TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES …

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TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES

CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED 31 MARCH 2015 AND 2014

WITH

REVIEW REPORT OF INDEPENDENT AUDITORS

The reader is advised that these financial statements have been prepared originally in Chinese. In the event of a conflict between these financial statements and the original Chinese version or difference in interpretation between the two versions, the Chinese language financial statements shall prevail.

ASSETS Notes 31 Mar. 2014Current assets

Cash and cash equivalents Ⅳ/Ⅵ.1 $1,287,607 $1,195,358 $1,329,171 Financial assets at fair value through profit or loss-current Ⅳ/Ⅵ.2 29 29 129 Bond investments for which no active market exists-current Ⅳ/Ⅵ.5 141,341 93,899 96,310 Notes receivable-net Ⅳ/Ⅵ.6 85,191 200,974 119,233 Accounts receivable-net Ⅳ/Ⅵ.7 4,683,754 4,792,577 4,177,913 Accounts receivable-related parties-net Ⅳ/Ⅵ.7/Ⅶ 16,939 27,013 25,437 Other receivables Ⅳ 600,810 293,023 415,773 Inventories Ⅳ/Ⅵ.8 2,808,717 2,767,764 2,569,632 Other current assets Ⅳ 965,161 892,394 518,047

Total current assets 10,589,549 10,263,031 9,251,645 Non-current assets

Available-for-sale financial assets-noncurrent Ⅳ/Ⅵ.3 125,883 125,883 125,883Financial assets measured at cost-noncurrent Ⅳ/Ⅵ.4 2,236 2,236 2,237

Ⅳ/Ⅵ.5 18,098 18,098 16,858Investments accounted for under the equity method Ⅳ/Ⅵ.9 3,314,798 3,580,248 3,240,930Property, plant and equipment Ⅳ/Ⅵ.10 17,228,283 16,925,915 15,824,709Intangible assets Ⅳ/Ⅵ.11.12 924,622 937,996 858,741Deferred tax assets Ⅳ/Ⅵ.24 343,526 385,491 280,823Prepayment for equipments 1,825,503 1,919,074 1,708,539

320,385 326,016 321,857Other assets-others 91,560 112,209 75,914

Total non-current assets 24,194,894 24,333,166 22,456,491

Total assets $34,784,443 $34,596,197 $31,708,136

TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES UNAUDITED CONSOLIDATED BALANCE SHEETS

31 March 2015, 31 December 2014 and 31 March 2014(Expressed in Thousands of New Taiwan Dollars)

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

31 Dec. 2014

Long-term prepaid rents

Bond investments for which no active market exists-noncurrent

31 Mar. 2015

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Notes 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Current liabilities

Short-term loans Ⅳ/Ⅵ.13 $2,538,000 $2,653,667 $2,007,084Short-term notes and bills payable-net Ⅳ/Ⅵ.14 369,864 569,863 469,792 Notes payable 98,195 56,713 76,818 Accounts payable 2,457,588 2,594,778 2,251,738 Accounts Payable-related parties Ⅶ 164,909 187,266 139,538 Other payables 1,200,801 1,714,743 963,643 Balance payable-machinery and equipment 363,006 407,551 387,967 Current tax liabilities Ⅳ/Ⅵ.24 227,904 213,523 237,771 Reserves-current Ⅳ/Ⅵ.18 27,442 25,519 21,729

Ⅳ/Ⅵ.16 43,937 45,811 45,710 Ⅳ/Ⅵ.15 1,485,626 - -

Other current liabilities 238,709 279,113 243,720 Total current liabilities 9,215,981 8,748,547 6,845,510

Non-current liabilitiesBonds payable Ⅳ/Ⅵ.15 2,200,000 2,480,880 2,466,781Long-term loans Ⅳ/Ⅵ.16 3,733,158 4,026,435 2,828,071Deferred tax liabilities Ⅳ/Ⅵ.24 373,059 397,192 315,828Accrued pension liabilities Ⅳ/Ⅵ.17 963,681 971,280 1,012,757Other liabilities-others 7,966 8,873 7,772

Total non-current liabilities 7,277,864 7,884,660 6,631,209 Total liabilities 16,493,845 16,633,207 13,476,719 Equity attributable to the parent company

Capital Ⅳ/Ⅵ.19Common stock 5,914,771 5,914,771 5,914,771

Capital surplus Ⅳ/Ⅵ.19 4,149,257 4,139,513 4,139,513Retained earnings Ⅳ/Ⅵ.19

Legal reserve 1,369,222 1,369,222 1,234,538Special reserve - - 153,904 Unappropriated earnings 5,600,325 5,187,577 5,351,138

Equity adjustment Ⅳ/Ⅵ.19 254,273 316,013 165,798Non-controlling interests Ⅳ/Ⅵ.19 1,002,750 1,035,894 1,271,755

Total equity 18,290,598 17,962,990 18,231,417 Total liabilities and equity $34,784,443 $34,596,197 $31,708,136

TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIESUNAUDITED CONSOLIDATED BALANCE SHEETS31 March 2015, 31 December 2014 and 31 March 2014

(Expressed in Thousands of New Taiwan Dollars)


LIABILITIES AND SHAREHOLDERS' EQUITY

Current portion of bond payableCurrent portion of long-term liabilities

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NOTE

Sales revenues Ⅳ/Ⅵ.20/Ⅶ $5,612,549 $5,200,849

Cost of goods sold Ⅳ/Ⅵ.21/Ⅶ (4,307,825) (3,993,156)

Gross profit 1,304,724 1,207,693

Realized sales profit 145 145

Gross profit-net 1,304,869 1,207,838

Operating expenses Ⅳ/Ⅵ.21Sales and marketing expenses (436,365) (491,166)

General and administrative expenses (256,104) (238,773)

Research and development expenses (130,921) (137,190)

Subtotal (823,390) (867,129)

Operating income 481,479 340,709

Non-operating income and expenses

Other revenue Ⅳ/Ⅵ.22 37,676 36,908

Other gain and loss Ⅳ/Ⅵ.22 (57,508) 46,451

Financial costs Ⅳ/Ⅵ.22 (36,291) (29,030)

Share of profit or loss of associates and joint ventures 76,851 85,580

Subtotal 20,728 139,909

Income from continuing operations before income tax 502,207 480,618

Income tax expense Ⅳ/Ⅵ.24 (71,509) (75,933)

Net income $430,698 $404,685

Other comprehensive income Ⅳ/Ⅵ.23Exchange differences resulting from translating the financial statements of a foreign operations (46,765) (27,639)Share of other comprehensive income of associates and joint ventures (34,823) 8,380Income tax related to components of other comprehensive income 12,645 2,548

Total other comprehensive income, net of tax (68,943) (16,711)

Total comprehensive income $361,755 $387,974

Net income attributable to:

Stockholders of the parent $412,748 $396,856

Non-controlling interests $17,950 $7,829

Comprehensive income attributable to:

Stockholder of the parent $351,008 $389,342

Non-controlling interests $10,747 $(1,368)

Earnings per share (NTD)

Earnings per share-basic Ⅳ/Ⅵ.25 $0.70 $0.67

Earnings per share-diluted Ⅳ/Ⅵ.25 $0.68 $0.65

For the three-month ended 31 March 2015 and 2014

UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



ITEMS 2015.1.1~2015.3.31

(Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)

2014.1.1~2014.3.31

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ITEMSCommon

StockCapitalSurplus

LegalReserve

UnappropriatedEarnings Total

$5,914,771 $4,139,513 $1,234,538 $153,904 $4,954,282 $122,697 $50,615 $16,570,320 $1,273,123 $17,843,443

Net income in the first quarter of 2014 - - - - 396,856 - - 396,856 7,829 404,685

Other comprehensive income, net of tax in the first quarter of 2014 - - - - - (24,465) 16,951 (7,514) (9,197) (16,711)

- - - - 396,856 (24,465) 16,951 389,342 (1,368) 387,974

Balance as of 31 March 2014 $5,914,771 $4,139,513 $1,234,538 $153,904 $5,351,138 $98,232 $67,566 $16,959,662 $1,271,755 $18,231,417

Balance as of 1 January 2015 $5,914,771 $4,139,513 $1,369,222 $- $5,187,577 $288,463 $27,550 $16,927,096 $1,035,894 $17,962,990

Net income in the first quarter of 2015 - - - - 412,748 - - 412,748 17,950 430,698

Other comprehensive income, net of tax in the first quarter of 2015 - - - - - (58,668) (3,072) (61,740) (7,203) (68,943)

Total comprehensive income - - - - 412,748 (58,668) (3,072) 351,008 10,747 361,755

Difference between aqusition of subsidiaries' share and book value - 6,032 - - - - - 6,032 (23,105) (17,073)

Changes in ownership interests in subsidiaries - 3,712 - - - - - 3,712 (20,786) (17,074)

Balance as of 31 March 2015 $5,914,771 $4,149,257 $1,369,222 $- $5,600,325 $229,795 $24,478 $17,287,848 $1,046,641 $18,290,598



Equity attributable to the parent company

Non-controllinginterests Total Equity

Other equitityRetained Earnings

Specialreserve

Unrealized Gainor Loss on

Available-for-Sale Financial

Assets

Exchange differencesresulting from

translating the financialstatements of a foreign

operations

UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITYFor the three-month ended 31 March 2015 and 2014

(Expressed in Thousands of New Taiwan Dollars)

Balance as of 1 January 2014

Total comprehensive income

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Cash flows from operating activities: Cash flows from investing activities:Net income before tax $502,207 $480,618 Acquistion of bond investments for which no active market (47,442) - Adjustments for: - 41,621Income and expense adjustments: Disposal of financial assets measured at cost-noncurrent - 6,223Depreciation 643,758 580,447 Acquisition of property, plant and equipment (1,106,479) (743,555)Amortization 57,173 52,298 Proceeds from disposal of property, plant and equipment 30,194 22,532Financial assets and liabilities at fair value through loss- net - 173 (46,177) (45,655)Interest expense 36,291 29,030 93,571 (46,918)Interest revenue (1,846) (1,810) Net cash used in investing activities (1,076,333) (765,752)Share of profit of associates and joint ventures (76,851) (85,580)Gain on disposal of property, plant and equipment (2,302) (1,135) Cash flows from financing activities:Loss on disposal of investments - 1,711 (Decrease) increase in short-term borrowings (115,667) 403,026Realized Sales profit (145) (145) Increase in short-term notes and bills payable - 469,440Changes in operating assets and liabilities: (Decrease) in short-term notes and bills payable (199,999) - Notes receivable-net 115,783 1,764 Proceeds from bonds issued 1,200,000 - Accounts receivable-net 108,823 1,406 Borrow in long-term borrowings 700,000 374,751Accounts receivable-related parties-net 10,074 (6,577) Pay back long-term borrowings (995,151) (1,141,053)Other receivable (307,787) (1,107) Changes in ownership interests in subsidiaries (17,073) - Inventories 7,997 61,325 Interest paid (51,104) (44,128)Other current assets (72,767) (34,604) Change in non-controlling interests (17,074) - Long-term prepaid rents 5,631 4,419 Net cash provided by financing activities 503,932 62,036Other non-current assets 20,649 (6,188) Effect of exchange rate changes on cash and cash equivalents (5,395) (12,801)Notes payable 41,482 (42,292) Net increase in cash and cash equivalents 92,249 257,342Accounts payable (137,190) 138,663 Cash and cash equivalents at beginning of period 1,195,358 1,071,829Accounts payable-related parties (22,357) (17,107) Cash and cash equivalents at end of period $1,287,607 $1,329,171Other payables (494,383) (173,151)Reserves-current 1,923 2,801Other current liabilities (40,404) 26,204Accrued pension liabilities (7,599) (7,112)Other non-current liabilities (1,111) (2,309)Cash generated from operations 387,049 1,001,742Interest received 1,846 1,829Dividend received 307,800 - Income tax paid (26,650) (29,712)

Net cash provided by operating activities 670,045 973,859


Decrease (increase) in prepayment for equipments


(Expressed in Thousands of New Taiwan Dollars, Except for Earnings Per Share)

Disposal of bond investments for which no active market

Acquistion of intangible assets

UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWSFor the three-month ended 31 March 2015 and 2014

ITEMS 2015 Q1 2014 Q1 ITEMS 2015 Q1 2014 Q1

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TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

31 March 2015 and 2014 (Expressed in Thousands of New Taiwan Dollars Unless Otherwise Stated)

I. HISTORY AND ORGANIZATION

1. TONG YANG INDUSTRY CO., LTD. (the “Company”) was incorporated under the laws of

the Republic of China (the “ROC”) on 30 October 1967. The Company’s principal activities consist of the manufacture and sale of parts, components and models for automobile and motorcycle. The Company became a listed company on Taiwan Stock Exchange on 12 December 1994.

2. The Company merged with TAIWAN KAI YIH INDUSTRIAL CO., LTD. (TKY) on 1

September 2010 and was the surviving company. The Company merged with KAI MING INDUSTRIAL CO., LTD. (KM) on 1 October 2011 and was the surviving company.

II. DATE AND PROCEDURES OF AUTHORIZATION OF FINANCIAL STATEMENTS FOR

ISSUE The consolidated financial statements of the Company and subsidiaries (hereinafter referred to as ”the Company”) for the three months ended 31 March 2015 and 2014 were authorized for issue in accordance with a resolution of the board of directors on 30 April 2015.

III. NEWLY ISSUED OR REVISED STANDARDS AND INTERPRETATIONS 1. Changes in accounting policies resulting from applying for the first time certain standards and

amendments The Group applied for the first time International Financial Reporting Standards, International Accounting Standards, and interpretations issued, revised or amended which are recognized by Financial Supervisory Commission (“FSC”) and become effective for annual periods beginning on or after 1 January 2015. The nature and the impact of each new standard and amendment that has a material effect on the Group is described below:

IAS 19 Employee Benefits The Group applied the revised IAS 19 Employee Benefits retrospectively in the current period in accordance with the transitional provisions set out in the revised standard except that the carrying amount of assets was not adjusted for changes in employee benefit cost that were included in the carrying amount before 1 January 2014. The figures of the earliest comparative period presented and the comparative period have been accordingly restated. Major changes to the accounting of the Group’s defined benefit plan are summarized as follows:

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(a) The interest cost and expected return on plan assets used in the previous version of IAS 19 are replaced with a net-interest amount under the revised IAS 19, which is calculated by applying the discount rate to the net defined benefit liability or asset at the start of each annual reporting period.

(b) In the previous version of IAS 19, past service cost is recognized as an expense immediately to the extent that the benefits are already vested, or on a straight-line basis over the average period until the benefits become vested. Under the revised IAS 19, all past service costs are recognized at the earlier of when the amendment/curtailment occurs or when the related restructuring or termination costs are recognized. Therefore unvested past service cost is no longer deferred over future vesting periods.

(c) The revised IAS 19 requires more disclosures Application of revised IAS 19 has not material impact on financial situation and business performance. Additional disclosures where required under revised IAS 19, are provided in the individual notes.

IFRS 12 Disclosure of Interests in Other Entities IFRS 12 Disclosure of Interests in Other Entities sets out the requirements for disclosures relating to an entity’s interests in subsidiaries, joint arrangements, associates and structured entities. The requirements in IFRS 12 are more comprehensive than the previously existing disclosure requirements, for example, summarized financial information about the associate or disclosure on subsidiaries with material non-controlling interests. Please refer to Note 6 for more details. IFRS 13 Fair Value Measurements IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS. The Group re-assessed its policies for measuring fair values. Application of IFRS 13 has not materially impacted the fair value measurements of the Group. Additional disclosures where required under IFRS 13, are provided in the individual notes relating to the assets and liabilities whose fair values were determined. Fair value hierarchy is provided in Note 12. According to the transitional provisions of IFRS 13, IFRS 13 is applied prospectively as of 1 January 2015; the disclosure requirements of IFRS 13 need not be applied in comparative information before 1 January 2015. IAS 1 “Presentation of Financial Statements” — Presentation of Items of Other Comprehensive Income The Group changed the grouping of items presented in Other Comprehensive Income beginning on 1 January 2014. Items that would be reclassified (or recycled) to profit or loss in the future would be presented separately from items that will never be reclassified. The amendment has no material impact on the Group.

