FORMOSA ADVANCED TECHNOLOGIES

CO., LTD.

FINANCIAL STATEMENTS AND REPORT OF

INDEPENDENT ACCOUNTANTS

DECEMBER 31, 2017 AND 2016

------------------------------------------------------------------------------------------------------------------------------------For the convenience of readers and for information purpose only, the auditors’ report and the accompanyingfinancial statements have been translated into English from the original Chinese version prepared and used inthe Republic of China. In the event of any discrepancy between the English version and the original Chineseversion or any differences in the interpretation of the two versions, the Chinese-language auditors’ report andfinancial statements shall prevail.

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REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of Formosa Advanced Technologies Co., Ltd.

OpinionWe have audited the accompanying balance sheets of Formosa Advanced Technologies Co., Ltd. (the

“Company”) as at December 31, 2017 and 2016, and the related statements of comprehensive income,

of changes in equity and of cash flows for the years then ended, and notes to the financial statements,

including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of the Company as at December 31, 2017 and 2016, 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 the International Financial Reporting Standards,

International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the

Financial Supervisory Commission.

Basis for opinionWe conducted our audits in accordance with the “Regulations Governing Auditing and Attestation of

Financial Statements by Certified Public Accountants” and generally accepted auditing standards in the

Republic of China (ROC GAAS). Our responsibilities under those standards are further described in the

Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We are

independent of the Company in accordance with the Code of Professional Ethics for Certified Public

Accountants in the 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 for our opinion.

Key audit mattersKey audit matters are those matters that, in our professional judgment, were of most significance in our

audit of the financial statements of the current period. These matters were addressed in the context of

our audit of the financial statements as a whole and, in forming our opinion thereon, we do not provide

a separate opinion on these matters.

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The key audit matters of Formosa Advanced Technologies Co., Ltd. for 2017 are as follows:

Allowance for inventory valuation losses

Description

Refer to Note 4(12) for description of accounting policy, Note 5(2) for accounting estimates and

assumption uncertainty in relation to inventory valuation, and Note 6(6) for details of inventory. As of

December 31, 2017, the Company’s inventory and allowance for inventory valuation losses amounted

to NT$863,905 thousand and NT$36,949 thousand, respectively.

The Company is primarily engaged in packaging, testing, and manufacturing integrated circuit. These

kinds of products are easily affected by fluctuations in market prices due to the rapidly changing industry.

As a result, the Company’s inventories are subject to higher risk of decline in market value that would

result to inventory valuation loss. Given that the amount of inventory is material to the financial

statements, inventory items are voluminous, and determination of net realisable value of individually

identified obsolete or scrap inventory rely on subjective management judgement, we consider the

estimation of allowance for inventory valuation loss a key audit matter.

How our audit addressed the matter:

Our audit procedures in relation to the above key audit matter included:

Comparing whether the allowance for inventory valuation loss in the financial period is in

accordance with the Company’s policy, and evaluating the reasonableness of policy;

Verifying whether the systematic method used in preparing the inventory aging report and

individually identifying obsolete or scrap inventory by management is appropriate, and checking

whether obsolete inventories that are over a certain age are listed in the report;

Evaluating the reasonableness of individually identified obsolete or scrap inventory by management

against supporting documents;

Verifying the information from inventory physical count against the waste, slow-moving, scrap,

and damaged inventory report by management; and

Discussing the calculation of net realisable value from waste, slow-moving, scrap, and damaged

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inventory report with management, and gathering supporting documents.

Audit of cash and cash equivalents

Refer to Note 4(5) for description of accounting policy on cash equivalents, and Note 6(1) for details of

cash and cash equivalents. As of December 31, 2017, cash and cash equivalents amounted

NT$3,479,352 thousand.

Cash and cash equivalents comprise 29% of total assets as of December 31, 2017. Cash and cash

equivalents are assets with high liquidity and generally have a high degree of inherent risk. Further,

management needs to determine whether its time deposits meet the definition of cash equivalents. Cash

equivalents are short-term, highly liquid investments that are readily convertible to cash, and subject to

insignificant risk of changes in value. Considering the related risk mentioned above, we consider the

audit of cash and cash equivalents a key audit matter.

How our audit addressed the matter:

Our audit procedures in relation to the above key audit matter included:

Evaluating and testing the internal control over cash management, including segregation of duties

for cash receipts and recording, authorisation of receipts and payments in cash, reviewing bank

reconciliation, etc.

Verifying the existence, rights and obligations of cash and cash equivalents by sending out

confirmation for bank accounts and special agreements with financial institutions, if any.

Examining whether the condition of short-term notes and bills are in agreement with the definition

of cash equivalents.

Testing the correctness of calculation and checking for unusual reconciling items, including:

a) Amount of bank reconciliation at year end against general ledger;

b) Bank balance against bank account statement; and

c) Passbook or amount in confirmation reply.

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Responsibilities of management and those charged with governance for the financial

statementsManagement is responsible for the preparation and fair presentation of the financial statements in

accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”

and the International Financial Reporting Standards, International Accounting Standards, IFRIC

Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory Commission, 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.

In preparing the financial statements, management is responsible for assessing the Company’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 Company or to

cease operations, or has no realistic alternative but to do so.

Those charged with governance, including audit committee (or supervisors), are responsible for

overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the financial statementsOur 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 auditor’s 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 ROC GAAS 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 ROC GAAS, 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 or error, design and perform audit procedures responsive to those risks, and obtain audit

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evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not

detecting a material misstatement 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 are appropriate in the circumstances, but not for the purpose of expressing an opinion on the

effectiveness of the Company’s internal control.

3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management.

4. Conclude on the appropriateness of management’s use of the going concern basis of accounting and,

based on the audit evidence obtained, whether a material uncertainty exists related to events or

conditions that may cast significant doubt on the Company’s ability to continue as a going concern.

If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s

report to the related disclosures in the financial statements or, if such disclosures are inadequate, to

modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our

auditor’s report. However, future events or conditions may cause the Company 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 that achieves fair presentation.

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

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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 auditor’s 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.

Chou, Chien-Hung Juanlu, Man-Yu

For and on behalf of PricewaterhouseCoopers, Taiwan

March 16, 2018

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

FORMOSA ADVANCED TECHNOLOGIES CO., LTD.BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

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

Current assets

1100 Cash and cash equivalents $ 3,479,352 29 $ 3,954,890 35

1110 Financial assets at fair value

through profit or loss - current

6(2)

629,998 5 627,621 6

1125 Available-for-sale financial assets

- current

6(3)

1,737,645 14 733,417 6

1150 Notes receivable, net 8,303 - 5,094 -

1170 Accounts receivable, net 6(5) 522,396 4 622,386 5

1180 Accounts receivable - related

parties

6(5) and 7

964,030 8 1,005,610 9

1200 Other receivables 7,218 - 2,782 -

130X Inventories, net 6(6) 826,956 7 1,098,366 10

1470 Other current assets 107,475 1 48,140 -

11XX Total current assets 8,283,373 68 8,098,306 71

Non-current assets

1523 Available-for-sale financial assets

- non-current

6(3)

630,800 5 726,491 7

1543 Financial assets carried at cost -

non-current

6(4)

30,353 - 30,353 -

1600 Property, plant and equipment,

net

6(7)

3,111,590 26 2,365,600 21

1840 Deferred income tax assets 13,141 - 17,770 -

1900 Other non-current assets 105,924 1 118,847 1

15XX Total non-current assets 3,891,808 32 3,259,061 29

1XXX TOTAL ASSETS $ 12,175,181 100 $ 11,357,367 100

(Continued)

FORMOSA ADVANCED TECHNOLOGIES CO., LTD.BALANCE SHEETS

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

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

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

Current liabilities

2120 Financial liabilities at fair value

through profit or loss - current

6(8)

$ - - $ 1,381 -

2150 Notes payable 1,002 - 113 -

2170 Accounts payable 314,304 2 402,365 4

2180 Accounts payable - related parties 7 44,272 - 39,247 -

2200 Other payables 6(9) 558,395 5 447,249 4

2230 Current income tax liabilities 84,334 1 109,216 1

2300 Other current liabilities 8,471 - 9,925 -

21XX Total current liabilities 1,010,778 8 1,009,496 9

Non-current liabilities

2600 Other non-current liabilities 82,910 1 77,201 1

25XX Total Non-Current Liabilities 82,910 1 77,201 1

2XXX TOTAL LIABILITIES 1,093,688 9 1,086,697 10

Share capital 6(11)

3110 Share capital - common stock 4,422,222 36 4,422,222 39

Capital surplus 6(12)

3200 Capital surplus 2,411,161 20 2,411,111 21

Retained earnings 6(13)

3310 Legal reserve 1,060,111 9 957,855 8

3320 Special reserve - - - -

3350 Unappropriated retained earnings 2,505,930 20 2,105,577 19

Other equity interest

3400 Other equity interest 6(14) 682,069 6 373,905 3

3XXX TOTAL EQUITY 11,081,493 91 10,270,670 90

Contingent liabilities and

commitments

8

3X2X TOTAL LIABILITIES AND

EQUITY $ 12,175,181 100 $ 11,357,367 100

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

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS, EXCEPT FOR EARNINGS PER SHARE AMOUNTS)

