to October 2018. Secured bank borrowing denominated in NT$ Repayable monthly from January 2014 to December 2018. Secured syndicated loan denominated in NT$ Repayable quarterly from January 2015 to July 2017. Unsecured bank borrowing denominated in NT$ Repayable semi-annually from March 2015 to September 2017. Secured bank borrowing denominated in JPY Repayable quarterly from June 2015 to March 2019. Secured bank borrowing denominated in NT$ Repayable monthly from May 2003 to April 2016. Unsecured bank borrowing denominated in NT$ Repayable quarterly from June 2013 to March 2015.			December 31
			2013 2014 $ 12,756,564 $ 9,822,258 5,843,333 4,405,000 18,599,897 14,227,258 7,648,233 12,143,430 16,258 10,322 $ 10,935,406 $ 2,073,506 1.58%-2.15% 1.57%-2.52% **December 31 **
		$	2013 2014 10,997,000 $ 7,855,000 1,500,000 1,500,000 - 1,200,000 - 855,000 1,200,000 600,000 800,000 800,000 800,000 646,799 - 320,000 - 200,000 - 109,280 159,564 91,179 250,000 50,000 (Continued)

• 38 -

Maturity Date Unsecured bank borrowing denominated in NT$ Pay off in September 2014. Unsecured bank borrowing denominated in NT$ Pay off in September 2014. Unsecured bank borrowing denominated in NT$ Pay off in September 2014. Unsecured bank borrowing denominated in NT$ Pay off in June 2014. Unsecured bank borrowing denominated in NT$ Pay off in April 2014. Less: Current portion Bank transaction fee		**December 31 **	**December 31 **
		2013 $ 360,000 133,333 200,000 1,200,000 1,000,000 7,648,233 16,258 $ 10,935,406	2014 $ - - - - - 12,143,430 10,322 $ 2,073,506 (Concluded)

The Company had provided notes used as refundable guarantees for borrowings that will be cancelled upon termination of the guarantee.

In addition, the Company’s interest bearing floating rate borrowing was reset every one to three months.

The loan agreement requires the maintenance of current ratio, debt ratio, and times interest earned ratio based on semi-annual and annual consolidated financial statements. For the year ended December 31, 2014, the Company had met the financial ratio requirements.

The details of assets pledged as collaterals for long-term loans are shown in Note 33.

18. NOTES PAYABLE AND TRADE PAYABLES

NOTES PAYABLE AND TRADE PAYABLES
Notes payable Operating Trade payables Operating		December 31
		2013 $ 218 1,996,166 $ 1,996,384	2014 $ 30 1,993,023 $ 1,993,053

The Company has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.

• 39 -

19. OTHER PAYABLES

OTHER PAYABLES
Other payables Payable for legal fees Bonus Payable for maintenance and repair Payable for rework fees Payable for royalties Others		December 31
		2013 $ 144,426 246,843 253,681 573,207 392,415 517,450 $ 2,128,022	2014 $ 561,109 243,161 183,195 41,172 18,664 536,968 $ 1,584,269

20. PROVISIONS

PROVISIONS
Current Employee benefits (a) Customer returns and rebates (b) Balance at January 1, 2014 Additional provisions recognized Usage Balance at December 31, 2014	Employee Benefits $ 59,845 62,715 (59,845) $ 62,715		December 31
		2013 $ 59,845 58,031 $ 117,876 Customer Returns and Rebates $ 58,031 182,004 (167,762) $ 72,273		2014 $ 62,715 72,273 $ 134,988 Total $ 117,876 244,719 (227,607) $ 134,988

• a. The provision for employee benefits represents vested long service leave entitlements accrued.

• b. The provision of customer returns and rebates was based on historical experience, management’s judgments and other known reasons estimated product returns and rebates may occur in the year. The provision was recognized as a reduction of operating income in the years of the related goods sold.

• 40 -

21. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Company adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-managed defined contribution plan. Based on the LPA, the Company makes monthly contributions to employees’ individual pension at 6% of monthly salaries and wages.

b. Defined benefit plans

The Company adopted the defined benefit plan under the Labor Standards Law, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contributed amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name. The plan assets are invested in domestic (foreign) equity and debt securities, bank deposits, etc. However, in accordance with Enforcement Rules of the Labor Pension Act, the return generated by employees’ pension contribution should not be below the interest rate for a 2-year time deposit with local banks.

The actuarial valuations of plan assets and the present value of the defined benefit obligation were carried out by qualified actuaries. The principal assumptions of the actuarial valuation were as follows:

The actuarial valuations of plan assets and the present value of carried out by qualified actuaries. The principal assumptions follows:	the defined benefit obligation were of the actuarial valuation were as
Discount rate Expected return on plan assets Expected rate of salary increase	December 31
	2013 2014 2.25% 2.25% 1.25% 1.25% 3.00% 3.00%

Amounts recognized in profit or loss in respect of these defined plans were as follows:

Current service cost Interest cost Expected return on plan assets Past service cost An analysis by function Operating cost Marketing expenses Administration expenses Research and development expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 $ 7,494 25,932 (11,796) (713) $ 20,917 $ 11,948 1,227 3,331 4,411 $ 20,917	2014 $ 6,450 32,944 (10,137) (713) $ 28,544 $ 16,115 1,508 4,625 6,296 $ 28,544

• 41 -

The amount included in the parent company only balance sheet arising from the Company’s obligation in respect of its defined benefit plans was as follows:

Present value of funded defined benefit obligation Fair value of plan assets Deficit Net actuarial losses not recognized Past service cost not yet recognized Net liability arising from defined benefit obligation		December 31	December 31
		2013 $ 1,466,736 (797,238) 669,498 (112,900) 10,968 $ 567,566	2014 $ 1,576,706 (839,728) 736,978 (182,953) 10,255 $ 564,280

Movements in the present value of the defined benefit obligation were as follows:

Opening defined benefit obligation Current service cost Interest cost Actuarial (gains) losses Benefits paid Closing defined benefit obligation	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 $ 1,484,303 7,494 25,932 (32,935) (18,058) $ 1,466,736	2014 $ 1,466,736 6,450 32,944 76,340 (5,764) $ 1,576,706

Movements in the fair value of the plan assets were as follows:

Opening fair value of plan assets Expected return on plan assets Contributions from the employer Benefits paid Closing fair value of plan assets	For the Year Ended	For the Year Ended	December 31
		2013 $ 773,709 9,944 31,643 (18,058) $ 797,238	2014 $ 797,238 16,424 31,830 (5,764) $ 839,728

The major categories of plan assets at the end of the reporting period for each category were disclosed based on the information announced by Bureau of Labor Funds, Ministry of Labor:

Deposits in financial institution Investment in stock and beneficiary certificate Short-term commercial papers Government bond and fixed income investment		December	31
		2013 22.86 45.56 4.10 27.48 100.00	2014 19.12 52.52 1.98 26.38 100.00

• 42 -

The Company chose to disclose the history of experience adjustments as the amounts determined for each accounting period prospectively from the date of transition to IFRSs (January 1, 2012):

Present value of the defined benefit obligation Fair value of plan assets Deficit Experience adjustments on plan liabilities	January 1, 2012 December 31, 2012 December 31, 2013 December 31, 2014 $ 1,341,327 $ 1,484,303 $ 1,466,736 $ 1,576,706 $ 760,237 $ 773,709 $ 797,238 $ 839,728 $ 581,090 $ 710,594 $ 699,498 $ 736,978 $ - $ 94,966 $ 81,398 $ 76,340

The Company expects to make contributions of NT$32,785 thousand to the defined benefit plans during the annual period beginning after 2014.