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2. Standards or interpretations issued by IASB but not yet recognized by FSC at the date of issuance of the Group’s financial statements are listed below.

(a) IAS 36 “Impairment of Assets” (Amendment) This amendment relates to the amendment issued in May 2011 and requires entities to disclose the recoverable amount of an asset (including goodwill) or a cash-generating unit when an impairment loss has been recognized or reversed during the period. The amendment also requires detailed disclosure of how the fair value less costs of disposal has been measured when an impairment loss has been recognized or reversed, including valuation techniques used, level of fair value hierarchy of assets and key assumptions used in measurement. The amendment is effective for annual periods beginning on or after 1 January 2014.

(b) IFRIC 21 “Levies”

This interpretation provides guidance on when to recognize a liability for a levy imposed by a government (both for levies that are accounted for in accordance with IAS 37 Provisions, Contingent Liabilities and Contingent Assets and those where the timing and amount of the levy is certain). The interpretation is effective for annual periods beginning on or after 1 January 2014.

(c) IAS 39 “Financial Instruments: Recognition and Measurement” (Amendment) Under the amendment, there would be no need to discontinue hedge accounting if a hedging derivative was novated, provided certain criteria are met. The interpretation is effective for annual periods beginning on or after 1 January 2014.

(d) IAS 19 “Employee Benefits” (Defined benefit plans: employee contributions)

The amendments apply to contributions from employees or third parties to defined benefit plans. The objective of the amendments is to provide a policy choice for a simplified accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendment is effective for annual periods beginning on or after 1 July 2014.

(e) Improvements to International Financial Reporting Standards (2010-2012 cycle): IFRS 2 “Share-based Payment” The annual improvements amend the definitions of 'vesting condition' and 'market condition' and adds definitions for 'performance condition' and 'service condition' (which were previously part of the definition of 'vesting condition'). The amendment prospectively applies to share-based payment transactions for which the grant date is on or after 1 July 2014.

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IFRS 3 “Business Combinations” The amendments include: (1) deleting the reference to "other applicable IFRSs" in the classification requirements; (2) deleting the reference to "IAS 37 Provisions, Contingent Liabilities and Contingent Assets or other IFRSs as appropriate", other contingent consideration that is not within the scope of IFRS 9 shall be measured at fair value at each reporting date and changes in fair value shall be recognized in profit or loss; (3) amending the classification requirements of IFRS 9 Financial Instruments to clarify that contingent consideration that is a financial asset or financial liability can only be measured at fair value, with changes in fair value being presented in profit or loss depending on the requirements of IFRS 9. The amendments apply prospectively to business combinations for which the acquisition date is on or after 1 July 2014.

IFRS 8 “Operating Segments” The amendments require an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments. The amendments also clarify that an entity shall only provide reconciliations of the total of the reportable segments' assets to the entity's assets if the segment assets are reported regularly. The amendment is effective for annual periods beginning on or after 1 July 2014.

IFRS 13 “Fair Value Measurement” The amendment to the Basis for Conclusions of IFRS 13 clarifies that when deleting paragraph B5.4.12 of IFRS 9 Financial Instruments and paragraph AG79 of IAS 39 Financial Instruments: Recognition and Measurement as consequential amendments from IFRS 13 Fair Value Measurement, the IASB did not intend to change the measurement requirements for short-term receivables and payables.

IAS 16 “Property, Plant and Equipment” The amendment clarifies that when an item of property, plant and equipment is revalued, the accumulated depreciation at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset. The amendment is effective for annual periods beginning on or after 1 July 2014. IAS 24 “Related Party Disclosures” The amendment clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. The amendment is effective for annual periods beginning on or after 1 July 2014.

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IAS 38 “Intangible Assets” The amendment clarifies that when an intangible asset is revalued, the accumulated amortization at the date of revaluation is adjusted to equal the difference between the gross carrying amount and the carrying amount of the asset. The amendment is effective for annual periods beginning on or after 1 July 2014.

(f) Improvements to International Financial Reporting Standards (2011-2013 cycle): IFRS 1 “First-time Adoption of International Financial Reporting Standards” The amendment clarifies that an entity, in its first IFRS financial statements, has the choice between applying an existing and currently effective IFRS or applying early a new or revised IFRS that is not yet mandatorily effective, provided that the new or revised IFRS permits early application.

IFRS 3 “Business Combinations” This amendment clarifies that paragraph 2(a) of IFRS 3 Business Combinations excludes the formation of all types of joint arrangements as defined in IFRS 11 Joint Arrangements from the scope of IFRS 3; and the scope exception only applies to the financial statements of the joint venture or the joint operation itself. The amendment is effective for annual periods beginning on or after 1 July 2014.

IFRS 13 “Fair Value Measurement” The amendment clarifies that paragraph 52 of IFRS 13 includes a scope exception for measuring the fair value of a group of financial assets and financial liabilities on a net basis. The objective of this amendment is to clarify that this portfolio exception applies to all contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definitions of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. The amendment is effective for annual periods beginning on or after 1 July 2014.

IAS 40 “Investment Property” The amendment clarifies the interrelationship of IFRS 3 and IAS 40 when classifying property as investment property or owner-occupied property; in determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property, separate application of both standards independently of each other is required. The amendment is effective for annual periods beginning on or after 1 July 2014.

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(g) IFRS 14 “Regulatory Deferral Accounts” IFRS 14 permits first-time adopters to continue to recognize amounts related to rate regulation in accordance with their previous GAAP requirements when they adopt IFRS. However, to enhance comparability with entities that already apply IFRS and do not recognize such amounts, the Standard requires that the effect of rate regulation must be presented separately from other items. IFRS 14 is effective for annual periods beginning on or after 1 January 2016.

(h) IFRS 11 “Joint Arrangements” (Accounting for Acquisitions of Interests in Joint

Operations) The amendments provide new guidance on how to account for the acquisition of an interest in a joint operation that constitutes a business. The amendments require the entity to apply all of the principles on business combinations accounting in IFRS 3 “Business Combinations”, and other IFRS (that do not conflict with the guidance in IFRS 11), to the extent of its share in a joint operation acquired. The amendment also requires certain disclosure. The amendment is effective for annual periods beginning on or after 1 January 2016.

(i) IAS 16“Property, Plant and Equipment and IAS 38 “Intangible Assets” — Clarification of

Acceptable Methods of Depreciation and Amortization The amendment clarified that the use of revenue-based methods to calculate depreciation of an asset is not appropriate because revenue generated by an activity that includes the use of an asset generally reflects factors other than the consumption of the economic benefits embodied in the asset, such as selling activities and change in sales volumes or prices. The amendment also clarified that revenue is generally presumed to be an inappropriate basis for measuring the consumption of the economic benefits embodied in an intangible asset. This presumption, however, can be rebutted in certain limited circumstances. The amendment is effective for annual periods beginning on or after 1 January 2016.

(j) IFRS 15 “Revenue from Contracts with Customers” The core principle of the new Standard is for companies to recognize revenue to depict the transfer of goods or services to customers in amounts that reflect the consideration to which the company expects to be entitled in exchange for those goods or services. The new Standard will also result in enhanced disclosures about revenue, provide guidance for transactions that were not previously addressed comprehensively and improve guidance for multiple-element arrangements. The Standard is effective for annual periods beginning on or after 1 January 2017.

(k) IAS 16“Property, Plant and Equipment and IAS 41 “Agriculture” — Agriculture: Bearer Plants The IASB decided that bearer plants should be accounted for in the same way as property, plant and equipment in IAS 16 Property, Plant and Equipment, because their operation is similar to that of manufacturing. Consequently, the amendments include them within the scope of IAS 16, and the produce growing on bearer plants will remain within the scope of IAS 41. The amendment is effective for annual periods beginning on or after 1 January 2016.

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(l) IFRS 9“Financial Instruments” The IASB has issued the final version of IFRS 9, which combines classification and measurement, the expected credit loss impairment model and hedge accounting. The standard will replace IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9 Financial Instruments (which include standards issued on classification and measurement of financial assets and liabilities and hedge accounting). Classification and measurement: Financial assets are measured at amortized cost, fair value through profit or loss, or fair value through other comprehensive income, based on both the entity’s business model for managing the financial assets and the financial asset’s contractual cash flow characteristics. Financial liabilities are measured at amortized cost or fair value through profit or loss. Furthermore there is requirement that ‘own credit risk’ adjustments are not recognized in profit or loss. Impairment: Expected credit loss model is used to evaluate impairment. Entities are required to recognize either 12-month or lifetime expected credit losses, depending on whether there has been a significant increase in credit risk since initial recognition. Hedge accounting: Hedge accounting is more closely aligned with risk management activities and hedge effectiveness is measured based on the hedge ratio. The new standard is effective for annual periods beginning on or after 1 January 2018.

(m) IAS 27“Separate Financial Statements” — Equity Method in Separate Financial

Statements The IASB restored the option to use the equity method under IAS 28 for an entity to account for investments in subsidiaries and associates in the entity’s separate financial statements. In 2003, the equity method was removed from the options. This amendment removes the only difference between the separate financial statements prepared in accordance with IFRS and those prepared in accordance with the local regulations in certain jurisdictions. The amendment is effective for annual periods beginning on or after 1 January 2016.

(n) IFRS 10“Consolidated Financial Statements” and IAS 28“Investments in Associates and

Joint Ventures” — Sale or Contribution of Assets between an Investor and its Associate or Joint Ventures The amendments address the inconsistency between the requirements in IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures, in dealing with the loss of control of a subsidiary that is contributed to an associate or a joint venture. IAS 28 restricts gains and losses arising from contributions of non-monetary assets to an associate or a joint venture to the extent of the interest attributable to the other equity holders in the associate or joint ventures. IFRS 10 requires full profit or loss recognition on the loss of control of the subsidiary. IAS 28 was amended so that the gain or loss resulting from the sale or contribution of assets that constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized in full. IFRS 10 was also amended so that the gains or loss resulting from the

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sale or contribution of a subsidiary that does not constitute a business as defined in IFRS 3 between an investor and its associate or joint venture is recognized only to the extent of the unrelated investors’ interests in the associate or joint venture. The amendment is effective for annual periods beginning on or after 1 January 2016.

(o) Improvements to International Financial Reporting Standards (2012-2014 cycle): IFRS 5 “Non-current Assets Held for Sale and Discontinued Operations” The amendment clarifies that a change of disposal method of assets (or disposal groups) from disposal through sale or through distribution to owners (or vice versa) should not be considered to be a new plan of disposal, rather it is a continuation of the original plan. The amendment also requires identical accounting treatment for an asset (or disposal group) that ceases to be classified as held for sale or as held for distribution to owners. The amendment is effective for annual periods beginning on or after 1 January 2016.

IFRS 7 “Financial Instruments: Disclosures” The amendment clarifies that a servicing contract that includes a fee can constitute continuing involvement in a financial asset and therefore the disclosures for any continuing involvement in a transferred asset that is derecognized in its entirety under IFRS 7 Financial Instruments: Disclosures is required. The amendment also clarifies that whether the IFRS 7 disclosure related to the offsetting of financial assets and financial liabilities are required to be included in the condensed interim financial report would depend on the requirements under IAS 34 Interim Financial Reporting. The amendment is effective for annual periods beginning on or after 1 January 2016.

IAS 19 “Employee Benefits” The amendment clarifies the requirement under IAS 19.83, that market depth of high quality corporate bonds is assessed based on the currency in which the obligation is denominated, rather than the country where the obligation is located. The amendment is effective for annual periods beginning on or after 1 January 2016. IAS 34 “Interim Financial Reporting” The amendment clarifies what is meant by “elsewhere in the interim financial report” under IAS 34; the amendment states that the required interim disclosures must either be in the interim financial statements or incorporated by cross-reference between the interim financial statements and wherever they are included within the greater interim financial report. The other information within the interim financial report must be available to users on the same terms as the interim financial statements and at the same time. The amendment is effective for annual periods beginning on or after 1 January 2016.

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(p) IAS 1 “Presentation of Financial Statements” (Amendment): The amendments contain (1) clarifying that an entity must not reduce the understandability of its financial statements by obscuring material information with immaterial information or by aggregating material items that have different natures or functions. The amendments reemphasize that, when a standard requires a specific disclosure, the information must be assessed to determine whether it is material and, consequently, whether presentation or disclosure of that information is warranted, (2) clarifying that specific line items in the statement(s) of profit or loss and OCI and the statement of financial position may be disaggregated, and how an entity shall present additional subtotals, (3) clarifying that entities have flexibility as to the order in which they present the notes to financial statements, but also emphasize that understandability and comparability should be considered by an entity when deciding on that order, (4) removing the examples of the income taxes accounting policy and the foreign currency accounting policy, as these were considered unhelpful in illustrating what significant accounting policies could be, and (5) clarifying that the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, classified between those items that will or will not be subsequently reclassified to profit or loss. The amendment is effective for annual periods beginning on or after 1 January 2016.

(q) IFRS 10“Consolidated Financial Statements”, IFRS 12 “Disclosure of Interests in Other Entities”, and IAS 28“Investments in Associates and Joint Ventures” — Investment Entities: Applying the Consolidation Exception The amendments contain (1) clarifying that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity when the investment entity measures all of its subsidiary at fair value, (2) clarifying that only a subsidiary that is not an investment entity itself and provides support services to the investment entity is consolidated when all other subsidiaries of an investment entity are measured at fair value, and (3) allowing the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. The amendment is effective for annual periods beginning on or after 1 January 2016.

The abovementioned standards and interpretations issued by IASB have not yet recognized by FSC at the date of issuance of the Group’s financial statements, the local effective dates are to be determined by FSC. As the Group is still currently determining the potential impact of the standards and interpretations listed under (a), (d), (e), (f), (i), (j), (l), (n), (o), (p), and (q), it is not practicable to estimate their impact on the Group at this point in time. All other standards and interpretations have no material impact on the Group.

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IV. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 1. Statement of Compliance

The consolidated financial statements of the Group for the three months ended 31 March 2015 and 2014 have been prepared in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers (“the Regulations”) and IAS 34 Interim Financial Reporting as recognized by the FSC.

2. Basis of preparation

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments that have been measured at fair value. The consolidated financial statements are expressed in thousands of New Taiwan Dollars (“NT$”) unless otherwise stated.

3. Basis of consolidation

Preparation principle of consolidated financial statement Control is achieved when the Company is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Company controls an investee if and only if the Company has: a. power over the investee (i.e. existing rights that give it the current ability to direct the

relevant activities of the investee); b. exposure, or rights, to variable returns from its involvement with the investee; and c. the ability to use its power over the investee to affect its returns.

When the Company has less than a majority of the voting or similar rights of an investee, the Company considers all relevant facts and circumstances in assessing whether it has power over an investee, including: a. the contractual arrangement with the other vote holders of the investee; b. rights arising from other contractual arrangement; c. the Company’s voting rights and potential voting rights. The Company re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of contol. Subsidiaries are fully consolidated from the acquisition date, being the date on which the Group obtains control, and continue to be consolidated until the date that such control ceases. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using uniform accounting policies. All intra-group balances, income and expenses, unrealized gains and losses and dividends resulting from intra-group transactions are eliminated in full.

