PHIHONG — Annual Report 2014

Nov 27, 2014

Phihong Technology Co., Ltd. and Subsidiaries

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

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders Phihong Technology Co., Ltd.

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

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

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Group as of December 31, 2014 and 2013, and their consolidated financial performance and their consolidated cash flows for the years ended December 31, 2014 and 2013, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed by the Financial Supervisory Commission of the Republic of China.

We have also audited the parent company only financial statements of Phihong Technology Co., Ltd. as of and for the years ended December 31, 2014 and 2013 on which we have issued an unqualified report.

March 13, 2015

Notice to Readers

The accompanying consolidated financial statements are intended only to present the consolidated 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 consolidated financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying consolidated 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 consolidated financial statements shall prevail.

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

ASSETS CURRENT ASSETS Cash and cash equivalents (Notes 4 and 6) Financial assets at fair value through profit or loss - current (Notes 4 and 7) Trade receivables (Notes 4 and 9) Other receivables Inventories (Notes 4 and 10) Prepayment for lease (Note 14) Other current assets Total current assets NON-CURRENT ASSETS Financial assets measured at cost - non-current (Notes 4 and 8) Investments accounted for using equity method (Notes 4 and 11) Property, plant and equipment (Notes 4 and 12) Intangible assets (Notes 4 and 13) Deferred tax assets (Notes 4 and 22) Long-term prepayments for lease (Note 14) Other non-current assets Total non-current assets TOTAL LIABILITIES AND EQUITY CURRENT LIABILITIES Short-term debt (Note 15) Trade payable Trade payables to related parties (Note 27) Other payables (Note 17) Current tax liabilities (Notes 4 and 22) Current portion of long-term borrowings (Note 15) Other current liabilities (Note 18) Total current liabilities NON-CURRENT LIABILITIES Bonds payable (Notes 4 and 16) Long-term borrowings (Note 15) Deferred tax liabilities (Note 22) Accrued pension liabilities (Notes 4 and 19) Other non-current liabilities Total non-current liabilities Total liabilities EQUITY ATTRIBUTABLE TO OWNERS OF THE COMPANY (Notes 4 and 20) Common stock Capital surplus Retained earnings Legal reserve Special reserve Unappropriated earnings Total retained earnings Other equity Exchange differences on translating foreign operations Unrealized (loss) gain on available-for-sale financial assets Total other equity Total equity attributable to owners of the company NON-CONTROLLING INTEREST Total equity TOTAL		2014 Amount % $ 2,152,834 19 194,796 2 1,974,829 17 105,853 1 1,636,308 14 4,078 - 152,411 1 6,221,109 54 84,410 1 303,394 3 4,529,550 40 45,803 - 43,611 - 161,372 1 61,843 1 5,229,983 46 $ 11,451,092 100 $ - - 2,246,205 19 99,517 1 1,056,122 9 96,079 1 - - 92,235 1 3,590,158 31 1,429,189 12 - - 79,832 1 76,038 1 4,703 - 1,589,762 14 5,179,920 45 2,776,884 24 1,026,456 9 1,098,401 10 230,859 2 839,463 7 2,168,723 19 345,970 3 (37,199) - 308,771 3 6,280,834 55 (9,662) - 6,271,172 55 $ 11,451,092 100		2013
				Amount % $ 1,422,745 14 50,957 - 1,966,820 19 32,607 - 1,706,064 17 3,303 - 336,490 3 5,518,986 53 111,145 1 329,633 3 3,986,992 39 46,308 - 47,423 1 133,309 1 155,133 2 4,809,943 47 $ 10,328,929 100 $ 100,000 1 2,026,147 20 109,911 1 1,028,646 10 86,446 1 8,333 - 105,241 1 3,464,724 34 - - 791,667 8 79,832 1 65,186 - 898 - 937,583 9 4,402,307 43 2,771,639 27 949,615 9 1,083,147 11 230,859 2 853,368 8 2,167,374 21 73,280 - (26,428) - 46,852 - 5,935,480 57 (8,858) - 5,926,622 57 $ 10,328,929 100

The accompanying notes are an integral part of the consolidated financial statements.

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

NET SALES AND REVENUES (Notes 4, 27 and 31) COST OF GOODS SOLD (Notes 4, 10 and 27) GROSS PROFIT OPERATING EXPENSES Sales and marketing General and administration Research and development Total operating expenses INCOME FROM OPERATIONS NONOPERATING INCOME (EXPENSES) Other income Other gains and losses (Note 21) Finance costs Share of the profit of associates (Notes 4 and 11) Total nonoperating income INCOME BEFORE INCOME TAX INCOME TAX EXPENSE (Note 22) NET INCOME OTHER COMPREHENSIVE INCOME (LOSS) Exchange differences on translating foreign operations (Note 20) Unrealized gain on available-for-sale financial assets (Note 20) Actuarial gain arising from defined benefit plans (Note 19) Share of the other comprehensive income of associates (Note 20) Income tax relating to components of other comprehensive income (Note 22) Total other comprehensive income TOTAL COMPREHENSIVE INCOME		2014 Amount % $ 12,435,980 100 10,705,420 86 1,730,560 14 652,670 5 626,501 5 434,525 4 1,713,696 14 16,864 - 156,794 1 137,825 1 (25,513) - 11,794 - 280,900 2 297,764 2 (150,171) (1) 147,593 1 272,140 2 - - (11,105) - (10,771) - 1,888 - 252,152 2 $ 399,745 3		2013
				Amount % $ 12,081,088 100 10,227,880 85 1,853,208 15 675,319 6 530,909 4 493,492 4 1,699,720 14 153,488 1 160,280 1 (13,071) - (8,867) - 5,006 - 143,348 1 296,836 2 (146,321) (1) 150,515 1 220,192 2 (1,875) - 1,447 - (8,950) - (246) - 210,568 2 $ 361,083 3 (Continued)

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

NET INCOME ATTRIBUTABLE TO: Owner of the Company Non-controlling interests TOTAL COMPREHENSIVE INCOME ATTRIBUTABLE TO: Owner of the Company Non-controlling interests EARNINGS PER SHARE (Note 23) Basic Diluted		2014 Amount % $ 147,847 1 (254) - $ 147,593 1 $ 400,549 3 (804) - $ 399,745 3 $ 0.53 $ 0.49		2013
				Amount % $ 152,534 1 (2,019) - $ 150,515 1 $ 364,551 3 (3,468) - $ 361,083 3 $ 0.55 $ 0.55
		$		$
		$		$
		$		$

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

BALANCE, JANUARY 1, 2013 Appropriation of the 2012 net income (Note 20) Legal reserve Cash dividend Special reserve at first-time adoption of IFRSs (Note 20) Net income (loss) for the year ended December 31, 2013 Other comprehensive income (loss) for the year ended December 31, 2013, net of income tax Total comprehensive income (loss) for the year ended December 31, 2013 BALANCE, DECEMBER 31, 2013 Appropriation of the 2013 net income (Note 20) Legal reserve Cash dividend Equity component of convertible bonds issued by the Company (Note 16) Convertible bond converted to ordinary shares (Note 16) Net income (loss) for the year ended December 31, 2014 Other comprehensive income (loss) for the year ended December 31, 2014, net of income tax Total comprehensive income (loss) for the year ended December 31, 2014 BALANCE, DECEMBER 31, 2014		Equity Attributable to Owners of the Company	Equity Attributable to Owners of the Company	Non-controlling Total Interests $ 5,848,093 $ (5,390) - - (277,164) - - - 152,534 (2,019) 212,017 (1,449) 364,551 (3,468) 5,935,480 (8,858) - - (137,281) - 71,878 - 10,208 - 147,847 (254) 252,702 (550) 400,549 (804) $ 6,280,834 $ (9,662)	Total Equity $ 5,842,703 - (277,164) - 150,515 210,568 361,083 5,926,622 - (137,281) 71,878 10,208 147,593 252,152 399,745 $ 6,271,172
	Share Capital Common Stock Capital Surplus $ 2,771,639 $ 949,615 - - - - - - - - - - - - 2,771,639 949,615 - - - - - 71,878 5,245 4,963 - - - - - - $ 2,776,884 $ 1,026,456	Retained Earnings Unappropriated Legal Reserve Special Reserve Earnings $ 1,052,192 $ - $ 1,238,611 30,955 - (30,955) - - (277,164) - 230,859 (230,859) - - 152,534 - - 1,201 - - 153,735 1,083,147 230,859 853,368 15,254 - (15,254) - - (137,281) - - - - - - - - 147,847 - - (9,217) - - 138,630 $ 1,098,401 $ 230,859 $ 839,463	Other Equity Exchange Differences on Unrealized Gain Translating (Loss) on Foreign Available-for-sale Operations Financial Assets $ (148,361) $ (15,603) - - - - - - - - 221,641 (10,825) 221,641 (10,825) 73,280 (26,428) - - - - - - - - - - 272,690 (10,771) 272,690 (10,771) $ 345,970 $ (37,199)

The accompanying notes are an integral part of the consolidated financial statements.