The Company maintains a separate executive pension plan and the net periodic pension costs were NT$117,744 thousand and NT$121,471 thousand for the years ended December 31, 2013 and 2014, respectively.

The present value of the defined benefit obligation of executive pension plan was carried out by qualified actuaries. The Company has not contributed plan assets yet. The principal assumptions of the actuarial valuation were as follows:

the actuarial valuation were as follows:
Discount rate Expected return on plan assets Expected rate of salary increase	December 31
	2013 2014 0.63%-1.13% 2.25% - - - -

The assessment of the overall expected rate of return was based on historical return trends and analysts’ predictions of the market for the asset over the life of the related obligation, by reference to the aforementioned use of the plan assets and the impact of the related minimum return.

Amounts recognized in profit or loss in respect of these defined benefit plans were as follows:

Current service cost An analysis by function Administration expenses	For the Year Ended	For the Year Ended	December 31
		2013 $ 117,744 $ 117,744	2014 $ 121,471 $ 121,471

The amount included in the parent company only balance sheet arising from the Company’s obligation in respect of its defined benefit plans was as follows:

Present value of funded defined benefit obligation		December 31	December 31
		2013 $ 258,400	2014 $ 379,871

• 43 -

Movements in the present value of the defined benefit obligation were as follows:

Opening defined benefit obligation Current service cost Closing defined benefit obligation	For the Year Ended	For the Year Ended	December 31
		2013 $ 140,656 117,744 $ 258,400	2014 $ 258,400 121,471 $ 379,871

22. EQUITY

• a. Share capital

1) Ordinary shares

Ordinary shares
Number of shares authorized (in thousand) Share authorized Number of shares issued and fully paid (in thousand) Share issued		December 31
		2013 6,550,000 $ 65,500,000 3,521,473 $ 35,214,730	2014 6,550,000 $ 65,500,000 3,558,774 $ 35,587,740

Fully paid ordinary shares, which have a par value of $10, carry one vote per share and carry a right to dividends.

864,704 thousand shares and 650,000 thousand shares of the Company’s authorized shares were reserved for the issuance of convertible bonds and employee share options.

2) Global depositary receipts

On August 28, 2014, the Company’s board of directors resolved to issue GDRs. The Company will issue from 480,000 thousand to 600,000 thousand ordinary shares. On September 30, 2014, the above transaction was approved under Rule No.1030037906 issued by the FSC. On March 16, 2015, the board of directors resolved to cancel the issuance of GDRs.

• b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Arising from employee share options Arising from donations May be used only to offset a deficit (2) Arising from changes in percentage of ownership interest in subsidiaries		**December 31 **	**December 31 **
		2013 $ 317,204 37 $ 317,241 $ 423	2014 $ 317,204 37 $ 317,241 $ 661 (Continued)

• 44 -

May not be used for any purpose Arising from treasury share transactions Arising from employee restricted shares		**December 31 **	**December 31 **
		2013 $ 26,502 - $ 26,502	2014 $ 26,502 (102,752) $ (76,250) (Concluded)

• 1) Such capital surplus may be used to offset a deficit; in addition, when the Company has no deficit, such capital surplus may be distributed as cash dividends or transferred to share capital (limited to a certain percentage of the Company’s paid-in capital and once a year).

• 2) Such capital surplus arises from changes in capital surplus of subsidiaries accounted for by using equity method.

• c. Retained earnings and dividend policy

The Company’s Articles of Incorporation provide that any profit after annual closing should be used first to cover income tax and accumulated deficit. Then appropriate for legal reserve 10% of the remaining amount (until the amount of the legal reserve equals the amount of the Company’s paid-in capital) and appropriate for (or reverse) special reserve in accordance with law. Appropriation for remuneration to directors and supervisors should be made at 2% of the remaining amount. Any remaining amount will be added to the undistributed earnings from previous years and distributed in the following manner: (a) shareholders’ dividends - 85%; (b) employees’ bonus - 15%. Employees’ bonus will be distributed in the same form as the distribution of dividends to shareholders on a proportionate basis.

The above bonuses including shareholders and employees’ bonus can retain as undistributed earnings, and distribute in future, as determined by the shareholders at Annual General Meeting.

Distributions, except for the remuneration to directors and supervisors, may be made in the form of cash dividend or stock dividend, as determined by the shareholders at an Annual General Meeting. Both the shareholders’ bonus and employees’ bonus take the form of cash dividend as the first choice. Nevertheless, it still depends on the Company’s financial, sales or operating condition. The Company’s Articles of Incorporation provide that no more than 50% of the current year’s total amount of distributable earnings can be distributed in the form of stock dividend.

Due to the net loss for the years ended December 31, 2013 and 2014, there were no accrual for bonus to employees and remuneration to directors and supervisors.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s paid-in capital. Legal reserve may be used to offset deficit. If the Company has no deficit and the legal reserve has exceeded 25% of the Company’s paid-in capital, the excess may be transferred to capital or distributed in cash.

• 45 -

Except for non-ROC resident shareholders, all shareholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

In their meeting on June 19, 2013, the Company’s shareholders resolved the proposal of the Board of Directors to use legal reserve to offset accumulated deficit in the amount of NT$2,695,275 thousand.

Information about the appropriations of earnings is available on the Market Observation Post System website of the Taiwan Stock Exchange.

• d. Other equity items

• 1) Exchange differences on translating foreign operations

Balance at January 1 Exchange differences arising on translating the financial statements of foreign operations Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2013 $(102,785) 53,644 $ (49,141)	2014 $ (49,141) 76,364 $ 27,223

• 2) Unrealized gain on available-for-sale financial assets

Balance at January 1 Unrealized gain arising on revaluation of available-for-sale financial assets Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2013 $ 448,981 57,945 $ 506,926	2014 $ 506,926 410,511 $ 917,437

• 3) Unearned employee benefit

In the meeting of shareholders on June 18, 2014, the shareholders approved a restricted share plan for employees. Refer to Note 27 for the information of restricted shares issued.

