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HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES | ||
CONSOLIDATED FINANCIAL STATEMENTS AND REVIEW REPORT OF INDEPENDENT ACCOUNTANTS JUNE 30, 2014 AND 2015 | ||
------------------------------------------------------------------------------------------------------------------------------------ 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. The English translation does not include additional disclosures that are required for Chinese-language reports under Guidelines for Securities Issuers's Financial Reporting promulgated by the Securities and Futures Commission of the Republic of China. | ||
REVIEW REPORT OF INDEPENDENT ACCOUNTANTS TRANSLATED FROM CHINESE
|
To The Board of Directors and Stockholders
Hon Hai Precision Industry Co., Ltd.
We have reviewed the accompanying consolidated balance sheets of Hon Hai Precision Industry Co., Ltd. and subsidiaries as of June 30, 2014 and 2015, and the related consolidated statements of comprehensive income for the three-month and six-month periods ended June 30, 2014 and 2015, as well as the consolidated statements of change in equity and cash flows for the six-months ended June 30, 2014 and 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express a conclusion on these consolidated financial statements based on our reviews. We did not review the financial statements of certain consolidated subsidiaries which statements reflect total assets of these subsidiaries amounting to $165,882,091,000 and $196,605,820,000, representing 8.42% and 8.58% of the related consolidated total assets as of June 30, 2014 and 2015, respectively, and total revenues amounting to $40,209,025,000, $58,071,950,000, $73,607,692,000 and $123,992,508,000, constituting 4.57%, 5.97%, 4.18% and 6.24% of the total revenues for the three-month and six-month periods then ended June 30, 2014 and 2015, respectively. Those statements were reviewed by other independent accountants, whose reports thereon have been furnished to us and our conclusion expressed herein, is based solely on the review reports of the other independent accountants.
Except as explained in the following paragraph, we conducted our reviews in accordance with Statement of Auditing Standards No. 36, "Review of Financial Statements" in the Republic of China. A review of interim financial information consists principally of obtaining an understanding of the system for the preparation of interim financial information, applying analytical procedures to financial data, and making inquiries of Company personnel responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion.
As explained in Notes 4(3) and 6(10), we did not review the financial statements of certain insignificant consolidated subsidiaries and investments accounted for under equity method, which statements reflect total assets (including investments accounted for under equity method) of $471,977,440,000 and $438,676,872,000, constituting 23.97% and 19.15% of the consolidated total assets, and total liabilities of $182,836,656,000 and $162,179,949,000, constituting 16.13% and 12.28% of the consolidated total liabilities as of June 30, 2014 and 2015, respectively, and total comprehensive income (including share of profit (loss) and other comprehensive income of associates and joint ventures accounted for under equity method) of $4,701,211,000, $2,739,900,000, $5,970,383,000 and $9,169,682,000, constituting 23.45%, 17.58%, 13.56% and 30.37% of the consolidated total comprehensive income for the three-month and six-month periods then ended June 30, 2014 and 2015, respectively. These amounts and the information disclosed in Note 13 were based solely on the unreviewed financial statements of these companies as of June 30, 2014 and 2015.
Based on our reviews and the review reports of the other independent accountants, except for the effect of such adjustments, if any, as might have been determined to be necessary had the financial statements of certain consolidated subsidiaries, investments accounted for under equity method and the information disclosed in Note 13 been audited or reviewed by independent accountants and the omission of certain additional disclosures relating to the investee companies, as required by Article 15-1 of the Regulations Governing the Preparation of Financial Reports by Securities Issuers, we are not aware of any material modifications that should be made to the consolidated financial statements referred to above for them to be in conformity with the "Regulations Governing the Preparation of Financial Reports by Securities Issuers", and IAS 34, "Interim Financial Reporting" as endorsed by the Financial Supervisory Commission (FSC).
Pricewaterhouse Coopers, Taiwan
Republic of China
August 13, 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. |
June 30, 2015 | December 31, 2014 | June 30, 2014 |
| ||||||||||||||||||
Assets | Notes | AMOUNT | AMOUNT | AMOUNT |
| ||||||||||||||||
Current assets |
| ||||||||||||||||||||
| Cash and cash equivalents | 6(1) | $ | 614,522,028 | $ | 679,037,301 | $ | 567,985,516 | |||||||||||||
| Financial assets at fair value through profit or loss - current | 6(2) | 1,476,888 | 3,438,255 | 56,437,980 | ||||||||||||||||
| Available-for-sale financial assets - current | 6(3) | 1,003,504 | 1,035,704 | 1,078,063 | ||||||||||||||||
| Accounts receivable, net | 6(4) | 421,039,079 | 748,286,815 | 442,868,863 | ||||||||||||||||
| Accounts receivable - related parties | 7 | 16,958,699 | 24,093,966 | 11,633,691 | ||||||||||||||||
| Other receivables | 6(5) and 7 | 41,622,802 | 45,923,820 | 47,064,114 | ||||||||||||||||
| Inventory | 6(6) | 453,710,737 | 369,196,813 | 331,259,509 | ||||||||||||||||
| Prepayments | 10,210,176 | 10,413,141 | 8,278,466 | |||||||||||||||||
| Non-current assets held for sale - net | 6(7) | 4,825,329 | 9,902,089 | 9,644,250 | ||||||||||||||||
Other current assets | 6(8) and 8 | 218,712,779 | 41,093,451 | 7,659,403 |
| ||||||||||||||||
| Total current Assets | 1,784,082,021 | 1,932,421,355 | 1,483,909,855 | |||||||||||||||||
Non-current assets |
| ||||||||||||||||||||
| Available-for-sale financial assets - noncurrent | 6(3) | 53,234,697 | 52,792,228 | 40,053,568 | ||||||||||||||||
| Financial assets carried at cost - noncurrent | 6(9) | 8,805,733 | 5,792,900 | 6,242,946 | ||||||||||||||||
| Investments accounted for under equity method | 6(10) | 65,290,284 | 63,412,270 | 47,746,717 | ||||||||||||||||
| Property, plant and equipment | 6(11) and 8 | 328,559,655 | 358,868,558 | 344,836,040 | ||||||||||||||||
| Investment property - net | 6(12) | 2,780,849 | 3,164,666 | 2,368,339 | ||||||||||||||||
| Intangible assets | 6(13) | 4,184,210 | 4,440,091 | 3,512,351 | ||||||||||||||||
| Deferred income tax assets | 6(36) | 17,343,004 | 17,376,159 | 15,822,832 | ||||||||||||||||
Other non-current assets | 6(14) and 8 | 26,787,671 | 24,446,522 | 24,493,601 |
| ||||||||||||||||
| Total non-current assets | 506,986,103 | 530,293,394 | 485,076,394 | |||||||||||||||||
Total assets | $ | 2,291,068,124 | $ | 2,462,714,749 | $ | 1,968,986,249 |
| ||||||||||||||
(Continued)
June 30, 2015 | December 31, 2014 | June 30, 2014 |
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Liabilities and Equity | Notes | AMOUNT | AMOUNT | AMOUNT |
| ||||||||||||||||
Current liabilities |
| ||||||||||||||||||||
| Short-term loans | 6(15) | $ | 204,559,642 | $ | 226,500,507 | $ | 210,288,937 | |||||||||||||
| Short-term notes and bills payable | 6(16) | - | - | 2,996,634 | ||||||||||||||||
| Financial liabilities at fair value through profit or loss - current | 6(2) | 1,508,076 | 1,271,012 | 182,521 | ||||||||||||||||
