Compal Electronics
Annual Report 2014

Plain-text annual report

Stock Code: 2324 Compal Electronics, Inc. 2014 Annual Report Notice to readers This English-version annual report is a summary translation of the Chinese version and is not an official document approved in a shareholders’ meeting in accordance with Taiwanese laws. Should any discrepancy arise between the English and Chinese versions, the Chinese version shall prevail. Taiwan Stock Exchange Market Observation Post System: http://newmops.twse.com.tw Company Annual Report is available at: http://www.compal.com Printed on May 11, 2015 0 I. Spokesperson Spokesperson: Gary Lu / Vice President Deputy Spokesperson: Jack Wang / Director of Accounting Dept. Tel: 886-2-8797-8588 E-mail: Investor@compal.com II. Headquarters, Branches and Plant Headquarters Address: No.581, Ruiguang Rd., Neihu District, Taipei, Taiwan Tel: 886-2- 8797-8588 III. Share Administration Agency Chinatrust Transfer Agent Address: 5F, No. 83, Sec 1, Chung Ching Nan Road, Taipei, Taiwan Tel: 886-2-6636-5566 Website: https://www.ctbcbank.com IV. Auditors CPA Firm: KPMG Auditors: Kuo, Kuan Ying and Lo, Jui Lan Address: 68F, No. 7, Sec. 5, Xinyi Road, Taipei, Taiwan Tel.: 886-2-8101-6666 Website: http://www.kpmg.com.tw V. Overseas Securities Exchange Luxembourg Stock Exchange: http://www.bourse.lu London Stock Exchange http://www.londonstockexchange.com VI. Corporate Website http://www.compal.com 0 Table of Contents 3 I. Letter to Shareholders II. Company Profile 5 5 2.1 Date of Incorporation 2.2 Company History III. Corporate Governance Report 7 9 33 59 60 3.1 Organization 3.2 Directors, Supervisors and Management Team 3.3 Implementation of Corporate Governance 3.4 Information Regarding the Company’s Audit Fee and Independence 3.5 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders 62 64 3.6 Relationship among the Top Ten Shareholders 3.7 Ownership of shares in Affiliated Enterprises IV. Capital Overview 66 71 71 72 72 76 76 4.1 Capital and Shares 4.2 Bonds 4.3 Global Depository Receipts 4.4 Employee Warrants 4.5 Subscription of New Shares by Employees and Restricted Shares 4.6 New Share Issuance in Connection with Mergers and Acquisitions 4.7 Financing Plans and Implementation V. Operational Highlights 5.1 Business Activities 5.2 Market and Sales Overview 5.3 Human Resources 5.4 Environmental Protection Expenditure 5.5 Labor Relations 5.6 Important Contracts 77 80 83 83 84 86 VI. Financial Information 87 96 100 100 100 6.1 Five-Year Financial Summary 6.2 Five-Year Financial Analysis 6.3 Supervisors’ or Audit Committee’s Report in the Most Recent Year 6.4 Consolidated Financial Statements and Independent Auditors’ Report 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report 1  VII. Review of Financial Position, Operating Results, and Risk Management 101 102 103 104 104 7.1 Analysis of Financial Status 7.2 Analysis of Operation Results 7.3 Analysis of Cash Flow 7.4 Major Capital Expenditures 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year 106 7.6 Analysis of Risk Management VIII. Special Disclosure 110 111 111 111 8.1 Summary of Affiliated Companies 8.2 Private Placement of Securities in the Most Recent Year 8.3 Subsidiaries' Holding of the Company's Shares in the Most Recent Year 8.4 Events with Significant Impacts 2 I. Letter to Shareholders Dear Ladies and Gentlemen, Thank you for your support to Compal Electronics, Inc (“Compal”) in the last year! Compal has made some great achievements in 2014, given our continuous commitment to our core businesses and investment into new innovations, despite the fact that the global markets and industry dynamics have changed rapidly in the last few years. While the overall environment remains challenging in 2015, Compal will be adopting new mindsets, new strategies, and maintaining flexibility within the organization to embrace the changes ahead and move forward toward its next business milestone. Below are the summary of Compal's operational performance in 2014 and business outlook for this year: Financial Performance Consolidated revenue in 2014 totaled NT$845,701 million, an increase of 22% YoY. Thanks to our expanded businesses and well controlled expenses, consolidated operating profit enjoyed a 26% YoY increase to NT$11,675 million, while net profits attributable to the parent company totaled NT$7,034 million, representing an increase of 185% YoY. This result was equivalent to an earnings per share (EPS) of NT$1.63 for 2014. Business Development To facilitate more effective resource integration and faster response in the mobile devices market, Compal officially merged Compal Communications Inc. (“CCI”) on Feb 27, 2014. Moreover, since March 1, 2014, we re-organize ourselves into three major business segments, namely PCBG (PC Business Group), SDBG (Smart Device Business Group), and DBU (Display Business Unit). By doing that, Compal became well-prepared and well-positioned with a diversified business portfolio. In 2014, notebook demands made a recovery driven by commercial users. Compal outgrew the market and enjoyed decent share gains, which as largely attributable to our market consolidation efforts and our continued commitment to the customers. The smartphone business delivered significant growth, thanks not only to the rapid growth of the market and outsourced productions, but also to our accurate market positioning and our full technological capabilities. The tablet market is already showing signs of slowdown, impacted by the launch of large-screen smartphones; however, Compal was still able to deliver growth by sourcing new customers. Revenues from LCD TVs also grew well, riding on an increase of average shipment size. In summary, Compal will continuously commit in expanding product portfolio and enhancing technology capabilities. This effort has already increased contribution of non-notebook revenues to 23% in 2014, up from 18% in 2013. We aim to increase contribution further to 30% by 2015. 3 Innovation commitment Aside from the business expansion, Compal was honored for our commitment in innovation. In 2014, Compal won 11 awards during the iF Product Design Award held in Germany. We received 21 awards in total in the past three years, and ranked 22nd in the Global Creativity Ranking. Compal was ranked first among our industry ODM/EMS peers, and we will continue to invest into design differentiation to create more value to our customers. In 2014, Compal also has begun business development in new industries, including: Cooperation with Chang Gung Hospital (Taiwan) to jointly set up R&D center for smart medical/healthcare wearable devices; and investments in industrial PC manufacturers for greater vertical application. Through external strategic alliance and internal resources integration (i.e. server, networking, automotive electronics), Compal is now aggressively targeting the IoTs market, and will initially focus on three segments: Smart Home, Smart Car, and Smart Medical/Healthcare. We do expect these new investments to play a critical role in driving Compal’s revenue and profit growth in the next 3-5 years. Corporate Social Responsibility Compal continued to fulfill its obligations as a corporate citizen. Examples of its efforts include: promotion of “Digital Center Plan at Countryside,” “Future Reading” activities, and continued funding for disadvantaged children to help realize their dreams. In 2014, Compal continued to receive CSR honors from Taiwan Institute for Sustainable Energy (TAISE). Business Outlook According to market research (IDC, MIC, Canalys, Displaysearch), worldwide demands for NBs, Tablets, Smartphones, and LCD TVs have been estimated to grow by -3%, -1%, +15%, and +3% YoY, respectively, to 169 million, 242 million, 1,424 million, and 215 million units in 2015. Given the prevailing global economy and the company's conditions, Compal is targeting to achieve double-digit YoY growth and shipment of 100 million 5C devices in 2015. Looking ahead, Compal will continually enhance core business competitiveness, invest in innovation, and expand into new business, while in the meantime uphold its corporate philosophy of “Innovation, Harmony, and Transcendence.” It has been Compal's commitment all along to drive growth in terms of both “revenues” and “profitability” through sound execution of our strategies. Lastly, I would like to express my thanks once again for the efforts of all our management teams and employees, and reaffirm our mission to create more value to the company and our shareholders. We hereby wish you a peaceful and prosperity year! Chairman: Sheng-Hsiun Hsu (Rock Hsu) Chief Executive Officer (CEO): Jui-Tsung Chen (Ray Chen) Chief Finance Officer (CFO): Ching-Hsiung Lu (Gary Lu) 4 II. Company Profile 2.1 Date of Incorporation: June 1, 1984 2.2 Company History Company history in the past two years: Year 2013 • • • • • • • • • • An announcement was made in September to acquire outstanding shares of Compal Communication Milestones Inc. In October, the Company acquired an LCD assembly plant located at Wroclaw, Poland, from Toshiba. The Company won 7 awards during the 2013 “iF Design Awards.” Ranked 6th in CommonWealth Magazine's “Top-2000 Manufacturers” and 45th in the “Cross-strait Top-1000 Survey.” Ranked 29th in CommonWealth Magazine's 2013 “Corporate Citizen TOP 50.” Ranked 1523rd in Forbes' The World's Biggest Public Companies 2013. The Company was awarded a Merit Award by Taiwan Institute for Sustainable Energy during its “Taiwan Top 50 Corporate Sustainability Report Awards.” The Company was named "Exemplar in Corporate Social Responsibility Reporting" by the Industrial Development Bureau, Ministry of Economic Affairs. The Company was accredited by the Ministry of Education for participating in the “Digital Lifestyle Promotion Program for Remote Areas.” The Company's million-dollar tree plantation project was accredited with the "Green Sustainability Award" by the Earth Day Network. Named "Low-carbon Pioneer" by Kunshan City Government, China. • • Won certificate of excellence in Taipei City's 2nd “National Environment Education Award.” • Invited to participate in Taipei World Environment Day - “Corporate Environmental Education • • • • • • • 2014 Pledge” event. The Company's organic market program had been certified as a “Green Event” by the Environmental Protection Administration. The Company's share capital reached NTD 44.1 billion by the end of 2013. The Company earned NTD 692.7 billion in consolidated revenues in 2013. Compal Communication Inc. was officially merged into Compal Electronics Inc. on February 27. The Company won 11 awards during the 2014 “iF Design Awards,” which made Compal and ASUS the two Taiwanese companies with the highest number of awards. Compal ranked 22nd in the world for the number of iF awards won in the last 3 years. Ranked 1492nd in Forbes' The World's Biggest Public Companies 2014. 5 • • • • • Ranked 6th in CommonWealth Magazine's “Top-2000 Manufacturers” and 46th in the “Cross-strait Top-1000 Survey.” The Company was awarded a Bronze award by Taiwan Institute for Sustainable Energy during its "Taiwan Corporate Sustainability Report Award." The Company was ranked 36th by CSR Asia Summit during the 2014 "Channel News Asia Sustainability Ranking." The Company's share capital reached NTD 44.2 billion by the end of 2014. The Company earned NTD 845.7 billion in consolidated revenues in 2014. 2015 • Won 6 awards during the 2015 “iF Design Awards,” which placed Compal in world's 21st position for the number of iF awards won and 18th in terms of innovation. 6 III. Corporate Governance Report 3.1 Organization 3.1.1 Organizational Chart (As of Mar 31, 2015) Remuneration Committee Personnel Evaluation Committee Investment Planning and Management Office Legal Affairs Office Insider Trading Prevention Office Shareholder’s Meeting Board of Directors President’s Office Supervisors Auditing Office Top Management Committee Green Sustainability Office Corporate Social Responsibility Office Smart Device BG Global Operation PC BG E n t e r p r i s e P r o d u c t B U A E B G A P B G P C R D u n i t A E P B U P C Q u a l i t y A s s u r a n c e U n i t P C P r o c u r e m e n t U n i t D i s p l a y B U 7 A c c o u n t i n g G r o u p G r o u p H R & A d m i n i s t r a t i o n 3.1.2 Major Corporate Functions Department Functions President’s Office Responsible for the Company’s operation Investment Planning and Responsible for investment-related activities, operational analyses, policy making, Management Office resource allocation, and budgeting for the entire company Auditing Office Conducts internal audits Legal Affairs Office Handles the Company's legal affairs Green Sustainability Office Executes "Green Life" projects Insider Trading Prevention Office Corporate Social Responsibility Office AEBG APBG Implements preventive measures against insider trading Promotes and executes CSR-related affairs Responsible for the design and sale of computer products PC RD unit Responsible for the R&D of PC products Enterprise Product BU Responsible for the R&D and sale of enterprise products AEP BU Responsible for the R&D and sale of auto electronic products PC Quality Assurance Unit Oversees quality control of PC products PC Procurement Unit Oversees procurement of PC raw materials Display BU Responsible for the R&D, production and sale of display products Smart Device BG Responsible for the R&D, production, quality control and sale of smart devices Global Operation Responsible for the production, maintenance, customer service and IT system development and maintenance Accounting Group Handles accounting, share administration, and funding affairs HR & Administration Group Responsible for human resource, training, education, employee relations, procurement and building management 8 3.2 Directors, Supervisors and Management Team 3.2.1 Directors and Supervisors Title Name/Nationality (Note 1) Elected Date Term First Elected Date (Note 2) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Shares held by proxy Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions April 28, 2015 Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Title Name Relationship Chairman Sheng-Hsiun Hsu 2012.6.22 3 year(s) 1984.04.16 17,775,401 0.40% 17,775,401 0.40% 30,107,025 0.67% 0 0.00% Vice Chairman Medica, John Kevin 2012.6.22 3 year(s) 2008.06.13 3,061,452 0.07% 3,061,452 0.07% 0 0.00% 0 0.00% Director Jui-Tsung Chen 2012.6.22 3 year(s) 1992.04.30 49,282,587 1.12% 50,782,587 1.14% 2,092,405 0.05% 0 0.00% Director Wen-Being Hsu 2012.6.22 3 year(s) 1984.04.16 3,100,000 0.07% 4,000,000 0.09% Kinpo Electronics Inc. Director 2012.6.22 3 year(s) Representative: Shyh-Yong Shen 1990.06.22 151,628,692 3.44% 151,628,692 3.39% 2012.03.14 0 0.00% 0 0.00% 0 - 0 0.00% (Note 3) (Note 3) - 0.00% 0 0 0.00% 0.00% Director Wen-Chung Shen 2012.6.22 3 year(s) 1998.04.08 12,735,968 0.29% 11,935,968 0.27% 101,931 0.00% 0 0.00% 9 Honorary Doctorate, National Taiwan Normal University Chairman of Kinpo and Compal Electronics Inc. MBA, Wake Forest University/Senior Vice President of Dell Inc. Department of Electrical Engineering, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. National Tao-Yuan Sr. Vocational Agricultural & Industrial School Director of BAOTEK, Inc. M.B.A., University of Southern California; PhD, Whittier Law School Director and President of Kinpo Electronics, Inc. Department of Electrical Engineering, National Taiwan University Director of Arcadyan Technology Corp. (Note 4) Supervisor Director Sheng-Chieh Hsu Shyh-Yong Shen Brothers Father and son in law (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) Chairman Sheng-Hsiun Father and Hsu son in law (Note 4) N/A N/A N/A Title Name/Nationality (Note 1) Elected Date Term First Elected Date (Note 2) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Shares held by proxy Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Title Name Relationship Director Yung-Ching Chang 2012.6.22 3 year(s) 2000.03.30 4,672,587 0.11% 3,898,587 0.09% 7,259 0.00% 0 0.00% Director Chung-Pin Wong 2012.6.22 3 year(s) 2007.06.15 4,833,618 0.11% 4,833,618 0.11% 1,398 0.00% 0 0.00% Director Chiung-Chi Hsu 2012.6.22 3 year(s) 1994.04.23 1,944,731 0.04% 2,000,731 0.04% 30,000 0.00% 0 0.00% Director Sean Martin Maloney 2013.6.21 2 year(s) 2013.6.21 0 0.00% 0 0.00% 0 0.00% 0 0.00% Director Chao-Cheng Chen 2014.6.20 1 year(s) 2014.6.20 0 0.00% 4,850,000 0.11% 1,428 0.00% 0 0.00% Independent Director Min Chih Hsuan 2012.6.22 3 year(s) 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Master’s Defree in Graduate school of Management, Yuan Ze University Chairman of Allied Circuit Co., Ltd. Graduate Institute of Management Science, National Chiao Tung University Chairman of Rayonnant Technology Co., Ltd. Master’s Degree, Golden Gate University, San Francisco, USA Director of Eb-Bow-Bearing Co., Ltd. Honoris Causa, Southern Connecticut State University Intel Executive Vice President Graduate Institute of Electrical Engineering, National Taiwan University President of Compal Communication Inc. Honorary Doctorate, National Chiao Tung University Chairman of United Microelectronics Corp. & Faraday Technology Corp. (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A N/A N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A 10 Title Name/Nationality (Note 1) Elected Date Term First Elected Date (Note 2) Shareholding as of elected date Current shareholding Shares held by spouse and underage children Shares held by proxy Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Selected Current Positions Spouse or relatives of second degree or closer acting as Directors, Supervisors, or department heads Title Name Relationship Independent Director Independent Director Duei Tsai 2012.6.22 3 year(s) 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Duh Kung Tsai 2012.6.22 3 year(s) 2012.6.22 0 0.00% 0 0.00% 0 0.00% 0 0.00% Supervisor Charng-Chyi Ko 2012.6.22 3 year(s) 1984.04.16 7,896,867 0.18% 7,896,867 0.18% 10,645 0.00% 0 0.00% Supervisor Yen-Chia Chou 2012.6.22 3 year(s) 1997.05.29 8,022,874 0.18% 8,022,874 0.18% 2,502,768 0.06% 0 0.00% Supervisor Sheng-Chieh Hsu 2012.6.22 3 year(s) 1987.06.13 9,119,297 0.21% 9,119,297 0.20% 8,834,928 0.20% (Note 3) (Note 3) PhD, Graduate Institute of Electrical Engineering, National Taiwan University Minister of Transportation and Communications R.O.C. Department of Industrial Engineering, National Taipei Institute of Technology Chairman of Powertech Technology Inc. National Taiwan University College of Management Chairman and President of Taiwan Biotech Co., Ltd. Department of Geosciences, National Taiwan University Supervisor of Kinpo Electronics Inc. Department of Architecture, Tam-Kang University Managing Director of Kinpo Electronics Inc. (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) N/A N/A N/A (Note 4) Chairman Brothers Sheng-Hsiun Hsu Note: 1. Director Medica, John Kevin possessed U.S. citizenship while Director Sean Martin Maloney possessed UK citizenship; all remaining members were citizens of the Republic of China. 2. The terms of service of Supervisor Sheng-Chieh Hsu was temporarily discontinued between June 22, 1990 and April 22, 1994. 3. Director Wen-Being Hsu held 5,000,000 shares (0.11%) through proxies, while Supervisor Sheng-Chieh Hsu held 3,500,000 shares (0.08%) through proxies. 4. Selected Current Positions as below: 11 Title Name Selected Current Positions Chairman: Kinpo Electronics, Inc., AcBel Polytech Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Cal-Comp Electronics And communications Co., Ltd., Teleport Access Services, Inc., Kinpo Electronics (China) Co., Ltd., Cal-Comp Electronics (Suzhou) Co., Ltd., Jipo Investment Inc., Kinpo Group Management Consultant Company, Breeze Integrated Development Co., Ltd. Managing Director: Baotek Industrial Materials Ltd., Taiwan Biotech Co., Ltd. Chairman Sheng-Hsiun Hsu Director: Cal-Comp Optical Electronics (Suzhou) Co., Ltd., Cal-Comp Technology (Suzhou) Co., Ltd., Cal-Comp Electronics and Communications (Suzhou) Co., Ltd., Crownpo Technology Inc., PChome Online Inc., Cdib & Partners Investment Holding Corp., Acbel Polytech Holdings Inc., Acbel Polytech (Singapore) Pte. Ltd., Ascendant Private Equity Investment Ltd., Forward International Ltd., Global Strategic Investment Inc., HengHao Holding A Co., Ltd., HengHao Holding B Co., Ltd., HengHao Trading Co., Ltd., Kingbolt International (Singapore) Pte. Ltd., Kinpo International Ltd., Lipo Holding Co., Ltd., Ranashe International Ltd. President: Kinpo Group Management Consultant Company Vice Medica, Senior Consultant: Compal Elecctronics, Inc. Chairman John Kevin Independent Director: National Instruments Chairman: Arcadyan Technology Corporation, HengHao Technology Co. Ltd., Infinno Technology Corp., Mactech Co., Ltd., Synchro Seiki, Inc. Director: Kinpo Electronics, Inc., Compal Networking (Kunshan) Co., Ltd, Compal Broadband Networks, Inc., Kinpo Group Management Consultant Director Jui-Tsung Chen Company, Ascendant Private Equity Investment Ltd., Arcadyan Technology N.A. Corporation, Arcadyan Holding (BVI) Corp., Arch Holding (BVI) Corp., HengHao Holding A Co., Ltd., HengHao Holding B Co., Ltd., HengHao Trading Co., Ltd., Sinoprime Global Inc., Director Wen-Being Hsu Director: Baotek Industrial Materials Ltd. Wah Yuen Technology Holding Ltd. Director Director: AcBel Polytech Inc., Aonvision Technology Corp., Crownpo Technology Inc., XYZprinting, Inc., Baotek Industrial Materials Ltd., Teleport Kinpo Electronics, Access Services, Inc., Norm Pacific Automation Corp., Sinonar Corp., PK Venture Capital Corp., Prudence Venture Investment Corp., Jipo Inc. Investment Inc., Kinpo Electronics (Philippines), Inc. Director Wen-Chung Shen Supervisor: Jipo Investment Inc. Chairman: Compal Broadband Networks, Inc. Director: Arcadyan Technology Corporation, HengHao Technology Co. Ltd., Zhi-Bao Technology Corporation, Arcadyan Technology (Shanghai) 12 Title Name Selected Current Positions Corp., Maxima Ventures I, Inc., Taiwan, LC Future Center Ltd., Speedlink Tradings Ltd. Chairman: Allied Circuit Co., Ltd. Director Yung-Ching Chang Director: Mactech Co., Ltd., Kunshan Allied Circuit Trading Co., Ltd., Utmost Power Holding Inc., Ubrty Capital Management Corp., LC Future Center Ltd. Chairman: Wah Yuen Technology Holding Ltd. Director Chung-Pin Wong Co., Ltd., Mactech Co., Ltd., Compal Precision Module(Jiangsu) Co., Ltd., ShengBao Precision Electronics (Taicang) Ltd., Compal Director: Arcadyan Technology Corporation, Allied Circuit Co., Ltd., HengHao Technology Co. Ltd., Suyin Optronics Corp., Lead-Honor Optronics Electronic Technology (Chongqing) Co., Ltd., Compal Connector Manufacture Ltd., Motion Computing, Inc. Director Chiung-Chi Hsu Supervisor: Hong Ya Technology Corporation Chairman: Full Power Investment Co.,Ltd Director: Plank Optoelectronics Inc., , E-Bow Bearing Co., Ltd. Director Chao-Cheng Chen Director: Mactech Co., Ltd., Kinpo Group Management Consultant Company Independent Director Independent Director Independent Director Chairman: Faraday Technology Corp., Taiwan Memory Company, Meridigen Biotech Co., Ltd., Maxima Ventures I, Inc., Taiwan, Maxima Ventures II, Min Chih Hsuan Inc. Director: SIPP, Inc., Bcom Electronics Inc, General Biologicals Corporation, Clientron Corp., Pacgen Biopharmaceuticals Corporation (Canada) Independent Director: Wistron Corporation, Siliconware Precision Industries Co., Ltd. Duei Tsai Independent Director: Taiwan Taxi Co. , Ltd. Chairman: Powertech Technology Inc., Greatek Electronics Inc. Duh Kung Tsai Director: Powertech Technoloyg (Suzhou) Ltd., Powertech Holding (B.V.I.) Inc., PTI Technology (Singapore) Pte. Ltd. Independent Director: Wistron Corporation, Chicony Power Technology Co., Ltd. 13 Title Name Selected Current Positions Chairman: Baotek Industrial Materials Ltd., Taiwan Biotech Co., Ltd., Chang Yao Technology Inc., Evergene Biotech Industrial Co., Ltd., Weck Tech Biotech Co., Ltd., Global BioPharma, Inc, Genhealth Pharma Co., Ltd., Taiwan Veterans Pharmaceutical Co., Ltd., Twin Luck Global Company Ltd., Young & Health Care Resorts Inc., Woo Source Co. Ltd., Taiwan Venture Capital Co., Ltd., Long Yee Investment Co. Ltd., Yinfeng International, Inc., Taiwan Chariston AMC Corp., Ltd. Supervisor Charng-Chyi Ko International Enterprise Co., Ltd., Minsheng AM Inc., Minsheng Medical Holding Inc., Global Strategic Investment Ltd. (Samoa), Gold Director: All Information Inc., Sintong Animal Pharmaceutical Co., Ltd., OmniHealth Group, Inc., Aseptic Innovative Medicine Co., Ltd., Chipgene Precision Ltd., KKXC Intergrated Management Holding (CYPRUS) Ltd., Medinox Inc., Optics Lab Inc., Syn Pharm Inc. Supervisor: Kinpo Electronics, Inc., Teleport Access Services, Inc., Cal-Comp Electronics And communications Co., Ltd., Formosan Union Chemical Corp., Sunny Special Dyeing & Finishing Co. Ltd., Kenly Precision Industrial Co., Ltd., Jipo Investment Inc., Commonwealth Magazine Co, Ltd. President: Yinfeng International, Inc. Chairman: Sceptre Industry Co., Ltd. Director: Micro Metal Electronics Co., Ltd. Supervisor Yen-Chia Chou Supervisor: Kinpo Electronics, Inc., Full Power Investment Co., Ltd President: Sceptre Industry Co.,Ltd. Chairman: Integrate Investment Corp. Supervisor Sheng-Chieh Hsu Director: Kinpo Electronics, Inc., Cal-Comp Electronics(Thailand) Public Company Limited, Cal-Comp Electronics And communications Co., Ltd., Cal-Comp Electronics (Suzhou) Co., Ltd., Kinpo Electronics (China) Co., Ltd., Tung-WAN Kai-Bao Co., Ltd., Jipo Investment Inc., Kinpo International Ltd. 14 Major shareholders of the Company's corporate shareholders Name of corporate shareholder Kinpo Electronics, Inc. Major shareholders of the corporate shareholder (Note) Compal Electronics Inc. (8.51%), Nan Shan Life Insurance Company Ltd. (3.51%), Jipo Investment Inc. (3.17%), Li-Chu Tsai (2.86%), Lai-Chun Shen Tsai (2.79%), Kun-Chao Shen (2.08%), Sheng-Hsiun Hsu (1.86%), Citibank in its Capacity as Master Custodian of The Royal Bank of Scotland - Equity Derivative Account (1.74%), Panpal Technology Corporation (1.59%), Hebao Investment Co., Ltd. (1.51%) Note: If the major shareholder is also a corporate entity, please refer to the following table. Major shareholders of the Company’s major corporate shareholders Name of corporate shareholder Major shareholders of corporate shareholders Nan Shan Life Insurance Company Ltd. First Commercial Bank in its Capacity as Trustee of Ruen Chen Investment Holding (83.11%), Ruen Chen Investment Holding (7.52%), Yong-Zong Tu (3.25%), Taishin Bank in its Capacity as Trustee of Nanshan Life Insurance - Equity Trust Account (0.88%), Ruen Hua Dyeing & Weaving Co., Ltd. (0.28%), Ruentex Leasing Co., Ltd. (0.15%), Wen-De Kuo (0.11%), Jipin Investment Co., Ltd. (0.11%), Bao Chi Investment Co., Ltd. (0.05%), Bao Yi Investment Co., Ltd. (0.05%), Bao Hui Investment Co., Ltd. (0.05%), Bao Huang Investment Co., Ltd. (0.05%) Jipo Investment Inc. Kinpo Electronics, Inc. (100%) Panpal Technology Corporation Compal Electronics Inc. (100%) Hebao Investment Co., Ltd. Chieh-Li Hsu (36.09%), Li-Chu Tsai(27.83%), Yong-Hsu Hsu (12.50%), Chun-Chi Hsu (12.50%), Jing-Rong Liu (5.43%), Huang-Hsin Hsu (2.83%), Yue-Hsia Huang Hsu (1.41%), Yue-Chen Hsu (1.41%) 15 Professional qualifications and independence analysis of directors and supervisors Criteria Name Sheng-Hsiun Hsu Medica, John Kevin Jui-Tsung Chen Wen-Being Hsu Kinpo Electronics Inc. Representative: Shyh-Yong Shen Wen-Chung Shen Yung-Ching Chang Chung-Pin Wong Chiung-Chi Hsu Sean Martin Maloney Chao-Cheng Chen Min Chih Hsuan Duei Tsai Duh Kung Tsai Charng-Chyi Ko Yen-Chia Chou Sheng-Chieh Hsu Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company Having Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company Independence Criteria (Note) 1 2 3 4 5 6 7 8 9 10 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Independent Director (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 0 0 0 0 0 0 0 0 0 0 0 2 1 2 0 0 0 (cid:1) (cid:1) Note: Tick the corresponding boxes that apply to the directors or supervisors during the two years prior to being elected or during the term of office. 1. Not an employee of the Company or any of its affiliates. 