Balance at January 1 Issuance of shares Share-based payment expenses recognized Balance at December 31	For the Year Ended	For the Year Ended	December 31
		2013 $ - - - $ -	2014 $ - (270,258) 60,445 $ (209,813)

• 46 -

e. Treasury shares

Treasury shares
	Number of
	Shares,		Number of
	Beginning of	Increase During	Shares,
	Year	The Year	End of Year
Purpose of Buy-back	(In Thousands)	(In Thousands)	(In Thousands)
Year ended December 31, 2013
The Company’s shares held by its
subsidiaries	3,899	-	3,899
Year ended December 31, 2014
The Company’s shares held by its
subsidiaries	3,899	-	3,899

The Company’s shares held by its subsidiaries at the end of the reporting periods were as follows:

		Number of
		Shares Held	Carrying
	Name of Subsidiary	(In Thousands)	Amount	Market Price
December	31, 2013
Hui Ying		3,899	$ 159,061	$	26,165
December	31, 2014
Hui Ying		3,899	$ 159,061	$	27,023

The Company’s shares held by subsidiaries are regarded as treasury shares; shareholders’ rights are retained, except the rights to participate in any share issuance for cash and to vote.

23. REVENUE

REVENUE
Revenue from the sale of goods Royalty revenue and others	For the Year Ended December 31
		2013 $ 21,857,389 13,210 $ 21,870,599	2014 $ 22,035,670 18,720 $ 22,054,390

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24. NET LOSS AND OTHER COMPREHENSIVE INCOME (LOSS) FROM CONTINUING OPERATIONS

• a. Other income

Interest income Dividends Others Other gains and losses Net foreign exchange gains Net gains arising on financial assets designated as at FVTPL Gains on disposal of subsidiaries Other losses	For the Year Ended	For the Year Ended	December 31
	2013 $ 109,274 57,415 43,070 $ 209,759 For the Year Ended		2014 $ 46,696 68,153 39,886 $ 154,735 December 31
		2013 $ 111,161 18,522 - (944) $ 128,739	2014 $ 71,242 18,391 29,775 (347) $ 119,061

• b. Other gains and losses

c. Finance costs

Interest on loans Others Less: Amounts included in the cost of qualifying assets Information about capitalized interest was as follows: Capitalized interest Capitalization rate d. Impairment losses on financial assets Trade receivables Other non-current financial assets	For the Year Ended	For the Year Ended	December 31
	2013 $ 341,829 15 6,948 $ 334,896 **For the Year Ended **		2014 $ 305,026 16 23,654 $ 281,388 December 31
	2013 2014 $ 6,948 $ 23,654 1.12% 1.72%-1.90% For the Year Ended December 31
		2013 $ - 2,151 $ 2,151	2014 $ 271 - $ 271

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The above impairment loss of financial assets was included in bad debt expense under operating expenses.

e. Depreciation and amortization

Property, plant and equipment Intangible assets An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Selling and marketing expenses General and administration expenses Research and development expenses f. Employee benefits expense Post-employment benefits Defined contribution plans Defined benefit plans Share-based payments Equity-settled share-based payments Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses g. Gain or loss on foreign currency exchange Foreign exchange gains Foreign exchange losses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
	2013 2014 $ 7,464,994 $ 7,269,748 181,605 208,828 $ 7,646,599 $ 7,478,576 $ 6,302,715 $ 6,212,909 1,162,279 1,056,839 $ 7,464,994 $ 7,269,748 $ 120,787 $ 151,700 85 79 57,350 54,483 3,383 2,566 $ 181,605 $ 208,828 For the Year Ended December 31
	2013 2014 $ 193,338 $ 193,569 138,661 150,015 331,999 343,584 - 60,455 5,108,974 4,911,122 $ 5,440,973 $ 5,315,151 $ 2,879,811 $ 2,803,214 2,561,162 2,511,937 $ 5,440,973 $ 5,315,151 For the Year Ended December 31
		2013 $ 1,647,377 (1,536,216) $ 111,161	2014 $ 508,565 (437,323) $ 71,242

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25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Income tax recognized in profit or loss

The major components of tax expense (income) were as follows:

Current tax In respect of the current year In respect of prior years Deferred tax In respect of the current year Income tax benefit recognized in profit or loss	For	the Year Ended December 31	the Year Ended December 31
		2013 $ - (125) - $ (125)	2014 $ - 125 - $ 125

A reconciliation of accounting loss and current income tax expenses (income) is as follows:

Income tax expense calculated at the statutory rate Nondeductible expenses in determining taxable income Unrecognized temporary differences Unrecognized loss carryforwards Adjustments for prior years’ tax Income tax expense recognized in profit or loss	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 $ (1,071,981) 87,118 (152,111) 1,136,974 (125) $ (125)	2014 $ (1,098,384) (37,832) (11,154) 1,147,370 125 $ 125

The applicable tax rate used above is the corporate tax rate of 17% payable by the Company in ROC.

• b. Current tax assets and liabilities

Current tax assets and liabilities
Current tax assets Tax refund receivable Current tax liabilities Income tax payables		December 31
		2013 $ 11,426 $ 352,048	2014 $ 16,027 $ 295,537

c. Deferred tax assets and liabilities

The Company offset certain deferred tax assets and deferred tax liabilities which met the offset criteria.

For the year ended December 31, 2013

Deferred Tax Assets Tax losses	Opening Balance Recognized in Profit or Loss Closing Balance $ 905,612 $ - $ 905,612

• 50 -

For the year ended December 31, 2014

	For the year ended December 31, 2014
		Opening	Recognized in
	Deferred Tax Assets	Balance	Profit or Loss		Closing Balance
	Tax losses	$ 905,612		$ -		$	905,612
d.	Deductible temporary differences, unused loss carryforwards and		unused investment		credits for which
	no deferred tax assets have been recognized in	the parent company	only balance sheets
				December		31
				2013			2014
	Loss carryforwards
	Expire in 2023		$	6,688,082	$		4,706,885
	Expire in 2024			-			6,681,084
			$	6,688,082	$	11,387,969
	Investment credits
	Purchase of machinery and equipment		$	7,349	$		-
	Investment credits for stockholder			127,554			123,832
			$	134,903	$		123,832
	Deductible temporary differences		$	11,701,371	$	11,636,559
	The unrecognized investment credits will expire in 2016.
e.	Information about unused investment credits, unused loss carry-forward and tax - exemption
	As of December 31, 2014, the investment tax credits comprised of:

Law and Statutes Tax Credit Source Statute for Upgrading Industries Investment credits for stockholder Loss carryforwards as of December 31, 2014 comprised of: Unused Amount $ 580,571 1,125,212 1,135,784 $ 2,841,567	Remaining Creditable Amount Expiry Year $ 123,832 2016 Expiry Year 2022 2023 2024

• 51 -

f. Integrated income tax

Accumulated deficit Generated before January 1, 1998 Generated on and after January 1, 1998 Balance of the Imputation Credits Account		December 31	December 31
		2013 $ - (7,178,843) $ (7,178,843) $ 220,368	2014 $ - (13,640,051) $ (13,640,051) $ 289,482

No tax creditable ratios were calculated for accumulated deficit of 2013 and 2014.

g. Income tax assessments

The Company’s tax returns through 2012 have been assessed by the tax authorities except 2010. The Company disagreed with the tax authorities’ assessment of its 2012 tax returns and had applied for re-examination. The Company was also not satisfied with the results of the review of the 2009 tax returns and had applied for appeal. Nevertheless, the Company has provided for the income tax assessed by the tax authorities.