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

CASH FLOWS FROM OPERATING ACTIVITIES Income before income tax Adjustments for: Reversal of impairment loss on trade receivables Depreciation expense Amortization expense Net gain on fair value change of financial assets and financial liabilities designated as at fair value through profit or loss Finance costs Interest income Dividend revenue Share of profit of associates Loss on disposal of property, plant and equipment Gain on disposal of intangible assets Loss on disposal of financial assets Impairment loss recognized on held-to-maturity financial assets Net changes in operating assets and liabilities Trade receivable Other receivables Inventories Other current assets Other non-current assets Trade payable Trade payable to related parties Other payables Other current liabilities Reserve for retirement plan Cash generated from operating activities Interest paid Interest received Income tax paid Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of financial assets at fair value through profit or loss Proceeds on sale of available-for-sale financial assets Purchase of financial assets measured at cost Proceeds on sale of financial assets measured at cost Payments for property, plant and equipment Proceeds from disposal of property, plant and equipment Payments for intangible assets Proceeds from disposal of intangible assets Increase in refundable deposits Decrease in refundable deposits	2014 $ 297,764 (2,405) 400,566 18,815 (3,106) 25,513 (20,064) (4,373) (11,794) (50,716) (3,895) - 11,200 (5,604) (72,025) 69,756 184,079 1,989 220,058 (10,394) 30,440 (13,006) (253) 1,062,545 (11,301) 18,843 (134,838) 935,249 (140,733) - - - (747,837) 163,481 (13,723) 5,562 (21,310) -	2013 $ 296,836 (5,293) 420,115 18,639 - 8,867 (10,717) (234) (5,006) 3,000 - 169 - (54,045) 22,011 (25,840) (171,614) 3,924 (62,155) 61,591 (57,555) 11,111 (159) 453,645 (7,337) 10,740 (152,142) 304,906 (50,957) 31,092 (49,996) 10,483 (734,276) 14,265 (18,372) 122 - 2,392 (Continued)

• 7 -

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

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

Increase o prepayment of equipment Increase on prepayment of lease Dividend received Decrease and return of capital from investees of available-for-sale financial assets Decrease and return of capital from investees of financial assets measured at cost Net cash used in investing activities CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from short-term debt Repayments of short-term debt Cash dividends Proceeds from issue of convertible bonds Proceeds from long-term borrowings Repayments of long-term borrowings Increase in advance deposits received Decrease in advance deposits received Net cash generated from financing activities EFFECTS OF EXCHANGE RATE CHANGES ON THE BALANCE OF CASH HELD IN FOREIGN CURRENCIES NET INCREASE (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	2014 $ - (25,468) 10,686 20,948 15,535 (732,859) - (100,000) (137,281) 1,497,331 - (800,000) 3,805 - 463,855 63,844 730,089 1,422,745 $ 2,152,834	2013 $ (105,967) - 6,419 - 16,796 (877,999) 100,000 - (277,164) - 600,000 - - (87) 422,749 29,801 (120,543) 1,543,288 $ 1,422,745

The accompanying notes are an integral part of the consolidated financial statements.

(Concluded)

• 8 -

PHIHONG TECHNOLOGY CO., LTD. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 (In Thousands of New Taiwan Dollars, Except Unless Stated Otherwise)

1. GENERAL INFORMATION

Phihong Technology Co., Ltd. (“Phihong” or “the Company”), which was formerly known as Phihong Enterprise Co., Ltd. was incorporated on December 12, 1972 under the laws of the Republic of China (“ROC”). Under a resolution approved in the stockholders’ meeting in June 2003, Phihong changed its name to Phihong Technology Co., Ltd. Phihong primarily manufactures and sells AC/DC power adapters, charger bases, power supply modules, UPS (uninterruptible power supply) for computers, ballasts, etc.

In February 2000, Phihong was authorized to have its stocks trade on the over-the-counter (OTC) securities exchange in Taiwan. In September 2001, Phihong’s stocks were ceased to be OTC traded and Phihong later obtained authorization to have its stocks listed on the Taiwan Stock Exchange.

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

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Company’s board of directors on March 13, 2015.

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

• a. 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 not yet effective

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

New, Amended and Revised Standards and Interpretations (the“New IFRSs”) Improvements to IFRSs (2009) - amendment to IAS 39 Amendment to IAS 39 “Embedded Derivatives” Improvements to IFRSs (2010) Annual Improvements to IFRSs 2009-2011 Cycle Amendment to IFRS 1 “Limited Exemption from Comparative IFRS 7 Disclosures for First-time Adopters”	Effective Date Announced by IASB (Note)
	January 1, 2009 and January 1, 2010, as appropriate Effective for annual periods ending on or after June 30, 2009 July 1, 2010 and January 1, 2011, as appropriate January 1, 2013 July 1, 2010 (Continued)

附註- 9 -

New, Amended and Revised Standards and Interpretations (the“New IFRSs”) Amendment to IFRS 1 “Severe Hyperinflation and Removal of Fixed Dates for First-time Adopters” Amendment to IFRS 1 “Government Loans” Amendment to IFRS 7 “Disclosure - Offsetting Financial Assets and Financial Liabilities” Amendment to IFRS 7 “Disclosure - Transfer of Financial Assets” IFRS 10 “Consolidated Financial statements” IFRS 11 “Joint Arrangements” IFRS 12 “Disclosure of Interests in Other Entities” Amendments to IFRS 10, IFRS 11 and IFRS 12 “Consolidated Financial Statements, Joint Arrangements and Disclosure of Interests in Other Entities: Transition Guidance” Amendments to IFRS 10 and IFRS 12 and IAS 27 “Investment Entities” IFRS 13 “Fair Value Measurement” Amendment to IAS 1 “Presentation of Other Comprehensive Income” Amendment to IAS 12 “Deferred tax: Recovery of Underlying Assets” IAS 19 (Revised 2011) “Employee Benefits” IAS 28 (Revised 2011) “Investments in Associates and Joint Ventures” Amendment to IAS 32 “Offsetting Financial Assets and Financial Liabilities” IFRIC 20 “Stripping Costs in Production Phase of a Surface Mine”

Effective Date Announced by IASB (Note)

July 1, 2011 January 1, 2013 January 1, 2013 July 1, 2011 January 1, 2013 January 1, 2013 January 1, 2013 January 1, 2013 January 1, 2014 January 1, 2013 July 1, 2012 January 1, 2012 January 1, 2013 January 1, 2013 January 1, 2014 January 1, 2013 (Concluded)

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

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

1) IFRS 10 “Consolidated Financial Statements”

IFRS 10 replaces IAS 27 “Consolidated and Separate Financial Statements” and SIC 12 “Consolidation - Special Purpose Entities”. The Group considers whether it has control over other entities for consolidation. The Group has control over an investee if and only if it has i) power over the investee; ii) exposure, or rights, to variable returns from its involvement with the investee and iii) the ability to use its power over the investee to affect the amount of its returns. Additional guidance has been included in IFRS 10 to explain when an investor has control over an investee.

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

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

附註- 10 -

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

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

4) IFRS 13 “Fair Value Measurement”

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

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

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

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

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

6) IAS 19 “Employee Benefits”

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

For the adoption of the revised IAS 19 in 2015, there is not any changes in equity but changes in cumulative employee benefit costs as of December 31, 2013, which resulting from the retrospective adoption. The adoption of the revised IAS 19 will result in $57 thousand decrease in net profit and $57 thousand increase in other comprehensive income for the year ended December 31, 2014. However, there is no effect on total comprehensive income for the year ended December 31, 2014.

• 7) 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.

附註- 11 -

• 8) 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”.

• 9) 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 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.

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

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

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

Effective Date Announced by IASB (Note 1)

July 1, 2014 (Note 2) July 1, 2014 January 1, 2016 (Note 4) January 1, 2018 January 1, 2018 January 1, 2016 (Note 3) January 1, 2016 January 1, 2016 January 1, 2016 January 1, 2017 January 1, 2016 January 1, 2016 January 1, 2016 July 1, 2014 January 1, 2014 January 1, 2014 January 1, 2014

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

附註- 12 -

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

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

• Note 4: 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 Group’s accounting policies, except for the following:

• 1) IFRS 9 “Financial Instruments”

Recognition and measurement of financial assets

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

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

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

• b) For debt instruments, if they are held within a business model whose objective is achieved by both 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 Group may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognized in profit or loss. No subsequent impairment assessment is required, 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

附註- 13 -

for a financial asset if its credit risk has not increased significantly since initial recognition. A loss allowance for full lifetime expected credit losses is required for a financial asset if its credit risk has increased significantly since initial recognition and is not low. However, a loss allowance for full lifetime expected credit losses is required for trade receivables that do not constitute a financing transaction.

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

• 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 Group 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 Group 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 Group or another entity in the same group or the market price of the equity instruments of the Group or another entity in the same group (i.e. a market condition); that a performance target can relate either to the performance of the Group as a whole or to some part of it (e.g. a division); and that the period for achieving a performance condition must not extend beyond the end of the related service period. In addition, a share market index target is not a performance condition because it not only reflects the performance of the Group, but also of other entities outside the Group.

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.

附註- 14 -

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

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

• 5) Annual Improvements to IFRSs: 2011-2013 Cycle

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.

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

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

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

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

• 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.

附註- 15 -

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) Annual Improvements to IFRSs: 2012-2014 Cycle

Several standards including IFRS 5 “Non-current assets held for sale and discontinued operations”, IFRS 7, IAS 19 and IAS 34 were amended in this annual improvement.

The amendments to IFRS 7 provide additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset.

• 9) 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 Group should disaggregate the disclosure of material items into their different natures or functions, and disaggregate material information from immaterial information.

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

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

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

• a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, related regulations and IFRSs as endorsed by the FSC.

