UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
(Mark One)
| ¨ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR
(g) OF THE SECURITIES EXCHANGE ACT OF 1934 |
OR
| x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31,
2015
OR
| ¨ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
OR
| ¨ | SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
Date of event requiring this shell company
report
Commission file number: 001-31335
(Exact name of Registrant as specified
in its charter)
| |
|
| AU OPTRONICS CORP. |
TAIWAN, REPUBLIC OF CHINA |
| (Translation of Registrant’s name into English) |
(Jurisdiction of incorporation or organization) |
1 LI-HSIN ROAD 2
HSINCHU SCIENCE PARK
HSINCHU, TAIWAN
REPUBLIC OF CHINA
(Address of principal executive offices)
Benjamin Tseng
Chief Financial Officer
1 Li-Hsin Road 2
Hsinchu Science Park
Hsinchu, Taiwan
Republic of China
Telephone No.: +886-3-500-8800
Facsimile No.: +886-3-564-3370
Email: IR@auo.com
(Name, Telephone, Email and/or Facsimile
number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b)
of the Act.
|
Title of each class
|
Name of each exchange on which registered
|
| Common Shares of par value NT$10.00 each |
The New York Stock Exchange, Inc.* |
| * | Not for trading, but only in connection with the listing on the New York Stock Exchange, Inc. of American Depositary Shares
representing such Common Shares |
Securities registered or to be registered pursuant to Section 12(g)
of the Act: None
Securities for which there is a reporting obligation pursuant
to Section 15(d) of the Act: None
Indicate the number of outstanding shares of each of the issuer’s
classes of capital or common stock as of the close of the period covered by the annual report 9,624,245,115 Common Shares.
Indicate by check mark if the registrant is a well-known seasoned
issuer, as defined in Rule 405 of the Securities Act. x Yes ¨
No
If this report is an annual or transition report, indicate by
check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934. ¨ Yes x
No
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. x Yes ¨
No
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). ¨ Yes ¨
No
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer”
in Rule 12b-2 of the Exchange Act. Check one):
| Large accelerated filer x |
Accelerated filer ¨ |
Non-accelerated filer ¨ |
Indicate by check mark which basis of accounting the registrant
has used to prepare the financial statements included in this filing:
U.S. GAAP ¨ International
Financial Reporting Standards as issued by the International Accounting Standards Board x Other ¨
If “Other” has been checked in response to the previous
question, indicate by check mark which financial statement item the registrant has elected to follow. ¨ Item 17 ¨ Item 18
If this is an annual report, indicate by check mark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨
Yes x No
Table
of Contents
Page
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains
“forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 (the “Securities
Act”), as amended, and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”), as amended.
These forward-looking statements are based on our beliefs and assumptions and the information available to us from other sources
we believe to be reliable as of the date these disclosures were prepared and we undertake no obligation to update these forward-looking
statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this annual
report. The words “anticipate,” “believe,” “expect,” “intend,” “seek,”
“plan,” “estimate” and similar expressions, as they relate to us, are intended to identify a number of
these forward-looking statements. Our actual results of operations, financial condition or business prospects may differ materially
from those expressed or implied in these forward-looking statements for a variety of reasons, including, among other things and
not limited to:
| · | the cyclical nature of our industry; |
| · | further declines in selling prices; |
| · | our ability to comply with the applicable covenants under the terms of our debt instruments; |
| · | litigation and regulatory investigations against us; |
| · | our dependence on introducing new products on a timely basis; |
| · | our dependence on growth in the demand for our products; |
| · | our continued ability to achieve high capacity utilization rates; |
| · | our ability to effectively manage inventories; |
| · | our dependence on a small number of customers for a substantial portion of our net revenue; |
| · | our ability to allocate capacity efficiently and in a timely manner; |
| · | implementation of our expansion plans and our ability to obtain
capital resources for our planned growth; |
| · | our ability to compete effectively; |
| · | our dependence on the outsourcing of manufacturing by brand companies to original equipment manufacturing service providers; |
| · | our ability to expand into new businesses, industries or internationally and to undertake mergers, acquisitions, investments
or divestments; |
| · | changes in the accounting standard as required by the ROC government; |
| · | our dependence on key personnel; |
| · | our relationship with our affiliates; |
| · | our ability to acquire sufficient raw materials and key components and obtain equipment and services from our suppliers in
suitable quantity and quality; |
| · | changes in technology and competing products; |
| · | possible disruptions in commercial activities caused by natural and human-induced disasters, including terrorist activity and
armed conflict; |
| · | general political, economic, financial and regulatory conditions; |
| · | fluctuations in foreign currency exchange rates; and |
| · | other factors in the “Risk Factors” section in this annual report. Please see “Item 3. Key Information—3.D.
Risk Factors.” |
CERTAIN
CONVENTIONS
We publish our financial statements
in New Taiwan dollars (“NT dollars”), the lawful currency of the Republic of China (“ROC”). This
annual report contains translations of NT dollar amounts, Renminbi (“RMB” or “CNY”) amounts, Japanese
Yen (“JPY”) amounts and Euro (“EUR”) amounts, into United States dollars (“U.S.
dollars”), at specific rates solely for the convenience of the reader. For convenience only and unless otherwise noted,
all translations between NT dollars and U.S. dollars, between RMB and U.S. dollars, between JPY and U.S. dollars and between
EUR and U.S. dollars in this annual report were made at a rate of NT$32.79 to US$1.00, RMB6.4778 to US$1.00, JPY120.27 to
US$1.00, and EUR0.9209 to US$1.00, respectively, the exchange rates set forth in the H.10 weekly statistical release of the
Federal Reserve System of the United States (the “Federal Reserve Board”) on December 31, 2015. No
representation is made that the NT dollar, RMB, JPY, EUR or U.S. dollar amounts referred to herein could have been or could
be converted into U.S. dollars, RMB, JPY, EUR or NT dollars, as the case may be, at any particular rate or at all. On March
11, 2016, the exchange rates set forth in the H.10 weekly statistical release of the Federal Reserve Board were NT$32.58 to
US$1.00, RMB6.4940 to US$1.00, JPY113.66 to US$1.00 and EUR0.8945 to US$1.00, respectively. Any discrepancies in any table
between totals and sums of the amounts listed are due to rounding.
REFERENCES
Unless otherwise indicated, in this annual
report, the following terms shall have the meaning set out below:
| “Acer Display” |
Acer Display Technology, Inc. |
| “ADSs” |
American Depositary Shares |
| “AFPD” |
AFPD Pte., Ltd. |
| “AHVA” |
Advanced hyper-viewing angle technology |
| “AMOLED” |
Active-matrix organic light emitting diode, is an organic light emitting diode display technology |
| “AT&T” |
AT&T Corporation and its affiliates |
| “AUSP” |
AUO SunPower Sdn. Bhd. |
| “AUUS” |
AU Optronics Corporation America |
| “BenQ” |
BenQ Corporation |
| “BMC” |
BenQ Materials Corp. |
| “BTA” |
The basic tax amount |
| “CFI” |
Taiwan CFI Co., Ltd. (previously known as Toppan CFI (Taiwan) Co., Ltd.) |
| “CGU” |
Cash-generating unit, is the smallest identifiable group of assets that generates cash inflows which are largely independently of the cash inflows from other assets or group of assets |
| “China” or “PRC” |
The People’s Republic of China, excluding Taiwan and the special administrative regions of Hong Kong and Macau |
| “Code” |
The Internal Revenue Code of 1986, as amended |
| “Convertible Securities” |
Bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred shares or certificates of warrants |
| “DG COMP” |
The Commission of the European Communities Directorate-General for Competition |
| “DTC” |
The Depository Trust Company |
| “Eidos” |
Eidos Display, LLC and Eidos III, LLC |
| “eTP” |
The embedded touch panel technology |
| “fabs” |
Fabrication plants |
| “FDTC” |
Fujitsu Display Technologies Corporation (which was merged into Fujitsu Limited) |
| “Federal Reserve Board” |
The Federal Reserve System of the United States |
| “Forhouse” |
Forhouse Corporation |
| “FSC” |
The ROC Financial Supervisory Commission |
| “HDR” |
High dynamic rang technology |
| “IFRS” |
The International Financial Reporting Standards as issued by the International Accounting Standards Board |
| “Investment Regulations” |
The ROC Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals |
| “KFTC” |
The Korea Fair Trade Commission |
| “large-size panels” |
Panels ten inches and above in diagonal length |
| “LTPS” |
Low temperature poly-silicon method |
| “LG Display” or “LGD” |
LG Display Co., Ltd. |
| “M.Setek” |
M.Setek Co., Ltd. |
| “mm” |
Millimeters |
| “MOEAIC” |
Investment Commission of Ministry of Economic Affairs |
| “mobile PC” |
Primarily includes notebooks, tablets, etc. |
| “Motorola” |
Motorola Inc. |
| “Nokia” |
Nokia Corporation |
| “NYSE” |
The New York Stock Exchange |
| “non-ROC resident” |
A person who is not a resident of the ROC |
| “Northern California Court” |
The United States District Court for the Northern District of California |
| “OGS” |
One glass solution |
| “OLED” |
Organic light emitting diode, is a light emitting display technology |
| “our company”, “us” or “we” |
AU Optronics Corp. and/or its consolidated subsidiaries, unless the context suggests
otherwise |
| “PFIC” |
A passive foreign investment company |
| “QDI” |
Quanta Display Inc. |
| “QDIIs” |
Qualified domestic institutional investors |
| “Qisda” |
Qisda Corporation |
| “Raydium” |
Raydium Semiconductor Corporation |
| “ROC” or “Taiwan” |
The island of Taiwan and the areas under the effective control of the Republic of China |
| “ROC GAAP” |
The generally accepted accounting principles in the ROC |
| “ROC government” |
The government of the ROC |
| “Samsung” |
Samsung Electronics Co., Ltd. |
| “Samsung Group” |
Samsung Electronics Co., Ltd. and its subsidiaries |
| “SEC” |
The United States Securities and Exchange Commission |
| “Sharp” |
Sharp Corporation |
| “Small to medium-size panels” |
Panels which are under ten inches in diagonal length |
| “subsidiary” |
Companies owned directly or indirectly by AU Optronics Corp., unless the context suggests otherwise |
| “SPTL” |
SunPower Technology, Ltd., a subsidiary of SunPower Corporation |
| “Taiwan IFRS” |
The International Financial Reporting Standards as issued by the International Accounting Standards Board and endorsed by the FSC, which are required to be adopted by applicable companies in the ROC |
| “U.S. DOJ” |
The United States Department of Justice |
| “Unipac” |
Unipac Optoelectronics Corp. |
| “WCG” |
Wide color gamut technology |
Part
I
| ITEM 1. | IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS |
Not applicable.
| ITEM 2. | OFFER STATISTICS AND EXPECTED TIMETABLE |
Not applicable.
3.A.
Selected Financial Data
The selected consolidated financial data
set forth below as of December 31, 2014 and 2015 and for the years ended December 31, 2013, 2014 and 2015 have been derived
from our audited consolidated financial statements and the related notes, which have been prepared in accordance with IFRS, included
elsewhere in this annual report. The selected consolidated statement of financial position data as of December 31, 2012 and 2013
and selected consolidated statement of comprehensive income data for the year ended December 31, 2012 have been derived from our
audited consolidated financial statements prepared in accordance with IFRS that are not included herein. The selected financial
data set forth below should be read in conjunction with “Item 5. Operating and Financial Review and Prospects” and
our consolidated financial statements and the accompanying notes included elsewhere in this annual report.
We prepare our consolidated financial statements
in accordance with IFRS. Until and including our consolidated financial statements included in our annual report on Form 20-F for
the year ended December 31, 2012, we prepared our consolidated financial statements in accordance with generally accepted accounting
principles in the ROC (“ROC GAAP”), with reconciliations to U.S. GAAP.
Beginning on January 1, 2013, we have adopted
Taiwan IFRS for reporting our annual and interim consolidated financial statements in the ROC in accordance with the requirements
of the FSC. Meanwhile, we have adopted and will continue to adopt IFRS, which differs from Taiwan IFRS, for certain filings with
the SEC, including this annual report and future annual reports on Form 20-F. Following our adoption of IFRS for SEC filing purposes
since 2013, pursuant to the rule amendments adopted by the SEC which became effective on March 4, 2008, we are no longer required
to reconcile our consolidated financial statements with U.S. GAAP. Furthermore, pursuant to the transitional relief granted by
the SEC in respect of first-time application of IFRS, historical selected financial data for the year ended December 31, 2011 has
been omitted. Historical financial results as of and for the year ended December 31, 2012 have also been adjusted based on IFRS,
which differ from the results included in our annual report on Form 20-F for the year ended December 31, 2012.
We are not required to separately present
operating profit or loss in our consolidated statements of comprehensive income (loss) prepared in accordance with IFRS. Therefore,
the consolidated financial statements included in this annual report, which are prepared in accordance with IFRS, do not present
a measure of operating profit or loss.
| | |
Year Ended and As of December 31, |
| | |
2012 | |
2013 | |
2014 | |
2015 |
| | |
NT$ | |
NT$ | |
NT$ | |
NT$ | |
US$ |
| | |
(in millions, except percentages and earnings per share and per ADS data) |
| Consolidated Statement of Comprehensive Income (Loss) Data: | |
| |
| |
| |
| |
|
| Net revenue | |
| 378,470.9 | | |
| 416,363.0 | | |
| 408,178.7 | | |
| 360,346.5 | | |
| 10,989.5 | |
| Gross profit (loss) | |
| (13,122.9 | ) | |
| 33,984.1 | | |
| 48,510.6 | | |
| 39,837.1 | | |
| 1,214.9 | |
| Selling and distribution expenses | |
| (6,377.2 | ) | |
| (7,470.0 | ) | |
| (7,799.0 | ) | |
| (4,206.1 | ) | |
| (128.3 | ) |
| General and administrative expenses | |
| (9,203.9 | ) | |
| (9,691.1 | ) | |
| (9,389.6 | ) | |
| (9,206.0 | ) | |
| (280.8 | ) |
| Research and development expenses | |
| (9,904.3 | ) | |
| (8,530.5 | ) | |
| (9,156.6 | ) | |
| (8,903.8 | ) | |
| (271.5 | ) |
| Profit (loss) before income tax | |
| (51,494.1 | ) | |
| 5,236.0 | | |
| 19,980.4 | | |
| 7,598.9 | | |
| 231.7 | |
| Income tax expense | |
| 1,124.0 | | |
| 1,359.1 | | |
| 3,243.2 | | |
| 384.9 | | |
| 11.7 | |
| Profit (loss) for the year | |
| (52,618.1 | ) | |
| 3,876.9 | | |
| 16,737.2 | | |
| 7,214.0 | | |
| 220.0 | |
| Total comprehensive income (loss) for the year | |
| (54,201.9 | ) | |
| 6,875.4 | | |
| 18,914.9 | | |
| 6,482.3 | | |
| 197.7 | |
| Profit (loss) for the year attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shareholders of AU Optronics Corp. | |
| (51,327.1 | ) | |
| 3,804.2 | | |
| 16,366.6 | | |
| 7,242.2 | | |
| 220.9 | |
| Non-controlling interests | |
| (1,291.0 | ) | |
| 72.7 | | |
| 370.6 | | |
| (28.2 | ) | |
| (0.9 | ) |
| Total comprehensive income (loss) for the year attributable to: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Shareholders of AU Optronics Corp. | |
| (52,751.7 | ) | |
| 6,367.5 | | |
| 18,125.7 | | |
| 7,185.7 | | |
| 219.1 | |
| Non-controlling interests | |
| (1,450.2 | ) | |
| 507.9 | | |
| 789.2 | | |
| (703.4 | ) | |
| (21.4 | ) |
| Earnings (loss) per share—Basic | |
| (5.81 | ) | |
| 0.41 | | |
| 1.70 | | |
| 0.75 | | |
| 0.02 | |
| Earnings per share—Diluted(1) | |
| — | | |
| 0.40 | | |
| 1.69 | | |
| 0.70 | | |
| 0.02 | |
| Earnings (loss) per ADS equivalent—Basic | |
| (58.15 | ) | |
| 4.07 | | |
| 17.01 | | |
| 7.52 | | |
| 0.23 | |
| Earnings per ADS equivalent—Diluted(1) | |
| — | | |
| 4.04 | | |
| 16.88 | | |
| 6.98 | | |
| 0.21 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Consolidated Statement of Financial Position Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Total current assets | |
| 174,072.2 | | |
| 169,604.1 | | |
| 185,614.5 | | |
| 161,992.1 | | |
| 4,940.3 | |
| Property, plant and equipment, net | |
| 315,518.2 | | |
| 270,269.0 | | |
| 231,814.7 | | |
| 208,785.6 | | |
| 6,367.4 | |
| Total assets | |
| 515,008.5 | | |
| 464,835.9 | | |
| 442,344.3 | | |
| 399,237.1 | | |
| 12,175.6 | |
| Total current liabilities | |
| 192,221.7 | | |
| 181,338.6 | | |
| 174,143.1 | | |
| 141,867.7 | | |
| 4,326.6 | |
| Total noncurrent liabilities | |
| 186,638.0 | | |
| 130,507.1 | | |
| 94,214.3 | | |
| 76,708.3 | | |
| 2,339.4 | |
| Total liabilities | |
| 378,859.7 | | |
| 311,845.7 | | |
| 268,357.4 | | |
| 218,576.0 | | |
| 6,666.0 | |
| Common stock | |
| 88,270.5 | | |
| 96,242.5 | | |
| 96,242.5 | | |
| 96,242.5 | | |
| 2,935.1 | |
| Non-controlling interests in subsidiaries | |
| 14,062.6 | | |
| 14,036.5 | | |
| 19,329.2 | | |
| 22,648.6 | | |
| 690.7 | |
| Total equity attributable to shareholders of AU Optronics Corp. | |
| 122,086.2 | | |
| 138,953.7 | | |
| 154,657.7 | | |
| 158,012.5 | | |
| 4,818.9 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other Financial Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Gross margin(2) | |
| (3.5 | %) | |
| 8.2 | % | |
| 11.9 | % | |
| 11.1 | % | |
| 11.1 | % |
| Net margin(3) | |
| (13.9 | %) | |
| 0.9 | % | |
| 4.1 | % | |
| 2.0 | % | |
| 2.0 | % |
| Capital expenditures | |
| 43,332.6 | | |
| 25,457.8 | | |
| 16,971.0 | | |
| 33,440.2 | | |
| 1,019.8 | |
| Depreciation and amortization | |
| 75,276.4 | | |
| 63,637.7 | | |
| 56,902.7 | | |
| 47,745.8 | | |
| 1,456.1 | |
| Net cash flows provided by operating activities | |
| 35,747.9 | | |
| 49,642.4 | | |
| 63,392.7 | | |
| 62,003.4 | | |
| 1,890.9 | |
| Net cash flows used in investing activities | |
| (43,181.7 | ) | |
| (23,223.8 | ) | |
| (13,106.8 | ) | |
| (31,734.7 | ) | |
| (967.8 | ) |
| Net cash flows used in financing activities | |
| (5,940.4 | ) | |
| (26,785.4 | ) | |
| (45,041.5 | ) | |
| (34,277.0 | ) | |
| (1,045.3 | ) |
| | |
| | | |
| | | |
| | | |
| | | |
| | |
| Segment Data: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Net revenue | |
| | | |
| | | |
| | | |
| | | |
| | |
| Display business | |
| 367,120.3 | | |
| 398,836.2 | | |
| 384,335.2 | | |
| 333,392.3 | | |
| 10,167.5 | |
| Solar business | |
| 11,350.6 | | |
| 17,526.8 | | |
| 23,843.5 | | |
| 26,954.2 | | |
| 822.0 | |
| |
|
Year Ended and As of December 31, |
| |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
| |
|
NT$ |
|
NT$ |
|
NT$ |
|
NT$ |
|
US$ |
| |
|
(in millions, except percentages and earnings per share and per ADS data) |
| |
|
|
|
|
|
|
|
|
|
|
| Segment profit (loss)(4) | |
| | | |
| | | |
| | | |
| | | |
| | |
| Display business | |
| (30,330.8 | ) | |
| 12,017.9 | | |
| 24,422.5 | | |
| 19,226.0 | | |
| 586.3 | |
| Solar business | |
| (8,277.5 | ) | |
| (3,725.4 | ) | |
| (2,257.1 | ) | |
| (1,704.8 | ) | |
| (52.0 | ) |
___________
| (1) | Diluted earnings per share in 2012
was not applicable due to the anti-dilutive effect on the basic net loss per share. The
convertible bonds were not included for the calculation of diluted earnings per share
in 2013 and 2014 due to its anti-dilutive effect. |
| (2) | Gross margin is calculated by dividing
gross profit (loss) by net revenue. |
| (3) | Net margin is calculated by dividing
profit (loss) for the year by net revenue. |
| (4) | Segment profit (loss) represents
gross profit (loss) minus selling and distribution expenses, general and administrative
expenses and research and development expenses. |
Exchange Rate
Fluctuations in the exchange rate between
NT dollars and U.S. dollars will affect the U.S. dollar equivalent of the NT dollar price of our shares on the Taiwan Stock Exchange
and, as a result, will likely affect the market price of the ADSs. These fluctuations will also affect the U.S. dollar conversion
by the depositary of cash dividends paid in NT dollars on, and the NT dollar proceeds received by the depositary from any sale
of, our shares represented by ADSs.
The following table sets forth, for the
periods indicated, information concerning the number of NT dollars for which one U.S. dollar could be exchanged. The exchange rates
reflect the exchange rates set forth in the H.10 statistical release of the Federal Reserve Board.
| | |
Exchange Rate |
| | |
Average | |
High | |
Low | |
Period-End |
| | |
(or month-end rates for years) | |
| |
| |
|
| 2011 | |
| 29.38 | | |
| 30.67 | | |
| 28.50 | | |
| 30.27 | |
| 2012 | |
| 29.56 | | |
| 30.28 | | |
| 28.96 | | |
| 29.05 | |
| 2013 | |
| 29.68 | | |
| 30.20 | | |
| 28.93 | | |
| 29.83 | |
| 2014 | |
| 30.30 | | |
| 31.80 | | |
| 29.85 | | |
| 31.60 | |
| 2015 | |
| 31.74 | | |
| 33.17 | | |
| 30.37 | | |
| 32.79 | |
| September | |
| 32.67 | | |
| 33.17 | | |
| 32.31 | | |
| 32.98 | |
| October | |
| 32.44 | | |
| 32.81 | | |
| 31.92 | | |
| 32.46 | |
| November | |
| 32.61 | | |
| 32.87 | | |
| 32.43 | | |
| 32.53 | |
| December | |
| 32.79 | | |
| 33.01 | | |
| 32.53 | | |
| 32.79 | |
| 2016 | |
| | | |
| | | |
| | | |
| | |
| January | |
| 33.43 | | |
| 33.74 | | |
| 33.14 | | |
| 33.43 | |
| February | |
| 33.24 | | |
| 33.51 | | |
| 32.95 | | |
| 33.22 | |
| March (through March 11, 2016) | |
| 32.78 | | |
| 33.09 | | |
| 32.49 | | |
| 32.58 | |
3.B.
Capitalization and Indebtedness
Not applicable.
3.C.
Reason for the Offer and Use of Proceeds
Not applicable.
3.D.
Risk Factors
Risks Relating to Our Financial Condition, Business and
Industry
Our industry is cyclical, with recurring
periods of capacity increases. As a result, price fluctuations in response to supply and demand imbalances could harm our results
of operations.
The display panel industry in general is
characterized by cyclical market conditions. From time to time, the industry has been subject to imbalances between excess supply
and a slowdown in demand, and in certain periods, resulting in declines in selling prices. For example, in 2015, average selling
price of our large-size panels decreased by 8.6% in the third quarter from the second quarter, and further decreased by 9.6% in
the fourth quarter from the third quarter. In addition, capacity expansion anticipated in the display panel industry may lead to
excess capacity. It is anticipated that capacity expansion in the display panel industry is due to scheduled ramp-up of new fabs,
and any large increases in capacity as a result of such expansion could further drive down the selling prices of our panels, which
would affect our results of operations. We cannot assure you that any continuing or further decrease in selling prices or future
downturns resulting from excess capacity or other factors affecting the industry will not be severe or that any such continuation,
decrease or downturn would not seriously harm our business, financial condition and results of operations.
Our ability to maintain or increase our
revenues will primarily depend upon our ability to maintain market share, increase unit sales of existing products, and introduce
and sell new products that offset the anticipated fluctuation and long-term declines in the selling prices of our existing products.
We cannot assure you that we will be able to maintain or expand market share, increase unit sales, and introduce and sell new products,
to the extent necessary to compensate for market oversupply.
We may experience declines in the selling
prices of our products irrespective of cyclical fluctuations in the industry.
The selling prices of our products have
declined in general and are expected to continually decline with time irrespective of industry-wide cyclical fluctuations as a
result of, among other factors, technology advancements and cost reductions. Although we may be able to take advantage of the higher
selling prices typically associated with new products and technologies when they are first introduced into the market, the prices
decline over time and in certain cases, very rapidly as a result of market competition. If we are unable to anticipate effectively
and counter the price erosion that accompanies our products, or if the selling prices of our products decrease faster than the
rate at which we are able to reduce our manufacturing costs, our profit margins will be affected adversely and our results of operations
and financial condition may be affected materially and adversely.
Our results of operations have fluctuated
in the past. If we are unable to achieve profitability in 2016 or beyond, the value of the ADSs and our shares may be adversely
affected.
Our business is significantly affected
by cyclical market conditions for the TFT-LCD panel industry. From time to time, the industry has experienced imbalances between
excess supply and slowdowns in demand, and in certain periods, resulting in declines in selling prices. In addition, other factors
such as technology advancement and cost reductions have driven down and may continue to drive down our average selling prices irrespective
of cyclical market conditions for the TFT-LCD panel industry.
The solar industry has undergone challenging
business conditions in the past years, including downward pricing pressure for solar modules, solar cells, solar wafers and polysilicon
mainly as a result of oversupply and reductions in applicable governmental subsidies. Although the solar industry might continue
to grow in the long run, there is no assurance that the solar industry will not suffer significant downturns or significant reductions
in the scope or discontinuation of government incentive programs in the future, especially in markets where we operate or we target,
which will adversely affect demands for our solar products as well as our results of operations.
Our
results of operations have fluctuated in the past. Our net revenue decreased by approximately 11.7% to NT$360.3 billion (US$11.0
billion) in 2015 compared to net revenue of NT$408.2 billion in 2014, while our net profit for the year decreased from NT$16.7
billion in 2014 to NT$7.2 billion (US$0.2 billion) in 2015. We cannot assure you that we will be profitable in 2016 or beyond.
In addition, we expect that selling prices for many of our existing products will continue to decline over the long term. If we
are unable to reduce our production cost to offset the declines in selling prices and maintain a high capacity utilization rate,
our gross margin will decline, which could seriously harm our business and reduce the value of our equity securities. If we are
unable to achieve profitability in 2016 or beyond, the value of the ADSs and our shares may be adversely affected.
Our future net revenue, gross profit, operating
income and financing capabilities may vary significantly due to a combination of factors, including, but not limited to:
| · | our ability to develop and introduce new products to meet customers’ needs in a timely manner; |
| · | our ability to develop or acquire and implement new manufacturing processes and product technologies; |
| · | our ability to control our fixed and variable costs and operating expenses; |
| · | our ability to reduce production cost, such as raw materials
and components; |
| · | our ability to manage our product mix; |
| · | our ability to obtain raw materials and components at acceptable prices and in a timely manner; |
| · | lower than expected growth in demand resulting in oversupply in the market; |
| · | our ability to obtain adequate external financing on satisfactory terms; and |
| · | fines and penalties payable relating to the alleged violation of antitrust, competition laws and other regulations. |
We need to comply with certain financial
and other covenants under the terms of our debt instruments, the failure to comply with which may put us in default under those
instruments.
We are a party to numerous loans and other
agreements relating to the incurrence of debt, many of which include financial covenants and broad default provisions. The financial
covenants primarily include current ratios, indebtedness ratios, interest coverage ratios and minimum equity requirements, which,
in general, govern our existing long-term debt and debt we may incur in the future. These covenants could limit our ability to
plan for or react to market conditions or to meet our capital needs in a timely manner and we may have to curtail some of our operations
and growth plans to maintain compliance. In addition, any global or regional economic deterioration may cause us to incur significant
net losses or force us to assume considerable liabilities, which would adversely impact our ability to comply with the financial
covenants of our outstanding loans. If the relevant creditors decline to grant waivers for any non-compliance with the covenants,
such non-compliance will constitute an event of default which may trigger a requirement for acceleration of the amounts due under
the applicable loan agreements. Some of our loan agreements also contain cross-default clauses, which could enable creditors under
our other debt instruments to declare an event of default when there is a default in other loan agreements. We cannot assure you
that we will be able to remain in compliance with our financial covenants. In the event of default, we may not be able to cure
the default or obtain a waiver on a timely basis. An event of default under any agreement governing our existing or future debts,
if not cured by us or waived by our creditors, could have a material adverse effect on our liquidity, financial condition and results
of operations.
If we breach our financial or other covenants,
our financial condition will be adversely affected to the extent we are not able to cure such breaches or repay the relevant debt.
We have on occasion failed to comply with certain financial covenants in some of our loan agreements. Although in the past we have
either obtained waivers for such noncompliance from the relevant banks or fully repaid the facility, we cannot assure you that
we will always be able to do that in the future.
We are involved in a number of legal
proceedings concerning matters arising from our business and operations, and as a result we may face significant liabilities. If
we or our employees are found to have violated any applicable law, including antitrust and competition laws in pending actions
or new claims, or if our appeals regarding such violations are not successful, we may be subject to severe fines or penalties that
would have a material adverse effect on our business and operations.
We are involved in a number of legal proceedings
concerning matters arising from our business and operations, primarily related to the development and the sale of our products,
including patent infringements, investigations by the government authorities such as antitrust investigations and proceedings,
and other legal matters. In addition, we may have compliance issues with regulatory bodies in the course of our operations, which
may subject us to administrative proceedings and unfavorable decrees that result in liabilities and cause delays to our production.
Our products may also be subject to anti-dumping or countervailing duty proceedings as a result of protectionist measures adopted
by governments in any of our export market. We may be involved in other proceedings or disputes in the future that may have a material
adverse effect on our business, financial condition, results of operations or cash flows.
In particular, there have been numerous
antitrust proceedings and investigations, criminal, civil, and/or administrative, concerning the alleged price fixing by manufacturers
of TFT-LCD panels, including us. Since December 2006, we and certain of our overseas subsidiaries have become involved in antitrust
investigations, including but not limited to, investigations by the United States Department of Justice (“U.S. DOJ”),
the European Commission Directorate-General for Competition and certain regulatory authorities in other countries concerning the
allegations of price fixing by manufacturers of TFT-LCD panels. For example, the U.S. DOJ has brought charges against us, our
U.S. subsidiary and certain of our executives. In September 2012, the United States District Court for Northern District of California
(“Northern California Court”) rendered a judgment and imposed a fine of US$500 million against us to be payable over
three years and sentenced two of our former executives to imprisonment and imposed a fine on them. We paid the first three installments,
each in the amount of US$125 million in January 2013, September 2013 and September 2014, and the last installment in the amount
of US$125 million was paid in September 2015. We were also involved in other U.S. Federal class action lawsuits
brought by direct and indirect panel purchasers and were required to, among other things, pay an aggregate amount of approximately
US$208 million in settling these lawsuits and such amount was fully paid by the first quarter of 2013.
See “Item 8. Financial Information—8.A.7.
Litigation” for a discussion of certain legal proceedings in which we are involved.
We may be subject to other new claims,
charges or investigations. Defending against any of these pending or future actions will likely be costly and time-consuming and
could significantly divert management’s efforts and resources. The ultimate outcome of the pending investigations cannot
be predicted with certainty. Any penalties, fines, damages or settlements made in connection with these criminal, civil, and/or
administrative investigations and/or lawsuits may have a material adverse effect on our business, results of operations and future
prospects.
Our results of operations fluctuate from
quarter to quarter, which makes it difficult to predict our future performance.
Our results of operations have varied significantly
in the past and may fluctuate significantly from quarter to quarter in the future due to a number of factors, many of which are
beyond our control. Our business and operations may be adversely affected by the following factors, among others:
| · | rapid changes from month to month, including shipment volume and product mix change; |
| · | the cyclical nature of the industry, including fluctuations in selling prices, and imbalances between excess supply and slowdowns
in demand; |
| · | the speed at which we and our competitors expand production capacity; |
| · | access to raw materials and components, equipment, electricity, water and other required utilities on a timely and economical
basis; |
| · | the loss of a key customer or the postponement, rescheduling or cancellation of large orders from customers; |
| · | the outcome of ongoing and future litigation and government investigations; |
| · | changes in end-users’ spending patterns; |
| · | changes to our management team; |
| · | access to funding on satisfactory terms; |
| · | our customers’ adjustments in their inventory; |
| · | changes in general political, economic, financial and legal conditions; and |
| · | natural disasters, such as typhoons and earthquakes, and industrial accidents, such as fires and power failures, as well as
geo-political instability as a result of terrorism or political or military conflicts. |
Due to the factors noted above and other
risks discussed in this section, many of which are beyond our control, you should not rely on quarter-to-quarter comparisons to
predict our future performance. Unfavorable changes in any of the above factors may seriously harm our business, financial condition
and results of operations. In addition, our results of operations may be below the expectations of public market analysts and investors
in some future periods, which may result in a decline in the price of the ADSs or shares.
Our results of operations may be affected
adversely if we cannot timely introduce new products or if our new products do not gain market acceptance.
Early product development by itself does
not guarantee the success of a new product. Success also depends on other factors such as product acceptance by the market. New
products are developed in anticipation of future demand. Our delay in the development of commercially successful products with
anticipated technological advancement may adversely affect our business. We cannot assure you that the launch of any new product
will be successful, or that we will be able to produce sufficient quantities of these products to meet market demand.
We plan to continue to expand our
operations to meet the needs of applications in televisions, monitors, mobile PCs, mobile devices and commercial and other applications
as demand increases. Because these products are expected to be marketed to a diversified group of end-users with demands for different
specifications, functions and prices, we have developed different marketing strategies to promote our panels for these products.
We cannot assure you that our strategies to expand our market share for these panels will be successful. If we fail to successfully
market panels for these products, our results of operations will be adversely affected.
Our net revenue and results
of operations depend on continuing demand for televisions, monitors, mobile PCs, mobile devices and commercial and other applications
with display panels. Our sales may not grow at the rate we expect if there is a downturn in the demand for, or a further decrease
in the selling prices of, panels for these products.
Currently, our total sales are derived
principally from customers using our products in televisions, monitors, mobile PCs, mobile devices and commercial and other applications
with display devices. For example, a substantial percentage of our sales are derived from our panels and other related products
for televisions, which accounted for 45.3%, 42.0% and 44.3% of our net revenue in 2013, 2014 and 2015, respectively. We will continue
to be dependent on the growth of the televisions, monitors, mobile PCs, mobile devices and commercial and other applications for
a substantial portion of our net revenue, and any downturn in these industries would result in reduced demand for our products,
reduced net revenue, lower selling prices and/or reduced margins and our business prospects and results of operations may be materially
and adversely affected.
If we are unable to achieve high capacity
utilization rates, our results of operations will be affected adversely.
High capacity utilization rates allow us
to allocate fixed costs over a greater number of products produced. Increases or decreases in capacity utilization rates can impact
significantly our gross margins. Accordingly, our ability to maintain or improve our gross margins will continue to depend, in
part, on achieving high capacity utilization rates. In turn, our ability to achieve high capacity utilization rates will depend
on the ramp-up progress of our advanced production facilities and our ability to efficiently and effectively allocate production
capacity among our product lines, as well as the demand for our products and our ability to offer products that meet our customers’
requirements at competitive prices.
From time to time, our results of operations
in the past have been adversely affected by low capacity utilization rates. We cannot assure you that we will be able to achieve
high capacity utilization rates in 2016 or beyond. If we are unable to efficiently ramp-up our production facilities for advanced
technology or demand for our products does not meet our expectations, our capacity utilization rates will decrease, our gross margins
will suffer and our results of operations will be materially and adversely affected.
We may experience losses on inventories.
Frequent new product introductions in the
technology industry can result in a decline in the selling prices of our products and the obsolescence of our existing inventory.
This can result in a decrease in the stated value of our inventory, which we value at the lower of cost or net realizable value.
We manage our inventory based on our customers’
and our own forecasts. Although we regularly make adjustments based on market conditions, we typically deliver our goods to our
customers several weeks after a firm order is placed. While we maintain open channels of communication with our major customers
to avoid unexpected decreases in firm orders or subsequent changes to placed orders, and try to minimize our inventory levels,
such actions by our customers may have a material adverse effect on our inventory management and our results of operations.
We depend on a small number of customers
for a substantial portion of our net revenue, and a loss of any one of these customers, a significant decrease in orders from any
of these customers or difficulty in collection of accounts receivables would result in the loss of a significant portion of our
net revenue and/or material adverse effect on our results of operation.
We depend on a small number of customers
for a substantial portion of our business. In 2013, 2014 and 2015, our five largest customers accounted for 39.7%, 33.4% and 36.5%,
respectively, of our net revenue. In addition, certain customers individually accounted for more than 10% of our net revenue in
the last three years. For example, Samsung Group accounted for 13.8%, 10.2% and 11.7% of our net revenue in 2013, 2014 and 2015,
respectively.
In recent years, our largest customers
have varied due to changes in our product mix. We expect that we will continue to depend on a relatively small number of customers
for a significant portion of our net revenue and may continue to experience fluctuations in the distribution of our sales among
our largest customers as we periodically adjust our product mix. Our ability to maintain close and satisfactory relationships with
our customers is important to the ongoing success and profitability of our business. In addition, our ability to attract potential
customers is also critical to the success of our business. If any of our significant customers reduces, delays or cancels its orders
for any reason, or the financial condition of our key customers deteriorate, our business could be seriously harmed. Similarly,
a failure to manufacture sufficient quantities of products to meet the demands of these customers may cause us to lose customers,
which may affect adversely the profitability of our business as a result. Furthermore, if we experience difficulties in the collection
of our accounts receivables from our major customers, our results of operation may be materially and adversely affected.
Our customers generally do not place
purchase orders far in advance, which makes it difficult for us to predict our future revenues and allocate capacity efficiently
and in a timely manner.
Our customers generally provide rolling
forecasts several months in advance of, and do not place firm purchase orders until several weeks before the expected shipment
date. There is no assurance that there will not be unexpected decreases in firm orders or subsequent changes to placed orders from
our customers. In addition, due to the cyclical nature of the display panel industry, our customers’ purchase orders have
varied significantly from period to period. As a result, we do not typically operate with any significant backlog. The lack of
significant backlog makes it difficult for us to forecast our revenues in future periods. Moreover, we incur expenses and adjust
inventory levels of raw materials and components based on customers’ forecast, and we may be unable to allocate production
capacity in a timely manner to compensate for shortfalls in sales. We expect that, in the future, our sales in any quarter will
continue to be dependent substantially upon purchase orders received in that quarter. The inability to adjust production costs,
to obtain necessary raw materials and components or to allocate production capacity quickly to respond to the demand for our products
may affect our ability to maximize results of operations, which may result in a negative impact on the value of your investment
in the ADSs or our shares.
Our future competitiveness and growth
prospects could be affected adversely if we are unable to successfully expand or improve our fabs to meet market demand.
As part of our business growth strategy,
we have been undertaking and may undertake in the future a number of significant capital expenditures for our fabs.
The successful expansion of our fabs and
commencement of commercial production is dependent upon a number of factors, including timely delivery of equipment and machinery
and the hiring and training of new skilled personnel. Although we believe that we have the internal capabilities and know-how to
expand our fabs and commence commercial production, no assurances can be given that we will be successful. We cannot assure you
that we will be able to obtain from third parties, if necessary, the technology, intellectual property or know-how that may be
required for the expansion or improvement of our fabs on acceptable terms. In addition, delays in the delivery of equipment and
machinery as a result of increased demand for such equipment and machinery or the delivery of equipment and machinery that do not
meet our specifications could delay the establishment, expansion or improvement of these fabs. Moreover, the expansion of our fabs
may also be disrupted by governmental planning activities. If we face unforeseen disruptions in the installation, expansion and/or
manufacturing processes with respect to our fabs, we may not be able to realize the potential gains and may face disruptions in
capturing the growth opportunities.
If capital resources required for our
planned growth or development are not available, we may be unable to implement successfully our business strategy.
Historically, we have been able
to finance our capital expenditures through cash flow from our operating activities and financing activities,
including long-term borrowings, the issuance of convertible and other debt securities and the issuance of equity securities.
Our ability to expand our production facilities and establish advanced technology fabs will continue to largely depend on
our ability to obtain sufficient cash flow from operations as well as external funding. We expect to make capital
expenditures in connection with the development of our business, including investments in connection with new capacity,
technological upgrade and the enhancement of capacity value. These capital expenditures will be made well in advance of any
additional sales to be generated from these expenditures. Our results of operations may be affected adversely if we do not
have the capital resources to complete our planned growth, or if our actual expenditures exceed planned expenditures for any
number of reasons, including changes in:
| · | our growth plan and strategy; |
| · | manufacturing process and product technologies; |
| · | costs of construction and installation; |
| · | market conditions for financing activities of display panel and solar manufacturers; |
| · | interest rates and foreign exchange rates; and |
| · | social, economic, financial, political and other conditions in Taiwan and elsewhere. |
If adequate funds are not available on
satisfactory terms at appropriate times, we may have to curtail our planned growth, which could result in a loss of customers,
adversely affect our ability to implement successfully our business strategy and limit the growth of our business.
We operate in a highly competitive environment
and we may not be able to sustain our current market position if we fail to compete successfully.
The markets for our products are highly
competitive. We experience pressure on our prices and profit margins, due largely to additional and growing industry capacity from
competitors in Taiwan, Korea, Japan and the PRC. The ability to manufacture on a large scale with greater cost efficiencies is
a competitive advantage in our industry. Some of our competitors have expanded through mergers and acquisitions. Some of our competitors
have greater access to capital and substantially greater production, research and development, intellectual property, marketing
and other resources than we do. Some of our competitors have announced their plans to develop, and have already invested substantial
resources in new capacity. Our competitors may be able to grasp the market opportunities before us by introducing
new products using such capacity. In addition, some of our larger competitors have more extensive intellectual property portfolios
than ours, which they may use to their advantage when negotiating cross-licensing agreements for technologies. As a result, these
companies may be able to compete more aggressively over a longer period of time than we can.
The principal elements of competition in
the display industry include:
| · | product performance features and quality; |
| · | customer service, including product design support; |
| · | ability to reduce production cost; |
| · | ability to provide sufficient quantity of products to fulfill customers’ needs; |
| · | research and development, including the ability to develop new technologies such as AMOLED or LTPS; |
| · | access to capital and financing ability. |
Our ability to compete successfully in
the display industry also depends on factors beyond our control, including industry and general political and economic conditions
as well as currency fluctuations.
If brand companies do not continue to
outsource the manufacturing of their products to original equipment manufacturing service providers with production operations
in Taiwan, the PRC and elsewhere, our sales and results of operations could be affected adversely.
In recent years, brand companies have outsourced
the manufacturing of their products to original equipment manufacturing service providers with part or all of their production
operations in Taiwan, the PRC and elsewhere. We believe that we have benefited from this outsourcing trend in large part due to
our production locations in Taiwan and the PRC, which has allowed us to better coordinate our production and services with our
customers’ requirements, especially in the areas of delivery time and product design support. We cannot assure you that this
outsourcing trend will continue. If brand companies do not continue to outsource the manufacturing of their products to original
equipment manufacturing service providers with their production operations in Taiwan, the PRC, and elsewhere, our sales and results
of operations could be adversely affected.
If we are unable to manage our growth
effectively, our business could be affected adversely.
We have experienced, and expect to continue
to experience, growth in the scope and complexity of our operations and in the number of our employees. For example, we may make
capital expenditures in connection with new capacity, technological upgrade and the enhancement of capacity value. This growth
may strain our existing managerial, financial and other resources. In order to manage our growth, we must continue to implement
additional operating and financial controls and may hire and train additional personnel for these functions. We cannot assure
you that we will be able to do so in the future, and our failure to do so could jeopardize our planned growth and seriously
harm our operations.
We may encounter difficulties expanding
into new businesses or industries, which may affect adversely our results of operations and financial condition.
We may encounter difficulties and face
risks in connection with our expansion into new businesses or industries. We cannot assure you that our expansion into new businesses
will be successful as we may have limited experience in such industries. We cannot assure you that we will be able to generate
sufficient profits to justify the costs of expanding into new businesses or industries. Any new business in which we invest or
which we intend to develop may require our additional capital investment, research and development efforts, as well as our management’s
attention. If such new business does not progress as planned, our results of operations and financial condition may be affected
adversely.
We may undertake mergers, acquisitions
or investments to diversify or expand our business, which may pose risks to our business and dilute the ownership of our existing
shareholders, and we may not realize the anticipated benefits of these mergers, acquisition or investments.
As part of our growth and product diversification
strategy, we may continue to evaluate opportunities to acquire or invest in other businesses or existing businesses, intellectual
property or technologies and expand the breadth of markets we can address or enhance our technical capabilities. See “Item
4. Information on the Company—4.C. Organizational Structure” for further information.
Mergers, acquisitions or investments that
we have entered into and may enter into in the future entail a number of risks that could materially and adversely affect our business,
operating and financial results, including, among others:
| · | problems integrating the acquired operations, technologies or products into our existing business and products; |
| · | diversion of management’s time and attention from our core business; |
| · | conflicts with joint venture partners; |
| · | adverse effect on our existing business relationships with customers; |
| · | need for financial resources above our planned investment levels; |
| · | failures in recognizing anticipated synergies; |
| · | difficulties in retaining business relationships with suppliers and customers of the acquired company; |
| · | risks associated with entering markets in which we lack experience; |
| · | potential loss of key employees of the acquired company; and |
| · | potential write-offs of acquired assets. |
Our failure to address these risks successfully
may have a material adverse effect on our financial condition and results of operations. Any such acquisition or investment will
likely require a significant amount of capital investment, which would decrease the amount of cash available for working capital
or capital expenditures. In addition, if we use our equity securities to pay for acquisitions, the value of your ADSs and the underlying
ordinary shares may be diluted. If we borrow funds to finance acquisitions, such debt instruments may contain restrictive covenants
that can, among other things, restrict us from distributing dividends.
Our adoption of Taiwan IFRS and IFRS
may materially and adversely affect our reported results of operations
and financial condition.
We have historically presented our consolidated
financial statements, including our consolidated financial statements for the year ended December 31, 2012, in accordance with
ROC GAAP for purposes of our filings with the Taiwan Stock Exchange, with reconciliation to US GAAP for certain filings with the
SEC. Effective January 1, 2013, companies listed on the Taiwan Stock Exchange, including us, must report their financial statements
under Taiwan IFRS pursuant to the requirements of the Framework for Adoption of International Financial Reporting Standards by
Companies in the ROC promulgated by the FSC. Accordingly, we have adopted Taiwan IFRS for reporting in the ROC our annual consolidated
financial statements beginning in 2013 and our interim quarterly earnings releases beginning in the first quarter of 2013. While
we have adopted Taiwan IFRS for ROC reporting purposes, we have also adopted and will continue to adopt IFRS, which differs from
Taiwan IFRS, for certain filings with the SEC, including this annual report and future reports on Form 20-F. Following our adoption
of IFRS for SEC filing purposes, we are no longer required to reconcile our consolidated financial statements with US GAAP.
Taiwan IFRS differs from IFRS in certain
significant respects, including, but not limited to the extent that any new or amended standards or interpretations applicable
under IFRS may not be timely endorsed by the FSC. Consequently, our annual consolidated financial statements for ROC reporting
purposes and earnings distribution purposes may differ from those included in the annual report on Form 20-F.
Any impairment charge may have a material
adverse effect on our operating results.
Under IFRS, we are required to evaluate
our investments and long-term non-financial assets for impairment whenever triggering events or changes in circumstances indicate
that the asset may be impaired and carrying value may not be recoverable. If certain criteria are met, we are required to recognize
an impairment charge. For example, we recognized an impairment charge of NT$6,755.2 million (US$206.0 million) on M.Setek’s
long-term assets in relation to the cessation of polysilicon production of M.Setek. Such impairment charge was recognized in the
fourth quarter of 2015.
In addition, under IFRS, we are required
to determine the realizability of our deferred tax assets. Any impairment charge on our investments and long-term non-financial
assets, or the inability to recognize or the subsequent derecognization of previously recognized deferred tax assets may have a
material adverse effect on our operating results.
The determination of an impairment charge
at any given time is based significantly on our expected results of operations over a number of years subsequent to that time.
As a result, an impairment charge is more likely to occur during a period when our operating results are otherwise already depressed.
The valuation of long-term non-financial assets is subjective and requires us to make significant estimates about our future performance
and cash flows, as well as other assumptions. These estimates can be affected by numerous factors, including changes in economic,
industry or market conditions, changes in business operations, changes in competition or potential changes in our stock price and
market capitalization. Changes in these estimates and assumptions, or changes in actual performance compared with estimates of
our future performance, may affect the fair value of long-term non-financial assets, which may result in an impairment charge.
See “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies and Estimates” for a discussion
of how we assess if an impairment charge is required and, if so, how the amount is determined.
Our divestiture strategies and divestment
activities may affect our financial performance and the market price of our shares and ADSs.
From time to time, we evaluate possible
divestments and may, if a suitable opportunity or condition arises, make divestments or decisions to dispose of certain businesses
or assets. We may reduce our holdings of equity securities or dispose of certain of our businesses or assets in order to reduce
financial or operational risks. As part of our ongoing strategic plan, we have selectively divested, and may in the future continue
to pursue divestitures of certain of our businesses or assets as part of our portfolio optimization strategy. We make divestments
based on, among other considerations, management’s evaluation of or changes in business strategies and performance and valuation
of divested businesses or assets. For example, we sold all of our shareholding in BMC in the open market in 2014. We received total net proceeds
of approximately NT$433.8 million and recorded a gain from disposal of NT$301.6 million. These divestment activities may result
in either gains or losses and we cannot assure you that we can always make divestment with a gain. We may be subject to continuing
financial obligations for a period of time following the divestments, and any claims such as warranty or indemnification claims,
if determined against us, would negatively affect our financial performance. Moreover, divestures may require us to separate integrated
assets and personnel from our retained businesses and devote our resource to transitioning assets and services to purchasers, resulting
in disruptions to our ongoing business and distraction of management. Any losses due to our divestments of businesses or disposal
of assets could adversely affect our financial performance and may affect the market price of our shares and ADSs.
The loss of any key management personnel
or the undue distraction of any such personnel may disrupt our business.
Our success depends on the continued services
of key senior management, including our Chairman and President. If any legal proceedings are brought against our senior management
in the future, these proceedings may divert such senior management’s attention from our business operations. Our reputation
may also be harmed as a result of any negative publicity associated with these charges or otherwise.
We do not carry “key person”
life insurance on any of our senior management personnel. If we lose the services of key senior management personnel, we may not
be able to find suitable replacements or integrate replacement personnel in a timely manner or at all, which would seriously harm
our business. In addition, our continuing growth will, to a large extent, depend on the attention of key management personnel
to our daily affairs. If any of them is unable to devote enough time to our company, our operations may be affected adversely.
If we are not able to attract and retain
skilled technical personnel, including research and development and other personnel, our operations and planned growth would be
affected adversely.
Our success depends on our ability to attract
and retain skilled employees, particularly engineering and technical personnel in the research and development and manufacturing
processing areas. We also have established a professional on-the-job training program for employees. Without a sufficient number
of skilled employees, our operations and production quality could suffer. Competition for qualified technical personnel and operators
in Taiwan and many other places where we operate is intense and the replacement of skilled employees is difficult. We may encounter
this problem in the future, as we require an increased number of skilled employees for any expansion we may choose to undertake
if market demand arises. If we are unable to attract and retain our technical personnel and other employees, this may adversely
affect our business and our operating efficiency may deteriorate.
Potential conflicts of interest with
our affiliates may cause us to lose opportunities to expand and improve our operations.
We face potential conflicts of interest
with our affiliates, such as Qisda Corporation (“Qisda”) and its subsidiaries, including BenQ Corporation. Qisda is
our largest shareholder, owning directly 6.9% of our outstanding shares as of February 29, 2016 and is also one of
our large customers. Qisda and its subsidiaries accounted for 2.4%, 2.9% and 3.4% of our net revenue in 2013, 2014 and 2015, respectively.
Qisda and its subsidiaries’ substantial interest in our company may lead to conflicts of interest affecting our sales decisions
or allocations. In addition, as of February 29, 2016, one of our nine directors is a representative of Qisda. Mr. Kuen-Yao
(K.Y.) Lee, our former Chairman, is also the Chairman of Qisda and BenQ Corporation. See “Item 6. Directors, Senior Management
and Employees—6.A. Directors and Senior Management.” As a result, conflicts of interest between their duties to Qisda
and/or its subsidiaries and us may arise. We cannot assure you that when conflicts of interest arise with respect to representatives
of Qisda and/or its subsidiaries, the conflicts of interest will be resolved in our favor. These conflicts may result in lost corporate
opportunities, including opportunities that are never brought to our attention, or actions that may prevent us from taking advantage
of opportunities to expand and improve our operations.
If we fail to maintain an effective system
of internal controls, we may not be able to report accurately our financial results or prevent fraud.
The United States Securities and
Exchange Commission (the “SEC”), as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules
requiring every public company to include a management report on such company’s internal controls over financial
reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s
internal controls over financial reporting. In addition, an independent registered public accounting firm must report on the
effectiveness of the company’s internal controls over financial reporting unless the company is exempt from such
requirement. Our management may conclude that our internal controls over our financial reporting are not effective. Moreover,
even if our management concludes that our internal controls over financial reporting are effective, our independent
registered public accounting firm may conclude that our internal controls over financial reporting are not effective.
Furthermore, during the course of the evaluation, documentation and attestation, we may identify deficiencies that we may not be
able to remedy in a timely manner. If we fail to achieve and maintain the adequacy of our internal controls, we may not be able
to conclude that we have effective internal controls, on an ongoing basis, over financial reporting in accordance with the Sarbanes-Oxley
Act of 2002. Moreover, effective internal controls are necessary for us to produce reliable financial reports and are important
to help prevent fraud. As a result, our failure to achieve and maintain effective internal controls over financial reporting could
result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business
and negatively impact the trading price of our ADSs.
Our planned international expansion poses
additional risks and could fail, which could cost us valuable resources and adversely affect our results of operations.
To meet our clients’ requirements,
we have expanded our operations internationally, which has led to operations across many countries. For example, we have established
LCD module-assembly operations and are establishing a 6-generation LTPS fab in China in order to provide more immediate services
to our customers in China. If a suitable opportunity or condition arises, we may continue to expand into new geographic areas.
We intend to run our operations in compliance with local regulations, such as tax, civil, environmental and other laws in conjunction
with our business activities in each country where we may have presence or operations. However, there are inherent legal, financial
and operational risks involved in having international operations. We may encounter different challenges due to differences in
local market conditions, culture, government policies, regulations and taxation. For example, many countries where we are conducting
business may amend their tax laws in accordance with Base Erosion and Profit Shifting (“BEPS”) project of the Organization
for Economic Co-operation and Development (“OECD”) due to economic and political pressures. In addition, we may also
face established competitors with stronger local experience, more familiar with the local regulations, practices and better relationship
with local suppliers, contractors and purchasers. We cannot assure you that we will be able to develop successfully and expand
our international operations or we will be able to overcome the significant obstacles and risks of international operations. If
our international expansion plans are unsuccessful or do not deliver an appropriate return on our investments, our results of operations,
financial condition and future prospects could be materially and adversely affected.
Regulations related to conflict minerals
could adversely affect our business, financial condition and results of operations.
The Dodd-Frank Wall Street Reform and Consumer
Protection Act contains provisions to improve transparency and accountability concerning the supply of certain minerals, known
as conflict minerals, which are defined as cassiterite, columbite-tantalite, gold, wolframite or their derivatives and other minerals
determined by the U.S. government to be financing conflict in the Democratic Republic of Congo and adjoining countries. As a result,
in August 2012, the SEC adopted annual disclosure and reporting requirements for those companies who use conflict minerals in their
products. These requirements has required companies that manufacture or contract to manufacture products for which conflict minerals
are necessary to the functionality or production to begin scrutinizing the origin of conflict minerals in their products starting
from January 1, 2013, and file Form SD, containing the conflict minerals disclosure for the prior calendar year, beginning May
31, 2014. Currently, such conflict is not determinable in our case and we cannot assure you that conflict minerals identified under
the conflict minerals rules issued by the SEC are not used in our products. We may be subject to the new disclosure requirements
related to the conflict minerals. There will be costs associated with complying with these disclosure requirements,
including costs for diligence to determine the sources of conflict minerals used in our products and other potential changes to
products, processes or sources of supply as a consequence of such verification activities. The implementation of these rules could
adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers
offering “conflict free” minerals, we cannot be sure that we will be able to obtain necessary “conflict free”
minerals from such suppliers in sufficient quantities or at competitive prices. Also, we may face adverse effects to our reputation
if we determine that certain of our products contain minerals to be not conflict free or if we are unable to sufficiently verify
the origins for all conflict minerals used in our products through the procedures we may implement.
Risks Relating to Manufacturing
Our manufacturing processes are highly
complex, costly and potentially vulnerable to disruptions that can significantly increase our production costs and delay product
shipments to our customers.
Our manufacturing processes are highly
complex, require advanced and costly equipment and are modified periodically to improve manufacturing yields and production efficiency.
We face the risk of production difficulties from time to time that could cause delivery delays and reduced production yields. These
production difficulties include capacity constraints, construction delays, difficulties in upgrading or expanding existing facilities,
difficulties in changing our manufacturing technology and delays in the delivery or relocation of specialized equipment. We may
encounter these difficulties in connection with the adoption of new manufacturing process technologies. We cannot assure you that
we will be able to develop and expand our fabs without equipment delays or difficulties, or that we will not encounter manufacturing
difficulties in the future.
If we are unable to obtain raw materials
and components in suitable quantity and quality from our suppliers, our production schedules would be delayed and we may lose substantial
customers.
Raw materials and component costs represent
a substantial portion of our cost of goods sold. We must obtain sufficient quantities of raw materials and components of the right
quality at acceptable prices and in a timely manner. We source most of our raw materials and components, including critical materials
like glass substrates, liquid crystals, color filters, polarizers and driver ICs from a limited group of suppliers, both foreign
and domestic. Our operations would be affected adversely if we could not obtain raw materials and components in sufficient quantity
and quality at acceptable prices. We may also experience difficulties in sourcing adequate supplies for our operations if there
is a ramp-up of production capacity by display panel manufacturers, including our company, without a corresponding increase in
the supply of raw materials and components. Further, our suppliers may also face shortage in supply of their key raw materials.
The impact of any shortage in raw materials and components will be magnified as we establish new fabs and/or continue to increase
our production capacity.
We depend on supplies of certain principal
raw materials and components mainly from suppliers with production in certain jurisdictions, such as Taiwan, Japan and Korea. We
cannot assure you that we will be able to obtain sufficient quantities of raw materials, components and other supplies of an acceptable
quality in the future. Our inability to obtain raw materials and components of the right quality in a timely and cost-effective
manner or our suppliers’ failure in obtaining their raw materials may cause us to delay our production and delivery schedules,
which may result in the loss of our customers and revenues.
If we are unable to obtain equipment
and services from our suppliers, we may be forced to delay our planned growth.
We have purchased, and expect to purchase,
a substantial portion of our equipment from foreign suppliers for our new capacity and advanced technology fabs. These foreign
suppliers also provide assembly, testing and/or maintenance services for our purchased equipment. From time to time, increased
demand for new equipment may cause lead time to extend beyond those normally required by equipment vendors. For example, in the
past, increased demand for equipment caused some equipment suppliers to satisfy only partially our equipment orders in the normal
time frame. The unavailability of equipment, delays in the delivery of equipment or the delivery of equipment that does not meet
our specifications could delay implementation of our planned growth and impair our ability to meet customer orders. Furthermore,
if our equipment vendors are unable to provide assembly, testing and/or maintenance services in a timely manner for any reasons,
our planned growth may be adversely affected. In addition, the availability or the timely supply of equipment and services from
our suppliers and vendors also could be affected by factors such as natural disasters. We may have to use assembly, testing and/or
maintenance service providers with which we have no established relationship, which could expose us to potentially unfavorable
pricing, unsatisfactory quality or insufficient capacity allocation. As a result of these risks, we may be unable to implement
our planned growth on schedule or in line with customer expectations and our business may be materially and adversely affected.
If we are unable to manufacture successfully
our products within the acceptable range of quality, our results of operations could be affected adversely.
Display panel manufacturing processes are
complex and involve a number of precise steps. Defective production can result from a number of factors, including but not limited
to:
| · | the level of contaminants in the manufacturing environment; |
| · | use of substandard raw materials and components; and |
| · | inadequate sample testing. |
From time to time, we have experienced,
and may in the future experience, lower than anticipated production yields as a result of the above factors, particularly in connection
with the expansion of our capacity or change in our manufacturing processes. We remediate our customers mainly through repairing
or replacing the defective products or refunding the purchase price relating to defective products if they are within the warranty
period. We recognize a provision for warranty obligations based on the estimated costs that we expect to incur under our basic
limited warranty for our products, which includes the provision of replacement parts and after-sale service for our products. The
warranty provision is largely based on historical and anticipated rates of warranty claims, and therefore we cannot provide assurance
that the provision would be sufficient to cover any surge in future warranty expenses that significantly exceed historical and anticipated rates of warranty
claims. In addition, our production yield on new products will be lower than average as we develop the necessary expertise and
experience to produce those products. If we fail to maintain high production yields and high-quality production standards, our
reputation may suffer and our customers may cancel their orders or return our panels for rework, which could affect adversely our
results of operations.
Climate change, other environmental concerns
and green initiatives also present other commercial challenges, economic risks and physical risks that could harm our results of
operations or affect the manner in which we conduct our business.
Increasing climate change and environmental
concerns would affect the results of our operations if any of our customers would request us to exceed any standards set for environmentally
compliant products and services. If we are unable to offer such products or offer products that are compliant but are not as reliable
due to the lack of reasonably available alternative technologies, it may harm our results of operations.
Furthermore, energy costs in general could
increase significantly due to climate change regulations. Therefore, our energy costs may increase substantially if utility or
power companies pass on their costs, fully or partially, such as those associated with carbon taxes, emission cap and carbon credit
trading programs.
If we violate environmental regulations,
we may be subject to fines or restrictions that could cause our operations to be delayed or interrupted and our business to suffer.
Our operations can expose us to the risk
of environmental claims which could result in damages awarded or fines imposed against us. We must comply with regulations relating
to storage, handling, generation, treatment, emission, release, discharge and disposal of certain materials and wastes resulting
from our manufacturing processes. See “Item 4. Information on the Company—4.B. Business Overview—Environmental
Matters.” In the past, we incurred small fines for failure to meet certain effluent standards and air pollution control regulations.
Future changes to existing environmental regulations or unknown contamination of our sites, including contamination by prior owners
and operators of our sites, may give rise to additional compliance costs or potential exposure to liability for environmental claims
that may seriously affect our business, financial condition and results of operations. In addition, we may face possible disruptions
in our manufacturing and production facilities caused by environmental activists, which may affect adversely our business operations.
If we violate labor regulations, we may
be subject to fines or restrictions that could have an adverse effect on our business, financial condition and results of operations.
We must comply with the various labor regulations
in the jurisdictions in which we operate. The cost of compliance with such regulations may increase as regulations change or new
regulations are adopted. For instance, China has been experiencing rapid changes in its labor policies and it is uncertain how
any such changes in China as well as other jurisdictions will impact our current employment policies and practices. Our employment
policies and practices may violate current or future laws and we may be subject to related penalties, fines or legal fees. In addition,
compliance with any new labor regulations may increase our operating expenses as we may incur substantial administrative and staffing
cost.
Risks Relating to Our Technologies and Intellectual Property
If we cannot successfully introduce,
develop or acquire advanced technologies, our profitability may suffer.
Technology and industry standards in the
display panel industry evolve quickly, resulting in steep price declines in the advanced stages of a product’s life cycle.
To remain competitive, we continually must develop or acquire advanced manufacturing process technologies and build advanced technology
fabs to lower production costs and enable the timely release of new products. In addition, we expect to utilize more advanced display
technologies, such as UHD 4K (3840x2160 pixel), curved display, Wide Color Gamut (“WCG”), High Dynamic Range (“HDR”),
Bezel-less, touch and other technologies, to develop new products. Our ability to manufacture products by utilizing more advanced
manufacturing process technologies to increase production efficiency will be critical to our sustained competitiveness. We may
undertake in the future a number of significant capital expenditures for advanced technology fabs and new capacity subject to market
demand and our overall business strategy. See “Item 5. Operating and Financial Review and Prospects—5.B. Liquidity
and Capital Resources.” However, we cannot assure you that we will be successful in completing our planned growth or in the
development of other future technologies for our fabs, or that we will be able to complete them without material delays or at the
expected costs. If we fail to do so, our results of operations and financial condition may be materially and adversely affected.
We also cannot assure you that there will be no material delays in connection with our efforts to develop new technology and manufacture
more technologically advanced products. If we fail to develop or make advancements in product technologies or manufacturing process
technologies on a timely basis, we may become less competitive.
Other flat panel display technologies
or alternative display technologies could render our products uncompetitive.
We currently manufacture products primarily
using TFT-LCD technology, which is currently one of the most commonly used flat panel display technologies. We may face competition
from flat panel display manufacturers utilizing alternative flat panel technologies, such as OLED. OLED technology is currently
at various stages of development and production by us and other display panel makers. OLED technologies may, in the future, gain
wider market acceptance than TFT-LCD technology for application in certain consumer products, such as televisions, mobile phones,
tablets and wearable devices. Failure to further refine our OLED technology or any other alternative display technology could render
our products uncompetitive or obsolete, which in turn could cause our sales and revenues to decline. Moreover, if the various alternative
flat panel technologies currently commercially available or in the research and development stage are developed to have better
performance-to-price ratios and begin mass production, such technologies may pose a great challenge to TFT-LCD technology. Even
though we seek to remain competitive through research and development of flat panel technologies, we may invest in research and
development in certain technologies that do not come to fruition.
If we lose the support of our technology
partners or the legal rights to use our licensed manufacturing process or product technologies, our business may suffer.
Enhancing our manufacturing process and
product technologies is critical to our ability to provide high-quality products to our customers at competitive prices. We intend
to continue to advance our manufacturing process and product technologies through internal research and development and licensing
from other companies. We currently have certain licensing arrangements with certain companies for product and manufacturing process
technologies related to the production of certain products, including certain display panels. See “Item 4. Information on
The Company—4.B. Business Overview—Intellectual Property—License Agreements.” If we
are unable to renew our technology licensing arrangements with some or all of these companies on mutually beneficial economic terms,
we may lose the legal right to use certain of the processes and designs which we may have employed to manufacture our products.
Similarly, if we cannot license or otherwise acquire or develop new manufacturing process and product technologies that are critical
to the development of our business or products, we may lose important customers because we are unable to continue providing our
customers with products based on advanced manufacturing process and product technologies.
We have entered into patent and intellectual
property license or cross-license agreements, some of which require periodic royalty payments. In the future, we may need to obtain
additional patent licenses or renew existing license agreements. We cannot assure you that these license agreements can be obtained
or renewed on acceptable terms, if at all. If these license agreements are not obtained or renewed on acceptable terms if at all,
our business and future results of operations may be affected materially and adversely.
Disputes over intellectual property rights
could be costly and deprive us of the technology to stay competitive.
As technology is an integral part of our
manufacturing process and product, we have, in the past, received communications alleging that our products or processes infringe
product or manufacturing process technology rights held by others, and expect to continue to receive such communications. We are
involved in intellectual property disputes with third parties. There is no means of knowing all of the patent applications that
have been filed in the United States or elsewhere and whether, if the applications are granted, such patents would have a material
adverse effect on our business. If any third party were to make valid intellectual property infringement claims against our customers
or us, we may be required to:
| · | discontinue using disputed manufacturing process technologies; |
| · | pay substantial monetary damages; |
| · | seek to develop non-infringing technologies, which may not be feasible; |
| · | stop shipment to certain areas; and/or |
| · | seek to acquire licenses to the infringed technology, which may not be available on commercially reasonable terms, if at all. |
If
our products or manufacturing processes are found to infringe third-party rights, we may be subject to significant liabilities
and be required to change our manufacturing processes or products. This could restrict us from making, using, selling or exporting
some of our products, which in turn could affect materially and adversely our business and financial condition. In addition, any
litigation, whether to enforce our patents or other intellectual property rights or to defend ourselves against claims that we
have infringed the intellectual property rights of others, could affect materially and adversely our results of operations because
of the management attention required and legal costs incurred.
Our ability to compete will be harmed
if we are unable to protect adequately our intellectual property.
We believe that the protection of our intellectual
property rights is, and will continue to be, important to the success of our business. We rely primarily on a combination of patent,
trademark, trade secret and copyright law and contractual restrictions to protect our intellectual property. These afford only
limited protection. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain, copy or
use information that we regard as proprietary, such as product design and manufacturing process expertise. Although we have patent
applications pending, our pending patent applications and any future applications may not result in issued patents or may not be
sufficiently broad to protect our proprietary technologies. Moreover, policing any unauthorized use of our products is difficult
and costly, and we cannot be certain that the measures we have implemented will prevent misappropriation or unauthorized use of
our technologies, particularly in foreign jurisdictions where the laws may not protect our proprietary rights as fully as the laws
of the United States. Others independently may develop substantially equivalent intellectual property or otherwise gain access
to our trade secrets or intellectual property. Our failure to protect effectively our intellectual property could harm our business.
Our rapid introduction of new technologies
and products may increase the likelihood that third parties will assert claims that our products infringe upon their proprietary
rights.
Although we take and will continue to take
steps to endeavor that our new products do not infringe upon valid third-party rights, the rapid technological changes that characterize
our industry require that we quickly implement new processes and components with respect to our products. Often with respect to
recently developed processes and components, a degree of uncertainty exists as to who may rightfully claim ownership rights in
such processes and components. Uncertainty of this type increases the risk that claims alleging that such components or processes
infringe upon third-party rights may be brought against us. If our products or manufacturing processes are found to infringe upon
third-party rights, we may be subject to significant liabilities and be required to change our manufacturing processes or be prohibited
from manufacturing certain products, which could have a material adverse effect on our operations and financial condition.
We rely upon trade secrets and other
unpatented proprietary know-how to maintain our competitive position in the industry and any loss of our rights to, or unauthorized
disclosure of, our trade secrets or other unpatented proprietary know-how could affect adversely our business.
We rely upon trade secrets, unpatented
proprietary know-how and information, as well as continuing technological innovation in our business. The information we rely upon
includes price forecasts, core technology and key customer information. Our current standard employment agreement with our employees
contains a confidentiality provision which generally provides that all inventions, ideas, discoveries, improvements and copyrightable
material made or conceived by the individual arising out of the employment relationship and all confidential information developed
or made known to the individual during the term of the relationship is our exclusive property. We cannot assure the enforceability
of these types of agreements, or that they will not be breached. We also cannot be certain that we will have adequate remedies
for any breach. The disclosure of our trade secrets or other know-how as a result of such a breach could affect adversely our business.
Also, our competitors may come to know about or determine our trade secrets and other proprietary information through a variety
of methods. Disputes may arise concerning the ownership of intellectual property or the applicability or enforceability of the
relevant agreements and there can be no assurance that any such disputes would be resolved in our favor. Furthermore, others may
acquire or independently develop similar technology, or if patents are not issued with respect to products arising from research,
we may not be able to maintain information pertinent to such research as proprietary technology or trade secrets and that could
have an adverse effect on our competitive position within the industry.
Political, Geographical and Economic Risks
A slowdown in the global economy could
affect materially and adversely our business, results of operations and financial condition.