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A change in the ownership interest of a subsidiary, without a change of control, is accounted for as an equity transaction. Total comprehensive income of the subsidiaries is attributed to the owners of the parent and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance. If loses control of a subsidiary, it: a. derecognizes the assets (including goodwill) and liabilities of the subsidiary; b. derecognizes the carrying amount of any non-controlling interest; c. recognizes the fair value of the consideration received; d. recognizes the fair value of any investment retained; e. recognizes any surplus or deficit in profit or loss; and f. reclassifies the parent’s share of components previously recognized in other

comprehensive income to profit or loss. The consolidated entities are as follows:

Percentage of Ownership (%)

Invest

Company Investee Company Major business

31 Mar.

2015

31 Dec.

2014

31 Mar.

2014

The Company RU YANG INDUSTRIAL

CO., LTD. (RU YANG)

Manufacture and sale

of automobile parts

58.95% 51.00% 51.00%

The Company TONG YANG HOLDING

CORPORATION

(TONG YANG HOLDING)

Investment holding 90.46% 90.46% 84.46%

The Company TONG YANG (I.K.I.)

VEHICLE PARTS CO.,

LTD.(I.K.I)


of automobile parts

100.00% 100.00% 100.00%

The Company HOW BOND INVESTMENT

CO., LTD. (HOW BOND)

Investment holding 100.00% 100.00% 100.00%

The Company TYG EUROPE S.P.A.

(TYG EUROPE)


of automobile parts

100.00% 100.00% 100.00%

The Company DING CHUNG INDUSTRY

CO., LTD. (DING CHUNG)

Sale of automobile

parts and tooling mold

100.00% 100.00% 100.00%

The Company EAST SMART

INTERNATIONAL LIMITED

(EAST SMART)


of automobile parts

Investment holding

100.00%

100.00%

100.00%

TONG YANG

HOLDING

CHONGQING DAJING

YUCHYANG PLASTICS CO.,

LTD. (DAJING YUCHYANG)


of automobile parts

55.00% 55.00% 55.00%

TONG YANG

HOLDING

NANJING TONG YANG

AUTO PARTS CO., LTD


of automobile parts

100.00% 100.00% 100.00%

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Percentage of Ownership (%)

Invest

Company Investee Company Major business

31 Mar.

2015

31 Dec.

2014

31 Mar.

2014

TONG YANG

HOLDING

FUZHOU TONG YANG

PLASTICS CO., LTD.


of automobile parts

100.00% 100.00% 100.00%

TONG YANG

HOLDING

CHONGQING DAJING

TONG YANG PLASTICS

CO., LTD.


of automobile parts

25.00% (NOTE1)

25.00% (NOTE1)

25.00% (NOTE1)

TONG YANG

HOLDING

GUANGZHOU TONG YANG

TATEMATSU MOLD

MANUFACTURING CO.,

LTD.

Design, manufacture

and sale of tooling

mold

41.00% (NOTE1)

41.00% (NOTE1)

41.00% (NOTE1)

TONG YANG

HOLDING

XIANGYANG TONG YANG

AUTOMOBILE

COMPONENT CO.,

LTD.(Note 6)


of automobile parts

100.00% 100.00% 100.00%

TONG YANG

HOLDING

FUSHUN TONG YANG

AUTOMOBILE

COMPONENT CO., LTD.

(FUSHUN TONG YANG)


of automobile parts

100.00%

100.00%

100.00%

DAJING

YUCHYANG

CHONGQING DAJING

TONG YANG PLASTICS

CO., LTD.


of automobile parts

54.55% 54.55% 54.55%

EAST

SMART

GUANGZHOU TONG YANG

TATEMATSU MOLD

MANUFACTURING CO.,

LTD

Design, manufacture

and sale of tooling

mold

49.00% (NOTE1)

49.00% (NOTE1)

49.00% (NOTE1)

HOW BOND TYG HOLDING (U.S.A.),

INC. (TYG HOLDING)

Investment holding 100.00%

100.00%

100.00%

HOW BOND TONG YANG HOLDING

CORPORATION

Investment holding 9.54% (NOTE1)

9.54% (NOTE1)

9.54% (NOTE1)

TYG

HOLDING

TYG MANAGEMENT, INC. Management consult 100.00% 100.00% 100.00%

TYG

HOLDING

TYG LEASING, L.P. Leasing 99.00% 99.00% 99.00%

TYG

HOLDING

TYG PRODUCTS, L.P. Manufacture and sale

of automobile parts

99.00% 99.00% 99.00%

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Note: (1) The Company and subsidiaries directly or indirectly hold more than 50% of

shares. Expect for TONG YANG HOLDING CORPORATION and FUZHOUTONG YANG PLASTICS CO., LTD., whose consolidated subsidiaries’ total assets accounted for NT$7,530,971 thousand and NT$6,940,537 thousand; total liabilities accounted for NT$3,035,562 thousand and NT$2,434,051 as of 31 March 2015 and 2014. The total consolidated comprehensive income amounting to NT$$(24,671) thousand, and NT$(19,605) thousand for the three months ended 31 March 2015 and 2014 were based on unreviewed financial statements.

4. Foreign currency transactions

The Group’s consolidated financial statements are presented in NT$, which is also the Company’s functional currency. Each entity in the Group determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are initially recorded by the Group entities at their respective functional currency rates prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency closing rate of exchange ruling at the reporting date. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined. Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. All exchange differences arising on the settlement of monetary items or on translating monetary items are taken to profit or loss in the period in which they arise except for the following: (a) Exchange differences arising from foreign currency borrowings for an acquisition of a

qualifying asset to the extent that they are regarded as an adjustment to interest costs are included in the borrowing costs that are eligible for capitalization.

(b) Foreign currency items within the scope of IAS 39 Financial Instruments: Recognition and Measurement are accounted for based on the accounting policy for financial instruments.

(c) Exchange differences arising on a monetary item that forms part of a reporting entity’s net investment in a foreign operation is recognized initially in other comprehensive income and reclassified from equity to profit or loss on disposal of the net investment.

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When a gain or loss on a non-monetary item is recognized in other comprehensive income, any exchange component of that gain or loss is recognized in other comprehensive income. When a gain or loss on a non-monetary item is recognized in profit or loss, any exchange component of that gain or loss is recognized in profit or loss.

5. Translation of financial statements in foreign currency The assets and liabilities of foreign operations are translated into NT$ at the closing rate of exchange prevailing at the reporting date and their income and expenses are translated at an average rate for the period. The exchange differences arising on the translation are recognized in other comprehensive income. On the disposal of a foreign operation, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated in the separate component of equity, is reclassified from equity to profit or loss when the gain or loss on disposal is recognized. The following partial disposals are accounted for as disposals: (a) when the partial disposal involves the loss of control of a subsidiary that includes a

foreign operation; and (b) when the retained interest after the partial disposal of an interest in a joint arrangement

or partial disposal of an interest in an associate that includes a foreign operation is financial asset that includes a foreign operation.

On the partial disposal of a subsidiary that includes a foreign operation that does not result in a loss of control, the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is re-attributed to the non-controlling interests in that foreign operation. In partial disposal of an associate or joint arrangement that includes a foreign operation that does not result in a loss of significant influence or joint control, only the proportionate share of the cumulative amount of the exchange differences recognized in other comprehensive income is reclassified to profit or loss. Any goodwill and any fair value adjustments to the carrying amounts of assets and liabilities arising on the acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and expressed in its functional currency.

6. Current and non-current distinction An asset is classified as current when: (a) The Group expects to realize the asset, or intends to sell or consume it, in its normal

operating cycle (b) The Group holds the asset primarily for the purpose of trading (c) The Group expects to realize the asset within twelve months after the reporting period (d) The asset is cash or cash equivalent unless the asset is restricted from being exchanged

or used to settle a liability for at least twelve months after the reporting period.

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All other assets are classified as non-current. A liability is classified as current when: (a) The Group expects to settle the liability in its normal operating cycle (b) The Group holds the liability primarily for the purpose of trading (c) The liability is due to be settled within twelve months after the reporting period (d) The Group does not have an unconditional right to defer settlement of the liability for at

least twelve months after the reporting period. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

All other liabilities are classified as non-current.

7. Cash and cash equivalents Cash and cash equivalents comprises cash on hand, demand deposits and short-term, highly liquid time deposits (including ones that have maturity within 3 months) or investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

8. Financial instruments Financial assets and financial liabilities are recognized when the Group becomes a party to the contractual provisions of the instrument. Financial assets and financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are recognized initially at fair value plus or minus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs. (a) Financial assets

The Group accounts for regular way purchase or sales of financial assets on the trade date. Financial assets of the Group are classified as financial assets at fair value through profit or loss, held-to-maturity investments, available-for-sale financial assets and loans and receivables. The Group determines the classification of its financial assets at initial recognition.

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Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss include financial assets held for trading and financial assets designated upon initial recognition at fair value through profit or loss. Financial assets at fair value through profit or loss are measured at fair value with changes in fair value recognized in profit or loss. Dividends or interests on financial assets at fair value through profit or loss are recognized in profit or loss (including those received during the period of initial investment). If financial assets do not have quoted prices in an active market and their far value cannot be reliably measured, then they are classified as financial assets measured at cost on balance sheet and carried at cost net of accumulated impairment losses, if any, as at the reporting date. Available-for-sale financial assets Available-for-sale investments are non-derivative financial assets that are designated as available-for-sale or those not classified as financial assets at fair value through profit or loss, held-to-maturity financial assets, or loans and receivables. Foreign exchange gains and losses and interest calculated using the effective interest method relating to monetary available-for-sale financial assets, or dividends on an available-for-sale equity instrument, are recognized in profit or loss. Subsequent measurement of available-for-sale financial assets at fair value is recognized in equity until the investment is derecognized, at which time the cumulative gain or loss is recognized in profit or loss. If equity instrument investments do not have quoted prices in an active market and their far value cannot be reliably measured, then they are classified as financial assets measured at cost on balance sheet and carried at cost net of accumulated impairment losses, if any, as at the reporting date. Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market other than those that the Group upon initial recognition designates as available for sale, classified as at fair value through profit or loss, or those for which the holder may not recover substantially all of its initial investment. Loans and receivables are separately presented on the balance sheet as receivables or debt instrument investments for which no active market exists. After initial measurement, such financial assets are subsequently measured at amortized cost using the effective interest rate method, less impairment. Amortized cost is calculated by taking into account any discount or premium on acquisition and fee or transaction costs. The effective interest method amortization is recognized in profit or loss.

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Impairment of financial assets The Group assesses at each reporting date whether there is any objective evidence that a financial asset other than the financial assets at fair value through profit or loss is impaired. A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more loss events that has occurred after the initial recognition of the asset and that loss event has an impact on the estimated future cash flows of the financial asset. The carrying amount of the financial asset impaired, other than receivables impaired which are reduced through the use of an allowance account, is reduced directly and the amount of the loss is recognized in profit or loss. A significant or prolonged decline in the fair value of an available-for-sale equity instrument below its cost is considered a loss event. Other loss events include: i significant financial difficulty of the issuer or obligor; or ii. a breach of contract, such as a default or delinquency in interest or principal

payments; or iii. it becoming probable that the borrower will enter bankruptcy or other financial

reorganization; or iv. the disappearance of an active market for that financial asset because of financial

difficulties. For held-to-maturity financial assets and loans and receivables measured at amortized cost, the Group first assesses individually whether objective evidence of impairment exists individually for financial asset that are individually significant, or collectively for financial assets that are not individually significant. If the Group determines that no objective evidence of impairment exits for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets carrying amount and the present value of estimated future cash flows. The present value of the estimated future cash flows is discounted at the financial assets original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate. Interest income is accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. Receivables together with the associated allowance are written off when there is no realistic prospect of future recovery. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognized, the previously recognized impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to profit or loss.

26

In the case of equity investments classified as available-for-sale, where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss – is removed from other comprehensive income and recognized in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as available-for-sale, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in profit or loss. Future interest income continues to be accrued based on the reduced carrying amount of the asset, using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recognized in profit or loss. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in profit or loss, the impairment loss is reversed through profit or loss. Derecognition of financial assets A financial asset is derecognized when: i. The rights to receive cash flows from the asset have expired ii. The Group has transferred the asset and substantially all the risks and rewards of the

asset have been transferred iii. The Group has neither transferred nor retained substantially all the risks and rewards

of the asset, but has transferred control of the asset. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the consideration received or receivable including any cumulative gain or loss that had been recognized in other comprehensive income, is recognized in profit or loss.

(b) Financial liabilities and equity Classification between liabilities or equity The Group classifies the instrument issued as a financial liability or an equity instrument in accordance with the substance of the contractual arrangement and the definitions of a financial liability, and an equity instrument. Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of an entity after deducting all of its liabilities. The transaction costs of an equity transaction are accounted for as a deduction from equity (net of any related income tax benefit) to the extent they are incremental costs directly attributable to the equity transaction that otherwise would have been avoided.

27

Compound instruments The Group evaluates the terms of the convertible bonds issued to determine whether it contains both a liability and an equity component. Furthermore, the Group assesses if the economic characteristics and risks of the put and call options contained in the convertible bonds are closely related to the economic characteristics and risk of the host contract before separating the equity element. For the liability component excluding the derivatives, its fair value is determined based on the rate of interest applied at that time by the market to instruments of comparable credit status. The liability component is classified as a financial liability measured at amortized cost before the instrument is converted or settled. For the embedded derivative that is not closely related to the host contract (for example, if the exercise price of the embedded call or put option is not approximately equal on each exercise date to the amortized cost of the host debt instrument), it is classified as a liability component and subsequently measured at fair value through profit or loss unless it qualifies for an equity component. The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the liability component. Its carrying amount is not remeasured in the subsequent accounting periods. If the convertible bond issued does not have an equity component, it is accounted for as a hybrid instrument in accordance with the requirements under IAS 39 Financial Instruments: Recognition and Measurement. Transaction costs are apportioned between the liability and equity components of the convertible bond based on the allocation of proceeds to the liability and equity components when the instruments are initially recognized. On conversion of a convertible bond before maturity, the carrying amount of the liability component being the amortized cost at the date of conversion is transferred to equity. Financial liabilities Financial liabilities within the scope of IAS 39 Financial Instruments: Recognition and Measurement are classified as financial liabilities at fair value through profit or loss or financial liabilities measured at amortized cost upon initial recognition. Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition as at fair value through profit or loss.

28

Gains or losses on the subsequent measurement of liabilities at fair value through profit or loss including interest paid are recognized in profit or loss. If the financial liabilities at fair value through profit or loss do not have quoted prices in an active market and their far value cannot be reliably measured, then they are classified as financial liabilities measured at cost on balance sheet and carried at cost as at the reporting date. Derecognition of financial liabilities A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified (whether or not attributable to the financial difficulty of the debtor), such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts and the consideration paid, including any non-cash assets transferred or liabilities assumed, is recognized in profit or loss.

(c) Offsetting of financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet if, and only if, there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, or to realize the assets and settle the liabilities simultaneously.

9. Derivative financial instrument The Group uses derivative financial instruments to hedge its foreign currency risks and interest rate risks. A derivative is classified in the balance sheet as financial assets or liabilities at fair value through profit or loss (held for trading) except for derivatives that are designated effective hedging instruments which are classified as derivative financial assets or liabilities for hedging. Derivative financial instruments are initially recognized at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at fair value. Derivatives are carried as financial assets when the fair value is positive and as financial liabilities when the fair value is negative. Any gains or losses arising from changes in the fair value of derivatives are taken directly to profit or loss, except for the effective portion of cash flow hedges, which is recognized in equity.

29

Derivatives embedded in host contracts are accounted for as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contracts and the host contracts are not held for trading or designated at fair value though profit or loss. These embedded derivatives are measured at fair value with changes in fair value recognized in profit or loss.

10. Fair value measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: (a) In the principal market for the asset or liability, or (b) In the absence of a principal market, in the most advantageous market for the asset or

liability The principal or the most advantageous market must be accessible to by the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs.

