Macronix — Audit Report / Information 2015

Nov 12, 2015

Macronix International Co., Ltd.

Parent Company Only Financial Statements for the Years Ended December 31, 2015 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, 2015 and 2014, and January 1, 2014 and the related parent company only statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 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 Regulations Governing Auditing and Attestation 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, 2015 and 2014, and January 1, 2014 and its financial performance and its cash flows for the years then ended, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

The accompanying schedules of major accounting items of the Company as of and for the year ended December 31, 2015 are presented for the purpose of additional analysis. Such schedules have been subjected to the auditing procedures described in the second paragraph. In our opinion, such schedules are consistent, in all material respects, with the financial statements required to in the first paragraph.

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As disclosed in Note 3 to the financial statements, the Company applied the amendments to the Regulations 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 FSC starting in 2015. As a result of this retrospective application of the regulations and standards, the financial statements as of December 31, 2014 and January 1, 2014 and for the year ended December 31, 2014 have been restated.

March 17, 2016

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

(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, 31 and 33) 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) Other payables to related parties (Notes 31 and 32) 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) Net defined benefit 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) Share Capital Ordinary shares Capital stock to be cancelled Total share capital Capital surplus Retained earnings Accumulated deficit Other equity Treasury shares Total equity TOTAL		December 31, 2015 Amount % $ 4,451,812 12 - - 2,416,374 6 972,977 3 101,087 - 9,289,939 25 162,970 - 17,395,159 46 848,961 2 58,500 - 2,137,338 6 16,014,250 43 69,285 - 905,612 3 141,707 - 20,175,653 54 $ 37,570,812 100 $ 1,540,028 4 717 - 1,721,679 5 27,131 - 1,182,950 3 121,676 - 203,166 1 180,742 1 161,656 - 4,683,784 12 43,628 - 9,867,157 26 7,861,990 21 1,420,235 4 1,353 - 9,283,578 25 19,150,735 51 36,178,489 96 (6,898) - 36,171,591 96 54,936 - (18,304,273) (49) 656,884 2 (159,061) - 18,420,077 49 $ 37,570,812 100	December 31, 2014 (Audited after Restated) Amount % $ 6,290,151 14 95 - 2,324,951 5 898,743 2 154,648 - 9,633,778 22 174,965 - 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 5 62,957 - 1,584,269 4 136,672 - 469,195 1 295,537 1 134,988 - 12,143,430 27 45,997 - 19,007,250 43 2,073,506 5 1,116,508 2 14,521 - 3,204,535 7 22,211,785 50 35,587,740 79 - - 35,587,740 79 241,652 - (13,812,749) (31) 734,847 2 (159,061) - 22,592,429 50 $ 44,804,214 100	January 1, 2014 (Audited after Restated)	January 1, 2014 (Audited after Restated)
					Amount % $ 10,032,019 19 1,358 - 2,403,641 4 872,298 2 133,658 - 9,083,829 17 131,234 - 22,658,037 42 764,239 1 82,698 - 2,926,511 5 26,132,425 49 272,958 1 905,612 2 172,075 - 31,256,518 58 $ 53,914,555 100 $ 566,577 1 - - 1,996,384 4 90,570 - 2,128,022 4 96,357 - 428,987 1 352,048 1 117,876 - 7,648,233 14 48,839 - 13,473,893 25 10,935,406 20 927,538 2 600 - 11,863,544 22 25,337,437 47 35,214,730 65 - - 35,214,730 65 344,166 1 (7,280,502) (14) 457,785 1 (159,061) - 28,577,118 53 $ 53,914,555 100

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 (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 (Note 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 EXPENSE (Notes 4 and 25) NET LOSS FOR THE YEAR		2015 Amount % $ 20,537,429 100 18,431,400 90 2,106,029 10 (5,439) - - - 2,100,590 10 752,506 4 1,353,163 6 4,565,050 22 6,670,719 32 (4,570,129) (22) 1,098,054 5 124,967 1 (301,219) (1) (539,342) (3) 382,460 2 (4,187,669) (20) - - (4,187,669) (20)	2014 (Audited after Restated)	2014 (Audited after Restated)
				Amount % $ 22,054,390 100 19,474,346 88 2,580,044 12 - - 1,893 - 2,581,937 12 851,716 4 1,476,528 7 5,990,483 27 8,318,727 38 (5,736,790) (26) 154,735 1 119,061 - (281,388) (1) (709,304) (3) (716,896) (3) (6,453,686) (29) 125 - (6,453,811) (29) (Continued)

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME (In Thousands of New Taiwan Dollars, Except Loss Per Share)

OTHER COMPREHENSIVE INCOME Items that will not be reclassified subsequently to profit or loss: Remeasurement of defined benefit plans Items that may be reclassified subsequently to profit or loss: Exchange differences on translating foreign operations (Notes 4 and 22) Unrealized (loss) gain on available-for-sale financial assets (Notes 4 and 22) Exchange differences on translating foreign operations of associates accounted for using the equity method (Notes 4 and 22) Unrealized gain on available-for-sale financial assets of associates accounted for using the equity method (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		2015 Amount % $ (299,324) (2) 21,713 - (70,892) - (13) - 24,823 - (323,693) (2) $ (4,511,362) (22) $ (1.19) $ (1.19)	2014 (Audited after Restated)	2014 (Audited after Restated)
				Amount % $ (78,163) - 76,525 - 155,614 1 (161) - 254,897 1 408,712 2 $ (6,045,099) (27) $ (1.83) $ (1.83)

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 YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

BALANCE AT JANUARY 1, 2014 Effect of retrospective application and retrospective restatement Balance at January 1, 2014 as restated 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 Net loss for the year ended December 31, 2015 Other comprehensive income for year ended December 31, 2015, net of income tax Total comprehensive income (loss) for the year ended December 31, 2015 Issue of restricted stock to employees Compensation cost of restricted stock for employees Cancel of restricted stock to employees Change in capital surplus from investments in subsidiaries accounted for using equity method BALANCE AT DECEMBER 31, 2015		Capital Stock Share (Thousands) Share Capital Capital Stock to be Canceled Capital Surplus 3,521,473 $ 35,214,730 $ - $ 344,166 - - - - 3,521,473 35,214,730 - 344,166 - - - - - - - - - - - - 37,301 373,010 - (102,752) - - - - - - - 238 3,558,774 35,587,740 - 241,652 - - - - - - - - - - - - 61,278 612,787 - (216,242) - - - - (2,203) (22,038) (6,898) 28,936 - - - 590 3,617,849 $ 36,178,489 $ (6,898) $ 54,936		Retained Earnings Accumulated Deficit $ (7,178,843) (101,659) (7,280,502) (6,453,811) (78,163) (6,531,974) - - (273) (13,812,749) (4,187,669) (299,324) (4,486,993) - - - (4,531) $ (18,304,273)	Other Equity Exchange Differences on Unrealized Translating Gain (Loss) from Unearned Foreign Operations Available-for-sale Financial Assets Compensation of Employees Treasury Shares $ (49,141) $ 506,926 $ - $ (159,061) - - - - (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) - - - - 21,700 (46,069) - - 21,700 (46,069) - - - - (396,545) - - - 342,951 - - - - - - - - - $ 48,923 $ 871,368 $ (263,407) $ (159,061)	Total Equity $ 28,678,777 (101,659) 28,577,118 (6,453,811) 408,712 (6,045,099) - 60,445 (35) 22,592,429 (4,187,669) (323,693) (4,511,362) - 342,951 - (3,941) $ 18,420,077

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 (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 (Gain) loss on disposal of property, plant and equipment Gain on disposal of subsidiaries Gain on disposal of investments 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 (Increase) decrease in notes receivable and trade receivables (Increase) decrease in receivables from related parties Decrease (increase) in other receivables Decrease (increase) in inventories Decrease (increase) in other current assets (Decrease) increase in financial liability held for trading Decrease in notes payable and trade payables Decrease in payables to related parties Decrease in other payables (Decrease) increase in other payables to related parties Increase in provisions Decrease in other current liabilities Increase in net defined benefit liabilities Cash generated from operations Interest received Dividend received Interest paid Income tax paid Net cash generated from operating activities

2015 2014 (Audited after Restated) $ (4,187,669) $ (6,453,686) 5,679,222 7,269,748 124,419 208,828 - 271 301,219 281,388 (22,075) (46,696) (88,019) (68,153) 342,951 60,445 539,342 709,304 (7,592) 9,468 - (29,775) (7,491) - 5,439 - - (1,893) 60,684 (95,535) 95 1,263 (140,200) 193,906 (79,452) 10,813 52,815 (21,879) 343,839 (549,949) 11,995 (43,285) (6,396) 7,113 (247,708) (43,371) (34,819) (27,613) (406,518) (552,845) (15,095) 41,300 26,191 17,112 (2,260) (2,928) 4,403 110,807 2,247,320 984,158 22,648 47,462 88,019 68,153 (298,774) (283,104) (114,795) (56,511) 1,944,418 760,158

(Continued)

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MACRONIX INTERNATIONAL CO., LTD.

PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS (In Thousands of New Taiwan Dollars)

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 Decrease in refundable deposits Payments for intangible assets Decrease in other financial 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 Repayments of guarantee deposits received 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

2015 2014 (Audited after Restated) $ 28,209 $ 3,481 (89,995) - - 30,558 (1,439,589) (1,637,193) 9,638 6,174 (15,925) (860) 17,019 146 (19,732) (109,842) 29,109 1,233 (1,481,266) (1,706,303) 8,458,175 3,593,320 (9,077,706) (2,053,590) 11,924,309 2,739,172 (13,600,644) (7,092,783) 46 13,921 (13,214) - (2,309,034) (2,799,960) 7,543 4,237 (1,838,339) (3,741,868) 6,290,151 10,032,019 $ 4,451,812 $ 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, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Unless Stated 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 financial statements are presented in the Company’s functional currency, New Taiwan dollars.

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Company’s Board of Directors and authorized for issue on March 17, 2016.

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

• a. Initial application of the amendments to the Regulations 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)

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 Regulations Governing the Preparation of Financial Reports by Securities Issuers starting January 1, 2015.

Except for the following, the initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSs version did not have any material impact on the Company’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 previous standard. Please refer to Note 12 for related disclosures.

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 previous 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 in previous standards, for example, quantitative and qualitative disclosures based on the three-level fair value hierarchy previously required only for financial instruments will be extended by IFRS 13 to cover all assets and liabilities within its scope.

The fair value measurements under IFRS 13 are applied prospectively from January 1, 2015. Refer to Note 31 for related disclosures.

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

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

The Company retrospectively applied the above amendments starting in 2015. Item not expected to be reclassified to profit or loss is remeasurement of the defined benefit plans. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, unrealized gain (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. The application of the above amendments did have any impact on the net profit for the period, other comprehensive income for the period (net of income tax), and total comprehensive income for the period.

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 eliminate the “corridor approach” permitted under previous IAS 19 and accelerates 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. Remeasurement of the defined benefit plans is presented separately as accumulated deficit.

Furthermore, the interest cost and expected return on plan assets used in previous 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, the revised IAS 19 changed the definition of short-term employee benefits as “employee benefits (other than termination benefits) that are expected to be settled wholly within 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 through 36 months after the end of the annual period in which the employee renders service and which was previously classified as short-term employee benefits, is 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. This change did not affect unused annual leave to be presented as a current liability in the balance sheet.

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On initial application of the revised IAS 19, the changes in cumulative employee benefit costs as of December 31, 2013 resulting from the retrospective application are adjusted to net defined benefit liabilities and accumulated deficits; the carrying amounts of inventories are not adjusted. In addition, the Company elected not to present 2014 information about the sensitivity of the defined benefit obligation.

The impact in current year is set out below:

Impact on Assets, Liabilities and Equity Decrease in net defined benefit liabilities Decrease in accumulated deficit Impact on Total Comprehensive Income Decrease in operating costs Decrease in operating expenses Decrease in net loss for the year The impact in the prior year is set out below: Impact on Assets, Liabilities and Equity As Originally Stated December 31, 2014 Net defined benefit liabilities $ 943,810 Accumulated deficit $ (13,640,051) January 1, 2014 Investment accounted for using equity method $ 2,926,238 Net defined benefit liabilities $ 825,606 Accumulated deficit $ (7,178,843) Impact on Total Comprehensive Income As Originally Stated For the year ended December 31, 2014 Operating costs $ 19,478,536 Operating expenses $ 8,321,934 Total effect on net loss for the period $ (6,461,208)	Adjustments Arising from Initial Application $ 172,698 $ (172,698) $ 273 $ 101,932 $ (101,659) Adjustments Arising from Initial Application $ (4,190) $ (3,207) $ 7,397	December 31, 2015 $ 5,679 $ 5,679 For the Year Ended December 31, 2015 $ 3,210 2,469 $ 5,679 Restated $ 1,116,508 $ (13,812,749) $ 2,926,511 $ 927,538 $ (7,280,502) Restated $ 19,474,346 $ 8,318,727 $ (6,453,811) (Continued)

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Impact on Total Comprehensive Income Items that will not be reclassified to profit or loss: Remeasurement of defiant benefit plans Total effect on total comprehensive loss for the period Impact on Loss Per Share For the year ended December 31, 2014 Basic Diluted	As Originally Stated $ - $ (5,974,333) As Originally Stated $ (1.84) $ (1.84)	Adjustments Arising from Initial Application $ (78,163) $ (70,766) Adjustments Arising from Initial Application $ 0.01 $ 0.01	$	Restated (78,163) (6,045,099) (Concluded) Restated $ (1.83) $ (1.83)
			$

• 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. Refer to Note 31 for related disclosure.

• 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” and IAS 34 “Interim Financial Reporting” 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.

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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 Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 IFRSs version in 2015 has material effect on the balance sheet. The Company presented the balance sheet as of January 1, 2014 in accordance with the above amendments to IAS 1 and disclosed 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.

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

On March 10, 2016, the FSC announced the scope of the 2016 version of IFRSs to be endorsed and will take effect from January 1, 2017. The scope includes all IFRSs that were issued by the IASB before January 1, 2016 and have effective dates on or before January 1, 2017, which means the scope excludes those that are not yet effective as of January 1, 2017 such as IFRS 9 “Financial Instruments” and IFRS 15 “Revenue from Contracts with Customers” and those with undetermined effective date. In addition, the FSC announced that the Company should apply IFRS 15 starting January 1, 2018. As of the date the financial statements were authorized for issue, the FSC has not announced the effective dates of other new, amended and revised standards and interpretations.

The Company has not applied the following New IFRSs issued by the IASB but not yet endorsed by the FSC.

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” IFRS 16 “Leases” Amendment to IAS 1 “Disclosure Initiative” Amendment to IAS 7 “Disclosure Initiative” Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses” 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 “Equity Method in Separate Financial Statements”

Effective Date Announced by IASB (Note 1)

July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 3) January 1, 2018 January 1, 2018 To be determined by IASB January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2018 January 1, 2019 January 1, 2016 January 1, 2017 January 1, 2017 January 1, 2016 January 1, 2016 July 1, 2014 January 1, 2016 (Continued)

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New IFRSs 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)
	January 1, 2014 January 1, 2014 January 1, 2014 (Concluded)

• 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: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

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

• 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

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

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

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

• b) For debt instruments, if they are held within a business model whose objective is achieved by both the collecting 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 shall be recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gains and losses. When the debt instruments are derecognized or reclassified, the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss.

Except for above, all other financial assets are measured at fair value through profit or loss. However, the Company may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with

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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 Company 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.

• 2) Amendment to IAS 36 “Recoverable Amount Disclosures for Non-financial Assets”

In issuing IFRS 13 “Fair Value Measurement”, the IASB made consequential amendment 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 amounts 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) 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 Improvements 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 Company or another entity in the same group or the market price of the equity instruments of the Company or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Company 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

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condition because it not only reflects the performance of the Company, but also of other entities outside the Company.

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 Company. 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.

• 5) Annual Improvements 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.

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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:

• a) 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

• b) 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 supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2017.

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

• Identify the contract with the customer;

• Identify the performance obligations in the contract;

• Determine the transaction price;

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

• Recognize revenue when the entity satisfies a performance obligation.

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

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

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

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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 asset. In addition, the amendments clarify that the offsetting disclosures are not explicitly required for all interim periods.

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 financial statements should be prepared for the purpose of disclosing material information. To improve the understandability of its financial statements, the Company 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 Company should consider the understandability and comparability of its financial statements to determine a systematic order in presenting its footnotes.

• 11) Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities: Applying the Consolidation Exception”

The amendments clarified that when the Company (non-investment entity) applies the equity method to an associate or a joint venture that is an investment entity, the Company may retain the fair value measurements that the associate or joint venture used for its subsidiaries.

12) IFRS 16 “Leases”

IFRS 16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.

Under IFRS 16, if the Company is a lessee, it shall recognize right-of-use assets and lease liabilities for all leases on the balance sheets except for low-value and short-term leases. The Company may elect to apply the accounting method similar to the accounting for operating lease under IAS 17 to the low-value and short-term leases. On the statements of comprehensive income, the Company should present the depreciation expense charged on the right-of-use asset separately from interest expense accrued on the lease liability; interest is computed by using effective interest method. On the statements of cash flows, cash payments for the principal portion of the lease liability are classified within financing activities; cash payments for interest portion are classified within operating activities.

The application of IFRS 16 is not expected to have a material impact on the accounting of the Company as lessor.

When IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of the initial application of this Standard recognized at the date of initial application.