| Accounts payable | 560,519,041 | 694,315,259 | 459,596,971 | |||||||||||||||||
| Accounts payable - related parties | 7 | 32,953,845 | 41,014,601 | 26,816,792 | ||||||||||||||||
| Other payables | 6(17) and 7 | 222,958,155 | 223,575,519 | 198,512,754 | ||||||||||||||||
| Current income tax liabilities | 6(36) | 24,508,232 | 31,690,222 | 19,205,361 | ||||||||||||||||
| Provisions for liabilities - current | 6(24) | 2,526,999 | 2,674,879 | 2,596,441 | ||||||||||||||||
| Liabilities directly related to non-current assets held for sale | 6(7) | 459,444 | 2,054,833 | 205,825 | ||||||||||||||||
Other current liabilities | 6(18) | 76,623,585 | 79,504,965 | 50,739,544 |
| ||||||||||||||||
| Total current Liabilities | 1,126,617,019 | 1,302,601,797 | 971,141,780 | |||||||||||||||||
Non-current liabilities |
| ||||||||||||||||||||
| Financial liabilities at fair value through profit or loss - noncurrent | 6(2) | 920 | - | - | ||||||||||||||||
| Corporate bonds payable | 6(19) | 157,025,614 | 134,644,413 | 116,723,207 | ||||||||||||||||
| Long-term loans | 6(20) | 20,712,734 | 24,197,727 | 32,781,940 | ||||||||||||||||
| Deferred income tax liabilities | 6(36) | 6,692,224 | 7,089,517 | 4,850,188 | ||||||||||||||||
Other non-current liabilities | 6(23) | 9,404,406 | 9,504,493 | 7,778,789 |
| ||||||||||||||||
| Total non-current liabilities | 193,835,898 | 175,436,150 | 162,134,124 | |||||||||||||||||
| Total Liabilities | 1,320,452,917 | 1,478,037,947 | 1,133,275,904 | |||||||||||||||||
Equity |
| ||||||||||||||||||||
| Equity attributable to owners of parent | ||||||||||||||||||||
| Share capital | 6(25) | |||||||||||||||||||
| Share capital - common stock | 151,484,068 | 147,934,068 | 131,287,068 | |||||||||||||||||
| Stock dividends to be distributed | 16,795,204 | - | 23,436,643 | |||||||||||||||||
| Capital reserve | 6(26) | |||||||||||||||||||
| Capital surplus | 90,998,374 | 71,659,908 | 64,756,259 | |||||||||||||||||
| Retained earnings | 6(27) | |||||||||||||||||||
| Legal reserve | 93,179,928 | 80,126,455 | 80,126,455 | |||||||||||||||||
| Undistributed earnings | 526,342,232 | 546,932,523 | 456,501,717 | |||||||||||||||||
| Other equity interest | 6(28) | |||||||||||||||||||
| Other equity interest | 38,951,978 | 83,597,180 | 35,451,167 | |||||||||||||||||
Treasury stocks | 6(25) | ( | 18,901 | ) | ( | 18,901 | ) | ( | 18,901 | ) |
| ||||||||||
Equity attributable to owners of the parent | 917,732,883 | 930,231,233 | 791,540,408 |
| |||||||||||||||||
Non-controlling interest | 6(29) | 52,882,324 | 54,445,569 | 44,169,937 |
| ||||||||||||||||
| Total equity | 970,615,207 | 984,676,802 | 835,710,345 | |||||||||||||||||
Commitments and Contingent Liabilities | 9 |
| |||||||||||||||||||
| Subsequest Events | 11 | |||||||||||||||||||
Total liabilities and equity | $ | 2,291,068,124 | $ | 2,462,714,749 | $ | 1,968,986,249 |
| ||||||||||||||
Three months ended June 30 | Six months ended June 30 |
| |||||||||||||||||||||||
2015 | 2014 (adjusted) | 2015 | 2014 (adjusted) |
| |||||||||||||||||||||
Items | Notes | AMOUNT | AMOUNT | AMOUNT | AMOUNT |
| |||||||||||||||||||
Operating revenue | 6(30) and 7 | $ | 972,708,221 | $ | 879,094,312 | $ | 1,986,830,642 | $ | 1,762,573,637 |
| |||||||||||||||
Operating costs | 6(6)(33)(34) and 7 | ( | 902,666,331 | ) | ( | 817,104,273 | ) | ( | 1,844,365,394 | ) | ( | 1,647,207,693 | ) |
| |||||||||||
| Net operating margin | 70,041,890 | 61,990,039 | 142,465,248 | 115,365,944 | ||||||||||||||||||||
Operating expenses | 6(33)(34) and 7 |
| |||||||||||||||||||||||
| Selling expenses | ( | 5,839,085 | ) | ( | 5,374,205 | ) | ( | 11,685,721 | ) | ( | 10,407,028 | ) | ||||||||||||
| General and administrative expenses | ( | 18,806,826 | ) | ( | 17,328,496 | ) | ( | 36,413,187 | ) | ( | 34,991,152 | ) | ||||||||||||
Research and development expenses | ( | 12,285,062 | ) | ( | 11,355,568 | ) | ( | 22,652,820 | ) | ( | 21,130,275 | ) |
| ||||||||||||
| Total operating expenses | ( | 36,930,973 | ) | ( | 34,058,269 | ) | ( | 70,751,728 | ) | ( | 66,528,455 | ) | ||||||||||||
| Operating profit | 33,110,917 | 27,931,770 | 71,713,520 | 48,837,489 | ||||||||||||||||||||
Non-operating income and expenses |
| ||||||||||||||||||||||||
| Other income | 6(31) | 7,733,649 | 9,035,285 | 14,121,501 | 15,513,246 | |||||||||||||||||||
| Other gains and losses | 6(32) | 2,689,448 | ( | 1,982,382 | ) | 1,345,522 | ( | 838,042 | ) | |||||||||||||||
| Finance costs | 6(4)(35) | ( | 3,834,969 | ) | ( | 3,593,026 | ) | ( | 8,084,048 | ) | ( | 6,784,490 | ) | |||||||||||
Share of profit of associates and joint ventures accounted for under equity method | 6(10) | 838,681 | 1,025,537 | 1,688,765 | 1,229,850 |
| |||||||||||||||||||
| Total non-operating revenue and expenses | 7,426,809 | 4,485,414 | 9,071,740 | 9,120,564 | ||||||||||||||||||||
Profit before income tax | 40,537,726 | 32,417,184 | 80,785,260 | 57,958,053 |
| ||||||||||||||||||||
Income tax expense | 6(36) | ( | 14,144,048 | ) | ( | 11,791,683 | ) | ( | 23,132,025 | ) | ( | 17,502,762 | ) |
| |||||||||||
Profit for the year | $ | 26,393,678 | $ | 20,625,501 | $ | 57,653,235 | $ | 40,455,291 |
| ||||||||||||||||
(Continued)
Three months ended June 30 | Six months ended June 30 |
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2015 | 2014 (adjusted) | 2015 | 2014 (adjusted) |
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Items | Notes | AMOUNT | AMOUNT | AMOUNT | AMOUNT |
| |||||||||||||||||||
Other comprehensive income |
| ||||||||||||||||||||||||
| Components of other comprehensive income that will be reclassified to profit or loss | ||||||||||||||||||||||||
| Financial statements translation differences of foreign operations | 6(28)(29) | ( | $ | 14,355,096 | ) | ( | $ | 10,771,160 | ) | ( | $ | 27,816,457 | ) | ( | $ | 7,982,807 | ) | |||||||
| Unrealized gain on valuation of available-for-sale financial assets | 6(28)(29) | 3,973,873 | 10,537,627 | 153,788 | 11,274,405 | |||||||||||||||||||
Share of other comprehensive income of associates and joint ventures accounted for uner equity method | 6(28) | ( | 431,021 | ) | ( | 343,920 | ) | 206,142 | 271,193 |
| |||||||||||||||
| Components of other comprehensive income that will be reclassified to profit or loss | ( | 10,812,244 | ) | ( | 577,453 | ) | ( | 27,456,527 | ) | 3,562,791 | ||||||||||||||
Other comprehensive income for the year | ( | $ | 10,812,244 | ) | ( | $ | 577,453 | ) | ( | $ | 27,456,527 | ) | $ | 3,562,791 |
| ||||||||||
| Total comprehensive income for the year | $ | 15,581,434 | $ | 20,048,048 | $ | 30,196,708 | $ | 44,018,082 | ||||||||||||||||
Profit (loss), attributable to: |
| ||||||||||||||||||||||||
| Owners of the parent | $ | 25,689,564 | $ | 20,186,135 | $ | 56,074,831 | $ | 39,728,898 | ||||||||||||||||
Non-controlling interest | 704,114 | 439,366 | 1,578,404 | 726,393 |
| ||||||||||||||||||||
$ | 26,393,678 | $ | 20,625,501 | $ | 57,653,235 | $ | 40,455,291 |
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Comprehensive income attributable to: |
| ||||||||||||||||||||||||
| Owners of the parent | $ | 17,591,023 | $ | 19,478,006 | $ | 32,262,464 | $ | 43,451,204 | ||||||||||||||||
Non-controlling interest | ( | 2,009,589 | ) | 570,042 | ( | 2,065,756 | ) | 566,878 |
| ||||||||||||||||
$ | 15,581,434 | $ | 20,048,048 | $ | 30,196,708 | $ | 44,018,082 |
| |||||||||||||||||
| |||||||||||||||||||||||||
| Earnings per share | 6(37) | |||||||||||||||||||||||
Basic earnings per share | $ | 1.65 | $ | 1.30 | $ | 3.61 | $ | 2.56 |
| ||||||||||||||||
| Diluted earnings per share | $ | 1.63 | $ | 1.29 | $ | 3.57 | $ | 2.54 | ||||||||||||||||