26. LOSS PER SHARE

Unit: NT$ Per Share

LOSS PER SHARE		Unit: NT$ Per Share	Unit: NT$ Per Share
Basic and diluted loss per share	For	the Year Ended December 31
		2013 $ (1.79)	2014 $ (1.84)

The amount of loss and weighted average number of ordinary shares outstanding used in the computation of loss per share from continuing operations were as follows:

Net loss for the year

Net loss for the year
Loss for the year used in the computation of earnings per share	For the Year Ended December 31
		2013 $ (6,305,647)	2014 $ (6,461,208)

Weighted average number of ordinary shares outstanding (in thousand shares):

Weighted average number of ordinary shares in computation of basic and diluted loss per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 3,517,563	2014 3,517,574

As disclosed in Note 27 to the financial statements, the Company conforms according to IAS 33 “Earnings per Share”, in determining whether the share-based payments are potential ordinary stocks. The aforementioned stock options were not included in the calculation of diluted loss per share because they were antidilutive for the years ended December 31, 2013 and 2014.

• 52 -

27. SHARE-BASED PAYMENT ARRANGEMENTS

• a. Employee share option plan

The Company

The Company has one employee stock option plan (“2007 Plan”) approved by the ROC Securities and Futures Bureau (SFB) to grant options up to 120,000 thousand units. Each stock option may subscribe for one new share of common stock of the Company. The options are valid for six years subsequent to the grant dates and exercisable at certain percentages after the second anniversary from the grant date. The options were granted at the exercise price equal to the higher of closing price of the Company’s common shares listed on the TSE. For any subsequent changes in the Company’s capital surplus, the exercise price is adjusted accordingly.

Information on employee share options was as follows:

Unit: Option Numbers in Thousand and NT$ Per Share

For the years ended December 31, 2013 Balance at January 1 Options exercised Options cancelled Balance at December 31	**2007 Plan **
	Number of Options (In Thousands) Weighted- average Exercise Price (NT$) 42,078 $ 8.80 (11) 8.80 (42,067) - - -

The number and exercise prices of outstanding options had been adjusted to reflect the stock dividends and the cancellation of common stock.

As of December 31, 2013, all outstanding vested share options had expired.

• b. Restricted Stock Plan for employees

In the shareholders’ meeting on June 18, 2014, the shareholders approved a restricted stock plan for employees of 2014, consisting of 123,251 thousand shares and issuance price of NT$ 0 per share, which has also been approved by the board of directors on July 24, 2014. On August 19, 2014, the FSC issued approval No. 1030031466 which approved this plan.

On August 28, 2014, the Company’s board of directors approved a restricted stock plan, consisting of 38,365 thousand shares; the closing price of ordinary shares of NT$7.76 was used as the basis for the fair value of recognized compensation cost. Due to employees’ turnover, 37,301 thousand shares were issued on December 25, 2014.

To meet the vesting conditions, an employee has to meet performance and other conditions over the vesting period, as follows:

• 1) Remain employed by the Company within one year after the grant date; and has a current year’s performance rating of “successful” (or higher) - 40% of restricted shares will be vested;

• 53 -

• 2) Remain employed by the Company within two years after the grant date; and has a current year’s performance rating of “successful” (or higher) - 30% of restricted shares will be vested;

• 3) Remain employed by the Company within three years after grant date; and has a current year’s performance rating of “successful” (or higher) - 30% of restricted shares will be vested.

In addition to the vesting conditions, the limitations are as follows:

• 1) Employees, except for inheritance, should not sell, transfer, pledge, donate or in any other way dispose of the shares.

• 2) The shares should be held in stock trust.

• 3) Except for the above two paragraphs, other rights of restricted stock plan for employees, including but not limited to: dividends, bonuses, the distribution rights of legal reserve and capital surplus, share options of cash capital and voting rights of shareholders, etc. are the same as the Company’s issued ordinary shares.

• 4) The dividends of restricted stock plan for employees are not restricted by existing conditions.

When employees do not reach the vesting conditions of restricted stock plan for employees during the year, the Company will recover and cancel the shares.

For the ended December 31, 2014, the compensation cost recognized was NT$60,445 thousand.

28. DISPOSAL OF SUBSIDIARIES

On April 23, 2014, the Group did not participate in MoDioTek’s capital increase, thus, on that date, control of MPI passed to the acquirer. Since the Company has lost control over MoDioTek, it was no longer consolidated. MoDioTek was required to be recognized on the same basis as if it had been disposed of. On August 28, 2014, the Group entered into a sale agreement to dispose of MPI. On September 10, 2014, the disposal was completed; the date when control of MPI passed to the acquirer. The related information on the disposal of MoDioTek and MPI was disclosed in the consolidated financial statements Note 30.

29. OPERATING LEASE ARRANGEMENTS

• a. The Company as lessee

Operating leases relate to leases of land with lease terms between 5 and 20 years. The Company does not have a bargain purchase option to acquire the leased land.

The future minimum lease payments for non-cancellable operating lease commitments were as follows:

Not later than 1 year Later than 1 year and not later than 5 years Later than 5 years		December 31	December 31
		2013 $ 76,369 118,068 241,189 $ 435,626	2014 $ 51,316 87,964 217,055 $ 356,335

• 54 -

The lease payments recognized as expenses were as follows:

The lease payments recognized as expenses were as follows:
Minimum lease payment	For the Year Ended December 31
		2013 $ 76,651	2014 $ 76,304

30. CAPITAL MANAGEMENT

The Company manages its capital to ensure that the Company will be able to operate under the premises of going concern and growth while maximizing the return to shareholders through the optimization of the debt and equity balance.

The Company’s strategy for managing the capital structure is to lay out the plan of product development and expand the market share considering the growth and the magnitude of industry and further developing an integral plan founded on the required capacity, capital outlay, and magnitude of assets in long-term development. Ultimately, considering the risk factors such as the fluctuation of the industry cycle and the life cycle of products, the Company determines the optimal capital structure by estimating the profitability of products, operating profit ratio, and cash flow based on the competitiveness of products. The management of the Company periodically examines the capital structure and contemplates on the potential costs and risks involved while exerting different financial tools. In general, the Company implements prudent strategy of risk management.

31. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments

• 1) Fair value of financial instruments not carried at fair value

The management considers that the carrying amounts of financial assets and financial liabilities recognized in the parent company only financial statements approximate their fair values or their fair values cannot be reliably measured.

• 2) Fair value measurements recognized in the parent company only balance sheets

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

• a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities (no adjustment);

• b) Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

• c) Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

• 55 -

December 31, 2013

Financial assets at FVTPL Derivative financial assets Available-for-sale financial assets Securities listed in ROC December 31, 2014 Financial assets at FVTPL Derivative financial assets Available-for-sale financial assets Securities listed in ROC Financial liabilities at FVTPL Derivative financial liabilities	Level 1 $ - $ 764,239 Level 1 $ - $ 919,853 $ -	Level 2 $ 1,358 $ - Level 2 $ 95 $ - $ 7,113	Level 3 $ - $ - Level 3 $ - $ - $ -	Total $ 1,358 $ 764,239 Total $ 95 $ 919,853 $ 7,113

There were no transfers between Level 1 and Level 2 in the current and prior years.