16 2. Not a director or supervisor of the Company or any of its affiliates. Not applicable in cases where the person is an independent director of the Company, its parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company or who holds shares ranking in the top five holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares, of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not a person of any conditions defined in Article 30 of the Company Act. 10. Not a governmental, juridical person or its representative as defined in Article 27 of the Company Act. 17 3.2.2 Management Team Title Name/ Nationality (Note 1) Date elected / appointed Shares held Shares held by spouse and underage children Total shares held in the names of others Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) 1989.06.01 50,782,587 1.14% 2,092,405 0.05% 0 0.00% 2008.08.28 3,061,452 0.07% 0 0.00% 2002.01.01 11,935,968 0.27% 101,931 0.00% 0 0 2003.01.01 3,898,587 0.09% 7,259 0.00% 0 0.00% President Jui-Tsung Chen Senior Advisor Medica, John Kevin Wen-Chung Shen Yung-Ching Chang Chung-Pin Wong Chen-Chang Hsu Chao-Cheng Chen Executive Vice President Executive Vice President Executive Vice President Executive Vice President Executive Vice President Senior Vice President Senior Vice President 2007.04.01 4,833,618 0.11% 1,398 0.00% 2011.08.31 0 0.00% 0 0.00% 2014.02.27 4,850,000 0.11% 1,428 0.00% Chun-De Shen 2007.01.01 2,218,700 0.05% 900,000 0.02% Kuo-Chuan Chen 2007.01.01 955,823 0.02% 82,924 0.00% Senior Vice Pei-Yuan Chen 2009.10.06 4,487,698 0.10% 1,045,585 0.02% Major career (academic) achievements Department of Electrical Engineering, National Cheng Kung University Chairman of Compal Communication Inc. & Arcadyan Technology Corp. 0.00% M.B.A., Wake Forest University Senior V.P., Dell Inc. 0.00% 0.00% Department of Electrical Engineering, National Taiwan University Director of Arcadyan Technology Corp. Master’s Defree in Graduate school of Management, Yuan Ze University Director and President of Toppoly Optoelectronics Corp. Graduate Institute of Management Science, National Chiao Tung University Chairman of Rayonnant Technology Co., Ltd. 0.00% EMBA, National Chiao Tung University Executive Vice President of WINTEK Corporation 0.00% 0.00% 0.00% 0.00% Graduate Institute of Electrical Engineering, National Taiwan University President of Compal Communication Inc. Graduate Institute of Electrical Engineering, National Taiwan University Director of Kinpo Electronics Inc. Department of Physics, Chung Yuan Christian University Senior Vice President of Compal Communication Inc. Department of International Trade, Hsingwu College 18 0 0 0 0 0 0 April 28, 2015 Spouse or relatives of second degree or closer acting as managers Title Name Relationship Concurrent duties in the company and in other companies Refer to Vice Bo-Tang Relative by Pages 8~9 President Wang affinity Refer to Page 8 Refer to Page 9 Refer to Pages 9~10 Refer to Page 10 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A Refer to Page 10 N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A Title Name/ Nationality (Note 1) Date elected / appointed Shares held Shares held by spouse and underage children Total shares held in the names of others Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Concurrent duties in the company and in other companies Spouse or relatives of second degree or closer acting as managers Title Name Relationship President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Chiu-Rui Wei 2010.03.18 353,764 0.01% 192,966 0.00% Ying Chang 2011.2.24 0 0.00% Ming-Hsing Hsu Sheng-Hua Peng 2011.8.01 558,392 0.01% 2014.02.27 100,000 0.00% Wen-Da Hsu 2014.02.27 800,000 0.02% 0 0 0 0 0.00% 0 0.00% 0.00% 0.00% 0 0 0.00% 0.00% 2003.01.01 1,683,786 0.04% 51,194 0.00% 0 0.00% Vice President Chih-Chuan Cheng Vice President and head of finance Ching-Hsiung Lu Vice President Shih-Tung Wang Vice President Wei-Cheng Chen Vice President Bo-Hsiung Chang 2003.01.01 8,661,007 0.19% 2003.01.01 10,197 0.00% 2004.04.01 400,656 0.01% 0 0 0 0.00% 0.00% 0.00% 2006.02.21 0 0.00% 270 0.00% Vice Chin-Wen 2006.04.07 80,027 0.00% 20,137 0.00% Director of Kinpo Electronics Inc. MBA, University of Washington, USA Senior Vice President of Toppoly Optoelectronics Corp. 0.00% 0.00% MBA, University Of Georgia President of Swenc Technology Co., Ltd. 0 0 0.00% (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A Department of Engineering, Chung Yuan Christian University President of Compal Information (Kunshan) Co., Ltd. Graduate Institute of Electrical Engineering, National Taiwan University Senior Vice President of Compal Communication Inc. Department of Media Administration, Shih Hsin University Senior Vice President of Compal Communication Inc. Department of Electronic Engineering, Lunghwa University of Science and Technology Deputy Manager of Research and Development, Top Information Technologies Co., Ltd. 0 0 0 0 0 0.00% Department of Accounting, Feng Chia University Director Compal Communication Inc. (Note 3) N/A N/A N/A 0.00% 0.00% 0.00% Graduate Institute of Electrical Engineering, San Jose State University Vice President of KC Technology Inc. Department of Electronic Engineering, Taipei College of Maritime Technology Vice President of Cheong Tat Technology Department of Electrical Engineering, National Taipei Institute of Technology N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A 0.00% Graduate Institute of Business Administration, (Note 3) N/A N/A 19 Title Name/ Nationality (Note 1) Date elected / appointed Shares held Shares held by spouse and underage children Total shares held in the names of others Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) President Liao Vice President Tian-Yuan Tsai Vice President Bo-Tang Wang Vice President Ming-Sung Lin 2006.06.28 712,715 0.02% 0 0.00% 2007.07.10 239,548 0.01% 486 0.00% 0 0 0.00% 0.00% 2008.03.01 136,478 0.00% 20,394 0.00% 0 0.00% Vice President Hsi-Kuan Chen 2009.05.01 0 0.00% Vice President Zong-Ming Wang Vice President Fu-Chuan Chang Vice President Chi-Hsiang Ma Vice President Yung-Nan Chang Vice President Sheng-Hung Li 2009.07.16 168,184 0.00% 2009.07.16 144,662 0.00% 2011.01.01 102,624 0.00% 2011.01.01 0 0.00% 2011.07.01 102,574 0.00% Vice President Yung-He Su 2011.07.01 120,401 0.00% Vice President Ming-Hsiang Kan 2011.08.31 0 0.00% 0 0 0 0 0 0 0 0 0.00% 0 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0 0 0 0 0 0 0 Major career (academic) achievements Tatung University Head of Development, Tatung Company Graduate Institute of Public Finance, National Chengchi University Accountant of KPMG Department of Computer Science and Information Engineering, National Taiwan University President of Vibo Telecom Inc. Postgraduate study of Technology Management, National Chiao Tung University Deputy Manager of Parts Planning, CLEVO Company Master of Industrial Design, Cranbrook Academy of Art Director of Design and Customer Affairs, Philips (Hong Kong) National Taipei Institute of Technology Head of Research and Development, CLEVO Company National Chin-Yi University of Technology Production Manager, ADI Corp Department of Business Administration, Fu Jen Catholic University Product Manager, MiTAC International Corporation MBA, Pacific Western University Factory Manager, Delta Electronics Inc. Department of Electronics, National Taipei University of Science & Technology Department of Electrical Engineering, National Taipei Institute of Technology Vice President of Arima Photovoltaic & Optical Corp. Concurrent duties in the company and in other companies Spouse or relatives of second degree or closer acting as managers Title Name Relationship (Note 3) N/A N/A N/A N/A President Jui-Tsung Relative by Chen affinity N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A 0.00% MBA, University of Leicester (U.K.) N/A N/A N/A N/A 20 Title Name/ Nationality (Note 1) Date elected / appointed Shares held Shares held by spouse and underage children Total shares held in the names of others Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Vice President Chih-Hsien Liang 2011.10.31 Vice President Lung-Hua Shen 2012.08.29 0 0 0.00% 0.00% Vice President Ming-Dong Wong 2013.01.31 63,786 0.00% 0 0 0 0.00% 0 0.00% 0.00% 0 0.00% 0.00% 0 0.00% Vice President Yue-Chun Li 2014.02.17 0 0.00% 0 0.00% 0 0.00% Vice President Meng-Hsiung Nieh Vice President Chiao-Lieh Huang Vice President Chung-Hsing Tan 2014.02.27 1,046,006 0.02% 222,342 0.00% 2014.02.27 203,992 0.00% 0 0.00% 2014.02.27 320,529 0.01% 5,320 0.00% Vice President Yi-Yun Chang 2014.08.13 210,246 0.00% Vice President Hsin-Kung Mao 2014.11.13 714 0.00% 0 0 0.00% 0.00% 0 0 0 0 0 0.00% 0.00% 0.00% 0.00% 0.00% 21 Major career (academic) achievements Vice President of NB R&D, Flextronics International (Taiwan) Ltd. University of Colorado Postgraduate Institute of Digital Communication/Vice President of Wireless Communication, Altek Corporation Department of Civil Engineering, Tamkang University Vice President of Procurement, ASUS Ltd. Master of Business Administration, University of Washington, USA Deputy Manager of Sales, Kapok Computer Company Department of Electronic Engineering, Lee-Ming Institute of Technology Chairman's Special Assistant, Mag Technology Co., Ltd. Department of Electrical Engineering, Chinese Culture University Vice President of Compal Communication Inc. Graduate Institute of Electrical Engineering, National Taiwan University Vice President of Compal Communication Inc. Department of Electrical Engineering, Tatung University Vice President of Compal Communication Inc. Graduate Institute of Electrical Engineering, National Taiwan University Senior Manager of Compal Communication Inc. Master of Business Administration, University of Lincoln Head of Business, Display BU Concurrent duties in the company and in other companies Spouse or relatives of second degree or closer acting as managers Title Name Relationship N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A (Note 3) N/A N/A N/A Title Name/ Nationality (Note 1) Date elected / appointed Shares held Shares held by spouse and underage children Total shares held in the names of others Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Shares Shareholding Percentage (%) Major career (academic) achievements Vice President Ling-Sheng Wu Vice President Hsin-Hsiung Huang Head of Audit Bo-Wen Hsieh 2015.01.22 280,000 0.01% 2015.01.22 139,001 0.00% 2010.10.27 0 0.00% 0 0 0 0.00% 0.00% 0.00% 0 0 0 0.00% 0.00% 0.00% Graduate Institute of Electrical Engineering, University of Southern California; Senior Manager of Compal Communication Inc. Department of Electronics, Chung Yuan Christian University Senior Manager of Compal Communication Inc. Department of Accounting, National Taiwan University Audit Manager, KGT Telecom Concurrent duties in the company and in other companies Spouse or relatives of second degree or closer acting as managers Title Name Relationship N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Note: 1. 2. Senior Advisor Medica, John Kevin possessed U.S. citizenship; all remaining members were citizens of the Republic of China. Senior Vice President Ting-Chun Chou, Senior Vice President Kuo-Ping Liang, Vice President Ren-Chiu Shao, and Vice President Tian-Ming Chen had resigned in 2014. 3. Concurrent positions in other companies 22 Title Name Executive Vice President Chen-Chang Hsu Senior Vice President Chun-De Shen Senior Vice President Pei-Yuan Chen Chairman: Vice Chairman: Director: President: Director: President: Director: Director: Chiu-Rui Wei Supervisor: Ming-Hsing Hsu Sheng-Hua Peng Director: President: Director: Concurrent duties in the company and in other companies Henghao Technology (Kunshan) Co., Ltd., Lucom Display Technology (Kunshan) Ltd. Henghao Technology Co., Ltd., Optronics Corporation Mactech Co., Ltd., Synchro Seiki Co.,Ltd. Henghao Technology Co., Ltd., Henghao Technology (Kunshan) Co., Ltd., Lucom Display Technology (Kunshan) Ltd. Kinpo Electronics, Inc., Arcadyan Technology Corp., Allied Circuit Co., Ltd., Compal Information Research & Development (Nanjing) Co., Ltd., Hamg Shing Technology Corp., Auscom Engineering Inc. Compal Information Research & Development (Nanjing) Co., Ltd. Kinpo Electronics, Inc., Infinno Technology Corporation, Fubao Investment Co., Ltd. Chipbond Technology Corporation, Lian Hong Art. Co., Ltd., Taiwan Star Telecom Corporation Limited, Maxima Capital Management, HWA VI Venture Capital Corp., Hwa Chi Venture Capital Corp., Rayonnant Technology (HK) Holdings Limited, Zhengying Electronics (Chongqing) Co., Ltd., LC Future Center Ltd. Henghao Technology Co., Ltd., Infinno Technology Corporation, Rayonnant Technology Co. Ltd., Hamg Shing Technology Corp., Ripal Optoelectronics Co., Ltd., Mactech Co., Ltd., UNICOM GLOBAL, INC., Synchro Seiki Co., Ltd., Rayonnant Technology (Taicang) Co., Ltd. Kunshan Botai Electronic Services Co., Ltd. Compal Information (Kunshan) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd. Huang-Feng Communications, Inc., Compal Wireless Communications (Nanjing) Co., Ltd, Compal Digital Communications (Nanjing) Co.,Ltd., HANHELT Communications (Nanjing) Co., Ltd., Compal Communications (Nanjing) Co.,Ltd. Wen-Da Hsu Director: HANHELT Communications (Nanjing) Co., Ltd. Director: Supervisor: Ching-Hsiun g Lu Zhibao Technology Co., Ltd., Arcadyan Technology (Shanghai) Corp., Keppel Communication Pte Ltd (Nanjing), Compal Digital Communications(Nanjing) Co., Ltd., Compal Communication (Nanjing) Co., Ltd., Kunshan Botai Electronic Services Co., Ltd., Great Arch Group Ltd., Leading Images Limited Compal Broadband Networks Inc., Accesstek Inc., Compal Electronics Technology (Kunshan) Co., Ltd., Compal Information (Kunshan) Co., Ltd., Compal Information Technology (Kunshan) Co. Ltd., Compal Electronics (China) Co., Ltd., Compal Digital Technology (Kunshan) Co., Ltd., Compal Electronics (ChengDu) Co., Ltd., Compal Electronics, (ChongQing) Co., Ltd., Compal Optoelectronics (Kunshan) Co., Ltd., Compal Display Electronics (Kunshan) Co. Ltd., Compal Networking (Kunshan) Co.,Ltd., Kunshan Botai Electronic Services Co., Ltd., Compal Investment (Sichuan) Co., Ltd., Compal Investment (Jiangsu) Co., Ltd., Compal Management (Chengdu) Co., Ltd. Senior Vice President Senior Vice President Senior Vice President Senior Vice President Vice President and head of finance Vice President Vice President Bo-Hsiung Chang Chin-Wen Liao Director: UNICOM GLOBAL, INC. Director: CENA Electromex S.A. de C.V. 23 Title Vice President Vice President Vice President Vice President Vice President Name Tian-Yuan Tsai Hsi-Kuan Chen Fu-Chuan Chang Chiao-Lieh Huang Hsin-Kung Mao Chairman: Managing Director: LIZ Electronics (Kunshan) Co., Ltd. Crownpo Technology Inc. Concurrent duties in the company and in other companies Director: Rayonnant Technology Co. Ltd., Rayonnant Technology (Taicang) Co., Ltd. President: Compal Optoelectronics (Kunshan) Co., Ltd., Compal Electronics (China) Co., Ltd. Supervisor: HANHELT Communications (Nanjing) Co., Ltd. President: Compal Electronics Europe Sp. z o.o. 24 3.2.3 Remuneration of Directors, Supervisors, President, and Vice Presidents Remuneration of Directors Directors' remuneration Title Name Remuneration (A) Pension (B) Remuneration from earnings appropriation (C) Fees for services rendered (D) The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The sum of A, B, C and D as a percentage of after-tax profit Salaries, bonuses, special allowances etc (E) Pension (F) Share of profit as an employee (G) Remuneration as an employee The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Cash dividends Stock dividends Cash dividends Stock dividends Total shares exercisable through employee warrants (H) The Company All companies included in the financial statements Number of new restricted shares acquired as an employee (I) The Company All companies included in the financial statements The sum of A, B, C, D, E, F, and G as a percentage of after-tax profit The Company All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (J) Unit: NTD thousand; thousand shares; % 4,320 4,320 0 0 38,914 38,914 2,561 3,429 0.65% 0.66% 185,876 188,958 595 608 87,464 0 87,464 0 0 0 7,650 7,650 4.55% 4.60% 41,273 Chairman Vice Sheng-Hsiun Hsu Medica, John Chairman Kevin Director Jui-Tsung Chen Director Wen-Being Hsu Director Kinpo Electronics, Inc. Representative: Shyh-Yong Shen Director Wen-Chung Shen Director Yung-Ching Chang Director Chung-Pin Wong Director Chiung-Chi Hsu Director Director Independent Director Independent Director Independent Director Sean Martin Maloney Chao-Cheng Chen Min Chih Hsuan Duei Tsai Duh Kung Tsai Note: 1. Director Chao-Cheng Chen was inaugurated on June 20, 2014. 2. In 2014, the Company made pension contributions totaling NTD 595,000 (including NTD 267,000 under the new system and NTD328,000 under the old system) for directors who also assumed managerial roles as employees; meanwhile, all companies reported in the financial statements had made pension contributions totaling NTD 608,000 (including NTD 280,000 under the new system and NTD 328,000 under the old system) for directors who also assumed managerial roles as employees. 2014 financial statements and the proposal to distribute 2014 earnings in 2015 have yet to be resolved in a shareholders' meeting. 3. 25 Range of Remuneration Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total Number of Directors Total of (A+B+C+D) Total of (A+B+C+D+E+F+G+J) The Company 5 (Note 1) 9 (Note 2) 1 (Note 3) Companies in the consolidated financial statements 5 (Note 4) 8 (Note 5) 2 (Note 6) The Company 4 (Note 7) 4 (Note 8) 1 (Note 9) 4 (Note 10) 1 (Note 11) 1 (Note 12) Companies in the consolidated financial statements 3 (Note 13) 4 (Note 14) 6 (Note 15) 1 (Note 16) 1 (Note 17) 15 15 15 15 Note: 1. Chao-Cheng Chen, Min Chih Hsuan, Duei Tsai, Duh Kung Tsai, Shyh-Yong Shen 2. Medica, John Kevin, Jui-Tsung Chen, Wen-Being Hsu, Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chiung-Chi Hsu, Sean Martin Maloney, Kinpo Electronics Inc. 3. Sheng-Hsiun Hsu 4. Chao-Cheng Chen, Min Chih Hsuan, Duei Tsai, Duh Kung Tsai, Shyh-Yong Shen 5. Medica, John Kevin, Wen-Being Hsu, Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chiung-Chi Hsu, Sean Martin Maloney, Kinpo Electronics Inc. 6. Sheng-Hsiun Hsu, Jui-Tsung Chen 7. Min Chih Hsuan, Duei Tsai, Duh Kung Tsai, Shyh-Yong Shen 8. Wen-Being Hsu, Chiung-Chi Hsu, Sean Martin Maloney, Kinpo Electronics Inc. 9. Sheng-Hsiun Hsu 10. Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chao-Cheng Chen 11. Jui-Tsung Chen 12. Medica, John Kevin 13. Min Chih Hsuan, Duei Tsai, Duh Kung Tsai 14. Wen-Being Hsu, Chiung-Chi Hsu, Sean Martin Maloney, Kinpo Electronics Inc. 15. Sheng-Hsiun Hsu, Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chao-Cheng Chen, Shyh-Yong Shen 16. Jui-Tsung Chen 17. Medica, John Kevin 26 Remuneration of Supervisors Remuneration (A) Share of profit (B) Fees for services rendered (C) Supervisors' remuneration Unit: NTD thousand; thousand shares; % Sum of A, B and C as a percentage of after-tax profit (%) The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (D) 0 0 10,465 10,465 475 511 0.16% 0.16% 1,934 Title Name Supervisor Supervisor Supervisor Charng-Chyi Ko Yen-Chia Chou Sheng-Chieh Hsu Note: 1. No pension benefits were paid and no pension contributions were made in 2014 for supervisors. 2. 2014 financial statements and the proposal to distribute 2014 earnings in 2015 have yet to be resolved in a shareholders' meeting. 27 Range of Remuneration Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Total Note: 1. Charng-Chyi Ko, Yen-Chia Chou, Sheng-Chieh Hsu 2. Charng-Chyi Ko, Yen-Chia Chou, Sheng-Chieh Hsu Number of Supervisors Total of (A+B+C) The Company Total of (A+B+C+D) Companies in the consolidated financial statements 3 (Note 1) 3 (Note 2) 3 3 28 Remuneration of the President and Vice Presidents Salary (A) Pension (B) special allowances (C) Share of profit as an employee (D) Sum of A, B, C and D as a percentage of after-tax profit (%) Employee warrants received Number of new restricted shares acquired as an employee The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements The Company Cash dividend Stock dividend Cash dividend Stock dividend All companies included in the financial statements The Company All companies included in the financial statements The Company All companies included in the financial statements Remuneration from invested businesses other than the subsidiaries (E) Unit: NTD thousand; thousand shares; % 92,032 101,789 5,369 5,437 357,174 362,767 148,835 0 148,835 0 8.58% 8.80% 0 0 26,500 26,500 3,409 Title Name 47 employees including President Jui-Tsung Chen (Note 1) Note: 1. Managers' titles and names ‧ ‧ ‧ ‧ President: Jui-Tsung Chen - 1 position Senior Advisor: Medica, John Kevin Executive Vice Presidents: Wen Senior Vice Presidents: Chun Kuo-Ping Liang - 10 positions - 1 position -Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chen-Chang Hsu, and Chao-Cheng Chen - 5 positions -De Shen, Pei-Yuan Chen, Chiu-Rui Wei, Ying Chang, Ming-Hsing Hsu, Kuo-Chuan Chen, Sheng-Hua Peng, Wen-Da Hsu, Ting-Chun Chou, and ‧Vice Presidents: Chih-Chuan Cheng, Ching-Hsiung Lu, Shih-Tung Wang, Wei-Cheng Chen, Bo-Hsiung Chang, Chin-Wen Liao, Tian-Yuan Tsai, Bo-Tang Wang, Ming-Sung Lin, Hsi-Kuan Chen, Zong-Ming Wang, Fu-Chuan Chang, Chi-Hsiang Ma, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wong, Yue-Chun Li, Meng-Hsiung Nieh, Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Ling-Sheng Wu, Hsin-Hsiung Huang, Ren-Chiu Shao, and Tian-Ming Chen - 30 positions 2. In 2014, Executive Vice President Chao-Cheng Chen, Senior Vice President Kuo-Chuan Chen, Senior Vice President Sheng-Hua Peng, Senior Vice President Wen-Da Hsu, Vice President Yue-Chun Li, Vice President Meng-Hsiung Nieh, Vice President Chiao-Lieh Huang, and Vice President Chung-Hsing Tan were transferred back or inaugurated at Compal Electronics; meanwhile, Vice Presidents Yi-Yun Chang and Hsin-Kung Mao were promoted and Senior Vice President Ting-Chun Chou, Senior Vice President Kuo-Ping Liang, Vice President Ren-Chiu Shao, and Vice President Tian-Ming Chen had resigned. In 2015, Vice Presidents Ling-Sheng Wu and Hsin-Hsiung Huang were promoted. 3. No pension benefit was paid in 2014. In the meantime, the Company made pension contributions totaling NTD 5,369,000 (including NTD 4,151,000 under the new system and NTD1,218,000 under the old system), while all companies reported in the financial statements made pension contributions totaling NTD5,437,000 (including NTD4,219,000 under the new system and NTD1,218,000 under the old system). 2014 financial statements and the proposal to distribute 2014 earnings in 2015 have yet to be resolved in a shareholders' meeting. The employee bonus mentioned above is not final, and will be subject to change based on the list of existing employees after the proposal is passed during a shareholders' meeting. 4. 29 Range of Remuneration Under NT$ 2,000,000 NT$2,000,000 ~ NT$5,000,000 NT$5,000,000 ~ NT$10,000,000 NT$10,000,000 ~ NT$15,000,000 NT$15,000,000 ~ NT$30,000,000 NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000 Over NT$100,000,000 Number of President and Vice Presidents Total of (A+B+C+D) The Company 5 (Note 1) 6 (Note 2) 21 (Note 3) 6 (Note 4) 7 (Note 5) 1 (Note 6) 1 (Note 7) Total of (A+B+C+D+E) Companies in the consolidated financial statements 5 (Note 8) 4 (Note 9) 22 (Note 10) 7 (Note 11) 7 (Note 12) 1 (Note 13) 1 (Note 14) Total Note: 1. Ling-Sheng Wu, Hsin-Hsiung Huang, Ting-Chun Chou, Ren-Chiu Shao, Tian-Ming Chen 2. Tian-Yuan Tsai, Ming-Sung Lin, Zong-Ming Wang, Chi-Hsiang Ma, Sheng-Hung Li, Kuo-Ping Liang 3. Pei-Yuan Chen, Chiu-Rui Wei, Ming-Hsing Hsu, Chih-Chuan Cheng, Ching-Hsiung Lu, Wei-Cheng Chen, Shih-Tung Wang, Chin-Wen Liao, Bo-Tang Wang, 47 47 Fu-Chuan Chang, Yung-Nan Chang, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wong, Yue-Chun Li, Meng-Hsiung Nieh, Chiao-Lieh Huang, Yi-Yun Chang, Hsin-Kung Mao 4. Chun-De Shen, Kuo-Chuan Chen, Wen-Da Hsu, Bo-Hsiung Chang, Hsi-Kuan Chen, Chung-Hsing Tan 5. Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chen-Chang Hsu, Chao-Cheng Chen, Ying Chang, Sheng-Hua Peng 6. Jui-Tsung Chen 7. Medica, John Kevin 8. Ling-Sheng Wu, Hsin-Hsiung Huang, Ting-Chun Chou, Ren-Chiu Shao, Tian-Ming Chen 9. Ming-Sung Lin, Zong-Ming Wang, Chi-Hsiang Ma, Sheng-Hung Li 10. Pei-Yuan Chen, Chiu-Rui Wei, Ming-Hsing Hsu, Chih-Chuan Cheng, Ching-Hsiung Lu, Wei-Cheng Chen, Shih-Tung Wang, Chin-Wen Liao, Tian-Yuan Tsai, Bo-Tang Wang, Fu-Chuan Chang, Yung-Nan Chang, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wong, Yue-Chun Li, Meng-Hsiung Nieh, Yi-Yun Chang, Hsin-Kung Mao, Kuo-Ping Liang 11. Chun-De Shen, Kuo-Chuan Chen, Wen-Da Hsu, Bo-Hsiung Chang, Hsi-Kuan Chen, Chiao-Lieh Huang, Chung-Hsing Tan 12. Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chen-Chang Hsu, Chao-Cheng Chen, Ying Chang, Sheng-Hua Peng 13. Jui-Tsung Chen 14. Medica, John Kevin 30 Employee profit sharing granted to the management team Title Name Stock dividends Cash dividends Total Total as a percentage to after-tax profit (％) Unit: NTD thousand 44 employees including President Jui-Tsung Chen (Note 1) Note: 1. Managers' titles and names 0 148,950 148,950 2.12% ‧ President: Jui-Tsung Chen - 1 position ‧ Senior Advisor: Medica, John Kevin - 1 position ‧ Executive Vice Presidents: Wen-Chung Shen, Yung-Ching Chang, Chung-Pin Wong, Chen-Chang Hsu, and Chao-Cheng Chen - 5 positions ‧ Senior Vice Presidents: Chun-De Shen, Pei-Yuan Chen, Chiu-Rui Wei, Ying Chang, Ming-Hsing Hsu, Kuo-Chuan Chen, Sheng-Hua Peng, and Wen-Da Hsu - 8 positions ‧ Vice Presidents: Chih-Chuan Cheng, Ching-Hsiung Lu, Shih-Tung Wang, Wei-Cheng Chen, Bo-Hsiung Chang, Chin-Wen Liao, Tian-Yuan Tsai, Bo-Tang Wang, Ming-Sung Lin, Hsi-Kuan Chen, Zong-Ming Wang, Fu-Chuan Chang, Chi-Hsiang Ma, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Ming-Hsiang Kan, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wong, Yue-Chun Li, Meng-Hsiung Nieh, Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Ling-Sheng Wu, and Hsin-Hsiung Huang - 28 positions ‧ Head of Audit: Bo-Wen Hsieh - 1 position 2. Senior Vice President Ting-Chun Chou, Senior Vice President Kuo-Ping Liang, Vice President Ren-Chiu Shao, and Vice President Tian-Ming Chen had resigned in 2014. 3. 2014 financial statements and the proposal to distribute 2014 earnings in 2015 have yet to be resolved in a shareholders' meeting. The employee bonus mentioned above is not final, and will be subject to change based on the list of existing employees after the proposal is passed during a shareholders' meeting. 31 3.2.4 Comparison of Remuneration for Directors, Supervisors, Presidents and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents and Vice Presidents A. The percentage of total remuneration paid by the Company and by all companies included in the consolidated financial statements for the two most recent fiscal years to directors, supervisors, presidents and vice presidents of the Company, relative to net income. 2014 2013 Amount % Amount % Unit: NT$ thousands Increase (Decrease) % Amount 676,467 9.62% 353,400 14.32% 323,067 91.42% Item Directors Supervisors Presidents and Vice Presidents Net Income 7,034,081 2,467,211 4,566,870 Note: 2013 data is the actual amount. B. The policies, standards, and portfolios for the payment of remuneration, the procedures for determining remuneration, and correlation with business performance. (cid:2) All remuneration to directors, supervisors and managers are proposed according to the Articles of Incorporation and HR policies, reviewed by the Remuneration Committee, and resolved by the Board of Directors and shareholders’ Meeting before proceeding. (cid:2) The above remuneration is determined mainly based on the Company's earnings, while taking into account each individual's participation, contribution and performance, as well as the level of remuneration paid by peers. These decisions are also adjusted according to changes in the global economy, the financial market, industry cycles, future prospects, and business risks in ways that ensure sustainability of the Company's business and maximize shareholders' interests. 32 3.3 Implementation of Corporate Governance 3.3.1 Board of Directors A total of 9 (A) meetings of the Board of Directors were held in the previous period. The attendance of directors and supervisors were as follows: Title Name Attendance in Person (B) By Proxy Attendance Rate (%)[B/A] Remarks Chairman Sheng-Hsiun Hsu Vice Chairman Medica, John Kevin Director Jui-Tsung Chen Director Wen-Being Hsu Director Kinpo Electronics Inc. Representative: Shyh-Yong Shen Director Wen-Chung Shen Director Yung-Ching Chang Director Chung-Pin Wong Director Chiung-Chi Hsu Director Sean Martin Maloney Director Chao-Cheng Chen Independent Director Independent Director Independent Director Min Chih Hsuan Duei Tsai Duh Kung Tsai 9 1 9 6 4 9 6 7 7 1 5 5 9 4 0 0 0 2 5 0 3 2 1 0 0 2 0 2 100% 11% 100% 67% 44% 100% 67% 78% 78% 11% 100% 56% 100% 44% Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Inaugurated June 21, 2013 Inaugurated June 20, 2014 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Re-elected on June 22, 2012 Note: Vice Chairman Medica, John Kevin and Director Sean Martin Maloney reside in foreign countries and are unable to attend every board meeting in person. However, the Company either informs them of the meeting agendas in advance, or arranges to have them participate via teleconferencing so that they have full knowledge of meeting proceedings. Other notes: Please refer to page 24-26 of the Chinese annual report. 33 3.3.2 Audit Committee (or Attendance of Supervisors at Board Meetings) A. Audit Committee: The Company does not have an Audit Committee. B. Attendance of Supervisors at Board Meetings A total of 9 (A) meetings of the Board of Directors were held in the previous period. The attendance of supervisors was as follows: Title Name Attendance in Person (B) Attendance Rate (%) [B/A] Remarks Charng-Chyi Supervisor Ko Yen-Chia Chou Supervisor Supervisor Sheng-Chieh Hsu 7 7 5 78% Inaugurated June 22, 2012 78% Inaugurated June 22, 2012 56% Inaugurated June 22, 2012 Other notes: 1. Composition and responsibilities of supervisors: (1) Communications between supervisors and the Company's employees and shareholders (e.g. the communication channels and methods used): Supervisors can directly engage and communicate with the Company’s employees and shareholders. (2) Communications between supervisors and the Company's chief internal auditor and CPA (e.g. topics of discussion, the methods used, results of financial or operational audits etc.): The Company's supervisors are given open channels to communicate with internal and external auditors. Communication is established mainly through the following means: (A) Regular reports: the chief auditor is required to submit internal audit reports and worksheets to each supervisor before the end of the month one month after an audit is completed. The chief auditor attends board meetings and reports progress of ongoing audit tasks. Meanwhile, the external auditor regularly reports to supervisors. (B) Irregular reports: internal and external auditors are required to make written or verbal reports to supervisors whenever deemed necessary. 2. If a supervisor expresses an opinion during a meeting of the Board of Directors, the date of the meeting, session, the content of motion, the resolutions of the directors’ meetings and the company’s response to the supervisor’s opinion should be specified: None 34 3.3.3 Corporate Governance Implementation and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies” Assessment criteria Yes No Actual governance Summary description Yes The Company's corporate governance principles were approved by the Board of Directors on December 23, 2014, and have been disclosed on its official website and MOPS. Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies The principles implemented by the Company are somewhat different from the authority's revised version dated December 31, 2014, for which the Company will make amendments in the near future. Yes Yes Yes For shareholders' best interests, the Company has spokesperson and acting spokesperson in place, and a unit that specializes in addressing shareholders' suggestions, queries, disputes and litigations. No deviations were found The Company keeps track of the identity of its ultimate controller by monitoring insiders' shareholding positions (including directors, supervisors, managers, and shareholders with more than 10% ownership interest) and the shareholder registry prepared by the share administration agency. The Company has established "Internal Control Policy - Non-trade Activities - Supervision and Management of Subsidiaries," "Investment Policy," and "Guidelines on Financial and Business Dealings Between Affiliated Enterprises" to serve as firewalls and risk controls over related parties. No deviations were found No deviations were found Yes To prevent insider trading, "CO10 Insider Trading Prevention Management" and "Insider Trading Prevention Procedures" have been included as part of the Company's internal No deviations were found 35 I. II. 1. 2. 3. 4. Has the company established and disclosed its corporate governance principles based on "Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies?" Shareholding structure and shareholders’ interests Has the company implemented a set of internal procedures to handle shareholders' suggestions, queries, disputes and litigations? Is the company constantly informed of the identities of its major shareholders and the ultimate controller? Has the company established and implemented risk management practices and firewalls for companies it is affiliated with? Has the company established internal policies that prevent Assessment criteria Yes No insiders from trading securities against non-public information? Actual governance Summary description Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies control, and published onto the intranet and linked to TWSE's website where employees may access. Both policies have been included as part of the compulsory e-Learning courses for department heads, while eCSA questionnaires are issued on a yearly basis to facilitate self-assessments. Insiders such as directors, supervisors and managers are given a copy of TWSE's "Insider Share Trading Manual" when coming onboard, so that they are aware of the rules to obey as insiders of this company. 2. 1. III. Assembly and obligations of the board of directors Has the board devised and implemented policies to ensure diversity of its members? Apart from the Remuneration Committee and Audit Committee, has the company assembled other functional committees at its own discretion? Has the company established a set of policies and assessment tools to evaluate the board's performance? Is performance evaluated regularly at least on an annual basis? Are external auditors' independence assessed on a regular basis? 3. 4. Yes The Company's board comprises of members from a broad diversity of professional backgrounds and work experience. Collectively, they possess the knowledge, skills and characters needed to accomplish the board's responsibilities. No The Company has a Remuneration Committee in place, and will be assembling an Audit Committee after the 12th Board of Directors is elected during the 2015 annual general meeting. All other affairs of the Company are handled by the respective departments; the Company does not have any other functional committees in place apart from those mentioned above. No deviations were found No deviations were found No Currently, the Company does not have policies or assessment tools in place to evaluate the board's performance. Such policies and tools will be created after careful consideration. Yes The board evaluates the independence and competence of its external auditors on a yearly basis. The evaluation involves a series of checks to determine whether external auditors involve any of the Company's directors, supervisors, shareholders or paid employees, while making sure that none of them are stakeholders of the Company. Financial statement auditors have been instructed to disassociate themselves from tasks that pose direct or indirect conflicts with their own interests. The same principles apply whenever there is a job 36 No deviations were found Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Assessment criteria Yes No Actual governance Summary description Yes IV. Has the company provided proper communication channels and created dedicated sections on its website to address corporate social responsibility issues that are of significant concern to stakeholders? V. Does the company engage a Yes VI. 1. 2. share administration agency to handle shareholder meeting affairs? Information disclosure Has the company established a website that discloses financial, business, and corporate governance-related information? Has the company adopted other means to disclose information (e.g. English website, assignment of specific personnel to collect and disclose corporate information, implementation of a spokesperson system, broadcasting of investor conferences via the company rotation within the accounting firm. The Company has created a "Stakeholder Communication Area" on its website to address stakeholder relations. A separate email address has been provided for each stakeholder relation to ensure that queries are directed to the relevant departments. A "Material Aspects" questionnaire has also been created, through which stakeholders may identify issues that are of utmost concern to them. The Company will address stakeholders' responses properly and take their suggestions as part of the Company's goals. The Company has commissioned Chinatrust Bank as the share administration agency, which is responsible for handling shareholder meeting affairs and providing share administration services. No deviations were found Yes The Company's website (www.compal.com) is constantly updated with information such as financial performance, corporate governance, and shareholders' meetings. No deviations were found Yes (cid:2) (cid:2) (cid:2) The Company's website discloses information in both Chinese and English. Information is gathered and disclosed by a specialized department within the Company. The Company has a spokesperson policy, a spokesperson, and an acting spokesperson in place. Investor conferences are organized regularly and whenever deemed necessary. The proceedings of which are disclosed on the Company's website broadcast using TWSE's platform (website: http://webpro.twse.com.tw/webportal/ vod/101/). No deviations were found 37 Assessment criteria Yes No website)? VII. Does the company have other Yes information that enables a better understanding of the company's corporate governance practices (including but not limited to employee rights, employee care, investor relations, supplier relations, stakeholders' interests, continuing education of directors/supervisors, implementation of risk management policies and risk measurements, implementation of customer policy, and insuring against liabilities of company directors and supervisors)? VIII. Has the company prepared a corporate governance self-assessment report or commissioned a professional organization to compile a corporate governance assessment report? (If so, please state the board of directors' opinions, the result of the self/external assessment, Actual governance Summary description Employee welfare and care to employees Employee code of conduct Investor relations Supplier relations and execution of customer policy Stakeholders' interests Risk management execution and framework; Risk analysis and evaluation Insuring against liabilities of company directors and supervisors (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) (cid:2) Directors', supervisors' and managers' ongoing education (cid:2) Qualification of personnel involved in financial transparency Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Yes (cid:2) (cid:2) Pursuant to Letter No. Taiwan-Securities-Governance-1032201043 issued by Taiwan Stock Exchange Corporation (TWSE) on October 2, 2014, the MOPS no longer accepts upload of corporate governance self-assessment reports since October 13, 2014. The Company had completed its 2014 corporate governance self-assessment within the timeframe specified by TWSE. The assessment results were published on April 30, 2015, in which the Company was ranked among the top 5%. No deviations were found 38 Assessment criteria Yes No any major weaknesses or suggestions raised, and improvements made.) Actual governance Summary description Deviation and causes of deviation from the Corporate Governance Best-Practice Principles for TWSE/TPEX Listed Companies 39 3.3.4 Composition, Responsibilities and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members Criteria Title Name Independent Director Independent Director Independent Director Min Chih Hsuan Duei Tsai Duh Kung Tsai Having Met One of the Following Professional Qualifications, Together with at Least Five Years Work Experience A judge, public prosecutor, attorney, Certified Public Accountant, or other professional or technical specialist who has passed a national examination and been awarded a certificate in a profession necessary for the business of the Company Having work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company An instructor or higher position in a department of commerce, law, finance, accounting, or other academic department related to the business needs of the Company in a public or private junior college, college or university Independence Criteria (Note) 1 2 3 4 5 6 7 8 Number of Other Public Companies in Which the Individual is Concurrently Serving as an Remuneration Committee Member (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) (cid:1) 2 3 2 Remarks Not applicable Not applicable Not applicable Note: Tick the corresponding boxes that apply to a member during the two years prior to being elected or during the term(s) of office. 1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of an affiliated company. Not applicable in cases where the person is an independent director of the parent company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under others’ names, in an aggregate amount of 1% or more of the total number of outstanding shares of the Company, or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship, of any of the persons in the preceding three sub-paragraphs. 5. Not a director, supervisor, or employee of a corporate shareholder who directly holds 5% or more of the total number of outstanding shares of the Company, or who holds shares ranking in the top five holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution which has a financial or business relationship with the Company. 7. Not a professional individual, who is an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting services or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not a person of any conditions defined in Article 30 of the Company Act. 40 B. Attendance of Members at Remuneration Committee Meetings There are three members in the Remuneration Committee. A total of 3 (A) Remuneration Committee meetings were held in the previous period. The attendance record of the Remuneration Committee members was as follows: Title Name Convener Committee Member Committee Member Min Chih Hsuan Duei Tsai Duh Kung Tsai Attendance in Person (B) By Proxy 2 3 3 1 0 0 Attendance Rate (%) [B/A] 67% 100% 100% Remarks Inaugurated June 22, 2012 Inaugurated June 22, 2012 Inaugurated June 22, 2012 Other notes: 1. If the board of directors declines to adopt or modifies a recommendation of the remuneration committee, it should specify the date of the meeting, the session, the nature of motion, the resolution made by the board of directors, and the Company’s response to the remuneration committee’s opinion (eg., if the amount of remuneration passed by the Board of Directors exceeds the remuneration committee's recommended amount, the circumstances and cause for the difference shall be specified): None. 2. If resolutions of the remuneration committee are objected by members or become subject to a qualified opinion, which have been recorded or declared in writing, then the date of the meeting, the session, the nature of the motion, all members’ opinions and the response to members’ opinion should be specified: None. 41 3.3.5 Corporate Social Responsibility Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies I. 1. 2. 3. 4. Sound corporate governance Does the company have a corporate social responsibility policy or system in place? Is progress reviewed on a regular basis? Does the company organize social responsibility training on a regular basis? Does the company have a unit that specializes (or is involved) in CSR practices? Is the CSR unit run by senior management and reports its progress to the board of directors? Has the company implemented a reasonable remuneration system that associates employees' performance appraisals with CSR? Is the remuneration system supported Yes The Company's corporate social responsibility policy was passed by the Board of Directors. CSR progress is reported to and reviewed by the board on a regular basis. No deviations were found Yes Yes Yes The Company organizes annual CSR training courses as required by its employee code of conduct and CSR-related policies. These training courses cover a broad variety of topics including: corporate policies, HR system, employee code of conduct, Personal Information Protection Act, and other areas as the law may require. All training courses are accessible online and have been made compulsory for new recruits. Existing employees may complete courses online at their own discretion at any time. In 2014, 3,988 employees had completed their training for a total of 12,576 hours. The Company has a CSR Office that specializes in CSR-related matters. The Board of Directors has authorized its senior management to perform CSR-related tasks and to update the board on the overall progress. No deviations were found No deviations were found Employees' salary levels are set consistently among those of similar responsibilities, with adjustments made based on individual work performance (including ethical conducts). Different salary levels may be granted depending on education, experience, job grade, and the assigned duties, but are higher than the statutory minimum in any case. Furthermore, employees are entitled to a share of the Company's current year profits. The Company has set clear guidelines to reward and penalize employees' conducts and performance. No deviations were found 42 Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies II. 1. 2. 3. by an effective reward/discipline system? Fostering a sustainable environment Is the company committed to achieving efficient use of resources, and using renewable materials that produce less impact on the environment? Has the company developed an appropriate environmental management system, given its distinctive characteristics? Is the company aware of how climate changes affect its business activities? Are there any actions taken to measure and reduce greenhouse gas emission and energy use? Yes Yes Yes Rewards and penalties are decided depending on the severity and impact of the event involved. The R&D and production teams are well aware of how green, low-carbon products contribute to mitigate climate changes and impacts they have on the environment. They respond quickly to customers' needs for certifications such as Energy Star, US & WW EPEAT, China CECP & CEC, and Taiwan Green Mark. No deviations were found The Company began its implementation of ISO 14001 Environment Management in April 1997; quality and environmental safety policies were created in 2005 to guide the Company's efforts on employee workplace safety and corporate responsibilities. Operating procedures and environmental/safety/health management systems have been established based on government regulations and international standards such as ISO, OHSAS etc. The Company adopts proper communication channels to convey its environmental and safety policies and goals to employees, suppliers, contractors, surrounding neighbors and interest groups. Compal began greenhouse surveys (scopes 1 and 2) and carbon footprint assessments as early as 2010. The scope of greenhouse gas survey has been progressively expanded to scope 3 by 2014. The Company actively participates in the Carbon Disclosure Project (CDP) as a means to improve its response to climate changes. The CDP achieves its purpose by assessing a company's carbon emission, reduction progress, compliance risks, and exposure to physical risks such as: supply disruption, shortage of resources, extreme weather, rising sea levels, diseases etc. Once identified, risks can then be mitigated or even turned into opportunities to ensure a company's sustainability. No deviations were found No deviations were found III. Enforcement of public welfare Has the company developed its 1. policies and procedures in Yes The Company places great emphasis on equal opportunities and business ethics. It has policies and systems in place to ensure compliance with international conventions. No deviation was found 43 Assessment criteria Yes No Summary description Actual governance accordance with laws and International Bill of Human Rights? 2. 3. 4. Yes Yes Does the company have means through which employees may raise complaints? Are employee complaints being handled properly? Does the company provide employees with a safe and healthy work environment? Are employees trained regularly on safety and health issues? Yes Does the company have means to communicate with employees on a regular basis, and inform them of operational changes that may be of significant impact? The Company and all its subsidiaries throughout the world have established employment guidelines according to international human rights conventions and local labor regulations. All employment terms have been assured to conform with the laws of the local country or region. Out of respect towards employees' welfare, the Company changes its policies and rules in line with the latest regulations, and announces them to the understanding of all its employees. For the purpose of maintaining harmonic employer-employee relations, a communication platform has been created to enable exchange of opinions and information between the Company and its employees. The Company has set up email contacts through which employees may express their opinions and offer suggestions. These opinions and suggestions are referred to appropriate units within the Company; progress and outcomes are reported back to employees as they become available. The Company is well-aware of how significantly "workplace safety and health" affects a company, its employees and stakeholders. This was the reason why the Company has enhanced its environmental, safety and quality policies and obtained OHSAS 18001 certification since 2005, which requires all departments to implement proper safety and health practices as well as regular training on matters such as fire safety equipment, utility plans, waste disposal, emergency response procedures etc. The Company organizes health and safety training for employees on a regular basis as a means to prevent occupational hazards and ensure workplace safety. In 2014, 3,107 employees had completed their training for a total of 5,181 hours. The Company is committed to creating communication platforms where employees may exchange opinions and information. "Employee opinion boxes" have been made available at the headquarter and at various plant sites to receive employees' complaints; "Sunshine Group" and hotlines have been set up in all plant sites and are run by compassionate people who promptly respond to employees' opinions so that the Company can rectify its flaws and help solve employees' problems immediately. Townhall Meetings are organized regularly at the turn of the year, during which the CEO will personally address employees on the Company's new business developments. Key points of this 44 Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found No deviations were found Assessment criteria Yes No Summary description Actual governance 5. 6. 7. 8. 9. Has the company implemented an effective training program that helps employees develop skills over their career? Has the company implemented consumer protection and grievance policies with regards to its research, development, procurement, production, operating and service activities? Has the company complied with laws and international standards with regards to the marketing and labeling of products and services? Does the company evaluate suppliers' environmental and social conducts before commencing business relationships? Is the company entitled to terminate supply agreement at any time with a major supplier, if the supplier is found to have Yes Yes Yes Yes Yes meeting are summarized and disseminated to all employees via email. Annual training programs are tailored to suit the needs of different employees, based on the Company's business strategies, policy guidelines, and career roadmaps. The Company constantly aims to establish itself as a learning organization and introduce mentorship into its training. The Company is an OEM/ODM. It manufactures TV sets, notebooks, cellphones and electronics for the world's top brands. There is a dedicated unit responsible for every step along the production process, from product development, design, manufacturing, shipment to maintenance and service. Once customers have launched their products, the Company will continue to support them with services and parts until the product no longer requires after-sale responsibilities. Customers are given the option to visit Compal's website, click into Stakeholder Communication Area and leave messages using an exclusive link; these messages will then be handled by the appropriate departments. The Company is an OEM/ODM. It manufactures TV sets, notebooks, cellphones and electronics for the world's top brands. All products are printed with customers' trademarks, names, and labeling that conform with relevant laws and international guidelines; however, the Company does not print its own logos or names on the products it produces. The Company requests all its suppliers to fulfill their duties with respect to the environment, labor, management, and ethics. Furthermore, the Company also demands its suppliers to sign commitments to EICC (Electronics Industry Supply Chain Code of Conduct) and evaluates suppliers' performance by their contribution to corporate social responsibilities. No deviations were found The Company requires all major suppliers to comply with local regulations and fulfill their duties to the environment and the society. They are demanded to immediately rectify any violations found to ensure business relationship with the Company. The Company's standard procurement contract specifically requires suppliers to comply with EICC No deviations were found 45 Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies No deviations were found No deviations were found No deviations were found Assessment criteria Yes No Summary description Actual governance Deviation and causes of deviation from Corporate Social Responsibility Best Practice Principles for TWSE/TPEX Listed Companies violated its corporate social responsibilities and caused significant impacts against the environment or the society? IV. Enhanced information 1. disclosure Has the company disclosed relevant and reliable CSR information on its website and at the Market Observation Post System? Yes and environmental protection laws; meanwhile, the contract empowers the Company to terminate procurement relationship with any supplier that is found to have violated the above rules. A "CSR" section has been created on the Company's website to disclose information by different categories. A "News" section is also available at the home page where stakeholders are given access to the latest information. The Company prepares CSR reports on an annual basis to disclose how it has fulfilled its social responsibilities. These reports may be downloaded from the Company's website and from Market Observation Post System (MOPS). No deviations were found 46 5. If the company has established the corporate social responsibility principles based on "Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies," please describe any discrepancy between the Principles and their implementation: ■ The Company has established "Compal Corporate Social Responsibility Best Practices" based on "Corporate Social Responsibility Best-Practice Principles for TWSE/TPEX Listed Companies." A "CSR Office" has also been introduced specifically for the purpose of promoting social responsibilities, environmental sustainability, public welfare, and information disclosure. The Company has adopted the principles of EICC by including corporate social responsibilities as part of its overall business plan, thereby making sure that everything it does confirms with EICC. The CSR Office reports its progress regularly to the Board of Directors, and publishes annual CSR reports to ensure proper disclosure of CSR information. ■ To contribute to the sustainability of our environment, the Company publishes green knowledge materials on a monthly basis and organizes regular environmental training courses for the management and general employees. It adopts green product management starting from the design stage and covering all aspects of the supply chain, which aims to: reduce resource and energy consumption, minimize discharge of pollutants and toxic waste, ensure proper waste disposal, enhance recyclability and reusability of raw materials and products, maximize usage of available resources, extend product durability, and enhance product/service efficiency. The green management also aims to prevent pollution to water, air and soil, and embodies a series of strategies to reduce the level of greenhouse gas and carbon emitted during the Company's operations. It is our hope to minimize adverse impacts on health and the environment by adopting the best and most feasible pollution controls available. 6. Other important information to facilitate better understanding of the company’s corporate social responsibility practices: There is a specific CSR section on the corporate website containing CSR policy, target and management procedures. Please refer to: http://www.compal.com 47 7. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions: ■ Criteria undertaken by institutions to certify the Company's products: The Company adopts the green concept right from the design and development stage for all products it manufactures. In addition to making sure that all manufactured products conform with compulsory regulations and voluntary certifications in countries where they are distributed, the Company also takes initiative in developing talents and technologies in relation to energy-saving issues, and thereby keeping up with world's latest trends and challenges. Apart from knowing the latest changes in environmental regulations, Compal also possesses adequate R&D and execution capacity to quickly respond to customers' needs for certification such as: Energy Star, US & WW EPEAT, China CECP & CEC, Taiwan Green Mark, and Indoor Air Quality Testing & Certification. ■ Criteria undertaken by institutions to certify the Company's CSR report: The Company has been preparing annual CSR reports and disclosing them to stakeholders over its website since 2010. The CSR report was first certified by an external institution in 2012, and later in 2014, the Company adopted Global Reporting Initiative's G4 guidelines (GRI G4, published in 2013) to prepare its CSR report. The 2014 report was compiled based on stakeholders' concerned issues and the Company's key objectives. To ensure credibility of reported contents, the Company commissioned the SGS to provide independent assurance based on the criteria specified in AA 1000 AS and GRI G4. After their assurance, the report was certified to meet AA1000 AS Assurance Standard Type 2, mid-level accountability, and GRI G4 application core requirements. The Company was later awarded a Bronze Award by Taiwan Institute for Sustainable Energy during its "Taiwan Corporate Sustainability Report Award." 48 Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found 3.3.6 Ethical Corporate Management Assessment criteria Yes No Actual governance Summary description I. 1. 2. 3. Establishment of integrity policies and solutions Has the company stated in its Memorandum or external correspondence about the policies and practices it has to maintain business integrity? Are the board of directors and the management committed in fulfilling this commitment? Does the company have any measures against dishonest conducts? Are these measures supported by proper procedures, behavioral guidelines, disciplinary actions and complaint systems? Has the company taken steps to prevent occurrences listed in Article 7, Paragraph 2 of "Ethical Corporate Yes The Company has outlined clearly in its HR and social responsibility policies the integrity principles and code of conduct that directors, supervisors, managers and general employees are bound to comply. The Board of Directors and the management have committed themselves to business integrity. The Company's "Board of Directors Meeting Guidelines" contain a conflicting interest clause that requires directors to disassociate from all discussion and voting of any agenda that poses a conflict of interest between the Company and themselves or the entities they represent. Yes To prevent dishonest behaviors, the Company has introduced into the directors', supervisors', managers', and employees' code of conduct a series of measures to encourage reporting of malpractices while protecting informers from retaliation. The HR policy contains a set of disciplinary rules and is regularly conveyed to employees to prevent dishonest behaviors. No deviations were found Yes The Company's "Business Integrity Procedures and Behaviors" governs the following ‧ Prohibition against offering and acceptance of improper gains ‧ Prohibition against lobbying ‧ Prohibition against illegal political donations ‧ Prohibition against improper donations or sponsorships 49 No deviations were found Assessment criteria Yes No Actual governance Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies Management Best Practice Principles for TWSE/TPEX-Listed Companies" or business conducts that are prone to integrity risks? Integrity actions Does the company evaluate the integrity of all counterparties it has business relationships with? Are there any integrity clauses in the agreements it signs with business partners? Does the company have a unit that specializes (or is involved) in business integrity? Does this unit report its progress to the board of directors on a regular basis? Does the company have any policy that prevents conflict of interest, and channels that facilitate the report of conflicting II. 1. 