11. Inventories Inventories are valued at lower of cost and net realizable value item by item. Costs incurred in bringing each inventory to its present location and condition are accounted for as follows: Raw materials – Purchase cost on a first in, first out basis Finished goods and work in progress – Cost of direct materials and labor and a proportion of manufacturing overheads based on normal operating capacity but excluding borrowing costs. Net realizable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale.

30

12. Investments accounted for using the equity method The Group’s investment in its associate is accounted for using the equity method other than those that meet the criteria to be classified as held for sale. An associate is an entity over which the Group has significant influence. A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Under the equity method, the investment in the associate or an investment in a joint venture is carried in the balance sheet at cost and adjusted thereafter for the post-acquisition change in the Group’s share of net assets of the associate or joint venture. After the interest in the associate or joint venture is reduced to zero, additional losses are provided for, and a liability is recognized, only to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate or joint venture. Unrealized gains and losses resulting from transactions between the Group and the associate or joint venture are eliminated to the extent of the Group’s related interest in the associate or joint venture. When changes in the net assets of an associate or a joint venture occur and not those that are recognized in profit or loss or other comprehensive income and do not affects the Group’s percentage of ownership interests in the associate or joint venture, the Group recognizes such changes in equity based on its percentage of ownership interests. The resulting capital surplus recognized will be reclassified to profit or loss at the time of disposing the associate or joint venture on a prorata basis. When the associate or joint venture issues new stock, and the Group’s interest in an associate or a joint venture is reduced or increased as the Group fails to acquire shares newly issued in the associate or joint venture proportionately to its original ownership interest, the increase or decrease in the interest in the associate or joint venture is recognized in Additional Paid in Capital and Investment accounted for using the equity method. When the interest in the associate or joint venture is reduced, the cumulative amounts previously recognized in other comprehensive income are reclassified to profit or loss or other appropriate items. The aforementioned capital surplus recognized is reclassified to profit or loss on a pro rata basis when the Group disposes the associate or joint venture. The financial statements of the associate or joint venture are prepared for the same reporting period as the Group. Where necessary, adjustments are made to bring the accounting policies in line with those of the Group.

31

The Group determines at each reporting date whether there is any objective evidence that the investment in the associate or an investment in a joint venture is impaired in accordance with IAS 39 Financial Instruments: Recognition and Measurement. If this is the case the Group calculates the amount of impairment as the difference between the recoverable amount of the associate or joint venture and its carrying value and recognizes the amount in the ‘share of profit or loss of an associate’ in the statement of comprehensive income in accordance with IAS 36 Impairment of Assets. In determining the value in use of the investment, the Group estimates: (1) Its share of the present value of the estimated future cash flows expected to be generated

by the associate or joint venture, including the cash flows from the operations of the associate and the proceeds on the ultimate disposal of the investment; or

(2) The present value of the estimated future cash flows expected to arise from dividends to be received from the investment and from its ultimate disposal.

Because goodwill that forms part of the carrying amount of an investment in an associate or an investment in a joint venture is not separately recognized, it is not tested for impairment separately by applying the requirements for impairment testing goodwill in IAS 36 Impairment of Assets.

13. Property, plant and equipment

Property, plant and equipment is stated at cost, net of accumulated depreciation and accumulated impairment losses, if any. Such cost includes the cost of dismantling and removing the item and restoring the site on which it is located and borrowing costs for construction in progress if the recognition criteria are met. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. When significant parts of property, plant and equipment are required to be replaced in intervals, the Group recognized such parts as individual assets with specific useful lives and depreciation, respectively. The carrying amount of those parts that are replaced is derecognized in accordance with the derecognition provisions of IAS 16 Property, plant and equipment. When a major inspection is performed, its cost is recognized in the carrying amount of the plant and equipment as a replacement if the recognition criteria are satisfied. All other repair and maintenance costs are recognized in profit or loss as incurred. Depreciation is calculated on a straight-line basis over the estimated economic lives of the following assets: Buildings 4～56 years Machinery and equipment 2～20 years Molding equipment 2～10 years Electrical installations 5～20 years Transportation equipment 3～10 years Office equipment 2～10 years Miscellaneous equipment 2～20 years

32

An item of property, plant and equipment and any significant part initially recognized is derecognized upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognized in profit or loss. The assets’ residual values, useful lives and methods of depreciation are reviewed at each financial year end and adjusted prospectively, if appropriate.

14. Leases Group as a lessee Operating lease payments are recognized as an expense on a straight-line basis over the lease term Group as a lessor Leases in which the Group does not transfer substantially all the risks and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating an operating lease are added to the carrying amount of the leased asset and recognized over the lease term on the same basis as rental income. Contingent rents are recognized as revenue in the period in which they are earned.

15. Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is its fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortization and accumulated impairment losses, if any. Internally generated intangible assets, excluding capitalized development costs, are not capitalized and expenditure is reflected in profit or loss for the year in which the expenditure is incurred. The useful lives of intangible assets are assessed as either finite or indefinite. Intangible assets with finite lives are amortized over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortization period and the amortization method for an intangible asset with a finite useful life is reviewed at least at the end of each financial year. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset is accounted for by changing the amortization period or method, as appropriate, and are treated as changes in accounting estimates. Intangible assets with indefinite useful lives are not amortized, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis.

33

Gains or losses arising from derecognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognized in profit or loss when the asset is derecognized. Computer software The cost of computer software is amortized on a straight-line basis over the estimated useful life (3 to 5 years). Customer relationship Acquisition of customer relationship is amortized over ten years. The Company’s intangible assets accounting policies are as follows:

Software Goodwill Other intangible

assets-customer relation ship Useful life Limited Uncertain Limited Amortization methods

Use straight method amortized under estimated useful life

unamortized

Use straight method amortized under estimated useful life

Internally generated or outside acquisition

Outside Acquisition Outside Acquisition

Outside Acquisition

16. Impairment of non-financial assets

The Group assesses at the end of each reporting period whether there is any indication that an asset in the scope of IAS 36 Impairment of Assets may be impaired. If any such indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (“CGU”) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Group estimates the asset’s or cash-generating unit’s recoverable amount. A previously recognized impairment loss is reversed only if there has been an increase in the estimated service potential of an asset which in turn increases the recoverable amount. However, the reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years.

34

A cash generating unit, or groups of cash-generating units, to which goodwill has been allocated is tested for impairment annually at the same time, irrespective of whether there is any indication of impairment. If an impairment loss is to be recognized, it is first allocated to reduce the carrying amount of any goodwill allocated to the cash generating unit (group of units), then to the other assets of the unit (group of units) pro rata on the basis of the carrying amount of each asset in the unit (group of units). Impairment losses relating to goodwill cannot be reversed in future periods for any reason. An impairment loss of continuing operations or a reversal of such impairment loss is recognized in profit or loss.

17. Provisions Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probably that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Where the Group expects some or all of a provision to be reimbursed, the reimbursement is recognized as a separate asset but only when the reimbursement is virtually certain. If the effect of the time value of money is material, provisions are discounted using a current pre-tax rate that reflects the risks specific to the liability. Where discounting is used, the increase in the provision due to the passage of time is recognized as a finance cost.

18. Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. Revenue is measured at the fair value of the consideration received or receivable. The following specific recognition criteria must also be met before revenue is recognized: Sales of goods Revenue from sale of goods is recognized when all the following conditions have been satisfied: the significant risks and rewards of ownership of the goods have transferred to the buyer; neither continuing managerial involvement nor effective control over the goods sold have been retained; the amount of revenue can be measured reliably; it is probable that the economic benefits associated with the transaction will flow to the entity; and the costs incurred or to be incurred in respect of the transaction can be measured reliably. Interest income For financial assets measured at amortized cost (include held-to-maturity financial assets) and financial assets at fair value through profit or loss, interest income is recorded using the effective interest rate and recognized in profit or loss.

35

Dividends Revenue is recognized when the Group’s right to receive the payment is established, which is generally when stockholders approve the dividend.

19. Borrowing cost Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalized as part of the cost of the respective assets. All other borrowing costs are expensed in the period they occur. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds.

20. Post-employment benefits All regular employees of the Company and its domestic subsidiaries are entitled to a pension plan that is managed by an independently administered pension fund committee. Fund assets are deposited under the committee’s name in the specific bank account and hence, not associated with the Company and its domestic subsidiaries. Therefore fund assets are not included in the Group’s consolidated financial statements. Pension benefits for employees of the overseas subsidiaries and the branches are provided in accordance with the respective local regulations. For the defined contribution plan, the Company and its domestic subsidiaries will make a monthly contribution of no less than 6% of the monthly wages of the employees subject to the plan. The Company recognizes expenses for the defined contribution plan in the period in which the contribution becomes due. Overseas subsidiaries and branches make contribution to the plan based on the requirements of local regulations. Post-employment benefit plan that is classified as a defined benefit plan uses the Projected Unit Credit Method to measure its obligations and costs based on actuarial assumptions. Re-measurements, comprising of the effect of the actuarial gains and losses, the effect of the asset ceiling (excluding net interest) and the return on plan assets, excluding net interest, are recognized as other comprehensive income with a corresponding debit or credit to retained earnings in the period in which they occur. Past service costs are recognized in profit or loss on the earlier of: (a) the date of the plan amendment or curtailment, and (b) the date that the Group recognizes restructuring-related costs. Net interest is calculated by applying the discount rate to the net defined benefit liability or asset, both as determined at the start of the annual reporting period, taking account of any changes in the net defined benefit liability (asset) during the period as a result of contribution and benefit payment.

36

Pension cost for an interim period is calculated on a year-to-date basis by using the actuarially determined pension cost rate at the end of the prior financial year, adjusted and disclosed for significant market fluctuations since that time and for significant curtailments, settlements, or other significant one-off events.

21. Income taxes Income tax expense (income) is the aggregate amount included in the determination of profit or loss for the period in respect of current tax and deferred tax. Current income tax Current income tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities, using the tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period. Current income tax relating to items recognized in other comprehensive income or directly in equity is recognized in other comprehensive income or equity and not in profit or loss. The 10% income tax for undistributed earnings is recognized as income tax expense in the subsequent year when the distribution proposal is approved by the Shareholders’ meeting. Deferred tax Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except: i. Where the deferred tax liability arises from the initial recognition of goodwill or of an

asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

ii. In respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilized, except: i. Where the deferred tax asset relating to the deductible temporary difference arises from

the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss

37

ii. In respect of deductible temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, deferred tax assets are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantively enacted at the reporting date. The measurement of deferred tax assets and deferred tax liabilities reflects the tax consequences that would follow from the manner in which the Group expects, at the end of the reporting period, to recover or settle the carrying amount of its assets and liabilities. Deferred tax relating to items recognized outside profit or loss is recognized outside profit or loss. Deferred tax items are recognized in correlation to the underlying transaction either in other comprehensive income or directly in equity. Deferred tax assets are reassessed at each reporting date and are recognized accordingly. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current income tax assets against current income tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority. Interim period income tax expense is accrued using the tax rate that would be applicable to expected total annual earnings, that is, the estimated average annual effective income tax rate applied to the pre-tax income of the interim period.

22. Earnings per Share The Group presents both basic earnings per share and diluted earnings. Basic earnings per share are equal to the net income (loss) attributable to common stock divided by the weighted average number of common shares. When calculating diluted earnings per share, the numerator should include or add back potential common stock dividends, interest and other conversion revenues (expenses). The denominator should include all diluted potential common share.

V. SIGNIFICANT ACCOUNTING JUDGMENTS, ESTIMATES AND ASSUMPTIONS

The preparation of the Company’s consolidated financial statements requires management to make judgments, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the accompanying disclosures, and the disclosure of contingent liabilities. However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

38

The key assumptions concerning the future and other key sources for estimating uncertainty at the reporting date, that would have a significant risk for a material adjustment to the carrying amounts of assets and liabilities within the next fiscal year are discussed below. (1) The Fair Value of Financial Instruments

Where the fair value of financial assets and financial liabilities recorded in the balance sheet cannot be derived from active markets, they are determined using valuation techniques including income approach (for example the discounted cash flow model) or the market approach. Changes in assumptions about these factors could affect the reported fair value of the financial instruments. Please refer to Note 12 for more details.

(2) Impairment of Non-financial Assets An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs to sell and its value in use. The fair value less costs to sell calculation is based on the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date less incremental costs that would be directly attributable to the disposal of the asset or cash generating unit. The value in use calculation is based on a discounted cash flow model. The cash flows projections are derived from the budget for the next five years and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being tested. The recoverable amount is most sensitive to the discount rate used for the discounted cash flow model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. The key assumptions used to determine the recoverable amount for the different cash generating units, including a sensitivity analysis, are further explained in Note 6.

(3) Pension The cost of post-employment benefit pension plan and the present value of the pension obligation are determined using actuarial valuations. An actuarial valuation involves making various assumptions. These include the determination of the discount rate, future salary increases, mortality rates and future pension increases. The assumptions used for measuring pension cost and the present value of the pension obligation are disclosed in Note 6.

(4) Revenue Recognition-Sales Returns and Discounts The Group estimates sales returns and allowance based on historical experience and other known factors at the time of sale, which reduces the sales revenue. Please refer to Note 6 for more details.

39

(5) Income Tax Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. Given the wide range of international business relationships and the long-term nature and complexity of existing contractual agreements, differences arising between the actual results and the assumptions made, or future changes to such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audits by the tax authorities of the respective counties in which it operates. The amount of such provisions is based on various factors, such as experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences of interpretation may arise on a wide variety of issues depending on the conditions prevailing in the respective Group company's domicile. Deferred tax assets are recognized for all carryforward of unused tax losses and unused tax credits and deductible temporary differences to the extent that it is probable that taxable profit will be available or there are sufficient taxable temporary differences against which the unused tax losses, unused tax credits or deductible temporary differences can be utilized. The amount of deferred tax assets determined to be recognized is based upon the likely timing and the level of future taxable profits and taxable temporary differences together with future tax planning strategies. Please refer to Note 6 for more details on unrecognized deferred tax assets.

VI. CONTENTS OF SIGNIFICANT ACCOUNTS 1. Cash and Cash Equivalents

31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Cash on hand $5,033 $4,545 $5,413 Saving account 1,146,365 1,055,076 1,204,693 Time deposits 11,318 15,905 19,269 Cash equivalents－short-term notes and bills 124,891 119,832 99,796 Total $1,287,607 $1,195,358 $1,329,171

2. Financial Assets at Fair Value Through Profit or Loss

31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Held for trading: Puttable and redeemable convertible bonds $29 $29 $129

Current $29 $29 $129 Non-current - - - Total $29 $29 $129 Held for trading financial assets were not pledged.

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3. Available-For-Sale Financial Assets 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Stocks $125,883 $125,883 $125,883

Current $- $- $- Non-current 125,883 125,883 125,883 Total $125,883 $125,883 $125,883

Available-for-sale financial assets were not pledged.

4. Financial Assets Measured at Cost

31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Available-for-sale financial assets

Stock $2,236 $2,236 $2,237

Current $- $- $- Non-current 2,236 2,236 2,237 Total $2,236 $2,236 $2,237

The above non-listed (non-OTC-listed) stock investments owned by the Group were unable to be measured by their fair value given the significant interval of the reasonable estimates of the fair value and the probability of the estimates cannot be reasonably calculated. These investments were measured at cost. The Group’s financial assets measured at cost were not pledged as collateral.

5. Debt Instrument Investments for Which No Active Market Exists 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Time deposits $159,439 $111,997 $113,168

Current $141,341 $93,899 $96,310 Non-current 18,098 18,098 16,858 Total $159,439 $111,997 $113,168

For details of the pledged debt instrument investments for which no active market exists, please refer to Note 8.

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6. Note Receivable 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Note receivable ─ from operating $85,842 $201,625 $119,884 Less: allowance for doubtful accounts (651) (651) (651) Total $85,191 $200,974 $119,233 Notes receivable were not pledged.