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• 13) Amendments to IAS 12 “Recognition of Deferred Tax Assets for Unrealized Losses”

The amendment clarifies that the difference between the carrying amount of the debt instrument measured at fair value and its tax base gives rise to a temporary difference, even though there are unrealized losses on that asset, irrespective of whether the Company expects to recover the carrying amount of the debt instrument by sale or by holding it and collecting contractual cash flows.

In addition, in determining whether to recognize a deferred tax asset, the Company should assess a deductible temporary difference in combination with all of its other deductible temporary differences, unless the tax law restricts the utilization of losses to deduction against income of a specific type, in which case, a deductible temporary difference is assessed in combination only with other deductible temporary differences of the appropriate type. The amendment also stipulates that, when determining whether to recognize a deferred tax asset, the estimate of probable future taxable profit may include some of the Company’s assets for more than their carrying amount if there is sufficient evidence that it is probable that the Company will achieve this, and that the estimate for future taxable profit should exclude tax deductions resulting from the reversal of deductible temporary differences.

Except for the above impact, as of the date the financial statements were authorized for issue, the Company is continuously assessing the possible impact that the application of other standards and interpretations will have on the Company’s financial position and financial performance, and will disclose the relevant impact when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of Compliance

The parent company only financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (the “Regulations”).

• b. Basis of Preparation

The financial statements have been prepared on the historical cost basis except for financial instruments which are measured at fair value.

The fair value measurements are grouped into Levels 1 to 3 based on the degree to which the fair value measurement inputs are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• 1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

• 2) Level 2 inputs are 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

• 3) Level 3 inputs are unobservable inputs for the asset or liability.

When preparing its parent company only financial statements, the Company used equity method to account for its investment in subsidiaries and associates. In order for the amounts of the net profit for the year, other comprehensive income for the year and total equity in the parent company only financial statements to be the same with the amounts attributable to the owner of the Company in its consolidated financial statements, adjustments arising from the differences in accounting treatment between parent company only basis and consolidated basis were made to investments accounted for by equity method, share of profit or loss of subsidiaries and associates, share of other comprehensive income of subsidiaries and associates and related equity items, as appropriate, in the parent company only financial statements.

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• 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 financial statements are authorized for issue; and

• 3) Liabilities for which the Company 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.

• 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.

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

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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 in subsidiaries

The Company uses the equity method to account for its investments in subsidiaries.

Subsidiaries are the entities controlled by the Company.

Under the equity method, the investment in a subsidiary 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 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 interest in a subsidiary that do not result in the Company losing control of the subsidiary are equity transactions. The Company recognizes directly in equity any difference between the carrying amount of the investment and the fair value of the consideration paid or received.

When the Company’s share of losses of a subsidiary exceeds its interest in that subsidiary (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 subsidiary), the Company continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Company’s share of the net fair value of the identifiable assets and liabilities of a subsidiary 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 is recognized immediately in profit or loss.

The Company assesses its investment for any impairment by comparing the carrying amount with the estimated recoverable amount as assessed based on the entire financial statements of the invested company. Impairment loss is recognized when the carrying amount exceeds the recoverable amount. If the recoverable amount of the investment subsequently increases, the Company recognizes reversal of the impairment loss; the adjusted post-reversal carrying amount should not exceed the carrying amount that would have been recognized (net of amortization or depreciation) had no impairment loss been recognized in prior years. An impairment loss recognized on goodwill cannot be reversed in a subsequent period.

When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides, 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.

Profits or losses resulting from downstream transactions are eliminated in full in the parent company only financial statements. Profits and losses resulting from upstream transactions and transactions between subsidiaries are recognized in the parent company only financial statements only to the extent of interests in the subsidiaries that are not related to the Company.

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• g. 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 Company uses the equity method to account for its investments in associates.

Under the equity method, investments in an associate 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. The Company also recognizes the changes in the Company’s share of equity of associates.

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 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.

When the Company subscribes for additional new shares of the associate 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. The Company records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Company’s share of equity of associates. If the Company’s ownership interest is reduced due to the additional subscription of the new shares of associate, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate 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.

When the Company’s share of losses of an associate equals or exceeds its interest in that associate (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), 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.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a single asset by comparing its recoverable amount with its carrying amount. Any impairment loss recognized is deducted from investment and the carrying amount is net of impairment loss. Any reversal of that impairment loss is recognized to the extent that the recoverable amount of the investment subsequently increases.

The Company discontinues the use of the equity method from the date on which its investment ceases to be an associate. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and the joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate. The Company accounts for all amounts previously recognized in other comprehensive income in relation to that associate on the same basis as would be required if that associate had directly disposed of the related assets or liabilities.

When an entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the financial statements only to the extent of interests in the associate that are not related to the Company.

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• h. Property, plant and equipment

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

Depreciation on property, plant and equipment 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.

On derecognition of an item of property, plant and equipment the difference between the sales proceeds and the carrying amount of the asset is recognized in profit or loss.

• i. 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. Intangible assets with indefinite useful lives that are acquired separately are measured at cost less accumulated impairment loss.

• 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.

An internally-generated intangible asset arising from the development phase of an internal project is recognized if, and only if, all of the following have been demonstrated:

• a) The technical feasibility of completing the intangible asset so that it will be available for use or sale;

• b) The intention to complete the intangible asset and use or sell it;

• c) The ability to use or sell the intangible asset;

• d) How the intangible asset will generate probable future economic benefits;

• e) The availability of adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

• f) The ability to measure reliably the expenditure attributable to the intangible asset during its development.

The amount initially recognized for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meets the recognition criteria listed above. Subsequent to initial recognition, they are measured on the same basis as intangible assets that are acquired separately.

• 3) Derecognition of intangible assets

On 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.

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• j. 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.

k. Financial instruments

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

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 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.

• 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.

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. The net gain or loss recognized in profit or loss does not incorporate any dividend or interest earned on the financial asset. Fair value is determined in the manner described in Note 31.

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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.

b) 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.

Available-for-sale financial assets are measured at fair value. 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 and 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 will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.

Dividends on available-for-sale equity instruments are recognized in profit or loss when the Company’s right to receive the dividends is established.

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

• c) Loans and receivables

Loans and receivables (including cash and cash equivalent, 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 time deposits with original maturities within three months from the date of acquisition, 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.

For financial assets carried at amortized cost, such as trade receivables, assets are assessed for impairment on a collective basis even if they were assessed not to be impaired individually.

• 25 -

Objective evidence of impairment for a portfolio of receivables could include the Company’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.

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.

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.

• 26 -

Equity instruments

Equity instruments issued by the company 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 either held for trading, or it is designated at fair value.

Financial liabilities held for trading 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 and payable is recognized in profit or loss.

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.

l. Provision

Provisions are measured at the best estimate of the discounted cash flows 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.

m. 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.

• 27 -

• 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.

• 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.

• n. 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 are recognized as income in the period in which they are incurred.

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2) The Company as lessee

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

3) Leasehold land for own use

When a lease includes both land and building elements, the Company assesses the classification of each element as finance or an operating lease separately based on the assessment as to whether substantially all the risks and rewards incidental to ownership of each element have been transferred to the Company. The minimum lease payments are allocated between the land and the building elements in proportion to the relative fair values of the leasehold interests in the land element and building element of the lease at the inception of the lease.

If the allocation of the lease payments can be made reliably, each element is accounted for separately in accordance with their classification of lease. When the lease payments cannot be allocated reliably between the land and building elements, the entire lease is generally classified as a finance lease unless it is clear that both elements are operating leases, in which case the entire lease is classified as an operating lease.

o. Borrowing Cost

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

All other borrowing costs are recognized in profit or loss in the year in which they are incurred other than stated above.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in exchange for the related service.

2) Retirement benefits

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

Defined benefit costs (including service cost, net interest and remeasurement) under the defined benefit retirement benefit plans are determined using the projected unit credit method. Service cost (including current service cost and past service cost) and net interest on the net defined benefit liability (asset) are recognized as employee benefits expense in the period they occur, or when the plan amendment or curtailment occurs. Remeasurement, comprising actuarial gains and losses, and the return on plan assets (excluding interest), is recognized in other comprehensive income in the period in which they occur. Remeasurement recognized in other comprehensive income is reflected immediately in accumulated deficit and will not be reclassified to profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Company’s defined benefit plan. Any surplus resulting from this calculation is limited to the present value of any refunds from the plans or reductions in future contributions to the plans.

• 29 -

• 3) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required for defined benefit plan except that remeasurement is recognized in profit or loss.

• 4) Termination benefits

A liability for a termination benefit is recognized at the earlier of when the Company can no longer withdraw the offer of the termination benefit and when the Company recognizes any related restructuring costs.

q. Share-based Payment Arrangements

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 best estimate of the number of shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus - employee share options or other equity - unearned employee benefit. 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.

When restricted shares for employees are issued, other equity - unearned employee benefits are recognized on the grant date, with a corresponding increase 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 or capital surplus-restricted share option.

• 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.