• 3) Valuation techniques and assumptions applied for the purpose of measuring fair value

The fair values of financial assets and financial liabilities were determined as follows:

• a) The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices;

• b) The fair values of derivative instruments were calculated using quoted prices. If quoted price for derivative instruments isn’t available, calculation of fair value is by option derivative instruments pricing model. Where such prices were not available, a discounted cash flow analysis was performed using the applicable yield curve for the duration of the instruments for non-optional derivatives. The estimates and assumptions used by the Company were consistent with those that market participants would use in setting a price for the financial instrument. Foreign currency forward contracts are measured using quoted forward exchange rates and yield curve derived from quoted interest rates matching maturities of the contracts.

• 56 -

b. Categories of financial instruments

Categories of financial instruments
Financial assets Fair value through profit or loss (FVTPL) Held for trading Loans and receivables (i) Available-for-sale financial assets (ii) Financial liabilities Fair value through profit or loss (FVTPL) held for trading Amortized cost (iii)	December 31
	2013 2014 $ 1,358 $ 95 13,613,691 9,839,935 846,937 999,071 - 7,113 23,890,536 20,597,121

• i) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes receivable and trade receivables (including receivables from related parties), other receivables, and other financial assets.

• ii) The balances included the carrying amount of available-for-sale financial assets measured at cost.

• iii) The balances included financial liabilities measured at amortized cost, which comprise short-term loans, notes payable and trade payables (including payables to related parties), other payables, payable for purchase of equipment, and long-term loans (including current portion).

• c. Financial risk management objectives and policies

The Company manages its exposure to risks relating to the operations through market risk, credit risk, and liquidity risk with the objective to reduce the potentially adverse effects the market uncertainties may have on its financial performance.

The plans for material treasury activities are reviewed by management in accordance with procedures required by relevant regulations or internal controls. During the implementation of such plans, the Company must comply with certain treasury procedures that provide guiding principles for overall financial risk management.

1) Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below), interest rates (see (b) below), and other price risk (see (c) below).

a) Foreign currency risk

The Company had foreign currency sales and purchases, which exposed to foreign currency risk. Exchange rate exposures were managed within approved policy parameters utilizing forward foreign exchange contracts.

Sensitivity analysis

The Company was mainly exposed to the USD and JPY.

Sensitivity analysis of rate is for the transactions in currencies other than the entity’s functional currency (foreign currencies) which are recognized at the rates of exchange prevailing at the dates of the transactions.

• 57 -

The following table details the Company’s sensitivity to a 3% and 10% increase in New Taiwan dollars (the functional currency) against the relevant foreign currencies, respectively. The sensitivity rates used are 3% and 10% when reporting foreign currency risk internally to key management personnel.

management personnel.
Pre-tax loss		Currency USD Impact For the Year Ended December 31 2013 2014 $ 29,107 $ 18,987		Currency JPY Impact
				For the Year Ended December 31
		2013 $ 29,107		2013 $ 57,919	2014 $ 32,978

b) Interest rate risk

The Company was exposed to interest rate risk because the Company borrowed funds at both fixed and floating interest rates. The risk is managed by the Company by maintaining an appropriate mix of fixed and floating rate borrowings.

The carrying amounts of the Company's financial assets and financial liabilities with exposure to interest rates at the end of the reporting period were as follows:

Fair value interest rate risk Financial assets Financial liabilities Cash flow interest rate risk Financial assets Financial liabilities Sensitive analysis	**December 31 **
	2013 2014 $ 8,374,264 $ 3,914,201 566,577 1,599,000 1,821,861 2,540,077 18,599,897 14,751,975

Sensitivity analysis of interest is calculated based on the financial liabilities exposed to cash flow interest rate risk at the end of each reporting period.

If interest rates had been 50 basis points higher/lower, the Company’s pre-tax loss for the years ended December 31, 2013 and 2014 would increase/decrease by NT$92,999 thousand and NT$73,760 thousand, respectively.

c) Other price risk

The Company was exposed to equity price risk through its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Company does not actively trade these investments.

Sensitive analysis

Sensitivity analysis of equity price is calculated based on the fair values of available-for-sale investments at the end of each reporting period.

If equity prices had been 10% higher/lower, equity for the years ended December 31, 2013 and 2014 would have increased/decreased by NT$76,424 thousand and NT$91,985 thousand, respectively, as a result of the changes in fair value of available-for-sale investments.

• 58 -

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. The Company’s exposure to credit risk mainly arises from trade receivables - operating, bank deposits, and other financial instruments. Credit risk is managed separately for business related and financial related exposures.

Business related credit risk

In order to maintain the credit quality of trade receivables, the Company has established procedures to monitor and limit exposure to credit risk on trade receivables.

Credit evaluation is performed in the consideration of the relevant factors which may affects the customer’s paying ability such as financial condition, external and internal credit scoring, historical experience, and economic conditions. The Company holds some of the credit enhancements such as prepayments and collateral to mitigate its credit risks.

Trade receivables consisted of a large number of customers, spread across diverse industries and geographical areas. Ongoing credit evaluation is performed on the financial condition of trade receivables and, where appropriate, credit guarantee insurance cover is purchased.

As of December 31, 2013 and 2014, the Company’s ten largest customers accounted for 59% and 56% of total trade receivables (including receivables from related parties), respectively. The Company believed the concentration of credit risk was relatively insignificant for the remaining trade receivables.

Financial credit risk

The Company’s exposure to financial credit risk which pertained to bank deposits and other financial instruments were evaluated and monitored by Corporate Treasury function. The Company only deals with creditworthy counterparties and banks so that no significant credit risk was identified.

• 3) Liquidity risk

The objective of liquidity risk management is to ensure the Company has sufficient liquidity to fund its business requirements of cash and cash equivalents and the unused of financing facilities associated with existing operations.

The Company relies on bank borrowings as a significant source of liquidity. As of December 31, 2013 and 2014, the Company had available unutilized short-term bank loan facilities are NT$4,655,742 thousand and NT$3,922,524 thousand, respectively.

a) Liquidity and interest rate risk tables for non-derivative financial liabilities

The following table details the Company’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods. The tables had been drawn up based on the undiscounted cash flows of financial liabilities from the earliest date on which the Company can be required to pay. The tables included both interest and principal cash flows.

Specifically, bank loans with a repayment on demand clause were included in the earliest time band regardless of the probability of the banks choosing to exercise their rights. The maturity dates for other non-derivative financial liabilities were based on the agreed repayment dates.

• 59 -

To the extent that interest flows are floating rate, the undiscounted amount was derived from the expected borrowing interest rate at the end of the reporting period.

