Last checked at 26 May 2015 07:00
| HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES |
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| CONSOLIDATED FINANCIAL STATEMENTS AND REPORT OF INDEPENDENT ACCOUNTANTS DECEMBER 31, 2014 AND 2013 |
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------------------------------------------------------------------------------------------------------------------------------------ For the convenience of readers and for information purpose only, 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. In the event of any discrepancy between the English version and the original Chinese version or any differences in the interpretation of the two versions, the Chinese-language auditors' report and financial statements shall prevail. | ||
REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE
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To The Board of Directors and Stockholders
Hon Hai Precision Industry Co., Ltd.
We have audited the accompanying consolidated balance sheets of Hon Hai Precision Industry Co., Ltd. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, of changes in equity and of cash flows for the years then ended. 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 did not audit the financial statements of certain consolidated subsidiaries, which statements reflect total assets of NT$206,004,889,000 and NT$165,841,382,000, constituting 8.36% and 7.17% of the consolidated total assets as of December 31, 2014 and 2013, respectively, and total operating revenues of NT$205,240,782,000 and NT$158,844,046,000, constituting 4.87% and 4.02% of the consolidated total operating revenues for the years then ended, respectively. Those statements were audited by other auditors whose reports thereon have been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts and the information disclosed in Note 13, is based solely on the reports of the other independent accountants.
We conducted our audits in accordance with the "Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants" and generally accepted auditing standards in the Republic of China. Those 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 and the reports of the other independent accountants provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other independent accountants, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Hon Hai Precision Industry Co., Ltd. and subsidiaries as of December 31, 2014 and 2013, and their financial performance and cash flows for the years then ended, in conformity with the "Rules Governing the Preparations of Financial Statements by Securities Issuers" and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission.
We have also audited the parent company only financial statements of Hon Hai Precision Industry Co., Ltd. as of and for the years ended December 31, 2014 and 2013, on which we have expressed a modified unqualified opinion on such financial statements.
PricewaterhouseCoopers, Taiwan
March 30, 2015
------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying consolidated financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying consolidated financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice. As the financial statements are the responsibility of the management, PricewaterhouseCoopers cannot accept any liability for the use of, or reliance on, the English translation or for any errors or misunderstandings that may derive from the translation. |
December 31, 2014 | December 31, 2013 | |||||||||||||||
Assets | Notes | AMOUNT | % | AMOUNT | % | |||||||||||
Current assets | ||||||||||||||||
Cash and cash equivalents | 6(1) | $ | 679,037,301 | 28 | $ | 694,027,045 | 30 | |||||||||
Financial assets at fair value through profit or loss - current | 6(2) | 3,438,255 | - | 1,198,112 | - | |||||||||||
Available-for-sale financial assets - current | 6(3) | 1,035,704 | - | 1,087,171 | - | |||||||||||
Accounts receivable, net | 6(4) | 748,286,815 | 30 | 727,761,542 | 31 | |||||||||||
Accounts receivable - related parties | 7 | 24,093,966 | 1 | 19,948,258 | 1 | |||||||||||
Other receivables | 6(5) and 7 | 45,923,820 | 2 | 40,215,354 | 2 | |||||||||||
Inventory | 6(6) | 369,196,813 | 15 | 312,785,092 | 14 | |||||||||||
Prepayments | 10,413,141 | - | 6,393,753 | - | ||||||||||||
Non-current assets held for sale - net | 6(7) | 9,902,089 | - | - | - | |||||||||||
Other current assets | 6(8) and 8 | 41,093,451 | 2 | 5,165,161 | - | |||||||||||
Total current assets | 1,932,421,355 | 78 | 1,808,581,488 | 78 | ||||||||||||
Non-current assets | ||||||||||||||||
Available-for-sale financial assets - non-current | 6(3) | 52,792,228 | 2 | 11,854,684 | 1 | |||||||||||
Financial assets carried at cost - non-current | 6(9) | 5,792,900 | - | 10,843,376 | - | |||||||||||
Investments accounted for under equity method | 6(10) | 63,412,270 | 3 | 46,282,999 | 2 | |||||||||||
Property, plant and equipment | 6(11) | 358,868,558 | 15 | 379,561,941 | 16 | |||||||||||
Investment property - net | 6(12) | 3,164,666 | - | 2,304,839 | - | |||||||||||
Intangible assets | 6(13) | 4,440,091 | - | 12,815,278 | 1 | |||||||||||
Deferred income tax assets | 6(36) | 17,376,159 | 1 | 15,837,041 | 1 | |||||||||||
Other non-current assets | 6(14) and 8 | 24,446,522 | 1 | 24,379,557 | 1 | |||||||||||
Total non-current assets | 530,293,394 | 22 | 503,879,715 | 22 | ||||||||||||
Total assets | $ | 2,462,714,749 | 100 | $ | 2,312,461,203 | 100 | ||||||||||
(Continued)
December 31, 2014 | December 31, 2013 | |||||||||||||||
Liabilities and Equity | Notes | AMOUNT | % | AMOUNT | % | |||||||||||
Current liabilities | ||||||||||||||||
Short-term loans | 6(15) | $ | 226,500,507 | 9 | $ | 366,233,601 | 16 | |||||||||
Short-term notes and bills payable | 6(16) | - | - | 19,982,517 | 1 | |||||||||||
Financial liabilities at fair value through profit or loss - current | 6(2) | 1,271,012 | - | 39,946 | - | |||||||||||
Accounts payable | 694,315,259 | 28 | 682,942,409 | 30 | ||||||||||||
Accounts payable - related parties | 7 | 41,014,601 | 2 | 29,761,739 | 1 | |||||||||||
Other payables | 6(17) | 223,575,519 | 9 | 191,175,178 | 8 | |||||||||||
Current income tax liabilities | 6(36) | 31,690,222 | 2 | 24,158,478 | 1 | |||||||||||
Provisions for liabilities - current | 6(24) | 2,674,879 | - | 2,406,336 | - | |||||||||||
Liabilities directly related to non-current assets held for sale | 6(7) | 2,054,833 | - | - | - | |||||||||||
Other current liabilities | 6(18) | 79,504,965 | 3 | 42,260,567 | 2 | |||||||||||
Total current liabilities | 1,302,601,797 | 53 | 1,358,960,771 | 59 | ||||||||||||
Non-current liabilities | ||||||||||||||||
Corporate bonds payable | 6(19) | 134,644,413 | 6 | 97,054,788 | 4 | |||||||||||
Long-term loans | 6(20) | 24,197,727 | 1 | 35,108,728 | 2 | |||||||||||
Deferred income tax liabilities | 6(36) | 7,089,517 | - | 6,218,103 | - | |||||||||||
Other non-current liabilities | 6(23) | 9,504,493 | - | 9,194,211 | - | |||||||||||
Total non-current liabilities | 175,436,150 | 7 | 147,575,830 | 6 | ||||||||||||
Total liabilities | 1,478,037,947 | 60 | 1,506,536,601 | 65 | ||||||||||||
Equity | ||||||||||||||||
Equity attributable to owners of parent | ||||||||||||||||
Share capital | 6(25) | |||||||||||||||
Share capital - common stock | 147,934,068 | 6 | 131,287,068 | 6 | ||||||||||||
Capital surplus | 6(26) | |||||||||||||||
Capital surplus | 71,659,908 | 3 | 64,792,873 | 3 | ||||||||||||
Retained earnings | 6(27) | |||||||||||||||
Legal reserve | 80,126,455 | 3 | 69,456,739 | 3 | ||||||||||||
Undistributed earnings | 546,932,523 | 22 | 467,423,426 | 20 | ||||||||||||
Other equity interest | 6(28) | |||||||||||||||
Other equity interest | 83,597,180 | 4 | 31,728,861 | 1 | ||||||||||||
Treasury stocks | 6(25) | ( | 18,901 | ) | - | ( | 18,901 | ) | - | |||||||
Equity attributable to owners of the parent | 930,231,233 | 38 | 764,670,066 | 33 | ||||||||||||
Non-controlling interest | 6(29) | 54,445,569 | 2 | 41,254,536 | 2 | |||||||||||
Total equity | 984,676,802 | 40 | 805,924,602 | 35 | ||||||||||||
Commitments and contingent liabilities | 9 | |||||||||||||||
Subsequent events | 11 | |||||||||||||||
Total liabilities and equity | $ | 2,462,714,749 | 100 | $ | 2,312,461,203 | 100 | ||||||||||
Year ended December 31 | ||||||||||||||||
2014 | 2013 | |||||||||||||||
Items | Notes | AMOUNT | % | AMOUNT | % | |||||||||||
Operating revenue | 6(30) and 7 | $ | 4,213,172,321 | 100 | $ | 3,952,317,540 | 100 | |||||||||
Operating costs | 6(6)(33)(34) and 7 | ( | 3,921,228,465 | ) | ( | 93 | ) | ( | 3,697,623,039 | ) | ( | 93 | ) | |||
Net operating margin | 291,943,856 | 7 | 254,694,501 | 7 | ||||||||||||
Operating expenses | 6(33)(34) and 7 | |||||||||||||||
Selling expenses | ( | 26,146,194 | ) | ( | 1 | ) | ( | 25,893,690 | ) | ( | 1 | ) | ||||
General and administrative expenses | ( | 73,752,491 | ) | ( | 2 | ) | ( | 72,906,384 | ) | ( | 2 | ) | ||||
Research and development expenses | ( | 48,853,760 | ) | ( | 1 | ) | ( | 46,580,031 | ) | ( | 1 | ) | ||||
Total operating expenses | ( | 148,752,445 | ) | ( | 4 | ) | ( | 145,380,105 | ) | ( | 4 | ) | ||||
Operating profit | 143,191,411 | 3 | 109,314,396 | 3 | ||||||||||||
Non-operating income and expenses | ||||||||||||||||
Other income | 6(31) | 31,872,566 | 1 | 17,531,778 | 1 | |||||||||||
Other gains and losses | 6(32) | 11,083,457 | - | 13,863,801 | - | |||||||||||
Finance costs | 6(4)(35) | ( | 15,007,075 | ) | - | ( | 9,252,353 | ) | - | |||||||
Share of profit of associates and joint ventures accounted for under equity method | 6(10) | 2,980,013 | - | 4,838,075 | - | |||||||||||
Total non-operating income and expenses | 30,928,961 | 1 | 26,981,301 | 1 | ||||||||||||
Profit before income tax | 174,120,372 | 4 | 136,295,697 | 4 | ||||||||||||
Income tax expense | 6(36) | ( | 41,638,550 | ) | ( | 1 | ) | ( | 28,949,821 | ) | ( | 1 | ) | |||
Profit for the year | $ | 132,481,822 | 3 | $ | 107,345,876 | 3 | ||||||||||
Other comprehensive income | ||||||||||||||||
Financial statements translation differences of foreign operations | 6(28)(29) | $ | 36,576,979 | 1 | $ | 24,617,695 | - | |||||||||
Unrealized gain (loss) on valuation of available-for-sale financial assets | 6(28)(29) | 18,419,522 | - | ( | 1,002,017 | ) | - | |||||||||
Actuarial (loss) gain on defined benefit plan | 6(21) | ( | 39,784 | ) | - | 980 | - | |||||||||
Share of other comprehensive income of associates and joint ventures accounted for under equity method | 6(28) | 606,016 | - | 918,220 | - | |||||||||||
Income tax relating to the components of other comprehensive income | 6(36) | 6,763 | - | ( | 167 | ) | - | |||||||||
Other comprehensive income for the year | $ | 55,569,496 | 1 | $ | 24,534,711 | - | ||||||||||
Total comprehensive income for the year | $ | 188,051,318 | 4 | $ | 131,880,587 | 3 | ||||||||||
Profit attributable to: | ||||||||||||||||
Owners of the parent | $ | 130,534,729 | 3 | $ | 106,697,157 | 3 | ||||||||||
Non-controlling interest | 1,947,093 | - | 648,719 | - | ||||||||||||
$ | 132,481,822 | 3 | $ | 107,345,876 | 3 | |||||||||||
Comprehensive income attributable to: | ||||||||||||||||
Owners of the parent | $ | 182,370,027 | 4 | $ | 130,621,274 | 3 | ||||||||||
Non-controlling interest | 5,681,291 | - | 1,259,313 | - | ||||||||||||
$ | 188,051,318 | 4 | $ | 131,880,587 | 3 | |||||||||||
Earnings per share (in dollars) | 6(37) | |||||||||||||||
Basic earnings per share | $ | 8.85 | $ | 7.26 | ||||||||||||
Diluted earnings per share | $ | 8.75 | $ | 7.12 | ||||||||||||
2013 | ||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2013 | $ 118,358,665 | $ 58,932,078 | $ 59,980,502 | $ 399,791,359 | $ 1,370,511 | $ 6,435,046 | ( | $ 18,901 | ) | $ 644,849,260 | $ 36,064,490 | $ 680,913,750 | ||||||||||||||||||||||||||||||
Appropriations of 2012 earnings (Note 1): | ||||||||||||||||||||||||||||||||||||||||||
Legal reserve | 6(27) | - | - | 9,476,237 | ( | 9,476,237 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Cash dividends | 6(27) | - | - | - | ( | 17,753,800 | ) | - | - | - | ( | 17,753,800 | ) | - | ( | 17,753,800 | ) | |||||||||||||||||||||||||
Stock dividends | 6(27) | 11,835,866 | - | - | ( | 11,835,866 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Employees' stock bonus | 6(25) | 1,092,537 | 5,730,354 | - | - | - | - | - | 6,822,891 | - | 6,822,891 | |||||||||||||||||||||||||||||||
Consolidated net income | - | - | - | 106,697,157 | - | - | - | 106,697,157 | 648,719 | 107,345,876 | ||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | 6(28) | - | - | - | 813 | 25,062,436 | ( | 1,139,132 | ) | - | 23,924,117 | 610,594 | 24,534,711 | |||||||||||||||||||||||||||||
Changes in equity of associates and joint ventures accounted for under the equity method | - | 112,116 | - | - | - | - | - | 112,116 | - | 112,116 | ||||||||||||||||||||||||||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | 6(29) | - | 18,325 | - | - | - | - | - | 18,325 | - | 18,325 | |||||||||||||||||||||||||||||||
Increase in non-controlling interests - subsidiaries | 6(29) | - | - | - | - | - | - | - | - | 3,930,733 | 3,930,733 | |||||||||||||||||||||||||||||||
Balance at December 31, 2013 | $ 131,287,068 | $ 64,792,873 | $ 69,456,739 | $ 467,423,426 | $ 26,432,947 | $ 5,295,914 | ( | $ 18,901 | ) | $ 764,670,066 | $ 41,254,536 | $ 805,924,602 | ||||||||||||||||||||||||||||||