• 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.

• 30 -

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, research and development expenditures and personnel training expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

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 period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

• 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.

• 31 -

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

If some of the Company’s assets and liabilities measured at fair value have no quoted prices in active markets, the Company will determine whether to engage third party qualified valuers to determine the appropriate valuation techniques for fair value measurements.

Where Level 1 inputs are not available, the Company would determine appropriate inputs by referring to market prices or rates and specific features of derivatives. If the actual changes of inputs in the future differ from expectation, fair value might vary accordingly. The Company updates inputs every quarter to confirm the appropriateness of fair value measurement.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities is disclosed in notes 31.

• 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 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 (h) , the Company reviews the estimated useful lives of property, plant and equipment at the end of each reporting period. Based on the valuation report provided by China Credit Information Service, Ltd., the actual useful lives of certain items of property, plant and equipment have exceeded their estimated useful lives. Due to the consideration of physical depletion, functional depletion and economic depletion, management determined that the useful lives of machinery equipment and R&D equipment, facility equipment and main buildings should be extended from 6 years to 11 years, 6 years to 15 years and 21 years to 31 years, respectively, from January 1, 2016.

The effect of this reassessment within the next 3 years, assuming the assets are held until the end of their extended useful lives, is to decrease the consolidated depreciation expense for, by the following amounts:

Year ended	2016	$	3,775,234
Year ended	2017		2,558,159
Year ended	2018		240,530

f. Income taxes

As of December 31, 2015 and 2014, the carrying amount of deferred tax assets in relation to unused losses carryforward both were NT$905,612 thousand. As of December 31, 2015 and 2014, no deferred tax asset has been recognized in relation to unused deductible temporary differences, losses carryforward, and investment tax credits amounted to NT$4,656,651 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

• 32 -

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 (m) 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, 2015 and 2014, the Company recognized provisions for estimated sales returns and other allowances of NT$98,016 thousand and NT$72,273 thousand, respectively.

6. CASH AND CASH EQUIVALENTS

Cash on hand Checking accounts and demand deposits Cash equivalent Time deposits		December 31	December 31
		2015 $ 42 2,718,115 1,733,655 $ 4,451,812	2014 $ 50 1,540,101 4,750,000 $ 6,290,151

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets at FVTPL-current Financial assets held for trading Derivative financial assets (not under hedge accounting) Foreign exchange forward contracts Financial liabilities at FVTPL-current Financial liabilities held for trading Derivative financial liabilities (not under hedge accounting) Foreign exchange forward contracts		December 31	December 31
		2015 $ - $ 717	2014 $ 95 $ 7,113

• 33 -

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, 2015
Sell	USD/NTD	2016.01	USD11,000/NTD360,937
December 31, 2014
Sell	USD/NTD	2015.01	USD18,000/NTD562,947

The Company entered into foreign exchange forward contracts to manage exposures to exchange rate fluctuations of foreign currency denominated assets and liabilities.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Non-current Domestic investments Listed shares		December 31	December 31
		2015 $ 848,961	2014 $ 919,853

9. 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
		2015 $ 58,500 $ 58,500	2014 $ 79,218 $ 79,218

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

• 34 -

10. NOTES RECEIVABLE, TRADE RECEIVABLES AND OTHER RECEIVABLES

Notes receivable Note receivable - operating Trade receivables Trade receivables Less: Allowance for impairment loss Other receivables Tax receivable Others		December 31
		2015 2014 $ 243 $ 790 2,416,402 2,324,432 (271) (271) 2,416,131 2,324,161 $ 2,416,374 $ 2,324,951 $ 91,077 $ 144,076 10,010 10,572 $ 101,087 $ 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.

The aging of receivables was as follows:

Less than 60 days 61-120 days Over 121 days		December 31	December 31
		2015 $ 2,415,645 - 757 $ 2,416,402	2014 $ 2,316,591 6,315 1,526 $ 2,324,432

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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
		2015 $ 15,105 - 486 $ 15,591	2014 $ 37,889 6,315 1,255 $ 45,459

Above analysis was based on the past due date.

As of December 31, 2015, 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 for Impairment Collectively Assessed for Impairment Balance at January 1, 2014 $ - $ - Add: Impairment losses recognized on receivables 271 - Balance at December 31, 2015 and 2014 $ 271 $ -	Total $ - 271
	$ 271

The carrying amount of trade receivables pledged as collateral for borrowings was disclosed in Note 33.

• 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

Finished goods and merchandise Work in progress Raw materials		December 31	December 31
		2015 $ 1,281,653 7,613,712 394,574 $ 9,289,939	2014 $ 1,141,708 7,854,856 637,214 $ 9,633,778

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2015 and 2014 was NT$18,431,400 thousand and NT$$19,474,346 thousand, respectively. The cost of goods sold included inventory write-downs of NT$525,847 thousand and NT$1,075,443 thousand, respectively.

• 36 -

12. INVESTMENT ACCOUNTED FOR USING EQUITY METHOD

Investment in subsidiaries Investment in associates a. Investments in subsidiaries 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”) Name of Subsidiaries MXA MXBVI Hui Ying Run Hong INFOMAX Mxtran		December 31
		2015 2014 $ 2,126,452 $ 2,515,532 10,886 34,010 $ 2,137,338 $ 2,549,542 December 31
		2015 2014 $ 163,422 $ 217,532 1,643,021 1,577,739 23,551 24,238 20,336 28,969 277,523 629,458 48,599 37,596 $ 2,126,452 $ 2,515,532 Proportion of Ownership and Voting Rights
		December 31
		2015 2014 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 97.25% 97.25% 90.43% 89.16%

b. Investments in associates

MoDioTek Co., Ltd. (“MoDioTek”) Principal Place Name of Associate Main Business of Business MoDioTek Wi-Fi video transmission IC and smart security systems Hsinchu City		December	31
		2015 2014 $ 10,886 $ 34,010 % of Ownership
		**December 31 **
		2015 2014 20.61 20.61

The associate is accounted for using the equity method.

Summarized financial information in respect of MoDioTek is set out below. The summarized financial information below represents amounts shown in the associates’ financial statements prepared in accordance with IFRSs adjusted by the Company for equity accounting purposes.

• 37 -

Current assets Non-current assets Current liabilities Equity Proportion of the Company’s ownership Equity attributable to the Company Unrealized gain or loss with associates Carrying amount Operating revenue Net loss for the year Other comprehensive income Total comprehensive income for the year		December 31	December 31
	2015 $ 69,687 11,125 (28,341) $ 52,471 20.61% $ 10,814 72 $ 10,886 **For the Year Ended **		2014 $ 164,397 21,323 (20,661) $ 165,059 20.61% $ 34,018 (8) $ 34,010 **December 31 **
		2015 $ 74,212 $ (112,527) (61) $ (112,588)	2014 $ 42,333 $ (125,680) 195 $ (125,485)

The investments accounted for by the equity method and the share of profit or loss and other comprehensive income of those investments for the years ended December 31, 2015 and 2014 were based on the associates’ audited financial statements for the same years.

13. PROPERTY, PLANT AND EQUIPMENT

Cost Freehold land Buildings Machinery equipment Research and development equipment Transportation equipment Leasehold improvements Miscellaneous equipment Advance payments and construction in progress Accumulated depreciation and impairment Buildings Machinery equipment Research and development equipment Transportation equipment Leasehold improvements Miscellaneous equipment Carrying amount at December 31, 2015			Years E	nded December 31, 2	015
		Balance, Beginning of Year $ 598,076 22,831,978 80,734,087 6,084,947 28,641 2,419 1,069,209 1,801,497 113,150,854 17,893,314 70,414,496 3,315,446 20,559 2,419 977,376 92,623,610 $ 20,527,244	Additions $ - - - - - - - 1,168,274 $ 1,168,274 $ 1,218,102 3,755,624 650,902 3,603 387 50,604 $ 5,679,222	Disposals $ - 13,082 234,072 5,613 900 2,419 44,855 - $ 300,941 $ 13,082 232,481 5,613 465 2,419 44,835 $ 298,895	Reclassification Balance, End of Year $ - $ 598,076 640,425 23,459,321 2,041,055 82,541,070 (1,150,804 ) 4,928,530 900 28,641 3,230 3,230 9,515 1,033,869 (1,549,883) 1,419,888 $ (5,562) 114,012,625 $ - 19,098,334 603,770 74,541,409 (603,770 ) 3,356,965 - 23,697 - 387 (5,562) 977,583 $ (5,562) 97,998,375 $ 16,014,250

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Cost Freehold land Buildings Machinery equipment Research and development equipment Transportation equipment Leasehold improvements Miscellaneous equipment Advance payments and construction in progress Accumulated depreciation and impairment Buildings Machinery equipment Research and development equipment Transportation equipment Leasehold improvements Miscellaneous equipment Carrying amount at December 31, 2014			Years E	nded December 31, 2	014
		Balance, Beginning of Year $ 598,076 22,442,774 78,439,414 5,977,377 29,226 2,419 1,066,631 3,287,509 111,843,426 16,693,371 65,465,651 2,571,710 18,401 2,419 959,449 85,711,001 $ 26,132,425	Additions $ - - - - - - - 1,680,209 $ 1,680,209 $ 1,208,832 5,087,549 900,268 3,943 - 69,156 $ 7,269,748	Disposals $ - 11,098 271,734 36,935 1,785 - 51,229 - $ 372,781 $ 8,889 258,301 36,935 1,785 - 51,229 $ 357,139	Reclassification Balance, End of Year $ - $ 598,076 400,302 22,831,978 2,566,407 80,734,087 144,505 6,084,947 1,200 28,641 - 2,419 53,807 1,069,209 (3,166,221) 1,801,497 $ - 113,150,854 $ - 17,893,314 119,597 70,414,496 (119,597 ) 3,315,446 - 20,559 - 2,419 - 977,376 $ - 92,623,610 $ 20,527,244

Impairment assessment was performed in the years ended December 31, 2015 and 2014, but no impairment was recognized.