2. 3. ‧ Prohibition against inappropriate gifts, treatments and illegitimate benefits ‧ Prohibition against unfair competition ‧ Prohibition against leakage of commercial secrets and infringement of intellectual property rights ‧ Prohibition against insider trading and rules of confidentiality Furthermore, the "Information Security Policy" has introduced measures to prevent violation of commercial secrets. Yes The Company requires all suppliers to sign commitments to EICC, which binds them to local regulations on workers' environment, safety, health, management, moral conducts, and prohibitions against corruptive and dishonest behaviors. No deviations were found Yes The Company has a specialized unit that is responsible for creating policies. The progress thereof is supervised by the Auditing Office and reported to the Board of Directors. No deviations were found Yes The Company's HR policy and employee code of conduct have introduced rules to identify, supervise and manage conflicts of interest for business activities that are more highly prone to dishonest behaviors. There are channels in place for directors, supervisors, managers, stakeholders and board meeting participants to state their conflicting interests with the Company. To prevent leakage of material non-public information, the Company has established "CO10 Insider No deviations were found 50 Assessment criteria Yes No Actual governance Summary description Trading Prevention Management" as part of its internal control and demanded strict compliance from directors, supervisors, managers, employees, and any party that gains knowledge to the Company's material non-public information whether because of their identity, job responsibility, or controlling relationships. The Company has a comprehensive and effective set of internal controls, management policies, accounting systems, and integrity principles in place. They are constantly reviewed and revised to ensure their effectiveness. Policies and business integrity are reviewed by the Auditing Office on an annual basis. Outcomes of their review are reported to the Board of Directors. Yes Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies No deviations were found Yes The Company organizes training courses in accordance with "Regulations Governing Establishment of Internal Control Systems by Public Companies" and the board-approved "Insider Trading Prevention Principles." Insider training prevention courses are organized for vice president-grade employees and above, while general employees are subjected to training on ethical behaviors on a yearly basis. No deviations were found Yes The Company has mailboxes in place to receive malpractice reports from within or outside the Company. Once a report has been sent to the mailbox, it will be referred to the appropriate department and personnel depending on the nature of the underlying issue. The identity of the informer and details of the report will be kept confidential, and may involve internal auditors if the situation requires it. No deviations were found 51 interests? 4. 5. III. 1. Has the company implemented effective accounting and internal control systems for the purpose of maintaining business integrity? Are these systems reviewed by internal or external auditors on a regular basis? Does the company organize internal or external training on a regular basis to maintain business integrity? Implementation of whistleblowing system Does the company provide incentives and means for employees to report malpractices? Does the company assign dedicated personnel to investigate Assessment criteria Yes No Actual governance Summary description Deviation and causes of deviation from Integrity Best-Practice Principles for TWSE/TPEX Listed Companies 2. 3. the reported malpractices? Has the company implemented any standard procedures or confidentiality measures for handling reported malpractices? Does the company assure malpractice reporters that they will not be mistreated for making such reports? IV Enhanced information Yes The Company has specifically instructed case handlers to strictly follow procedures when building, assigning and investigating cases, and to exercise discretion during the investigation process. No deviations were found Yes The Company has confidentiality procedures built into its management policies and employee code of conduct to protect informers and investigators from improper treatments or retaliation. No deviations were found 1. V Yes The Company has explained corporate governance and business integrity issues and updated the progress of such efforts in its annual reports, CSR reports, and "Investor Relations" and "CSR" sections of its website. disclosure Has the company disclosed its integrity principles and progress onto its website and MOPS? If the company has established business integrity policies in accordance with "Ethical Corporate Management Best Practice Principles for TWSE/TPEX-Listed Companies," please describe its current practices and any deviations from the Best Practice Principles: The Company's "Business Integrity Principles" and "Business Integrity Procedures and Behaviors" have been passed by the Board of Directors and disclosed at the Company's website and MOPS. A specialized unit will be empowered to enforce these policies and ensure employees' compliance. No deviations were found VI. Other information relevant to understanding the company's business integrity (e.g. reviews over business integrity principles): Courses have been introduced to the e-Learning system so that employees are made aware of the Company's "Business Integrity Principles" and "Business Integrity Procedures and Behaviors." 52 3.3.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website. www.compal.com → Investor Relations → Corporate Governance → Major Internal Policies 3.3.8 Other Important Information Regarding Corporate Governance Please refer to the Company’s website. www.compal.com → CSR www.compal.com → Stakeholder Communication Area 53 3.3.9 Internal Control Systems 54 3.3.10 Penalties imposed against the company and its staff, or penalties imposed by the company against its staff for violations of internal control or regulations; state any corrective actions taken in the most recent years up till the date of the annual report: None. 3.3.11 Major Resolutions Made in Shareholders’ Meeting and Board Meetings 1. Shareholders' meeting ▓ Time: 9am, June 20, 2014 (Friday) Venue: B1, No. 581, Ruiguang Road, Neihu District, Taipei City ▓ Major resolutions: (1) Ratified the Financial Statements Report for the year 2013. (2) Ratified the Distribution of Earnings for the year 2013. (3) Approved the proposal of cash distribution from capital surplus. (4) Approved amendments to the Company's "Articles of Incorporation." (5) Approved amendments to the Company's "Procedures for Acquisition or Disposal of Assets." (6) Approved amendments to the Company's "Procedures for Financial Derivatives Transactions." (7) Approved amendments to the Company's "Regulations for Election of Directors and Supervisors." (8) Approved the issuance of restricted shares to employees. (9) Elected 1 additional director for the 11th board. ˙Elected director: Chao-Cheng Chen (10) Approved the release of non-competition restrictions for Directors. ▓ Post-meeting execution: (1) New shares were issued following the exercise of employee warrants; as a result, the dividend payout ratio and the percentage of capital surplus paid in cash were subject to the following adjustments: Cash dividends: adjusted from NTD0.5 per share to NTD0.49973875 per share. Distribution of capital surplus in cash: adjusted from NTD0.5 per share to NTD0.49973875 per share. (2) The record date for cash dividends and cash capital surplus was set at August 13, 2014. (3) Cash dividends and cash capital surplus were scheduled to be paid on September 4, 2014. 55 2. Board meetings Date 2014.2.17 2014.3.27 Major resolutions 1. Passed reappointment of managers. 2. Passed the decision to extend corporate guarantee for ASUS Ltd. 3. Passed the decision to lend to Henghao Technology Co., Ltd. 4. Passed to issue new shares for exercised employee warrants. 5. Passed the decision to borrow from financial institutions. 1. Passed reappointment of managers. 2. Passed the amount of directors'/supervisors' remuneration and employee bonus for 2013. 3. Passed the decision to distribute 2014 first interim bonus (Dragon Boat Festival). 4. Passed the 2014 salary adjustment. 5. Passed the 2013 consolidated and standalone financial statements. 6. Passed the 2013 Declaration of Internal Control Policies. 7. Passed to elect 1 additional director for the 11th board. 8. Passed the issuance of restricted shares to employees. 9. Passed details regarding the 2014 annual general meeting. 10. Passed the decision to borrow from financial institutions. 1. Passed the Company's 2013 business report. 2. Passed the Company's 2014 business plan. 3. Passed the appropriation of 2013 earnings. 4. Passed the decision to distribute capital surplus in cash. 5. Passed amendments to the Company's "Articles of Incorporation." 6. Passed amendments to the Company's "Procedures for Acquisition or Disposal of Assets." 7. Passed amendments to the Company's "Procedures for Financial Derivatives Transactions." 8. Passed amendments to the Company's "Regulations for Election of Directors and Supervisors." 9. Passed background review of candidates to be elected an additional director of the 11th board. 10. Passed the removal of restrictions imposed against directors for involving in competing 2014.5.8 businesses. 11. Passed the percentage of directors'/supervisors' remuneration and employee bonus for 2014. 12. Passed to issue new shares for exercised employee warrants. 13. Passed the issuance of corporate guarantee for subsidiary - Henghao Technology Co., Ltd. to Lenovo Group subsidiaries - Lenovo Computer Ltd. & Lenovo PC HK Limited. 14. Passed the issuance of Letter of Support for Compal subsidiaries that intend to borrow from financial institutions. 15. Passed to revise the medium-term loan limit at which the Company is able to borrow from financial institutions. 2014.5.13 16. Passed the decision to borrow from financial institutions. 17. Passed independence and suitability assessments for the Company's financial statement auditor. 1. Passed the decision to buy back the Company's shares. 1. Passed reappointment of managers. 2. Passed details regarding the payment of 2013 cash dividends and distribution of capital surplus in cash. 2014.6.23 3. Passed the decision to issue a letter of guarantee for Compalead Eletrônica do Brasil Indústria e Comércio Ltda, a 100% indirectly held subsidiary of the Company, to Digitron Da Amazonia e Comercio S.A, a partner of Western Digital Corporation in Brazil. 2014.8.13 4. Passed the decision to borrow from financial institutions. 1. Passed reappointment of managers. 2. Passed the 2013 directors'/supervisors' remuneration. 3. Passed the decision to distribute 2014 interim bonus (Mid-autumn Festival). 4. Passed to organize 2014 first employee subscription of treasury stock. 56 Date Major resolutions 5. Passed to issue new shares for exercised employee warrants. 6. Passed amendments to the Company's "2014 Employee Restricted Share Issuance Policy." 7. Passed the decision to add creditors to the letter of guarantee issued on behalf of Compalead Eletrônica do Brasil Indústria e Comércio Ltda, a 100% indirectly held subsidiary of the Company. 8. Passed the issuance of Letter of Support for Compal subsidiaries that intend to borrow from financial institutions. 9. Passed the decision to borrow from financial institutions. 1. Passed the decision to participate in the private cash issue of ordinary shares by Avalue Technology Inc. 1. Passed reappointment of managers. 2. Passed the distribution of 2013 employee cash bonus. 3. Passed the distribution of 2014 year-end bonus. 4. Passed to issue new shares for exercised employee warrants. 5. Passed amendments to the Company's "2014 Employee Restricted Share Issuance Policy." 6. Passed the Company's "2015 Audit Plan." 7. Passed the decision to donate to "Hsu Chauing Social Welfare and Charity Foundation." 8. Passed the decision to borrow from financial institutions. 1. Passed amendments to the Company's "Internal Control Policy." 2. Passed amendments to the Company's "Internal Control Self-assessment Procedures." 3. Passed amendments to the Company's "Internal Audit Implementation Guidelines." 4. Passed the decision to establish the Company's Corporate Governance Practices. 5. Passed to authorize relevant personnel for the application of supplier financing. 1. Passed reappointment of managers. 2. Passed to issue new shares for exercised employee warrants. 3. Passed the issuance of 2014 first employee restricted share issue. 4. Passed the issuance of Letter of Support for Compal subsidiaries that intend to borrow from financial institutions. 5. Passed the decision to borrow from financial institutions. 1. Passed the decision to revise the percentage and amount of directors'/supervisors' remuneration for 2014. 2. Passed the decision to distribute 2015 first interim bonus (Dragon Boat Festival). 3. Passed the 2015 salary adjustment. 4. Passed the 2014 consolidated and standalone financial statements. 5. Passed the Company's 2014 business report. 6. Passed the Company's 2015 business plan. 7. Passed the appropriation of 2014 earnings. 8. Passed the decision to distribute capital surplus in cash. 9. Passed independence and suitability assessments for the Company's financial statement auditor. 10. Passed the 2014 Declaration of Internal Control Policies. 11. Passed details regarding the 2015 annual general meeting. 12. Passed the decision to borrow from financial institutions. 1. Passed election of the 12th board of directors. 2. Passed the list of nominees for the 12th board of directors and their background reviews. 3. Passed the decision to lend to Henghao Technology Co., Ltd. 4. Passed the issuance of Letter of Support for Compal subsidiaries that intend to borrow from financial institutions. 2014.10.2 2014.11.13 2014.12.23 2015.1.22 2015.2.26 2015.4.7 2015.5.11 5. Passed the decision to borrow from financial institutions. 1. Passed amendments to the Company's "Articles of Incorporation." 2. Passed amendments to the Company's "Procedures for Acquisition or Disposal of Assets." 57 Date Major resolutions 3. Passed amendments to the Company's "Procedures for Financial Derivatives Transactions." 4. Passed amendments to the Company's "Procedures for Endorsement and Guarantee." 5. Passed amendments to the Company's "Procedures for Lending Funds to Other Parties." 6. Passed amendments to the Company's "Regulations for Election of Directors and Supervisors." 7. Passed background review of candidates to be elected for the 12th board of directors. 8. Passed the removal of restrictions imposed against directors and managers for involving in competing businesses. 9. Passed the establishment of the Company's "Corporate Social Responsibility Policy." 10. Passed the establishment of the Company's "Business Integrity Procedures and Behaviors." 11. Passed the percentage of directors'/supervisors' remuneration and employee bonus for 2015. 12. Passed the decision to invest and establish Rayonnant International Co., Ltd. 13. Passed the establishment of the Company's "2014 Second Employee Restricted Share Issuance Policy." 14. Passed the decision to borrow from financial institutions. 3.3.12 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors: None. 3.3.13 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman, CEO, and Heads of Accounting, Finance, Internal Audit and R&D: None. 58 3.4 Information Regarding the Company’s Audit Fee and Independence 3.4.1 Audit Fee Accounting Firm Name of CPA Period Covered by CPA’s Audit Remarks KPMG Kuo, Kuan Ying Lo, Jui Lan 2014.01.01~2014.12.31 Fee Range 1 Under NT$ 2,000,000 2 NT$2,000,000 ~ NT$4,000,000 3 NT$4,000,000 ~ NT$6,000,000 4 NT$6,000,000 ~ NT$8,000,000 5 NT$8,000,000 ~ NT$10,000,000 6 Over NT$100,000,000 Fee Items Audit Fee Non-audit Fee Total Unit: NT$ thousands 8,058 4,186 4,186 8,058 (1) Non-audit fees paid to CPA, accounting firm and affiliated companies thereof that amount to more than 1/4 of audit fees: Unit: NT$ thousands Firm Name of CPA Audit Fee Non-audit Fee Period Covered by System Design Company Registration Human Resource Others Subtotal CPA’s Audit Remarks KPMG Kuo, Kuan Ying Lo, Jui Lan 8,058 365 3,821 4,186 2014.01.01~2014.12.31 Note: "Others" in non-audit fees includes: transfer pricing report - NTD500,000, tax consultation - NTD2,409,000, and review of Mainland investment proposal - NTD912,000. (2) Changes in the accounting firm that result in lesser audit fees paid in comparison to the previous year: None (3) Reduction of audit fees by more than 15% compared to the previous year: None 3.4.2 Replacement of CPA: None. 3.4.3 If the chairman, president, and financial or accounting manager of the Company had worked for the accounting firm or related parties thereof in the most recent year, the name, title, and the term of service with the accounting firm or the related party must be disclosed: None. 59 3.5 Changes in Shareholding of Directors, Supervisors, Managers and Major Shareholders 2014 Up till April 28, 2015 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) Unit: shares Title Name Chairman Sheng-Hsiun Hsu Medica, John Kevin Vice Chairman and Senior Advisor Director and President Director Wen-Being Hsu Kinpo Electronics Inc. Representative: Shyh-Yong Shen Wen-Chung Shen Jui-Tsung Chen 1,500,000 0 0 0 0 0 0 Director Director and Executive Vice President Director and Executive Vice President Director and Executive Vice President Director Director Director and Executive Vice President Independent Director Independent Director Independent Director Supervisor Supervisor Supervisor Executive Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Senior Vice President Yung-Ching Chang (279,000) Chung-Pin Wong Chiung-Chi Hsu Sean Martin Maloney 0 41,000 0 Chao-Cheng Chen 6,000,000 Min Chih Hsuan Duei Tsai Duh Kung Tsai Charng-Chyi Ko Yen-Chia Chou Sheng-Chieh Hsu Chen-Chang Hsu Chun-De Shen 0 0 0 0 0 0 0 0 Kuo-Chuan Chen 499,000 Pei-Yuan Chen 0 Chiu-Rui Wei (210,000) Ying Chang 0 60 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (800,000) (468,000) 0 0 0 (1,150,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Title Name Senior Vice President Senior Vice President Senior Vice President Vice President Vice President and head of finance Ming-Hsing Hsu Sheng-Hua Peng Wen-Da Hsu Chih-Chuan Cheng Ching-Hsiung Lu Sheng-Hung Li Zong-Ming Wang Fu-Chuan Chang Chi-Hsiang Ma Vice President Wei-Cheng Chen Shih-Tung Wang Vice President Bo-Hsiung Chang Vice President Chin-Wen Liao Vice President Tian-Yuan Tsai Vice President Vice President Bo-Tang Wang Vice President Ming-Sung Lin Vice President Hsi-Kuan Chen Vice President Vice President Vice President Vice President Yung-Nan Chang Vice President Vice President Yung-He Su Vice President Ming-Hsiang Kan Chih-Hsien Liang Vice President Vice President Lung-Hua Shen Vice President Ming-Dong Wong Vice President Yue-Chun Li Vice President Meng-Hsiung Nieh Chiao-Lieh Huang Vice President Chung-Hsing Tan Vice President Vice President Yi-Yun Chang Vice President Hsin-Kung Mao Vice President Ling-Sheng Wu Vice President Hsin-Hsiung Huang Head of Audit Senior Vice President Senior Vice President Vice President Vice President Ren-Chiu Shao Tian-Ming Chen Ting-Chun Chou Kuo-Ping Liang Bo-Wen Hsieh 2014 Up till April 28, 2015 Shares held Increase (Decrease) Shares pledged Increase (Decrease) Shares held Increase (Decrease) Shares pledged Increase (Decrease) 0 100,000 800,000 0 350,000 400,000 0 (5,383) 0 0 (50,000) 0 0 (25,000) (10,000) (70,000) 0 120,000 40,500 0 0 0 63,000 0 600,000 400,000 400,000 300,000 0 0 0 0 0 0 0 180,000 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 (10,000) 0 0 0 (18,000) 0 0 0 0 0 0 0 (200,000) (80,000) (90,000) 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Note: Senior Vice President Ting-Chun Chou, Senior Vice President Kuo-Ping Liang, Vice President Ren-Chiu Shao, and Vice President Tian-Ming Chen resigned in 2014. Vice Presidents Ling-Sheng Wu and Hsin-Hsiung Huang were promoted in 2015. 61 3.5.1 Shares Trading with Related Parties Name Reason for transfer Transaction date Counterparty Unit: shares Shares Transaction price Counterparty's relationship with the Company, Directors, Supervisors, and shareholders with more than 10% ownership interest Kuo-Chuan Chen Gift 2014.04.08 Chao-Chuan Chen Father and son 101,000 21.60 3.5.2 Shares Pledge with Related Parties: None 3.6 Relationship among the Top Ten Shareholders April 28, 2015 Name Kinpo Electronics, Inc. Representative: Sheng-Hsiun Hsu Shin Kong Life Insurance Co., Ltd. Representative: Eugene Wu Government of Singapore JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency GMO Funds PLc - GMO Emerging Markets Equity Fund Vanguard Emerging Markets Stock Index Fund Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund Fubon Life Insurance Co., Ltd. Representative: Cheng Ben-Yuan Self Shares held Shareholdings of spouse and underage children Total shares held in the names of others Shares held Unit: shares Spouse, relative of second degree or closer, and relationships among top 10 shareholders. Shares Shareholding Percentage Shares Shareholding Percentage Shares 0 0 0 0 0 0 0 0 0 151,628,692 3.39% - - 17,775,401 0.40% 30,107,025 0.67% 141,228,500 3.16% 117,180,548 2.62% 103,293,000 2.31% 82,729,111 1.85% 76,364,629 1.71% 74,000,000 1.65% 70,200,991 1.57% - - - - - - - - - - - - - - 62 Shareholding Percentage 0% Name Relationship N/A N/A 0% 0% N/A N/A 0% N/A 0% N/A N/A N/A 0% N/A N/A 0% N/A N/A 0% N/A N/A 0% N/A N/A Name Self Shares held Shareholdings of spouse and underage children Total shares held in the names of others Shares held Shares Shareholding Percentage Shares Shareholding Percentage Shares Shareholding Percentage Spouse, relative of second degree or closer, and relationships among top 10 shareholders. Name Relationship 67,416,333 1.51% 63,610,000 1.42% - - - - 0 0 0% N/A N/A 0% N/A N/A Dimensional Emerging Markets Value Fund Eastspring Investments Asia-Oceania High Dividend Equity Fund Account Held in Trust by The Master Trust Bank of Japan Ltd. 63 3.7 Ownership of Shares in Affiliated Enterprises December 31, 2014 Investees (Note 1) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Unit: shares; % Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage Arcadyan Technology Corp. 32,686,754 19.91 26,832,640 16.34 59,519,394 Panpal Technology Corporation 500,000,000 100.00 Henghao Technology Co., Ltd. 317,310,462 Zhaopal Investment Co., Ltd. 200,100,000 Yongpal Investment Co., Ltd. 175,100,000 Hong Ji Capital Co., Ltd. 100,000,000 Gempal Technology Corp. 90,000,000 Kaipal Investment Co., Ltd. 75,100,000 Hong Jin Investment Co., Ltd. 29,500,000 Rayonnant Technology Co. Ltd. 29,500,000 96.98 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - - - - - - - - - - 500,000,000 - 317,310,462 - 200,100,000 - 175,100,000 - 100,000,000 - 90,000,000 - 75,100,000 - 29,500,000 - 29,500,000 Compal Broadband Networks Inc. 13,041,392 52.00 12,038,208 48.00 25,079,600 Synchro Seiki, Inc. 4,165,000 62.96 - - 4,165,000 Crownpo Technology Inc. 3,738,668 33.23 6,243,436 55.50 9,982,104 Kinpo Group Management Service Company 300,000 37.50 300,000 37.50 600,000 Allied Circuit Co., Ltd. 10,157,730 19.73 9,760,776 18.96 19,918,506 Infinno Technology Corporation 10,983,719 Leadhonor Optronics Co., Ltd. 2,772,000 41.03 42.00 - - - 10,983,719 - 2,100,000 Accesstek Inc. 899,160 27.78 319,707 11.06 1,218,867 Maxima Capital Management Inc. 126,000 22.55 1,080 0.46 127,080 RiPAL Optotronics Co., Ltd. 6,000,000 Core Profit Holdings Ltd. 147,000,000 Flight Global Holding Inc. Just International Ltd. 89,755,495 48,010,000 High Shine Industrial Corp. 42,700,000 100.00 100.00 100.00 100.00 100.00 Compal International Holding Co., Ltd. 38,101,000 100.00 Big Chance International Co., Ltd. 90,820,000 100.00 Compal Rayonnant Holdings Limited 12,500,000 100.00 64 - - - - - - - - - 6,000,000 - 147,000,000 - 89,755,495 - 48,010,000 - 42,700,000 - 38,100,000 100.00 - 90,820,000 100.00 - 12,500,000 100.00 36.25 100.00 96.98 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 62.96 88.73 75.00 38.69 41.03 42.00 38.84 23.01 100.00 100.00 100.00 100.00 100.00 Investees (Note 1) Invested by the Company Held by directors, supervisors, managers, and directly/indirectly controlled entities Aggregate investment Shares Shareholding percentage Shares Shareholding percentage Shares Shareholding percentage Auscom Engineering Inc. 3,000,000 100.00 - - 3,000,000 Lipo Holding Co., Ltd. 83,300 49.00 86,700 51.00 170,000 Compal Europe (Poland) Sp. z o.o. 136,080 Bizcom Electronics, Inc. 100,000 Compal Electronics (Holding) Ltd. 1,000 100.00 100.00 100.00 - - - - 136,080 - 100,000 - 1,000 100.00 100.00 100.00 100.00 100.00 Ascendant Private Equity Investment Ltd . 31,253,125 34.72 37,253,825 41.39 68,506,950 76.11 Gallery Management Ltd. 3,828,577 41.12 Compalead Electronics B.V. 5,030,000 100.00 Etrade Management Co., Ltd. 46,900,000 100.00 Webtek Technology Co., Ltd. 100,000 100.00 Forever Young Technology Inc. 50,000 100.00 UNICOM GLOBAL, INC. 10,000,000 100.00 Huang Feng Communication Co., Ltd. 10,000,000 100.00 - - - - - - - - 3,828,577 - 5,030,000 - 46,900,000 - 100,000 - 50,000 - 10,000,000 41.12 100.00 100.00 100.00 100.00 100.00 - 10,000,000 100.00 Avalue Technology Inc. 14,000,000 20.51 110,000 0.16 14,110,000 20.67 Note: The above investments have been accounted using the equity method. 65 IV. Capital Overview 4.1 Capital and Shares 4.1.1 Source of Capital May 11, 2015 Year Month Issuance Price 2012 2012 2012 2012 2013 2013 2014 2014 2014 2014 2015 2015 3 6 8 12 9 11 2 5 8 11 1 2 10 10 10 10 10 10 10 10 10 10 10 10 Authorized capital Paid-up capital Shares Amount (NTD) Shares Amount (NTD) Source of capital Remarks Paid in properties other than cash Others 6,000,000,000 60,000,000,000 4,408,843,825 44,088,438,250 Exercise of employee warrants totaling NTD 119,613,000 6,000,000,000 60,000,000,000 4,410,964,825 44,109,648,250 Exercise of employee warrants totaling NTD 21,210,000 6,000,000,000 60,000,000,000 4,411,870,825 44,118,705,250 Exercise of employee warrants totaling NTD 9,057,000 6,000,000,000 60,000,000,000 4,412,652,625 44,126,526,250 Exercise of employee warrants totaling NTD 7,821,000 6,000,000,000 60,000,000,000 4,412,791,725 44,127,917,250 Exercise of employee warrants totaling NTD 1,391,000 6,000,000,000 60,000,000,000 4,413,154,825 44,131,548,250 Exercise of employee warrants totaling NTD 3,631,000 6,000,000,000 60,000,000,000 4,413,624,425 44,136,244,250 Exercise of employee warrants totaling NTD 4,696,000 6,000,000,000 60,000,000,000 4,413,851,825 44,138,518,250 Exercise of employee warrants totaling NTD 2,274,000 6,000,000,000 60,000,000,000 4,416,128,625 44,161,286,250 Exercise of employee warrants totaling NTD 22,768,000 6,000,000,000 60,000,000,000 6,000,000,000 60,000,000,000 4,421,210,025 4,423,236,625 44,212,100,250 Exercise of employee warrants totaling NTD 50,814,000 44,232,366,250 Exercise of employee warrants totaling NTD 20,266,000 6,000,000,000 60,000,000,000 4,472,596,625 44,725,966,250 Issuance of employees' restricted shares NTD493,600,000 N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A N/A Change of capital approved by the Ministry of Economic Affairs on April 19, 2012 Change of capital approved by the Ministry of Economic Affairs on July 11, 2012 Change of capital approved by the Ministry of Economic Affairs on September 17, 2012 Change of capital approved by the Ministry of Economic Affairs on January 7, 2013 Change of capital approved by the Ministry of Economic Affairs on October 21, 2013 Change of capital approved by the Ministry of Economic Affairs on December 17, 2013 Change of capital approved by the Ministry of Economic Affairs on March 5, 2014 Change of capital approved by the Ministry of Economic Affairs on May 26, 2014 Change of capital approved by the Ministry of Economic Affairs on August 29, 2014 Change of capital approved by the Ministry of Economic Affairs on December 8, 2014 Change of capital approved by the Ministry of Economic Affairs on February 10, 2015 Change of capital approved by the Ministry of Economic Affairs on March 23, 2015 Share Type Ordinary shares Outstanding shares (public listed) Unissued shares Total Authorized capital Remarks 4,472,596,625 1,527,403,375 6,000,000,000 The authorized capital includes 100 million shares reserved for the exercising of employee warrants or corporate bonds with embedded warrants. 