7. Account Receivable and Account Receivable-Related Parties 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Account receivable $4,764,564 $4,864,711 $4,232,849 Less: allowance for doubtful accounts (80,810) (72,134) (54,936)

Subtotal 4,683,754 4,792,577 4,177,913 Account receivable-related parties 16,939 27,013 28,141 Less: allowance for bad debt - - (2,704)

Subtotal 16,939 27,013 25,437 Total $4,700,693 $4,819,590 $4,203,350 For details of pledged account receivable, please refer to Note 8. Trade receivables are generally on 75-120 day terms. The movements in the provision for impairment of trade receivables and trade receivables-related parties are as follows (please refer to Note 12 for credit risk disclosure):

Individual

assessment to impairment loss

Collective impairment Total

1 Jan. 2015 $- $72,134 $72,134 Charge/reserve for the year - 9,200 9,200 Write off - (20) (20) Exchange differences - (504) (504) 31 Mar. 2015 $- $80,810 $80,810 1 Jan. 2014 $1,287 $60,309 $61,596 Charge/reserve for the year - (3,756) (3,756) Exchange differences - (200) (200) 31 Mar. 2014 $1,287 $56,353 $57,640 Impairment loss that was individually determined for the years ended 31 March 2014, arose due to the fact that the counterparty was in financial difficulties. The amount of impairment loss recognized was the difference between the carrying amount of the trade receivable and the present value of its expected recoverable amount. The Group does not hold any collateral for such trade receivables.

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The past due account aging analysis of net account receivables and account receivable-related parties is as follows: Past due but not impaired account receivables

Neither past

due nor impaired

<= 30 days

31-90 days

91-180 days

181- 360 days

>= 360 days Total

31 Mar. 2015 $4,062,561 $500,346 $121,789 $12,683 $3,314 $- $4,700,693 31 Dec. 2014 4,168,416 522,200 90,267 29,670 9,037 - 4,819,590 31 Mar. 2014 3,667,325 402,729 101,396 23,506 8,394 - 4,203,350

8. Inventories

(1) Details are as follows: 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Raw materials $562,721 $577,359 $570,364 Supplies and parts 251,171 240,610 203,682 Work in process 489,190 483,817 459,240 Finished goods 1,353,369 1,407,120 1,304,937 Merchandise 216,867 126,407 93,691 Total 2,873,318 2,835,313 2,631,914 Less: Allowance for loss on obsolescence and

declines in market value (64,601) (67,549) (62,282)

Net $2,808,717 $2,767,764 $2,569,632

The cost of inventories recognized in expenses amounted to NT$4,307,825 thousand and NT$3,993,156 thousand for the three months ended 31 March 2015 and 2014, respectively, including the write-down of inventory gains from price recovery of NT$2,704 thousand and NT$634 thousand of losses from market price decline for the three months ended 31 March 2015 and 2014, respectively, due to disposal of obsolete inventories.

9. Investments Accounted For Under The Equity Method

(1) Details are as follows: 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014

Investee Company Amount

Percentage

of ownership Amount

Percentage

of ownership Amount

Percentage

of ownership

Unlisted company

TUNG YANG

CHEMICAL CO.,

LTD.

$161,139 40.00% $153,100 40.00% $150,914 40.00%

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31 Mar. 2015 31 Dec. 2014 31 Mar. 2014


Percentage

of ownership Amount

Percentage

of ownership Amount

Percentage

of ownership

C&D CAPITAL

CORPORATION

123,903 33.34% 129,949 33.34% 187,606 33.34%

CHINA

INTERNATIONAL

INVESTMENT CO.,

LTD.

25,090 33.34% 25,069 33.34% 63,206 33.34%

C&D Ⅱ CAPITAL

CORPORATION

209,708 42.53% 211,788 42.53% 203,703 42.53%

CHANG CHUEN

FAWAY TONG

YANG PLASTICS

CO., LTD.

1,419,504 49.00% 1,564,582 49.00% 1,306,767 49.00%

CHANGSHA GACC

TONG YANG

AUTOMOBILE

COMPONENT CO.,

LTD.

511,797 49.00% 513,020 49.00% 464,879 49.00%

DAIKYO

NISHIKAWA KAI

YANG AUTO

PLASTIC PARTS

(NANJING) CO.,

LTD.

159,405 45.00% 169,634 45.00% 182,962 45.00%

NBC (WUHAN)

CO., LTD.

118,309 40.00% 146,298 40.00% 110,937 40.00%

NBC (NANJING)

CO., LTD.

112,428 40.00% 129,020 40.00% 110,137 40.00%

NBC (TIANJIN)

CO., LTD.

124,458 40.00% 143,484 40.00% 122,751 40.00%

WUHAN XIANG

XING AUTO

PARTS CO., LTD.

113,300 25.00% 109,564 25.00% 111,207 25.00%

NBC

(GUANGZHOO)

CO., LTD

235,757 40.00% 284,740 40.00% 225,861 40.00%

Total $3,314,798 $3,580,248 $3,240,930

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(2) Equity investments under equity method – credit balance 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014


Percentage of

ownership Amount

Percentage of

ownership Amount

Percentage of

ownership NBC (CHANG CHUEN) CO., LTD.

$2,850 40.00% $2,673 40.00% $1,523 40.00%

(3) The Group’s investments in associates are not individually material. The aggregate financial

information of the Group’s investments in associates is as follows:

3-month periods ended 31 Mar. 2015 31 Mar. 2014 Profit or loss from continuing operations $76,851 $85,580Other comprehensive income (post-tax) (3,072) 16,954Total comprehensive income $73,779 $102,534

(4) The carrying amount of investments accounted for under the equity method in investees

except for Chang Chuen Faway Tong Yang Plastics Co., Ltd., whose financial statements that were unreviewed amounted to NT$1,892,444 and NT$1,932,640, as at 31 March 2015 and 31 March 2014, respectively. The share of the profit or loss of these associates and joint ventures accounted for using the equity method amounted to NT$33,774 and NT$51,581 for the three-month periods ended 31 March 2015 and 2014, respectively. The share of other comprehensive income of these associates and joint ventures accounted for using the equity method amounted to NT$(17,117) and NT$10,814 for the three-month periods ended 31 March 2015 and 2014, respectively. These amounts were based on the unreviewed financial statements of the investees.

(5) The associates had no contingent liabilities or capital commitments as at 31 March 2015, 31

December 2014, and 31 March 2014.

45

10. Property, plant and equipment

Land Buildings

Machinery

and

equipment

Molding

equipment

Office

equipment

Transportation

equipment

Utilities

equipment

Other

facilities

Construction in

progress and

equipment

awaiting

inspection Total

Cost:

1 Jan. 2015 $3,661,382 $5,150,746 $6,399,463 $12,003,205 $221,261 $349,508 $334,953 $649,497 $677,921 $29,447,936

Addition - 21,477 222,399 586,723 11,640 20,695 4,254 22,249 172,497 1,061,934

Disposal - - (145,152) (814,432) (776) (9,622) (15,725) - - (985,707)

Exchange difference (81) (14,935) (37,140) (27,880) (378) (689) (298) (1,213) (4,853) (87,467)

Transfer - 9,513 - 819 - - - - (10,332) -

Other - - - (109,523) - - - - - (109,523)

31 Mar. 2015 $3,661,301 $5,166,801 $6,439,570 $11,638,912 $231,747 $359,892 $323,184 $670,533 $835,233 $29,327,173

1 Jan. 2014 $3,406,629 $4,848,522 $5,413,349 $10,902,273 $198,935 $292,357 $288,857 $519,293 $358,277 $26,228,492

Addition - 71,989 339,019 161,843 5,983 16,069 6,446 18,470 142,171 761,990

Disposal - - (35,867) (23,710) (494) (1,035) - (362) - (61,468)

Exchange difference 1,479 (3,034) (9,448) 8,828 (93) (104) (237) (555) (2,300) (5,464)

Transfer - 47,041 (103) 3,107 - 103 - - (50,148) -

Other - - - (4,294) - - - - (292) (4,586)

31 Mar. 2014 $3,408,108 $4,964,518 $5,706,950 $11,048,047 $204,331 $307,390 $295,066 $536,846 $447,708 $26,918,964

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Land Buildings

Machinery

and

equipment

Molding

equipment

Office

equipment

Transportation

equipment

Utilities

equipment

Other

facilities

Construction in

progress and

equipment

awaiting

inspection Total

Depreciation and impairment:

1 Jan. 2015 $- $1,582,603 $3,129,244 $6,923,101 $153,077 $195,137 $165,446 $373,413 $- $12,522,021

Depreciation - 52,127 148,210 392,611 6,336 10,476 7,543 26,455 - 643,758

Disposal - - (126,723) (805,362) (775) (9,540) (15,415) - - (957,815)

Exchange difference - (5,915) (21,839) (19,065) (287) (399) (232) (764) - (48,501)

Other - - - (60,573) - - - - - (60,573)

31 Mar. 2015 $- $1,628,815 $3,128,892 $6,430,712 $158,351 $195,674 $157,342 $399,104 $- $12,098,890

1 Jan. 2014 $- $1,404,715 $2,743,887 $5,663,227 $129,237 $178,537 $144,571 $294,457 $- $10,558,631

Depreciation - 48,809 126,259 363,172 6,068 8,844 6,705 20,590 - 580,447

Disposal - - (22,190) (16,029) (470) (1,035) - (347) - (40,071)

Exchange difference - (780) (4,170) 1,694 (70) (70) (169) (420) - (3,985)

Other - - - (767) - - - - - (767)

31 Mar. 2014 $- $1,452,744 $2,843,786 $6,011,297 $134,765 $186,276 $151,107 $314,280 $- $11,094,255

Net book value:

31 Mar. 2015 $3,661,301 $3,537,986 $3,310,678 $5,208,200 $73,396 $164,218 $165,842 $271,429 $835,233 $17,228,283

31 Dec. 2014 $3,661,382 $3,568,143 $3,270,219 $5,080,104 $68,184 $154,371 $169,507 $276,084 $677,921 $16,925,915

31 Mar. 2014 $3,408,108 $3,511,774 $2,863,164 $5,036,750 $69,566 $121,114 $143,959 $222,566 $447,708 $15,824,709

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The amount of capitalized interests and interest rates are as follows: Items 1 Jan. ~ 31 Mar. 2015 1 Jan. ~ 31 Mar. 2014

Construction in progress $5,752 $4,290 The interest rate interval of borrowing cost capitalization 1.32%~1.41% 1.32%~1.38% Please refer to Note 8 for more details on property, plant and equipment under pledge.

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11. Intangible assets

Software

Other

intangible

assets Goodwill Total

Cost: 1 Jan. 2015 $166,627 $1,518,558 $329,974 $2,015,159 Addition - acquired separately 1,937 44,240 - 46,177 Decrease - (1,525) - (1,525) Exchange differences (354) (12,136) - (12,490) 31 Mar. 2015 $168,210 $1,549,137 $329,974 $2,047,321

1 Jan.2014 $141,976 $1,220,308 $329,974 $1,692,258 Addition - acquired separately 3,041 42,614 - 45,655 Decrease - (184) - (184) Exchange differences (124) (7,087) - (7,211) 31 Mar. 2014 $144,893 $1,255,651 $329,974 $1,730,518

Amortization and impairment: 1 Jan. 2015 $84,603 $992,560 $- 1,077,163 Amortization 7,923 49,250 - 57,173 Decrease - (1,525) - (1,525) Exchange differences (288) (9,824) - (10,112) 31 Mar. 2015 $92,238 $1,030,461 $- $1,122,699

1 Jan. 2014 $57,552 $767,099 $- $824,651 Amortization 6,565 45,733 - 52,298 Decrease - (184) - (184) Exchange differences (105) (4,883) - (4,988) 31 Mar. 2014 $64,012 $807,765 $- $871,777

Net book value: 31 Mar. 2015 $75,972 $518,676 $329,974 $924,622

31 Dec. 2014 $82,024 $525,998 $329,974 $937,996

31 Mar. 2014 $80,881 $447,886 $329,974 $858,741

49

Intangible assets amortization 1 Jan. ~31 Mar.

2015 1 Jan. ~31 Mar.

2014 Included in cost of goods sold :

Amortization $43,262 $39,939 Included in sales and marketing expenses :

Amortization 5,473 5,450 Included in general and administrative expenses :

Amortization 8,031 6,628 Included in research and development expenses :

Amortization 407 281

12. Impairment test of goodwill and uncertain useful life intangible assets For the purpose of impairment test, goodwill acquired as a result of business combination has been allocated to the following two CGUs. The goodwill of assembly market related to total goodwill book value was not significant. (1) Aftermarket-department A CGU. (2) Assembly market-department B CGU. The book value of goodwill allocated to CGU.

Goodwill

Aftermarket-department

A Assembly

market-department B Total

31 Mar. 2015 $319,654

$10,320

$329,974 31 Dec. 2014 $319,654

$10,320

$329,974

31 Mar. 2014 $319,654

$10,320

$329,974

After Market-Department A CGU The recoverable amount ($5,804,862 thousand) of Aftermarket-department A CGU is determined by value-in-use, and the value-in-use is calculated based on the five year cash flow forecast which is authorized by management. Cash flow forecast has been updated to reflect the fluctuation of related product demands. The discount rate before income tax used by cash flow forecast were 10.98% and 10.36% for the three months ended 31 March 2015 and 2014, and the cash flow over five year period was projected by 5% growth rate for the three months ended 31 March 2015 and 2014. The growth rate was based on past experiences and the long-term average growth rate of the related industry. Based on the updated analysis result, management considered that there is no impairment of goodwill in the amount of $319,654 thousand dollars which has been amortized to the cash generated unit.

50

The key assumptions used to calculate value-in-use The following assumptions were the most sensitive in the calculation of value-in-use of After Market-department A: (1) Gross margin (2) Discount rate (3) Raw materials prices inflation (4) Growth rate used to extrapolate cash flows beyond the budget period. Gross profit margin - Gross profit margin is calculated by actual average gross profit margin of the past and recently market information according to financial budget period. Maintenance market-department A: expected to use the average gross profit margin with slight increase each year as future economic output is expected to rise and taking into consideration the future industry changes. Discount rate - Discount rate represents the market’s assessment of every GCU’s specific risk. (About the individual risk to the time value of the currency and the related assets which were not included in cash flow estimates) The calculation of discount rate was based on the specific situations of the Company and its operating departments, deriving from weight average capital costs (WACC). WACC considered both liability and equity. Equity costs derives from the expected return from the investment made by the investor of the Company, and the liability costs is based on the loans which the Company is obligated to repay. The department’s specific risk was included by individual beta factor, which was evaluated every year by available public market information. The rising price range of materials - The estimates are based on the recent prices published by the major suppliers and the actual material price fluctuation in the past. Growth rate estimates - Growth rate is calculated based on historical sales data and future industry information. Long-term average growth rate of the maintenance market-department A is projected by taking into account these two factors. Sensitivity of changes in assumptions Regarding the evaluation of value-in-use of maintenance market - department A, the management believes that it is unlikely the aforementioned assumptions will change, which would make the unit’s book value amount significantly higher than the recoverable amount.

51

13. Short-term Borrowings Interest rate range 31 Mar. 2015 Unsecured Loans 1.16%~4.59% $2,093,871 Secured Loans 4.20%~6.90% 444,129 Total $2,538,000 Interest rate range 31 Dec. 2014 Interest rate range 31 Mar. 2014 Unsecured Loans 1.16%~4.59% $2,203,827 1.11%~3.44% $1,763,568 Secured Loans 4.20%~6.90% 449,840 4.21%~7.50% 243,516 Total $2,653,667 $2,007,084 Please refer to Note 8 for the detail of the assets pledged as collateral.