• b. Basis of preparation

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

• 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.

附註- 16 -

Current liabilities include:

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

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

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

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

• d. Basis of consolidation

• 1) Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with those used by the Company.

All intra-group transactions, balances, income and expenses are eliminated in full upon consolidation.

- Attribution of total comprehensive income to non controlling interests

Total comprehensive income of subsidiaries is attributed to the owners of the Company and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

• 2) Subsidiary included in consolidated financial statements:

Subsidiary included in consolidated financial statements:
Investor Investee Main Business Phihong Phihong International Corp. Makes investments Phitek International Co., Ltd. Makes investments Ascent Alliance Ltd. Makes investments Phihong USA Corp. (“PHA”) Sells various power supplies American Ballast Corp. Sells various ballasts Phihong Technology Japan Co., Ltd. Sells power components Guang-Lai Investment Co., Ltd. Makes investments Phihong International Corp. Phihong (Dongguan) Electronics Co., Ltd. Manufactures various power supplies Phitek (Tianjin) Electronics Co., Ltd. Manufactures various power supplies Phihong Electronics (Suzhou) Co., Ltd. Manufactures various power supplies and ballasts Value Dynamic Investment Ltd. Makes investments N-Lighten Technologies, Inc. Makes investments Value Dynamic Investment Ltd. Yanghong Trade Co., Ltd. Manufactures various lighting supplies N-Lighten Technologies, Inc. N-Lighten (Shanghai) Trading Inc. Develops, manufactures and sells various equipment and monitors Phihong Electronics (Suzhou) Co., Ltd. Suzhou Xin Phihong Electronics Co., Ltd. Manufactures and sells lighting supplies Phitek International Co., Ltd. Dongguan Phitek Electronics Co., Ltd. Manufactures various power supplies Suzhou Xin Phihong Electronics Co., Ltd. Manufactures and sells lighting supplies Ascent Alliance Ltd. Dongguan Shuang-Ying Electronics Co., Ltd. Manufactures and sells electronic materials Jin-Sheng-Hong (Jiangxi) Electronics Co., Ltd. Manufactures and sells electronic materials and transformers Guang-Lai Investment Co., Ltd. N-Lighten Technologies Inc. Makes investments	Percentage of Ownership
	**December 31 **
	2014 2013 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 58.45 58.45 100.00 100.00 100.00 100.00 - (Note) 89.88 100.00 100.00 - (Note) 10.12 100.00 100.00 100.00 100.00 19.78 19.78

附註- 17 -

Note: Liquidation was completed as of July 2014.

e. 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 consolidated financial statements, the assets and liabilities of the Group’s foreign operations (including of the subsidiaries, associates, joint ventures or branches in other countries or currencies used are different from the functional currency of the Group) 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 (attributed to the owners of the Company and non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Group’s entire interest in a foreign operation, or a disposal involving loss of control over a subsidiary that includes a foreign operation, a disposal involving loss of joint control over a jointly controlled entity that includes a foreign operation, or a disposal involving loss of significant influence over an associate that includes a foreign operation), all of the exchange differences accumulated in equity in respect of that operation attributable to the owners of the Company are reclassified to profit or loss.

In relation to a partial disposal of a subsidiary that does not result in the Group’s loss of control over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial disposals, the proportionate share of the accumulated exchange differences recognized in other comprehensive income is reclassified to profit or loss.

f. Inventories

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

g. Investment in associates

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

附註- 18 -

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

When testing for impairment, the cash-generating unit is determined based on the financial statements as a whole by comparing its recoverable amount with its carrying amount. If the recoverable amount of the asset subsequently increases, the reversal of the impairment loss is recognized as a gain, but the increased carrying amount of an asset after a reversal of an impairment loss shall not exceed the carrying amount that would have been determined (net of amortization or depreciation) had no impairment loss been recognized on the asset in prior years. An impairment loss recognized for goodwill shall not be reversed in a subsequent period.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’s consolidated financial statements only to the extent of interests in the associate that are not related to the Group.

• h. Property, plant and equipment

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

Properties in the course of construction for production, supply or administrative purposes are carried at cost, less any recognized impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization. Such properties are depreciated and classified to the appropriate categories of property, plant and equipment when completed and ready for intended use.

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

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

• i. Intangible assets

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

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

At the end of each reporting period, the Group 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 Group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

附註- 19 -

Recoverable amount is the higher of fair value less costs to sell or 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 is subsequently reversed, the carrying amount of the asset or 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 on 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 financial liabilities are recognized when a group entity becomes a party to the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. 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.

1) Financial assets

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

a) Measurement category

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

i. Financial assets at fair value through profit or loss

Financial asset is 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. 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 any dividend or interest earned on the financial asset.

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.

附註- 20 -

ii. Available-for-sale financial assets

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

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 Group’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 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 carrying amount and fair value is recognized in other comprehensive income on financial assets. Any impairment losses are recognized in profit and loss.

iii. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent) 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 Repurchase agreements collateralized by bonds 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.

• b) 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. Objective evidence of impairment for a portfolio of receivables could include the Group’s past experience of collecting payments and the delayed payments in the portfolio past the average credit period.

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.

附註- 21 -

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 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 other receivables, where the carrying amount is reduced through the use of an allowance account. When a trade receivable is considered uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognized in profit or loss.

c) Derecognition of financial assets

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

On derecognition of a financial asset in its entirety, the difference between the 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 is recognized in profit or loss.

2) Equity instruments

Debt and equity instruments issued by the Group is classified as either financial liabilities or as equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by the Group is recognized at the proceeds received, net of direct issue costs.

Repurchase of the Group’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 Group’s own equity instruments.

3) Financial liabilities

All financial liabilities are measured at amortized cost using the effective interest method. The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

4) Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Group is classified separately as financial liabilities and equity in accordance with the substance of the contractual arrangements and the definitions of a financial liability and an equity instrument.

附註- 22 -

On initial recognition, the fair value of the liability component is estimated using the prevailing market interest rate for similar non-convertible instruments. This amount is recorded as a liability on an amortized cost basis using the effective interest method until extinguished upon conversion or the instrument’s maturity date. Any embedded derivative liability is measured at fair value.

The conversion option classified as equity is determined by deducting the amount of the liability component from the fair value of the compound instrument as a whole. This is recognized and included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the conversion option classified as equity will remain in equity until the conversion option is exercised, in which case, the balance recognized in equity will be transferred to capital surplus - share premium. When the conversion option remains unexercised at maturity, the balance recognized in equity will be transferred to capital surplus - share premium.

Transaction costs that relate to the issue of the convertible notes are allocated to the liability and equity components in proportion to the allocation of the gross proceeds. Transaction costs relating to the equity component are recognized directly in equity. Transaction costs relating to the liability component are included in the carrying amount of the liability component.

• l. Financial instruments

Provision is measured at the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. The Group has accrued provision for product guarantee at a certain percentage of current sales.

• m. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced by the amount of estimated customer returns, rebates and other similar allowances.

• 1) Sale of goods

Revenue from the sale of goods is recognized when the goods are delivered and titles have passed, at which time all the following conditions are satisfied:

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

• b) The Group 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 Group; and

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

• 2) 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 Group 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 Group and the amount of income can be measured reliably.

附註- 23 -

n. Borrowing costs

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

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

o. Retirement benefit costs

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

For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected Unit Credit Method. All actuarial gains and losses on the defined benefit obligation are recognized immediately in other comprehensive income. Past service cost is recognized immediately to the extent that the benefits are already vested, and otherwise is amortized on a straight-line basis over the average period until the benefits become vested.

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

Curtailment or settlement gains or losses on the defined benefit plan are recognized when the curtailment or settlement occurs.

p. Employee share options

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

At the end of each reporting period, the Group revises its estimate of the number of employee share options expected to vest. The impact of the revision of the original estimate 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.

q. 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.

附註- 24 -

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and liabilities in the consolidated financial statements and the corresponding tax bases used in the computation of taxable profit. Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax assets are generally recognized for all deductible temporary differences, unused loss carryforward, research and development expenditures to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries and associates, and interests in joint ventures, except where the Group 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 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 period 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 Group 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. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is included in the accounting for the business combination.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities. The estimates and associated assumptions are based on historical experience and other factors that are considered to be 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.

附註- 25 -

a. Income tax

Due to the unpredictability of future profitability, the reliability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available in the future. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such reversal takes place.

• b. Estimated impairment of notes and trade receivable

When there is objective evidence of impairment loss, the Group 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.

• c. The fair value of financial instruments

The Group applies valuation techniques commonly used by market participants. For derivative financial instruments, assumptions were based on quoted market rates adjusted for specific features of the instruments. The estimated fair value of unlisted equity instruments is based on the analysis of the financial position and operation result of investee. The Group believes that the chosen valuation techniques and assumptions used are appropriate in determining the fair value of financial instruments.

• d. The impairment and useful lives of property, plant and equipment

The Group reviews the estimated useful lives of property, plant and equipment at the end of each reporting period. Equipment impairment amount is based on the recoverable amount of the equipment (i.e., the higher of the fair value less the costs to sell of the asset or its value in use). Changes in market prices and future cash flows will affect the recoverability of these assets and may result in recognition of additional impairment loss or reversal of impairment loss.

• e. 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.

f. Recognition of defined benefit plans

The pension expenses and pension liability recognized in defined benefit plans are determined using the Projected Unit Credit Method. The actuarial assumptions used in the valuation of defined benefit plans include discount rate, employee turnover rates and employee salary increase rate. Changes in the market and economic condition may have a material impact on the amount of pension expense and pension liability.