The above items of property, plant and equipment are depreciated on a straight-line basis over the following estimated useful lives as follows:

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

Property, plant and equipment pledged as collateral for bank borrowings were set out in Note 33.

14. INTANGIBLE ASSETS

Item Cost Software Accumulated amortization Software Carrying amounts at December 31, 2015		Year Ended December 31, 2015	Year Ended December 31, 2015
	Balance, Beginning of Year $ 602,441 428,469 $ 173,972	Additions $ 19,732 $ 124,419	Disposals Reclassification Balance, End of Period $ 355,373 $ 5,562 $ 272,362 $ 355,373 $ 5,562 203,077 $ 69,285

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Cost Software Accumulated amortization Software Carrying amounts at December 31, 2014	Year Ended December 31, 2014	Year Ended December 31, 2014	Year Ended December 31, 2014
	Balance, Beginning of Year $ 545,282 272,324 $ 272,958	Additions $ 109,842 $ 208,828	Disposals Balance, End of Period $ 52,683 $ 602,441 $ 52,683 428,469 $ 173,972

Intangible assets are amortized on a straight-line basis over the estimated useful life as follows:

Software 3 years

15. OTHER FINANCIAL ASSETS

Non-current Restricted time deposits (Note 33) Refundable deposits Long-term receivables		December 31	December 31
		2015 $ 137,202 2,399 2,106 $ 141,707	2014 $ 164,177 3,497 3,768 $ 171,442

16. OTHER ASSETS

Current Prepayments		December 31	December 31
		2015 $ 162,970	2014 $ 174,965

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17. BORROWINGS

a. Short-term borrowings

b.	Unsecured borrowings Import loan Unsecured borrowings Interest rate Long-term borrowings		December 31
		2015 2014 $ 540,028 $ 535,039 1,000,000 1,599,000 $ 1,540,028 $ 2,134,039 1.24%-2.02% 1.09%-1.92%

Secured borrowings Loans from financial institution Unsecured borrowings Loans from financial institution Less: Current portion Less: Arrangement fee Long-term borrowings Interest rate Repayment Terms and Maturity Date Secured syndicated loan denominated in NT$ From June 2015 to June 2018. Unsecured bank borrowing denominated in NT$ From September 2015 to October 2016. Secured borrowing denominated in NT$ From December 2015 to March 2016. Secured bank borrowing denominated in NT$ From September 2015 to September 2018. Secured bank borrowing denominated in NT$ From October 2013 to October 2018. Unsecured bank borrowing denominated in NT$ From April 2014 to March 2016. Secured bank borrowing denominated in NT$ From December 2013 to December 2018.			December 31
			2015 2014 $ 10,671,943 $ 9,822,258 1,913,333 4,405,000 12,585,276 14,227,258 4,683,784 12,143,430 39,502 10,322 $ 7,861,990 $ 2,073,506 1.73%-2.91% 1.57%-2.52% December 31
		$	2015 2014 7,267,500 $ - 1,000,000 - 800,000 - 650,000 - 600,000 800,000 540,000 855,000 490,240 646,799 (Continued)

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Repayment Terms and Maturity Date Secured bank borrowing denominated in NT$ From January 2015 to January 2020. Unsecured borrowing denominated in NT$ From October 2015 to December 2016. Secured bank borrowing denominated in NT$ From September 2015 to September 2017. Secured bank borrowing denominated in NT$ From July 2014 to July 2017. Unsecured bank borrowing denominated in NT$ From September 2014 to September 2017. Secured bank borrowing denominated in JPY From March 2014 to March 2019. Secured bank borrowing denominated in NT$ From August 2015 to February 2018. Secured bank borrowing denominated in NT$ From April 2001 to April 2016. Unsecured bank borrowing denominated in NT$ Pay off in March 2015. Unsecured bank borrowing denominated in NT$ Pay off in March 2015. Secured syndicated loan denominated in NT$ Pay off in June 2015. Unsecured syndicated loan denominated in NT$ Pay off in June 2015. Unsecured bank borrowing denominated in NT$ Pay off in September 2015. Less: Current portion Arrangement fee Total long-term borrowings		**December 31 **	**December 31 **
		2015 $ 251,900 240,000 220,000 200,000 133,333 91,508 78,000 22,795 - - - - - 4,683,784 39,502 $ 7,861,990	2014 $ - - - 320,000 200,000 109,280 - 91,179 1,200,000 50,000 7,855,000 1,500,000 600,000 12,143,430 10,322 $ 2,073,506 (Concluded)

To repay the vested liabilities, the company has entered into a 3-year syndicated loan agreement with 15 financial institutions including Taiwan Cooperative Bank in June 2015. The total amount of 7.65 billion of the syndicated loan has been fully used as of December 31, 2015.

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, 2015, the Company had met the financial ratio requirements.

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

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18. NOTES PAYABLE AND TRADE PAYABLES

Notes payable Operating Trade payables Operating		December 31	December 31
		2015 $ 4,815 1,716,864 $ 1,721,679	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.

19. OTHER PAYABLES

Other payables Payable bonus Payable for maintenance and repair Payable for insurance premium Payable for legal fees Payable for rework fees Payable for royalties Others		December 31	December 31
		2015 $ 240,774 189,336 154,108 57,240 41,126 19,357 481,009 $ 1,182,950	2014 $ 243,161 183,195 64,447 561,109 41,172 18,664 472,521 $ 1,584,269

20. PROVISIONS

Current Employee benefits (a) Customer returns and rebates (b)		December 31	December 31
		2015 $ 63,640 98,016 $ 161,656	2014 $ 62,715 72,273 $ 134,988

• 43 -

Balance at January 1, 2015 Additional provisions recognized Usage Effect of foreign currency exchange differences Balance at December 31, 2015	Employee Benefits Customer Returns and Rebates $ 62,715 $ 72,273 63,640 229,341 (62,715) (204,075) - 477 $ 63,640 $ 98,016	Total $ 134,988 292,981 (266,790) 477 $ 161,656

• a. The provision for employee benefits represents annual leave and 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 periods of the related goods sold.

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 defined benefit plan adopted by the Company in accordance with the Labor Standards Law is operated by the government. Pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Before the end of each year, the Company assesses the balance in the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits for employees who conform to retirement requirements in the next year, the Company is required to fund the difference in one appropriation that should be made before the end of March of the next year. Pension contributions are deposited in the Bank of Taiwan in the committee’s name and are managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Company has no right to influence the investment policy and strategy.

The amounts included in the balance sheets in respect of the Company’s defined benefit plans were as follows:

Present value of defined benefit obligation Fair value of plan assets Net defined benefit liability		December 31	December 31
		2015 $ 1,799,856 (790,797) $ 1,009,059	2014 $ 1,576,706 (839,728) $ 736,978

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Movements in net defined benefit liability were as follows:

Present Value of Defined Benefit Obligation Fair Value of the Plan Assets Balance at January 1, 2014 $ 1,466,736 $ 797,238 Service cost Current service cost 6,450 - Net interest expense 32,944 - Return on plan assets - 18,247 Recognized in profit or loss 39,394 18,247 Remeasurement Actuarial loss - experience adjustments 76,340 (1,823) Recognized in other comprehensive income 76,340 (1,823) Contributions from the employer - 31,830 Benefits paid (5,764) (5,764) Balance at December 31, 2014 1,576,706 839,728 Service cost Current service cost 7,301 - Net interest expense 35,389 - Return on plan assets - 19,176 Recognized in profit or loss 42,690 19,176 Remeasurement Actuarial loss - experience adjustments 193,303 (6,563) Actuarial loss - change in financial assumptions 80,995 - Recognized in other comprehensive income 274,258 (6,563) Contributions from the employer - 32,254 Benefits paid (93,798) (93,798) Balance at December 31, 2015 $ 1,799,856 $ 790,797

Net Defined Benefit Liability (Assets) $ 669,498 6,450 32,944 (18,247) 21,147 78,163 78,163 (31,830) - 736,978 7,301 35,389 (19,176) 23,514 199,866 80,995 280,821 (32,254) - $ 1,009,059

An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows:

Operating costs Selling and marketing expenses General administration expenses Research and development expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 13,214 1,235 4,073 4,992 $ 23,514	2014 $ 16,115 1,508 4,625 6,296 $ 28,544

Through the defined benefit plans under the Labor Standards Law, the Company is exposed to the following risks:

• 1) Investment risk: The plan assets are invested in domestic/ and foreign/ equity and debt securities, bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the mandated management. However, in accordance with relevant regulations, the return generated by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

• 45 -

• 2) Interest risk: A decrease in the government/corporate bond interest rate will increase the present value of the defined benefit obligation; however, this will be partially offset by an increase in the return on the plan’s debt investments.