14. Short-term Notes and Bills Payable

31 Mar. 2015 Guarantors Interest rate range Amount Pledge or Collateral

Commercial paper payable CHINA BILLS FINANCE CORPORATION

0.70% $280,000 None

INTERNATIONAL BILLS FINANCE CORPORATION

0.91% 50,000 None

GRAND BILLS FINANCE CORPORATION

0.70% 40,000 None

Subtotal 370,000 Less: Discount of commercial paper

payable

(136)

Net $369,864 31 Dec. 2014

Guarantors Interest rate range Amount Pledge or Collateral Commercial paper payable

CHINA BILLS FINANCE CORPORATION

0.70% $280,000 None

MEGA BILLS FINANCE CO., LTD 0.81% 50,000 None TAIWAN COOPERATIVE BILLS FINANCE CORPORATION

0.90% 50,000 None


0.91% 150,000 None


0.70% 40,000 None


payable (137)

Net $569,863

52

31 Mar. 2014

Guarantors Interest rate range Amount Pledge or Collateral Commercial paper payable

CHINA BILLS FINANCE CORPORATION

0.65% $190,000 None

MEGA BILLS FINANCE CO., LTD 0.91% 80,000 None TAIWAN COOPERATIVE BILLS FINANCE CORPORATION

0.90% 50,000 None


0.81% 110,000 None


0.70% 40,000 None


payable (208)

Net $469,792

15. Bonds payable

31 Mar. 2014 31 Dec. 2013 31 Mar. 2013

Secured and non-convertible bonds $2,700,000 $1,500,000 $1,500,000

Unsecured and convertible bonds 985,626 980,880 966,781

Subtotal 3,685,626 2,480,880 2,466,781

Less: Current portion (1,485,626) - -

Net $2,200,000 $2,480,880 $2,466,781

Secured and nonconvertible bonds payable: (1) Details were as follows:

31 Mar. 2014 31 Dec. 2013 31 Mar. 2013 13 Jan. 2012~13 Jan. 2017 1.25% $1,500,000 $1,500,000 $1,500,000 28 Jan. 2015~28 Jan. 2020 1.35% 1,200,000 - - Subtotal 2,700,000 1,500,000 1,500,000 Less: Current portion (500,000) - - Net $2,200,000 $1,500,000 $1,500,000

53

(2) On 13 January 2012, the Company issued secured and nonconvertible bond amounted to NT$1,500,000 thousand with par rate of 1.25%. The interest will be paid every year starting from the date of issuance. The principal of bond shall be paid every six months by 3 equal installments at NT$500,000 thousand starting from the 4th year after the date of issuance.

Installments Installments date Amount 1 Jan. 2016 $500,000 2 Jul. 2016 500,000 3 Jan. 2017 500,000 $1,500,000

(3) On 28 January 2015, the Company issued secured and nonconvertible bond amounted to

NT$1,200,000 thousand with par rate of 1.35%. The interest will be paid every year starting from the date of issuance. The principal of bond shall be paid every year by 2 equal installments at NT$600,000 thousand starting from the 4th and 5th year after the date of issuance.

Installments Installments date Amount

1 Jan. 2019 $600,000 2 Jan. 2020 600,000

$1,200,000

(4) As of 31 March 2015, 31 December 2014 and 31 March 2014, the financial institutions have

provided the Company with guarantee, which amounted to NT$2,700,000 thousand, NT$1,500,000 thousand and NT$1,500,000 thousand, respectively, for the above bond issued.

Unsecured and convertible bonds: (1) Details were as follows:

Description 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 The value of pure bonds

Secured and nonconvertible bonds $1,000,000 $1,000,000 $1,000,000 Less: Discount (14,374) (19,120) (33,219)

Net 985,626 980,880 966,781 Less: Current portion of bonds payable (985,626) - - Long-term bonds payable $- $980,880 $966,781 Embedded derivatives $(29) $(29) $(129) Equity $67,453 $67,453 $67,453

54

(2) The Company issued convertible bonds:

Assignee Place

Period Issue Amount Number of Issuance Nominal rate

Taipei Fubon Commercial Bank Co., Ltd.

Taiwan 3 Jan. 2011~ 3 Jan. 2016

$1,000,000 10,000 0%

(3) The Company issued the first unsecured and convertible bonds on 3 January 2011. The main

issuance terms are as follows: A. Conversion term:

Conversion Period Conversion Price

Account Basis of Certificate of Entitlement to New Shares from

Convertible Bond 4 Feb. 2011 ~ 24 Dec. 2015 NT$43.5 per share Fair value method

B. Call option and put option:

Call option The Company should redeem the convertible bonds at par value at any time during the period from 4 Feb. 2011 to 24 Nov. 2015 under the following conditions: a. The closing price of the common shares on each of 30 consecutive trading days reaches

or exceeds 30% of the conversion price. b. The outstanding balance of the bonds is less than 10% of the original issuance. Put option The base date of the convertible bond is 3 January 2014. The bondholders have the right to require the Company’s underwriter to redeem the bonds at a price equal to par value of the principal amount before 5 to 30 days of the base date.

C. Unless the Company redeems and purchases the bonds in advance, or the bondholders exercise put option and the rights to convert bonds, bonds are redeemable on maturity at a price equal to 100% of the unpaid principal amount thereof.

(4) Until 31 March 2015, there is no unsecured and convertible bond applied to be transferred to

common share.

55

16. Long-term Borrowing Details are as follows:

31 Mar. 2015

Creditors Period Amount Interest

rate Redemption Unsecured Loan: Chang Hwa Bank 31 May 2014~

31 May 2016 $340,000 1.25% Bullet repayment on expiry

date. Bank of Taiwan 31 Mar. 2015~

31 Mar. 2017 100,000 1.25% Bullet repayment on expiry

date. Hua Nan Bank 11 Jul. 2014~

11 Jul. 2016 141,309 (USD4,500)

1.46% Bullet repayment on expiry date.

China Development Industrial Bank

3 Jun. 2013~ 3 Jun. 2016

560,000 1.26% Bullet repayment on expiry date.


12 Jun. 2014~ 5 Jun. 2016

188,412 (USD6,000)


First Bank 12 Jun. 2014~ 30 May 2016

62,804 (USD2,000)


First Bank 23 Sep. 2014~ 23 Sep. 2016

270,000


Yuanta Bank 26 May 2014~ 25 May 2016


Bank SinoPac 31 Dec. 2014~ 31 Dec. 2016


CTBC Bank Co., Ltd.

31 Oct. 2014~ 31 Oct. 2016


Industrial Bank of Taiwan

14 May 2013~ 13 May 2016



28 Jan. 2015~ 27 Jan. 2020

500,000 1.59% Principal is repaid by 5 quarterly payment of 100,000 thousand, starting from Feb. 2019.

The Hong Kong and Shanghai Banking

3 May 2014~ 30 Apr. 2016



16 Jun. 2014~ 30 Apr. 2016

188,412 (USD6,000)

1.36%~ 1.4%

Bullet repayment on expiry date.

Mizuho Corporate Bank

30 Jul. 2014~ 30 Jul. 2016


56

31 Mar. 2015


rate Redemption Mizuho Corporate Bank

17 Oct. 2014~ 16 Oct. 2017

108,889 (USD3,500)

2.35% Principal is repaid by 4 semiannual payments of USD 875 thousand, starting from Apr. 2016.

Mega International Commercial Bank

16 Sep. 2011~ 16 Sep. 2016

49,458 (USD1,575)

1.11% Principal is repaid by 7 semiannual payments of USD525 thousand.

Unicredit Corporate Banking

30 Jun. 2012~ 31 Dec. 2015

4,217 (EUR125)

2.60% Principal is repaid by 8 semiannual payments of EUR63 thousand.

Bank Intesa 25 Jun. 2011~ 25 Mar. 2017

6,748 (EUR200)

1.58% Principal is repaid by 20 quarterly payments of EUR25 thousand. Effective June 25, 2012 to March 25 2013. Principal is not repaid, the expiry date is extended to March 25, 2017.

Bank Intesa 29 Oct. 2011~ 29 Jul. 2017

8,434 (EUR250)

2.03% Principal is repaid by 20 quarterly payments of EUR25 thousand. Effective July 29, 2012 to April 29 2013. Principal is not repaid, the expiry date is extended to July 29, 2017.

BNP Paribas Euronext

1 Dec. 2014~ 31 Aug. 2016

188,412 (USD6,000)


Subtotal 3,777,095 Less: current portion

(43,937)

Total $3,733,158

31 Dec. 2014


rate range Redemption Unsecured Loan: Chang Hwa Bank 31 May 2014~


date.

57

31 Dec. 2014


rate range Redemption Bank of Taiwan 26 Feb. 2014~

26 Feb. 2016 100,000 1.25% Bullet repayment on expiry

date. Hua Nan Bank 11 Jul. 2014~

11 Jul. 2016 142,717 (USD4,500)

1.62%～ 1.65%



3 Jun. 2013~ 3 Jun. 2016



12 Jun. 2014~ 5 Jun. 2016

190,290 (USD6,000)


First Bank 12 Jun. 2014~ 30 May 2016

158,575 (USD5,000)









14 May 2013~ 13 May 2016



3 May 2014~ 30 Apr. 2016



16 Jun. 2014~ 30 Apr. 2016

190,290 (USD6,000)



30 Jul. 2014~ 30 Jul. 2016



17 Oct. 2014~ 16 Oct. 2017

109,423 (USD3,500)

2.00%～2.35%

Principal is repaid by 4 semiannual payments of USD 875 thousand, starting from Apr. 2016.

58

31 Dec. 2014


rate range Redemption Mega International Commercial Bank

16 Sep. 2011~ 16 Sep. 2016

66,602 (USD2,100)

1.30% Principal is repaid by 7 semiannual payments of USD$525 thousand.

Chinatrust Commercial Bank(U.S.A)

31 Oct. 2014~ 31 Oct. 2016



30 Jun. 2012~ 31 Dec. 2015

4,812 (EUR125)

2.60% Principal is repaid by 8 semiannual payments of EUR€63 thousand.


8,661 (EUR225)

1.65% Principal is repaid by 20 quarterly payments of EUR€25 thousand. Effective 25 Jun. 2012 to 25 Mar. 2013. Principal is not repaid, the expiry date is extended to 25 Mar. 2017.


10,586 (EUR275)

2.15% Principal is repaid by 20 quarterly payments of EUR€25 thousand. Effective 29 Jul. 2012 to 29 Apr. 2013. Principal is not repaid, the expiry date is extended to 29 Jul. 2017.

BNP Paribas 1 Dec. 2014~ 31 Aug. 2016

190,290 (USD6,000)



(45,811)

Total $4,026,435

59

31 Mar. 2014


rate range Redemption Unsecured Loan: Chang Hwa Bank 31 May 2013~


date. Bank of Taiwan 26 Feb. 2012~


date. Cooperative Bank 27 Feb. 2014~


date. China Development Industrial Bank

3 Jun. 2013~ 3 Jun. 2016








CTBC Bank Co., Ltd.

31 Oct. 2013~ 31 Oct. 2015



14 May 2013~ 13 May 2016


BNP Paribas Euronext

26 Jun. 2013~ 26 Jun. 2015

30,506 (USD1,000)



2 May 2013~ 30 Apr. 2015



2 May 2013~ 30 Apr. 2015

122,024 (USD4,000)



30 Jul. 2013~ 30 Jul. 2015



30 Jul. 2013~ 30 Jul. 2015

152,530 (USD5,000)


Hua Nan Bank 25 Oct. 2013~ 18 Jul. 2015

7,017 (USD230)



20 Nov. 2013~ 15 Apr. 2015

183,036 (USD6,000)

1.59%~ 1.76%


60

31 Mar. 2014


rate range Redemption First Bank 30 Oct. 2013~

26 Apr. 2015 152,530

(USD5,000) 1.95%~



19 Nov. 2013~ 26 Apr. 2015

152,530 (USD5,000)


Taipei Fubon Bank

5 Nov. 2013~ 21 Jun. 2015

122,024 (USD4,000)

1.67%~ 1.72%


Mega International Commercial Bank

16 Sep. 2011~ 16 Sep. 2016

80,078 (USD2,625)

2.11% Principal is repaid by 7 semiannual payments of USD525 thousand.


30 Jun. 2012~ 31 Dec. 2015

10,522 (EUR250)

2.63% Principal is repaid by 8 semiannual payments of EUR63 thousand.


12,627 (EUR300)

1.73% Principal is repaid by 20 quarterly payments of EUR25 thousand. Effective 25 Jun. 2012 to 25 Mar. 2013. Principal is not repaid, the expiry date is extended to 25 Mar. 2017.


14,731 (EUR350)

2.17% Principal is repaid by 20 quarterly payments of EUR25 thousand. Effective 29 Jul. 2012 to 29 Apr. 2013. Principal is not repaid, the expiry date is extended to 29 Jul. 2017.

Secured Loan: China Merchants Bank

21 Dec. 2012~ 20 Dec. 2015

73,626 (RMB15,000)



(45,710)

Total $2,828,071 Please refer to Note 8 for the detail of the assets pledged as collateral.

61

17. Post-Employment Benefits Defined contribution plan Expenses under the defined contribution plan for the three-month periods ended 31 March 2015 and 2014 were NT$34,747 and NT$31,490, respectively. Defined benefits plan Expenses under the defined benefits plan for the three-month periods ended 31 March 2015 and 2014 were NT$6,020 and NT$5,720, respectively.

18. Provision

Sales returns and discounts

1 Jan. 2015 Balance $25,519 Amounts recognized during the period 1,923 Amounts reversed during the period - 31 Mar. 2015 Balance $27,442 Current－31 Mar. 2015 $27,442 Non-current－31 Mar. 2015 $- Current－31 Mar. 2014 $21,729 Non-current－31 Mar. 2014 $- 31 Mar. 2014 Balance $21,729

Sales returns and discounts According to historical experiences and other known reasons, the Company measures sales returns and discounts as deductions of operating revenue and then recognizes provisions.

19. Equity (1) Common stock

As of 31 March 2015, 31 December 2014 and 31 March 2014, TONG YANG INDUSTRY CO., LTD.’s registered capital was all $8,000,000 thousand with par value at NT$10 per share, and had 591,477 thousand common shares, 591,477 thousand common shares authorized to be issued, respectively. Each share has the right to vote and receive dividends.

62

(2) Capital surplus As at 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Common stock $232,190 $232,190 $232,190 Bond conversion 695,219 695,219 695,219 Treasury stock transactions 93,950 93,950 93,950 Difference between acquistion of

subsidiaries’ share and book value

6,032 - -

Changes in ownership interests in subsidiaries

3,712 - -

Share of comprehensive income of associate and joint ventures accounted for under the equity method

90,302 90,302 90,302

Premium from merger 2,960,398 2,960,398 2,960,398 Stock options 67,454 67,454 67,454 Total $4,149,257 $4,139,513 $4,139,513 According to the Company Act, the capital reserve shall not be used except for making good the deficit of the company. When a company incurs no loss, it may distribute the capital reserves related to the income derived from the issuance of new shares at a premium or income from endowments received by the company. The distribution could be made in cash or in the form of dividend shares to its shareholders in proportion to the number of shares being held by each of them.

(3) Retained earnings and dividend policies: The Company’s Articles of Incorporation provide that the current net income, after deducting the previous years’ losses, shall appropriate 10% as legal reserve and special reserve according to the company laws and other regulations of R.O.C. Then the balance is added up with the accumulated retained earnings in the previous year. The distribution of the remaining portion, if any, will be proposed by the board of directors and resolved in the stockholders’ meeting. According to the R.O.C. Company Act, the Company’s net income, after deducting previous years’ losses, if any, is appropriated as legal reserve prior to any distribution until such reserve is equal to the Company’s paid-in capital. The Company Act provides that where legal reserve may be distributed 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.