2014 | ||||||||||||||||||||||||||||||||||||||||||
Balance at January 1, 2014 | $ 131,287,068 | $ 64,792,873 | $ 69,456,739 | $ 467,423,426 | $ 26,432,947 | $ 5,295,914 | ( | $ 18,901 | ) | $ 764,670,066 | $ 41,254,536 | $ 805,924,602 | ||||||||||||||||||||||||||||||
Appropriations of 2013 earnings (Note 2): | ||||||||||||||||||||||||||||||||||||||||||
Legal reserve | 6(27) | - | - | 10,669,716 | ( | 10,669,716 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Cash dividends | 6(27) | - | - | - | ( | 23,631,672 | ) | - | - | - | ( | 23,631,672 | ) | - | ( | 23,631,672 | ) | |||||||||||||||||||||||||
Stock dividends | 6(27) | 15,754,448 | - | - | ( | 15,754,448 | ) | - | - | - | - | - | - | |||||||||||||||||||||||||||||
Employees' stock bonus | 6(25) | 892,552 | 6,789,643 | - | - | - | - | - | 7,682,195 | - | 7,682,195 | |||||||||||||||||||||||||||||||
Consolidated net income | - | - | - | 130,534,729 | - | - | - | 130,534,729 | 1,947,093 | 132,481,822 | ||||||||||||||||||||||||||||||||
Other comprehensive income, net of income tax | 6(28) | - | - | - | ( | 33,021 | ) | 33,177,288 | 18,691,031 | - | 51,835,298 | 3,734,198 | 55,569,496 | |||||||||||||||||||||||||||||
Changes in equity of associates and joint ventures accounted for under the equity method | - | 127,968 | - | ( | 12,462 | ) | - | - | - | 115,506 | - | 115,506 | ||||||||||||||||||||||||||||||
Adjustments arising from changes in percentage of ownership in subsidiaries | 6(29) | - | ( | 50,576 | ) | - | ( | 924,313 | ) | - | - | - | ( | 974,889 | ) | - | ( | 974,889 | ) | |||||||||||||||||||||||
Increase in non-controlling interests - subsidiaries | 6(29) | - | - | - | - | - | - | - | - | 7,509,742 | 7,509,742 | |||||||||||||||||||||||||||||||
Balance at December 31, 2014 | $ 147,934,068 | $ 71,659,908 | $ 80,126,455 | $ 546,932,523 | $ 59,610,235 | $ 23,986,945 | ( | $ 18,901 | ) | $ 930,231,233 | $ 54,445,569 | $ 984,676,802 |
CASH FLOWS FROM OPERATING ACTIVITIES | |||||||||||
Consolidated profit before tax for the year | $ | 174,120,372 | $ | 136,295,697 | |||||||
Adjustments to reconcile net income to net cash provided by operating activities | |||||||||||
Income and expenses having no effect on cash flows | |||||||||||
Depreciation | 6(33) | 69,402,883 | 72,686,853 | ||||||||
Amortization | 6(33) | 828,967 | 926,373 | ||||||||
Provision for doubtful accounts and sales discount | 298,790 | 227,523 | |||||||||
Impairment loss | 6(32) | 1,706,217 | 577,807 | ||||||||
(Gain) loss on disposal of property, plant and equipment, net | 6(32) | ( | 565,745 | ) | 559,393 | ||||||
(Gain) loss on financial assets or liabilities at fair value through profit or loss, net | 6(2) | ( | 2,374,063 | ) | 311,994 | ||||||
Share of profit of associates and joint ventures accounted for under equity method | ( | 2,980,013 | ) | ( | 4,838,075 | ) | |||||
Gain on disposal of investments | 6(32) | ( | 3,010,171 | ) | ( | 1,427,121 | ) | ||||
Interest expense | 6(35) | 14,861,301 | 9,117,464 | ||||||||
Interest income | 6(31) | ( | 26,053,459 | ) | ( | 10,845,494 | ) | ||||
Dividend income | 6(31) | ( | 676,006 | ) | ( | 419,216 | ) | ||||
Changes in assets/liabilities relating to operating activities | |||||||||||
Net changes in assets relating to operating activities | |||||||||||
Financial assets held for trading | 1,364,986 | ( | 1,411,995 | ) | |||||||
Notes receivable | ( | 118,291 | ) | ( | 582,757 | ) | |||||
Accounts receivable | ( | 20,273,246 | ) | ( | 129,827,318 | ) | |||||
Accounts receivable due from related parties | ( | 4,145,708 | ) | 15,521,393 | |||||||
Other receivables | ( | 5,024,877 | ) | ( | 1,707,015 | ) | |||||
Inventories | ( | 56,411,721 | ) | 37,097,551 | |||||||
Prepayments | ( | 4,019,388 | ) | 1,253,288 | |||||||
Net changes in liabilities relating to operating activities | |||||||||||
Accounts payable | 11,008,696 | 80,186,615 | |||||||||
Accounts payable to related parties | 11,252,862 | ( | 5,853,108 | ) | |||||||
Other payables | 42,818,053 | 14,011,616 | |||||||||
Provisions for liabilities - current | 268,543 | ( | 1,057,944 | ) | |||||||
Other current liabilities | 23,185,244 | ( | 11,180,975 | ) | |||||||
Accrued pension liabilities | 5,720 | ( | 86,428 | ) | |||||||
Cash generated from operations | 225,469,946 | 199,536,121 | |||||||||
Income tax paid | ( | 34,794,235 | ) | ( | 26,784,550 | ) | |||||
Net cash provided by operating activities | 190,675,711 | 172,751,571 |
(Continued)
CASH FLOWS FROM INVESTING ACTIVITIES | |||||||||||
Acquisition of property, plant and equipment | 6(39) | ( | $ | 27,565,013 | ) | ( | $ | 44,395,165 | ) | ||
Increase in other financial assets | ( | 35,926,990 | ) | ( | 3,394,991 | ) | |||||
Acquisition of available-for-sale financial assets | ( | 15,493,910 | ) | ( | 488,977 | ) | |||||
(Increase) decrease in other non-current assets | ( | 980,840 | ) | 830,897 | |||||||
Acquisition of investments accounted for under equity method | ( | 14,047,766 | ) | ( | 1,408,714 | ) | |||||
Acquisition of financial assets at cost | ( | 1,173,338 | ) | ( | 2,060,666 | ) | |||||
Acquisition of intangible assets | 6(13) | ( | 128,600 | ) | ( | 9,180,000 | ) | ||||
Increase in land use right | ( | 150,405 | ) | ( | 563,668 | ) | |||||
Proceeds from disposal of financial assets carried at cost | 475,330 | 456,764 | |||||||||
Proceeds from disposal of available-for-sale financial assets | 4,318,161 | 1,401,164 | |||||||||
Proceeds from disposal of investments accounted for under equity method | 181,120 | 2,436,170 | |||||||||
Proceeds from disposal of property, plant and equipment | 1,006,829 | 9,106,480 | |||||||||
Other receivable due from related parties | ( | 475,107 | ) | - | |||||||
Other investing activities | 574,194 | 1,327,042 | |||||||||
Interest received | 25,844,433 | 10,475,314 | |||||||||
Dividends received | 1,615,892 | 1,552,262 | |||||||||
Cash and cash equivalents reclassified to non-current assets held for sale | 6(7) | ( | 88,977 | ) | - | ||||||
Net cash flow from acquisition of subsidiaries | 6(38) | ( | 235,378 | ) | - | ||||||
Net cash used in investing activities | ( | 62,250,365 | ) | ( | 33,906,088 | ) | |||||
CASH FLOWS FROM FINANCING ACTIVITIES | |||||||||||
(Decrease) increase in short-term loans | ( | 146,255,411 | ) | 54,232,791 | |||||||
(Decrease) increase in short-term notes and bills payable | ( | 20,000,000 | ) | 11,990,920 | |||||||
Proceeds from issuing bonds | 53,118,404 | 28,242,000 | |||||||||
Repayments of bonds | ( | 6,410,000 | ) | ( | 32,477,430 | ) | |||||
Proceeds from long-term debt | 1,338,490 | 17,761,410 | |||||||||
Repayments of long-term debt | ( | 8,110,433 | ) | ( | 26,877,214 | ) | |||||
(Decrease) increase in other non-current liabilities | ( | 266,032 | ) | 834,513 | |||||||
Cash dividends paid | ( | 23,631,672 | ) | ( | 17,753,800 | ) | |||||
Changes in non-controlling interests | 6(29) | 6,024,812 | 3,930,733 | ||||||||
Interest paid | ( | 14,026,640 | ) | ( | 8,188,197 | ) | |||||
Net cash (used in) provided by financing activities | ( | 158,218,482 | ) | 31,695,726 | |||||||
Net effect of changes in foreign currency exchange rates | 14,803,392 | 17,958,880 | |||||||||
(Decrease) increase in cash and cash equivalents | ( | 14,989,744 | ) | 188,500,089 | |||||||
Cash and cash equivalents at beginning of year | 694,027,045 | 505,526,956 | |||||||||
Cash and cash equivalents at end of year | $ | 679,037,301 | $ | 694,027,045 |
HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2014 AND 2013
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,
EXCEPT AS OTHERWISE INDICATED)
1. HISTORY AND ORGANIZATION
Hon Hai Precision Industry Co., Ltd. (the "Company") was incorporated as a company limited by shares under the provisions of the Company Act of the Republic of China (R.O.C.). The Company and its subsidiaries (collectively referred herein as the "Group") are primarily engaged in the manufacture, sales and service of connectors, case, thermal module, wired/wireless communication products, optical products, power supply modules, and assemblies for use in the IT, communications, automotive equipment, precision molding, automobile, and consumer electronics industries.
2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION
These consolidated financial statements were authorised for issuance by the Board of Directors on March 30, 2015.
3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS
Effect of the adoption of new issuances of or amendments to International Financial Reporting Standards ("IFRS") as endorsed by the Financial Supervisory Commission ("FSC")
None.
(1) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group
According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued on April 3, 2014, commencing 2015, companies with shares listed on the TWSE or traded on the Taipei Exchange Securities Market or Emerging Stock Market shall adopt the 2013 version of IFRS (not including IFRS 9, 'Financial instruments') as endorsed by the FSC and the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" effective January 1, 2015 (collectively referred herein as the "2013 version of IFRSs) in preparing the consolidated financial statements. The related new standards, interpretations and amendments are listed below:
Based on the Group's assessment, the adoption of the 2013 version of IFRSs has no significant impact on the consolidated financial statements of the Group, except the following:
A. IAS 19 (revised), 'Employee benefits'
Additional disclosures are required to present defined benefit plans.
B. IAS 1, 'Presentation of financial statements'
The amendment requires entities to separate items presented in OCI classified by nature into two groups on the basis of whether they are potentially reclassifiable to profit or loss subsequently when specific conditions are met. If the items are presented before tax then the tax related to each of the two groups of OCI items (those that might be reclassified and those that will not be reclassified) must be shown separately. Accordingly, the Group will adjust its presentation of the statement of comprehensive income.
C. IFRS 12, 'Disclosure of interests in other entities'
The standard integrates the disclosure requirements for subsidiaries, joint arrangements, associates and unconsolidated structured entities. Also, the Group will disclose additional information about its interests in consolidated entities and unconsolidated entities accordingly.
D. IFRS 13, 'Fair value measurement'
The standard defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The standard sets out a framework for measuring fair value using the assumptions that market participants would use when pricing the asset or liability; for non-financial assets, fair value is determined based on the highest and best use of the asset. Also, the standard requires disclosures about fair value measurements. Based on the Group's assessment, the adoption of the standard has no significant impact on its consolidated financial statements, and the Group will disclose additional information about fair value measurements accordingly.
E. Disclosures - Transfers of financial assets (amendment to IFRS 7)
The amendment enhances qualitative and quantitative disclosures for all transferred financial assets that are not derecognised and for any continuing involvement in transferred assets, existing at the reporting date.
Based on the Group's assessment, the adoption of the amendment will require the Group to include qualitative and quantitative disclosures for all transferred financial assets.
(2) IFRSs issued by IASB but not yet endorsed by the FSC
New standards, interpretations and amendments issued by IASB but not yet included in the 2013 version of IFRSs as endorsed by the FSC:
The Group is assessing the potential impact of the new standards, interpretations and amendments above. The impact on the consolidated financial statements will be disclosed when the assessment is completed.
4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unless otherwise stated, the principal accounting policies applied in the preparation of these consolidated financial statements set out below have been consistently applied to all the periods presented.
(1) Compliance statement
The consolidated financial statements of the Group have been prepared in accordance with the "Regulations Governing the Preparation of Financial Reports by Securities Issuers" and the International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the "IFRSs")
(2) Basis of preparation
A. Except for the following items, these consolidated financial statements have been prepared under the historical cost convention:
(a) Financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.
(b) Available-for-sale financial assets measured at fair value.
(c) Liabilities on cash-settled share-based payment arrangements measured at fair value.
(d) Defined benefit liabilities recognized based on the net amount of pension fund assets plus unrecognized past period's service cost, less present value of defined benefit obligation.
B. The preparation of financial statements in conformity with International Financial Reporting Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the "IFRSs") requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Group's accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 5.