附註- 26 -

6. CASH AND CASH EQUIVALENTS

CASH AND CASH EQUIVALENTS
Cash on hand Check accounts and demand deposits Time deposits with original maturities less than three months Cash equivalent (repurchase agreements collateralized by bonds with original maturities less than three months)		December 31
		2014 $ 2,196 1,662,626 448,037 39,975 $ 2,152,834	2013 $ 2,267 1,346,478 74,000 - $ 1,422,745

The ranges of market rates of demand deposits, time deposits and repurchase agreements collateralized by bonds at the end of the reporting period were as follows:

Demand deposits and time deposits Repurchase agreements collateralized by bonds	December 31
	2014 2013 0.01%-3.25% 0.01%-3.30% 0.58% -

7. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets designated as at FVTPL Guaranteed financial products		**December 31 **	**December 31 **
		2014 $ 194,796	2013 $ 50,957

The Group entered into a 7 to 15 days guaranteed financial products contract with a bank. The Group designated the entire contract as financial assets at FVTPL on initial recognition.

8. FINANCIAL ASSETS MEASURED AT COST

Unlisted stocks Bao-Dian Venture Capital Co., Ltd. Yuan-Jing Venture Capital Co., Ltd. Han-Tong Venture Capital Co., Ltd. Asiatech Taiwan Venture Fund Yong-Li Investment Ltd. TC-1 Culture Fund		December 31	December 31
		2014 $ 6,124 11,366 48,396 682 2,442 15,400 $ 84,410	2013 $ 9,015 20,010 49,996 682 9,442 22,000 $ 111,145

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

附註- 27 -

The Group recognized an impairment loss of $1,600 thousand, $1,400 thousand, $1,600 thousand and $6,600 thousand on the investment Yuan-Jing Venture Capital Co., Ltd., Bao-Dian Venture Capital Co., Ltd., Han-Tong Venture Capital Co., Ltd. and TC-1 Culture Fund for the year ended December 31, 2014, which were presented under other gains and losses.

9. TRADE RECEIVABLE

TRADE RECEIVABLE
Trade receivable Less: Allowance for doubtful accounts		**December 31 **
		2014 $ 1,986,375 (11,546) $ 1,974,829	2013 $ 1,980,245 (13,425) $ 1,966,820

The average credit period for sales of goods was 30-70 days. In determining the recoverability of trade receivable, the Group considered any change in the credit quality of the trade receivable since the date credit was initially granted to the end of the reporting period. Allowance for doubtful accounts was recognized against trade receivables based on estimated irrecoverable amounts determined by reference to credit risk level of the counterparties and an analysis of their current financial position.

For the trade receivables balances that were past due at the end of the reporting period, the Group did not recognize an allowance for impairment loss, because there was not a significant change in credit quality and the amounts were still considered recoverable. The Group did not hold any collateral or other credit enhancements for these balances.

The aging of receivables was as follows:

December 31, 2014

Not overdue and not impaired Not overdue but impaired Overdue and not impaired Overdue but impaired	Total Receivables Not Overdue Overdue under 60 Days Overdue under 61 Days and Longer $ 1,906,071 $ 1,906,071 $ - $ - 6,078 6,078 - - 68,758 - 63,399 5,359 5,468 - - 5,468 $ 1,986,375 $ 1,912,149 $ 63,399 $ 10,827

December 31, 2013

Not overdue and not impaired Not overdue but impaired Overdue and not impaired Overdue but impaired	Total Receivables Not Overdue Overdue under 60 Days Overdue under 61 Days and Longer $ 1,914,429 $ 1,914,429 $ - $ - 7,852 7,852 - - 52,391 - 47,081 5,310 5,573 - - 5,573 $ 1,980,245 $ 1,922,281 $ 47,081 $ 10,883

附註- 28 -

Movements in the allowance for doubtful accounts recognized on trade receivable were as follows:

Individual Impairment Losses Groups Impairment Losses Balance at January 1, 2013 $ 22,067 $ 8,130 (Reversed of) recognized impairment loss on receivables (10,000) 4,707 Amounts written off as uncollectible (7,585) (4,290) Effect of exchange rate changes - 396 Balance at December 31, 2013 $ 4,482 $ 8,943 Balance at January 1, 2014 $ 4,482 $ 8,943 Recognized (reversed of) impairment loss on receivables 150 (2,555) Effect of exchange rate changes - 526 Balance at December 31, 2014 $ 4,632 $ 6,914

Total $ 30,197 (5,293) (11,875) 396 $ 13,425 $ 13,425 (2,405) 526 $ 11,546

As of December 31, 2014 and 2013, trade receivable of PHA in the amount of $574,670 thousand and $725,785 thousand, respectively, had been pledged to secure short-term debts (the amount was not used as of December 31, 2014 and 2013, respectively). See Note 28 to the consolidated financial statements.

10. INVENTORIES

Raw materials Work-in-process Finished goods Merchandise		**December 31 **	**December 31 **
		2014 $ 455,625 139,988 351,294 689,401 $ 1,636,308	2013 $ 502,913 168,856 465,439 568,856 $ 1,706,064

As of December 31, 2014 and 2013, allowance of inventory devaluation were $348,768 thousand and $321,282 thousand, respectively.

For the years ended December 31, 2014 and 2013, the cost of inventories recognized as cost of goods sold were $10,705,420 thousand and $10,227,880 thousand, respectively. Provision for inventory devaluation and obsolescence in the amounts of $11,504 thousand and $45,013 thousand were included in the cost of goods sold for the years ended December 31, 2014 and 2013, respectively.

附註- 29 -

11. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates:

Unlisted stocks Hao-Xuan Venture Capital Co., Ltd. H&P Venture Capital Co., Ltd. Han-Yu Venture Capital Co., Ltd. Spring City Resort Co., Ltd.		**December 31 **	**December 31 **
		2014 $ 28,773 129,367 112,821 32,433 $ 303,394	2013 $ 40,208 137,642 116,630 35,153 $ 329,633

At the end of the reporting period, the percentages of ownership and voting rights in associates held by the Group were as follows:

Hao-Xuan Venture Capital Co., Ltd. H&P Venture Capital Co., Ltd. Han-Yu Venture Capital Co., Ltd. Spring City Resort Co., Ltd. Phihong PWM Brasil Ltda. First International Computer Do Brasil Ltda.	**December 31 **
	2014 2013 24.67% 24.67% 32.26% 32.26% 22.22% 22.22% 25.33% 25.33% 60.00% 60.00% 33.85% 33.85%

In 2014, Hao-Xuan Venture Capital Co., Ltd.’s board of directors approved to decrease and return its capital in the amount of $84,926 thousand. The Group received the returned capital of $20,948 thousand.

Phihong’s investments in Brazil include 60% ownership interest of Phihong PWM Brasil Ltda. and 33.85% ownership interest of First International Computer Do Brasil Ltda. Additionally, Phihong PWM Brasil Ltda. also holds 21.15% ownership interest of First International Computer Do Brasil Ltda. The other 40% ownership interest of Phihong PWM Brasil Ltda. is held by the local management team. According to cooperation mode between the Group and the local management team and under Brazilian local laws, the Group has no controlling power over Phihong PWM Brasil Ltda. Because the recoverability of the investments in Phihong PWM Brasil Ltda. and First International Computer Do Brasil Ltda. is low, the Group reduced the carrying value of both investments to zero.

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

Total assets Total liabilities Revenue for the period Profit for the period Other comprehensive income for the period		**December 31 **	**December 31 **	**December 31 **
	2014 2013 $ 1,646,368 $ 1,735,926 $ 492,962 $ 482,631 For the Year Ended December 31
			2014 $ 717,938 $ 60,168 $ (38,948)	2013 $ 545,760 $ 26,727 $ (22,021)

附註- 30 -

The investments accounted by the equity method, the share of profit or loss and other comprehensive income for the years ended December 31, 2014 and 2013 were based on the associates’ financial statements which were audited by auditors for the same years.

