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TXC Annual Report 2015

Jun 20, 2016

52274_rns_2016-06-20_7edc5fe7-de67-4caf-8934-0e7d7a26b7da.pdf

Annual Report

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Annual Report 2015 Table of Contents

I. Business Report ………………………………………………………………3
II. Company Overview
A. Company Introduction……………………………………………………….6
B. Company Structure and the Subsidiaries ……………………………………….8
III. Corporate governance
A. Directors…………………….………………………………….…10
B. Personnel data of the general manager, vice general manager, assistant vice
general manager, chief of divisions ………………………………11
C. Remuneration and Compensation Paid to Directors, and General and Vice
General Managers………………………………………………………………12
D.Corporate governance and variations with management principles of
publicly-listed companies and reasons ………………………………………20
IV. Fund Raising Overview
A. Capital and shares ……………………………………………………………28
B. Data on share price, net value, profit, and dividend of the past two years …30
C. Company’s dividend policy and its current implementation status ………31
D. Employee bonus and rewards for directors and auditors …………………33
E. Buying back company stocks ………………………………………………34
F. Convertible Corporate Bond …………………………………………..……35
V. Fund Utilization Plans:
A. Fund Utilization Plan and Utilization Status of this Corporate Bond Issue…….37
B. Previous capital increase by cash and execution status…………………………38
VI. Business Information
A. Business Contents …………………………………………………………...39
B. Marketing & Sales Situation …………………………………….……….50
C. Employees’ average years in service, age, and educational background
distribution of the past two years……………………………………………... 61
D. Data on our environmental protection expense ……………………………61
E. Employer/Employee Relation ………………………………………………65
VII. An Overview of the Company’s Financial Status
A. Abbreviated Balance Sheets and P/L Statements for the Past 5 Years ……69
B. Financial Analysis for the past 5 Years …………………………………..77
C. Consolidated Financial Statement for the Parent Company and its
Subsidiaries for the most recent year, Certified by a CPA …………………..88
D. Financial Statements for the most Recent years, including an auditor’s
Report Prepared by a CPA ………….…………………………………….168

1

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Enterprise Vision

The core value of an enterprise lies with its published management philosophy and its attendant mission and the continuous development of an enterprise is ofen built on a long-term architecture, as well as its core value. In view of the imperativeness and importance of the enterprise’s core value for long-term development following gradual development of the company.

Vision Statement

To provide the frequency controlled application products for the computer, communication, optical, and automotive industry so as to become, the most outstanding company in FCP industry judged by performance matrix and managerial capability.

Mission Statement

Through the continuous improvement and the urge for discipline and execution to enhance the productivity to interact with tier one vendors' requests by promoting company's professionalism and globalization framework.

Corporate Culture

To strive for the declared goals in management philosophy and mission, the company shall further develops its founding spirit of Integrity, Practicality, Innovation and Services and convert the guildlines of Unity, Harmony and High Efficiency into a precise corporate culature.

2

I. Business Report

The results of operation of 2015 have consolidated total operation revenue of NT$9.266 billion, or is 2.74% less than the same of 2015, and the budget accomplishing rate is 95.29%. After tax net profit is NT$938 million, or 5.72% less than the NT$995 million net after tax profit of last year and the budget accomplishing rate is 96.61%. The basic EPS is NT$3.03, slightly decreased from NT$3.21 EPS of previous year, or 5.61%. It is expected, with the strategy and organization adjustment, please rolling out of new products, there will be breakthrough in revenue and in net profit. As far as TXC Corp. is concerned, with our continuous innovation, effective distribution of resources and re-screening of targets, as well as change in concept, we are confident in our future growth. Driven by determination to grow and challenge by competition, we would explain the operation results of 2015 and operation plan of 2016 briefly as the following:

I. 2015 Operation Results

  1. Combined revenue and after-tax profit Unit: NT$1,000
Items Year 2015 2014 Growth
amount		 Growth rate
Net revenue 9,265,656 9,526,243 (260,587) (2.74%)
Gross Profit 2,235,175 2,331,149 (95,974) (4.12%)
After-tax profit
（loss）		 938,203 995,174 (56,971) (5.72%)

Combined statement of income and Profitability

Year 2015 2014
Financial
structure (%)		 Debt/assets ratio 31.07% 34.71%
Long-term capital/fixed
asset ratio		 265.53% 210.14%
Debt-paying
ability (%)		 Current ratio 248.91% 279.63%
Quick ratio 201.84% 215.62%
Profitability
(%)		 Return on assets 6.67% 7.77%
Return on equity 9.56% 11.56%
Earnings per share（NT$） 3.03 3.21

2. Budget Execution:

In 2015, we set up internal budgeted target only without make public of the financial estimates. The overall turnover and profit were affected by changes in industries and market competition, and they resulted to achieving the operation target of more than 95%.

3. Research and Development

In R & D, other than existing continuous improvement in technology of quarts products, we are also rolling out new products in accordance with Technical Map. The following are the major ones: Anti-Magnetic Interference Tri-Axis Electronic Compass, Vehicle Mounted Temperature Compensating Control Quartz Oscillator (ACAP TCXO), Vehicle Mounted Temperature Sensing Quartz Crystal (ACAP TSX), New Generation Micro 3-in-1 Light Sensor (Sensor), Miniature Constant Temperature Control Quartz Crystal Oscillator (OCXO), Miniature Vehicle Mounted Quartz Crystal (ACAP Crystal) and Miniature Vehicle Mounted Quartz Crystal Oscillator (ACAP CXO). With the market effectiveness of the above new products, the growth and profit of the Company will be greatly contributed.

3

  1. Results of execution of other Projects

    • (1) Green Enterprise

      • In addition to continuous proceeding of ISO 14001 Environment Management System, Greenhouse Gas Inventory (ISO 14064-1), product Carbon Foot-Print (PAS 2050), the Company has won Excellent Governance Model Award in “Forum for Building Green Enterprise with Standards” as held by BSI in 2015. The Company has also involved in various low carbon activities, such as participating in garden party of Child Welfare Alliance and Spring Beach cleaning Activity of Taoyuan City, Shimenshan Hiking and Shihtoushan Hiking to dedicate in our corporate social responsibility

  2. (2) Occupation Safety and Health

  3. In order to protect safety of labor, under the guidance of Occupation Safety & health Committee and Labor Agreement, in addition to promoting OHSAS 18001 Occupation Health and Safety Management System Certification and passed CNS 15506 Taiwan Occupation Safety & Health Management System Certification, TXC Corp. received 3 years approval of Business Unit Occupation Safety and Health Management System Performance Approval of Department of Labor in 2015. In the Company, we have held many sessions if No-Smoking Activities, Parenthood Education, and Stress Release Seminar of Tradition Chinese Medicine. The Company has banned smoking in 2015 totally, which is an effort to protect the health of employees. By applying the subsidy of Department of Labor, we helped employees in Works and Living Balancing Plan and held Sunshine Seed Learner Training Program to promote the ability of detecting and caring skills. For the traffic injury events outside of the plant, the Company provides also timely assistance and practical care. In future, this kind of safe working environment will be established to provide employees with the best possible safety protection.

    • (3) System Certification

      • In respect of maintenance of various operation system, in 2015, TXC continued in seeking certification of ISO 9001 Quality Management System, Automotive Industry Quality Management System (ISO/TS 16949) Environment Management System (ISO 14001), Taiwan Occupation Health Management System (CNS 15506Information Safety Management System (ISO/IEC27001), Supply Chain Safety Management System (ISO 28000), Hazardous Substance Process Management System (IECQ QC 080000:2012), Occupational Safety & Health Management System (OHSAS 18001:2007) and Occupation Safety & Health Performance Approval. Together with ISO 14064-1: 2006 Greenhouse Gas Verification, Product Carbon Footprint Verification (PAS 2050: 2011) and Product Carbon Neutralization (PAS 2060:2000, BB series). Overall, through effort of many years, we have reached international level in most of the management systems. We will endeavor to ensure the effective operation of all the systems to satisfy and exceed the requirements of customers.

    • (4) Corporate Governance and Enterprise Responsibility

  4. Staying firm with the concept of Footing in Education, we continuous provide environmental supplies and equipments as well as funds in environmental protection and in physical educations, and total 13 elementary schools have been benefitted from our programs. Our effort has won the award of No. 8 of Commonwealth Citizen Award Excellent Enterprise, A++ in 12[th] Information Disclosure Assessment, 1[st] Company Governance Assessment of Taiwan Securities Exchange and won top 20% honor. Apparently, TXC has been very good in corporate governance and in performing corporate social responsibility.

II. Brief of the 2016 Operation Plan

  1. Management Directions and Major Policy

  2. (1) Actively promoting Industry 4.0 Upgrade Plan: Through the guidance and support of IBM, TXC will continue in promoting many projects to be data based and target in intellectual upgrading and keeping on promoting the production effectiveness of production line, control the heartbeat of the market and the requirements of customers.

4

  • (2) Expansion of Production Line

  • In order to increase production efficiency and competition edge, TXC will expand production line of TCXO and Sensor in Pingzhen Plant to satisfy the increased market demand. Also, from Sept. 2015, the LED Division was divided to form TXC Optec, and it will continue to expand Paternized Substrate production scale and upgrade process capacity. It is expected, through independent operation, it will gain scale economy effectiveness and therefore market competition capacity.

  • (3) Plunging into Sensing Element Market

  • Following marching into 3-in-1 Sensing Element, the Company will continue in development of more sensing element, including e-compass, accelerometer, gyro-sensor, magnetometer and similar anti-magnetic sensing element, and will commence in the R& D of gas sensing element that can detect PM 2.5 to cut into intelligent phone set, tablet device, wearing devices and intelligent appliance market.

  • (4) Organization Engineering of R & D and Sales Units

  • In order to control the market and deep cultivation of technology in added path, the Company has employed newly CTO and Market Superintendent to brome the Company to further bring the company to cultivate the market and speed up internationalization of the Company with the experience in development and in marketing.

  • (5) Corporate Governance

  • To echo with the Corporate Governance Assessment System of Taiwan Securities Exchange, the Company will continue to improve and optimize the governance level of the Company to shape the corporate governance culture so that the Company can meet and exceed the expectation of competent agency on public listed company. In the meantime, the Company will continue to comply with the requirements of GR14.0 and AA 1000 and disclose the activities of the company in the Enterprise Social Responsibility Report and fully disclose operation information and the results of fulfilling social responsibility.

  • Expected Sales and Basis

In the attitude of prudent and conservative, the Company will still plan for increase capacity for new product and optimize product process, in addition to maintain supply and services for existing customers. Furthermore, since the Company has gradually win the certification and acknowledgement of customers in the part of automotive industry products and high end precision products, it is expected that the contribution to revenue of vehicle and high end precision and new products will maintain growing. The Company also emphasizes on miniature, high frequency, low power consuming precision products, and the quality of products in this field is generally gaining the reliance of customers. Under efficient management of customer relationship and product diversification, it is expected that the consolidated sales volume will be more than 3 billion units in 2016 and taking global market share of 10%. We should be staying as one of top 5 manufacturers in global quartz industry.

2015 is already the past and in meeting the challenges and competition of future, we will be more practical in inspecting our management and operation actions and the same will be applied on the organization to be rapid and active echoing the industry and the economy. We will be more proactive in presenting our applied products to serve our customers. The opportunity of growth is rooted in our attitude and we cannot afford to accept the change of the circumstances. We believe that through adjustment of organization, re-combining of products and upgrade of services, we will be achieving the reemergence of manufacturing directing to Industry 4.0. We are faithful on our future growth. What we need to do is to do stead of talk. We will present the result to show our resolution to demonstrate to all equity concerned.

Yours Sincerely

5

II.Company Overview

A.Company Introduction

1. Date of the company´s incorporation

TXC is a professional frequency control component and sensory component manufacturer. Since the company’s founding in December, 1983, it has been devoted to research and development, design, production, and sale of quartz component product series. Products include high precision, high quality quartz crystal, automotive crystal, crystal oscillators, and timing modules. Market demand has led TXC to develop multiple kinds of sensors using independent core technology, products that are widely used in mobile communication, wearable devices, IoT, and automotive electronics markets.

In addition, TXC has extended our core technology competence to related LED substrate processes and crossed over into the sapphire LED field to support future group expansion and development. Over the years, we have upgraded customer value objectives and offered customers a variety of frequency control components for module design-in requirements to provide a total solution to satisfy the overall requirements of customers. TXC performance with regard to price, quality, delivery time and service continues to exceed customer expectations time and time again.

2. Company History

  • 1983 Founded in Taiwan with US$95,000 capital. 1984 Began production on DIP type crystals and oscillators in Peitou factory.

  • 1993 ISO9002 certified.

  • 1995 Winner of the 4[th] National Award of Small and Medium Enterprises. 1997 Began production of SMD type crystals and oscillators in Taoyuan factory.

  • 1998 Began production os SAW devices.

  • Implemented Oracle ERP system.

  • 1999 Established US sales office. 2000 Increased capital to US$25.3 million.

  • 2001 IPO’ed with capital increased to US$37 million.

  • 2002 Listed in the Taiwan Stock Exchange(Code-3042)

  • Ranked among the top 10 worldwide frequency control product manufacturers.

  • 2003 Began to offer value-added products(HF CXO/VCXO,OCXO,FX,etc.) for the telecom market.

  • Began production in new factory in NIngbo, China.

  • 2004 Implemented QoS and 6-Sigma management systems.

  • Established US Technology Center.

  • 2005 ISO/TS16949 certified.

  • Ranked number 6 among the worldwide frequency control product manufacturers.

  • 2006 Expanding Tauouan factory. Adding production lines in Taiwan and China. The capacity reached to 70 million units per month. Authorized Capital: US$57.9 million.

  • 2007 New factory in Pingzhen inaugurated, factory expansion project in Ningbo factory launched, Intel presented the Preferred Quality Supplier, promotion of the Six Sigma project to Ningbo plant green belt training, procurement of the Shenzhen office, implementation of employee stock option, CB conversion, and recapitalization of surplus to NT$2,415,530,000.

  • 2008 Simultaneously expanded factories in Pingzhen, Taiwan and Ningbo, China; won Intel’s Supplier Continuous Quality Improvement (SCQI) Award; won A+ evaluation for information disclosure and top 10 potential golden torch award; continued to promote the 6-Sigma black belt training program at Ningbo

6

and Pingzhen plants. Set up sales operations in Osaka, Japan and Singapore to promote sales. Issued employee options and implement the treasury stock system. Set up subsidiary TXC Hongkong; execute employee option, CB conversion, surplus conversion to increase capitalization to NT$2,716,980,000.

2009 Second phase of Taiwan Pingchen and China Ningbo plant expansion initiated, received A+ ranking and top 10 award at sixth annual Information Disclosure and Transparency Ranking, on-the-job training plan launched for personnel at Ningbo and Pingchen plants, received Preferred Quality Supplier Award recognition again from Intel, strengthen company internal controls to ensure corporate governance effectiveness, promoted transparency of corporate governance information, exercised employee stock warrants, convertible bonds, capital increase by retained earnings to NT$2,887.27 million.

  • 2010 Issued third convertible bond, received corporate governance system evaluation certification from the Taiwan Corporate Governance Associations, received industry model award for the Technology Industry B group from Commonwealth Magazine, awarded National Quality Award from Executive Yuan, continued to implement 6-Sigma black belt training plan for Ningpo and Pingchen plants, set up sales office in Europe to expand business, purchased offices in Shanghai and Suzhou, started third phase of plant expansion for Taiwan PCF, purchased 5,733 level ground of land, built the factories for new energy business unit, execute employee stock option and increase capital out of earning to 2.971 billion NT dollars.

  • 2011 Completion and launch of Taiwan Pingzhen Third-Stage plant expansion and New Energy Division plant, establishment if TXC (Chongqing) Electronics Co., Ltd. production site, established TXC (Chongqing) Corporation and Ningbo Jingyu Company Limited, expansion of European subsidiary, receives A+ grade and top 10 award at Eighth Annual Information Disclosure and Evaluation, passed CGR report review, received Energy Conservation Elite, Outstanding Innovation Award and Commonwealth Corporate Citizen Award, received Taoyuan County Corporate Innovation Award, received ISO50001 Energy Management System, ISO28000 Supplier Chain Management System, ISO27001 Information Security Management System certification, Oracle ERP system upgraded to R12 version, valid assessment of remuneration fairness combined with performance evaluation, establishment of remuneration committee, exercise of employee stock warrants, NT$3,022,420,000 capital increase by capital surplus.

  • 2012 TXC (Chongqing) Corporation plant construction, awarded Authorized Economic Operator (AEO) by the MOF Customs Administration, passed BSI greenhouse gas (ISO 14064-1), product carbon footprint (PAS 2050) inventory, product carbon neutralization (PAS 2060) inventory, given Corporate Citizenship Award by Commonwealth Magazine, received green sustainable enterprise award from BSI, external certification of CSR Report conformed to GRI G3.1 A+ and AA 1000 standards, passed CNS 15506 TOSHMS, awarded ninth annual Information Disclosure and Transparency A++ and top ten ranking, exercised employee stock options, convertible bond and NT$3,097,579,000 capital increase.

  • 2013 Issued fourth convertible bond, TXC (Chongqing) Corporation begin formal mass production, received Taiwan Mittlestadt Award from the Ministry of Economic Affairs, passed review for R&D subsidy for a leading new product development project from the Industrial Development Bureau, was awarded CG6008 Advanced Corporate Governance certification, 10[th] annual A++ information disclosure assessment rating, passed greenhouse gas inventory (ISO14064-1), product carbon footprint inventory (PAS2050) and product carbon neutrality (PAS2060) verification, named as one of the top 50 Excellence in CSR Award winners by Commonwealth Magazine and a three star 3[rd] annual Happiest Company Award from the Taipei City Government Department of Labor

  • 2014 TXC’s Pingzhen Plant, Ningbo Plant and Chongqing Plant expanded in 2014, new offices in Shenzhen and Beijing were bought, won the A++ award for the Eleventh Information Disclosure Assessment, the Fourth Place in the 8th Global Corporate Citizens Award for Pillar Enterprises of Commonwealth Magazine, the 2nd Excellent Enterprise in Hiring Foreign Workers of Taoyuan County Government, the silver award of Taiwan Top50 Enterprises Sustainability Report Award for large high-tech electronics manufacturing industry of Taiwan’s Sustainable Energy Research Foundation, and passed certification of Greenhouse Gas Inspection (ISO14064-1), Corporation Sustainability Report, Product Carbon Footprint (PAS2050), Product Carbon Neutralization (PAS 2060), Information Security Management System (ISO 27001), Supply Chain Security Management System (ISO 28000) and Water Footprint for Information Security

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  • Launching Award and the GRC Management Paradigm Award by the British Standards Institute.

  • 2015 Taiwan Pingzhen factory and TXC (Chongqing) continued production line expansion; successfully renewed “Authorized Economic Operator (AEO)” certification; received 12th “Information Disclosure Evaluation” A++ award; ranked within the top 20% of well-administered companies for the first time; passed “Greenhouse Gas Inspection (ISO14064-1); recognized by Huawei as “2015 Core Supplier”; praised by the British Standards Institution with an “Outstanding Management Model Award”; recognized by CommonWealth Magazine as a “Commonwealth CSR Corporation”; promoted Industry 4.0 intelligent factory transformations; the company’s LED department officially established itself as a separate entity under the name TXC OPTECH Corporation.; the joint venture, Guangdong Failong Crystal Technology Co. Ltd., was officially listed on the Shenzhen Stock Exchange.

  • 2016 Taiwan Pingzhen factory, Ningbo factory, and Chongqing factories continue expanding production lines; receives subsidies through the Department of Commerce Department of Industry Manufacturing Upgrade and Innovation Optimization Plan (particulate matter sensor development); ranked within the top 5% of well-administered companies; applies for the Department of Commerce 4th Outstanding Enterprise Award.

B 、 Company Structure and the Subsidiaries

  1. The chart of TXC corporation and the subsidiaries

==> picture [505 x 279] intentionally omitted <==

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2. The basic data of the subsidiaries

December31,2015
Name Incorporated Address Capital Business Nature
Taiwan Crystal Technology
International Limited		 1998.12.23 WESTERN SAMOA USD42,835,294 Investment holding
Growing Profits Trading Ltd 1999.03.09 BRITISH VIRGIN ISLANDS USD 50,000 National trading
TXC (NGB) Electronic Co., Ltd.
corporation		 1999.03.12 No.189, Huangshan Xi Rd.,
Economic & Technical
Development Zone,Ningbo
Zhejiang, China		 USD45,835,294 Manufacture and sales
of electronics products
TXC Technology Inc 2000.12.01 431 Lambert Road,Suite 306
Brea,California 92812, U.S.A.
.		 USD 300,000 Marketing activities
TXC Japan Corporation 2005.09.13 Davinici-shin-yokohama
Bldg.,1-3-1, Shin-yokohama,
Kohoku-ku,Yokohama,222-00
33 Japan		 YEN 21,000,000 Marketing activities
TAIWAN CRYSTAL
TECHNOLOGY(HK)LIMITED		 2010.07.06 Rm.804, Sino Centre, 582-592
Nathan Rd.,Kln.H.K
USD 10,080,000		 Investment holding
TXC (Chongqing) Electronic Co.,
Ltd. corporation		 2010.10.11 JinFeng Industrial Region,
Jiulongpo District, Chongqing
City, China		 RMB 187,876,609 Manufacture and sales
of electronics products
Chongqing All Suns Company
Limited		 2011.02.14 Jiulongpo District, Chongqing,
ChinaJinfengRoad 108,		 RMB 66,000,000 Marketing activities
Ningbo Jingyu Company Limited 2011.09.07 No.189, Huangshan Xi Rd.,
Economic & Technical
Development Zone,Ningbo
Zhejiang, China		 RMB 1,000,000 Purchasing and selling
electronic component
TXC OPTECH Corporation 2015.04.22 No.4, Gongye 6thRd.,
Pingzhen Dist,TaoyuanCity		 NTD 215,000,000 Manufacturers of
electronic components

9

III. Corporate Governance

A. Directors

April 20, 2016

ectors April 20,2016
Title Name Major academic (professional)
experience		 Current position in our company or other
company
Chairman of the
Board of
Directors		 Lin, Jin-Bao MBA, West Texas A&M
University, USA		 Director of TaiwanCrystal Industry
Association
Director of Tai Shing Electronics
Components Corporation
Director of UPI Semiconductor
Corporation
Vice-Chairman
of the Board of
Directors		 Hsu, Der-Jun Kei-Nan Institute of Technology
and Business		 Chairman of the Board of Director of Chan-Yu
Corporation
Chairman of the Board of Director of Kuan-Ya
Int’l Corporation
Chairman of the Board of Director,TCTI
Corporation
Supervisor of Tai SShing Electronics
Components Corporation
Director of
Board		 Lin,
Wan-Shing		 Master in Management, Taipei
Science and Technological
University		 Chairman of the Board of Director of Tai Shin
Electronics Corporation
Chairman of the Board of Director of TXC
Ninpo Corp
Independent Director of Protech Systems
Co.Ltd.
Director of
Board		 Go,
Tien-Chong		 Electronics Dept, Taipei Institute Chairman of the Board of Director of ESS
Technology International Inc.
Director of
Board		 Kuo, Shu-Hsin Business Major, Taipei Business
School		 Vice-Chairman of the Board of Director of
Chan-Yu Corporation
Director of
Board		 Chen Chueh,
Shang-Hsin		 Master of management, Zhejiang
University		 Marketing inspector of TXC
Director ofTai Shing Electronics
Components Corporation
Corporate
Director of
Board		 TLC Capital
Co.,LTD		 Investment Company of UMC
Group		 Investment Company of UMC Group
Supervisor of Simplo Technology
Corporate
Director of
Board		 Yang, Du-An History Dept, TamKung
University		 -
Independent
Director of
Board		 Peng, Yun-Ho Department of Civil Engineering,
University of Texas
Dean of the Design School of
National Taiwan University of
Science and Technology		 Doctor of National Taiwan University
Independent
Director of
Board		 Yu, Shang-Wu
Ph.D.,
Birmingham University		 Professor, Taipei Science and
Technological University
Independent
Director of
Board		 Cai, Song-Qi Finance and Accounting
Department of Shanghai
University
Business Administration, National
Chengchi University
Chairman of the Board of Director ofEMCC
Corporation

10

B. Personnel data of the general manager, vice general manager, assistant vice general manager, chief of divisions

general manager, chief of divisions general manager, chief of divisions general manager, chief of divisions
April 9,2015
Title Name Date of
 Major academic (professional) Other part time position with
employment other companies
General Manager Lin,
Wan-Hsing		 1989.11.11 Master in Management, Taipei Science and
Technological University		 Chairman of the Board of
Director of Tai Shin Electronics
Corporation
Chairman of the Board of
Director of TXC Ninpo Corp
Independent Director of Protech
Systems Co.Ltd.
Vice General
Manager		 Chen
Chueh,Shan-hs
ing		 2002.04.01 Master of management, Zhejiang University
President of TXC Ninpo Corp
Chairman of the Board of
Director, Shin Mau Electronics
Corporation
Vice General
Manager		 Chang,
Qi-Zhong		 2006.04.01 Lunghwa University of Science and
Technology		 -
Vice General
Manager		 Kuo, Ya-Ping 2009.08.01 BOSTON
UNIVERSITY, MBA		 -
Vice General
Manager		 Adam Lee 2011.01.31 Ph.D., National Taiwan University of
Science & Technology, Department
of Business Administration
Vice President, Sequel Technology, Inc.		 -
Vice President
Manager		 Colin Chang 2012.01.01 City University of Macau, MBA
Plant Manager, Taitien Electronics Co., Ltd.
-
Vice President
Manager		 M.K. Chao 2012.01.01 Ph.D., Naval Architecture & Ocean
Engineering, National Taiwan University
Engineer, Biomedical Engineering Center,
ITRI
-
Assistant Vice
General Manager		 Kuo,
Ya Han		 2009.08.01 West Coast University, MBA
Sales & Marketing Center TXC Corp.		 -
Assistant Vice
General Manager		 Lin,
Sufen		 2010.07.01 Electrical Department of Kaohsiung
Institute
Director, OEM Product Division, TXC
Corp.		 -
Assistant Vice
General Manager		 Lin,
Shi Bo		 2011.01.31 Master of Physics, UC, Riverside, USA
Director, Marketing Center, TXC Corp.		 -
Assistant Vice
General Manager		 Su
Zheming		 2011.01.31 Department of Electrical Engineering,
National Taiwan Ocean University
Director, Manufacturing Center, TXC Corp.
-
Assistant Vice
General Manager		 Blue Larn 2014.05.01 Doctor of. Materials Engineering of the
National Taiwan University
Project Manager of TSMC Corporation		 -
Assistant Vice
General Manager		 Stephen You 2012.0101 Department of Electronic Engineering,
Oriental Institute of Technology
Special Assistant, Sales/Marketing Center,
TXC Corp.		 -
Chief of Finance Hong,
Gon-Wen		 2003.03.11 MBA, National Taipei University
Financial Manager, TXC Corp.		 -

11

C. Remuneration and Compensation Paid to Directors, and General and Vice General Managers

(1) Remuneration Paid to Directors (including Independent Directors)

December 31, 2015 Unit: Shares, NT$ 1,000

Title Name Director’s Remuneration Director’s Remuneration Director’s Remuneration Director’s Remuneration Director’s Remuneration Director’s Remuneration Director’s Remuneration Director’s Remuneration Total
Remuneration
(A+B+C+D) as a % of
Net Income
(Note 11)		 Total
Remuneration
(A+B+C+D) as a % of
Net Income
(Note 11)		 Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Compensation Earned bya Director Who is an Employee Total
Compensation
A+B+C+D+E+F+G)as
a % of Net Income
(Note 11)		 Total
Compensation
A+B+C+D+E+F+G)as
a % of Net Income
(Note 11)		 Compensation
Paid to Directors
from
Non-Consolidated
Affiliates
(Note 12)
Base
Compensation(A)
(Note 2)		 Severance Pay and
Pensions (B)
Compensation
to
Directors (C) (Note
3)		 Allowances (D)(Note
4)		 Base
Compensation,
Bonuses
and
Allowances (E)
(Note 5)		 Severance Pay and
Pensions (F)		 Compensation to Employees (G)(Note
6)
Exercisable
Employee Stock
Options (H)(Note 7)		 Granted Employee
Restricted Stock
(I)(Note 13)
From
TXC		 From All
Consolidated
Entities
(Note 8)
From
TXC
From All
Consolidated
Entities
(Note 8))
From
TXC		 From All
Consolidated
Entities
(Note 8)		 From
TXC		 From All
Consolidated
Entities
(Note 8))		 From
TXC		 From All
Consolidated
Entities
(Note 8)
From
TXC		 From All
Consolidated
Entities
(Note 8)
From
TXC		 From All
Consolidated
Entities
(Note 8)		 From TXC From All
Consolidated
Entities
(Note 8)		 From
TXC		 From All
Consolidated
Entities
(Note 8)		 From
TXC		 From All
Consolidated
Entities
(Note 8)		 From TXC From All
Consolidated
Entities
(Note 8)
Cash Stock Cash Stock
Chairman of
the Board of
Directors		 Lin,
Jin-Bao		 0
 0 0 0 17,349 17,349 1,200 1,200 1.9771 1.9771 7,965 14,933 728 728 2,500 0 2,500 0 0 0 0 0 3.1701 3.9127 1.305
Vice-Chairman
of the Board of
Directors
Hsu,
Der-Jun
Director of
Board and
General
Manager		 Lin,
Wan-Shing
Director of
Board		 Go
Tien-Chong
Director of
Board		 Kuo,
Shu-Hsin
Director of
Board		 TLC
Capital
Co.,LTD
Director of
Board and
Marketing
Director		 Chen
Chueh
Shang-Hsin
Director of
Board		 Yang,
Du-An
Independent
Director of
Board		 Yu,
Shang-Wu
Independent
Director of
Board		 Peng
Yun-Ho
Independent
Director of
Board		 Cai,
Song-Qi

12

Remuneration Scale

Remuneration Scale Remuneration Scale Remuneration Scale Remuneration Scale
Remuneration Paid to Directors Director Names
Total Remuneration (A+B+C+D) Total Compensation (A+B+C+D+E+F+G)
From TXC (Note 9) From All Consolidated Entities
(Note 10) I		 From TXC (Note 9) From All Consolidated
Entities
(Note 10) I
Less than NT$2,000,000 Hsu, Der-Jun, Go Tien-Chong, Kuo,
Shu-Hsin, Yu, Shang-Wu,
Chen Chueh Shang-Hsin, Yang
Du-An, Peng Yun-Ho, Cai, Song-Qi,
TLC Capital Co., LTD (Chang
Wen-Chin)		 Hsu, Der-Jun, Go Tien-Chong, Kuo,
Shu-Hsin, Yu, Shang-Wu,
Chen Chueh Shang-Hsin, Yang
Du-An, Peng Yun-Ho, Cai, Song-Qi,
TLC Capital Co., LTD (Chang
Wen-Chin)		 Go Tien-Chong, Kuo, Shu-Hsin, Yu,
Shang-Wu, Yang Du-An, Peng
Yun-Ho, Cai, Song-Qi, TLC Capital
Co., LTD (Chang Wen-Chin)		 Go Tien-Chong, Kuo, Shu-Hsin, Yu,
Shang-Wu,
Yang
Du-An,
Peng
Yun-Ho, Cai, Song-Qi, TLC Capital
Co., LTD (Chang Wen-Chin)
NT$2,000,000 –NT$4,999,999 Lin, Jin-Bao, Lin, Wan-Shing Lin, Jin-Bao, Lin, Wan-Shing Hsu, Der-Jun, Chen Chueh
Shang-Hsin		 Hsu, Der-Jun
NT$5,000,000 - NT$9,999,999 Lin, Jin-Bao, Lin, Wan-Shing Lin, Jin-Bao, Lin, Wan-Shing, Chen
Chueh Shang-Hsin
NT$10,000,000-NT$14,999,999
NT$15,000,000-NT$29,999,999
NT$30,000,000-NT$49,999,999
NT$50,000,000-NT$99,999,999
NT$100,000,000 and above
Total 11persons 11persons 11persons 11persons

  • Note 1: Director names shall be listed separately (the shareholder name and representative shall be listed separately for corporate directors) and each payment amount shall be disclosed as a summary. If directors concurrently serve as general and vice general managers, list in this Table and Tables (3-1) or (3-2) below.

  • Note 2: 2015 director remuneration (includes director salary, allowances, severance pay, various bonuses and incentives). Note 3: 2015 compensation to directors passed by the Board of Directors in 2016.

  • Note 4: Related 2015 director allowances (including travel expenses, special expenses, all kinds of allowances, accomodations, substantive objects offered in the form of vehicles and etc.). If real estate, cars and other transportation or exclusive personal expenses are offered, the asset category and cost, actual rent or rent calculated at fair market value, fuel expenses and other payments shall be disclosed. If a driver is assigned, attach an explanation of the driver’s related compensation but do not include the compensation into the remuneration.

  • Note 5: 2015 directors who concurrently hold positions in the company (including the general manager, vice general managers, other managers and employees) receive remunerations including salary, duty differential pay, severance pay, all kinds of bonuses, incentive pays, accomodations, substantive objects offered in the form of vehicles. If real estate, cars and other transportation or exclusive personal expenses are offered, the asset category and cost, actual rent or rent calculated at fair market value, fuel expenses and other payments shall be disclosed. If a driver is assigned, attach an explanation of the driver’s related compensation but do not include the compensation into the remuneration.

  • Note 6: 2015 directors concurrently hold positions in the Company (including the general manager, vice general managers, other managers and employees) who receive employee bonuses (including stock and cash) shall disclose the 2015 employee compensation amounts passed and distributed by the 2016 Board of Directors meeting. If estimation is not possible, calculate this year’s proposed distribution amounts based on the actual percentages distributed for the previous year and list in Table 1-3.

13

  • Note 7: The employee stock options (not including those already exercised) received by directors who serve as employees up to the time of annual report publication (including directors concurrently serving as general manager, vice general managers, other managers or employees) shall, in addition to this Table, also be listed in Table 15.

  • Note 8: The total of all compensation items from all consolidated entities (including the Company) paid to Company directors shall be disclosed.

  • Note 9: The total of each of the remuneration items paid by the Company to each director are disclosed under the corresponding director name in the scale.

  • Note 10: The total of each of the remunderation items paid by all consolidated entities to Company directors shall be disclosed under the corresponding director name in the scale.

  • Note 11: Net Income refers to 2015 net income: Those who have adopted IFRS, net income refers to the net income in individual or separate financial reports for the most recent year.

  • Note 12: a. This column shall clearly list the related remuneration amounts from reinvested companies other than subsidiaries.

  • b. If Company directors receive remuneration from reinvested companies other than subsidiaries, the remuneration received by Company directors from reinvested companies other than subsidiaries is included in the Remuneration Scale column and the column is renamed All Reinvested Entities.

  • c. Compensation and remuneration refers to the compensation and remuneration (employee, director and supervisor remuneration), business execution expenses and other related remuneration received by Company directors as directors, supervisors and managers of reinvested entities other than subsidiaries.

  • Note 13 ： The employee restricted stock received by directors who serve as employees up to the time of annual report publication (including directors concurrently serving as general manager, vice general managers, other managers or employees) shall, in addition to this Table, also be listed in Table 15-1.

  • *There are differences in the income concept in the remuneration information disclosed in this Table and income tax laws so this Table is used for information disclosure and not taxation purposes.

(2) Compensation Paid to Executive Officers

(2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers (2) Compensation Paid to Executive Officers
December 31,2015 Unit: Thousand Shares,NT$1,000
Title Name Base
Compensation(A)
(Note 2)		 Severance Pay and
Pensions (B)		 Bonuses and
Allowances (C)
(Note 3)		 Employee Compensation (D)
(Note 4)		 Total Compensation as
a % of Net Income
(A+B+C+D)(Note 9）		 Exercisable
Employee Stock
Options
(Note 5)		 Granted Employee
Restricted Stock
(Note 11)		 Compensa
tion Paid
to
Directors
from
Non-Cons
olidated
Affiliates
(Note
10)
From TXC From All
Consolidated
Entities
(Note 6)		 From TXC From All
Consolidated
Entities
(Note 6)		 From TXC From All
Consolidated
Entities
(Note 6)		 From TXC From All Consolidated
Entities
(Note 6)		 From TXC From All
Consolidated
Entities
(Note 6)		 From TXC From All
Consolidated
Entities
(Note 6)		 From TXC From All
Consolidated
Entities
(Note 6)
Cash Stock Cash Stock
Chairman of the
Board of
Directors		 Lin, Jin-Bao 15,901 20,475 1,820 1,820 5,940 14,703 8,300 0 8,300 0 3.4066 4.8281 0 0 0 0 1,305
Vice-Chairman of
the Board of
Directors		 Hsu,
Der-Jun
General Manager Lin,
Wan-Shing
Vice General
Manager		 Chen Chueh
Shang-Hsin
Vice General
Manager		 Kuo,
Ya-Ping
Vice General
Manager		 Chang
Qi-Zhong
Vice General Adam Lee

14

Manager
Vice General
Manager		 Colin Chang
Vice General
Manager		 M.K. Chao
Vice General
Manager		 Stephen You
Vice General Hsu,
Manager Wan-Thai

Note: Stephen You promoted to Vice President on June 1, 2015. Hsu Wan-Thai named Vice General Manager on August 17, 2015.

＊ Regardless of the position, those positions equivalent to President and Vice-President (i.e.: President, CEO and Director) have all been disclosed.

Compensation Scale

CompensationScale
Compensation Paid to Senior Executives Names of Senior Executives
The Company (Note 7) The Company in the financial report（Note 8）
Less than NT$2,000,000
NT$2,000,000 –NT$4,999,999 Lin, Jin-Bao, Hsu, Der-Jun, Lin, Wan-Shin,Chen Chueh Shang-Hsin,
Kuo, Ya-Ping, Chang Qi-Zhong Adam Lee Colin Chang M.K. Chao,
Hsu Wan-Thai,Stephen You		 Lin, Jin-Bao, Hsu, Der-Jun, Kuo, Ya-Ping,
Chang Qi-Zhong Adam Lee Colin Chang M.K. Chao,
Hsu Wan-Thai,Stephen You
NT$5,000,000 - NT$9,999,999 Lin, Wan-Shin,Chen Chueh Shang-Hsin2 persons
NT$10,000,000- NT$14,999,999
NT$15,000,000- NT$29,999,999
NT$30,000,000- NT$49,999,999
NT$50,000,000 - NT$99,999,999
NT$100,000,000 and above
Total 11 persons 11 persons

  • Note 1: The names of general and vice general managers shall be listed separately (the shareholder name and representative shall be listed separately for corporate directors) and each payment amount shall be disclosed as a summary. If there are directors that concurrently serve as a general and vice general managers, list in this Table and Tables (1-1) or (1-2) below.

  • Note 2: Lists 2015 salary, allowances and severance pay for the general and vice general managers.

  • Note 3: Lists 2015 general and vice general manager bonuses, incentives, travel expenses, special expenses, all kinds of allowances, accomodations, substantive objects offered in the form of vehicles and other remuneration). If real estate, cars and other transportation or exclusive personal expenses are offered, the asset category and cost, actual rent or rent calculated at fair market value, fuel expenses and other payments shall be disclosed. If a driver is assigned, attach an explanation of the driver’s related compensation but do not include the compensation into the remuneration

  • Note 4: 2015 directors concurrently hold positions in the Company (including the general manager, vice general managers, other managers and employees) who receive employee bonuses (including stock and cash) shall disclose the 2015 general manager and vice general manager employee compensation amounts passed and distributed by the 2016 Board of Directors meeting. If estimation is not possible, calculate this year’s proposed distribution amounts based on the actual percentages distributed for the previous

15

year and list in Table 1-3. Net Income refers to the most recent year’s net income: Those who have adopted IFRS, net income refers to the net income in individual or separate financial reports for the most recent year.

  • Note 5: The employee stock options (not including those already exercised) received by general and vice general managers up to the time of annual report publication shall, in addition to this Table, also be listed in Table 15.

  • Note 6: The total of all compensation items from all consolidated entities (including the Company) paid to Company general managers and vice general managers shall be disclosed.

  • Note 7: The total of each of the remuneration items paid by the Company to each general and vice general manager shall be disclosed under the corresponding general manager and vice general manager names in the scale.

  • Note 8: The total of each of the remuneration items paid by all consolidated entities (including the Company) to each general and vice general manager shall be disclosed under the corresponding general and vice general manager name is the scale.

  • Note 9: Net Income refers to 2015 net income: Those who have adopted IFRS, net income refers to the net income in individual or separate financial reports for the most recent year. Note 10: a. This column shall clearly list the related remuneration amounts from reinvested companies other than subsidiaries.

  • b. If Company general and vice general managers receive remuneration from reinvested companies other than subsidiaries, the remuneration received by Company directors from reinvested companies other than subsidiaries is included in Remuneration Scale Column E and the column is renamed All Reinvested Entities.

  • c. Remuneration refers to the compensation and remuneration (employee, director and supervisor remuneration), business execution expenses and other related remuneration received by Company general and vice general managers serving as directors, supervisors and managers of reinvested entities other than subsidiaries.

  • Note 11: The employee restricted stock received by directors who serve as employees (including directors concurrently serving as general manager, vice general managers, other managers or employees) up to the time of annual report publication shall, in addition to this Table, also be listed in Table 15-1.

  • ＊ There are differences in the income concept in the remuneration information disclosed in this Table and income tax laws so this Table is used for information disclosure and not taxation purposes.

16

(3) Profit Sharing Distributed to Managers (Proposed 2015 Employee Profit Sharing Amounts)

December 31, 2015 Unit: Thousand Shares, NT$ 1,000

Title Name Stock Cash Total Total as a % of Net
Income
Managers Chairman of the
Board of Directors		 Lin, Jin-Bao 0 13,900 13,900 1.4816
Vice-Chairman of
the Board of
Directors		 Hsu, Der-Jun
General Manager Lin, Wan-Shing
Vice General
Manager		 Chen Chueh
Shang-Hsin
Vice General
Manager		 Kuo Ya-Ping
Vice General
Manager		 Chang Qi-Zhong
Vice General
Manager		 Adam Lee
Vice General
Manager		 Colin Chang
Vice General
Manager		 M.K. Chao
Vice General
Manager		 Stephen You
Vice General
Manager		 Hsu, Wan-Thai
Assistant Vice
General Manager		 Kuo, Ya Han
Assistant Vice
General Manager		 Lin Sufen
Assistant Vice
General Manager		 Su Zheming
Assistant Vice
General Manager		 Lin Shi-Bo
Assistant Vice
General Manager		 Liu Hsu-Er
Assistant Vice
General Manager		 Su Jing-Sheng
Chief of Finance Hong Gon-Wen

  • Note 1: Name and title of individuals shall be disclosed but earning distribution shall be disclosed in summarized form.

  • Note 2: Employee remuneration amounts (including stocks and cash) for managers passed by the 2016 Board of Directors meeting. If estimation is not possible, calculate this year’s proposed distribution amounts based on the actual percentages distributed for the previous year. Net Income refers to 2015 net income: Those who have adopted IFRS, net income refers to the net income in individual or separate financial reports for the most recent year.

  • Note 3: The scope of application for managers is determined according to the rules set down in the March 27, 2003 Tai-tsai-cheng-san no. 0920001301 letter. The scope is as follows:

  • (1) President and equivalent level personnel

17 

  - (2) Vice president and equivalent level personnel

  - (3) Assistant vice general manager and equivalent level personnel

  - (4) Financial department supervisor

  - (5) Accounting department supervisor

  - (6) Other persons handling company management affairs and with signature authority.

  • Note 4: If directors, presidents and vice presidents receive employee compensation (including stocks and cash), the compensation shall be listed in Table 1-2 and additionally in this Table.

  • Note 5: Stephen You promoted to Vice President on June 1, 2015. Hsu Wan-Thai named Vice General Manager on August 17, 2015.

  • (4) Top 10 Recipients of Employee Profit Sharing (employee profit sharing from 2014 earnings received in 2015)

December 31, 2015 Unit: Thousand Shares, NT$ 1,000

Title Name Stock Cash
Vice General
Manager		 Chen Chueh Shang-Hsin 0 9,204
Vice General
Manager		 Kuo Ya-Ping
Vice General
Manager		 Chang Qi-Zhong
Vice General
Manager		 M.K. Chao
Vice General
Manager		 Stephen You
Assistant Vice
General Manager		 Kuo, Ya Han
Assistant Vice
General Manager		 Lin Sufen
Assistant Vice
General Manager		 Su Zheming
Assistant Vice
General Manager		 Lin Shi-Bo
Chief of Finance Hong Gon-Wen

  • (5) Remuneration by the Company to individual directors shall be disclosed under the following circumstances:

  • Remuneration to individual directors shall be disclosed if there have been consecutive after-tax losses for the previous two year: Not applicable.

  • Remuneration to individual directors shall be disclosed in the event of insufficient director shareholdings for three consecutive months in the most recent year: Not applicable

  • If there are directors with an average pledged share ratio of over 50% for any three months in the most recent years, the individual director(s) with the average pledged share ratio exceeeding 50% for each of these months shall be disclosed: Not applicable.

  • (6) Individually compare and explain the analysis of the remuneration paid to Company directors, general and vice general managers as a percentage of net income by the Company and all consolidated entities over the past two years and explain the remuneration payment policy, standard and mix, procedure for setting remuneration and operation performance and future risk correlation.

18

  1. Remuneration Paid to Company Directors, General and Vice General Managers as a Percentage of Net Income by the Company over the Past Two Years

Unit: %

Unit: % Unit: % Unit: % Unit: %
Title Remuneration as Percentage of Net Income
2015 2014
From TXC From All Consolidated Entities From TXC From All Consolidated Entities
Directors 3.17 3.91 2.20 2.38
General Manager and
Vice General
Managers		 3.41 4.83 0.72 0.97

Note 1 2015 director and general and vice general manager remuneration amounts are passed and distributed by the 2016 Board of Directors meeeting so the remuneration at percentage of net income calculations in this column are temporary estimates.

Note 2 Actual numbers were used for the 2014 calculations.

  1. Company director remuneration is determined based on the Company’s Articles of Incorporation. Fair remuneration is provided by considering Company operation results and contributions towards company performance. General and vice general manager remuneration payment policy is based on the Company’s Salary Management Rules and salary levels for that job position in the industry market, the scope of authority of that job position inside the Company and degree of contribution toward operation targets. The procedure for setting remuneration follows evaluation and review procedures in the Company’s Director and Manager Performance Evaluation Rules. In addition to referring to the Company’s overall operational performance, future industry risks and development trends, individual performance achievement rates and contribution towards company performance is considered in order to provide fair compensation. The fairness of related performance evaluations and remuneration are reviewed by the salary and compensation committee and Board of Directors. The remuneration system is discussed at appropriate times based on actual operating conditions and with respect to related laws to achieve a balance between sustainable company operation and risk control.