(3) Basis of consolidation
A. Basis for preparation of consolidated financial statements:
(a) All subsidiaries are included in the Group's consolidated financial statements. Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies. In general, control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than half of the voting power of an entity. The existence and effect of potential voting rights that are currently exercisable or convertible have been considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.
(b) Inter-company transactions, balances and unrealized gains or losses on transactions between companies within the Group are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
(c) Profit or loss and each component of other comprehensive income are attributed to the owners of the parent and to the non-controlling interests. Total comprehensive income is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.
(d) Changes in a parent's ownership interest in a subsidiary that do not result in the parent losing control of the subsidiary (transactions with non-controlling interests) are accounted for as equity transactions, i.e. transactions with owners in their capacity as owners. 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.
(e) When the Group loses control of a subsidiary, the Group remeasures any investment retained in the former subsidiary at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss. All amounts previously recognized in other comprehensive income in relation to the subsidiary should be reclassified from equity to profit or loss.
B. Subsidiaries included in the consolidated financial statements:
(a) On June 18, 2014, the Board of Directors has resolved the merger of Ambit Microsystems Corporation, a subsidiary of the Company, and Asia Pacific Telecom, which became the surviving company. The merger was temporarily set to be effective on June 30, 2015 at a swap ratio of 1:0.4975. Related information is provided in Note 6(7).
(b) Hua Cheng International Investment Co., Ltd., the indirectly invested subsidiary of the Company, has started investing in Goldtek Technology Co., Ltd. from September 1, 2014, and Goldtek Technology Co., Ltd. is included in the consolidated financial statements from the date.
(c) Ennoconn Corporation, the indirectly invested subsidiary of the Company, has been investing in CASwell, Inc. during October and December of 2014, and obtained control over the investee and included it in the consolidated financial statements from December 5, 2014.
(d) The Group's consolidated shareholding ratio over Goldtek Technology Co., Ltd. is 38.73%. As the Group has obtained majority voting rights in the Board of Directors of CASwell, Inc., and has control over its personnel, financial and operational decisions, the company is considered as a subsidiary.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Nature and extent of the restrictions on fund remittance from subsidiaries to the parent company: None.
(4) Foreign currency translation
A. The consolidated financial statements are presented in NTD, which is the Company's functional and the Group's presentation currency.
B. Foreign currency transactions and balances
(a) Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are remeasured. Foreign exchange gains and losses resulting from the settlement of such transactions are recognized in profit or loss in the period in which they arise.
(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-translated at the exchange rates prevailing at the balance sheet date. Exchange differences arising upon re-translation at the balance sheet date are recognized in profit or loss.
(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value through profit or loss are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in profit or loss. Non-monetary assets and liabilities denominated in foreign currencies held at fair value through other comprehensive income are re-translated at the exchange rates prevailing at the balance sheet date; their translation differences are recognized in other comprehensive income. However, non-monetary assets and liabilities denominated in foreign currencies that are not measured at fair value are translated using the historical exchange rates at the dates of the initial transactions.
(d) All foreign exchange gains and losses are presented in the statement of comprehensive income within other 'gains and losses'.
C. Translation of foreign operations
(a) The operating results and financial position of all the group entities and associates that have a functional currency different from the presentation currency are translated into the presentation currency as follows:
i. Assets and liabilities for each balance sheet presented are translated at the closing exchange rate at the date of that balance sheet;
ii. Income and expenses for each statement of comprehensive income are translated at average exchange rates of that period; and
iii. All resulting exchange differences are recognized in other comprehensive income.
(b) When the foreign operation as an associate is partially disposed of or sold, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, when the Group still retains partial interest in the former foreign associate after losing significant influence over the former foreign associate, such transactions should be accounted for as disposal of all interest in these foreign operations.
(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Group still retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.
(5) Classification of current and non-current items
A. Assets that meet one of the following criteria are classified as current assets; otherwise they are classified as non-current assets:
(a) Assets arising from operating activities that are expected to be realized, or are intended to be sold or consumed within the normal operating cycle;
(b) Assets held mainly for trading purposes;
(c) Assets that are expected to be realized within twelve months from the balance sheet date;
(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are to be exchanged or used to pay off liabilities more than twelve months after the balance sheet date.
B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they are classified as non-current liabilities:
(a) Liabilities that are expected to be paid off within the normal operating cycle;
(b) Liabilities arising mainly from trading activities;
(c) Liabilities that are to be paid off within twelve months from the balance sheet date;
(d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve months after the balance sheet date. 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.
(6) Cash equivalents
Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that meet the above criteria and are held for the purpose of meeting short-term cash commitment in operations are classified as cash equivalents.
(7) Financial assets at fair value through profit or loss
A. Financial assets at fair value through profit or loss are financial assets held for trading or designated as at fair value through profit or loss on initial recognition. Financial assets are classified in this category of held for trading if acquired principally for the purpose of selling in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:
(a) Hybrid (combined) contracts; or
(b) Capable of eliminating or significantly reducing a measurement or recognition inconsistency; or
(c) Performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy.
B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are recognized and derecognized using trade date accounting.
C. Financial assets at fair value through profit or loss are initially recognized at fair value. Related transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in profit or loss.
(8) Available-for-sale financial assets
A. Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories.
B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.
C. Available-for-sale financial assets are initially recognized at fair value plus transaction costs. These financial assets are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial assets are recognized in other comprehensive income. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured or derivatives that are linked to and must be settled by delivery of such unquoted equity instruments are presented in 'financial assets measured at cost'.
(9) Accounts receivable
Accounts receivable are generated by selling goods or providing services to customers in the ordinary course of business. Accounts receivable are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
(10) Impairment of financial assets
A. The Group assesses at balance sheet date whether there is objective evidence that an individual financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a 'loss event') and that loss event (or events) has an impact on the estimated future cash flows of the individual financial asset or group of financial assets that can be reliably estimated.
B. The criteria that the Group uses to determine whether there is an impairment loss is as follows:
(a) Significant financial difficulty of the issuer or debtor;
(b) A breach of contract, such as a default or delinquency in interest or principal payments;
(c) The Group, for economic or legal reasons relating to the borrower's financial difficulty, granted the borrower a concession that a lender would not otherwise consider;
(d) Increase in probability of the borrower going bankruptcy or suffering financial reorganisation;
(e) The disappearance of an active market for that financial asset because of financial difficulties;
(f) Observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial asset in the group, including adverse changes in the payment status of borrowers in the group or national or local economic conditions that correlate with defaults on the assets in the group;
(g) Information about significant changes with an adverse effect that have taken place in the technology, market, economic or legal environment in which the issuer operates, and indicates that the cost of the investment in the equity instrument may not be recovered; or
(h) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.
C. When the Group assesses that there has been objective evidence of impairment and an impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:
(a) Financial assets measured at cost
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 discounted at current market return rate of similar financial asset, and is recognized in profit or loss. Impairment loss recognized for this category shall not be reversed subsequently. Impairment loss is recognized by adjusting the carrying amount of the asset directly.
(b) Available-for-sale financial assets
The amount of the impairment loss is measured as the difference between the asset's acquisition cost (less any principal repayment and amortisation) and current fair value, less any impairment loss on that financial asset previously recognized in profit or loss, and is reclassified from 'other comprehensive income' to 'profit or loss'. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset directly.
(11) Derecognition of financial assets
The Group derecognises a financial asset when one of the following conditions is met:
A. The contractual rights to receive the cash flows from the financial asset expire.
B. The contractual rights to receive cash flows from the financial asset have been transferred and the Group has transferred substantially all risks and rewards of ownership of the financial asset.
C. The contractual rights to receive cash flows from the financial asset have been transferred; however, the Group has not retained control of the financial asset.
(12) Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in progress comprises raw materials, direct labour, other direct costs and related production overheads (allocated based on normal operating capacity). It excludes borrowing costs. The item by item approach is used in applying the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.
(13) Non-current assets held for sale
Non-current assets are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction rather than through continuing use, and a sale is considered highly probable. They are stated at the lower of carrying amount and fair value less costs to sell.
(14) Investments accounted for under equity method / associates
A. Associates are all entities over which the Group has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.
B. The Group's share of its associates' post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Group's share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.
C. When changes in an associate's equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Group's ownership percentage of the associate, the Group recognizes change in ownership interests in the associate in 'capital surplus' in proportion to its ownership.
D. Unrealised gains on transactions between the Group and its associates are eliminated to the extent of the Group's interest in the associates. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Group.
E. In the case that an associate issues new shares and the Group does not subscribe or acquire new shares proportionately, which results in a change in the Group's ownership percentage of the associate but maintains significant influence on the associate, then 'capital surplus' and 'investments accounted for using the equity method' shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Group's ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.
F. Upon loss of significant influence over an associate, the Group remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss.
G. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate, are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of. If it retains significant influence over this associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately in accordance with the aforementioned approach.
H. When the Group disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, then the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss proportionately.
(15) Property, plant and equipment
A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the construction period are capitalized.
B. Subsequent costs are included in the asset's carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss during the financial period in which they are incurred.
C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant in relation to the total cost of the item, it must be depreciated separately.
D. The assets' residual values, useful lives and depreciation methods are audited, and adjusted if appropriate, at each balance sheet date. If expectations for the assets' residual values and useful lives differ from previous estimates or the patterns of consumption of the assets' future economic benefits embodied in the assets have changed significantly, any change is accounted for as a change in estimate under IAS 8, 'Accounting Policies, Changes in Accounting Estimates and Errors', from the date of the change.
The estimated useful lives of property, plant and equipment are as follows:
Buildings 51 years
(Auxiliary buildings 6 ~ 11 years)
Machinery and equipment 3 ～ 9 years
Office equipment 4 ～ 6 years
Other equipment 1 ～ 6 years
(16) Investment property
An investment property is stated initially at its cost and measured subsequently using the cost model. Investment property is depreciated on a straight-line basis over its estimated useful life of 6 ~ 51 years.
(17) Intangible assets
A. Goodwill is generated by adopting the acquisition method when merger and acquisition occurs.
B. Patent is amortised on a straight-line basis over its estimated useful life of 1 ~ 20 years.
C. Concession license is amortised using the straight-line method starting from the date the license was granted by the National Communications Commission until expiration.
(18) Impairment of non-financial assets
A. The Group assesses at each balance sheet date the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell or value in use. Except for goodwill, when the circumstances or reasons for recognizing impairment loss for an asset in prior years no longer exist or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortised historical cost would have been if the impairment had not been recognised.
B. Goodwill for impairment testing purpose is allocated to cash generating units. This allocation is identified based on operating segments. Goodwill is allocated to a cash generating unit or a group of cash generating units that expects to benefit from the business combinations.
(19) Borrowings
Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.
(20) Notes and accounts payable
Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.
(21) Financial liabilities at fair value through profit or loss
A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or financial liabilities designated as at fair value through profit or loss on initial recognition. Financial liabilities are classified in this category of held for trading if acquired principally for the purpose of repurchasing in the short-term. Derivatives are also categorized as financial liabilities held for trading unless they are designated as hedges. Financial liabilities that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:
1. Hybrid (combined) contracts; or
2. Capable of eliminating or significantly reducing a measurement or recognition inconsistency; or
3. Performance is evaluated on a fair value basis, in accordance with a documented risk management policy.
B. Financial liabilities at fair value through profit or loss are initially recognised at fair value. Related transaction costs are expensed in profit or loss. These financial liabilities are subsequently remeasured and stated at fair value, and any changes in the fair value of these financial liabilities are recognised in profit or loss.
(22) Derecognition of financial liabilities
A financial liability is derecognized when the obligation under the liability specified in the contract is discharged or cancelled or expires.
(23) Offsetting financial instruments
Financial assets and liabilities are offset and reported in the net amount in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability simultaneously.
(24) Financial liabilities and equity instruments- Bonds payable
Ordinary corporate bonds issued by the Group are initially recognized at fair value, net of transaction costs incurred. Ordinary corporate bonds are subsequently stated at amortised cost; any difference between the proceeds (net of transaction costs) and the redemption value is accounted for as the premium or discount on bonds payable and presented as an addition to or deduction from bonds payable, which is amortised in profit or loss as an adjustment to the 'finance costs' over the period of bond circulation using the effective interest method.
(25) Derivative financial instruments
Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.
(26) Provisions
Provisions of warranties are recognized when the Group has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.
(27) Employee benefits
A. Short-term employee benefits
Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expenses in that period when the employees render service.
B. Pensions
(a) Defined contribution plans
For defined contribution plans, the contributions are recognized as pension expenses when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.
(b) Defined benefit plans
i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. The liability recognised in the balance sheet in respect of defined benefit pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised past service costs. The defined benefit net obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability; when there is no deep market in high-quality corporate bonds, the Group uses interest rates of government bonds (at the balance sheet date) instead.
ii. Actuarial gains and losses arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise.
iii. Past service costs are recognized immediately in profit or loss if vested immediately; if not, the past service costs are amortized on a straight-line basis over the vesting period.
C. Employees' bonus and directors' and supervisors' remuneration
Employees' bonus and directors' and supervisors' remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal obligation or constructive obligation and those amounts can be reliably estimated. However, if the accrued amounts for employees' bonus and directors' and supervisors' remuneration are different from the actual distributed amounts as resolved by the stockholders at their stockholders' meeting subsequently, the differences should be recognized based on the accounting for changes in estimates. The Group calculates the number of shares of employees' stock bonus based on the fair value per share at the previous day of the stockholders' meeting held in the year following the financial reporting year, after taking into account the effects of ex-rights and ex-dividends.
(28) Employee share-based payment
A. For the equity-settled share-based payment arrangements, the employee services received are measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.
B. For the cash-settled share-based payment arrangements, the employee services received and the liability incurred are measured at the fair value of the liability to pay for those services, and are recognized as compensation cost and liability over the vesting period. The fair value of the liability shall be remeasured at each balance sheet date until settled, with any changes in fair value recognized in profit or loss.