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

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Year ended December 312017 2016

Items Notes AMOUNT % AMOUNT %

4000 Operating Revenue 6(15) and 7 $ 7,888,494 100 $ 8,491,396 1005000 Operating Costs 6(6)(18)(19) and 7 ( 6,580,089) ( 83) ( 7,117,109) ( 84)

5900 Net Operating Margin 1,308,405 17 1,374,287 16

Operating Expenses 6(18)(19) and 76100 Selling expenses ( 19,274) - ( 18,651) -6200 General and administrative

expenses ( 61,370) ( 1) ( 62,803) ( 1)6300 Research and development

expenses ( 59,813) ( 1) ( 53,925) -

6000 Total Operating Expenses ( 140,457) ( 2) ( 135,379) ( 1)

6900 Operating profit 1,167,948 15 1,238,908 15

Non-Operating Income andExpenses

7010 Other income 6(16) 148,643 2 117,519 17020 Other gains and losses 6(17) 268,976 3 ( 96,923) ( 1)7050 Finance costs ( 1) - - -

7000 Total Non-Operating Incomeand Expenses 417,618 5 20,596 -

7900 Profit before income tax 1,585,566 20 1,259,504 157950 Income tax expense 6(20) ( 192,480) ( 3) ( 236,948) ( 3)

8200 Profit for the year $ 1,393,086 17 $ 1,022,556 12

Other Comprehensive IncomeComponents of othercomprehensive income that willnot be reclassified to profit orloss

8311 Other comprehensive income,before tax, actuarial losses ondefined benefit plan ($ 7,269) - ($ 14,759) -

8349 Income tax related tocomponents of othercomprehensive income that willnot be reclassified to profit orloss 1,236 - 2,509 -

Components of othercomprehensive income that willbe reclassified to profit or loss

8362 Unrealised gain on valuation ofavailable-for-sale financialassets 308,164 4 335,784 4

8500 Total comprehensive income forthe year $ 1,695,217 21 $ 1,346,090 16

Basic earnings per share 6(21)Before tax $ 3.59 $ 2.85

After tax $ 3.15 $ 2.31

Diluted earnings per share 6(21)Before tax $ 3.57 $ 2.84

After tax $ 3.14 $ 2.30

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

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Retained Earnings

NotesShare capital -common stock

Total capitalsurplus,

additionalpaid-in capital Legal reserve

Specialreserve

Unappropriatedretainedearnings

Unrealisedgain or loss onavailable-for-sale financial

assets Total equity

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

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Year ended December 31, 2016

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

Appropriation of retained earnings and distribution 6(13)

Legal reserve - - 112,708 - ( 112,708) - -

Reversal of special reserve - - - ( 856) 856 - -

Cash dividends - - - - ( 884,444) - ( 884,444)

Net income for 2016 - - - - 1,022,556 - 1,022,556

Other comprehensive income (loss) for 2016 6(14) - - - - ( 12,250) 335,784 323,534

Balance at December 31, 2016 $ 4,422,222 $ 2,411,111 $ 957,855 $ - $ 2,105,577 $ 373,905 $10,270,670

Year ended December 31, 2017

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

Expired cash dividends transferred to capital surplus - 50 - - - - 50

Appropriation of retained earnings and distribution 6(13)

Legal reserve - - 102,256 - ( 102,256) - -

Cash dividends - - - - ( 884,444) - ( 884,444)

Net income for 2017 - - - - 1,393,086 - 1,393,086

Other comprehensive income (loss) for 2017 6(14) - - - - ( 6,033) 308,164 302,131

Balance at December 31, 2017 $ 4,422,222 $ 2,411,161 $ 1,060,111 $ - $ 2,505,930 $ 682,069 $11,081,493

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

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS)

Notes 2017 2016

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

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CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax $ 1,585,566 $ 1,259,504

Adjustments

Adjustments to reconcile profit (loss)

Depreciation 6(7)(18) 883,831 1,290,343

Amortisation 6(18) 92,367 115,170

Gain on doubtful debt recoveries 6(5) ( 228 ) -

Impairment loss 6(4)(17) - 69,022

Gain on disposal of investment 6(17) ( 275,611 ) -

Gain on disposal and scrap of property, plant and equipment 6(17) ( 47,200 ) ( 6,460 )

Gain on valuation of financial assets 6(17) ( 3,758 ) ( 1,343 )

Interest income 6(16) ( 16,420 ) ( 13,550 )

Dividend income 6(16) ( 101,720 ) ( 69,020 )

Changes in operating assets and liabilities

Changes in operating assets

Financial assets held for trading - 30,371

Notes receivable, net ( 3,209 ) 1,960

Accounts receivable, net 100,218 ( 48,498 )

Accounts receivable - related parties 41,580 97,689

Other receivables ( 4,436 ) 2,749

Inventories, net 271,410 ( 8,167 )

Other current assets ( 59,335 ) 104,230

Changes in operating liabilities

Notes payable 889 ( 2,663 )

Accounts payable ( 88,061 ) 77,618

Accounts payable - related parties 5,025 26,066

Other payables 73,857 ( 70,124 )

Other current liabilities ( 1,454 ) 2,525

Other non-current liabilities 5,709 ( 3,434 )

Cash inflow generated from operations 2,459,020 2,853,988

Interest received 16,420 13,550

Dividends received 101,720 69,020

Income tax paid ( 218,716 ) ( 294,487 )

Net cash flows from operating activities 2,358,444 2,642,071

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets ( 848,817 ) ( 528,788 )

Proceeds from sale of available-for-sale financial assets 524,055 -

Acquisition of property, plant, and equipment 6(22) ( 1,592,532 ) ( 718,987 )

Proceeds from disposal of property, plant and equipment 47,200 9,837

Increase in other non-current assets ( 79,444 ) ( 85,753 )

Net cash flows used in investing activities ( 1,949,538 ) ( 1,323,691 )

CASH FLOWS FROM FINANCING ACTIVITIES

Payment of cash dividends ( 884,444 ) ( 884,444 )

Net cash flows used in financing activities ( 884,444 ) ( 884,444 )

Net (decrease) increase in cash and cash equivalents ( 475,538 ) 433,936

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

Cash and cash equivalents at end of year $ 3,479,352 $ 3,954,890

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FORMOSA ADVANCED TECHNOLOGIES CO., LTD.

NOTES TO THE FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2017 AND 2016

(EXPRESSED IN THOUSANDS OF NEW TAIWAN DOLLARS,

EXCEPT AS OTHERWISE INDICATED)

1. HISTORY AND ORGANISATION

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 AUTHORISATION FOR ISSUANCE OF THE FINANCIAL STATEMENTS AND

PROCEDURES FOR AUTHORISATION

These financial statements were reported to the Board of Directors on March 16, 2018.

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

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:

applying the consolidation exception’

January 1, 2016

Amendments to IFRS 11, ‘Accounting for acquisition of interests in

joint operations’

January 1, 2016

IFRS 14, ‘Regulatory deferral accounts’ January 1, 2016

Amendments to IAS 1, ‘Disclosure initiative’ January 1, 2016

Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable

methods of depreciation and amortisation’

January 1, 2016

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

condition and financial performance 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

New standards, interpretations and amendments as endorsed by the FSC effective from 2018 are as

follows:

New Standards, Interpretations and Amendments

Effective Date by

International Accounting

Standards Board

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016

Amendments to IAS 19, ‘Defined benefit plans: employee contributions’ July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financial statements

’

January 1, 2016

Amendments to IAS 36, ‘Recoverable amount disclosures for non-

financial assets’

January 1, 2014

Amendments to IAS 39, ‘Novation of derivatives and continuation of

hedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Annual improvements to IFRSs 2010-2012 cycle July 1, 2014

Annual improvements to IFRSs 2011-2013 cycle July 1, 2014

Annual improvements to IFRSs 2012-2014 cycle January 1, 2016

New Standards, Interpretations and Amendments

Effective Date by

International Accounting

Standards Board

Amendments 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

Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue from

contracts with customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017

Amendments to IAS 12, ‘Recognition of deferred tax assets for

unrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018

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

Company’s financial condition and financial performance based on the Company’s assessment.

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

accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

New Standards, Interpretations and Amendments

Effective Date by

International Accounting

Standards Board

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

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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 license 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.

When adopting the new standards endorsed by the FSC effective from 2018, the Company will apply

the new rules under IFRS 9 retrospectively from January 1, 2018, with the practical expedients

permitted under the statement. Further, the Company expects to adopt IFRS 15 using the modified

retrospective approach. The significant effects of applying the new standards as of January 1, 2018

are summarised below:

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Explanation:

A. In accordance with IFRS 9, the Company expects to reclassify available-for-sale financial assets

- current, available-for-sale financial assets - non-current and financial assets at cost in the

amounts of $1,737,645, $630,800 and $30,353, respectively, and make an irrevocable election at

initial recognition on equity instruments not held for dealing or trading purpose, by increasing

financial assets at fair value through other comprehensive income - current, financial assets at fair

value through other comprehensive income - non-current, increasing retained earnings and

decreasing other equity interest in the amounts of $1,737,645, $660,631, $412,196 and $412,718,

respectively.