• 3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the future salaries of plan participants. As such, an increase in the salary of the plan participants will increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate Expected rate of salary increase Expected return on plan assets increase	December 31
	2015 2014 1.90% 2.25% 3.00% 3.00% 1.90% 2.25%

If possible reasonable change in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

	For the Year
	Ended
	December 31,
	2015
Discount rate
0.50% increase	$ (80,955)
0.50% decrease	$ 164,001
Expected rate of salary increase
0.50% increase	$ 161,783
0.50% decrease	$ (80,162)

The sensitivity analysis presented above may not be representative of the actual change in the present value of the defined benefit obligation as it is unlikely that the change in assumptions would occur in isolation of one another as some of the assumptions may be correlated.

The expected contributions to the plan for the next year The average duration of the defined benefit obligation		**December **	**31 **
		2015 $ 33,222 13 years	2014 $ 32,785 14 years

The Company maintains a separate executive pension plan and the net periodic pension costs were $17,178 thousand and $121,471 thousand for the years ended December 31, 2015 and 2014, respectively.

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Movements in net defined benefit liability were as follows:

	Present Value	Present Value
	of Defined
		Benefit
	Obligation
Balance at January 1, 2014	$ 258,400
Service cost
Current service cost		121,471
Balance at December 31, 2014		379,871
Service cost
Current service cost		10,227
Net interest expense		6,951
Recognized in profit or loss		17,178
Remeasurement
Actuarial loss - experience adjustments		16,704
Actuarial loss - changes in financial assumptions		1,570
Recognized in other comprehensive income		18,274
Benefits paid		(4,147)
Balance at December 31, 2015	$ 411,176

An analysis by function of the amounts recognized in profit or loss in respect of the defined benefit plans is as follows:

General administration expenses	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2015 $ 17,178	2014 $ 121,471

The actuarial valuations of the present value of the defined benefit obligation of executive pension plan were carried out by qualified actuaries. The principal assumptions used for the purposes of the actuarial valuations were as follows:

Discount rate Expected rate of salary increase Expected return on plan assets increase	December 31
	2015 2014 1.90% 2.25% - - 1.90% 2.25%

22. EQUITY

• a. Share capital

Ordinary shares

Number of shares authorized (in thousands) Share authorized Number of shares issued and fully paid (in thousands) Share issued		**December 31 **	**December 31 **
		2015 6,550,000 $ 65,500,000 3,617,849 $ 36,178,489	2014 6,550,000 $ 65,500,000 3,558,774 $ 35,587,740

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

A total of 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, respectively.

• b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or transferred to share capital (1) Arising from issuance of common shares Arising from donations Arising from treasury share transactions May be used to offset a deficit only (2) Arising from changes in percentage of ownership interest in subsidiaries Arising from treasury share transactions May not be used for any purpose Arising from employee restricted shares		December 31	December 31
		2015 $ 285,217 37 6,422 $ 291,676 $ 1,251 20,080 $ 21,331 $ (258,071)	2014 $ 317,204 37 6,422 $ 323,663 $ 661 20,080 $ 20,741 $ (102,752)

• 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 capital surplus and once a year).

• 2) Such capital surplus arises from the effect of changes in ownership interest in a subsidiary resulted from equity transactions other than actual disposal or acquisition, or 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 and then make appropriation 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 special reserve in accordance with law. The remaining amount will be distributed in the following order:

• 1) Employees’ bonus - 15%;

• 2) Directors’ remuneration - 2%;

• 3) Shareholders’ dividends - any remaining amount will be added to the undistributed earnings from previous years.

• 48 -

The Company is classified as capital intensive industry. In accordance with the long-term financial program of the Company, shareholders’ dividends may be retained as undistributed earnings, and distributed in the future, as determined by the shareholders at Annual General Meeting.

Distributions 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.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The consequential amendments to the Company’s Articles of Incorporation had been approved by the annual shareholders’ meeting on June 18, 2015. Due to the net loss for the years ended December 31, 2015 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.

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.

Information on the bonus to employees, directors and supervisors proposed by the Company’s board of directors is available on the Market Observation Post System website of the Taiwan Stock Exchange.

As of December 31, 2015, the accumulated losses incurred by the Company aggregated to one-half of its paid-in capital. Under Article 211 of the Company Act, the board of directors shall convene and make a report to a meeting of shareholders.

d. Other equity items

• 1) Exchange differences on translating the financial statements of foreign operations

Balance at January 1 Exchange differences arising on translating the financial statements of foreign operations Balance at December 31 Unrealized gain (loss) on available-for-sale financial assets Balance at January 1 Unrealized gain (loss) arising on revaluation of available-for-sale financial assets Balance at December 31	For the Year Ended	For the Year Ended	December 31
	2015 $ 27,223 21,700 $ 48,923 For the Year Ended		2014 $ (49,141) 76,364 $ 27,223 December 31
		2015 $ 917,437 (46,069) $ 871,368	2014 $ 506,926 410,511 $ 917,437

2) Unrealized gain (loss) on available-for-sale financial assets

• 49 -

3) Employee unearned benefit

In the meeting of shareholders on June 18, 2014, the shareholders approved a restricted stock plan for employees. (See Note 27)

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
		2015 $ (209,813) (396,545) 342,951 $ (263,407)	2014 $ - (270,258) 60,445 $ (209,813)

e. Treasury shares

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, 2015
Hui Ying		3,899	$ 159,061	$	18,639
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 from the sale of goods Royalty income and others	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 20,518,357 19,072 $ 20,537,429	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

Intellectual property rights income Interest income Dividends Others b. Other gains and losses Net foreign exchange gains Net gain (loss) arising on financial assets designated as at FVTPL Gain on disposal of subsidiaries Gain on disposal of investments Other 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	For the Year Ended December 31	For the Year Ended December 31
	2015 2014 $ 951,300 $ - 22,075 46,696 88,019 68,153 36,660 39,886 $ 1,098,054 $ 154,735 For the Year Ended December 31
	2015 $ 126,041 (8,376) - 7,491 (189) $ 124,967 For the Year Ended	2014 $ 71,242 18,391 29,755 - (347) $ 119,061 December 31
	2015 $ 308,768 10 7,559 $ 301,219 **For the Year Ended **	2014 $ 305,026 16 23,654 $ 281,388 **December 31 **
	2015 $ 7,559 1.66%	2014 $ 23,654 1.90%

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d. Impairment losses on financial assets

Trade receivables	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ -	2014 $ 271

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	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 5,679,222 124,419 $ 5,803,641 $ 4,936,331 742,891 $ 5,679,222 $ 105,456 9 17,531 1,423 $ 124,419	2014 $ 7,269,748 208,828 $ 7,478,576 $ 6,212,909 1,056,839 $ 7,269,748 $ 151,700 79 54,483 2,566 $ 208,828

f. Employee benefits expense

Post-employment benefits (see Note 21) Defined contribution plans Defined benefit plans Share-based payments Equity-settled Other employee benefits Total employee benefits expense An analysis of employee benefits expense by function Operating costs Operating expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 187,964 40,692 228,656 342,951 4,881,945 $ 5,453,552 $ 2,735,289 2,718,263 $ 5,453,552	2014 $ 193,569 150,015 343,584 60,455 4,911,122 $ 5,315,151 $ 2,803,214 2,511,937 $ 5,315,151

• 52 -

• g. Gain or loss on foreign currency exchange

Foreign exchange gains Foreign exchange losses	For the Year Ended	For the Year Ended	December 31
		2015 $ 188,227 (62,186) $ 126,041	2014 $ 508,565 (437,323) $ 71,242

25. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Major components of tax expense recognized in profit or loss:

Current tax In respect of the current year Adjustments for 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 **
		2015 $ - - - $ -	2014 $ - 125 - $ 125

A reconciliation of accounting profit and income tax expenses is as follows:

Loss before tax from continuing operations 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 Others 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
		2015 $ (4,187,669) $ (711,904) 14,559 240,389 456,956 - - $ -	2014 $ (6,453,686) $ (1,097,127) (37,832) (11,154) 1,147,370 125 (1,257) $ 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 Tax refund receivable Current tax liabilities Income tax payables		December 31	December 31
		2015 $ 6,960 $ 180,742	2014 $ 16,027 $ 295,537

• 53 -

• c. Deferred tax assets and liabilities

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

The movements of deferred tax assets and deferred tax liabilities were as follows:

For the year ended December 31, 2015 Deferred Tax Assets Loss carryforward For the year ended December 31, 2014 Deferred Tax Assets Loss carryforward	Opening Balance Recognized in Profit or Loss Closing Balance $ 905,612 $ - $ 905,612 Opening Balance Recognized in Profit or Loss Closing Balance $ 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

Loss carryforwards Expire in 2023 Expire in 2024 Expire in 2025 Investment credits Investment credits for stockholder Deductible temporary differences		December 31	December 31
		2015 $ 4,297,859 6,361,778 2,599,961 $ 13,259,598 $ 152,042 $ 13,980,427	2014 $ 4,706,885 6,681,084 - $ 11,387,969 $ 123,832 $ 11,636,559

The unrecognized investment credits will expire in 2017.