12. PROPERTY, PLANT AND EQUIPMENT

Cost Balance at January 1, 2013 Additions Disposals Effect of foreign currency exchange differences Others Balance at December 31, 2013 Accumulated depreciation and impairment Balance at January 1, 2013 Disposals Depreciation expense Effect of foreign currency exchange differences Others Balance at December 31, 2013 Carrying amounts at December 31, 2013 Cost Balance at January 1, 2014 Additions Disposals Effect of foreign currency exchange differences Others Balance at December 31, 2014 Accumulated depreciation and impairment Balance at January 1, 2014 Disposals Depreciation expense Effect of foreign currency exchange differences Others Balance at December 31, 2014 Carrying amounts at December 31, 2014	Freehold Land $ 254,350 16,379 - 757 - $ 271,486 $ - - - - - $ - $ 271,486 $ 271,486 - - 1,830 - $ 273,316 $ - - - - - $ - $ 273,316	Buildings $ 2,446,205 33,535 (2,491) 126,133 8,230 $ 2,611,612 $ 837,046 (1,370) 100,425 43,756 (1,144) $ 978,713 $ 1,632,899 $ 2,611,612 33,304 (137,218) 126,547 12,520 $ 2,646,765 $ 978,713 (70,315) 98,915 51,022 - $ 1,058,335 $ 1,588,430	Machinery and Equipment $ 2,365,881 63,653 (36,389) 136,846 104,169 $ 2,634,160 $ 1,186,716 (23,030) 254,209 69,267 59,424 $ 1,546,586 $ 1,087,574 $ 2,634,160 145,128 (130,159) 141,266 (34) $ 2,790,361 $ 1,546,586 (87,006) 239,978 88,226 (33) $ 1,787,751 $ 1,002,610	Other Equipment Construction in Progress $ 604,405 $ 284,237 58,510 586,986 (27,884) - 20,678 26,181 (63,507) (59,298) $ 592,202 $ 838,106 $ 437,732 $ - (25,099) - 65,481 - 15,694 - (58,533) - $ 435,275 $ - $ 156,927 $ 838,106 $ 592,202 $ 838,106 58,195 621,849 (39,169) - 21,057 65,216 9,693 (24,168) $ 641,978 $ 1,501,003 $ 435,275 $ - (36,460) - 61,673 - 17,266 - 33 - $ 477,787 $ - $ 164,191 $ 1,501,003	Total $ 5,955,078 759,063 (66,764) 310,595 (10,406) $ 6,947,566 $ 2,461,494 (49,499) 420,115 128,717 (253) $ 2,960,574 $ 3,986,992 $ 6,947,566 858,476 (306,546) 355,916 (1,989) $ 7,853,423 $ 2,960,574 (193,781) 400,566 156,514 - $ 3,323,873 $ 4,529,550

附註- 31 -

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

following estimated useful life:
Buildings
Main building	50 years
Engineering system	10 years
Machinery and equipment	3-10 years
Other equipment	3-5 years

Refer to Note 28 for the carrying amount of property, plant and equipment that had been pledged by the Group to secure long-term loans.

13. INTANGIBLE ASSETS

INTANGIBLE ASSETS
	Completed
	Investment
	Property
Cost
Balance at January 1, 2013	$	77,356
Additions		18,372
Disposals		(2,193)
Effect of foreign currency exchange differences		1,085
Balance at December 31, 2013	$	94,620
Accumulated amortization and impairment
Balance at January 1, 2013	$	34,596
Depreciation expense		15,381
Disposals		(2,071)
Effect of foreign currency exchange differences		406
Balance at December 31, 2013	$	48,312
Carrying amounts at December 31, 2013	$	46,308
Cost
Balance at January 1, 2014	$	94,620
Additions		13,723
Disposals		(8,423)
Effect of foreign currency exchange differences		1,832
Balance at December 31, 2014	$	101,752
Accumulated amortization and impairment
Balance at January 1, 2014	$	48,312
Depreciation expense		14,963
Disposals		(7,992)
Effect of foreign currency exchange differences		666
Balance at December 31, 2014	$	55,949
Carrying amounts at December 31, 2014	$	45,803

附註- 32 -

The above items of intangible assets were depreciated on a straight-line basis over estimated useful life of 2 to 5 years.

14. PREPAYMENTS FOR LEASE

PREPAYMENTS FOR LEASE
Current Noncurrent		December 31
		2014 $ 4,078 161,372 $ 165,450	2013 $ 3,303 133,309 $ 136,612

Prepayments for lease are prepaid for land use rights for land located in Mainland China.

15. BORROWINGS

Short-term Debt

Short-term Debt
Unsecured loan Bank borrowings Interest rate Long-term Debt Unsecured loan Medium-term loan Repayable from March 13, 2013 to March 13, 2015; interest rate was 1.42% on December 31, 2013. Interest is paid monthly and principal is due on March 13, 2015. Principal was fully repaid in June 2014. Medium-term loan Repayable from August 13, 2013 to August 13, 2015; interest rate was 1.42% on December 31, 2013. Interest is paid monthly and principal is due on August 13, 2015. Principal was fully repaid in June 2014. Medium-term secured loan Repayable from December 11, 2013 to December 11, 2015; interest rate was 1.39% on December 31, 2013. Interest is paid monthly and principal is due on December 11, 2015. Principal was fully repaid in June 2014.		December 31
		2014 2013 $ - $ 100,000 - 1.32% **December 31 **
		2014 2013 $ - $ 100,000 - 100,000 - 250,000 (Continued)

附註- 33 -

Secured loan Medium-term secured loan Repayable from December 11, 2013 to December 11, 2015; interest rate was 1.39% on December 31, 2013. Interest is paid monthly and principal is due on December 11, 2015. Principal was fully repaid in June 2014. Medium-term secured loan Repayable from August 13, 2013 to November 19, 2015; interest rate was 1.48% on December 31, 2013. Interest is due monthly and principal is repaid monthly from December 19, 2013. Principal was fully repaid in June 2014. Less: Long-term loans payable - current portion		**December 31 **	**December 31 **
		2014 $ - - - $ -	2013 $ 250,000 100,000 800,000 (8,333) $ 791,667 (Concluded)

For pledged properties and endorsements/guarantees, please see Notes 27 and 28 to the consolidated financial statements.

16. BONDS PAYABLE

Unsecured domestic convertible bonds		**December 31 **	**December 31 **
		2014 $ 1,429,189	2013 $ -

On June 4, 2014, the Company issued 15 thousand units of $100 thousand 0% NT unsecured convertible bonds in Taiwan, with an aggregate principal of $1,500,000 thousand, proceeds from issue was $1,503,000 thousand.

Each bond entitles the holder to convert into ordinary shares of the Company at a conversion price of $20.4. If the Company changes its capital or pays cash dividends, the conversion price will be adjusted by the formula set up in the prospectus. After August 9, 2014, the conversion price has been adjusted to $19.9. Conversion may occur at any time between July 5, 2014 and May 25, 2017. If the bonds are not converted, they will be redeemed on June 4, 2017 at $100 thousand each.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus. The effective interest rate of the liability component was 1.7% per annum on initial recognition.

Proceeds from issue (less transaction costs $5,669 thousand) Equity component (less transaction costs allocated to the equity component of $272 thousand) Liability component at the date of issue Interest charged at an effective interest rate of 1.70% Conversion to common shares Liability component at December 31, 2014	$ 1,497,331 (71,878) 1,425,453 13,944 (10,208) $ 1,429,189

附註- 34 -

17. OTHER PAYABLES

OTHER PAYABLES
Payable for purchase of equipment Payable for salaries and bonus Compensation payable to employees and directors and supervisors Payable for annual leave Others		December 31
		2014 $ 33,985 340,364 26,612 44,736 610,425 $ 1,056,122	2013 $ 37,946 307,706 27,456 37,880 617,658 $ 1,028,646

18. PROVISION (RECORDED AS OTHER CURRENT LIABILITIES)

Warranties Export losses		December	31
		2014 $ 9,366 49,052 $ 58,418	2013 $ 9,444 49,052 $ 58,496

The provision for warranty claims represents the present value of management’s best estimate of the future outflow of economic benefits that will be required under the Group’s obligations for warranties under local regulations on sale of goods.

The provision of export loss represents the possible product returns and rebates; the amount was estimated based on historical experience, management’s judgments and other known reasons.

19. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

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

b. Defined benefit plans

The Company adopted the defined benefit plan under the Labor Standards Law, under which pension benefits are calculated on the basis of the length of service and average monthly salaries of the six months before retirement. The Company contributes amounts equal to 2% of total monthly salaries and wages to a pension fund administered by the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s name.

The plan assets are invested in domestic and foreign equity and debt securities, bank deposits, etc. The investments are conducted at the discretion of Bureau of Labor Funds, Ministry of Labor or under the mandated management. However, in accordance with Regulations for Revenues, Expenditure, Safeguard and Utilization of the Labor Retirement Fund, the return generated by employees’ pension contributions should not be below the interest rate for a 2-year time deposit with local banks.

附註- 35 -

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

Discount rates Expected return on plan assets Expected rates of salary increase	**December 31 **
	2014 2013 1.875% 1.875% 2.00% 2.00% 3.50% 3.25%

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

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

Current service cost Interest cost Expected return on plan assets An analysis by function Operating cost Marketing expenses Administration expenses Research and development expenses	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ 855 2,062 (919) $ 1,998 $ 197 385 282 1,134 $ 1,998	2013 $ 1,204 1,839 (894) $ 2,149 $ 201 296 280 1,372 $ 2,149

Actuarial losses and gains recognized in other comprehensive income for the years ended December 31, 2014 and 2013 were $9,217 thousand of losses and $1,201 thousand of gains, respectively. The cumulative amount of actuarial losses and gains recognized in other comprehensive income as of December 31, 2014 and 2013 was $2,306 thousand of losses and $6,911 thousand of gains, respectively.

The amounts included in the consolidated balance sheets in respect of the Group’s obligations on defined benefit plans were as follows:

Present value of funded defined benefit obligation Fair value of plan assets Net liability arising from defined benefit obligation		December 31	December 31
		2014 $ 124,183 (48,145) $ 76,038	2013 $ 109,995 (44,809) $ 65,186

附註- 36 -

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

Opening defined benefit obligation Current service cost Interest cost Actuarial losses/(gains) Others Closing defined benefit obligation	For the Year Ended	For the Year Ended	December 31
		2014 $ 109,995 855 2,062 11,271 - $ 124,183	2013 $ 113,180 1,204 1,839 (1,728) (4,500) $ 109,995

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

Opening fair value of plan assets Expected return on plan assets Actuarial gains/(losses) Contributions from plan participants Benefits paid Closing fair value of plan assets	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ 44,809 919 166 2,251 - $ 48,145	2013 $ 46,388 894 (281) 2,308 (4,500) $ 44,809

The actual return on plan assets for the years ended December 31, 2014 and 2013 was $1,085 thousand and $613 thousand, respectively.