A slowdown in the global economy could
adversely affect the market demand and result in a negative impact on electronic products sales from which we generate our income.
A global economic downturn could also lead to a slowdown in our business, with side effects including significant decreases in
orders from our customers, insolvency of key suppliers resulting in raw material constraints and product delays, inability of customers
to obtain credit to finance purchases of our products and/or customer insolvencies and counterparty failures negatively impacting
our operations. Because of such factors, we believe the level of demand for our products and projections of future revenue and operating
results will be difficult to predict. If any economic downturn occurs in the future, our business, results of operations and financial
condition may be affected materially and adversely.
We and many of our customers and suppliers
are vulnerable to natural disasters and other events outside of our control, which may seriously disrupt our operations.
Most of our existing manufacturing operations,
and the operations of many of our customers and suppliers, are located in areas including Taiwan, the PRC, Japan and Singapore.
Some locations are vulnerable to natural disasters, such as earthquakes and typhoons. We cannot assure you that the natural disasters
will not happen and will not have adverse impact on our operations in the future. Any disruption of operations at our fabs or the
facilities of our customers and suppliers for any reason, including earthquakes, typhoons or other natural disasters, work stoppages,
power outages, water supply shortages and fire, etc. could cause delays or disrupt in production and shipments of our products
and raw materials. Any delays or disruptions could result in our customers seeking to source our products from other manufacturers.
In addition, shortages or suspension of power supplies have occurred occasionally, and have disrupted our operations. The occurrence
of a power outage in the future could seriously hurt our business. Besides, our manufacturing processes require a substantial amount
of water. Although currently a significant portion of the water used in our production process is recycled in Taiwan, our production
operations may be seriously disrupted by water shortages. We may encounter droughts in the Hsinchu, Taoyuan or Taichung areas in
the future, where most of our current or future manufacturing sites are located. If another drought were to occur and we or the
authorities were unable to source water from alternative sources in sufficient quantity, we may be required to shut down temporarily
or substantially reduce the operations of these fabs, which would affect seriously our operations. In addition, even if we were
able to source water from alternative sources, our reliance on supplemental water supplies would increase our operating costs.
Furthermore, the disruption of operations at our customers’ facilities could lead to reduced demand for our products. The
occurrence of any of these events in the future could affect adversely our business.
We have made investments in, and are
exploring the possibility of expanding our businesses and operations to, or making additional investments in, the PRC, which may
expose us to additional social, political, regulatory, economic and foreign investment risks.
We have established subsidiaries in the
PRC, primarily focusing on module-assembly operations and related supporting services. We are also in the process of establishing
a 6-generation LTPS fab in Kunshan, PRC to produce small to medium-size panels. Depending on our business needs, we may further
expand or adjust our business operations in the PRC in the future.
However, in recent years, China has experienced
rapid social, political and economic changes which have led to rising wages and a growing shortage of blue-collar workers. Rising
wages as well as a shortage of labor in China may increase our overall cost of production, cause delays in production and could
have a material adverse effect on our results of operations. In addition, the interpretation of PRC laws and regulations involves
uncertainties.
Therefore, we cannot predict whether changes
in the PRC’s political, economic and social conditions, laws, regulations and policies will have any adverse effect on our
current or future operations in the PRC. In addition, we cannot assure you that changes in such laws and regulations, or in their
interpretation and enforcement, will not have a material adverse effect on our businesses and operations in the PRC.
The current restrictions imposed by the
ROC government on investments in certain related businesses may limit our ability to compete with other display panel manufacturers
that are permitted to establish display panel production operations in the PRC.
There are current restrictions imposed
by the ROC government on investments by Taiwan companies in the PRC, including but not limited to the generation of manufacturing
technology of TFT-LCD in the PRC. As a result, our ability to invest in the PRC has been restricted compared to those display panel
manufacturers that have been less regulated by their domestic regulators and are permitted to establish display panel production
operations in the PRC. During recent years, ROC government has loosened some restrictions. In February 2010, the Investment Commission
of Ministry of Economic Affairs (“MOEAIC”) loosened certain restrictions, which has provided the possibility for TFT-LCD
manufacturers in the ROC to invest in 6-generation or more advanced TFT-LCD manufacturing fabs in the PRC with the technology which
is one generation behind the technology then used in the ROC (the “N-Minus-One-Generation Ban”). In March 2011, the
MOEAIC lifted the N-Minus-One-Generation Ban. As a result, TFT-LCD manufacturers may be granted approval to establish fabs in the
PRC with the same generation of manufacturing technology as the fabs they establish in Taiwan. Moreover, the MOEAIC also allowed
ROC TFT-LCD manufacturers to make equity investment or merge with companies in the PRC.
Many of our customers and competitors have
expanded their businesses and operations to the PRC. In order to take advantage of the fast growth of China’s market, the
lower production costs in China and to establish a presence in this market, we began our investment in China with the establishment
of a module-assembly facility in Suzhou, Jiangsu Province of the PRC, which began operations in July 2002. During the past few
years, our investment and presence in the PRC gradually and significantly increased. We obtained approval from MOEAIC to make an
equity investment to establish an 8.5-generation fab in Kunshan, PRC in June 2011. We have completed the construction of buildings
of this fab in 2012. However, in January 2014, we revised our original investment plan from establishing an 8.5-generation fab
to a 6-generation LTPS fab to meet market demands and had been approved by MOEAIC in March 2014. The ramp up schedule will be subject
to market conditions. As of December 31, 2015, we had 18 subsidiaries incorporated in the PRC, primarily focusing on module-assembly
operations and related supporting services. For further information of our PRC investments, see “Item 4. Information on the
Company—4.C. Organizational Structure.”
However, due to certain restrictions imposed
by ROC government are still effective, we cannot assure you that any future applications to the MOEAIC to make further investments
in the PRC will be successful and timely approved. We also do not know when and whether the remaining restrictions under ROC laws
and regulations governing investment in the PRC will be amended or repealed and we cannot assure you that any such amendments to
those regulations will permit us to invest in operations in the PRC. Restrictions under ROC laws on our ability to make investments
in the PRC may materially and adversely affect our business prospects.
We may not be able to obtain or renew
all licenses, approvals or permits necessary for our current and future operations.
Our current and future operations in Taiwan
and other regions require a number of regulatory licenses, approvals and permits. We cannot assure you that we will be able to
obtain licenses, approvals or permits necessary for our operations in these regions, or that upon the expiration of our existing
licenses, approvals or permits, we will be able to successfully renew them.
In addition, if the relevant authorities
enact new regulations, we cannot assure you that we will be able to meet successfully such requirements. If we fail to obtain or
renew the necessary regulatory licenses, approvals or permits, we may have to cease construction or operation of the relevant projects,
be subject to fines, or face other penalties, which could have a material adverse effect on our business, financial condition and
results of operations. Even if we already obtained the licenses, approvals and permits, there could be parties or interest groups
with different views who may take actions against the renewal of such licenses, approvals and permits, which may have an adverse
effect on our business operations. For example, there have been environmental proceedings relating to the development project of
the Central Taiwan Science Park in Houli, Taichung, where our second 8.5-generation fab is located. See “Item
8. Financial Information—Item 8.A.7. Litigation.”
Disruptions in Taiwan’s political
environment could seriously harm our business and the market price of our shares and ADSs.
Most of our assets and operations are located
in Taiwan and approximately 33.2% of our net revenue was derived from customers in Taiwan in 2015. Accordingly, our business and
financial condition may be affected by changes in local governmental policies and political and social instability.
Taiwan has a unique international political
status. The PRC government asserts sovereignty over mainland China and Taiwan and does not recognize the legitimacy of the government
of the ROC. The PRC government has indicated that it may use military force to gain control over Taiwan if Taiwan declares independence
or if Taiwan refuses to accept the PRC’s stated “One China” policy. In addition, on March 14, 2005, the
National Peoples’ Congress of the PRC passed what is widely referred to as the “anti-secession” law, a law authorizing
the PRC military to respond to efforts by Taiwan to seek formal independence. An increase in tensions between the ROC and the PRC
and the possibility of instability and uncertainty could adversely affect the prices of our ADSs and our shares. It is unclear
what effects any of the events described above may have on relations with the PRC. Relations between Taiwan and the PRC and other
factors affecting Taiwan’s political environment could affect our business.
If economic conditions in Taiwan changes
drastically, our current business and future growth could be affected materially and adversely.
In recent years, the currencies of many
East Asian countries, including Taiwan, have experienced considerable volatility. Our business, financial condition and results
of operations may be affected by changes in ROC government policies, taxation, inflation, interest rates and general economic conditions
in Taiwan, as well as the global economies. For example, the banking and financial sectors in Taiwan have been harmed by the general
economic downturn in recent years. As a result, financial institutions are more cautious in providing credit to certain businesses
in Taiwan. We cannot assure you that we will continue to have access to credit at commercially reasonable rates of interest or
at all.
The market value of our ADSs may fluctuate
due to the volatility of the ROC securities market.
The trading price of our ADSs may be affected
by the trading price of our shares on the Taiwan Stock Exchange. The Taiwan Stock Exchange is smaller and more volatile than the
securities markets in the United States and a number of stock exchanges in Europe. The Taiwan Stock Exchange has experienced substantial
fluctuations in the prices and volumes of trading of securities, and there are currently limits on the range of daily price fluctuations
on the Taiwan Stock Exchange. During the period from January 1, 2015 to December 31, 2015, the Taiwan Stock Exchange
Index peaked at 9,973.12 on April 27, 2015, and reached a low of 7,410.34 on August 24, 2015. Over the same period, daily closing
values of our shares ranged from NT$8.11 per share to NT$18.90 per share. On March 11, 2016, the Taiwan Stock Exchange Index closed
at 8,706.14, and the closing value of our shares was NT$9.70 per share.
The Taiwan Stock Exchange is particularly
volatile during times of political instability, including when relations between Taiwan and the PRC are strained. Several investment
funds affiliated with the ROC government have also from time to time purchased securities from the Taiwan Stock Exchange to support
the trading level of the Taiwan Stock Exchange. Moreover, the Taiwan Stock Exchange has experienced problems, including market
manipulation, insider trading and settlement defaults. The recurrence of these or similar problems could have an adverse effect
on the market price and liquidity of our shares and ADSs.
If the NT dollar or other currencies
in which our sales, raw materials and components and capital expenditures are denominated fluctuate significantly against the U.S.
dollar or the Japanese yen, our profitability may be affected seriously.
We have significant foreign currency exposure
and are affected by fluctuations in exchange rates among the U.S. dollar, the Japanese yen, the NT dollar and other currencies.
Our sales, raw materials and components and capital expenditures are denominated mainly in U.S. dollars, Japanese yen and NT dollars
in varying amounts. For example, in 2015, approximately 92.3% of our net revenue was denominated in U.S. dollars. During the same
period, approximately 72.4%, 16.5% and 9.2% of our raw materials and component costs were denominated in U.S. dollars, Japanese
yen and NT dollars, respectively. In addition, in 2015, approximately 40.0%, 36.2%, 12.3% and 10.4% of our total capital expenditures
(principally for the purchase of equipment) were denominated in Japanese yen, NT dollars, U.S. dollars and Renminbi, respectively.
From time to time, we enter into forward foreign currency contracts to hedge our foreign currency exposure, but we cannot assure
you that we will fully minimize the risk against exchange rate fluctuations and the impact on our results of operations.
Disruptions in the international trading
environment and changing international trade regulation may seriously decrease our international sales.
A majority of our net revenue is derived
from sales to customers located outside of Taiwan. In 2013, 2014 and 2015, sales to our overseas customers accounted for 65.5%,
66.8% and 66.8%, respectively, of our net revenue. In addition, a significant portion of our sales to customers in Taiwan is made
to original equipment manufacturing service provider customers that use our display panels in the products that they manufacture
on a contract basis for brand companies worldwide. We expect sales to customers outside of Taiwan to continue to represent a significant
portion of our net revenue. As a result, our business will continue to be vulnerable to disruptions in the international trading
environment, including those caused by adverse changes in foreign government regulations, political unrest, international economic
downturns, terrorist attacks and military unrest. These disruptions in the international trading environment may affect the demand
for our products and change the terms upon which we sell our products overseas, which could seriously decrease our international
sales.
In addition, our ability to compete effectively
could be materially and adversely affected by a number of factors relating to international trade regulation. Higher tariffs, duties,
or our failure to comply with trade regulations could restrict our ability to export products or compete effectively with our competitors,
resulting in a decrease in our international sales. For example, the display panel industry in Taiwan may be negatively impacted
by the China-South Korea Free Trade Agreement (“FTA”) effective in December 2015, under which tariff reduction covers
several areas of trade including display panels and polarizer products. However, the FTA is likely not to have an immediate significant
effect on us as the tariff reduction for panel products commences from the ninth year after the FTA took effect.
We face risks related to health epidemics
and outbreaks of contagious disease.
In 2009 and 2011, there have been reports
of outbreaks of a highly pathogenic influenza caused by the H1N1 virus, as well as an influenza caused by the H5N1 virus, in certain
regions of Asia and other parts of the world. Starting from March 2013, H7N9 bird flu, a new strain of animal influenza, has been
spreading in China and has infected more than a hundred people. In 2014, a deadly disease called Ebola virus diseases (“EVD”)
caused thousands of death in West Africa and also spread to other parts of world. In May 2015, another deadly disease named Middle
East Respiratory Syndrome (“MERS”) outbreak in South Korea and spread to other Asia countries, causing hundreds of
death. The outbreak of such contagious diseases in the human population could result in a widespread health crisis that could adversely affect the economies and
financial markets of many countries. Since most of our operations and customers and suppliers are based in Asia (mainly Taiwan),
an outbreak of H1N1 influenza, H5N1 influenza, H7N9 influenza, EVD, MERS or other contagious diseases in Asia or elsewhere, or
the perception that such an outbreak could occur, and the measures taken by the governments of countries affected, including the
ROC and the PRC, could adversely affect our business, financial condition or results of operations.
Risks Related to Our ADSs and Our Trading Market
The market value of our ADSs may fluctuate
due to the volatility of the securities markets.
The securities markets in the United States
and other countries have experienced significant price and volume fluctuations. Volatility in the price of our ADSs may be caused
by factors beyond our control and may be unrelated to, or disproportionate to changes in, our results of operations. In the past,
following periods of volatility in the market price of a public company’s securities, securities class action litigation
has been instituted against that company. Litigation of this kind could result in substantial costs and a diversion of our management’s
attention and resources.
Restrictions on the ability to deposit
shares into our ADS facility may adversely affect the liquidity and price of our ADSs.
The ability to deposit shares into our
ADS facility is restricted by ROC law. A significant number of withdrawals of shares underlying our ADSs would reduce the liquidity
of our ADSs by reducing the number of ADSs outstanding. As a result, the prevailing market price of our ADSs may differ from the
prevailing market price of our shares on the Taiwan Stock Exchange. Under current ROC law, no person or entity, including you and
us, may deposit its shares in our ADS facility without specific approval of the ROC Financial Supervisory Commission (the “FSC”),
unless:
| (1) | we pay stock dividends on our shares; |
| (2) | we make a free distribution of shares; |
| (3) | ADS holders exercise preemptive rights in the event of capital increases for cash; or |
| (4) | investors purchase our shares, directly or through the depositary, on the Taiwan Stock Exchange, and deliver our shares to
the custodian for deposit into our ADS facility, or our existing shareholders deliver our shares to the custodian for deposit into
our ADS facility. |
With respect to (4) above, the depositary
may issue ADSs against the deposit of those shares only if the total number of ADSs outstanding following the deposit will not
exceed the number of ADSs previously approved by the FSC, plus any ADSs issued pursuant to the events described in the subparagraph
(1), (2) and (3) above. Issuance of additional ADSs under item (4) above will be permitted to the extent that previously
issued ADSs have been cancelled. In addition, in the case of a deposit of our shares requested under item (4) above, the depositary
will refuse to accept deposit of our shares if such deposit is not permitted under any legal, regulatory or other restrictions
notified by us to the depositary from time to time, which restrictions may specify blackout periods (during which deposits may
not be made), minimum and maximum amounts and frequencies of deposits.
ADS holders will not have the same rights
as our shareholders, which may affect the value of the ADSs.
ADS holders’ rights as to the shares
represented by such holders’ ADSs are governed by the deposit agreement. ADS holders will not be able to exercise voting
rights on an individual basis. If holders representing at least 51% of our ADSs outstanding at the relevant record date instruct
the depositary to vote in the same manner regarding a resolution, including the election of directors, the depositary will cause
all shares represented by the ADSs to be voted in that manner. If, at the relevant record date, the depositary does not receive
instructions representing at least 51% of ADSs outstanding to vote in the same manner for any resolution, including the election
of directors, ADS holders will be deemed to have instructed the depositary or its nominee to authorize all the shares represented
by the ADS holders’ ADSs to be voted at the discretion of our Chairman or his designee, which may not be in the ADS holders’
interest. Moreover, while shareholders who own 1% or more of our outstanding shares are entitled to submit one proposal to be considered
at our annual general meetings and submit a roster of candidates to be considered for nomination to our board of directors at our
shareholders’ meeting for the election of directors, only holders representing at least 51% or more of our ADSs outstanding
at the relevant record date are entitled to submit one proposal to be considered at our annual general meetings or one nomination
to our board of directors, in accordance with the deposit agreement. Hence, only one proposal or one nomination may be submitted
on behalf of all ADS holders.
ADS holders’ rights to participate
in our rights offerings are limited, which could cause dilution to the holdings of ADS holders.
We may from time to time distribute rights
to our shareholders, including rights to acquire our securities. Under the deposit agreement, the depositary will not offer ADS
holders those rights unless both the distribution of the rights and the underlying securities to all our ADS holders are either
registered under the Securities Act or exempt from registration under the Securities Act. Although we may be eligible to take advantage
of certain exemptions under the Securities Act available to certain foreign issuers for rights offerings, we can give no assurances
that we will be able to establish an exemption from registration under the Securities Act, and we are under no obligation to file
a registration statement for any of these rights. Accordingly, ADS holders may be unable to participate in our rights offerings
and may experience dilution with respect to their holdings.
Our equity holders may experience dilution
if we issue remunerations in the form of stock and stock options to employees or sell additional equity or equity-linked securities.
Similar to other technology companies in
Taiwan, from time to time we may issue remunerations to our employees in the form of shares. The issuance of these
shares may have a dilutive effect on our ADSs. We did not issue shares to our employees in 2013, 2014 or 2015. In addition, we
did not grant any stock options to our employees in 2013, 2014 or 2015. If we issue remunerations in the form of stock or stock
options to employees in the future, our equity holders may experience dilution.
In addition, the sale of additional equity
or equity-linked securities may result in additional dilution to our shareholders. In October 2010, we issued US$800 million unsecured
zero coupon convertible bonds due 2015 to purchase machinery and equipment overseas in line with the growth of our business. This
unsecured zero coupon convertible bonds had been matured in October 2015, and none of them has been converted into shares of the
Company. As of the date of this report, we have no outstanding equity-linked securities. However, any future issuance of additional
equity or equity-linked securities could each cause dilution to ADS holders.
Non-ROC holders of ADSs who withdraw
our shares will be required to obtain a foreign investor investment identification and appoint a local custodian and agent and
a tax guarantor in the ROC.
Under current ROC law, if you are a non-ROC
person (other than a PRC person) and wish to withdraw and hold our shares from a depositary receipt facility, you will be required
to obtain a foreign investor investment identification, or the Foreign Investor Investment I.D., issued in accordance with the
ROC Regulations Governing Securities Investment by Overseas Chinese and Foreign Nationals (the “Investment Regulations”).
You also will be required to appoint an eligible agent in the ROC to open a securities trading account and a Taiwan Depository &
Clearing Corporation book-entry account and a bank account, to pay ROC taxes, remit funds, exercise shareholders’ rights
and perform such other functions as you may designate upon such withdrawal. In addition, you will be required to appoint a custodian
bank to hold the securities in safekeeping, make confirmation and settle trades and report all relevant information. Without obtaining
such Foreign Investor Investment I.D. under the Investment Regulations and opening such accounts, the non-ROC withdrawing holder
would be unable to hold or subsequently sell our shares withdrawn from the depositary receipt facility on the Taiwan Stock Exchange
or otherwise. There can be no assurance that such withdrawing holder would be able to obtain the Foreign Investor Investment I.D.
and open such accounts in a timely manner.
With the exception of a foreign institutional
investor with a fixed place of business or business agent within the ROC, non-ROC holders of ADSs (other than a PRC person) withdrawing
our shares represented by ADSs also are required under current ROC law and regulations to appoint an agent in the ROC for filing
tax returns and making tax payments. Such agent must meet certain qualifications set by the ROC Ministry of Finance and, upon appointment,
becomes a guarantor of such withdrawing holder’s ROC tax obligations (“Tax Guarantor”). Generally, the evidence
of the appointment of such agent and the approval of such appointment by the ROC tax authorities may be required as conditions
to such withdrawing holder’s repatriation of the profits. There can be no assurance that such withdrawing holder would be
able to appoint and obtain approval for such agent in a timely manner.
Also, if any non-ROC person (other than
a PRC person) receives 10% or more of our total issued and outstanding shares upon a single withdrawal, such non-ROC person must
obtain prior approval from the MOEAIC. There can be no assurance that such withdrawing holder would be able to obtain such approval
in a timely manner.
Pursuant to the Regulations Governing Securities
Investment and Futures Trading in Taiwan by Mainland Area Investors (the “Mainland Investors Regulations”), only qualified
domestic institutional investors (“QDIIs”) approved by the China Securities Regulatory Commission and registered with
the Taiwan Stock Exchange or Taiwan Futures Exchange are permitted to withdraw and hold our shares from a depositary receipt facility.
In order to hold our shares, such QDIIs are required to appoint an agent, custodian and Tax Guarantor as required by the Mainland
Investors Regulations. If the aggregate amount of our shares held by any QDII or shares received by any QDII upon a single withdrawal
reaches 10% or more of our total issued and outstanding shares, such QDII must obtain the prior approval from the MOEAIC. We cannot
assure you that such approval would be granted.
In addition, PRC investors’ investments
in our shares are subject to various restrictions, specifically, there are restrictions on the amount remitted to the ROC for investments
by QDIIs, either individually or jointly. Accordingly, the qualification criteria for a PRC person to make investment and the investment
threshold imposed by the ROC government might cause a ADS holder who is a PRC person to be unable to withdraw and hold our shares.
The protection of the interests of our
public shareholders available under our Articles of Incorporation and the laws governing ROC corporations is different from that
which applies to a U.S. corporation.
Our corporate affairs are governed by our
Articles of Incorporation and by the laws governing ROC corporations. The rights and responsibilities of our shareholders and members
of our board of directors under ROC law are different from those that apply to a U.S. corporation. Directors of ROC corporations
are required to conduct business faithfully and act with the care of good administrators. However, the duty of care required of
an ROC corporation’s directors may not be the same as the fiduciary duty of a director of a U.S. corporation. In addition,
controlling shareholders of U.S. corporations owe fiduciary duties to minority shareholders, while controlling shareholders in
ROC corporations do not. The ROC Company Act also requires that a shareholder continuously hold at least 3% of our issued and outstanding
shares for at least a year in order to request that our audit committee institute an action against a director on the company’s
behalf. Therefore, our public shareholders may have more difficulty protecting their interests against actions of our management,
members of our board of directors or controlling shareholders than they would as shareholders of a U.S. corporation.
As a foreign private issuer, we are
permitted to follow certain home country corporate governance practices instead of applicable SEC and NYSE requirements, which
may result in less protection than is accorded to investors under rules applicable to domestic issuers.
As a foreign private issuer, we are permitted
to follow certain home country corporate governance practices instead of those otherwise required under the NYSE rules for domestic
issuers, including, but not limited to:
| · | the evaluation standards for director’s independence; |
| · | the requirements for non-management directors to meet regularly without management; |
| · | the requirement to have nominating/corporate governance committee; |
| · | the requirement to have a compensation committee set up pursuant to NYSE rules; |
| · | the requirement for shareholders’ approval on all equity based compensation and material revisions thereto; and |
| · | the requirement to adopt NYSE corporate governance guidelines. |
For a detailed discussion of the differences
between our corporate governance practices and the NYSE listing standards, see “Item 16—16.G. Corporate Governance”
for more information.
Following our home country governance practices
as opposed to the requirements that would otherwise apply to a U.S. company listed on the NYSE may provide less protection than
is accorded to investors under the NYSE rules applicable to domestic issuers. In addition, as a foreign private issuer, we are
exempt from certain rules and regulations under the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”),
related to the furnishing and content of proxy statements, and our officers, directors and principal shareholders are exempt from
the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act. In addition, we are not required
under the Exchange Act, to file annual, quarterly and current reports and financial statements with the SEC as frequently or as
promptly as domestic companies whose securities are registered under the Exchange Act, as amended.
Future sales or perceived sales of securities
by us, our senior management, directors or major shareholders may hurt the price of our ADSs.
The market price of our ADSs could decline
as a result of sales of ADSs or shares or the perception that these sales could occur. As of February 29, 2016, we had an aggregate
of 9,624.2 million shares issued and outstanding, most of which were freely tradable. If we, our senior management, directors or
our shareholders, sell ADSs or shares, the market price for our shares or ADSs could decline. For example, in May 2013, we issued
797,199,580 common shares for cash to sponsor the issuance of US$350.8 million ADSs. Future sales, or the perception of future
sales, of ADSs or shares by us, our senior management, directors or major shareholders could cause the market price of our ADSs
to decline. Moreover, if the offering price of any of the sales of shares by us is substantially lower than the then existing marketing
price or net tangible value per share, our existing shareholders may experience substantial dilution.
You may not be able to enforce a judgment
of a foreign court in the ROC.
We are a company limited by shares and
incorporated under the ROC Company Act. Most of our directors and executive officers, and some of the experts named herein, are
residents of the ROC. As a result, it may be difficult for holders of our shares or ADSs to enforce against us or them judgments
obtained outside the ROC, including those predicated upon the civil liability provisions of the federal securities laws of the
United States. It is also not entirely certain that an action for civil liability predicated solely on the United States federal
securities laws could be brought directly in the ROC courts.
ITEM 4. INFORMATION ON THE COMPANY
4.A.
History and Development of the Company
We were incorporated as Acer Display Technology,
Inc. (“Acer Display”) under the laws of the ROC as a company limited by shares in 1996. The shares of Acer Display
were listed on the Taiwan Stock Exchange on September 8, 2000.
On September 1, 2001, we completed
a merger with Unipac Optoelectronics Corp. (“Unipac”) pursuant to a merger agreement dated April 9, 2001, as amended
by a supplemental agreement dated May 15, 2001. We changed our name to AU Optronics Corp. on May 22, 2001. Prior to the
merger, Acer Display was primarily involved in the design, development, production and marketing of
large-size TFT-LCD panels, and Unipac was primarily involved in the design, production and marketing of both small-size and
large-size TFT-LCD panels.
On October 1, 2006, we completed our
merger with Quanta Display Inc. (“QDI”), a company incorporated in Taiwan that manufactured and assembled TFT-LCD panels.
As of the effective date of the merger, we became the surviving entity and assumed substantially all of the assets, liabilities
and personnel of QDI. The purpose of the merger was to increase our competitiveness and expand our market share.
On October 1, 2014, our subsidiary BriView
Corp. completed a merger with Forhouse Corporation (“Forhouse”), one of our investees. Both companies were primarily
engaged in the manufacturing and selling of TFT-LCD modules and backlight modules. The purpose of the merger was to integrate resources
and increase competitiveness. After the merger, Forhouse, as the surviving company, was renamed to Darwin Precisions Corporation
and became our subsidiary.
At the end of 2008, we entered the solar
business and formed our Solar Photovoltaic Business Unit in October 2009. In connection with this expansion, we obtained a controlling
interest in M.Setek, a major polysilicon, ingot and solar wafer manufacturer in Japan, through equity investments in 2009. Furthermore,
in May 2010, we formed a joint venture named AUO SunPower Sdn. Bhd. (“AUSP”) with SunPower Technology, Ltd. (“SPTL”),
a subsidiary of SunPower Corporation, to construct and operate a solar cell manufacturing facility in Malaysia. Since 2011, in
order to expand our operation in the supply chain of the solar industry, we have also operated ingot and solar wafer related business
through our subsidiary AUO Crystal Corp. The manufacturing facilities of AUO Crystal Corp. are located in Taiwan and Malaysia.
In January 2016, in order to focus on producing products with more added value, we decided to cease the production of polysilicon
considering the volatile market condition, over-supply of polysilicon and lack of competitive advantages in producing polysilicon.
Our principal executive offices are located
at No. 1, Li-Hsin Road 2, Hsinchu Science Park, Hsinchu, Taiwan, ROC, and our telephone number is +886-3-500-8800. Our agent
for service of process in the United States is Puglisi & Associates, 850 Library Avenue, Suite 204, Newark, Delaware 19711,
and our agent’s telephone number is 302-738-6680.
Our ADSs have been listed on the New York
Stock Exchange under the symbol “AUO” since May 2002.
For
a description of our capital expenditures in the past three fiscal years and
source of funding, see “Item 5. Operating and Financial Review and Prospects—5.B.— Liquidity and Capital Resources—
Capital Expenditures.”
4.B. Business Overview
Introduction
We are one of the world’s leading
TFT-LCD panel providers. We operate in two business segments: display business and solar business.
Display business. We design, develop,
manufacture, assemble and market flat panel displays and most of our products are TFT-LCD panels. TFT-LCD is currently the most
widely used flat panel display technology. Our panels are primarily used in televisions, monitors, mobile PCs, mobile devices and commercial and other applications
(such as displays for automobiles, industrial PCs, automated teller machines, point of sale terminals and pachinko machines), etc.
Solar business. We entered into
the solar business at the end of 2008, and have established a vertically integrated solar value chain, including manufacturing
and branding capabilities for our solar products. We are capable of manufacturing upstream and midstream products such as polysilicon,
ingots, solar wafers and solar cells. We also design, develop and manufacture solar modules, build solar systems and provide various
value-added services for solar systems projects. In January 2016, in order to focus on producing products with more added value,
we decided to cease the production of polysilicon considering the volatile market condition, over-supply of polysilicon and lack
of competitive advantages in producing polysilicon.
For the year ended December 31, 2015, net
revenue generated from our display business and solar business were NT$333.4 billion (US$10.2 billion) and NT$26.9 billion (US$0.8
billion), respectively, representing approximately 92.5% and 7.5% of our total net revenue, respectively. For more information
on the financial performance of our two operating segments, see “Item 5. Operating and Financial Review and Prospects”
and Note 39 to our consolidated financial statements.
Display Business
We sell our panels primarily to companies
that design and assemble products based on their customers’ specifications, commonly known as original equipment manufacturing
service providers, and to brand customers. Our original equipment manufacturing service provider customers, most of whose production
operations are located in Taiwan or the PRC, use our panels in the products that they manufacture on a contract basis for brand
companies worldwide. Our operations in Taiwan and the PRC allow us to better coordinate our production and services with our customers’
requirements, especially in respect of delivery time and design support. We also sell our products to some brand companies on a
direct shipment basis.
We currently manufacture TFT-LCD panels
at fabrication facilities commonly known as “fabs”. With production facilities utilizing 3.5-, fourth-, 4.5-, fifth-,
sixth-, 7.5- and 8.5-generation technologies, we have the flexibility to produce a large number of panels of various sizes. As
of February 29, 2016, all the fabs listed under “— 4.D. Property, Plants and Equipment” have commenced commercial
production. See “Item 4. Information on the Company—4.D. Property, Plants and Equipment” for information on our
principal manufacturing and module assembly sites for the display business.
Principal Products
We design, develop, manufacture, assemble
and market a wide range of display products for the following principal product categories:
| · | Televisions, which typically utilize display panels ranging from 17 inches to 85 inches, including panels for televisions,
TV sets and other related products for televisions. |
| · | Monitors, which typically utilize display panels ranging from 17 inches to 35 inches, including products such as desktop monitors. |
| · | Mobile PCs, which typically utilize display panels ranging from 6 inches to 17.3 inches, including products such as notebooks
and tablets. |
| · | Mobile devices, which typically utilize display panels ranging from 1.4 inches to 6 inches, including products such as mobile
phones. |
| · | Commercial and other applications, which typically utilize display panels ranging from 1.2 inches to 24 inches or above for
use in products such as displays for automobiles, industrial PCs, automated teller machines, point of sale terminals, pachinko
machines and others. |
The following table sets forth the shipment
of our products by category for the periods indicated:
| | |
Year Ended December 31, |
| | |
2013 | |
2014 | |
2015 |
| | |
(Panels in thousands) |
| Products for Televisions | |
| 33,521.0 | | |
| 31,793.3 | | |
| 30,076.3 | |
| Products for Monitors | |
| 30,983.9 | | |
| 28,561.7 | | |
| 26,483.7 | |
| Products for Mobile PCs | |
| 59,325.0 | | |
| 66,148.5 | | |
| 54,130.0 | |
| Products for Mobile Devices | |
| 89,045.0 | | |
| 102,642.1 | | |
| 114,843.5 | |
| Products for Commercial and Other Applications | |
| 56,619.4 | | |
| 58,478.5 | | |
| 52,929.6 | |
| Total | |
| 269,494.3 | | |
| 287,624.1 | | |
| 278,463.1 | |
The following table sets forth our net
revenue by product category for the periods indicated:
| | |
Year Ended December 31, |
| | |
2013 | |
2014 | |
2015 |
| | |
NT$ | |
% | |
NT$ | |
% | |
NT$ | |
US$ | |
% |
| | |
(in millions, except for percentages) |
| Products for Televisions | |
| 188,428.2 | | |
| 45.3 | | |
| 171,399.6 | | |
| 42.0 | | |
| 159,534.8 | | |
| 4,865.4 | | |
| 44.3 | |
| Products for Monitors | |
| 59,564.2 | | |
| 14.3 | | |
| 57,549.0 | | |
| 14.1 | | |
| 48,234.5 | | |
| 1,471.0 | | |
| 13.4 | |
| Products for Mobile PCs | |
| 78,376.8 | | |
| 18.8 | | |
| 75,353.6 | | |
| 18.5 | | |
| 52,488.1 | | |
| 1,600.7 | | |
| 14.6 | |
| Products for Mobile Devices | |
| 26,670.0 | | |
| 6.4 | | |
| 34,412.5 | | |
| 8.4 | | |
| 23,622.5 | | |
| 720.4 | | |
| 6.5 | |
| Products for Commercial and Others(1) | |
| 45,797.0 | | |
| 11.0 | | |
| 45,620.5 | | |
| 11.2 | | |
| 49,512.4 | | |
| 1,510.0 | | |
| 13.7 | |
| Solar Products | |
| 17,526.8 | | |
| 4.2 | | |
| 23,843.5 | | |
| 5.8 | | |
| 26,954.2 | | |
| 822.0 | | |
| 7.5 | |
| Total | |
| 416,363.0 | | |
| 100.0 | | |
| 408,178.7 | | |
| 100.0 | | |
| 360,346.5 | | |
| 10,989.5 | | |
| 100.0 | |
| (1) | Others
include sales from products for other applications and sales of raw materials, components
and from service charges. |
Products for Televisions
Our current portfolio of products for televisions
consists of 17-inch to 85-inch panels. In 2015, approximately 87.2% of the sales of products for televisions we produced were 39
inches and above. In 2013, 2014 and 2015, sales of products for televisions accounted for 45.3%, 42.0% and 44.3%,
respectively, of our net revenue.
Products for Monitors
In 2013, 2014 and 2015, sales of
products for monitors accounted for 14.3%, 14.1% and 13.4%, respectively, of our net revenue. The most commonly produced size
of monitors changes as the generation of TFT-LCD manufacturing technology evolves, with manufacturers moving production to
panel sizes that make the most efficient use of glass substrates processed by their fabs. In 2015, 19.5-, 21.5- and 24-inch
panels produced by us were most commonly for monitors.
Products for Mobile PCs
In 2013, 2014 and 2015, sales of products
for mobile PCs accounted for 18.8%, 18.5% and 14.6%, respectively, of our net revenue. In
2015, 14.0-inch and 15.6-inch panels with an aspect ratio of 16:9 produced by us are the most commonly sizes for notebooks, while
7- to 10.1-inch panels produced by us are the most commonly sizes for tablets.
Products for Mobile Devices
Our products for mobile devices are used
in products such as mobile phones. In 2013, 2014 and 2015, sales of products for mobile devices accounted for 6.4%, 8.4% and 6.5%,
respectively, of our net revenue.
Products for Commercial and Others
Our products for commercial and others
are used in products such as displays for automobiles, industrial PCs, automated teller machines, point of sale terminals, pachinko
machines and others. In 2013, 2014 and 2015, sales of products for commercial and others accounted for 11.0%, 11.2% and 13.7%,
respectively, of our net revenue.
Customers, Sales and Marketing
We sell our panels mostly to brand companies
and original equipment manufacturing service providers with operations in Taiwan, the PRC, Japan and other areas. The following
table sets forth the geographic breakdown of our net revenue by the location of our customers placing orders for the periods indicated:
| | |
Year Ended December 31, |
| | |
2013 | |
2014 | |
2015 |
Region | |
NT$ | |
% | |
NT$ | |
% | |
NT$ | |
US$ | |
% |
| | |
(in millions, except percentages) |
| Taiwan | |
| 143,549.4 | | |
| 34.5 | | |
| 135,420.4 | | |
| 33.2 | | |
| 119,626.4 | | |
| 3,648.2 | | |
| 33.2 | |
| PRC | |
| 141,951.3 | | |
| 34.1 | | |
| 135,102.4 | | |
| 33.1 | | |
| 123,476.5 | | |
| 3,765.7 | | |
| 34.3 | |
| Japan | |
| 42,562.6 | | |
| 10.2 | | |
| 37,410.4 | | |
| 9.1 | | |
| 37,903.9 | | |
| 1,156.0 | | |
| 10.5 | |
| Singapore | |
| 23,280.8 | | |
| 5.6 | | |
| 34,237.7 | | |
| 8.4 | | |
| 30,210.6 | | |
| 921.3 | | |
| 8.4 | |
| Malaysia | |
| 12,986.3 | | |
| 3.1 | | |
| 12,952.0 | | |
| 3.2 | | |
| 10,456.0 | | |
| 318.9 | | |
| 2.9 | |
| Others(1) | |
| 52,032.6 | | |
| 12.5 | | |
| 53,055.8 | | |
| 13.0 | | |
| 38,673.1 | | |
| 1,179.4 | | |
| 10.7 | |
| Total | |
| 416,363.0 | | |
| 100.0 | | |
| 408,178.7 | | |
| 100.0 | | |
| 360,346.5 | | |
| 10,989.5 | | |
| 100.0 | |
| (1) | Include the Untied States, Europe
and other regions. |
Our sales in Taiwan and the PRC, as set
forth in the table above, represent a significant portion of our net revenue for the past three years. A significant portion of
these sales were made to original equipment manufacturing service providers who use our panels in the products they manufacture
on a contract basis for brand companies worldwide.
We market our panels to, and negotiate
prices with, both our original equipment manufacturing service provider customers and brand customers, as display panels often
constitute a significant part of the end product. A significant portion of our net revenue is attributable to a small number of
our customers. In 2013, 2014 and 2015, our five largest customers accounted for 39.7%, 33.4% and 36.5%,
respectively, of our net revenue. In addition, some customers individually accounted for more than 10% of our net revenue for each
of the last three years. For example, Samsung Group accounted for 13.8%, 10.2% and 11.7% of
our net revenue in 2013, 2014 and 2015, respectively.
We focus our sales activities on a number
of large customers with whom we seek to build close relationships. We appoint a sales manager to serve as the main contact person
with each of our major customers. Each product category has its own sales and marketing division, and is further subdivided into
smaller teams dedicated to each of our major customers. Each dedicated customer team is headed by an account manager who is primarily
responsible for our relationship with that specific customer.
Our customers typically provide monthly
non-binding rolling forecasts of their requirements for the coming several months, and typically place purchase orders several
weeks before the expected shipment date. We generally provide a limited warranty to our customers, including the provision of replacement
parts and after-sale service for our products. In connection with these warranty policies, based on our historical experience,
we set aside an amount as a reserve to cover these warranty obligations. As of December 31, 2015, our reserve for warranties
totaled NT$1,819.5 million (US$55.5 million). In addition, we are required under several of our sales contracts to provide replacement
parts for our products, at agreed prices, for a specified period of time.
We price our products in accordance with
prevailing market conditions, giving consideration to factors such as the complexity of the product, the order size, the strength
and history of our relationship with the customer and our capacity utilization. Selling prices and payment terms for sales to related
parties are not significantly different from those for other customers. Our credit policy for sales to related parties and other
customers typically requires payment within 30 to 60 days. From time to time, we may extend longer credit terms to our large customers
as compared to our smaller customers. The average number of collection days extended for sales to our customers for the years ended
December 31, 2013, 2014 and 2015 was 38 days, 46 days and 48 days, respectively. We believe the terms for customers and products
are comparable to the terms offered by our industry peers.
Our business is subject to seasonal fluctuations
common in the display panel industry, which in turn is affected by the seasonality of demand for consumer and other end-products
produced by our customers. Our low seasons typically start in the fourth quarter and may go lower in the first quarter; while
our high seasons generally start in the second quarter and may go higher in the third quarter. The seasonality of our sales
also may be affected by factors, including economic downturn, our inventory management and certain special events such as government
subsidies and sports events.
The TFT-LCD Manufacturing Process
The basic structure of a TFT-LCD panel
may be thought of as two glass substrates sandwiching a layer of liquid crystal. The front glass substrate is fitted with a color
filter, while the back glass substrate has transistors fabricated on it. A light source called a backlight unit is located at the
back of the panel.
The manufacturing process consists of hundreds
of steps, but may be divided into three primary steps. The first step is the array process, which involves fabricating transistors
on the back substrate using film deposition, lithography and etching. The array process is similar to the semiconductor manufacturing
process, except that transistors are fabricated on a glass substrate instead of a silicon wafer. The second step is the cell process,
which joins the back array substrate and the front color filter substrate. The space between the two substrates is filled with
liquid crystal. The third step is the module-assembly process, which involves connecting additional components, such as driver
ICs and backlight units, to the TFT-LCD panel.
The array and cell processes are capital-intensive
and require highly automated production equipment. TFT-LCD manufacturers typically design their own fabs and purchase production
equipment from various suppliers. Each TFT-LCD manufacturer combines various equipment according to its manufacturing process technologies
to form a TFT-LCD fab. In addition to developing our own manufacturing process technologies, we also license such technologies
from other companies, such as Fujitsu Display Technologies Corporation (which was merged into Fujitsu Limited) (“FDTC”).
We have automated our array and cell processes, with the exception of some steps in the cell process, such as panel inspection.
In contrast to the array and cell processes, the module-assembly process is labor-intensive, as it involves manual labor to assemble
the pieces. A substantial portion of our module-assembly process is conducted in the PRC.
Raw Materials and Components and Suppliers
Our manufacturing operations require adequate
supplies of raw materials and components of the right quality on a timely basis. We purchase our raw materials and components based
on forecasts from our customers, as well as our own assessments of our customers’ needs. We generally prepare forecasts one
to four months in advance, depending on the raw materials and components, and update this forecast weekly or monthly. We source
most of our raw materials and components, including critical materials such as glass substrates, liquid crystals, color filters,
polarizer and driver ICs, from a limited group of suppliers. In order to reduce our raw materials and component costs and our dependence
on any one supplier, we generally purchase our raw materials and components from multiple sources. We typically do not enter into
contracts with our suppliers. However, during periods of supply shortages, we may enter into supply contracts with suppliers to
ensure a stable supply of necessary raw materials and components.
From time to time, we experienced shortages
of certain raw materials in the past. Our operations would be adversely affected if we could not obtain raw materials and components
in sufficient quantity and quality. We may also experience difficulties in sourcing adequate supplies for our operations if there
is a ramp-up of production capacity by display panel manufacturers, including our company, without a corresponding increase in
the supply of raw materials and components.
Raw materials and components constitute
a substantial portion of our cost of goods sold. An increase in the cost of our raw materials may adversely affect our gross margins.
Set forth below are our major suppliers
of key raw materials and components in alphabetical order by category:
|
Glass
Substrates
|
Liquid Crystals
|
Color
Filters
|
Polarizer
|
Driver
ICs
|
| Asahi Glass |
JNC Corporation |
Dai Nippon Printing |
BMC(1) |
Novatek |
| Corning Taiwan |
Merck |
Toray Industries |
LG Chem |
Raydium(2) |
| Nippon Electric Glass |
|
|
Nitto Denko |
|
| |
|
|
Sumika Technology |
|
| (1) | BMC
is a subsidiary of one of our major shareholders, Qisda. See “Item 7. Major Shareholders
and Related Party Transactions—7.B. Related Party Transactions.” |
| (2) | Raydium
is our investee. See “Item 7. Major Shareholders and Related Party Transactions—7.B.
Related Party Transactions.” |
We use a large amount of water and electricity
in our manufacturing process. We mostly obtain water from government-owned entities and are in compliance with relevant local laws
and regulations of water recovery rate. We use electricity supplied by the external power grids. We maintain back-up generators
that provide electricity in case of power interruptions, which we have experienced from time to time. Except for power outages,
power interruptions in general have not materially affected our production processes.
Equipment and Suppliers
We depend on a number of equipment manufacturers
that make and sell the equipment that we use in our manufacturing processes. Our manufacturing processes depend on the quality and technological capacity of our equipment.
We purchase equipment that is customized to our specific requirements for our manufacturing processes. The principal types of
equipment we use to manufacture display panels include chemical vapor deposition equipment, sputters, steppers, developers
and coaters.
In 2015, we raised our equipment purchases
from 2014 primarily due to the new capacity at our 8.5-generation fab in Taiwan and the installation of our 6-generation LTPS fab
in China. Going forward, we expect to maintain investments in advanced technology and new capacity based on market conditions.
See “Item 5. Operating and Financial Review and Prospects—5.B. Liquidity and Capital Resources.” We purchase
equipment from a small number of qualified vendors to assure consistent quality and performance. We typically order equipment four
to six months or longer in advance of our planned installation.
Competition
The display business is highly competitive.
Most of our competitors operate fabs in Korea, Taiwan, Japan and the PRC. We believe our principal competitors include LG Display
and Samsung Display in Korea; Innolux, Chunghwa Picture Tubes and Hannstar Display in Taiwan; Sharp, Panasonic LCD, and Japan Display
in Japan; and BOE, Century, Tianma, EverDisplay Optronics, China Star Optoelectronics Technology and CEC-PANDA LCD Technology in
the PRC.
In addition, we believe the principal
elements of competition for customers in the display market include:
| · | price, based in large part on the ability to ramp-up lower cost, advanced technology production facilities before competitors; |
| · | product features and quality; |
| · | customer service, including product design support; |
| · | ability to keep production costs low by maintaining high yield and operating at full capacity; |
| · | ability to provide sufficient quantity of products to meet customer demand; |
| · | quality of the research and development team; |
Solar Business
Through our subsidiaries AUO Crystal Corp.
and M.Setek, we mainly focus on research, production and sales of solar materials, such as ingots and solar wafers. Our principal
manufacturing sites for ingots and solar wafers are located in Taiwan, Japan and Malaysia. In addition, we are among the very few
companies in Taiwan and worldwide which are capable of producing both mono-crystalline solar wafers and multi-crystalline solar
wafers as a result of our comprehensive product line ranging from ingots to solar wafers.
We also design, develop and
manufacture solar modules, build solar systems and provide various value-added services for solar systems projects. A solar
module is an assembly of solar cells that are electrically interconnected, laminated and framed in a durable and weatherproof
package. Currently, our solar modules are manufactured with multi-crystalline solar cells and mono-crystalline solar cells. A
solar system consists of one or more solar modules that are physically mounted and electrically interconnected with system
components such as inverters, mounting structures, wiring systems and other devices to produce and store electricity. See
“Item 4. Information on the Company—4.D. Property, Plants and Equipment.” for information on our principal
manufacturing sites for the solar business.
We sell our ingot and solar wafer products
primarily to solar cell manufacturers. We are also dedicated to reach out new clients in emerging markets to enlarge our current
customer base. We sell our solar modules primarily to overseas customers, including installers, solar system integrators, property
developers and other value-added resellers, which incorporate our solar modules into large on-grid integrated solar systems with
inverters, mounting structures and wiring systems. We have commenced mass production of back-contact mono-crystalline modules with
conversion efficiencies over 20% since 2011. With our efforts, we reached accumulated shipment of 1 gigawatt of solar modules as
of October 2014. In addition, with our efforts to provide value-added services for solar systems projects, we have successfully
completed and secured solar projects with our global partners in Europe, the United States, Asia and elsewhere.
In 2015, revenues generated from our solar
business amounted to NT$26,954.2 million (US$822.0 million), representing 7.5% of our total net revenue for 2015.
Quality Management
Our quality management system includes
design quality assurance, manufacturing quality assurance, vendor quality assurance and service quality assurance. By structuring
quality management system, building up product design and development procedures for our different business applications as well
as conducting market analysis, feasibility study, risk assessment, product verification and validation in our product development
process, we endeavor to achieve first time right approach. We are also dedicated to production quality control and process technology
enhancement upon failure modes and effect analysis, process control plan, statistical process control and measurement system analysis.
For vendor quality assurance, we cooperate
with our primary suppliers through our extensive experience and effective management. We encourage suppliers to demonstrate quality
control and reliability, and also perform an annual customer satisfaction survey to ensure that their needs are well understood
and addressed. Customer feedbacks are critical to our continual improvement plans. In addition, we advise quality audit program,
nonconformity management and the hazardous chemical management to secure long-term agreements and develop strategic relationships.
Our quality management system has received
accredited International Standard of ISO 9001 and QC080000 certifications, as well as qualifications from our customers. We also
received the ISO/TS16949 for most of our factories that design and manufacture the flat panel displays. In addition, all of our
facilities have been certified as meeting the International Organization for Standardization ISO 14001 environmental protection
standards and OHSAS 18001 occupational health and safety standard and certain of our facilities have completed ISO 50001 certification
for energy management. The International Standard assessment process involves subjecting our manufacturing processes and quality
management systems to periodic reviews and observations. We believe that certification also provides independent verification to
our customers regarding the quality control employed in our manufacturing and assembly processes.
Insurance
We mostly maintain insurance policies on
our production facilities, buildings, machinery and inventories covering property damage and damage due to fire, earthquakes, floods,
and other natural and accidental perils. Our insurance policies cover factory maintenance and replacement costs for our sixth generation
fabs and above, while for our fifth generation fabs and below, most of our insurance policies cover the amount equal to the book
value of assets. As of December 31, 2015, our insurance also included protection from covered losses, including property damage
up to maximum coverage of NT$43.1 billion (US$1.3 billion) for all of our inventories and NT$701.6 billion (US$21.4 billion) for
our equipment and facilities. In addition, as of December 31, 2015, we had insurance coverage for business interruptions in
the aggregate amount of NT$46.1 billion (US$1.4 billion).
In general, we also maintain insurance
policies, including director and officer liability insurance, employee group health insurance, travel and life insurance, employer
liability insurance, general liability insurance, and policies that provide coverage for risks during the shipment of goods and
equipment, as well as during equipment installation at our fabs.
Environmental Matters
Our manufacturing processes involve the
use of hazardous materials and generate a significant amount of pollution, including wastewater, solid/liquid waste and air pollution,
which are strictly monitored by local environmental protection bureaus. We must comply with regulations relating to storage, handling,
generation, treatment, emission, release, discharge and disposal of certain materials and wastes resulting from our manufacturing processes.
To meet ROC environmental standards, we employ various types of pollution control equipment for the treatment of exhaust gases,
liquid waste, solid waste and the treatment of wastewater and chemicals in our fabs. We control exhaust gas and wastewater on-site.
The treatment of solid and liquid wastes is subcontracted to third parties off-site in accordance with pollution control requirements.
Our operations can expose us to the risk
of environmental claims which could result in damages awarded or fines imposed against us. We have taken the necessary steps to
ensure the proper operation of our facilities to meet the necessary standards and strengthened the monitoring mechanisms against
further violations, as well as obtained the appropriate permits, and believe that we are in compliance with the existing environmental
laws and regulations in all material aspects in the ROC.
On December
29, 2015, we announced the launch of the process water full-recycling system to be operated at our Lungtan site. Through various
recycling phases, process water could be condensed and reduced to zero liquid discharge by high-efficient evaporation equipment.
We will continue to create values and opportunities for sustainable development.
Intellectual Property
Overview
As of February 29, 2016, we had filed more
than 22,200 patent applications in various jurisdictions, including Taiwan, the United States, the PRC, Japan, United Kingdom,
European Union, Korea and others. These patent applications include patents for TFT-LCD manufacturing processes and products, and
more than 15,700 patents were issued as of February 29, 2016. Most of these patents have a term of 20 years. In addition, we have
registered “AU Optronics” as trademarks in some countries and jurisdictions where we operate, including ROC, United
States, European Union and Korea and registered our corporate logo, “AUO” as trademarks in the ROC, PRC, United States,
European Union, Japan and Korea.
We require all of our employees to sign
an employment agreement which prohibits the unauthorized disclosure of any of our trade secrets, confidential information and proprietary
technologies subject to the terms and conditions of the employment agreement, and we also require our technical personnel to assign
to us any inventions related to our business that they develop during the course of their employment.
We have licenses to use certain technology
and processes from certain companies. Our royalty expenses relating to intellectual property licenses may increase in the future
due to increases in unit sales as well as the potential need to enter into additional license agreements or to renew existing license
agreements on different terms.
We intend to continue to file patent applications,
where appropriate, to protect our proprietary technologies. We may find it necessary to enforce our patents or other intellectual
property rights or defend ourselves against claimed infringement of the rights of others through litigation, which could result
in substantial cost and diversion of our resources. We may suffer legal liabilities and financial and reputational damages if we
are found to infringe product or process technology rights held by others. We are currently involved in litigation regarding alleged
patent infringement. See “Item 8. Financial Information—8.A.7. Litigation.”
License Agreements
We have entered into patent and intellectual
property license and cross-license agreements, some of which require periodic royalty payments. For example: (i) we have a license
agreement with FDTC (subsequently assumed by Fujitsu Limited), effective as of March 31, 2003, which provides for the non-transferable
and non-exclusive license under certain patents to manufacture certain TFT-LCD panels at our facilities, (ii) we entered into a
cross-license agreements with each of Sharp, LG Display Co., Ltd. (“LGD”), Samsung Electronics Co., Ltd. (“Samsung”)
and Hydis Technologies Co., Ltd. (“Hydis”, E Ink’s Korean subsidiary), respectively. Under each of these agreements,
each party granted to the other non-transferable and non-exclusive licenses in relation to certain patents involving LCD related
technologies, (iii) we have a cross-license agreement with Japan Display Inc. (formerly known as Japan Display East Inc./Hitachi
Displays Ltd.) and Panasonic Liquid Crystal Display Co., Ltd. (formerly known as IPS Alpha Technology Ltd.), under which each party
granted to the other non-transferrable and non-exclusive licenses under certain patents to manufacture certain TFT-LCD and OLED
panels and modules, (iv) we have a license agreement with Semiconductor Energy Laboratory Co., Ltd., which provides for the non-transferable
and non-exclusive license under certain patents to manufacture certain LCD and certain OLED products, (v) we have a cross-license
agreement with Toshiba Mobile Display Co., Ltd., under which each party granted to the other non-transferrable and non-exclusive
licenses under certain patents to manufacture certain TFT-LCD and OLED panels and modules, (vi) we have a cross-license agreement
with E Ink Holdings Inc. (“E Ink”), under which AUO granted to E Ink non-transferrable and non-exclusive licenses under
certain patents involving LCD-related and certain other technologies, and E Ink granted to AUO a non-transferrable and non-exclusive
licenses under certain patents involving LCD-related technologies, (vii) we have a cross-license agreement with Seiko Epson Corporation (“Seiko
Epson”), under which AUO granted to Seiko Epson non-transferrable and non-exclusive licenses under certain patents involving
certain technologies, and Seiko Epson granted to AUO a non-transferrable and non-exclusive license under certain patents involving
LCD related technologies, and (viii) we have a trademark licensing agreement with BenQ Corporation, under which BenQ Corporation
granted AUO a non-exclusive trademark license for the development, marketing and sale of our solar products and services.
In addition to the above, we have also
entered into license or cross-license agreements with other third parties in the course of our business operations in connection
with certain patents which such third parties own or control. In the future, we may need to obtain additional patent licenses or
renew existing license agreements.
4.C. Organizational Structure
The following chart sets forth our corporate
structure and ownership interest in each of our principal operating subsidiaries as of December 31, 2015.
(1)
32.16% held directly by us, 8.50% held indirectly through Konly Venture Corp. and 5.50% held indirectly through Ronly Venture
Corp., respectively.
(2)
82.40% held directly by us, 13.32% held indirectly through Konly Venture Corp. and 0.82% held indirectly through Ronly Venture
Corp., respectively.
(3)
70.29% held indirectly through AU Optronics (L) Corp. and 29.71% held indirectly through Darwin Precisions Corporation, respectively.
(4)
99.99% held directly by us, 0.0005% held indirectly through Konly Venture Corp. and 0.0002% held indirectly through Ronly Venture
Corp., respectively.
(5)
In the process of liquidation.
(6)
Shares will be sold to AU Optronics (Xiaman) Corp. and the transfer is expected to be completed in the first half of 2016.
The following table sets forth summary
information for our subsidiaries as of December 31, 2015.
| Subsidiary |
Main Activities |
Jurisdiction of
Incorporation |
Percentage of
Ownership
Interest |
| AU Optronics (L) Corp. |
Holding and trading company |
Malaysia |
100.00% |
| AU Optronics Corporation America |
Sales and sales support of TFT-LCD panels |
United States |
100.00%(1) |
| AU Optronics Corporation Japan |
Sales support of TFT-LCD panels |
Japan |
100.00%(1) |
| AU Optronics Europe B.V. |
Sales support of TFT-LCD panels |
Netherlands |
100.00%(1) |
| AU Optronics Korea Ltd. |
Sales support of TFT-LCD panels |
South Korea |
100.00%(1) |
| AU Optronics Singapore Pte. Ltd. |
Holding company and sales support of TFT-LCD panels |
Singapore |
100.00%(1) |
| AU Optronics (Shanghai) Co., Ltd. |
Sales support of TFT-LCD panels |
PRC |
100.00%(1) |
| AU Optronics (Xiamen) Corp. |
Manufacturing and assembly of TFT-LCD modules |
PRC |
100.00%(1) |
| AU Optronics (Suzhou) Corp., Ltd. |
Manufacturing and assembly of TFT-LCD modules |
PRC |
100.00%(1) |
| AU Optronics (Czech) s.r.o. |
Assembly of solar modules |
Czech Republic |
100.00%(1) |
| AU Optronics Manufacturing (Shanghai) Corp. |
Manufacturing and assembly of TFT-LCD modules |
PRC |
100.00%(1) |
| AU Optronics (Slovakia) s.r.o. |
Repairing of TFT-LCD modules; injecting and stamping parts; manufacturing and sale of molds |
Slovakia Republic |
100.00%(1) |
| AUO Energy (Tianjin) Corp. |
Manufacturing and sale of solar modules |
PRC |
100.00%(13) |
| AUO Green Energy America Corp. |
Sales and sales support of solar modules |
United States |
100.00%(13) |
| AUO Green Energy Europe B.V. |
Holding company and sales support of solar modules |
Netherlands |
100.00%(13) |
| BriView (Xiamen) Corp. |
Manufacturing and sale of liquid crystal products and related parts |
PRC |
100.00%(5) |
| Darwin Precisions (L) Corp. |
Holding company |
Malaysia |
100.00%(2) |
| Darwin Precisions (Hong Kong) Limited |
Holding company |
Hong Kong |
100.00%(3) |
| Darwin Precisions (Suzhou) Corp. |
Manufacturing and sale of backlight modules and related parts |
PRC |
100.00%(4) |
| Darwin Precisions (Xiamen) Corp. |
Manufacturing and sale of backlight modules and related parts |
PRC |
100.00%(4) |
| Darwin Precisions (Chengdu) Corp. |
Manufacturing and sale of backlight modules and related parts |
PRC |
100.00%(4)(23) |
| Huizhou Bri-King Optronics Co., Ltd. |
Manufacturing and sale of liquid crystal products and related parts |
PRC |
51.00%(1)(23) |
| BriView (Hefei) Co., Ltd. |
Manufacturing and sale of liquid crystal products and related parts |
PRC |
100.00%(5) |
| Forhouse International Holding Ltd. |
Holding company |
BVI |
100.00%(2) |
| Subsidiary |
Main
Activities |
Jurisdiction of
Incorporation |
Percentage of
Ownership
Interest |
| Force International Holding Ltd. |
Holding company |
BVI |
100.00%(2) |
| Forefront Corporation |
Holding company |
Mauritius |
100.00%(20) |
| Fortech International Corp. |
Holding company |
Mauritius |
100.00%(16) |
| Forward Optronics International Corp. |
Holding company |
Samoa |
100.00%(16) |
| Prime Forward International Ltd. |
Holding company |
Samoa |
100.00%(16) |
| Full Luck Precisions Co., Ltd. |
Holding company |
Mauritius |
100.00%(16) |
| Forhouse Electronics (Suzhou) Co., Ltd. |
Manufacturing of motorized treadmills |
PRC |
100.00%(21) |
| Fortech Electronics (Suzhou) Co., Ltd. |
Manufacturing and sale of light guide plates, backlight modules and
related parts |
PRC |
100.00%(17) |
| Fortech Optronics (Xiamen) Co., Ltd. |
Manufacturing and sale of light guide plates, backlight modules and related parts |
PRC |
100.00%(17) |
| Suzhou Forplax Optronics Co., Ltd. |
Manufacturing and sale of precision plastic parts |
PRC |
100.00%(22) |
| Fortech Electronics (Kunshan) Co., Ltd. |
Manufacturing and sale of light guide plates backlight modules and
related parts |
PRC |
100.00%(18) |
| Full Luck (Wujiang) Precisions Co., Ltd. |
Manufacturing and sale of precision metal parts |
PRC |
100.00%(19)(23) |
| Konly Venture Corp. |
Venture capital investment |
ROC |
100.00% |
| Ronly Venture Corp. |
Venture capital investment |
ROC |
100.00% |
| Darwin Precisions Corporation |
Manufacturing, design and sale of TFT-LCD modules, TV set, backlight modules and related
parts |
ROC |
46.16%(6)(7) |
| Taiwan CFI Co., Ltd.(25) |
Manufacturing and sale of color filters |
ROC |
100.00% |
| BriView (L) Corp. |
Holding company |
Malaysia |
100.00%(12) |
| AUO Crystal Corp. |
Manufacturing and sale of ingots and solar wafers |
ROC |
96.54%(11) |
| AUO Crystal (Malaysia) Sdn. Bhd. |
Manufacturing and sale of solar wafers |
Malaysia |
100.00%(9) |
| M.Setek Co., Ltd. |
Manufacturing and sale of ingots(24) |
Japan |
99.9991%(14) |
| AFPD Pte., Ltd. |
Manufacturing TFT-LCD panels based on low temperature polysilicon technology |
Singapore |
100.00%(1) |
| AU Optronics (Kunshan) Co., Ltd. |
Manufacturing and sale of TFT-LCD panels |
PRC |
51.00%(1) |
| AUO Green Energy Germany GmbH |
Sales support of solar modules |
Germany |
100.00%(10)
(23) |
| Fargen Power Corporation |
Solar power generation |
ROC |
100.00%(8) |
| Evergen Power Corporation |
Solar power generation |
ROC |
100.00%(8) |
| Sanda Materials Corporation |
Holding compnay |
ROC |
99.99%(15)
|
| Subsidiary |
Main
Activities |
Jurisdiction of
Incorporation |
Percentage of
Ownership
Interest |
| a. u. Vista Inc. |
Research and development and IP related business |
United States |
100.00%(1) |
| Space Money Inc. |
Sale of TFT-LCD panels; leasing |
ROC |
100.00% |
| LiGen Power Corporation |
Solar power generation |
ROC |
100.00%(8) |
| (1) | Indirectly, through our 100% ownership
of AU Optronics (L) Corp. |
| (2) | Indirectly, through our 46.16% ownership
of Darwin Precisions Corporation. |
| (3) | Indirectly, through our 100% ownership
of Darwin Precisions (L) Corp. |
| (4) | Indirectly, through our 100% ownership
of Darwin Precisions (Hong Kong) Limited. |
| (5) | Indirectly, through our 100% ownership
of BriView (L) Corp. |
| (6) | 32.16% held directly by us, 8.50%
held indirectly by Konly Venture Corp. and 5.50% held indirectly by Ronly Venture Corp.,
respectively. |
| (7) | We exercise de facto control over
the relevant operating activities of Darwin Precisions Corporation. As a result, we consolidated
Darwin Precisions Corporation. |
| (8) | Indirectly, through our 100% ownership
of Konly Venture Corp. |
| (9) | Indirectly, through our 96.54% ownership
of AUO Crystal Corp. |
| (10) | Indirectly, through our 100% ownership
of AUO Green Energy Europe B.V. |
| (11) | 82.40% held directly by us, 13.32%
held indirectly through Konly Venture Corp. and 0.82% held indirectly through Ronly Venture
Corp., respectively. |
| (12) | 70.29% held indirectly through
AU Optronics (L) Corp. and 29.71% held indirectly through Darwin Precisions Corporation,
respectively. We hold 46.16% ownership of Darwin Precisions Corporation. |
| (13) | Indirectly, through our 100% ownership
of AU Optronics Singapore Pte. Ltd. |
| (14) | Indirectly, through our 99.99% ownership
of Sanda Materials Corporation. |
| (15) | 99.99% held directly by us, 0.0005%
held indirectly through Konly Venture Corp., and 0.0002% held indirectly through Ronly
Venture Corp., respectively. |
| (16) | Indirectly, through our 100% ownership
of Forhouse International Holding Ltd. |
| (17) | Indirectly, through our 100% ownership
of Fortech International Corp. |
| (18) | Indirectly, through our 100% ownership
of Prime Forward International Ltd. |
| (19) | Indirectly,
through our 100% ownership of Full Luck Precisions Co., Ltd. |
| (20) | Indirectly, through our 100% ownership
of Force International Holding Ltd. |
| (21) | Indirectly, through our 100% ownership
of Forefront Corporation. |
| (22) | 65.52% held indirectly through Forward
Optronics International Corp. and 34.48% held indirectly through Fortech International
Corp., respectively. |
| (23) | Darwin Precisions (Chengdu) Corp.,
Full Luck (Wujiang) Precisions Co., Ltd. and Huizhou Bri-King Optronics Co., Ltd. are
in the process of liquidation as of December 31, 2015. AUO Green Energy Germany GmbH
completed liquidation in the first quarter of 2016. |
| (24) | The board of directors of M.Setek
resolved on January 8, 2016 to cease the production of polysilicon and to focus on the
production of ingot. |
| (25) | Previously named as “Toppan
CFI (Taiwan) Co., Ltd.” |
4.D. Property, Plants and Equipment
Principal Facilities
Display Business
As of December 31, 2015, we had a monthly
capacity to produce approximately 2.1 million to 2.5 million square meters of glass area of TFT-LCD panels. The capacity may be
subject to change due to factors such as product mix and platform transition.
As of February 29, 2016, our principal
manufacturing sites were located in Taiwan, the PRC, Europe and Singapore. The following table sets forth certain information relating
to our principal facilities as of February 29, 2016. The land in the Hsinchu Science Park, Lungke Science Park and Central Taiwan
Science Park on which our facilities are located is leased from the ROC government. The land in the Songjiang Export Processing
Zone, Xiamen Torch Hi-tech Industrial Development Zone and Suzhou Industrial Park, on which our facilities are located, is leased
from the PRC government.
|
Fab
|
|
Location
|
|
Building Size
|
|
Generation
|
|
Input Substrate Size |
|
Commencement of
Commercial
Production
|
|
Primary Use |
|
Owned or Leased
|
| |
|
|
|
(in square
meters) |
|
|
|
(in millimeters) |
|
|
|
|
|
|
| L3C |
|
No. 23, Li-Hsin Rd.,
Hsinchu
Science Park,
Hsinchu 30078,
Taiwan, ROC |
|
105,127 |
|
3.5 |
|
600x720 |
|
July 1999 |
|
Manufacturing of TFT-LCD panels |
|
• Building
is owned
• Land is
leased (expires in January 2017)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L3D
L5D
|
|
No. 189, Hwaya Rd. 2, Kueishan Hwaya
Science Park,
Kueishan Dist., Taoyuan 33383,
Taiwan, ROC |
|
162,826 |
|
3.5
5
|
|
620x750
1,100x 1,300
|
|
December 2001
October 2003
|
|
Manufacturing of TFT-LCD panels |
|
• Building
is owned
• Land is
owned
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L4A
L5A
L5B
|
|
No. 1, Xinhe Rd., Aspire Park,
Lungtan Dist.,
Taoyuan 32543, Taiwan, ROC |
|
535,528 |
|
4
5
5
|
|
680x880
1,100x1,250
1,100x1,300
|
|
November 2001
March 2003
February 2004
|
|
Manufacturing of TFT-LCD panels; module and component assembly; manufacturing of color filters |
|
• Building
is owned
• Land is
owned
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| L6B |
|
No. 228, Lungke St., Lungke
Science Park,
Lungtan Dist., Taoyuan 32542, Taiwan, ROC |
|
867,955 |
|
6 |
|
1,500x1,850 |
|
August 2005 |
|
Manufacturing of TFT-LCD panels; module and component assembly; manufacturing of color filters |
|
• Building
is owned
• Land is
leased (expires in December 2027)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
L6A
L5C
L7A
L7B
L8A
|
|
No. 1, JhongKe Rd.,
Central Taiwan
Science Park,
Taichung 40763,
Taiwan, ROC |
|
1,430,750 |
|
6
5
7.5
7.5
8.5
|
|
1,500x1,850
1,100x1,300
1,950x2,250
1,950x2,250
2,200x2,500
|
|
March 2005
August 2005
June 2006
March 2009
March 2009
|
|
Manufacturing of TFT-LCD panels; module and component
assembly; manufacturing of color filters
|
|
• Building
is owned
• Land is
leased (expires in December 2022)
|
| Fab |
|
Location |
|
Building Size |
|
Generation |
|
Input Substrate Size |
|
Commencement of
Commercial
Production |
|
Primary Use |
|
Owned or Leased |
| |
|
|
|
(in square meters) |
|
|
|
(in millimeters) |
|
|
|
|
|
|
| L8B |
|
No. 1, Machang Rd.,
Central Taiwan
Science Park,
Houli Dist.,
Taichung
42147, Taiwan,
ROC |
|
587,810 |
|
8.5 |
|
2,200x2,500 |
|
June 2011 |
|
Manufacturing of TFT-LCD panels; module and component assembly; manufacturing of color filters |
|
• Building is owned
• Land is leased (expires in
December 2025) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| L4B |
|
10 Tampines
Industrial Avenue 3,
Singapore 528798 |
|
183,341 |
|
4.5 |
|
730x920 |
|
August 2002 |
|
Manufacturing of TFT-LCD panels |
|
• Building is owned
• Land is leased (expires in
June 2059) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Module S01, S02, S06 |
|
No. 398,
Suhong Zhong Road,
Suzhou
Industrial Park,
Suzhou, the PRC |
|
413,035 |
|
N/A |
|
N/A |
|
July 2002 |
|
TFT-LCD module and component assembly |
|
• Building
is owned
• Land is
leased (expires in 2054)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Module S03 |
|
No. 3, Lane 58, San-Zhuang Rd., Songjiang Export Processing Zone,
Shanghai, the PRC |
|
83,508 |
|
N/A |
|
N/A |
|
October 2004 |
|
TFT-LCD module and component assembly |
|
• Building
is owned
• Land is
leased (expires in 2052)
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Module S11, S16, S17 |
|
No. 1689, North of XiangAn Rd.,
XiangAn Branch,
Torch Hi-tech Industrial Development Zone, Xiamen, the PRC |
|
289,744 |
|
N/A |
|
N/A |
|
April 2007 |
|
TFT-LCD module and component assembly |
|
• Building
is owned
• Land is
leased (expires in 2056)
|
Solar Business
As of December 31, 2015, our solar business
had the capacity of producing 350 tons of polysilicon per month, 540 tons of ingot per month, 31,000 thousand pieces (kpcs) of
wafer per month, and 350 megawatt of solar modules per year. The actual shipment may be subject to market conditions, customer
demand and capacity outsourcing. In January 2016, in order to focus on producing products with more added value, we decided to
cease the production of polysilicon considering the volatile market condition, over-supply of polysilicon and lack of competitive
advantages in producing polysilicon.