B. Revenue recognition of customised products

The Company provides the assembly and test services of integrated chips (“IC”) based on the

specifications as required by the customers. The revenue is recognised when the significant risks

and rewards are transferred under previous accounting policies, and the timing of recognition

usually occurred upon acceptance. Considering that the highly customised products have no

alternative use to the Company and the Company has an enforceable right to payment for

performance completed to date in accordance with the contract terms, the revenue will have to be

recognised based on the percentage of completion under the new revenue standard. As a result,

inventory will have to be decreased by $392,220, contract assets increased by $491,632 and

Balance sheet

Effect of

2017 version adoption of 2018 version

Affected items IFRSs amount new standards IFRSs amount Remark

January 1, 2018

Available-for-sale financial assets -

current1,737,645$ 1,737,645)($ -$ 1

Financial assets at fair value through

other comprehensive income - current- 1,737,645 1,737,645 1

Inventories 826,956 392,220)( 434,736 2Available-for-sale financial assets -

non-current630,800 630,800)( - 1

Financial assets at cost 30,353 30,353)( - 1

Contract assets - 491,632 491,632 2

Financial assets at fair value through

other comprehensive income - non-

current

- 660,631 660,631 1

Total affected assets 3,225,754$ 98,890$ 3,324,644$

Total affected liabilities - - -

Retained earnings 3,566,041 511,608 4,077,649 1 and 2

Other equity interest 682,069 412,718)( 269,351 1

Total affected equity 4,248,110 98,890 4,347,000

Total affected liabilities and equity 4,248,110$ 98,890$ 4,347,000$

~17~

retained earnings increased by $99,412 with the application of the new standard.

(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 are as follows:

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

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

quantitative impact will be disclosed when the assessment is complete.

A. 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.

B. IFRIC 23, ‘Uncertainty over income tax treatments’

This Interpretation clarifies when there is uncertainty over income tax treatments, an entity shall

recognise and measure its current or deferred tax asset or liability applying the requirements in

IAS 12 , ‘Income taxes’ based on taxable profit (tax loss), tax bases, unused tax losses, unused tax

credits and tax rates determined applying this Interpretation.

C. Amendments to IAS 12, ‘Income taxes’

The amendments clarify that the income tax consequences of dividends on financial instruments classified

New Standards, Interpretations and Amendments

Effective Date by

International Accounting

Standards Board

Amendments to IFRS 9, ‘Prepayment features with negative

compensation’

January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assets

between an investor and its associate or joint venture’

To be determined by

International Accounting

Standards BoardIFRS 16, ‘Leases’ January 1, 2019

IFRS 17, ‘Insurance contracts’ January 1, 2021

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

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019

Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

~18~

as equity should be recognised according to where the past transactions or events that generated

distributable profits were recognised. These requirements apply to all income tax consequences of

dividends.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out

below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

(1) Compliance statement

The financial statements of the Company have been prepared in accordance with the “Regulations

Governing the Preparation of Financial Reports by Securities Issuers”, International Financial

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

Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”).

(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 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) Foreign currency translation

The Company’s functional currency is New Taiwan dollars.

A. Foreign currency transactions and balances

(a) Foreign currency transactions are translated into the functional currency using the exchange

rates prevailing at the dates of the transactions or valuation where items are remeasured.

Foreign exchange gains and losses resulting from the settlement of such transactions are

recognised in profit or loss in the period in which they arise.

(b) Monetary assets and liabilities denominated in foreign currencies at the period end are re-

translated at the exchange rates prevailing at the balance sheet date. Exchange differences

arising upon re-translation at the balance sheet date are recognised in profit or loss.

(c) Non-monetary assets and liabilities denominated in foreign currencies held at fair value

through profit or loss are re-translated at the exchange rates prevailing at the balance sheet

date; their translation differences are recognised in profit or loss. Non-monetary assets and

~19~

liabilities denominated in foreign currencies held at fair value through other comprehensive

income are re-translated at the exchange rates prevailing at the balance sheet date; their

translation differences are recognised in other comprehensive income. However, non-

monetary assets and liabilities denominated in foreign currencies that are not measured at fair

value are translated using the historical exchange rates at the dates of the initial transactions.

(d) All foreign exchange gains and losses are presented in the statement of comprehensive income

within ‘other gains and losses’

(4) Classification of current and non-current items

A. Assets that meet one of the following criteria are classified as current assets; otherwise they are

classified as non-current assets:

(a) Assets arising from operating activities that are expected to be realised, or are intended to be

sold or consumed within the normal operating cycle;

(b) Assets held mainly for trading purposes;

(c) Assets that are expected to be realised within twelve months from the balance sheet date;

(d) Cash and cash equivalents, excluding restricted cash and cash equivalents and those that are

to be exchanged or used to settle liabilities more than twelve months after the balance sheet

date.

B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they

are classified as non-current liabilities:

(a) Liabilities that are expected to be settled within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be settled within twelve months from the balance sheet date;

(d) Liabilities for which the repayment date cannot be extended unconditionally to more than

twelve months after the balance sheet date. Terms of a liability that could, at the option of the

counterparty, result in its settlement by the issue of equity instruments do not affect its

classification.

(5) Cash equivalents

Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known

amounts of cash and which are subject to an insignificant risk of changes in value. Time deposits that

meet the definition above and are held for the purpose of meeting short-term cash commitments in

operations are classified as cash equivalents.

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

A. Financial assets at fair value through profit or loss are financial assets held for trading or financial

assets designated as at fair value through profit or loss on initial recognition. Financial assets are

classified in this category of held for trading if acquired principally for the purpose of selling in

the short-term. Derivatives are also categorized as financial assets held for trading unless they are

designated as hedges.

B. On a regular way purchase or sale basis, financial assets at fair value through profit or loss are

~20~

recognised and derecognised using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognised at fair value. Related

transaction costs are expensed in profit or loss. These financial assets are subsequently remeasured

and stated at fair value, and any changes in the fair value of these financial assets are recognised

in profit or loss. Investments in equity instruments that do not have a quoted market price in an

active market and whose fair value cannot be reliably measured or derivatives that are linked to

and must be settled by delivery of such unquoted equity instruments are presented in ‘financial

assets measured at cost’.

(7) Available-for-sale financial assets

A. Available-for-sale financial assets are non-derivatives that are either designated in this category

or not classified in any of the other categories.

B. On a regular way purchase or sale basis, available-for-sale financial assets are recognised and

derecognised using trade date accounting.

C. Available-for-sale financial assets are initially recognised at fair value plus transaction costs.

These financial assets are subsequently remeasured and stated at fair value, and any changes in

the fair value of these financial assets are recognised in other comprehensive income. Investments

in equity instruments that do not have a quoted market price in an active market and whose fair

value cannot be reliably measured or derivatives that are linked to and must be settled by delivery

of such unquoted equity instruments are presented in ‘financial assets measured at cost’.

(8) Accounts receivable

Accounts receivable are loans and receivables originated by the entity. They are created by the entity

by selling goods or providing services to customers in the ordinary course of business. Accounts

receivable are initially recognised at fair value and subsequently measured at amortised cost using

the effective interest method, less provision for impairment. However, short-term accounts receivable

without bearing interest are subsequently measured at initial invoice amount as the effect of

discounting is immaterial.

(9) Impairment of financial assets

A. The Company assesses at each balance sheet date whether there is objective evidence that a

financial asset or a group of financial assets is impaired as a result of one or more events that

occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has

an impact on the estimated future cash flows of the financial asset or group of financial assets that

can be reliably estimated.

B. The criteria that the Company uses to determine whether there is objective evidence of an

impairment loss is as follows:

(a) Significant financial difficulty of the issuer or debtor;

(b) A breach of contract, such as a default or delinquency in interest or principal payments;

(c) The Company, for economic or legal reasons relating to the borrower’s financial difficulty,

granted the borrower a concession that a lender would not otherwise consider;

~21~

(d) It becomes probable that the borrower will enter bankruptcy or other financial reorganisation;

(e) The disappearance of an active market for that financial asset because of financial difficulties;

(f) Observable data indicating that there is a measurable decrease in the estimated future cash

flows from a group of financial assets since the initial recognition of those assets, although the

decrease cannot yet be identified with the individual financial asset in the group, including

adverse changes in the payment status of borrowers in the group or national or local economic

conditions that correlate with defaults on the assets in the group;

(g) Information about significant changes with an adverse effect that have taken place in the

technology, market, economic or legal environment in which the issuer operates, and indicates

that the cost of the investment in the equity instrument may not be recovered;

(h) A significant or prolonged decline in the fair value of an investment in an equity instrument

below its cost.