The major categories and related percentage of the fair value of plan assets at the balance sheet date were as follows:

Equity instruments Debt instruments Deposit in financial institutions Others		**December **	**31 **
		2014 48.46% 11.53% 18.82% 21.19% 100.00%	2013 43.64% 9.83% 22.17% 24.36% 100.00%

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

Present value of defined benefit obligation Fair value of plan assets Deficit Experience adjustments on plan liabilities Experience adjustments on plan assets		December 31	December 31	2012 $ 113,180 $ 46,388 $ 66,792 $ 7,536 $ (656)		January 1
		2014 $ 124,183 $ 48,145 $ 76,038 $ (7,662) $ 166	2013 $ 109,995 $ 44,809 $ 65,186 $ 4,068 $ (281)			2012 $ 131,560 $ 58,290 $ 73,270 $ - $ -

附註- 37 -

The Company expects to make a contribution of $2,094 thousand and $1,998 thousand to the defined benefit plans during the annual period beginning after 2014 and 2013.

20. EQUITY

Share Capital

Share Capital
Number of shares authorized (in thousands) Shares authorized Number of shares issued and fully paid (in thousands) Shares issued		December 31
		2014 600,000 $ 6,000,000 277,688 $ 2,776,884	2013 600,000 $ 6,000,000 277,164 $ 2,771,639

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

On June 19, 2014, Phihong Technology Co., Ltd.’s board of stockholders resolved to issue 5,000 thousand restricted stock shares, with a par value of NT$10 each, or $50,000 thousand total. Each share’s exercise value is NT$0. Except for restrictions against the transfer of shares, the rights and obligations of these common stocks (including allotment, dividend, shareholders’ voting right, and capital injection right, etc.) before the employees fulfill the vesting conditions, are the same with other outstanding common stocks. As of the date December 31, 2014, the Company has not actually issued restricted stock shares.

Capital Surplus

Capital Surplus
Issuance of common shares Conversion of bonds Treasury share transactions Interest payable of bond conversion Convertible bonds		December 31
		2014 $ 226,556 667,058 48,234 13,243 71,365 $ 1,026,456	2013 $ 226,556 661,582 48,234 13,243 - $ 949,615

The capital surplus arising from shares issued in excess of par (including share premium from issuance of common shares, conversion of bonds and treasury share transactions) and donations 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 and once a year).

The capital surplus from long-term investments, employee share options and share warrants may not be used for any purpose.

附註- 38 -

Retained Earnings and Dividend Policy

Under the Company Law of the ROC and Phihong’s Articles of Incorporation, 10% of Phihong’s annual earnings, net of tax and any deficit, should first be appropriated as legal reserve until such reserve equals to the amount of Phihong’s capital, and then a special reserve should be appropriated as required by laws or local authorities. Any remaining earnings plus unappropriated earnings accumulated in prior years, unless to be retained partially by Phihong or resolved otherwise by the stockholders, should be appropriated as follows:

• a. Not greater than 2% as remuneration to directors and supervisors;

• b. Not less than 10% as bonuses to employees; and

• c. The remaining as dividends, of which at least 10% should be cash dividends.

For the years ended December 31, 2014 and 2013, the bonus to employees was $23,951 thousand and $24,710 thousand, respectively, and the remuneration to directors and supervisors was $2,661 thousand and $2,746 thousand, respectively. The bonus to employees and remuneration to directors and supervisors were expensed based on estimated percentage of net income (net of the bonus and remuneration). Material differences between such estimated amounts and the amounts proposed by the board of directors in the following year are adjusted for in the current year. If the actual amounts subsequently resolved by the stockholders differ from the proposed amounts, the differences are recorded in the year of stockholders’ resolution as a change in accounting estimate. If a share bonus is resolved to be distributed to employees, the number of shares is determined by dividing the amount of the share bonus by the closing price (after considering the effect of cash and stock dividends) of the shares of the day immediately preceding the stockholders’ meeting.

Under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”, a company should appropriate to special reserve. Any special reserve appropriate may be reversed to the extent that the net debt balance reverses and thereafter distributed.

Appropriation of earnings to legal reserve shall be made until the legal reserve equals the Company’s capital surplus. 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 stockholders, all stockholders receiving the dividends are allowed a tax credit equal to their proportionate share of the income tax paid by the Company.

The appropriations of earnings for 2013 and 2012 had been approved in stockholders’ meetings held on June 19, 2014 and June 14, 2013, respectively. The appropriations and dividends per share were as follows:

June 19, 2014 and June 14, 2013, follows:	respectively. The appropriations	and dividends per share were as
Legal reserve Cash dividends	Appropriation of Earnings For Year 2013 For Year 2012 $ 15,254 $ 30,955 137,281 277,164	Dividends Per Share (NT$)
		For Year 2013 For Year 2012 $ - $ - 0.5 1.00

附註- 39 -

The bonus to employees and the remuneration to directors and supervisors for 2013 and 2012 had been approved in the stockholders’ meeting held on June 19, 2014 and June 14, 2013, respectively. Related amounts were as follows:

Bonus to employees Remuneration of directors and supervisors	For the Year Ended 2013 Cash Dividends Stock Dividends $ 24,710 $ - 2,746 -	For the Year Ended 2012
		Cash Dividends Stock Dividends $ 50,148 $ - 5,572 -

The appropriations of earnings for 2013 were proposed according to the Company’s financial statements for the year ended December 31, 2013, which were prepared in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and ROC GAAP, and by reference to the balance sheet as of December 31, 2013, which was prepared in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers (revised) and International Financial Reporting Standards.

There was no difference between the amounts accrued and the amounts approved in the stockholders’ meetings with respect to bonus to employees and remuneration to directors and supervisors.

The appropriations of earnings for 2014 had been proposed by the Company’s board of directors on March 13, 2015. The appropriations and dividends per share were as follows:

	Appropriation	Appropriation	Dividends Per	Dividends Per
	of	Earnings	Share	(NT$)
Legal reserve	$	14,785	$	-
Cash dividends		133,062		0.479
Bonus to employees		23,951		-
Remuneration of directors and supervisors		2,661		-

The appropriations of earnings, the bonus to employees, and the remuneration to directors and supervisors for 2014 are subject to the resolution in the shareholders’ meeting to be held on June 11, 2015.

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.

Special Reserves Appropriated Following First-time Adoption of IFRSs

The Company transferred unrealized revaluation increment and cumulative translation differences to retained earnings at the amount of $10,968 thousand and $250,296 thousand, respectively. The increase in retained earnings that resulted from all IFRSs adjustments was smaller than the total revaluation and translation differences; therefore, the Company appropriated to the special reserve an amount of $230,859 thousand, the increase in retained earnings that resulted from all IFRSs adjustments on transitions to IFRSs.

附註- 40 -

Other Equity Items

a. Foreign currency translation reserve

Balance at January 1 Exchange differences arising on translating foreign operations Balance at December 31	**For the Year Ended **	**For the Year Ended **	December 31
		2014 $ 73,280 272,690 $ 345,970	2013 $ (148,361) 221,641 $ (73,280)

Exchange differences relating to the translation of the results and net assets of the Group’s foreign operations from their functional currencies to the Group’s presentation currency (i.e. New Taiwan dollars) were recognized directly in other comprehensive income and accumulated in the foreign currency translation reserve. Exchange differences previously accumulated in the foreign currency translation reserve (in respect of translating both the net assets of foreign operations and hedges of foreign operations) were reclassified to profit or loss on the disposal of the foreign operation.

b. Investments revaluation reserve

Balance at January 1 Unrealized gain arising on revaluation of available-for-sale financial assets Share of unrealized gain on revaluation of available-for-sale financial assets of associates accounted for using the equity method Balance at December 31	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ (26,428) - (10,771) $ (37,199)	2013 $ (15,603) (1,875) (8,950) $ (26,428)

The investments revaluation reserve represents the cumulative gains and losses arising on the revaluation of available-for-sale financial assets that have been recognized in other comprehensive income, net of amounts reclassified to profit or loss when those assets have been disposed of or are determined to be impaired.