As of February 29, 2016, our principal
manufacturing sites for solar business were located in Taiwan, Japan, Europe and Malaysia. The following table sets forth certain
information relating to our principal facilities for solar business as of February 29, 2016.
| Location |
|
Building Size
|
|
Commencement of
Commercial
Production |
|
Primary Use |
|
Owned or Leased |
| |
|
(in square meters) |
|
|
|
|
|
|
|
No. 1, JhongKe Rd.,
Central Taiwan
Science Park,
Taichung 40763,
Taiwan, ROC
|
|
1,430,750(1) |
|
April 2010
November 2011
|
|
Manufacturing of solar modules |
|
• Building
is owned
• Land is
leased (expires in
December 2022)
|
| |
|
|
|
|
|
|
|
|
|
No. 1, Zhongke Rd.,
Xitun Dist.,
Taichung 40763,
Taiwan, ROC
|
|
9,559 |
|
June 2011 |
|
Production of wafers |
|
• Building
is owned
• Land is
leased (expires in
December 2022)
|
| |
|
|
|
|
|
|
|
|
|
No. 2, Jian 7th Rd.,
Wuqi Dist.,
Taichung 43541,
Taiwan, ROC
|
|
19,510 |
|
October 2011 |
|
Production of ingots |
|
• Building
is owned
• Land is
leased (expires in
December 2020)
|
| |
|
|
|
|
|
|
|
|
No. 335, sec. 2,
Houke Rd., Houli Dist.,
Taichung 42152,
Taiwan, ROC |
|
44,225 |
|
June 2012 |
|
Production of ingots and wafers |
|
• Building
is owned
• Land is
leased (expires in
December 2030)
|
| |
|
|
|
|
|
|
|
|
|
Kochi Site 1:
378, Myoken-cho,
Susaki-shi, Kochi-ken, Japan
Kochi Site 2:
1117-1, Otani,
Susaki-shi, Kochi-ken, Japan
|
|
36,587
(including
Kochi Site 1 and
Kochi Site 2) |
|
Kochi Site 1:
April 2004
Kochi Site 2:
January 2009
|
|
Production of ingots
|
|
• Building
is owned
• Land is
owned
|
| |
|
|
|
|
|
|
|
|
|
Soma
2-2-21, Koyo, Soma-shi,
Fukushima-ken, Japan
|
|
47,596
(including
Soma Site 1 and
Soma Site 2)
|
|
Soma Site 1:
October 2007
Soma Site 2:
February 2011
|
|
Production of
polysilicon(2)
|
|
• Building
is owned
• Land is
owned
|
| |
|
|
|
|
|
|
|
|
Turanka 859/98d,
Slatina, 627 00 Brno,
Czech Republic |
|
17,765 |
|
July 2010 |
|
Manufacturing of solar modules |
|
• Building is leased
(expires
in December 2021)
• Land is leased (expires
in
December 2021)
|
| |
|
|
|
|
|
|
|
|
| Bhd.Melaka World Solar Valley, 78000 Alor Gajah, Melaka, Malaysia |
|
8,578 |
|
March 2011 |
|
Production of wafers |
|
• Building
is leased
• Land is
leased
|
| (1) | Shared the same
facility with L6A, L5C, L7A, L7B and L8A fabs. |
| (2) | In January 2016,
we decided to cease the production of polysilicon. |
Expansion Projects
In order to sustain our long-term profit
model, we plan to invest in capacity expansion, new facilities and technology upgrading for the purpose of manufacturing competitive
products to differentiate ourselves against our competitors.
Set forth below is the description
of our principal expansion projects:
6-Generation Fab in Kunshan, PRC.
To further capture the market of mobile devices, we are in the process of establishing a 6-generation LTPS fab in Kunshan, PRC
to produce small to medium-size panels. The 6-generation fab is expected to be capable of processing substrates with dimensions
of 1,500 x 1,850 millimeters, and we plan to begin commercial production in the second half of 2016. However, the ramp-up schedule
will be subject to market conditions.
8.5-Generation Capacity Expansion.
To cater to the expected strong demand in large-size panels, we plan to increase production capacity at our 8.5-generation facilities
in Houli District, Taichung City, Taiwan by 25 thousand to 30 thousand substrates per month. The expanded capacity at our 8.5-generation
facilities has already commenced commercial production in the first quarter of 2016.
We estimate our capital expenditures in
2016 to be around NT$45.0 billion for purposes including technology upgrading, the installation of our 6-generation LTPS fab in
China and the capacity expansion at our 8.5-generation fab in Taiwan as mentioned above. Our principal sources of funds include
cash on hand, cash flow from operations and financing activities, for instance the issuance of equity securities, long-term borrowings,
and the issuance of convertible and other debt securities. For further descriptions with regard to our capital expenditures and
source of funding, see “Item 5. Operating and Financial Review and Prospects—5.B.— Liquidity and Capital Resources—
Capital Expenditures.”
| ITEM 4A. | UNRESOLVED STAFF COMMENTS |
None.
| ITEM 5. | OPERATING AND FINANCIAL REVIEW AND
PROSPECTS |
The following discussion should be read
in conjunction with our audited consolidated financial statements and their accompanying notes included elsewhere herein which
are prepared in accordance with IFRS.
5.A. Operating Results
Our operating results are affected by a
number of factors, principally by general market conditions, operating efficiency and product mix.
General Market Conditions
The display panel industry in general has
been characterized by cyclical market conditions. From time to time, the industry has experienced imbalances between excess supply
and slowdowns in demand, and in certain periods, resulting in declines in selling prices. Our revenues primarily depend on the
average selling prices and shipment volume of our panels and are affected by fluctuations in those prices and volumes. The prices
and shipment volume of our panels are affected by numerous factors, such as raw material costs, yield rates, supply and demand,
competition, our pricing strategies and transportation costs. Although the market demand has recently been affected by the global
economic uncertainties, recently, it is expected that the demand for panels is likely to continue to grow mainly driven by a shift
towards larger screen and higher resolution products and replacement cycle of TVs, including the flat screen replacement cycle
in developed markets and CRT TV replacement cycle in emerging markets. However, there is still a lack of visibility into future
demand and the outlook of display industry remains highly uncertain. We expect selling prices of panels will fluctuate from time
to time due to the change of general market conditions.
To meet a potential future increase in
demand, many display panel manufacturers, including our company, may expand capacity. If such expansion in capacity is not matched
by a comparable increase in demand, it could lead to overcapacity and declines in the selling prices of panels in the future. In
addition, we expect that, as is typical in the display panel industry, the selling prices for our existing product lines will gradually
decrease as the cost of manufacturing display panels declines. However, the impact of such decreases may be offset through the
development of new products.
The demand for our solar products also
highly depends on the general economic conditions in our target markets. The solar industry has undergone challenging business
conditions in the recent years, including downward pricing pressure for solar modules, solar cells, solar wafers and polysilicon
mainly as a result of oversupply, and the fluctuations in demand mainly due to reductions in applicable governmental subsidies.
In the past year, the United States, Europe,
China and Japan remain the primary markets of solar products. In the meantime, other emerging markets have gradually become the
growth engine of the industry. Despite the higher tariffs imposed on our solar products in certain countries, the demand for alternative
energy resources might keep the continuous growth of the solar industry.
Operating Efficiency
Our results of operations have been affected
by our operating efficiency. Our operating efficiency is impacted by production yield, cycle time, capacity utilization, production
capacity, and other factors.
Our manufacturing processes are highly
complex and require advanced and costly equipment. In order to maintain our competitiveness and to meet customer demand, we must
routinely upgrade or expand our equipment. Upgrades and implementing new equipment to improve production yields and production
efficiency takes time and training and may require adjustments to the manufacturing process. In addition, certain of our customers
have different specification requirements than other customers. Specification requests may also require adjustments to or the use
of different manufacturing processes which may accelerate or delay production. The turnaround time for production and our capacity
utilization is also impacted by the availability of raw materials and components as well as the level of demand for our products.
We measure the capacity of a fab in terms
of the number of substrates and the glass area of substrates that can be produced. For 2015, we had a monthly capacity to produce
approximately 2.1 million to 2.5 million square meters of glass area of TFT-LCD panels. Our production capacity has been affected
by the process of construction and the schedule of commencement of operation of our fabs. Once the design of a new fab is completed,
it typically takes six to eight quarters before the fab commences commercial production, during which time we construct the building,
install the machinery and equipment and conduct trial production at the fab. An additional two to four quarters are required for
the fab to be in a position to produce at the installed capacity and with high production yield, where production yield is the
number of good panels produced expressed as a percentage of the total number of panels produced. This process is commonly referred
to as “ramp-up.” At the beginning of the ramp-up process, fixed costs, such as depreciation and amortization, other
overhead expenses, labor, general and administrative and other expenses, are relatively high on a per panel basis, primarily due
to the low output. Variable costs, particularly raw materials and component costs, are also relatively high on a per panel basis
since production yield is typically low in the early stages of the ramp-up of a fab, resulting in greater waste of raw materials
and components. In general, upon the completion of the ramp-up process, a fab is capable of producing at its installed capacity,
leading to lower fixed costs per panel as a result of higher output, as well as lower raw material and component costs per panel
as a result of higher production yield. We typically construct our new fabs in phases in order to allocate our aggregate capital
expenditure across a greater period of time. As a result, the installed capacity in the early phases of production at a new fab
is typically lower than the maximum capacity that can be installed at a fab.
Product Mix
Our product mix affects our sales and profitability,
as the prices and costs of different size panels may vary significantly. Our product mix also affects the overall average selling
prices of our products. In general, higher valued products, such as products with larger-sized panels or higher resolution, typically
command higher average selling prices. If the percentage of sales in higher valued products as a percentage of our net revenue
increases, the overall average selling prices for all of our display products may likely improve. Moreover, higher selling prices
are typically associated with new products and technologies when they are first introduced into the market, thus our ability to
introduce and sell new products that offset the anticipated fluctuation and long-term declines in the selling prices of our existing
products is also one of the most important factors to maintain or increase our revenues. We periodically review and adjust our
product mix based on the demand for, and profitability of, the different panel sizes that we manufacture.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial
condition and results of operations contained elsewhere in this annual report are based on our audited consolidated financial
statements which have been prepared in accordance with IFRS. Our reported financial condition and results of operations are sensitive
to accounting methods, assumptions and estimates that underlie the preparation of our financial statements. We base our assumptions
and estimates on historical experience and on various other assumptions that we believe to be reasonable and which form the basis
for making judgments about matters that are not readily apparent from other sources. On an ongoing basis, our management evaluates
its estimates. Actual results may differ from those estimates as facts, circumstances and conditions change.
The selection of critical accounting policies,
the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes
in conditions and assumptions are factors to be considered when reviewing our financial statements. Our principal accounting policies
are set forth in detail in Note 4 to our consolidated financial statements included elsewhere herein. We believe the following
critical accounting policies involve the most significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
Revenue is recognized when title to the
products and risk of ownership are transferred to the customers. We continuously evaluate whether our products meet our inspection
standards and can reliably estimate sales returns expected to result from customer inspections. Allowance and related provisions
for sales returns are estimated on the basis of historical experience, our management’s judgment, and any known factors that
would significantly affect such allowance. Such provisions are deducted from sales in the same period during which the related
revenue is recognized. There have been no changes in this policy for the last three years.
The movements of the allowance for sales
returns and discounts are as follows:
| | |
2013 | |
2014 | |
2015 |
| | |
NT$ | |
NT$ | |
NT$ | |
US$ |
| | |
(in thousands) |
| Balance beginning of year | |
| 458,081 | | |
| 595,767 | | |
| 825,355 | | |
| 25,170.9 | |
| Provision charged to revenue | |
| 2,387,916 | | |
| 1,584,730 | | |
| 2,485,510 | | |
| 75,800.9 | |
| Utilized | |
| (2,250,230 | ) | |
| (1,355,142 | ) | |
| (1,786,721 | ) | |
| (54,489.8 | ) |
| Balance
at end of year | |
| 595,767 | | |
| 825,355 | | |
| 1,524,144 | | |
| 46,482.0 | |
Allowance for Doubtful Accounts Receivables
We periodically evaluate our outstanding
accounts receivables for collectability purposes on an individual and a collective basis. We first assess whether objective evidence
of impairment exists for outstanding accounts receivables that are individually significant. If there is objective evidence indicating
that an impairment loss has occurred, the amount of impairment loss is assessed individually. For accounts receivables other than
those aforementioned, we group those assets and assess their impairment collectively. Our evaluation on collective basis includes
an analysis of the number of days outstanding for each outstanding accounts receivable account. When appropriate, we provide a
provision that is based on the number of days for which the account has been outstanding. The provision provided on each aged account
is primarily based on our average historical collection experience and current trends in the credit quality of our customers. We
also carry accounts receivable insurance for potential defaults. There have been no changes in this policy for the last three years.
Provisions of Warranty Obligations
We make a provision for warranty obligations
based on the estimated costs that we expect to incur. These liabilities are accrued when product revenue are recognized. We make
the provisions based on the quantities within the warranty period, the historical and anticipated warranty claims rate associated
with similar products and services, and the projected unit cost of maintenance. We regularly review the basis of the accrual and,
if necessary, amend it as appropriate at the end of reporting period. There could be a significant impact on provisions for warranty
obligations for any changes of the basis of the accrual. We recognized provisions for warranty obligations amounting to NT$2,668.5
million and NT$1,819.5 million (US$55.5 million) as of December 31, 2014 and 2015, respectively.
Realization of Inventory
Provisions for inventory obsolescence and
devaluation are recorded when we determine that the amounts expected to be realized are less than their cost basis or when we determine
that inventories cannot be liquidated without price concessions, which may be affected by the number of months in which inventory
items remain unsold and their prevailing market prices. Additionally, our analyses of the amount we expect to ultimately realize
are based partially upon forecasts of demand for our products and any change to these forecasts. There have been no changes in
this policy for the last three years.
Inventories write downs to net realizable
value, which are amounts charged to cost of sales, were NT$5,106.5 million, NT$4,731.3 million and NT$5,661.3 million (US$172.7
million) for the years ended December 31, 2013, 2014 and 2015, respectively. The provision made in 2015 increased mainly due to
the inventory write-downs on certain products after considering their prevailing market prices. The provision made in 2014 decreased
mainly due to a lower level of inventories at the end of 2014 compared to those in 2013.
Recoverability of Long-Lived Assets
Our long-lived assets include
property, plant and equipment and intangible assets. We assess the
impairment of long-lived assets at the reporting date or whenever triggering events or changes in circumstances indicate that
the asset may be impaired and carrying value may not be recoverable. If any such indication of impairment exists, then
the recoverable amount of the relevant asset or cash-generating unit (“CGU”) is estimated. Recoverable amount is defined as the
higher of (a) the fair value of an asset or a CGU less costs to dispose (if determinable), or (b) its “value in
use”, which is defined as the present value of the expected future cash flows generated by the asset or CGU. An
impairment loss is recognized in the consolidated statement of comprehensive income if the carrying amount of an asset or its
related CGU exceeds its estimated recoverable amount.
The process of evaluating the potential
impairment of long-lived assets requires significant judgment. Our future expected cash flow assumptions are based on forecasted
revenue, operating costs, and other relevant factors. Due to the cyclical nature of our industry and changes in our business strategy,
market requirements, or the needs of our customers, if our estimates of future operating results change, or if there are changes
to other assumptions, the estimate of the fair value of long-lived assets could change significantly. Such change could result
in impairment charges in future periods, which could have a significant impact on our consolidated financial statements.
Some indications of impairment existed
in our solar segment; therefore, we performed the impairment assessment over the solar CGU’s long-lived assets with lower
capacity utilization. In 2013, 2014 and 2015, we wrote down our property, plant and equipment by NT$159.5 million, NT$2,296.1 million
and NT$101.8 million (US$3.1 million), respectively, as certain equipment was extremely low in utilization of which the fair value
is expected to be minimal.
In addition, polysilicon in the solar industry
has experienced significant downturns including sharp decline in pricing due to oversupply capacity worldwide and reductions in
government economic incentives. Therefore, we decided to cease the production of polysilicon in January 2016. We performed the
impairment assessment on the polysilicon CGU’s long-lived assets in the fourth quarter of 2015. The recoverable amount was
determined based on the relevant asset’s estimated fair value less cost of disposal. The fair value of long-lived assets
was determined by management with reference to the sales prices of recent transactions of similar asset in the same geographical
area.
The following table shows the valuation
technique used in the determination of fair value of the polysilicon CGU’s long-lived assets as well as the significant inputs
used in the valuation model.
|
Description of
Valuation Technique
|
Significant inputs
|
Inter-relationship between significant inputs
and fair value measurement |
| Sales comparison approach: Sales price of comparable property in close proximity are adjusted for differences in key attributes such as property size. The expected sales price is adjusted with sales discount based on land size. The significant inputs into this valuation approach are price per square meter of comparable properties and sales discount. |
l
Price per square meter (JPY8,000).
l
Sales discount (15%).
|
The estimated fair value would increase (decrease)
if:
l the
price per square meter is higher (lower);
or
l
the sales discount rates are lower (higher).
|
Based on management assessment, the carrying
amount of the polysilicon CGU was determined to be higher than its estimated recoverable amount; consequently, we recognized an
impairment loss of NT$6,755.2 million (US$206.0 million) in the fourth quarter of 2015.
Investments in Equity-accounted Investees
When we have the ability to exercise significant
influence over the operating and financial policies of investees, or when we have contractual arrangement with other parties sharing
equal control over the arrangement, and have rights to the net assets of the arrangement, those investments are accounted for using
the equity method. Significant judgment is required to assess whether we have significant influence. Factors that we consider in making such
judgment include, among other matters, participation in policymaking processes, material intercompany transactions, interchange
of managerial personnel, or technological dependency.
The difference between the acquisition
cost and the carrying amount of net equity of the investee as of the acquisition date is allocated based upon the pro rata excess
of fair value over the carrying value of non-current assets. Any unallocated difference is treated as goodwill.
Under IFRS, such difference is not amortized, but the carrying value of the total investment is assessed for impairment. The allocation
of excess basis in equity-accounted investments requires the use of judgments regarding, among other matters, the fair value and
estimated useful lives of long-lived assets. Changes in those judgments would affect the amount and timing of amounts charged to
our consolidated statements of comprehensive income.
An investment in equity-accounted investee
is considered to be impaired if there is objective evidence of impairment as a result of one or more events that had occurred as
of the reporting date indicating that the recoverable amount is below the carrying amount of the investment. Impairment is assessed
at the individual security level. The recoverable amount is determined based on one of the two following approaches: (1) the discounted
expected future net cash flows from the investee company; or (2) the combination of expected cash dividends from the investee company
and the discounted cash flows from the ultimate disposal of the investment. The impairment loss is recorded in the consolidated
statement of comprehensive income. If the recoverable amount increases in the future period, the amount previously recognized as
impairment loss could be reversed and recognized as a gain.
In 2013, some of our associates experienced
declines in market value for a certain length of time or were incurring losses, which were the indications of impairment. By performing
impairment evaluations, we recognized an impairment loss of NT$183.5 million for the year ended December 31, 2013, based on estimated
recoverable amount of NT$5,421.4 million. The recoverable amount was determined by the value in use, which were not necessarily
the current market value. In 2014 and 2015, we did not recognize any impairment loss on our investments in equity-accounted investees.
Income Taxes Uncertainties and Recognition
of Deferred Taxes
We are subject to the continuous examination
of our income tax returns by the tax authorities. We regularly assess the likelihood of adverse outcomes resulting from these examinations
to determine the adequacy of our provision for income taxes.
We have recognized deferred tax assets
for the carryforward of unused tax losses and unused tax investment credits to the extent that it is probable that sufficient taxable
profits will be available against which the deferred tax assets can be utilized. At each reporting date, the deferred tax assets
are reviewed for recoverability and reduced to the extent that it is no longer probable that the related tax benefit will be realized,
by considering nature of industry cycles, projected future taxable income and expiration years of unused tax losses carryforwards
and tax investment credits. As of December 31, 2014 and 2015, our unrecognized deferred tax assets were NT$38,700.3 million and
NT$42,571.8 million (US$1,298.3 million), respectively. Besides, we also have unrecognized deferred tax liabilities associated
with investments in subsidiaries amounted to NT$259.9 million and NT$673.0 million (US$20.5 million) as of December 31, 2014 and
2015, respectively.
The amount of the deferred tax asset considered
realizable could be reduced in the near term if estimates of future taxable income during the carryforwards or reversal periods
are reduced.
Legal Contingencies
From time to time, we are involved in disputes
that arise in the ordinary course of business, and we do not expect this to change in the future. We are currently involved in
certain legal proceedings as discussed in “Item 8. Financial Information—Item 8.A.7. Litigation.”
When
we determine it is more likely than not our defense in a legal claim will be unsuccessful and therefore it is also more likely
than not it will result in an outflow of our resources and our management can reasonably estimate the amount or range of such outflow,
we make appropriate provisions in our consolidated financial statements. In making this assessment we consider factors such as
the nature of the litigation or claims, the materiality of the amount of possible loss, the progress of the case and the opinions
or views of legal counsel and other advisors. In determining the appropriate amount of the provision to be recognized, we develop
an estimated amount or range of such loss. Where there is a continuous range of possible outcomes, and each point in that range
is as likely as any other, we use the mid-point of the range to measure and recognize the provision. Such estimates are based on
our assessment of the facts and circumstances at each reporting date and are subject to change based upon new information and intervening
events. We had provisions for litigation and claims amounting to NT$7,318.1 million and NT$4,018.9 million
(US$122.6 million) in the consolidated statements of financial position as of December 31, 2014 and 2015, respectively. See Note
20 and 38 to our consolidated financial statements included elsewhere in this annual report. However,
our actual liability may be materially different from the estimates as of December 31, 2015 and may have a material adverse effect
on our operating results, cash flows or financial condition.
Measurement of Defined Benefit Obligations
We use the Projected Unit Credit Method
for accrued pension liabilities and the resulting pension expenses under defined benefit pension plans. Actuarial assumptions comprise
the discount rate, rate of employee turnover, and long-term average future salary increase, etc. The discount rate is determined
by reference to the yield rate on Taiwan government bonds at the reporting date. Changes in economic circumstances and market conditions
will affect these assumptions and may have a material impact on the amount of the expense and the liability. As of December 31,
2014 and 2015, the accrued pension liabilities for our defined benefit obligations were NT$591.4 million and NT$753.7 million (US$23.0
million), respectively.
Consolidated Results of Operations
The following table sets forth certain
information of our results of operations, in both monetary amounts and as a percentage of our net revenue for the periods indicated:
| |
Year Ended December 31, |
| | |
2013 | |
2014 | |
2015 |
| |
NT$ | |
% | |
NT$ | |
% | |
NT$ | |
US$ | |
% |
| |
(in millions, except for percentages) |
| Net revenue | |
| 416,363.0 | | |
| 100.0 | | |
| 408,178.7 | | |
| 100.0 | | |
| 360,346.5 | | |
| 10,989.5 | | |
| 100.0 | |
| Cost of sales | |
| (382,378.9 | ) | |
| (91.8 | ) | |
| (359,668.1 | ) | |
| (88.1 | ) | |
| (320,509.4 | ) | |
| (9,774.6 | ) | |
| (88.9 | ) |
| Gross profit | |
| 33,984.1 | | |
| 8.2 | | |
| 48,510.6 | | |
| 11.9 | | |
| 39,837.1 | | |
| 1,214.9 | | |
| 11.1 | |
| Selling and distribution expenses | |
| (7,470.0 | ) | |
| (1.8 | ) | |
| (7,799.0 | ) | |
| (1.9 | ) | |
| (4,206.1 | ) | |
| (128.3 | ) | |
| (1.2 | ) |
| General and administrative expenses | |
| (9,691.1 | ) | |
| (2.4 | ) | |
| (9,389.6 | ) | |
| (2.3 | ) | |
| (9,206.0 | ) | |
| (280.8 | ) | |
| (2.6 | ) |
| Research and development expenses | |
| (8,530.5 | ) | |
| (2.0 | ) | |
| (9,156.6 | ) | |
| (2.2 | ) | |
| (8,903.8 | ) | |
| (271.5 | ) | |
| (2.5 | ) |
| Other income | |
| 2,448.5 | | |
| 0.6 | | |
| 2,162.1 | | |
| 0.5 | | |
| 2,197.6 | | |
| 67.0 | | |
| 0.6 | |
| Other gains and losses | |
| (1,176.4 | ) | |
| (0.3 | ) | |
| (801.8 | ) | |
| (0.2 | ) | |
| (9,978.3 | ) | |
| (304.3 | ) | |
| (2.7 | ) |
| Finance costs | |
| (4,782.8 | ) | |
| (1.1 | ) | |
| (4,045.1 | ) | |
| (1.0 | ) | |
| (2,591.0 | ) | |
| (79.0 | ) | |
| (0.7 | ) |
| Share of profit of equity-accounted investees | |
| 454.2 | | |
| 0.1 | | |
| 499.8 | | |
| 0.1 | | |
| 449.4 | | |
| 13.7 | | |
| 0.1 | |
| Profit before income tax | |
| 5,236.0 | | |
| 1.3 | | |
| 19,980.4 | | |
| 4.9 | | |
| 7,598.9 | | |
| 231.7 | | |
| 2.1 | |
| Income tax expense | |
| 1,359.1 | | |
| 0.3 | | |
| 3,243.2 | | |
| 0.8 | | |
| 384.9 | | |
| 11.7 | | |
| 0.1 | |
| Profit for the year | |
| 3,876.9 | | |
| 1.0 | | |
| 16,737.2 | | |
| 4.1 | | |
| 7,214.0 | | |
| 220.0 | | |
| 2.0 | |
| Other comprehensive income (loss) for the year, net of taxes | |
| 2,998.5 | | |
| 0.7 | | |
| 2,177.7 | | |
| 0.5 | | |
| (731.7 | ) | |
| (22.3 | ) | |
| (0.2 | ) |
| Total comprehensive income for the year | |
| 6,875.4 | | |
| 1.7 | | |
| 18,914.9 | | |
| 4.6 | | |
| 6,482.3 | | |
| 197.7 | | |
| 1.8 | |
In 2015, despite of an improved product
mix, we had lower gross margin compared to 2014, primarily due to a decline in panel prices resulting from less demand and macroeconomic
fluctuations. In the meanwhile, we had lower net margin in 2015 compared to 2014 primarily due to lower gross margin and a one-time
asset impairment associated with the cessation of polysilicon production.
In 2014, we had higher gross and net margins
compared to 2013, primarily due to an improvement of our product mix, a rise of the capacity utilization rate and our enhanced
cost control. Please see below for further analysis of our results of operations for the years ended December 31, 2013, 2014 and
2015.
For the Years Ended December 31, 2015 and 2014
Net Revenue
Net revenue decreased 11.7% to NT$360,346.5
million (US$10,989.5 million) in 2015 from NT$408,178.7 million in 2014.
Net revenue of large-size panels decreased
12.6% to NT$270,008.2 million (US$8,234.5 million) in 2015 from NT$309,093.8 million in 2014 primarily due to a decrease in the
average selling price and sales volume. The average selling price per panel decreased by 3.3% from NT$2,643.7 in 2014 to NT$2,555.6
(US$77.9) in 2015 mainly due to a decline in the market price. The sales volume decreased by 9.6% from 116.9 million in 2014 to
105.7 million in 2015 mainly due to a decline in sales volume of notebook, monitors and TV panels.
Net revenue of small- to medium-size panels
decreased 20.5% to NT$54,624.2 million (US$1,665.9 million) in 2015 from NT$68,738.0 million in 2014. The decrease was primarily
due to a decrease in the average selling price for mobile devices and small-sized tablets. The average selling price per panel
decreased by 21.5% from NT$402.7 in 2014 to NT$316.1 (US$9.6) in 2015 mainly due to a change in product mix and a decline in the
market price.
Cost of sales
Cost of sales is consisted primarily of
raw material and component costs, direct labor costs and overhead expenses which include depreciation expenses, maintenance expenses
of production equipment, indirect labor costs, indirect material costs, utilities and supplies.
Cost of sales decreased 10.9% from NT$359,668.1
million in 2014 to NT$320,509.4 million (US$9,774.6 million) in 2015. This decrease in cost of sales was primarily due to our continuous
enhanced cost control and lower depreciation expenses. However, due to a decrease of 11.7% in net revenue, as a percentage of net
revenue, cost of sales increased from 88.1% in 2014 to 88.9% in 2015.
Gross Profit
Gross profit was NT$39,837.1 million (US$1,214.9
million) in 2015 compared to gross profit of NT$48,510.6 million in 2014. Gross margin, which is gross profit divided by net revenue,
mainly fluctuates, among other factors, with our capacity utilization rate, the yield rate of our products, market price change
of our products and our product mix. The gross margin in 2015 and 2014 is 11.1% and 11.9%, respectively. The decrease was primarily
due to a decline in panel prices resulting from less demand and macroeconomic fluctuations.
Selling and Distribution Expenses
Selling and distribution expenses decreased
46.1% to NT$4,206.1 million (US$128.3 million) in 2015 from NT$7,799.0 million in 2014. The lower expenses in 2015 were primarily
due to a decrease in overall expenditures related to our marketing activities. As a percentage of net revenue, selling and distribution
expenses decreased to 1.2% in 2015 from 1.9% in 2014.
General and Administrative Expenses
General and administrative expenses decreased
2.0% to NT$9,206.0 million (US$280.8 million) in 2015 from NT$9,389.6 million in 2014. The decrease in 2015 was primarily due to
a decrease in compensation and benefit costs. Such decreases were partially offset by an increase in professional service expense.
However, due to a decrease in net revenue, as a percentage of net revenue, general and administrative expenses increased to 2.6%
in 2015 from 2.3% in 2014.
Research and Development Expenses
Research and development expenses decreased
2.8% to NT$8,903.8 million (US$271.5 million) in 2015 from NT$9,156.6 million in 2014. The decrease in 2015 was primarily due to
a decrease in compensation and benefit costs, partially offset by an increase in costs of tools and materials used for our research
and development activities. However, due to a decrease in net revenue, as a percentage of net revenue, research and development
expenses increased to 2.5% in 2015 from 2.2% in 2014.
Other Gains and Losses
Other gains and losses include primarily
gains or losses on disposal of assets, impairment loss on assets, foreign exchange gains or losses, gains or losses on valuation
of financial assets and liabilities measured at fair value through profit or loss, gain on bargain purchase and provisions related
to legal proceedings or claims and others. Total net other losses significantly increased to NT$9,978.3 million (US$304.3 million)
in 2015 from NT$801.8 million in 2014, primarily due to a one-time asset impairment associated with the cessation of polysilicon
production in our subsidiary M.Setek in 2015 and the gain on bargain purchase in relation to merger of subsidiaries occurred in
2014.
Finance Costs
Finance costs consist of interest expenses,
which have been primarily attributable to our bank loans, other loans and convertible bonds. Finance costs decreased 35.9% to NT$2,591.0
million (US$79.0 million) in 2015 from NT$4,045.1 million in 2014, primarily due to we had reduced our borrowing in 2015 through
repayment of long-term borrowings and the purchase and redemption of convertible bonds payable.
Income Tax Expense
Income tax expense decreased 88.1% to NT$384.9
million (US$11.7 million) in 2015 from NT$3,243.2 million in 2014, primarily due to a decrease in current tax expense in 2015 resulting
from a decline in the profit and a lower surtax on undistributed retained earnings in 2015. As a result, our effective tax rate
was 5.1% in 2015 compared to 16.2% in 2014.
Net Profit for the Year
As a result of the foregoing, we had a
net profit of NT$7,214.0 million (US$220.0 million) in 2015 or basic earnings per share of NT$0.75 (US$0.02) and diluted earnings
per share of NT$0.70 (US$0.02) in 2015 as compared to a net profit of NT$16,737.2 million or basic and diluted earnings per share
of NT$1.70 and NT$1.69, respectively, in 2014.
For the Years Ended December 31, 2014 and 2013
Net Revenue
Net revenue decreased 2.0% to NT$408,178.7
million in 2014 from NT$416,363.0 million in 2013.
Net revenue of large-size panels decreased
5.7% to NT$309,093.8 million in 2014 from NT$327,844.1 million in 2013. This decrease was primarily due to a decrease in the average
selling price per panel. The average selling price per panel decreased by 5.7% to NT$2,643.7 in 2014 from NT$2,802.7 in 2013. We
experienced a significant decline in the market price of TV panels in the second half of 2013. Although the market price of most
TV panels had gradually increased since the first quarter of 2014, the average selling prices of our large-size panels in 2014
remained lower compared to the prior year.
Net revenue of small- to medium-size panels
increased 11.2% to NT$68,738.0 million in 2014 from NT$61,796.9 million in 2013. The increase was primarily due to an increase
in sales of products for mobile device and certain commercial products, such as automobile panels, with more advanced technologies
or larger size panels which yielded a higher premium.
Cost of sales
Cost of sales consist primarily of raw
material and component costs, direct labor costs and overhead expenses which include depreciation expenses, maintenance expenses
of production equipment, indirect labor costs, indirect material costs, utilities and supplies.
Cost of sales decreased 5.9% to NT$359,668.1
million in 2014 from NT$382,378.9 million in 2013. As a percentage of net revenue, cost of sales decreased from 91.8% in 2013 to
88.1% in 2014. This decrease in cost of sales was primarily due to our enhanced cost control and lower depreciation expenses.
Gross Profit
Gross profit was NT$48,510.6 million in
2014 compared to gross profit of NT$33,984.1 million in 2013. Gross margin, which is gross profit divided by net revenue, mainly
fluctuates, among other factors, with our capacity utilization rate, the yield rate of our products, market price change of our
products and our product mix. We had gross margin of 11.9% and 8.2% in 2014 and 2013, respectively. The improvement was primarily
due to the improvement of our product mix, a rise of the capacity utilization rate and our enhanced cost control.
Selling and Distribution Expenses
Selling and distribution expenses increased
4.4% to NT$7,799.0 million in 2014 from NT$7,470.0 million in 2013. As a percentage of net revenue, selling and distribution expenses
slightly increased to 1.9% in 2014 from 1.8% in 2013. The higher expenses in 2014 were primarily due to an increase in overall
expenditures related to our marketing activities corresponding with the increased sales volumes in 2014.
General and Administrative Expenses
General and administrative expenses decreased
3.1% to NT$9,389.6 million in 2014 from NT$9,691.1 million in 2013. As a percentage of net revenue, general and administrative
expenses slightly decreased to 2.3% in 2014 from 2.4% in 2013. The decrease in 2014 was primarily due to adjustments on surtaxes
of certain China subsidiaries and a decrease in repair and maintenance expenses.
Research and Development Expenses
Research and development expenses increased
7.3% to NT$9,156.6 million in 2014 from NT$8,530.5 million in 2013. As a percentage of net revenue, research and development expenses
increased to 2.2% in 2014 from 2.0% in 2013. The increase in 2014 was primarily due to an increase in our research and development
projects.
Other Gains and Losses
Other gains and losses include primarily
gains or losses on disposal of assets, impairment loss on assets, foreign exchange gains or losses, gains or losses on valuation
of financial assets and liabilities measured at fair value through profit or loss, gain on bargain purchase and provisions related
to legal proceedings or claims and others. Total net other losses decreased 31.8% to NT$801.8 million in 2014 from NT$1,176.4 million
in 2013. The decrease was primarily attributable to the gain on bargain purchase we recorded for the merger of BriView Corp. and
Forhouse in the fourth quarter of 2014, which was partially offset by an increase in impairment losses on property, plant and equipment
derived from the cash-generating unit of our solar business in 2014 as compared to the impairment losses in 2013.
Finance Costs
Finance costs consist of interest expenses,
which have been primarily attributable to our bank loans, other loans and convertible bonds. Finance costs decreased 15.4% to NT$4,045.1
million in 2014 from NT$4,782.8 million in 2013, primarily due to a decrease in our long-term bank borrowings.
Income Tax Expense
Income tax expense increased 138.6% to
NT$3,243.2 million in 2014 from NT$1,359.1 million in 2013, primarily due to a profit before income tax of NT$19,980.4 million
in 2014 compared to a profit before income tax of NT$5,236.0 million in 2013, which led to an increase in current tax expense in
2014 resulting from a surtax on undistributed retained earnings. Our effective tax rate was 16.2% in 2014 compared to 26.0% in
2013. The lower effective tax rate in 2014 compared to that of 2013 was mainly because tax loss carryforwards and tax exemptions
were utilized to offset our tax expenses even though we generated better profits in 2014.
Net Profit for the Year
As a result of the foregoing, we had a
net profit of NT$16,737.2 million in 2014 or basic earnings per share of NT$1.70 and diluted earnings per share of NT$1.69 in 2014
as compared to a net profit of NT$3,876.9 million or basic and diluted earnings per share of NT$0.41 and NT$0.40, respectively,
in 2013.
Segment Information
General
We have two operating segments: display
business and solar business. Our management monitors and evaluates the performance of both operating segments based on the information
of their revenue and segment profit (loss). Segment profit (loss) represents gross profit (loss) minus selling and distribution
expenses, general and administrative expenses and research and development expenses. Segment
profit (loss) excludes long-lived asset impairments, gains and losses on disposal of assets, gain on bargain purchase, litigation
provisions for display business, foreign currency exchange gains or losses, finance costs, income taxes, share of profit and losses
of equity-accounted investees and other miscellaneous income and expenses. The following table sets forth our segments results
for the years indicated.
| | |
For the Year Ended December 31 |
| | |
2013 | |
2014 | |
2015 |
| | |
NT$ | |
NT$ | |
NT$ | |
US$ |
| | |
(in millions) |
| Net revenue | |
| | | |
| | | |
| | | |
| | |
| Display business | |
| 398,836.2 | | |
| 384,335.2 | | |
| 333,392.3 | | |
| 10,167.5 | |
| Solar business | |
| 17,526.8 | | |
| 23,843.5 | | |
| 26,954.2 | | |
| 822.0 | |
| Total | |
| 416,363.0 | | |
| 408,178.7 | | |
| 360,346.5 | | |
| 10,989.5 | |
| Segment profit (loss) | |
| | | |
| | | |
| | | |
| | |
| Display business | |
| 12,017.9 | | |
| 24,422.5 | | |
| 19,226.0 | | |
| 586.3 | |
| Solar business | |
| (3,725.4 | ) | |
| (2,257.1 | ) | |
| (1,704.8 | ) | |
| (52.0 | ) |
| Total | |
| 8,292.5 | | |
| 22,165.4 | | |
| 17,521.2 | | |
| 534.3 | |
Display business
For the Years Ended December 31, 2015 and 2014
Net revenue from our display business segment
decreased 13.3% to NT$333,392.3 million (US$10,167.5 million) in 2015 from NT$384,335.2 million in 2014, primarily due to a decrease
in the average selling price resulting from a decline in market prices and a decrease in sales volume of notebooks, monitors and
TV panels. See “Item 4. Information on the Company—4.B. Business Overview.”
The aggregate of selling, administrative
and research and development expenses in our display business segment decreased 17.7% to NT$20,498.1 million (US$625.1 million)
in 2015 from NT$24,909.6 million in 2014, primarily due to a decrease in selling and distribution expenses, resulting from a decrease
in overall expenditures related to our marketing activities.
Our segment profit was NT$19,226.0 million
(US$586.3 million) in 2015 compared to segment profit of NT$24,422.5 million in 2014. The decrease in segment profit in 2015 was
primarily due to a decline in panel prices resulting from less demand and macroeconomic fluctuations.
For the Years Ended December 31, 2014 and 2013
Net revenue from our display business segment
decreased 3.6% to NT$384,335.2 million in 2014 from NT$398,836.2 million in 2013, primarily due to a decrease in the average selling
price per panel of our TV panels. For information of the changes in sales by product category for our display business segment,
see “Item 4. Information on the Company—4.B. Business Overview.”
The aggregate of selling, administrative
and research and development expenses in our display business segment increased 2.5% to NT$24,909.6 million in 2014 from NT$24,301.5
million in 2013, primarily due to an increase in research and development expenses, partially offset by a decrease in general and
administrative expenses. The increase in research and development expenses was primarily due to an increase in our research and
development projects in 2014. The decrease in general and administrative expenses was primarily due to adjustments on surtaxes
of certain China subsidiaries and a decrease in repair and maintenance expenses.
Our segment profit was NT$24,422.5 million
in 2014 compared to segment profit of NT$12,017.9 million in 2013. The increase in segment profit in 2014 was primarily due to
an improvement of our product mix, a rise of the capacity utilization rate and our enhanced cost control.
Solar business
For the Years Ended December 31, 2015 and 2014
Net revenue from our solar business segment
increased 13.0% to NT$26,954.2 million (US$822.0 million) in 2015 from NT$23,843.5 million in 2014. The increase in solar segment
revenue was primarily due to the increase in sales of ingots, wafers and modules as a result of the improved market demand.
Segment loss decreased to NT$1,704.8 million
(US$52.0 million) in 2015 from NT$2,257.1 million in 2014. The decrease of the segment loss in 2015 was primarily due to the improvement
of our cost structure as well as the enhancement of our product mix.
For the Years Ended December 31, 2014 and 2013
Net revenue from our solar business segment
increased 36.0% to NT$23,843.5 million in 2014 from NT$17,526.8 million in 2013. The increase in solar segment revenue was primarily
due to the gradual recovery of market demand as well as the increase in modules sales in Europe, Japan and emerging market.
Segment loss decreased to NT$2,257.1 million
in 2014 from NT$3,725.4 million in 2013. The decrease of the segment loss in 2014 was primarily due to the improvement of our cost
structure as well as an increase in the portion of higher value products.
Inflation
We do not believe that inflation in any
of our key markets has had a material impact on our results of operations in 2015. However, we cannot provide assurance that in
the event of significant variations in the nature, extent or scope of inflation within any of our key markets in the future would
not have a material impact on our results of operations.
Taxation
The corporate income tax rate in ROC is
17% in 2013, 2014 and 2015 and our subsidiaries outside ROC are subject to their country’s juridical tax rate.
In the past, we had been granted exemptions
from taxable income in Taiwan for construction and capacity expansions of production facilities according to the ROC Statute for
Upgrading Industries. The exemption period may begin at any time within four to five years following the completion of a construction
or expansion. We enjoyed tax savings from such exemptions of NT$485.7 million and NT$0.16 million (US$4.9 thousand) in 2014 and
2015, respectively.
The ROC Statute for Upgrading Industries
expired at the end of 2009 and we are no longer entitled to enjoy the tax benefits of investment tax credits and the five-year
tax exemptions starting from January 1, 2010 in connection with our purchases of qualifying machinery and equipment and capital
raising. However, we are still eligible for those unexpired tax credits and exemptions which were approved
by the related authority before the expiration of the ROC Statute for Upgrading Industries. The tax incentives of 7% for such
tax benefits of investment tax credits expired in 2015. Besides, one of our subsidiaries enjoys investment tax credit in
Singapore granted by the Singapore Economic Development Board.
Under regulations promulgated of ROC Statute
for Industrial Innovation, we are eligible to apply either (1) a one-time tax credit up to 15% of our research and development
expenditures for that year, or (2) a tax credit of 10% of our research and development expenditures for three consecutive years.
Either of the aforesaid tax credit shall not exceed 30% of our corporate income tax payable for that year.
Pursuant to the ROC Income Basic Tax Act
(the “IBT Act”) announced in late 2005, an alternative minimum tax system became effective on January 1, 2006
in the ROC. When a taxpayer’s income tax amount is less than the basic tax amount (“BTA”), a taxpayer is required
to pay the regular income tax and the difference between the BTA and the regular income tax amount. For enterprises, BTA is determined
using regular taxable income plus specific add-back items such as certain exempt income tax under tax incentives scheme and exempt
capital gain or loss from securities and futures trading. Further in August 2012, the calculation of gain or loss on securities
transactions was changed and the basic tax rate for enterprises was amended from 10% to 12% effective from January 1, 2013.
5.B. Liquidity and Capital Resources
We need cash primarily for technology advancement,
capacity expansion and working capital. Although we have historically been able to meet our working capital requirements through
cash flow from operations, our ability to upgrade our technology and expand our capacity has largely depended upon, and to a certain
extent will continue to depend upon, our financing capability through long-term borrowings, the issuance of convertible and other
debt securities and the issuance of equity securities. If adequate funds are not available, whether on satisfactory terms or at
all, we may be forced to curtail our growth plans including technology advancements, new capacity and advanced technology fabs.
Our ability to meet our working capital needs from cash flow from operations will be affected by our business conditions which
in turn may be affected by several factors. Many of these factors are outside of our control, such as economic downturns and declines
in the selling prices of our products caused by oversupply in the market. The selling prices of our existing product lines are
reasonably likely to be subject to further downward pressure in the future if oversupply occurs. To the extent that we do not generate
sufficient cash flow from our operations to meet our cash requirements, including technology advancement, capacity expansion, working
capital, matured debt repayment and any accelerated debt obligations arising from past or future defaults that are not waived by
the relevant creditors, we may need to rely on a combination of additional borrowings, equity or debt securities offerings or other
forms of capital financing. Our subsidiaries must follow local regulations in order to transfer funds to us. However, such regulations
have not and are not expected to have an impact on our ability to meet our cash obligations. Other than as described below in “Item
5. Operating and Financial Review and Prospects—Item 5.E—Off-Balance Sheet Arrangements,” we have not
historically relied, and we do not plan to rely in the foreseeable future, on off-balance sheet financing arrangements to finance
our operations or expansion.
As of December 31, 2015, we had net current
assets of NT$20,124.4 million (US$613.7 million) as our current assets of NT$161,992.1 million (US$4,940.3 million) exceeded our
current liabilities of NT$141,867.7 million (US$4,326.6 million). We expect to meet our present working capital requirements through
cash flow from operations, bank loans and borrowings and by financing activities from capital markets from time to time.
As of December 31, 2015, we had cash and
cash equivalents of NT$78,880.7 million (US$2,405.6 million). As of December 31, 2015,
we had total short-term credit lines of NT$30,813.3 million (US$939.7 million), of which we had borrowed NT$1,593.7 million (US$48.6
million). All of our short-term facilities are revolving with a term of one year, which may be extended for terms of one year each
with lender consent. Our repayment obligations under our short-term loans are unsecured. We believe that our existing credit lines
under our short-term loans, together with cash generated from our operations, are sufficient to liquidity needs.
We also entered into reverse repurchase
agreements with securities firms or banks in Taiwan covering government and quasi-government bonds for short-term yield enhancement
purposes. The terms of these reverse repurchase agreements are typically less than one month. As of December 31, 2013, 2014
and 2015, we held government bonds with reverse repurchase agreements in amounts of NT$7,869.2 million, NT$9,473.6 million and
NT$1,295.1 million (US$39.5 million), respectively; and these bonds yielded interest at rates ranging from, 0.33% to 0.62%, 0.33%
to 0.55% and 0.26% to 0.38%, respectively.
As of December 31, 2015, we had outstanding
long-term borrowings of approximately NT$108.2 billion (US$3.3 billion). The interest rates in respect of most of these long-term
borrowings are variable, and as of December 31, 2015 ranged between 1.17% and 5.00% per year.
Below is a summary of our major outstanding
borrowings and loans. Please also see Note 19 to our consolidated financial statements for further information.
| · | In October 2008, we entered into a NT$58.0 billion seven-year syndicated credit facility, for which the Bank of Taiwan acted
as the agent bank, for the purpose of funding the construction and purchase of machinery and equipment at our first 8.5-generation
fab. The agreement for this syndicated facility contains covenants that require us to maintain certain financial ratios. Our obligations
under this credit facility are secured by certain of our equipment and machinery. As of December 31, 2015, NT$11.9 billion
(US$362.9 million) was outstanding under this credit facility. |
| · | In September 2010, our subsidiary, AFPD entered into a US$360 million five-year syndicated credit facility, for which the Credit
Agricole Corporate and Investment Bank, Singapore Branch (“CACIB”) acted as the agent bank, for the purpose of repaying
AFPD’s loan from Toshiba and funding working capital needs or capital expenditures. The agreement for this syndicated facility
is guaranteed by us. Under the agreement, AFPD and we are required to maintain certain financial ratios. We fully repaid this facility
in November 2015. |
| · | In October 2010, we issued US$800 million aggregate principal amount of zero coupon convertible bonds due 2015 to fund overseas
equipment purchases. The bonds had been matured and fully repaid in October 2015. |
| · | In January 2011, we entered into a NT$45.0 billion five-year syndicated credit facility, for which the Bank of Taiwan acted
as the agent bank, for the purpose of funding medium-term working capital and repaying outstanding debts. The agreement for this
syndicated facility contains covenants that require us to maintain certain financial ratios. Our obligations under this facility
are secured by certain of our equipment and machinery. As of December 31, 2015, NT$14.9 billion (US$454.4 million) was outstanding
under this credit facility. |
| · | In April 2011, M.Setek entered into a JPY55.0 billion five-year syndicated credit facility, for which Mizuho Bank, Ltd. acted
as the agent bank, for the purpose of refinancing its syndicated loan with Mizuho Bank dated December 2009 and for funding general
working capital. The agreement for this syndicated facility is guaranteed by us. Under the agreement and guarantee, M.Setek and
we are required to maintain certain financial ratios. We fully repaid this facility in December 2015. |
| · | In October 2011, our subsidiary AUO Crystal Corp. entered into a NT$8.0 billion five-year syndicated credit facility, for which
First Commercial Bank acted as the agent bank, for the purpose of funding the construction and the procurement of machinery and
equipment for the solar and sapphire wafer factory. The agreement for this syndicated facility contains covenants that require
AUO Crystal Corp. to maintain certain financial ratios. Following a request by us in June 2013 to reduce the amount of this credit
facility, the syndicated banks cancelled NT$1.1 billion under the five-year syndicated credit facility effective June 25, 2013.
We fully repaid this facility in February 2016. |
| · | In January 2013, we entered into a NT$17.3 billion four-and-a-half-year syndicated credit facility, for which the Bank of Taiwan
acted as the agent bank, for the purpose of repaying existing debts. The agreement for this syndicated facility contains covenants
that require us to maintain certain financial ratios. Our obligations under this facility are secured by certain of our building,
equipment and machinery. As of December 31, 2015, NT$13.1 billion (US$399.5 million) was outstanding under this credit facility. |
| · | In October 2013, we entered into a NT$26.9 billion five-year syndicated credit facility, for which the Bank of Taiwan acted
as the agent bank, for the purpose of repaying existing debts. The agreement for this syndicated facility contains covenants that
require us to maintain certain financial ratios. Our obligations under this facility are secured
by certain of our land, building, equipment and machinery. As of December 31, 2015, NT$26.9 billion
(US$820.4 million) was outstanding under this credit facility. |
| · | In August 2014, our subsidiary AFPD entered into a US$110 million four-and-a-half -year syndicated credit facility, for which
Standard Chartered Bank (Hong Kong) Limited, acted as agent bank, for the purpose of repaying AFPD’s existing loan and financing
AFPD’s general corporate purposes. The agreement for this syndicated facility is guaranteed by us. Under the agreement, AFPD
and we are required to maintain certain financial ratios. Following a request by us in January 2015 to reduce the amount of this
credit facility, the syndicated banks cancelled US$9 million under this syndicated credit facility effective February 13, 2015.
As of December 31, 2015, US$96 million was outstanding under this credit facility. |
| · | In September 2014, we entered into a NT$25.8 billion five-year syndicated credit facility, for which the Bank of Taiwan acted
as the agent bank, for the purpose of |
| | repaying existing debts. The agreement for this syndicated facility contains covenants that require us to maintain
certain financial ratios. Our obligations under this facility are secured by certain of our building, equipment and
machinery. As of December 31, 2015, NT$20.0 billion (US$609.9 million) was outstanding under this credit facility. |
| · | In May 2015, our subsidiary AU Optronics (Kunshan) Co., Ltd. (“AUKS”) entered into an RMB3,985 million and US$326
million eight-year syndicated credit facility, for which the Bank of China (Suzhou) acted as the agent bank, for the purpose of
funding the construction and purchase of machinery and equipment for our 6-generation LTPS fab in Kunshan, PRC. The agreement for
this syndicated facility is guaranteed by AUKS’s shareholders, Kunshan Economic & Technical Development Zone Assets Operation
Co., Ltd. and us, in accordance with the shareholding percentages, respectively. Under the guarantee, we are required to maintain
certain financial ratios. As of December 31, 2015, US$4.5 million was outstanding under this credit facility, and
the RMB facility had not been drawn down. |
| · | In September 2015, we entered into a NT$37.5 billion five-year syndicated credit facility, for which the Bank of Taiwan acted
as the agent bank, for the purpose of funding medium-term working capital and repaying existing debts. The agreement for this syndicated
facility contains covenants that require us to maintain certain financial ratios. Our obligations under this facility are secured
by certain of our building, equipment and machinery. As of December 31, 2015, this credit facility had not been drawn down. |
The carrying amount of our assets pledged
as collateral to secure our obligations under our long-term borrowings, including land, building, machinery and equipment was NT$105.0
billion (US$3.2 billion) as of December 31, 2015.
Our long-term loans and facilities contain
various financial and other covenants that could trigger a requirement for early payment. Among other things, these covenants require
the maintenance of certain financial ratios, such as current ratio, indebtedness ratio, interest coverage ratio, minimum equity
requirements and other technical requirements. In general, covenants in the agreements governing our existing debt, and debt we
may incur in the future, may materially restrict our operations, including our ability to incur debt, pay dividends, make certain
investments and payments and encumber or dispose of assets. A default under one debt instrument may also trigger cross-defaults
under our other debt instruments. An event of default under any debt instrument, if not cured or waived, could have a material
adverse effect on our liquidity, as well as our financial condition and operations. See
“Item 3. Key Information—3.D. Risk Factors-Risks Relating to Our Business—We
need to comply with certain financial and other covenants under the terms of our debt instruments, the failure to comply with which
may put us in default under those instruments.”
On May 13, 2013, we consummated an underwritten
SEC registered follow-on offering of our ADSs representing 797,199,580 common shares (including ADSs sold under an over-allotment
option). The net proceeds of the offering were approximately US$347.1 million.
Cash Flows
Net cash provided by operating activities
were NT$49,642.4 million in 2013, NT$63,392.7 million in 2014 and NT$62,003.4 million (US$1,890.9 million) in 2015. The decrease
in net cash provided by operating activities in 2015 compared to 2014 was primarily due to decreased cash collections from our
ordinary business as a result of a decline in net revenue in 2015, partially offset by less cash outflow relating to our ordinary
operations as a result of effective cost control. The increase in net cash provided by operating activities in 2014
compared to 2013 was primarily due to more cash inflows as a result of our better operation performance with higher profit before
income tax.
Net cash used in investing activities were
NT$23,223.8 million in 2013, NT$13,106.8 million in 2014 and NT$31,734.7 million (US$967.8 million) in 2015. Net cash used in investing
activities primarily reflected capital expenditures for property, plant and equipment of NT$25,457.8 million in 2013, NT$16,971.0
million in 2014 and NT$33,440.2 million (US$1,019.8 million) in 2015. These capital expenditures were primarily funded with net
cash provided by operating activities and proceeds from long-term bank borrowings.
Net cash used in financing activities
was NT$26,785.4 million in 2013, reflecting primarily in the repayment of long-term and short-term borrowings for NT$53,541.1
million, partially offset by the net proceeds from long-term borrowings and issuance of common stock for NT$29,910.2 million.
Net cash used in financing activities was NT$45,041.5 million in 2014, reflecting primarily in the repayment of long-term and
short-term borrowings for NT$70,458.0 million and the purchase of convertible bonds payable for NT$5,978.9 million, partially
offset by the proceeds from long-term borrowings for NT$32,956.8 million. Net cash used in financing activities was
NT$34,277.0 million (US$1,045.3 million) in 2015, reflecting primarily in the repayment of long-term borrowings for
NT$50,849.7 million (US$1,550.8 million) and the purchase of convertible bonds payable for NT$14,799.7 million (US$451.3
million), partially offset by the proceeds from long-term borrowings for NT$30,634.0 million (US$934.2 million).
Capital Expenditures
We have made, and expect to continue to
make, capital expenditures in connection with technology advancement and the expansion of our production capacity. For the past
three years, substantially all of capital expenditures were invested in facilities located in Taiwan and the PRC.
We are sometimes required to prepay our
purchases of land and equipment. Prepayments for purchases of land are the result of a standard processing procedure by the ROC
government related to the transfer of legal title. Prepayments for purchases of equipment result from contractual agreements involving
down payments to suppliers when the equipment is ordered by us. As of December 31, 2013, 2014 and 2015, prepayments for purchases
of equipment were NT$9,494.8 million, NT$3,436.2 million and NT$16,332.9 million (US$498.1 million), respectively.
Our capital expenditures paid in 2015 were
around NT$33.4 billion (US$1.0 billion), primarily for the installation of our 6-generation LTPS fab in China and the new capacity
at our 8.5-generation fab in Taiwan. Our capital expenditures in 2016 are expected to be around NT$45.0 billion, which, depending
on cash flow generated from our operations, the progress of our planned growth, and market conditions, may be adjusted later. Our
capital expenditures in 2016 are planned to be used primarily for technology upgrading and aforesaid expansion projects at our
6-generation LTPS fab in China and our 8.5-generation fab in Taiwan. For further description with regard to the planning 6-generation
fab in China and capacity expansion of our 8.5-generation fab in Taiwan, see “Item 4. Information of the Company—4.D.
Property, Plants and Equipment—Expansion Projects.”
Our principal sources of funds have been
historically from long-term borrowings, the issuance of convertible and other debt securities as well as the issuance of equity
securities. We believe that our existing cash, cash equivalents, short-term investments, expected cash flow from operations and
borrowings under our existing and future credit facilities should be sufficient to meet our present capital expenditure, working
capital, cash obligations under our existing debt and lease arrangements and other requirements. From time to time, we frequently
need to raise additional capital for the needs of our business growth, including but not limited to, our investment in new capacity
and new technologies to improve our economies of scale, reduce our production costs and enrich our product portfolio. However,
we cannot assure you that we will be able to raise additional capital should it become necessary on terms acceptable to us or at all. See “Item 3. Key Information—3.D.
Risk Factors—Risks Relating to Our Financial Condition, Business and Industry—If capital resources required for our
planned growth or development are not available, we may be unable to successfully implement our business strategy.”
5.C. Research and Development
We incurred research and development costs
of NT$8,530.5 million, NT$9,156.6 million and NT$8,903.8 million (US$271.5 million) in 2013, 2014 and 2015, respectively, which
represented 2.0%, 2.2% and 2.5%, respectively, of our net revenue.
Our research and development activities
are principally directed toward advancing our technologies in key components, manufacturing processes and product development,
with the objective of improving the features of our products and services to bring added value to our customers in addition to
design products that meet their specific requirements. We have a product development team dedicated to each of our primary product
categories. Each of these teams focuses on the development of our existing and potential new products. In addition, we have several
research and development teams to develop new and advanced display technologies, such as UHD 4K, curved display, OLED, WCG, HDR,
Bezel-less, and touch technologies. Monetary incentives are provided to our employees if research projects result in successful
patents. As of December 31, 2015, we employed approximately 2,426 research and development engineers.
We established a dedicated flat panel research
and development center, the AUO Technology Center, in 2002, which we believe is one of Taiwan’s largest optronics research
and development centers. The research activities at the AUO Technology Center initially have been divided into several general
areas, including advanced technology development in new liquid crystal materials, new system electronics, new backlight unit technologies,
image and color processing, LTPS and new TFT devices. In addition to new product development and module processing, the AUO Technology
Center also focuses on improving our current TFT-LCD panel product and manufacturing process technologies. In 2005, we expanded
the AUO Technology Center to the Central Taiwan Science Park. In 2008, we established the Advance Research Center under the AUO
Technology Research Center to focus on the development of new technologies and mid- to-long term technologies.
In 2013, we announced and exhibited a series
of new developments of advanced display technologies. For example, we showcased the 56-inch UHD 4K OLED TV Panel, which was then
among the world’s first and largest OLED TV panels in terms of size, and to have achieved 4K resolution. We revealed our
65-inch Full HD OLED panel technology, which adopted advanced metal Oxide Thin Film Transistor (“Oxide TFT”) backplane
and the Generation 6 full-size Fine Metal Mask OLED evaporation technology and embedded with our proprietary pixel compensation
driving technology, allowing the OLED panel to provide high contrast, high brightness, free viewing angle while lowering power
consumption. In addition, we showcased of our 65 and 55-inch UHD 4K WCG TV Panels which allow resolution of 4K with 120Hz frame
rate and 55-inch Super Slim Dual Side Display. There was also a showcase of our 6.5-inch Full HD OGS Touch Panel for smartphone,
and Embedded Touch Panel (“eTP”) offering standardized integrated touch solutions for touch-enabled notebooks. Furthermore,
we presented 5 to 6.5-inch large-sized smartphone display with HD720 and Full HD ultra-high resolution and 5-inch Full HD AMOLED
smartphone display with resolutions as high as 443 ppi (pixel per inch). Lastly, we demonstrated 4.3-inch Flexible AMOLED technology,
which adopts plastic substrate and thin film encapsulation to devise flexible and ultra slim AMOLED panel with thickness of only
0.2mm.
In 2014, we announced and exhibited a series
of new developments of advanced display technologies. For example, we showcased mobile device applications including 5.7-inch WQHD
AMOLED panel, ultra-slim 1.63-inch in-cell touch AMOLED panels for use in wearable devices and 12.3-inch AHVA LCD (1920 x 720 pixel)
panel technology, which was then the largest in size and highest in resolution for dashboards, and on-cell touch panel integrated
touch solutions. We presented 42-to 85-inch UHD 4K curved LCD TV displays with WCG of over 100% NTSC color saturation, and debuted
27- and 32-inch LCD panels, wide viewing angle AHVA technology and narrow bezel designs. Furthermore, we also initiated development
of a new 35-inch 21:9 144 Hz Ultra Wide Curve (curvature 2000 mm) panel with wide viewing angle Advanced Multi-domain Vertical
Alignment (“AMVA”) technology and narrow bezel designs to capture the gaming market; and presented a new 27-inch WQHD
144Hz panel to capture the gaming market.
In 2015, we announced and exhibited a series
of new developments of advanced display technologies, including but not limited to:
| · | Introduced the ALCD (Advanced LCD) TV panels incorporating numerous pioneering display technologies, including UHD 4K ultra
high resolution, curved design, quantum dot wide color gamut and HDR technologies; this new product can provide true colors and
images in exquisite details, and also create dazzling and breathtaking scenes; |
| · | Showcased light and power-saving displays for wearable devices, including 1.3/2.6-inch transflective LCD, 1.5/1.6-inch square
AMOLED displays employing glass thinning method to trim panel thickness down to 0.45 mm and 4.3-inch Full HD ultra thin LTPS display;
the 1.4-inch full circle AMOLED display honored as 2015 Society for Information Display (SID) Best in Show Award; |
| · | Debuted slim UHD 4K ultra high resolution displays for smartphone, notebooks, oTP-Lite (on-cell) touch panel with wide color
gamut and high contrast ratio to present colors in more precision which can meet the demand for professional graphic stylus; |
| · | Presented a complete series of ultra high resolution car displays, including 12.3-inch LCD (2880 x 1080 pixel) with high resolution
display for instrument cluster and 8/10.1-inch HD resolution LCD panels for center information display. In addition, the 8-inch
WVGA LCD combines oTP and full lamination technologies to obtain low reflection and excellent touch performance; and |
| · | Developed 55-inch Full HD super narrow border panel for public information display TV wall application. |
5.D. Trend Information
For trend information, see “Item
4. Information on the Company—4.B. Business Overview” and “Item 5. Operating and Financial Review and Prospects—5.A.
Operating Results.”
5.E. Off-Balance Sheet Arrangements
We have, from time to time, entered into
non-derivative financial instruments, including letters of credit, to finance or secure our purchase payment obligations. As of
December 31, 2015, we had off-balance sheet outstanding letters of credit of US$7.5 million, JPY7,191.7 million and EUR1.4
million.
5.F. Tabular Disclosure of Contractual
Obligations
The following table sets forth our contractual
obligations with definitive payment terms as of December 31, 2015, which will require significant cash outlays in the future.
| | |
Payments Due by Period |
| | |
Total | |
Less than
1 year | |
1-3 years | |
4-5 years | |
More than
5 years |
| | |
NT$ | |
NT$ | |
NT$ | |
NT$ | |
NT$ |
| | |
(in millions) |
| Contractual Obligations | |
| | | |
| | | |
| | | |
| | | |
| | |
| Long-term debt obligations: | |
| | | |
| | | |
| | | |
| | | |
| | |
| Long-term borrowings(1) | |
| 111,672.8 | | |
| 40,803.8 | | |
| 52,961.8 | | |
| 17,812.4 | | |
| 94.8 | |
| Operating lease obligations(2) | |
| 6,498.9 | | |
| 863.5 | | |
| 1,366.1 | | |
| 1,248.8 | | |
| 3,020.5 | |
| Purchase obligations(3) | |
| 41,720.9 | | |
| 41,720.9 | | |
| - | | |
| - | | |
| - | |
| Other obligations(4) | |
| 2,424.8 | | |
| 1,879.5 | | |
| 545.3 | | |
| - | | |
| - | |
| Total | |
| 162,317.4 | | |
| 85,267.7 | | |
| 54,873.2 | | |
| 19,061.2 | | |
| 3,115.3 | |
| (1) | Includes estimated relevant interest
payments in any given period in the future. See Note 19 to our consolidated financial
statements for further information regarding interest rates. |
| (2) | Represents our obligations to make
lease payments to use the land on which our fabs and module-assembly facilities are located. |
| (3) | Represents our significant outstanding
purchase commitments for the machinery and equipment at our fabs. We have placed orders
primarily related to the technological upgrade and the enhancement of value of capacity. |
| (4) | Includes
certain settlement agreements regarding certain antitrust civil actions and certain alleged
patent infringements with definitive payment terms as of December 31, 2015. See “Item
8. Financial Information—8.A.7. Litigation” for further information
relating to certain antitrust civil actions.” and “Item 3.D.—Risk
Factors—Risks Relating to Our Financial Condition, Business and Industry—We
are involved in a number of legal proceedings concerning matters arising from our business
and operations, and as a result we may face significant liabilities. If we or our employees
are found to have violated any applicable law, including antitrust and competition laws
in pending actions or new claims, or if our appeals regarding such violations are not
successful, we may be subject to severe fines or penalties that would have a material
adverse effect on our business and operations.” |
In addition to the contractual obligations
set forth above, we also have continuing obligations to make cash royalty payments under our technology license agreements, the
amounts of which are determined based on our use of certain technology and/or patents. Furthermore, pursuant to relevant regulatory
requirements, we estimate that we will contribute approximately NT$105.1 million (US$3.2 million) to our pension fund maintained
with the Bank of Taiwan in 2016.
We have not entered into any financial
guarantees or similar commitments to guarantee the payment obligations of non-affiliated third parties. Our long-term loan and
lease agreements include provisions that require early payment under certain conditions. The terms of our credit facilities for
long-term borrowings also contain financial covenants, including current ratio, indebtedness ratio, interest coverage ratio, minimum
equity requirements and other technical requirements. Our debt under these facilities may be accelerated if there is a default,
including defaults triggered by failure to comply with these financial covenants and other technical requirements. Please refer
to “Item 5. Operating and Financial Review and Prospects—5.B. Liquidity and Capital Resources” for further information
of our major outstanding borrowings and loans.
| ITEM 6. |
DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES |
6.A. Directors and Senior Management
Members of our board of directors are elected
by our shareholders. Our board of directors is composed of nine directors. The chairman of the board of directors is elected by
the directors. The chairman of the board of directors presides at all meetings of the board of directors and also has the authority
to act as our representative. The term of office for directors is three years.
Pursuant to the ROC Company Act, a person
may serve as our director in his or her personal capacity or as the representative of another legal entity. A director who serves
as the representative of a legal entity may be removed or replaced at any time at the discretion of that legal entity, and the
replacement director may serve the remainder of the term of office of the replaced director. Of our nine current directors, one
is the representative of Qisda.
In addition, pursuant to the ROC Securities
Exchange Act, a public company is required to either establish an audit committee or retain supervisors, provided that the FSC
may, after considering the scale, business nature of a public company and other essential conditions, require the company to establish
an audit committee in place of its supervisors. We replaced our supervisors by establishing an audit committee on June 13,
2007. The audit committee’s duties and powers include, but are not limited to, investigation of our financial condition,
inspection of corporate records, verification of statements by the board of directors, giving reports at shareholders’ meetings,
representation of us in negotiations with our directors and giving notification, when appropriate, to the board of directors to
cease acting in contravention of applicable law or regulations or our Articles of Incorporation or the resolutions of our shareholders’
meeting. Our audit committee is required to be composed of all of our independent directors, who are currently, Vivien Huey-Juan
Hsieh, Mei-Yueh Ho, Ding-Yuan Yang, Tain-Jy Chen and Chin-Bing (Philip) Peng.
Directors
The following table sets forth information
regarding all of our directors as of February 29, 2016. The business address of all of our directors is the company’s principal
executive office.
|
Name |
Age |
Position |
Term
Expires |
Years
On Our Board |
Principal
Business Activities Performed
Outside Our Company |
| Shuang-Lang (Paul) Peng |
58 |
Chairman and Chief Executive Officer |
2016 |
6 |
· N/A |
| Kuen-Yao (K.Y.) Lee |
64 |
Director |
2016 |
20 |
· Chairman,
Qisda Corporation
· Director,
Darfon Corporation
· Director,
BenQ Materials Corp.
|
| Cheng-Yih Lin |
64 |
Director |
2016 |
4 |
· Chairman and Chief Executive Officer, Daxin Materials Corporation |
| Ronald Chwang(1) |
68 |
Director |
2016 |
8 |
· Chairman,
iD Ventures America, Inc.
· Director,
CoAdna Holding, Inc.
|
| Vivien Huey-Juan Hsieh |
63 |
Independent Director |
2016 |
12 |
· N/A |
| Mei-Yueh Ho |
65 |
Independent Director |
2016 |
6 |
· Independent
Director and member of Compensation Committee, Bank of Kaohsiung, Ltd.
· Independent
Director and member of Compensation Committee, KINPO Electronics Inc.
· Independent
Director, Advanced Semiconductor Engineering, Inc.
· Independent
Director, Ausnutria Dairy Corporation Ltd.
|
| Ding-Yuan Yang |
68 |
Independent Director |
2016 |
6 |
· Chairman, UniSVR Global Information Technology Corp. |
| Tain-Jy Chen |
63 |
Independent Director |
2016 |
3 |
· Professor,
National Taiwan University
· Independent
Director and member of Compensation Committee, TECO Electric & Machinery Co., Ltd.
· Independent
Director and member of Compensation Committee, Chunghwa Telecom Co., Ltd.
· Independent
Director, MediaTek Inc.
|
| Chin-Bing (Philip) Peng |
63 |
Independent Director |
2016 |
3 |
· Director
and President, iD SoftCapital
· Director,
ACER Incorporated.
· Director,
Wistron NeWeb Corporation
· Director,
AOPEN Inc.
·
Director, Wistron Information Technology & Services Corp.
|
(1)
Representing Qisda.
Shuang-Lang (Paul) Peng. Mr. Peng
has been our Chairman since May 11, 2015, and our Chief Executive Officer since November 1, 2015. He has been a director with
us since 2010. Prior to his current position, Mr. Peng was our President from January 1, 2012 to October 31, 2015, Executive
Vice President from 2008 to 2011, Senior Vice President from 2007 to 2008 and Vice President from 1998 to 2007. Prior to joining
AUO, Mr. Peng worked as the Manager of the material and production department at BenQ’s Malaysia branch. Mr. Peng
received his Master’s degree in Business Administration from Heriot-Watt University in the United Kingdom in 1995.