(29) Income tax
A. The tax expense for the period comprises current and deferred tax. Tax is recognized in profit or loss, except to the extent that it relates to items recognized in other comprehensive income or items recognized directly in equity, in which cases the tax is recognized in other comprehensive income or equity.
B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively enacted at the balance sheet date in the countries where the Company and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in accordance with applicable tax regulations. It establishes provisions where appropriate based on the amounts expected to be paid to the tax authorities. An additional 10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense in the year the stockholders resolve to retain the earnings.
C. Deferred income tax is recognized, using the balance sheet liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated balance sheet. However, the deferred income tax is not accounted for if it arises from initial recognition of goodwill or of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is provided on temporary differences arising on investments in subsidiaries and associates, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.
D. Deferred income tax assets are recognized only to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilized. At each balance sheet date, unrecognized and recognized deferred income tax assets are reassessed.
E. Current income tax assets and liabilities are offset and the net amount is reported in the balance sheet when there is a legally enforceable right to offset the recognized amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the legally enforceable right to offset current tax assets against current tax liabilities and they are levied by the same taxation authority on either the same entity or different entities that intend to settle on a net basis or realise the asset and settle the liability simultaneously.
F. A deferred tax asset shall be recognised for the carryforward of unused tax credits resulting from acquisitions of equipment or technology, research and development expenditures, employees' training costs and equity investments to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.
(30) Dividends
Dividends are recorded in the Company's financial statements in the period in which they are approved by the Company's shareholders. Cash dividends are recorded as liabilities; stock dividends are recorded as stock dividends to be distributed and are reclassified to ordinary shares on the effective date of new shares issuance.
(31) Revenue recognition
The Group manufactures and sells 3C products. Revenue is measured at the fair value of the consideration received or receivable, taking into account value-added tax, returns, rebates and discounts for the sale of goods to external customers in the ordinary course of the Group's activities. Revenue arising from the sales of goods should be recognized when the Group has delivered the goods to the customer, the amount of sales revenue can be measured reliably and it is probable that the future economic benefits associated with the transaction will flow to the entity. The delivery of goods is completed when the significant risks and rewards of ownership have been transferred to the customer, the Group retains neither continuing managerial involvement to the degree usually associated with ownership nor effective control over the goods sold, and the customer has accepted the goods based on the sales contract or there is objective evidence showing that all acceptance provisions have been satisfied.
(32) Government grants
Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes expenses for the related costs for which the grants are intended to compensate. Government grants related to property, plant and equipment are recognized as non-current liabilities and are amortised to profit or loss over the estimated useful lives of the related assets using the straight-line method.
(33) Business combinations
A. The Group uses the acquisition method to account for business combinations. The consideration transferred for an acquisition is measured as the fair value of the assets transferred, liabilities incurred or assumed and equity instruments issued at the acquisition date, plus the fair value of any assets and liabilities resulting from a contingent consideration arrangement. All acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. There is a choice on an acquisition-by-acquisition basis to measure the non-controlling interest in the acquiree either at fair value or at the non-controlling interest's proportionate share of the acquiree's identifiable net assets.
B. The excess of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition date. If the total of consideration transferred, non-controlling interest in the acquiree recognised and the fair value of previously held equity interest in the acquiree is less than the fair value of the identifiable assets acquired and the liabilities assumed, the difference is recognised directly in profit or loss on the acquisition date.
(34) Operating segments
Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker, who is responsible for allocating resources and assessing performance of the operating segments.
5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND ASSUMPTION ON UNCERTAINTY
The preparation of these consolidated financial statements requires management to make critical judgments in applying the Group's accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. The above information is addressed below:
(1) Critical judgments in applying the Group's accounting policies
A. Revenue recognition
The determination of whether the Group is acting as principal or agent in a transaction is based on an evaluation of Group's exposure to the significant risks and rewards associated with the sale of goods or the rendering of service in accordance with the business model and substance of the transaction. When exposed to the significant risks and rewards, the Group acts as a principal, and the amount received or receivable from customer is recognised as revenue on a gross basis. Where the Group acts as an agent, net revenue is recognised representing commission earned. The Group provides integrated electronics manufacturing services to meet the following criteria by judgment, and recognises revenue on a gross basis:
a. The Group has primary responsibilities for the goods or services it provides;
b. The Group bears inventory risk;
c. The Group bears credit risk of customers.
B. Financial assets-impairment of equity investments
The Group follows the guidance of IAS 39 to determine whether a financial asset-equity investment is impaired. This determination requires significant judgment. In making this judgment, the Group evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow.
C. Financial assets measured at cost
The Group can not obtain sufficient information for its unquoted equity investments to determine the fair value, so their fair values cannot be reliably measured. Therefore, the investments are classified as "financial assets carried at cost."
(2) Critical accounting estimates and assumptions
The Group makes estimates and assumptions based on the expectation of future events that are believed to be reasonable under the circumstances at the end of the reporting period. The resulting accounting estimates might be different from the actual results. The estimates and assumptions that may significantly adjust the carrying amounts of assets and liabilities within the next financial year are addressed below:
Evaluation of inventories
As inventories are stated at the lower of cost and net realisable value, the Group must determine the net realisable value of inventories on balance sheet date based on judgments and estimates. Due to the rapid technology innovation, the Group evaluates the amounts of normal inventory consumption, obsolete inventories or inventories without market selling value on balance sheet date, and writes down the cost of inventories to the net realisable value. Such an evaluation of inventories is principally based on the demand for the products within the specified period in the future. Therefore, there might be significant changes to the evaluation.
As of December 31, 2014, the carrying amount of inventories was $369,196,813.
6. DETAILS OF SIGNIFICANT ACCOUNTS
(1) Cash and cash equivalents
A. The Group associates with a variety of financial institutions with high credit quality in purpose of dispersing credit risk, so it expects that the probability of counterparty default is low. The Group's maximum exposure to credit risk at balance sheet date is the carrying amount of all cash and cash equivalents.
B. The Group's time deposits pledged to others as collateral had been transferred to "other current assets". Please refer to Note 8 for details.
(2) Financial assets and liabilities at fair value through profit or loss
A. Due to the financial assets and liabilities recognized above for the years ended December 31, 2014 and 2013, the Group recognized net profit of $2,374,063 and loss of $311,994, respectively.
B. The counterparties of the Group's debt derivative instruments have good credit quality, all with investment credit rating or above. The maximum exposure to credit risk at balance sheet date is the carrying amount of financial assets at fair value through profit or loss.
C. The non-hedging derivative instruments transaction and contract information are as follows:
(a) Cross currency swap contracts
The cross currency swap contracts signed by the Company are to fulfill capital movement. For exchange rate, principals denominated in two currencies are exchanged at the same exchange rate at the initial and final exchanges, thus, there is no foreign exchange risk. For interest rate, the fixed rate between two currencies is used to exchange, thus, there is no interest rates risk.
(b) Forward foreign exchange contracts
The Group enters into foreign exchange forward transactions to hedge the following risk of exchange rate:
A. Operating activities: Import of raw materials and export sales.
B. Investing activities: Import of machinery and equipment.
C. Financing activities: Long-term and short-term foreign currency assets and liabilities.
D. The Group has no financial assets at fair value through profit or loss pledged to others.
(3) Available-for-sale financial assets
A. On June 26, 2014, GoPro, Inc. (formerly known as Woodman Labs, Inc.), which was invested by the Group, was listed on NASDAQ. Thus, the investment of 'financial assets measured at cost' amounting to $5,606,417 was reclassified to 'available-for-sale financial assets'.
B. The Group acquired the shares of SK C&C Co., Limited amounting to $11,292,052 in the second quarter of 2014. The investment amount has been paid in full as of December 31, 2014.
C. The Group recognized net loss or gain in other comprehensive income for fair value change for the years ended December 31, 2014 and 2013. Please refer to Notes 6(28) and (29) for details.
(4) Notes and accounts receivable
A. The Company factored its accounts receivable to certain financial institutions without recourse. Under the agreement, the Company is not required to bear uncollectible risk of the underlying accounts receivable, but is liable for the losses incurred on any business dispute, and did not provide any collateral. Accordingly, these accounts receivable meet the derecognition criteria for financial assets. The Company has derecognized the accounts receivable sold to financial institutions, net of the amount estimated for business disputes.
As of December 31, 2014, there is no unsettled accounts receivable factored. As of December 31, 2013, the relevant information of unsettled accounts receivable factored were as follows:
B. As of December 31, 2014 and 2013, the Group has signed promissory notes amounting to $0 and $3,726,250 (US$125 million) as guarantee for those accounts receivable in commercial dispute, respectively.
C. For the years ended December 31, 2014 and 2013, the financing charges (expenses) incurred from accounts receivable factoring were $145,774 and $134,889 (shown as "finance costs"), respectively.
D. The maximum exposure to credit risk at December 31, 2014 and 2013 was the carrying amount of each class of accounts receivable.
E. The Group does not hold any collateral as security.
(5) Other receivables
The counterparties of the Group's other accounts receivable are good credit quality enterprises and government agencies. There is no significant compliance concerns and credit risk.
(6) Inventories
Expenses and losses incurred on inventories for the years ended December 31, 2014 and 2013 were as follows:
As the Group sold some inventory with net realizable value lower than its cost, the allowance for inventory obsolescence and market price decline was reversed for the year ended December 31, 2013.
(7) Non-current assets held for sale
A. On June 18, 2014, the Board of Directors has resolved the merger of Ambit Microsystems Corporation ("Ambit"), a subsidiary of the Company, and Asia Pacific Telecom ("APT"), which became the surviving company. Accordingly, the related assets and liabilities were reclassified as non-current assets held for sale. The merger was temporarily set to be effective on June 30, 2015 at a swap ratio of 1:0.4975.
B. On September 25, 2014, the Board of Directors of Ambit has resolved to dispose Ambit's 5M Hz spectrum of wireless broadband and to sell the use right of 728~733 MHz (upstream frequency band) and 783~788 MHz (downstream frequency band) of frequency band A3 of 700M Hz to Taiwan Mobile Co., Ltd.. The proceeds was $3,433,375 and the gain on disposal was $28,375. The transaction has been approved by the National Communications Commission and was completed in January 2015.
C. The non-current assets held for sale is composed of the following as of December 31, 2014:
(a) Assets directly relating to non-current assets held for sale:
(b) Liabilities directly relating to non-current assets held for sale:
(c) Impairment loss of $91,058 was recognised for the year ended December 31, 2014 (shown as "other gains and losses"), as a result of the remeasurement of the disposal group held for sale at the lower of its carrying amount or fair value less costs to sell.
(8) Other current assets
The Group has signed a contract for principal protected financial products with the bank for the year ended December 31, 2014, and the expected annualised rate of return is between 3.9% and 4.9%.
(9) Financial assets carried at cost
A. According to the Group's intension, its investment in above equity instruments should be classified as 'available-for-sale financial assets'. However, as the above equity instruments are not traded in active market, and no sufficient industry information of companies similar to the above companies or no financial information of the above companies can be obtained, the fair value of the investment in above equity instruments cannot be measured reliably. Accordingly, the Group classified those stocks as 'financial assets carried at cost'.
B. On June 26, 2014, GoPro, Inc. (formerly known as Woodman Labs, Inc.), which was invested by the Group, was listed on NASDAQ. Thus, the investment of 'financial assets measured at cost' was reclassified to 'available-for-sale financial assets'.
C. The Group has assessed the aforementioned financial instruments. Because partial investment was impaired, the Group has recognised impairment loss of $87,730 and $0 (shown as 'other gains and losses') for the years ended December 31, 2014 and 2013, respectively.
D. As of December 31, 2014 and 2013, no financial assets measured at cost held by the Group were pledged to others.
(10) Investments accounted for under equity method
A. The Group has assessed impairment of certain investees for the years ended December 31, 2014 and 2013, and has accrued impairment loss of $244,847 and $0, respectively (shown as 'other gains and losses').
B. The Group holds 15% of share capital of Asia Pacific Telecom. Since Bon Shin International Investment Co., Ltd., a subsidiary of the Company, serves as the investee's chairman, the Group has significant impact over the investee.
C. Ambit, a subsidiary of the Company, has signed a letter of intent with APT in May 2014. APT has issued 826,407 thousand ordinary shares for capital increase through private placement which Ambit serves as the subscriber. Ambit has acquired 582,888 thousand shares at NTD$20 per share from the private placement, amounting to $11,657,769 in July 2014. Ambit could introduce international strategic investors to purchase the remaining 243,519 thousand ordinary shares of the private placement under the same price and conditions within 1 year after the shareholders' approval of the private placement in 2014.
D. The fair value of the Group's associates which have quoted market price was as follows:
E. The consolidated financial information of the Group's principal associates is summarized below:
(11) Property, plant and equipment
The Company's subsidiaries assessed recoverable amounts of those assets where there is an indication that they are impaired. Impairment loss
of $1,134,745 and $455,187 (shown as 'other gains and losses') was recognized for the years ended December 31, 2014 and 2013, respectively.
(12) Investment property
A. Rental income from the lease of the investment property and direct operating expenses arising from the investment property are shown below:
B. The Group assesses the recoverable amounts of those assets where there is an indication that they are impaired. An impairment loss of $147,837 and $0 was recognized for the years ended December 31, 2014 and 2013, respectively.
C. The fair value of the investment property held by the Group as at December 31, 2014 and 2013 was $3,422,770 and $3,045,877, respectively, which was revalued by independent appraisers. The valuation is based on latest market price of similar investment property in the same area and condition.
(13) Intangible assets
A. Goodwill arose mainly from the acquisition of Scientific-Atlanta de Mexico S. de R.L. de C.V. in 2011 which was accounted for using the acquisition method.