Non-controlling Interest

Non-controlling Interest
Balance at January 1 Attributable to non-controlling interests: Share of profit for the period Exchange difference arising on translation of foreign entities Balance at December 31	For the Year Ended December 31
		2014 $ (8,858) (254) (550) $ (9,662)	2013 $ (5,390) (2,019) (1,449) $ (8,858)

附註- 41 -

21. NET PROFIT FROM CONTINUING OPERATIONS

a. Other gains and losses

Gain (loss) on disposal of property, plant and equipment Exchange gain (loss), net Loss on disposal of investment Net gain on fair value of financial assets designated as at fair value through profit or loss Impairment loss Others b. Depreciation and amortization Property, plant and equipment Computer software Prepayments for lease An analysis of depreciation by function Operating costs Operating expenses An analysis of amortization by function Operating costs Operating expenses c. Employee benefits expense Post-employment benefits (Note 19) Defined contribution plans Defined benefit plans Short-term employee benefits	**For the Year Ended **	**For the Year Ended **	**For the Year Ended **	December 31
	2014 $ 50,716 105,797 - 3,106 (11,200) (10,594) $ 137,825 For the Year Ended			2013 $ (3,000) (1,177) (169) - - (8,725) $ (13,071) December 31
	2014 $ 400,566 14,963 3,852 $ 419,381 $ 241,972 158,594 $ 400,566 $ 5,051 13,764 $ 18,815 **For the Year Ended **			2013 $ 420,115 15,381 3,258 $ 438,754 $ 264,156 155,959 $ 420,115 $ 4,258 14,381 $ 18,639 December 31
		2014 $ 24,100 1,998 26,098 2,625,305 $ 2,651,403	2013 $ 22,625 2,149 24,774 2,412,821 $ 2,437,595 (Continued)

附註- 42 -

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
		2014 $ 1,702,239 949,164 $ 2,651,403	2013 $ 1,548,485 889,110 $ 2,437,595 (Concluded)

22. INCOME TAXES RELATING TO CONTINUING OPERATIONS

• a. Income tax recognized in profit or loss

The major components of tax expense were as follows:

Current tax In respect of the current period In respect of prior periods Additional tax at 10% of unappropriated earnings Deferred tax In respect of the current period Total income tax expense recognized in the current period	**For the Year Ended **	**For the Year Ended **	December 31
		2014 $ 111,282 33,189 - 144,471 5,700 $ 150,171	2013 $ 123,632 21,796 143 145,571 750 $ 146,321

Accounting income and current income tax expense were reconciled as follows:

Income tax expense at statutory rate Income tax on unappropriated earnings Current income tax expense Deferred income tax assets (liabilities) Temporary difference Adjustments to prior year’s income tax expense Total income tax expense recognized in the current period	For the Year Ended	For the Year Ended	December 31
		2014 $ 111,282 - 111,282 5,700 33,189 $ 150,171	2013 $ 123,632 143 123,775 750 21,796 $ 146,321

The applicable tax rate used above is the corporate tax rate of 17% payable by the Group in ROC, while the applicable tax rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other jurisdictions are based on the tax laws in those jurisdictions.

As the status of 2014 appropriations of earnings is uncertain, the potential income tax consequences of 2014 unappropriated earnings are not reliably determinable.

附註- 43 -

• b. Income tax recognized in other comprehensive income

Deferred tax In respect of the current year: Actuarial gains and losses on defined benefit plan Total income tax recognized in other comprehensive income	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ 1,888 $ 1,888	2013 $ (246) $ (246)

c. Current tax liabilities

Current tax liabilities Income tax payable	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ 96,079	2013 $ 86,446

d. Deferred tax assets and liabilities

The Group has offset certain deferred tax assets with 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, 2014

Deferred tax assets Temporary differences Allowance for inventory devaluation losses Allowance for doubtful accounts Unrealized gross profit Deferred pension costs Others Deferred tax liabilities Temporary differences Unrealized gain on financial instruments	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 9,070 $ - $ - $ 9,070 10,900 (440) - 10,460 8,530 (1,920) - 6,610 10,270 (30) - 10,240 8,653 (3,310) 1,888 7,231 $ 47,423 $ (5,700) $ 1,888 $ 43,611 $ 79,832 $ - $ - $ 79,832

附註- 44 -

For the year ended December 31, 2013

Deferred tax assets Temporary differences Allowance for inventory devaluation losses Allowance for doubtful accounts Unrealized gross profit Deferred pension costs Others Deferred tax liabilities Temporary differences Unrealized gain on financial instruments	Opening Balance Recognized in Profit or Loss Recognized in Other Comprehensive Income Closing Balance $ 9,070 $ - $ - $ 9,070 10,160 740 - 10,900 11,100 (2,570) - 8,530 10,280 (10) - 10,270 7,809 1,090 (246) 8,653 $ 48,419 $ (750) $ (246) $ 47,423 $ 79,832 $ - $ - $ 79,832

e. Information on integrated income tax was as follows:

Unappropriated earnings Generated before January 1, 1998 Generated on and after January 1, 1998 Imputation credit accounts Creditable ratio for distribution of earning	For the Year Ended	December 31
	2014 $ - 839,463 $ 839,463 $ 205,538 For the Year Ended	2013 $ - 853,368 $ 853,368 $ 205,517 December 31
	2014 (Expected) 2013 (Actual) 28.05% 26.92%

f. Income tax assessments

The latest income tax returns through 2012 have been assessed by the tax authorities.

附註- 45 -

23. EARNINGS PER SHARE

EARNINGS PER SHARE
		Number of
	Income After	Common
	Tax (Attributed	Shares
	to Owners of	Outstanding	Earnings Per
	the Company)	(In Thousands)	Share	(NT$)
For the year ended December 31, 2014
Basic earnings per share
Net income	$ 147,847	277,344	$	0.53
Effect of dilutive potential common shares
Employee bonus	-	1,859
Convertible bonds	11,574	43,390
Diluted earnings per share
Net income attributed to holders of common
shares plus the effect of dilutive potential
common shares	$ 159,421	322,593	$	0.49
For the year ended December 31, 2013
Basic earnings per share
Net income	$ 152,534	277,164	$	0.55
Effect of dilutive potential common shares
Employee share option	-	-
Employee bonus	-	1,316
Diluted earnings per share
Net income attributed to holders of common
shares plus the effect of dilutive potential
common shares	$ 152,534	278,480	$	0.55

If the Group can settle the bonuses to employees by cash or shares, the Group presumes that the entire amount of the bonus would be settled in shares and the resulting potential shares are included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, if the shares have a dilutive effect. Such dilutive effect of the potential shares is included in the computation of diluted earnings per share until the stockholders resolve the number of shares to be distributed to employees at their meeting in the following year.

24. SHARE-BASED PAYMENT ARRANGEMENTS

Employee Share Option Plan of the Company

No share options were guaranteed during the years ended December 31, 2013.

附註- 46 -

Information on employee share options was as follows:

Information on employee share options was as follows:
Balance at January 1 Options exercised Options expired Balance at December 31 Options exercisable, end of period As of December 31, 2013, all outstanding options were expired.	For the Nine Year Ended December 31, 2013
	Number of Options (In Thousand Shares) Weighted- average Exercisable Price (NT$) 4,515 $ 18.20 - (4,515) - -

25. CAPITAL MANAGEMENT

The capital structure of the Group consists of net debt (borrowings minus cash and cash equivalents) and equity attributable to owners of the Company. Key management personnel of the Group review the capital structure periodically. Based on recommendations of the key management personnel, in order to balance the overall capital structure, the Group may adjust the amount of dividends paid to stockholders, the number of new shares issued or repurchased, and/or the amount of new debt issued or existing debt redeemed.

26. FINANCIAL INSTRUMENTS

• a. Fair value of financial instruments

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

Except for the financial assets carried at cost, of which fair values can not be reliably measured, the management of the Group considers that the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

• 2) Fair value measurements recognized in the consolidated balance sheets

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

• a) Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities.

附註- 47 -

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

Financial assets at FVTPL Guaranteed financial products		**December 31 **	**December 31 **
		2014 $ 194,796	2013 $ 50,957

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

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

The fair values of financial assets and financial liabilities with standard terms and conditions and traded in active liquid markets are determined with reference to quoted market prices. When such prices are not available, valuation techniques are applied. The estimates and assumptions used by the Group are consistent with those that market participants would use in setting a price for the financial instrument.

• b. Categories of financial instruments

Financial assets Loans and receivables Cash and cash equivalents Trade receivable Other receivables Refundable deposits (recorded as other non-current assets) Financial assets at fair value through profit or loss Financial liabilities Measured at amortized cost Short-term debts Trade payable Trade payable to related parties Other payables Current portion of long-term debts Long-term debts Advance deposits received (recorded as other non-current liabilities)

**December 31 **

2014 2013 $ 2,152,834 $ 1,422,745 1,974,829 1,966,820 105,853 32,607 47,050 25,741 194,796 50,957 - 100,000 2,246,205 2,026,147 99,517 109,911 1,056,122 1,028,646 - 8,333 - 791,667 4,703 898

• c. Financial risk management objectives and policies

The Group’s major financial instruments included cash and cash equivalents, trade receivable, other receivables, refundable/advance deposit, trade payable, trade payable - related parties, other payables, short-term loans, long-term loans and bonds payable. The Group’s corporate treasury function provides services to the business, coordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Group through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk, credit risk and liquidity risk.

附註- 48 -

1) Market risk

The Group’s operating activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.

a) Foreign currency risk

Several subsidiaries of the Group had foreign currency sales and purchases, which exposed the Group to foreign currency risk. Assessment of the Group’s foreign currency assets and liabilities, it has no significant exposure to foreign currency risk, the Group without additional hedge processing, so no application of the relevant hedge accounting.

The carrying amounts of the Group’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) at the end of the reporting period are presented in Note 30.

Sensitivity analysis

The Group was mainly exposed to the currency USD.

The following table details the Group’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. The sensitivity analysis included only outstanding foreign currency denominated monetary items at the end of the reporting period for a 1% change in foreign currency rates. A positive number below indicates an decrease in pre-tax profit when New Taiwan dollars strengthen by 1% against the relevant currency. For a 1% weakening of New Taiwan dollars against the relevant currency, there would be an equal and opposite impact on pre-tax profit and the balances below would be negative.