Kuen-Yao (K.Y.) Lee. Mr. Lee
has been a director of our company since 1996. He was our Chairman from 1996 to May 10, 2015. Mr. Lee received his Bachelor’s
degree in Electrical Engineering from the National Taiwan University in Taiwan in 1974 and his Master of Business Administration
degree from the International Institute for Management Development in Switzerland in 1990.
Cheng-Yih Lin. Dr. Lin has been
a director of our company since October 2012. Dr. Lin is also Chairman of Daxin Materials Corporation. Prior to his current position,
Dr. Lin was a Senior Vice President of AUO from 2005 to 2007. He received his Ph.D. degree in Chemical Engineering from Carnegie
Mellon University in the United States in 1982.
Ronald Chwang. Dr. Chwang has
been a director of our company since 2008. Dr. Chwang is also Chairman of iD Ventures America. From 1998 to 2005, Dr. Chwang
served as Chairman and President of Acer Technology Ventures, America. He was also President and Chief Executive Officer of Acer
America Corp from 1992 to 1997. Dr. Chwang received a Bachelor’s degree in Engineering from McGill University in 1972
and his Ph.D. degree in Electrical Engineering from the University of Southern California in the United States in 1977.
Vivien Huey-Juan Hsieh. Dr. Hsieh
has been our director since April 2004. Dr. Hsieh received a Ph.D. in Finance from the Graduate School of Business Administration,
University of Houston, University Park, Texas in the United States.
Mei-Yueh Ho. Ms. Ho has been
our director since 2010. Ms. Ho served as Minister of Ministry of Economic Affairs, ROC from 2004 to 2006. She was also Council
Minister of Council for Economic Planning and Development, ROC. from 2007 to 2008. Ms. Ho received her Bachelor’s degree
in Agricultural Chemistry from the National Taiwan University in Taiwan in 1973.
Ding-Yuan Yang. Dr. Yang has
been a director of our company since 2010. Dr. Yang is also Chairman of UniSVR Global Information Technology Corp. Dr. Yang
served as President of Windbond Electronics Corp. from 1987 to 1999 and as Vice Chairman of Windbond Electronics Corp. from 1999
to 2002. Dr. Yang received his bachelor’s degree in Electrical Engineering from the National Taiwan University in Taiwan
in 1969 and his Ph.D. degree in Electrical Engineering from Princeton University in the United States in 1975.
Tain-Jy Chen. Dr. Chen has
been a director of our company since 2013. Dr. Chen is a professor at the Department of Economics at National Taiwan University.
Dr. Chen received his bachelor’s degree in Electrical Engineering from the National Taiwan University in Taiwan in 1975
and his Ph.D. degree in Economics from Pennsylvania State University in the United States in 1983.
Chin-Bing (Philip) Peng. Mr. Peng
has been a director of our company since 2013. Mr. Peng is also Director and President of iD SoftCapital Inc. Mr. Peng served as
Senior Vice President and Chief Financial Officer of ACER Incorporated. Mr. Peng received his Master’s degree in Business
Administration from National ChengChi University in 1980.
Senior Management
The following table sets forth information
regarding all of our senior management as of February 29, 2016.
Name |
Age |
Position |
Years
With
Us |
| Shuang-Lang (Paul) Peng |
58 |
Chairman and Chief Executive Officer |
20 |
| Kuo-Hsin (Michael) Tsai |
52 |
President and Chief Operation Officer |
18 |
| Wei-Lung Liau |
45 |
Vice President and General Manager of the Video Solutions Business Group |
17 |
| Hong-Shiung (Sean) Chen |
47 |
Vice President and General Manager of the Mobile Solutions Business Group |
17 |
| Sho-Chang (Michael) Sun |
54 |
Vice President and General Manager of the Solar Business Group |
5 |
| Andy Yang |
47 |
Vice President and Chief Strategy Officer |
14 |
| Benjamin Tseng |
48 |
Chief Financial Officer |
7 |
Shuang-Lang (Paul) Peng. See “—Directors.”
Kuo-Hsin (Michael) Tsai. Mr. Tsai
has been our President and Chief Operation Officer since November 1, 2015. Prior to his current position, Mr. Tsai was our Senior
Vice President and the General Manager of our Video Solutions Business Group from 2013 to October 2015, the Vice President and
the General Manager of Video Solutions Business Group from 2011 to 2012, the head of our Information Technology Business Group
from 2008 to 2011, Senior Associate Vice President of our IT Display Manufacturing team from 2007 to 2008, and Associate Vice President
of our Procurement Division during 2005 to 2006. Mr. Tsai also worked in various divisions including Material Management and Procurement,
and was also the Director of Suzhou module plant from 2002 to 2005. Mr. Tsai holds a Bachelor’s degree in Business Management
from National Cheng Kung University and an Executive MBA degree from National Chiao Tung University in Taiwan in 2010.
Wei-Lung Liau. Mr. Liau has been
our General Manager of our Video Solutions Business Group since November 1, 2015. Prior to his current position, Mr. Liau was Vice
President of our Video Solutions Technology Unit from 2013 to October 2015, Associate Vice President of our Video Solution Technology
Development Center from 2012 to 2013, Associate Vice President of our Advanced Technology Research Center from 2010 to 2012 and
the head the LCD Technology Division from 2005 to 2010. Mr. Liau also worked in various divisions including Engineering and Manufacturing.
Mr. Liau received his Bachelor’s and Master’s degrees in Applied Chemistry from National Chiao Tung University in Taiwan
in 1994 and in 1996, respectively.
Hong-Shiung (Sean) Chen. Mr. Chen
has been our General Manager of our Mobile Solutions Business Group since November 1, 2015. Prior to his current position, Mr.
Chen was our Senior Associate Vice President of our Mobile Solutions Business Group from 2014 to October 2015, Associate Vice President
of our Video Solutions Product Business Unit from 2011 to 2014, Associate Vice President of our IT Display Product Business Unit from 2010
to 2011, Director of our IT display product marketing unit from 2008 to 2010 and Director of Suzhou module plants from 2003 to
2008. Mr. Chen received his Bachelor’s degree in Mechanical and Electro-Mechanical Engineering from Tamkang University in
Taiwan in 1991. He also received dual Master’s degree in Operation Research and Industrial Engineering and in Mechanic Engineering
from Cornell University in the United States in 1997.
Sho-Chang (Michael) Sun. Dr. Sun
has been our General Manager of our Solar Business Group since January 1, 2016. Prior to his current position, Dr. Sun was Senior
Executive Assistant to our President and the head of New Business Development Office from 2014 to 2015, Vice President of our Mobile
Solutions Business Unit during 2012 to 2014 and Senior Associate Vice President of our Video Solution Business Unit from 2010 to
2012. Prior to joining AUO, Dr. Sun served as Vice President and General Manager of Product Group at ViewSonic Corporation. Dr.
Sun also assumed various management positions at Dell Inc., Royal Dutch Philips Electronics Ltd., Acer Incorporated and General
Electric Company. Dr. Sun received his Bachelor’s degree in Chemical Engineering from Tamkang University in Taiwan in 1984.
He also obtained a Master’s degree in Chemical Engineering in 1989 and a Ph.D. degree in Chemical Engineer/Structural Mechanics
in 1994 from University of Southern California in the United States, respectively.
Andy Yang. Mr. Yang has been our
Chief Strategy Officer since November 1, 2015. Prior to his current position, Mr. Yang was our Chief Financial Officer since March
2009 to October 2015, Associate Vice President of our Finance Center from 2008 to 2009, Finance Director of our subsidiaries in
China from 2005 to 2008, Senior Project Manager of our Finance Division from 2003 to 2005. Prior to joining our company in 2002,
Mr. Yang also held a number of positions in the banking industry, including Assistant Vice President of Corporate Banking of ABN
AMRO Bank Taipei Branch in 1998 and Credit Manager of Union Bank of California Taipei Branch in 1996. He received his Bachelor’s
degree from the Department of Finance of National Taiwan University in 1991 and his Master’s degree in Business Administration
from George Washington University in the United States in 1996.
Benjamin Tseng. Mr. Tseng has been
our Chief Financial Officer since November 1, 2015. Prior to his current position, Mr. Tseng was the Financial Associate Vice President
of our Finance Center in China during 2011 to October 2015 and Director of our Finance Management Division from 2008 to 2011. Prior
to joining AUO in 2008, Mr. Tseng served as the Director of Corporate Development at Coretronic Corporation from 2006 to 2008,
and as Vice President in Corporate Clients Department of ABN AMRO Bank during 1995 to 2006. Mr. Tseng received his Bachelor’s
degree in Business Administration from Huntington College in the United States in 1993, and obtained his Master’s degree
in Business Administration from University of Rochester in the United States in 1995.
6.B. Compensation
According to the amended ROC Company Act
and the proposed amendment to our Articles of Incorporation to be approved by our annual shareholders’ meeting in June 2016
which will be applicable to the distribution of compensation to our directors for the year of 2015, provided that where we have
a profit before tax for each fiscal year, we shall first reserve certain amount of the profit to recover the loss for the preceding
years, and then distribute no more than 1% of the remaining profit in cash to our directors as remuneration. In the
event that a director serves as a representative of a legal entity, such compensation is paid to the legal entity. See “Item
10. Additional Information—10.B. Memorandum and Articles of Association —Dividends and Distributions.” The aggregate
compensation paid or payable to the directors, independent directors, presidents and vice-presidents for their services rendered
in 2015 was approximately NT$365.2 million (US$11.1 million) on a stand-alone basis.
We have a defined benefit pension plan
covering our regular employees in the ROC. Retirement benefits are based on length of service and average salaries or wages in
the last six months before retirement. We make monthly contributions, at 2% of salaries and wages, to a pension fund that is deposited
in the name of, and administered by, the employees’ pension plan committee. Beginning July 1, 2005, pursuant to the
ROC Labor Pension Act, we are required to make a monthly contribution for employees in the ROC that elected to participate in a
defined contribution plan at a rate of no less than 6% of the employee’s monthly salaries or wages to the employee’s
individual pension fund accounts at the ROC Bureau of Labor Insurance. Our pension cost for the year ended December 31, 2015
was NT$950.1 million (US$29.0 million). See Note 22 to our consolidated financial statements.
Our company, AU Optronics Corp., currently
does not have any stock option plans.
6.C. Board Practices
General
For a discussion of the term of office
of the board of directors, see “—6.A. Directors and Senior Management.” No benefits are payable to members of
the board or the executive officers upon termination of their relationship with us.
Audit Committee
Our board of directors established an audit
committee in August 2002. On June 13, 2007, we replaced our supervisors with an audit committee pursuant to the amended ROC
Securities Exchange Act. The audit committee’s duties and powers include, but are not limited to, investigation of our financial
condition, inspection of corporate records, verification of statements by the board of directors, giving reports at shareholders’
meetings, representation of us in negotiations with our directors and giving notification, when appropriate, to the board of directors
to cease acting in contravention of applicable law or regulations or our Articles of Incorporation or the resolutions of our shareholders’
meeting. Our audit committee is required to be composed of all our independent directors, who are currently Vivien Huey-Juan Hsieh,
Mei-Yueh Ho, Ding-Yuan Yang, Tain-Jy Chen and Chin-Bing (Philip) Peng. Vivien Huey-Juan Hsieh is financially literate and
has accounting or related financial management expertise. The audit committee meets as often as it deems necessary to carry out
its responsibilities. Our Board of Directors has adopted an Audit Committee Charter for the Audit Committee.
Compensation Committee
Our board of directors established a compensation
committee in August 2011. The compensation committee’s duties and powers include, but are not limited to matters relating
to the compensation of the members of our board of directors and senior management. The members of the compensation committee are
appointed by the board of directors. They currently are Ding-Yuan Yang, Vivien Huey-Juan Hsieh and Chin-Bing (Philip) Peng.
The compensation committee must meet at least twice each year and may meet as often as it deems necessary to carry out its
responsibilities. Our Board of Directors has adopted a Compensation Committee Charter for the Compensation Committee.
6.D. Employees
Employees
The following table provides a breakdown
of our employees by function as of December 31, 2013, 2014 and 2015.
| | |
As of December 31, |
| Function | |
2013 | |
2014 | |
2015 |
| Production | |
| 49,851 | | |
| 53,289 | | |
| 45,846 | |
| Technical(1) | |
| 8,707 | | |
| 9,277 | | |
| 9,331 | |
| Sales and marketing | |
| 992 | | |
| 958 | | |
| 938 | |
| Management and administration | |
| 3,949 | | |
| 4,309 | | |
| 3,968 | |
| Total | |
| 63,499 | | |
| 67,833 | | |
| 60,083 | (2) |
| (1) | Includes research and development
personnel. |
| (2) | The decrease in the number of our
employees in 2015 compared to that of 2014 is mainly due to less manpower demand resulting
from a change in our product mix. |
The following table provides a breakdown
of our employees by geographic location as of December 31, 2013, 2014 and 2015. Please refer to “Item 4. Information
on the Company—Item 4.C. Organizational Structure” for information of our subsidiaries incorporated in different
geographic locations.
| | |
As of December 31, |
| Location | |
2013 | |
2014 | |
2015 |
| Taiwan | |
| 23,835 | | |
| 24,155 | | |
| 24,996 | |
| PRC | |
| 37,347 | | |
| 41,474 | | |
| 32,753 | |
| Others | |
| 2,317 | | |
| 2,204 | | |
| 2,334 | |
| Total | |
| 63,499 | | |
| 67,833 | | |
| 60,083 | |
Employee salaries are reviewed and adjusted
annually. Salaries are reviewed primarily based upon market survey, inflation, individual performance, company profit and its affordable
capability. In order to motivate and encourage employee, incentive bonus of performance bonus and profit sharing are created and
granted to employees according to company’s performance.
According to the amended ROC Company Act
and the proposed amendment to our Articles of Incorporation to be approved by our annual shareholders’ meeting in June 2016
which will be applicable to the distribution of remuneration to our employees for the year of 2015, provided that where we have a profit before tax
for each fiscal year, we shall first reserve certain amount of the profit to recover the loss for the preceding years, and then
distribute no less than 5% of the remaining profit to employees as remunerations. Employees are entitled to receive remunerations
in the form of stocks, cash or a combination of stock and cash to be determined by our board of directors. Prior to January 1,
2008, the amount allocated in shares is subject to the resolution of shareholders’ meeting and determined by valuing the
shares at their par value, or NT$10.00 per share. Effective on January 1, 2008, the amount allocated in shares is determined by
valuing the shares at the closing price on the last trading day before the date of shareholders’ meeting. Effective
on January 30, 2016, the amount allocated in shares to employees is determined by valuing the shares at the closing price on the
last trading day before the date of board meeting. In addition, ROC law generally requires that our employees be given preemptive
right to subscribe for between 10% and 15% of any of our share offerings.
The distribution rule of profit sharing
to our employee is based upon his/her position, individual performance, job grade and service seniority of that year.
The Hsinchu Science Park Administration
offers a variety of employee-related services, including medical examinations, health insurance, career planning advice and other
services for our employees in Taiwan. In addition to the services provided by the Hsinchu Science Park Administration, we have
established a welfare committee, a pension fund committee, and other employee committees and a variety of employee benefit programs.
We do not have any collective bargaining
arrangement with our employees. We consider our relations with our employees to be good.
6.E.
Share Ownership
The table below sets forth the information
with respect to the beneficial ownership of our common shares for each of our directors and executive officers as of February 29,
2016. Share ownership information will include the common shares held by the legal entities represented by our directors and executive
officers.
| Name | |
Number of Shares
Beneficially Owned | |
Percentage of Shares
Beneficially Owned |
| Shuang-Lang (Paul) Peng, Chairman and Chief Executive Officer | |
| 4,097,791 | (1) | |
| * | |
| Kuen-Yao (K.Y.) Lee, Director | |
| 11,727,466 | (2) | |
| * | |
| Cheng-Yih Lin, Director | |
| 1,770,785 | | |
| * | |
| Ronald Chwang, Director** | |
| 663,723,570 | (3) | |
| 6.9 | % |
| Vivien Huey-Juan Hsieh, Independent Director | |
| — | | |
| — | |
| Mei-Yueh Ho, Independent Director | |
| — | | |
| — | |
| Ding-Yuan Yang, Independent Director | |
| — | | |
| — | |
| Tain-Jy Chen, Independent Director | |
| — | | |
| — | |
| Chin-Bing (Philip) Peng, Independent Director | |
| 96,670 | | |
| * | |
| Kuo-Hsin (Michael) Tsai, President and Chief Operation Officer | |
| 2,309,861 | (4) | |
| * | |
| Wei-Lung Liau, Vice President and General Manager of the Video Solutions Business Group | |
| 595,056 | | |
| * | |
| Name | |
Number of Shares
Beneficially Owned | |
Percentage of Shares
Beneficially Owned |
| Hong-Shiung (Sean) Chen, Vice President and General Manager of the Mobile Solutions Business Group | |
| 368,501 | | |
| * | |
| Sho-Chang (Michael) Sun, Vice President and General Manager of the Solar Business Group | |
| — | | |
| — | |
| Andy Yang, Vice President and Chief Strategy Officer | |
| 768,077 | | |
| * | |
| Benjamin Tseng, Chief Financial Officer | |
| 29,301 | | |
| * | |
| * | The number of common shares beneficially
held is less than 1% of our total outstanding common shares. |
| ** | Representative of Qisda. |
| (1) | Including
3,686,012 shares directly held and 411,779 shares beneficially owned by
spouse and minor children. |
| (2) | Including
10,512,153 shares directly held and 1,215,313 shares beneficially owned through spouse
and minor children. |
| (3) | Including
124,950 shares directly held and 663,598,620 shares beneficially owned as a representative
of Qisda. 541,115,000 shares beneficially owned shares were pledged and 209,315,690 pledged
shares have no voting rights under ROC Company Act. |
| (4) | Including
2,212,262 shares directly held and 97,599 shares beneficially owned through spouse and
minor children. |
As of February 29, 2016, none of our directors
or executive officers held any employee stock options from our company, AU Optronics Corp. None of our directors or executive officers
has voting rights different from those of other shareholders.
| ITEM 7. |
MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS |
7.A. Major Shareholders
Qisda is one of our major shareholders.
In September 2007, BenQ Corporation completed its reorganization to separate its branded and manufacturing businesses. After the
reorganization, BenQ Corporation was renamed Qisda, and its subsidiary BenQ Asia Pacific succeeded the name of BenQ Corporation.
As of February 29, 2016, Qisda beneficially owned 6.9% of our outstanding shares. As of February 29, 2016, one of our nine directors
is a representative of Qisda.
The following table sets forth information
known to us with respect to the beneficial ownership of our shares as of February 29, 2016 or the most recent practicable
date, unless otherwise noted, by (1) each shareholder known by us to beneficially own more than 5% of our shares and (2) all
directors as a group.
Name of Beneficial Owner | |
Number of Shares
Beneficially Owned | |
Percentage of
Shares Beneficially
Owned | |
Percentage of
Shares Beneficially
Owned (Fully
Diluted) |
Qisda
157, Shan-Ying Road,
Gueishan, Taoyuan 333,
Taiwan, ROC
| |
| 663,598,620 | (1) | |
| 6.9 | % | |
| 6.9 | % |
| All directors as a group(2) | |
| 681,416,282 | | |
| 7.1 | % | |
| 7.1 | % |
| (1) | As
of February 29, 2016, Qisda directly owned 663,598,620 of our common shares, representing
approximately 6.9% of the outstanding Shares. Of the 663,598,620 common shares directly
owned by Qisda, 454,282,930 shares have sole voting power and 209,315,690 shares have
no voting rights pursuant to ROC Company Act. All 663,598,620 common shares directly
owned by Qisda have sole dispositive power. |
| (2) | Calculated
as the sum of: (a) with respect to directors who are serving in their personal capacity,
the number of shares beneficially held by such director and (b) with respect to
directors who are serving in the capacity as legal representatives, the number of shares
owned by such institutional or corporate shareholder for which such director is a legal
representative and the number of shares beneficially held by such director in personal
capacity. This information is as of February 29, 2016. |
None of our major shareholders has voting
rights different from those of our other shareholders. To the best of our knowledge, we are not directly or indirectly controlled
by another corporation, any foreign government, or any other natural or legal person, severally or jointly.
We are not aware of any arrangement that
may at a subsequent date result in a change of control of our company.
As of February 29, 2016, approximately
9,624.2 million of our shares were issued and outstanding. Citibank, N.A. has advised us that, as of February 29, 2016, approximately
78.1 million shares in the form of ADSs were held of record by Cede & Co. and 11 other registered shareholders domiciled
in and outside of the United States.
| 7.B. | Related Party Transactions |
We have not extended any loans or credit
to any of our directors or executive officers, and we have not provided guarantees for borrowings by any of these persons. We have
not entered into any fee-paying contract with any of these persons for such person to provide services not within such person’s
capacity as a director or executive officer of the company.
We have, from time to time, purchased raw
materials and components and sold our products to our affiliated companies. We believe that these transactions with related parties
have been conducted on arms’-length terms.
The following table set forth a summary
of our material transactions with related parties in 2015. Please also see Note 36 to our consolidated financial statements for
further information.
| | |
Net
Revenue | |
Accounts
Receivables |
| | |
For
the Year Ended December 31, | |
As
of December 31, |
| | |
2013 | |
2014 |
|
2015 | |
2014 | |
2015 |
| | |
(NT$ in millions) |
|
(US$ in millions) | |
(NT$ in millions) | |
(US$ in millions) |
| Associates | |
| 28,397.7 | | |
| 18,187.6 | | |
| 8,745.7 | | |
| 266.7 | | |
| 3,253.0 | | |
| 37.2 | | |
| 1.1 | |
| Joint Ventures | |
| 4,116.5 | | |
| 4,484.1 | | |
| 5,453.1 | | |
| 166.3 | | |
| 360.5 | | |
| 435.0 | | |
| 13.3 | |
| Others(1) | |
| - | | |
| - | | |
| 6,005.2 | | |
| 183.1 | | |
| - | | |
| 2,020.3 | | |
| 61.6 | |
| | |
| 32,514.2 | | |
| 22,671.7 | | |
| 20,204.0 | | |
| 616.1 | | |
| 3,613.5 | | |
| 2,492.5 | | |
| 76.0 | |
| | |
Net
Purchases | |
Accounts
Payables |
| | |
For
the Year Ended December 31, | |
As
of December 31, |
| | |
2013 | |
2014 |
|
2015
| |
2014 | |
2015 |
| | |
(NT$ in millions) |
|
(US$ in millions) | |
(NT$ in millions) | |
(US$ in millions) |
| Associates | |
| 53,673.9 | | |
| 42,772.4 | | |
| 19,563.6 | | |
| 596.6 | | |
| 11,144.6 | | |
| 4,089.4 | | |
| 124.7 | |
| Joint Ventures | |
| 730.1 | | |
| 2,854.7 | | |
| 4,786.3 | | |
| 146.0 | | |
| 319.3 | | |
| 373.2 | | |
| 11.4 | |
| Others(1) | |
| - | | |
| - | | |
| 10,587.1 | | |
| 322.9 | | |
| - | | |
| 4,863.6 | | |
| 148.3 | |
| | |
| 54,404.0 | | |
| 45,627.1 | | |
| 34,937.0 | | |
| 1,065.5 | | |
| 11,463.9 | | |
| 9,326.2 | | |
| 284.4 | |
_____________________
| (1) | Qisda
ceased to be an associate of us since May 2015. However, Qisda and its subsidiaries are
still related parties of us, and amounts for the related transactions between Qisda and
its subsidiaries and us starting from June 2015 are set forth in the “Others”
category above. |
Our major related party transactions were
carried with the following companies for 2015:
| · | BenQ Corporation (“BenQ”) |
BenQ is a subsidiary of Qisda as
of December 31, 2015. We sold panels for monitors and television sets to BenQ.
| · | AUO SunPower Sdn. Bhd. (“AUSP”) |
AUSP is a joint venture by SunPower
Corporation and AU Optronics Corp. As of December 31, 2015, we indirectly own 50% of AUSP. We sold solar wafers to AUSP and purchased
polysilicon and solar cells from AUSP.
| · | Qisda (Suzhou) Co., Ltd. (“QCSZ”) |
QCSZ is a subsidiary of Qisda as
of December 31, 2015. We sold panels for monitors to QCSZ.
| · | BenQ Materials Corp. (“BMC”) |
BMC is a subsidiary of Qisda as
of December 31, 2015. We purchased polarizers from BMC.
| · | Qisda Corporation (“Qisda”) |
We directly and indirectly owned
9.54% of Qisda as of December 31, 2015. Qisda provides module-assembly services to us.
| · | Raydium Semiconductor Corporation (“Raydium”) |
We indirectly owned 15.61% of Raydium
as of December 31, 2015. We purchased driver ICs from Raydium.
| 7.C | Interests of Experts and Counsel |
Not applicable.
| ITEM 8. |
FINANCIAL INFORMATION |
| 8.A. |
Consolidated Statements and Other Financial Information |
| 8.A.1. | See Item 18 for our audited consolidated financial statements and pages F-1 through
F-100. |
| 8.A.2. | See Item 18 for our audited consolidated financial statements, which cover the last
three financial years. |
| 8.A.3. | See page F-1 for the audit report of our independent auditors, entitled “Report of
Independent Registered Public Accounting Firm.” |
| 8.A.6. | See “Item 4. Information on the Company—4.B. Business Overview—Customers,
Sales and Marketing” for the amount of our export sales. |
Alleged Patent Infringements
In April 2011, Eidos Display, LLC and Eidos
III, LLC (together “Eidos”) filed a lawsuit in the Eastern Texas Court against us, our U.S. subsidiary AU Optronics
Corporation America (“AUUS”) and other Taiwanese TFT-LCD manufacturers, claiming infringement of certain of Eidos’
patents in the United States. Eidos is seeking, among other things, unspecified monetary damages for past infringement and an injunction
against future infringement. In December 2013, the magistrate judge granted summary judgment
to invalidate Eidos’ patents and such summary judgment has been confirmed by the trial judge in January 2014. Eidos
filed an appeal in February 2014. In March 2015, the United States Court of Appeals for the Federal Circuit reversed the district
court’s grant of summary judgment and remanded to the district court for further proceedings. In December 2015, the lawsuit
was dismissed with prejudice pursuant to a resolution reached between Eidos and us.
Investigation for Alleged Violation of
Antitrust and Competition Laws
We and certain of our subsidiaries, along
with various competitors in the TFT-LCD industry, are under investigation for alleged violation of antitrust and competition laws
of certain jurisdictions. Since December 2006, we and certain of our overseas subsidiaries have become involved in antitrust investigations
including but not limited by the U.S. DOJ, the European Commission Directorate-General for Competition (the “DG COMP”),
the KFTC and the Secretariat of Economic Law of Brazil concerning the allegations of price fixing by manufacturers of TFT-LCD panels.
Set forth below is a non-exclusive list of the material antitrust proceedings against us.
United
States
In June 2010, we, AUUS and certain our
current and former officers and employees were indicted in the Northern California Court for alleged violations of Section 1
of the Sherman Act. In March 2012, the jury delivered a guilty verdict against us and AUUS. On September 21, 2012, the Northern
California Court imposed a fine of US$500 million against us to be payable over three years and sentenced two of our former executives
to imprisonment and imposed a fine on them. We paid the first three installments each in the amount of US$125 million in January
2013, September 2013 and September 2014. We paid the last installment in the amount of US$125 million in
September 2015. The Northern California Court placed us and AUUS on probation for three years, ordered us and AUUS to publish
the conviction and fine in three major trade publications in the U.S., as well as assigning a monitor and required us to
adopt an effective antitrust compliance program. Pursuant to an agreement reached between the U.S. DOJ and us in 2015, the
probation period and the monitorship was extended to approximately 15 months until the end of 2016. We and AUUS appealed the
district court’s criminal judgment to the Ninth Circuit, which upheld the judgment in July 2014. Following our further
petition, the Ninth Circuit amended its opinion while reaffirmed the district court’s judgment in January 2015. In
March 2015, we filed a petition for a writ of Certiorari to the Supreme Court of the United States, and the petition was
denied in June 2015.
Europe
In November 2011, the DG COMP advised us
that they had begun an investigation of competitor contact regarding small size panels during 1998 to 2006. In December 2015, we
were advised by DG COMP that it was not its intention at present to continue with this investigation.
Brazil
We received requests from the Secretariat
of Economic Law of Brazil for information regarding their investigations, and have cooperated with Conselho Administrativa de Defesa
Economica (“CADE”), Brazil’s competition agency, in connection therewith. In December 2015, the tribunal of CADE approved a settlement reached
by CADE and us. We paid CADE 16.7 million Brazilian Reals in February 2016 pursuant to the settlement agreement.
Antitrust Civil Actions Lawsuits in the
United States and other Jurisdictions
There are also over 100 civil lawsuits
filed against us and/or AUUS in the United States and other jurisdictions alleging, among other things, antitrust violations. The
putative antitrust class actions filed in the United States have been consolidated for discovery in the Northern California Court.
In the amended consolidated complaints, the plaintiffs sought, among other things, unspecified monetary damages and an enjoinment
from the alleged antitrust conspiracy. The Court issued an order certifying two types of classes that may proceed against us and
other TFT-LCD companies: direct purchasers and indirect purchasers.
We and AUUS have reached a settlement agreement
with: (i) the direct purchaser plaintiffs, (“DPP”) for a payment of US$38 million by us, and (ii) with the indirect
purchaser plaintiffs (“IPP”) and the state attorneys general of eight states, namely Arkansas, California, Florida,
Michigan, Missouri, New York, West Virginia and Wisconsin, for a payment of US$161.5 million by us and for an additional aggregate
payment of US$8.5 million to the eight settling states. The DPP and IPP settlements have obtained final approval by the Northern
California Court. We have fully recognized by the second quarter of 2012 and paid these settlement amounts in 2012 and 2013.
Since 2009, AT&T Corp and its affiliates
(collectively, “AT&T”), AASI, ABC Warehouse, Best Buy, Circuit City, CompuCom Systems, Inc., CompUSA, Costco Wholesale
Corp (“Costco”), Dell, Electrograph, HP, Home Depot, Interbond (Brandsmart), Kmart Corporation (“Kmart”),
Kodak, MARTA, MetroPCS, Motorola Inc.(“Motorola”), NECO Alliance, Nokia Corporation (“Nokia”), Office Depot,
P.C. Richard et al., Proview, RadioShack, Sears, SB Trust, Sony, Target Corp., Tracfone, TechData Corporation, T-Mobile, Tweeter,
Viewsonic, Wal-Mart and other various business entities, filed civil lawsuits against a number of LCD manufacturers including us
in the United States and, in the case of Nokia and Sony, in both the United States and the United Kingdom, claiming, among other
things, unspecified monetary damages and an enjoinment from the alleged antitrust conspiracy. Since 2012, we have entered into
settlement agreements with AT&T, Circuit City, HP, Dell, Nokia, Sony, T-Mobile, Wal-Mart, SB Trust, BestBuy, Kmart, RadioShack,
Kodak, Proview, Sears, Target Corp, Tracfone, Viewsonic and several other companies. As to the case with Motorola, in January 2014,
the United States District Court for the Northern District of Illinois Eastern Division granted summary judgment in favor of the
defendants, and in November 2014 the Seventh Circuit affirmed the summary judgment in favor of the defendants and Motorola lodged
an appeal for rehearing en banc but was overruled in January 2015. Motorola filed a petition for certiorari to the United States
Supreme Court, which was denied in June 2015. The case with Costco went for trial in September 2014. The jury’s verdict in
favor of the plaintiff was received on October 24, 2014. A provision has been recorded by us based on our accounting policy. Judgment
has been entered. In March 2016, the court has ruled upon and denied all post trial motions. We, AUUS, our co-defendants LG Display
and LG Display America have filed a Notice of Appeal. The briefing schedule for the appeal is not yet set.
Since August 2010, a number of states in
the United States, such as New York, Illinois, Florida, Oregon, Wisconsin, Missouri, Arkansas, Michigan, Washington, West Virginia,
California, South Carolina, Mississippi and Oklahoma also filed lawsuits against a number of LCD manufacturers including us. Since
2012, we have settled with the states of Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia, Wisconsin,
Oklahoma, Mississippi, Oregon, Washington, and South Carolina. We have retained counsel to handle the related matter for the litigation
with the remaining state. At this stage, the final outcome of this matter
is uncertain and will depend on further court proceedings. Our management is reviewing the merits of these civil lawsuits on an
on-going basis.
Another lawsuit was filed by certain consumers
in Israel against certain LCD manufacturers including us in the District Court of the Central District in Israel (“Israeli
Court”). The defendants contested various issues including whether the lawsuit was properly served. In March 2016, the
Israeli Court issued an order stating that the case may proceed in Israel. We are considering whether to appeal the Israeli
Court’s decision. Our management is reviewing the merits of this matter on an on-going basis.
We have made provisions with respect to
certain, but not all, civil lawsuits as the management deems appropriate. See Note 38 of our consolidated financial statements
for further details. The provisions may ultimately be proven to be under- or over-estimated. We will reassess the adequacy and
reasonableness of the said provisions and make adjustments as we deem necessary. Any penalties, fines, damages or settlements made
in connection with these legal proceedings and/or lawsuits may have a material adverse effect on our business, results of operation
and future prospects.
Other Litigations
In July and August of 2014, SunPower Technology,
Ltd. (“SPTL”), we and AU Optronics Singapore Pte. Ltd. submitted certain disputes for arbitration in the International
Court of Arbitration of the International Chamber of Commerce in San Francisco, U.S. in connection with the joint venture agreement
among the parties. We are seeking, among other things, a declaration that SPTL has breached the joint venture agreement, entitling
us to the right to sell its shares in the joint venture under certain terms and conditions, monetary damages and fees and costs.
SPTL is seeking, among other things, a declaration that we have breached the joint venture agreement, entitling SPTL to the right
to purchase our shares in the joint venture under certain terms and conditions, monetary damages and fees and costs. As of the
date of this report, no hearing date has been scheduled yet. We intend to vigorously pursue our claims and defend against SPTL’s
claims. At this stage, the final outcome of this matter is uncertain, and the amount of possible loss, if any, of this matter is
currently not estimable. Our management is reviewing the merits of this matter on an on-going basis.
In addition to the matters described above,
we and/or subsidiaries are also a party to other litigations or proceedings that arise during our or its ordinary course of business.
Except as mentioned above, we and/or our subsidiaries are not involved in any material litigation or proceeding which could be
expected to have a material adverse effect on our business or results of operations.
Proceedings Related to Our Directors
and Senior Management
None.
Environmental Proceedings
There have been environmental proceedings
relating to the development project of the Central Taiwan Science Park in Houli, Taichung, where our second 8.5-generation fab
is located and which has been established since 2010. The proceedings were initiated by six residents in Houli District, Taichung
City (the “Plaintiffs”) to object the administrative dispositions of the environmental assessment and development approval
issued in 2010 by the Environmental Protection Administration of the Executive Yuan of Taiwan to the third phrase development area
in the Central Taiwan Science Park (the “Project”). On August 8, 2014, the Plaintiffs reached a settlement with the
defendants (i.e. the governmental authorities, including the Environmental Protection Administration of the Executive Yuan of Taiwan,
the Ministry of Science and Technology (former National Science Council of the ROC Executive Yuan) and the Central Taiwan Science
Park Development Office) in the Taipei High Administrative Court. The second phase environmental impact assessment for the Project
continues to proceed. Primarily in light of the settlement and the relevant approvals issued by the government to us and based
on the principle under the Administrative law of protection of reliance, currently we do not believe that this event will have
a material adverse effect on our operations. We will continue to monitor if there will be any material adverse effect on our operations
as the event develops.
| 8.A.8. | Dividends
and Dividend Policy |
On June 6, 2014, our annual shareholders’
meeting approved the board of director’s proposal to distribute a cash dividend of NT$0.01 per share and cash distribution
of NT$0.14 per share from capital surplus for the year ended December 31, 2013. On June 2, 2015, our annual shareholders’
meeting approved the board of directors’ proposal to distribute a cash dividend of NT$0.50 per share for the year ended December
31, 2014. On March 10, 2016, our board of directors passed a resolution to distribute a cash dividend of NT$0.35 per share for
the year ended December 31, 2015, which is subject to the resolutions of our annual shareholders’ meeting for the year ended
December 31, 2015.
Our Articles of Incorporation provide that
the cash portion of any dividend shall not be less than 10% of the annual dividend. The form, frequency and amount of future dividends
will depend upon our earnings, cash flow, financial condition, reinvestment opportunities and other factors.
We are generally not permitted under the
ROC Company Act to distribute dividends or to make any other distributions to shareholders for any fiscal year in which we have
no earnings. According to the amended ROC Company Act and the proposed amendment to our Articles of Incorporation to be approved
by our annual shareholders’ meeting in June 2016 which will be applicable to distribution of dividend for the year of 2015,
provide that where we have a profit for each fiscal year, we shall first cover accumulated losses, pay taxes, and then allocate
10% of the remaining net earnings as our legal reserve unless previously allocated legal reserve has already amounted to our paid-in
capital; and a certain amount shall be allocated as special reserve or the special reserve shall be reversed in accordance with
applicable laws and regulations or as requested by the competent authority. The balance (if any) together with accumulated balance
from preceding years can be distributed after the distribution plan proposed by the Board is approved by resolution of the shareholders’
meeting.
In addition to permitting dividends to
be paid out of accumulated earnings after deducting losses, we are permitted under the ROC Company Act to make distributions to
our shareholders in the form of shares or in cash from the legal reserve and certain capital surplus. However, where legal reserve
is distributed by issuing new shares or by cash, only the portion of legal reserve which exceeds 25% of our paid-in capital may
be distributed. See “Item 10. Additional Information—10. B. Memorandum and Articles of Association—Dividends
and Distribution.” For information as to ROC taxes on dividends and distributions, see “Item 10. Additional Information—10.E.
Taxation—ROC Tax Considerations—Dividends.”
The holders of ADSs will be entitled to
receive dividends to the same extent as the holders of our shares, subject to the terms of the deposit agreement.
Any cash dividends will be paid to the
depositary in NT dollars and, after deduction of any applicable ROC taxes and fees and expenses of the depositary and custodian,
except as otherwise provided in the deposit agreement, will be converted by the depositary into U.S. dollars and paid to the holders
of ADSs. Whenever the depositary receives any free distribution of shares, including stock dividends, on any ADSs that the holders
of ADSs hold, the depositary may, and will if we so instruct, deliver to the holders of ADSs additional ADSs which represent the
number of shares received in the free distribution, after deduction of applicable taxes and the fees and expenses of the depositary
and the custodian. If additional ADSs are not so delivered, each ADS that the holders of ADSs hold shall represent its proportionate
interest in the additional shares distributed.
Except as otherwise disclosed in this report,
we have not experienced any significant changes since the date of the annual financial statements included herein.
| ITEM 9. |
THE OFFER AND LISTING |
| 9.A. | Offering and Listing Details |
Our shares have been listed on the Taiwan
Stock Exchange since September 8, 2000 under the number “2409.” Our ADSs have been listed on the New York Stock
Exchange under the symbol “AUO” since May 2002. The table below sets forth, for the periods indicated, the high and
low closing prices and the average daily volume of trading activity on the Taiwan Stock Exchange for the shares and the high and
low closing prices and the average daily volume of trading activity on the New York Stock Exchange for the shares represented
by ADSs.
| | |
Taiwan Stock Exchange | |
New
York Stock Exchange(1) |
| | |
Closing price per
Common Share | |
Average Daily
Trading | |
Closing Price per
ADS | |
Average Daily
Trading |
| | |
High | |
Low | |
Volume | |
High | |
Low | |
Volume |
| | |
(NT$) | |
(NT$) | |
(in thousands of
Common Shares) | |
(US$) | |
(US$) | |
(in thousands of
ADSs) |
| 2011 | |
| 30.35 | | |
| 11.90 | | |
| 50,191.7 | | |
| 10.44 | | |
| 3.77 | | |
| 2,528.8 | |
| 2012 | |
| 17.40 | | |
| 8.21 | | |
| 77,985.9 | | |
| 5.89 | | |
| 2.74 | | |
| 1,190.7 | |
| 2013 | |
| 14.00 | | |
| 8.44 | | |
| 81,594.3 | | |
| 4.89 | | |
| 2.82 | | |
| 1,146.2 | |
| 2014 | |
| 16.55 | | |
| 8.80 | | |
| 74,525.9 | | |
| 5.42 | | |
| 2.73 | | |
| 480.1 | |
| First Quarter | |
| 10.75 | | |
| 8.80 | | |
| 62,801.6 | | |
| 3.48 | | |
| 2.73 | | |
| 416.9 | |
| Second Quarter | |
| 12.65 | | |
| 10.90 | | |
| 77,362.5 | | |
| 4.19 | | |
| 3.62 | | |
| 504.4 | |
| Third Quarter | |
| 14.90 | | |
| 12.60 | | |
| 81,464.5 | | |
| 4.97 | | |
| 4.16 | | |
| 300.3 | |
| Fourth Quarter | |
| 16.55 | | |
| 11.60 | | |
| 75,080.6 | | |
| 5.42 | | |
| 3.82 | | |
| 696.3 | |
| 2015 | |
| 18.90 | | |
| 8.11 | | |
| 76,047.5 | | |
| 6.01 | | |
| 2.40 | | |
| 1,870.4 | |
| First Quarter | |
| 18.90 | | |
| 15.05 | | |
| 95,463.4 | | |
| 6.01 | | |
| 4.66 | | |
| 2,417.1 | |
| | |
Taiwan Stock Exchange | |
New York Stock Exchange(1) |
| | |
Closing price per
Common Share | |
Average Daily
Trading | |
Closing Price per
ADS | |
Average Daily
Trading |
| | |
High | |
Low | |
Volume | |
High | |
Low | |
Volume |
| | |
(NT$) | |
(NT$) | |
(in thousands of
Common Shares) | |
(US$) | |
(US$) | |
(in thousands of
ADSs) |
| Second Quarter | |
| 17.10 | | |
| 13.25 | | |
| 73,012.0 | | |
| 5.74 | | |
| 4.33 | | |
| 1,486.5 | |
| Third Quarter | |
| 14.00 | | |
| 8.60 | | |
| 81,948.7 | | |
| 4.47 | | |
| 2.66 | | |
| 1,929.5 | |
| Fourth Quarter | |
| 10.45 | | |
| 8.11 | | |
| 56,747.7 | | |
| 3.26 | | |
| 2.40 | | |
| 1,668.2 | |
| September | |
| 11.10 | | |
| 9.71 | | |
| 74,995.6 | | |
| 3.47 | | |
| 2.87 | | |
| 1,464.0 | |
| October | |
| 10.45 | | |
| 9.57 | | |
| 53,263.2 | | |
| 3.26 | | |
| 2.89 | | |
| 2,040.4 | |
| November | |
| 10.15 | | |
| 8.74 | | |
| 44,383.0 | | |
| 2.99 | | |
| 2.65 | | |
| 1,515.2 | |
| December | |
| 9.98 | | |
| 8.11 | | |
| 71,218.8 | | |
| 3.03 | | |
| 2.40 | | |
| 1,435.2 | |
| 2016 (through March 11, 2016) | |
| 9.70 | | |
| 8.26 | | |
| 69,146.0 | | |
| 2.94 | | |
| 2.44 | | |
| 738.5 | |
| January | |
| 9.60 | | |
| 8.58 | | |
| 58,321.3 | | |
| 2.82 | | |
| 2.54 | | |
| 935.5 | |
| February | |
| 9.10 | | |
| 8.26 | | |
| 71,287.5 | | |
| 2.75 | | |
| 2.44 | | |
| 635.1 | |
| March (through March 11, 2016) | |
| 9.70 | | |
| 8.95 | | |
| 91,310.4 | | |
| 2.94 | | |
| 2.71 | | |
| 552.0 | |
| (1) | Each
ADS represents 10 common shares. |
Not applicable.
The principal trading markets for our shares
are the Taiwan Stock Exchange and the New York Stock Exchange, on which our shares trade in the form of ADSs.
Not applicable.
Not applicable.
| 9.F. | Expenses of the Issue |
Not applicable.
| ITEM 10. |
ADDITIONAL INFORMATION |
Not applicable.
| 10.B. | Memorandum and Articles of Association |
The following statements summarize the
material elements of our capital structure and the more important rights and privileges of our shareholders conferred by ROC law
and our Articles of Incorporation.
Objects and Purpose
The scope of our business as set forth
in Article 2 of our Articles of Incorporation includes the research, development, production, manufacture and sale of the following
products: plasma display and related systems, liquid crystal display and related systems, organic light emitting diodes and related
systems, amorphous silicon photo sensor device parts and components, thin film photo diode sensor device parts and components,
thin film transistor photo sensor device parts and components, touch imaging sensors, full color active-matrix flat panel displays,
field emission displays, single crystal liquid crystal displays, original equipment manufacturing for amorphous silicon thin film transistor process and flat panel display modules, solar
cell, modules, and related system and service, new green energy-related system and service, original design manufacturing and
original equipment manufacturing business for flat panel display modules and the simultaneous operation of a trade business
relating to our business.
Directors
Our board of directors is elected by our
shareholders and is responsible for the management of our business. Our Articles of Incorporation provide that our board of directors
is to have between seven to eleven members. Currently, our board of directors is composed of nine directors. The chairman of our board is elected
by the directors. The chairman presides at all meetings of our board of directors and also has the authority to represent, sign
for, and bind our company. The term of office for our directors is three years.
In addition, pursuant to the ROC Securities
Exchange Act, a public company is required to either establish an audit committee or retain supervisors, provided that the FSC
may, after considering the scale, business nature of a public company and other essential conditions, require the company to establish
an audit committee in place of its supervisors. We replaced our supervisors by establishing an audit committee on June 13, 2007.
The audit committee’s duties and powers include, but are not limited to, investigation of our financial condition, inspection
of corporate records, verification of statements by the board of directors, giving reports at shareholders’ meetings, representation
of us in negotiations with our directors and giving notification, when appropriate, to the board of directors to cease acting in
contravention of applicable law or regulations or our Articles of Incorporation or the resolutions of our shareholders’ meeting.
Our audit committee is required to be composed of all of our independent directors, who are currently, Vivien Huey-Juan Hsieh,
Mei-Yueh Ho, Ding-Yuan Yang, Tain-Jy Chen and Chin-Bing (Philip) Peng.
Pursuant to the ROC Company Act, the election
of our directors is conducted by means of cumulative voting. The most recent election for all of the directors was held on June 19,
2013. We have adopted a candidate nomination system for the election of directors.
Pursuant to the ROC Company Act, a person
may serve as a director in his or her personal capacity or as the representative of another legal entity. A legal entity that owns
our shares may be elected as a director, in which case a natural person must be designated to act as the legal entity’s representative.
In the event several representatives are designated by the same legal entity, any or all of them may be elected. A natural person
who serves as the representative of a legal entity as a director may be removed or replaced at any time at the discretion of such
legal entity, and the replacement director may serve the remainder of the term of office of the replaced director. Currently, one
of our directors is the representatives of a legal entity, as shown in “Item 6. Directors, Senior Management and Employees—6.A.
Directors and Senior Management—Directors.”
The present members of the board of directors
took office on June 19, 2013. Our shareholders will elect new directors at the 2016 annual meeting.
For information regarding a director’s
power to vote on a proposal, arrangement or contract in which the director is materially interest, please review our related party
transaction approval process described in “Item 7. Major Shareholders and Related Party Transactions—7.B. Related Party
Transactions.”
Shares
As of February 29, 2016, our authorized
share capital was NT$120.0 billion, divided into 12.0 billion common shares, of which 100.0 million shares are reserved for the
issuance of shares for employee stock options, and 9,624,245,115 common shares were issued.
All shares presently issued, including
those underlying our ADSs, are fully paid and in registered form, and existing shareholders are not obligated to contribute additional
capital.
In October 2010, we issued US$800 million
unsecured zero coupon convertible bonds due 2015 to purchase machinery and equipment overseas in line with the growth of our business.
This unsecured zero coupon convertible bonds had been matured in October 2015, and none of them has been converted into shares
of the Company. See “Item 3. Key Information─3.D. Risk Factors─Risks Related to Our ADSs and Our
Trading Market─Our equity holders may experience dilution if we issue remunerations in the form of stock and
stock options to employees or sell additional equity or equity-linked securities.”
New Shares and Preemptive Rights
The issuance of new shares requires the
prior approval of our board of directors. If our issuance of any new shares will result in any change in our authorized share capital,
we are required under ROC law to amend our Articles of Incorporation, which requires approval of our shareholders in a shareholders’
meeting. We must also obtain the approval of, or submit a report to, the FSC and the Hsinchu Science Park Administration Bureau,
as applicable. Generally, when a company issues capital stock for cash, 10% to 15% of the issue must be offered to its employees.
In addition, if a public company intends to offer new shares for cash, at least 10% of the issue must also be offered to the public.
This percentage can be increased by a resolution passed at a shareholders’ meeting, which will reduce the number of new shares
in which existing shareholders may have preemptive rights. Unless the percentage of the shares offered to the public is increased
by a resolution, existing shareholders of the company have a preemptive right to acquire the remaining 75% to 80% of the issue in proportion to their existing
shareholdings. Nevertheless, the preemptive rights provisions will not apply to offerings of new shares through a private placements
approved at a shareholders’ meeting.
Register of Shareholders and Record Date
For our shareholders who have opened Taiwan
Depository & Clearing Corporation book-entry accounts, our register of such shareholders is maintained by the database of Taiwan
Depository & Clearing Corporation. For our shareholders who have not opened Taiwan Depository & Clearing Corporation book-entry
accounts, our register of such shareholders is maintained by our share registrar, Taishin International Bank, Stock Affairs Department.
The ROC Company Act permits us, by giving advance public notice, to set a record date and close the register of shareholders for
a specified period in order to determine the shareholders or pledgees that are entitled to certain rights pertaining to our shares.
Under the ROC Company Act, our register of shareholders should be closed for a period of sixty days before each general meeting
of shareholders, thirty days before each extraordinary meeting of shareholders and five days before each record date.
Transfer of Shares
Under the ROC Company Act, shares are transferred
by endorsement and delivery of the related share certificates. However, settlement of trading of shares of a listed company, such
as our company, generally is carried out on the book entry system maintained by the Taiwan Depository & Clearing Corporation.
In addition, transferees must have their names and addresses registered on our register in order to assert shareholders’
rights against us. Notwithstanding the foregoing, shareholders are required to file their specimen seals with our share registrar.
Shareholders’ Meetings
We are required to hold an annual general
shareholders’ meeting once every calendar year, generally within six months after the end of each fiscal year. Any shareholder
who holds 1% or more of our issued and outstanding common shares may submit one written proposal for discussion at our annual general
shareholders’ meeting. Our directors may convene an extraordinary shareholders’ meeting whenever they think fit, and
they must do so if requested in writing by shareholders holding not less than 3% of our paid-in share capital who have held their
shares for more than a year. In addition, any member of our audit committee may convene a shareholders’ meeting under certain
circumstances. For a public company in Taiwan, such as our company, at least 15 days’ advance written notice must be given
of every extraordinary shareholders’ meeting and at least 30 days’ advance written notice must be given of every annual
general shareholders’ meeting. Unless otherwise required by law or by our articles of incorporation, voting for an ordinary
resolution requires an affirmative vote of a simple majority of those present and voting. A distribution of cash dividends would
be an example of an act requiring an ordinary resolution. A special resolution may be adopted in a meeting of shareholders convened
with a quorum of holders of at least two-thirds of our total outstanding shares at which the holders of at least a majority of
our shares represented at the meeting vote in favor thereof. A special resolution is necessary for various matters under ROC law,
including:
| · | any amendment to our articles of incorporation; |
| · | our dissolution or amalgamation; |
| · | transfers of the whole or a substantial part of our business or properties; |
| · | the acquisition of the entire business or properties of another company which would have a significant impact on our operations; |
| · | execution, modification or termination of any contracts regarding leasing of all business or joint operations or mandate of
our business to other persons; |
| · | the distribution of any stock dividend; or |
| · | the removal of directors. |
However, in the case of a public company
such as our company, a special resolution may be adopted by holders of at least two-thirds of the shares represented at a meeting
of shareholders at which holders of at least a majority of the total outstanding shares are present.
Voting Rights
According to the ROC Company Act, a holder
of our shares has one vote for each share held at shareholders’ meetings. However, (i) treasury shares or (ii) our
common shares held by an entity in which our company owns more than 50% of the voting shares or paid-in capital, or “Controlled
Entity,” or by a third entity in which our company and a Controlled Entity jointly own, directly or indirectly, more than
50% of the voting shares or paid-in capital cannot be voted. There is cumulative voting for the election of directors. In all other
matters, shareholders must cast all their votes the same way on any resolution provided that shareholders holding shares on behalf
of others are permitted to split votes when exercising voting rights. Voting rights attached to our common shares may be exercised
by personal attendance or proxy, or at our discretion, by written or electronic ballot.
If any shareholder is represented at an
general or extraordinary shareholders’ meeting by proxy, a valid proxy form must be delivered to us five days before the
commencement of the general or extraordinary shareholders’ meeting. Voting rights attached to our shares that are exercised
by our shareholders’ proxy are subject to ROC proxy regulations. Any shareholder who has a personal interest in a matter
to be discussed at our shareholders’ meeting, the outcome of which may impair our interests, is not permitted to vote or
exercise voting rights nor vote or exercise voting rights on behalf of another shareholder on such matter.
Except for trust enterprises or share transfer
agents approved by the FSC, where one person is appointed as proxy by two or more shareholders who together hold more than 3% of
our shares, the votes of those shareholders in excess of 3% of our total issued shares will not be counted.
You will not be able to exercise voting
rights on the shares underlying your ADSs on an individual basis. For additional information, see “Item 3. Key Information—3.D.
Risk Factors—Risk Related to our ADSs and Our Trading Market—ADS holders will not have the same rights as our
shareholders, which may affect the value of the ADSs.”
Dividends and Distributions
We may distribute dividends in any year
in which we have accumulated earnings. At the shareholders’ annual general meeting, our board of directors submits to the
shareholders for approval proposals for the distribution of a dividend or the making of any other distribution to shareholders
from our accumulated earnings or reserves for the preceding fiscal year. Dividends may be distributed either in cash, in the form
of shares or a combination of cash and shares. Our Articles of Incorporation provide that the cash portion of any dividend shall
not be less than 10% of the annual dividend. Dividends are paid proportionately to shareholders as listed on the register of shareholders
on the relevant record date.
According to the amended ROC Company Act
and the proposed amendment to our Articles of Incorporation to be approved by our annual shareholders’ meeting in June 2016
which will be applicable to distribution of dividend for the year of 2015, provide that where we have a profit for each fiscal
year, we shall first cover accumulated losses, pay taxes, and then allocate 10% of the remaining net earnings as our legal reserve
unless previously allocated legal reserve has already amounted to our paid-in capital; and a certain amount shall be allocated
as special reserve or the special reserve shall be reversed in accordance with applicable laws and regulations or as requested
by the competent authority. The balance (if any) together with accumulated balance from preceding years can be distributed after
the distribution plan proposed by the Board is approved by resolution of the shareholders’ meeting.
In addition to permitting dividends to
be paid out of accumulated earnings after deducting losses, we are permitted under the ROC Company Act to make distributions to
our shareholders in the form of shares or in cash from the legal reserve and certain capital surplus. However, where legal reserve
is distributed by issuing new shares or by cash, only the portion of legal reserve which exceeds 25% of our paid-in capital may
be distributed.
For information on the dividends paid by
us in recent years, see “Item 8. Financial Information—8.A.8. Dividends and Dividend Policy.” For information
as to ROC taxes on dividends and distributions, see “Item 10. Additional Information—10.E. Taxation—ROC Tax Considerations—Dividends.”
Acquisition of Shares by Our Company
With limited exceptions under the ROC Company
Act, we are not permitted to acquire our shares.
In addition, pursuant to the Securities
and Exchange Law, we may, by a board resolution adopted by majority consent at a meeting with two-thirds of our directors present,
purchase our shares on the Taiwan Stock Exchange or by a tender offer, in accordance with the procedures prescribed by the FSC,
for the following purposes:
| · | to transfer shares to our employees; |
| · | to facilitate conversion arising from bonds with warrants, preferred shares with warrants, convertible bonds, convertible preferred
shares or certificates of warrants (collectively, the “Convertible Securities”) issued by our company into shares;
and |
| · | if necessary, to maintain our credit and our shareholders’ equity; provided that the shares so purchased shall be cancelled
thereafter. |
Our shares purchased pursuant to the first
and the second items above shall be transferred to our employees or holders of Convertible Securities, as the case maybe, within
three years after the date of such purchase. Our shares purchased pursuant to item 3 above shall be cancelled within six months
after the date of such purchase.
We are not allowed to purchase more than
10% of our total issued and outstanding shares. In addition, we may not spend more than the aggregate amount of our retained earnings,
the premium from issuing stock and the realized portion of the capital surplus to purchase our shares.
We may not pledge or hypothecate any purchased
shares. In addition, we may not exercise any shareholders’ rights attaching to such shares. In the event that we purchase
our shares on the Taiwan Stock Exchange, our affiliates, directors, officers and their respective spouses and minor children and/or
nominees are prohibited from selling any of our shares during the period in which we purchase our shares.
According to the ROC Company Act, an entity
in which our company directly or indirectly owns more than 50% of the voting shares or paid-in capital, which is referred to as
a controlled entity, may not purchase our shares. Also, if our company and a controlled entity jointly own, directly or indirectly,
more than 50% of the voting shares or paid-in capital of another entity, which is referred to as a third entity, the third entity
may not purchase shares in either our company or a controlled entity.
Liquidation Rights
In the event of our liquidation, the assets
remaining after payment of all debts, liquidation expenses, taxes and distributions to holders of preferred shares, if any, will
be distributed pro rata to our shareholders in accordance with the ROC Company Act.
Rights to Bring Shareholder Suits
Under the ROC Company Act, a shareholder
may bring suit against us in the following events:
| · | Within 30 days from the date on which a shareholders’ resolution is adopted, a shareholder may file a lawsuit to annul
a shareholders’ resolution if the procedure for convening a shareholders’ meeting or the method of resolution violates
any law or regulation or our articles of incorporation. |
| · | If the substance of a resolution adopted at a shareholders’ meeting contradicts any applicable law or regulation or our
articles of incorporation, a shareholder may bring a suit to determine the validity of such resolution. |
Shareholders may bring suit against our
directors under the following circumstances:
| · | Shareholders who have continuously held 3% or more of the total number of issued and outstanding shares for a period of one
year or longer may request in writing that an audit committee institute an action against a director on our behalf. In case the
audit committee fails to institute an action within 30 days after receiving such request, the shareholders may institute an action
on our behalf. In the event that shareholders institute an action, a court may, upon motion of the defendant, order such shareholders
to furnish appropriate security. |
| · | In the event that any director, officer or shareholder who holds more than 10% of our issued and outstanding shares and their
respective spouse and minor children and/or nominees sells shares within six months after the acquisition of such shares, or repurchases
the shares within six months after the sale, we may make a claim for recovery of any profits realized from the sale and purchase.
If our board of directors or our audit committee fails to make a claim for recovery, any shareholder may request that our board of
directors or our audit committee exercise the right of claim within 30 days. In the event our directors or audit committee
fail to exercise such right during such 30-day period, such requesting shareholder will have the right to make a claim for
such recovery on our behalf. Our directors and audit committee will be jointly and severally liable for damages suffered by
us as a result of their failure to exercise the right of claim. |
Financial Statements
Within three months after the end of each
fiscal year, we must post our annual audited financial statements under Taiwan IFRS on the website of the Taiwan Stock Exchange,
for inspection by our shareholders.
Transfer Restrictions
Our directors, officers and shareholders
holding more than 10% of our issued and outstanding shares and their respective spouse and minor children and/or nominees, which
we refer to as insiders, are required to report any changes in their shareholding to us on a monthly basis. No insider is permitted
to sell shares on the Taiwan Stock Exchange for six months from the date on which the relevant person becomes an insider. In addition,
generally, the number of shares that insiders can sell or transfer on the Taiwan Stock Exchange on a daily basis is limited by
ROC law. Furthermore, insiders may sell or transfer our shares on the Taiwan Stock Exchange only after reporting to the FSC at
least three days before the transfer, provided that such reporting is not required if the number of shares transferred per day
does not exceed 10,000.
Other Rights of Shareholders
Under the ROC Company Act, dissenting shareholders
are entitled to appraisal rights in the event of a spin-off, a merger or various other major corporate actions. Dissenting shareholders
may request us to redeem their shares at a fair price to be determined by mutual agreement. If no agreement can be reached, the
valuation will be determined by court order. Dissenting shareholders may exercise their appraisal rights by notifying us before
the related shareholders’ meeting or by raising and registering their dissent at the shareholders’ meeting.
Transfer Agent and Registrar
The transfer agent and registrar for our
shares is Taishin International Bank, Stock Affairs Department, Bl, No. 96, Jianguo N. Rd, Sec. 1, Taipei, Taiwan; telephone
number: 886-2-2504-8125. The transfer agent and registrar for our ADS is Citibank, N.A., 388 Greenwich Street, 14th Floor, New
York, New York, 10013, USA; telephone number: 1-877-248-4237.
Certain material contracts are discussed
under Item 4.B above where relevant.
We have extracted from publicly available
documents the information presented in this section. Please note that citizens of the PRC and entities organized in the PRC are
subject to special ROC laws, rules and regulations, which are not discussed in this section.
The ROC’s Foreign Exchange Control
Statute and regulations provide that all foreign exchange transactions must be executed by banks designated to handle foreign exchange
transactions by the Central Bank of the Republic of China (Taiwan). Current regulations favor trade-related foreign exchange transactions.
Consequently, foreign currency earned from exports of merchandise and services may now be retained and used freely by exporters.
All foreign currency needed for the importation of merchandise and services may be purchased freely from the designated foreign
exchange banks.
Aside from trade-related foreign exchange
transactions, Taiwan companies and residents may remit to and from Taiwan foreign currencies of up to US$50 million and US$5 million,
respectively, each calendar year. A requirement is also imposed on all private enterprises to report all medium- and long-term
foreign debt with the Central Bank of the Republic of China (Taiwan).
In addition, a foreign person without an
alien resident card or an unrecognized foreign entity may remit to and from Taiwan foreign currencies of up to US$100,000 per remittance
if required documentation is provided to ROC authorities. This limit applies only to remittances involving a conversion between
NT dollars and U.S. dollars or other foreign currencies.
ROC Tax Considerations
The following summarizes the principal
ROC tax consequences of owning and disposing of ADSs and shares if you are not a resident of the ROC (a “non-ROC resident”).
You will be considered a non-ROC resident for the purposes of this section if:
| · | you are an individual and you are not physically present in the ROC for 183 days or more during any calendar year; or |
| · | you are an entity and you are organized under the laws of a jurisdiction other than the ROC and have no fixed place of business
or other permanent establishment or business agent in the ROC. |
You should consult your own tax advisors
concerning the tax consequences of owning ADSs or shares in the ROC and any other relevant taxing jurisdiction to which you are
subject.
Dividends
Dividends, whether in cash or shares, declared
by us out of retained earnings and paid out to a holder that is a non-ROC resident in respect of shares represented by ADSs or
shares are subject to ROC withholding tax. The current rate of withholding for non-ROC residents is 20% of the amount of the distribution,
in the case of cash dividends, or of the par value of the shares distributed, in the case of stock dividends. As discussed below
in “Retained Earnings Tax,” our after-tax earnings will be subject to an undistributed retained earnings tax. To the
extent dividends are paid out of retained earnings that have been subject to the retained earnings tax, the amount of such tax
will be used by us to offset the withholding tax liability on such dividend, and consequently, the effective rate of withholding
on dividends paid out of retained earnings previously subject to the retained earnings tax will be less than 20%.
Capital Gains
Non-ROC resident are exempt from ROC income
tax on capital gains from sale or disposition of shares (including shares that were withdrawn from depositary receipt facilities).
However, non-ROC resident individuals are subject to ROC income tax at a flat rate of 15% on net capital gains from the sale or
disposal of shares. Capital loss incurred from the sale or disposition of shares can be deducted from capital gains in the same
calendar year when calculating the net capital gains and income tax liability, but cannot be carried forward. In addition, only
50% of the net capital gains will be subject to ROC income tax if a non-ROC resident individual has directly held the underlying
shares for one year or longer. By way of example, the tax agent of a non-ROC resident individual is required to pay any income
tax payable and file an income tax return in May 2016 for the net capital gains that the non-ROC resident individual generates
in year 2015. Effective from January 1, 2016, the amended ROC Income Tax Act abolished the ROC income tax on capital gains from
sale or disposition of shares and made other revisions as well. Sales of ADSs by non-ROC resident holders (as opposed to sale of
our common shares) are not regarded as sales of ROC securities and, as a result, any gains on such transactions are currently not
subject to ROC income tax.
Securities Transaction Tax
The ROC government imposes a securities
transaction tax that will apply to sales of shares, but not to sales of ADSs. The transaction tax is payable by the seller for
the sale of shares and is equal to 0.3% of the sales proceeds.
Estate and Gift Tax
Subject to allowable exclusions, deductions
and exemptions, any property within the ROC of a deceased individual is subject to a 10% estate tax, and any property within the
ROC donated by any individual is subject to a 10% gift tax. Under ROC estate and gift tax laws, shares issued by ROC companies,
such as our shares, are deemed located in the ROC regardless of the location of the holder. It is unclear whether ADSs will be
deemed assets located in the ROC for the purpose of ROC gift and estate taxes.
Preemptive Rights
Distributions of statutory preemptive rights
for shares in compliance with the ROC Company Act are not subject to ROC tax. Proceeds derived from sales of statutory preemptive
rights evidenced by securities are subject to securities transaction tax. Moreover, as discussed under Section “—Capital
Gains” above, while non-ROC resident entities are exempt from income tax on capital gains, non-ROC resident individuals are
subject to ROC income tax at a flat rate of 15% on capital gains. However, effective from January 1, 2016, the amended ROC Income
Tax Act abolished the ROC income tax on capital gains from sale or disposition of shares and made other revisions as well. Proceeds
derived from sales of statutory preemptive rights that are not evidenced by securities are not subject to securities transaction
tax but are subject to income tax at the rate of 20% regardless of whether the non-ROC resident is an individual or an entity.
We have the sole discretion to determine
whether statutory preemptive rights are evidenced by securities or not.
Retained Earnings Tax
Under the ROC Income Tax Act, since January 1,
1998, if retained earnings of the current year are not distributed by the company in the next fiscal year, an additional retained
earnings tax will be levied at the rate of 10% on such retained earnings. The 10% retained earnings tax may be credited against
the dividend withholding tax once the company distributes dividends from the corresponding retained earnings in subsequent years.
According to an amendment to article 73-2 of the ROC Income Tax Act, from taxable year 2015, only 50% retained earning tax paid
can be credited against the dividend withholding tax.
Tax Treaty
The ROC does not have an income tax treaty
with the United States. The ROC has tax treaties for the avoidance of double taxation with Indonesia, Singapore, South Africa,
Australia, the Netherlands, Vietnam, New Zealand, Malaysia, Macedonia, Swaziland, Gambia, the United Kingdom, Senegal, Sweden,
Belgium, Denmark, Israel, Paraguay, Hungary, France, India, Slovakia, Switzerland, Germany, Thailand, Kiribati, Luxembourg, Austria
and Italy, which may limit the rate of ROC withholding tax on dividends paid with respect to shares. It is unclear whether, if
you hold ADSs, you will be considered to hold shares for the purposes of these treaties. Accordingly, if you may otherwise be entitled
to the benefits of an income tax treaty, you should consult your tax advisors concerning your eligibility for these benefits with
respect to ADSs.
United
States Federal Income Tax Considerations for United States Holders
The following is a discussion of the material
U.S. federal income tax consequences of the ownership and disposition of our ADSs or shares to the U.S. Holders described below,
but it is not a comprehensive description of all of the tax considerations that may be relevant to a particular person’s
decision to hold such securities. The discussion set forth below applies only to beneficial owners of our ADSs or shares that are
U.S. Holders, hold the ADSs or shares as capital assets for tax purposes and are non-ROC residents as defined under “ROC
Tax Considerations.” You are a “U.S. Holder” if, for United States federal income tax purposes, you are:
| · | a citizen or individual resident of the United States; |
| · | a corporation, or other entity taxable as a corporation, created or organized in or under the laws of the United States or
any state or the District of Columbia or any political subdivision thereof; |
| · | an estate the income of which is subject to U.S. federal income taxation regardless of its source; or |
| · | a trust, if (1) a U.S. court can exercise primary supervision over the trust’s administration and one or more United
States persons (within the meaning of the Code, as defined below) are authorized to control all substantial decisions of the trust
or (2) the trust has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person. |
This discussion is based on the Internal
Revenue Code of 1986, as amended (the “Code”), administrative pronouncements, judicial decisions and final, temporary
and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect.
In addition, this summary is based in part on representations by the depositary and assumes that each obligation under the deposit
agreement and any related agreement will be performed in accordance with its terms. This summary does not contain a detailed description
of all the U.S. federal income tax consequences to you in light of your particular circumstances and does not address the effects
of any state, local or non-U.S. tax laws (or other U.S. federal tax consequences, such as U.S. federal estate or gift tax consequences).
In addition, it does not describe all of the U.S. federal income tax consequences that may be relevant in light of the U.S. Holder’s
particular circumstances, including alternative minimum tax consequences, the potential application of the provisions of the Code
known as the Medicare Contribution Tax and tax consequences applicable to U.S. Holders subject to special rules, such as:
| · | dealers and traders in securities who use a mark-to-market method of tax accounting; |
| · | certain financial institutions; |
| · | tax-exempt entities, including “individual retirement accounts”; |
| · | entities classified as partnerships for U.S. federal income tax purposes; |
| · | persons holding ADSs or shares as part of a hedge, straddle, wash sale, conversion transaction or integrated transaction or
persons entering into a constructive sale with respect to the ADSs or shares; |
| · | persons that own or are deemed to own 10% or more of our voting stock; |
| · | persons whose functional currency for U.S. federal income tax purposes is not the U.S. dollar; |
| · | persons who acquired ADSs or shares pursuant to the exercise of any employee stock option or otherwise as compensation; |
| · | persons holding ADSs or shares through a partnership or other pass-through entity; or |
| · | persons holding ADSs or shares in connection with a trade or business conducted outside of the United States. |
If a partnership (or other entity that
is classified as a partnership for U.S. federal income tax purposes) holds our ADSs or shares, the tax treatment of a partner will
depend upon the status of the partner and the activities of the partnership. If you are a partner of a partnership holding ADSs
or shares, you are urged to consult your tax advisor.
For U.S. federal income tax purposes, the
beneficial owner of an ADS will generally be treated as the owner of the shares underlying the ADS. Accordingly, no gain or loss
will be recognized if you exchange ADSs for the underlying shares represented by those ADSs.
The U.S. Treasury has expressed concerns
that parties to whom American depositary shares are released before delivery of shares to the depositary (“pre-release”),
or intermediaries in the chain of ownership between holders and the issuer of the security underlying the American depositary shares,
may be taking actions that are inconsistent with the claiming of foreign tax credits by the holders of American depositary shares.
Such actions would also be inconsistent with the claiming of the preferential rates for dividends received by certain non-corporate
U.S. Holders. Accordingly, the creditability of ROC taxes and the availability of the preferential rates applicable to dividends
received by certain non-corporate U.S. Holders, each described below, could be affected by actions that may be taken by parties
to whom the ADSs are pre-released.
You are urged to consult your tax advisor
concerning the particular U.S. federal income tax consequences to you of the ownership and disposition of ADSs or shares, as well
as the consequences to you arising under the laws of any other taxing jurisdiction.
This discussion assumes that we were not
a passive foreign investment company for our 2015 taxable year, as discussed below.
