FORMOSA ADVANCED TECHNOLOGIES CO., LTD. · FORMOSA ADVANCED TECHNOLOGIES CO., LTD. NOTES TO THE FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH, 31, 2017 AND 2016 (EXPRESSED IN THOUSANDS

FORMOSA ADVANCED TECHNOLOGIES

CO., LTD.

FINANCIAL STATEMENTS AND REVIEW REPORT

OF INDEPENDENT ACCOUNTANTS

MARCH 31, 2017 AND 2016

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For the convenience of readers and for information purpose only, the auditors’ report and the accompanying

financial statements have been translated into English from the original Chinese version prepared and used in

the Republic of China. In the event of any discrepancy between the English version and the original Chinese

version or any differences in the interpretation of the two versions, the Chinese-language auditors’ report and

financial statements shall prevail.

~1~

REVIEW REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of FORMOSA ADVANCED TECHNOLOGIES CO., LTD.

We have reviewed the accompanying balance sheets of Formosa Advanced Technologies Co., Ltd.

as of March 31, 2017 and 2016, and the related statements of comprehensive income and of cash flows

for the three months then ended. These financial statements are the responsibility of the Company’s

management. Our responsibility is to express a conclusion on these financial statements based on our

reviews.

We conducted our reviews in accordance with the Statement on Auditing Standards No. 36,

“Engagements to Review Financial Statements” in the Republic of China. A review consists primarily

of inquiries of company personnel and analytical procedures applied to financial data. It is substantially

less in scope than an audit conducted in accordance with generally accepted auditing standards in the

Republic of China, the objective of which is the expression of an opinion regarding the financial

statements taken as a whole. Accordingly, we do not express such an opinion.

Based on our reviews, we are not aware of any material modifications or adjustments that should

be made to the financial statements referred to above for them to be in conformity with the “Regulations

Governing the Preparation of the Financial Reports by Securities Issuers” and International Accounting

Standard 34, “Interim Financial Reporting” as endorsed by the Financial Supervisory Commission.

Chou, Chien-Hung Juanlu, Man-Yu

For and on behalf of PricewaterhouseCoopers, Taiwan

May 5, 2017

------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying financial statements are not intended to present the financial position and results of operations and cash flows in accordance with accounting principles generally accepted in countries and jurisdictions other than the Republic of China. The standards, procedures and practices in the Republic of China governing the audit of such financial statements may differ from those generally accepted in countries and jurisdictions other than the Republic of China. Accordingly, the accompanying financial statements and report of independent accountants are not intended for use by those who are not informed about the accounting principles or auditing standards generally accepted in the Republic of China, and their applications in practice.

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (THE BALANCE SHEETS AS OF MARCH 31, 2017 AND 2016 ARE REVIEWED, NOT AUDITED)

~2~

March 31, 2017 December 31, 2016 March 31, 2016 Assets Notes AMOUNT % AMOUNT % AMOUNT %

Current assets

1100 Cash and cash equivalents 6(1) $ 4,230,285 37 $ 3,954,890 35 $ 3,616,837 32

1110 Financial assets at fair value

through profit or loss - current

6(2)

628,084 5 627,621 6 656,480 6

1125 Available-for-sale financial

assets - current

6(3)

719,832 6 733,417 6 613,805 5

1150 Notes receivable, net 8,707 - 5,094 - 5,246 -

1170 Accounts receivable, net 6(5) 599,299 5 622,386 5 583,054 5

1180 Accounts receivable - related

parties

6(5) and 7

972,531 8 1,005,610 9 1,025,833 9

1200 Other receivables 11,869 - 2,782 - 8,396 -

1210 Other receivables - related

parties

7

- - - - 1,434 -

130X Inventories, net 6(6) 1,055,572 9 1,098,366 10 1,130,102 10

1470 Other current assets 50,814 1 48,140 - 82,422 1

11XX Total current assets 8,276,993 71 8,098,306 71 7,723,609 68

Non-current assets

1523 Available-for-sale financial

assets - non-current

6(3)

727,995 7 726,491 7 600,897 5

1543 Financial assets carried at cost

- non-current

6(4)

30,353 - 30,353 - 99,375 1

1600 Property, plant and equipment,

net

6(7)

2,409,672 21 2,365,600 21 2,652,565 24

1840 Deferred income tax assets 14,099 - 17,770 - 19,632 -

1900 Other non-current assets 118,061 1 118,847 1 191,628 2

15XX Total non-current assets 3,300,180 29 3,259,061 29 3,564,097 32

1XXX TOTAL ASSETS $ 11,577,173 100 $ 11,357,367 100 $ 11,287,706 100

(Continued)

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (THE BALANCE SHEETS AS OF MARCH 31, 2017 AND 2016 ARE REVIEWED, NOT AUDITED)

The accompanying notes are an integral part of these financial statements.

~3~

March 31, 2017 December 31, 2016 March 31, 2016 Liabilities and Equity Notes AMOUNT % AMOUNT % AMOUNT %

Current liabilities

2120 Financial liabilities at fair value

through profit or loss - current

6(8)

$ - - $ 1,381 - $ - -

2150 Notes payable - - 113 - 735 -

2170 Accounts payable 391,818 3 402,365 4 402,714 3

2180 Accounts payable - related

parties

7

45,855 1 39,247 - 6,698 -

2200 Other payables 6(9) 411,936 4 447,249 4 436,831 4

2230 Current income tax liabilities 152,890 1 109,216 1 221,536 2

2300 Other current liabilities 10,236 - 9,925 - 7,735 -

21XX Total current liabilities 1,012,735 9 1,009,496 9 1,076,249 9

Non-current liabilities

2600 Other non-current liabilities 76,439 - 77,201 1 64,847 1

25XX Total non-current

liabilities

76,439 - 77,201 1 64,847 1

2XXX TOTAL LIABILITIES 1,089,174 9 1,086,697 10 1,141,096 10

Share capital 6(11)

3110 Share capital - common stock 4,422,222 38 4,422,222 39 4,422,222 39

Capital surplus 6(12)

3200 Capital surplus 2,411,111 21 2,411,111 21 2,411,111 21

Retained earnings 6(13)

3310 Legal reserve 957,855 9 957,855 8 845,147 8

3320 Special reserve - - - - 856 -

3350 Unappropriated retained

earnings

2,334,987 20 2,105,577 19 2,338,575 21

Other equity interest

3400 Other equity interest 6(14) 361,824 3 373,905 3 128,699 1

3XXX TOTAL EQUITY 10,487,999 91 10,270,670 90 10,146,610 90

Significant commitments and

contingent liabilities

8

3X2X TOTAL LIABILITIES AND

EQUITY

$ 11,577,173 100 $ 11,357,367 100 $ 11,287,706 100

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF COMPREHENSIVE INCOME

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS) (REVIEWED, NOT AUDITED)


~4~

Three months ended March 31 2017 2016

Items Notes AMOUNT % AMOUNT %

4000 Operating revenue 6(15) and 7 $ 2,089,305 100 $ 2,167,035 100

5000 Operating costs 6(6)(18)(19) and

7 ( 1,739,406 ) ( 83 ) ( 1,813,670 ) ( 84 )

5900 Net operating margin 349,899 17 353,365 16

Operating expenses 6(18)(19) and 7

6100 Selling expenses ( 4,983 ) - ( 4,479 ) -

6200 General and administrative

expenses

( 14,370 ) ( 1 ) ( 14,868 ) ( 1 )

6300 Research and development

expenses

( 14,168 ) ( 1 ) ( 13,020 ) -

6000 Total operating expenses ( 33,521 ) ( 2 ) ( 32,367 ) ( 1 )

6900 Operating profit 316,378 15 320,998 15

Non-operating income and

expenses

7010 Other income 6(16) 8,903 - 12,646 1

7020 Other gains and losses 6(17) ( 48,118 ) ( 2 ) ( 35,900 ) ( 2 )

7050 Finance costs ( 1 ) - - -

7000 Total non-operating

income and expenses

( 39,216 ) ( 2 ) ( 23,254 ) ( 1 )