• e. Information about unused investment credits, unused loss carry-forward and tax-exemption

As of December 31, 2015, the investment tax credits comprised of:

Law and Statutes Tax Credit Source Statute for Upgrading Investment credits for stockholder Industries	Remaining Creditable Amount Expiry Year $ 123,832 2016 28,210 2017 $ 152,042

• 54 -

Loss carryforwards as of December 31, 2015 comprised of:

Unused Amount	Unused Amount	Expiry Year
$	580,609	2022
	1,055,639	2023
	1,081,502	2024
	441,993	2025
$	3,159,743

• f. Integrated income tax

Accumulated deficit Generated before January 1, 1998 Generated on and after January 1, 1998 Imputation credits accounts		December 31	December 31
		2015 $ - (18,304,273) $ (18,304,273) $ 421,581	2014 $ - (13,812,749) $ (13,812,749) $ 289,482

No tax creditable ratios were calculated for accumulated deficit of 2015 and 2014.

• g. Income tax assessments

The Company’s tax returns through 2013 have been assessed by the tax authorities. The Company disagreed with the tax authorities’ assessment on its 2013, 2012 and 2010 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 accrued additional income tax based on the assessment by the tax authorities.

26. LOSS PER SHARE

LOSS PER SHARE
Basic and diluted loss per share	For	Unit: NT$ Per Share the Year Ended December 31
		2015 $ (1.19)	2014 $ (1.83)

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

Net Loss for the Year

Loss for the year used in the computation of earnings per share	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ (4,187,669)	2014 $ (6,453,811)

• 55 -

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
		2015 3,522,495	2014 3,517,574

As disclosed in Note 27 to the financial statements, in determining whether the share-based payments are potential ordinary stocks. The aforementioned stock options were anti-dilutive and excluded from the computation of diluted loss per share for the years ended December 31, 2015 and 2014.

27. SHARE-BASED PAYMENT ARRANGEMENTS

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. The board of directors approved a restricted stock plan were as below:

	Grant Shares				Issued Shares
Grant Date	(Thousand)	Fair	Value	Issued Date	(Thousand)
2014/08/28	38,365	$	7.76	2014/12/25	37,301
2015/03/16	62,213		6.82	2015/07/22	61,279

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;

• 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.

• 56 -

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.

Information on restricted stock plan for employees was as follows:

Balance at January 1 Granted (Note 1) Vested Forfeited (Notes 2 and 3) Balance at December 31	Number of Shares (In Thousands)	Number of Shares (In Thousands)	Number of Shares (In Thousands)
	For the Year Ended December 31
		2015 37,301 62,213 (14,280) (3,827) 81,407	2014 - 38,365 - (1,064) 37,301

Note 1: The number of granted shares in this year is not equal to the actual issued shares.

• Note 2: The forfeited shares in this period consisted of 690 thousand shares not yet cancelled, 2,203 thousand shares already cancelled and 934 thousand shares representing the difference between granted and issued on March 16, 2015.

• Note 3: The forfeited shares in the period were 1,064 thousand shares which were the difference between granted and issued on August 28, 2014.

For the years ended December 31, 2015 and 2014, the compensation cost recognized was NT$342,951 thousand and NT$60,445 thousand, respectively.

28. DISPOSAL OF SUBSIDIARIES

On April 23, 2014, the Company 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 Company 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 at the expiration of the lease periods.

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
		2015 $ 50,377 197,317 551,786 $ 799,480	2014 $ 51,316 87,964 217,055 $ 356,335

• 57 -

The lease payments recognized in profit or loss for the current period were as follows:

Minimum lease payment	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 77,514	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 that are not measured at fair value

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

• b. Fair value of financial instruments that are measured at fair value

• 1) Fair value hierarchy

December 31, 2015 Available-for-sale financial assets - non-current Securities listed in ROC Financial liabilities at FVTPL Derivative financial instrument	Level 1 $ 848,961 $ -	Level 2 $ - $ 717	Level 3 $ - $ -	Total $ 848,961 $ 717

• 58 -

December 31, 2014

Financial assets at FVTPL Derivative financial instrument Available-for-sale financial assets - non-current Securities listed in ROC Financial liabilities at FVTPL Derivative financial instruments	Level 1 $ - $ 919,853 $ -	Level 2 $ 95 $ - $ 7,113	Level 3 $ - $ - $ -	Total $ 95 $ 919,853 $ 7,113

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

• 2) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

Financial Instruments Derivatives - foreign currency forward contracts	Valuation Techniques and Inputs
	Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates.

• c. 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 Measure at Amortized cost (iii)	December 31
	2015 2014 $ - $ 95 8,083,957 9,839,935 907,461 999,071 717 7,113 17,342,404 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, other receivables, (including receivables from related parties) 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).

• 59 -

• d. 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 the Company 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 end of each reporting period.

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.

Pre-tax loss		Currency USD Impact For the Year Ended December 31 2015 2014 $ 39,843 $ 18,877		Currency JPY Impact	Currency JPY Impact
				For the Year Ended December 31
		2015 $ 39,843		2015 $ 29,940	2014 $ 33,562

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.

• 60 -

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 Sensitivity analysis	December 31
	2015 2014 $ 1,870,910 $ 3,914,201 1,924,120 1,599,000 2,718,062 2,540,077 12,161,682 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 increased/decreased by 50 basis, the Company’s pre-tax loss for the years ended December 31, 2015 and 2014 would have increased/decreased by NT$60,808 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.

Sensitivity 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 increased/decreased by 10%, equity for the years ended December 31, 2015 and 2014 would have increased/decreased by NT$84,896 thousand and NT$91,985 thousand, respectively, as a result of the changes in fair value of available-for-sale investments.

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.

• 61 -

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, 2015 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, 2015 and 2014, the Company had available unutilized short-term bank loan facilities are NT$2,504,580 thousand and NT$3,922,524 thousand, respectively.

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.

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, 2015

On Demand or Less than 1 Year Non-derivative financial liabilities Non-interest bearing $ 3,256,602 Variable interest rate liabilities 5,458,910 Fixed interest rate liabilities 1,029,375 $ 9,744,887	1-3 Years $ - 8,002,062 - $ 8,002,062	3-5 Years $ - 86,192 - $ 86,192	5+ Years $ - - - $ -	Total $ 3,256,602 13,547,164 1,029,375
				$ 17,833,141

• 62 -

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 $ - 1,704,910 - $ 1,704,910	3-5 Years $ - 443,796 - $ 443,796	5+ Years $ - - - $ -	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.

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, 2015

	On Demand or	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	$	360,937	$	-	$	- $		-	$		-
Outflows		361,654		-		-		-			-
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.

• 63 -

a. Operating revenues

Listed Account Related Parties Categories Sales Subsidiaries Key management personnel Others Associates	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2015 $ 4,058,589 3,056,579 1,680 1,405 $ 7,118,253	2014 $ 3,067,556 5,322,675 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 **	**For the Year Ended **	**December 31 **
		2015 $ 40,092	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.

c. Trade receivables from related parties:

Listed Account Related Parties Categories Receivables from related Subsidiaries parties, net Key management personnel Others Associates Other receivables The Company is its major management authority Subsidiaries Associates Others		December 31	December 31
		2015 $ 575,961 396,937 44 35 $ 972,977 $ 2,388 2,030 156 32 $ 4,606	2014 $ 415,801 482,213 182 547 $ 898,743 $ 32 2,412 185 - $ 2,629

The outstanding trade receivables from related parties are unsecured. No expense was recognized for the years ended December 31, 2015 and 2014 for allowance for impaired trade receivables with respect to the amounts owed by related parties.