63

Following the adoption of TIFRS, the FSC on 6 April 2012 issued order No. Financial-Supervisory-Securities-Corporate-1010012865, which sets out the following provisions for compliance: On a public company’s first-time adoption of the TIFRS, for any unrealized revaluation gain and cumulative translation adjustments (gains) recorded to shareholders’ equity that the Company elects to transfer to retained earnings by application of the exemption under IFRS 1, the Company shall set aside an equal amount of special reserve. Following a company’s adoption of the TIFRS for the preparation of its financial reports, when distributing distributable earnings, it shall set aside to special reserve based on the difference between the amount already set aside and the total debit balance of other shareholders’ equity. For any subsequent reversal of other net deductions from shareholders’ equity, the amount reversed may be distributed. As of 1 January 2013, special reserve set aside for the first-time adoption of TIFRS amount to nil because of the negative retained earnings. The appropriation of earnings for 2014 were resolved by the board of directors’ meeting on 24 March 2015. The appropriations of earning for 2013 were resolved by general shareholders’ meeting on 17 June 2014. The details of the distribution are as follows: Appropriation of earnings Dividend per share (NT$)

2014 2013 2014 2013 Legal reserve $90,989 $134,684 Special reserve - (153,904) Common stock -cash dividend 437,693 650,625

NT$0.74/per share

NT$1.1/per share

Directors’ remuneration 13,678 20,332 Employee bonus－cash 4,559 6,777 Total $546,919 $658,514

There is no significant difference between the actual employee bonuses and remuneration to directors and supervisors distributed from the 2013’s earnings and the estimated amount in the financial statements for the year ended 2013. Information about earnings appropriation and the bonus to employees, directors and supervisors is available on the Market Observation Post System website of the Taiwan Stock Exchange.

64

(4) Non-controlling interests:

1 Jan. 2015~ 31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Balance as of 1 January $1,035,894 $1,273,123 Attributable to non-controlling interests net income

17,950 7,829

Attributable to non-controlling interests other comprehensive income:

Exchange differences on translation of foreign operations

(7,203) (8,052)

Share of other comprehensive income of associates and joint ventures accounted for under the equity method

- (1,145)

Acquisition of additional interest in a subsidiary (23,105) - Buying back treasury shares by the subsidiary (20,786) - Balance as of March 31 $1,002,750 $1,271,755

20. Sales Revenue

1 Jan. 2015~

31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Sales - Finished goods $4,566,274 $4,236,553 Sales - Merchandise 837,090 765,312 Sales - Others 252,258 229,165 Less: Sales return and allowance (43,073) (30,181) Total $5,612,549 $5,200,849

21. For the three months ended 31 March 2015 and 2014, the Company’s personnel, depreciation

and amortization expenses are summarized as follows: Function

Character

1 Jan. 2015~31 Mar. 2015 1 Jan. 2014~31 Mar. 2014 Classified as

operating costs

Classified as operating expenses Total

Classified as operating

costs

Classified as operating expenses Total

Salaries $409,364 $272,264 $681,628 $385,900 $251,454 $637,354 Insurances 44,892 25,064 69,956 43,714 23,065 66,779 Pensions 25,328 15,439 40,767 23,569 13,641 37,210 Other personnel expenses

18,753 19,552 38,305 18,109 16,435 34,544

Depreciations 592,280 51,478 643,758 534,291 46,156 580,447 Amortization 43,262 13,911 57,173 39,939 12,359 52,298

65

22. Non-operating income and expenses (1) Other income

1 Jan. 2015~ 31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Rent income $1,785 $257 Interest income 1,846 1,810 Other income-other 34,045 34,841 Total $37,676 $36,908

(2) Other gains and losses

1 Jan. 2015~ 31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Gains on disposal of property, plant and equipment

$2,302 $1,135

Loss on disposal of investments - (1,711) Foreign exchange gain (loss) - net (50,912) 51,662 Other losses (8,898) (4,618) Loss on valuation of financial assets and liabilities at fair value through profit or loss

- (17)

Total $(57,508) $46,451 (3) Finance costs

1 Jan. 2015~ 31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Interest expenses: Bank Loans $(31,546) $(24,375) Bonds payable interest expenses (4,745) (4,655) Subtotal (36,291) (29,030) Total $(36,291) $(29,030)

23. Components of other comprehensive income

Three months ended 31 Mar. 2015 Arising during

the period Income tax profit

(expense)

Other comprehensive

income, net of tax To be reclassified to profit or loss in susequent periods: Exchange differences on translation of foreign operations $(46,765) $6,726 $(40,039) Share of other comprehensive income of associates and joint ventures accounted for under the equity method (34,823) 5,919 (28,904)

Total other comprehensive income $(81,588) $12,645 $(68,943)

66

Three months ended 31 Mar. 2014 Arising during

the period

Income tax profit

(expense)

Other comprehensive

income, net of tax To be reclassified to profit or loss in susequent periods:

Exchange differences on translation of foreign operations $(27,639)

$3,135 $(24,504)

Share of other comprehensive income of associates and joint ventures accounted for under the equity method 8,380

(587) 7,793 Total other comprehensive income $(19,259) $2,548 $(16,711)

24. Income Tax

The major components of income tax expense for the three months ended are as follows: Income tax recorded in profit or loss 1 Jan. 2015~

31 Mar. 2015 1 Jan. 2014~

31 Mar. 2014 Current income tax expense (benefit):

Current income tax charge $43,038 $62,429 Deferred income tax expense (benefit):

Deferred income tax expense (benefit) related to origination and reversal of temporary differences

30,105 13,504

Tax expense (income) recognized in the period for previously unrecognized tax loss, tax credit or temporary difference of prior periods

(1,634) -

Total Income tax expense $71,509 $75,933

Income tax relating to components of other comprehensive income 1 Jan. 2015~

31 Mar. 2015 1 Jan. 2014~

31 Mar. 2014 Deferred income tax expense (benefit):

Exchange differences on translation of foreign operations $(12,016) $(5,011) Unrealized gain on available-for-sale financial assets (629) 2,463 Income tax relating to components of other comprehensive income $(12,645) $(2,548)

The information of retained earnings:

31 Mar. 2015 31 Dec. 2015 31 Mar. 2014 Balances of imputation credit amounts $890,980 $872,868 $749,401 The actual creditable ratio for 2013 and 2012 were 17.73% and 19.25%, respectively.

67

The actual creditable ratios of the Company’s earnings of 2013 is calculated based on Ruling No. 10204562810 issued by the Ministry of Finance to include the adjustments to retained earnings from the effect of transition to TIFRS in the accumulated unappropriated earning in the year of first-time adoption of TIFRS. The Company’s earnings generated in the year ended 31 December 1997 and prior years have been fully appropriated. The assessment of income tax returns As of 31 Mar. 2015, the Company and subsidiaries’ income tax filings are as follows:

The assessment of income tax returns

The Company 2012 Subsidiary－RU YANG INDUSTRIAL CO., LTD. 2012 Subsidiary－DING CHUNG INDUSTRY CO., LTD. 2012

25. Earnings per share

Basic earnings per share amounts are calculated by dividing the net profit for the year attributable to ordinary equity holders of the parent entity by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit attributable to ordinary equity holders of the parent (after adjusting for interest on the convertible bonds payable) by the weighted average number of ordinary shares outstanding during the period plus the weighted average number of ordinary shares that would be issued on conversion of all the dilutive potential ordinary shares into ordinary shares. 1 Jan. 2015~

31 Mar. 2015 1 Jan. 2014~

31 Mar. 2014

(1) Basic earnings per share Profit attributable to ordinary equity holders of the Company (in thousand NT$) $412,748 $396,856

Weighted average number of ordinary shares outstanding for basic earnings per share (in thousands) 591,477 591,477

Basic earnings per share (NT$) $0.70 $0.67

(2) Diluted earnings per share

Profit attributable to ordinary equity holders of the Company (in thousand NT$) $412,748 $396,856 Less: Interest expense from convertible bonds (in thousand NT$) 4,745 4,655 Profit attributable to ordinary equity holders of the Company after dilution (in thousand NT$) $417,493 $401,511

68

1 Jan. 2015~ 31 Mar. 2015

1 Jan. 2014~ 31 Mar. 2014

Weighted average number of ordinary shares outstanding for

basic earnings per share (in thousands) 591,477 591,477

Effect of dilution:

Employee bonus－stock (in thousands) 172 193

Convertible bonds (in thousands) 22,988 22,371

Weighted average number of ordinary shares outstanding after

dilution (in thousands) 614,637 614,041

Diluted earnings per share (NT$) $0.68 $0.65

During the reporting date and the date the financial statement was prepared, no other

transactions affected the common shares and dilutive potential ordinary shares.

26. Changes in parent’s interest in subsidiaries

Acquisition of additional interest in a subsidiary

On 16 Mar. 2015, the Group acquired an additional 5% of the voting shares of RU YANG

increasing its ownership to 56%. A cash consideration of NT$17,073 thousand was paid to the

non-controlling interest shareholders. The carrying amount of RU YANG net assets (excluding

goodwill on the original acquisition) was NT$462,101 thousand. The following is a schedule of

additional interest acquired in RU YANG: Cash consideration paid to non-controlling shareholders $(17,073) Increase/decrease in the carrying value of the interest in RU YANG 23,105 Difference recognized in equity within equity $6,032

Buying back treasury shares by the subsidiary

RU YANG has bought back treasury shares from non-controlling interests on 30 Mar. 2015.

Consequently the Group’s ownership interest in RU YANG was increased to 58.95%. A cash

consideration of NT$17,074 was paid to the non-controlling interest shareholders. The carrying

amount of RU YANG net assets (excluding goodwill on the original acquisition) was

NT$467,426 thousand. The following is a schedule of additional interest acquired by RU

YANG:

Cash consideration paid to non-controlling shareholders $(17,074) Increase/decrease in the carrying value of the interest in RU YANG 20,786 Difference recognized in equity $3,712

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VII. RELATED PARTIES TRANSACTIONS

1. Significant related party transactions

(1) Sales

1 Jan. 2014~

31 Mar. 2014

1 Jan. 2013~

31 Mar. 2013

Associates industries $7,563 $10,616

The prices and payment conditions are the same between associates industries and

non-related parties.

(2) Purchases

1 Jan. 2014~

31 Mar. 2014

1 Jan. 2013~

31 Mar. 2013

Associates industries $103,454 $107,571

The prices and payment conditions are the same between associates industries and

non-related parties.

(3) Accounts Receivables - Related parties

31 Mar. 2015 31 Dec. 2014 31 Mar. 2014

Associates industries $16,939 $27,013 $25,437

(4) Accounts Payables - Related parties

31 Mar. 2015 31 Dec. 2014 31 Mar. 2014

Associates industries $164,909 $187,266 $139,538

(5) Key management personnel compensation

1 Jan. 2015~

31 Mar. 2015

1 Jan. 2014~

31 Mar. 2014

Short-term employee benefits $19,783 $19,324

Post-employment benefits 61 60

Total $19,844 $19,384

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VIII. ASSETS PLEDGED AS COLLATERAL Amount Purpose of

pledge Item 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Bond investments for which no active market-current

$133,490 $93,899 $88,684 Tax refund and guarantee

Bond investments for which no active market - noncurrent

18,098 18,098 16,858 Tax refund and guarantee

Accounts receivable 150,498 225,810 203,158 Bank loans Property, plant and equipment-Land

225,647 225,647 225,647 Bank loans

Property, plant and equipment-Buildings

305,795 312,116 310,638 Bank loans

Property, plant and equipment-Machines

152,398 156,332 162,920 Bank loans

Prepayments and long-term prepayment- Land use right

59,964 60,871 59,586 Bank loans

Total $1,045,890 $1,092,773 $1,067,491 IX. SIGNIFICANT CONTINGENCIES AND UNRECOGNIZED CONTRACT COMMITMENT

1. Litigious claim and contingencies items The Company merged with TAIWAN KAI YIH INDUSTRIAL CO., LTD. on 1 September 2010. After the merger, the Company is the surviving company. According to Article 75 of the Company Act: “The rights and obligations of a company ceasing to exist after consolidation or merger shall be assumed by the surviving or new company”. Before the acquisition, TAIWAN KAI YIH INDUSTRIAL CO., LTD. was sued by Fond Do Lac Corporation and Vehimax International Corporation for violation of anti-trust laws in the District Court of Wisconsin, United States. Vehimax International has withdrawn the action on 5 August 2011 but Roberts Wholesale Body Parts, Inc. joined in this action. The following cases were represented by the purchaser plaintiffs reached on 6 March 2015 reconciliation, settlement amount of USD16,000 thousand, reconciliation and other related litigation matters will be pending and approve by the court hearing. The Company has recorded the settlement amount as set out above.

2. As of 31 March 2015, the Company was involved in the following activities that were not

shown in the financial statements: (1) Unused letters of credit (in thousands)

Currency 31 Mar. 2015 USD $942 JPY 8,948

(2) The financial institution provided a guarantee of NTD$59,200 thousand to the

Company’s vendors for securing the Company’s purchases from them.

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3. As of 31 March 2015, the related parties, FUZHOU TONG YANG, DAJING YUCH YANG, FUSHUN TONG YANG, GUANGZHOU TONG YANG TATEMATSU, XIANG YANG TONG YANG and TONG YANG HOLDING borrowed from the financial institution and the Company issued “letter of support” to the financial institution stating that the Company will continue to assist the affiliated institutions to sustain a satisfactory financial position until the related bank borrowings have been paid off.

4. As of 31 March 2015, the Company has entered into a binding contract for the second

quarter of 2015 with CHINA STEEL CORPORATION. The contract price is NT$99,801 thousand. The Company has already drawn up a guarantee note of NT$18,000 thousand.

5. As of 31 March 2015, the Company has significant engineering contracts: (unit: thousands) Engineering contract Contract Amount Paid Amount Unpaid Amount

Electroplating factory Equipment

$208,000 $52,200 $156,600


128,000 51,200 76,800


100,000 30,000 70,000

AM 5th factory 207,000 62,100 144,900

X. SIGNIFICANT DISASTER LOSS None

XI. SIGNIFICANT SUBSEQUENT EVENTS

None.

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XII. OTHER

1. Categories of financial instruments Financial Assets 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Financial assets at fair value through profit or loss:

Held for Trading $29 $29 $129 Available-for-sale financial assets (Include Financial assets carried at cost – non-current $2,236/ $2,236/ $2,237) 128,119

128,119

128,120 Loans and receivables Cash and cash equivalents (excludes cash on hand)

1,282,574 1,190,813 1,323,758

Bond investments with no active market 159,439 111,997 113,168 Notes receivable 85,191 200,974 119,233 Accounts receivable 4,683,754 4,792,577 4,177,913 Accounts receivable - related parties 16,939 27,013 25,437 Other receivable 600,810 293,023 415,773

Subtotal 6,828,707 6,616,397 6,175,282 Total $6,956,855 $6,744,545 $6,303,531

Financial Liabilities 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014 Financial liabilities at amortized cost:

Short-term loans and short-term notes and bill payable $2,907,865 $3,223,530 $2,476,876 Payables 4,284,499 4,961,050 3,819,704 Bonds payable (current portion included) 3,685,626 2,480,880 2,466,781 Long-term loans and Long-term notes payable-net (current portion included) 3,775,095 4,072,246 2,828,071

Total $14,653,085 $14,737,706 $11,591,432

2. Financial risk management objectives The Group’s risk management objective is to manage the market risk, credit risk and liquidity risk related to its operating activities. The Group identifies measures and manages the aforementioned risks based on policy and risk appetite.

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The Group has established appropriate policies, procedures and internal controls for financial risk management. Before entering into significant financial activities, due approval process by the Board of Directors and Audit Committee must be carried out based on related protocols and internal control procedures. The Group complies with its financial risk management policies at all times.