7900 Profit before income tax 277,162 13 297,744 14

7950 Income tax expense 6(20) ( 47,752 ) ( 2 ) ( 50,736 ) ( 2 )

8200 Profit for the period $ 229,410 11 $ 247,008 12

Other comprehensive income

Components of other

comprehensive income that

will be reclassified to profit or

loss

8362 Unrealized (loss) gain on

valuation of available-for-

sale financial assets

6(3)

( $ 12,081 ) ( 1 ) $ 90,578 4

8500 Total comprehensive income

for the period

$ 217,329 10 $ 337,586 16

Basic earnings per share

Before tax $ 0.63 $ 0.67

After tax $ 0.52 $ 0.56

Diluted earnings per share

Before tax $ 0.63 $ 0.67

After tax $ 0.52 $ 0.56

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF CHANGES IN EQUITY

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (REVIEWED, NOT AUDITED)

Retained Earnings

Notes

Share capital - common stock

Total capital

surplus, additional

paid-in capital

Legal reserve

Special reserve

Unappropriated retained earnings

Unrealized gain or loss on available-for-sale financial

assets

Total equity


~5~

Three months ended March 31, 2016

Balance at January 1, 2016 $ 4,422,222 $ 2,411,111 $ 845,147 $ 856 $ 2,091,567 $ 38,121 $ 9,809,024

Net income for the period - - - - 247,008 - 247,008

Other comprehensive income for the period 6(3)(14) - - - - - 90,578 90,578

Balance at March 31, 2016 $ 4,422,222 $ 2,411,111 $ 845,147 $ 856 $ 2,338,575 $ 128,699 $ 10,146,610


Balance at January 1, 2017 $ 4,422,222 $ 2,411,111 $ 957,855 $ - $ 2,105,577 $ 373,905 $ 10,270,670

Net income for the period - - - - 229,410 - 229,410

Other comprehensive loss for the period 6(3)(14) - - - - - ( 12,081 ) ( 12,081 )

Balance at March 31, 2017 $ 4,422,222 $ 2,411,111 $ 957,855 $ - $ 2,334,987 $ 361,824 $ 10,487,999

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. STATEMENTS OF CASH FLOWS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS) (REVIEWED, NOT AUDITED)

Three-month periods ended March 31, Notes 2017 2016


~6~

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax $ 277,162 $ 297,744

Adjustments

Adjustments to reconcile profit (loss)

Depreciation 6(7)(18) 254,296 349,382

Amortization 6(18) 30,347 28,411

Gain on disposal and scrap of property, plant and

equipment

6(17)

( 841 ) ( 370 )

Net gain on financial assets or liabilies at fair value

through profit or loss

6(17)

( 1,844 ) ( 1,210 )

Interest expense 6(20) 1 -

Interest income 6(16) ( 4,125 ) ( 3,257 )

Changes in operating assets and liabilities

Changes in operating assets

Notes receivable, net ( 3,613 ) 1,808

Accounts receivable, net 23,087 ( 9,166 )

Accounts receivable - related parties 33,079 77,466

Other receivables ( 9,087 ) ( 4,299 )

Inventories, net 42,794 ( 39,903 )

Other current assets ( 2,674 ) 69,949

Changes in operating liabilities

Notes payable ( 113 ) ( 2,041 )

Accounts payable ( 10,547 ) 77,967

Accounts payable - related parties 6,608 ( 6,483 )

Other payables ( 44,643 ) ( 107,385 )

Other current liabilities 311 335

Other non-current liabilities ( 762 ) ( 1,033 )

Cash inflow generated from operations 589,436 727,915

Interest received 4,125 3,257

Income tax paid ( 407 ) ( 324 )

Net cash flows from operating activities 593,154 730,848

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of property, plant and equipment 841 1,200

Acquisition of property, plant, and equipment 6(22) ( 289,039 ) ( 35,602 )

Acquisition of available-for-sale financial assets - ( 528,788 )

Increase in other non-current assets ( 29,561 ) ( 71,775 )

Net cash flows used in investing activities ( 317,759 ) ( 634,965 )

Net increase in cash and cash equivalents 275,395 95,883

Cash and cash equivalents at beginning of period 3,954,890 3,520,954

Cash and cash equivalents at end of period $ 4,230,285 $ 3,616,837

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FORMOSA ADVANCED TECHNOLOGIES CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS

THREE MONTHS ENDED MARCH, 31, 2017 AND 2016

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT AS OTHERWISE INDICATED)

(REVIEWED, NOT AUDITED)

1. HISTORY AND ORGANIZATION

Formosa Advanced Technologies Co., Ltd. (the “Company”) was incorporated on September 11, 1990.

The Company was originally established in Hsinchu Science Park, in Hsinchu, Taiwan. The major

operations of the Company are the production and sales of molybdenum films. In 1996, the integrated

packaging center and testing plant were established in Douliu, Yunlin County, and head office was

moved to Douliu, Yunlin County. Presently, the Company’s major operations include the packaging,

testing, processing, and research and development of integrated chips (“IC”).

The stocks of the Company were officially listed on the Taiwan Stock Exchange (“TWSE”) on November

29, 2007. Formosa Taffeta Co., Ltd. is the Company’s parent company, and Formosa Chemicals & Fiber

Corp. is the ultimate parent company.

2. THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE FINANCIAL STATEMENTS AND

PROCEDURES FOR AUTHORIZATION

These financial statements were reported to the Board of Directors on May 5, 2017.

3. APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

(1) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”)

New standards, interpretations and amendments as endorsed by the FSC effective from 2017 are as

follows:

New Standards, Interpretations and Amendments

Effective Date by

International Accounting

Standards Board

Investment entities: applying the consolidation exception (amendments

to IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations

(amendments to IFRS 11)

January 1, 2016

IFRS 14, 'Regulatory deferral accounts' January 1, 2016

Disclosure initiative (amendments to IAS 1) January 1, 2016

Clarification of acceptable methods of depreciation and amortisation

(amendments to IAS 16 and IAS 38)

January 1, 2016

~8~

The above standards and interpretations have no significant impact to the Company’s financial

condition and operating results based on the Company’s assessment.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by

the Company

None.

(3) IFRSs issued by IASB but not yet endorsed by the FSC

New standards, interpretations and amendments issued by IASB but not yet included in the IFRSs as

endorsed by the FSC effective from 2017 are as follows:


Effective Date by


Standards Board

Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016

Defined benefit plans: employee contributions (amendments to IAS 19R) July 1, 2014

Equity method in separate financial statements (amendments to IAS 27) January 1, 2016

Recoverable amount disclosures for non-financial assets (amendments to

IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting

(amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Improvements to IFRSs 2010-2012 July 1, 2014

Improvements to IFRSs 2011-2013 July 1, 2014

Improvements to IFRSs 2012-2014 January 1, 2016


Effective Date by


Standards Board

Classification and measurement of share-based payment transactions


January 1, 2018

Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurance

contracts’ (amendments to IFRS 4)

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018

Sale or contribution of assets between an investor and its associate or

joint venture (amendments to IFRS 10 and IAS 28)

To be determined by


Standards Board

IFRS 15, ‘Revenue from contracts with customers' January 1, 2018

Clarifications to IFRS 15, ‘Revenue from contracts with customers'


January 1, 2018

IFRS 16, ‘Leases’ January 1, 2019

Disclosure initiative (amendments to IAS 7) January 1, 2017

Recognition of deferred tax assets for unrealised losses (amendments to

IAS 12)

January 1, 2017

~9~

Except for the following, the above standards and interpretations have no significant impact to the

Company’s financial condition and operating results based on the Company’s assessment. The

quantitative impact will be disclosed when the assessment is complete.