B. Patents refer to the panel patents obtained from NEC in September, 2012.
C. Please refer to Note 6(38) for details of information acquired through business combinations in 2014.
D. Ambit, a subsidiary of the Company, has received the approval of 4G mobile broadband spectrum by the competent authority for telecommunication which the subsidiary won the bid of frequency band A3 and B3. The bid amounting to $9,180,000 has been paid to the National Communications Commission. On June 18, 2014, the Board of Directors of Ambit has resolved the merger with APT. On September 25, 2014, the Board of Directors has resolved to dispose 5M Hz spectrum and to sell the use right of 728~733 MHz (upstream frequency band) and 783~788 MHz (downstream frequency band) of frequency band A3 of 700M Hz to Taiwan Mobile Co., Ltd.. The Group has reclassified the above concession as non-current assets held for sale. Please refer to Note 6(7) for details.
E. The details of amortization are as follows:
(14) Other non-current assets
Long-term prepaid rent refers to the land use rights obtained in China. Upon signing of the lease, the amount has been paid in full. The Group recognized rental expense of $398,750 and $408,179 for the years ended December 31, 2014 and 2013, respectively.
(15) Short-term loans
A. As of December 31, 2014 and 2013, the Company provided guarantees on the short-term credit facilities obtained by Foxconn Slovakia, SPOL S.R.O., a subsidiary of the Company, in the amount of EUR 291 million and EUR 321 million, respectively.
B. As of December 31, 2014 and 2013, the Company provided guarantees on the short-term credit facilities obtained by Competition Team Technologies Limited, a subsidiary of the Company, both in the amount of RMB 2 billion.
C. As of December 31, 2014 and 2013, the Company provided guarantees on the short-term credit facilities obtained by Falcon Precision Trading Limited, a subsidiary of the Company, both in the amount of RMB 2 billion.
D. As of December 31, 2014 and 2013, the Company provided guarantees on the short-term credit facilities obtained by Competition Team Ireland Limited, a subsidiary of the Company, in the amount of USD 250 million and USD 200 million, respectively.
E. The Group has signed an agreement to offset financial assets and liabilities with financial institutions from 2013. Details of the offset as of December 31, 2014 and 2013 are as follows:
(16) Short-term notes and bills payable
(17) Other payables
(18) Other current liabilities
(19) Bonds payable
A. First unsecured corporate bonds issue in 2005
(a) On September 14, 2005, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $11,500,000. As of December 31, 2014, Bond Aa to Af, Bond Ba to Bf and Bond Ca to Cf had been redeemed in the amount of $9,000,000. The amount of the unredeemed bonds is $2,500,000. The terms of these domestic unsecured bonds are summarized as follows:
(b) First unsecured corporate bonds issue in 2005 was transferred to current liabilities in the third quarter of 2014 in accordance with the conditions of the contractual arrangement.
B. First debenture issue of 2010
(a) On December 17, 2010, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,000,000. The terms of these domestic unsecured bonds are summarized as follows:
(b) As of December 31, 2014, in accordance with the conditions of the contractual arrangement, the Company has repaid $3,000,000, and the balance of $3,000,000 was transferred to current liabilities in the fourth quarter of 2014.
C. First debenture issue of 2011
(a) On January 7, 2011, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,000,000. The terms of these domestic unsecured bonds are summarized as follows:
(b) 2011 first unsecured corporate bonds payable of $3,000,000 had been reclassified to "Current liabilities" in the first quarter of 2014 in accordance with the conditions of the contractual arrangement.
D. Second debenture issue of 2011
On June 1, 2011, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $7,050,000. The terms of these domestic unsecured bonds are summarized as follows:
E. Third debenture issue of 2011
On July 6, 2011, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $4,950,000. The terms of these domestic unsecured bonds are summarized as follows:
F. First debenture issue of 2012
On December 28, 2011, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $9,000,000. The terms of these domestic unsecured bonds are summarized as follows:
G. Second debenture issue of 2012
On May 11, 2012, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,000,000. The terms of these domestic unsecured bonds are summarized as follows:
H. Third debenture issue of 2012
(a) On July 27, 2012, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $8,000,000. The terms of these domestic unsecured bonds are summarized as follows:
(b) 2012 third unsecured corporate bonds payable had been reclassified to "Current liabilities" in the third quarter of 2014 in accordance with the conditions of the contractual arrangement.
I. Fourth debenture issue of 2012
On September 28, 2012, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $3,300,000. The terms of these domestic unsecured bonds are summarized as follows:
J. First debenture issue of 2013
On January 7, 2013, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $11,050,000. The terms of these domestic unsecured bonds are summarized as follows:
K. Second debenture issue of 2013
On May 6, 2013, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,950,000. The terms of these domestic unsecured bonds are summarized as follows:
L. Third debenture issue of 2013
On November 5, 2013, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,000,000. The terms of these domestic unsecured bonds are summarized as follows:
M. First debenture issue of 2014
On December 31, 2013, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $6,000,000. The terms of these domestic unsecured bonds are summarized as follows:
N. Second debenture issue of 2014
On April 18, 2014, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $12,000,000. The terms of these domestic unsecured bonds are summarized as follows:
O. Third debenture issue of 2014
On June 5, 2014, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $12,000,000. The terms of these domestic unsecured bonds are summarized as follows:
P. Fourth debenture issue of 2014
On September 3, 2014, following the approval from the SFB, the Company issued domestic unsecured bonds in the amount of $9,200,000. The terms of these domestic unsecured bonds are summarized as follows:
Q. Foreign unsecured corporate bonds USD-denominated
On December 13, 2012, Competition Team Technologies Ltd., a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of US$ 650 million, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
R. Foreign unsecured corporate bonds JPY-denominated
On March 21, 2013, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of JPY 10 billion, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
S. Foreign unsecured corporate bonds JPY-denominated
On March 21, 2013, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of JPY 4 billion, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
T. Foreign unsecured corporate bonds JPY-denominated
On May 9, 2014, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of JPY 2 billion, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
U. Foreign unsecured corporate bonds RMB-denominated
On May 23, 2014, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of RMB 800 million, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
V. Foreign unsecured corporate bonds JPY-denominated
On August 15, 2014, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of JPY 30 billion, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
W. Foreign unsecured corporate bonds JPY-denominated
On September 18, 2014, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of JPY 5 billion, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
(20) Long-term loans
A. On March 21, 2011, the Company entered into a syndicated credit facility agreement with Mizuho Corporate Bank Ltd. as the lead bank and obtained a credit line in the amount of JPY 51 billion. The partial amount of JPY 31,875 million had been extended until March 31, 2016 and will be repaid by installment over the remaining contract period. The amount of JPY 21,250 million, which will due within one year, had been reclassified to "Current liabilities" in the fourth quarter of 2014.
B. Foxconn (Far East) Limited, a subsidiary of the Company, entered into a syndicated credit facility agreement with Mizuho Corporate Bank Ltd. as the lead bank on June 18, 2013 and obtained a credit line in the amount of USD 500 million, with the Company as the guarantor of the loan.
C. Foxconn Slovakia, SPOL. S R. O., a subsidiary of the Company, entered into a syndicated credit facility agreement with ING Bank N.V. as the lead bank and obtained a credit line in the amount of EUR 410 million, of which EUR 35 million had been due for settlement and EUR 265 million had been repaid in advance. As of December 31, 2014, the credit line is EUR 110 million, with the Company as the guarantor of the loan.
D. The Company entered into a comprehensive credit contract with China Development Industrial Bank on August 3, 2011, and obtained a credit line in the amount of $2 billion. As of December 31, 2014, the entire loan had been repaid.
E. Syntrend Creative Park Co. Ltd., a subsidiary of the Company, entered into a comprehensive credit contract with First Commercial Bank on April 18, 2011, and obtained a credit line in amount of $2.5 billion.
F. Honfujin Precision Electronics (Chengdu) Limited, a subsidiary of the Company, entered into a syndicated credit facility agreement with Mizuho Corporate Bank Ltd. and Sumitomo Mitsui Banking Corporation on June 11, 2012, and obtained a credit line in the amount of JPY 11 billion, with the Company as the guarantor of the loan.
G. Honfujin Precision Electronics (Chengdu) Limited, a subsidiary of the Company, entered into a U.S. dollar regular loan commitment agreement with Citibank (China) Ltd. on September 21, 2012, and obtained a credit line in the amount of USD 50 million, of which USD 12 million had been repaid in advance and USD 4 million had been due for settlement. The amount of USD 34 million, which will due within one year, had been reclassified to "Current liabilities" in the fourth quarter of 2014, with the Company as the guarantor of the loan.
H. The Company entered into a comprehensive credit facility agreement with ING Bank, N.V. as the lead bank and the loan amount is JPY 3,087,748 thousand, which will be repaid by installment over the contract period. The amount of JPY 514,626 thousand, which will due within one year, had been reclassified to "Current liabilities" in the fourth quarter of 2014.
I. Altus Technology Inc., Ingrasys Technology Inc. and Dynamic Computing Technology Co., Ltd., subsidiaries of the Company, entered into a comprehensive credit contract with First Commercial Bank on October 19, 2012, and obtained a credit line in the amount of $1,390,000.
J. Throughout the term of Mizuho Corporate Bank Ltd., ING Bank, N.V. and Citibank (China) Ltd., etc. syndicated term loan agreement, the Group shall maintain the agreed financial ratios, to be tested semi-annually and annually on consolidated basis.
(21) Pensions
A. Defined benefit plans
(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees' service years prior to the enforcement of the Labor Pension Act on July 1, 2005 and service years thereafter of employees who chose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last 6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the employees' monthly salaries and wages to the retirement fund deposited with Bank of Taiwan, the trustee, under the name of the independent retirement fund committee.
(b) The amounts recognized in the balance sheet are determined as follows (shown as "Other non-current liabilities"):
(c) Movements in present value of defined benefit obligations are as follows:
(d) Movements in fair value of plan assets:
(e) Amounts of expenses recognised in statements of comprehensive income:
Details of cost and expenses recognised in statements of comprehensive income:
(f) Amounts of actuarial gains or losses recognised under other comprehensive income are as follows:
(g) The Bank of Taiwan was commissioned to manage the Fund of the Company's defined benefit pension plan in accordance with the Fund's annual investment and utilisation plan and the "Regulations for Revenues, Expenditures, Safeguard and Utilisation of the Labor Retirement Fund" (Article 6: The scope of utilisation for the Fund includes deposit in domestic or foreign financial institutions, investment in domestic or foreign listed, over-the-counter, or private placement equity securities, investment in domestic or foreign real estate securitization products, etc.). With regard to the utilisation of the Fund, its minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks. The constitution of fair value of plan assets as of December 31, 2014 and 2013 is given in the Annual Labor Retirement Fund Utilisation Report published by the government. Expected return on plan assets was a projection of overall return for the obligations period, which was estimated based on historical returns and by reference to the status of Labor Retirement Fund utilisation by the Labor Pension Fund Supervisory Committee and taking into account the effect that the Fund's minimum earnings in the annual distributions on the final financial statements shall be no less than the earnings attainable from the amounts accrued from two-year time deposits with the interest rates offered by local banks.
Actual returns on plan assets of the Company were $15,183 and $8,121 for the years ended December 31, 2014 and 2013, respectively.
(h) The principal actuarial assumptions used were as follows:
Assumptions regarding future mortality experience are set based on actuarial advice in accordance with published statistics and experience in each territory.
(i) Historical information of experience adjustments was as follows:
(j) Expected contributions to the defined benefit pension plans of the Group within one year from December 31, 2014 is $57,505.
B. Defined contribution plans
(a) Effective July 1, 2005, the Company and its domestic subsidiaries have established a defined contribution pension plan (the "New Plan") under the Labor Pension Act (the "Act"), covering all regular employees with R.O.C. nationality. Under the New Plan, the Company and its domestic subsidiaries contribute monthly an amount based on 6% of the employees' monthly salaries and wages to the employees' individual pension accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump sum upon termination of employment.
(b) The subsidiaries in mainland China have defined contribution pension plans and contribute an amount monthly based on 8%~9% of employees' monthly salaries and wages to an independent fund administered by a government agency. The plan is administered by the government of mainland China. Other than the monthly contributions, the Group does not have further pension liabilities.
(c) As of December 31, 2014 and 2013, the subsidiaries which participated in defined contribution pension plans recognized reserve according to the respective local laws for retirement plan in the amount of $56,418 and $106,152, respectively. The pension costs under the defined contribution pension plans of the Group for the years ended December 31, 2014 and 2013 were $19,462,997 and $15,761,823, respectively.
(22) Share-based payment
As of December 31, 2014 and 2013, the share-based payment transactions of FIH Mobile Limited, a subsidiary of the Company (listed on the Stock Exchange of Hong Kong), are set forth below:
Note 1: Vested upon completion of certain years' service.
Note 2: Of the shares granted, 2,737,718 shares cannot be sold within 1 to 3 years from the grant date.
Note 3: Of the shares granted, 407,000 shares cannot be sold within 1 to 2 years from the grant date.
Note 4: Of the shares granted, 20,362,078 shares cannot be sold within 1 to 3 years from the grant date.
Note 5: Of the shares granted, 13,939,379 shares cannot be sold within 1 to 2 years from the grant date.
Note 6: Of the shares granted, 14,934,766 shares cannot be sold within 1 to 2 years from the grant date.
Note 7: Of the shares granted, 6,210,640 shares cannot be sold within 1 to 2 years from the grant date.
Note 8: Of the shares granted, 33,957,285 shares cannot be sold within 1 to 2 years from the grant date.
Note 9: Of the shares granted, 138,267,922 shares cannot be sold within 1 to 3 years from the grant date.
Note 10: Of the shares granted, 10,712,895 shares cannot be sold within 1 year from the grant date.
Note 11: Vested immediately.
A. Employee stock options
For the stock options granted with the compensation cost accounted for using the fair value method, their fair value on the grant date is estimated using the Black-Scholes option-pricing model. The parameters used in the estimation of the fair value are as follows:
(a) For the years ended December 31, 2014 and 2013, the weighted-average exercise price of employee stock options outstanding were US$0.57 and US$0.60 (in dollars) per share, respectively. For the years ended December 31, 2014 and 2013, expenses incurred on employee stock options transactions were $285 (US$9.4 thousand) and $86,101 (US$2,900 thousand), respectively.