Year 2014 - NewTaiwan Dollars |
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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 1): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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(34) | - | 7,682,195 | - | - | - | - | - | - | - | 7,682,195 | - | 7,682,195 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated net income | - | - | - | - | 39,728,898 | - | - | - | - | 39,728,898 | 726,393 | 40,455,291 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 6(28) | - | - | - | - | - | ( | 7,878,238 | ) | 11,600,544 | - | - | 3,722,306 | ( | 159,515 | ) | 3,562,791 | ||||||||||||||||||||||||||||||||||||||||||||
| Changes in equity of associates and joint ventures accounted for under the equity method | - | - | 15,551 | - | - | - | - | - | - | 15,551 | - | 15,551 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments arising fromchanges in percentage of ownership in subsidiaries | 6(29) | - | - | ( | 52,165 | ) | - | ( | 594,771 | ) | - | - | - | - | ( | 646,936 | ) | - | ( | 646,936 | ) | ||||||||||||||||||||||||||||||||||||||||
Increase in non-controlling interests | 6(29) | - | - | - | - | - | - | - | - | - | - | 2,348,523 | 2,348,523 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2014 | $ 131,287,068 | $ 23,436,643 | $ 64,756,259 | $ 80,126,455 | $ 456,501,717 | $ 18,554,709 | $ 16,896,458 | $ - | ( | $ 18,901 | ) | $ 791,540,408 | $ 44,169,937 | $ 835,710,345 |
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Year 2015 - NewTaiwan Dollars |
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Balance at January 1, 2015 | $ 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 |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Appropriations of 2014 earnings (Note 2): | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Legal reserve | 6(27) | - | - | - | 13,053,473 | ( | 13,053,473 | ) | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Cash dividends | 6(27) | - | - | - | - | ( | 56,214,946 | ) | - | - | - | - | ( | 56,214,946 | ) | - | ( | 56,214,946 | ) | ||||||||||||||||||||||||||||||||||||||||||
| Stock dividends | 6(27) | - | 7,396,703 | - | - | ( | 7,396,703 | ) | - | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Employees' stock bonus | 6(34) | - | 9,398,501 | - | - | - | - | - | - | - | 9,398,501 | - | 9,398,501 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Consolidated net income | - | - | - | - | 56,074,831 | - | - | - | - | 56,074,831 | 1,578,404 | 57,653,235 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income | 6(28) | - | - | - | - | - | ( | 24,045,177 | ) | 232,810 | - | - | ( | 23,812,367 | ) | ( | 3,644,160 | ) | ( | 27,456,527 | ) | ||||||||||||||||||||||||||||||||||||||||
| Changes in equity of associates and joint ventures accounted for under the equity method | - | - | 1,196,683 | - | - | - | - | - | - | 1,196,683 | - | 1,196,683 | |||||||||||||||||||||||||||||||||||||||||||||||||
| Issuance of restricted stock | 6(22) | 3,550,000 | - | 17,831,955 | - | - | - | - | ( | 21,381,955 | ) | - | - | - | - | ||||||||||||||||||||||||||||||||||||||||||||||
| Share-based payments | 6(22) | - | - | - | - | - | - | - | 549,120 | - | 549,120 | - | 549,120 | ||||||||||||||||||||||||||||||||||||||||||||||||
| Adjustments arising from changes in percentage of ownership in subsidiaries | 6(29) | - | - | 309,828 | - | - | - | - | - | - | 309,828 | - | 309,828 | ||||||||||||||||||||||||||||||||||||||||||||||||
Increase in non-controlling interests | 6(29) | - | - | - | - | - | - | - | - | - | - | 502,511 | 502,511 |
| ||||||||||||||||||||||||||||||||||||||||||||||||
Balance at June 30, 2015 | $ 151,484,068 | $ 16,795,204 | $ 90,998,374 | $ 93,179,928 | $ 526,342,232 | $ 35,565,058 | $ 24,219,755 | ( | $ 20,832,835 | ) | ( | $ 18,901 | ) | $ 917,732,883 | $ 52,882,324 | $ 970,615,207 |
| |||||||||||||||||||||||||||||||||||||||||||||
CASH FLOWS FROM OPERATING ACTIVITIES |
| |||||||||||||||||||||||
Consolidated profit before tax for the period | $ | 80,785,260 | $ | 57,958,053 |
| |||||||||||||||||||
| Adjustments to reconcile net income to net cash (used in) provided by operating activities | |||||||||||||||||||||||
| Income and expenses having no effect on cash flows | |||||||||||||||||||||||
| Depreciation expense | 6(33) | 36,627,427 | 35,847,017 | ||||||||||||||||||||
| Amortization expense | 6(33) | 459,158 | 402,479 | ||||||||||||||||||||
| Provision for doubtful accounts and sales discount | 507,524 | - | |||||||||||||||||||||
| Impairment loss | 6(32) | 3,323,672 | 1,098,506 | ||||||||||||||||||||
| Loss (gain) on disposal of property, plant and equipment, net | 6(32) | ( | 137,138 | ) | ( | 244,530 | ) | ||||||||||||||||
| Loss (gain) on financial assets or liabilities at fair value through profit or loss, net | 6(2) | 3,852,204 | ( | 852,416 | ) | ||||||||||||||||||
| Share of profit of associates and joint ventures accounted for using equity method | ( | 1,688,765 | ) | ( | 1,229,850 | ) | |||||||||||||||||
| Changing consolidated entities with no cash flow affection | 6(32) | ( | 2,287,685 | ) | ( | 367,490 | ) | ||||||||||||||||
| Gain on disposal of non-current assets held for sale | 6(13) | ( | 28,375 | ) | - | ||||||||||||||||||
| Interest expense | 6(35) | 8,080,506 | 6,719,364 | ||||||||||||||||||||
| Interest income | 6(31) | ( | 11,060,988 | ) | ( | 12,332,773 | ) | ||||||||||||||||
| Dividend income | 6(31) | ( | 543,967 | ) | ( | 77,909 | ) | ||||||||||||||||
| Share-based payments | 6(22) | 549,120 | - | ||||||||||||||||||||
| Changes in assets/liabilities relating to operating activities | |||||||||||||||||||||||
| Net changes in assets relating to operating activities | |||||||||||||||||||||||
| Financial assets held for trading | ( | 1,652,853 | ) | ( | 54,244,877 | ) | |||||||||||||||||
| Notes receivable | 260,482 | 348,706 | |||||||||||||||||||||
| Accounts receivable | 326,479,730 | 284,543,973 | |||||||||||||||||||||
| Accounts receivable due from related parties | 7,135,267 | 8,314,567 | |||||||||||||||||||||
| Other receivable | 5,715,223 | ( | 5,349,218 | ) | |||||||||||||||||||
| Inventories | ( | 84,513,924 | ) | ( | 18,474,417 | ) | |||||||||||||||||
| Prepayments | 202,965 | ( | 1,894,799 | ) | |||||||||||||||||||
| Net changes in liabilities relating to operating activities | |||||||||||||||||||||||
| Accounts payable | ( | 133,796,218 | ) | ( | 223,345,206 | ) | |||||||||||||||||
| Accounts payable to related parties | ( | 8,060,756 | ) | ( | 2,944,947 | ) | |||||||||||||||||
| Other payable | ( | 37,708,426 | ) | ( | 19,618,510 | ) | |||||||||||||||||
| Provisions for liabilities - current | ( | 147,880 | ) | 190,105 | |||||||||||||||||||
| Other current liabilities | ( | 9,223,464 | ) | 4,646,005 | |||||||||||||||||||
Net defined benefit liabilities | 13,349 | 42,973 |
| |||||||||||||||||||||
Cash generated from operations | 183,141,448 | 59,134,806 |
| |||||||||||||||||||||
Income taxes refund (paid) | ( | 30,678,153 | ) | ( | 23,809,777 | ) |
| |||||||||||||||||
| Net cash provided by operating activities | 152,463,295 | 35,325,029 | |||||||||||||||||||||
(Continued)
CASH FLOWS FROM INVESTING ACTIVITIES |
| |||||||||||||||||||||||
Acquisition of property, plant and equipment | 6(38) | ( | $ | 28,827,839 | ) | ( | $ | 6,819,840 | ) |
| ||||||||||||||
| Increase in other financial assets | ( | 177,626,328 | ) | ( | 2,494,242 | ) | |||||||||||||||||
| Acquisition of available-for-sale financial assets | ( | 2,447,279 | ) | ( | 179,327 | ) | |||||||||||||||||
| Increase in other non-current assets | ( | 2,945,065 | ) | ( | 2,699,454 | ) | |||||||||||||||||