19

D. Corporate governance and variations with management principles of publicly-listed companies and reasons

Assessment items Operation status (Note1) Discrepancy with
best-practice principles
of TWSE/GTSM listed
companies
Yes No Summary
1. Comply with General Guideline of publicly-listed
companies and disclose company’s practical
guideline in corporate governance?		 Yes TXC has formulated the Practical Guideline for Corporate Governance, and set up effective
regulations governing corporate governance framework, protection of the rights and benefits
of shareholders, strengthening the function of the board of directors, bringing up the function
of the Auditing Committee, showing respect for the rights and benefits of the stakeholder,
and enhancingthe transparencyof information.
Conforms with
best-practice
principles, no
discrepancy
2. Company shareholding Structure and shareholders’ rights
（1）Has the Company formulated internal operating
procedures for handling proposals, doubts,
disputes and litigation of shareholders and
follow procedures for implementation.		 Yes TXC has formulated procedures for handling proposals, doubts, disputes and litigation for
protection of communication between the stakeholders and the company management, and
timely find out and handle the various problems, as well as having dedicated persons for
handling relevant matters. Subsidiaries Ningbo Plant and Chongqing Plant are 100% owned
by TXC, and the Company handles proposals and rights and benefits of relevant
shareholders.		 Conforms with
best-practice
principles, no
discrepancy
（2）Has the Company the list of the major
shareholders with de fact control of the
Company and the final controllers of the
major shareholders?		 Yes In accordance with Article 25 of the Securities Trading Act, requires monthly posting of
changes in shareholding of the internal staff including directors, managers and shareholders
with over 10% equities, on the open information observation website specified by the
Securities and Futures Bureau.		 Conforms with
best-practice
principles, no
discrepancy
（3）Has the Company set up a firewall mechanism for
executing risk control of affiliated enterprises?
Yes		 Aside from formulation of various risk control mechanisms, the Company also has
formulated relevant operation methods for the operation, business and finance with the
affiliated enterprises. For instance, in the subsidiary operation method TXC has formulated
decision making and approval for the subsidiaries, the management of trading by the
associates, specific companies, associates and group trading operation procedures, aside
from counseling internal control for the subsidiaries in writing. Moreover, similar to that of
the parent company, the acquisition or disposal of assets handling procedures, endorsement
method, operation method for loaning to other persons, handling procedures for trading of
derivative financial commodities so as to implement the risk control mechanism for
subsidiaries. Subsidiaries Ningbo Plant and Chongqing Plant have already formulated
respective risk control mechanisms, and set up risk control mechanisms and firewalls with
the affiliated enterprises according to therelevant operatingmethods ofthe Company.		 Conforms with
best-practice
principles, no
discrepancy

20

Assessment items Operation status (Note1) Discrepancy with
best-practice principles
of TWSE/GTSM listed
companies
Yes No Summary
（4）Has the Company formulated internal regulations
prohibiting internal staff utilizing information
not yet open to the market for trading of
securities?
Yes		 In 2012 the Company formulated the Operating Procedure for Prevention of Insider Trading
and prohibited the internal staff utilizing information not yet open to the market for trading
securities.		 Conforms with
best-practice
principles, no
discrepancy
3. Members and duties of board of directors
（1）Has the Board of Directors drafted policies for a
diversified board framework?
Yes		 The Company board members have different professional backgrounds and work fields for
implementing the board framework.
Conforms with
best-practice
principles, no
discrepancy
（2）Aside from setting up the Remuneration
Committee
and
the
Auding
Committee
according to the law, is it willing to set up other
function committees?


Yes		 Aside from setting up the Remuneration Committee and the Auditing Committee according
to the law, the Company also has set up the Environmental and Social Committee and the
Economic Committee, and formulated operating methods for the economic, environmental
and social committees.
For details refer to the website: http://www.txccorp.com/tw/f_investor/04_3.html。


Conforms with
best-practice
principles, no
discrepancy
（3）Has the Company formulated board performance
assessment method and regularly carry out
performance assessment every year?

Yes		 The Company has formulated the Directors and General Manager Performance Assessment
Method and regularly carry out performance assessment of the board every year and forward
to the Remuneration Committee and the Board of Directors for discussion. Assessment is
mainly divided into following: (1) The Company’s overall operating performance and
assessment of actual operating by the Board of Directors; (2) Self-assement by members of
the Board; (3) The managing director and the board carry out assessment of the various
directors in accordance with the Board Members Assessment Chart. The managing director
is authorized to set forth the percentages for aforementioned various assessment indices
For details refer to the website: http://www.txccorp.com/tw/f_investor/04_3.html。






Conforms with
best-practice
principles, no
discrepancy

21

Assessment items Operation status (Note1) Operation status (Note1) Operation status (Note1) Discrepancy with
best-practice principles
of TWSE/GTSM listed
companies
Yes No Summary
(4) Has the Company regularly assessed the
independence of the certified accountant?
Yes		 To improve the independence of the certified accountant and familiarize latter with the
Company’s business, every year the Company would carry out assessment internally on the
applicability of the certified accountant. We also regularly report to the board of directors for
discussion so as to assess the independence of the certified accountant. In addition, the
Accountant Assessment and Performance Appraisal Method has been formulated for
assessment of the independence, applicability and performance of the accountant. Prior to
the first quarter of the following year, the accountant performance and appraisal chart should
be completed and submitted to the Auditing Committee for approval and forwarded to the
Board of Directors for discussion, thereby implementing corporate governance and
enhancing the function of the Board of Directors. In the event of change of certified
accountant, the managing director and the general manager would try to understand the
reasons for change and pertinent circumstances and interview with the succeeding
accountant. Upon completion of assessment, relevant information of the accountant would
be forwarded to the Auditing Committee for review and submitted to the Board of Directors
for discussion. And if required, the certified accountant would be invited to the Board of
Directors.
For detailsplease refer to the website: http://www.txccorp.com/tw/f_investor/04_3.html。














Conforms with
best-practice
principles, no
discrepancy
4. Any communication channel between the Company
and the stakeholders? Any special zone on the website
for the stakeholders for properly responding to the
topic of corporate social responsibility where the
stakeholders are concerned?



Yes		 The Company has instituted the spokesman system and other communication channels such
as the website for sharing the latest information of the Company and its subsidiaries.
Shareholders mailbox and investor relations mailbox are also available for communication.
And there are corresponding windows for business management and operating items as well.
Moreover, the Company has a special zone for the stakeholders on the website. They can
liaise with the managing director, general manager, independent directors or the auditor
utilizing this special zone in the event they have proposals, doubts or complaints. Website:
http://www.txccorp.com/tw/f_investor/10.asp		 Conforms with
best-practice
principles, no
discrepancy

22

Assessment items Operation status (Note1) Discrepancy with
best-practice principles
of TWSE/GTSM listed
companies
Yes No Summary
5. Any assigned professional stock affairs handling
agency for shareholders’ affairs?		 Yes Presently, the Company has assigned Yuanta Securities as the professional stock affairs
agency for assisting with various stockholders affairs.		 Conforms with
best-practice
principles, no
discrepancy
6. Information Disclosure
（1）
Has the company set up website for disclosing
finance, business and corporate governance?
Yes		 Both the Company and the subsidiaries have set up websites to provide financial and
business information. Dedicated persons are responsible for updating the website
information, refer to the website: http://www.txccorp.com。		 Conforms with
best-practice
principles, no
discrepancy
（2）
Are there other ways of information
disclosure (such as English website, assign
dedicated person for collection and disclosure
of company information? Any spokesman
system for implementation? Full process of
briefing by the legal person posted on the
companywebsite)?		 Yes Aside from the Chinese website, the Company also has installed the English and Japanese
websites with dedicated persons responsible for collection of relevant information and for
disclosure of major company events. The spokesman is the only external window. Briefing
by the legal person will be recorded or the video files will be posted on the company
information disclosure website for inquiry by various circles. Relevant information will be
made public on the information observation stations as required by the competent authority.		 Conforms with
best-practice
principles, no
discrepancy
7. Are there other important information for helping
understand the operation of corporate governance
(including but not limited to employee rights and
benefits, employee care, investor relations, supplier
relations, the rights and benefits of the stakeholders,
further studies for directors and supervisors, risk
control policy, and execution of risk assessment
standard, client policy implementation, purchase of
liability risk for directors and supervisors, others)?		 Yes 1. Employee rights and benefits: Comply with Basic Labor Act, refer to page 103 of the
company annual report for other employee welfare measures, retirement system, further
studies and various employee rights and benefits. Relevant rights and benefits of
employees of Ningbo Plant and Chongqing Plant comply with the PRC Labor Law and
the Labor Contract Law.
2. Employee care: Aside from setting up medical room and installed professional medical
staff for the Company and its subsidiaries, we also set up the Labor Safety and Health
Committee for taking care of employee safety and health matters, as well as assisting
employees with various programs including psychology, medical and health and opened
various channels for employees express their opinions so as to create a fair mutual
communicationchannel.		 Conforms with
best-practice
principles, no
discrepancy

23

Assessment items Operation status (Note1) Operation status (Note1) Operation status (Note1) Discrepancy with
best-practice principles
of TWSE/GTSM listed
companies
Yes No Summary
3. Supplier relation, stakeholders’ rights and benefits: In compliance with various operation
regulations of the Company and its subsidiaries, suppliers comply with contract
requirement for preserving the legal rights and benefits of both parties. As of today, no
litigation with any supplier.
4. Investor relation: The Company and its subsidiaries attach great importance to the rights
and benefits of investors. Aside from making public relevant information for real-time
publication as required by the competent authority and specified in information
observation websites, we also make public relevant information on the company
website. TXC won the A+ award of information disclosure assessment by the Securities
and Futures Bureau 4 years in a row, and won the honor of transparent company in
voluntary disclosure of information 8 years in a row. We also won the A++ award at the
9th and 10th Information Disclosure Assessment.
5. Directors of the Company participate in finance and business study courses on an
irregular basis. Refer to the educational training chart for directors and supervisors in
the company annual report.
6. Implementation of risk control policy and risk assessment standard: Refer to P127 of the
company annual report for risk control policy, organizational structure and relevant risk
control operations. Furthermore, the Company and its subsidiaries have analyzed,
tracked and responded to possible high risk events bearing on operating goals so as to
improve the risk control mechanism.
7. Implementation of consumer protection or client policy: “Customer First and Mission
Possible” fully demonstrates TXC’s resolve and perseverance in adhering to Customer
First. Over the years we have won the endorsement of customers by stressing quality
and won the Best Supplier Award from a number of clients.
8. Every year the Company would buy liability risk insurance for directors and the general
manager. Presently the insured amount is US$5 million.
9. The Company published the first edition of the Internal Major Information Handling
Operation Procedure on April 29, 2009, and amended on April 29, 2013. It is
disclosed on the company website and publicized among colleagues at educational
training of new employees.
Website: http://www.txccorp.com/tw/f_investor/04_3.html。		 Conforms with
best-practice principles,
no discrepancy

24

Assessment items Operation status (Note1) Operation status (Note1) Operation status (Note1)
Yes No Discrepancy with best-practice principles of TWSE/GTSM listed companies
8. Any self-assessment report on corporate
governance or any assessment report by a
professional institution? (If yes, please provide
opinions by the board of directors,
self-assessment or assessment report by a third
party and list the major defects or
recommendations and status of improvement.)		 Yes Conforms with best-practice principles, no discrepancy
The Company received CG6008 Advanced Corporate Governance Assessment certification from the Taiwan Corporate Governance Association in 2013. The assessment
recommendations were: Continue improvement of these recommendation items.
1. The Company discloses its top 10 shareholders and list of shareholders with 5% or higher shareholdings in the annual report. However, the major shareholder Cathay Life
Insurance Company Ltd. was no longer disclosed in the Annual Report. In order to raise information transparency requirements for corporate governance, it is recommended that
a significant effort be made to obtain and disclose related information to recognize and protect the right to know of minor shareholders. (Improved)
2. The chairman and internal directors of the Company make up over 1/3 of the total number of director positions. In order to ensure the independence of the board, it is
recommended that the Company reduce the number of internal directors and increase the number of independent directors so they may independently oversee company
management performance. (Improving)
3. Company independent directors have academic and industrial expertise and the number of independent director positions have been established in the Independent Director
Qualification Guidelines but the required professional qualifications required for independent directors are not included. It is recommended that the Company discuss what
set of industry specific and overall qualifications are needed for independent directors and clearly specify these qualifications in related articles and guidelines.(Improved)
4. The Company submits comprehensive evaluation reports to the board for individual fund raising activities (i.e. issuance of corporate bonds) to provide a basis for merger, fund
raising, private placement and other major decisions. It is recommended that the Company set up a formal procedure for related purchase transactions, fund raising and issuance
or private placement of equity securities.(Improved)
5. The Company respects the opinions of independent directors and supervisors during routine CPA appointment. However, a board of directors lacks a written evaluation system
for CPA competence. It is recommended that a competency evaluation be conducted annually for CPAs for submission to the board for use as reference when making CPA
appointment decisions. (Improved)

25

  1. The independent directors and supervisors of the Company perform their duties responsibly. Overall attendance of board of director members is high. However, there was no record of oversight of company major operation plan and financial report preparation by independent directors or supervisors. It is recommended that this information be fully disclosed so that shareholders fully understand the duties performed by independent directors and supervisors. (Improved)

  2. How significant random events which occur on regular days are reported to the board is especially important for independent directors and supervisors who are not present at the Company on regular days. Though there are no clear written regulations available to follow, the Company gives guidance at appropriate times to ensure that board members are promptly informed of significant company information. It is recommended that the Company establish a procedure for reporting key information to the board of directors, independent directors and supervisors including reporting periods, type of information reported and reporting methods.(Improved)

  3. The Company has set up performance evaluation procedures for directors, supervisors and managers at the remuneration meeting and submitted them to the board for passage but it has not yet set up a function committee performance evaluation system. Since the board of director’s functional committees are important for corporate governance effectiveness. It is recommended that the Company establish a subjective evaluation system for functional committee operation discipline, significant decisions and effectiveness to effect the self-discipline function of committee members. (Improving)

  4. In order to strengthen the communication system for supervisors and CPAs, improve supervisor effectiveness, it is recommended that the company’s CPA routinely report to the supervisors alone without being accompanied by other members of management and make a written report to facilitate further tracking and guidance by supervisors. (Improved)

  5. Company supervisors and CPAs do actively participate in board meetings but it is preferable that company supervisors and CPA not only participate at board meetings but also interact and communicate sufficiently during audit planning and before issuing the audit report to improve CPA audit work quality and leave a written record for future reference and tracking. (Improved)

  6. Within the organizational structure, the internal audit is directly reported to the board of directors. Regular, close contact must be kept between the independent directors and supervisors. Company internal audit personnel performance is currently evaluated by the Chairman and President. It is recommended that the board of directors conduct regular evaluations in the future and consider the opinions of independent directors and supervisors. (Improving)

  7. The Company was fined by competent authorities for violation of the Waste Disposal Law and Water Pollution Prevention and Control Law and completed improvements after the incident occurred. It is recommended that strengthen oversight of responsible units and add them to the performance evaluation to prevent violations from occurring again. (Improved)

  8. According to Article 7 of the Corporate Governance Best Practice Principles for TWSE / GTSM Listed Companies “TWSE / GTSM Listed Companies are advised to arrange for their shareholders to vote by poll on the proposals included in the meeting agenda one by one and enter the voting result, namely the number of votes casts “for” and “against” and the number of “abstentions” for each proposal, after the shareholders’ meeting on the same day that is held, into the Internet information designated by the TWSE. It is recommended that the Company gradually introduce the above voting by poll system and record the number “for” and “against” votes in the shareholders’ meeting minutes to conform to international practices and improve company corporate governance standards. (Improved)

26

  1. The independent director election and nomination system is clearly established in the current director and supervisor election procedure but there are no procedures for all of the directors and supervisors. It is recommended that the Company refer to Articles 22 and 32 of the Corporate Governance Best Practice Principles for TWSE / GTSM Listed Companies and include all of the directors and supervisors in the scope of nomination. The candidate nomination system for directors and supervisors should be added in the articles so that competent directors and supervisors may be elected. (Improved)

  2. Each of the company board members have taken three or more hours of corporate governance classes each year. Due to the fast changing conditions of the future industry environment, it is recommended that the Company increase the number of corporate governance classes scheduled for each board member to six or more hours to raise the professional ability of board members and improve overall board of director effectiveness in response to company growth requirements. (Improved)

  3. For performance evaluations of company managers, there are three company performance evaluations conducted each year. In addition, the Company has set up a performance evaluation procedure for upper management and refers to industry standards when setting salaries and remuneration. However, the coherence of association for future risk was not considered. In order to prevent managers from engaging in behavior which exceeds the Company’s risk appetite to obtain higher salaries, it is recommended that the above ‘coherence of association for future risk’ be added to the manager performance evaluation system by the remuneration committee to conform to the requirements of the remuneration committee establishment and exercise of duties procedure. (Improved)

  4. Note 1: For continuing education of directors and supervisors, refer to the Directions for the Implementation of Continuing Education for Directors and Supervisors of TWSE Listed and GTSM Listed Companies issued by the Taiwan Stock Exchange.

  5. Note 2: If a securities firm, securities investment trust, securities investment consulting firm or futures operator, describe risk management policy, risk weighing criterion and consumer protection or customer policy implementation.

  6. Note 3: What is referred to as corporate governance self-evaluation reports is a self-evaluation and description of corporate governance self-evaluation items by the company and a report of the company's current operation and enforcement status of each self-evaluation item.

27

IV. Fund Raising Overview A. Capital and Shares

(1) Source of Capital

1. Capitalization

April 9, 2016 April 9, 2016 Unit: Shares, NT$
Year/
Month		 Issue
Price		 Authorized Share Capital Paid-In Capital Remark
Shares Amount Shares Amount Source of Capital Capital
Increase by
Assets
Other Than
Cash		 Other
(Approval document
no.)
72.12 10 310,000 3,100,000 310,000 3,100,000 Registered
capital		 Nil -
73.03 10 3,315,200 33,152,000 3,315,200 33,152,000 Capital increase
by cash		 Nil -
78.03 10 8,500,000 85,000,000 8,500,000 85,000,000 Capital increase
by cash		 Nil -
78.10 10 18,000,000 180,000,000 18,000,000 180,000,000 Capital increase
by cash		 Nil -
79.07 10 21,060,000 210,600,000 21,060,000 210,600,000 Capital increase
by cash, by capital
surplus
Nil		 07/10/1990 (79)
Tai-Tsai-Cheng(1) no.
01530
80.08 10 60,000,000 600,000,000 31,590,000 315,900,000 Capital increase
by cash, by
earnings, by
capital surplus		 Nil 08/01/1991 (80)
Tai-Tsai-Cheng(1) no.
02111
81.07 10 60,000,000 600,000,000 41,067,000 410,670,000 Capital increase
by earnings, by
capital surplus		 Nil 07/07/1992 (81)
Tai-Tsai-Cheng(1) no.
01518
82.07 10 60,000,000 600,000,000 47,300,000 473,000,000 Capital increase
by earnings		 Nil 07/14/1993 (82)
Tai-Tsai-Cheng(1) no.
30047
83.07 10 60,000,000 600,000,000 51,557,000 515,570,000 Capital increase
by earnings, by
capital surplus		 Nil 07/07/1994 (83)
Tai-Tsai-Cheng(1) no.
31774
84.06 10 60,000,000 600,000,000 55,681,560 556,815,600 Capital increase
by earnings		 Nil 06/22/1995 (84)
Tai-Tsai-Cheng(1) no.
36958
85.09 10 100,000,000 1,000,000,000 75,681,560 756,815,600 Capital increase
by cash		 Nil 09/05/1996 (85)
Tai-Tsai-Cheng(1) no.
53631
89.09 10 100,000,000 1,000,000,000 82,201,820 822,018,200 Capital increase
by earnings		 Nil 09/06/2000 (89)
Tai-Tsai-Cheng(1)
no.5237
90.07 10 260,000,000 2,600,000,000 110,348,515 1,103,485,150 Capital increase
by earnings		 Nil 05/14/2001 (90)
Tai-Tsai-Cheng(1) no.
129296
90.08 10 260,000,000 2,600,000,000 120,348,515 1,203,485,150 Capital increase
by cash		 Nil 06/12/2001 (90)
Tai-Tsai-Cheng(1)
no.135132
91.09 10 260,000,000 2,600,000,000 137,673,100 1,376,731,000 Capital increase
by earnings, by
capital increase		 Nil 08/21/2002 (91)
Tai-Tsai-Cheng(1) no.
0910146351
92.08 10 260,000,000 2,600,000,000 144,140,534 1,441,405,340 Capital increase
by earnings		 Nil 08/12/2003
Tai-Tsai-Cheng(1) no.
0920136359
93.08 10 260,000,000 2,600,000,000 151,810,534 1,518,105,340 Convertible
bonds, exercise of
employee stock
options		 Nil 08/18/2004
Ching-Shou-Shang-Zi
no. 09301157450
93.10 10 260,000,000 2,600,000,000 160,779,678 1,607,796,780 Capital increase
by earnings		 Nil 10/13/2004
Ching-Shou-Shang-Zi
no.09301188710
93.10 10 260,000,000 2,600,000,000 160,784,678 1,607,846,780 Convertible bonds Nil 10/19/2004
Ching-Shou-Shang-Zi
no. 09301199790
94.05 10 260,000,000 2,600,000,000 163,133,882 1,631,338,820 Convertible bonds Nil 05/03/2005
Ching-Shou-Shang-Zi
no. 09401077580
94.07 10 260,000,000 2,600,000,000 168,068,138 1,680,681,380 Convertible
bonds. exercise of		 Nil 07/25/2005
Ching-Shou-Shang-Zi

28

Year/
Month		 Issue
Price		 Authorized Share Capital Authorized Share Capital Paid-In Capital Remark
Shares Amount Shares Amount Source of Capital Capital
Increase by
Assets
Other Than
Cash		 Other
(Approval document
no.)
employee stock
options		 no. 09401135020
94.09 10 260,000,000 2,600,000,000 178,181,410 1,781,814,100 Capital increase
by earnings		 Nil 09/23/2005
Ching-Shou-Shang-Zi
no. 09401185020
94.10 10 260,000,000 2,600,000,000 181,557,883 1,815,578,830 Convertible
bonds, exercise of
employee stock
options		 Nil 10/20/2005
Ching-Shou-Shang-Zi
no. 09401207340
95.01 10 260,000,000 2,600,000,000 186,198,661 1,861,986,610 Convertible
bonds, exercise of
employee stock
options		 Nil 01/23/2006
Ching-Shou-Shang-Zi
no. 09501010180
95.03 10 260,000,000 2,600,000,000 188,908,827 1,889,088,270 Convertible
bonds, exercise of
employee stock
options		 Nil 04/17/2006
Ching-Shou-Shang-Zi
no. 09501068450
95.07 10 260,000,000 2,600,000,000 188,942,532 1,889,425,320 Convertible bonds Nil 07/20/2006
Ching-Shou-Shang-Zi
no. 09501152420
95.09 10 300,000,000 3,000,000,000 203,711,768 2,037,117,680 Capital increase
by earnings		 Nil 09/04/2006
Ching-Shou-Shang-Zi
no. 09501198120
95.10 10 300,000,000 3,000,000,000 204,815,282 2,048,152,820 Convertible
bonds, exercise of
employee stock
options		 Nil 10/16/2006
Ching-Shou-Shang-Zi
no.09501232600
96.01 10 300,000,000 3,000,000,000 205,698,282 2,056,982,820 Exercise of
employee stock
options		 Nil 01/16/2007
Ching-Shou-Shang-Zi
no. 09601010470
96.04 10 300,000,000 3,000,000,000 206,032,282 2,060,322,280 Exercise of
employee stock
options		 Nil 04/14/2007
Ching-Shou-Shang-Zi
no. 09601078450
96.07 10 300,000,000 3,000,000,000 206,624,577 2,066,245,770 Convertible bonds Nil 07/27/2007
Ching-Shou-Shang-Zi
no. 09601180970
96.08 10 300,000,000 3,000,000,000 230,7397,19 2,307,397,190 Capital increase
by earnings		 Nil 08/28/2007
Ching-Shou-Shang-Zi
no.09601210120
96.10 10 300,000,000 3,000,000,000 240,243,456 2,402,434,560 Convertible bonds Nil 10/22/2007
Ching-Shou-Shang-Zi
no. 09601258520
97.01 10 300,000,000 3,000,000,000 241,552,590 2,415,525,900 Convertible bonds Nil 01/29/2008
Ching-Shou-Shang-Zi
no. 09701022010
97.01 10 300,000,000 3,000,000,000 241,552,590 2,415,525,900 Convertible bonds Nil 01/29/2008
Ching-Shou-Shang-Zi
no. 09701022010
97.04 10 300,000,000 3,000,000,000 241,627,148 2,416,271,480 Convertible bonds Nil 04/11/2008
Ching-Shou-Shang-Zi
no. 09701087040
97.08 10 300,000,000 3,000,000,000 242,464,833 2,424,648,330 Convertible bonds Nil 08/05/2008
Ching-Shou-Shang-Zi
no.09701191720
97.08 10 350,000,000 3,500,000,000 270,395,056 2,703,950,560 Capital increase
by earnings		 Nil 08/28/2008
Ching-Shou-Shang-Zi
no. 09701819210
97.11 10 350,000,000 3,500,000,000 271,698,090 2,716,980,900 convertible bonds Nil 11/17/2008
Ching-Shou-Shang-Zi
no. 09701293960
98.09 10 400,000,000 4,000,000,000 287,312,523 2,873,125,230 Capital increase
by earnings		 Nil 09/11/2009
Ching-Shou-Shang-Zi
no. 0980120690
98.11 10 400,000,000 4,000,000,000 287,340,930 2,873,409,300 Convertible bonds Nil 11/11/2009
Ching-Shou-Shang-Zi
no. 09801260380
99.01 10 400,000,000 4,000,000,000 288,727,249 2,887,272,490 Convertible bonds Nil 01/26/2010
Ching-Shou-Shang-Zi

29

Year/
Month		 Issue
Price		 Authorized Share Capital Authorized Share Capital Paid-In Capital Remark

Shares		 Amount Shares Amount Source of Capital Capital
Increase by
Assets
Other Than
Cash		 Other
(Approval document
no.)
no. 09901016750
99.04 10 400,000,000 4,000,000,000 290,907,037 2,909,070,370 Employee stock
options and
convertible bonds		 Nil 04/21/2010
Ching-Shou-Shang-Zi
no. 09901078530
99.09 10 400,000,000 4,000,000,000 296,665,178 2,966,651,780 Capital increase
by earnings		 Nil 09/02/2010
Ching-Shou-Shang-Zi
no.09901199850
99.11 10 400,000,000 4,000,000,000 297,183,178 2,971,831,780 Employee stock
options		 Nil 11/18/2010
Ching-Shou-Shang-Zi
no. 099001257750
100.04 10 400,000,000 4,000,000,000 296,305,178 2,963,051,780 Employee stock
options treasury
stock retired		 Nil 4/15/2011
Ching-Shou-Shang-Zi
no. 100001075170
100.07 10 400,000,000 4,000,000,000 296,316,207 2,963,162,070 Convertible bonds Nil 7/26/2011
Ching-Shou-Shang-Zi
no. 100001171400
100.08 10 400,000,000 4,000,000,000 302,242,310 3,022,423,100 Capital increase
by earnings		 Nil 8/25/2011
Ching-Shou-Shang-Zi
no.100001197910
102.01 10 500,000,000 5,000,000,000 309,757,040 3,097,570,400 Employee stock
options and
convertible bonds		 Nil 1/17/2013
Ching-Shou-Shang-Zi
no.10201011600

2. Types of Stock

April 9, 2016 Unit: Shar

e

e
Type of Stock Authorized Share Capital Remarks
Listed (Note) Unlisted Total
Common stock 309,757,040 190,242,960 500,000,000

Note ︰ The above stocks are listed company stocks. Statistics from the April 9, 2016 book closure date.

3. Shelf Registration Related Information: Not applicable.

(2) Composition of Shareholders

April 9, 2016, Unit: Person/Share/%)

Composition
No.
Governmen
t Agencise		 Financial
Institutions		 Other
Judicial
Persons		 Individuals Foreign
Institutions and
Individuals
Total (Note)
No. of
Shareholders		 3 6 129 27,550 160 27,848
Shareholding 8,702,197 38,786,457 50,084,771 130,642,265 81,541,350 309,757,040
Shareholding
Percentage		 2.81% 12.52% 16.17% 42.18% 26.32% 100.00%

Note 1: The above share amount statistics are from the April 9, 2016 book closure date. Note 2: TSWE primary listed, GTSM primary listed and emerging stock companies shall disclose Chinese capital shareholding percentages: Not applicable.

30

B. Data on share price, net value, profit, and dividend of the past two years

item year item year item year
2014		 2015 2016.03.31
end
Marketprice
/ share
(note 1)		 Highest 49.25 44.30 44.10
Lowest 33.95 28.15 33.20
Average 40.54 37.36 37.93
Net value
per share
(note2)		 Before distribution 28.71 34.67 33.59
After distribution 26.21 Note 9 Note 9
Earnings Per
Share		 Weight average number of shares (1000’s
share)
309,757		 309,748 309,757
earnings per
share (note3)		 Before adjustment 3.21 3.03 0.73
After adjustment 3.21 Note 9 -
Dividend
Per share		 Cash dividend 2.50 Note 9 -
Stock
dividend
without
compensation		 Earning per share - Note 9 -
Stock dividend - Note 9 -
Accrued undistributed dividend (note 4) - - -
Analysis of
rate of return		 P/E (note 5) 12.63 12.33 -
P/C (note 6) 16.22 Note 9 -
C/P (note 7) 6.17% Note 9 -

  • ＊ If use profits or capital reserve for raising capital shares appropriate, then it should announce the information of the number of appropriate shares and retroactivlye adjust 。

  • market price and cash dividend

  • note1 ： list the hightest and lowest price of the common stocks in that year, and the average market price for that year is calculated based on the transaction values and transaction amounts 。

  • note2 ： Use the number of circulated shares at the end of the year as the base, then the 。

  • dividend distributed determined in the coming year’s stockholders’ meeting

  • note3 ： If there is any retroactive adjustment from the stock dividend without compensation, 。

  • then it should list earning per share on before and after adjustment

  • note4 ： If the equity investment has constraint that limits the undistributed dividend for that year and it is cumulated until to later profitable year. Then it should disclose the 。

  • cumulative undistributed dividend up to that year

  • note5 ： P/E ＝ current year average share price at closing ／ earning per share 。

  • note6 ： P/C ＝ current year average share price at closing ／ cash dividend per share 。

  • note7 ： C/P ＝ cash dividend per share ／ current year average share price 。

  • note8 ︰ The financial statements of TXC Corporation were audited or view or certified by CPA.

  • note9 ︰ Up to 2016.03.31 ， The retained earnings of 2015 has not yet admitted by the stockholders’ meeting.

31

C. Company’s dividend policy and its current implementation status

1.Dividend policy as defined in the articles of incorporation ：

(1) If there is a profit at the final settling of accounts after paying all taxes and offsetting of losses from previous years, the Company shall first set aside ten percent of the profits as legal reserve. This shall not apply when the legal reserve amounts to the total authorized capital. Director remuneration shall be no more than 2% and employee bonus shall be no lower than 3% of the special reserve allocated from the profits in accordance with the law or after reversal. The remainder together with undistributed earnings from previous periods after an appropriate amount is reserved depending on operating conditions is distributed as shareholder dividends as resolved by the shareholders' meeting. The board of directors is authorized to determine the counterparts for employee stock dividend distribution which include those company employees that conform to certain conditions. The Company's dividend distribution policy is made in consideration of factors such as industry development being in a growth phase, long-term financial planning and shareholder cashflow requirements. Therefore, the earnings available for distribution for that year, after allocation of the legal reserve and special reserve in accordance with the law, shall be distributed as provided in the previous paragraph. Of this, the cash dividend portion of shareholder dividends shall not be lower than 20% of total dividends.

(2) In accordance with Corporation Law 235, clause 1 of Law 235 and revised Law 240, concerning revised regulations of employee and director bonus distribution, on December 21, 2015, the company board of directors passed revisions to articles 19 and 20 of “Company Regulations”. A draft of the proposed revisions will be submitted for decision at the general meeting of shareholders on June 6, 2016. Revisions passed by the board of directors include: If the company generates annual profit, no less than 3% of that profit will be provided to employees as a bonus in the form of cash or company shares, as determined by the board of directors. Receipients of this bonus will include company employees who fulfill certain conditions. The company must apportion a directors’ bonus of no greater than 2% of posted profit figures, following the board of directors’ decision. Employee and director bonuses are announced at the general meeting of shareholders. However, the company shall retain a portion of funds prior to incurring losses, the amount beyond which will be distributed as bonuses according to the aforementioned proportion.

32

2.Suggested dividend appropriate in this shareholders’ meeting ：

Profit distribution for 2015

Unit ： NT$

Unit：NT$ Unit：NT$
Item Amount
Sub-total Sum
Beginning period undistributed profits (774,392,600) 1,737,461,556
(85,203)
(15,645,058)
__
1,721,731,295
938,203,082
(93,820,308)
__
2,566,114,069
(774,392,600)
__
1,791,721,469
Disposal or cancellation for debit retained earning
Actuarial gains and losses for retained earnings.
Adjusted undistributed profits
Net profit after tax for this year
Appropriate legal reserve (10%)
Profits available for distribution
Shareholder bonus—cash ($2.5per share)
End period of undistributed profits

D. Employee bonus and rewards for directors and auditors

  1. The principle of surplus distribution in accordance with company regulations: Surplus in this year’s final account should first be used to pay tax and to make up for past deficits, then followed by allocation of 10% as legal reserve or appropriate or divert the special surplus reserve in accordance with applicable laws and regulations, but if where such legal reserve amounts to the total authorized capital, this provision shall not apply and after retaining an appropriate amount in view of the operation status, the balance unallocated surplus should be allocated by percentages as follows:

  2. （ 1 ） Employee bonus must not be less than 3%.

  3. （ 2 ） Reward for directors and auditors must not be over 2%.

  4. Moreover, the objects of employee bonus should comprise employees of affiliated companies under specific conditions and authorize the board of directors to formulate the stipulations.

  5. Accountant procedures if a current period’s estimated employee dividend, the basis of director/supervisor bonus amounts and calculations for stock dividend figures differ from the amounts that are actually apportioned:

33

  • (1) The basis of estimating the current period’s estimated employee dividend and director/supervisor bonus figures: please see the aforementioned (VI).1. stock dividend policy.

  • (2) The basis for calculating stock dividends apportions: if the company has not apportioned stock dividends during this period, please disregard.

  • (3) Accounting procedures if the current period’s actual apportioned value differs from the estimated figures:When a significant change occurs to the dividend value approved by the board of directors, that adjustment is due to annual expenses. If the figure remains changed by the day of the general meeting of shareholders, the matter will be processed according to the updated accounting estimate, and amounts transferred onto accounts according to general meeting of shareholder decision.

  • Proposal by the Board of Directors for surplus distribution in 2015:

  • As proposed by the Board of Directors on April 24, 2015 surplus distribution for employee bonus and reward for directors and auditors are as follows:

  • (1) Propose to allocate employee cash bonus amounting to NT$ 104,094,029 and cash reward for directors and auditors amonting to NT$17,349,005. There is no difference between the planned allocation amount from expense for employee bonus and surplus in the 2015 financial statement. So, no adjustment for income and loss is required.

  • (2) Propose to allocate employee bonus and reward for directors and auditors in accordance with par value setting earnings per share at: NT$3.03

  • The Company Board of Directors on surplus allocation in 2014:

  • The actual surplus allocation of employee bonus and reward for directors and auditors is according to resolution adopted by the shareholders meeting on June 16, 2014.

  • (1) Actual reward for employee and directors in cash respectively: NT$107,477,658 and NT$17,912,943.

  • (2) No difference between the proposed allocation adopted by the Board of Directors and the resolution by shareholders meeting.

E. The company’s repurchasing of company shares:

On June 16, 2015, due to the “division of operations related to the LED sapphire industry” proposed at the general meeting of shareholders, shareholders submitted an objection to the motion, requesting the company to repurchase 20,000 shares, an action which the company completed on July 20, 2015.

34

F. Convertible Corporate Bond:

Convertible Corporate bond data

Type of corporate bond(note 2) Type of corporate bond(note 2) Domestic 4th unsecured convertible corporate bond(note 5）
Date of issuance January25,2013
Face value NT$100,000.00
Location of issuance and trade(note 3) N/A
Issuanceprice Issued at face value
Total amount NT$800,000,000.00
Interest rate Coupon rate 0%
Term Three-year term Due date: January25,2016
Guarantee institute N/A
Trustee Chinatrust Commercial Bank
Underwriter Yuanta Securities Co.,Ltd.
Attorney Chiu Ya-wen
CPA Deloitte & Touche CPAs GongShuang-hsiung,WongBo-ren
Solvency
Outstanding principal NT$800,000,000.00
Redemption or liquidated before maturity
Restrictive clauses(note 4) None
Ratinginstitute,ratingdate,corporate bond rating N/A
Other rights Converted (exchanged or
subscribed) common stock, GDR
or marketable security up to the
reportpublishingdate
As of the publishing date of the annual report, there has been no
request by bondholders for conversion to common stock, so the
unconverted amount is NT$800,000,000.
Other rights Issuance and conversion
(exchange or subscription)
measures		 See attachment 1 (2012 fourth domestic unsecured convertible bond
issuance and conversion procedure).
Issuance and conversion, exchange or subscription
measures, dilution effect of issuance conditions on
equity and shareholder equity		 Thus domestic unsecured convertible bond issue is converted at a
conversion price of NT$46.5per share. Provided all of the corporate
bonds are converted into common shares, the share dilution will be
5.26%. Therefore, it will not have a very significant effect on
shareholders' equity
Custodian N/A

Note 1: Publicly offered and private placement company bonds are including in the company bond procedure. Publicly offered corporate bonds in the procedures refer to board validated (approved) issues. Private placement corporate bonds in the procedures refer to issues that have passed board resolution.

Note 2: The number of columns may be adjusted based on the number of issues.

Note 3: List for overseas corporate bond.

Note 4: If issuance of cash dividend, outward investment is restricted or certain capital ratio is maintained. Note 5: Indicate in a conspicuous manner if it is a private placement.

Note 6: Convertible bonds that are convertible corporate bonds, exchangeable bonds, shelf registration bonds or warrant bonds shall be listed in a table format according to their attributes for disclosure of convertible corporate bond, exchangeable bond, shelf registration bond or warrant bond information.

35

Type of corporate
bond		 Type of corporate
bond		 Domestic 4thunsecured convertible corporate
bond		 Domestic 4thunsecured convertible corporate
bond
Year
Item		 2015 As of Jan. 26, 2016
Convertible
corporate
bond market
price		 Highest
106.4		 99.9
Lowest 99.2 99.8
Average
101.79		 99.85
Conversion price NT$44.3 / NT$40.9 NT$40.9
Issuance (handling)
date & conversion
price at issuance		 2010.01.11，NT$57.6 2010.01.11，NT$57.6

36

V. Fund Utilization Plans:

A. Fund Utilization Plan and Utilization Status of this Corporate Bond Issue

(1) Corporate Bond Issue Plan

  1. Financial Supervisory Commission, Executive Yuan approval date and document no: 12/17/2012 Chin-Guan-Cheng-Fa-Zi no. 1010056347.

  2. Taipei Exchange approval date and document number: 1/24/2013 Cheng-Tai-Tsai-Zi no. 10200014731.

  3. Total capital required for plan: NT$800,000 thousand.

  4. Source of capital: Issue of 2013 fourth domestic unsecured convertible bonds

  5. Denomination: NT$100,000

Period: Three years

Coupon rate: 0 %

Total amount: NT$800,000 thousand

  1. Fund utilization plan, scheduled progress and expected benefits:

  2. (a) Fund utilization plan items and scheduled progress

(Unit: NT$1,000)

(Unit: NT$1,000) (Unit: NT$1,000) (Unit: NT$1,000) (Unit: NT$1,000) (Unit: NT$1,000)
Plan Item Scheduled
Completion
Date		 Total
Capital
Required		 Scheduled Fund Utilization Progress
2013 2014
2Q 3Q 4Q 1Q 2Q
Purchase of Machinery and
Equipment		 Q2 2014 439,500 100,000 100,000 50,000
50,000		 139,500
Repayment of Bank Loans Q2 2013 400,000 400,000 － － － －
Total 839,500 500,000 100,000 50,000
50,000		 139,500

The total amount for the Company’s application for the fourth domestic unsecured convertible bond issue was NT$800,000 thousand. The application was submitted to the FSC in November 2012. It was planned for the bond to be put up for public sale by book building. After the fund raising was completed according to the schedule in the first quarter of 2013, the funds will be used to purchase machinery and equipment and make the payments needed to repay bank loans. The fund utilization and scheduled progress has been reasonable.

(2) Expected Benefits:

The Company’s total planned fund utilization amount is NT$839,500 thousand. It shall be mainly used to purchase machinery and equipment and for the repayment of bank loans. The expected benefits are described as follows:

 Purchase of Machinery and Equipment

In order to meet market demand and expand our scale of operations, NT$439,500 thousand from this plan is to be used to purchase machinery and equipment for SMD

37

quartz crystal unit production. The estimated increase in production amount, sales amount, sales income, gross profit and net operating income are shown in the Table below. The estimated return on investment period is 3.82 years.

(Unit: 1,000 pcs./NT$1,000)

Year Item Production
Amount		 Sales
Amount		 Sales Value Gross Profit Net
Operating
Income
2013 SMD quartz
crystal unit
product		 30,000 30,000 390,000 101,790 62,790
2014 84,000 84,000 1,008,000 247,262 146,462
2015 96,000 96,000 1,056,000 243,514 137,914
2016 96,000 96,000 960,000 208,128 112,128

 Repayment of Bank Loans

One of the Company’s fund raising plan items was to repay NT$400,000 thousand in bank loans. After fund raising was completed through the application for fourth domestic unsecured convertible bond issue, related loans were repayed in accordance with the bank loan contract. In addition to saving approximately NT$2,530 thousand in interest expenditures in 2013, another NT$5,060 in interest expenditures will be saved annually starting from 2014 which will further improve our financial structure.

(3) Implementation Status: Implementation of all plan items were completed in the first quarter of 2015.

(NT$: 1,000)

f 2015. (NT$: 1,000)
Plan Item Implementation Status Q1 2015
Current		 Until Q1 2015 Reasons Why Plan is
Ahead or Behind
Schedule and
ImprovementPlan
Purchase of
Machinery
and
Equipment		 Amount
Expended		 Scheduled － 439,500 Equipment purchase
progress adjusted
mainly due to customer
orders which caused
implementation
progress to fall behind
original scheduledplan.
Actual 36,206 439,500
Implementation
Progress (%)		 Scheduled － 100.00%
Actual 8.24% 100.00%
Repayment
of Bank
Loans		 Amount
Expended		 Scheduled － 400,000 No major differences
with original scheduled
implementation
progress.
Actual － 400,000
Implementation
Progress (%)		 Scheduled － 100.00%
Actual － 100.00%
Total Amount Scheduled － 839,500 Equipment purchase

38

Expended Actual 36,206 839,500 progress adjusted
mainly due to customer
orders which caused
implementation
progress to fall behind
original scheduledplan.
~~I~~mplementation
Progress (%)		 Scheduled － 100.00%
Actual 4.31% 100.00%

2. Previous capital increase by cash and execution status: Not appliable

、 VI Business Information

A 、 Business Contents

  • 1 、 Business Scope

  • (1). The Major Business Contents

TXC is a professional frequency control component and sensory component manufacturer. Since the company’s founding in December, 1983, it has been devoted to research and development, design, production, and sale of quartz component product series. Products include high precision, high quality quartz crystal, automotive crystal, crystal oscillators, and timing modules. Market demand has led TXC to develop multiple kinds of sensors using independent core technology, products that are widely used in mobile communication, wearable devices, IoT, and automotive electronics markets. In addition, TXC has extended our core technology competence to related LED substrate processes and crossed over into the sapphire LED field to support future group expansion and development. Over the years, we have upgraded customer value objectives and offered customers a variety of frequency control components for module design-in requirements to provide a total solution to satisfy the overall requirements of customers. TXC performance with regard to price, quality, delivery time and service continues to exceed customer expectations time and time again.

(2). Business Proportions

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(unit NT$ 1000’s)
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2015 Consolidated Revenue NTD9,265,656 thousand dollars

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2014 Consolidated Revenue NTD 9,526,243 thousand dollars

39

(3). Company’s current products

Product Type Type Product Size Product Picture
Crystals Metal Can Type
Crystals		 HC-49S / HC-49S SMD
Glass Sealing Crystals 5.0 x 3.2mm，3.2 x 2.5mm
2.5 x 2.0mm，2.0 x 1.6mm
Seam Sealing Crystals 5.0 x 3.2mm，3.2 x 2.5mm
2.5 x 2.0mm，2.0 x 1.6mm
1.6 x 1.2mm，1.2 x 1.0mm
Temperature Sensing
Crystals (TSX)		 2.5 x 2.0mm，2.0 x 1.6mm
1.6 x 1.2mm
kHz Crystals(Tuning
Fork)		 3.2 x 1.5mm，2.0 x 1.2mm
1.6x 1.0mm
Oscillators Crystal Oscillators
(CMOS)		 14.0 x 9.0mm，7.0 x 5.0mm
5.0 x 3.2mm，3.2 x 2.5mm
2.5 x 2.0mm，2.0 x 1.6mm
Crystal Oscillators
(Differential)		 14.0 x 9.0mm，7.0 x 5.0mm
5.0 x 3.2mm，3.2 x 2.5mm
kHz Crystal Oscillators 7.0 x 5.0mm，5.0 x 3.2mm
3.2 x 2.5mm，2.5x 2.0mm
Voltage Controlled
Crystal Oscillators
(VCXO)		 14.0 x 9.0mm，7.0 x 5.0mm
5.0 x 3.2mm，3.2 x 2.5mm
Oven Controlled
Crystal Oscillators
(OCXO)		 36 x 27 x 14 mm(Dip type)
25 x 25 x 11mm(Dip type)
9 x 14 x 7.7mm(SMD type)
Temperature
Compensated Crystal
Oscillators (TCXO)		 3.2 x 2.5mm，2.5 x 2.0mm
2.0 x 1.6mm，1.6 x 1.2mm
Precise Temperature
Compensated Crystal
Oscillators (TCXO
Stratum-3)		 7.0 x 5.0mm，5.0 x 3.2mm
MEMS Oscillators 7.0 x 5.0mm，5.0 x 3.2mm
3.2 x 2.5mm，2.5 x 2.0mm
2.0x 1.6mm
Real-Time
Clock
(RTC)		 Real Time Clock
Module		 SOP 14PINS
10.1 x 7.4mm

40

Product Type Type Product Size Product Picture
Sensor Light Sensors/
e-Compass Sensors		 2.5 x 2.0mm/4.5 x 0.9mm
1.6x1.6mm/
Automotive DIP / Glass Sealed
Crystal / Seam Sealed
Crystal /XO/TCXO /kHz
Crystal Oscillators/ kHz
Crystals(TuningFork)		 HC49S/HC-49S SMD/
8.04.5mm/53.2mm/
3.22.5mm 3.21.5mm /
2.52 mm/2.01.6 mm
Sapphire 4”/6”Single-side/
Double-side Polished
Sapphire Wafer
4”/6” PSS wafer		 4”650 um / 900 um
6”1000 um / 1300 um
PSS,D26/D27/D28/D29

(4). Scheduled new products development

  • TXC will pool more resources in development of new products so as to expand the market share of advance applied and high added-value products. Concomitantly, we’ll actively engage in technology research and development of optics, micro-mechanical and electrical devices, sensors and medical electronics. With the business philosophy of sustained operation, TXC will continue to work hard in basic research. In face of challenge from competitors at home and abroad, we’ll adhere to following directions in new product and technology development:

  • i. Elevation of SMD miniaturized product development and process technology: Over the years, TXC has strived to develop miniaturized quartz components and has completed development of 1.2x1.0x0.35mm quartz components. Aside from continued product miniaturization, we’ll deploy in advance to meet future miniaturized products and self-developed engineering technology, and advance toward development of extra mini 1.0 x 0.8 x 0.35mm quartz components. Moreover, we’ll further focus on production and research and development of still higher precision process technology requirement, as well as engage in low cost, low energy consumption, high anti-vibration and enlarged broadband.

  • ii. Automotive electronics development TXC has won certification of the TS-16949 initial period product development quality operation system. We have completed version conversion of ISO/TS16949-2009 and the automotive electronics have ushered in the growth period. Aside from upgrading product technology, safety and quality to grade 1, and advance toward Grade 0, the highest quality reliability in technology upgrade.

  • iii. Advanced oscillator and modular product development Continue to engage in development of advanced products including TCXO for special telecommunications use, optical fiber telecommunications module VCSO, HFF VCXO, and VCXO high frequency telecommunication and high precision frequency temperature controllers (OCXO) for base station use, etc. Such products can accommodate booming growth of telecommunications systems in Asia and the newly emerged nations.

41

  • iv. Sensor application product development Proactively invest in the sensor component market, and develop proximity sensor and ambient light sensor for use in smart handheld devices by using microminiaturized special ceramic seal technology; successively develop diamagnetic sensor components such as e-compasses, gyroscopes, and accelerometers, and actively develop PM2.5 sensors that correspond to product use trends and market demand.

  • v. Intensify basic research

TXC will effectively integrate technical problems of various engineering departments via the inter-departmental technical team, accumulate basic research capability and accelerate launching of new productions onto the market.

  • vi. Product Roadmap

==> picture [402 x 253] intentionally omitted <==

2 、 The Industry

  • (1). Current industry status and development

The current domestic quartz industries are mainly for producing components such as crystals, crystal oscillators, and crystal filters. The basic manufacturing process of making crystals starts from cutting the quartz, and then after grinding and polish to the desired sizes; followed by depositing thin metal film electrodes on its surface under the vaccum, and subsequently, it is connected with condut wires; afterward it is packaged. In addition, by assembling and packaging the crystal components with IC oscillators then it will result the crystal oscillators. Assembling and packaging the crystal components and capacitors, wires, and resistors then it will be the crystal filters.