C. When the Company assesses that there has been objective evidence of impairment and an

impairment loss has occurred, accounting for impairment is made as follows according to the

category of financial assets:

(a) Financial assets measured at amortised cost

The amount of the impairment loss is measured as the difference between the asset’s carrying

amount and the present value of estimated future cash flows discounted at the financial asset’s

original effective interest rate, and is recognised in profit or loss. If, in a subsequent period,

the amount of the impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment loss was recognised, the previously recognised

impairment loss is reversed through profit or loss to the extent that the carrying amount of the

asset does not exceed its amortised cost that would have been at the date of reversal had the

impairment loss not been recognised previously. Impairment loss is recognised and reversed

by adjusting the carrying amount of the asset through the use of an impairment allowance

account.

(b) Financial assets measured at cost

The amount of the impairment loss is measured as the difference between the asset’s carrying

amount and the present value of estimated future cash flows discounted at current market

return rate of similar financial asset, and is recognised in profit or loss. Impairment loss

recognised for this category shall not be reversed subsequently. Impairment loss is recognised

by adjusting the carrying amount of the asset through the use of an impairment allowance

account.

(c) Available-for-sale financial assets

The amount of the impairment loss is measured as the difference between the asset’s

acquisition cost (less any principal repayment and amortization) and current fair value, less

any impairment loss on that financial asset previously recognised in profit or loss, and is

reclassified from ‘other comprehensive income’ to ‘profit or loss’. Impairment loss of an

~22~

investment in an equity instrument recognised in profit or loss shall not be reversed through

profit or loss. Impairment loss is recognised and reversed by adjusting the carrying amount of

the asset through the use of an impairment allowance account.

(10) Derecognition of financial assets

The Company derecognises a financial asset when one of the following conditions is met:

A. The contractual rights to receive the cash flows from the financial asset expire.

B. The contractual rights to receive cash flows of the financial asset have been transferred and the

Company has transferred substantially all risks and rewards of ownership of the financial asset.

C. The contractual rights to receive cash flows of the financial asset have been transferred and the

Company has not retained control of the financial asset.

(11) Lease receivables/ leases (lessor)

A. Based on the terms of a lease contract, a lease is classified as a finance lease if the lessee assumes

substantially all the risks and rewards incidental to ownership of the leased asset.

(a) At commencement of the lease term, the lessor should record a finance lease in the balance

sheet as ‘lease receivables’ at an amount equal to the net investment in the lease (including

initial direct costs). The difference between gross lease receivable and the present value of

the receivable is recognised as ‘unearned finance income of finance lease’.

(b) The lessor should allocate finance income over the lease term based on a systematic and

rational basis reflecting a constant periodic rate of return on the lessor’s net investment in the

finance lease.

(c) Lease payments (excluding costs for services) during the lease term are applied against the

gross investment in the lease to reduce both the principal and the unearned finance income.

B. Lease income from an operating lease (net of any incentives given to the lessee) is recognised in

profit or loss on a straight-line basis over the lease term.

(12) Inventories

Inventories are stated at the lower of cost and net realisable value. Cost is determined using the

weighted-average method. The cost of finished goods and work in process comprises raw materials,

direct labour, other direct costs and related production overheads (allocated based on normal

operating capacity). It excludes borrowing costs. The item by item approach is used in applying the

lower of cost and net realisable value. Net realisable value is the estimated selling price in the

ordinary course of business, less the estimated cost of completion and applicable variable selling

expenses.

(13) Property, plant and equipment

A. Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the

construction period are capitalized.

B. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset,

as appropriate, only when it is probable that future economic benefits associated with the item

will flow to the Company and the cost of the item can be measured reliably. The carrying amount

~23~

of the replaced part is derecognised. All other repairs and maintenance are charged to profit or

loss during the financial period in which they are incurred.

C. Equipment apply cost model and are depreciated using the straight-line method to allocate their

cost over their estimated useful lives. Each part of an item of equipment with a cost that is

significant in relation to the total cost of the item must be depreciated separately.

D. The assets’ residual values, useful lives and depreciation methods are reviewed, and adjusted if

appropriate, at each financial year-end. If expectations for the assets’ residual values and useful

lives differ from previous estimates or the patterns of consumption of the assets’ future economic

benefits embodied in the assets have changed significantly, any change is accounted for as a

change in estimate under IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and

Errors’, from the date of the change. The estimated useful lives of property, plant and equipment

are as follows:

(14) Leases (lessee)

Payments made under an operating lease (net of any incentives received from the lessor) are

recognised in profit or loss on a straight-line basis over the lease term.

(15) Impairment of non-financial assets

The Company assesses at each balance sheet date the recoverable amounts of those assets where

there is an indication that they are impaired. An impairment loss is recognised for the amount by

which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the

higher of an asset’s fair value less costs to sell or value in use. Except for goodwill, when the

circumstances or reasons for recognising impairment loss for an asset in prior years no longer exist

or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should

not be more than what the depreciated or amortised historical cost would have been if the impairment

had not been recognised.

(16) Notes and accounts payable

Notes and accounts payable are obligations to pay for goods or services that have been acquired in

the ordinary course of business from suppliers. They are recognised initially at fair value and

subsequently measured at amortised cost using the effective interest method. However, short-term

accounts payable without bearing interest are subsequently measured at initial invoice amount as

the effect of discounting is immaterial.

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

A. Financial liabilities at fair value through profit or loss are financial liabilities held for trading or

financial liabilities designated as at fair value through profit or loss on initial recognition.

Financial liabilities are classified in this category of held for trading if acquired principally for

Land improvements 8 years

Machinery and equipment 2~5 years

Transportation equipment 5~8 years

Other equipment 2~15 years

~24~

the purpose of repurchasing in the short-term. Derivatives are also categorized as financial

liabilities held for trading unless they are designated as hedges.

B. Financial liabilities at fair value through profit or loss are initially recognised at fair value.

Related transaction costs are expensed in profit or loss. These financial liabilities are

subsequently remeasured and stated at fair value, and any changes in the fair value of these

financial liabilities are recognised in profit or loss.

(18) Derecognition of financial liabilities

A financial liability is derecognised when the obligation under the liability specified in the contract

is discharged or cancelled or expires.

(19) Employee benefits

A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected

to be paid in respect of service rendered by employees in a period and should be recognised as

expense in that period when the employees render service.

B. Pensions

(a) Defined contribution plan

For defined contribution plan, the contributions are recognised as pension expense when they

are due on an accrual basis. Prepaid contributions are recognised as an asset to the extent of

a cash refund or a reduction in the future payments.

(b) Defined benefit plan

i. Net obligation under a defined benefit plan is defined as the present value of an amount of

pension benefits that employees will receive on retirement for their services with the

Company in current period or prior periods. The liability recognised in the balance sheet

in respect of defined benefit pension plan is the present value of the defined benefit

obligation at the balance sheet date less the fair value of plan assets. The net defined benefit

obligation is calculated annually by independent actuaries using the projected unit credit

method. The rate used to discount is determined by using interest rates of high-quality

corporate bonds that are denominated in the currency in which the benefits will be paid,

and that have terms to maturity approximating to the terms of the related pension liability;

when there is no deep market in high-quality corporate bonds, the Company uses interest

rates of government bonds (at the balance sheet date) instead.

ii.Remeasurements arising on defined benefit plan are recognised in other comprehensive

income in the period in which they arise and are recorded as retained earnings.

iii.Past service costs are recognised immediately in profit or loss.

C. Employees’ compensation and directors’ and supervisors’ remuneration

Employees’ compensation and directors’ and supervisors’ remuneration are recognised as

expense and liability, provided that such recognition is required under legal or constructive

obligation and those amounts can be reliably estimated. Any difference between the resolved

~25~

amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

(20) Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or

loss, except to the extent that it relates to items recognised in other comprehensive income or

items recognised directly in equity, in which cases the tax is recognised in other comprehensive

income or equity.

B. The current income tax expense is calculated on the basis of the tax laws enacted or substantively

enacted at the balance sheet date in the countries where the Company and its subsidiaries operate

and generate taxable income. Management periodically evaluates positions taken in tax returns

with respect to situations in accordance with applicable tax regulations. It establishes provisions

where appropriate based on the amounts expected to be paid to the tax authorities. An additional

10% tax is levied on the unappropriated retained earnings and is recorded as income tax expense

in the year the stockholders resolve to retain the earnings.

C. Deferred income tax is recognised, using the balance sheet liability method, on temporary

differences arising between the tax bases of assets and liabilities and their carrying amounts in

the balance sheet. Deferred income tax is determined using tax rates (and laws) that have been

enacted or substantially enacted by the balance sheet date and are expected to apply when the

related deferred income tax asset is realised or the deferred income tax liability is settled.

D. Deferred income tax assets are recognised only to the extent that it is probable that future taxable

profit will be available against which the temporary differences can be utilised. At each balance

sheet date, unrecognised and recognised deferred income tax assets are reassessed.

E. Current income tax assets and liabilities are offset and the net amount reported in the balance

sheet when there is a legally enforceable right to offset the recognised amounts and there is an

intention to settle on a net basis or realise the asset and settle the liability simultaneously.