A. IFRS 9, ‘Financial instruments’

(a) Classification of debt instruments is driven by the entity’s business model and the contractual

cash flow characteristics of the financial assets, which would be classified as financial asset at

fair value through profit or loss, financial asset measured at fair value through other

comprehensive income or financial asset measured at amortised cost. Equity instruments

would be classified as financial asset at fair value through profit or loss, unless an entity makes

an irrevocable election at inception to present in other comprehensive income subsequent

changes in the fair value of an investment in an equity instrument that is not held for trading.

(b) The impairment losses of debt instruments are assessed using an ‘expected credit loss’

approach. An entity assesses at each balance sheet date whether there has been a significant

increase in credit risk on that instrument since initial recognition to recognise 12-month

expected credit losses (‘ECL’) or lifetime ECL (interest revenue would be calculated on the

gross carrying amount of the asset before impairment losses occurred); or if the instrument has

objective evidence of impairment, interest revenue after the impairment would be calculated

on the book value of net carrying amount (i.e. net of credit allowance).

B. IFRS 15, ‘Revenue from contracts with customers’

IFRS 15, ‘Revenue from contracts with customers’ replaces IAS 11, ‘Construction Contracts’, IAS

18, ‘Revenue’ and relevant interpretations. According to IFRS 15, revenue is recognised when a

customer obtains control of promised goods or services. A customer obtains control of goods or

services when a customer has the ability to direct the use of, and obtain substantially all of the

remaining benefits from, the asset.

The core principle of IFRS 15 is that an entity recognises revenue to depict the transfer of promised

goods or services to customers in an amount that reflects the consideration to which the entity

expects to be entitled in exchange for those goods or services. An entity recognises revenue in


Effective date by


Standards Board

Transfers of investment property (amendments to IAS 40) January 1, 2018

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS

1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IFRS

12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle - Amendments to IAS

28, ‘Investments in associates and joint ventures’

January 1, 2018

~10~

accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

Step 2: Identify separate performance obligations in the contract(s)

Step 3: Determine the transaction price

Step 4: Allocate the transaction price

Step 5: Recognise revenue when the performance obligation is satisfied

Further, IFRS 15 includes a set of comprehensive disclosure requirements that requires an entity

to disclose sufficient information to enable users of financial statements to understand the nature,

amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.

C. Amendments to IFRS 15, ‘Clarifications to IFRS 15 - Revenue from Contracts with Customers’

The amendments clarify how to identify a performance obligation (the promise to transfer goods

or services to a customer) in a contract; determine whether a company is a principal (the provider

of goods or services) or an agent (responsible for arranging for the goods or services to be

provided); and determine whether the revenue from granting a licence should be recognised at a

point in time or over time. In addition to the clarifications, the amendments include two additional

reliefs to reduce cost and complexity for a company when it first applies the new Standard.

D. IFRS 16, ‘Leases’

IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard

requires lessees to recognise a 'right-of-use asset' and a lease liability (except for those leases with

terms of 12 months or less and leases of low-value assets). The accounting stays the same for

lessors, which is to classify their leases as either finance leases or operating leases and account for

those two types of leases differently. IFRS 16 only requires enhanced disclosures to be provided

by lessors.

The Company is assessing the potential impact of the new standards, interpretations and amendments

above. The impact will be disclosed when the assessment is complete.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted are consistent with Note 4 of the financial statements for the

year ended December 31, 2016, except for the compliance statement, basis of preparations and additional

policies as set out below. These policies have been consistently applied to all the periods presented,

unless otherwise stated.

(1) Compliance statement

A. The financial statements of the Group have been prepared in accordance with the “Regulations

Governing the Preparation of Financial Reports by Securities Issuers” and IAS 34, ‘Interim

Financial Reporting’ as endorsed by the FSC.

B. The financial statements should be read together with the financial statements for the year ended

December 31, 2016.

~11~

(2) Basis of preparation

A. Except for the following items, these financial statements have been prepared under the historical

cost convention:

(a) Financial assets and financial liabilities (including derivative instruments) at fair value through

profit or loss.

(b) Available-for-sale financial assets measured at fair value.

(c) Defined benefit liabilities recognised based on the net amount of pension fund assets less

present value of defined benefit obligation.

B. The preparation of financial statements in conformity with International Financial Reporting

Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as

endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain

critical accounting estimates. It also requires management to exercise its judgment in the process

of applying the Company’s accounting policies. The areas involving a higher degree of judgment

or complexity, or areas where assumptions and estimates are significant to the financial statements

are disclosed in Note 5.

(3) Employee benefits

The accounting policies adopted are consistent with Note 4 in the financial statements for the year

ended December 31, 2016, except for the additional policies as set out below.

Pension cost for the interim period is calculated on a year-to-date basis by using the pension cost rate

derived from the actuarial valuation at the end of the prior financial year, adjusted for significant

market fluctuations since that time and for significant curtailments, settlements, or other significant

one-off events. The related information is disclosed accordingly.

(4) Income tax

The accounting policies adopted are consistent with Note 4 in the financial statements for the year

ended December 31, 2016, except for the additional policies as set out below.

The interim period income tax expense is recognised based on the estimated average annual effective

income tax rate expected for the full financial year applied to the pretax income of the interim period,

and the related information is disclosed accordingly.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

Please refer to Note 5 in the financial statements for the year ended December 31, 2016.

~12~

6. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

A. The Company transacts with a variety of financial institutions all with high credit quality to

disperse credit risk, so it expects that the probability of counterparty default is remote.

B. The Company has no cash and cash equivalents pledged to others.

(2) Financial assets at fair value through profit or loss

A. The Company recognised net gain of $463 and $669 on financial assets held for trading for the

three months ended March 31, 2017 and 2016, respectively.

B. The non-hedging derivative instruments transaction and contract information are as follows:

March 31, 2017 December 31, 2016 March 31, 2016

Cash on hand and revolving funds 60$ 60$ 60$

Checking accounts and demand

deposits 590,107 632,220 657,968

Cash equivalents

Time deposits 91,031 - 370,198

Short-term notes and bills 3,549,087 3,322,610 2,588,611

4,230,285$ 3,954,890$ 3,616,837$

Item March 31, 2017 December 31, 2016 March 31, 2016

Current items:

Financial assets held for trading

Beneficiary certificates 619,504$ 619,504$ 649,854$

Non-hedging derivatives - 66 -

619,504 619,570 649,854

Valuation adjustment of financial

assets held for trading8,580 8,051 6,626

628,084$ 627,621$ 656,480$

~13~

The Company entered into forward exchange contracts to buy USD (call NT dollars and put U.S.

dollars) to hedge exchange rate risk of foreign currency denominated assets and liabilities.

However, these forward exchange contracts are not accounted for under hedge accounting.

(3) Available-for-sale financial assets

A. The Company recognised net (loss) gain amounting to ($12,081) and $90,578 in other

comprehensive income for fair value change for the three months ended March 31, 2017 and 2016,

respectively.

B. The Company participated in the capital increase of Nan Ya Technology Corporation and invested

Contract amount Contract amount

Derivative (notional principal) Contract (notional principal) Contract

Instruments (in thousands) period (in thousands) period

Current items:

Forward foreign

exchange contracts 2016.12.29~

Changhua Bank US$ - - US$ 1,000 2017.2.3

Contract amount

Derivative (notional principal) Contract

Instruments (in thousands) period

Current items:

Forward foreign

exchange contracts

Changhua Bank US$ - -

March 31, 2017 December 31, 2016

March 31, 2016


Current items:

Listed (TSE and OTC) stocks 534,002$ 534,002$ 534,001$

Valuation adjustments of

available-for-sale financial

assets 185,830 199,415 79,804

719,832$ 733,417$ 613,805$

Non-current items:

Listed (TSE and OTC) stocks 761,281$ 761,281$ 761,282$

Valuation adjustments of

available-for-sale financial

assets

175,994 174,490 48,895

Less: Accumulated impairment 209,280)( 209,280)( 209,280)(

727,995$ 726,491$ 600,897$

~14~

cash of $504,673 on January 8, 2016.