December 31, 2013

On Demand or Less than 1 Year Non-derivative financial liabilities Non-interest bearing $ 4,740,320 Variable interest rate liabilities 7,948,820 Fixed interest rate liabilities 568,829 $ 13,257,969 December 31, 2014 On Demand or Less than 1 Year Non-derivative financial liabilities Non-interest bearing $ 4,246,146 Variable interest rate liabilities 12,929,684 Fixed interest rate liabilities 1,603,482 $ 18,779,312	1-3 Years $ - 10,406,574 - $ 10,406,574 1-3 Years $ - 1,704,910 - $ 1,704,910	3-5 Years $ - 747,032 - $ 747,032 3-5 Years $ - 443,796 - $ 443,796	5+ Years $ - - - $ - 5+ Years $ - - - $ -	Total $ 4,740,320 19,102,426 568,829
				$ 24,411,575
				Total $ 4,246,146 15,078,390 1,603,482
				$ 20,928,018

The amounts included above for variable interest rate instruments for both non-derivative financial assets and liabilities was subject to change if changes in variable interest rates differ from those estimates of interest rates determined at the end of the reporting period.

• b) Liquidity and interest risk rate tables for derivative financial liabilities

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest rates as illustrated by the yield curves at the end of the reporting period.

December 31, 2013

On Demand or Less than 3 Months to 1 Month 1-3 Months 1 Year 1-5 Years 5+ Years Gross settled Foreign exchange forward contracts Inflows $ 179,924 $ - $ - $ - $ - Outflows 178,566 - - - -

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December 31, 2014

December 31, 2014
	On Demand or
		Less than			3	Months to
		1 Month	1-3	Months		1 Year		1-5 Years			5+ Years
Gross settled
Foreign exchange forward
contracts
Inflows	$	562,947	$	-	$	-	$		-	$		-
Outflows		569,965		-		-			-			-

32. TRANSACTIONS WITH RELATED PARTIES

In addition to those disclosed in other notes, detail of transactions between the Company and related parties are disclosed below.

• a. Operating revenues

Listed Account Related Parties Categories Sales Key management personnel Subsidiaries Others Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 $ 6,192,256 3,199,021 2,629 - $ 9,393,906	2014 $ 5,322,675 3,067,556 2,321 709 $ 8,393,261

Sale prices to foreign related parties were negotiated based on those charged to ultimate customers and were not comparable to those with external customers as foreign related parties were the primary regional distributors. Sales to domestic related parties were priced at a markup on the unit cost of the product, which was not comparable to those with other customers.

Sales prices to related parties were not comparable to those with external customers as the Company sold the specific purpose product. The sales terms to the related parties were between 30 to 60 days after monthly closing, similar to those with external customers.

• b. Purchases

Related Parties Categories Key management personnel	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2013 $ 1,112,719	2014 $ 187,672

Materials purchased from related parties were used in the manufacturing process. The payment term was 30 days after monthly closing, similar to those with external vendors.

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• c. Trade receivables from related parties:

Listed Account Related Parties Categories Receivables from Related Key management personnel parties, net Subsidiaries Associates Others The Company is its major management authority Other receivables Subsidiaries Associates The Company is its major management authority		December 31	December 31
		2013 $ 457,903 413,996 - 343 56 $ 872,298 $ 364 - - $ 364	2014 $ 482,213 415,801 547 182 - $ 898,743 $ 2,412 185 32 $ 2,629

The outstanding trade receivables from related parties are unsecured. No expense was recognized for the years ended December 31, 2013 and 2014 for allowance for impaired trade receivables with respect to the amounts owed by related parties.

• d. Trade payables to related parties:

Listed Account Related Parties Categories Payables to related parties Subsidiaries The Company is its major management authority Key management personnel		December 31	December 31
		2013 $ 96,343 90,570 14 $ 186,927	2014 $ 136,672 62,957 - $ 199,629

The outstanding trade payables from related parties are unsecured and paid by cash.

• e. Other transactions with related parties

Listed Account Related Parties Categories Manufacturing expense The Company is its major management authority Operating expense Subsidiaries Others Key management personnel The Company is its major management authority	For the Year Ended	For the Year Ended	December 31
		2013 $ 441,416 $ 398,206 25,000 4,442 1,156 $ 428,804	2014 $ 275,775 $ 410,293 24,000 2,011 321 $ 436,625

(Continued)

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Listed Account Related Parties Categories Software and pattern revenue Subsidiaries The Company is its major management authority Associates Rental revenue Subsidiaries Associates	**For the Year Ended **	**For the Year Ended **	December 31
		2013 $ 2,055 732 - $ 2,787 $ 22,890 - $ 22,890	2014 $ 1,128 189 1,098 $ 2,415 $ 17,500 3,792 $ 21,292 (Concluded)

The subcontract processing charges of related parties were comparable to those with other vendors. The payment term was 30 to 75 days after monthly closing.

The Company leases offices to its subsidiaries (rentals are classified under other gains and losses). The amount of lease payment was based on the office space leased by each related party and was collected on a monthly basis.

Under certain contracts, the Company authorized the above related parties to use the Company’s pattern and software. The specifically negotiated terms were not comparable to those with external customers.

• f. Other assets disposed

Related Parties Listed Account Categories Gain on disposal of investment Key management personnel Associates		Price 2013 2014 $ - $ - - 30,558 $ - $ 30,588		**Gainon disposal **	**Gainon disposal **
		2013 $ - - $ -		2013 $ - - $ -	2014 $ 12,986 16,789 $ 29,775

Gain on disposal of investment was included in other gains and losses, please see note 28.

• g. Compensation of key management personnel

The remuneration of key management personnel for the years ended December 31, 2014 and 2013 was as follows:

Short-term benefits Post-employment benefits	For the Year Ended	For the Year Ended	December 31
		2013 $ 91,879 117,744 $ 209,623	2014 $ 75,680 121,471 $ 197,151

The remuneration of key executives was determined by the remuneration committee having regard to the performance of individuals and market trends.

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33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings, the tariff of imported raw materials guarantees, natural gas agreement or land lease agreement:

guarantees, natural gas agreement or land lease agreement:
Property, plant and equipment, net Pledge deposits (classified as other financial assets - non-current)		December 31
		2013 $ 17,425,003 164,177 $ 17,589,180	2014 $ 14,573,603 164,177 $ 14,737,780

34. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Company as of December 31, 2014 were as follows:

• a. As of December 31, 2013 and 2014, unused letters of credit amounted to approximately NT$0 thousand and NT$6,647, respectively.

• b. Unrecognized commitments are as follows:

Unrecognized commitments are as follows:
Acquisition of property, plant and equipment		December 31
		2013 $ 1,201,949	2014 $ 639,834

• c. The Company entered into the Phase-change memory technology agreement with IBM Company in January 2010, and the term of the agreement is from January 2010 to January 2013. Under the agreement, both parties have to share in the related expenditures of the technology development, and the Company, has completed the payment in January, 2013. The Company entered into another Phase-change memory technology agreement with IBM Company in January 2013. The term of the agreement is from January 2013 to January 2016. As of December 31, 2014, the Company has paid US$6,300 thousand, and unrecognized commitment is US$2,100 thousand.

• d. The Company entered into the Patents Cross-License Agreement with J Company in December 2009, and the term of the agreement is from December 2009 to December 2015. Under the agreement, the Company has completed the payment in April 2011.