• 64 -

d. Trade payables to related parties:

Listed Account Related Parties Categories Payables to related parties Key management personnel The Company is its major management authority Other payables to related parties Subsidiaries		December 31	December 31
		2015 $ 15,574 11,557 $ 27,131 $ 121,676	2014 $ - 62,957 $ 62,957 $ 136,672

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 Software and pattern revenue The Company is its major management authority Associates Subsidiaries Rental revenue Subsidiaries Associates	For the Year Ended	For the Year Ended	December 31
		2015 $ 189,803 $ 376,828 22,200 4,359 748 $ 404,135 $ 2,643 962 469 $ 4,074 $ 10,668 6,427 $ 17,095	2014 $ 275,775 $ 410,293 24,000 2,011 321 $ 436,625 $ 189 1,098 1,128 $ 2,415 $ 17,500 3,792 $ 21,292

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.

• 65 -

f. Other assets disposed

Related Parties Listed Account Categories Gain on disposal of investment Associates		Price 2015 2014 $ - $ 30,558	Gain (Loss) on Disposal	Gain (Loss) on Disposal	Gain (Loss) on Disposal
		2015 $ -		2015 $ -	2014 $ 16,789

Gain on disposal of investment was included in other gains and losses.

• g. Compensation of key management personnel

The remuneration of key management personnel for the years ended December 31, 2015 and 2014 was as follows:

Short-term benefits Post-employment benefits Share-based payments Other long-term employee benefits	**For the Year Ended **	**For the Year Ended **	**December 31 **
		2015 $ 84,173 17,178 32,099 328 $ 133,778	2014 $ 75,680 121,471 6,170 62 $ 203,383

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

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:

Property, plant and equipment, net Trade receivables Pledge deposits (classified as other financial assets - non-current)		December 31	December 31
		2015 $ 12,527,602 781,982 137,202 $ 13,446,786	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, 2015 and 2014, unused letters of credit amounted to approximately NT$0 and NT$6,647 thousand, respectively.

• 66 -

• b. Unrecognized commitments are as follows:

Acquisition of property, plant and equipment		December 31	December 31
		2015 $ 339,954	2014 $ 639,834

• c. The Company entered into the Phase-change memory technology agreement with IBM Company in January 2010, and the agreement has been renewed every three years. Under the agreement, both parties have to share the related expenditures of the technology development. The term of the second agreement was from January 2013 to January 2016. As of December 31, 2015, the Company has made all the payment for the second agreement. In addition, the Company entered into another Phase-change memory technology agreement with IBM Company in January 2016, and the term of the agreement is from January 2016 to January 2019.

• 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.

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

The following information was aggregated by the foreign currencies other than functional currencies of the Company and the exchange rates between foreign currencies and respective functional currencies were disclosed.

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

December 31, 2015

Foreign Exchange Currencies Rate Financial assets Monetary items JPY $ 1,841,746 0.2727 USD 97,930 32.825 Financial liabilities Monetary items JPY 743,838 0.2727 USD 46,470 32.825	Carrying Amount $ 502,244 3,214,542 $ 3,716,786 $ 202,845 1,525,374 $ 1,728,219

• 67 -

December 31, 2014

Foreign Exchange Currencies Rate Financial assets Monetary items JPY $ 3,208,762 0.2646 USD 99,780 31.65 Financial liabilities Monetary items JPY 1,940,365 0.2646 USD 61,899 31.65	Carrying Amount $ 849,039 3,158,027 $ 4,007,066 $ 513,421 1,959,089 $ 2,472,510

For the years ended December 31, 2015 and 2014, realized and unrealized net foreign exchange gains were $126,041 thousand and $71,242 thousand, respectively. It is impractical to disclose net foreign exchange gains by each significant foreign currency due to the variety of the foreign currency transactions.

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)

• 68 -

• 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

• 69 -

TABLE 1

MACRONIX INTERNATIONAL CO., LTD.

MARKETABLE SECURITIES HELD DECEMBER 31, 2015

(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, 2015	December 31, 2015		Note
				Shares/Units (In Thousands)	Carrying Amount	Percentage of Ownership	Fair Value (Note 3)
The Company MXBVI Hui Ying	Stock Ardentec Corporation United Industrial Gases Co., Ltd. Aetas Technology Inc. Zowie Technology Co., Ltd. Quality Test System 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 None None 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 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	35,595,830 6,671,877 145,850 20,426 4,538,333 1,803,526 1,088,319 26,924,500 584,893 490,000 1,739,783 3,899,382 947,125	$ 848,961 58,500 - - - - 51,749 28,818 269,940 - 35,451 18,639 -	7.40 3.06 0.29 0.18 14.64 15.00 0.17 3.25 0.71 2.52 4.90 0.11 10.43	$ 848,961 151,732 - 23 - - 51,749 28,818 269,940 12,619 62,177 18,639 22,734	Note 1 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, 2015.

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.

• 70 -

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, 2015

(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 MXHK MXA	MegaChips Corporation Macronix (Hong Kong) Co., Ltd. (“MXHK”) MXA 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	$ 3,056,579 3,381,257 675,958 US$ 106,837 US$ 21,365	15 16 3 100 100	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	$ 396,937 520,375 55,247 US$ 15,853 US$ 1,326	12 15 2 100 100	- - - - -

• 71 -

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, 2015

(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 MXHK	Its subsidiary, Shun Yin Investment, is represented in MXIC’s board of directors Indirect subsidiary	$ 396,937 520,375	6.95 times 7.72 times	$ - -	- -	JPY 1,376,575 thousand US$ 9,654 thousand	$ - -

• 72 -

TABLE 4

MACRONIX INTERNATIONAL CO., LTD.

INFORMATION ON INVESTEES FOR THE YEAR ENDED DECEMBER 31, 2015 (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, 2015	as of December 31, 2015	Net Income (Loss) of the Investee (Note 3)	Share of Profit (Loss)	Note
				December 31, 2015 (Note 1)	December 31, 2014 (Note 1)	Shares	Percentage of Ownership	Carrying Amount (Note 2)
The Company MXBVI Run Hong Hui Ying INFOMAX Infomax Samoa Mxtran Mxtran Samoa	MXA MXBVI Hui Ying Run Hong INFOMAX Mxtran MoDioTek New Trend Technology Inc. Macronix Europe NV. Macronix Pte. Ltd. MXHK Macronix (Asia) Limited INFOMAX Mxtran MoDioTek MoDioTek Infomax Holding Co., Ltd. (“Infomax Samoa”) Infomax Holding Company Limited Mxtran Holding (Samoa) Co., Ltd. (“Mxtran Samoa”) 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 Wi-Fi video transmission IC and smart security systems 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 Wi-Fi video transmission IC and smart security systems Wi-Fi video transmission IC and smart security systems Investment holding company Investment holding company Investment holding company Investment holding company	$ 2,640 6,977,791 500,000 984,432 1,502,711 697,374 59,944 858,641 2,106 3,291 378,427 23,035 27,423 34,271 4,241 4,241 292,997 97,521 35,979 23,880	$ 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	100,000 212,048,000 - - 150,271,240 69,627,323 5,994,371 26,100,000 999 174,000 89,700,000 700,000 2,742,506 3,393,200 403,245 403,245 9,470,000 23,352,500 1,170,000 6,152,000	100.00 100.00 100.00 100.00 97.25 90.43 20.61 100.00 100.00 100.00 100.00 100.00 1.77 4.41 1.39 1.39 100.00 100.00 100.00 100.00	$ 163,422 1,643,021 23,551 20,336 227,523 48,599 10,886 317,770 95,676 17,195 500,178 51,682 4,141 2,375 729 729 9,475 6,690 1,151 502	$ (58,361 ) 28,310 (687 ) (12,511 ) (413,909 ) (78,190 ) (112,527 ) (7,843 ) 6,858 805 (1,233 ) 3,476 (413,909 ) (78,190 ) (112,527 ) (112,527 ) (32,056 ) (924 ) (8,044 ) (417 )	$ (58,361 ) 28,310 (687 ) (12,511 ) (402,527 ) (70,375 ) (23,191 ) 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, 2015.

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, 2015.

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

• 73 -

TABLE 5

MACRONIX INTERNATIONAL CO., LTD.

INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEARS ENDED DECEMBER 31, 2015 (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, 2015 (Note 3)	Accumulated Outward Remittance for Investment from Taiwan as of January 1, 2015 (Note 3)	Investment Flows	Investment Flows	Accumulated Outward Remittance for Investment from Taiwan as of December 31, 2015 (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, 2015 (Note 6)	Accumulated Inward Remittance of Investment Income as of December 31, 2015
							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	$ 18,090 (173 ) (417 )	100.00 99.02 94.84	$ 18,090 (171 ) (395 )	$ 364,556 5,803 22	$ - - -
Accumulated Investment in Mainland China as of December 31, 2015		Investment Amount Authorized by the Investment Commission, MOEA				Upper Limit on Investment
$ 402,010 (Note 3)		$ 402,010 (Note 3)				$ 11,052,046

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, 2015.

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, 2015.

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