| Acquisition of investments accounted for using equity method | ( | 1,325,248 | ) | ( | 541,163 | ) | |||||||||||||||||
| Acquisition of financial assets at cost | ( | 3,171,807 | ) | ( | 1,413,039 | ) | |||||||||||||||||
| Acquisition of intangible assets | 6(13) | ( | 68,941 | ) | ( | 60,380 | ) | ||||||||||||||||
| Increase in land use right | ( | 92,820 | ) | ( | 32,513 | ) | |||||||||||||||||
| Proceeds from disposal of financial assets carried at cost | 3,668 | 33,872 | |||||||||||||||||||||
| Proceeds from disposal of available-for-sale financial assets | 3,352,107 | 175,833 | |||||||||||||||||||||
| Proceeds from disposal of investments accounted for using equity method | - | 116,866 | |||||||||||||||||||||
| Proceeds from disposal of property, plant and equipment | 2,592,321 | 829,653 | |||||||||||||||||||||
| Proceeds from disposal of non-current assets held for sale | 6(13) | 3,433,375 | - | ||||||||||||||||||||
| Accounts receivable due from related parties | 7 | ( | 696,029 | ) | ( | 330,000 | ) | ||||||||||||||||
| Other investing activities | ( | 202,718 | ) | ( | 837,797 | ) | |||||||||||||||||
| Interest received | 10,386,840 | 12,112,696 | |||||||||||||||||||||
| Dividends received | 543,967 | 77,909 | |||||||||||||||||||||
Cash and cash equivalents reclassified to non-current assets held for sale | 6(7) | ( | 731,703 | ) | ( | 660,263 | ) |
| ||||||||||||||||
| Net cash used in investing activities | ( | 197,823,499 | ) | ( | 2,721,189 | ) | |||||||||||||||||
CASH FLOWS FROM FINANCING ACTIVITIES |
| |||||||||||||||||||||||
Decrease in short-term loans | ( | 21,940,865 | ) | ( | 153,312,743 | ) |
| |||||||||||||||||
| Decrease in short-term notes and bills payable | - | ( | 16,985,883 | ) | |||||||||||||||||||
| Proceeds from issuing bonds | 33,012,658 | 22,443,461 | |||||||||||||||||||||
| Repayments of bonds | ( | 3,000,000 | ) | - | |||||||||||||||||||
| Proceeds from long-term debt | 805,833 | 552,000 | |||||||||||||||||||||
| Repayments of long-term debt | ( | 3,375,893 | ) | ( | 2,699,233 | ) | |||||||||||||||||
| Increase in other non-current liabilities | 89,282 | ( | 593,398 | ) | |||||||||||||||||||
| Changes of non-controlling interests | 6(29) | 502,511 | 2,348,523 | ||||||||||||||||||||
Interest paid | ( | 6,064,610 | ) | ( | 6,449,631 | ) |
| |||||||||||||||||
| Net cash provided by (used in) financing activities | 28,916 | ( | 154,696,904 | ) | |||||||||||||||||||
| Net effect of changes in foreign currency exchange rates | ( | 19,183,985 | ) | ( | 3,948,465 | ) | |||||||||||||||||
Decrease in cash and cash equivalents | ( | 64,515,273 | ) | ( | 126,041,529 | ) |
| |||||||||||||||||
Cash and cash equivalents at beginning of period | 679,037,301 | 694,027,045 |
| |||||||||||||||||||||
Cash and cash equivalents at end of period | $ | 614,522,028 | $ | 567,985,516 |
| |||||||||||||||||||
HON HAI PRECISION INDUSTRY CO., LTD. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SIX-MONTHS ENDED JUNE 30, 2014 AND 2015
(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)
(UNAUDITED)
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.
THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION
These consolidated financial statements were authorized for issuance by the Board of Directors on August 13, 2015.
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")
According to Financial-Supervisory-Securities-Auditing No. 1030010325 issued on by FSC 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 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 impact of adopting the 2013 version of IFRS of the Group is listed below:
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 other comprehensive income (the "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. As the items are required to be presented as pre-tax items, 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 when selling an asset or paid when transferring 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.
(1) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group
None.
(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.
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 Accounting Standards 34, "Interim Financial Reporting" endorsed by the FSC.
(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 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 structured entities) controlled by the Group. The Group controls an entity when the Group is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Consolidation of subsidiaries begins from the date the Group obtains control of the subsidiaries and ceases when the Group loses control of the subsidiaries.
(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. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. 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) The financial statements of the entity as of and for the six-month periods ended June 30, 2014 and 2015 were not reviewed by independent accountants as the entity did not meet the definition of significant subsidiary.
(b) 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. However, taking into consideration of the date of competent authority's approval, the merger may not be performed on the scheduled date. On May 7, 2015, the Board of Directors has resolved to postpone the merger date to December 31, 2015. Please refer to Note 6(7) for details.
(c) The Group's consolidated shareholding ratio over Caswell, Inc. 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, Caswell, Inc. is considered as a subsidiary.
(d) The financial statements of certain consolidated subsidiaries for the three-month and six-month periods ended June 30, 2014 and 2015 were not reviewed by independent accountants, which reflect total assets of $460,603,798 and $ 426,294,562, constituting 23.39% and 18.61% of total consolidated assets, and total liabilities were $182,836,656 and $162,179,949, constituting 16.13% and 12.28% of the consolidated total liabilities as of June 30, 2014 and 2015, respectively, as well as the total comprehensive income of $4,381,814, $2,587,973, $5,922,446 and $9,024,080, constituting 21.86%, 16.61%, 13.45% and 29.88% of the consolidated total comprehensive income for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
C. Subsidiaries not included in the consolidated financial statements: None.
D. Adjustments for subsidiaries with different balance sheet dates: None.
E. Significant restrictions: None.
F. Subsidiaries that have non-controlling interests that are material to the Group:
As of June 30, 2014, December 31, 2014 and June 30, 2015, the non-controlling interest amounted to $44,169,937, $54,445,569 and $52,882,324, respectively. The information of non-controlling interest and respective subsidiaries is as follows:
Summarised financial information of the subsidiary:
Balance sheets
Statements of comprehensive income
Statements of cash flows
(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 amortised 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 the financial asset's original effective interest rate, and is recognised in profit or loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortised cost that would have been at the date of reversal had the impairment loss not been recognised previously. Impairment loss is recognised and reversed by adjusting the carrying amount of the asset directly.
(b) 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.
(c) 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) Lease receivables/ leases (lessor)
Lease income from an operating lease (net of any incentives given to the lessee) is recognized in profit or loss on a straight-line basis over the lease term.