Deferred income tax assets and liabilities are offset on the balance sheet when the entity has the

legally enforceable right to offset current tax assets against current tax liabilities and they are

levied by the same taxation authority on either the same entity or different entities that intend to

settle on a net basis or realise the asset and settle the liability simultaneously.

(21) Share capital

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new

shares or stock options are shown in equity as a deduction, net of tax, from the proceeds.

(22) Dividends

Dividends are recorded in the Company’s financial statements in the period in which they are

approved by the Company’s shareholders. Cash dividends are recorded as liabilities.

(23) Revenue recognition

The Company manufactures and sells semiconductor products. Revenue is measured at the fair value

of the consideration received or receivable taking into account corporate tax, returns, rebates and

discounts for the sale of goods to external customers in the ordinary course of the Company’s

~26~

activities. Revenue arising from the sales of goods is recognised when the Company has delivered

the goods to the customer, the amount of sales revenue can be measured reliably and it is probable

that the future economic benefits associated with the transaction will flow to the entity. The delivery

of goods is completed when the significant risks and rewards of ownership have been transferred to

the customer, the Company retains neither continuing managerial involvement to the degree usually

associated with ownership nor effective control over the goods sold, and the customer has accepted

the goods based on the sales contract or there is objective evidence showing that all acceptance

provisions have been satisfied.

(24) Operating segments

Operating segments are reported in a manner consistent with the internal reporting provided to the

chief operating decision maker. The chief operating decision maker is responsible for allocating

resources and assessing performance of the operating segments.

5. CRITICAL ACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these financial statements requires management to make critical judgements in

applying the Company’s accounting policies and make critical assumptions and estimates concerning

future events. Assumptions and estimates may differ from the actual results and are continually evaluated

and adjusted based on historical experience and other factors. Such assumptions and estimates have a

significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within

the next financial year; and the related information is addressed below:

(1) Critical judgements in applying the Company’s accounting policies

Financial assets-impairment of equity investments

The Company follows the guidance of IAS 39 to determine whether a financial asset-equity

investment is impaired. This determination requires significant judgement. In making this judgement,

the Company evaluates, among other factors, the duration and extent to which the fair value of an

equity investment is less than its cost and the financial health of and short-term business outlook for

the investee, including factors such as industry and sector performance, changes in technology and

operational and financing cash flow.

(2) Critical accounting estimates and assumptions

A. Impairment assessment of tangible assets

The Company assesses impairment based on its subjective judgement and determines the separate

cash flows of a specific group of assets, useful lives of assets and the future possible income and

expenses arising from the assets depending on how assets are utilised and industrial characteristics.

Any changes of economic circumstances or estimates due to the change of Company strategy

might cause material impairment on assets in the future.

B. Evaluation of inventories

As inventories are stated at the lower of cost and net realisable value, the Company must determine

the net realisable value of inventories on balance sheet date using judgements and estimates. Due

~27~

to the rapid technology innovation, the Company evaluates the amounts of normal inventory

consumption, obsolete inventories or inventories without market selling value on balance sheet

date, and writes down the cost of inventories to the net realisable value. Such an evaluation of

inventories is principally based on the demand for the products within the specified period in the

future. Therefore, there might be material changes to the evaluation.

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 $2,377 and $2,182 on financial assets held for trading for

the years ended December 31, 2017 and 2016, respectively.

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

As at December 31, 2017: None.

December 31, 2017 December 31, 2016

Cash on hand and revolving funds 90$ 60$

Checking accounts and demand

deposits 488,016 632,220

Cash equivalentsTime deposits 163,680 -

Short-term notes and bills 2,827,566 3,322,610

3,479,352$ 3,954,890$

Item December 31, 2017 December 31, 2016

Current items:

Financial assets held for trading

Beneficiary certificates 619,504$ 619,504$

Non-hedging derivatives - 66

619,504 619,570Valuation adjustment of financial

assets held for trading 10,494 8,051

629,998$ 627,621$

~28~

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 gain amounting to $583,775 and $335,784 in other comprehensive

income for fair value change for the years ended December 31, 2017 and 2016, respectively. The

Company reclassified from equity to profit or loss in the amount of $275,611 for the year ended

December 31, 2017.

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

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

C. As of December 31, 2017 and 2016, the Company has no available-for-sale financial assets

pledged to others.

Contract amount

Derivative (notional principal) Contract

Instruments (in thousands) period

Current items:

Forward foreign

exchange contracts 2016.12.29~

Changhua Bank US$ 1,000 2017.2.3

December 31, 2016

Item

Current items:

Listed (TSE and OTC) stocks 1,382,577$ 534,002$

Valuation adjustments of

available-for-sale financial

assets 355,068 199,415

1,737,645$ 733,417$

Non-current items:

Listed (TSE and OTC) stocks 418,980$ 761,281$

Valuation adjustments of

available-for-sale financial

assets 327,001 174,490

Less: Accumulated impairment 115,181)( 209,280)(

630,800$ 726,491$

~29~

(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 $0 and $69,022 (shown as ‘other gains and losses’)

for the years ended December 31, 2017 and 2016, respectively, on the abovementioned financial

instruments.

C. As of December 31, 2017 and 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:

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.

Item December 31, 2017 December 31, 2016

Non-current items:

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

Syntronix Corporation stocks 1,181 1,181

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

30,353$ 30,353$

December 31, 2017 December 31, 2016

Accounts receivable 528,879$ 642,540$Less: Allowance for bad debts 6,483)( 20,154)(

522,396 622,386Accounts receivable - related parties 964,030 1,005,610

1,486,426$ 1,627,996$

December 31, 2017 December 31, 2016

Group 1 406,080$ 1,532,541$

Group 2 9,784 8

Group 3 61,352 68,849

477,216$ 1,601,398$

~30~

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 December 31, 2017 and 2016, the Company’s accounts receivable that were impaired

amounted to $0 and $13,443, respectively.

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

(6) Inventories

December 31, 2017 December 31, 2016

Up to 30 days 15,077$ 25,036$

31 to 90 days 416 8,273

15,493$ 33,309$

Individual provision Group provision Total

At January 1 13,443$ 6,711$ 20,154$Transfer to other income - 228)( 228)(

Write-offs during the

year 13,443)( - 13,443)(

At December 31 -$ 6,483$ 6,483$

2017

Individual provision Group provision Total

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

Reversal of impairment - - -

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

2016

Allowance for

Cost valuation loss Book value

Raw materials 312,066$ 9,150)($ 302,916$

Materials 69,042 358)( 68,684

Work in process 194,210 - 194,210

Finished goods 244,127 27,441)( 216,686

Inventory in transit 44,460 - 44,460

863,905$ 36,949)($ 826,956$

December 31, 2017

~31~

Note 1: The Company recognised gain on reversal of market price as a result of inventory clearance.

Note 2: Due to the price decline of inventory, the Company recognised allowance for inventory

valuation loss.

Allowance for

Cost valuation loss Book value

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

Inventory in transit 49,554 - 49,554

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

December 31, 2016

2017 2016

Cost of inventories sold 6,615,003$ 7,134,376$

Gain on inventory valuation (Note 1) 20,539)( -

Loss on inventory valuation (Note 2) - 3,230

Loss on scrapping inventory 22,722 9,083

Revenue from sales of scraps 37,181)( 29,695)(

Loss on physical inventory 84 115

6,580,089$ 7,117,109$

Years ended December 31,

~32~

(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 - - - - 1,629,821 1,629,821Reclassifications - 894,552 6,470 36,368 937,390)( -

Depreciation charge - 762,837)( 6,144)( 114,850)( - 883,831)(

Closing net book amount -$ 1,935,843$ 15,978$ 212,470$ 947,299$ 3,111,590$

At December 31, 2017

Cost 860$ 19,421,580$ 38,453$ 3,894,996$ 947,299$ 24,303,188$

Accumulated

depreciation and

impairment 860)( 17,485,737)( 22,475)( 3,682,526)( - 21,191,598)(

-$ 1,935,843$ 15,978$ 212,470$ 947,299$ 3,111,590$

2017

~33~

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 - - - - 714,076 714,076Disposals - 3,201)( 176)( - - 3,377)(Reclassifications - 527,152 7,505 22,788 557,445)( -

Depreciation charge - 1,158,015)( 5,707)( 126,621)( - 1,290,343)(

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

At December 31, 2016

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$

2016

~34~

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

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

or loss amounting to $1,381 and ($839) for the years ended December 31, 2017 and 2016,

respectively.

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

As at December 31, 2017: None.

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.