When you comparing the three crystal technologies: frequency, precision, and size dimension you can see that the European and US manufacturers are strong in the frequencies development. It was because of their development of the wireless technology that it gives them an advantage in the design and development; but production efficiency

42

is lower. Japan manufacturers are the technology leaders and they are excellent in the precision and the scale size of the products. They have the advantages of products improvement, and can further to make it in mass production and automatic production. To the Taiwanese manufacturers, most of them are buying the material & know-how, machinery equipments, or purchasing the manufacturing process of which usually lead to a faster time in marketing the product. But recently, the manufacturers have improved their manufacturing process, and the manufacturing equipments; also the learning of the manufacturing process further improves it. Presently, the mainland manufacturers mainly produce low-end products wherein 80% of them are for export and their products still have not effectively satisfied the demand of their massive domestic market. In recent years Chinese manufacturers are aggressively to promote their technology abilities and to advance to the middle and high end. Below table is a comparison of advantages/disadvantages of competitions from the major producers.

Key European, USA Japanese Taiwanese China
technology manufactures manufactures manufactures manufactures
Frequency high High High-middle Middle-low
Precision high Veryhigh High-middle Middle-low
Sizes High-middle High High-middle Middle-low

Currently, in Taiwan the major crystal manufacturers are TXC Corp, Siward Crystal Technology, Harmony Electronics, Taitien Electronics, Tai-Saw Technology, and EChina Technology. TXC Corp has the highest market share and Harmony Electronics is next.

  • (2). Market relationship of up, middle, and down stream companies

  • Crystal components are our major product and it is also the basic electronics parts. Our upstream industries include crystal growth, material manufacturing, and precision machinery. The downstream applications include information technology, wire and wireless communications, consumer electronics, and network products etc. The relationship between the up, middle, and downstream manufacturers is given in the below diagram:

43

Potential entrants

  • ‧ Electronics components channels ‧ Other non frequency electronics components manufacturers

Upstream suppliers

  • ‧ Crystal growth－ Manufacturing man-made crystals

  • crystals Downstream clients

  • ‧ Materials manufacturing－ ．Wire, wireless communication Manufacturers of Crystal

  • Crystal bar, wafer/crystal ． industry disk、metal and cermic ．crystal gridding ．Consumer electronics industry package materials(top ． circuit design ．Mobile communication cover、base cover)、plastic、 crystal/oscillator package industry IC… crystal/oscillator testing ．Basestation and equipments

  • ‧ precision machinary－－ industry cleaning/plating、fine 、fine fine ．Automotives electronics 、

  • tuning/package、 industry ． Mobile computing

  • ‧ precision machinary－－ cleaning/plating、fine 、fine fine tuning/package、 examing/testing (photo-mask manufacturing、vaccum plating machine、yellowish light plating equipments、 testing instruments、jug & fixture…)

Substitutes

  • ． Silicon Timing Devices

  • ．self-stimulatedLCVariable frequency filter,、 oscillator

  • ． Dielectric Resonance (DR Oscillator)

  • ． FilmBody Accoustic (FBAR)

  • ． MEMS technooogy

  • ．Green Clock

(3). Development Trend of Crystal Industry

Crystal products are important components in the electronics products. To sponsor the future 3C growth and trend, the future product style, its size, and the precision will have the following trend ：

(i). Production trend ：

(a). Slim down and usage of SMD

In terms of the technology aspect, we have achieved the slim down level for use the single crystal IC, crystal design & manufacturing, and packaging & testing etc. For example take the case of SMD quartz crystal, its dimension has downsized from 11.8×5.5mm 、 8×4.5mm 、 7×5mm to 6×3.5mm 、 5×3.2mm 、 4×2.5mm 、 3×2.5mm 、 2.5×2.0mm 、 2.0×1.6mm and further to the dimension of 1.6×1.2mm 、 1.2×1.0 ； its height has also improved from 2mm 、 1.8mm 、 1.5mm 、 1.2mm to 1mm 、 0.9mm 、 0.8mm 、 0.7mm 、 0.5mm 、 0.35mm 、 0.30mm. By the effective SMD scale down improvement, we are also toning with the development trend of Chipset, design trend of brand clients and the SMT production from our downstream clients.

(b). High frequency modularized 、 high precision ：

44

High frequency, high frequency element modularization, high precision: Fiber channel, gigabit Ethernet, synchronous optical networking (SONET), synchronous digital hierarchy (SDH), smallcells base station or access point base station, 3G/4G base station and other various high speed transmission system advances has raised high frequency, modularization, high precision requirements for quartz elements. Through the Company's self developed high frequency, high precision and low phase noise crystal oscillators (XO), voltage control crystal oscillators (VCXO), temperature compensating crystal oscillators (TCXO) and constant temperature crystal oscillators (OCXO) will assist simplification of customer circuit design and satisfy performance requirements for the high speed networks and the next generation of wireless telecommunication systems.

The products are as the below list:

PKG
No Projects Type Features
(mm)
7.0x5.0 LVPECL High Freq.
High Frequency XO
1 5.0x3.2 LVDS
(above 100MHz) Low Noise
3.2*2.5 HCSL
7.0x5.0 CMOS High Freq.
High Frequency VCXO
2 5.0x3.2 LVPECL Low Noise
b 50MH
(aove z) 3.2*2.5 LVDS High Pull
High Frequency SO 7.0x5.0 LVPECL High Freq.
3 (above 150MHz) 5.0x3.2 LVDS Low Noise
3.2x2.5
2.5x2.0
4 TCXO Clipped Sine High Stability
2.0x1.6
1.6*1.2
7.0x5.0
5.0x3.2
5 32.768KHz CXO (TF) CMOS High Stability
3.2x2.5
2.5x2.0
7.0x5.0
5.0x3.2
6 Precise XO/MO 3.2x2.5 CMOS High Stability
2.5x2.0
2.0x1.6
7.0x5.0 Clipped Sine
7 Stratum 3 TCXO Ultra High Stability
5.0x3.2 CMOS
36*27 LVCMOS
High Stability
8 OCXO 25*25 HCMOS
Ultra Low Noise
14*9.0 Sinewave

(4). Competitions

For quite some time Taiwan electronics industry usually take the OEM fashion to function as a supplier to world’s largest electronics and information technology companies. Applying Taiwan’s capital, technical skills, labor or other market unique advantages that

45

、 takes the advantages of ”global labor division” ”regional labor division” to achieve the vertical integration purpose 。 With the advance of Taiwanese electronics manufacturer’s technical level, their business operatios have transformed from the parts assembled in the early days, to the OEM, and even promoted to the ODM and OBM scale. In order to gain a more added value, many Taiwan electronics companies, reposition their value chain locations, and have gradually extended themselves from manufacturing to product R&D, design and even further to sales and marketing, post-sale and brand management; and amid the global work divisions, have stance in a unique place . The major global companies with their procurement arranging, are team with Taiwan electronics companies in value creations; and themselves would be able to intend more on their brand and sales management. This ends up in a win-win situation for both parties.

With Taiwanese electronics industry forms in the nature cluster groups, and it thus has a demand of 30% of the global crystal component product. But Taiwanese manufactures can only produce no more than the 20% of total global production, and this China domestic market would provide growing space for Taiwanese companies. But the crystal component industries are in the border of oligopoly competition since the ten largest manufacturers in the world have a total combination of production of 70% and more. This illustrates the great differences of the manufacturers in this industry, and this can be said it is a oligopoly competition market. Because of the wide applications of the products, each manufacturer emphasizes its own product and the market. The lower end, and mature market has a stronger tendency in cutting price to competition. This results a very strong competition market.

In the global crystal component industry, Japan is still the largest producer and it has about 50% of the worldwide productions. Our domestic competitors are SiWard Crystal Corporation, EChina Technology, Harmony Electronics, Taitien Electronics, and Tai-Saw Technology and Hosonic Electronics. Each corporation differentiates by specializing in different products and market. Our company has the highest market share which demonstrates our leading role in the crystal component industry.

3. Technology and Recent Research and Development

(1) Ratio of R&D expense in Total Operating Cost during recent years up to 2016.03.31 units ： NT$ 1,000’s ， %

Year 2014 2015 2016.03.31
Net Operating Cost 9,526,243 9,265,656 2,108,973
Cost for Research and
Development		 435,683 455,535 114,646
R&D cost/net operating Cost(%) 4.6% 4.9% 5.4%
  • (2) Research and Development Results
Products
development
1、 SMD 4.0 x 2.4mm Ambient Light Sensor and Proximity Sensor with Integrated IR
LED for Mobile Phone.
2、 SMD 2.5 x 2.0mm Ambient Light Sensor and Proximity Sensor with Integrated IR
LED for Mobile Phone.

46

3、 SMD 3 in 1 Light Sensor 2.5 x 2.0 mm for Smartphone, Tablet, DSLR, Smart
wearable , Fitness devices.
4、 SMD 3 in 1 Light Sensor 4.5 x 0.9 mm for Smartphone, Tablet, Smart wearable ,
Fitness devices.
5、 SMD Crystal 2.5 x 2.0 mm for Automotive.
6、 SMD Crystal 2.0 x 1.6 mm for Automotive.
7、 SMD Crystal 1.6 × 1.2 mm for SIP.
8、 SMD 5.0 × 3.2 mm TF CXO for variable.
9、 SAW-based Oscillator for SAN.
10、 SMD Seam CXO 2.0 × 1 .6 mm 2~54 MHz for digital camera, Portable TV.
11、 SMD 3.2 x 2.5 mm TCXO for GPS and WiMAX.
12、 SMD 2.5 x 2.0 mm TCXO for GPS and WiMAX SMD 2.0 x 1.6 mm TCXO for
GPS and WiMAX.
14、 SMD 1.6 x 1.2 mm TCXO for GPS and WiMAX.
15、 SMD 5.0 x 3.2 mm Stratum-3 VC-TCXO for Base Station, Small-cell, Networking
Infrastructure.
16、 SMD 7.0 x 5.0 mm Stratum-3 TCXO for Base Station, Small-cell, Networking
Infrastructure.
17、 SMD Crystal 1.2×1.0mm for future.
18、 SMD 5.0 × 3.2 mm TF CXO for variable.
19、 Inverted MESA BLK 1.3 × 1.03mm
20、 Inverted MESA BLK 1.6 × 1.14mm
21、 Inverted MESA BLK 2.49 × 1.83mm
22、 SMD 2.0 x 1.6 mm TSX for GPS
23、 SMD 2.5 x 2.0 mm TSX for GPS
24、 SMD 3.2 x 1.5 mm Tuning Fork
25、 SMD 3.2 x 1.5 mm Tuning Fork for Automotive.
26、 SMD 2.0 x 1.2 mm Tuning Fork
27、 SMD 1.6 x 1.0 mm Tuning Fork
28、 SMD 7.0 x 5.0 mm Oscillator for HCSL
29、 SMD 5.0 x 3.2 mm Oscillator for HCSL
30、 DIP 25 x 25 mm OCXO for stratum-level and base-station.
31、 DIP 20 x 20 mm OCXO for telecommunication.
32、 RTC 10.1 x 7.4 mm for smart utilities devices, electric meters, gas meters.
33、 4” Single-side Polished Sapphire Wafer for LED application
34、 4” Double-side Polished Sapphire Wafer for LED application
35、 6” Single-side Polished Sapphire Wafer for LED application
36、 6” Double-side Polished Sapphire Wafer for LED application
37、 1.6 x 1.6 mm 3-axis electronic compass for Sensor application
38、 SMD 3.2 x 2.5 mm TCXO for Automotive.
39、 SMD 2.5 x 2.0 mm TSX for Automotive.
Patents and
Academic
publications		 Patent︰
1. Electrode of the piezoelectric crystal oscillator components
2. Vacuum gas-tight system integration package structure
3. Structure and production method of the piezoelectric quartz oscillator chip
4. Theproduction ofpiezoelectricquartz oscillator chip

47

  1. Quartz crystal oscillator 6. Crystal oscillator with layout structure for the miniaturization of size 7. Piezoelectric material thinning device 8. Wafered composite material thinning device 9. Grooved resonator unit packaging structure 10. Light sensor chip packaging structure 11. Stacked light sensor chip packaging structure 12. Thru-hole resonator device wafer level packaging structure 13. Thru-hole resonator device wafer level packaging structure manufacturing method 14. Improved resonator wafer grade packaging structure 15. Strengthen hermetic sealing of oscillator wafer grade packaging structure 16. Partition and serial-type light sensor chip packaging structure

For the patents or possible patents of TXC, please refer to relative patent database http://www.tipo.gov.tw/ch/ Paper ︰ 1. Anchor loss reduction of quartz resonators utilizing phononic crystals. (English), 2015. 2. A Perspective for the Quartz Crystal Devices Industry and Technologies in Taiwan and China. (English), 2014.

  1. A Study for the Relationship between Drive Level and the Activity Energy in Arrhenius Accelerated Aging Model for the Small Quartz Resonators. (English), 2014.

  2. A Study on Raising the Fundamental TS-mode Resistance by Energy Trapping for 3rd Overtone. (English), 2014. 5. Laser Measurement and Identification of Vibration Modes of AT-cut Quartz Crystal Resonators. (English), 2013. 6. The Study of Aging Frequency Drift Mechanism for Quartz Crystal Resonators. (English), 2013. 7. Advanced TSV-Based Crystal Resonator Devices Using 3-D Integration Scheme With Hermetic Sealing. (English), 2013. 8. TSV-based quartz crystal resonator using 3D integration and Si Packaging technologies. (English), 2013. 9. A Brief View of the Current State of the Development and Aging Performance of Fixed Frequency Surface Acoustic Wave (SAW) Oscillator (English), 2012. 10. Properties of Miniature X- and Z’-Elongated Rectangular AT-CUT Quartz Resonators of Different Sizes (English), 2012. 11. Vibration Mode Identification and Coupling Assessment with the Mindlin Plate Equations and Measurements is a Quartz Crystal Plate (English), 2012. 12. Aging Performance of Small Size MHz Quartz Crystal Under High Drive (English),2011 13. Inharmonic Overtones in Partially Plated AT-cut Quartz Crystal Plates (English),2011 14. The Study of Activation Energy (Ea) by Aging and High Temperature Storage for Quartz Resonators' Life Evaluation (English), 2011. 15. An Efficient AT-cut quartz Crystal Resonator Design Tool for Activity Dip in Working Temperature Range (English), 2011. 16. Quartz Crystal Industry of China at Crossroads (English), 2011.

48

  1. Resonant Frequency Function of Thickness- Shear Vibrations of Rectangular Crystal Plates (English), 2011.

For relative paper, please refer to the website of TXC: http://txccorp.com/

  1. Long and short term sales and marketing plan

  2. (1). Short term Development Plan

    • (a). Marketing Strategy ：

    • If profit structure has been optimized, solidify current market share among target customers of mobile computing, mobile telecommunications, internet and consumptive electronic products; maintain service and flexibility advantages, and deepen relationships with core customers.

    • Develop new applications, new customer bases, and new businesss opportunities for high-end products, including AOM (acoustic optic modulator – high frequency), ACAP (automotive crystal application products), and sensors, and continue to maintain high growth levels.

    • In accordance with customer management patterns, seize a space within market opportunity and competitive value by grasping and introducing Design in and CM syncing.

    • Comprehensively strengthen the depth and breadth of relationships with IDH (IC Design House), understand the development trends of customer technology, and immediately release products that meet customer demands to ensure a front-end reference design win.

    • Continue to strengthen the European, US, and Japanese markets, and develop markets in developing countries; establish TXC as the largest brand in China.

    • Establish a special leading organization to enhance the atmosphere of team work and organization efficiency.

    • Continually optimize marketing abilities, to help improve the depth and breadth of the marketing strategy layout.

    • Build a complete global logistics network to satisfy customer demands for prompt product delivery, and provide customers with prompt technology integration services.

    • Establish dynamic marketing channels and a global layout.

    • Implement Industry 4.0 big data analysis on information systems, to assist staff in formulating and evaluating marketing strategies.

    • Improve employee abilities and comprehensively strengthen the sales team’s competitiveness by establishing a marketing training system.

    • (b). Manufacturing Strategy ：

    • Appealing to Time to Volume and Time to Market concepts, order receipt and planned production policies are implemented simultaneously, to accommodate scheduled order deliveries and appropriate product inventory levels.

    • In response to special industry conditions, strengthen “adaptability + control + integrity = core competitiveness”.

    • Integrate manufacturing resources’ use of IoT and big data analysis structure in China, Taiwan, and Hong Kong to build an optimized production and benefits distribution, to optimize company profit.

    • New products, new technologies, automated factory construction, and rapid production to develop the company’s core technologies.

    • Thoroughly discuss COPQ and Total Cost with all employees, with a foundation of “cost comparison”, to achieve monthly improvements and rationalization.

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  • Fully introduce the iFactory 4.0 concept to build a production management system that grasps production information in real time.

  • Product quality is introduced into production control through a big data analysis PAT/SYA management concept, inspecting and controlling production quality deviation and conforming to the objective of “99.99” defect-free rate within each workstation, to improve overall production quality and guide workers in engineering to strengthen production efficiency and product quality.

  • Optimized operations management and promoting the efficacy of each case’s management makes production more competitive.

  • (c). Quality Assurance Strategy ：

  • With the international manufacturing giants as a benchmark,, optimize TXC Group’s quality control system, pursuing “Zero Risks” as the ultimate goal.

  • Improve TXC Group’s green product and process services, ensuring that the company’s products, production processes and work environment conform to international environmental standards and customer demands.

  • Promote product quality risk management, strengthen customer trust through automotive application risk recognition, stable product and production process design, and Zero Defect product management.

  • Continue to improve Cost of Poor Quality (COPQ).

  • Promote on the job training in basic and progressive advanced quality tools as a foundation for continual improvement.

  • Strengthen reliability testing equipment and improve analytical capability to achieve the objectives, verification, and inspection and control tasks of product miniaturization, high precision, and high stability.

  • Create a quality control platform that corresponds with suppliers, to avert quality risks in materials or products, ensuring reliable, continuous supply.

  • Carry out a business continuity supply plan (BCP), simulating and planning production operations in the event of a large scale crisis, ensuring the ability to maintain business operations for customers.

  • Integrate the knowledge bases of the Pingzhen, Ningbo, and Chongqing factory locations, building an industrial 4.0 intelligent quality control platform.

  • Continue promoting quality education, quality activities, and encouragement programs, implementing quality responsibility among all personnel, and achieving the objective of “Zero Risk”.

  • (d). Product R&D Strategy ：

  • According to the marketing & sales strategy and needs; we need to map the direction of the product that it should go. We will aim the product’s specifications meet the clients’ needs.

  • According to the new specifications from the clients, our RD or engineering can provide the product within the scheduled time frame that will help us to win the business opportunity.

  • According to our business strategy and planning; our RD will fix on the product development or work as team with other company in the industry that we could bring the new product to the market.

  • Execute the scheduled progress RD project management ， effectively monitoring and managing the RD development that to shorten the RD time.

  • Continuously to strengthen the RD staff, conduct the effective training and upgrade the overall professional attribute.

  • Cooperation between the industry and the academic circle, cooperative development

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with schools and research institutes, strengthening of R&D technological capability.

  • Have an effective RD management practice, reasonable reward system, and to motivate the group’s efficiency and attitude.

  • (2). Long term Development Plan

  • (a) Focus on development of high-end products used for fiber channel, gigabit Ethernet, SDH-SONET (synchronous optical network), small cells, terminal communications applications and high precision frequency control products used for medical electronic product applications. Also, develop miniaturized products used for wearable and smart home applications.

  • (b) Actively develop frequency control devices for automotive peripheral control module applications to achieve our foremost goal of meeting stringent quality requirements.

  • (c) Continue to expand sales service network. Besides strengthening sales deployment in Europe and America, broaden and deepen the sales network in southern China (Shenzhen, Wuhan and Chongqing), eastern China (Suzhou, Beijing and Shanghai), Japan (Shin-Yokohama, Osaka) and also aggressively expand in the Korea market, strengthen Singapore, India and Vietnam sales marketing channel deployment to supply services and meet market demand in each region, increase market scale and build a foundation for China and emerging market development in order to reach the goal of becoming one of the top two manufacturers in the quartz crystal industry.

  • (d) Continue to develop high-end timing products and also focus on sensor product development. Develop diverse product applications and diversified operation strategy to find new blue water business opportunities.

B 、 Marketing & Sales Situation

  • 1 、 Market Analysis

  • (1).Market for our major products

    • The product trend is toward to small and light . The products that use the SMD crystal will have a higher percentage than others. In the future, Asia still is the major OEM center, and the products from Asia are still very high. TXC would still need to work hard on the market expansion in America, Europe and Japan.

Regional sales distribution of our major products in the past two years ：

unit: NT$1,000 unit: NT$1,000
Region
year		 2014 (consolidated) 2015 (consolidated)
Amount % Amount %
America 463,466 4.86 239,122 2.58
Europe 117,106 1.23 35,478 0.38
Asia 7,995,959 83.94 7,603,437 82.06
Domestic 949,712 9.97 1,387,619 14.98
Total 9,526,243 100.00 9,265,656 100.00

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(2). Market share

Unit: USD Million

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Source ： TXC, CS&A, 2016

  • (3). Market future demand and supply condition, and its growth potential

  • (i) Industry side

According to statistical data of the market research institute CS&A, Crystal and Oscillator will have steady positive growth and demand support in the future 3 years in terms of shipment and sales revenue.

Unit: Million pcs

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Source ： CS&A, 2015

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(ii) Market side

Practical uses for the Internet of Things (IoT), including smart homes, smart industries, smart automobiles, smart networks, smart medical treatment, and the development of all kinds of end products, including wearable products, mobile devices, VR, and unmanned machines, is shown in the figure below. Research from Gartner conducted in 2015 predicts that the use of IoT devices within all sectors will double within the next 4-5 years.

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Source: IDC, 2016

A. Automotive Electronics

All major car manufacturers and emerging internet service providers have devoted great attention to the smart automotive electronics market. In addition to driverless car testing by Google and traditional car manufacturers, chip manufacturers and service providers have begun promoting electronic products that are directed at the smart car. Because the average car on the road today is currently equipped with 60-100 quartz components, relevant applications range from safety-related to non-safety-related. The production reliability demands of frequency component products are higher than that of other consumer electronics, and thereby increase a product’s average sale price (ASP) and gross margins. And because the current customer base continually indicates a bright future for the development of the automotive electronics market, businesses have repeatedly advanced towards this field. Each of these factors benefits the future of TXC expansion into the automotive electronics field.

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B. Infrastructure and Small Cell

With the flourishing development of IoT and the gradual maturing of 4G/LTE technology, overall mobile network data speeds and the number of users have significantly increased. To satisfy future industry growth, service providers must continue to expand the number of base stations. To reduce investment costs and rapidly increase network coverage rates, service providers must utilize Small Cell as a mobile communications amplifier and extender. As shown in the figure below, MIC surveys forecasting global Small Cell output values from 2015-2020 indicate that 2015 global Small Cell production values had already reached $10,600,000 USD. It is anticipated that, by 2020, the annual production value will reach $20,770,000 USD, an annual growth rate of 14%.

TXC advanced products that fill these requirements include OCXO, VCXO, S30TCXO and high frequency XO, which can help also in improving overall product ASP and maintaining gross margins.

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Source ： MIC ， 2016/02/29

C. Sensors Offer Boundless Business Opportunities

In the coming generations, IoT technology will be present in all aspects of life. Sensors of all kinds will play essential roles, assisting individuals or enterprises in gathering all varieties of environmental data, and analyze that data to deliver valuable information. With the development of IoT, a diverse environment of service applications, such as mobile communications, wearable devices, automotive electronics, medical treatment, and M2M applications, along with PM2.5 sensor modules can connect with application side air filters/purifiers, and become elements of the IoT, by using a “smart air circle” operating concept. Each of these technologies will create growth potential for sensors of all types.

D. Other Mobile Device Development a. Tablets

Since the 2015 Consumer Electronics Show (CES), it is evident that PC products and the widely spread smart mobile devices of the past several years, including smart phones, tablets, and similar devices, will no longer occupy an important market position, and will be replaced by IoT technology available in wearable devices, smart automobile products, and smart homes. Additionally, similarities between products have weakened the overall market. As DIGITIMES noted, since 2015, manufacturers have begun shifting the center of product planning towards unique products in the mid-high price range, such as the 2-in-1 tablet and large screen tablet, etc. In 2016 it is estimated that tablet product development will also focus primarily on large screens

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and 2-in-1 tablet products, and that manufacturers will differentiate their products through accessories like keyboards and styluses. However, because products are trending towards the mid-high price range, especially the 2-in-1 tablet with an onboard keyboard and stylus, the overall price trend is nearing that of mid-high range laptops. The high-priced 2-in-1 tablet can only slow the scope of the overall decline of the tablet, and will face difficulties in correcting the product’s overall negative trend. Global tablet shipments for 2016 are predicted to be around 190.636 million, a 7.6% reduction from the 2015 figures. And because global sales proportions of high priced tablets is expected to increase, average product sales prices will only decline, with expected total output value of US$40,377 million, an 8.8% reduction from the 2015 figures.

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Source ： MIC, 2016/3

b. Smart Phones

  • Research organization IDC released cell phone manufacturing figures for 2015, which showed that last year’s global manufacturing produced 1.44 billion cell phones, a market growth rate of 10.4%. The growth rate of mature markets such as the US, China, and Western Europe fell to single digits in 2015, but developing markets in India, Indonesia, the Middle East, Africa, and other Southeast Asian nations continue to exhibit promising growth. Although, this is probably the last period of double figure growth for the smart phone market; an estimated 1.5 billion phones are predicted to be manufactured in 2016, a growth rate of only 5.7%. This indicates that the smart phone market is slowly trending towards saturation, and the mid-low level smart phone market is officially looming.

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Region 2016
Forecasted
shipment		 2016
Market
Share		 2016
Growth		 2020
Forecasted
shipment		 2020
Market
Share		 2020
Growth
Android 1,254.6 82.6% 7.6% 1,624.4 84.6% 4.6%
iOS 231.2 15.2% -0.1% 269.0 14.0% 3.2%
WindowsPhone 23.8 1.6% -18.5% 17.8 0.9% -5.7%
Other 9.5 0.6% -15.1% 9.2 0.5% 4.8%
Total 1,519.0 100.0% 5.7% 1,920.4 100.0% 4.3%

Source: IDC Worldwide Quarterly Mobile Phone Tracker, March 3, 2016

c. Wearable devices

  • With the maturing of consumer consciousness and demands, along with the expansion of global wearable device manufacturers, research organization IDC estimated 2016 wearable device output to reach 100 million, compared to 72.2 million in 2015, a growth rate of 38.5%. As shown in the figure below, wearable products are expected to maintain double digit growth figures until 2020. 110 million devices will be manufactured in 2016, a growth rate of 38.2%; that figure will reach 205 million in 2019, an annual growth rate of 20.58%, and 237 million in 2020, an annual growth rate of 15.60% Unit ： million

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Source ： IDC ， 2016/3

d. Virtual Reality (VR)

According to research conducted by DIGITIMES, Virtual Reality (VR) uses are in a developmental upsurge. Those in the VR industry are not only developing VR content and hardware for the game and visual media fields; in recent periods, some in the industry are casting their gaze towards the medical treatment field, and hope to use VR to usher in a revolution in medical applications. The vastness of the medical field has already made it an early laid-out competitive battleground among developers in the VR industry, added to emerging fields in which VR technology is worth utilizing, these will become important development foundations for global VR developers in creating a mature market ecosystem. Recently, companies including Oculus, Amazon, Apple, Microsoft, and Google have been actively developing VR’s medical applications, indicating that the world’s major tech factories should not only take advantage of early market opportunity to develop game, home entertainment, and visual media content, but also make further strides into developing VR applications for the fields of medical treatment and health.

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----- Start of picture text -----

Unit ： thousand
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Source ： IDC ， 2016/2

  • (4). Niches competition, the advantages/disadvantages of the future development, and the response strategies.

SWOT analysis

Advantages

Disadvantages

  1. Have been in the industry for long time, and a higher market share, have good knowledge of customers and their production base, can team with their design and technical service 。

  2. It is insufficient channel in America, Europe and the other new area.

  3. Insufficient guidance in areas of critical materials, equipment development.

  4. High flexible in adjust production line, has large and complete capability in production lines, excellent manufacturing improvement ability, efficient in 。

production, and good competitness in unit cost

  1. Extent of Automation is limited in the front end manufacturing process.

  2. With a comparative edge in brand recognition, control of raw material production and technology capability, the Japanese manufacturers have comparative advantage in cost structure.

  3. More miniaturized sizes and more stringent specifications close the gap in technology with the advanced US and Japanese quartz component manufacturers.

  4. The material and labor cost is higher than before.

  5. Global operation management, fast product delivery, a good customer service team, wide product line, can 。

satisfy clients’ one stop shop

  1. Foreign Exchange volitality affects price and cost of products.

  2. High technical in vertical integration; better quality management and fast response in proposing total solution to clients application needs 。

Opportunities

  1. China service network can supply nearby downstream customers. The Chinese economy has grown to become the second largest economy in the world in recent years so there is great potential for growth in this market.

  2. As car electronics supply chain and design centers for major chipset manufacturers move to China, TXC has the

Threatens

  1. Low price competition

  2. Customers can switch from high priced products to lower priced products due to customer cost considerations.

  3. End user product design may reduce quartz element use amounts due to cost consideration.

  4. MEMS products have started to threaten some

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  • competitive advantage of sharing the same cultural low-end applications. background. 5. Rise of China Supply Chain will affect the

    1. Develop business opportunities for emerging M2M, developed profucts.

  • wearable, medical applications to drive future demand growth.

  • Seek out niche markets and products to provide stable profits for the company.

  • Wireless communication application development is booming which will stimulate market growth.

  • High-end, high precision product and market deployment is gradual reaching completion which will significantly raise profitability.

  • Having received numerous special honors and recognition such as the Taiwan Mittlestadt Award, CSR, Taiwan Excellence Award, Safety Certification AEO as well as greenhouse gas inventory (ISO14064-1), product carbon footprint inventory (PAS2050) and carbon neutrality (PAS2060) certification will not only increase of brand exposure but also help to build our company image.

Respond Strategies

  1. Enhance abroad sales teams ， actively seeking Europe, USA,Japan and Korea etc Tier 1 clients 。 2. Develop the market agreesively and expect to be the largest brand in China 3. Enhance the engineering technlolist of NGB factory, train material handling/ manufacture process automatic 。

professionals in China

  1. Continuously to hire domestic trained as well as from abroad the research scientists and professionals in the communication and automobile parts industries.

  2. Create more advantageous products ， may take strategic alliance and partnership in some of the products for cost reduction 。

  3. Enhance product R&D ability ， develop smaller size and high end products that to improve the overall 。

profitability

  1. Enhance the development of quartz crystal modularized products 。 8. Exercise stringent control over receivables and timely and closely verify demand on the customer side to facilitate flexible allocation.

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2 、 Major products’ important applications and their manufacturing process

(1). Major products’ important applications

Crystal componentsproduct Crystal componentsproduct Major Applications
Crystals Mobile phone、wireless equipment、W-LAN、wireless telephone、
WiFi Module 、Sip Module 、bluetooth 、telephone terminal
equipment、intelligent transport(ITS)、car accessories、LCD projector、
coping machine、computer、printer、scanner、audio-visual equipments、
camera、games、beeper
Crystal Oscillators CXO base、wireless equipments、W-LAN、coxial cable communication、
fiber optics communication 、telphony terminal equipments 、
counter/sythesizers、intelligent transport(ITS)、computer、storage
device、printer、audio-isual device、camera、games
VC-TCXO、
TCXO		 Mobile
phone
、
basestation
、
wireless
equipment
、
satellitecommunication、W-LAN、bluetooth、global positioning
systems、coaxial cable communication、fiber optics communication
VCXO base、wireless equipments、satellite communication、W-LAN、coaxial
cable communication、fiber optics communication、phony terminal
equipment、counter/synthesizer
OCXO base、wireless equipments、satellite communication、global positioning
systems、coaxial cable communication、fiber optics communication、
counter/synthesizer
Tuning Fork mobile phone、digital home、camera、wireless networking、
computers、automotives
Light Sensor mobile device
With the technology of GaN by MOCVD (metal organic vapor phase
epitaxy), produce high-brightness blue LED. Applied to the LED
backlight and lightingsystems.
Sapphire

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(2). Manufacturing Process

Steps for crystal components manufacturing are: first we need to manufacture the quartz crysal needed for the electrical material. It involves the cutting, polish, cleaning of the wafer form. Then with the mechanical arms to place the wafer on the base and fixed with the silver based glue. Then package it under vaccum. For oscillators it is necessary to add one more unit of oscillating circuit IC with golden line conduction via amplified output of crystal chip oscillation. It requires more IC placement and wire bonding process compared to the quartz crystal.

－ (a). Pre-manufacturing process quartz crystal.

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----- Start of picture text -----

Crystal grinding grinding
Crystal cut (machines to bar or (crude、medium、fine)
bar round shape)
Store Clean Differentiate frequency
----- End of picture text -----

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－ (b). Post-manufacturing process quartz crystal (use silver, gold, nickel for electroplating, and the process would reduce crystal frequency. Fine tuning the electroplating that would reduce frequency error to 3~10ppm)

==> picture [412 x 136] intentionally omitted <==

----- Start of picture text -----

Crystal Electroplating Crude freq Base fixed
cleaning adjustment
Aging/electrical Base, outside Fine tuning Glue and bake
/temperature prebaking/weld frequency, to fix the
testing ing, seal plating with crystal
silver
Final check and
storage
----- End of picture text -----

－ (c). Post manufacturing process crystal oscillator (use silver, gold, nickel for electroplating, and the process would reduce crystal frequency.)

==> picture [435 x 155] intentionally omitted <==

----- Start of picture text -----

IC placement Crystal placement
Crystal Electroplating (assembly electronic (assembly crystal)
cleaning component)
Aging/electric Base, shell
Add barcode al/temperature Check for gas prebake/weldi
test barcode testing leaking ng, seal
Final check
and storage
----- End of picture text -----

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(d) Sapphire substrate process

==> picture [410 x 133] intentionally omitted <==

----- Start of picture text -----

Boule Cutting Grinding Polishing Cleaning and
inspection
Exposure and Photoressisting
Etchengraving development Storage
Cleaning and
inspection
Storage
----- End of picture text -----

  • (e) Light Sensor manufacturing process

==> picture [417 x 159] intentionally omitted <==

----- Start of picture text -----

Stud Bump IC Wafer Mount Dicing UV Ray
Irradiating
Marking IR-LED IR-LED Plasma
Die Bond Wire Bond
Breaking Encapsulant Underfill Flip Chip
Dispansing Bond
Final Test Tape & Reel
----- End of picture text -----

、 (3) State of the major materials suppliers

The major materials for crystal and crystal oscillators include the base, wire bond, IC 。 package, crystal slice and crystal bars The main raw material of the sapphire substrate such as alumina. Major materials in light sensors are ceramic substrate, IC, IR LED and packaging tape.

  • (a). All the materials come from the at least three suppliers, and this would minimize the risk of all materials coming from a single supplier. Our company’s procurement depends on the buying terms, state of supply, and specifications; before the materials to be ordered. And, it also depends on some special conditions that we would adjust the ratio of buying materials and this approach would help us not too concentrated the ordering from a single supplier, or 。

  • running the risks of the orders being interrupted

  • (b). All the suppliers have long term relationship with us. And, our friendship is good. With our company is growing strongly, these suppliers would also take highest 。

  • priority to satisfy our company needs Annually, we also meet with our suppliers on regular or irregular base to review our purchasing terms and any room for the improvement. This also helps a stable and continuous relationship in the 。

  • materials supply

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  • (c). In considering the steady material supply, our company will provide the Rolling Forecast ， to the suppliers and the production preparations. This can shorten the delivery time and an assurance of on time delivery. If there is any unusual situation, these suppliers will accommodate our needs to assure a stable supply.

  • 、

  • (4) The suppliers and customers over than 10% of the past two years:

  • (a). Ten largest supplier

unit ： NT$1,000

2014 2015 2016 Q1
Company Amount The Percentage
of annual
procurement
(%)		 Company Amount The Percentage
of annual
procurement
(%)		 Company Amount The Percentage
of annual
procurement
(%)
S Company 1,284,442 24.27% S Company 1,082,521 22.27% S Company 183,579 17.72%
R Company 111,752 10.79%
Other 4,007,335 75.73% Other 3,778,994 77.73% Other 740,439 71.49%
Total 5,291,777 100.00% Total 4,861,515 100.00% Total 1,035,770 100.00%

(b). Ten largest clients

unit ： NT$ 1,000’s

2014 2015 2016 Q1
Client Amount Percentage
of annual
sale (%)		 Client Amount Percentage
of annual
sale (%)
Client		 Amount Percentage
of annual
sale (%)
F Group 1,421,806 14.96% F Group 1,345,687 14.52% F Group 256,467 12.16%
Other 8,104,437 85.04% Other 7,919,969 85.48% Other 1,852,506 87.84%
Total 9,526,243 100.00% Total 9,265,656 100.00% Total 2,108,973 100.00%

、 (5) Production and monetary values for the past two years

Year
Majorproducts		 2014 2014 2014 2015 2015 2015
capacity Production value capacity production value
DIP Crystal product 280,000
248,828		 341,703 250,000
209,031
298,476
SMD Crystal products 2,211,000
1,974,345		 5,306,880 2,800,000
2,517,292
5,939,631
Others 0
1,620,572		 2,243,013 0
1,564,456
1,917,631
Total 2,491,000 3,843,745 7,891,596 3,050,000 4,290,779 8,155,738

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、 (6) Volumes of sales and monetary values of the past two years

unit1000’s ， $1000’s

unit1000’s，$1000’s unit1000’s，$1000’s unit1000’s，$1000’s unit1000’s，$1000’s
year
Major products		 2014 2015
Domestic sales Export Domestic sales Export
quantity value quantity value quantity value quantity value
DIP Crystal product 16,847
28,781		 229,669
411,607		 10,434 18,486
199,353		 365,002
SMD Crystal products 77,086
339,244		 2,197,289 7,619,730 66,749 284,241 2,314,675 7,285,402
Others 568
347,450		 1,200,127
779,431
385		 430,355 1,149,532 882,170
total 94,501
715,475		 3,627,085 8,810,768 77,568 733,082 3,663,560 8,532,574

、 C Employees’ average years in service, age, and educational background distribution of the past two years

Year Year 2014 2015 2016/03/31
Total
number
employees		 engineer 496 444 437
administrative 538 578 568
Sales 115 94 95
Technicians/operators 1,550 1,417 1,450
total 2,699 2,533 2,550
Average age 29.41 29.41 30.90
Average yearsinservice 3.38 3.38 4.71
Distribution
of
educational
background		 Ph.D. 0.42% 0.53% 0.40%
M.S. 5.24% 5.62% 5.56%
B.S. 36.01% 28.39% 32.08%
HighSchool 31.80% 26.37% 27.10%
Below High
School		 24.67% 24.50% 25.29%

D 、 Data on our environmental protection expense

  • 1． Briefing on environmental protection fines

No fines related to environmental protection at Pingzhen Plant, Ningbo Plant and Chongqing Plant.

  1. Legal regulations require permits for the installation of polluting facilities, pollution emission, paying of pollution prevention fees, or require the establishment of a special staff unit responsible for environmental protection. The following is a descripition of TXC permit applications, fees, and unit establishment:

  2. A. Pingzhen factory manufactures chips and quartz components. Local authorities have

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approved applications for permits relevant to waste products, wastewater and regular pollution sources that result from the production process, and a special staff environmental protection unit required in the permits has been established and is implementing operations and safeguards to maintain effective use of treatment measures. In addition, to adjust to new production line expansion, TXC has invested in adding wastewater treatment units and completed reconstruction of existing wastewater treatment plants; newly installed water scrubbing tower and adsorption equipment effectively treats different pollutants. Pingzhen factory is also actively discussing the feasibility of reusing wastewater, in the hopes of reducing environmental impact. NT$ 13.8 million paid in 2015 was spent primarily on cleaning the environment, environmental inspections, pollution prevention equipment operation and safeguarding, and protective equipment.

  • B. Ningbo factory has continued to sustain its status as the single entity with the largest quartz crystal production capability in the world. During the production process, the factory especially emphasized environmental administration and social contributions, actively complying with requirements outlined in the new “Environmental Law”, effective January 1[st] , 2015, closely observing bottom lines, meeting and exceeding requirements by local environmental protection law enforcement. Site operation controls are in place concerning wastewater, waste gases, factory noise, and dangerous solid waste. If wastewater COD and fluoride indicators are lower than the national standard, 50% or less of water levels are released, and optimizing water recycling is used. Concerning waste gas, the waste gas emission treatment process is monitored online through PH values, the “abnormal propanol waste liquid recycling and reuse case” promotes waste resourcing treatment. Chemical products are fully controlled using a modified electronification process, to achieve a clean production concept and mobile shift environmental management that shifts from end treatment to source treatment. In guaranteeing payment for environmental protection measures and the management process, hardware demands are met: in 2015, around 1,210,000 RMB was devoted to environmental treatment. Concerning management systems operations, a BV ISO14001 environmental management system certificate was awarded on November, 2015; at the same time, a second round of “Environmental Risk Assessment Report and Emergency Preparation” was written via a third party panel of experts from Ningbo Deep Blue Environmental Technology Services Co. Ltd, to provide a legal process and basis for handling abnormal situations, decreasing the risk of environmental abnormalities.

  • C. Chongqing factory environmental protection measures are being smoothly implemented, product quality is stable, and all equipment has maintained good operating conditions. In 2015, expanded production lines were fitted, and investments were completed that upgraded and reconstructed the wastewater stations within the water pollution treatment prevention equipment, adding water coagulation, neutralization, and pressure filtration equipment. A series of acid alkaline exhaust treatment equipment was added, and has passed inspections by the Jiulongpo Environmental Protection Bureau of Chongqing, receiving an emissions permit. In

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accordance with new regulations from the Environmental Protection Bureau which require pollution emitting enterprises to purchase pollution credits from the Chongqing United Assets and Equity Exchange, a request to purchase these credits has been submitted. A total of RMB 2.156 million was expended on environmental management in 2015.

  1. Briefing on implementation of safety and health

  2. A. In 2009, Pingzhen factory established a work safety and sanitation committee. The committee currently has 16 members, 8 of whom were voted into office. A professional safety and sanitation meeting that addresses each environmental, health, and safety issue is held seasonally. To improve workplace safety, the company first promoted “occupational health and safety achievement recognition” through the “occupational health and safety committee”, in accordance with relevant operating directions. After undergoing risk identification, correction, and preventative measures, the factory was awarded with the CLA’s three year recognition. In March, 2013, the factory received its second achievement recognition, earning another two year recognition from the CLA. In February, 2015, the factory applied for its third achievement recognition and once again earned the CLA’s three year recognition. In August, 2015, the factory renewed its ISO 14001 environmental management system, OHSAS 18001 occupational health and safety management system, and CNS 15506 Taiwan occupational safety and health management system verifications. A total of 18 health promotional activities were held in 2015. For further information, see the following web page: http://www.txccorp.com/index.php?action=g_ESH_1&cid=5&sid=12. This repeatedly underscores the factory’s persistent dedication to creating a safe and healthy work environment, bringing the greatest guarantee of safety to our coworkers.

  3. B. Since 2012, the Ningbo factory has formed the company’s social responsibility system through the Electronic Industry Code of Conduct’s (EICC) integration of labor, environment, health, safety, and business morality. Through the guidance of the “Safe Production Committee” and a goal of zero work accidents, each department’s safety staff holds at least one safety inspection each month, which aim for 100% elimination of potential safety hazards by continuing to use a Plan Do Check Act (PDCA) cycle that makes daily improvements to health, safety, and health management. In December, 2015, the factory successfully renewed its “Safe Production Standardization (Level III)”, awarded by Ningbo City, without a single major accident throughout the entire year. The company takes full concern of employees’ physical health management, and launched health inspections for the entire workforce in 2015, which saw attendance rates of over 50%; 10 health management special topic training sessions have been held, and 24 monthly emails and posters issued, with around 1600 participants. Concerning occupational health management, the company has passed work environment occupational hazard inspections and appraisals, and occupational hazard control results appraisals. Concerning risk sources, elimination, replacement, work process control, executive management, and PPE protection improvement measures have been taken to continue improving occupational illness risks that may be caused due to noise, dust, or

65

poisonous chemical materials in the environment. Currently, there have been no reported incents of occupational illnesses.

  • C. In March, 2013, the Chongqing factory established a “Safe Production Management Committee”, which fully complies with the Chongqing Jiulongpo Bureau of Work Safety’s requirements, holding safe production management events, and also conforms to “Chongqing City Safe Production Supervisor Management Regulations”. To achieve the goal of zero work safety accidents, monthly safety inspections are held within each department of the organization, and a meeting is held to pursue improvements on deficiencies, and ensure latent safety risks are promptly eliminated. Moreover, the safe production room also has perfect work safety investigation, declaration, and management systems which have thus far prevented major safety mishaps within the factory.

  • Hazardous Materials Management System

  • Protecting the Earth’s environment is a topic of great importance for people living in the 21[st] century. Founded on the concepts of perfecting our protection of the Earth and benefiting the next generation of grandchildren, and the corporate responsibility of common protection of the overall ecological environment, TXC can shoulder its mission of contributing to society, fully and actively promoting environmental management with an attitude of caution.

TXC’s non harmful materials policy is as follows:

To fully respect the goal of being a citizen of the Earth, we pledge to:

  1. Become customers’ greatest companion for green products, according to the most stringent legal or customer requirements.

  2. Confirm organization operations and provide resources, promote environmental education, strengthen the environmental consciousness and objectives of all staff and suppliers.

  3. Design green products, emphasizing products and production processes with no harmful materials.

  4. Using company events, implement continual improvements to achieve the company’s goal of sustainable operations.

TXC abides by the European Union’s RoHS 2.0 (Restriction of Hazardous Substances in Electrical and Electronic Equipment) 2011/65/EU, WEEE (Waste Electrical and Electronic Equipment) 2012/19/EU, PFOS (The Perfluorooctane Sulfonates Directive) 2006/122/EC, and chemical products are Registered, Evaluated, Authorized, and Restricted (REACH) according to (EC) No 1907/2006 requirements. Since July 1[st] , 2006, TXC has cooperated with international standards restricting the use of lead (Pb), cadmium (Cd), mercury (Hg), hexavalent chromium (Cr[6+] ), polybrominated biphenyl (PBB), and Polybrominated diphenyl ethers (PBDE), and accommodated customers’ non halogen requests. In addition to obtaining an ISO 14001 environmental management system and IECQ/QC 080000 harmful materials management system certifications, our employees’ dedication has allowed us to continually qualify as a Green Partner for international manufacturing giant,

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Sony, and earn an electronic communications products voluntary pollution control certificate from the China RoHS electronic communications products pollution control management method in 2012. Founded on the principles of mutual understanding and common promotion of environmental improvement, green shopping activities continue to provide users with a green product foundation. To ensure product quality conforms to relevant environmental regulations, TXC strictly prohibits the use of controlled substances during the manufacturing process, and requires suppliers to refrain from using or having prohibited materials within the products or during the production process, in the hopes that from a product’s design to its manufacturing and shipment, TXC products will not use, come into contact with, or receive pollutants, to reduce the environmental impact of our products and services.In addition to complying with EICC and GeSI behavioral standards and relevant requirements, TXC has also inspected our supply chain, and written a policy which promises not to use any conflict metals originating from Congo or other neighboring countries. To strengthen the supply chain’s green product requirements, suppliers are encouraged to have a basic ISO 9001 quality management system, and introduce a QC 080000 system to implement environmentally safe material controls. TXC’s supplier management regulations require suppliers of important raw materials to sign a green product and environmental declaration, and especially provides upstream and downstream suppliers with Chinese and English explanations of the required SDS forms for the entire factory, to ensure reader comprehension and so that necessary disposal is properly handled.