Profit or loss b) Interest rate risk	Currency USD Impact
	For the Year Ended December 31
	2014 2013 $ 9,445 $ 5,413

The Group was exposed to fair value risk and cash flow interest rate risk from short-term loans, long-term loans, time deposit, repurchase agreements and collateralized bonds at both fixed and floating interest rates.

The carrying amounts of the Group’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 liabilities Cash flow interest rate risk Financial liabilities	December 31
	2014 2013 $ - $ 600,000 - 300,000

附註- 49 -

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Group. As at the end of the reporting period, the Group’s maximum exposure to credit risk approximates the carrying amount of the respective recognized financial assets as stated in the consolidated balance sheets.

The Group adopted a policy of only dealing with creditworthy counterparties and obtaining sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from defaults. The Group’s exposure and the credit ratings of its counterparties are continuously monitored and the aggregate value of transactions concluded is spread amongst approved counterparties. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually.

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 customers in view of trade receivables and, where appropriate, credit guarantee insurance cover is purchased.

3) Liquidity risk

• a) Liquidity and interest risk tables

The following tables detail the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods:

December 31, 2014

December 31, 2014
Non-derivative financial liabilities Non-interest bearing Variable interest rate instrument Fixed interest rate instrument December 31, 2013 Non-derivative financial liabilities Non-interest bearing Variable interest rate instrument Fixed interest rate instrument	On Demand or Less than 1 Year $ 3,401,844 - - $ 3,401,844 On Demand or Less than 1 Year $ 3,164,704 8,333 100,000 $ 3,273,037	1 to 3 Years Over 3 Years $ 1,429,189 $ - - - - - $ 1,429,189 $ - 1 to 3 Years Over 3 Years $ - $ 898 291,667 - 500,000 - $ 791,667 $ 898	Total $ 4,831,033 - -
			$ 4,831,033
			Total $ 3,165,602 300,000 600,000
			$ 4,065,602

附註- 50 -

b) Financing facilities

Unused bank financing facilities		December 31	December 31
		2014 $ 2,678,310	2013 $ 1,238,800

27. RELATED-PARTY TRANSACTIONS

• a. The Group’s related parties and relationship

Related Party Xu Sheng Technology Co., Ltd. Red Sun Metal Industry Co., Ltd. Shine Tech Ltd. Heng Hui Co., Ltd. Dongguan Song Xiang Metal Products Co., Ltd. Dongguan Fenggang Pin Hao Metal Products Co., Ltd. Hua Jung Co., Ltd. Hong Ding Educational Technology Co., Ltd. Peter Lin	Relationship with the Group
	Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Other related parties Phihong’s chairman

Balances and transactions between the Company and its subsidiaries, which are related parties of the Group, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and other related parties were disclosed below:

• b. Trading transactions

Sales Other related parties Purchase of goods Other related parties Payables to related parties (excluding loans from related parties) Other related parties	**For the Year Ended **	**For the Year Ended **	December 31
		2014 2013 $ 189 $ - $ 312,111 $ 325,091 December 31
		2014 $ 99,517	2013 $ 109,911

附註- 51 -

c. Compensation of key management personnel

The types and amounts of the remuneration of directors and other members of key management personnel were as follows:

Short-term benefits Post-employment benefits	For the Year Ended	For the Year Ended	December 31
		2014 $ 69,505 514 $ 70,019	2013 $ 63,122 323 $ 63,445

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

d. Other transactions with related parties

The key management personnel of the Group have guaranteed the payments of the loans of the Company as of December 31, 2013. The amounts of the guarantees was $900,000 thousand.

28. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings:

Freehold land Buildings Trade receivable		December 31	December 31
		2014 $ 197,586 141,991 574,670 $ 914,247	2013 $ 112,450 149,409 725,785 $ 987,644

29. CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

The Group’s unrecognized commitments were as follows:

Acquisition of property, plant and equipment		**December 31 **	**December 31 **
		2014 $ 396,087	2013 $ 514,049

附註- 52 -

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

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

Financial assets Monetary items USD JPY HKD RMB EUR Financial liabilities Monetary items USD JPY HKD RMB	December 31 2014 2013 Foreign Currencies (In Thousands) Exchange Rate (Note) New Taiwan Dollars (In Thousands) Foreign Currencies (In Thousands) Exchange Rate (Note) New Taiwan Dollars (In Thousands) $ 94,992 31.7100 $ 3,012,196 $ 94,873 29.9000 $ 2,836,703 329,727 0.2639 87,015 526,578 0.2836 144,338 702 4.08738 2,869 1,345 3.8557 5,186 107,103 5.17934 554,723 52,190 4.8997 255,715 22 38.5700 849 - - - 50,404 31.7100 1,598,311 60,250 29.9000 1,801,475 23,743 0.2639 6,256 10,761 0.2836 3,052 5,395 4.08738 22,051 4,808 3.8557 18,538 225,613 5.17934 1,168,526 132,690 4.8997 650,141	December 31 2014 2013 Foreign Currencies (In Thousands) Exchange Rate (Note) New Taiwan Dollars (In Thousands) Foreign Currencies (In Thousands) Exchange Rate (Note) New Taiwan Dollars (In Thousands) $ 94,992 31.7100 $ 3,012,196 $ 94,873 29.9000 $ 2,836,703 329,727 0.2639 87,015 526,578 0.2836 144,338 702 4.08738 2,869 1,345 3.8557 5,186 107,103 5.17934 554,723 52,190 4.8997 255,715 22 38.5700 849 - - - 50,404 31.7100 1,598,311 60,250 29.9000 1,801,475 23,743 0.2639 6,256 10,761 0.2836 3,052 5,395 4.08738 22,051 4,808 3.8557 18,538 225,613 5.17934 1,168,526 132,690 4.8997 650,141
		2013
		Foreign Currencies (In Thousands) Exchange Rate (Note) New Taiwan Dollars (In Thousands) $ 94,873 29.9000 $ 2,836,703 526,578 0.2836 144,338 1,345 3.8557 5,186 52,190 4.8997 255,715 - - - 60,250 29.9000 1,801,475 10,761 0.2836 3,052 4,808 3.8557 18,538 132,690 4.8997 650,141

Note: Exchange rate represents the amount of New Taiwan dollars for which one foreign currency could be exchanged.

31. SEGMENT INFORMATION

The Group’s power supply segment is the only one reportable segment. The power supply segment mainly engages in the manufacturing and selling of AC/DC power adapters, charger bases, and power supply modules for computers. The Group’s other operating segments did not exceed the quantitative threshold so they are not disclosed as reportable segments. These segments mainly engage in manufacturing and selling of lighting supply and developing, manufacturing and selling monitors.

The Group adopted operating profits as the measurement threshold. There was no material inconsistency between the accounting policies of the operating segment and the accounting policies described in Note 4.

The Group’s operating segment information was as follows:

a. Segment revenues and results

Power supply Others Income from continuing operations Other revenue Other gain and loss Financial cost Investment income recognized under equity method, net Income before income tax		Segment Revenues For the Year Ended December 31 2014 2013 $ 11,570,133 $ 11,392,839 865,847 688,249 $ 12,435,980 $ 12,081,088		Segment Profit	Segment Profit
				For the Year Ended **December 31 **
		2014 $ 11,570,133 865,847 $ 12,435,980		2014 $ 23,077 (6,213) 16,864 156,794 137,825 (25,513) 11,794 $ 297,764	2013 $ 250,353 (96,865) 153,488 160,280 (13,071) (8,867) 5,006 $ 296,836

附註- 53 -

b. Segment assets and liabilities

Power supply segment assets Other assets Total assets Power supply segment liabilities Other liabilities Total liabilities		December 31	December 31
		2014 $ 10,405,041 1,046,051 $ 11,451,092 $ 5,020,754 159,166 $ 5,179,920	2013 $ 9,420,592 908,337 $ 10,328,929 $ 4,287,005 115,302 $ 4,402,307

• c. Geographical information

The Group operates in three principal geographical areas - Asia, the United States (USA) and Europe.

The Group’s revenue from continuing operations from external customers by location of operations and information about its non-current assets by location of assets are detailed below.

Asia USA Europe Others	Revenue from External Customers For the Year Ended December 31 2014 2013 $ 6,770,529 $ 8,529,368 2,501,533 2,468,038 3,119,806 1,041,523 44,112 42,159 $ 12,435,980 $ 12,081,088	Revenue from External Customers For the Year Ended December 31 2014 2013 $ 6,770,529 $ 8,529,368 2,501,533 2,468,038 3,119,806 1,041,523 44,112 42,159 $ 12,435,980 $ 12,081,088		Non-current Assets	Non-current Assets
				December 31
		2014 $ 6,770,529 2,501,533 3,119,806 44,112 $ 12,435,980		2014 $ 4,707,213 134,966 - - $ 4,842,179	2013 $ 4,236,902 132,263 - - $ 4,369,165

• d. Information about major customers

Included in revenues arising from direct sales of $12,435,980 thousand and $12,081,088 thousand in 2014 and 2013 respectively, are revenues of approximately $4,555,068 thousand and $4,891,141 thousand which arose from sales to the Group’s main customers. No other single customers contributed 10% or more to the Group’s revenue for both 2014 and 2013.

Single customers contributed 10% or more to the Group’s revenue were as follows:

Custom A Custom B	For the Year Ended December 31	For the Year Ended December 31	For the Year Ended December 31
		2014 $ 3,469,492 1,085,576 $ 4,555,068	2013 $ 3,442,824 1,448,317 $ 4,891,141

附註- 54 -