C. As of March 31, 2017, December 31, 2016 and March 31, 2016, the Company has no available-

for-sale financial assets pledged to others.

(4) Financial assets carried at cost

A. According to the Company’s intention, its investment in Nan Ya Photonics Inc. and Syntronix

Corporation stocks should be classified as ‘available-for-sale financial assets’. However, as Nan

Ya Photonics Inc. and Syntronix Corporation are not traded in active market, and no sufficient

industry information of companies similar to both companies’ financial information can be

obtained, the fair value of the investments in Nan Ya Photonics Inc. and Syntronix Corporation

cannot be measured reliably. Accordingly, the Company classified those stocks as ‘financial assets

measured at cost’.

B. The Company recognised impairment loss of $69,022 (shown as ‘other gains and losses’) for the

year ended December 31, 2016, on the abovementioned financial instruments.

C. As of March 31, 2017, December 31, 2016 and March 31, 2016, the Company has no financial

assets carried at cost pledged to others.

(5) Accounts receivable (including related parties)

A. The credit quality of accounts receivable that were neither past due nor impaired was in the

following categories based on the Company’s Credit Quality Control Policy:


Non-current items:

Nan Ya Photonics Inc. stocks 98,194$ 98,194$ 98,194$

Syntronix Corporation stocks 1,181 1,181 1,181

Less: Accumulated impairment 69,022)( 69,022)( -

30,353$ 30,353$ 99,375$


Accounts receivable 619,453$ 642,540$ 603,208$

Less: allowance for bad debts 20,154)( 20,154)( 20,154)(

599,299 622,386 583,054

Accounts receivable - related

parties 972,531 1,005,610 1,025,833

1,571,830$ 1,627,996$ 1,608,887$


Group 1 1,498,079$ 1,532,541$ 1,545,441$

Group 2 616 8 13,163

Group 3 57,033 68,849 50,542

1,555,728$ 1,601,398$ 1,609,146$

~15~

Note:

Group 1: Formosa Plastics group or listed corporations (TSE and OTC).

Group 2: Public companies or emerging companies (more than 2 years from the first transaction

without abnormal transaction records).

Group 3: Distributors and others.

B. The aging analysis of accounts receivable that were past due but not impaired is as follows:

The above aging analysis was based on past due date.

C. Movement analysis of financial assets that were impaired is as follows:

(a) As of March 31, 2017, December 31, 2016 and March 31, 2016, the Company’s accounts

receivable that were impaired amounted to $13,443, $13,443 and $13,443, respectively.

(b) Movements on the Company’s provision for impairment of accounts receivable are as follows:

(6) Inventories


Up to 30 days 11,251$ 25,036$ 6,077$

31 to 90 days 11,333 8,273 375

91 to 180 days 229 - -

Over 180 days - - -

22,813$ 33,309$ 6,452$

Individual provision Group provision Total

At January 1 13,443$ 6,711$ 20,154$

Reversal of impairment - - -

At March 31 13,443$ 6,711$ 20,154$

2017

Individual provision Group provision Total

At January 1 13,443$ 6,711$ 20,154$

Reversal of impairment - - -

At March 31 13,443$ 6,711$ 20,154$

2016

Allowance for

Cost valuation loss Book value

Raw materials 405,785$ 7,573)($ 398,212$

Materials 79,832 416)( 79,416

Work in process 187,138 - 187,138

Finished goods 382,064 27,772)( 354,292

Inventory in transit 36,514 - 36,514

1,091,333$ 35,761)($ 1,055,572$

March 31, 2017

~16~

Note: The company recognised gain on reversal of market price as a result of inventory clearance.

Allowance for


Raw materials 400,359$ 6,295)($ 394,064$

Materials 79,569 417)( 79,152

Work in process 196,358 - 196,358

Finished goods 430,014 50,776)( 379,238


1,155,854$ 57,488)($ 1,098,366$

December 31, 2016

Allowance for


Raw materials 356,405$ 6,914)($ 349,491$

Materials 81,675 689)( 80,986

Work in process 176,262 - 176,262

Finished goods 494,024 19,277)( 474,747


1,156,982$ 26,880)($ 1,130,102$

March 31, 2016

2017 2016

Cost of inventories sold 1,768,638$ 1,843,539$

Unused capacity - 5,911

Gain on inventory valuation (Note) 21,727)( 27,378)(

Revenue from sales of scraps 7,532)( 8,435)(

Loss on physical inventory 27 33

1,739,406$ 1,813,670$

Three months ended March 31

~17~

(7) Property, plant and equipment

Land

improvements

Machinery

and equipment

Transportation

equipment Other equipment

Construction in

progress and

equipment to be

inspected Total

At January 1, 2017

Cost 860$ 19,905,596$ 34,232$ 3,981,380$ 254,868$ 24,176,936$

Accumulated

depreciation and

impairment 860)( 18,101,468)( 18,580)( 3,690,428)( - 21,811,336)(

-$ 1,804,128$ 15,652$ 290,952$ 254,868$ 2,365,600$

Opening net book amount -$ 1,804,128$ 15,652$ 290,952$ 254,868$ 2,365,600$

Additions - - - - 298,368 298,368

Reclassifications - 216,024 5,790 5,406 227,220)( -

Depreciation charge - 223,660)( 1,435)( 29,201)( - 254,296)(

Closing net book amount -$ 1,796,492$ 20,007$ 267,157$ 326,016$ 2,409,672$

At March 31, 2017

Cost 860$ 20,012,407$ 37,773$ 3,961,171$ 326,016$ 24,338,227$

Accumulated

depreciation and

impairment 860)( 18,215,915)( 17,766)( 3,694,014)( - 21,928,555)(

-$ 1,796,492$ 20,007$ 267,157$ 326,016$ 2,409,672$

2017

~18~

Land

improvements

Machinery

and equipment

Transportation

equipment Other equipment

Construction in

progress and

equipment to be

inspected Total

At January 1, 2016

Cost 860$ 19,718,446$ 32,844$ 4,051,458$ 98,237$ 23,901,845$

Accumulated

depreciation and

impairment 860)( 17,280,254)( 18,814)( 3,656,673)( - 20,956,601)(

-$ 2,438,192$ 14,030$ 394,785$ 98,237$ 2,945,244$

Opening net book amount -$ 2,438,192$ 14,030$ 394,785$ 98,237$ 2,945,244$

Additions - - - - 57,533 57,533

Disposals 830)( - - - 830-

Reclassifications - 49,878 2,110 950 52,938)( -

Depreciation charge - 315,849)( 1,446)( 32,087)( - 349,382)(

Closing net book amount -$ 2,171,391$ 14,694$ 363,648$ 102,832$ 2,652,565$

At March 31, 2016

Cost 860$ 19,717,617$ 34,954$ 4,051,054$ 102,832$ 23,907,317$

Accumulated

depreciation and

impairment 860)( 17,546,226)( 20,260)( 3,687,406)( - 21,254,752)(

-$ 2,171,391$ 14,694$ 363,648$ 102,832$ 2,652,565$

2016

~19~

(8) Financial liabilities at fair value through profit or loss

A. The Company recognised net (loss) gain on valuation of financial liabilities at fair value through

profit or loss amounting to $1,381 and $541 for the three months ended March 31, 2017 and

2016, respectively.

B. The non-hedging derivative instruments transaction and contract information are as follows:

The Company entered into forward exchange contracts to buy USD (call NT dollars and put U.S.

dollars) to hedge exchange rate risk of foreign currency denominated assets and liabilities.

However, these forward exchange contracts are not accounted for under hedge accounting.