66 4.1.2 Status of Shareholders Item Government Agencies Financial Institutions Other Institutions Foreign Institutions & Natural Persons Domestic Natural Persons Treasury stocks Total As of 4/28/2015 Number of Shareholders Shareholding (shares) 3 8 55 291 974 155,438 1 156,762 338,768,643 387,840,070 2,479,125,902 1,223,046,002 43,816,000 4,472,596,625 Percentage 0.00% 7.57% 8.67% 55.43% 27.35% 0.98% 100.00% 4.1.3 Share Ownership Distribution Range of Shareholding (Unit: Shares) Number of Shareholders Shareholding (Shares) Percentage As of 4/28/2015 1 ~ 999 1,000 ~ 5,000 5,001 ~ 10,000 10,001 ~ 15,000 15,001 ~ 20,000 20,001 ~ 30,000 30,001 ~ 40,000 40,001 ~ 50,000 50,001 ~ 100,000 100,001 ~ 200,000 200,001 ~ 400,000 400,001 ~ 600,000 600,001 ~ 800,000 800,001 ~ 1,000,000 1,000,001 and over Total 53,897 67,844 17,576 6,410 2,906 2,932 1,267 778 1,424 712 330 148 89 54 395 156,762 4.1.4 List of Major Shareholders 10,703,133 152,574,504 123,873,160 76,050,586 51,734,838 71,630,809 44,367,531 35,486,014 99,931,319 99,485,312 92,896,952 72,671,135 61,953,132 48,132,555 3,431,105,645 4,472,596,625 Shares Shareholder’s name Kinpo Electronics, Inc. Shin Kong Life Insurance Co., Ltd. Government of Singapore JPMorgan Chase Bank N.A. Taipei Branch in custody for Saudi Arabian Monetary Agency GMO Funds PLc - GMO Emerging Markets Equity Fund Vanguard Emerging Markets Stock Index Fund Fidelity Puritan Trust: Fidelity Low-Priced Stock Fund Fubon Life Insurance Co., Ltd. Dimensional Emerging Markets Value Fund Eastspring Investments Asia-Oceania High Dividend Equity Fund Account Held in Trust by The Master Trust Bank of Japan Ltd. 67 0.24% 3.41% 2.77% 1.70% 1.16% 1.60% 0.99% 0.79% 2.23% 2.22% 2.08% 1.62% 1.39% 1.08% 76.72% 100.00% As of 4/28/2015 Number Percentage (%) 151,628,692 141,228,500 117,180,548 103,293,000 82,729,111 76,364,629 74,000,000 70,200,991 67,416,333 63,610,000 3.39% 3.16% 2.62% 2.31% 1.85% 1.71% 1.65% 1.57% 1.51% 1.42% 4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Year Measurement Per-share market price Per-share net worth (Note 2) High Low Average Before dividend After dividend 2013 23.90 16.05 20.34 22.09 21.08 2014 30.00 19.40 23.03 23.42 21.88 Year-to-date March 31, 2015 27.70 21.85 24.49 23.58 - Earnings per share Before adjustment After adjustment Weighted average outstanding shares Earnings per share Weighted average outstanding shares Earnings per share Cash dividends Per-share dividend Stock dividends From earnings From capital reserves Cumulative unpaid dividends P/E ratio Price to dividends ratio Cash dividend yield Analysis of investment returns 4,324,112,675 4,312,853,801 4,329,403,194 0.57 1.63 0.47 4,324,112,675 4,312,853,801 0.57 1.00 - - - 35.68 20.34 4.92% 1.63 1.50 - - - 14.13 15.35 6.51% - - - - - - - - - Note: 1. Appropriation of 2014 earnings had already been passed by the board of directors on February 26, 2015; the proposal will be raised for ratification during the 2015AGM. 2. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 68 4.1.6 Dividend Policy and Implementation Status (1) Dividend Policy Any earnings concluded from year-end closure are first subject to tax and reimbursement of previous losses, followed by a 10% provision for statutory reserves and provision or reversal of special reserves in accordance with law. Any earnings remaining are subject to directors' and supervisors' remuneration of no higher than 2%, and employee bonus of no lesser than 2%. The remainder plus undistributed earnings carried from previous years may be distributed in dividends and bonuses at the Board of Directors' discretion, subject to resolution in a shareholders' meeting. Undistributed earnings are retained by the Company. The Company is currently in the growth phase of its life cycle, and given its future needs for capital and shareholders' demands for cash income, the Company plans to distribute dividends through a mix of cash and stocks, with cash portion comprising no lesser than 10% of total dividends proposed for the year, in years where the Company has surplus earnings at its disposal. (2) Proposed Distribution of Dividend (cid:3) The appropriation of 2014 earnings, which includes shareholders' dividends and bonuses totaling NTD 4,428,780,625, will be proposed for discussion during the 2015 annual general meeting. The proposed dividend comprises entirely of cash and is allocated at NTD 1 per share. In addition, capital surplus totaling NTD 2,214,390,313 that had previously arisen from ordinary shares issued at premium will also be distributed back to shareholders in cash at NTD 0.5 per share. Collectively, a sum of NTD 6,643,170,938 will be distributed to shareholders in cash. (cid:3) Should the Company decide to buy back/recover outstanding shares, transfer treasury stock to employees, reduce share capital or in any other way alter the number of outstanding shares sometime later, the Board of Directors shall be authorized to adjust the payment rate of cash dividends and cash capital surplus as deemed necessary at its discretion. 69 (3) Impact to 2014 Business Performance and EPS resulting from Stock Dividend Distribution: Not Applicable 4.1.7 Employee Bonus and Directors' and Supervisors' Remuneration (1) Employees' bonus and directors'/supervisors' remuneration policies as stated in the Articles of Incorporation Any earnings concluded from year-end closure are first subject to tax and reimbursement of previous losses, followed by a 10% provision for statutory reserves and provision or reversal of special reserves in accordance with law. Any earnings remaining are subject to directors' and supervisors' remuneration of no higher than 2%, and employee bonus of no lesser than 2%. The remainder plus undistributed earnings carried from previous years may be distributed in dividends and bonuses at the Board of Directors' discretion, subject to resolution in a shareholders' meeting. Undistributed earnings are retained by the Company. Where employee bonuses are paid in shares, they can also be distributed to employees of subordinate companies as defined in the Company Act. (2) Basis for estimating employees' bonus, directors'/supervisors' remuneration and stock dividends, and accounting treatments for any discrepancies between the amounts estimated and the amounts paid. (cid:3) According to the Articles of Incorporation, any net income concluded for the year is first subject to tax and reimbursement of previous losses, followed by a 10% provision for statutory reserves and provision or reversal of special reserves as required by law. Any earnings remaining may be subject to directors'/supervisors' remuneration of no higher than 2% and employee bonus of no lesser than 2%. (cid:3) The number of shares to be paid as employee bonus is calculated based on the closing share price one day before the annual general meeting, while taking into consideration the effects of cash and stock dividends. Bonuses that amount to less than one full share are paid in cash instead. (cid:3) If a different amount is resolved during the shareholders' meeting, the difference shall be treated as a change in accounting estimates and recognized as gains or losses in the year resolved. (3) 2014 employees bonus proposal passed by the board of directors (cid:3) The amount of directors' and supervisors' remuneration has been proposed at NTD 49,379,245, while the amount of employee bonus has been proposed at NTD 895,790,158. (cid:3) Disclose the amount, causes and treatments for any differences that arise between the amount proposed and the amount estimated in the year it was recognized as an expense: there were no differences. (cid:3) The percentage of proposed employee bonus paid in shares, relative to the sum of standalone after-tax net income plus total employee bonus: not applicable (no employee bonus is paid in shares) (cid:3) Earnings per share after taking into account the proposed employee bonus, directors' and supervisors' remuneration etc has been calculated at NTD 1.63. (4) Actual distribution of 2013 employee bonus and directors'/supervisors' remuneration: Directors' and supervisors' remuneration – NTD 21,760,812; employee cash bonus – NTD 314,199,480. The amounts actually paid in 2013 for employee bonus and directors'/supervisors' remuneration were the same as the amounts initially proposed by the Board of Directors and later approved during the 2014 annual general meeting. 70 4.1.8 Buyback of Treasury Stock Time of buyback 6th Purpose of buyback Transfer of shares to employees May 11, 2015 7th Maintain company's credit standing and shareholders' equity From May 14, 2014 until July 13, 2014 NTD 21.05 ~ NTD 33.24 (Note 1) Buyback period From March 26, 2013 until May 25, 2013 NTD 18.27 ~ NTD 31.04 (Note 1) 0 ordinary shares NTD 1,126,478,345 58,516,000 ordinary shares Buyback price range Types and numbers of shares bought back Value of shares bought back Number of shares retired and transferred Cumulative holding of own shares Cumulative holding of own shares as a percentage to total outstanding shares (%) Note: 1. The Company will continue buying back shares even if the share price falls below the specified minimum. 2. Calculations were based on share capital registered with the Ministry of Economic Affairs as at May 11, 2015. 43,816,000 shares 14,700,000 shares 0.98% (Note 2) 0 shares NTD 0 4.2 Bonds: None 4.3 Global Depository Receipts Details Date of issue: November 9, 1999 May 21, 2001 Issuance and trading location Total sum issued Issuance price per unit Number of units issued Luxembourg USD 122,160,000 USD 15.27 8,000,000 units Source of represented securities Participating shareholder(s): Kinpo Electronics, Inc. Luxembourg USD 174,816,000 USD 6.07 28,800,000 units 1. Participating shareholder(s): 44,000,000 shares contributed by (1) Kinpo Electronics, Inc. (2) Panpal Technology Corporation (3) Gempal Technology Corporation 2. New cash issue of Compal shares: 1,000,000,000 shares Quantity of represented securities 40,000,000 ordinary shares of Compal Electronics 144,000,000 ordinary shares of Compal Electronics 71 Details Date of issue: November 9, 1999 May 21, 2001 1. Voting rights: According to the terms of the depository agreement and the laws of the Republic of China, the beneficiary certificate holder is entitled to the voting rights of shares represented under the beneficiary certificate. 2. Rights to dividend distribution, share subscription and other rights: Unless otherwise specified in the agreement, the GDR carries identical rights as do ordinary shares N/A The Bank of New York Mega International Commercial Bank 2,045,553 units (May 11, 2015) N/A The Bank of New York Mega International Commercial Bank Borne by participating shareholder(s) Allocated proportionally between the Company and participating shareholders See descriptions below USD $4.93 USD $ 3.16 USD $3.80 USD $4.64 USD $3.43 USD $4.05 GDR holders' rights and obligations Trustee Depository bank Custodian Unredeemed balance Allocation of expenses incurred at issuance and over the duration Key terms of the depository and custodian agreements Per Unit Market Price 2014 Year-to-date May 11, 2015 High Low Average High Low Average 4.4 Employee Warrants The 100,000,000 units of employee warrant issued on December 21, 2007, had expired on December 20, 2014. They were exercised for 69,348,800 shares of the Company, which amounted to NTD1,690,265,470 in total. The change of capital was approved by and registered with the Ministry of Economic Affairs on February 10, 2015. 4.5 Subscription of New Shares by Employees and Restricted Shares 4.5.1 Issuance of Restricted Employee Shares Type of restricted employee shares Effective date of application Date of issue: Number of new restricted employee shares issued Issue price New restricted shares issued as a percentage to total outstanding shares Criteria of entitlement to restricted employee shares 2014 1st issue New restricted employee shares May 11, 2015 October 30, 2014 February 25, 2015 49,360,000 shares NTD 0 (issued without subscription) 1.10% (Note) 1. Employees may receive the following percentages of the restricted shares they have been allocated, if they remain employed by the Company after the duration specified below and satisfy their target performance appraisals (i.e. a performance grade of B or higher in the latest year before the duration is due). However, the actual percentage of shares entitled to employees will be subject to the Company's performance 72 Type of restricted employee shares Restricted rights to restricted employee shares 2014 1st issue New restricted employee shares criteria, as calculated in Subparagraph 2 of this Paragraph. After 2 years: 40% After 3 years: 30% After 4 years: 30% 2. The Company's performance criteria is calculated based on the weighted score of net income and ROE taken from the latest full-year consolidated financial statements before the duration is due. The following performance criteria applies: A. Net Income: increase by 10% or more compared to the Company's 3-year average B. Return on equity (ROE): surpass the Company's 3-year average Net income is defined as: "current net profit attributable to parent company shareholders" as shown in audited financial statements; whereas ROE is defined as: "current net profit attributable to parent company shareholders" divided by "equity attributable to parent company shareholders" as shown in audited financial statements. To align the interests of employees who have participated in this program and the interests of shareholders, the two performance indicators above are each assigned a 50% weight. If indicators A and B are both achieved, employees will be entitled to receive the full percentage mentioned in Subparagraph 1 of this Paragraph. If only A or B is achieved, employees will be entitled to receive half the percentage mentioned in Subparagraph 1 of this Paragraph. 1. Employees may not sell, pledge, transfer, gift, charge or in any way dispose the restricted shares for the duration of entitlement. 2. For citizens of the Republic of China, any restricted employee shares received must be placed immediately under the custody of a custodian appointed by the Company. Employees may not request to collect restricted shares for any reason or through any means. For employees of all other nationalities, any restricted employee shares received will be placed under the custody of a custodian bank. 3. Restricted employee shares may be allocated cash and stock dividends for the duration of entitlement. Any cash or stock dividends allocated on restricted shares will be transferred from the custodian account to employees' personal accounts on the date of distribution. Custody of restricted employee shares Held in trust If the criteria of entitlement is not met after employees are allocated or have subscribed to restricted shares 1. Once employees have been allocated restricted shares, the Company may recover and retire restricted shares that have yet to satisfy their criteria of entitlement, or from employees who have committed severe mistakes or violations against their employment contracts or work rules, or from those who have willingly surrendered entitlement of restricted employee shares in writing. 2. The Company may recover allocated but unreceived shares from employees who resign, retire, or are dismissed, made redundant, or decease for causes unrelated to occupational hazards within 4 years after the date of distribution. 3. The Company will recover (without compensation) allocated shares from employees who violate the terms of issuance before the criteria of entitlement is met. 4. The Company will recover (without compensation) allocated shares that fail to meet the required criteria over the duration of entitlement. In which case, the Company shall instruct the custodian institution or custodian bank to complete book-entry transfers at least 15 business days before the book closure date of any stock dividend/cash dividend/cash issue. Number of restricted employee shares recovered 0 shares 73 2014 1st issue New restricted employee shares Type of restricted employee shares Number of restricted shares with restrictions removed Number of restricted shares with restrictions intact Number of restricted shares with restrictions remaining as a percentage to total outstanding shares (%) 0 shares 49,360,000 shares 1.10% (Note) Impacts on shareholders' equity Possible expenses: A total of 50,000,000 restricted shares have been planned for this issue; the issuance price per share is NTD0. The fair value of shares is measured on the day they are distributed; expenses shall be recognized over the duration of entitlement. If all criteria is met, total expenses of this restricted share scheme should approximate to NTD 1,159,960,000; of which NTD 4 10,430,000 will be recognized in 2015, NTD 434,985,000 in 2016, NTD 216,089,000 in 2017, NTD 93,545,000 in 2018, and NTD 4,911,000 in 2019. Dilution of EPS and other impacts on shareholders' equity: Based on the 4,472,596,625 shares outstanding as at May 11, 2015, the restricted share scheme, once expensed, should dilute earnings per share by NTD 0.09 in 2015, NTD 0.10 in 2016, NTD 0.05 in 2017, NTD 0.02 in 2018, and NTD 0.00 in 2019. This issue produced limited dilutive effects on the Company's EPS, and hence should not cause any significant impacts on shareholders' equity. Note: Calculations were based on share capital registered with the Ministry of Economic Affairs as at May 11, 2015. 74 4.5.2 Information on Name of Managers and Top 10 Employees obtaining Restricted Employee Shares Restrictions removed Restrictions intact Number of new restricted New restricted shares shares acquired acquired as an as a percentage to employee total outstanding (shares) shares (Note 1) 26,500,000 0.59% Title Name Managers 32 persons (Note 2) Employees with top-10 holding 5,000,000 0.11% Number of restricted shares with restrictions removed (shares) Number of restricted shares Issuance Issuance with restrictions Price Amount removed as a (NTD) (NTD) percentage of total outstanding shares (Note 1) Number of restricted shares with restrictions intact (shares) 0 0 0 0 0 0 0 0 26,500,000 0 5,000,000 0 0 0 May 11, 2015 Number of restricted shares Issuance Issuance with restrictions Price Amount intact as a (NTD) (NTD) percentage of total outstanding shares (Note 1) 0.59% 0.11% 17 persons (Note 3) Note: 1. Calculations were based on share capital registered with the Ministry of Economic Affairs as at May 11, 2015. 2. Managers' titles and names • Executive Vice Presidents: Yung-Ching Chang, Chung-Pin Wong, Chao-Cheng Chen - 3 persons • Senior Vice Presidents: Chun-De Shen, Chiu-Rui Wei, Ying Chang, Ming-Hsing Hsu, Kuo-Chuan Chen, Sheng-Hua Peng, Wen-Da Hsu - 7 persons • Vice Presidents: Chih-Chuan Cheng, Ching-Hsiung Lu, Wei-Cheng Chen, Bo-Hsiung Chang, Chin-Wen Liao, Bo-Tang Wang, Ming-Sung Lin, Zong-Ming Wang, Yung-Nan Chang, Sheng-Hung Li, Yung-He Su, Chih-Hsien Liang, Lung-Hua Shen, Ming-Dong Wong, Yue-Chun Li, Meng-Hsiung Nieh, Chiao-Lieh Huang, Chung-Hsing Tan, Yi-Yun Chang, Hsin-Kung Mao, Ling-Sheng Wu, Hsin-Hsiung Huang - 22 persons. 3. Titles and names of employees with top-10 holding • Department heads: Yi-Chiang Chiu, Shih-Hung Huang, Ching-Fa Li, Bo-Heng Chen, Ren-Liang Lin, Hsin-Chih Huang, Yao-Chung Tsai, Cheng-Chiang Wang - 8 persons. • Deputy department heads: Nai-Ping Chen, Hsin-Shu Wang, Chi-Bin Li, Bo-An Lin, Ji-Nan Chou, Chang-Wen Lin, Chao-Bin Huang, De-Chih Hsia, Yung-Ching Tian - 9 persons. 75 4.6 4.7 Status of New Shares Issuance in Connection with Mergers and Acquisitions: None Financing Plans and Implementation: None 76 V. Operational Highlights 5.1 Business Activities 5.1.1 Business Scope (1) Main areas of business operations Research, development, design, production and sale of Notebook PCs, Ultrabook PCs, 2-in-1 PCs, All-In-One (AIO) PCs, Tablet PCs, Servers, Auto Electronics (AE), Smart Home products, LCD TVs and LCD Monitors, Public Displays, Smart Phones, and Smart Accessory + Wearable Devices. (2) Revenue distribution Major Divisions 5C- related products Other products Total (3) New products development ■ Notebook PCs Unit: NTD thousands (%) of Total Sales in 2014 99.6% 0.4% 100.0% With regards to notebook R&D, Compal has been able to develop new touchscreen series powered by Intel's 5th generation Core i3, i5 and i7 and AMD's graphic-integrated APU, combined with Microsoft Windows 8.1. Compal possesses special expertise in system integration, R&D and manufacturing to assist customers in developing and mass-producing new products with the latest specifications under relatively short time. Compal's price-competitive, slim-type notebooks were launched a time when the market favored more affordable and portable devices, and for which it received positive responses from consumers. Compal has also been improving its ability to design customized models for customers across different countries and markets. A significant amount of resources has been devoted to developing commercial notebooks, given how their demands are resilience against economic downturns. Overall, Compal aims to attain industry-leading R&D capabilities in both consumer and commercial markets. ■ Ultrabook PCs Compal has been able to maintain leadership position with its innovative technologies and strong R&D. In the ultrabook market, Compal has fully utilized the advantages of Intel's new generation of low-voltage CPUs which, when combined with the Company's proprietary fan-less design, enable a thinner and quieter machine that boots up much more quickly than previous models. In 2015, the Company will be introducing more touchscreen models based on Intel's new design specifications that run on Windows 8.1, while focusing on low-cost, slim-type designs to meet the market's demands. In order to keep up appearance with performance, Compal has also been implementing nanotechnology onto surface treatment, giving its products a more stylish and pleasant finish. Compal will continue to develop newer, more competitive technologies so that consumers around the world may appreciate the features of these products and the level of innovation the Company has to offer. ■ 2-in-1 PCs 2-in-1 PC is a whole new concept in the notebook category. By incorporating transformative designs (e.g. Yoga, detachable, convertible types) a notebook can be as versatile as a PC when used with a keyboard, and as flexible and portable as a tablet with the use of touchscreen controls. 2-in-1 PCs are built with highly sensitive touchscreen models and powered by Microsoft Windows 8.1; they are aimed to appeal to notebook and tablet PC users. Compal possesses extensive R&D experience to introduce innovative solutions for 2-in-1 PCs of different designs and sizes. Combined 77 with the use of proprietary technologies, materials and fan-less designs, Compal has been able to create new demands in a seemingly mature market to the delight of its customers and consumers. ■ AIO PCs AIO PCs have been around for many years. They are characterized by an integrated design that embodies all components into the display, and are slimmed and polished in terms of appearance to distinguish from the conventional desktop setup where the case and the display are separated. Compal's latest design in this respect is a Portable AIO with built-in battery that enables portability over short distances. Compal's notebook technologies are common to those used on AIO PCs, which therefore gives the Company a quick entry into this product segment. The Company has already been approached by AIO PC customers and is currently producing for products on the market. Compal places high expectations on AIO PCs as they have the potential to replace desktop PCs. ■ Tablet PCs Compal has long been involved in this product segment, and is able to continually combine slimmer chassis with the latest operating systems to appeal to the needs of industrial, commercial, and consumer users. Furthermore, Compal's expertise in telecommunications has enabled the design of 3G-capable products, which bring better quality and efficiency to the mobile lifestyle. ■ Servers Cloud application is one of the fastest growing data solutions today, as modern technology enables companies to store some of their data or move part of their computing/analysis functions to a remote cloud server. To cater for the needs of Enterprise and Data Center users, Compal has acquired the key technology to high-density computing and high-precision energy management, which enable itself to produce servers of better C/P value. ■ AE Auto electronics comprises of two main segments: telematics and entertainment. Due to the fact that telematics requires compliance with safety, telecommunication and other special regulations, Compal has chosen to work with auto manufacturers for the development of telematics products. Entertainment systems, on the other hand, have structures that are similar to PCs, and were exploited by the Company as a point of entry into auto electronics. After many years of hard work, Compal's products are now accepted by world-class auto makers. ■ Smart Home Smart Home is an idea that began many years ago, but so far it has been focused mainly on audio/video streaming. With the approach of the IoT (Internet of Things) era, Smart Home control is expected to become one of the most highly contended features in the future. With the ability to design mobile PCs and smart devices, Compal has ventured into the development of Home Gateways, wireless technologies, sensors, cloud integration as well as new solutions such as Smart Energy, Smart Security, Smart Home Care etc. In the future, Compal will continue to bring more depth and breadth into the IoT product line to meet new demands as its capacity expands. ■ LCD TVs Given the maturity of UHDs, Compal is shifting its focus towards the development of 4K2K UHD Smart and Cloud TVs sized between 50 – 84 inches. For North America, Europe and Japan, the Company will focus on the development of 3D features and premium sound systems to satisfy the needs of high-end consumers. ■ LCD Monitor The Company will aim to produce 4K2K UHD digital signage sized between 70 - 98 inches for B2B applications in Japan as a means to increase gross profits. In the meantime, more efforts will be devoted towards precision displays for medical applications and large-size touchscreen displays for educational use. ■ Smartphone Through continual R&D and improvements to telecommunication technologies, the Company aims to develop competitiveness in the Chinese market and maintain its industry-leading position. In 2015, Compal will continue focusing on the development of Android and Microsoft-based devices that feature by multi-core CPUs, slim frames, 78 high resolution displays and camera, and TDD-LTE/ FDD-LTE functionality. The Company will also commit resources into developing low-cost, entry-level models to meet growing demands from emerging markets. ■ Smart Accessory+Wearable Devices Given the unlimited potentials of smart accessories and wearable devices, Compal will be combining its expertise in wireless communication and cross-platform integration to the design and production of smart accessories that best satisfy consumers' needs. Many smart bracelets and smart watches powered by RTOS and Android Wear have already been planned for 2015. 5.1.2 Industry Overview Please refer to page 71 of the Chinese annual report. 5.1.3 Research and Development Research and Development Expenses in the past year: Year R&D expenses Operating revenues Unit: NTD thousands; % R&D expenses as a percentage to operating revenues 2014 2015 first quarter 12,111,034 2,931,594 845,700,752 198,112,443 1.43% 1.48% 5.1.4 Long-term and Short-term Development (1) Short-term Development • Observe the market, identify trends, improve designs and launch ahead of competitors with a focus on product differentiation. • Fine-tune operating efficiency and raise product competitiveness to ensure above-average growth. • Enhance the completeness and flexibility of logistics management and shorten the time to delivery. • Devise different market strategies for different product segments. Strengthen mainstream products with new technologies and modularized features for more added value and variety. Apply visionary designs to featured products, and thereby create new market focus. Design entry-level products with features that satisfy users' needs, in addition to price concerns. • Utilize the Company's diverse production sites to reduce production costs, diversify risks, and hence improve overall product competitiveness. • Pay close attention to trends and changes in smart devices. Explore suitable OEM customers and products, and propose feasible designs that help customers compete through product differentiation. • Shorten the time to product development; optimize supply chain management; deliver high quality assurance and provide customers with more competitive product solutions. • Maintain relationship with existing customers. Increase the number of products produced for each customer, in addition to raising satisfaction. Explore opportunities to work with new customers to ensure above-average growth in smart devices. • Raise product margins and maximize capacity utilization, which ultimately result in improved operating efficiency and profitability. (2) Long-term Development • Add values to the Company's products and improve long-term competitiveness through innovation. • Enhance working relationships with customers by providing comprehensive services from product planning, R&D, manufacturing to after-sales. • Enhance horizontal and vertical integration by integrating parts and products manufactured by the group and affiliated companies. Establish strategic alliances with customers to provide them with more convenient and comprehensive services. • Continually enhance R&D and technical service capability on smart devices. 79 • Establish strategic alliance with key component suppliers as the means to refine product quality, the development cycle and cost structure, which ultimately benefits customers in the way of more complete and competitive products and services. • Strength horizontal and vertical integration within the group and with other affiliated companies to develop customers' long-term loyalty towards the Company and the group. • Develop innovative capability and better judgments than what customers make. Offer customers with more value-adding produce and service solutions as the means to building long-term competitiveness. 5.2 Market and Sales Overview 5.2.1 2014 Sales (Service) by Regions Area Americas Europe Asia (Including Taiwan) Other Area Total Percentage 39.8% 28.2% 29.1% 2.9% 100.0% 5.2.2 Major Products and Their Main Uses ■ Notebook PCs A hardware platform that can perform for data processing, document editing, typesetting, drawing, web browsing, communication, audiovisual entertainment and gaming when used with the right software. ■ Ultrabook PCs A variant of notebook PCs that emphasizes on lightweight, slim exterior, power efficiency, and quick boot to accommodate consumers' needs for portability and performance. ■ 2-in-1 PCs A variant of notebook PCs that features a special swivel design coupled with touchscreen and Windows 8.1 to satisfy consumers' need for mobile computing. 