3. Market risk

Market risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise currency risk, interest rate risk, and other price risk (such as equity instruments related risks). Foreign currency risk The Group’s exposure to the risk of changes in foreign exchange rates relates primarily to the Group’s operating activities (when revenue or expense is denominated in a different currency from the Group’s functional currency) and the Group’s net investments in foreign subsidiaries. The Group has certain foreign currency receivables to be denominated in the same foreign currency with certain foreign currency payables, therefore natural hedge is received. The Group also uses forward contracts to hedge the foreign currency risk on certain items denominated in foreign currencies. Hedge accounting is not applied as they did not qualify for hedge accounting criteria. Furthermore, as net investments in foreign subsidiaries are for strategic purposes, they are not hedged by the Group. Furthermore, as net investments in foreign subsidiaries are for strategic purposes, they are not hedged by the Group. The foreign currency sensitivity analysis of the possible change in foreign exchange rates on the Group’s profit is performed on significant monetary items denominated in foreign currencies as of the end of the reporting period. The Group’s foreign currency risk is mainly affected by USD. Sensitivity analysis is as follows: (1) When NTD strengthens/weakens against USD by 1%, the profit for the three months

ended 31 March 2015 and 2014 decreases/increases by NT$971 thousand and NT$14,824 thousand, respectively.

Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group’s exposure to the risk of changes in market interest rates relates primarily to the Group’s loans and receivables at variable interest rates, bank borrowings with fixed interest rates and variable interest rates. The interest rate sensitivity analysis is performed on items exposed to interest rate risk as at the end of the reporting period, including investments and borrowings with variable interest rates and interest rate swaps.

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At the reporting date, a change of 10 basis points of interest rate in a reporting period could cause the profit for the three months ended 31 March 2015 and 2014 to decrease/increase by NT$1,289 thousand and NT$919 thousand, respectively. Equity price risk The Group’s listed and unlisted equity securities are susceptible to market price risk arising from uncertainties about future values of the investment securities. The Group’s listed equity securities are classified under held for trading financial assets or available-for-sale financial assets, while unlisted equity securities are classified as available-for-sale. The Group manages the equity price risk through diversification and placing limits on individual and total equity instruments. Reports on the equity portfolio are submitted to the Group’s senior management on a regular basis. The Group’s Board of Directors reviews and approves all equity investment decisions. Please refer to Note 12.8 for sensitivity analysis information of other equity instruments or derivatives that are linked to such equity instruments whose fair value measurement is categorized under Level 3.

4. Credit risk management Credit risk is the risk that a counterparty will not meet its obligations under a contract, leading to a financial loss. The Group is exposed to credit risk from operating activities (primarily for accounts receivables and notes receivables) and from its financing activities, including bank deposits and other financial instruments. Customer credit risk is managed by each business unit subject to the Group’s established policy, procedures and control relating to customer credit risk management. Credit limits are established for all customers based on their financial position, rating from credit rating agencies, historical experience, prevailing economic condition and the Group’s internal rating criteria etc. Certain customer’s credit risk will also be managed by taking credit enhancing procedures, such as requesting for prepayment or insurance. As of 31 March 2015, 31 December 2014 and 31 March 2014, accounts receivables from top ten customers represented 38%, 43% and 36% of the total accounts receivables of the Group, respectively. The credit concentration risk of other accounts receivables is insignificant. Credit risk from balances with banks, fixed income securities and other financial instruments is managed by the Group’s treasury in accordance with the Group’s policy. The Group only transacts with counterparties approved by the internal control procedures, which are banks and financial institutions, companies and government entities with good credit rating and with no significant default risk. Consequently, there is no significant credit risk for these counter parties.

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5. Liquidity risk management The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of cash and cash equivalents, bank borrowings, convertible bonds. The table below summarizes the maturity profile of the Group’s financial liabilities based on the contractual undiscounted payments and contractual maturity. The payment amount includes the contractual interest. The undiscounted payment relating to borrowings with variable interest rates is extrapolated based on the estimated interest rate yield curve as of the end of the reporting period.

Non-derivative financial instruments Less than

1 year 1 to 2 years

2 to 3 years > 3 years Total

31 Mar. 2015 Loans $2,699,810 $3,198,373 $65,370 $514,488 $6,478,041 Notes and bills payables

370,000 - - - 370,000

Payables 4,284,499 - - - 4,284,499 Bonds payable 1,534,950 1,025,575 16,200 1,209,450 3,786,175 31 Dec. 2014 Loans $2,816,620 $3,996,450 $60,591 $- $6,873,661 Notes and bills payables

570,000 - - - 570,000

Payables 4,961,050 - - - 4,961,050 Bonds payable 18,750 2,009,375 500,000 - 2,528,125 31 Mar. 2014 Loans $2,128,368 $2,243,988 $606,500 $2,120 $4,980,976 Notes and bills payables

470,000 - - - 470,000

Payables 3,819,704 - - - 3,819,704 Bonds payable 18,750 1,517,187 1,006,250 - 2,542,187

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6. Fair value of financial instruments (1) The methods and assumptions applied in determining the fair value of financial

instruments: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The following methods and assumptions were used by the Group to measure or disclose the fair values of financial assets and financial liabilities: A. The carrying amount of cash and cash equivalents, accounts receivables, accounts

payable approximate their fair value due to their short maturities. B. Fair value of equity instruments without market quotations (including private

placement of listed equity securities, unquoted public company and private company equity securities) are estimated using the market method valuation techniques based on parameters such as prices based on market transactions of equity instruments of identical or comparable entities and other relevant information (for example, inputs such as discount for lack of marketability, P/E ratio of similar entities and Price-Book ratio of similar entities)

C. Fair value of debt instruments without market quotations, bank loans, bonds payable and other non-current liabilities are determined based on the counterparty prices or valuation method. The valuation method uses DCF method as a basis, and the assumptions such as the interest rate and discount rate are primarily based on relevant information of similar instrument (such as yield curves published by the GreTai Securities Market, average prices for Fixed Rate Commercial Paper published by Reuters and credit risk, etc.)

D. Other financial assets and financial liabilities’ fair value are based on future cash flow discount estimations.

(2) Fair value of financial instruments measured at amortized cost

Other than cash and cash equivalents, accounts receivables, accounts payable and other current liabilities whose carrying amount approximate their fair value, the fair value of the Group’s financial assets and financial liabilities measured at amortized cost is listed in the table below:

Book Value 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014

Financial Liabilities: Bonds payable $985,626 $980,880 $966,781

Fair value 31 Mar. 2015 31 Dec. 2014 31 Mar. 2014

Financial Liabilities: Bonds payable $994,400 $990,800 $981,800

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(3) Fair value measurement hierarchy for financial instruments Please refer to Note 12.8 for fair value measurement hierarchy for financial instruments of the Group.

7. The Group’s derivative financial instruments include embedded derivatives. The related information is as follows: Embedded derivatives the embedded derivatives arising from issuing convertible bonds have been separated from the host contract and carried at fair value through profit or loss. Please refer to Note 6.15 for further information on this transaction. The counterparties for the aforementioned derivatives transactions are well known local banks, as they have sound credit ratings, the credit risk is insignificant.

8. Fair value measurement hierarchy (a) Fair value measurement hierarchy

All asset and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, based on the lowest level input that is significant to the fair value measurement as a whole. Level 1, 2 and 3 inputs are described as follows: Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or

liabilities that the entity can access at the measurement date Level 2 - Inputs other than quoted prices included within Level 1 that are observable for

the asset or liability, either directly or indirectly Level 3 - Unobservable inputs for the asset or liability For assets and liabilities that are recognized in the financial statements on a recurring basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-assessing categorization at the end of each reporting period.

(b) Fair value measurement hierarchy of the Group’s assets and liabilities The Group does not have assets that are measured at fair value on a non-recurring basis. Fair value measurement hierarchy of the Group’s assets and liabilities measured at fair value on a recurring basis is as follows: 31 Mar. 2015 Level Leve2 Leve3 Total Financial assets: Financial liabilities at fair value through profit or loss

Embedded Derivatives $- $29 $- $29 Available-for-sale financial assets

Stocks - - 125,883 125,883

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31 Dec. 2014

Level Leve2 Leve3 Total

Financial assets:

Financial assets at fair value through

profit or loss


Stocks - - 125,883 125,883

31 Mar. 2014

Level Leve2 Leve3 Total

Financial assets:

Financial assets at fair value through

profit or loss


Stocks - - 125,883 125,883

Transfers between Level 1 and Level 2 during the period

During the three months ended 31 March 2015 and 2014, there were no transfers

between Level 1 and Level 2 fair value measurements.

Reconciliation for fair value measurements in Level 3 of the fair value hierarchy for

movements during the period is as follows:

Available-for-sale-stocks

1 Jan. 2015~

31 Mar. 2015

1 Jan. 2014~

31 Mar. 2014

Beginning balances $125,883 $125,883

Total gains and losses recognized:

Amount recognized in profit or loss - -

Amount recognized in OCI - -

Ending balances $125,883 $125,883

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Information on significant unobservable inputs to valuation Description of significant unobservable inputs to valuation of recurring fair value measurements categorized within Level 3 of the fair value hierarchy is as follows: As at 31 March 2015

Valuation techniques

Significant unobservable inputs

Quantitative information

Relationship between inputs and fair value

Sensitivity of the input to fair value

Financial assets:

Available-for-sale

Stocks Market approach

P/E ratio of similar entities

1.28~4.51 The higher the discount for lack of marketability, the lower the fair value of the stocks

7% increase (decrease) in the P/E ratio of similar entities would result in increase (decrease) in the Group’s profit or loss by NT$16,612 thousand

As at 31 December 2014






Financial assets:

Available-for-sale



N/A N/A 7% increase (decrease) in the P/E ratio of similar entities would result in increase (decrease) in the Group’s profit or loss by NT$6,111 thousand

As at 31 March 2014






Financial assets:

Available-for-sale



N/A N/A 7% increase (decrease) in the P/E ratio of similar entities would result in increase (decrease) in the Group’s profit or loss by NT$19,724 thousand

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Valuation process used for fair value measurements categorized within Level 3 of the fair value hierarchy The Group’s Finance Department is responsible for validating the fair value measurements and ensuring that the results of the valuation are in line with market conditions, based on independent and reliable inputs which are consistent with other information, and represent exercisable prices. The Department analyses the movements in the values of assets and liabilities which are required to be re-measured or re-assessed as per the Group’s accounting policies at each reporting date.

9. Significant assets and liabilities denominated in foreign currencies The Company’s significant assets and liabilities denominated in foreign currencies are as follows:

Unit: thousands 31 Mar. 2015

Foreign

Currency Exchange NTD Financial Assets Monetary items:

USD $ 46,661 31.402 $1,465,249 CNY 390,126 5.065 1,975,988

Non-monetary items: CNY 551,818 5.065 2,794,958

Financial Liabilities Monetary items:

USD $ 85,229 31.402 $2,676,361 CNY 263,669 5.065 1,335,483

31 Dec. 2014

Foreign


USD $90,999 31.715 $2,886,033 CNY 379,628 5.110 1,939,899



USD $94,991 31.715 $3,012,640 CNY 283,829 5.110 1,450,366

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31 Mar. 2014

Foreign


USD $83,946 30.506 $2,560,857 CNY 315,008 4.907 1,545,744



USD $69,785 30.506 $2,128,861 CNY 169,109 4.907 829,818

The group has various functional currencies, no information about the foreign exchange gains or losses by a specific currency is available. For the three months ended 31 March 2015 and 2014, the foreign exchange gains or losses on monetary financial assets and financial liabilities were NT$(50,912) thousands and NT$51,662 thousands, respectively. The above information is disclosed based on the carrying amount of foreign currency (after conversion to functional currency).

10. Technical license agreement: ① According to a technical license agreement made between the Company and

MITSUBOSHI BELTING LTD. (MBI) on 14 March 2008, MBI shall provide technical skill and service of manufacturing LIIK (TWN) MODEL to the Company. Accordingly the Company shall remunerate MBI under the term of payment stated in the agreement.

② According to a technical license agreement made between the Company and DAIKYO NISHIKAWA CORPORATION on 12 June 2009, DAIKYO NISHIKAWA shall provide technical skill and service of manufacturing J68C (FORD) MODEL to the Company. Accordingly the Company shall remunerate SUIRYO under the term of payment stated in the agreement.

③ According to a technical license agreement made between the Company and Faltec Company Limited on 12 September 2007, Faltec shall provide technical skill and service of manufacturing HONDA L42F MODEL (CRV) to the Company. Accordingly the Company shall remunerate Faltec under the term of payment stated in the agreement.

④ According to a technical license agreement made between the Company and DAIKYO NISHIKAWA CORPORATION on 19 July 2010, DAIKYO NISHIKAWA shall provide technology and service of manufacturing J68C (FORD) MODEL to the Company. Accordingly the Company shall pay royalty under the term of payment stated in the agreement.

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⑤ According to a technical license agreement made between the Company and DAIKYO NISHIKAWA CORPORATION on 29 March 2011, DAIKYO NISHIKAWA shall provide technical skill and service of manufacturing J74G (FORD) MODEL to the Company. Accordingly the Company shall pay royalty under the term of payment stated in the agreement.

⑥ According to a technical license agreement made between the Company and DAIKYO NISHIKAWA CORPORATION on 20 March 2012, DAIKYO NISHIKAWA shall provide technical skill and service of manufacturing J68N (FORD) MODEL to the Company. Accordingly the Company shall pay royalty under the term of payment stated in the agreement.

⑦ According to a two-year term technical license agreement made between the Company and TATEMATSU KOUGYO CORPORATION on 1 May 2014, TATEMATSU shall provide technical skill and know-how information to the Company. Accordingly the Company shall pay royalty under the term of payment stated in the agreement.

11. Capital management

The primary objective of the Company’s capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust dividend payment to shareholders, return capital to shareholders or issue new shares.

XIII. OPERATING SEGMENT INFORMATION

For management purposes, the Company is organized into business units based on its products and services and has two reportable segments as follows: Assembly Market: Responsible for the required automobile parts of the car market of

production and sales group. Maintenance Market: Responsible for the production and sales of after-sales maintenance

services market automobile parts. No operating segments have been aggregated to form the above reportable operating segments. Management monitors the operating results of its business units separately for the purpose of making decisions about resource allocation and performance assessment. Segment performance is evaluated based on operating profit or loss and is measured consistently with operating profit or loss in the consolidated financial statements. The transfer prices between operating segments are on an arm’s length basis in a manner similar to transactions with third parties.

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Segment information about profit and assets (loss and liabilities). 1 Jan. 2015~ 31 Mar. 2015

Assembly Market

Maintenance Market

Adjustments and eliminations Total

Revenue External customers $1,873,598 $3,738,951 $- $5,612,549 Inter-segment 25,633 - (25,633) Note1 - Total revenue $1,899,231 $3,738,951 (25,633) $5,612,549

Segment profit $136,805 $347,452 $17,950 Note2 $502,207

Note: (1) Inter-segment revenues are eliminated upon consolidation and reflected in the

‘adjustments and eliminations’ column. (2) None of the operating division’s profit/loss included profit attributable to non-controlling

interest income of NT$17,950 thousand.

1 Jan. 2014~ 31 Mar. 2014

Assembly Market

Maintenance Market

Adjustments and eliminations Total

Revenue External customers $1,525,646 $3,675,203 $- $5,200,849 Inter-segment 18,720 1,598 (20,318) Note1 - Total revenue $1,544,366 $3,676,801 $(20,318) $5,200,849

Segment profit $86,957 $385,832 $7,829 Note2 $480,618

Note: (1) Inter-segment revenues are eliminated upon consolidation and reflected in the

‘adjustments and eliminations’ column. (2) None of the operating division’s profit/loss included profit attributable to non-controlling

interest income of NT$7,829 thousand.

TONG YANG INDUSTRY CO., LTD. AND SUBSIDIARIES …

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