(13) 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.
(14) 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.
(15) 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 under 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.
(16) 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. While Land is not depreciated, other property, plant and equipment that apply cost model 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 financial year-end. 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 2 ～ 6 years
(17) Leased assets/ leases (lessee)
A. Based on the terms of a lease contract, a lease is classified as a finance lease if the Group assumes substantially all the risks and rewards incidental to ownership of the leased asset.
(a) A finance lease is recognised as an asset and a liability at the lease's commencement at the lower of the fair value of the leased asset or the present value of the minimum lease payments.
(b) The minimum lease payments are apportioned between the finance charges and the reduction of the outstanding liability. The finance charges are allocated to each period over the lease term so as to produce a constant periodic rate of interest on the remaining balance of the liability.
(c) Property, plant and equipment held under finance leases are depreciated over their estimated useful lives. If there is no reasonable certainty that the Group will obtain ownership at the end of the lease, the asset shall be depreciated over the shorter of the lease term and its useful life.
B. Payments made under an operating lease (net of any incentives received from the lessor) are recognised in profit or loss on a straight-line basis over the lease term.
(18) 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 to 51 years.
(19) 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 2 to 20 years.
(20) 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 periods 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. The recoverable amount of goodwill shall be evaluated periodically. An impairment is recognized when recoverable amount is lower than carrying amount. Impairment loss should not be reversed in the future.
C. For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash-generating units, or groups of cash-generating units, that is/are expected to benefit from the synergies of the business combination. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. Goodwill is monitored at the operating segment level.
(21) 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.
(22) 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.
(23) 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.
(24) 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.
(25) 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.
(26) Financial liabilities and equity instruments - Bonds payable
A. 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.
B. Convertible corporate bonds issued by the Group contain conversion options (that is, the bondholders have the right to convert the bonds into the Group's common shares by exchanging a fixed amount of cash for a fixed number of common shares), call options and put options. The Group classifies the bonds payable and derivative features embedded in convertible corporate bonds on initial recognition as a financial asset, a financial liability or an equity instrument ('capital surplus-stock warrants') in accordance with the substance of the contractual arrangement and the definitions of a financial asset, a financial liability and an equity instrument. Convertible corporate bonds are accounted for as follows:
(a) Call options and put options embedded in convertible corporate bonds are recognised initially at net fair value as 'financial assets or financial liabilities at fair value through profit or loss'. They are subsequently remeasured and stated at fair value on each balance sheet date; the gain or loss is recognised as 'gain or loss on valuation of financial assets or financial liabilities at fair value through profit or loss'.
(b) Bonds payable of convertible corporate bonds/ preference shares is initially recognised at fair value and subsequently stated at amortised cost. Any difference between the proceeds and the redemption value is accounted for as the premium or discount on bonds payable/ preference share liabilities and presented as an addition to or deduction from bonds payable/ preference share liabilities, 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.
(c) Conversion options embedded in convertible corporate bonds issued by the Group, which meet the definition of an equity instrument, are initially recognised in 'capital surplus-stock warrants' at the residual amount of total issue price less amounts of 'financial assets or financial liabilities at fair value through profit or loss' and 'bonds payable-net' as stated above. Conversion options are not subsequently remeasured.
(d) Any transaction costs directly attributable to the issuance of convertible corporate bonds are allocated to the liability and equity components in proportion to the allocation of proceeds.
(e) When bondholders exercise conversion options, the liability component of the bonds (including 'bonds payable liabilities' and 'financial assets or financial liabilities at fair value through profit or loss') shall be remeasured on the conversion date. The book value of common shares issued due to the conversion shall be based on the adjusted book value of the above-mentioned liability component plus the book value of capital surplus - stock warrants.
(27) 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.
(28) Provisions
Provisions 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.
(29) 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. 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. Remeasurement arising on defined benefit plans are recognised in other comprehensive income in the period in which they arise and are recorded as retained earnings.
iii. Past-service costs are recognised immediately in profit or loss.
iv. Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate derived from the actuarial valuation at the end of the prior financial year, adjusted for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events. And, the related information is disclosed accordingly.
C. Employee stock bonus and remuneration for directors and supervisors
Employee stock bonus and remuneration for directors and supervisors 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 employee stock bonus and remuneration for directors and supervisors 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.
(30) 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.
C. Restricted stocks:
(a) Restricted stocks issued to employees are measured at the fair value of the equity instruments granted at the grant date, and are recognised as compensation cost over the vesting period.
(b) For restricted stocks where employees do not need to pay to acquire those stocks, the Group will collect the stocks at no consideration from employees who resign during the vesting period.
(31) 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 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.
G. The interim period income tax expense is recognised based on the estimated average annual effective income tax rate expected for the full financial year applied to the pretax income of the interim period, and the related information is disclosed accordingly.
(32) 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.
(33) 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 of business 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.
(34) 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.
(35) 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. For each business combination, the Group measures at the acquisition date components of non-controlling interests in the acquiree that are present ownership interests and entitle their holders to the proportionate share of the entity's net assets in the event of liquidation at either fair value or the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. All other non-controlling interests should be measured at the acquisition-date fair value.
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.
(36) 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.
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 June 30, 2015, the carrying amount of inventories was $453,710,737.
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.
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 three-month and six-month periods ended June 30, 2014 and 2015, the Group recognized net profit of $944,356, loss of $403,370, profit of $852,416 and loss of $3,852,204, respectively.
B. The counterparties of the Group's debt derivative instruments have good credit quality.
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 rate 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
The Group recognized net loss or gain in other comprehensive income for fair value change for the three-month and six-month periods ended June 30, 2014 and 2015. Please refer to Notes 6(28) and (29) for details. The Group reclassified $329,350, $2,067,052, $329,350 and $2,285,504 from equity to profit or loss for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
(4) Notes and accounts receivable
A. The Group entered into a factoring agreement with the following banks to sell its accounts receivable. Under the agreement, the Group is not obligated to bear the default risk of the transferred accounts receivable, but is liable for the losses incurred on any business dispute. The Group does not have any continuing involvement in the transferred accounts receivable. Thus, the Group derecognised the transferred accounts receivable.
As of December 31, 2014 and June 30, 2015, there is no unsettled accounts receivable factored. As of June 30, 2014, the relevant information of accounts receivable factored but unsettled were as follows:
B. As of June 30, 2014, December 31, 2014 and June 30, 2015, the Group has signed promissory notes all amounting to $0 as guarantee for those accounts receivable in commercial dispute, respectively.
C. For the three-month and six-month periods ended June 30, 2014 and 2015, the financing charges (expenses) incurred from accounts receivable factoring were $28,136, $3,542, $65,126 and $3,542 (shown as "finance costs"), respectively.
D. 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 breach concerns and credit risk.
(6) Inventories
Expenses and losses incurred on inventories for the periods ended June 30, 2014 and 2015 were as follows:
(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. However, taking into consideration of the date of competent authority's approval, the merger may not be performed on the scheduled date. On May 7, 2015, the Board of Directors has resolved postpone the merger to December 31, 2015.
B. On September 25, 2014, the Board of Directors has resolved to dispose 5MHz 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 700MHz to Taiwan Mobile Co., Ltd. The transaction has been approved by the National Communications Commission and completed in January 2015. The proceeds were $3,433,375 and the gain on disposal was $28,375.
C. The non-current assets held for sale are composed of the following as of June 30, 2014, December 31, 2014 and June 30, 2015:
(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 $470,424, $1,076,708, $470,424 and $3,284,534 was recognised for the three-month and six-month periods ended June 30, 2014 and 2015 (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. Information relating to fair value is provide in Note 12(3).
(8) Other current assets
The Group has signed a contract for capital guarantee financial products with the bank for the six-month period ended June 30, 2015, and the expected range for annualised rate of return is between 3.5% and 5.2%.
(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. The Group has assessed the aforementioned financial instruments. Because partial investment was impaired, the Group has recognised impairment loss of $87,730, $0, $87,730 and $0 (shown as 'other gain and loss') for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
C. As of June 30, 2014, December 31, 2014 and June 30, 2015, no financial assets measured at cost held by the Group were pledged to others.