Items March 31, 2017 December 31, 2016 March 31, 2016

Current items:

Held-for-sale financial liabilities

Non-hedging derivatives -$ 1,381$ -$

Contract amount Contract amount

Derivative Financial (notional principal) Contract (notional principal) Contract

Liabilities (in thousand dollars) period (in thousand dollars) period

Current items:

Forward foreign

exchange

contracts

Changhua Bank US$ - - US$ 5,000

2016.11.24

~2017.2.3

March 31, 2017 December 31, 2016

Contract amount

Derivative Financial (notional principal) Contract

Liabilities (in thousand dollars) period

Current items:

Forward foreign

exchange

contracts

Changhua Bank US$ - -

March 31, 2016

~20~

(9) Other payables

(10) Pensions

A.(a)The Company has a non-contributory and funded defined benefit pension plan in accordance

with the Labor Standards Law, covering all regular employees. Under the defined benefit

pension plan, two units are accrued for each year of service for the first 15 years and one unit

for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are

based on the number of units accrued and the average monthly salaries and wages of the last

6 months prior to retirement. The Company contributes monthly an amount equal to 2% of the

employees’ monthly salaries and wages to the retirement fund deposited with the Trust

Department of Bank of Taiwan, the trustee, under the name of the independent retirement fund

committee. Also, the Company would assess the balance in the aforementional labor pension

reserve account by December 31 every year. If the account balance is not enough to pay the

pension calculated by the aforementioned method to employees expected to qualify for

retirement in the following year, the Company will make contribution for the deficit by next

March.

(b) For the aforementioned pension plan, the Company recognised pension costs of $419 and

$411 for the three months ended March 31, 2017 and 2016, respectively.

(c) Expected contributions to the defined benefit pension plan of the Company for the year ended

December 31, 2018 are $1,676.

B. (a) Effective July 1, 2005, the Company has established a defined contribution pension plan (the

“New Plan”) under the Labor Pension Act (the “Act”), covering all regular employees with

R.O.C. nationality. Under the New Plan, the Company contributes monthly an amount based

on 6% of the employees’ monthly salaries and wages to the employees’ individual pension

accounts at the Bureau of Labor Insurance. The benefits accrued are paid monthly or in lump

sum upon termination of employment.

(b) The pension costs under the defined contribution pension plan of the Company for the three

months ended March 31, 2017 and 2016 were $13,692 and $13,408, respectively.


Dividends payable 325$ 325$ 3,921$

Wages and salaries payable 143,847 229,798 148,672

Processing fees payable 127,285 88,200 113,495

Payables on equipment 45,641 36,312 63,154

Tax payable - 13,257

Employees' compensation and

directors' and supervisors'

remuneration payable 7,194 32,672 3,499

Others 87,644 59,942 90,833

411,936$ 447,249$ 436,831$

~21~

(11) Capital stock

As of March 31, 2017, the Company’s authorized capital was $5,000,000, and the paid-in captial

was $4,422,222, consisting of 442,222 thousand shares with a par value of $10 per share. All

proceeds from shares issued have been collected.

(12) Capital surplus

Pursuant to the R.O.C. Company Act, capital surplus arising from paid-in capital in excess of par

value on issuance of common stocks and donations can be used to cover accumulated deficit or to

issue new stocks or cash to shareholders in proportion to their share ownership, provided that the

Company has no accumulated deficit. Further, the R.O.C. Securities and Exchange Law requires

that the amount of capital surplus to be capitalised mentioned above should not exceed 10% of the

paid-in capital each year. Capital surplus should not be used to cover accumulated deficit unless the

legal reserve is insufficient.

(13) Retained earnings

A. Under the Company's Articles of Incorporation, the current year's earnings, if any, shall first be

used to pay all taxes and offset prior years’ operating losses and then 10% of the remaining

amount shall be set aside as legal reserve. Appropriation of the remainder shall be proposed by

the Board of Directors and resolved by the stockholders.

The Company operates in a volatile business environment and is in the stable growth stage. In

response to the business scale expansion, the Company’s dividend policy involves three

alternatives which include cash dividend distribution, the use of earnings to increase capital, and

the use of additional paid-in capital to increase capital. Taking into consideration significant

investment plans or in order to improve the capital demand of the Company’s financial structure,

the Company will first use the earnings to increase the capital and then the additional paid-in

capital. Assuming the Company has surplus earnings, this will be distributed in the form of cash

dividends. In case of the excessive increase in capital which decreases dividend payout ratio, the

amount of earnings and capital surplus to be capitalised shall not exceed 80% of the total

dividends distributed.

B. Except for covering accumulated deficit or issuing new stocks or cash to shareholders in

proportion to their share ownership, the legal reserve shall not be used for any other purpose.

The use of legal reserve for the issuance of stocks or cash to shareholders in proportion to their

share ownership is permitted, provided that the distribution of the reserve is limited to the portion

in excess of 25% of the Company’s paid-in capital.

C. In accordance with the regulations, the Company shall set aside special reserve from the debit

balance on other equity items at the balance sheet date before distributing earnings. When debit

balance on other equity items is reversed subsequently, the reversed amount could be included

in the distributable earnings.

D. The appropriations of earnings of 2016 had been approved by the Board of Directors on March

~22~

17, 2017 and the appropriations of earnings of 2015 as resolved by the shareholders on June 24,

2016 are as follows:

The aforementioned information on the appropriation of the Company’s earnings as resolved by

the Board of Directors and approved by the stockholders will be posted in the “Market

Observation Post System” at the website of the Taiwan Stock Exchange.

E. For the information relating to employees’ remuneration (bonuses) and directors’ and supervisors’

remuneration, please refer to Note 6(19).

(14) Other equity items

(15) Operating revenue

(16) Other revenue

Dividends Dividends

per share per share

Amount (in dollars) Amount (in dollars)

Legal reserve 102,256$ 112,708$

Special reserve - -

Cash dividends 884,444 2.0$ 884,444 2.0$

986,700$ 997,152$

Three months ended March 31,

2016 2015

2017 2016

Available-for-sale Available-for-sale

investment investment

At January 1 373,905$ 38,121$

Revaluation 12,081)( 90,578

At March 31 361,824$ 128,699$


2017 2016

IC revenue 1,965,340$ 2,057,820$

Module revenue 123,965 109,215

2,089,305$ 2,167,035$


2017 2016

Interest income 4,125$ 3,257$

Other revenue 4,778 9,389

8,903$ 12,646$


~23~

(17) Other gains and losses

(18) Expenses by nature

(19) Employee benefit expense

A. According to the Articles of Incorporation of the Company, when distributing earnings, the

Company shall distribute bonus to the employees and pay remuneration to the directors and

supervisors that account for 0.1~2.45% and shall not be higher than 0.5%, respectively, of the

total distributed amount.

B. For the three months ended March 31, 2017 and 2016, employees’ compensation was accrued at

$6,540 and $7,178, respectively; while directors’ and supervisors’ remuneration was accrued at

$654 and $733, respectively. The aforementioned amounts were recognised in salary expenses,

and were estimated based on the profit for the period.

2017 2016

Net gain on financial assets at fair value

through profit or loss 463$ 669$

Net gain on financial liabilities at fair

value through profit or loss 1,381 541

Net currency exchange loss 46,477)( 33,132)(

Gain on disposal of property, plant

and equipment 841 370

Impairment loss, net - -

Other losses 4,326)( 4,348)(

48,118)($ 35,900)($


2017 2016

Employee benefit expense 357,612$ 365,033$

Depreciation charges on property, plant

and equipment 254,296 349,382

Amortisation 30,347 28,411

642,255$ 742,826$


2017 2016

Wages and salaries 309,249$ 318,070$

Labor and health insurance fees 30,931 29,366

Pension costs 14,111 13,819

Other personnel expenses 3,321 3,778

357,612$ 365,033$


~24~

(20) Income tax

A. Components of income tax expense:

B. The Company’s income tax returns through 2015 have been assessed and approved by the Tax

Authority.

C. The Company’s unappropriated earnings are all earnings generated after 1998.

D. As at March 31, 2017, December 31, 2016 and March 31, 2016, the balance of the imputation

tax credit account was $307,079, $307,079 and $180,052, respectively. The creditable tax rate

was 17.22% for 2015 and the estimated creditable tax rate is 19.77% for 2016.