(b) Details of the employee stock options are set forth below:
B. Other share-based payment plans
These share-based payments were granted to employees without consideration received. For the years ended December 31, 2014 and 2013, expenses incurred on other share-based payments were $2,330,354 (US$76,884 thousand) and $1,330,587 (US$44,816 thousand), respectively.
(23) Other non-current liabilities
(24) Provisions
Analysis of total provisions:
The Group provides warranties on 3C products sold. Provision for warranty is estimated based on historical warranty data of 3C products.
(25) Capital stock
A. On June 26, 2013, the Company's shareholders adopted a resolution to increase the authorized shares to 18 billion shares. As of December 31, 2014, the Company's authorized capital was $150,000,000, consisting of 15 billion shares of ordinary stock, and the paid-in capital was $147,934,068, consisting of 14,793,407 thousand shares with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
Movements in the number of the Company's ordinary shares outstanding are as follows:
B. Pursuant to the resolution adopted at the stockholders' meeting held on June 1, 1999, and after obtaining approval from the SFC, the Company issued 25 million units of global depository receipts (GDRs) in Europe, Asia and the USA, comprising 50 million shares of common stock (Deposited Shares). The issuance amounted to USD347,250 thousand, and the main terms and conditions of the GDRs are as follows:
(a) Voting
Holders of GDRs have no right to directly exercise voting rights or attend the Company's stockholders' meeting, except when a motion is on the election of directors or supervisors.
A holder or holders together holding at least 51% of the GDRs outstanding at the relevant record date of the stockholders' meeting can instruct the Depositary to vote in the same direction in respect of one or more resolutions to be proposed at the meeting.
(b) Sale and withdrawal of GDRs
Under the current R.O.C. law, shares represented by the GDRs may be withdrawn by holders of GDRs commencing three months after the initial issue of GDRs. A holder of a GDR may, provided that the Company has delivered to the custodian physical share certificates in respect of the Deposited Shares, request the Depositary to sell or cause to be sold on behalf of such holder the shares represented by such GDRs.
(c) Dividends
GDR holders are entitled to receive dividends to the same extent as the holders of common stock.
(d) As of December 31, 2014, 133,826 thousand units of GDRs were outstanding, which represents 267,651 thousand shares of common stock.
C. Treasury stocks
The Company's subsidiary, Hong Jingguo International Investment Co., Ltd., acquired ordinary shares issued by the Company in 1998. As of December 31, 2014 and 2013, the subsidiary owned 1,605,064 and 1,433,093 shares, respectively, of the Company's common stock at a cost of $18,901.
(26) Capital surplus
Pursuant to the R.O.C. Company Act, capital reserve arising from paid-in capital in excess of par value on issuance of common stocks and donations can be used to cover accumulated deficit or to issue new stocks or cash to shareholders in proportion to their share ownership, provided that the Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires that the amount of capital reserve to be capitalized mentioned above should not exceed 10% of the paid-in capital each year. Capital reserve should not be used to cover accumulated deficit unless the legal reserve is insufficient.
(27) Retained earnings
A. In accordance with the Company's Articles of Incorporation, current year's earnings must be distributed in the following order:
(a) Covering accumulated deficit;
(b) Setting aside as legal reserve equal to 10% of current year's net income after tax and distribution pursuant to clause (A);
(c) Setting aside a special reserve in accordance with applicable legal and regulatory requirement;
(d) The remainder is distributable earnings of which 8% is appropriated as employees' bonus; qualified employees include employees of affiliates per criteria set by Board of Directors.
The remaining earnings along with the unappropriated earnings at the beginning of the period are considered as accumulated distributable earnings. In accordance with dividend policy, the proposal of earnings appropriation is prepared by the Board of Directors and resolved by the shareholders.
The Company is at the growing stage. The Company's stock dividend policy shall consider the Company's current and future investment environment, capital needs, local and foreign competition situation and capital budget, along with shareholders' profit and the Company's long-term financial plans. The shareholders' dividends are appropriated based on accumulated distributable earnings, which shall not be lower than 15% of the distributable earnings for the period and the cash dividend shall not be less than 10% of the shareholders' dividends.
B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in proportion to their share ownership, the legal reserve shall not be used for any other purpose. The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their share ownership is permitted, provided that the balance of the reserve exceeds 25% of the Company's paid-in capital.
C. In accordance with the regulations, the Company shall set aside special reserve from the debit balance on other equity items at the balance sheet date before distributing earnings. When debit balance on other equity items is reversed subsequently, the reversed amount could be included in the distributable earnings.
D. The appropriations of 2013 and 2012 earnings had been resolved at the stockholders' meeting on June 25, 2014 and June 26, 2013, respectively. Details are summarized below:
As of March 30, 2015, the distribution of 2014 earnings had not been approved by the board of directors. The information on distribution of earnings will be posted on the "Market Observation Post System" of the TSEC.
E. For the years ended December 31, 2014 and 2013, employees' bonus was accrued at $9,398,501 and $7,682,195, respectively, based on 8% of net income, and recognized as operating costs and expenses in current year. No directors' and supervisors' remuneration was recognized for the corresponding periods. Employees' bonuses for 2013 as resolved by the stockholders on June 25, 2014 were in agreement with those amounts recognized in the 2013 financial statements. Actual number of shares distributed as employees' bonus for the year ended December 31, 2013 is 89,255 thousand shares. Calculation basis of the shares is based on the closing price of the Company's common stock at $86.07 (in dollars) per share, on the previous day of the shareholders' meeting after taking into account the effects of ex-rights and ex-dividends.
(28) Other equity items
(29) Non-controlling interests
Certain subsidiaries of the Group have issued employee share-based payment and new shares during 2014 and 2013. The Group has not purchased additional shares in proportion to its ownership and thus, the Group has increased non-controlling interest by $7,509,742 and $3,930,733, and equity attributable to owners of the parent decreased by $974,889 and increased by $18,325 as of December 31, 2014 and 2013, respectively.
(30) Operating revenue
(31) Other income
(32) Other gains and losses
(33) Expenses by nature
Additional disclosures related to cost of sales and operating expenses are as follows:
(34) Employee benefit expense
(35) Financial costs
(36) Income tax
A. Income tax expense
(a)Components of income tax expense:
(b)The income tax (charge)/credit relating to components of other comprehensive income are as follows:
B. Reconciliation between income tax expense and accounting profit
C. Amounts of deferred tax assets or liabilities as a result of temporary differences are as follows:
D. The Company did not recognise taxable temporary differences associated with investment in subsidiaries as deferred tax liabilities. As of December 31, 2014 and 2013, the amounts of temporary differences unrecognised as deferred tax liabilities were $648,931,298 and $521,554,443, respectively.
E.The Company's income tax returns through 2012 have been assessed and approved by the Tax Authority.
F. Unappropriated retained earnings:
G. The stockholders' deductible tax and expected deductible tax rate are as follows:
(37) Earnings per share
The number of shares had retroactively been adjusted by the stock dividends as of December 31, 2014.
(38) Business combinations
A. Hua Cheng International Investment Co., Ltd., an indirectly invested subsidiary of the Company, has acquired 47.62% of share capital of Goldtek Technology Co., Ltd. for a cash consideration of $53,340 on September 1, 2014. The acquisition is for expanding industrial handheld products.
B. Ennoconn Corporation, an indirectly invested subsidiary of the Company, has acquired 18.99% of share capital of CASwell, Inc. for a cash consideration of $524,400 on December 5, 2014. The acquisition is for entering processing area of network products, expanding diversity of industrial personal computers and integrating the current resources.
C. The following table summarises the consideration paid for Goldtek Technology Co., Ltd. and CASwell Inc. and the fair values of the assets acquired and liabilities assumed at the acquisition date, as well as the fair value at the acquisition date of the non-controlling interest:
D. Net cash outflow for the acquisition of subsidiaries:
(39) Non-cash transaction
A.Investing activities with partial cash payments
B. Financing activities with no cash flow effects
7. RELATED PARTY TRANSACTIONS
(1) Significant transactions and balances with related parties
A.Sales
The amounts above include administration and service revenue. Goods are sold based on the price lists in force and terms that would be available to third parties. The Group sold materials to the above related parties for processing and repurchased the finished goods. The sales amount of materials and repurchase price of finished goods were offset against each other and shown at net amount in the financial statements.
B.Purchases
Purchases from related enterprises are based on normal commercial terms and conditions.
C. Receivables from related parties:
The receivables from related parties arise mainly from sale transactions, sales of property, plant and equipment and purchase of raw materials on behalf of others. The amount is due 30 to 90 days after the transaction date. The receivables are unsecured and non-interest bearing.
D. Payables to related parties
Payables to related parties primarily arose from purchase transactions and procurement of raw materials on behalf of others. The amount is due 30 to 90 days after the transaction date. The payables are non-interest bearing.
E. Prepayments:
F. Property transactions:
(a)Acquisition of property, plant and equipment:
(b)Proceeds from sale of property, plant and equipment and gain (loss) on disposal:
G.Loans to related parties
Receivables from related parties
Interest income
Interest was charged at the rate of 1.41%~7.2% and 1.625% for the years ended December 31, 2014 and 2013, respectively.
(2) Key management compensation
8. PLEDGED ASSETS
As of December 31, 2014 and 2013, the book values of the Group's pledged assets are as follows:
9. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS
(1) Contingencies
None.
(2) Commitments
A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:
B. Operating lease commitments
The Company's subsidiary leases factory dormitory under non-cancellable operating lease agreements. The lease terms are between 5 and 10 years, and the majority of lease agreements are renewable at the end of the lease period at market rate.
The future aggregate minimum lease payments under non-cancellable operating leases are as follows:
C. The Group entered into an agreement with Qualcomm Incorporated regarding mobile phone use right. Under the agreement, the Group shall pay royalties based on sales volume of the related products.
D. On June 18, 2014, Ambit Microsystems Corporation has signed a merger contract with Asia Pacific Telecom through share swap. Ambit Microsystems Corporation was merged and the surviving company was Asia Pacific Telecom. The swap ratio is 1:0.4975. The merger was temporarily set to be effective on June 30, 2015; however, the effective date may be changed by the Board of Directors of both companies based on the process of the merger. If it is necessary to adjust the consolidated consideration per share because of the review by the competent authority, or to smoothly obtain the approval, review and/or effective application granted by the competent authority, both companies shall maintain fairness as its basic principle and compromise for the consideration and follow-ups.
E. Foxconn (Far East) Limited, a subsidiary of the Company, has signed a subscription agreement with China Harmony Auto Holding Limited on December 22, 2014, for Foxconn (Far East) Limited to acquire 128,734 thousand shares by paying HKD 608,912 thousand under certain prerequisites (or after being exempted). As of December 31, 2014, the prerequisites (or exemptions) have not been met, thus, the case has not yet been settled.
10. SIGNIFICANT DISASTER LOSS
None.
11. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE
A. On January 14, 2015, the Company has issued the fifth unsecured corporate bonds of 2014. Total issuance amounted to $7,150,000, consisting of bond A: $2,750,000 with a coupon rate of 1.23% and issuance period of 3 years; bond B: $1,600,000 with a coupon rate of 1.45% and issuance period of 5 years; and bond C: $2,800,000 with a coupon rate of 1.80% and an issuance period of 7 years.
B. A domestic unsecured corporate bonds issuance was approved by the Board of Directors on March 30, 2015, with the total amount of not more than $18,000,000 and the bonds shall be issued in multiple series.
C. On March 26, 2015, the Company has published on behalf of Pacific Wealth Consultants Limited, a subsidiary of the Company, that the subsidiary will acquire capital share of FSK Holdings Limited for HKD 225 million. In accordance with the subsidiary's joint venture agreement with SK C&C Co., Ltd., after SK C&C Co., Ltd. receives approval of overseas investment from the competent authority in South Korea, Pacific Wealth Consultants Limited will sell 30% of share capital to SK C&C Co., Ltd. at the original acquisition cost.
12. OTHERS
(1) Capital management
The Group's objectives when managing capital are to safeguard the Group's ability to operate with the goal to provide returns for shareholders and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, issue new shares or sell assets to reduce debt. The Group monitors capital on the basis of the gearing ratio. This ratio is calculated as net debt divided by total capital. Net debt is calculated as total borrowings (including 'current and non-current borrowings' as shown in the consolidated balance sheet) less cash and cash equivalents. Total capital is calculated as 'equity' as shown in the consolidated balance sheet less the total of intangible assets.
During 2014, the Group's strategy, which was unchanged from 2013, was to maintain the gearing ratio at 70% or below.
(2) Financial instruments
A. Fair value information of financial instruments
The financial assets with fair value that equals to book value include cash and cash equivalents, financial assets measured at fair value through profit or loss, available-for-sale financial assets, notes and accounts receivable and other financial assets. The financial liabilities with fair value that equals to book value include short-term bank loan, financial liabilities measured at fair value through profit or loss, notes and accounts payable and current portion of the long-term liabilities.
B. Financial risk management policies
(a) Risk categories:
The Group employs a comprehensive risk management and control system to clearly identify, measure, and control the various kinds of financial risk it faces, including market risk (including foreign exchange risk, interest rate risk and price risk), credit risk, and liquidity risk.
(b) Management objectives:
i. Except for market risk, which is controlled by outside factors, the remainder of the foregoing types of risks can be controlled internally or removed from business processes. Therefore, the goal in managing each of these risks is to reduce them to zero.
ii. As for market risk, the goal is to optimize its overall position through strict analysis, suggestion, execution and audit processes, and proper consideration of a) long-term trends in the external economic/financial environment, b) internal operating conditions, and c) the actual effects of market fluctuations.
iii. The Group's overall risk management policy focuses on the unpredictable item of financial markets and seeks to reduce the risk that potentially pose adverse effects on the Group's financial position and financial performance.
iv. For the information of the derivative financial instruments that the Group enters into, please refer to Note 6(2).