(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

Items December 31, 2017 December 31, 2016

Current items:

Held-for-sale financial liabilities

Non-hedging derivatives -$ 1,381$

Contract amount

Derivative Financial notional principal Contract

Liabilities (in thousand dollars) period

Current items:Forward foreign

exchange

contracts

Changhua Bank US$ 5,000

2016.11.24

~2017.2.3

December 31, 2016

Dividends payable 342$ 325$

Wages and salaries payable 194,810 229,798

Processing fees payable 130,506 88,200

Payables on equipment 73,601 36,312

Employees' compensation and

directors' and supervisors'

remuneration payable 43,998 32,672

Others 115,138 59,942

558,395$ 447,249$

~35~

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) The amounts recognised in the balance sheet are as follows:

(c) Movements in net defined benefit liabilities are as follows:

December 31, 2017 December 31, 2016

Present value of defined benefit

obligations 163,857$ 155,179$

Fair value of plan assets 82,603)( 78,078)(

Net defined benefit liability 81,254$ 77,101$

Present value ofdefined benefit Fair value of Net defined

obligation plan assets benefit liability

Year ended December 31, 2017Balance at January 1 155,179$ 78,078)($ 77,101$Current service cost 742 - 742

Interest expense (income) 1,940 1,006)( 934

157,861 79,084)( 78,777

Remeasurements:Return on plan assets (excluding amounts

included in interest income or expense) - 460 460

Experience adjustments 6,809 - 6,809

6,809 460 7,269

Pension fund contribution - 4,792)( 4,792)(

Paid pension 813)( 813 -

813)( 3,979)( 4,792)(

Balance at December 31 163,857$ 82,603)($ 81,254$

~36~

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s and domestic

subsidiaries’ defined benefit pension plan in accordance with the Fund’s annual investment

and utilisation plan and the “Regulations for Revenues, Expenditures, Safeguard and

Utilisation of the Labor Retirement Fund” (Article 6: The scope of utilisation for the Fund

includes deposit in domestic or foreign financial institutions, investment in domestic or

foreign listed, over-the-counter, or private placement equity securities, investment in

domestic or foreign real estate securitization products, etc.). With regard to the utilisation of

the Fund, its minimum earnings in the annual distributions on the final financial statements

shall be no less than the earnings attainable from the amounts accrued from two-year time

deposits with the interest rates offered by local banks. If the earnings is less than

aforementioned rates, government shall make payment for the deficit after being authorised

by the Regulator. The Company and domestic subsidiaries have no right to participate in

managing and operating that fund and hence the Company and domestic subsidiaries are

unable to disclose the classification of plan assets fair value in accordance with IAS 19

paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and

2016 is given in the Annual Labor Retirement Fund Utilisation Report announced by the

government.

(e) The principal actuarial assumptions used were as follows:

Assumptions regarding future mortality experience are set based on actuarial advice in

accordance with published statistics and experience in each territory.

Present value of

defined benefit Fair value of Net defined

obligation plan assets benefit liability

Year ended December 31, 2016

Balance at January 1 138,026$ 72,447)($ 65,579$

Current service cost 677 - 677

Interest expense (income) 2,070 1,102)( 968

140,773 73,549)( 67,224

Remeasurements:

Return on plan assets (excluding amounts

included in interest income or expense) - 353 353

Change in financial assumptions 6,330 - 6,330

Experience adjustments 8,076 - 8,076

14,406 353 14,759

Pension fund contribution - 4,882)( 4,882)(

Balance at December 31 155,179$ 78,078)($ 77,101$

Year ended December 31, 2017 Year ended December 31, 2016

Discount rate 1.25% 1.25%

Future salary increases 1.00% 1.00%

~37~

Because the main actuarial assumption changed, the present value of defined benefit

obligation is affected. The analysis was as follows:

The sensitivity analysis above is based on one assumption which changed while the other

conditions remain unchanged. In practice, more than one assumption may change all at once.

The method of analysing sensitivity and the method of calculating net pension liability in the

balance sheet are the same.

The methods and types of assumptions used in preparing the sensitivity analysis did not

change compared to the previous period.

(f) Expected contributions to the defined benefit pension plan of the Company for the year ending

December 31, 2018 amount to $4,759.

(g) As of December 31, 2017, the weighted average duration of the retirement plan is 21 years.

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 years

ended December 31, 2017 and 2016 were $54,740 and $53,221, respectively.

(11) Capital stock

As of December 31, 2017, the Company’s authorised 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

Increase 0.25% Decrease 0.25% Increase 1% Decrease 1%

December 31, 2017

Effect on present value of

defined benefit obligation6,413)($ 6,762$ 29,441$ 24,249)($

December 31, 2016

Effect on present value of

defined benefit obligation6,330)($ 6,688$ 29,198$ 23,855)($

Discount rate Future salary increases

~38~

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 and 2015 had been approved by the shareholders during

their meeting on June 23, 2017 and June 24, 2016, respectively. Details were 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.

Dividends Dividends

per share per share

Amount (in dollars) Amount (in dollars)

Legal reserve 102,256$ 112,708$

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

986,700$ 997,152$

Years ended December 31,

2016 2015

~39~

E. The appropriations of earnings of 2017 has been approved by the Board of Directors during its

meeting on March 16, 2018. Details are as follows:

F. For the information relating to employees’ compensation and directors’ and supervisors’

remuneration, please refer to Note 6(19).

(14) Other equity items

(15) Operating revenue

(16) Other revenue

Dividends

per share

Amount (in dollars)

Legal reserve 139,309$

Cash dividends 1,105,555 2.5$

1,244,864$

Year ended December 31, 2017

2017 2016

Available-for-sale Available-for-sale

investment investment

At January 1 373,905$ 38,121$

Revaluation 583,775 335,784

Reclassified as gain on disposal 275,611)( -

At December 31 682,069$ 373,905$

2017 2016

IC revenue 7,348,457$ 8,037,457$

Module revenue 540,037 453,939

7,888,494$ 8,491,396$

Years ended December 31,

2017 2016

Interest income 16,420$ 13,550$

Dividend income 101,720 69,020

Other revenue 30,503 34,949

148,643$ 117,519$

Years ended December 31,

~40~

(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 years ended December 31, 2017 and 2016, employees’ compensation was accrued at

$39,924 and $29,702, respectively; while directors’ and supervisors’ remuneration was accrued

at $4,074 and $2,970, respectively. The aforementioned amounts were recognised in salary

2017 2016

Net gain on financial assets at fair value

through profit or loss 2,377$ 2,182$

Net gain (loss) on financial liabilities at fair

value through profit or loss 1,381 839)(

Net currency exchange loss 48,246)( 17,092)(

Gain on disposal of available -for-sale

financial assets 275,611 -

Gain on disposal of property, plant

and equipment 47,200 6,460

Impairment loss, net - 69,022)(

Other losses 9,347)( 18,612)(

268,976$ 96,923)($

Years ended December 31,

2017 2016

Employee benefit expense 1,412,069$ 1,408,510$

Depreciation charges on property, plant

and equipment 883,831 1,290,343

Amortisation 92,367 115,170

2,388,267$ 2,814,023$

Years ended December 31,

2017 2016

Wages and salaries 1,217,343$ 1,221,572$Labor and health insurance fees 123,263 116,779Pension costs 56,416 54,866

Other personnel expenses 15,047 15,293

1,412,069$ 1,408,510$

Years ended December 31,

~41~

expenses.

The employees’ compensation and directors’ and supervisors’ remuneration were estimated and

accrued based on 2.45% and 0.25% of profit of current year distributable for the year ended

December 31, 2017, respectively. The employees’ compensation and directors’ and supervisors’

remuneration resolved by the Board of Directors were $39,924 and 4,074, respectively, and the

employees’ compensation will be distributed in the form of cash.

Employees’ compensation and directors’ and supervisors’ remuneration of 2016 as resolved by

the Board of Directors were in agreement with those amounts recognised in the 2016 financial

statements.

Information about employees’ compensation and directors’ and supervisors’ remuneration of the

Company as resolved by the Board of Directors will be posted in the “Marcet Observation Post

Syestem” at the website of the Taiwan Stock Exchange.

(20) Income tax

A. Income tax

(a) Components of income tax expense:

(b) The income tax (charge)/credit relating to components of other comprehensive income is as

follows:

2017 2016

Current tax:Current tax on profit for the year 189,045$ 217,971$Tax on undistributed surplus earnings 2,361 12,189Prior year income tax (over)

under estimation 3,555)( 5,640

Total current tax 187,851$ 235,800$

Deferred tax:

Origination and reversal of temporary

differences 4,629 1,148

Income tax expense 192,480$ 236,948$

Years ended December 31,

2017 2016

Remeasurement of defined benefit obligations 1,236$ 2,509$

Years ended December 31,

~42~

B. Reconciliation between income tax expense and accounting profit

C. Amounts of deferred tax assets or liabilities as a result of temporary differences, are as follows:

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

Authority.

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

F. As of December 31, 2016, the balance of the imputation tax credit account was $307,079. The

2017 2016

Tax calculated based on profit before tax

and statutory tax rate 269,546$ 214,116$

Expenses disallowed by tax regulation 75,872)( 5,003

Prior year income tax (over) under

estimation3,555)( 5,640

Tax on undistributed earnings 2,361 12,189

Income tax expense 192,480$ 236,948$

Years ended December 31,

Recognised in

January 1 profit or loss December 31

Temporary differences:

Deferred tax assets:

Unrealised loss on valuation of inventory 9,773$ 3,491)($ 6,282$

Unrealised gain on financial assets 5 644)( 639)(

Unrealised loss on exchange 1,198)( 1,272 74

Unfunded pension expense 9,068 530)( 8,538

Actuarial loss arising on defined benefit

obligation122 1,236)( 1,114)(

17,770$ 4,629)($ 13,141$

Recognised in

January 1 profit or loss December 31

Temporary differences:

Deferred tax assets:

Unrealised loss on valuation of inventory 9,224$ 549$ 9,773$

Unrealised gain on financial assets 630)( 630 -

Unrealised gain on financial liabilities - 5 5

Unrealised loss on exchange 825)( 373)( 1,198)(

Unfunded pension expense 8,518 550 9,068

Actuarial loss arising on defined benefit

obligation2,631 2,509)( 122

18,918$ 1,148)($ 17,770$

~43~

creditable tax rate was 20.21% for the year ended December 31, 2016.