5. Supplementary briefing

To strengthen corporate responsibility implementation, Pingzhen factory completed its “Greenhouse Gases Examination Report” and “Product Carbon Footprint Examination Report” in 2015, and passed BSI inspections, receiving ISO 14064-1 and PAS 2050 certifications. TXC continues to cooperate with the department of environmental protection in promoting low carbon activities, and received four low carbon activities certifications from the Environmental Protection Administration in 2015. Activities included the Child Welfare League- Happy Children Dinner Fair Event (EPA no. 10400578), Taoyuan 2015 Spring Beach Cleaning Event (EPA no. 10400610), May 1[st] Labor Day Event – Group Mountain Climb (EPA no. 10400581), and Shitou Mountain trek (EPA no. 10400579). The factory will continue to promote environmental, health, and safety activities, to ensure the workplace environment remains safe and clean, delivering employees the greatest guarantee of safety. For further information, see the following web page: http://www.txccorp.com/index.php?action=g_ESH_1&cid=1

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==> picture [367 x 284] intentionally omitted <==

E 、 Employer/Employee Relation

  1. The Company has maintained harmonious employer/employee relation since its establishment. In recent years and since the closing date for publication of the annual report, there are no losses due to employer/employee disputes and there have never been any major employer/employee disputes since its establishment. Aside from holding employor/employee meetings and discussion meetings for new employees and for foreign nationals, and conducting employee satisfaction investigation, we have also set up an employee opinions mailbox and other channels for reflecting their opinions. We have spared no efforts toward employee benefits. We have often stressed the importance of employees and have provided employee bonus in stock allotment, stock options, and cash for wedding ／ funeral ／ other festive occasions, emergency relief fund, group insurance ／ medical checkup, subsidies for tour at home or abroad, as well as discounts for books, magazines and special convenience stores; and sponsor birthday celebrations, sports competition, year-end party and luck draw, various recreational activities and commendation of senior and outstanding employees; also provide canteen, hostel and parking lots, table tennis table, pool table and other facilities. It is hoped that through coordination of the employee welfare committee with the Company to promote employer/employee harmony and guarantee employee benefits and health in a bid for win-win for both the employer and the employees.
Insurance
and
retirement
Labor, health, group insurance (occupation injury), pension reserve fund,
housing accumulation fund (NGB & CKG factory)
Profit
sharing		 Stock dividends, stock options, convertible corporate bonds, treasury stock
systems
Gifts Cash gifts for three major holidays, birthdays, weddings, births, hospitalization
and white card consolationgifts(cash or a blasket of flower)

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Medical
insurance		 Group insurance: Major disease insurance, accident injury insurance,
emergency medical treatment, group hospitalization treatment and occupational
injury insurance. Regular health exams: Physical exam, complete blood count
(CBC), vision exam, hearing exam, liver function exam, blood fat exam, urine
examination, chest X-rays, seasonal flu vaccine inoculation subsidy.
Manager insurance
Activities Domestic and international travel activities, birthday parties, employee athletic
meets, year-end banquet and employee drawing, ball sport competitions,
painting contests, photography contests, contracted merchant discounts, book
reading club, a variety of employee social club activities and group purchase of
movie ticket, art activies, course or activity for employee’s anti-pressure, and
course for anti-smokingand anti-weight
Emergency
relief		 Grants allocated based on real-life conditions experienced by employees
Book
reading		 Regularly purchase books, magazine, newspapers for the reading enjoyment of
company personnel,and VCD/DVD multimedia for employees to watch
Other
welfare		 Solid promotion channels, overseas assignment development opportunities for
outstanding employees, performance bonuses issued based on operation status,
recognition of veteran and exceptional personnel, top ten outstanding project
commendations, incentives for employee project proposals, bonuses for
emplyees’ child, bonsus for patents and proposal; oversea training opportunity
(NGB & CKG factory)、
Facilities Employee cafeteria, employee dormitory, car and motorcycle parking spaces,
table tennis room, billiards room, badminton court, fitness room, breast-feeding
room, medical service office, employee welfare association, lounge bar, soga
room,shootingmachines,and KTV and convenience store

2. Employee education and training:

The Company provides employees a multiple learning environment. Colleagues can continually challenge their growth limit through internal ／ external training, OJT, KM （ knowledge management system ） , reading clubs, online ／ physical library, and supervisor ／ peer instruction. At the same time, through the new employees ／ professional technology ／ supervisor coaching ／ general knowledge course ／ self-development education and training system to bring maximun satisfaction for employees! On the other hand, through planning of job category ／ job level, work rotation, project allocation and overseas assignments to integrate their lives with their careers and enable them enjoy the happiness of growth in knowledge and skills and develop a bright future.

The Company has established Education and Training Guidelines and Mandatory Occupational Course Guidelines and our subsidiaries have established Employee Promotion and Reassignment Guidelines to plan related training courses in accordance with occupational and professional requirements in order to improve employee knowledge and skills, overall quality of employees and operation performance. Related education and training performance in 2013 is listed in the table below:

69

a. PCF Factory

a. PCF Factory
Item No. of
Class		 Total No.
ofsessions		 Total
No of
Trainees		 Total No. of
Hours		 Total
Expense
1. General Knowledge
Training		 11 11 461 1,427 323,533
2. Management Level
Training		 2 13 489 437 9,400
3. New employees training 14 15 550 1,922 30,000
4.ProjectTraining 115 164 3,693 10,531 438,434
5. JobFunction Training 5 11 869 2,140 73,240
6. Self Heuristic Growth
Training Course		 31 13 1,953 1,316 0
Total 178 227 8,015 17,773 874,607

b. NGB Factory

b. NGB Factory
Item No. of Class Total No. of
sessions		 Total
No of
Trainees		 Total No. of
Hours
Total
Expense
1. Other Training 4 4 2,619 2,678 0
2. Management Training 8 9 298 639 40
3. Job Training 57 84 1,825 4,839 199,400
4. Management Training 13 88 6,463 5,051 0
5.Project Training 4 5 199 1,530 0
Total 86 190 11,404 14,738 199,440

c. CKG Factory

c. CKGFactory
Item
 No. of Class Total No. of
sessions		 Total
No of
Trainees		 Total No. of
Hours
Total
Expense
1. Other Training 22 44 770 1,155 0
2. Management Training 2 2 88 149 0
3. Job Training 23 23 739 1,429 9,320
4. Management Training 16 126 1,155 2,948 0
Total 63 195 2,752 5,682 9,320

(1)The Company’s finance supervisor qualified for Professional Certification of Finance and Accounting Supervisor of Publicly-listed Companies sponsored by the R.O.C. Accounting Research Development Fund.

  • (2)Two financial staffs of the Company acquired the Internal Auditor Certificate issued by the Internal Auditing Association.

  • (3)One financial staff of the Company acquired the Certified Public Accountant issued by the Ministry of Examination.

  • (4)One financial staff of the Company acquired the Stock Professional Services certification test issued by the Securities and Futures Bureau , Financial Supervisory Commission.

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  • (5)One financial staff of the Company acquired the Certified Accountant issued by the Ministry of Examination.

  • (6)Two financial staffs of the Company acquired the Certificate of Securities Salespeerson issued by the Ministry of Examination.

  • Pension System Implementation

    • TXC’s employee retirement measures are fixed according to labor standard laws; in accordance with period legal reminders, retirement preparatory funds are paid into the Bank of Taiwan, and an Occupational Retirement Preparatory Fund Supervisory Committee is then responsible for managing and using the retirement fund. In 2015 and 2014, annual retirement benefits were NT$ 71.656 million and NT$ 58.422 million respectively. In accordance with labor retirement fund regulations, monthly retirement payments are transferred into special individual retirement accounts established by the department of labor; A separate appointed agent retirement fund was established in January 2007, to ensure that retirement plans are managed professionally.

  • Labor and Management Negotiations and Employee Rights

  • In addition to legally managing negotiations between labor and management, TXC conducts employee satisfaction research, employee discussions, and international employee discussions, and has installed employee suggestion boxes. TXC is devoted to providing accessible communication channels, in the hopes to facilitate abundant communication between employee suggestions and company direction, and seeks to improve and provide an excellent work environment and conditions.

To ensure the physical safety of employees and work environment safety, in addition to establishing an “occupational health and safety committee” which holds periodical committee meetings that discuss occupational implementation achievements and matters of occupational health and safety, additional management measures have been established, and all employees are required to implement them; TXC not only purchases group insurance annually and holds periodic occupational health and safety lectures, but also sends employees to attend occupational health and safety courses, and has published the “TXC Emergency Response Plan” and “Environmental Health and Safety Management Handbook” to guarantee employee safety and a calm reaction to emergency situations. For further information, please consult the following webpage: http://www.txccorp.com/index.php?action=g_ESH_1&cid=5&sid=14. To achieve the goal of zero disasters, TXC irregularly revises the annual emergency response plan and environmental health and safety management handbooks, and formulates detailed implementation according to the revised contents; an institution then acts according to the plan’s timetable and contents, which then undergoes an auditing organization’s exploration of execution deficiencies, and the following year’s emergency response plan and environmental health and safety handbook are then formulated, and are discussed and revised at any time according to the implementation process and auditing, thereby reducing the institution’s risks, finally achieving the goal of zero hazards.

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VI. An Overview of the Company’s Financial Status

A. Abbreviated Balance Sheets and P/L Statements for the Past 5 Years

、 (1) Abbreviated Consolidated Balance Sheets (IFRS)

Unit ： NT$ 1,000

Unit：NT$ 1,000 Unit：NT$ 1,000 Unit：NT$ 1,000 Unit：NT$ 1,000 Unit：NT$ 1,000 Unit：NT$ 1,000
Year
Item		 F i n a n c i a l i n f o r m a t i o n f o r t h e p o s t 5 y e a r s
2011 2012 2013 2014 2015 Up to 2016.03.31
Current assets Note 2



 6,858,639 7,806,568 8,573,807
8,348,464
Property, plant and
equipment		 5,508,064 5,153,830 4,570,352
4,395,342
Intangible assets 0 0 0 0
Other assets 616,827 661,849 2,436,256
1,896,593
Total assets 12,983,530 13,622,247 15,580,415
14,640,399
Current
liabilities		 Before
distribution		 2,811,689 2,791,774 3,444,554
2,381,004
After
distribution		 2,811,689 2,791,774 Note 6
Note 6
Long-term liabilities 1,846,958 1,935,897 1,396,615
1,854,345
Total
liabilities		 Before
distribution		 4,658,647 4,727,671 4,841,169
4,235,349
After
distribution		 4,658,647 4,727,671 Note 6
Note 6
Interests attributable to
parent company		 8,324,883 8,894,576 10,739,246
10,405,050
Common stock 3,097,570 3,097,570 3,097,570
3,097,570
Capital surplus 1,662,181 1,662,181 1,662,181
1,662,181
Retained
earnings		 Before
distribution		 3,489,796 3,792,029 3,940,109
4,166,275
After
distribution		 3,489,796 3,792,029 Note 6
Note 6
Other interests 75,336 342,796 2,039,386
1,479,024
TreasuryStock 0 0 0
0
Non-controllinginterests 0 0 0 0
Total
stockholders’
equity		 Before
distribution		 8,324,883 8,894,576 10,739,246
10,405,050
After
distribution		 8,324,883 8,894,576 Note 6
Note 6

＊ If individual financial reports are prepared, the Company shall also prepare condensed balance sheets and statements of income for the past five years.

＊ For financial data that has used international accounting reporting standards for less than five years, table (2) should be prepared separately with financial data which uses our country’s financial accounting standards. Note 1: The years which have not yet been audited and certified by a CPA should be noted.

Note 2: The assessment date and reassessed value amount should be listed for assets which have been reassessed in that year.

Note 3: Listed companies or companies with securities sold by securities firms should list the annual report publishing dates up to the previous quarter. Whether or not the financial data has been certified, audited or both should also be noted.

  • Note 4: For the above amounts after distribution, the amounts listed should be based on the following year’s shareholders meeting resolution.

Note 5: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

Note 6: Earnings in 2014 have not yet passed shareholders’ meeting resolution as of March 31, 2015.

72

、 (2) Abbreviated Balance Sheets (IFRS)

Unit ： NT$ 1,000

Year
Item		 Year
Item		 F i n a n c i a l i n f o r m F i n a n c i a l i n f o r m a t i o n f o r t h e p o s t 5 y e a r s a t i o n f o r t h e p o s t 5 y e a r s a t i o n f o r t h e p o s t 5 y e a r s Up to 2016.03.31
2011 2012 2013 2014 2015 Not
Applied
Current assets Note 2















 4,931,108 5,042,763 4,812,193
Property, plant and
equipment		 3,013,892 2,739,181 1,968,448
Intangible assets 0 0 0
Other assets 4,598,770 5,216,153 7,979,403
Total assets 12,543,770 12,998,097 14,760,044
Current
liabilities		 Before
distribution		 2,373,019 2,437,562 2,649,503
After
distribution		 2,373,019 2,437,562 Note 6
Long-term liabilities 1,845,868 1,665,959 1,371,295
Total
liabilities		 Before
distribution		 4,218,887 4,103,521 4,020,798
After
distribution		 4,218,887 4,103,521 Note 6
Interests attributable to
parent company		 8,324,883 8,894,576 10,739,246
Common stock 3,097,570 3,097,570 3,097,570
Capital surplus 1,662,181 1,662,181 1,662,181
Retained
earnings		 Before
distribution		 3,489,796 3,792,029 3,940,109
After
distribution		 3,489,796 3,792,029 Note 6
Other interests 75,336 342,796 2,039,386
TreasuryStock 0 0 0
Non-controllinginterests 0 0 0
Total
stockholders’
equity		 Before
distribution		 8,324,883 8,894,576 10,739,246
After
distribution		 8,324,883 8,894,576 Note 6

＊ If individual financial reports are prepared, the Company shall also prepare condensed balance sheets and statements of income for the past five years.

＊ For financial data that has used international accounting reporting standards for less than five years, table (2) should be prepared separately with financial data which uses our country’s financial accounting standards. Note 1: The years which have not yet been audited and certified by a CPA should be noted.

  • Note 2: The assessment date and reassessed value amount should be listed for assets which have been reassessed in that year.

  • Note 3: Listed companies or companies with securities sold by securities firms should list the annual report publishing dates up to the previous quarter. Whether or not the financial data has been certified, audited or both should also be noted.

  • Note 4: For the above amounts after distribution, the amounts listed should be based on the following year’s shareholders meeting resolution.

  • Note 5: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

Note 6: Earnings in 2015 have not yet passed shareholders’ meeting resolution as of March 31, 2016.

73

、 (3) Abbreviated Conslodiated Balance Sheets (GAAP)

Unit ： NT$ 1,000

Year
Item		 Year
Item
Financial information for the post
Financial information for the post
Financial information for the post		 5 years
2011 2012 2013 2014 2015
Current assets 5,727,086 6,737,268 Not
Applied		 Not
Applied		 Not
Applied
Long-term equity
investments		 294,102 299,192
Property, plant and
equipment		 5,689,646 5,734,497
Intangible assets 117,530 115,024
Otherassets 114,957 110,221
Totalassets 11,943,321 12,996,202
Current
liabilities		 Before
distribution		 2,623,371 3,445,764
After
distribution

2,623,371		 3,445,764
Long-term liabilities 2,087,835 1,525,637
Other liabilities 71,715 144,305
Total
liabilities		 Before
distribution		 4,782,921 5,115,706
After
distribution

4,782,921		 5,115,706
Commonstock 3,022,423 3,097,570
Capitalsurplus 1,356,078 1,616,549
Retained
earnings		 Before
distribution		 2,545,465 3,029,417
After
distribution

1,880,531		 2,347,952
Unrealized gains on
financial instruments
(18,133)		 (13,105)
Cumulative translation
adjustments		 264,762 167,431
Asset revaluation
increment(note 3)		 (15,637) (22,808)
Total
stockholders’
equity
Before
distribution		 7,160,400 7,880,496
After
distribution

6,495,466		 7,199,031

Note 2: The assessment date and reassessed value amount should be listed for assets which have been reassessed in that year.

  • Note 3: For the above amounts after distribution, the amounts listed should be based on the following year’s shareholders meeting resolution.

  • Note 4: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

74

、 (4) Abbreviated Balance Sheets (GAAP)

Unit ： NT$ 1,000

Year
Item		 Year
Item
Financial information for the post 5 years
Financial information for the post 5 years
Financial information for the post 5 years
Financial information for the post 5 years
2011 2012 2013 2014 2015
Current assets 4,476,212 5,188,324 Not
Applied		 Not
Applied		 Not
Applied
Long-term equity
investments		 3,572,912 4,033,572
Property, plant and
equipment		 3,450,973 3,394,698
Intangible assets 0 0
Other assets 24,972 18,424
Total assets 11,525,069 12,635,018
Current
liabilities		 Before
distribution

2,417,825		 3,173,779
After
distribution

2,417,825		 3,173,779
Long-term liabilities 1,875,805 1,437,500
Other liabilities 67,527 139,731
Total
liabilities		 Before
distribution

4,364,669		 4,754,522
After
distribution

4,364,669		 4,754,522
Commonstock 3,022,423 3,022,423
Capitalsurplus 1,356,078 1,616,549
Retained
earnings		 Before
distribution

2,545,465		 3,029,417
After
distribution

1,880,531		 2,347,952
Unrealized gains on
financial instruments
(18,133)		 (13,105)
Cumulative translation
adjustments		 264,762 167,431
Asset revaluation
increment(note 3)		 (15,637) (22,808)
Total
stockholder
s’ equity		 Before
distribution

7,160,400		 7,880,496
After
distribution

6,495,466		 7,199,031

  • Note 2: The assessment date and reassessed value amount should be listed for assets which have been reassessed in that year.

  • Note 3: For the above amounts after distribution, the amounts listed should be based on the following year’s shareholders meeting resolution.

  • Note 4: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

75

、 (5) Abbreviated Consolidated P/L Statements (IFRS)

Unit ： NT$ 1,000

Year
Item		 Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Up to 2016.03.31
2011 2012 2013 2014 2015
Net operatingrevenue Not Applied 9,503,583 9,526,243 9,265,656 2,108,973
Grossprofit 2,194,030 2,331,149 2,235,175 610,015
Operatingincome 951,154 1,004,022 908,335
280,581
Nonoperating gains and
losses		 110,611 141,733 179,275
(23,694)
Income before income
tax		 1,061,765 1,145,755 1,087,610
256,887
Continuing operations
net Income		 1,061,765 1,145,755 1,087,610
256,887
Discontinuing
operations net Loss		 0 0 0
0
Net income(loss) 935,161 995,174 938,203
226,166
Other
comprehensive income
（net amount）		 179,040 255,984 1,680,945
(560,362)
Total comprehensive
income		 1,114,201 1,251,158 2,619,148
(334,196)
Net income attributable
toparent company		 935,161 995,174 938,203
226,166
Net income attributable
to non-controlling
interests		 0 0 0
0
Comprehensive income
attributable to parent
company		 1,114,201 1,251,158 2,619,148
(334,196)
Comprehensive income
attributable to
non-controllinginterests		 0 0 0
0
Earningsper share 3.02 3.21 3.03
0.73

  • ＊ If individual financial reports are prepared, the Company shall also prepare condensed balance sheets and statements of income for the past five years.

  • ＊ For financial data that has used international accounting reporting standards for less than five

  • years, table (2) should be prepared separately with financial data which uses our country’s financial accounting standards.

Note1: The years which have not yet been audited and certified by a CPA should be noted.

  • 2: Listed companies or companies with securities sold by securities firms should list the annual report publishing dates up to the previous quarter. Whether or not the financial data has been certified, audited or both should also be noted.

  • 3: Gains (losses) from discontinued operations are listed as net amounts after income tax deduction.

  • 4: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

  • 5: Earnings in 2015 have not yet passed shareholders’ meeting resolution as of March 31, 2016.

76

、 (6) Abbreviated P/L Statements (IFRS)

Unit ： NT$ 1,000

Year
Item		 Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Financial information for the post 5 years (Note 1) Upto 2016.03.31
2011 2012 2013 2014 2015
Net operatingrevenue Not Applied 8,336,979 8,178,579 7,898,695
Not Applied
Grossprofit 1,508,429 1,476,609 1,367,717
Operatingincome 678,460 638,958 559,524
Nonoperating gains and
losses		 345,119 444,759 475,633
Income before income
tax		 1,023,579 1,083,717 1,035,157
Continuing operations
net Income		 1,023,579 1,083,717 1,035,157
Discontinuing
operations net Loss		 0 0 0
Net income(loss) 935,161 995,174 938,203
Other
comprehensive income
（net amount）		 179,040 255,984 1,680,945
Total comprehensive
income		 1,114,201 1,251,158
2,619,148
Net income attributable
toparent company		 935,161 995,174 938,203
Net income attributable
to non-controlling
interests		 0 0 0
Comprehensive income
attributable to parent
company		 1,114,201 1,251,158 2,619,148
Comprehensive income
attributable to
non-controllinginterests		 0 0 0
Earningsper share 3.02 3.21 3.03

  • ＊ If individual financial reports are prepared, the Company shall also prepare condensed balance sheets and statements of income for the past five years.

  • ＊ For financial data that has used international accounting reporting standards for less than five years, table (2) should be prepared separately with financial data which uses our country’s financial accounting standards.

Note1: The years which have not yet been audited and certified by a CPA should be noted.

  • 2: Listed companies or companies with securities sold by securities firms should list the annual report publishing dates up to the previous quarter. Whether or not the financial data has been certified, audited or both should also be noted.

  • 3: Gains (losses) from discontinued operations are listed as net amounts after income tax deduction.

  • 4: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

  • 5: Earnings in 2015 have not yet passed shareholders’ meeting resolution as of March 31, 2016.

77

、 (7) Abbreviated Consolidated P/L Statements (GAAP)

Unit ： NT$ 1,000

Year
Item		 Financial information for the post 5 years (Note Financial information for the post 5 years (Note Financial information for the post 5 years (Note Financial information for the post 5 years (Note 1)
2011 2012 2013 2014 2015
Net operatingrevenue 9,897,341 10,928,495 Not Applied Not Applied
Not Applied
Grossprofit 2,400,646 2,508,295
Operatingincome 1,151,521 1,257,655
Nonoperating income and
gains		 145,019 159,188
Nonoperating expenses and
losses		 (83,330) (114,224)
Income before income tax 1,213,210 1,302,619
Net income before
cumulative effect of change
in accounting principles		 1,050,216 1,148,886
Income(loss) from
operations of discontinued
segment		 0 0
Extraordinary gain or loss 0 0
Cumulative effect of change
in accounting principles		 0 0
Net income 1,050,216 1,148,886
Earningsper share 3.48 3.79

Note1: The years which have not yet been audited and certified by a CPA should be noted.

  • 2: Gains (losses) from discontinued operations, extraordinary gains or losses and cumulative effects resulting from changes in accounting principles are listed as net amounts after income tax deduction.

  • 3: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

78

Unit ： NT$ 1,000

、 (8) Abbreviated P/L Statements (GAAP)

Year
Item		 Financial information for the post 5 years (Note Financial information for the post 5 years (Note Financial information for the post 5 years (Note Financial information for the post 5 years (Note 1)
2011 2012 2013 2014 2015
Net operatingrevenue 8,918,023 9,477,481 Not Applied Not Applied
Not Applied
Grossprofit 1,658,329 1,708,304
Operatingincome 744,212 866,519
Nonoperating income and
gains		 457,626 449,511
Nonoperating expenses and
losses		 42,650 57,327
Income before income tax 1,159,188 1,258,703
Net income before
cumulative effect of change
in accounting principles		 1,050,216 1,148,886
Income(loss) from
operations of discontinued
segment		 0 0
Extraordinary gain or loss 0 0
Cumulative effect of change
in accounting principles		 0 0
Net income 1,050,216 1,148,886
Earningsper share 3.48 3.79

Note1: The years which have not yet been audited and certified by a CPA should be noted.

  • 2: Gains (losses) from discontinued operations, extraordinary gains or losses and cumulative effects resulting from changes in accounting principles are listed as net amounts after income tax deduction.

  • 3: For financial data which requires self-correction or revision as notified by the competent authorities, the corrected or revised amounts should be listed and the circumstances and reasons should be noted.

79

B 、 Financial Analysis for the past 5 Years

（ 1 ） Consolidated Financial Analysis (IFRS)

Yesr
Item		 Yesr
Item		 Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Up to
2016.03.31
2011 2012 2013 2014 2015
Capital
Structure
Analysis
(%)		 Debt ratio (%) Not Applied
 35.88% 34.71%
31.07%		 28.93%
Long-term fund to fixed
asstes ratio (%)		 184.67% 210.14%
265.53%		 278.92%
Liquidity
Analysis
(%)		 Current Ratio (%) 243.93% 279.63%
248.91%		 350.63%
Quick Ration (%) 180.81% 215.62%
201.84%		 276.40%
Times interest earned (%) 2,406 2,538
2,610		 2,938
Operating
performace
Analysis
(%)		 Average collection
turnover(times)		 3.07 3.36
3.12		 3.08
Days sales outstanding 118.79 108.63 116.94 118.47
Average inventory
turnover(times)		 4.67 4.35
4.41		 3.74
Average payment
turnover(times)		 6.34 7.36
6.45		 5.51
Average inventory
turnover(days)		 78.13 83.97
82.85		 97.64
Fixed assets turnover(times) 1.73 1.79 1.91 1.88
Total assets turnover(times) 0.73 0.70 0.63 0.56
Profitability
Analysis
(%)		 Turn on total assets (%) 7.48% 7.77%
6.67%		 1.55%
Turn on total equity (%) 11.57% 11.56%
9.56%		 2.14%

Paid-in capital ratio (%)		 34.28% 36.99%
35.11%		 8.29%
Net margin (%) 9.84% 10.45%
10.13%		 10.72%
Earnings per share(Basic)
Note I		 3.02 3.21
3.03		 0.73
Cash Flow Cash flow ratio (%) 54.61% 54.96%
65.35%		 21.32%
Cash flow adequacy ratio
(%)		 86.44% 81.61%
104.28%		 104.28%
Cash flow reinvestment
ration(%)		 6.45% 5.76%
9.83%		 9.33%
Leverage Operating leverage 1.9799 1.9446
2.1000		 1.8756
Financial Leverage 1.0506 1.0491
1.0501		 1.0333
Please explain the reasons of changes in financial ratio for the post two years (No needs for analysis if
change of financial ratio is less than 20%)
No needs for analysis

80

NoteII ： Glossary ：

  1. Capital StructureAnalysis

     - (1) Debt ratio ＝ Total liabilities ／ Total assets

  • (2) Long-term fund to fixed asstes ratio ＝（ Total stockholders’ equity ＋ Long-term liabilities ）／ Net Fixed Assets

  • Liquidity Analysis

  • (1) Current Ratio ＝ current assets ／ current liabilities

  • － －

  • (2) Quick Ration ＝（ current assets Inventories Prepaid expenses ）／ current liabilities

  • ＝

  • (3) Times interest earned Earnings before interest and taxs ／ Interest expenses

  • Operating performace Analysis

  • ＝

  • (1) Average collection turnover 

        - Net sales ／ Average trade Receivables

  • (2) Days sales outstanding ＝ 365 ／ Average collection turnover

  • ＝ 。

  • (3) Average inventory turnover Cost of good sold ／ Average inventory

  • ＝

  • (4) Average payment turnover Cost of good sold ／ Average trade Payables

  • (5) Average inventory turnover(Days) ＝ 365 ／ Average inventory turnover

  • (6) Fixed assets turnover ＝ Net sales ／ Net Fixed Assets

  • (7) Total assets turnover ＝ Net sales ／ Total assets

  • Profitability Analysis 

     - －

 - (1) Turn on total assets ＝［ Net income ＋ Interest expenses× （ 1 Effective tax rate ）］／ 。

 - Average total assets

  • (2) Turn on total equit ＝ Net income ／ Average stockholders’ equit 。

  • (3) Net margin ＝ Net income ／ net sales 。

  • －

  • (4) Earnings per share ＝（ Net income Perferred stock dividend ）／ Weighted average number of shares outstanding

  • Cash Flow

  • (1) Cash flow ratio ＝ Net cash provided by operating activities ／ current liabilities

  • ＝

  • (2) Cash flow adequacy ratio Five-year sum of cash from operations ／ Five-year sum of capital expenditures, inventory additions, and cash dividend.

  • ＝

  • (3) Cash flow reinvestment ration (Cash provided from operating activities – Cash dividend) ／（ Grosss fixed assets + investment + Other assets + Working capital ）

  • Leverage

  • (1) Operating leverage ＝（ Net sales – Variable cost ）／ Income from operations

  • (2) Financial Leverage ＝ Income from operations ／（ Income from operations － Interest expenses ）

81

（ 2 ） Financial Analysis (IFRS)

Yesr
Item		 Yesr
Item		 Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Financial analysis for the post 5 years Up to 2016.03.31
2010 2011 2013 2014 2015
Capital
Structure
Analysis
(%)		 Debt ratio (%) Not Applied
 33.63% 31.57% 27.24%
Not Applied
Long-term fund to fixed
asstes ratio (%)		 337.46% 385.54% 615.23%
Liquidity
Analysis
(%)		 Current Ratio (%) 207.80% 206.88% 181.63%
Quick Ration (%) 156.54% 161.39% 145.87%
Times interest earned (%) 2,932 3,230 3,377
Operating
performace
Analysis
(%)		 Average collection
turnover(times)		 3.03 3.18 3.07
Days sales outstanding 120.55 114.80 118.73
Average inventory
turnover(times)		 6.19 5.89 6.52
Average payment
turnover(times)		 5.03 5.3
1		 5.51
Average inventory
turnover(days)		 58.95 61.95 56.00
Fixed assets
turnover(times)		 2.77 2.99 3.36
Total assets
turnover(times)		 0.66 0.63 0.57
Profitability
Analysis
(%)		 Turn on total assets (%) 7.66% 7.99% 6.95%
Turn on total equity (%) 11.57% 11.56% 9.56%
Paid-in capital ratio (%) 33.04% 34.99% 33.42%
Net margin (%) 11.22% 12.17% 11.88%
Earnings per share(Basic)
Note I		 3.02 3.21 3.03
Cash Flow Cash flow ratio (%) 55.74% 43.94% 40.27%
Cash flow adequacy ratio
(%)		 83.80% 90.99% 96.22%
Cash flow reinvestment
ratio(%)		 5.60% 3.16% 2.44%
Leverage Operating leverage 1.7327 1.7827 1.8940
Financial Leverage 1.0563 1.0505 1.0598
Please explain the reasons of changes in financial ratio for the post two years (No
needs for analysis if change of financial ratio is less than 20%)
No needs for analysis

82

NoteII ： Glossary ：

  1. Capital StructureAnalysis

     - (1) Debt ratio ＝ Total liabilities ／ Total assets

  • (2) Long-term fund to fixed asstes ratio ＝（ Total stockholders’ equity ＋ Long-term liabilities ）／ Net Fixed Assets

  • Liquidity Analysis

  • (1) Current Ratio ＝ current assets ／ current liabilities

  • － －

  • (2) Quick Ration ＝（ current assets Inventories Prepaid expenses ）／ current liabilities

  • ＝

  • (3) Times interest earned Earnings before interest and taxs ／ Interest expenses

  • Operating performace Analysis

  • ＝

  • (1) Average collection turnover 

        - Net sales ／ Average trade Receivables

  • (2) Days sales outstanding ＝ 365 ／ Average collection turnover

  • ＝ 。

  • (3) Average inventory turnover Cost of good sold ／ Average inventory

  • ＝

  • (4) Average payment turnover Cost of good sold ／ Average trade Payables

  • (5) Average inventory turnover(Days) ＝ 365 ／ Average inventory turnover

  • (6) Fixed assets turnover ＝ Net sales ／ Net Fixed Assets

  • (7) Total assets turnover ＝ Net sales ／ Total assets

  • Profitability Analysis 

     - －

 - (1) Turn on total assets ＝［ Net income ＋ Interest expenses× （ 1 Effective tax rate ）］／ 。

 - Average total assets

  • (2) Turn on total equit ＝ Net income ／ Average stockholders’ equit 。

  • (3) Net margin ＝ Net income ／ net sales 。

  • －

  • (4) Earnings per share ＝（ Net income Perferred stock dividend ）／ Weighted average number of shares outstanding

  • Cash Flow

  • (1) Cash flow ratio ＝ Net cash provided by operating activities ／ current liabilities

  • ＝

  • (2) Cash flow adequacy ratio Five-year sum of cash from operations ／ Five-year sum of capital expenditures, inventory additions, and cash dividend.

  • ＝

  • (3) Cash flow reinvestment ration (Cash provided from operating activities – Cash dividend) ／（ Grosss fixed assets + investment + Other assets + Working capital ）

  • Leverage

  • (1) Operating leverage ＝（ Net sales – Variable cost ）／ Income from operations

  • (2) Financial Leverage ＝ Income from operations ／（ Income from operations － Interest expenses ）

83

（ 3 ） Consolidated Financial Analysis (GAAP)

Item Year Year Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years
2011 2012 2013 2014 2015
Capital
StructureAnalysis		 Debt ratio (%) 40.05% 39.36% Not
Applied		 Not
Applied		 Not
Applied

Long-term fund to fixed asstes
ratio (%)		 162.54% 164.03%
Liquidity
Analysis		 Current Ratio (%) 218.31% 195.52%
Quick Ration (%) 170.70% 150.24%
Times interest earned (%) 3,994 3,764
Operating
performace
Analysis		 Average collection
turnover(times)		 3.32 3.28
Days sales outstanding 110.08 111.24
Average inventory
turnover(times)		 6.34 6.19
Average payment
turnover(times)		 5.98 6.44
Average inventory
turnover(days)		 57.60 58.97
Fixed assets turnover(times) 1.74 1.91
Total assets turnover(times) 0.83 0.84
Profitability
Analysis		 Turn on total assets (%) 9.35% 9.45%
Turn on total equity (%) 15.34% 15.28%
Paid-in
capital
ratio
(%)		 Operating
income
38.10%		 41.61%
Pre-tax
income		 40.14% 43.10%
Net margin (%) 10.61% 10.51%
Earnings
per
share(Basic)
Note I
3.48		 3.79
Cash Flow Cash flow ratio (%) 59.60% 48.53%
Cash flow adequacy ratio (%) 81.67% 77.61%
Cash flow reinvestment ration
(%)		 6.37% 8.56%
Leverage Operating leverage 1.7930 1.6875
Financial Leverage 1.0278 1.0291

84

  • Note I ： The financial statements of TXC Corporation were audited and certified by CPA. EPS is before retroactively adjust.

NoteII ： Glossary ：

  1. Capital StructureAnalysis

  • (1) Debt ratio ＝ Total liabilities ／ Total assets

  • (2) Long-term fund to fixed asstes ratio ＝（ Total stockholders’ equity ＋ Long-term liabilities ）／ Net Fixed Assets

  • Liquidity Analysis

  • (1) Current Ratio ＝ current assets ／ current liabilities

  • － －

  • (2) Quick Ration ＝（ current assets Inventories Prepaid expenses ）／ current liabilities

  • ＝

  • (3) Times interest earned Earnings before interest and taxs ／ Interest expenses

  • Operating performace Analysis

  • ＝

  • (1) Average collection turnover 

        - Net sales ／ Average trade Receivables

  • (2) Days sales outstanding ＝ 365 ／ Average collection turnover

  • ＝ 。

  • (3) Average inventory turnover Cost of good sold ／ Average inventory

  • ＝

  • (4) Average payment turnover Cost of good sold ／ Average trade Payables

  • (5) Average inventory turnover(Days) ＝ 365 ／ Average inventory turnover

  • (6) Fixed assets turnover ＝ Net sales ／ Net Fixed Assets

  • (7) Total assets turnover ＝ Net sales ／ Total assets

  • Profitability Analysis 

     - －

 - (1) Turn on total assets ＝［ Net income ＋ Interest expenses× （ 1 Effective tax rate ）］／ 。

 - Average total assets

  • (2) Turn on total equit ＝ Net income ／ Average stockholders’ equit 。

  • (3) Net margin ＝ Net income ／ net sales 。

  • －

  • (4) Earnings per share ＝（ Net income Perferred stock dividend ）／ Weighted average number of shares outstanding

  • Cash Flow

  • (1) Cash flow ratio ＝ Net cash provided by operating activities ／ current liabilities

  • ＝

  • (2) Cash flow adequacy ratio Five-year sum of cash from operations ／ Five-year sum of capital expenditures, inventory additions, and cash dividend.

  • ＝

  • (3) Cash flow reinvestment ration (Cash provided from operating activities – Cash dividend) ／（ Grosss fixed assets + investment + Other assets + Working capital ）

  • Leverage

  • (1) Operating leverage ＝（ Net sales – Variable cost ）／ Income from operations

  • (2) Financial Leverage ＝ Income from operations ／（ Income from operations － Interest expense

85

（ 4 ） Financial Analysis (GAAP)

Item Year Year Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years Financial Analysisforthe past 5Years
2011 2012 2013 2014 2015
Capital
StructureAnalysis		 Debt ratio (%) 37.87% 37.63% Not
Applied		 Not
Applied		 Not
Applied

Long-term fund to fixed asstes
ratio (%)		 261.85% 274.49%
Liquidity
Analysis		 Current Ratio (%) 185.13% 163.47%
Quick Ration (%) 145.45% 130.78%
Times interest earned (%) 5,013 4,409
Operating
performace
Analysis		 Average collection
turnover(times)		 3.45 3.23
Days sales outstanding 105.79 113.14
Average inventory
turnover(times)		 7.54 7.73
Average payment
turnover(times)		 6.08 5.57
Average inventory
turnover(days)		 48.40 47.24
Fixed assets turnover(times) 2.58 2.79
Total assets turnover(times) 0.77 0.75
Profitability
Analysis		 Turn on total assets (%) 9.80% 9.71%
Turn on total equity (%) 15.34% 15.28%
Paid-in
capital
ratio
(%)		 Operating
income
24.62%		 28.67%
Pre-tax
income		 38.35% 41.65%
Net margin (%) 11.78% 12.12%
Earnings
per
share(Basic)
Note I
3.48		 3.79
Cash Flow Cash flow ratio (%) 45.34% 39.80%
Cash flow adequacy ratio (%) 77.14% 74.99%
Cash flow reinvestment ration
(%)		 3.06% 5.77%
Leverage Operating leverage 1.7848 1.5786
Financial Leverage 1.0327 1.0349

86

  • Note I ： The financial statements of TXC Corporation were audited and certified by CPA. EPS is before retroactively adjust.

NoteII ： Glossary ：

  1. Capital StructureAnalysis

  • (1) Debt ratio ＝ Total liabilities ／ Total assets

  • (2) Long-term fund to fixed asstes ratio ＝（ Total stockholders’ equity ＋ Long-term liabilities ）／ Net Fixed Assets

  • Liquidity Analysis

  • (1) Current Ratio ＝ current assets ／ current liabilities

  • － －

  • (2) Quick Ration ＝（ current assets Inventories Prepaid expenses ）／ current liabilities

  • ＝

  • (3) Times interest earned Earnings before interest and taxs ／ Interest expenses

  • Operating performace Analysis

  • ＝

  • (1) Average collection turnover 

        - Net sales ／ Average trade Receivables

  • (2) Days sales outstanding ＝ 365 ／ Average collection turnover

  • ＝ 。

  • (3) Average inventory turnover Cost of good sold ／ Average inventory

  • ＝

  • (4) Average payment turnover Cost of good sold ／ Average trade Payables

  • (5) Average inventory turnover(Days) ＝ 365 ／ Average inventory turnover

  • (6) Fixed assets turnover ＝ Net sales ／ Net Fixed Assets

  • (7) Total assets turnover ＝ Net sales ／ Total assets

  • Profitability Analysis 

     - －

 - (1) Turn on total assets ＝［ Net income ＋ Interest expenses× （ 1 Effective tax rate ）］／ 。

 - Average total assets

  • (2) Turn on total equit ＝ Net income ／ Average stockholders’ equit 。

  • (3) Net margin ＝ Net income ／ net sales 。

  • －

  • (4) Earnings per share ＝（ Net income Perferred stock dividend ）／ Weighted average number of shares outstanding

  • Cash Flow

  • (1) Cash flow ratio ＝ Net cash provided by operating activities ／ current liabilities

  • ＝

  • (2) Cash flow adequacy ratio Five-year sum of cash from operations ／ Five-year sum of capital expenditures, inventory additions, and cash dividend.

  • ＝

  • (3) Cash flow reinvestment ration (Cash provided from operating activities – Cash dividend) ／（ Grosss fixed assets + investment + Other assets + Working capital ）

  • Leverage

  • (1) Operating leverage ＝（ Net sales – Variable cost ）／ Income from operations

  • (2) Financial Leverage ＝ Income from operations ／（ Income from operations － Interest expense

87

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders TXC Corporation

We have audited the accompanying consolidated balance sheets of TXC Corporation (the “Company”) and its subsidiaries (collectively referred to as the “Group”) as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014. 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, 2015 and 2014, and their consolidated financial performance and their consolidated cash flows for the years ended December 31, 2015 and 2014, 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.

March 29, 2016

Notice to Readers

The accompanying consolidated financial statements are intended only to present the financial position, results of operations 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 accepted and 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 auditors’ report and consolidated financial statements shall prevail.

88

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS DECEMBER 31, 2015 AND 2014

(In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Note 4)
Financial assets at fair value through profit or loss - current (Note 7)
Available-for-sale financial assets - current (Note 8)
Held-to-maturity financial assets - current (Note 9)
Notes receivable (Note 12)
Accounts receivable (Note 12)
Receivables from related parties (Notes 12 and 32)
Other receivables (Note 12)
Other receivables from related parties (Notes 12 and 32)
Inventories (Note 13)
Prepayments
Prepaid rental (Note 18)
Other financial assets - current (Note 11)
Other current assets - other (Note 19)
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets - noncurrent (Note 8)
Held-to-maturity financial assets (Note 9)
Financial assets carried at cost (Note 10)
Investments accounted for using equity method (Note 14)
Property, plant and equipment (Note 16)
Investment properties (Note 17)
Deferred income tax assets (Note 27)
Prepayment for equipment
Refundable deposits (Note 29)
Long-term prepaid rent (Note 18)
Other noncurrent assets (Note 19)
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 20)
Financial liabilities at fair value through profit or loss - current (Note 7)
Accounts payable (Note 22)
Accounts payables to related parties (Notes 22 and 32)
Other payables (Note 23)
Other payables to related parties (Note 32)
Current tax liabilities (Note 27)
Current portion of bonds payable and long-term bank loans (Notes 20 and 21)
Other current liabilities (Note 23)
Total current liabilities
NONCURRENT LIABILITIES
Bonds payable (Note 21)
Long-term bank loans (Note 20)
Deferred income tax liabilities (Note 27)
Accrued pension cost (Note 24)
Guarantee deposits received (Note 23)
Total noncurrent liabilities
Total liabilities
EQUITY ATTRIBUTABLE TO OWNERS OF THE PARENT
Capital stock (Note 25)
Common stock
Capital surplus
Retained earnings
Appropriated as legal capital reserve
Appropriated as special capital reserve
Unappropriated earnings
Total retained earnings
Other equity
Exchange differences on translating foreign operations
Unrealized loss on available-for-sale financial assets
Total other equity
Total equity attributable to owners of the parent
Total equity
TOTAL		 2015
Amount
%
$ 2,727,944
18
1,122,680
7
-
-
47,840
-
46,422
-
2,873,093
19
4,910
-
96,159
1
646
-
1,534,026
10
21,926
-
2,637
-
32,825
-

62,699

-

8,573,807

55
1,870,976
12
50,280
-
115,520
1
65,032
-
4,570,352
29
67,412
1
25,718
-
83,859
1
6,020
-
113,887
1

37,552

-

7,006,608

45
$ 15,580,415
100
$ 252,283
2
4,978
-
1,110,954
7
1,503
-
624,052
4
1,364
-
57,983
-
1,349,855
9

41,582

-

3,444,554

22
-
-
1,165,625
8
129,115
1
46,607
-

55,268

-

1,396,615

9

4,841,169

31

3,097,570

20

1,662,181

11
1,057,381
7
222,793
1

2,659,935

17

3,940,109

25
249,121
2

1,790,265

11

2,039,386

13
10,739,246

69
10,739,246

69
$ 15,580,415
100		 2014








































Amount
%
$ 1,768,404
13
1,149,004
9
20,800
-
-
-
42,961
-
2,918,461
21
6,870
-
59,122
1
628
-
1,657,491
12
17,057
-
2,564
-
53,244
-

109,962

1

7,806,568

57
44,510
-
47,840
-
111,998
1
64,335
1
5,153,830
38
55,173
1
29,489
-
50,635
-
11,961
-
119,352
1

126,556

1

5,815,679

43
$ 13,622,247
100
$ 425,585
3
15,352
-
1,068,131
8
321
-
606,921
4
1,139
-
73,576
1
538,300
4

62,449

1

2,791,774

21
782,139
6
944,025
7
138,976
1
39,891
-

30,866

-

1,935,897

14

4,727,671

35

3,097,570

23

1,662,181

12
957,864
7
222,793
2

2,611,372

19

3,792,029

28
341,996
2

800

-

342,796

2

8,894,576

65

8,894,576

65
$ 13,622,247
100

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

89

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

SALES
COST OF GOODS SOLD (Note 26)
GROSS PROFIT
OPERATING EXPENSES (Note 26)
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
INCOME FROM OPERATIONS
NON-OPERATING INCOME AND EXPENSES
Other income (Note 26)
Other gains and losses (Note 26)
Finance costs (Note 26)
Share of profits of associates and joint venture
(Note 14)
Total non-operating income and expenses
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE (Note 27)
NET INCOME
OTHER COMPREHENSIVE INCOME (LOSS)
Item that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans
Income tax related to actuarial defined benefits		 2015
Amount
%
$ 9,265,656
100
(7,030,481)
(76)

2,235,175
24

497,711
5
373,594
4
455,535

5


1,326,840
14

908,335
10

79,237
1
133,547
1
(43,324)
-

9,815

-

179,275

2

1,087,610
12

(149,407)
(2)

938,203
10

(18,849)
-
3,204

-


(15,645)

-
 2014





























Amount
%
$ 9,526,243
100
(7,195,094)
(75)

2,331,149
25

517,442
5

374,002
4

435,683

5

1,327,127
14

1,004,022
11

95,433
1

73,985
1

(46,989)
(1)

19,304

-

141,733

1

1,145,755
12

(150,581)
(2)

995,174
10

(13,826)
-

2,350

-

(11,476)

-
(Continued)

90

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

Item that maybe reclassified subsequently to profit or
loss:
Share of the other comprehensive income of
associates accounted for using the equity
method
Exchange differences arising on translation of
foreign operations
Unrealized loss on available-for-sale financial
assets
Other comprehensive income (loss) for the year,
net of income tax
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR
EARNINGS PER SHARE (Note 28)
Basic
Diluted		 2015
Amount
%
$ 1,060
-
(93,862)
(1)

1,789,392
19

1,680,945
18

$ 2,619,148
28

$ 3.03
$ 2.86		 2014







Amount
%
$ -
-

266,660
3

800

-

255,984

3
$ 1,251,158
13
$ 3.21
$ 3.04
$ $




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

(Concluded)

91

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

BALANCE, JANUARY 1, 2014
Appropriation of 2013 earnings
Legal reserve
Cash dividends distributed by subsidiaries
Net income for the for the year ended December 31, 2014
Other comprehensive income for the for the year ended December 31,
2014, net of income tax

Total comprehensive income for the for the year ended December 31,
2014

BALANCE AT DECEMBER 31, 2014
Appropriation of 2014 earnings
Legal reserve
Cash dividends distributed by subsidiaries
Net income for the year ended December 31, 2015
Other comprehensive income for the year ended December 31, 2015, net
of income tax

Total comprehensive income for the year ended December 31, 2015

Acquisition of disposal treasury stock

BALANCE AT DECEMBER 31, 2015
 Equity Attributable to Owners of the Parent Equity Attributable to Owners of the Parent Equity Attributable to Owners of the Parent Others
Foreign
Currency
Unrealized
Gain (Loss)
from Available-
Translation
Reserve
for-sale
Financial Assets
$ 75,336 $ -


-
-

-
-

-
-

266,660

800


266,660

800


341,996
800

-
-

-
-

-
-

(92,875)

1,789,465


(92,875)

1,789,465


-

-

$ 249,121
$ 1,790,265
 Total Equity
$ 8,324,883
-
(681,465)
995,174

255,984

1,251,158
8,894,576
-
(774,393)
938,203

1,680,945

2,619,148

(85)
$ 10,739,246





Shares (In
Thousands)
Common Stock
Capital Surplus
309,757 $ 3,097,570
$ 1,662,181
-
-
-
-
-
-
-
-
-

-

-

-

-

-

-
309,757
3,097,570
1,662,181
-
-
-
-
-
-
-
-
-

-

-

-
-

-

-

-

-

-
309,757
$ 3,097,570
$ 1,662,181		 Retained Earnings
Legal Capital
Reserve
Special Capital
Reserve
Unappropriated
Earnings
$ 864,348
$ 222,793
$ 2,402,655
93,516
-
(93,516)
-
-
(681,465)
-
-
995,174

-

-

(11,476)


-

-

983,698

957,864
222,793
2,611,372
99,517
-
(99,517)
-
-
(774,393)
-
-
938,203

-

-

(15,645)


-

-

922,558


-

-

(85)

$ 1,057,381
$ 222,793
$ 2,659,935



















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

92

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax

Adjustments for:
Bad debt expense
Depreciation expense
Amortization expense
Net gain on fair value change of financial assets and liabilities at fair
value through profit or loss
Finance costs
Share of profits of associates and joint venture
Interest income
Impairment loss of financial assets
Loss on valuation of inventories
Impairment loss of property, plant and equipment
Gain on disposal of investments accounted for using equity method
Gain on disposal of property, plant and equipment
Dividend income
(Gain) loss on disposal of investment
Changes in operating assets and liabilities:
Financial asset held for trading
Notes receivable
Accounts receivables
Receivables from related parties
Other receivables
Other receivables from related parties
Inventories
Prepayments
Other current assets
Accounts payable
Accounts payable to related parties
Other payables
Other payables to related parties
Other current liabilities
Financial liabilities held or trading
Accrued pension costs

Cash generated from operations
Interest paid
Income taxes paid

Net cash generated from operating activities
 2015
$ 1,087,610

8,723
977,476
18,684
(52,314)
43,324
(9,815)
(33,527)
10,210
12,125
440
(1,628)
12,245
(1,118)
(3,286)
213,877
(3,357)
36,461
1,971
(35,323)
(18)
111,567
(4,869)
47,263
42,823
1,182
16,894
225
(20,867)
(15,300)
(12,133)

2,449,545
(26,285)
(172,192)


2,251,068
 2014
$ 1,145,755
1,306
926,535
21,874

(37,489)
46,989

(19,304)

(21,850)
47,569
20,528
10,219

(6,621)
(3,611)

(1,118)

27,324
(334,988)

(22,552)
(283,424)
2,561

23,535

76
(24,521)

(8,750)
(12,587)
181,504
144
11,023
112

15,481

-

(8,098)
1,697,622

(29,248)

(134,111)

1,534,263
(Continued)

93

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of net gain or loss arising on financial assets classified as
held for trading recognized originally

Disposal of net loss arising on financial assets classified as held for
trading recognized originally
Purchase of investment accounted for using equity method
Purchase of available-for-sale financial assets
Disposal of available-for-sale financial assets
Purchase of financial assets carried at cost
Financial assets carried at cost
Purchase of held-to-maturity financial assets
Disposal of investment accounted for using equity method
Payments for property, plant and equipment
Disposal of property, plant and equipment
Increase in refundable deposits
Decrease in refundable deposits
Increase in other financial assets
Decrease in other financial assets
Increase in other noncurrent assets
Increase in prepayment for equipment
Interest received
Dividend received

Net cash used in investing activities

CASH FLOWS FROM FINANCING ACTIVITIES
Decrease in short-term loans
Proceeds from long-term borrowings
Repayments of long-term borrowings
Guarantee deposits received
Payments of cash dividend

Payments for transaction costs attributable to buy-back of ordinary
shares
Proceeds from reissuance of treasury stock

Net cash used in financing activities

EFFECT OF EXCHANGE RATE CHANGES ON CASH AND CASH
EQUIVALENTS
 2015
$ (1,272,720)
1,116,410
-
(130,819)
154,104
(50,000)
-
(50,280)
6,101
(388,953)
3,462
-
5,941
-
20,419
(19,663)
(33,224)
31,813

6,618

(600,791)

(173,302)
1,150,000
(928,125)
24,402

(774,393)

(806)

721

(701,503)


10,766
 2014
$ (4,366,187)
4,089,723
(65,000)

(89,617)
122,468

-
7,917

-
70,824

(474,248)
34,967
(7,577)
-
(28,801)
-

(97,338)

(38,621)
20,456

18,160

(802,874)

(80,006)
450,000

(576,773)
1,448

(681,465)

-

-

(886,796)

94,275
(Continued)

94

TXC CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR
 2015
$ 959,540


1,768,404

$ 2,727,944
 2014
$ (61,132)

1,829,536
$ 1,768,404

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

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

TXC CORPORATION AND SUBSIDIARIES

1. ORGANIZATION AND OPERATIONS

TXC Corporation (TXC) was incorporated on December 28, 1983 under the Company Law and other related regulations of the Republic of China (ROC).