(10) Investments accounted for under equity method
A. Some of the above investments accounted for under the equity method were based on the financial statements of the investee companies for the same periods which were not reviewed by independent accountants. The related investments balances for the above mentioned unaudited or unreviewed investee companies are of $11,373,642 and $12,382,310, constituting 0.58% and 0.54% of the consolidated total assets as of June 30, 2014 and 2015, respectively and the share of profit of associates and joint ventures accounted for under equity method of $319,397, $151,927, $47,937 and $145,602, constituting 1.59%, 0.98%, 0.11% and 0.48% of the consolidated comprehensive income for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
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. Associates
(a)The basic information of the associates that are material to the Group is as follows:
(b)The summarised financial information of the associates that are material to the Group is as below:
Balance sheet
Statement of comprehensive income
(c)The carrying amount of the Group's interests in all individually immaterial associates and the Group's share of the operating results are summarised below:
As of June 30, 2014, December 31, 2014 and June 30, 2015, the carrying amount of the Group's individually immaterial associates amounted to $11,930,349, $13,370,772 and $14,522,413, respectively.
(d)The fair value of the Group's material associates which have quoted market price was as follows:
(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 losses of $540,352, profit of $123,299, losses of $540,352 and profit of $106,721 (shown as 'other gains and losses') were recognized for the three-month and six-month periods ended June 30, 2014 and 2015, 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 losses of $0 and $145,859 (shown as 'other gains or losses' ) were recognized for the six-month periods ended June 30, 2014 and 2015, respectively.
C. The fair value of the investment property held by the Group as at June 30, 2014, December 31, 2014 and June 30, 2015 was $2,983,860, $3,422,770 and $3,279,831, 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 which is categorised within Level 3 in the fair value hierarchy.
(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. Ambit, a subsidiary of the Company, has received the approval of 4G mobile broadband spectrum by the authority on October 30, 2013. 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 5MHz 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 700MHz to Taiwan Mobile Co., Ltd. The transaction has been approved by the National Communications Commission and completed in January 2015. The proceeds were $3,433,375 and the gain on disposal was $28,375. The Group has reclassified the above concession as non-current assets held for sale. Please refer to Note 6(7) for details.
D. 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 $73,335, $108,473, $188,879 and $208,508 for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
(15) Short-term loans
A. As of June 30, 2014, December 31, 2014 and June 30, 2015, the Company provided guarantees on the short-term credit facilities obtained by Foxconn Slovakia, SPOL S.R.O., a subsidiary of the Company, all in the amount of EUR 291 million.
B. As of June 30, 2014, December 31, 2014 and June 30, 2015, the Company provided guarantees on the short-term credit facilities obtained by Competition Team Technologies Limited, a subsidiary of the Company, all in the amount of RMB 2 billion.
C. As of June 30, 2014, December 31, 2014 and June 30, 2015, the Company provided guarantees on the short-term credit facilities obtained by Falcon Precision Trading Limited, a subsidiary of the Company, all in the amount of RMB 2 billion.
D. As of June 30, 2014, December 31, 2014 and June 30, 2015, 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 200 million, USD 250 million and USD 250 million, respectively.
E. As of June 30, 2014, December 31, 2014 and June 30, 2015, the Company provided guarantees on the short-term credit facilities obtained by Fusing International Inc., a subsidiary of the Company, in the amount of USD 0 million, USD 145 million and USD 145 million, respectively.
F. The Group has signed an agreement to offset financial assets and liabilities with financial institutions since 2013. Details of the offset as of June 30, 2014, December 31, 2014 and June 30, 2015 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 Securities and Futures Bureau ( the "SFB"), the Company issued domestic unsecured bonds in the amount of $11,500,000. As of June 30, 2015, 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 June 30, 2015, in accordance with the conditions of the contractual arrangement, the Company has repaid $3,000,000, and the remaining 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) As of June 30, 2015, in accordance with the conditions of the contractual arrangement, the Company has repaid $3,000,000, and the remaining balance of $3,000,000 was transferred to current liabilities in the first quarter of 2015.
D. Second debenture issue of 2011
(a) 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:
(b) Payable of second unsecured corporate Bond A issued in 2011 had been reclassified to "Current liabilities" in the second quarter of 2015 in accordance with the conditions of the contractual arrangement.
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) Payable of third unsecured corporate bonds issued in 2012 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. Fifth debenture issue of 2014
On November 14, 2014, following the approval from the SFB, the Company issued domestic
unsecured bonds in the amount of $7,150,000. The terms of these domestic unsecured bonds
are summarized as follows:
R. First debenture issue of 2015
On January 12, 2015, following the approval from the SFB, the Company issued domestic
unsecured bonds in the amount of $7,650,000. The terms of these domestic unsecured bonds
are summarized as follows:
S. Second debenture issue of 2015
On May 22, 2015, following the approval from the SFB, the Company issued domestic
unsecured bonds in the amount of $9,000,000. The terms of these domestic unsecured bonds
are summarized as follows:
T. Foreign unsecured corporate bonds USD-denominated
On December 13, 2012, Competition Team Technologies Ltd., a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of US$ 650 million. 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 JPY-denominated
i. 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:
ii. Foreign unsecured corporate bonds JPY-denominated issued in 2013 was transferred to current liabilities in the first quarter of 2015 in accordance with the conditions of the contractual arrangement.
V. Foreign unsecured corporate bonds JPY-denominated
i. 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. The Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
ii. Foreign unsecured corporate bonds JPY-denominated issued in 2013 was transferred to current liabilities in the first quarter of 2015 in accordance with the conditions of the contractual arrangement.
W. 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. The Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
X. 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. The Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
Y. 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. The Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
Z. 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. The Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
AA. Foreign unsecured corporate bonds EUR-denominated
On February 13, 2015, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of EUR 200 million, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
BB. Foreign unsecured corporate bonds EUR-denominated
On February 13, 2015, Foxconn (Far East) Limited, a subsidiary of the Company, issued foreign unsecured corporate bonds in the amount of EUR 50 million, and the Company is the guarantor of the bonds. The terms of these foreign unsecured corporate bonds are summarized as follows:
CC. The issuance of first domestic unsecured convertible bonds in 2015 by the subsidiary Ennoconn Corporation
A. Terms of the first domestic unsecured convertible bonds issued by Ennoconn Corporation are as follows:
(a) Ennoconn Corporation issued $800,000, 0% the first domestic unsecured convertible bonds, as approved by the regulatory authority. The bonds mature 3 years from the issue date (May 5, 2015 ~ May 5, 2018).
(b) Convertible period: Except for the stop conversion period, bondholders have the right to ask for conversion of the bonds into common shares of Ennoconn Corporation. Stop conversion period is:
(1) Two months from issue date (May 5, 2015 ~ July 6, 2015).
(2) Fifteen business days prior to the book closure date for stock dividend issuance, for cash dividend or for capital increase until the date of rights distribution.
(3) One day prior to the day of issuance of stock for reducing capital from the record date of the reduction.
(4) Other stop transfer periods as specified in laws.
(c) Conversion price and adjustment: The price has been set as $295 (in dollars) at initial issuance. As Ennoconn Corporation's issued ordinary shares increased, conversion price was adjusted in accordance with the terms of conversion Article 12. As of June 30, 2015, the conversion price was adjusted to $289.1 (in dollars).
(d) Put options of bondholders: Thirty days prior to issuance of bonds after 2 years(May 5, 2017), the bondholders have the right to require Ennoconn Corporation in written notices to redeem any bonds at the price of the bonds'face value plus interest payable refund (102.01% of the face value from 2 years of issuance) and to redeem convertible bonds for cash.
(e) Redemption: Ennoconn Corporation may repurchase all the bonds outstanding in cash at the bonds'face value at any time after the following events occur: (i) the closing price of Ennoconn Corporation common shares is above the then conversion price by 30% for 30 consecutive trading days during the period from the date after two months (July 6, 2015) of the bonds issue to 40 days before (March 26, 2018) the maturity date, or (ii) the outstanding balance of the bonds is less than 10% of total initial issue amount.