(21) Earnings per share

Weighted averagenumber of ordinary

shares outstanding

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

Basic earnings per share

Net income 1,585,566$ 1,393,086$ 442,222 3.59$ 3.15$

Net income 1,585,566$ 1,393,086$ 442,222

Assumed conversion of

all dilutive potential

ordinary shares

Employees’

compensation - - 1,558

Shareholders of the

parent plus assumed

conversion of all dilutive

potential ordinary shares 1,585,566$ 1,393,086$ 443,780 3.57$ 3.14$

Earnings per share

Amount ( in thousands) (in dollars)

Diluted earnings per share

Weighted averagenumber of ordinary

shares outstanding

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

Basic earnings per share

Net income 1,259,504$ 1,022,556$ 442,222 2.85$ 2.31$

Net income 1,259,504$ 1,022,556$ 442,222

Assumed conversion of

all dilutive potential

ordinary shares

Employees'

compensation - - 2,111

Shareholders of the

parent plus assumed

conversion of all dilutive

potential ordinary shares 1,259,504$ 1,022,556$ 444,333$ 2.84$ 2.30$

Year ended December 31, 2016

Earnings per share

Amount ( in thousands) (in dollars)

Diluted earnings per share

~44~

(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.

(2) Names of related parties and relationship

(3) Significant related party transactions

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.

Purchase of property, plant and

equipment 1,629,821$ 714,076$

Add: Opening balance of payable on

equipment 36,312 41,223

Less: Ending balance of payable on

equipment 73,601)( 36,312)(

Cash paid during the year 1,592,532$ 718,987$

Years ended December 31,

Names of related parties Relationship with the Group

Formosa Taffeta Co., Ltd. and Subsidiaries Parent company

Nan Ya Technology Corporation Other related party

Nan Ya PCB Corp. Other related party

Nan Ya Plastics Corporation Other related party

Nan Ya Photonics Inc. Other related party

Formosa Petrochemical Corp. Other related party

Nan Ya PCB (Kun Shan) Corp. Other related party

Formosa Plastics Transport Corp. Other related party

PieceMakers Technology, Inc. Other related party

2017 2016

Sales of goods:

‒ Other related parties

Nan Ya Technology Corporation 5,295,339$ 5,654,012$

Others 48,388 48,880

5,343,727$ 5,702,892$

Years ended December 31,

~45~

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:

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

Rent expense paid to related parties for the years ended December 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

2017 2016

Purchases of goods:

‒ Other related parties 256,259$ 178,377$

‒ Parent company 890 588

257,149$ 178,965$

Years ended December 31,

December 31, 2017 December 31, 2016

Accounts receivable:‒ Other related parties

Nan Ya Technology Corporation 953,005$ 992,417$

Others 11,025 13,193

964,030$ 1,005,610$

December 31, 2017 December 31, 2016

Accounts payable:

‒ Other related parties 44,272$ 39,219$

‒ Parent company - 28

44,272$ 39,247$

2017 2016

Rent expense:

‒ Parent company 38,216$ 38,400$

Years ended December 31,

~46~

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

31, 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 December 31, 2017 and 2016,

rental payable were both $3,074.

F. 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 years ended December 31, 2017 and 2016 are as follows:

H. Property transactions:

(a) Disposal of property, plant and equipment:

(b) Acquisition of financial assets:

(4) Key management compensation

2017 2016

Operating expense:

‒ Parent company 19,571$ 19,929$

Years ended December 31,

December 31, 2017 December 31, 2016

Expense payable:

‒ Parent company 1,697$ 1,632$

Disposal Gain (loss) on Disposal Gain (loss) on

proceeds disposal proceeds disposal

Other related parties 390$ -$ -$ -$

Year ended December 31, 2017 Year ended December 31, 2016

Year ended

December 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 13,692$ 14,656$

Post-employment benefits 103 103

13,795$ 14,759$

Years ended December 31,

~47~

8. SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNISED CONTRACT

COMMITMENTS

(1) Commitments

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

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

the Company’s custody are as follows:

~48~

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 6,370,477 NTD 0.02~1.05 - - - - - -

FBGA 64,299,572 USD 4.95~11.2 - - - - - -

TSOP 6,022,949 USD 0.27~0.72 - - - - - -

LED assembly 3,031,711 NTD 0.46~14.21 - - - - 439 NTD 32.65~679

MODULE 295,990 USD 0.27~16.867 - - 120,513 USD 9.3~168.01 - -

MICRO-SD 1,958 USD 3.028~16.867 - - - - - -

Flip chip 1,863 USD 10

OTHERS 24,813 USD 3.082~13.527 1,331 USD 1,600 - - - -

80,049,333 1,331 120,513 439

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 15,604,190 NTD 0.02~1.05 - - - - - -

FBGA 50,167,440 USD 4.95~11.2 - - - - - -

TSOP 5,530,933 USD 0.27~0.72 - - - - - -

LED assembly 7,236,633 NTD 0.46~14.21 - - - - 604 NTD 32.65~679

MODULE - - - - 19,520 USD 9.3~168.01 - -

MICRO-SD 6,129 USD 3.028~16.867 - - - - - -

Flip chip 1,402 USD 10

OTHERS 198 USD 3.082~13.527 449 USD 1,600 - - - -

78,546,925 449 19,520 604

December 31, 2017

~49~

(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 December 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

The Company’s objectives when managing capital are to safeguard the Company’s ability to

continue as a going concern in order to provide returns for shareholders and to 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 amount of dividends paid to shareholders, return capital to shareholders,

issue new shares or sell assets to reduce debt.

(2) Financial instruments

A. Fair value information of financial instruments

The Company’s cash and cash equivalents and the carrying amounts of the Company’s financial

instruments measured at amortised cost (including notes receivable, accounts receivable

(including related parties), other receivables (including related parties), other financial assets,

short-term borrowings, 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. The fair value information of financial instruments measured at fair value is provided

in Note 12(3).

B. Financial risk management policies

(a) The Company’s activities expose it to a variety of financial risks: market risk (including foreign

exchange risk, interest rate risk and price risk), credit risk and liquidity risk. The Company’s

overall risk management programme focuses on the unpredictability of financial markets and

seeks to minimise potential adverse effects on the Company’s financial position and financial

performance. The Company uses derivative financial instruments to hedge certain risk

exposures (see Notes 6(2) and 6(8)).

December 31, 2017 December 31, 2016

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

Between 1 and 5 years 147,534 147,534

184,418$ 184,418$

Currency (thousands) December 31, 2017

USD 1,047$

JPY 2,781,551

~50~

(b) Risk management is carried out by a central treasury department (Company treasury) under

policies approved by the Board of Directors. Company treasury identifies, evaluates and

hedges financial risks in close cooperation with the Company’s operating units. The Board

provides written principles for overall risk management, as well as written policies covering

specific areas and matters, such as foreign exchange risk, interest rate risk, credit risk, use of

derivative financial instruments and non-derivative financial instruments, and investment of

excess liquidity.

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

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 currencyamount Exchange Book value

(in thousands) rate (NTD)

(Foreign currency:

functional currency)

Financial assets

Monetary itemsUSD:NTD 48,677$ 29.760$ 1,448,621$JPY:NTD 60,007 0.2642 15,854

Non-monetary itemsUSD:NTD 6,846 29,760 203,745JPY:NTD 1,450,833 0.2642 383,310

Financial liabilities

Monetary itemsUSD:NTD 3,819 29.760 113,646JPY:NTD 105,073 0.2642 27,760

December 31, 2017

~51~

ii. Total exchange loss, including realised and unrealised arising from significant foreign

exchange variation on the monetary items held by the Company for the years ended

December 31, 2017 and 2016, amounted to $48,246 and $17,092, respectively.