Taxation of Dividends
Distributions you receive on your ADSs
or shares, other than certain pro rata distributions of shares, including amounts withheld in respect of ROC withholding taxes,
will generally be treated as dividend income to you to the extent the distributions are made from our current or accumulated earnings
and profits (as determined under U.S. federal income tax principles). Distributions in excess of our current and accumulated earnings
and profits will be treated first as a tax-free return of capital to the extent of your tax basis in your ADSs or shares and then
as gain. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, we expect
that distributions will generally be reported to U.S. Holders as dividends. The amount of a dividend will include any amounts withheld
by us or our paying agent in respect of ROC taxes (which may be reduced by any credit against such withholding tax as a result
of the 10% retained earnings tax previously paid by us, as discussed above under “ROC Tax Considerations- Retained Earnings
Tax”). The amount will be treated as foreign source dividend income to you and will not be eligible for the dividends-received
deduction generally allowed to U.S. corporations under the Code.
Subject to applicable limitations that
may vary depending upon a U.S. Holder’s individual circumstances and the concerns expressed by the U.S. Treasury described
above, under current law, dividends paid to certain non-corporate U.S. Holders will be taxable at the preferential rates applicable
to long-term capital gain if the dividends constitute qualified dividend income. Dividends will constitute qualified dividend income
provided that the stock or ADSs with respect to which such dividends are paid is readily tradable on an established securities
market in the United States, such as the New York Stock Exchange where our ADSs are traded, and we are not a passive foreign investment
company in the year the dividend is paid (and were not in the prior year). We believe we were not a passive foreign investment
company for our 2015 taxable year, as discussed below under “Passive Foreign Investment Company Rules.” Even if dividends
on the ADSs or shares would otherwise be eligible for qualified dividend income treatment, individual U.S. holders nevertheless
will not be eligible for the preferential rates (a) if they have not held our ADSs or shares for at least 61 days of the 121-day
period beginning on the date which is 60 days before the ex-dividend date or (b) to the extent they are under an obligation
to make related payments with respect to positions in substantially similar or related property. U.S. Holders should consult their
own tax advisors regarding the availability of the preferential rates in light of their particular circumstances.
Dividends paid in New Taiwan dollars will
be included in your income in a U.S. dollar amount calculated by reference to the exchange rate in effect on the date of your (or,
in the case of ADSs, the depositary’s) receipt of the dividend, regardless of whether the payment is in fact converted into
U.S. dollars. If the dividend is converted into U.S. dollars on the date of receipt, you generally should not be required to recognize
foreign currency gain or loss in respect of the dividend income. You may have foreign currency gain or loss, which will be U.S.
source, if you convert the amount of such dividend into U.S. dollars after the date of receipt.
Subject to limitations that may vary depending
upon your circumstances and the concerns expressed by the U.S. Treasury described above, you may be entitled to a credit against
your U.S. federal income taxes for the amount of ROC income taxes that are withheld from dividend distributions made to you. In
determining the amounts withheld in respect of ROC taxes, any portion of the amount withheld that is reduced by reason of the ROC
credit in respect of the 10% retained earnings tax is not considered a withholding tax. The limitation on foreign taxes eligible
for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us generally
should constitute “passive category income.” The rules governing the foreign tax credit are complex. We therefore urge
you to consult your own tax advisor regarding the availability of the foreign tax credit in your particular circumstances. Instead
of claiming a credit, you may, at your election, deduct foreign taxes, including otherwise creditable ROC taxes, in computing your
taxable income, subject to generally applicable limitations. An election to deduct foreign taxes instead of claiming foreign tax
credits applies to all taxes paid or accrued in the taxable year.
It is possible that pro rata distributions
of shares to all shareholders may be made in a manner that is not subject to U.S. federal income tax, but is subject to ROC withholding
tax as discussed above under “ROC Tax Considerations—Dividends.” Such distribution will not give rise to U.S.
federal income tax against which the ROC withholding tax imposed on these distributions may be credited. U.S. holders should consult
their tax advisors with respect to the creditability of any such ROC tax. The basis of any new ADSs or shares you receive as a
result of a pro rata distribution of shares by us will be determined by allocating your basis in the old ADSs or shares between
the old ADSs or shares and the new ADSs or shares received, based on their relative fair market values on the date of distribution.
Taxation of Capital Gains
For U.S. federal income tax purposes, when
you sell or otherwise dispose of your ADSs or shares, you will recognize U.S. source capital gain or loss in an amount equal to
the difference between the U.S. dollar value of the amount realized for the ADSs or shares and your adjusted tax basis in the ADSs
or shares, determined in U.S. dollars. Any such gain or loss will be long-term capital gain or loss if you held the ADSs or shares
for more than one year. U.S. Holders should consult their own tax advisors regarding the U.S. federal income tax treatment of capital
gains, which may be taxed at lower rates than ordinary income for individuals and certain other non-corporate U.S. holders, and
capital losses, the deductibility of which are subject to limitations.
If you receive non-U.S. currency when you
sell your ADSs or shares, gain or loss, if any, recognized on the subsequent sale, conversion or disposition of such non-U.S. currency
will be ordinary income or loss, and will generally be U.S. source income or loss.
Passive Foreign Investment Company Rules
We believe that we were not a “passive
foreign investment company,” or PFIC, for U.S. federal income tax purposes for our 2015 taxable year. However, since PFIC
status depends upon the composition of a company’s income and assets and the market value of its assets (including, among
others, goodwill) from time to time, there can be no assurance that we will not be a PFIC for any taxable year. If we were a PFIC
for any taxable year during which you held ADSs or shares, certain adverse tax consequences could apply to you.
If we were a PFIC for any taxable year
during which you held ADSs or shares, gain recognized by you on a sale or other disposition (including certain pledges) of ADSs
or shares would be allocated ratably over your holding period for the ADSs or shares. The amounts allocated to the taxable year
of the sale or other disposition and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated
to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as appropriate,
for such taxable year, and an interest charge would be imposed on the amount allocated to such taxable year. Further, to the extent
that any distribution received by you on your ADSs or shares exceeds 125% of the average of the annual distributions on ADSs or
shares received by you during the preceding three years or your holding period, whichever is shorter, that distribution would be
subject to taxation in the same manner as gain, described immediately above. Certain elections may be available that would result
in alternative treatments (such as mark-to-market treatment) of the ADSs or shares. You should consult your tax advisor to determine
whether any of these elections would be available and, if so, what the consequences of the alternative treatments would be in your
particular circumstances.
In addition, if we were a PFIC with respect
to a particular U.S. Holder for the taxable year in which we pay a dividend or the prior taxable year, the preferential rates discussed
above with respect to dividends paid to certain non-corporate U.S. Holders would not apply.
If we are a PFIC for any taxable year during
which you owned our shares or ADSs, you will generally be required to file IRS Form 8621 with your annual U.S. federal income tax
return, subject to certain exceptions.
Information Reporting and Backup Withholding
Payments of dividends and sales proceeds
that are made within the United States or through certain U.S.-related financial intermediaries generally are subject to information
reporting, and may be subject to backup withholding unless (i) you are an exempt recipient or (ii) in the case of backup
withholding, you provide a correct taxpayer identification number and certify that you are not subject to backup withholding.
The amount of any backup withholding from
a payment to you will be allowed as a credit against your U.S. federal income tax liability and may entitle you to a refund, provided
that the required information is timely furnished to the Internal Revenue Service.
| 10.F. | Dividends and Paying Agents |
Not applicable.
| 10.G. | Statement by Experts |
Not applicable.
| 10.H. | Documents on Display |
It is possible to read and copy documents
referred to in this annual report that have been filed with the SEC at the SEC’s public reference rooms in Washington, D.C.,
New York and Chicago, Illinois. Please call the SEC at 1-800-SEC-0330 for further information on the reference rooms.
| 10.I. | Subsidiary Information |
Not applicable.
| ITEM 11. |
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Market Risk
Market risk is the risk of loss related
to adverse changes in market prices, including interest rates and foreign exchange rates, of financial instruments. We are exposed
to various types of market risks, including changes in interest rates and foreign currency exchange rates, in the ordinary course
of business.
We use financial instruments, including
variable rate debt and swap and foreign currency forward contracts, to finance our operations and to manage risks associated with
our interest rate and foreign currency exposures, through a controlled program of risk management in accordance with established
policies. We have used, and intend to continue to use, derivative financial instruments only for hedging purposes. These policies
are reviewed and approved by our board of directors. Our treasury operations are subject to the review of our internal audit department,
and this review is submitted to our audit committee on a quarterly basis.
As of December 31, 2015, we had U.S.
dollar- and Japanese yen-denominated savings and checking accounts of US$609.4 million and JPY37,757.2 million (US$313.9 million),
respectively. We also had certificates of deposit denominated in U.S. dollars, Renminbi and Japanese yen in the amount of US$167.7
million, RMB3,336.5 million (US$515.1 million) and JPY16,500.3 million (US$137.2 million), respectively. Since export sales are
primarily conducted in U.S. dollars, we had U.S. dollar-denominated accounts receivables of US$1,016.8 million as of December 31,
2015, which represents 96.5% of the total accounts receivables balance at that date. In addition, we had U.S. dollar- and Japanese
yen-denominated accounts payables of US$1,377.8 million and JPY28,246.4 million (US$234.9 million), respectively, relating to our
overseas vendors.
As of December 31, 2014, we
had U.S. dollar- and Japanese yen-denominated savings and checking accounts of US$566.6 million and JPY13,890.6 million, respectively.
We also had certificates of deposit denominated in U.S. dollars and Renminbi in the amount of US$213.6 million and RMB2,380.5
million, respectively. Since export sales are primarily conducted in U.S. dollars, we had U.S. dollar-denominated accounts receivables
of US$1,767.1 million as of December 31, 2014, which represents 94.2% of the total accounts receivables balance at that date.
We also had Euro-denominated accounts receivables of EUR66.2 million attributable to our European operations as of December 31,
2014, which represents 4.3% of the total accounts receivables balance at that date. In addition, we had U.S. dollar- and Japanese
yen-denominated accounts payables of US$1,773.1 million and JPY32,036.2 million, respectively, relating to our overseas vendors.
Our primary market risk exposures relate
to interest rate movements on long-term borrowings and exchange rate movements on foreign currency-denominated cash and cash equivalents,
accounts receivables, borrowings, convertible bonds and accounts payables. The fair value of forward exchange contracts has been
determined by our internal evaluation model, and interest rate swaps has been determined by obtaining from our bankers the estimated
amount that would be received/(paid) to terminate the contracts.
Interest Rate Risk
Our exposure to market risk for changes
in interest rates relates primarily to our long-term debt obligations. We incur debt obligations primarily to support general corporate
purposes, including capital expenditures and working capital needs. We use interest rate swaps to modify our exposure to interest
rate movements and reduce the volatility of borrowing costs. Interest rate swaps limit the risks of fluctuating interest rates
by allowing us to convert a portion of the interest on our borrowings from a variable rate to a fixed rate.
As of December 31, 2015, we had six
outstanding interest rate swap agreements with five major international financial institutions, having a total notional principal
amount of NT$3,040.0 million (US$92.7 million). As of December 31, 2014, we had six outstanding interest rate swap agreements
with five major international financial institutions, having a total notional principal amount of NT$4,000.0 million.
The
tables set forth below provide information about our derivative financial instruments and other financial instruments that are
sensitive to changes in interest rates, including interest rate swaps, debt obligations and certain assets, that are held by us
as of December 31, 2015 and 2014, respectively. For debt obligations, the tables set forth principal cash flows and related weighted
average interest rates by expected maturity date. For interest rate swaps, the tables present notional amounts and weighted average
interest rates by contractual maturity date. Notional amounts are used to calculate the contractual payments to be exchanged under
a contract. Weighted average variable rates are based on implied forward rates in the yield curve at the reporting date and management’s
expectations for future interest rates. The information is presented in the currencies in which the instruments are denominated.
| | |
Expected Maturity Date | |
Fair Value at
December 31, |
| | |
2016 | |
2017 | |
2018 | |
2019 | |
2020 | |
Thereafter | |
Total | |
2015 |
| | |
(in thousands) |
| Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Certificates of Deposit: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fixed rate (US$) | |
| 217,490 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 217,490 | | |
| 217,490 | |
| Average interest rate | |
| 0.754 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.754 | % | |
| – | |
| Fixed rate (NT$) | |
| 1,480,300 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 1,480,300 | | |
| 1,480,300 | |
| Average interest rate | |
| 0.575 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.575 | % | |
| – | |
| Fixed rate (JPY) | |
| 16,500,253 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 16,500,253 | | |
| 16,500,253 | |
| Average interest rate | |
| 0.257 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.257 | % | |
| – | |
| Fixed rate (CNY) | |
| 4,976,055 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 4,976,055 | | |
| 4,976,055 | |
| Average interest rate | |
| 1.929 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 1,929 | % | |
| – | |
| Fixed Rate (CZK) | |
| 80,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 80,000 | | |
| 80,000 | |
| Average interest rate | |
| 0.045 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.045 | % | |
| – | |
| Long-term Loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Variable rate (NT$) | |
| 39,107,738 | | |
| 23,210,807 | | |
| 26,000,271 | | |
| 15,376,488 | | |
| 4,429,764 | | |
| 89,291 | | |
| 108,214,359 | | |
| 108,214,359 | |
| Average interest rate | |
| 1.837 | % | |
| 2.063 | % | |
| 2.273 | % | |
| 2.593 | % | |
| 2.635 | % | |
| 5.767 | % | |
| 2.059 | % | |
| – | |
| Interest Rate Swaps (1) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Variable to fixed (NT$) | |
| 1,280,000 | | |
| 1,760,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 3,040,000 | | |
| (10,739 | ) |
| Pay rate | |
| 1.090 | % | |
| 1.090 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| 1.090 | % | |
| – | |
| (1) | Three
months fixing rate of Taipei Interbank Offered Rate settled quarterly (0.75244% on December 31,
2015). |
| | |
Expected Maturity Date | |
Fair Value at
December 31, |
| | |
2015 | |
2016 | |
2017 | |
2018 | |
2019 | |
Thereafter | |
Total | |
2014 |
| | |
(in thousands) |
| Assets | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Certificates of Deposit: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fixed rate (US$) | |
| 213,622 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 213,622 | | |
| 213,622 | |
| Average interest rate | |
| 0.900 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.900 | % | |
| – | |
| Fixed rate (NT$) | |
| 5,728,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 5,728,000 | | |
| 5,728,000 | |
| Average interest rate | |
| 0.671 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.671 | % | |
| – | |
| Fixed rate (JPY) | |
| 11,147,340 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 11,147,340 | | |
| 11,147,340 | |
| Average interest rate | |
| 0.185 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.185 | % | |
| – | |
| Fixed rate (CNY) | |
| 2,380,458 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2,380,458 | | |
| 2,380,458 | |
| Average interest rate | |
| 2.190 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2.190 | % | |
| – | |
| Fixed rate (EUR) | |
| 20,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 20,000 | | |
| 20,000 | |
| Average interest rate | |
| 0.125 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.125 | % | |
| – | |
| Fixed Rate (CZK) | |
| 20,000 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 20,000 | | |
| 20,000 | |
| Average interest rate | |
| 0.070 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 0.070 | % | |
| – | |
| Liabilities Bonds: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Unsecured (NT$) | |
| 13,157,477 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 13,157,477 | | |
| 14,732,296 | |
| Fixed rate | |
| 15.34 | %(1) | |
| – | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 15.34 | % | |
| – | |
| Long-term Loans: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Fixed rate (NT$) | |
| 285,715 | | |
| 3,140 | | |
| – | | |
| – | | |
| – | | |
| – | | |
| 288,855 | | |
| 288,855 | |
| Average interest rate | |
| 2.860 | % | |
| 1.450 | % | |
| – | | |
| – | | |
| – | | |
| – | | |
| 2.845 | % | |
| – | |
| Variable rate (NT$) | |
| 41,221,348 | | |
| 47,393,644 | | |
| 20,114,327 | | |
| 12,077,730 | | |
| 6,466,647 | | |
| – | | |
| 127,273,696 | | |
| 127,273,696 | |
| Average interest rate | |
| 2.333 | % | |
| 2.608 | % | |
| 3.151 | % | |
| 3.755 | % | |
| 4.644 | % | |
| – | | |
| 2.680 | % | |
| – | |
| Interest Rate Swaps (2) | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Variable to fixed (NT$) | |
| 960,000 | | |
| 1,280,000 | | |
| 1,760,000 | | |
| – | | |
| – | | |
| – | | |
| 4,000,000 | | |
| (7,093 | ) |
| Pay rate | |
| 1.090 | % | |
| 1.090 | % | |
| 1.090 | % | |
| – | | |
| – | | |
| – | | |
| 1.090 | % | |
| – | |
| (1) | Unless previously redeemed, purchased
and cancelled, or converted, the interest rate of the zero coupon convertible bonds on
maturity is 15.34%. |
| (2) | 90 days Taipei Money Market Secondary
fixing rate settled quarterly (0.888% on December 31, 2014). |
Foreign Currency Risk
The primary foreign currencies to which
we are exposed are the Japanese yen and the U.S. dollar. We enter into short-term foreign currency forward contracts to hedge the
impact of foreign currency fluctuations on certain underlying assets, liabilities, and firm commitments for the purchase of raw
materials and components and capital expenditures denominated in U.S. dollars and Japanese Yen. The purpose of entering into these
hedges is to minimize the impact of foreign currency fluctuations on the results of operations. Gains and losses on foreign currency
contracts and foreign currency denominated assets and liabilities are accrued in the period of the exchange rate changes on a monthly
basis. The terms of the contracts are typically less than one year.
The tables below set forth our outstanding
foreign currency forward contracts as of December 31, 2015 and 2014:
| |
December 31,
2015 |
| |
(in thousands) |
| Contracts to sell EUR/Buy JPY |
|
| Aggregate contract amount |
EUR65,000 |
| Average contractual exchange rate |
JPY131.98 per EUR |
| Contracts to sell EUR/Buy CZK |
|
| Aggregate contract amount |
EUR3,000 |
| Average contractual exchange rate |
CZK27.05 per EUR |
| Contracts to sell NT$/Buy JPY |
|
| Aggregate contract amount |
NT$3,484,954 |
| Average contractual exchange rate |
JPY3.72 per NT$ |
| Contracts to sell US$/Buy JPY |
|
| Aggregate contract amount |
US$289,645 |
| Average contractual exchange rate |
JPY121.90 per US$ |
| Contracts to sell US$/Buy CNY |
|
| Aggregate contract amount |
US$308,700 |
| Average contractual exchange rate |
CNY6.44 per US$ |
| Contracts to sell US$/Buy MYR |
|
| Aggregate contract amount |
US$496 |
| Average contractual exchange rate |
MYR4.30 per US$ |
| Contracts to sell US$/Buy NT$ |
|
| Aggregate contract amount |
US$203,000 |
| Average contractual exchange rate |
NT$32.52 per US$ |
| Contracts to sell JPY/Buy NT$ |
|
| Aggregate contract amount |
JPY51,000,000 |
| Average contractual exchange rate |
NT$0.27 per JPY |
| Contracts to sell NT$/Buy US$ |
|
| Aggregate contract amount |
NT$101,300 |
| Average contractual exchange rate |
US$0.03 per NT$ |
| Contracts to sell EUR/Buy US$ |
|
| Aggregate contract amount |
EUR47,000 |
| Average contractual exchange rate |
US$1.09 per EUR |
| Fair value of all forward contracts(1) |
NT$(339,469) |
(1) Fair value represents the
amount of the receivable from or payable to the counter-parties if the contracts were terminated on the reporting date.
| |
December 31,
2014 |
| |
(in thousands) |
| Contracts to sell EUR/Buy JPY |
|
| Aggregate contract amount |
EUR80,500 |
| Average contractual exchange rate |
JPY143.95 per EUR |
| Contracts to sell EUR/Buy CZK |
|
| Aggregate contract amount |
EUR3,000 |
| Average contractual exchange rate |
CZK27.60 per EUR |
| Contracts to sell NT$/Buy JPY |
|
| Aggregate contract amount |
NT$665,422 |
| Average contractual exchange rate |
JPY3.74 per NT$ |
| Contracts to sell US$/Buy JPY |
|
| Aggregate contract amount |
US$86,405 |
| Average contractual exchange rate |
JPY116.23 per US$ |
| Contracts to sell US$/Buy CNY |
|
| Aggregate contract amount |
US$308,300 |
| Average contractual exchange rate |
CNY6.21 per US$ |
| Contracts to sell US$/Buy SGD |
|
| Aggregate contract amount |
US$4,520 |
| Average contractual exchange rate |
SGD1.31 per US$ |
| Contracts to sell US$/Buy MYR |
|
| Aggregate contract amount |
US$940 |
| Average contractual exchange rate |
MYR3.44 per US$ |
| Contracts to sell US$/Buy NT$ |
|
| Aggregate contract amount |
US$222,000 |
| Average contractual exchange rate |
NT$31.38 per US$ |
| Contracts to sell CNY/Buy US$ |
|
| Aggregate contract amount |
CNY93,195 |
| Average contractual exchange rate |
US$0.16 per CNY |
| Contracts to sell EUR/Buy NT$ |
|
| Aggregate contract amount |
EUR9,500 |
| Average contractual exchange rate |
NT$38.87 per EUR |
| Contracts to sell JPY/Buy US$ |
|
| Aggregate contract amount |
JPY336,496 |
| Average contractual exchange rate |
US$0.01 per JPY |
| Contracts to sell EUR/Buy US$ |
|
| Aggregate contract amount |
EUR50,000 |
| Average contractual exchange rate |
US$1.24 per EUR |
| Fair value of all forward contracts(1) |
NT$(99,467) |
(1) Fair value represents the
amount of the receivable from or payable to the counter-parties if the contracts were terminated on the reporting date.
ITEM 12. DESCRIPTION OF SECURITIES
OTHER THAN EQUITY SECURITIES
Not applicable.
Not applicable.
Not applicable.
| 12.D. | American Depositary Shares. |
Depositary Fees and Charges
Under the terms of the deposit agreement
dated May 29, 2002 among Citibank, N.A., as depositary, holders and beneficial owners of ADSs and us, which was filed as an
exhibit to our annual report on Form 20-F on June 30, 2003 and its amendment dated February 15, 2006, which was filed
as an exhibit to our annual report on Form 20-F on June 29, 2007 (collectively, the “Deposit Agreement”) for our
ADSs, an ADS holder may have to pay the following service fees to the depositary bank:
|
Service |
Fees |
| (1) Issuance of ADSs |
Up to US$0.05 per ADS issued |
| (2) Cancellation of ADSs |
Up to US$0.05 per ADSs cancelled |
| (3) Distribution of cash dividends or other cash distributions |
Up to US$0.05 per ADSs held |
(4) Distributions of ADSs pursuant to stock dividends, free stock
distributions or other exercises of rights |
Up to US$0.05 per ADSs held |
| (5) Distribution
of securities other than ADSs or rights to purchase additional ADSs |
Up to US$0.05 per ADSs held |
| (6) Depository services |
Up to US$0.05 per ADSs held on the applicable record date(s) established by the Depositary. |
An ADS holder will also be responsible
to pay certain fees and expenses incurred by the depositary bank and certain taxes and governmental charges such as:
| · | fees for the transfer and registration of ADSs charged by the registrar and transfer agent for the ADSs; |
| · | the expenses and charges incurred by the depositary in the conversion of foreign currency into U.S. dollars; |
| · | such cable, telex and facsimile transmission and delivery expenses; |
| · | taxes and duties upon the transfer ADSs; and |
| · | the fees and expenses incurred by the depositary in connection with the delivery of ADSs. |
Depositary fees payable upon the issuance
and cancellation of ADSs are typically paid to the depositary bank by the brokers (on behalf of their clients) receiving the newly-issued
ADSs from the depositary bank and by the brokers (on behalf of their clients) delivering the ADSs to the depositary bank for cancellation.
The brokers in turn charge these transaction fees to their clients.
Depositary fees payable in connection with
distributions of cash or securities to ADS holders are charged by the depositary bank to the holders of record of ADSs as of the
applicable ADS record date. The depositary fees payable for cash distributions are generally deducted from the cash being distributed.
In the case of distributions other than cash (i.e., stock dividends, rights offerings), the depositary bank charges the applicable
fee to the ADS record date holders concurrent with the distribution. In the case of ADSs registered in the name of the investor
(whether certificated or un-certificated in direct registration), the depositary bank sends invoices to the applicable record date
ADS holders. In the case of ADSs held in brokerage and custodian accounts via the central clearing and settlement system, The Depository
Trust Company (“DTC”), the depositary bank generally collects its fees through the systems provided by DTC (whose nominee
is the registered holder of the ADSs held in DTC) from the brokers and custodians holding ADSs in their DTC accounts. The brokers
and custodians who hold their clients’ ADSs in DTC accounts in turn charge their clients’ accounts the amount of the
fees paid to the depositary banks.
In the event of refusal to pay the depositary
fees, the depositary bank may, under the terms of the deposit agreement, refuse the requested service until payment is received
or may set-off the amount of the depositary fees from any distribution to be made to the ADS holder.
Note that the fees and charges you may
be required to pay may vary over time and may be changed by us and by the depositary bank. You will receive prior notice of such
changes.
Payment received by us
In 2015, we received the following payments
from Citibank, N.A, the Depositary Bank for our ADR program:
| Reimbursement of Proxy Process Expenses | |
| US$43,047.86 | |
| Reimbursement of ADR holders identification expenses | |
| US$28,175.52 | |
| Reimbursement to Issuer | |
| US$519,450.06 | |
| Tax Payment to the IRS | |
| US$252,951.02 | |
| Total | |
| US$843,624.46 | |
Part
II
ITEM 13. ITEM DEFAULTS, DIVIDEND ARREARAGES
AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO
THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our Chief Executive Officer and Chief Financial
Officer, after evaluating the effectiveness of our disclosure controls and procedures (as defined in the Exchange Act Rules 13a-15(e)
or 15d-15(e)) as of the end of the period covered by this report, have concluded that based on the evaluation of these controls
and procedures required by paragraph (b) of Exchange Act Rules 13a-15 or 15d-15, that our disclosure controls and procedures
were effective.
Management’s Annual Report on Internal Control Over
Financial Reporting
Our management is responsible for establishing
and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to
provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with IFRS.
Our internal control over financial reporting
includes those policies and procedures that:
| · | pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect our transactions and dispositions
of our assets; |
| · | provide reasonable assurance that our transactions are recorded as necessary to permit preparation of our financial statements
in accordance with IFRS, and that our receipts and expenditures are being made only in accordance with authorizations of our management
and our directors; and |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our
assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of internal control effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2015 based on the criteria set forth in Internal Control
– Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on
the assessment, our management believes that our internal control over financial reporting was effective as of December 31,
2015.
Our independent registered public accounting
firm has issued an audit report on the effectiveness of our internal control over financial reporting as of December 31, 2015,
which is included below.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
AU Optronics Corp.:
We have audited AU Optronics
Corp.’s internal control over financial reporting as of December 31, 2015, based on the criteria established in
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO). AU Optronics Corp.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express
an opinion on the Company’s internal control over financial reporting based on our audit. We conducted our audit in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial
reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we
considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over
financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and
the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records
that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with
authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal
control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness
to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
In our opinion, AU Optronics Corp. maintained,
in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
We also have audited, in accordance with
the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial position
of AU Optronics Corp. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive
income, changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, and our report
dated March 10, 2016 expressed an unqualified opinion on those consolidated financial statements.
/s/ KPMG
Hsinchu, Taiwan (Republic of China)
March 10, 2016
Changes in Internal Control Over Financial Reporting
There has been no change in our internal
control over financial reporting that occurred during the period covered by this annual report that has materially affected, or
is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 16. [RESERVED]
| 16.A. | Audit Committee Financial Expert |
Our board of directors has determined that
Vivien Huey-Juan Hsieh is an audit committee financial expert and is independent as defined under NYSE Section 303A.02. Ms. Hsieh
received a Ph.D. in Finance and has acquired financial expertise through her role as a supervisor at a company where her responsibilities
include examining the business and financial conditions of the company and supervising certified public accountants in their examination
of the same.
We have adopted a code of business conduct
and ethics, which applies to officers and employees but not directors and does not include any waiver of the code for executive
officers or directors that may be made only by the board or a board committee. Our code of business conduct and ethics contains
provisions covering conflicts of interest, corporate opportunities, confidentiality, fair dealing, protection and proper use of
company assets, compliance with laws, rules and regulations (including insider trading laws) and encouraging the reporting of any
illegal or unethical behavior, as well as compliance standards and procedures that will facilitate the operation of the code and
ensure the prompt and consistent action against violations of the code. We will continue to address violations of the code of business
conduct and ethics contained in our code of business conduct and ethics and will continue to consider a separate code of ethics
with the board of directors should the need arise.
| 16.C. | Principal Accountant Fees and Services |
Policy on Pre-Approval of Audit and Non-Audit Services
of Independent Registered Public Accounting Firm
Our audit committee is responsible for
the oversight of KPMG’s work. The policy of our audit committee is to pre-approve all audit and non-audit services provided
by KPMG, including audit services, audit-related services, tax services and other services, as described below. The audit committee
sets forth its pre-approval in detail, listing the particular services or categories of services which are pre-approved, and setting
forth a specific budget for such services. In urgent circumstances, the audit committee’s chairman may issue such a pre-approval.
Additional services may be pre-approved on an individual basis. KPMG and our management then report to the audit committee on a
quarterly basis regarding the extent of services actually provided in accordance with the applicable pre-approval, and regarding
the fees for the services performed.
Auditor Fees
The following are fees for professional
services to KPMG for the years ended December 31, 2013, 2014 and 2015.
| | |
Year Ended December 31, |
| Services | |
2013 | |
2014 | |
2015 |
| | |
NT$ | |
NT$ | |
NT$ |
| | |
(in thousands) |
| Audit Fees(1) | |
| 69,235 | | |
| 55,748 | | |
| 50,990 | |
| Tax Fees(2) | |
| 6,526 | | |
| 8,272 | | |
| 6,073 | |
| Other Fees(3) | |
| - | | |
| - | | |
| 3,000 | |
| Total | |
| 75,761 | | |
| 64,020 | | |
| 60,063 | |
| (1) | Audit
Fees. This category includes the audit of our annual financial statements, review
of quarterly financial statements and services that are normally provided by the independent
auditors in connection with statutory and regulatory filings or engagements for those
fiscal years, and service related to the audit of the effectiveness of our internal control
over financial reporting required by Section 404 of the Sarbanes-Oxley Act of 2002.
This category also includes advice on audit and accounting matters that arose during,
or as a result of, the audit or the review of quarterly financial statements and statutory
audits required by non-US jurisdictions, including statutory audits required by the Customs
Bureau of the ROC and Financial Supervisory Commission of the ROC. This category also
includes assistance with and review of documents filed with the SEC. |
| (2) | Tax
Fees. This category includes fees incurred from professional services related to
tax compliance. |
| (3) | Other
Fees. This category includes professional services related to review over the consolidation
platform migration and training provided by KPMG Advisory Services Co., Ltd. |
| 16.D. | Exemptions From the Listing Standards for Audit Committees |
Not applicable.
| 16.E. | Purchases of Equity Securities By the Issuer and Affiliated
Purchasers |
Neither we nor any “affiliated purchaser,”
as defined in Rule 10b-18(a) (3) of the Exchange Act, purchased any of our equity securities during the period covered by this
annual report.
| 16.F. | Change in Registrant’s Certifying Accountant |
Not applicable.
| 16.G. | Corporate Governance |
Our corporate governance practices are
governed by applicable ROC law, specifically, the ROC Company Act and the ROC Securities and Exchange Law, and our articles of
incorporation. Also, because our shares are registered with the SEC and are listed on the New York Stock Exchange (“NYSE”),
we are subject to corporate governance requirements applicable to NYSE-listed foreign private issuers.
Under Section 303A of the NYSE Listed
Company Manual, NYSE-listed non-US companies may, in general, follow their home country corporate governance practices in lieu
of most of the new NYSE corporate governance requirements. However, all NYSE-listed foreign private issuers must comply with NYSE
Sections 303A.06, 303A.11, 303A.12(b) and 303A.12(c).
Item 16G as well as NYSE Section 303A.11
requires that foreign private issuers disclose any significant ways in which their corporate governance practices differ from US
companies under NYSE listing standards. A NYSE-listed foreign private issuer is required to provide to its US investors, a brief,
general summary of the significant differences, either: (a) on the company website in English, or (b) in its annual report
distributed to its US investors. To comply with NYSE Section 303A.11, we have prepared the comparison in the table below.
The most relevant differences between our
corporate governance practices and NYSE standards for listed companies are as follows:
|
NYSE Standards for US Listed Companies
under Listed Company Manual
Section 303A
|
Our Corporate Governance Practices
|
| NYSE Section 303A.02 establishes general standards to evaluate directors’ independence (no director qualifies as independent unless the board of directors affirmatively determines that the director has no material relationship with the listed company either directly or as a partner, shareholder or officer of an organization that has a relationship with the listed company). |
Our standards for determining director independence,
which comply with ROC requirements for director independence, may differ from the standards imposed by the NYSE. The independence
standards of our directors are disclosed in our ROC annual report.
Our board of directors has affirmatively determined
that our five independent directors have no material relationship with us.
|
| |
|
| NYSE Section 303A.03 requires non-management directors to meet at regularly scheduled executive meetings that are not attended by management. |
ROC law does not contain such a requirement. ROC law does not allow separate board meetings to be held by part but not all of the directors of the board. |
| |
|
| NYSE Section 303A.04 requires listed companies to have a nominating/corporate governance committee comprised entirely of independent directors which committee shall have a written charter establishing certain minimum responsibilities as set forth in NYSE Section 303A.04(b)(i) and providing for an annual evaluation of the committee’s performance. |
ROC law does not contain such a requirement, and we do not have a nominating/corporate governance committee. |
| |
|
| NYSE Section 303A.05 requires listed companies to have a compensation committee comprised entirely of independent directors, which committee shall have a written charter to establish certain minimum responsibilities as set forth in NYSE Section 303A.05(b)(i) and to provide for an annual evaluation of the committee’s performance. |
We established a compensation committee on August 30, 2011 to meet the requirements under the ROC law. The current members of the compensation committee appointed by the board of directors are Ding-Yuan Yang, Vivien Huey-Juan Hsieh and Chin-Bing (Philip) Peng. We have a written charter to establish certain minimum responsibilities in accordance with ROC law. We do not assess the independence of our compensation committee members under the independence requirements of the NYSE listing standards. |
| |
|
| NYSE Section 303A.08 requires each company to give to shareholders the opportunity to vote on all equity based compensation plans and material revisions thereto with certain exceptions. |
Under ROC law, shareholders’ approval is required for (i) any issuance of restricted stocks to employees, and (ii) employee stock option plans with exercise price lower than the closing price of the company’s stocks as of the issuance date. Other than the above, under ROC law, the board of directors has authority to approve employee remunerations and employee stock option plans with exercise price equal to or higher than the closing price of the company’s stocks as of the issuance date, and to grant options to employees pursuant to such plans, subject to the approval of the FSC, and to approve share buy-back programs and the transfer of shares to employees under such programs. |
| |
|
| NYSE Section 303A.09 requires public companies to adopt and disclose corporate governance guidelines, including several issues for which such reporting is mandatory, and to include such information on the company’s website (which website should also include the charters of the audit committee, the nominating committee, and the compensation committee.) |
We currently comply with ROC non-binding corporate governance principles promulgated by the Taiwan Stock Exchange, and we provide an explanation of differences between our practice and the principles, if any, in our ROC annual report. |
| 16.H. | Mine Safety Disclosure |
Not applicable.
PART III
ITEM 17. FINANCIAL STATEMENTS
Not applicable.
ITEM 18. FINANCIAL STATEMENTS
Our consolidated financial statements and
the report thereon by our independent registered public accounting firm listed below are included herein as follows:
| (a) | Report of Independent Registered Public Accounting Firm. |
| (b) | Consolidated Statements of Financial Position of AU Optronics Corp. and subsidiaries as of December 31, 2014 and 2015. |
| (c) | Consolidated Statements of Comprehensive Income of AU Optronics Corp. and subsidiaries for the years ended December 31,
2013, 2014 and 2015. |
| (d) | Consolidated Statements of Changes in Equity of AU Optronics Corp. and subsidiaries for the years ended December 31, 2013,
2014 and 2015. |
| (e) | Consolidated Statements of Cash Flows of AU Optronics Corp. and subsidiaries for the years ended December 31, 2013, 2014
and 2015. |
| (f) | Notes to Consolidated Financial Statements of AU Optronics Corp. and subsidiaries. |
ITEM 19. EXHIBITS
| 1.1 |
Articles of Incorporation (English translation). |
| |
|
| 2.1 |
Deposit Agreement, dated May 29, 2002, among AU Optronics Corp., Citibank, N.A. as depositary, and Holders and Beneficial Owners of American depositary shares evidenced by American depositary receipts issued thereunder, including the form of American depositary receipt (incorporated herein by reference to Exhibit 2(A) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 2.2 |
Amendment No. 1 to the Deposit Agreement, dated February 15, 2006, among AU Optronics Corp., Citibank, N.A. as depositary, and Holders and Beneficial Owners of American depositary shares evidenced by American depositary receipts issued thereunder, including the amended form of American depositary receipt (incorporated herein by reference to Exhibit 2.2 to our annual report on Form 20-F as filed with the Commission on June 29, 2007). |
| |
|
| 4.1 |
Patent and Technology License Agreement by and between FDTC and AU Optronics Corp., for TFT-LCD technologies, dated March 31, 2003 (incorporated herein by reference to Exhibit 4(g) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
|
|
| 4.2 |
Stock Purchase Agreement by and among FDTC, Fujitsu and AU Optronics Corp., for purchase certain amount of stocks of FDTC, dated March 25, 2003 (incorporated herein by reference to Exhibit 4(i) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.3 |
Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, No. 76-6 Small Section, Hsinchu, Taiwan, Republic of China, with respect to part of the site of our previous L1 fab (incorporated herein by reference to Exhibit 4(j) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.4 |
Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, No. 77 Small Section, Hsinchu, Taiwan, Republic of China, with respect to part of the site of L1 fab (incorporated herein by reference to Exhibit 4(k) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.5 |
Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Nos. 255-46 Gin-Shan Section, Hsinchu, Taiwan, Republic of China, the site of one of our 3.5-generation fabs (incorporated herein by reference to Exhibit 4(l) to ours annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.6 |
Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Nos. 114-4 Gin-Shan Section, Hsin-Chu, Taiwan, Republic of China, the site of one of our 3.5-generation fabs (incorporated herein by reference to Exhibit 4(m) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.7 |
Lease Agreement with Hsinchu Science Park Administration in relation to government-owned land located at Hsinchu Science Park, Nos. 472 etc., Gin-Shan Section, Hsinchu, Taiwan, Republic of China, the site of one of our 3.5-generation fabs (incorporated herein by reference to Exhibit 4(n) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.8 |
Lease Agreement by and between Acer Display Technology, Inc. and Min-Tour Inc. for No. 1 Xinhe Road Aspire Park, 325 Lungtan, Taoyuan, Taiwan, Republic of China, the site of our fourth-generation fab and module-assembly plant (in Chinese, with English summary translation) (incorporated herein by reference to Exhibit 10.12 to our Registration Statement on Form F-1 (Registration No. 333-87418) as filed with Commission on May 1, 2002). |
| |
|
| 4.9 |
Lease Agreement by and between AU Optronics Corp. and UMC for No. 1, Gin-Shan Section 7 of Hsinchu Science Park, Hsinchu, Taiwan, Republic of China, the site of one of our fourth-generation fab module-assembly plant (in Chinese, with English summary translation) (incorporated herein by reference to Exhibit 10.13 to our Registration Statement on Form F-1 (Registration No. 333-87418) as filed with the Commission on May 1, 2002). |
| |
|
| 4.10 |
Lease Agreement by and between AU Optronics (Suzhou) Corp., Ltd. and Chinese-Singapore Suzhou Industrial Park Development Co., Ltd. for No. 398, Suhong Zhong Road, Suzhou Industrial Park, Suzhou, The People’s Republic of China, the site of two of our module-assembly plants (incorporated herein by reference to Exhibit 4(q) to our annual report on Form 20-F as filed with the Commission on June 30, 2003). |
| |
|
| 4.11 |
Merger Agreement, dated April 7, 2006, between AU Optronics Corp. and Quanta Display Inc. (incorporated herein by reference to Item 1 of our Form 6-K as filed with the Commission on May 12, 2006). |
| |
|
| 4.12 |
Quanta Display Inc. 2002 Employee Stock Option Plan (English translation) (incorporated herein by reference to Exhibit 4.13 to our annual report on Form 20-F as filed with the Commission on June 29, 2007). |
| |
|
| 4.13 |
Quanta Display Inc. 2003 Employee Stock Option Plan (English translation) (incorporated herein by reference to Exhibit 4.14 to our annual report on Form 20-F as filed with the Commission on June 29, 2007). |
| |
|
| 8.1 |
List of Subsidiaries. |
| |
|
| 12.1 |
Certification of Shuang-Lang (Paul) Peng, Chairman and Chief Executive Officer of AU Optronics Corp., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
|
| 12.2 |
Certification of Benjamin Tseng, Chief Financial Officer of AU Optronics Corp., pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| |
|
| 13.1 |
Certification of Shuang-Lang (Paul) Peng, Chairman and Chief Executive Officer of AU Optronics Corp., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
| 13.2 |
Certification of Benjamin Tseng, Chief Financial Officer of AU Optronics Corp., pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| |
|
| 15.1 |
Consent of Independent Registered Public Accounting Firm. |
SIGNATURES
The registrant hereby certifies that it
meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual
report on its behalf.
| |
|
|
| AU OPTRONICS CORP. |
| |
|
| By: |
/s/ Shuang-Lang (Paul) Peng |
| Name: |
Shuang-Lang (Paul) Peng |
| Title: |
Chairman and Chief Executive Officer |
Date: March 21, 2016
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
AU OPTRONICS CORP.
AND SUBSIDIARIES
Consolidated
Financial Statements
December
31, 2015, 2014 and 2013
(With
Report of Independent Registered Public Accounting Firm)
Report
of Independent Registered Public Accounting Firm
The Board of
Directors and Shareholders
AU Optronics
Corp.:
We have
audited the accompanying consolidated statements of financial position of AU Optronics Corp. and subsidiaries (the “Company”)
as of December 31, 2015 and 2014 and the related consolidated statements of comprehensive income, changes in equity and cash flows
for each of the years in the three-year period ended December 31, 2015. These consolidated financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based
on our audits.
We conducted
our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion,
the consolidated financial statements referred to above present fairly, in all material respects, the financial position of AU
Optronics Corp. and subsidiaries as of December 31, 2015 and 2014 and the results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 2015, in conformity with International Financial Reporting Standards
as issued by the International Accounting Standards Board.
We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), AU Optronics
Corp.’s internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal
Control－Integrated Framework (2013) issued by the Committee
of Sponsoring Organizations of the Treadway Commission (COSO), and our report dated March 10, 2016, expressed an unqualified opinion
on the effectiveness of AU Optronics Corp.’s internal control over financial reporting.
/s/ KPMG
Hsinchu, Taiwan
(Republic of China)
March 10, 2016
AU OPTRONICS
CORP. AND SUBSIDIARIES
Consolidated
Statements of Financial Position
December
31, 2015 and 2014
(Expressed
in thousands of New Taiwan dollars)
| | |
Notes | |
December 31,
2015 | |
December 31,
2014 |
| Assets | |
| | | |
| | | |
| | |
| Current assets: | |
| | | |
| | | |
| | |
| Cash and cash equivalents | |
| 6 | | |
$ | 78,880,700 | | |
| 81,965,333 | |
| Financial assets measured at fair value through profit or loss－current | |
| 7 | | |
| 214,194 | | |
| 133,412 | |
| Notes and accounts receivable, net | |
| 9 | | |
| 32,319,986 | | |
| 55,950,687 | |
| Accounts receivable from related parties, net | |
| 9, 36 | | |
| 2,492,479 | | |
| 3,613,524 | |
| Other receivables from related parties | |
| 36 | | |
| 27,958 | | |
| 56,945 | |
| Income taxes receivable | |
| | | |
| 28,571 | | |
| 42,856 | |
| Inventories | |
| 10 | | |
| 31,795,525 | | |
| 36,420,148 | |
| Other current financial assets | |
| 6, 9, 37 | | |
| 11,734,252 | | |
| 3,024,073 | |
| Noncurrent assets held for sale | |
| 13 | | |
| 702,390 | | |
| - | |
| Other current assets | |
| 16 | | |
| 3,796,085 | | |
| 4,407,556 | |
| Total current assets | |
| | | |
| 161,992,140 | | |
| 185,614,534 | |
| Noncurrent assets: | |
| | | |
| | | |
| | |
| Available-for-sale financial assets－noncurrent | |
| 8 | | |
| 2,148,141 | | |
| 77,724 | |
| Investments in equity-accounted investees | |
| 8, 11 | | |
| 12,401,725 | | |
| 14,796,070 | |
| Property, plant and equipment | |
| 13, 21, 36, 37 | | |
| 208,785,609 | | |
| 231,814,724 | |
| Investment property | |
| 14, 21, 36, 37 | | |
| 465,868 | | |
| 465,868 | |
| Intangible assets | |
| 15 | | |
| 3,294,684 | | |
| 3,885,755 | |
| Deferred tax assets | |
| 31 | | |
| 1,987,853 | | |
| 1,190,087 | |
| Other noncurrent assets | |
| 16, 37 | | |
| 8,161,111 | | |
| 4,499,558 | |
| Total noncurrent assets | |
| | | |
| 237,244,991 | | |
| 256,729,786 | |
| Total Assets | |
| | | |
$ | 399,237,131 | | |
| 442,344,320 | |
(See
accompanying notes to the consolidated financial statements)
AU
OPTRONICS CORP. AND SUBSIDIARIES
Consolidated
Statements of Financial Position (continued)
December
31, 2015 and 2014
(Expressed
in thousands of New Taiwan dollars, except for par value)
| | |
Notes | |
December
31,
2015 | |
December
31,
2014 |
| Liabilities | |
| | | |
| | | |
| | |
| Current liabilities: | |
| | | |
| | | |
| | |
| Short-term borrowings | |
| 17 | | |
$ | 1,593,714 | | |
| 381,322 | |
| Convertible bonds payable | |
| 18 | | |
| - | | |
| 15,110,028 | |
| Current installments of long-term borrowings | |
| 19, 37 | | |
| 39,107,738 | | |
| 41,507,062 | |
| Financial liabilities measured at fair value
through profit or loss－current | |
| 7 | | |
| 553,663 | | |
| 232,879 | |
| Notes and accounts payable | |
| | | |
| 52,087,584 | | |
| 63,359,887 | |
| Accounts payable to related parties | |
| 36 | | |
| 9,326,171 | | |
| 11,463,941 | |
| Equipment and construction payable | |
| | | |
| 7,622,160 | | |
| 4,496,702 | |
| Other payables to related parties | |
| 36 | | |
| 29,014 | | |
| 56,902 | |
| Current tax liabilities | |
| | | |
| 2,980,258 | | |
| 2,629,063 | |
| Provisions－current | |
| 20 | | |
| 5,012,361 | | |
| 8,696,279 | |
| Other current liabilities | |
| 11 | | |
| 23,555,082 | | |
| 26,209,075 | |
| Total current liabilities | |
| | | |
| 141,867,745 | | |
| 174,143,140 | |
| Noncurrent liabilities: | |
| | | |
| | | |
| | |
| Hedging derivative financial liabilities－noncurrent | |
| 7 | | |
| 10,739 | | |
| 7,093 | |
| Long-term borrowings, excluding current installments | |
| 19, 37 | | |
| 68,537,430 | | |
| 85,689,365 | |
| Provisions－noncurrent | |
| 20 | | |
| 1,123,975 | | |
| 1,576,687 | |
| Deferred tax liabilities | |
| 31 | | |
| 2,268,256 | | |
| 2,459,839 | |
| Other noncurrent liabilities | |
| 11,
22 | | |
| 4,767,913 | | |
| 4,481,264 | |
| Total noncurrent liabilities | |
| | | |
| 76,708,313 | | |
| 94,214,248 | |
| Total liabilities | |
| | | |
| 218,576,058 | | |
| 268,357,388 | |
| Equity | |
| 23 | | |
| | | |
| | |
| Common stock, $10 par value | |
| | | |
| 96,242,451 | | |
| 96,242,451 | |
| Capital surplus | |
| | | |
| 60,247,848 | | |
| 59,258,041 | |
| Accumulated deficit | |
| | | |
| (4,493,166 | ) | |
| (6,656,523 | ) |
| Other components of equity | |
| | | |
| 6,015,336 | | |
| 5,813,709 | |
Equity
attributable to shareholders of AU Optronics Corp. | |
| | | |
| 158,012,469 | | |
| 154,657,678 | |
| Non-controlling
interests | |
| | | |
| 22,648,604 | | |
| 19,329,254 | |
| Total equity | |
| | | |
| 180,661,073 | | |
| 173,986,932 | |
| Total Liabilities and Equity | |
| | | |
$ | 399,237,131 | | |
| 442,344,320 | |
(See
accompanying notes to the consolidated financial statements)
AU OPTRONICS
CORP. AND SUBSIDIARIES
Consolidated
Statements of Comprehensive Income
For
the years ended December 31, 2015, 2014 and 2013
(Expressed
in thousands of New Taiwan dollars, except for earnings per share)
| | |
| Notes | | |
| 2015 | | |
| 2014 | | |
| 2013 | |
| | |
| | | |
| | | |
| | | |
| | |
| Net revenue | |
| 25, 36 | | |
$ | 360,346,494 | | |
| 408,178,750 | | |
| 416,363,005 | |
| Cost of sales | |
| 10, 26, 27, 36 | | |
| (320,509,439 | ) | |
| (359,668,105 | ) | |
| (382,378,938 | ) |
| Gross profit | |
| | | |
| 39,837,055 | | |
| 48,510,645 | | |
| 33,984,067 | |
| Selling and distribution expenses | |
| 26, 27, 36 | | |
| (4,206,101 | ) | |
| (7,798,965 | ) | |
| (7,470,014 | ) |
| General and administrative expenses | |
| 12, 26, 27, 36 | | |
| (9,205,987 | ) | |
| (9,389,601 | ) | |
| (9,691,071 | ) |
| Research and development expenses | |
| 26, 27, 36 | | |
| (8,903,819 | ) | |
| (9,156,656 | ) | |
| (8,530,461 | ) |
| Other income | |
| 28, 36 | | |
| 2,197,593 | | |
| 2,162,107 | | |
| 2,448,464 | |
| Other gains and losses | |
| 7, 8, 11, 12,
13, 14, 29, 36 | | |
| (9,978,320 | ) | |
| (801,803 | ) | |
| (1,176,393 | ) |
| Finance costs | |
| 13, 30 | | |
| (2,591,023 | ) | |
| (4,045,133 | ) | |
| (4,782,832 | ) |
| Share of profit of equity-accounted investees | |
| 11 | | |
| 449,452 | | |
| 499,865 | | |
| 454,268 | |
| Profit before income tax | |
| | | |
| 7,598,850 | | |
| 19,980,459 | | |
| 5,236,028 | |
| Income tax expense | |
| 31 | | |
| 384,841 | | |
| 3,243,220 | | |
| 1,359,164 | |
| Profit for the year | |
| | | |
| 7,214,009 | | |
| 16,737,239 | | |
| 3,876,864 | |
| Other comprehensive income | |
| 11, 23, 31 | | |
| | | |
| | | |
| | |
| Items that will never be reclassified to profit or loss | |
| | | |
| | | |
| | | |
| | |
| Remeasurement of defined benefit obligations | |
| | | |
| (251,401 | ) | |
| 47,827 | | |
| (35,283 | ) |
| Equity-accounted investees – share of other comprehensive income (loss) | |
| | | |
| (2,381 | ) | |
| 2,660 | | |
| (4,679 | ) |
| Related tax | |
| | | |
| 681 | | |
| 622 | | |
| 467 | |
| | |
| | | |
| (253,101 | ) | |
| 51,109 | | |
| (39,495 | ) |
| Items that are or may be reclassified subsequently to profit or loss | |
| | | |
| | | |
| | | |
| | |
| Foreign operations – foreign currency translation differences | |
| | | |
| (294,749 | ) | |
| 2,309,610 | | |
| 3,003,129 | |
| Net change in fair value of available-for-sale financial assets | |
| | | |
| (521,173 | ) | |
| (224,646 | ) | |
| 199,425 | |
| Effective portion of changes in fair value of cash flow hedges | |
| | | |
| (3,647 | ) | |
| 9,969 | | |
| 41,485 | |
| Equity-accounted investees – share of other comprehensive income (loss) | |
| | | |
| 324,928 | | |
| 117,885 | | |
| (129,872 | ) |
| Related tax | |
| | | |
| 16,050 | | |
| (86,211 | ) | |
| (76,097 | ) |
| | |
| | | |
| (478,591 | ) | |
| 2,126,607 | | |
| 3,038,070 | |
| Other comprehensive income, net of tax | |
| | | |
| (731,692 | ) | |
| 2,177,716 | | |
| 2,998,575 | |
| Total comprehensive income for the year | |
| | | |
$ | 6,482,317 | | |
| 18,914,955 | | |
| 6,875,439 | |
| Profit (loss) attributable to: | |
| | | |
| | | |
| | | |
| | |
| Shareholders of AU Optronics Corp. | |
| | | |
| 7,242,170 | | |
| 16,366,629 | | |
| 3,804,142 | |
| Non-controlling interests | |
| | | |
| (28,161 | ) | |
| 370,610 | | |
| 72,722 | |
| Profit for the year | |
| | | |
$ | 7,214,009 | | |
| 16,737,239 | | |
| 3,876,864 | |
| Total comprehensive income (loss) attributable to: | |
| | | |
| | | |
| | | |
| | |
| Shareholders of AU Optronics Corp. | |
| | | |
$ | 7,185,693 | | |
| 18,125,736 | | |
| 6,367,518 | |
| Non-controlling interests | |
| | | |
| (703,376 | ) | |
| 789,219 | | |
| 507,921 | |
| Total comprehensive income for the year | |
| | | |
$ | 6,482,317 | | |
| 18,914,955 | | |
| 6,875,439 | |
| Earnings per share | |
| 32 | | |
| | | |
| | | |
| | |
| Basic earnings per share | |
| | | |
$ | 0.75 | | |
| 1.70 | | |
| 0.41 | |
| Diluted earnings per share | |
| | | |
$ | 0.70 | | |
| 1.69 | | |
| 0.40 | |
(See
accompanying notes to the consolidated financial statements)
AU OPTRONICS
CORP. AND SUBSIDIARIES
Consolidated
Statements of Changes in Equity
For
the years ended December 31, 2015, 2014 and 2013
(Expressed
in thousands of New Taiwan dollars)
| | |
Equity attributable to shareholders of AU Optronics Corp. | |
| |
|
| | |
| |
| |
Accumulated deficit | |
Other components of equity | |
| |
| |
|
| | |
Common stock | |
Capital
surplus | |
Legal
reserve | |
Accumulated
deficit | |
Subtotal | |
Cumulative
translation differences | |
Unrealized
gains (losses) on available-for-sale financial assets | |
Unrealized
gains (losses)
on cash flow
hedges | |
Subtotal | |
Equity
attributable to
shareholders
of AU Optronics Corp.
| |
Non- controlling
interests | |
Total equity |
| | |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
| |
|
| Balance at January 1, 2013 | |
$ | 88,270,455 | | |
| 112,515,983 | | |
| - | | |
| (80,204,451 | ) | |
| (80,204,451 | ) | |
| 1,517,468 | | |
| 19,746 | | |
| (33,014 | ) | |
| 1,504,200 | | |
| 122,086,187 | | |
| 14,062,612 | | |
| 136,148,799 | |
| Appropriation for capital surplus | |
| - | | |
| (54,614,704 | ) | |
| - | | |
| 54,614,704 | | |
| 54,614,704 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Issuance of common stock | |
| 7,971,996 | | |
| 2,308,654 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 10,280,650 | | |
| - | | |
| 10,280,650 | |
| Profit for the year | |
| - | | |
| - | | |
| - | | |
| 3,804,142 | | |
| 3,804,142 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,804,142 | | |
| 72,722 | | |
| 3,876,864 | |
| Other comprehensive income, net of tax | |
| - | | |
| - | | |
| - | | |
| (38,334 | ) | |
| (38,334 | ) | |
| 2,319,062 | | |
| 241,163 | | |
| 41,485 | | |
| 2,601,710 | | |
| 2,563,376 | | |
| 435,199 | | |
| 2,998,575 | |
| Total comprehensive income for the year | |
| - | | |
| - | | |
| - | | |
| 3,765,808 | | |
| 3,765,808 | | |
| 2,319,062 | | |
| 241,163 | | |
| 41,485 | | |
| 2,601,710 | | |
| 6,367,518 | | |
| 507,921 | | |
| 6,875,439 | |
| Adjustments to capital surplus and accumulated deficit for changes in investees’ equity | |
| - | | |
| 293,079 | | |
| - | | |
| (73,734 | ) | |
| (73,734 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 219,345 | | |
| 45,969 | | |
| 265,314 | |
| Changes in non-controlling interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (579,982 | ) | |
| (579,982 | ) |
| Balance at December 31, 2013 | |
| 96,242,451 | | |
| 60,503,012 | | |
| - | | |
| (21,897,673 | ) | |
| (21,897,673 | ) | |
| 3,836,530 | | |
| 260,909 | | |
| 8,471 | | |
| 4,105,910 | | |
| 138,953,700 | | |
| 14,036,520 | | |
| 152,990,220 | |
| Appropriation of earnings | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Legal reserve | |
| - | | |
| - | | |
| 401,750 | | |
| (401,750 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Cash dividends distributed to shareholders | |
| - | | |
| - | | |
| - | | |
| (96,242 | ) | |
| (96,242 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (96,242 | ) | |
| - | | |
| (96,242 | ) |
| Cash distributed from capital surplus | |
| - | | |
| (1,347,395 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (1,347,395 | ) | |
| - | | |
| (1,347,395 | ) |
| Profit for the year | |
| - | | |
| - | | |
| - | | |
| 16,366,629 | | |
| 16,366,629 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 16,366,629 | | |
| 370,610 | | |
| 16,737,239 | |
| Other comprehensive income, net of tax | |
| - | | |
| - | | |
| - | | |
| 51,308 | | |
| 51,308 | | |
| 1,929,632 | | |
| (231,802 | ) | |
| 9,969 | | |
| 1,707,799 | | |
| 1,759,107 | | |
| 418,609 | | |
| 2,177,716 | |
| Total comprehensive income for the year | |
| - | | |
| - | | |
| - | | |
| 16,417,937 | | |
| 16,417,937 | | |
| 1,929,632 | | |
| (231,802 | ) | |
| 9,969 | | |
| 1,707,799 | | |
| 18,125,736 | | |
| 789,219 | | |
| 18,914,955 | |
| Adjustments to capital surplus and accumulated deficit for changes in investees’ equity | |
| - | | |
| 102,424 | | |
| - | | |
| (1,080,545 | ) | |
| (1,080,545 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (978,121 | ) | |
| 65,253 | | |
| (912,868 | ) |
| Changes in non-controlling interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 4,438,262 | | |
| 4,438,262 | |
| Balance at December 31, 2014 | |
| 96,242,451 | | |
| 59,258,041 | | |
| 401,750 | | |
| (7,058,273 | ) | |
| (6,656,523 | ) | |
| 5,766,162 | | |
| 29,107 | | |
| 18,440 | | |
| 5,813,709 | | |
| 154,657,678 | | |
| 19,329,254 | | |
| 173,986,932 | |
| Appropriation of earnings | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Legal reserve | |
| - | | |
| - | | |
| 1,762,846 | | |
| (1,762,846 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Cash dividends distributed to shareholders | |
| - | | |
| - | | |
| - | | |
| (4,812,123 | ) | |
| (4,812,123 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (4,812,123 | ) | |
| - | | |
| (4,812,123 | ) |
| Profit for the year | |
| - | | |
| - | | |
| - | | |
| 7,242,170 | | |
| 7,242,170 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 7,242,170 | | |
| (28,161 | ) | |
| 7,214,009 | |
| Other comprehensive income, net of tax | |
| - | | |
| - | | |
| - | | |
| (258,104 | ) | |
| (258,104 | ) | |
| 774,034 | | |
| (568,760 | ) | |
| (3,647 | ) | |
| 201,627 | | |
| (56,477 | ) | |
| (675,215 | ) | |
| (731,692 | ) |
| Total comprehensive income for the year | |
| - | | |
| - | | |
| - | | |
| 6,984,066 | | |
| 6,984,066 | | |
| 774,034 | | |
| (568,760 | ) | |
| (3,647 | ) | |
| 201,627 | | |
| 7,185,693 | | |
| (703,376 | ) | |
| 6,482,317 | |
| Adjustments to capital surplus and accumulated deficit for changes in investees’ equity | |
| - | | |
| 172,616 | | |
| - | | |
| (8,586 | ) | |
| (8,586 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 164,030 | | |
| (489,906 | ) | |
| (325,876 | ) |
| Differences between acquisition price and carrying amount arising from acquisition of subsidiaries | |
| - | | |
| 817,191 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 817,191 | | |
| (817,191 | ) | |
| - | |
| Changes in non-controlling interests | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,329,823 | | |
| 5,329,823 | |
| Balance at December 31, 2015 | |
$ | 96,242,451 | | |
| 60,247,848 | | |
| 2,164,596 | | |
| (6,657,762 | ) | |
| (4,493,166 | ) | |
| 6,540,196 | | |
| (539,653 | ) | |
| 14,793 | | |
| 6,015,336 | | |
| 158,012,469 | | |
| 22,648,604 | | |
| 180,661,073 | |
(See
accompanying notes to the consolidated financial statements)
AU OPTRONICS
CORP. AND SUBSIDIARIES
Consolidated
Statements of Cash Flows
For
the years ended December 31, 2015, 2014 and 2013
(Expressed
in thousands of New Taiwan dollars)
| | |
2015 | |
2014 | |
2013 |
| Cash flows from operating activities: | |
| |
| |
|
| Profit before income tax | |
$ | 7,598,850 | | |
| 19,980,459 | | |
| 5,236,028 | |
| Adjustments for: | |
| | | |
| | | |
| | |
| Depreciation | |
| 46,851,487 | | |
| 56,064,469 | | |
| 62,763,514 | |
| Amortization | |
| 894,362 | | |
| 838,259 | | |
| 874,233 | |
| Interest expense | |
| 2,591,023 | | |
| 4,045,133 | | |
| 4,782,832 | |
| Interest income | |
| (672,638 | ) | |
| (468,390 | ) | |
| (329,360 | ) |
| Dividend income | |
| (112,661 | ) | |
| (4,350 | ) | |
| (2,855 | ) |
| Share of profit of equity-accounted investees | |
| (449,452 | ) | |
| (499,865 | ) | |
| (454,268 | ) |
| Losses (gains) on disposals of property, plant and equipment, net | |
| (585,196 | ) | |
| 307,630 | | |
| (70,569 | ) |
| Gains on disposals of investment properties | |
| - | | |
| (279,729 | ) | |
| - | |
| Losses (gains) on disposals of investments and financial assets, net | |
| 10,618 | | |
| (713,222 | ) | |
| (1,813,751 | ) |
| Gain on bargain purchase | |
| - | | |
| (2,883,913 | ) | |
| - | |
| Write-downs of inventories | |
| 5,661,266 | | |
| 4,731,319 | | |
| 5,106,531 | |
| Impairment losses on assets | |
| 7,026,226 | | |
| 2,371,034 | | |
| 755,634 | |
| Losses (gains) on purchase of convertible bonds payable | |
| 87,984 | | |
| (63,445 | ) | |
| (222,192 | ) |
| Effect of exchange rates on purchase of convertible bonds payable | |
| 576,167 | | |
| (176,823 | ) | |
| (134,210 | ) |
| Changes in fair values of financial instruments | |
| 240,002 | | |
| (264,181 | ) | |
| (462,303 | ) |
| Unrealized foreign currency exchange losses | |
| 107,556 | | |
| 1,605,972 | | |
| 1,598,293 | |
| Others | |
| 10,671 | | |
| (90,702 | ) | |
| (23,744 | ) |
| | |
| 62,237,415 | | |
| 64,519,196 | | |
| 72,367,785 | |
| Change in operating assets and liabilities: | |
| | | |
| | | |
| | |
| - notes and accounts receivable | |
| 22,073,800 | | |
| (13,817,621 | ) | |
| (3,019,995 | ) |
| - receivables from related parties | |
| 1,150,032 | | |
| 2,402,424 | | |
| 1,949,337 | |
| - inventories | |
| (1,498,601 | ) | |
| (3,266,062 | ) | |
| (718,448 | ) |
| - other current assets | |
| (7,567,250 | ) | |
| 3,975,103 | | |
| 449,789 | |
| - notes and accounts payable | |
| (10,266,543 | ) | |
| (4,357,288 | ) | |
| (3,999,188 | ) |
| - payables to related parties | |
| (2,165,658 | ) | |
| (3,632,457 | ) | |
| 162,081 | |
| - net defined benefit liability | |
| (86,866 | ) | |
| (101,552 | ) | |
| (91,707 | ) |
| - provisions | |
| (4,012,891 | ) | |
| (1,440,234 | ) | |
| (17,915,214 | ) |
| - other current liabilities | |
| (2,967,282 | ) | |
| 2,438,673 | | |
| (530,671 | ) |
| | |
| (5,341,259 | ) | |
| (17,799,014 | ) | |
| (23,714,016 | ) |
| Cash generated from operating activities | |
| 64,495,006 | | |
| 66,700,641 | | |
| 53,889,797 | |
| Cash received from interest income | |
| 595,475 | | |
| 442,638 | | |
| 345,215 | |
| Cash received from dividend income | |
| 380,589 | | |
| 322,236 | | |
| 233,302 | |
| Cash paid for interest | |
| (2,474,887 | ) | |
| (3,145,859 | ) | |
| (4,148,281 | ) |
| Cash paid for income taxes | |
| (992,795 | ) | |
| (926,924 | ) | |
| (677,589 | ) |
| Net cash provided by operating activities | |
| 62,003,388 | | |
| 63,392,732 | | |
| 49,642,444 | |
| Cash flows from investing activities: | |
| | | |
| | | |
| | |
| Proceeds from disposals of available-for-sale financial assets | |
| 99,517 | | |
| 1,574,669 | | |
| 1,688,342 | |
| Proceeds from return of capital by available-for-sale financial assets | |
| 1,497 | | |
| - | | |
| - | |
| Acquisitions of available-for-sale financial assets | |
| (33,593 | ) | |
| (1,681 | ) | |
| (209,478 | ) |
| Acquisitions of equity-accounted investees | |
| (51,700 | ) | |
| (2,529,360 | ) | |
| (939 | ) |
| Proceeds from disposals of equity-accounted investees | |
| - | | |
| 25,473 | | |
| 1,729,729 | |
| Proceeds from return of capital by equity-accounted investees | |
| - | | |
| 48,258 | | |
| - | |
| Acquisitions of property, plant and equipment | |
| (33,440,160 | ) | |
| (16,970,961 | ) | |
| (25,457,759 | ) |
| Proceeds from disposals of property, plant and equipment | |
| 1,762,401 | | |
| 941,439 | | |
| 587,337 | |
| Proceeds from disposals of investment properties | |
| - | | |
| 1,061,297 | | |
| - | |
| Decrease in refundable deposits | |
| 3,341 | | |
| 14,735 | | |
| 160,295 | |
| Acquisitions of intangible assets | |
| (303,282 | ) | |
| (291,337 | ) | |
| (1,654,318 | ) |
| Decrease (increase) in other financial assets | |
| 227,320 | | |
| (83,640 | ) | |
| 193,209 | |
| Net cash inflows from acquisition of subsidiaries | |
| - | | |
| 2,763,252 | | |
| - | |
| Net cash inflows (outflows) resulting from disposals of subsidiaries | |
| - | | |
| 341,019 | | |
| (260,210 | ) |
| Net cash used in investing activities | |
| (31,734,659 | ) | |
| (13,106,837 | ) | |
| (23,223,792 | ) |
| Cash flows from financing activities: | |
| | | |
| | | |
| | |
| Increase (decrease) in short-term borrowings | |
| 1,212,392 | | |
| (3,075,852 | ) | |
| (5,162,876 | ) |
| Purchase of convertible bonds payable | |
| (14,799,715 | ) | |
| (5,978,884 | ) | |
| (3,147,405 | ) |
| Redemption of convertible bonds payable | |
| (563,999 | ) | |
| - | | |
| - | |
| Proceeds from long-term borrowings | |
| 30,633,963 | | |
| 32,956,812 | | |
| 19,629,576 | |
| Repayments of long-term borrowings | |
| (50,849,749 | ) | |
| (67,382,137 | ) | |
| (48,378,183 | ) |
| Increase (decrease) in guarantee deposits | |
| 156,994 | | |
| (87,132 | ) | |
| (145,746 | ) |
| Cash dividends and cash distributed from capital surplus | |
| (4,812,123 | ) | |
| (1,443,637 | ) | |
| - | |
| Proceeds from issuance of common stock | |
| - | | |
| - | | |
| 10,280,650 | |
| Net change of non-controlling interests and others | |
| 4,745,245 | | |
| (30,621 | ) | |
| 138,548 | |
| Net cash used in financing activities | |
| (34,276,992 | ) | |
| (45,041,451 | ) | |
| (26,785,436 | ) |
| Effect of exchange rate change on cash held | |
| 923,630 | | |
| 408,617 | | |
| 23,381 | |
| Net increase (decrease) in cash and cash equivalents | |
| (3,084,633 | ) | |
| 5,653,061 | | |
| (343,403 | ) |
| Cash and cash equivalents at January 1 | |
| 81,965,333 | | |
| 76,312,272 | | |
| 76,655,675 | |
| Cash and cash equivalents at December 31 | |
$ | 78,880,700 | | |
| 81,965,333 | | |
| 76,312,272 | |
(See
accompanying notes to the consolidated financial statements)
AU
OPTRONICS CORP. AND SUBSIDIARIES
Notes
to Consolidated Financial Statements
For
the years ended December 31, 2015, 2014 and 2013
(Expressed
in thousands of New Taiwan dollars, unless otherwise indicated)
AU
Optronics Corp. (“AUO”) was founded on August 12, 1996 and is located in Hsinchu Science Park, the Republic of China
(“ROC”). AUO’s main activities are the research, development, production and sale of thin film transistor liquid
crystal displays (“TFT-LCDs”) and other flat panel displays used in a wide variety of applications. AUO also engages
in the production and sale of solar photovoltaic (PV) modules and systems. AUO’s common shares have been publicly listed
on the Taiwan Stock Exchange since September 2000, and its American Depositary Shares (“ADSs”) have been listed on
the New York Stock Exchange since May 2002.
On
September 1, 2001 and October 1, 2006, Unipac Optoelectronics Corp. and Quanta Display Inc. were merged with and into AUO, respectively.
AUO is the surviving Company.