(c) Management system:
i. Risk management is executed by the Group's finance department by following policies approved by the Board. Through cooperation with the Group's operating units, finance department is responsible for identifying, evaluating and hedging financial risks.
ii. The Board has a written policy covering overall risk management. It also has written policies covering specific issues, such as exchange rate risk, interest rate risk, credit risk, derivative and non-derivative financial instruments used, and the investment of excess working capital.
C. Significant financial risks and degrees of financial risks
(a) Market risk
i. Foreign exchange risk
(i) Nature:
The Group is a multinational group in the Electronic manufacturing services industry. Most of the exchange rate risk from operating activities comes from:
a. Foreign exchange risk arises from different exchange rates to functional currency as the invoice dates of accounts receivable and payable denominated in non-functional foreign currency are different. Due to the characteristics of the subcontracting industry, the Company's revenue and expenditure are mostly denominated in foreign currency. Thus, the remaining net foreign exchange risk is not material after offsetting assets and liabilities. Furthermore, although the variations in currencies of the Company's certain foreign investments in emerging countries (i.e. Brazil, Mexico, etc.) are considered huge, the percentage of the investments is not significant and thus the Company's foreign exchange risk can be maintained in the controllable range. (Note: The Group has several sites in various countries and thus is exposed to various foreign exchange risks. The main risk arises from USD and RMB.)
b. Except for the above transactions (operating activities) recognized in the income statement, assets and liabilities recognized in the balance sheet and the net investment in foreign operations also result in the exchange rate risk.
(ii) Management:
a. For such risks, the Group has set up policies requiring companies in the Group to manage its exchange rate risks.
b. As to the exchange rate risk arising from the difference between various functional currencies and the reporting currency in the consolidated financial statements, it is managed by the Group's finance department.
(iii) The source:
a. U.S. dollar and NT dollar:
Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are translated into New Taiwan dollars.
b. U.S. dollars and RMB:
Foreign exchange risk arises primarily from U.S. dollar-denominated cash, cash equivalents, accounts receivable and other receivables, other assets, loans, accounts payable and other payables and other liabilities, which results in exchange loss or gain when they are translated into RMB.
c. JPY and NT dollar:
Foreign exchange risk arises primarily from yen-denominated loans, accounts payable and other payables, which results in exchange loss or gain when they are translated into New Taiwan dollars.
(iv) Extent
The information on assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:
ii. Equity securities
(i) Nature
The Group primarily invests in domestic and foreign publicly traded and unlisted equity instruments, which are accounted for as available-for-sale financial assets and financial assets carried at cost. The price of those equity instruments will be affected by the uncertainty of the future value of the investment.
(ii) Extent
If such equity instruments' price rise or fall by 1%, with all other factors held constant, the impact on equity due to available-for-sale equity instruments are $538,279 and $129,419 for the years ended December 31, 2014 and 2013, respectively.
iii. Futures
(i) Nature
The Group is exposed to commodity price risk because of future commodity price fluctuations.
(ii) Extent
The Group sets stop-loss amount to reduce its futures market risk whenever futures contracts are entered into. As a result, there is no significant futures market risk.
iv. Interest rate risk
The Group's interest rate risk arises from long-term loans or corporate bonds with floating rates. The Company's long-term corporate bonds with fixed interest rates do not have interest rate risk or fair value interest rate risk.Long-term loans or corporate bonds with floating rates expose the Group to cash flow interest rate risk, but most of the risks are offset by cash and cash equivalents with variable interest rates.
(b) Credit risk
i. Credit risk refers to the risk of financial loss to the Group arising from default by the clients or counterparties of financial instruments.
ii. According to the Group's credit policy, each local entity in the Group is responsible for managing and analysing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. The Group assesses the credit quality of the customers by taking into account their financial position, past experience and other factors to conduct its internal risk management.
iii. Individual risk limits are set based on internal or external ratings in accordance with limits set by the board of directors. The utilisation of credit limits is regularly monitored. Major credit risk arises from cash and cash equivalents, derivative financial instruments and other financial instruments. The counterparties are banks with good credit quality and financial institutions with investment grade or above and government agencies, so there is no significant compliance concerns and credit risk.
iv. The aging analysis of notes receivable and accounts receivable (including related parties) that were past due but not impaired is as follows:
v. Movements on the Group's provision for impairment of notes receivable and accounts receivable (including related parties) are as follows:
(i) As of December 31, 2014 and 2013, accounts receivable that had been impaired were $2,750,491 and $2,451,701, respectively.
(ii) Movement in allowance for individual provision for bad debts is as follows:
vi. The credit quality of accounts receivable (including related parties) that were neither past due nor impaired is in the following categories based on the Group's Credit Quality Control Policy:
Group 1: Standard Poor's, Fitch's, or Moody's rating of A-level, or rated as A-level in accordance with the Group's credit polices for those that have no external credit ratings.
Group 2: Standard Poor's or Fitch's rating of BBB, Moody's rating of Baa, or rated as B or C in accordance with the Group's credit polices for those that have no external credit ratings.
Group 3: Standard Poor's or Fitch's rating of BB + and below, or Moody's rating of Ba1 and below.
Group 4: Rated as other than A, B, or C in accordance with the Group's credit policies for those that have no external credit ratings.
(c) Liquidity risk
i. Cash flow forecasting is performed by each operating entity of the Group and aggregated by Group treasury. The Group treasury monitors rolling forecasts of the Group's liquidity requirements to ensure it has sufficient cash to meet operational needs while maintaining sufficient headroom on its undrawn committed borrowing facilities at all times so that the Group does not breach borrowing limits or covenants (where applicable) on any of its borrowing facilities. Such forecasting takes into consideration the Group's debt financing plans, covenant compliance, compliance with internal balance sheet ratio targets and, if applicable external regulatory or legal requirements, for example, currency restrictions.
ii. The table below analyses the Group's non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groups based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.
Non-derivative financial liabilities:
(3) Fair value estimation
The table below analyses the valuation technique used to value the financial instruments measured at fair value. The different levels have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.
These instruments held by the Group are mainly equity instruments, the fair value of which is based on the quoted prices from the Stock Exchange, OTC market or regulatory agency's market actual data. They are classified as "financial assets and liabilities at fair value through profit or loss" or "available-for-sale financial assets".
Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices).
These instruments held by the Group are financial instruments that do not have level 1 quoted prices, such as derivative instruments or forward exchange contracts. The fair value is mainly determined by valuation techniques or the use of counterparties' quote information. The valuation techniques maximize the use of observable market data where it is available and rely as little as possible on entity specific estimates. If all significant inputs required to fair value an instrument are observable, the instrument is included in level 2. These financial instruments are classified as "financial assets and liabilities at fair value through profit or loss".
Level 3: Inputs for the assets or liabilities that are not based on observable market data.
The following table presents the Group's financial assets and liabilities that are measured at fair value at December 31, 2014 and 2013.
13. ADDITIONAL DISCLOSURES REQUIRED BY THE SECURITIES AND FUTURES COMMISSION
(1) Related information of significant transactions
(All the transactions with subsidiaries disclosed below had been eliminated when preparing consolidated financial statements. The disclosure information as follows is for reference only.)
A. Loans to others:
Note 1: The ceiling on total loans granted by the Company to all parties is 40% of its net assets value; the ceiling on single loan granted by the Company to all parties is 10% of its net assets value.
Note 2: The ceiling on total loans granted by a domestic subsidiary to all parties is 40% of its net assets value; the ceiling on single loan granted by a domestic subsidiary to all parties is 10% of its net assets value.
Note 3: The policy for loans granted mutually between overseas subsidiaries of which the Company directly or indirectly holds 100% of their voting shares is as follows: ceiling on total loans granted by an overseas subsidiary to all overseas subsidiaries is 20% of the Company's net assets; limit on loans granted by an overseas subsidiary to a single overseas subsidiary is 10% of the Company's net assets.
Note 4: The policy for loans granted by overseas subsidiaries of which Hongfujin Precision Industrial (Shenzhen) Co., Ltd. directly or indirectly holds 100% of their voting shares is as follows: ceiling on total loans granted by an overseas subsidiary to all parties is 40% of the net assets of Hongfujin Precision Industrial (Shenzhen) Co., Ltd.; limit on loans granted by an overseas subsidiary to a single party is 10% of the net assets value of Hongfujin Precision Industrial (Shenzhen) Co., Ltd..
Note 5: The policy for loans granted by overseas subsidiaries of which Hongfujin Precision Electrons (Yantai) Co., Ltd. directly or indirectly holds 100% of their voting shares is as follows: ceiling on total loans granted by an overseas subsidiary to all parties is 40% of the net assets of Hongfujin Precision Electrons (Yantai) Co., Ltd.; limit on loans granted by an overseas subsidiary to a single party is 10% of the net assets value of Hongfujin Precision Electrons (Yantai) Co., Ltd..
Note 6: The policy for loans granted by overseas subsidiaries of which FIH Mobile Limited directly or indirectly holds 100% of their voting shares is as follows: ceiling on total loans granted by an overseas subsidiary to all parties is 60% of the net assets of FIH Mobile Limited; limit on loans granted by an overseas subsidiary to a single party is 30% of the net assets value of FIH Mobile Limited.
Note 7: The net assets referred to above are based on the latest audited financial statements.
B. Provision of endorsements and guarantees to others:
Note 1: The Company and its subsidiaries hold more than 50% of common shares of the investee company.
Note 2: The Company directly holds 100% of common shares of the subsidiary.
Note 3: Ennoconn Corporation holds more than 50% of common shares of the investee company.
Note 4: The total endorsements and guarantees of the Company to others should not be in excess of the Company's net assets, and for a single party should not be in excess of 50% of the Company's net assets.
Note 5: The policy for loans granted by subsidiaries of which Ennoconn Corporation directly or indirectly holds 100% of their voting shares is as follows: ceiling on total loans granted by a subsidiary to all parties is the net assets of Ennoconn Corporation; limit on loans granted by a subsidiary to a single party is 50% of the net assets value of Ennoconn Corporation.
Note 6: The net assets referred to above are based on the latest audited financial statements.
C. Holding of marketable securities as of December 31, 2014 (not including subsidiaries, associates and joint ventures):
Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities within the scope of IAS 39 'Financial instruments : recognition and measurement'.
Note 2: Code of general ledger accounts: (1) Available-for-sale financial assets
(2) Financial assets carried at cost
(3) Financial assets at fair value through profit or loss
(4) Other current assets
Note 3: Due to the amount is insignificant, combined disclosure is adopted.
D. Aggregate purchases or sales of the same securities reaching $300 million or 20% of paid-in capital or more:
Note 1: Code of general ledger accounts is investments accounted for under equity method.
Note 2: Code of general ledger accounts is available-for-sale financial assets.
Note 3: Code of general ledger accounts is financial assets at fair value through profit or loss.
Note 4: Code of general ledger accounts is other current assets.
Note 5: GoPro, Inc. (Formerly:Woodman Labs Inc.) which was invested by the Group, was listed on NASDAQ. Thus, the investment of 'financial assets measured at cost' was reclassified to 'available-for-sale financial assets'.
Note 6: The counterparty is a subsidiary of the Company.
E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more:
F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None.
G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in capital or more:
Note 1: The prices and terms to related parties were not significantly different from transaction with third parties, except for particular transactions with no similar transactions to compare with. For these transactions, the prices and terms were determined in accordance with mutual agreements.
Note 2: The Group sold materials to the above related parties for processing and repurchased the finished goods. The sales amount of materials and repurchase price of finished goods were offset against each other and shown at net amount in the financial statements.
Note 3: The Company's chairman is a major shareholder of the counterparty.
Note 4: The counterparty of the investee is an indirect subsidiary of Innolux Corporation.
Note 5: The Company's chairman is a brother of the Company's chairman.
H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more:
Note 1: Receivables from purchases of materials on behalf of the counterparty.
Note 2: The counterparty is a subsidiary of SIO International Holdings Limited.
Note 3: The Company's chairman is a major shareholder of the counterparty.
Note 4: The counterparty of the investee is an indirect subsidiary of Innolux Corporation.
I. Derivative financial instruments undertaken during the year ended December 31, 2014: Please refer to Note 6(2).
J. Significant inter-company transactions during the year ended December 31, 2014:
Note a: The information of transactions between the Company and the consolidated subsidiaries should be noted in "Number" column.
1. Number 0 represents the Company.
2. The consolidated subsidiaries are numbered in order from number 1.
Note b: The transaction relationships with the counterparties are as follows:
1. The Company to the consolidated subsidiaries.
2. The consolidated subsidiaries to the Company.
3. The consolidated subsidiaries to another consolidated subsidiaries.
Note c: The prices and terms to related parties were not significantly different from transactions with third parties, except for particular transactions with no similar transactions to compare with. For these transactions, the prices and terms were determined in accordance with mutual agreements.
Note d: In calculating the ratio, the transaction amount is divided by consolidated total assets for balance sheet accounts and is divided by consolidated total revenues for income statement accounts.
Note e: For balance sheet accounts, transactions exceeding 1% of the consolidated total assets should be disclosed; for income statement accounts, transactions exceeding 1% of the consolidated total revenue should be disclosed. All the transactions had been eliminated when preparing consolidated financial statements.
Note f: Part of the above transactions with related parties were based on the financial statements of the company for the same period which was not audited by independent accountants.
(2) Information on investees (not including investees in Mainland China)
(All the transactions with subsidiaries disclosed below had been eliminated when preparing consolidated financial statements. The disclosure information as follows is for reference only.)
Note 1: The investment income recognized for this period had eliminated unrealized gain or loss on the transactions between the Company and its investees.
Note 2: The Company and the direct and indirect investee companies own 29.69% of Foxconn Technology Co., Ltd.'s outstanding shares.
Note 3: The Company and its subsidiaries, directly and indirectly, own 26.51% of Pan International Industrial Corporation's outstanding shares.
Note 4: The Company and the direct and indirect investee companies own 99.96% of Premier Image Technology (H.K) Ltd.'s outstanding shares.
Note 5: The Company and the direct and indirect investee companies own 100% of Altus Technology Inc.'s outstanding shares.