(21) Earnings per share

2017 2016

Current tax:

Current tax on profit for the period 44,081$ 51,451$

Deferred tax:

Origination and reversal of temporary

differences 3,671 715)(

Income tax expense 47,752$ 50,736$


Weighted average

number of ordinary

shares outstanding

Before tax After tax (shares in thousands) Before tax After tax


Net income 277,162$ 229,410$ 442,222 $0.63 $0.52

Diluted earnings per

Net income 277,162$ 229,410$ 442,222

Assumed conversion of

all dilutive potential

ordinary shares

Employees’

　 compensation - - 558

Shareholders of the

parent plus assumed

conversion of all dilutive

potential ordinary shares 277,162$ 229,410$ 442,780 $0.63 $0.52


Earnings per share

Amount ( in thousands) (in dollars)

~25~

(22) Supplemental cash flow information

Investing activities with partial cash payments:

7. RELATED PARTY TRANSACTIONS

(1) Parent and ultimate controlling party

The Company is controlled by Formosa Taffeta Co., Ltd., which owns 65.68% of the Company’s

shares. The ultimate parent of the Company is Formosa Chemicals & Fiber Corp.

Weighted average

number of ordinary

shares outstanding

Before tax After tax (shares in thousands) Before tax After tax


Net income 297,744$ 247,008$ 442,222 $0.67 $0.56

Diluted earnings per

Net income 297,744$ 248,008$ 442,222

Assumed conversion of

all dilutive potential

ordinary shares

Employees

　 compensation - - 684

Shareholders of the

parent plus assumed

conversion of all dilutive

potential ordinary shares 297,744$ 247,008$ 442,906 $0.67 $0.56


Earnings per share

Amount ( in thousands) (in dollars)

2017 2016

Purchase of property, plant and

equipment 298,368$ 57,533$

Add: opening balance of payable on

equipment 36,312 41,223

Less: ending balance of payable on

equipment 45,641)( 63,154)(

Cash paid during the period 289,039$ 35,602$


~26~

(2) Names of related parties and relationship

(3) Significant related party transactions and balances

A. Operating revenue:

The Company packages, tests, and processes various types of IC as requested by Nan Ya

Technology Corp. The selling prices to Nan Ya Technology Corp. and other related parties are

based on the pricing model agreed by both parties, and accounts receivable due are collected

within 60 days or 90 days.

B. Purchases:

The purchase prices from related parties are based on the pricing model agreed by both parties,

and accounts payable are remitted 30 to 45 days after acceptance. The terms between the Company

and the related parties have no significant difference from other arm’s length transactions.

C. Receivables from related parties:

Names of related parties Relationship with the Group

Formosa Taffeta Co., Ltd. and Subsidiaries Parent company

Nan Ya Technology Corporation The chairman of the Company is the counterparty's

director

Nan Ya PCB Corp. The chairman of the Company is the counterparty's

director

Nan Ya Plastics Corporation The chairman of the Company is the counterparty's

director

Nan Ya Photonics Inc. The chairman is the second-degree relative of the

chairman of the company

Formosa Plastics Transport Corp. The chairman of the Company is the counterparty's

director

PieceMakers Technology, Inc. Related party in substance

2017 2016

Sales of goods:

Nan Ya Technology Corporation 1,388,719$ 1,489,217$

Other related parties 11,836 18,407

1,400,555$ 1,507,624$


2017 2016

Purchases of goods:

Nan Ya PCB Corp. 82,254$ 12,449$

Other related parties 13,582 8,026

Immediate parent 28 55

95,864$ 20,530$


~27~

The receivables from related parties arise mainly from sale transactions. The receivables are due

2~3 months after the date of sale. The receivables are unsecured in nature and bear no interest.

There are no provisions held against receivables from related parties.

D. Payables to related parties:

The payables to related parties arise mainly from purchase transactions and are due two months

after the date of purchase. The payables bear no interest.

E. Other receivables:

Other receivables from related parties arise from machinery lease agreement with Nan Ya

Photonics Inc. and Nan Ya Technology Inc. from October 1, 2012 to December 31, 2016. Rental

income from such leases are due in the following month after the date of the lease agreement. The

Company sells machinery to Nan Ya Photonics Inc. at discounted prices when the machinery lease

agreement expires. However, the lease agreement has reached an early termination in the third

quarter of 2016.

F. Rent expense (shown as cost of goods sold and operating expense):

Rent expense paid to related parties for the three months ended March 31, 2017 and 2016 are as

follows:

The Company leases buildings on No. 329, No. 319 and No. 331 Henan St., Douliu City, Yunlin

County, land on No. 497-1, Neilin Section, and No. 132 and No. 136, Meilin Creek Section from


Accounts receivable:

Nan Ya Technology Corporation 965,039$ 992,417$ 1,010,185$

Other related parties 7,492 13,193 15,648

972,531$ 1,005,610$ 1,025,833$


Accounts payable:

Nan Ya PCB Corp. 43,567$ 36,158$ 4,550$

Other related parties 2,288 3,061 2,120

Immediate parent - 28 28

45,855$ 39,247$ 6,698$


Other receivables from related

parties:

Other related parties -$ -$ 1,434$

2017 2016

Rent expense:

Immediate parent 9,462$ 9,598$


~28~

Formosa Taffeta Co., Ltd. from October 1, 2016 to August 31, 2027, October 1, 2016 to September

30, 2036 and November 1, 2015 to October 31, 2035, respectively. The Company pays the lessor

at the beginning of each month. Since June 1998, the Company also leases employee dormitory

from Formosa Taffeta Co., Ltd. The amount of rental payable was determined based on the

prevailing market price from the local real estate market. As of March 31, 2017, December 31,

2016 and March 31, 2016, rental payable was $3,074 for both years.

G. Other transactions:

Related parties have prepaid the garbage cleaning fees, steam fees, hydro and electricity fees for

the Company. The details as of and for the three months ended March 31, 2017 and 2016 are as

follows:

H. Property transactions:

Acquisition of financial assets:

(4) Key management compensation

8. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

(1) Commitments

The Company is responsible for the custody of all types of processed goods of IC testing and shall be

liable for any losses incurred. As of March 31, 2017, the quantity of processed goods under the

Company’s custody are as follows:

2017 2016

Operating expense:

Immediate parent 4,456$ 5,382$



Expense payable:

Immediate parent 1,517$ 1,632$ 1,763$

Three months ended

March 31, 2017

Accounts No. of shares Objects Consideration

Other related Non-current Nan Ya

parties available-for-sale Technology

financial assets 13,826,658 Corporation 504,673$

2017 2016

Salaries and other short-term benefits 6,127$ 6,658$

Post-employment benefits 26 26

6,153$ 6,684$


~29~

Quantity Market value Quantity Market value Quantity Market value Quantity Market value

(Unit : PC) (per PC) (Unit : PC) (per PC) (Unit : PC) (per PC) (Unit : PC) (per PC)

A. Work in process

LED 25,020,226 NTD 0.020~1.080 - - - - - -

FBGA 50,822,508 USD 1.500~10.00 - - - - - -

TSOP 6,659,540 USD 0.500~0.770 - - - - - -

LED assembly 2,224,501 NTD 0.470~14.650 - - - - 2,080 NTD 33.66~800

MODULE 1,829,859 USD 0.500~18.695 - - 93,314 USD 16.59~800 - -

MICRO-SD 70,688 USD 2.577~18.695 - - - - - -

OTHERS 196,554 USD 3.200~9.000 2,046 USD 1,500 - - - -

86,823,876 2,046 93,314 2,080

Quantity Market value Quantity Market value Quantity Market value Quantity Market value

(Unit : PC) (per PC) (Unit : PC) (per PC) (Unit : PC) (per PC) (Unit : PC) (per PC)

B. Finished goods

LED 3,098,038 NTD 0.020~1.080 - - - - - -

FBGA 90,774,085 USD 1.500~10.00 - - - - - -

TSOP 10,724,861 USD 0.500~0.770 - - - - - -

LED assembly 7,239,026 NTD 0.470~14.650 - - - - 445 NTD 33.66~800

MODULE - - - - 23,515 USD 16.59~800 - -

MICRO-SD 6,129 USD 2.577~18.695 - - - - - -

OTHERS 11,377 USD 3.200~9.000 1,517 USD 1,500 - - - -

111,853,516 1,517 23,515 445

March 31, 2017

~30~

(2) Operating lease agreement

The Company leases factory from Formosa Taffeta Co., Ltd. The lease expense estimated to be

incurred is as follows:

(3) As of March 31, 2017, outstanding letters of credit are as follows:

9. SIGNIFICANT DISASTER LOSS

None.

10. SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

11. OTHERS

(1) Capital management

There were no significant changes during the period. Please refer to Note 11 of the consolidated

financial statements for the year ended December 31, 2016.

(2) Financial instruments

A. Fair value information of financial instruments

The Company’s cash and cash equivalents, financial assets measured at amortised cost (including

notes receivable, accounts receivable (including related parties), other receivables (including

related parties), other financial assets, short-term borrowing, short-term notes and bills payable,

notes payable, accounts payable (including related parties), other payables and other financial

liabilities) are approximate to their fair values. Because the interest rates of the long-term loans

(including portion maturing within one year or one operating cycle, whichever is longer) are

close to the market interest rate, thus the carrying amount is a reasonable basis for the estimation

of fair value. The fair value information of financial instruments measured at fair value is

provided in Note 12(3).

B. Financial risk management policies

There was no significant change in the reporting period. Please refer to Note 11 of the

consolidated financial statements for the year ended December 31, 2016, except for the items

explained below.

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk


Less than 1 year 36,884$ 36,884$ 36,884$

Between 1 and 5 years 147,534 147,534 147,534

184,418$ 184,418$ 184,418$

Currency (thousands) March 31, 2017

USD 46$

JPY 64,360

~31~

i. The Company’s businesses involve some non-functional currency operations. The

information on assets and liabilities denominated in foreign currencies whose values would

be materially affected by the exchange rate fluctuations is as follows:

Foreign currency

amount Exchange Book value

(in thousands) rate (NTD)

(Foreign currency:

functional currency)

Financial assets

Monetary items

USD:NTD 47,186$ 30.330$ 1,431,152$

JPY:NTD 53,314 0.271 14,464

Non-monetary items

USD:NTD 3,611 30.330 109,527

JPY:NTD 579,420 0.271 157,197

Financial liabilities

Monetary items

USD:NTD 5,582 30.330 169,304

JPY:NTD 164,139 0.271 44,531

March 31, 2017

Foreign currency



(Foreign currency:


Financial assets

Monetary items

USD:NTD 43,780$ 32.250 1,411,891$

JPY:NTD 307,792 0.2756 84,827

Non-monetary items

USD:NTD 392 32.250 12,655

JPY:NTD 48,960 0.2756 13,493


Monetary items

USD:NTD 5,536 32.250 178,548

JPY:NTD 115,104 0.2756 31,723

December 31, 2016

~32~

ii. Total exchange gain (loss), including realised and unrealized arising from significant

foreign exchange variation on the monetary items held by the Company for the three

months ended March 31, 2017 and 2016 amounted to ($46,477) and ($33,132),

respectively.

iii. Analysis of foreign currency market risk arising from significant foreign exchange

variation:

Foreign currency



(Foreign currency:


Financial assets

Monetary items

USD:NTD 56,250$ 32.185 1,810,407$

JPY:NTD 7,930 0.2863 2,270

Non-monetary items

USD:NTD 644 32.185 20,732

JPY:NTD 4,041 0.2863 1,157


Monetary items

USD:NTD 4,400 32.185 141,610

JPY:NTD 135,656 0.2863 38,838

March 31, 2016

~33~

Price risk

i. The Company is exposed to equity securities price risk because of investments held by

the Company and classified on the balance sheet either as available-for-sale or at fair

value through profit or loss. The Company is not exposed to commodity price risk. To

manage its price risk arising from investments in equity securities, the Company

Effect on other

Degree of Effect on profit comprehensive

variation or loss income

(Foreign currency:


Financial assets

Monetary items

USD:NTD 1% 14,312$ -$

JPY:NTD 1% 145

Non-monetary items

USD:NTD 1% 1,095 -

JPY:NTD 1% 1,572 -


Monetary items

USD:NTD 1% 1,693 -

JPY:NTD 1% 445 -


Sensitivity analysis

Effect on other

Degree of Effect on profit comprehensive

variation or loss income

(Foreign currency:


Financial assets

Monetary items

USD:NTD 1% 18,104$ -$

JPY:NTD 1% 23

Non-monetary items

USD:NTD 1% 207 -

JPY:NTD 1% 12 -


Monetary items

USD:NTD 1% 1,416 -

JPY:NTD 1% 388 -


Sensitivity analysis

~34~

diversifies its portfolio. Diversification of the portfolio is done in accordance with the

limits set by the Company.

ii. The Company’s investments in equity securities comprise domestic listed and unlisted

stocks. The prices of equity securities would change due to the change of the future value

of investee companies. If the prices of these equity securities had increased/decreased by

1% with all other variables held constant, post-tax profit for the three months ended

March 31, 2017 and 2016 would have increased/decreased by $5,213 and $5,449,

respectively, as a result of gains/losses on equity securities classified as at fair value

through profit or loss. Other components of equity would have increased/decreased by

$12,017 and $10,082, respectively, as a result of gains/losses on equity securities

classified as available-for-sale.

(b) Credit risk

i. Credit risk refers to the risk of financial loss to the Group arising from default by the

clients or counterparties of financial instruments on the contract obligations. According

to the Group’s credit policy, each local entity in the Group is responsible for managing

and analysing the credit risk for each of their new clients before standard payment and

delivery terms and conditions are offered. Internal risk control assesses the credit quality

of the customers, taking into account their financial position, past experience and other

factors. Individual risk limits are set based on internal or external ratings in accordance

with limits set by the Board of Directors. The utilisation of credit limits is regularly

monitored. Credit risk arises from cash and cash equivalents, derivative financial

instruments and deposits with banks and financial institutions, including outstanding

receivables. For banks and financial institutions, only independently rated parties are

accepted.

ii. No credit limits were exceeded during the reporting periods, and management does not

expect any significant losses from non-performance by these counterparties.

iii. The credit quality information of financial assets that are neither past due nor impaired is

provided in the statement for each type of financial assets in Note 6.

iv. The ageing analysis of financial assets that were past due but not impaired is provided in

the statement for each type of financial assets in Note 6.

v. The individual analysis of financial assets that had been impaired is provided in the

statement for each type of financial assets in Note 6.

(c)Liquidity risk

i. Cash flow forecasting is performed in the operating entities of the Company and

aggregated by Company treasury. Company treasury monitors rolling forecasts of the

Company’s liquidity requirements to ensure it has sufficient cash to meet operational

needs while maintaining sufficient headroom on its undrawn committed borrowing

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facilities at all times so that the Company does not breach borrowing limits or covenants

(where applicable) on any of its borrowing facilities. Such forecasting takes into

consideration the Company’s debt financing plans, covenant compliance, and compliance

with internal balance sheet ratio targets.

ii. Surplus cash held by the operating entities over and above balance required for working

capital management are transferred to the Company treasury. The Company treasury

invests surplus cash in interest bearing current accounts, deposit account, short-term

bonds and marketable securities, choosing instruments with appropriate maturities or

sufficient liquidity to provide sufficient headroom as determined by the abovementioned

forecasts. As at March 31, 2017 , December 31, 2016 and March 31, 2016, the Company

held money market position of $5,585,549, $5,397,234 and $5,456,710, respectively that

are expected to readily generate cash inflows for managing liquidity risk.

iii. The table below analyses the Company’s non-derivative financial liabilities and net-

settled or gross-settled derivative financial liabilities into relevant maturity groupings

based on the remaining period at the balance sheet date to the contractual maturity date

for non-derivative financial liabilities and to the expected maturity date for derivative

financial liabilities. The amounts disclosed in the table are the contractual undiscounted

cash flows.