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

variation:

Foreign currencyamount Exchange Book value

(in thousands) rate (NTD)

(Foreign currency:

functional currency)

Financial assets

Monetary itemsUSD:NTD 43,780$ 32.250 1,411,891$JPY:NTD 307,792 0.2756 84,827

Non-monetary itemsUSD:NTD 392 32.250 12,655JPY:NTD 48,960 0.2756 13,493

Financial liabilities

Monetary itemsUSD:NTD 5,536 32.250 178,548JPY:NTD 115,104 0.2756 31,723

December 31, 2016

Effect on other

Degree of Effect on profit comprehensive

variation or loss income

(Foreign currency:

functional currency)

Financial assets

Monetary items

USD:NTD 1% 14,486$ -$JPY:NTD 1% 159

Non-monetary itemsUSD:NTD 1% 2,037 -JPY:NTD 1% 3,833 -

Financial liabilities

Monetary itemsUSD:NTD 1% 1,136 -JPY:NTD 1% 278 -

Year ended December 31, 2017

Sensitivity analysis

~52~

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

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 years ended December

31, 2017 and 2016 would have increased/decreased by $5,229 and $5,209, 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 $19,658 and

$12,117, 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

Effect on other

Degree of Effect on profit comprehensive

variation or loss income

(Foreign currency:

functional currency)

Financial assets

Monetary itemsUSD:NTD 1% 14,119$ -$JPY:NTD 1% 848 -

Non-monetary itemsUSD:NTD 1% 127 -JPY:NTD 1% 135 -

Financial liabilities

Monetary itemsUSD:NTD 1% 1,785 -JPY:NTD 1% 317 -

Year ended December 31, 2016

Sensitivity analysis

~53~

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

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 December 31, 2017 and 2016, the Company held money market position

of $5,829,469 and $5,397,234, 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

~54~

cash flows.

(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:

Level 1: 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 December 31,

2017 and 2016 is as follows:

Non-derivative financial liabilities:Less than Between Between Over

1 year 1 to 2 years 2 to 5 years 5 years

Notes payable 1,002$ -$ -$ -$Accounts payable 358,576 - - -(including related parties)

Other payables 558,395 - - -

Less than Between Between Over

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

Financial liabilities at fair value

through profit or loss1,381$ -$ -$ -$

Notes payable 113 - - -Accounts payable 441,612 - - -(including related parties)

Other payables 447,249 - - -

~55~

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.

December 31, 2017 Level 1 Level 2 Level 3 Total

Financial assets:

Financial assets at fair value through

profit or loss

Beneficiary certificates 629,998$ -$ -$ 629,998$

Available-for-sale financial assets

Equity securities 2,368,445 - - 2,368,445

2,998,443$ -$ -$ 2,998,443$

December 31, 2016 Level 1 Level 2 Level 3 Total

Financial assets:

Financial assets at fair value through

profit or loss

Beneficiary certificates 627,555$ -$ -$ 627,555$

Forward foreign exchange

contracts - 66 - 66Available-for-sale financial assets

Equity securities 1,459,908 - - 1,459,908

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

Financial liabilities:

Financial liabilities at fair value through

profit or loss

Forward foreign exchange

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

Market quoted Listed shares Open-end fund

price Closing price Net asset value

~56~

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

Company’s credit quality.

E. For the years ended December 31, 2017 and 2016, there was no transfer between Level 1 and

Level 2.

F. For the years ended December 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: Please refer to table 2.

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 3.

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

Please refer to table 4.

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

~57~

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

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.

(4) Geographical information

Geographical information for the years ended December 31, 2017 and 2016 is as follows:

IC Dept Module Dept Other Dept Adjustment Total

Revenue

From external sources 7,552,921$ 335,573$ -$ -$ 7,888,494$

Inter-departmental - 204,464 - 204,464)( -

Total 7,552,921$ 540,037$ -$ 204,464)($ 7,888,494$

Segment profit (loss) 1,195,497$ 15,627$ 374,442$ -$ 1,585,566$

IC Dept Module Dept Other Dept Adjustment Total

Revenue

From external sources 8,263,077$ 228,319$ -$ -$ 8,491,396$

Inter-departmental - 225,620 - 225,620)( -

Total 8,263,077$ 453,939$ -$ 225,620)($ 8,491,396$

Segment profit (loss) 1,284,509$ 1,408$ 26,413)($ -$ 1,259,504$

~58~

(5) Major customer information

Revenue Non-current assets Revenue Non-current assets

Taiwan 7,809,912$ 3,891,808$ 8,354,559$ 3,259,061$

Hong Kong 71,489 - 136,378 -

China - - - -

Others 7,093 - 459 -

7,888,494$ 3,891,808$ 8,491,396$ 3,259,061$

Years ended December 31,

2017 2016

Revenue Segment

Nan Ya Technology Corporation 5,295,339$ 67%

Nan Ya Technology Corporation 5,654,012$ 67%

Number of shares Book value Ownership (%) Fair value

Formosa Advanced

Technologies Co., Ltd.

Formosa Plastics Corporation -

Stocks

Other related parties Available-for-sale financial

assets-current

146,388 14,448$ 0.00 14,448$ Not pledged

〞Nan Ya Plastics Corporation -

Stocks

Other related parties 〞 312,512 24,345 0.00 24,345 Not pledged

〞Formosa Chemicals & Fiber

Corporation - Stocks

Parent company 〞 15,249,000 1,570,647 0.26 1,570,647 Not pledged

〞Formosa Petrochemical

Corp.

Other related parties 〞 1,110,000 128,205 0.01 128,205 Not pledged

〞Nan Ya Technology Corporation -

Stocks

Other related parties Available-for-sale financial

assets- non-current

8,278,215 630,800 0.28 630,800 Not pledged

〞 Nan Ya Photonics Inc. - Stocks Other related partiesFinancial assets at cost - non-

current

2,130,721 29,172 4.77 29,172 Not pledged

〞 Syntronix Corporation - Stocks- 〞 59,945 1,181 0.15 1,181 Not pledged

〞 Jih Sun Money Market Fund- Financial assets at fair value

through profit or loss - current

25,512,583 375,736 - 375,736 Not pledged

〞Mega Diamond Money Market

Fund

- 〞 20,396,748 254,262 - 254,262 Not pledged

FootnoteSecurities held by Marketable securities

Relationship with the securities

issuer General ledger account

As of December 31, 2017

(Except as otherwise indicated)

Formosa Advanced Technologies Co., Ltd.

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures)

Year ended December 31, 2017

Table 1 Expressed in thousands of NTD

Table 1 Page 1

Relationship

with

the investor

(Note 2)

Number of

shares Amount

Number of

shares Amount

Number of

shares Selling price Book value

Gain (loss)

on

disposal

Number of

shares Amount

Formosa

Chemicals &

Fiber

Corporation

Stocks

Available-for-sale

financial

assets - current

- - 7,316,000 $ 704,531 7,936,000 $ 726,892 3,000 $ 274 $ 242 $ 32 15,249,000 $ 1,570,647

Nan Ya

Technology

CorporationStocks

Available-for-sale

financial

assets - non -

current

- - 15,041,215 726,491 - - 6,763,000 523,781 248,202 275,579 8,278,215 630,800

Note 1: Marketable securities in the table refer to stocks, bonds, beneficiary certificates and other related derivative securities.

Note 2: Fill in the columns the counterparty and relationship if securities are accounted for under the equity method; otherwise leave the columns blank.

Note 3: Aggregate purchases and sales amounts should be calculated separately at their market values to verify whether they individually reach NT$300 million or 20% of paid-in capital or more.

Note 4: The difference between the beginning amount plus additional amount and the ending amount is caused by the valuation.

Investor

Marketable

securities

(Note 1)

General

ledger

account

Balance as at December 31,

2017 (Note 4)

Formosa Advanced Technologies Co., Ltd.

Acquisition or sale of the same security with the accumulated cost exceeding NT$300 million or 20% of the Company's paid-in capital

Year ended December 31, 2017

Table 2

Counterparty

(Note 2)

Balance as at

January 1, 2017

Addition

(Note 3)

Disposal

(Note 3)

Expressed in thousands of NTD

(Except as otherwise indicated)

Table 2 Page 1

Purchases

(sales) Amount

Percentage of

total purchases

(sales) Credit term Unit price Credit term Balance

Percentage of

total

notes/accounts

receivable

(payable)

Formosa Advanced Technologies

Co., Ltd.

Nan Ya Technology Corporation Other related

parties

(Sales) $ 5,295,339 (67%) 60 days - - $ 953,005 63% -

Formosa Advanced Technologies

Co., Ltd.

Nan Ya PCB Corp. Other related

parties

Purchases 134,787 5% Paid after 45

days of

acceptance

- - (10,929) (3%) -

FootnotePurchaser/seller Counterparty

Relationship

with the

counterparty

Transaction

Compared to third party

transactions Notes/accounts receivable (payable)

(Except as otherwise indicated)

Formosa Advanced Technologies Co., Ltd.

Purchases or sales of goods from or to related parties reaching NT$100 million or 20% of paid-in capital or more

Year ended December 31, 2017

Table 3 Expressed in thousands of NTD

Table 3 Page 1

Table 4

Amount Action taken

Formosa Advanced Technologies

Co., Ltd.

Nan Ya Technology Corporation Other related

parties

$ 953,005 5.44 $ - - $ 465,954 $ -

Amount collected

subsequent to the

balance sheet date

Allowance for

doubtful accountsCreditor Counterparty

Relationship with

the counterparty

Balance as at

December 31, 2017 Turnover rate

Overdue receivables

Formosa Advanced Technologies Co., Ltd.

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

Year ended December 31, 2017

Expressed in thousands of NTD

(Except as otherwise indicated)

Table 4 Page 1