Note 6: On June 18, 2014, the Board of Directors has resolved the merger of Ambit Microsystems Corporation, a subsidiary of the Company, and Asia Pacific Telecom, which became the surviving company. The merger was temporarily set to be effective on June 30, 2015 at a swap ratio of 1:0.4975. Related information is provided in Note 6(7).
Note 7: Due to the amount is insignificant, combined disclosure is adopted.
Note 8: Hyield Venture Capital Co., Ltd. is referred to as Hyield, Hon Chi International Investment Co., Ltd. is referred to as Hon Chi, Hon Yuan International Investment Co., Ltd. is referred to as Hon Yuan, Bao Shin International Investment Co., Ltd. is referred to as Bao Shin, Lin Yih International Investment Co., Ltd. is referred to as Lin Yih, Hon Yiing International Investment Co., Ltd. is referred to as Hon Yiing, and Ambit Microsystems Corporation is referred to as Ambit.
Note 9: Because the foreign holding investee companies prepare consolidated financial statements only, the disclosure of the company's investments over which the Company has significant influence or control, directly or indirectly, is only disclosed to the level of the holding company.
(3)Information on investments in Mainland China
Note 1: Investment methods are classified into the following three categories:
(1) Directly invest in a company in Mainland China.
(2) Through investing in Foxconn (Far East) Limited in the third area, which then invested in the investee in Mainland China.
(3) Others.
Note 2: The basis for investment income (loss) recognition is from the financial statements audited and attested by R.O.C. parent company's CPA, except FIH Precision Component (Beijing) Co., Ltd., Shenzhen Fu Tai Hong Precision Industry Co., Ltd., Honxun Electrical Industry (Hangzhou) Co., Ltd., FIH (Tian Jin) Precision Industry Co. Ltd., Futaijing Precision Electronics (Beijing) Co., Ltd., FIH Precision Electronics (Lang Fang) Co., Ltd., FIH (Nanjing) Communications Co., Ltd., Spreadcomm Technology Corp., Nanning Futaihong Precision Industrial Co., Ltd. and Futaijing Precision Electronics (Yantai) Co., Ltd. which the financial statements are audited and attested by international accounting firm which has cooperative relationship with accounting firm in R.O.C.
Note 3: The Company held indirectly 6.75% ownership of the Innovation Work Limited, and the investment amount of the Company approved by the Investment Commission of the Ministry of Economic Affairs was US$2,600,000. As of December 31, 2014, the funds have not been remitted.
Note 4: The Company was approved by Investment Commission, MOEA of an investment of US$ 17,500,000 in Hongfujin Precision Industry (Luoyang) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 5: The Company was approved by Investment Commission, MOEA of an investment of US$ 7,320,000 in Zhong Zhun Precision Industries (Luoyang) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 6: The Company was approved by Investment Commission, MOEA of an investment of US$ 27,693,000 in Changchun Yong Tai Technology Co., Ltd. (Formerly : Ying Tai Environmental Technology Ltd.). As of December 31, 2014, the funds have not been remitted.
Note 7: The Company was approved by Investment Commission, MOEA of an investment of US$ 13,617,000 in Changchun Chen Tai Technology Co., Ltd. (Formerly : Shiang Tai Environmental Technology Ltd.). As of December 31, 2014, the funds have not been remitted.
Note 8: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Ur Materials Co., Ltd., which has not yet been established as of December 31, 2014.
Note 9: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Foxnum Technology (Zheng Zhou) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 10: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Ji Zhi International (Shenzhen) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 11: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Foxnum Technology (Ji Yuan) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 12: The Company was approved by Investment Commission, MOEA of an investment of US$ 42,000,000 in Jin Ji Trading (LinYi) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 13: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Fu Jiang Robot Technology (Shen Zhen) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 14: The Company was approved by Investment Commission, MOEA of an investment of US$ 15,000,000 in Jin Ji Full Precision Machinery (Shenzhen) Co., Ltd., which has not yet been established as of December 31, 2014.
Note 15: The Company was approved by Investment Commission, MOEA of an investment of US$ 4,210,000 in Shangqiu Jinzhenyuan Electronic Techinology Co., Ltd., which has not yet been established as of December 31, 2014.
Note 16: The Company have remitted US$ 7,500,000 to British Cayman Islands HCM International Company by own funds on December, 2014, and shell to use US$ 7,500,000 as capital indirectly set up the Charming International Leasing Co., Ltd, which has not yet been established as of December 31, 2014.
Note 17: The Company was approved by Investment Commission, MOEA of an investment of US$ 7,500,000 in Kunshan Nano New Material Technology Co., Ltd.. As of December 31, 2014, the funds have not been remitted.
Note 18: The Company have remitted US$ 654,890 to British Cayman Islands Foxteq Holdings Inc. by own funds on June, 2014, have been transferred the 40% shares of Chinadragon Telecom Holding Co., Ltd., and indirect holding 40% shares of Shenzhen Jing Huang Technology Co., Ltd..
Note 19: The Company was approved by Investment Commission, MOEA of an investment of US$ 814,000 in Liuzhou Antec Fangshen Electric System Co., Ltd.. All of the shares have been sold out in February, 2012.
Note 20: The Company held indirect ownership of the Mainland China subsidiaries of Alibaba (China) Technology Co., Ltd., Alibaba (China) Software Co., Ltd., Alibaba (Shanghai) Technology Co., Ltd., and Beijing Sinya Online Information Technology Co., Ltd., which have been sold out in June, 2012.
Note 21: The Company was approved by Investment Commission, MOEA of an investment of US$ 2,500,000 in Hongfuqiang Precision Electronics (Yingkou) Co., Ltd., which had been liquidated in December 2012.
Note 22: The Company was approved by Investment Commission, MOEA of an investment of US$ 3,000,000 in Guangxuhui Technology (Shenzhen) Co., Ltd., which had been liquidated in 2005.
Note 23: The Company was approved by Investment Commission, MOEA of an investment of US$ 625,000 in Shanghai Premier Image Trade Co., Ltd., which had been liquidated in April, 2009.
Note 24: The Company was approved by Investment Commission, MOEA of an investment of US$ 684,000 in Dongfeng Antec (Wuhan) Automobile Electric System Co., Ltd.. All of the shares had been transferred to Teamsmart Corporation during 2009 .
Note 25: Pursuant to the Jing-Shen-Zi Letter No. 09704604680 of the Ministry of Economic Affairs, R.O.C., dated August 29, 2008, as the Company has obtained the certificate of being qualified for operating headquarters, issued by the Industrial Development Bureau, MOEA, the ceiling amount of the investment in Mainland China is not applicable to the Company.
Note 26: The Company invests in the company via investee companies in Mainland China including Foxstar Technology Co., Ltd., Ampower (BeiHai) Ltd., Harbing GDS Technology Co., Ltd., ZhengZhou GDS Information & Technology Co., Ltd., Shenzhen Muzhun Science and Technology Company, Erdos HongHan Precision Electronics Co., Ltd., Shanghai Foxconn Co., Ltd., Huaian Fulitong Trading Co., Ltd., Fuding (ZhengZhou) Precision Industry Co., Ltd., Huaina Futaitong Electronics Technology Co., Ltd., HuaiAn Tengyue Information Science & Technology Co., Ltd., Shan Hai Pengzhan Ivestment Co., Ltd., Beijing HengYu New Energy Auto Rental Co., Ltd., Shenzhen Fuhongjie Technology Service Co., Ltd., Shenzhen Fertile Plan international Logistics Co., Ltd., Yantai Futaitong International Logistics Co., Ltd., Yantaishi Fulitong International Trading Co., Ltd., Yantai HongFu Occupation training school, Fu You Wan De Trading Co., Ltd., Chongqingshi Futaitong Logistics Co., Ltd., FoShan ShunDe Jishun Precision Industry Co., Ltd., Chengdu Jusda Supply Chain Management Co., Ltd., Zhengzhou Jusda Logistics Co., Ltd., Zhengzhou Fuyu Occupation Training School, Chen Du Fuyu Vocational Skills Training Center, Shanghai TuoPuWang Logistics Co., Ltd., Kaopu Information Technology (Beijin) Co., Ltd., HenYang FuXiangYun Culture Co., Ltd., Shanghai Fujintong Business Factoring Ltd., HaoCan Private equity Investment Fund Joint Venture, Shenzhen Foxconn Advanced Manufacturing Capacity Training University, Fujintong Finacial Information Servics (Shanghai) Co., Ltd., Wan Ma Ben Teng Trading Co., Ltd.-China Jiaxi, Wan Ma Ben Teng Trading Co., Ltd.-China Shenzhen, Wan Ma Ben Teng Trading Co., Ltd.-China Zhengzhou, Wan Ma Ben Teng Trading Co., Ltd.-China Kunshan, Wang Hui Trading Co., Ltd.-China Shanghai, JiaXin Aifengpai Trading Co., Ltd., Zhongyuan Micro-credit companies, Jin Ji Tiger Investment Holding Co., Ltd., FuJian Wanmada Commerce Co., Ltd., FuXun Tong Trading (ShenZhen) Co., Ltd., Efeihu (Beijing) E-commerce Ltd., Efeihu (Chengdu) E-commerce Ltd., Efeihu (Wuhan) E-commerce Ltd., Chongqing Shendeng Technology Co., Ltd., HongQingXin Precision Electronics (ChongQing) Co., Ltd., ChongQing HongFuZhun Trading Co., Ltd., ChongQing Jingmei Precision electronic Co., Ltd., Foxstar Technology Co., Ltd., Henan Zhongyuan Finance & Fund Management Co., Ltd., Henan Zhongyuan Finance Sponsion Co.Ltd., ZhengZhou FuLianWang Electronic Technology Co., Ltd., Zhengzhou Fuyucheng Agricultural Biotechnology Co., Ltd., Zhengzhou Fuyusheng Energy Technology Co., Ltd., Zhenzhou Yongyang Provisions Detection Co., Ltd., JiYuan Jizhun Precision Electronics Co., Ltd., Henan Yupin Real Estate Co., Ltd., Kunshan Fulianwang Trade Co., Ltd., Shanxi Fulianwang Electronic Technology Co Ltd., Yantai Fulianwang Electronic Technology Co. Ltd., Xiamen Fulianwang Electronic Technology Co Ltd.,. HuNan Wanmayun Electronic Technology Co., Ltd., GuangZhou Wanpingyunma Electronic Technology Co., Ltd., ShangHai Fuhong Electronic Technology Co., Ltd., Chendu Fulianwang Trade Co., Ltd., NanYang Fulianwang Electronic Technology Co Ltd., Guizhou Fuxuntong Trading Co. Ltd., Zengzhou Wanmayun Electronic Technology Co., Ltd., Langfang Fulianwang Trade Co., Ltd., Xian Wanmayun Electronic Technology Co., Ltd., Shenyang Fulianwang Electronic Technology Co Ltd., Guangxi Fulianwang Electronic Technology Co Ltd., Wuhan Fulianwang Trade Co., Ltd., Hangzhou Flnet Electronic and Technology Co. Ltd., Guizhou Fuxuntong Trading Co. Ltd., Shen Zhen Fu Neng new energy technology Co., Ltd., Shenzhen Futaile Trade Co Ltd., Chendu Futaile Trade Co. Ltd., Chengdu Chengfu human resource management Co. Ltd., Shanghai KetaiHuajie Investment Co., Ltd., Shan Hai Ketai Technology Co., Ltd., Chengdu Ketai Huajie Technology Co Ltd, Synergy Technology (ChengDu) Co., Ltd., Guizhou Fuhuada Electronic Co Ltd., Panxian FuguiKang Precision electronic Ltd., Nanyang Hongfujing Precision electronic Co., Ltd., HongZhaoDa Integrated Innovative Serice (KunShan)Co., Ltd., Hengyang Futaihong Precision Industry Co., Ltd., Lang Fang Fertile Plan Logistics Co., Ltd., Zheungzhou FIH Communication Technology Co., Ltd., New Creation Electronics (Huaian) Co., Ltd. and Shanghai Futaitong International Logistics Co., Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be approved by Investment Commission of the Ministry of Economic Affairs.
B. Significant transactions conducted with investees in Mainland China directly or indirectly through other companies in the third areas.
The Company subcontracted the processing of products to Foxconn (Far East) Limited's subsidiaries located in Mainland China. All intercompany transactions were eliminated when preparing consolidated financial statements. Significant transactions conducted with investees in Mainland China are described in Notes 13(1) A, B, G and H.
SEGMENT INFORMATION
(1) General information
The Group has adopted eCMMS (E-enabled Components, Modules, Moves & Services) strategy, and provided a one-stop shop to its customers, which are primarily in the 3C industries, with a total solution for design, development, engineering, procurement, manufacturing, logistics and after-sales service. The Group segregates operating segments from both a customer service and product perspective.
In accordance with IFRS No. 8, "Operating Segments", the Group has determined the operating segments and reportable operating segments. Operating segments which have met certain quantitative threshold are disclosed individually or aggregately as reportable operating segments; other segments which have not met the quantitative threshold are included in the 'all other segments'. The Group has identified the electronic manufacturing integrated services department, which provides global 3C production-related one-stop services, as a reportable operating segment.
(2) Measurement of segment information
The chief operating decision maker assesses performance and allocates resources of the operating segments based on each operating segment's revenue and operating income after adjusting the internal costs and allocated expenses. Except that recognition of internal costs shall be in accordance with the Group's related internal calculation basis, the operating segments' accounting policies are the same as disclosed in Note 4.
(3) Segment information
The financial information of reportable segments provided to chief operating decision maker is as follows:
(4) Reconciliation for segment income (loss)
Sales between segments are carried out at arm's length. The revenue from external parties reported to the chief operating decision-maker is measured in a manner consistent with that in the income statement.
A reconciliation of reportable segment profit or loss to the profit before tax and discontinued operations for the years ended December 31, 2014 and 2013 is provided as follows:
(5) Geographical information
Geographical information for the years ended December 31, 2014 and 2013 is as follows:
(6) Major customer information
Major customer information of the Group for the years ended December 31, 2014 and 2013 is as follows: