Annual Report of 2018 · Caprolactam (CPL), Nylon Chips 374,390 355,680 379,708 365,260 (5,318) (1%) (9,580) (3%) The decrease of Caprolactam (CPL) production and sales was mainly

Stock Code: 1314

CPDC CHINA PETROCHEMICAL DEVELOPMENT CORPORATION

Annual Report of 2018

Published in 2019/05/14

The annual report information can be found at the following address: 1. http://mops.twse.com.tw (MOPS) 2. http://www.cpdc.com.tw (Website of China Petrochemical Development Corporation)

CP

DC

Annual R

eport of 2018

Report to shareholders

I Company spokesman and deputy spokesman:

Speaker Deputy Speaker Deputy Speaker

Name: Chen Yingjun Huang Guocai Zou Xudong

Job: Assistant Vice President Vice President Assistant Vice President

Phone: (02) 8787-8187

Extension 8370 ext. 1022 ext. 8322

e-mail: [email protected]

II Company and Plant address and Tel. Nos:

Name Location Tel. No.

Taipei Office 11F., No. 12, Dongxing Rd., Songshan Dist., Taipei City

(02)8787-8187

Toufen Plant No. 217, Sec. 2, Ziqiang Rd., Toufen City, Miaoli County

(037)623-381

Dashe Plant No. 1, Jingjian Rd., Dashe Dist., Kaohsiung City (Head office)

(07)351-3521

Xiaogang Plant No. 34, Zhonglin Rd., Xiaogang Dist., Kaohsiung City

(07)871-1161

III Shares Registrar:

Name :CPDC stock Office

Address: 3F., No. 12, Dongxing Rd., Songshan Dist., Taipei City

Tel. No.: (02)8978-2589

Website ：http://www.cpdc.com.tw

IV External Auditors in the most recent year

Accountant Name: Melody Chen, Chung Dan-Dan

Firm Name: KPMG Certified Public Accountants

Address: 68F., No. 7, Sec. 5, Xinyi Rd., Xinyi Dist., Taipei City

Tel. No.: (02)8101-6666

Websitehttp://www.kpmg.com.tw

V Query the name and inquiry method of the listed trading institution for overseas securities

trading: None.

VI. The Company Website: http://www.cpdc.com.tw

One. Message to Shareholders .......................................................................................................... 1

Two. Introduction to Company

I. The Date of Establishment ....................................................................................................... 7 II. The Company History ............................................................................................................ 7

Three. Report on Corporate Governance

I.Organizational System .............................................................................................................. 9 II. Director, supervisor, general manager, deputy general manager, associate, department and branch directors ................................................................................................. 13 III. Status of Corporate Governance ........................................................................................... 28 IV. Information About CPA Professional Fee ............................................................................. 75 V. Replacement of Accountant Information ................................................................................ 76 VI. The chairman of the company, the general manager and the manager responsible for

financial or accounting affairs, in the last year has not served in the visa accounting firm or its relationship with the enterprise information ....................................................... 76

VII. Changes in equity transfer and equity pledge of directors, supervisors, managers and shareholders with a shareholding ratio of more than 10% in the most recent year and as of the published date of the annual report ........................................................ 76

VIII. The shareholding ratio of the top 10 shareholders, its relationship with the other data ...................................................................................................................................... 83

IX. Ratio of Combined Shareholding ......................................................................................... 85

Four. Status of Fund Raising

I. Capital Stock and Shares ......................................................................................................... 86 II. The company's debt handling situation ................................................................................. 93 III. The Special unit processing situation ................................................................................. 95 IV. The overseas depository voucher processing situation ......................................................... 95 V. Employee recognition certificate processing situation .......................................................... 95 VI. Restrict the employee's rights new stock processing situation ............................................ 95 VII. Merger or acquisition or transfer of shares of the company to issue new shares ................ 95 VIII. Implementation of the funds utilization plan ..................................................................... 95

Five. Operating Overview

I. Business Contents .................................................................................................................... 96 II. Market and Sales Overview ................................................................................................... 104 III. Employees ............................................................................................................................. 110 IV. Environmental Protection Expenses ...................................................................................... 110 V. Labor-Management Relations ................................................................................................ 112


VI. Major Contracts .................................................................................................................. 119

Six. Financial Status

I. Condensed balance sheet, income statement, external auditor’s name and audit

opinion for the most recent five years ................................................................................. 121

II. Financial Analysis for the most recent five years ................................................................... 125

III. Audit Committee’s Audit Report on the Financial Statement for the Most Recent

Year ..................................................................................................................................... 129

IV. Recent annual financial reports. ........................................................................................... 130

V. Individual financial reports of companies whose visas have been checked by

accountants in the most recent year ................................................................................... 252

VI. The company and its related enterprises in the most recent year and up to the

publication date of the annual report, in the event of financial turnaround

difficulties, should indicate their impact on the financial position of the company .......... 360

Seven. Review and Analysis of the Financial Position and Financial Performance and Risk

Management

I. Review and analysis of the financial situation ........................................................................ 360

II. Review and analysis of the financial performance ................................................................ 361

III. Review and analysis of the cash flow .................................................................................. 362

IV. Impact of major capital expenditure on the financial operations in the recent year .............. 362

V. Direct investment policy, the main reasons for profit or loss and corrective action plan

for the most recent year and investment plans in the next year .......................................... 362

VI. Analysis and assessment of risk matters related to the most recent year and the

publication date of the annual report .................................................................................. 364

VII. Other important matters ....................................................................................................... 392

Eight. Special Note

I. Information about Affiliates .................................................................................................... 393

II. In the most recent year and the end of the annual report, the issue of private equity

securities ............................................................................................................................. 506

III. In the most recent year and the end of the annual report, the company holds or

disposes of the company's stock. ........................................................................................ 506

IV. Other necessary additional information matters .................................................................... 506

V. Matters which have a significant impact on shareholders’ equity or the price of

securities in Subparagraph 2, Paragraph 2, Article 36 of the Securities and Exchang

Act ....................................................................................................................................... 506

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One. Message to Shareholders

Ms. and Mr. Shareholders:

The 2018 CPDC's business climate is better than expected, but under the continuous impact of

Sino-US trade conflicts, the global economy is turbulent, coupled with the expansion of caprolactam

and acrylonitrile capacity in China, the industry's economic uncertainty has increased. In recent years,

CPDC has actively transformed into an offensive enterprise. The petrochemical industry continues to

develop and introduce high-quality products, and aims to complete integration. The land development

actively takes advantage of China's one-way strategy and the new opportunities brought by the rise of

emerging markets in Southeast Asia. The layout of areas with overseas land development investment

potential has a view to effectively reducing the risk of fluctuations in the petrochemical industry in the

future. Today's overall business environment faces many challenges and CPDC will continue to be

cautious.

I. Business results for 2018

The Company reported the 2018 consolidated revenues of NT$38.503 billion, net operating profit

of NT$3.075 billion and net profit after tax of NT$4.281 billion. The detailed breakdown of the

Company’s 2018 operating performance is as follows:

1. Sales of Major Products

Major Product Production & Sales Volumes in the Past 2 Years

Production Volume

Major Product

FY 2018 FY 2017 Increase (Decrease) Volume

Production Sales Production Sales Production % Sales %

Acrylonitrile (AN) 208,420 210,412 207,108 206,428 1,312 1% 3,984 2%

Caprolactam (CPL),Nylon Chips

374,390 355,680 379,708 365,260 (5,318) (1%) (9,580) (3%)

The decrease of Caprolactam (CPL) production and sales was mainly due to the adjustment of production and sales in 2018 in cooperation with overall industry supply and demand and execution of sales plan.

Unit: Tons


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2. Operating Revenue and Expense and Profitability Analysis Operating Revenue and Expense:

Annual Income Statement Annual Income Statement

Year

Line Item

FY 2018

(Consolidated)

FY 2017

(Consolidated) Increase (Decrease) %

Revenues 38,503,121 33,335,970 5,167,151 16%

Gross Profit 5,176,159 5,371,581 (195,422) (4%)

Operating Profit 3,075,082 3,584,036 (508,954) (14%)

Non-Operating Profit and

Loss 1,601,868 2,713,685 (1,111,817) (41%)

Pre-Tax Profit 4,676,950 6,297,721 (1,620,771) (26%)

Net Profit after Tax 4,280,995 6,087,322 (1,806,327) (30%)

EPS (After Tax) 1.59 2.55 (0.96) (38%)

1. Operating revenue

The 2018 Operating revenues was increased by 16% versus the previous year, mainly due to the following reasons:

(1) The revenues from Acrylonitrile (AN) and related byproducts were NT$12.011 billion in 2018, increased 24% or NT$2.346 billion from NT$9.665 billion versus the previous year. The increase was mainly from a 2% increase in sales volumes and a 28% increase in unit prices versus the previous year for Acrylonitrile (AN) products.

(2) The revenues from Caprolactam (CPL) and byproduct were NT$23.157 billion in 2018, increased 10% or NT$2.065 billion from NT$21.092 billion versus the previous year. The increase was mainly from a 13% increase in unit price versus the previous year for Caprolactam (CPL) products.

(3) The revenues from other departments (including subsidiaries) were NT$3.335 billion, increased 29% or NT$757 million from NT$2.578 billion versus the previous year. It is mainly resulted from an increase in subsidiary revenues from trading versus the previous year.

2. Operating Profit

Net operating profit in 2018 decreased by NT$509 million, or 14% versus the previous year due to the following reasons:

(1) For Caprolactam (CPL) products, affected by the high level price of main raw material phenol, and the trade conflict between China and the United States in the fourth quarter has aggravated weakness for the macroeconomic, impacted the downstream market demand and the willingness for delivering the products, decreased the profitability of Caprolactam (CPL) series products by NT$1.861 billion versus the previous year.

(2) For Acrylonitrile (AN) products, the demand grew normally, but for the supply in the first three quarters, global manufacturers were focused in maintenance resulted in increase in Acrylonitrile (AN) price and the profitability was increased by NT$1.314 billion.

(3) In 2018, overall operating expenses increased by NT$314 million versus the previous year, mainly due to the increase in marketing expenses by approximately NT$167 million caused by the increase of export volumes and sales tax expenses, the management

Unit: NT$ thousands

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expenses increased by NT$147 million versus the previous year due to overseas factory construction expansion and research and development expenses due to project execution.

3. Non-Operating Profit and Loss

Non-operating profit, decreased by NT$1.112 billion in 2018, or by 41%, due to the following reasons:

(1) A decrease of NT$2.668 billion from the disposal of equity interests during the year versus the previous year.

(2) A decrease of NT$921 million from the revaluation loss of financial debt instruments (ECB) versus the previous year.

(3) An increase of NT$574 million from cost method dividends income versus the previous year.

(4) An increase of NT$111 million from equity method profits from subsidiaries and related companies.

(5) An increase of NT$78 million from investment real estate evaluation profit during the year versus the previous year.

4. Net profit (loss) before and after taxes

2018 reported pre-tax profits were NT$4.677 billion, or NT$1.621 billion decrease versus the previous year, a decrease of 26%. 2018 reported net profits after tax were NT$4.281 billion (NT$1.59 per share), a decrease of NT$1.806 billion, or decrease of 30% from the net profits after tax of NT$6.087 billion (NT$2.55 per share) reported in the previous year.

(3) Financial Performance Analysis:

1. Financial Status: At the end of 2018, total consolidated assets amounted to NT89.7 billion; total liabilities were NT$22.5 billion; and shareholder equity was NT$67.2 billion.

2. Key Financial Ratios: Current Ratio at the end of 2018 was 289%, Quick Ratio was 244%, and Debt Ratio (Debt to Total Assets) was 25%.

3. Cash and Cash Equivalents Status: Cash and cash equivalents inflow from operating, investing and financing activities was NT$340 million during 2018. The year-end cash and cash equivalent balance was NT$13.5 billion.

(4) Key Management Work and Implementation Overview:

1. Production Management: The Company continues its plans to invest at the Port of Kaohsiung for transportation and storage special areas of liquid ammonia (NH3) and Phenols to improve raw material purchasing flexibility. We also continued to promote smart automation and establish video monitoring systems for factory forecast management, improving production process efficiency and lowering production costs. We continue to promote our value-added Nylon Chips project, entering the high-end Nylon Chips market and expand our product lines to improve profitability. The Dashe Factory implemented the Acrylonitrile (AN) plant repair and maintenance project and the main production process compressor performance improvement project to improve the production capacity and reduce energy consumption, and move toward the objective of one repair for every two years; The Toufen Factory implemented a smoke-free emission project for coal-burning heat and power plant, in addition to improving combustion efficiency, improving the perception of chimney smoke,


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and achieving the goal of natural gas emission standards.

2. Labor Safety and Environmental Protection: In order to ensure the factory management systems in compliance with the latest international standards, all three of our factory sites have implemented quality, environmental protection, occupational safety and health, and energy management, all have passed certification of ISO 9001, ISO 14001, OHSAS18001/ TOSHMS, ISO50001 standards, and continued tracking certification; in order to further improve our production process safety management procedures, we established a production process safety promotion organization and implemented the production process safety analysis technology, production process accident investigator training, to improve factory safety. In addition, we continue to promote various health and wellness programs aggressively, building a healthy work environment, and all three factory sites have been awarded the Badge of Accredited Healthy Workplace (Smoke Free and Health Promotion). In order to adhere to the trends of global energy conservation and carbon reduction, the Toufen and Dashe Factory were also certified for Green Factory in 2018, continue to move toward the goal of cyclical economy and sustainable developments as our corporate vision.

3. Corporate Social Responsibility: Since 2013, CPDC has established a CSR Committee and issued a CSR report on an annual basis to disclose sustainable development management achievements. In 2018, the Company continued to participate in the Corporate Sustainability Award organized by Taiwan Institute for Sustainable Energy and received the 11th TCSA Taiwan Corporate Sustainability Award - Top50 CSR Report Platinum Award, actively moving toward the realization of "Green Petrochemical Enterprise" as the purpose with the spirit of innovation and change to practice Corporate Sustainable Management with actions. In addition. Also, CPDC continues to proactively resolve the environmental pollution issues at the Taiwan Alkaline An-Shun Factory, which was acquired during the government-controlled period in the Company history. For this historical burden, the Company has put in significant resources to research and develop the pollution remediation technology, establish a dedicated responsible team to promote the remediation task and revitalize the land, and the Company is followed by the request of Tainan City to continue the remediation so that there are still large expenditures, which affect the shareholders' rights. The Company will adopt all necessary means to strive for the rights of the Company and shareholders and also hopes to receive the support of shareholders and endeavor after legal right from the Tainan City Government, expecting to reproduce the vitality of the land and recreate the quality living environment for the area.

4. Future Prospect and R&D: For the existing manufacturing process improvement, we aim for continuing improvements of existing manufacturing process technology towards improving efficiency, lowering manufacturing costs, and developing cyclical production and green production process technologies with energy conservation, carbon reduction as our key objectives. In the related product development, we implement related byproducts and derivatives development on the current manufacturing processes, controlling the raw material advantages, and strengthening the integration of raw material supplies from up and downstream supply chains, developing cyclic ketone derivatives, nylon 6 downstream niche products and blending modified products, etc., and developing special chemicals and nylon engineering plastics and other multi-aspect applications; In new product development, we have combined market intelligence, worked with existing development technology surveys, evaluated our advantages to produce high value products with market development potential (such as: established a special project development team, targeting high value products with market development potential (such as high refractive optical materials, lipid derivatives,

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hydrogenated products, and functional polymers, etc.). Based on the core technology and existing products, we increase the sales of high-value products and expand the layout of our industrial chain. At the same time, we actively communicate with downstream customers and provide all aspects of the product chain.

II.Future Operating Outlook

(I) The Company shall focus on expanding the two-pronged business approaches of “Petrochemical Industry” and “Land Development” as the primary management principles.The future operating prospects of the Company's two-pronged focus in the petrochemical core business and land development are illustrated described as follows:

1 Petrochemical Core Business:

(1). Short-term Planning:

Optimize the existing operation capabilities: In addition to increase the raw material and product troughs, expand own-product capacity and improve manufacturing efficiency, promote greenhouse gas reduction, also continue our efforts towards optimization of factory operations, accelerate our efforts in factory smart automation, and gradually introduce AI technologies, moving towards building a fully-automated factory.

Develop Multiple High Value Products: In addition to continuously launch new products, increase added value for nylon products, and develop specialty chemical products with wide applications, lipid derivatives, and functional polymers, also engage in development of biomass raw materials, and move towards green production process development.

(2). Long-term Planning:

Build an Integrated On-stop Overseas Production Base: To prevent price of intermediate raw materials from volatility that negatively affects the stability of profitability, the intermediate raw materials can be balanced locally and lower storage and transportation costs, integrating the energy and materials to reduce the energy consumption costs, and improve the advantage of cost competitiveness.

Introduce New Products and New Technology: In addition to establishing our own technologies and launching new products sales, the Company will move toward biomass, green environmental protection manufacturing process development; in addition, we will develop our own AI application technologies through promotion of Smart Factory Automation systems, build the AI foundation for the petrochemical core business, and further develop AI applications, products, and services specifically for the petrochemical industry in the future to establish the advantages for technological competition.

Establish Smart Management Systems: Improve the synergy of the Company's Command Center, plan to build the business intelligence management platform, where we expect to increase the quality of decisions and establish the advantage of management competitiveness through integration of market analysis, supply and production forecasts and adjustments, production monitoring and operating efficiency analysis and other information.


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(2) Land Development:

(1). Short-term Planning:

Aiming at planning and revitalizing the existing land assets of "Taiwan" as the goal: The Company is located in the 5A and 6th Special Zones of Kaohsiung Multi-Functional Commerce and Trade Park, and will follow the construction of the Asia New Bay Area developed by the Kaohsiung City Government and the relocation of the 205 Arsenal, to promote related development plans and move toward the direction of investment leasing, expecting to create the highest value for the Company’s land assets.

Aiming at penetrating "overseas" real estate development through layout: Follow the new business opportunities brought by China “The Belt and Road Initiative” strategy, and the South East Asia emerging market, the Company will aggressively pursue overseas land development projects with investment potential in Vietnam and Myanmar, and purchase land with development value.

(2). Long-term Planning:

Promote the “Taiwan” Land-related Development Plan in Phases and Area: Responding to the government's greening and energy-conservation policies, the Company aims at constructing buildings with carbon absorbing and suitable for living when develop and plan the programs.

Develop the "Overseas" real estate development: Combining agricultural farming in Vietnam, Myanmar or other Southeast Asian development areas, obtaining petrochemical biomass raw materials, establishing a petrochemical core business production base and promoting residential and commercial development, with the ultimate goal of sustainable operation, production, loving and ecological wisdom town as the objective.

In the future, CPDC will not forget the corporate social responsibility that it shoulders and fulfill the mission of a global citizen and the vision of a green petrochemical company and strive to achieve sustainable development and create a happy life for mankind.

We thank you, our shareholders, for the many years of support.

I sincerely wish you good health and fortune,

Regards, Chairman Ko Ming Lin

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Two. Introduction to Company

I. Date of Establishment

1. Date of establishment: April 24, 1969

2. Date of registration of incorporation: July 8, 1969

II. The Company History

The Company was founded on April 24, 1969 and the incorporation of the Company was approved by the Ministry of Economic Affairs on July 8, 1969. The Company’s registered address is 11F., No. 12, Dongxing Rd., Songshan Dist., Taipei City. The head offices were relocated to No.1, Jingjian Rd., Dashe Dist., Kaohsiung City on July 18, 2016. The Company and its subsidiaries are principally engaged in the business lines of the production of petrochemical products, sodium chloride and phosphoric acid and their derivatives, and in the storage, transportation, purchase and marketing of related chemical products and raw materials and supplies. Its main products are Caprolactam (CPL), Acrylonitrile (an), Nylon (CHIP) and so on. The company's important milestones in the year are as follows: 1969 April 24th The company was founded, for the Ministry of Economic Affairs as a state-owned business. 1973 May Production of ethane cracking plant on behalf of processing; 1990/09 shut down the factory to stop production. 1973 June Production of DMT plant started; 1982/07 shut down of the factory to stop production. 1976 June No.1 Acrylonitrile unit of Dashe on stream. 1979 January No.2 Acrylonitrile unit of Dashe on stream. 1982 May Following the mandate from the Ministry of Economic Affairs, CPDC was merged with another State-Owned Enterprise, Chungtai Chemical Co., Ltd. 1982 July Following the mandate from the Ministry of Economic Affairs, CPDC

also took over the Kaohsiung plant of Taiwan Alkali Co., Ltd and changed the name to CPDC Chen-Jen plant; Shut down production in May, 1988.

1983 January Following the mandate from the Ministry of Economic Affairs, CPDC was merged with another State-Owned Enterprise, China Phosphate Co., Ltd.

1983 April Following the mandate from the Ministry of Economic Affairs, CPDC was merged with another State-Owned Enterprise, Taiwan Alkali Co., Ltd.

1985 March GAC unit of DaShe Plant on stream. 1991 July 12th CPDC stocks were listed at the Taiwan Stock Exchange Corporation,

and CPDC released a 20% per cent stake in the company. 1993 July The company's Kaohsiung plant cyclohexanone plant has ceased

operations until today. 1993 December The Budget Economic Joint Committee of the Legislative Yuan passed

the proposal of CPDC's privatization.

Company Profile

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1994 June 20th After the company's equity was released again by CNPC, the proportion of public stock fell to 36.63%. The registration of change in the roster of shareholders was completed on the date, and the Company was privatized from being a state-owned enterprise.

1999 September Nylon chip unit on stream. 2001 January CPL Plant No. 3 on stream( Hsiaokang Plant) and Co-gen unit of Toufen

Plant and Hsiaokang Plant on stream. 2002 December Full implementation of ERP system (Oracle ERP). 2003 December Kaohsiung plant (CPL Plant No. 1 ) was shut down. 2011 April CPL expansion project of Hsiaokang Plant completed trial run. 2012 April CPL expansion project of Toufen Plant completed trial run. 2012 June Acrylonitrile expansion project of Dashe Plant completed trial run. 2012 October CPL expansion project of Toufen Plant completed trial run. 2012 December The GAC unit of Dashe Plant was shut down. 2015 August Phenol unit of Toufen Plant completed trial run. 2016 June 100,000 tons of CPL unit of Toufen Plant on stream officially started

production. 2016 July Head office relocation to No. 1, Jingjian Rd., Dashe Dist., Kaohsiung

City 2016 December Hsiaokang Plant obtained the Clean Production Certification from the

Industrial Bureau of the Ministry of Economic Affairs 2017 April Dashe Plant obtained the Clean Production Certification from the

Industrial Bureau of the Ministry of Economic Affairs 2017 October Toufen Plant obtained the Clean Production Certification from the

Industrial Bureau of the Ministry of Economic Affairs 2017 December Won the 2017 10th "TCSA Taiwan Corporate Sustainability Award"-

Gold Award for TOP50 Report of the traditional manufacturing group 2017 December Won the 2017 BSI British Standards Association International Standard

Management Annual conference "Sustainable Practice Award" 2018 March Dashe Plant's new control room building received the

Green Building Diamond Grade' certification 2018 July Toufen Plant nylon factory won the 'Green Building Silver' certification 2018 September Dashe Plant obtained the "Green Factory Seal" issued by the industry

Bureau 2018 September Toufen plant obtained the "Green Factory Seal" issued by the industry

Bureau 2018 October Toufen plant obtained ISO 14046 water Footprint Verification statement 2018 December 2018 won the 11th " TCSA Taiwan Corporate Sustainability Award"--the

traditional manufacturing TOP50 Report Platinum Award

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Three. Report on Corporate Governance

I. Organization

(I) Organizational Chart

Data Deadline : March, 2019

Business and T

rade D

ivision

Adm

inistration Division

Audit Office

Secretariat

Legal Counsel

Environmental Protection &

Remuneration

Shareholders’

Board of

President

China B

usiness D

ivision

Audit Committee

Shareholder

Finance D

ivision

R&D Center

President’s

Production D

ivision CEO Office

Land D

evelopment

Division

Real Time Video

CSR

CEO

Environment Safety & l h C

Corporate Governance Report

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(II) Operations and functions

1. President’s Office:

Responsible for assisting the General Manager in execution, policy promotion, supervisory

and management. Responsible for communication, research, analysis, planning and making

overall operating plans to ensure development, evaluation and planning of domestic and

international industrial cooperation projects and investment opportunities are effective.

Develop related products, technology, environmental, economic and social environment

business intelligence for current and newly developed products and derivative products

market research to ensure that production, supply, and sales are integrated. Execution of

other identified projects and specified business developments.

2. Environment Safety and Health Center

Responsible for the Company’s safety, health and environmental, fire emergency and safety,

energy conservation, water conservation and waste management policies. Assist each plant

in planning, promotion, execution, supervision, and management of production safety

management (PSM) systems. Collect Company and industry specific health and safety

regulatory changes and technology. Participate and discuss with government parties to

ensure that the standards are in compliance. .

3. Environmental Protection and Pollution Control Center

Responsible for planning, execution and operations that relate to environmental protection,

energy savings and carbon reduction, waste water savings and management, pollution, and

recycling. The planning, execution, supervision and management of environmental-related

ISO systems, responsible for evaluation, planning and execution of land remediation plans.

Collect company and industry-specific environmental regulatory changes and remediation

technology. Participate and discuss with government parties to ensure that standards are in

compliance.

4. Legal Counsel

Responsible for providing legal advice and opinion to the Company, reviewing and revising

the Company’s contracts, legal instruments and internal regulations, executing litigation and

non-litigation cases.

5. R&D Center

Responsible for planning and execution of the Company’s R&D strategies, development,

test, technology transfer, production, sales, technology service and promotion of new

product. Design, planning and management of pilot plant and manufacturing process, and

improvement, execution and setting of intellectual property rights rules; investigation,

research, application, maintain, security and management of intellectual properties.

6. Trade Department

Plan and execute the marketing strategy and sales policies, including the sale and purchase,

and re-sale trading business of company products and by-products, the business of supply

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and inventories management, credit assessment, provision of credit, follow up of overdue

receivables management, contracting operations of production, factory construction, factory

expansion and operations related to raw materials and factory machinery procurement,

insurance, compensation, customs and tax returns, repair and maintenance of facilities,

supplier database management, organizational regulations, and any other appointed tasks

from the general manager.

7. Production Department

Responsible for the production, transportation and management of products, by- products

and derivatives, planning and execution of production strategy, collecting, analyzing,

researching engineering data to improve production and efficiency, planning and execution

of core engineering technique, designing, planning, managing and improving manufacturing

process and facilities, operating activities and regulations related to technical services.

8. Finance Department

Responsible for planning and execution of financial, accounting, tax business, managing

securities positions, capital budgeting policies, cost of capital and capital structure planning,

internal auditing, corporate communications with external stakeholders, maintaining and

managing stakeholder relations activities, information disclosure, improving corporate

transparency, and annual review and recommendation of improvements to corporate

governance evaluations.

9. Department of ManageResponsible for information systems, network systems, office

automation systems,

computerized standard operating procedures, information security polices, planning,

building, promotion, and maintenance of software program authorization and terms of use.

The planning of human resources, recruitment, compensation and benefits planning,

management of job positions, performance management, talent training and development,

employee relations and fixed asset, operating assets, asset insurance, and general affairs.

Production, construction, plant expansion plans and construction project bids, procurement

of raw materials and machinery, supply, materials, and machinery related insurance, claims,

customs tax returns, refunds, and guarantee deposit returns and related matters.

Construction development, raw material, and machinery supplier database maintenance and

creation.

10. Land Development Department

Responsible for Company real estate investment planning, procurement, disposal and

management. Development strategy establishment and execution, evaluation of land

development, planning and project management. Market research, land permit rezoning,

public relations and institutional negotiations. Land development purchasing and

procurement, construction progress management and quality management, development

project sales planning and business development, commercial real estate operations and

facilities management, including modern residential construction and sales.

11. China Division


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Responsible for planning, assessment, research, execution and management of the

Company’s business lines in Mainland China. Responsible for cross-straits governmental

applications, establishment, and approvals, including negotiations of contracts and favorable

terms, production methodology, selection and procurement of construction contracts.

Continue to monitor and communicate progress and factory construction.

12. Real Time Video Monitoring Center

Pro-actively confirm site work status, according to SOP daily notification/identification,

according to SOP on abnormal alarm processing and response notification, regular image

screen inspection, factory real-time operation information monitoring, head office area

security management, according to the plan to implement emergency response drills,

support management units to carry out image access work, Integration of unexpected events

and SOP deficiencies, such as the discovery of the process or environment to be improved,

to provide units to improve the work, the factory abnormal notification, to assist theplant

emergency response as and other business.

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II. Information About Director, President, Vice President, Assistant Vice President and Head of Department and Branch

(I) Information about directors

1. Information about directors

March 26, 2019

Job Title (Note 1)

Nationality or registered

country Name Gender

Election Date

Term of Office

Date of first

election(Note 2)

Time during election Status of Shareholding

Now Status of Shareholding

Current Shares Held by Spouse and

Children of Minor Age

Shareholding Under the Name of a Third

Party Major (Academic Degree)

Experience (Note 3)

Currently serves the company and Duties in other companies

Other Chiefs, Supervisors or Directors with Spouses or

Relatives Within the Second Degree of Kinship

QuantityShareholding

Ratio Quantity

Shareholding Ratio


Ratio Quantity

Shareholding Ratio

Job Title

Name Relationship

Chairman

Republic of China

Republic of China

The Core Pacific Co., Ltd.

Not Applicable

2018/04/11 Three years

to 2021/04/10830726 39,285,806 1.455% 39,285,806 1.455% 0 0.000% 0 0.000% Not Applicable Not Applicable Not Applicable

The Core Pacific Co., Ltd. Representative: Ko Ming Lin

Male 2018/04/11 Three years

to 2021/04/101001122 0 0.000% 98,896 0.004% 0 0.000% 0 0.000%

NCCU Department of International business Director and General Manager of Core Pacific - Yamachi

Director of Kaohsiung Monomer Co., Ltd. (Legal Representative) Supervisor of Handy Chemical Corporation, Ltd. Director of Tsou Seen Chemical Industries Corporation (Legal Representative) Director of Tao Zhu Construction and Development Co., Ltd. Director of BES Engineering Corporation Director of Taiex Therapeutics Corporation Supervisor of BES Twin Towers Development Co., Ltd. Director and Vice Chairman of Weihua (Rudong) Trade Co., Ltd. Director and Vice Chairman of Weiqiang International Trade (Shanghai) Co., Ltd. Director of Zhangzhou Weida Petrochemical Corporation.Chairman and GM of Weida (Zhangzhou) Consulting Corporation Chairman of Kunshan Weichin Management Consulting Corporation Director of Weiming (Jiangsu) Petrochemical Company Director of Changzhou Weicai New Material Science & Technology Co., Ltd. Director and Chairman of Unichem Development LimitedDirector and Chairman of Rich Equities Ltd. Executive Director of Core Pacific Twin Towers (Myanmar) Investment Co. Ltd. Director of Core Pacific Pioneer (Myanmar) Co., Ltd. Director of Thanh Phong Construction Investment Co., Ltd. Director of Core Pacific Twin Star (Myanmar) Investment Co., Ltd.

None

- 14 -

Corporate G

overnance Report

Job Title (Note 1)


country Name Gender

Election Date

Term of Office

Date of first

election(Note 2)







Experience (Note 3)





Ratio Quantity

Shareholding Ratio


Ratio Quantity

Shareholding Ratio

Job Title

Name Relationship

Vice Chairman Vice Chairman

Republic of China

Republic of China

BES Machinery Co., Ltd

Not Applicable



BES Machinery Co., Ltd Representative:Bai Jiun-Nan


to 2021/04/10890524 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Master Degree Department of Economics of NTU Ph.D. in Law, Institute of Economics, Chinese Culture University Vice Chairman of BES Engineering Corporation

Director of Core Pacific City Co., Ltd. Director of BES Engineering Corporation Director of Taivex Therapeutics Corporation Independent Director of Concord Security Co., Ltd. Independent Director of MEGAFORCE COMPANY LIMITED Chairman of First Leasing Co. Ltd. (Legal Representative)Chairman of Bo-Mong Investment Co. Ltd. Director of Weili Food Industries (Legal Representative) Director of Jiansu Core Pacific Yamachi Commercial Insurance Co. Ltd.

None None None

Independent Director Independent Director

Republic of China

Republic of China

Steve Chen Ruey-Long


to 2021/04/101010630 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Department of Applied Economics in NCHU Minister, Ministry of Economic Affairs Chairman, Institute for Information Industry Chairman, Sinocon Industrial Standards Foundation Secretary-General, Cross-Strait Entrepreneur Summit

Independent Director of Formosa Chemicals & Fibre Corporation Independent Director of Wahsin Liwha Corporation Independent Director of Inventec Corporation. Director of HANNSTAR BOARD CORPORATION Director of Asia Cement Corporation Director of TEKNOWLEDGE DEVELOPMENT CORP.Chairman of Powerchip Technology Co., Ltd. Director of Maxchip Director of Bank of Panhsin

None None None


Republic of China

Republic of China

Chu Yun-Peng Male 2018/04/11 Three years

to 2021/04/101010630 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Department of Economics in NTU.Ph. Economics, University of Maryland, USA Administrative Committee of the Executive Yuan Professor of Department of Economics in NCU Chairman, Taiwan Insurance Guaranty Found

Independent Director, Nan Ya Plastic Corporation Independent Director, Taiwan Land Development Corporation Chairman, Bozhen Service Co., Ltd.

None None None


Republic of China

Republic of China

Pan Wen-Yen Male 2018/04/11 Three years

to 2021/04/102013/06/28 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Master’s degree and Ph.D, Department of Chemical Engineering in University of Wyoming. Senior Research Engineer, Monsanto Company -Chairman, Kuo Kuang Power Co., Ltd. Chairman, CPC Corporation Chairman, CTCI Foundation

Independent Director, UPC Group Director, CTCI

None None None

Independent Director

Republic of China

Republic of China


Not Applicable



The Core Pacific Co., Ltd. Representative: Shen Hwa-yeang

Male 2019/02/11 2019/02/11 to2021/04/10

2019/02/11 0 0.000% 145,800 0.005% 0 0.000% 0 0.000%

Master, Asian Institute of Technology of Water resources engineering Chairman of BES Engineering Corporation

Chairman of BES Engineering Corporation Director of BES Machinery Co., Ltd Director of Coreasia Director of CKS Guard Co. Ltd. Director of Core Pacific City Co., Ltd. Director of CHINATOWN Director of Overseas Investment & Development Corp. Director of ANPORT COLD CHAIN Supervisor of Cinemark Supervisor of Cinemark Ximen Supervisor of HRDDL Director of BES Construction Corporation (U.S.A.) Director of Global BES Engineering (Myanmar) Co.,Ltd

None None None

- 15 -

Job Title (Note 1)


country Name Gender

Election Date

Term of Office

Date of first

election(Note 2)







Experience (Note 3)





Ratio Quantity

Shareholding Ratio


Ratio Quantity

Shareholding Ratio

Job Title

Name Relationship


Republic of China

Republic of China

Jen Huei Enterprise Co., Ltd

Not Applicable


to 2021/04/102006/06/30 16,123,959 0.597% 16,123,959 0.597% 0 0.000% 0 0.000% Not Applicable Not Applicable Not Applicable

Jen Huei Enterprise Co. Ltd Representative:Guo Jiun-Huei


to 2021/04/102004/06/11 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Department of Accounting Soochow University General manager of Taiwan Power Company

Director of CMCNET Director of SUMAGH Director of ARIMA

None None None


Republic of China

Republic of China

Sheen Chuen-Chi Cultural and Educational Foundation

Not Applicable



Representative of Sheen Chueh-Chi Cultural and Educational Foundation: Lian-Sheng Tsai


to 2021/04/101010630 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Master Degree of Graduate Institute of China Studies TKU Department of International Trade FCU Director General, Intellectual Property Office, Ministry of Economic Affairs, R.O.C. Executive Secretary, Investment Commission, MOEA Secretary General, Bureau of Foreign Trade, MOEA Deputy Secretary General, Cross-Strait CEO Summit

Secretary-General of The Chinese National Federation of Industries Director of The Research and Development Institute of Vocational Training Republic of China Director of Asia Pacific Intellectual Property AssociationDeputy Secretary General, Cross-Strait CEO Summit

None None None


Republic of China

Republic of China


Not Applicable



Representative of Sheen Chueh-Chi Cultural and Educational Foundation: Kuen-Ming Lin


to 2021/04/101010630 0 0.000% 0 0.000% 0 0.000% 0 0.000%

Department of Electrical Engineering NTU Chairman of TVCA Director of Haixia Deputy Secretary General, Cross-Strait CEO Summit

Chairman and GM of Premier VC Chairman of Premier Capital Management Corporation General Manager and Director of Kunji Venture Capital Co., Ltd. Chairman of RUBY TECH CORPORATION Director of DEXIN CORPORATION Director of AMIT Director of Zipcom corporation. Director of Lung Hwa Electronics Co., Ltd. DIrector of TERAWINS,INC Director of DELTAMAC(TAIWAN)CO.,LTD Director of UISCO Independent Director of Getac Technology Corp

None None None

Note 1: The institutional shareholder shall be identified by name and representative (in the case of institutional representative, please specify the institutional shareholder’s name) and also complete the following Table 1. Note 2: Please also specify if the initial term of office for the Company’s director or supervisor is interrupted.

The Core Pacific Co., Ltd. Representative: Shen Hwa-yeang. Term of office: 2019/02/11~2021/04/10 Note 3: Refers to experiences related to the current post. If the officer once assumed a post in a CPA Office or as an affiliate of the Company, please specify the job title and responsibilities.


- 16 -

2. Major shareholders of corporate shareholders

March 26, 2019 Corporate shareholder name

(Note 1)

Major Shareholders of Corporate Shareholders (Note 2)

Jen Huei Enterprise Co., Ltd

Ruan Sheng-Yuan (9.38%), Chen Shu-Chen (0.62%), Hsu Rue-Ping (9.38%), Hsu Ai-Chu (8.75%), Wu Ting (10.00%), Tsou Jing Technology Co., Ltd. (9.38%), Tien Jing Investment Co., Ltd. (8.75%)


Jinghua Investment Co., Ltd. (9.11%), Chen Chi Enterprise Co., Ltd. (9.29%), Jinghua Supermarket Co., Ltd. (8.49%), Hung Yi Construction Co., Ltd. (6.67%), Tang Lin-Mei (9.11%), Wu Ting (6.67%), Wu Chun-Feng (6.67%), Ching Ding Technology Co., Ltd. (7.74%), Hsu Rue-Ping (13.30%), Chang Tung-An (5.56%)


(An established non-profit organization)

BES Machinery Co., Ltd. BES ENGINEERING CORPORATION(98.96%), Chen Wuxiong (0.06%), Yang Wenlie (0.03%), Lai Ruiqi (0.02%), Zeng Weiliang (0.02%), Cai Zhiwen (0.02%), Lin Jiahe (0.02%), Gao Zhengyang (0.02%), Jiang Zhongyu (0.01 %)

Note 1: For director or supervisor who acts as a corporate shareholder’s representative, please specify the

corporate shareholder’s name.

Note 2: Please specify names of the major shareholders of the given corporate shareholder (top ten shareholders)

and the ratio of shareholding. Where the major shareholder is a corporation, please complete the

following Table 2.

3. Major Shareholders of Major Corporate Shareholder

March 26, 2019 Corporate shareholder

name (Note 1) Major Shareholders of Corporate Shareholders (Note 2)

BES ENGINEERING CORPORATION

China Petrochemical Development Corporation (CPDC) (9.748%), The Core Pacific Development & Investment Co. Ltd. (2.237%), Datong Trust Advanced Starlight Advanced General International Stock Index Fund Investment Account (1.461%), Tong Development Industrial Co., Ltd. (1.391%), Kuo Ching Investment Co., Ltd. (1.378%), Lin Wenyang (1.299%),Morgan Hosts Vanguard's Emerging Market Stock Index Fund Account(1.197%), Sheen Chuen-Chi Cultural and Educational Foundation (0.835%), Tien Jing Investment Co., Ltd. (0.795%), Kyoto Construction and Development Co., Ltd.(0.718%)

Jinghua Investment Co., Ltd.

Tianjing Investment Co., Ltd. (6.75%), Kyoto Construction and Development Co., Ltd. (9.94%), KUO CHING CHEMICAL CO., LTD.(9.00%), Zhiyong Development Industrial Co., Ltd. (9.00%), WuTing (30.00%), Ching Ding Technology Co., Ltd.(24.00%), Chen Chi Enterprise Co., Ltd.(11.25%)

Jinghua Supermarket Co., Ltd.

Fu Hsing Management Consultation Co., Ltd. (0.59%), Yuan Wei Enterprise Co., Ltd. (1.73%), Hsu Rue-Ping (0.85%), Cheng Li-Feng (1.30%), Chen Chi Enterprise Co., Ltd. (0.33%), Chang An-Tung (0.47%), Yu Fan-Lang (1.04%), Asia Pacific Industrial & Commercial Joint Admission Co., Ltd. (41.25%)

- 17 -

Corporate shareholder name (Note 1)

Major Shareholders of Corporate Shareholders (Note 2)

Hung Yi Construction Co., Ltd.

Tianjing Investment Co., Ltd. (17.42%), Kyoto Construction and Development Co., Ltd. (24.17%), Ching Ding Technology Co., Ltd.(2.53%), Jinghua Department Store Co., Ltd. (5.05%), Zhang Dongan (2.53%), Xu Yibin (2.53%), Yao Zhesheng (6.06%), Wu Zhuan (12.63%), Chen Chi Enterprise Co., Ltd.(15.15%)

Ching Ding Technology Co., Ltd.

Hongyi Construction Co., Ltd. (9.07%), Chen Chi Enterprise Co., Ltd.(14.67%), Fuxing Management Consultant (share) company(8.13%), Tsou Jing Technology Co., Ltd.(8.14%), Jingzheng Industrial Co., Ltd.(9.76%), Tan Lingmei (0.52%), Zhang Dongan (0.96%), Xu Yibin (1.57%), Fan Zhenqun (3.21%), Zibo Enterprise Co., Ltd. (8.95%)

Chen Chi Enterprise Co., Ltd.

Ching Ding Technology Co., Ltd.(15.00%), Jingguo Housing Agency (shares) company (33.60%), Fanyang Industrial Co., Ltd. (15.00%), Wu Chunfeng (36.40%)

Tsou Jing Technology Co., Ltd.

Kuo Ching Investment Co., Ltd. (27.50%), Wu Ting (2.50%), Hsu Rue-Ping (33.75%), Wu Hsueh-Ming (1.25%), Tang Lin-Mei (2.50%), Yu Fan-Lang (5.00%), Chen Chi Enterprise Co., Ltd. (27.50%)

Tien Jing Investment Co., Ltd.

Wu Ting (17%), Yao Che-Sheng (5.56%), Hsu Rue-Ping (5.96%), Kuo Ching Investment Co., Ltd. (20.74%), Chen Chi Enterprise Co., Ltd. (2.91%), Ching Ding Technology Co., Ltd. (10.53%), Hung Yi Construction Co., Ltd. (21.42%)

Note 1: The names of the major corporate shareholders referred to in Table 1, if any, shall be specified.

Note 2: Please specify names of the major shareholders of the given shareholder (top ten shareholders) and the

ratio of shareholding.


- 18 -

4. Expertise and independence of directors

March 26, 2019

Qualifications

Name (Note 1)

Whether or not having more than five years of work experience

And the following professional qualifications Status of independence (Note 2)

Number of public

companies where the

person holds the title as an independent

director

Lecturer or above in commerce, law, finance, accounting or subjects required by the business of the company in public or private colleges or universities

Pass the qualification examination with proper licensing by the national Government Apparatus as court judge, prosecutor, lawyers, certified public accountant or other professional designations required by the business of the Company

Required Work experience in commerce, law, finance, accounting or others required by the Company

1 2 3 4 5 6 7 8 9 10

Ko-Ming Lin 0 Bai Jiun-Nan 2


3

Chu Yun-Peng 2 Pan Wen-Yen 1 Guo Jiun-Huei 0

Lian-Sheng Tsai 0 Lin Kuen-Ming 1

Kuan Ren Soong 0 Shen Hwa-yeang

0

Note 1: The number of spaces shall be adjusted subject to the actual circumstances. Note 2: Each of the directors and supervisors meets the following conditions during the two years prior to the

election and during the term of office. Please type each condition code in the space below “”。

(1) Not an employee of the Company or its affiliates.

(2) Not a director or supervisor of the Company or its affiliates (excluding the capacity of the independent director of the Company or its parents, or a subsidiary directly or indirectly held by the Company with more than a 50% stake).

(3) Not a natural person, spouse, underage children, or under the title of a third party who holds more than 1% of the outstanding shares issued by the Company or among the top 10 natural person shareholders.

(4) Not a spouse, kin at the second tier under the Civil Code, or a lineal blood relative within the third tier under the Civil Code as specified in (1) through (3).

(5) Not a director, supervisor or employee of a corporate shareholder who holds more than 5% of the outstanding shares issued by the Company or a director, supervisor or employee of a corporate shareholder who is among the top 5 shareholders.

(6) Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of a specific company or institution in a business or financial relationship with the Company.

(7) Not a professional, owner, partner, director, supervisor, manager of proprietorship, partnership, company or institution that provides business, legal, financial and accounting services to the Company or its affiliates or a spouse to the persons. However, in accordance with the listing of shares or the establishment and exercise of the terms of reference of the Corporate Pay Committee of the Securities Commercial premises, the members of the Pay compensation committee for the performance of their functions under rule seventh.

(8) Not a spouse to or a kin to the second tier under the Civil Code to any other director.

(9) Not under any of the categories stated in Article 30 of the Company Law.

(10) No Government Apparatus agency, juristic person or its representative is elected under Article 27 of the Company Act.

Note 3: At 2019/02/11 The Core Pacific Co., Ltd. Representative changes from Kuan Ren Soong to hen Hwa-yeang.

- 19 -

(II) Information about President, Vice President, Assistant Vice President and Head of Department and Branch

March 26, 2019

Job Title Nationality or

Registry Name Gender

Take office Date

Status of Shareholding

Current Shares Held by Children of Minor

Age


Party Major (Academic Degree) Experience Positions Held Concurrently in any Other Companies

Managerial Officers with Spouses or Relatives Within the Second Degree of Kinship

Quantity Ratio % Quantity Ratio % Quantity Ratio % Job Title Name Relation CEO Republic of China

Republic of ChinaKo-Ming Lin Male 2018/10/01 98,896 0.004% 0

0.000% 0 0.000% NCCU Department of International business

Director and General Manager of Core Pacific - Yamachi

Director of Kaohsiung Monomer Co., Ltd. (Legal Representative) Supervisor of Handy Chemical Corporation ,Ltd. Director of Tsou Seen Chemical Industries Corporation (Legal Representative) Director of Tao Zhu Construction & Development Co., Ltd. Director of BES Engineering Corporation Director of Taiex Therapeutics Corporation Supervisor of BES Twin Towers Development Co., Ltd. Director and Vice Chairman of Weihua (Rudong) Trade Co., Ltd. Director and Vice Chairmanof Weiqiang International Trade (Shanghai) Co., Ltd.Director of Zhangzhou Weida Petrochemical Corporation. Chairman and GM of Weida (Zhangzhou) Consulting Corporation Chairman of Kunshan Weichin Management Consulting Corporation Director of Weiming (Jiangsu) Petrochemical Company Director of Changzhou Weicai New Material Science & Technology Co., Ltd. Director and Chairman of Unichem Development Limited Director and Chairman of Rich Equities Ltd. Executive Director of Core Pacific Twin Towers (Myanmar) Investment Co. Ltd.Director of Core Pacific Pioneer (Myanmar) Co., Ltd. Director of Thanh Phong Construction Investment Co., Ltd. Director of Core Pacific Twin Star (Myanmar) Investment Co., Ltd.

None None None

President Republic of ChinaRepublic of China

Janson Yu Male 20171110 34,000 0.001% 917 0.000% 0 0.000% Director and Chief financial officer of Yangzhou Core Pacific City Co., Ltd. Chief financial officer of Core Pacific City Co., Ltd. Project Manager of Core Pacific Securities Co., Ltd EMBA, Xiamen University Department of Accounting in Fu-Jen Catholic University

Director representative of Kaohsiung Monomer Co., Ltd. Supervisor of Tsou Seen Chemical Industries Corporation Director of CPDC Investment (BVI) Co., Ltd. Director of Rich Equities Ltd. Director of Zhangzhou Weida Petrochemical Co., Ltd. Director of Taivex Therapeutics Corporation Director Representative and GM of Tao Zhu Construction & Development Co., Ltd. Director Representative of CPDC Green Technology Corporation Director and GM of Weida(Zhangzhou) Consultant Service Co., Ltd. Director and GM of BES Twin Towers Development Co., Ltd. Chairman of Daying Construction Director of Core Pacific Twin Star (Myanmar) Investment Co., Ltd. GM of Changzhou Weicai New Material Science and Technology Co., Ltd. Director of Weihua (Rudong) Trade Co., Ltd. Director and GM of Kunshan Weichin Management Consulting Corporation GM of Weiqiang International Trade (Shanghai) Co., Ltd. Director of Core Pacific Pioneer (Myanmar) Co., Ltd.

None None None

Vice President Republic of ChinaRepublic of China

Huang Kuo-Tsai

Male 2017/02/24 0 0.000% 0 0.000% 0 0.000% Investigation Officer of Ministry of Justice Section Chief of Civil Service Protection and Training Commission Senior Executive Officer of National Academy of Civil Service Secretary General of National Academy of Civil ServiceDeputy Director of National Academy of Civil Service Counselor of Civil Service Protection & Training Commission Deputy General Manager in Management Department of BES Master Degree in Public Administration of NCCU

None None None None

- 20 -

Corporate G

overnance Report



Take office Date



Age




Quantity Ratio % Quantity Ratio % Quantity Ratio % Job Title Name Relation Vice President Republic of China

Republic of ChinaLiu Yun Zhi

Male 2018/08/01 0 0.000% 0 0.000% 0 0.000% Thanh Phong Construction Investment Co., Ltd. GM Core Pacific Twin Star (Vietnam) Investment Co., Ltd. President

None None None

Vice President Republic of ChinaRepublic of China

Chi-Chun Chia Male 2018/11/01 164 0.000% 0 0.000% 0 0.000% Engineer of Chunglin Corporation Engineer, Supervisor, Manager of CPDC Chemical Fiber in National Taipei University of Technology

Director Representative of CPDC Green Technology Corporation Director of Weiming (Jiangsu) Petrochemical Company Director of Changzhou Weicai New Material Science & Technology Co., Ltd. Director of Gemini Star (India) Private Limited.

None None None

Chairman's Office Special

Assistant

Republic of ChinaRepublic of China

Lin Ching Male 20160713 0 0.000% 0 0.000% 0 0.000% Team leader of Construction and Planning Agency Director of Administration of Yushan National Park Director of Administration of Shueipa National Park Director of Administration of Kenting National Park Master degree in Urban Planning in NCHU

Director of Living Mall Chairman of Touyuan Investment

None None None

President Special

Assistant


Yuan-Long Chen

Male 2016/07/01 73,200 0.003% 0 0.000% 0 0.000% Factory Chief of CCP Manager of CTTIC Group Corporation Chief Engineer of Taiwan Industrial and Mine Corporation Assistant of ARCHWELL Corporation Manager, Factory Chief of CPDC Master, NTU Chemical Engineering

Representative of the Director of legal person , CKSGUARD Director of Zhangzhou Weida Petrochemical Co., Ltd. General Manager, JiangSu WeiMing Petrochemical Co. Ltd.

None None None

Lead Auditor Republic of ChinaRepublic of China

Yang Huei-Fan Female 20130108 0 0.000% 0 0.000% 0 0.000% Administrator and Manager of CPDC Department of Business Administration of Fu-Jen Catholic University

None None None None

Assistant Vice President


Zuo Shu-Tong Male 20180102 0 0.000% 0 0.000% 0 0.000% AVP, Global Brands Manufacturing Product Manager, DuPont Taiwan Six Sigma Black Belt AVP, Production Division MBA Fu Jen Catholic University

Director, WEIQIANG International Trading (Shanghai) CO., LTD. None None None



Chen Ying-Chun

Male 2016/07/01 0 0.000% 0 0.000% 0 0.000% Senior Administrator, Specialist, Manager and Assistant Vice President of CPDC Accounting of Chinese Culture University

Supervisor of Taivex Therapeutics Corporation Supervisor of Kaohsiung Monomer Co., Ltd. Director Representative of CKS Guard Co. Ltd. Director of CPDC Investment (BVI) Co., Ltd. Director of Rich Equities Ltd. Supervisor of CPDC Green Technology Corporation Supervisor of Weihua (Rudong) Trade Co., Ltd. Supervisor of Weiqiang International Trade (Shanghai) Co., Ltd. Supervisor of Zhangzhou Weida Petrochemical Corporation Supervisor of Weida(Zhangzhou) Consultant Service Co., Ltd. Supervisor of Kunshan Weichin Management Consulting Corporation Supervisor of Jiangsu (Weiming) Petrochemical Company Supervisor of Changzhou Weicai New Material Science & Technology Co., Ltd.

None None None


Republic of China Tsai Chia-Wei Male 2015/05/01 16,585 0.001% 18,344 0.001% 0 0.000% Engineer, Specialist, Manager, Assistant Vice President in CPDC Ph.D. in MOES of National Sun Yat-sen University

None None None None


Republic of China Tsai Wen-Chih Male 20160713 21,587 0.001% 0 0.000% 0 0.000% Section Manager of Project Section in Toufen factory Vice President in Engineering Center of Manufacture Section Chemical Engineering of National Taiwan University of Science and Technology

None None None None


Republic of China Lin Chin-Hsiang

Male 2018/03/27 7,833 0.000% 0 0.000% 0 0.000% Manager, CPDC Hsiaokang Plant, Environmental TeamMasters in Chemical Engineering, National Taiwan University

None None None None


Republic of China Li Guan Male 2018/09/17 0 0.000% 0 0.000% 0 0.000% Assistant Manager of CPDC National Taipei University of Technology Chemical Engineering

None None None None

Factory Manager


Chien hsien Li

Male 2016/07/01 98,597 0.004% 43,000 0.002% 0 0.000% Supervisor, Specialist, Manager and Factory Chief of CPDC Master Degree of Chemical and Materials Engineering Department in National Central University

None None None None

- 21 -



Take office Date



Age




Quantity Ratio % Quantity Ratio % Quantity Ratio % Job Title Name Relation Factory

Manager Republic of ChinaRepublic of China

Kao Chi-Tsung

Male 2016/07/01 0 0.000% 0 0.000% 0 0.000% CPDC CPLIII Plant Engineering Department engineer, CPDC Hsiaokang Plant production of a group of Cyclohexanone workshop duty supervisor, senior engineer, director, technical team manager Master Degree of Chemical and Materials Engineering in Tamkang University

None None None None

Factory Manager


Cheng Jung-Wen

Male 2016/07/01 28,313 0.001% 0 0.000% 0 0.000% Sinopec Kaohsiung Factory Manufacturing Department engineer, CPL III Plant Engineering Department engineer, Xiaogang Plant amide factory engineer, senior engineering factory director, production team manager Master’s Degree in Chemical Engineering in National Taiwan University of Science and Technology

None None None None


Wang Yen-Li Male 20180101 47,470 0.002% 0 0.000% 0 0.000% Manager, CPDC Business and Trade Division, Raw Materials Procurement Master’s in HR, National Central University

None None None None


Li Chi-Chang Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Admin Division, HR Department Fiber Engineering, National Taiwan University of Science and Technology

None None None None


Chen Yung-Long

Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Admin Division, IT Department Master’s in IT, Tamkang University

None None None None


Yang Peiyu

Female 2018/08/01 9,000 0.000% 0 0.000% 0 0.000% CPDC Stock Office Senior Manager, Commissioner, Manager CUTE International Trade Section

None None None None


Yang Shou-Chin

Female 20180101 14,377 0.001% 0 0.000% 0 0.000% Manager, CPDC Finance Division, Cash Management Department Textile Engineering, Taipei Institute of Technology

None None None None


Chang Chi-Wei

Female 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC R&D Center, R&D Department Master’s in Materials Engineering, NSYSU

None None None None


Chen Chi-Ho

Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC R&D, Materials Development Department PhD, Institute of Materials and Optoelectronics National Sun Yat-sen University

None None None None


Yang Ming-Ling

Female 20180101 0 0.000% 5,000 0.000% 0 0.000% Manager, CPDC Legal Counsel JD, National Taipei University

None None None None


Yang Chi-Yuan

Male 20180101 6,327 0.000% 0 0.000% 0 0.000% Manager, CPDC, China Business Division, Construction Department Chemistry and Engineering, National Taiwan University of Science and Technology

None None None None


Chen Jian-Ming

Male 20180101 90 0.000% 0 0.000% 0 0.000% Manager, CPDC, Toufen Plant, Production 2nd Team Chemical Engineering, National Taiwan University of Science and Technology

None None None None


Chen Hong-Long

Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Toufen Plant, Public Department Masters in Textile Engineering, Feng Chia University

None None None None


Li Chiao-Pin

Male 20180101 184 0.000% 0 0.000% 0 0.000% Manager, CPDC Toufen Plant, Production 1st Team Master’s in Chemical Engineering, Yuntech University

None None None None


Wang Chi-Fong

Male 20180101 5,875 0.000% 0 0.000% 0 0.000% Manager, CPDC Toufen Plant, Nylon Team Chemical Engineering, National Taiwan University of Science and Technology

None None None None


Chien Chang-Mo

Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Dashe Plant, Production Team Master’s in Chemical Engineering, NCKU

None None None None


Wang Chong-Chien

Male 20180101 20,330 0.001% 0 0.000% 0 0.000% Manager, CPDC Dashe Plant, Technical Team Master’s in Chemical Engineering, Yuan Zhe University

None None None None


Li Chin-Yi Male 20180101 32,000 0.001% 0 0.000% 0 0.000% Manager, CPDC Dashe Plant, Administrative Department Master’s in Chemistry, NCKU

None None None None

- 22 -

Corporate G

overnance Report



Take office Date



Age




Quantity Ratio % Quantity Ratio % Quantity Ratio % Job Title Name Relation Manager Republic of China

Republic of ChinaHuang

Chien-Yuan Male 20180101 392 0.000% 0 0.000% 0 0.000% Manager, CPDC Dashe Plant, Safety Team

Master’s in Chemical Engineering, Tamkang UniversityNone None None None


Li Kun-Nan Male 20180101 171,161 0.006% 555 0.000% 0 0.000% Manager, CPDC Hsiaokang Plant, Production 2nd TeamMaster’s in Mechanical Engineering, Tsinghua University

None None None None


Li Kung-Da Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Hsiaokang Plant, Technical Team Master’s in Chemical Engineering, National Taiwan University

None None None None


Jian Zhanghong Male 2018/05/10 0 0.000% 0 0.000% 0 0.000% CPDC Equipment Purchasing Office Manager Department of Industrial Engineering Management, Yuan Ze University

None None None None


Chien Kuan-Der Male 20180101 10,397 0.000% 305 0.000% 0 0.000% Manager, CPDC Hsiaokang Plant, Administrative TeamMasters in IT, Kaohsiung University of Applied Sciences

None None None None


Tsai Chau-Yuan Male 20180101 0 0.000% 0 0.000% 0 0.000% Manager, CPDC Hsiaokang Plant, Production 1st TeamMasers in Chemical Engineering, Tunghai University

None None None None


Wu Junxian Male 2018/11/01 0 0.000% 0 0.000% 0 0.000% CPDC Corporate Planning Group Manager Department of Chemical Engineering National Cheng Kung University

None None None None


Zhang Chenglong

Male 2018/07/01 18,000 0.001% 0 0.000% 0 0.000% CPDC Information Center Senior Engineer, Information Systems Management Group senior engineer, Commissioner, data application Office Manager Department of Information Engineering Management National Pingtung Institute of Commerce

None None None None


Gao Tianshui Male 2018/11/05 0 0.000% 0 0.000% 0 0.000% CPDC Project Control Team Master’s of Business Management Institute National Chengchi University

None None None None

Manager Republic of China Chen Yi Yan Male 20180101 13,745 0.001% 0 0.000% 0 0.000% CPDC Manager, Director, Project associate Chemical Engineering, National Taiwan University of Science and Technology

None None None None

Manager Republic of China Wei Ren Male 20180101 1,281 0.000% 0 0.000% 0 0.000% Supervisor, Specialist, Manager and Factory Chief of CPDC Department of Chemistry Chinese Culture University

None None None None

Manager Republic of China Liu Yung-Fu Male 20180101 0 0.000% 0 0.000% 0 0.000% Assistant manager of SAMPO Securities Co. Ltd Assistant manager of Core Pacific Securities Co., Ltd. GM of Zhipin （Fuzhou） Technology Engineering Co.,Ltd. GM of Waterland Financial Holding Co., Ltd. Associate of Masterlink Securities Corp. MBA from Indiana State University

None None None None

Manager Republic of China Ho Mu-Chuan Male 20180101 45,000 0.002% 62,740 0.002% 0 0.000% Engineer of Manufacture Section in CPDC Engineer of Utilities Section in Toufen factory of CPDCFactory Chief in CPL factory in Toufen factory of CPDC Manager of Environmental Engineering Section in Toufen factory of CPDC Degree in Textile from the National Taiwan University of Science and Technology

None None None None

1 Shareholding data deadline: Until 2019, shareholders ' regular stop transfer date and Published date

- 23 -

(iii) honorariums for directors (including independent directors), general managers and deputy general managers

1.Remuneration to Directors (including independent directors) (names and remuneration thereof to be disclosed individually)

December 31, 2018; unit: thousand dollars

Job Title Name

Remuneration to Directors The total amount of four items A, B, C and D as a percentage of net profit

after tax (Note 10)

Remuneration in the capacity as employees The total amount of seven items A, B, C, D, E, F and G as a percentage of net profit

after tax (Note 10) Remuneration from investees

other than subsidiaries(Note 11)

Remuneration (A) (Note 2)

Retirement Pension (B) Director’s remuneration

(C) (Note 3) Business execution costs

(D) (Note 4) Salary, bonus and special

fee, etc. (E) (Note 5) Retirement Pension (F) Employee remuneration (G) (Note 6)

The Company

All companies in the financial

report (Note 7)

The Company


report (Note 7)

The Company


report (Note 7)

The Company

All companies in the

financial report

(Note 7)

The Company


report (Note 7)

The Company


report (Note 7)

The Company

All companies in the

financial report

(Note 7)

The Company All companies in the

financial report (Note 7)

The Company


report (Note 7)

Cash dividend

Stock dividend

Cash dividend

Stock dividend

Chairman The Core Pacific Co., Ltd. Representative: Ko-Ming Lin

0 0 0 0 16,267 17,616 0 407 0.3792% 0.4201% 14,723 14,723 0 0 0 0 0 0 0.7223% 0.7633% 143


The Core Pacific Co., Ltd. Representative : Kuan Ren Soong

0 0 0 0 16,267 16,267 284 284 0.3858% 0.3858% 0 0 0 0 0 0 0 0 0.3858% 0.3858% 108

Director & Vice Chairman

BES Machinery Co., Ltd Representative: Bai Jiun-Nan

0 0 0 0 16,267 16,267 0 15 0.3792% 0.3795% 4,952 4,952 0 0 0 0 0 0 0.4946% 0.4949% 0


Jen Huei Enterprise Co., LtdRepresentative: Guo Junhui

0 0 0 0 16,267 16,267 288 288 0.3859% 0.3859% 0 0 0 0 0 0 0 0 0.3859% 0.3859% 0


(2018/04/11 Expiration of term of office)

Representative of Jen Huei Enterprise Co., Ltd.: Wu Ting

0 1,492 0 0 0 0 67 97 0.0016% 0.0370% 0 0 0 0 0 0 0 0 0.0016% 0.0370% 10


Representative of Sheen Chueh-Chi Cultural and Educational Foundation: Lian-Sheng Tsai

0 0 0 0 16,267 16,267 284 284 0.3858% 0.3858% 0 0 0 0 0 0 0 0 0.3858% 0.3858% 0


Representative of Sheen Chueh-Chi Cultural and Educational Foundation: Kuen-Ming Lin

0 0 0 0 16,267 16,267 284 284 0.3858% 0.3858% 0 0 0 0 0 0 0 0 0.3858% 0.3858% 0



3,410 3,410 0 0 0 0 0 0 0.0795% 0.0795% 0 0 0 0 0 0 0 0 0.0795% 0.0795% 0


Chu Yun-Peng 2,400 2,400 0 0 0 0 0 0 0.0559% 0.0559% 0 0 0 0 0 0 0 0 0.0559% 0.0559% 0


Pan Wen-Yen 2,400 2,400 0 0 0 0 0 0 0.0559% 0.0559% 0 0 0 0 0 0 0 0 0.0559% 0.0559% 0

*In addition to the disclosures in the above table, the remuneration of directors from providing services (e.g., as the consultant of non-employees) to all companies in financial statements in the recent year: None.

Note 1: Directors’ names shall be identified one by one (corporate shareholders shall be identified by the corporate shareholder’s name and representative individually), and the various payments shall be summarized and then disclosed. Note 2: The remuneration to directors in the most recent year (including director’s salary, duty allowance, severance pay, bonus and rewards, et al.). Note 3: The remuneration to directors approved by the Board of Directors prior to the motion for the allocation of earnings submitted to the shareholders' meeting in the most recent year. Note 4: The directors’ professional practicing fees in the most recent year (including transportation allowance, special allowance, various allowances and provision of such tangible objects as dormitory and car, et al.). If a house, car and any other transportation means or

exclusive personal allowance is provided, please disclose the nature and cost of the assets, rent inputted based on the actual value or fair value, fuel expenses and other benefits. If a driver is assigned, please specify the pay made by the Company to the driver, but exclude the same from the remuneration.

Note 5: It means the salary, duty allowance, severance pay, bonus, reward, transportation allowance, special allowance, various allowances and provision of such tangible objects as dormitory and car received by the directors who acted as employees concurrently (including the president, vice president, managerial officer and employee) in the most recent year. If a house, car and any other transportation means or exclusive personal allowance is provided, please disclose the nature and cost of the assets, rent imputed based on the actual value or fair value, fuel expenses and other benefits. If a driver is assigned, please specify the pay made by the Company to the driver, but exclude the same from the remuneration. The salary expenses recognized in accordance with IFRS 2 “Share-based payment” including obtaining employee stock option certificates, restricting employee rights, new shares and participating in cash increase subscription shares, shall also be included in the remuneration.

Note 6: If the directors who acted as employees concurrently (including the president, vice president, managerial officer and employee) received employee bonus (including stock dividends and cash dividends) in the most recent year, please disclose the employee bonus approved

- 24 -

Corporate G

overnance Report

by the Board of Directors prior to the motion for allocation of earnings submitted to the shareholders' meeting in the most recent year. If it is impossible to impute the same, the amount to be allocated this year shall be based on that allocated physically last year, and

please also specify the table 1-3. Note 7: The aggregate of the remuneration to directors in the Company from the companies included into the consolidated financial reports (including the Company) should be disclosed. Note 8: The aggregate of the remuneration to each director by the Company shall include the director’s name disclosed in the relevant space of the following table. Note 9: The aggregate of the remuneration paid to each of the Company’s directors by the companies included into the consolidated financial reports (including the Company) shall include the director’s name disclosed in the relevant space of the following table. Note 10: The earnings after tax refers to the earnings after tax in the most recent year. If the IFRSs are adopted, the earnings after tax shall refer to the earnings after tax identified in the entity or individual financial statement for the most recent year. Note 11: a.To specify whether or not the Company’s directors have received remuneration from investees beyond subsidiaries.

b. If the Company’s directors have received remuneration form investees beyond subsidiaries, please include the same into Section J in the following table and changed the name of the section into “all investees.” c. The remuneration shall refer to the remuneration, compensation, employee bonus and professional practicing fees received by the Company’s directors who acted as the directors, supervisors or managerial officers of investees other than subsidiaries.

* The remuneration disclosed herein is different from the income referred to in the Income Tax Law conceptually. Therefore, the breakdown is only intended for disclosure of information, instead of taxation. * The remuneration disclosed herein is disclosed based on estimations and on an accrual basis.

2. Remuneration to the President and Vice President (Summarized in accordance with the Range of Remuneration disclosed) December 31, 2018 unit: thousand dollar

Job Title Name

Salary (A) (Note 2) Retirement Pension (B) Bonus and special fee, etc. (C)

(Note 3) Employee remuneration Amount (D)

(Note 4)

A, the total amount of four items, C and D, as a proportion of the net benefits after tax (%) (Note 8)

Remuneration from investees

other than subsidiaries

(Note 9) The

Company

All companies included into the

financial statement (Note 5)

The Company



The Company



The Company All companies included into the financial statement (Note

5) The

Company

All companies included in the

financial statement (Note 5) Cash dividend

Stock dividend

Cash dividend

Stock dividend

CEO Ko-Ming Lin

20,613 22,758 0 0 23,718 24,230 11,811 0 11,811 0 1.308% 1.371% 302

President Janson Yu Vice President of the Manufacturing Division

Chi-Chun Chia

Vice president of the Management Division

Huang Kuo-Tsai

Deputy Director of the Land Development Division

Liu Yun Zhi

Special Assistant of Chairman Lin Ching General manager Yuan-Long Chen

* Any positions correspondent to president or vice president (e.g. President, CEO or Director, et al.) shall be disclosed, irrelevant with job titles.

- 25 -

Reward level table

Payment The general manager and deputy general manager of the company

Remuneration level

Name of President or Vice President

The Company (Note 7) All companies included into the financial statement (Note 8) E

Less than NT$ 2,000,000 Liu Yun Zhi Liu Yun Zhi

NT$2,000,000 thousand (inclusive) ~ NT$5,000,000 (exclusive) Lin Qing, Jia Zhizhong Lin Qing

NT$5,000,000 (inclusive) ~ NT$10,000,000 (exclusive) Yuan Long, Huang Guocai, Yuan Long, Huang Guocai, Jia Zhizhong

NT$10,000,000 (inclusive) ~ NT$15,000,000 (exclusive) Ko Ming Lin, Janson Yu Ko Ming Lin, Janson Yu

NT$15,000,000 (inclusive) ~ NT$30,000,000 (exclusive)



NT$100,000,000 or more

Total 7 people 7 people

Note 1: The name of the president or vice presidents shall be identified specifically and the various payments shall be summarized and then disclosed.

Note 2: Please specify the salary, duty allowance and severance paid to the presidents and vice presidents in the most recent year.

Note 3: Please specify the bonus, reward, transportation allowance, special allowance, various allowances and provision of such tangible objects as dormitory and car, as well as other remunerations, received by the presidents and vice

presidents in the most recent year. If a house, car and any other transportation means or exclusive personal allowance is provided, please disclose the nature and cost of the assets, rent imputed based on the actual value or fair

value, fuel expenses and other benefits. If a driver is assigned, please specify the pay made by the Company to the driver, but exclude the same from the remuneration. The salary expenses recognized in accordance with IFRS 2

“Share-based payment”, including obtaining employee stock option certificates, restricting employee rights, new shares and participating in cash increase subscription shares, shall also be included in the remuneration.

Note 4: The amount of compensation (proposed number) of employees assigned by the board of directors in the most recent year by the general manager and deputy general manager is calculated. If it is not possible, the proposed

distribution amount will be calculated according to the proportion of the actual distribution amount last year, and should be filled in separately. In addition, the third paragraph of Schedule 1 should be filled out. The earnings after

tax refers to the earnings after tax in the most recent year. If the IFRSs are adopted, the earnings after tax shall refer to the earnings after tax identified in the entity or individual financial statement for the most recent year.

Note 5: Please disclose the aggregate of the remuneration paid to the Company’s presidents and vice presidents by all companies included into the consolidated financial reports (including the Company).

Note 6: The aggregate of the remuneration to each president or vice president by the Company shall include the president’s or vice president’s name disclosed in the relevant space of the following table.

Note 7: The aggregate of the remuneration paid to each of the Company’s presidents and vice presidents by the companies included into the consolidated financial reports (including the Company) shall include the president’s and vice

president’s names disclosed in the relevant space of the following table.

Note 8: After tax net profit refers to the net profit after tax in the most recent year; if the international financial reporting standard has been adopted, the net profit after tax is the net profit after tax of individual or individual financial reports

in the most recent year.

Note 9: a. To specify whether or not the Company’s presidents and vice presidents have received remuneration from investees beyond the subsidiaries.

b. If the Company’s presidents and vice presidents have received remuneration from investees beyond the subsidiaries, please include the same into Section E in the following table and change the name of the section into “all

investees.”

c. The remuneration shall refer to the remuneration, compensation, employee bonus and professional practicing fees received by the Company’s presidents and vice presidents who acted as directors, supervisors or managerial

officers of investees other than the subsidiaries.

* The remuneration disclosed herein is different from the income referred to in the Income Tax Law conceptually. Therefore, the breakdown is only intended for disclosure of information, instead of taxation.

* The remuneration disclosed herein is disclosed based on estimations and on an accrual basis.


- 26 -

3.Employee bonus amount paid to managerial officers:

December 31, 2018; Unit: thousands of dollars

Job Title (Note 1)

Name (Note 1)

Stock dividendCash

Amount Total

Total amount of after tax net profit

Proportion (%)

Manager

President Janson Yu

0 14,641 14,641 0.34%

Vice President

Huang Kuo-Tsai

Vice President

Liu Yun Zhi

Vice President

Chi-Chun Chia

Special Assistant

Lin Ching

Special Assistant

Yuan-Long Chen

Lead Auditor

Yang Huei-Fan

Assistant Vice

President

Zuo Shu-Tong

Assistant Vice

President

Tsai Chia-Wei

Assistant Vice

President

Chen Ying-Chun

Assistant Vice

President

Tsai Wen-Chih

Assistant Vice

President

Lin Chin-Hsiang

Assistant Vice

President Li Guan

Factory Chief

Cheng Jung-Wen

Factory Chief

Kao Chi-Tsung

Factory Chief

Chien hsien Li

Note 1: Please disclose the name and job title individually, while the allocation of earnings may be summarized and then disclosed.

Note 2: Fill in the amount of remuneration (proposed) for employees assigned by the Board of directors in the most recent year, and the proposed allocation for this year will be calculated in proportion to the actual amount allocated last year. After tax pure benefit refers to the most recent annual after-tax benefits; Those who have adopted the international Financial reporting guidelines refer to the net benefit of the most recent annual individual or individual financial reports after tax.

Note 3: The scope of managerial officers shall be defined in the following manner, per the Board’s decree under Tai-Tsai-Cheng-3-Tze No. 0920001301 dated March 27, 2003: (1) President and equivalents; (2) Vice president and equivalents;

- 27 -

(3) Assistant vice president and equivalents; (4) Chief of Financial Dept.; (5) Chief of Accounting Dept.; (6) Any other persons in charge of the Company’s affairs and entitled to sign instruments on behalf of the Company.

Note 4: If any director, president or vice president has received employee bonus (including stock dividends and cash dividends), please complete table 1-2 and also this table.

(IV) Specify and compare the salary to directors, presidents and vice presidents of the Company in

proportion to the earnings after tax from the Company and companies included in the

consolidated financial statements in the most recent 2 years, and specify the policies,

standards, combinations, procedure of decision-making of remunerations and their relation to

business performance and future risks:

1. Total compensation paid to directors, presidents, and vice presidents (calculated based on

estimations and on an accrual basis) as a percent of earnings after tax:

FY 2018 FY 2017

The Company

In the consolidated

statement

All companies

The Company

In the consolidated

statement

All companies

3.803% 3.942% 2.668% 2.674%

2. Total remuneration paid to directors, presidents, and vice presidents of the Company in

proportion to the earnings after tax is analyzed as following:

Two percent of the Chairman (full-time) and directors ' remuneration of the Company

shall be taken into account in the remuneration, supervisors, attendance fee level and

consideration of performance and risk of the domestic and foreign industries and in

accordance with the provisions of Article 28th of the Articles of Association 32nd;

The remuneration to the Company’s presidents and vice presidents (including salary,

allowance and bonus, et al.) will be evaluated based on market intelligence, seniority,

responsibilities, experience, performance and risk, and paid in accordance with Article

29 of the Company Act. The Company established the Remuneration Committee in

September 2011. As the companies included into the consolidated financial statements

are invested and wholly owned by the Company, the Company’s remuneration policy

shall apply to them.

Regarding the procedures for establishing remuneration, in addition to considerations of

the overall operating performance, industry outlook, risk management, and future

development, we also consider personal performance and contributions to the company’s

overall performance in the remuneration. Related performance evaluation and

remuneration considerations are submitted to the remuneration committee and the board

of directors for approval. Depending on operating conditions and related regulations, we

also further review and revise our remuneration as necessary, with the aim in achieving a

balance between sustainable management and risk controls.


- 28 -

III. Status of Corporate Governance

(I) Operations of the Board

The 2018 Board of Directors met a total of 12 times [A]. The attendance record of directors &

supervisors is listed below:

Job Title Name( Note 1) Representat

ive Actual attendance

(B) Attendance by proxy

Actual (column) rate (%)【Ｂ/Ａ】(Note 2)

Remarks

Chairman The Core Pacific Co., Ltd. 1 Ko-Ming

Lin 11 1 91.6


The Core Pacific Co., Ltd. 2 Kuan Ren

Soong 11 1 91.6

On February 11, 2019, Mr. Song Yuren was reassigned as Mr. Shen Huayang.

Vice Chairman

BES Machinery Co., Ltd. Bai

Jiun-Nan9 3 75



12 0 100


Chu Yun-Peng 11 1 91.6


Pan Wen-Yen 10 2 83.3


Shen Chunchi Culture and Education Foundation 1

Lian-Sheng Tsai

11 1 91.6


Shen Chunchi Culture and Education Foundation 2

Lin Kuen-Ming

11 1 91.6


Zhen Hui (shares) Co., Ltd. 1 Guo

Jiun-Huei12 0 100


Zhen Hui (shares) Co., Ltd. 2 Wu Ting 0 3 0 The term of office of the director expires on April 11, 2018.

Other notes: I. If the operations of board of directors has one of the following situations, the minutes shall clearly state the meeting date, period,

content of the resolution, opinions of all independent directors and the Company’s handling of the opinions of the independent directors: (Ⅰ) Items listed in Article 14-3 of the Securities and Exchange Act.

1 Establishment or revision of internal control according to Article 14-1: (1) Date of board: January 23, 2018 period: 20th session, 32nd time

Motion content: Revise the Company "Board performance evaluation Method". Resolution: Approved by all attended directors.

(2) Date of board: May 10, 2018 period: 21st session, 2nd time Motion content: Revise the company's "internal control system of stock units" (including the Internal Audit Regulations of unit units). Resolution: Approved by all attended directors.

(3) Date of board: May 10, 2018 period: 21st Session 2nd Motion: Revision of the "Research cycle" section of the company's internal control. Resolution: Approved by all attended directors.

(4) Date of board: June 28, 2018: The 21st session of the 3rd Motion: Revision of the company's "board of Directors and managers division of responsibilities" section of the provisions. Resolution: Approved by all attended directors.

(5) Date of board: July 30, 2018 period: 21st Session, 4th time Motion: Revision of the company's "Pay compensation committee organizational procedures" section of the provisions. Resolution: Approved by all attended directors.

2. Procedures for the acquisition or disposition of assets, the trading of derivative commodities, the loan of funds to others, the endorsement of others or the provision of guarantees of significant financial business conduct in accordance with article 36th, 1: None.

3. Matters relating to the directors ' own interests:

- 29 -

(1) Date of board: January 23, 2018 period: 20th session, 32nd time Motion: The Board of Directors of the Company shall nominate a list of independent directors and candidates for directors. Resolution: Approved by all attended directors.

(2) Date of board: February 26, 2018 period: 20th session, 33rd time Motion: The company's 2017 director compensation assignment. Resolution: Approved by all attended directors.

(3) Date of board: February 26, 2018 period: 20th session, 33rd time Motion: The Board reviews the list of independent directors and directors nominated for election. Resolution: Approved by all attended directors.

(4) Date of board: February 26, 2018 period: 20th session, 33rd time Motion: To request the 2018 general meeting of shareholders to release the 21st term of directors of the company (including independent directors) and representatives of corporate directors on the Prohibition of restrictions on competition. Resolution: Approved by all attended directors.

(5) Date of board: March 27, 2018 period: 20th session, 34rd time Motion: The remuneration case of the Chairman of the company. Resolution: Approved by all attended directors.

(6) Date of board: July 30, 2018 period: 21st Session, 4th time Motion: The compensation case of the 21st term of the chairman of the company. Resolution: Approved by all attended directors.

(7) Date of board: 107 July 30 Period: 21st Session, 4th time Motion: The compensation case of the 21st term of the chairman of the company. Resolution: Approved by all attended directors.

(8) Date of board: 107 July 30 Period: 21st Session, 4th time Motion: The remuneration case of the 21st director of the company (excluding independent directors). Resolution: Approved by all attended directors.

(9) Date of board: 107 July 30 Period: 21st Session, 4th time Motion: The compensation case of the 21st term of the chairman of the company. Resolution: Approved by all attended directors.

4. Significant asset or derivative commodity transactions: (1) Date of board: February 26, 2018 period: 20th session, 33rd time

The content of the proposal: The company participates in the Jinghua City (stock) company is expected to be issued in March 2018, the privately-issued special name can be transferred to special shares, the number of issued shares is 156,000 shares, the annual dividends interest rate is 8%, and the subscription price per share is NT$10. The total amount is NT$1.56 billion.

(2) Date of board: August 10, 2018 period: 21st Session, 5th time Motion: Recognition of the company's original index equity funds sold in batches between January 2018 and February. Resolution: Approved by all attended directors.

(3) Date of board: September 17, 2018 period: 21st Session, 6th time Motion content: The company obtained a 90% stake in Sheng Fung Company in Vietnam. Resolution: Approved by all attended directors.

(4) Date of board: October 25, 2018 period: 21st Session, 7th time Motion: The company directly or indirectly obtained a 100% stake in the Vietnam regional Sheng Fung Company. Resolution: Approved by all attended directors.

(5) Date of board: December 27, 2018 period: 21st Session, 9th time The content of the proposal: The Company disposed of the 97.86% equity of Shengfeng Company in Vietnam to Singapore Tuofeng Investment Co., Ltd., which is indirectly invested by the Company. Resolution: Approved by all attended directors.

5. Significant funds are loaned, endorsed or provided with assurances: none. 6. The collection, distribution or private equity of securities of an equity nature:

Date of board: May 10, 2018 period: 21st session, 2nd time Motion: In order to enrich the working capital and the capital demand for future development, the Company intends to apply for the domestic cash replenishment issue of common stock or cash replenishment to issue common stock in the case of the limit of 500 million shares of common stock to issue overseas depository receipts. Resolution: Approved by all attended directors.

7. Appointment, dismissal or remuneration of a visa accountant: Date of board: May 10, 2018 period: 21st session, 2nd time Motion: Renewing the accountant of the joint accounting firm of Hou Jianye for the company 2018 Financial and tax reports check visa accountants.


- 30 -

Resolution: Approved by all attended directors. 8. Appointment and removal of the head of finance, accounting or internal audit: none.

(II) In addition to the pre-opening situation, other directors' resolutions that have been opposed or retained by independent directors and have a record or written statement: None.

II. The directors shall state the name of the directors, the content of the proposal and the interests of the parties to avoid the implementation of the interest-related motion avoidance.Due to participation and voting: (I) Proposal: The list of candidates for independent directors and directors nominated by the board of directors of the Company.

Directors' avoidance situation: In case of discussing and voting on the list of candidates for independent directors, Chen Ruilong's independent director and Zhu Yunpeng's independent directors were absent from the company because of their own interests; when discussing and voting on the list of director candidates, Chairman Lin Keming and Bai Junnan Vice Chairman, Director Guo Junhui, Director Cai Nengsheng, Director Lin Kunming, and Director Song Yiren were absent from the company because of their own interests.

(II) Content of the proposal: The Company participates in Beijing Huacheng Co., Ltd. It is expected that the private placement in March 2018 can be transferred to special shares, the number of shares issued is 156,000 shares, the dividend annual interest rate is 8%, and the subscription price per share is NT$10. Yuan, the total amount is NT$1.56 billion. Directors' avoidance situation: Vice Chairman Bai Junnan and Director Song Yongren are directors of Jinghua City Co., Ltd., and they abstained when they discussed and voted on this case.

(III) Content of the proposal: The special shares of Jinghuacheng Co., Ltd., which is held by the Company, will be transferred to the special period on March 11, 2018. It is proposed to exercise the right of extension to protect the interests of special shareholders.Directors' avoidance situation: Vice Chairman Bai Junnan and Director Song Yongren are directors of Jinghua City Co., Ltd., and they absconded when they discussed and voted in this case.

(IV) The content of the motion: The company's 2017 annual director’s compensation assignment. Directors' avoidance situation: Chairman Lin Keming, Vice Chairman Bai Junnan, Director Guo Junhui, Director Cai Nengsheng, Director Ko Ming Lin and Director Song Yiren had their own interests and abstained from the discussion and voting in this case.

(V) The contents of the motion: The Remuneration case of Ko Ming Lin June, chairman of the company. Director avoidance situation: Ko Ming Lin chairman because of his own interests in this case abstained from discussing or voting on this issue.

(VI) Content of the proposal: The board of directors reviews the list of candidates for independent directors and directors nominated.Directors' avoidance situation: The case Chairman of Ko Ming Lin, Vice Chairman of Bai Junnan, Independent Director Chen Ruilong, Independent Director Zhu Yunpeng, Independent Director of Pan Wenyan, Director of Guo Junhui, Director of Cai Liansheng, Director of Lin Kunming and Song Directors of Huanren have their own interests, taking turns to abstain during the discussions and voting.

(VII) Content of the proposal: The 2018 Standing Committee of Shareholders is invited to agree to lift the restrictions on the non-competition of the 21st directors (including independent directors) of the Company. Directors Avoidance situation: Chairman Ko Ming Lin, Vice Chairman Bai Junnan, Independent Director Chen Ruilong, Independent Director Zhu Yunpeng, Independent Director of Pan Wenyan, Director of Guo Junhui, Director Cai Ningsheng, Director Lin Kunming and Director of Song Yiren had has its own interests and took turns to abstain during the discussions and voting.

(VIII.) Content of the proposal: Sinochem Industrial Co., Ltd. (destroyed), a subsidiary of the Company, merged with Zhaoxin Chemical Industry Co., Ltd. Company (survival). Directors' evasion situation: The chairman Ko Ming Lin, a director of Zhonghuaxing Industrial Co., Ltd. and Zhaoxin Chemical Industry Co., Ltd., abstained from the discussion and voting in this case.

(IX) Content of the proposal: The second phase investment plan of the first phase of the Jiangsu Rudong Petrochemical Base of the Company. Directors' evasion situation : Chairman Ko Ming Lin is a director of Weiming Company, and he abtained when discussing and voting in this case.

(X) Content of the motion : Appointed independent directors of Chen Ruilong, Mr. Chen Songyong and Ms. Pan Weigang as members of the fourth salary compensation committee of the Company. Directors' avoidance situation: Chen Ruilong's independent directors have their own interests and were absent during the discussion and voting on the case.

(XI.) Proposal: The remuneration case of Ko Ming Lin, the 21st Chairman of the Company. Directors' avoidance situation: Chairman Ko Ming Lin had his own interests and abstains from the discussion in the case of discussion and in the voting.

(XII.) Proposal: The remuneration case of Bai Junnanjun, the 21st Vice Chairman of the Company. Directors' avoidance situation: Vice Chairman Bai Junnan his own interests and will withdraw from the case when discussing and voting on this case.

(XIII>) Proposal: The 21st directors' remuneration of the Company (excluding independent directors). Directors' avoidance situation : Chairman Ko Ming Lin, Vice Chairman Bai Junnan, Director Guo Junhui, Director Cai

- 31 -

Nengsheng, Director Lin Kunming and Director Song Yiren had their own interests and will abstain from the discussion and voting in this case.

(XIV) Proposal: The 21st Independent Director's Remuneration Case of the Company. Directors' avoidance situation : Chen Ruilong's independent director, Zhu Yunpeng's independent director, and Pan Wenyan's independent directors had their own interests and abstain from the discussion in this case and in the voting.

(XV) Content of the proposal: Ko Ming Lin, the chairman of the company, concurrently serves as the chief executive of the company. Directors' avoidance situation : Chairman Ko Ming Lin has his own interests and absconds from the discussion in the case of discussion and voting.

(XVI) The contents of the motion: The company holds the B and Geng registered special shares of Jinghua City Co., Ltd. will be converted into common stock depending on the application for real estate disposition in Jinghua City. Directors' avoidance situation: Vice Chairman Bai Junnan and Director Song Yongren were directors of Jinghuacheng Co., Ltd., and they abstained when they discussed and voted in this case.

(XVII) Proposal: In order to adjust the investment structure of Vietnam, the 97.86% equity of Vietnam Shengfeng Construction Investment Co., Ltd. held by the Company was transferred to Singapore Tuofeng Investment Co., Ltd., which is indirectly invested in by the Company. In addition, the investment approved by the board of directors for Shengfeng Company and the investment of Core Pacific Twin Star (Vietnam) Investment Co., Ltd.u003c1} will be fully increased by BES Twin Towers Development Co., Ltd. Indirect investment. Directors' evasion situation : Chairman of the Board of Directors Ko Ming Lin is the supervisor of BES Twin Towers Development Co., Ltd., who abstained from the discussion and voting in this case.

(XVIII)Proposal: Donate NT$10 million to the Shenchunchi Culture and Education Foundation. Directors' avoidance situation: Chairman of the Board of Directors Ko Ming Lin and Vice Chairman Bai Junnan are the directorsof the Shen Chunchi Culture and Education Foundation, directors of Cai Liansheng and Lin Kunming, directors of the legal director of the Shen Chunchi Culture and Education Foundation, and the four directors participated in discussing this case but abstained from voting at the time of voting.

(XIX)The contents of the motion: Special bonus case of Ko Ming Lin, CEO of the company. Director avoidance situation : This case Ko Ming Lin The chairman had his own interests in this case and abstained from the discussion and the voting to avoid conflict of interest.

III Measures undertaken during the current year and past year in order to strengthen the functions of the board of directors (such as the establishment of an audit committee and improvement of information transparency, etc.) and assessment of their implementation: (I) In 2018, the company handled the internal evaluation of the overall board of directors, individual directors and audit committee

performance in accordance with the “Board Performance Evaluation Method” and entrusted the corporate governance company of the China Corporate Governance Association to conduct external evaluation of board performance.

(II) The implementation results of the internal evaluation of the performance of the Board of Directors in 2018 were: 94 points for the overall board of directors, 95.6 points for individual directors, and 99 points for the audit committee (the total score was 100 points). The board of directors and the audit committee operated well.

(III) The Corporate Governance Association of China has assessed the performance of the Board of Directors of the Company for 2018. The results are good. The overall evaluation is as follows: 1. The company requires directors to have professional willingness to speak freely to fully exercise the functions of the board. 2. the company's board of directors Operating Communication is in good condition. 3. the company can humbly accept the advice of outside expert consultants. 4. the company attaches importance to the training and succession of senior talent, the high-order successor should have the ability and characteristics, but also be clearly defined.

(IV) The above assessment results and improvement suggestions were reported on the 22nd 12th Board of Directors on March 22, 2019.

(V) In order to further strengthen the operating effectiveness of the board of directors and functional committees of the Company, the Company plans to implement the annual performance evaluation of the Compensation Committee from 2019 onwards.

Note 1: For director or supervisor who is a corporation representative, please specify the corporate shareholder’s name and its representative’s name.

Note 2: (1) Where a specific director or supervisor may be relieved from duties before the end of the fiscal year, please specify their date of discharge in the ‘Remarks” Section. Their actual attendance rate (%) to the Board sessions shall be calculated based on the number of meetings called and actual number of sessions he/she attended, during his/her term of office.

(2) Where an election may be held for filling the vacancies of director or supervisor before the end of the fiscal year, please list out the names of both the new and the discharged directors or supervisors, and specify if they are the former director or supervisor, or newly elected, re-elected, and the date of the reelection. Their attendance rate (%) to the Board sessions shall be calculated based on the number of meetings called and the actual number of sessions they attended, during their term of office.


- 32 -

(II) The function of the Audit Committee or supervisors’ participation in the function of Board of

Directors

The 2018 annual audit committee met 10 times (A) and the independent directors attended the

following cases:

Job Title Name Actual attendance

(B)

Attendance by

proxy

Actual attendance rate

(%)

(B/A) (Note)

Remark

Independent

Director

Steve Chen

Ruey-Long

10 0 100.00

Independent

Director

Chu Yun-Peng 9 1 90.00

Independent

Director

Pan Wen-Yen 7 3 70.00

Other notes:

I. If the operations of audit committee has one of the following situations, the minutes shall clearly state the

meeting date, period, content of the resolution, opinions of all audit committee members and the Company’s

handling of said opinions.

(Ⅰ) Items listed in Article 14-5 of the Securities and Exchange Act:

The resolutions approved by the Audit Committee which are in accord with Article 14-5 of the

Securities and Exchange Act. are as follows:

(1) Establishment or revision of internal control according to Article 14-1:

1. Dates of the Board of Trustees: May 10, 2018:21st session, 2nd time

The contents of the motion: in conjunction with the provisions of the "Internal control system

of unit units" in March (2018) of the collection and Settlement Institute, revise the

company's "internal control system of stock units" (including the Internal Audit

Regulations of the units).

Resolution: Approved by all attending members.

Dealing with the opinions from the Audit Committee: Presented to the Board Meeting.

2. Date of board: May 10, 2018: The 21st session of the 2nd

Motion: The amendment of the company's internal control of the "Research cycle" part of the

provisions.

Resolution: Approved by all attended members.

Dealing with the opinion from the Audit Committee: Presented to the Board Meeting.

3. Date of board: June 28, 2018: The 21st session of the 3rd

Motion: amendments to the company's "board of Directors and managers division of

responsibilities" section of the provisions.



4. Dates of the Board of Trustees: June 28, 2018:21st Session, 3rd time

Motion content: The duration of the company can be as soon as possible with the industry 4.0

and the trend of IoT applications and with the Times to accelerate the development

of independent AI technology application capabilities, to the management

department to organize the establishment of a "Data application Office" while

cooperating with the revision of the "Company's organizational procedures."


- 33 -


5. Dates of the Board of Trustees: July 30, 2018:21st Session, 4th time

Motion: Amend the provisions of the company's "pay compensation committee" organizational

procedures.



Assessment of the validity of internal control:

1. Dates of the Board of Trustees: February 26, 2018:20th session, 33rd time

Motion content: The company of the Republic of China 2017 annual internal control system

self-assessment (hereinafter referred to as the control self-assessment) operation

has been completed, in accordance with the internal control self-assessment

results, issued a statement of the system, according to the audit committee after

the approval of the Board of Directors to report through.


Dealing with the opinion from the Audit Committee: After being approved by the board of

directors, the management’s reports on internal control signed by the chairman and the

president were announced to the public.

2. Dates of the Board of Trustees: December 27, 2018:21st session, 9th time

Motion content: The company's 2019 internal control audit plan, to be referred to the nuclear

discussion.


The company's treatment of the audit Committee's opinion: by the Audit unit to report the

current board of Directors resolution.

(2) Procedures for the acquisition or disposition of assets, the trading of derivative commodities, the

loan of funds to others, the endorsement of others or the provision of guarantees of significant

financial business conduct in accordance with regulation 36th of the Certificate of Law:

None of this is the case.

(3) Matters relating to the directors ' own interests:

Board Date: December 27, 2018 period: 21st session 9th

Motion content: Donate NT$1000 million yuan to the consortium Shen Chunchi Cultural and

Educational Foundation, continue to promote the "relocation of Taiwan Historical

Memory" related projects.



Trading of major assets or derivatives:


Content of the proposal: Application for the implementation of the “Nylon 6 Engineering

Plastic Mixing Plant and Materials Development Building Construction Project”

investment plan. Resolution: Approved by all attended members.



Motion content: The company's subsidiary, Zhongjian Xing Industrial Co., Ltd. Business

shrinkage year by year, in order to improve investment efficiency and efficient allocation of

resources, the assessment proposed to build the company (elimination) and Mega Xin

Company (survival) merger.




- 34 -


Motion content: In response to the company's vertical integration development strategy, it is

proposed to purchase a 100% stake in Changzhou Huiyuan New Material Technology Co., Ltd.

with a total investment of capital increase not exceeding RMB 295 million and sign a

memorandum of cooperation to be submitted for approval.




Motion: "Kaohsiung Port Intercontinental two warehousing logistics area investment and

construction plan" project budget amount is proposed to be added NTD497,740K,

the total investment amount increased to NTD2,411,905K.




The content of the proposal: In order to continue to promote the intelligent production of the

third plant, it is planned to start the second phase of the “factory intelligent

production management project” for the project capital expenditure. The estimated

cost is NTD 349,903K.




Motion content: The company Jiangsu Rudong Petrochemical Base Phase I two-stage

investment plan case.



7. Dates of the Board of Trustees: July 30, 2018:21st Session, 4th time

Motion content: The company Kaohsiung City Shang four land development plan case.



8. Dates of the Board of Trustees: August 10, 2018:21st session, 5th time

The content of the proposal: The index stock funds originally held by the company sold

NT$624 million in batches from January to February 2018, and the sale proceeds

totaled NT$134 million, of which the daily trading amount exceeded NT$1 billion

for a total of three pens, for ratification.



9. Dates of the Board of Trustees: November 13, 2018:21st Session, 8th time

Motion content: In order to make Toufen Plant sustainable operation, reduce PM2.5 emissions,

at the same time eliminate visual pollution, good corporate social responsibility, to

implement the "Toufen Plant auto electrician smoke and power supply stability

improvement project" planned capital expenditure case, the total cost of NT dollar

(with the same) ginseng Ba Bai million yuan (NTD338, 000,000).



(4) Raising, issuing and private placement of equity-based securities:

Date of board: May 10, 2018 period: 21st session, 2nd time

Motion: In order to enrich the working capital and the capital demand for future development,

- 35 -

the Company intends to apply for the domestic cash replenishment issue of common

stock or cash replenishment to issue common stock in the case of the limit of 500

million shares of common stock to issue overseas depository receipts.



(5) Appointment, discharge and compensation of certified CPAs:

1. Date of board: May 10, 2018: 21st session, 2nd

Motion: The accountant of the joint accounting firm of the company is to be renewed to check

the Visa accountant for the 2018 annual financial and tax report.




The content of the proposal: Chen Junguang, accountant of the company's financial report and

visa accountant Anhou Jianye United Certified Public Accountants, was changed

to Chen Meifang accountant for internal rotation and submitted to the Audit

Committee for consideration.



(6) Annual financial report and half-year financial report:

Date of board: February 26, 2018; August 10, 2018

Period: 20th session 33rd; 21st Session 5th

Motion: Preparation of the company's 2017 individual financial statements and consolidated

financial statements for review by the Board of Auditors; Proposed consolidated

financial statements for the second quarter of 2018 of the company, Referred to the

Board of Auditors for review.



(7) Other major information:


Motion contents: The company intends to participate in the private offering of Jinghua City

Co., Ltd. Geng registered special shares, the number of shares issued 156,000

shares, the dividend annual interest rate of 8%, the subscription price per share NT

$10, the total amount issued is NT $1.56 billion.




Motion content: The company holds the Beijing City Co., Ltd. b registered Special unit will be

duration on March 11, 2018, to exercise the right of extension to preserve the

interests of special shareholders.




Motion content: In order to cooperate with the company petrochemical and land development

double spindle strategy, expand the business layout and master the investment

opportunity, it is proposed to set up an Indian subsidiary to carry out investment

development business and related research.



- 36 -


4. Date of the board: September 17, 2018 period: The 21st session of the 6th

Motion content: The company intends to Kaohsiung multi-functional economic and Trade Park

specific District area 5th A area to handle investment.



5. Dates of the Board of Trustees: October 25, 2018:21st Session, 7th time

Motion: Vietnam's "First New Town Street profile Land" to obtain the right to use and

development operations, assessed to invest 48 million of dollars in its own funds.

It is proposed to handle the land development in this case and the equity

transaction and capital increase of Vietnam Sheng Fung Company, and provide the

option of equity purchase of 20% Sheng Fung Investment and Construction Co.,

Ltd., Changshu Keisei Real Estate Co., Ltd.



6. Dates of the Board of Trustees: October 25, 2018:21st Session, 7th time

Motion content: "Vietnam Ho Chi Minh City Second County base development case," to

indirect investment, for the case of the project company to increase the capital of

114 million U.S. dollars to develop this case, and provide Changshu Keisei Real

Estate Co., Ltd. 20% of the project company Equity purchase option.



7. Date of board: November 13, 2018 period: 21st session 8th

Motion content: The company holds Jinghua City Co., Ltd. B and Geng registered can be

transferred to special

The shares will be converted into ordinary shares based on the price of the real estate of

Jinghua City.



8. Dates of the Board of Trustees: December 27, 2018:21st session, 9th time

Motion: In order to adjust the investment structure of Vietnam, it is proposed to transfer the

97.86% stake of Vietnam Sheng Fung Construction Investment Liability Co., Ltd.,

which is held by the company, to the company's indirect investment in Singapore

Hongfeng Investment Co., Ltd.

It is also proposed to call for the approval of the second and third cases adopted by

the 21st session of the Board of Trustees of the 7th, respectively, for the

investment of the company BA million dollars, Wiking Gemini (Vietnam)

Investment Co., Ltd. invested hundreds of millions of dollars, the total investment

in the two cases of hundreds of millions of million dollars. All indirect

investments are made in the form of a capital increase of China Gemini

Development Co., Ltd.



(Ⅱ) Resolution(s) not passed by the Audit Committee but receiving the consent of two thirds of the board

of directors’ members: None.

II. In instances where an independent director recused himself/herself due to a conflict of interest, the minutes

shall clearly state the independent director's name, contents of the motion and resolution thereof, reason for

- 37 -

not voting and actual voting counts: None

III. Communication between independent director and internal auditing officers as well as CPAs on company

finances and business situation (such as items discussed, means of communication and results, etc.):

(1) The Company shall, in accordance with the regulations, deliver the internal audit report and tracking

report to all independent directors, the internal audit supervisor and attend the Audit Committee, provide

information about independent directors, and communicate well with independent directors.

(2) Independent directors communicate with Visa accountants on a regular basis in a written or meeting

manner, and the 2018 Audit Committee communicates well with the visa accountant

2018 the company's audit committee and Visa accountants to communicate the key points are as follows:

(a) Check the communication of key verification matters in the report.

Note:

* Where an independent director may be relieved from duties before the end of the fiscal year, please specify

the date of his/her discharge in the ‘Remarks” Section. His/her actual attendance rate (%) to the Board

session shall be calculated on the basis of the number of meetings called and actual number of sessions

he/she attended, during his/her term of office.

* Where an election may be held for filling the vacancies of independent directors before the end of the fiscal

year, please list both the new and the discharged independent directors and specify if they are the former

independent directors or newly elected, re-elected, and also the date of the reelection. Their actual

attendance rate (%) to Board session shall be calculated on the basis of the number of meetings called and

the actual number of sessions they attended, during the term of office.


- 38 -

(III.) The operations of corporate governance and its differences and reasons with the code of

Practice on corporate governance in listed cabinets:

Assessment Item

Operating conditions (Note) Deviation from the Corporate Governance

Best-Practice Principles for the

TWSE/GTSM Listed Companies, and reasons thereof

Yes No Summary Description

I. Conformity to the Corporate Governance Best-Practice Principles for TWSE/GTSM Listed Companies and disclosure of Corporate Governance Best-Practice Principles

V The company on December 24, 2015 20th session of the 7th Board of Directors through the "Code of Corporate Governance", and has been exposed in the company's official website.

No deviation

II. Equity structure and shareholders’ equity

(I) Internal procedures for suggestions, questions, disputes and litigation from shareholders.

(II) Control over the list of major shareholders and the controlling parties of such shareholders

(III) Establishment and implementation of risk control mechanism and firewall between the Company and its affiliates

(IV) Internal regulations prohibiting

insider trading

V

V

V

V

The company, in accordance with the laws and regulations of the company, under the norms of compliance with the law, the shareholder's recommendations are respected and carefully assessed and handled with a view to the implementation of shareholder rights and interests, the establishment of a spokesman, acting spokesperson and the Business relations Office system to correspond to the communication mechanism to ensure shareholder equity, the website also has an investor liaison platform , Doubts and disputes or inquiries. There have been no lawsuits with shareholders this year. The Company submits the report as required based on the information updated and made available by directors, managerial officers and major shareholders from time to time. The Company established the Shareholder Services Office in 2012 to deal with the shareholders’ affairs, and controlled the distribution of major shareholders’’ equity and changes in equity of the controlling party of the major shareholders. The assets, liabilities, financial management responsibilities between the Company and its affiliates were all handled in accordance with the relevant laws and the Company’s internal control system. Article 10 of the company’s Guiding Rules of Moral Behaviors prohibits insider trading.

No deviation No deviation No deviation No deviation

III. Organization of the Board and its duties

(I) Establishment and implementation of guidelines for diversity of the composition of the board of directors

V

Article 20th of the Code of Practice on corporate governance adopted by the Board of Directors of December 24, 2015 and article II of the "Measures for the election of directors" adopted by the shareholders' meeting of June 25, 2015 all stipulate that the composition of the Board shall be considered for pluralism.

No deviation

- 39 -

Assessment Item





(II) Other functional committees other than a remuneration committee or audit committee required by laws

(III) Rule establishment and annual

assessment of performance of the Board of Directors

(IV) Regular review and assessment of

the impartiality and independence of the external auditor

V

V

V

Members of the Board of Directors of the company have the necessary knowledge, skills and literacy to perform their duties, covering business management, leadership decision-making, industrial knowledge, financial accounting, legal and environmental protection, respectively. The Board of Directors has a policy of diversity and is disclosed on the company's website. The company has established remuneration and audit committee as required, establishment of other functional committees are being planned. On April 21, 2016, the Company has established the “Measures for the Performance Evaluation of the Board of Directors.” According to the provisions of the Measures, the Company conducts an internal evaluation of the performance of the Board of Directors every year, performs an external evaluation every three years, and ends in the first quarter of the following year. Complete before. In 2018, the company implemented an internal evaluation (including the overall board of directors, individual directors, audit committees) and commissioned the China Corporate Governance Association, a corporate body, to carry out an external evaluation, and the results of the evaluation were reported at the 12th Board of Directors at its 21st session, on March 22, 2019. The audit committee of the company and the Board of Directors regularly evaluate the independence of the visa accountant every year (Note 2), capricious and professional, and require the visa accountant to provide a transcendental declaration of independence, through the company to confirm the accountant and the company in addition to the cost of visa and fiscal cases, no other financial interests and business relations ; Family members of accountants also report to the Board of Auditors and the board of directors after not violating the requirements of independence. When discussing the independence and appointment of a visa accountant, the board of Directors of the company also checks the personal history of the accountant and the statement of independence of each accountant for discussion on the evaluation of its independence by the board of Directors. The accounting department of the company evaluates the independence of the visa accountant on its own once a year and reports the results to the Board of Auditors and the Board of Directors for consideration. The most recent date of presentation was A il 10 2019

The Company has not yet established other committees, other functional committees are being planned. No deviation No deviation


- 40 -

Assessment Item





IV. Has the Company established a full- (or part-) time corporate governance unit or personnel to oversee corporate governance affairs (including but not limited to furnish information required for business execution by directors, handle matters relating to board meetings and shareholders’ meetings according to laws, handle corporate registration and amendment registration, produce (or record?) minutes of board meetings and shareholders’ meetings, etc.)?

V

The company currently has a part-time unit for corporate governance. The secretary of the board of directors is responsible for providing the information required by the directors to conduct business, handling matters related to the board of directors and shareholders’ meeting, handling company registration and change registration, and producing the board of directors and shareholders' meeting. Assist the company to comply with the relevant laws and regulations of the board of directors and shareholders meeting. Also has a stock office and Finance Department Business relations Group in conjunction with corporate governance related matters. The company was appointed by the Board of Directors on April 10, 2019 through the establishment of the head of corporate governance, by the chief Financial Officer Chen Yingjun associate concurrently, to co-ordinate the handling of matters related to the board of directors and shareholders ' meetings, the production of board of Directors and shareholders' meeting proceedings, to assist directors in taking up and continuing education, to provide directors with the necessary assistant directors to comply with corporate governance related matters such as decrees. Chen Yingjun Associate has held the position of finance supervisor of a public offering company for more than three years. Regarding the company's annual business execution in 2019, the company will be presented on the company's website. In addition, the number of training hours for the head of corporate governance will be scheduled for completion in 2019.

No deviation

V. Communication channels with stakeholders, establishment of investors’ relations office on websites and proper response to stakeholders’ concerns of corporate social responsibility

V The company's external website has a stakeholder area, which is: investors, customers, suppliers, community residents, employees and other interested parties, and separately sets out the contact person and contact information. The company has responded appropriately to important corporate social responsibility issues of concern to stakeholders. The recent annual communication performance of various categories of stakeholders has been revealed in the Corporate social Responsibility report.

No deviation

- 41 -

Assessment Item





VI. Commission of professional organizations for general meetings

V

The company has established a share office in 2012 to handle shareholder affairs on its own.

The company has established a share office in 2012 to handle shareholder affairs on its own.

VII. Disclosure (I) Establishment of a website for the

disclosure of its financial Status and status of corporate governance.

(II) Adoption of other means for

disclosure such as setting up an English website, appointing personnel to gather and disclose relevant information, properly implementing the spokesman system, and posting the meetings minutes with institutional investors on websites

V

V

The Company’s website fully disclosed the Company’s management philosophy, corporate governance, product & business lines and financial information. The Company has established the spokesman system and installed the investors’ relations office dedicated to gathering and releasing the Company’s messages and updated the information posted on the website pursuant to the relevant laws periodically and disclosed important messages from time to time, and linked with TWSE "MOPS” to fulfill the disclosure.

No deviation No deviation

VIII. Other important information facilitating understanding of the functioning of corporate governance (such as the state of employees’ rights and interests, concerning employees, investor relations, vendor relations, rights of interested parties, continuing education of directors and supervisors, implementation of risk management policy and risk assessment criteria, implementation of customer policy and liability insurance purchased by the Company for directors and supervisors)

V The company has set up an enterprise relations group to deal with all kinds of information collection and release of the company and according to the relevant laws and regulations to regularly update the company's website information. The annual study of directors in the "Open Information Observatory" and annual report revealed, but also in accordance with the company's "Articles of association" article 19th and the "Code of Practice on corporate governance of listed cabinets" under article 39th to handle directors ' liability insurance.

No deviation

IX. Please indicate the improvement of the company's corporate governance evaluation results issued by the Corporate Governance Center of the Taiwan Stock Exchange Co., Ltd. in the past year, and propose priority strengthening measures and measures for those who have not yet improved: 1. In the year of 1.2018, the company's corporate governance evaluation did not score a total of 13 items (excluding

the questions that are not applicable and no points and no points). In 2018, the company strengthened the internal and external education related to the management of honesty and integrity. The training results are revealed on the company's website.

2. In the year of 2019, we will continue to focus on strengthening investment in energy-saving or green energy-related environmentally sustainable equipment, and continue to safeguard shareholders' equity and treat shareholders equally, implement corporate social responsibility, and enhance information transparency. These efforts are to establish a culture of corporate governance to boost shareholder activism, strengthen disclosure quality of corporate governance information and non-financial information.

3. 2018 in order to reserve high-quality manpower to form a combat team, the appointment of managers after-hours cross-domain learning courses, rapid strengthening of cross-domain functions, and with the factory organization adjustment strategy, for the production plant manager level appointed managers, cross-position, cross-step learning, and timely expatriate overseas study, To ensure that the future plant management and outposted support for the construction of plant engineering personnel complete, the use of Cadre manpower scheduling flexible, but also to enhance the smooth development of manpower to promote the pipeline, in order to achieve the company's sustainable business objectives.

4. In order to establish a secure and reliable electronic Exchange environment to ensure the security of data, systems,


- 42 -

Assessment Item





equipment and networks, the proper placement of information and the feasibility and effectiveness of information security practice operations, the company has established an "information security policy" and "Network security Regulations", and regularly reviews changes to facilitate compliance with.

Note 1: Regardless of whether or not the operation is checked 'Yes' or 'No', it should be stated in the

summary description field.

Note 2: Independent evaluation project for accountants Item Evaluation results Yes No Evaluation results

1 Whether or not the accountant or his or her spouse or minor children have direct or significant indirect financial interest relationship with the audit client, such as the relationship with the company or the sharing of interests.

No violation of independence

2 Whether or not the accountant or his/her spouse or minor children have financing or guarantee behavior with the audit client or audit client director, such as capital borrowing. However, this is not the normal exchange with the financial industry.


3 Whether or not an accountant has a close business relationship with an audit client, such as collecting commissions related to the business or establishing a potential employment relationship.


4 Whether or not the accountant and his assistant members have regular jobs and positions in the current or last two years that audit clients as directors, managers or have a significant impact on visa cases, and receive a fixed salary.


5 Whether or not an accountant has non-audit services that provide audit clients that may directly affect the audit work, such as performing management consulting or other non-visa operations, is sufficient to affect independence.


6 Whether or not the accountant holds an intermediary to audit the shares or other securities issued by the client.


7 Whetheror not the accountant has acted as a defender of the audit client or on behalf of the audit client to coordinate conflicts with other third rooms.


8 Whether or not an accountant has a relationship with a director, manager of an audit client or a person who has a significant influence on the audit case, such as a person in charge or manager, such as a spouse, direct blood, direct in-laws, or a two-relatives blood relative.


9 Whether or not an accountant has continuously appointed visa services for up to seven years is inconsistent with the provisions of the Business Incident Authority for the rotation of accountants, the handling of accounting matters on behalf of others, or the disposition or damage and independence of them.


10 The company obtained an independent statement issued by an accountant.

Has obtained the independent statement issued by An Hou Jianye Joint Certified Public Accountants Chen Meifang and Zhong Dandan Accountant, which has been independent.

- 43 -

(IV) Establishment, functions and operations of the Remuneration Committee, if any:

(1) Information about Remuneration Committee Members

ID

(Note 1)

Qualifications

Name

Whether having more than five years of work

experience

And the following professional qualifications

Status of independence (Note 2) Number of

public

companies

where the

person

holds the

title as

Remunerati

on

Committee

member

Remark

Lecturer or

above in

commerce, law,

finance,

accounting or

subjects required

by the business

of the company

in public or

private colleges

or universities

Judges, prosecutors,

lawyers, accountants

or other national

examinations

required for business

with the company.

Required

Work

experience

in

commerce,

law, finance,

accounting

or others

required by

the

Company

1 2 3 4 5 6 7 8

Independent

Director

Steve

Chen

Ruey-Long

3 Convenor

Others Chen

Sung-Yong 0

Others Pan Weigang 1

1. New. Member of

the 4th Remuneration

Committee from June

28, 2018.

Others Gao

Kong-Lian 0

Dismissal (term of

office expires)

Note 1: Please specify director, independent director or others. Note 2: Members who meet the following conditions two years before the election and during their term of

office are requested to play "" in the space below each condition code. (1) Not an employee of the Company or its affiliates. (2) Directors and supervisors of non-companies or related companies. However, if it is an independent

director set up by the company or its parent company or subsidiary in accordance with this Law or local country law, this is not the case.

(3) Not a natural person, spouse, underage children, or under the title of a third party who holds more than 1% of the outstanding shares issued by the Company or among the top 10 natural person shareholders.

(4) Not a spouse, kin at the second pillar under the Civil Code, or the lineal blood relatives within the third tier under the Civil Code as specified in (1) through (3).

(5) Not a director, supervisor or employee of a corporate shareholder who holds more than 5% of the outstanding shares issued by the Company, or a director, supervisor or employee of a corporate shareholder who is among the top 5 shareholders.

(6) Not a director, supervisor, manager or shareholder holding more than 5% of the outstanding shares of a specific company or institution in a business or financial relationship with the Company.

(7) Business owners, partners, directors (directors), supervisors (supervisors), managers of professionals, sole proprietorships, partnerships, companies or institutions that do not provide business, legal, financial, accounting, or consulting services for companies or their affiliates and their spouse.

(8) Not under any of the categories stated in Article 30 of the Company Law.


- 44 -

(2) Functions of the Remuneration Committee:

1. Regularly review the organizational procedures of the remuneration committee and make recommendations for amendments.

2. To set and regularly review the performance evaluation criteria, annual and long-term performance objectives of directors and managers, and the policies, systems, standards and structure of payroll compensation, and to expose the performance evaluation criteria in the annual report.

3. Regularly assess the achievement of the performance targets of the directors and managers of the company, and determine the content and amount of individual salary remuneration based on the evaluation results obtained from the performance evaluation criteria.

The Remuneration Committee shall perform the functions referred to in the preceding paragraph in the following manners:

1. Ensure that the company's salary compensation arrangements are in compliance with relevant laws and regulations and are sufficient to attract talents.

2. Performance evaluation and salary compensation of directors and managers shall be subject to the usual level of support given by the interbank, taking into account the performance of the individual, the time invested, the responsibilities assumed, the achievement of personal goals, the performance of other positions, the remuneration paid by the company in recent years to the same position, and the achievement of the company's short-and long-term goals. The company's financial position and other assessment of personal performance and the company's operating performance and the risk of the future is reasonable.

3. Directors and managers should not be guided to engage in the pursuit of salary payments that exceed the company's risk appetite.

4. The proportion of remuneration paid by directors and senior managers for short-term performance and the timing of payment of partial changes in pay should be determined taking into account the characteristics of the industry and the nature of the company's business.

5. The content and amount of salary remuneration of directors and managers shall be taken into account for their reasonableness and the decision on the remuneration of directors and managers should not be significantly contrary to the performance of financial performance, and if there is a major recession or long-term loss, their remuneration should not be higher than that of the previous year.

6. Members of the remuneration committee shall not be included in the discussion and vote in their decisions on the remuneration of their personal salaries.

- 45 -

(3) Information on the operation situation of the pay compensation committee

1. The Company’s Remuneration Committee consists of 3 members.

Term of office of the members: the fourth session of the Pay Compensation Commission

shall expire from June 28, 2018 to April 10, 2021 (the same term as the 21st session of

the Board). The 2018 annual pay committee met 5 times (A) and the members were

present at the following circumstances:

Job Title Name

Actual

attendance

Number of

times (B)

Delegate

attendance

Number of

times

Actual attendance

rate (%)

(B/A) (Note)

Remark

Convenor

Steve

Chen

Ruey-Long

5 0 100

The term of office of the

members of the third

remuneration committee shall

expire and be elected to the

fourth remuneration committee.

Member Chen

Sung-Yong5 0 100

The term of office of the

members of the third

remuneration committee shall

expire and be elected to the

fourth remuneration committee.

Member Pan Weigang 4 1 80 New; Member of the fourth

remuneration committee

Member Gao

Kong-Lian1 0 100

Old; The term of the third

salary remuneration committee

expires

Other notes:

1. If the Board of Directors does not adopt or amend the recommendations of the Compensation and

Remuneration Committee, it shall state the date and time of the Board of Directors, the content of

the proposal, the results of the resolutions of the Board of Directors and the company's handling of

the opinions of the Compensation and Remuneration Committee (e.g. the salary remuneration

approved by the Board of Directors is better than the Remuneration Committee) The

recommendations should state the difference and the reasons for this: No such situation.

2. The resolutions of the Compensation and Remuneration Committee, if the members have objections

or reservations and have a record or written statement, the date, period, contents of the proposal, the

opinions of all members and the opinions of the members shall be stated: no such situation.

3. The date of the meeting, the period of the meeting, the content of the proposal, the outcome of the

resolution, and the company's comments on the Compensation and Remuneration Committee in the

most recent year are as follows:


- 46 -

Salary compensati

on Committee

The content of the motion and its follow-up Resolution

results

The company's handling of the opinions of the

Compensation and Compensation

Committee

3rd 9th time

2018/02/26

I. The company's 2017 annual employee remuneration allocation case.

II. The company's 2017 annual director remuneration allocation case.

III. The company's chairman Lin Junzhi's compensation case.

IV. The compensation case of Yu Jun, the general manager of the company.

V. Chen Jun, deputy general manager of the production department of the Company and 11 other members appointed managers (listed as attached).

VI. The new manager of the company has a total of 23 appointed managers (list as attached) compensation case.

VII. The remuneration case of Zou Junzhi, the new general manager of the company.

VIII. The new land development department of the company is in contact with Zhang Junzhi's compensation case.

All members of the Committee agreed to pass the motion

The Board of Directors agreed to pass by all the directors present

4th 1th time

2018/07/30

I. It is proposed to amend some provisions of the “Regulations of the Compensation and Remuneration Committee” of the Company for review.

II. The 21st session of the company's chairman Lin Junzhi's compensation case.

III. The 21st Vice Chairman of the Company, Bai Junzhi's compensation case.

IV. The 21st directors' remuneration of the Company (excluding independent directors).

V. The 21st Independent Directors' Compensation Case of the Company.

VI. The compensation case of Lin Junzhi of the Company's Occupational Safety and Health Center.

VII. The compensation plan of the company's equipment procurement department.

VIII. The compensation case of Huang Junzhi of the Company's Office of Human Resources Administration

IX. The company's data application department Zhang Jun's compensation case.

All members of the Committee agreed to pass the motion

The Board of Directors agreed to pass the motion by all the directors present

4th 2th time

2018/09/17

I. Liu Junzhi, deputy general manager of the Land Development Department of the Company.

II. The compensation case of Fan Jiangjun, special assistant to the chairman of the company. III. The company's shareholder manager Yang Junzhi's compensation case.

IV. The company's mainland business department associate Li Junzhi's compensation case.

V. The employee's compensation distribution case for the company's appointed managers in 2017.

All members of the Committee agreed to pass


- 47 -

Salary compensati

on Committee

The content of the motion and its follow-up Resolution

results

The company's handling of the opinions of the

Compensation and Compensation

Committee

4th 3th time

2018/10/25

1. The amendments to the employee compensation distribution of the company's 2017 appointed managers.



4th 4th time

2018/12/27

I. The special bonus case of Lin Junzhi, the chairman of the company.

II. The Company renewed the remuneration of the highest adviser Shen Jun.

III. The company's new production department deputy general manager Jia Junzhi's compensation case.

IV. The compensation case of Lin Junzhi, the new manager of the company's manpower administration department. V. The new general manager of the company's new general manager's office planning group manager-level special assistant Wu Junzhi's compensation case.



Note:

1. For those who have resigned from the salary remuneration committee before the end of the year, the

resignation date should be indicated in the remarks column. The actual attendance rate (%) is

calculated based on the number of meetings of the remuneration committee during their employment

and their actual attendance.

2. Before the end of the year, if the salary remuneration committee is re-elected, the new and old

remuneration committee members shall be filled in and the remarks column shall indicate the

member as old, new or re-election and re-elected date. Their actual attendance rate (%) to the

committee meetings shall be calculated based on the number of meetings called and the actual

number of meetings they attended, during the term of office.


- 48 -

(V) Implementation of Corporate Social Responsibility:

Assessment Item

Status (Note 1) Deviation from the Corporate Social Responsibility Best-Practice

Principles for the TWSE/GTSM Listed

Companies, and reasons thereof


I. Implementation of corporate governance

(I) Policy of corporate social responsibility and review on results of implementation

(II) Periodic education of social

responsibility (III) Promotion of social

responsibility by the Company’s full-time (part-time) functional units, Handling by and reports to Board of Directors

(IV) Policy of reasonable salaries,

combination of staff performance evaluation and social responsibility systems, and establishment of reward and punishment system

V

V

V

V

The Company established a “Corporate Social Responsibility Committee.” With the establishment of the committee, coordination and integration of different departments is enabled for sustainable development. The governance structure of the committee is divided into three categories: "Management Governance Group," "Social Relations Unit" and "Environmental Sustainability Group." It also has an executive secretariat responsible for implementing and promoting the relevant matters of the committee and reporting the situation to the board of directors every year. The company has established its own corporate social responsibility guidelines, which is submitted to the chairman and subject to the board of directors and audit committee for a resolution. The company annually promotes or conducts education about social responsibility, which is focused on the economic, environmental and social issues generated by operating activities. The Company established a “Corporate Social Responsibility Committee” in September, 2013. The chairman was appointed as the commissioner and another three executives were responsible for supervising and promoting related projects of the three CSR aspects, respectively. Establishment of the CSR Executive Secretariat, with the joint responsibility of the Occupational Safety Centre and the Business Relations Unit of the Finance Department, to implement and promote the relevant matters of the Committee and to report to the Board of directors in 2018.11 on the results of CSR implementation and future directions for the 2019 2018 (Note). The relevant operations and execution are disclosed on the company's website. The company’s incentive plans have a reasonable salary plan, as well as integrates a staff performance evaluation system, corporate social responsibility system and national labor policy. The company has established a distinct and effective reward and penalty system on personnel management.

Conformity to Article 4 and Article 5 of the Principles Conformity to Article 8 of the Principles Conformity to Article 7 of the Principles Conformity to Article 9 of the Principles

II. Development of a sustainable environment

(I) Striving to raise resource usage effectiveness, reduce environmental impact and improve the use of recyclable materials

(II) Establishment of an

environmental management

V

V

(I) In addition to the use of recycled paper and the

separation and recycling of wastes, the company also re-uses waste gas and wastewater in a segmented manner to improve the utilization efficiency of various resources and maintain/improve productivity. Reducing the generation of waste; every month, the company's supervisory meeting will conduct various productivity efficiency report discussions to confirm the control of the energy utilization efficiency of each energy source.

(II) The company's environmental management system is established in accordance with the ISO

Conformity to Article 12 of the Principles Conformity to Article 13 of the Principles

- 49 -

Assessment Item





system appropriate to the characteristics of its industry.

(III) Environmental management

units and staff dedicated to improving environmental performance

V

14001 standard of the International Standards Organization, and is verified by the third unit of the notary (for example, the Bureau of Standards and Inspection of the Ministry of Economic Affairs, BSI).

(III) 1. The Company pays attention to the impact of climate change on its operational activities. All three affiliated companies have requested qualified certification companies to complete the greenhouse gas emissions inventory inspection in accordance with ISO 14064-1 and obtain a verification statement.

2. In order to promote greenhouse gas reduction, the Company and neighboring China Steel Corporation jointly promote regional energy integration, thereby improving energy use efficiency, reducing pollution emissions and fulfilling corporate social responsibility.

3. In 2015, the company introduced an energy management system at the No. 3 Plant and obtained ISO 50001 certification.

4. In response to climate change, the company established the Energy Conservation and Carbon Reduction Group in 2005 to set a goal of 2% energy saving, carbon reduction and water saving reduction per year and hold energy saving and carbon reduction meetings every quarter to report and review the progress of each plant reduction project. Collect the results and the relevant domestic and foreign information, assess its trends, to plan the company's overall future strategic plan.

Conformity to Article 17 of the Principles

III. Social welfare (I) Management policy and

procedure in accordance with relevant regulations, laws and the International Bill of Human Rights

(II) Establishment of employee complaint channels and proper handling

(III) Safe and healthy work

environment, and regular employee safety and health education

V

V

V

The Company established work rules in accordance with the relevant labor laws to protect employees’ legal interests and rights. The rules were approved by the city government for future reference. For cases of harm to labor rights and interests, the company provides effective and appropriate grievance mechanisms in accordance with the provisions of Articles 24 and 25 of the Integrity Operating Procedures and Conduct Guide to ensure the equality and transparency of the appeal process. The complaints pipeline should be concise, convenient and smooth and the employees’ complaints should be properly responded to. 1. The Company implements the safety and health

management system of the Taiwan Occupational Safety and Health Management System (TOSHMS/CNS 15506) and OHSAS 18001, which is implemented by the Department of Safety and Security and is notarized by the third unit (for example, the Bureau of Standards and Inspection of the Ministry of Economic Affairs, BSI). Verification passed. The Company provides its employees with a safe and healthy work environment and regularly implements employee safety and health education

Conformity to Article 18 of the Principles Conformity to Article 18 of the Principles Conformity to Article 20 of the Principles


- 50 -

Assessment Item





(IV) Establishment of the

mechanism for periodic communication with employees, and notification to employees of the circumstances which might materially affect the operation in a reasonable manner

(V) Plans of effective career and

capacity development (VI) Establishment of policies

protecting consumer rights and interests and complaint platforms based on R&D, purchase, production, operation and service procedures

(VII) Marketing and labeling of products and service in accordance with relevant laws and international standards

(VIII) Evaluation of suppliers with environmental and social impacts before cooperation

V

V

V

V

V

measures.2. The company is committed to providing medical

and health service staff planning, including resident doctors and nurses to handle on-the-spot services, to promote various physical and mental protection programs, a medical room in the factory area, and simple ambulance facilities in each site area. Both the company and the third factory have an AED (Automated External Defibrillator) "automated external cardiac defibrillator" and arranged annual health checkups for all employees, providing relevant health guidance and health education.

1.The three plants have established their own labor-employee committees. Meanwhile, a corporate labor-employee committee was established throughout the Company, which convened a meeting once every three months. All the resolutions made at the meeting were executed upon being reviewed and approved. The Company would also communicate important messages to employees via the computer network and emails.

2. The representative acting on behalf of the labors in the employee-labor committee shall be elected by the labor union.

The company creates a friendly environment for the employees’ career and provides them with effective capacity training programs to enrich the employees’ professional and management skills. The company’s purchase, production, operations and service procedures shall ensure transparency and security of its products and service and implementation in operating activities. The company’s products are marked in accordance with the relevant laws and international standards. Prior to business dealings, the company would evaluate if suppliers have records of environmental and social impacts to prevent transactions with companies that violate its corporate social responsibility policy.

Conformity to Article 22 of the Principles Conformity to Article 21 of the Principles Conformity to Article 23 of the Principles Conformity to Article 24 of the Principles Conformity to Article 26 of the Principles

(IX) Contracts including terms of rights to terminate or rescind a contract at any time when suppliers violate its social responsibility policy and cause major impacts on the environment and the society

V

When signing contracts, the Company would ensure that both sides comply with its social responsibility policies and include terms of rights to terminate or rescind a contract at any time when suppliers violate its social responsibility policy and cause major impact on the environment and the society.

Conformity to Article 26 of the Principles

IV. Strengthening information disclosure

(I) Disclosure of information related to the relevance and reliability of the company’s commitment to corporate social responsibility on its website or on TWSE "MOPS.”

V

On the company's website, set up the Corporate CSR Zone to expose relevant corporate social responsibility policies, systems or related management policies and specific promotional plans, as well as key stakeholders and their concerns to expose and provide information such as stakeholder feedback channels.

Conformity to Articles 28 and 29 of the Principles

- 51 -

Assessment Item





5. If the company has its own corporate social responsibility code based on the Code of Practice for Corporate Social Responsibility of Listed Companies, please describe the difference between its operations and the code: The Corporate Social Responsibility Committee is in accordance with the Code of Corporate Social Responsibility. At the end of each year, after a discussion by the Corporate Social Responsibility Committee, the next year's CSR implementation plan will be submitted to the Board of Directors, and the implementation results reported and stakeholder concerns will be fixed to the Board of Directors at the end of the year.

VI. Other important information to facilitate better understanding of the Company’s corporate social responsibility practices: The Company’s Welfare Committee will organize the employees’ travels periodically to keep employees healthy, both physically and mentally. Co-sponsors environmental protection workshops, e.g. organization of the Environmental Protection Administration Soil and Groundwater Environmental Protection Law and Regulation System and Technology Workshop (visit to An-Shun Site).

VII. Verification of Company products or the Corporate Social Responsibility Report per the standards of relevant certifying organizations, if any: 2017Year CSR report, based on the GRI Sustainability Reporting guidelines (GRI Standards) core options of the Global Reporting Initiative, GRI (the World) and the International IR Framework (Integrated), published by the International Commission for Integrated Reporting (Reporting Council), The independent and credible United accounting firm (KPMG) has been entrusted with the limited assurance of the Republic of China on the basis of the first guideline of the Guidelines bulletin, and the Independent and limited assurance report issued by KPMG is also included in the present report. The financial data of the operational performance was obtained from the CPDC financial report after the audit by the accountant and the greenhouse gas emission data was obtained from the statement issued by the third-party verification agency.


- 52 -

Market/Customer Analysis survey

Business Governance Section

Board of Directors

CSR Chairman: Secretary Lin

Regularreturn

Suggested Feedback

Committee Secretariat Secretaries-General: General Manager

Executive Secretary Industrial and Security Environmental Protection

Center/Enterprise Relations Group

Social Relations Group Environmental Sustainability Group

Sustainable Development Vision and Strategy

Operations / Financial Risk and Performance

Purchasing and Supply Chain Management

Stakeholder Communication Community

Feedback / Public Welfare Activities

Labor Human Rights/ethics

Regulatory Compliance/Information Disclosure

Energy and Climate Change

Product Quality / Innovation

Green Process and Products

Lauanwei/pollution prevention and control

Environment and community participation

Note: CPDC Social Responsibility Framework

The main tasks of the three major groups are as follows:

Group Job title description Business

Governance Section

• Coordinating the development and promotion of sustainable Development vision and Strategy, disclosure of operational and financial risks and performance

• Procurement process and supply chain management, as well as stakeholder communication and other matters

• Market and customer analysis and investigation Social

Relations Group

• Promoting community feedback and social welfare activities, labor human rights and ethics

• Social Compliance and information disclosure Environmental Sustainability

Group

• Manage energy and climate change related issues • Product quality control and Innovation Research, Green products • Labor safety and health issues, pollution remediation and environmental and social

participation

- 53 -

Implementation effectiveness of the CPDC Commission on Social Responsibility, 2018

2018 Report of the CPDC Committee on Social Responsibility to the Board of Directors

Annual implementation focus

Continue to echo the United Nations Sustainable

Development Goals (SDGs)

Continue to promote plant energy saving and carbon

reduction projects and apply for relevant

certification.

Voluntary initiative to participate in international

sustainable performance evaluation.

Strengthen communication with stakeholders through

multiple channels.

CSR Public welfare activities that continue to

promote social care.

Next year work plan

Follow the climate Change Property Disclosure

Guidelines (TCFD) to assess the potential financial

impact of climate change on the company.

Strengthen performance management of supplier

governance, Environment and society (ESG).

Import the real value assessment (True values) of

an organization-based enterprise to internalize the

environmental and social external costs.

Actively participate in the DJSI rating,

comprehensively review CPDC ESG performance,

identify gaps with global sustainability standards

and continue to strengthen CPDC's physique.

A CSR event is held once a season

2018 CPDC Social Responsibility Commission results performance

On August 14, 2018, the CDP Climate Change Questionnaire was formally submitted to review the

effectiveness of carbon management measures by responding to the CDP questionnaire.

In July 2018, institutional investors were invited to fill out the questionnaire “Institutional Investors Pay

Attention to CPDC to Promote Corporate Social Responsibility”. Samples of questionnaires were collected

continuously, followed by questionnaire analysis, which will serve as a reference for stakeholder

communication and corporate social responsibility promotion. One of the bases.

Complete the 2017 Corporate Social Responsibility Report and verify it through a third party.

Participated in the Taiwan Enterprise Perpetual Award organized by the Taiwan Sustainable Energy Research

Foundation of the Consortium, and won the 11th session of the TCSA Taiwan Enterprise Perpetual

Award-Top50 the White Gold Award for sustainable reporting.

The new control room building of CPDC Dashe Plant was awarded the “Green Building Diamond Grade”

certification on March 27, 2018. The first factory nylon pellet factory was awarded the “Green Building

Silver Grade” certification on July 26, 2018.

Dashe Plant and Toufen Plant September 15, 2018 both obtained the industry bureau "Green Factory seal."

Toufen Plant obtained the ISO 14046 Water Footprint Verification statement on October 16, 2018.

Hsiaokang Plant was awarded the Excellent Manufacturer of Greenhouse Gas Voluntary Reduction by the

Industrial Bureau of the Ministry of Economic Affairs.

A total of 4 large-scale charity events were held in 4 quarters. A total of 331 CPDC colleagues served as

volunteers, serving 10,183 people and establishing the volunteer culture of CPDC. [For related information,

please refer to the company's official website and corporate social responsibility report].


- 54 -

(VI) The company to fulfill the integrity of the business situation and the implementation of

measures:

1. Implementation of good faith business situation

Evaluate the project

Status (Note 1) Deviation from the Ethical Corporate Management Best-Practice Principles for the TWSE/GTSM Listed Companies, and reasons thereof


I. Establish ethical business policies and programs

(I) The Company has the ethical business policy expressed explicitly in the Company’s regulations and external documents, as well as the active implementation committed by the board of directors and management.

(II) Prevention program for unethical

behavior regulated by the Company, as well as the carrying out of operating procedures, behavior guidelines, discipline of violation and complaint system, and implementation of the program.

(III) Does the company adopt preventive measures for the business activities of the seventh paragraph of Article 7 of the “Code of Integrity of Listed Companies” or other business activities with high risk of dishonesty?

V

V

V

On 15 May 2012, the Board of Directors passed the “Integrity Code of Practice” and the “Code of Ethical Conduct” which clearly stated that the directors, managers and all colleagues of the Company are required to abide by the policy of good faith management. On April 25, 2013, the Company promulgated “China Petroleum Chemical Industry Development Co., Ltd. Integrity Operating Procedures and Behavior Guidelines” and “China Petroleum Chemical Industry Development Co., Ltd. Ethical Code of Conduct and Programs of All Levels.” The company's directors, managers and all colleagues should pay attention to matters when implementing the business and actively implement and ensure the policy of integrity management. In addition to the above regulations, the company's external website has already stated the corporate social responsibility commitment letter, revealing the principle of good faith management. On April 25, 2013, the Company promulgated the “Integrity Operating Procedures and Behavior Guidelines” which clearly stated the handling procedures, reporting channels and punishment and appeal procedures for company employees involved in dishonesty and implemented them. The company promulgated integrity operating Procedures and conduct guide on April 25, 2013, and in accordance with the principles of the industry procedures and conduct guidelines, to declare the integrity of the business policy, the establishment of business relations before the integrity of business evaluation and business objects to explain the integrity of business policy. Avoid dealing with dishonest operators and contracts to specify the integrity of the operation and other terms are indeed implemented. Meanwhile, the Company should organize the ethical business education and training program or propagation for the Company’s staff at least once a year, to enable the staff to fully

No deviation No deviation No deviation

- 55 -




comprehend the Company’s determination to implement the Company’s ethical business, the Company’s ethical business policy, prevention measures and consequence for commitment of unethical conduct.

II. Implement ethical business (I) Evaluation of individuals that have a

record of unethical behavior and regulation of the ethical code of conduct in the business contract.

(II) Promotion of ethical business by the

Company’s full-time (part-time) functional units’ subject to Board of Directors, and regular reports of status of the supervision to Board of Directors

(III) The implementation of the Company’s

prevention of interest conflict policy and the appropriate reporting channel

(IV) The implementation of the Company’s

effective accounting system and internal control system for the implementation of ethical business, as well as periodical audits by internal auditors or committed accountants

(V) Does the company regularly hold

educational training inside and outside on integrity management?

V

V

V

V

V

When entering a contract with another party, the Company should verify the overview of the other party’s ethical business and would expressly state, at least, the following terms in the contract by including ethical business into the contract terms and conditions: 1. If either party is involved in any unethical conduct

in business activities, the other party may terminate or rescind the contract unconditionally.

2. Define definite and reasonable payment terms, including place of payment, mode thereof and the relevant taxation laws and regulations to be met, et al.

The establishment of the company to promote corporate integrity management department is set by the Legal Affairs Center and the Human Resources Administrative Office, and the human resources administrative department handles the revision, implementation, interpretation, consulting services and notification of the operation procedures and behavior guides. It is supervised by the auditing office and reports to the board of directors on a regular basis. Relevant operations and implementation are disclosed on the company's website. The company's " integrity operating procedures and code of conduct" article 11th already sets out the policy and handling of the interests of the directors and all the staff of the company, and the 7th provides that the personnel of the Company shall, in the event of an undue interest received by another person, report to the immediate supervisor, and inform the Special Unit that they have implemented it. The Company has already defined an effective accounting system and internal control system, and executed and implemented the same as required. The Company will have the audit department conduct the audit periodically and report the audit

No deviation No deviation No deviation No deviation No deviation


- 56 -




result to the board of directors. The company at least once a year to the directors to promote the company's "Code of Good faith" and the company "Code of Ethical conduct, in order to ensure the implementation of corporate governance. At least once another year by the Legal Center as a lecturer on the factory and office colleagues to carry out "integrity business code" and the company "Code of Ethical conduct" advocacy.

III. The operations of the reporting system

(I) Specific reporting and reward systems, reporter friendly channels and representative assigned to deal with the reporting issues

(II) Does the company stipulate the

operating procedures for investigation and the relevant confidentiality mechanism for accepting the report?

(III) Protection of whistleblower from

improper discipline

V

V

V

the company " integrity operating procedures and code of conduct" article 24th specifies the specific way of reporting, there is a clear whistle-blower telephone and e-mail and the audit room as the receiving task unit. Article 25 stipulates that integrity management is included in employee performance appraisal and human resources policies, and a clear and effective reward and punishment system is established. Article 11 of the Company's "Code of Ethical Conduct" (reporting obligations and guarantees): The company will handle the reported cases in a confidential manner and will do its utmost to protect the information security of the presenters. Threats or revenge against whistleblowers are not allowed. Another " integrity operating procedures and code of conduct" article 21st provides that the company discovers or receives the handling procedure of the person involved in the dishonest behavior of the company's personnel and article 22nd stipulates that the other person is engaged in the handling of dishonest acts against the company. Article 11th of the Company's Code of Ethical Conduct (reporting obligations and guarantees): The company will handle the reported cases in a confidential manner and will make every effort to protect the information security of the submitter. Threats or revenge against whistleblowers are not allowed.

No deviation No deviation No deviation

IV. Strengthening information disclosure IV. Disclosure of ethical business

principals and implementation results on its website or TWSE “MOPS”

V

The information posted on the Company website would be updated from time to time subject to the amendments made by the competent authority.

No deviation

- 57 -




The internal regulations would be amended and updated from time to time and the importance thereof would be propagated with due diligence.

V. If the Company has established its own ethical business principles based on “Ethical Business Best Practice Principles for TWSE/GTSM Listed Companies”, please describe any discrepancy between the principles and their implementation: No discrepancy.

VI. Other important information that helps to understand the company's integrity management operation: (If the company reviews and amends its established code of conduct, etc. Situation ) According to the Code of Integrity Code, on April 25, 102, CPDC Chief Executive Letter No. 2013040027 promulgated 'China Petrochemical Development Co., Ltd. Integrity Operation Procedures and Behavior Guidelines' and implemented the integrity management policy. The subsidiaries have not yet defined their own ethical business principles. Notwithstanding, they will implement the same, step by step, by taking into consideration the current overview and relevant laws and regulations.

2. Implementation of measures

The Company has defined a “fair trade policy” in the first paragraph of the “Business

Conduct Policy” to enable the public interest to deserve the best protection under fair

competition if no collusion or conspiracy is created among the competitors. The Fair-Trade

Act benefits all parties of various economic, political and social groups. The Company’s

Administration department has restated its adherence in all philosophies under the fair-trade

principles. Therefore, under the principle of encouraging the staff to seek profit through

legal and valid means, any acts of the Company are conducted pursuant to the laws.

For the sake of ethical business and sustainable development, the Company complies

with laws and regulations and social requirements and remains fully committed to fulfilling

its corporate social responsibility. To enable customers to received high-quality products,

the Company ensures that a quality control procedure is followed during the acquisition of

raw materials, storage, production and output. The Company realizes that pursuing

excellence in product quality remains the best weapon against strong competitors in the

world and also supports the Company’s ethical business philosophy. Therefore, the

company in the early stages of the implementation of "5S," "TPM," "TQM," "HAZOP," and

" SHAPE-UP" and other comprehensive quality control campaigns, and in 1997 by the

Ministry of Economy Commodity Inspection Bureau ISO9002 Quality Management System

certification, further in 1998 access to the Commodity Inspection Bureau ISO14001

Environmental Management System certification.


- 58 -

(VII) Please disclose access to the Company’s Corporate Governance Best Practice Principles and

related rules and regulations, if any:

1. The Company prepared the relevant regulations and status in accordance to the “Corporate

Governance Best-Practice Principles for TWSE/GTSM Listed Companies” and disclosed

the following important regulations or status on the Company’s website:

(1)Articles of Incorporation

(2)Rules Governing the Proceedings of the Shareholders’ Meeting

(3)Rules Governing the Duties and Responsibilities of Independent Directors

(4)Rules for the Election of Directors

(5)Rules Governing the Review of Information about Directors

(6) Rules of procedure of the Board of Directors

(7) Situation of director's training

(8) The organizational procedures of the Board of Auditors

(9) Organizational procedures of the Pay Compensation Commission

(10) CPDC Business Behavior Policy Book

(11) CPDC Code of Ethical conduct

(12) CPDC Integrity Code of Practice

(13) Integrity management procedures and behavior guide

(14) Internal major information processing procedures

(15) The company holds the education and training situation inside and outside the integrity

management

(16) Operating procedures for speakers and acting spokespersons

(17) Fund loan and endorsement guarantee procedures

(18) Obtain or dispose of asset handling procedures

(19) Accounts Receivable Evaluation Policy

(20) Shareholder attendance at the shareholders ' meeting on-site check-in operating

procedures

(21) CPDC code of Practice on corporate social responsibility

(22) CPDC Code of governance

(23) CPDC implementation of the diversity policy of the Board of Directors

(24) CPDC operating procedures for suspension and resumption of trading

(25) Organizational procedures of the Board of Directors

(26) Measures for the evaluation of Board performance

(27) Results of the most recent annual board performance evaluation

(28) Communication between independent directors and audit supervisors and accountants

2. Access to the Company website at http://www.cpdc.com.tw, where the information about

the Company’s finance and corporate governance is disclosed.

- 59 -

(VIII) Other information enabling better understanding of the Company’s corporate governance:

1. The “Operating Procedures for the Handling of Internal Material Information” was prepared

in order to manage the Company’s internal material information and this procedure has been

communicated to all directors, managerial officers and employees. The procedures are

posted on the Company’s intranet to be bound by all employees to prevent any violations of

laws and regulations.

2. The new directors of the company, at the time of their appointment, download and transmit

the directors ' advocacy data and manuals and the securities market specifications that

should be noted by the Taiwan Stock Exchange, and distribute the latest version of the

insider's equity trading advocacy manual and the company's important regulations to all

insiders, such as directors and managers, to facilitate compliance and understanding.

3. The situation of the directors' training in 2018

Job Title Name Take office Date

Date of Continuing Education

Organizer Class Name Training hours

Whether or not the training is in compliance with the regulations

(Note)From Until



Steve Chen

Ruey-Long 2018/04/11

2018/09/21 2018/09/21 Securities and Future Institute

Analysis on the important issues of the latest company law revision

3.0 Yes

2018/09/21 2018/09/21Securities and Future Institute

Development trends and important standards of money laundering and financial terrorism prevention system

3.0 Yes

2018/04/13 2018/04/13

Taiwan Corporate Governance Association

On the change of tax environment and the trend of tax reform on both Sides of the Taiwan Strait and the United States from the tide of global anti-tax avoidance

3.0 Yes



Chu Yun-Peng

2018/04/11

2018/10/24 2018/10/24

Chung-Hua Association For Financial And Economic Strategies

How to protect shareholders' rights and interests: Who stole the shareholder's money?

2.0 Yes

2018/10/24 2018/10/24


How to protect shareholders' equity: independent directors ' due diligence and minority shareholder protection mechanism in global corporate governance trend

2.0 Yes

2018/10/24 2018/10/24


Introduction of large investment case review principles and compensation system

2.0 Yes



Pan Wen-Yen

2018/04/11

2018/05/04 2018/05/04 TAISE Sustainable Development Strategy of the engineering service industry

3.0 Yes

2018/05/14 2018/05/14Securities and Future Institute

Discussion on the prevention and control of money laundering, the countermeasures against financing terrorism and the act to follow the law.

3.0 Yes


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Job Title Name Take office Date

Date of Continuing Education

Organizer Class Name Training hours

Whether or not the training is in compliance with the regulations

(Note)From Until

Chairman Ko-Ming Lin

2018/04/11

2018/08/21 2018/08/21


CSR and sustainable governance in the general trend

3.0 Yes

2017/10/25 2017/10/25


The latest revision trend and analysis of company law 3.0 Yes

Vice Chairman

Vice Chairman

Bai Jiun-Nan 2018/04/11

2018/05/18 2018/05/18


How directors do a good "duty of care" 3.0 Yes

2018/08/29 2018/08/29


Enterprise transformation and upgrading innovation and social responsibility

3.0 Yes


Guo Jiun-Huei 2018/04/11

2018/08/09 2018/08/09


Brief introduction and case sharing of Director’s and Supervisor's liability insurance

3.0 Yes

2018/11/08 2018/11/08


Discussion on the legal problems of real-time communication 3.0 Yes


Lian-Sheng Tsai 2018/04/11

2018/03/29 2018/03/29

Chinese National Association of Industry and Commerce

The development trend and model practice of corporate governance and corporate social responsibility

3.0 Yes

2018/05/23 2018/05/23

Chinese National Association of Industry and Commerce

The cognition and response of enterprises to climate change and global warming

3.0 Yes


Lin Kuen-Min

g 2018/04/11

2018/06/21 2018/06/21


Obligations and responsibilities of companies and Directors and Supervisors under the Law of Securities trading

3.0 Yes

2018/11/09 2018/11/09


The response of anti-tax avoidance policies and measures

3.0 Yes


Kuan Ren Soong 2018/04/11

2018/08/21 2018/08/21


CSR and sustainable governance in the general trend

3.0 Yes

2018/11/21 2018/11/21


The latest revision trend and analysis of company law 3.0 Yes

Note: Whether or not it complies with the hours, scope, system and arrangement of continuing education and

information disclosure defined in the “the Directions for the Implementation of Continuing Education for

Directors and Supervisors of TWSE Listed and GTSM Listed Companies.”

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4. The situation of directors’ and managers’ training:

(1) 2018/08 Appoint TAIWAN Corporate Governance Association to invite instructors to

teach the company's directors and managers the "general trend in CSR and sustainable

governance" course which reads as follows:

Date/time: 2018/8/21 morning 9:00~12:00

Title: general trend in CSR and sustainable governance

Lecturer: Niven Huang, The General Manager of KPMG Sustainability Consulting Co.,

Ltd.

Name list of directors/managerial officers attending the continuing education programs:

Job Title Name

Chairman Ko-Ming Lin

President Janson Yu

Vice President Yuan-Long Chen

Vice President Huang Kuo-Tsai

Special Assistant of ChairmanFAN, JIANG,

JIANCHENG

Special Assistant of Chairman Lin Ching

Lead Auditor Yang Huei-Fan

Assistant Vice President Chen Ying-Chun

Assistant Vice President Zuo Shu-Tong

Assistant Vice President Lin Chin-Hsiang

Assistant Vice President Chang Wen-Hou

Factory Chief Chien hsien Li

Factory Chief Kao Chi-Tsung

Factory Chief Cheng Jung-Wen

Manager Yang Shou-Chin

Manager Venessa Chi

Manager Jian Zhanghong

Manager HUANG, YIZHEN

Manager Yang Ming-Ling

Manager Chen Yung-Long

Manager Zhang Chenglong


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(2) 2018/11 Appoint TAIWAN Corporate Governance Association to invite instructors to

teach the company's directors and managers on the "The latest revision trend and analysis

of company law " course, which reads as follows:

Lecture Date/Time: 2018/11/21 morning 9:00~12:00

Title: The latest revision trend and analysis of company law

Lecturer: Cai, Chaoan, Lawyer of PwC Legal

Name list of directors/managerial officers attending the continuing education programs:

Job Title Name

Independent Director Kuan Ren Soong

President Janson Yu

Special Assistant of Chairman Lin Ching

Special Assistant to General

manager's office Gao Tianshui

Special Assistant to General

manager's office Wu Junxian

Lead Auditor Yang Huei-Fan

Assistant Vice President Chen Ying-Chun

Assistant Vice President Zuo Shu-Tong

Assistant Vice President Tsai Wen-Chih

Assistant Vice President Lin Chin-Hsiang

Factory Chief Cheng Jung-Wen

Manager Yang Peiyu

Manager Yang Ming-Ling

5. M.O.P.S.: http://mops.twse.com.tw/

6. The company's website: http://www.cpdc.com.tw Investor Zone

- 63 -

(IX) Status of implementation of the internal control system:

1. Statement of Internal control

China Petrochemical Development Corporation

Declaration of International Control System

March 22, 2019

China Petrochemical Development Corporation (CPDC) had inspected the 2018 internal

control system autonomously with the results illustrated as follows:

I. CPDC is fully aware that the board of directors and the management are responsible for

the establishment, implementation, and maintenance of the internal control system and

it is established accordingly. The purpose of establishing the internal control system is

to reasonably ensure the fulfillment of operation effect and efficiency (including profit,

performance, and protection of assets safety), financial report reliability, instantaneity,

transparency and compliance.

II. The internal control system is designed with inherent limitations. No matter how perfect

the internal control system is, it can only provide a reasonable assurance to the

fulfillment of the three objectives referred to above. Moreover, the effectiveness of the

internal control system could be affected by the changes of environment and

circumstances. The internal control system of CPDC is designed with a self-monitoring

mechanism; therefore, corrective actions will be activated upon identifying any

nonconformity.

III. CPDC has assessed the effectiveness of the internal control system design and

implementation in accordance with the criteria provided in the “Regulations Governing

the Establishment of Internal Control Systems by Service Enterprises in Securities and

Futures Markets” (referred to as “the Regulations” hereinafter). The criteria defined in

“the Regulations” include five elements depending on the management control process:

(1) environment control, (2) risk assessment, (3) control process, (4) information and

communication, and (5) supervision. Each of the five elements is then divided into a

sub-category. Please refer to “the Regulations” for details.

IV. CPDC has implemented the criteria of the internal control system referred to above to


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inspect the effectiveness of internal control system design and implementation.

V. CPDC based on the inspection result referred to above has concluded that the internal

control system (including the supervision and management over the subsidiaries) on

December 31, 2017 is reasonably effective in achieving the objectives of operation

effect and efficiency, instantaneity, transparency, financial report reliability, and

compliance.

VI. The Declaration of Internal Control System is the main content of the Company’s

annual report and published prospectus. Any falsification and concealment of the

published content referred to above involves the liability illustrated in Article 20, Article

32, Article 171, and Article 174 of the Securities and Exchange Act.

VII. The Declaration of Internal Control System was resolved in the board meeting with the

objection of 0 board directors out of the 9 attending board directors on March 22, 2019.

The content of the declaration has been accepted without any objection.


Chairman: Ko-Ming Lin

President: Janson Yu

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2. Entrusted accountant project to review the internal control system should expose the

Accountant Review report: 2018 The company did not entrust accountants to carry out the

project review.

(X) Punishment of the Company or its internal personnel in accordance with the law, the

Company's punishment of its internal personnel for violating internal control system

regulations, main deficiencies, and improvements during the most recent year and up to the

date of publication of this annual report:

Date of manufacture: March 26, 2019

Date Entity Case Main Deficiency Improvement Penalties

Types 2018/01/02 Toufen

Plant Toufen Plant public works in the Waste Water Treatment unit operations and licensing content registration does not match, violation of the "Water pollution prevention and control law."

The Central Inspection Brigade of the Environmental Protection Department inspected the Toufen Plant on July 24, 2017 to check the reverse wash pool A and B of the wastewater treatment unit and set up 2 sets of 3 activated carbon adsorption towers in series, each operating only 1 set, and the flow of the reverse washing wastewater generated by the activated carbon adsorption tower was not registered with the contents of the Water pollution Prevention license, and the license Water Pollution Prevention and Control Act "14th, 1st, provides for the punishment of absentia and environmental lectures.

According to the design of each set of the three activated carbon tower operations of one for adsorption operations, one for standby, one for the regeneration stage, the equipment is not idle, the inspection should be the license and the current operating records do not match, have been reviewed and handled changes in water measures.

Subject to the penalty imposed by the competent authorities’ absentia NT $300,000 and environmental workshop for 2 hours.

2018/01/02

Toufen Plant

Toufen Plant vapor power plant due to the operations of the wastewater treatment Unit and licensing content registration does not conform to the "Water pollution prevention and control law."

Bureau of Environmental Inspection inspected the Toufen Plant on July 23, 2017 to inspect the discharge port (D02) in the water pollution prevention and control permit matters for 24 hours of continuous discharge.The inspection of the discharge mouth without waste water discharge and the contents of the permit do not match, contrary to the " Water Pollution Prevention and Control Act "14th, 1st, provides for the punishment of absentia and environmental lectures.

Due to the original waste water pump design high and low level control start and stop, after the inspection has been adjusted immediately to comply with the license continuous emission specification.

Subject to the penalty imposed by the competent authorities absentia NT $300,000 and environmental workshop for 2 hours.

2018/01/02

Toufen Plant

Toufen Plant is in violation of the "Water pollution prevention and control law" because it collects the overflow working environment of the ditch by collecting the waste water from the coal storage site.

Bureau of Environmental Inspection inspected the Toufen Plant on July 18, 2017, and the overflow operating Environment of the self-collecting ditch in the coal storage site was not collected and disposed of, in violation of article 18th of the "Water pollution prevention and control law" and the administrative measures 69, and the penalty absentia and environmental lectures were laid down.

Coal storage yard has been equipped with car washing wastewater recovery treatment device and anti-waste water overflow embankment barrier, but the length is not enough; the next day we have immediately increased the length of the embankment barrier and effectively prevented the waste water overflow.

Fined NT $60,000 by the competent authority and 2 hours of remedial seminars.


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Types 2018/01/02

Toufen Plant

Toufen Plant wastewater Treatment facilities Each unit name is unclear, in violation of the "Water pollution prevention and control law."

Bureau of Environmental Inspection at July 24, 2017 inspected the Toufen Plant, checked the waste water treatment facilitiesEach unit name is unclear, violates the "Water pollution prevention and control Law" 18th and management measures, the punishment of absentia and environmental lectures.

It has been marked immediately in accordance with the contents of the water pollution control measures permit.

Subject to the penalty imposed by the competent authorities absentia NT $40,000 and environmental workshop for 2 hours.

2018/01/12 Dashe Plant

Dashenh Plant public second plant Wastewater (liquid) incineration process (M07) some unit operations and license registration scope is not consistent, in violation of the "Air pollution Control law."

Kaohsiung City Department of Environmental Protection in December 15, 2017 inspected the establishment and operation of fixed pollution sources in the factory, checked the waste water incinerator (E062) Distributed Control System (DCS) showed the export oxygen content at 80%, the license approved for 8%; the second washing tower (A007) did not have a PH meter, the license approval should be set; wet EP ( A006) Discharge current part of the period did not meet the scope of the license 10~200mA, in violation of the "Air Pollution Control Law" 24th article 2nd provision, the penalty absentia and environmental lectures.

1. The Waste water incinerator (E062) Distributed Control System (DCS) displayed failure so that the error was recorded and the correction was completed.

2. The second washing tower has PH monitoring equipment added.

3. Has completed the wet EP maintenance improvement, and handled the license to apply for the next repair current operating range.

Fined NT $100,000 by the competent authority, and 2 hours of remedial seminars.

2018/03/01 Toufen Plant

Toufen Plant production of a group of exhaust gas combustion tower (A003) concentration monitoring facilities effective monitoring of the percentage of hours did not reach 95%, in violation of the "Air pollution Control law."

Miaoli County Department of Environmental Protection inspected the Toufen Plant on January 12, 2018. The implementation of the exhaust gas combustion tower (A003) Monitoring facility quarterly effective monitoring of the percentage of hours of check results, to check the 3rd quarter of 2017 C2 total concentration monitoring facilities effective monitoring of the number of hours did not reach 95%, not in line with the "volatile organic air pollution control and emission standards," article 6th 2nd, in violation of the " Air Pollution Prevention and Control Act "23rd, article 1st, provides for the punishment of absentia and environmental workshops

1. To stipulate that the maintenance manufacturers of waste burning towers after the maintenance of routine equipment need to sign with the head of the factory to recognize the results of the day and abnormal returns.

2. Improve the data collection function of the waste burning tower, add the abnormal active alarm mechanism, and calculate the effective monitoring hours retrieval rate function in the quarter on a daily basis.

3. The trainer's judgment of the reading value of the system.


2018/04/9-10 Toufen Plant

Toufen Plant did not rely on water pollution prevention and Control permission content normal operations; spot checked discharge

Bureau of Environmental Inspection at July 23, 2017, the same year August 7 to inspect Toufen Plant, found that due to the lack of water pollution prevention and control permit content normal operations, resulted in the bovine factory running water over the

The case was approved by the Government of Miaoli County on January 30, 2018 to complete the improvement

Total Tribunal. The company was fined in absentia NT $6,290,001, 283 the benefits of the recovery of

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Types water exceeded the standards of the discharge water in violation of the "Water pollution prevention and control law."

water discharge standards in violation of the "Water pollution prevention and Control Law" 7th, 1st and 18th 1 1st provisions, the penalty absentia, benefit recovery and environmental workshops.

NT$ 450,002, 272 and the Environmental Workshop 2 hours were completed.


Toufen Plant fire Automatic alarm Trusted switchboard part of the circuit failure did not repair completed, violation of the "Fire law."

The Miaoli County Fire Department inspection on April 25, 2018 found that the fire automatic alarm trusted switchboard had some circuit failure and was unresponsive,. During the June 15 review of the same year, although the original missing has been improved, but it was still found that other circuit failures have not been repaired, in violation of the "Fire Law" 6th of the 1st provisions of the penalty absentia.

A comprehensive overhaul of the fire automatic alarm equipment Trusted switchboard circuit and detector was needed.

Subject to the penalty imposed by the competent authorities absentia NT $12,000.


Toufen Plant set up a group of exhaust gas combustion tower (A003) emission flow rate monitoring facilities. The effective monitoring of the percentage hours did not reach 95%, in violation of the "Air pollution Control law."

Miaoli County Environmental Protection Bureau at 2018 /05/21 checked the Toufen Plant to implement the results of the quarterly effective monitoring of the hourly percentage of the exhaust gas combustion tower (A003) monitoring facility and to check the effective monitoring hours of the emission flow rate monitoring facilities for the 4th quarter of 2017 and the 1st quarter of 2018, which did not meet the 95% "inflation control and emission standards for volatile organic compounds," article 6th 2nd, in violation of the " Air Pollution Prevention and Control Act "23rd, article 1tst, provides for the punishment of absentia and environmental workshops.

1. Correct card replacement, trigger action of the fuse terminal has been locked back; improved after the test can trigger the normal automatic correction.

2. Increased the flowmeter Daily automatic correction check notice settings, correction failure will automatically send a notification newsletter to the relevant personnel for them to know.



Toufen Plant production of a group of exhaust gas combustion tower (A003) concentration monitoring facilities effective monitoring of the percentage of hours did not reach 95%, in violation of the "Air pollution Control law."

Miaoli County Environmental Protection Bureau in 2018 /08/08 checked the Toufen Plant on the implementation of the results of the quarterly effective monitoring of the hourly percentage of the exhaust gas combustion tower (A003) monitoring facility, 80.70 per cent of the quarterly effective monitoring of the emission flow rate monitoring facility for the 2nd quarter of 2018, in 2nd line with regulation 6th of the "Air pollution control and emission standards for volatile organic compounds" which violates the " Air Pollution Prevention and Control Act "23rd, article 1st, provides for the punishment of absentia and environmental workshops.

1. Because the ultrasonic probe failure has been reported to the Environmental Protection Bureau in accordance with the law, and urgently requested manufacturers by the China air secondment, after the replacement of the normal value.

2. When the probe spare parts are purchased, a high-temperature probe (260 ℃) will be used to prevent the probe from becoming deformed.

3. Establish ultrasonic flowmeter system equipment spare parts, to ensure that equipment

Punished by the competent authority, NT$200,000 and environmental lectures for 2 hours


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Types damage is repaired with real-time replacement of spare parts, in order to comply with environmental regulations.

(XI) Resolutions reached in the shareholder’s meeting or by the board of directors during the most

recent year and up to the date publication of this annual report:

(1)Important resolutions of the shareholders ' meeting

Type of

Meeting

Date Summary of Motion

Shareholders

’ Meeting

2018/04/11 1. To recognize the business report and financial statements during

2017.

2. To recognize the surplus distribution during 2017.

3. Common stock limit of 500 million shares to deal with domestic

cash replenishment issued common stock or cash replenishment

issued common stock in the case of overseas depository receipts

program.

4. Re-elected the Company's 21st-term director program.

5. Terminating the Company's new directors banning restrictions on

competition program.

(2)Important resolutions made by the Board of Directors

Type of Meeting


Board of Directors

2018/1/23 1. Date, time, place and other related matters of the Company's stockholders meeting in 2018.

2. The Company will fully reelect the director and separated the director's program.

3. The Company's nomination of nominees of directors of shareholders, independent directors, and operating matters related to the acceptance of shareholder proposals in the year of 2018.

4. The list of the Company's nominated independent directors and candidates for directors

5. Amend some of the provisions and schedules of the Company's "Board performance evaluation measures".

6. The Company's oversea second security is changeable to corporate debt conversion issuance of common shares. To apply for change of capital amount, registration shall be in accordance with the conversion company Debt Office regulations during the year 2014. The date for capital increase is set to be on the 31st of December 2017.

7. The NT 5 million short-term comprehensive credit line renewal case the Company signed with financial institutions.

8. The Company donated NT $10 million to the consortium Shen Chunchi Cultural and educational Foundation.

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Type of Meeting


Board of Directors

2018/02/26 1. The Company's internal control regulations self-assessment of operating cases during the year 2017.

2. The Company's individual financial statements and consolidated financial statements during the year 2017.

3. The company's business report cases during the year 2017. 4. The Company's dividends are not intended to be distributed for surplus

allocation cases during the year 2017. 5. In order to enrich the working capital and the capital demand for future

development, the Company intends to apply for the issuance of overseas depository receipts in the form of common stock or cash replenishment of common shares with a limit of 500 million shares of common stock.

6. The Company intends to participate in the case of the special shares of the G-type registered by Jinghua City Co., Ltd., which is expected to be issued by private equity in March 2018. Issuing 156,000 shares, dividend annual interest rate of 8% and the subscription price per share NT $10. The total amount is NT $1.56 billion.

7. The Company's holdings Core Pacific City Co., Ltd. E-type register convertible special shares will be up to date on the 11th of March 2018. The Company proposed to exercise the right of extension to preserve the interests of special shareholders.

8. The NT 6 billion renewal case of the comprehensive credit contract the Company signed with financial institutions.

9. The 4 billion renewal case guarantees the issuance of commercial promissory note contract that the Company signed with financial institutions.

10. The Company's employee remuneration allocation case during the year of 2017.

11. The Company's distribution of remuneration of directors case during the year 2017.

12. The Company's new president's office associate Zou's remuneration case.

13. The Company's new Ministry of Land Development Associate Zhang's remuneration case.

14. The special assistant of the Company's chairman's office, Zhu's employment termination compensation case.

15. The resignation of the Company's corporate relation division manager of the department of finance Ren's new appointee case.

16. The case of reviews submitted to the board of directors for the nomination of independent directors and candidates for directors.

17. The submission of shareholders’ meeting of the year 2018 on the agreement of termination of the Company's 21st director (including independent director) and director of the legal person representatives' case of restrictions on the prohibition of competition.

18. The agenda draft case of the Company's board of shareholders for the year 2018.

19. Nylon 6 Engineering Plastics Mixing Plant and Materials Development Building Construction project Investment plan case.

Board of Directors

2018/03/27 1. The NT 5 billion comprehensive letter of credit, including short-term borrowing, domestic and foreign purchase of materials and others that the Company signed with financial institutions.

2. The Company's chairman Lin's compensation case. 3. The Company's president Yu's remuneration case. 4. The remuneration case of the Company's vice president Chen and 11


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Type of Meeting


other appointed managers of the production department. 5. The appointed managers' pay case of the Company's newly appointed

managers totaling 23. 6. The Company's manager of Occupational Safety and Health Centre Lin's

promotion to associate manager of this department and be in charge of the Environmental protection and Pollution Prevention Center.

Board of Directors

2018/04/11 1. The Company's 21st Board of Directors re-elected Lin Ke-Ming as the chairman and director Bai Jun-Nan as the vice chairman of the Company.

Board of Directors

2018/05/10 1. The Company's "Kaohsiung Port intercontinental warehousing logistics area investment and construction plan phase 2" Project supplementary budget of NT four hundred ninety-seven million, seven hundred forty thousand. The total budget of this project increased to NT two billion, four hundred eleven million, nine hundred five thousand.

2. The Memorandum of Understanding that the Company signed with mainland regional units.

3. The Company set up an Indian subsidiary for Investment and Development business and related research with a capital amount of $300,000 trillion.

4. The merger of the subsidiary of the Company, Zhonghuaxing Industrial Co., Ltd. (terminated) and Zhaoxin Chemical Industry Co., Ltd. (Existing)

5. Renew the accountant of KPMG Taiwan to be the visa accountant for the Company's financial and tax report.

6. The Company's financial report certified accountant Chen Jun-guang of KPMG Taiwan, changed to accountant Chen Mei-fang.

7. The short-term comprehensive credit line signed by the Company and the financial institution NT$ eight hundred million and export transfer amount US$ eight million to renew the original amount and apply for a reduction in the interest rate.

8. The renewal of the original amount of NT two hundred million on the issuance of commercial promissory notes contract the Company signed with financial institution.

9. The renewal by original amount of NT 1,200,000,005 million on the issuance of commercial promissory notes contract that the Company signed with a financial institution.

10. Revised some provisions of the Company's "Internal control system for unit units" (including internal audit Regulations of units).

11. Revision of the "research & development cycle" section of the company's internal controls.

12. Promotion of Jian as manager of the equipment purchasing office of the Company.

13. Appointment of Huang as manager of the Manpower Administration Department of the company's Ministry of Management.

14. Approves the appointment of Huang as the company's corporate strategy adviser.

Board of Directors

2018/06/28 1. The Company's Jiangsu Rudong Petrochemical Base Phase two investment plan case.

2. Started the second phase of the planned capital expenditure "factory intelligent production Management Project" with an estimated cost of NT $349.903 million.

3. Revised the provisions of the company's "board of Directors’ and managers’ Division of responsibilities" section.

4. The Company's management department prepared a "Data application Office" with the revision of the Company's "organizational procedures."

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Type of Meeting


5. Appointed independent director of Chen Ruilong, Chen Songlong and Pan Weigang as members of the fourth pay committee of the company.

6. Appointment of Li June as associate of the China division of the Company.

7. Promotion of Zhang, Corporation Information Service, as the "Data Application Service" manager.

8. The Company applied to financial institutions for a new short-term consolidated credit line of NT $200 million.

9. The original short-term comprehensive credit line signed by the Company and financial institutions NT $1 billion contract is renewed according to the original terms of the original amount.

10. The Company and financial institutions signed a short-term comprehensive credit line and export transfer amount in accordance with the NT $500 million and USD 3 million renewal.

11. Approval of the consolidated credit line with financial institutions renewed at NT $500 million.

12. The company and the mainland regional units signed a memorandum of cooperation case, approved the change of investment plan period.

Board of Directors

2018/07/30 1. The Company's Kaohsiung City Shang Si Land Development plan case.2. The collection of land in Qianzhen District, 356-14 and 356-30, of the

Company, Kaohsiung City, is applied to the Kaohsiung government for payment of the CIF.

3. Amend the provisions of the Company's "pay compensation committee" procedures.

4. The Company and financial institutions signed the export transfer amount of US $20 million renewal.

5. The Company signed an appointment with a financial institution to guarantee the issuance of a commercial promissory note contract for the renewal of NT $800 million.

6. Appointed Liu as vice general manager of the Company's land development department.

7. Lifted the ban on competition of the vice general manager of the company's land development department.

8. Appointed FanJiang as special assistant to the Chairman's office of the Company.

9. The Company's board of director unit Yang promoted to the unit manager.

10. Compensation case of Lin, 21st chairman of the Company. 11. The remuneration case of Bai, 21st vice chairman of the Company. 12. The compensation case of the Company's 21st term director (excluding

independent directors). 13. The compensation case of the Company's 21st term independent

director. 14. The remuneration case of the associate Lin of the company's

Occupational Safety and Health center. 15. The remuneration case of Jian, manager of the company's equipment

purchasing office. 16. The remuneration case of Huang, manager of the company's Manpower

Administration office. 17. The remuneration case of Zhang, manager of the company's data

application office. 18. Establishment of the Vietnam subsidiary case.

Board of 2018/08/10 1. Acknowledged that the index equity fund originally held by the company


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Type of Meeting


Directors was sold in batches between January and February of 2018. Board of Directors

2018/09/17 1. The Company obtained the 90% Equity case of Vietnam Regional company.

2. Authorized the Chairman to conduct commercial negotiations on the land development case in Vietnam.

3. The Company "Kaohsiung Multifunctional Economic and Trade Park 5th area A" partial land rental case.

4. The Company and financial institutions signed a short-term comprehensive credit line NT $150 million contract case.

5. The Company and financial institutions signed a short-term comprehensive credit line NT $300 million renewal case.

6. The Company and financial institutions signed a short-term comprehensive credit line NT $600 million and export transfer amount of US $20 million renewal case.

7. Lin, chairman of the Company, also served as the CEO of the Company.8. The remuneration case of Liu, vice general manager of the Company's

land development department. 9. The remuneration case of FanJian, Special assistant to the chairman's

office of the Company. 10. The remuneration case of Yang, manager of the Company's stock office.11. The remuneration case of the associate Li of China division of the

Company. 12. The Company's appointment of managers of the staff remuneration

allocation case in the year 2017 . 13. Recognition of the company and Kaohsiung Plastic Ester Chemical

Industry Office lease Contract Expiration Extension signed an additional contract.

Board of Directors

2018/10/25 1. The Company's "annual business Plan of 2019."2. The Company's Vietnam area Land development case and Vietnam Sheng

Fung Company equity transactions and capital increase matters, and provided Changshu Keisei Real Estate Co., Ltd. 20% Sheng Fung Company Equity purchase option.

3. The Company's Vietnam area Land development case and the case of the project company capital increase and provided Changshu Keisei Real Estate Co., Ltd. 20% of the project company equity purchase options.

4. The Company's appointed managers of the staff remuneration allocation case of the year 2018.

5. Chen, vice general manager of the production department of the Company's head office, was reassigned to the general Manager's office and succeeded as the CEO of JiangSu WeiMing Petrochemical Co. Ltd.

6. Associate Jia of the China division of the Company promoted to vice general manager of the production department of the Company.

7. Appointed Wu as the company's General Manager Room Enterprise Planning team manager level Special assistant.

Board of Directors

2018/11/13 1. The Company's "head factory of auto electrician smoke and power supply stability Improvement project" plan Type capital expenditure plan.

2. The Company holds the B-type and G-type registered special shares of Jinghua City Co., Ltd. will be converted into common stock depending on the application for real estate disposition in Jinghua City.

3. The Company's Land Development Department associate Zhang's dismissal case.

4. The dismissal case of the Company's general manager office project management team manager Ji, research & development center design

- 73 -

Type of Meeting


team manager Chen and Management Department Office of Human Resources Administration Manager Huang and other three people.

5. Appointed Lin as manager of the Office of Human Resources Administration of the Company's management department.

6. Through the continuous employment of Shen as the top adviser to the Company.

7. Through the continued employment of the lawyer Cha as the Company's perennial legal counsel.

8. The arbitration case between the Company and American company Praxair, the International Chamber of Commerce of the arbitration institution, made an arbitration judgment on September 3, 2018, which confirmed that the company had filed an action to set aside the arbitration with the Taipei District Court on October 2, 2018.

9. The Company's request for the return of fish farm land litigation settlement matters.

Board of Directors

2018/12/27 1. The Company's annual budget case of 2019.2. The Company's internal control audit plan of 2019. 3. The 97.86% equity of Vietnam Sheng Fung Construction Investment

Liability Co., Ltd. held by the Company is transferred to the Company's indirect investment by Singapore Hongfeng Investment Co., Ltd. The Board has also adopted a resolution to invest indirectly in the amount of investment made by Sheng Fung Corporation and Veolia Gemini (Vietnam) Investment Co., Ltd., respectively, in the form of a capital increase of China Gemini Development Co., Ltd.

4. The Company and financial institutions signed a comprehensive amount of short-term credit NT $1 billion Joint renewal case.

5. The company donated NT $10 million to the consortium Shen Chunchi Cultural and educational foundation to continuously promote the processing of the "Historical memory of the relocation platform" related projects.

6. Special bonus case of Lin, CEO of the Company. 7. Compensation case of Shen, the Company's top consultant. 8. The remuneration case of Jia, vice general manager of the Company's

production department. 9. The remuneration case of Lin, manager of the company's Office of

Human Resources Administration. 10. The remuneration case of Wu, Special Assistant to the Enterprise

Planning Group of the general manager of the Company. 11. Contract renewal of the house lease contract between the Company and

the consortium Taiwan Province Miaoli County head factory of Petrochemical Industry park fire department.


- 74 -

(3) Annual general Meeting of Shareholders important resolutions and implementation of

shareholders ' meeting resolutions of 2018

Summary of Motion Status of Resolutions Made by Shareholders’ Meetings

1. Recognition of the annual business Report

and the financial statements of 2017.

2. Recognition of the surplus allocation case

of 2017.

3. To be involved in the issuance of overseas

depositary vouchers through the issuance of

common shares in domestic cash or the

issuance of common shares in cash to be

financed within the limit of 500 million

shares.

4. Reelection of the company's 21st-term

director case.

5. Rescission of the restrictions on the

prohibition of competition by the new

directors of the Company.

The resolution was approved.

The resolution was approved and handled in

accordance with the resolution of the shareholders '

meeting The Company did not allocate a surplus of $0

at the end of 2017, so there is no subsequent

distribution of dividends.

The resolution was approved. In order for the Company

to cooperate with the investment and development

plan, adjust the investment schedule, resulting in the

capital market financing case has not been issued,

related matters in 2019 regular meeting of shareholders

to report.

Reelection was completed. Handled the relevant

registration, declaration operations.

The resolution was approved. Major information

declaration operations have been handled in accordance

with the law.

(XII) Recorded or written statements made by any director or supervisor which specified dissent

to important resolutions passed by the board of directors during the most recent year and up

to the date of publication of this annual report: None

(XIII) Summary of discharge and resignation of parties related to the financial report:

March 26, 2019

Job Title Name Date of

Appointment

Date of

Discharge

Reasons for

resignation or

dismissal

None

Note: The parties relating thereto include the chairman, president, accounting officer, finance officer, internal audit officer and R&D officer

- 75 -

IV. Information About CPA Professional Fee

(I) Breakdown of CPA Professional Fee

Firm Name CPA Name Duration of Audit Remarks

KPMG Certified

Public Accountants

Melody

Chen

Chung

Dan-DanFull year of 2018

Unit: NT$ thousands

Fees

Price Range Audit Fees

Non-Audit

Fees Total

1 Less than NT$2,000 thousand

2 NT$2,000 thousand

(inclusive)~NT$4,000 thousand

3 NT$4,000 thousand


4 NT$6,000 thousand


5 NT$8,000 thousand


6 NT$10,000 thousand (inclusive) or more

(II) Information about CPA Professional Fee

Currency Unit: NTD Thousand

Firm Name CPA Name Audit Fees

Non-Audit Fees CPA

Duration of Audit

Remark System Design

Commercial and

Industrial Registration

Human Resource

s Others

KPMG Certified Public Accountants

Melody Chen

Chung Dan-Dan

9,359 1,0602018

Full year

The other titles refer to reviews on the investment property report and annual reports

KPMG Certified Public Accountants

70 210

Other projects for overseas Investment Review services and project tax services

1. Non-audit fees paid to the CPA, CPA firm and their affiliates exceeded the audit fees more

than twenty-five percent: None.

2. Change of CPA firm and the audit fees for the year of the change less than that of the

previous year and the amount of audit fees before and after the change and reasons for the

change: None

3. Audit fees were 15% less than that of the previous year: None.


- 76 -

V. Information About Replacement of CPA: None

VI. Information About Chairman, President, and Financial or Accounting

Manager of the Company Who Has Worked with the CPA Firm Which

Conducts the Audit of the Company or Affiliate to Said Firm in the Most

Recent Year: N/A

VII. Any transfer of equity interests and pledge of or change in equity interests

by a director, managerial officer, or shareholder with a stake of more than

10 percent in the most recent year and up to the date of publication of the

annual report.

Change in equity of directors, managerial officers, and major shareholders

Job Title (Note 1) Name

FY 2018 Status of Shareholding

Increase (decrease) in number

Ending on March 26th, 2019Number of pledged sharesIncrease (decrease) in number

Status of ShareholdingIncrease (decrease) in number

Number of pledged shares Increase (decrease) in number

Status of Shareholding Increase (decrease) in number


Chairman The Core Pacific Co., Ltd.

0 6,500,000 0 3,000,000

Chairman Institutional representative of The Core Pacific Co., Ltd.

Ko-Ming Lin (CEO inauguration on October 10th, 2018)

0 0 0 0

Vice Chairman BES Machinery Co., Ltd

0 2,000,000 0 0

Vice Chairman Institutional Representative of BES Machinery Co., Ltd.

Bai Jiun-Nan 0 0 0 0

Director Institutional representative of The Core Pacific Co., Ltd.

Kuan Ren Soong (Dismissal on February 11th, 2019)

0 0 0 0

Director Institutional representative of The Core Pacific Co., Ltd.

Shen Hwa-yeang (Inaugurated on February 11th, 2019)

0 0 0 0

Director


0 0 0 0

- 77 -









Director Sheen Chuen-Chi Cultural and Educational Foundation Legal representative of the foundation

Lian-Sheng Tsai 0 0 0 0

Director Sheen Chuen-Chi Cultural and Educational Foundation Legal representative of the foundation

Lin Kuen-Ming 0 0 0 0

Director Jen Huei Enterprise Co., Ltd

0 2,000,000 0 2,000,000

Director Institutional Representative of Jen Huei enterprise Co., Ltd.

Wu Ting (Dismissal on April 11th, 2018)

0 0 0 0

Director Jen Huei Enterprise Co., Ltd Representative of the legal person

Guo Jiun-Huei 0 0 0 0

Independent Director Steve Chen Ruey-Long

0 0 0 0

Independent Director Chu Yun-Peng 0 0 0 0Independent Director Pan Wen-Yen 0 0 0 0President Janson Yu 0 0 0 0Vice President Lin Ching 0 0 0 0Vice President Yuan-Long Chen 0 0 0 0Vice President Huang Kuo-Tsai 0 0 0 0

Vice President Liu Yun Zhi (Inaugurated on August 1st, 2018)

0 0 0 0

Vice President

Chi-Chun Chia (Promoted on November 11th, 2018)

0 0 0 0


Yang Hui-fen (Auditor General)

0 0 0 0


Tsai Chia-Wei 0 0 0 0


- 78 -










Chen Ying-Chun (Also Chief of Accounting Dept. Finance Dept.)

0 0 0 0


Tsai Wen-Chih 0 0 0 0


Zuo Shu-Tong (Inaugurated on January 2nd, 2018)

0 0 0 0


Lin Chin-Hsiang (Promoted on March 27th, 2018)

0 0 0 0


Li Guan (Inaugurated on September 17th, 2018)

0 0 0 0


Zhang Wen-Hou (Inaugurated on January 2nd, 2018) (Dismissal on November 17th, 2018)

0 0 0 0


FAN, JIANG, JIANCHENG (Inaugurated on August 1st, 2018) (Dismissal on January 31st, 2019)

0 0 0 0

Associate (Factory director)

Chien hsien Li 0 0 0 0


Cheng Jung-Wen 0 0 0 0


Kao Chi-Tsung 0 0 0 0

Manager

Venessa Chi (Inaugurated on January 1st, 2018) (Dismissal on November 13th, 2018)

0 0 0 0

Manager Wang Yen-Li (Inaugurated on January 1st, 2018)

44,181 0 0 0

- 79 -









Manager Li Chi-Chang (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chen Yung-Long (Inaugurated on January 1st, 2018)

0 0 0 0

Manager

Ren Wan-Yin (Inaugurated on January 1st, 2018) (Dismissal on February 26th, 2018)

0 0 0 0

Manager Yang Peiyu (Inaugurated on August 1st, 2018)

0 0 0 0

Manager Yang Shou-Chin (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chang Chi-Wei (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chen Chi-Ho (Inaugurated on January 1st, 2018)

56,000 0 (56,000) 0

Manager

Chen Yin-Dien (Inaugurated on January 1st, 2018) (Dismissal on November 13th, 2018)

0 0 0 0

Manager Yang Ming-Ling (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Yang Chi-Yuan (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chen Jian-Ming (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chen Hong-Long (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Li Chiao-Pin (Inaugurated on January 1st, 2018)

0 0 0 0


- 80 -









Manager Wang Chi-Fong (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Chien Chang-Mo (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Wong Zhong-Chian (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Li Chin-Yi (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Huang Chien-Yuan (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Li Kun-Nan (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Li Kung-Da (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Jian Zhanghong (Inaugurated on May 10th, 2018)

0 0 0 0

Manager Chien Kuan-Der (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Tsai Chau-Yuan (Inaugurated on January 1st, 2018)

0 0 0 0

Manager Wu Junxian (Inaugurated on November 1st, 2018)

0 0 0 0

Manager Ho Mu-Chuan (Change of duties on January 1st, 2018)

0 0 0 0

Manager Wei Ren (Change of duties on January 1st, 2018)

0 0 0 0

Manager Chen Yi Yan (Change of duties on January 1st, 2018)

0 0 0 0

- 81 -









Manager

Su Shih-Sheng (Change of duties on January 1st, 2018) (Dismissal on August 15th, 2018)

0 0 0 0

Manager Liu Yung-Fu (Change of duties on January 1st, 2018)

0 0 0 0

Manager

HUANG, YIZHEN (Inaugurated on May 10th, 2018) (Dismissal on November 13th, 2018)

0 0 0 0

Manager Zhang Chenglong (Inaugurated on July 1st, 2018)

0 0 0 0

Manager Gao Tianshui (Inaugurated on November 5th, 2018)

0 0 0 0

Manager

Lin Jing-Wen (Inaugurated on November 15th, 2018) (Dismissal on April 1st, 2019)

0 0 0 0

Chief Consultant Ching-Jing Sheen 0 0 0 0Note 1: The shareholders who hold more than 10% of the Company’s shares shall be identified as

major shareholders and stated separately. Note 2: Where the counterparts of shares through transfer and pledged under lien are related parties, it

is also necessary to complete the following table.

Information about Equity Transfer

Name

(Note 1)

Reasons for

the transfer of

equity (note 2)

Transaction

Date

Transactio

n

Responde

nt

Respondent of transaction, the

Company, and director

, supervisor and shareholding

ratio is more than the

10% relationship of Shareholders

Number of

shares

Transacti

on

Price

None

Note 1: Please specify the names of directors, supervisors, managerial officers and shareholders who hold more than 10% of the Company’s shares.

Note 2: Please specify acquisition or disposal.


- 82 -

Information about Equity Pledged Under Lien

Name

(Note 1)

Change of

pledge

Reasons

(Note 2)

Date of

Change

Transact

ion

Respond

ent

Relationship between

trading counterpart and the

Company, directors,

supervisors and

shareholders who hold more

than 10% of the Company’s

shares

Number

of

shares

Share

holdin

g

Ratio

Pledg

e

Ratio

Quality

Lending

(Redempt

ion)

Amount

None Note 1: Please specify the names of directors, supervisors, managerial officers, and shareholders who hold

more than 10% of the Company’s shares. Note 2: Please specify pledge or redemption.

- 83 -

VIII. Information about the relationship among the Company's 10 largest shareholders:

March 26, 2019

Name( Note 1)

Oneself Status of Shareholding

Current Shares Held by Spouse or Children of

Minor Age

Total Shareholding Under the Name of a Third Party

Information on top 10 shareholders in proportion of shareholdings, who are related to one another, or are kin at the second tier under the Civil Code related to one another,

their names and relationship (Note 3) Remark

Quantity Ratio of

ShareholdingQuantity

Ratio of Shareholdin

g Quantity

Ratio of Shareholding

Title (or name) Relation

Core Pacific - Yamaichi International (H.K.) Ltd. - House Account

77,274,570 2.86% 0 0 0 0BES Engineering Corporation

Substantial related party

Representative: N/A - - - - - -

JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds

43,097,647 1.60% 0 0 0 0None None

Representative: N/A 0 0 0 0 0 0

VANGUARD EMERGING MARKETS STOCK INDEX FUND, A SERIES OF VANGUARD INTERNATIONAL EQUITY INDEX FUNDS

41,209,000 1.53% 0 0 0 0None None

Representative: N/A 0 0 0 0 0 0

The Core Pacific Co. Ltd. 39,285,806 1.46% 0 0 0 0 None None

Representative: Ran Sheng-Yuan 250 0% 0 0 0 0 None None

BES Engineering Corporation 38,775,000 1.44% 0 0 0 0 The Core Pacific Co., Ltd. Substantial related party

Representative: Shen Hwa-Yang 140,800 0.01% 0 0 0 0 None None

EMERGING MARKETS CORE EQUITY PORTFOLIO OF DFA INVESTMENT DIMENSIONS GROUP INC.

28,832,324 1.07% 0 0 0 0None None


Dimensional Emerging Markets Value Fund

27,733,397 1.03% 0 0 0 0None None


- 84 -

Corporate G

overnance Report

Name( Note 1)

Oneself Status of Shareholding

Current Shares Held by Spouse or Children of

Minor Age

Total Shareholding Under the Name of a Third Party

Information on top 10 shareholders in proportion of shareholdings, who are related to one another, or are kin at the second tier under the Civil Code related to one another,

their names and relationship (Note 3) Remark

Quantity Ratio of

ShareholdingQuantity

Ratio of Shareholdin

g Quantity

Ratio of Shareholding

Title (or name) Relation

Yuanta Securities (Hong Kong) Company Limited-PSHK Clients

23,700,000 0.88% 0 0 0 0None None


Polunin Developing Countries Fund, LLC 23,487,842 0.87% 0 0 0 0None None


Norges Bank 22,964,952 0.85% 0 0 0 0 None

None Representative: N/A - - - - - -Note 1: The top ten shareholders’ names shall be identified separately (in the case of corporate shareholders, the corporate shareholders’ names and representatives’ names shall be

identified separately). Note 2: The ratio of shareholding is calculated in terms of own shareholdings, shares held by spouse and children under age or shareholdings under the title of a third party. Note 3: The shareholders identified above include juristic persons and natural persons and the relationship among them shall be disclosed in accordance with the Regulations Governing

the Preparation of Financial Reports by Securities Issuers.

- 85 -

IX. Ratio of Combined Shareholding

Document Date : 2018/12/31 ; Unit : Share ; %

Reinvestment.

Invested by the Company

Invested by directors,

supervisors,

management, and

enterprises controlled

by the Company

directly or indirectly

Combined Investment

Number of shares

Ratio of

Shareholdi

ng

Number of

shares

Ratio of

Sharehold

ing

Number of

shares

Ratio of

Sharehold

ing

Tao Zhu

Construction and

Development Co.,

Ltd.

10,000,000 100％ 0 0％ 10,000,000 100％

CPDC Investment

(BVI) Co., Ltd. 26,580,000 100％ 0 0％ 26,580,000 100％

Sinopec Green

Energy Technology

Co., Ltd.

15,000,000 100％ 0 0％ 15,000,000 100％

Tsou Seen Chemical

Industries

Corporation

96,000,000 100％ 0 0％ 75,000,000 100％

Rich Equities Ltd. 180,000 100% 0 0％ 180,000 100%

Unichem

Development

Limited

191,477,752 100% 0 0％ 191,477,752 100%

Chunghwa Twin

Towers Co. Ltd. 200,000,000 90.87% 100,000 0.005％ 200,100,000 90.91%

CKS Guard 1,440,000 24％ 0 0％ 1,440,000 24％

Kaohsiung Monomer

Co., Ltd. 20,000,000 40％ 0 0％ 20,000,000 40％

Shengfeng

Construction

Investment Co., Ltd.

458,637,500,000 97.87% 0 0%458,637,500,0

00 97.87%

Note : Equity Method Long Term Investments

Status of Fund Raising

- 86 -

Four. Status of Fund Raising

I. Capital Stock and Shares

(I) Source of Capital Stock

Year and

Month

Publication Pric

e

Authorized Capital Stock Paid-in Capital Remark

Number of shares

Price Number of

shares Price

Capital stockSource

Offset by any

property other than

cash

Other

1969/04

100 8,000,000 800,000,000 8,000,000 800,000,000 Fund raising in

cash None

1980/05

100 25,000,000 2,500,000,000 25,000,000 2,500,000,000 Capital increase

in cash None

1983/02

10 800,000,000 8,000,000,000 630,140,000 6,301,400,000

Capital increase in cash

Capital increase upon

consolidation

None

1983/11

10 800,000,000 8,000,000,000 748,724,700 7,487,247,000

Capital increase in cash

Capital increase upon

consolidation

None

1984/02


upon consolidation

None

1985/10


in cash None

1986/07


in cash None

1991/05

10 1,100,000,000 11,000,000,000 959,704,400 9,597,044,000 Capital surplus None

1997/08

10 1,362,900,000 13,629,000,000 1,115,731,588 11,157,315,880 Capital surplusRecapitalization of earnings

None

1998/08


None

1999/02

10 1,840,000,000 18,400,000,000 1,283,869,156 12,838,691,560 Convertible

Corporate Debt Conversion

None

1999/09


None

SEC (88) Tai-Tsai-Cheng (1) No. 63778 dated July 12, 1999

2000/08

10 1,840,000,000 18,400,000,000 1,482,868,876 14,828,688,760 Capital surplus None

SEC (89) Tai-Tsai-Cheng (1) No. 52477 dated June 17, 2000

2002/12

10 1,840,000,000 18,400,000,000 1,482,943,830 14,829,438,300Convertible


None

2004/02

10 2,600,000,000 26,000,000,000 1,689,999,459 16,899,994,590Convertible


None

- 87 -

Year and

Month

Publication Pric

e

Authorized Capital Stock Paid-in Capital Remark

Number of shares

Price Number of

shares Price

Capital stockSource

Offset by any

property other than

cash

Other

2008/11

10 2,600,000,000 26,000,000,000 1,794,962,992 17,949,629,920Recapitalization of earnings

None

FSC approval letter under Ching-Kuan-Cheng Yi-Tze No. 0970049317 dated September 17, 2008

2011/09


None

FSC approval letter under Ching-Kuan-Cheng Yi-Tze No. 1000031761 dated July 8, 2011

2012/12


None

FSC approval letter under Ching-Kuan-Cheng Yi-Tze No. 1010046102 dated October 15, 2012

2017/05

10 2,600,000,000 26,000,000,000 2,355,258,954 23,552,589,540Convertible


None

2017/08

10 2,600,000,000 26,000,000,000 2,363,353,546 23,633,535,460Convertible


None

2017/11

10 2,600,000,000 26,000,000,000 2,524,667,174 25,246,671,740Convertible


None

2018/03

10 3,600,000,000 36,000,000,000 2,699,857,267 26,998,572,670Convertible


None

Note 1: Please specify the information for the current year available until the date of the publication of the annual report. Note 2:The capital increase part shall be identified by effective (approval) date and document No. additionally. Note 3:The stock issued at the price less than the par value shall be identified prominently. Note 4:Please specify the offset by monetary creditor’s rights and technology, if any, and note the type and amount of offset. Note 5:The private placement, if any, shall be identified prominently.

Type of

Share

Authorized Capital Stock Remark

Outstanding Shares Unissued Shares Total

Common Stock 2,699,857,267 900,142,733 3,600,000,000

Note: Please specify whether or not the stock refers to TWSE or GTSM stock (the stock

forbidden from being traded in TWSE or GTSM, if any, shall be identified).

Information About Shelf Registration System

Securities

Type

Quantity of Shares Quantity of Purpose and

Expected Benefit of

Issued Shares

Period in Which

Unissued Shares

will be Issued

Remark Total

Quantity

Approved

Amount

Quant

ity

Price

None


- 88 -

(II) Composition of Shareholders

March 26, 2019 Composition of

Shareholders

Quantity

Government

Apparatus

Financial

Organization

Other Juristic

Persons Individual

Foreign

institutions

Foreigners

Total

Number of

persons

(persons)

5 17 332 191,182 303 191,839

Number of

shares held

(shares)

2,239,739 16,749,600 163,345,522 1,906,980,956 610,541,450 2,699,857,267

Ratio of

Shareholding

(%)

0.08 0.62 6.05 70.64 22.61 100.00

(III) Diversification of equity

March 26, 2019

Range of Shares Number of

shareholders Number of shares held Shareholding ratio

1~999 58,750 12,018,499 0.45%

1,000~5,000 78,261 188,917,386 7.00%

5,001~10,000 23,999 191,630,995 7.10%

10,001-15,000 8,830 110,981,532 4.11%

15,001-20,000 6,159 115,378,808 4.27%

20,001-30,000 5,442 140,072,654 5.19%

30,001-40,000 2,554 91,508,779 3.39%

40,001-50,000 2,016 94,897,188 3.51%

50,001-100,000 3,325 243,049,716 9.00%

100,001~200,000 1,426 205,282,040 7.60%

200,001-400,000 591 167,792,992 6.21%

400,001-600,000 176 86,564,678 3.21%

600,001-800,000 60 41,921,416 1.55%

800,001~1,000,000 60 54,752,296 2.03%

1,000,001 or more 190 955,088,288 35.38%

Total 191,839 2,699,857,267 100.00%

- 89 -

Special stock March 26, 2019

Range of Shares Number of Shareholders

Status of Shareholding Ratio of Shareholding

None Total

(IV) Roster of Major Shareholders

March 26, 2019 Shares

Main Name of shareholder

Status of

Shareholding

Ratio of

Shareholding

Core Pacific - Yamaichi International (H.K.) Ltd. - House Account JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total International Stock Index Fund, a series of Vanguard Star Funds VANGUARD EMERGING MARKETS STOCK INDEX FUND, A SERIES OF VANGUARD INTERNATIONAL EQUITY INDEX FUNDS The Core Pacific Co., Ltd. BES Engineering Corporation EMERGING MARKETS CORE EQUITY PORTFOLIO OF DFA INVESTMENT DIMENSIONS GROUP INC. Dimensional Emerging Markets Value Fund Yuanta Securities (Hong Kong) Company Limited-PSHK Clients Polunin Developing Countries Fund, LLC Norges Bank t

77,274,570

43,097,647

41,209,000

39,285,806 38,775,000 28,832,324

27,733,397 23,700,000

23,487,84

22,964,952

2.86%

1.60%

1.53%

1.46% 1.44% 1.07%

1.03% 0.88%

0.87% 0.85%


- 90 -

(V) Information on market value, net value, earnings and dividends per share

Unit: NTD, except weighted average quantity of shares and analysis on ROE

Year

Category 目

2017 2018

Terminates on

the year of

2019/04/30

(Note 8)

Per share

Price

(Note 1)

The Highest 16.5 16.45 12.35

The Lowest 9.95 10.80 10.20

Average 12.62 13.17 11.36

Per share

Net Value

(Note 2)

Before distribution 26.06 24.78

Not

Suitable

For use

After distribution （註 9）（註 9）

Per share

Surplus

Weighted average shares 2,390,817,335 2,699,857,267

Surplus per share (Note 3) 2.55 1.59

Surplus per share - adjustment (Note

3) 2.55 (Note 9)

Per share

Dividends

Cash dividends - (Note 9)

Free-Gra

tis

dividend

s

Stock dividends from

earnings - -

Stock dividends from paid-in

capital - -

Accumulated unpaid dividends (Note

4) - -

Return on

investment

analysis

Price-Earnings Ratio（Note 5） 4.95 8.28

Profit ratio (Note 6) - -

Cash dividends yield (Note 7) - -

* In the case of retained shares distribution or capital surplus shares distribution, please also disclose the information about the market value and cash dividends adjusted retroactively based on the quantity of shares as distributed.

Note 1: Please identify the highest market value and the lowest market value of the common stock in various years, and calculate the average market price for each year based on the trading value and turnover for each year.

Note 2: Please apply the quantity of shares already issued at the end of the year and identify the status of distribution according to the resolution made by the shareholders' meeting held in the following year.

Note 3: If it is necessary to make adjustment retro-actively due to Free-Gratis dividends, please identify the EPS before and after adjustment.

Note 4: If the terms and conditions under which the equity securities are issued provide that the stock dividend retained in the year may be accumulated until the year in which there are allocable earnings available, please disclose the retained stock dividends accumulated until the then year.

Note 5: Price-Earnings Ratio = Average Closing Price Per Share in current year/Earnings Per Share Note 6: Dividend Yield=Average Closing Price Per Share in current year/Cash Dividend Per Share Note 7: Cash Dividend Yields = Cash Dividend Per Share/Average Closing Price Per Share in current year Note 8: Please identify the net value per share and EPS available in the latest quarterly financial information

audited (reviewed) by the independent auditor before the date of publication of the annual report, and the information available until the date of publication of the annual report in the other sections.

Note 9 : Surplus allocation of 2018 is pending resolution of the regular session of the general Meeting (2019).

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(VI) Dividends Policy and the Status of Implementation

1. Dividends policy in the Articles of Incorporation:

The Company may duly use its reserve to distribute dividends, appropriate capital and

issue new shares in accordance with relevant laws and regulations. If the Company has

earnings, after payment of taxation, it shall offset the losses in previous years, and set aside

a legal capital reserve and special capital in accordance with relevant laws and regulations or

requested by the authorities in charge. With respect to any balance herein together with the

undistributed cumulative profits from previous years and from current year, the Board of

Directors shall prepare an earnings distribution proposal and submit to the shareholder

meeting for approval per the following dividend policy.

The Company positions itself amid a highly capital intensive, volatile and competitive

industry. Where the Company is subject to the influence of the global economy and changes

in industrial performance, the Company should consider the Company’s business

operations, capital needs and status of competition, interests of shareholders and the

Company’s own financial planning in allotment of its profits. Under such circumstances, the

Company may reserve the profits into special reserve either in whole or in part to assure

financial stability and sustainability. The Company may allot dividends in the form of cash

dividends or stock dividends. In case the allotment is made by way of stock dividends, the

ratio for stock dividend shall not exceed 50% of total distribution unless the ratio of the

Company’s total liabilities to total assets is equivalent or above 50%, unless otherwise

prescribed in the relevant laws and regulations.

2. Allocation of dividends proposed at the shareholders’ meeting:

The 2018 surplus allocation case was approved by the Board of Directors of March 22,

2019, the proposed distribution of common stock dividends of 2,699,857,267 yuan (each

share of the dividend of 1 yuan, including cash dividend 0.5 yuan, stock dividend 0.5 yuan).

The distribution of this cash dividend and stock dividend shall, after passing by the

shareholders ' meeting and submitting it to the competent authority for approval, authorize

the Board of Directors to specify the basis date for the issue of ex-dividend rights.

In the event of a subsequent change in the share capital of the Shareholders ' equity

(interest) rate, the President shall authorize the Chairman to grant the full amount of the

dividend in accordance with the general meeting of the shareholders, if the return of the

shares is changed by means of the number of shares issued and in circulation in the name of

the company, common stock is adjusted on the basis of the base date for the exclusion of the

right interest.

(VII) Effect of allocation of Free-Gratis Dividends proposed at the shareholders’ meeting on the

operational performance of the Company and the Earnings Per Share:

The company does not disclose the 2019 annual financial forecast information, so it does not

apply.


- 92 -

(VIII) Remuneration of employees and directors

1. Proportion or scope of employee bonus and remuneration to directors as stated in the

Company’s Articles of Incorporation Article 32:

If the Company is profitable in the year, it shall be paid 3% for the remuneration of its

employees and not more than 2% for the remuneration of its directors. However, when the

Company has accumulated losses, it should pre-reserve the amount of the repair code.

Qualification requirements of employees, including the employees of subsidiaries of

the company meeting certain specific requirements are entitled to receive shares or cash.

The remuneration to directors entitled will receive them in cash only. The earnings refer to

the pre-tax income minus the remuneration to directors and employee.

The earnings refer to the pre-tax income minus the remuneration to directors and

employee.

The distribution as employees’ compensation and directors’ remuneration should be adopted by resolution which the majority vote at a meeting of the board of directors attended by two-thirds of the total number of directors, and the report of such distribution shall be submitted to the shareholders’ meeting.

2. The accounting in the case of deviation from the basis for stating employees bonus and

remuneration to directors, the basis for calculating the quantity of stock dividends to be

allocated and the actual allocation:

The Company's 2018 employee remuneration is estimated on the basis of the amount of

the employee's remuneration and directors ' remuneration before the current year's pre-tax

net profit, and in accordance with the estimated amount to the date of the shareholders'

meeting, if there is any change, it shall be treated according to the changes in the accounting

estimates and recorded in the annual adjustment of the shareholders' meeting

3. Information about allocation of bonus resolved by the Directors’ Meeting:

(1) The Company's staff remuneration and directors ' remuneration for 2018 were approved

by the Board of Directors on March 22, 2019 and the distribution is as follows:

The remuneration of employees and directors for 2018 is proposed in accordance

with the Articles of Association of the Company, the remuneration of employees is 3%,

the amount is NT $146,408,521, and the remuneration of directors is not higher than 2%,

the amount is NT $97,605,681, which is paid in cash.

(2) The amount of remuneration paid by the employee in the stock and the proportion of the

total value of the individual or individual financial reports after the current period of net

remuneration and employee compensation: not applicable.

4. The actual allocation of remuneration of employees and directors in the previous year

(including the number of shares allocated, the amount and the share price), the difference

between the remuneration of the employees and those who are recognized, and the reasons

for the difference, the cause and the handling of the situation:

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(1) The actual distribution of directors ' remuneration in 2017 is the same as the proposed

allocation of board resolutions.

(2) The actual 2017 assigned staff remuneration, according to all colleagues in profession

contribution and when the actual performance of colleagues of the year results issued.

(IX) Re-purchase of the Company’s shares:

The Company has not bought back the shares of the company as of the printed date of the

annual report.

II, the Company's debt handling situation:

(I) Issuance of Overseas Convertible Corporate Bonds

Corporate Bonds Second Overseas Secured Convertible Corporate Bonds in 2014Date of Issuance Dec 17th 2014 Denomination USD $200,000 or multiples thereof Location Singapore Price of Issuance 100% issuance based on par value Total USD $132,000,000 Interest rates 0% coupon rate Term 5 years, ending on Dec 17, 2019 Insurance Agency CTBC Bank, Taiwan Cooperative Bank Trustee The Bank of New York Mellon, London Branch

Underwriting Agency Foreign: Barclays Bank PLC Domestic: Yuanta Securities Co., Ltd.

Lawyer Baker & McKenzie External Auditor KPMG Certified Public Accountants

Method of reimbursement

Apart from callable, puttable bonds for cancellation and conversion, the corporate bond is based on half year calculation of a 100% par value with a premium of 1.75%, annually. The redemption will be 109.10% from par value.

Non-reimbursable Principal USD $0

Redemption or early Terms of Settlement

Refer to the issuance and conversion guidance of the Second Overseas Secured Convertible Corporate Bonds in 2014, disclosed in the Market Observation Post System.

Restricted Clause None The name, evaluation and other date of credit evaluation and other organizations, Results of corporate debt assessment, etc.

Not Applicable


- 94 -

Corporate Bonds Second Overseas Secured Convertible Corporate Bonds in 2014

Other attached rights

Converted (exchange or subscription) common stock, depository receipts or other price of securities as of the annual report publish date.

Converted common Shares 379,867,601 shares

Distribution & conversion (exchange Or subscription) method

Refer to the Market Observation Post System

The method of issuing and converting, exchanging or subscription, the conditions under which the terms of issue may dilute the equity and Impact on existing shareholder equity

Converted common stock 379,867,601 shares, the balance of $0 in United States dollars; According to the current price of conversion is 10.80 per share (Reference exchange rate of NT$31.222 to US$1), the dilution rate would be 14.07%, assuming full conversion into common stock, an increase of 379,867,601 shares.

Name of Exchange Not Applicable

Implementation of the funds utilization plan

The amount of USD $107,147 thousands has been spent as at March 31, 2019, and the amount has not yet been spent in United States dollars of $24,853 thousands; the implementation of funds is implemented in accordance with the project schedule.

- 95 -

(II) Information of Overseas Convertible Corporate Bonds

Corporate Bonds Second Overseas Secured Convertible Corporate Bond in 2014

Year Item

2014 2015 2016 As of 2017

12/19

Dedicated debt Exchange

price Company

Highest (Note 1) Note 1 Note 1 Note 1 Note 1

Lowest (Note 1) Note 1 Note 1 Note 1 Note 1

Average (Note 1) Note 1 Note 1 Note 1 Note 1

Convert Price 10.80 10.80 10.80 10.80

Issuance date and conversion price Dec 17th 2014

10.80 Dec 17th 2014

10.80 Dec 17th 2014

10.80 Dec 17th 2014

10.80

Obligation of conversion

0 converted common stock in the fiscal year and 0 accumulated converted common stock



379,867,601 converted common stock as of December 19, 2017 379,867,601 accumulated converted common stock.

Note: 1. No transactions record.

2. The Company has redeemed the company's debt in advance on December 19, 2017. The amount of USD

$107,147 thousand has been spent as at March 31, 2019, and the amount has not yet been spent in USD

$24,853 thousand; the implementation of funds is implemented in accordance with the project schedule.

III. Issuance of Preferred Shares: N/A

IV. Status of Participation in Issuance of “Global Depository Receipts (GDRs)”:

The 2018 shareholders' meeting of the company approved the issuance of ordinary shares in the

cash increase through the cash increase approved on April 11, 2018, to participate in the issuance of

overseas depositary receipts, and the adjustment of the investment schedule was made in conjunction

with the transfer of investment and development plans.

V. Status of Employee Stock Option: N/A

VI. Restrictions on Employee Share Subscription Warrant: N/A

VII. Mergers and Acquisitions, or as Assignee of New Shares Issued by Another

Company: N/A

VIII.Implementation of Capital Utilization Plan

Until the deadline of providing hardcopy of annual report, no unissued shares or private

placement of securities have not yet been complete, nor has existing plans within the last three years

generated significant changes.

Operations Overview

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Five. Operations Overview

I. Business contents

(I) Scope of business

1. The scope of major business items:

(1)Manufacture of petroleum, alkali-chlorine and phosphoric acid and derivatives.

(2)Import-export including storage, transportation, procurement, and sales of the products in

the forgoing item and their raw materials, chemicals, and chemical materials.

(3)Business related to the procurement and sales in the foregoing item and the import and

export trade of general commodities.

(4)Provision of related technical services of products (by-products) in the foregoing items,

processes, and equipment operations.

(5)Research and development of chemicals.

(6)Trade, classified processing, and distribution of goods (clothing, electrical, books and

stationery, auto products, houseware, and entertainment and leisure facilities).

(7)Restaurant and hotel operations.

(8)Design and sales of computer software and operation of data registration and processing.

(9)Development of commercial buildings; lease and sales of public housing; development of

factory buildings on general industrial land; lease and sales of warehouses; and

development, lease, sales, and management of industrial parks commissioned by

industrial authorities.

(10)Operations of recreational areas and golf practice ranges (under five holes).

(11)Investment in parking lots within the scope of urban planning.

(12)Operation of gas stations; sales of diesel and dedicated LPG; and simple auto

maintenance services (such as lubrication).

(13)Operations of new power plants.

(14) Undertaking environmental engineering work (removal, disposal and engineering of

general waste, general industrial waste, and hazardous industrial waste).

(15)Import, export, and sales of feed and feed additives.

(16)Business items not prohibited or restricted by the law in addition to the approved

business items.

2. Major products and sales mix

Currently, the major products of this company include acrylonitrile (AN), caprolactam

(CPL), and nylon chip (NY6 or PA6). Others including electricity, cyanate, ammonium

sulfate, industrial sulfuric acid, refined sulfuric acid and other by-products, its 2018 product

accounted for the proportion of business as follows:

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Product Sales share(%)

Acrylonitrile (AN) and by-products 31.20%

Caprolactam (CPL) and by-products 60.14%

Other sectors 8.66%

3. Current products

Current products include acrylonitrile (AN), caprolactam (CPL), nylon chip (NY6 or PA6),

ammonium sulfate (AS), sulfuric acid (including fuming sulfuric acid (oleum) and refined

sulfuric acid), hydrogen cyanide (HCN), and electricity.

4. New products to be developed

We will evaluate the development of plasticized raw materials, functional polymers, nylon

engineering plastics, ester derivatives, ans special chemical. We also use raw materials,

products and by-products to develop high value-added products.

(II) Industry overview

1. Current status and development

(1)Acrylonitrile (AN or ACN)

In Taiwan, there are only two AN suppliers: CPDC and Formosa Plastics

Corporation (Formosa Plastics). The Company has already expanded production capacity

in 2010 and 2011. In 2018 the production capacity was 224,000 metric tons. Although the

production capacity of Formosa Plastics was 280,000 metric tons, for the most part of its

AN output is for internal use to produce ABS and AF products.

In 2018 the total AN demand in Taiwan was about 475,000 metric tons/year, which

was close to that in 2017.

(2)Caprolactam (CPL)

The Company is the only CPL manufacturer in Taiwan, 2018 annual production

capacity of 400,000 tons, 2018 production of 357,000 tons, including 351,000 tons of

CPL in Taiwan, a small amount of export, the number of 5,000 tons, domestic CPL

self-sufficiency rate of about 64.3%. Although the production capacity of the downstream

drawing in the mainland region has increased, but the aggregate capacity has also

increased significantly, compressing the export space of Taiwan polymerization

manufacturers, the consumption of CPL in Taiwan in 2018 was almost no increase

compared with 2017, with an apparent demand of about 546,000 metric tonnes/year, and

the Asian region's demand for nylon was increasing and concentrated in the mainland. In

mainland China, CPL production capacity has been significantly expanded since 2012,

and since 2014-2018, the expansion has slowed down under oversupply, with a total

output of 3.55 million tons in 2018. The new capacity was manageable in 2018, with an

increase of 280,000 tonnes in 2018, an increase of 7% per cent over 2017 and a total

capacity of 3.55 million tons. The total demand for CPL in mainland China in 2018 was

about 3.2 million metric tonnes/year, up from 2.69 million metric tonnes/year in 2017,

and the number of self-produced CPL increased by about 580,000 tons compared with

Operations Overview

- 98 -

2017, with an annual increase rate of 23%. In the past two years, the growth rate of CPL

in mainland China is slightly larger than that of supply, and the growth ratio of terminal

demand exceeds 10%, so the profit return of CPL industry is better. In 2018, the CPL

industry entered the upward cycle, the manufacturers returned to the profit situation. In

2019, the demand for Asian CPL was estimated to continue to grow by about 6-8%, but

new CPL was still actively invested, and the Asian CPL market operating forecast was

conservatively close to 2018 under the conservative start of mainland and international

installations.

(3)Nylon Chips (NY6 or PA6)

The production of nylon grains in Taiwan has been in decline for more than

2016-2018 years, mainly because the new production capacity of nylon grains in

mainland China has continued to be put into production and the number of exports to

mainland China has decreased. As production capacity is greater than Taiwan's local

demand, more than 50% of the output has to be exported for export, while the share of

exports to the mainland in the past accounted for nearly 80% of the total exports of nylon

grains, which fell to 57% in 2017, and continued to decline in 2018 to 50%;2018 other

areas outside sales increased by about 20,000 tonnes, at 137,000 tonnes/year Gradually

transfer to the mainland market dependence; the company vertically integrated to CPL

production of nylon granules, for downstream produce nylon wire, engineering plastics

and nylon film, and through the production and sales of nylon granules to maintain the

sensitivity to the nylon market, due to the separation of nylon downstream products and

different growth, and gradually adjust the sales of downstream customers proportional

structure , Although facing increasing competition in the market, it is estimated that 2019

years can maintain the profit-making sales with CPL.

(4) O-phenylphenol (OPP)

After the completion of the construction of 2000 tons of test workshop in 2016, the

company became the only OPP manufacturer in Taiwan, the third largest producer in the

world. This product for the company's vertical integration of special products projects, to

cyclohexanone as the main production raw materials, related to the catalyst technology

and process design development are developed by our own. The product mainly provides

production of flame-resistant agents, optical materials and anti-corrosion sterilization.

Sinopec through the production and sales of OPP to carry out the special market

development operations, through the separation of downstream products and different

growth, the continuous development of related OPP derivatives, and gradually adjust the

sales of downstream customers proportional structure, the development of Sinopec

special new products.

2. Supply Chain Relationships between Products


Propene and ammonia anhydrous are the major raw materials of AN. AN is

produced by ammoxidation with a specific amount of air and steam. Propene is mainly

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supplied by CPC Corporation Taiwan, with a small amount from imports. All liquid

ammonia is imported.

Downstream AN applications include acrylic fiber and ABS plastics production.

Acrylic fiber is also called AN fiber. It is mainly used in producing fabrics, wool, woolen

fabrics, blankets, carpets, and stuffed toys. ABS is usually used to produce briefcases,

cosmetics containers, computers, mobile phones, home appliance shells, and auto parts.

ABS plastics: Briefcases, cosmetics containers, computers, mobile phones, home

appliance shells, and auto parts.


The main raw materials for caprolactam are benzene or cyclohexane or phenol and

liquid ammonia. Benzene is partly supplied by CPC Corporation, Taiwan, partially

imported, phenol by domestic or imported, and cyclohexane and liquid ammonia are fully

imported.

Caprolactam is an important raw material for the production of nylon 6 fiber and

resin. The downstream products of NY6 thread include general textile fibers, such as

sports jackets, lining, stockings, undergarments, and fabrics, and industrial fabrics such as

umbrella fabrics, fishing lines, fishing nets, tire carcass, handbags and home carpets.


Nylon chips are made of CPL through polymerization into solid high molecules for

use by downstream spinning industry or engineering plastics industry. The downstream

application of nylon chips has been mentioned in the CPL section. The product relations

are as follows:

Nylon → downstream processing

benzene or cyclohexane or phenol

→ caprolactam → nylon granules

Compounding and Modification→Engineering Plastics

3. Development Trend and Competition Status of Major Projects


Favorable conditions:

NBR Nitrile Rubber: The automotive industry will continue to grow in 2019, with a

small increase in demand for tires (NBR), but the growth rate of

medical latex (Latex) has accelerated, especially in the mainland

market there is a large growth space. Are indirectly beneficial to

production and price stability.

AM acrylamide: Sewage treatment and two oil recovery demand is increasing, AM

demand is expected to grow, conducive to the stability of an

production and price.

ABS Plastics: Home appliances, car demand still maintain growth, indirectly to an

production and price stability favorable.

Operations Overview

- 100 -

Unfavorable conditions:

AF:2019 Annual AF Demand estimates are flat or slightly reduced, and Polyester

(polyester fiber) continues to be replaced by a small portion, which will be detrimental

to an production and price stability.

China continues to expand its new capacity, causing the balance of supply and

demand in an industry and the impact on prices.

Continental conservation policy (such as tariff protection, or the inclusion of an as a

processing ban) has also had an impact on the operations of an Asian producer, and

Sino-US trade conflicts have also affected the mainland's demand.

○4 China has reduced VAT to 13% since April 2019, and there are no tariff barriers to

export of mainland competing factories in the future, and competition for export has

intensified.

Countermeasures for unfavorable conditions:

To develop the current growth rate of the NBR (Latex) and AM acrylamide Market, and

expand South Asia India, the Middle East and other export regions, reduce the export

dependence on the mainland market, beginning to bear fruit.



Nylon is the key development industry in China, so while supporting the expansion of

domestic production capacity, the Government also presents multiple protection

strategies, such as tariff barriers and anti-dumping duty collection, in order to protect

the survival and development of new entrants to the country. The company is not

included in the anti-dumping list and the barriers to entry are lower than those of other

international

Due to the complexity of the CPL process, high operational difficulties, new

participants in the quality of stability is difficult to control, so the Qiulong still enjoy

short-term quality advantage.

Taiwan Nylon Industry quality is still better than China, in the nylon demand is still

growing, Taiwan region will continue to occupy a place.


There has been a significant expansion of CPL capacity in mainland China, which has

been oversupplied since 2013, and price competition and profit instability will continue

under the active expansion of market share by CPL manufacturers.

In recent years, Asian PTA significantly expanded production, overcapacity of

polyester wire to low prices and high market share of the replacement of nylon,

affecting the development of nylon in the people's livelihood textile market.

- 101 -


Focus on upstream and downstream industrial chain environment, market boom

changes and other factors, flexible adjustment of sales strategy and support downstream

industries to improve the starting rate, and jointly face competition.

Strengthen customer development in engineering plastics and film market, reduce the

risk of selling single nylon textile industry, cooperate with the development and

production of functional nylon granules of the company, increase the flexibility of sales

deployment.



Economies are growing rapidly in China, and under the influence of domestic demands

and export growth demands, the spinning industry has significantly expanded

production, accelerating the improvement of nylon granules.

China’s booming automotive and IoT packaging industry, the achievement of

engineering plastics nylon and thin film nylon and other needs.


Taiwan's nylon downstream industry is nearly 55% concentrated in clothing and

industrial textile fiber and export sales are excessively concentrated in the mainland

market, vulnerable to the single industry and market influence, and the Sino-US trade

conflicts also affect the mainland nylon demand.


Taiwan's polymerization equipment after the expansion, its sales direction to increase the

export of mainland textile market mainly, in order to avoid the bloody competition in

China's Red Sea market, the company will strengthen the signing of Taiwan Island

Customer materials contract, in order to consolidate sales, and the development of

domestic and foreign engineering plastics market access, beginning to bear fruit.

(4)OPP (ortho-phenylphenol)


Taiwan, the world's third largest manufacturer, is the only supplier to the ground, its

downstream demand is mostly concentrated in the Asian region, the location of the

land, accelerated the improvement of the de-benzene phenol.

Using new catalyst and purification technology to significantly reduce three wastes and

improve quality.


Major competitors have a market share of more than 50% and enjoy preferential tax

rates in major demand markets. It has an impact on the operation of special products in

Taiwan.

Operations Overview

- 102 -


To avoid price-driven competition with China, the CPDC will develop OPP derivatives to

enhance the market share for Asia region and creative new business market area and

customers, example for Europe and the United States.

4. Domestic Market Share of Major Products

In 2018, Caprolactam domestic market share of about 64%, acrylonitrile domestic market

share of about 30%, nylon grain domestic market share of about 6%, the domestic market

share of benzene phenol is about 50%.

(III) Technology and R&D

1. In, 2018, investment in r & d expenditure is $335,436 thousand; As of February, 28th,

2019: $28,226 thousand.

2. Major Research Outcomes

From catalyst development, process design, and plant construction, we can ensure

100% independent development for ortho-phenyl phenol (OPP). OPP is an important fine

organic chemical generally used to produce flame retardant, fungicide, preservative, coating,

photosensitive materials, mordant or surfactant.

Nylon Engineering Plastics with different functional demands, has developed nylon

enhancement, toughening, enhancement toughening, flame retardant, weather resistance,

antistatic and easy injection molding and other modified products, the development of its

own performance formula and series of products, the establishment of customized

commodity technology, can be used for car parts, tool chassis, people's livelihood furniture

and sports supplies. With the design concept of an integrated production line, we developed

a combination of acrylic products, with derivative monomers that have wide applications as

synthetic dyes, plants, plastics and adhesives production, cosmetics, food processing, and as

a PU paint modifier.

3. Current Patent Status

In 2018, the Company has been approved for seven new patents and completed the

licensing procedures, the application of patent content in addition to the company's existing

process to improve, but also for the future planning of products for technical protection and

development layout.

(IV) Long- and Short-Term Business Development Plans

Sinopec body recognition enterprises on the environment, society, and corporate

governance issues of the response and management policy is also an important performance,

in the face of the rapid changes in the future business environment, the company will uphold

the concept of respect for natural ecology to achieve green petrochemical enterprises, to a

more proactive attitude, seeking breakthroughs and enhance the competitiveness of

self-development.

- 103 -

The future operation Outlook of petrochemical profession and land development

dual-spindle business is summarized according to short-term and long-term planning as

follows:

A, Petrochemical Industry:

A-1 Short-term planning:

Optimize existing operating capabilities: in addition to adding raw materials and

product shoreline, expanding production capacity and increasing productivity, and

implementing greenhouse gas reduction, we are also committed to optimizing

plant operations, accelerating factory intelligence, and gradually introducing

artificial intelligence technology towards unmanned chemical plants.

Create a variety of high-value new products: In addition to the continuous

introduction of new products, improve the added value of nylon products, the

development of a wide range of applications, esters and functional polymer

products, but also set out to layout the development of biomass materials, and to

the green environmental protection process for development.

A-2 Long-term planning:

The establishment of overseas consistent production base: in order to avoid

fluctuations in the price of intermediate raw materials, affect profit stability,

intermediate raw materials in situ balance to reduce storage and transportation

costs, material and energy a high degree of integration of energy costs to establish

cost competitive advantage.

Development of new products and technologies: in addition to the establishment of

their own technology and the introduction of new product sales, the future will be

oriented towards biomass, green environmental protection process development, in

addition, through the promotion of factory intelligence, the gradual development

of their own AI application technology, the construction of petrochemical

Profession AI Foundation, In the future, we can further develop AI application

products and services specifically designed for the petrochemical industry in order

to establish a competitive advantage in technology.

To build an intelligent management system: Improve the command center

comprehensive efficiency, planning the establishment of enterprise intelligent

management platform, hoping to improve the quality of decision-making and

establish management competitive advantage through the integration of market

analysis, production forecasting and scheduling, production monitoring and

business performance analysis.

B. Land Development:

B-1 Short-term planning:

To plan and activate " Taiwan's "existing land assets as the goal: the company is

located in Kaohsiung Multi-functional economic and Trade Park, the v A Special

Operations Overview

- 104 -

District and the sixth special district, with Kaohsiung Province to promote the

construction of New Asia Bay District and 205 Arsenal migration time, promote

the relevant development plans, short-term direction for investment and leasing,

hoping to create the highest value for the company's land assets

To cut into the "overseas" real estate development as the goal: in line with China's

strategy and the rise of emerging markets in Southeast Asia brought about by new

business opportunities, and actively explore Vietnam and Myanmar with land

development investment potential areas, and the purchase of development value

land.

B-2 Long-term planning:

District by district promoting "Taiwan’s" land-related development program in : In

response to the government's greening and energy conservation policy, in the

development planning program, the goal is to absorb carbon civilization and

livable construction commodities.

Development of "overseas" real estate development: In Vietnam, Myanmar or

other Southeast Asia can develop regions combined with agricultural farming,

access to petrochemical raw materials, the establishment of petrochemical

profession production base and drive residential and commercial development, the

ultimate goal of sustainable management, production, life and ecological smart

Town as the goal.

II, market and production and marketing overview

(I) Market Analysis of Major Products

[Acrylonitrile (AN or ACN)]

On the demand side, the impact of Sino-US trade conflicts, conservative view of the

2019 ABS market situation, estimated 2019 demand will be 2~3% than the 2018

micro-growth, the 2019 AF demand estimated flat or small reduction, AM and NBR demand

growth rate of about 4.5% and 3.5%, Overall an demand growth rate of about 2~3%.

On the supply side, the mainland is expected to add 260,000 tons of new capacity in

2019. In 2020, it is estimated that the mainland's additional production capacity of about

260,000 tons will be put into the market, the industry will still have a short-term oversupply

trend.

The Company has completed the operation test of a go bottleneck project at the end of

2012, the capacity of 2014 has reached about 224,000 tons, conducive to enhancing Taiwan's

domestic market share, the overall consideration of supply and demand situation, the 2019

Asian start rate is expected to be flat in 2018, the construction rate maintained at more than

90%.

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[Caprolactam (CPL)]

The Company's CPL production capacity of 400,000 tons/year in 2018, the main sales

target for Taiwan domestic nylon polymerization industry, nylon polymerization industry to

nylon grain, nylon type sales to the Chinese mainland nylon Terminal market; 2018 Taiwan

CPL Total demand 546,000 tons/year, The total demand for CPL in mainland China reached

3.2 million tons/year, the demand for the overall nylon industry on both sides of the Taiwan

Strait exceeded 3.7 million tonnes/year, and the demand for CPL on both sides of the Taiwan

Strait years about 10%.

Nylon for mainland China's key support industries, in order to enhance the domestic

self-sufficiency rate of CPL raw materials, in recent years a significant expansion of CPL

production capacity, 2017 for the new production capacity production peak, 2017 a total

increase of 800,000 tons of annual production capacity, production in 2018 slightly slower

about 280,000 tons. 2019 is expected to continue to focus on new production capacity in

China, will put into production capacity of about 800,000 tons, estimated to have wing Rong

200,000 tons/year new line, Ba Ling Heng yi 100,000 tons/year new line and Inner Mongolia

Kyung Hua and Pingdingshan Shenma 200,000 tons/year.

The nylon polymerization capacity in Taiwan has long been greater than the domestic

CPL capacity, due to the lack of self-sufficiency rate in CPL, the demand for downstream

production of nylon is highly dependent on imports; Since the second quarter of 2016, the

company has flexibly adjusted its output in view of its profitability, which is expected to meet

the self-sufficiency rate of 50~65% in Taiwan , Its self-sufficiency rate is close to the demand,

but in the quality difference and processing demand, the forecast still needs to rely partly on

the import CPL source, about 5%, this situation forces Europe and the US to reduce the excess

production of CPL sold to Asia, some devices have expanded downstream nylon grain

production capacity.

In addition to the continuous expansion of China's CPL production capacity, in order to

ensure the survival and development of the domestic nylon industry, CPL, nylon grain

marketed import levy anti-dumping duty and high CPL import duties, increase the import cost

of raw materials, and even increase export tax rebates to increase the competitiveness of

mainland exports, it is expected that the 2018 CPL market challenges will continue, Part of

the device will be conservative to start the response.

[Nylon Chips (NY6 or PA6)]

The domestic demand market size of nylon is different due to economic, demographic

and geographical factors. Taiwan has the world's second largest PA6 production capacity only

behind China. However, nearly 50% of the production of PA6 rely on export and the largest

export market is China.

China's nylon industry chain despite the continued growth of downstream demand, but

by the rapid expansion of production capacity and other effects, the number of imports of PA6

will be reduced by year, China's total imports of about 379,000 tonnes in 2018 were close to

about 364,000 tonnes of imports in 2017, but 141,000 tonnes of Taiwan's mainland exports

Operations Overview

- 106 -

accounted for 36% of the mainland's total imports, 167,000 tonnes of the decline of 18% tons

in Taiwan's exports to the mainland in 2017.

To consolidate the existing nylon market, the Company continues to cultivates channels

and customers of functional PA6 and downstream engineering plastics, to effectively consume

CPL and disperse the risk of the high and low seasons of a single market and to create higher

value-added products for customers.

[OPP (ortho-phenylphenol)]

On the supply side, as China's environmental policy forces local OPP producers to stop

production, the first half of 2019 is expected to still show the phenomenon of imbalance

between supply and demand, will be conducive to our sale to OPP related application market.

In terms of demand, not only the existing demand area for flame retardant, optical

material and anti-microbial remain steady growth, but a lot of companies pay more attention

to develop novel OPP derivatives and applications. On the whole, the demand of OPP will

steady increase.

CPDC shall proactively develop specialty markets, continue to optimize the OPP

production process, downstream OPP sales channels, and client base and concurrently

develop greater high value products.

(II) Major applications and processes of major products

1. Acrylonitrile (AN or ACN)

(1)AN is mainly used to produce acrylic fiber (AN fiber) and ABS plastics. Major

downstream AN products include:

polyacrylonitrile Fiber: garment fabrics, acrylic wool, woolen flannel, stuffed toys,

blankets, carpets, decorative cloth.

ABS Plastic: suitcase, cosmetic packaging containers, computers, mobile phones,

household appliances and other housings, auto parts.

NBR rubber: Oil-resistant, heat-resistant rubber industrial supplies.

○4 acrylamide: Oilfield Oil flooding agent, wastewater treatment agent, soil water

absorbent, improvers, pulp toughening agent, coating dressing, coagulant.

(2) Production process:

Propene

Air Ammoxidation AN

Ammonia anhydrous

2. Caprolactam (CPL)

General textile fiber: Sports coat, lining, stockings, underwear, etc.

Industrial fibers: Umbrella cloth, fishing line, fishnet, tire curtain, handbag,

nonwovens, household carpets, etc.

- 107 -

Engineering Plastics: Automotive parts, high-pressure tubes, surfboards, gears and

other industrial supplies.

(2)Process:

Hydrogen Air Fuming Sulfuric Acid

Phenol Cyclohexanone Cyclohexanone oxime

Oxidation Oximation CPL

Hydrogen

Phosphoric Ammonia Ammonium hydroxide

acid anhydrous

3. Nylon Chips (NY6 or PA6)

(1)Nylon chip is a direct CPL downstream product. Its application is the same as in CPL.

(2) Production process:

CPL Polymerization Nylon Chips

(III) Supply and demand of major materials:

In addition to ammonia anhydrous and coal which are 100% imported, all other major

raw materials used by the Company are obtainable from related domestic suppliers with

long-term supply contracts. For example, propene, toluene, sulfur and natural gas are supplied

by CPC Taiwan; sodium hydroxide is supplied by Taiwan Chlorine Industries; cyclohexane is

supplied by Taiwan Prosperity Chemical; and phenol is supplied by FCFC and Taiwan

Prosperity Chemical. If domestic supply is inadequate, we will replenish the insufficiency

with imports. Because the major raw materials sources increased and the costs of raw

materials declined, the competitive advantage of the products could be strengthened.

Beckmann rearrangement

- 108 -

(IV) Customers sharing 10% of total sales in the past two years and their sales amount and proportion

Major suppliers in the past two years Unit: NT$ thousands

Item

FY 2017 FY 2018 As of the first season, 2019

Supplier

Number

(Note 2)

Amounts

Percentage

in Annual

Purchasing

Amount (%)

Relationship

with

the issuer

Supplier

Number

(Note 2)

Amounts

Percentage in

Annual

Purchasing

Amount (%)

Relationship

with

the issuer

Supplier

Number

(Note 2)

Amount

s

Percentage in

Annual

Purchasing

Amount (%)

Relationsh

ip with

the issuer

1 660 7,448,776 30.12 660 8,768,637 29.90

Not Applicable

2 688 2,692,701 10.89 688 3,577,975 12.20

3 9357 2,024,216 8.19 4081 2,638,226 8.99 Others 12,563,562 50.80 Others 14,343,430 48.91

Net

Purchase24,729,255 100.00

Net

Purchase29,328,268

100.00

Note: 1. Cause of increase or reduction: Change of market price and purchasing quantity. 2. Replaced by supplier ID for business consideration. Major customers in the past two years

Unit: NT$ thousands

Item

FY 2017 FY 2018 As of first season, 2019

Sales

Clients

Number

(note 2)

Amounts

Percentage in

Annual Sales

Value (%)

Relations

hip with

Issuer

Sales

Customer

number

(note 2)

Amounts

Percentage in

Annual Sales

Value (%)

Relations

hip with

Issuer

Sales

Clients

Number

(note 2)

Amounts

Percentage of

net sales as at

the first quarter

of the year (%)

Relations

hip with

the issuer

1 1018 6,434,882 19.30 1018 5,502,844 14.29

Not Applicable

2 1020 5,133,183 15.40 1020 5,259,325 13.66

3 1011 3,914,702 11.74 1019 4,799,812 12.47

4 1001 3,844,332 11.53 1011 4,675,062 12.14

5 1019 3,646,217 10.94 1001 2,868,527 7.45

Others 10,362,654 31.09 Others 15,397,551 39.99

Net Sales 33,335,970 100.00 Net Sales 38,503,121 100.00 Note: 1. Reasons for change or decrease: changes in market prices and sales volume. 2. Replaced by customer ID for business consideration.

- 109 -

(V) Production Quantity and Value in the Past 2 Years

Unit of measure: metric tonnes Unit of Value: NT thousands

Year Production

Value Major Product (Or department)

FY 2018 FY 2017

Capability Production Value Capability Production Value

AN 220,000 208,420

31,491,624

220,000 207,108

26,358,881 Caprolactam (CPL),

Nylon Chips 426,000 374,390 426,000 379,708

Other By-products

Total 31,491,624 26,358,881

Note: Capacity refers to the company after measuring the necessary downtime, holidays and other

factors, the use of existing production equipment, under normal operation

The quantity that can be produced.

(VI) Sales Quantity and Value in the Past 2 Years

Volume: Ton Value: NT$1,000

Year

Sales Value

Main Product (Or department)

2018_Consolidated 2017_Consolidated

Domestic Export Domestic Export

Quantity Value Quantity Value Quantity Value Quantity Value

AN, acetic acid 115,229

28,747,803

100,582

9,755,318

150,385

28,467,024

59,745

4,868,946

Caprolactam (CPL), Nylon Chips

341,369 14,311 360,198 5,062

Other By-products

917

Total 28,747,803 9,755,318 28,467,024 4,868,946

Operations Overview

- 110 -

III. Employees

Number of employees in the Past 2 Years up to the Report Printing Date 2019/03/29

Year 2017 2018 Terminates the year of

2019/03/29 (Note)

Number

Of

Employees

Taipei Office 242 302 321

Toufen Plant 387 395 393

Dashe Plant 299 302 299

Hsiaokang Plant 297 277 285

Subsidiaries 276 319 319

Total 1501 1595 1617

Average Age (year) 40.69 39.73 39.72

Average

Length of service 11.69 10.3 10

Distribution Of

Level Of

Education

PhD’s 11 19 19

Master’s 253 298 299

Bachelor’s 1060 1138 1153

High school or

below 177 140 146

Note:1.Data in the year of the printing date. 2. Statistical information for the end of December of the year, respectively in 2017 and 2018.

IV. Environmental Protection Expenses

(I) Damage from Polluting Environment in the Past 2 Years

Unit: NT$ thousands

FY 2018 FY 2017

Pollution status (type, extent) Violation of the Air

Pollution Control Act and

Water Pollution Prevention

Act.

Violation of the Air

Pollution Control Act and

Waste Disposal Act.

Compensation Target or

Punishing Unit

Local environmental

protection authorities

Local environmental

protection authorities

Fine Amount 7,856 1,008

Other Loss ___ ___

(II) Responsive Action

1. Improvement Plan

(1)Aggressively comply with environmental protection laws and regulations.

- 111 -

(2) To strengthen the maintenance and abnormal management of treatment facilities and

monitoring equipment.

2. Estimated environmental protection expenses in the next three years

Unit: NT$ thousands

2019 2020 2021

‧ Content of pollution

control equipment or

expenditure to be

acquired

Prevention and

improvement of air,

water, soil and

underwater pollution in

all plants

Prevention and

improvement of air,

water, soil and


all plants

Prevention and

improvement of air,

water, soil, and


all plants ‧ Expected

Improvement

situation

Pollution and waste

reduction and

compliance with

environmental protection

standards

Pollution and waste

reduction and

compliance with

environmental

protection standards

Pollution and waste

reduction and

compliance with

environmental

protection standards

Amounts 101,637 thousand 111,801 thousand 122,981 thousand

Note: In 2019, annual expenditure amount of $101,637 thousand system projected, the following

two years of the forecast number.

3. Impact after improvement

2019 2020 2021

‧ Impact on net profit Depreciation year

increased by 9,240

thousand yuan,

maintenance year

increased by about

924,000 yuan.

The depreciation year

increased by 10,164

thousand yuan, the

maintenance year

increased by about

1,016.4 thousand yuan. .

The depreciation year

increased by 11,180

thousand yuan, the

maintenance year

increased by about

1,180 thousand yuan.

‧ Impact on

Competitive position

Comply with

environmental standards

Good social

Responsibility

Comply with


Good social

Responsibility

Comply with


Good social

Responsibility

Note: Depreciable assets will be depreciated over 10 years. 2020, 2021 are estimates.

Operations Overview

- 112 -

V. Labor-Management Relations

(I) Employee welfare benefits, continuing education, training, retirement system and

implementation thereof:

The Company has established the worker welfare commissions in its Taipei office and

plants. The Company will organize local and overseas travels, ball games, mountain-claiming

activities and other competitions from time to time, some of which may be attended by the

employees and their family members.

The Company also prepares budget and plans to arrange for various training programs

needed by the employees to meet their duties each year, and defines the relevant rules

governing incentives and subsidies to employees who wish to attend continuing education

programs to learn other languages at their leisure time or various professional programs.

1. Employee welfare benefits:

The employee benefits were processed in 2018 as follows:

2018 Employee Activity data

Item

Welfare matters

(New Year condolences, tail tooth

lottery, birthday gift, and other

benefits) (Thousand Yuan)

Recreational activities

(Travel grants, ball games,

mountaineering, other employee

activities, etc.) (Thousands Yuan)

Taipei Office 5,383 1,619

Toufen Plant 7,111 7,000

Dashe Plant 12,932 1,419

Hsiaokang

Plant

10,092 2,329

Total 35,518 12,367

2. Continuing Education/Training

Staff training hours and budget implementation for 2018 are as follows:

Training data of 2018 employees

Item Total Training Hours

Average Hour per

Person

Budget

Implementation

Efficiency

Taipei Office 11,076.5 41.33 39%

Toufen Plant 24,745 63.78 90%

Dashe Plant 24,528.5 80.16 80%

Hsiaokang Plant 12,307 43.18 49%

- 113 -

2018 subsidy incentive staff to use the working language or various professional course data

after work

Item Subsidy (NTD)

Taipei Office 0

Other Subsidiaries 153,627

Total 153,627

3. Retirement system

The Company has established the Labor Pension Supervisory Committee, which will

contribute to a reserve for pension monthly pursuant to laws. Other than employees who

were hired after the enforcement of Labor Pension Act in 2005 or those who chose the new

system, any employees who retire pursuant to Labor Standard Law will deposit the reserve

for pension into the account opened by the Labor Pension Supervisory Committee at the

Bank of Taiwan monthly pursuant to laws.

Employee pension and retirement data for 2018

Item Amount or Number of Person

Retirement Account Opened by Labor Pension Supervisory

Committee at Bank of Taiwan $139,274 thousand

Number of retirements in 2018 56

(II) Labor-management agreements and employees’ interest and right protection measures:

1. To enable employees to know about the Company’s code of conduct or ethical principles,

the Company has defined a “CPDC Business Conduct Policy” (see Attachment), which

will be distributed to employees when they are hired. Employees shall sign to

acknowledge that they have read and understood the “business conduct policy” adopted

by CPDC.

Operations Overview

- 114 -

Business conduct Policy book

I. Fair trade policy

1. The Company complies with the Fair-Trade Act (the same act applicable in any of offshore

areas) consistently. The Company understands that to build the goodwill requires the efforts

through years, while the goodwill earned by efforts through years might be ruined due to one

single person’s conduct. For fair trade, any colleague's misconduct may cause significant

expenses and material litigation to their supervisors as well as the Company and the

management, and fine, injunction and even imprisonment sentence.

2. The fair-trade policy aims at maintaining a free competition system among enterprises. The

fair-trade policy is established to enable the public to deserve the best protection under fair

competitions if no conspiracy or collusion is existing among the competitors. It is undisputable

that the Fair-Trade Act benefits maintenance of the economic, political and social groups. The

Company’s Administration Dept. has also re-stated its confidence in the fair trade philosophy.

Therefore, under the principles encouraged to seek profit through legal and valid means, any

acts of the Company are conducted pursuant to laws. Particularly, reaching agreement or

understanding against fair trade is against the Company’s policy.

3. The Company’s executive officers at each level shall educate colleagues to comply with the

fair trade requirements, so that colleagues may know how to deal with any situation involving

fair trade issues.

II. Conflict of Interest Policy

1.Each colleague shall be obligated to deal with the relationship between them and the Company,

honestly and fairly. None of the colleagues may engage in any activities against said obligation

for personal interest, or allow the circumstances against the obligation to exist.

2. If, in any transactions involving the Company and any colleague or a third party, the colleague

or his/her spouse or direct blood relative within the second level under the Civil Code might

seek profit therefrom, the conflict of interest should be held sustained:

If any colleague contributes to or affects the transaction between the Company and any

enterprise and the colleague or his spouse or direct blood relative within the second pillar

under the Civil Code holds the shares in the enterprise which are sufficient to influence the

enterprise’s policy making, the conflict of interest should also be held sustained.

Under said circumstances, if any colleague has any question about the validity of some

case or business relation, he/she shall report the same to the Company via the reporting

channel applicable to him/her, so that the Company may research relevant solutions.

3. None of the colleagues is allowed to ask any supplier, customer or competitors for gifts,

entertainment or other personal benefit, or accept any gifts, entertainment or other personal

benefits that might affect their duties adversely from any supplier, customer or competitor.

- 115 -

III. Payment and Spending Policy

1. The bank account opened by the Company or the fund owned by the Company shall not be

disclosed (made public) or recorded without justified reasons.

2. All of the Company’s payment or spending records shall be able to precisely reflect the

purchasing behavior or fact for the spending.

3. None of the colleagues may make any payment, grant any gift or money, service or valuable

goods, privately and directly or indirectly, that cause adverse influence to the Company or its

stakeholder.

IV. Non-Disclosure and Non-Competition

1. The employee shall keep confidential any of the Company’s technical or business secrets

accessed by him/her in the duration of his/her employment in the Company and any

information to be kept confidential under the contract signed by the Company and a third party,

in the duration of the employment. The employee shall not utilize confidential information to

seek his/her personal interest or engage in the same business, or disclose the same to a third

party without authorization.

2. The employee shall not publish the confidential information referred to in the preceding

paragraph, or disclose or utilize the same to engage in the business identical with the

Company’s out of the intent to seek illegal profit, upon his/her resignation.

3. The computer program, literal work and graphic work created by the employee in performing

his/her duty under the Company’s planning in the duration of his/her employment shall be

vested in the Company as agreed. Without the Company’s prior written consent, the employee

shall not use the same arbitrarily within the effective time limit defined in the Copyright Act.

V. Internal Information Control Policy

Any colleague who holds the Company’s internal information shall not engage in trading

the Company’s securities, directly or indirectly, or disclose the same to a third party

without authorization. Internal information refers to the information that shall not be

made public. If it is impossible for any colleague to make sure whether the information

held by him/her is internal information, he/she shall consult with the department which

owns the information.

VI. Compliance

1. When granting some voluntary authority, the colleague and agent shall note and advise the

licensee of compliance with the “Business Conduct Policy.”

2. Each colleague shall report to his/her supervisor or executive officer any violation or suspected

violation of the Company’s “Business Conduct Policy” or other regulations. None of the

colleagues may intimidate or retaliate the co-worker who submits the report. The colleague

shall be obligated to report any suspected violation of the Company’s “Business Conduct

Policy” or other regulations, and shall acknowledge that he/she shall be obligated to avoid

Operations Overview

- 116 -

ignoring the fact and circumstance for any misconduct and shall alert such fact and

circumstance and submit the report to his/her supervisor or executive officer.

VII. Communication and Negotiation

1. Each supervisor and colleague shall work together with each one to create and acknowledge

the importance for establishment of a high-efficiency team, and shall get along with each other

well. Should any colleague have any problem, private or for business, he/she may talk with

his/her supervisor, and the supervisor shall communicate with the colleague from time to time

to seek the resolution together with the colleague, so as to boost the team’s performance.

2. The factory and company labor-employer meetings will serve as a communication channel

between labor and the employer. In addition to the representatives from labor and the employer,

any colleagues who has positive suggestions may propose their suggestions via the

representatives, so that both parties may research and resolve the same at the meetings to reach

agreement and implement resolutions.

3. Should any colleague have any question about the personal interest or management system,

he/she may learn about the same through his/her supervisor or the HR unit and communicate

through the administrative system channels from time to time. He/she may also communicate

with the factory and company welfare committees about employee fringe benefits or cultural

and entertainment activities at any time.

4. The whistleblower reporting system is designed to enable colleagues to report his/her problems

at work and avoid the supervisor’s adverse influence. The colleague may maintain his/her

interests and rights through this channel.

5. The colleague and supervisor may also take advantage of other administrative measures, such

as nomination system, personal interview, meetings, and quarterly and yearly performance

appraisal, as communication channels. If any colleague cannot apply said communication

channels as the case involves any personal rule breaking or delinquency, he/she shall also

present the relevant evidence supported by the facts. In case of any false accusation,

intentional harassment and alienation, the Company will ignore the complaint and the recipient

may tear down the complaint directly but shall not circulate the same, unless some concrete

fact and evidence shows that the anonymous complainant is one of the Company’s colleagues

or any person instigated by the complainant, in which case the colleague and the person shall

be disciplined pursuant to the Articles of Incorporation.

6. Said communication channels under the normal system will be protected and valued. Aside

from the above-mentioned policies, any activity engaged in attacking the Company’s operation

or failure to seek personal interest and solution through legal procedure under the name of any

outsider, authority or group or by taking advance of or colluding with outsiders, authority or

groups shall be held against the Company’s policy and material requirements.

- 117 -

VIII. Enforcement Rules

Each of the Company’s departmental supervisor shall ask each of the colleagues subordinated to

him/her for the written report, and ask new employees for the written report within one week

after the new employees are hired. In the case of any changes in the Company’s “Business

Conduct Policy”, he/she shall ask each of colleagues subordinated to him/her for the written

report again. The written report shall contain the following:

1. The colleague has read the Company’s:

Fair trade policy

Conflict of Interest Policy

Payment and Spending Policy

Non-Disclosure and Non-Competition

Internal Information Control Policy

Comply with regulatory Policies

Communication and Negotiation

2. The colleague has understood and is willing to comply with said policies;

3. The colleagues and other co-workers under his/her supervision have already read and

understood, and are willing to comply with said policies.

Meanwhile, various supervisors shall supervise their immediate subordinates’ compliance with

said policies. Upon receipt of the written report from each immediate supervisor and colleague,

the departmental supervisor shall submit one copy of the written report showing compliance of

him/her and all colleagues subordinated to him/her with said policies.

Business Conduct Policy Compliance Certificate (for the general colleagues)

It is certified that:

1. I have already read and understood the “Business Conduct Policy” adopted by CPDC:

Fair trade policy





Comply with regulatory Policy


2. I hereby undertake that I will comply with the Business Conduct Policy accordingly.

Operations Overview

- 118 -

(Date) (Printed Name) Business Conduct Policy compliance certificate (supervisor)

It is certified that:

1. I have already read and understood the “Business Conduct Policy” adopted by CPDC:

Fair trade policy





Comply with regulatory Policy


2. The Business Conduct Policy has been read by me and the other colleagues under my

supervision.

3. Guarantee that one will comply with this business conduct policy.

(Date) (Printed Name)

4.Each of the Company’s plants have entered into the group agreement with various labor unions.

The Company has also defined its work rules, which were reviewed and approved by the city

government, and made public, and distributed to all colleagues via email. The Company will

call a labor-employer meeting to negotiate labor-employer issues once per quarter to facilitate

the cooperation between labor and the employer and to create and maintain a harmonic

relationship between labor and employer and create a safe and friendly working environment.

5. The Company has never suffered loss due to dispute over labor and employer relationships in

the most recent year until the date of publication of the annual report.

- 119 -

VI. Major Contracts

(I) Engineering Contract:

Contract Nature Contract Party

Contract

commencem

ent and

termination

Date

Summary Content Restricted

Clause

Kaohsiung Intercontinental Wharf Project separate case outsourcing project equipment production and engineering

Luojisi Technology Industrial Co., Ltd.

2018/08/28~2020/06/30

In order to cooperate with the "Intercontinental Wharf liquid ammonia and phenol storage and transportation project," it is necessary to make relevant important equipment and engineering work, in order to reduce the engineering interface problems and benefit the construction period control.

None

First stage geological improvement project of liquid ammonia and phenol storage and transportation project of Kaohsiung Intercontinental Wharf

BES 2018/07/24~2020/12/17

The first stage of the geological improvement project of the liquid ammonia and phenol storage and transportation project at the Intercontinental Wharf of Kaohsiung, the pile head treatment and the gravel-grade matching project need to be combined with the main construction of the liquid ammonia storage tank. The two construction periods have been extended to December 17, 2020. The remaining work was completed on January 21, 2019.

None

(II) Supply Contract

1. With respect to the major products of the Company, such as AN and CPL, the Company has

created a permanent and stable sales relationship with the Company’s down-stream

customers, e.g. CHIMEI, Grand Pacific Petrochemical Corporation, NANTEX Industry Co.,

Ltd., Li Peng Enterprise, Zig Sheng Industrial Co., Ltd. and Chain Yarn Co., Ltd., and also

entered into the supply contract with some of them.

2. The main raw materials needed and procured by the Company locally include propylene,

sulfur and industrial natural gas, for which the Company has entered into the long-term

purchase contract with CPC. To procure liquid caustic soda, the Company entered into a

purchase contract with Taiwan Chlorine Industries Ltd. The raw materials for which the

Company has entered into the long-term contract with foreign suppliers include phenol and

liquid ammonia.

Operations Overview

- 120 -

(III) Technical Cooperation Contract

Contract

Nature Contract Party

Date of contract

commencement

and termination

Summary Content Restricted Clause

Outsourced

Analysis

Project

I-Shou University 2018/02/15~

2019/02/28~ Detection & Analysis Services

The intellectual

property ownership

shall be determined

subject to contract.

Outsourced

Analysis

Project

Far East

University

2018/03/01~

2019/02/28~

Far East University of Science and

Technology Cooperation program

The intellectual

property ownership

shall be determined


Cooperation

Plan case

Cheng Shiu

University

2018/06/01~

2019/05/31

Contract for the work of chemical

structure identification and

analysis of production and service

The intellectual

property ownership

shall be determined


Outsourcing

research Cases

Foundation for the

research and

Development of

National Cheng

Kung University

Corporation

2018/07/01~

2019/06/30

Key monomer Biomass method

commissioned research

cooperation contract book

The intellectual

property ownership

shall be determined


Outsourced

Analysis

Project

Far East

University

2018/08/01~

2019/07/31

Contract of the Far East University

of Science and Technology

Cooperation program

The intellectual

property ownership

shall be determined


Outsourced

Analysis

Project

Far East

University

2018/10/01~

2019/10/31

Contract of the Far East University

of Science and Technology

Cooperation program

The intellectual

property ownership

shall be determined


(IV) Long-Term Loan Contract

Contract

Nature Contract Party

Date of contract

commencement

and termination

Summary Content Restricted

Clause

Long-Term

Loan

Mega International Commercial

Bank, Offshore Banking Branch

2016.12 ~

2019.12 Working capital increase None

Long-Term

Loan

First Commercial Bank,

Business Office 2017.3 ~ 2020.3 Working capital increase None

Long-Term

Loan

Mega International Commercial

Bank, Offshore Banking Branch.

Syndicated Loan

2016.3 ~ 2021.3Roll over and Working capital

increase None

- 121 -

Six. Financial Status

I. Condensed balance sheet, income statement, external auditor’s name and

audit opinion for the most recent five years

(I) Condensed balance sheet and comprehensive income statement - IFRSs

Condensed balance sheet - IFRSs

Unit: NT$ thousands

Year Item

Financial data for the last five years Terminates the

year of Financial data of March 31,

2019 2014 2015 2016 2017 2018

Current Assets 12,072,676 9,786,343 11,686,011 14,685,286 15,148,831

Not Suitable For use

Property, plant and equipment

16,487,850 15,206,121 14,252,235 14,240,101 14,585,386

Intangible assets - - - - - Other assets 48,133,190 49,937,921 49,694,427 51,260,892 56,143,645 Total assets 76,693,716 74,930,385 75,632,673 80,186,279 85,877,862

Current liabilities

Before distribution

5,572,313 4,911,877 10,197,827 4,030,444 6,049,686

After distribution

5,572,313 4,911,877 10,197,827 4,030,444Note 1

Non-current liabilities 17,930,442 16,977,121 14,616,237 13,848,110 12,931,286

Total liabilities

Before distribution

23,502,755 21,888,998 24,814,064 17,878,55418,980,972

After distribution

23,502,755 21,888,998 24,814,064 17,878,554Note 1

Equity attributable to the parent company

53,190,961 53,041,387 50,818,609 62,307,725 66,896,890

Capital stock 23,199,897 23,199,897 23,199,897 26,998,573 26,998,573Capital surplus - 18,141 18,141 1,260,386 1,260,386

Retained surplus

Before distribution

31,005,657 31,081,107 29,122,523 35,229,878 40,374,642

After distribution

31,005,657 31,081,107 29,122,523 35,229,878 Note 1

Other equities (1,014,593) (1,257,758) (1,521,952) (1,181,112) (1,736,711)Treasury stock - - - - - Non-controlling equity - - - - - Rights Total

Before distribution

53,190,961 53,041,387 50,818,609 62,307,725 66,896,890

After distribution

53,190,961 53,041,387 50,818,609 62,307,725 Note 1

Note1：Earnings Appropriation for 2018 shall be ratified at the 2019 annual general shareholders’ meeting.

Financial Status

- 122 -

Individual concise consolidated income Statement-International Financial reporting guidelines

Unit: NT$ thousands

Year

Item


year of

Financial data

of March 31,

2019

2014 2015 2016 2017 2018

Operating revenue 31,851,565 23,146,767 22,526,791 32,160,867 36,969,800

Not

Suitable

For use

Gross Profit (1,384,891) (1,093,257) (728,326) 4,630,315 4,312,688

Operating profit or loss (2,181,317) (1,894,726) (1,481,032) 3,471,361 3,017,875

Non-Operating Profit

and Loss 2,476,408 1,990,257 (388,689) 2,803,380 1,618,395

Net profit before tax

(loss) 295,091 95,531 (1,869,721) 6,274,741 4,636,270

Continuing business

Units

This issue of the balance

of profit

304,449 95,531 (1,869,721) 6,091,656 4,290,269

Loss of discontinued

department - - - - -

Net profit (loss) 304,449 95,531 (1,869,721) 6,091,656 4,290,269

Other consolidated gains

and losses for the current

period

(NET after tax)

24,775 (263,246) (345,732) 356,539 (526,461)

Total comprehensive

income 329,224 (167,715) (2,215,453) 6,448,195 3,763,808

Net profit (loss)

attributable to

Parent company owner

- - - - -

Net profit (loss)

attributable to

Non-controlling equity

- - - - -

Total comprehensive

income attributable to

parent company

- - - - -

Total comprehensive

income attributable to

non-controlling equity

- - - - -

EPS 0.13 0.04 (0.81) 2.55 1.59

- 123 -

(II)Consolidated condensed balance sheet - IFRSs

Unit: NT$ thousands

Year

Item Financial data for the last five years Terminates the

year of

Financial data of

March 31, 20192014 2015 2016 2017 2018

Current Assets 18,168,124 15,118,402 16,082,533 18,839,149 21,622,587

Not

Suitable

For use

Real Estate, plant

And equipment 16,980,407 16,279,497 15,669,918 16,935,430 19,501,534

Intangible assets 20,169 21,451 31,256 24,338 188,061

Other assets 42,259,715 44,335,453 44,671,558 45,830,043 48,392,772

Total assets 77,428,415 75,754,803 76,455,265 81,628,960 89,704,954

Current

liabilities

Before

distribution 5,668,509 5,278,759 10,462,969 4,241,699 7,488,055

After

distribution 5,668,509 5,278,759 10,462,969 4,241,699 Note 1

Non-current liabilities 18,340,615 17,218,026 14,929,630 14,838,802 15,026,145

Total

liabilities

Before

distribution 24,009,124 22,496,785 25,392,599 19,080,501 22,514,200

After


Equity attributable to

the parent company 53,190,961 53,041,387 50,818,609 62,307,725 66,896,890

Equity 23,199,897 23,199,897 23,199,897 26,998,573 26,998,573

Capital surplus - 18,141 18,141 1,260,386 1,260,386

Retained

surplus

Before

distribution 31,005,657 31,081,107 29,122,523 35,229,878 40,374,642

After


Other equities (1,014,593) (1,257,758) (1,521,952) (1,181,112) (1,736,711)

Treasury stock - - - - -

Non-controlling

equity 228,330 216,631 244,057 240,734 293,864

Rights

Total

value

Before

distribution 53,419,291 53,258,018 51,062,666 62,548,459 67,190,754

After


Note1：Earnings Appropriation for 2018 shall be ratified at the 2019 annual general shareholders’ meeting.

Financial Status

- 124 -

Consolidated concise consolidated income Statement-International Financial reporting guidelines

Unit: NT$ thousands

Year Item


year of 2019/03/31

Financial Data2014 2015 2016 2017 2018

Operating revenue 33,249,482 26,155,995 25,376,683 33,335,970 38,503,121

Not Suitable For use

Gross Profit (763,163) (442,748) (89,861) 5,371,581 5,176,159 Operating profit or loss (2,174,632) (1,793,801) (1,395,078) 3,584,036 3,075,082 Non-Operating Profit

and Loss 2,527,223 1,936,032 (409,018) 2,713,685 1,601,868

Net profit before tax (loss)

352,591 142,231 (1,804,096) 6,297,721 4,676,950

Continuing business Units This issue of the

balance of profit

294,532 82,770 (1,878,145) 6,087,322 4,280,995

Loss of discontinued department

- - - - -

Net profit (loss) 294,532 82,770 (1,878,145) 6,087,322 4,280,995 Other consolidated

gains and losses for the current period (NET after tax)

25,641 (264,007) (344,987) 357,550 (521,612)

Total comprehensive income

320,173 (181,237) (2,223,132) 6,444,872 3,759,383

Net profit (loss) attributable to Parent company owner

304,449 95,531 (1,869,721) 6,091,656 4,290,269

Net profit (loss) attributable to Non-controlling equity

(9,917) (12,761) (8,424) (4,334) (9,274)

Total comprehensive income attributable to parent company

329,224 (167,715) (2,215,453) 6,448,195 3,763,808

Total comprehensive income attributable to non-controlling equity

(9,051) (13,522) (7,679) (3,323) (4,425)

EPS 0.13 0.04 (0.81) 2.55 1.59

(III) The names of CPA conducting financial audits in the most recent five years and their audit

opinions

Year 2014 FY 2015 FY 2016 FY 2017 FY 2018

External

Auditor

Melody Chen Melody Chen Jeff Chen Jeff Chen Melody Chen

Jeff Chen Jeff Chen Chung Dan-Dan Chung Dan-Dan Chung Dan-Dan

Audit

Opinion

Modified

unqualified

opinions

Modified

unqualified

opinions

Unqualified

opinions

Unqualified

opinions

Unqualified

opinions

- 125 -

ii. Financial Analysis for the last five years

(I) Individual financial analysis for the most recent five years - IFRSs

Unit: NT$ thousands

Year Target of analysis

Financial analysis for the last five years Terminates the year of 2019/03/31

2014 2015 2016 2017 2018

Not

Suitable

For use

Financial structure %

Liabilities to total assets 30.64 29.21 32.81 22.30 22.10Long-term fund to property, plant and equipment

431.36 460.46 459.12 534.80 547.32

Insolvency % Current ratio 216.65 199.24 114.59 364.36 250.41Quick ratio 164.67 148.40 92.32 294.30 208.49Times Interest Earned 486 151 (731) 3,662 8,999

Operating performance

Receivables turnover (time) 11.98 10.27 10.88 10.31 10.58Average number of days’ receivables outstanding

30.46 35.54 33.54 35.40 34.50

Inventory turnover (time) 13.47 10.99 12.40 14.40 14.79Payables turnover (time) 18.65 19.46 17.63 15.57 18.07Average number of days of sales

27.09 33.21 29.43 25.34 24.68

Property, plant and equipment turnover (time)

1.81 1.46 1.53 2.26 2.57

Total assets turnover (time) 0.43 0.31 0.30 0.41 0.45

Profitability

ROA (%) 0.50 0.33 (2.24) 8.01 5.22ROE (%) 0.57 0.18 (3.60) 10.77 6.64Ratio of net benefits to paid-in capital before tax (%) (Note 6)

1.27 0.41 (8.06) 23.24 17.17

Profit margin (%) 0.96 0.41 (8.30) 18.94 11.60Basic earnings per share (NT$) 0.13 0.04 (0.81) 2.55 1.59

Cash flow

Cash flow ratio (%) (19.17) (10.38) 0.11 83.94 96.41Cash flow adequacy ratio (%) 57.26 21.33 (39.35) 22.67 148.10Cash flow reinvestment ratio (%)

(1.60) (0.77) 0.02 4.55 7.41

Leverage Operating leverage Note 1 Note 1 Note 1 1.92 2.53Financial leverage Note 1 Note 1 Note 1 1.05 1.02

The causes resulting in changes in financial rates in the most recent two years by more than 20%:1. The 2018 annual turnover ratio and the speed ratio were both lower than in 2017, mainly due to

long-term borrowing due to long-term liabilities maturing in one year or one business cycle and short-term borrowing.

2, 2018 annual interest protection multiples increased compared to 106 years, the main department of the company 2017 in accordance with the issue of the early redemption of all overseas secured convertible corporate debt caused by the reduction of interest costs.

3. The financial ratios of profitability in 2018 were lower than in 2017, due to the decrease in the prices of Caprolactam and acrylonitrile in the main products, and the decrease in the number of external income and expenditure was due to the investment in the 2017 law on the exploitation of equity.

The ratio of cash flow ratios in 2018 to 4 was higher than in 2017, as a result of the increase in net cash inflows to business activities in 2018 over 2017.

Note 1: The financial ratio is not calculated because the operating interest is negative.

Financial Status

- 126 -

(II) Consolidated financial analysis for the most recent five years - IFRSs

Unit: NT$ thousands

Year

Target of analysis

(Note 2)

Financial analysis for the last five years Terminates

the year of

2019/03/312014 2015 2016 2017 2018

Financial

Structure

%

Liabilities to total assets 31.01 29.70 33.21 23.37 25.10

Not

Suitable

For use

Long-term fund to property,

plant and equipment 422.60 432.91 421.14 456.95 421.59

Debt

servicing

Ability

%

Current ratio 320.51 286.40 153.71 444.14 288.76

Quick ratio 260.65 236.01 130.52 370.18 243.52

Times Interest Earned 524 175 (689) 3,442 5,982

Operate

Ability

Receivables turnover (time) 11.98 10.52 11.13 10.31 10.84

Average number of days’

receivables outstanding 30.46 34.69 32.79 35.40 33.67

Inventory turnover (time) 12.91 11.48 13.21 14.14 14.02

Payables turnover (time) 18.17 18.87 17.29 15.04 17.27

Average number of days of

sales 28.27 31.79 27.63 25.81 26.03

Property, plant and

equipment turnover (time) 1.86 1.57 1.59 2.04 2.11

Total assets turnover (time) 0.45 0.34 0.33 0.42 0.45

Profit

Ability

ROA (%) 0.49 0.31 (2.22) 7.90 5.07

ROE (%) 0.55 0.16 (3.60) 10.72 6.60

Ratio of net benefits to

paid-in capital before tax (%)

(Note 6) 1.52 0.61 (7.78) 23.33 17.32

Profit margin (%) 0.89 0.32 (7.40) 18.26 11.12

Basic earnings per share

(NT$) 0.13 0.04 (0.81) 2.55 1.59

Cash

Flow

Cash flow ratio (%) (32.65) 9.28 2.50 82.58 83.83

Cash flow adequacy ratio

(%) 53.33 23.75 (31.43) 24.44 78.89

Cash flow reinvestment ratio

(%) (2.73) 0.73 0.41 4.61 7.69

Leverage Operating leverage Note 1 Note 1 Note 1 2.19 2.98

Financial leverage Note 1 Note 1 Note 1 1.05 1.03

The causes resulting in changes in financial rates in the most recent two years by more than 20%: 1. The 2018 annual turnover ratio and the speed ratio were both lower than in 2017, mainly due to long-term

borrowing due to long-term liabilities maturing in one year or one business cycle and short-term borrowing. 2, 2018 annual interest protection multiples increased compared to 106 years, the main department of the

company 2017 in accordance with the issue of the early redemption of all overseas secured convertible corporate debt caused by the reduction of interest costs.

3. The financial ratios of profitability in 2018 were lower than in 2017, due to the decrease in the prices of Caprolactam and acrylonitrile in the main products, and the decrease in the number of external income and expenditure was due to the investment in the 2017 law on the exploitation of equity.

- 127 -

The ratio of cash flow ratios in 2018 to 4 was higher than in 2017, as a result of the increase in net cash inflows to business activities in 2018 over 2017.

Note 1: The financial ratio is not calculated because the operating interest is negative. NOTE 2: Annual report at the end of this table, the following calculation formula should be presented:

1. Financial structure (1) Liabilities to total assets =Total liabilities/total assets (2) long-term funds as a proportion of property, plant and equipment = (Total equity + non-current

liabilities)/Net property, plant and equipment. 2. Insolvency

(1) Current ratio=current assets/current liabilities (2) Quick ratio= (current assets-inventory-prepayment)/current liabilities (3) Times Interest Earned = income tax and interest expenses net income before income tax/interest

expenses in the current period 3. Operating performance

(1) Receivables (including accounts receivable and notes receivable resulting from operation) turnover = net sales / balance (gross) of average accounts receivable (including accounts receivable and notes receivable resulting from operation)

(2) Average number of days receivable outstanding = 365 /accounts receivable turnover (3) Inventory turnover=sale cost/average inventory (4) Payables (including accounts payable and notes payable resulting from operation) turnover = net

sales / balance (gross) of average accounts payable (including accounts payable and notes payable resulting from operation)

(5) Average number of days of sales=365/inventory turnover (6) Property, plant and equipment turnover=net sales/average property, plant and equipment, net (7) Total assets turnover rate = net sales/average total assets

4. Profitability (1) ROA = [income after income tax+interest expense*(1-tax rate)]/average total assets. (2) ROE = Income after income tax/average total equity (3) Profit margin = Income After income tax/net sales (4) Earnings per Share = (income attributable to parent company – dividends from preferred

shares)/weighed average quantity of outstanding shares (Note 4) 5. Cash flow

(1) Cash flow ratio=Net cash flow from operating activities/current liabilities (2) Net cash flow adequacy ratio= Net cash flow from operating activities in the most recent five years/

(capital spending + increase in inventory + cash dividends) in the most recent five years (3) Cash reinvestment ratio= (Net cash flow from operating activities-cash dividends) (gross of property,

plant and equipment+ long-term investment+ other non-current assets+ working capital) (Note 5) 6. Leverage:

(1) Operating leverage= (Net operating revenue-changed operating costs and expenses)/operating income (2) Financial leverage=Operating income/ (operating income-interest expenses)

Note 3: The formula for calculating the surplus per share should be measured with particular attention to the following matters:

1. Weighted average quantity of shares is on the basis of common stock, not the outstanding shares as of the end of the year.

2. The quantity of new shares for raising new capital or treasury stock trade shall be included in the weighted average quantity of shares during their effective term.

3. Where the shares may be issued through the capitalization of retained earnings or capital surplus, make adjustment in proportion to the quantity of shares issued in calculating the semi-annual or annual EPS of the year. The period for the release of such new shares may be omitted.

4. If the preferred stock is a non-convertible cumulative preferred stock, dividends for the year (issued or not) shall be subtracted from the net profit after tax or added to net loss after tax. If the preferred stock

Financial Status

- 128 -

is not cumulative, dividend thereon shall be subtracted from net profit after tax if net profit after tax is earned, or no adjustment is required if loss arises.

Note 4: Consider the followings in conducting cash flow analysis: 1. Net cash flow from operating activities refers to net cash inflow from operating activities as stated in

the Statement of Cash Flow. 2. Capital expenditures are from the annual cash flow statements on capital expenditure outflows. 3.The increase in inventory is included only when the balance at the ending is more than that at beginning.

If the inventory decreases at the end of the year, it shall be calculated as “zero”. 4. Cash dividends includes common stock and preferred shares dividends. 5. Property, plant, and machinery balance is after subtracting accumulative depreciation.

Note 5: The issuer shall include operating costs and operating expenses as fixed or variable. If estimates or judgements are applied, shall be deemed reasonable and consistent.

Note 6: Company stocks that have no par value or have par value different from NT$10/share, shall be calculated based upon percentage of paid in capital or as a percentage of parent company equity in the balance sheet.

- 129 -

III. Audit Committee’s Audit Report on the Financial Statement for the Most

Recent Year

CHINA PETROCHEMICAL DEVELOPMENT CORPORATION

Audit Committee’s Review Report The Board of Directors has prepared the Company’s 2018 Business Report, Financial

Statements, Consolidated Financial Statements and Earnings Appropriation Statements for

2018. The CPA firm of KPMG was retained to audit China Petrochemical Development

Corporation’s Financial Statements and Ms. Melody Chen and Ms. Dan-Dan Chung have

issued an audit report relating to the Financial Statements. The Business Report, Financial

Statements, Consolidated Financial Statements and Earnings Appropriation Statements have

been reviewed and determined to be correct and accurate by the Audit Committee of China

Petrochemical Development Corporation. In accordance with Article 14-4 of the Securities

and Exchange Act and Article 219 of the Company Act, I hereby submit this report.


Convener of the Audit Committee:

March 22, 2019

(English Translation of Consolidated Financial Statements Originally Issued In Chinese) INDEPENDENT ACCOUNTANTS’ AUDIT REPORT

To the Board of Directors of China Petrochemical Development Corporation:

Opinion

We have audited the consolidated financial statements of China Petrochemical Development Corporation and its subsidiaries (“the Group”), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of the other auditors, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretations as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

IV. Recent financial report

- 130 -

Emphasis of Matter

As described in Notes 6.g and 6.l of the notes to the consolidated financial statements, the Tainan City Government and Environment Protection Administration, the Executive Yuan publicly announced that a portion of the land at the Anshun plant was polluted and designated it as under pollution control. As China Petrochemical Development Corporation (CPDC) never used the land since it took over from its merger with Taiwan Alkali Industrial Corporation (TAIC), CPDC still has a dissenting view on the government perception about the condition of pollution. Aside from cooperating with the government in its control and management procedure, CPDC is seeking a way to define its responsibilities. In addition, CPDC submitted for approval a remediation project proposal to the Tainan City Government in accordance with the related regulations and accrued relevant remediation project expenses in June 2008. This remediation project proposal was approved in May 2009. CPDC also performed related remediation work according to the remediation project proposal. The first phase of remediation project was completed in September 2014. The management of CPDC is expecting that the second phase of remediation project will be completed in the next decade. Likewise, CPDC has accrued relevant remediation project expenses for the second phase of remediation project in December 2014. Our opinion is not modified in respect of this matter.

Other Matter

CPDC has prepared its parent-company-only financial statements as of and for the years ended December 31, 2018 and 2017, on which we have issued an unmodified opinion. We have not audited certain investments, which were accounted for under the equity method. The financial statements as of and for the years then ended December 31, 2018 and 2017 of those of the investees accounted for under the equity method were audited by other auditors, whose reports have been furnished to us, and our opinion in so far as it relates to the amounts for the equity method investees were based solely on the reports of other auditors. These investments accounted for under the equity method represented 1.05% and 1.36% of consolidated total assets as of December 31, 2018 and 2017, respectively. The related shares of investment income from these investees including subsidiaries, associates and joint ventures accounted for using equity method represented (2.21)% and (0.06)% of consolidated net income before income tax for the years ended December 31, 2018 and 2017, respectively.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were significant in our audit of the consolidated financial statements as of and for the year then ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Revenue recognition

Operating revenue is the most important source of cash flow for the Group, and it is a significantrisk accounting subject in the consolidated financial statements. So revenue recognition is one ofthe key audit matters for our audit. Please refer to Note 4 “Revenue Recognition” and Note 6 “Revenue”in the consolidated financial statements.

- 131 -

How the matter was addressed in our audit

Our key audit procedures included:

Testing the Group’s internal accounting controls surrounding revenue recognition and keymanual and systems-based controls in the order-to-cash transaction cycle. In addition,checking and reconciling the sales data recorded between the sales systems and general ledger;selecting samples to assess whether appropriate revenue recognition policies are appliedthrough comparison with accounting standards;

Analyzed and compared the sales amounts and volumes for the major customers of the Group.Based on samples selected, vouched significant transactions from both internal and externaldocuments, to verify the authenticity of the transactions.

2. Assessment of the fair value of investment property

The book value of investment property of the Group represented 43% of consolidated total assetsas of December 31, 2018, which is deemed to be significant. The Group evaluate the fair value ofinvestment property according to IAS40, and re-measure such fair value on the reporting date.Because the valuation of investment property at fair value demands significant professionaljudgments, the assessment of fair value of investment property is considered one of the key auditmatters. Please refer to Note 4 “Investment Property”, Note 5 “Significant Accounting Judgments,Estimation, Assumptions, and Sources of Estimation Uncertainty”, and Note 6.h “InvestmentProperty” of the consolidated financial statements for details of the information about fair valueinformation on investment property.



Obtain from the Group management the real estate appraisal report on investment property;

Engage another appraiser to review such real estate appraisal report, and to evaluate the propriety ofthe evaluation method used, and the reasonableness of its main assumptions or input values (ex.discount rate and final rate of return);

Evaluate the propriety of the disclosure of fair value of investment property.

Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the IFRSs, IASs, interpretations as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

- 132 -

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance (including the Audit Committee) are responsible for overseeing the Group’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the consolidated financial statements, whether dueto fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidencethat is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a materialmisstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theGroup’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, basedon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a materialuncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in theconsolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Ourconclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, futureevents or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including thedisclosures, and whether the consolidated financial statements represent the underlying transactions andevents in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or businessactivities within the Group to express an opinion on the consolidated financial statements. We are responsiblefor the direction, supervision and performance of the group audit. We remain solely responsible for our auditopinion.

- 133 -

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent accountants’ audit report are Chen Mei Fang and Chung Tan Tan.

KPMG

Taipei, Taiwan (Republic of China) March 22, 2019

- 134 -

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- 135 -

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) CHINA PETROCHEMICAL DEVELOPMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2018 and 2017

(Expressed in thousands of New Taiwan Dollars)

For the Years Ended December 31, 2018 2017

Amount ％ Amount ％

Operating revenue (Notes 4 and 6 s.) $ 38,503,121 100 33,335,970 100 Operating costs (Notes 4 and 6 d.) 33,326,959 87 27,964,951 84

5,176,162 13 5,371,019 16 Less: Unrealized (profit) loss on intercompany transactions - - - - Add: Realized profit (loss) on intercompany transactions (3) - 562 - Gross profit 5,176,159 13 5,371,581 16 Operating expenses

Selling expenses 794,518 2 627,746 2 Administrative expenses 971,123 2 923,451 2 Research and development expenses 335,436 1 236,348 1 Impairment loss (impairment gain and reversal of impairment loss) determined in

accordance with IFRS 9 - - - -

2,101,077 5 1,787,545 5 Profit from operations 3,075,082 8 3,584,036 11 Non-operating income and expenses

Other income (Notes 6 v. and 7) 1,044,485 3 530,773 1 Other gains and losses (Notes 6 l. and 6 v.) (251,071) (1) 1,594,771 5 Finance costs (Notes 6 m. and 6 v.) (79,516) - (188,416) (1) Share of profit of associates and joint ventures accounted for using equity method

(Notes 4 and 6 e.) 887,970 2 776,557 2

Total non-operating income and expenses 1,601,868 4 2,713,685 8 Income before income tax 4,676,950 12 6,297,721 19 Less: Income tax expense (Notes 4 and 6 p.) 395,955 1 210,399 1 Net income 4,280,995 11 6,087,322 18 Other comprehensive income (loss): Items that will not be reclassified subsequently to profit or loss:

Actuarial loss from defined benefit plans 16,731 - 13,416 - Unrealized losses from investments in equity instruments measured at fair value

through other comprehensive income (372,169) (1) -

- Share of other comprehensive loss of associated and joint ventures (70,122) - 2,283 - Allocation of income tax to the above items - - - -

(425,560) (1) 15,699 - Items that may be reclassified subsequently to profit or loss:

Exchange differences arising on translation of foreign operations (96,052) - (98,616) - Changes in fair value of available-for-sale financial assets - - 403,037 1 Share of other comprehensive income (loss) of associates and joint ventures - - 37,430 - Allocation of income tax to the above items - - - -

(96,052) - 341,851 1 Other comprehensive (loss) income for the year, net of income tax (521,612) (1) 357,550 1 Total comprehensive income for the year $ 3,759,383 10 6,444,872 19 Net income attributable to：

Shareholders of the parent 4,290,269 11 6,091,656 18 Non-controlling interests (9,274) - (4,334) -

$ 4,280,995 11 6,087,322 18 Comprehensive income (loss) attributable to：

Shareholders of the parent $ 3,763,808 10 6,448,195 19 Non-controlling interests (4,425) - (3,323) -

$ 3,759,383 10 6,444,872 19 Earnings per share (NTD) (Notes 4 and 6 r.)

Basic earnings per share $ 1.59 2.55 Diluted earnings per share $ 1.58 2.53

- 136 -

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- 137 -

(English Translation of Consolidated Financial Statements Originally Issued in Chinese)CHINA PETROCHEMICAL DEVELOPMENT CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 2018 and 2017


For the years ended December 31, 2018 2017

Cash flows from operating activities: Income before income tax $ 4,676,950 6,297,721 Adjustments to reconcile income before income tax to net cash provided by operating activities:

Depreciation expense 1,364,687 1,234,460 Amortization expense 19,536 19,669 Net profit on financial assets or liabilities at fair value through profit or loss (242,864) (171,897) Interest expense 79,516 188,416 Loss on reassessment of embedded derivatives at fair value through profit or loss - 920,915 Interest income (197,636) (206,644) Effect of exchange rate changes on bonds payable - (276,247) Shares of gain of subsidiaries and associates accounted for using equity method (887,970) (776,557) Loss on disposal of property, plant and equipment 6,998 737 Gain on disposal of investments (6,094) (2,674,450) Impairment loss on financial assets - 1,137 Impairment loss (reversal of) on non-financial assets 150,541 (22,875) Realized gain or loss on intercompany transactions 3 (562) Gain on redemption of bonds payable - (10,091) Gain arising from adjusting fair value of investment property (119,574) (41,244) Amortization of bond issued expense - 83,552

Total adjustments to reconcile income before income tax 167,143 (1,731,681) Change in operating assets and liabilities：

Change in operating assets： Decrease (increase) in accounts receivable 903,773 (1,555,926) Decrease (increase) in receivables－related parties 7,751 (13,965) (Increase) decrease in other receivables (78,301) 107,534 Increase in inventories (102,860) (677,191) Increase in prepayments (287,483) (10,803) (Increase) decrease in other current assets (25,924) 35,626

Total changes in operating assets 416,956 (2,114,725) Change in operating liabilities：

Increase in contract liabilities 5,578 - (Decrease) increase in accounts payable (111,211) 249,718 Decrease in accounts payables－related parties - (10,703) Increase in other payables 1,694,851 772,572 Decrease in provisions (139,236) (120,742) (Decrease) increase in other current liabilities (306,551) 71,689 Total changes in operating liabilities 1,143,431 962,534

Total changes in operating assets and liabilities 1,560,387 (1,152,191) Total adjustments 1,727,530 (2,883,872)

Cash provided by operations 6,404,480 3,413,849 Interest received 203,318 203,196 Interest paid (77,134) (96,847) Income taxes paid (253,419) (17,341)

Net cash provided by operating activities 6,277,245 3,502,857 Cash flows from investing activities:

Acquisition of current financial assets at fair value through profit or loss (3,267,115) (8,221) Proceeds from current financial assets at fair value through profit or loss 1,846,810 8,867 Acquisition of financial assets carried at cost - (500,000)

Proceeds from disposal of financial assets carried at cost - 1,419 Return of capital of financial assets under cost method due to capital reduction - 10,635 Proceeds from disposal of Investments accounted for using equity method - 3,052,814

Acquisition of property, plant and equipment (4,046,481) (2,500,402) Proceeds from disposal of property, plant and equipment 14,410 - Acquisition of intangible assets (188,697) (697) Increase in other non-current assets (108,908) (92,846) Dividend received 653,668 248,920

Net cash (used in) from investing activities (5,096,313) 220,489 Cash flows from financing activities:

Increase in short-term loans 3,349,694 6,352,857 Decrease in short-term loans (2,680,470) (8,998,839)

Repayment of bond payable - (19,158) Increase in long-term bank loans 3,823,144 2,449,949 Repayment of long-term bank loans (2,560 ,000) (2,572,500) Increase (decrease) in long-term bills payable 50,000 (470,000) Increase in other non-current liabilities 37,679 4,442 Changes in non-controlling interests 16,373 -

Net cash provided (used in) by financing activities 2,036,420 (3,253,249) Effect of exchange rate changes on cash and cash equivalents 141,091 (36,668) Net increase in cash and cash equivalents 3,358,443 433,429 Cash and cash equivalents, beginning of the year 10,111,495 9,678,066 Cash and cash equivalents, end of the year $ 13,469,938 10,111,495

- 138 -

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) CHINA PETROCHEMICAL DEVELOPMENT CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2018 and 2017

(Amounts expressed in thousands of New Taiwan Dollars, except for per share information or unless otherwise specified)

1. HISTORICAL HIGHLIGHTS AND SCOPE OF BUSINESS

China Petrochemical Development Corporation (hereinafter referred to as the Company) was founded on July 8, 1969 under the approval of Ministry of Economic Affairs, R.O.C. Its registered address is 11th floor, No.12, Dongxing Rd., Songshan Dist., Taipei City 105, Taiwan (R.O.C.). The Company migrated to No.1, Jingjian Rd., Dashe Dist., Kaohsiung City 815, Taiwan (R.O.C.) on July 18, 2016. The Company and its subsidiaries (hereinafter referred to as the “Consolidated Company”) primarily engage in the production of petroleum, alkali-chlorine, phosphoric acid and other petrochemical products and by-products and the storage, transportation, purchase and sale of these products, related chemicals and their raw materials. The primary products are acrylonitrile, caprolactam, acetic acid and nylon.

2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIALSTATEMENTS

The accompanying consolidated financial statements for the years ended December 31, 2018 and 2017 were authorized for issue by the Board of Directors on March 22, 2019.

3. NEW ACCOUNTING STANDARDS AND INTERPRETATIONS NOT YET ADOPTED

a. The impact of the International Financial Reporting Standards (“IFRSs”) endorsed by theFinancial Supervisory Commission, R.O.C. (“FSC”) which have already been adopted.

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018:

New, Revised or Amended Standards and Interpretations Effective date

per IASB Amendment to IFRS 2 “Classification and Measurement of Share-based

Payment Transactions” January 1, 2018

Amendments to IFRS 4 “Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts”

January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative” January 1,2017

Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for Unrealized Losses”

January 1, 2017

Amendments to IAS 40 “Transfers of Investment Property” January 1, 2018 Annual Improvements to IFRS Standards 2014–2016 Cycle:

Amendments to IFRS 12 Amendments to IFRS 1 and Amendments to IAS 28

January 1, 2017 January 1, 2018

IFRIC 22 “Foreign Currency Transactions and Advance Consideration” January 1, 2018

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http://eifrs.ifrs.org/eifrs/PDFArchive?viewFile=17049&categoryId=71&sidebarCategoryId=71

Except for the following items, the Group believes that the adoption of the above IFRSs would not have any material impact on its consolidated financial statements. The extent and impact of signification changes are as follows:

1. IFRS 15 “Revenue from Contracts with Customers”

IFRS 15 establishes a comprehensive framework for determining whether, how much andwhen revenue is recognized. It replaces the existing revenue recognition guidance,including IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The Group applies thisstandard retrospectively with the cumulative effect, it need not restate those contracts, butinstead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparativereporting period. The Group recognizes the cumulative effect upon the initially applicationof this Standard as an adjustment to the opening balance of retained earnings on January 1,2018.

The following are the nature and impacts on changing of accounting policies:

(1) Sales of goods

For the sale of products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. For some made-to-order paper product contracts, the customer controls all of the work in progress as the products are being manufactured. When this is the case, revenue will be recognized as the products are being manufactured.

(2) Rending of services

The Group is involved in performing services. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services. Revenue is currently recognized using the stage-of-completion method. Under IFRS 15, the total consideration in the service contracts will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Group sells the services in separate transactions.

(3) Commission

For commissions earned by the Group, the Group has determined that it acts in the capacity of an agent for certain transactions. Under IFRS 15, the assessment will be based on the whether the Group controls the specific goods before transferring to the end customer, rather than whether it has exposure to significant risks and rewards associated with the sale of goods.

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(4) Construction contracts

Contract revenue currently includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. When a claim or variation is recognized, the measure of contract progress or contract price is revised and the cumulative contract position is reassessed at each reporting date. Under IFRS 15, claims and variations will be included in the contract accounting when they are approved.

(5) Impacts on financial statements

The adoption of IFRS 15 did not have any a significant impact on its consolidated financial statements.

2. IFRS 9 “Financial Instruments”

IFRS 9 replaces IAS 39 “Financial Instruments: Recognition and Measurement” whichcontains classification and measurement of financial instruments, impairment and hedgeaccounting.

As a result of the adoption of IFRS 9, the Group adopted the consequential amendments toIAS 1 “Presentation of Financial Statements” which requires impairment of financial assetsto be presented in a separate line item in the statement of profit or loss and OCI. Previously,the Group’s approach was to include the impairment of trade receivables in administrativeexpenses. Additionally, the Group adopted the consequential amendments to IFRS 7Financial Instruments: Disclosures that are applied to disclosures about 2018 but generallyhave not been applied to comparative information

The detail of new significant accounting policies and the nature and effect of the changesto previous accounting policies are set out below:

(1) Classification of financial assets and financial liabilities

IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note 4.

The adoption of IFRS 9 did not have any a significant impact on its accounting policies on financial liabilities.

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(2) Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with the ‘expected credit loss’ (ECL) model. The new impairment model applies to financial assets measured at amortized cost, contract assets and debt investments at FVOCI, but not to investments in equity instruments. Under IFRS 9, credit losses are recognized earlier than they are under IAS 39 – please see note 4.

(3) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,

Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of IFRS 9 are recognized in retained earnings and reserves as on January 1, 2018. Accordingly, the information presented for 2017 does not generally reflect the requirements of IFRS 9 and therefore is not comparable to the information presented for 2018 under IFRS 9.

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application.

— The determination of the business model within which a financial asset is held.

— The designation and revocation of previous designations of certain financial assets and financial liabilities as measured at FVTPL.

— The designation of certain investments in equity instruments not held for trading as at FVOCI.

If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group assumed that the credit risk on its asset will not increase significantly since its initial recognition.

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(4) Classification of financial assets on the date of initial application of IFRS 9

The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018.

IAS 39 IFRS 9 Note Measurement

categories Carrying amount

Measurement categories

Carrying amount

Financial assets Cash and cash

equivalents Loans and

receivables 10,111,495 Amortized cost 10,111,495

Equity instruments Designated as at FVTPL

1,368,657 Mandatorily at FVTPL

1,368,657 (a)

Equity instruments Available-for-sale 1,873,478 FVOCI 1,873,478 (b) Equity instruments Carried at cost 703,521 FVOCI 728,660 (c) Equity instruments Carried at cost 2,288,514 Mandatorily at

FVTPL 3,136,224 (d)

Trade and other receivables

Loans and receivables

3,593,370 Amortized cost 3,593,370

a. Under IAS 39, these equity securities were designated as at FVTPL because theywere managed on a fair value basis and their performance was monitored on thisbasis. These assets have been classified as mandatorily measured at FVTPL underIFRS 9.

b. These equity securities represent investments that the Group intends to hold for thelong term for strategic purposes. As permitted by IFRS 9, the Group has designatedthese investments at the date of initial application as measured at FVOCI; thereforethe carrying amount of these equity securities were $1,873,478 thousand on January1, 2018.

c. These equity securities represent investments that the Group intends to hold for thelong term for strategic purposes. As permitted by IFRS 9, the Group has designatedthese investments at the date of initial application as measured at FVOCI, resultingin a decrease of $16,979 thousand and an increase of $42,118 thousand in otherequity and retained earnings respectively and the carrying amount $728,660thousand were recognized on January 1, 2018.

d. These equity securities, as permitted by IFRS 9, the Group has designated theseinvestments at the date of initial application as measured at FVTPL, resultingcarrying amount of $3,136,224 thousand in those assets recognized, and an increaseof $847,710 thousand in the retained earnings, which was attributed to the Parentsand the non-controlling for $806,529 thousand and $41,182 thousand respectively.

The following table reconciles the carrying amounts of financial assets under IAS 39 to the carrying amounts under IFRS 9 upon transition to IFRS 9 on January 1, 2018.

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December 31, 2017

January 1, 2018

January 1, 2018

January 1, 2018

January 1, 2018

IAS 39 Carrying

amount Reclassi- fications

Remeasure- ments

IFRS 9 Carrying amount

Retained earnings

(attributable to the

Parents) Other equity

Retained earnings

(attributable to the Non-controlling)

Fair value through profit or loss Beginning balance of

FVTPL (IAS 39) $ 3,657,171 (2,288,514) - - - - Additions – equity instruments:

From available for sale - - - 1,989 (1,989) - From financial assets

carried at cost - 2,288,514 847,710 806,529 - 41,182 Total $ 3,657,171 - 847,710 4,504,881 808,518 (1,989) 41,182

Fair value through other comprehensive income Beginning balance of

available for sale (including carried at cost) (IAS 39) $ 2,576,999 (2,576,999) - - -

-

Addition – equity instruments:

From available for sale - 1,873,478 - - - - From financial assets

carried at cost - 703,521 25,139 42,118 (16,979) - Subtraction – equity

instruments: Recognized by equity

method - - - (6,310) - -

Total $ 2,576,999 - 25,139 2,602,138 35,808 (16,979) -

Amortized cost Beginning balance of

bond investment without an active market, held to maturity, trade and other receivables, and other financial assets $ 13,704,865 - - - -

-

Total $ 13,704,865 - - 13,704,865 - - -

b. The impact of IFRS endorsed by FSC but not yet effective

The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:


per IASB IFRS 16 “Leases” January 1, 2019 IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019 Amendments to IFRS 9 “Prepayment features with negative

compensation“ January 1, 2019

Amendments to IAS 19 “Plan Amendment, Curtailment or Settlement” January 1, 2019 Amendments to IAS 28 “Long-term interests in associates and joint

ventures“ January 1, 2019

Annual Improvements to IFRS Standards 2015–2017 Cycle January 1, 2019

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1. IFRS 16“Leases”

IFRS 16 replaces the existing leases guidance, including IAS 17 Leases, IFRIC 4Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases –Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Formof a Lease.

IFRS 16 introduces a single and an on-balance sheet lease accounting model for lessees. Alessee recognizes a right-of-use asset representing its right to use the underlying asset anda lease liability representing its obligation to make lease payments. In addition, the natureof expenses related to those leases will now be changed since IFRS 16 replaces the straight-line operating lease expense with a depreciation charge for right-of-use assets and interestexpense on lease liabilities. There are recognition exemptions for short-term leases andleases of low-value items. The lessor accounting remains similar to the current standard –i.e. the lessors will continue to classify leases as finance or operating leases.

(1) Determining whether an arrangement contains a lease

On transition to IFRS 16, the Group can choose to apply either of the following:

— IFRS 16 definition of a lease to all its contracts; or

— a practical expedient that does not need any reassessment whether a contract is, or contains, a lease.

The Group plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

(2) Transition

As a lessee, the Group can apply the standard using either of the following:

— retrospective approach; or

— modified retrospective approach with optional practical expedients.

The lessee applies the election consistently to all of its leases. On January 1, 2019, the Group plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

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When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group chooses to elect the following practical expedients:

— apply a single discount rate to a portfolio of leases with similar characteristics.

— adjust the right-of-use assets, based on the amount reflected in IAS 37 onerous contract provision, immediately before the date of initial application, as an alternative to an impairment review.

— apply the exemption not to recognize the right-of-use assets and liabilities to leases with lease term that ends within 12 months of the date of initial application.

— exclude the initial direct costs from measuring the right-of-use assets at the date of initial application.

— use hindsight when determining the lease term if the contract contains options to extend or terminate the lease.

(3) So far, the most significant impact identified is that the Group will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Group estimated that the right-of-use assets and the lease liabilities to increase by $299,236 thousand and $299,236 thousand respectively on January 1, 2019. No significant impact is expected for the Group’s finance leases. Besides, The Group does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. The above impact may change due to any changes of future circumstances and conditions.

c. The impact of IFRS issued by IASB but not yet endorsed by the FSC

As of the date the following IFRSs that have been issued by the International AccountingStandards Board (IASB), but not yet endorsed by the FSC:

New, Revised or Amended Standards and Interpretations Effective date per

IASB Amendments to IFRS 3 “Definition of a Business” January 1, 2020 Amendments to IFRS 10 and IAS 28 “Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture”

Effective date to be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020

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Those which may be relevant to The Group are set out below:

Issuance/ Release Dates

Standards or Interpretations Content of amendment

September 11, 2014 Amendments to IFRS 10 and IAS 28 "Sale or Contribution of Assets Between an Investor and Its Associate or Joint Venture"

The amendments address an acknowledged inconsistency between the requirements in IFRS 10 and those in IAS 28 (2011) in dealing with the sale or contribution of assets between an investor and its associate or joint venture. The main consequence of the amendments is that a full gain or loss is recognized when a transaction involves a business (whether it is housed in a subsidiary or not). A partial gain or loss is recognized when a transaction involves assets that do not constitute a business, even if these assets are housed in a subsidiary.

The Group is evaluating the impact of its initial adoption of the above mentioned standards or interpretations on its consolidated financial position and consolidated financial performance. The results thereof will be disclosed when the Group completes its evaluation.

4. SIGNIFICANT ACCOUNTING POLICIES

The significant accounting policies, which have been applied consistently to all periods presented inthese consolidated financial statements, except when otherwise indicated, are as follows:

a. Statement of compliance

These consolidated annual financial statements have been prepared in accordance with theRegulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafterreferred to the Regulations) and International Financial Reporting Standards, InternationalAccounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by FSC (hereinafterreferred to as the IFRSs endorsed by FSC).

b. Basis of Preparation

1. Basis of measurement

The consolidated financial statements have been prepared on a historical cost basis exceptfor the following material items in the balance sheets:

(1) Financial instruments at fair value through profit or loss are measured at fair value(including derivative financial instruments);

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(2) Fair value through other comprehensive income (Available-for-sale financial assets) are measured at fair value;

(3) The net defined benefit liability (assets) is recognized as the present value of the defined benefit obligation less the fair value of plan assets and the effect of the asset ceiling (please see note 6 o.);

(4) Investment properties are measured at fair value.

2. Functional and presentation currency

The functional currency of the Consolidated Company is determined based on the primaryeconomic environment in which the entities operate. The consolidated financial statementsare presented in New Taiwan Dollar, which is the Company’s functional currency. Allfinancial information presented in New Taiwan Dollar has been rounded to the nearestthousand.

c. Basis of Consolidation

1. Principle of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and subsidiaries.

The financial statements of subsidiaries are included in the consolidated financialstatements from the date that control commences until the date that control ceases. Lossesapplicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficitbalance.

Intra-group balances and transactions, and any unrealized income and expenses arisingfrom intra-group transactions, are eliminated in preparing the consolidated financialstatements.

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2. List of subsidiaries in the consolidated financial statements

The subsidiaries included in the consolidated financial statements were as follows:

Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 2017.12.31 Notes

The Company Chemax International Corp. (CIC)

Announcement energy products besides petroleum chemical products, electronic chemicals variety of industrial gases, gas mixtures and other manufacturing sub-fitted trading.

- % 100.00% CIC was established on September 1, 1995. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. As of December 31, 2018 and 2017 CIC’s issued capital amounted to $0 and $160,000.

The Company Tsou Seen Chemical Industries Corporation (TSCIC)

Manufacture of chemical products and their derivatives of phosphoric acid and fertilizer storage, transport, purchase, marketing business.

100.00% 100.00% TSCIC was established on June 16, 1998. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. As of December 31, 2018 and 2017, TSCIC’s share capital amounted to $960,000 and $750,000, respectively.

The Company CPDC Green Technology Corp.(CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

Water treatment works, plumbing works, apparatus and instrument installation work, refrigeration and air conditioning engineering and tank car repair and other services.

100.00% 100.00% CPDC GT (Original name : CPDC EC) was established on May 31, 1999. As of December 31, 2018 and 2017, CPDC GT’s share capital amounted to $150,000.

The Company CPDC Investment (BVI) Co Ltd. (CPDC (BVI))

Holding company 100.00% 100.00% CPDC (BVI) was established on January 9, 1998, registered in the British Virgin Islands, and is an international investment company. As of December 31, 2018 and 2017, CPDC (BVI)’s issued capital amounted to US$26,580.

The Company Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. (CHSTH)

Real estate investment and development

90.87% 90.87% Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. was established on March 1, 2011. As of December 31, 2018 and 2017, Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd.’s issued capital amounted to $2,201,000.

The Company Unichem Development Limited (UDL)

Holding company 100.00% 100.00% UDL was established on May 20, 2008. As of December 31, 2018 and 2017, UDL’s issued capital amounted to US$191,478 and US $128,920, respectively.

The Company Jiangsu Weiming Petrochemical Corporation (Weiming)

Petrochemical supporting facility construction

0.77% 0.93% Weiming was established on May 16, 2013. It increased its capital through UDL amounting to RMB$ 130,000, RMB$109,000 and RMB$110,000 on June 25, 2018, June 16 and December 27, 2017, respectively. The said amounts were verified on June 28,2018, June 30 and December 28, 2017, respectively. Its paid in capital amounted to RMB$775,000 and RMB$645,000 for the years ended December 31, 2018 and 2017, respectively.

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Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 2017.12.31 Notes The Company Weiqiang

International Trade (Shanghai) Co., Ltd. (Weiqiang)

Engaged in trading of petroleum chemical products, electronic chemicals variety of industrial gases, gas mixtures and other manufacturing sub-fitted trading

44.52% - % Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB$ 20,000 on February 24, 2018 and verified on February 27, 2018. As of December 31, 2018 and 2017, the paid in capital of Weiqiang amounted to RMB$44,920 and RMB$24,920.

The Company Cong Ty Tnhh Dau Tu Xay Dung Thanh Phong (Thanh Phong)

Engaged in construction, real estate, building constructional consulting, lease equipment and wholesale of building materials

97.87% - % Thanh Phong was established on May 22, 2017. Its capital originally invested was VND$90,000,000 and increased VND$368,637,500 on December 20, 2018 and verified on December 20, 2018. As of December 31, 2018 and 2017, the paid in capital of Thanh Phong amounted to VND$468,637,500.

Chemax International Corp. Weihua (Rudong) Trade Co., Ltd (Weihua)


- % 4.02% Weihua was established on December 10, 2012. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 and 2017, the paid in capital of Weihua amounted to RMB$156,289.

Chemax International Corp. Weiqiang International Trade (Shanghai) Co., Ltd. (Weiqiang)

Engaged in trading of petroleum chemical products, electronic chemicals variety of industrial gases, gas mixtures and other manufacturing sub-fitted tradingre

- % 100.00% Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB$ 20,000 on February 24, 2018 and verified on February 27, 2018. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 and 2017, the paid in capital of Weiqiang amounted to RMB$44,920 and RMB$24,920.

Tsou Seen Chemical Industries Corporation

Weihua (Rudong) Trade Co., Ltd (Weihua)


4.02% - % Weihua was established on December 10, 2012. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 and 2017, the paid in capital of Weihua amounted to RMB$156,289.


Weiqiang International Trade (Shanghai) Co., Ltd. (Weiqiang)


55.48% - % Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB 20,000 on February 24, 2018 and verified on February 27, 2018. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 and 2017, the paid in capital of Weiqiang amounted to RMB$44,920 and RMB$24,920.

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Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 2017.12.31 Notes Tsou Seen Chemical Industries Corporation

Taivex Therapeutics Inc. (Taivex)

Engaged in biotechnology, pharmaceutical research and development and marketing

91.10% 91.10% Taivex was established on February 11, 2010. TSCIC invested in Taivex on August 18, 2010. As of December 31, 2018 and 2017, Taivex’s share capital amounted to $507,399.

Unichem Development Limited (UDL)

Jiangsu Weiming Petrochemical Corporation (Weiming)


99.23% 99.07% Weiming was established on May 16, 2013. It increased its capital through UDL amounting to RMB$130,000, RMB$109,000 and RMB$110,000 on June 25, 2018, June 16 and December 27, 2017, respectively. The said amounts were verified on June 28, 2018, June 30 and December 28, 2017, respectively. Its paid in capital amounted to RMB$775,000 and RMB$645,000 for the years ended December 31, 2018 and 2017, respectively.

Unichem Development Limited(UDL)



95.98% 95.98% Weihua was established on December 10, 2012. As of December 31, 2018 and 2017, the paid in capital of Weihua amounted to RMB$156,289.


Weida (Zhangzhou) Consultant Service Co., Ltd. (Weida)

Consultancy 100.00% 100.00% Weida was established on November 26, 2012. As of December 31, 2018 and 2017, the paid in capital of Weida amounted to US$450.


Zhangzhou Weida Petrochemical Co., Ltd (Weida PC)


100.00% 100.00% Weida PC was established on December 23, 2014. As of December 31, 2018 and 2017, the paid in capital of Weida PC amounted to RMB$6,000.


Kunshan Weiqin Management consultant Co., Ltd (Weiqin)

Management consultant 100.00% 100.00% Weiqin was established on April 29, 2016. As of December 31, 2018 and 2017, the paid in capital amounted of Weiqin to RMB$6,000.


Zhejiang Wedge new material Co., Ltd (Wedge)

Engaged in trading of Synthetic fiber material

100.00% 100.00% Wedge PC was established on July 25, 2016. As of December 31, 2018 and 2017, the paid in capital of Wedge amounted to RMB$6,500.


Changzhou Huijie new material Co., Ltd

Engaged in engineering plastic and high valued petroleum chemical products

100.00% - % Huijie was established on January 6, 2015, and acquired by UDL on November 5, 2018. The investment was made through UDL amounted RMB$214,955 and was verified on December 27, 2018. As of December 31, 2018 and 2017, the paid in capital of Huijie amounted to RMB$414,955 and RMB$200,000, respectively.

Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. (CHSTH)

Frontier Fortune Investment Pte. Ltd.

Holding company 100.00% 100.00% Frontier Fortune was established on November 23, 2016. It increased its capital through CHSTH amounting to USD$5,670 on November 30, 2018. As of December 31, 2018 and 2017, its actual paid in capital amounted to USD$5,870 and US$200, respectively.


Core Pacific Twin Star (Myanmar) Investment Company Ltd

Engineering, construction contracting business

100.00% 100.00% Core Pacific Twin Star (Myanmar) was established on February 16, 2017. It increased its capital through Frontier Fortune amounting to USD$5,320 on November 30, 2018. As of December 31, 2018 and 2017 , its actual paid in capital amounted to USD$5,500 and US$180, respectively.

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Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 2017.12.31 Notes Core Pacific Twin Star (Myanmar) Investment Company Ltd

Core Pacific Pioneer (Myanmar) Company Ltd

Building construction, real estate management, development and sale

80.00% % Core Pacific Pioneer was established on May 24, 2018. As of December 31, 2018, its actual paid in capital amounted to MMK$757,310.

3. Subsidiaries not included in the consolidated financial statements

Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 2017.12.31 Notes

The Company Tao Zhu Construction & Development Co., Ltd.

Commissioned to create a vendor to build the housing, commercial buildings and plant rental business, management of land development and playgrounds and other related business investment

100.00% 100.00% Tao Zhu Construction & Development Co., Ltd. was established on October 11, 1995. As of December 31, 2018 and 2017, its actual paid-in capital amounted to $100,000 and its total assets represented 0.09% and 0.10% of the consolidated total assets.

The Company Rich Equrties Ltd. Holding company 100.00% 100.00% Rich Equrties Ltd. was established on March 21, 2007. As of December 31, 2018 and 2017, its actual paid-in capital amounted to US$180 and its total assets represented 0.01% of consolidated total assets.

Tao Zhu Construction & Development Co., Ltd.

Da-ying Construction Ltd.


100.00% 100.00% Da-ying Construction Ltd. was established on November 24, 1972. As of December 31, 2018 and 2017, its actual paid-in capital amounted to $22,500 and its total assets represented 0.03% of consolidated total assets.

d. Foreign currency

1. Foreign currency transaction

Transactions in foreign currencies are translated to the respective functional currencies ofthe Consolidated Company entities at exchange rates at the dates of the transactions.Monetary assets and liabilities denominated in foreign currencies at the reporting date areretranslated to the functional currency at the exchange rate at that date. The foreign currencygain or loss on monetary items is the difference between amortized cost in the functionalcurrency at the beginning of the year adjusted for the effective interest and payments duringthe year, and the amortized cost in foreign currency translated at the exchange rate at theend of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured atfair value are remeasured to the functional currency at the exchange rate at the date that thefair value was determined. Non-monetary items in a foreign currency that are measuredbased on historical cost are remeasured using the exchange rate at the date of transaction.

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Foreign currency differences arising on remeasurement are recognized in profit or loss, except for the following differences which are recognized in other comprehensive income:

• Fair value through other comprehensive income (Available-for-sale )equity investment;

• A financial liability designated as a hedge of the net investment in a foreign operationto the extent that the hedge is effective; or

• Qualifying cash flow hedges to the extent the hedge is effective.

2. Foreign operations

The assets and liabilities of foreign operations, including goodwill and fair valueadjustments arising on acquisition, are translated to the Company’s functional currency atexchange rates at the reporting date. The income and expenses of foreign operations,excluding foreign operations in hyperinflationary economies, are translated to theCompany’s functional currency at average rate. Foreign currency differences arerecognized in other comprehensive income, and are presented as exchange differencesarising on translation of foreign operations in equity.

However, if the foreign operation is a non-wholly owned subsidiary, then the relevantproportion of the translation difference is allocated to non-controlling interests. When aforeign operation is disposed of such that control, significant influence or joint control islost, the cumulative amount in the translation reserve related to that foreign operation isreclassified to profit or loss as part of the gain or loss on disposal. If the Company disposesof any part of its interest in a subsidiary that includes a foreign operation while retainingcontrol, the relevant proportion of the cumulative amount is reattributed to non-controllinginterest. If the Company disposes of only part of investment in an associate of joint venturethat includes a foreign operation while retaining significant or joint control, the relevantproportion of the cumulative amount is reclassified to profit or loss.

When the settlement of a monetary item receivable from or payable to a foreign operationis neither planed nor likely in the foreseeable future, foreign currency gains and lossesarising from such items are considered to form part of a net investment in the foreignoperation and are recognized in other comprehensive income, and presented in the exchangedifferences arising on translation of foreign operations in equity.

e. Classification of current and non-current assets and liabilities

An asset is classified as current if:

1. It is expected to be realized, or intended to be sold or consumed, in the normal operatingcycle;

2. It is held primarily for the purpose of trading;

3. It is expected to be realized within twelve months after the reporting period; or

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4. The asset is cash and cash equivalent (as defined in IAS 7) unless the asset is restrictedfrom being exchanged or used to settle a liability for at least twelve months after thereporting period.

A liability is classified as current under one of the following criteria, and all other liabilities are classified as non-current.

A liability is classified as current if:

1. It is expected to be settled during the in its normal operating cycle;


3. It is due to be settled within twelve months after the reporting period; or

4. It does not have an unconditional right to defer settlement for at least twelve months afterthe reporting period. Terms of a liability that could, at the option of the counterparty, resultin its settlement by issuing equity instruments do not affect its classification.

f. Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to cash at the known amounts and subject to insignificantrisk of value changes. Time deposits that fit the definition above and are used by the Group in themanagement of its short-term commitments are comprised in cash equivalents.

Bank overdrafts that are repayable on demand and form an integral part of the ConsolidatedCompany, are recorded in cash and cash equivalents in statements of cash flows.

g. Construction contracts

Construction contracts in progress represents the gross unbilled amount expected to be collectedfrom customers for contract work performed to date. It is measured at cost plus profit recognizedto date less progress billings and recognized losses. Cost includes all expenditure related directlyto specific projects and an allocation of fixed and variable overheads incurred in the Group’scontract activities based on normal operating capacity.

Construction contracts in progress is presented in the balance sheets as the amount due fromcustomers for contract work for all contracts in which costs incurred plus recognized profitsexceed progress billings. If progress billings exceed costs incurred plus recognized profits, thenthe difference is presented as amount due to customers for contract work in the balance sheets.

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h. Financial instruments

1. Financial assets (policy applicable from January 1, 2018)

Financial assets are classified into the following categories: measured at amortized cost,fair value through other comprehensive income (FVOCI) and fair value through profit orloss (FVTPL).

The Group shall reclassify all affected financial assets only when it changes its businessmodel for managing its financial assets.

(i) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL：

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and

its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

A financial asset measured at amortized cost is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at amortized cost using the effective interest method. The amortized cost is reduced by impairment losses. Interest income, foreign exchange gains and losses, and impairment loss, are recognized in profit or loss. Any gain or loss on derecognition is recognized in profit or loss.

(ii) Fair value through other comprehensive income (FVOCI )

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL：

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and


On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

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A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss.

Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(iii) Fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets and accounts receivable, which is presented as accounts receivable. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss.

(iv) Business model assessment

The Group makes an assessment of the objective of the business model in which a financial asset is held at portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes：

the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

how the performance of the portfolio is evaluated and reported to the Group’s management;

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the risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed;

how managers of the business are compensated ─ e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected; and

the frequency, volume and timing of sales of financial assets in prior periods, the reasons for such sales and expectations about future sales activity.

Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, and are consistent with the Group’s continuing recognition of the assets.

Financial assets that are held for trading or are managed and whose performance is evaluated on a fair value basis are measured at FVTPL.

(v) Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial assets on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers：

contingent events that would change the amount or timing of cash flows；

terms that may adjust the contractual coupon rate, including variable rate features；

prepayment and extension features；and

terms that limit the Group’s claim to cash flows from specified assets（e.g. non-recourse features）

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(vi) Impairment of financial assets

The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, other receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable measured at FVOCI and contract assets.

The Group measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL：

debt securities that are determined to have low credit risk at the reporting date；and

other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition.

Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit assessment as well as forward-looking information.

The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’.

The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

The Group considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Group in full.

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ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data：

significant financial difficulty of the borrower or issuer；

a breach of contract such as a default or being more than 90 days past due；

the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider；

it is probable that the borrower will enter bankruptcy or other financial reorganization；or

the disappearance of an active market for a security because of financial difficulties.

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

(vii) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets.

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On derecognition of a debt instrument in its entirety, the Group recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income.

On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

2. Financial assets (policy applicable before January 1, 2018)

Financial assets are classified into the following categories: financial assets at fair valuethrough profit or loss, available-for-sale financial assets, held-to-maturity financial assets,and loans and receivables.

(i) Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is classified as held for trading or is designated as such on initial recognition.

Financial assets are classified as held for trading if they are acquired principally for the purpose of selling in the short term. The Group designates financial assets, other than those classified as held for trading, as at fair value through profit or loss at initial recognition under one of the following situations：

Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;

Performance of the financial asset is evaluated on a fair value basis;

A hybrid instrument contains one or more embedded derivatives.

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At initial recognition, financial assets classified under this category are measured at fair value. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend and interest income, are recognized in profit or loss, under other income of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortized cost, and are included in financial assets measured at cost.

(ii) Available-for sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on monetary financial assets, are recognized in other comprehensive income and presented in the unrealized gains or losses on available for sale financial assets in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, under other gains and losses of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.


Dividend income is recognized in profit or loss on the date that the Consolidated Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. Such dividend income is included in other income account in statements of comprehensive income.

Interest income from investment in bond security is recognized in profit or loss, under other income of non-operating income and expenses.

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(iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables and other receivables. At initial recognition, these assets are recognized at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses, other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Interest income is recognized in profit or loss, under other income.

(iv) Impairment of financial assets

The impairment loss of financial assets not measured at fair value is assessed on the report date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) that occurred subsequent to the initial recognition of the asset and that a loss event (or events) has an impact on the future cash flows of the financial assets that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Consolidated Company on terms that the Consolidated Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment.

All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Consolidated Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than the one suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. Such impairment loss is not reversible in subsequent periods.

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An impairment loss in respect of a financial asset is reduced from the carrying amount, except for trade receivables, in which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance accounts are recognized into profit or loss.

Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss.

If, in a subsequent period, the amount of the impairment loss of a financial assets measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date.

Impairment losses recognized on available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

Bad debt losses and recoveries of receivables are recognized in profit or loss as administrative expense. Impairment losses and recoveries of financial assets other than receivables are recognized in profit or loss under non-operating revenues and expenses.

(v) Derecognition of financial assets

The Consolidated Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Consolidated Company transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity – unrealized gains or losses from available for sale financial assets is recognized in profit or loss, under other income of non-operating income and expenses.

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On partial derecognition of a financial assets, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity account as unrealized gains or losses from available for sale financial assets is reclassified to profit or loss, under other gains and losses of non-operating income and expenses.

3. Financial liabilities and equity instruments

(i) Classification of debt or equity instruments

Debt or equity instruments issued by the Consolidated Company are classified as financial liabilities or equity instruments in accordance with the substance of the contractual agreement.

Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized based on amount of consideration received less the direct issuance cost.

Compound financial instruments issued by the Consolidated Company comprise convertible bonds payable that can be converted to share capital at the option of the holder, where the number of shares to be issued is fixed.

The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

Interest related to the financial liability is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

On conversion, the financial liability is reclassified to equity, and no gain or loss is recognized.

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(ii) Financial liabilities at fair value through profit or loss

A financial liability is classified in this category if it is classified as held-for-trading or is designated as such on initial recognition. A financial liability is classified as held-for-trading if it is acquired principally for the purpose of selling in the short term. Financial liabilities, other than the ones classified as held-for-trading, are designated as at fair value through profit or loss at initial recognition under one of the following situations:

A. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on a different basis;

B. Performance of the financial liabilities is evaluated on a fair value basis;

C. A hybrid instrument contains one or more embedded derivatives.

Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, under other gains and losses of non-operating income and expenses.

Financial liabilities at fair value through profit or loss are measured at cost if it is a short sale of unquoted equity investment whose fair value cannot be reliably measured and that the short seller is obligated to deliver the equity instrument.

The Consolidated Company issues and designates financial guarantee contracts and loan commitments as at fair value through profit or loss. Any gains and losses are recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(iii) Other financial liabilities

At initial recognition, financial liabilities not classified as held-for-trading, or designated as at fair value through profit or loss, which comprise of loans and borrowings, and trade and other payables, are measured at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(iv) Derecognition of financial liabilities

A financial liability is derecognized when its contractual obligation has been discharged or cancelled or expires. The difference between the carrying amount of a financial liability derecognized and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

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(v) Offsetting of financial assets and liabilities

Financial assets and liabilities are presented on a net basis when the Consolidated Company has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

4. Derivative financial instruments

The Group holds derivative financial instruments to hedge its foreign currency and interestrate exposures. Derivatives are recognized initially at fair value, and attributable transactioncosts are recognized in profit or loss as incurred. Subsequent to initial recognition,derivatives are measured at fair value, and changes therein are recognized in profit or lossand included in statement of comprehensive income. When a derivative is designated as ahedging instrument, its timing of recognition in profit or loss is determined based on thenature of the hedging relationship. When the fair value of a derivative instrument is positive,it is classified as a financial asset, and when the fair value is negative, it is classified as afinancial liability.

Embedded derivatives are separated from the host contract and accounted for separatelywhen the economic characteristics and risk of the host contract and of the embeddedderivatives are not closely related.

i. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories isbased on the weighted average method, and includes expenditure incurred in acquiring theinventories, production or conversion costs and other costs incurred in bringing them to theirexisting location and condition. In the case of manufactured inventories and work in progress,cost includes an appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less theestimated costs of completion and selling expenses.

j. Investments in associates

Associates are those entities in which the Group has significant influence, but not control orjoint control, over their financial and operating policies.

Investments in associates are accounted for using the equity method and are recognized initiallyat cost. The cost of the investment includes transaction costs. The carrying amount of theinvestment in associates includes goodwill which is arising from the acquisition less anyaccumulated impairment losses.

The Consolidated Company’s share of the profit or loss and other comprehensive income ofinvestments accounted for using equity method are included, after adjustments to align the saidinvestees’ accounting policies with those of the Consolidated Company, in the consolidatedfinancial statements from the date that significant influence commences until the date thatsignificant influence ceases.

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Unrealized profits resulting from the transactions between the Consolidated Company and an associate are eliminated to the extent of the Consolidated Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired.

If the Consolidated Company’s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Consolidated Company has an obligation or has made payments on behalf of the investee.

k. Investment property

Investment property is the property held either to earn rental income or for capital appreciationor for both, but not for sale in the ordinary course of business, use in the production or supplyof goods or services or for administrative purposes. Investment property is measured at cost oninitial recognition and subsequently via cost less accumulated depreciation and accumulatedimpairment losses. Depreciation expense is calculated based on the depreciation method, usefullife and residual value which are the same as those adopted for property, plant and equipment.

Cost includes expenditure that is directly attributable to the acquisition of the investmentproperty. The cost of self-constructed investment property includes the cost of raw materialsand direct labor, and any other costs directly attributable to bringing the investment property toa working condition for their intended use and capitalized borrowing costs. Investment propertyis subsequently measured at fair value, with any change therein recognized in profit or loss.

When the use of a property changes such that it is reclassified as property, plant and equipment,its fair value at the date of reclassification becomes its cost for subsequent accounting.

l. Property, plant and equipment

1. Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciationand accumulated impairment losses. Cost includes expenditure that is directly attributed tothe acquisition of the asset.

The cost of a self-constructed asset comprises material, labor, any cost directly attributableto bringing the asset to the location and condition necessary for it to be capable of operatingin the manner intended by management, the initial estimate of the costs of dismantling andremoving the item and restoring the site on which it is located, and any borrowing cost thateligible for capitalization. Cost also includes transfers from equity of any gain or loss onqualifying cash flow hedges of foreign currency purchases of property, plant and equipment.The cost of the software is capitalized as part of the property, plant and equipment if thepurchase of the software is necessary for the property, plant and equipment to be capableof operating.

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Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately, unless the useful life and the depreciation method of the significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined on the difference between the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in profit or loss account as other gains and losses.

2. Reclassification to investment property

An item of property, plant and equipment is reclassified to investment property at itscarrying amount when the use of the property changes from owner-occupied to investmentproperty. Any difference at the date of the change in use between the carrying amount ofthe property and its fair value is recognized as a revaluation of property, plant andequipment. Any existing or arising revaluation surplus previously recognized in OCI is nottransferred to profit or loss at the date of transfer or on subsequent disposal of the investmentproperty.

3. Subsequent cost

Subsequent expenditure is capitalized only when it is probable that the future economicbenefits associated with the expenditure will flow to the Consolidated Company. Thecarrying amount of those parts that are replaced is derecognized. Ongoing repairs andmaintenance is expensed as incurred.

4. Depreciation

The depreciable amount of an asset is determined after deducting its residual amount andis allocated using the straight line method over its useful life. The items of property, plantand equipment with the same useful life may be grouped in determining the depreciationcharge. The remainder of the items may be depreciated separately. The depreciation chargefor each period is recognized in profit or loss.

If there is reasonably certainty that the lessee will obtain ownership by the end of the leaseterm, the period of expected use is the useful life of the asset; otherwise, the asset isdepreciated over the shorter of the lease term and its useful life.

Land has an unlimited useful life and therefore is not depreciated.

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The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

Land improvement 2~10 years

Buildings and constructions 2~60 years

Machine equipment 2~17 years

Transportation equipment 2~ 5 years

Other equipment 2~13 years

Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change(s) is accounted for as a change in an accounting estimate.

m. Intangible assets

1. Goodwill

(1) Initial recognition

The goodwill generated from the Consolidated Company is accounted for as an intangible asset. Please refer to Note 6 i. for details of the accounting policy on the initial recognition of goodwill.

(2) Subsequent measurement

Goodwill is measured at cost less accumulated impairment. In terms of investment under equity method, the carrying amount of goodwill is included in the investment amount. In addition, the impairment loss of such investment is not distributed to goodwill or any asset and is recognized as part of the carrying amount of the investment.

2. Research & Development

During the research phase, activities are carried out to obtain and understand new scientificor technical knowledge. Expenditures during this phase are recognized in profit or loss asincurred.

Expenditures arising from development phase are recognized as an intangible asset if allthe conditions described below can be demonstrated; otherwise, they are recognized inprofit or loss as incurred.

(1) The technical feasibility of the intangible asset is completed so that it will be availablefor use or sale;

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(2) It intends to complete the intangible asset and use or sell it;

(3) It has ability to use or sell the intangible asset;

(4) The intangible asset is more likely than not generate future economic benefits;

(5) It has adequate technical, financial and other resources to complete the development and to use or sell the intangible asset; and

(6) The expenditure attributable to the intangible asset during its development can be measured reliably.

3. Other intangible asset

Other intangible assets that are acquired by the Consolidated Company are measured at costless accumulated amortization and any accumulated impairment losses.

4. Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefitsembodied in the specific asset to which it relates. All other expenditure, includingexpenditure on internally generated goodwill and brands, is recognized in profit or loss asincurred.

5. Amortization

Depreciable amount is the cost of an asset, or other amount substituted for cost, less itsresidual values.

Amortization is recognized in profit or loss on a straight-line basis over the estimated usefullives of intangible assets, other than goodwill and intangible assets with indefinite usefullife, from the date that they are made available for use. The estimated useful lives for thecurrent and comparative periods are as follows:

Technology 5~13 years

The residual value, the amortization period and the amortization method for an intangibleasset with a finite useful life are reviewed at least annually at each financial year-end. Suchchange is accounted for as a change in accounting estimate.

n. Impairment ─ non-derivative financial assets

The Consolidated Company evaluates the impairment losses and estimates the recoverableamounts of the impaired assets on each reporting date in terms of inventories, deferred tax assets,assets arising from employee benefits and non-financial assets other than non-current assets heldfor sale. If it is not possible to determine the recoverable amount (fair value less cost to sell andvalue in use) for the individual asset, then the Consolidated Company determines therecoverable amount for the asset's cash-generating unit (CGU).

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The recoverable amount for individual asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss is recognized immediately in profit or loss.

The Consolidated Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the Consolidated Company estimates the recoverable amount of that asset.

Notwithstanding whether indicators exist, recoverability of goodwill and intangible assets with indefinite useful lives or those not yet in use are tested at least annually. Impairment loss is recognized if the recoverable amount is less than the carrying amount.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units.

If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the Consolidated Company recognizes the impairment loss and the impairment loss is allocated to reduce the carrying amount of each asset in the unit.

Reversal of an impairment loss for goodwill is prohibited.

o. Provisions

A provision is recognized if, as a result of a past event, the Consolidated Company has a presentlegal or constructive obligation that can be estimated reliably, and it is probably that an outflowof economic benefits will be required to settle the obligation. Provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects the current marketassessments of the time value of money and the risks specific to the liability. The unwinding ofthe discount is recognized as finance cost.

1. Site dismantling

The estimated obligation on the dismantling, relocation or restoration of property, plant andequipment is recognized as decommissioning cost and liability of property, plant andequipment. The relevant costs of assets are adjusted by subsequent price variation fordismantling and restoration. Depreciation is provided per the remaining useful life of theadjusted cost.

2. Site restoration

In accordance with the Consolidated Company’s published environmental policy andapplicable legal requirements, a provision for site restoration in respect of contaminatedland, and the related expense, is recognized when the land is contaminated.

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p. Revenue

1. Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at fair valueof the consideration received or receivable, net of returns, trade discounts and volumerebates. Revenue is recognized when persuasive evidence exists, usually in the form of anexecuted sales agreement, that the significant risks and rewards of ownership have beentransferred to the customer, recovery of the consideration is probable, the associated costsand possible return of goods can be estimated reliably, there is no continuing managementinvolvement with the goods, and the amount of revenue can be measured reliably. If it isprobable that discounts will be granted and the amount can be measured reliably, then thediscount is recognized as a reduction of revenue as the sales are recognized.

The timing of the transfers of risks and rewards varies depending on the individual termsof the sales agreement. For an export transaction, usually it is via free on board shippingpoint, and the risk transfer occurs upon loading the goods onto the relevant carrier at theport; however, for an import transaction, risk transfer occurs upon receipt by the customer.

2. Services

Revenue from services rendered is recognized in profit or loss in proportion to the stage ofcompletion of the transaction at the reporting date.

3. Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations incontract work, claims and incentive payments, to the extent that it is probable that they willresult in revenue and can be measured reliably. As soon as the outcome of a constructioncontract can be estimated reliably, contract revenue is recognized in profit or loss inproportion to the stage of completion of the contract. Contract expenses are recognized asincurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the proportion that contract costincurred for work performed to date bear to the estimated total contract cost; survey of workperformed; or completion of a physical proportion of the contract work. When the outcomeof a construction contract cannot be estimated reliably, contract revenue is recognized onlyto the extent of contract costs incurred that are likely to be recoverable. An expected losson a contract is recognized immediately in profit or loss.

4. Commissions

When the Consolidated Company acts in the capacity of an agent rather than as the principalin a transaction, the revenue recognized is the net amount of commission made by theConsolidated Company, and is recognized in proportion to the stage of completion of thetransaction.

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5. Rental income

Rental income from investment property is recognized in non-operating incomes andexpenses on a straight-line basis over the lease term.

6. Financing components

The Group does not expect to have any contracts where the period between the transfer ofthe promised goods or services to the customer and payment by the customer exceeds oneyear. As a consequence, the group does not adjust any of the transaction prices for the timevalue of money.

q. Employee benefits

1. Defined contribution plans

Obligations for contributions to defined contribution pension plans are recognized as anemployee benefit expense in profit or loss in the periods during which services are renderedby employees.

2. Defined benefit plans

A defined benefit plan is a post-employment benefit plan other than a defined contributionplan. The Consolidated Company’s net obligation in respect of defined benefit pensionplans is calculated separately for each plan by estimating the amount of future benefit thatemployees have earned in return for their service in the current and prior periods; thatbenefit is discounted to determine its present value. Any unrecognized past service costsand the fair value of any plan assets are deducted. The discount rate is the yield at thereporting date on (market yields of high quality corporate bonds or government bonds)bonds that have maturity dates approximating the terms of the Consolidated Company’sobligations and that are denominated in the same currency in which the benefits areexpected to be paid.

The calculation is performed annually by a qualified actuary using the projected unit creditmethod. When the calculation results in a benefit to the Consolidated Company, therecognized asset is limited to the total of any unrecognized past service costs and the presentvalue of economic benefits available in the form of any future refunds from the plan orreductions in future contributions to the plan. In order to calculate the present value ofeconomic benefits, consideration is given to any minimum funding requirements that applyto any plan in the Consolidated Company. An economic benefit is available to theConsolidated Company if it is realizable during the life of the plan, or on settlement of theplan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating topast service by employees is recognized in profit or loss on a straight-line basis over theaverage period until the benefits become vested. To the extent that the benefits vestimmediately, the expense is recognized immediately in profit or loss.

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Re-measurement of net defined benefit liability (asset) (including actuarial gains, losses and the return on plan asset and changes in the effect of the asset ceiling, excluding any amounts included in net interest) is recognized in other comprehensive income (loss). The effect of re-measurement of the defined benefit plan is charged to retained earnings.

The Consolidated Company recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial gains or losses and past service cost that had not previously been recognized.

3. Short term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus orprofit-sharing plans if the Group has a present legal or constructive obligation to pay thisamount as a result of past service provided by the employee, and the obligation can beestimated reliably.

r. Income taxes

Income tax expenses include both current taxes and deferred taxes. Except for expenses relatedto business combinations, or are recognized directly in equity or other comprehensive income,all current and deferred taxes are recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) forthe year calculated using the statutory tax rate on the reporting date, or the actual legislated taxrate; as well as tax adjustments related to prior years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and their respective tax bases. Deferred taxes are notrecognized for the following:

1. Assets and liabilities that are initially recognized but not related to the business combination,and have no effect on net income or taxable gains (losses) during the transaction.

2. Temporary differences arising from equity investments on subsidiaries or joint ventures,where there is a high probability that such temporary differences will not reverse.

3. Initial recognition of goodwill.

Deferred taxes are measured based on the statutory tax rate on the reporting date; or the actual legislated tax rate, during the year of expected asset realization or debt liquidation.

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Deferred tax assets and liabilities may be offset against each other if, and only if, the following criteria are met:

1. if the Consolidated Company has the legal right to settle tax assets and liabilities on a netbasis; and

2. the taxing of deferred tax assets and liabilities fulfill one of the below scenarios:

(1) levied by the same taxing authority; or

(2) levied by different taxing authorities, but where each such authority intend to settle taxassets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation; or where the timing of asset realization and debt liquidation is matched.

A deferred tax asset is recognized for the carry-forward of unused tax losses, unused tax credits and deductible temporary differences to the extent that it is probable that future taxable profit will be available against which the unused tax losses, unused tax credits and deductible temporary differences can be utilized. Such unused tax losses, unused tax credits and deductible temporary differences are also re-evaluated every year on the financial reporting date, and adjusted based on the probability that future taxable profit will be available against which the unused tax losses, unused tax credits and deductible temporary differences can be utilized.

s. Business combination

Goodwill is measured at the consideration transferred less the amounts of the identifiable assetsacquired and liabilities assumed (generally at fair value) at the acquisition date. If the amountof net assets acquired and liabilities assumed exceeds the acquisition price, the Group reassesseswhether it has correctly identified all of the assets acquired and liabilities assumed, andrecognizes a gain for the excess.

The Group shall measure any non-controlling interests in the acquiree either at fair value or atthe non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, if thenon-controlling interests are present ownership interests and entitle their holders to aproportionate share of the entity’s net assets in the event of liquidation.

In a business combination achieved in batches, the previously held equity interest in the acquireeat its acquisition date fair value is remeasured, and the resulting gain or loss, if any, is recognizedin profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reportingperiod in which the combination occurs, provisional amounts for the items for which theaccounting is incomplete are reported in the Group’s financial statements. During themeasurement period, the provisional amounts recognized at the acquisition date areretrospectively adjusted, or additional assets or liabilities are recognized to reflect newinformation obtained about facts and circumstances that existed as of the acquisition date. Themeasurement period shall not exceed one year from the acquisition date.

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All transaction costs relating to a business combination are recognized immediately as expenses when incurred, except for the issuance of debt or equity instruments.

t. Earnings per share

The Consolidated Company discloses the Company basic and diluted earnings per shareattributable to ordinary equity holders of the Company. The calculation of basic earnings pershare is based on the profit attributable to the ordinary shareholder of the Company divided byweighted average number of ordinary shares outstanding. The calculation of diluted earningsper share is based on the profit attributable to ordinary shareholders of the Company, dividedby weighted average number of ordinary shares outstanding after adjustment for the effects ofall potentially dilutive ordinary shares, such as convertible bonds and employee bonus.

u. Government Grants

A government grant receivable to the Consolidated Company as compensation for costs alreadyincurred or for immediate financial support, with no future related costs, should be recognizedas income in the period in which it is receivable.

v. Operating segments

An operating segment is a component of the Consolidated Company that engages in businessactivities from which it may incur revenues and incur expenses (including revenues andexpenses relating to transactions with other components of the Consolidated Company).Operating results of the operating segment are regularly reviewed by the ConsolidatedCompany’s chief operating decision maker to make decisions about resources to be allocated tothe segment and assess its performance. Each operating segment consists of stand-alonefinancial information.

5. MAJOR SOURCES OF SIGNIFICANT ACCOUNTING ASSUMPTIONS, JUDGMENTSAND ESTIMATION UNCERTAINTY

The preparation of the consolidated financial statements in conformity with the IFRS as endorsedby the FSC requires management to make judgments, estimates and assumptions that affect theapplication of the accounting policies and the reported amount of assets, liabilities, income andexpenses. Actual results may differ from these estimates.

The management continuously reviews the estimates and basic assumptions. Changes in accountingestimates are recognized in the period of change.

Information about judgments made in applying accounting policies that have the most significanteffects on the amounts recognized in the consolidated financial statements is as follows:

(a) Fair valuation of investment property

The Group’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss.

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The Company’s financial instrument valuation group conducts independent verification on fair value by using data sources that are independent, reliable, and representative of exercise prices. This financial instrument valuation group also periodically adjusts valuation models, conducts back-testing, renews input data for valuation models, and makes all other necessary fair value adjustments to assure the rationality of fair value. The Company strives to use market observable inputs when measuring assets and liabilities. Different levels of the fair value hierarchy to be used in determining the fair value of financial instruments are as follows:

(i) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).

(iii) Level 3: inputs for the assets or liability that are not based on observable market data.

Information on valuation use hypothesis factors was as follows:

(i) Note 6 h. - Investment property;

(ii) Note 6 w. - Financial Instruments.

6. EXPLANATION TO SIGNIFICANT ACCOUNTS

a. Cash and cash equivalents

December 31, 2018

December 31, 2017

Cash on hand $ 140,459 7,890 Checking and demand deposits 2,972,985 1,454,824 Time deposits 7,987,415 7,387,143 Cash equivalents 2,369,079 1,261,638 Cash and cash equivalents $ 13,469,938 10,111,495

Time deposits which are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes, that are readily convertible to cash at the known amounts and subject to insignificant risk of value changes, are reported as cash equivalents.

Please refer to Note 6 v. for the fair value sensitivity analysis and interest rate risk of the financial assets and liabilities of the Consolidated Company.

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b. Financial assets

1. The components of financial assets were as follows:

December 31, 2018

December 31, 2017

Financial assets at fair value through profit or loss Financial assets at fair value through profit or

loss－current $ 1,300,897 -

Financial assets at fair value through profit or loss－non-current

4,861,274 -

Financial assets held for trading－current - 620,710 Financial assets reported at fair value through profit or

loss－current - 747,947

Sub-total 6,162,171 1,368,657 Financial assets at fair value through other

comprehensive income Financial assets at fair value through other

comprehensive income－current 251,629 -

Financial assets at fair value through other comprehensive income－non-current

1,978,339 -

Sub-total 2,229,968 - Available-for-sale financial assets－ current - 196,132 Available-for-sale financial assets－ non-current - 1,677,346 Financial assets carried at cost－ non-current - 2,992,035 Total $ 8,392,139 6,234,170

Please refer to Note 6 v and Note q. for the gain or loss on financial assets recognized at fair value through profit or loss and other comprehensive income.

Core Pacific City Co., Ltd held a provisional shareholders’ meeting on January 17, 2018 in order to cover its deficit of $7,698,679, which represented 37.7% of its actual paid-in capital. The reduction record date was January 17, 2018. Based on its articles of incorporation, there is no significant impact on the issuance of its shareholders’ preferred stockconcerning the matter.

During the year ended December 31, 2018, the dividends of $625,787 thousand, related to equity investments at fair value through other comprehensive income held on December 31, 2018, were recognized.

On February 26, 2018, the Company’s board of directors approved a resolution to invest in Core Pacific City Co., Ltd by issuing 156,000 thousand preferred shares amounting to NT$1,560,000 thousand and accounted in financial assets at fair value through profit or loss－non-current.

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2. The director of Praxair Chemax Semiconductor Materials Co., Ltd. (hereinafter referred toas “PRAXAIR”) delegated by the Company, was elected as the new Chairman in thedirectors’ meeting on Jan. 30th, 2013. However, Praxair Inc. did not recognize the directordelegated by the Company as the Chairman, resulting in the new Chairman being unable toexercise his authority. Also, the supervisor appointed by the Company was prevented fromauditing the accounts and records pursuant to the Company Law, hence, the new Chairmanand the designated supervisor representing PRAXAIR, filed an action asking the vicechairman and general manager to provide the accounts and records and requested to returnthe seal, business invasion and others in a civil lawsuit. The vice chairman delegated byPraxair Inc. claimed privilege to act as the Chairman and filed legal actions declaring thenon-existence of the new Chairman’s commission of authority and also sent a letter to thecourt requesting a dissolution of PRAXAIR, which was rejected by the courts. Thesupervisor appointed by Praxair Inc. illegally called a temporary shareholders’ meeting in2013 to propose the dissolution of the Company and reelection of directors and supervisors.Hence, the Company filed legal actions declaring the withdrawn of the resolution from theillegal temporary shareholders’ meetings and the resolutions from the temporaryshareholders’ meeting was not established. Currently, the supervisor filed the legal actionagainst the manager for submitting the accounts and the records, after winning the 1st and2nd trial, the defendant appealed but was dismissed by the 3rd trial instance. This case wasremanded to the Taipei High Court but the verdict was dismissed in 2015, the Companywas not satisfied with the appeal and filed the legal action. On the other side, the vicechairman designated by Praxair Inc. filed legal action declaring the non-existence of thenew Chairman’s commission of authority, after the judgment from the High Court that theChairman designated by the Company won the verdict, the defendant appealed to the 3rdinstance, with the Supreme Court dismissing the appeal. The whole case confirms theappointed relationship between the Chairman designated by the Company and PRAXAIRexists. On Nov. 19th 2016, the letter from Ministry of Economic Affairs states that Lin Ke-Ming, appointed by the Company, is the Chairman of PRAXAIR, and restored therepresentative duty per the judgment No. 2455 from the Supreme High Court in 2015.However, according to the requirement from Ministry of Economic Affairs, both sides werenot able to hold the legitimate reelection prior to Jan. 9th 2017 which resulted in vacancyof directors and supervisors of PRAXAIR. In order to strive for the rights and interests ofthe shareholders, the Company immediately brought the arbitration per joint ventureagreement of both sides and applied for an auditor and provisional administrator to instructthe central section office of the Ministry of Economic Affairs to allow Praxair Inc. toconduct the change of registration on July 6th 2017. The Company has filed a request forthe arbitration of International Chamber of Commerce in 2017 and received the awardissued by the International Court of International Chamber of Commerce on September 3,2018. A part of the award favored for the Company and confirmed that the Company wasentitled to receive the dividends from PCSM for the year of 2013. In order to protect theCompany’s right, the Company submitted a lawsuit regarding to withdrawing a part of suchArbitration award against the Company to Taipei District Court.

As of December 31, 2018, and 2017, the Consolidated Company provided as collateral portion of its financial assets. Please refer to Note 8 for details of the related assets pledged as collateral.

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3. Sensitivity analysis－equity price risk:

If the equity price changes, and if it is based on the same basis for both years and assumesthat all other variables remain the same, the impact to comprehensive income will be asfollows:


Equity price at reporting date

After-tax other comprehensive

income After-tax

Profit (loss)


income After-tax

Profit (loss) Increase of 1% $ 22,300 61,622 18,735 13,687 Decrease of 1% $ (22,300) (61,622) (18,735) (13,687)

c. Notes and accounts receivable, net

December 31, 2018

December 31, 2017

Notes receivable $ 687,341 1,756,028 Accounts receivable 2,399,163 2,262,263 Other receivables 123,898 51,398 Less：Allowance for doubtful receivables (455,937) (476,319) Net book value $ 2,754,465 3,593,370

Movements of the allowance for doubtful receivables for the years ended December 31, 2018 and 2017 were as follows:

December 31, 2017

December 31, 2018

Individually assessed

impairment

Collectively assessed

impairment Balance on January 1, 2018 and 2017 per IAS 39 $ 476,319 382,697 95,570 Adjustment on initial application of IFRS 9 - Balance on January 1, 2018 per IFRS 9 476,319 Impairment losses reversed - (23) (23) Foreign exchange gains/(losses) (20,382) (1,572) - Balance on December 31, 2018 and 2017 $ 455,937 381,102 95,217

The consolidated subsidiaries, Weihua (Rudong) Trade Co., Ltd. and Weiqiang International Trade (Shanghai) Co., Ltd., filed civil complaints against Shanghai Tongye Coal Chemical Group Co. Ltd. in Shanghai to claim for the delay of payment of their accounts receivable from Shanghai Tongye Coal Chemical Group Co., Ltd. However, both of these consolidated subsidiaries have recognized impairment loss on the said accounts receivable as of December 31, 2018. Please refer to Note 9 f. for further details relating to litigation and evaluation of collectability.

There are no notes and trade receivable and other receivables of the Group had been pledged as collateral for long-term borrowings as of December 31, 2018 and 2017.

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d. Inventories

December 31, 2018

December 31, 2017

Finished goods $ 494,735 540,557 Work-in-process 291,312 605,670 Raw materials 1,319,204 1,046,748 Fuel 23,040 20,067 Merchandise inventory 104,709 68,042 Construction in progress 10,840 - Total $ 2,243,840 2,281,084

For the years ended December 31, 2018 and 2017, the components of cost of goods sold were as follows:

For the Years Ended December 31 2018 2017

Cost of goods sold $ 32,896,647 27,687,729 Loss (gain) on inventory market price decline and obsolescence 140,104 (22,875) Gain on physical inventories, net 22,881 5,196 Unallocated fixed production overheads from idle facilities 295,345 306,914 Revenue from sale of scraps (28,018) (12,013) Net amount $ 33,326,959 27,964,951

As of December 31, 2018 and 2017, the aforesaid inventories were not pledged as collateral.

e. Investments accounted for using equity method

1. The Group’s investments accounted for using the equity method at the reporting date wereclassified as follows:

December 31, 2018

December 31, 2017

Subsidiaries $ 81,666 89,027 Associates 2,323,745 2,152,014 Total $ 2,405,411 2,241,041

2. The Group’s investments accounted for using the equity method that are individuallyinsignificant were as follows:

December 31, 2018

December 31, 2017

Carrying value of insignificant subsidiaries $ 81,666 89,027 Carrying value of insignificant associates $ 5,576,913 5,099,030

For the Years Ended December 31 Attribution to the Consolidated Company 2018 2017 Net income $ 887,970 776,557 Other comprehensive income - 37,430

Total comprehensive income $ 887,970 813,987

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3. Share of profit (loss) of subsidiaries and associates for the years ended December 31, 2018and 2017 was as follows:


Share of profit (loss) of subsidiaries and associates $ 887,970 776,557

4. The key financial information of subsidiaries and associates in which the ConsolidatedCompany has equity investments was as follows (before adjustment for the ConsolidatedCompany’s proportionate share):

December 31, 2018

December 31, 2017

Total assets $ 7,245,850 6,698,484 Total liabilities (1,588,376) (1,515,260)

$ 5,657,474 5,183,224


Revenue $ 7,244,503 6,366,231 Net income $ 2,256,289 1,796,142

The Consolidated Company does not guarantee any contingent liabilities of an associate jointly with other investors. Likewise, the Consolidated Company does not guarantee alone any other contingent liabilities of an associate.

5. The resolution, implementation of singed tripartite supplemental agreement between theCompany and PPG&GGC (which had been merged as the Axiall company), from theCompany’s board meeting on April 21st 2016: trading of equity shares of Taiwan Chichlorine Chemical Co., Ltd, total 6,400,000 shares at the sale price, US$100,000 thousand,which was equivalent to NT$3,225,000 thousand. After the expectation of the disposalinterests, NT$2,838,761 thousand, the Company instantly informed Axiall company tocarry out the equity trading of Taiwan Chi Chlorine Chemical Co., Ltd. The Companyissued the letter many times to ask Axiall to implement the agreement, however, Axiallcompany repeatedly delayed such actions. Hence, the Company filed the arbitration toAmerican Arbitration Association in August 2016. Axiall submitted the pleadings in Sept.2016 and asked PPG to participate in the lawsuit. Outside lawyers of PPG, in the Oct. ofsame year, represented that PPG is willing to negotiate the contract of equity trading. PPGsigned the contract with the Company at the end of February 2017 and handled the equitytransactions subsequently. The Company completed the trading on April 11st 2017, the totalselling price: $100,000 thousand, equivalent to about NT$3,062,000 thousand. The disposalof investment benefit recognized after the deduction of the securities trading taxes:NT$2,673,076 thousand, which was listed on the other benefits and losses of Non-Operating Income and Expense Accounts.

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6. Collateral

As of December 31, 2018 and 2017, the Consolidated Company provided as collateralportion of its investments in aforesaid equity-accounted investees. Please refer to Note 8for details of the related assets pledged as collateral.

f. Business Combination

1. The Company acquired Changzhou Huijie new material Co., Ltd on November 5, 2018 for100% fully control of the entity. The entity engages in manufacturing engineering plastics.

The transfer price is $356,869 thousand in cash, the fair value of assets acquired andliabilities assumed on the acquisition date were as below:

Cash and cash equivalents $ 47,222 Notes and accounts receivables 4,032 Other receivables 6,090 Inventories 4,994 Other current assets 100,137 Property, plant and equipment 1,200,245 Intangible assets 156,655 Short-term loans (265,345) Accounts payable (219) Other payables (860,584) Other current liabilities, (142) Long-term bank loans (179,895) Fair value of identifiable assets $ 213,190

Goodwill derived from acquisition:

Transfer price $ 356,869 Fair value of identifiable assets (213,190) Goodwill $ 143,679

2. The Company acquired Thanh Phong construction and investment Ltd. 90% of its sharesand obtained controlling power of the entity. The entity engages in real estate andconstruction.

The transfer price is $119,573 thousand in cash, the fair value of assets acquired andliabilities assumed on the acquisition date were as below:

Cash and cash equivalents $ 132,857 Fair value of identifiable assets $ 132,857

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Goodwill derived from acquisition:

Transfer price $ 119,573 Non-controlling equity (fair value of identifiable assets measured

at the percentage of non-controlling equity) 13,284

Fair value of identifiable assets (132,857) Goodwill $ -

g. Property, plant and equipment

The cost, depreciation, and impairment of the property, plant and equipment of the ConsolidatedCompany for the years ended December 31, 2018 and 2017 were as follows:

Land

Land

improvements Buildings

Machinery

and

equipment Vehicles

Other

facilities

Construction

in progress

Accumulated

impairment Total

Cost or deemed cost:

Balance as of January 1, 2018 $ 5,730,777 271,654 2,630,166 41,644,060 72,017 203,396 3,284.476 - 53,836,546

Acquisition from business

combination

- - 812,580 706,580 - 33,427 - - 1,552,587

Additions - - 2,574 1,897 1,285 19,262 2,719,648 - 2,744,666

Disposal - (3,465) (25,640) (464,862) (5,388) (3,313) (13,593) - (516,261)

Reclassification - 19,599 364,293 931,770 4,755 11,451 (1,331,868) - -

Effect of movements in exchange rate - - (21,335) (22,138) (291) (1,337) (59,648) - (104,749)

Balance as of December 31,2018 $ 5,730,777 287,788 3,762,638 42,797,307 72,378 262,886 4,599,015 - 57,512,789

Balance as of January 1, 2017 $ 5,730,777 266,699 2,595,686 40,933,661 70,128 193,889 1,673,672 - 51,464,512

Additions - - 4,969 22,554 1,837 2,561 2,468,866 - 2,500,787

Disposals - - (4,664) (121,010) (373) (2,065) - - (128,112)

Reclassification - 4,955 36,528 813,214 563 9,363 (864,623) - -

Effect of movements in exchange rate - - (2,353) (4,359) (138) (352) 6,561 - (641)

Balance as of December 31, 2017 $ 5,730,777 271,654 2,630,166 41,644,060 72,017 203,396 3,284.476 - 53,836,546

Depreciation and impairment loss:

Balance as of January 1, 2018 $ - 214,969 1,095,840 33,221,690 58,441 155,845 - 2,154,331 36,901,116


combination

- - 73,979 166,795 - 9,998 - - 250,772

Depreciation for the period - 4,981 122,893 1,212,101 5,148 19,564 - - 1,364,687

Disposals - (3,465) (22,745) (444,446) (4,725) (2,796) - (16,365) (494,542)

Reclassification - - - (510) 386 124 - - -

Effect of movements in exchange rate - - (3,061) (6,988) (200) (529) - - (10,778)

Balance as of December 31, 2018 $ - 216,485 1,266,906 34,148,642 59,050 182,206 - 2,137,966 38,011,255



Disposals - - (4,664) (120,285) (373) (1,975) - - (127,297)

Effect of movements in exchange rate - - (12) (59) (449) (121) - - (641)


Carrying amounts:

Balance as of December 31, 2018 $ 5,730,777 71,303 2,495,732 8,648,665 13,328 80,680 4,599,015 (2,137,966) 19,501,534

Balance as of January 1, 2017 $ 5,730,777 56,088 1,572,788 8,726,901 16,756 47,267 1,673,672 (2,154,331) 15,669,918


As of December 31, 2018 and 2017, the Consolidated Company provided as collateral portion of its property, plant and equipment, please refer to Note 8 for details of the related assets pledged as collateral.

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On November 26, 2013, the plan to invest in China was approved during the meeting of the board of directors of the Company. On March 25, 2014 and November 1, 2018, the Investment Commission, MOEA approved the investment of the Company in JIANGSU WEIMING Petrochemical Corporation in China of RMB$2,388,000 thousand (equivalent to $11,200,000 thousand) mainly to establish a manufacturing operations for petrochemical products (including hydrorefining crude benzol, cyclohexanone, nylon 6, etc.). As of December 31, 2018 and 2017, accumulated investment remittance from Taiwan to Mainland China was RMB$775,000 thousand and RMB$645,000 thousand. The amount invested in manufacturing plant and machinery was RMB$670,251 thousand and RMB$437,183 thousand, respectively.

h. Investment property

Land Buildings Total Cost or deemed cost:

Balance as of January 1, 2018 $ 38,211,181 15,351 38,226,532 Net gains and losses due to fair value

adjustments 120,452 3,375 123,827 Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359 Balance as of January 1, 2017 $ 38,148,494 3,859 38,152,353 Net gains and losses due to fair value

adjustments 62,687 11,492 74,179 Balance as of December 31, 2017 $ 38,211,181 15,351 38,226,532

Carrying amounts: Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359 Balance as of January 1, 2017 $ 38,148,494 3,859 38,152,353 Balance as of December 31, 2017 $ 38,211,181 15,351 38,226,532

1. Evaluation by income approach

The fair value of some investment properties of the Consolidated Company was determinedusing the income approach. Under this income approach, the key terms of the rentalcontracts for these investment properties and certain other factors considered were asfollows:

December 31, 2018

Subject Qianjin Dist., Kaohsiung City Important contract terms None. The range of rental in the area where the

investment property is located $550 ~ $700( NT dollars)

The rental range of similar investment property $549 ~ $596( NT dollars) The current status of the investment property Unused Past earnings $0 ~ $0 Income capitalization rate 5.415% Discount rate 4.380% Outsourcing or self-valuation Outsourcing Evaluation office Colliers International Taiwan Appraiser name Feng-ru, Ke Evaluation date December 31 , 2018 Outsourcing fair value $10,640

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December 31, 2017



The rental range of similar investment property $408 ~ $433( NT dollars) The current status of the investment property Unused Past earnings $0 ~ $0 Income capitalization rate 3.700% Discount rate 3.045% Outsourcing or self-valuation Outsourcing Evaluation office Euro-Asia Real Estate Appraisers

Firm Appraiser name Shi-yuan, Chou Evaluation date December 31 , 2017 Outsourcing fair value $7,602

In accordance with Article34 of the Regulations on Real Estate Appraisal, the income approach procedures include estimating the effective gross income and total expenses, computing the net operating income, determining the capitalization rate or discount rate, and computing the income. The attributes used by the Group for the estimations above were the last three years’ data from the subject property and comparable properties which have similar characteristics, and these data were assessed and adjusted based on their persistency, stability, and growth to ensure the availability and reasonableness of these data. The movement of income (cash inflows) and expenditure (cash outflows) for future periods was based on the vacancies or losses, existing or future cash flow plans of the Group, and historical cash flows from the subject property, identical properties, or properties in the same industry. The estimation and computation of the net income were based on the highest and best use of the subject property and have taken into consideration the income generated from comparable properties in the same location based on their highest and best use.

External appraisers use the risk premium method to decide on the direct capitalization rate and discount rate. The fixed deposit interest rate, government bonds rate, real estate investment risk, money supply-demand variation, the trend of real estate value and etc. are taken into consideration to decide the likely rate of return on the most common investment as a basis in order to derive the capitalization rate or discount rate. The differences in individual characteristics between the above most common investment and the subject property are compared in terms of their liquidity, risk, appreciation, and management. As of December 31, 2018 and 2017, the discount rate was 4.380% and 3.045%, respectively, based on 2-year time deposit of a small amount, as posted by the Chunghwa Post Co., Ltd., plus 0.75 percentage points (1.845%), adjusted for a risk premium of 1.2%, to reflect the status of operating income, liquidity, risk, appreciation, management and etc. As of December 31, 2018 and 2017, the weighted average capitalization rate was 5.415% and 3.700%, respectively, derived as the ratio of annual net operating income of comparable properties divided by reasonable price.

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2. Evaluation through land development analysis

As the Consolidated Company’s investment property is undeveloped, the income approachcannot be used for purposes of the evaluation. Consequently, the investment property wasevaluated using the land development analysis, under which, the following factors wereconsidered:

December 31, 2018

Subject Annan Dist., Tainan City

Qianzhen Dist., Kaohsiung City Others

Estimate total sales price $7,968,120 9,612,970 2,717,238 Rate of return 23% 18% 12% ~ 25% Capital interest rate 1.790% 3.810% ~3.930% 0.71% ~4.38% Evaluation office CCIS Real Estate

Joint Appraisers Firm

CCIS Real Estate Joint Appraisers Firm, Colliers International Taiwan

Hon Bun Real Estate Appraisers Firm and Colliers International Taiwan,

Appraiser name Huo-ming, Huang Shiou-ying, Jan , Jian-hui,Gu

Yu-xian, Houng , Jian-hui,Gu , hShiou-ying, Jan and Feng-ru, Ke

Evaluation date December31, 2018

December 31, 2018

December 31, 2018

Outsourcing fair value $5,020,755 31,970,281 1,348,683

December 31, 2017



Estimate total sales price $7,257,090 161,129,789 2,741,768 Rate of return 20% 20% ~ 40% 10% ~ 15% Capital interest rate 1.820% 3.120% ~7.42% 1.69% ~1.95% Evaluation office CCIS Real Estate


Euro-Asia Real Estate Appraisers Firm

Euro-Asia Real Estate Appraisers Firm, Colliers International Taiwan, and CCIS Real Estate Joint Appraisers Firm

Appraiser name Huo-ming, Huang Shih-yuan, Chou Shih-yuan, Chou ,Feng-ru, Ke , Shiou-ying, Jan andHuo-ming, Huang


December 31, 2017

December 31, 2017


The land development analysis included procedures such as identifying the content of land development and estimating the required period of development ; investigating individual cost and related expenses, collecting current market prices, etc.; on-site survey and investigating and analyzing the degree of development in the local environment; estimating the marketable area of land or building after construction or building; estimating the total sales price of properties after completion of construction or building; estimating individual cost and related expenses; deciding an appropriate rate of return and an overall capital interest rate; calculating land development analysis value.

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Investment property included several rentals of real property to others. Each lease contract all include the original non-cancellable lease and the subsequent lease is negotiated with the lessee without collection of contingent rental. Please refer to Note 6 n. for the relevant information including rent revenue and the direct operating expenses incurred.

As of December 31, 2018, and 2017, the Consolidated Company provided as collateral portion of its investment property. Please refer to Note 8 for details of the related assets pledged as collateral.

In the era of pre-Taiwan Alkali Industrial Corporation (TAIC), TAIC had leased the lands located in Tainan and Chiayi area to the local peasants and fishermen, and the surviving tenants shall continue paying the rent to the Company according to the agreements. In the circumstance of the resumption for self- business use or the sale of the lands, the leases shall be terminated under the contractual agreements and Land Laws. If there is any redemption in some cases, the Company will recognize and evaluate the possible expenses and costs case by case.

The Company has terminated the some agreements with partial peasants and fishermen at the first quarter of 2014 by paying the redemption in the amount of $50,425 thousand.

An Shun Land Located in Tainan City Annan District:

1. History

(1) The land where the An-Shun Alkali plants located was originally established byJapanese company Kanegafuchi Soda “in 1938 under Japanese Colonial Rule.

(2) The Government undertake the construction after the Retrocession of Taiwan, and established a state-owned company, Taiwan Alkali Industrial Corporation (TAIC) and operated at the An-Shun Site. In 1961, the competent authorities in charge of the relevant state-owned enterprises approved the investment plan and budget for producing Pentachlorophenol and sodium pentachlorophenol products used on herbicides and wood preservative fungicides.

(3) Due to operational factors, the plant was ordered to be closed by Executive Yuan Department of Economic Affairs in early 1982.

(4) In April 1983, Executive Yuan Department of Economic Affairs ordered China Petrochemical Development Corp., the state-owned Company, the subsidiary of CPC at the time, to merge with TAIC. The Company took charge of An-shun land of TAIC.

(5) Since the said merger, the Company takeover the An-shun land, the Company itself has never had any act of production, operations, development, use or pollution occurred at the site. According to subsequent investigation and research, parts of the area has been detected dioxin and mercury contamination in soil. The land was designated by the Tainan City Government and the Environmental Protection Department of the Executive Yuan as a “Soil Pollution Control Site” and “Soil pollution remediation site” in April 2002 and March 2004 separately, per the Soil and Groundwater Pollution Remediation Act.

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(6) Tainan city government and other government authorities cited Article 75 of Taiwan’s Company Law that since the Company merged with TAIC, and was regarded as the surviving company, the Company should take all responsibilities for the rights and obligations of TAIC, and so are the treatment projects and remediation plan. As the Company never used the land of TAIC after being ordered to take charge by the Executive Yuan Department of Economic Affairs (MOEA), the Company thus objected and carried out the following administrative or judicial remedies to identify the government conception of the “Polluters” and the condition of pollution:

A. The Company filed a plea of State Compensation claim to Ministry of Economic Affairs, Administration Yuan (MOEA), but MOEA refused.

B. In January 2006, the Company filed a complaint against MOEA in the Taiwan Taipei District Court in the amount of $10,077 thousand to reimbursement for compensation,

C. The complaint was dismissed by the Supreme Court In February, 2008. Upon the application of Constitution Interpretation by the Company, J.Y. No.714 Interpretation of the Grand Justice was issued in November, 2013, and considered that Soil and Groundwater Pollution Remediation Act (SGPR Act )does not violate the principle of prohibition against retroactive law, or the principle of proportionality the retroactive rule; however, the holding didn’t mention whether the successor of the Polluter entity should be responsible for the treatment projects and remediation plan under SGPR Act was not in the scope of the regulation.

D. The Company has filed series of complaint on those issues according to this Constitutional Interpretation.

(7) Tainan City Government issued the letter No. 09722000130 and No. 09722003360 in January and February 2008 respectively, and requested the Company to propose a remediation plan for the soil and groundwater pollution of the An-shun plant in accordance with the Soil and Groundwater Pollution Remediation Act.

A. The Company proposed the “Tainan City, CPDC former Taiwan Alkali An-shun site and 2nd class number nine road on the eastern side of the grass area of the site, soil pollution remediation pollution remediation plan” per the regulation at the end of June 2008 and the plan was submitted to Tainan city government for review and formally approved in May 2009. In 2012, the remediation plan was put forward and approved on July 2, 2012. The 1st instance was completed in September 2014 and entered the second phase of the remediation, which will last 10 years. A second revision of the remediation plan was proposed and submitted to Tainan City Government for review, and the approval letter issued by Tainan City Government informed of the approval of the 2nd remediation plan, which shall be publicly displayed per regulations. Currently, the Tainan City Environmental Protection Bureau reviewed and adopted the plan on April 14, 2015 and the assessment was announced by Tainan City Government on May 4th, 2015. According to the remediation technology and the actual implementation of the subsequence adjustment, the 3rd remediation change plan

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was proposed on March 2nd 2017, which remediation plan was focus on the remediation plan of 2nd phase and brought in the unfinished items in the 2nd change plan. Currently, the 3rd plan was reviewed and adopted on Jan. 3rd, 2018.

B. The remediation expense about NT$1,600,000 thousand has engaged in the 1st phase until Sept. 2014. Simultaneously, the following 10-year remediation work, after the 2nd change plan was adopted, needed to be started, the funding was estimated in Dec., 2014: NT$1,356,000 thousand.

2. Extension legislation:

(1) Remediation prepay

A. Tainan city government on Feb. 27th, 2008 with the letter No. 09722004430 asked the Company to pay each expense: NT$88,786 thousand, coming from investigation assessments and strain necessary measures, which was prepaid by Tainan city government and EPA of Executive Yuan on behalf of land polluters, within deadline. The expense would double and transfer to court for enforcement if overdue. This expense was adjusted to list in 2007 per Financial Accounting Standards and the Company prepaid on behalf of land relations based on the law regulations in July 2008. The Company had the objection on the prepaid expense and land polluter, hence, the administrative remedy was proposed in July 2008, Kaohsiung High Administrative court sentenced the Company shall pay the expense NT$88,430 thousand in Jan. 2008. The Company proposed the appeal in March 2008 and Supreme Administrative Court sent back to Kaohsiung High Administrative Court for further trial. Kaohsiung High Administrative court sentenced the original punishment and the petition decision beyond NT$76,066 thousand was withdrawn. In Dec. 2013, both parties proposed the appeal for the unfavorable parts and Supreme Administrative Court sentenced the amount beyond NT$203 thousand and lawsuit expenses are all abandoned in April 2015 and sent back to Kaohsiung High Administrative court for continued trial. The determined withdrawn amount NT$356 thousand had all been returned back to the account by Tainan city government. Kaohsiung High Administrative court rejected the appeal of the Company on Dec. 2016. The Company proposed the appeal remedy for the unsatisfied sentenced contents on Jan. 2017. Supreme Administrative Court sentenced on Jan. 2018 that the expenses NT$1,135 thousand didn’t need to be undertaken by the Company.

B. Tainan city government on May 22, 2009 with the letter No. 09822013680 asked the Company pay the expenses NT$17,962 thousand, which resulted from the relevant working plan of An Shun Land Site soil pollution remediation and was prepaid by Tainan city government on behalf of the Company, and Tainan city government in Dec. 2009 with the letter No. 09822035440 asked the Company to pay the above fees prior to Jan. 31st, 2010. The Company estimated such expense at the end of 2009 and proposed the administrative remedy in Jan. 2010 and prepaid the above fees within the deadline inquired by Tainan city government based on the law regulations. The petition was rejected in March 2011, thus, the administrative lawsuit was proposed according to the law. Kaohsiung High Administrative court sentenced that the amount beyond

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NT$17,867 thousand was withdrawn. After the appeal, Supreme Administrative Court sentenced to return back to Kaohsiung High Administrative court for further trial in Sept. 2013. Kaohsiung High Administrative court sentenced the amount beyond NT$7,068 thousand was withdrawn on Oct. 7th, 2015 and this case had been appealed for the remedy. The determined withdrawn amount NT$95 thousand had been returned back to the account by Tainan city government. The verdict from Supreme Administrative Court had been received on Feb. 18th, 2017, the fact was again returned back to Kaohsiung High Administrative court for the trial.

C. Tainan city government in Sept. 2011 with the letter No.1000700466 inquired the Company to pay the expense NT$16,095 thousand, which resulted from the relevant working plan of An Shun Land Site soil pollution remediation and was prepaid by Tainan city government on behalf of the Company. In March 2012, Tainan city government, with the letter No.1010242670, asked the Company to pay the above expense prior to April 30th, 2012. Based on the law regulation, the Company was inquired by Tainan city government to prepay the above expense within deadline and proposed the appeal for remedy in April 2012, which was rejected. The Company proposed the administrative litigation in Nov. 2012 and Kaohsiung High Administrative court sentenced to decide the amount of the original expense beyond NT$119 thousand were all withdrawn. The Company proposed the appeal in Sept. 2014, but Supreme Administrative Court sentenced to return back to Kaohsiung high Administrative court for further trial in Nov. 2015. Kaohsiung High Administrative court sentenced the amount beyond NT$6,498 thousand which Tainan city ordered the Company to pay was all withdrawn. Final verdict confirmed by Supreme Administrative Court in April 2018.

D. Tainan City Government, in May 2013, issued the letter No. 1020383681B to request the Company to pay site soil pollution remediation related work plan on behalf of An-shun plant, with the cost of NT$26,530 thousand and requested for the Company to pay the fee prior to June 30th 2013. The Company paid the fee in advance within the requested deadline by the Tainan City Government based on applicable laws. The Company filed a petition for remedy in July 2013, which was rejected. The Company filed an administrative litigation in March 2014. The judgment was declared in April 2016. The Company proposed to appeal for remedy on the portions that were unfavorable. However, the appeal was sentenced to be rejected in March 2017. The Company had proposed for retrial remedy in April 2017, which was rejected by court in Oct. of the same year. This case was closed.

E. The Tainan City Government, in February 2014, litigated that the Company was the polluters per judgment No. 1953 which was pass down in 2007 and asked the Company to pay the 2011 advanced payment of supervision and management on behalf of An-shun factory, to the amount of NT$27,444 thousand. The Company paid the fee in advance as previous mention within the requested deadline by the Tainan City Government based on the law regulations and filed the petition for remedy in March 2014, which was rejected by the petition authorities. The Company was not satisfied with the result, and filed the administrative legal

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appeal in September of same year. The Kaohsiung High Administrative Court sentenced the Company to pay NT$154 thousand. However, Tainan City Government was not satisfied with the verdict and filed the appeal for remedy, the Company also filed an appeal based on the Company’s claims to Supreme Administrative High Court. The Supreme Administrative High Court suspended the original verdict in February 2018, and currently the case is under hearing by the Kaohsiung High Administrative Court.

F. Tainan City Government, in May 2016, issued the letter No. 10504498726, requested the Company to pay a fee for the “supervision management and audit work plan of 2013 CPDC (Taiwan Alkali) An-shun plant site remediation” and requested the Company to pay the fee of NT$63,271 thousand prior to July 20th 2016, per paragraph 4 of article 14, article 15 and paragraph 1 of article 43. The Company paid the fee within the requested deadline by the Tainan City Government based on applicable regulations. After the rejection of the petition for the remedy in June 2016, the Company filed for administrative litigation in December 2016 and received parts of the winning judg

G. ment in July 2017. In order to maintain the Company’s right and interest, the Company had proposed the appeal to Supreme Administrative Court for remedy of the unfavorable parts in August 2017.

(2) Tainan city government claimed that the Company didn’t implement per the remediation process.

A. Tainan City Government issued the letter No. 1030133470 on February 12th 2014 to order the Company to pay a penalty of NT$200 thousand prior to March 24th 2014 since the Company was deemed not to implement the content per the approved “Site soil pollution remediation pollution remediation plan” and violated the regulation subparagraph 3 of paragraph 2 of Article 38 and paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act. However, the disposition authority determined that this was a factual error and it was clear that the punishment was illegal. Hence, the Company filed a petition for remedy in March 2014, but the petition was rejected by Executive Yuan Environmental Protection Agency in June 2014. The Company filed for administrative litigation remedy in August 2014, the litigation remedy was rejected by the judgment from the simple court of Tainan District court and Kaohsiung High Administrative Court in April and August 2015. The Company filed the retrial for remedy, which was rejected by the Kaohsiung High Administrative Court in April 2016. The Company would continue to file an appeal for remedy. However, the rejection of the Company’s request was received in June 2017. The Company proposed the retrial appeal for remedy in July of the same year. After the retrial, the court rejected the Company’s request in Oct. of the same year and this case was closed.

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B. Tainan City Government issued the letter No. 104060004 on June 12th, 2015 declaring that the Company didn’t execute the plan per the approved “Site soil pollution remediation pollution remediation plan”, which violated the regulation subparagraph 3 of paragraph 2 of Article 38 and paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act and ordered the Company to pay a penalty of NT$1,000 thousand prior to July 27th 2015. After verification, it was clear that the fine was illegal. Hence, the Company filed a petition for remedy in August 2015, which was rejected by the Executive Yuan Environmental Protection Agency. The Company was not satisfied with the verdict and filed for administrative litigation with the Kaohsiung High Administrative Court, the Company won the verdict in January 2017. This case was closed.

C. Tainan City Government issued a letter No. 105050004 for administrative sanctions on May 23, 2016 and deemed that the Company didn’t execute the plan according to the remedy plan since the reduction rate of dioxin pollution was less than 41% in the Soil and groundwater pollution inspection records, which violated the regulation paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act (hereinafter referred to as the “Remediation Act”) and ordered the Company to pay a penalty of NT$2,000 thousand according to subparagraph 3 of paragraph 2 of Article 38 of Remediation Act and the Company had to participate in environment seminars for 2 hours according to the provisions of Article 23, paragraph 2 of the Environmental Education Law. After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle. The Company filed a petition in June 2016, which was rejected by Executive Yuan Environmental Protection Agency in Oct. 2016. The Company was not satisfied, proposing the administrative litigation to Kaohsiung High Administrative court and received the rejection jurisdiction by court in July 2017. The Company proposed the appeal for the remedy in August of the same year per law, but Supreme Administrative Court rejected the Company’s request in Jan. 2018. This case was determined to be closed.

D. Tainan city government, on May 23rd, 2016, required the Company to complete the correction (which means the reduction rate of dioxin pollution reaches to 41%) prior to Oct. 31st, 2016 with letter No. 1050527601 and attached with No. 105050004 issued on May 19th, 2016, otherwise; the Company would be punished continuously per time. Since the Company violated the regulation paragraph 1 of Article 22, paragraph 2 of Article 38 of the Soil and Groundwater Pollution Remediation Act and paragraph 11 of Penalty criteria list, it was fined NT$600 thousand and was ordered to participate in environment seminars for 4 hours (premier NT$200 thousand plus added NT$400 thousand). After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle and this case had necessary relation with the administrative sanction which of letter No. 105050004. The petition remedy was proposed per law in Feb. 2017, which was rejected by Executive Yuan Department of Economic Affairs in May 2017. The Company had proposed the appeal for remedy in June of the same year. Through the rejection of the Company’s request by Kaohsiung High Administrative court

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in Nov. of the same year, the Company had declared the appeal in Dec. of the same year. The Supreme Administrative Court rejected the Company’s request on July 10, 2018. This case was determined to be closed.

E. Tainan city government considered the Company’s remediation progress for the reduction rate of dioxin pollution had not reached 82% and judged the Company for the penalty NT$200 thousand. After verification, the Company had finished 13.51 hectares (symbolizing Pollution area reduction ratio 36.4%), which had been beyond the target of 2nd change plan. Tainan city government with merely single project not reaching to the examined target penalized the Company without considering such factor, which obviously violated the ratio principle. The petition remedy was proposed in June 2017 and was rejected by Executive Yuan Department of Economic Affairs in August of the same year. Considering the legislation economy, the Company decided not to continue the remedy in August of the same year. This case was closed.

F. Tainan city government, in June 2017, with the letter No. 1060630217 attached with sanction letter No. 106060012 determined the 3rd remediation change plan not proposed and took it as reason and judged the Company for the penalty NT$1,000 thousand. After the verification, there is no ‘take it as’ such term in Soil pollution law and Implementation rules, which violated the principle of administration. The petition remedy had been proposed in July 2017 and the rejection of petition was received in Oct. of the same year. The Company proposed to Kaohsiung High Administrative court for the administrative remedy in Dec. of the same year.

3. Others

(1) The Company still has the objection on the adscription of pollution responsibility for An Shun land located in Tainan City Annan District and would continue to strive for the possible administrative and law remedy actively.

In view of the jurisdiction explanation No.714, which indicated whether the general successors of polluters had to burden of remediation responsibilities, was not in the scope of the Soil and Groundwater Pollution Remediation Act. Also, considering the previous Taiwan Alkali Co. Ltd. was a state-owned enterprise, and the An-shun plant was controlled, supervised, and assigned operations and gained beneficially by the Ministry of Economic Affairs, Taiwan Provincial Government and CPC, such actions should be part of national behavior, yet, the resulting pollution and remediation was asked to be borne by the private legal person. The Company applied to the Tainan city government to determine the beginning of the actual pollution or potential pollution of the perpetrators, and who should pay the relevant costs and return the Company’s cost over the years. The rejection was made by the Tainan City Government in November 2014. The Company filed a legal petition in December 2014 and the original disposal authorities revoked the original punishment in March 2014, hence, the Executive Yuan Environmental Protection Agency made a decision not to proceed with the case. The original disposal authorities revoked the previous punishment but simultaneously made a new one, the Company also filed a petition to the new punishment. The Company's petition was decided not to proceed in August

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2015 and the Company filed an administrative legal appeal instead, due to multiple errors, which was under hearing by the Kaohsiung High Administrative Court. Through the rejection of the Company’s request by Kaohsiung High Administrative court, the Company proposed the appeal for remedy in Nov. 2017. This case was under hearing in Supreme Administrative Court.

The cumulative fee of invested and estimated control & management cost and remediation fee were NT$3,428,237 thousand until Dec. 31st, 2018. The preceding remediation fee was estimated according to the current possible situations by the Company. However, if it was affected by the inside and outside factors in future, which resulted in the possible big differences on the whole remediation fee, it would be evaluated for adjustment.

(2) An-shun dormitory designated monuments case

Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by the Tainan City Government, under the letter No. 1031053448A issued on November 17, 2014, as a municipal historic site. However, the administrative sanction has various areas of dispute, thus the Company was not satisfied with the judgment. Hence, the Company filed a legal petition for remedy in December 2014. The petition decision report from the Ministry of Culture revoked the designated land of the Company as a historical site including 4 area in August 2015. The Company appealed for the administrative remedy of the remaining areas, which was under hearing by the Kaohsiung High Administrative Court.

The An-shun dormitory was announced by the Tainan City Government, on Nov. 17th 2014, as a historical site. The Company was not satisfied with this issue and filed the petition. The petition decision from the Ministry of Culture revoked 4 areas of land on August 14, 2015 and the Ministry of Culture re-announced it in accordance with this petition decision on Dec. 17th 2015. The Company was not satisfied with the 2nd announcement and re-appealed the petition for remedy. The Company received the rejection of the petition in July 2016. The Company appealed for remedy within the statutory period, which was rejected by the court’s verdict in January 2017. The Company examined the reasons for the refusal of the court, which reason complied with the required target of the Company. Hence, this case was closed without appeal for remedy.

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(3) An shun historical site theft case

Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by Tainan City Government as a municipal historic site. However, the defendant, Mr. Wu Ming, put a lot of his personal belonging on the Company’s land beside to the dormitories located on No.15, Aly. 3, Ln. 661, Beishanwei 2nd Rd., Annan Dist., Tainan City 709, Taiwan (R.O.C.), and was suspected being involved with the theft of the property. The Company filed for criminal action. This case was sent to the Tainan District Prosecutors Office for mediation but without success, the Company received the indictment from Prosecutors Office in May 2016 and received the verdict from the court in September of the same year: Mr. Wu was sentenced to five months and was charged NT$5,973 thousand due to the crime. However, the defendant appealed for remedy. The sentence was declared on June 28th, 2017: Mr. Wu was imprisoned for 4 months and confiscated NT$176 thousand acquired from the crime (this case was closed).

Xincun Land of Taiwan Alkali Co., Ltd.:

1. History

On the premise that the residents obeyed the agreement, the Company signed an agreementwith the local communities that land within Feng Shan District, Kaohsiung City shall begranted free of charge for public use.

2. Extension legislation

Business inspector found that the land was occupied by residents that built illegalconstruction, which violated the agreement. After communicating with the residents'multiple times, the situation still did not improve. To be responsible for asset managementand reach the expectation of the Company’s shareholders, the Company filed a legal appealin February 2013 to require to dismantle the illegal construction and return the land, whichwas judged by Kaohsiung District Court to reject the Company’s petition. Due to theprevious judgment against the law, the Company filed a legal appeal for remedy inSeptember 2014, which was rejected by the Kaohsiung High Court in July 2016. TheCompany filed the appeal for remedy to Supreme Court in August of same year.

Shulin Land of Taiwan Alkali Co., Ltd.:

1. History:

(1) No. 540, 541 and 543, Dongshan Section, Shulin District, Xinbei City and No. 498,Weiwang Section, Shulin Dist., New Taipei City 238, Taiwan including 4 area of lands originally belonged to Shulin plant of Taiwan Alkali Co. Ltd. Taiwan Alkali Co. Ltd. established the plant in 1962 and closed the plant in 1975. The Executive Yuan Department of Economic Affairs in April 1983 ordered the government-owned Company which at the time was also a subsidiary of CPC to merge with Taiwan Alkali Co. Ltd

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(2) Then the plant was subsequently sold to CPC. The New Taipei City Government Environmental Protection Bureau, on August 16th, 2010, announced the land as “soil pollution control site”.

(3) The New Taipei City Government Environmental Protection Bureau issued the letter No. 1000010000 in March 2011 declaring that the Company merging with Taiwan Alkali Co. Ltd. was regarded as the survival company and shall take the responsibilities for the rights and obligations of Taiwan Alkali Co. Ltd. for soil pollution remediation according to article 75 of Company Act and was deemed as the polluters, who are required to propose subsequent disposal and remediation.

(4) The New Taipei City Government Environmental Protection Bureau issued the letter No. 1001001329 in August 2011 and asked the Company to complete the investigation and proposed a pollution control plan and send to New Taipei City Government Environmental Protection Bureau for approval. The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. This case was closed due to the determined sentence in August 2017.

Since the change of predetermined place of CNPC’s warehouse, the relocation schedule had to be extended to 24 quarters. The remediation work schedule were postponed so that the soil pollution control pan (change plan) of Shulin Land of former Taiwan Alkali Co., Ltd (part of the sites) was proposed in April 2017. New Taipei City Government sent the letter to agree for future reference and it’s implemented per the change plan currently. The relevant remediation expense NT$273,750 thousand was estimated and listed in 2011 according to Financial accounting standards related regulations. However, it will be assessed to adjust to recognition if there were changes due to internal and external factors in future, which resulted in the significant differences on the entire remediation expenses.


The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. Taipei High Administrative Court judged to revoke the administrative punishment and the petition decision in August 2012. However, New Taipei City Government Environmental Protection Bureau appealed for retrial, the Supreme Administrative Court discarded the original judgment and remanded the case to the Taipei High Administrative Court. The judgment was claimed to be illegal, hence, the Company filed for legal appeal in December 2013, which was rejected by the Supreme Administrative Court in January 2015. The Company filed for retrial remedy in February 2015, which was rejected in June 2015. The ruling on the parts where important evidence was missed and not considered was remanded to Taipei High Administrative Court. But Taipei High Administrative court sentenced the rejection in August 2016, which the Company was not satisfied with so as to appeal for remedy in Sept. of the same year. In August 2017, the rejection was adjudicated. This case was closed.

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Moreover, in consideration of the No. 714 explanation from the judge, the Company applied to New Taipei City Government Environmental Protection Bureau for the identification of polluters, but it was subsequently refused. The Company filed for the petition and administrative litigation remedy. After the trial from Supreme Administrative Court, the rejection was adjudicated. This case was closed.

i. Intangible assets

The components of the costs of intangible assets, amortization, and impairment loss thereon orthe years ended December 31, 2018 and 2017 were as follows:

Goodwill Computer software

Patents and trademark Total

Costs： Balance as of January 1, 2018 $ 5,444 5,233 68,389 79,066 Acquisition from business combination - 908 50,883 51,791

Acquisition in 2018 143,679 1,579 141 145,399 Disposals - - (16,815) (16,815)

Effect of movement in exchange rates (1,133) (147) - (1,280) Balance as of December 31, 2018 $ 147,990 7,573 102,598 258,161

Balance as of January 1, 2017 $ 5,444 5,465 67,370 78,279 Acquisition in 2017 - 602 1,019 1,621

Effect of movement in exchange rates - (834) - (834) Balance as of December 31, 2017 $ 5,444 5,233 68,389 79,066

Goodwill Computer

software Patents and trademark Total

Amortization and Impairment Loss: Balance as of January 1, 2018 $ - 1,089 53,639 54,728 Acquisition from business combination - 59 8,434 8,493

Amortization for the period - 945 12,332 13,277 Disposals - - (6,378) (6,378) Effect of movement in exchange rates - (20) - (20) Balance as of December 31, 2018 $ - 2,073 68,027 70,100

Balance as of January 1, 2017 $ - 1,288 45,735 47,023 Amortization for the period - 583 7,904 8,487

Effect of movement in exchange rates - (782) - (782) Balance as of December 31, 2017 $ - 1,089 53,639 54,728

Carrying value: Balance as of December 31, 2018 $ 147,990 5,500 34,571 188,061

Balance as of January 1, 2017 $ 5,444 4,177 21,635 31,256 Balance as of December 31, 2017 $ 5,444 4,144 14,750 24,338

As of December 31, 2018 and 2017, the aforesaid intangible assets were not pledged as collateral.

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j. Short-term and long-term loans

December 31, 2018

Currency Interest Rate

Range Year of

Expiration Amount Secured bank loans-the Company NTD 1.43%~1.9556% 2019~2021 $ 2,480,000 Secured bank loans-Huijie RMB 5.655%~6.2225% 2019 442,533 Unsecured bank loans-the

Company NTD 1.38%~1.814% 2019 600,000

Secured bank loans- Weihua RMB 4.9%~5.047% 2024 300,569 Secured bank loans- Weiming RMB 5.047%~5.488% 2023 1,714,560 Letters of credit loans-the

Company NTD 1.4945% 2019 50,000

Total $ 5,587,662 Current $ 1,777,533 Non-current 3,810,129 Total $ 5,587,662

December 31, 2017


Range Year of

Expiration Amount Secured bank loans-the Company NTD 1.5%~1.9556% 2019~2021 $ 2,370,000 Unsecured bank loans-the

Company NTD 1.4885%~1.64% 2018 250,000

Secured bank loans- Weihua RMB 4.49%~5.047% 2024 301,422 Secured bank loans- Weiming RMB 5.047%~5.39% 2023 597,743 Total $ 3,519,165 Current $ 250,000 Non-current 3,269,165 Total $ 3,519,165

On February 2, 2016, the Company signed a syndicated loan agreement for 5 years with Mega International Commercial Bank, the lead bank of the syndicated loan, and 7 other banks in order to raise funds to build the plant and accessory equipment and meet funding requirement. The aggregate amount of credit line of the syndicated loan was $4,350,000 thousand.

1. Syndicated loan A: The credit line is $2,900,000 thousand consisting of medium-termsecured loans and non-revolving credit facility, which were used to finance the building ofthe plant and purchase of accessory equipment.

2. Syndicated loan B: The credit line is $1,450,000 thousand consisting of medium-term loansand revolving credit facility, which were used to meet funding requirement.

3. The financial covenants under the loan agreement include the requirement to maintaincertain financial ratios based on the reviewed semi-annual consolidated financial report andaudited annual consolidated financial reports. If the Company breaches these financialcovenants, the syndicated banks may determine to declare the unpaid principal, interest,fees and other sums payable by the Company under the loan agreement to be immediatelydue and payable. These financial ratios are as follows:

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(1) Current Ratio (total current assets divided by total current liabilities): not lower than 100%.

(2) Leverage Ratio (total liabilities plus contingent liabilities to tangible net worth): not higher than 100%.

(3) Times Interest Earned (income before tax plus depreciation expense plus amortization expense divided by interest expenses): not lower than 2 times.

As of December 31, 2018 and 2017, the unused credit line amounted to $2,250,000 thousand. Please refer to Note 8 for details of the related assets pledged as collateral.

The Company signed a contract for secured bank credit facilities totaling $1,200,000 thousand in order to finance its operating requirement. As of December 31, 2018 and 2017, credit facilities of $380,000 thousand and $270,000 thousand were used. The unused amounted to $820,000 thousand and $930,000 thousand. The current portion of the long-term bank loans obtained from such credit facilities amounted to $380,000 thousand and $0 thousand, respectively. Please refer to Note 8 for details of the related assets pledged as collateral.

As of December 31, 2018 and 2017, the Company was granted by banks short-term credit lines of $6,650,000 thousand, and $5,754,000 thousand, of which $3,650,445 thousand and $3,237,817 thousand, respectively, were unused.

As of December 31, 2018, the short term credit lines of the subsidiaries amounted to $130,000 thousand, US$6,000 thousand and RMB$1,083,840 thousand; of which, $0 thousand, US$0 thousand, and RMB$683,706 thousand, respectively, were used.

As of December 31, 2017, the short term credit lines of the subsidiaries amounted to $155,000 thousand, US$12,500 thousand and RMB$785,000 thousand; of which, $0 thousand, US$0 thousand, and RMB$196,883 thousand, respectively, were used.

Please refer to Note 8 for details of the related assets pledged as collateral.

k. Long-term bills payable

The components of long-term bills payable were as follows:

December 31, 2018 Acceptance institution Period Amount

Bills payable China Bills Finance Corporation 2018.11.09~2019.01.08 $ 100,000 Bills payable China Bills Finance Corporation 2018.11.16~2019.01.15 50,000 Bills payable International Bills Finance

Corporation 2018.11.30~2019.01.18 50,000

Bills payable Taching Bills Finance Corporation 2018.11.26~2019.02.25 50,000 Bills payable Mega Bills Finance Corporation 2018.12.20~2019.03.20 100,000

350,000 Less: Discount on long-

term bills payable (271)

Total $ 349,729

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Bills payable China Bills Finance Corporation 2017.12.08~2018.02.06 $ 300,000 300,000

Less: Discount on long-term bills payable

(118)

Total $ 299,882

The Company had revolving commercial promissory note agreements with bills finance companies in order to finance its operating requirement. The bills payable bear interest at annual rates ranging from 0.5%~1.1513% and 0.38%~0.70% for the years ended December 31, 2018 and 2017, respectively.


l. Bonds payable

December 31, 2018

December 31, 2017

Total amount of convertible bonds issued $ - 4,127,904 Cumulative converted amount - (4,109,141) Cumulative redeemed amount - (18,763) Balance of bonds payable $ - -

For the Year Ended December

31,2018


31,2017 Loss (gain) on fair value measurement of embedded derivatives

such as buy back right, sell back right and Conversion Right $ - 920,915

Interest expense Amortization of issuance cost - 92,745

$ - 83,552

The convertible bond issued by the Company was treated as a compound financial instrument, for which the liability and equity components were accounted for separately. The call and put option embedded in bonds payable were separated from bonds payable, and were recognized as “Financial liabilities at fair value through profit or loss.” For the years ended December 31, 2018 and 2017, the Company recognized a gain (loss) on financial liability reported at fair value through profit or loss of $0 thousand and $(920,915) thousand, respectively.

On December 17, 2014, the Company issued Credit Enhanced Zero Coupon Convertible Bonds with aggregate principal amount of US$132,000 thousand, which are due in 2019. These bonds bear effective interest rate of 3.2082%. On conversion of the Bonds to the Company’s common shares of stock, the conversion price is $10.80 (NT dollars) per share with a fixed exchange rate of NT$31.222 = US$1.00. If the price for the conversion of the Bonds is adjusted as defined in the issuance terms, the conversion price adjustment is made according to a definite formula. The bonds bear no conditions. Unless previously redeemed, repurchased and cancelled, or converted, the Bonds will mature, and are redeemable on December 17, 2019 at 109.10% of the unpaid principal amount thereof.

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The Company will redeem the Bonds in whole or in part early under the following conditions:

1. The Company may redeem the Bonds, in whole or in part, at the early redemption amounton the date of redemption if the Market Price (translated into US Dollars at the PrevailingRate) for 20 out of 30 consecutive Trading Days, the last of which occurs not more thanfive trading days prior to the date on which notice of such redemption is given, is at least125% of the quotient of the Early Redemption Amount divided by the Conversion Ratio.

2. If more than 90% in principal amount of the Bonds originally outstanding has beenredeemed, repurchased and cancelled or converted, the Company can redeem the remainingoutstanding bonds.

3. If, as a result of certain changes relating to the tax laws in the ROC or such other jurisdictionin which the Company are then organized or resident for tax purposes, the Companybecomes obligated to pay Additional Amounts. The Bonds, may be redeemed at the optionof the Company, in whole but not in part, at the Early Redemption Amount Bondholdersmay elect not to have their Bonds redeemed but with no entitlement to any AdditionalAmounts or reimbursement of additional tax.

4. Upon the occurrence of an LC Redemption Event and to the extent permitted by applicablelaw, the Company shall redeem all and not some only of the outstanding Bonds at the EarlyRedemption Amount to such date, subject to the right of each holder of the Bonds to electthat such holder’s Bonds shall not be redeemed, but shall remain outstanding without thebenefit of the Letters of Credit.

Except for the following circumstances, a Bondholder should not request the Company to redeem the bond, in whole or in part, before maturity date.

1. Unless the Bonds have been previously redeemed, repurchased and cancelled, or converted,each Bondholder shall have the right, at such Bondholder’s option, to require theCompany to repurchase, in whole or in part (being US$200,000 in principal amount andintegral multiples thereof), of such Bondholder’s Bonds on December 17, 2017 at 105.37%of their principal amount

2. In the event that the Common Shares cease to be listed or admitted to trading on the TWSE,each Bondholder shall have the right, at such Bondholder’s option, to require the Companyto repurchase, in whole or in part.

3. Upon the occurrence of an LC Redemption Event and to the extent permitted by applicablelaw, each Bondholder shall have the right, at such Bondholder’s option, to require theCompany to repurchase, in whole or in part.

Payments of (i) the principal of and premium on the Bonds at maturity or upon redemption or repurchase; or (ii) the principal of and premium and default interest (if any) on the Bonds in the case of an Event of Default will have the benefit of irrevocable standby letters of credit (the ‘‘Letters of Credit’’) issued severally but not jointly by CTBC Bank Co., Ltd. and Taiwan Cooperative Bank, Ltd. in accordance with their respective committed percentage to the total principal amount of the Bonds.

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During the period when Bonds are outstanding, the Company is required to comply with the following financial covenants:

1. Current ratio (current assets/current liabilities): should not be less than 120%.

2. Debt ratio ((total liabilities + contingent liabilities)/tangible net assets): should not be higherthan 70%.

3. Interest coverage ratio (EBITDA/interest expense): should not be less than 3%.

4. Tangible net assets (stockholders’ equity (including minority shareholders) - intangibleassets): should not be less than $25,000,000 thousand.

Based on its 2016 reviewed semi-annual consolidated financial report, the Company did not meet its financial covenant with regard to time interest earned as prescribed in its agreement. Therefore, the Company deposited USD time deposits to the compensation bank account as defined in the agreement. The Company negotiated with the banks continuously. The Company got exemption of the financial ratio of time interest earned violation on November 1, 2016, and took the USD time deposits back from the compensation bank account. As of December 31, 2016, the Company did not meet its financial covenant with regard to time interest earned as prescribed in its agreement. However, after the negotiating with the banks, the Company was given an exemption on March 31, 2017.

After the bond has been issued for over 36 months, if the closing price of the Group’s common shares listed on the Taiwan Stock Exchange exceeds or equals 125% of the conversion price for 20 consecutive days, the Company may redeem the bonds using the early redemption price. Because the Company has met the conditions on early redemption, it was able to redeem all the bonds on December 19, 2017.


m. Provisions

Decommissioning Remediation

project Employee benefits Total

Balance as of January 1, 2018 $ 1,269,971 1,087,851 253,869 2,611,691 Provisions made during the year - - 9,870 9,870 Provisions used during the year - (120,437) (24,232) (144,669) Provisions reversed during the year - - (1,686) (1,686) Effect of movements in exchange rate (2,751) - - (2,751) Balance as of December 31, 2018 $ 1,267,220 967,414 237,821 2,472,455 Current $ - 473,629 6,542 480,171 Non-current 1,267,220 493,785 231,279 1,992,284

$ 1,267,220 967,414 237,821 2,472,455 Balance as of January 1, 2017 $ 1,270,084 1,192,927 269,422 2,732,433

Provisions made during the year - - 8,400 8,400 Provisions used during the year - (105,076) (23,873) (128,949) Provisions reversed during the year - - (80) (80) Unwinding of discount (113) - - (113) Balance as of December 31, 2017 $ 1,269,971 1,087,851 253,869 2,611,691 Current $ - 164,493 9,514 174,007 Non-current 1,269,971 923,358 244,355 2,437,684

$ 1,269,971 1,087,851 253,869 2,611,691

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1. To comply with the Order of the Tainan City Government, the Company submitted aremediation plan proposal and accrued relevant remediation plan for approval before June30, 2008 and evaluated the relating remediation expense of $1,647,200 thousand. In May2009 and on July 2, 2012, the Company was granted official approval of its remediationproposal and amended remediation proposal, respectively. In September 2014, theCompany has completed the first phase of the implementation of its plan. It is expected tolaunch the second phase of the implementation of its remediation plan during the next.The Company has submitted the second phase of its amended remediation plan to theTainan City Government for approval. On December 24, 2014, Tainan City Governmentnotified the Company its approval and now is under public tender review.

The aforementioned remediation costs of the Company were recognized in the total amount of $1,600,000 thousand for the first stage before September, 2014. With the launch of the subsequence of the second remediation stage, the Company estimated the cost based on the situation of December, 2014 is $1,356,000 thousand. (Note 6 h for more details)

2. (1) The Company’s four parcels of land at Dongshan section , Shulin district, New TaipeiCity were the original location of TAIC’s Shulin plants , but then sold to the Taiwan Chinese Petroleum Corporation (CPC). On August 16, 2010, the Environmental Protection Department of New Taipei City Government has declared that such land as "Soil Pollution Control Site”. In March 2011, the Environmental Protection Department of New Taipei City Government has issued its letter No. 1000010000. In that letter, the Company is deemed to be the surviving entity, which assumed the rights and obligations of TAIC following its merger with TAIC and TAIC ceased to exist. As the surviving entity from this merger, the Company was therefore declared as the polluter and was required to submit a remedial measuring plan.

(2) In August 2011, the Environmental Protection Department of New Taipei City Government has issued its Letter No. 1001001329 requiring the Company to complete its investigation and propose a pollution control plan to the Environmental Protection Department of New Taipei City Government for approval and then adopt its implementation. Following its said merger with Taiwan Alkali Company under the government‘s mandatory order, the Company itself has neither performed any act of production, operation, development, use nor initiated act to cause pollution. For this reason, the Company objected with being tagged as “the polluter” and filed a complaint for administration remedy in August 2011. In 2011, the Company estimated and accrued relevant remediation expenses of $273,750 thousand in accordance with the relevant provisions of Financial Accounting Standards.

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n. Operating lease

The Consolidated Company leases out some of its property, plant and equipment underoperating leases. The future minimum lease receivable under these non-cancellable operatingleases were as follows:

December 31, 2018

December 31, 2017

Less than one year $ 16,094 16,094 Between one and five years 19,904 19,119 Over five years 38,019 39,652

$ 74,017 74,865

For the years then ended December 31, 2018 and 2017, the income from the rental of property, plant and equipment amounted to $18,569 thousand and $17,790 thousand, respectively.

o. Employee benefits


The Consolidated Company’s defined benefit obligations and fair value of plan assetswere as follows:

December 31, 2018

December 31, 2017

Present value of funded defined benefit obligation $ 594,797 726,159 Fair value of plan assets (369,809) (481,804) Net defined benefit liabilities $ 224,988 244,355

The provision consists of net defined benefit liabilities and accrued pension liabilities for professional managements. The accrued pension liabilities for professional managements was $5,759 thousand and $0 thousand as of December 31, 2018 and 2017, respectively.

The Consolidated Company makes defined benefit plans contributions to the pension fund account with Bank of Taiwan that provides pension benefits for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for six months prior to retirement.

(1) Composition of plan assets

The Company and its subsidiaries in Taiwan set aside pension funds in accordance with the Regulations for Revenues, Expenditures, Safeguard and Utilization of the Labor Retirement Fund and such funds are managed by the Labor Pension Fund Supervisory Committee. Under these regulations, the minimum earnings from these pension funds shall not be less than the earnings from two-year time deposits with the interest rates offered by local banks.

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As of December 31, 2018, the balance of the Consolidated Company’s contributions to the pension funds in Bank of Taiwan was $372,440 thousand. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Labor Pension Fund Supervisory Committee.

(2) Movements in present value of the defined benefit obligations

The movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2017 were as follows:

2018 2017 Defined benefit obligation, January 1 $ 726,159 845,083 Benefits paid from plan assets (151,121) (132,065) Current service costs and interest 24,703 27,647 Past service credit (2,638) - Re-measurements of the net defined benefit liability (assets) (2,306) (14,506) Defined benefit obligation, December 31 $ 594,797 726,159

(3) Movements of defined benefit plan assets

The movements in the present value of the defined benefit assets for the year ended December 31, 2018 and 2017 were as follows:

2018 2017 Fair value of plan assets, January 1 $ 481,804 585,256 Employer contributions 11,578 20,833 Benefits paid by the plan (144,241) (129,417) Expected return on plan assets 6,242 6,222 Re-measurements of the net defined benefit liability 14,425 (1,090) Fair value of plan assets, December 31 $ 369,808 481,804

(4) Expenses recognized in profit or loss

The Consolidated Company’s pension expenses recognized in profit or loss for the years ended December 31, 2017 and 2016 were as follows:


Current service cost $ 15,231 18,630 Past service cost (2,638) - Net interest on net defined benefit liability 3,230 2,795

$ 15,823 21,425 Operating costs $ 16,579 19,471 Selling expenses (1,053) 302 Administrative expenses 289 1,477 Research and development expenses 8 175

$ 15,823 21,425 Actual return on plan assets $ 20,667 5,132

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(5) Re-measurement of net defined benefit liability recognized in other comprehensive income

The Consolidated Company’s net defined benefit liability recognized in other comprehensive income was as follows:


Accumulated balance, January 1 $ (155,055) (168,471) Recognized during this year 16,731 13,416 Accumulated balance, December 31 $ (138,324) (155,055)

(6) Actuarial assumptions

The following are the key actuarial assumptions at the reporting date:


Discount rate 0.75~1.125% 0.75~1.75% Future salary increases 0.3~1.5% 0.3~2%

Base on the actuarial report, the Consolidated Company is expected to make a contribution payment of $11,475 thousand to the defined benefit plans for the one year period after the reporting date. The weighted-average duration of the defined benefit plans is between 1.00 to 12.73 years.

(7) Sensitivity analysis

In determining the present value of the defined benefit obligation, the Consolidated Company’s management makes judgments and estimates in determining certain actuarial assumptions on the balance sheet date, which includes employee turnover rate and future salary changes. Changes in actuarial assumptions may have significant impact on the amount of defined benefit obligation.

As of December 31, 2018 and 2017, the changes in the principal actuarial assumptions will impact the present value of defined benefit obligation as follows:

Impact on the present value of defined benefit obligation

Increase by 0.25%

Decrease by 0.25%

December 31, 2018 $ (11,116) 32,617 Discount rate 32,269 (10,854) Increase in future wage

December 31, 2017 Discount rate $ (16,003) 16,679 Increase in future wage 16,859 (15,737)

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The sensitivity analysis assumed all other variables remain constant during the measurement. This may not be representative of the actual change in defined benefit obligation as some of the variables may be correlated in the actual situation. The model used in the sensitivity analysis is the same as the defined benefit obligation liability.

The analysis is performed on the same basis for prior year.


The Consolidated Company contributes an amount at the rate of 6% of the employee’smonthly wages to the Labor Pension personal account with the Bureau of the LaborInsurance and Council of Labor Affairs in R.O.C. in accordance with the provisions of theLabor Pension Act. The Company’s contributions to the Bureau of the Labor Insurance andSocial Security Bureau for the employees’ pension benefits require no further payment ofadditional legal or constructive obligations.

The cost of the pension contributions to the Labor Insurance Bureau for the years endedDecember 31, 2018 and 2017 amounted to $43,210 thousand and $36,573 thousand,respectively.

3. The pension recognized consists of pension expenses and pensions for professionalmanagement. The pension expenses for professional management was $5,759 thousand and$0 thousand as of December 31, 2018 and 2017, respectively.

4. Short-term compensated absences liabilities

As of December 31, 2018 and 2017, the Consolidated Company’s short-term compensatedabsences liabilities amounted to $6,542 thousand and $9,514 thousand, respectively.

p. Income Tax

The components of income tax expense for the years ended December 31, 2017 and 2016 wereas follows:


Current income tax expense Currently incurred $ (395,359) (210,107) Adjustment to prior year’s income tax charged to current income

tax (596) (292)

(395,955) (210,399) Deferred tax expense

The origination and reversal of temporary differences (570,690) (435,180) Unrecognized changes of deductible temporary differences 570,690 435,180

- - Income tax expense $ (395,955) (210,399)

For the years ended December 31, 2018 and 2017, income tax expenses recognized under other comprehensive income were both $0 thousand.

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Income tax calculated on pre-tax financial income was reconciled with income tax expense for the years ended December 31, 2018 and 2017 as follows:


Profit (loss) before income tax $ 4,676,950 6,297,721 Income tax on pre-tax financial income calculated at the domestic rate

(971,773) (1,099,035)

Tax-free income 1,479 905 Income basic tax - (183,085) Unrecognized deferred tax assets 564,986 413,628

Changes of permanent differences 358,215 657,469 Prior years income tax adjustment (596) (281) 10% surtax on undistributed earnings (348,266) -

Income tax expense $ (395,955) (210,399)

1. Unrecognized deferred tax assets and (liabilities)

December 31, 2018

December 31, 2017

Decommissioning liabilities $ 71,366 59,517 Remediation project 239,744 240,050 Extraordinary loss 727,670 847,801 Allowance for doubtful receivables 319,484 319,484 Property, plant and equipment, investment property 782,907 910,306 Pension (641) 1,213 Tax loss 6,192,964 7,107,974 Others 465,528 114,886

$ 8,799,022 9,601,231

The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority. Tax loss ratified by Tax Administration could be carried forward for ten consecutive years in accordance with Income Tax Act. The Consolidated Company did not recognize aforesaid tax loss as deferred tax assets because it is not expecting enough taxable profit in the near future.

As of December 31, 2018, the expiration years of tax loss unrecognized as deferred tax assets were as follows:

(1) The Company

Year incurred Amount Effective Period 2014 $ 331,035 2015-2024 2015 2,132,246 2016-2025 2016 1,815,587 2017-2026

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(2) Taivex Therapeutics Inc.

Year incurred Amount Effective Period 2010 $ 14,388 2011-2020 2011 16,878 2012-2021 2012 29,657 2013-2022 2013 50,227 2014-2023 2014 27,419 2015-2024 2015 43,032 2016-2025 2016 44,291 2017-2026 2017 52,322 2018-2027 2018(estimated) 76,894 2019-2028

(3) Chung Hua Shuang Tzu Hsing Kai Fa Co., Ltd.

Year incurred Amount Effective Period 2013 $ 10,195 2014-2023 2014 44,139 2015-2024 2018(estimated) 445,328 2019-2028

(4) CPDC Green Technology Corp.


(5) Weihua (Rudong) Trade Co., Ltd

Year incurred Amount Effective Period 2013 $ 86 2014-2018 2015 36,740 2016-2020 2016 45,975 2017-2021 2017(estimated) 21,869 2018-2022

(6) Weiqiang International Trade (Shanghai) Co., Ltd.

Year incurred Amount Effective Period 2013 $ 9,398 2014-2018 2014 9,238 2015-2019 2015 17,892 2016-2020 2016 21,170 2017-2021

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(7) Weida (zhangzhou) Consultant Service Co., Ltd.

Year incurred Amount Effective Period 2014 $ 1,148 2015-2019 2015 1,062 2016-2020 2016 1,168 2017-2021 2017 1,442 2018-2022 2018(estimated) 410 2019-2023

(8) Jiangsu Weiming Petrochemical Corporation

Year incurred Amount Effective Period 2017 $ 47,766 2018-2022 2018(estimated) 28,128 2019-2023

(9) Zhangzhou Weida Petrochemical Co.,Ltd


(10) Kunshan Weiqin Management consultant Co., Ltd


(11) Zhejiang Wedge new material Co., Ltd


(12) Changzhou Huijie new material Co., Ltd


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2. Deferred tax liabilities:

Reserve for Land Revaluation Increment

Tax Balance, January 1, 2018 $ 8,754,736 Recognized in profit or loss 4,253 Balance, December 31, 2018 $ 8,758,989 Balance, January 1, 2017 $ 8,721,807 Recognized in profit or loss 32,935 Balance, December 31, 2017 $ 8,754,736

3. Deferred tax assets:

Taxable Loss Defined

benefit plans Total Balance, January 1, 2018 $ 9,358 14 9,372 Recognized in profit or loss 1,651 - 1,651

$ 11,009 14 11,023

Balance, December 31, 2017(equal to January 1) $ 9,358 14 9,372

4. Stockholders’ imputation tax credit account and tax rate:

According to the amendments to the "Income Tax Act" enacted by the office of thePresident of the Republic of China (Taiwan) on February 7, 2018, effective January 1, 2018,companies will no longer be required to establish, record, calculate, and distribute their ICAdue to the abolishment of the imputation tax system.

q. Capital and reserves

As of December 31, 2018 and 2017, the authorized, issued and outstanding capital of theCompany amounted to $26,998,573, divided into 2,699,857 thousand shares, with par value of$10 (NT dollars) per share.

(In thousands of shares)Common Stock

2018 2017

Balance, January 1 2,699,857 2,319,990 Conversion of convertible bonds - 379,867 Balance, December 31 2,699,857 2,699,857

Due to the conversion of the convertible bonds between January 1 and March 31, 2017, the Company issued 35,269 thousand shares amounting to $352,693 thousand, at a par value of NT$10 per share, with the issuance date on March 31, 2017, which was approved by and registered with the competent authority on June 28, 2017.

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Due to the conversion of the convertible bonds between April 1 and June 30, 2017, the Company issued 8,095 thousand shares amounting to $80,946 thousand, at a par value of NT$10 per share, with the issuance date on June 30, 2017, which was approved by and registered with the competent authority on August 8, 2017.

Due to the conversion of the convertible bonds between July 1 and September 30, 2017, the Company issued 161,313 thousand shares amounting to $1,613,136 thousand, at a par value of NT$10 per share, with the issuance date on September 30, 2017, which was approved by and registered with the competent authority on November 27, 2017.

Due to the conversion of the convertible bonds between October 1 and December 31, 2017, the Company issued 175,190 thousand shares amounting to $1,751,901 thousand, at a par value of NT$10 per share, with the issuance date on December 31, 2017 and be approved by the competent authority on March 28, 2018.

1. Capital Surplus

December 31, 2018

December 31, 2017

Premium of share issue $ 1,242,245 1,242,245 Other 18,141 18,141 Total $ 1,260,386 1,260,386

In accordance with the ROC Company Act, as amended in January 2012, capital surplus cannot be used to distribute cash dividends or be used to increase capital unless it offsets the deficit first. The realized capital surplus includes those arising from donation and the excess of the issuance price over the par value of capital stock issued. In accordance with the Regulations Governing the Offering and Issuance of Securities by Securities Issuers, if capital surplus is capitalized in batches, the combined amount of capital surplus capitalized in batches in any one year cannot exceed 10 % of paid-in capital.

2. Retained earnings

The Company distributes dividends depending on the level of earnings of each year,funding needs, industrial environment, and status of competition, long-term operating planand interests of shareholders. Under such circumstances, the Company may appropriate forspecial reserve either in whole or in part to assure financial stability and sustainability. TheCompany may distribute dividends in cash or stock. If the earnings distribution is made inthe form of by stock dividend, the ratio for the stock dividend shall not exceed 50% of thetotal distribution unless the ratio of the Company’s total liabilities to total assets isequivalent or above 50% or otherwise prescribed in relevant laws and regulations.

(1) Legal reserve

In accordance with the Amended Company Act 2012, 10 percent of net income is set aside as legal reserve, until it is equal to share capital. If the Company experiences profit for the year, the meeting of shareholders decides on the distribution of the statutory earnings reserve either by issuing new shares or by cash, of up to 25 percent of the actual share capital.

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(2) Special reserve

By adopting the exemptions allowed under IFRS 1 First-time Adoption of International Financial Reporting Standards during the Company’s first-time adoption of the International Financial Reporting Standards approved by the Financial Supervisory Commission (IFRSs), unrealized asset revaluation gains in shareholders’ equity of $5,281,790 thousand was reclassified to retained earnings. The net increase in retained earnings due to the first-time adoption of IFRSs amounted to $4,235,076 thousand. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory Commission on 6 April 2012, a special reserve is appropriated from the distribution of retained earnings as a result of an increase in retained earnings due to the first-time adoption of IFRSs. When the related assets are used, disposed of, or reclassified, this special reserve is reversed as distributable earnings proportionately. The carrying amount of special reserve amounted to $4,235,076 thousand as of December 31, 2018 and 2017.

In 2014, the Consolidated Company changed the subsequent measurement of investment properties from cost model to fair value model. In accordance with Ruling No. 1030006415 issued by the Financial Supervisory Commission on 18 March 2014, on the first-time adoption of fair value model for the subsequent measurement of investment properties, the Consolidated Company set aside an equal amount of special reserve when the fair value increment of investment properties is transferred to retained earnings. The Consolidated Company appropriated to the special reserve an amount of $21,224,233 thousand as of December 31, 2013. The company held a shareholder meeting on June 8, 2017, in order to use the special reserve amounted to $1,958,584 thousand to cover accumulated deficits. On April 11, 2018, the Company’s shareholders resolved during their meeting, to reimburse $1,958,584 thousand into the special reserve. The carrying amount of such special reserve amounted to $21,224,233 thousand and $19,265,649 thousand as of December 31, 2018 and 2017, respectively.

For every year the Company distributes earnings, a special reserve is appropriated in the following order:

A. Each year, a special reserve is appropriated from current year’s net income and prior years’ undistributed earnings for the same amount as the net increase in the fair value of investment property using the fair value model. A special reserve is also appropriated for the same amount as the cumulated net increase in the fair value for the year when the undistributed earnings are not distributed. When the investment property is disposed of, this special reserve is reverted proportionately to distributable earnings. As of December 12, 2018 and 2017, the Company appropriated to the special reserve an amount of $3,867,293 thousand and $327,688 thousand, respectively.

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B. In accordance with Ruling No. 1010047490 issued by the Financial Supervisory Commission on 21 November 2012, a special reserve is appropriated by the parent company for the difference between market value and book value of parent company shares being held by a subsidiary times the percentage of the parent company’s equity investment in the said subsidiary, if the stock price of the parent company is lower than the its value. If the market value recovers subsequently, this special reserve is reverted proportionately to distributable earnings.

C. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory Commission on 6 April 2012, a portion of current-period earnings and undistributed prior-period earnings is appropriated as a special reserve during earnings distribution. Such appropriation of special reserve is based on the difference between the total net amount of contra accounts in the shareholders’ equity and the carrying amount of special reserve. Similarly, a portion of undistributed prior period earnings (which does not qualify for earnings distribution) is likewise appropriated as a special reserve on account of cumulative changes to other shareholders’ equity pertaining to prior periods. The subsequent reversals of the contra accounts in the shareholders’ equity shall qualify for additional earnings distributions.

(3) Earnings Distribution

On April 11, 2018 and June 8, 2017, the Company’s shareholders resolved during their meeting, not to distribute dividend to shareholders out of the earnings.

3. Other equity accounts

Exchange differences on

foreign operation

Unrealized gain or loss on financial assets at fair value through other comprehensive

income Balance, January 1, 2018 $ (392,378) (788,734) Retrospective adjustments - (18,968) Exchange differences on foreign operation (74,880) - Exchange difference on subsidiary accounted for using

equity method 161 -

Exchange difference on affiliated accounted for using equity method

(21,115) -

Unrealized losses from financial assets measured at fair value through other comprehensive income

- (408,318)

Unrealized gains from financial assets measured at fair value through other comprehensive income for subsidiaries accounted for using equity method

- 31,082

Unrealized gains from financial assets measured at fair value through other comprehensive income for affiliated companies accounted for using equity method

- (63,561)

Balance, December 31, 2018 $ (488,212) (1,248,499)

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foreign operation Available-for-sale

financial assets Balance, January 1, 2017 $ (293,769) (1,228,183) Exchange differences on foreign operation (118,323) - Exchange difference on subsidiary accounted for using

equity method (425) -


20,139 -

Unrealized gain for available-for-sale financial assets - 402,018 Unrealized gain for available-for-sale financial assets for

subsidiary accounted for using equity method - 45

Unrealized gain for available-for-sale financial assets for affiliated companies accounted for using equity method

- 37,386

Balance, December 31, 2017 $ (392,378) (788,734)

r. Earnings per share

The basic earnings per share and diluted earnings per shares for the years ended December 31,2018 and 2017 were calculated as follows:


Basic earnings per share (NT dollars) Profit attributable to ordinary shareholders $ 4,290,269 6,091,656 Weighted-average number of ordinary shares 2,699,857 2,390,817

$ 1.59 2.55

Diluted earnings per share (NT dollars) Profit attributable to ordinary shareholders (diluted) $ 4,290,269 6,091,656 Weighted-average number of ordinary shares (basic) 2,699,857 2,390,817 Effect of potentially dilutive ordinary shares of Employee stock

bonus 13,371 12,909

Weighted-average number of ordinary shares (diluted) 2,713,228 2,403,726

$ 1.58 2.53

s. Revenue from contracts with customers

1. The Company primarily engages in the production of petroleum, alkali-chlorine,phosphoric acid and other petrochemical products and by-products and the storage,transportation, purchase and sale of these products, related chemicals and their rawmaterials. The details of products and sales area, please refer to Notes 14.

2. Contract balances

2018.12.31 2018.01.01 Notes receivable $ 687,341 1,756,028 Accounts receivable (including related parties) 2,399,163 2,262,263 Less: allowance for doubtful account (450,421) (470,684)

$ 2,636,083 3,547,607

Contract liabilities $ 5,578 5,253

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Please refer to Note 6 for disclosure of accounts receivable and allowance for doubtful accounts.

The amount of revenue recognized for the year ended December 31, 2018 that was included in the contract liability balance at the beginning of the period was $5,253 thousand.

t. Revenue


Sales of goods $ 38,503,121 33,335,970

u. Remuneration of employees and directors

In accordance with the Articles of incorporation, the Company should contribute no less than3% of the profit as employee compensation and less than 2% as directors' and supervisors'remuneration when there is profit for the year. However, if the Company has accumulateddeficits, the profit should be reserved to offset the deficit. The amount of remuneration of eachdirector and supervisor and of compensation for employees entitled to receive theabovementioned employee compensation is approved by the board of directors. The recipientsof shares and cash may include the employees of the Company's affiliated companies who meetcertain conditions.

For the years ended December 31, 2018 and 2017, remuneration of employees of $146,409thousand and $ 198,150 thousand, respectively, and directors of $97,606 thousand and $132,100thousand, respectively, were estimated and recognized as current expense. These amountswere calculated using the Company’s profit before tax before remuneration of employees anddirectors for the years ended December 31, 2018 and 2017. These benefits were charged toprofit or loss under operating costs or operating expenses for the years ended December 31,2018 and 2017. Related information would be available at the Market Observation Post Systemwebsite. The actual distribution of remuneration of employees was amounted for $118,850thousand as of December 31, 2018. The amounts, as stated in the individual financial statements,are identical to those of the actual distributions for 2018 and 2017.

v. Non-operating income and expense

1. Other income


Interest income Repurchase agreement $ 7,130 16,414 Imputed interests of security deposits 364 6 Bank deposits 190,142 190,224

Dividends income 647,745 73,213 Rental income 18,569 17,790 Government grants 56,340 - Other income 124,195 233,126

$ 1,044,485 530,773

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2. Other gains and losses


Foreign exchange (losses)gains $ (1,063) 21,519 Gain on disposal of investments 6,094 2,674,450 Loss on disposal of property, plant and equipment (6,998) (737) Gain (loss) on evaluation of investment property 119,574 41,244 Net gains on evaluation of financial assets (liabilities) measured

at fair value through profit or loss 242,864 171,897

Embedded Derivatives- Gain(loss) on fair value Measurement of buy back right, sell back right and Conversion Right

- (920,915)

Gain on redemption of bonds payable - 10,091 Bank fees (51,443) (165,653) Impairment loss on financial assets - (1,137) Other losses (560,099) (235,988)

$ (251,071) 1,594,771

3. Finance costs


Interest expenses Bank loans $ 77,237 90,147 Imputed interests of security deposits 16 16

Amortization of bonds payable, discount - 28,838 Interest compensation of bonds payable - 63,907

Others 2,263 5,508 $ 79,516 188,416

w. Financial Instruments

1. Categories of financial instruments

(1) Financial assets

December 31, 2018

December 31, 2017

Financial assets at fair value through profit or loss $ 6,162,171 1,368,657 Financial assets at fair value through other

comprehensive income 2,229,968 -

Available-for-sale financial assets - 1,873,478 Financial assets carried at cost - 2,992,035 Cash and cash equivalents 13,469,938 10,111,495 Notes receivable, accounts receivable and other

receivables 2,754,465 3,593,370

Other assets 131,493 130,935 Total $ 24,748,035 20,069,970

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(2) Financial liabilities

December 31, 2018

December 31, 2017

Short-term loans $ 913,732 250,000 Long-term bank loans-current portion 863,801 - Payables 3,045,226 2,407,778 Long-term bank loans 3,871,583 3,269,165 Long-term bills payable 349,729 299,882 Other liabilities 149,012 415,462 Total $ 9,193,083 6,642,287

2. Credit risk

(1) Exposure to credit risk

The carrying amount of financial assets represents the Company’s maximum credit exposure. As of December 31, 2018 and 2017, the maximum exposures to credit risk amounted to $24,748,035 thousand and $20,069,970 thousand respectively.

(2) The concentration of credit risk

The sales of the Consolidated Company are significantly concentrated in a small number of customers. For the years ended December 31, 2018 and 2017, 84% and 86%, respectively, of the total amount of accounts receivable is composed of 11 customers and 8 customers, respectively. Under the Consolidated Company’s credit policy, customers are requested to provide the Consolidated Company certain financial information like audited financial report, or other related documents for purposes of evaluating their credit worthiness. Credits are granted to these customers according to the result the Consolidated Company’s credit evaluation.

(3) Impairment losses

The Consolidated Company uses simple method to evaluate expected credit loss for notes receivable and accounts receivable, which means using the existing life time to measure the expected credit loss. For the purpose of measuring, the notes receivable and accounts receivable are grouped based on the characteristic of mutual credit risk, which is the ability for customers to honor the contract and be able to settle the receivables when due. Expected losses of the receivables on December 31, 2018 was as follows:

Carrying amount of

account receivables

Weighted average expected

credit loss

Allowance for expected credit loss

Not past due $ 2,722,338 0~4% (95,217) Over 0~30 733 - - Over 31~120 days 7,320 - - Over 121~365 days 909 - - Past due more than 1 year 355,204 100% (355,204)

$ 3,086,504 (450,421)

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Expected losses of the receivables on the reporting date was as follows:

December 31, 2017 Total

amount Impairment Not past due $ 3,666,635 (95,217) Over 0~30 14,146 - Over 31~120 days 4,831 - Over 121~365 days 2,975 - Past due more than 1 year 381,102 (381,102)

$ 4,069,689 (476,319)

3. Liquidity risk

The following are the contractual maturities of financial liabilities, including estimatedinterest payments and excluding the impact of netting agreements.

Carrying

amount

Contractual

cash flows

Within 6

months

6-12

months 1-2 years 2-5 years

More than

5 years

December 31, 2018

Non-derivative financial liabilities Accounts payable $ 1,848,774 1,848,774 1,848,774 - - - - Other payables 1,718,537 1,718,537 1,528,979 189,558 - - - Other financial liabilities－

current 11,282 11,282 11,282 - - - -

Other non-current liabilities－other

110,735 110,735 99,201 9,023 226 765 1,520

Floating-rate loans 1,550,000 1,607,245 411,652 210,987 421,974 562,632 - Fixed-rate loans 4,037,662 4,591,889 867,678 316,672 100,394 2,388,072 919,073 Long-term bills payable 349,729 350,000 350,000 - - - -

$ 9,626,719 10,238,462 5,117,566 726,240 522,594 2,951,469 920,593

December 31, 2017

Non-derivative financial liabilities Accounts payable $ 1,956,985 1,956,985 1,956,985 - - - - Other payables 261,212 261,212 259,089 - 63 2,060 - Other financial liabilities－

current 324,306 324,306 324,306 - - - -


73,058 73,058 20,412 38,503 11,738 50 2,355

Floating-rate loans 1,350,000 1,432,337 - - - 1,432,337 - Fixed-rate loans 2,169,165 2,450,744 250,718 - 220,371 800,400 1,179,255 Long-term bills payable 299,882 300,000 - - 300,000 - -

$ 6,434,608 6,798,642 2,811,510 38,503 532,172 2,234,847 1,181,610

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4. Currency risk

(1) Currency risk exposure

The Consolidated Company’s exposures to significant currency risk were those from its foreign currency denominated financial assets and liabilities as follows:

December 31, 2018 December 31, 2017 Foreign

Currency Exchange

rate NTD Foreign

Currency Exchange

rate NTD Financial assets

Monetary items USD $ 83,697 30.710 2,570,357 51,644 29.765 1,537,198

HKD - - - 11,359 3.8110 43,293 EUR - - - 1 35.540 39 VND 547,757,982 0.0013 725,068 - - - MKK 567,650 0.0199 11,353 - - - RMB 1,034,171 4.470 4,622,754 1,195,083 4.5670 5,457,947

Long-term share investment using equity method

USD 30,320 30.710 931,121 36,765 29.765 1,094,305 Financial liabilities

Monetary items USD $ 12,497 30.710 383,783 9,621 29.765 286,368 RMB 549,812 4.470 2,457,660 196,883 4.5670 899,165


The Consolidated Company’s exposure to foreign currency risk arises from the foreign currency exchange rate fluctuations on cash and cash equivalents, receivables and payables, which are denominated in foreign currency. A 1% of appreciation of NTD against USD, EUR, HKD, VND, MKK and RMB would have increased net income after tax by $40,705 thousand and increased $48,579 thousand for the years ended December 31, 2018 and 2017, respectively; other comprehensive income would have increased $9,311 thousand and increased $10,943 thousand for the years ended December 31, 2018 and 2017, respectively. The analysis between these two periods was based on the same criteria.

5. Interest rate analysis

The following sensitivity analysis is based on the risk exposure to interest rates on thederivative and non-derivative financial instruments on the reporting date. For financialinstruments bearing floating-rate, the sensitivity analysis assumes the floating-rateliabilities are outstanding for the whole year on the reporting date. The ConsolidatedCompany’s internal management reported the increases/decreases in the interest rates andthe exposure to changes in interest rates of 1% is considered by management to be areasonable change of interest rate.

If the interest rate increases by 1%, the Consolidated Company’s net income will decreaseby $16,500 thousand and $13,500 thousand for the years ended December 31, 2018 and2017, respectively, assuming all other variable factors remain constant. This is due mainlyto the fact that the Consolidated Company’s borrowings bear floating interest rate.

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6. Fair value information

Consolidated companies use their market observations as much as possible when measuringtheir assets and liabilities. The level of fair value is based on the input value of theevaluation technique as follows:

(1) Level 1: quoted prices (unadjusted) in active markets for identified assets or liabilities.

(2) Level 2: inputs other than quoted prices included within Level 1 that are observable forthe assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

(3) Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

(A) Fair value of financial instruments

The fair value of financial assets and liabilities were as follows (including information on fair value hierarchy, but excluding measurements that have similarities to fair value but are not fair value and those fair value cannot be reliably measured or inputs are unobservable in active markets):

Fair value

Book value Level 1 Level 2 Level 3 Total

December 31, 2018 Financial Assets Cash and cash equivalent $ 13,469,938 - - - - Current financial assets at fair value through profit or loss 1,300,897 1,165,590 - 135,307 1,300,897 Financial assets at fair value through other comprehensive

income-current 251,629 251,629 - - 251,629

Non-current financial assets at fair value through profit or loss

4,861,274 - - 4,861,274 4,861,274

Financial assets at fair value through other comprehensive income-non-current

1,978,339 1,539,419 - 438,920 1,978,339

Note receivables, accounts receivable and other accounts receivable

2,754,465 - - - -

Other assets 131,493 - - - - Non-financial Assets Investment property 38,350,359 - - 38,350,359 38,350,359

$ 63,098,394 2,956,638 - 43,785,860 46,742,498

Financial Liabilities Short-term loans $ 913,732 - - - - Long-term loans-current portion 863,801 - - - - Long-term loans 3,810,129 - - - - Long-term accounts payable 3,871,583 - - - - Long-term bills payable 349,729 - - - - Other liabilities 149,012 - - - -

$ 9,957,986 - - - -

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Fair value


December 31, 2017 Financial Assets Cash and cash equivalent $ 10,111,495 - - - - Current financial assets at fair value through profit or loss 1,368,657 1,212,054 - 156,603 1,368,657 Current available-for-sale financial assets 1,873,478 1,873,478 - - 1,873,478 Current financial assets at cost 2,992,035 - - - - Note receivables, accounts receivable and other accounts

receivable 3,593,370 - - - -

Other assets 130,935 - - - - Non-financial Assets Investment property 38,226,532 - - 38,226,532 38,226,532

$ 58,296,502 3,085,532 - 38,383,135 41,468,667

Financial Liabilities Short-term loans $ 250,000 - - - - Long-term loans 3,269,165 - - - - Long-term accounts payable 2,407,778 - - - - Long-term notes payable 299,882 - - - - Other liabilities 415,462 - - - -

$ 6,642,287 - - - -

(B) Valuation techniques for financial instruments which is not measured at fair value:

The carrying amount of loans and receivables, financial assets carried at cost and financial liabilities measured after amortization cost in the consolidated financial statements of the Consolidated Company is close to its fair value.

(C) Valuation techniques for financial instruments measured at fair value:

The merger company determines the input value with reference to the analysis of the financial status and operating results, recent transaction price, related equity instruments are quoted in non-active markets, similar tools offer in the active market and comparable company evaluation multiplier of the investee company and periodically updates the input value and information and any other necessary fair value adjustments to ensure that the evaluation results are reasonable.

(i) Non-derivative financial instruments

Financial instruments, if there is a public market offer, then the public market offer for the fair value, Such as listing (cabinet) company stock and open-end fund beneficiary certification.

The fair value of the financial instruments held by the merging company in the case of a non-active market is as follows:

No public offer debt investment tools: The discounted cash flow model is used to estimate fair value, it is mainly assumed that it is measured by discounting the expected future cash flows of the investee by the rate of return of the monetary time value and the investment risk.

No public offer equity instruments: Use the net asset value method, The main assumptions are based on the net per share of the investor.

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(ii) Derivative financial instruments

Is evaluated according to the evaluation model accepted by the market users, such as the discount method and the option pricing model.

(D) There have been no transfers from each level for the years ended December 31, 2018 and 2017.

(E) Statements of changes in fair value measurements of financial assets in Level 3

Financial assets reported at fair value through profit or loss

Financial assets reported at fair

value through other comprehensive income

Investment Property

Designated at initial

recognition Derivative

financial assets Non-public quoted equity instruments

January 1, 2018 $ 38,226,532 156,603 - - Adjustments for initial application of IFRS 9 - 3,136,225 - 666,841 January 1, 2018, adjusted 38,226,532 3,292,828 - 666,841 Purchase - 1,998,060 - - Disposal - (455,940) - - Effects on deferred income tax liabilities 4,253 - - - Total gain and losses recognized in profit or loss 119,574 161,633 - (227,921) December 31, 2018 $ 38,350,359 4,996,581 - 438,920

January 1, 2017 $ 38,152,353 157,216 - - Loss on Revaluation of investment property 41,244 - - - Effects on deferred income tax liabilities 32,935 - - - Purchase - 310,556 - - Disposal - (310,556) - - Total gain and losses recognized in profit or loss - (613) - - December 31, 2017 $ 38,226,532 156,603 - -

(F) Quantitative information on the measurement of fair value of significant unobservable input values(Level 3)

Level 3 refers to the measurement of the fair value of the input parameters are not based on market availability of information, must be based on the assumption that the appropriate estimates and adjustments. If the evaluation model can not be developed on its own, the fair value of the counterparty is used as the fair value. According to IFRS13,for the fair value of the third level classified at the fair value level, the firm shall provide quantitative information about the significant unobservable input values used for the fair value measure. Businesses do not need to create quantitative information to comply with this disclosure, if quantified unobservable input value is not built when enterprises are measuring fair value (Such as when a firm uses an unadjusted previous transaction price or a third party pricing information). Consolidated part of the Company's investment No active market open interest and debt instrument investment. The fair value of the merged company is classified as the third level of investment real estate, the determination of its fair value is subject to IFRSs, commissioned by the professional valuation agencies in accordance with market evidence to support the value of the assessment (Please refer to note 6 (h.)).。Due to the practice cannot fully grasp the significance observable input value and the relationship between the fair values, it did not expose the quantitative information. The fair value of the aforesaid assets at December 31, 2018 and 2017 is $43,785,860 thousand and $38,226,532 thousand, respectively.

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The Group holds an investment in equity shares, which is classified as fair value through profits or losses in the level 3.

Most of fair values are classified in the level 3 based on single significant unobservable input values, only the equity instruments with inactive market may result in multiple unobservable input values which are all independent from each other.

Quantified information of significant unobservable inputs was as follows:

Item Valuation technique Significant

unobservable inputs

Inter-relationship between significant unobservable inputs and fair value

measurement Financial assets at fair value through profits or losses and financial assets at fair value through other comprehensive income

Net Asset Value Method Net Asset Value Lack of market liquidity

discount rate 10%~30%

Not applicable Lack of market liquidity

Higher discount, lower fair market value

(G) The fair value is classified in the level 3 of the evaluation process

Consolidated company fair value measures the use of unobservable input values, and the input value can be observed must be based on not observable parameters for major adjustments, its fair value is classified in the level 3. The input source for this level is mainly issued by an external evaluation of the price report (Price letter).And then check the results of the evaluation to ensure consistency with the source of the evaluation and to ensure that the evaluation results are reasonable.

Investment real estate is based on financial supervisory commission announcement of the evaluation methods and parameters of the assumption of commissioned by external values.

(H) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The fair value of the financial instruments is reasonable, and the self-built evaluation model is not used for the fair value of the level 3. Therefore, it is not necessary to perform the sensitivity analysis of the possible alternative assumptions.

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x. Financial risk management

1. Overview

The Consolidated Companies are exposed to the following risks due to the use of financialinstruments:

(1) Credit Risk

(2) Liquidity risk

(3) Market risk

The following discusses the Consolidated Company’s objectives, policies and processes formeasuring and managing the risks mentioned above. For more quantitative informationabout the financial instruments, please refer to other related notes of the notes to thefinancial statements.

2. Risk management framework

The Board of Directors has overall responsibility for the oversight of the risk managementframework in order to develop and monitor the Consolidated Company’s risk managementpolicies and to report regularly on its activities.

The Consolidated Company’s risk management policies are established to identify andanalyze the risks faced by the Consolidated Company, to set appropriate risk limits andcontrols, and to monitor risks and adherence to limits. Risk management policies andsystems are reviewed regularly to reflect changes in market conditions and the ConsolidatedCompany’s activities. The Consolidated Company, through their training and managementstandards and procedures, aims to develop a disciplined and constructive controlenvironment in which all employees understand their roles and obligations.

The Audit Committee of the Consolidated Company oversees how management monitorscompliance with the Consolidated Company’s risk management policies and proceduresand reviews the adequacy of the risk management framework in relation to the risks facedby the Consolidated Company. The Audit Committee of the Consolidated Company isassisted in its oversight role by Internal Audit. Internal Audit undertakes both regular andad hoc reviews of risk management controls and procedures, the results of which arereported to the Audit Committee.

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3. Credit Risk

Credit risk means the potential loss of the Consolidated Company if the clients orcounterparties involved in that transaction default. The primary potential credit risk is fromcash and accounts receivable.

(1) Accounts receivable and other receivables

The Consolidated Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Consolidated Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances.

The Consolidated Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Consolidated Company’s standard payment and delivery terms and conditions are offered. The Consolidated Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Consolidated Company’s benchmark creditworthiness may transact with the Consolidated Company only on a prepayment basis.

The Consolidated Company establishes an impairment allowance that represents its estimate of incurred losses in respect of trade receivables. The two components of this impairment allowance are specific loss component that relates to individually significant exposure and collective loss component which the loss was incurred but not identified. The collective component is based on historical payment experience of similar financial assets.

(2) Bank deposits

The credit risk exposure in the bank deposits is measured and monitored by the Consolidated Company’s finance department. As the Consolidated Company deals with the banks and other external parties with good credit standing and financial institutions, corporate organization and government agencies which are graded above investment level, management believes that the Consolidated Company do not have compliance issues and significant credit risk.

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4. Liquidity risk

Liquidity risk is the risk that the Consolidated Company will encounter difficulty in meetingthe obligations associated with its financial liabilities that are settled by delivering cash oranother financial asset. The Consolidated Company’s approach to managing liquidity is toensure, as far as possible, that it always have sufficient liquidity to meet its liabilities whendue, under both normal and stressed conditions, without incurring unacceptable losses orrisking damage to the Consolidated Company’s reputation. The management believes thatthe Consolidated Company do not have significant liquidity risk.

5. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interestrates and equity prices will affect the Consolidated Company’s income or the value of itsholdings of financial instruments. The objective of market risk management is to manageand control market risk exposures within acceptable parameters, while optimizing the return.The Consolidated Company buys and sells derivatives, and also incurs financial liabilities,in order to manage market risks. All such transactions are carried out within the guidelinesset by the Risk Management Committee.

(1) Currency risk

The Consolidated Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Consolidated Company’s entities, primarily the New Taiwan Dollars (NTD). The currencies used in these transactions are denominated in NTD, USD and RMB.

The Consolidated Company’s currency risk is not hedged as some of the currencies of the Consolidated Company’s foreign currency receivables and payables are the same, producing a natural hedge effect.

(2) Interest rate risk

The Consolidated Company’s Interest rate risk comes from long-term and short-term bank loans. The long-term bond issued by our company is fixed-rate loan, so there is no risk caused by the fluctuations of interest rates and fair value interest rate. The long-term and short-term bank loans calculated in floating-rate were made our company suffered cash flow interest rate risk, but most of risk were covered by cash and cash equivalents holding in floating-rate.

(3) Other market price risk

The Consolidated Company does not enter into any commodity contracts other than to meet the Consolidated Company’s expected usage and sales requirements; such contracts are not settled on the net basis.

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y. Capital management

The Consolidated Company meets its objectives for managing capital to safeguard the capacity to continue to operate, to continue to provide a return on shareholders, interest of other related parties and to maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Consolidated Company may adjust the dividend payment to the shareholders, reduce the capital for redistribution to shareholders, issue new shares or sell assets to settle any liabilities. The Consolidated Company and other entities in the similar industry use the debt-to-equity ratio to manage capital. This ratio is determined using the total net debt and divided by the total capital. The net debt from the balance sheet is derived from the total liabilities less cash and cash equivalents. The total capital and equity include share capital, capital surplus, retained earnings, other equity and non-controlling interest plus net debt.

The Consolidated Company’s debt to equity ratios at the end of the reporting period as of December 31, 2018 and 2017 were as follows:

December 31, 2018

December 31, 2017

Total liabilities $ 22,514,200 19,080,501 Less: cash and cash equivalents (13,469,938) (10,111,495) Net debt $ 9,044,262 8,969,006

Total equity $ 67,190,754 62,548,459

Total liabilities and equity $ 76,235,016 71,517,465

Debt to equity ratio 11.86% 12.54%

7. RELATED PARTY TRANSACTIONS

a. Names and relationship with related parties

The followings are entities that have had transactions with related party during the periods covered in the consolidated financial statements.

Name of related party Relationship with the Group Taiwan Chlorine Industries Ltd. Investee as accounted for using equity method (not an

investee since April 11, 2017) Praxair Chemax Semiconductor Materials Co.,

Ltd. Investee as accounted for using equity method (not an

investee since January 9, 2017) Kaohsiung Monomer Company Investee as accounted for using equity method Zhong Gong Baoquan Ltd Investee as accounted for using equity method BES Engineering Corporation The board of the entity is the key management of the

Company Core Pacific City Co., Ltd Same board with the Company Chung Kung Management and Maintenance of

Apartments Co., Ltd Investee as accounted for using equity method of Zhong

Gong Baoquan Ltd Coreasia Human Resources management Co., Ltd Subsidiary of BES Engineering Capital Machinery Co., Ltd The board of the entity is the key management of the

Company All board of directors, general manager and deputy

general manager The main managements of the Company

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b. The ultimate parent company

The Company is the ultimate parent company.

c. Significant Transactions with related parties

1. Sale of Goods and Services to Related Parties

For the Year Ended December 31 2018 2017

Associates $ 644,031 586,021

The terms for related party sale transactions were the same as those of other unrelated customers.

2. Purchase of Goods from Related Parties


Associates $ - 78,021

The terms for related party purchase transactions were the same as those of other unrelated vendors.

3. Receivables

Accounts Types of related parties December 31,

2018 December 31,

2017 Accounts receivable Associates $ 60,233 67,984 Other receivables Associates 9,793 9,237 Other receivables Other related parties 4 6

$ 70,030 77,227

4. Payables


2018 December 31,

2017 Other payables Associates $ 4,976 3,998 Other payables Other related parties 4,548 126

$ 9,524 4,124

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5. Other

For the Year Ended December 31

2018 2017

Associates Rental income $ 5,235 5,187 Other revenues 17,809 18,413

Security service fees (23,978) (23,863) Other related parties

Rental income 4 28 Other revenues 1,043 1,074

Other expense (882) (2,967) Rental expense (4,814) (4,880)

Please refer to Note 6 h. for lease of land and buildings to related parties.

6. The Company had contracts with one of other related parties, for building constructionprojects. The land is provided by the Company and the related party is responsible fordesigning, constructing, sales and warranties. The Company pays constructionalmanagement fee on the basis of contract, and the related party pays the actual expendituresfor every single month. As of December 31, 2018, no constructional management fee ispaid by the Company.

7. The Company had contracts with BES Engineering, for mechanical engineering servicesprojects and paid commission on the basis of actual construction. As of December 31, 2018and 2017, the construction project in-progress amounted to $1,532,800 thousand and$1,377,800 thousand, respectively. As of December 31, 2018 and 2017, the unpaid feesamounted to $1,376,787 thousand and $1,102,240 thousand, respectively. The refundabledeposit at December 31, 2018 and 2017 both amounted to $22,850 thousand.

8. The Company had contracts with Capital Machinery, for mechanical engineering servicesprojects and paid commission on the basis of actual construction. As of December 31, 2018and 2017, the construction project in-progress amounted to $17,700 thousand and $13,769thousand, respectively. As of December 31, 2018 and 2017, the unpaid fee amounted to$14,497 thousand and $11,809 thousand, respectively.

d. Key management personnel compensation


Short-term employee benefits $ 257,498 229,601 Post-employment benefits 7,533 741

$ 265,031 230,342

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8. PLEDGED ASSETS

The Consolidated Company pledged assets are as follows:

As of December 2018 and December 31, 2017, the consolidated Company provided the followingassets and other items as a comprehensive credit contract and other purposes of the collateral.

Asset Purpose of pledge December 31,

2018 December 31,

2017 Time deposits Guarantee for purchases, collateral for long-term and short-

term financial credit $ 10,038 10,037

Property, plant and equipment Collateral for long-term and short-term financial credit, United guarantee amount of convertible Bond

4,453,343 4,806,666

Investment property United guarantee amount of convertible Bond 5,995,969 11,703,324 Investments accounted for using equity method

Long-term bills payable 1,378,279 1,043,709

Available-for-sale financial assets – non-current

Long-term bills payable - 1,008,300

Financial assets reported at fair value through other comprehensive income

Long-term bills payable 915,400 -


Long-term bills payable 477,405 426,420

Refundable deposit Deposit for lawsuit 91,557 91,557 Use Right of Sea Areas Collateral for long-term financial credit 625,190 531,339

$ 13,947,181 19,621,352

As of December 31, 2018 and 2017, 4,000 thousand shares of a subsidiary of the Consolidated Company were pledged as collateral for long-term bills payable.

9. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

a. As of December 31, 2018 and 2017, the Consolidated Company had the following unused lettersof credit:

December 31, 2018

December 31, 2017

USD $ 43,631 43,950 NTD 1,095,000 958,000 RMB 32,264 -

b. As of December 31, 2018 and 2017, the Consolidated Company had issued guaranty notes forbank loans, issued Euro-Convertible Bond (ECB), sales and purchases, and development planaggregating to $13,748,669 thousand, US$20,000 thousand and $12,898,200 thousand,US$28,219 thousand, respectively.

c. At December 31, 2018 and 2017, the Consolidated Company had contracts for variousconstruction projects in-progress amounting to $8,511,323 thousand and $6,752,113 thousand,respectively. As of December 31, 2018 and 2017, the remaining future obligations under thesecontracts amounted to $4,219,235 thousand and $3,911,582 thousand, respectively.

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d. As of December 31, 2018 and 2017, the Company signed an agreement to purchase rawmaterials such as benzene, hydrogen and methylbenzene from Chinese Petroleum Corporation(CPC). Under this contract, the Company may purchase specified monthly volume of these rawmaterials at current month prices announced by the Chinese Petroleum Corporation withprepayment or domestic letter of credit.

e. Important matters

1. Land tax

(1) The Company successively received notice by the tax offices in September 2005 thatthe land tax of the training center in Cianjhen will be changed to another rate since 2000. The Company questioned the applicability of the law, thus, filed for the relevant administrative appeal procedures pursuant to article 35 of Tax Collection Act, which was rejected by the Supreme Administrative Court. The Company paid fully for the land tax which was mentioned in previous and was filed for the administrative appeal, in accordance with the law.

(2) On the other hand, the Kaohsiung tax authority was against the land tax which was mentioned in previous and was filed for the administrative appeal and prohibited the registration of parts of the Company’s land pursuant to paragraph 1 of article 24 of Tax Collection Act. The prohibition was cancelled in January 2011.

(3) All lands located in No.356, Xiande section, Qianzhen Dist., Kaohsiung City 806 including 20 parcels of land and No. 4 Xingbang section including 14 parcels of lands were announced as “Soil Pollution Control Site” and “Site soil pollution remediation” by Kaohsiung City Government pursuant to Soil and Groundwater Pollution Remediation Act (hereafter refer as Remediation Act), which resulted in all lands of the Company being unable to be used. In accordance with article 12 of Land tax relief rules, the Company applied for land tax relief and review of 2009, 2010, 2011, 2012, 2013 and 2014 respectively, Kaohsiung taxing authority replied that it didn’t match with the regulation and issued the tax bill. The Company filed the administrative appeal, which was rejected and determined in 2009, 2010, 2011, 2012, 2013 and 2014. The Company asked the judges for explanation after collecting the relevant information.

2. Case of Kaohsiung gas explosion forced disconnected pipeline

On July 31st 2014, there was an underground pipeline explosion incident in Kaohsiung city.Due to the post - disaster reconstruction project, Kaohsiung City Government issued apenalty letter No. 10335137100 on August 18th 2014 to order, the Company was forced tostop operations and prohibited the use of all petrochemical pipelines in the disaster area.The Company was not satisfied with the preceding penalty and filed a legal petition to theAdministrative court for revoking the original claims for petition remedy in Sept. 2014. Thecase was rejected by the Kaohsiung High Administrative Court, which the Company wasnot satisfied with. Hence, the Company submitted an appeal in Feb. 2017.

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3. Abolishment of the permission for Kaohsiung road and underground pipeline excavationand pipeline

Due to the August 1st Kaohsiung gas explosion, the Kaohsiung City Government Bureau of Water Resources issued the letter to Refining Division of CPC: abolishing the permission letter No. 950129 issued on Dec. 15th, 1990 and permission letter No. 050076 issued on April 13, 1991, and prohibited the roads for underground pipeline excavation and pipeline use. Since the pipeline prohibited for use belonged to the Company and assigned CPC to build, the Company, as the interested party, filed a petition to the Kaohsiung City Government to revoke the original punishment, which was rejected by Kaohsiung City Government Appeal Committee on Feb. 16th 2015. The Company filed the administrative legal action to Kaohsiung High Administrative Court in April 2015. Through the rejection sentenced by Kaohsiung High Administrative court in March 2017, the Company was unsatisfied with and proposed for the appeal in April of the same year. The supreme administrative court rejected the appeal in May 2018 and the case was closed.

4. Damage of Kaohsiung gas explosion

The above mentioned cases of Kaohsiung gas explosion and abolishment of the permission for Kaohsiung road and underground pipeline excavation were concerned with being legally forced to suspend by administrative executives, which were eligible for damage indemnity. For the interests of the Company, the Company filed the administrative legal action to Kaohsiung High Administrative Court in February 2018.

5. Equity trading dispute

The resolution, implementation of a signed tripartite supplemental agreement between the Company and PPG&GGC (which had been merged as Axiall company now), from the Company’s board meeting on April 21st 2016: trading the equity of Taiwan Chi chlorine Chemical Co., Ltd, total 6,400,000 shares at the sales price, US$100,000 thousand, which was equivalent to NT $ 3,225,000 thousand. After the expectation of the disposal interests, NT$2,838,761 thousand, the Company instantly informed Axiall company to carry out the equity trading of Taiwan Chi chlorine Chemical Co., Ltd. The Company issued the letter many times to ask Axiall to implement the agreement, however, Axiall repeatedly delayed actions. Hence, the Company filed the arbitration to American Arbitration Association in August 2016. Axiall submitted the pleadings in Sept. 2016 and asked PPG to participate in the lawsuit. Outside lawyers of PPG, in the Oct. of same year, represented that PPG is willing to negotiate the contract of equity trading. PPG signed the contract with the Company at the end of February 2017 and handled the equity transactions subsequently. The Company had received US$100,000 thousand in April of the same year and transferred the stock to finish the transaction. However, Axiall continued to be arbitrated against related claims such as the interest.

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f. Contingent liabilities

1. The Company signed total three areas of land lease contracts with Kaohsiung branch ofTaiwan International Ports Corporation, Ltd. In December 2013 and February 2014. TheKaohsiung Port Intercontinental Container Center 2nd Phase Project Petrochemical OilStorage and Transportation Center S12 S15 Pier Post line Land was leased and theCompany invested to build the construction of petrochemical oil storage and transportationfacilities for the purpose of import and export and transport of petrochemical oil handling,storage and transportation etc... Kaohsiung branch of Taiwan International PortsCorporation, Ltd. delivered the land to the Company prior to the end of Dec. 2017. Theterm of the lease was 25 years from the date of delivery and the Company had the right torenew the lease at the end of the period. Per the contract, the Company had to pay rent ofNT$1,650 thousand, NT$2,565 thousand, and NT$1,493 thousand respectively since theland was delivered. From the land delivery date of 3 years 6 months, the Company paidmanagement fees of, NT$10,654 thousand, NT$24,605 thousand and NT$12,329 thousandrespectively. The Company also placed Certificate of Deposits of NT$5,000 thousand andNT$13,000 thousand as performance bonds in December 2013 and February 2014respectively. The Company, in August 2015, shortened the operating scale based on theadjustment of investment plan, which resulted in one of the performance bonds ofNT$8,000 thousand, to not being able to be returned. Taiwan International PortsCorporation, Ltd. completed the transaction procedure prior to Nov. 2017. The Companystarted to implement land drilling and geological improvement project and started payingthe land rent of those projects, which was NT$1,650 thousand and NT$1,493 thousandrespectively each year.

2. Dispute from the senior manager

(1) Labor Dispute

The previous senior manager, who left the Company without transferring the duties and authorization, didn’t perform the duties since July 1st 2013 and the Company issued the letter to request to fulfill the agreement without any response from manager. Hence, the board of the Company dismissed the manager in October 2013. The manager asked the Company to pay pensions pursuant to Labor Standards Act as a labor worker, which was not reconciled through mediation.

The Civil litigation of Mr. Liu was filed in Taipei District Court and Kaohsiung District Court respectively in January 2014. Taipei District Court, in August 2015, considered that the contract of senior manager was ended for both side, and Expired Employee Retirement Policies of the Company is applicable, the Company shall pay NT$4,572 thousand to Mr. Liu. The Company was not satisfied with the original verdict and appealed for the 2nd sentence court. The 2nd sentence court sentenced to reject request from the Company in March 2017. The Company was not satisfied and proposed the appeal in April of the same year, which was under remedy trial in the Supreme Court.

- 235 -

For the part of Mr. Zhang, Kaohsiung District Court considered that the assigned relationship did not end, which means that the Expired Employee Retirement Policies of the Company does not apply. Mr. Zhang request for pension is without any basis, but according to the contract of both side, the Company shall pay salaries of NT$35 thousand, to Mr. Zhang, which was not satisfied by Mr. Zhang and this case was appealed to the 2nd sentence court. In July 2016, the 2nd sentence court rejected the request from Mr. Zhang but he re-appealed to the 3rd sentence in August of the same year.

(2) Disclosure Secret Case

Managers who left the office without authorization was suspected to be involve in business encroachment, theft of business secrets. To protect Company interests, the Company filed criminal appeal. The case was concluded by the Taiwan Miaoli Local Court in January 2017 and the relevant defendants were prosecuted. The civil litigation derived from the case is waiting for hearing by the Taipei District Court and Miaoli District Court. The supreme administrative court rejected the appeal in June 2018. Please refer to Note8 for details of deposit for lawsuit.

3. Accusation of business failures

A Gas explosion happened in Heng Yi chemical plant next to the Toufen plant and caused workers to be burned on Jan. 28th 2013, which evolved into accusations of business failures. Since the incident happened in the public discharged area of the industrial site, it was suspected to contain excessive value of the company's emissions with the sampling identification and the Company’s manager was prosecuted as defendant per the victim’s request. This case was not prosecuted after the judgment decision from Miaoli District Attorney, hence, the victims filed the reconsideration and Taichung High Prosecutor's Office remanded the case back to the Miaoli District Attorney for review. The victims of Heng Yi chemical plant only prosecuted the Company and managers in Feb. 2015 and asked for the joint damaged compensation NT$6,920 thousand, which awaits hearing by Miaoli local court. In September of the same year, both sides agreed to withdraw the litigations. Trial procedure was recovered in Feb. 2016 and criminal litigation was determined not to be prosecuted in March 2016. The verdict of civil litigation was won in March 2016, with the formal decision awaiting final judgment. The Company proposed the appeal for remedy focus on the unsatisfied parts. This case was under hearing in High Court Taichung Branch currently.

4. Contract Fraud of Shanghai industry

On August 6th 2014, the reinvestment company, Weihua and Weiqiang, filed the civil appeal to Yangpu District Court to ask Coal Chemical Group Co., Ltd of shanghai industry to pay all overdrafts of the contract. However, Coal Chemical Group Co., Ltd of shanghai industry didn’t perform the first phase of repayment according to Court’s mediation report, Weihua and Weiqiang, on Sept. 2nd 2014, applied to Yangpu District Court for the enforcement and sealed all coal tar of Coal Chemical Group Co., Ltd of shanghai industry, the total coal tar sealed was 5,216 tons and 4,777 tons were sold. Subsequently, Weihua and Weijiang Company and Coal Chemical Group Co., Ltd of shanghai industry would continue negotiations on unrealized creditors and requested Coal Chemical Group Co., Ltd

- 236 -

of shanghai industry to propose the more specific repayment plan. Weihua and Weiqiang estimated depreciation of the accounts receivable to be, RMB19,274 thousand and RMB8,276 thousand respectively. Besides, Weihua and Weijiang Company reported to the police the relevant persons of Coal Chemical Group Co., Ltd of shanghai industry that are suspected to be involve with the contract fraud and other criminal matters. The police rejected the report due to insufficient evidences, therefore Weihua hired a local lawyer to assist with Shanghai police and Shanghai economics investigation group. The case is now under investigation.

5. The Company reinvested in China Gemini Development Co., Ltd. in conjunction with theChinese engineering company to apply for selection "C1, D1 joint development investmentcase”. Since Taipei City Express Bureau issued the letter without expectation in requiringthe Company to open financing guarantee report of development funds within 30 days andother unreasonable validation conditions, resulted in the Taipei City Government using thereason of the China Gemini Development Co., Ltd. team being unable to sign the contractin the specified period, thus unilaterally announced the annulment. Based on this issue,China Gemini Development Co., Ltd. filed a petition and request for administrativeremedies to the Ministry of Communications and High Administrative Court., which wasunder hearing and was rejected by Supreme Administrative Court in August 2017. Thiscase was closed.

6. Petition for Violation of gender equality law

Mr. Wu was an employee of the China Paint Material Corporation, the Company’s reinvested subsidiary, and was assigned to perform the duties in China. But later he asked for leave without complying with the Company’s regulation and left the position for more than three days, hence, the labor contract was terminated. The employee applied to Taipei City Government for the labor dispute mediation as the reason that the Company violated the gender equality law. After the mediation of Taipei City Government, China Paint Material Corporation was considered to violate the gender equality law and was sentenced to pay the penalty of NT$300 thousand on August 27th 2015. China Paint Material Corporation was not satisfied with the judgment and filed a petition to Labor Department of the Executive Yuan. The Labor Department of the Executive Yuan decided the original punishment withdrawn and did the other punishment in March 2016. The Company was filing the administrative remedy to the new punishment. A statement was made in advance in April of the same year. After the Taipei city government maintained the original punishment, it filed another petition in September of the same year. The Company’s petition was rejected by Appeal committee in June 2017 so that the Company proposed the administrative legislation in August of the same year per law, which was been ruling to prevail by Taipei supreme administrative court. The case was closed.

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7. civil compensation for Residents living in An shun

(1) The 1st case

In 2008 and 2009, Mr. Wu and others filed civil and national compensation lawsuit to the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company (Hereinafter referred to as 1st case of Tainan An shun plant civil compensation) and they claimed that during 1942 and 1983, the previous Taiwan Alkali Co. Ltd. An-shun plant, produced mercury and dioxins in its production operations and polluted the living environment, which resulted in the population consuming contaminated fish and shellfish over time, which resulted in long term health issues. The Ministry of Economic Affairs had control and management responsibility of the previous Taiwan Alkali Co. Ltd, and whether due to illegal actions, or a lack of attention in performing their duties, the Ministry of Economic Affairs as the ultimate employer of the chairman of CPDC, should take responsibility. Hence, the prosecutors claim that the Ministry of Economic Affairs shall take the responsibility for the compensation. Mr. Wu and others also claimed that Tainan City Government and Tainan City Environmental Protection Agency were the competent authorities and executive authorities of the waste disposal law but the authorities didn’t supervise and require the An-shun plant to implement pollution prevention and control acts, thus should be jointly responsible for any re-compensation. Also, Mr. Wu and others claim that the Company did not perform any removal and remediation of pollutants after being ordered to merge with the previous Taiwan Alkali An-shun plant, so they claimed the Company shall also take joint responsibility on the compensation. Mr. Wu and others asked the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company to jointly bore the cost of medical expenses and mental compensation for NT$370,800 thousand and the interest was calculated by an annual interest rate 5% from the date when the litigation was initiated by the defendants until the final payment of compensation. Due to unpaid referee fees, due from the plaintiff, the Tainan District Court rejected the litigation claims from these 17 persons in January 2010. Mr. Chen appealed to the Tainan District Court asking the Company for medication, health examination fee and reparations, to the amount of NT$2,300 thousand, which was incorporated into this case, the total compensation amount was NT$351,750 thousand. This case was tried by the Tainan District Court in December 2015 and judged that the Company and the Ministry of Economic Affairs to be jointly responsible for NT$160,000 thousand payable to the plaintiff. The Company was not satisfied with the result and filed an appeal. In August of 2017, the High court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand by self, which the Company was not satisfied with and had proposed the appeal for remedy in Sept. of the same year. The supreme court held oral argument on September 28, 2018, and judgment was sentenced on November 11, 2018, the supreme court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand. The Company made a payment of compensation and related interests to 143 plaintiffs before the end of January 2019. The part related to medical remedy of the case was abandoned for secondary trial.

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(2) The 2nd case

Mr. Chen and others filed civil and national compensation lawsuit to the Company and the Ministry of Economic Affairs on March 14th 2017 (Hereinafter referred to as 1st case of the Tainan An-shun plant civil compensation), they claimed the Company and the Ministry of Economic Affairs had to jointly compensate the plaintiff NT$80,915 thousand. The verdict of the 3rd national compensation in 2008 of the Tainan An-shun plant civil compensation 1st case was cited as the reason to be litigated. However, the Company claimed that there was a misunderstanding of the theoretical and practical nature of epidemiology causality versus the verdict and the infringement that may be created. There were disputable factors on both factual and legal matters. During the 1st and 2nd instance of the An-shun plant Civil Compensation litigation under hearing, the Company once again put forward the relevant academic articles to prove that there was no causality between pollution from Tainan An-shun plant and diabetes. Moreover, the plaintiffs in this case, despite the reasonableness of their claims, did not put forth any litigation before the expiry of the statutes of limitations. Thus, in this 2nd case of the Tainan An-shun plant civil compensation, the Company continued to seek for the jurisdiction remedies to protect the Company and shareholder interests.

g. The Company leases plant assets, and vehicles for operating uses. The lease payment was$71,422 thousand and $51,705 thousand for the year of 2018 and 2019. The expected leastpayments for future are as below:

Year Amounts 1 year $ 69,049 1~5 years 75,082 5 years above 163,171

$ 307,302

10. Major disaster losses: None

11. Significant matters after the event

a. On March 11, 2019, the Company invested in Core Pacific City Co., Ltd by issuing 123,528thousand preferred shares amounting to NT$1,235,278 thousand.

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12. OTHER

a. The nature of operating costs and expenses were as follows:

By function For the year ended December 31,2018 For the year ended December 31,2017

By nature Operating

cost Operating

expense Non-Operating

expense Total

Operating cost

Operating expense

Non-Operating

expense Total

Employee benefit Salary 1,147,548 693,924 246 1,841,718 1,160,832 493,348 - 1,654,180 Health and labor insurance 93,076 46,408 - 139,484 89,638 32,891 - 122,529 Pension 45,132 22,761 - 67,893 45,317 12,681 - 57,998 Others 29,380 12,591 - 41,971 29,375 10,970 - 40,345

Depreciation 1,163,078 195,640 5,969 1,364,687 1,118,095 103,058 13,308 1,234,461 Depletion - - - - - - - - Amortization 5,199 14,337 - 19,536 4,956 14,712 - 19,668

13. OTHER DISCLOSURE

a. Information on significant transactions

The following is the information on significant transactions required by the “RegulationsGoverning the Preparation of Financial Reports by Securities Issuers” for the Group:

1. Loans to other parties:(In Thousands of New Taiwan Dollars)

Number Name of lender Name of

borrower Account

name Related

party

Highest

balance of

financing

to other

parties

during the

period Ending

balance

Actual

usage

amount

during the

period

Range of

interest

rates

during

the

period

Purposes of

fund

financing

for the

borrower

Transacti

on

amount

for

business

between

two

parties

Reasons

for short-

term

financing Loss

allowance

Collateral

Individual

funding

loan limits

Maximum

limit of

fund

financing Item Value 1 Core Pacific Twin

Star (Myanmar)

Investment

Company Ltd

Core Pacific

Pioneer

(Myanmar)

Company

Ltd

Other

Receivable

Yes 7,069 7,069 7,069 0 2 - Operating - - 67,613 67,613

Note 1: Numbering nature of borrowing as follows:

Transaction for business between two parties－1

Short-term financing－2

Note 2: The financing limit was 40% of Core Pacific Twin Star (Myanmar) shares.

Note 3: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statements.

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2. Guarantees and endorsements for other parties:(In Thousands of New Taiwan Dollars)

No

Name of

guarantor

Counter-party of guarantee

and endorsement

Limitation on

amount of

guarantees and

endorsements

for a specific

enterprise

Highest balance

for guarantees

and

endorsements

during the

period

Balance of

guarantees and

endorsements

as of reporting

date

Actual usage

amount during

the period

Property pledged

for guarantees and

endorsements

(Amount)

Ratio of

accumulated

amounts of

guarantees

and

endorsements

to

net worth of the

latest

financial

statements

Maximum

amount

for guarantees

and

endorsements

Parent

company

endorsements/

guarantees

to third parties

on

behalf of

subsidiary

Subsidiary

endorsements/

guarantees

to third parties on

behalf of parent

company

Endorsements/

guarantees

to third parties

on

behalf of

companies

in Mainland

China Name

Relationship

with the

Company

1 Changzhou

Huijie new

material Co., Ltd

Changzhou

Suhwen

environmental

habitant

construction

Co., Ltd

6 280,320 280,320 280,320 - - 0.42% 280,320 N N Y

Note 1: The information of guarantees and endorsements for other parties of the Company and its subsidiaries are disclosed separately and numbering as follows:

Parent company－0

Subsidiary starts from 1

Note 2: Seven types of the relationship between Counter-party of guarantee and endorsement as follows:

Transaction for business between two parties

The Company directly or indirectly holds over 50% of voting rights of shares of entities

The entities directly or indirectly hold over 50% of voting rights of shares of the Company

The relationship between entities which are all held over 90% of voting rights of shares of these entities by the Company

Mutual guarantees or endorsements in accordance with contracts

The entities are proportionally endorsed by all shareholders from mutual investments

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3. Securities held as of December 31, 2018 (excluding investment in subsidiaries, associatesand joint ventures):

(In Thousands of New Taiwan Dollars) Ending balance

Name of holder

Category and name of security

Relationship with company Account title

Shares/Units (thousands)

Carrying value

Percentage of ownership

(%) Fair value Note CPDC Yuanta Financial

Holdings None Financial assets

designated at fair value through profit or loss－current

30,938,819 478,005 0.26 478,005

Yuanta/P-shares SSE50 ETF

None 〞 10,313,000 267,932 - 267,932

Guotai A50 ETF None 〞 16,378,000 271,056 - 271,056BES Engineering Co. The Company is a

director of the investee company


149,243,449 1,062,613 9.75 1,062,613

CHINA DEVELOPMENT FINANCIAL HOLDING CORP.

None 〞 44,684,712 434,335 0.30 434,335

Handy Chemical Corparation .ltd

The Company is a director of an investee company

〞 407,000 1,461 4.52 1,461

Overseas Investment & Development Corp

None 〞 2,600,000 26,000 2.89 26,000

Core Pacific City Co., Ltd.

Same board with the company

Financial assets designated at fair value through profit or loss－non-current

298,723,070 3,248,545 20.92 3,248,545

Praxair Chemax Semiconductor Materials

The Company is a director of the investee company


9,455,778 438,920 49.00 438,920

ZOWIE Technology Corporation

〞〞 8,815 358 0.03 358

showroom Electronics Co., Ltd.

〞〞 41,670 - 0.21 -

Aetas Technology Inc. 〞〞 287,961 - 0.58 -Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd

Taiwan Business Bank None Financial assets at fair value through other comprehensive income－current

24,311,960 251,629 - 251,629




160,111,000 1,612,729 11.21 1,612,729

Jiangsu Weiming Petrochemical Corporation

Yuntong wealth increasing profits

None Financial assets designated at fair value through profit or loss-current

- 135,307 - 135,307

- 242 -

Ending balance

Name of holder




Carrying value


(%) Fair value Note Tsou Seen Chemical Industries Corporation

TAIWAN TEA CORPORATION


Financial assets designated at fair value through profit or loss-current

9,618,000 148,598 1.22 148,598

Good Company 〞 Financial assets at fair value through other comprehensive income－non-current

750,000 - - -

TaiRx, Inc. 〞〞 850,000 14,652 - 14,652 〞 Total 8,392,140 8,392,140

4. Individual securities acquired or disposed of with accumulated amount exceeding the lower ofNT$300 million or 20% of the capital stock:

(In Thousands of New Taiwan Dollars)

Name of

company

Category and

name of

security

Account

name

Name of

counter-

party

Relationship

with the

company

Beginning Balance Purchase Sales Ending Balance

Shares Amount Shares Amount Shares Price Cost

Gain (loss)

on

disposal Shares Amount

The Company Securities sold

under

repurchase

agreements

Cash

equivalents

Taching Bills

Finance Co.,

Ltd.

None - 190,000 - 20,079,547 - 19,470,362 19,470,362 - - 799,185

Mega Bills

Finance Co.,

Ltd.

〞 - 261,966 - 7,230,860 - 7,122,795 7,122,795 - - 370,031

International

Bills Finance

Co., Ltd.

〞 - - - 9,215,159 - 8,685,335 8,685,335 - - 529,824

China Bills

Finance

Corporation

〞 - 809,672 - 20,232,382 - 20,372,015 20,372,015 - - 670,039

ETF Financial

assets at fair

value through

profits or losses－

current

Yuanta/P-

shares SSE50

ETF

〞 9,091,000 249,590 10,313,000 289,332 9,091,000 328,531 249,590 78,941 10,313,000 289,332

5. Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% ofthe capital stock: None.

6. Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% ofthe capital stock: None.

- 243 -

7. Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100million or 20% of the capital stock:


Name of

company Related party Nature of relationships

Transaction Details

Transactions with

terms different

from others

Notes/Accounts receivable

(payable)

Note

Purchase/

Sale Amount

Percentage of

total

purchases/sales

Payment

terms

Unit

price

Payment

terms

Ending

balance

Percentage of

total

notes/accounts

receivable

(payable)

The Company Tsou Seen Chemical

Industries Corporation

Subsidiary Sales (1,188,874) 3% 3

Month

- OA 90

days

65,945 3% (Note)

Weihua (Rudong)

Trade Co., Ltd

Sub-subsidiary Sales (397,722) 1% 3

Month

OA 90

days

5,423 -% 〞

Weiqiang International

Trade (Shanghai) Co.,

Ltd.

Sub-subsidiary Sales (111,863) - % 3

Month

OA 90

days

112,586 4% 〞

Kaohsiung Monomer

Company Ltd

Affiliated company

accounted for using equity

method

Sales (644,031) 2% 1

Month

- 60,233 2%

Chemax International

Corp.

Subsidiary Sales (102,962) - % 1

Month

OA 30

days

- -% 〞

Note: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statements.

8. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% ofcapital stock:

Name of

company Related party

Nature of

relationship

Ending

balance

Turnover

days

Overdue Amounts

received in subsequent

period (Note 1)

Allowance

for

bad debts Amount

Action

taken The Company

Weiqiang International Trade (Shanghai) Co., Ltd.

Sub-subsidiary 112,586 1.99 - - 107,535 -

Note: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statement

9. Trading in derivative instruments: Please refer to notes 6

10. Business relationships and significant intercompany transactions:(Amounts in Thousands of New Taiwan Dollars)

No.

(Note 1) Name of company Name of counter-party

Nature of

relationship

Intercompany Transactions

Account name Amount

Trading

terms

Percentage of the

consolidated net

revenue or total

assets

0 The Company Weihua (Rudong) Trade Co., Ltd

(Weihua)

1 Sales revenue 397,722 OA 90 days 1.03%

0 The Company Tsou Seen Chemical Industries Corporation(TSCIC)

1 Sales revenue 1,188,874 OA 90 days 3.09%

0 The Company Chemax International Corp. (CIC)


0 The Company Weiqiang International Trade

(Shanghai) Co., Ltd.

(Weiqiang)


- 244 -

No.


Nature of

relationship


Account name Amount

Trading

terms

Percentage of the

consolidated net

revenue or total

assets

0 The Company CPDC Green Technology Corp. (CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

1 Repair expense 238,291 Base on contract

0.62%

1 Weihua (Rudong) Trade Co., Ltd

(Weihua) The Company Cost of goods sold 397,722 OA 90 days 1.03%

2 Tsou Seen Chemical Industries Corporation(TSCIC)

The Company 2 Cost of goods sold 1,188,874 OA 90 days 3.09%

3 Chemax International Corp. (CIC)

The Company 2 Cost of goods sold 102,962 OA 30 days 0.27%

4 CPDC Green Technology Corp. (CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

The Company 2 Sales revenue 238,291 Base on contract

0.62%

5 Weiqiang International Trade


(Weiqiang)


Note 1: Company numbering as follows:

Parent company－0


Note 2: The numbering of the relationship between transaction parties as follows:

Parent company to subsidiary－1

Subsidiary to parent company－2

Subsidiary to subsidiary－3

Subsidiary to sub-subsidiary－4

Sub-subsidiary to sub-subsidiary－5

Note 3: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statement

- 245 -

b. Information on investees:

The following is the information on investees for the year 2018 (excluding information on investeesin Mainland China):


Name of investor Name of investee Location

Main businesses and

products

Original investment amount Balance as of December 31, 2018 Net income

(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value

The Company Kaohsiung Monomer

Company Ltd

1,Hsing Kung Road,Ta

She P O Box 6-25

Nantze,Kaohsiung

(815), Taiwan

Methyl Methacrylate

Monomer

- - 20,000,000 40.00% 1,378,279 2,482,675 993,070 Note 1

〞 Zhong gong baoquan

Ltd.

6F., No.12, Dongxing

Rd., Taipei City 105,

Taiwan

Security consultants 14,400 14,400 1,440,000 24.00% 19,598 9,884 2,372 Note 1

〞 Tao Zhu Construction

& Development Co.,

Ltd.



Taiwan

Commissioned to create

a vendor to build the

housing, commercial

buildings and plant

rental business,

management of land

development and

playgrounds and other

related business

investment

100,000 100,000 10,000,000 100.00% 76,412 (1,924) (1,924) Note 2

〞 Chemax International

Corp.



Taiwan

Announcement energy

products besides

petroleum chemical

products, electronic

chemicals variety of

industrial gases, gas

mixtures and other

- 145,000 - -% - 19,800 19,800 Note

2&5&6

〞 CPDC Investment

(BVI) Co Ltd.

Citco Building,

Wickhams Cay, P.O.

Box662

Holding company 904,946 904,946 26,580,000 100.00% 931,828 (105,703) (105,703) Note 2&4

〞 Tsou Seen Chemical


No.1, Jingjin Rd.,

Fangliao Township,

Pingtung County 940,

Taiwan

Dicalcium phosphate 760,000 550,000 96,000,000 100.00% 1,610,294 173,826 173,826 Note

2&5&6

〞 CPDC Green

Technology Corp.

(Original name: CPDC

Engineering Co., Ltd.)

14F.-16, No.61, Wufu

3rd Rd., Qianjin Dist.,

Kaohsiung City 801,

Taiwan

Mechanical engineering 100,000 100,000 15,000,000 100.00% 140,183 (20,983) (20,983) Note 2&5

〞 Rich Equrties Ltd. Level3,Alexander

House,35

Cybercity,Ebene,

Mauritius

Holding company 5,996 5,996 180,000 100.00% 5,254 45 45 Note 2&4

〞 Unichem Development

Limited

Room 511, 5/F, Tower

1 Silvercord 30 Canton

Road TSIM SHA

TSUI KOWLOON

Holding company 5,894,124 3,961,611 191,477,752 100.00% 5,223,987 (94,327) (94,327) Note

2&4&5

〞 Chung Hua Shuang Tzu

Hsing Kai Fa Co.,Ltd.



Taiwan

Real estate investment

and development

2,000,000 2,000,000 200,000,000 90.87% 2,395,160 (25,603) (23,266) Note 2&5

〞 Cong Ty Tnhh Dau Tu

Xay Dung Thanh Phong

338/18, Anyang Wang

Road , the fifth county

of Ho Chi Minh City,

Vietnam

Engaged in

construction, real estate,

building constructional

consulting, lease

equipment and

wholesale of building

materials

609,347 - 458,637,500,00

0

97.87% 607,203 8,615 8,431 Note

2&4&5

CPDC Investment (BVI)

Co Ltd.

Core Pacific Overseas

Holdings Ltd

Akra Bldg., 24 De

Castro Street,

Wickhams Cay I, Road

Town,Tortola,British

Virgin Islands


- 246 -


Main businesses and

products


(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value

Tao Zhu Construction &


Da-ying Construction

Ltd.

10F.-5, No.51, Fuxing

Rd., Taoyuan Dist.,

Taoyuan City 330,

Taiwan

Engineering,

construction contracting

business

22,500 22,500 - 100.00% 24,628 (107) (107) Note 2&3

Tsou Seen Chemical


Taivex Therapeutics

Inc.



Taiwan

Engaged in

biotechnology,

pharmaceutical research

and development and

marketing

462,246 462,246 46,224,551 91.10% 384,867 (76,894) (7,051) Note 2

Chung Hua Shuang Tzu


Frontier Fortune

Investment Pte. Ltd.

112 ROBINSON

ROAD

#05-01 ROBINSON

112

SINGAPORE (068902)

Holding company 180,817 6,036 200,000 100% 169,919 (9,781) (9,781) Note 2&4

Frontier Fortune


Core Pacific Twin Star

(Myanmar) Investment

Company Ltd

NO.153/Ka,Kyun Shwe

Mmyaing Lane (2) ,23

ward,

Thingangyun Townshin

Yangon

Engineering,


business

169,921 5,355 5,500,001 100% 162,704 (5,622) (5,622) Note 2&4



Company Ltd

Core Pacific Pioneer

(Myanmar) Company

Ltd

NO.153/Ka,Kyun Shwe


ward,


Yangon

Building construction,

real estate management,

development and sale

12,355 - 400,000 80% 11,627 (466) (378) Note 2&4

14,067,811 2,119,773 822,810

Note1: The Company adopts the equity method to evaluate the investment company.

Note2: The Company has direct or indirect control of the invested company. If the invested company has direct or indirect control, it shall expose the relevant information of the following 2 to 10 transactions of the investee company.

Note3: Limited company expressed by the amount of capital, no shares issued.

Note4: The original investment amount is the foreign currency, at the prevailing exchange rate.

Note5: This transaction has been written off when the consolidated statement has been prepared.

Note6: The Company re-structured the business organization on August 1 2018, which was a combination of Chemax and Tsou Seen, Chemax was dissolved company and Tsou Seen was continuing company.

- 247 -

c. Information on investment in mainland China:

1. The names of investees in Mainland China, the main businesses and products, and otherinformation:

(Amounts in Thousands of New Taiwan Dollars)

Name of investee

Main businesses and

products

Total amount

of

paid-in capital

Method of

investment

(Note1)

Accumulated

outflow of

investment

from

Taiwan as of

January 1, 2017

Investment flows Accumulated

outflow of

investment

from

Taiwan as of

December

31, 2017

Net income

(losses) of the

investee

(Note 2)

Percentage

of

ownership

Investment

income (losses) Book value

Accumulated

remittance of

earnings in

current

period

Out-

flow

In-

flow

Weihua (Rudong)

Trade Co., Ltd

(Weihua)

Engaged in trading of

petroleum chemical




mixtures and other

manufacturing sub-fitted

trading

763,460 (b)、(c) 763,460 - - 763,460 24 100.00% 24 486,683 -

Weiqiang

International Trade


(Weiqiang)


petroleum chemical




mixtures and other


trading.

211,560 (a)、(c) 119,300 92,260 - 211,560 13,864 100.00% 13,864 120,233 -

Weida (Zhangzhou)

Consultant Service

Co., Ltd. (Weida)

Consultancy 13,171 (b) 13,171 - - 13,171 (428) 100.00% (428) 2,544 -

Jiangsu Weiming

Petrochemical

Corporation

(Weiming)

Petrochemical supporting

facility construction

3,135,734 (a)、(b) 3,743,354 607,620 - 3,743,354 (28,273) 100.00% (28,273) 3,442,445 -

Zhangzhou Weida

Petrochemical Co.,

Ltd

(Weida PC)


petroleum chemical




mixtures and other


trading

30,648 (b) 30,648 - - 30,648 (5,679) 100.00% (5,679) 16,445 -

Kunshan Weiqin

Management

consultant Co., Ltd

(Weiqin)

Management consultant 29,664 (b) 29,664 - - 29,664 (10,048) 100.00% (10,048) 8,632 -

Zhejiang Wedge new

material Co., Ltd

(Wedge)


Synthetic fiber material

31,278 (b) 31,278 - - 31,278 (1,159) 100.00% (1,159) 25,973 -

Changzhou Huijie

new material Co., Ltd

Engaged in engineering

plastic and high valued

petroleum chemical

products

1,860,113 (b) - 1,324,893 1,324,893 (47,176) 100.00% (47,176) 1,128,883

- 248 -

2. Limitation on investment in Mainland China:

Accumulated Investment in Mainland China as of December

31, 2018

Investment Amounts Authorized by

Investment Commission, MOEA

Upper Limit on Investment

6,937,208 9,135,021 Note4

Note1: There are three ways to invest as follows:

(a) The Company direct investment to China.

(b) The Company through third regional company (UDL) investment to China.

(c) Others. (The Company through subsidiary investment to China.)

Note2: In the field “net income (losses) of the investee”:

(a) If it is in preparation, no investment profit or loss, should be explained.

(b) There are three ways to identify the basis of investment profit or loss, should be explained.

(b.1) financial statements audit by international accounting firm with a relationship with Taiwan accounting firm.

(b.2) financial statements audit by the Company’s audit CPA.

(b.3) others.

Note3: The amount in this table should be presented in New Taiwan Dollar.

Note4: The cumulative investment amount or investment proportion to China cannot over the Company’s net value of 60%. The Company got certified documents of operating headquarters issued by Industrial Development Bureau, Ministry of Economic Affairs on October 18, 2018, so not subject to the above regulations. Valid period to October 14, 2021.

3. Significant transactions: None

The significant inter-company transactions with the subsidiary in Mainland China, which wereeliminated in the preparation of consolidated financial statements, are disclosed in “Information onsignificant transactions”.

14. SEGMENT INFORMATION

a. General Information

The Consolidated Company identifies Arylonitrile & acetic acid department and Caprolactamdepartment as reportable segments based on factors such as product types, manufacturingprocedure, customer types, and operating activities.

The reportable segments of the Consolidated Company are independent business units whichoffer different products and services. Each business unit needs different technologies, resourcesand marketing strategies, thus should administer separately. The operating segment has asegment manager who is directly accountable to and maintains regular contact with the chiefoperating decision maker to discuss operating activities, financial results, forecasts, or plans forthe segment.

- 249 -

b. Information for each segment’s revenue / expense, asset, liability, measurement basis , andadjustment

Non-operating income and loss, income tax expense and non-recurring gain or loss is not allocated to reportable segments. In addition, not all of the profit or loss of the reportable segments include significant non-cash items other than depreciation and amortization. Total reportable segments’ profit or loss is reconciled with the continuing operations’ profit or loss before tax.

There was no material inconsistency between the accounting policies adopted for the operating segment and the accounting policies described in Note 2. The Consolidated Company use the operating profit as the measurement for segment profit and the basis of performance assessment. Operating segments’ profit and loss and total assets exclude operating expenses and assets of the corporate management.

Acrylonitrile & Acetic Acid Caprolactam Other

Adjustment and

eliminations Total For the Year Ended December

31, 2018 Revenue Revenues from external

customers $ 12,011,203 23,157,176 3,334,742 - 38,503,121

Revenues from transactions with other operating segments of the same entity

- - 238,291 (238,291) -

Total segment revenue $ 12,011,203 23,157,176 3,573,033 (238,291) 38,503,121

Depreciation and amortization $ ,143,171 1,188,632 52,420 - 1,384,223

Reported segment profit or loss $ 2,808,901 1,211,110 656,939 - 4,676,950

Assets Capital expenditure of non-

current assets $ ,363,188 663,248 3,020,045 - 4,046,481

Segment assets $ 5,173,756 13,500,076 71,031,122 - 89,704,954

Segment liabilities $ 2,868,366 5,527,184 14,118,650 - 22,514,200

For the Year Ended December 31, 2017

Revenue Revenues from external

customers $ 9,665,220 21,092,386 2,578,364 - 33,335,970


- - 170,047 (170,047) -


Depreciation and amortization $ 144,181 974,199 135,749 - 1,254,129

Reported segment profit or loss $ 1,494,922 3,072,505 1,730,294 - 6,297,721 Assets Capital expenditure of non-

current assets $ 103,750 908,463 1,488,189 - 2,500,402

Segment assets $ 4,332,468 14,784,340 62,512,152 - 81,628,960 Segment liabilities $ 2,895,773 5,536,436 10,648,292 - 19,080,501

- 250 -

c. Geographical Areas

The Consolidated Company’s noncurrent assets located overseas are immaterial. Revenues fromdomestic and overseas customers for 2018 and 2017 were as follows:

For the Years Ended December 31 Region 2018 2017

Operating revenue from domestic sales $ 28,747,803 28,467,024 Asia 9,351,505 4,866,496 Other (individual area under 10%) 403,813 2,450 Total operating revenue $ 38,503,121 33,335,970

d. Major Customers

Customers generating over 10% of total revenue for 2018 and 2017 were as follows:

For the Years Ended December 31 Customers 2018 2017

1018 $ 5,502,844 $ 6,434,882 1020 5,259,325 5,133,183 1001 4,799,812 3,646,217 1019 4,675,062 3,914,702 1011 2,868,527 3,844,332

- 251 -

(English Translation of Financial Statements Originally Issued In Chinese) INDEPENDENT ACCOUNTANTS’ AUDIT REPORT


Opinion

We have audited the financial statements of China Petrochemical Development Corporation (CPDC), which comprise the balance sheets as of December 31, 2018 and 2017, the statements of comprehensive income, changes in equity and cash flows for the years then ended, and notes to the financial statements, including a summary of significant accounting policies.

In our opinion, based on our audits and the reports of the other auditors, the accompanying financial statements present fairly, in all material respects, the financial position of the CPDC as at December 31, 2018 and 2017, and its financial performance and its cash flows for the years then ended in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and with the International Financial Reporting Standards (“IFRSs”), International Accounting Standards (“IASs”), interpretations as well as related guidance endorsed by the Financial Supervisory Commission of the Republic of China.

Basis for Opinion

We conducted our audit in accordance with the Regulations Governing Auditing and Certification of Financial Statements by Certified Public Accountants and the auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Financial Statements section of our report. We are independent of the CPDC in accordance with the Certified Public Accountants Code of Professional Ethics in Republic of China (“the Code”), and we have fulfilled our other ethical responsibilities in accordance with the Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis of our opinion.

- 252 -

Emphasis of Matter

As described in Notes 6.h and 6.l of the notes to the financial statements, the Tainan City Government and Environment Protection Administration, the Executive Yuan publicly announced that a portion of the land at the Anshun plant was polluted and designated it as under pollution control. As China Petrochemical Development Corporation (CPDC) never used the land since it took over from its merger with Taiwan Alkali Industrial Corporation (TAIC), CPDC still has a dissenting view on the government perception about the condition of pollution. Aside from cooperating with the government in its control and management procedure, CPDC is seeking a way to define its responsibilities. In addition, CPDC submitted for approval a remediation project proposal to the Tainan City Government in accordance with the related regulations and accrued relevant remediation project expenses in June 2008. This remediation project proposal was approved in May 2009. CPDC also performed related remediation work according to the remediation project proposal. The first phase of remediation project was completed in September 2014. The management of CPDC is expecting that the second phase of remediation project will be completed in the next decade. Likewise, CPDC has accrued relevant remediation project expenses for the second phase of remediation project in December 2014. Our opinion is not modified in respect of this matter.

Other Matter

We have not audited certain investments, which were accounted for under the equity method. The financial statements as of and for the years then ended December 31, 2018 and 2017 of those of the investees accounted for under the equity method were audited by other auditors, whose reports have been furnished to us, and our opinion in so far as it relates to the amounts for the equity method investees were based solely on the reports of other auditors. These investments accounted for under the equity method represented 1.10% and 1.38% of total assets as of December 31, 2018 and 2017, respectively. The related shares of investment income from these investees including subsidiaries, associates and joint ventures accounted for using equity method represented (2.23)% and (0.06)% of consolidated net income before income tax for the years ended December 31, 2018 and 2017, respectively.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were significant in our audit of the financial statements as of and for the year then ended December 31, 2018. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

1. Revenue recognition

Operating revenue is the most important source of cash flow for the CPDC, and it is a significantrisk accounting subject in the financial statements. So revenue recognition is one of the key auditmatters for our audit. Please refer to Note 4“Revenue Recognition” and Note 6 “Revenue” in thefinancial statements.

- 253 -



Testing the CPDC’s internal accounting controls surrounding revenue recognition and keymanual and systems-based controls in the order-to-cash transaction cycle. In addition,checking and reconciling the sales data recorded between the sales systems and general ledger;selecting samples to assess whether appropriate revenue recognition policies are appliedthrough comparison with accounting standards;

Analyzed and compared the sales amounts and volumes for the major customers of the CPDC.Based on samples selected, vouched significant transactions from both internal and externaldocuments, to verify the authenticity of the transactions.

2. Assessment of the fair value of investment property

The book value of investment property of the CPDC represented 45% of total assets as of December31, 2018, which is deemed to be significant. The CPDC evaluate the fair value of investmentproperty according to IAS40, and re-measure such fair value on the reporting date. Because thevaluation of investment property at fair value demands significant professional judgments, theassessment of fair value of investment property is considered one of the key audit matters. Pleaserefer to Note 4 “Investment Property”, Note 5 “Significant Accounting Judgments, Estimation,Assumptions, and Sources of Estimation Uncertainty”, and Note 6.h “Investment Property” of thefinancial statements for details of the information about fair value information on investmentproperty.



Obtain from the CPDC management the real estate appraisal report on investment property;

Engage another appraiser to review such real estate appraisal report, and to evaluate the propriety ofthe evaluation method used, and the reasonableness of its main assumptions or input values (ex.discount rate and final rate of return);

Evaluate the propriety of the disclosure of fair value of investment property.

Responsibilities of Management and Those Charged with Governance for the Financial Statements

Management is responsible for the preparation and fair presentation of the financial statements and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

- 254 -

In preparing the financial statements, management is responsible for assessing the CPDC’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the CPDC or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the CPDC’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. As part of an audit in accordance with auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:

1. Identify and assess the risks of material misstatement of the financial statements, whether due to fraud orerror, design and perform audit procedures responsive to those risks, and obtain audit evidence that issufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatementresulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery,intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that areappropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of theCPDC’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates andrelated disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and, basedon the audit evidence obtained, whether a material uncertainty exists related to events or conditions that maycast significant doubt on the CPDC’s ability to continue as a going concern. If we conclude that a materialuncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in thefinancial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are basedon the audit evidence obtained up to the date of our auditors’ report. However, future events or conditionsmay cause the CPDC to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures,and whether the financial statements represent the underlying transactions and events in a manner thatachieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of the entities or businessactivities within the investees accounted for under the equity method to express an opinion on the financialstatements. We are responsible for the direction, supervision and performance audit. We remain solelyresponsible for our audit opinion.

- 255 -

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent accountants’ audit report are Chen Mei Fang and Chung Tan Tan.

KPMG


- 256 -

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- 257

-

(English Translation of Financial Statements Originally Issued in Chinese) CHINA PETROCHEMICAL DEVELOPMENT CORPORATION

STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2018 and 2017



Amount ％ Amount ％

Operating revenue (Notes 4 and 6 s.) $ 36,969,800 100 32,160,867 100 Operating costs (Notes 4 and 6 d.) 32,624,724 88 27,530,090 86

4,345,076 12 4,630,777 14 Less: Unrealized (profit) loss on intercompany transactions (31,639) - 749 - Add: Realized profit (loss) on intercompany transactions (749) - (1,211) - Gross profit 4,312,688 12 4,630,315 14 Operating expenses

Selling expenses 324,917 1 211,936 1 Administrative expenses 703,708 2 755,511 2 Research and development expenses 266,188 1 191,507 - Impairment loss (impairment gain and reversal of impairment loss) determined in

accordance with IFRS 9 - - - -

1,294,813 4 1,158,954 3 Profit from operations 3,017,875 8 3,471,361 11 Non-operating income and expenses

Other income (Notes 6 u. and 7) 950,933 3 496,269 2 Other gains and losses (Notes 6 k. and 6 u.) (230,055) (1) 1,625,690 5 Finance costs (Notes 6 l. and 6 u.) (52,100) - (176,150) (1)

Share of profit of subsidiaries, associates and joint ventures accounted for using equity 949,617 2 857,571 3 method (Notes 4 and 6 e.) Total non-operating income and expenses 1,618,395 4 2,803,380 9

Income before income tax 4,636,270 12 6,274,741 20 Less: Income tax expense (Notes 4 and 6 o.) 346,001 1 183,085 1 Net income 4,290,269 11 6,091,656 19 Other comprehensive income (loss): Items that will not be reclassified subsequently to profit or loss:

Actuarial loss from defined benefit plans 14,866 - 14,928 - Unrealized gains (losses) from investments in equity instruments measured at fair

value through other comprehensive income (408,318) (1) - -

Share of other comprehensive income of subsidiaries, associates and joint ventures (37,175) - 771 - Allocation of income tax to the above items - - - -

(430,627) (1) 15,699 - Items that may be reclassified subsequently to profit or loss:

Exchange differences arising on translation of foreign operations (95,834) - (98,609) - Changes in fair value of available-for-sale financial assets - - 391,878 1 Unrealized gains (losses) from investments in debt instruments measured at fair

value through other comprehensive income - - - -

Share of other comprehensive income of subsidiaries ,associates and joint ventures - - 47,571 - Allocation of income tax to the above items - - - -

(95,834) - 340,840 1 Other comprehensive (loss) income for the year, net of income tax (526,461) (1) 356,539 1 Total comprehensive income for the year $ 3,763,808 10 6,448,195 20 Earnings per share (NTD) (Notes 4 and 6 q.)

2.55 Basic earnings per share $ 1.59 Diluted earnings per share $ 1.58 2.53

- 258 -

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- 259

-


STATEMENTS OF CASH FLOWS For the years ended December 31, 2018 and 2017


For the years ended December 31, 2018 2017

Cash flows from operating activities: Income before income tax $ 4,636,270 6,274,741 Adjustments to reconcile income before income tax to net cash provided by operating activities:

Depreciation expense 1,202,591 1,191,594 Amortization expense 2,522 525

Profit on Financial assets at fair value through profit or loss (261,643) - Interest expense 52,100 176,150 Loss on reassessment of embedded derivatives at fair value through profit or loss - 920,915 Interest income (164,358) (185,457)

Effect of exchange rate changes on bonds payable - (276,247) Share of profit of subsidiaries, associates and joint ventures accounted for using equity method (949,617) (857,571) Loss on disposal of property, plant and equipment 6,941 465

Gain on disposal of investments - (2,674,417) Reversal of impairment loss on financial assets - (156,062) Impairment loss (reversal of) on non-financial assets 140,104 (22,875) Unrealized profit or loss on intercompany transactions 31,639 (749) Realized gain or loss on intercompany transactions 749 1,211

Gain on redemption of bonds payable - (10,091) Gain arising from adjusting fair value of investment property (119,574) (41,244) Amortization of bond issued expense - 83,552

Total adjustments to reconcile income before income tax (58,546) (1,850,301) Change in operating assets and liabilities：

Decrease (increase) in accounts receivable 945,151 (1,580,451) Increase in receivables－related parties (43,381) (71,732) (Increase) decrease in other receivables (73,370) 24,436 Decrease (increase) in inventories 98,967 (668,361) Decrease in prepayments 48,931 138,888 Increase in other current assets (11,056) (14,596) Total changes in operating assets 965,242 (2,171,816) Increase current contract liabilities 2,674 - (Decrease) increase in accounts payable (106,655) 179,782 Decrease in payables－related parties - (10,703) Increase in other payables 918,652 797,208 Decrease in provisions (127,805) (122,114) (Decrease) increase in other current liabilities (334,837) 187,628 Total changes in operating liabilities 352,029 1,031,801

Total changes in operating assets and liabilities 1,317,271 (1,140,015) Total adjustments 1,258,725 (2,990,316)

Cash provided by operations 5,894,995 3,284,425 Interest received 174,349 188,858 Interest paid (56,391) (89,929) Income taxes paid (180,404) -

Net cash provided by operating activities 5,832,549 3,383,354 Cash flows from investing activities:

Acquisition of current financial assets at fair value through profit or loss (2,138,319) - Proceeds from current financial assets at fair value through profit or loss 624,255 -

Proceeds from disposal of financial assets carried at cost - 1,419 Return of capital of financial assets under cost method due to capital reduction - 10,635

Acquisition of investments accounted for using equity method (2,634,121) (993,882) Proceeds from disposal of investments accounted for using equity method - 3,052,814

Acquisition of property, plant and equipment (1,554,817) (1,179,620) Increase in other non-current assets (1,096) (89,444) Dividend received 826,058 398,595

Net cash (used in) from investing activities (4,878,040) 1,200,517 Cash flows from financing activities:

Increase in short-term loans 2,500,000 6,352,857 Decrease in short-term loans (2,100,000) (8,998,839) Repayment of bond payable - (19,158) Increase in long-term bank loans 2,650,000 1,770,000 Repayment of long-term bank loans (2,540,000) (2,572,500) Increase (decrease) in long-term bills payable 50,000 (470,000) Increase in other non-current liabilities 38,045 5,807

Net cash provided (used in) by financing activities 598,045 (3,931,833) Net increase in cash and cash equivalents 1,552,554 652,038 Cash and cash equivalents, beginning of the year 6,912,818 6,260,780 Cash and cash equivalents, end of the year $ 8,465,372 6,912,818

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NOTES TO FINANCIAL STATEMENTS December 31, 2018 and 2017



China Petrochemical Development Corporation (hereinafter referred to as the Company) was founded on July 8, 1969 under the approval of Ministry of Economic Affairs, R.O.C. Its registered address is 11th floor, No.12, Dongxing Rd., Songshan Dist., Taipei City 105, Taiwan (R.O.C.). The Company migrated to No.1, Jingjian Rd., Dashe Dist., Kaohsiung City 815, Taiwan (R.O.C.) on July 18, 2016. The Company primarily engage in the production of petroleum, alkali-chlorine, phosphoric acid and other petrochemical products and by-products and the storage, transportation, purchase and sale of these products, related chemicals and their raw materials. The primary products are acrylonitrile, caprolactam, acetic acid and nylon.

2. APPROVAL DATE AND PROCEDURES OF THE FINANCIAL STATEMENTS

The accompanying financial statements for the years ended December 31, 2018 and 2017 were authorized for issue by the Board of Directors on March 22, 2019.



The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2018:


per IASB Amendment to IFRS 2 “Classification and Measurement of

Share-based Payment Transactions” January 1, 2018


January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative” January 1, 2017 Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax

Assets for Unrealized Losses” January 1, 2017




IFRIC 22 “Foreign Currency Transactions and Advance Consideration”

January 1, 2018

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Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of signification changes are as follows:


IFRS 15 establishes a comprehensive framework for determining whether, how much andwhen revenue is recognized. It replaces the existing revenue recognition guidance,including IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The Company appliesthis standard retrospectively with the cumulative effect, it need not restate those contracts,but instead, continues to apply IAS 11, IAS 18 and the related Interpretations forcomparative reporting period. The Company recognizes the cumulative effect upon theinitially application of this Standard as an adjustment to the opening balance of retainedearnings on January 1, 2018.


(1) Sales of goods

For the sale of products, in the past, revenue was recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue is recognized when a customer obtains control of the goods. For some made-to-order paper product contracts, the customer controls all of the work in progress as the products are being manufactured. When this is the case, revenue will be recognized as the products are being manufactured.


The Company is involved in managing forest resources, as well as performing related services. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services. Revenue is currently recognized using the stage-of-completion method. Under IFRS 15, the total consideration in the service contracts is allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Company sells the services in separate transactions.

(3) Commission

For commissions earned by the Company, the Company has determined that it acts in the capacity of an agent for certain transactions. Under IFRS 15, the assessment will be based on the whether the Company controls the specific goods before transferring to the end customer, rather than whether it has exposure to significant risks and rewards associated with the sale of goods.

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Contract revenue used to be includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. When a claim or variation is recognized, the measure of contract progress or contract price is revised and the cumulative contract position is reassessed at each reporting date.

Under IFRS 15, claims and variations will be included in the contract accounting when they are approved.

(5) Impacts on financial reporting

The adoption of IFRS 15 did not have any a significant impact on its financial statements.



As a result of the adoption of IFRS 9, the Company adopted the consequential amendmentsto IAS 1 “Presentation of Financial Statements” which requires impairment of financialassets to be presented in a separate line item in the statement of profit or loss and OCI.Previously, the Company’s approach was to include the impairment of trade receivables inadministrative expenses. Additionally, the Company adopted the consequentialamendments to IFRS 7 Financial Instruments: Disclosures that are applied to disclosuresabout 2018, but generally have not been applied to comparative information



IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Company classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note 4.

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(3) Transition

The adoption of IFRS 9 have be applied retrospectively, except as described below,






If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Company assumed that the credit risk on its asset will not increase significantly since its initial recognition.

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The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Company’s financial assets as of January 1, 2018.




Carrying amount





990,664 Mandatorily at FVTPL

990,664 (a)


FVTPL 1,499,165 (d)



3,655,694 Amortized cost 3,655,694


b. These equity securities represent investments that the Company intends to hold forthe long term for strategic purposes. As permitted by IFRS 9, the Company hasdesignated these investments at the date of initial application as measured at FVOCI;therefore the carrying amount of these equity securities were $1,677,346 thousandon January 1, 2018.

c. These equity securities represent investments that the Company intends to hold forthe long term for strategic purposes. As permitted by IFRS 9, the Company hasdesignated these investments at the date of initial application as measured at FVOCI,resulting in a increase of $13,020 thousand and an increase of $12,119 thousand inother equity and retained earnings respectively and the carrying amount $694,660thousand were recognized on January 1, 2018.

d. These equity securities, as permitted by IFRS 9, the Company has designated theseinvestments at the date of initial application as measured at FVTPL, resultingcarrying amount of $1,499,165 thousand in those assets recognized, and an increaseof $396,651 thousand in the retained earnings.


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December 31, 2017

January 1, 2018

January 1, 2018

January 1, 2018

January 1, 2018

IAS 39 Carrying


Remeasure- ments


Retained earnings



Retained earnings



FVTPL (IAS 39) $ 2,762,699 (669,521) - - -

- Additions – equity instruments:

From financial assets carried at cost

- - 396,651 396,651 - -

Recognized by equity method

- - - 411,867 (1,989) -

Total $ 2,762,699 (669,521) 396,651 2,489,829 808,518 (1,989) -


available for sale (including carried at cost) (IAS 39)

$ 1,677,346 (1,677,346) - - -

-



carried at cost - 669,521 25,139 12,119 13,020

- Recognized by equity

method - 29,999 (29,999) -

Subtraction – equity instruments:

Recognized by equity method

- - - (6,310) - -

Total $ 1,677,346 669,521 25,139 2,372,006 35,808 (16,979) -


bond investment without an active market, held to maturity, trade and other receivables, and other financial assets

$ 10,568,512 - - - - -

Total $ 10,568,512 - - 10,568,512 - - -

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The following new standards, interpretations and amendments have been endorsed by the FSCand are effective for annual periods beginning on or after January 1, 2019 in accordance withRuling No. 1070324857 issued by the FSC on July 17, 2018:







Except for the following items, the Company believes that the adoption of the above IFRSs would not have any material impact on its financial statements. The extent and impact of signification changes are as follows:





On transition to IFRS 16, the Company can choose to apply either of the following:



The Company plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered

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into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

(2) Transition

As a lessee, the Company can apply the standard using either of the following:



The lessee applies the election consistently to all of its leases. On January 1, 2019, the Company plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Company chooses to elect the following practical expedients:






(3) So far, the most significant impact identified is that the Company will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Company estimated that the right-of-use assets and the lease liabilities to increase by $299,236 thousand and $299,236 thousand respectively on January 1, 2019. No significant impact is expected for the Company’s finance leases. Besides, The Company does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. The above impact may change due to any changes of future circumstances and conditions.

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As of the date the following IFRSs that have been issued by the International Accounting Standards Board (IASB), but not yet endorsed by the FSC:





Those which may be relevant to The Company are set out below:





The Company is evaluating the impact on its financial position and financial performance of the initial adoption of the above-mentioned standards or interpretations. The results thereof will be disclosed when the Company completes its evaluation.

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The significant accounting policies, which have been applied consistently to all periods presentedin these financial statements, except for notes to Note 3, 4 (f.) and 4 (n.) on accounting changes.


These annual financial statements have been prepared in accordance with the RegulationsGoverning the Preparation of Financial Reports by Securities Issuers (hereinafter referred tothe Regulations) and International Financial Reporting Standards, International AccountingStandards, IFRIC Interpretations and SIC Interpretations endorsed by FSC (hereinafter referredto as the IFRSs endorsed by FSC).



The financial statements have been prepared on a historical cost basis except for thefollowing material items in the balance sheets:



(3) The net defined benefit liability (assets) is recognized as the present value of the defined benefit obligation less the fair value of plan assets and the effect of the asset ceiling (please see note 6 n.);



The functional currency of the Company is determined based on the primary economicenvironment in which the entities operate. The financial statements are presented in NewTaiwan Dollar, which is the Company’s functional currency. All financial informationpresented in New Taiwan Dollar has been rounded to the nearest thousand

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c. Foreign currency


Transactions in foreign currencies are translated to the respective functional currencies ofthe Company entities at exchange rates at the dates of the transactions. Monetary assetsand liabilities denominated in foreign currencies at the reporting date are retranslated to thefunctional currency at the exchange rate at that date. The foreign currency gain or loss onmonetary items is the difference between amortized cost in the functional currency at thebeginning of the year adjusted for the effective interest and payments during the year, andthe amortized cost in foreign currency translated at the exchange rate at the end of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured atfair value are remeasured to the functional currency at the exchange rate at the date that thefair value was determined. Non-monetary items in a foreign currency that are measuredbased on historical cost are remeasured using the exchange rate at the date of transaction.

Foreign currency differences arising on remeasurement are recognized in profit or loss,except for the following differences which are recognized in other comprehensive income:

• Fair value through other comprehensive income (Available-for-sale )equityinvestment;






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When the settlement of a monetary item receivable from or payable to a foreign operation is neither planed nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the exchange differences arising on translation of foreign operations in equity.

d. Classification of current and non-current assets and liabilities

An asset is classified as current if:

1. It is expected to be realized, or intended to be sold or consumed, in the normal operatingcycle;


3. It is expected to be realized within twelve months after the reporting period; or

4. The asset is cash and cash equivalent (as defined in IAS 7) unless the asset is restrictedfrom being exchanged or used to settle a liability for at least twelve months after thereporting period.


A liability is classified as current if:

1. It is expected to be settled during the in its normal operating cycle;


3. It is due to be settled within twelve months after the reporting period; or

4. It does not have an unconditional right to defer settlement for at least twelve months afterthe reporting period. Terms of a liability that could, at the option of the counterparty, resultin its settlement by issuing equity instruments do not affect its classification.

e. Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquidinvestments that are readily convertible to cash at the known amounts and subject to insignificantrisk of value changes. Time deposits that fit the definition above and are used by the Company inthe management of its short-term commitments are comprised in cash equivalents.

Bank overdrafts that are repayable on demand and form an integral part of the Company, arerecorded in cash and cash equivalents in statements of cash flows.

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f. Financial instruments

1. Financial assets (policy applicable from January 1, 2018)

Financial assets are classified into the following categories: measured at amortized cost,fair value through other comprehensive income (FVOCI) and fair value through profit orloss (FVTPL).

The Company shall reclassify all affected financial assets only when it changes its businessmodel for managing its financial assets.

(i) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL：

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and



(ii) Fair value through other comprehensive income (FVOCI )

A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL：

it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and


On initial recognition of an equity investment that is not held for trading, the Company may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis.

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A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss.

Dividend income derived from equity investments is recognized on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(iii) Fair value through profit or loss (FVTPL)

All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets and accounts receivable, which is presented as accounts receivable. On initial recognition, the Company may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss.

(iv) Business model assessment

The Company makes an assessment of the objective of the business model in which a financial asset is held at portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes：

the stated policies and objectives for the portfolio and the operation of those policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

how the performance of the portfolio is evaluated and reported to the Company’s management;

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Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, and are consistent with the Company’s continuing recognition of the assets.


(v) Assessment whether contractual cash flows are solely payments of principal and interest

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial assets on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.

In assessing whether the contractual cash flows are solely payments of principal and interest, the Company considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Company considers：

contingent events that would change the amount or timing of cash flows；



terms that limit the Company’s claim to cash flows from specified assets（e.g. non-recourse features）

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(vi) Impairment of financial assets

The Company recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, other receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable measured at FVOCI and contract assets.

The Company measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL：

debt securities that are determined to have low credit risk at the reporting date；and


Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL.

Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument.

12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months).

The maximum period considered when estimating ECLs is the maximum contractual period over which the Company is exposed to credit risk.

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Company considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Company’s historical experience and informed credit assessment as well as forward-looking information.

The Company considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’.

The Company assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

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The Company considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Company in full.

ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Company in accordance with the contract and the cash flows that the Company expects to receive). ECLs are discounted at the effective interest rate of the financial asset.

At each reporting date, the Company assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data：

significant financial difficulty of the borrower or issuer；


the lender of the borrower, for economic or contractual reasons relating to the borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider；



Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Company recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss.

The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Company determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Company’s procedures for recovery of amounts due.

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(vii) Derecognition of financial assets

Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a debt instrument in its entirety, the Company recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income.

On derecognition of a financial asset other than in its entirety, the Company allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

2. Financial assets (policy applicable before January 1, 2018)

Financial assets are classified into the following categories: financial assets at fair valuethrough profit or loss, available-for-sale financial assets, held-to-maturity financial assets,and loans and receivables.

(i) Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is classified as held for trading or is designated as such on initial recognition.

Financial assets are classified as held for trading if they are acquired principally for the purpose of selling in the short term. The Company designates financial assets, other than those classified as held for trading, as at fair value through profit or loss at initial recognition under one of the following situations：

Designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise;


A hybrid instrument contains one or more embedded derivatives.

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At initial recognition, financial assets classified under this category are measured at fair value. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend and interest income, are recognized in profit or loss, under other income of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.


(ii) Available-for sale financial assets

Available-for-sale financial assets are non-derivative financial assets that are designated available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on monetary financial assets, are recognized in other comprehensive income and presented in the unrealized gains or losses on available for sale financial assets in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, under other gains and losses of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.


Dividend income is recognized in profit or loss on the date that the Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. Such dividend income is included in other income account in statements of comprehensive income.

Interest income from investment in bond security is recognized in profit or loss, under other income of non-operating income and expenses.

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(iii) Loans and receivables

Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables and other receivables. At initial recognition, these assets are recognized at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses, other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

Interest income is recognized in profit or loss, under other income.

(iv) Impairment of financial assets

The impairment loss of financial assets not measured at fair value is assessed on the report date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) that occurred subsequent to the initial recognition of the asset and that a loss event (or events) has an impact on the future cash flows of the financial assets that can be estimated reliably.

Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Company on terms that the Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment.

All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than the one suggested by historical trends.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. Such impairment loss is not reversible in subsequent periods.

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An impairment loss in respect of a financial asset is reduced from the carrying amount, except for trade receivables, in which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance accounts are recognized into profit or loss.

Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss.

If, in a subsequent period, the amount of the impairment loss of a financial assets measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date.

Impairment losses recognized on available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss.

Bad debt losses and recoveries of receivables are recognized in profit or loss as administrative expense. Impairment losses and recoveries of financial assets other than receivables are recognized in profit or loss under non-operating revenues and expenses.

(v) Derecognition of financial assets

The Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Company transfers substantially all the risks and rewards of ownership of the financial assets.

On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity – unrealized gains or losses from available for sale financial assets is recognized in profit or loss, under other income of non-operating income and expenses.

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On partial derecognition of a financial assets, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity account as unrealized gains or losses from available for sale financial assets is reclassified to profit or loss, under other gains and losses of non-operating income and expenses.


(i) Classification of debt or equity instruments

Debt or equity instruments issued by the Company are classified as financial liabilities or equity instruments in accordance with the substance of the contractual agreement.

Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized based on amount of consideration received less the direct issuance cost.

Compound financial instruments issued by the Company comprise convertible bonds payable that can be converted to share capital at the option of the holder, where the number of shares to be issued is fixed.

The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts.

Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

Interest related to the financial liability is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

On conversion, the financial liability is reclassified to equity, and no gain or loss is recognized.

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(ii) Financial liabilities at fair value through profit or loss

A financial liability is classified in this category if it is classified as held-for-trading or is designated as such on initial recognition. A financial liability is classified as held-for-trading if it is acquired principally for the purpose of selling in the short term. Financial liabilities, other than the ones classified as held-for-trading, are designated as at fair value through profit or loss at initial recognition under one of the following situations:

A. Such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on a different basis;

B. Performance of the financial liabilities is evaluated on a fair value basis;

C. A hybrid instrument contains one or more embedded derivatives.

Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, under other gains and losses of non-operating income and expenses.

Financial liabilities at fair value through profit or loss are measured at cost if it is a short sale of unquoted equity investment whose fair value cannot be reliably measured and that the short seller is obligated to deliver the equity instrument.

The Company issues and designates financial guarantee contracts and loan commitments as at fair value through profit or loss. Any gains and losses are recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(iii) Other financial liabilities

At initial recognition, financial liabilities not classified as held-for-trading, or designated as at fair value through profit or loss, which comprise of loans and borrowings, and trade and other payables, are measured at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(iv) Derecognition of financial liabilities

A financial liability is derecognized when its contractual obligation has been discharged or cancelled or expires. The difference between the carrying amount of a financial liability derecognized and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

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(v) Offsetting of financial assets and liabilities

Financial assets and liabilities are presented on a net basis when the Company has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

4. Derivative financial instruments

The Company holds derivative financial instruments to hedge its foreign currency andinterest rate exposures. Derivatives are recognized initially at fair value, and attributabletransaction costs are recognized in profit or loss as incurred. Subsequent to initialrecognition, derivatives are measured at fair value, and changes therein are recognized inprofit or loss and included in statement of comprehensive income. When a derivative isdesignated as a hedging instrument, its timing of recognition in profit or loss is determinedbased on the nature of the hedging relationship. When the fair value of a derivativeinstrument is positive, it is classified as a financial asset, and when the fair value is negative,it is classified as a financial liability.

Embedded derivatives are separated from the host contract and accounted for separatelywhen the economic characteristics and risk of the host contract and of the embeddedderivatives are not closely related.

g. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventoriesis based on the weighted average method, and includes expenditure incurred in acquiring theinventories, production or conversion costs and other costs incurred in bringing them to theirexisting location and condition. In the case of manufactured inventories and work in progress,cost includes an appropriate share of production overheads based on normal operating capacity.

Net realizable value is the estimated selling price in the ordinary course of business, less theestimated costs of completion and selling expenses.

h. Investments in associates

Associates are those entities in which the Company has significant influence, but not control orjoint control, over their financial and operating policies.

Investments in associates are accounted for using the equity method and are recognized initiallyat cost. The cost of the investment includes transaction costs. The carrying amount of theinvestment in associates includes goodwill which is arising from the acquisition less anyaccumulated impairment losses.

The Company’s share of the profit or loss and other comprehensive income of investmentsaccounted for using equity method are included, after adjustments to align the said investees’accounting policies with those of the Company, in the financial statements from the date thatsignificant influence commences until the date that significant influence ceases.

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Unrealized profits resulting from the transactions between the Company and an associate are eliminated to the extent of the Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired.

If the Company’s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Company has an obligation or has made payments on behalf of the investee.

i. Investment in subsidiary

In the preparation of financial reports, the Company adopts the equity method assessmentmethod for the investee companies that can be controlled. Under the equity method, in thefinancial report, the current profit and loss and other comprehensive gains and losses, and inthe financial report of the consolidated basis, the current profit and loss and othercomprehensive gains and losses are attributable to the owners of the parent company, and thefinancial reporting owners' equity and consolidated basis the interests of the owners of theparent company in the financial report are the same. The Company's changes in the ownershipinterest of the subsidiaries did not result in loss of control and were treated as an interesttransaction with the owners.

j. Investment property

Investment property is the property held either to earn rental income or for capital appreciationor for both, but not for sale in the ordinary course of business, use in the production or supplyof goods or services or for administrative purposes. Investment property is measured at cost oninitial recognition and subsequently via cost less accumulated depreciation and accumulatedimpairment losses. Depreciation expense is calculated based on the depreciation method, usefullife and residual value which are the same as those adopted for property, plant and equipment.

Cost includes expenditure that is directly attributable to the acquisition of the investmentproperty. The cost of self-constructed investment property includes the cost of raw materialsand direct labor, and any other costs directly attributable to bringing the investment property toa working condition for their intended use and capitalized borrowing costs. Investment propertyis subsequently measured at fair value, with any change therein recognized in profit or loss.

When the use of a property changes such that it is reclassified as property, plant and equipment,its fair value at the date of reclassification becomes its cost for subsequent accounting.

k. Property, plant and equipment


Items of property, plant and equipment are measured at cost less accumulated depreciationand accumulated impairment losses. Cost includes expenditure that is directly attributed tothe acquisition of the asset.

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The cost of a self-constructed asset comprises material, labor, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that eligible for capitalization. Cost also includes transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating.

Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately, unless the useful life and the depreciation method of the significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item.

The gain or loss arising from the derecognition of an item of property, plant and equipment is determined on the difference between the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in profit or loss account as other gains and losses.


An item of property, plant and equipment is reclassified to investment property at itscarrying amount when the use of the property changes from owner-occupied to investmentproperty. Any difference at the date of the change in use between the carrying amount ofthe property and its fair value is recognized as a revaluation of property, plant andequipment. Any existing or arising revaluation surplus previously recognized in OCI is nottransferred to profit or loss at the date of transfer or on subsequent disposal of theinvestment property.

3. Subsequent cost

Subsequent expenditure is capitalized only when it is probable that the future economicbenefits associated with the expenditure will flow to the Company. The carrying amountof those parts that are replaced is derecognized. Ongoing repairs and maintenance isexpensed as incurred.

4. Depreciation

The depreciable amount of an asset is determined after deducting its residual amount andis allocated using the straight line method over its useful life. The items of property, plantand equipment with the same useful life may be grouped in determining the depreciationcharge. The remainder of the items may be depreciated separately. The depreciation chargefor each period is recognized in profit or loss.

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If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life.

Land has an unlimited useful life and therefore is not depreciated.

The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows:

Land improvement 2~10 years

Buildings and constructions 2~60 years

Machine equipment 2~17 years

Transportation equipment 2~ 5 years

Other equipment 2~13 years

Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change(s) is accounted for as a change in an accounting estimate.

l. Impairment ─ non-derivative financial assets

The Company evaluates the impairment losses and estimates the recoverable amounts of theimpaired assets on each reporting date in terms of inventories, deferred tax assets, assets arisingfrom employee benefits and non-financial assets other than non-current assets held for sale. Ifit is not possible to determine the recoverable amount (fair value less cost to sell and value inuse) for the individual asset, then the Company determines the recoverable amount for theasset's cash-generating unit (CGU).

The recoverable amount for individual asset or a cash-generating unit is the higher of its fairvalue less costs to sell and its value in use. If, and only if, the recoverable amount of an asset isless than its carrying amount, the carrying amount of the asset is reduced to its recoverableamount. That reduction is an impairment loss. An impairment loss is recognized immediatelyin profit or loss.

The Company assesses at the end of each reporting period whether there is any indication thatan impairment loss recognized in prior periods for an asset other than goodwill may no longerexist or may have decreased. If any such indication exists, the Company estimates therecoverable amount of that asset.

Notwithstanding whether indicators exist, recoverability of goodwill and intangible assets withindefinite useful lives or those not yet in use are tested at least annually. Impairment loss isrecognized if the recoverable amount is less than the carrying amount.

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For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units.

If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the Company recognizes the impairment loss and the impairment loss is allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited.

m. Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal orconstructive obligation that can be estimated reliably, and it is probably that an outflow ofeconomic benefits will be required to settle the obligation. Provisions are determined bydiscounting the expected future cash flows at a pre-tax rate that reflects the current marketassessments of the time value of money and the risks specific to the liability. The unwinding ofthe discount is recognized as finance cost.

1. Site dismantling

The estimated obligation on the dismantling, relocation or restoration of property, plantand equipment is recognized as decommissioning cost and liability of property, plant andequipment. The relevant costs of assets are adjusted by subsequent price variation fordismantling and restoration. Depreciation is provided per the remaining useful life of theadjusted cost.

2. Site restoration

In accordance with the Company’s published environmental policy and applicable legalrequirements, a provision for site restoration in respect of contaminated land, and therelated expense, is recognized when the land is contaminated.

n. Revenue

1. Goods sold

Revenue from the sale of goods in the course of ordinary activities is measured at fair valueof the consideration received or receivable, net of returns, trade discounts and volumerebates. Revenue is recognized when persuasive evidence exists, usually in the form of anexecuted sales agreement, that the significant risks and rewards of ownership have beentransferred to the customer, recovery of the consideration is probable, the associated costsand possible return of goods can be estimated reliably, there is no continuing managementinvolvement with the goods, and the amount of revenue can be measured reliably. If it isprobable that discounts will be granted and the amount can be measured reliably, then thediscount is recognized as a reduction of revenue as the sales are recognized.

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The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. For an export transaction, usually it is via free on board shipping point, and the risk transfer occurs upon loading the goods onto the relevant carrier at the port; however, for an import transaction, risk transfer occurs upon receipt by the customer.

2. Commissions

When the Company acts in the capacity of an agent rather than as the principal in atransaction, the revenue recognized is the net amount of commission made by the Company,and is recognized in proportion to the stage of completion of the transaction.

3. Rental income

Rental income from investment property is recognized in non-operating incomes andexpenses on a straight-line basis over the lease term.

4. Financial composition

The Company expected the time period of delivering goods or rendering services tocustomers and payment received from those customers would be under one year; thereforethe time value of currency used during transactions would not be adjusted.



Obligations for contributions to defined contribution pension plans are recognized as anemployee benefit expense in profit or loss in the periods during which services are renderedby employees.


A defined benefit plan is a post-employment benefit plan other than a defined contributionplan. The Company’s net obligation in respect of defined benefit pension plans is calculatedseparately for each plan by estimating the amount of future benefit that employees haveearned in return for their service in the current and prior periods; that benefit is discountedto determine its present value. Any unrecognized past service costs and the fair value ofany plan assets are deducted. The discount rate is the yield at the reporting date on (marketyields of high quality corporate bonds or government bonds) bonds that have maturity datesapproximating the terms of the Company’s obligations and that are denominated in thesame currency in which the benefits are expected to be paid.

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The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Company. An economic benefit is available to the Company if it is realizable during the life of the plan, or on settlement of the plan liabilities.

When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.


The Company recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial gains or losses and past service cost that had not previously been recognized.

3. Short term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and areexpensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonusor profit-sharing plans if the Company has a present legal or constructive obligation to paythis amount as a result of past service provided by the employee, and the obligation can beestimated reliably.

p. Income taxes

Income tax expenses include both current taxes and deferred taxes. Except for expenses relatedto business combinations, or are recognized directly in equity or other comprehensive income,all current and deferred taxes are recognized in profit or loss.

Current taxes include tax payables and tax deduction receivables on taxable gains (losses) forthe year calculated using the statutory tax rate on the reporting date, or the actual legislated taxrate; as well as tax adjustments related to prior years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets andliabilities for financial reporting purposes and their respective tax bases. Deferred taxes are notrecognized for the following:

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1. Assets and liabilities that are initially recognized but not related to the businesscombination, and have no effect on net income or taxable gains (losses) during thetransaction.

2. Temporary differences arising from equity investments on subsidiaries or joint ventures,where there is a high probability that such temporary differences will not reverse.

3. Initial recognition of goodwill.

Deferred taxes are measured based on the statutory tax rate on the reporting date; or the actual legislated tax rate, during the year of expected asset realization or debt liquidation.

Deferred tax assets and liabilities may be offset against each other if, and only if, the following criteria are met:

1. if the Company has the legal right to settle tax assets and liabilities on a net basis; and

2. the taxing of deferred tax assets and liabilities fulfill one of the below scenarios:

(1) levied by the same taxing authority; or

(2) levied by different taxing authorities, but where each such authority intend to settle taxassets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation; or where the timing of asset realization and debt liquidation is matched.


q. Business combination

Goodwill is measured at the consideration transferred less the amounts of the identifiable assetsacquired and liabilities assumed (generally at fair value) at the acquisition date. If the amountof net assets acquired and liabilities assumed exceeds the acquisition price, the Companyreassesses whether it has correctly identified all of the assets acquired and liabilities assumed,and recognizes a gain for the excess.

The Company shall measure any non-controlling interests in the acquiree either at fair value orat the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, ifthe non-controlling interests are present ownership interests and entitle their holders to aproportionate share of the entity’s net assets in the event of liquidation.

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In a business combination achieved in batches, the previously held equity interest in the acquiree at its acquisition date fair value is remeasured, and the resulting gain or loss, if any, is recognized in profit or loss.

If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, provisional amounts for the items for which the accounting is incomplete are reported in the Company’s financial statements. During the measurement period, the provisional amounts recognized at the acquisition date are retrospectively adjusted, or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date.



The Company discloses the Company basic and diluted earnings per share attributable toordinary equity holders of the Company. The calculation of basic earnings per share is basedon the profit attributable to the ordinary shareholder of the Company divided by weightedaverage number of ordinary shares outstanding. The calculation of diluted earnings per share isbased on the profit attributable to ordinary shareholders of the Company, divided by weightedaverage number of ordinary shares outstanding after adjustment for the effects of all potentiallydilutive ordinary shares, such as convertible bonds and employee bonus.

s. Operating segments

An operating segment is a component of the Company that engages in business activities fromwhich it may incur revenues and incur expenses (including revenues and expenses relating totransactions with other components of the Company). Operating results of the operatingsegment are regularly reviewed by the Company’s chief operating decision maker to makedecisions about resources to be allocated to the segment and assess its performance. Eachoperating segment consists of stand-alone financial information.

5. MAJOR SOURCES OF SIGNIFICANT ACCOUNTING ASSUMPTIONS, JUDGMENTSAND ESTIMATION UNCERTAINTY

The preparation of the financial statements in conformity with the Regulations Governing thePreparation of Financial Reports by Securities Issuers as endorsed by the FSC requires managementto make judgments, estimates and assumptions that affect the application of the accounting policiesand the reported amount of assets, liabilities, income and expenses. Actual results may differ fromthese estimates.

The management continuously reviews the estimates and basic assumptions. Changes in accountingestimates are recognized in the period of change.

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Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the financial statements is as follows:


The Company’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss.

The Company’s financial instrument valuation group conducts independent verification on fair value by using data sources that are independent, reliable, and representative of exercise prices. This financial instrument valuation group also periodically adjusts valuation models, conducts back-testing, renews input data for valuation models, and makes all other necessary fair value adjustments to assure the rationality of fair value. The Company strives to use market observable inputs when measuring assets and liabilities. Different levels of the fair value hierarchy to be used in determining the fair value of financial instruments are as follows:

(i) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).

(iii) Level 3: inputs for the assets or liability that are not based on observable market data.

Information on valuation use hypothesis factors was as follows:

(i) Note 6 h. - Investment property;

(ii) Note 6 v. - Financial Instruments.



December 31, 2018

December 31, 2017

Cash on hand $ 704 693 Checking and demand deposits 117,007 111,466 Time deposits 5,978,582 5,539,021 Cash equivalents 2,369,079 1,261,638 Cash and cash equivalents $ 8,465,372 6,912,818

Time deposits which are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes, that are readily convertible to cash at the known amounts and subject to insignificant risk of value changes, are reported as cash equivalents.

Please refer to Note 6 w. for the fair value sensitivity analysis and interest rate risk of the financial assets and liabilities of the Company.

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b. Financial assets


December 31, 2018

December 31, 2017

Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss-current $ 1,.016,992 - Financial assets at fair value through profit or loss -Non-

current 3,248,545 -

Financial assets held for trading－current - 563,708 Financial assets reported at fair value through profit or

loss－current - 426,956

Sub-total 4,265,537 990,664 Financial assets at fair value through other comprehensive income


1,963,687 -

Sub-total 1,963,687 - Available-for-sale financial assets－non-current - 1,677,346 Financial assets carried at cost－non-current - 1,772,035 Total $ 6,229,224 4,440,045

Please refer to Note 6 u. and 6 p. for the gain or loss on financial assets recognized at fair value through profit or loss and other comprehensive income.

Core Pacific City Co., Ltd held a provisional shareholders’ meeting on January 17, 2018 in order to cover its deficit of $7,698,679 thousand, which represented 37.7% of its actual paid-in capital. The reduction record date was January 17, 2018. Based on its articles of incorporation, there is no significant impact on the issuance of its shareholders’ preferred stock concerning the matter.

During the year ended December 31, 2018, the dividends of $619,522 thousand, related to equity investments at fair value through other comprehensive income held on December 31, 2018, were recognized.

On February 26, 2018, the Company’s board of directors approved a resolution to invest in Core Pacific City Co., Ltd by issuing 156,000 thousand preferred shares amounting to NT$1,560,000 thousand and accounted in financial assets at fair value through profit or loss－non-current.

2. The director of Praxair Chemax Semiconductor Materials Co., Ltd. (hereinafter referred toas “PRAXAIR”) delegated by the Company, was elected as the new Chairman in thedirectors’ meeting on Jan. 30th, 2013. However, Praxair Inc. did not recognize the directordelegated by the Company as the Chairman, resulting in the new Chairman being unableto exercise his authority. Also, the supervisor appointed by the Company was preventedfrom auditing the accounts and records pursuant to the Company Law, hence, the newChairman and the designated supervisor representing PRAXAIR, filed an action asking thevice chairman and general manager to provide the accounts and records and requested toreturn the seal, business invasion and others in a civil lawsuit. The vice chairman delegatedby Praxair Inc. claimed privilege to act as the Chairman and filed legal actions declaring

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the non-existence of the new Chairman’s commission of authority and also sent a letter to the court requesting a dissolution of PRAXAIR, which was rejected by the courts. The supervisor appointed by Praxair Inc. illegally called a temporary shareholders’ meeting in 2013 to propose the dissolution of the Company and reelection of directors and supervisors. Hence, the Company filed legal actions declaring the withdrawn of the resolution from the illegal temporary shareholders’ meetings and the resolutions from the temporary shareholders’ meeting was not established. Currently, the supervisor filed the legal action against the manager for submitting the accounts and the records, after winning the 1st and 2nd trial, the defendant appealed but was dismissed by the 3rd trial instance. This case was remanded to the Taipei High Court but the verdict was dismissed in 2015, the Company was not satisfied with the appeal and filed the legal action. On the other side, the vice chairman designated by Praxair Inc. filed legal action declaring the non-existence of the new Chairman’s commission of authority, after the judgement from the High Court that the Chairman designated by the Company won the verdict, the defendant appealed to the 3rd instance, with the Supreme Court dismissing the appeal. The whole case confirms the appointed relationship between the Chairman designated by the Company and PRAXAIR exists. On Nov. 19th 2016, the letter from Ministry of Economic Affairs states that Lin Ke-Ming, appointed by the Company, is the Chairman of PRAXAIR, and restored the representative duty per the judgement No. 2455 from the Supreme High Court in 2015. However, according to the requirement from Ministry of Economic Affairs, both sides were not able to hold the legitimate reelection prior to Jan. 9th 2017 which resulted in vacancy of directors and supervisors of PRAXAIR. In order to strive for the rights and interests of the shareholders, the Company immediately brought the arbitration per joint venture agreement of both sides and applied for an auditor and provisional administrator to instruct the central section office of the Ministry of Economic Affairs to allow Praxair Inc. to conduct the change of registration on July 6th 2017. Ignoring the purpose of joint venture agreement of both sides, the Company has filed a request for the arbitration of International Chamber of Commerce in 2017 and received the award issued by the International Court of International Chamber of Commerce in September 3, 2018. A part of the award favored for the Company and confirmed that the Company was entitled to receive the dividends from PCSM for the year of 2013. In order to protect the Company’s right, the Company submitted a lawsuit regarding to withdrawing a part of such Arbitration award against the Company to Taipei District Court.

As of December 31, 2018, and 2017, the Company provided as collateral portion of its financial assets. Please refer to Note 8 for details of the related assets pledged as collateral.

3. Sensitivity analysis－equity price risk:

If the equity price changes, and if it is based on the same basis for both years and assumes that all other variables remain the same, the impact to comprehensive income will be as follows:

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Equity price at reporting date


income After-tax

Profit (loss)


income After-tax

Profit (loss) Increase of 1% $ 19,637 42,655 16,773 9,907 Decrease of 1% $ (19,637) (42,655) (16,773) (9,907)


December 31, 2018

December 31, 2017

Accounts receivable $ 3,043,618 3,945,388 Other receivables 106,181 42,802 Less：Allowance for doubtful receivables (332,496) (332,496) Net book value $ 2,817,303 3,655,694

Movements of the allowance for doubtful receivables for the years ended December 31, 2018 and 2017 were as follows:

December 31, 2017

December 31, 2018

Individually assessed

impairment

Collectively assessed

impairment Balance on January 1, 2018 and 2017 per IAS 39 $ 332,496 237,590 94,906 Adjustment on initial application of IFRS 9 - Balance on January 1, 2018 per IFRS 9 332,496 Balance on December 31, 2018 and 2017 $ 332,496 237,590 94,906

d. Inventories

December 31, 2018

December 31, 2017

Finished goods $ 494,735 540,557 Work-in-process 291,312 605,670 Raw materials 1,164,884 1,046,748 Fuel 23,040 20,067 Total $ 1,973,971 2,213,042

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For the years ended December 31, 2018 and 2017, the components of cost of goods sold were as follows:


Cost of goods sold $ 32,201,453 27,259,698 Loss (gain) on inventory market price decline and obsolescence 140,104 (22,875) Loss (gain) on physical inventories, net 15,840 (1,634) Unallocated fixed production overheads from idle facilities 295,345 306,914 Revenue from sale of scraps (28,018) (12,013) Net amount $ 32,624,724 27,530,090

As of December 31, 2018 and 2017, the aforesaid inventories were not pledged as collateral.


1. The company's investments accounted for using the equity method at the reporting datewere classified as follows:

December 31, 2018

December 31, 2017

Subsidiaries $ 11,038,311 8,377,582 Associates 1,397,877 1,062,756 Total $ 12,436,188 9,440,338

2. Share of profit (loss) of subsidiaries and associates for the years ended December 31, 2018and 2017 was as follows:

December 31, 2018

December 31, 2017

Share of profit (loss) of subsidiaries and associates $ 949,617 857,571

3. The key financial information of subsidiaries and associates in which the Company hasequity investments was as follows (before adjustment for the Company’s proportionateshare):

December 31, 2018

December 31, 2017

Total assets $ 22,199,195 16,693,291 Total liabilities (3,865,359) (2,513,037)

$ 18,333,836 14,180,254

December 31, 2018

December 31, 2017

Revenue $ 10,684,086 8,590,797 Net income $ 2,421,564 1,862,471

The Company does not guarantee any contingent liabilities of an associate jointly with other investors. Likewise, the Company does not guarantee alone any other contingent liabilities of an associate.

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4. The resolution, implementation of singed tripartite supplemental agreement between theCompany and PPG&GGC (which had been merged as the Axiall company), from theCompany’s board meeting on April 21st 2016: trading of equity shares of Taiwan Chichlorine Chemical Co., Ltd, total 6,400,000 shares at the sale price, US$100,000 thousand,which was equivalent to NT$3,225,000 thousand. After the expectation of the disposalinterests, NT$2,838,761 thousand, the Company instantly informed Axiall company tocarry out the equity trading of Taiwan Chi Chlorine Chemical Co., Ltd. The Companyissued the letter many times to ask Axiall to implement the agreement, however, Axiallcompany repeatedly delayed such actions. Hence, the Company filed the arbitration toAmerican Arbitration Association in August 2016. Axiall submitted the pleadings in Sept.2016 and asked PPG to participate in the lawsuit. Outside lawyers of PPG, in the Oct. ofsame year, represented that PPG is willing to negotiate the contract of equity trading. PPGsigned the contract with the Company at the end of February 2017 and handled the equitytransactions subsequently. The Company completed the trading on April 11st 2017, thetotal selling price: $100,000 thousand, equivalent to about NT$3,062,000 thousand. Thedisposal of investment benefit recognized after the deduction of the securities trading taxes:NT$2,673,076 thousand, which was listed on the other benefits and losses of Non-Operating Income and Expense Accounts.

5. On November 26, 2013, the plan to invest in China was approved during the meeting ofthe board of directors of the Company. On March 25, 2014 and November 1,2018, theInvestment Commission, MOEA approved the investment of the Company in JIANGSUWEIMING Petrochemical Corporation in China of RMB2,388,000 thousand (equivalentto NT$11,200,000 thousand) mainly to establish a manufacturing operations forpetrochemical products (including hydrorefining crude benzol, cyclohexanone, nylon 6,etc.).

6. Collateral

As of December 31, 2018 and 2017, the Company provided as collateral portion of its investments in aforesaid equity-accounted investees. Please refer to Note 8 for details of the related assets pledged as collateral.

f. Business combination

The Company acquired Thanh Phong construction and investment Ltd. 90% of its shares, and obtained controlling power of the entity. The entity engages in real estate and construction.

The transfer price is $119,573 thousand in cash, the fair value of assets acquired and liabilities assumed on the acquisition date were as below:

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Goodwill derived from acquisition: Transfer price $ 119,573 Non-controlling equity (fair value of identifiable assets measured at the percentage of non-controlling equity)

13,284



The cost, depreciation, and impairment of the property, plant and equipment of the Companyfor the years ended December 31, 2018 and 2017 were as follows:

Land

Land


Machinery

and

equipment Vehicles

Other

facilities

Construction

in progress

Accumulated

impairment Total


Balance as of January 1, 2018 $ 5,647,642 262,023 2,252,349 41,265,787 52,798 160,911 1,112,729 - 50,754,239

Additions - - - - - - 1,554,817 - 1,554,817

Disposal - (3,464) (25,640) (464,841) (2,400) (1,473) - - (497,818)

Reclassification - 699 127,914 921,620 4,458 7,914 (1,062,605) - -


Balance as of January 1, 2017 $ 5,647,642 257,067 2,223,905 40,573,230 52,609 154,609 792,587 - 49,701,649

Additions - - - - - - 1,179,925 - 1,179,925

Disposals - - (4,664) (120,575) (374) (1,722) - - (127,335)

Reclassification - 4,956 33,108 813,132 563 8,024 (859,783) - -

Balance as of December 31, 2017 $ 5,647,642 262,023 2,252,349 41,265,787 52,798 160,911 1,112,729 - 50,754,239




Disposals - (3,465) (22,745) (444,429) (2,400) (1,473) - (16,365) (490,877)


Balance as of January 1, 2017 $ - 204,102 939,968 32,149,063 43,788 117,709 - 1,994,784 35,449,414


Disposals - - (4,664) (120,111) (373) (1,722) - - (126,870)


Carrying amounts:


Balance as of January 1, 2017 $ 5,647,642 52,965 1,283,937 8,424,167 8,821 36,900 792,587 (1,994,784) 14,252,235


As of December 31, 2018 and 2017, the Company provided as collateral portion of its property, plant and equipment, please refer to Note 8 for details of the related assets pledged as collateral.

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h. Investment property

Land Buildings Total Cost or deemed cost:

Balance as of January 1, 2018 $ 38,211,181 15,351 38,226,532 Net gains and losses due to fair value

adjustments 120,452 3,375 123,827 Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359 Balance as of January 1, 2017 $ 38,148,494 3,859 38,152,353 Net gains and losses due to fair value

adjustments 62,687 11,492 74,179 Balance as of December 31, 2017 $ 38,211,181 15,351 38,226,532

Carrying amounts: Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359 Balance as of January 1, 2017 $ 38,148,494 3,859 38,152,353 Balance as of December 31, 2017 $ 38,211,181 15,351 38,226,532


The fair value of some investment properties of the Company was determined using the income approach. Under this income approach, the key terms of the rental contracts for these investment properties and certain other factors considered were as follows:

December 31, 2018



The rental range of similar investment property

$549 ~ $596( NT dollars)

The current status of the investment property Unused Past earnings $0 ~ $0 Income capitalization rate 5.415% Discount rate 4.380% Outsourcing or self-valuation Outsourcing Evaluation office Colliers International Taiwan Appraiser name Feng-ru, Ke Evaluation date December 31 , 2018 Outsourcing fair value $10,640

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December 31, 2017



The rental range of similar investment property $408 ~ $433( NT dollars) The current status of the investment property Unused Past earnings $0 ~ $0 Income capitalization rate 3.700% Discount rate 3.045% Outsourcing or self-valuation Outsourcing Evaluation office Euro-Asia Real Estate Appraisers

Firm Appraiser name Shi-yuan, Chou Evaluation date December 31 , 2017 Outsourcing fair value $7,602

In accordance with Article34 of the Regulations on Real Estate Appraisal, the income approach procedures include estimating the effective gross income and total expenses, computing the net operating income, determining the capitalization rate or discount rate, and computing the income. The attributes used by the Company for the estimations above were the last three years’ data from the subject property and comparable properties which have similar characteristics, and these data were assessed and adjusted based on their persistency, stability, and growth to ensure the availability and reasonableness of these data. The movement of income (cash inflows) and expenditure (cash outflows) for future periods was based on the vacancies or losses, existing or future cash flow plans of the Company, and historical cash flows from the subject property, identical properties, or properties in the same industry. The estimation and computation of the net income were based on the highest and best use of the subject property and have taken into consideration the income generated from comparable properties in the same location based on their highest and best use.

External appraisers use the risk premium method to decide on the direct capitalization rate and discount rate. The fixed deposit interest rate, government bonds rate, real estate investment risk, money supply-demand variation, the trend of real estate value and etc. are taken into consideration to decide the likely rate of return on the most common investment as a basis in order to derive the capitalization rate or discount rate. The differences in individual characteristics between the above most common investment and the subject property are compared in terms of their liquidity, risk, appreciation, and management. As of December 31, 2018 and 2017, the discount rate was 4.380% and 3.045%, respectively, based on 2-year time deposit of a small amount, as posted by the Chunghwa Post Co., Ltd., plus 0.75 percentage points (1.845%), adjusted for a risk premium of 1.2% and 1.2%, respectively, to reflect the status of operating income, liquidity, risk, appreciation, management and etc. As of December 31, 2018 and 2017, the weighted average capitalization rate was 5.415% and 3.700%, derived as the ratio of annual net operating income of comparable properties divided by reasonable price.

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2. Evaluation through land development analysis

As the Company’s investment property is undeveloped, the income approach cannot beused for purposes of the evaluation. Consequently, the investment property was evaluatedusing the land development analysis, under which, the following factors were considered:

December 31, 2018



Estimate total sales price $7,968,120 9,612,970 2,717,238 Rate of return 23% 18% 12% ~ 25% Capital interest rate 1.790% 3.810% ~3,.930% 0.71% ~4.38% Evaluation office CCIS Real Estate


CCIS Real Estate Joint Appraisers Firm and Colliers International Taiwan

Hongbang Real Estate Appraiser Joint Office

,Colliers International Taiwan

Appraiser name Huo-ming, Huang Shiou-ying, Jan, Jian-hui,Gu

Yu-Hsuan, Huang, Jian-hui,Gu, Shiou-ying, Jan and Feng-ru, Ke


December 31, 2018

December 31, 2018


December 31, 2017



Estimate total sales price $7,257,090 161,129,789 2,741,768 Rate of return 20% 20% ~ 40% 10% ~ 15% Capital interest rate 1.820% 3.120% ~7.420% 1.69% ~1.95% Evaluation office CCIS Real Estate


Euro-Asia Real Estate Appraisers Firm

Euro-Asia Real Estate Appraisers Firm, Colliers International Taiwan, and CCIS Real Estate Joint Appraisers Firm

Appraiser name Huo-ming, Huang Shih-yuan, Chou Shih-yuan, Chou ,Feng-ru, Ke , Shiou-ying, Jan and Huo-ming, Huang

Evaluation date December31, 2017 December 31,

2017 December 31, 2017


The land development analysis included procedures such as identifying the content of land development and estimating the required period of development ; investigating individual cost and related expenses, collecting current market prices, etc.; on-site survey and investigating and analyzing the degree of development in the local environment; estimating the marketable area of land or building after construction or building; estimating the total sales price of properties after completion of construction or building; estimating individual cost and related expenses; deciding an appropriate rate of return and an overall capital interest rate; calculating land development analysis value.

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Investment property included several rentals of real property to others. Each lease contract all include the original non-cancellable lease and the subsequent lease is negotiated with the lessee without collection of contingent rental. Please refer to Note 6 m. for the relevant information including rent revenue and the direct operating expenses incurred.

As of December 31, 2018, and 2017, the Company provided as collateral portion of its investment property. Please refer to Note 8 for details of the related assets pledged as collateral.

In the era of pre-Taiwan Alkali Industrial Corporation (TAIC), TAIC had leased the lands located in Tainan and Chiayi area to the local peasants and fishermen, and the surviving tenants shall continue paying the rent to the Company according to the agreements. In the circumstance of the resumption for self- business use or the sale of the lands, the leases shall be terminated under the contractual agreements and Land Laws. If there is any redemption in some cases, the Company will recognize and evaluate the possible expenses and costs case by case.

The Company has terminated the some agreements with partial peasants and fishermen at the first quarter of 2014 by paying the redemption in the amount of $50,425 thousand.

An Shun Land Located in Tainan City Annan District:

1. History

(1) The land where the An-Shun Alkali plants located was originally established byJapanese company Kanegafuchi Soda “in 1938 under Japanese Colonial Rule.

(2) The Government undertake the construction after the Retrocession of Taiwan, and established a state-owned company, Taiwan Alkali Industrial Corporation (TAIC) and operated at the An-Shun Site. In 1961, the competent authorities in charge of the relevant state-owned enterprises approved the investment plan and budget for producing Pentachlorophenol and sodium pentachlorophenol products used on herbicides and wood preservative fungicides.

(3) Due to operational factors, the plant was ordered to be closed by Executive Yuan Department of Economic Affairs in early 1982.


(5) Since the said merger, the Company takeover the An-shun land, the Company itself has never had any act of production, operations, development, use or pollution occurred at the site. According to subsequent investigation and research, parts of the area has been detected dioxin and mercury contamination in soil. The land was designated by the Tainan City Government and the Environmental Protection Department of the Executive Yuan as a “Soil Pollution Control Site” and “Soil pollution remediation site” in April 2002 and March 2004 separately, per the Soil and Groundwater Pollution Remediation Act.

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A. The Company filed a plea of State Compensation claim to Ministry of Economic Affairs, Administration Yuan (MOEA), but MOEA refused.




(7) Tainan City Government issued the letter No. 09722000130 and No. 09722003360 in January and February 2008 respectively, and requested the Company to propose a remediation plan for the soil and groundwater pollution of the An-shun plant in accordance with the Soil and Groundwater Pollution Remediation Act.

A. The Company proposed the “Tainan City, CPDC former Taiwan Alkali An-shun site and 2nd class number nine road on the eastern side of the grass area of the site, soil pollution remediation pollution remediation plan” per the regulation at the end of June 2008 and the plan was submitted to Tainan city government for review and formally approved in May 2009. In 2012, the remediation plan was put forward and approved on July 2, 2012. The 1st instance was completed in September 2014 and entered the second phase of the remediation, which will last 10 years. A second revision of the remediation plan was proposed and submitted to Tainan City Government for review, and the approval letter issued by Tainan City Government informed of the approval of the 2nd remediation plan, which shall be publicly displayed per regulations. Currently, the Tainan City Environmental Protection Bureau reviewed and adopted the plan on April 14, 2015 and the assessment was announced by Tainan City Government on May 4th, 2015. According to the remediation technology and the actual implementation of the subsequence adjustment, the 3rd remediation change plan

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was proposed on March 2nd 2017, which remediation plan was focus on the remediation plan of 2nd phase and brought in the unfinished items in the 2nd change plan. Currently, the 3rd plan was reviewed and adopted on Jan. 3rd, 2018.




A. Tainan city government on Feb. 27th, 2008 with the letter No. 09722004430 asked the Company to pay each expense: NT$88,786 thousand, coming from investigation assessments and strain necessary measures, which was prepaid by Tainan city government and EPA of Executive Yuan on behalf of land polluters, within deadline. The expense would double and transfer to court for enforcement if overdue. This expense was adjusted to list in 2007 per Financial Accounting Standards and the Company prepaid on behalf of land relations based on the law regulations in July 2008. The Company had the objection on the prepaid expense and land polluter, hence, the administrative remedy was proposed in July 2008, Kaohsiung High Administrative court sentenced the Company shall pay the expense NT$88,430 thousand in Jan. 2008. The Company proposed the appeal in March 2008 and Supreme Administrative Court sent back to Kaohsiung High Administrative Court for further trial. Kaohsiung High Administrative court sentenced the original punishment and the petition decision beyond NT$76,066 thousand was withdrawn. In Dec. 2013, both parties proposed the appeal for the unfavorable parts and Supreme Administrative Court sentenced the amount beyond NT$203 thousand and lawsuit expenses are all abandoned in April 2015 and sent back to Kaohsiung High Administrative court for continued trial. The determined withdrawn amount NT$356 thousand had all been returned back to the account by Tainan city government. Kaohsiung High Administrative court rejected the appeal of the Company on Dec. 2016. The Company proposed the appeal remedy for the unsatisfied sentenced contents on Jan. 2017. Supreme Administrative Court sentenced on Jan. 2018 that the expenses NT$1,135 thousand didn’t need to be undertaken by the Company.

B. Tainan city government on May 22, 2009 with the letter No. 09822013680 asked the Company pay the expenses NT$17,962 thousand, which resulted from the relevant working plan of An Shun Land Site soil pollution remediation and was prepaid by Tainan city government on behalf of the Company, and Tainan city government in Dec. 2009 with the letter No. 09822035440 asked the Company to pay the above fees prior to Jan. 31st, 2010. The Company estimated such expense at the end of 2009 and proposed the administrative remedy in Jan. 2010 and prepaid the above fees within the deadline inquired by Tainan city government based on the law regulations. The petition was rejected in March 2011, thus, the administrative lawsuit was proposed according to the law. Kaohsiung High Administrative court sentenced that the amount beyond

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NT$17,867 thousand was withdrawn. After the appeal, Supreme Administrative Court sentenced to return back to Kaohsiung High Administrative court for further trial in Sept. 2013. Kaohsiung High Administrative court sentenced the amount beyond NT$7,068 thousand was withdrawn on Oct. 7th, 2015 and this case had been appealed for the remedy. The determined withdrawn amount NT$95 thousand had been returned back to the account by Tainan city government. The verdict from Supreme Administrative Court had been received on Feb. 18th, 2017, the fact was again returned back to Kaohsiung High Administrative court for the trial.


D. Tainan City Government, in May 2013, issued the letter No. 1020383681B to request the Company to pay site soil pollution remediation related work plan on behalf of An-shun plant, with the cost of NT$26,530 thousand and requested for the Company to pay the fee prior to June 30th 2013. The Company paid the fee in advance within the requested deadline by the Tainan City Government based on applicable laws. The Company filed a petition for remedy in July 2013, which was rejected. The Company filed an administrative litigation in March 2014. The judgement was declared in April 2016. The Company proposed to appeal for remedy on the portions that were unfavorable. However, the appeal was sentenced to be rejected in March 2017. The Company had proposed for retrial remedy in April 2017, which was rejected by court in Oct. of the same year. This case was closed.

E. The Tainan City Government, in February 2014, litigated that the Company was the polluters per judgement No. 1953 which was pass down in 2007 and asked the Company to pay the 2011 advanced payment of supervision and management on behalf of An-shun factory, to the amount of NT$27,444 thousand. The Company paid the fee in advance as previous mention within the requested deadline by the Tainan City Government based on the law regulations and filed the petition for remedy in March 2014, which was rejected by the petition authorities. The Company was not satisfied with the result, and filed the

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administrative legal appeal in September of same year. The Kaohsiung High Administrative Court sentenced the Company to pay NT$154 thousand. However, Tainan City Government was not satisfied with the verdict and filed the appeal for remedy, the Company also filed an appeal based on the Company’s claims to Supreme Administrative High Court. The Supreme Administrative High Court suspended the original verdict in February 2018 and currently the case is under hearing by the Kaohsiung High Administrative Court.

F. Tainan City Government, in May 2016, issued the letter No. 10504498726, requested the Company to pay a fee for the “supervision management and audit work plan of 2013 CPDC (Taiwan Alkali) An-shun plant site remediation” and requested the Company to pay the fee of NT$63,271 thousand prior to July 20th 2016, per paragraph 4 of article 14, article 15 and paragraph 1 of article 43. The Company paid the fee within the requested deadline by the Tainan City Government based on applicable regulations. After the rejection of the petition for the remedy in June 2016, the Company filed for administrative litigation in December 2016 and received parts of the winning judgement in July 2017. In order to maintain the Company’s right and interest, the Company had proposed the appeal to Supreme Administrative Court for remedy of the unfavorable parts in August 2017.


A. Tainan City Government issued the letter No. 1030133470 on February 12th 2014 to order the Company to pay a penalty of NT$200 thousand prior to March 24th 2014 since the Company was deemed not to implement the content per the approved “Site soil pollution remediation pollution remediation plan” and violated the regulation subparagraph 3 of paragraph 2 of Article 38 and paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act. However, the disposition authority determined that this was a factual error and it was clear that the punishment was illegal. Hence, the Company filed a petition for remedy in March 2014, but the petition was rejected by Executive Yuan Environmental Protection Agency in June 2014. The Company filed for administrative litigation remedy in August 2014, the litigation remedy was rejected by the judgement from the simple court of Tainan District court and Kaohsiung High Administrative Court in April and August 2015. The Company filed the retrial for remedy, which was rejected by the Kaohsiung High Administrative Court in April 2016. The Company would continue to file an appeal for remedy. However, the rejection of the Company’s request was received in June 2017. The Company proposed the retrial appeal for remedy in July of the same year. After the retrial, the court rejected the Company’s request in Oct. of the same year and this case was closed.

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C. Tainan City Government issued a letter No. 105050004 for administrative sanctions on May 23, 2016 and deemed that the Company didn’t execute the plan according to the remedy plan since the reduction rate of dioxin pollution was less than 41% in the Soil and groundwater pollution inspection records, which violated the regulation paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act (hereinafter referred to as the “Remediation Act”) and ordered the Company to pay a penalty of NT$2,000 thousand according to subparagraph 3 of paragraph 2 of Article 38 of Remediation Act and the Company had to participate in environment seminars for 2 hours according to the provisions of Article 23, paragraph 2 of the Environmental Education Law. After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle. The Company filed a petition in June 2016, which was rejected by Executive Yuan Environmental Protection Agency in Oct. 2016. The Company was not satisfied, proposing the administrative litigation to Kaohsiung High Administrative court and received the rejection jurisdiction by court in July 2017. The Company proposed the appeal for the remedy in August of the same year per law, but Supreme Administrative Court rejected the Company’s request in Jan. 2018. This case was determined to be closed.

D. Tainan city government, on May 23rd, 2016, required the Company to complete the correction (which means the reduction rate of dioxin pollution reaches to 41%) prior to Oct. 31st, 2016 with letter No. 1050527601 and attached with No. 105050004 issued on May 19th, 2016, otherwise; the Company would be punished continuously per time. Since the Company violated the regulation paragraph 1 of Article 22, paragraph 2 of Article 38 of the Soil and Groundwater Pollution Remediation Act and paragraph 11 of Penalty criterial list, it was fined NT$600 thousand and was ordered to participate in environment seminars for 4 hours (premier NT$200 thousand plus added NT$400 thousand). After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle and this case had necessary relation with the administrative sanction which of letter No. 105050004. The petition remedy was proposed per law in Feb. 2017, which was rejected by Executive Yuan Department of Economic Affairs in May 2017. The Company had proposed the appeal for remedy in June of the same year. Through the rejection of the Company’s request by Kaohsiung High Administrative court

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in Nov. of the same year, the Company had declared the appeal in Dec. of the same year. The Supreme Administrative Court rejected the Company’s request on July 10, 2018. This case was determined to be closed.

E. Tainan city government considered the Company’s remediation progress for the reduction rate of dioxin pollution had not reached 82% and judged the Company for the penalty NT$200 thousand. After verification, the Company had finished 13.51 hectares (symbolizing Pollution area reduction ratio 36.4%), which had been beyond the target (reduction ratio of 36%) of 2nd change plan. Tainan city government with merely single project not reaching to the examined target penalized the Company without considering such factor, which obviously violated the ratio principle. The petition remedy was proposed in June 2017 and was rejected by Executive Yuan Department of Economic Affairs in August of the same year. Considering the legislation economy, the Company decided not to continue the remedy in August of the same year. This case was closed.


3. Others

(1) The Company still has the objection on the adscription of pollution responsibility for An Shun land located in Tainan City Annan District and would continue to strive for the possible administrative and law remedy actively.

In view of the jurisdiction explanation No.714, which indicated whether the general successors of polluters had to burden of remediation responsibilities, was not in the scope of the Soil and Groundwater Pollution Remediation Act. Also, considering the previous Taiwan Alkali Co. Ltd. was a state-owned enterprise, and the An-shun plant was controlled, supervised, and assigned operations and gained beneficially by the Ministry of Economic Affairs, Taiwan Provincial Government and CPC, such actions should be part of national behavior, yet, the resulting pollution and remediation was asked to be borne by the private legal person. The Company applied to the Tainan city government to determine the beginning of the actual pollution or potential pollution of the perpetrators, and who should pay the relevant costs and return the Company’s cost over the years. The rejection was made by the Tainan City Government in November 2014. The Company filed a legal petition in December 2014 and the original disposal authorities revoked the original punishment in March 2014, hence, the Executive Yuan Environmental Protection Agency made a decision not to proceed with the case. The original disposal authorities revoked the previous punishment but simultaneously made a new one, the Company also filed a petition to the new punishment. The Company's petition was decided not to proceed in August

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2015 and the Company filed an administrative legal appeal instead, due to multiple errors, which was under hearing by the Kaohsiung High Administrative Court. Through the rejection of the Company’s request by Kaohsiung High Administrative court, the Company proposed the appeal for remedy in Nov. 2017. This case was under hearing in Supreme Administrative Court.

The cumulative fee of invested and estimated control & management cost and remediation fee were NT$3,428,237 thousand until Dec. 31st, 2018. The preceding remediation fee was estimated according to the current possible situations by the Company. However, if it was affected by the inside and outside factors in future, which resulted in the possible big differences on the whole remediation fee, it would be evaluated for adjustment.


Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by the Tainan City Government, under the letter No. 1031053448A issued on November 17, 2014, as a municipal historic site. However, the administrative sanction has various areas of dispute, thus the Company was not satisfied with the judgement. Hence, the Company filed a legal petition for remedy in December 2014. The petition decision report from the Ministry of Culture revoked the designated land of the Company as a historical site including 4 area in August 2015. The Company appealed for the administrative remedy of the remaining areas, which was under hearing by the Kaohsiung High Administrative Court.


- 310 -

(3) An shun historical site theft case

Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by Tainan City Government as a municipal historic site. However, the defendant, Mr. Wu Ming, put a lot of his personal belonging on the Company’s land beside to the dormitories located on No.15, Aly. 3, Ln. 661, Beishanwei 2nd Rd., Annan Dist., Tainan City 709, Taiwan (R.O.C.), and was suspected being involved with the theft of the property. The Company filed for criminal action. This case was sent to the Tainan District Prosecutors Office for mediation but without success, the Company received the indictment from Prosecutors Office in May 2016 and received the verdict from the court in September of the same year: Mr. Wu was sentenced to five months and was charged NT$5,973 thousand due to the crime. However, the defendant appealed for remedy. The sentence was declared on June 28th, 2017: Mr. Wu was imprisoned for 4 months and confiscated NT$176 thousand acquired from the crime (this case was closed).

Xincun Land of Taiwan Alkali Co., Ltd.:

1. History

On the premise that the residents obeyed the agreement, the Company signed an agreementwith the local communities that land within Feng Shan District, Kaohsiung City shall begranted free of charge for public use.


Business inspector found that the land was occupied by residents that built illegalconstruction, which violated the agreement. After communicating with the residents'multiple times, the situation still did not improve. To be responsible for asset managementand reach the expectation of the Company’s shareholders, the Company filed a legal appealin February 2013 to require to dismantle the illegal construction and return the land, whichwas judged by Kaohsiung District Court to reject the Company’s petition. Due to theprevious judgement against the law, the Company filed a legal appeal for remedy inSeptember 2014, which was rejected by the Kaohsiung High Court in July 2016. TheCompany filed the appeal for remedy to Supreme Court in August of same year.

Shulin Land of Taiwan Alkali Co., Ltd.:

1. History:

(1) No. 540, 541 and 543, Dongshan Section, Shulin District, Xinbei City and No. 498,Weiwang Section, Shulin Dist., New Taipei City 238, Taiwan including 4 area of lands originally belonged to Shulin plant of Taiwan Alkali Co. Ltd. Taiwan Alkali Co. Ltd. established the plant in 1962 and closed the plant in 1975. The Executive Yuan Department of Economic Affairs in April 1983 ordered the government-owned Company which at the time was also a subsidiary of CPC to merge with Taiwan Alkali Co. Ltd

- 311 -



(4) The New Taipei City Government Environmental Protection Bureau issued the letter No. 1001001329 in August 2011 and asked the Company to complete the investigation and proposed a pollution control plan and send to New Taipei City Government Environmental Protection Bureau for approval. The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. This case was closed due to the determined sentence in August 2017.



The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. Taipei High Administrative Court judged to revoke the administrative punishment and the petition decision in August 2012. However, New Taipei City Government Environmental Protection Bureau appealed for retrial, the Supreme Administrative Court discarded the original judgment and remanded the case to the Taipei High Administrative Court. The judgement was claimed to be illegal, hence, the Company filed for legal appeal in December 2013, which was rejected by the Supreme Administrative Court in January 2015. The Company filed for retrial remedy in February 2015, which was rejected in June 2015. The ruling on the parts where important evidence was missed and not considered was remanded to Taipei High Administrative Court. But Taipei High Administrative court sentenced the rejection in August 2016, which the Company was not satisfied with so as to appeal for remedy in Sept. of the same year. In August 2017, the rejection was adjudicated. This case was closed.

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Moreover, in consideration of the No. 714 explanation from the judge, the Company applied to New Taipei City Government Environmental Protection Bureau for the identification of polluters, but it was subsequently refused. The Company filed for the petition and administrative litigation remedy. After the trial from Supreme Administrative Court, the rejection was adjudicated. This case was closed.

i. Short-term and long-term loans

December 31, 2018


Range Year of

Expiration Amount Secured bank loans NTD 1.4300%~1.9556% 2019~2021 $ 2,480,000 Unsecured bank loans NTD 1.3800%~1.814% 2019 600,000 Letter of credit loans NTD 1.4945% 2019 50,000 Total $ 3,130,000 Current $ 1,335,000 Non-current 1,795,000 Total $ 3,130,000

December 31, 2017


Range Year of

Expiration Amount Secured bank loans NTD 1.5%~1.9556% 2019~2021 $ 2,370,000 Unsecured bank loans NTD 1.4885%~1.64% 2018 250,000 Total $ 2,620,000 Current $ 250,000 Non-current 2,370,000 Total $ 2,620,000

On February 2, 2016, the Company signed a syndicated loan agreement for 5 years with Mega International Commercial Bank, the lead bank of the syndicated loan, and 7 other banks in order to raise funds to build the plant and accessory equipment and meet funding requirement. The aggregate amount of credit line of the syndicated loan was $4,350,000 thousand.

1. Syndicated loan A: The credit line is $2,900,000 thousand consisting of medium-termsecured loans and non-revolving credit facility, which were used to finance the building ofthe plant and purchase of accessory equipment.

2. Syndicated loan B: The credit line is $1,450,000 thousand consisting of medium-term loansand revolving credit facility, which were used to meet funding requirement.

3. The financial covenants under the loan agreement include the requirement to maintaincertain financial ratios based on the reviewed semi-annual financial report and auditedannual financial reports. If the Company breaches these financial covenants, the syndicatedbanks may determine to declare the unpaid principal, interest, fees and other sums payableby the Company under the loan agreement to be immediately due and payable. Thesefinancial ratios are as follows:

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(1) Current Ratio (total current assets divided by total current liabilities): not lower than 100%.

(2) Leverage Ratio (total liabilities plus contingent liabilities to tangible net worth): not higher than 100%.

(3) Times Interest Earned (income before tax plus depreciation expense plus amortization expense divided by interest expenses): not lower than 2 times.

As of December 31, 2018 and 2017, both of the unused credit line amounted to $2,250,000 thousand. Please refer to Note 8 for details of the related assets pledged as collateral.

The Company signed a contract for secured bank credit facilities totaling $1,200,000 thousand in order to finance its operating requirement. As of December 31, 2018 and 2017, credit facilities of $380,000 thousand and $270,000 thousand were used. The unused amounted to $820,000 thousand and $930,000 thousand. The current portion of the long-term bank loans obtained from such credit facilities amounted to $380,000 thousand and $0 thousand, respectively. Please refer to Note 8 for details of the related assets pledged as collateral. As of December 31, 2018 and 2017, the Company was granted by banks short-term credit lines of $6,650,000 thousand and $5,754,000 thousand, of which $3,565,104 thousand and $3,237,817 thousand, respectively, were unused.


j. Long-term bills payable

The components of long-term bills payable were as follows:


Bills payable China Bills Finance Corporation 2018.11.09~2019.01.08 $ 100,000 Bills payable China Bills Finance Corporation 2018.11.16~2019.01.15 50,000 Bills payable International Bills Finance Co., Ltd. 2018.11.30~2019.01.18 50,000 Bills payable Taching Bills Finance Co., Ltd. 2018.11.26~2019.02.25 50,000 Bills payable Mega Bills Finance Co., Ltd. 2018.12.20~2019.03.20 100,000

350,000 Less: Discount on long-


$ 349,729


Bills payable China Bills Finance Corporation 2017.12.08~2018.02.06 $ 300,000 300,000

Less: Discount on long-term bills payable

(118)

Total $ 299,882

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The Company had revolving commercial promissory note agreements with bills finance companies in order to finance its operating requirement. The bills payable bear interest at annual rates ranging from 0.5%~1.1513% and 0.38%~0.70% for the years ended December 31, 2018 and 2017, respectively. Please refer to Note 8 for details of the related assets pledged as collateral.

k. Bonds payable

December 31, 2018

December 31, 2017

Total amount of convertible bonds issued $ - 4,127,904 Cumulative converted amount - (4,109,141) Cumulative redeemed amount - (18,763) Embedded derivative-call option、put option and Conversion Right $ - -


31,2018


31,2017 Loss (gain) on fair value measurement of embedded derivatives

such as buy back right, sell back right and Conversion Right $ - 920,915

Interest expense Amortization of issuance cost - 92,745

$ - 83,552

The convertible bond issued by the Company was treated as a compound financial instrument, for which the liability and equity components were accounted for separately.

The call and put option embedded in bonds payable were separated from bonds payable, and were recognized as “Financial liabilities at fair value through profit or loss.” For the years ended December 31, 2018 and 2017, the Company recognized a gain (loss) on financial liability reported at fair value through profit or loss of $0 thousand and $(920,915) thousand, respectively.

On December 17, 2014, the Company issued Credit Enhanced Zero Coupon Convertible Bonds with aggregate principal amount of US$132,000 thousand, which are due in 2019. These bonds bear effective interest rate of 3.2082%. On conversion of the Bonds to the Company’s common shares of stock, the conversion price is $10.80 (NT dollars) per share with a fixed exchange rate of NT$31.222 = US$1.00. If the price for the conversion of the Bonds is adjusted as defined in the issuance terms, the conversion price adjustment is made according to a definite formula. The bonds bear no conditions. Unless previously redeemed, repurchased and cancelled, or converted, the Bonds will mature, and are redeemable on December 17, 2019 at 109.10% of the unpaid principal amount thereof.

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The Company will redeem the Bonds in whole or in part early under the following conditions:

1. The Company may redeem the Bonds, in whole or in part, at the early redemption amounton the date of redemption if the Market Price (translated into US Dollars at the PrevailingRate) for 20 out of 30 consecutive Trading Days, the last of which occurs not more thanfive trading days prior to the date on which notice of such redemption is given, is at least125% of the quotient of the Early Redemption Amount divided by the Conversion Ratio.

2. If more than 90% in principal amount of the Bonds originally outstanding has beenredeemed, repurchased and cancelled or converted, the Company can redeem the remainingoutstanding bonds.

3. If, as a result of certain changes relating to the tax laws in the ROC or such other jurisdictionin which the Company are then organized or resident for tax purposes, the Companybecomes obligated to pay Additional Amounts. The Bonds, may be redeemed at the optionof the Company, in whole but not in part, at the Early Redemption Amount Bondholdersmay elect not to have their Bonds redeemed but with no entitlement to any AdditionalAmounts or reimbursement of additional tax.

4. Upon the occurrence of an LC Redemption Event and to the extent permitted by applicablelaw, the Company shall redeem all and not some only of the outstanding Bonds at the EarlyRedemption Amount to such date, subject to the right of each holder of the Bonds to electthat such holder’s Bonds shall not be redeemed, but shall remain outstanding without thebenefit of the Letters of Credit.

Except for the following circumstances, a Bondholder should not request the Company to redeem the bond, in whole or in part, before maturity date.

1. Unless the Bonds have been previously redeemed, repurchased and cancelled, or converted,each Bondholder shall have the right, at such Bondholder’s option, to require theCompany to repurchase, in whole or in part (being US$200,000 thousand in principalamount and integral multiples thereof), of such Bondholder’s Bonds on December 17, 2017at 105.37% of their principal amount

2. In the event that the Common Shares cease to be listed or admitted to trading on the TWSE,each Bondholder shall have the right, at such Bondholder’s option, to require the Companyto repurchase, in whole or in part.

3. Upon the occurrence of an LC Redemption Event and to the extent permitted by applicablelaw, each Bondholder shall have the right, at such Bondholder’s option, to require theCompany to repurchase, in whole or in part.

Payments of (i) the principal of and premium on the Bonds at maturity or upon redemption or repurchase; or (ii) the principal of and premium and default interest (if any) on the Bonds in the case of an Event of Default will have the benefit of irrevocable standby letters of credit (the ‘‘Letters of Credit’’) issued severally but not jointly by CTBC Bank Co., Ltd. and Taiwan Cooperative Bank, Ltd. in accordance with their respective committed percentage to the total principal amount of the Bonds.

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During the period when Bonds are outstanding, the Company is required to comply with the following financial covenants:

1. Current ratio (current assets/current liabilities): should not be less than 120%.

2. Debt ratio ((total liabilities + contingent liabilities)/tangible net assets): should not behigher than 70%.

3. Interest coverage ratio (EBITDA/interest expense): should not be less than 3%.

4. Tangible net assets (stockholders’ equity (including minority shareholders) - intangibleassets): should not be less than $25,000,000 thousand.

Based on its 2016 reviewed semi-annual financial report, the Company did not meet its financial covenant with regard to time interest earned as prescribed in its agreement. Therefore, the Company deposited USD time deposits to the compensation bank account as defined in the agreement. The Company negotiated with the banks continuously. The Company got exemption of the financial ratio of time interest earned violation on November 1, 2016, and took the USD time deposits back from the compensation bank account. As of December 31, 2016, the Company did not meet its financial covenant with regard to time interest earned as prescribed in its agreement. However, after the negotiating with the banks, the Company was given an exemption on March 31, 2017.

After the bond has been issued for over 36 months, if the closing price of the Company’s common shares listed on the Taiwan Stock Exchange exceeds or equals 125% of the conversion price for 20 consecutive days, the Company may redeem the bonds using the early redemption price. Because the Company has met the conditions on early redemption, it was able to redeem all the bonds on December 19, 2017.


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l. Provisions

Decommissioning Remediation

project Employee benefits Total

Balance as of January 1, 2018 $ 1,200,529 1,087,851 242,175 2,530,552 Provisions made during the year - - 11,620 11,620 Provisions used during the year (2,179) (120,437) (16,809) (139,425) Balance as of December 31, 2018 $ 1,198,350 967,414 236,983 2,402,747 Current $ - 473,629 5,885 479,514 Non-current 1,198,350 493,785 231,098 1,923,233

$ 1,198,350 967,414 236,983 2,402,747 Balance as of January 1, 2017 $ 1,200,529 1,192,928 259,209 2,652,666

Provisions made during the year - - 6,124 6,124 Provisions used during the year - (105,077) (23,161) (128,238) Balance as of December 31, 2017 $ 1,200,529 1,087,851 242,172 2,530,552 Current $ - 164,493 8,857 173,350 Non-current 1,200,529 923,358 233,315 2,357,202

$ 1,200,529 1,087,851 2421,72 2,530,552

1. To comply with the Order of the Tainan City Government, the Company submitted aremediation plan proposal and accrued relevant remediation plan for approval before June30, 2008 and evaluated the relating remediation expense of $1,647,200 thousand. In May2009 and on July 2, 2012, the Company was granted official approval of its remediationproposal and amended remediation proposal, respectively. In September 2014, theCompany has completed the first phase of the implementation of its plan. It is expected tolaunch the second phase of the implementation of its remediation plan during the next.The Company has submitted the second phase of its amended remediation plan to theTainan City Government for approval. On December 24, 2014, Tainan City Governmentnotified the Company its approval and now is under public tender review.

The aforementioned remediation costs of the Company were recognized in the total amount of $1,600,000 thousand for the first stage before September, 2014. With the launch of the subsequence of the second remediation stage, the Company estimated the cost based on the situation of December, 2014 is $1,356,000 thousand. (Note 6 h. for more details)

2. (1) The Company’s four parcels of land at Dongshan section , Shulin district, New TaipeiCity were the original location of TAIC’s Shulin plants , but then sold to the Taiwan Chinese Petroleum Corporation (CPC). On August 16, 2010, the Environmental Protection Department of New Taipei City Government has declared that such land as "Soil Pollution Control Site”. In March 2011, the Environmental Protection Department of New Taipei City Government has issued its letter No. 1000010000. In that letter, the Company is deemed to be the surviving entity, which assumed the rights and obligations of TAIC following its merger with TAIC and TAIC ceased to exist. As the surviving entity from this merger, the Company was therefore declared as the polluter and was required to submit a remedial measuring plan.

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(2) In August 2011, the Environmental Protection Department of New Taipei City Government has issued its Letter No. 1001001329 requiring the Company to complete its investigation and propose a pollution control plan to the Environmental Protection Department of New Taipei City Government for approval and then adopt its implementation. Following its said merger with Taiwan Alkali Company under the government‘s mandatory order, the Company itself has neither performed any act of production, operation, development, use nor initiated act to cause pollution. For this reason, the Company objected with being tagged as “the polluter” and filed a complaint for administration remedy in August 2011. In 2011, the Company estimated and accrued relevant remediation expenses of $273,750 thousand in accordance with the relevant provisions of Financial Accounting Standards.

m. Operating lease

The Company leases out some of its property, plant and equipment under operating leases. Thefuture minimum lease receivable under these non-cancellable operating leases were as follows:

December 31, 2018

December 31, 2017

Less than one year $ 16,094 16,094 Between one and five years 19,904 19,119 Over five years 38,019 39,652

$ 74,017 74,865

For the years then ended December 31, 2018 and 2017, the income from the rental of property, plant and equipment amounted to $19,491 thousand and $19,806 thousand, respectively.

n. Employee benefits


The Company’s defined benefit obligations and fair value of plan assets were as follows:

December 31, 2018

December 31, 2017

Present value of funded defined benefit obligation $ 581,583 699,020 Fair value of plan assets (356,244) (465,705) Net defined benefit liabilities $ 225,339 233,315

The provision consists of net defined benefit liabilities and accrued pension liabilities for professional managements. The accrued pension liabilities for professional managements was $5,759 thousand and $0 thousand as of December 31, 2018 and 2017, respectively.

The Company makes defined benefit plans contributions to the pension fund account with Bank of Taiwan that provides pension benefits for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for six months prior to retirement.

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As of December 31, 2018, the balance of the Company’s contributions to the pension funds in Bank of Taiwan was $358,940 thousand. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Labor Pension Fund Supervisory Committee.

(2) Movements in present value of the defined benefit obligations

The movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2017 were as follows:

2018 2017 Defined benefit obligation, January 1 $ 699,020 814,474 Benefits paid from plan assets (140,457) (126,141) Current service costs and interest 24,038 26,682 Re-measurements of the net defined benefit liability (assets) (1,018) (15,995) Defined benefit obligation, December 31 $ 581,583 699,020


The movements in the present value of the defined benefit assets for the year ended December 31, 2018 and 2017 were as follows:

2018 2017 Fair value of plan assets, January 1 $ 465,705 564,123 Employer contributions 11,036 20,121 Benefits paid by the plan (140,457) (123,493) Expected return on plan assets 6,112 6,021 Re-measurements of the net defined benefit liability (assets) 13,848 (1,067) Fair value of plan assets, December 31 $ 356,244 465,705

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The Company’s pension expenses recognized in profit or loss for the years ended December 31, 2018 and 2017 were as follows:


Current service cost $ 14,845 17,967 Net interest on net defined benefit liability 3,081 2,694

$ 17,926 20,661 Operating costs $ 16,473 19,336 Selling expenses 56 79 Administrative expenses 1,254 1,074 Research and development expenses 143 142

$ 17,926 20,661 Actual return on plan assets $ 19,960 4,954

(5) Re-measurement of net defined benefit liability recognized in other comprehensive income

The Company’s net defined benefit liability recognized in other comprehensive income was as follows:


Accumulated balance, January 1 $ (153,844) (168,772) Recognized during this year 14,866 14,928 Accumulated balance, December 31 $ (138,978) (153,844)

(6) Actuarial assumptions

The following are the key actuarial assumptions at the reporting date:


Discount rate 1.125% 1.375% Future salary increases 1.500% 1.500%

Base on the actuarial report, the Company is expected to make a contribution payment of $50,440 thousand to the defined benefit plans for the one year period after the reporting date. The weighted-average duration of the defined benefit plans is 12.73 years.


In determining the present value of the defined benefit obligation, the Company’s management makes judgments and estimates in determining certain actuarial assumptions on the balance sheet date, which includes employee turnover rate and future salary changes. Changes in actuarial assumptions may have significant impact on the amount of defined benefit obligation.

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As of December 31, 2018 and 2017, the changes in the principal actuarial assumptions will impact the present value of defined benefit obligation as follows:


Increase by 0.25%

Decrease by 0.25%



The sensitivity analysis assumed all other variables remain constant during the measurement. This may not be representative of the actual change in defined benefit obligation as some of the variables may be correlated in the actual situation. The model used in the sensitivity analysis is the same as the defined benefit obligation liability.

The analysis is performed on the same basis for prior year.


The Company contributes an amount at the rate of 6% of the employee’s monthly wagesto the Labor Pension personal account with the Bureau of the Labor Insurance and Councilof Labor Affairs in R.O.C. in accordance with the provisions of the Labor Pension Act.The Company’s contributions to the Bureau of the Labor Insurance and Social SecurityBureau for the employees’ pension benefits require no further payment of additional legalor constructive obligations.

The cost of the pension contributions to the Labor Insurance Bureau for the years endedDecember 31, 2018 and 2017 amounted to $40,539 thousand and $33,690 thousand,respectively.

3. The pension recognized consists of pension expenses and pensions for professionalmanagement. The pension expenses for professional management was $5,759 thousandand $0 thousand as of December 31, 2018 and 2017, respectively.


As of December 31, 2018 and 2017, the Company’s short-term compensated absencesliabilities amounted to $5,885 thousand and $8,857 thousand, respectively.

o. Income Tax

According to the amendments to the “Income Tax Act” enacted by the office of the Presidentof the Republic of China (Taiwan) on February 7, 2018, an increase in the corporate incometax rate from 17% to 20% is applicable upon filing the corporate income tax return commencingFY 2018.

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1. Income tax expense

The components of income tax expense for the years ended December 31, 2018 and 2017were as follows:


Current income tax expense Currently incurred $ (346,315) (183,085) Adjustment to prior year’s income tax charged to current

income tax 614 -

(346,001) (183,085) Deferred tax expense

The origination and reversal of temporary differences (570,690) (435,180) Unrecognized changes of deductible temporary differences 570,690 435,180

- - Income tax expense $ (346,001) (183,085)

For the years ended December 31, 2018 and 2017, income tax expenses recognized under other comprehensive income were both $0 thousand.

Income tax calculated on pre-tax financial income was reconciled with income tax expense for the years ended December 31, 2018 and 2017 as follows:


Profit (loss) before income tax $ 4,636,270 6,274,741 Income tax on pre-tax financial income calculated at the

domestic rate (972,254) (1,066,706)

Unrecognized deferred tax assets 570,690 435,180 Changes of permanent differences 358,215 631,526 Prior years income tax adjustment 614 - 10% surtax on undistributed earnings (348,266) - Income basic tax - (183,085) Income tax expense $ (346,001) (183,085)

2. Unrecognized Deferred tax assets

December 31, 2018

December 31, 2017

Decommissioning liabilities $ 67,683 56,386 Remediation project 239,744 240,050 Extraordinary loss 727,670 847,801 Allowance for doubtful receivables 319,484 319,484 Property, plant and equipment, investment property 750,998 883,183 Tax loss 4,278,868 6,974,595 Others 415,439 87,506

$ 6,799,866 9,409,005

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The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority. Tax loss ratified by Tax Administration could be carried forward for ten consecutive years in accordance with Income Tax Act. The Company did not recognize aforesaid tax loss as deferred tax assets because it is not expecting enough taxable profit in the near future.

As of December 31, 2018, the expiration years of tax loss unrecognized as deferred tax assets were as follows:


3 Deferred tax liabilities:

As of December 2018 and December 31, 2017, the balance of deferred income tax liabilities for the provision of land value-added tax was $8,758,989 thousand an $8,754,736 thousand, respectively.


The changes in the deferred income tax assets recognized in the Republic of China in2018 and 2017 are as follows:

Taxable Loss Balance, January 1, 2018 $ 9,358 Recognized in profit or loss 1,651 Balance, December 31, 2018 $ 11,009 Balance, December 31, 2017(equal to January 1) $ 9,358


According to the amendments to the "Income Tax Act" enacted by the office of thePresident of the Republic of China (Taiwan) on February 7, 2018, effective January 1, 2018,companies will no longer be required to establish, record, calculate, and distribute theirICA due to the abolishment of the imputation tax system.

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p. Capital and reserves

As of December 31, 2018 and 2017, the authorized, issued and outstanding capital of theCompany amounted to $26,998,573 thousand, divided into 2,699,857 thousand shares, with parvalue of $10 (NT dollars) per share.

(In thousands of shares) Common Stock

2018 2017

Balance, January 1 2,699,857 2,319,990 Conversion of convertible bonds - 379,867 Balance, December 31 2,699,857 2,699,857

Due to the conversion of the convertible bonds between January 1 and March 31, 2017, the Company issued 35,269 thousand shares amounting to $352,693 thousand, at a par value of NT$10 per share, with the issuance date on March 31, 2017, which was approved by and registered with the competent authority on June 28, 2017.

Due to the conversion of the convertible bonds between April 1 and June 30, 2017, the Company issued 8,095 thousand shares amounting to $80,946 thousand, at a par value of NT$10 per share, with the issuance date on June 30, 2017, which was approved by and registered with the competent authority on August 8, 2017.

Due to the conversion of the convertible bonds between July 1 and September 30, 2017, the Company issued 161,313 thousand shares amounting to $1,613,136 thousand, at a par value of NT$10 per share, with the issuance date on September 30, 2017, which was approved by and registered with the competent authority on November 27, 2017.

Due to the conversion of the convertible bonds between October 1 and December 31, 2017, the Company issued 175,190 thousand shares amounting to $1,751,901 thousand, at a par value of NT$10 per share, with the issuance date on December 31, 2017, and be approved by the competent authority on March 28, 2018.

1. Capital Surplus

December 31, 2018

December 31, 2017

Premium of share issue $ 1,242,245 1,242,245 Other 18,141 18,141 Total $ 1,260,386 1,260,386


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The Company distributes dividends depending on the level of earnings of each year, funding needs, industrial environment, and status of competition, long-term operating plan and interests of shareholders. Under such circumstances, the Company may appropriate for special reserve either in whole or in part to assure financial stability and sustainability. The Company may distribute dividends in cash or stock. If the earnings distribution is made in the form of by stock dividend, the ratio for the stock dividend shall not exceed 50% of the total distribution unless the ratio of the Company’s total liabilities to total assets is equivalent or above 50% or otherwise prescribed in relevant laws and regulations.

(1) Legal reserve


(2) Special reserve

By adopting the exemptions allowed under IFRS 1 First-time Adoption of International Financial Reporting Standards during the Company’s first-time adoption of the International Financial Reporting Standards approved by the Financial Supervisory Commission (IFRSs), unrealized asset revaluation gains in shareholders’ equity of $5,281,790 thousand was reclassified to retained earnings. The net increase in retained earnings due to the first-time adoption of IFRSs amounted to $4,235,076 thousand. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory Commission on 6 April 2012, a special reserve is appropriated from the distribution of retained earnings as a result of an increase in retained earnings due to the first-time adoption of IFRSs. When the related assets are used, disposed of, or reclassified, this special reserve is reversed as distributable earnings proportionately. The carrying amount of special reserve amounted to $4,235,076 thousand as of December 31, 2018 and 2017.

In 2014, the Company changed the subsequent measurement of investment properties from cost model to fair value model. In accordance with Ruling No. 1030006415 issued by the Financial Supervisory Commission on 18 March 2014, on the first-time adoption of fair value model for the subsequent measurement of investment properties, the Company set aside an equal amount of special reserve when the fair value increment of investment properties is transferred to retained earnings. The Company appropriated to the special reserve an amount of $21,224,233 thousand as of December 31, 2013. The company held a shareholder meeting on June 8, 2017, in order to use the special reserve amounted to $1,958,584 thousand to cover accumulated deficits. On April 11, 2018, the Company’s shareholders resolved during their meeting, to reimburse $1,958,584 thousand into the special reserve. The carrying amount of such special reserve amounted to $21,224,233 thousand and $19,265,649 thousand as of December 31, 2018 and 2017, respectively.

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For every year the Company distributes earnings, a special reserve is appropriated in the following order:

A. Each year, a special reserve is appropriated from current year’s net income and prior years’ undistributed earnings for the same amount as the net increase in the fair value of investment property using the fair value model. A special reserve is also appropriated for the same amount as the cumulated net increase in the fair value for the year when the undistributed earnings are not distributed. When the investment property is disposed of, this special reserve is reverted proportionately to distributable earnings. As of December 12, 2018 and 2017, the Company appropriated to the special reserve an amount of $3,867,293 thousand and $327,688 thousand, respectively.

B. In accordance with Ruling No. 1010047490 issued by the Financial Supervisory Commission on 21 November 2012, a special reserve is appropriated by the parent company for the difference between market value and book value of parent company shares being held by a subsidiary times the percentage of the parent company’s equity investment in the said subsidiary, if the stock price of the parent company is lower than the its value. If the market value recovers subsequently, this special reserve is reverted proportionately to distributable earnings.

C. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory Commission on 6 April 2012, a portion of current-period earnings and undistributed prior-period earnings is appropriated as a special reserve during earnings distribution. Such appropriation of special reserve is based on the difference between the total net amount of contra accounts in the shareholders’ equity and the carrying amount of special reserve. Similarly, a portion of undistributed prior period earnings (which does not qualify for earnings distribution) is likewise appropriated as a special reserve on account of cumulative changes to other shareholders’ equity pertaining to prior periods. The subsequent reversals of the contra accounts in the shareholders’ equity shall qualify for additional earnings distributions.

(3) Earnings Distribution

On April 11, 2018 and June 8, 2017, the Company’s shareholders resolved during their meeting, not to distribute dividend to shareholders out of the earnings.

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foreign operation


income Balance, January 1, 2018 $ (392,378) (788,734) Retrospective adjustments - (18,968) Exchange difference on subsidiary accounted for using

equity method (95,834) -

Unrealized gains (losses) from investments in equity instruments measured at fair value through other comprehensive income

- (408,318)


- (32,387)


- (92)



foreign operation Available-for-sale

financial assets Balance, January 1, 2017 $ (293,769) (1,228,183) Exchange difference on subsidiary accounted for using

equity method (98,609) -

Unrealized gain for available-for-sale financial assets - 39,1878 Unrealized gain for available-for-sale financial assets for

subsidiary accounted for using equity method - 47,136

Unrealized gain for available-for-sale financial assets for affiliated companies accounted for using equity method

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Balance, December 31, 2017 $ (392,378) (788,734)

q. Earnings per share

The basic earnings per share and diluted earnings per shares for the years ended December 31, 2018 and 2017 were calculated as follows:


Basic earnings per share (NT dollars) Profit attributable to ordinary shareholders $ 4,290,269 6,091,656 Weighted-average number of ordinary shares 2,699,857 2,390,817

$ 1.59 2.55

Diluted earnings per share (NT dollars) Profit attributable to ordinary shareholders (diluted) $ 4,290,269 6,091,656 Weighted-average number of ordinary shares (basic) 2,699,857 2,390,817 Effect of potentially dilutive ordinary shares of Employee stock

bonus 13,371 12,909

Weighted-average number of ordinary shares (diluted) 2,713,228 2,403,726 $ 1.58 2.53

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r. Revenue from contracts with customers

1. Details of revenue

The Company primarily engages in the production of petroleum, alkali-chlorine,phosphoric acid and other petrochemical products and by-products and the storage,transportation, purchase and sale of these products, related chemicals and their rawmaterials. The details of products and sales area, please refer to Notes 14.


December 31, 2018

January 1, 2018

Accounts receivable (including related parties) $ 3,043,618 3,954,388 Less: allowance for doubtful account (332,496) (332,496)

$ 2,711,122 3,612,892

Contract liabilities $ 2,674 5,253

Please refer to Note 6 v. for disclosure of accounts receivable and allowance for doubtful accounts.

The amount of revenue recognized for the year ended December 31, 2018 that was included in the contract liability balance at the beginning of the period was $5,253 thousand.

s. Revenue


Sales of goods $ 36,969,800 32,160,867

t. Remuneration of employees and directors

In accordance with the Articles of incorporation, the Company should contribute no less than3% of the profit as employee compensation and less than 2% as directors' and supervisors'remuneration when there is profit for the year. However, if the Company has accumulateddeficits, the profit should be reserved to offset the deficit. The amount of remuneration of eachdirector and supervisor and of compensation for employees entitled to receive theabovementioned employee compensation is approved by the board of directors. The recipientsof shares and cash may include the employees of the Company's affiliated companies who meetcertain conditions.

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For the years ended December 31, 2018 and 2017, remuneration of employees of $146,409 thousand and $198,150 thousand, respectively, and directors of $97,606 thousand and $132,100 thousand, respectively, were estimated and recognized as current expense. These amounts were calculated using the Company’s profit before tax before remuneration of employees and directors for the years ended December 31, 2018 and 2017. These benefits were charged to profit or loss under operating costs or operating expenses for the years ended December 31, 2018 and 2017. These benefits were charged to profit or loss under operating costs or operating expenses for the years ended December 31, 2018 and 2017. Related information would be available at the Market Observation Post System website. The actual distribution of remuneration of employees amounted to $118,850 thousand as of December 31, 2018. The amounts, as stated in the financial statements, are identical to those of the actual distributions for 2018 and 2017.

u. Non-operating income and expense

1. Other income


Interest income Repurchase agreement $ 7,130 16,414 Imputed interests of security deposits 364 5 Bank deposits 156,865 169,038

Dividends income 636,733 65,578 Other income 130,351 225,428 Rental income 19,491 19,806

$ 950,933 496,269



Foreign exchange (losses) gains $ (15,866) 68,706 Gain on disposal of investments - 2,674,417 Loss on disposal of property, plant and equipment (6,941) (465) Gain on evaluation of investment property 119,574 41,244 Gain on redemption of bonds payable - 10,091 Net gains on evaluation of financial assets (liabilities) measured

at fair value through profit or loss 261,643 -

Embedded Derivatives- loss on fair value Measurement of buy back right, sell back right and Conversion Right

- (920,915)

Bank fees (50,859) (165,411) Impairment gain on financial assets - 156,252 Other losses (537,606) (238,229)

$ (230,055) 1,625,690

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3. Finance costs


Interest expenses Bank loans $ 49,821 77,881 Imputed interests of security deposits 16 16

Amortization of bonds payable, discount - 28,838 Interest compensation of bonds payable - 63,907

Others 2,263 5,508 $ 52,100 176,150

v. Financial Instruments



December 31, 2018

December 31, 2017

Financial assets at fair value through profit or loss $ 4,265,537 990,664 Financial assets at fair value through other

comprehensive income 1,963,687 -

Available-for-sale financial assets - 1,677,346 Financial assets carried at cost - 1,772,035 Cash and cash equivalents 8,465,372 6,912,818 Notes receivable, accounts receivable and other

receivables 2,817,303 3,655,694

Other assets 127,646 126,949 Total $ 17,639,545 15,135,506


December 31, 2018

December 31, 2017

Short-term loans $ 650,000 250,000 Long-term bank loans-current portion 685,000 - Payables 2,967,746 2,268,922 Long-term bank loans 1,795,000 2,370,000 Long-term bills payable 349,729 299,882 Other liabilities 101,861 - Total $ 6,549,336 5,188,804

2. Credit risk


The carrying amount of financial assets represents the Company’s maximum credit exposure. As of December 31, 2018 and 2017, the maximum exposures to credit risk amounted to $17,639,545 thousand and $15,133,506 thousand, respectively.

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(2) The concentration of credit risk

The sales of the Company are significantly concentrated in a small number of customers. For the years ended December 31, 2018 and 2017, 82% and 84%, respectively, of the total amount of accounts receivable is composed of 11 customers and 8 customers, respectively. Under the Company’s credit policy, customers are requested to provide the Company certain financial information like audited financial report, or other related documents for purposes of evaluating their credit worthiness. Credits are granted to these customers according to the result the Company’s credit evaluation.


The Company uses simple method to evaluate expected credit loss for notes receivable and accounts receivable, which means using the existing life time to measure the expected credit loss. For the purpose of measuring, the notes receivable and accounts receivable are grouped based on the characteristic of mutual credit risk, which is the ability for customers to honor the contract and be able to settle the receivables when due. Aging analysis of the receivables on the reporting date was as follows:

Carrying amount of

account receivables


credit loss

Allowance for expected credit loss

Not past due $ 2,806,028 0~4% 94,906 Past due more than 1 year 237,590 100% 237,590

$ 3,043,618 332,496

Aging analysis of the receivables on the reporting date was as follows:

December 31, 2017 Total

amount Impairment Not past due $ 3,750,600 (94,906) Past due more than 1 year 237,590 (237,590)

$ 3,988,190 (332,496)

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3. Liquidity risk

The following are the contractual maturities of financial liabilities, including estimatedinterest payments and excluding the impact of netting agreements.

Carrying

amount

Contractual

cash flows

Within 6

months

6-12


More than

5 years

December 31, 2018

Non-derivative financial liabilities Accounts payable $ 1,728,481 1,728,481 1,728,481 - - - - Other payables 935,006 935,006 745,448 189,558 - - - Other financial liabilities－

current 10,848 10,848 10,848 - - - -


100,057 100,057 88,523 9,023 226 765 1,520

Floating-rate loans 1,550,000 1,607,245 411,652 210,987 421,974 562,632 - Fixed-rate loans 1,580,000 1,584,731 551,332 180,128 100,394 752,877 - Long-term bills payable 349,729 350,000 350,000 - - - -

$ 6,254,121 6,316,368 3,886,284 589,696 6,434,608 6,798,642 1,520

December 31, 2017

Non-derivative financial liabilities Accounts payable $ 1,835,136 1,835,136 1,835,136 - - - - Other payables 233,840 233,840 231,717 - 63 2,060 - Other financial liabilities－

current 341,923 341,923 341,923 - - - -


62,012 62,012 13,467 38,503 8,522 - 1,520

Floating-rate loans 1,350,000 1,432,337 - - - 1,432,337 - Fixed-rate loans 1,270,000 1,271,489 250,718 - 220,371 800,400 - Long-term bills payable 299,882 300,000 - - 300,000 - -

$ 5,392,793 5,476,737 2,672,961 38,503 528,956 2,234,797 1,520

4. Currency risk


The Company’s exposures to significant currency risk were those from its foreign currency denominated financial assets and liabilities as follows:

December 31, 2018 December 31, 2017 Foreign

Currency Exchange

rate NTD Foreign

Currency Exchange

rate NTD Financial assets

Monetary items USD $ 44,564 30.710 1,368,570 36,824 29.765 1,096,069

HKD - 3.924 - 11,359 3.8110 43,293 RMB 475,179 4.470 2,124,050 903,705 4.567 4,127,221 EUR - 35.150 - 1 35.540 39 VND 4,786,000 0.0013 1,954,813 - - -

Long-term share investment using equity method

USD 170 30.710 5,254 170 29.765 5,048 Financial liabilities

Monetary items USD $ 12,497 30.710 383,797 9,621 29.765 286,368 RMB - - - - - -

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The Company’s exposure to foreign currency risk arises from the foreign currency exchange rate fluctuations on cash and cash equivalents, receivables and payables, which are denominated in foreign currency. A 1% of appreciation of NTD against USD, EUR, HKD, VND, and RMB would have increased net income after tax by $24,921 thousand and increased $41,336 thousand for the years ended December 31, 2018 and 2017, respectively; other comprehensive income would have increased $53 thousand and increased $50 thousand for the years ended December 31, 2018 and 2017, respectively. The analysis between these two periods was based on the same criteria.

(3) Foreign exchange gain and loss on monetary items

Since the Company has many kinds of functional currency, the information on foreign exchange gain (loss) on monetary items is disclosed by total amount. For years 2018 and 2017, foreign exchange gain (loss) (including realized and unrealized portions) amounted to lossed $15,866 thousand and gained $68,706 thousand, respectively.

5. Interest rate analysis

The following sensitivity analysis is based on the risk exposure to interest rates on thederivative and non-derivative financial instruments on the reporting date. For financialinstruments bearing floating-rate, the sensitivity analysis assumes the floating-rateliabilities are outstanding for the whole year on the reporting date. The Company’s internalmanagement reported the increases/decreases in the interest rates and the exposure tochanges in interest rates of 1% is considered by management to be a reasonable change ofinterest rate.

If the interest rate increases by 1%, the Company’s net income will decrease by $16,500thousand and $13,500 thousand for the years ended December 31, 2018 and 2017,respectively, assuming all other variable factors remain constant. This is due mainly to thefact that the Company’s borrowings bear floating interest rate.

6. Fair value information

The company use their market observations as much as possible when measuring theirassets and liabilities. The level of fair value is based on the input value of the evaluationtechnique as follows:

(1) Level 1: quoted prices (unadjusted) in active markets for identified assets or liabilities.

(2) Level 2: inputs other than quoted prices included within Level 1 that are observablefor the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

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(3) Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs).

(A) Fair value hierarchy


Fair value


December 31, 2018

Financial Assets

Cash and cash equivalent $ 8,465,372 - - - -

Current financial assets at fair value through profit or loss 1,016,992 1,016,992 - - 1,016,992

Non-current financial assets at fair value through profit or loss 3,248,545 - - 3,248,545 3,248,545

Non-current financial assets at fair value through other comprehensive

income

1,963,687 1,524,767 - 438,920 1,963,687

Note receivables, accounts receivable and other accounts receivable 2,817,303 - - - -

Other assets 127,646 - - - -

Non-financial Assets

Investment property 38,350,359 - - 38,350,359 38,350,359

$ 55,989,904 2,541,759 - 42,037,824 44,579,583

Financial Liabilities

Short-term loans $ 650,000 - - - -

Long-term liabilities-current portion 685,000 - - - -

Long-term loans 1,795,000 - - - -

Long-term accounts payable 2,967,746 - - - -

Long-term notes payable 349,729 - - - -

Other liabilities 101,861 - - - -

$ 6,549,336 - - - -

December 31, 2017

Financial Assets

Cash and cash equivalent $ 6,912,818 - - - -

Current financial assets at fair value through profit or loss 990,664 990,664 - - 990,664

Current available-for-sale financial assets 1,677,346 1,677,346 - - 1,677,346

Current financial assets at cost 1,772,035 - - - -

Note receivables, accounts receivable and other accounts receivable 3,655,694 - - - -

Other assets 124,949 - - - -

Non-financial Assets

Investment property 38,226,532 - - 38,226,532 38,226,532

$ 53,360,038 2,668,010 - 38,226,532 40,894,542

Financial Liabilities

Short-term loans $ 250,000 - - - -

Long-term loans 2,370,000 - - - -

Long-term accounts payable 2,268,922 - - - -

Long-term notes payable 299,882 - - - -

$ 5,188,804 - - - -


The carrying amount of loans and receivables, financial assets carried at cost and financial liabilities measured after amortization cost in the financial statements of the Company is close to its fair value.

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(C) Valuation techniques for financial instruments measured at fair value:

The company determines the input value with reference to the analysis of the financial status and operating results, recent transaction price, related equity instruments are quoted in non-active markets, similar tools offer in the active market and comparable company evaluation multiplier of the investee company and periodically updates the input value and information and any other necessary fair value adjustments to ensure that the evaluation results are reasonable.

(i) Non-derivative financial instruments


The fair value of the financial instruments held by the company in the case of a non-active market is as follows:

No public offer debt investment tools: The discounted cash flow model is used to estimate fair value, it is mainly assumed that it is measured by discounting the expected future cash flows of the investee by the rate of return of the monetary time value and the investment risk.

No public offer equity instruments: Use the net asset value method, The main assumptions are based on the net per share of the investor.

(ii) Derivative financial instruments

Is evaluated according to the evaluation model accepted by the market users, such as the discount method and the option pricing model.

(D) There have been no transfers from each level for the years ended December 31, 2018 and 2017.

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Financial assets reported at fair value through

profit or loss

Financial assets at fair value through other

comprehensive income

Investment Property



financial assets Unquoted equity

instruments January 1, 2018 $ 38,226,532 1,102,515 - - Adjustment on initial application of IFRS 9 - 396,650 - 666,841 Balance on January 1 per IFRS 9 38,226,532 1,499,165 - 666,841 Purchase - 1,560,000 - - Effects on deferred income tax liabilities 4,253 - - - Total gain and losses recognized in profit or loss 119,574 189,380 - (227,921) December 31, 2018 $ 38,350,359 3,248,545 - 438,920

Investment Property January 1, 2017 $ 38,152,353 Gain on Revaluation of investment property 41,244 Effects on deferred income tax liabilities 32,935 December 31, 2017 $ 38,226,532

(F) Quantitative information on the measurement of fair value of significant unobservable input values(Level 3)

Level 3 refers to the measurement of the fair value of the input parameters are not based on market availability of information, must be based on the assumption that the appropriate estimates and adjustments. If the evaluation model can not be developed on its own, the fair value of the counterparty is used as the fair value. According to IFRS13,for the fair value of the third level classified at the fair value level, the firm shall provide quantitative information about the significant unobservable input values used for the fair value measure. Businesses do not need to create quantitative information to comply with this disclosure, if quantified unobservable input value is not built when enterprises are measuring fair value (Such as when a firm uses an unadjusted previous transaction price or a third party pricing information). The Company's investment No active market open interest and debt instrument investment. The fair value of the company is classified as the third level of investment real estate, the determination of its fair value is subject to IFRSs, commissioned by the professional valuation agencies in accordance with market evidence to support the value of the assessment (Please refer to note 6 h.).。Due to the practice cannot fully grasp the significance observable input value and the relationship between the fair values, it did not expose the quantitative information. The fair value of the aforesaid assets at December 31, 2018 and 2017 is $42,037,824 thousand and $38,226,532 thousand, respectively.

The Company’s financial instruments that use Level 3 inputs to measure fair value include “financial assets measured at fair value through profit or loss – equity investments”.

Most of fair values are classified in the level 3 based on single significant unobservable input value, only the equity instruments with inactive market may result in multiple unobservable input values which are all independent from each other.

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Quantified information of significant unobservable inputs was as follows:

Item Valuation technique Significant

unobservable inputs






higher discount, lower fair market value


The company fair value measures the use of unobservable input values, and the input value can be observed must be based on not observable parameters for major adjustments, its fair value is classified in the level 3. The input source for this level is mainly issued by an external evaluation of the price report (Price letter).And then check the results of the evaluation to ensure consistency with the source of the evaluation and to ensure that the evaluation results are reasonable.


(H) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible alternative assumptions

The fair value of the financial instruments is reasonable, and the self-built evaluation model is not used for the fair value of the level 3. Therefore, it is not necessary to perform the sensitivity analysis of the possible alternative assumptions.

w. Financial risk management

1. Overview

The company are exposed to the following risks due to the use of financial instruments:

(1) Credit Risk

(2) Liquidity risk

(3) Market risk

The following discusses the Company’s objectives, policies and processes for measuringand managing the risks mentioned above. For more quantitative information about thefinancial instruments, please refer to other related notes of the notes to the financialstatements.

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2. Risk management framework

The Board of Directors has overall responsibility for the oversight of the risk managementframework in order to develop and monitor the Company’s risk management policies andto report regularly on its activities.

The Company’s risk management policies are established to identify and analyze the risksfaced by the Company, to set appropriate risk limits and controls, and to monitor risks andadherence to limits. Risk management policies and systems are reviewed regularly toreflect changes in market conditions and the Company’s activities. The Company, throughtheir training and management standards and procedures, aims to develop a disciplined andconstructive control environment in which all employees understand their roles andobligations.

The Audit Committee of the Company oversees how management monitors compliancewith the Company’s risk management policies and procedures and reviews the adequacyof the risk management framework in relation to the risks faced by the Company. The AuditCommittee of the Company is assisted in its oversight role by Internal Audit. Internal Auditundertakes both regular and ad hoc reviews of risk management controls and procedures,the results of which are reported to the Audit Committee.

3. Credit Risk

Credit risk means the potential loss of the Company if the clients or counterparties involvedin that transaction default. The primary potential credit risk is from cash and accountsreceivable.

(1) Accounts receivable and other receivables

The Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances.

The Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Company’s standard payment and delivery terms and conditions are offered. The Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Company’s benchmark creditworthiness may transact with the Company only on a prepayment basis.

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The Company establishes an impairment allowance that represents its estimate of incurred losses in respect of trade receivables. The two components of this impairment allowance are specific loss component that relates to

ly significant exposure and collective loss component which the loss was incurred but not identified. The collective component is based on historical payment experience of similar financial assets.

(2) Bank deposits

The credit risk exposure in the bank deposits is measured and monitored by the Company’s finance department. As the Company deals with the banks and other external parties with good credit standing and financial institutions, corporate organization and government agencies which are graded above investment level, management believes that the Company do not have compliance issues and significant credit risk.

4. Liquidity risk

Liquidity risk is the risk that the Company will encounter difficulty in meeting theobligations associated with its financial liabilities that are settled by delivering cash oranother financial asset. The Company’s approach to managing liquidity is to ensure, as faras possible, that it always have sufficient liquidity to meet its liabilities when due, underboth normal and stressed conditions, without incurring unacceptable losses or riskingdamage to the Company’s reputation. The management believes that the Company donot have significant liquidity risk.

5. Market risk

Market risk is the risk that changes in market prices, such as foreign exchange rates, interestrates and equity prices will affect the Company’s income or the value of its holdings offinancial instruments. The objective of market risk management is to manage and controlmarket risk exposures within acceptable parameters, while optimizing the return.

The Company buys and sells derivatives, and also incurs financial liabilities, in order tomanage market risks. All such transactions are carried out within the guidelines set by theRisk Management Committee.

(1) Currency risk

The Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Company’s entities, primarily the New Taiwan Dollars (NTD). The currencies used in these transactions are denominated in NTD, USD and RMB.

The Company’s currency risk is not hedged as some of the currencies of the Company’s foreign currency receivables and payables are the same, producing a natural hedge effect.

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(2) Interest rate risk

The Company’s Interest rate risk comes from long-term and short-term bank loans. The long-term bond issued by our company is fixed-rate loan, so there is no risk caused by the fluctuations of interest rates and fair value interest rate. The long-term and short-term bank loans calculated in floating-rate were made our company suffered cash flow interest rate risk, but most of risk were covered by cash and cash equivalents holding in floating-rate.

(3) Other market price risk

The Company does not enter into any commodity contracts other than to meet the Company’s expected usage and sales requirements; such contracts are not settled on the net basis.

x. Capital management

The Company meets its objectives for managing capital to safeguard the capacity to continueto operate, to continue to provide a return on shareholders, interest of other related parties andto maintain an optimal capital structure to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Company may adjust the dividendpayment to the shareholders, reduce the capital for redistribution to shareholders, issue newshares or sell assets to settle any liabilities. The Company and other entities in the similarindustry use the debt-to-equity ratio to manage capital. This ratio is determined using the totalnet debt and divided by the total capital. The net debt from the balance sheet is derived fromthe total liabilities less cash and cash equivalents. The total capital and equity include sharecapital, capital surplus, retained earnings, other equity and non-controlling interest plus net debt.

The Company’s debt to equity ratios at the end of the reporting period as of December 31, 2018and 2017 were as follows:

December 31, 2018

December 31, 2017

Total liabilities $ 18,980,972 17,878,554 Less: cash and cash equivalents (18,465,372) (6,912,818) Net debt $ 10,515,600 10,965,736

Total equity $ 66,896,890 62,307,725

Total liabilities and equity $ 77,412,490 73,273,461

Debt to equity ratio 13.58% 14.97%

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a. Names and relationship with related parties

The followings are entities that have had transactions with related parties during the periodscovered in the financial statements.

Name of related party Relationship with the Company Taiwan Chlorine Industries Ltd. Investee as accounted for using equity method (not an

investee since April 11, 2017) Praxair Chemax Semiconductor Materials Co.,

Ltd. Investee as accounted for using equity method (not an

investee since January 9, 2017) Kaohsiung Monomer Company Investee as accounted for using equity method Zhong Gong Baoquan Ltd Investee as accounted for using equity method BES Engineering Corporation The board of the entity is the key management of the




Company Tao Zhu Construction & Development Co., Ltd. Subsidiary of the company Chemax International Corporation Subsidiary of the company (Merging with the Tsou

Company since April 1, 2018) CPDC Investment (BVI) Co Ltd. Subsidiary of the company Tsou Seen Chemical Industries Corporation Subsidiary of the company (Merging with the Chemax

Company since April 1, 2018) CPDC Green Technology Corp. (Original name: CPDC Engineering Co., Ltd.)

Subsidiary of the company

Rich Equrties Ltd. Subsidiary of the company Unichem Development Limited Subsidiary of the company Chung Hua Shuang Tzu Hsing Kai Fa Co., Ltd. Subsidiary of the company Weiming (Jiangsu) Petrochemical Company Subsidiary of the company Weiqiang International Trading (Shanghai) Co.,

Ltd. Sub-Subsidiary of the company

Weihua (Rudong) Trading (Shanghai) Co., Ltd. Sub-Subsidiary of the company Cong Ty Tnhh Dau Tu Xay Dung Thanh Phong Subsidiary of the company


The Company is the ultimate parent company.

c. Significant Transactions with related parties

1. Sale of Goods and Services to Related Parties


Subsidiary $ 1,291,836 1,316,049 Sub- Subsidiary 509,585 - Associates 646,031 586,021

$ 2,445,452 1,902,070

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The terms for related parties sale transactions were the same as those of other unrelated customers excluded Tsou Seen Chemical Industries Corporation, Weihua (Rudong) Trade Co., Ltd., and Weiqiang International Trade (Shanghai) Co., Ltd., which has the terms for 3 month.

2. Purchase of Goods from Related Parties


Associates $ - 78,021

The terms for related parties purchase transactions were the same as those of other unrelated vendors.

3. Receivables


2018 December 31,

2017 Accounts receivable Subsidiary $ 65,945 132,822 Accounts receivable Sub- Subsidiary 118,009 - Accounts receivable Associates 60,233 67,984 Other receivables Subsidiary 13,653 2,624 Other receivables Associates 9,793 9,237 Other receivables Other related parties 4 6

$ 267,637 212,673

4. Payables


2018 December 31,

2017 Other receivables Subsidiary $ 27,085 41,247 Other receivables Associates 4,976 3,998 Other receivables Other related parties 4,548 126

$ 36,609 45,371

5. Revenue from sale of scraps (Accounting for operating cost deduction)


Subsidiary $ 12,044 10,922

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6. Other


Subsidiary and Sub- Subsidiary Rental income $ 1,563 2,063 Other revenues 14,693 2,534

Associates Rental income 5,235 5,187 Other revenues 17,809 18,413

Security service fees (23,978) (23,863) Other related parties

Rental income 4 28 Other revenues 1,043 1,074

Other expense (882) (2,967) Rental expense (4,814) (4,880)

Please refer to Note 6 h. for lease of land and buildings to related parties.

7. The Company's equipment maintenance services and commissioned fees for thesubsidiaries in 2018 and 2017 were $238,291 thousand and $167,479 thousand,respectively. As of 2018 and December 31, 2017, the Company has yet to pay for itssubsidiaries were recorded under other payables. The total contract price (excluding tax)of the Company's uncompleted contracts for the projects issued to the subsidiaries as of2018 and 31 December 2017 was $444,608 thousand and $ 262,602 thousand, respectively,and the payment was $121,087 thousand and $28,965 thousand, respectively.

8. The Company had contracts with other related parties, for mechanical engineering servicesprojects and paid commission on the basis of actual construction. As of December 31, 2018and 2017, the construction project in-progress amounted to $1,532,800 thousand and$1,377,800 thousand, respectively. As of December 31, 2018 and 2017, the unpaid feeamounted to $1,376,787 thousand and $1,102,240 thousand, respectively.

9. The Company had contracts with one of other related parties, for building constructionprojects. The land is provided by the Company and the related party is responsible fordesigning, constructing, sales and warranties. The Company pays constructionalmanagement fee on the basis of contract and the related party pays the actual expendituresfor every single month. As of December 31, 2018, no constructional management fee ispaid by the Company.



Short-term employee benefits $ 226,502 195,993 Post-employment benefits 653 697

$ 227,155 196,690

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8. PLEDGED ASSETS

The Company pledged assets are as follows:

Asset Purpose of pledge December 31,

2018 December 31,

2017 Time deposits Guarantee for purchases, collateral for long-term and short-

term financial credit $ 10,038 10,037


3,734,754 4,772,491

Investment property United guarantee amount of convertible Bond 5,995,969 11,703,324 Investments accounted for using equity method

Long-term bills payable 1,445,374 1,110,663

Available-for-sale financial assets – non-current

Long-term bills payable - 1,008,300

Non-current financial assets at fair value through other comprehensive income

Long-term bills payable 915,400 -


Long-term bills payable 477,405 426,420

Guarantee deposits paid Deposit for lawsuit 91,557 91,557 $ 12,670,497 19,122,792

9. SIGNIFICANT COMMITMENTS AND CONTINGENCIES

a. As of December 31, 2018 and 2017, the Company had the following unused letters of credit:

December 31, 2018

December 31, 2017

USD $ 43,631 43,950 NTD 1,095,000 958,000

b. As of December 31, 2018 and 2017, the Company had issued guaranty notes for bank loans,sales and purchases, and development plan aggregating to $13,784,000 thousand, US$20,000thousand and $12,795,206 thousand, US$ 23,000 thousand, respectively.

c. At December 31, 2018 and 2017, the Company had contracts for various construction projectsin-progress amounting to $3,296,924 thousand and $1,849,612 thousand, respectively. As ofDecember 31, 2018 and 2017, the remaining future obligations under these contracts amountedto $2,772,572 thousand and $1,483,994 thousand, respectively.

d. As of December 31, 2018 and 2017, the Company signed an agreement to purchase rawmaterials such as benzene, hydrogen and methylbenzene from Chinese Petroleum Corporation(CPC). Under this contract, the Company may purchase specified monthly volume of these rawmaterials at current month prices announced by the Chinese Petroleum Corporation withprepayment or domestic letter of credit.

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1. Land tax

(1) The Company successively received notice by the tax offices in September 2005 that the land tax of the training center in Cianjhen will be changed to another rate since 2000. The Company questioned the applicability of the law, thus, filed for the relevant administrative appeal procedures pursuant to article 35 of Tax Collection Act, which was rejected by the Supreme Administrative Court. The Company paid fully for the land tax which was mentioned in previous and was filed for the administrative appeal, in accordance with the law.

(2) On the other hand, the Kaohsiung tax authority was against the land tax which was mentioned in previous and was filed for the administrative appeal and prohibited the registration of parts of the Company’s land pursuant to paragraph 1 of article 24 of Tax Collection Act. The prohibition was cancelled in January 2011.



On July 31st 2014, there was an underground pipeline explosion incident in Kaohsiung city. Due to the post - disaster reconstruction project, Kaohsiung City Government issued a penalty letter No. 10335137100 on August 18th 2014 to order, the Company was forced to stop operations and prohibited the use of all petrochemical pipelines in the disaster area. The Company was not satisfied with the preceding penalty and filed a legal petition to the Administrative court for revoking the original claims for petition remedy in Sept. 2014. The case was rejected by the Kaohsiung High Administrative Court, which the Company was not satisfied with. Hence, the Company submitted an appeal in Feb. 2017.

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3. Abolishment of the permission for Kaohsiung road and underground pipeline excavationand pipeline

Due to the August 1st Kaohsiung gas explosion, the Kaohsiung City Government Bureau of Water Resources issued the letter to Refining Division of CPC: abolishing the permission letter No. 950129 issued on Dec. 15th, 1990 and permission letter No. 050076 issued on April 13, 1991, and prohibited the roads for underground pipeline excavation and pipeline use. Since the pipeline prohibited for use belonged to the Company and assigned CPC to build, the Company, as the interested party, filed a petition to the Kaohsiung City Government to revoke the original punishment, which was rejected by Kaohsiung City Government Appeal Committee on Feb. 16th 2015. The Company filed the administrative legal action to Kaohsiung High Administrative Court in April 2015. Through the rejection sentenced by Kaohsiung High Administrative court in March 2017, the Company was unsatisfied with and proposed for the appeal in April of the same year. The supreme administrative court rejected the appeal in May 2018 and the case was closed.

4. Damage of Kaohsiung gas explosion

The above mentioned cases of Kaohsiung gas explosion and abolishment of the permission for Kaohsiung road and underground pipeline excavation were concerned with being legally forced to suspend by administrative executives, which were eligible for damage indemnity. For the interests of the Company, the Company filed the administrative legal action to Kaohsiung High Administrative Court in February 2018.

5. Equity trading dispute

The resolution, implementation of a signed tripartite supplemental agreement between the Company and PPG&GGC (which had been merged as Axiall company now), from the Company’s board meeting on April 21st 2016: trading the equity of Taiwan Chi chlorine Chemical Co., Ltd, total 6,400,000 shares at the sales price, US$100,000 thousand, which was equivalent to NT $ 3,225,000 thousand. After the expectation of the disposal interests, NT$2,838,761 thousand, the Company instantly informed Axiall company to carry out the equity trading of Taiwan Chi chlorine Chemical Co., Ltd. The Company issued the letter many times to ask Axiall to implement the agreement, however, Axiall repeatedly delayed actions. Hence, the Company filed the arbitration to American Arbitration Association in August 2016. Axiall submitted the pleadings in Sept. 2016 and asked PPG to participate in the lawsuit. Outside lawyers of PPG, in the Oct. of same year, represented that PPG is willing to negotiate the contract of equity trading. PPG signed the contract with the Company at the end of February 2017 and handled the equity transactions subsequently. The Company had received US$100,000 thousand in April of the same year and transferred the stock to finish the transaction. However, Axiall continued to be arbitrated against related claims such as the interest.

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1. The Company signed total three areas of land lease contracts with Kaohsiung branch ofTaiwan International Ports Corporation, Ltd. In December 2013 and February 2014. TheKaohsiung Port Intercontinental Container Center 2nd Phase Project Petrochemical OilStorage and Transportation Center S12 S15 Pier Post line Land was leased and theCompany invested to build the construction of petrochemical oil storage and transportationfacilities for the purpose of import and export and transport of petrochemical oil handling,storage and transportation etc... Kaohsiung branch of Taiwan International PortsCorporation, Ltd. delivered the land to the Company prior to the end of Dec. 2017. Theterm of the lease was 25 years from the date of delivery and the Company had the right torenew the lease at the end of the period. Per the contract, the Company had to pay rent ofNT$1,650 thousand, NT$2,565 thousand, and NT$1,493 thousand respectively since theland was delivered. From the land delivery date of 3 years 6 months, the Company paidmanagement fees of, NT$10,654 thousand, NT$24,605 thousand and NT$12,329 thousandrespectively. The Company also placed Certificate of Deposits of NT$5,000 thousand andNT$13,000 thousand as performance bonds in December 2013 and February 2014respectively. The Company, in August 2015, shortened the operating scale based on theadjustment of investment plan, which resulted in one of the performance bonds ofNT$8,000 thousand, to not being able to be returned. Taiwan International PortsCorporation, Ltd. completed the transaction procedure prior to Nov. 2017. The Companystarted to implement land drilling and geological improvement project and started payingthe land rent of those projects, which was NT$1,650 thousand and NT$1,493 thousandrespectively each year.

2. Dispute from the senior manager

(1) Labor Dispute

The previous senior manager, who left the Company without transferring the duties and authorization, didn’t perform the duties since July 1st 2013 and the Company issued the letter to request to fulfill the agreement without any response from manager. Hence, the board of the Company dismissed the manager in October 2013. The manager asked the Company to pay pensions pursuant to Labor Standards Act as a labor worker, which was not reconciled through mediation.

The Civil litigation of Mr. Liu was filed in Taipei District Court and Kaohsiung District Court respectively in January 2014. Taipei District Court, in August 2015, considered that the contract of senior manager was ended for both side, and Expired Employee Retirement Policies of the Company is applicable, the Company shall pay NT$4,572 thousand to Mr. Liu. The Company was not satisfied with the original verdict and appealed for the 2nd sentence court. The 2nd sentence court sentenced to reject request from the Company in March 2017. The Company was not satisfied and proposed the appeal in April of the same year, which was under remedy trial in the Supreme Court.

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For the part of Mr. Zhang, Kaohsiung District Court considered that the assigned relationship did not end, which means that the Expired Employee Retirement Policies of the Company does not apply. Mr. Zhang request for pension is without any basis, but according to the contract of both side, the Company shall pay salaries of NT$35 thousand, to Mr. Zhang, which was not satisfied by Mr. Zhang and this case was appealed to the 2nd sentence court. In July 2016, the 2nd sentence court rejected the request from Mr. Zhang but he re-appealed to the 3rd sentence in August of the same year.

(2) Disclosure Secret Case

Managers who left the office without authorization was suspected to be involve in business encroachment, theft of business secrets. To protect Company interests, the Company filed criminal appeal. The case was concluded by the Taiwan Miaoli Local Court in January 2017 and the relevant defendants were prosecuted. The civil litigation derived from the case is waiting for hearing by the Taipei District Court and Miaoli District Court. The supreme administrative court rejected the appeal in June 2018. Please refer to Note8 for details of deposit for lawsuit.

3. Accusation of business failures

A Gas explosion happened in Heng Yi chemical plant next to the Toufen plant and caused workers to be burned on Jan. 28th 2013, which evolved into accusations of business failures. Since the incident happened in the public discharged area of the industrial site, it was suspected to contain excessive value of the company's emissions with the sampling identification and the Company’s manager was prosecuted as defendant per the victim’s request. This case was not prosecuted after the judgement decision from Miaoli District Attorney, hence, the victims filed the reconsideration and Taichung High Prosecutor's Office remanded the case back to the Miaoli District Attorney for review. The victims of Heng Yi chemical plant only prosecuted the Company and managers in Feb. 2015 and asked for the joint damaged compensation NT$6,920 thousand, which awaits hearing by Miaoli local court. In September of the same year, both sides agreed to withdraw the litigations. Trial procedure was recovered in Feb. 2016 and criminal litigation was determined not to be prosecuted in March 2016. The verdict of civil litigation was won in March 2016, with the formal decision awaiting final judgement. The Company proposed the appeal for remedy focus on the unsatisfied parts. This case was under hearing in High Court Taichung Branch currently.

- 349 -

4. Civil compensation for Residents living in An shun

(1) The 1st case

In 2008 and 2009, Mr. Wu and others filed civil and national compensation lawsuit to the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company (Hereinafter referred to as 1st case of Tainan An shun plant civil compensation) and they claimed that during 1942 and 1983, the previous Taiwan Alkali Co. Ltd. An-shun plant, produced mercury and dioxins in its production operations and polluted the living environment, which resulted in the population consuming contaminated fish and shellfish over time, which resulted in long term health issues. The Ministry of Economic Affairs had control and management responsibility of the previous Taiwan Alkali Co. Ltd, and whether due to illegal actions, or a lack of attention in performing their duties, the Ministry of Economic Affairs as the ultimate employer of the chairman of CPDC, should take responsibility. Hence, the prosecutors claim that the Ministry of Economic Affairs shall take the responsibility for the compensation. Mr. Wu and others also claimed that Tainan City Government and Tainan City Environmental Protection Agency were the competent authorities and executive authorities of the waste disposal law but the authorities didn’t supervise and require the An-shun plant to implement pollution prevention and control acts, thus should be jointly responsible for any re-compensation. Also, Mr. Wu and others claim that the Company did not perform any removal and remediation of pollutants after being ordered to merge with the previous Taiwan Alkali An-shun plant, so they claimed the Company shall also take joint responsibility on the compensation. Mr. Wu and others asked the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company to jointly bore the cost of medical expenses and mental compensation for NT$370,800 thousand and the interest was calculated by an annual interest rate 5% from the date when the litigation was initiated by the defendants until the final payment of compensation. Due to unpaid referee fees, due from the plaintiff, the Tainan District Court rejected the litigation claims from these 17 persons in January 2010. Mr. Chen appealed to the Tainan District Court asking the Company for medication, health examination fee and reparations, to the amount of NT$2,300 thousand, which was incorporated into this case, the total compensation amount was NT$351,750 thousand. This case was tried by the Tainan District Court in December 2015 and judged that the Company and the Ministry of Economic Affairs to be jointly responsible for NT$160,000 thousand payable to the plaintiff. The Company was not satisfied with the result and filed an appeal. In August of 2017, the High court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand by self, which the Company was not satisfied with and had proposed the appeal for remedy in Sept. of the same year. The supreme court trialed oral argument on September 28, 2018 and judgment was sentenced on November 28, 2018, the supreme court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand. The Company made a payment of compensation and related interests to 143 plantiffs before the end of January 2019. The medical remedy was remanded a case appeal.

- 350 -

(2) The 2nd case


g. The Company leases plant assets, and vehicles for operating uses. The lease payment was$45,467 thousand and $28,068 thousand for the year of 2018 and 2017, respectively. Theexpected least payments for future are as below:

Year Amounts Less than one year $ 49,931 Between one and five years 53,672 Over five years 58,951

$ 162,554

10. Major disaster losses: None

11. Significant matters after the event

a. On March 11, 2019, the Company invested in Core Pacific City Co., Ltd. by issuing 123,528thousand preferred shares amounting to NT$1,235,278 thousand.

- 351 -

12. OTHER


By function For the year ended December 31,2018 For the year ended December 31,2017

By nature Operating

cost Operating


expense Total

Operating cost

Operating expense

Non-Operating

expense Total

Employee benefit Salary 1,103,552 541,464 - 1,645,016 1,118,193 514,189 - 1,632,382 Health and labor insurance 86,961 26,726 - 113,687 84,323 21,925 - 106,248 Pension 43,857 20,367 - 64,224 44,122 10,229 - 54,351 Remuneration of directors - 106,013 - 106,013 - 140,205 - 140,205 Others 28,220 7,920 - 36,140 28,308 6,758 - 35,066

Depreciation 1,132,123 64,499 5,969 1,202,591 1,113,903 64,383 13,308 1,191,594 Depletion - - - - - - - - Amortization - 2,522 - 2,522 - 525 - 525

For the years then ended December 31, 2018 and 2017, the number of employees of the Company was 1,251 and 1,214, respectively. The number of directors who have not served as employees is 8.


a. Information on significant transactions

The following is the information on significant transactions required by the “RegulationsGoverning the Preparation of Financial Reports by Securities Issuers” for the Company:

1. Loans to other parties(In Thousands of New Taiwan Dollars)


borrower Account

name Related

party

Highest

balance of

financing

to other

parties

during the

period Ending

balance

Actual

usage

amount

during the

period

Range of

interest

rates

during

the

period

Purposes of

fund

financing

for the

borrower

Transacti

on

amount

for

business

between

two

parties

Reasons

for short-

term

financing Loss

allowance

Collateral

Individual

funding

loan limits

Maximum

limit of

fund


Star (Myanmar)

Investment

Company Ltd

Core Pacific

Pioneer

(Myanmar)

Company

Ltd

Other

Receivable

Yes 7,069 7,069 7,069 0 2 - Operating - - 67,613 67,613


Transaction for business between two parties－1

Short-term financing－2

Note 2: The financing limit was 40% of Core Pacific Twin Star (Myanmar) shares.

Note 3: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statements.

- 352 -

2. Guarantees and endorsements for other parties:(In Thousands of New Taiwan Dollars)

No

Name of

guarantor


and endorsement

Limitation on

amount of

guarantees and

endorsements

for a specific

enterprise

Highest balance

for guarantees

and

endorsements

during the

period

Balance of

guarantees and

endorsements

as of reporting

date

Actual usage

amount during

the period

Property pledged

for guarantees and

endorsements

(Amount)

Ratio of

accumulated

amounts of

guarantees

and

endorsements

to

net worth of the

latest

financial

statements

Maximum

amount

for guarantees

and

endorsements

Parent

company

endorsements/

guarantees

to third parties

on

behalf of

subsidiary

Subsidiary

endorsements/

guarantees

to third parties on

behalf of parent

company

Endorsements/

guarantees

to third parties

on

behalf of

companies

in Mainland

China Name

Relationship

with the

Company

1 Changzhou

Huijie new

material Co., Ltd

Changzhou

Suhwen

environmental

habitant

construction

Co., Ltd

6 280,320 280,320 280,320 - - 0.42% 280,320 N N Y

Note 1: The information of guarantees and endorsements for other parties of the Company and its subsidiaries are disclosed separately and numbering as follows:

Parent company－0


Note 2: Seven types of the relationship between Counter-party of guarantee and endorsement as follows:

Transaction for business between two parties

The Company directly or indirectly hold over 50% of voting rights of shares of entities

The entities hold directly or indirectly hold over 50% of voting rights of shares of the company

The relationship between entities which are all held over 90% of voting rights of shares of these entities by the Company

Mutual guarantees or endorsements in accordance with contracts

The entities are proportionally endorsed by the all shareholders from mutual investments

3. Securities held as of December 31, 2018 (excluding investment in subsidiaries, associatesand joint ventures):


Name of holder




Carrying value


(%) Fair value Note CPDC Yuanta Financial


at fair value through profit or loss-current

30,938,819 478,005 0.26 478,005


None 〞 10,313,000 267,932 - 267,932

Cathay China A50ETF None 〞 16,378,000 271,056 - 271,056 BES Engineering Co. The Company is a

director of the investee company


149,243,449 1,062,613 9.75 1,062,613


None 〞 44,684,712 434,335 0.30 434,335

- 353 -

Ending balance

Name of holder




Carrying value


(%) Fair value Note Handy Chemical Corparation .ltd



407,000 1,461 4.52 1,461


None 〞 2,600,000 26,000 2.89 26,000



Financial assets at fair value through profit or loss -non-current

298,723,070 3,248,545 20.92 3,248,545




9,455,778 438,920 49.00 438,920


〞〞 8,815 358 0.03 358

Showroom Electronics Co., Ltd.

〞〞 41,670 - 0.21 -

Aetas Technology Inc. 〞〞 287,961 - 0.58 - Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd

Taiwan Business Bank 〞 Financial assets at fair value through other comprehensive income-current

24,311,960 251,629 - 251,629



Financial assets at fair value through profit or loss -non-current

160,111,000 1,612,729 11.21 1,612,729



None Financial assets at fair value through profit or loss -current

- 135,307 - 135,307




Financial assets at fair value through profit or loss -current

9,618,000 148,598 1.22 148,598

Good Company 〞 Financial assets at fair value through other comprehensive income-non-current

750,000 - - -

TaiRx, Inc. 〞〞 850,000 14,652 - 14,652 Total 8,392,140 8,392,140

- 354 -

4. Individual securities acquired or disposed of with accumulated amount exceeding the lower ofNT$300 million or 20% of the capital stock:


Name of

company

Category and

name of

security

Account

name

Name of

counter-

party

Relationship

with the

company



Gain (loss)

on



under

repurchase

agreements

Cash

equivalents

Taching Bills

Finance Co.,

Ltd.

None - 190,000 - 20,079,547 - 19,470,362 19,470,362 - - 799,185

Mega Bills

Finance Co.,

Ltd.

〞 - 261,966 - 7,230,860 - 7,122,795 7,122,795 - - 370,031

International

Bills Finance

Co., Ltd.

〞 - - - 9,215,159 - 8,685,335 8,685,335 - - 529,824

China Bills

Finance

Corporation

〞 - 809,672 - 20,232,382 - 20,372,015 20,372,015 - - 670,039

ETF Financial

assets at fair

value through


current

Yuanta/P-

shares SSE50

ETF

〞 9,091,000 249,590 10,313,000 289,332 9,091,000 328,531 249,590 78,941 10,313,000 289,332

5. Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% ofthe capital stock: None.

6. Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% ofthe capital stock: None.

7. Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100million or 20% of the capital stock:


Name of


Transaction Details

Transactions with

terms different

from others


(payable)

Note

Purchase/

Sale Amount

Percentage of

total

purchases/sales

Payment

terms

Unit

price

Payment

terms

Ending

balance

Percentage of

total

notes/accounts

receivable

(payable)




Month

- OA 90

days

65,945 3% (Note)

Weihua (Rudong)

Trade Co., Ltd


Month

OA 90

days

5,423 -% 〞



Ltd.


Month

OA 90

days

112,586 4% 〞

Kaohsiung Monomer

Company Ltd

Affiliated company


method

Sales (644,031) 2% 1

Month

- 60,233 2%


Corp.


Month

OA 30

days

- -% 〞


- 355 -

8. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% ofcapital stock:

Name of company Related party

Nature of relationship

Ending balance

Turnover days

Overdue Amounts received in subsequent

period (Note 1)

Allowance for

bad debts Amount Action taken

The Company


Sub-subsidiary 112,586 1.99 - - 107,535 -



b. Information on investees:

The following is the information on investees for the year 2018 (excluding information on investeesin Mainland China):



Main businesses and

products


(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value


Company Ltd


She P O Box 6-25

Nantze,Kaohsiung

(815), Taiwan

Methyl Methacrylate

Monomer

- - 20,000,000 40.00% 1,378,279 2,482,675 993,070 Note 1


Ltd.



Taiwan



& Development Co.,

Ltd.



Taiwan



housing, commercial

buildings and plant

rental business,

management of land

development and


related business

investment

100,000 100,000 10,000,000 100.00% 76,412 (1,924) (1,924) Note 2


Corp.



Taiwan

Announcement energy

products besides

petroleum chemical




mixtures and other

- 145,000 - -% - 19,800 19,800 Note

2&5&6

〞 CPDC Investment

(BVI) Co Ltd.

Citco Building,

Wickhams Cay, P.O.

Box662




No.1, Jingjin Rd.,

Fangliao Township,


Taiwan


2&5&6

〞 CPDC Green

Technology Corp.



14F.-16, No.61, Wufu


Kaohsiung City 801,

Taiwan



House,35

Cybercity,Ebene,

Mauritius


- 356 -


Main businesses and

products


(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value

The Company Unichem Development

Limited



Road TSIM SHA

TSUI KOWLOON


2&4&5





Taiwan


and development

2,000,000 2,000,000 200,000,000 90.87% 2,395,160 (25,603) (23,266) Note 2&5



338/18, Anyang Wang



Vietnam

Engaged in



consulting, lease

equipment and


materials

609,347 - 458,637,500,00

0

97.87% 607,203 8,615 8,431 Note

2&4&5


Co Ltd.


Holdings Ltd

Akra Bldg., 24 De

Castro Street,



Virgin Islands





Ltd.


Rd., Taoyuan Dist.,

Taoyuan City 330,

Taiwan

Engineering,


business

22,500 22,500 - 100.00% 24,628 (107) (107) Note 2&3

Tsou Seen Chemical


Taivex Therapeutics

Inc.



Taiwan

Engaged in

biotechnology,


and development and

marketing

462,246 462,246 46,224,551 91.10% 384,867 (76,894) (7,051) Note 2



Frontier Fortune


112 ROBINSON

ROAD

#05-01 ROBINSON

112

SINGAPORE (068902)


Frontier Fortune




Company Ltd

NO.153/Ka,Kyun Shwe


ward,


Yangon

Engineering,


business

169,921 5,355 5,500,001 100% 162,704 (5,622) (5,622) Note 2&4



Company Ltd


(Myanmar) Company

Ltd

NO.153/Ka,Kyun Shwe


ward,


Yangon




12,355 - 400,000 80% 11,627 (466) (378) Note 2&4

14,067,811 2,119,773 822,810

Note1: The Company adopts the equity method to evaluate the investment company.

Note2: The Company has direct or indirect control of the invested company. If the invested company has direct or indirect control, it shall expose the relevant information of the following 2 to 10 transactions of the investee company.

Note3: Limited company expressed by the amount of capital, no shares issued.

Note4: The original investment amount is the foreign currency, at the prevailing exchange rate.

Note5: This transaction has been written off when the consolidated statement has been prepared.

Note6: The Company re-structured the business organization on August 1 2018, which was a combination of Chemax and Tsou Seen, Chemax was dissolved company and Tsou Seen was continuing company.

- 357 -


1. The names of investees in Mainland China, the main businesses and products, and otherinformation:


Name of investee

Main businesses and

products

Total amount

of

paid-in capital

Method of

investment

(Note1)

Accumulated

outflow of

investment

from

Taiwan as of

January 1, 2017


outflow of

investment

from

Taiwan as of

December

31, 2017

Net income

(losses) of the

investee

(Note 2)

Percentage

of

ownership

Investment


Accumulated

remittance of

earnings in

current

period

Out-

flow

In-

flow

Weihua (Rudong)

Trade Co., Ltd

(Weihua)


petroleum chemical




mixtures and other


trading

763,460 (b)、(c) 763,460 - - 763,460 24 100.00% 24 486,683 -

Weiqiang

International Trade


(Weiqiang)


petroleum chemical




mixtures and other


trading.

211,560 (a)、(c) 119,300 92,260 - 211,560 13,864 100.00% 13,864 120,233 -

Weida (Zhangzhou)

Consultant Service

Co., Ltd. (Weida)

Consultancy 13,171 (b) 13,171 - - 13,171 (428) 100.00% (428) 2,544 -

Jiangsu Weiming

Petrochemical

Corporation

(Weiming)



3,135,734 (a)、(b) 3,743,354 607,620 - 3,743,354 (28,273) 100.00% (28,273) 3,442,445 -

Zhangzhou Weida

Petrochemical Co.,

Ltd

(Weida PC)


petroleum chemical




mixtures and other


trading

30,648 (b) 30,648 - - 30,648 (5,679) 100.00% (5,679) 16,445 -

Kunshan Weiqin

Management

consultant Co., Ltd

(Weiqin)


Zhejiang Wedge new

material Co., Ltd

(Wedge)



31,278 (b) 31,278 - - 31,278 (1,159) 100.00% (1,159) 25,973 -

Changzhou Huijie




petroleum chemical

products

1,860,113 (b) - 1,324,893 1,324,893 (47,176) 100.00% (47,176) 1,128,883



31, 2018




6,937,208 9,135,021 Note4

- 358 -







(b) There are three ways to identify the basis of investment profit or loss, should be explained.

(b.1) financial statements audit by international accounting firm with a relationship with Taiwan accounting firm.

(b.2) financial statements audit by the Company’s audit CPA.

(b.3) others.

Note3: The amount in this table should be presented in New Taiwan Dollar.

Note4: The cumulative investment amount or investment proportion to China cannot over the Company’s net value of 60%. The Company got certified documents of operating headquarters issued by Industrial Development Bureau, Ministry of Economic Affairs on October 18, 2018, so not subject to the above regulations. Valid period to October 14, 2021.

3. Significant transactions:

The significant inter-company transactions with the subsidiary in Mainland China, which wereeliminated in the preparation of consolidated financial statements, are disclosed in “Information onsignificant transactions”.


Please refer to the 2018 consolidated financial statements.

- 359 -

Review and Analysis of Financial Position and Financial Performance, and Risk Management

- 360 -

VI, the company and its related enterprises in the most recent year and up to the annual report, in the event of financial turnover difficulties, should set out its impact on the financial position of the company: none

Seven. Review and Analysis of Financial Position and Financial

Performance, and Risk Management

I. Comparative analysis of the financial situation (adoption of international

reporting guidelines-merger)

Unit: NT$ thousands

Year

Item FY 2018 FY 2017

Variance

Amounts %

Current Assets 21,622,587 18,839,149 2,783,438 14.77

Property, plant and

equipment 19,501,534 16,935,430 2,566,104 15.15

Intangible assets 188,061 24,338 163,723 672.71

Other assets 48,392,772 45,830,043 2,562,729 5.59

Total assets 89,704,954 81,628,960 8,075,994 9.89

Current Liabilities 7,488,055 4,241,699 3,246,356 76.53

Non-current liabilities 15,026,145 14,838,802 187,343 1.26

Total liabilities 22,514,200 19,080,501 3,433,699 18.00

Capital stock 26,998,573 26,998,573 - -

Capital surplus 1,260,386 1,260,386 - -

retained surplus 40,374,642 35,229,878 5,144,764 14.60

Other equities (1,736,711) (1,181,112) (555,599) (47.04)

Non-controlling equity 293,864 240,734 53,130 22.07

Total shareholders’ equity 67,190,754 62,548,459 4,642,295 7.42

Notes to significant changes: 1, The increase in current assets is due to China and Southeast Asia Overseas investment cases, to financial

institutions to handle long, short-term financing loans, and the sale of goods to recover, cash flow of business activities and fund-raising activities generated cash inflow, resulting in cash and about when the cash increase.

2. The increase in property, plant and equipment is due to the unfinished works of the mainland subsidiary's construction plant in 2018 and the acquisition of the assets of Subsidiary company.

3. The increase in intangible assets was due to the goodwill of Subsidiary company in 2018. 4. The increase in intangible assets was due to the goodwill of Subsidiary company in 2018. 5. the increase in current liabilities in 2018 to financial institutions to deal with short-term financing loans, the

provision of the Anshun case compensation preparation, the acquisition of the Huize company's payables due.

6. Retained earnings increased due to higher profits in this reporting period. 7. The increase in other equity is due to unrealized gains and losses on financial assets measured at fair value

through other consolidated gains and losses.

- 361 -

II. Analysis on financial performance Unit: NT$ thousands

Year Item

FY 2018 FY 2017 Increase/Decrease

ChangesRatio Subtotal Total Subtotal Total

Total operating revenue 38,503,121 33,335,970 5,167,151 15.50Less: Sales return and discount 0 0 Operating revenue, net 38,503,121 33,335,970 5,167,151 15.50Operating cost 33,326,959 27,964,951 5,362,008 19.17Add: Realized sales profit and loss (3) 562 (565) (100.53)Operating margin 5,176,159 5,371,581 (195,422) (3.64)Operating expenses 2,101,077 1,787,545 313,532 17.54Operating profit or loss 3,075,082 3,584,036 (508,954) (14.20)Non-Operating Profit and Loss 1,601,868 2,713,685 (1,111,817) (40.97)Net profit before tax 4,676,950 6,297,721 (1,620,771) (25.74)Decrease: Income tax benefits Fees (395,955) (210,399) (185,556) (88.19)Net profit for the current period 4,280,995 6,087,322 (1,806,327) (29.67)Other comprehensive income (after tax) (521,612) 357,550 (879,162) (245.89)Total comprehensive income Net profit attributable to parent company in current period Net profit attributable to non-controlling equity in the current period Total comprehensive income attributable to parent company Comprehensive income attributable to non-controlling equity

3,759,383 6,444,872 (2,685,489)

(1,801,387)

(4,940)

(2,684,387)

(1,102)

(41.67)

(29.57)

(113.98)

41.63

(33.16)

4,290,269

(9,274)

3,763,808

(4,425)

6,091,656

(4,334)

6,448,195

(3,323)

Analysis of the change in proportion of increase or decrease shows:

1. Operating income: the increase in operating income due to the main product acrylonitrile 2018 sales unit price

increased by 28% compared to the previous year, the main product caprolactam 2018 sales

unit price increased by 13% compared to the previous year.

2. Operating margin:

(1) in the main product acrylonitrile part, 2018 demand normal growth, but the supply surface of one to three

seasons manufacturers centralized maintenance, tight supply, resulting in price rise all the way, the price

increased by 28% from 2017, resulting in an increase in acrylonitrile profit of 1.31 billion yuan compared

to the previous year.

(2) In the main product Caprolactam part, by the main raw material phenol price to maintain high-grade and

the fourth quarter Sino-US trade conflict intensified, impact downstream market demand and willingness to

pick up the goods, sales decreased by 3% in 106 years and the 2017 selling price increased by 13% over

the previous year, the profit of Caprolactam series decreased by 1.86 billion yuan.


- 362 -

3. Operating costs and operating gains and losses: the increase in operating costs is the 2018 annual export

volume and investment in R &D programs to increase marketing costs and R & amp; d costs.

4. Out-of-business income and expenditure: The decrease was due to the investment in the equity method of 106

years, which was not caused by this situation.

5. Income tax costs: an increase in income tax costs is the result of an undistributed surplus and income tax.

6. Other consolidated gains and losses (net after-tax): Other consolidated profit and loss reductions are due to

unrealized evaluation gains and losses on investments in equity instruments measured at fair value through

other consolidated gains and losses.

III. Review and analysis of cash flows (international reporting

guidelines-merger)

Unit: NT$ thousands

Balance of cash –

beginning (1)

Net cash flow

from operating

activities in the

year (2)

Annual cash

Inflow Capacity

(3)

Cash surplus

(Shortfall)

Amount (1) +

(2)-(3)

Remedy for deficit in cash

Investment

project

Wealth

management

project

10,111,495 6,277,245 (2,918,802) 13,469,938 - -

(I) Analysis of variance in cash flows:

1, Business activities: Net cash inflow of 6,277,245 thousand yuan, the main cause is market

factors, industrial environmental impact driven by the annual profession profit caused.

2, Investment activities: Net cash outflow of 5,096,313 thousand yuan, mainly through the profit

and loss at fair value measured by financial assets, capital expenditure investment and access

to the rights and profits caused.

3. Financing activities: Net cash inflow of 2,036,420 thousand yuan, mainly due to the

borrowing of long-term loans.

(II) Remedy for deficit in cash and liquidity analysis:

1. Remedy for deficit in cash: None (surplus)

2, Liquidity Analysis: 2018 annual turnover ratio and speed ratio are reduced from 2017, mainly

due to long-term borrowing as a year or a business cycle due long-term liabilities and

borrowing short-term loans.

(III) Analysis of variance in cash flows for the future year:

1. Business activities: Net cash inflows are expected to flow 2,984,168 thousand yuan.

2. Investment activities: The projected net cash outflow of 12,314,507 thousand yuan, mainly

due to the acquisition of fixed assets and the increase in long-term investment.

3, financing activities: the projected net cash inflow of 6,145,396 thousand yuan, mainly due to

the increase in short-term borrowing.

4. Remedies for Insufficient cash: none (cash surplus).

IV. Major capital expenditure for the most recent year and its effect on

financial position and operation of the Company: N/A

- 363 -

V. Direct investment policy, the main reasons for profit or loss, and corrective

action plan for the most recent year, and investment plan in the next year

Sinopec's transfer investment policy, mainly focused on the core competitiveness of

petrochemical related industries, the choice of investment target, must have upstream and

downstream or vertical integration, business development, technology upgrading, asset

activation and other benefits.

The company is currently operating in the mainland Jiangsu Sunshine Island Liquid

Chemical storage tanks and chemicals trade, has been stable operation profit, in the future will

strive to increase cargo throughput in order to enhance profits, and actively increase commodity

projects to enhance the share of the mainland market.

Located in the first phase of Jiangsu Rudong Petrochemical Plant, the planned

cyclohexanone plant has been completed and is expected to start production in 2019, the same

year the Nylon 6 plant will also be commissioning in the second half of the production. The

company in the future will be able to integrate the two main products CPL and AN up and down

streams, to obtain cost competitive advantage, integrated production base benefits are within

reach.

The integrated production base will not only improve the company's downstream cost

competitive advantage, because close to the mainland market, with the advantages of land

development, will be beneficial products to high-value high-margin application development.

Planning to Taiwan R & D Center as the core, with the company's 2018 acquisition is located in

Changzhou, Jiangsu modified plastic production base, with excellent nylon modification

molding as the core products, horizontal expansion to the rest of the major pan-employment

plastic materials, and actively establish a production integration of the product market

competitive advantage.

The axis of the global economy is shifting from west to east, thus pulling the focus of

demand for chemicals eastward. The Asia-Pacific region has become the driving force behind

the growth of global demand for petrochemicals, with higher purchasing power, a large number

of people, and rising urbanization, which means that the rapid growth of demand will continue

in the future. The Company to long-term development and sustainable management goals, the

next year will continue to see the needs and strategies of business expansion, always pay

attention to the development of domestic and foreign related industries, carefully assess the

search for suitable investment targets, mainly focused on the acquisition of production

technology, new energy, special chemicals, precision chemicals and green products technology

applications and other related industries.

At the same time, in line with the government's southward policy, we have been assessing

investment land development opportunities in Southeast Asian countries and replicating the

group's early successful investment strategies in mainland China.


- 364 -

VI. Analysis of risk factors: analyze and assess the following circumstances for

the most recent year and until the date of publication of the annual report

(I) Impact of interest and exchange rate changes and inflation, and their future countermeasures:

1. Impact on the Company’s income:

Item 2018 (NT $ thousand; ﹪)

Net interest income (expenditure) 118,120 Net Exchange Benefits (losses) (1,063) Net interest income (expenditure) as a percentage of net revenue

0.31%

Net interest income (expenditure) as a net pre-tax ratio

2.53%

Net exchange of benefits (losses) as a percentage of net revenue

0.00%

Net exchange of benefits (losses) as a net pre-tax ratio

-0.02%

(1) Interest rate

The Company’s interest rate risk primarily derives from interest accrued based on a

floating interest rate arising from long-term/short-term debt. To hedge interest fluctuation

risk, the Company undertakes transactions when the interest rate stays low after carefully

evaluating the financial market trends. Therefore, even if the interest rate fluctuates due

to uncertain factors, no material impact would be caused to the Company.

(2) Exchange rate

The Company’s major product lines and raw materials are mostly priced at USD and the

payment thereof is collected or made in NTD (other than those for import/export). The

exchange rate fluctuation would affect the cost and revenue of such petrochemical

products as CPL and AN. The balance of derivative financial commodity transactions for

which there is no risk of exchange rate change at the end of 2018 is also outstanding.

(3) Inflation

The Company primarily procures petrochemical raw material locally or domestically, or

imports raw materials and supplies. The Company would be primarily affected by the

change of the international raw material price, while the domestic inflation would render

less impact to the Company comparatively.

2. Future countermeasures:

(1) Countermeasures against interest rate fluctuations

The Company will continue to make every effort to ask financing banks for preferential

interest rates to reduce the Company’s interest expenses, and will try to reduce its

average cost of capital through multiple fund-raising channels.

(2) Countermeasures against exchange rate fluctuations

The Company adopts a natural hedge against exchange rate fluctuations, and selects

optimal timing to engage in spot foreign exchanges primarily based on the net foreign

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exchange position after the offset of sales revenue priced based on foreign exchange rate

against the sales expenses, subject to the market condition and position, to hedge

exchange rate fluctuation risks.

(3) Countermeasures against inflation

The largest niche for the Company’s competition with others is based on the stable

supply of most the Company’s major raw materials, including such international

petrochemical raw materials and supplies as propylene, benzene, sulfur, natural gas,

carbon monoxide and fuel oil, by CPC and other local suppliers, as the price is calculated

based on specific equations and international price. Although domestic inflation renders

a lesser impact to the Company, the Company continues to boost various resolutions

through the market mechanism and process improvement, to reduce its cost.

(II) Policy on high-risk, high-leverage investments, loaning of funds, endorsements and guarantees

as well as derivatives transactions, major causes for profits or losses and future

countermeasures:

The Company has not granted loan to others or made endorsement/ guarantee for others, nor

has it engaged in investment of high-risk or high-leverage derivatives.

Derivative Financial Commodity trading policy: The company did not have outstanding

derivative financial commodity trading balance at the end of 2018.

(III) R & d costs for future R & d projects and projected inputs:

Innovation and development has always been Sinopec's desire to move towards sustainable

management of the core objectives, at present, Sinopec in the research and development, the

main areas are divided into three directions: the existing process improvement, related product

development and new product development three directions.

(1) Improvement of the existing production process: In the existing process improvement, continuous improvement of the existing product

process technology, the introduction of intelligent production management to improve

efficiency, reduce production costs and develop energy-saving and carbon-reducing green

process as the primary goal.

(2) Development of related products:

Focusing on developing byproducts and related products, strengthen material supply chain

from upstream to downstream by taking advantage of the material.

(3) New product development:

Setting up the project development group, and focus on high-value products with market

potential (e.g., special chemical products, ester derivate and functional high polymer) by

market information collecting and existing survey technique. Furthermore, the Company

evaluates developing advantage and develops own core technique to increase items of

high-value products and broaden industry chain.


- 366 -

2019 is expected to invest about 453,892 thousand in R & D activities, and future

projected annual investment will also be subject to progress in the development of the R &

D program.

Statistics of R&D expenses invested by CPDC and its subsidiaries in the past years.

Year 103 2015 2016 2017 2018

2019

(estimate)

(note 1)

Amount

(NTD

thousand)

196,090 216,793 198,273 236,348 335,436 453,892

Note 1: Contains the 2019 estimate of the subsidiary Tai Wei Life Technology (shares)

company

(IV) Changes in important policies and legal environment at home and abroad, and the effect on the

financial status and operation of the Company, and Countermeasures: N/A

(V) The effect of technological and industrial changes on financial status and operation of the

Company, and countermeasures: N/A

(VI) Impact of changes in corporate identity on the Company’s crisis management, and

countermeasures: N/A

(VII) Expected benefits and possible risks of merger and acquisition, and countermeasures: N/A

(VIII) Expected benefits and possible risks of facilities expansion, and countermeasures:

The company in order to enhance the main raw materials liquid ammonia and phenol

operational scheduling elasticity, with the consent of the Board of directors in Kaohsiung Port

Intercontinental two storage area to invest in the construction of its own liquid ammonia and

phenol storage equipment, the planning period from October 2015 to June 2020, the case

continues. In order to enhance the company's nylon grain quality and enter the high-end

market, the Board agreed to transform the bovine plant nylon grain Factory, has now

completed the transformation into the high-value product promotion stage. In addition, in

order to improve the capacity and market share of the three plants, in the production of

Caprolactam, with the agreement of the Board of Directors to implement the bovine plant

hydrogen expansion and phenolic ketone reconstruction project to achieve the bovine plant

200,000 tons of capacity scale, the plan is expected to be completed in June 2019, in the

production of Acrylonitrile, With the agreement of the Board of Directors to promote the

expansion of the acrylonitrile plant and the improvement of the performance of the air

compressor for key equipment, the two projects, when completed in December 2019, will

increase the number of operating hours per year and enhance production capacity. In order to

improve the combustion efficiency of the coal-fired vapor farm in bovine plant and to

improve the view of chimney smoke discharge, in November 2018, the board of directors

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through the launch of the bovine factory coal-fired vapor farm smoke-free emission project,

the period to meet the natural gas emission standards as the goal, reduce the impact on the

environment.

Looking at the changes in supply and demand in Caprolactam market, Taiwan's

dependence on the import of Caprolactam has continued to decline as a result of the

company's full sales efforts, and the supply and demand situation of caprolactam in mainland

China has been greatly reduced due to its large increase in self-production capacity, and even

faced with over capacity. In order to reduce the impact of the changes in the Caprolactam

market on the company, the company will continue to respond to market changes, flexible

adjustment of caprolactam production and actively seek a variety of reducing raw materials,

production costs and the development of high-end nylon products, in order to increase the

company's revenue, but also actively layout overseas and new product development.

(IX) Risk from centralized purchasing or selling, and countermeasures:

The primary raw materials for the AN produced by the Company refers to propylene, and

one of the important raw materials for CPL produced by the Company refers to natural gas. If

the supply of primary raw materials is defective, the Company’s production of AN and CPL

will be affected.

Another Taiwan CNOOC Company's Kaohsiung Factory has moved to plant or shut

down the factory in 2015, the company is located in the Metropolitan Petrochemical Industrial

zone in accordance with the former Kaohsiung County government November 7, 1998 (1998)

Capital Word No. 211694, "Change the Metropolis plan (third comprehensive review) case"

in the seventh case of the conditional requirements: "Manufacturers in special industrial areas

should complete the relocation of factories by 2018, and the county government will change

to B industrial zone in accordance with the legal procedures ...," and the Kaohsiung

administration in the Republic of China on the January 13, 2011, the high-city capital issued

letter 10,130,250,600th, requested the Ministry of the Interior to approve the " Change of

Metropolis Plan (fourth comprehensive review) case." On March 22, 2019, the Kaohsiung

Council considered the conversion of the Metropolitan Industrial Zone from special to E type,

which could continue to be produced, but could not be expanded or rebuilt. At present, the

continuous United Society Industrial Zone Manufacturers and the Government to

communicate and strive for the reduction of the methylenetin, at the same time, please draw

up the sunset provisions, with supporting measures to enable the operators to timely response

and as a relocation of the factory solution package.

The company's main products Caprolactam and acrylonitrile system supply downstream

nylon, acrylic cotton and ABS plastic industry, the main raw materials, because caprolactam

and acrylonitrile are bulk petrochemical downstream products of the basic raw materials,

customers are concentrated in several chemical fiber textile mills, the number of factories are

not many, the characteristics of the industry. In the Caprolactam part, the company has

increased its domestic market share by 64% through the advantages of increased capacity and

lower costs.


- 368 -

(X) Impact and risk associated with large share transfers or changes in shareholdings of directors,

supervisors, or shareholders who hold more than 10% of the Company’s shares, and

countermeasures: N/A

(XI) Impact and risk associated with changes in management rights, and countermeasures: N/A

(XII) Litigation and non-litigation matters:

§ Against

1. “Administrative disposition under Nan-Shih-Fu Huan-Shui-Tze No. 09722014930”

(1) Fact at issue:

Tainan City Government ordered the appellant, via its official letter under Nan-Shih-Fu

Huan-Shui-Tze No. 09722014930 dated June 20, 2008, to pay NT$88,786,006, as

advanced by Environmental Protection Administration and Tainan City Government for

An-Shun Site, to the Soil and Underground Water Pollution Remediation Fund account

before July 31, 2008.

(2) Claimed value: NT$88,786,006

(3) Date of initiation: June 2008

(4) The main litigation parties:

Plaintiff: Sinopec Ltd.

Defendant: Tainan Government

(5) Current processing situation:

The judgement rendered by Kaohsiung High Administrative Court holding that part of the

expenses payable by the Company exceed NT$88,430,139 was revoked. The Company

filed an appeal with the Supreme Administrative Court. As a result, the original

judgement was revoked and remanded to Kaohsiung High Administrative Court for

another judgement. Meanwhile, the part of the original judgement rendered in November

2013 holding that the amount exceeds NT$76,060,447 was revoked. Both sides appealed

against their negative injunctions. After hearing by the Supreme Administrative Court, in

March 2015, a further judgement was announced, abandoning the previous trial and

litigation costs, and judgements that exceed NT$203,316, and remanded to Kaohsiung

High Administrative Court for next hearing. The judgement rendered by the Kaohsiung

High Administrative Court in December 2016 holds that the portion of the

NT$12,160,345 fine that exceeds the amount beyond NT$11,584,810 is revoked. Both

sides appealed against their negative injunctions, respectively. After the examination by

the Supreme Administrative Court in January 2018, the judgement was rendered holding

that the Company need not to pay the expenses NT$1,134,718. The judgement was

finalized.

The confirmed part of the revoked NT$355,867 fine has been refunded by the Tainan

City Government. The Company planned to recall the remaining amount of NT$778,851

from the Tainan City Government.

- 369 -

2. Damages to An Shun residents (the first case)

(1) Fact at issue:

The plaintiffs including Wu initiated the complaint alleging that Taiwan Soda Ash Co.,

Ltd., An Shun Plant, as consolidated by CPDC pursuant to the order of Ministry of

Economic Affairs, produced such material as dioxin due to production of PCP prior to the

consolidation, thereby causing damage to the plaintiffs. Therefore, CPDC should be liable

for the damages due to the consolidation.


(3) Date of initiation: July 2008


Plaintiff: Wu and others

Defendant: CPDC, MOEA, Tainan City Government, and Environmental Protection

Bureau of Tainan City Government


The 1st instance was rendered on December 2015 that CPDC and MOEA shall bear joint

and several liability for compensation NT$168,170,000 to An Shun residents. The

Company filed an appeal on December 2015 pursuant to laws. After examination by the

Tainan Branch of High Administrative Court, the judgement was upheld, so that CPDC

should wholly compensate the An Shun residents with NT$191,578,366. In disagreement

with the decision, the Company filed an appeal pursuant to laws in September 2017. In

November 2018, the Supreme Court ordered us to compensate the plaintiff for a total of

190,000 thousand yuan in the original case about medical expenses, such as part of the

abandonment sent back to the more trial.

3. Damages to An Shun residents (the second case)

(1) Fact at issue:

The same fact with the Damages to An Shun residents (the first case).


(3) Date of initiation: March 2016


Plaintiff: Yo and others

Defendant: CPDC and MOEA


Pursuant to laws, the Company will respond to legal actions due to the facts of these two

cases being the same. Currently, the case is pending trial by the Tainan District Court.


- 370 -

4.Land tax for 2009, 2010, 2011, 2012, 2013, and 2014 payable by the Company on the land

in Qianzhen

(1) Fact at issue:

All of the company is located in Kaohsiung Qianzhen District Section No. 356, such as

20 Land and Hing Bang section 4th and other land 14 land a total of 34 land, due to

pollution, by the Kaohsiung government according to the soil and Groundwater pollution

Regulation (hereinafter referred to as soil pollution) announced as "Soil contamination

control site" and " Soil pollution Control Zone," to all of the company's land in

accordance with the law can not be used for remediation operations, is in accordance with

the provisions of the Land Tax relief rules 12th of the application for a reduction in the

price of taxes, by Kaohsiung taxes reprioritizing back review and provisions do not

match, and open tax returns, the company in accordance with the law to initiate

administrative relief

(2) Claimed value:

A. Tax payment 2009: NT$63,480,644

B. Tax payment 2010: NT$58,602,921

C. Tax payment 2011: NT$58,904,456

D. Tax payment 2012: NT$59,197,831

E. Tax payment 2013: NT$64,173,474

E. Tax payment 2013: NT$64,173,474

(3) Date of initiation: December 2008



Defendant: Revenue Service District Office of Kaohsiung City

(5) Current progress:

A. Tax payment 2009:

(a)Application for land tax credit/exemption: Kaohsiung High Administrative Court

rendered a judgement that was unfavorable to the Company. After the Company

filed an appeal, the Supreme Administrative Court remanded the case for another

judgement. The Kaohsiung High Administrative Court and the Supreme

Administrative Court rendered a judgement revoking the application. In August

2014 the Company initiated a petition for reexamination pursuant to laws. On

January 14, 2016 the Supreme Administrative overruled part of the judgement and

remanded other parts of judgement to the Kaohsiung High Administrative Court.

Subsequently, in July 2016 the Kaohsiung High Administrative Court and the

Supreme Administrative Court overruled the remanded parts of the judgement. (The

full case is now closed.)

- 371 -

(b)Reexamination of land tax: The Company initiated administrative remedies pursuant

to laws. The Kaohsiung High Administrative Court and the Supreme Administrative

Court overruled the re-examination and determined a final judgement. (The full case

is now closed.)

B. Tax payment 2010:

(a)Application for land tax credit/exemption: The Company initiated the administrative

remedy pursuant to laws, and Kaohsiung High Administrative Court rendered a

judgement revoking the petition. In December 2014 the Company filed an appeal,

and the appeal was overruled and a judgement rendered by the Supreme

Administrative Court in July 2015. The Company filed for reexamination in August

2015, and was over-ruled by the Kaohsiung High Administrative Court in March

2016. The case was closed.

(b)Reexamination of land tax: The Company initiated the administrative remedy

pursuant to laws. Kaohsiung High Administrative Court and Supreme

Administrative Court rendered the judgement in disfavor of the Company. The

company filed a retrial relief, which was rejected by a decision of the Supreme

Administrative Court in June 2013 (the end of the whole case).

C. 2011 Tax Case: The company filed administrative relief in accordance with the law in

the case of application for reduction of land price tax, which was rejected by the High

Administrative Court of Kaohsiung and the Supreme Administrative Court, and the

company filed a retrial relief in August 2014 in accordance with the law, which was

rejected by the Supreme Administrative Court in March 2015 and decided to be

transferred to Kaohsiung High Administrative Court. The decision of the Kaohsiung

High Administrative court was rejected in May 2015, and the company appealed the

factual part in June 2015, and the decision of the Supreme Administrative Court of

September 2015 was rejected (the end of the case).

D. Tax payment 2012:

(a)Application for land tax credit/exemption: The Company petitioned for the

administrative remedy pursuant to laws. Kaohsiung High Administrative Court and

the Supreme Administrative Court rendered a judgement revoking the petition. In

April 2015 the Company initiated the petition for reexamination, and in May 2015

the Supreme Administrative revoked part of the judgement and remanded other parts

of judgement to the Kaohsiung High Administrative Court. In October 2015 the

Kaohsiung High Administrative Court revoked the judgement. The Company filed

an appeal in November 2015, and it was overruled by the judgement rendered by the

Kaohsiung High Administrative Court in January 2016. The case was closed.

(b)Re-examination of the land tax: The Company filed an appeal pursuant to laws.

Notwithstanding, the appeal was revoked and the judgement became final and

irrevocable.


- 372 -

E. Tax payment 2013:

The company on the application for the reduction of land price tax in October 2013 to

file an appeal, after the Kaohsiung government in February 2015 to appeal rejected the

decision, the company in April 2015 in accordance with the law to initiate litigation

relief (and with the 2014 tax case combined trial, follow-up litigation progress with the

following: 2014 tax case).

F. Tax payment 2014:

The company on the application for the reduction of land price tax cases, in October

2014 in accordance with the law to file an appeal, after the Kaohsiung government in

February 2015 to appeal the decision to dismiss, the company in April 2015 in

accordance with the law to initiate litigation relief.

(a)Application for land tax credit/exemption:

The Company initiated the administrative remedy pursuant to laws, and Kaohsiung

High Administrative Court rendered a judgement revoking the petition. In December

2014 the Company filed an appeal, and the appeal was overruled and a judgement

rendered by the Supreme Administrative Court in July 2015. The Company filed for

reexamination in August 2015, and was overruled by the Kaohsiung High

Administrative Court in March 2016. The case was closed.

5. “Administrative disposition under Nan-Shih-Fu Huan-Shui-Tze No. 09722014930”

(1) Fact at issue:

Tainan City Government ordered the Company, via its official letter under Nan-Shih-Fu

Huan-Shui-Tze No. 09822035440 dated December 17, 2009, to pay the out-of-pocket

expenses for the project related to An Shun Site soil pollution remediation to the account

of Soil and Groundwater Pollution Remediation before January 31, 2010. The decision

was served to the appellant in December 2009.


(3) Date of initiation: January 2010





The Company paid said expenses within the specific time limit and filed an appeal.

Notwithstanding, the appeal was overruled upon judgement. The Company filed an

administrative suit with Kaohsiung High Administrative Court. The Court ruled in

September 2012 that the part of the judgement about the amount exceeding

NT$17,867,012 should be revoked, while the other claims filed by the Company were

over-ruled. The Company filed an appeal against the judgement over-ruling the

Company’s claims pursuant to laws. In September 2013, the Supreme Administrative

Court remanded the case for another judgement. In October 2015, the Kaohsiung High

- 373 -

Administrative Court revoked the judgement of the payment amount exceeding

NT$7,067,702. Both parties filed an appeal again with the Supreme Administrative Court

in November 2015. The Company’s appeal was overruled in February 2017 and part of

the facts was remanded to the Kaohsiung High Administrative Court for further hearing.

6. Anshun Fish Ponds Land rental case

A. Case 1

(1) Fact at issue:

An Shun fish farm is owned by the Company, but some tenants have terminated their

rental contract. Thus, the Company demanded the return of the land from those

tenants.


(3) Date of initiation: November 2015



Defendant: 11 people, including Wu Jen-Tz, et al.


The Company filed a suit in November 2015, and the case now is under hearing by

District Court.

B. Case 2

(1) Fact at issue:

Same as case 1

(2) Claimed value: None

(3) Commencement of litigation: September 2017



Defendant: four tenants


The Company filed a suit in September 2017, and the case is now under hearing by the

District Court.

7. Civil action against An Shun Old Dormitory

(1) Fact at issue:

Taiwan Alkali An Shun Dormitory is owned by the Company, but some residents have

occupied the dormitory for many years as their registered households. However, the

Cultural Affairs Bureau of Tainan City Government designated the area as a municipal

archaeology site on November 17, 2014. Since the Company has responsibility for

managing and maintaining that area and protects its own property rights for the stipulated

use or for the collection of profits of the property, the Company filed this suit.


- 374 -

(2) Claimed value: NT$19,566,120 and added interest




Defendant: Residents of the Taiwan Alkali An Shun Dormitory


The Company filed a suit in January 2016, and the case is now under hearing by the

District Court.

10. Shu Lin Pollution by Taiwan Alkali Co., Ltd.

(1) Fact at issue:

The land Nos. 540, 541 & 543, Tungshan Section, Shulin District, New Taipei City and

the land No. 489, Wei Wang Section, Shulin District, New Taipei City owned by Taiwan

Alkali Co., Ltd. were succeeded to by the Company upon the consolidation. Afterward,

CPC purchased the land from the Company. New Taipei City Government published via

its official letter under Pei-Huan-Shui-Tze No. 0990071085 dated August 16, 2010 that

the land should be identified as the soil pollution control site and also soil pollution

control zone. The Government also held that the pollution was caused by the Company,

and the Company should submit the pollution control plan.


(3) Date of initiation: August 2011



Defendant: New Taipei City Government


(A)Person committing pollution of Shulin Plant: The original decision against the case

was revoked by the judgement rendered by Taipei High Administrative Court. New

Taipei City Government filed an appeal. The Supreme Administrative Court ruled that

the 1st instance judgement should be revoked, and remanded the case for another

judgement. However, the case was overruled by Taipei High Administrative Court

and the Supreme Administrative Court in November 2013. The Company initiated the

petition for reexamination pursuant to laws. In June 2015, the Supreme Administrative

Court overruled the reexamination, while remanded the fact finding to the Taipei High

Administrative Court. The Taipei High Administrative Court overruled the judgement

in August 2016. In disagreement with the decision, the Company filed an appeal with

the Supreme Administrative Court, and it was overruled by the Supreme

Administrative Court in August 2017. The case was closed.

(B)Shulin Plant’s application for suspension of the execution: To declare the effect of the

original decision, the Company petitioned for suspension of the execution pursuant to

- 375 -

laws in March 2013. The petition was overruled by Taipei High Administrative Court

in May 2013, and the following appeal against the Court’s judgement was also

overruled in August 2013.

(C) Shulin Plant application:

New Taipei City Government rejected the application in June 2015, and the Company

initiated a petition for remedy. New Taipei City Government rejected the application

in June 2015, and the Company initiated a petition for remedy. The petition was

overruled in September 2015. The Company filed the 1st instance for remedy and was

overruled by Taipei High Administrative Court in September 2016. In disagreement

with the decision, the Company filed an appeal with the Supreme Administrative

Court, and it was overruled by the judgement in August 2017.

11. The right of passing through Toufen land and adjacent land

(1) Fact at issue:

This suit was between the plaintiff, Wan Wen-Cheng, and the defendant, “Huang

Chang-Yuan of Miaoli County’s Guild of Ancestor Worship” about the right of passing

through the east adjacent land of the Company’s Toufen factory. The Defendant claimed

that the plaintiff could obtain the right of passing through the adjacent land from the

Company’s dormitory areas. Thus, the plaintiff added the Company as co-defendant on

January 18, 2016 and demanded to confirm the right of access.




Plaintiff: Wang Wen-Cheng

Defendant: CPDC (another defendant is the “Huang Chang-Yuan of Miaoli County’s

Guild of Ancestor Worship”)


The Company received the claim of the action in January 2016, and issued pleadings in

February 2016. After examination of the 1st instance, the Company won the case by

judgement and the plaintiff filed an appeal. However, in December 2015, the plaintiff

revoked the appeal, and the case was closed.

12. Managers Tsai, Liu and Chen et al. prosecuted under civil and criminal law for violation of

trade secrets. The Company has appointed relevant attorneys to clarify the facts in order to

protect the Company's interests.

(1) Fact at issue:

The Company believed that Tsai et al. stole secrets through their duties for the purpose of

provide relevant organizations in Mainland China that were planning petrochemical

construction projects. Taking advantage of the acquisition of Dah Shyang Chemical Co.

Ltd., who used high-value chemical products, which were researched, developed, and

manufactured by the Company. The reproduction of such trade secrets were without


- 376 -

authorization, and a breach of trust occurred by stealing the Company’s trade secrets and

providing such to the third party caused the theft of the Company’s business secrets and

damages to its competitiveness.

(2) Claimed value: NT$7 billion, etc.

(3) Date of initiation:

a. Civil action: October 2016

b. Criminal prosecution: January 2017

c. Claim for returns of unjust enrichment of pension: March 2017


Plaintiff and complainant: CPDC

Defendant: Managers Tsai, Liu and Chen et al.


After the mediation was not successfully concluded, the civil action is under hearing by

the Taipei District Court. In regards to criminal law, after prosecution by the Miaoli

District Prosecutors Office, the case was transferred to the Miaoli District Court. The

Company initiate an ancillary civil action for compensation, and is now assisting the

Miaoli District Prosecutors Office with inspection of related evidence. In defense of the

claim for returns of unjust enrichment of pension, the board of directors of the Company

made a formal resolution resigning Tsai et al. retrospectively. The Company filed a suit to

the court for returns of unjust enrichment in March 2017, and the petition was overruled

by the judgement rendered by the Taipei District Court in December 2017. In

disagreement with the decision, the Company filed an appeal for remedy with the High

Court in January 2018.

13. Occupation of An Shun archaeology

(1) Fact at issue:

Tainan City Government designated the Company’s “Original Kagakude Negai O Ka

Corporation’s Dormitories in Tainan Factory” as a municipal archaeology site. On

January 27, 2015, the defendant, Wu, piled numerous personal belongings on the land

next to the dormitory at No.15, Aly. 3, Ln. 661, Beishanwei 2nd Rd., Annan Dist., Tainan

City on suspicion of occupying the real estate.


(3) Date of initiation: January, 2015


Complainant: CPDC

Defendant: Wu


After investigation and prosecution by the District Prosecutors Office, the case was

transferred to the Tainan District Court. In September 2016 the court ruled that Wu shall

- 377 -

be imprisoned for five months and return the Company the proceeds of the crime, which

amounted to NT$5,973,044. The defendant filed an appeal. After the examination by the

High Court, in June 2017, the judgement was determined that Wu was imprisoned for

five months and returned the Company the proceeds of the crime, which amounted to

NT$176,226. The case was closed.

17. “Administrative disposition under Fu-Huan-Shui-Tze No. 1000700466”

(1) Fact at issue:

Tainan City Government ordered the Company, via its official letter under

Fu-Huan-Shui-Tze No. 1000700466 dated September 16, 2011, to pay the out-of-pocket

expenses for An-Shun Site-related work projects to the Soil and Underground Water

Pollution Remediation Fund account. After the Company stated its own opinion, Tainan

City Government ordered the Company to make the payment within a specific time limit

via its official letter under Nan-Shih-Fu-Huan-Shui-Tze No. 1010242670 dated March

26, 2012.


(3) Date of initiation: April 2012






Notwithstanding, the appeal was overruled upon judgement. The Company filed the

administrative remedy pursuant to the law. The Kaohsiung High Administrative Court

rendered a judgement and rescinded the petition decision and the original fine regarding

the fine amount that exceeded NT$119,000. Both parties filed an appeal in September

2014. The Supreme Administrative Court remanded the case to the Kaohsiung High

Administrative Court on November 17, 2015. Kaohsiung High Administrative Court in

March 2017 rendered a judgement and rescinded the fine exceeded NT$6,498,455, which

the Tainan City Government requested payment from the Company. Both parties

disagreed with the decision, and filed an appeal for remedy. Currently, the case is

pending trial by the Supreme Administrative Court.

18. Petition for removal of buildings and refund of land by Taiwan Alkali Co., Ltd. to village

residents

(1) Fact at issue:

The Company consolidated Taiwan Alkali Co., Ltd. in 1983 and generally succeeded to

its right and obligation. In 1986, the Company entered an agreement with all of Taiwan

Alkali Village residents to make the land Nos. 1323-259 and 1323-261 available to them

to accommodate the utilities, such as public roads and water towers, continuously used by

them. Upon investigation on occupation of the public utilities, some residents were found


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violating the agreement by constructing private buildings thereon, changing the purpose

of the utility arbitrarily and misappropriating the land used for the utilities. The Company

planned to recall said land and asked them to refund unjust enrichment to secure the

Company’s assets and all shareholders’ interests and rights.


(3) Date of initiation: February 2013



Defendant: Taiwan Alkali Co., Ltd. Village Management Committee, et al.

The Company filed a suit pursuant to the law and petitioned for removal of buildings and the

return of the land. Kaohsiung District Court rendered a judgement revoking the petition. In

September 2014, the Company filed an appeal pursuant to laws. After the Kaohsiung, High

Court rendered a judgement overruling the Company’s petition in July 2016, the Company

was unwilling to accept the judgement and filed an appeal for remedy with the Supreme

Court in September 2016.

20. Civil action against high-rank management

(1) Fact at issue:

The Company’s high-ranking managers, Liu and Chang, resigned directly without

completing the handover procedures. They have stopped performing duties as of July 1,

2013. The Company issued a letter demanding that they should perform duties, but they

refused to do so. The Board of Directors relieved them from the post in October 2013.

The Company filed a suit against Liu pursuant to laws because he severely violated the

work rules of the Company. Later, Liu and Chang claimed the pension against the

Company pursuant to Labor Standard Law. Both parties failed to reach settlement upon

negotiation. Liu and Chang initiated a civil action for payment of pension with Taipei

District Court and Kaohsiung District Court in January 2014.

(2) Claimed value: NT$8,044,460 and NT$6,110,000



Plaintiff: Liu and Chang

Defendant: CPDC


The Plaintiffs initiated the actions, which are under examination by Taipei District Court

and Kaohsiung District Court respectively. Taipei District Court in September 2015

rendered the judgement that the Company shall give Liu NT$4,572,150, while the

Kaohsiung District Court in September 2015 rendered the judgement that the Company

shall give Chang NT$35,393. The Company filed an appeal against Liu in September

2015. The High Court rendered the judgment overruling both parties’ appeal in March

- 379 -

2017. The Company was unwilling to accept it, and filed an appeal for remedy in April

within the same year. For the latter case, the High Court overruled the plaintiff Chang's

petition in July 2016, and he was unwilling to accept the judgement and filed an appeal.

The issue is under examination by the Supreme Court.

21. Employee Wang's overtime pay against Labor Standard Law

(1) Fact at issue:

The entity rendering the original decision, Labor Affairs Bureau of Kaohsiung City,

performed the labor inspection on Hsiaokang Plant and issued the written decision under

Kao-Shi-Lao-Tiao-Tze No. 10233232500 holding that Employee Wang’s overtime pay

did not include the meal allowance and the Company should be fined NT$20,000. For

disagreement with the administrative disposition, the Company filed an appeal.





Defendant: Kaohsiung City Government


The Company initiated the petition pursuant to the law in June 2013, and the petition was

revoked. The Company filed an administrative suit in February 2014, and the Kaohsiung

District Court rendered a judgement revoking the suit. The Company filed an appeal

pursuant to laws, and the Kaohsiung High Court overruled the appeal in a judgement in

July 2015. The Company petitioned for reexamination in August 2015, and was still

overruled. The Company filed an appeal for reexamination on January 21 2016. After the

appeal was overruled by the judgement rendered by the Administrative court of the

Kaohsiung District Court in July 2016, the Company filed an appeal for remedy again.

After the Kaohsiung, High Administrative Court overruled the Company’s petition in

December 2016, the case was closed.

22. “Administrative disposition under Fu-Huan-Shui-Tze No. 1020383681B”

(1) Fact at issue:


Huan-Shui-Tze No. 1020383681B dated May 2013, to pay the out-of-pocket expenses for

the project related to An Shun Site soil pollution remediation, NT$26,535,852, within a

specific time limit.


(3) Date of initiation: July 2013





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Notwithstanding, the appeal was overruled upon judgement. The Company filed the

administrative remedy pursuant to laws. The Kaohsiung High Administrative Court in

April 2016 claimed that the Company would appeal for remedy against negative

injunctions pursuant to laws. The appeal was overruled by the Supreme Administrative

Court in March 2017. In disagreement with the decision, the Company initiated a

rehearing action for remedy in April within the same year. The judgement was

determined in October 2017 holding that the Company was not liable for NT$ 61,126 of

remediation expenses. Thus, the Company applied for the return of the overpayment in

January 2018.

17. “Administrative disposition under Fu-Huan-Shui-Tze No. 1000700466”

(1) Fact at issue:


Huan-Shui-Tze No. 1030098879 dated February 2014, to pay the out-of-pocket expenses

for the project related to An Shun Site soil pollution remediation, NT$27,444,217, within

a specific time limit.








Notwithstanding, the appeal was overruled upon judgement in July 2014. The Company

filed the administrative remedy pursuant to laws. After examination by the Kaohsiung

High Administrative Court, the judgement was rendered in August 2016 that the

Company only needed to pay NT$153,657 and the rest was overruled. Considering the

overall interests, the Company filed an appeal against the part overruling the Company’s

claims. The issue now is under hearing by the Supreme Administrative Court.

28. “Administrative disposition under Nan-Shih-Fu-Huan-Chi-Tze No. 1040225873”

(1) Fact at issue:


Nan-Shih-Fu-Huan-Chi-Tze No. 1030133470 dated February 2014, to pay the fine

NT$200,000 within a specific time limit because of violation of Soil and Groundwater

Pollution Remediation Act, which the Company failed to execute following the

“Remediation Plans of Soil Pollution and Site Pollution” and reach the remediation goals

in December 2013. For disagreement with the administrative disposition above, the

Company initiated the administrative remedy pursuant to laws.

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(2) Claimed value: NT$200,000






The Company initiated the petition pursuant to laws in March 2014, and in June within

the same year the Environmental Protection Administration, Executive Yuan rendered a

judgement revoking the petition. The Company filed an administrative suit in August

2014, and the case was under examination by the summary court of the Tainan District

Court. In disagreement with the decision, the Company appealed to the Kaohsiung High

Administrative Court in May 2015. After the appeal was overruled in August 2015, the

Company petitioned for reexamination in September 2015. The Kaohsiung High

Administrative Court agreed the argument is well grounded and revoked the original

decision. The whole case was referred to Taiwan Tainan District Court, Taiwan Tainan

District Court in June 2017 rejected the company's request, the company in July of the

same year filed a retrial appeal relief, in October of the same year by the Kaohsiung High

Administrative Court rejected the determination, the end of the case.

19. “Administrative disposition under Nan-Shih-Fu-Huan-Chi-Tze No. 1030815405”

(1) Fact at issue:


Nan-Shih-Fu-Huan-Chi-Tze No. 1030815405 dated August 2014, to pay the fine

NT$600,000 within a specific time limit because of violation of Soil and Groundwater

Pollution Remediation Act, which the Company failed to execute following the

“Remediation Plans of Soil Pollution and Site Pollution.” For disagreement with the

administrative disposition above, the Company initiated the administrative remedy

pursuant to laws.


(3) Date of initiation: September 2014





The Company initiated the petition pursuant to laws in September 2014, and in December

within the same year the Environmental Protection Administration, Executive Yuan

rendered a judgement revoking the petition. The Company filed an administrative suit in

February 2015, and was examined by Kaohsiung High Administrative Court. The

judgement was unfavorable to the Company, thus the Company filed an appeal with the


- 382 -

Supreme Administrative Court in December 2015. The appeal was overruled by the

Supreme Court in May 2016. The Company was unwilling to accept the judgement and

petitioned for reexamination pursuant to laws. In December within the same year, the

petition was overruled by the Supreme Administrative Court, and the case was closed.

29. Administrative disposition under Kao-Shih-Fu-Shui-Shih-Yi-Tze No. 10335137100 (Turn

off the pipelines with enforcement because of Kaohsiung gas explosion)

(1) Fact at issue:

Kaohsiung City had an underground pipeline explosion in July 2014. Kaohsiung City

Government ordered the Company in August 2014 to turn off the pipeline, and prohibited

the Company from restoring to use all the petrochemical pipelines in affected areas. For

disagreement with the administrative disposition above, the Company initiated the

administrative remedy pursuant to laws.





Defendant: Kaohsiung City Government


The Company initiated the petition pursuant to laws in September 2014, and MOEA

overruled the petition in December 2015. The Company filed an administrative appeal

with Kaohsiung High Administrative Court in January 2016 and the part of petition was

overruled upon judgement in January 2017 In disagreement with the decision, the

Company filed an appeal for remedy in February within the same year. Currently, the

case is pending trial by the Supreme Administrative Court.

30. Administrative disposition under Kao-Shih-Kung-Wu-Kung-Tze No. 1033652500 and No.

1033766200 (Repeal of permission to mine and use the road for underground pipelines in

Kaohsiung)

(1) Fact at issue:

Due to the Kaohsiung gas explosion on August 1st, Public Works Bureau of Kaohsiung

City Government, via its official letter to CPC Corp., the person subject to the

disposition, repealed the Company’s right to use the land of all the pipelines. Some

pipelines mentioned in the repeal disposition belonged to the Company, and the Company

commissioned CPC Corp. to build the pipelines at first, thus the Company, as the

stakeholder, initiated a remedy with Public Works Bureau of Kaohsiung City

Government pursuant to laws in September and November 2014.



- 383 -



Defendant: Public Works Bureau of Kaohsiung City Government


The Company initiated a petition pursuant to laws in September and November 2014, and

the Petition Committee of Kaohsiung City Government over-ruled the petition. In April

2015 the Company filed an administrative suit against two administrative disposition. The

petition was over-ruled upon judgement by the Kaohsiung High Administrative Court in

March 2017. In disagreement with the decision, the Company initiated an appeal for

remedy in April within the same year.

31. An Shun application

(1) Fact at issue:

Fact at issue: Summary of J. Y. Interpretation No. 714 indicates that whether polluters’

general successors bear the remedial obligation does not belong the range of Soil and

Groundwater Pollution Remediation Act. Meanwhile, ex-Taiwan Alkali Corp. was a

state-owned enterprise and its affiliated An Shun Factory was commanded and supervised

under the Ministry of Economic Affairs, Taiwan Provincial Government, and CPC Corp.,

etc., and they also dominated operations and obtained profits from it. These foresaid

actions should belong to the acts of state, but the government asked a private company to

bear the pollution which it had caused. Thus, the Company applied for the confirmation

from Tainan City Government that those were actual polluters or potentially responsible

for pollution and they should pay for the relevant costs and refund the money the

Company had already paid over the years.







In November 2014 Tainan City Government made a rejection and the Company initiated

a petition for remedy. In March 2015 Tainan City Government revoked the preceding

disposition and made a new one. Considering the litigation strategy, the Company

initiated a petition with the new disposition in April 2015. Environmental Protection

Administration of Executive Yuan decided not to proceed with the case, because the

original disposition had been revoked. New disposition was overruled in July 2015. The

Company filed a 1st instance for remedy in September 2015, but it was over-ruled upon

judgement by the Kaohsiung High Administrative Court in November 2017. In

disagreement with the decision, the Company filed an appeal within the same year.


- 384 -

32. Lawsuit of Business negligent injury from Heng-I Inc.

(1) Fact at issue:

January 28, 2013 bovine factory next to the Hengxin chemical field caused by gas

explosion causing workers burns, and then turned into business negligence injury cases.

Because the accident occurred in the industrial area of the public large row, after

sampling and identification of suspected excess of the company's emissions, should be

told to call the manager of the company as the defendant, Miaoli the inspection

department to hear. In February 2015, injured workers from Heng-I Chemical Inc.

applied for joint liability to pay compensation of NT$6,920,000.




Plaintiff: Injured workers from Heng-I Chemical Inc.

Defendant: CPDC and its manager


The civil action case is pending trial by the Miaoli District Court, and in March 2017 the

judgement was rendered that the Company and the manager won the case. The Company

will handle subsequent issues after receiving a formal judgment. As for criminal actions,

a ruling was rendered to not prosecute in March 2016.

33. An Shun Dormitory assigned as an archaeology

(1) Fact at issue:

Fact at issue: Tainan City Government, via its official letter under

Jih-Fu-Wen-Tzu-Chu-Tze No. 1031053448A dated November 17th, 2014, designated the

Company’s “Original Kagakude Negai O Ka Corporation’s Dormitories in Tainan

Factory” as a municipal archaeology. For disagreement with the preceding administrative

disposition, with two units occupied and destroyed dormitories has been found, the

Company filed a suit for remedy pursuant to laws.







The Company initiated the petition for remedy. In August 2015, a decision was made that

the disposition of four lands among An Shun Dormitory were revoked, while the rest

parts of disposition were over-ruled. In disagreement with the decision, the Company

filed an administrative appeal in September 2015. However, Tainan City Government on

December 18, 2015 re-announced the rulings according to MOEA’s petition decision. In

- 385 -

disagreement with the reannouncement (abbr. “2rd petition of archaeology assigned”), the

Company initiated the petition on February 5, 2016. After the petition was over-ruled in

July 2016, the Company filed an administrative suit with the Kaohsiung High

Administrative Court to maintain the Company’s interests. The court determined that a

re-announcement is not a sufficient reason for an administrative disposition and rendered

a judgement overruling the Company’s lawsuit. The case was closed.

34. Civil action against company managers

(1) Fact at issue:

The Company’s manager, Wang, violated the company’s regulation during the working

period. The Company acquitted Wang after it has been discovered and filed a suit against

Wang pursuant to laws. However, Wang claimed that the company made him redundant

illegally and requested for severance pay of NT$188,733.





Defendant: CPDC

The Company won the 1st instance, and the judgement was finalized.

35. Application of joint Occupational Accident from an employee of Chung-Yen Engineering

Co., Ltd.

(1) Fact at issue:

The plaintiff, Mr. Wang, for the employees employed by the company's Shangzhongyan

Engineering Co., Ltd., fell during the Rust prevention operation of the ceiling pipeline

paint at the company's great social factory in February 2013, resulting in partial contusion

and fracture of the body. In February 2015, the plaintiff requested to add CPDC to the list

of defendants, in addition to the original defendant, Chung-Yen Engineering Co. Ltd.


(3) Date of initiation: April 2015



Defendant: Chung-Yen Engineering Co., Ltd. and CPDC


The case was pending trial by the civil division of Kaohsiung District Court and the

judgement was rendered in June 2017. In disagreement with the decision, the Company

initiated an appeal in July within the same year.

36. “Administrative disposition under Nan-Shih-Fu-Huan-Tu-Tze No. 1050327521”

(1) Fact at issue:


- 386 -

Tainan City Government ordered the Company to pay for the “2013 CPDC’s (Taiwan

Alkali Co., Ltd.) supervision and auditing project for An Shun Site remediation”.

According to Article 14, Paragraph 4, Article 15, and Article 43, Paragraph 1 of the Soil

and Groundwater Pollution Remediation Act (hereinafter referred to as Soil Pollution

Act), the Company was requested to pay NT$63,270,582.







The Company initiated the petition in June 2016, and the agency with jurisdiction of

administrative appeals overruled the petition. The Company filed an appeal for remedy in

December 2016. The issue now is under hearing by the Kaohsiung High Administrative

Court. The two sides pleaded not guilty to the appeal in July 2017, and then sent back to

the higher trial, which is currently the high Administrative Court of Kaohsiung.

37. “Administrative disposition under Fu-Huan-Tu-Tu-Tsai-Tze No. 105050004”

(1) Fact at issue:

(1)Fact at issue: According to the Tainan City Government’s records of soil and

groundwater pollution audits, dated on January 8, 2016, the quality of dioxin decreasing

rate was less than 41%. Thus, considering that the Company did not implement the

remediation plan and violated Article 22, Paragraph 1, Article 38, Paragraph 2,

Subparagraph 3 of Soil Pollution Act, and Point 2, Item 11 of Sanction Benchmark

attached in the same Act, the Government punishes the Company with a fine

NT$200,000. The Company also is required to receive an environmental seminar for two

hours according to Article 23, Paragraph 2 of the Environmental Education Act.







Status: The Company initiated the petition in June 2016, and the agency with jurisdiction

of administrative appeals overruled the petition in October 2016. In disagreement with

the decision, the Company filed an appeal in December 2016 and it was overruled upon

judgement by the Kaohsiung High Administrative Court in July 2017. The Company filed

an appeal for remedy in August within the same year and then it was overruled upon

judgement by the Supreme Administrative Court in January 2018. The case was closed.

- 387 -

37. “Administrative disposition under Fu-Huan-Tu-Tu-Tsai-Tze No. 105050004”

(1) Fact at issue:

Fact at issue: Based on the administrative disposition under Fu-Huan-Tu-Tu-Tsai-Tze

No. 106010003 dated on January 18, 2017, Tainan City Government determined that the

Company knows that the heat treatment (rotary kiln) for decreasing the quality of dioxin

was still under a testing phase and actual remediation decreasing percentage remains at

0%, and the Company did not make any actual progress before October 31, 2016,

according to the records of soil and groundwater pollution audits. This Violates Article

22, Paragraph 1, Article 38, Paragraph 2, Subparagraph 3 of Soil Pollution Act, and Point

2, Item 11 of the Sanction Benchmarks attached in the same Act, the Company was fined

NT$600,000, and is required to receive an environmental seminar for four hours

according to Article 23, Paragraph 2 of the Environmental Education Act.







Status: The Company was imposed sanctions based on the same fact at issue with

“Administrative disposition under Fu-Huan-Tu-Tu-Tsai-Tze No. 105050004”. The

Company believes that the Tainan City Government did not take into consideration the

difficulties of the remediation project into account, nor give the Company objective and

an achievable time frame to implement further improvements, and placed unreasonable

sanctions. In disagreement with the decision, the Company initiated a petition in February

2017 and it was overruled. The Company initiated for administrative remedy in June

within the same year and it was overruled upon judgement by the Kaohsiung High

Administrative Court in November in 2017. In disagreement with the decision, the

Company filed an appeal with the Supreme Administrative Court in December within the

same year.

32. One million fine on the non-proposal for a 3rd revision of the pollution remediation plan

(1) Fact at issue:

On May 4, 2017, the Tainan government, in its letter 1,060,456,103th, the Tainan

Environmental Protection Bureau (EPA) determined that the scheme did not meet the

requirements for lifting capacity, and that it would take 8 hours to absentia and the

environment in accordance with NT $1 million of the soil and groundwater Pollution

remediation 4th 22nd Act. That is, the third change plan proposed by the company is

deemed not to have been proposed.




- 388 -





Status: In disagreement with the disposition, the Company initiated an administrative

remedy in December 2017, while revised the pollution remediation plan as requested by

Environmental Protection Bureau of Tainan City Government. The plan was approved in

January 2018 and will be carried out in the future.

§ Against affiliates

2.Reinvestment entity – Legal action against declaration of the capacity of Chairman of

Praxair Chemax Semiconductor Materials Co., Ltd.

(1) Fact at issue:

The director of Praxair Chemax Semiconductor Materials Co., Ltd. (hereinafter referred

to as “Praxair”) delegated by the Company, was elected as the new Chairman at the

directors’ meeting of Praxair 2013. However, the Vice Chairman and supervisor

appointed by the joint venture shareholder, Praxair Inc., failed to keep their promise and

stopped the supervisor of Praxair appointed by the Company from auditing the accounts

and records pursuant to the Company Law, and filed a legal action declaring

non-existence of the new Chairman’s commission of authority.


(3) Date of initiation: May 2013


a. action of non-existence of the new Chairman’s commission of authority:

Plaintiff: Supervisor Taimur Sharih of Praxair, and Vice Chairman Anne Roby of

Praxair

Defendant: New Chairman of Praxair, Lin Ke-Ming.

b. action of claims for collection of books:

Plaintiff: Supervisor of Praxair, Yu Chien-Sung

Defendant: General Manager of Praxair, Chen Chun-Liang

c. action of claims for collection of Seal / Signature:

Plaintiff: Chairman of Praxair, Lin Ke-Ming

Defendant: General Manager of Praxair, Chen Chun-Liang, et al.


Taiwan High Court ruled that the action of existence Chairman’s commission of authority

did exist. For disagreement with the judgement, the Defendant filed an appeal with

Taiwan Supreme Court. The appeal was overruled by the judgement rendered by the

Court on December 23, 2015, and this case determined that Lin Ke-Ming was the

- 389 -

Chairman of Praxair. However, the intervener filed an appeal. The judgement was

rendered by the Supreme Court in September 2017 determining again that Lin Ke-Ming

was the Chairman of Praxair. Taiwan High Court ruled that the Supervisor of Praxair, Yu

Chien-Sung, won the case of action of claims for collection of books. For disagreement

with the judgement, the Defendant filed an appeal with Taiwan Supreme Court which is

now pending trial. Taiwan Hsinchu District Court stopped the trial on the case of action

of claims for collection of Seal / Signature until the Chairman’s commission of authority

is determined. The Chairman’s appointment was confirmed on December 23, 2015, and

relevant information was reported for the continuation of the proceedings. After

successfully changing the seal registration on December 27, 2016, the Company dismiss

the action. International arbitration on January 23, 2018 to make a judgment, the

company in a successful defeat, at present, according to the results of the judgment in

December 2018 from 2014 to 2017 dividend, About NT $560 million, and the avoidance

of arbitration proceedings against some of the Taiwan courts is now in the Taipei District

Court of Taiwan.

3. Reinvestment – Praxair shareholders’ meeting

(1) Fact at issue:

The supervisor, Taimur Sharih, appointed by the joint venture shareholder of Praxair

invested by the Company, Praxair INC., privately called a temporary shareholders’

meeting on January 15, 2015 and submitted the temporary motion at the meeting.





Defendant: Chairman of Praxair, Lin Ke-Ming, and Supervisor Taimur Sharih


The Miaoli District Court rendered a judgement in September 2016 that the Company

won the case. The opposite side filed an appeal with the High Court in October 2016 and

the judgement was rendered holding that the Company still won the case. The opposite

side filed an appeal again with the Supreme Court in September 2017. Currently, the

issue now is under hearing by the Supreme Court.

4.Reinvestment – Praxair revocation of all the resolutions made by the board of directors and

denial of financial statements

(1) Fact at issue:

Because some relevant judgements had determined that Lin Ke-Ming, appointed by the

Company, was the Chairman of Praxair, the resolution, which Praxair voluntarily called a

meeting of directors, was illegal and should have been revoked. On the other hand,

considering that the financial statements submitted by Praxair may affect shareholders’

right and interest, the Company brought a suit for remedy.


- 390 -




Plaintiff: Yu Chien-Sung

Defendant: Praxair

(5) Status: Pending trial by Taiwan Miaoli District Court.

5. Reinvestment – non-existence of the resolution of Praxair extraordinary shareholders'

meeting on 21 February, 2017

(1) Fact at issue:

Because some relevant judgements had determined that Lin Ke-Ming, appointed by the

Company, was the Chairman of Praxair, the resolution, which Praxair voluntarily called

an extraordinary shareholders' meeting in February 2017, was illegal and should have

been revoked.





Defendant: Praxair


6. Reinvestment – Praxair absence of directors and supervisors

(1) Fact at issue:

After dismissal of Praxair directors and supervisors on January 9, 2017, the Company

brought a lawsuit to elect the interim managers and inspectors in order to maintain the

regular operation of Praxair and reduce damages to shareholders’ rights and interest.






Status: Due to the complexity of the case, the Company made an application for sending

the case to trial with the Taiwan Miaoli District Court in order to protect the legitimate

rights and interests in Praxair.

7. Reinvestment –Rental payment of Praxair

(1) Fact at issue: Praxair did not comply with the contract and pay for the rent since March

2013.


- 391 -





Status: After the examination, the Miaoli District Court was of the opinion that the

Company’s request had no reason and overruled the Company’s suit. In disagreement

with the decision, the Company filed an appeal for remedy in January 2018.

10. Reinvestment – Payment of Praxair Chang Ming-Zhong’s Pension

(1)Fact at issue: In his tenure, Chang did not properly safeguard the rights and interests of

the Company and resulted in Praxair becoming the subject to illegal actions, such as

unconventional transactions, etc., and caused considerable damage to the Company.

Therefore, the Company dismissed his position.




Defendant: CPDC

Plaintiff: Chang Ming-Zhong

(5) Current processing situation: Taiwan Qiaotou District Court heard.

11. Reinvestment – Praxair determination action for Chairman Lin Ke-Ming’s existence of

commission of authority

(1) Fact at issue:

March 8, 2017 Praxair filed a lawsuit against chairman Lin Ke-Ming confirmation of the

existence of the appointment relationship and other litigation, because Praxair's

supervisor at that time are absent.




Defendant: CPDC

Plaintiff: Praxair Inc.


12. Reinvestment – Contract disputation with Shanghai Tongye Coal Chemical Group Co. Ltd

(1) Fact at issue:

Shanghai Tongye Coal Chemical Group Co. Ltd purchased anthracene oils from Weihua

(Rudong) Trading Co., Ltd and Weiqiang International Trading (Shanghai) Co., Ltd.

However, the payment of the contract was paid with only 10% of total amount which is

equal to deposit premium in May, 2014. In June, 2014, both sides of the companies


- 392 -

signed complement action agreement to extend payment terms. However, Shanghai

Tongye Coal Chemical Group Co. Ltd still not paid the remainder payment on the due

date. Weihua and Weiqiang filed a suit for remedy pursuant to laws.

(2) Claimed value: RMB$ 3.5 million



Plaintiff: Weihua (Rudong) Trading Co., Ltd. and Weiqiang International Trading


Defendant: Shanghai Tongye Coal Chemical Group Co. Ltd


Subsidiaries of CPDC, Weihua and Weiqiang, filed a civil suit with Yangpu District

Court against Shanghai Tongye Coal Chemical Group Co. Ltd for the remainder payment

of contract on August 6, 2014. The mediation of both sides was sustained by the Court.

However, due to the failure of Shanghai Interbank Coal Group Co., Ltd. to perform the

first issue of repayment in accordance with the Court's mediation, Weihua and Wei Qiang

applied to the Yangpu District Court on September 2, 2014 for enforcement and sealed

off all coal tar from Shanghai Interbank Group Co., Ltd. At present, waiting for the court

to re-seal, sell debt or auction, follow-up Weihua and Wei Qiang Company and Shanghai

Interbank Coal Group Co., Ltd. continue to negotiate negotiations, and ask the company

to propose a more specific repayment plan. Authorities concerned is proceeding with

criminal investigation of relevant people which engage in contract fraud from Shanghai

Tongye Coal Chemical Group Co. Ltd.

(XIII) Other major risks and countermeasures: N/A

VII. Other important notes

- 393 -

Eight、Special Note

I. Information about Affiliates

1. Consolidated operating report of affiliate

(1)

Note: 1. Data updated as of March 29, 2019

2. Substantially identified companies constitutes controlling and affiliates relationships

as defined in Article 369-2 of the Company Law.

Special Note

- 394 -

(2) Profiles of affiliates

Unit：NTD Thousand

Name of business Date of

Incorporation Address Paid-in Capital Principle Business

Tao Zhu

Construction &

Development Co.,

Ltd.

1995.10.11 8F, No. 12 Tunghsing

Road, Songshan District,

Taipei City

NTD100,000 Research and analysis on land

utilization and planning and

consultation services, and lease and

sale of factory premises and

commercial buildings, et al.

Weiqiang

International Trade

(Shanghai) Co.,

Ltd.

2019.01.08 Suite 401, No., 718,

Kuan Ming Road,

Pudong New District,

Shanghai City

NTD 211,560 (Note 3) Wholesale of chemical raw

materials and products (exclusive

of hazardous goods),

commissioned distribution

(exclusive of auction), and import

and export and related alternatives

Weihua (Rudong)

Trade Co., Ltd.

2019.01.08 No. 9, Kang Cheng

Village, Changsha

Township, Rudong

Township, Chiangsu

Province

NTD 763,460 (Note 3) Wholesale of chemical raw

materials and products (exclusive

of hazardous goods and toxic

chemical products), export and

import, and import and export of

technology, and commissioned

distribution

Rich Equities Ltd. 2007.03.21 Level 3, Alexander

House, 35 Cybercity,

Ebene, Mauritius

NTD 5,996 (Note 3) Reinvestment.

CPDC Investment

(BVI) Co., Ltd.

1998.01.09 Citco Building,

Wickhams Cay, P.O Box

662

NTD 904,944 (Note 3) Reinvestment.

Tsou Seen

Chemical

Industries

Corporation

1998.06.16 No. 1, Chin Ching Road,

Tunghai Village, Fanliao

Hsiang, Pintung County

NTD 960,000 Manufacturing of phosphoric

acid-related chemical products and

derivatives, and Storage,

transportation, procurement and

marketing of fertilizer

Taivex therapeutics

Inc.

2010.02.11 8F, No. 12 Tunghsing


Taipei City

NTD 507,399 R&D of bio-tech medicines.

Sinopec Green

Energy Technology

Co., Ltd. (formerly

Sinopec

Engineering Co.,

Ltd.)

1999.05.31 No. 34 Chunglin Road,

Hsiaokang District,

Kaohsiung City

NTD 150,000 Mechanical and environmental

related projects.

Da Yin

Construction

Engineering Co.,

Ltd.

1972.11.24 No. 5, 10F, 51, Fuxing

Road, Taoyuan City

NTD 22,500 Civil engineering contractor.

- 395 -



Kaohsiung

Monomer Co., Ltd.

1976.06.10 No. 1 Xinkung Road,

Dashe District,

Kaohsiung City

NTD 500,000 Production and sale of methyl

methacrylate (MMA)

Unichem

Development

Limited

2008.05.20 Room 1405-1406, No.

43-59, Dominion Centre,

Queen's Road East,

Wan-chai District, Hong

Kong

NTD 6,337,164 (Note 3) Reinvestment.

WEIDA

(ZHANGZHOU)

CONSULTANT

SERVICE CO.,

LTD.

2012.11.26 Shop front at No. 06,

Block 8, West District,

Hsin Rong Hsiao Zone,

Hsiang Cheng Ping Tsang

Yuan Road, Changchou

City

NTD 13,171 (Note 3) Consultation services

Jiangsu Weiming

Petrochemical

Corporation

2013.05.16 No. 9, Kang Cheng

Village, Changsha

Township, Rudong

Township, Chiangsu

Province

NTD 4,186,394 (Note 3) Petrochemical project related

facilities construction

Chunghwa Twin

Towers Co. Ltd.

2011.03.01 16F, No. 12 Tunghsing


Taipei City

NTD 3,337,705 Investment in construction of

infrastructure, real property trading,

international trading, real property

lease, and hotel services

WEIDA

(ZHANGZHOU)

Petrochemical CO.,

LTD.

2014.12.23 No.1 Gulei Road.,Du

Xun Town, Zhangpu

County, Zhangzhou City,

Fujian Province

NTD 30,648 (Note 3) Petrochemical project related

facilities construction

Kunshan Wei-Chin

Management

Consulting Co.,

Ltd.

2016.01.21 Room 2006, Building

5th, Asia Pacific Plaza,

Huaqiao Town Road,

Kunshan, Jiangsu

Province

NTD 29,664 (Note 3) Business management consultation

services, investment consultation,

and marketing planning.

Zhejiang Wei-Chi

Material Co., Ltd.

2016.01.21 Sian Township Industrial

Zone, Changxing County

NTD 31,278 (Note 3) Wholesale of synthetic fiber

materials (Nylon products.)

Zhejiang Wei-Chi

Material Co., Ltd.

2016.01.21 112 Robinson

Road#05-01Robinson

112 Singapore(068902)

NTD 1,326 ,796 (Note 3)

Reinvestment.

Core Pacific Twin

Tower (Myanmar)

Co. Ltd.

2016.01.21 No.153/Ka,Kyun Shwe Myaing Lane(2),

23 Ward,Thingangyun

Township,Yangon

NTD 169,921 (Note 3) Reinvestment and advisory

services.

Shengfeng

Construction

Investment Co.,

Ltd.

2016.01.21 No. 338/18, Anyang

Wang Road, Fourth

District, Ho Chi Minh

City, Vietnam

NTD 622,633 (Note 3) Construction projects, real estate

management, construction related

technical consultants, leasing

machinery and equipment, building

materials wholesale and so on.

Special Note

- 396 -



Supervisor of

Changzhou Weicai

New Material

Science and

Technology Co.,

Ltd.

2016.01.21 No. 68, Daoxiang Road,

Wujin Economic

Development Zone,

Changzhou, Jiangsu,

China

NTD1,860,113 (Note 3) Engineering plastics, production of

high value petrochemical

downstream products

Director of Core

Pacific Pioneer

(Myanmar) Co.,

Ltd.

2016.01.21 No.153/Ka,Kyun Shwe Myaing Lane(2), 23 Ward,Thingangyun Township,Yangon

NTD 15,434 (Note 3) Construction Engineering, real

estate management, development

and sales services.

Core Pacific Twin

Star (Vietnam)

Investment Co.,

Ltd.

2016.01.21 No.18 Dong Nai, Ward 2, Tan Binh District, HCMC

NTD1,157,997 (Note 3) Improve the construction project,


construction activities related

consultants

Sinopec Twin Star

(India) Co., Ltd.

2019.01.08 Level 7, The Capital, Plot No. C-70, G Block, Bandra Kurla Complex, Bandra MUMBAI Mumbai City MH 400051 IN

INR 9,274 (Note 3) Engaged in real estate and

petrochemical market research and

consulting business.

Note 1: All of the affiliates should be disclosed, irrelevant to scale and size. Note 2: Where each affiliate has established its own plant, and the sales of the products manufactured by the plant exceed

10% of the Company’s operating revenue, the name, date of incorporation, address and principle business of the plant shall be included herein.

Note 3: Where the affiliate refers to a foreign company, the name and address may be stated in English, and the date of incorporation may be expressed in the form of MM/DD/YY. The paid-in capital may be expressed in foreign currency (but the exchange rate on the reporting date shall be specified).

Note 4: Data deadline: March 29, 2019. Note 5: Changzhou Huize New Material Technology Co., Ltd. was renamed Changzhou Weicai New Material

Technology Co., Ltd. in February 2019.

- 397 -

(3)Overview of affiliate operation

Currency Unit: NTD Thousand

Name of business Capital Total assets Total

liabilitiesNet Value

Operating revenue

Operating income (Loss)

Profit (loss) (after tax)

EPS (NT$) (after tax)


960,000 1,741,839 131,950 1,609,889 2129,175 272,429 193,626 2.02

Taivex therapeutics Inc.

507,399 434,098 17,608 416,490 0 (81,446) (76,894) (1.52)

Sinopec Green Energy Technology Co., Ltd.

150,000 226,892 86,710 140,182 251,147 (21,020) (20,

983) (1.40)


100,000 76,581 169 76,412 0 (1,990) (1,924) (0.19)

Da Yin Construction Engineering Co., Ltd.

22,500 24,710 82 24,628 0 (225) (107) --

CPDC Investment (BVI) Co., Ltd.

904,944 931,841 14 931,827 0 (132) (105,703) (3.98)

Kaohsiung Monomer Co., Ltd.

500,000 4,979,272 1,533,575 3,445,697 6,922,742 3,095,699 2,482,675 49.65

Rich Equities Ltd. 5,996 5,254 0 5,254 0 45 45 0.25


211,560 278,396 158,164 120,233 1,059,261 12,661 13,864 --

Weihua (Rudong) Trade Co., Ltd.

763,460 848,590 361,907 486,683 652,991 16,767 24 --

WEIDA (ZHANGZHOU) CONSULTANT SERVICE CO., LTD.

13,171 2,562 18 2,544 0 (514) (428) --


3,743,354 5,225,281 1,782,863 3,442,445 0 (107,091) (28,273) --

Chunghwa Twin Towers Co. Ltd.

2,201,000 2,635,930 120 2,635,810 0 (164) (25,603) 0.00

Unichem Development Limited

5,894,124 5,269,972 58 5,269,914 0 (2,536) (94,327) --

WEIDA (ZHANGZHOU) Petrochemical CO., LTD.

30,648 16,532 87 16,445 0 (5,763) (5,679) --

Kunshan Wei-Chin Management Consulting Co., Ltd.

29,664 8,674 42 8,632 10,751 (10,301) (10,048) --

Special Note

- 398 -

Name of business Capital Total assets Total

liabilitiesNet Value

Operating revenue

Operating income (Loss)

Profit (loss) (after tax)

EPS (NT$) (after tax)

Zhejiang Wei-Chi Material Co., Ltd.

31,278 25,994 21 25,973 0 (996) (1,159) --

Zhejiang Wei-Chi Material Co., Ltd.

180,817 169,920 1 169,919 0 (4,189) (9,781) (0.05)

Core Pacific Twin Tower (Myanmar) Co. Ltd.

169,921 162,734 30 162,704 0 (5,901) (5,622) (1.75)

Director of Core Pacific Pioneer (Myanmar) Co., Ltd.

15,434 22,782 8,247 14,535 0 (1,025) (466) --

Shengfeng Construction Investment Co., Ltd.

622,633 739,621 119,178 620,442 0 (31) 9 --

Changzhou Huize New Material Technology Co., Ltd.

1,860,113 2,216,980 1,088,098 1,128,883 2,985 (21,330) (47,176)

Note 1: All of the affiliates should be disclosed, irrelevant to scale and size. Note 2: For relational enterprises such as foreign companies, the relevant figures should be shown in the conversion of NT

dollars. Note 3:--listed Co., Ltd. does not apply to this entry. Note 4: Changzhou Huiyuan new material Technology Co., Ltd. was renamed Changzhou Weichai new material Technology

Co., Ltd. in February 2019.

- 399 -

(II) Consolidated financial statements of related corporations

Declaration

I. The Company's relationship with the Enterprise consolidated financial statements in 2018 (from

January 1st, 2018 to December 31st, 2018) is based on the "Relationship Enterprise Merger

Business Report Relationship Enterprise Consolidated financial Statements and relationship

Report preparation guidelines", securities issuers financial reporting guidelines and related laws

and regulations prepared.

2. Our company declare that no information relevant to our affiliates consolidated financial

statement has been falsified or concealed.

Hereby certify

Company name：China Petrochemical Development Corporation

Chairman : Lin Ke-Ming

Date : 2019/03/20

Independent Auditors’ Review Report


We have reviewed the accompanying consolidated financial statements of China Petrochemical Development Corporation (CPDC) and its affiliates as of and for the year ended December 31, 2018 by applying the review procedures in accordance with "Guidelines for the Review of Consolidated Financial Statements of Affiliated Enterprises", which are necessary to conduct the review. The review is substantially less in scope than an audit conducted in accordance with the generally accepted auditing standards. Accordingly, we do not express an audit opinion.

Based on our review, nothing has come to our attention that causes us to believe that no material amendments or adjustments of the consolidated financial statements needed in accordance with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports, and Consolidated Financial Statements of Affiliated Enterprises” and with Regulations Governing the Preparation of Financial Reports by Securities Issuers.

As disclosed in Note 5, the Case of portion land polluted at the Anshun plant in Tainan, CPDC submitted for approval a remediation project proposal to the Tainan City Government in accordance with the related regulations and accrued relevant remediation project expenses in June 2008. This remediation project proposal was approved in May 2009. CPDC also performed related remediation work according to the remediation project proposal. The first phase of remediation project was completed in September 2014. The management of CPDC is expecting that the second phase of remediation project will be completed in the next decade. Likewise, CPDC has accrued relevant remediation project expenses for the second phase of remediation project in December 2014. CPDC is still seeking possible legal and administrative remedies to define its responsibilities of land pollution.

The engagement partners on the reviews resulting in this independent auditors’ review report are Chen Mei Fang and Chung Tan Tan.

KPMG


- 400 -

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- 401 -

(English Translation of Consolidated Financial Statements Originally Issued in Chinese)CHINA PETROCHEMICAL DEVELOPMENT CORPORATION AND AFFILIATES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the years ended December 31, 2018


For the Years Ended December 31, 2018Amount

Operating revenue (Notes 4 and 6 s.) $ 44,781,832 100Operating costs (Notes 4 and 6 d.) 36,249,815 81

8,532,017 19Add: Realized profit (loss) on intercompany transactions (3) -Gross profit 8,532,014 19Operating expenses

Selling expenses 1,031,676 2Administrative expenses 971,123 2Research and development expenses 335,436 1

2,338,235 5Profit from operations 6,193,779 14Non-operating income and expenses

Other income (Notes 6 v. and 7) 1,035,458 2Other gains and losses (Notes 6 l. and 6 v.) (246,038) (1)Finance costs (Notes 6 m. and 6 v.) (85,913) -Share of profit of associates and joint ventures accounted for using equity method

(Notes 4 and 6 e.)(105,099)

Total non-operating income and expenses 598,408 1Income before income tax 6,792,187 15Less: Income tax expense (Notes 4 and 6 p.) 1,021,587 2Net income 5,770,600 13Other comprehensive income (loss):

Items that will not be reclassified subsequently to profit or loss:Actuarial loss from defined benefit plans 10,170 -Unrealized losses from investments in equity instruments measured at fair value

through other comprehensive income(372,169) (1)

Share of other comprehensive loss of associated and joint ventures (63,561) -(425,560) (1)

Items that may be reclassified subsequently to profit or loss:Exchange differences arising on translation of foreign operations (96,052) -

(96,052) -Other comprehensive (loss) income for the year, net of income tax (521,612) (1)Total comprehensive income for the year $ 5,248,988 12

Net income attributable toShareholders of the parent $ 4,290,269 10Non-controlling interests 1,480,331 3

$ 5,770,600 13

Comprehensive income (loss) attributable toShareholders of the parent $ 3,763,808 9Non-controlling interests 1,485,180 3

$ 5,248,988 12

Earnings per share (NTD) (Notes 4 and 6 r.)Basic earnings per share $ 1.59Diluted earnings per share $ 1.58

- 402 -

(English Translation of Consolidated Financial Statements Originally Issued in Chinese) CHINA PETROCHEMICAL DEVELOPMENT CORPORATION AND AFFILIATES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 2018



China Petrochemical Development Corporation (hereinafter referred to as the Company) wasfounded on July 8, 1969 under the approval of Ministry of Economic Affairs, R.O.C. Its registeredaddress is 11th floor, No.12, Dongxing Rd., Songshan Dist., Taipei City 105, Taiwan (R.O.C.). TheCompany migrated to No.1, Jingjian Rd., Dashe Dist., Kaohsiung City 815, Taiwan (R.O.C.) onJuly 18, 2016. The Company and its subsidiaries (hereinafter referred to as the “ConsolidatedCompany”) primarily engage in the production of petroleum, alkali-chlorine, phosphoric acid andother petrochemical products and by-products and the storage, transportation, purchase and sale ofthese products, related chemicals and their raw materials. The primary products are acrylonitrile,caprolactam, acetic acid and nylon.

2. APPROVAL DATE AND PROCEDURES OF THE CONSOLIDATED FINANCIALSTATEMENTS

The accompanying consolidated financial statements for the years ended December 31, 2018 and2017 were authorized for issue by the Board of Directors on March 22, 2019.



The following new standards, interpretations and amendments have been endorsed by the FSCand are effective for annual periods beginning on or after January 1, 2018:


per IASB Amendment to IFRS 2 “Classification and Measurement of Share-based

Payment Transactions” January 1, 2018


January 1, 2018

IFRS 9 “Financial Instruments” January 1, 2018 IFRS 15 “Revenue from Contracts with Customers” January 1, 2018 Amendment to IAS 7 “Statement of Cash Flows -Disclosure Initiative” January 1,2017

Amendment to IAS 12 “Income Taxes- Recognition of Deferred Tax Assets for Unrealized Losses”

January 1, 2017




IFRIC 22 “Foreign Currency Transactions and Advance Consideration” January 1, 2018

- 403 -




IFRS 15 establishes a comprehensive framework for determining whether, how much andwhen revenue is recognized. It replaces the existing revenue recognition guidance,including IAS 18 “Revenue” and IAS 11 “Construction Contracts”. The Group applies thisstandard retrospectively with the cumulative effect, it need not restate those contracts, butinstead, continues to apply IAS 11, IAS 18 and the related Interpretations for comparativereporting period. The Group recognizes the cumulative effect upon the initially applicationof this Standard as an adjustment to the opening balance of retained earnings on January 1,2018.


(1) Sales of goods

For the sale of products, revenue is currently recognized when the goods are delivered to the customers’ premises, which is taken to be the point in time at which the customer accepts the goods and the related risks and rewards of ownership transfer. Revenue is recognized at this point provided that the revenue and costs can be measured reliably, the recovery of the consideration is probable and there is no continuing management involvement with the goods. Under IFRS 15, revenue will be recognized when a customer obtains control of the goods. For some made-to-order paper product contracts, the customer controls all of the work in progress as the products are being manufactured. When this is the case, revenue will be recognized as the products are being manufactured.


The Group is involved in performing services. If the services under a single arrangement are rendered in different reporting periods, then the consideration is allocated on a relative fair value basis between the different services. Revenue is currently recognized using the stage-of-completion method. Under IFRS 15, the total consideration in the service contracts will be allocated to all services based on their stand-alone selling prices. The stand-alone selling prices will be determined based on the list prices at which the Group sells the services in separate transactions.

(3) Commission

For commissions earned by the Group, the Group has determined that it acts in the capacity of an agent for certain transactions. Under IFRS 15, the assessment will be based on the whether the Group controls the specific goods before transferring to the end customer, rather than whether it has exposure to significant risks and rewards associated with the sale of goods.

- 404 -


Contract revenue currently includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. When a claim or variation is recognized, the measure of contract progress or contract price is revised and the cumulative contract position is reassessed at each reporting date. Under IFRS 15, claims and variations will be included in the contract accounting when they are approved.

(5) Impacts on financial statements

The adoption of IFRS 15 did not have any a significant impact on its consolidated financial statements.



As a result of the adoption of IFRS 9, the Group adopted the consequential amendments toIAS 1 “Presentation of Financial Statements” which requires impairment of financial assetsto be presented in a separate line item in the statement of profit or loss and OCI. Previously,the Group’s approach was to include the impairment of trade receivables in administrativeexpenses. Additionally, the Group adopted the consequential amendments to IFRS 7Financial Instruments: Disclosures that are applied to disclosures about 2018 but generallyhave not been applied to comparative information



IFRS 9 contains three principal classification categories for financial assets: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. The standard eliminates the previous IAS 39 categories of held to maturity, loans and receivables and available for sale. Under IFRS 9, derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. For an explanation of how the Group classifies and measures financial assets and accounts for related gains and losses under IFRS 9, please see note 4.


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(3) Transition

The adoption of IFRS 9 have been applied retrospectively, except as described below,






If an investment in a debt security had low credit risk at the date of initial application of IFRS 9, then the Group assumed that the credit risk on its asset will not increase significantly since its initial recognition.

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The following table shows the original measurement categories under IAS 39 and the new measurement categories under IFRS 9 for each class of the Group’s financial assets as of January 1, 2018.




Carrying amount





1,368,657 Mandatorily at FVTPL

1,368,657 (a)


FVTPL 3,136,224 (d)



3,946,586 Amortized cost 3,946,586


b. These equity securities represent investments that the Group intends to hold for thelong term for strategic purposes. As permitted by IFRS 9, the Group has designatedthese investments at the date of initial application as measured at FVOCI; thereforethe carrying amount of these equity securities were $1,873,478 thousand on January1, 2018.

c. These equity securities represent investments that the Group intends to hold for thelong term for strategic purposes. As permitted by IFRS 9, the Group has designatedthese investments at the date of initial application as measured at FVOCI, resultingin a decrease of $16,979 thousand and an increase of $42,118 thousand in otherequity and retained earnings respectively and the carrying amount $728,660thousand were recognized on January 1, 2018.

d. These equity securities, as permitted by IFRS 9, the Group has designated theseinvestments at the date of initial application as measured at FVTPL, resultingcarrying amount of $3,136,224 thousand in those assets recognized, and an increaseof $847,710 thousand in the retained earnings, which was attributed to the Parentsand the non-controlling for $806,529 thousand and $41,182 thousand respectively.


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December 31, 2017

January 1, 2018

January 1, 2018

January 1, 2018

January 1, 2018

IAS 39 Carrying


Remeasure- ments


Retained earnings



Retained earnings



FVTPL (IAS 39) $ 3,657,171 (2,288,514) - - - - Additions – equity instruments:

From available for sale - - - 1,989 (1,989) - From financial assets

carried at cost - 2,288,514 847,710 806,529 - 41,182 Total $ 3,657,171 - 847,710 4,504,881 808,518 (1,989) 41,182


available for sale (including carried at cost) (IAS 39) $ 2,576,999 (2,576,999) - - -

-



carried at cost - 703,521 25,139 42,118 (16,979) - Subtraction – equity

instruments: Recognized by equity

method - - - (6,310) - - Total $ 2,576,999 - 25,139 2,602,138 35,808 (16,979) -


bond investment without an active market, held to maturity, trade and other receivables, and other financial assets $ 16,400,821 - - - - -

Total $ 16,400,821 - - 16,400,821 - - -


The following new standards, interpretations and amendments have been endorsed by the FSC and are effective for annual periods beginning on or after January 1, 2019 in accordance with Ruling No. 1070324857 issued by the FSC on July 17, 2018:







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On transition to IFRS 16, the Group can choose to apply either of the following:



The Group plans to apply the practical expedient to grandfather the definition of a lease upon transition. This means that it will apply IFRS 16 to all contracts entered into before January 1, 2019 and identified as leases in accordance with IAS 17 and IFRIC 4.

(2) Transition

As a lessee, the Group can apply the standard using either of the following:



The lessee applies the election consistently to all of its leases. On January 1, 2019, the Group plans to initially apply IFRS 16 using the modified retrospective approach. Therefore, the cumulative effect of adopting IFRS 16 will be recognized as an adjustment to the opening balance of retained earnings at January 1, 2019, with no restatement of comparative information.

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When applying the modified retrospective approach to leases previously classified as operating leases under IAS 17, the lessee can elect, on a lease-by-lease basis, whether to apply a number of practical expedients on transition. The Group chooses to elect the following practical expedients:






(3) So far, the most significant impact identified is that the Group will have to recognize the new assets and liabilities for the operating leases of its offices, warehouses, and factory facilities. The Group estimated that the right-of-use assets and the lease liabilities to increase by $299,236 thousand and $299,236 thousand respectively on January 1, 2019. No significant impact is expected for the Group’s finance leases. Besides, The Group does not expect the adoption of IFRS 16 to have any impact on its ability to comply with the revised maximum leverage threshold loan covenant. The above impact may change due to any changes of future circumstances and conditions.


As of the date the following IFRSs that have been issued by the International AccountingStandards Board (IASB), but not yet endorsed by the FSC:





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Those which may be relevant to The Group are set out below:





The Group is evaluating the impact of its initial adoption of the above mentioned standards or interpretations on its consolidated financial position and consolidated financial performance. The results thereof will be disclosed when the Group completes its evaluation.


The significant accounting policies, which have been applied consistently to all periods presented inthese consolidated financial statements, except when otherwise indicated, are as follows:


These consolidated annual financial statements have been prepared in accordance with theRegulations Governing the Preparation of Financial Reports by Securities Issuers (hereinafterreferred to the Regulations) and International Financial Reporting Standards, InternationalAccounting Standards, IFRIC Interpretations and SIC Interpretations endorsed by FSC (hereinafterreferred to as the IFRSs endorsed by FSC).



The consolidated financial statements have been prepared on a historical cost basis exceptfor the following material items in the balance sheets:


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(3) The net defined benefit liability (assets) is recognized as the present value of the defined benefit obligation less the fair value of plan assets and the effect of the asset ceiling (please see note 6 o.);



The functional currency of the Consolidated Company is determined based on the primaryeconomic environment in which the entities operate. The consolidated financial statementsare presented in New Taiwan Dollar, which is the Company’s functional currency. Allfinancial information presented in New Taiwan Dollar has been rounded to the nearestthousand.

c. Basis of Consolidation

1. Principle of preparation of the consolidated financial statements

The consolidated financial statements comprise the Company and subsidiaries.

The financial statements of subsidiaries are included in the consolidated financialstatements from the date that control commences until the date that control ceases. Lossesapplicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficitbalance.

Intra-group balances and transactions, and any unrealized income and expenses arisingfrom intra-group transactions, are eliminated in preparing the consolidated financialstatements.

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2. List of subsidiaries in the consolidated financial statements

The subsidiaries included in the consolidated financial statements were as follows:

Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 Notes

The Company Chemax International Corp. (CIC)

Announcement energy products besides petroleum chemical products, electronic chemicals variety of industrial gases, gas mixtures and other manufacturing sub-fitted trading.

-% CIC was established on September 1, 1995. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. As of December 31, 2018 CIC’s issued capital amounted to $0.

The Company Tsou Seen Chemical Industries Corporation (TSCIC)

Manufacture of chemical products and their derivatives of phosphoric acid and fertilizer storage, transport, purchase, marketing business.

100.00% TSCIC was established on June 16, 1998. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. As of December 31, 2018 , TSCIC’s share capital amounted to $960,000 .

The Company CPDC Green Technology Corp.(CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

Water treatment works, plumbing works, apparatus and instrument installation work, refrigeration and air conditioning engineering and tank car repair and other services.

100.00% CPDC GT (Original name : CPDC EC) was established on May 31, 1999. As of December 31, 2018 , CPDC GT’s share capital amounted to $150,000.

The Company CPDC Investment (BVI) Co Ltd. (CPDC (BVI))

Holding company 100.00% CPDC (BVI) was established on January 9, 1998, registered in the British Virgin Islands, and is an international investment company. As of December 31, 2018 , CPDC (BVI)’s issued capital amounted to US$26,580.

The Company Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. (CHSTH)

Real estate investment and development

90.87% Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. was established on March 1, 2011. As of December 31, 2018 , Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd.’s issued capital amounted to $2,201,000.

The Company Unichem Development Limited (UDL)

Holding company 100.00% UDL was established on May 20, 2008. As of December 31, 2018 , UDL’s issued capital amounted to US$191,478 .

The Company Jiangsu Weiming Petrochemical Corporation (Weiming)


0.77% Weiming was established on May 16, 2013. It increased its capital through UDL amounting to RMB$ 130,000, RMB$109,000 and RMB$110,000 on June 25, 2018, June 16 and December 27, 2017, respectively. The said amounts were verified on June 28,2018, June 30 and December 28, 2017, respectively. Its paid in capital amounted to RMB$775,000 for the years ended December 31, 2018 .

The Company Weiqiang International Trade (Shanghai) Co., Ltd. (Weiqiang)


44.52% Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB$ 20,000 on February 24, 2018 and verified on February 27, 2018. As of December 31, 2018, the paid in capital of Weiqiang amounted to RMB$44,920.

The Company Cong Ty Tnhh Dau Tu Xay Dung Thanh Phong (Thanh Phong)

Engaged in construction, real estate, building constructional consulting, lease equipment and wholesale of building materials

97.87% Thanh Phong was established on May 22, 2017. Its capital originally invested was VND$90,000,000 and increased VND$368,637,500 on December 20, 2018 and verified on December 20, 2018. As of December 31, 2018 , the paid in capital of Thanh Phong amounted to VND$468,637,500.

Chemax International Corp. Weihua (Rudong) Trade Co., Ltd (Weihua)


-% Weihua was established on December 10, 2012. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018, the paid in capital of Weihua amounted to RMB$156,289.

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Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 Notes Chemax International Corp. Weiqiang

International Trade (Shanghai) Co., Ltd. (Weiqiang)


-% Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB$ 20,000 on February 24, 2018 and verified on February 27, 2018. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 , the paid in capital of Weiqiang amounted to RMB$44,920 .




4.02% Weihua was established on December 10, 2012. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018 , the paid in capital of Weihua amounted to RMB$156,289.


Weiqiang International Trade (Shanghai) Co., Ltd. (Weiqiang)


55.48% Weiqiang was established on May 9, 2013. It increased its capital through the Company amounting to RMB 20,000 on February 24, 2018 and verified on February 27, 2018. Due to the business combination on August 1, 2018, CIC became a dissolved company and Tsou Seen became a surviving company. The shares hold by CIC were transferred to Tsou Seen after the combination. As of December 31, 2018, the paid in capital of Weiqiang amounted to RMB$44,920 .


Taivex Therapeutics Inc. (Taivex)

Engaged in biotechnology, pharmaceutical research and development and marketing

91.10% Taivex was established on February 11, 2010. TSCIC invested in Taivex on August 18, 2010. As of December 31, 2018, Taivex’s share capital amounted to $507,399.

Unichem Development Limited (UDL)

Jiangsu Weiming Petrochemical Corporation (Weiming)


99.23% Weiming was established on May 16, 2013. It increased its capital through UDL amounting to RMB$130,000, RMB$109,000 and RMB$110,000 on June 25, 2018, June 16 and December 27, 2017, respectively. The said amounts were verified on June 28, 2018, June 30 and December 28, 2017, respectively. Its paid in capital amounted to RMB$775,000 for the years ended December 31, 2018.




95.98% Weihua was established on December 10, 2012. As of December 31, 2018, the paid in capital of Weihua amounted to RMB$156,289.


Weida (Zhangzhou) Consultant Service Co., Ltd. (Weida)

Consultancy 100.00% Weida was established on November 26, 2012. As of December 31, 2018 , the paid in capital of Weida amounted to US$450.


Zhangzhou Weida Petrochemical Co., Ltd (Weida PC)


100.00% Weida PC was established on December 23, 2014. As of December 31, 2018, the paid in capital of Weida PC amounted to RMB$6,000.


Kunshan Weiqin Management consultant Co., Ltd (Weiqin)

Management consultant 100.00% Weiqin was established on April 29, 2016. As of December 31, 2018 , the paid in capital amounted of Weiqin to RMB$6,000.


Zhejiang Wedge new material Co., Ltd (Wedge)

Engaged in trading of Synthetic fiber material

100.00% Wedge PC was established on July 25, 2016. As of December 31, 2018 , the paid in capital of Wedge amounted to RMB$6,500.

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Name of

subsidiaries

Shareholding ratio

Name of investors Nature of business 2018.12.31 Notes Unichem Development Limited(UDL)

Changzhou Huijie new material Co., Ltd

Engaged in engineering plastic and high valued petroleum chemical products

100.00% Huijie was established on January 6, 2015, and acquired by UDL on November 5, 2018. The investment was made through UDL amounted RMB$214,955 and was verified on December 27, 2018. As of December 31, 2018 , the paid in capital of Huijie amounted to RMB$414,955 .

Chung Hua Shuang Tzu Hsing Kai Fa Co.,Ltd. (CHSTH)


Holding company 100.00% Frontier Fortune was established on November 23, 2016. It increased its capital through CHSTH amounting to USD$5,670 on November 30, 2018. As of December 31, 2018 , its actual paid in capital amounted to USD$5,870 .




100.00% Core Pacific Twin Star (Myanmar) was established on February 16, 2017. It increased its capital through Frontier Fortune amounting to USD$5,320 on November 30, 2018. As of December 31, 2018 , its actual paid in capital amounted to USD$5,500 .


Core Pacific Pioneer (Myanmar) Company Ltd

Building construction, real estate management, development and sale

80.00% Core Pacific Pioneer was established on May 24, 2018. As of December 31, 2018, its actual paid in capital amounted to MMK$757,310.

3. Subsidiaries not included in the consolidated financial statements

Name of

subsidiaries

Shareholding ratio


The Company Tao Zhu Construction & Development Co., Ltd.

Commissioned to create a vendor to build the housing, commercial buildings and plant rental business, management of land development and playgrounds and other related business investment

100.00% Tao Zhu Construction & Development Co., Ltd.was established on October 11, 1995. As of December 31, 2018 , its actual paid-in capital amounted to $100,000 and its total assets represented 0.09% of the consolidated total assets.

The Company Rich Equrties Ltd. Holding company 100.00% Rich Equrties Ltd. was established on March 21, 2007. As of December 31, 2018 , its actual paid-in capital amounted to US$180 and its total assets represented 0.01% of consolidated total assets.


Da-ying Construction Ltd.


100.00% Da-ying Construction Ltd. was established on November 24, 1972. As of December 31, 2018, its actual paid-in capital amounted to $22,500 and its total assets represented 0.03% of consolidated total assets.

4. According to the Criteria Governing the Preparation of Affiliation Reports, ConsolidatedBusiness Reports, and Consolidated Financial Statements of Affiliated Enterprises, KMChad qualified for substantial related parties.

Shareholding ratio


Kaohsiung Monomer Company Sales and production of methyl methacrylate 40% Note 1

NOTE 1: The chairman is assigned by The Company

5. All of the important internal transaction between the Consolidated Group had beeneliminated.

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d. Foreign currency


Transactions in foreign currencies are translated to the respective functional currencies ofthe Consolidated Company entities at exchange rates at the dates of the transactions.Monetary assets and liabilities denominated in foreign currencies at the reporting date areretranslated to the functional currency at the exchange rate at that date. The foreign currency gain or loss on monetary items is the difference between amortized cost in the functionalcurrency at the beginning of the year adjusted for the effective interest and payments duringthe year, and the amortized cost in foreign currency translated at the exchange rate at theend of the year.

Non-monetary assets and liabilities denominated in foreign currencies that are measured atfair value are remeasured to the functional currency at the exchange rate at the date that thefair value was determined. Non-monetary items in a foreign currency that are measuredbased on historical cost are remeasured using the exchange rate at the date of transaction.Foreign currency differences arising on remeasurement are recognized in profit or loss,except for the following differences which are recognized in other comprehensive income:

• Fair value through other comprehensive income (Available-for-sale )equity investment;






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When the settlement of a monetary item receivable from or payable to a foreign operation is neither planed nor likely in the foreseeable future, foreign currency gains and losses arising from such items are considered to form part of a net investment in the foreign operation and are recognized in other comprehensive income, and presented in the exchange differences arising on translation of foreign operations in equity.

e. Classification of current and non-current assets and liabilities An asset is classified as current if: 1. It is expected to be realized, or intended to be sold or consumed, in the normal operating

cycle;

2. It is held primarily for the purpose of trading; 3. It is expected to be realized within twelve months after the reporting period; or 4. The asset is cash and cash equivalent (as defined in IAS 7) unless the asset is restricted

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


A liability is classified as current if: 1. It is expected to be settled during the in its normal operating cycle; 2. It is held primarily for the purpose of trading;

3. It is due to be settled within twelve months after the reporting period; or 4. It does not have an unconditional right to defer settlement for at least twelve months after

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

f. Cash and cash equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to cash at the known amounts and subject to insignificant risk of value changes. Time deposits that fit the definition above and are used by the Group in the management of its short-term commitments are comprised in cash equivalents. Bank overdrafts that are repayable on demand and form an integral part of the Consolidated Company, are recorded in cash and cash equivalents in statements of cash flows.

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g. Construction contracts Construction contracts in progress represents the gross unbilled amount expected to be collected from customers for contract work performed to date. It is measured at cost plus profit recognized to date less progress billings and recognized losses. Cost includes all expenditure related directly to specific projects and an allocation of fixed and variable overheads incurred in the Group’s contract activities based on normal operating capacity. Construction contracts in progress is presented in the balance sheets as the amount due from customers for contract work for all contracts in which costs incurred plus recognized profits exceed progress billings. If progress billings exceed costs incurred plus recognized profits, then the difference is presented as amount due to customers for contract work in the balance sheets.

h. Financial instruments

1. Financial assets (policy applicable from January 1, 2018) Financial assets are classified into the following categories: measured at amortized cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). The Group shall reclassify all affected financial assets only when it changes its business model for managing its financial assets. (i) Financial assets measured at amortized cost

A financial asset is measured at amortized cost if it meets both of the following conditions and is not designated as at FVTPL： it is held within a business model whose objective is to hold assets to collect

contractual cash flows; and



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(ii) Fair value through other comprehensive income (FVOCI ) A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL： it is held within a business model whose objective is achieved by both collecting

contractual cash flows and selling financial assets; and


On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in the investment’s fair value in other comprehensive income. This election is made on an instrument-by-instrument basis. A financial asset measured at FVOCI is initially recognized at fair value, plus any directly attributable transaction costs. These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses, and impairment losses, deriving from debt investments are recognized in profit or loss; whereas dividends deriving from equity investments are recognized as income in profit or loss, unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses of financial assets measured at FVOCI are recognized in OCI. On derecognition, gains and losses accumulated in OCI of debt investments are reclassified to profit or loss. However, gains and losses accumulated in OCI of equity investments are reclassified to retain earnings instead of profit or loss. Dividend income derived from equity investments is recognized on the date that the Group’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date.

(iii) Fair value through profit or loss (FVTPL) All financial assets not classified as amortized cost or FVOCI described as above are measured at FVTPL, including derivative financial assets and accounts receivable, which is presented as accounts receivable. On initial recognition, the Group may irrevocably designate a financial asset, which meets the requirements to be measured at amortized cost or at FVOCI, as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Financial assets in this category are measured at fair value at initial recognition. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent changes that are measured at fair value, which take into account any dividend and interest income, are recognized in profit or loss.

- 419 -

(iv) Business model assessment The Group makes an assessment of the objective of the business model in which a financial asset is held at portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes： the stated policies and objectives for the portfolio and the operation of those

policies in practice. These include whether management’s strategy focuses on earning contractual interest income, maintaining a particular interest rate profile, matching the duration of the financial assets to the duration of any related liabilities or expected cash outflows or realizing cash flows through the sale of the assets;

how the performance of the portfolio is evaluated and reported to the Group’s management;




Transfers of financial assets to third parties in transactions that do not qualify for derecognition are not considered sales for this purpose, and are consistent with the Group’s continuing recognition of the assets.


(v) Assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial assets on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs, as well as a profit margin.

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In assessing whether the contractual cash flows are solely payments of principal and interest, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making this assessment, the Group considers： contingent events that would change the amount or timing of cash flows；



terms that limit the Group’s claim to cash flows from specified assets（e.g. non-

recourse features）

(vi) Impairment of financial assets The Group recognizes loss allowances for expected credit losses on financial assets measured at amortized cost (including cash and cash equivalents, amortized costs, notes and accounts receivable, other receivable, leases receivable, guarantee deposit paid and other financial assets), debt investments measured at FVOCI, accounts receivable measured at FVOCI and contract assets. The Group measures loss allowances at an amount equal to lifetime expected credit loss (ECL), except for the following which are measured as 12-month ECL： debt securities that are determined to have low credit risk at the reporting date；

and


Loss allowance for trade receivables and contract assets are always measured at an amount equal to lifetime ECL. Lifetime ECLs are the ECLs that result from all possible default events over the expected life of a financial instrument. 12-month ECLs are the portion of ECLs that result from default events that are possible within the 12 month after the reporting date (or a shorter period if the expected life of the instrument is less than 12 months). The maximum period considered when estimating ECLs is the maximum contractual period over which the Group is exposed to credit risk.

- 421 -

When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECL, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis based on the Group’s historical experience and informed credit assessment as well as forward-looking information. The Group considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of ‘investment grade which is considered to be BBB- or higher per Standard & Poor’s, Baa3 or higher per Moody’s or twA or higher per Taiwan Ratings’. The Group assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due. The Group considers a financial asset to be in default when the financial asset is more than 90 days past due or the borrower is unlikely to pay its credit obligations to the Group in full. ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e the difference between the cash flows due to the Group in accordance with the contract and the cash flows that the Group expects to receive). ECLs are discounted at the effective interest rate of the financial asset. At each reporting date, the Group assesses whether financial assets carried at amortized cost and debt securities at FVOCI are credit-impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial assets is credit-impaired includes the following observable data： significant financial difficulty of the borrower or issuer；


the lender of the borrower, for economic or contractual reasons relating to the

borrower's financial difficulty, having granted to the borrower a concession that the lender would not otherwise consider；



- 422 -

Loss allowances for financial assets measured at amortized cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognized in other comprehensive income instead of reducing the carrying amount of the asset. The Group recognizes the amount of expected credit losses (or reversal) in profit or loss, as an impairment gain or loss. The gross carrying amount of a financial asset is written off (either partially or in full) to the extent that there is no realistic prospect of recovery. This is generally the case when the Group determines that the debtor does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, financial assets that are written off could still be subject to enforcement activities in order to comply with the Group’s procedures for recovery of amounts due.

(vii) Derecognition of financial assets Financial assets are derecognized when the contractual rights to the cash flows from the assets expire, or when the Group transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a debt instrument in its entirety, the Group recognizes the difference between its carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in “other equity – unrealized gains or losses on fair value through other comprehensive income”, in profit or loss, and presented it in the line item of non-operating income and expenses in the statement of comprehensive income. On derecognition of a financial asset other than in its entirety, the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement, and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in profit or loss, and presented in the line item of non-operating income and expenses. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

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2. Financial assets (policy applicable before January 1, 2018) Financial assets are classified into the following categories: financial assets at fair value through profit or loss, available-for-sale financial assets, held-to-maturity financial assets, and loans and receivables. (i) Financial assets at fair value through profit or loss

A financial asset is classified in this category if it is classified as held for trading or is designated as such on initial recognition. Financial assets are classified as held for trading if they are acquired principally for the purpose of selling in the short term. The Group designates financial assets, other than those classified as held for trading, as at fair value through profit or loss at initial recognition under one of the following situations： Designation eliminates or significantly reduces a measurement or recognition

inconsistency that would otherwise arise;


A hybrid instrument contains one or more embedded derivatives. At initial recognition, financial assets classified under this category are measured at fair value. Attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, financial assets at fair value through profit or loss are measured at fair value and changes therein, which takes into account any dividend and interest income, are recognized in profit or loss, under other income of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortized cost, and are included in financial assets measured at cost.

(ii) Available-for sale financial assets Available-for-sale financial assets are non-derivative financial assets that are designated available-for-sale or are not classified in any of the other categories of financial assets. Available-for-sale financial assets are recognized initially at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at fair value and changes therein, other than impairment losses, interest income calculated using the effective interest method, dividend income, and foreign currency differences on monetary financial assets, are recognized in other comprehensive income and presented in the unrealized gains or losses on available for sale financial assets in equity. When an investment is derecognized, the gain or loss accumulated in equity is reclassified to profit or loss, under other gains and losses of non-operating income and expense. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting.

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Investments in equity instruments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at amortized cost, and are included in financial assets measured at cost. Dividend income is recognized in profit or loss on the date that the Consolidated Company’s right to receive payment is established, which in the case of quoted securities is normally the ex-dividend date. Such dividend income is included in other income account in statements of comprehensive income. Interest income from investment in bond security is recognized in profit or loss, under other income of non-operating income and expenses.

(iii) Loans and receivables Loans and receivables are financial assets with fixed or determinable payments that are not quoted in an active market. Loans and receivables comprise trade receivables and other receivables. At initial recognition, these assets are recognized at fair value, plus, any directly attributable transaction costs. Subsequent to initial recognition, loans and receivables are measured at amortized cost using the effective interest method, less any impairment losses, other than insignificant interest on short-term receivables. A regular way purchase or sale of financial assets is recognized and derecognized, as applicable, using trade date accounting. Interest income is recognized in profit or loss, under other income.

(iv) Impairment of financial assets The impairment loss of financial assets not measured at fair value is assessed on the report date. A financial asset is impaired if, and only if, there is objective evidence of impairment as a result of one or more events (a loss event) that occurred subsequent to the initial recognition of the asset and that a loss event (or events) has an impact on the future cash flows of the financial assets that can be estimated reliably. Objective evidence that financial assets are impaired includes default or delinquency by a debtor, restructuring of an amount due to the Consolidated Company on terms that the Consolidated Company would not consider otherwise, indications that a debtor or issuer will enter bankruptcy, adverse changes in the payment status of borrowers or issuers, economic conditions that correlate with defaults or the disappearance of an active market for a security. In addition, for an investment in an equity security, a significant or prolonged decline in its fair value below its cost is accounted for as objective evidence of impairment.

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All individually significant receivables are assessed for specific impairment. Receivables that are not individually significant are collectively assessed for impairment by grouping together assets with similar risk characteristics. In assessing collective impairment, the Consolidated Company uses historical trends of the probability of default, the timing of recoveries and the amount of loss incurred, adjusted for management’s judgment as to whether current economic and credit conditions are such that the actual losses are likely to be greater or lesser than the one suggested by historical trends. An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount and the present value of its estimated future cash flows discounted at the asset’s original effective interest rate. Such impairment loss is not reversible in subsequent periods. An impairment loss in respect of a financial asset is reduced from the carrying amount, except for trade receivables, in which an impairment loss is reflected in an allowance account against the receivables. When it is determined a receivable is uncollectible, it is written off from the allowance account. Any subsequent recovery of receivable written off is recorded in the allowance account. Changes in the amount of the allowance accounts are recognized into profit or loss. Impairment losses on available-for-sale financial assets are recognized by reclassifying the losses accumulated in the fair value reserve in equity to profit or loss. If, in a subsequent period, the amount of the impairment loss of a financial assets measured at amortized cost decreases and the decrease can be related objectively to an event occurring after the impairment was recognized, the decrease in impairment loss is reversed through profit or loss, to the extent that the carrying value of the asset does not exceed its amortized cost before impairment was recognized at the reversal date. Impairment losses recognized on available-for-sale equity security are not reversed through profit or loss. Any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income, and accumulated in other equity. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be related objectively to an event occurring after the impairment loss was recognized, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. Bad debt losses and recoveries of receivables are recognized in profit or loss as administrative expense. Impairment losses and recoveries of financial assets other than receivables are recognized in profit or loss under non-operating revenues and expenses.

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(v) Derecognition of financial assets The Consolidated Company derecognizes financial assets when the contractual rights of the cash inflow from the asset are terminated, or when the Consolidated Company transfers substantially all the risks and rewards of ownership of the financial assets. On derecognition of a financial asset in its entirety, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity – unrealized gains or losses from available for sale financial assets is recognized in profit or loss, under other income of non-operating income and expenses. On partial derecognition of a financial assets, the difference between the carrying amount and the sum of the consideration received or receivable and any cumulative gain or loss that had been recognized in other comprehensive income and presented in other equity account as unrealized gains or losses from available for sale financial assets is reclassified to profit or loss, under other gains and losses of non-operating income and expenses.


(i) Classification of debt or equity instruments Debt or equity instruments issued by the Consolidated Company are classified as financial liabilities or equity instruments in accordance with the substance of the contractual agreement. Equity instruments refer to surplus equities of the assets after the deduction of all the debts for any contracts. Equity instruments issued are recognized based on amount of consideration received less the direct issuance cost. Compound financial instruments issued by the Consolidated Company comprise convertible bonds payable that can be converted to share capital at the option of the holder, where the number of shares to be issued is fixed. The liability component of a compound financial instrument is recognized initially at the fair value of a similar liability that does not have an equity conversion option. The equity component is recognized initially at the difference between the fair value of the compound financial instrument as a whole and the fair value of the liability component. Any directly attributable transaction costs are allocated to the liability and equity components in proportion to their initial carrying amounts. Subsequent to initial recognition, the liability component of a compound financial instrument is measured at amortized cost using the effective interest method. The equity component of a compound financial instrument is not re-measured subsequent to initial recognition.

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Interest related to the financial liability is recognized in profit or loss, under other gains and losses of non-operating income and expenses. On conversion, the financial liability is reclassified to equity, and no gain or loss is recognized.

(ii) Financial liabilities at fair value through profit or loss A financial liability is classified in this category if it is classified as held-for-trading or is designated as such on initial recognition. A financial liability is classified as held-for-trading if it is acquired principally for the purpose of selling in the short term. Financial liabilities, other than the ones classified as held-for-trading, are designated as at fair value through profit or loss at initial recognition under one of the following situations: A. Such designation eliminates or significantly reduces a measurement or

recognition inconsistency that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on a different basis;

B. Performance of the financial liabilities is evaluated on a fair value basis; C. A hybrid instrument contains one or more embedded derivatives. Attributable transaction costs are recognized in profit or loss as incurred. Financial liabilities at fair value through profit or loss are measured at fair value, and changes therein, which take into account any interest expense, are recognized in profit or loss, under other gains and losses of non-operating income and expenses. Financial liabilities at fair value through profit or loss are measured at cost if it is a short sale of unquoted equity investment whose fair value cannot be reliably measured and that the short seller is obligated to deliver the equity instrument. The Consolidated Company issues and designates financial guarantee contracts and loan commitments as at fair value through profit or loss. Any gains and losses are recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(iii) Other financial liabilities At initial recognition, financial liabilities not classified as held-for-trading, or designated as at fair value through profit or loss, which comprise of loans and borrowings, and trade and other payables, are measured at fair value, plus, any directly attributable transaction cost. Subsequent to initial recognition, they are measured at amortized cost using the effective interest method. Interest expense not capitalized as capital cost is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

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(iv) Derecognition of financial liabilities A financial liability is derecognized when its contractual obligation has been discharged or cancelled or expires. The difference between the carrying amount of a financial liability derecognized and the consideration paid (including any non-cash assets transferred or liabilities assumed) is recognized in profit or loss, under other gains and losses of non-operating income and expenses.

(v) Offsetting of financial assets and liabilities Financial assets and liabilities are presented on a net basis when the Consolidated Company has the legally enforceable rights to offset, and intends to settle such financial assets and liabilities on a net basis or to realize the assets and settle the liabilities simultaneously.

2. Derivative financial instruments The Group holds derivative financial instruments to hedge its foreign currency and interest rate exposures. Derivatives are recognized initially at fair value, and attributable transaction costs are recognized in profit or loss as incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are recognized in profit or loss and included in statement of comprehensive income. When a derivative is designated as a hedging instrument, its timing of recognition in profit or loss is determined based on the nature of the hedging relationship. When the fair value of a derivative instrument is positive, it is classified as a financial asset, and when the fair value is negative, it is classified as a financial liability. Embedded derivatives are separated from the host contract and accounted for separately when the economic characteristics and risk of the host contract and of the embedded derivatives are not closely related.

i. Inventories

Inventories are measured at the lower of cost and net realizable value. The cost of inventories is based on the weighted average method, and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling expenses.

j. Investments in associates Associates are those entities in which the Group has significant influence, but not control or joint control, over their financial and operating policies.

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Investments in associates are accounted for using the equity method and are recognized initially at cost. The cost of the investment includes transaction costs. The carrying amount of the investment in associates includes goodwill which is arising from the acquisition less any accumulated impairment losses. The Consolidated Company’s share of the profit or loss and other comprehensive income of investments accounted for using equity method are included, after adjustments to align the said investees’ accounting policies with those of the Consolidated Company, in the consolidated financial statements from the date that significant influence commences until the date that significant influence ceases. Unrealized profits resulting from the transactions between the Consolidated Company and an associate are eliminated to the extent of the Consolidated Company’s interest in the associate. Unrealized losses on transactions with associates are eliminated in the same way, except to the extent that the underlying asset is impaired. If the Consolidated Company’s share of losses exceeds its interest in associates, the carrying amount of the investment, including any long-term interests that form part thereof, is reduced to zero, and the recognition of further losses is discontinued except to the extent that the Consolidated Company has an obligation or has made payments on behalf of the investee.

k. Investment property Investment property is the property held either to earn rental income or for capital appreciation or for both, but not for sale in the ordinary course of business, use in the production or supply of goods or services or for administrative purposes. Investment property is measured at cost on initial recognition and subsequently via cost less accumulated depreciation and accumulated impairment losses. Depreciation expense is calculated based on the depreciation method, useful life and residual value which are the same as those adopted for property, plant and equipment. Cost includes expenditure that is directly attributable to the acquisition of the investment property. The cost of self-constructed investment property includes the cost of raw materials and direct labor, and any other costs directly attributable to bringing the investment property to a working condition for their intended use and capitalized borrowing costs. Investment property is subsequently measured at fair value, with any change therein recognized in profit or loss. When the use of a property changes such that it is reclassified as property, plant and equipment, its fair value at the date of reclassification becomes its cost for subsequent accounting.

l. Property, plant and equipment


Items of property, plant and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditure that is directly attributed to the acquisition of the asset.

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The cost of a self-constructed asset comprises material, labor, any cost directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management, the initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, and any borrowing cost that eligible for capitalization. Cost also includes transfers from equity of any gain or loss on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. The cost of the software is capitalized as part of the property, plant and equipment if the purchase of the software is necessary for the property, plant and equipment to be capable of operating. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately, unless the useful life and the depreciation method of the significant part of an item of property, plant and equipment are the same as the useful life and depreciation method of another significant part of that same item. The gain or loss arising from the derecognition of an item of property, plant and equipment is determined on the difference between the net disposal proceeds, if any, and the carrying amount of the item, and is recognized in profit or loss account as other gains and losses.


An item of property, plant and equipment is reclassified to investment property at its carrying amount when the use of the property changes from owner-occupied to investment property. Any difference at the date of the change in use between the carrying amount of the property and its fair value is recognized as a revaluation of property, plant and equipment. Any existing or arising revaluation surplus previously recognized in OCI is not transferred to profit or loss at the date of transfer or on subsequent disposal of the investment property.

3. Subsequent cost

Subsequent expenditure is capitalized only when it is probable that the future economic benefits associated with the expenditure will flow to the Consolidated Company. The carrying amount of those parts that are replaced is derecognized. Ongoing repairs and maintenance is expensed as incurred.

4. Depreciation The depreciable amount of an asset is determined after deducting its residual amount and is allocated using the straight line method over its useful life. The items of property, plant and equipment with the same useful life may be grouped in determining the depreciation charge. The remainder of the items may be depreciated separately. The depreciation charge for each period is recognized in profit or loss.

If there is reasonably certainty that the lessee will obtain ownership by the end of the lease term, the period of expected use is the useful life of the asset; otherwise, the asset is depreciated over the shorter of the lease term and its useful life.

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Land has an unlimited useful life and therefore is not depreciated. The estimated useful lives for the current and comparative years of significant items of property, plant and equipment are as follows: Land improvement 2~10 years Buildings and constructions 2~60 years Machine equipment 2~17 years Transportation equipment 2~ 5 years Other equipment 2~13 years Depreciation methods, useful lives, and residual values are reviewed at each reporting date. If expectations differ from the previous estimates, the change(s) is accounted for as a change in an accounting estimate.

m. Intangible assets

1. Goodwill (1) Initial recognition

The goodwill generated from the Consolidated Company is accounted for as an intangible asset. Please refer to Note 6 i. for details of the accounting policy on the initial recognition of goodwill.

(2) Subsequent measurement Goodwill is measured at cost less accumulated impairment. In terms of investment under equity method, the carrying amount of goodwill is included in the investment amount. In addition, the impairment loss of such investment is not distributed to goodwill or any asset and is recognized as part of the carrying amount of the investment.

2. Research & Development

During the research phase, activities are carried out to obtain and understand new scientific or technical knowledge. Expenditures during this phase are recognized in profit or loss as incurred.

Expenditures arising from development phase are recognized as an intangible asset if all the conditions described below can be demonstrated; otherwise, they are recognized in profit or loss as incurred. (1) The technical feasibility of the intangible asset is completed so that it will be available

for use or sale;

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(2) It intends to complete the intangible asset and use or sell it; (3) It has ability to use or sell the intangible asset; (4) The intangible asset is more likely than not generate future economic benefits; (5) It has adequate technical, financial and other resources to complete the development

and to use or sell the intangible asset; and (6) The expenditure attributable to the intangible asset during its development can be

measured reliably.

3. Other intangible asset

Other intangible assets that are acquired by the Consolidated Company are measured at cost less accumulated amortization and any accumulated impairment losses.

4. Subsequent expenditure

Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates. All other expenditure, including expenditure on internally generated goodwill and brands, is recognized in profit or loss as incurred.

5. Amortization

Depreciable amount is the cost of an asset, or other amount substituted for cost, less its residual values. Amortization is recognized in profit or loss on a straight-line basis over the estimated useful lives of intangible assets, other than goodwill and intangible assets with indefinite useful life, from the date that they are made available for use. The estimated useful lives for the current and comparative periods are as follows: Technology 5~13 years The residual value, the amortization period and the amortization method for an intangible asset with a finite useful life are reviewed at least annually at each financial year-end. Such change is accounted for as a change in accounting estimate.

n. Impairment ─ non-derivative financial assets

The Consolidated Company evaluates the impairment losses and estimates the recoverable amounts of the impaired assets on each reporting date in terms of inventories, deferred tax assets, assets arising from employee benefits and non-financial assets other than non-current assets held for sale. If it is not possible to determine the recoverable amount (fair value less cost to sell and value in use) for the individual asset, then the Consolidated Company determines the recoverable amount for the asset's cash-generating unit (CGU).

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The recoverable amount for individual asset or a cash-generating unit is the higher of its fair value less costs to sell and its value in use. If, and only if, the recoverable amount of an asset is less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. That reduction is an impairment loss. An impairment loss is recognized immediately in profit or loss. The Consolidated Company assesses at the end of each reporting period whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the Consolidated Company estimates the recoverable amount of that asset. Notwithstanding whether indicators exist, recoverability of goodwill and intangible assets with indefinite useful lives or those not yet in use are tested at least annually. Impairment loss is recognized if the recoverable amount is less than the carrying amount. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the acquirer’s cash-generating units, or groups of cash-generating units, that is expected to benefit from the synergies of the combination, irrespective of whether other assets or liabilities of the acquire are assigned to those units or group of units. If the carrying amount of the cash-generating units exceeds the recoverable amount of the unit, the Consolidated Company recognizes the impairment loss and the impairment loss is allocated to reduce the carrying amount of each asset in the unit. Reversal of an impairment loss for goodwill is prohibited.

o. Provisions

A provision is recognized if, as a result of a past event, the Consolidated Company has a present legal or constructive obligation that can be estimated reliably, and it is probably that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects the current market assessments of the time value of money and the risks specific to the liability. The unwinding of the discount is recognized as finance cost.

1. Site dismantling

The estimated obligation on the dismantling, relocation or restoration of property, plant and equipment is recognized as decommissioning cost and liability of property, plant and equipment. The relevant costs of assets are adjusted by subsequent price variation for dismantling and restoration. Depreciation is provided per the remaining useful life of the adjusted cost.

2. Site restoration In accordance with the Consolidated Company’s published environmental policy and applicable legal requirements, a provision for site restoration in respect of contaminated land, and the related expense, is recognized when the land is contaminated.

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p. Revenue

1. Goods sold Revenue from the sale of goods in the course of ordinary activities is measured at fair value of the consideration received or receivable, net of returns, trade discounts and volume rebates. Revenue is recognized when persuasive evidence exists, usually in the form of an executed sales agreement, that the significant risks and rewards of ownership have been transferred to the customer, recovery of the consideration is probable, the associated costs and possible return of goods can be estimated reliably, there is no continuing management involvement with the goods, and the amount of revenue can be measured reliably. If it is probable that discounts will be granted and the amount can be measured reliably, then the discount is recognized as a reduction of revenue as the sales are recognized. The timing of the transfers of risks and rewards varies depending on the individual terms of the sales agreement. For an export transaction, usually it is via free on board shipping point, and the risk transfer occurs upon loading the goods onto the relevant carrier at the port; however, for an import transaction, risk transfer occurs upon receipt by the customer.

2. Services Revenue from services rendered is recognized in profit or loss in proportion to the stage of completion of the transaction at the reporting date.

3. Construction contracts

Contract revenue includes the initial amount agreed in the contract plus any variations in contract work, claims and incentive payments, to the extent that it is probable that they will result in revenue and can be measured reliably. As soon as the outcome of a construction contract can be estimated reliably, contract revenue is recognized in profit or loss in proportion to the stage of completion of the contract. Contract expenses are recognized as incurred unless they create an asset related to future contract activity.

The stage of completion is assessed by reference to the proportion that contract cost incurred for work performed to date bear to the estimated total contract cost; survey of work performed; or completion of a physical proportion of the contract work. When the outcome of a construction contract cannot be estimated reliably, contract revenue is recognized only to the extent of contract costs incurred that are likely to be recoverable. An expected loss on a contract is recognized immediately in profit or loss.

4. Commissions When the Consolidated Company acts in the capacity of an agent rather than as the principal in a transaction, the revenue recognized is the net amount of commission made by the Consolidated Company, and is recognized in proportion to the stage of completion of the transaction.

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5. Rental income Rental income from investment property is recognized in non-operating incomes and expenses on a straight-line basis over the lease term.

6. Financing components

The Group does not expect to have any contracts where the period between the transfer of the promised goods or services to the customer and payment by the customer exceeds one year. As a consequence, the group does not adjust any of the transaction prices for the time value of money.

q. Employee benefits

1. Defined contribution plans Obligations for contributions to defined contribution pension plans are recognized as an employee benefit expense in profit or loss in the periods during which services are rendered by employees.

2. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The Consolidated Company’s net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognized past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on (market yields of high quality corporate bonds or government bonds) bonds that have maturity dates approximating the terms of the Consolidated Company’s obligations and that are denominated in the same currency in which the benefits are expected to be paid.

The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit to the Consolidated Company, the recognized asset is limited to the total of any unrecognized past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. In order to calculate the present value of economic benefits, consideration is given to any minimum funding requirements that apply to any plan in the Consolidated Company. An economic benefit is available to the Consolidated Company if it is realizable during the life of the plan, or on settlement of the plan liabilities. When the benefits of a plan are improved, the portion of the increased benefit relating to past service by employees is recognized in profit or loss on a straight-line basis over the average period until the benefits become vested. To the extent that the benefits vest immediately, the expense is recognized immediately in profit or loss.

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The Consolidated Company recognizes gains or losses on the curtailment or settlement of a defined benefit plan when the curtailment or settlement occurs. The gain or loss on curtailment comprises any resulting change in the fair value of plan assets, change in the present value of defined benefit obligation and any related actuarial gains or losses and past service cost that had not previously been recognized.

3. Short term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee, and the obligation can be estimated reliably.

r. Income taxes

Income tax expenses include both current taxes and deferred taxes. Except for expenses related to business combinations, or are recognized directly in equity or other comprehensive income, all current and deferred taxes are recognized in profit or loss. Current taxes include tax payables and tax deduction receivables on taxable gains (losses) for the year calculated using the statutory tax rate on the reporting date, or the actual legislated tax rate; as well as tax adjustments related to prior years.

Deferred taxes arise due to temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and their respective tax bases. Deferred taxes are not recognized for the following: 1. Assets and liabilities that are initially recognized but not related to the business combination,

and have no effect on net income or taxable gains (losses) during the transaction. 2. Temporary differences arising from equity investments on subsidiaries or joint ventures,

where there is a high probability that such temporary differences will not reverse. 3. Initial recognition of goodwill. Deferred taxes are measured based on the statutory tax rate on the reporting date; or the actual legislated tax rate, during the year of expected asset realization or debt liquidation.

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Deferred tax assets and liabilities may be offset against each other if, and only if, the following criteria are met: 1. if the Consolidated Company has the legal right to settle tax assets and liabilities on a net

basis; and 2. the taxing of deferred tax assets and liabilities fulfill one of the below scenarios:

(1) levied by the same taxing authority; or (2) levied by different taxing authorities, but where each such authority intend to settle tax

assets and liabilities (where such amounts are significant) on a net basis every year of the period of expected asset realization or debt liquidation; or where the timing of asset realization and debt liquidation is matched.


s. Business combination

Goodwill is measured at the consideration transferred less the amounts of the identifiable assets acquired and liabilities assumed (generally at fair value) at the acquisition date. If the amount of net assets acquired and liabilities assumed exceeds the acquisition price, the Group reassesses whether it has correctly identified all of the assets acquired and liabilities assumed, and recognizes a gain for the excess. The Group shall measure any non-controlling interests in the acquiree either at fair value or at the non-controlling interest’s proportionate share of the acquiree’s identifiable net assets, if the non-controlling interests are present ownership interests and entitle their holders to a proportionate share of the entity’s net assets in the event of liquidation. In a business combination achieved in batches, the previously held equity interest in the acquiree at its acquisition date fair value is remeasured, and the resulting gain or loss, if any, is recognized in profit or loss. If the initial accounting for a business combination is incomplete by the end of the reporting period in which the combination occurs, provisional amounts for the items for which the accounting is incomplete are reported in the Group’s financial statements. During the measurement period, the provisional amounts recognized at the acquisition date are retrospectively adjusted, or additional assets or liabilities are recognized to reflect new information obtained about facts and circumstances that existed as of the acquisition date. The measurement period shall not exceed one year from the acquisition date.

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t. Earnings per share

The Consolidated Company discloses the Company basic and diluted earnings per share attributable to ordinary equity holders of the Company. The calculation of basic earnings per share is based on the profit attributable to the ordinary shareholder of the Company divided by weighted average number of ordinary shares outstanding. The calculation of diluted earnings per share is based on the profit attributable to ordinary shareholders of the Company, divided by weighted average number of ordinary shares outstanding after adjustment for the effects of all potentially dilutive ordinary shares, such as convertible bonds and employee bonus.

u. Government Grants

A government grant receivable to the Consolidated Company as compensation for costs already incurred or for immediate financial support, with no future related costs, should be recognized as income in the period in which it is receivable.

v. Operating segments

An operating segment is a component of the Consolidated Company that engages in business activities from which it may incur revenues and incur expenses (including revenues and expenses relating to transactions with other components of the Consolidated Company). Operating results of the operating segment are regularly reviewed by the Consolidated Company’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance. Each operating segment consists of stand-alone financial information.

5. MAJOR SOURCES OF SIGNIFICANT ACCOUNTING ASSUMPTIONS, JUDGMENTS

AND ESTIMATION UNCERTAINTY

The preparation of the consolidated financial statements in conformity with the IFRS as endorsed by the FSC requires management to make judgments, estimates and assumptions that affect the application of the accounting policies and the reported amount of assets, liabilities, income and expenses. Actual results may differ from these estimates.

The management continuously reviews the estimates and basic assumptions. Changes in accounting estimates are recognized in the period of change. Information about judgments made in applying accounting policies that have the most significant effects on the amounts recognized in the consolidated financial statements is as follows:


The Group’s accounting policies include measuring financial and non-financial assets and liabilities at fair value through profit or loss.

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The Company’s financial instrument valuation group conducts independent verification on fair value by using data sources that are independent, reliable, and representative of exercise prices. This financial instrument valuation group also periodically adjusts valuation models, conducts back-testing, renews input data for valuation models, and makes all other necessary fair value adjustments to assure the rationality of fair value. The Company strives to use market observable inputs when measuring assets and liabilities. Different levels of the fair value hierarchy to be used in determining the fair value of financial instruments are as follows: (i) Level 1: quoted prices (unadjusted) in active markets for identifiable assets or liabilities.

(ii) Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or

liability, either directly (ie as prices) or indirectly (ie derived from prices).

(iii) Level 3: inputs for the assets or liability that are not based on observable market data. Information on valuation use hypothesis factors was as follows: (i) Note 6 h. - Investment property;

(ii) Note 6 w. - Financial Instruments.



December 31, 2018 Cash on hand $ 140,459

3,003,463 11,006,015

2,437,587

Checking and demand deposits Time deposits Cash equivalents Cash and cash equivalents $ 16,587,624

Time deposits which are held for the purpose of meeting short-term cash commitments, rather than for investment or other purposes, that are readily convertible to cash at the known amounts and subject to insignificant risk of value changes, are reported as cash equivalents. Please refer to Note 6 v. for the fair value sensitivity analysis and interest rate risk of the financial assets and liabilities of the Consolidated Company.

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b. Financial assets


December 31, 2018 Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss－current $ 1,300,897

4,861,274

Financial assets at fair value through profit or loss－non-current Sub-total 6,162,171 Financial assets at fair value through other comprehensive income Financial assets at fair value through other comprehensive income－current 251,629

1,978,339


Sub-total 2,229,968 Total $ 8,392,139

Please refer to Note 6 v and Note q. for the gain or loss on financial assets recognized at fair value through profit or loss and other comprehensive income. Core Pacific City Co., Ltd held a provisional shareholders’ meeting on January 17, 2018 in order to cover its deficit of $7,698,679, which represented 37.7% of its actual paid-in capital. The reduction record date was January 17, 2018. Based on its articles of incorporation, there is no significant impact on the issuance of its shareholders’ preferred stock concerning the matter. During the year ended December 31, 2018, the dividends of $625,787 thousand, related to equity investments at fair value through other comprehensive income held on December 31, 2018, were recognized. On February 26, 2018, the Company’s board of directors approved a resolution to invest in Core Pacific City Co., Ltd by issuing 156,000 thousand preferred shares amounting to NT$1,560,000 thousand and accounted in financial assets at fair value through profit or loss－non-current.

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2. The director of Praxair Chemax Semiconductor Materials Co., Ltd. (hereinafter referred to as “PRAXAIR”) delegated by the Company, was elected as the new Chairman in the directors’ meeting on Jan. 30th, 2013. However, Praxair Inc. did not recognize the director delegated by the Company as the Chairman, resulting in the new Chairman being unable to exercise his authority. Also, the supervisor appointed by the Company was prevented from auditing the accounts and records pursuant to the Company Law, hence, the new Chairman and the designated supervisor representing PRAXAIR, filed an action asking the vice chairman and general manager to provide the accounts and records and requested to return the seal, business invasion and others in a civil lawsuit. The vice chairman delegated by Praxair Inc. claimed privilege to act as the Chairman and filed legal actions declaring the non-existence of the new Chairman’s commission of authority and also sent a letter to the court requesting a dissolution of PRAXAIR, which was rejected by the courts. The supervisor appointed by Praxair Inc. illegally called a temporary shareholders’ meeting in 2013 to propose the dissolution of the Company and reelection of directors and supervisors. Hence, the Company filed legal actions declaring the withdrawn of the resolution from the illegal temporary shareholders’ meetings and the resolutions from the temporary shareholders’ meeting was not established. Currently, the supervisor filed the legal action against the manager for submitting the accounts and the records, after winning the 1st and 2nd trial, the defendant appealed but was dismissed by the 3rd trial instance. This case was remanded to the Taipei High Court but the verdict was dismissed in 2015, the Company was not satisfied with the appeal and filed the legal action. On the other side, the vice chairman designated by Praxair Inc. filed legal action declaring the non-existence of the new Chairman’s commission of authority, after the judgment from the High Court that the Chairman designated by the Company won the verdict, the defendant appealed to the 3rd instance, with the Supreme Court dismissing the appeal. The whole case confirms the appointed relationship between the Chairman designated by the Company and PRAXAIR exists. On Nov. 19th 2016, the letter from Ministry of Economic Affairs states that Lin Ke-Ming, appointed by the Company, is the Chairman of PRAXAIR, and restored the representative duty per the judgment No. 2455 from the Supreme High Court in 2015. However, according to the requirement from Ministry of Economic Affairs, both sides were not able to hold the legitimate reelection prior to Jan. 9th 2017 which resulted in vacancy of directors and supervisors of PRAXAIR. In order to strive for the rights and interests of the shareholders, the Company immediately brought the arbitration per joint venture agreement of both sides and applied for an auditor and provisional administrator to instruct the central section office of the Ministry of Economic Affairs to allow Praxair Inc. to conduct the change of registration on July 6th 2017. The Company has filed a request for the arbitration of International Chamber of Commerce in 2017 and received the award issued by the International Court of International Chamber of Commerce on September 3, 2018. A part of the award favored for the Company and confirmed that the Company was entitled to receive the dividends from PCSM for the year of 2013. In order to protect the Company’s right, the Company submitted a lawsuit regarding to withdrawing a part of such Arbitration award against the Company to Taipei District Court.

As of December 31, 2018, and 2017, the Consolidated Company provided as collateral portion of its financial assets. Please refer to Note 8 for details of the related assets pledged as collateral.

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3. Sensitivity analysis－equity price risk: If the equity price changes, and if it is based on the same basis for both years and assumes that all other variables remain the same, the impact to comprehensive income will be as follows:

For the Years Ended December 31, 2018

Equity price at reporting date After-tax other

comprehensive income After-tax

Profit (loss) Increase of 1% $ 22,300 61,622 Decrease of 1% $ (22,300) (61,622)


December 31, 2018 Notes receivable $ 692,778

2,780,070 114,178

(461,031)

Accounts receivable Other receivables Less：Allowance for doubtful receivables Net book value $ 3,125,995

Movements of the allowance for doubtful receivables for the years ended December 31, 2018 were as follows:

December 31, 2018 Balance on January 1, 2018 per IAS 39 $ 488,001 Adjustment on initial application of IFRS 9 - Balance on January 1, 2018 per IFRS 9 488,001 Impairment losses reversed (6,588) Foreign exchange gains/(losses) (20,382) Balance on December 31, 2018 $ 461,031

The consolidated subsidiaries, Weihua (Rudong) Trade Co., Ltd. and Weiqiang International Trade (Shanghai) Co., Ltd., filed civil complaints against Shanghai Tongye Coal Chemical Group Co. Ltd. in Shanghai to claim for the delay of payment of their accounts receivable from Shanghai Tongye Coal Chemical Group Co., Ltd. However, both of these consolidated subsidiaries have recognized impairment loss on the said accounts receivable as of December 31, 2018. Please refer to Note 9 f. for further details relating to litigation and evaluation of collectability. There are no notes and trade receivable and other receivables of the Group had been pledged as collateral for long-term borrowings as of December 31, 2018.

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d. Inventories

December 31, 2018 Finished goods $ 699,993

313,838 1,335,480

24,721 104,709

10,840

Work-in-process Raw materials Fuel Merchandise inventory Construction in progress Total $ 2,489,581

For the years ended December 31, 2018, the components of cost of goods sold were as follows:


Cost of goods sold $ 35,821,429 140,104

22,881 295,345 (29,944)

Loss (gain) on inventory market price decline and obsolescence Gain on physical inventories, net Unallocated fixed production overheads from idle facilities Revenue from sale of scraps Net amount $ 36,249,815

As of December 31, 2018 , the aforesaid inventories were not pledged as collateral.


1. The Group’s investments accounted for using the equity method at the reporting date were

classified as follows:

December 31, 2018 Subsidiaries $ 81,666

945,467

Associates Total $ 1,027,133

2. Share of profit (loss) of subsidiaries and associates for the years ended December 31, 2018 was as follows:

For the Years Ended

December 31, 2018 Share of profit (loss) of subsidiaries and associates $ (105,099)

3. The key financial information of subsidiaries and associates in which the Consolidated

Company has equity investments was as follows (before adjustment for the Consolidated Company’s proportionate share):

December 31, 2018 Total assets $ 2,266,578

(54,801)

Total liabilities $ 2,211,777

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Revenue $ 321,761 Net income $ (226,387)

The Consolidated Company does not guarantee any contingent liabilities of an associate jointly with other investors. Likewise, the Consolidated Company does not guarantee alone any other contingent liabilities of an associate.

4. Collateral

As of December 31, 2018, the Consolidated Company provided as collateral portion of its investments in aforesaid equity-accounted investees. Please refer to Note 7 for details of the related assets pledged as collateral.

f. Business Combination

1. The Company acquired Changzhou Huijie new material Co., Ltd on November 5, 2018 for 100% fully control of the entity. The entity engages in manufacturing engineering plastics.

The transfer price is $356,869 thousand in cash, the fair value of assets acquired and liabilities assumed on the acquisition date were as below:

Cash and cash equivalents $ 47,222 Notes and accounts receivables 4,032 Other receivables 6,090 Inventories 4,994 Other current assets 100,137 Property, plant and equipment 1,200,245 Intangible assets 156,655 Short-term loans (265,345) Accounts payable (219) Other payables (860,584) Other current liabilities, (142) Long-term bank loans (179,895) Fair value of identifiable assets $ 213,190

Goodwill derived from acquisition: Transfer price $ 356,869 Fair value of identifiable assets (213,190) Goodwill $ 143,679

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2. The Company acquired Thanh Phong construction and investment Ltd. 90% of its shares and obtained controlling power of the entity. The entity engages in real estate and construction. The transfer price is $119,573 thousand in cash, the fair value of assets acquired and liabilities assumed on the acquisition date were as below:


Goodwill derived from acquisition: Transfer price $ 119,573 Non-controlling equity (fair value of identifiable assets measured

at the percentage of non-controlling equity) 13,284



The cost, depreciation, and impairment of the property, plant and equipment of the Consolidated Company for the years ended December 31, 2018 and 2017 were as follows:

Land

Land


Machinery

and

equipment Vehicles

Other

facilities

Construction

in progress

Accumulated

impairment Total


Balance as of January 1, 2018 $ 5,730,777 271,654 2,670,060 46,226,002 72,018 669,638 3,366.709 - 59,006,858


combination

- - 812,580 706,580 - 33,427 - - 1,552,587

Additions - - 2,574 1,896 1,285 45,189 2,946,515 - 2,997,459

Disposal - (3,465) (25,640) (552,635) (5,389) (3,470) (13,593) - (601,192)

Reclassification - 19,599 364,293 1,106,548 4,755 11,451 (1,506,646) - -

Effect of movements in exchange rate - - (21,335) (22,137) (290) (1,336) (59,650) - (104,748)





combination

- - 73,979 166,795 - 9,998 - - 250,772


Disposals - (3,463) (22,745) (532,220) (4,725) (2,955) - (16,365) (582,473)

Reclassification - - - (510) 386 124 - - -

Effect of movements in exchange rate - - (3,061) (6,988) (200) (528) - - (10,777)


Carrying amounts:


As of December 31, 2018 , the Consolidated Company provided as collateral portion of its property, plant and equipment, please refer to Note 8 for details of the related assets pledged as collateral.

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On November 26, 2013, the plan to invest in China was approved during the meeting of the board of directors of the Company. On March 25, 2014 and November 1, 2018, the Investment Commission, MOEA approved the investment of the Company in JIANGSU WEIMING Petrochemical Corporation in China of RMB$2,388,000 thousand (equivalent to $11,200,000 thousand) mainly to establish a manufacturing operations for petrochemical products (including hydrorefining crude benzol, cyclohexanone, nylon 6, etc.). As of December 31, 2018 , accumulated investment remittance from Taiwan to Mainland China was RMB$775,000 thousand thousand. The amount invested in manufacturing plant and machinery was RMB$670,251 thousand and thousand .

h. Investment property Land Buildings Total

Cost or deemed cost: Balance as of January 1, 2018 $ 38,211,181 15,351 38,226,532 Net gains and losses due to fair value

adjustments

120,452 3,375 123,827 Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359 Carrying amounts: Balance as of December 31, 2018 $ 38,331,633 18,726 38,350,359


The fair value of some investment properties of the Consolidated Company was determined using the income approach. Under this income approach, the key terms of the rental contracts for these investment properties and certain other factors considered were as follows: December 31, 2018

Subject Qianjin Dist., Kaohsiung City

Important contract terms None. The range of rental in the area where the


The rental range of similar investment property $549 ~ $596( NT dollars) The current status of the investment property Unused Past earnings $0 ~ $0 Income capitalization rate 5.415% Discount rate 4.380% Outsourcing or self-valuation Outsourcing Evaluation office Colliers International Taiwan Appraiser name Feng-ru, Ke Evaluation date December 31 , 2018 Outsourcing fair value $10,640

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In accordance with Article34 of the Regulations on Real Estate Appraisal, the income approach procedures include estimating the effective gross income and total expenses, computing the net operating income, determining the capitalization rate or discount rate, and computing the income. The attributes used by the Group for the estimations above were the last three years’ data from the subject property and comparable properties which have similar characteristics, and these data were assessed and adjusted based on their persistency, stability, and growth to ensure the availability and reasonableness of these data. The movement of income (cash inflows) and expenditure (cash outflows) for future periods was based on the vacancies or losses, existing or future cash flow plans of the Group, and historical cash flows from the subject property, identical properties, or properties in the same industry. The estimation and computation of the net income were based on the highest and best use of the subject property and have taken into consideration the income generated from comparable properties in the same location based on their highest and best use. External appraisers use the risk premium method to decide on the direct capitalization rate and discount rate. The fixed deposit interest rate, government bonds rate, real estate investment risk, money supply-demand variation, the trend of real estate value and etc. are taken into consideration to decide the likely rate of return on the most common investment as a basis in order to derive the capitalization rate or discount rate. The differences in individual characteristics between the above most common investment and the subject property are compared in terms of their liquidity, risk, appreciation, and management. As of December 31, 2018, the discount rate was 4.380%, respectively, based on 2-year time deposit of a small amount, as posted by the Chunghwa Post Co., Ltd., plus 0.75 percentage points (1.845%), adjusted for a risk premium of 1.2%, to reflect the status of operating income, liquidity, risk, appreciation, management and etc. As of December 31, 2018, the weighted average capitalization rate was 5.415%, derived as the ratio of annual net operating income of comparable properties divided by reasonable price.

2. Evaluation through land development analysis As the Consolidated Company’s investment property is undeveloped, the income approach cannot be used for purposes of the evaluation. Consequently, the investment property was evaluated using the land development analysis, under which, the following factors were considered: December 31, 2018

Subject

Annan Dist., Tainan City


Estimate total sales price $7,968,120 9,612,970 2,717,238 Rate of return 23% 18% 12% ~ 25% Capital interest rate 1.790% 3.810% ~3.930% 0.71% ~4.38% Evaluation office CCIS Real Estate


CCIS Real Estate Joint Appraisers Firm, Colliers International Taiwan

Hon Bun Real Estate Appraisers Firm and Colliers International Taiwan,

Appraiser name Huo-ming, Huang Shiou-ying, Jan , Jian-hui,Gu

Yu-xian, Houng , Jian-hui,Gu , hShiou-ying, Jan and Feng-ru, Ke

Evaluation date December31, 2018 December 31,

2018 December 31, 2018


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The land development analysis included procedures such as identifying the content of land development and estimating the required period of development ; investigating individual cost and related expenses, collecting current market prices, etc.; on-site survey and investigating and analyzing the degree of development in the local environment; estimating the marketable area of land or building after construction or building; estimating the total sales price of properties after completion of construction or building; estimating individual cost and related expenses; deciding an appropriate rate of return and an overall capital interest rate; calculating land development analysis value. Investment property included several rentals of real property to others. Each lease contract all include the original non-cancellable lease and the subsequent lease is negotiated with the lessee without collection of contingent rental. Please refer to Note 5 n. for the relevant information including rent revenue and the direct operating expenses incurred. As of December 31, 2018, the Consolidated Company provided as collateral portion of its investment property. Please refer to Note 8 for details of the related assets pledged as collateral. In the era of pre-Taiwan Alkali Industrial Corporation (TAIC), TAIC had leased the lands located in Tainan and Chiayi area to the local peasants and fishermen, and the surviving tenants shall continue paying the rent to the Company according to the agreements. In the circumstance of the resumption for self- business use or the sale of the lands, the leases shall be terminated under the contractual agreements and Land Laws. If there is any redemption in some cases, the Company will recognize and evaluate the possible expenses and costs case by case. The Company has terminated the some agreements with partial peasants and fishermen at the first quarter of 2014 by paying the redemption in the amount of $50,425 thousand.

An Shun Land Located in Tainan City Annan District: 1. History

(1) The land where the An-Shun Alkali plants located was originally established by

Japanese company Kanegafuchi Soda “in 1938 under Japanese Colonial Rule. (2) The Government undertake the construction after the Retrocession of Taiwan, and

established a state-owned company, Taiwan Alkali Industrial Corporation (TAIC) and operated at the An-Shun Site. In 1961, the competent authorities in charge of the relevant state-owned enterprises approved the investment plan and budget for producing Pentachlorophenol and sodium pentachlorophenol products used on herbicides and wood preservative fungicides.

(3) Due to operational factors, the plant was ordered to be closed by Executive Yuan

Department of Economic Affairs in early 1982.

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(5) Since the said merger, the Company takeover the An-shun land, the Company itself

has never had any act of production, operations, development, use or pollution occurred at the site. According to subsequent investigation and research, parts of the area has been detected dioxin and mercury contamination in soil. The land was designated by the Tainan City Government and the Environmental Protection Department of the Executive Yuan as a “Soil Pollution Control Site” and “Soil pollution remediation site” in April 2002 and March 2004 separately, per the Soil and Groundwater Pollution Remediation Act.


A. The Company filed a plea of State Compensation claim to Ministry of Economic

Affairs, Administration Yuan (MOEA), but MOEA refused.




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(7) Tainan City Government issued the letter No. 09722000130 and No. 09722003360 in January and February 2008 respectively, and requested the Company to propose a remediation plan for the soil and groundwater pollution of the An-shun plant in accordance with the Soil and Groundwater Pollution Remediation Act. A. The Company proposed the “Tainan City, CPDC former Taiwan Alkali An-shun

site and 2nd class number nine road on the eastern side of the grass area of the site, soil pollution remediation pollution remediation plan” per the regulation at the end of June 2008 and the plan was submitted to Tainan city government for review and formally approved in May 2009. In 2012, the remediation plan was put forward and approved on July 2, 2012. The 1st instance was completed in September 2014 and entered the second phase of the remediation, which will last 10 years. A second revision of the remediation plan was proposed and submitted to Tainan City Government for review, and the approval letter issued by Tainan City Government informed of the approval of the 2nd remediation plan, which shall be publicly displayed per regulations. Currently, the Tainan City Environmental Protection Bureau reviewed and adopted the plan on April 14, 2015 and the assessment was announced by Tainan City Government on May 4th, 2015. According to the remediation technology and the actual implementation of the subsequence adjustment, the 3rd remediation change plan was proposed on March 2nd 2017, which remediation plan was focus on the remediation plan of 2nd phase and brought in the unfinished items in the 2nd change plan. Currently, the 3rd plan was reviewed and adopted on Jan. 3rd, 2018.




A. Tainan city government on Feb. 27th, 2008 with the letter No. 09722004430

asked the Company to pay each expense: NT$88,786 thousand, coming from investigation assessments and strain necessary measures, which was prepaid by Tainan city government and EPA of Executive Yuan on behalf of land polluters, within deadline. The expense would double and transfer to court for enforcement if overdue. This expense was adjusted to list in 2007 per Financial Accounting Standards and the Company prepaid on behalf of land relations based on the law regulations in July 2008. The Company had the objection on the prepaid expense and land polluter, hence, the administrative remedy was proposed in July 2008, Kaohsiung High Administrative court sentenced the Company shall pay the expense NT$88,430 thousand in Jan. 2008. The Company proposed the appeal in March 2008 and Supreme Administrative Court sent back to Kaohsiung High Administrative Court for further trial. Kaohsiung High Administrative court sentenced the original punishment and the petition decision beyond NT$76,066 thousand was withdrawn. In Dec. 2013, both parties proposed the appeal for the unfavorable parts and Supreme Administrative Court sentenced the amount

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beyond NT$203 thousand and lawsuit expenses are all abandoned in April 2015 and sent back to Kaohsiung High Administrative court for continued trial. The determined withdrawn amount NT$356 thousand had all been returned back to the account by Tainan city government. Kaohsiung High Administrative court rejected the appeal of the Company on Dec. 2016. The Company proposed the appeal remedy for the unsatisfied sentenced contents on Jan. 2017. Supreme Administrative Court sentenced on Jan. 2018 that the expenses NT$1,135 thousand didn’t need to be undertaken by the Company.

B. Tainan city government on May 22, 2009 with the letter No. 09822013680 asked the Company pay the expenses NT$17,962 thousand, which resulted from the relevant working plan of An Shun Land Site soil pollution remediation and was prepaid by Tainan city government on behalf of the Company, and Tainan city government in Dec. 2009 with the letter No. 09822035440 asked the Company to pay the above fees prior to Jan. 31st, 2010. The Company estimated such expense at the end of 2009 and proposed the administrative remedy in Jan. 2010 and prepaid the above fees within the deadline inquired by Tainan city government based on the law regulations. The petition was rejected in March 2011, thus, the administrative lawsuit was proposed according to the law. Kaohsiung High Administrative court sentenced that the amount beyond NT$17,867 thousand was withdrawn. After the appeal, Supreme Administrative Court sentenced to return back to Kaohsiung High Administrative court for further trial in Sept. 2013. Kaohsiung High Administrative court sentenced the amount beyond NT$7,068 thousand was withdrawn on Oct. 7th, 2015 and this case had been appealed for the remedy. The determined withdrawn amount NT$95 thousand had been returned back to the account by Tainan city government. The verdict from Supreme Administrative Court had been received on Feb. 18th, 2017, the fact was again returned back to Kaohsiung High Administrative court for the trial.


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D. Tainan City Government, in May 2013, issued the letter No. 1020383681B to request the Company to pay site soil pollution remediation related work plan on behalf of An-shun plant, with the cost of NT$26,530 thousand and requested for the Company to pay the fee prior to June 30th 2013. The Company paid the fee in advance within the requested deadline by the Tainan City Government based on applicable laws. The Company filed a petition for remedy in July 2013, which was rejected. The Company filed an administrative litigation in March 2014. The judgment was declared in April 2016. The Company proposed to appeal for remedy on the portions that were unfavorable. However, the appeal was sentenced to be rejected in March 2017. The Company had proposed for retrial remedy in April 2017, which was rejected by court in Oct. of the same year. This case was closed.

E. The Tainan City Government, in February 2014, litigated that the Company was

the polluters per judgment No. 1953 which was pass down in 2007 and asked the Company to pay the 2011 advanced payment of supervision and management on behalf of An-shun factory, to the amount of NT$27,444 thousand. The Company paid the fee in advance as previous mention within the requested deadline by the Tainan City Government based on the law regulations and filed the petition for remedy in March 2014, which was rejected by the petition authorities. The Company was not satisfied with the result, and filed the administrative legal appeal in September of same year. The Kaohsiung High Administrative Court sentenced the Company to pay NT$154 thousand. However, Tainan City Government was not satisfied with the verdict and filed the appeal for remedy, the Company also filed an appeal based on the Company’s claims to Supreme Administrative High Court. The Supreme Administrative High Court suspended the original verdict in February 2018, and currently the case is under hearing by the Kaohsiung High Administrative Court.

F. Tainan City Government, in May 2016, issued the letter No. 10504498726, requested the Company to pay a fee for the “supervision management and audit work plan of 2013 CPDC (Taiwan Alkali) An-shun plant site remediation” and requested the Company to pay the fee of NT$63,271 thousand prior to July 20th 2016, per paragraph 4 of article 14, article 15 and paragraph 1 of article 43. The Company paid the fee within the requested deadline by the Tainan City Government based on applicable regulations. After the rejection of the petition for the remedy in June 2016, the Company filed for administrative litigation in December 2016 and received parts of the winning judg

G. ment in July 2017. In order to maintain the Company’s right and interest, the Company had proposed the appeal to Supreme Administrative Court for remedy of the unfavorable parts in August 2017.

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A. Tainan City Government issued the letter No. 1030133470 on February 12th 2014

to order the Company to pay a penalty of NT$200 thousand prior to March 24th 2014 since the Company was deemed not to implement the content per the approved “Site soil pollution remediation pollution remediation plan” and violated the regulation subparagraph 3 of paragraph 2 of Article 38 and paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act. However, the disposition authority determined that this was a factual error and it was clear that the punishment was illegal. Hence, the Company filed a petition for remedy in March 2014, but the petition was rejected by Executive Yuan Environmental Protection Agency in June 2014. The Company filed for administrative litigation remedy in August 2014, the litigation remedy was rejected by the judgment from the simple court of Tainan District court and Kaohsiung High Administrative Court in April and August 2015. The Company filed the retrial for remedy, which was rejected by the Kaohsiung High Administrative Court in April 2016. The Company would continue to file an appeal for remedy. However, the rejection of the Company’s request was received in June 2017. The Company proposed the retrial appeal for remedy in July of the same year. After the retrial, the court rejected the Company’s request in Oct. of the same year and this case was closed.


C. Tainan City Government issued a letter No. 105050004 for administrative sanctions on May 23, 2016 and deemed that the Company didn’t execute the plan according to the remedy plan since the reduction rate of dioxin pollution was less than 41% in the Soil and groundwater pollution inspection records, which violated the regulation paragraph 1 of Article 22 of the Soil and Groundwater Pollution Remediation Act (hereinafter referred to as the “Remediation Act”) and ordered the Company to pay a penalty of NT$2,000 thousand according to subparagraph 3 of paragraph 2 of Article 38 of Remediation Act and the Company had to participate in environment seminars for 2 hours according to the provisions of Article 23, paragraph 2 of the Environmental Education Law. After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle. The Company filed a petition in June 2016, which was rejected by Executive Yuan Environmental Protection Agency in Oct. 2016. The Company was not satisfied,

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proposing the administrative litigation to Kaohsiung High Administrative court and received the rejection jurisdiction by court in July 2017. The Company proposed the appeal for the remedy in August of the same year per law, but Supreme Administrative Court rejected the Company’s request in Jan. 2018. This case was determined to be closed.

D. Tainan city government, on May 23rd, 2016, required the Company to complete the correction (which means the reduction rate of dioxin pollution reaches to 41%) prior to Oct. 31st, 2016 with letter No. 1050527601 and attached with No. 105050004 issued on May 19th, 2016, otherwise; the Company would be punished continuously per time. Since the Company violated the regulation paragraph 1 of Article 22, paragraph 2 of Article 38 of the Soil and Groundwater Pollution Remediation Act and paragraph 11 of Penalty criteria list, it was fined NT$600 thousand and was ordered to participate in environment seminars for 4 hours (premier NT$200 thousand plus added NT$400 thousand). After verification, the previous punishment content was not audited at the time point of the remediation plan, which violated the punishment principle and this case had necessary relation with the administrative sanction which of letter No. 105050004. The petition remedy was proposed per law in Feb. 2017, which was rejected by Executive Yuan Department of Economic Affairs in May 2017. The Company had proposed the appeal for remedy in June of the same year. Through the rejection of the Company’s request by Kaohsiung High Administrative court in Nov. of the same year, the Company had declared the appeal in Dec. of the same year. The Supreme Administrative Court rejected the Company’s request on July 10, 2018. This case was determined to be closed.

E. Tainan city government considered the Company’s remediation progress for the reduction rate of dioxin pollution had not reached 82% and judged the Company for the penalty NT$200 thousand. After verification, the Company had finished 13.51 hectares (symbolizing Pollution area reduction ratio 36.4%), which had been beyond the target of 2nd change plan. Tainan city government with merely single project not reaching to the examined target penalized the Company without considering such factor, which obviously violated the ratio principle. The petition remedy was proposed in June 2017 and was rejected by Executive Yuan Department of Economic Affairs in August of the same year. Considering the legislation economy, the Company decided not to continue the remedy in August of the same year. This case was closed.


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3. Others

(1) The Company still has the objection on the adscription of pollution responsibility for An Shun land located in Tainan City Annan District and would continue to strive for the possible administrative and law remedy actively. In view of the jurisdiction explanation No.714, which indicated whether the general successors of polluters had to burden of remediation responsibilities, was not in the scope of the Soil and Groundwater Pollution Remediation Act. Also, considering the previous Taiwan Alkali Co. Ltd. was a state-owned enterprise, and the An-shun plant was controlled, supervised, and assigned operations and gained beneficially by the Ministry of Economic Affairs, Taiwan Provincial Government and CPC, such actions should be part of national behavior, yet, the resulting pollution and remediation was asked to be borne by the private legal person. The Company applied to the Tainan city government to determine the beginning of the actual pollution or potential pollution of the perpetrators, and who should pay the relevant costs and return the Company’s cost over the years. The rejection was made by the Tainan City Government in November 2014. The Company filed a legal petition in December 2014 and the original disposal authorities revoked the original punishment in March 2014, hence, the Executive Yuan Environmental Protection Agency made a decision not to proceed with the case. The original disposal authorities revoked the previous punishment but simultaneously made a new one, the Company also filed a petition to the new punishment. The Company's petition was decided not to proceed in August 2015 and the Company filed an administrative legal appeal instead, due to multiple errors, which was under hearing by the Kaohsiung High Administrative Court. Through the rejection of the Company’s request by Kaohsiung High Administrative court, the Company proposed the appeal for remedy in Nov. 2017. This case was under hearing in Supreme Administrative Court. The cumulative fee of invested and estimated control & management cost and remediation fee were NT$3,428,237 thousand until Dec. 31st, 2018. The preceding remediation fee was estimated according to the current possible situations by the Company. However, if it was affected by the inside and outside factors in future, which resulted in the possible big differences on the whole remediation fee, it would be evaluated for adjustment.


Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by the Tainan City Government, under the letter No. 1031053448A issued on November 17, 2014, as a municipal historic site. However, the administrative sanction has various areas of dispute, thus the Company was not satisfied with the judgment. Hence, the Company filed a legal petition for remedy in December 2014. The petition decision report from the Ministry of Culture revoked the designated land of the Company as a historical site including 4 area in August 2015. The Company appealed for the administrative remedy of the remaining areas, which was under hearing by the Kaohsiung High Administrative Court.

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(3) An shun historical site theft case Original Kagakude Negai O Ka Corporation’s dormitories of Tainan plant belonging to the Company was designated by Tainan City Government as a municipal historic site. However, the defendant, Mr. Wu Ming, put a lot of his personal belonging on the Company’s land beside to the dormitories located on No.15, Aly. 3, Ln. 661, Beishanwei 2nd Rd., Annan Dist., Tainan City 709, Taiwan (R.O.C.), and was suspected being involved with the theft of the property. The Company filed for criminal action. This case was sent to the Tainan District Prosecutors Office for mediation but without success, the Company received the indictment from Prosecutors Office in May 2016 and received the verdict from the court in September of the same year: Mr. Wu was sentenced to five months and was charged NT$5,973 thousand due to the crime. However, the defendant appealed for remedy. The sentence was declared on June 28th, 2017: Mr. Wu was imprisoned for 4 months and confiscated NT$176 thousand acquired from the crime (this case was closed).

Xincun Land of Taiwan Alkali Co., Ltd.: 1. History

On the premise that the residents obeyed the agreement, the Company signed an agreement with the local communities that land within Feng Shan District, Kaohsiung City shall be granted free of charge for public use.


Business inspector found that the land was occupied by residents that built illegal construction, which violated the agreement. After communicating with the residents' multiple times, the situation still did not improve. To be responsible for asset management and reach the expectation of the Company’s shareholders, the Company filed a legal appeal in February 2013 to require to dismantle the illegal construction and return the land, which was judged by Kaohsiung District Court to reject the Company’s petition. Due to the previous judgment against the law, the Company filed a legal appeal for remedy in September 2014, which was rejected by the Kaohsiung High Court in July 2016. The Company filed the appeal for remedy to Supreme Court in August of same year.

- 457 -

Shulin Land of Taiwan Alkali Co., Ltd.: 1. History:

(1) No. 540, 541 and 543, Dongshan Section, Shulin District, Xinbei City and No. 498,

Weiwang Section, Shulin Dist., New Taipei City 238, Taiwan including 4 area of lands originally belonged to Shulin plant of Taiwan Alkali Co. Ltd. Taiwan Alkali Co. Ltd. established the plant in 1962 and closed the plant in 1975. The Executive Yuan Department of Economic Affairs in April 1983 ordered the government-owned Company which at the time was also a subsidiary of CPC to merge with Taiwan Alkali Co. Ltd



(4) The New Taipei City Government Environmental Protection Bureau issued the letter

No. 1001001329 in August 2011 and asked the Company to complete the investigation and proposed a pollution control plan and send to New Taipei City Government Environmental Protection Bureau for approval. The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. This case was closed due to the determined sentence in August 2017.


- 458 -

2. Extension legislation: The Company was ordered to take responsible of all, non-production operations, development, and the resulting usage or pollution. The Company had a disagreement of the identification of the polluters and filed the administrative appeal in August 2011. Taipei High Administrative Court judged to revoke the administrative punishment and the petition decision in August 2012. However, New Taipei City Government Environmental Protection Bureau appealed for retrial, the Supreme Administrative Court discarded the original judgment and remanded the case to the Taipei High Administrative Court. The judgment was claimed to be illegal, hence, the Company filed for legal appeal in December 2013, which was rejected by the Supreme Administrative Court in January 2015. The Company filed for retrial remedy in February 2015, which was rejected in June 2015. The ruling on the parts where important evidence was missed and not considered was remanded to Taipei High Administrative Court. But Taipei High Administrative court sentenced the rejection in August 2016, which the Company was not satisfied with so as to appeal for remedy in Sept. of the same year. In August 2017, the rejection was adjudicated. This case was closed. Moreover, in consideration of the No. 714 explanation from the judge, the Company applied to New Taipei City Government Environmental Protection Bureau for the identification of polluters, but it was subsequently refused. The Company filed for the petition and administrative litigation remedy. After the trial from Supreme Administrative Court, the rejection was adjudicated. This case was closed.

i. Intangible assets

The components of the costs of intangible assets, amortization, and impairment loss thereon or the years ended December 31, 2018 and 2017 were as follows:

Goodwill

Computer software

Patents and trademark

Total

Costs： Balance as of January 1, 2018 $ 5,444 5,233 68,389 79,066 Acquisition from business combination - 908 50,883 51,791 Acquisition in 2018 143,679 1,579 141 145,399 Disposals - - (16,815) (16,815) Effect of movement in exchange rates (1,133) (147) - (1,280) Balance as of December 31, 2018 $ 147,990 7,573 102,598 258,161

Goodwill Computer

software Patents and

trademark

Total Amortization and Impairment Loss: Balance as of January 1, 2018 $ - 1,089 53,639 54,728 Acquisition from business combination - 59 8,434 8,493 Amortization for the period - 945 12,332 13,277 Disposals - - (6,378) (6,378) Effect of movement in exchange rates - (20) - (20) Balance as of December 31, 2018 $ - 2,073 68,027 70,100

Carrying value: Balance as of December 31, 2018 $ 147,990 5,500 34,571 188,061

As of December 31, 2018, the aforesaid intangible assets were not pledged as collateral.

- 459 -

j. Short-term and long-term loans

December 31, 2018


Range Year of

Expiration Amount Secured bank loans-the Company NTD 1.43%~1.9556% 2019~2021 $ 2,480,000 Secured bank loans-Huijie RMB 5.655%~6.2225% 2019 442,533 Unsecured bank loans-the

Company NTD 1.38%~1.814% 2019 600,000

Secured bank loans- Weihua RMB 4.9%~5.047% 2024 300,569 Secured bank loans- Weiming RMB 5.047%~5.488% 2023 1,714,560 Letters of credit loans-the

Company NTD 1.4945% 2019 50,000

Total $ 5,587,662 Current $ 1,777,533 Non-current 3,810,129 Total $ 5,587,662 On February 2, 2016, the Company signed a syndicated loan agreement for 5 years with Mega International Commercial Bank, the lead bank of the syndicated loan, and 7 other banks in order to raise funds to build the plant and accessory equipment and meet funding requirement. The aggregate amount of credit line of the syndicated loan was $4,350,000 thousand. 1. Syndicated loan A: The credit line is $2,900,000 thousand consisting of medium-term

secured loans and non-revolving credit facility, which were used to finance the building of the plant and purchase of accessory equipment.

2. Syndicated loan B: The credit line is $1,450,000 thousand consisting of medium-term loans

and revolving credit facility, which were used to meet funding requirement. 3. The financial covenants under the loan agreement include the requirement to maintain

certain financial ratios based on the reviewed semi-annual consolidated financial report and audited annual consolidated financial reports. If the Company breaches these financial covenants, the syndicated banks may determine to declare the unpaid principal, interest, fees and other sums payable by the Company under the loan agreement to be immediately due and payable. These financial ratios are as follows: (1) Current Ratio (total current assets divided by total current liabilities): not lower than

100%. (2) Leverage Ratio (total liabilities plus contingent liabilities to tangible net worth): not

higher than 100%. (3) Times Interest Earned (income before tax plus depreciation expense plus amortization

expense divided by interest expenses): not lower than 2 times. As of December 31, 2018, the unused credit line amounted to $2,250,000 thousand. Please refer to Note 8 for details of the related assets pledged as collateral.

- 460 -

The Company signed a contract for secured bank credit facilities totaling $130,000 thousand in order to finance its operating requirement. As of December 31, 2018, credit facilities of $380,000 thousand were used. The unused amounted to $6,000 thousand. The current portion of the long-term bank loans obtained from such credit facilities amounted to $380,000 thousand. Please refer to Note 7 for details of the related assets pledged as collateral. As of December 31, 2018, the Company was granted by banks short-term credit lines of $6,650,000 thousand, of which $3,650,445 thousand, were unused. As of December 31, 2018, the short term credit lines of the subsidiaries amounted to $130,000 thousand, US$6,000 thousand and RMB$1,083,840 thousand; of which, $0 thousand, US$0 thousand, and RMB$683,706 thousand, respectively, were used. Please refer to Note 7 for details of the related assets pledged as collateral.

k. Long-term bills payable The components of long-term bills payable were as follows:

December 31, 2018 Acceptance institution Period Amount Bills payable China Bills Finance Corporation 2018.11.09~2019.01.08 $ 100,000 Bills payable China Bills Finance Corporation 2018.11.16~2019.01.15 50,000 Bills payable International Bills Finance

Corporation 2018.11.30~2019.01.18 50,000

Bills payable Taching Bills Finance Corporation 2018.11.26~2019.02.25 50,000 Bills payable Mega Bills Finance Corporation 2018.12.20~2019.03.20 100,000 350,000 Less: Discount on long-


Total $ 349,729

The Company had revolving commercial promissory note agreements with bills finance companies in order to finance its operating requirement. The bills payable bear interest at annual rates ranging from 0.5%~1.1513% for the years ended December 31, 2018. Please refer to Note 8 for details of the related assets pledged as collateral.

m. Provisions

Decommissioning

Remediation project

Employee benefits Total

Balance as of December 31, 2018 $ 1,686,580 967,414 322,556 2,976,550 Current $ - 473,629 15,950 489,579 Non-current 1,686,580 493,785 306,606 2,486,971 $ 1,686,580 967,414 322,556 2,976,550

- 461 -

1. To comply with the Order of the Tainan City Government, the Company submitted a remediation plan proposal and accrued relevant remediation plan for approval before June 30, 2008 and evaluated the relating remediation expense of $1,647,200 thousand. In May 2009 and on July 2, 2012, the Company was granted official approval of its remediation proposal and amended remediation proposal, respectively. In September 2014, the Company has completed the first phase of the implementation of its plan. It is expected to launch the second phase of the implementation of its remediation plan during the next. The Company has submitted the second phase of its amended remediation plan to the Tainan City Government for approval. On December 24, 2014, Tainan City Government notified the Company its approval and now is under public tender review.

The aforementioned remediation costs of the Company were recognized in the total amount of $1,600,000 thousand for the first stage before September, 2014. With the launch of the subsequence of the second remediation stage, the Company estimated the cost based on the situation of December, 2014 is $1,356,000 thousand. (Note 5 h for more details)

2. (1) The Company’s four parcels of land at Dongshan section , Shulin district, New Taipei

City were the original location of TAIC’s Shulin plants , but then sold to the Taiwan Chinese Petroleum Corporation (CPC). On August 16, 2010, the Environmental Protection Department of New Taipei City Government has declared that such land as "Soil Pollution Control Site”. In March 2011, the Environmental Protection Department of New Taipei City Government has issued its letter No. 1000010000. In that letter, the Company is deemed to be the surviving entity, which assumed the rights and obligations of TAIC following its merger with TAIC and TAIC ceased to exist. As the surviving entity from this merger, the Company was therefore declared as the polluter and was required to submit a remedial measuring plan.

(2) In August 2011, the Environmental Protection Department of New Taipei City

Government has issued its Letter No. 1001001329 requiring the Company to complete its investigation and propose a pollution control plan to the Environmental Protection Department of New Taipei City Government for approval and then adopt its implementation. Following its said merger with Taiwan Alkali Company under the government‘s mandatory order, the Company itself has neither performed any act of production, operation, development, use nor initiated act to cause pollution. For this reason, the Company objected with being tagged as “the polluter” and filed a complaint for administration remedy in August 2011. In 2011, the Company estimated and accrued relevant remediation expenses of $273,750 thousand in accordance with the relevant provisions of Financial Accounting Standards.

- 462 -

n. Operating lease

The Consolidated Company leases out some of its property, plant and equipment under operating leases. The future minimum lease receivable under these non-cancellable operating leases were as follows:

December 31, 2018

Less than one year $ 10,980 43,560 1,815

Between one and five years Over five years $ 56,265

For the years then ended December 31, 2018, the income from the rental of property, plant and equipment amounted to $13,334 thousand.



The Consolidated Company’s defined benefit obligations and fair value of plan assets were as follows:

December 31, 2018 Present value of funded defined benefit obligation $ 976,135

(675,820)

Fair value of plan assets Net defined benefit liabilities $ 300,315

The provision consists of net defined benefit liabilities and accrued pension liabilities for professional managements. The accrued pension liabilities for professional managements was $5,759 thousand as of December 31, 2018. The Consolidated Company makes defined benefit plans contributions to the pension fund account with Bank of Taiwan that provides pension benefits for employees upon retirement. Plans (covered by the Labor Standards Law) entitle a retired employee to receive retirement benefits based on years of service and average monthly salary for six months prior to retirement.



- 463 -

As of December 31, 2018, the balance of the Consolidated Company’s contributions to the pension funds in Bank of Taiwan was $678,451 thousand. For information on the utilization of the labor pension fund assets including the asset allocation and yield of the fund, please refer to the website of the Labor Pension Fund Supervisory Committee.

(2) Movements in present value of the defined benefit obligations The movements in the present value of the defined benefit obligations for the years ended December 31, 2018 and 2017 were as follows:

2018 Defined benefit obligation, January 1 $ 1,116,724

(198,155) (26)

31,138 (2,638) 28,092

Benefits paid from plan assets Benefits paid by company directly Current service costs and interest

Past service credit Re-measurements of the net defined benefit liability (assets) Defined benefit obligation, December 31 $ 976,135


The movements in the present value of the defined benefit assets for the year ended December 31, 2018 were as follows:

2018 Fair value of plan assets, January 1 $ 797,167

36,168 (191,274)

10,640 23,119

Employer contributions Benefits paid by the plan Expected return on plan assets Re-measurements of the net defined benefit liability Fair value of plan assets, December 31 $ 675,820


The Consolidated Company’s pension expenses recognized in profit or loss for the years ended December 31, 2018:


Current service cost $ 17,398 (114)

(2,638) 4,100

Other Past service cost

Net interest on net defined benefit liability $ 18,746 Operating costs $ 18,905

(1,053) 886

8

Selling expenses Administrative expenses Research and development expenses $ 18,746 Actual return on plan assets $ 20,667

- 464 -

(5) Actuarial assumptions The following are the key actuarial assumptions at the reporting date:


Discount rate 0.75~1.12% 0.3~3% Future salary increases

Base on the actuarial report, the Consolidated Company is expected to make a contribution payment of $13,727 thousand to the defined benefit plans for the one year period after the reporting date. The weighted-average duration of the defined benefit plans is between 1.00 to 12.73 years.

(6) Sensitivity analysis In determining the present value of the defined benefit obligation, the Consolidated Company’s management makes judgments and estimates in determining certain actuarial assumptions on the balance sheet date, which includes employee turnover rate and future salary changes. Changes in actuarial assumptions may have significant impact on the amount of defined benefit obligation. As of December 31, 2018 , the changes in the principal actuarial assumptions will impact the present value of defined benefit obligation as follows:


Increase by 0.25%

Decrease by 0.25%


The sensitivity analysis assumed all other variables remain constant during the measurement. This may not be representative of the actual change in defined benefit obligation as some of the variables may be correlated in the actual situation. The model used in the sensitivity analysis is the same as the defined benefit obligation liability. The analysis is performed on the same basis for prior year.


The Consolidated Company contributes an amount at the rate of 6% of the employee’s monthly wages to the Labor Pension personal account with the Bureau of the Labor Insurance and Council of Labor Affairs in R.O.C. in accordance with the provisions of the Labor Pension Act. The Company’s contributions to the Bureau of the Labor Insurance and Social Security Bureau for the employees’ pension benefits require no further payment of additional legal or constructive obligations.

- 465 -

The cost of the pension contributions to the Labor Insurance Bureau for the years ended December 31, 2018 amounted to $47,277 thousand.

3. The pension recognized consists of pension expenses and pensions for professional

management. The pension expenses for professional management was $5,759 thousand as of December 31, 2018.


As of December 31, 2018, the Consolidated Company’s short-term compensated absences liabilities amounted to $15,950 thousand.

p. Income Tax

The components of income tax expense for the years ended December 31, 2017 and 2016 were as follows:


Current income tax expense $ (1,028,337)

(4,572) Currently incurred Adjustment to prior year’s income tax charged to current income tax (1,032,909) Deferred tax expense The origination and reversal of temporary differences (559,368)

570,690 Unrecognized changes of deductible temporary differences 11,322 Income tax expense $ (1,021,587)

For the years ended December 31, 2018, income tax expenses recognized under other comprehensive income were both $0 thousand. Income tax calculated on pre-tax financial income was reconciled with income tax expense for the years ended December 31, 2018 as follows:


Profit (loss) before income tax $ 6,792,187 Income tax on pre-tax financial income calculated at the domestic rate (1,593,434)

1,479

564,986 358,215

(4,572)

Tax-free income Income basic tax Unrecognized deferred tax assets Changes of permanent differences Prior years income tax adjustment 10% surtax on undistributed earnings

Others

(348,269) 8

Income tax expense $ (1,021,587)

- 466 -

1. Unrecognized deferred tax assets and (liabilities)

December 31, 2018 Decommissioning liabilities $ 71,366

239,744 727,670 319,484 782,907

(641) 6,192,964

465,528

Remediation project Extraordinary loss Allowance for doubtful receivables Property, plant and equipment, investment property Pension Tax loss Others $ 8,799,022 The Company’s income tax returns through 2016 have been assessed and approved by the Tax Authority. Tax loss ratified by Tax Administration could be carried forward for ten consecutive years in accordance with Income Tax Act. The Consolidated Company did not recognize aforesaid tax loss as deferred tax assets because it is not expecting enough taxable profit in the near future. As of December 31, 2018, the expiration years of tax loss unrecognized as deferred tax assets were as follows: (1) The Company


(2) Taivex Therapeutics Inc.

Year incurred Amount Effective Period 2010 $ 14,388 2011-2020 2011 16,878 2012-2021 2012 29,657 2013-2022 2013 50,227 2014-2023 2014 27,419 2015-2024 2015 43,032 2016-2025 2016 44,291 2017-2026 2017 52,322 2018-2027 2018(estimated) 76,894 2019-2028

(3) Chung Hua Shuang Tzu Hsing Kai Fa Co., Ltd.

Year incurred Amount Effective Period

2013 $ 10,195 2014-2023 2014 44,139 2015-2024 2018(estimated) 445,328 2019-2028

- 467 -

(4) CPDC Green Technology Corp. Year incurred Amount Effective Period

2016 $ 5,646 2017-2026 2017 30,270 2018-2027 2018(estimated) 38,049 2019-2028

(5) Weihua (Rudong) Trade Co., Ltd


2013 $ 86 2014-2018 2015 36,740 2016-2020 2016 45,975 2017-2021 2017(estimated) 21,869 2018-2022

(6) Weiqiang International Trade (Shanghai) Co., Ltd.

Year incurred Amount Effective Period 2013 $ 9,398 2014-2018 2014 9,238 2015-2019 2015 17,892 2016-2020 2016 21,170 2017-2021

(7) Weida (zhangzhou) Consultant Service Co., Ltd.


2014 $ 1,148 2015-2019 2015 1,062 2016-2020 2016 1,168 2017-2021 2017 1,442 2018-2022 2018(estimated) 410 2019-2023

(8) Jiangsu Weiming Petrochemical Corporation


(9) Zhangzhou Weida Petrochemical Co., Ltd


2015 $ 570 2016-2020 2016 2,065 2017-2021 2017 1,991 2018-2022 2018(estimated) 5,830 2019-2023

- 468 -

(10) Kunshan Weiqin Management consultant Co., Ltd


(11) Zhejiang Wedge new material Co., Ltd


(12) Changzhou Huijie new material Co., Ltd


2015 $ 413 2016-2020 2016 287,896 2017-2021 2017 218,472 2018-2022 2018(estimated) 204,054 2019-2023

2. Deferred tax liabilities:

Reserve for Land Revaluation Increment

Tax Balance, January 1, 2018 $ 8,754,736 Recognized in profit or loss 4,253 Balance, December 31, 2018 $ 8,758,989


Taxable Loss Defined

benefit plans Others Total Balance, January 1, 2018 $ 9,358 7,360 28,227 44,945 Recognized in profit or loss 1,651 (2,329) 13,652 12,974 Recognized in OCI 5,302 5,302 Others $ 11,009 10,333 41,879 63,221


According to the amendments to the "Income Tax Act" enacted by the office of the President of the Republic of China (Taiwan) on February 7, 2018, effective January 1, 2018, companies will no longer be required to establish, record, calculate, and distribute their ICA due to the abolishment of the imputation tax system.

- 469 -

q. Capital and reserves As of December 31, 2018 and 2017, the authorized, issued and outstanding capital of the Company amounted to $26,998,573, divided into 2,699,857 thousand shares, with par value of $10 (NT dollars) per share.

(In thousands of shares)

Common Stock 2018

Balance, December 31 2,699,857

1. Capital Surplus

December 31, 2018 Premium of share issue $ 1,242,245

18,141 Other Total $ 1,260,386



The Company distributes dividends depending on the level of earnings of each year, funding needs, industrial environment, and status of competition, long-term operating plan and interests of shareholders. Under such circumstances, the Company may appropriate for special reserve either in whole or in part to assure financial stability and sustainability. The Company may distribute dividends in cash or stock. If the earnings distribution is made in the form of by stock dividend, the ratio for the stock dividend shall not exceed 50% of the total distribution unless the ratio of the Company’s total liabilities to total assets is equivalent or above 50% or otherwise prescribed in relevant laws and regulations. (1) Legal reserve


- 470 -

(2) Special reserve In 2014, the Consolidated Company changed the subsequent measurement of investment properties from cost model to fair value model. In accordance with Ruling No. 1030006415 issued by the Financial Supervisory Commission on 18 March 2014, on the first-time adoption of fair value model for the subsequent measurement of investment properties, the Consolidated Company set aside an equal amount of special reserve when the fair value increment of investment properties is transferred to retained earnings. The Consolidated Company appropriated to the special reserve an amount of $21,224,233 thousand as of December 31, 2013. The company held a shareholder meeting on June 8, 2017, in order to use the special reserve amounted to $1,958,584 thousand to cover accumulated deficits. The carrying amount of such special reserve amounted to $21,224,233 thousand and as of December 31, 2018. For every year the Company distributes earnings, a special reserve is appropriated in the following order: A. Each year, a special reserve is appropriated from current year’s net income and

prior years’ undistributed earnings for the same amount as the net increase in the fair value of investment property using the fair value model. A special reserve is also appropriated for the same amount as the cumulated net increase in the fair value for the year when the undistributed earnings are not distributed. When the investment property is disposed of, this special reserve is reverted proportionately to distributable earnings. As of December 12, 2018, the Company appropriated to the special reserve an amount of $3,867,293 thousand.

B. In accordance with Ruling No. 1010047490 issued by the Financial Supervisory

Commission on 21 November 2012, a special reserve is appropriated by the parent company for the difference between market value and book value of parent company shares being held by a subsidiary times the percentage of the parent company’s equity investment in the said subsidiary, if the stock price of the parent company is lower than the its value. If the market value recovers subsequently, this special reserve is reverted proportionately to distributable earnings.

C. In accordance with Ruling No. 1010012865 issued by the Financial Supervisory

Commission on 6 April 2012, a portion of current-period earnings and undistributed prior-period earnings is appropriated as a special reserve during earnings distribution. Such appropriation of special reserve is based on the difference between the total net amount of contra accounts in the shareholders’ equity and the carrying amount of special reserve. Similarly, a portion of undistributed prior period earnings (which does not qualify for earnings distribution) is likewise appropriated as a special reserve on account of cumulative changes to other shareholders’ equity pertaining to prior periods. The subsequent reversals of the contra accounts in the shareholders’ equity shall qualify for additional earnings distributions.

- 471 -

(3) Earnings Distribution On April 11, 2018, the Company’s shareholders resolved during their meeting, not to distribute dividend to shareholders out of the earnings.



foreign operation


income Balance, January 1, 2018 $ (392,378) (788,734) Retrospective adjustments - (18,968) Exchange differences on foreign operation (74,880) - Exchange difference on subsidiary accounted for using

equity method 161 -


(21,115) -

Unrealized losses from financial assets measured at fair value through other comprehensive income

- (408,318)


- 31,082


- (63,561)



The basic earnings per share and diluted earnings per shares for the years ended December 31, 2018 and 2017 were calculated as follows:


Basic earnings per share (NT dollars) Profit attributable to ordinary shareholders $ 4,290,269 Weighted-average number of ordinary shares 2,699,857 $ 1.59 Diluted earnings per share (NT dollars) Profit attributable to ordinary shareholders (diluted) $ 4,290,269 Weighted-average number of ordinary shares (basic) 2,699,857

13,371 Effect of potentially dilutive ordinary shares of Employee stock bonus Weighted-average number of ordinary shares (diluted) 2,713,228 $ 1.58

- 472 -

s. Revenue from contracts with customers

1. The Company primarily engages in the production of petroleum, alkali-chlorine, phosphoric acid and other petrochemical products and by-products and the storage, transportation, purchase and sale of these products, related chemicals and their raw materials. The details of products and sales area, please refer to Notes 14.


2018.12.31 Notes receivable $ 692,778

2,780,070 (455,515)

Accounts receivable (including related parties) Less: allowance for doubtful account $ 3,017,333 Contract liabilities $ 5,578

Please refer to Note 6 for disclosure of accounts receivable and allowance for doubtful accounts. The amount of revenue recognized for the year ended December 31, 2018 that was included in the contract liability balance at the beginning of the period was $5,253 thousand.

t. Revenue


Sales of goods $ 44,781,832

u. Remuneration of employees and directors

In accordance with the Articles of incorporation, the Company should contribute no less than 3% of the profit as employee compensation and less than 2% as directors' and supervisors' remuneration when there is profit for the year. However, if the Company has accumulated deficits, the profit should be reserved to offset the deficit. The amount of remuneration of each director and supervisor and of compensation for employees entitled to receive the abovementioned employee compensation is approved by the board of directors. The recipients of shares and cash may include the employees of the Company's affiliated companies who meet certain conditions.

For the years ended December 31, 2018, remuneration of employees of $146,409 thousand, respectively, and directors of $97,606 thousand, were estimated and recognized as current expense. These amounts were calculated using the Company’s profit before tax before remuneration of employees and directors for the years ended December 31, 2018. These benefits were charged to profit or loss under operating costs or operating expenses for the years ended December 31, 2018. Related information would be available at the Market Observation Post System website. The actual distribution of remuneration of employees was amounted for $118,850 thousand as of December 31, 2018. The amounts, as stated in the individual financial statements, are identical to those of the actual distributions for 2018.

- 473 -

v. Non-operating income and expense

1. Other income


Interest income $ 7,130

364 200,898 647,745

13,334 56,340

109,647

Repurchase agreement Imputed interests of security deposits Bank deposits Dividends income Rental income Government grants Other income $ 1,035,458



Foreign exchange (losses)gains $ 3,970 6,094

(6,998) 119,574 242,864

Gain on disposal of investments Loss on disposal of property, plant and equipment Gain (loss) on evaluation of investment property Net gains on evaluation of financial assets (liabilities) measured at fair value

through profit or loss

Bank fees (51,443) (560,099) Other losses

$ (246,038)

3. Finance costs


Interest expenses Bank loans $ (77,237)

(16) (8,660)

Imputed interests of security deposits Others $ (85,913)

- 474 -

w. Financial Instruments



December 31, 2018 Financial assets at fair value through profit or loss $ 6,162,171

2,229,968 16,587,624

3,125,995

Financial assets at fair value through other comprehensive income Cash and cash equivalents Notes receivable, accounts receivable and other receivables Other assets 223,244 Total $ 28,329,002


December 31, 2018 Short-term loans $ 913,732 Long-term bank loans-current portion 863,801 Payables 4,338,338 Long-term bank loans 3,810,129 Long-term bills payable 349,729 Other liabilities 149,012 Total $ 10,424,741

2. Credit risk


The carrying amount of financial assets represents the Company’s maximum credit exposure. As of December 31, 2018, the maximum exposures to credit risk amounted to $28,329,002 thousand.

(2) The concentration of credit risk The sales of the Consolidated Company are significantly concentrated in a small number of customers. For the years ended December 31, 2018, 74%, respectively, of the total amount of accounts receivable is composed of 11 customers and 8 customers, respectively. Under the Consolidated Company’s credit policy, customers are requested to provide the Consolidated Company certain financial information like audited financial report, or other related documents for purposes of evaluating their credit worthiness. Credits are granted to these customers according to the result the Consolidated Company’s credit evaluation.

- 475 -


The Consolidated Company uses simple method to evaluate expected credit loss for notes receivable and accounts receivable, which means using the existing life time to measure the expected credit loss. For the purpose of measuring, the notes receivable and accounts receivable are grouped based on the characteristic of mutual credit risk, which is the ability for customers to honor the contract and be able to settle the receivables when due. Expected losses of the receivables on December 31, 2018 was as follows:

Carrying amount of

account receivables


credit loss

Allowance

for expected credit loss

Not past due $ 3,081,593 0~4% 100,311 Over 0~30 27,822 - - Over 31~120 days 7,320 - - Over 121~365 days 909 - - Past due more than 1 year 355,204 100% 355,204 $ 3,472,848 455,515

3. Liquidity risk

The following are the contractual maturities of financial liabilities, including estimated interest payments and excluding the impact of netting agreements.

Carrying

amount

Contractual

cash flows

Within 6

months

6-12


More than

5 years

December 31, 2018 Non-derivative financial

liabilities

Accounts payable $ 2,257,972 2,257,972 2,257,972 - - - - Other payables 1,756,527 1,756,527 1,566,969 189,558 - - - Other financial liabilities－

current 11,282 11,282 11,282 - - - -


110,735 110,735 99,201 9,023 226 765 1,520

Floating-rate loans 1,550,000 1,607,245 411,652 210,987 421,974 562,632 - Fixed-rate loans 4,037,662 4,591,889 867,678 316,672 100,394 2,388,072 919,073 Long-term bills payable 349,729 350,000 350,000 - - - - $ 10,073,907 10,685,650 5,564,754 726,240 6,917,321 7,281,355 920,593

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4. Currency risk


The Consolidated Company’s exposures to significant currency risk were those from its foreign currency denominated financial assets and liabilities as follows:

December 31, 2018

Foreign

Currency Exchange

rate NTD Financial assets Monetary items USD $ 84,694 30.710 2,600,971 VND 547,757,982 0.0013 725,068 MKK 567,650 0.0199 11,353 RMB 1,034,171 4.470 4,622,754 Long-term share investment using equity method USD 30,320 30.710 931,121 Financial liabilities Monetary items USD $ 12,497 30.710 386,971 RMB 549,812 4.470 2,457,660 GBP 3 40.11 127


The Consolidated Company’s exposure to foreign currency risk arises from the foreign currency exchange rate fluctuations on cash and cash equivalents, receivables and payables, which are denominated in foreign currency. A 1% of appreciation of NTD against USD, EUR, HKD, VND, MKK and RMB would have increased net income after tax by $40,923 thousand and for the years ended December 31, 2018; other comprehensive income would have increased $9,311 thousand for the years ended December 31, 2018. The analysis between these two periods was based on the same criteria.

5. Interest rate analysis The following sensitivity analysis is based on the risk exposure to interest rates on the derivative and non-derivative financial instruments on the reporting date. For financial instruments bearing floating-rate, the sensitivity analysis assumes the floating-rate liabilities are outstanding for the whole year on the reporting date. The Consolidated Company’s internal management reported the increases/decreases in the interest rates and the exposure to changes in interest rates of 1% is considered by management to be a reasonable change of interest rate. If the interest rate increases by 1%, the Consolidated Company’s net income will decrease by $16,500 thousand for the years ended December 31, 2018, respectively, assuming all other variable factors remain constant. This is due mainly to the fact that the Consolidated Company’s borrowings bear floating interest rate.

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6. Fair value information Consolidated companies use their market observations as much as possible when measuring their assets and liabilities. The level of fair value is based on the input value of the evaluation technique as follows: (1) Level 1: quoted prices (unadjusted) in active markets for identified assets or liabilities.

(2) Level 2: inputs other than quoted prices included within Level 1 that are observable for

the assets or liabilities, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

(3) Level 3: inputs for the assets or liabilities that are not based on observable market data (unobservable inputs). (A) Fair value of financial instruments


Fair value


December 31, 2018 Financial Assets Cash and cash equivalent $ 16,587,624 - - - - Current financial assets at fair value through profit or loss 1,300,897 1,165,590 - 135,307 1,300,897 Financial assets at fair value through other comprehensive

income-current 251,629 251,629 - - 251,629

Non-current financial assets at fair value through profit or loss

4,861,274 - - 4,861,274 4,861,274


1,978,339 1,539,419 - 438,920 1,978,339

Note receivables, accounts receivable and other accounts receivable

3,125,995 - - - -

Other assets 223,244 - - - - Non-financial Assets Investment property 38,350,359 - - 38,350,359 38,350,359 $ 66,679,361 2,956,638 - 43,785,860 46,742,498

Financial Liabilities Short-term loans $ 913,732 - - - - Long-term loans-current portion 863,801 - - - - Long-term loans 3,810,129 - - - - Long-term accounts payable 4,338,338 - - - - Long-term bills payable 349,729 - - - - Other liabilities 149,012 - - - - $ 10,424,741 - - - -


The carrying amount of loans and receivables, financial assets carried at cost and financial liabilities measured after amortization cost in the consolidated financial statements of the Consolidated Company is close to its fair value.

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(C) Valuation techniques for financial instruments measured at fair value: The merger company determines the input value with reference to the analysis of the financial status and operating results, recent transaction price, related equity instruments are quoted in non-active markets, similar tools offer in the active market and comparable company evaluation multiplier of the investee company and periodically updates the input value and information and any other necessary fair value adjustments to ensure that the evaluation results are reasonable. (i) Non-derivative financial instruments


The fair value of the financial instruments held by the merging company in the case of a non-active market is as follows: No public offer debt investment tools: The discounted cash flow model is used to estimate fair value, it is mainly assumed that it is measured by discounting the expected future cash flows of the investee by the rate of return of the monetary time value and the investment risk. No public offer equity instruments: Use the net asset value method, The main assumptions are based on the net per share of the investor.

(ii) Derivative financial instruments Is evaluated according to the evaluation model accepted by the market users, such as the discount method and the option pricing model.

(D) There have been no transfers from each level for the years ended December 31,

2018.



value through profit or loss


value through other comprehensive income

Investment Property



financial assets Non-public quoted equity instruments

January 1, 2018 $ 38,226,532 156,603 - - Adjustments for initial application of IFRS 9 - 3,136,225 - 666,841 January 1, 2018, adjusted 38,226,532 3,292,828 - 666,841 Purchase - 1,998,060 - - Disposal - (455,940) - - Effects on deferred income tax liabilities 4,253 - - - Total gain and losses recognized in profit or loss 119,574 161,633 - (227,921) December 31, 2018 $ 38,350,359 4,996,581 - 438,920

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(F) Quantitative information on the measurement of fair value of significant unobservable input values(Level 3) Level 3 refers to the measurement of the fair value of the input parameters are not based on market availability of information, must be based on the assumption that the appropriate estimates and adjustments. If the evaluation model can not be developed on its own, the fair value of the counterparty is used as the fair value. According to IFRS13, for the fair value of the third level classified at the fair value level, the firm shall provide quantitative information about the significant unobservable input values used for the fair value measure. Businesses do not need to create quantitative information to comply with this disclosure, if quantified unobservable input value is not built when enterprises are measuring fair value (Such as when a firm uses an unadjusted previous transaction price or a third party pricing information). Consolidated part of the Company's investment No active market open interest and debt instrument investment. The fair value of the merged company is classified as the third level of investment real estate, the determination of its fair value is subject to IFRSs, commissioned by the professional valuation agencies in accordance with market evidence to support the value of the assessment (Please refer to note 5 (h.)).。Due to the practice cannot fully grasp the significance observable input value and the relationship between the fair values, it did not expose the quantitative information. The fair value of the aforesaid assets at December 31, 2018 is $43,785,860 thousand. The Group holds an investment in equity shares, which is classified as fair value through profits or losses in the level 3. Most of fair values are classified in the level 3 based on single significant unobservable input values, only the equity instruments with inactive market may result in multiple unobservable input values which are all independent from each other. Quantified information of significant unobservable inputs was as follows:

Item

Valuation technique Significant

unobservable inputs






Higher discount, lower fair market value


Consolidated company fair value measures the use of unobservable input values, and the input value can be observed must be based on not observable parameters for major adjustments, its fair value is classified in the level 3. The input source for this level is mainly issued by an external evaluation of the price report (Price letter).And then check the results of the evaluation to ensure consistency with the source of the evaluation and to ensure that the evaluation results are reasonable.

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(H) Fair value measurements in Level 3 – sensitivity analysis of reasonably possible

alternative assumptions The fair value of the financial instruments is reasonable, and the self-built evaluation model is not used for the fair value of the level 3. Therefore, it is not necessary to perform the sensitivity analysis of the possible alternative assumptions.

x. Financial risk management

1. Overview

The Consolidated Companies are exposed to the following risks due to the use of financial instruments: (1) Credit Risk

(2) Liquidity risk

(3) Market risk The following discusses the Consolidated Company’s objectives, policies and processes for measuring and managing the risks mentioned above. For more quantitative information about the financial instruments, please refer to other related notes of the notes to the financial statements.

2. Risk management framework The Board of Directors has overall responsibility for the oversight of the risk management framework in order to develop and monitor the Consolidated Company’s risk management policies and to report regularly on its activities. The Consolidated Company’s risk management policies are established to identify and analyze the risks faced by the Consolidated Company, to set appropriate risk limits and controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Consolidated Company’s activities. The Consolidated Company, through their training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.

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The Audit Committee of the Consolidated Company oversees how management monitors compliance with the Consolidated Company’s risk management policies and procedures and reviews the adequacy of the risk management framework in relation to the risks faced by the Consolidated Company. The Audit Committee of the Consolidated Company is assisted in its oversight role by Internal Audit. Internal Audit undertakes both regular and ad hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

3. Credit Risk

Credit risk means the potential loss of the Consolidated Company if the clients or counterparties involved in that transaction default. The primary potential credit risk is from cash and accounts receivable. (1) Accounts receivable and other receivables

The Consolidated Company’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. However, management also considers the demographics of the Consolidated Company’s customer base, including the default risk of the industry and country in which customers operate, as these factors may have an influence on credit risk, particularly in the current deteriorating economic circumstances. The Consolidated Company has established a credit policy under which each new customer is analyzed individually for creditworthiness before the Consolidated Company’s standard payment and delivery terms and conditions are offered. The Consolidated Company’s review includes external ratings, when available, and in some cases bank references. Purchase limits are established for each customer, which represent the maximum open amount without requiring approval from the Risk Management Committee; these limits are reviewed quarterly. Customers that fail to meet the Consolidated Company’s benchmark creditworthiness may transact with the Consolidated Company only on a prepayment basis. The Consolidated Company establishes an impairment allowance that represents its estimate of incurred losses in respect of trade receivables. The two components of this impairment allowance are specific loss component that relates to individually significant exposure and collective loss component which the loss was incurred but not identified. The collective component is based on historical payment experience of similar financial assets.

(2) Bank deposits The credit risk exposure in the bank deposits is measured and monitored by the Consolidated Company’s finance department. As the Consolidated Company deals with the banks and other external parties with good credit standing and financial institutions, corporate organization and government agencies which are graded above investment level, management believes that the Consolidated Company do not have compliance issues and significant credit risk.

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4. Liquidity risk Liquidity risk is the risk that the Consolidated Company will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset. The Consolidated Company’s approach to managing liquidity is to ensure, as far as possible, that it always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Consolidated Company’s reputation. The management believes that the Consolidated Company do not have significant liquidity risk.

5. Market risk Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices will affect the Consolidated Company’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return. The Consolidated Company buys and sells derivatives, and also incurs financial liabilities, in order to manage market risks. All such transactions are carried out within the guidelines set by the Risk Management Committee. (1) Currency risk

The Consolidated Company is exposed to currency risk on sales, purchases and borrowings that are denominated in a currency other than the respective functional currencies of the Consolidated Company’s entities, primarily the New Taiwan Dollars (NTD). The currencies used in these transactions are denominated in NTD, USD and RMB. The Consolidated Company’s currency risk is not hedged as some of the currencies of the Consolidated Company’s foreign currency receivables and payables are the same, producing a natural hedge effect.

(2) Interest rate risk The Consolidated Company’s Interest rate risk comes from long-term and short-term bank loans. The long-term bond issued by our company is fixed-rate loan, so there is no risk caused by the fluctuations of interest rates and fair value interest rate. The long-term and short-term bank loans calculated in floating-rate were made our company suffered cash flow interest rate risk, but most of risk were covered by cash and cash equivalents holding in floating-rate.

(3) Other market price risk The Consolidated Company does not enter into any commodity contracts other than to meet the Consolidated Company’s expected usage and sales requirements; such contracts are not settled on the net basis.

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y. Capital management The Consolidated Company meets its objectives for managing capital to safeguard the capacity to continue to operate, to continue to provide a return on shareholders, interest of other related parties and to maintain an optimal capital structure to reduce the cost of capital. In order to maintain or adjust the capital structure, the Consolidated Company may adjust the dividend payment to the shareholders, reduce the capital for redistribution to shareholders, issue new shares or sell assets to settle any liabilities. The Consolidated Company and other entities in the similar industry use the debt-to-equity ratio to manage capital. This ratio is determined using the total net debt and divided by the total capital. The net debt from the balance sheet is derived from the total liabilities less cash and cash equivalents. The total capital and equity include share capital, capital surplus, retained earnings, other equity and non-controlling interest plus net debt.

The Consolidated Company’s debt to equity ratios at the end of the reporting period as of December 31, 2018 were as follows:

December 31, 2018 Total liabilities $ 23,977,749 Less: cash and cash equivalents (16,587,624) Net debt $ 7,390,125 Total equity $ 69,258,172 Total liabilities and equity $ 76,648,297 Debt to equity ratio 9.64%


a. Names and relationship with related parties The followings are entities that have had transactions with related party during the periods covered in the consolidated financial statements.

Name of related party Relationship with the Group Zhong Gong Baoquan Ltd Investee as accounted for using equity method BES Engineering Corporation The board of the entity is the key management of the




Company All board of directors, general manager and deputy

general manager The main managements of the Company

Lucite International Asia Pacific PTE. Ltd Korea Associated company Lucite International U.K.Ltd Associated company

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The Company is the ultimate parent company. c. Significant Transactions with related parties

1. Receivables

Accounts Types of related parties December 31, 2018 Other receivables Other related parties $ 4

2. Payables

Accounts Types of related parties December 31, 2018 Accounts payable Other related parties $ 1,601 Other payables Associates 4,976 Other payables Other related parties 4,548 $ 11,125

3. Other


Associates Other revenues $ 46 Security service fees (23,978) Rental income 4 Other revenues 1,043 Other expense (882) Rental expense (4,814) Please refer to Note 6 h. for lease of land and buildings to related parties.

4. The Company had contracts with one of other related parties, for building construction

projects. The land is provided by the Company and the related party is responsible for designing, constructing, sales and warranties. The Company pays constructional management fee on the basis of contract, and the related party pays the actual expenditures for every single month. As of December 31, 2018, no constructional management fee is paid by the Company.

5. The Company had contracts with BES Engineering, for mechanical engineering services

projects and paid commission on the basis of actual construction. As of December 31, 2018, the construction project in-progress amounted to $1,532,800 thousand. As of December 31, 2018, the unpaid fees amounted to $1,376,787 thousand,. The refundable deposit at December 31, 2018 amounted to $22,850 thousand.

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6. The Company had contracts with Capital Machinery, for mechanical engineering services projects and paid commission on the basis of actual construction. As of December 31, 2018, the construction project in-progress amounted to $17,700 thousand. As of December 31, 2018, the unpaid fee amounted to $14,497 thousand.

7. KMC had incurred 11,505 thousand of commission expense due to Lucite International

Asia Pacific PTE. Ltd Korea as KMC’s sales representative in December 31, 2018. The expense above had been included in sales and administration expenses.

8. KMC had incurred 3,766 thousand of technical services expense to other related parties in

December 31, 2018. The expense above had been included in sales and administration expenses.



Short-term employee benefits $ 270,104 7,533 Post-employment benefits

$ 277,637

8. PLEDGED ASSETS

The Consolidated Company pledged assets are as follows: As of December 2018 and December 31, 2017, the consolidated Company provided the following assets and other items as a comprehensive credit contract and other purposes of the collateral.

Asset Purpose of pledge December 31, 2018 Time deposits Guarantee for purchases, collateral for long-term and

short-term financial credit $ 100,038


4,453,343

Investment property United guarantee amount of convertible Bond 5,995,969 Investments accounted for using

equity method Long-term bills payable 1,378,279

Financial assets reported at fair value through other comprehensive income

Long-term bills payable 915,400


Long-term bills payable 477,405

Refundable deposit Deposit for lawsuit 91,557 Use Right of Sea Areas Collateral for long-term financial credit 625,190 $ 14,037,481

As of December 31, 2018, 4,000 thousand shares of a subsidiary of the Consolidated Company were pledged as collateral for long-term bills payable.

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9. SIGNIFICANT COMMITMENTS AND CONTINGENCIES a. As of December 31, 2018 and 2017, the Consolidated Company had the following unused letters

of credit:

December 31, 2018 USD $ 44,131 NTD 1,095,000 RMB 32,264

b. As of December 31, 2018, the Consolidated Company had issued guaranty notes for bank loans,

sales and purchases, and development plan aggregating to $13,748,669 thousand, US$20,000 thousand.

c. At December 31, 2018, the Consolidated Company had contracts for various construction

projects in-progress amounting to $8,511,323 thousand. As of December 31, 2018, the remaining future obligations under these contracts amounted to $4,219,235 thousand.

d. As of December 31, 2018, the Company signed an agreement to purchase raw materials such as

benzene, hydrogen and methylbenzene from Chinese Petroleum Corporation (CPC). Under this contract, the Company may purchase specified monthly volume of these raw materials at current month prices announced by the Chinese Petroleum Corporation with prepayment or domestic letter of credit.


1. Land tax

(1) The Company successively received notice by the tax offices in September 2005 that

the land tax of the training center in Cianjhen will be changed to another rate since 2000. The Company questioned the applicability of the law, thus, filed for the relevant administrative appeal procedures pursuant to article 35 of Tax Collection Act, which was rejected by the Supreme Administrative Court. The Company paid fully for the land tax which was mentioned in previous and was filed for the administrative appeal, in accordance with the law.

(2) On the other hand, the Kaohsiung tax authority was against the land tax which was

mentioned in previous and was filed for the administrative appeal and prohibited the registration of parts of the Company’s land pursuant to paragraph 1 of article 24 of Tax Collection Act. The prohibition was cancelled in January 2011.

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On July 31st 2014, there was an underground pipeline explosion incident in Kaohsiung city. Due to the post - disaster reconstruction project, Kaohsiung City Government issued a penalty letter No. 10335137100 on August 18th 2014 to order, the Company was forced to stop operations and prohibited the use of all petrochemical pipelines in the disaster area. The Company was not satisfied with the preceding penalty and filed a legal petition to the Administrative court for revoking the original claims for petition remedy in Sept. 2014. The case was rejected by the Kaohsiung High Administrative Court, which the Company was not satisfied with. Hence, the Company submitted an appeal in Feb. 2017.

3. Abolishment of the permission for Kaohsiung road and underground pipeline excavation

and pipeline Due to the August 1st Kaohsiung gas explosion, the Kaohsiung City Government Bureau of Water Resources issued the letter to Refining Division of CPC: abolishing the permission letter No. 950129 issued on Dec. 15th, 1990 and permission letter No. 050076 issued on April 13, 1991, and prohibited the roads for underground pipeline excavation and pipeline use. Since the pipeline prohibited for use belonged to the Company and assigned CPC to build, the Company, as the interested party, filed a petition to the Kaohsiung City Government to revoke the original punishment, which was rejected by Kaohsiung City Government Appeal Committee on Feb. 16th 2015. The Company filed the administrative legal action to Kaohsiung High Administrative Court in April 2015. Through the rejection sentenced by Kaohsiung High Administrative court in March 2017, the Company was unsatisfied with and proposed for the appeal in April of the same year. The supreme administrative court rejected the appeal in May 2018 and the case was closed.

4. Damage of Kaohsiung gas explosion The above mentioned cases of Kaohsiung gas explosion and abolishment of the permission for Kaohsiung road and underground pipeline excavation were concerned with being legally forced to suspend by administrative executives, which were eligible for damage indemnity. For the interests of the Company, the Company filed the administrative legal action to Kaohsiung High Administrative Court in February 2018.

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5. Equity trading dispute The resolution, implementation of a signed tripartite supplemental agreement between the Company and PPG&GGC (which had been merged as Axiall company now), from the Company’s board meeting on April 21st 2016: trading the equity of Taiwan Chi chlorine Chemical Co., Ltd, total 6,400,000 shares at the sales price, US$100,000 thousand, which was equivalent to NT $ 3,225,000 thousand. After the expectation of the disposal interests, NT$2,838,761 thousand, the Company instantly informed Axiall company to carry out the equity trading of Taiwan Chi chlorine Chemical Co., Ltd. The Company issued the letter many times to ask Axiall to implement the agreement, however, Axiall repeatedly delayed actions. Hence, the Company filed the arbitration to American Arbitration Association in August 2016. Axiall submitted the pleadings in Sept. 2016 and asked PPG to participate in the lawsuit. Outside lawyers of PPG, in the Oct. of same year, represented that PPG is willing to negotiate the contract of equity trading. PPG signed the contract with the Company at the end of February 2017 and handled the equity transactions subsequently. The Company had received US$100,000 thousand in April of the same year and transferred the stock to finish the transaction. However, Axiall continued to be arbitrated against related claims such as the interest.


1. The Company signed total three areas of land lease contracts with Kaohsiung branch of

Taiwan International Ports Corporation, Ltd. In December 2013 and February 2014. The Kaohsiung Port Intercontinental Container Center 2nd Phase Project Petrochemical Oil Storage and Transportation Center S12 S15 Pier Post line Land was leased and the Company invested to build the construction of petrochemical oil storage and transportation facilities for the purpose of import and export and transport of petrochemical oil handling, storage and transportation etc... Kaohsiung branch of Taiwan International Ports Corporation, Ltd. delivered the land to the Company prior to the end of Dec. 2017. The term of the lease was 25 years from the date of delivery and the Company had the right to renew the lease at the end of the period. Per the contract, the Company had to pay rent of NT$1,650 thousand, NT$2,565 thousand, and NT$1,493 thousand respectively since the land was delivered. From the land delivery date of 3 years 6 months, the Company paid management fees of, NT$10,654 thousand, NT$24,605 thousand and NT$12,329 thousand respectively. The Company also placed Certificate of Deposits of NT$5,000 thousand and NT$13,000 thousand as performance bonds in December 2013 and February 2014 respectively. The Company, in August 2015, shortened the operating scale based on the adjustment of investment plan, which resulted in one of the performance bonds of NT$8,000 thousand, to not being able to be returned. Taiwan International Ports Corporation, Ltd. completed the transaction procedure prior to Nov. 2017. The Company started to implement land drilling and geological improvement project and started paying the land rent of those projects, which was NT$1,650 thousand and NT$1,493 thousand respectively each year.

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2. Dispute from the senior manager (1) Labor Dispute

The previous senior manager, who left the Company without transferring the duties and authorization, didn’t perform the duties since July 1st 2013 and the Company issued the letter to request to fulfill the agreement without any response from manager. Hence, the board of the Company dismissed the manager in October 2013. The manager asked the Company to pay pensions pursuant to Labor Standards Act as a labor worker, which was not reconciled through mediation. The Civil litigation of Mr. Liu was filed in Taipei District Court and Kaohsiung District Court respectively in January 2014. Taipei District Court, in August 2015, considered that the contract of senior manager was ended for both side, and Expired Employee Retirement Policies of the Company is applicable, the Company shall pay NT$4,572 thousand to Mr. Liu. The Company was not satisfied with the original verdict and appealed for the 2nd sentence court. The 2nd sentence court sentenced to reject request from the Company in March 2017. The Company was not satisfied and proposed the appeal in April of the same year, which was under remedy trial in the Supreme Court. For the part of Mr. Zhang, Kaohsiung District Court considered that the assigned relationship did not end, which means that the Expired Employee Retirement Policies of the Company does not apply. Mr. Zhang request for pension is without any basis, but according to the contract of both side, the Company shall pay salaries of NT$35 thousand, to Mr. Zhang, which was not satisfied by Mr. Zhang and this case was appealed to the 2nd sentence court. In July 2016, the 2nd sentence court rejected the request from Mr. Zhang but he re-appealed to the 3rd sentence in August of the same year.

(2) Disclosure Secret Case Managers who left the office without authorization was suspected to be involve in business encroachment, theft of business secrets. To protect Company interests, the Company filed criminal appeal. The case was concluded by the Taiwan Miaoli Local Court in January 2017 and the relevant defendants were prosecuted. The civil litigation derived from the case is waiting for hearing by the Taipei District Court and Miaoli District Court. The supreme administrative court rejected the appeal in June 2018. Please refer to Note8 for details of deposit for lawsuit.

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3. Accusation of business failures A Gas explosion happened in Heng Yi chemical plant next to the Toufen plant and caused workers to be burned on Jan. 28th 2013, which evolved into accusations of business failures. Since the incident happened in the public discharged area of the industrial site, it was suspected to contain excessive value of the company's emissions with the sampling identification and the Company’s manager was prosecuted as defendant per the victim’s request. This case was not prosecuted after the judgment decision from Miaoli District Attorney, hence, the victims filed the reconsideration and Taichung High Prosecutor's Office remanded the case back to the Miaoli District Attorney for review. The victims of Heng Yi chemical plant only prosecuted the Company and managers in Feb. 2015 and asked for the joint damaged compensation NT$6,920 thousand, which awaits hearing by Miaoli local court. In September of the same year, both sides agreed to withdraw the litigations. Trial procedure was recovered in Feb. 2016 and criminal litigation was determined not to be prosecuted in March 2016. The verdict of civil litigation was won in March 2016, with the formal decision awaiting final judgment. The Company proposed the appeal for remedy focus on the unsatisfied parts. This case was under hearing in High Court Taichung Branch currently.

4. Contract Fraud of Shanghai industry

On August 6th 2014, the reinvestment company, Weihua and Weiqiang, filed the civil appeal to Yangpu District Court to ask Coal Chemical Group Co., Ltd of shanghai industry to pay all overdrafts of the contract. However, Coal Chemical Group Co., Ltd of shanghai industry didn’t perform the first phase of repayment according to Court’s mediation report, Weihua and Weiqiang, on Sept. 2nd 2014, applied to Yangpu District Court for the enforcement and sealed all coal tar of Coal Chemical Group Co., Ltd of shanghai industry, the total coal tar sealed was 5,216 tons and 4,777 tons were sold. Subsequently, Weihua and Weijiang Company and Coal Chemical Group Co., Ltd of shanghai industry would continue negotiations on unrealized creditors and requested Coal Chemical Group Co., Ltd of shanghai industry to propose the more specific repayment plan. Weihua and Weiqiang estimated depreciation of the accounts receivable to be, RMB19,274 thousand and RMB8,276 thousand respectively. Besides, Weihua and Weijiang Company reported to the police the relevant persons of Coal Chemical Group Co., Ltd of shanghai industry that are suspected to be involve with the contract fraud and other criminal matters. The police rejected the report due to insufficient evidences, therefore Weihua hired a local lawyer to assist with Shanghai police and Shanghai economics investigation group. The case is now under investigation.

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5. The Company reinvested in China Gemini Development Co., Ltd. in conjunction with the Chinese engineering company to apply for selection "C1, D1 joint development investment case”. Since Taipei City Express Bureau issued the letter without expectation in requiring the Company to open financing guarantee report of development funds within 30 days and other unreasonable validation conditions, resulted in the Taipei City Government using the reason of the China Gemini Development Co., Ltd. team being unable to sign the contract in the specified period, thus unilaterally announced the annulment. Based on this issue, China Gemini Development Co., Ltd. filed a petition and request for administrative remedies to the Ministry of Communications and High Administrative Court., which was under hearing and was rejected by Supreme Administrative Court in August 2017. This case was closed.

6. Petition for Violation of gender equality law

Mr. Wu was an employee of the China Paint Material Corporation, the Company’s reinvested subsidiary, and was assigned to perform the duties in China. But later he asked for leave without complying with the Company’s regulation and left the position for more than three days, hence, the labor contract was terminated. The employee applied to Taipei City Government for the labor dispute mediation as the reason that the Company violated the gender equality law. After the mediation of Taipei City Government, China Paint Material Corporation was considered to violate the gender equality law and was sentenced to pay the penalty of NT$300 thousand on August 27th 2015. China Paint Material Corporation was not satisfied with the judgment and filed a petition to Labor Department of the Executive Yuan. The Labor Department of the Executive Yuan decided the original punishment withdrawn and did the other punishment in March 2016. The Company was filing the administrative remedy to the new punishment. A statement was made in advance in April of the same year. After the Taipei city government maintained the original punishment, it filed another petition in September of the same year. The Company’s petition was rejected by Appeal committee in June 2017 so that the Company proposed the administrative legislation in August of the same year per law, which was been ruling to prevail by Taipei supreme administrative court. The case was closed.

7. civil compensation for Residents living in An shun

(1) The 1st case

In 2008 and 2009, Mr. Wu and others filed civil and national compensation lawsuit to the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company (Hereinafter referred to as 1st case of Tainan An shun plant civil compensation) and they claimed that during 1942 and 1983, the previous Taiwan Alkali Co. Ltd. An-shun plant, produced mercury and dioxins in its production operations and polluted the living environment, which resulted in the population consuming contaminated fish and shellfish over time, which resulted in long term health issues. The Ministry of Economic Affairs had control and management responsibility of the previous Taiwan Alkali Co. Ltd, and whether due to illegal actions, or a lack of attention in performing their duties, the Ministry of Economic Affairs as the ultimate employer of the chairman of CPDC, should take responsibility. Hence, the prosecutors claim that the Ministry of Economic Affairs shall take the responsibility for the compensation. Mr. Wu and

- 492 -

others also claimed that Tainan City Government and Tainan City Environmental Protection Agency were the competent authorities and executive authorities of the waste disposal law but the authorities didn’t supervise and require the An-shun plant to implement pollution prevention and control acts, thus should be jointly responsible for any re-compensation. Also, Mr. Wu and others claim that the Company did not perform any removal and remediation of pollutants after being ordered to merge with the previous Taiwan Alkali An-shun plant, so they claimed the Company shall also take joint responsibility on the compensation. Mr. Wu and others asked the Ministry of Economic Affairs, Tainan City Government, Tainan City Environmental Protection Bureau and the Company to jointly bore the cost of medical expenses and mental compensation for NT$370,800 thousand and the interest was calculated by an annual interest rate 5% from the date when the litigation was initiated by the defendants until the final payment of compensation. Due to unpaid referee fees, due from the plaintiff, the Tainan District Court rejected the litigation claims from these 17 persons in January 2010. Mr. Chen appealed to the Tainan District Court asking the Company for medication, health examination fee and reparations, to the amount of NT$2,300 thousand, which was incorporated into this case, the total compensation amount was NT$351,750 thousand. This case was tried by the Tainan District Court in December 2015 and judged that the Company and the Ministry of Economic Affairs to be jointly responsible for NT$160,000 thousand payable to the plaintiff. The Company was not satisfied with the result and filed an appeal. In August of 2017, the High court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand by self, which the Company was not satisfied with and had proposed the appeal for remedy in Sept. of the same year. The supreme court held oral argument on September 28, 2018, and judgment was sentenced on November 11, 2018, the supreme court sentenced to order the Company to compensate the plaintiff for NT$190,000 thousand. The Company made a payment of compensation and related interests to 143 plaintiffs before the end of January 2019. The part related to medical remedy of the case was abandoned for secondary trial.

(2) The 2nd case


- 493 -

g. The Company leases plant assets, and vehicles for operating uses. The lease payment was $71,422 thousand and $51,705 thousand for the year of 2018. The expected least payments for future are as below:

Year Amounts

1 year $ 69,049 1~5 years 75,082 5 years above 163,171 $ 307,302

10. Major disaster losses: None 11. Significant matters after the event

a. On March 11, 2019, the Company invested in Core Pacific City Co., Ltd by issuing 123,528

thousand preferred shares amounting to NT$1,235,278 thousand. 12. OTHER


By function For the year ended December 31,2018 By nature

Operating cost Operating


expense Total

Employee benefit Salary 1,311,838 771,446 246 2,083,530 Health and labor insurance 101,686 50,472 - 152,158 Pension 49,809 25,273 - 75,082 Others 29,380 12,591 - 41,971 Depreciation 1,337,785 195,640 5,969 1,539,394 Depletion - - - - Amortization 5,199 14,337 - 19,536

- 494 -


a. Information on significant transactions The following is the information on significant transactions required by the “Regulations Governing the Preparation of Financial Reports by Securities Issuers” for the Group: 1. Loans to other parties:



borrower Account

name Related

party

Highest

balance of

financing

to other

parties

during the

period Ending

balance

Actual

usage

amount

during the

period

Range of

interest

rates

during

the

period

Purposes of

fund

financing

for the

borrower

Transacti

on

amount

for

business

between

two

parties

Reasons

for short-

term

financing Loss

allowance

Collateral

Individual

funding

loan limits

Maximum

limit of

fund


Star (Myanmar)

Investment

Company Ltd

Core Pacific

Pioneer

(Myanmar)

Company

Ltd

Other

Receivable Yes 7,069 7,069 7,069 0 2 - Operating - - 67,613 67,613


Transaction for business between two parties－1 Short-term financing－2

Note 2: The financing limit was 40% of Core Pacific Twin Star (Myanmar) shares. Note 3: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statements.

2. Guarantees and endorsements for other parties:


No

Name of

guarantor


and endorsement

Limitation on

amount of

guarantees and

endorsements

for a specific

enterprise

Highest balance

for guarantees

and

endorsements

during the

period

Balance of

guarantees and

endorsements

as of reporting

date

Actual usage

amount during

the period

Property pledged

for guarantees and

endorsements

(Amount)

Ratio of

accumulated

amounts of

guarantees

and

endorsements

to

net worth of the

latest

financial

statements

Maximum

amount

for guarantees

and

endorsements

Parent

company

endorsements/

guarantees

to third parties

on

behalf of

subsidiary

Subsidiary

endorsements/

guarantees

to third parties on

behalf of parent

company

Endorsements/

guarantees

to third parties

on

behalf of

companies

in Mainland

China Name

Relationship

with the

Company

1 Changzhou

Huijie new

material Co., Ltd

Changzhou

Suhwen

environmental

habitant

construction

Co., Ltd

6 280,320 280,320 280,320 - - 0.42% 280,320 N N Y

Note 1: The information of guarantees and endorsements for other parties of the Company and its subsidiaries are disclosed separately

and numbering as follows: Parent company－0 Subsidiary starts from 1

- 495 -

Note 2: Seven types of the relationship between Counter-party of guarantee and endorsement as follows: Transaction for business between two parties The Company directly or indirectly holds over 50% of voting rights of shares of entities The entities directly or indirectly hold over 50% of voting rights of shares of the Company The relationship between entities which are all held over 90% of voting rights of shares of these entities by the Company Mutual guarantees or endorsements in accordance with contracts The entities are proportionally endorsed by all shareholders from mutual investments

3. Securities held as of December 31, 2018 (excluding investment in subsidiaries, associates

and joint ventures):


Name of

holder Category and

name of security Relationship with

company Account title Shares/Units

(thousands)

Carrying

value

Percentage of

ownership

(%) Fair value

Highest

Percentage of

ownership in

interim

(%) Note CPDC Yuanta Financial


designated at fair value through profit or loss－current

30,938,819 478,005 0.26 478,005 0.26


None 〞 10,313,000 267,932 - 267,932 -

Guotai A50 ETF None 〞 16,378,000 271,056 - 271,056 - BES Engineering

Co. The Company is a director of the investee company


149,243,449 1,062,613 9.75 1,062,613 9.75


None 〞 44,684,712 434,335 0.30 434,335 0.30

Handy Chemical Corparation .ltd


〞 407,000 1,461 4.52 1,461 4.52


None 〞 2,600,000 26,000 2.89 26,000 2.89




298,723,070 3,248,545 20.92 3,248,545 20.92




9,455,778 438,920 49.00 438,920 49.00


〞〞 8,815 358 0.03 358 0.03

showroom Electronics Co., Ltd.

〞〞 41,670 - 0.21 - 0.21

Aetas Technology Inc.

〞〞 287,961 - 0.58 - 0.58

- 496 -

Ending balance

Name of

holder Category and

name of security Relationship with

company Account title Shares/Units

(thousands)

Carrying

value

Percentage of

ownership

(%) Fair value

Highest

Percentage of

ownership in

interim

(%) Note Chung Hua

Shuang Tzu Hsing Kai Fa Co.,Ltd

Taiwan Business Bank

None Financial assets at fair value through other comprehensive income－current

24,311,960 251,629 - 251,629 -




160,111,000 1,612,729 11.21 1,612,729 11.21



None Financial assets designated at fair value through profit or loss-current

- 135,307 - 135,307 -




Financial assets designated at fair value through profit or loss-current

9,618,000 148,598 1.22 148,598 1.22

Good Company 〞 Financial assets at fair value through other comprehensive income－non-current

750,000 - - - -

TaiRx, Inc. 〞〞 850,000 14,652 - 14,652 - Total 8,392,140 8,392,140

4. Individual securities acquired or disposed of with accumulated amount exceeding the lower of

NT$300 million or 20% of the capital stock:


Name of

company

Category and

name of

security

Account

name

Name of

counter-

party

Relationship

with the

company



Gain (loss)

on



under

repurchase

agreements

Cash

equivalents

Taching Bills

Finance Co.,

Ltd.

None - 190,000 - 20,079,547 - 19,470,362 19,470,362 - - 799,185

Mega Bills

Finance Co.,

Ltd.

〞 - 261,966 - 7,230,860 - 7,122,795 7,122,795 - - 370,031

International

Bills Finance

Co., Ltd.

〞 - - - 9,215,159 - 8,685,335 8,685,335 - - 529,824

China Bills

Finance

Corporation

〞 - 809,672 - 20,232,382 - 20,372,015 20,372,015 - - 670,039

ETF Financial

assets at fair

value through


current

Yuanta/P-

shares SSE50

ETF

〞 9,091,000 249,590 10,313,000 289,332 9,091,000 328,531 249,590 78,941 10,313,000 289,332

5. Acquisition of individual real estate with amount exceeding the lower of NT$300 million or 20% of

the capital stock: None.

- 497 -

6. Disposal of individual real estate with amount exceeding the lower of NT$300 million or 20% of the capital stock: None.

7. Related-party transactions for purchases and sales with amounts exceeding the lower of NT$100

million or 20% of the capital stock:


Name of


Transaction Details

Transactions with

terms different

from others


(payable)

Note

Purchase/

Sale Amount

Percentage of

total

purchases/sales

Payment

terms

Unit

price

Payment

terms

Ending

balance

Percentage of

total

notes/accounts

receivable

(payable)




Month

- OA 90

days

65,945 3% (Note)

Weihua (Rudong)

Trade Co., Ltd


Month

- OA 90

days

5,423 -% 〞



Ltd.


Month

- OA 90

days

112,586 4% 〞

Kaohsiung Monomer

Company Ltd

Affiliated company


method

Sales (644,031) 2% 1

Month

- - 60,233 2% 〞


Corp.


Month

- OA 30

days

- -% 〞


8. Receivables from related parties with amounts exceeding the lower of NT$100 million or 20% of capital stock:

Name of

company Related party

Nature of

relationship

Ending

balance

Turnover

days

Overdue Amounts

received in subsequent

period (Note 1)

Allowance

for

bad debts Amount

Action

taken The Company


Sub-subsidiary 112,586 1.99 - - 107,535 -

Note: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statement


- 498 -

10. Business relationships and significant intercompany transactions: (Amounts in Thousands of New Taiwan Dollars)

No.


Nature of

relationship


Account name Amount

Trading

terms

Percentage of the

consolidated net

revenue or total

assets

0 The Company Weihua (Rudong) Trade Co., Ltd

(Weihua)


0 The Company Tsou Seen Chemical Industries Corporation(TSCIC)

1 Sales revenue 1,188,874 OA 90 days 3.09%

0 The Company Chemax International Corp. (CIC)


0 The Company Weiqiang International Trade


(Weiqiang)


0 The Company CPDC Green Technology Corp. (CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

1 Repair expense 238,291 Base on contract

0.62%

0 The Company Kaoshing Monomer Company 1 Sales revenue 644,031 OA 30 days 1.44% 1 Weihua (Rudong) Trade Co., Ltd

(Weihua) The Company 2 Cost of goods sold 397,722 OA 90 days 1.03%

2 Tsou Seen Chemical Industries Corporation(TSCIC)

The Company 2 Cost of goods sold 1,188,874 OA 90 days 3.09%

3 Chemax International Corp. (CIC)


4 CPDC Green Technology Corp. (CPDC GT) (Original name: CPDC Engineering Co., Ltd.)

The Company 2 Sales revenue 238,291 Base on contract

0.62%

5 Weiqiang International Trade

(Shanghai) Co., Ltd. (Weiqiang)


6 Kaoshing Monomer Company The Company 2 Cost of goods sold 644,031 OA 30 days 1.78%

Note 1: Company numbering as follows: Parent company－0 Subsidiary starts from 1

Note 2: The numbering of the relationship between transaction parties as follows: Parent company to subsidiary－1 Subsidiary to parent company－2 Subsidiary to subsidiary－3 Subsidiary to sub-subsidiary－4 Sub-subsidiary to sub-subsidiary－5

Note 3: The amounts of the transaction and the ending balance had been offset in the consolidated interim financial statement

- 499 -

b. Information on investees: The following is the information on investees for the year 2018 (excluding information on investees in Mainland China):



Main businesses and

products


(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value


Company Ltd


She P O Box 6-25

Nantze,Kaohsiung

(815), Taiwan

Methyl Methacrylate

Monomer

- - 20,000,000 40.00% 1,378,279 2,482,675 993,070 Note 1


Ltd.



Taiwan



& Development Co.,

Ltd.



Taiwan



housing, commercial

buildings and plant

rental business,

management of land

development and


related business

investment

100,000 100,000 10,000,000 100.00% 76,412 (1,924) (1,924) Note 2


Corp.



Taiwan

Announcement energy

products besides

petroleum chemical




mixtures and other

- 145,000 - -% - 19,800 19,800 Note

2&5&6

〞 CPDC Investment

(BVI) Co Ltd.

Citco Building,

Wickhams Cay, P.O.

Box662




No.1, Jingjin Rd.,

Fangliao Township,


Taiwan


2&5&6

〞 CPDC Green

Technology Corp.



14F.-16, No.61, Wufu


Kaohsiung City 801,

Taiwan



House,35

Cybercity,Ebene,

Mauritius


〞 Unichem Development

Limited



Road TSIM SHA

TSUI KOWLOON


2&4&5





Taiwan


and development

2,000,000 2,000,000 200,000,000 90.87% 2,395,160 (25,603) (23,266) Note 2&5



338/18, Anyang Wang



Vietnam

Engaged in



consulting, lease

equipment and


materials

609,347 - 458,637,500,000 97.87% 607,203 8,615 8,431 Note

2&4&5


Co Ltd.


Holdings Ltd

Akra Bldg., 24 De

Castro Street,



Virgin Islands


- 500 -


Main businesses and

products


(losses) of

investee

Share of

profits/losses

of investee Note

December 31,

2018

December 31,

2017

Shares

(thousands)

Percentage of

ownership

Carrying

value




Ltd.


Rd., Taoyuan Dist.,

Taoyuan City 330,

Taiwan

Engineering,


business

22,500 22,500 - 100.00% 24,628 (107) (107) Note 2&3

Tsou Seen Chemical


Taivex Therapeutics

Inc.



Taiwan

Engaged in

biotechnology,


and development and

marketing

462,246 462,246 46,224,551 91.10% 384,867 (76,894) (7,051) Note 2



Frontier Fortune


112 ROBINSON

ROAD

#05-01 ROBINSON

112

SINGAPORE (068902)


Frontier Fortune




Company Ltd

NO.153/Ka,Kyun Shwe


ward,


Yangon

Engineering,


business

169,921 5,355 5,500,001 100% 162,704 (5,622) (5,622) Note 2&4



Company Ltd


(Myanmar) Company

Ltd

NO.153/Ka,Kyun Shwe


ward,


Yangon




12,355 - 400,000 80% 11,627 (466) (378) Note 2&4

14,067,811 2,119,773 822,810

Note1: The Company adopts the equity method to evaluate the investment company. Note2: The Company has direct or indirect control of the invested company. If the invested company has direct or indirect control, it shall

expose the relevant information of the following 2 to 10 transactions of the investee company. Note3: Limited company expressed by the amount of capital, no shares issued. Note4: The original investment amount is the foreign currency, at the prevailing exchange rate. Note5: This transaction has been written off when the consolidated statement has been prepared. Note6: The Company re-structured the business organization on August 1 2018, which was a combination of Chemax and Tsou Seen,

Chemax was dissolved company and Tsou Seen was continuing company.

- 501 -


1. The names of investees in Mainland China, the main businesses and products, and other information:


Name of investee

Main businesses and

products

Total amount

of

paid-in capital

Method of

investment

(Note1)

Accumulated

outflow of

investment

from

Taiwan as of

January 1, 2017


outflow of

investment

from

Taiwan as of

December

31, 2017

Net income

(losses) of the

investee

(Note 2)

Percentage

of

ownership

Investment


Accumulated

remittance of

earnings in

current

period

Out-

flow

In-

flow

Weihua (Rudong)

Trade Co., Ltd

(Weihua)


petroleum chemical




mixtures and other


trading

763,460 (b)、(c) 763,460 - - 763,460 24 100.00% 24 486,683 -

Weiqiang

International Trade


(Weiqiang)


petroleum chemical




mixtures and other


trading.

211,560 (a)、(c) 119,300 92,260 - 211,560 13,864 100.00% 13,864 120,233 -

Weida (Zhangzhou)

Consultant Service

Co., Ltd. (Weida)

Consultancy 13,171 (b) 13,171 - - 13,171 (428) 100.00% (428) 2,544 -

Jiangsu Weiming

Petrochemical

Corporation

(Weiming)



3,135,734 (a)、(b) 3,743,354 607,620 - 3,743,354 (28,273) 100.00% (28,273) 3,442,445 -

Zhangzhou Weida

Petrochemical Co.,

Ltd

(Weida PC)


petroleum chemical




mixtures and other


trading

30,648 (b) 30,648 - - 30,648 (5,679) 100.00% (5,679) 16,445 -

Kunshan Weiqin

Management

consultant Co., Ltd

(Weiqin)


Zhejiang Wedge new

material Co., Ltd

(Wedge)



31,278 (b) 31,278 - - 31,278 (1,159) 100.00% (1,159) 25,973 -

Changzhou Huijie




petroleum chemical

products

1,860,113 (b) - 1,324,893 1,324,893 (47,176) 100.00% (47,176) 1,128,883

- 502 -



31, 2018




6,937,208 9,135,021 Note4







(b) There are three ways to identify the basis of investment profit or loss, should be explained. (b.1) financial statements audit by international accounting firm with a relationship with Taiwan accounting firm. (b.2) financial statements audit by the Company’s audit CPA. (b.3) others.

Note3: The amount in this table should be presented in New Taiwan Dollar. Note4: The cumulative investment amount or investment proportion to China cannot over the Company’s net value of 60%. The

Company got certified documents of operating headquarters issued by Industrial Development Bureau, Ministry of Economic Affairs on October 18, 2018, so not subject to the above regulations. Valid period to October 14, 2021.

3. Significant transactions: None

The significant inter-company transactions with the subsidiary in Mainland China, which were eliminated in the preparation of consolidated financial statements, are disclosed in “Information on significant transactions”.


a. General Information

The Consolidated Company identifies Arylonitrile & acetic acid department and Caprolactam department as reportable segments based on factors such as product types, manufacturing procedure, customer types, and operating activities. The reportable segments of the Consolidated Company are independent business units which offer different products and services. Each business unit needs different technologies, resources and marketing strategies, thus should administer separately. The operating segment has a segment manager who is directly accountable to and maintains regular contact with the chief operating decision maker to discuss operating activities, financial results, forecasts, or plans for the segment.

- 503 -

b. Information for each segment’s revenue / expense, asset, liability, measurement basis , and adjustment Non-operating income and loss, income tax expense and non-recurring gain or loss is not allocated to reportable segments. In addition, not all of the profit or loss of the reportable segments include significant non-cash items other than depreciation and amortization. Total reportable segments’ profit or loss is reconciled with the continuing operations’ profit or loss before tax. There was no material inconsistency between the accounting policies adopted for the operating segment and the accounting policies described in Note 2. The Consolidated Company use the operating profit as the measurement for segment profit and the basis of performance assessment. Operating segments’ profit and loss and total assets exclude operating expenses and assets of the corporate management.

Acrylonitrile &

Acetic Acid Caprolactam Other

Adjustment and

eliminations Total For the Year Ended December

31, 2018

Revenue Revenues from external

customers $ 12,011,203 23,157,176 10,257,484 (644,031) 44,781,832


- - 238,291 (238,291) -


Depreciation and amortization $ ,143,171 1,188,632 227,127 - 1,558,930

Reported segment profit or loss $ 2,808,901 1,590,529 3,385,827 (993,070) 6,792,187

Assets Capital expenditure of non-

current assets $ ,363,188 663,248 3,246,912 - 4,273,348

Segment assets $ 5,173,756 13,500,076 76,010,394 (1,448,305) 93,235,921

Segment liabilities $ 2,868,366 5,527,184 15,652,225 (70,026) 23,977,749

c. Geographical Areas

The Consolidated Company’s noncurrent assets located overseas are immaterial. Revenues from domestic and overseas customers for 2018 and 2017 were as follows:

Region For the Years Ended December 31, 2018

Operating revenue from domestic sales $ 34,074,351 Asia 10,303,668 Other (individual area under 10%) 403,813 Total operating revenue $ 44,781,832

- 504 -

d. Major Customers Customers generating over 10% of total revenue for 2018 and 2017 were as follows:

Customers For the Years Ended December 31, 2018

1018 $ 5,502,844 1020 5,259,325 1019 4,799,812 1011 4,675,062

- 505 -

Special Note

- 506 -

3. Affiliate Reports：None

II. Private placement of securities for the most recent year and until the date of

publication of the annual report: N/A

III. Holding or disposal of the Company’s stock by subsidiaries for the most

recent year and until the date of publication of the annual report: N/A

IV. Supplementary Disclosure: N/A

V. Conditions that will materially affect shareholders’ equity or price of

securities as referred to in Paragraph 2.2 of Article 36 of the Securities and

Exchange Act:

Please refer to the statement of this annual report on pages no. 369 to no. 393 on

the litigation cases and pages no. 188 to no. 198 and no. 233 to no. 239 of the

notes on land pollution incidents and significant contingent liabilities and

outstanding contractual commitments.

China Petrochemical Dev

Chairman : Lin Ke-Ming

Documents

Annual Report of 2018 · Caprolactam (CPL), Nylon Chips 374,390 355,680 379,708 365,260 (5,318) (1%) (9,580) (3%) The decrease of Caprolactam (CPL) production and sales was mainly