Non-derivative financial liabilities:

Less than Between Between Over

March 31, 2017 1 year 1 to 2 years 2 to 5 years 5 years

Financial liabilities at fair value


-$ -$ -$ -$

Notes payable - - - -

Accounts payable 437,673 - - -

(including related parties)

Other payables 411,936 - - -


December 31, 2016 1 year 1 to 2 years 2 to 5 years 5 years

Financial liabilities at fair value


1,381$ -$ -$ -$

Notes payable 113 - - -




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(3) Fair value information

A. Details of the fair value of the Company’s financial assets and financial liabilities not measured

at fair value are provided in Note 11(2)A

B. The different levels that the inputs to valuation techniques are used to measure fair value of

financial and non-financial instruments have been defined as follows:

Level1: Inputs that are quoted prices (unadjusted) in active markets for identical assets or

liabilities. A market is regarded as active if it meets all the following conditions: the

items traded in the market are homogeneous; willing buyers and sellers can normally be

found at any time; and prices are available to the public. The fair value of the Company’s

investment in listed stocks and beneficiary certificates is included in Level 1.

Level 2: Inputs other than quoted prices included within Level 1 that are observable for the asset

or liability, either directly (that is, as prices) or indirectly (that is, derived from

prices).The fair value of the Company’s investment in derivative instruments is included

in Level 2.

Level 3: Inputs for the asset or liability that are not based on observable market data.

C. The related information of financial and non-financial instruments measured at fair value by level

on the basis of the nature, characteristics and risks of the assets and liabilities at March 31, 2017,

Decebmer 31, 2016, and March 31, 2016 is as follows:


March 31, 2016 1 year 1 to 2 years 2 to 5 years 5 years

Notes payable 735$ -$ -$ -$




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March 31, 2017 Level 1 Level 2 Level 3 Total

Financial assets:

Financial assets at fair value through

profit or loss

　Beneficiary certificates 628,084$ -$ -$ 628,084$

Forward foreign exchange

contracts - - - -

Available-for-sale financial assets

　Equity securities 1,447,827 - - 1,447,827

2,075,911$ -$ -$ 2,075,911$

Financial liabilities:

Financial liabilities at fair value through

profit or loss


contracts -$ -$ -$ -$

December 31, 2016 Level 1 Level 2 Level 3 Total

Financial assets:


profit or loss



contracts - 66 - 66



2,087,463$ 66$ -$ 2,087,529$

Financial liabilities:

Financial liabilities at fair value through

profit or loss


contracts -$ 1,381$ -$ 1,381$

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D. The methods and assumptions the Company used to measure fair value are as follows:

(a) The financial instruments the Company used market quoted prices as their fair values (that

is, Level 1) are listed below by characteristics:

(b) Except for financial instruments with active markets, the fair value of other financial

instruments is measured by using valuation techniques or by reference to counterparty quotes.

The fair value of financial instruments measured by using valuation techniques method can

be referred to current fair value of instruments with similar terms and characteristics in

substance, discounted cash flow method or other valuation methods, including calculated by

applying model using market information available at the balance sheet date.

(c) The valuation of derivative financial instruments is based on valuation model widely

accepted by market participants, such as present value techniques and option pricing models.

Forward exchange contracts are usually valued based on the current forward exchange rate.

Structured interest derivative instruments are measured by using appropriate option pricing

models (i.e. Black-Scholes model) or other valuation methods, such as Monte Carlo

simulation.

(d) The output of valuation model is an estimated value and the valuation technique may not be

able to capture all relevant factors of the Company’s financial and non-financial instruments.

Therefore, the estimated value derived using valuation model is adjusted accordingly with

additional inputs, for example, model risk or liquidity risk and etc. In accordance with the

Company’s management policies and relevant control procedures relating to the valuation

models used for fair value measurement, management believes adjustment to valuation is

necessary in order to reasonably represent the fair value of financial and non-financial

instruments at the balance sheet. The inputs and pricing information used during valuation

are carefully assessed and adjusted based on current market conditions.

(e) The Company takes into account adjustments for credit risks to measure the fair value of

financial and non-financial instruments to reflect credit risk of the counterparty and the

March 31, 2016 Level 1 Level 2 Level 3 Total

Financial assets:


profit or loss




1,871,182$ -$ -$ 1,871,182$

Market quoted Listed shares Open-end fund

price Closing price Net asset value

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Company’s credit quality.

E. For the three months ended March 31, 2017 and 2016, there was no transfer between Level 1 and

Level 2.

F. For the three months ended March 31, 2017 and 2016, there was no transfer into or out from

Level 3.

12. SUPPLEMENTARY DISCLOSURES

(1) Significant transactions information

A. Loans to others: None.

B. Provision of endorsements and guarantees to others: None.

C. Holding of marketable securities at the end of the period (not including subsidiaries, associates

and joint ventures): Please refer to table 1.

D. Acquisition or sale of the same security with the accumulated cost exceeding NT$300 million or

20% of the Company’s paid-in capital: None.

E. Acquisition of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

F. Disposal of real estate reaching NT$300 million or 20% of paid-in capital or more: None.

G. Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-

in capital or more: Please refer to table 2.

H. Receivables from related parties reaching NT$100 million or 20% of paid-in capital or more:

Please refer to table 3.

I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes

6(2), 6(8), and 11(2).

J. Significant intragroup transactions during the reporting periods: None.

(2) Information on investees

Names, locations and other information of investee companies (not including investees in Mainland

China)：None.

(3) Information on investments in Mainland China

A. Basic information: None.

B. Significant transactions, either directly or indirectly through a third area, with investee companies

in the Mainland Area: None.

13. SEGMENT INFORMATION

(1) General information

Management has determined the operating segments based on the type of service provided. The

Company’s operating segments are integrated-chips (“IC”) department and module department.

Operations of the IC department include the packaging, testing, processing, and research and

development of integrated chips. Operations of the module department include the assembly, testing,

and research and development of module pieces.

There is no material change in the basis for formation of entities and division of segments in the

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Company or in the measurement basis for segment information during this period.

(2) Information on segment profit and loss, assets and liabilities

(3) Reconciliation for segment profit and loss, assets and liabilities

The profit and loss of each operating segment of the Company is based on pre-tax operating income

measured as a basis for assessing performance. Inter-departmental sales are carried out at arm’s

length. Revenue from external sources reported to the chief operating decision-maker is measured

in a manner consistent with that in the income statement.

IC Dept Module Dept Other Dept Adjustment Total

Revenue

From external sources 2,026,968$ 62,337$ -$ -$ 2,089,305$

Inter-departmental - 61,628 - 61,628)( -

Total 2,026,968$ 123,965$ -$ 61,628)($ 2,089,305$

Segment profit (loss) 325,566$ 355$ 48,759)($ -$ 277,162$

IC Dept Module Dept Other Dept Adjustment Total

Revenue

From external sources 2,119,176$ 47,859$ -$ -$ 2,167,035$

Inter-departmental - 61,356 - 61,356)( -

Total 2,119,176$ 109,215$ -$ 61,356)($ 2,167,035$

Segment profit (loss) 335,251$ 1,273)($ 36,234)($ -$ 297,744$



Documents

FORMOSA ADVANCED TECHNOLOGIES CO., LTD. · FORMOSA ADVANCED TECHNOLOGIES CO., LTD. NOTES TO THE FINANCIAL STATEMENTS THREE MONTHS ENDED MARCH, 31, 2017 AND 2016 (EXPRESSED IN THOUSANDS