• e. In August 2013, Spansion Inc. (“Spansion”) filed a lawsuit against the Company in both the U.S. International Trade Commission (“ITC”) and the U.S. District Court in California concurrently, alleging that the Company infringed its patents. In April 2014, Spansion filed a lawsuit against the Company again. The Company hired a U.S. attorney to respond to the charges and contend that the patents asserted against the Company are invalid and the Company did not infringe those patents. In November 2013, the Company filed petitions to the US Patent and Trademark Office (“USPTO”) to counter Spansion’s charges. USPTO’s investigation has been started and will be completed in 2015. Moreover, in October 2013, the Company filed a lawsuit against Spansion in the U.S. District Court for the Eastern District of Virginia; however, for the convenience of the litigants, the case was transferred to the District Court in Northern District of California. To protect its interests, the Company filed separate lawsuits in the ITC in December 2013 and June 2014, alleging that Spansion and its affiliated companies and customers infringed its patents. In addition, the Company also filed separate lawsuits in the Germany District Court of Mannheim and the Germany District Court of Munich in July 7, 2014 and September 12, 2014, respectively, alleging that Spansion and its affiliated companies and customers infringed its patents. The global patent litigation and disputes were settled in January, 2015.

• 64 -

• f. Creative Integrated System, Inc. (“CIS”) filed a lawsuit against the Company and one of its subsidiaries Macronix America Inc. (MXA) with the U.S. District Court in Central District California, alleging that the Company and MXA infringed its patents. The Company compromised with CIS and this lawsuit was settled in March 2014.

35. EXCHANGE RATE OF FINANCIAL ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The significant financial assets and liabilities denominated in foreign currencies were as follows:

December 31, 2013

Foreign Exchange Currencies Rate Financial assets Monetary items JPY $ 4,716,939 0.28 USD 97,754 29.81 Financial liabilities Monetary items JPY 2,648,387 0.28 USD 59,207 29.81 December 31, 2014 Foreign Exchange Currencies Rate Financial assets Monetary items JPY $ 3,208,671 0.26 USD 97,693 31.65 Financial liabilities Monetary items JPY 1,940,274 0.26 USD 59,696 31.65	Carrying Amount $ 1,320,743 2,914,047 $ 4,234,790 $ 741,548 1,764,961 $ 2,506,509 Carrying Amount $ 834,254 3,091,983 $ 3,926,237 $ 504,471 1,889,378 $ 2,393,849

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36. SEPARATELY DISCLOSED ITEMS

• a. Information on significant transactions and (b) information on investees:

• 1) Financing provided to others: None

• 2) Endorsements/guarantees provided: None

• 3) Marketable securities held (excluding investment in subsidiaries, associates and joint controlled entities): Table 1 (attached)

• 4) Marketable securities acquired and disposed at costs or prices at least NT$300 million or 20% of the paid-in capital: None

• 5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in capital: None

• 6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital: None

• 7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 2 (attached)

• 8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in capital: Table 3 (attached)

• 9) Trading in derivative instruments: Please see Note 7

• 10) Information on investees: Table 4 (attached)

• c. Information on investments in mainland China

• 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, shareholding ratio, investment gain or loss, carrying amount of the investment at the end of the period, repatriated investment gains, and limit on the amount of investment in the mainland China area: Table 5 (attached)

• 2) Any of the significant transactions with investee companies in mainland China, either directly or indirectly through a third area, and their prices, payment terms, and unrealized gains or losses: None

• 66 -

TABLE 1

MACRONIX INTERNATIONAL CO., LTD.

MARKETABLE SECURITIES HELD DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Holding Company Name	Type and Name of Marketable Securities	Relationship with the Holding Company	Financial Statement Account		December 31, 2014	December 31, 2014		Note
				Shares/Units (In Thousands)	Carrying Amount	Percentage of Ownership	Fair Value (Note 3)
The Company Macronix (BVI) Co., Ltd. Hui Ying Investment, Ltd.	Stock Ardentec Corporation United Industrial Gases Co., Ltd. Zowie Technology Co., Ltd. Aetas Technology Inc. Honbond Venture Capital Co., Ltd. Stock Chipbond Technology Corporation Key ASIC Bhd Tower Semiconductor Ltd. Global Strategic Investment Fund(Cayman) Global Strategic Investment Fund(Samoa) Stock Macronix International Co., Ltd. Raio Technology Co., Ltd.	The Company serves as member of its board of directors None None None The Company serves as member of its board of directors None None None None None The Company None	Available-for-sale financial assets - non-current Financial assets measured at cost - non-current Financial assets measured at cost - non-current Financial assets measured at cost - non-current Financial assets measured at cost - non-current Available-for-sale financial assets - non-current Available-for-sale financial assets - non-current Available-for-sale financial assets - non-current Financial assets measured at cost - non-current Financial assets measured at cost - non-current Available-for-sale financial assets - non-current Financial assets measured at cost - non-current	35,243,366 6,671,877 20,426 145,850 4,624,425 1,088,319 26,924,500 584,893 490,000 1,739,783 3,899,382 876,968	$ 919,853 58,500 - - 20,717 63,122 13,404 246,763 - 34,182 27,023 -	7.40 3.06 0.18 0.29 15.00 0.17 3.34 1.01 2.52 4.90 0.11 10.57	$ 919,853 140,637 74 - 22,971 63,122 13,404 246,763 9,938 58,488 27,023 20,773	Note 1 Note 2 Note 2 - Note 2 Note 1 Note 1 Note 1 Note 2 Note 2 Note 1 Note 2

Note 1: The market value was based on the closing price as of December 31, 2014.

Note 2: The calculation is based upon the most recent financial statements available to the Company.

Note 3: Active Market is market value; and No Active Market is net value, which calculated by closing rate.

• 67 -

TABLE 2

MACRONIX INTERNATIONAL CO., LTD.

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Specified Otherwise)

Buyer	Related Party	Relationship		Transaction Details	Transaction Details	Transaction Details	Abnormal Transaction	Abnormal Transaction	Notes/Accounts Receivable (Payable)	Notes/Accounts Receivable (Payable)	Note
			Purchase/ Sale	Amount	% to Total	Payment Terms	Unit Price	Payment Term	Ending Balance	% to Total
The Company Macronix (Hong Kong) Co., Ltd. Macronix America Inc.	MegaChips Corporation Macronix (Hong Kong) Co., Ltd. Macronix America Inc. The Company The Company	Its subsidiary, Shun Yin Investment, is represented in MXIC’s board of directors Indirect subsidiary Subsidiary Indirect subsidiary Subsidiary	Sales Sales Sales Purchase Purchase	$ 5,322,675 2,533,256 532,982 US$ 83,913 US$ 17,650	24% 11% 2% 100% 100%	30 days after monthly closing 45 days after monthly closing Net 60 days 45 days after monthly closing Net 60 days	Note 32 Note 32 Note 32 No material difference No material difference	Note 32 Note 32 Note 32 No material difference No material difference	$ 482,213 355,242 59,993 US$ 11,231 US$ 1,896	15% 11% 2% 100% 38%	- - - - -

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TABLE 3

MACRONIX INTERNATIONAL CO., LTD.