2-in-1 PCs can be used as an ordinary notebook and as a tablet PC. ■ AIO PCs Designed for home use, AIO PCs are characterized by their polished exterior, touchscreen input, useful software and abundant power. ■ Tablet PCs A hand-held device with touchscreen controls to enable mobile multimedia and online applications. ■ Servers Stores and analyzes massive amounts of data, and supports cloud applications. ■ AE Multimedia devices used in vehicles and operated by touch controls. ■ Smart Home 80 An integrated solution for home appliances that combine the use of smart controls and sensors. It enables more intelligent services to users' daily lives. ■ Displays An output device for graphics and audio. ■ Smartphone A device used for personal communication and web browsing. 5.2.3 Supply Status of Main Materials Main materials include CPU/Chipset, HDD, Memory, ODD, Battery, LCD Panel, and Touch Panel Module. Regarding their supply status, please refer to page 88 of the Chinese annual report. 81 5.2.4 Major Suppliers and Clients (1) Major Suppliers in the Last Two Calendar Years Unit: NTD thousand Party Name Amount 2013 As a percentage to 2013 net purchases (%) Relationship with the issuer Name Amount 2014 As a percentage to 2014 net purchases (%) 2015 first quarter Relationship with the issuer Name Amount As a percentage to 2015 first quarter net purchases (%) Relationship with the issuer 1 Company E 2 Company D 3 Company A 4 Company B Others Net purchase 211,213,979 85,729,509 69,295,528 16,008,278 282,390,608 664,637,902 31.78 12.90 10.43 2.41 42.48 100.00 N/A N/A N/A N/A Company E Company B Company D Company A 196,641,921 94,213,359 73,671,516 58,909,053 Others Net purchase 389,900,241 813,336,090 24.18 11.58 9.06 7.24 47.94 100.00 N/A N/A N/A N/A Company E Company B Company D Company A Others Net purchase 43,337,043 28,578,039 13,086,661 11,035,006 94,221,717 190,258,466 N/A N/A N/A N/A 22.78 15.02 6.88 5.80 49.52 100.00 (2) Major Clients in the Last Two Calendar Years Unit: NTD thousand 2014 2015 first quarter Party Name Amount 2013 As a percentage to 2013 net sales (%) Relationship with the issuer Name Amount 1 Company a 2 Company b 3 Company c 4 Company d 5 Company e Others Net sales 22,290,204 97,670,133 36,792,516 273,066,004 141,561,923 121,367,513 692,748,293 N/A N/A N/A N/A N/A 3.22 14.10 5.31 39.42 20.43 17.52 100.00 Company a Company b Company c Company d Company e Others Net sales 113,261,171 79,762,228 102,730,381 254,615,227 130,230,357 165,101,388 845,700,752 82 As a percentage to 2014 net sales (%) Relationship with the issuer Name Amount As a percentage to 2015 first quarter net sales (%) Relationship with the issuer N/A N/A N/A N/A N/A 13.39 9.43 12.15 30.11 15.40 19.52 100.00 Company a Company b Company c Company d Company e Others Net sales 32,587,987 14,261,485 18,468,478 56,917,303 24,087,655 51,789,535 198,112,443 N/A N/A N/A N/A N/A 16.45 7.20 9.32 28.73 12.16 26.14 100.00 5.2.5 Production in the Last Two Years Year Production volume/ 2013 2014 Unit: devices; NTD thousands Production Production Production Production Production Production value capacity volume value capacity volume value Main products 5C electronics 96,889,165 77,682,931 663,029,988 113,708,339 93,904,896 820,180,660 5.2.6 Shipments and Sales in the Last Two Years Year 2013 Unit: devices; NTD thousands 2014 Sales volume Domestic sales Export sales Domestic sales Export sales Main products 5C electronics Volume Value Volume Value Volume Value Volume Value 1,550,600 3,906,906 75,564,065 688,841,387 256,798 1,526,790 92,957,355 844,173,962 5.3 Human Resources Year December 31, 2013 December 31, 2014 March 31, 2015 Number of employees Average age Average years of service Academic qualifications Doctoral Degree Master Degree University High school Below high school/others 64,473 25.12 1.59 0.07% 4.27% 21.13% 56.61% 17.92% 79,639 26.66 1.65 0.07% 3.45% 19.07% 56.22% 21.19% 81,626 26.19 1.58 0.07% 3.36% 17.07% 58.24% 21.26% 5.4 Environmental Protection Expenditure (1) The Company is an assembler of electronic products, and produces no significant pollution: (cid:3) It is our responsibility to mitigate the impacts of global warming by reducing energy consumption and carbon emissions. In 2014, the Company incurred a total environmental protection expenditure of NTD 22,710,000 (excluding regular maintenance and green product R&D). We have fulfilled our duties as a corporate citizen, and in doing so we hope to bring real benefits to the environment, for now and ever. (2) Compliance with EU RoHS directives: (cid:3) 100% of products sold to Europe have conformed to RoHS standards. 83 (3) Responsive strategies and possible expenses: (cid:3) The Company has never incurred expenses due to pollution, and it does not expect to incur such expenses in the future. 5.5 Labor Relations (1) Availability and execution of employee welfare, education, training and retirement policies. Elaborate on the agreements between employers and employees, and protection of employees’ rights ■ Employee welfare: The Company has assembled an Employee Welfare Committee and an Employee Lifestyle Committee to help employees maintain balance between work, health and family life, and thereby inspire their energy in the workplace. In addition to ensuring employees' legal rights, the two committees have also made regular arrangements such as: recreational center, infirmary, health checks, games and competitions, family activities, trips, arts and cultural activities, hobby clubs etc to promote employees' healthy lifestyle. Group insurance coverage on life, accident, healthcare and cancer have been made available for employees, while in the meantime allowing family members to join the coverage at discounted prices. Scholarships are also available to reward academic achievements of employees and their children. As a prevention against Taiwan's aging society and a support to the government's childbirth incentives, the Company has adopted the principle to approve all employees who wish to take extended unpaid leaves for childcare purpose. A total of 131 employees had applied for this leave of absence as at the end of 2014. Furthermore, Compal has offered generous childbirth incentives to Taiwanese employees and their spouses and children for 5 years starting from 2011. This incentive also applies to childbirths given by employees' spouse and children. As at the end of 2014, a total of NTD72.072 million had been paid as childbirth incentive. ■ Education and training: The Company adopts a credit system for its training. Every job position has been assigned a credit quota that employees are expected to attain. All training records have been integrated into the e-Learning platform where managers are able to monitor employees' learning progress. In 2014, a total of 1,603 training sessions (internal and external) were organized, which delivered 124,830.5 hours of training and received 33,472 enrollments in total. These training sessions incurred NTD 8,207,000 in total expenses and cover the following topics: • Orientation: lectures and workshops were organized to familiarize new recruits with the Company's culture, strategies, visions and the current industry. • Language: employees were given progressive training on English and Japanese skills, as well as proper ways to interact with customers through the use of scenario practices. The purpose of this course is to develop international talents. • Management: employees were informed of the ideal management structure, and received training on personal abilities such as: teamwork, problem analysis, creative thinking etc. This course had progressed based on the Company's overall talent plan. • Specialist training: this training embodies a broad range of seminars, workshops, and on-job courses that help employees develop new knowledge, techniques and experiences that are specific to their jobs. Specialist trainings are systematically managed and are considered vital to the company's core competitiveness. 84 • e-Learning: e-Learning offers a broad variety of knowledge from compulsory courses for new recruits to on-job trainings regarding information, 6 Sigma, language, management, CSR, and occupational safety. The use of an online environment helps extend the reach of learning resources, allowing employees to learn at their own pace at any time. Through systematic management, learning resources are delivered to their best effectiveness and therefore makes e-Learning a perfect complement to the Company's training system. ■ Retirement system The Company has developed its retirement system in accordance with the Labor Standards Act and the Labor Pension Act. For employees who are transferred to affiliated companies, pension benefits are paid according to employees' years of service in their respective departments, and out of pension fund accounts that each department has contributed over the course of employees' service. ■ Employer-employee communications and enforcement of workers' rights The Company has always valued employer-employee relations, and has communication channels available to facilitate two-way communication between the two parties, thereby allowing the Company to respond to employees' thoughts and opinions in a prompt manner. The Company not only has policies in place to protect employees' rights, but also makes decisions in the best interests of its employees. (2) Personnel management The Company has clear policies in place to manage human resources and to guide employees' behaviors. There are specific levels of approval authority and detailed rules to guide decisions concerning employees' recruitment, promotion, appraisal, assignment, leave of absence, resignation, confidentiality agreement, reward and discipline. These policies and rules exist to eliminate subjective judgments and to create a fair, open, and systematic corporate culture. (3) Work environment • Buildings are subjected to annual fire safety inspections and reports. • Buildings, plants and equipment are inspected daily and maintained on a regular basis. • The Company hires regular cleaning services to ensure the cleanliness of its work environment. (4) Employees' safety • Personnel entry and exit are controlled by security system. • Security personnel are stationed 24 hours a day to patrol plant premise and monitor the surveillance system. • Lectures and rehearsals are organized annually to demonstrate the proper responses in case of an emergency. (5) Actual or estimated losses arising as a result of employment disputes in the recent year up till the publication date of this annual report, and any responsive measures taken: • The Company did not suffer any losses due to employment dispute in the recent year, and nor does it expect any occurrence in the coming year. • Responsive strategies and possible expenses: none. 85 5.6 Important Contracts Agreement Patent licensing agreement Trading and manufacturing agreement Counterparty Phoenix Technologies Ltd. Dell Products L.P. Trading agreement Toshiba Co. Trading and manufacturing agreement Acer Inc. Shareholder agreement Tatung Co. Period 2010.1.1 ︱ 2015.06.30 Since 1997.06.26 Auto-renewed upon expiry Since 1999.09.09 Yearly Auto-renewed upon expiry Since 2001.10.01 Yearly Auto-renewed upon expiry Since 2009.07.21 ︱ until completion of the underlying purpose Major Contents Restrictions 1. Tool Licenses 2. Source Code licenses 3. Maintenance Under this agreement, the buyer will procure computer products developed and manufactured by the seller, while the seller will give the buyer proper licenses to use the products and provide after-sale technical services thereafter. Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with after-sale technical services provided by the seller. Under this agreement, the buyer will procure computer products developed and manufactured by the seller, along with after-sale technical services provided by the seller. This agreement is related to the private placement of shares of Chunghwa Picture Tubes Ltd. (CPT); the terms enable the subscriber to request for a buyback of privately placed shares from the counterparty. N/A N/A N/A N/A N/A 86 VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet and Statement of Comprehensive Income – Based on IFRS (1) Consolidated Condensed Balance Sheet – Based on IFRS Unit: NT$ thousands Item Current assets Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 259,133,608 287,380,820 324,845,249 285,579,202 Property, Plant and Equipment 20,772,790 21,209,228 24,472,732 24,286,366 Intangible assets Other assets Total assets Current liabilities Non-current liabilities Total liabilities Before distribution After distribution Before distribution After distribution Equity attributable to parent company shareholders N.A. N.A. Share capital Capital reserves Retained earnings Other equity items Treasury stock Before distribution After distribution Non-controlling interest Total equity Before distribution After distribution 1,451,181 1,293,643 1,035,162 1,184,613 30,431,001 26,219,123 28,397,575 27,568,717 311,788,580 336,102,814 378,750,718 338,618,898 195,000,133 220,597,261 250,264,267 208,376,412 199,333,956 224,902,606 (Note 2) - 1,995,177 15,314,137 22,266,514 21,387,345 196,995,310 235,911,398 272,530,781 229,763,757 201,329,133 240,216,743 (Note 2) - 106,039,633 95,102,289 101,386,923 103,261,732 44,126,526 44,134,467 44,232,366 44,725,966 16,122,810 16,193,087 14,296,445 14,984,493 55,053,941 44,489,978 47,721,872 49,724,086 50,669,755 42,312,310 (Note 2) - (8,382,397) (7,707,518) (3,139,021) (4,448,074) (881,247) (2,007,725) (1,724,739) (1,724,739) 8,753,637 5,089,127 4,833,014 5,593,409 114,793,270 100,191,416 106,219,937 108,855,141 110,459,447 95,886,071 (Note 2) - Note: 1. All yearly financial information has been audited; financial information as at March 31, 2015, was auditor-reviewed. 2. The 2014 financial statements have yet to be resolved in a shareholders' meeting; therefore amounts after dividend distribution were unavailable. 87 3. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 88 (2) Consolidated Condensed Statement of Comprehensive Income – Based on IFRS Item Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands - - - - (59,127) N.A. N.A. 7,240,147 2,903,732 7,545,381 198,112,443 8,559,448 3,221,663 (647,026) 2,574,637 2,021,761 683,913,713 692,748,293 845,700,752 28,749,803 28,110,391 32,364,662 10,054,894 9,234,044 11,664,922 (631,049) (4,873,662) (1,937,570) 9,423,845 4,360,382 9,727,352 7,545,381 2,903,732 7,240,147 Net Sales Gross profit Income from operations Non-operating income and expenses Income before tax Profit (Loss) from continuing operations Profit (Loss) from discontinued operations Net income (Loss) Other comprehensive income (income after tax) Total comprehensive income Net income attributable to parent company shareholders Net income attributable to non-controlling interest Comprehensive income attributable to parent company shareholders Comprehensive income attributable to non-controlling interest Earnings per share Note: 1. All yearly financial information has been audited; financial information as at March 31, 2015, was auditor-reviewed. 2. The 2014 financial statements have yet to be resolved in a shareholders' meeting. 3. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 6,406,588 3,160,663 11,548,480 7,181,020 3,615,030 12,100,880 6,399,958 2,467,211 7,024,461 2,016,150 1,782,866 1,771,844 2,021,761 4,555,499 (249,917) (11,022) 454,367 520,920 552,400 840,189 436,521 774,432 711,298 5,611 0.47 1.47 1.63 0.57 89 (3) Parent-Company-Only Condensed Balance Sheet – Based on IFRS Unit: NT$ thousands Year Financial Summary for The Last Five Years As of March 31, 2015 Item Current assets Property, Plant and Equipment Intangible assets Other assets Total assets Current liabilities Before distribution After distribution Non-current liabilities Total liabilities Before distribution After distribution Equity attributable to parent company shareholders Share capital Capital reserves Retained earnings Other equity items Treasury stock Before distribution After distribution Non-controlling interest Total equity Before distribution After distribution 2010 2011 2012 2013 2014 194,403,691 210,646,593 255,609,554 2,295,444 2,218,316 2,230,023 724,106 617,739 412,185 76,775,902 82,728,525 85,179,353 274,199,143 296,211,173 343,431,115 167,275,463 187,574,634 220,791,532 171,659,649 191,929,970 (Note 2) 884,047 13,534,250 21,252,660 168,159,510 201,108,884 242,044,192 172,543,696 205,464,220 (Note 2) N.A. N.A. - - - N.A. 44,126,526 44,134,467 44,232,366 16,122,810 16,193,087 14,296,445 55,053,941 44,489,978 47,721,872 50,669,755 42,312,310 (Note 2) (8,382,397) (7,707,518) (3,139,021) (881,247) (2,007,725) (1,724,739) - - - 106,039,633 95,102,289 101,386,923 101,705,810 90,796,944 (Note 2) Note: 1. All yearly financial information has been audited. 2. The 2014 financial statements have yet to be resolved in a shareholders' meeting; therefore, amounts after dividend distribution were unavailable. 3. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 90 (4) Parent-Company-Only Condensed Statement of Comprehensive Income – Based on IFRS Item Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands - - - 6,630 2,467,211 6,399,958 7,024,461 N.A. N.A. 632,622,772 16,359,240 5,505,654 (2,503,176) 3,002,478 2,467,211 803,504,061 21,288,913 7,291,756 286,853 7,578,609 7,024,461 608,702,320 15,258,012 4,877,292 2,288,536 7,165,828 6,399,958 Net Sales Gross profit Income from operations Non-operating income and expenses Income before tax Profit (Loss) from continuing operations Profit (Loss) from discontinued operations Net income (Loss) Other comprehensive income (income after tax) Total comprehensive income Net income attributable to parent company shareholders Net income attributable to non-controlling interest Comprehensive income attributable to parent company shareholders Comprehensive income attributable to non-controlling interest Earnings per share Note 1. All yearly financial information has been audited. 2. The 2014 financial statements have yet to be resolved in a shareholders' meeting. 3. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 11,548,480 6,406,588 3,160,663 4,524,019 693,452 N.A. 1.47 0.57 1.63 - - - - - - - - - - - - 91 6.1.2 Condensed Balance Sheet and Statement of Comprehensive Income – Based on ROC GAAP (1) Consolidated Condensed balance sheet – Based on ROC GAAP Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands 286,707,326 236,063,264 257,852,167 Item Current assets Funds & Long-term investments 29,412,093 23,908,349 28,044,206 Fixed assets Intangible assets Other assets Total assets Current liabilities 14,979,473 16,951,183 21,386,512 2,124,707 1,923,503 2,000,627 333,223,599 278,846,299 309,283,512 286,707,326 236,063,264 257,852,167 Before distribution 211,767,431 164,527,553 192,909,628 After distribution 223,537,274 170,632,894 197,243,451 Long-term and Other liabilities 321,735 221,146 1,005,337 Total liabilities Share capital Capital reserves Retained earnings Before distribution 212,089,166 164,748,699 193,914,965 After distribution 223,859,009 170,854,040 198,248,788 44,280,998 44,002,554 44,126,526 15,303,594 15,512,401 15,776,692 N.A. N.A. N.A. Before distribution 57,799,523 56,139,782 56,373,219 After distribution 45,894,173 49,964,431 51,989,033 Cumulative translation adjustments (2,443,732) (1,234,071) (3,134,299) Net loss unrecognized as pension cost Unrealized gain or loss on financial Instruments Treasury stock - - (165,627) (903,090) (7,478,947) (5,518,799) (881,247) (881,247) (881,247) Non-controlling interest 7,978,387 8,037,128 8,792,082 Total equity Before distribution 121,134,433 114,097,600 115,368,547 After distribution 109,364,590 107,992,259 111,034,724 Note: all yearly financial information has been audited. 92 (2) Consolidated Condensed Statement of Income – Based on ROC GAAP Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands 887,004,139 693,126,573 682,891,359 45,096,505 33,587,365 29,812,097 24,126,220 13,461,681 10,067,934 5,818,834 2,696,593 2,261,926 1,699,194 2,934,003 2,890,453 Item Net Sales Gross profit Income from operations Non-operating income Non-operating expenses 28,245,860 23,317,195 Income before tax Income from operations of continued segments - after tax Net income Net income attributable to shareholders of the parent Earnings per share Note: all yearly financial information has been audited. 5.38 23,271,796 23,317,195 13,224,271 9,439,407 N.A. N.A. N.A. 11,096,306 7,255,485 11,096,306 7,255,485 11,014,680 6,411,027 2.53 1.47 93 (3) Parent-Company-Only Condensed balance sheet – Based on ROC GAAP Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands Item Current assets Funds & Long-term investments Fixed assets Intangible assets Other assets Total assets Current liabilities Long-term liabilities Other liabilities Total liabilities Share capital Capital reserves Retained earnings 230,990,361 65,471,622 2,176,644 894,909 606,181 300,139,717 Before distribution 186,963,328 After distribution 198,868,678 - 20,343 Before distribution 186,983,671 After distribution 198,889,021 44,280,998 15,303,594 57,799,523 45,894,173 Before distribution After distribution 165,602,004 193,064,991 76,151,586 67,921,249 2,160,328 2,183,514 724,106 743,568 189,276 507,276 236,957,611 272,290,287 130,872,137 165,490,729 137,047,488 169,874,915 - 25,002 - 223,093 130,897,139 165,713,822 137,072,490 170,098,008 44,126,526 44,002,554 15,776,692 15,512,401 56,373,219 56,139,782 51,989,033 49,964,431 N.A. N.A. N.A. Unrealized gain or loss on financial instruments Cumulative translation adjustments Net loss unrecognized as pension cost (903,090) (7,478,947) (5,518,799) (2,443,732) - (1,234,071) - (3,134,299) (165,627) Total equity Before distribution 113,156,046 106,060,472 106,576,465 After distribution 101,386,203 99,955,131 102,242,642 Note: all yearly financial information has been audited. 94 (4) Parent-Company-Only Condensed Statement of Income – Based on ROC GAAP Item Net Sales Gross profit Income from operations Non-operating income Non-operating expenses Year Financial Summary for The Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 Unit: NT$ thousands 844,508,265 649,477,507 607,679,574 32,037,117 20,573,404 16,228,493 18,283,907 7,758,932 4,869,926 8,834,564 5,177,859 2,620,408 555,641 834,458 315,184 26,562,830 12,102,333 7,175,150 23,271,796 11,014,680 6,411,027 N.A. N.A. N.A. Income before tax Income from operations of continued segments - after tax Income from discontinued departments Extraordinary gain or loss Cumulative effect of accounting principle changes Net income Earnings per share Note: all yearly financial information has been audited. 5.38 - 23,271,796 - - - - - - - - 11,014,680 6,411,027 2.53 1.47 6.1.3 Auditors’ Opinions from 2010 to 2014 Accounting Firm Year 2010 KPMG 2011 KPMG 2012 KPMG 2013 KPMG 2014 KPMG CPA Audit Opinion Lo, Jui Lan; Yen, Hsing-Fu (Note 1) Unqualified opinion Kuo, Kuan Ying; Lo, Jui Lan (Note 1) Unqualified opinion Unqualified opinion Kuo, Kuan Ying; Lo, Jui Lan Modified unqualified opinion (Note 2) Kuo, Kuan Ying; Lo, Jui Lan Modified unqualified opinion (Note 2) Kuo, Kuan Ying; Lo, Jui Lan Note: 1. The change of financial statement auditor was the result of an internal job rotation that took place within the accounting firm. 2. The modified unqualified opinion contained a description of the Company's plan to dispose shares of Vibo Telecom and to recognize impairment losses on CPT investments. 95 6.2 Five-Year Financial Analysis A. Consolidated Financial Analysis – Based on IFRS Year Item Financial structure (%) Solvency (%) Operating Efficiency Profitability Cash flow Leverage Debt Ratio Ratio of long-term capital to property, plant and equipment Current ratio Quick ratio Interest coverage ratio (times) Accounts receivable turnover (times) A/R turnover days Inventory turnover (times) Accounts payable turnover (times) Inventory turnover days Property, plant and equipment turnover (times) Total assets turnover (times) Return on total assets (%) Return on equity (%) Pre-tax income to paid-in capital (%) Net profit ratio (%) Earnings per share (NT$) Cash flow ratio (%) Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Operating leverage Financial leverage Financial Analysis for the Last Five Years 2010 2011 2012 2013 2014 As of March 31, 2015 63.18 70.19 71.96 67.85 562.22 544.60 525.02 536.28 132.89 105.61 23.88 4.61 79.18 13.29 4.82 27.47 130.27 106.85 9.83 4.02 90.76 12.91 4.67 28.26 129.80 102.70 10.54 4.66 78.25 13.73 5.13 26.59 137.05 104.64 11.34 4.87 74.97 11.29 4.93 32.32 N.A. N.A. 37.81 33.00 37.03 32.50 2.14 2.31 1.00 2.55 2.70 6.34 9.88 21.36 0.42 1.06 0.57 1.47 (Note 1) 0.25 (Note 2) (Note 2) (Note 2) (Note 1) (Note 1) 2.37 2.33 7.31 21.99 0.89 1.63 13.51 1.58 1.04 1.66 1.06 19.59 1.57 1.10 2.21 2.47 7.52 23.03 1.02 0.47 - - - - - Note: 1. This ratio is negative. 2. Not applicable as there is less than 5 years of IFRS-compliant information. 3. Variations exceeding 20% in the last 2 years: (cid:3) Return on total assets: Changes were mainly due to an increase in after-tax profit compared to the previous year. (cid:3) Return on shareholders' equity: Changes were mainly due to an increase in after-tax profit compared to the previous year. (cid:3) Pre-tax income to paid-up capital: Changes were mainly due to an increase in pre-tax income compared to the previous year. (cid:3) Net Profit ratio: Changes were mainly due to an increase in after-tax profit compared to the previous year. (cid:3) Earnings per share: Changes were mainly due to an increase in after-tax profit compared to the previous year. (cid:3) Cash flow ratio: Changes were mainly due to an increase in cash flow from operating activities compared to the previous year. (cid:3) Cash reinvestment ratio: Changes were mainly due to an increase in cash flow from operating activities compared to the previous year. 4. All yearly financial information has been audited; financial information as at March 31, 2015, was auditor-reviewed. 5. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 6. The 2014 financial statements have yet to be resolved in a shareholders' meeting. 96 Formula: 1. Financial Structure (1) Debt Ratio = Total liabilities / Total assets (2) Ratio of long-term capital to property, plant and equipment = (Net shareholders’ equity + Long-term liability) / Net property, plant and equipment 2. Solvency (1) Current ratio = Current Assets / Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liability (3) Interest coverage ratio = Net income before income tax and interest expense / Interest expense 3. Operating Efficiency (1) Account receivable (including account receivable and notes receivable from business activities) turnover = Net sales / Average account receivable balance (including account receivable and notes receivable from business activities) (2) A/R turnover days = 365 / account receivable turnover (3) Inventory turnover = Cost of Goods Sold / Average inventory balance (4) Account payable (including account payable and notes payable from business activities) turnover = Cost of goods sold / Average account payable balance (including account payable and notes payable from business activities) (5) Inventory turnover days = 365 / Inventory turnover (6) Property, plant and equipment turnover = Net sales / Average Net property, plant and equipment (7) Total assets turnover = Net sales / Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)] / average asset balance (2) Return on equity = PAT / average net equity (3) Pre-tax income to paid-in capital = Net income before tax / Issued capital stock (4) Net profit ratio = PAT / Net sates (5) EPS = (PAT - preferred stock dividends) / weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities / Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend) / (Gross fixed assets + long-term investment + other assets + working capital) 6. Leverage (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense) / operating income (2) Financial leverage = Operating income / (Operating income - interest expenses) 97 B. Consolidated Financial Analysis – Based on ROC GAAP Year Analysis Financial Structure (%) Solvency (%) Operating Efficiency Financial Analysis for the Past Five Years 2010 63.65 2011 59.08 2012 62.70 2013 2014 Debt Ratio Ratio of long-term capital to fixed assets 809.38 673.24 542.02 Current ratio Quick ratio Interest coverage ratio (times) Accounts receivable turnover (times) A/R turnover days Inventory turnover (times) Accounts payable turnover (times) Inventory turnover days Fixed assets turnover (times) Total assets turnover (times) Return on total assets (%) Return on equity (%) 135.39 113.18 79.65 5.15 70.87 14.30 5.10 25.53 60.71 2.65 7.06 20.48 143.48 114.10 29.82 4.50 81.15 14.27 4.63 25.57 43.41 2.26 3.75 9.43 133.66 106.09 23.98 4.66 78.31 13.24 4.81 27.56 35.63 2.32 2.57 6.32 N.A. N.A. Operating income 54.48 30.59 22.82 Profitability Ratio to issued capital (%) Pre-tax income Net profit ratio (%) Earnings per share (NT$) Cash flow ratio (%) Cash flow adequacy ratio (%) Cash reinvestment ratio (%) Operating leverage Financial leverage Cash flow Leverage 63.79 2.63 5.38 10.91 69.78 9.65 1.25 1.02 30.05 1.60 2.53 20.94 73.27 17.34 1.45 1.04 21.39 1.06 1.47 (Note 1) 46.44 (Note 1) 1.62 1.04 Note: 1. This ratio is negative. 2. Variations exceeding 20% in the last 2 years: not applicable. 