TXC specializes in five categories of products such as high quality Quartz Unite Crystal, Automotive Crystal, Crystal Oscillator (CXO) Surface Acoustic Wave (SAW) Filter, and Timing Module (TM), and provides complete solution in frequency devices and modules, and design service to fully satisfy various needs of the customers.

On August 26, 2002, TXC’s shares began to be traded on the Taiwan Stock Exchange.

The functional currency of the Company is New Taiwan dollars. The consolidated financial statements are presented in New Taiwan dollars.

In order to ensure investors’ rights and interests, the Company had applied to Taiwan Corporate Governance Association for corporate governance assessment certification. The Company has acquired (CG6005 general version of corporate governance assessment and authentication) and (CG6008 advanced version of corporate governance assessment and authentication), on March 23, 2011 and June 27, 2013, respectively. The Company will continue to strengthen corporate governance functions in order to work with international standards and to protect public interests.

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The consolidated financial statements were reported to the Board of Directors and issued on March 14, 2016.

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS

  • 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.

96

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 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. 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.

Refer to Note 31 for related disclosures.

  • 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, please refer to Note 14 for related disclosures

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

  • 4) Revision to 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 cost, and also includes more extensive disclosures.

In addition, in preparing the consolidated financial statements for the year ended December 31, 2015, the Group elects not to present 2014 comparative information about the sensitivity of the defined benefit obligation.

97

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

Several standards including IFRS 1 “First-time Adoption of International Financial Reporting Standards”, IAS 1 “Presentation of Financial Statements”, IAS 16 “Property, Plant and Equipment”, IAS 32 “Financial Instruments: Presentation” and IAS 34 “Interim Financial Reporting” were amended in this annual improvement.

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

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

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

The amendments to IAS 34 clarify that a measure of total liabilities for a reportable segment would be disclosed in interim financial reporting when such amounts are regularly provided to the chief operating decision maker of the Group and there has been a material change from the amounts disclosed in the last annual financial statements for that reportable segment.

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

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

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

98

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

New IFRSs
Annual Improvements to IFRSs 2010-2012 Cycle
Annual Improvements to IFRSs 2011-2013 Cycle
Annual Improvements to IFRSs 2012-2014 Cycle
IFRS 9 “Financial Instruments”
Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of
IFRS 9 and Transition Disclosures”
Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets
between an Investor and its Associate or Joint Venture”
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in
Joint Operations”
IFRS 14 “Regulatory Deferral Accounts”
IFRS 15 “Revenue from Contracts with Customers”
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 3)
January 1, 2018
January 1, 2018
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2018
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.

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

  • Note 3: The amendment to IFRS 5 is applied prospectively to changes in a method of disposal that occur in annual periods beginning on or after January 1, 2016; the remaining amendments are effective for annual periods beginning on or after January 1, 2016.

99

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 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.

100

  • 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.

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

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

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

IAS 24 was amended to clarify that a management entity providing key management personnel services to the 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.

101

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

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

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

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

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

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

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2017.

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

  • Identify the contract with the customer;

  • Identify the performance obligations in the contract;

  • Determine the transaction price;

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

  • Recognize revenue when the entity satisfies a performance obligation.

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

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

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

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

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

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

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

Except for the above impact, as of the date the consolidated 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

These interim consolidated financial statements have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers, or other regulations (please specify) and IFRSs as endorsed by the FSC.

  • b. Basis of preparation

The 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.

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

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

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

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

  • 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

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

Current liabilities include:

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

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

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

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

  • d. Basis of consolidation

Principles for preparing consolidated financial statements

The consolidated financial statements incorporate the financial statements of the Company and the entities controlled by the Company (i.e. its subsidiaries, including special purpose entities).

Income and expenses of subsidiaries acquired or disposed of during the period are included in the consolidated statement of profit or loss and other comprehensive income from the effective date of acquisition up to the effective date of disposal, as appropriate.

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.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the Group’s interests and the non-controlling interests are adjusted to reflect the changes in their relative interests in the subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognized directly in equity and attributed to the owners of the Company.

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.

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

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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 operations in other countries or currencies used different with the Company) are translated into New Taiwan dollars using exchange rates prevailing at the end of each reporting period. Income and expense items are translated at the average exchange rates for the period. Exchange differences arising are recognized in other comprehensive income (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 Company’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 Company losing 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 specific identification of weighted-average cost on the balance sheet date.

  • g. Investment in associates and joint ventures

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. Joint venture is a joint arrangement whereby the Group and other parties that have joint control of the arrangement have rights to the net assets of the arrangement.

The Group uses the equity method to account for its investments in associates and joint ventures.

Under the equity method, investments in an associate and a joint venture are 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 and joint venture. The Group also recognizes the changes in the Group’s share of equity of subsidiaries.

When the Group subscribes for additional new shares of the associate and joint venture at a percentage different from its existing ownership percentage, the resulting carrying amount of the investment differs from the amount of the Group’s proportionate interest in the associate and joint venture. The Group records such a difference as an adjustment to investments with the corresponding amount charged or credited to capital surplus - changes in the Group’s share of equity of associates and joint ventures. If the Group’s ownership interest is reduced due to the additional subscription of the new shares of associate and joint venture, the proportionate amount of the gains or losses previously recognized in other comprehensive income in relation to that associate and joint venture is reclassified to profit or loss on the same basis as would be required if the investee had directly disposed of the related assets or

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liabilities. When the adjustment should be debited to capital surplus, but the capital surplus recognized from investments accounted for by the equity method is insufficient, the shortage is debited to retained earnings.

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

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

The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate and a joint venture. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and the joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the joint venture. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the joint venture on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasure the retained interest.

When a group entity transacts with its associate, profits and losses resulting from the transactions with the associate are recognized in the Group’ 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.

Freehold land is not depreciated.

Depreciation on property, plant and equipment (including assets held under finance leases) is recognized using the straight-line method. Each significant part is depreciated separately. If the lease term is shorter than the useful lives, assets are depreciated over the lease term. The estimated useful lives, residual values and depreciation method are reviewed at the end of each reporting period, with the effect of any changes in estimate accounted for on a prospective basis.

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

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i. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

Any gain or loss arising on derecognition of the property is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized.

  • 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 Company estimates the recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are allocated to the individual cash-generating units on a reasonable and consistent basis of allocation/Corporate assets are allocated to the smallest group of cash-generating units on a reasonable and consistent allocation basis.

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

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

When an impairment loss 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 for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

  • k. Financial instruments

Financial assets and 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.

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

A financial asset may be designated as at fair value through profit or loss upon initial recognition if:

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

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

  • iii) The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.

Fair value is determined in the manner described in Note 31.

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 (incorporates/does not incorporate) 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.

  • ii. Held-to-maturity investments

Commercial paper, corporate bonds, and foreign government bonds, which are above specific credit ratings and the Group has positive intent and ability to hold to maturity, are classified as held-to-maturity investments. (Please specify the investments and the criteria of classifying the investments as held-to-maturity)

Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

iii. 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.

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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.

iv. Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent, debt investments with no active market, and other receivables (please specify)) are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalent includes time deposits with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

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 and held-to-maturity investments 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, an increase in the number of delayed payments in the portfolio past the average credit period, as well as observable changes in national or local economic conditions that correlate with default on receivables.

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

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For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

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

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

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

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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 where the carrying amount is reduced through the use of an allowance account. When a trade receivable and other receivables are 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 except for uncollectible trade receivables that are written off against the allowance account.

  • 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.

If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

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.

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On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

  • 2) Equity instruments

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

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

  • 3) Financial liabilities

  • a) Subsequent measurement

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

  • i. Financial liabilities at fair value through profit or loss

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

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

Financial liabilities at fair value through profit or loss that are obligations to deliver unquoted equity instruments borrowed by a short seller 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 liabilities carried at cost. If, in a subsequent period, the fair value of the financial liabilities can be reliably measured, the financial liabilities are remeasured at fair value. The difference between the carrying amount and the fair value is recognized in profit or loss.

  • b) Derecognition of financial liabilities

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

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4) Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Group are 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.

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.

5) Derivative financial instruments

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

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

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

l. Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Revenue is reduced for estimated customer returns, rebates and other similar allowances. Allowance for sales returns and liability for returns are recognized at the time of sale based on the seller’s reliable estimate of future returns and based on past experience and other relevant factors.

1) Sale of goods

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

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

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  • 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.

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

Revenue from selling of properties in the course of ordinary activities is recognized when the construction is completed and the properties are transferred to buyers. Until such revenue is recognized, deposits received from sales of properties and installment payments are carried in the consolidated balance sheets under current liabilities.

  • 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. Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable.

m. Leasing

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

  • 1) The Group as lessor

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the lessee’s benefit from the use of the leased asset. Contingent rents arising under operating leases are recognized as income in the period in which they are incurred.

  • 2) The Group as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rents arising under operating leases are recognized as an expense in the period in which they are incurred.

  • 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.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

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

  • o. Government grants

Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase, construct or otherwise acquire non-current assets are recognized as (deferred revenue and recognized in) profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

  • p. Employee benefits

  • 1) Short-term employee benefits

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

2) Retirement benefits

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

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

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

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.

114

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 carry forward and unused tax credits for purchases of machinery, equipment and technology, research and development expenditures, and personnel training expenditures) to the extent that it is probable that taxable profits will be available against which those deductible temporary differences can be utilized. Such deferred tax assets and liabilities are not recognized if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the taxable profit nor the accounting profit.

Deferred tax liabilities are recognized for taxable temporary differences associated with investments in subsidiaries 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 AND 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 that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered relevant. Actual results may differ from these estimates.

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

115

Held-to-maturity Financial Assets

Management has reviewed the Group's held-to-maturity financial assets in light of its capital maintenance and liquidity requirements and has confirmed the Group's positive intention and ability to hold those assets to maturity.

Income Taxes

As of December 31, 2015 and 2014, the carrying amount of deferred tax assets in relation to unused tax losses was $25,718 thousand and $29,489 thousand, respectively. The realizability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.

Estimated Impairment of Accounts Receivables

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.

Fair Value of Financial Instruments

If some of the Company's assets and liabilities measured at fair value have no quoted prices in active markets, the board of directors of the Company has set up a valuation committee, to determine whether to engage third party qualified valuers and to determine the appropriate valuation techniques for fair value measurements.

Where Level 1 inputs are not available, the Group or engaged valuers would determine appropriate inputs by referring to the analyses of the financial position and the operation results of investees, recent transaction prices, prices of same equity instruments not quoted in active markets, quoted prices of similar instruments in active markets, valuation multiples of comparable entities, market prices or rates and specific features of derivatives. If the actual changes of inputs in the future differ from expectation, fair value might vary accordingly.

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

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.

Recognition and Measurement of Defined Benefit Plans

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

116

Significant influence over associates

Note 15 describes that several companies are associates of the Group although the Group only owns less than 20% of the voting power in each of these companies. The Group has significant influence over these companies by virtue of the right to appoint the directors to the board of directors of these companies.

6. CASH AND CASH EQUIVALENTS

Cash on hand
Demand deposits
Check accounts
Cash equivalents (investments with original maturities less than three
months)
Time deposits
Repurchase agreements collateralized by bonds		 December 31 December 31


2015
$ 758

2,290,647
5,035
231,504

200,000

$ 2,727,944
 2014
$ 705
1,345,005
3,528
369,166

50,000
$ 1,768,404

The market rate intervals of cash in bank repurchase agreements collateralized by bonds at the end of the reporting period were as follows:

Deposits in banks
Repurchase agreements collateralized by bonds		 December 31
2015
2014
0.48%-3.83%
0.02%-4.03%
0.48%-0.54%
0.63%-0.65%

7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial assets designated as at FVTPL-current
Structured deposit
Financial assets held for trading
Derivative financial instruments (not under hedge accounting)
Forward exchange contracts
Non-derivative financial assets
Non-derivative financial assets mutual funds
Financial liabilities held for trading-current
Derivative financial instruments (not under hedge accounting)
Forward exchange contracts		 December 31 December 31



2015
$ 489,017

249

633,414

$ 1,122,680

$ 4,978
 2014
$ 315,418
-

833,586
$ 1,149,004
$ 15,352

117

Outstanding forward exchange contracts consisted of the following:

Contract Amount (In Thousands)

Contract Amount
Currency Maturity Date (In Thousands)
December 31, 2015
Sell USD/NTD 2016.01.25-2016.03.01 USD6,000/NTD196,728
Knock-out forward USD/JPY 2016.01.29-2016.03.04 USD4,500/JPY557,000
Sell USD/JPY 2016.01.21-2016.01.22 USD1,000/JPY122,440
Knock-out forward USD/NTD 2016.02.22 USD1,000/NTD33,030
Sell USD/RMB 2016.01.04-2016.04.01 USD10,100/RMB64,877
Knock-out forward USD/JPY 2016.01.29-2016.03.22 USD1,500/JPY179,850
December 31, 2014
Sell USD/NTD 2015.01.05-2015.04.01 USD13,000/NTD404,240
Sell USD/JPY 2015.01.05-2015.03.03 USD6,500/JPY764,631
Sell USD/RMB 2015.02.26-2015.03.23 USD2,500/RMB15,569
Knock-out forward USD/NTD 2015.01.05-2015.03.02 USD3,000/NTD93,360
Sell USD/RMB 2015.01.05-2015.05.05 USD16,000/RMB99,256

The Group entered into cross-currency swap contracts during the years ended December 31, 2015 and 2014 to manage exposures due to exchange rate and interest rate fluctuations of foreign currency denominated assets and liabilities. However, those contracts did not meet the criteria of hedge effectiveness and therefore were not accounted for by using hedge accounting.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Current
Domestic investments
Mutual funds
Noncurrent
Domestic investments
Listed shares
Foreign investments
Listed shares		 December 31 December 31



2015
$ -

$ 34,300


1,836,676

$ 1,870,976
 2014
$ 20,800
$ 44,510

-
$ 44,510

The market value of available-for-sale financial assets has been lower than the book value. As a result, the Group evaluated and recognized an impairment loss of $10,210 thousand, $1,936 thousand during years ended December 31, 2015 and 2014, respectively.

The shares of Guangdong Failong Crystal Technology Co., Ltd, which is held by the group, is classified as financial assets measured at cost. Due to the Company has been listed on ShenZhen Stock Exchange on May 15, 2015, and already has the public quoted market price in active market. The shares of Guangdong Failong Crystal Technology Co., Ltd, has been reclassified to available-for-sale financial assets (see Note 31).

118

9. HELD-TO-MATURITY FINANCIAL ASSETS

Current
Corporate bonds - Chinatrust
Noncurrent
Corporate bonds - Chinatrust
Corporate bonds - Cayman Ton Yi		 December 31
2015
2014
$ 47,840
$ -
$ -
$ 47,840
50,280

-
$ 50,280
$ 47,840

In 2013, the Group bought the denomination of RMB10 thousand and 3-year corporate bonds issued by Chinatrust with a coupon rate of 2.9% and an effective interest rate of 2.9%. And in 2015, the Group bought the denomination of RMB10 thousand corporate bonds issued by Cayman Ton Yi Industrial Holdings Limited with a coupon rate of 4.2% and an effective interest rate of 4.2%.

10. FINANCIAL ASSETS MEASURED AT COST

Domestic unlisted common shares
Overseas unlisted common shares		 December 31 December 31


2015
$ 115,520

-

$ 115,520
 2014
$ 65,520
46,478
$ 111,998

The Group has assessed the recoverable amount of the financial assets measured at cost and recognized an impairment loss of $45,633 thousand during the period of year ended December 31, 2014. The Group sold overseas unlisted common shares of Sitime to unrelated party and received $7,917 thousand. Meanwhile, recognized a disposal loss of $32,697 thousand. (See Note 34).

The Company held by oversea unlisted of the ordinary shares, which reclassification information, please refer to Notes 8 and 31.

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

11. OTHER FINANCIAL ASSETS

Current
Time deposits with original maturity more than 3 months		 December 31
2015
$ 32,825		 2014
$ 53,244

119

The market interest rates of the time deposits with original maturity more than 3 months 0.61% and 0.56%-3.25% per annum as of December 31, 2015 and 2014.

12. NOTES, ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

Notes receivable
Notes receivable - operating
Notes receivable - non-operating
Less: Allowance for impairment loss
Accounts receivable
Accounts receivable
Accounts receivable - related parties
Less: Allowance for impairment loss
Less: Allowance for impairment loss - related parties
Other receivables
Income tax refund receivable
Equipment payment receivable
Others		 December 31 December 31









2015
$ 46,437

-

(15)

$ 46,422

$ 2,899,508

4,940

2,904,448
(26,415)

(30)

$ 2,878,003

$ 16,458

26,885

52,816

$ 96,159
 2014
$ 43,079
-

(118)
$ 42,961
$ 2,936,107

6,912
2,943,019

(17,646)

(42)
$ 2,925,331
$ 15,884
-

43,238
$ 59,122

The average credit period on sales of goods was 60 to 120 days. No interest was charged on trade receivables. In determining the recoverability of a 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. Historical experience shows that the Group recognized an allowance in accordance with the proportion of accounts receivable of each customers.

The Group did not include the balance of receivables that were past due but not impaired.

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

Less than 60 days
61-90 days
91-365 days		 December 31 December 31


2015
$ 167,658

41,995

73,450

$ 283,103
 2014
$ 9,813
23,169

10,534
$ 43,516

The above aging schedule was based on the past due date.

120

Movements of the Allowance for Doubtful Accounts Receivables

Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Balance at January 1, 2014
$ -
$ 17,987

Provision
-
1,194
Reversal
-
(1,649)
Effect of exchange rate changes

-

156

Balance at December 31, 2014
$ -
$ 17,688

Balance at January 1, 2015
$ -
$ 17,688

Provision
7,493
1,333
Reversal
-
-
Effect of exchange rate changes

-

(69)

Balance at December 31, 2015
$ 7,493
$ 18,952

Movements of the Allowance for Doubtful Notes Receivables
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Balance at January 1, 2014
$ -
$ 6

Provision
-
112
Reversal

-

-

Balance at December 31, 2014
$ -
$ 118

Balance at January 1, 2015
$ -
$ 118

Provision
-
(103)
Reversal

-

-

Balance at December 31, 2015
$ -
$ 15
 Total
$ 17,987
1,194
(1,649)

156
$ 17,688
$ 17,688
8,826
-

(69)
$ 26,445
Total
$ 6
112

-
$ 118
$ 118
(103)

-
$ 15

13. INVENTORIES

Finished goods
Work in process
Raw materials
Supplies and spare parts
Merchandise
Land to be development		 December 31 December 31


2015
$ 304,265

355,487
185,802
43,429
419,067
225,976

$ 1,534,026
 2014
$ 364,217
385,832
215,815
48,981
413,199

229,447
$ 1,657,491

121

Prepayment for land purchases is the payment made by Chongqing All Sum to acquire the land use right in Chongqing Gao-Shing District to develop and sell real estate. Chongqing All Sum has acquired real estate certificate issued by Chongqing Association of land and real estate resources during 2015. The land has not been constructed yet as of December 31, 2015.

The cost of inventories recognized as cost of goods sold in the years ended December 31, 2015 and 2014 included $7,030,481 thousand and $7,195,094 thousand, respectively, which include $12,125 thousand and $20,528 thousand, respectively, due to write-downs of inventories.

14. SUBSIDIARIES

Subsidiary Included in Consolidated Financial Statements

The detail information of the subsidiaries at the end of reporting period was as follows:

Investor
Investee
Business Nature
TXC Corporation
Taiwan Crystal Technology
International Limited (TCTI)
Investment holding
TXC Technology, Inc.
Marketing activities
TXC Japan Corporation
Marketing activities
Taiwan Crystal Technology (HK)
Limited (TCT-HK)
Investment holding
TXC Optec Corporation
Manufacture and sales of
electronic products
Taiwan Crystal
Technology
Growing Profits Trading Ltd.
(GPT)
International trading
International
Limited
TXC (Ningbo) Corporation
(NGB)
Manufacture and sales of
electronic products
TXC (Ningbo)
Corporation
TXC (Chongqing) Corporation
(Chongqing)
Manufacture and sales of
electronic products
Chongqing All Sun Company
Limited (Chongqing All sun)
Marketing activities
Ningbo Jingyu Company Limited
(Ningbo Jingyu)
Purchasing and selling
electronic component
Taiwan Crystal
Technology (HK)
Limited
TXC (Chongqing) Corporation
(Chongqing)
Manufacture and sales of
electronic products		 Percentage of
Ownership at
December 31
2015
2014
Note
100.00%
100.00%
a, k
100.00%
100.00%
b, k
100.00%
100.00%
c, k
100.00%
100.00%
f, k
100.00%
-
J, k
100.00%
100.00%
d, k
100.00%
100.00%
e, k
66.40%
59.56%
g, k
100.00%
100.00%
h, k
100.00%
100.00%
i, k
33.60%
40.44%
g, k

  • a. Taiwan Crystal Technology International Limited was incorporated on December 23, 1998 in Samoa.

  • b. TXC Technology, Inc. was incorporated on December 1, 2000 in California, U.S.A.

  • c. TXC Japan Corporation was incorporated on September 13, 2005 in Yokohama, Japan.

  • d. Growing Profits Limited was incorporated on March 9, 1999 in the British Virgin Islands.

  • e. TXC (Ningbo) Corporation was incorporated on March 12, 1999 in Ningbo, China.

  • f. Taiwan Crystal Technology (HK) Limited was incorporated on July 16, 2010 in Hong Kong Special Administrative Region, China.

  • g. TXC (Chongqing) Corporation was incorporated on October 11, 2010 in Chongqing, China.

  • h. Chongqing All Sun Corporation was incorporated on February 10, 2011 in Chongqing, China.

  • i. Ningbo Jingyu Company Limited was incorporated on September 7, 2011 in Ningbo, China.

122

  • j. TXC Optec Corporation was established on April 22, 2015 in Taiwan. The contributed capital was $100 thousand in 10 shares. According to decisions made in 2015 annual general meeting, in order to ensure professional services, which enhance competency and performance, TXC Corporation will divide the assets and liabilities of photovoltaics industry to TXC Optec Corporation following “R.O.C. Business Mergers And Acquisitions Act” and related acts. TXC Optec Corporation will issue 21,490 thousand shares in exchange of the assets and liabilities mentioned above. The date fixed for the spin-off fell on September 1, 2015. The divided capitalized value is $429,900. The contributed capital for TXC Optec Corporation increase to $430,000 thousand (21,500 thousand shares) on the date fixed for the spin-off of December 31, 2015.

  • k. All company are immaterial subsidiaries, their financial statements have not been review.

15. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in associates
Investments in Associates
Associates that are not individually
Tai-Shing Electronics Components Corporation (Tai-Shing)
The Group’s share of:
Profit (loss) from continuing operations
Other comprehensive income
Total comprehensive income for the year		 December 31
2015
$ 65,032

December		 2014
$ 64,335
31
2015
2014
$ 65,032
$ 64,335
For the Year Ended December 31


2015
$ 9,815

1,060

$ 10,875
 2014
19,304

-
$ 19,304

Refer to Table 5 “name, locations, and related information of investees on which the company exercises significant influence” for the nature of activities, principal place of business and country of incorporation of the associates.

In November 2014, the TXC acquired 2,500 thousand shares of Tai-Shing Electronics Components Corporation for $65,000 thousand; following such acquisition, the Company’s percentage of ownership in Tai-Shing was 12.5%. The TXC sold parts of his holding to non-relationship with the Company during the three months ended September 30. The sale of the interests generating $1,628 thousand, and the ratio dropped to 11.65%. The TXC has power to govern the financial and operating policies of Tai-Shing due to part of directors of TXC are the same as Tai-Shing. As a result, Tai-Shing is accounted for using the equity method.

123

16. PROPERTY, PLANT AND EQUIPMENT



Cost


Balance at January 1, 2014

Additions
Disposals
Effect of foreign currency exchange
differences
Transfer from investment property
Government grant

Balance at December 31, 2014


Accumulated depreciation and
impairment

Balance at January 1, 2014

Disposals
Depreciation expenses
Transfer from investment property
Allowance for impairment
Effect of foreign currency exchange
differences

Balance at December 31, 2014

Carrying value at December 31, 2014

Cost


Balance at January 1, 2015

Additions
Disposals
Effect of foreign currency exchange
differences
Transfer from investment property
Government grant
Reclassifications

Balance at December 31, 2015


Accumulated depreciation and
impairment

Balance at January 1, 2015

Disposals
Depreciation expenses
Transfer from investment property
Allowance for impairment
Effect of foreign currency exchange
differences

Balance at December 31, 2015

Carrying value at December 31, 2015		 Freehold Land
Land
Improvements
$ 598,145
$ 151

-
-
-
-
-
-
-
-

-

-

$ 598,145
$ 151

$ -
$ 128

-
-
-
23
-
-
-
-

-

-

$ -
$ 151

$ 598,145
$ -

$ 598,145
$ 151

-
920
-
-
-
-
-
-
-
-

-

-

$ 598,145
$ 1,071

$ -
$ 151

-
-
-
22
-
-
-
-

-

-

$ -
$ 173

$ 598,145
$ 898
 Buildings
Machinery and
Equipment
Transportation
Equipment
$ 2,353,668
$ 5,796,667
$ 14,816

33,601
428,464
4,371
-
(130,251 )
(4,146 )
51,988
202,822
870
359
-

-

(13,023)

-

$ 2,439,616
$ 6,284,679
$ 15,911

$ 547,758
$ 2,770,267
$ 10,058

(99,787 )
(3,466 )
130,511
762,990
2,240
359
-
-
-
10,219
-

12,839

108,565

526

$ 691,467
$ 3,552,254
$ 9,358

$ 1,748,149
$ 2,732,425
$ 6,553

$ 2,439,616
$ 6,284,679
$ 15,911

20,592
341,848
4,156
(3,110 )
(97,782 )
(1,501 )
(21,916 )
(83,893 )
(369 )
(26,429 )
-
-
89,648
-
-

-

23,309

-

$ 2,498,401
$6,468,161
$ 18,197

$ 691,467
$ 3,552,254
$ 9,358

(3,110 )
(83,229 )
(1,350 )
134,711
811,355
2,666
(9,555 )
-
-
-
440
-

(5,661)

(46,398)

(219)

$ 807,852
$ 4,234,422
$ 10,455

$ 1,690,549
$ 2,233,739
$ 7,742
 Office
Equipment
$ 225,755

20,835
(3,636 )
7,005
-

-

$ 249,959

$ 152,927

(3,424 )
27,546
-
-

4,352

$ 181,401

$ 68,558

$ 249,959

20,405
(35,252 )
(2,595 )
-
-

(23,309)

$ 209,208

$ 181,401

(34,249 )
25,255
-
-

(1,451)

$ 170,956

$ 38,252
 Property in
Construction
$ -

-

-
-
-

-

$ -

$ -


-
-
-
-

-

$ -

$ -

$ -

1,032

-

(5 )
-
-

-

$ 1,027

$ -


-
-
-
-

-

$ -

$ 1,027
 Total
$ 8,989,202
487,271
(138,033 )
262,685
359

(13,023)
$ 9,588,461
$ 3,481,138
(106,677 )
923,310
359
10,219

126,282
$ 4,434,631
$ 5,153,830
$ 9,588,461
388,953
(137,645 )
(108,778 )
(26,429 )
89,648

-
$ 9,794,210
$ 4,434,631
(121,938 )
974,009
(9,555 )
440

(53,729)
$ 5,223,858
$ 4,570,352

For the years ended December 31, 2015 and 2014, the Company recognized impairment loss of $440 thousand and $10,219 thousand related to property, plant and equipment of the foundry reportable segment respectively since this loss was attributable to greater than anticipated wear and tear.

The above items of property, plant and equipment were depreciated on a straight-line basis at the following rates per annum:

Land improvements 6 years
Buildings
Industrial building 35-61 years
Electrical power systems 4-10 years
Engineering systems 1-17 years
Equipment
Major production equipment 1-5 years
Temperature control systems 4-7 years
Transportation equipment 4-7 years
Transportation equipment 3-8 years
Office equipment 2-6 years

The major component parts of the buildings held by the Group included (plants, electro-powering machinery and engineering systems, etc.), which were depreciated over their estimated useful lives.

124

Refer to Note 33 for the carrying amount of property, plant and equipment that had been pledged by the Group to secure borrowings/general banking facilities granted to the Group.

17. INVESTMENT PROPERTIES

Completed investment property
Cost
Balance at January 1, 2014
Transferred to property, plant and equipment
Effect of foreign currency exchange differences
Balance at December 31, 2014
Accumulated depreciation and impairment
Balance at January 1, 2014
Transferred to property, plant and equipment
Depreciation expense
Effect of foreign currency exchange differences
Balance at December 31, 2014
Cost
Balance at January 1, 2015
Transferred to property, plant and equipment
Effect of foreign currency exchange differences
Balance at December 31, 2015
Accumulated depreciation and impairment
Balance at January 1, 2015
Transferred to property, plant and equipment
Depreciation expense
Effect of foreign currency exchange differences
Balance at December 31, 2015		 December 31
2015
2014
$ 67,412
$ 55,173
Completed
Investment
Property
$ 77,700
(359)

3,901
$ 81,242
$ (22,007)
359
(3,225)

(1,196)
$ (26,069)
$ 81,242
26,429

(1,736)
$ 105,935
$ (26,069)
(9,555)
(3,467)

568
$ (38,523)

The investment properties held by the Group were depreciated over their useful lives of 4-61 years, using the straight-line method.

125

The fair value of the Group’s investment properties as of December 31, 2015 and 2014 was $124,116 thousand and $112,259 thousand, respectively. The fair value valuation had not been performed by independent qualified professional valuers; however, management of the Group used the valuation model that market participants would use in determining the fair value the valuation was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Group’s investment property was held under freehold interests. The carrying amount of the investment properties that had been pledged by the Group to secure borrowings/general banking facilities granted to the Group were reflected in Note 33.

18. PREPAYMENTS FOR LEASE

Current asset (included in prepaid rent line item)
Non-current asset		 December 31 December 31


2015
$ 2,637


113,887

$ 116,524
 2014
$ 2,564

119,352
$ 121,916

As of December 31, 2015 and 2014, prepaid lease payments include land use right, which are located in Mainland China.

The carrying amount of the land use right certificates that had been pledged by the Group to secure borrowings/general banking facilities granted to the Group were reflected in Note 33.

19. OTHER ASSETS

Current
Prepaid expenses
Overpaid sales tax
Others
Noncurrent
Long-term prepayments
Prepayments for real estate		 December 31 December 31





2015
$ 18,689

27,555

16,455

$ 62,699

$ 37,552


-

$ 37,552
 2014
$ 26,936
69,103

13,923
$ 109,962
$ 36,908

89,648
$ 126,556

The prepayments for real estate is the payment made by TXC (Ningbo) Corporation for locating the office space. As of December 31, 2015, has been completed and transferred to the buildings.

126

20. BORROWINGS

  • a. Short-term borrowings
Secured borrowings (Note 33)
Bank loans (1)
Unsecured borrowings
Line of credit borrowings (2)
Letters of credit (3)		 December 31 December 31



2015
$ 101,867

98,475

51,941


150,416

$ 252,283
 2014
$ 110,226
263,582

51,777

315,359
$ 425,585

  • 1) The short-term secured borrowings interest rate at December 31, 2015 and 2014 on the bank loans was 1.36% and 1.78%-1.93% per annum.

  • 2) The weighted average effective interest rate at December 31, 2015 and 2014 on the bank loans was 1.35%-2.56% and 1.15%-2.22% per annum.

  • 3) The letters of credit interest rate at December 31, 2015 and 2014 on the bank loans was 0.9% and 0.96% annum.

  • b. Long-term borrowings

Secured borrowings (Note 33)
Bank loans (1)
Unsecured borrowings
Bank loans
Less: Current portion
Long-term borrowings: Non-current		 December 31 December 31


2015
$ 921,875


794,664

(550,914)

$ 1,165,625
 2014
$ 950,000
532,325

(538,300)
$ 944,025

The borrowings of the Group were as follows:

Maturity Date
Floating rate borrowings
Secured bank borrowing denominated in NT$ 2016.10.13
Secured bank borrowing denominated in NT$ 2019.08.01
Unsecured bank borrowing denominated in NT$ 2019.09.01
Secured bank borrowing denominated in NT$ 2020.04.20
Unsecured bank borrowing denominated in NT$ 2017.01.01		 December 31
2015
2014
$ -
$ 150,000
187,500
200,000
234,375
250,000
500,000
-
-
200,000
(Continued)

127

December 31
Maturity Date
2015
2014
Unsecured bank borrowing denominated in NT$ 2015.09.06
$ -
$ 150,000
Unsecured bank borrowing denominated in NT$ 2015.11.06
-
200,000
Unsecured bank borrowing denominated in NT$ 2017.12.15
50,000
-
Unsecured bank borrowing denominated in NT$ 2017.09.09
200,000
-
Unsecured bank borrowing denominated in NT$ 2017.09.10
200,000
-
Unsecured bank borrowing denominated in US$ 2016.02.27
65,650
63,300
Unsecured bank borrowing denominated in US$ 2016.02.27
32,825
31,650
Unsecured bank borrowing denominated in US$ 2016.05.28
82,064
79,125
Unsecured bank borrowing denominated in US$ 2016.03.04
65,650
63,300
Unsecured bank borrowing denominated in US$ 2016.02.01
98,475
94,950
Less: Current portion

(550,914)

(538,300)
$ 1,165,625
$ 944,025
(Concluded)
The range of effective interest rate of Group’s was as follow:
2015
2014
Effective interest rate
Floating rate
1.00%-1.782% 1.15%-1.782%		 December 31

21. BONDS PAYABLE

Unsecured domestic convertible bonds
Less: Current portion		 December 31 December 31


2015
$ 798,941

(798,941)

$ -
 2014
$ 782,139

-
$ 782,139

On January 25, 2013, the Corporation issued forth unsecured domestic convertible bonds with an aggregate value of $800,000 thousand to pay off borrowings and purchase equipment.

Other details of the bond issuance are summarized as follows:

  • a. Issue date: January 25, 2014.

  • b. Total issue amount: $800,000 thousand.

  • c. Issue price: 100%.

  • d. Par value: $100 thousand.

  • e. Coupon rate: 0%.

  • f. Repayment term: The bonds are repayable on January 25, 2016 upon the maturity of the bonds.

  • g. Conversion right: Holder can request for conversion of the bonds to the Corporation’s common stock.

  • h. Conversion period: From February 26, 2013 to January 15, 2016.

128

  • i. Conversion price: The original conversion price per share is $40.9. The conversion price is subject to adjustment based on a certain formula if there are changes in outstanding shares or execution of conversion below market price.

  • j. Redemption of bonds

  • 1) Redemption on the maturity date: On the maturity date, the Corporation will redeem the bonds of the principal amounts.

  • 2) Early redemption on the maturity date:

    • a) During the period of time between one month after issuance and the 40th day before maturity, if the closing price of the Corporation’s shares reaches 30% of the conversion price for 30 consecutive trading days, the Corporation may redeem the remaining bonds at a price of their book value.

    • b) During the period of time between one month after issuance and the 40th day before maturity, when over 90% of the bonds had been redeemed, bought back or converted, the Corporation may redeem the remaining bonds at a price of their book value.

  • k. Converted bond: As of December 31, 2015, there is no bonds had been converted into common stocks.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus - option. The effective interest rate of the liability component was 1.5% per annum on initial recognition.

Proceeds from issue

Liability component at the date of issue
Embedded derivatives (less transaction costs allocated to the financial liabilities of
$2 thousand)
Equity component (less transaction costs allocated to the equity component of $288
thousand)
Bonds converted into common stock
Interest expenses calculated by effective interest rate

Liability component at December 31, 2015
 $ 800,000
(5,001)
318
(45,632)
-
49,256
$ 798,941

Movements of the conversion option derivative instrument in the current period were as follows:

The Conversion
Option
Derivative
Instrument
Issued date $ 318
Fair value changes loss
(318)
Balance at December 31, 2015 $ -

129

22. NOTES PAYABLE AND TRADE PAYABLES

Trade payables
Trade payables - operating		 December 31 December 31
2015
$ 1,110,954
 2014
$ 1,068,131

The average credit period on purchases of certain goods was 2-3 months. The Group has financial risk management policies in place to ensure that all payables are paid within the pre-agreed credit terms.

23. OTHER LIABILITIES

Current
Other payables
Bonus to employees, directors and supervisors
Commission
Salaries
Bonus
Payables for annual leave
Others
Other liabilities
Construction receipt payable
Receipts under custody
Others
Non-current
Refundable deposit		 December 31 December 31






2015
$ 121,443

67,001
82,217
212,224
25,803
115,364

$ 624,052

$ 11,460

4,495

25,627

$ 41,582

$ 55,268
 2014
$ 125,391
69,758
79,673
209,856
23,367

98,876
$ 606,921
$ 9,390
4,768

48,291
$ 62,449
$ 30,866

24. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The plan under the Labor Pension Act (the “Act”) is deemed a defined contribution plan. Taiwan Crystal Technology International Limited has made monthly contributions equal to 6% of each employee’s monthly salary to employees’ pension accounts.

Furthermore, TXC (Ninbo) Corporation and TXC (Chongqing) Corporation also make monthly contributions at certain percentages of the basic salary of their employees.

130

b. Defined benefit plans

Taiwan Crystal Technology International Limited has defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 4% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

The amounts arising from the defined benefit obligation of the Company in the consolidated balance sheets were as follows:

Present value of defined benefit obligation
Fair value of plan assets
Net defined benefit liability		 December 31 December 31


2015
$ 120,520


(73,913)

$ 46,607
 2014
$ 106,029

(66,138)
$ 39,891

Movements in net defined benefit liability (asset) were as follows:

Present Value Present Value
of the Defined Net Defined
Benefit Fair Value of Benefit
Obligation the Plan Assets
Liability (Asset)
Balance at January 1, 2014 $
94,533		 $ (60,370)
 $
34,163
Service cost
Current service cost 2,226 - 2,226
Past service cost and loss (gain) on
settlements 1,844 - 1,844
Net interest expense (income) 1,515
(1,156)
 359
Recognized in profit or loss 5,585
(1,156)
 4,429
Remeasurement
Return on plan assets (excluding amounts
included in net interest) - (221) (221)
Actuarial (gain) loss - changes in
demographic assumptions 535 - 535
Actuarial (gain) loss - changes in financial
assumptions 1,189 - 1,189
Actuarial (gain) loss - experience
adjustments 12,323
-
 12,323
Recognized in other comprehensive income 14,047
(221)
 13,826
Contributions from the employer - (12,527) (12,527)
Benefits paid (8,136)
8,136
 -
Balance at December 31, 2014 106,029
(66,138)
 39,891
Service cost
Current service cost 1,875 - 1,875
Past service cost and loss (gain) on
settlements 790 - 790
Net interest expense (income) 1,722
(1,200)
 522
Recognized in profit or loss 4,387
(1,200)
 3,187
(Continued)

131

Present Value Present Value
of the Defined Net Defined
Benefit Fair Value of Benefit
Obligation the Plan Assets
Liability (Asset)
Remeasurement
Return on plan assets (excluding amounts
included in net interest) $
-		 $ (548)
 $
(548)
Actuarial (gain) loss - changes in
demographic assumptions 5,735 - 5,735
Actuarial (gain) loss - changes in financial
assumptions 2,572 - 2,572
Actuarial (gain) loss - experience
adjustments 11,090 -
 11,090
Recognized in other comprehensive income 19,397 (548)
 18,849
Contributions from the employer - (15,320) (15,320)
Benefits paid (9,293) 9,293
 -
Balance at December 31, 2015 $ 120,520 $ (73,913)
 $
46,607
(Concluded)

The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

Cost of goods sold
Marketing expenses
General and administrative expenses
Research and development expenses		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ 1,564
401
576
646
$ 3,187		 2014
$ 2,152
603
772

902
$ 4,429

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

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

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

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

132

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

Discount rate(s)
Expected rate(s) of salary increase		 December 31
2015
2014
1.375%
1.625%
2.00%
2.00%

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

December 31, December 31,
2015
Discount rate(s)
0.25% increase $ (2,786)
0.25% decrease $
2,888
Expected rate(s) of salary increase
0.25% increase $
2,782
0.25% decrease $ (2,699)

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

The expected contributions to the plan for the next year
The average duration of the defined benefit obligation		 December 31
2015
$ 15,320

5 years		 2014
$ 12,527
5 years

25. EQUITY

  • a. Capital stock

Ordinary shares

Numbers of shares authorized (in thousands)
Shares authorized
Number of shares issued and fully paid (in thousands)
Shares issued		 December 31 December 31



2015

500,000

$ 5,000,000


309,757

$ 3,097,570
 2014

500,000
$ 5,000,000

309,757
$ 3,097,570

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

50,000 thousand shares and 30,000 thousand shares of the Company’s shares authorized were reserved for the issuance of convertible bonds and employee share options.

133

b. Capital surplus

May be used to offset a deficit, distributed as cash dividends, or
transferred to share capital*
Arising from issuance of common shares
Arising from conversion of bonds
Arising from treasury share transactions
May not be used for any purpose
Arising from share warrants		 December 31 December 31


2015
$ 611,776

977,028
27,745

45,632

$ 1,662,181
 2014
$ 611,776
977,028
27,745

45,632
$ 1,662,181

The carrying amount at the beginning and at the end of year ended 2015 was no change for each class of capital surplus.

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

  • c. Retained earnings and dividend policy

Appropriation of earnings and dividend policy

Under the Corporation’s Articles of Incorporation, the Corporation should appropriate 10% of its net income less any prior years’ deficit as legal reserve. The remaining amount may be fully retained or partially retained and partially distributed for dividends, upon the stockholders’ approval, according to the following percentages.

  • 1) Employee bonus - not less than 3%.

  • 2) Directors and supervisors’ remuneration - not more than 2%.

  • 3) Stock bonuses to employees include subsidiaries’ employees who meet certain criteria set by the stockholders’ meetings.

Dividends are recommended by the board of directors in accordance with the Corporation’s dividend policy. Under this policy, industry trend and growth should be evaluated, investment opportunities should be fully understood, and proper capital adequacy ratios should be considered in determining the dividend to be distributed. In addition, cash dividends should not be less than 20% of the total dividends to be appropriated.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The consequential amendments to the Company’s Articles of Incorporation had been proposed by the Company’s board of directors on March 14, 2016 and are subject to the resolution of the shareholders in their meeting to be held on June 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and supervisors and the actual appropriations, please refer to f. employee benefits expense in Note 26.

134

Under Rule No. 1010012865, Rule No. 1010047490 and Rule No. 1030006415 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”, the Company should appropriate or reverse to a special reserve.

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

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

The appropriations of earnings for 2014 and 2013 had been approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014, respectively. The appropriations and dividends per share were as follows:

Legal reserve
Cash dividends		 Appropriation of Earnings Dividends Per Share
(NT$)
For Fiscal
For Fiscal
Year 2014
Year 2013
$ 99,517
$ 93,516

774,393
681,465		 For Fiscal
For Fiscal
Year 2014
Year 2013
$ -
$ -
2.5
2.2

The appropriations of earnings for 2015 are subject to the resolution of the shareholders’ meeting to be held on June 2016.

  • d. Treasury stock
According to According to
Purpose of Treasury Stock the Raw
Year ended January 1, 2015 $ -
Addition 20 thousand shares 20
Sold 20 thousand shares (20)
Year ended September 30, 2015 $ -

The Company decided to pass through the split case of TXC Optec Corporation on June 16, 2015 at shareholders meeting Note 14. According to Business Mergers and Acquisition Act Article 12, shareholders can request the Company buyback treasury stock in accordance with the fair value. The Company bought back treasury stock totaling 20 thousand shares, and the total value of shares bought back was $806 thousand. Also the Company sold full treasury stock, and the sale price was $721 thousand. And write-down retained earnings 85 thousand dollars.