The
principal operating activities of AUO and its subsidiaries (hereinafter referred to as “the Company”) are described
in note 4(c).
| 2. | The
Authorization of Financial Statements |
These
consolidated financial statements were authorized for issue by the audit committee of the Board of Directors of AUO on March 10,
2016.
| 3. | New
Accounting Pronouncements Under International Financial Reporting Standards (“IFRS”) |
| (a) | New
and revised standards, amendments and interpretations in issue but not yet effective |
The
Company has not adopted the following new, revised and amended IFRS that have been issued by the International Accounting Standards
Board (“IASB”) but are not yet effective:
New,
Revised or Amended Standards and Interpretations |
Effective
Date (Note) |
| IFRS 9, Financial
Instruments |
January 1, 2018 |
Amendments to IFRS 10 and IAS 28, Sale or Contribution of
Assets between an Investor and its Associate or
Joint Venture |
Subject to IASB’s announcement |
| Amendments to IFRS
10, IFRS 12 and IAS 28, Investments Entities: Applying the Consolidation Exception |
January 1, 2016 |
| Amendments to IFRS 11, Joint Arrangements: Accounting for
Acquisitions of Interests in Joint Operations |
January 1, 2016 |
| IFRS 14, Regulatory Deferral Accounts |
January 1, 2016 |
| IFRS 15, Revenue
from Contracts with Customers |
January 1, 2018 |
| IFRS 16, Leases |
January 1, 2019 |
| Amendments to IAS 1,
Presentation of Financial Statements -Disclosure Initiative |
January 1, 2016 |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
New,
Revised or Amended Standards and Interpretations |
Effective
Date (Note) |
| Amendments
to IAS 7, Statement of Cash Flows - Disclosure Initiative |
January 1, 2017 |
| Amendments to IAS 12, Recognition of Deferred Tax Assets
for Unrealized Losses |
January 1, 2017 |
| Amendments to IAS 16 and IAS 38, Clarification of Acceptable
Methods of Depreciation and Amortization |
January 1, 2016 |
| Amendments to IAS 16 and IAS 41, Agriculture: Bearer Plants |
January 1, 2016 |
| Amendments to IAS 27, Equity Method in Separate Financial
Statements |
January 1, 2016 |
| Annual Improvements to IFRSs 2012 – 2014 Cycle |
January 1, 2016 |
| Note: | The aforementioned new,
revised and amended standards and interpretations are effective for annual periods beginning on or after the respective effective
dates. |
| (b) | Except
for the items discussed below, the Company believes that the initial adoption of aforementioned
standards or interpretations will not have any significant impact on its accounting policies. |
| (1) | IFRS
9, Financial Instruments |
IFRS
9, published in July 2014, replaces the existing guidance in IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 includes revised guidance on the classification and measurement of financial instruments, including an expected credit
loss model for calculating impairment on financial assets, and the new general hedge accounting requirements.
| (2) | IFRS
15, Revenue from Contracts with Customers |
IFRS
15 establishes a five-step model framework for recognizing revenue that apply to all contracts with customers, and will supersede
IAS 18, Revenue, IAS 11, Construction Contracts, and a number of revenue-related interpretations. The core principle
in that framework is that a company should recognize revenue to depict the transfer of promised goods or services to the customer
in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
IFRS
16 sets out the accounting standards for leases that will supersede IAS 17 and a number of related interpretations.
Under IFRS 16, a lessee is required to recognize an asset for the right to use the leased item and a liability for the
present value of its future lease payments on the consolidated statement of financial position for all leases with exception for
leases of low-value assets and short-term leases. Additionally, a depreciation expense charged on the lease asset and an interest
expense accrued on the lease liability are recognized separately on the consolidated statement of comprehensive income for which
interest is computed by using effective interest method. When
IFRS 16 becomes effective, the Company may elect to apply this Standard either retrospectively to each prior reporting period
presented or retrospectively with a recognition of cumulative effect of the initial adoption of this Standard at the date of initial
adoption.
The
Company is assessing the potential impact on its financial position and results of operations as a result of the application of
IFRS 9, IFRS 15 and IFRS 16.
| 4. | Summary
of Significant Accounting Policies |
The
significant accounting policies applied in the preparation of these consolidated financial statements are set out as below. The
significant accounting policies have been applied consistently to all periods presented in these consolidated financial statements,
unless otherwise stated.
| (a) | Statement of compliance |
The
consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB.
The
consolidated financial statements have been prepared on the historical cost basis except for the following material items in the
consolidated statements of financial position:
| (i) | Financial
instruments measured at fair value through profit or loss (including derivative financial
instruments) (note 7); |
| (ii) | Hedging
derivative financial instruments measured at fair value (note 7); |
| (iii) | Available-for-sale financial
assets measured at fair value (note 8); and |
| (iv) | Defined
benefit asset (liability) is recognized as the fair value of the plan assets less the
present value of the defined benefit obligation (note 22). |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (2) | Functional
and presentation currency |
The
functional currency of each individual consolidated entity is determined based on the primary economic environment in which the
entity operates. AUO’s primary activities are denominated in New Taiwan Dollar (“NTD”). Accordingly, NTD is
AUO’s functional currency, which is also the presentation currency of the Company’s consolidated financial statements.
All
financial information presented in NTD has been rounded to the nearest thousand, unless otherwise noted.
| (c) | Basis
of consolidation |
| (1) | Principle
of preparation of the consolidated financial statements |
The
Company includes in its consolidated financial statements the results of operations of all controlled entities in which the Company
is exposed to, 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. All significant inter-company transactions, income and expenses are eliminated in the
consolidated financial statements.
The
financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences
until the date that control ceases. Total comprehensive income (loss) in a subsidiary is allocated to the Company and the non-controlling
interests even if this results in the non-controlling interests having a deficit balance.
Subsidiaries’
financial statements are adjusted to align the accounting policies with those of the Company.
Changes
in the Company’s ownership interests in a subsidiary that do not result in a loss of control are accounted for as equity
transactions. The carrying amounts of the Company’s investment and non-controlling interests are adjusted to reflect the
changes in their relative interests in the subsidiary. Any difference between such adjustment and the fair value of the consideration
paid or received is recognized directly in equity and attributed to shareholders of AUO.
Upon
the loss of control, the Company derecognizes the carrying amounts of the assets and liabilities of the subsidiary and non-controlling
interests. Any interest retained in the former subsidiary is measured at fair value when control is lost. Any surplus or deficit
arising from the loss of control is recognized in profit or loss. The gain or loss is measured as the difference between:
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| a. | the
fair value of the consideration received, and |
| b. | the
fair value of any retained non-controlling investment in the former subsidiary at the
date when the Company losses control. |
| (ii) | The
aggregate of the carrying amount of the former subsidiary’s assets (including goodwill),
liabilities and non-controlling interests at the date when the Company losses control. |
The
Company shall account for all amounts previously recognized in other comprehensive income in relation to that subsidiary on the
same basis as would be required if the Company had directly disposed of the related assets or liabilities.
| (2) | List
of subsidiaries in the consolidated financial statements |
The
consolidated entities were as follows:
| Name of Investor |
|
Name of Subsidiary |
|
Main
Activities and Location |
|
Percentage
of Ownership (%) |
|
| December
31, 2015 |
|
December
31, 2014 |
|
| AUO |
|
AU Optronics (L) Corp. (AULB) |
|
Holding and trading company (Malaysia) |
|
100.00 |
|
100.00 |
|
| AUO |
|
Konly Venture Corp. (Konly) |
|
Venture capital investment (Taiwan ROC) |
|
100.00 |
|
100.00 |
|
| AUO |
|
Ronly Venture Corp. (Ronly) |
|
Venture capital investment (Taiwan ROC) |
|
100.00 |
|
100.00 |
|
| AUO |
|
Taiwan CFI Co., Ltd. (CFI) (Previously named as “Toppan
CFI (Taiwan) Co., Ltd. (Toppan CFI)”) |
|
Manufacturing and sale of color filters (Taiwan ROC) |
|
100.00(1) |
|
49.00(1) |
|
| AUO |
|
Space Money Inc. (SMI) |
|
Sale of TFT-LCD panels; leasing (Taiwan ROC) |
|
100.00(4) |
|
- |
|
| AUO,
Konly and Ronly |
|
Darwin
Precisions Corporation (DPTW) |
|
Manufacturing, design and sale of TFT-LCD modules, TV set, backlight
modules and related parts (Taiwan ROC) |
|
46.16(2) |
|
43.48(2) |
|
| AUO, Konly and Ronly |
|
Sanda Materials Corporation (SDMC) |
|
Holding company (Taiwan ROC) |
|
99.99 |
|
99.90(3) |
|
| AUO, Konly and Ronly |
|
AUO Crystal Corp. (ACTW) |
|
Manufacturing and sale of ingots and solar wafers (Taiwan
ROC) |
|
96.54 |
|
96.56(3) |
|
| Konly |
|
Fargen Power Corporation (FGPC) |
|
Solar power generation (Taiwan ROC) |
|
100.00 |
|
100.00(4) |
|
| Konly |
|
Evergen Power Corporation (EGPC) |
|
Solar power generation (Taiwan ROC) |
|
100.00 |
|
100.00(4) |
|
| Konly |
|
LiGen Power Corporation (LGPC) |
|
Solar power generation (Taiwan ROC) |
|
100.00(4) |
|
- |
|
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| Name of Investor |
|
Name of Subsidiary |
|
Main Activities and Location |
|
Percentage of Ownership (%) |
|
| December 31, 2015 |
|
December 31, 2014 |
|
| ACTW |
|
AUO Crystal (Malaysia) Sdn. Bhd. (ACMK) |
|
Manufacturing and sale of solar wafers (Malaysia) |
|
100.00 |
|
100.00 |
|
| SDMC |
|
M.Setek Co., Ltd. (M.Setek) |
|
Manufacturing and sale of ingots (Japan)(7) |
|
99.9991 |
|
99.98(3) |
|
| AULB |
|
AU Optronics Corporation America (AUUS) |
|
Sales and sales support of TFT-LCD panels (United States) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics Corporation Japan (AUJP) |
|
Sales support of TFT-LCD panels (Japan) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics Europe B.V. (AUNL) |
|
Sales support of TFT-LCD panels (Netherlands) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics Korea Ltd. (AUKR) |
|
Sales support of TFT-LCD panels (South Korea) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics Singapore Pte. Ltd. (AUSG) |
|
Holding company and sales support of TFT-LCD panels (Singapore) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics (Czech) s.r.o. (AUCZ) |
|
Assembly of solar modules (Czech Republic) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics (Shanghai) Co., Ltd. (AUSH) |
|
Sales support of TFT-LCD panels (PRC) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics (Xiamen) Corp. (AUXM) |
|
Manufacturing and assembly of TFT-LCD modules (PRC) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics (Suzhou) Corp., Ltd. (AUSZ) |
|
Manufacturing and assembly of TFT-LCD modules (PRC) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics Manufacturing (Shanghai) Corp. (AUSJ) |
|
Manufacturing and assembly of TFT-LCD modules (PRC) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AU Optronics (Slovakia) s.r.o. (AUSK) |
|
Repairing of TFT-LCD modules; injecting and stamping parts; manufacturing and sale of mold (Slovakia Republic) |
|
100.00 |
|
100.00 |
|
| AULB |
|
AFPD Pte., Ltd. (AUST) |
|
Manufacturing TFT-LCD panels based on low temperature polysilicon technology (Singapore) |
|
100.00 |
|
100.00 |
|
| AULB |
|
Huizhou Bri-King Optronics Co., Ltd. (BKHZ) |
|
Manufacturing and sale of liquid crystal products and related parts (PRC) |
|
51.00(5) |
|
51.00(5) |
|
| AULB |
|
AU Optronics (Kunshan) Co., Ltd. (AUKS) |
|
Manufacturing and sale of TFT-LCD panels (PRC) |
|
51.00 |
|
49.00(1) |
|
| AULB |
|
a.u. Vista Inc. (AUVI) |
|
Research and development and IP related business (United States) |
|
100.00 |
|
100.00(4) |
|
| AULB and DPTW |
|
BriView (L) Corp. (BVLB) |
|
Holding company (Malaysia) |
|
100.00 |
|
100.00(2) |
|
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| Name
of Investor |
|
Name
of Subsidiary |
|
Main
Activities and Location |
|
Percentage
of Ownership (%) |
|
| December
31, 2015 |
|
December
31, 2014 |
|
| DPTW |
|
Darwin Precisions (L) Corp.
(DPLB) |
|
Holding company (Malaysia) |
|
100.00 |
|
100.00(2) |
|
| DPTW |
|
Forhouse International Holding Ltd. (FHVI) |
|
Holding company (BVI) |
|
100.00 |
|
100.00(2) |
|
| DPTW |
|
Force International Holding Ltd. (FRVI) |
|
Holding company (BVI) |
|
100.00 |
|
100.00(2) |
|
| FHVI |
|
Fullhouse Corporation Sdn. Bhd. (FHMY) |
|
Manufacturing and sale of electronics dartboard
(Malaysia) |
|
-(5) |
|
100.00(2)(5) |
|
| FHVI |
|
Fortech International Corp. (FTMI) |
|
Holding company (Mauritius) |
|
100.00 |
|
100.00(2) |
|
| FHVI |
|
Forward Optronics International Corp. (FWSA) |
|
Holding company (Samoa) |
|
100.00 |
|
100.00(2) |
|
| FHVI |
|
Prime Forward International Ltd. (PMSA) |
|
Holding company (Samoa) |
|
100.00 |
|
100.00(2) |
|
| FHVI |
|
Full Luck Precisions Co., Ltd. (FLMI) |
|
Holding company (Mauritius) |
|
100.00 |
|
100.00(2) |
|
| FRVI |
|
Forefront Corporation (FFMI) |
|
Holding company (Mauritius) |
|
100.00 |
|
100.00(2) |
|
| FFMI |
|
Forthouse Electronics (Suzhou) Co., Ltd. (FHWJ) |
|
Manufacturing of motorized treadmills
(PRC) |
|
100.00 |
|
100.00(2) |
|
| FTMI |
|
Fortech Electronics (Suzhou) Co., Ltd. (FTWJ) |
|
Manufacturing and sale of light guide plates, backlight modules and
related parts (PRC) |
|
100.00 |
|
100.00(2) |
|
| FTMI |
|
Fortech Optronics (Xiamen) Co., Ltd. (FTXM) |
|
Manufacturing and sale of light guide plates, backlight modules and related parts (PRC) |
|
100.00 |
|
100.00(2) |
|
| FWSA and FTMI |
|
Suzhou Forplax Optronics Co., Ltd. (FPWJ) |
|
Manufacturing and sale of precision
plastic parts (PRC) |
|
100.00 |
|
100.00(2) |
|
| PMSA |
|
Fortech Electronics (Kunshan) Co., Ltd. (FTKS) |
|
Manufacturing and sale of light guide plates, backlight modules and related parts (PRC) |
|
100.00 |
|
100.00(2) |
|
| FLMI |
|
Full Luck (Wujiang) Precisions Co., Ltd. (FLWJ) |
|
Manufacturing and sales of precision metal parts
(PRC) |
|
100.00(5) |
|
100.00(2) |
|
| DPLB |
|
Darwin Precisions (Hong Kong) Limited (DPHK) |
|
Holding company (Hong Kong) |
|
100.00 |
|
100.00 |
|
| DPHK |
|
Darwin Precisions (Suzhou) Corp. (DPSZ) |
|
Manufacturing and sale of backlight modules and related parts (PRC) |
|
100.00 |
|
100.00 |
|
| DPHK |
|
Darwin Precisions (Xiamen) Corp. (DPXM) |
|
Manufacturing and sale of backlight modules and related parts
(PRC) |
|
100.00 |
|
100.00 |
|
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| Name of Investor |
|
Name of Subsidiary |
|
Main Activities and Location |
|
Percentage of Ownership (%) |
|
| December 31, 2015 |
|
December 31, 2014 |
|
| DPHK |
|
Darwin Precisions (Chengdu) Corp. (DPCD) |
|
Manufacturing and sale of backlight
modules and related parts (PRC) |
|
100.00(5) |
|
100.00(5) |
|
| BVLB |
|
BriView (Kunshan) Co., Ltd. (BVKS) |
|
Manufacturing and sale of liquid crystal products, TV set and related parts (PRC) |
|
-(5) |
|
100.00(5) |
|
| BVLB |
|
BriView (Hefei) Co., Ltd. (BVHF) |
|
Manufacturing and sale of liquid crystal products
and related parts (PRC) |
|
100.00 |
|
100.00 |
|
| BVLB |
|
BriView (Xiamen) Corp. (BVXM) |
|
Manufacturing and sale of liquid crystal products
and related parts (PRC) |
|
100.00 |
|
100.00 |
|
| AUSG |
|
AUO Energy (Tianjin) Corp. (AETJ) |
|
Manufacturing and sale of solar modules (PRC) |
|
100.00 |
|
100.00 |
|
| AUSG |
|
AUO Green Energy America Corp. (AEUS) |
|
Sale and sales support of solar modules (United States) |
|
100.00 |
|
100.00 |
|
| AUSG |
|
AUO Green Energy Europe B.V. (AENL) |
|
Holding company and sales support of solar modules (Netherlands) |
|
100.00 |
|
100.00 |
|
| AENL |
|
AUO Green Energy Germany GmbH (AEDE) |
|
Sales support of solar modules (Germany) |
|
100.00(6) |
|
100.00(6) |
|
| Note 1: | In
year 2014, the Company has the power over the significant decision of the financial and operating policies of AUKS through
an arrangement to obtain more than half of AUKS’s board seats; as a result, AUKS was included in the Company’s consolidated
financial statements. The Company also did not own more than 50% ownership interest in Toppan
CFI, through certain arrangement, the Company owned the power over relevant activities in operation. Therefore, Toppan
CFI was included in the Company’s consolidated financial statements in year 2014. |
On
February 12, 2015, AUO’s board of directors approved the acquisition of 51% shareholdings in Toppan CFI from Toppan Printing
Co., Ltd. for $4,428,507 thousand. The transaction was completed on April 20, 2015. Toppan CFI was then renamed as CFI and the
Company’s ownership interest in CFI increased to 100%. The acquisition was accounted for as an equity transaction as there
is no change of power over relevant activities in CFI and the Company recognized an increase in capital surplus of $817,191 thousand
in 2015.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| Note 2: | BriView Corp. (“BVTW”)
and Forhouse Corporation (“Forhouse”) were merged on October 1, 2014. Forhouse is the legal acquirer and the surviving
company while BVTW was dissolved. Forhouse was then renamed as DPTW. Upon completion of the merger, DPTW was owned as to 43.48%
by the Company. Although the Company does not own more than 50% of the DPTW’s ownership interests, it is considered to have
de facto control over the operating policies of DPTW. As a result, DPTW was accounted for as a subsidiary of the Company. Please
refer to note 12 for further details. |
| Note 3: | On April 1, 2014, ACTW
spun off its long-term investment of M.Setek and the department responsible for managing M.Setek to SDMC. |
| Note 4: | FGPC was incorporated in
May 2014. EGPC and AUVI were both incorporated in December 2014. SMI and LGPC were both incorporated in October 2015. |
| Note 5: | As part of a business restructuring,
BVKS and FHMY were liquidated in March 2015. In addition, DPCD, BKHZ and FLWJ have been resolved by their respective boards of
directors for liquidation. The liquidation is still in process for these three entities as of December 31, 2015. |
| Note 6: | AEDE has commenced its
liquidation process which was still in progress as of December 31, 2015. |
| Note 7: | The board of directors
of M.Setek resolved on January 8, 2016 to cease the production of polysilicon and to focus on the production of ingot. |
| (1) | Foreign
currency transactions |
Transactions
in foreign currencies are translated to the respective functional currencies of the individual entities of the Company at exchange
rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date
are retranslated to the functional currency at the exchange rate at that date. Non-monetary assets and liabilities that are measured
at fair value in a foreign currency are translated to the functional currency at the exchange rate at the date that the fair value
was determined. Non-monetary items that are measured in historical cost are translated using the exchange rate at the date of
the original transaction.
Except
for the following items, foreign currency differences arising from settlement or retranslation
of monetary assets and liabilities are recognized in profit or loss:
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| (i) | Non-monetary
items measured at fair value that are denominated in foreign currencies are retranslated
at the rates prevailing at the date when the fair value was determined. Exchange differences
arising on the retranslation of non-monetary items are included in profit or loss for
the year except for exchange differences arising on the retranslation of non-monetary
items in respect of which gains and losses are recognized directly in other comprehensive
income, in which case, the exchange differences are also recognized directly in other
comprehensive income; |
| (ii) | Exchange
differences arising on the effective portion of changes in the fair value of derivatives
that are designated and qualified as cash flow hedges are recognized in other comprehensive
income. |
For
the purpose of presenting consolidated financial statements, the assets and liabilities of the Company’s foreign operations
are translated into NTD using the exchange rates at each reporting date. Income and expenses of foreign operations are translated
at the average exchange rates for the period unless the exchange rates fluctuate significantly during the period; in that case,
the exchange rates at the dates of the transactions are used. Foreign currency differences are recognized in other comprehensive
income within equity, except to the extent that the translation difference is allocated to non-controlling interests.
| (e) | Classification
of current and non-current assets and liabilities |
An
asset is classified as current when:
| (1) | The
asset expected to realize, or intends to sell or consume, in its normal operating cycle; |
| (2) | The
asset primarily held for the purpose of trading; |
| (3) | The
asset expected to realize within twelve months after the reporting date; or |
| (4) | Cash
and cash equivalent excluding the asset restricted to be exchanged or used to settle
a liability for at least twelve months after the reporting date. |
All
other assets are classified as non-current.
A
liability is classified as current when:
| (1) | The
liability expected to settle in its normal operating cycle; |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| (2) | The
liability primarily held for the purpose of trading; |
| (3) | The
liability is due to be settled within twelve months after the reporting date; or |
| (4) | The
Company does not have an unconditional right to defer settlement of the liability for
at least twelve months after the reporting 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. |
All
other liabilities are classified as non-current.
| (f) | Cash
and cash equivalents |
Cash
comprise cash balances and demand deposits. Cash equivalents comprise short-term highly liquid investments that are readily convertible
into known amounts of cash and are subject to an insignificant risk of changes in their fair value. Deposits with short-term maturity
but not for investments and other purposes and are qualified with the aforementioned criteria are classified as cash equivalent.
Financial
assets and financial liabilities are initially recognized when the Company becomes a party to the contractual provisions of the
instruments.
The
Company classifies financial assets into the following categories: financial assets measured at fair value through profit or loss,
receivables and available-for-sale financial assets.
| (i) | Financial
assets measured at fair value through profit or loss |
The
Company has certain financial assets classified in this category to hedge its exposure to foreign exchange and interest rate risks
arising from operating and financing activities. When a derivative financial instrument is not effective as a hedge the Company
accounts for it as a financial asset or liability measured at fair value through profit or loss. See note 4(g)(3) for further
detail of the Company’s derivative financial instruments and hedge accounting policy.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| (ii) | Available-for-sale
financial assets |
Available-for-sale
financial assets are non-derivative financial assets that are either designated as available-for-sale or are not classified as
receivables or financial assets measured at fair value through profit or loss. Available-for-sale financial assets are recognized
initially at fair value, plus any directly attributable transaction cost. Subsequent to initial recognition, they are measured
at fair value and changes therein, other than impairment losses, dividend income and foreign currency differences related to monetary
financial assets, are recognized in other comprehensive income and presented within equity in unrealized gains (losses) on financial
instruments. When an investment is derecognized, the cumulative gain or loss in equity is reclassified to profit or loss. A regular
way, purchase or sale of financial assets shall be recognized and derecognized, as applicable, using trade date accounting.
Investments
in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured,
are carried at their cost less any impairment losses.
Cash
dividends on equity instruments are recognized in profit or loss on the date that the Company’s right to receive dividends
is established.
Receivables
are financial assets with fixed or determinable payments that are not quoted in an active market. Receivables comprise trade receivables
and other receivables. Such assets are recognized initially at fair value, plus any directly attributable transaction costs. Subsequently,
receivables are measured at amortized cost using the effective interest method, less any impairment. If the effect of discounting
is immaterial, the short-term receivables are measured at the original amount.
| (iv) | Impairment
of financial assets |
Financial
assets not measured at fair value through profit or loss are assessed at each reporting date for indicators of impairment. Financial
assets are considered to be impaired if an objective evidence indicates that, as a result of one or more events that occurred
after the initial recognition of the financial asset, the estimated future cash flows of those assets have been negatively impacted.
When
an available-for-sale equity security is considered to be impaired, cumulative gains or losses previously recognized in other
comprehensive income are reclassified to profit or loss. Such impairment losses are not reversed through profit or loss. However,
any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive
income and accumulated in other components of equity.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For
receivables, the Company first assesses whether objective evidence of impairment exists that are individually significant. If
there is objective evidence that an impairment loss has occurred, the amount of impairment loss is assessed individually. For
receivables other than those aforementioned, the Company groups those assets and collectively assesses them for impairment. An
impairment loss for trade receivables is reflected in an allowance account against the receivables. When it is determined a receivable
is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable previously written off is
credited against the allowance account. Changes in the amount of the allowance accounts are recognized in profit or loss.
For
equity instruments without a quoted market price in an active market, the objective evidence of impairment includes the investees’
financial information, current operating result, future business plans and relevant industry and public market information. An
impairment loss for this kind of equity instruments is reduced from the carrying amount and any impairment loss recognized is
not reversed through profit or loss in subsequent periods.
Bad
debt expenses and reversal of allowance for doubtful debts for trade receivables are recognized in general and administrative
expenses while impairment losses and reversal of impairment for financial assets other than receivables are recognized in other
gains and losses.
| (v) | De-recognition
of financial assets |
The
Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the
Company transfers substantially all the risks and rewards of ownership of the financial assets to another entity.
On
de-recognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration
received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income is recognized in
profit or loss.
The
Company classifies financial liabilities into the following categories: convertible bonds, financial liabilities measured at fair
value through profit or loss and other financial liabilities.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Convertible
bonds issued by the Company give bondholders the right to convert bonds into a given number of equity instruments of AUO at a
specific conversion price. The derivatives embedded in the convertible bonds are recognized initially at fair value in financial
liabilities measured at fair value through profit or loss. The difference between the par value of the convertible bonds and the
fair value of the derivatives is recognized in convertible bonds payable.
Subsequent
to initial recognition, the liability component of the convertible bonds is measured at amortized cost using the effective interest
method. Convertible option is measured at fair value using Least Square Monte Carlo simulation and changes therein are recognized
in profit or loss.
Transaction
costs that relate to the issue of the convertible bonds are allocated to the liability and the convertible option components in
proportion to their relative fair value. Transaction costs allocated to the convertible option are recognized directly in profit
or loss. Transaction costs allocated to the liability component are included in the initial carrying amount of the liability component
and amortized using the effective interest method.
| (ii) | Financial
liabilities measured at fair value through profit or loss |
The
Company designates financial liabilities in this category as held for trading for the purpose of hedging exposure to foreign exchange
and interest rate risks arising from operating and financing activities. When a derivative financial instrument is not effective
as a hedge the Company accounts for it as a financial asset or liability measured at fair value through profit or loss. See note
4(g)(3) for further detail of the Company’s derivative financial instruments and hedge accounting policy.
The
Company designates financial liabilities, other than the one mentioned above, as measured at fair value through profit or loss
at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities in
this category are subsequently measured at fair value and changes therein, which takes into account any interest expense, are
recognized in profit or loss.
| (iii) | Other
financial liabilities |
Financial
liabilities not classified as held for trading, or not designated as measured at fair value through profit or loss (including
loans and borrowings, trade and other payables), are measured at fair value, plus any directly attributable transaction cost at
the time of initial recognition. Subsequent to initial recognition, they are measured at amortized cost calculated using the effective
interest method, except for insignificant recognition of interest expense from short-term borrowings and trade payables. Interest
expense not capitalized as an asset cost is recognized in profit or loss.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| (iv) | De-recognition
of financial liabilities |
The
Company derecognizes financial liabilities when the contractual obligation has been discharged, cancelled or expired. The difference
between the carrying amount and the consideration paid or payable, including any non-cash assets transferred or liabilities assumed
is recognized in profit or loss.
| (v) | Offsetting
of financial assets and liabilities |
The
Company presents financial assets and liabilities on a net basis when the Company has the legally enforceable rights to offset,
and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities
simultaneously.
| (3) | Derivative
financial instruments and hedge accounting |
The
Company holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are recognized
initially at fair value, and attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial
recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss.
When
a derivative is designated as a hedging instrument, its timing of recognition in profit or loss is determined based on the nature
of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset,
and when the fair value is negative, it is classified as a financial liability.
When
a derivative is designated as a cash flow hedge, the changes in the fair value of the derivative that is determined to be effective
is recognized in other comprehensive income and accumulated in other components of equity – unrealized gains (losses) on
cash flow hedges. Any ineffective portion of changes in the fair value of the derivative is recognized in profit or loss.
When
the hedged item is recognized in profit or loss, amounts previously recognized in other comprehensive income and accumulated in
equity are reclassified to profit or loss in the same period or periods during which the hedged item affects profit or loss, and
it is presented in the same accounting caption with the hedged item recognized in the consolidated statements of comprehensive
income (loss). When a cash flow hedge is expected to recognize as a non-financial asset or liability,
amounts previously recognized in other comprehensive income and accumulated in other components of equity – unrealized
gains (losses) on cash flow hedges are reclassified as the initial cost of the non-financial asset or liability.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The
cost of inventories includes all necessary expenditures and charges for bringing the inventory to a stable, useable and marketable
condition and location. Inventories are recorded at cost, and cost is determined using the weighted-average method. The production
overhead is allocated based on the normal capacity of the production facilities. Inventories are measured at the lower of cost
or net realizable value. Net realizable value for raw materials is based on replacement cost. Net realizable value for finished
goods and work in process is calculated based on the estimated selling price less all estimated costs of completion and necessary
selling costs.
| (i) | Noncurrent
assets held for sale |
Noncurrent
assets are classified as held for sale when their carrying amounts are expected to be recovered primarily through sale rather
than through continuing use. Such noncurrent assets must be available for immediate sale in their present condition and the sale
is highly probable within one year. When classified as held for sale, the assets are measured at the lower of their carrying amount
and fair value less costs to sell. Impairment losses on initial classification as held for sale and subsequent gains or losses
on re-measurement are recognized in profit or loss. However, subsequent gains are not recognized in excess of the cumulative impairment
loss that has been recognized.
When
intangible assets and property, plant and equipment are classified as held for sale, they are no longer amortized or depreciated.
In addition, once an equity-accounted investee is classified as held for sale, it is no longer equity accounted.
| (j) | Investments
in associates |
Associates
are those entities in which the Company has the power to exercise significant influence, but not control or joint control, over
their financial and operating policies.
Investments
in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes
transaction costs. The carrying amount of the investment in associates includes goodwill, which is arising from the acquisition,
less any accumulated impairment losses.
The
difference between acquisition cost and fair value of associates’ identifiable assets and liabilities as of the acquisition
date is accounted for as goodwill. Goodwill is included in the original investment cost of acquired associates and is not amortized.
If the fair value of identified assets and liabilities is in excess of acquisition cost, the remaining excess over acquisition
cost is recognized as a gain in profit or loss.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
If
an equity security is not acquired through cash, that is, by providing services or other assets, then the fair value of such security
or the fair value of the services or assets surrendered, whichever is more objectively determinable, is the purchase price of
the security. If an equity investment of associates is acquired by providing subsequent services and the cost is determined based
on the fair value of such services, the Company defers and recognizes revenue using a reasonable amortization method over the
future period when the service is rendered.
Upon
the sale of investment in associates, the difference between the selling price and carrying amount of the investment at the date
of sale is recognized as a disposal gain or loss. In proportion to the percentage disposed of, other components of equity from
the investment resulting from the Company’s proportionate share in the net equity of the investee are recognized in profit
or loss.
The
consolidated financial statements include the Company’s share of the profit or loss and other comprehensive income of associates,
after adjustments to align the accounting policies with those of the Company, from the date that significant influence commences
until the date that significant influence ceases.
The
Company discontinues the use of the equity method from the date when the Company ceases to have significant influence over an
associate, and then measures the retained interests at fair value at that date. The difference between the carrying amount of
the investment at the date the equity method was discontinued and the fair value of the retained interests along with any proceeds
from disposing of a part interest in the associate is recognized in profit or loss. Moreover, the Company accounts for all amounts
previously recognized in other comprehensive income in relation to that investment on the same basis as would be required if the
associate had directly disposed of the related assets or liabilities.
If
the Company's ownership interest in an associate is reduced, but the Company continues to apply the equity method, the Company
shall reclassify to profit or loss the proportion of the gain or loss that had previously been recognized in other comprehensive
income relating to that reduction in ownership interest on the same basis as mentioned above.
If
an investment in an associate becomes an investment in a joint venture or an investment in a joint venture becomes an investment
in an associate, the Company continues to account for the investment using equity method and does not remeasure the interest previously
held.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
When
the Company subscribes to additional shares in an associate at a percentage different from its existing ownership percentage,
the resulting carrying amount of the investment differs from the amount of the Company’s proportionate interest in the net
assets of the associate. The Company records such a difference as an adjustment to investments with the corresponding amount charged
or credited to capital surplus. If the capital surplus arising from investment accounted for under the equity method in associates
is insufficient to offset with the said corresponding amount, the differences will be charged or credited to retained earnings.
If the Company’s ownership interest is reduced due to circumstances as mentioned above, but the Company continues to apply
the equity method, the Company shall reclassify to profit or loss the proportion of the gain or loss that had previously been
recognized in other comprehensive income relating to that reduction in ownership interest if that gain or loss would be required
to be reclassified to profit or loss on the disposal of the related assets or liabilities.
At
the end of each reporting period, if there is any indication of impairment, the entire carry amount of the investment including
goodwill is tested for impairment as a single asset, by comparing its recoverable amount with its carrying amount. An impairment
loss recognized forms part of the carrying amount of the investment in associates. Accordingly, any reversal of that impairment
loss is recognized to the extent that the recoverable amount of the investment subsequently increases.
Unrealized
profits resulting from the transactions between the Company and associates are eliminated to the extent of the Company’s
interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent
that the underlying asset is impaired.
When
the Company’s share of losses exceeds its interest in an associate, the carrying amount of that interest, including any
long-term investments that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except
to the extent that the Company has a legal or contractual obligation, or has made payments on behalf of the investee.
| (k) | Investments
in joint ventures |
Joint
venture is a joint arrangement whereby the Company and other parties agreed to share the control
of the arrangement, and have rights to the net assets of the arrangement. Unanimous consent from the parties sharing control is
required when decisions about the relevant activities of the arrangement. Investments in joint venture are accounted for in the
Company’s consolidated financial statements under the equity method which is consistent with the accounting policy for investments
in associates.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Investment
property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary
course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is
measured at cost on initial recognition. Subsequent to initial recognition, investment properties are measured at initial acquisition
cost less any subsequent accumulated depreciation. Depreciation methods, useful lives and residual values are in accordance with
the policy of property, plant and equipment. Cost includes expenditure that is directly attributable to the acquisition of the
investment property.
An
investment property is reclassified to property, plant and equipment at its carrying amount when the use of the investment property
changes.
| (m) | Property,
plant and equipment |
| (1) | Recognition
and measurement |
Items
of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes
expenditure that is directly attributed to the acquisition of the asset, any cost directly attributable to bringing the asset
to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate
of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that is
eligible for capitalization. The cost of the software is capitalized as part of the equipment if the purchase of the software
is necessary for the equipment to be capable of operating.
When
part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item and
the useful life or the depreciation method of the significant part is different from another significant part of that same item,
it is accounted for as a separate item (significant component) of property, plant and equipment.
The
gain or loss arising from the derecognition of an item of property, plant and equipment is determined as the difference between
the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in other gains and losses.
Subsequent
expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow
to the Company and the cost of the item can be measured reliably. The carrying amount of those parts that are replaced is derecognized
to profit or loss. Ongoing repairs and maintenance is recognized in profit or loss as incurred.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Excluding
land, depreciation is recognized in profit or loss and provided over the estimated useful lives of the respective assets, considering
significant components of an individual asset, on a straight-line basis less any residual value. If a component has a useful life
that is different from the remainder of that asset, that component is depreciated separately.
Leased
assets are depreciated over the shorter of the lease term and their useful lives unless it is reasonably certain that the Company
will obtain ownership by the end of the lease term.
The
estimated useful lives of the assets, except for land are as follows:
| (i) | Buildings:
20~50 years |
| (ii) | Machinery
and equipment: 3~10 years |
| (iii) | Other
equipment: 3~6 years |
Depreciation
methods, useful lives, and residual values are reviewed at each annual reporting date and, if necessary, adjusted as appropriate.
Any changes therein are accounted for as changes in accounting estimates.
| (4) | Reclassification to investment
property |
A
property is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied
to investment purpose.
| (n) | Long-term
prepaid rent |
Long-term
prepaid rent is for the use right of land (classified as other noncurrent assets), which is amortized over the shorter of economic
useful life or covenant period on a straight-line basis.
Lease
income from operating lease is recognized in profit or loss on a straight-line basis over the lease term. Initial direct costs
incurred in negotiating and arranging an operating lease is added to the carrying amount of the leased asset and recognized as
an expense over the lease term on the same basis as the lease income.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Payments
made under operating lease (excluding insurance and maintenance expenses) are recognized in profit or loss on a straight-line
basis over the term of the lease.
Goodwill
is recognized when the purchase price exceeds the fair value of identifiable net assets acquired in a business combination. Goodwill
is measured at cost less accumulated impairment losses.
Investor-level
goodwill is included in the carrying amounts of the equity investments. The impairment losses for the goodwill within the equity-accounted
investees are accounted for as deductions of carrying amounts of investments in equity-accounted investees.
| (2) | Research
and development |
During
the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during
this phase are recognized in profit or loss as incurred.
Expenditure
arising from development is capitalized as an intangible asset when the Company demonstrates all of the following: (i) the technical
feasibility of completing the intangible asset so that it will be available for use or sale; (ii) its intention to complete the
intangible asset and use or sell it; (iii) its ability to use or sell the intangible asset; (iv) the probability that the intangible
asset will generate probable future economic benefits; (v) the availability of adequate technical, financial and other resources
to complete the development project; and (vi) its ability to measure reliably the expenditure attributable to the intangible asset
during its development.
Capitalized
development expenditure is measured at cost less accumulated amortization and any accumulated impairment losses.
| (3) | Other
intangible assets |
Technology-related
fees, including purchased patents and licenses pursuant to patent licensing agreements, and core technologies acquired in connection
with a merger are measured at cost less accumulated amortization and any accumulated impairment losses.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| (4) | Subsequent
expenditure |
Subsequent
expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates.
All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.
The
depreciable amount of an intangible asset is the cost less its residual value. An intangible asset with a finite useful life is
amortized over 3 to 20 years using the straight-line method from the date that the asset is made available for use.
Goodwill
and intangible assets with indefinite useful life are not amortized but tested for impairment annually. The residual value, amortization
period, and amortization method are reviewed at least annually at each annual reporting date, and any changes therein are accounted
for as changes in accounting estimates.
| (q) | Impairment
– non-financial assets |
Other
than inventories, deferred tax assets and noncurrent assets held for sale, the carrying amounts of the Company’s investment
property measured at cost and long-term non-financial assets (property, plant and equipment and other intangible assets with finite
useful lives), are reviewed at the reporting date to determine whether there is any indication of impairment. When there is an
indication of impairment exists for the aforementioned assets, the recoverable amount of the asset is estimated. If it is not
possible to estimate the recoverable amount of an individual asset, the Company estimates the recoverable amount of the cash-generating
unit (“CGU”) to which the asset has been allocated to.
In
performing an impairment test for the aforementioned assets, the estimated recoverable amount is evaluated in terms of an asset
or a CGU. Any excess of the carrying amount of the asset or its related CGU over its recoverable amount is recognized as an impairment
loss.
If
there is evidence that the accumulated impairment loss of an asset other than goodwill and intangible assets with indefinite useful
lives in prior years no longer exists or has diminished, the amount previously recognized as an impairment loss is reversed, and
the carrying amount of the asset or CGU is increased to the revised estimate of its recoverable amount. The increase in the carrying
amount shall not exceed the carrying amount (net of depreciation or amortization) had no impairment loss been recognized for the
asset in prior years.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
For
goodwill and intangible assets with indefinite useful lives or that are not yet available for use, are required to be tested for
impairment at least annually. Goodwill acquired in a business combination is allocated to CGUs that are expected to benefit from
the synergies of the combination. Impairment losses recognized in respect of a CGU are allocated first to reduce the carrying
amount of any goodwill allocated to the unit, then the carrying amounts of the other assets in the unit on a pro rata basis. The
impairment loss recognized on goodwill and intangible assets with indefinite useful lives is not reversed.
A
provision is recognized for a legal or constructive obligation arising from a past event, if there is probable outflow of resources
and the amount can be estimated reliably. Provisions are determined by discounting the expected future cash flows at a pre-tax
rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding
of the discount is recognized as interest expense.
A
provision for warranties is recognized when the underlying products or services are sold. The provision is weighting factors based
on historical experience of warranty claims rate and other possible outcomes against their associated probabilities.
| (2) | Decommissioning
obligation |
The
Company is subject to decommissioning obligations related to certain items of property, plant and equipment. Such decommissioning
obligations are primarily attributable to clean-up costs, including deconstruction, transportation, and recover costs. The accrual
of retirement obligation is increased to both assets and retirement liabilities, while the total expected cost is recognized over
time, with the accrual steadily increasing on a compounded basis.
A
provision for onerous contracts is recognized when the expected benefits to be derived by the Company from a contract are lower
than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the
lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision
is established, the Company recognizes any impairment loss on the assets associated with that contract.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Provision
for loss contingencies arising from claims, assessments, litigation, fines, and penalties and other sources are recognized when
it is probable the present obligation as a result of a past event will result in an outflow of resources and the amount can be
reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. Such provisions are
adjusted as further information becomes known or circumstances change.
Provisions
recognized are the best estimates of the consideration for settling the present obligation at each reporting date.
Revenue
from the sale of goods in the course of ordinary activities is measured at the fair value of the consideration received or receivable,
net of returns, trade discounts and volume rebates. Revenue is recognized when the significant risks and rewards of ownership
have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of
goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be
measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount
is recognized as a reduction of revenue as the sales are recognized.
The
timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement.
Grants
that compensate the Company for research and development expenses incurred are recognized as other income in profit or loss on
a systematic basis in the periods in which the expenses are recognized.
| (1) | Defined
contribution plans |
Obligations
for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the
periods during which services are rendered by employees.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The
Company’s net obligation in respect of defined benefit pension plans is calculated separately for each benefit plan by estimating
the amount of future benefit that employees have earned in the current and prior periods, discounting that amount and deducting
the fair value of any plan assets. Discount rate is determined by reference to the yield rate of Taiwan government bonds at the
reporting date. The calculation of defined benefit obligations is performed annually by a qualified actuary using the Projected
Unit Credit Method.
Remeasurements
of the net defined benefit liability (asset) which comprise actuarial gains and losses, the return on plan assets (excluding interest)
and the effect of the asset ceiling (if any, excluding interest), are recognized in other comprehensive income in the period in
which they occur, and which then are reflected in retained earnings and will not be reclassified to profit or loss.
| (3) | Short-term employee benefits |
Short-term
employee benefit obligations, which are due to be settled within twelve months are measured on an undiscounted basis and are expensed
as the related service is provided.
The
expected cost of cash bonus or profit-sharing plans are recognized as a liability when the Company has a present legal or constructive
obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.
| (u) | Share-based
payment transactions |
The
compensation cost of employee share-based payment transactions is measured based on the fair value at the date on which they are
granted. The compensation cost is recognized, together with a corresponding increase in equity, over the periods in which the
performance and/or service conditions are being fulfilled. The cumulative expense recognized for share-based payment transactions
at each reporting date reflects the extent to which the vesting period has passed and the Company’s estimate of the quantity
of equity instruments that will ultimately vest.
Income
tax expense comprises current and deferred taxes.
Current
taxes comprises the expected tax payable or receivable on the taxable income or losses for the year and any adjustments to tax
payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted tax rate at
the reporting date.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In
accordance with the ROC Income Tax Act, undistributed earnings from the companies located in the Republic of China, if any, is
subject to an additional 10% surtax. The 10% tax on unappropriated earnings is recognized during the period the earnings arise
and adjusted to the extent that distributions are approved by the shareholders in the following year.
Deferred
income taxes are recognized in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and the amounts used for income tax purposes. Deferred tax liabilities are recognized for temporary difference
of future taxable income.
Deferred
tax assets are recognized for unused tax losses, unused tax credits and deductible temporary differences to the extent it is probable
that future taxable profits will be available against which they can be utilized. Deferred tax assets are reviewed at each reporting
date and reduced to the extent that it is no longer probable that the related tax benefit will be realized.
Deferred
taxes liabilities are recognized for taxable temporary differences related to investments in subsidiaries, associates and joint
arrangements, however, if the Company is able to control the timing of the reversal of the taxable temporary differences and it
is probable that they will not reverse in the foreseeable future, deferred income taxes are not recognized.
Deferred
income tax is measured at the tax rates that are expected to be applied to temporary differences when the reverse, using tax rates
enacted or substantively enacted tax rate on the reporting date. Deferred tax assets and liabilities are offset only if certain
criteria are met.
Current
taxes and deferred income taxes are recognized in profit or loss except to the extent that it relates to items recognized directly
in equity or other comprehensive income.
The
Company accounts for business combinations using the acquisition method. The consideration transferred in the acquisition is measured
at fair value, as are identifiable net assets acquired. Goodwill is measured as the excess of the aggregate of the consideration
transferred and the amount of any non-controlling interests in the acquiree over the net identifiable assets acquired and liabilities
assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, after reassessing
all of the assets acquired and all of the liabilities assumed being properly identified, the difference is recognized in profit
or loss as a gain on bargain purchase.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Acquisition-related
costs are expensed as incurred, except that the costs are related to the issue of debt or equity securities.
Each
identifiable asset and liability is measured at its acquisition-date fair value. Non-controlling interests in an acquiree that
are present ownership interests and entitle their holders to a proportionate share of the entity's net assets in the event of
liquidation are measured at either fair value or the present ownership instruments' proportionate share in the recognized amounts
of the acquiree's net identifiable assets. All other components of non-controlling interests shall be measured at their acquisition-date
fair values, unless another measurement basis is required by IFRSs.
| (x) | Earnings
(loss) per share |
Basic
earnings (loss) per share is computed by dividing profit or loss attributable to the shareholders of AUO by the weighted-average
number of common shares outstanding during the period. AUO’s convertible bonds and employee stock bonuses are potential
common shares. In computing diluted earnings per share, profit or loss attributable to the shareholders of AUO and the weighted-average
number of common shares outstanding during the period are adjusted for the effects of dilutive potential common stock, assuming
dilutive share equivalents had been issued. The weighted-average outstanding shares are retroactively adjusted for the effects
of stock dividends transferred from retained earnings and capital surplus to common stock.
An
operating segment is a component of an entity: (1) that engages in business activities from which it may earn revenue and incur
expenses (including revenues and expenses relating to transactions with other components of the same entity), (2) whose operating
results are reviewed regularly by the entity’s chief operating decision maker (“CODM”) to make decisions pertaining
to the allocation of resources to the segment and to assess its performance, and (3) for which discrete financial information
is available. Management has determined that the Company has two operating segments: display and solar.
The
accounting policies for the operating segments are the same as those used in the preparation of the consolidated financial statements
of the Company. Segment profit (loss) is determined by deducting selling, administrative and research and development expenses
from gross profit. Segment profit (loss) excludes long-lived asset impairments, gains and losses on disposal of assets, litigation
provisions, foreign currency exchange gains or losses, finance cost, income taxes, share of profit (loss) from equity-accounted
investees, and other miscellaneous income and expenses. The CODM does not receive asset and liability information by operating
segment. Consequently, no operating segment asset and liability information is disclosed. Geographic net revenue information is
based upon the location of customers placing orders.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | | |
| 5. | Use
of Judgments and Estimates |
The
preparation of the consolidated financial statements in conformity with IFRS requires management to make judgments, estimates
and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income
and expenses. Actual results may differ from these estimates.
Estimates
and underlying assumptions are reviewed by management on an ongoing basis. Revisions to accounting estimates are recognized in
the period in which the estimates are revised and in any future periods affected.
Information
about critical judgments, estimates and assumptions in applying accounting policies that have the most significant effect on the
amounts recognized in the consolidated financial statements is included in the following notes:
| (a) | Estimate
of provisions |
Provision
for warranty is estimated when product revenue is recognized. The estimate has been made based on the quantities within the warranty
period, the historical and anticipated warranty claims rate associated with similar products and services, and the projected unit
cost of maintenance. The Company regularly reviews the basis of the estimate and if necessary, amends it as appropriate. There
could be a significant impact on provision for warranty for any changes of the basis of the estimate.
Provision
for unsettled litigation and claims is recognized when it is probable that it will result in an outflow of the Company’s
resources and the amount can be reasonably estimated. While the ultimate resolution of litigation and claims cannot be predicted
with certainty, the final outcome or the actual cash outflow may be materially different from the estimated liability.
| (b) | Impairment
of long-term non-financial assets, other than goodwill |
In
the process of evaluating the potential impairment of tangible and intangible assets other than goodwill, the Company is required
to make subjective judgments in determining the independent cash flows, useful lives, expected future income and expenses related
to the specific asset groups with the consideration of the nature of industry. Any changes in these estimates based on changed
economic conditions or business strategies could result in significant impairment charges or reversal in future years.
| (c) | Measurement
of defined benefit obligations |
Accrued
pension liabilities and the resulting pension expenses under defined benefit pension plans are calculated using the Projected
Unit Credit Method. Actuarial assumptions comprise the discount rate, rate of employee turnover, long-term average future salary
increase, etc. Changes in economic circumstances and market conditions will affect these assumptions and may have a material impact
on the amount of the expense and the liability.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (d) | Recognition
of deferred tax assets |
Deferred
tax assets are recognized to the extent that it is probable that future taxable profits will be available against which those
deferred tax assets can be utilized. Assessment of the realization of the deferred tax assets requires management’s subjective
judgment and estimate, including the future revenue growth and profitability, tax holidays, the amount of tax credits can be utilized
and feasible tax planning strategies. Changes in the economic environment, the industry trends and relevant laws and regulations
may result in adjustments to the deferred tax assets.
The
Company recognizes revenue when the conditions described in note 4(s) are satisfied. The Company also estimates future sales returns
and other allowances in the same period the related revenue is recognized. Estimated sales returns and other allowances are generally
made and adjusted based on historical experience and any known factors that would significantly affect the allowance, and management
periodically reviews the reasonableness of the estimates.
| (f) | Valuation
of inventories |
As
inventories are stated at the lower of cost or net realizable value, the Company estimates the net realizable value of inventories
for obsolescence and unmarketable items at the end of reporting period and then writes down the cost of inventories to net realizable
value. The net realizable value of the inventory is mainly determined based on assumptions of future demand within a specific
time horizon. Due to the rapid industrial transformation, there may be significant changes in the net realizable value of inventories.
| 6. | Cash
and Cash Equivalents |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Cash on hand, demand deposits and checking accounts | |
$ | 48,937,310 | | |
| 44,050,305 | |
| Time deposits | |
| 28,648,288 | | |
| 28,441,470 | |
| Government bonds with reverse repurchase agreements | |
| 1,295,102 | | |
| 9,473,558 | |
| | |
$ | 78,880,700 | | |
| 81,965,333 | |
Refer
to note 34 for the disclosure of currency risk and sensitivity analysis of the financial assets and liabilities of the Company.
As
of December 31, 2015 and 2014, deposits not qualifying as cash and cash equivalents amounting to $9,997,888 thousand and $2,100,000
thousand, respectively, were classified as other current financial assets.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As
of December 31, 2015 and 2014, no cash and cash equivalents were pledged with banks as collaterals.
| 7. | Derivative
Financial Instruments and Hedging Instruments |
| (1) | Derivative
Financial Instruments |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Financial assets measured at fair value through profit or loss – current: | |
| |
|
| Foreign currency forward contracts | |
$ | 214,194 | | |
| 133,412 | |
| | |
| | | |
| | |
| Financial liabilities measured at fair value through profit or loss – current: | |
| | | |
| | |
| Foreign currency forward contracts | |
$ | 553,663 | | |
| 232,879 | |
| | |
| | | |
| | |
| Hedging derivative financial liabilities – noncurrent: | |
| | | |
| | |
| Interest rate swap contracts | |
$ | 10,739 | | |
| 7,093 | |
Refer
to note 34 for the disclosure of the Company’s credit, currency and interest rate risks related to financial instruments.
As
of December 31, 2015 and 2014, outstanding foreign currency forward contracts were as follows:
| December 31, 2015 |
| Contract item | |
Maturity date | |
Contract amount |
| | |
| |
(in thousands) |
| Sell USD / Buy NTD | |
Jan. 2016 – Mar. 2016 | |
USD203,000 / NTD6,600,968 |
| Sell USD / Buy JPY | |
Jan. 2016 – Mar. 2016 | |
USD289,645 / JPY35,307,718 |
| Sell NTD / Buy JPY | |
Jan. 2016 | |
NTD3,484,954 / JPY12,957,000 |
| Sell NTD / Buy USD | |
Jan. 2016 – Apr. 2016 | |
NTD101,300 / USD3,110 |
| Sell JPY / Buy NTD | |
Jan. 2016 – May 2016 | |
JPY51,000,000 / NTD13,702,255 |
| Sell USD / Buy MYR | |
Jan. 2016 – Mar. 2016 | |
USD496 / MYR2,132 |
| Sell USD / Buy CNY | |
Jan. 2016 – May 2016 | |
USD308,700 / CNY1,989,416 |
| Sell EUR / Buy USD | |
May 2016 | |
EUR47,000 / USD51,267 |
| Sell EUR / Buy JPY | |
Jan. 2016 – Feb. 2016 | |
EUR65,000 / JPY8,578,916 |
| Sell EUR / Buy CZK | |
Feb. 2016 | |
EUR3,000 / CZK81,150 |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| December 31, 2014 |
| Contract item | |
Maturity date | |
Contract amount |
| | |
| |
(in thousands) |
| Sell USD / Buy NTD | |
Jan. 2015 – Feb. 2015 | |
USD222,000 / NTD6,965,393 |
| Sell USD / Buy JPY | |
Jan. 2015 – May 2015 | |
USD86,405 / JPY10,042,510 |
| Sell NTD / Buy JPY | |
Jan. 2015 – Apr. 2015 | |
NTD665,422 / JPY2,490,942 |
| Sell USD / Buy CNY | |
Jan. 2015 – May 2015 | |
USD308,300 / CNY1,914,839 |
| Sell CNY / Buy USD | |
Jan. 2015 | |
CNY93,195 / USD15,000 |
| Sell EUR / Buy NTD | |
Jan. 2015 | |
EUR9,500 / NTD369,218 |
| Sell JPY / Buy USD | |
Jan. 2015 – Mar. 2015 | |
JPY336,496 / USD3,000 |
| Sell EUR / Buy USD | |
Mar. 2015 | |
EUR50,000 / USD61,793 |
| Sell EUR / Buy JPY | |
Jan. 2015 – Mar. 2015 | |
EUR80,500 / JPY11,587,826 |
| Sell EUR / Buy CZK | |
Feb. 2015 | |
EUR3,000 / CZK82,800 |
| Sell USD / Buy SGD | |
Jan. 2015 | |
USD4,520 / SGD5,942 |
| Sell USD / Buy MYR | |
Jan. 2015 – Mar. 2015 | |
USD940 / MYR3,230 |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| Net gains (losses) of foreign currency forward contracts were as follows: | |
(in thousands) |
| Unrealized gains (losses) | |
$ | (240,002 | ) | |
| 264,181 | | |
| 462,303 | |
| Realized gains (losses) | |
| 1,179,119 | | |
| (403,096 | ) | |
| (2,185,877 | ) |
| | |
$ | 939,117 | | |
| (138,915 | ) | |
| (1,723,574 | ) |
AUO
entered into interest rate swap contracts with several banks to manage interest rate risk exposure arising from financing activities.
As of December 31, 2015 and 2014, AUO’s total notional amount of outstanding interest rate swap contracts amounted to $3,040,000
thousand and $4,000,000 thousand, respectively, and all of which were related to effective hedges. For the years ended December
31, 2015, 2014 and 2013, no unrealized gains or losses resulting from change in fair value of interest rates swap contracts were
recognized in profit and loss.
The
Company entered into Plain Vanilla type interest rate swap contracts as the primary hedging instrument. The Company paid interest
based on fixed rate and received market floating-rate from the counterparty. The aforementioned hedging contracts were intended
to protect the Company from the risk of future cash flow fluctuation of debt bearing floating interest rate. These contracts were
designated as cash flow hedges and met the criteria for hedge accounting.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As
of December 31, 2015 and 2014, details of hedged items designated as cash flow hedges and their respective hedging derivative
financial instruments were as follows:
| December 31, 2015 |
| Hedged item | |
Hedging
instrument | |
Fair value
of hedging
instrument | |
Expected
period of
cash flows | |
Expected period
of
recognition in comprehensive income |
| | |
| |
(in thousands) | |
| |
|
| Long-term borrowings with floating interest rate | |
Interest rate swap contracts | |
$ | (10,739) | | |
Jan. 2016 –Aug. 2017 | |
Jan. 2016 –Aug. 2017 |
| December 31, 2014 |
| Hedged item | |
Hedging
instrument | |
Fair value
of hedging
instrument | |
Expected
period of
cash flows | |
Expected period of
recognition in comprehensive income |
| | |
| |
(in thousands) | |
| |
|
| Long-term borrowings with floating interest rate | |
Interest rate swap contracts | |
$ | (7,093) | | |
Jan. 2015 –Aug. 2017 | |
Jan. 2015 –Aug. 2017 |
| 8. | Available-for-sale
Financial Assets－noncurrent |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Equity securities | |
$ | 2,148,141 | | |
| 77,724 | |
The
Company sold part of its investments in available-for-sale securities during 2015, 2014 and 2013. The selling prices amounted
to $99,517 thousand, $1,574,669 thousand and $1,688,342 thousand, respectively, and the realized gains on disposal amounted to
$99,517 thousand, $1,294,182 thousand and $933,336 thousand, respectively.
The
Company determined part of its available-for-sale financial assets was impaired, and there is a remote chance of future recovery.
As a result, the Company recognized impairment losses of $107,494 thousand and $412,563 thousand for the years ended December
31, 2014 and 2013, respectively.
Some
of the available-for-sale securities held by the Company were publicly listed equity shares, if the share price of these securities
appreciates or depreciates by 10% at the reporting date, other comprehensive income would increase or decrease $207,720 thousand,
$4,038 thousand and $40,001 thousand for the years ended December 31, 2015, 2014 and 2013, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In
May 2015, the Company ceased having significant influence over Qisda Corporation (“Qisda”) and reclassified its investment
in Qisda as noncurrent available-for-sale financial asset. Please refer to note 11 for further information on the Company’s
investment in Qisda.
| 9. | Notes
and Accounts Receivable, net (Including Related and Unrelated Parties) |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Notes and accounts receivable | |
$ | 36,406,506 | | |
| 60,472,806 | |
| Less: allowance for doubtful accounts | |
| (69,897 | ) | |
| (83,240 | ) |
| allowance for sales returns and discounts | |
| (1,524,144 | ) | |
| (825,355 | ) |
| | |
$ | 34,812,465 | | |
| 59,564,211 | |
| Notes and accounts receivable, net | |
$ | 32,319,986 | | |
| 55,950,687 | |
| Accounts receivable from related parties, net | |
$ | 2,492,479 | | |
| 3,613,524 | |
Aging
analysis of notes and accounts receivable, which were past due but not impaired, was as follows:
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Past due less than 60 days | |
$ | 628,657 | | |
| 1,033,662 | |
| Past due 61~180 days | |
| 32,852 | | |
| 91,414 | |
| Past due over 180 days | |
| 74,906 | | |
| 77,637 | |
| | |
$ | 736,415 | | |
| 1,202,713 | |
The
movement in the allowance for doubtful accounts was as follows:
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
Individually assessed for impairment | |
Collectively assessed for impairment | |
Individually assessed for impairment | |
Collectively assessed for impairment | |
Individually assessed for impairment | |
Collectively assessed for impairment |
| | |
(in thousands) |
| Balance at beginning of the year | |
$ | 10,334 | | |
| 72,906 | | |
| - | | |
| 63,652 | | |
| - | | |
| 68,150 | |
| Provisions (reversals) charged to (against) expense | |
| 3,196 | | |
| (14,864 | ) | |
| 27,485 | | |
| 7,056 | | |
| - | | |
| 1,203 | |
| Write-offs | |
| (1,814 | ) | |
| (383 | ) | |
| (20,090 | ) | |
| - | | |
| - | | |
| - | |
| Effect of changes in foreign currency exchange rates | |
| (2 | ) | |
| 524 | | |
| 2,939 | | |
| 2,198 | | |
| - | | |
| (5,701 | ) |
| Balance at end of the year | |
$ | 11,714 | | |
| 58,183 | | |
| 10,334 | | |
| 72,906 | | |
| - | | |
| 63,652 | |
The
payment terms granted to customers are generally 30 to 60 days from the end of the month during which the invoice is issued.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The
Company evaluates possible uncollected amounts and uses allowance for doubtful accounts to record its doubtful receivable expenses.
When evaluating the allowances, the Company considers the historical experience, the customer credits and the account aging analysis.
While it is determined a receivable is uncollectible, receivable balances is offset against the allowance for doubtful accounts.
Information
about the Company’s exposure to credit risk is included in note 34.
As
of December 31, 2015 and 2014, the Company entered into financing facilities with banks to factor certain of its accounts receivable
without recourse, details of which were as follows:
| December 31, 2015 |
| Underwriting bank | |
Factoring
limit | |
Amount
advanced | |
Amount
sold and derecognized | |
Principle
terms |
| | |
| |
| |
(in thousands) | |
| |
| |
|
| Chinatrust Commercial Bank | |
USD | |
| 230,000 | | |
NTD | |
| 1,500,000 | | |
USD | |
| 50,941 | | |
See notes(a)~(c) and (e) |
| Taishin Bank | |
USD | |
| 180,000 | | |
NTD | |
| 1,500,000 | | |
USD | |
| 50,941 | | |
See notes(a)~(c) and (e) |
| Bank of Taiwan | |
USD | |
| 250,000 | | |
USD | |
| 35,000 | | |
USD | |
| 35,000 | | |
See notes(a)~(c) and (e) |
| |
| |
| | | |
EUR | |
| 43,100 | | |
EUR | |
| 43,100 | | |
|
| Taipei Fubon Bank | |
USD | |
| 75,000 | | |
USD | |
| 46,400 | | |
USD | |
| 51,659 | | |
See notes(a)~(c) and (e) |
| E. Sun Bank | |
USD | |
| 60,000 | | |
USD | |
| 11,570 | | |
USD | |
| 12,869 | | |
See notes(a)~(c) and (e) |
| DBS Bank | |
USD | |
| 96,000 | | |
USD | |
| 15,300 | | |
USD | |
| 15,330 | | |
See notes(a)~(c) and (e) |
| Taishin Bank | |
USD | |
| 35,000 | | |
| |
| - | | |
USD | |
| 12,109 | | |
See notes(a)~(d) and (f) |
| First Commercial Bank | |
USD | |
| 30,000 | | |
| |
| - | | |
| |
| - | | |
See notes(a)~(d) and (f) |
| | |
| |
| | | |
| |
| | | |
| |
| | | |
|
| December 31, 2014 |
| Underwriting bank | |
Factoring
limit | |
Amount
advanced | |
Amount
sold and
derecognized | |
Principle
terms |
| | |
| |
| |
(in thousands) | |
| |
|
| Chinatrust Commercial Bank | |
USD | |
| 230,000 | | |
| - | | |
| - | | |
See notes(a)~(c) and (e) |
| Mizuho Corporate Bank | |
USD | |
| 90,000 | | |
| - | | |
| - | | |
See notes(a)~(d) |
| Taishin Bank | |
USD | |
| 180,000 | | |
| - | | |
| - | | |
See notes(a)~(c) and (e) |
| Bank of Taiwan | |
USD | |
| 250,000 | | |
| - | | |
| - | | |
See notes(a)~(d) |
| Taipei Fubon Bank | |
USD | |
| 75,000 | | |
| - | | |
| - | | |
See notes(a)~(c) and (e) |
| E. Sun Bank | |
NTD | |
| 1,800,000 | | |
| - | | |
| - | | |
See notes(a)~(c) and (e) |
| DBS Bank | |
USD | |
| 114,000 | | |
| - | | |
| - | | |
See notes(a)~(c) and (e) |
| ING Bank | |
USD | |
| 70,000 | | |
| - | | |
| - | | |
See notes(a)~(d) |
| China Development Industrial Bank | |
USD | |
| 83,000 | | |
| - | | |
| USD 19,163 | | |
See notes(a)~(d) and (f) |
| China Development Industrial Bank | |
NTD | |
| 150,000 | | |
| - | | |
| - | | |
See notes(a)~(d) and (f) |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| Note (a): | Under these facilities,
the Company transferred accounts receivable to the respective underwriting banks, which are without recourse. |
| Note (b): | The Company informed its
customers pursuant to the respective facilities to make payment directly to the respective underwriting banks. |
| Note (c): | As of December 31, 2015
and 2014, total outstanding receivables after the above assignment transactions, net of fees charged by underwriting banks, of
$985,158 thousand and $608,736 thousand, respectively, were classified under other current financial assets. |
| Note (d): | To the extent of the amount
transferred to the underwriting banks, risks of non-collection or potential payment default by customers in the event of insolvency
are borne by respective banks. The Company is not responsible for the collection of receivables subject to these facilities, or
for any legal proceedings and costs thereof in collecting these receivables. |
| Note (e): | To the extent of the amount
transferred to the underwriting banks, risks of non-collection or potential payment default by customers in the event of insolvency
are borne by respective banks. The Company is not responsible for the collection of receivables subject to these facilities, or
for any legal proceedings and costs thereof in collecting these receivables. In case any commercial dispute between the Company
and customers or other reasons results in the Company’s failure to perform the obligation under these facilities, the banks
have requested the Company to issue promissory notes or to transfer receivables in the amounts equal to 10 percent of respective
facilities. Other than such arrangements, no collaterals were provided by the Company. |
| Note (f): | The aforementioned terms
are applicable to the respective underwriting banks, and the Company bears all risks deriving from the customers except credit
risk which is borne by the respective underwriting banks. |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Finished goods | |
$ | 13,487,008 | | |
| 14,699,840 | |
| Work-in-progress | |
| 11,324,925 | | |
| 13,627,003 | |
| Raw materials | |
| 6,983,592 | | |
| 8,093,305 | |
| | |
$ | 31,795,525 | | |
| 36,420,148 | |
For
the years ended December 31, 2015, 2014 and 2013, the amounts of inventories that were charged to cost of sales were $319,606,448
thousand, $360,344,022 thousand and $381,966,523 thousand, respectively, and the charges for inventories written down to net realizable
value amounted to $5,661,266 thousand, $4,731,319 thousand and $5,106,531 thousand for the years ended December 31, 2015, 2014
and 2013, respectively, which were also included in the cost of sales.
As
of December 31, 2015 and 2014, none of the Company’s inventories was pledged as collateral.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 11. | Investments
in Equity-accounted Investees |
Investments
in equity-accounted investees at the reporting dates consisted of the following:
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Associates | |
$ | 4,787,892 | | |
| 7,605,802 | |
| Joint ventures | |
| 7,613,833 | | |
| 7,190,268 | |
| | |
$ | 12,401,725 | | |
| 14,796,070 | |
| | |
| |
Principal | |
December 31, 2015 | |
December 31, 2014 |
Name of
associate | |
Principal
activities | |
place
of
business | |
Ownership
interest | |
Amount | |
Ownership
interest | |
Amount |
| | |
| |
| |
% | |
(in thousands) | |
% | |
(in thousands) |
| Lextar Electronics Corp. (“Lextar”) | |
Manufacturing and sales of Light Emitting Diode | |
Taiwan ROC | |
| 24 | | |
$ | 3,337,655 | | |
| 22 | | |
$ | 3,310,205 | |
| Raydium Semiconductor Corporation (“Raydium”) | |
IC design | |
Taiwan ROC | |
| 16 | | |
| 590,839 | | |
| 15 | | |
| 568,109 | |
| Daxin Materials Corp. (“Daxin”) | |
Manufacturing, research, and sales of display and green energy related chemicals | |
Taiwan ROC | |
| 25 | | |
| 484,578 | | |
| 25 | | |
| 469,328 | |
| Qisda | |
ODM/OEM of electronic products and hardware-software integration service | |
Taiwan ROC | |
| - | | |
| - | | |
| 10 | | |
| 2,922,387 | |
| Others | |
| |
| |
| | | |
| 374,820 | | |
| | | |
| 335,773 | |
| | |
| |
| |
| | | |
$ | 4,787,892 | | |
| | | |
$ | 7,605,802 | |
In
2013, the Company determined part of its equity-accounted investees was impaired, and there is a remote chance of future recovery.
As a result, the Company recognized impairment loss of $183,539 thousand for the year ended December 31, 2013, based on estimated
recoverable amount of $5,421,386 thousand for these investments. The recoverable amount was determined based on the value in use,
which was not necessarily the current market value.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Prior
to May 2015, the Company was able to exercise significant influence over the operating policies of Qisda, and accounted for its
investments in Qisda under the equity method of accounting. Since the Company and Qisda had mutual holdings, the share of profit
or loss was recognized using the treasury stock method.
In
May 2015, the Company reassessed its relationships with Qisda and determined that it is no longer able to exercise significant
influence over Qisda. Therefore, the Company reclassified its investment in Qisda as noncurrent available-for-sale financial asset
measured at fair value. The difference between the fair value of the investment and carrying amount accounted for under the equity
method as at the date of the reclassification was recognized in profit or loss. Further, previously recognized other comprehensive
income or loss and other equity reserves related to the Company’s investment in Qisda were also reclassified to profit or
loss. In total, a loss of $110,136 thousand was recognized under other gains and losses in the
consolidated statement of comprehensive income for the year ended December 31, 2015.
There
is no individually significant associate for the Company. The following table summarized the amount recognized by the Company
at its share of those associates.
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| The Company’s share of profits of associates | |
$ | 248,165 | | |
| 316,721 | | |
| 318,184 | |
| The Company’s share of other comprehensive loss of associates | |
| (71,585 | ) | |
| (32,972 | ) | |
| (223,196 | ) |
| The Company’s share of total comprehensive income of associates | |
$ | 176,580 | | |
| 283,749 | | |
| 94,988 | |
| | |
| |
| |
December 31, 2015 | |
December 31, 2014 |
Name of joint
ventures | |
Principal
activities | |
Principal place of
business | |
Ownership interest | |
Amount | |
Ownership interest | |
Amount |
| | |
| |
| |
% | |
(in thousands) | |
% | |
(in thousands) |
| AUO SunPower Sdn. Bhd. (“AUSP”) | |
Manufacturing and sales of solar power products | |
Malaysia | |
| 50 | | |
$ | 7,240,360 | | |
| 50 | | |
$ | 6,691,123 | |
| Others | |
| |
| |
| | | |
| 373,473 | | |
| | | |
| 499,145 | |
| | |
| |
| |
| | | |
$ | 7,613,833 | | |
| | | |
$ | 7,190,268 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AUO,
through its subsidiary AUSG, entered into a joint venture agreement with SunPower Technology, Ltd. (“SPTL”). In accordance
with the joint venture agreement, the Company acquired its 50% ownership interests of AUSP on July 5, 2010 (co-investment date)
by contributing technology with an estimated fair value of US$30,000 thousand (equivalents to $966,600 thousand) and agreed to
contribute additional cash over time. As of December 31, 2015, the total cash payments made by the Company amounted to US$180,069
thousand. The accumulated amortization on the deferred credit resulting from the technology contributed to AUSP was $724,951
thousand and $586,865 thousand as at December 31, 2015 and 2014, respectively. The remaining $241,649
thousand and $379,735 thousand will be amortized to earnings on a straight-line basis over the estimated remaining useful
life of the technology, and is recorded as other current liabilities of $138,086 thousand
and $138,086 thousand and other noncurrent liabilities of $103,563 thousand and $241,649
thousand as of December 31, 2015 and 2014, respectively.
There
is no individually significant joint venture for the Company. The following table summarized the amount recognized by the Company
at its share of those joint ventures.