3. All yearly financial information has been audited. Formula: 1. Financial Structure (1) Debt Ratio = Total liabilities / Total assets (2) Long-term debts to fixed assets = (Net equity + Long-term debts) / Net fixed assets 2. Solvency (1) Current ratio = Current Assets / Current liability (2) Quick ratio = (Current assets - Inventory - Prepaid expenses) / Current liability (3) Interest coverage ratio = Net income before income tax and interest expense / Interest expense 3. Operating Efficiency (1) Account receivable (including account receivable and notes receivable from business activities) turnover = Net sales / Average account receivable balance (including account receivable and notes receivable from business activities) (2) A/R turnover days = 365 / account receivable turnover 98 (3) Inventory turnover = Cost of Goods Sold / Average inventory balance (4) Account payable (including account payable and notes payable from business activities) turnover = Cost of goods sold / Average account payable balance (including account payable and notes payable from business activities) (5) Inventory turnover days = 365 / Inventory turnover (6) Fixed assets turnover = Net sales / Average Net Fixed Assets (7) Total assets turnover = Net sales / Average Total assets 4. Profitability (1) Return on assets = [PAT + Interest expense × (1 - interest rate)] / average asset balance (2) Return on equity = PAT / average net equity (3) Net profit ratio = PAT / Net sates (4) EPS = (PAT - preferred stock dividends) / weighted average outstanding shares 5. Cash Flow (1) Cash flow ratio = Cash flow from operating activities / Current liability (2) Cash flow adequacy ratio = Most recent 5-year Cash flow from operating activities / Most recent 5-year (Capital expenditure + increases in inventory + cash dividend) (3) Cash reinvestment ratio = (Cash flow from operating activities - cash dividend) / (Gross fixed assets + long-term investment + other assets + working capital) 6. Leverage (1) Operating leverage = (Nest revenue - variable cost of goods sold and operating expense) / operating income (2) Financial leverage = Operating income / (Operating income - interest expenses) 99 6.3 Supervisors’ /Audit Committee’s Report for the Most Recent Year 6.4 Consolidated Financial Statements and Independent Auditors’ Report Please refer to Attachment I. 6.5 Parent-Company-Only Financial Statements and Independent Auditors’ Report Please refer to Attachment II. 100 VII. Review of Financial Conditions, Financial Performance, and Risk Management 7.1 Analysis of Financial Status Year Analysis Current Assets Funds & Investments Property, plant and equipment Other Assets Total Assets Current Liabilities Other Liabilities Total Liabilities Share capital Capital reserves Retained Earnings Other Adjustments Treasury stock Non-controlling Equity 2014 2013 Unit: NT$ thousands Difference Amount % 324,845,249 11,694,855 24,472,732 17,737,882 378,750,718 250,264,267 22,266,514 272,530,781 44,232,366 14,296,445 47,721,872 (3,139,021) (1,724,739) 4,833,014 106,219,937 287,380,820 9,301,877 21,209,228 18,210,889 336,102,814 220,597,261 15,314,137 235,911,398 44,134,467 16,193,087 44,489,978 (7,707,518) (2,007,725) 5,089,127 100,191,416 37,464,429 2,392,978 3,263,504 (473,007) 42,647,904 29,667,006 6,952,377 36,619,383 97,899 (1,896,642) 3,231,894 4,568,497 282,986 (256,113) 6,028,521 13.04 25.73 15.39 (2.60) 12.69 13.45 45.40 15.52 0.22 (11.71) 7.26 (59.27) (14.09) (5.03) 6.02 Total Shareholders' Equity Note: Analysis of variations exceeding 20％ and amounting to more than NTD10 million: (cid:3) (cid:3) (cid:3) Increase in Funds & Investments: changes were mainly due to new investments and additional profits recognized from investments using the equity method. Increase in Other Liabilities: changes were mainly due to an increase in long-term borrowings. Increase in Other Adjustments: changes were mainly due to a decrease in unrealized loss of sale on available-for-sale financial instruments, and an increase in exchange differences while converting financial statements of foreign operations. (cid:3) The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. (cid:1) Effect of changes on the company’s financial position: There have been no significant changes to the Company’s financial position. (cid:1) Future response actions: Not applicable 101 7.2 Analysis of Financial Performance Year Analysis Net Sales Cost of Sales Gross Profit Operating Expenses Operating Income Non-operating Income and Expenses Income Before Tax Less: Tax Expense Net Income (loss) Unit: NT$ thousands 2014 2013 845,700,752 813,336,090 32,364,662 20,699,740 11,664,922 (1,937,570) 9,727,352 2,181,971 7,545,381 692,748,293 664,637,902 28,110,391 18,876,347 9,234,044 (4,873,662) 4,360,382 1,456,650 2,903,732 Difference Amount 152,952,459 148,698,188 4,254,271 1,823,393 2,430,878 2,936,092 5,366,970 725,321 4,641,649 % 22.08 22.37 15.13 9.66 26.33 (60.24) 123.08 49.79 159.85 540.45 Other comprehensive income 4,555,499 711,298 3,844,201 Total comprehensive income Note: 1. Explanation of variations exceeding 20%: 12,100,880 3,615,030 8,485,850 234.74 (cid:3) (cid:3) Increase in Net Sales and Cost of Sales: Changes were mainly due to an increase in customers' orders. Increase in Operating Income: Changes were mainly due to increases in operating revenue and gross profit for the current period. (cid:3) (cid:3) (cid:3) Decrease in Non-operating Income and Expenses: Changes were mainly due to an increase in the share of profit from equity-accounted associated companies and joint ventures, net gains from financial assets (liabilities) carried at fair value through profit and loss, and gains on foreign currency exchange. Increase in Tax Expense: Changes were mainly due to an increase in current net profit. Increase in Other comprehensive income (net of tax): Changes were mainly due to an increase in currency translation differences while converting financial statements of foreign operations, and a decrease in unrealized loss on valuation of available-for-sale financial assets. Increase in Total comprehensive income: Changes were mainly due to an increase in current net profit. (cid:3) 2. The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 102 7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year Unit: NT$ thousands Cash and Cash Equivalents, Beginning of Year (1) 46,965,852 Net Cash Flow from Operating Activities (2) 33,798,224 Cash Outflow (3) Cash Surplus (Deficit) (1)+(2)-(3) 6,055,946 74,708,130 Analysis of change in cash flow in the current year: 1. Analysis of cash flow variations in 2014: Financing of Cash Deficit Investment Plans - Financing Plans - • NTD 33,798,224,000 net cash inflow from operating activities: This was mainly due to profits from business activities, and changes in working capital assets and liabilities. • NTD 5,689,203,000 net cash outflow from investing activities: This was mainly due to real estate properties, plant and equipment acquired in the current period. • NTD 1,912,141,000 net cash outflow from financing activities: This was mainly explained by an increase in bank borrowings, distribution of cash dividends, and acquisition of non-controlling equity. 2. Financing of cash deficits: not applicable. 3. Liquidity analysis: the Company was in a sound liquidity position as current assets were 129.8% of current liabilities. 7.3.2 Cash Flow Analysis for the Coming Year Estimated Cash and Cash Equivalents, Beginning of Year (1) 74,708,130 Estimated Net Cash Flow from Operating Activities (2) Estimated Cash Outflow (Inflow) (3) Cash Surplus (Deficit) (1)+(2)-(3) 10,628,549 10,384,597 74,952,082 Analysis of change in cash flow in the coming year: 1. Analysis of cash flow variations in 2015: Unit: NT$ thousands Financing of Cash Surplus (Deficit) Investment Plans - Financing Plans - • NTD 10,628,549,000 cash inflow from operating activities: This is mainly due to expected increase in business volume and profits. • NTD 6,026,785,000 cash outflow from investing activities: This is mainly due to expected increase in investment outlays for the coming year. • NTD 4,357,812,000 cash outflow from financing activities: This is mainly due to cash dividends planned for the coming year. 2. Financing of cash deficits: not applicable. 3. Liquidity analysis: The Company should be able to mainly sound liquidity, as opening cash balance plus net cash inflows from operating activities are adequate in meeting the Company's investing and financing needs. 103 7.4 Major Capital Expenditures 7.4.1 Major Capital Expenditures and Sources of Capital Actual or Actual or Unit: NT$ thousands Actual or Expected Capital Project Planned Source Planned Date Total Capital Expenditure of Capital of Completion Invest in Avalue Proprietary Technology Inc capital Invest in Proprietary Mactech Inc. capital Invest in APE Proprietary (Note) capital 2014 2014 2014 Note: APE: Ascendant Private Equity Investment Ltd. 7.4.2 Expected Benefits 494,900 177,709 470,234 2014 494,900 177,709 470,234 1. Investment in Avalue Technology Inc: this investment gives Compal the ability to extend product applications to industrial uses such as healthcare and IoT, which provides the Company with the depth and breadth to respond to future trends. 2. Investment in Mactech Inc.: this investment gives the Company the ability to design and manufacture automated machines and equipment. 3. Investment in APE: APE provides Compal the access to business opportunities in other industries. 7.5 Investment Policy in the Last Year, Main Causes for Profits or Losses, Improvement Plans and Investment Plans for the Coming Year (1) Investment policy 1. In light of increasing competition across the industry, Compal will devote greater efforts toward integrating different businesses to establish itself as a provider of "Enlighten Living with Green Connecting and Computing". Compal's long-term investments will be focused on existing products and aimed toward delivering best product quality, cost effectiveness and technology in Cloud, Connecting, Computing, Communication, and Consumer segments (the 5Cs). In the meantime, the Company will place greater emphasis on monitoring business partners' compliance with employment regulations and prohibitions against human trafficking and slavery, in order to create opportunities for vertical integration, product line expansion, strategic investments, mergers and acquisitions etc that would strengthen the group's competitiveness even further. 2. The invested businesses will be allocated resources and operated in ways that complement group strategies and businesses. Meanwhile, invested businesses are instructed to comply strictly with laws on employment, human trafficking, and slavery, and are required to connect with customers' networks or join strategic alliances in order to make social, financial and environmental contributions including but not limited to increased efficiency/capacity, improvement of workers' rights, financial growth, and improvements to the local environment. Compal will also assist top-performing investments with their IPOs for increased returns and shorter time to payback. 104 (2) Main causes of profits or losses incurred on investments, and any corrective actions planned The consolidated entity-investments recognized approximately NTD980million of gains in 2014. This was largely contributed by the exceptional performance of investees including LCFC, Compal Precision, and Allied Circuit. With regards to the dispute involving the Company's and subsidiaries' subscription to privately placed securities of Chunghwa Picture Tubes Ltd. (CPT) and the agreement signed with CPT's parent - Tatung Company (Tatung) in 2009, the arbitration tribunal has issued a decision that resulted in Company to recognize NTD4.7 billion of impairment loss on equity investment in the first quarter of 2014. The Company has since engaged its legal representative to file a claim to Taipei District Court to revoke arbitration decisions that were made against the Company's interests. (3) 2015 investment plans Investment plans for the next year are made according to the Company's annual business strategies, and will involve a new mobile initiative combined with R&D and customers' resources for the introduction of new products in the AIO PC, TV, AE, and Enterprise Server categories. Compal adopts a vigilant business philosophy that strives to develop competitiveness only from the foundation of its existing businesses. In addition to growing our core businesses, we also make vertical business integrations where appropriate and expand horizontally into related business activities. While being active on strategic investments, mergers and acquisitions, the Company has been devoting significant resources internally to the development of new products and technologies, particularly with regards to vertical integrations. Apart from the manufacturing of hardware and final products, the Company also plans to invest significant resources for developers of software, firmware, casing solution, and display applications. In terms of horizontal expansion, the Company remains eager to venture into new markets and opportunities such as IT products and services, auto electronics, wearable devices, servers, industrial computers, healthcare etc, following its recent acquisition of Compal Communication Inc. The Company and its affiliates will proceed with the expansion plans mentioned above only when they are certain to contribute to the group’s advantage and involve reasonable risks. Compal's investment decisions are based upon the aforementioned principles and executed in one of the three main directions below: 1. Investments should work towards the vertical integration of upstream and downstream parts supply, and increase the weight of proprietary or locally produced parts in ways that improve overall competitiveness. 2. Horizontal expansions should target related products and services, or growing industries that provide synergies to existing businesses. 3. Investments should work towards enhancing Compal's technical capabilities, or provide synergies or growth opportunities to the group. 105 7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on Corporate Finance, and Future Response Measures Aspects Unit: NTD thousand; % 2014 Net interest revenue and expense Net gain on exchange (including valuation of financial instruments) Net revenues Pre-tax income (Note) Net interest revenue/expense to net revenues Net interest revenue/expense to pre-tax income Net exchange gains to net revenues Net exchange gains to pre-tax income Note: The Company has adopted the 2013 IFRS approved by the Financial Supervisory Commission for all financial statement preparations since January 1, 2015. Financial figures of the consolidated entity were re-stated retrospectively starting from January 1, 2014. 4,232 1,054,764 845,700,752 9,727,352 0.001% 0.044% 0.125% 10.843% 1. Interest rate changes: As the market has expected, the U.S. FED no longer uses the word "patience" when addressing the public, as it prepares the world for future rate hikes. However, Chairperson Yellen has emphasized that not using the word "patience" does not represent the FED's lack of patience. The post-meeting statement indicated that growth of the U.S. economy has slowed down somewhat, and revised downward the nation's growth and inflation estimates. Given the fact that many countries around the world are launching their own expansionary policies, the market expects two interest rate hikes in the United States by the end of 2015, which may raise the federal fund rate to 0.625%. As for NTD, the Central Bank has decided to hold interest rate unchanged given the nation's steady growth at low inflation. As at the end of 2014, the Company had cash balances totaling NTD74.708 billion and bank borrowings (long-term and short-term) totaling NTD70.831 billion, and had accumulated net interest income of NTD4,232,000. The amount of net interest represented 0.001% of net revenues and 0.044% of pre-tax income. As at December 31, 2014, a 0.25% increase in interest rate while all other factors remain unchanged will increase pre-tax income by NTD12,287,000. The Company will monitor interest rate changes closely and take responsive actions at the earliest time possible. 2. Exchange rate changes: The Company exports most of the goods it produces, which makes exchange rate changes highly influential to annual profits. To minimize impacts of exchange rate fluctuations, the Company adopts a natural hedge combined with the use of currency forwards and swaps. The Company made exchange gains (including valuation of financial instruments) totaling NTD1.055 billion for the year, which represented 0.125% of net revenues and 10.843% of pre-tax income. Exchange rate variations are somewhat influential to the Company's operations and profitability. U.S. dollars had strengthened against NTD by December 31, 2014; while all other factors remain unchanged, this change of exchange rate will increase pre-tax income by NTD860,146,000. The Company will continue monitoring exchange rate changes and take pro-active responses where necessary. 3. Inflation: According to data compiled by the Central Bank, the collapse of oil and commodity prices throughout the world have contributed to falling prices of local goods and services, and lower inflationary pressure as the Directorate-General of Budget, Accounting and Statistics estimates an annual CPI increase of 0.26%. Although price levels are expected to remain stable throughout the year, the Company will continue to monitor changes and evaluate the impacts they have on the overall business. 106 7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions 1. The Company and its subsidiaries are not involved in any high-risk, high-leverage investments. 2. The Company and its subsidiaries extend loans only to related parties, mostly for short-term financing of operational activities. 3. The Company issues endorsements/guarantees only for the benefit of its subsidiaries. These endorsements/guarantees are made according to established procedures. 4. The Company primarily adopts natural hedges to cover assets and liabilities that are denominated in foreign currencies. Any net foreign currency exposures are hedged away through the use of currency forwards or swaps. Uses of derivative instruments are entirely for hedging purpose. As at the end of 2014, the Company had outstanding currency forwards totaling USD 237,500,000/EUR 38,200,000/GBP 500,000 and currency swaps totaling USD 30,000,000. The Company will continue to monitor exchange rate changes closely and engage in hedging transactions at the appropriate timing. 5. Apart from exercising due diligence, the Company currently has a complete set of policies including "Procedures for Acquisition or Disposal of Assets", "Procedures for Endorsement and Guarantee", "Procedures for Lending Funds to Other Parties", and " Procedures for Financial Derivatives Transactions" to guide its actions. 7.6.3 Future Research & Development Projects and Corresponding Budget In addition to making improvements to existing products such as PCs, TVs and accessories, the Company values creative R&D as the foundation to its sustainability. R&D projects are outlined based on the team's visions and knowledge toward new technologies, market trends and product functionality. The details of which are finalized to conform with customers' market and product plans. In general, the product development cycle is less than one year for all product categories, and the Company has been able to progressively reduce the time it takes to develop each product. Intensified competition in the IT industry has made product development more time-sensitive than ever. In order to support the Company's rapid business growth, the quality, experience, and abundance of R&D personnel not only became key to the Company's 2015 performance targets, but are vital to ongoing customer relationships as well. For this reason, the Company expects to incur more than NTD12billion of R&D expenses in 2015. 7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales The Company continues to pay close attention to any policies and regulations that may have impact on the Company’s operations. All major changes in regulations and policies (domestic and foreign) that took place in 2014 had been properly addressed, and did not pose any significant impacts on the Company's financial or business performance. 7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales Similar to how tablet PCs have changed users' habits, the rise of ARM and Android have threatened the dominance of the Wintel alliance. In response to this change, the Company aims not only to secure existing product lines but also to 107 develop new products that conform with future trends. To achieve this purpose, the Company has assembled new Product Innovation Team, Technology Innovation Team, and Design Innovation Team, and entrusted them with the mission of studying user behaviors, designing products that better satisfy users' needs, improving the Company's technical capabilities, and making plans for future products. This shall be the foundation upon which the Company explores its future opportunities. 7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures The Company has been an ODM in the IT industry for many years; there have been no changes to its business strategies. The Company's image has been well-received in the industry because of its dedication to business integrity and performance. In recent years, the Company has seen its operations expand in terms of employee size and plant size in Mainland China. This was when we realized the necessity to regularly assess the external environment and our operations and management system so that potential crises can be identified and responded to as early as possible. The Company did not encounter any significant changes in its corporate image in 2014; instead, the organization has weathered through potential crises because of its commitment to the business philosophy of “innovation, harmony, and transcendence”. 7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans The Company's merger and acquisition plans have been aligned with industry trends and future strategies to deliver more comprehensive products/services and faster innovations and designs to customers. They are structured in ways that facilitate the integration of talents, technologies, products and customer strengths, and in manners that complement the Company's existing know-how in IT and telecommunication industries. On September 30, 2013, the Board of Directors approved the tender offer of subsidiary - Compal Communication Inc. ("Compal Communication") at a price of NTD50.8 per share (referred to as the "Offer" below). This Offer had been completed on November 19, 2013, for which the Board of Directors later approved the merger of Compal Communication Inc. on November 28, 2013. The merger was scheduled to take effect on February 27, 2014, with the Company being the surviving company and Compal Communication being the dissolved company. This merger had been completed successfully and was approved by the Ministry of Economic Affairs in its Letter No. Jing-Shou-Shang-10301046390 dated March 25, 2014. With this merger, the Company expects to achieve better resource integration and gain R&D capabilities that would contribute to its efficiency and competitiveness. Over time, the merger should be able to create synergies and prove beneficial to shareholders' interest. Furthermore, this merger is consistent with the integration of IT and telecommunication technologies that is happening throughout the industry. Given the fact that this was an integration of intra-group resources, there should be minimal risks in reorganizing the acquired subsidiary. 7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans: None 7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration: None 7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10%: None 108 7.6.11 Effects of, Risks Relating to and Response to the Changes in Management: None 7.6.12 Litigation or Non-litigation Matters In 2009, the Company and its subsidiaries, namely Zhaopal Investment, Yongpal Investment and Kaipal Investment (collectively referred to as "the Company and Subsidiaries"), participated in the private cash issue of Chunghwa Picture Tubes Ltd. ("CPT). The Company and Subsidiaries had subscribed to the privately placed ordinary shares at NTD2.5 per share for a total of NTD7 billion, and a written agreement was signed with Tatung Company ("Tatung") to facilitate the deal. According to the terms of this agreement, the Company was entitled to request for a buyback of privately placed CPT shares from Tatung during the agreed period, at the price that the Company and Subsidiaries had initially paid for plus interest. However, Tatung did not fulfill its obligations despite the fact that several instructions were made by the Company. On March 29, 2013, the Company was forced to resolve with arbitration procedures. The case was reviewed by the arbitration tribunal, and the decision was received by the Company on May 12, 2014. According to the decision, Tatung was required to pay the consolidated entity a sum of NTD 2,118,607,000 for buying back all CPT shares from The Company and Subsidiaries, and pay the Company interests accruing at 5% per annum from April 3, 2013, until the date of settlement. Furthermore, Tatung is required to bear one-third of arbitration expenses. The Company has since engaged its legal representative to file a claim to Taipei District Court to revoke arbitration decisions that were made against the Company's interests. 7.6.13 Other Major Risks As an international conglomerate, Compal faces a broad and often changing scope of risks such as regulatory compliance, competition, localization, globalization etc. It is our employees’ duties to turn challenges into new opportunities through which the organization may grow. Compal has implemented the PDCA process, KPIs and internal control systems to enable identification, assessment, prevention, and response of risks. They provide risk managers the means to conducting regular and ad-hoc work reports and reviews. When combined with performance appraisal and training systems, they create a robust and responsive problem-solving culture that guides the Company's risk management practices in varying circumstances. 109 VIII. Special Disclosure 8.1 Summary of Affiliated Companies Compal Electronics Technology (Kunshan) Co., Ltd. Compal Information (Kunshan) Co., Ltd. Compal Information Technology (Kunshan) Co.,Ltd. Compal Information RD (Nanjing) Co., Ltd. Compal Digital Technology (Kunshan) Co., Ltd. Kunshan Botai Electronics Co., Ltd. Compower Global Service Co., Ltd. Compal Investment (Jiangsu) Co. Ltd. Compal Display Electronics (Kunshan) Co. Ltd Compal Electronics, (China) Co.,Ltd. Compal Optoelectronics (Kunshan) Co., Ltd. Compal System Trading (Kunshan) Co., Ltd. Compal Investment (Sichuan) Co., Ltd. Compal Electronics, (ChongQing) Co., Ltd., Compal Electronics (Chengdu) Co., Ltd. Compal Management (Chengdu) Co., Ltd. Compal (Vietnam) Co., Ltd. Compal Development & Management (Vietnam) Co., Ltd. . c n I s c i n o r t c e l E l a p m o C Compal Communication (Nanjing) Co.,Ltd Compal Digital Communications (Nanjing) Co., Ltd., Compal Wireless Communications (Nanjing) Co., Ltd Accesstek Inc. Panpal Technology Corp. Jing Bao Gempal Technology Co., Technology Corp. Ltd. Hong Ji Capital Co., Ltd. Hong Jin Investment Co., Ltd. Arcadyan Technology Corp. 36% Compal Broadband Networks Inc. 100% Zhaopal Investment Co., Ltd. Yongpal Investment Co., Ltd. Kaipal Investment Co., Ltd. HengHao Technology Co., Ltd. Synchro Seiki, Inc. RIPAL OPTOTRONIC S CO., LTD. Rayonnant Technology Co., Ltd. Huang-Feng Communicati ons, Inc. UNICOM GLOBAL, INC. HANHELT Communicati ons (Nanjing) Co.,Ltd. 110 8.2 Private Placement of Securities in the Most Recent Year: None 8.3 Company Shares Held or Disposed by Subsidiaries in the Most Recent Year: Name of Subsidiary Share Capital Acquired Funding Source Percentage of Shares Held by the Company Date of Acquisition or Disposition Shares and Amount Acquired Shares and Amount Disposed Investme nt Gain (Loss) Shareholdings and Amount in Most Recent Year Collateraliz ed Amount of Endorsements Made for the Subsidiary Amount Loaned to the Subsidiar y Unit: NT$ thousands; Shares; % NTD 5,000,000,000 Proprietary capital Panpal Technology Corporation Gempal Technology Co., Ltd. Up till the publication date of this annual report Note: Impacts on the Company's financial performance and position: none of the subsidiaries had acquired or disposed the Company's shares in the current year up till the 18,369,349 shares NTD 321,435,000 31,648,082 shares NTD 559,812,000 Proprietary capital NTD 900,000,000 100% 100% Note N/A N/A - - - - - - - - - - - - - - - publication date of this annual report, hence there were no impacts. 8.4 Any Events in 2014 and as of the Date of this Annual Report that had Significant Impacts on Shareholders’ Interests or Security Prices as Stated in Item 2 Paragraph 2 of Article 36 of Securities and Exchange Law of Taiwan: None 111 Attachment I To the Board of Directors Compal Electronics, Inc.: Independent Auditors’ Report We have audited the accompanying consolidated balance sheets of Compal Electronics, Inc. and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of comprehensive income, changes in equity, and cash flows for the years ended December 31, 2014 and 2013. These consolidated financial reports are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial reports based on our audits. We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” in the Republic of China and generally accepted auditing standards. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial reports are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial reports. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of consolidated financial reports. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial reports referred to above present fairly, in all material respects, the financial position of Compal Electronics, Inc. as of December 31, 2014 and 2013, and the results of their consolidated operations and their consolidated cash flows for the years then ended, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers, and International Financial Reporting standards, International Accounting Standards, IFRSC Interpretations and SIC Interpretations endorsed by the Financial Supervisory Commission R.O.C. As stated in note 6(c) of the consolidated financial reports, Compal Electronics, Inc. and its subsidiaries recognized an impairment loss of $4,730,000,000 on the equity investment in Chunghwa Picture Tubes Ltd. for the three months ended March 31, 2014. As stated in note 6(c) of the consolidated financial reports, Compal Electronics, Inc. and its subsidiaries reclassified the investment of VIBO Telecom Inc. from investments accounted for using equity method to non-current assets classified as held for sale, and recognized an impairment loss of $4,901,360,000 for the three months ended September 30, 2013. Compal Electronics Inc. has prepared the annual parent company only financial reports as of and for the years ended December 31, 2014 and 2013, to which we have issued a modified unqualified opinion. February 26, 2015 The accompanying financial reports are presented to reflect financial positions, business performance, and cash flows in accordance with International Financial Reporting Standards, International Accounting Standards and interpretations thereof endorsed by the Financial Supervisory Commissions of the Republic of China, and not those of any other jurisdictions. The standards, procedures and practices adopted during the auditing of such financial reports have been generally accepted and applied in the Republic of China. The auditors’ report and the accompanying financial reports are English translations of the Chinese version, which have been prepared for and used in the Republic of China. Should any conflict or difference arise with regards to the interpretation between the English and Chinese versions of the auditors’ report and financial reports, the Chinese version shall prevail. COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Balance Sheets December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Assets Current assets: Cash and cash equivalents Current financial assets at fair value through profit or loss Current available-for-sale financial assets Current bond investment without active market Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Inventories, net Non-current assets classified as held for sale Other current assets Non-current assets: Investments accounted for using equity method Non-current available-for-sale financial assets Non-current financial assets at cost Non-current bond investment without active market Property, plant and equipment Intangible assets Deferred tax assets Long-term prepaid rents Other non-current assets Total assets December 31, 2014 Amount December 31, 2013 Amount $ 74,708,130 19.7 46,965,852 14.0 184,093 44,538 350,000 178,552,207 343,030 788,334 67,270,875 - 2,604,042 324,845,249 11,694,855 12,402,009 83,202 1,400,000 24,472,732 1,035,162 1,653,141 735,246 429,122 53,905,469 $ 378,750,718 - - 0.1 47.2 0.1 0.2 17.8 - 0.7 85.8 3.1 3.3 - 0.4 6.4 0.3 0.4 0.2 0.1 14.2 100.0 83,772 80,275 1,745,000 183,481,024 - - 0.5 54.6 214,854 830,638 51,219,127 1,000,000 1,760,278 287,380,820 0.1 0.3 15.2 0.3 0.5 85.5 9,301,877 14,695,637 6,588 2.8 4.4 - - 21,209,228 1,293,643 1,174,203 707,261 333,557 48,721,994 336,102,814 - 6.3 0.4 0.3 0.2 0.1 14.5 100.0 Current liabilities: Liabilities and equity Short-term borrowings Current financial liabilities at fair value through profit or loss Notes and accounts payable Notes and accounts payable to related parties Other payables Current tax liabilities Current provisions Other current liabilities Unearned revenue Long-term borrowings, current portion Non-current liabilities: Long-term borrowings Deferred tax liabilities Accrued pension liabilities Other non-current liabilities Total liabilities Equity attributable to parent company shareholders: Ordinary shares Capital reserves Retained earnings Other equity items Treasury stock Non-controlling interests Total equity Total liabilities and equity December 31, 2014 Amount % December 31, 2013 Amount % $ 46,692,373 12.3 51,971,767 15.5 39,310 170,739,133 1,167,152 18,216,304 2,180,985 2,066,581 3,233,431 2,294,765 3,634,233 250,264,267 20,504,301 1,136,411 674,794 163,793 22,479,299 272,743,566 - 45.1 0.3 4.8 0.6 0.5 0.9 0.6 1.0 66.1 5.4 0.3 0.2 - 5.9 72.0 11,382 143,514,698 1,944,703 15,601,065 1,006,058 1,675,765 2,559,650 1,889,019 423,154 220,597,261 14,107,367 678,587 658,410 98,917 15,543,281 236,140,542 - 42.7 0.6 4.6 0.3 0.5 0.8 0.6 0.1 65.7 4.2 0.2 0.2 - 4.6 70.3 44,232,366 14,296,445 47,509,087 (3,139,021) (1,724,739) 101,174,138 4,833,014 106,007,152 $ 378,750,718 11.7 3.8 12.5 (0.8) (0.5) 26.7 1.3 28.0 100.0 44,134,467 16,193,087 44,260,834 (7,707,518) (2,007,725) 94,873,145 5,089,127 99,962,272 336,102,814 13.1 4.8 13.2 (2.3) (0.6) 28.2 1.5 29.7 100.0 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Comprehensive Income For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars, except net income per share amounts) 2014 2013 Amount % Amount % Net sales revenue Cost of sales Gross profit Operating expenses: Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses Finance costs Other income Miscellaneous disbursements Impairment loss Share of profit (loss) from associates and joint ventures accounted using equity method Total non-operating income and expenses Profit before tax Less: tax expense Profit Other comprehensive income: Other comprehensive income, before tax, exchange differences on translation Other comprehensive income, before tax, available-for-sale financial assets Other comprehensive income, before tax, actuarial gains (losses) on defined benefit plans Share of other comprehensive income of associates and joint ventures accounted for using equity method Less: income tax relating to components of other comprehensive income Other comprehensive income, net Comprehensive income Profit, attributable to: Profit, attributable to parent company shareholders Profit, attributable to non-controlling interests Comprehensive income attributable to: Comprehensive income, attributable to parent company shareholders Comprehensive income, attributable to non-controlling interests $ 845,700,752 100.0 813,336,090 96.2 32,364,662 3.8 $ 692,748,293 100.0 664,637,902 95.9 28,110,391 4.1 3,746,315 0.4 4,832,771 0.6 12,111,034 1.4 20,690,120 2.4 11,674,542 1.4 3,271,332 0.5 4,294,551 0.6 11,310,464 1.7 18,876,347 2.8 9,234,044 1.3 1,119,338 0.1 (1,019,504) (0.1) 1,800,129 0.2 (37,566) - (4,777,920) (0.5) 977,953 0.1 (1,937,570) (0.2) 9,736,972 1.2 2,181,971 0.3 7,555,001 0.9 179,651 (493,642) (0.1) 1,468,093 0.2 - (10,291) - (4,909,772) (0.7) (0.1) (1,107,701) (4,873,662) (0.7) 4,360,382 0.6 1,456,650 0.2 2,903,732 0.4 2,882,064 1,667,628 0.2 0.3 0.2 1,113,347 (765,150) (0.1) (35,349) - 651 - 80,992 33,097 4,562,238 0.5 $ 12,117,239 1.4 - - $ - 391,438 - 28,988 711,298 0.1 3,615,030 0.5 $ $ 7,034,081 0.8 $ 520,920 0.1 7,555,001 0.9 $ 2,467,211 0.3 436,521 0.1 2,903,732 0.4 $ 11,564,839 1.4 552,400 $ 12,117,239 1.4 - $ $ 3,160,663 0.4 454,367 0.1 3,615,030 0.5 0.57 0.57 Earnings per share: Basic net income per share Diluted net income per share $ $ 1.63 1.61 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Changes in Equity For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Retained earnings Equity attributable to parent company shareholders Other equity items Exchange differences on translation Unrealized gains (losses) on Total Ordinary shares Capital surplus Legal reserve Special Unappropriated reserve retained earnings earnings retained of foreign financial available-for-sale Total other statements financial assets equity interest Treasury shares Total equity Non controlling interests Total equity Balance on January 1, 2013 Appropriation and distribution of retained earnings: Legal reserve appropriated Special reserve appropriated Cash dividends on ordinary shares Buyback of treasury stock Difference between consideration and carrying amount of subsidiaries acquired or disposed Change in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Issuance of shares for exercised employee warrants Adjustments of capital surplus for the Company’s cash dividends received by subsidiaries Changes in non-controlling interests Profit for the year ended December 31, 2013 Other comprehensive income Comprehensive income Balance on January 1, 2014 Appropriation and distribution of retained earnings: Legal reserve appropriated Reversal of special reserve Cash dividends on ordinary shares Cash dividends from capital surplus Difference between consideration and carrying amount of subsidiaries acquired or disposed Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payment Issuance of shares for exercised employee warrants Adjustments of capital surplus for the Company’s cash dividends received by subsidiaries Changes in non-controlling interests Profit for the year ended December 31, 2014 Other comprehensive income Comprehensive income Balance on December 31, 2014 $ 44,126,526 16,122,810 14,980,079 8,713,018 31,360,844 55,053,941 (3,134,266) (5,248,131) (8,382,397) (881,247) 106,039,633 8,753,637 114,793,270 - - - - - - - - - 641,103 - - 105,707 - - - - (641,103) (105,707) - - (4,384,186) (4,384,186) - - - - - - - - - - - - - - - - (1,126,478) - - - (4,384,186) (1,126,478) - - - - - - (4,384,186) (1,126,478) - 22,330 - - (8,826,585) (52,290) (8,826,585) (52,290) (11,538) (96) (11,634) - (8,838,219) (29,960) (4,153,317) (12,991,536) (29,960) - 7,941 (10,754) 8,338 - - - - (4,196) - (4,196) - - - - - 50,363 - - - 44,134,467 16,193,087 15,621,182 8,818,725 - - - - - - $ 44,134,467 16,193,087 15,621,182 8,818,725 - - - - - - - - - - 17,346,777 2,467,211 6,939 2,474,150 19,820,927 - - 41,786,684 2,467,211 6,939 2,474,150 44,260,834 - - (3,145,804) - 1,299,130 1,299,130 (1,846,674) - - - - - - - (2,177,668) 246,721 - - (1,111,207) - - - - - (246,721) - 1,111,207 (2,177,668) (2,177,668) - - - - 3,492 (3,720) - - - - (1,575,776) (1,575,776) (1,495) (1,495) - - 97,899 24,056 109,389 97,818 - - - - - - - - - - - - - - - - 6,763 - - - - - - - - (5,248,227) - (612,617) (612,617) (5,860,844) - - - - 87 - - - - - - - - (14,950) 16,279 - - (14,950) 16,279 - - - - 50,363 - (8,394,031) (2,007,725) 91,712,482 2,467,211 693,452 3,160,663 (7,707,518) (2,007,725) 94,873,145 - 686,513 686,513 - - - - 34,440 4,634,760 436,521 17,846 454,367 5,089,127 50,363 34,440 96,347,242 2,903,732 711,298 3,615,030 99,962,272 - - - - 6,850 - - - - - - - - - (2,177,668) (2,177,668) - - - - - - (2,177,668) (2,177,668) (1,565,434) (5,215) (630,432) - (2,195,866) (5,215) - - 282,986 - - - 24,056 392,375 195,717 - - - 24,056 392,375 195,717 - - - - 49,991 - - - 44,232,366 14,296,445 15,867,903 7,707,518 - - - - - - $ 44,232,366 14,296,445 15,867,903 7,707,518 - - - - - - - - 16,930,474 7,034,081 (30,889) 7,003,192 23,933,666 - - 40,505,895 7,034,081 (30,889) 7,003,192 47,509,087 - - (1,839,911) - 3,018,218 3,018,218 1,178,307 - - (5,860,757) - 1,543,429 1,543,429 (4,317,328) - - - - 49,991 - (7,700,668) (1,724,739) 89,609,299 7,034,081 4,530,758 11,564,839 (3,139,021) (1,724,739) 101,174,138 - 4,561,647 4,561,647 - - - - (178,081) 4,280,614 520,920 31,480 552,400 4,833,014 49,991 (178,081) 93,889,913 7,555,001 4,562,238 12,117,239 106,007,152 COMPAL ELECTRONICS, INC. AND SUBSIDIARIES Consolidated Statements of Cash Flows For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Depreciation and amortization Increase (decrease) in allowances for uncollectible accounts and allowance for sales returns and discounts Interest expense Interest income Dividend income Compensation cost of employee warrants Share of loss (profit) of associates and joint ventures accounted for using equity method Gain on disposal of property, plant and equipment Gain on disposal of investments Impairment loss on financial assets Long-term prepaid rents Adjustments to reconcile profit Changes in working capital assets and liabilities: Changes in working capital assets: Changes in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in other receivable Decrease (increase) in inventories Decrease (increase) in other current assets Decrease (increase) in other non-current liabilities Total changes in operating assets Changes in operating liabilities: Changes in financial liabilities at fair value through profit or loss Increase (decrease) in notes and accounts payable Increase (decrease) in other payable Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in other current liabilities Other Total changes in working capital liabilities Total changes in working capital assets and liabilities Total adjustments Cash flows from (used in) operations Interest received Dividends received Interest paid Income taxes paid Net Cash flows from (used in) operating activities Cash flows from (used in) investing activities: Acquisition of investments accounted for using equity method, available-for-sale financial assets, bond investment without active market and financial assets at cost Increase in non-current assets classified as held for sale Proceeds from disposal of investments accounted for using equity method and available-for-sale financial assets Net cash flow from acquisition of subsidiaries Proceeds from reduction of investments Acquisition of property, plant and equipment Proceeds from disposal of property, plant and equipment Acquisition of intangible assets Increase in prepayments for business facilities Other Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term loans Proceeds from long-term debt 2014 2013 $ 9,736,972 4,360,382 6,036,864 5,555,712 (10,582) 1,019,504 (1,023,736) (208,983) 168,012 (977,953) (46,226) (18,348) 4,777,920 16,690 9,733,162 (100,321) 9,337,791 108,584 (16,026,011) (798,821) (98,042) (7,576,820) 27,928 20,156,529 1,172,834 390,816 405,746 453,269 (40,107) 22,567,015 14,990,195 24,723,357 34,460,329 975,307 284,335 (946,545) (975,202) 33,798,224 (1,285,377) - 183,002 2,159,000 68,599 (6,565,882) 145,932 (396,954) (15,332) 17,809 (5,689,203) 8,825 493,642 (628,457) (179,601) 44,561 1,107,701 (246,995) (626,458) 4,909,772 16,222 10,454,924 (2,386) (22,772,559) (158,572) 506,056 (226,654) 77,947 (22,576,168) (28,581) 6,316,271 3,327,186 (263,237) 191,507 30,547 11,873 9,585,566 (12,990,602) (2,535,678) 1,824,704 616,057 204,926 (444,699) (1,651,406) 549,582 (1,101,629) (4,052,535) 916,950 (24,102) 80,427 (5,677,308) 942,031 (481,451) 15,370 89,335 (9,292,912) (5,315,160) 10,271,167 15,437,974 13,932,534 Repayments of long-term debt Cash dividends paid Exercise of employee warrants Payments to acquire treasury shares Treasury shares transferred to employees Acquisition of non-controlling interests Disposal of ownership interests in subsidiaries (without losing control) Changes in non-controlling interests Other Net cash flows from (used in) financing activities Effect of exchange rate changes on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (663,154) (4,305,345) 195,717 - 282,125 (2,304,824) 98,938 (230,546) 58,941 (1,912,141) 1,545,398 27,742,278 46,965,852 74,708,130 - (4,333,823) 16,279 (1,126,478) - (13,171,986) 141,517 88,538 16,341 11,000,896 553,704 2,811,270 44,154,582 46,965,852 $ Attachment II To the Board of Directors Compal Electronics, Inc.: Independent Auditors’ Report We have audited the accompanying balance sheets of Compal Electronics, Inc. as of December 31, 2014 and 2013, and the statements of comprehensive income, changes in equity, and cash flows for the years ended December 31, 2014 and 2013. These annual parent company only financial reports are the responsibility of the Company’s management. Our responsibility is to express an opinion on these annual parent company only financial reports based on our audits. We conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants” in the Republic of China and generally accepted auditing standards. Those standards and regulations require that we plan and perform the audit to obtain reasonable assurance about whether the annual parent company only financial reports are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the annual parent company only financial reports. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the annual parent company only financial reports. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the annual parent company only financial reports referred to above present fairly, in all material respects, the financial position of Compal Electronics, Inc. as of December 31, 2014 and 2013, and the results of its operations and its cash flows for the years ended December 31, 2014 and 2013, in conformity with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers. As stated in note of the annual parent company only financial reports, Compal Electronics, Inc. recognized both the impairment loss of $1,689,000,000 on the equity investment in Chunghwa Picture Tubes, Ltd. and the related share of loss of associates and joint ventures accounted for using equity method of 3,041,000,000 for the three months ended March 31, 2014. As stated in note of the annual parent company only financial reports, Compal Electronics, Inc. reclassified the investment of VIBO Telecom Inc. from investments accounted for using equity method to non-current assets classified as held for sale, and recognized both the impairment loss of $4,849,469,000 and the related share of loss of associates and joint ventures accounted for using equity method of $51,891,000 for the three months ended September 30, 2013. February 26, 2015 The accompanying financial reports are intended only to present the financial position, results of operations, and cash flows in accordance with the Guidelines Governing the Preparation of Financial Reports by Securities Issuers and not those of any other jurisdictions. The standards, procedures and practices to audit such financial reports are those generally accepted and applied in the Republic of China. The auditors’ report and the accompanying financial reports are the English translation of the Chinese version prepared and used in the Republic of China. If there is any conflict between, or any difference in the interpretation of, the English and Chinese language versions of the auditors’ report and financial reports, the Chinese version shall prevail. COMPAL ELECTRONICS, INC. Balance Sheets December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Assets Current assets: December 31, 2014 % Amount December 31, 2013 % Amount $ 43,095,497 12.5 10,165,739 3.4 Cash and cash equivalents Current financial assets at fair value through profit or loss Current available-for-sale financial assets Current bond investment without active market Notes and accounts receivable, net Notes and accounts receivable due from related parties, net Other receivables Inventories, net Non-current assets classified as held for sale Other current assets 114,111 44,538 - - 73,918 - - - 350,000 0.1 166,442,177 48.5 1,745,000 0.6 169,572,297 57.3 3,085,099 427,096 0.9 0.1 41,528,853 12.1 - 522,183 - 0.2 255,609,554 74.4 1,049,255 0.4 0.1 315,756 8.9 26,383,631 0.3 1,000,000 0.1 340,997 210,646,593 71.1 Non-current assets: Investments accounted for using equity method Non-current available-for-sale financial assets Non-current financial assets at cost Non-current bond investment without active market Property, plant and equipment Intangible assets Deferred tax assets Other non-current assets Total assets 73,585,998 21.4 73,667,974 24.9 8,735,528 6,588 2.6 - 8,202,426 - 2.8 - 1,400,000 2,230,023 412,185 1,336,919 114,320 0.4 0.7 0.1 0.4 - 87,821,561 25.6 $ 343,431,115 100.0 - 2,218,316 617,739 812,578 45,547 85,564,580 28.9 296,211,173 100.0 - 0.7 0.2 0.3 - Liabilities and equity Current liabilities: Short-term borrowings Notes and accounts payable Notes and accounts payable to related parties Other payables Current tax liabilities Current provisions Other current liabilities Unearned revenue Long-term borrowings, current portion Non-current liabilities: Long-term borrowings Deferred tax liabilities Accrued pension liabilities Other non-current liabilities Total liabilities Equity attributable to owners of parent: Ordinary shares Capital surplus Retained earnings Other equity interest Treasury shares Total equity December 31, 2014 % Amount December 31, 2013 % Amount $ 28,667,700 101,637,875 8.3 29.6 32,516,060 11.0 83,711,567 28.3 74,153,547 8,133,574 583,444 1,676,185 645,522 2,293,685 3,000,000 220,791,532 21.6 2.4 0.2 0.5 0.2 0.6 0.9 64.3 61,276,719 20.7 2.1 0.1 0.4 0.1 0.6 - 6,345,726 237,778 1,296,188 352,710 1,837,886 - 187,574,634 63.3 19,660,000 1,117,063 611,915 76,467 21,465,445 242,256,977 5.7 0.3 0.2 - 6.2 70.5 4.4 12,800,000 0.1 360,282 0.2 546,534 - 56,578 13,763,394 4.7 201,338,028 68.0 44,232,366 14,296,445 47,509,087 (3,139,021) (1,724,739) 101,174,138 12.9 4.2 13.8 (0.9) (0.5) 29.5 44,134,467 14.9 16,193,087 5.5 44,260,834 14.9 (2.6) (0.7) 94,873,145 32.0 (7,707,518) (2,007,725) Total liabilities and equity $ 343,431,115 100.0 296,211,173 100.0 COMPAL ELECTRONICS, INC. Statements of Comprehensive Income For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars, except net income per share amounts) Net sales revenue Cost of sales Gross profit Less: Unrealized profit from sales Gross profit Operating expenses: Selling expenses Administrative expenses Research and development expenses Net operating income Non-operating income and expenses: Other gains and losses Finance costs Other income Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Impairment loss Total non-operating income and expenses Profit before tax Less: tax expense Profit Other comprehensive income: Other comprehensive income, before tax, exchange differences on translation Other comprehensive income, before tax, available-for-sale financial assets Other comprehensive income, before tax, actuarial gains (losses) on defined benefit plans Share of other comprehensive income of subsidiaries, associates and joint ventures accounted for using equity method Less: income tax relating to components of other comprehensive income Other comprehensive income, net Comprehensive income Earnings per share: Basic net income per share Diluted net income per share 2014 2013 Amount % Amount % $ 803,504,061 782,209,491 21,294,570 5,657 21,288,913 100.0 97.4 2.6 - 2.6 632,622,772 616,263,087 16,359,685 445 16,359,240 100.0 97.4 2.6 - 2.6 2,260,919 2,553,669 9,172,949 13,987,537 7,301,376 0.3 0.3 1.1 1.7 0.9 1,919,880 1,929,551 7,004,155 10,853,586 5,505,654 0.3 0.3 1.1 1.7 0.9 0.1 951,688 (515,563) (0.1) 751,602 790,247 0.1 0.1 - - 101,743 (119,435) 700,636 1,663,349 0.1 0.3 (1,691,121) (0.2) 286,853 7,588,229 554,148 7,034,081 - 0.9 - 0.9 (4,849,469) (0.8) (2,503,176) (0.4) 0.5 3,002,478 0.1 535,267 0.4 2,467,211 2,903,749 1,391,202 0.3 0.2 1,051,125 0.2 (756,535) (0.1) (36,868) 269,244 (3,431) - - - 4,530,758 $ 11,564,839 0.5 1.4 $ $ 1.63 1.61 14,303 373,878 (10,681) 693,452 3,160,663 0.1 0.5 - - - 0.57 0.57 COMPAL ELECTRONICS, INC. Statements of Changes in Equity For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Retained earnings Other equity interest Exchange differences on translation Unrealized gains (losses) on Total Ordinary shares Capital surplus Legal reserve Special reserve Unappropriated retained earnings retained of foreign financial available-for-sale Total other earnings statements financial assets equity interest Treasury shares Total equity $ 44,126,526 16,122,810 14,980,079 8,713,018 31,360,844 55,053,941 (3,134,266) (5,248,131) (8,382,397) (881,247) 106,039,633 Balance on January 1, 2013 Appropriation and distribution of retained earnings (note 1): Legal reserve appropriated Special reserve appropriated Cash dividends of ordinary share Purchase of treasury share Difference between consideration and carrying amount of subsidiaries acquired or disposed Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Issuance of shares for employee share options exercised Adjustments of capital surplus for the Company’s cash dividends received by subsidiaries Profit for the year ended December 31, 2013 Other comprehensive income Comprehensive income Balance on January 1, 2014 Appropriation and distribution of retained earnings (note 2): Legal reserve appropriated Reversal of special reserve Cash dividends of ordinary share Cash dividends from capital surplus Difference between consideration and carrying amount of subsidiaries acquired or disposed Changes in ownership interests in subsidiaries Changes in equity of associates and joint ventures accounted for using equity method Share-based payment transaction Issuance of shares for employee share options exercised Adjustments of capital surplus for the Company’s cash dividends received by subsidiaries Profit for the year ended December 31, 2014 Other comprehensive income Comprehensive income Balance on December 31, 2014 - - - - - - - 7,941 - 44,134,467 - - - $ 44,134,467 - - - - - - - - 97,899 - 44,232,366 - - - $ 44,232,366 - - - - - 22,330 (10,754) 8,338 641,103 - - - - 105,707 - - - - - - - - - - (641,103) (105,707) - - (4,384,186) (4,384,186) - - - - - - (8,826,585) (8,826,585) (52,290) (52,290) (11,538) - (4,196) - (4,196) - - - - - - - (96) - - - - - - - - - - (1,126,478) (11,634) - - - - - - - - - (4,384,186) (1,126,478) (8,838,219) (29,960) (14,950) 16,279 50,363 16,193,087 - - - 16,193,087 - - 15,621,182 8,818,725 - - - 15,621,182 8,818,725 - - - - 17,346,777 2,467,211 6,939 2,474,150 19,820,927 - 41,786,684 2,467,211 6,939 2,474,150 44,260,834 - (3,145,804) - 1,299,130 1,299,130 (1,846,674) - (5,248,227) - (612,617) (612,617) (5,860,844) - - (8,394,031) (2,007,725) - - - - (7,707,518) (2,007,725) 686,513 686,513 50,363 91,712,482 2,467,211 693,452 3,160,663 94,873,145 - - - (2,177,668) 246,721 - - (1,111,207) - - - - - (246,721) 1,111,207 - (2,177,668) (2,177,668) - - 3,492 (3,720) 24,056 109,389 97,818 - - - - - - - - - - 49,991 14,296,445 - - - 14,296,445 - - 15,867,903 7,707,518 - - - 15,867,903 7,707,518 - - - (1,575,776) (1,575,776) (1,495) (1,495) - - - - - - - - 16,930,474 7,034,081 40,505,895 7,034,081 (30,889) 7,003,192 47,509,087 (30,889) 7,003,192 23,933,666 - - - - 6,763 - - - - - - - - 87 - - - - - - - - 6,850 - - - - - - - - - - - 282,986 - - - (2,177,668) (2,177,668) (1,565,434) (5,215) 24,056 392,375 195,717 - (1,839,911) - 3,018,218 3,018,218 1,178,307 - (5,860,757) - 1,543,429 1,543,429 (4,317,328) - - (7,700,668) (1,724,739) - - - - (3,139,021) (1,724,739) 4,561,647 4,561,647 49,991 89,609,299 7,034,081 4,530,758 11,564,839 101,174,138 Note 1: Directors’ and supervisors’ remuneration amounting to $56,545 and employee bonuses amounting to $816,440 were recognized in the 2012 statement of comprehensive income. Note 2: Directors’ and supervisors’ remuneration amounting to $21,761 and employee bonuses amounting to $314,199 were recognized in the 2013 statement of comprehensive income. COMPAL ELECTRONICS, INC. Statements of Cash Flows For the years ended December 31, 2014 and 2013 (expressed in thousands of New Taiwan dollars) Cash flows from (used in) operating activities: Profit before tax Adjustments: Depreciation and amortization Increase in allowances for uncollectible accounts Interest expense Interest income Dividends income Compensation cost of employee share options Share of profit of subsidiaries, associates and joint ventures accounted for using equity method Loss (gain) on disposal of investments Impairment loss on financial assets Adjustments to reconcile profit Changes in operating assets and liabilities: Changes in operating assets: Changes in financial assets at fair value through profit or loss Decrease (increase) in notes and accounts receivable Decrease (increase) in inventories Decrease (increase) in other current assets Decrease (increase) in other receivable Total changes in operating assets Changes in operating liabilities: Increase (decrease) in notes and accounts payable Increase (decrease) in other payable Increase (decrease) in provisions Increase (decrease) in unearned revenue Increase (decrease) in other current liabilities Other Total changes in operating liabilities Total changes in operating assets and liabilities Total adjustments Cash flows from (used in) operations Interest received Dividends received Interest paid Income taxes paid Net cash flows from (used in) operating activities Cash flows from (used in) investing activities: Acquisition of investments accounted for using equity method, available-for-sale financial assets and bond investment without active market Increase in non-current assets classified as held for sale Proceeds from disposal of investments accounted for using equity method and available-for sale financing assets Net cash outflows resulted from business combination Proceeds from capital reduction and liquidation of investments Acquisition of property, plant and equipment Decrease (increase) in other receivable due from related parties Acquisition of intangible assets Other Net cash flows from (used in) investing activities Cash flows from (used in) financing activities: Increase (decrease) in short-term borrowings Proceeds from long-term borrowings Repayments of long-term borrowings 2014 2013 $ 7,588,229 3,002,478 855,418 7,381 515,563 (158,627) (147,794) 110,250 (790,247) 46,381 1,691,121 2,129,446 680,171 26,911 119,435 (139,114) (127,910) - (1,663,349) (633,911) 4,849,469 3,111,702 (40,193) 10,794,135 (11,096,332) (124,932) 506,306 38,984 6,467 (23,942,137) 1,918,981 (68,961) (25,986) (22,111,636) 23,378,885 (926,097) 271,965 410,956 231,895 38,383 23,405,987 23,444,971 25,574,417 33,162,646 168,543 750,407 (489,520) (184,371) 33,407,705 2,354,092 2,288,893 (359,491) 178,840 43,641 43,371 4,549,346 (17,562,290) (14,450,588) (11,448,110) 147,615 1,208,090 (93,112) (788,787) (10,974,304) (1,421,025) - (17,311,303) (4,052,535) 195,597 (534,954) 65,776 (110,730) 373,037 (307,808) 16,407 (1,723,700) 912,601 - 215,323 (102,493) 292,066 (394,213) 8,634 (20,431,920) (4,736,756) 10,100,000 (240,000) 15,944,540 12,800,000 - Cash dividends paid Exercise of employee share options Payments to acquire treasury shares Treasury shares convert to employee Other Net cash flows from (used in) financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period (4,355,336) 195,717 - 282,125 3 1,245,753 32,929,758 10,165,739 $ 43,095,497 (4,384,186) 16,279 (1,126,478) - (246) 23,249,909 (8,156,315) 18,322,054 10,165,739  Compal Electronics, Inc. Chairman: Sheng-Hsiun Hsu (Rock Hsu) Chief Executive Officer (CEO): Jui-Tsung Chen (Ray Chen) 

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