135

26. NET PROFIT (LOSS) FROM CONTINUING OPERATIONS

Net profit (loss) from continuing operations had been arrived at after charging (crediting):

a. Other income

Interest income
Income from government grants
Dividends income
Others		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ 33,527
6,566
1,118

38,026

$ 79,237
 2014
$ 21,850
21,611
1,118

50,854
$ 95,433
  • b. Other gains and losses
(Loss)/gain on disposal of property, plant and equipment
Gain on disposal of investment
Net gain/(loss) arising on financial assets designated as at
FVTPL
Foreign exchange gains
Gain on disposal of investments accounted for using equity
method
Impairment loss on financial assets
Property, plant and equipment impairment loss
Other expense		 For the Year Ended For the Year Ended December 31


2015
$ (12,245)

3,286
52,314
119,403
1,628
(10,210)
(440)
(20,189)

$ 133,547
 2014
$ 3,611
(27,324)
37,489
130,434
6,621
(47,569)
(10,219)
(19,058)
$ 73,985

c. Impairment loss on financial assets

Available-for-sale financial assets For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ (10,210)
 2014
$ (47,569)

d. Finance costs

Interest on bank loans
Interest on convertible bonds		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ (26,522)
(16,802)

$ (43,324)
 2014
$ (30,187)
(16,802)
$ (46,989)

136

e. Depreciation and amortization

Property, plant and equipment
Investment property
Others
An analysis of deprecation by function
Operating costs
Operating expenses
An analysis of amortization by function
Operating costs
Operating expenses
Employee benefits expense
Post-employment benefits (see Note 23)
Defined contribution plans
Defined benefit plans
Other employee benefits
Payroll expense
Labor and health insurance
Others
An analysis of employee benefits expense by function
Operating costs
Operating expenses		 For the Year Ended For the Year Ended For the Year Ended December 31
2015
$ 974,009

3,467

18,684

$ 996,160

$ 841,208


136,268

$ 977,476

$ 9,124


9,560

$ 18,684

For the Year Ended		 2014
$ 923,310
3,225

21,874
$ 948,409
$ 804,359

122,176
$ 926,535
$ 11,247

10,627
$ 21,874
December 31








2015
$ 68,469

3,187


71,656

1,357,648
85,348

26,693


1,469,689

$ 1,541,345

$ 906,275

635,070

$ 1,541,345
 2014
$ 54,013

4,429

58,442
1,326,546
80,901

23,536

1,430,983
$ 1,489,425
$ 852,445

636,980
$ 1,489,425

f. Employee benefits expense

The existing Articles of Incorporation of the Company stipulate to distribute bonus to employees and remuneration to directors and supervisors at the rates no less than 3% and no higher than 2%, respectively, of net income (net of the bonus and remuneration). For the year ended December 31, 2014, the bonus to employees and the remuneration to directors and supervisors were $107,478 thousand and $17,913 thousand, respectively, representing 12% and 2%, respectively, of the base net income.

137

To be in compliance with the Company Act as amended in May 2015, the proposed amended Articles of Incorporation of the Company stipulate to distribute employees’ compensation and remuneration to directors and supervisors at the rates no less than 3% and no higher than 2%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors and supervisors. For the year ended December 31, 2015, the employees’ compensation and the remuneration to directors and supervisors were $104,094 thousand and $17,349 thousand, respectively, representing 9% and 1.5%, respectively, of the base net profit. The employees’ compensation and remuneration to directors and supervisors in cash for the year ended December 31, 2015 have been approved by the Company’s board of directors on March 14, 2016 and are subject to the resolution of the amendments to the Company’s Articles of Incorporation for adoption by the shareholders in their meeting to be held on June 7, 2016, and in addition thereto a report of such distribution shall be submitted to the shareholders' meeting.

Material differences between such estimated amounts and the amounts proposed by the board of directors on or before the date the annual consolidated financial statements are authorized for issue are adjusted in the year the bonus and remuneration were recognized. If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate.

The bonus to employees and the remuneration to directors and supervisors for 2014 and 2013 approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014, respectively, were as follows:

Employee bonus

Directors and supervisors’
remuneration		 For Fiscal Year 2014
Cash Bonus
Share Bonus
$ 107,478
$ -
17,913
-		 For Fiscal Year 2013
Cash Bonus
Share Bonus
$ 100,998
$ -
16,833
-

There was no difference between the amounts of the bonus to employees and the remuneration to directors and supervisors approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014 and the amounts recognized in the financial statements for the years ended December 31, 2014 and 2013, respectively.

Information on the employees’ compensation and remuneration to directors and supervisors resolved by the Company’s board of directors in 2016 and bonus to employees, directors and supervisors resolved by the shareholders' meeting in 2015 and 2014 are available on the Market Observation Post System website of the Taiwan Stock Exchange.

27. INCOME TAXES RELATING TO CONTINUING

  • a. Income tax recognized in profit or loss

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

Current tax
In respect of the current period
Income tax of unappropriated earnings
Adjustments for prior year
Deferred tax
In respect of the current period
Income tax expense recognized in profit or loss		 For the Year Ended For the Year Ended December 31




2015
$ 136,707

10,979

8,913


156,599


(7,192)

$ 149,407
 2014
$ 118,007
16,018

5,743

139,768

10,813
$ 150,581

138

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

Profit before tax from continuing operations
Income tax expense at the 17% statutory rate
Tax effect of adjusting items:
Undetectable expenses and losses
Unrecognized temporary differences
Tax-exempt income
Tax-exempt income for five years
Additional income tax on unappropriated earnings
Unrecognized temporary differences
Unrecognized investment tax credit
Subsidiaries to repatriate earnings withholding tax
Additional income tax under the Alternative Minimum Tax
Act
Effect of different tax rate of group entities operating in other
jurisdictions
Investment tax credits
Adjustment for prior years’ tax
Income tax expense recognized in profit or loss		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31



2015
$ 1,087,610

$ 184,894

2,690
(2,540)
(16,478)
10,979
508
-
-
5,287
(13,687)
(31,159)

8,913

$ 149,407
 2014
$ 1,145,755
$ 194,778
17,984

(4,595)

(37,648)
16,018
5,229
(3,671)
10,812
-

(14,601)

(39,468)

5,743
$ 150,581

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 15%-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 2016 appropriations of earnings is uncertain, the potential income tax consequences of 2015 unappropriated earnings are not reliably determinable.

b. Income tax expense recognized in other comprehensive income

Deferred income tax expense (benefit)
Related to actuarial gain/loss from defined benefit plans
c. Current income tax liabilities		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ (3,204)
 2014
$ (2,350)
Current income tax liabilities
Income tax payable		 December 31
2015
$ 57,983
 2014
$ 73,576

139

d. Deferred income tax balance

The analysis of deferred income tax in the consolidated balance sheets was as follows:

For the year ended December 31, 2015

Balance,
Beginning of
Year
Deferred tax assets
Unrealized loss on inventories
$ 8,600
Financial assets at fair value
through profit or loss
2,123
Payable for annual leave
3,828
Determine benefit obligation
8,790
Property, plant and equipment
2,079
Allowance for doubtful accounts
432
Others

3,637
$ 29,489
Deferred tax liabilities
Unrealized exchange gain
$ 14,540
Associates

124,436
$ 138,976
For the year ended December 31, 2014		 Recognized in
Profit or Loss
Other Com-
prehensive
Income
Effect of
Exchange Rate
Changes
Balance, End
of Year
$ (929)
$ -
$ (178)
$ 7,493
(1,968)
-
-
155
414
-
(214)
4,028
(2,062)
3,204
-
9,932
66
-
(48)
2,097
116
-
(11)
537

1,694

-

(3,855)

1,476
$ (2,669)
$ 3,204
$ (4,306)
$ 25,718
$ (9,861)
$ -
$ -
$ 4,679

-

-

-

124,436
$ (9,861)
$ -
$ -
$ 129,115
Balance,
Beginning of
Year
Deferred tax assets
Unrealized loss on inventories
$ 7,084
Financial assets at fair value
through profit or loss
2,946
Payable for annual leave
3,437
Determine benefit obligation
7,817
Property, plant and equipment
2,853
Investment tax credits
3,980
Allowance for doubtful accounts
602
Others

324
$ 29,043
Deferred tax liabilities
Unrealized exchange gain
$ 6,104
Associates

124,436
$ 130,540		 Recognized in
Profit or Loss
Other Com-
prehensive
Income
Effect of
Exchange Rate
Changes
Balance, End
of Year
$ 1,409
$ -
$ 107
$ 8,600
(823)
-
-
2,123
334
-
57
3,828
(1,377)
2,350
-
8,790
(898)
-
124
2,079
(3,980)
-
-
-
(196)
-
26
432

3,154

-

159

3,637
$ (2,377)
$ 2,350
$ 473
$ 29,489
$ 8,436
$ -
$ -
$ 14,540

-

-

-

124,436
$ 8,436
$ -
$ -
$ 138,976

140

  • e. Unused investment tax credits, operating loss carryforward and tax-exemption information

As of December 31, 2015, profits attributable to the following expansion projects were exempted from income tax for a four- or five-year period:

Expansion of Construction Project
2009
Integrated income tax
Unappropriated earnings
Unappropriated earnings generated before January 1, 1998
Unappropriated earnings generated on and after January 1,
1998
Imputation credits accounts		 Tax-exemption Period Tax-exemption Period Tax-exemption Period
2014 to 2018
December 31



2015
$ -


2,659,935

$ 2,659,935

$ 187,979
 2014
$ -

2,611,372
$ 2,611,372
$ 117,593
  • f. Integrated income tax

The creditable ratio for distribution of earnings of 2015 and 2014 was 8.23% (expected) and 7.16%, respectively.

  • g. Income tax assessments

The tax returns had been assessed by the tax authorities before 2009 and in 2011, respectively.

28. EARNINGS PER SHARE

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

Net Profit for the Year

Profit for the period attributable to owners of the Company
Effect of dilutive potential ordinary shares:
Convertible bonds
Employee share option
Earnings used in the computation of diluted earnings per share		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
$ 938,203

13,946

-

$ 952,149
 2014
$ 995,174
13,946

-
$ 1,009,120

141

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

Weighted average number of ordinary shares in computation of basic
earnings per share
Effect of dilutive potential ordinary shares:
Convertible bonds
Bonus issue to employee or employees’ compensation
Weighted average number of ordinary shares used in the
computation of diluted earnings per share		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
309,748

19,560

4,111

333,419
 2014
309,757
18,059

3,787
331,603

If the Group was able to settle the bonuses or compensation paid to employees by cash or shares, the Group presumed that the entire amount of the bonus or compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, if the shares had a dilutive effect. Such dilutive effect of the potential shares was included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

29. OPERATING LEASE ARRANGEMENTS

a. The Group as lessee

Operating leases relate to leases of warehouse in trade zone with lease terms 3 years. All operating lease contracts contain clauses for 3-yearly market rental reviews. The Group does not have a bargain purchase option to acquire the leased land at the expiry of the lease periods.

As of December 31, 2015 and 2014, refundable deposits paid under operating lease respectively in $841 thousand and $727 thousand

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

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years		 December 31


2015
$ 1,455

-

-

$ 1,455
 2014
$ 2,909
1,455

-
$ 4,364

b. The Group as lessor

Operating leases relate to the investment property owned by the Group with lease terms between 1 to 2 years. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period.

142

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

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years		 December 31


2015
$ 8,462
3,149

-

$ 11,611
 2014
$ 4,623
-

-
$ 4,623

30. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of the Group consists of net debt (borrowings offset by cash and cash equivalents) and equity attributable to owners of the Company (comprising issued capital, reserves, retained earnings and other equity).

The Group is not subject to any externally imposed capital requirements.

31. FINANCIAL INSTRUMENTS

  • a. Fair value of financial instruments

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

Except as detailed in the following table, management believes the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

  • 2) Fair value of financial instruments that are measured at fair value on a recurring basis

  • a) Fair value hierarchy

December 31, 2015
Financial assets at FVTPL
Mutual funds

Structured deposits
Forward exchange
contracts


Available-for-sale financial
assets
Securities unlisted in ROC
Equity securities

Foreign securities
 Level 1
$ 633,414

-

-

$ 633,414

$ -


1,836,676
 Level 2
$ -

489,017

249

$ 489,266

$ -


-
 Level 3
$ -
-

-

$ -

$ 34,300

-
 Total
$ 633,414
489,017

249
$ 1,122,680

$ 34,300

1,836,676

143


Financial liabilities at
FVTPL
Forward exchange
contracts

December 31, 2014
Financial assets at FVTPL
Mutual funds

Structured deposits


Available-for-sale financial
assets
Securities unlisted in ROC
Equity securities

Mutual funds


Financial liabilities at
FVTPL
Forward exchange
contracts
 $ 1,836,676

$ -

Level 1
$ 833,586


-

$ 833,586

$ -


20,800

$ 20,800

$ -
 $ -

$ 4,978

Level 2
$ -


315,418

$ 315,418

$ -


-

$ -

$ 15,352
 $ 34,300

$ -

Level 3
$ -

-

$ -

$ 44,510

-

$ 44,510

$ -
 $ 1,870,976

$ 4,978
Total
$ 833,586

315,418
$ 1,149,004

$ 44,510

20,800
$ 65,310
$ 15,352

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

b) Reconciliation of Level 3 fair value measurements of financial assets

For the year ended December 31, 2015

Financial assets
Balance at January 1, 2015
Recognized in profit or loss (included in other gains and losses)
Balance at December 31, 2015		 Available-for-
sale Financial
Assets
Equity
Instruments
$ 44,510
(10,210)
$ 34,300

144

For the year ended December 31, 2014


Balance at January 1, 2014
Net translation differences
Balance at December 31, 2014		 Available-for-
sale Financial
Assets
Unlisted Shares
$ 44,510

-
$ 44,510
  • c) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement
Financial Instruments
Derivatives - foreign
currency forward
contracts
Structured deposits		 Valuation Techniques and Inputs
Discounted cash flow.
Future cash flows are estimated based on observable forward
exchange rates at the end of the reporting period and contract
forward rates, discounted at a rate that reflects the credit risk
of various counterparties.
Book value method. Such goods due date is very near, its book
value should belong to estimate fair value
  • d) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value measurement

The fair values of unlisted equity securities - ROC were determined using income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The significant unobservable inputs used are listed on the table below. An increase in long-term revenue growth rates or long-term pre-tax operating margin or a decrease in WACC or discount for lack of marketability used in isolation would result in increase in fair value.

December 31,
2015
Long-term revenue growth rates 11.73%
Long-term pre-tax operating margin 7.10%
WACC 13.12%
Discount for lack of marketability 30.58%
  • b. Categories of financial instruments
Financial assets
Fair value through profit or loss (FVTPL) (1)
Loans and receivables (2)		 December 31
2015
2014
$ 1,122,680
$ 1,149,004
5,788,019
4,861,651
(Continued)

145

Held-to-maturity investments (3)
Available-for-sale financial assets (4)
Financial liabilities
Fair value through profit or loss (FVTPL) (1)
Amortized cost (5)		 December 31
2015
2014
$ 98,120
$ 47,840
1,986,496
177,308
4,978
15,352
4,505,636
4,366,561
(Concluded)

  • 1) The balances included the carrying amount of structured deposits, forward exchange contracts, bond investment and convertible bonds - redemption.

  • 2) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes receivables, trade and other receivables, other financial assets, and refundable deposits.

  • 3) The balances included the carrying amount of financial bond investment.

  • 4) The balances included the carrying amount of available-for-sale shares and mutual funds.

  • 5) The balances included financial liabilities measured at amortized cost, which comprise short-term and long-term loans, notes, payable, accounts and other payables, and bonds issued.

  • c. Financial risk management objectives and policies

The Group’s major financial instruments included equity and debt investments, bonds payable, borrowings. 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 (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

The Group sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Group’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis. The Group did not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.

The corporate treasury function reported quarterly to the Group’s risk management committee, an independent body that monitors risks and policies implemented to mitigate risk exposures.

146

1) Market risk

The Group’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Group entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including:

  • a) Foreign currency risk

Several subsidiaries of the Company had foreign currency sales and purchases, which exposed the Group to foreign currency risk.

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 (see Note 36).

Sensitivity analysis

The Group was mainly exposed to the USD and JPY.

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. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. The sensitivity analysis included external loans/borrowings as well as loans/borrowings to foreign operations within the Group where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number below indicates an increase in pre-tax/post-tax profit and other equity associated with New Taiwan dollars strengthen 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 post-tax profit and other equity and the balances below would be negative.

Profit or loss
 USD Impact
For the Year Ended
December 31
2015
2014
$ 18,906
$ 14,518		 JPY Impact
For the Year Ended
December 31
2015
2014
$ (2,813)
$ (1,555)

  • i. This was mainly attributable to the exposure outstanding on USD receivables and payables, which were not hedged at the end of the reporting period.

  • ii. This was mainly attributable to the exposure to outstanding JPY payables, which were not hedged, at the end of the reporting period.

  • b) Interest rate risk

The Group was exposed to interest rate risk because the Group’s bank deposits and the Group borrowed funds at floating interest rates.

147

The carrying amount 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 assets
Financial liabilities
Cash flow interest rate risk
Financial assets
Financial liabilities		 December 31
2015
2014
$ 464,329
$ 472,410
-
782,139
2,290,647
1,345,005
2,767,763
1,907,910

Sensitivity analysis

The sensitivity analyses below were determined based on the Group’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 0.25% basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 0.25% basis points higher/lower and all other variables were held constant, the Group’s pre-tax profit for the year ended December 31, 2015 would decrease/increase by $1,193 and $1,407 thousand, which was mainly attributable to the Group’s exposure to interest rates on its floating rate bank deposits and bank borrowings.

c) Other price risk

The Group was exposed to equity price risk through its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. The Group’s equity price risk was mainly concentrated on equity instruments operating in Shenzhen stock exchange, growth enterprise.

Sensitivity analysis

The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 1% higher/lower, other comprehensive income for the years ended December 31, 2015 would increase/decrease by $18,367, respectively.

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 which will cause a financial loss to the Group due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Group is arising from:

The carrying amount of the respective recognized financial assets as stated in the balance sheets.

148

3) Liquidity risk

The Group manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Group’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The Group relies on bank borrowings as a significant source of liability. As of December 31, 2015 and 2014, the Group had available unutilized overdraft and short-term bank loan facilities of approximately $5,420,615 thousand and $4,211,847 thousand, respectively.

 Liquidity and interest risk rate tables

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

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

December 31, 2015

Weighted
Interest
Average
Effective Rate Less Than
(%) 1 Year 2-3 Years 4-5 Years 5+ Years Total
Non-derivative financial
liabilities
Accounts payable - $ 1,112,457 $
-
 $
-
 $ - $ 1,112,457
Other payables - 625,416 - - - 625,416
Other current liabilities - 41,582 - - - 41,582
Bonds payable - 798,941 - - - 798,941
Variable interest rate
(liabilities) 0.9-2.56 1,602,138 978,125 187,500 - 2,767,763
Guarantee deposits received - - 55,268 - - 55,268
December 31, 2014
Weighted
Interest
Average
Effective Rate Less Than
(%) 1 Year 2-3 Years 4-5 Years 5+ Years Total
Non-derivative financial
liabilities
Accounts payable - $ 1,068,452 $
-
 $
-
 $ - $ 1,068,452
Other payables - 608,060 - - - 608,060
Other current liabilities - 62,449 - - - 62,449
Bonds payable - 782,139 - - - 782,139
Variable interest rate
(liabilities) 0.96-2.22 963,885 494,025 450,000 - 1,907,910
Guarantee deposits received - - 30,866 - - 30,866

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

149

The following table detailed the Group’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

December 31, 2015

On Demand
or Less Than
1 Month
1-3 Months
3 Months to
1 Year
Net settled
Foreign exchange forward
contracts
$ (867)
$ (3,825)
$ (286)

December 31, 2014
On Demand
or Less Than
1 Month
1-3 Months
3 Months to
1 Year
Net settled
Foreign exchange forward
contracts
$ (10,081)
$ (4,978)
$ (293)
 1-5 Years
$
1-5 Years
$		 5+ Years
$
5+ Years
$

d. Reclassifications

On May 15, 2015, the Group reclassified its financial assets and the fair values at the reclassification date were as follows:

Before After
Reclassifications
Reclassifications
Financial assets at fair value through profit or loss - held for
trading $ 458,729 $ -
Available-for-sale financial assets - 458,729
$ 458,729 $ 458,729

Since the investment in Guandong Failong Crystal Technology Co., Ltd. has market price after it became listed in the Shenzhen Stock Exchange on May 15, 2015, it is most appropriate to reclassify if as available-for-sale investment.

The carrying amounts and fair values of the reclassified financial assets (excluding those that had been derecognized) were as follows:

Available-for-sale financial
assets
 December 31 December 31 December 31 December 31
2015
Carrying
Amount
Fair Value
$ 1,836,676
$ 1,836,676		 2014
Carrying
Amount
$ 1,836,676
 Carrying
Amount
$ 46,478
 Fair Value
$ 46,478

150

32. RELATED-PARTY TRANSACTIONS

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

Trading Transactions

Sales of goods
Others
Purchase of goods
Associates
Others
Operating expenses
Associates
Commission revenue
Associates
Rental Revenue		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
2014
$ 21,587
$ 43,216
$ 840
$ 173

58

3
$ 898
$ 176
For the Year Ended December 31

2015

$ 632

$ 1,524
 2014
$ 596
$ 1,174
Related
Party
Location
Rent Collection
Associates
1F., No. 189, Huangshan W.
Rd., Beilun Dist., Ningbo
City
Based on contract, and
paid on a monthly
basis		 For the Year Ended For the Year Ended December 31
2015
Amount
% to
Total
Account
Balance
$ 3,657

-
 2014

Amount
% to
Total
Account
Balance
$ 3,557

-

Selling prices to related parties were similar to those for third parties.

151

Receivable from and Payable to Related Parties

Accounts receivable from related parties
Associates
Less: Allowance for impairment loss
Account payable to related parties
Associates
Others
Other receivables from related parties
Associates
Other payable to related parties
Associates
Acquisition of Property, Plant and Equipment
Associates
Others		 December 31







2015
2014
$ 4,940
$ 6,912

(30)

(42)
$ 4,910
$ 6,870
$ 959
$ -

544

321
$ 1,503
$ 321
$ 646
$ 628
$ 1,364
$ 1,139
Acquisition Amounts
For the Year Ended December 31


2015
$ -


1,486

$ 1,486
 2014
$ 53

323
$ 376

Compensation of Key Management Personnel

The remuneration of directors and other members of key management personnel for the years ended December 31, 2015 and 2014 were as follows:

Short-term benefits
Post-employment benefits		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31

2015
$ 78,697

2,596

$ 81,293
 2014
$ 82,472

1,734
$ 84,206

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

152

33. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings, the tariff of imported raw materials guarantees or the deposit for hiring foreign workers:

Land
Building equipment, net
Investment property
Prepaid rental		 December 31 December 31


2015
$ 573,770

1,056,956
26,500
15,269

$ 1,672,495
 2014
$ 573,770
1,340,872
28,897

16,169
$ 1,959,708

34. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Group as of December 31, 2015 and 2014 were as follows:

Unused letters of credit amounted to approximately JPY144,551 thousand and JPY343,688 thousand as of December 31, 2015 and 2014.

As of December 31, 2015, the Company unrecognized commitments are as follows:

Acquisition of equipment

Acquisition of equipment

Acquisition of equipment

Acquisition of equipment
 Contract
Amount
Paid Amount Unpaid Amount
$ 74,982
$ 55,713
$ 19,269
US$ 177
US$ -
US$ 177
RMB 3,178
RMB
-
RMB 3,178
JPY 17,000
JPY
-
JPY 17,000

For the year ended December 31, 2015, the Company sold overseas unlisted common shares of Sitime to unrelated party amounted to $20,551 thousand and had already received $7,917 thousand, while the remaining payment of $12,634 thousand have to fulfill specific conditions to be collected. The Company will recognize the remaining balance once the conditions be fulfilled and the value can be reliably measured.

35. SIGNIFICANT EVENTS AFTER REPORTING PERIOD: NONE

153

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

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

December 31, 2015

Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
103,850		 32.825 (USD:NTD) $ 3,408,876
USD 26,282 6.4936 (USD:RMB)
862,707
JPY 289,288 0.2727 (JPY:NTD)
78,889
Financial liabilities
Monetary items
USD 46,802 32.825 (USD:NTD)
1,536,276
USD 25,733 6.4936 (USD:RMB)
844,686
JPY 956,855 0.2727 (JPY:NTD)
260,934
JPY 363,866 0.0539 (JPY:RMB)
99,226
December 31, 2014
Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
101,241		 31.65 (USD:NTD) $ 3,204,278
USD 27,111 6.119 (USD:RMB)
858,063
JPY 286,404 0.2646 (JPY:NTD)
75,782
Financial liabilities
Monetary items
USD 52,924 31.65 (USD:NTD)
1,675,045
USD 29,556 6.119 (USD:RMB)
935,447
JPY 763,009 0.2646 (JPY:NTD)
201,892
JPY 110,966 0.0512 (JPY:RMB)
29,362

For the years ended December 31, 2015 and 2014, unrealized net foreign exchange gains were $119,403 thousand and $130,434 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

154

37. SEPARATELY DISCLOSED ITEMS

  • a. Information on significant transactions and information on investees:

  • 1) Lending funds to others. (None)

  • 2) Providing endorsements or guarantees for others. (None)

  • 3) Holding of securities at the end of the period. (Table 1)

  • 4) Aggregate purchases or sales of the same securities reaching NT$300 million or 20 percent of paid-in capital or more. (Table 2)

  • 5) Acquisition of real estate reaching NT$300 million or 20 percent of paid-in capital or more. (None)

  • 6) Disposal of real estate reaching NT$300 million or 20 percent of paid-in capital or more. (None)

  • 7) Purchases or sales of goods from or to related parties reaching NT$100 million or 20 percent of paid-in capital or more. (Table 3)

  • 8) Trade receivables from related parties reaching NT$100 million or 20 percent of paid-in capital or more. (Table 4)

  • 9) Trading in derivative instruments. (Note 7)

  • 10) Others: The business relationship between the parent and the subsidiaries and between each subsidiary, and the circumstances and amounts of any significant transactions between them. (Table 8)

  • 11) Information on investees. (Table 5)

  • b. Information on investments in mainland China

  • 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, shareholding ratio, investment gain or loss, carrying amount of the investment at the end of the period, repatriated investment gains, and limit on the amount of investment in the mainland China area. (Table 6)

  • 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third area, and their prices, payment terms, and unrealized gains or losses. (Table 7)

    • a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period.

    • b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period.

    • c) The amount of property transactions and the amount of the resultant gains or losses.

    • d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes.

155

  • e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds.

  • f) Other transactions that have a material effect on the profit or loss for the period or on the financial position, such as the rendering or receiving of services.

38. SEGMENT INFORMATION

Information reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance focuses on the types of goods or services delivered or provided. Specifically, the Group’s reportable segments under IFRS 8 “Operating Segments” were as follows:

Crystal Optec

  • a. Segment revenues and results
Crystal

Optec


Investment income share of
profits of associates
accounted for using the
equity method
Interest income
(Loss) gain on disposal of
property, plant and
equipment
Exchange gain
Valuation gain on financial
instruments
Financial costs
Others
Profit before tax (continuing
operations)		 Segment Revenue
For the Year Ended
December 31
2015
2014
$ 8,804,022
$ 9,177,265
461,634

348,978
$ 9,265,656
$ 9,526,243		 Segment Profit Segment Profit
For the Year Ended
December 31


2015
$ 8,804,022

461,634

$ 9,265,656


2015
$ 886,856

21,479

908,335
9,815
33,527
(12,245)
119,403
52,314
(43,324)

19,785

$ 1,087,610
 2014
$ 1,002,769

1,253

1,004,022

19,304

21,850

3,611

130,434

37,489

(46,989)

(23,966)
$ 1,145,755

Segment revenue reported above represents revenue generated from external customers. There were no inter-segment sales for the years ended December 31, 2015 and 2014.

Segment profit represented the profit before tax earned by each segment without allocation of central administration costs and directors’ salaries, share of profits of associates, gain recognized on the disposal of interest in former associates, rental revenue, interest income, gain or loss on disposal of property, plant and equipment, gain or loss on disposal of financial instruments, exchange gain or loss, valuation gain or loss on financial instruments, finance costs and income tax expense. This was the measure reported to the chief operating decision maker for the purpose of resource allocation and assessment of segment performance.

156

b. Revenue from major products and services

Crystal

Optec

 2015
$ 8,804,022

461,634

$ 9,265,656
 2014
$ 9,177,265

348,978
$ 9,526,243

Assets and liabilities not used by the chief operating decision maker in the allocation of resources and assessment of performance of segments are not disclosed.

c. Geographical information

The Corporation’s revenue from continuing operations from external customers and information about its noncurrent assets by geographical location are detailed below:

Taiwan

China
Others

 Revenue from
External Customers
December 31
2015
2014
$ 8,161,904
$ 8,393,934
1,081,490
1,111,114

22,262

21,195
$ 9,265,656
$ 9,526,243		 Noncurrent Assets Noncurrent Assets
December 31


2015
$ 8,161,904

1,081,490

22,262

$ 9,265,656

2015
$ 2,455,954
2,419,894

3,234

$ 4,879,082
 2014
$ 2,799,211

2,712,948

5,348
$ 5,517,507

Noncurrent assets included property, plant and equipment, intangible assets and other assets but excluded deferred tax assets.

d. Major customer information

Major customer did not account for 10% or more of sales in 2015 and 2014.

157

TABLE 1

TXC CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES HELD DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Holding Company Marketable Securities Type and Issuer/Name Security Issuer’s Relationship with
the Holding Company
Financial Statement Account		 December 31, 2015 Note
Shares/Units Carrying
Amount		 Percentage of
Ownership
Market Value
or Net Asset
Value
TXC Corporation
NGB
TXC (Chongqing) Limited		 Stock listed overseas
Guandong Failong Crystal Technology Co., Ltd.
Stock-emerging company
Win Win Precision Technology Co., Ltd.
Stock-unlisted company
Marson Technology Co., Ltd.
iSentek Inc.
UPI Semiconductor Corp.
Financial bonds
Chinatrust unsecured priority financial bond
Cayman Ton Yi Industrial Holdings
Mutual fund
Southern Cash Currency Fund
E Fund Money Market Fund
China International Fund Management Co., Ltd.
China Merchants Fund
China GuangFa Money Market Fund
China Merchants Currency Fd
Structured deposits
Bank of Communication
First Sino Bank
China Everbright Bank
Mutual fund
China International Fund Management Co., Ltd
Structured deposits
First Sino Bank		 None
None
None
Chairman is a direct of the Company
None
None
〃
None
〃
〃
〃
〃
〃
〃
〃
〃
〃
〃		 Available-for-sale financial assets - noncurrent
Available-for-sale financial assets - noncurrent
Financial assets carried at cost
〃
〃
Held-to-maturity financial assets - current
Held-to-maturity financial assets - noncurrent
Financial instruments at FVTPL - current
〃
〃
〃
〃
〃
〃
〃
〃
Financial instruments at FVTPL - current
〃		 10,096
1,365
414
2,500
2,000
RMB 10,000
RMB 10,000
RMB 27,539
RMB 5,111
RMB 10,520
RMB 10,033
RMB 30,245
RMB 16,065
RMB 30,137
RMB 20,910
RMB 30,673
RMB 24,652
RMB 15,018













$ 1,836,676
$ 34,300
$ 3,000
50,000

62,520
$ 115,520
$ 47,840
$ 50,280
$ 139,211
25,835
53,177
50,718
152,889

81,211
$ 503,041
$ 152,345
105,700

155,053
$ 413,098
$ 124,614
$ 75,919		 6
3
5
13
2










$ 1,836,676
$ 34,300
None
〃
〃
$ 47,840
$ 50,280
$ 139,211
25,835
53,177
50,718
152,889

81,211
$ 503,041
$ 152,345
105,700

155,053
$ 413,098
$ 124,614
$ 75,919
(Continued)

158

Holding Company Marketable Securities Type and Issuer/Name Security Issuer’s Relationship with
the Holding Company
Financial Statement Account		 December 31, 2015 Note
Shares/Units Carrying
Amount		 Percentage of
Ownership
Market Value
or Net Asset
Value
Ningbo Jingyu Company Limited Mutual fund
Southern Cash Fund		 〃 〃 RMB 1,139 $ 5,759 $ 5,759

(Concluded)

159

TABLE 2

TXC CORPORATION AND SUBSIDIARIES

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Company Name Marketable
Securities Type
and Name		 Financial Statement
Account		 Counterparty Nature of
Relationship		 Beginning Balance Beginning Balance Acquisition Acquisition Disposal Disposal Disposal Disposal Equity in Net
Gain (Loss)		 Ending Balance Ending Balance
Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Carrying Value
(Foreign
Currencies in
Thousands)		 Gain (Loss) on
Disposal
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)
TXC (Ningbo)
Corporation
TXC (Chongqing)
Limited		 Structure deposits
Mutual funds
〃
Structure deposits
Mutual funds		 Financial instruments
at FVTPL - current
Financial instruments
at FVTPL - current
〃
Financial instruments
at FVTPL - current
Financial instruments
at FVTPL - current		 Bank of Communication
China Merchants Bank
Southern Cash Fund
First Sino Bank
Southern Cash Fund		 None
None
〃
None
None		 -
-
-
-
-		 $ -
-
166,483
-
96,056		 -
-
-
-
-		 $ 355,508
325,036
304,721
460,179
318,433		 -
-
-
-
-		 $ (205,753)
(326,702)
(331,974)
(387,022)
(415,765)		 $ (205,753)
(326,702)
(331,974)
(387,022)
(415,765)		 $ -
-
-
-
-		 $ 2,590
1,666
(19)
2,762
1,276		 -
-
-
-
-		 $ 152,345
-
139,211
75,919
-

160

TABLE 3

TXC CORPORATION AND SUBSIDIARIES

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Company Name Related Party Nature of Relationship Transaction Details Transaction Details Transaction Details Abnormal Transaction Abnormal Transaction Notes/Accounts
Payable or Receivable		 Notes/Accounts
Payable or Receivable		 Note
Purchase/
Sale		 Amount % to
Total		 Payment Terms
(Note)		 Unit Price Payment Terms Ending Balance % to
Total
TXC Corporation
TXC (Ningbo) Corporation
TXC (Chongqing) Limited		 TXC (Ningbo) Corporation
TXC (Chongqing) Limited
Growing Profit Trading Ltd.
TXC (Chongqing) Limited
Growing Profit Trading Ltd.		 Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary		 Purchase
Sale
Purchase
Purchase
Purchase
Purchase		 $ 1,819,087
290,303
658,361
504,987
101,674
251,658		 33
4
12
35
7
78		 Note
〃
〃
〃
〃
〃		 Its trading price depends on its
function within the Group
〃
〃
〃
〃
〃		 Note
〃
〃
〃
〃
〃		 $ (439,931)
91,295
(176,465)
(126,088)
(44,096)
(57,023)		 (40)
4
(16)
(28)
(9)
(67)

Note: The terms of purchases from related parties were not significantly different from those with third parties.

161

TABLE 4

TXC CORPORATION AND SUBSIDIARIES

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2015

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

Company Name Related Party Nature of Relationship Balance of Accounts
Receivable -
Related Party
Turnover Rate		 Overdue Overdue Amount Received in
Subsequent Period		 Allowance for
Bad Debt
Amount Action Taken
TXC (Ningbo) Corporation
Growing Profits Trading Ltd
TXC (Chongqing) Corporation		 TXC Corporation
TXC (Ningbo) Corporation
TXC Corporation		 Subsidiary
Subsidiary
Subsidiary		 $ 439,931
126,088
176,465		 4.13
4.01
3.73		 $ -
-
-		 -
-
-		 $ 439,187
58,803
165,152		 $ -
-
-

162

TABLE 5

TXC CORPORATION AND SUBSIDIARIES

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Original Investment Amount Balance as of December 31, 2015 Balance as of December 31, 2015 Balance as of December 31, 2015 Net Income
(Losses) of the
Investee		 Equity in the
Earnings
(Losses)		 Note
December 31,
2015		 December 31,
2014		 Shares (In
Thousands)		 Percentage of
Ownership		 Carrying
Value
TXC Corporation
Taiwan Crystal Technology
International Ltd.
TXC (Ningbo) Corporation
Taiwan Crystal Technology
International (HK) Limited		 Taiwan Crystal Technology International Ltd.
TXC Technology Inc.
TXC Japan Corporation
Taiwan Crystal Technology International (HK) Limited
Tai-Shing Electronics Components Corporation
TXC Optec Corporation
Growing Profit Trading Ltd.
TXC (Ningbo) Corporation
TXC (Chongqing) Corporation
Chongqing All Sun Company Limited
Ningbo Jingyu Company Limited
TXC (Chongqing) Limited		 Western Samoa
U.S.A.
Japan
Hong Kong
Taiwan
Taiwan
B.V.I.
Ningbo
Chongqing
Chongqing
Ningbo
Chongqing		 Investment
Marketing activities
Marketing activities
Investment
Manufacture and sales of electronics products
Manufacture and sales of sapphire
International trading
Manufacture and sales of electronics products
Manufacture and sales of electronics products
Market activities
International trading
Manufacture and sales of electronics products		 $ 1,390,461
9,879
6,172
298,362
60,580
430,000
1,691
1,487,211
604,152
312,644
4,807
298,362		 $ 1,390,461
9,879
6,172
298,362
65,000
-
1,691
1,487,211
446,431
312,644
4,807
298,362		 42,835
300
2
10,080
2,330
21,500
50
45,835
123,745
66,000
1,000
10,080		 100.00
100.00
100.00
100.00
11.65
100.00
100.00
100.00
66.40
100.00
100.00
33.60		 $ 4,753,972
17,916
15,783
362,329
65,032
433,398
307,798
4,482,098
706,965
333,328
8,986
361,802		 $ 340,511

3,536

3,922

29,247

80,192

3,398

37,091

303,444

97,887

(178)

891

97,887		 $ 339,686

3,536

3,922

29,247

9,815

3,398

37,091

303,444

68,559

(178)

891

29,328		 Difference from upstream
transactions $825 thousand

163

TABLE 6

TXC CORPORATION AND SUBSIDIARIES

INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars or U.S. Dollars)

  1. Name of the investees in Mainland China, main businesses and products, paid-in capital, method of investment, information on inflow or outflow of capital, percentage of ownership, investment income or loss, ending balance of investment, dividends remitted by the investee, and the limit of investment in Mainland China:
Investee Company Main Businesses and Products Main Businesses and Products Total Amount of
Paid-in Capital
Method of Investment
Method of Investment		 Accumulated
Outflow of
Investment from
Taiwan as of
January 1, 2015
(US$ in
Thousand)		 Investment Flows Investment Flows Accumulated
Outflow of
Investment from
Taiwan as of
December 31,
2015 (US$ in
Thousand)
Investee
Company
Current Net
income		 Percentage of
Ownership
Investment
Income (Loss)
Recognized
(Note)		 Carrying
Amount as of
December 31,
2015		 Accumulated
Inward
Remittance of
Earnings as of
December 31,
2015

Outflow		 Inflow
TXC (Ningbo) Corporation
Guandong Failong Crystal
Technology Co., Ltd.
TXC (Chongqing) Corporation
Chongqing All Suns Company
Limited
Ningbo Jingyu Company Limited		 Manufacturing and sales of crystal
and crystal oscillator
Manufacturing and sales of new
electronic components
Manufacturing and sales of
electronic devices and hardware
components
Real estate intermediary service, real
estate management and electronic
product wholesale
Purchasing and selling electronic
component		 $ 1,487,211
580,947
902,514

312,644
4,807		 Indirect investment of the
Corporation in Mainland China
through the Corporation’s
subsidiary in a third region
Direct investment of the
Corporation in Mainland China
Indirect investment of the
Corporation in Mainland China
through the Corporation’s
subsidiary in a third region
Other investment of the
Corporation Mainland China
Other investment of the
Corporation Mainland China		 $ 1,427,630
46,478
298,362
-
-		 $ -
-
-
-
-		 $ -
-
-
-
-		 $ 1,427,630
46,478
298,362
-
-		 $ 303,444
-
97,887
(178)
891		 100
6
100
100
100		 $ 303,444
-
97,887
(178)
891		 $ 4,482,098
1,836,676
1,068,767
333,328
8,986		 $ 256,146
-
-
-
-
Upper Limit on Investment
$ -
Accumulated Investment in
Mainland China as of December 31, 2015
(US$ in Thousand)		 Investment Amounts Authorized by
Investment Commission, MOEA
(US$ in Thousand)		 Upper Limit on Investment
$ 1,772,470 $ 1,832,878 $ -

Note: The investment in Mainland China has no maximum limitation since TXC Corporation had acquire the approval by the Industrial Development Bureau of the Company’s establishment of operating head quarters in Taiwan.

(Continued)

164

(Concluded)

  1. Significant direct or indirect transactions with the investees, prices and terms of payment, unrealized gain or loss:
Company Name Related Party Nature of
Relationship		 Transaction Details Transaction Details Accounts/Notes Receivable/Payable Accounts/Notes Receivable/Payable Unrealized
Gain or Loss
Purchase/Sale Percentage
(%)		 Price Payment Term Compared with Terms of
Third Parties		 Balance %
TXC Corporation
GPT		 NGB
CKG
NGB
CKG		 Subsidiary
Subsidiary
Subsidiary
Subsidiary		 Purchase
$ 1,819,087
Sale
290,303
Purchase
658,361
Sale
504,987
Sale
251,658		 33
4
12
41
21		 Its trading price depends on its function
within the Group.
〃
〃
〃
〃		 Similar with third parties
Similar with third parties
Similar with third parties
Similar with third parties
Similar with third parties		 Its trading price depends on its function
within the Group
〃
〃
〃
〃		 $ (439,931)
91,295
(176,465)
126,088
57,023		 (40)
4
(16)
47
21		 $ 24,501
1,598
9,607
-
-

  1. Endorsements guarantees or collateral directly or indirectly provided to the investees: None.

  2. Financings directly or indirectly provided to the investees: None.

  3. Other transactions that significantly impacted current year’s profit or loss or financial position: None.

165

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders TXC Corporation

We have audited the accompanying balance sheets of TXC Corporation as of December 31, 2015 and 2014, and the related statements of comprehensive income, changes in equity and cash flows for the years ended December 31, 2015 and 2014. These financial statements are the responsibility of TXC Corporation’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of TXC Corporation as of December 31, 2015 and 2014, and its financial performance and its cash flows for the years ended December 31, 2015 and 2014, in conformity with the Regulations Governing the Preparation of Financial Reports by Securities Issuers.

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

March 29, 2016

Notice to Readers

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

For the convenience of readers, the auditors’ report and the accompanying financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. 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 auditors’ report and financial statements shall prevail.

  • 166 -

TXC CORPORATION

BALANCE SHEETS DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

ASSETS
CURRENT ASSETS
Cash and cash equivalents (Notes 4 and 6)
Available-for-sale financial assets - current (Notes 4 and 8)
Held-to-maturity financial assets - current (Notes 4, 5 and 9)
Notes receivable (Notes 4, 5 and 12)
Accounts receivable (Notes 4, 5 and 12)
Receivables from related parties (Notes 4, 5, 12 and 29)
Other receivables (Notes 4 and 12)
Other receivables from related parties (Notes 4 and 29)
Inventories (Notes 4 and 13)
Other financial assets - current (Note 11)
Other current assets - other
Total current assets
NONCURRENT ASSETS
Available-for-sale financial assets - noncurrent (Notes 4 and 8)
Held-to-maturity financial assets (Notes 4, 5 and 9)
Financial assets carried at cost (Notes 4 and 10)
Investments accounted for using equity method (Notes 4, 14 and 25)
Property, plant and equipment (Notes 4 and 15)
Investment properties (Notes 4 and 16)
Deferred income tax assets (Notes 4, 5 and 23)
Prepayment for equipment
Refundable deposits (Notes 4 and 26)
Other noncurrent assets
Total noncurrent assets
TOTAL
LIABILITIES AND EQUITY
CURRENT LIABILITIES
Short-term loans (Note 17)
Financial liabilities at fair value through profit or loss - current (Notes 4 and 7)
Accounts payable
Accounts payables to related parties (Note 29)
Other payables (Note 19)
Other payables to related parties (Note 29)
Current tax liabilities (Notes 4 and 23)
Current portion of bonds payable and long-term bank loans (Notes 17 and 18)
Other current liabilities (Note 19)
Total current liabilities
NONCURRENT LIABILITIES
Bonds payable (Note 18)
Long-term bank loans (Note 17)
Deferred income tax liabilities (Notes 4 and 23)
Accrued pension cost (Notes 4 and 20)
Guarantee deposits received (Notes 4, 19 and 26)
Total noncurrent liabilities
Total liabilities
EQUITY
Capital stock (Note 21)
Common stock
Capital surplus
Retained earnings
Appropriated as legal capital reserve
Appropriated as special capital reserve
Unappropriated earnings
Total retained earnings
Other equity
Exchange differences on translating foreign operations
Unrealized loss on available-for-sale financial assets
Total other equity
Total equity
TOTAL		 2015
Amount
%
$ 1,309,639
9
-
-
47,840
1
2,919
-
2,335,359
16
97,431
1
37,655
-
1,122
-
912,022
6
32,825
-

35,381

-

4,812,193
33
1,870,976
13
50,280
-
115,520
1
5,648,430
38
1,968,448
13
186,156
1
19,795
-
81,647
1
2,767
-

3,832

-

9,947,851
67
$ 14,760,044
100
$ 51,940
1
909
-
477,056
3
631,533
4
414,006
3
1,325
-
50,994
-
1,005,191
7

16,549

-

2,649,503
18
-
-
1,165,625
8
129,110
1
46,607
-

29,953

-

1,371,295

9

4,020,798
27

3,097,570
21

1,662,181
11
1,057,381
7
222,793
2

2,659,935
18

3,940,109
27
249,121
2

1,790,265
12

2,039,386
14
10,739,246
73
$ 14,760,044
100		 2014






































Amount
%
$ 1,139,506
9
20,800
-
-
-
23,533
-
2,517,663
19
125,317
1
20,685
-
33,131
-
1,092,321
9
53,244
1

16,563

-

5,042,763
39
44,510
-
47,840
1
111,998
1
4,931,094
38
2,739,181
21
6,472
-
20,681
-
47,558
-
1,061
-

4,939

-

7,955,334
61
$ 12,998,097
100
$ 151,777
1
12,488
-
555,849
4
708,330
6
462,073
4
1,139
-
57,560
-
475,000
4

13,346

-

2,437,562
19
782,139
6
675,000
5
138,976
1
39,891
1

29,953

-

1,665,959
13

4,103,521
32

3,097,570
24

1,662,181
13
957,864
7
222,793
2

2,611,372
20

3,792,029
29
341,996
2

800

-

342,796

2

8,894,576
68
$ 12,998,097
100

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

  • 167 -

TXC CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OPERATING REVENUE (Notes 2 and 29)
Sales
Less: Sales returns
Less: Sales allowances
Net operating revenue
COST OF GOODS SOLD (Notes 22 and 29)
GROSS PROFIT
UNREALIZED INTER-COMPANY GAIN
UNREALIZED GAIN ON INTER AFFILIATE
ACCOUNTS
REALIZED GROSS PROFIT
OPERATING EXPENSES (Notes 4 and 29)
Selling and marketing expenses
General and administrative expenses
Research and development expenses
Total operating expenses
INCOME FROM OPERATIONS
NON-OPERATING INCOME AND EXPENSES
Other income (Notes 4 and 22)
Other gains and losses (Note 22)
Finance costs (Notes 4 and 22)
Share of profits of associates and joint venture
Total non-operating income and expenses
INCOME BEFORE INCOME TAX
INCOME TAX EXPENSE (Note 23)
NET INCOME		 2015
Amount
%
$ 7,973,106
101
18,691
-

55,720

1

7,898,695
100

6,531,490
83

1,367,205
17
(1,598)
-

2,110

-


1,367,717
17

318,930
4
171,892
2
317,371

4


808,193
10

559,524

7

34,048
-
83,568
1
(31,587)
-

389,604

5

475,633

6

1,035,157
13

96,954

1

938,203
12
 2014
































Amount
%
$ 8,248,029
101

14,704
-

54,746

1

8,178,579
100

6,701,406
82

1,477,173
18

(2,110)
-

1,546

-

1,476,609
18

347,661
4

185,016
2

304,974

4

837,651
10

638,958

8

43,334
-

32,029
-

(30,699)
-

400,095

5

444,759

5

1,083,717
13

88,543

1

995,174
12
(Continued)
  • 168 -

TXC CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Except Earnings Per Share)

OTHER COMPREHENSIVE INCOME (LOSS)
Items that will not be reclassified subsequently to
profit or loss:
Remeasurement of defined benefit plans
Income tax relating to items that will not be
reclassified subsequently to profit or loss
Items that may be reclassified subsequently to profit
or loss:
Exchange differences arising on translation of
foreign operations
Share of the other comprehensive income of
associates accounted for using the equity
method
Unrealized loss on available-for-sale financial
assets
Other comprehensive income (loss) for the year,
net of income tax
TOTAL COMPREHENSIVE INCOME FOR THE
YEAR
EARNINGS PER SHARE (Note 24)
Basic
Diluted		 2015
Amount
%
$ (18,849)
-
3,204

-


(15,645)

-

(93,862)
(1)
1,060
-

1,789,392
22


1,696,590
21

1,680,945
21

$ 2,619,148
33

$ 3.03
$ 2.86		 2014














Amount
%
$ (13,826)
-

2,350

-

(11,476)

-

266,660
3

-
-

800

-

267,460

3

255,984

3
$ 1,251,158
15
$ 3.21
$ 3.04


$ $




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

(Concluded)

  • 169 -

TXC CORPORATION

STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

Shares
(In Thousands) Common Stock
Capital Surplus
BALANCE, JANUARY 1, 2014
309,757 $ 3,097,570
$ 1,662,181
Appropriation of 2013 earnings
Legal reserve
-
-
-
Cash dividends distributed by subsidiaries
-
-
-
Net income for the for the year ended December 31, 2014
-
-
-
Other comprehensive income for the for the year ended December 31,
2014, net of income tax

-

-

-
Total comprehensive income for the for the year ended December 31,
2014

-

-

-
BALANCE AT DECEMBER 31, 2014
309,757
3,097,570
1,662,181
Appropriation of 2014 earnings
Legal capital reserve
-
-
-
Cash dividends distributed by subsidiaries
-
-
-
Net income for the year ended December 31, 2015
-
-
-
Other comprehensive income for the year ended December 31, 2015, net
of income tax

-

-

-
Total comprehensive income for the year ended December 31, 2015

-

-

-
Convertible bonds converted to ordinary shares
-
-
-
Acquisition and disposal of treasury stock

-

-

-
BALANCE AT DECEMBER 31, 2015

309,757
$ 3,097,570
$ 1,662,181		 Retained Earnings
Legal Capital
Reserve
Special Capital
Reserve
Unappropriated
$ 864,348
$ 222,793
$ 2,402,655
93,516
-
(93,516)
-
-
(681,465)
-
-
995,174

-

-

(11,476)


-

-

983,698

957,864
222,793
2,611,372
99,517
-
(99,517)
-
-
(774,393)
-
-
938,203

-

-

(15,645)


-

-

922,558

-
-
-

-

-

(85)

$ 1,057,381
$ 222,793
$ 2,659,935
 Others
Foreign
Currency
Unrealized
Gain (Loss)
from
Available-for-
Translation
Reserve
sale Financial
Assets
$ 75,336 $ -


-
-

-
-

-
-

266,660

800


266,660

800


341,996
800

-
-

-
-

-
-

(92,875)

1,789,465


(92,875)

1,789,465


-
-

-

-

$ 249,121
$ 1,790,265
 Total Equity
$ 8,324,883
-
(681,465)
995,174

255,984

1,251,158
8,894,576
-
(774,393)
938,203

1,680,945

2,619,148
-

(85)
$ 10,739,246















Foreign
Currency
Translation
Reserve
$ 75,336

-

-

-

266,660


266,660


341,996

-

-

-

(92,875)


(92,875)


-

-

$ 249,121






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

  • 170 -

TXC CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax

Adjustments for:
Bad debt expense
Depreciation expense
Amortization expense
Net loss on fair value change of financial liabilities at fair value
through profit or loss
Finance costs
Unrealized gain on the transactions with subsidiaries, associates and
joint ventures
Realized gain on the transactions with subsidiaries, associates and
joint ventures
Share of profit of subsidiaries, associates and joint ventures
Interest income
Impairment loss of financial assets
Loss on valuation of inventories
Dividend income
Gain (loss) on disposal of investment
Gain on disposal of investments accounted for using equity method
Changes in operating assets and liabilities:
Notes receivable
Accounts receivables
Receivables from related parties
Other receivables
Other receivables from related parties
Inventories
Other current assets
Available-for-sale financial liabilities
Accounts payable
Accounts payable to related parties
Other payables
Other payables to related parties
Other current liabilities
Accrued pension costs

Cash generated from operations
Interest paid
Income taxes paid

Net cash generated by operating activities

CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of investment accounted for using equity method
Disposal of investment accounted for using equity method
Purchase of available-for-sale financial assets		 2015
$ 1,035,157

6,818
498,394
2,354
909
31,587
1,598
(2,110)
(389,604)
(13,222)
10,210
9,192
(1,118)
(3,286)
(1,628)
13,523
26,937
27,886
(15,256)
32,009
85,775
(17,479)
(12,488)
(21,014)
(76,797)
(28,524)
203
3,203
(12,133)

1,191,096
(14,732)
(109,296)


1,067,068

(100)
6,101
(130,819)		 2014
$ 1,083,717
1,133
494,967
4,562
12,488
30,699
2,110

(1,546)

(400,095)

(11,844)
47,569
17,819

(1,118)

27,324

-
(22,461)
(185,439)
(12,101)

31,479
65,472
72,222

(6,895)

(17,329)

151,821

(146,930)

(68,062)
112
(339)

(8,098)
1,161,237

(13,583)

(76,557)

1,071,097

(65,000)
-

(89,617)
(Continued)
  • 171 -

TXC CORPORATION

STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars)

Disposal of available-for-sale financial assets

Disposal of held-to-maturity financial assets
Purchase of held-to-maturity financial assets
Purchase of held-to-maturity financial assets
Payments for property, plant and equipment
Disposal of property, plant and equipment
Increase in refundable deposits
Increase in other financial assets
Decrease in other financial assets
Increase in other noncurrent assets
Increase in prepayment for equipment
Interest received
Dividend received from subsidiaries associates and joint ventures
Cash outflow due to corporate division

Net cash used in investing activities

CASH FLOWS FROM INVESTING ACTIVITIES
(Decrease) increase in short-term loans
Proceeds from reissuance of treasury stock
Payments for transaction costs attributable to buy-back of ordinary
shares
Proceeds from long-term borrowings
Repayments of long-term borrowings
Guarantee deposits received
Payments of cash dividend

Net cash used in financing activities

NET INCREASE IN CASH AND CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR

CASH AND CASH EQUIVALENTS, END OF YEAR
 2015
$ 154,104

-
(50,280)
(50,000)
(152,859)
372
(1,706)
-
20,419
(3,764)
(34,089)
11,508
6,618
(20,000)

(244,495)

(99,837)
721
(806)
1,150,000
(928,125)
-

(774,393)

(652,440)

170,133

1,139,506

$ 1,309,639
 2014
$ 122,468
7,917

-

-

(235,562)
15,435

(5)
(28,801)
-

(1,648)

(42,088)
10,450
64,718

-

(241,733)

59,279
-

-
450,000

(587,500)
1,625

(681,465)

(758,061)
71,303

1,068,203
$ 1,139,506

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

(Concluded)

  • 172 -

NOTES TO FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 2015 AND 2014 (In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

TXC CORPORATION

1. ORGANIZATION AND OPERATIONS

TXC Corporation (TXC) was incorporated on December 28, 1983 under the Company Law and other related regulations of the Republic of China (ROC).

TXC specializes in five categories of products such as high quality Quartz Unite Crystal, Automotive Crystal, Crystal Oscillator (CXO) Surface Acoustic Wave (SAW) Filter, and Timing Module (TM), and provides complete solution in frequency devices and modules, and design service to fully satisfy various needs of the customers.

On August 26, 2002, TXC’s shares began to be traded on the Taiwan Stock Exchange.

The functional currency of the Company is New Taiwan dollars. The financial statements are presented in New Taiwan dollars.

In order to ensure investors’ rights and interests, the Company had applied to Taiwan Corporate Governance Association for corporate governance assessment certification. The Company has acquired (CG6005 general version of corporate governance assessment and authentication) and (CG6008 advanced version of corporate governance assessment and authentication), on March 23, 2011 and June 27, 2013, respectively. The Company will continue to strengthen corporate governance functions in order to work with international standards and to protect public interests.

2. THE AUTHORIZATION OF FINANCIAL STATEMENTS

The financial statements were reported to the Board of Directors and issued on March 14, 2016.

3. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRSs)

  • a. Initial application of the amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers and the 2013 version of the International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC) endorsed by the FSC

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.

  • 173 -

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

  • 1) 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, 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. Refer to Note 28 for related disclosures.

  • 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, please refer to Note 14 for related disclosures.

  • 3) 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 retrospectively applied the above amendments starting in 2015. Items not expected to be reclassified to profit or loss are remeasurements of the defined benefit plans. Items expected to be reclassified to profit or loss are the exchange differences on translating foreign operations, unrealized gain (loss) on available-for-sale financial assets, cash flow hedges, and share of the other comprehensive income (except the share of the remeasurements of the defined benefit plans) of (associates/joint ventures) accounted for using the equity method. However, the application of the above amendments will not have any impact on the net profit for the year, other comprehensive income for the year (net of income tax), and total comprehensive income for the year.

  • 4) Revision to 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 cost, and also includes more extensive disclosures.

  • 5) 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.

  • 174 -

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

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

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

The amendments to IAS 34 clarify that a measure of total liabilities for a reportable segment would be disclosed in interim financial reporting when such amounts are regularly provided to the chief operating decision maker of the Group and there has been a material change from the amounts disclosed in the last annual financial statements for that reportable segment.

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

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

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

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

Effective Date The New IFRSs Not Included in the 2014 IFRSs Version Announced by IASB (Note 1) Annual Improvements to IFRSs 2010-2012 Cycle July 1, 2014 (Note 2) Annual Improvements to IFRSs 2011-2013 Cycle July 1, 2014 Annual Improvements to IFRSs 2012-2014 Cycle January 1, 2016 (Note 3) IFRS 9 “Financial Instruments” January 1, 2018 Amendments to IFRS 9 and IFRS 7 “Mandatory Effective Date of January 1, 2018 IFRS 9 and Transition Disclosures” Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets To be determined by IASB between an Investor and its Associate or Joint Venture” (Continued)

  • 175 -
The New IFRSs Not Included in the 2014 IFRSs Version
Amendments to IFRS 10, IFRS 12 and IAS 28 “Investment Entities:
Applying the Consolidation Exception”
Amendment to IFRS 11 “Accounting for Acquisitions of Interests in
Joint Operations”
IFRS 14 “Regulatory Deferral Accounts”
IFRS 15 “Revenue from Contracts with Customers”
IFRS 16 “Leases”
Amendment to IAS 1 “Disclosure Initiative”
Amendment to IAS 7 “Disclosure Initiative”
Amendments to IAS 12 “Recognition of Deferred Tax Assets for
Unrealized Losses”
Amendments to IAS 16 and IAS 38 “Clarification of Acceptable
Methods of Depreciation and Amortization”
Amendments to IAS 16 and IAS 41 “Agriculture: Bearer Plants”
Amendment to IAS 19 “Defined Benefit Plans: Employee
Contributions”
Amendment to IAS 27 “Equity Method in Separate Financial
Statements”
Amendment to IAS 36 “Impairment of Assets: Recoverable Amount
Disclosures for Non-financial Assets”
Amendment to IAS 39 “Novation of Derivatives and Continuation of
Hedge Accounting”
IFRIC 21 “Levies”		 Effective Date
Announced by IASB (Note 1)
January 1, 2016
January 1, 2016
January 1, 2016
January 1, 2018
January 1, 2019
January 1, 2016
January 1, 2017
January 1, 2017
January 1, 2016
January 1, 2016
July 1, 2014
January 1, 2016
January 1, 2014
January 1, 2014
January 1, 2014
(Concluded)

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

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

  • Note 3: Prospectively applicable to transactions occurring in 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:

Significant impending changes in accounting policy resulted from new, amended and revised standards and interpretations in issue but not yet effective.

  • 176 -

Except for the following, the initial application of the above new, amended and revised standards and interpretations have not had any material impact on the Company’s accounting policies:

  • 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 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.

  • 177 -

  • 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) New issued IFRIC 21 “Levies”

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

4) Annual Improvements to IFRSs: 2010-2012 Cycle

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

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

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

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

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

  • 178 -

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

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

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

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

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

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

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

IFRS 15 establishes principles for recognizing revenue that apply to all contracts with customers, and will supersedes IAS 18 “Revenue”, IAS 11 “Construction Contracts” and a number of revenue-related interpretations from January 1, 2017.

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

  • Identify the contract with the customer;

  • Identify the performance obligations in the contract;

  • Determine the transaction price;

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

  • Recognize revenue when the entity satisfies a performance obligation.

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

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

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

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

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

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

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

Except for the above impact, as of the date the consolidated 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

Statement of Compliance

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

Basis of Preparation

The 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.

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

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

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

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

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

Classification of Current and Non-current Assets and Liabilities

Current assets include:

  • a. Assets held primarily for the purpose of trading;

  • b. Assets expected to be realized within twelve months after the reporting period; and

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

Current liabilities include:

  • a. Liabilities held primarily for the purpose of trading;

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

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

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

The Company engages in the construction business, which has an operating cycle of over one year, the normal operating cycle applies when considering the classification of the Company’s construction-related assets and liabilities.

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.

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

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

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 specific identification of weighted-average cost on the balance sheet date.

Investments in Subsidiaries

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

Subsidiary is an entity (including structured entity) that is controlled by the Company.

Under the equity method, investment in a subsidiary is initially recognized at cost and adjusted thereafter to recognize the Company’s share of the profit or loss and other comprehensive income of the subsidiary. The Company also recognizes the changes in the Company’s share of equity of subsidiaries.

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

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

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

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

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When the Company loses control of a subsidiary, it recognizes the investment retained in the former subsidiary at its fair value at the date when control is lost. The difference between the fair value of the retained investment plus any consideration received and the carrying amount of previous investment at the date when control is lost is recognized as a gain or loss in profit or loss. Besides, the Company accounts for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the same basis as would be required if the Company had directly disposed of the related assets or liabilities.

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

Investments in Associates and Joint Ventures

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. Joint venture is a joint arrangement whereby the Group and other parties that have joint control of the arrangement have rights to the net assets of the arrangement.

The Group uses the equity method to account for its investments in associates and joint ventures.

Under the equity method, investments in an associate and a joint venture are 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 and joint venture. The Group also recognizes the changes in the Group’s share of equity of associates and joint venture.

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

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

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

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

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The Group discontinues the use of the equity method from the date on which its investment ceases to be an associate and a joint venture. Any retained investment is measured at fair value at that date and the fair value is regarded as its fair value on initial recognition as a financial asset. The difference between the previous carrying amount of the associate and the joint venture attributable to the retained interest and its fair value is included in the determination of the gain or loss on disposal of the associate and the joint venture. The Group accounts for all amounts previously recognized in other comprehensive income in relation to that associate and the joint venture on the same basis as would be required if that associate had directly disposed of the related assets or liabilities. If an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment in an associate, the Group continues to apply the equity method and does not remeasure the retained interest.

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

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.

Freehold land is not depreciated.

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

Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets. Assets are depreciated over the shorter of the lease term and their useful lives using the straight-line method.

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.

Investment Properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including property under construction for such purposes). Investment properties also include land held for a currently undetermined future use.

Investment properties are measured initially at cost, including transaction costs. Subsequent to initial recognition, investment properties are measured at cost less accumulated depreciation and accumulated impairment loss. Depreciation is recognized using the straight-line method.

Investment properties under construction are stated at cost less accumulated depreciation and accumulated impairment loss. Cost includes professional fees and, borrowing costs eligible for capitalization. Depreciation of these assets commences when the assets are ready for their intended use.

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Any gain or loss arising on derecognition of the property is calculated as the difference between the net disposal proceeds and the carrying amount of the asset and is included in profit or loss in the period in which the property is derecognized.

Impairment of Tangible and Intangible Assets Other Than Goodwill

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

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

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

When an impairment loss 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 for the asset or cash-generating unit in prior years. A reversal of an impairment loss is recognized in profit or loss.

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.

  • a. Financial assets

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

1) 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.

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

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

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A financial asset may be designated as at fair value through profit or loss upon initial recognition if:

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

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

  • iii. The contract contains one or more embedded derivatives so that the entire hybrid (combined) contract can be designated as at fair value through profit or loss.

Fair value is determined in the manner described in Note 7.

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 incorporates 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.

  • b) Held-to-maturity investments

Commercial paper, corporate bonds, and foreign government bonds, which are above specific credit ratings and the Company has positive intent and ability to hold to maturity, are classified as held-to-maturity investments.

Subsequent to initial recognition, held-to-maturity investments are measured at amortized cost using the effective interest method less any impairment.

  • c) Available-for-sale financial assets

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

Available-for-sale financial assets are measured at fair value. Changes in the carrying amount of available-for-sale monetary financial assets relating to changes in foreign currency exchange rates, interest income calculated using the effective interest method and dividends on available-for-sale equity investments are recognized in profit or loss. Other changes in the carrying amount of available-for-sale financial assets are recognized in other comprehensive income and will be reclassified to profit or loss when the investment is disposed of or is determined to be impaired.

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

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

d) Loans and receivables

Loans and receivables (including trade receivables, cash and cash equivalent, debt investments with no active market, and other receivables are measured at amortized cost using the effective interest method, less any impairment, except for short-term receivables when the effect of discounting is immaterial.

Cash equivalent includes time deposits and investments with original maturities within three months from the date of acquisition, highly liquid, readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. These cash equivalents are held for the purpose of meeting short-term cash commitments.

2) Impairment of financial assets

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

For financial assets carried at amortized cost, such as trade receivables and other 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 Company’s past experience of collecting payments, an increase in the number of delayed payments in the portfolio past the average credit period of 60 days, as well as observable changes in national or local economic conditions that correlate with default on receivables, and other situation.

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

For financial assets measured at amortized cost, if, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the investment at the date the impairment is reversed does not exceed what the amortized cost would have been had the impairment not been recognized.

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

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

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

In respect of available-for-sale equity securities, impairment loss previously recognized in profit or loss are not reversed through profit or loss. Any increase in fair value subsequent to an impairment loss is recognized in other comprehensive income. In respect of available-for-sale debt securities, the impairment loss is subsequently reversed through profit or loss if an increase in the fair value of the investment can be objectively related to an event occurring after the recognition of the impairment loss.

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 and other receivables are 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 except for uncollectible trade receivables and other receivables that are written off against the allowance account.

  • 3) Derecognition of financial assets

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

If the Company neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Company recognizes its retained interest in the asset and an associated liability for amounts it may have to pay. If the Company retains substantially all the risks and rewards of ownership of a transferred financial asset, the Company continues to recognize the financial asset and also recognizes a collateralized borrowing for the proceeds received.

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.

On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

  • b. Equity instruments

Debt and equity instruments issued by the Company are 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.

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

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

  • c. Financial liabilities

  • 1) Subsequent measurement

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

  • Financial liabilities at fair value through profit or loss

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

Financial liabilities at fair value through profit or loss are stated at fair value, with any gains or losses arising on remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss incorporates any interest or dividend paid on the financial liability. Fair value is determined in the manner described in Note 28.

A financial liability may be designated as at fair value through profit or loss upon initial recognition when doing so results in more relevant information and if:

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

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

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

  • 2) Derecognition of financial liabilities

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

  • d. Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Company are 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.

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.

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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.

  • e. Derivative financial instruments

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

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

Derivatives embedded in non-derivative host contracts are treated as separate derivatives when they meet the definition of a derivative, their risks and characteristics are not closely related to those of the host contracts and the contracts are not measured at fair value through profit or loss.

Revenue Recognition

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

  • a. 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:

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

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

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

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

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

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

Income from properties developed for sale is recognized when construction is complete, rewards of ownership of the properties are transferred to buyers, and collectability of the related receivables is reasonably assured. Deposits received from sales of properties and installment payments are carried in the balance sheets under current liabilities.

Sales of goods that result in award credits for customers, under the Company’s award scheme, are accounted for as multiple element revenue transactions and the fair value of the consideration received or receivable is allocated between the goods supplied and the award credits granted. The consideration allocated to the award credits is measured by reference to their fair value, the amount for which the award credits could be sold separately. Such consideration is not recognized as revenue at the time of the initial sale transaction but is deferred and recognized as revenue when the award credits are redeemed and the Company’s obligations have been fulfilled.

b. Dividend and interest income

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

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

Leasing

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

  • a. The Company as lessor

Amounts due from lessees under finance leases are recognized as receivables at the amount of the Company’s net investment in the leases. Finance lease income is allocated to accounting periods so as to reflect a constant periodic rate of return on the Company’s net investment outstanding in respect of the leases.

Rental income from operating leases is recognized on a straight-line basis over the term of the relevant lease unless another systematic basis is representative of the time pattern of the lessee’s benefit from the use of the leased asset. Initial direct costs incurred in negotiating and arranging an operating lease are added to the carrying amount of the leased asset and amortized on a straight-line basis over the lease term. Contingent rents arising under operating leases are recognized as income in the period in which they are incurred.

Lease incentives included in the operating lease are recognized as an asset. The aggregate cost of incentives is recognized as a reduction of rental income on a straight-line basis over the lease term unless another systematic basis is more representative of the time pattern over which the benefit of the leased asset is diminished.

Contingent rents are recognized as income in the period in which they are incurred.

  • 191 -

  • b. The Company as lessee

Operating lease payments are recognized as an expense on a straight-line basis over the lease term, except where another systematic basis is more representative of the time pattern in which economic benefits from the leased asset are consumed. Contingent rents arising under operating leases are recognized as an expense in the period in which they are incurred.

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.

Investment income earned on the temporary investment of specific borrowings pending their expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

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

Government Grants

Government grants are not recognized until there is reasonable assurance that the Company will comply with the conditions attaching to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Company recognizes as expenses the related costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Company should purchase, construct or otherwise acquire non-current assets are recognized as a deduction from the carrying amount of the relevant asset and recognized in profit or loss on a systematic and rational basis over the useful lives of the related assets.

Employee Benefits

  • a. Short-term employee benefits

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

  • b. Retirement benefits

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

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

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

  • 192 -

Taxation

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

a. 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.

b. Deferred tax

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

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

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered. A previously unrecognized deferred tax asset is also reviewed at the end of each reporting period and recognized to the 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 Company expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities.

c. 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.

  • 193 -

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION AND

UNCERTAINTY

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

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

Held-to-maturity Financial Assets

Management has reviewed the Company’s held-to-maturity financial assets in light of its capital maintenance and liquidity requirements and has confirmed the Company’s positive intention and ability to hold those assets to maturity.

Income Taxes

As of December 31, 2015 and 2014, the carrying amount of deferred tax assets in relation to unused tax losses was $19,795 thousand and $20,681 thousand, respectively. The realizability of the deferred tax asset mainly depends on whether sufficient future profits or taxable temporary differences will be available. In cases where the actual future profits generated are less than expected, a material reversal of deferred tax assets may arise, which would be recognized in profit or loss for the period in which such a reversal takes place.

Estimated Impairment of Accounts Receivables

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

Fair Value Measurements and Valuation Processes

If some of the Company's assets and liabilities measured at fair value have no quoted prices in active markets, the board of directors of the Company has set up a valuation committee, to determine whether to engage third party qualified valuers and to determine the appropriate valuation techniques for fair value measurements.

Where Level 1 inputs are not available, the Group or engaged valuers would determine appropriate inputs by referring to (the analyses of the financial position and the operation results of investees, recent transaction prices, prices of same equity instruments not quoted in active markets, quoted prices of similar instruments in active markets, valuation multiples of comparable entities, market prices or rates and specific features of derivatives. If the actual changes of inputs in the future differ from expectation, fair value might vary accordingly.

Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities is disclosed in Note 28.

  • 194 -

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.

Recognition and Measurement of Defined Benefit Plans

Net defined benefit liabilities (assets) and the resulting defined benefit costs under defined benefit pension plans are calculated using the projected unit credit method. Actuarial assumptions comprise the discount rate, rate of employee turnover, and future salary increase, etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact on the amount of the expense and the liability.

Significant Influence Over Associates

Note 14 describes that several companies are associates of the Group although the Group only owns less than 20% of the voting power in each of these companies. The Group has significant influence over these companies by virtue of the right to appoint the directors to the board of directors of these companies.

6. CASH AND CASH EQUIVALENTS

Cash on hand
Demand deposits and check accounts
Cash equivalents
Time deposits
Repurchase agreements collateralized by bonds		 December 31 December 31


2015
$ 382

877,753
231,504

200,000

$ 1,309,639
 2014
$ 338
720,002
369,166

50,000
$ 1,139,506

The market rate intervals of cash in bank repurchase agreements collateralized by bonds at the end of the reporting period were as follows:

Deposits in banks
Repurchase agreements collateralized by bonds		 December 31
2015
2014
0.48%-3.83%
0.02%-4.03%
0.48%-0.54%
0.63%-0.65%

7. FINANCIAL ASSETS AND LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

Financial liabilities held for trading
Derivative financial assets (not under hedge accounting)
Forward exchange contracts		 December 31
2015
$ 909
 2014
$ 12,488
  • 195 -

Outstanding forward exchange contracts consisted of the following:

Contract Amount
Currency Maturity Date (In Thousands)
December 31, 2015
Sell USD/NTD 2016.01.25-2016.03.01 USD6,000/NTD196,728
Sell USD/JPY 2016.01.21-2016.01.22 USD1,000/JPY122,440
Knock-out forward USD/JPY 2016.01.29-2016.03.04 USD4,500/JPY557,000
Knock-out forward USD/NTD 2016.02.22 USD1,000/NTD33,030
December 31, 2014
Sell USD/NTD 2015.01.05-2015.04.01 USD13,000/NTD404,240
Sell USD/JPY 2015.01.05-2015.03.03 USD6,500/JPY764,631
Sell USD/RMB 2015.02.26-2015.03.23 USD2,500/RMB15,569
Knock-out forward USD/NTD 2015.01.05-2015.03.02 USD3,000/NTD93,360

The Company entered into cross-currency swap contracts during the years ended December 31, 2015 and 2014 to manage exposures due to exchange rate and interest rate fluctuations of foreign currency denominated assets and liabilities. However, those contracts did not meet the criteria of hedge effectiveness and therefore were not accounted for by using hedge accounting.

8. AVAILABLE-FOR-SALE FINANCIAL ASSETS

Current
Domestic investments
Mutual funds
Noncurrent
Domestic investments
Listed shares
Foreign investments
Listed shares		 December 31 December 31



2015
$ -

$ 34,300


1,836,676

$ 1,870,976
 2014
$ 20,800
$ 44,510

-
$ 44,510

The market value of available-for-sale financial assets has been lower than the book value. As a result, the Group evaluated and recognized an impairment loss of $10,210 thousand, $1,936 thousand during 2015 and 2014, respectively.

The shares of Guangdong Failong Crystal Technology Co., Ltd., which is held by the group, is classified as financial assets measured at cost. Due to the Company has been listed on ShenZhen Stock Exchange on May 15, 2015, and already has the public quoted market price in active market. The shares of Guangdong Failong Crystal Technology Co., Ltd., has been reclassified to available-for-sale financial assets (see Note 27).

  • 196 -

9. HELD-TO-MATURITY FINANCIAL ASSETS

Current
Corporate bonds - Chinatrust
Noncurrent
Corporate bonds - Chinatrust
Corporate bonds - Cayman Ton Yi		 December 31
2015
2014
$ 47,840
$ -
$ -
$ 47,840
50,280

-
$ 50,280
$ 47,840

In 2013, the Group bought the denomination of RMB10 thousand and 3-year corporate bonds issued by Chinatrust with a coupon rate of 2.9% and an effective interest rate of 2.9%. And in 2015, the Group bought the denomination of RMB10 thousand corporate bonds issued by Cayman Ton Yi Industrial Holdings Limited with a coupon rate of 4.2% and an effective interest rate of 4.2%.

10. FINANCIAL ASSETS MEASURED AT COST

Domestic unlisted common shares
Overseas unlisted common shares		 December 31 December 31


2015
$ 115,520

-

$ 115,520
 2014
$ 65,520
46,478
$ 111,998

The Company has assessed the recoverable amount of the financial assets measured at cost and recognized an impairment loss of $45,633 thousand during the period of year ended December 31, 2014. The Company sold overseas unlisted common shares of Sitime to unrelated party and received $7,917 thousand. Meanwhile, recognized a disposal loss of $32,697 thousand (see Note 31).

Due to the Company has been listed on ShenZhen Stock Exchange on May 15, 2015, and already has the public quoted market price in active market. The shares of Guangdong Failong Crystal Technology Co., Ltd., has been reclassified to available-for-sale financial assets (see Notes 8 and 28).

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

11. OTHER FINANCIAL ASSETS

Current
Time deposits with original maturity more than 3 months		 December 31
2015
$ 32,825		 2014
$ 53,244

The market interest rates of the time deposits with original maturity more than 3 months 0.61% and 0.56%-3.25% per annum as of December 31, 2015 and 2014.

  • 197 -

12. NOTES, ACCOUNTS RECEIVABLE AND OTHER RECEIVABLES

Notes receivable
Notes receivable - operating
Less: Allowance for impairment loss
Accounts receivable
Accounts receivable
Accounts receivable - related parties
Less: Allowance for impairment loss
Less: Allowance for impairment loss - related parties
Other receivables
Income tax refund receivable
Others		 December 31 December 31









2015
$ 2,934


(15)

$ 2,919

$ 2,357,059

97,461

2,454,520
(21,700)

(30)

$ 2,432,790

$ 16,246


21,409

$ 37,655
 2014
$ 23,651

(118)
$ 23,533
$ 2,532,430

125,359
2,657,789

(14,767)

(42)
$ 2,642,980
$ 15,884

4,801
$ 20,685

The average credit period on sales of goods was 60 to 120 days. No interest was charged on trade receivables. In determining the recoverability of a trade receivable, the Company 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. Historical experience shows that the Company recognized an allowance in accordance with the proportion of accounts receivable of each customers.

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

Less than 60 days
61-90 days
91-365 days		 December 31


2015
$ 2,297

19,140

51,571

$ 73,008
 2014
$ 9,813
23,169

10,534
$ 43,516

The above aging schedule was based on the past due date.

  • 198 -

Movements of the Allowance for Doubtful Accounts Receivables

Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Balance at January 1, 2014
$ -
$ 15,437

Provision
-
1,021
Reversal

-

(1,649)

Balance at December 31, 2014
$ -
$ 14,809

Balance at January 1, 2015
$ -
$ 14,809

Provision
7,493
-
Reversal

-

(572)

Balance at December 31, 2015
$ 7,493
$ 14,237

Movements of the Allowance for Doubtful Notes Receivables
Individually
Assessed for
Impairment
Collectively
Assessed for
Impairment
Balance at January 1, 2014
$ -
$ 6

Provision
-
112
Reversal

-

-

Balance at December 31, 2014
$ -
$ 118

Balance at January 1, 2015
$ -
$ 118

Provision
-
(103)
Reversal

-

-

Balance at December 31, 2015
$ -
$ 15
 Total
$ 15,437
1,021

(1,649)
$ 14,809
$ 14,809
7,493

(572)
$ 21,730
Total
$ 6
112

-
$ 118
$ 118
(103)

-
$ 15

13. INVENTORIES

Finished goods
Work in process
Raw materials
Supplies and spare parts
Merchandise
Land to be development		 December 31 December 31


2015
$ 178,651

211,802
85,226
24,380
408,085
3,878

$ 912,022
 2014
$ 253,242
297,940
105,442
35,296
390,336

10,065
$ 1,092,321

As of December 31, 2015 and 2014, the allowance for inventory devaluation was $36,664 thousand and $38,328 thousand, respectively.

  • 199 -

The cost of inventories recognized as cost of goods sold in the years ended December 31, 2015 and 2014 included $6,531,490 thousand and $6,701,406 thousand, respectively, which included $9,192 thousand and $17,819 thousand, respectively, due to write-downs of inventories.

14. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

Investments in subsidiaries
Investments in associates		 December 31 December 31


2015
$ 5,583,398


65,032

$ 5,648,430
 2014
$ 4,866,759

64,335
$ 4,931,094

Investments in Subsidiaries

Unlisted companies
Taiwan Crystal Technology International Ltd.
TXC Technology Inc.
TXC Japan Corporation
Taiwan Crystal Technology (HK) Limited
TXC Optec Corporation
Name of Subsidiaries
Taiwan Crystal Technology International Ltd.
TXC Technology Inc.
TXC Japan Corporation
Taiwan Crystal Technology (HK) Limited
TXC Optec Corporation		 December 31


2015
2014
$ 4,753,972
$ 4,500,753
17,916
13,759
15,783
11,335
362,329
340,912
433,398

-
$ 5,583,398
$ 4,866,759
December 31
2015
2014
100%
100%
100%
100%
100%
100%
100%
100%
100%
-

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

TXC Optec Corporation was established on April 22, 2015 in Taiwan. The contributed capital was $100 in 10 shares. According to decisions made in 2015 annual general meeting, in order to ensure professional services, which enhance competency and performance, TXC Corporation will divide the assets and liabilities of photovoltaics industry to TXC Optec Corporation following “R.O.C. Business Mergers And Acquisitions Act” and related acts. TXC Optec Corporation will issue 21,490 thousand shares in exchange of the assets and liabilities mentioned above. The date fixed for the spin-off fell on September 1, 2015. The divided capitalized value is $429,900. The contributed capital for TXC Optec Corporation increase to $430,000 thousand (21,500 thousand shares) on the date fixed for the spin-off of December 31, 2015 (Note 25).

Investments in Associates

Unlisted companies
Tai-Shing Electronics Components Corporation (Tai-Shing)		 December 31
2015
$ 65,032
 2014
$ 64,335
  • 200 -
The Company’s share of:
Profit (loss) from continuing operations
Other comprehensive income
Total comprehensive income for the year		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
$ 9,815


1,060

$ 10,875
 2014
$ (665)

-
$ (665)

Refer to Table 6 “name, locations, and related information of investees on which the Company exercises significant influence” for the nature of activities, principal place of business and country of incorporation of the associates.

In November 2014, the TXC acquired 2,500 thousand shares of Tai-Shing Electronics Components Corporation for $65,000 thousand; following such acquisition, the Company’s percentage of ownership in Tai-Shing was 12.5%. The TXC sold parts of his holding to non-relationship with the Company during the three months ended September 30. The sale of the interests generating $1,628 thousand, and the ratio dropped to 11.65%. The TXC has power to govern the financial and operating policies of Tai-Shing due to part of directors of TXC are the same as Tai-Shing. As a result, Tai-Shing is accounted for using the equity method.

15. PROPERTY, PLANT AND EQUIPMENT


Cost
Balance at January 1, 2014

Additions
Disposals
Reclassification

Balance at December 31, 2014

Accumulated depreciation and
impairment
Balance at January 1, 2014

Disposals
Depreciation expenses
Reclassification

Balance at December 31, 2014

Carrying value at December 31,
2014

Cost
Balance at January 1, 2015

Additions
Disposals
Transfer to investment property
Reclassification

Balance at December 31, 2015

Accumulated depreciation and
impairment
Balance at January 1, 2015

Disposals
Depreciation expenses
Transfer to investment property
Reclassification

Balance at December 31, 2015

Carrying value at December 31,
2015
 Freehold Land
Land
Improvements
$ 598,145 $ 151

-
-
-
-

-

-

$ 598,145
$ 151

$ - $ 128

-
-
-
23

-

-

$ -
$ 151

$ 598,145
$ -

$ 598,145 $ 151

-
920
-
-
-
-

-

-

$ 598,145
$ 1,071

$ - $ 151

-
-
-
22
-
-

-

-

$ -
$ 173

$ 598,145
$ 898
 Buildings
$ 1,475,067

13,002
-

359

$ 1,488,428

$ 360,981

-
88,197

359

$ 449,537

$ 1,038,891

$ 1,488,428

13,892
(1,388 )
-

(258,189)

$ 1,242,743

$ 449,537

(1,388 )
80,960
-

(70,910)

$ 458,199

$ 784,544
 Machinery
and
Equipment
$ 2,423,763

216,844
(34,762 )

-

$ 2,605,845

$ 1,142,982

(19,327 )
394,002

-

$ 1,517,657

$ 1,088,188

$ 2,605,845

132,875
(4,635 )
(464,870 )

-

$ 2,269,215

$ 1,517,657

(4,263 )
401,099
(220,188 )

-

$ 1,694,305

$ 574,910
 Transport-
ation
Equipment
$ -
-
-

-

$ -

$ -
-
-

-

$ -

$ -

$ -
789
-
-

-

$ 789

$ -
-
-
-

-

$ -

$ 789
 Office
Equipment
$ 95,579


5,716

(1,100 )

-

$ 100,195

$ 74,722


(1,100 )

12,616

-

$ 86,238

$ 13,957

$ 100,195


4,383

(25,246 )

(1,904 )

-

$ 77,428

$ 86,238


(25,246 )

8,718

(1,444 )

-

$ 68,266

$ 9,162
 Total
$ 4,592,705
235,562
(35,862 )

359
$ 4,792,764
$ 1,578,813
(20,427 )
494,838

359
$ 2,053,583
$ 2,739,181
$ 4,792,764
152,859
(31,269 )
(466,774 )

(258,189)
$ 4,189,391
$ 2,053,583
(30,897 )
490,799
(221,632 )

(70,910)
$ 2,220,943
$ 1,968,448
  • 201 -

For the years ended December 31, 2015 and 2014, the Company did not recognize any impairment loss.

The above items of property, plant and equipment were depreciated on a straight-line basis at the following rates per annum:

Land improvements 6 years
Buildings
Industrial building 35-61 years
Electrical power systems 4-10 years
Engineering systems 1-17 years
Equipment
Major production equipments 1-5 years
Temperature control systems 4-7 years
Transportation equipments 4-7 years
Transportation equipments 3-8 years
Office equipment 2-6 years

The major component parts of the buildings held by the Company included (plants, electro-powering machinery and engineering systems, etc.), which were depreciated over their estimated useful lives.

The TXC divided parts of machinery and equipment to TXC Optec Corporation. Refer to Note 25 for dividing information.

Refer to Note 30 for the carrying amount of property, plant and equipment that had been pledged by the Company to secure borrowings/general banking facilities granted to the Company.

16. INVESTMENT PROPERTIES

Completed Completed
Investment
Property
Cost
Balance at January 1, 2014 $
10,519
Transferred to property, plant and equipment (359)
Balance at December 31, 2014 $
10,160
Accumulated depreciation and impairment
Balance at January 1, 2014 $ (3,918)
Transferred to property, plant and equipment 359
Depreciation expense (129)
Balance at December 31, 2014 $
(3,688)
Net amount at January 1, 2014 $
6,601
Net amount at December 31, 2014 $
6,472
(Continued)
  • 202 -
Completed Completed
Investment
Property
Cost
Balance at January 1, 2015 $
10,160
Transferred from property, plant and equipment 258,189
Disposals (1,722)
Balance at December 31, 2015 $ 266,627
Accumulated depreciation and impairment
Balance at January 1, 2015 $
(3,688)
Transferred from property, plant and equipment (70,910)
Disposals 1,722
Depreciation expense (7,595)
Balance at December 31, 2015 $ (80,471)
Net amount at December 31, 2015 $ 186,156
(Concluded)

The Company leased part of office buildings to TXC Optec Corporation, therefore reclassified these buildings from investment properties to property, plant and equipment.

The investment properties held by the Company were depreciated over their useful lives of 6-61 years, using the straight-line method.

The fair value of the Company’s investment properties as of December 31, 2015 and 2014 was $295,479 thousand and $72,311 thousand, respectively. The fair value valuation had not been performed by independent qualified professional valuers; however, management of the Company used the valuation model that market participants would use in determining the fair value the valuation was arrived at by reference to market evidence of transaction prices for similar properties.

All of the Company’s investment property was held under freehold interests.

17. BORROWINGS

  • a. Short-term borrowings
Unsecured borrowings
Bank loans (1)
Letters of credit (2)		 December 31 December 31


2015
$ -


51,940

$ 51,940
 2014
$ 100,000

51,777
$ 151,777

  • 1) The weighted average effective interest rate at December 31, 2014 on the bank loans was 1.15% annum.

  • 203 -

  • 2) The letters of credit interest rate at December 31, 2015 and 2014 on the bank loans was 0.9% and 0.96% annum.

  • b. Long-term borrowings

Secured borrowings (Note 30)
Bank loans (1)
Unsecured borrowings
Line of credit borrowings (2)
Less: Current portion
Long-term borrowings: Non-current		 December 31 December 31


2015
$ 921,875

450,000

(206,250)

$ 1,165,625
 2014
$ 950,000
200,000

(475,000)
$ 675,000

  • 1) The weighted average effective interest rate on the bank loan was 1.15%-1.204% per annum (December 31, 2014: 1.15%-1.255% per annum). See Note 30 for collaterals on long-term loans.

  • 2) The interest rate of the line of credit borrowings on the bank loans was 1%-1.1% per annum (December 31, 2014: 1.15%-1.19% per annum).

18. BONDS PAYABLE

Unsecured domestic convertible bonds
Less: Discount on bonds payable		 December 31 December 31


2015
$ 798,941

(798,941)

$ -
 2014
$ 782,139

-
$ 782,139

On January 25, 2014, the Corporation issued forth unsecured domestic convertible bonds with an aggregate value of $800,000 thousand to pay off borrowings and purchase equipment.

Other details of the bond issuance are summarized as follows:

  • a. Issue date: January 25, 2013.

  • b. Total issue amount: $800,000 thousand.

  • c. Issue price: 100%.

  • d. Par value: $100 thousand.

  • e. Coupon rate: 0%.

  • f. Repayment term: The bonds are repayable on January 25, 2016 upon the maturity of the bonds.

  • 204 -

  • g. Conversion right: Holder can request for conversion of the bonds to the Corporation’s common stock.

  • h. Conversion period: From February 26, 2013 to January 15, 2016.

  • i. Conversion price: The original conversion price per share is $40.9 the conversion price is subject to adjustment based on a certain formula if there are changes in outstanding shares or execution of conversion below market price.

  • j. Redemption of bonds

  • 1) Redemption on the maturity date: On the maturity date, the Corporation will redeem the bonds of the principal amounts.

  • 2) Early redemption on the maturity date:

    • a) During the period of time between one month after issuance and the 40th day before maturity, if the closing price of the Corporation’s shares reaches 30% of the conversion price for 30 consecutive trading days, the Corporation may redeem the remaining bonds at a price of their book value.

    • b) During the period of time between one month after issuance and the 40th day before maturity, when over 90% of the bonds had been redeemed, bought back or converted, the Corporation may redeem the remaining bonds at a price of their book value.

  • k. Converted bond: As of December 31, 2015, there is no bonds had been converted into common stocks.

The convertible bonds contain both liability and equity components. The equity component was presented in equity under the heading of capital surplus - option. The effective interest rate of the liability component was 1.5% per annum on initial recognition.

Proceeds from issue

Liability component at the date of issue
Embedded derivatives (less transaction costs allocated to the financial liabilities of
$2 thousand)
Equity component (less transaction costs allocated to the equity component of $288
thousand)
Bonds converted into common stock
Interest expenses calculated by effective interest rate

Liability component at December 31, 2015
 $ 800,000
(5,001)
318
(45,632)
-
49,256
$ 798,941

Movements of the conversion option derivative instrument in the current period were as follows:

The Conversion
Option
Derivative
Instrument
Issued date $ 318
Fair value changes loss
(318)
Balance at December 31, 2015 $ -
  • 205 -

19. OTHER LIABILITIES

Current
Other payables
Bonus to employees, directors and supervisors
Commission
Salaries
Bonus
Payables for annual leave
Others
Other liabilities
Receipts under custody
Others
Non-current
Guarantee deposits received		 December 31 December 31






2015
$ 121,443

64,372
32,286
113,790
16,283

65,832

$ 414,006

$ 4,273


12,276

$ 16,549

$ 29,953
 2014
$ 125,391
62,346
35,812
116,238
16,156

106,130
$ 462,073
$ 4,749

8,597
$ 13,346
$ 29,953

20. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

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

The Corporation has set up appointed manager’s pension fund and contributes monthly an amount of not less than 8% of the appointed manager’s monthly salaries and wages to the Bank of Taiwan.

b. Defined benefit plans

The Company has defined benefit plans under the Labor Standards Law that provide benefits based on an employee’s length of service and average monthly salary for the six-month period prior to retirement. The aforementioned companies contribute an amount equal to 4% of salaries paid each month to their respective pension funds (the Funds), which are administered by the Labor Pension Fund Supervisory Committee (the Committee) and deposited in the Committee’s name in the Bank of Taiwan.

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

Present value of defined benefit obligation
Fair value of plan assets
Net defined benefit liability		 December 31 December 31


2015
$ 120,520


(73,913)

$ 46,607
 2014
$ 106,029

(66,138)
$ 39,891
  • 206 -

Movements in net defined benefit liability (asset) were as follows:

Present Value Present Value
of the Defined Net Defined
Benefit Fair Value of Benefit
Obligation the Plan Assets
Liability (Asset)
Balance at January 1, 2014 $
94,533		 $ (60,370)
 $
34,163
Service cost
Current service cost 2,226 - 2,226
Past service cost and loss (gain) on
settlements 1,844 - 1,844
Net interest expense (income) 1,515
(1,156)
 359
Recognized in profit or loss 5,585
(1,156)
 4,429
Remeasurement
Return on plan assets (excluding amounts
included in net interest) - (221) (221)
Actuarial (gain) loss - changes in
demographic assumptions 535 - 535
Actuarial (gain) loss - changes in financial
assumptions 1,189 - 1,189
Actuarial (gain) loss - experience
adjustments 12,323
-
 12,323
Recognized in other comprehensive income 14,047
(221)
 13,826
Contributions from the employer - (15,320) (15,320)
Benefits paid (8,136)
8,136
 -
Balance at December 31, 2014 106,029
(66,138)
 39,891
Service cost
Current service cost 1,875 - 1,875
Past service cost and loss (gain) on
settlements 790 - 790
Net interest expense (income) 1,722
(1,200)
 522
Recognized in profit or loss 4,387
(1,200)
 3,187
Remeasurement
Return on plan assets (excluding amounts
included in net interest) - (548) (548)
Actuarial (gain) loss - changes in
demographic assumptions 5,735 - 5,735
Actuarial (gain) loss - changes in financial
assumptions 2,572 - 2,572
Actuarial (gain) loss - experience
adjustments 11,090
-
 11,090
Recognized in other comprehensive income 19,397
(548)
 18,849
Contributions from the employer - (12,527) (12,527)
Benefits paid (9,293)
9,293
 -
Balance at December 31, 2015 $ 120,520 $ (73,913)
 $
46,607
  • 207 -

The pension costs of the aforementioned defined benefit plans were recognized in profit or loss by the following categories:

Cost of goods sold
Marketing expenses
General and administrative expenses
Research and development expenses		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31

2015
$ 1,564

401
576
646

$ 3,187
 2014
$ 2,152
603
772

902
$ 4,429

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

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

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

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

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

Discount rate(s)
Expected rate(s) of salary increase		 December 31
2015
2014
1.375%
1.625%
2.00%
2.00%

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

December 31, December 31,
2015
Discount rate(s)
0.25% increase $ (2,786)
0.25% decrease $
2,888
Expected rate(s) of salary increase
0.25% increase $
2,782
0.25% decrease $ (2,699)

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

  • 208 -
The expected contributions to the plan for the next year
The average duration of the defined benefit obligation		 December 31
2015
$ 15,320

5 years		 2014
$ 12,527
5 years

21. EQUITY

  • a. Capital stock

Ordinary shares

Numbers of shares authorized (in thousands)
Shares authorized
Number of shares issued and fully paid (in thousands)
Shares issued		 December 31 December 31



2015

500,000

$ 5,000,000


309,757

$ 3,097,570
 2014

500,000
$ 5,000,000

309,757
$ 3,097,570

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

50,000 thousand shares and 30,000 thousand shares of the Company’s shares authorized were reserved for the issuance of convertible bonds and employee share options.

  • b. Capital surplus
May be used to offset a deficit, distributed as cash dividends, or
transferred to share capital*
Arising from issuance of common shares
Arising from conversion of bonds
Arising from treasury share transactions
May not be used for any purpose
Arising from share warrants		 December 31 December 31


2015
$ 611,776

977,028
27,745

45,632

$ 1,662,181
 2014
$ 611,776
977,028
27,745

45,632
$ 1,662,181

The carrying amount at the beginning and at the end of December, 31 2014 was no change for each class of capital surplus.

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

  • 209 -

  • c. Retained earnings and dividend policy

Appropriation of earnings and dividend policy

Under the Corporation’s Articles of Incorporation, the Corporation should appropriate 10% of its net income less any prior years’ deficit as legal reserve. The remaining amount may be fully retained or partially retained and partially distributed for dividends, upon the stockholders’ approval, according to the following percentages.

  • 1) Employee bonus - not less than 3%.

  • 2) Directors and supervisors’ remuneration - not more than 2%.

  • 3) Stock bonuses to employees include subsidiaries’ employees who meet certain criteria set by the stockholders’ meetings.

Dividends are recommended by the board of directors in accordance with the Corporation’s dividend policy. Under this policy, industry trend and growth should be evaluated, investment opportunities should be fully understood, and proper capital adequacy ratios should be considered in determining the dividend to be distributed. In addition, cash dividends should not be less than 20% of the total dividends to be appropriated.

In accordance with the amendments to the Company Act in May 2015, the recipients of dividends and bonuses are limited to shareholders and do not include employees. The consequential amendments to the Company’s Articles of Incorporation had been proposed by the Company’s board of directors on March 14, 2016 and are subject to the resolution of the shareholders in their meeting to be held on June 2016. For information about the accrual basis of the employees’ compensation and remuneration to directors and supervisors and the actual appropriations, please refer to 6. employee benefits expense in Note 22.

Under Rule No. 1010012865, Rule No. 1010047490 and Rule No. 1030006415 issued by the FSC and the directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of IFRSs”, the Company should appropriate or reverse to a special reserve.

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

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

The appropriations of earnings for 2014 and 2013 had been approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014, respectively. The appropriations and dividends per share were as follows:

Legal reserve
Cash dividends		 Appropriation of Earnings
For Fiscal
For Fiscal

Year 2014
Year 2013

$ 99,517
$ 93,516

774,393
681,465		 Dividends Per Share
(NT$)
For Fiscal
For Fiscal
Year 2014
Year 2013
$ -
$ -
2.5
2.2

The appropriations of earnings for 2015 are subject to the resolution of the shareholders’ meeting to be held on June 2016.

  • 210 -

d. Treasury stock

According to According to
Purpose of Treasury Stock the Raw
Year ended January 1, 2015 $ -
Addition 20 thousand shares 20
Sold 20 thousand shares (20)
Year ended December 31, 2015 $ -

The Company decided to pass through the split case of TXC Optec Corporation on June 16, 2015 at shareholders meeting (Note 14). According to Business Mergers and Acquisition Act Article 12, shareholders can request the Company buyback treasury stock in accordance with the fair value. The Company bought back treasury stock totaling 20 thousand shares, and the total value of shares bought back was $806 thousand. Also the company sold full treasury stock, and the sale price was $721 thousand.

22. NET PROFIT FROM CONTINUING OPERATIONS

Net profit from continuing operations had been arrived at after charging:

a. Other income

Interest income
Income from government grants
Dividends income
Others		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ 13,222
-
1,118

19,708
$ 34,048		 2014
$ 11,844
6,769
1,118

23,603
$ 43,334

b. Other gains and losses

Gain on disposal of investment
Gain on disposal of investment
Net loss arising on financial assets designated as at FVTPL
Foreign exchange gains
Impairment loss on financial assets
Other expense		 For the Year Ended December 31
2015
2014
$ 3,286
$ (27,324)
1,628
-
(909)
(12,488)
99,901
129,839
(10,210)
(47,569)

(10,128)

(10,429)
$ 83,568
$ 32,029
  • 211 -

c. Impairment loss on financial assets

Financial assets measured at cost
Available-for-sale financial assets		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ -
(10,210)
$ (10,210)		 2014
$ (1,936)
(45,633)
$ (47,569)

d. Finance costs

Interest on bank loans
Interest on convertible bonds
e. Depreciation and amortization
Property, plant and equipment
Investment property
Others
An analysis of deprecation by function
Cost of goods sold
Marketing expenses
General and administrative expenses
Research and development expenses
An analysis of amortization by function
Cost of goods sold
Marketing expenses
General and administrative expenses
Research and development expenses		 For the Year Ended For the Year Ended December 31
2015
$ (14,785)
(16,802)
$ (31,587)
For the Year Ended		 2014
$ (13,897)
(16,802)
$ (30,699)
December 31








2015
$ 490,799

7,595

2,354

$ 500,748

$ 415,658

563
24,969
57,204

$ 498,394

$ -

-
1,260
1,094

$ 2,354
 2014
$ 494,838
129

4,562
$ 499,529
$ 420,437
612
20,502

53,416
$ 494,967
$ 382
-
4,070

110
$ 4,562
  • 212 -

f. Employee benefits expense

Post-employment benefits (see Note 20)
Defined contribution plans
Defined benefit plans
Other employee benefits
An analysis of employee benefits expense by function
Operating costs
Operating expenses		 For the Year Ended For the Year Ended December 31






2015
$ 24,732

3,187

27,919
750,712

$ 778,631

$ 438,888

339,743

$ 778,631
 2014
$ 25,562

4,429
29,991

779,559
$ 809,550
$ 466,209

343,341
$ 809,550

The existing Articles of Incorporation of the Company stipulate to distribute bonus to employees and remuneration to directors and supervisors at the rates no less than 3% and no higher than 2%, respectively, of net income (net of the bonus and remuneration). For the year ended December 31, 2014, the bonus to employees and the remuneration to directors and supervisors were $107,478 thousand and $17,913 thousand, respectively, representing 12% and 2%, respectively, of the base net income.

To be in compliance with the Company Act as amended in May 2015, the proposed amended Articles of Incorporation of the Company stipulate to distribute employees’ compensation and remuneration to directors and supervisors at the rates no less than 3% and no higher than 2%, respectively, of net profit before income tax, employees’ compensation, and remuneration to directors and supervisors. For the year ended December 31, 2015, the employees’ compensation and the remuneration to directors and supervisors were $104,094 thousand and $17,349 thousand, respectively, representing 9% and 1.5%, respectively, of the base net profit. The employees’ compensation and remuneration to directors and supervisors in cash for the year ended December 31, 2015 have been approved by the Company’s board of directors on March 14, 2016 and are subject to the resolution of the amendments to the Company’s Articles of Incorporation for adoption by the shareholders in their meeting to be held on June 7, 2016, and in addition thereto a report of such distribution shall be submitted to the shareholders' meeting.

Material differences between such estimated amounts and the amounts proposed by the board of directors on or before the date the annual consolidated financial statements are authorized for issue are adjusted in the year the bonus and remuneration were recognized. If there is a change in the proposed amounts after the annual consolidated financial statements were authorized for issue, the differences are recorded as a change in accounting estimate.

The bonus to employees and the remuneration to directors and supervisors for 2014 and 2013 approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014, respectively, were as follows:

Employee bonus

Directors and supervisors’
remuneration		 For Fiscal Year 2014
Cash Bonus
Share Bonus
$ 107,478
$ -
17,913
-		 For Fiscal Year 2013
Cash Bonus
Share Bonus
$ 100,998
$ -
16,833
-
  • 213 -

There was no difference between the amounts of the bonus to employees and the remuneration to directors and supervisors approved in the shareholders’ meetings on June 16, 2015 and June 18, 2014 and the amounts recognized in the financial statements for the years ended December 31, 2014 and 2013, respectively.

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.

23. INCOME TAXES RELATING TO CONTINUING

  • a. Income tax recognized in profit or loss

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

Current tax
In respect of the current period
Income tax of unappropriated earnings
Adjustments for prior year
Deferred tax
In respect of the current period
Income tax expense recognized in profit or loss		 For the Year Ended For the Year Ended December 31




2015
$ 82,499

10,979

9,252


102,730


(5,776)

$ 96,954
 2014
$ 56,949
16,018

1,779

74,746

13,797
$ 88,543

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

Profit before tax from continuing operations
Income tax expense at the 17% statutory rate
Tax effect of adjusting items:
Undetectable expenses and losses
Tax-exempt income
Tax-exempt income for five years
Additional income tax on unappropriated earnings
Unrecognized temporary differences
Subsidiaries to repatriate earnings withholding tax
Investment tax credits
Additional income tax under the Alternative Minimum Tax
Act
Adjustment for prior years’ tax
Income tax expense recognized in profit or loss		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31



2015
$ 1,035,157

$ 175,977

1,735
(67,258)
(16,478)
10,979
(107)
-
(22,433)
5,287

9,252

$ 96,954
 2014
$ 1,083,717
$ 184,232
12,392

(69,120)

(37,648)
16,018

220
10,812

(30,142)

-

1,779
$ 88,543

For the years ended December 31, 2015 and 2014, the Company applied a tax rate of 17% for entities subject to the Income Tax Law of the Republic of China; for other jurisdictions, the Company measures taxes by using the applicable tax rate for each individual jurisdiction.

  • 214 -

  • b. Income tax expense recognized in other comprehensive income

Deferred income tax expense (benefit)
Related to actuarial gain/loss from defined benefit plans
Current income tax assets and liabilities
Current income tax liabilities
Income tax payable		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ (3,204)

December		 2014
$ (2,350)
31
2015
$ 50,994
 2014
$ 57,560

  • c. Current income tax assets and liabilities

  • d. Deferred income tax balance

The analysis of deferred income tax in the balance sheets was as follows:

Year ended December 31, 2015

Deferred tax assets
Unrealized loss on inventories
Financial assets at fair value through
profit or loss
Payable for annual leave
Determine benefit obligation
Others
Deferred tax liabilities
Unrealized exchange loss
Associates		 Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehen-
sive Income
Balance, End
of Year
$ 6,925
$ (257)
$ - $ 6,668
2,123
(1,968)
-
155
2,746
22
-
2,768
8,790
(2,062)
3,204
9,932

97

175

-

272
$ 20,681
$ (4,090)
$ 3,204
$ 19,795
$ 14,540
$ (9,866)
$ - $ 4,674

124,436

-

-

124,436
$ 138,976
$ (9,866)
$ -
$ 129,110
  • 215 -

Year ended December 31, 2014

Deferred tax assets
Unrealized loss on inventories
Financial assets at fair value through
profit or loss
Payable for annual leave
Determine benefit obligation
Investment tax credits
Others
Deferred tax liabilities
Unrealized exchange loss
Associates		 Recognized in
Balance,
Beginning of
Year
Profit or Loss
Other
Comprehen-
sive Income
Balance, End
of Year
$ 5,923
$ 1,002
$ - $ 6,925
2,946
(823)
-
2,123
2,702
44
-
2,746
7,817
(1,377)
2,350
8,790
3,980
(3,980)
-
-

324

(227)

-

97
$ 23,692
$ (5,361)
$ 2,350
$ 20,681
$ 6,104
$ 8,436
$ - $ 14,540

124,436

-

-

124,436
$ 130,540
$ 8,436
$ -
$ 138,976
  • e. Unused investment tax credits, operating loss carryforward and tax-exemption information

As of December 31, 2015, profits attributable to the following expansion projects were exempted from income tax for a four- or five-year period:

Expansion of Construction Project
2009
Integrated income tax
Unappropriated earnings
Unappropriated earnings generated before January 1, 1998
Unappropriated earnings generated on and after January 1,
1998
Imputation credits accounts		 Tax-exemption Period Tax-exemption Period Tax-exemption Period
2014 to 2018
December 31



2015
$ -


2,659,935

$ 2,659,935

$ 187,979
 2014
$ -

2,611,372
$ 2,611,372
$ 117,593

f. Integrated income tax

The creditable ratio for distribution of earnings of 2015 and 2014 was 8.23% (expected) and 7.16%, respectively.

g. Income tax assessments

The tax returns had been assessed by the tax authorities before 2009 and in 2011, respectively.

  • 216 -

24. EARNINGS PER SHARE

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

Net Profit for the Year

Profit for the period attributable to owners of the Company
Effect of dilutive potential ordinary shares:
Convertible bonds
Employee share option
Earnings used in the computation of diluted earnings per share		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
$ 938,203

13,946

-

$ 952,149
 2014
$ 995,174
13,946

-
$ 1,009,120

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

Weighted average number of ordinary shares in computation of basic
earnings per share
Effect of dilutive potential ordinary shares:
Convertible bonds
Bonus issue to employee or employees’ compensation
Weighted average number of ordinary shares used in the
computation of diluted earnings per share		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
309,748

19,560

4,111

333,419
 2014
309,757
18,059

3,787
331,603

If the Company was able to settle the bonuses or compensation paid to employees by cash or shares, the Company presumed that the entire amount of the bonus or compensation would be settled in shares and the resulting potential shares were included in the weighted average number of shares outstanding used in the computation of diluted earnings per share, if the shares had a dilutive effect. Such dilutive effect of the potential shares was included in the computation of diluted earnings per share until the shareholders resolve the number of shares to be distributed to employees at their meeting in the following year.

25. NON-CASH TRANSACTIONS

According to decisions made in 2015 annual general meeting, in order to ensure professional services, which enhance competency and performance, TXC Corporation will divide the assets and liabilities of photovoltaics industry to TXC Optec Corporation following “R.O.C. Business Mergers And Acquisitions Act” and related acts. TXC Optec Corporation will issue 21,490 thousand shares in exchange of the assets and liabilities below.

September 30, September 30,
2015
Deposits in bank $
20,000
Notes receivable 7,194
Accounts receivable 148,446
Inventories 85,332
(Continued)
  • 217 -
September 30, September 30,
2015
Other current assets $
1,178
Property, plant and equipment 245,142
Accounts payable (57,779)
Other payables (19,596)
Other payables to related parties (17)
$ 429,900
(Concluded)

26. OPERATING LEASE ARRANGEMENTS

  • a. The Company as lessee

Operating leases relate to leases of warehouse in trade zone with lease terms 3 years. All operating lease contracts contain clauses for 3-yearly market rental reviews. The Company does not have a bargain purchase option to acquire the leased land at the expiry of the lease periods.

As of December 31, 2015 and 2014, refundable deposits paid under operating lease all amounted to $727 thousand.

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

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years		 December 31


2015
$ 1,455
-

-
$ 1,455		 2014
$ 2,909
1,455

-
$ 4,364
  • b. The Company as lessor

Operating leases relate to the investment property owned by the Company with lease terms between 1 to 2 years. All operating lease contracts contain market review clauses in the event that the lessee exercises its option to renew. The lessee does not have a bargain purchase option to acquire the property at the expiry of the lease period.

As of December 31, 2015 and 2014, deposits received under operating leases all amounted to $210 thousand.

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

Not later than 1 year
Later than 1 year and not later than 5 years
Later than 5 years		 December 31


2015
$ 13,260
8,210

-
$ 21,470		 2014
$ 210
-

-
$ 210
  • 218 -

27. CAPITAL MANAGEMENT

The Company manages its capital to ensure that entities in the Company will be able to continue as going concerns while maximizing the return to stakeholders through the optimization of the debt and equity balance.

The capital structure of the Company consists of net debt (borrowings offset by cash and cash equivalents) and equity attributable to owners of the Company (comprising issued capital, reserves, retained earnings and other equity.

The Company is not subject to any externally imposed capital requirements.

28. FINANCIAL INSTRUMENTS

  • a. Fair value of financial instruments that are not measured at fair value

Except as detailed in the following table, management believes the carrying amounts of financial assets and financial liabilities recognized in the consolidated financial statements approximate their fair values.

  • b. Fair value of financial instruments that are measured at fair value on a recurring basis

  • 1) Fair value hierarchy

December 31, 2015
Available-for-sale financial
assets
Domestic investments
Unlisted shares

Foreign investments
Listed shares


Financial liabilities at FVTPL
Forward exchange contracts

December 31, 2014
Available-for-sale financial
assets
Domestic investments
Unlisted shares

Mutual funds


Financial liabilities at FVTPL
Forward exchange contracts
 Level 1
$ -


1,836,676

$ 1,836,676

$ -

Level 1
$ -


20,800

$ 20,800

$ -
 Level 2
$ -


-

$ -

$ 909

Level 2
$ -


-

$ -

$ 12,488
 Level 3
$ 34,300

-

$ 34,300

$ -

Level 3
$ 44,510

-

$ 44,510

$ -
 Total
$ 34,300

1,836,676
$ 1,870,976

$ 909
Total
$ 44,510

20,800
$ 65,310
$ 12,488
  • 219 -

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

  • 2) Reconciliation of Level 3 fair value measurements of financial assets

For the year ended December 31, 2015

Financial assets
Balance at January 1, 2015
Recognized in profit or loss (included in other gains and losses)
For the year ended December 31, 2014		 Available-for-
sale Financial
Assets
Equity
Instruments
$ 44,510
(10,210)
$ 34,300
Financial assets
Balance at January 1, 2015
Unrealized		 Available-for-
sale Financial
Assets
Equity
Instruments
$ 44,510

-
$ 44,510
  • 3) Valuation techniques and inputs applied for the purpose of measuring Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs Derivatives - foreign currency Discounted cash flow. forward contracts

Future cash flows are estimated based on observable forward exchange rates at the end of the reporting period and contract forward rates, discounted at a rate that reflects the credit risk of various counterparties.

  • 220 -

  • 4) Valuation techniques and inputs applied for the purpose of measuring Level 3 fair value measurement

The fair values of unlisted equity securities - ROC were determined using income approach. In this approach, the discounted cash flow method was used to capture the present value of the expected future economic benefits to be derived from the ownership of these investees. The significant unobservable inputs used are listed on the table below. An increase in long-term revenue growth rates or long-term pre-tax operating margin or a decrease in WACC or discount for lack of marketability used in isolation would result in increase in fair value.

December 31,
2015
Long-term revenue growth rates 11.73%
Long-term pre-tax operating margin 7.10%
WACC 13.12%
Discount for lack of marketability 30.58%
  • c. Categories of financial instruments
Financial assets
Loans and receivables (2)
Held-to-maturity investments (3)
Available-for-sale financial assets (4)
Financial liabilities
Fair value through profit or loss (FVTPL) (1)
Amortized cost (5)		 December 31
2015
2014
$ 3,819,717
$ 3,914,140
98,120
47,840
1,986,496
177,308
909
12,488
3,746,676
3,811,307

  • 1) The balances included the carrying amount of structured deposits, forward exchange contracts, bond investment and convertible bonds - redemption.

  • 2) The balances included loans and receivables measured at amortized cost, which comprise cash and cash equivalents, notes receivables, trade and other receivables, other financial assets, and refundable deposits.

  • 3) The balances included the carrying amount of financial bond investment.

  • 4) The balances included the carrying amount of available-for-sale shares and mutual funds.

  • 5) The balances included financial liabilities measured at amortized cost, which comprise short-term and long-term loans, notes, payable, trade and other payables, and bonds issued.

  • d. Financial risk management objectives and policies

The Company’s major financial instruments included equity and debt investments, bonds payable, borrowings. The Company’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 Company through internal risk reports which analyze exposures by degree and magnitude of risks. These risks include market risk (including currency risk, interest rate risk and other price risk), credit risk and liquidity risk.

  • 221 -

The Company sought to minimize the effects of these risks by using derivative financial instruments to hedge risk exposures. The use of financial derivatives was governed by the Company’s policies approved by the board of directors, which provided written principles on foreign exchange risk, interest rate risk, credit risk, the use of financial derivatives and non-derivative financial instruments, and the investment of excess liquidity. Compliance with policies and exposure limits was reviewed by the internal auditors on a continuous basis.

The financial department reported quarterly to the Company’s risk management committee, which monitors risks and policies implemented to mitigate risk exposures.

1) Market risk

The Company’s activities exposed it primarily to the financial risks of changes in foreign currency exchange rates (see (a) below) and interest rates (see (b) below). The Company entered into a variety of derivative financial instruments to manage its exposure to foreign currency risk and interest rate risk, including forward foreign exchange contracts to hedge the exchange rate risk arising on the Company’s foreign currency monetary.

a) Foreign currency risk

Several subsidiaries of the Company had foreign currency sales and purchases, which exposed the Company to foreign currency risk.

The carrying amounts of the Company’s foreign currency denominated monetary assets and monetary liabilities (including those eliminated on consolidation) at the end of the reporting period (see Note 33).

Sensitivity analysis

The Company was mainly exposed to the USD and JPY.

The following table details the Company’s sensitivity to a 1% increase and decrease in New Taiwan dollars (the functional currency) against the relevant foreign currencies. 1% is the sensitivity rate used when reporting foreign currency risk internally to key management personnel and represents management’s assessment of the reasonably possible change in foreign exchange rates. The sensitivity analysis included only outstanding foreign currency denominated monetary items and foreign currency forward contracts designated as cash flow hedges, and adjusts their translation at the end of the reporting period for a 1% change in foreign currency rates. The sensitivity analysis included external loans/borrowings as well as loans/borrowings to foreign operations within the Company where the denomination of the loan is in a currency other than the functional currency of the lender or the borrower. A positive number below indicates an increase in post-tax profit and other equity associated with New Taiwan dollars strengthen 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 post-tax profit and other equity and the balances below would be negative.

Profit or loss
 USD Impact
For the Year Ended
December 31
2015
2014
$ 18,726
$ 15,292		 JPY Impact
For the Year Ended
December 31
2015
2014
$ (1,820)
$ (1,261)

i. This was mainly attributable to the exposure outstanding on USD receivables and payables, which were not hedged at the end of the reporting period.

  • 222 -

  • ii. This was mainly attributable to the exposure to outstanding JPY payables, which were not hedged, at the end of the reporting period.

b) Interest rate risk

The Company was exposed to interest rate risk because the Company’s bank deposits and the Company borrowed funds at floating interest rates.

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

Fair value interest rate risk
Financial assets
Financial liabilities
Cash flow interest rate risk
Financial assets
Financial liabilities		 December 31
2015
2014
$ 464,329
$ 472,410
798,841
782,139
877,753
720,002
1,423,815
1,301,777

Sensitivity analysis

The sensitivity analyses below were determined based on the Company’s exposure to interest rates for both derivatives and non-derivative instruments at the end of the reporting period. For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was outstanding for the whole year. A 0.25% basis point increase or decrease was used when reporting interest rate risk internally to key management personnel and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 0.25% basis points higher/lower and all other variables were held constant, the Company’s pre-tax profit for the years ended December 31, 2015 and 2014 would decrease/increase by $1,365 thousand and $1,454 thousand, which was mainly attributable to the Company’s exposure to interest rates on its floating rate bank deposits and bank borrowings.

c) Other price risk

The Group was exposed to equity price risk through its investments in listed equity securities. Equity investments are held for strategic rather than trading purposes. The Group does not actively trade these investments. The Group’s equity price risk was mainly concentrated on equity instruments operating in Shenzhen stock exchange, growth enterprise.

Sensitivity analysis

The sensitivity analyses below were determined based on the exposure to equity price risks at the end of the reporting period.

If equity prices had been 1% higher/lower, other comprehensive income for the year ended December 31, 2015 would increase/decrease by $18,367, respectively.

  • 223 -

2) Credit risk

Credit risk refers to the risk that counterparty will default on its contractual obligations resulting in financial loss to the Company. As at the end of the reporting period, the Company’s maximum exposure to credit risk which will cause a financial loss to the Company due to failure to discharge an obligation by the counterparties and financial guarantees provided by the Company is arising from the carrying amount of the respective recognized financial assets as stated in the balance sheets.

  • 3) Liquidity risk

The Company manages liquidity risk by monitoring and maintaining a level of cash and cash equivalents deemed adequate to finance the Company’s operations and mitigate the effects of fluctuations in cash flows. In addition, management monitors the utilization of bank borrowings and ensures compliance with loan covenants.

The Company relies on bank borrowings as a significant source of liability. As of December 31, 2015 and 2014, the Company had available unutilized overdraft and short-term bank loan facilities of approximately $3,573,588 thousand and $2,917,535 thousand, respectively.

a) Liquidity and interest risk rate tables

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

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

December 31, 2015

Weighted
Interest
Average
Effective Rate Less Than
(%) 1 Year 2-3 Years 4-5 Years 5+ Years Total
Non-derivative financial
liabilities
Accounts payable - $ 1,108,589 $
-		 $
-
 $ - $ 1,108,589
Other payables - 415,331 - - - 415,331
Other current liabilities - 16,549 - - - 16,549
Bonds payable - 798,941 - - - 798,941
Variable interest rate
(liabilities) 0.9-1.204 258,190 978,125 187,500 - 1,423,815
Guarantee deposits received - - 29,953 - - 29,953
December 31, 2014
Weighted
Interest
Average
Effective Rate Less Than
(%) 1 Year 2-3 Years 4-5 Years 5+ Years Total
Non-derivative financial
liabilities
Accounts payable - $ 1,264,179 $
-		 $
-
 $ - $ 1,264,179
Other payables - 463,212 - - - 463,212
Other current liabilities - 13,346 - - - 13,346
Bonds payable - - 782,139 - - 782,139
Variable interest rate
(liabilities) 0.96-1.255 626,777 225,000 450,000 - 1,301,777
Guarantee deposits received - - 29,953 - - 29,953
  • 224 -

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

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

The following table detailed the Company’s liquidity analysis for its derivative financial instruments. The table was based on the undiscounted contractual net cash inflows and outflows on derivative instruments that settle on a net basis, and the undiscounted gross inflows and outflows on those derivatives that require gross settlement.

December 31, 2015

On Demand
or Less than
1 Month
1-3 Months
3
Net settled
Foreign exchange forward
contracts
$ 60
$ (969)

December 31, 2014
On Demand
or Less than
1 Month
1-3 Months
3
Net settled
Foreign exchange forward
contracts
$(10,325)
$ (2,163)
 Months to
1 Year
1-5 Years
$ -
$ -

Months to
1 Year
1-5 Years
$ -
$ -
 5+ Years
$ -
5+ Years
$ -
  • e. Reclassifications

On May 15, 2015 the Group reclassified its financial assets and the fair values at the reclassification date were as follows:

Before After
Reclassifications
Reclassifications
Financial assets at fair value through profit or loss - held for
trading $ 458,729 $ -
Available-for-sale financial assets - 458,729
$ 458,729 $ 458,729

Since the investment in Guandong Failong Crystal Technology Co., Ltd. has market price after it became listed in the Shenzhen Stock Exchange on May 15, 2015, it is most appropriate to reclassify if as available-for-sale investment.

  • 225 -

The carrying amounts and fair values of the reclassified financial assets (excluding those that had been derecognized) were as follows:

Available-for-sale financial
assets
 December 31 December 31 December 31 December 31
2015
Carrying
Amount
Fair Value
$ 1,836,676
$ 1,836,676		 2014
Carrying
Amount
$ 1,836,676
 Carrying
Amount
$ 46,478
 Fair Value
$ 46,478

29. RELATED-PARTY TRANSACTIONS

Related parties and their relationships with the Corporation:

  • a. Trading transactions
For the Year Ended December 31
2015
2014
Sales of goods
Subsidiaries
$ 300,320
$ 330,784
Associates

21,587

43,216
$ 321,907
$ 374,000
Purchase of goods
Subsidiaries
$ 2,567,756
$ 2,424,645
Associates
100
173
Others

58

3
$ 2,567,914
$ 2,424,821

Consulting fees


Subsidiaries
$ 104,605
$ 93,613
Selling prices to related parties were similar to those for third parties.
For the Year Ended December 31
2015
2014
Operating expenses
Associates
$ 632
$ 596		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31
2015
$ 632
 2014
$ 596

In 2015 and 2014, the selling price and purchasing price were not significantly different from those with third parties, except those for NGB, GPT, CKG, Ningbo Jingyu and TXC HK whose trading price depends on its function within the Group.

  • 226 -

  • b. Receivable from and payable to related parties

c.
d.		 December 31
2015
2014
Accounts receivable from related parties
Subsidiaries
$ 92,521
$ 118,447
Associates
4,940
6,912
Less: Allowance for impairment loss

(30)

(42)
$ 97,431
$ 125,317
The outstanding accounts receivables from related parties are unsecured.
December 31
2015
2014
Account payable to related parties
Subsidiaries
$ 630,888
$ 708,009
Associates
101
-
Others

544

321
$ 631,533
$ 708,330
The outstanding trade payables from related parties are unsecured.
December 31
2015
2014
Other receivables from related parties
Subsidiaries
$ 1,122
$ 33,131
Other payable from related parties
Associates
$ 1,325
$ 1,139
Payments for property, plant and equipment
For the Year Ended December 31
2015
2014

Associates
$ -
$ 53
Others

1,449

323
$ 1,449
$ 376
Disposal of property, plant and equipment		 December 31 December 31



2015
2014
$ 630,888
$ 708,009
101
-

544

321
$ 631,533
$ 708,330
December 31
2015
2014
$ 1,122
$ 33,131
$ 1,325
$ 1,139
For the Year Ended December 31


2015

$ -


1,449

$ 1,449
 2014
$ 53

323
$ 376
Subsidiaries
 2015
The Price
Gain/Loss
$ 372
$ -		 2014
The Price
Gain/Loss
$ 15,435
$ -
  • 227 -

e. Compensation of key management personnel

The remuneration of directors and other members of key management personnel for the years ended December 31, 2015 and 2014 were as follows:

Short-term benefits
Post-employment benefits		 For the Year Ended December 31 For the Year Ended December 31 For the Year Ended December 31


2015
$ 78,697

2,596

$ 81,293
 2014
$ 82,472

1,734
$ 84,206

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

30. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The following assets were provided as collateral for bank borrowings, the tariff of imported raw materials guarantees or the deposit for hiring foreign workers:

Land
Building equipment, net
Investment properties, net		 December 31 December 31


2015
$ 573,770

782,151
179,808

$ 1,536,627
 2014
$ 573,770
1,036,691

-
$ 1,610,461

31. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED COMMITMENTS

In addition to those disclosed in other notes, significant commitments and contingencies of the Company as of December 31, 2015 and 2014 were as follows:

Unused letters of credit amounted to approximately JPY144,551 thousand and JPY343,688 thousand and EUR99 thousand as of December 31, 2015 and 2014.

As of December 31, 2015, the Company unrecognized commitments are as follows:

Acquisition of equipment
 Contract
Amount
Paid Amount Unpaid Amount
$ 74,982
$ 55,713
$ 19,269

For the year ended December 31, 2014, the Company sold overseas unlisted common shares of Sitime to unrelated party amounted to $20,551 thousand and had already received $7,917 thousand, while the remaining payment of $12,634 thousand have to fulfill specific conditions to be collected. The Company will recognize the remaining balance once the conditions be fulfilled and the value can be reliably measured.

32. SIGNIFICANT EVENTS AFTER REPORTING PERIOD: NONE

  • 228 -

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

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

December 31, 2015

Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
103,850		 30.825 (USD:NTD) $ 3,408,876
JPY 289,288 0.2727 (JPY:NTD)
78,889
RMB 9,414 5.055 (RMB:NTD)
47,588
Investments accounted for using equity
method
USD 546 32.825 (USD:NTD)
17,916
JPY 57,875 0.2727 (JPY:NTD)
15,783
RMB 1,012,127 5.055 (RMB:NTD)
5,116,301
Financial liabilities
Monetary items
USD 46,802 32.825 (USD:NTD)
1,536,276
JPY 956,855 0.2727 (JPY:NTD)
260,934
December 31, 2014
Foreign Carrying
Currencies Exchange Rate Amount
Financial assets
Monetary items
USD $
101,241		 31.65 (USD:NTD) $ 3,204,278
JPY 286,404 0.2646 (JPY:NTD)
75,782
RMB 75,134 5.1724 (RMB:NTD)
388,623
Investments accounted for using equity
method
USD 435 31.65 (USD:NTD)
13,759
JPY 42,838 0.2646 (JPY:NTD)
11,335
RMB 936,058 5.1724 (RMB:NTD)
4,841,665
Financial liabilities
Monetary items
USD 52,924 31.65 (USD:NTD)
1,675,045
JPY 763,009 0.2646 (JPY:NTD)
201,892

For the years ended December 31, 2015 and 2014, unrealized net foreign exchange gains were $99,901 thousand and $129,839 thousand, respectively. It is impractical to disclose net foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign currency transactions and functional currencies of the group entities.

  • 229 -

34. SEPARATELY DISCLOSED ITEMS

  • a. Information on significant transactions and information on investees:

  • 1) Lending funds to others. (None)

  • 2) Providing endorsements or guarantees for others. (None)

  • 3) Holding of securities at the end of the period. (Table 1)

  • 4) Aggregate purchases or sales of the same securities reaching NT$300 million or 20 percent of paid-in capital or more. (Table 2)

  • 5) Acquisition of real estate reaching NT$300 million or 20 percent of paid-in capital or more. (None)

  • 6) Disposal of real estate reaching NT$300 million or 20 percent of paid-in capital or more. (None)

  • 7) Purchases or sales of goods from or to related parties reaching NT$100 million or 20 percent of paid-in capital or more. (Table 3)

  • 8) Trade receivables from related parties reaching NT$100 million or 20 percent of paid-in capital or more. (Table 4)

  • 9) Trading in derivative instruments. (Table 5 and Note 7)

  • 10) Others: The business relationship between the parent and the subsidiaries and between each subsidiary, and the circumstances and amounts of any significant transactions between them. (Table 6)

  • b. Information on investments in mainland China

  • 1) Information on any investee company in mainland China, showing the name, principal business activities, paid-in capital, method of investment, inward and outward remittance of funds, shareholding ratio, investment gain or loss, carrying amount of the investment at the end of the period, repatriated investment gains, and limit on the amount of investment in the mainland China area. (Table 7)

  • 2) Any of the following significant transactions with investee companies in mainland China, either directly or indirectly through a third area, and their prices, payment terms, and unrealized gains or losses: (Table 8)

    • a) The amount and percentage of purchases and the balance and percentage of the related payables at the end of the period.

    • b) The amount and percentage of sales and the balance and percentage of the related receivables at the end of the period.

    • c) The amount of property transactions and the amount of the resultant gains or losses.

    • d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the end of the period and the purposes.

  • 230 -

  • e) The highest balance, the end of period balance, the interest rate range, and total current period interest with respect to financing of funds.

  • f) Other transactions that have a material effect on the profit or loss for the period or on the financial position, such as the rendering or receiving of services.

  • 231 -

TABLE 1

TXC CORPORATION

MARKETABLE SECURITIES HELD DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars or U.S. Dollars)

Holding Company Marketable Securities Type and Issuer/Name Security Issuer’s Relationship with
the Holding Company
Financial Statement Account		 December 31, 2015 December 31, 2015 December 31, 2015 December 31, 2015 Note
Shares/Units Carrying
Amount		 Percentage of
Ownership
Market Value
or Net Asset
Value
TXC Corporation
NGB
TXC (Chongqing) Limited
Ningbo Jingyu Company Limited		 Stock listed overseas
Guandong Failong Crystal Technology Co., Ltd.
Stock-emerging company
Win Win Precision Technology Co., Ltd.
Stock-unlisted company
Marson Technology Co., Ltd.
iSentek Inc.
UPI Semiconductor Corp.
Financial bonds
Chinatrust unsecured priority financial bond
Cayman Ton Yi Industrial Holdings
Mutual fund
Southern Cash Currency Fund
E Fund Money Market Fund
China International Fund Management Co., Ltd.
China Merchants Fund
China GuangFa Money Market Fund
China Merchants Currency Fd
Structured deposits
Bank of Communication
First Sino Bank
China Everbright Bank
Mutual fund
China International Fund Management Co., Ltd.
Structured deposits
Fubonchina
Mutual fund
SouthernCash Fund		 None
None
None
Chairman is a direct of the Company
None
None
″
None
″
″
″
″
″
″
″
″
″
″
″		 Available-for-sale financial assets - noncurrent
Available-for-sale financial assets - noncurrent
Financial assets carried at cost
″
″
Held-to-maturity financial assets - current
Held-to-maturity financial assets - noncurrent
Financial instruments at FVTPL - current
″
″
″
″
″
″
″
″
Financial instruments at FVTPL - current
″
″		 10,096
1,365
414
2,500
2,000
RMB 10,000
RMB 10,000
RMB 27,539
RMB
5,111
RMB 10,520
RMB 10,033
RMB 30,245
RMB 16,065
RMB 30,137
RMB 20,910
RMB 30,673
RMB 24,652
RMB 15,018
RMB
1,139




















$ 1,836,676
$ 34,300
$ 3,000

50,000

62,520
$ 115,520
$ 47,840
$ 50,280
$ 139,211

25,835

53,177

50,718

152,889

81,211
$ 503,041
$ 152,345

105,700

155,053
$ 413,098
$ 124,614
$ 75,919
$ 5,759		 6
3
5
13
2











$ 1,836,676
$ 34,300
None
″
″
$ 47,840
$ 50,280
$ 139,211
25,835
53,177
50,718
152,889

81,211
$ 503,041
$ 152,345
105,700

155,053
$ 413,098
$ 124,614
$ 75,919
$ 5,759
  • 232 -

TABLE 2

TXC CORPORATION

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Company Name Marketable
Securities Type
and Name		 Financial Statement
Account		 Counterparty Nature of
Relationship		 Beginning Balance Beginning Balance Acquisition Acquisition Disposal Disposal Disposal Disposal Equity in Net
Gain (Loss)		 Ending Balance Ending Balance
Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)		 Carrying Value
(Foreign
Currencies in
Thousands)		 Gain (Loss) on
Disposal
(Foreign
Currencies in
Thousands)		 Shares/Units
(In Thousands)		 Amount
(Foreign
Currencies in
Thousands)
TXC (Ningbo)
Corporation
TXC (Chongqing)
Limited		 Structure deposits
Mutual funds
″
Structure deposits
Mutual funds		 Financial instruments
at FVTPL - current
Financial instruments
at FVTPL - current
″
Financial instruments
at FVTPL - current
Financial instruments
at FVTPL - current		 Bank of Communication
China Merchants Bank
Southern Cash Fund
First Sino Bank
Southern Cash Fund		 None
None
″
None
None		 -
-
-
-
-		 $ -
-
166,483
-
96,056		 -
-
-
-
-		 $ 355,508
325,036
304,721
460,179
318,433		 -
-
-
-
-		 $ (205,753)
(326,702)
(331,974)
(387,022)
(415,765)		 $ (205,753)
(326,702)
(331,974)
(387,022)
(415,765)		 $ -

-

-

-

-		 $ 2,590
1,666
(19)
2,762
1,276		 -
-
-
-
-		 $ 152,345
-
139,211
75,919
-

Note: The investment loss recognized under equity method and the charge in translation adjustments were included in equity in net gain (loss).

  • 233 -

TABLE 3

TXC CORPORATION

TOTAL PURCHASES FROM OR SALES TO RELATED PARTIES OF AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL FOR THE YEAR ENDED DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Company Name Related Party Nature of Relationship Transaction Details Transaction Details Transaction Details Transaction Details Abnormal Transaction Abnormal Transaction Notes/Accounts Payable
or Receivable		 Notes/Accounts Payable
or Receivable		 Note
Purchase/
Sale		 Amount % to
Total		 Payment Terms
(Note)		 Unit Price Payment Terms Ending Balance % to
Total
TXC Corporation
TXC (Ningbo) Corporation
TXC (Chongqing) Limited		 TXC (Ningbo) Corporation
TXC (Chongqing) Limited
Growing Profit Trading Ltd.
TXC (Chongqing) Limited
Growing Profit Trading Ltd.		 Subsidiary
Subsidiary
Subsidiary
Subsidiary
Subsidiary		 Purchase
Sale
Purchase
Purchase
Purchase
Purchase		 $ 1,819,087
290,303
658,361
504,987
101,674
251,658		 33
4
12
35
7
78		 Note
″
″
″
″
″		 Its trading price depends on its
function within the Group
″
″
″
″
″		 Note
″
″
″
″
″		 $ (439,931)
91,295
(176,465)
(126,088)
(44,096)
(57,023)		 (40)
4
(16)
(28)
(9)
(67)

Note: The terms of purchases from related parties were not significantly different from those with third parties.

  • 234 -

TABLE 4

TXC CORPORATION

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST NT$100 MILLION OR 20% OF THE PAID-IN CAPITAL DECEMBER 31, 2015

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

Company Name Related Party Nature of Relationship Balance of Accounts
Receivable -
Related Party
Turnover Rate		 Overdue Overdue Amount Received in
Subsequent Period		 Allowance for
Bad Debt
Amount Action Taken
TXC (Ningbo) Corporation
Growing Profits Trading Ltd.
TXC (Chongqing) Corporation		 TXC Corporation
TXC (Ningbo) Corporation
TXC Corporation		 Subsidiary
Subsidiary
Subsidiary		 $ 439,931
126,088
176,465		 4.13
4.01
3.73		 $ -
-
-		 -
-
-		 $ 439,187
58,803
165,152		 $ -
-
-
  • 235 -

TABLE 5

TRADING IN DERIVATIVE INSTRUMENTS DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars or U.S. Dollars)

TXC CORPORATION

TXC (Ningbo) Corporation, TXC (Chongqing) Corporation and Growing Profits Trading Ltd. entered into the trading derivative instruments to manage its exposure to interest rate risks of foreign bonds and borrowings.

As of December 31, 2015, unexpired forward contract was below:

Contract Amount (In Thousand of Currency Expired Period New Taiwan Dollar) December 31, 2015 Sell the forward contract USD/RMB 2016.01.04-2016.04.01 USD9,500/RMB61,036 Sell the forward contract USD/RMB 2016.01.28 USD600/RMB3,841 Knock-out forward USD/JPY 2016.01.29-2016.03.22 USD1,500/JPY179,850

December 31, 2015

  • 236 -

TABLE 6

TXC CORPORATION

NAMES, LOCATIONS, AND RELATED INFORMATION OF INVESTEES ON WHICH THE COMPANY EXERCISES SIGNIFICANT INFLUENCE DECEMBER 31, 2015

(In Thousands of New Taiwan Dollars or U.S. Dollars)

Investor Company Investee Company Location Main Businesses and Products Original Investment Amount Original Investment Amount Balance as of December 31, 2015 as of December 31, 2015 Net Income
(Losses) of the
Investee		 Equity in the
Earnings
(Losses)		 Note
December 31,
2015		 December 31,
2014		 Shares (In
Thousands)		 Percentage of
Ownership		 Carrying
Value
TXC Corporation
Taiwan Crystal Technology
International Ltd.
TXC (Ningbo) Corporation
Taiwan Crystal Technology
International (HK) Limited		 Taiwan Crystal Technology International Ltd.
TXC Technology Inc.
TXC Japan Corporation
Taiwan Crystal Technology International (HK) Limited
Tai-Shing Electronics Components Corporation
TXC Optec Corporation
Growing Profit Trading Ltd.
TXC (Ningbo) Corporation
TXC (Chongqing) Corporation
Chongqing All Sun Company Limited
Ningbo Jingyu Company Limited
TXC (Chongqing) Limited		 Western Samoa
U.S.A.
Japan
Hong Kong
Taiwan
Taiwan
B.V.I.
Ningbo
Chongqing
Chongqing
Ningbo
Chongqing		 Investment
Marketing activities
Marketing activities
Investment
Manufacture and sales of electronics products
Manufacture and sales of sapphire
International trading
Manufacture and sales of electronics products
Manufacture and sales of electronics products
Market activities
International trading
Manufacture and sales of electronics products		 $ 1,390,461
9,879
6,172
298,362
60,580
430,000
1,691
1,487,211
604,152
312,644
4,807
298,362		 $ 1,390,461
9,879
6,172
298,362
65,000
-
1,691
1,487,211
446,431
312,644
4,807
298,362		 42,835
300
2
10,080
2,330
21,500
50
45,835
123,745
66,000
1,000
10,080		 100.00
100.00
100.00
100.00
11.65
100.00
100.00
100.00
66.40
100.00
100.00
33.60		 $ 4,753,972
17,916
15,783
362,329
65,032
433,398
307,798
4,482,098
706,965
333,328
8,986
361,802		 $ 340,511

3,536

3,922

29,247

80,192

3,398

37,091

303,444

97,887

(178)

891

97,887		 $ 339,686

3,536

3,922

29,247

9,815

3,398

37,091

303,444

68,559

(178)

891

29,328		 Difference from upstream
transactions $825 thousand

Note: TXC (HK) Limited was liquidation and change of registration in 2015.

  • 237 -

TABLE 7

TXC CORPORATION

INFORMATION ON INVESTMENT IN MAINLAND CHINA FOR THE YEAR ENDED DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars or U.S. Dollars)

  1. Name of the investees in Mainland China, main businesses and products, paid-in capital, method of investment, information on inflow or outflow of capital, percentage of ownership, investment income or loss, ending balance of investment, dividends remitted by the investee, and the limit of investment in Mainland China:
Investee Company Main Businesses and Products Main Businesses and Products Total Amount of
Paid-in Capital
Method of Investment
Method of Investment		 Accumulated
Outflow of
Investment from
Taiwan as of
January 1, 2015
(US$ in
Thousand)		 Investment Flows Investment Flows Accumulated
Outflow of
Investment from
Taiwan as of
December 31,
2015 (US$ in
Thousand)
Investee
Company
Current Net
Income		 Percentage of
Ownership
Investment
Income (Loss)
Recognized		 Carrying
Amount as of
December 31,
2015		 Accumulated
Inward
Remittance of
Earnings as of
December 31,
2015

Outflow		 Inflow
TXC (Ningbo) Corporation
Guandong Failong Crystal
Technology Co., Ltd.
TXC (Chongqing) Corporation
Chongqing All Suns Company
Limited
Ningbo Jingyu Company Limited		 Manufacturing and sales of crystal
and crystal oscillator
Manufacturing and sales of new
electronic components
Manufacturing and sales of
electronic devices and hardware
components
Real estate intermediary service, real
estate management and electronic
product wholesale
Purchasing and selling electronic
component		 $ 1,487,211
580,947
902,514

312,644
4,807		 Indirect investment of the
Corporation in Mainland China
through the Corporation’s
subsidiary in a third region
Direct investment of the
Corporation in Mainland China
Indirect investment of the
Corporation in Mainland China
through the Corporation’s
subsidiary in a third region
Other investment of the
Corporation Mainland China
Other investment of the
Corporation Mainland China		 $ 1,427,630
46,478
298,362
-
-		 $ -
-
-
-
-		 $ -
-
-
-
-		 $ 1,427,630
46,478
298,362
-
-		 $ 303,444
-
97,887
(178)
891		 100
6
100
100
100		 $ 303,444
-
97,887
(178)
891		 $ 4,482,098
1,836,676
1,068,767
333,328
8,986		 $ 256,146
-
-
-
-
The limited amounts of the investment in Mainland China
Accumulated Investment in
Mainland China as of December 31, 2015
(US$ in Thousand)
Investment Amounts Authorized by
Investment Commission, MOEA
(US$ in Thousand)
Upper Limit on Investment
$1,772,470
$1,832,878
$ -
Accumulated Investment in
Mainland China as of December 31, 2015
(US$ in Thousand)		 Investment Amounts Authorized by
Investment Commission, MOEA
(US$ in Thousand)		 Upper Limit on Investment
$1,772,470 $1,832,878 $ -
  1. The limited amounts of the investment in Mainland China

Note: The investment in Mainland China has no maximum limitation since TXC Corporation had acquire the approval by the Industrial Development Bureau of the Company’s establishment of operating head quarters in Taiwan.

  • 238 -

TABLE 8

TXC CORPORATION

SIGNIFICANT TRANSACTIONS WITH INVESTEE COMPANIES IN MAINLAND CHINA, EITHER DIRECTLY OR INDIRECTLY THROUGH A THIRD AREA, AND THEIR PRICES, PAYMENT TERMS, AND UNREALIZED GAINS OR LOSSES FOR THE YEAR ENDED DECEMBER 31, 2015 (In Thousands of New Taiwan Dollars)

  1. Significant direct or indirect transactions with the investees, prices and terms of payment, unrealized gain or loss:
Company Name Related Party Nature of
Relationship		 Transaction Details Transaction Details Transaction Details Transaction Details Accounts/Notes
Receivable/Payable		 Accounts/Notes
Receivable/Payable		 Unrealized
Gain or Loss
Purchase/Sale Percentage
(%)		 Price Payment Term Compared with Terms of
Third Parties		 Balance %
TXC Corporation
GPT		 NGB
CKG
NGB
CKG		 Subsidiary
Subsidiary
Subsidiary
Subsidiary		 Purchase
$ 1,819,087
Sale
290,303
Purchase
658,361
Sale
504,987
Sale
251,658		 33
4
12
41
21		 Its trading price depends on its
function within the Group
″
″
″
″		 Similar with third parties
Similar with third parties
Similar with third parties
Similar with third parties
Similar with third parties		 Its trading price depends on its
function within the Group
″
″
″
″		 $ (439,931)
91,295
(176,465)
126,088
57,023		 (40)
4
(16)
47
21		 $ 24,501
1,598
9,607
-
-

  1. Endorsements guarantees or collateral directly or indirectly provided to the investees: None

  2. Financings directly or indirectly provided to the investees: None

  3. Other transactions that significantly impacted current year’s profit or loss or financial position: None

  4. 239 -

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