B. Regarding Ennoconn Corporation's issuance of convertible bonds, the equity conversion options amounting to $29,155 were separated from the liability component and were recognised in 'capital surplus-share options' in accordance with IAS 32. The call options and put options embedded in bonds payable were separated from their host contracts and were recognised in 'financial assets or liabilities at fair value through profit or loss' in net amount in accordance with IAS 39 because the economic characteristics and risks of the embedded derivatives were not closely related to those of the host contracts. The effective interest rate of the bonds payable after such separation is 1.7447%.
(20) Long-term loans
Note: Details of long-term borrowings pledged as collaterals are provided in Note 8.
Note: Details of long-term borrowings pledged as collaterals are provided in Note 8.
A. 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.
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. 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 21,250 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, has been reclassified to "Current liabilities" in the first quarter of 2015.
D. 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 June 30, 2015, the credit line is EUR 110 million, with the Company as the guarantor of the loan. The Company has reclassified the full amount to "Current liabilities" in the first quarter of 2015.
E. 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. The contract was extended to June 28, 2017 and the loan is repaid in installments during the remaining contract period. The amount shall be repaid within one year is JPY$2,750 million and is reclassified to current liabilities in the first quarter of 2015. The Company is the guarantor of the loan.
F. On April 18, 2011, the subsidiary, Syntrend Creative Park Co. Ltd., has signed the facility agreement with First Commercial Bank for the borrowing limit of $2.5 billion.
G. On December 7, 2012, the Company entered into a comprehensive credit facility agreement with ING Bank, N.V. as the lead bank and the loan amount is JPY 2,830,435 thousand, which will be repaid by installment over the contract period. The amount of JPY 514,626 thousand, which will due within one year, has been reclassified to "Current liabilities" in the first quarter of 2015.
H. On October 19, 2012, the subsidiaries, Altus Technology Inc.,, Ingrasys Technology Co.Ltd. and Dynamic Computing Technology Co.,Ltd., have signed the facility agreements with First Commercial Bank for a total borrowing limit of $1,390,000. The limit has been transferred to Altus Technology Inc., in the second quarter of 2015.
I. On March 23, 2015, the subsidiary, Syntrend Creative Park Co. Ltd., has signed the facility agreement with First Commercial Bank for the borrowing limit of $600 million.
J. On June 17, 2013, the subsidiary, Synergy Integration Technology, Inc., has signed the facility agreement with The Shanghai Commercial & Saving Bank, Ltd. for the borrowing limit of $32 million. The amount of $1,333 thousand has matured and been repaid. The amount of $4,048 thousand that the subsidiary shall repay within one year was reclassified as current liabilities in the second quarter of 2015.
K. 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 8 million had been due for settlement. The amount of USD 30 million, which will due within one year, has been repaid in advance.
L. On January 18, 2015, the subsidiary, Ennoconn Corporation, has signed the facility agreement with First Commercial Bank for the borrowing limit of $400,000. The borrowing was repaid fully before maturity in May 2015.
M. Throughout the term of Mizuho Corporate Bank Ltd. and ING Bank, N.V. 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 and its domestic subsidiaries have a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees' service periods prior to the enforcement of the Labor Pension Act on July 1, 2005 and service periods 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 periods 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 month 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) For the aforementioned pension plan, the Group recognised pension costs of $13,590, $14,389, $27,183 and $28,766 for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
(c) Expected contributions to the defined benefit pension plans of the Group for the year ended December 31, 2016 are $36,505.
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 the Group contributes 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) The pension costs under the defined contribution pension plans of the Group for the three-month and six-month periods ended June 30, 2014 and 2015 were $4,246,340, $5,059,891, $9,028,119 and $9,992,208, respectively.
(22) Share-based payment
As of June 30, 2014 and 2015, the share-based payment transactions of the Company and FIH Mobile Limited, a subsidiary of the Company, are set forth below:
Note 1: Vested upon completion of service for certain periods.
Note 2: Of the shares granted, 2,737,718 shares cannot be sold within 1 to 3 periods from the grant date.
Note 3: Of the shares granted, 407,000 shares cannot be sold within 1 to 2 periods from the grant date.
Note 4: Of the shares granted, 20,362,078 shares cannot be sold within 1 to 3 periods from the grant date.
Note 5: Of the shares granted, 13,939,379 shares cannot be sold within 1 to 2 periods from the grant date.
Note 6: Of the shares granted, 14,934,766 shares cannot be sold within 1 to 2 periods from the grant date.
Note 7: Of the shares granted, 6,210,640 shares cannot be sold within 1 to 2 periods from the grant date.
Note 8: Of the shares granted, 33,957,285 shares cannot be sold within 1 to 2 periods from the grant date.
Note 9: Of the shares granted, 138,267,922 shares cannot be sold within 1 to 3 periods 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.
Note 12: Employees do not need to pay to acquire those stocks. Issuance of shares is based on employees' service periods (1 to 3 years). Shares are vested in accordance with the amount of employees' shares at 40%, 30% and 30% in each year over the 3-year period. The following vesting conditions must be met:
A. The Company's average operating performance is greater than competitors' average earnings per share and return on assets for the 3 years prior to the lock-up period of restricted stocks;
B. Employees' performance has reached the Company's performance standard.
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) The plan of employee stock options was expired in 2014. For the six-month period ended June 31, 2014, the weighted-average exercise price of employee stock options outstanding was US$0.57 (in dollars) per share. For the three-month and six-month periods ended June 31, 2014, expenses incurred on employee stock options transactions were $284 (US$9.4 thousand) and $0 (US$0 thousand).
(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 three-month and six-month period ended June 30, 2014 and 2015, expenses incurred on other share-based payments were $518,173 (US$17,174 thousand), $99,760 (US$3,235 thousand), $635,560 (US$21,052 thousand) and $210,727 (US$6,470 thousand), respectively.
C. Restricted stocks to employees
For the employee restricted shares plans 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:
Expenses incurred from the Company's restricted shares were $549,120 and $549,120 for the three-month and six-month periods ended June 30, 2015, 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) Share capital-common stock
A. On June 26, 2013, the Company's shareholders adopted a resolution to increase the authorized shares to 18 billion shares. As of June 30, 2015, the Company's authorized capital was $180,000,000, consisting of 18 billion shares of ordinary stock, and the paid-in capital was $151,484,068, consisting of 15,148,407 thousand shares with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected.
B. On June 25, 2014 and June 25, 2015, the Company's shareholders adopted a resolution to distribute employees' stock bonus amounting to $7,682,195 and $9,398,501 for 2013 and 2014, respectively. The employee stock bonus of 89,255 thousand and 105,211 thousand shares were determined based on the closing price on June 24, 2014 and June 24, 2015, respectively, the previous day of the 2014 and 2015 shareholders' meeting after taking into account the effects of ex-rights and ex-dividends. In addition, the Company's shareholders adopted a resolution to issue stock dividends at par value amounting to $15,754,448 and $7,396,703, totaling 1,575,445 thousand and 739,670 thousand shares in 2014 and 2015, respectively. The capital increase was approved by the Financial Supervisory Commission, Securities and Futures Bureau on July 17, 2014 and July 15, 2015, respectively. The additional stock allocation ex-right date was scheduled on September 3, 2014 and September 10, 2015 so the additional shares were accounted for as equity and shown as 'stock dividend to be distributed'.
C. 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. The issuance amounted to USD 347,250 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 month 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 June 30, 2015, 132,586 thousand units of GDRs were outstanding, which represents 265,171 thousand shares of common stock.
D. On May 28, 2015, the Company's Board of Directors has resolved to issue restricted stocks of 355,000 thousand shares at the approval of the shareholders in June 2013, and has set May 28, 2015 as the record date of capital increase. The issued ordinary shares restrict the transfer rights, voting rights at the shareholders' meetings, and rights to receive (subscribe) shares and dividends before the employees meet the vesting conditions.
E. Treasury stocks
The Company's subsidiary, Hon Yiing International Investment Co., Ltd., acquired ordinary shares issued by the Company in 1998. As of June 30, 2014, December 31, 2014 and June 30, 2015, the subsidiary owned 1,433,093, 1,605,064 and 1,605,064 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 2014 earnings had been resolved at the stockholders' meeting on June 25, 2014 and June 25, 2015, respectively. Details are summarized below:
The information on distribution of earnings will be posted on the "Market Observation Post System" of the TSEC.