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| The Company’s share of profits of joint ventures | |
$ | 201,287 | | |
| 183,144 | | |
| 136,084 | |
| The Company’s share of other comprehensive income of joint ventures | |
| 394,132 | | |
| 153,517 | | |
| 88,645 | |
| The Company’s share of total comprehensive income of joint ventures | |
$ | 595,419 | | |
| 336,661 | | |
| 224,729 | |
As
of December 31, 2015 and 2014, none of the Company’s investments in equity-accounted investees was pledged as collateral.
| (a) | Acquisition
of subsidiaries |
On
October 1, 2014, BVTW, a subsidiary of the Company, merged with and into Forhouse, an associate of the Company prior to the merger.
Forhouse offered 0.85 share of its common stock for one share of outstanding BVTW ex-dividend common stock and issued a total
of 429,476 thousand new shares for the merger. Forhouse is the legal acquirer and the surviving company while BVTW was dissolved
upon completion of the merger on October 1, 2014. On December 24, 2014, Forhouse changed its name to Darwin Precisions Corporation
(“DPTW”). In accordance with IFRS 3, Business Combinations, the merger of BVTW and Forhouse has been accounted
for as a reverse acquisition of Forhouse by the Company, with BVTW deemed to be the acquirer for accounting purposes.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Upon
completion of the merger, the Company is the largest shareholder of DPTW with 43.48% ownership interests, while the other shareholdings
of DPTW are widely dispersed with no other individual owner having a significant equity and voting interest. In addition, the
Company holds more than half of the board seats of DPTW and a majority of DPTW’s revenues are generated from the Company.
Consequently, the Company has concluded that it has the current ability to direct the relevant activities of and control over
DPTW. DPTW and its subsidiaries therefore are consolidated by the Company.
Through
the merger, the Company’s goal is to improve its operating performance and business competitiveness by integrating its resources
and enhancing the scale of the Company’s operations.
| (b) | Impact
of acquisition on the operating results of the Company |
From
October 1, 2014, the date of acquisition, to December 31, 2014, Forhouse and its subsidiaries contributed revenue of $439,496
thousand to the Company’s operating results. If the acquisition had taken place on January 1, 2014, management estimated
that the Company’s consolidated revenue and net profit for the year ended December 31, 2014 would have been $13,290,872
thousand (unaudited) and $794,230 thousand (unaudited), respectively. In determining these amounts, management had assumed that
the fair value adjustments, determined provisionally, on the acquisition date would have been the same if the acquisition had
taken place on January 1, 2014. The aforementioned pro-forma information is presented for illustrative purposes only and is not
necessarily an indication of revenue and results of operations of the Company that would have been achieved had the acquisition
been completed on January 1, 2014, nor is it intended to be a projection of future results.
| (c) | Consideration
transferred and identifiable assets acquired and liabilities assumed at the acquisition
date |
The
total consideration for the acquisition amounted to $5,635,970 thousand which includes the fair value of the Company’s previously
held interests in Forhouse of $1,539,160 thousand as at the date of acquisition. The merger agreement includes no arrangement
of contingent considerations and share-based payments award.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The following table summarizes
the fair value of the assets acquired and liabilities assumed recognized at the acquisition date:
| | |
Fair value |
| | |
(in thousands) |
| Cash and cash equivalents | |
$ | 2,763,252 | |
| Accounts receivable and other current assets | |
| 4,812,335 | |
| Accounts payable and other current liabilities | |
| (4,873,057 | ) |
| Available-for-sale financial assets – non-publicly traded equity | |
| 428,298 | |
| Investments in equity-accounted investees | |
| 399,916 | |
| Property, plant and equipment | |
| 5,956,972 | |
| Prepaid lease payment – noncurrent | |
| 295,369 | |
| Other net liabilities | |
| (663,202 | ) |
| Long-term loans | |
| (600,000 | ) |
| Total identifiable net assets acquired | |
$ | 8,519,883 | |
The
valuation techniques used for measuring the fair value of material assets acquired were as follows.
| Assets
acquired |
|
Valuation
techniques |
| Property,
plant and equipment |
|
Market
comparison technique and cost technique: The valuation model considers quoted market prices for similar items when available,
and depreciated replacement cost when appropriate. Depreciated replacement cost reflects adjustments for physical deterioration
as well as functional and economic obsolescence. |
| (d) | Gain
on bargain purchase arising from the acquisition |
Gain
on bargain purchase arising from the acquisition was recognized as follows:
| | |
Amount |
| | |
(in thousands) |
| Total consideration for the acquisition | |
$ | 5,635,970 | |
| Less: Fair value of identifiable net assets | |
| 8,519,883 | |
| Gain on bargain purchase | |
$ | (2,883,913 | ) |
Prior
to the acquisition date, the Company held 27.31% ownership interests in Forhouse. As a result of the acquisition, the Company
recognized a loss from deemed disposal of $606,433 thousand determined based on the fair value of the previously held equity interests
of $1,539,160 thousand at the acquisition date. The gain on bargain purchase and the loss from deemed disposal both were recognized
under other gains and losses in the consolidated statements of comprehensive income.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (e) | Acquisition-related
costs |
Acquisition-related
costs of $400 thousand on legal fees and due diligence fees were expensed as incurred and included in general and administrative
expenses in the consolidated statements of comprehensive income.
| 13. | Property,
Plant and Equipment |
| | |
For the year ended December 31, 2015 |
| | |
Balance, Beginning of Year | |
Additions | |
Disposal or write off | |
Effect of change in consolidated entities | |
Reclassification and effect of change in exchange rate | |
Balance, End of Year |
| | |
(in thousands) |
| Cost: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Land | |
$ | 9,238,072 | | |
| 200,006 | | |
| (513,574 | ) | |
| - | | |
| 187,782 | | |
| 9,112,286 | |
| Buildings | |
| 130,481,487 | | |
| 22,234 | | |
| (1,512,232 | ) | |
| - | | |
| (6,835,135 | ) | |
| 122,156,354 | |
| Machinery and equipment | |
| 781,274,965 | | |
| 2,855,605 | | |
| (29,667,810 | ) | |
| - | | |
| 24,556,568 | | |
| 779,019,328 | |
| Other equipment | |
| 37,480,550 | | |
| 3,464,238 | | |
| (7,037,238 | ) | |
| - | | |
| 340,455 | | |
| 34,248,005 | |
| | |
| 958,475,074 | | |
| 6,542,083 | | |
| (38,730,854 | ) | |
| - | | |
| 18,249,670 | | |
| 944,535,973 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accumulated depreciation and impairment loss: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Land | |
| 179,227 | | |
| - | | |
| - | | |
| - | | |
| 5,662 | | |
| 184,889 | |
| Buildings | |
| 33,490,096 | | |
| 5,309,628 | | |
| (1,244,735 | ) | |
| - | | |
| (4,763,043 | ) | |
| 32,791,946 | |
| Machinery and equipment | |
| 673,810,520 | | |
| 43,794,880 | | |
| (29,282,299 | ) | |
| - | | |
| 6,631,930 | | |
| 694,955,031 | |
| Other equipment | |
| 32,993,554 | | |
| 4,773,205 | | |
| (7,027,110 | ) | |
| - | | |
| (523,947 | ) | |
| 30,215,702 | |
| | |
| 740,473,397 | | |
| 53,877,713 | | |
| (37,554,144 | ) | |
| - | | |
| 1,350,602 | | |
| 758,147,568 | |
| Prepayments for purchase of land and equipment, and construction in progress | |
| 13,813,047 | | |
| 25,422,448 | | |
| (495 | ) | |
| - | | |
| (16,837,796 | ) | |
| 22,397,204 | |
| Net carrying amounts | |
$ | 231,814,724 | | |
| | | |
| | | |
| | | |
| | | |
| 208,785,609 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
For the year ended December 31, 2014 |
| | |
Balance, Beginning of Year | |
Additions | |
Disposal or write off | |
Effect of change in consolidated entities | |
Reclassification and effect of change in exchange rate | |
Balance, End of Year |
| Cost: | |
| |
| |
(in thousands) |
| |
|
| | |
| |
| |
|
| |
|
| Land | |
$ | 7,677,683 | | |
| 1,200 | | |
| - | | |
| 1,654,242 | | |
| (95,053 | ) | |
| 9,238,072 | |
| Buildings | |
| 128,102,619 | | |
| 78,983 | | |
| (111,575 | ) | |
| 1,902,642 | | |
| 508,818 | | |
| 130,481,487 | |
| Machinery and equipment | |
| 779,427,807 | | |
| 1,202,107 | | |
| (17,693,988 | ) | |
| 905,074 | | |
| 17,433,965 | | |
| 781,274,965 | |
| Other equipment | |
| 37,961,993 | | |
| 2,900,224 | | |
| (5,125,326 | ) | |
| 459,550 | | |
| 1,284,109 | | |
| 37,480,550 | |
| | |
| 953,170,102 | | |
| 4,182,514 | | |
| (22,930,889 | ) | |
| 4,921,508 | | |
| 19,131,839 | | |
| 958,475,074 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Accumulated depreciation and impairment loss: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Land | |
| 121,567 | | |
| 66,046 | | |
| - | | |
| - | | |
| (8,386 | ) | |
| 179,227 | |
| Buildings | |
| 28,868,670 | | |
| 4,484,205 | | |
| (48,347 | ) | |
| - | | |
| 185,568 | | |
| 33,490,096 | |
| Machinery and equipment | |
| 640,556,287 | | |
| 48,744,396 | | |
| (17,120,896 | ) | |
| (57,421 | ) | |
| 1,688,154 | | |
| 673,810,520 | |
| Other equipment | |
| 32,773,620 | | |
| 5,025,584 | | |
| (5,253,005 | ) | |
| - | | |
| 447,355 | | |
| 32,993,554 | |
| | |
| 702,320,144 | | |
| 58,320,231 | | |
| (22,422,248 | ) | |
| (57,421 | ) | |
| 2,312,691 | | |
| 740,473,397 | |
| Prepayments for purchase of land and equipment, and construction in progress | |
| 19,419,049 | | |
| 9,645,867 | | |
| (7,548 | ) | |
| 133,638 | | |
| (15,377,959 | ) | |
| 13,813,047 | |
| Net carrying amounts | |
$ | 270,269,007 | | |
| | | |
| | | |
| | | |
| | | |
| 231,814,724 | |
As
of December 31, 2015 and 2014, a non-irrigated farmland located in LongTan plant amounted to $23,671 thousand was registered in
the name of a farmer due to regulations. An agreement of pledge had been signed between the Company and the farmer clarifying
the rights and obligations of each party.
ACTW
sold its lands located in Chang Hua Coastal Industrial Park, Taiwan, during 2015 and 2014. The selling price amounted to $790,342
thousand and $810,000 thousand, respectively and gains on disposal amounted to $276,769 thousand and $77,121 thousand, respectively.
According
to the resolution of board of directors’ meeting held on August 10, 2015, AUO decided to sell part of its plants and has
entered into an agreement with Wistron NeWeb Corporation. This transaction was completed in December 2015, and the selling price
and gain on disposal were $808,504 thousand and $558,206 thousand, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AETJ
decided to sell its use right of land and plants to Tianjin Binhai Hi-tech Development Area Asset Management Ltd. pursuant to
the resolution of AETJ’s board of directors’ meeting held on December 9, 2015. The carrying amount of the aforementioned
assets was $702,390 thousand and the anticipated selling price was approximately $762,091 thousand. The assets were classified
as noncurrent assets held for sale in the consolidated statement of financial position as of December 31, 2015.
The
Company recognized an impairment loss of $172,530 thousand in the fourth quarter of 2015 for certain machineries and equipments
with low utilization in display segment resulting from the decline in the application for certain products.
Some
indications of impairment existed in the Company’s solar segment; therefore, the Company performed its impairment assessment
over the solar CGU’s long-term assets with lower capacity utilization. In 2015, 2014 and 2013, the Company wrote down its
property, plant and equipment and recognized losses of $101,764 thousand, $2,296,081 thousand and $159,532 thousand, respectively.
Polysilicon
in the solar industry has experienced significant downturns including sharp decline in pricing because of oversupply capacity
worldwide and reductions in government economic incentives; therefore, the management of M.Setek, the Company’s subsidiary
in Japan, decided to cease the production of polysilicon which was approved by the board of directors of M.Setek on January 8,
2016. The Company performed its impairment assessment over the polysilicon CGU’s long-term assets in the fourth quarter
of 2015. The recoverable amount was determined based on the relevant assets’ estimated fair value less cost of disposal.
The fair value of long-term assets was determined by management with reference to the sales prices of recent transactions of similar
asset in the same geographical area.
The
fair value measurement was categorised as a Level 3 fair value based on inputs in the valuation techniques used.
The
following table shows the valuation technique used in the determination of fair value of the polysilicon CGU’s long-term
assets within Level 3, as well as the significant inputs used in the valuation model.
|
Description of
Valuation Technique |
|
Significant inputs |
|
Inter-relationship between significant inputs and fair value measurement |
|
Sales comparison approach:
Sales price of comparable property in
close proximity are adjusted for differences in key attributes such as property size. The expected sales price is
adjusted with sales discount based on land size. The significant inputs into this valuation approach are price per
square meter of comparable properties and sales discount. |
|
l Price
per square meter (JPY 8,000).
l Sales
discount (15%). |
|
The estimated fair value
would increase (decrease) if:
l the
price per square meter is higher (lower); or
l
the sales discount rates are lower (higher). |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Based
on management assessment, the carrying amount of the polysilicon CGU was determined to be higher than its estimated recoverable
amount; consequently, an impairment loss of $6,755,157 thousand was recognized during the year ended December 31, 2015.
Impairment
losses as mentioned above are recognized as other gains and losses in the consolidated statements of comprehensive income.
The
capitalized borrowing costs were $186,025 thousand, $210,882 thousand and $241,286 thousand for the years ended December 31, 2015,
2014 and 2013, respectively. The interest rates applied for the capitalization, ranged from 1.29% to 6.73%, 1.00% to 6.89% and
0.61% to 6.90% for the years ended December 31, 2015, 2014 and 2013, respectively.
Certain
property, plant and equipment were pledged as collateral, see note 37.
| | |
For the year ended December 31, 2015 |
| | |
Balance, Beginning
of Year | |
Additions | |
Disposal | |
Balance,
End of
Year |
| | |
(in thousands) |
| Land | |
$ | 465,868 | | |
| - | | |
| - | | |
| 465,868 | |
| Fair Value | |
$ | 1,145,098 | | |
| | | |
| | | |
| 1,402,040 | |
| | |
For the year ended December 31, 2014 |
| | |
Balance, Beginning
of Year | |
Additions | |
Disposal | |
Balance,
End of
Year |
| | |
(in thousands) |
| Cost: | |
| | | |
| | | |
| | | |
| | |
| Land | |
$ | 836,960 | | |
| - | | |
| (371,092 | ) | |
| 465,868 | |
| Buildings | |
| 544,421 | | |
| - | | |
| (544,421 | ) | |
| - | |
| | |
| 1,381,381 | | |
| - | | |
| (915,513 | ) | |
| 465,868 | |
Accumulated
depreciation and impairment loss: | |
| | | |
| | | |
| | | |
| | |
| Buildings | |
| 126,167 | | |
| 7,778 | | |
| (133,945 | ) | |
| - | |
| Net carrying amounts | |
$ | 1,255,214 | | |
| | | |
| | | |
| 465,868 | |
| Fair Value | |
$ | 2,406,058 | | |
| | | |
| | | |
| 1,145,098 | |
AUO
decided to sell all its plants and land located in Jhunan, Taiwan to Lextar on August 13, 2014. The transfer was completed in
November 2014 and the selling price and gain on disposal were $1,061,297 thousand and $279,729 thousand, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The
fair value of investment property is based on a valuation performed by an independent valuer who holds a recognized and relevant
professional qualification and has recent experience in the location and category of the investment property being valued. The
fair value measurement has been categorized as a level 3 fair value based on the inputs to the valuation techniques used.
For
the year ended December 31, 2014, valuation techniques are based on the market valuation approach and income approach. Market
valuation approach is through comparison, analysis, adjustment and other means of value for comparable properties to estimate
the value of the investment property; the income approach is based on the discounted cash flows from the Company’s estimated
future rentals.
For
the year ended December 31, 2015, valuation techniques are based on the market valuation approach and land development analysis
approach. Land development analysis approach determine the fair value of investment property based on the value prior to development
or construction, after deducting the direct cost, indirect cost, capital interest and profit during the development period, and
also consider total sales price of properties after completion of development or construction. It also incorporates the possibility
of changes in utility of land through development or improvement in accordance with legal use and density of the land.
The
significant inputs in valuation techniques used are set out below.
| | |
December 31, |
| | |
2015 | |
2014 |
| Overall capital interest rate | |
| 2.06 | % | |
| - | |
| Rate of return | |
| 10.00 | % | |
| - | |
| Capitalization rate | |
| - | | |
| 1.50% ~ 1.77% | |
Certain
investment property were pledged as collateral, see note 37.
| | |
For the year ended December 31, 2015 |
| | |
Balance, Beginning of Year | |
Addition | |
Effect of change in exchange rate | |
Balance, End of Year |
| | |
(in thousands) |
| Cost: | |
| | | |
| | | |
| | | |
| | |
| Patent and technology fee | |
$ | 11,597,995 | | |
| 303,282 | | |
| 385 | | |
| 11,901,662 | |
| Accumulated amortization: | |
| | | |
| | | |
| | | |
| | |
| Patent and technology fee | |
| 7,712,240 | | |
| 894,362 | | |
| 376 | | |
| 8,606,978 | |
| Net carrying amounts | |
$ | 3,885,755 | | |
| | | |
| | | |
| 3,294,684 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
For the year ended December 31, 2014 |
| | |
Balance, Beginning of Year | |
Addition | |
Effect of change in exchange rate | |
Balance, End of Year |
| | |
(in thousands) |
| Cost: | |
| | | |
| | | |
| | | |
| | |
| Patent and technology fee | |
$ | 11,306,138 | | |
| 291,337 | | |
| 520 | | |
| 11,597,995 | |
| Accumulated amortization: | |
| | | |
| | | |
| | | |
| | |
| Patent and technology fee | |
| 6,873,596 | | |
| 838,259 | | |
| 385 | | |
| 7,712,240 | |
| Net carrying amounts | |
$ | 4,432,542 | | |
| | | |
| | | |
| 3,885,755 | |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Prepayment for equipment | |
$ | 4,817,842 | | |
| 325,472 | |
| Refundable and overpaid tax | |
| 2,551,114 | | |
| 2,972,774 | |
| Long-term prepaid rents | |
| 2,158,758 | | |
| 2,328,232 | |
| Prepayments for purchases | |
| 1,041,314 | | |
| 1,257,714 | |
| Refundable deposits | |
| 128,727 | | |
| 132,170 | |
| Others | |
| 1,259,441 | | |
| 1,890,752 | |
| | |
| 11,957,196 | | |
| 8,907,114 | |
| Less: current | |
| (3,796,085 | ) | |
| (4,407,556 | ) |
| Noncurrent | |
$ | 8,161,111 | | |
| 4,499,558 | |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Unsecured borrowings | |
$ | 1,593,714 | | |
| 381,322 | |
| Unused credit facility | |
$ | 29,219,632 | | |
| 37,269,758 | |
Interest rate
| |
| 1.25%~
1.30% | | |
| 1.65%~
2.34% | |
| 18. | Convertible
Bonds Payable |
AUO
issued unsecured overseas convertible corporate bonds (hereinafter referred to as “ECB 4”) on October 13, 2010 with
par value of US$800,000 thousand and coupon rate at 0%. The duration period is five years commencing from the issuance date.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AUO
purchased the outstanding ECB 4 starting from 2011. In 2015, 2014 and 2013, AUO purchased the outstanding ECB 4 with par value
of US$399,700 thousand, US$180,800 thousand and US$105,000 thousand, respectively, at costs of US$461,015 thousand, US$198,519
thousand and US$105,533 thousand, respectively. The remaining outstanding balance of ECB 4 with par value of US$14,500 thousand
was fully redeemed by AUO at the redemption price equal to 115.34% of the remaining par value of ECB4 on the maturity date of
October 13, 2015, with no exercise of conversion rights.
Convertible
bonds payable as of December 31, 2015 and 2014 consisted of the following:
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Par value of ECB 4 | |
$ | 24,840,000 | | |
| 24,840,000 | |
| Unamortized discount | |
| - | | |
| (19,623 | ) |
| Accrued interest payable | |
| - | | |
| 1,972,627 | |
| Accumulated purchase | |
| (24,389,775 | ) | |
| (11,979,090 | ) |
| Redemption amount | |
| (450,225 | ) | |
| - | |
| Effect of change in exchange rates | |
| - | | |
| 296,114 | |
| Convertible bonds payable | |
| - | | |
| 15,110,028 | |
| Less: current portion | |
| - | | |
| (15,110,028 | ) |
| | |
$ | - | | |
| - | |
| Embedded derivative-conversion rights classified as fair value recognized through profit or loss | |
$ | - | | |
| - | |
Significant
terms of the aforementioned convertible bonds payable were as follows:
| Conversion
method |
Bondholders
may, at any time from 41 days after issuance to 10 days before maturity, convert ECB4 into common shares or ADSs of the Company. |
| Conversion
price |
Original
price at NT$40.74. The conversion price was adjusted to NT$38.04 as a result of earnings distributions, as approved
by shareholders on June 2, 2015. |
| Exchange
rate |
US$:NT$
exchange rate of NT$30.778 / US$1.00 |
| Redemption
terms |
Unless
previously redeemed, purchased and cancelled, or converted, bonds are redeemable on maturity at a redemption price equal to
115.34% of the unpaid principal amount thereof (redemption rate on maturity is 2.875%, calculated semi-annually). |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| |
(a) Effective
from the third anniversary of issuance, AUO may, redeem the outstanding bonds at the early redemption amount, in whole
or in part, if the closing price (translated into U.S. dollars at the prevailing rate) of its common shares on the Taiwan
Stock Exchange is at least 130% of the conversion price for a period of 20 out of 30 consecutive trading days.
(b) AUO
may redeem the total amount of outstanding bonds in whole at the early redemption amount in the event that 90% of the
bonds have been previously redeemed, converted, or purchased and cancelled.
(c) AUO
may redeem the total amount of outstanding bonds in whole at the early redemption amount if as a result of certain changes
relating to the tax laws in the ROC or such other jurisdiction in which AUO is then organized, AUO is required to pay
additional amounts.
|
| Repurchase
terms |
(a) Bondholders
bear the right to request AUO to repurchase bonds, in whole or in part, at the early redemption amount in the event that
AUO’s common shares cease to be listed or admitted to trading on the Taiwan Stock Exchange (temporary suspension
of trading of AUO’s common shares on the Taiwan Stock Exchange in accordance with the regulations of the Taiwan
Stock Exchange is excluded).
(b) Bondholders
bear the right to request AUO to repurchase bonds, in whole or in part, at the early redemption amount when one or more persons,
acting in concert, acquire legal or beneficial ownership of over 50% of AUO’s capital stock. A “person” aforementioned
does not include AUO’s directors and AUO’s majority-owned direct or indirect subsidiaries. |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| Bank or agent bank | |
Durations | |
December
31, 2015 | |
December
31, 2014 |
| | |
| |
(in thousands) |
| Syndicated loans: | |
| |
| | | |
| | |
| Bank of Taiwan and others | |
From Dec. 2009 to Oct. 2016 | |
$ | 11,881,032 | | |
| 23,768,732 | |
| Bank of Taiwan and others | |
From Sep. 2011 to Sep. 2016 | |
| 14,860,950 | | |
| 29,860,950 | |
| Bank of Taiwan and others | |
From Jan. 2014 to Jan. 2019 | |
| 26,900,000 | | |
| 26,900,000 | |
| Bank of Taiwan and others | |
From Feb. 2013 to Aug. 2017 | |
| 13,132,757 | | |
| 17,284,757 | |
| Bank of Taiwan and others | |
From Feb. 2015 to Feb. 2020 | |
| 20,000,000 | | |
| - | |
| Mizuho Corporate Bank and others | |
From Jun. 2011 to Jun. 2016 | |
| - | | |
| 5,816,563 | |
| Mizuho Corporate Bank and others | |
From Jun. 2011 to Jun. 2016 | |
| - | | |
| 3,323,750 | |
| Credit Agricole Corporate and Investment Bank and others | |
From Nov. 2010 to Nov. 2015 | |
| - | | |
| 4,574,304 | |
| First Commercial Bank and others | |
From Feb. 2012 to Feb. 2017 | |
| 3,139,247 | | |
| 5,267,846 | |
| Standard Chartered Bank and others | |
From Sep. 2014 to Mar. 2019 | |
| 3,172,800 | | |
| 1,111,810 | |
| Bank of China and others | |
From Nov. 2015 to Nov. 2023 | |
| 148,818 | | |
| - | |
| Unsecured loans | |
From Jun. 2010 to Nov. 2019 | |
| 14,978,755 | | |
| 8,238,079 | |
| Mortgage loans | |
From Jul. 2006 to Jul. 2015 | |
| - | | |
| 1,415,760 | |
| | |
| |
| 108,214,359 | | |
| 127,562,551 | |
| Less: transaction costs | |
| |
| (569,191 | ) | |
| (366,124 | ) |
| | |
| |
| 107,645,168 | | |
| 127,196,427 | |
| Less: current portion | |
| |
| (39,107,738 | ) | |
| (41,507,062 | ) |
| | |
| |
$ | 68,537,430 | | |
| 85,689,365 | |
| Unused credit facility | |
| |
$ | 83,531,440 | | |
| 33,731,308 | |
| Interest rate range | |
| |
| 1.17%~ 5.00% | | |
| 1.34%~ 6.765% | |
The
Company entered into the aforementioned long-term loan arrangements with banks and financial institutions to finance capital expenditures
on construction projects and the purchase of machinery and equipment. A commitment fee is negotiated with the leading banks of
syndicated loans, and is calculated based on the committed-to-withdraw but unused balance, if any. No commitment fees were paid
for the year ended December 31, 2015.
These
credit facilities contain covenants that require the Company to maintain certain financial ratios, calculating based on the Company’s
annual consolidated financial statements prepared in accordance with Taiwan Financial Reporting Standards, such as current ratio
(defined as current assets divided by current liabilities excluding (a) current portion of long-term debt or (b) current portion
of long-term debt and equipment and construction payable), leverage ratio (calculated as the sum of short-term borrowings plus
current portion of long-term debt and long-term debt to consolidated tangible net worth), interest coverage ratio, tangible net
worth and others as specified in the loan agreements.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As
of December 31, 2015, AUO was in compliance with the covenants under each of the loan agreements except for one of AUO’s
subsidiaries which failed to comply with tangible net worth covenants in its loan agreements. Failure to comply with financial
covenants is not considered an event of default under the loan agreements and therefore the loans are not callable by the banks
unless a resolution is made by the banks to call the loans or there is a refusal to grant a waiver of the covenants by a majority
of the banks and financial institutions. As of December 31, 2015, there was no such event of default on the aforementioned long-term
borrowings. Consequently, these loans are still classified as noncurrent liabilities as of December 31, 2015.
As
of December 31, 2014, one of AUO’s subsidiaries failed to comply with the interest coverage ratio covenants in its loan
agreements. Failure to comply with financial covenants is not considered an event of default under the loan agreements and therefore
the loans are not callable by the banks unless a resolution is made by the banks to call the loans or there is a refusal to grant
a waiver of the covenants by a majority of the banks and financial institutions. As of December 31, 2014, there was no such event
of default on the aforementioned long-term borrowings. Consequently, these loans are still classified as noncurrent liabilities
as of December 31, 2014.
Refer
to note 34 for detailed information of exposures to interest rate, currency, and liquidity risk. Refer to note 37 for assets pledged
as collateral to secure the aforementioned long-term borrowings.
Movements
in provisions for the years ended December 31, 2015 and 2014 were as follows:
| | |
Warranties | |
Litigation and
claims | |
Others | |
Total |
| | |
(in thousands) |
| Balance at January 1, 2015 | |
$ | 2,668,512 | | |
| 7,318,092 | | |
| 286,362 | | |
| 10,272,966 | |
| Additions | |
| 65,501 | | |
| 4,848,442 | | |
| - | | |
| 4,913,943 | |
| Usage | |
| (619,845 | ) | |
| (8,012,397 | ) | |
| - | | |
| (8,632,242 | ) |
| Reversals | |
| (294,592 | ) | |
| - | | |
| - | | |
| (294,592 | ) |
| Effect of change in exchange rate | |
| (57 | ) | |
| (135,257 | ) | |
| 11,575 | | |
| (123,739 | ) |
| Balance at December 31, 2015 | |
| 1,819,519 | | |
| 4,018,880 | | |
| 297,937 | | |
| 6,136,336 | |
| Less: current | |
| (993,481 | ) | |
| (4,018,880 | ) | |
| - | | |
| (5,012,361 | ) |
| Noncurrent | |
$ | 826,038 | | |
| - | | |
| 297,937 | | |
| 1,123,975 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
Warranties | |
Litigation
and claims | |
Others | |
Total |
| | |
(in thousands) |
| Balance at January 1, 2014 | |
$ | 2,524,135 | | |
| 8,678,670 | | |
| 270,712 | | |
| 11,473,517 | |
| Additions | |
| 598,379 | | |
| 2,712,239 | | |
| - | | |
| 3,310,618 | |
| Usage | |
| (452,440 | ) | |
| (4,296,472 | ) | |
| - | | |
| (4,748,912 | ) |
| Reversals | |
| (1,960 | ) | |
| - | | |
| - | | |
| (1,960 | ) |
| Effect of change in exchange rate | |
| 398 | | |
| 223,655 | | |
| 15,650 | | |
| 239,703 | |
| Balance at December 31, 2014 | |
| 2,668,512 | | |
| 7,318,092 | | |
| 286,362 | | |
| 10,272,966 | |
| Less: current | |
| (1,378,187 | ) | |
| (7,318,092 | ) | |
| - | | |
| (8,696,279 | ) |
| Noncurrent | |
$ | 1,290,325 | | |
| - | | |
| 286,362 | | |
| 1,576,687 | |
| (a) | Provisions for warranties |
The provisions for warranties
were estimated based on historical experience of warranty claims rate associated with similar products and services. The Company
expects most warranty claims will be made within two years from the date of the sale of the product.
| (b) | Provisions for litigation and claims |
The provisions for litigation
and claims pertain to current litigation and settlement agreements. See note 38(d) for further information.
Non-cancellable lease payments
as of December 31, 2015 and 2014 were as follows:
| |
December 31, |
| | |
2015 | |
2014 |
| |
(in thousands) |
| Less than one year | |
$ | 863,465 | | |
| 938,525 | |
| Between one and five years | |
| 2,614,891 | | |
| 2,679,819 | |
| More than five years | |
| 3,020,500 | | |
| 3,596,150 | |
| | |
$ | 6,498,856 | | |
| 7,214,494 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AUO entered into various operating
lease agreements for land with Hsinchu Science Park Administration Bureaus beginning from March 1, 1994 for a period of 20 years,
with renewal option upon expiration. AUO had on July 2003 and November 2006, entered into various operating lease for land with
Central Science Park Administration Bureaus for period from July 28, 2003 till December 31, 2023 and November 9, 2006 till December
31, 2025. All lease amounts are adjusted in accordance with the land value fixed by the government from time to time.
AUO had also on February 2008
renewed its lease agreement with Hsinchu Science Park for the land in Longtan Science Park. The period covers from February 9,
2008 till December 31, 2027. The lease amount is adjusted in accordance with the land value fixed by the government from time to
time.
In addition, the Company’s
subsidiaries, including CFI, ACTW, DPTW, AUCZ and M.Setek, also entered into operating lease agreements for operating facilities
and land for periods from April 13, 2009 to December 31, 2030.
Rental expense for operating
leases amounted to $1,115,570 thousand, $1,143,750 thousand and $1,188,582 thousand for the years ended December 31, 2015, 2014
and 2013, respectively.
The Company’s subsidiaries
in China have obtained the land use rights which were recognized as long-term prepaid rents.
The Company leased its investment
properties to third parties under operating lease. Refer to note 14 for further information on investment properties.
Non-cancellable lease receivables
as of December 31, 2015 and 2014, were as follows:
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Less than one year | |
$ | 8,052 | | |
| 8,052 | |
| Between one and five years | |
| 32,208 | | |
| 32,208 | |
| More than five years | |
| 95,282 | | |
| 103,334 | |
| | |
$ | 135,542 | | |
| 143,594 | |
The Company also leased partial
offices, see note 28 for rental income. Repair and maintenance expenses incurred from aforementioned operating leases for the years
ended December 31, 2015, 2014 and 2013 amounted to $403 thousand, $11,935 thousand and $14,470 thousand, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Pursuant to the ROC Labor Standards
Law, AUO, DPTW and CFI have established defined benefit pension plans covering their full-time employees in the ROC. These plans
provide for retirement benefits to retiring employees based on years of service and the average salary for the six-month period
before the employee’s retirement. The funding of these retirement plans by the companies is based on a certain percentage
of employees’ total salaries. The funds are deposited with Bank of Taiwan.
M.Setek has established defined
benefit pension plans providing for retirement benefits to retiring employees based on years of service, position, and certain
other factors in accordance with the regulations of its country of establishment.
| (1) | Recognized liabilities for defined benefit obligation at the reporting date were as follows: |
| |
December 31, |
| | |
2015 | |
2014 |
| |
(in thousands) |
| Present value of defined benefit obligation | |
$ | (2,813,072 | ) | |
| (2,510,735 | ) |
| Fair value of plan assets | |
| 2,059,399 | | |
| 1,919,312 | |
| Net defined benefit liability | |
$ | (753,673 | ) | |
| (591,423 | ) |
| (2) | Movement in net defined benefit liability |
The following table shows a
reconciliation for net defined benefit liability and its components.
| | |
Defined benefit obligation | |
Fair value of plan assets | |
Net defined benefit liability |
| | |
2015 | |
2014 | |
2015 | |
2014 | |
2015 | |
2014 |
| | |
(in thousands) |
| Balance at January 1, | |
$ | (2,510,735 | ) | |
| (2,490,854 | ) | |
| 1,919,312 | | |
| 1,707,081 | | |
| (591,423 | ) | |
| (783,773 | ) |
| Included in profit or loss | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Service cost | |
| (10,887 | ) | |
| (14,055 | ) | |
| - | | |
| - | | |
| (10,887 | ) | |
| (14,055 | ) |
| Interest cost | |
| (55,193 | ) | |
| (48,600 | ) | |
| - | | |
| - | | |
| (55,193 | ) | |
| (48,600 | ) |
| Expected return on plan assets | |
| - | | |
| - | | |
| 43,048 | | |
| 34,443 | | |
| 43,048 | | |
| 34,443 | |
| | |
| (66,080 | ) | |
| (62,655 | ) | |
| 43,048 | | |
| 34,443 | | |
| (23,032 | ) | |
| (28,212 | ) |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
Defined benefit obligation | |
Fair value of plan assets | |
Net defined benefit liability |
| | |
2015 | |
2014 | |
2015 | |
2014 | |
2015 | |
2014 |
| | (in thousands) |
| Included in OCI | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Remeasurements (loss) gain: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Actuarial (loss) gain arising from: | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
-
demographic assumptions | |
| (79,154 | ) | |
| (143,568 | ) | |
| - | | |
| - | | |
| (79,154 | ) | |
| (143,568 | ) |
| - financial assumptions | |
| (88,709 | ) | |
| 140,804 | | |
| - | | |
| - | | |
| (88,709 | ) | |
| 140,804 | |
| - experience adjustment | |
| (90,997 | ) | |
| 45,043 | | |
| - | | |
| - | | |
| (90,997 | ) | |
| 45,043 | |
| Return on plan assets excluding interest income | |
| - | | |
| - | | |
| 7,459 | | |
| 5,548 | | |
| 7,459 | | |
| 5,548 | |
| | |
| (258,860 | ) | |
| 42,279 | | |
| 7,459 | | |
| 5,548 | | |
| (251,401 | ) | |
| 47,827 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Other | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Effect of acquisition of subsidiary | |
| - | | |
| (17,657 | ) | |
| - | | |
| 69,490 | | |
| - | | |
| 51,833 | |
| Contributions paid by the employer | |
| - | | |
| - | | |
| 105,145 | | |
| 104,204 | | |
| 105,145 | | |
| 104,204 | |
| Benefits paid | |
| 25,240 | | |
| 11,891 | | |
| (15,565 | ) | |
| (1,454 | ) | |
| 9,675 | | |
| 10,437 | |
| Effect of changes in exchange rates and others | |
| (2,637 | ) | |
| 6,261 | | |
| - | | |
| - | | |
| (2,637 | ) | |
| 6,261 | |
| | |
| 22,603 | | |
| 495 | | |
| 89,580 | | |
| 172,240 | | |
| 112,183 | | |
| 172,735 | |
| Balance at December 31, | |
$ | (2,813,072 | ) | |
| (2,510,735 | ) | |
| 2,059,399 | | |
| 1,919,312 | | |
| (753,673 | ) | |
| (591,423 | ) |
AUO, DPTW and CFI contribute
an amount based on a certain percentage of employees’ total salaries paid every month to their respective pension funds (the
“Funds”), which are administered by the Bureau of Labor Fund, Ministry of Labor and supervised by the Labor Pension
Fund Supervisory Committee (the “Committee”) and deposited in the Committee’s name with Bank of Taiwan. Under
the ROC Labor Standards Law, the minimum return on the plan assets should not be lower than the average interest rate on two-year
time deposits published by the local banks. The government is not only responsible for the determination of the investment strategies
and policies, but also for any shortfall in the event that the rate of return is less than the required rate of return. As of the
reporting date, the Funds deposited in the Committee’s name in the Bank of Taiwan amounted to $2,058,417 thousand. Information
on utilization of labor pension funds, including the yield rate of funds and the component of plan assets are available at the
Bureau of Labor Funds, Ministry of Labor website.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under the defined benefit plans
in Japan, M.Setek is responsible to pay to employees when they are retired.
| (4) | Defined benefit obligation |
| (i) | Principal actuarial assumptions |
| | |
As of December 31, |
| | |
2015 | |
2014 |
| Discount rate | |
0.53%~ 2.00% | |
0.54%~2.25% |
| Rate of increase in future salary | |
1.19%~ 3.79% | |
1.19%~3.79% |
As at December 31, 2015, the
weighted-average duration of the defined benefit obligation was between nine years to twenty two years.
The Company anticipates contributing
$105,093 thousand to the defined benefit plans in the next year starting from January 1, 2016.
When measuring the present
value of defined benefit obligation, the Company shall make judgments and estimates to determine the relevant actuarial assumptions,
including discount rate, rate of increase in future salary and etc., at each reporting date. Any changes in the actuarial assumptions
may have significant effect on the Company’s defined benefit obligation.
Reasonably possible changes
at December 31, 2015 to one of the relevant actuarial assumptions, holding other assumptions constant, would have affected the
defined benefit obligation by the amounts shown below.
| | |
December 31, 2015 |
| | |
Changes in assumptions |
| | |
+ 0.25% | |
-0.25% |
| | |
(in thousands) |
| Discount rate | |
$ | (146,656 | ) | |
| 156,049 | |
| Rate of increase in future salary | |
$ | 154,530 | | |
| (146,035 | ) |
In practical, the relevant
actuarial assumptions are correlated to each other. The approach to develop the sensitivity analysis as above is the same approach
to recognize the net defined benefit liability in the statement of financial position. The approach to develop the sensitivity
analysis and its relevant actuarial assumptions are the same as those in previous year.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (b) | Defined contribution plans |
Commencing July 1, 2005, pursuant
to the ROC Labor Pension Act (the “Act”), employees who elected to participate in the Act or joined the Company after
July 1, 2005, are subject to a defined contribution plan under the Act. Under the defined contribution plan, AUO and its subsidiaries
located in the ROC contribute monthly at a rate of no less than six percent of an employee’s monthly salary to the employee’s
individual pension fund account at the ROC Bureau of Labor Insurance. The Company’s foreign subsidiaries have set up their
retirement plans, if necessary, based on their respective local government regulations.
AUO and its subsidiaries in
the ROC have set up defined contribution plans in accordance with the Act. For the years ended December 31, 2015, 2014 and 2013,
these companies set aside $927,083 thousand, $873,889 thousand and $849,342 thousand, respectively, of the pension costs under
the pension plan to the ROC Bureau of the Labour Insurance. Except for the aforementioned companies, other foreign subsidiaries
recognized pension expenses of $1,400,994 thousand, $1,276,125 thousand and $1,030,424 thousand for the years ended December 31,
2015, 2014 and 2013, respectively, for the defined contribution plans based on their respective local government regulations.
| 23. | Capital and Other Components of Equity |
AUO’s authorized common
stock, with par value of $10 per share, both amounted to $100,000,000 thousand as of December 31, 2015 and 2014.
AUO’s issued and outstanding
common stock, with par value of $10 per share, both amounted to $96,242,451 thousand as of December 31, 2015 and 2014.
AUO’s ADSs were listed
on the New York Stock Exchange. Each ADS represents 10 shares of common stock. As of December 31, 2015, AUO had issued 78,096 thousand
ADSs, which represented 780,965 thousand shares of its common stock.
Balance of capital surplus as
of December 31, 2015 and 2014 were as follows:
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| From common stock | |
$ | 52,756,091 | | |
| 52,756,091 | |
| From convertible bonds | |
| 6,049,862 | | |
| 6,049,862 | |
| From merger and others | |
| 1,441,895 | | |
| 452,088 | |
| | |
$ | 60,247,848 | | |
| 59,258,041 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
According to the ROC Company
Act, capital surplus, including premium from stock issuing and donations received, shall be applied to offset accumulated deficits
before it can be used to increase common stock or distribute cash. Pursuant to the ROC Regulations Governing the Offering and Issuance
of Securities by Securities Issuers, the total sum of capital surplus capitalized per annum shall not exceed 10 percent of the
paid-in capital.
According to the ROC Company
Act, 10 percent of the annual earnings after payment of income taxes due and offsetting accumulated deficits, if any, shall be
allocated as legal reserve until the accumulated legal reserve equals the issued common stock. When a company incurs no loss, it
may, pursuant to a resolution to be adopted by a shareholders' meeting, distribute its legal reserve by issuing new shares or by
cash, only the portion of legal reserve which exceeds 25 percent of the paid-in capital may be distributed.
| (d) | Distribution of earnings and dividend policy |
According to AUO’s Articles
of Incorporation, 10 percent of the annual earnings, after payment of income taxes due and offsetting accumulated deficits, if
any, shall be set aside as a legal reserve. In addition, a special reserve in accordance with applicable laws and regulations shall
also be set aside. The remaining earnings may be distributed as follows:
| (1) | profit sharing to employees: no less than 5 percent; |
| (2) | remuneration of directors: no more than 1 percent; and |
| (3) | all or a portion of the remaining balance shall be distributed as shareholders’ dividends. |
Pursuant to relevant laws or
regulations or as requested by the local authority, a special reserve equivalent to the total amount of items that are accounted
for as deductions to the equity shall be set aside from current earnings, and not distributed. The special reserve shall be made
available for appropriation to the extent of reversal of deductions to equity in subsequent periods.
AUO’s
dividend policy is to pay dividends from surplus considering factors such as AUO’s
current and future investment environment, cash requirements, competitive conditions and capital budget requirements, and taking
into account the shareholders’ interest, maintenance of a balanced dividend and AUO’s
long term financial plan. Earnings distribution is proposed by the board of directors and approved at the shareholders’
meeting. Pursuant to the Articles of Incorporation, the cash dividend shall not be less than 10 percent of the total dividends.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In accordance with the ROC Company
Act as amended in May 2015, profit sharing to employees and remuneration to directors will no longer be appropriate from current
year distributable earnings. The amendment of AUO’s Articles of Incorporation, pursuant to the amendment of the ROC Company
Act, was approved in the board of directors’ meeting held on January 29, 2016, and is to be presented for approval in 2016
annual shareholders’ meeting. Please refer to note 26 for further information.
AUO’s appropriations of
earnings for 2013 had been approved in the shareholders’ meeting held on June 6, 2014. The appropriations and dividends per
share were as follows:
| | |
For fiscal year 2013 |
| | |
Appropriation of earnings | |
Dividends per share |
| | |
(in thousands, except for per share data) |
| Legal reserve | |
$ | 401,750 | | |
| | |
| Cash dividends to shareholders | |
| 96,242 | | |
$ | 0.01 | |
| | |
$ | 497,992 | | |
| | |
AUO had on June 6, 2014, through
its shareholders’ meeting declared a cash distribution of $0.14 per share, totalling $1,347,395 thousand from its capital
surplus. At the same time, profit sharing to employees of $564,351 thousand and remuneration to directors of $11,287 thousand were
also approved through the shareholders’ meeting. The aforementioned distribution of profit sharing to employees and remuneration
to directors for 2013 was consistent with the resolutions of the board of directors’ meeting held on March 11, 2014, and
the amount has been charged against earnings of 2013.
AUO’s appropriations of
earnings for 2014 had been approved in the shareholders’ meeting held on June 2, 2015. The appropriations and dividends per
share were as follows:
| | |
For fiscal year 2014 |
| | |
Appropriation of
earnings | |
Dividends
per share |
| | |
(in thousands, except for per share data) |
| Legal reserve | |
$ | 1,762,846 | | |
| | |
| Cash dividends to shareholders | |
| 4,812,123 | | |
$ | 0.50 | |
| | |
$ | 6,574,969 | | |
| | |
AUO had on June 2, 2015, through
its shareholders’ meeting approved profit sharing to employees of $1,189,922 thousand, bonus to employees of $1,189,921 thousand
and remuneration to directors of $47,597 thousand. The aforementioned distribution of profit sharing to employees, bonus to employees
and remuneration to directors for 2014 was consistent with the resolutions of the board of directors’ meeting held on March
17, 2015, and the amount has been charged against earnings of 2014.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
AUO’s appropriations of
earnings for 2015 have been approved in the meeting of the board of directors held on March 10, 2016. The appropriations and dividends
per share were as follows:
| | |
For fiscal year 2015 |
| | |
Appropriation of earnings | |
Dividends per share |
| | |
(in thousands, except for per share data) |
| Legal reserve | |
$ | 493,196 | | |
| | |
| Cash dividends to shareholders | |
| 3,368,486 | | |
$ | 0.35 | |
| | |
$ | 3,861,682 | | |
| | |
The appropriations of earnings
for 2015 are to be presented for approval in AUO’s 2016 annual shareholders’ meeting.
Information on the approval
of board of directors and shareholders for AUO’s appropriations of earnings of are available at the Market Observation Post
System website.
| (e) | Other components of equity |
| | |
Cumulative translation differences | |
Unrealized
gains (losses) on available-for-sale financial
assets | |
Unrealized
gains (losses) on cash flow hedges | |
Total |
| | |
| |
(in thousands) | |
|
| Balance at January 1, 2015 | |
$ | 5,766,162 | | |
| 29,107 | | |
| 18,440 | | |
| 5,813,709 | |
| Foreign operations – foreign currency translation differences | |
| 405,731 | | |
| - | | |
| - | | |
| 405,731 | |
| Effective portion of changes in fair value of cash flow hedges | |
| - | | |
| - | | |
| (3,647 | ) | |
| (3,647 | ) |
| Net change in fair value of available-for-sale financial assets | |
| - | | |
| (521,173 | ) | |
| - | | |
| (521,173 | ) |
| Equity-accounted investees – share of other comprehensive income | |
| 470,545 | | |
| 22,070 | | |
| - | | |
| 492,615 | |
| Realized gain on sales of securities transferred to profit or loss | |
| (104,905 | ) | |
| (69,657 | ) | |
| - | | |
| (174,562 | ) |
| Related tax | |
| 2,663 | | |
| - | | |
| - | | |
| 2,663 | |
| Balance at December 31, 2015 | |
$ | 6,540,196 | | |
| (539,653 | ) | |
| 14,793 | | |
| 6,015,336 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
Cumulative translation differences | |
Unrealized gains (losses) on available-for-sale financial
assets | |
Unrealized gains (losses) on cash flow hedges | |
Total |
| | |
| | | |
| (in thousands) | | |
| | |
| Balance at January 1, 2014 | |
$ | 3,836,530 | | |
| 260,909 | | |
| 8,471 | | |
| 4,105,910 | |
| Foreign operations – foreign currency translation differences | |
| 1,846,221 | | |
| - | | |
| - | | |
| 1,846,221 | |
| Effective portion of changes in fair value of cash flow hedges | |
| - | | |
| - | | |
| 9,969 | | |
| 9,969 | |
| Net change in fair value of available-for-sale financial assets | |
| - | | |
| 89,288 | | |
| - | | |
| 89,288 | |
| Equity-accounted investees – share of other comprehensive income (loss) | |
| 125,920 | | |
| (8,036 | ) | |
| - | | |
| 117,884 | |
| Realized gain on sales of securities transferred to profit or loss | |
| (5,025 | ) | |
| (313,054 | ) | |
| - | | |
| (318,079 | ) |
| Related tax | |
| (37,484 | ) | |
| - | | |
| - | | |
| (37,484 | ) |
| Balance at December 31, 2014 | |
$ | 5,766,162 | | |
| 29,107 | | |
| 18,440 | | |
| 5,813,709 | |
| | |
| | | |
| | | |
| | | |
| | |
| Balance at January 1, 2013 | |
$ | 1,517,468 | | |
| 19,746 | | |
| (33,014 | ) | |
| 1,504,200 | |
| Foreign operations – foreign currency translation differences | |
| 2,551,282 | | |
| - | | |
| - | | |
| 2,551,282 | |
| Effective portion of changes in fair value of cash flow hedges | |
| - | | |
| - | | |
| 41,485 | | |
| 41,485 | |
| Net change in fair value of available-for-sale financial assets | |
| - | | |
| 449,430 | | |
| - | | |
| 449,430 | |
| Equity-accounted investees – share of other comprehensive income | |
| 95,879 | | |
| 40,725 | | |
| - | | |
| 136,604 | |
| Realized gain on sales of securities transferred to profit or loss | |
| (275,698 | ) | |
| (248,992 | ) | |
| - | | |
| (524,690 | ) |
| Related tax | |
| (52,401 | ) | |
| - | | |
| - | | |
| (52,401 | ) |
| Balance at December 31, 2013 | |
$ | 3,836,530 | | |
| 260,909 | | |
| 8,471 | | |
| 4,105,910 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (f) | Non-controlling interests, net of tax |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Balance at the beginning of the year | |
$ | 19,329,254 | | |
| 14,036,520 | | |
| 14,062,612 | |
| Equity attributable to non-controlling interests: | |
| | | |
| | | |
| | |
| Profit (loss) for the year | |
| (28,161 | ) | |
| 370,610 | | |
| 72,722 | |
| Adjustment of changes in ownership of subsidiaries | |
| (489,906 | ) | |
| 65,253 | | |
| 45,969 | |
| Foreign currency translation differences | |
| (680,218 | ) | |
| 419,687 | | |
| 436,746 | |
| Unrealized losses on available-for-sale financial assets | |
| - | | |
| (880 | ) | |
| (387 | ) |
| Actuarial gains (losses) on defined benefit plans | |
| 5,003 | | |
| (198 | ) | |
| (1,160 | ) |
| Proceeds from subsidiaries capital increase | |
| 10,086,575 | | |
| 28,740 | | |
| - | |
| Cash dividends from subsidiaries | |
| (328,234 | ) | |
| (256,050 | ) | |
| (174,208 | ) |
| Return of subsidiaries capital | |
| - | | |
| - | | |
| (114,948 | ) |
| Effect of acquisition of non-controlling interests | |
| (5,245,698 | ) | |
| - | | |
| - | |
| Effect of acquisition or deconsolidation of subsidiaries and others | |
| (11 | ) | |
| 4,665,572 | | |
| (290,826 | ) |
| Balance at the end of the year | |
$ | 22,648,604 | | |
| 19,329,254 | | |
| 14,036,520 | |
| The Company’s employee stock option plans were as follows: |
(a) DPTW
Option Plan
| (1) | In connection with the acquisition of DPTW during the year ended
December 31, 2014 (see note 12), the Company assumed the DPTW stock option plan. As of December 31, 2015, the key terms and conditions
related to the grants under DPTW’s outstanding employee stock option plan were disclosed as follows. |
| |
|
Grant
date |
|
Total
number of options issued
(units
in thousands)
|
|
Contractual
life of options |
|
Exercisable
period |
|
Original
exercise price
(per
share)
|
|
Adjusted
exercise price
(per
share)
|
| 2011 Employee stock option
plan |
|
Jan.
6, 2011 |
|
|
10,000 |
|
|
Jan.
6, 2011 –
Jan. 6, 2017 |
|
|
After
Jan. 6, 2013 |
|
|
$ |
29.2 |
|
|
$ |
19.36 |
|
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (2) | In fourth quarter of year 2014, the related employee benefit
expense recognized on DPTW employee stock options was $956 thousand. |
| (3) | Fair value of stock options |
The
fair value of the employee stock option granted by DPTW was measured at the date of grant using the Black-Scholes option pricing
model. The valuation information was as follows:
| | |
2011 Employee Stock Option Plan |
| Dividend rate | |
-% |
| Expected volatility | |
29% |
| Risk-free interest rate | |
1.0% |
| Expected duration | |
6 years |
| Fair value at the grant date | |
NT$7.49/per unit |
The expected volatility is
calculated based on the weighted-average historical volatility and adjusted by the expected change due to publicly available information.
The expected duration of stock option is according to the terms of the plan. The expected dividend rate and risk-free interest
rate are determined based on the ROC government bonds. When determining the fair value of the stock option, service and non-market
performance conditions are not taken into consideration.
| (4) | Information about DPTW’s outstanding stock options is as
follows: |
| | |
For
the years ended December 31, |
| | |
2015 | |
2014 |
| | |
Weighted-average
exercise price (per
share) | |
Number
of options (shares) | |
Weighted-average
exercise price (per
share) | |
Number
of options (shares) |
| Outstanding at January 1 | |
$ | 20.42 | | |
| 6,510,000 | | |
$ | 25.49 | | |
| 8,994,000 | |
| Options expired | |
| - | | |
| (2,630,000 | ) | |
| - | | |
| (2,484,000 | ) |
| Outstanding at December 31 | |
| 19.36 | | |
| 3,880,000 | | |
| 20.42 | | |
| 6,510,000 | |
| Exercisable at December 31 | |
| | | |
| 3,880,000 | | |
| | | |
| 4,882,500 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(b) ACTW
Option Plan
| (1) | As of December 31, 2015, the key terms and conditions related
to the grants under ACTW’s outstanding employee stock option plan were disclosed as follows: |
| | |
Grant
date | |
Total
number of options issued (units) | |
Contractual
life of options | |
Exercisable
period | |
Exercise
price (per share) |
| 2012 Employee stock option plan | |
Sep. 1, 2012 | |
| 20,000 | | |
Sep.1, 2012 –
Aug. 30, 2017 | |
After Aug. 30, 2014 | |
$ | 10 | |
| 2014 Employee stock option plan | |
Sep. 1, 2014 | |
| 20,000 | | |
Sep.1, 2014 –
Aug. 30, 2019 | |
After Aug. 30, 2016 | |
$ | 10 | |
| (2) | The related employee benefit expenses and capital surplus recognized
on ACTW’s employee stock options were $2,386 thousand and $2,650 thousand for the years ended December 31, 2015 and 2014,
respectively. |
| (3) | Fair value of stock options |
The
fair value of the employee stock options granted by ACTW was measured at the dates of grant using the Binomial option pricing model.
The valuation information was as follows:
| | |
2014 Employee Stock Option Plan | |
2012 Employee Stock Option Plan |
| Dividend rate | |
-% | |
-% |
| Expected volatility | |
38.88% | |
45.40% |
| Risk-free interest rate | |
1.1648% | |
0.8887% |
| Expected duration | |
5 years | |
5 years |
| Fair value at the grant date | |
NT$0.20/per share | |
NT$0.34/per share |
| (4) | Information about ACTW’s outstanding stock options is as
follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 |
| | |
Weighted-average exercise price (per share) | |
Number of options (shares) | |
Weighted-average exercise price (per share) | |
Number of options (shares) |
| Outstanding at January 1 | |
$ | 10 | | |
| 36,942,000 | | |
$ | 10 | | |
| 17,792,000 | |
| Options granted | |
| - | | |
| - | | |
| 10 | | |
| 20,000,000 | |
| Options exercised | |
| 10 | | |
| (109,000 | ) | |
| 10 | | |
| (86,000 | ) |
| Options expired | |
| - | | |
| (3,990,000 | ) | |
| - | | |
| (764,000 | ) |
| Outstanding at December 31 | |
| 10 | | |
| 32,843,000 | | |
| 10 | | |
| 36,942,000 | |
| Exercisable at December 31 | |
| | | |
| 11,096,000 | | |
| | | |
| 8,428,000 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Sale of goods | |
$ | 351,566,289 | | |
| 402,159,981 | | |
| 407,629,049 | |
| Other operating revenue | |
| 8,780,205 | | |
| 6,018,769 | | |
| 8,733,956 | |
| | |
$ | 360,346,494 | | |
| 408,178,750 | | |
| 416,363,005 | |
Refer to note 39 for further
revenue information.
26. |
Remuneration
to Employees and Directors |
Pursuant to the ROC Company
Act as amended in May 2015, a company’s articles of incorporation should stipulate a fixed amount or a ratio of annual profit,
after offsetting accumulated deficits, if any, to be distributed as remuneration to employees. The amendment of AUO’s Articles
of Incorporation, pursuant to the amendment of the ROC Company Act, was approved in the board of directors’ meeting held
on January 29, 2016, and is to be presented for approval in 2016 annual shareholders’ meeting.
AUO accrues remuneration to
employees based on certain percentage of the amount calculating by current year profit (profit before income tax excluding remuneration
to employees and directors) less accumulated deficit. The accrued remuneration to employees was $665,815 thousand for the year
ended December 31, 2015. Remuneration to directors was estimated based on the amount expected to pay and recognized together with
the remuneration to employees as costs for sales or expenses. If remuneration to employees is resolved to be distributed in stock,
the number of shares is determined by dividing the amount of remuneration by the closing price of the shares on the day preceding
the board of directors’ meeting. If there is a change in the proposed amounts after the annual consolidated financial statements
are authorized for issue, the differences are recorded as a change in accounting estimate and treated as an adjustment to next
year’s profit or loss.
Remuneration to
employees and directors in the amounts of $665,815 thousand and $13,316 thousand in cash for payment in 2015, respectively,
have been approved in the meeting of board of directors held on March 10, 2016. The aforementioned approved amounts, which
are the same as the amounts charged against earnings of 2015 are subject to the approval of the related amendments to AUO’s
Articles of Incorporation in 2016 annual shareholders’ meeting.
The information about AUO’s
remuneration to employees and directors is available at the Market Observation Post System website.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
27. |
The
Nature of Expenses |
| (a) | Depreciation of property, plant and equipment |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Recognized in cost of sales | |
$ | 42,558,430 | | |
| 51,354,308 | | |
| 58,089,678 | |
| Recognized in operating expenses(i) | |
| 4,293,057 | | |
| 4,702,383 | | |
| 4,663,466 | |
| | |
$ | 46,851,487 | | |
| 56,056,691 | | |
| 62,753,144 | |
Depreciation
of investment property for the years ended December 31, 2015, 2014 and 2013 in the amount of nil, $7,778 thousand and $10,370 thousand,
respectively, were not included.
| (b) | Amortization of intangible assets |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Recognized in cost of sales | |
$ | 892,566 | | |
| 834,842 | | |
| 870,884 | |
| Recognized in operating expenses(i) | |
| 1,796 | | |
| 3,417 | | |
| 3,349 | |
| | |
$ | 894,362 | | |
| 838,259 | | |
| 874,233 | |
| (c) | Employee benefits expenses |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Salaries and wages | |
$ | 34,097,961 | | |
| 34,897,210 | | |
| 30,540,058 | |
| Labor and health insurances | |
| 1,879,782 | | |
| 1,702,698 | | |
| 1,623,319 | |
| Retirement benefits | |
| 2,351,109 | | |
| 2,178,226 | | |
| 1,911,815 | |
| Other employee benefits | |
| 2,910,576 | | |
| 2,283,959 | | |
| 2,389,570 | |
| | |
$ | 41,239,428 | | |
| 41,062,093 | | |
| 36,464,762 | |
| Employee benefits expense summarized by function | |
| | | |
| | | |
| | |
| Recognized in cost of sales | |
$ | 32,781,145 | | |
| 31,828,044 | | |
| 28,009,324 | |
| Recognized in operating expenses(i) | |
| 8,458,283 | | |
| 9,234,049 | | |
| 8,455,438 | |
| | |
$ | 41,239,428 | | |
| 41,062,093 | | |
| 36,464,762 | |
| (i) | Operating expenses are inclusive of selling and distribution
expenses, general and administrative expenses and research and development expenses. |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Interest income on bank deposits | |
$ | 629,057 | | |
| 431,215 | | |
| 285,404 | |
| Interest income on government bonds with reverse repurchase agreements and others | |
| 43,581 | | |
| 37,175 | | |
| 43,956 | |
| Rental income, net | |
| 472,484 | | |
| 447,062 | | |
| 331,015 | |
| Grants | |
| 337,526 | | |
| 452,246 | | |
| 637,386 | |
| Dividend income | |
| 112,661 | | |
| 4,350 | | |
| 2,855 | |
| Insurance compensation and others | |
| 602,284 | | |
| 790,059 | | |
| 1,147,848 | |
| | |
$ | 2,197,593 | | |
| 2,162,107 | | |
| 2,448,464 | |
29. |
Other
Gains and Losses |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Foreign exchange gains, net | |
$ | 537,248 | | |
| 853,552 | | |
| 2,642,219 | |
| Gains (losses) on valuation of financial assets and liabilities measured at fair value through profit or loss, net | |
| 939,117 | | |
| (138,915 | ) | |
| (1,723,574 | ) |
| Gains (losses) on disposals of investments and financial assets, net | |
| (10,618 | ) | |
| 713,222 | | |
| 1,813,751 | |
| Gains (losses) on disposals of property, plant and equipment, net | |
| 585,196 | | |
| (307,630 | ) | |
| 70,569 | |
| Gain on disposal of investment properties | |
| - | | |
| 279,729 | | |
| - | |
| Impairment losses on investments and financial assets, net | |
| - | | |
| (107,494 | ) | |
| (596,102 | ) |
| Impairment losses on property, plant and equipment and investment property, net | |
| (7,026,226 | ) | |
| (2,263,540 | ) | |
| (159,532 | ) |
| Gain on bargain purchase | |
| - | | |
| 2,883,913 | | |
| - | |
| Litigation losses and others | |
| (5,003,037 | ) | |
| (2,714,640 | ) | |
| (3,223,724 | ) |
| | |
$ | (9,978,320 | ) | |
| (801,803 | ) | |
| (1,176,393 | ) |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Interest expense on long-term borrowings | |
$ | 2,540,724 | | |
| 3,034,502 | | |
| 3,951,168 | |
| Interest expense on short-term borrowings and others | |
| 50,299 | | |
| 1,010,631 | | |
| 831,664 | |
| | |
$ | 2,591,023 | | |
| 4,045,133 | | |
| 4,782,832 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company cannot file a consolidated
tax return under local regulations. Therefore, AUO and its subsidiaries calculate their income taxes liabilities individually on
a stand-alone basis using the enacted tax rates in their respective tax jurisdictions.
| (a) | The components of income tax expense (benefit) for the years ended December 31, 2015, 2014 and
2013 were as follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Current income tax expense (benefit): | |
| | | |
| | | |
| | |
| Current year | |
$ | 2,228,985 | | |
| 2,851,999 | | |
| 1,293,445 | |
| Adjustment to prior years and others | |
| (876,400 | ) | |
| (307,728 | ) | |
| 124,659 | |
| | |
| 1,352,585 | | |
| 2,544,271 | | |
| 1,418,104 | |
| | |
| | | |
| | | |
| | |
| Deferred income tax expense (benefit): | |
| | | |
| | | |
| | |
| Temporary differences | |
| (163,513 | ) | |
| 617,328 | | |
| (126,932 | ) |
| Investment tax credit and tax losses carryforwards | |
| (804,231 | ) | |
| 81,621 | | |
| 67,992 | |
| | |
| (967,744 | ) | |
| 698,949 | | |
| (58,940 | ) |
| Total income tax expense | |
$ | 384,841 | | |
| 3,243,220 | | |
| 1,359,164 | |
| (b) | Income taxes expense (benefit) recognized directly in other comprehensive income for the years
ended December 31, 2015, 2014 and 2013 were as follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| |
(in thousands) |
| Items that will never be reclassified to profit or loss: | |
|
| Remeasurement of defined benefit obligation | |
$ | (681 | ) | |
| (622 | ) | |
| (467 | ) |
| Items that may or may not be reclassified subsequently to profit or loss: | |
| | | |
| | | |
| | |
| Foreign operations – foreign currency translation differences | |
$ | (16,050 | ) | |
| 86,211 | | |
| 76,097 | |
| (c) | Reconciliation of the expected income tax expense (benefit) calculated based on the ROC statutory
income tax rate compared with the actual income tax expense (benefit) as reported in the consolidated statements of comprehensive
income for the years ended December 31, 2015, 2014 and 2013, was as follows: |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
Rate | |
Amount | |
Rate | |
Amount | |
Rate | |
Amount |
| | |
| |
(in thousands) | |
| |
(in thousands) | |
| |
(in thousands) |
| Profit before income taxes | |
| | | |
$ | 7,598,850 | | |
| | | |
$ | 19,980,459 | | |
| | | |
$ | 5,236,028 | |
| Expected income tax expense | |
| 17.00 | % | |
| 1,291,804 | | |
| 17.00 | % | |
| 3,396,678 | | |
| 17.00 | % | |
| 890,125 | |
| Tax on repatriation of subsidiaries’ earnings | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2.06 | % | |
| 108,002 | |
| Effect of different subsidiaries income tax rate | |
| (41.13 | %) | |
| (3,125,405 | ) | |
| (8.21 | %) | |
| (1,640,097 | ) | |
| (8.38 | %) | |
| (438,738 | ) |
| Tax-exempt income | |
| - | | |
| (163 | ) | |
| (2.43 | %) | |
| (485,715 | ) | |
| - | | |
| - | |
| Effect of changes in statutory income tax rate | |
| 4.02 | % | |
| 305,312 | | |
| (0.47 | %) | |
| (94,076 | ) | |
| (1.45 | %) | |
| (75,763 | ) |
| Effect of change of unrecognized deductible temporary differences, tax losses carryforwards, and investment tax credits | |
| 24.15 | % | |
| 1,835,311 | | |
| (0.55 | %) | |
| (110,481 | ) | |
| 8.75 | % | |
| 458,390 | |
| Net of non-taxable income and non-deductible expense | |
| 0.78 | % | |
| 58,984 | | |
| 1.78 | % | |
| 356,613 | | |
| (2.47 | %) | |
| (129,316 | ) |
| Loss from domestic long-term investment | |
| 5.41 | % | |
| 411,293 | | |
| 2.46 | % | |
| 491,914 | | |
| 1.42 | % | |
| 74,377 | |
| Tax on undistributed retained earnings, net | |
| 6.82 | % | |
| 518,356 | | |
| 8.55 | % | |
| 1,708,860 | | |
| 7.19 | % | |
| 376,234 | |
| Adjustments to prior year | |
| (11.93 | %) | |
| (906,346 | ) | |
| (1.91 | %) | |
| (381,435 | ) | |
| 1.77 | % | |
| 92,565 | |
| Others | |
| (0.06 | %) | |
| (4,305 | ) | |
| - | | |
| 959 | | |
| 0.06 | % | |
| 3,288 | |
| Income tax expense | |
| | | |
$ | 384,841 | | |
| | | |
$ | 3,243,220 | | |
| | | |
$ | 1,359,164 | |
| Effective tax rate | |
| 5.06 | % | |
| | | |
| 16.23 | % | |
| | | |
| 25.96 | % | |
| | |
| (d) | The components of deferred tax assets and liabilities were as follows: |
| | |
Deferred tax assets | |
Deferred tax liabilities | |
Total |
| | |
December 31, 2015 | |
December 31, 2014 | |
December 31, 2015 | |
December 31, 2014 | |
December 31, 2015 | |
December 31, 2014 |
| | |
(in thousands) |
| Investment tax credits | |
$ | 859,300 | | |
| - | | |
| - | | |
| - | | |
| 859,300 | | |
| - | |
| Tax losses carryforwards | |
| 49,961 | | |
| 75,701 | | |
| - | | |
| - | | |
| 49,961 | | |
| 75,701 | |
| Unrealized loss and expenses | |
| 188,581 | | |
| 185,988 | | |
| (940 | ) | |
| (7,901 | ) | |
| 187,641 | | |
| 178,087 | |
| Temporary differences of revenue recognition between financial reporting and tax accounting | |
| - | | |
| 1,015 | | |
| (161 | ) | |
| - | | |
| (161 | ) | |
| 1,015 | |
| Inventories | |
| 22,848 | | |
| 8,777 | | |
| - | | |
| - | | |
| 22,848 | | |
| 8,777 | |
| Foreign investment losses (gains) under the equity method | |
| - | | |
| - | | |
| (1,174,733 | ) | |
| (1,263,537 | ) | |
| (1,174,733 | ) | |
| (1,263,537 | ) |
| Actuarial loss (gain) on defined benefit plans | |
| 2,798 | | |
| 2,117 | | |
| - | | |
| - | | |
| 2,798 | | |
| 2,117 | |
| Foreign operations – foreign currency translation differences | |
| - | | |
| - | | |
| (312,049 | ) | |
| (328,099 | ) | |
| (312,049 | ) | |
| (328,099 | ) |
| Unrealized gains on available -for-sale financial assets | |
| - | | |
| - | | |
| (903 | ) | |
| (908 | ) | |
| (903 | ) | |
| (908 | ) |
| Others | |
| 864,365 | | |
| 916,489 | | |
| (779,470 | ) | |
| (859,394 | ) | |
| 84,895 | | |
| 57,095 | |
| Deferred tax assets (liabilities) | |
$ | 1,987,853 | | |
| 1,190,087 | | |
| (2,268,256 | ) | |
| (2,459,839 | ) | |
| (280,403 | ) | |
| (1,269,752 | ) |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (e) | Changes in deferred tax assets and liabilities were as follows: |
| | |
January
1,
2014 | |
Recognized
in profit or
loss | |
Recognized
in other comprehensive income | |
Effect
of change
in consolidated entities, exchange rate and
others | |
December
31,
2014 | |
Recognized
in profit or
loss | |
Recognized
in other comprehensive income | |
Effect
of exchange
rate and
others | |
December
31,
2015 |
| (in thousands) |
| Investment
tax credits | |
$ | - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 829,972 | | |
| - | | |
| 29,328 | | |
| 859,300 | |
| Tax losses carryforwards | |
| 150,694 | | |
| (81,621 | ) | |
| - | | |
| 6,628 | | |
| 75,701 | | |
| (25,740 | ) | |
| - | | |
| - | | |
| 49,961 | |
| Unrealized loss and
expenses | |
| 137,396 | | |
| 36,391 | | |
| - | | |
| 4,300 | | |
| 178,087 | | |
| 10,088 | | |
| - | | |
| (534 | ) | |
| 187,641 | |
| Temporary differences
of revenue recognition between financial reporting and tax accounting | |
| 2,243 | | |
| (1,228 | ) | |
| - | | |
| - | | |
| 1,015 | | |
| (1,176 | ) | |
| - | | |
| - | | |
| (161 | ) |
| Inventories | |
| 3,264 | | |
| 2,076 | | |
| - | | |
| 3,437 | | |
| 8,777 | | |
| 14,071 | | |
| - | | |
| - | | |
| 22,848 | |
| Foreign investment losses
(gains) under the equity method | |
| (275,452 | ) | |
| (339,961 | ) | |
| - | | |
| (648,124 | ) | |
| (1,263,537 | ) | |
| 88,804 | | |
| - | | |
| - | | |
| (1,174,733 | ) |
| Actuarial loss (gain)
on defined benefit plans | |
| 1,496 | | |
| - | | |
| 622 | | |
| (1 | ) | |
| 2,117 | | |
| - | | |
| 681 | | |
| - | | |
| 2,798 | |
| Foreign operations -
foreign currency translation differences | |
| (90,722 | ) | |
| - | | |
| (86,211 | ) | |
| (151,166 | ) | |
| (328,099 | ) | |
| - | | |
| 16,050 | | |
| - | | |
| (312,049 | ) |
| Unrealized gains on
available-for-sale financial assets | |
| - | | |
| - | | |
| - | | |
| (908 | ) | |
| (908 | ) | |
| - | | |
| - | | |
| 5 | | |
| (903 | ) |
| Others | |
| 329,581 | | |
| (314,606 | ) | |
| - | | |
| 42,120 | | |
| 57,095 | | |
| 51,725 | | |
| - | | |
| (23,925 | ) | |
| 84,895 | |
| Total | |
$ | 258,500 | | |
| (698,949 | ) | |
| (85,589 | ) | |
| (743,714 | ) | |
| (1,269,752 | ) | |
| 967,744 | | |
| 16,731 | | |
| 4,874 | | |
| (280,403 | ) |
| |
(f) |
Unrecognized deferred tax assets and unrecognized deferred tax liabilities |
Deferred tax assets have not
been recognized in respect of the following items.
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Unused investment tax credits | |
$ | 67,490 | | |
| 1,549,053 | |
| Unused tax losses carryforwards | |
| 31,176,866 | | |
| 26,277,326 | |
| Goodwill | |
| 132,461 | | |
| 309,075 | |
| Inventories write-down | |
| 858,708 | | |
| 722,934 | |
| Difference in depreciation expense for tax and financial purposes | |
| 3,241,626 | | |
| 3,089,425 | |
| Others | |
| 7,094,603 | | |
| 6,752,499 | |
| | |
$ | 42,571,754 | | |
| 38,700,312 | |
The unused investment tax credits
with no expiration for the year ended December 31, 2015 from AUST and ACMK were $6,662 thousand and $60,828 thousand, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
As of December 31, 2015, the
expiration period for abovementioned unrecognized deferred tax assets of unused tax losses carryforwards were as follows:
| | |
Total | |
|
| Year | |
(in thousands) | |
Expiration in year |
| 2009 | |
$ | 3,788,664 | | |
2017 ~ 2019 |
| 2010 | |
| 693,568 | | |
2015 ~ 2019 |
| 2011 | |
| 9,503,265 | | |
2016 |
| 2012 | |
| 10,334,941 | | |
2017 ~ 2022 |
| 2013 | |
| 1,821,175 | | |
2017 ~ 2024 |
| 2014 | |
| 2,217,500 | | |
2019 ~ 2024 |
| 2015 | |
| 2,817,753 | | |
2020 ~ 2025 |
| | |
$ | 31,176,866 | | |
|
As of December 31, 2015 and
2014, the aggregate taxable temporary differences associated with investments in subsidiaries not unrecognized as deferred tax
liabilities amounted to $673,044 thousand and $259,926 thousand, respectively.
| (g) | Assessments by the tax authorities |
As of December 31, 2015, the
tax authorities had completed the examination of income tax returns of AUO through 2013.
| (h) | The integrated income tax system |
The balance of the imputation
credit account of AUO as of December 31, 2015 and 2014 was $4,025,832 thousand and $5,406,946 thousand, respectively.
The estimated and actual creditable
ratios for distribution of AUO’s earnings under Taiwan Financial Reporting Standards of 2015 and 2014 were 23.06% and 22.82%.
The imputation credit allocated
to shareholders is based on its balance as of the date of the dividend distribution. The estimated creditable ratio may change
when the actual distribution of the imputation credit is made.
With amendments of ROC Income
Tax Act in year 2015, tax creditable ratio for shareholders resident in Taiwan will be reduced by half for dividend distribution
after January 1, 2015.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (a) | Basic earnings per share for the years ended December 31, 2015, 2014 and 2013 were calculated as
follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands, except for per share data) |
| Profit attributable to AUO’s shareholders | |
$ | 7,242,170 | | |
| 16,366,629 | | |
| 3,804,142 | |
| Weighted-average number of common shares outstanding during the year: | |
| | | |
| | | |
| | |
| Issued common shares at beginning of year | |
| 9,624,245 | | |
| 9,624,245 | | |
| 8,827,046 | |
| Effect of ADSs issued in May 2013 | |
| - | | |
| - | | |
| 522,001 | |
| Weighted-average number of common shares (basic) | |
| 9,624,245 | | |
| 9,624,245 | | |
| 9,349,047 | |
| Basic earnings per share | |
$ | 0.75 | | |
| 1.70 | | |
| 0.41 | |
| (b) | Diluted earnings per share for the years ended December 31, 2015, 2014 and 2013 were calculated
as follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands, except for per share data) |
| Profit attributable to AUO’s shareholders | |
$ | 7,242,170 | | |
| 16,366,629 | | |
| 3,804,142 | |
| Effect of convertible bonds | |
| (340,686 | ) | |
| - | | |
| - | |
| Profit used in the computation of diluted earnings per share | |
| 6,901,484 | | |
| 16,366,629 | | |
| 3,804,142 | |
| Weighted-average number of common shares outstanding during the year (including the effect of dilutive potential common stock): | |
| | | |
| | | |
| | |
| Weighted-average number of common shares (basic) | |
| 9,624,245 | | |
| 9,624,245 | | |
| 9,349,047 | |
| Effect of employee stock bonus | |
| 67,731 | | |
| 74,138 | | |
| 61,881 | |
| Effect of convertible bonds | |
| 199,894 | | |
| - | | |
| - | |
| Weighted-average number of common shares (diluted) | |
| 9,891,870 | | |
| 9,698,383 | | |
| 9,410,928 | |
| Diluted earnings per share | |
$ | 0.70 | | |
| 1.69 | | |
| 0.40 | |
The ECB 4 was not taken into
above consideration for the calculation of diluted earnings per share for the years ended December 31, 2014 and 2013 due to its
anti-dilutive effect.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| 33. |
Financial Instruments |
| (1) | Fair value and carrying amount |
The carrying amount of the
Company’s non-derivative financial assets－current,
including cash and cash equivalents, receivables/payables (including related parties), other current financial assets, and short-term
borrowings, were considered to approximate their fair value due to their short-term nature. Except for aforementioned financial
instruments, the carrying amount and fair value of other financial instruments of the Company as of December 31, 2015 and 2014
were as follows:
| | |
December 31, 2015 | |
December 31, 2014 |
| | |
Carrying Amount | |
Fair Value | |
Carrying Amount | |
Fair Value |
| | |
(in thousands) |
| Financial assets: | |
| | | |
| | | |
| | | |
| | |
| Available-for-sale financial assets－noncurrent | |
$ | 2,148,141 | | |
| 2,148,141 | | |
| 77,724 | | |
| 77,724 | |
| Foreign currency forward contracts | |
| 214,194 | | |
| 214,194 | | |
| 133,412 | | |
| 133,412 | |
| Refundable deposits | |
| 128,727 | | |
| 128,727 | | |
| 132,170 | | |
| 132,170 | |
| | |
| | | |
| | | |
| | | |
| | |
| Financial liabilities: | |
| | | |
| | | |
| | | |
| | |
| Long-term borrowings (including current installments) | |
| 107,645,168 | | |
| 107,645,168 | | |
| 127,196,427 | | |
| 127,196,427 | |
| Convertible bonds payable | |
| - | | |
| - | | |
| 15,110,028 | | |
| 14,732,296 | |
| Foreign currency forward contracts | |
| 553,663 | | |
| 553,663 | | |
| 232,879 | | |
| 232,879 | |
| Interest rate swap contracts | |
| 10,739 | | |
| 10,739 | | |
| 7,093 | | |
| 7,093 | |
| Guarantee deposits received | |
| 913,804 | | |
| 913,804 | | |
| 807,593 | | |
| 807,593 | |
| (2) | Valuation techniques and assumptions applied in fair value measurement |
The fair values of financial
assets and financial liabilities with standard terms and conditions and traded in active markets are determined with reference
to quoted market prices. Except the aforementioned, the fair vales of other financial assets and financial liabilities are measured
using the generally accepted pricing models based on discounted cash flow analysis.
Descriptions of the valuation
methodologies, including the valuation techniques and the input(s) used in the fair value measurements for assets and liabilities
are discussed as follows:
The fair values of financial
assets which were publicly traded on active markets were determined with reference to quoted market prices.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Those non-publicly traded equity
securities which are included in available-for-sale financial assets, are determined using an analysis of various factors. These
factors include the private company’s current operating and future expected performance, as well as changes in the industry
and market prospects.
For derivative financial instruments
such as foreign currency forward contacts and interest rate swap contracts, fair values are estimated using industry standard valuation
models. These models use market-based observable inputs including interest rate curves, foreign exchange rates, and forward and
spot prices for currencies to project fair value.
The refundable deposits and
guarantee deposits received are based on carrying amount as there is no fixed maturity.
The fair value of long-term
borrowings and bonds payable is estimated based on the present value of future discounted cash flows. The discount rate adopted
by the Company is the rate of return of a similar financial instrument in the market; the factors include the debtors’ credit
rating and the remaining period for principal repayment, etc. As of December 31, 2015, the Company did not have any long-term borrowings
with fixed interest rates.
| (3) | Fair value measurements recognized in the consolidated statements of financial position |
The Company determines fair
value based on assumptions that market participants would use in pricing an asset or liability in the principal or most advantageous
market. When considering market participant assumptions in fair value measurements, the following fair value hierarchy distinguishes
between observable and unobservable inputs, which are categorized in one of the following levels:
| (i) | Level 1 inputs: Unadjusted quoted prices for identical assets or liabilities in active markets
accessible to the entity at the measurement date. |
| (ii) | Level 2 inputs: Other than quoted prices included in Level 1, inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full term of the asset or liability. |
| (iii) | Level 3 inputs: Unobservable inputs for the asset or liability used to measure fair value to the
extent that observable inputs are not available, thereby allowing for situations in which there is little, if any, market activity
for the asset or liability at the measurement date. |
The fair value measurement
level of an asset or liability within their fair value hierarchy is based on the lowest level of any input that is significant
to the fair value measurement. The Company uses valuation techniques that maximize the use of observable inputs and minimize the
use of unobservable inputs.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Financial assets and liabilities
measured at fair value on a recurring basis were as follows:
| | |
Level
1 | |
Level
2 | |
Level
3 | |
Total |
| | |
(in thousands) |
| December 31, 2015 | |
| | | |
| | | |
| | | |
| | |
| Assets: | |
| | | |
| | | |
| | | |
| | |
| Available-for-sale financial assets－noncurrent | |
$ | 2,077,203 | | |
| - | | |
| 70,938 | | |
| 2,148,141 | |
| Foreign currency forward contracts | |
| - | | |
| 214,194 | | |
| - | | |
| 214,194 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Foreign currency forward contracts | |
| - | | |
| 553,663 | | |
| - | | |
| 553,663 | |
| Interest rate swap contracts | |
| - | | |
| 10,739 | | |
| - | | |
| 10,739 | |
| | |
| | | |
| | | |
| | | |
| | |
| December 31, 2014 | |
| | | |
| | | |
| | | |
| | |
| Assets: | |
| | | |
| | | |
| | | |
| | |
| Available-for-sale financial assets－noncurrent | |
$ | 40,379 | | |
| - | | |
| 37,345 | | |
| 77,724 | |
| Foreign currency forward contracts | |
| - | | |
| 133,412 | | |
| - | | |
| 133,412 | |
| Liabilities: | |
| | | |
| | | |
| | | |
| | |
| Foreign currency forward contracts | |
| - | | |
| 232,879 | | |
| - | | |
| 232,879 | |
| Interest rate swap contracts | |
| - | | |
| 7,093 | | |
| - | | |
| 7,093 | |
There were no transfers between
Level 1 and 2 for the years ended December 31, 2015 and 2014.
| (4) | Reconciliation for recurring fair value measurements categorized within Level 3 |
Changes in Level 3 fair value
measurements for the years ended December 31, 2015, 2014 and 2013 were as follows:
| | |
Available-for-sale
financial assets
without quoted
market prices |
| | |
(in thousands) |
| Balance at January 1, 2013 | |
$ | 1,341,890 | |
| Net realized/unrealized gains included in: | |
| | |
| Profit or loss | |
| 282,558 | |
| Other comprehensive income | |
| - | |
| Purchases | |
| 209,478 | |
| Disposals | |
| (1,063,157 | ) |
| Transfer out (i) | |
| (349,799 | ) |
| Effect of change in exchange rate | |
| (120,251 | ) |
| Balance at December 31, 2013 | |
| 300,719 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
Available-for-sale
financial assets
without quoted
market prices |
| | |
(in thousands) |
| Net realized/unrealized gains included in: | |
| | |
| Profit or loss | |
| 868,742 | |
| Other comprehensive income | |
| - | |
| Purchases | |
| 1,681 | |
| Disposals | |
| (1,122,214 | ) |
| Effect of change in exchange rate | |
| (11,583 | ) |
| Balance at December 31, 2014 | |
| 37,345 | |
| Net realized/unrealized gains included in: | |
| | |
| Profit or loss | |
| 99,517 | |
| Other comprehensive income | |
| - | |
| Purchases | |
| 33,593 | |
| Disposals | |
| (99,517 | ) |
| Balance at December 31, 2015 | |
$ | 70,938 | |
| (i) | Investment in securities with a fair value of $353,836
thousand were transferred from Level 3 to Level 1 during the year of 2013 as a result of increased activity in the market for
securities that were not being actively traded in the prior year. |
| (ii) | Change in unrealized losses, which were included in profit or loss, relating to those available-for-sale
assets without quoted market prices held at December 31, 2015, 2014 and 2013 were nil, $107,494 thousand and $412,563 thousand,
respectively. |
| (5) | Description of valuation processes for fair value measurements categorized within Level 3 |
Fair value measurements of
assets and liabilities are determined using various valuation techniques, including the discounted cash flows and other valuation
models. As deemed necessary, the Company utilizes the assistance of external experts in performing the valuation and the development
of such valuation models, which include the analysis and comparison of model valuation results to market transactions and market
data. The Company’s management reviews the policy and procedures of fair value measurements annually, or more frequently
as deemed necessary. When a fair value measurement involves one or more significant inputs that are unobservable, the Company monitors
the valuation process discreetly and examines whether the inputs are used the most relevant market data available.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company holds certain non-publicly
listed stocks which are not traded in an active market. The Company reviews the current operating and future expected performance
of these private companies based on evaluation of the latest available financial statements, as well as changes in the industry
and market prospects based on publicly available information. An improvement (decline) in the operating and future expected performance
results in a higher (lower) fair value measurement. Generally, changes in the industry and market prospects are directionally consistent
with the changes in operating and future performance of the companies.
| 34. |
Financial Risk Management |
| (a) | Risk management framework |
The managerial officers of related
divisions are appointed to review, control, trace and monitor the strategic risks, financial risks and operational risks faced
by the Company. The managerial officers report to executive officers the progress of risk controls from time to time and, if necessary,
report to the Board of Directors, depending on the extent of impact of risks.
| (b) | Financial risk information |
Hereinafter discloses information
about the Company’s exposure to variable risks, and the goals, policies and procedures of the Company’s risk measurement
and risk management. See footnotes to the consolidated financial statements for the quantitative analysis of variable risks.
Credit
risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual
obligations. The Company’s exposures to credit risk are mainly from:
| (i) | The carrying amount of financial assets recognized in the consolidated statements of financial
position. |
| (ii) | The amount of contingent liabilities as a result from the Company providing financial guarantee
to its customers. |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company’s
potential credit risk is derived primarily from cash in bank, cash equivalents and trade receivables. The Company deposits its
cash and cash equivalent investments with various reputable financial institutions of high credit quality. The majority of these
financial institutions are located in the ROC. The Company also entered into reverse repurchase agreements with securities firms
or banks in Taiwan covering government and quasi-government bonds that classified as cash equivalents. There should be no major
concerns for the performance capability of trading counterparts. Management performs periodic evaluations of the relative credit
standing of these financial institutions and limits the amount of credit exposure with any one institution. Management believes
that there is a limited concentration of credit risk in cash and cash equivalent investments.
The majority
of the Company’s customers are in high technology industries. Management continuously evaluates and controls the credit quality,
credit limit and financial strength of its customers to ensure any overdue receivables are taken necessary procedures. The Company
also flexibly makes use of prepayments, accounts receivable factoring and credit insurance as credit enhancement instruments. If
necessary, the Company will request collaterals from its customers or invest in credit insurance.
Additionally,
on the reporting date, the Company reviews the recoverability of its receivables to provide appropriate valuation allowances. Consequently,
management believes there is a limited concentration of its credit risk.
For the
years ended December 31, 2015 and 2014, the Company’s five largest customers accounted for 36.5% and 33.4%, respectively,
of the Company’s consolidated net revenue. There is no other significant concentration of credit risk.
Refer to
note 9 for aging analysis of accounts receivable and the movement in the allowance of doubtful accounts receivable.
For credit
of guarantee, the Company’s policy is to provide financial guarantees only to wholly-owned subsidiaries.
Liquidity risk is the risk that
the Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by
delivering cash or another financial asset due to an economic downturn or unbalanced demand and supply resulting in a significant
drop in product prices. The Company’s approach to managing liquidity is to ensure, as far as possible, that it always have
sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Liquidity risk of the Company
is monitored through its corporate treasury department which tracks the development of the actual cash flow position for the Company
and uses input from a number of sources in order to forecast the overall liquidity position both on a short and long term basis.
Corporate treasury invests surplus cash in money market deposits with appropriate maturities to ensure sufficient liquidity is
available to meet liabilities when due, without incurring unacceptable losses or risking damage to the Company’s reputation.
The following, except for accounts
payable and equipment and construction payable, are the contractual maturities of other financial liabilities. The amounts include
estimated interest payments (except for short-term borrowings) but exclude the impact of netting agreements.
| | |
Contractual
cash flows | |
2016.1.1~ 2016.12.31 | |
2017.1.1~ 2018.12.31 | |
2019.1.1~ 2020.12.31 | |
2021
and thereafter |
| | |
(in thousands) |
| December 31, 2015 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Non-derivative financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
| Short-term borrowings | |
$ | 1,593,714 | | |
| 1,593,714 | | |
| - | | |
| - | | |
| - | |
| Long-term borrowings (including current installments) | |
| 111,672,765 | | |
| 40,803,750 | | |
| 52,961,785 | | |
| 17,812,457 | | |
| 94,773 | |
| Refundable deposits | |
| 913,804 | | |
| 109,831 | | |
| - | | |
| 2,554 | | |
| 801,419 | |
| Derivative financial instruments | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign currency forward contracts－inflows | |
| (28,576,545 | ) | |
| (28,576,545 | ) | |
| - | | |
| - | | |
| - | |
| Foreign currency forward contracts－outflows | |
| 28,857,477 | | |
| 28,857,477 | | |
| - | | |
| - | | |
| - | |
| Interest rate swap contracts | |
| 9,227 | | |
| 6,975 | | |
| 2,252 | | |
| - | | |
| - | |
| | |
$ | 114,470,442 | | |
| 42,795,202 | | |
| 52,964,037 | | |
| 17,815,011 | | |
| 896,192 | |
| | |
Contractual
cash flows | |
2015.1.1~ 2015.12.31 | |
2016.1.1~ 2017.12.31 | |
2018.1.1~ 2019.12.31 | |
2020
and thereafter |
| | |
(in thousands) |
| December 31, 2014 | |
| | | |
| | | |
| | | |
| | | |
| | |
| Non-derivative financial liabilities | |
| | | |
| | | |
| | | |
| | | |
| | |
| Short-term borrowings | |
$ | 381,322 | | |
| 381,322 | | |
| - | | |
| - | | |
| - | |
| Convertible bonds payable | |
| 15,532,015 | | |
| 15,532,015 | | |
| - | | |
| - | | |
| - | |
| Long-term borrowings (including current installments) | |
| 131,971,590 | | |
| 43,779,619 | | |
| 69,419,753 | | |
| 18,772,218 | | |
| - | |
| Refundable deposits | |
| 807,593 | | |
| 35,934 | | |
| 3,394 | | |
| - | | |
| 768,265 | |
| Derivative financial instruments | |
| | | |
| | | |
| | | |
| | | |
| | |
| Foreign currency forward contracts－inflows | |
| (22,612,172 | ) | |
| (22,612,172 | ) | |
| - | | |
| - | | |
| - | |
| Foreign currency forward contracts－outflows | |
| 22,750,934 | | |
| 22,750,934 | | |
| - | | |
| - | | |
| - | |
| Interest rate swap contracts | |
| 13,745 | | |
| 7,105 | | |
| 6,640 | | |
| - | | |
| - | |
| | |
$ | 148,845,027 | | |
| 59,874,757 | | |
| 69,429,787 | | |
| 18,772,218 | | |
| 768,265 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company is not expecting
that the cash flows included in the maturity analysis could occur significantly earlier or at significantly different amounts.
As of December 31, 2015, the
Company’s total current assets exceeded its total current liabilities by $20,124,395 thousand. Management believes the Company’s
existing unused credit facilities under its existing loan agreements, together with net cash flows expected to be generated from
its operating activities, will be sufficient for the Company to fulfill its payment obligations over the next twelve months. Therefore,
management believes that the Company does not have significant liquidity risk.
Market risk is the risk that
changes in market prices, such as foreign exchange rates, interest rates and equity prices, which will affect the Company’s
income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control
market risk exposures within acceptable parameters, while optimizing the return.
The Company buys and sells derivatives,
and also incurs financial liabilities, in order to manage market risks. All such transactions are executed in accordance with the
Company’s handling procedures for conducting derivative transactions, and also monitored by internal audit department.
The Company is exposed to currency
risk on foreign currency denominated financial assets and liabilities arising from operating, financing and investing activities
such that the Company uses forward exchange contracts to hedge its currency risk. Gains and losses derived from the foreign currency
fluctuations on underlying assets and liabilities are likely to offset. However, transactions of derivative financial instruments
help minimize the impact of foreign currency fluctuations, but the risk cannot be fully eliminated.
The Company periodically examines
portions exposed to currency risks for individual asset and liability denominated in foreign currency and uses forward contracts
as hedging instruments to hedge positions exposed to risks. The contracts have maturity dates that do not exceed six months, and
do not meet the criteria for hedge accounting.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| A. | The Company’s significant exposure to foreign currency risk was as follows: |
| | |
Foreign currency amounts | |
Exchange
rate | |
NTD |
| | |
(in thousands) | |
| |
(in thousands) |
| December 31, 2015 | |
| | | |
| | | |
| | |
| Financial assets | |
| | | |
| | | |
| | |
| Monetary items | |
| | | |
| | | |
| | |
| USD | |
$ | 1,773,639 | | |
| 33.05 | | |
| 58,618,769 | |
| JPY | |
| 42,093,750 | | |
| 0.2743 | | |
| 11,546,316 | |
| EUR | |
| 69,627 | | |
| 36.12 | | |
| 2,514,927 | |
| Financial liabilities | |
| | | |
| | | |
| | |
| Monetary items | |
| | | |
| | | |
| | |
| USD | |
| 769,280 | | |
| 33.05 | | |
| 25,424,704 | |
| JPY | |
| 27,607,729 | | |
| 0.2743 | | |
| 7,572,800 | |
| EUR | |
| 1,274 | | |
| 36.12 | | |
| 46,017 | |
| | |
| | | |
| | | |
| | |
| December 31, 2014 | |
| | | |
| | | |
| | |
| Financial assets | |
| | | |
| | | |
| | |
| Monetary items | |
| | | |
| | | |
| | |
| USD | |
$ | 2,510,720 | | |
| 31.766 | | |
| 79,755,532 | |
| JPY | |
| 19,505,484 | | |
| 0.2659 | | |
| 5,186,508 | |
| EUR | |
| 103,979 | | |
| 38.615 | | |
| 4,015,149 | |
| Financial liabilities | |
| | | |
| | | |
| | |
| Monetary items | |
| | | |
| | | |
| | |
| USD | |
| 1,401,660 | | |
| 31.766 | | |
| 44,525,132 | |
| JPY | |
| 31,528,747 | | |
| 0.2659 | | |
| 8,383,494 | |
| EUR | |
| 407 | | |
| 38.615 | | |
| 15,716 | |
The Company’s exposure
to foreign currency risk arises from the translation of the foreign currency exchange gains and losses on cash and cash equivalents,
trade and other receivables, convertible bonds payables, loans and borrowings and trade and other payables that are denominated
in foreign currency.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Depreciation or appreciation
of the NTD by 1% against the USD, EUR and the JPY at December 31, 2015 and 2014, while all other variables were remained constant,
would have increased or decreased the net profit before tax for the years ended December 31, 2015 and 2014 as follows:
| | |
For the years ended December
31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| 1% of depreciation | |
$ | 396,365 | | |
| 360,328 | |
| 1% of appreciation | |
| (396,365 | ) | |
| (360,328 | ) |
| C. | Foreign exchange gain (loss) on monetary items |
With varieties of functional
currencies within the consolidated entities of the Company, the Company disclosed foreign exchange gain (loss) on monetary items
in aggregate. The aggregate of realized and unrealized foreign exchange gains for the years ended December 31, 2015 and 2014 were
$537,248 thousand and $853,552 thousand, respectively.
The Company’s exposure
to changes in interest rates is mainly from floating-rate long-term debt obligations. Any change in interest rates will cause the
effective interest rates of long-term borrowings to change and thus cause the future cash flows to fluctuate over time. The Company
enters into and designates interest rate swaps as hedges of the variability in cash flows attributable to interest rate risk.
Assuming the amount of floating-rate
debts at the end of the reporting period had been outstanding for the entire year and all other variables were remained constant,
an increase or a decrease in the interest rate by 0.25% would have resulted in a decrease or an increase in the net profit before
tax for the years ended December 31, 2015 and 2014 by $262,936 thousand and $308,184 thousand, respectively.
See note 8 for disclosure of
equity price risk analysis.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Through clear understanding
and managing of significant changes in external environment, related industry characteristics, and corporate growth plan, the Company
manages its capital to ensure it has sufficient financial resources to maintain proper working capital, to invest in capital expenditures
and research and development expenses, to repay debts and to distribute dividends in accordance to its plan. The management determines
the most suitable capital in terms of maintaining proper financial ratios as below. To sustain strong capital base, the Company
improves the returns of its shareholders by applying most appropriate debt-to-equity ratio.
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Total liabilities | |
$ | 218,576,058 | | |
| 268,357,388 | |
| Total equity | |
| 180,661,073 | | |
| 173,986,932 | |
| Interest-bearing debts | |
| 109,238,882 | | |
| 142,687,777 | |
| Debt-to-equity ratio | |
| 121 | % | |
| 154 | % |
| Interest-bearing debt-to-equity ratio | |
| 60 | % | |
| 82 | % |
| Net debt-to-equity ratio(1) | |
| 17 | % | |
| 35 | % |
| (1) | Net debt-to-equity ratio is defined as interest-bearing
debts less cash and cash equivalents divided by total equity. |
| 36. |
Related-party Transactions |
AUO is the ultimate parent
company of the Company’s subsidiaries. All significant inter-company transactions, income, expenses and balances are eliminated
in the consolidated financial statements and are not disclosed in the note. The significant related party transactions were as
follows:
| (a) | Compensation to key management personnel |
Key management personnel’s
compensation comprised:
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Short-term employee benefits | |
$ | 365,310 | | |
| 366,698 | | |
| 232,064 | |
| Post-employment benefit | |
| 2,168 | | |
| 3,064 | | |
| 3,062 | |
| | |
$ | 367,478 | | |
| 369,762 | | |
| 235,126 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (b) | Except as disclosed in the consolidated financial statements and other notes, the significant related
party transactions were as follows: |
| | |
Sales | |
Accounts receivable from related parties |
| | |
For the years ended December 31, | |
December 31, |
| | |
2015 | |
2014 | |
2013 | |
2015 | |
2014 |
| | |
(in thousands) |
| Associates(1) | |
$ | 8,745,681 | | |
| 18,187,621 | | |
| 28,397,655 | | |
| 37,233 | | |
| 3,252,973 | |
| Joint ventures | |
| 5,453,152 | | |
| 4,484,111 | | |
| 4,116,521 | | |
| 434,978 | | |
| 360,551 | |
| Others(1) | |
| 6,005,175 | | |
| - | | |
| - | | |
| 2,020,268 | | |
| - | |
| | |
$ | 20,204,008 | | |
| 22,671,732 | | |
| 32,514,176 | | |
| 2,492,479 | | |
| 3,613,524 | |
The collection terms for sales
to related parties were month-end 30 to 55 days. The pricing and other terms for sales to related parties were not materially different
from those with third parties.
| | |
Purchases | |
Accounts
payable to related
parties |
| | |
For
the years ended December 31, | |
December
31, |
| | |
2015 | |
2014 | |
2013 | |
2015 | |
2014 |
| | |
(in thousands) |
| Associates(1) | |
$ | 19,563,609 | | |
| 42,772,402 | | |
| 53,673,936 | | |
| 4,089,418 | | |
| 11,144,578 | |
| Joint ventures | |
| 4,786,344 | | |
| 2,854,654 | | |
| 730,107 | | |
| 373,151 | | |
| 319,363 | |
| Others(1) | |
| 10,587,095 | | |
| - | | |
| - | | |
| 4,863,602 | | |
| - | |
| | |
$ | 34,937,048 | | |
| 45,627,056 | | |
| 54,404,043 | | |
| 9,326,171 | | |
| 11,463,941 | |
The payment terms for purchases
from related parties were 30 to 120 days. The pricing and payment terms with related parties were not materially different from
those with third parties.
| (3) | Acquisition of property, plant and equipment |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | 368,171 | | |
| 5,910 | | |
| 8,355 | |
| Others(1) | |
| 326 | | |
| - | | |
| - | |
| | |
$ | 368,497 | | |
| 5,910 | | |
| 8,355 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| |
(4) |
Disposal of property, plant and equipment and others (including investment properties) |
| | |
Proceeds from disposal |
| | |
For the years ended December
31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | - | | |
| 1,063,112 | | |
| 39,182 | |
| Joint ventures | |
| 8 | | |
| - | | |
| - | |
| Others(1) | |
| 1,790 | | |
| - | | |
| - | |
| | |
$ | 1,798 | | |
| 1,063,112 | | |
| 39,182 | |
| | |
Gains on disposal |
| | |
For the years ended December
31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | - | | |
| 280,365 | | |
| 8,014 | |
| Joint ventures | |
| 8 | | |
| - | | |
| - | |
| Others(1) | |
| 36 | | |
| - | | |
| - | |
| | |
$ | 44 | | |
| 280,365 | | |
| 8,014 | |
For disposal of property, plant
and equipment to related parties, the collection term was 30 to 45 days and the pricing for sales to related parties was determined
with reference to the quoted market prices.
| (5) | Other related party transactions |
| | |
Other receivables due from related parties |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Associates(1) | |
$ | 7,429 | | |
| 53,249 | |
| Joint ventures | |
| 3,701 | | |
| 3,696 | |
| Others(1) | |
| 16,828 | | |
| - | |
| | |
$ | 27,958 | | |
| 56,945 | |
| | |
Other payables due to related parties |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Associates(1) | |
$ | 7,875 | | |
| 56,902 | |
| Joint ventures | |
| 1,639 | | |
| - | |
| Others(1) | |
| 19,500 | | |
| - | |
| | |
$ | 29,014 | | |
| 56,902 | |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
Rental income |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | 61,159 | | |
| 138,676 | | |
| 142,130 | |
| Joint ventures | |
| 6,659 | | |
| 1,701 | | |
| - | |
| Others(1) | |
| 47,271 | | |
| - | | |
| - | |
| | |
$ | 115,089 | | |
| 140,377 | | |
| 142,130 | |
| | |
Administration and other income |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | 21,132 | | |
| 17,891 | | |
| 16,815 | |
| Joint ventures | |
| 11,538 | | |
| 10,555 | | |
| 16,291 | |
| Others(1) | |
| 2,889 | | |
| - | | |
| - | |
| | |
$ | 35,559 | | |
| 28,446 | | |
| 33,106 | |
| | |
Rental and other expenses |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Associates(1) | |
$ | 104,415 | | |
| 259,059 | | |
| 309,381 | |
| Joint ventures | |
| 1,168 | | |
| 3 | | |
| - | |
| Others(1) | |
| 40,546 | | |
| - | | |
| - | |
| | |
$ | 146,129 | | |
| 259,062 | | |
| 309,381 | |
| (1) | In May 2015, the Company ceased having significant influence over Qisda, as such Qisda was no longer
an associate. However, Qisda and its subsidiaries still remained as a related party and the related transaction amounts starting
from June 2015 are included in the “Others” category. |
The Company leased portion of
its facilities to related parties. The collection term was 15 days from quarter-end, and the pricing was not materially different
from that with unrelated parties.
For the years ended December
31, 2015, 2014 and 2013, the Company had received cash dividends from associates of $380,433 thousand, $321,233 thousand and $230,447
thousand, respectively.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| | |
| |
December 31, |
| Pledged assets | |
Pledged to secure | |
2015 | |
2014 |
| | |
| |
(in thousands) |
| Restricted cash in banks (classified as other financial assets)(i) | |
R&D projects, oil purchases and guarantees for foreign labors and customs duties | |
$ | 56,453 | | |
| 283,773 | |
Land and building (including investment property) | |
Long-term borrowings | |
| 69,268,103 | | |
| 72,299,601 | |
| Machinery, equipment and prepayments for equipment | |
Long-term borrowings | |
| 35,722,519 | | |
| 58,285,716 | |
| | |
| |
$ | 105,047,075 | | |
| 130,869,090 | |
(i) Other
financial assets are classified as current or noncurrent by its liquidity.
| 38. |
Contingent Liabilities and Commitments |
The commitments and contingencies
of the Company as of December 31, 2015, in addition to those disclosed in other notes to the consolidated financial statements,
were as follows:
| (a) | Outstanding letters of credit |
As of December 31, 2015, the
Company had the following outstanding letters of credit for the purpose of purchasing machinery and equipment and materials:
| Currency | |
December 31, 2015 |
| | |
(in thousands) |
| | |
|
| USD | |
| 7,517 | |
| JPY | |
| 7,191,661 | |
| EUR | |
| 1,380 | |
The letters of credit are irrevocable
and will expire upon the Company’s payment of the related obligations.
| (b) | Technology licensing agreements |
Starting 1998, AUO has entered
into technical collaboration, patent licensing, and/or patent cross licensing agreements with Fujitsu Display Technologies Corp.
(subsequently assumed by Fujitsu Limited), Toppan Printing Co., Ltd. (“Toppan Printing”), Semiconductor Energy Laboratory
Co., Ltd., Japan Display Inc. (formerly Japan Display East Inc./Hitachi Displays, Ltd.), Panasonic Liquid Crystal Display Co.,
Ltd. (formerly IPS Alpha Technology Ltd.), Toshiba Mobile Display Co., Ltd., LG Display Co., Ltd., Sharp Corporation, Samsung Electronics
Co., Ltd., Hydis Technologies Co., Ltd., E Ink Holdings Inc., Seiko Epson Corporation and others. AUO also entered into a trademark
licensing agreement with BenQ Corporation, which granted AUO a non-exclusive trademark license for the develop, market and sell of solar products and
services. The Company believes that it is in compliance with the terms and conditions of the aforementioned agreements.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
In April 2011, AUO signed a
long-term materials supply agreement with Korean OCI Company Ltd. (“OCI”), under which, AUO and OCI agreed on the supply
of certain polysilicon. Purchase prices were determined and adjusted through negotiation on each order basis between both parties.
AUO paid proportionate prepayments in three installments to OCI in 2011. In May 2015, the supply agreement was amended and the
amended effective term is from April 15, 2011 to December 31, 2020.
Starting from 2006, DPTW has
entered into a long-term materials supply agreement with Evonik Forhouse Optical Polymers Corp. (“EFOP”), under which,
DPTW and EFOP agreed on the supply of certain optical-grade molding compounds at negotiated prices and quantities.
As of December 31, 2015, significant
outstanding purchase commitments for construction in progress, property, plant and equipment totaled $41,720,915 thousand.
| (1) | Alleged patent infringements |
In April 2011, Eidos Display,
LLC and Eidos III, LLC (together “Eidos”) filed a lawsuit in the Eastern Texas Court against AUO, AUUS and other Taiwanese
TFT-LCD manufacturers, claiming infringement of certain of Eidos’ patents in the United States. Eidos is seeking, among other
things, unspecified monetary damages for past infringement and an injunction against future infringement. In December 2013, the
magistrate granted summary judgment to invalidate Eidos’ patents and such summary judgment has been confirmed by the trial
judge in January 2014. Eidos lodged an appeal in February 2014. In March 2015, the United States Court of Appeals for the Federal
Circuit reversed the district court’s grant of summary judgment and remanded to the district court for further proceedings.
In December 2015, the lawsuit was dismissed with prejudice pursuant to a resolution reached between Eidos and AUO.
| (2) | Investigation for alleged violation of antitrust and competition laws |
AUO and certain of its subsidiaries,
along with various competitors in the TFT-LCD industry, are under investigation for alleged violation of antitrust and competition
laws of certain jurisdictions. Since December 2006, AUO and certain of its overseas subsidiaries have become involved in antitrust
investigations including but not limited by the U.S. DOJ, the European Commission Directorate-General for Competition (the “DG
COMP”) and the Secretariat of Economic Law of Brazil concerning the allegations of price fixing by manufacturers of TFT-LCD
panels. Set forth below is a list of the material antitrust proceedings against AUO and certain of its subsidiaries.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
United
States
In June 2010, AUO, AUUS and certain
of its current and former officers and employees were indicted in the Northern California Court for alleged violations of Section
1 of the Sherman Act. In March 2012, a jury delivered a guilty verdict against AUO and AUUS. In September 2012, the Northern California
Court rendered judgment against AUO and AUUS regarding the antitrust matter and imposed a fine of US$500 million against AUO to
be payable over 3 years and did not impose any fine against AUUS. AUO paid the first three installments each in the amount of US$125
million in January 2013, September 2013 and September 2014. AUO paid the last installment in the amount of US$125 million in September
2015. The Northern California Court placed AUO and AUUS on probation for three years, ordered AUO and AUUS to publish the conviction
and fine in three major trade publications in the U.S., as well as assigning a monitor and required AUO and AUUS to adopt an effective
antitrust compliance program. Pursuant to an agreement reached between the U.S. DOJ, AUO and AUUS
in 2015, the probation period and the monitorship was extended to approximately 15 months until the end of 2016. AUO and
AUUS appealed the district court’s criminal judgment to the Ninth Circuit, which upheld the judgment in July 2014. Following
further petition, the Ninth Circuit amended its opinion while reaffirmed the district court’s judgment in January 2015. In
March 2015, AUO and AUUS filed a petition for a writ of certiorari to the Supreme Court of the United States, and the petition
was denied in June 2015.
Europe
In November 2011, the DG COMP
advised AUO that they had begun an investigation of competitor contact regarding small size panels during 1998 to 2006. In December
2015, AUO was advised by DG COMP that it was not its intention at present to continue with this investigation.
Brazil
AUO received requests from the
Secretariat of Economic Law of Brazil for information regarding their investigations and have cooperated with Conselho Administrativa
de Defesa Economica ("CADE”), Brazil’s competition agency, in connection therewith. In December 2015, the tribunal
of CADE approved a settlement reached by CADE and AUO. AUO paid CADE 16.7 million Brazilian Reals in February 2016 pursuant to
the settlement agreement.
| (3) | Antitrust civil actions lawsuits in the United States and other jurisdictions |
There are also over 100 civil
lawsuits filed against AUO and AUUS in the United States and other jurisdictions alleging, among other things, antitrust violations.
The putative antitrust class actions filed in the United States have been consolidated for discovery in the United States District
Court for the Northern District of California. In the amended consolidated complaints, the plaintiffs sought, among other things,
unspecified monetary damages and an enjoinment from the alleged antitrust conspiracy.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Court has issued an order
certifying two types of classes that may proceed against AUO and other TFT-LCD companies: direct purchasers and indirect purchasers.
AUO
and AUUS have reached a settlement agreement with: (i) the direct purchaser plaintiffs (“DPP”) for a payment of US$38
million by AUO, and (ii) the indirect purchaser plaintiffs (“IPP”) and the state attorneys general of eight states,
namely Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia and Wisconsin, for a payment of US$161.5 million
by AUO and for an additional aggregate payment of US$8.5 million to the eight settling states. The DPP and IPP settlements have
obtained final approval by the Northern California Court. AUO has fully recognized the costs in its consolidated financial statements
by the second quarter of 2012 and paid these settlement amounts in 2012 and 2013.
Since
2009, AT&T Corp and its affiliates (collectively, “AT&T”), AASI, ABC Warehouse,
Best Buy, Circuit City, CompuCom Systems, Inc., CompUSA, Costco Wholesale Corporation (“Costco”), Dell, Electrograph,
HP, Home Depot, Interbond (Brandsmart), Kmart Corporation (“Kmart”), Kodak, MARTA, MetroPCS, Motorola, Inc. (“Motorola”),
NECO Alliance, Nokia Corporation (“Nokia”), Office
Depot, P.C. Richard et al., Proview, RadioShack, Sears, SB Trust, Sony, Target Corp., Tracfone, TechData Corporation, T Mobile,
Tweeter, Viewsonic, Wal-Mart and
other various business entities, filed civil lawsuits against a number of LCD manufacturers including AUO in the United States
and, in the case of Nokia and Sony, in both the United States and the United Kingdom, claiming among other things, unspecified
monetary damages and an enjoinment from the alleged antitrust conspiracy. As to the case with Motorola, the United
States District Court for the Northern District of Illinois Eastern Division granted summary judgment in favor of the defendants
and the Seventh Circuit affirmed the summary judgment in favor of the defendants. Motorola filed a petition for certiorari to the
United States Supreme Court, which was denied in June 2015. Except Costco, since 2012, AUO and its subsidiaries have reached settlement
agreements with the above mentioned companies, respectively. The case with Costco went for
trial in September 2014. The jury’s verdict in favor of the plaintiff was received on October 24, 2014. A provision has been
recorded by AUO based on the Company’s accounting policy. Judgment has been entered. In March 2016, the court has ruled upon
and denied all post trial motions. AUO, AUUS, co-defendants LG Display and LG Display America have filed a Notice of Appeal.
The briefing schedule for the appeal is not yet set.
Since August 2010, a number of
states in the U.S., such as New York State, Illinois State, Florida State, Oregon State, Wisconsin State, Missouri State, Arkansas
State, Michigan State, Washington State, West Virginia State, California State, South Carolina State, Mississippi State and Oklahoma
State also filed lawsuits against a number of LCD manufacturers including AUO. Since 2012, AUO and AUUS have settled with the states
of Arkansas, California, Florida, Michigan, Missouri, New York, West Virginia, Wisconsin, Oklahoma, Mississippi, Oregon, Washington
and South Carolina. AUO has retained counsel to handle the related matter for the litigation with the remaining state.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Another lawsuit was filed by certain
consumers in Israel against certain LCD manufacturers including AUO in the District Court of the Central District in Israel (“Israeli
Court”). The defendants contested various issues including whether the lawsuit was properly served. In March 2016, the
Israeli Court issued an order stating that the case may proceed in Israel. AUO is considering whether to appeal the Israeli
Court’s decision.
The ultimate outcome of these
matters is uncertain and will depend on further court proceedings.
| | In July and August of 2014, SunPower Technology, Ltd. (“SPTL”), AUO and AUSG (“AUO”)
submitted certain disputes for arbitration in the International Court of Arbitration of the International Chamber of Commerce in
San Francisco, U.S. in connection with the joint venture agreement among the parties. AUO is seeking, among other things, a declaration
that SPTL has breached the joint venture agreement, entitling AUO to the right to sell its shares in the joint venture under certain
terms and conditions, monetary damages, and fees and costs. SPTL is seeking, among other things, a declaration that AUO has breached
the joint venture agreement, entitling SPTL to the right to purchase AUO’s shares in the joint venture under certain terms
and conditions, monetary damages, and fees and costs. The case is proceeding to arbitration; no hearing date is presently set.
We intend to vigorously pursue our claims and defend against SPTL’s claims. At this stage, the final outcome of this matter
is uncertain, and the amount of possible loss, if any, is currently not estimable. Management is reviewing the merits of this matter
on an on-going basis. |
In addition to the matters described
above, the Company is also a party to other litigations or proceedings that arise during the ordinary course of business. Except
as mentioned above, the Company, to its knowledge, is not involved as a defendant in any material litigation or proceeding which
could be expected to have a material adverse effect on the Company’s business or results of operations.
The Company has made certain provisions
with respect to certain of the above lawsuits as the management deems appropriate, considering factors such as the nature of the
litigation or claims, the materiality of the amount of possible loss, the progress of the cases and the opinions or views of legal
counsel and other advisors. However, for certain cases described above where the legal proceedings and/or lawsuits are in their
early stage or where management does not have sufficient information for assessment of the financial exposure, management is unable
to determine if the final outcome of the cases will be unfavorable to the Company and/or to estimate the potential losses. The
ultimate resolution of the legal proceedings and/or lawsuits cannot be predicted with certainty. While management intends to defend
certain of the lawsuits described above vigorously, there is a possibility that one or more legal proceedings or lawsuits may result
in an unfavorable outcome to the Company.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Management will reassess all litigation
and claims at each reporting date based on the facts and circumstances that exist at that time, and will make additional provisions
or adjustments to previous provisions, as considered necessary under IFRS. Such additional provisions or adjustments may have a
material adverse effect on the Company’s business, results of operations and future prospects. See note 20 for further information
about legal provisions and the movements in those legal provisions.
Since 2006, M.Setek entered
into long-term sales agreements with five customers. The agreements provide that, from 2006 to 2015, M.Setek will sell certain
silicon materials or wafers to these customers at certain quantities and prices, with the proportionate installment prepayments
made to M.Setek. As of December 31, 2015, the remaining unearned revenue amounted to US$49,753 thousand (equivalent to $1,644,337
thousand).
There have been
environmental proceedings relating to the development project of the Central Taiwan Science Park in Houli, Taichung, which AUO’s
second 8.5-generation fab is located at and which has been established since 2010. The proceedings were initiated by six residents
in Houli District, Taichung City (the “Plaintiffs”) to object the administrative dispositions of the environmental
assessment and development approval issued in 2010 by the Environmental Protection Administration of the Executive Yuan of Taiwan
to the third phrase development area in the Central Taiwan Science Park (the “Project”). On August 8, 2014, the Plaintiffs
reached a settlement with the defendants (i.e. the governmental authorities, including the Environmental Protection Administration
of the Executive Yuan of Taiwan, the Ministry of Science and Technology (former National Science Council of the ROC Executive Yuan)
and the Central Taiwan Science Park Development Office) in the Taipei High Administrative Court. The second phase environmental
impact assessment for the Project continues to proceed. Primarily in light of the settlement and based on the principle of protection
of reliance under the Administrative law and in light of the relevant approvals issued by the government to the Company, currently
management does not believe that this event will have a material adverse effect on the Company’s operation and will continue
to monitor the development of this event.
| 39. | Segment, Geographic and Revenue Information |
| (a) | Operating segment information |
The Company has two operating
segments: display and solar. The display segment generally is engaged in the design, development, production, assembly and marketing
flat panel displays and most of our products are TFT-LCD panels. The solar segment primarily is engaged in the design, manufacturing
and sale of single crystal silicon wafers, ingots and solar modules, as well as providing technical engineering services in solar
business.
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
The Company’s operating
segment information for the years ended December 31, 2015, 2014 and 2013 was as follows:
| | |
For the year ended December 31,
2015 |
| | |
Display | |
Solar | |
Total
segments |
| | |
(in thousands) |
| Net revenue from external
customers | |
$ | 333,392,294 | | |
| 26,954,200 | | |
| 360,346,494 | |
| Depreciation and amortization | |
$ | 44,790,075 | | |
| 2,955,774 | | |
| 47,745,849 | |
| Inventory write-down | |
$ | 5,607,166 | | |
| 54,100 | | |
| 5,661,266 | |
| Segment
profit (loss) (1) | |
$ | 19,225,952 | | |
| (1,704,804 | ) | |
| 17,521,148 | |
| Other income | |
| | | |
| | | |
| 2,197,593 | |
| Other gains and losses | |
| | | |
| | | |
| (9,978,320 | ) |
| Finance costs | |
| | | |
| | | |
| (2,591,023 | ) |
| Share of profit of equity-accounted
investees | |
| | | |
| | | |
| 449,452 | |
| Consolidated profit before income
tax | |
| | | |
| | | |
$ | 7,598,850 | |
| | |
For the year ended December 31, 2014 |
| | |
Display | |
Solar | |
Total
segments |
| | |
(in thousands) |
| Net revenue from external customers | |
$ | 384,335,201 | | |
| 23,843,549 | | |
| 408,178,750 | |
| Depreciation and amortization | |
$ | 53,151,352 | | |
| 3,751,376 | | |
| 56,902,728 | |
| Inventory write-down | |
$ | 4,678,921 | | |
| 52,398 | | |
| 4,731,319 | |
| Segment profit (loss) (1) | |
$ | 24,422,504 | | |
| (2,257,081 | ) | |
| 22,165,423 | |
| Other income | |
| | | |
| | | |
| 2,162,107 | |
| Other gains and losses | |
| | | |
| | | |
| (801,803 | ) |
| Finance costs | |
| | | |
| | | |
| (4,045,133 | ) |
| Share of profit of equity-accounted investees | |
| | | |
| | | |
| 499,865 | |
| Consolidated profit before income tax | |
| | | |
| | | |
$ | 19,980,459 | |
| | |
For the year ended December 31,
2013 |
| | |
Display | |
Solar | |
Total
segments |
| | |
(in thousands) |
| Net revenue from external customers | |
$ | 398,836,176 | | |
| 17,526,829 | | |
| 416,363,005 | |
| Depreciation and amortization | |
$ | 59,650,081 | | |
| 3,987,666 | | |
| 63,637,747 | |
| Inventory write-down | |
$ | 5,051,554 | | |
| 54,977 | | |
| 5,106,531 | |
| Segment profit (loss) (1) | |
$ | 12,017,876 | | |
| (3,725,355 | ) | |
| 8,292,521 | |
| Other income | |
| | | |
| | | |
| 2,448,464 | |
| Other gains and losses | |
| | | |
| | | |
| (1,176,393 | ) |
| Finance costs | |
| | | |
| | | |
| (4,782,832 | ) |
| Share of profit of equity-accounted investees | |
| | | |
| | | |
| 454,268 | |
| Consolidated profit before income tax | |
| | | |
| | | |
$ | 5,236,028 | |
| (1) | There were no intersegment revenues or other transactions between operating segments for the years
ended December 31, 2015, 2014 and 2013. |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (b) | Geographic information |
The geographic breakdown for
the years ended December 31, 2015, 2014 and 2013 was as follows:
| | |
For the years ended December
31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| PRC | |
$ | 123,476,526 | | |
| 135,102,406 | | |
| 141,951,316 | |
| Taiwan | |
| 119,626,443 | | |
| 135,420,498 | | |
| 143,549,414 | |
| Japan | |
| 37,903,886 | | |
| 37,410,376 | | |
| 42,562,624 | |
| Singapore | |
| 30,210,618 | | |
| 34,237,681 | | |
| 23,280,753 | |
| Malaysia | |
| 10,455,953 | | |
| 12,951,982 | | |
| 12,986,318 | |
| Other foreign countries | |
| 38,673,068 | | |
| 53,055,807 | | |
| 52,032,580 | |
| | |
$ | 360,346,494 | | |
| 408,178,750 | | |
| 416,363,005 | |
| (2) | Consolidated noncurrent assets(i) |
| | |
December 31, |
| | |
2015 | |
2014 |
| | |
(in thousands) |
| Taiwan | |
$ | 160,343,424 | | |
| 169,813,439 | |
| PRC | |
| 43,123,629 | | |
| 42,385,591 | |
| Other foreign countries | |
| 17,185,024 | | |
| 28,412,390 | |
| | |
$ | 220,652,077 | | |
| 240,611,420 | |
| (i) | Noncurrent assets are not inclusive of financial instruments, deferred tax assets, and pension-related
assets. |
AU OPTRONICS CORP. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
| (c) | Major customer information |
For the years ended December
31, 2015, 2014 and 2013, sales to individual customers representing greater than 10% of consolidated net revenue were as follows:
| | |
For the years ended December 31, |
| | |
2015 | |
% | |
2014 | |
% | |
2013 | |
% |
| | |
(in thousands) |
| Customer A | |
$ | 42,173,089 | | |
| 12 | | |
| 41,628,604 | | |
| 10 | | |
| 57,460,634 | | |
| 14 | |
| Customer B | |
| 31,381,042 | | |
| 9 | | |
| 36,103,435 | | |
| 9 | | |
| 45,662,754 | | |
| 11 | |
| | |
$ | 73,554,131 | | |
| 21 | | |
| 77,732,039 | | |
| 19 | | |
| 103,123,388 | | |
| 25 | |
| (d) | The consolidated net revenue by principal products was as follows: |
| | |
For the years ended December 31, |
| | |
2015 | |
2014 | |
2013 |
| | |
(in thousands) |
| Products for Televisions | |
$ | 159,534,820 | | |
| 171,399,601 | | |
| 188,428,311 | |
| Products for Mobile PCs | |
| 52,488,064 | | |
| 75,353,605 | | |
| 78,376,753 | |
| Products for Mobile Devices | |
| 23,622,445 | | |
| 34,412,465 | | |
| 26,669,938 | |
| Products for Monitors | |
| 48,234,547 | | |
| 57,548,975 | | |
| 59,564,195 | |
| Products for Commercial and Others(1) | |
| 49,512,418 | | |
| 45,620,556 | | |
| 45,796,979 | |
| Solar Products | |
| 26,954,200 | | |
| 23,843,548 | | |
| 17,526,829 | |
| Total | |
$ | 360,346,494 | | |
| 408,178,750 | | |
| 416,363,005 | |
| (1) | Others include sales from products for other applications and
sales of raw materials, components and from service charges. |
The Company has reclassified
certain amounts in the prior year’s financial statements to conform with the current year’s presentation, including
showing in the consolidated statements of comprehensive income each component of other comprehensive income after the related reclassification
adjustments. Details of the reclassification adjustments are disclosed in note 23 to the consolidated financial statements.
Except for otherwise disclosed
in the other notes to the consolidated financial statements, there is no other significant reportable subsequent event.
Exhibit
1.1
THIS IS A TRANSLATION OF THE
Articles of Incorporation OF AU OPTRONICS CORP. THE TRANSLATION IS FOR REFERENCE ONLY. IF THERE IS ANY DISCREPANCY BETWEEN
THE ENGLISH VERSION AND CHINESE VERSION, THE CHINESE VERSION SHALL PREVAIL.
Articles of Incorporation
Chapter 1: General Provisions
Article 1
The Company is incorporated, registered
and organized as a company limited by shares and permanently existing in accordance with the Company Act of the Republic of China
(the “Company Act”) and the Company’s English name is AU Optronics Corp.
Article 2
The scope of business of the Company shall
be as follows:
| 1. CC01080 |
Electronic parts and components manufacturing business |
| |
|
| 2. F119010 |
Electronic material wholesale business (for operations outside the Science Park only) |
| |
|
| 3. CC01030 |
Electronic appliances and AV electronics products manufacturing business |
| |
|
| 4.CC01010 |
Electric Power Supply, Electric Transmission and Power Distribution Machinery Manufacturing |
| |
|
| 5. CC01090 |
Batteries Manufacturing |
| |
|
| 6. IG03010 |
Energy Technical Services |
To research, develop, produce, manufacture
and sell the following products:
| (1) |
Plasma display and related systems |
| |
|
| (2) |
Liquid crystal display and related systems |
| |
|
| (3) |
Organic light emitting diodes and related systems |
| |
|
| (4) |
Amorphous silicon photo sensor device parts and components |
| |
|
| (5) |
Thin film photo diode sensor device parts and components |
| |
|
| (6) |
Thin film transistor photo sensor device parts and components |
| |
|
| (7) |
Touch imaging sensors |
| |
|
| (8) |
Full color active matrix flat panel displays |
| |
|
| (9) |
Field emission displays |
| |
|
| (10) |
Single crystal liquid crystal displays |
| |
|
| (11) |
Original equipment manufacturing for amorphous silicon thin film transistor process and flat panel display modules |
| |
|
| (12) |
Original design manufacturing and original equipment manufacturing business for flat panel display modules |
| |
|
| (13) |
Solar Cell, modules, and related system and service. |
| |
|
| (14) |
New green energy related system and service (for operations outside the Science Park only) |
| |
|
| (15) |
The simultaneous operation of a trade business relating to the Company’s business |
The operation of the businesses listed
above shall be conducted in accordance with the relevant laws and regulations.
Article 3
The head office of the Company shall be
in the Science-Based Industrial Park, Hsinchu, Taiwan, the Republic of China (“ROC.”) or such other appropriate place
as may be decided by the board of directors (the “Board”). Subject to the approval of the Board and other relevant
authorities, the Company may, if necessary, set up branches, factories, branch operation offices or branch business offices both
inside and outside of the ROC.
Article 4
The total amount of the Company’s
investment is not subject to the restriction of Article 13 of the Company Act. The Company may provide guarantees or endorsements
on behalf of third parties due to business or investment relationships with such third parties.
Chapter 2: Shares
Article 5
The total capital of the Company is One
Hundred and Twenty Billion New Taiwan Dollars (NT$120,000,000,000), divided into Twelve Billion (12,000,000,000) shares with a
par value of Ten New Taiwan Dollars (NT$10) each and in registered form. The Board of Directors is authorized to issue the un-issued
shares in installments.
A total of 100,000,000 shares among the
above total capital should be reserved for issuance of new shares for performing obligation under the employee stock options, which
may be issued in installments.
Article 6
The share certificates of the Company shall
be all in registered form. The share certificates, after due registration with the competent authority, shall be signed or sealed
by at least three directors and shall be legally authenticated prior to issue.
The Company may, pursuant to the applicable
laws and regulations, deliver shares or other securities in book-entry form, instead of delivering physical certificates evidencing
shares or other securities.
Article 7
Unless otherwise provided by applicable
law and regulations, the shareholders services shall be handled in accordance with the Regulations Governing the Administration
of Shareholder Services of Public Companies.
Chapter 3: Shareholders’ Meetings
Article 8
Shareholders’ meetings shall be of
two types, ordinary meetings and extraordinary meetings. Ordinary meetings shall be convened annually by the Board within six months
of the end of each fiscal year. Extraordinary meetings shall be convened in accordance with the relevant laws, whenever necessary.
Article 9
Unless otherwise provided in applicable
law and regulations, a resolution shall be adopted at a meeting attended by the shareholders holding and representing a majority
of the total issued and outstanding shares and at which meeting a majority of the attending shareholders shall vote in favor of
the resolution. In case a shareholder is unable to attend a shareholders’ meeting, such shareholder may issue a proxy in
the form issued by the Company, setting forth the scope of authorization by signing and affixing such shareholder’s seal
on the proxy form for the representative to be present on such shareholder’s behalf. Except for trust enterprises or other
stock transfer agencies approved by the securities authorities, if a person is designated as proxy by more than two shareholders,
any of such person’s voting rights representing in excess of 3% of the total issued and outstanding shares shall not be considered.
The relevant matters related to the use and rescission of the proxy shall be conducted in accordance with the Company Act and applicable
rules.
Chapter 4: Board of Directors and Audit
Committee
Article 10
The Company shall have seven to eleven
directors. Directors shall be elected from a slate of director candidates, which are nominated under the Candidate Nomination System,
at shareholders’ meetings. Within the entire Board, the Company shall have at least three independent directors on the Board.
The professional qualifications, restrictions on the shareholdings and concurrent positions held, method of nomination and election,
and other matters with respect to independent directors shall be in compliance with applicable laws and regulations. The term of
office for all directors shall be three (3) years. The directors are eligible for re-election. The number of the directors shall
be decided by the board of directors.
The Board is authorized to determine the
compensation for the directors, taking into account the extent and value of the services provided for the Company’s operation
and with reference to the standards of local and overseas industry.
The Company may take out liability insurance
for the directors with respect to the liabilities resulting from exercising their duties during their terms of office.
Article 10-1
Pursuant to Article 14-4 of the Securities
and Exchange Law, the Company shall have the audit committee which shall be composed of all independent directors.
Article 11
The Company shall have a chairman of the
Board. The chairman of the Board shall be elected by and among the directors by a majority of directors present at a meeting attended
by more than two thirds of directors. As necessary, a vice chairman may be elected by and among the directors in the same manner.
The chairman of the Board shall preside internally at the meetings of the Board and shall externally represent the Company. In
case the chairman of the Board asks for leave or for other reason cannot exercise his power and authority, the vice chairman shall
act on his behalf. In case there is no vice chairman or the vice chairman is also on leave or cannot exercise his power and authority
for any reason, the chairman of the Board may designate one of the directors to act on his behalf. In the absence of such a designation,
the directors shall elect a designee from among themselves.
Article 12
Where a director is unable to attend a
meeting of the Board, he may appoint another director to represent him by proxy in accordance with Article 205 of the Company Act.
Each director may act as a proxy for one other director only.
The meeting of the Board of Directors shall
be convened in accordance with the Company Act. In calling a meeting of the Board of Directors, a notice may be given to each director
by means of electronic mail or facsimile.
Chapter 5: President & Vice Presidents
Article 13
The Company shall have one or more managerial
personnel. Appointment, dismissal, and remuneration of the president and vice presidents shall be subject to the provisions of
the Company Act.
Chapter 6: Accounting
Article 14
After the end of each fiscal year, the
Board shall prepare and submit the following documents: (1) business report, (2) financial statements, (3) proposal for allocation
of earnings or recovery of loss to the shareholders at the ordinary meeting of shareholders for their acceptance.
Article 15
Where the Company has a profit at the end
of each fiscal year, the Company shall first allocate the profit to recover losses for preceding years. Ten percent of any remaining
net earnings shall be allocated as the Company’s legal reserve unless and until the accumulated legal reserve reaches the
paid-in capital. A certain amount shall be further allocated as special reserve or the special reserve shall be reversed in accordance
with applicable laws and regulations or as requested by the competent authority and the balance shall be distributed as follows:
| 1. | profit sharing to employees: no less than 5%; |
| 2. | remuneration of directors: no more than 1%; and |
| 3. | all or a portion of the remaining balance shall be distributed as shareholders’ dividends. |
The Company’s dividend policy is
to pay dividends from surplus considering factors such as the Company’s current and future investment environment, cash requirements,
competitive conditions and capital budget requirements, and taking into account the shareholders’ interest, maintenance of
a balanced dividend and the Company’s long term financial plan. No less than 10% of the total dividend to be paid with respect
to any fiscal year shall be paid in the form of cash.
Chapter 7: Supplementary
Articles
Article 16
With respect to the matters not provided
herein, the Company Act and other applicable laws and regulations shall govern.
Article 17
These Articles of Incorporation were enacted
by the incorporators in the incorporators meeting held on July 18, 1996 and were effectively approved by the competent authority.
The first amendment was made on September
18, 1996.
The second amendment was made on September
15, 1997.
The third amendment was made on April
23, 1998.
The fourth amendment was made on April
23, 1999.
The fifth amendment was made on March
9, 2000.
The sixth amendment was made on May 10,
2001.
The seventh amendment was made on May
10, 2001.
The eighth amendment was made on October
17, 2001.
The ninth amendment was made on May 21,
2002.
The tenth amendment was made on May 29,
2003.
The eleventh amendment was made on April
29, 2004.
The twelfth amendment was made on
June 14, 2005.
The thirteenth amendment was made on June
15, 2006.
The fourteenth amendment was made on June
13, 2007.
The fifteenth amendment was made on June
19, 2009.
The sixteenth amendment was made on June
10, 2011.
The seventeenth amendment was made on
June 13, 2012.
The eighteenth amendment was made on June
19, 2013.
EXHIBIT
8.1
List of Subsidiaries
AU Optronics Corp., a corporation organized under the laws of
the Republic of China, has 53 subsidiaries as of December 31, 2015:
| |
|
| 1. |
AU Optronics (L) Corp., a corporation organized under the laws of Malaysia; |
| 2. |
AU Optronics Corporation America, a corporation organized under the laws of California, United States of America; |
| 3. |
AU Optronics Corporation Japan, a corporation organized under the laws of Japan; |
| 4. |
AU Optronics Europe B.V., a corporation organized under the laws of the Netherlands; |
| 5. |
AU Optronics Korea Ltd., a corporation organized under the laws of South Korea; |
| 6. |
AU Optronics Singapore Pte. Ltd., a corporation organized under the laws of Singapore; |
| 7. |
AU Optronics (Shanghai) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 8. |
AU Optronics (Xiamen) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 9. |
AU Optronics (Suzhou) Corp., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 10. |
AU Optronics (Czech) s.r.o., a corporation organized under the laws of the Czech Republic; |
| 11. |
AU Optronics Manufacturing (Shanghai) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 12. |
AU Optronics (Slovakia) s.r.o., a corporation organized under the laws of Slovakia; |
| 13. |
AUO Energy (Tianjin) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 14. |
AUO Green Energy America Corp., a corporation organized under the laws of the Delaware, United States of America; |
| 15. |
AUO Green Energy Europe B.V., a corporation organized under the laws of the Netherlands; |
| 16. |
BriView (Xiamen) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 17. |
Darwin Precisions (L) Corp., a corporation organized under the laws of Malaysia; |
| 18. |
Darwin Precisions (Hong Kong) Limited, a corporation organized under the laws of Hong Kong; |
| 19. |
Darwin Precisions (Suzhou) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 20. |
Darwin Precisions (Xiamen) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 21. |
Darwin Precisions (Chengdu) Corp., a corporation organized under the laws of the People’s Republic of China; |
| 22. |
Huizhou Bri-King Optronics Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 23. |
BriView (Hefei) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 24. |
Konly Venture Corp., a corporation organized under the laws of the Republic of China; |
| 25. |
Ronly Venture Corp., a corporation organized under the laws of the Republic of China; |
| 26. |
Darwin Precisions Corporation, a corporation organized under the laws of the Republic of China; |
| 27. |
Taiwan CFI Co., Ltd. (previously named as Toppan CFI (Taiwan) Co., Ltd.), a corporation organized under the laws of the Republic of China; |
| 28. |
BriView (L) Corp., a corporation organized under the laws of Malaysia; |
| 29. |
AUO Crystal Corp., a corporation organized under the laws of the Republic of China; |
| 30. |
AUO Crystal (Malaysia) Sdn. Bhd., a corporation organized under the laws of Malaysia; |
| 31. |
M.Setek Co., Ltd., a corporation organized under the laws of Japan; |
| 32. |
AFPD Pte., Ltd., a corporation organized under the laws of Singapore; |
| 33. |
AU Optronics (Kunshan) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 34. |
AUO Green Energy Germany GmbH, a corporation organized under the laws of Germany; |
| 35. |
Forhouse International Holding Ltd., a corporation organized under the laws of British Virgin Islands; |
| 36. |
Force International Holding Ltd., a corporation organized under the laws of British Virgin Islands; |
| 37. |
Forefront Corporation, a corporation organized under the laws of Mauritius; |
| 38. |
Fortech International Corp., a corporation organized under the laws of Mauritius; |
| 39. |
Full Luck Precisions Co., Ltd., a corporation organized under the laws of Mauritius; |
| 40. |
Forward Optronics International Corp., a corporation organized under the laws of Samoa; |
| 41. |
Prime Forward International Ltd., a corporation organized under the laws of Samoa; |
| 42. |
Forhouse Electronics (Suzhou) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 43. |
Fortech Electronics (Suzhou) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 44. |
Fortech Optronics (Xiamen) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 45. |
Suzhou Forplax Optronics Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 46. |
Fortech Electronics (Kunshan) Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 47. |
Full Luck (Wujiang) Precisions, Co., Ltd., a corporation organized under the laws of the People’s Republic of China; |
| 48. |
Sanda Materials Corporation, a corporation organized under the laws of the Republic of China; |
| 49. |
Fargen Power Corporation, a corporation organized under the laws of the Republic of China; |
| 50. |
Evergen Power Corporation, a corporation organized under the laws of the Republic of China; |
| 51. |
a.u. Vista Inc., a corporation organized under the laws of California, United States of America; |
| 52. |
Space Money Inc., a corporation organized under the laws of the Republic of China; and |
| 53. |
LiGen Power Corporation, a corporation organized under the laws of the Republic of China. |
EXHIBIT 12.1
Certification
I, Shuang-Lang (Paul) Peng, certify that:
| 1. | I have reviewed this annual report on Form 20-F of AU Optronics Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or
persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting. |
Date: March 21, 2016
| By: |
/s/ Shuang-Lang (Paul) Peng |
| |
Name: |
Shuang-Lang (Paul) Peng |
| |
Title: |
Chairman and Chief Executive Officer |
EXHIBIT 12.2
Certification
I, Benjamin Tseng, certify that:
| 1. | I have reviewed this annual report on Form 20-F of AU Optronics Corp.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with
respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in
all material respects the financial condition, results of operations and cash flows of the company as of, and for, the periods
presented in this report; |
| 4. | The company’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the company and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the company, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the company’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
| (d) | Disclosed in this report any change in the company’s internal control over financial reporting that occurred during the
period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company’s
internal control over financial reporting; and |
| 5. | The company’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the company’s auditors and the audit committee of the company’s board of directors (or
persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting
which are reasonably likely to adversely affect the company’s ability to record, process, summarize and report financial
information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the company’s
internal control over financial reporting. |
Date: March 21, 2016
| |
|
|
| By: |
/s/ Benjamin Tseng |
| |
Name: |
Benjamin Tseng |
| |
Title: |
Chief Financial Officer |
EXHIBIT 13.1
906 Certification
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Ladies and Gentlemen:
The certification set forth below is being
submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2015 (the “Report”) for
the purpose of complying with the Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange
Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Shuang-Lang (Paul) Peng, the Chairman and
Chief Executive Officer of AU Optronics Corp., certifies that, to the best of his knowledge:
1. the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Exchange Act; and
2. the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of AU Optronics Corp.
Date: March 21, 2016
| By: |
/s/ Shuang-Lang (Paul) Peng |
| |
Name: |
Shuang-Lang (Paul) Peng |
| |
Title: |
Chairman and Chief Executive Officer |
The foregoing certification is not deemed
filed for purposes of Section 18 of the Exchange Act and is not deemed to be incorporated by reference into any filing under the
Securities Act of 1933 or the Exchange Act.
EXHIBIT 13.2
906 Certification
Securities and Exchange Commission
100 F Street, N.E.
Washington, D.C. 20549
Ladies and Gentlemen:
The certification set forth below is being
submitted in connection with the Annual Report on Form 20-F for the year ended December 31, 2015 (the “Report”) for
the purpose of complying with the Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange
Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.
Benjamin Tseng, the Chief Financial Officer
of AU Optronics Corp., certifies that, to the best of his knowledge:
1. the Report fully complies with the requirements
of Section 13(a) or 15(d) of the Exchange Act; and
2. the information contained in the Report
fairly presents, in all material respects, the financial condition and results of operations of AU Optronics Corp.
Date: March 21, 2016
| By: |
/s/ Benjamin Tseng |
| |
Name: |
Benjamin Tseng |
| |
Title: |
Chief Financial Officer |
The foregoing certification
is not deemed filed for purposes of Section 18 of the Exchange Act and is not deemed to be incorporated by reference into any filing
under the Securities Act of 1933 or the Exchange Act.
EXHIBIT 15.1
Consent of Independent Registered Public Accounting
Firm
The Board of Directors
AU Optronics Corp.
We consent to the incorporation by reference in the registration statement (No.333-188283) on Form F-3 of AU Optronics Corp.
of our reports dated March 10, 2016 with respect to the consolidated statements of financial position of AU Optronics
Corp. and subsidiaries as of December 31, 2015 and 2014, and the related consolidated statements of comprehensive income,
changes in equity and cash flows for each of the years in the three-year period ended December 31, 2015, and the effectiveness
of internal control over financial reporting as of December 31, 2015, which reports appear in the December 31, 2015 annual
report on Form 20-F of AU Optronics Corp.
/s/ KPMG
Hsinchu, Taiwan (the Republic of China)
March 21, 2016
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