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2014

(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Company Name	Related Party	Relationship	Ending Balance	Turnover Rate	Overdue	Overdue	Amounts Received in Subsequent Period	Allowance for Impairment Loss
					Amount	**Action Taken **
The Company	MegaChips Corporation Macronix (Hong Kong) Co., Ltd.	Its subsidiary, Shun Yin Investment, is represented in MXIC’s board of directors Indirect subsidiary	$ 482,213 355,242	11.32 times 7.05 times	$ - -	- -	JPY 1,822,423 thousand US$ 11,231 thousand	$ - -

• 69 -

TABLE 4

MACRONIX INTERNATIONAL CO., LTD.

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investor Company	Investee Company	Location	Main Businesses and Products	Original Investment Amount	Original Investment Amount	Balance	as of December 31, 2014	as of December 31, 2014	Net Income (Loss) of the Investee (Note 3)	Share of Profit (Loss)	Note
				December 31, 2014 (Note 1)	December 31, 2013 (Note 1)	Shares	Percentage of Ownership	Carrying Amount (Note 2)
The Company Macronix (BVI) Co., Ltd. Run Hong Investment, Ltd. Hui Ying Investment, Ltd. Infomax Communication Co., Ltd. Infomax Holding Co., Ltd. Mxtran Inc. Mxtran Holding (Samoa) Co., Ltd.	Macronix America Inc. Macronix (BVI) Co., Ltd. Hui Ying Investment, Ltd. Run Hong Investment, Ltd. Infomax Communication Co., Ltd. Mxtran Inc. MoDioTek Co., Ltd. New Trend Technology Inc. Macronix Europe NV. Macronix Pte Ltd. Macronix (Hong Kong) Co., Ltd. Macronix (Asia) Limited Infomax Communication Co., Ltd. Mxtran Inc. MoDioTek Co., Ltd. MoDioTek Co., Ltd. Infomax Holding Co., Ltd. Infomax Holding Company Limited Mxtran Holding (Samoa) Co., Ltd. Mxtran (H.K.) Holding Co., Limited.	San Jose, California, U.S.A. Tortola, British Virgin Islands Taipei, Taiwan Taipei, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan San Jose, California, U.S.A. Belgium Singapore Hong Kong Cayman Island Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Hsinchu, Taiwan Samoa Hong Kong Samoa Hong Kong	Marketing Investment holding company Investment Investment Baseband chip, analog baseband chip, and power management chip Combi-SIM IC and the related service Mobile audio platform and smart remote controller IC design After-sale service After-sale service Marketing Investment holding company Baseband chip, analog baseband chip, and power management chip Combi-SIM IC and the related service Mobile audio platform and smart remote controller Mobile audio platform and smart remote controller Investment holding company Investment holding company Investment holding company Investment holding company	$ 2,640 7,348,057 500,000 984,432 1,502,711 607,379 59,944 850,637 2,106 3,291 378,427 26,325 27,423 34,271 4,241 4,241 264,448 97,521 27,809 23,880	$ 2,640 7,348,057 500,000 984,432 1,502,711 607,379 430,232 850,637 2,106 3,291 378,427 26,325 27,423 34,271 30,442 30,442 235,494 96,022 27,809 23,880	100,000 223,300,000 - - 150,271,240 60,627,800 5,994,371 25,850,000 999 174,000 89,700,000 800,000 2,742,506 3,393,200 403,245 403,245 8,570,000 23,352,500 920,000 6,152,000	100.00 100.00 100.00 100.00 97.25 89.16 20.61 100.00 100.00 100.00 100.00 100.00 1.77 4.99 1.39 1.39 100.00 100.00 100.00 100.00	$ 217,532 1,577,739 24,238 28,969 629,458 37,596 34,010 306,297 95,071 16,943 504,664 50,383 11,456 2,107 2,294 2,294 12,940 7,721 1,221 909	$ (44,963 ) (182,465 ) 23 (13,930 ) (299,772 ) (108,437 ) (125,680 ) (7,418 ) 6,775 1,027 (91,218 ) 4,355 (299,772 ) (108,437 ) (125,680 ) (125,680 ) (28,186 ) (3,014 ) (6,548 ) (6,546 )	$ (44,963 ) (182,465 ) (702 ) (13,930 ) (291,528 ) (96,682 ) (38,040 ) Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4 Note 4

Note 1: The foreign currency amount was converted into New Taiwan dollars at the historical exchange rate.

Note 2: The foreign currency amount was based on audited financial statements for the same reporting period; the amount was converted into New Taiwan dollars at the exchange rate on December 31, 2014.

Note 3: The foreign currency amount was based on audited financial statements for the same reporting period; the amount was converted into New Taiwan dollars at the average exchange rate for the year ended December 31, 2014.

Note 4: Under relevant regulations, no disclosure of investment gain (loss) is needed.

• 70 -

TABLE 5

MACRONIX INTERNATIONAL CO., LTD.

INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEARS ENDED DECEMBER 31, 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

Investee Company	Main Businesses and Products	Main Businesses and Products	Total Amount of Paid-in Capital (Note 3)	Method of Investment	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2014 (Note 3)	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2014 (Note 3)	Investment Flows	Investment Flows	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2014 (Note 3)	Net Income (Loss) of the Investee	% Ownership for Direct or Indirect Investment (Note 4)	Investment Gain (Loss) (Note 5)	Carrying Amount as of December 31, 2014 (Note 6)	Accumulated Inward Remittance of Investment Income as of December 31, 2014
							Outward (Note 3)	Inward
Macronix Microelectronics (Suzhou) Co., Ltd. Infomax Communication (Suzhou) Co., Ltd. Maxtran Technology Co., Ltd.	Development of integrated circuit system and software Software, rendering and technical service Technical support of Combi-SIM IC		$ 296,160 82,415 23,435	(Note 1) (Note 2) (Note 2)		$ 296,160 82,415 23,435	$ - - -	$ - - -	$ 296,160 82,415 23,435	$ 6,552 (2,228 ) (6,547 )	100.00% 99.02% 94.15%	$ 6,552 (2,206 ) (6,164 )	$ 354,644 6,111 421	$ - - -
Accumulated Investment in Mainland China as of December 31, 2014		Investment Amount Authorized by the Investment Commission, MOEA				Upper Limit on Investment
$ 402,010 (Note 3)		$ 402,010 (Note 3)				$ 13,659,076

Note 1: The Company invested in a company located in Mainland China indirectly through the existing company in the third country.

Note 2: The Company invested in a company located in Mainland China indirectly through the investing company in the third country.

Note 3: The foreign currency amount was converted into New Taiwan dollars at the historical exchange rate.

Note 4: The percentage of ownership is based on the total holding percentage owned by the Company and its subsidiaries.

Note 5: The foreign currency amount was based on audited financial statements for the same reporting period; the amount was converted into New Taiwan dollars at the average exchange rate for the years ended December 31, 2014.

Note 6: The foreign currency amount was based on audited financial statements for the same reporting period; the amount was converted into New Taiwan dollars at the exchange rate on December 31, 2014.

• 71 -