HTC 2015 Annual Report Download - page 136

Financial information
Financial information
268
269
The Company provides warranty service for its customers.
The warranty period varies by product and is generally one
year to two years. The warranties are estimated on the basis
of evaluation of the products under warranty, historical
warranty trends, and pertinent factors.
The provision for contingent loss on purchase orders is
estimated after taking into account the effects of changes
in the product market, evaluating the foregoing effects
on inventory management and adjusting the Company's
purchases.
23. RETIREMENT BENEFIT PLANS
Defined Contribution Plans
The pension plan under the Labor Pension Act (the “LPA”)
is a defined contribution plan. Based on the LPA, HTC,
Communication Global Certification Inc. (“CGC”) and Yoda
Co., Ltd. (“Yoda”) make monthly contributions to employees'
individual pension accounts at 6% of monthly salaries and
wages.
The Company has defined contribution retirement benefit
plans for all qualified employees of HTC, CGC and Yoda in
Taiwan. Besides, the employees of the Company's subsidiary
are members of a state-managed retirement benefit plan
operated by local government. The subsidiary is required to
contribute amounts calculated at a specified percentage of
payroll costs to the retirement benefit scheme to fund the
benefits. The only obligation of the Company with respect
to the retirement benefit plan is to make the specified
contributions to the fund.
The total expenses recognized in the consolidated statement
of comprehensive income were NT$623,742 thousand and
NT$787,960 thousand, representing the contributions
payable to these plans by the Company at the rates specified
in the plans for the years ended December 31, 2015 and 2014,
respectively. As of December 31, 2015 and 2014, the amounts
of contributions payable were NT$88,942 thousand and
NT$98,605 thousand, respectively, the amounts were paid
subsequent to the end of the reporting period.
Defined Benefit Plans
The defined benefit plan adopted by HTC and CGC in
accordance with the Labor Standards Law is operated by the
government. Pension benefits are calculated on the basis
of the length of service and average monthly salaries of the
six months before retirement. HTC and CGC contribute
amounts equal to 2% of total monthly salaries and wages to a
pension fund administered by the pension fund monitoring
committee. Pension contributions are deposited in the Bank
of Taiwan in the committee's name. Before the end of each
year, the Group assesses the balance in the pension fund. If
the amount of the balance in the pension fund is inadequate
to pay retirement benefits for employees who conform
to retirement requirements in the next year, the Group is
required to fund the difference in one appropriation that
should be made before the end of March of the next year.
The pension fund is managed by the Bureau of Labor Funds,
Ministry of Labor (“the Bureau”); the Group has no right to
influence the investment policy and strategy.
The amounts included in the consolidated balance sheets in
respect of the obligation on HTC and CGC under the defined
benefit plans were as follows:
December 31
2015 2014
Present value of defined
benefit obligation
Fair value of plan assets
$( 474,875)
554,345
$(443,642)
552,780
Net defined benefit asset $ 79,470 $ 109,138
Movements in net defined benefit asset were as follows:
Present Value of Defined
Benefit Obligation
Fair Value of
Plan Assets
Net Defined
Benefit Asset
Balance at January 1, 2014 $( 413,220) $538,935 $ 125,715
Current service cost ( 9,864) - ( 9,864)
Net interest (expense) income ( 7,744) 11,017 3,273
Recognized in profit or loss ( 17,608) 11,017 ( 6,591)
Remeasurement
Return on plan assets - 1,416 1,416
Actuarial loss - changes in demographic assumptions ( 3,287) - ( 3,287)
Present Value of Defined
Benefit Obligation
Fair Value of
Plan Assets
Net Defined
Benefit Asset
Actuarial gain - changes in financial assumptions $ 7,991 $ - $ 7,991
Actuarial loss - experience adjustments ( 39,466) - ( 39,466)
Recognized in other comprehensive income ( 34,762) 1,416 ( 33,346)
Contributions from the employer - 23,360 23,360
Benefits paid 21,948 ( 21,948) -
Balance at December 31, 2014 ( 443,642) 552,780 109,138
Current service cost ( 8,017) - ( 8,017)
Net interest (expense) income ( 8,865) 11,287 2,422
Recognized in profit or loss ( 16,882) 11,287 ( 5,595)
Remeasurement
Return on plan assets - 3,761 3,761
Actuarial loss - changes in demographic assumptions ( 33,851) - ( 33,851)
Actuarial loss - changes in financial assumptions ( 16,259) - ( 16,259)
Actuarial loss - experience adjustments ( 1,868) - ( 1,868)
Recognized in other comprehensive income ( 51,978) 3,761 ( 48,217)
Contributions from the employer - 24,144 24,144
Benefits paid 37,628 ( 37,628) -
Balance at December 31, 2015 $( 474,875) $ 554,345 $ 79,470
(Concluded)
An analysis by function of the amounts recognized in profit
or loss in respect of the defined benefit plans was as follows:
December 31
2015 2014
Operating costs $ 1,124 $ 1,518
Selling and marketing expenses 458 563
General and administrative expenses 622 731
Research and development expenses 3,391 3,779
$5,595 $6,591
Through the defined benefit plans under the Labor
Standards Law, the Group is exposed to the following risks:
a. Investment risk: The plan assets are invested in
domestic/and foreign/equity and debt securities,
bank deposits, etc. The investment is conducted at
the discretion of the Bureau or under the mandated
management. However, in accordance with relevant
regulations, the return generated by plan assets should
not be below the interest rate for a 2-year time deposit
with local banks.
b. Interest risk: A decrease in the government/corporate
bond interest rate will increase the present value of the
defined benefit obligation; however, this will be partially
offset by an increase in the return on the plan's debt
investments.
c. Salary risk: The present value of the defined benefit
obligation is calculated by reference to the future
salaries of plan participants. As such, an increase in the
salary of the plan participants will increase the present
value of the defined benefit obligation.
The actuarial valuations of the present value of the defined
benefit obligation were carried out by qualified actuaries.
The significant assumptions used for the purposes of the
actuarial valuations were as follows:
December 31
2015 2014
Discount rates
Expected rates of salary
increase
Mortality rates
Turnover rates
1.375%-1.750%
2.250%-4.000%
0.025%-1.640%
0.000%-30.00%
1.625%- 2.000%
2.250%- 4.000%
0.025%-1.640%
0.000%-32.00%
If possible reasonable change in each of the significant
actuarial assumptions will occur and all other assumptions
(Continued)