E. The information relating to employee's remuneration (bonuses) and directors' and supervisors' remuneration please refer to note 6(34).
(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 2015. The Group has not purchased additional shares in proportion to its ownership and thus, the non-controlling interest of the Group increased by $466,702, decreased by $467,837, increased by $2,348,523 and $502,511, and equity attributable to owners of the parent decreased by $936,691, increased by $198,851, decreased by $646,936 and increased by $309,828 for the three-month and six-month periods ended June 30, 2014 and 2015, 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
A. According to the Articles of Incorporation of the Company, when distributing earnings, the Company shall distribute bonus to the employees and pay remuneration to the directors and supervisors that account for 8% and 0%, respectively, of the total distributed amount.
However, in accordance with the Company Act amended in May 20, 2015, a company shall distribute employee remuneration, based on the current year's profit condition, in a fixed amount or a proportion of profits. If a company has accumulated deficit, earnings should be channeled to cover losses. Aforementioned employee remuneration could be paid by cash or stocks. Specifics of the compensation are to be determined in a board meeting that registers two-thirds of directors in attendance, and the resolution must receive support from half of participating members. The resolution should be reported to the shareholders' meeting. Qualification requirements of employees, including the employees of subsidiaries of the company meeting certain specific requirements, entitled to receive aforementioned stock or cash may be specified in the Articles of Incorporation.
B. For the three-month and six-month periods ended June 30, 2014 and 2015, employees' remuneration (bonus) was accrued at $1,453,402, $1,849,649, $2,860,481 and $4,037,388, respectively; directors' and supervisors' remuneration was accrued at $0. The aforementioned amounts were recognized in salary expenses. The expenses recognised for the year of 2015 were accrued based on the earnings of current year; the expenses recognised for the year of 2014 were accrued based on the net income of 2014 and the percentage specified in the Articles of Incorporation of the Company (8% and 0% for employees and directors/supervisors, respectively), taking into account other factors such as legal reserve.
Employees' bonus and directors' and supervisors' remuneration of 2014 as resolved by the stockholders were in agreement with those amounts recognised in the 2014 financial statements. Actual number of shares distributed as employees' bonus for 2014 is 105,211 thousand shares. Calculation basis of the shares is based on share price of $89.33 (in dollars), which takes into consideration of the Company's closing price one day (June 25, 2015) prior to the shareholders' resolution and of effects of ex-rights and ex-dividends.
Information about the appropriation of employees' bonus and directors' and supervisors' remuneration by the Company as proposed by the Board of Directors and resolved by the stockholders will be posted in the "Market Observation Post System" at the website of the Taiwan Stock Exchange.
(35) Financial costs
(36) Income tax
A. Income tax expense
Components of income tax expense:
B. The Company's income tax returns through 2012 have been assessed and approved by the Tax Authority.
C. Unappropriated retained earnings:
D.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 June 30, 2015.
(38) Supplemental cash flow information
A. Investing activities with partial cash payments
B. Financing activities with no cash flow effects
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%, 1.41%~7.2%, 1.41% and 1.35%~7.2% for the three-month and six-month periods ended June 30, 2014 and 2015, respectively.
(2) Key management compensation
PLEDGED ASSETS
As of June 30, 2014, December 31, 2014 and June 30, 2015, the book values of the Group's pledged assets are as follows:
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 periods, 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, taking into consideration of the date of competent authority's approval, the merger may not be performed on the scheduled date. On May 7, 2015, the Board of Directors has resolved postpone the merger to December 31, 2015. 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.
SIGNIFICANT DISASTER LOSS
None.
SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE
Han Yang Optics (Shang Hai) Ltd., which is held by Pan-International Industrial Co.'s subsidiary, Cybertan Technology Corp. (CBT), is restructuring its land in Shanghai. On August 13, 2015, the Company's Board of Directors resolved that its subsidiary, Foxconn (Far East) Limited, participates in the restructure and increases capital for development. Foxconn (Far East) Limited plans to acquire more than half of CBT's share interest after receiving the competent authority's approval for foreign investments. The investment amount in CBT is estimated to be US$450,000 thousand.
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 2015, the Group's strategy, which was unchanged from 2014, was to maintain the gearing ratio at 70% or below.
(2) Financial instruments
A. Fair value information of financial instruments
(a) Except those listed in the table below, the carrying amounts of the Group's financial instruments not measured at fair value (including cash and cash equivalents, financial assets measured at fair value through profit or loss, available-for-sale financial assets, notes and accounts receivable inclusive of related parties and other financial assets, short-term loans, financial liabilities measured at fair value through profit or loss, notes and accounts payable inclusive of related parties and current portion of the long-term liabilities.) approximate to their fair values. The fair value information of financial instruments measured at fair value is provided in Note 12(3).
(b) The methods and assumptions of fair value measurement are as follows:
Bonds payable: Regarding the bonds issued by the Group, the coupon rate approximates to the current market rate. Therefore, the fair value is estimated using the present value of the expected cash flows and market interest rate.
Finance lease payable：The fair value is estimated using the present value of the expected cash flows and of market rates.
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:
(v) Total exchange gain (loss), including realised and unrealised arising from significant foreign exchange variation on the monetary items held by the Group for the three-month and six-month periods ended June 30, 2014 and 2015 amounted loss $2,341,819, gain $2,587,485, loss $1,433,805 and gain $ 6,358,445, respectively.
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 $411,316 and $542,382 for the three-month and six-month periods ended June 30, 2014 and 2015, 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 June 30, 2014, December 31, 2014 and June 30, 2015, accounts receivable that had been impaired were $2,451,701, $2,750,491 and $3,258,015, 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 information
A. Details of the fair value of the Group's financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Group's investment property measured at cost are provided in Note 6(16).
B. The different levels that the inputs to valuation techniques are used to measure fair value of financial and non-financial instruments have been defined as follows:
Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Group's investment in listed stocks is included in Level 1.
Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. The fair value of the Group's investment in derivative instruments is included in Level 2.
Level 3: Unobservable inputs for the asset or liability.
C. The related information of financial and non-financial instruments measured at fair value by level on the basis of the nature, characteristics and risks of the assets and liabilities at June 30, 2014, December 31, 2014 and June 30, 2015 is as follows:
Note: Under IFRS 5, assets held for sale must be measured at fair value less costs to sell when the fair value less the cost to sell is lower than the carrying amount.
D. The methods and assumptions the Group used to measure fair value are as follows:
(a) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:
(b) Except for financial instruments with active markets, the fair value of other financial instruments is measured by using valuation techniques or by reference to counterparty quotes. The fair value of financial instruments measured by using valuation techniques method can be referred to current fair value of instruments with similar terms and characteristics in substance, discounted cash flow method or other valuation methods, including calculated by applying model using market information available at the consolidated balance sheet date.
(c) When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Group adopts valuation technique that is widely used by market participants. The inputs used in the valuation method to measure these financial instruments are normally observable in the market.
(d) The valuation of derivative financial instruments is based on valuation model widely accepted by market participants, such as present value techniques and option pricing models. Forward exchange contracts are usually valued based on the current forward exchange rate.
(e) The output of valuation model is an estimated value and the valuation technique may not be able to capture all relevant factors of the Group's financial and non-financial instruments. Therefore, the estimated value derived using valuation model is adjusted accordingly with additional inputs, for example, model risk or liquidity risk and etc. In accordance with the Group's management policies and relevant control procedures relating to the valuation models used for fair value measurement, management believes adjustment to valuation is necessary in order to reasonably represent the fair value of financial and non-financial instruments at the consolidated balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.
(f) The Group takes into account adjustments for credit risks to measure the fair value of financial and non-financial instruments to reflect credit risk of the counterparty and the Group's credit quality.
E. For the three-month and six-month periods ended June 30, 2014 and 2015, there was no transfer between Level 1 and Level 2.
F. For the three-month and six-month periods ended June 30, 2014 and 2015, there was no transfer into or out from Level 3.
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 three-month and six-month periods ended June 30, 2014 and 2015 is provided as follows: