Innolux Corporation 2016 Annual Report · Stock Code: 3481 Innolux Corporation 2016 Annual Report Notice to readers This English-version annual report is a summary translation …

Stock Code: 3481

Innolux Corporation 2016 Annual Report

Notice to readers This English-version annual report is a summary translation of the Chinese version and is not an official document of the shareholders’ meeting. If there is any discrepancy between the English version and Chinese version, the Chinese version shall prevail. Taiwan Stock Exchange Market Observation Post System: http://mops.twse.com.tw Innolux Annual Report is available at: http://www.innolux.com Printed on April 30, 2017

A. Spokesperson & Deputy Spokesperson information. Spokesperson Name: Chih-Hung Shiao Title: President&COO Tel: 886-37-586000 E-mail: [email protected]

Deputy Spokesperson Name: Chien-Lang Lo Title: General Director Tel: 886-37-586000 E-mail: [email protected]

B Headquarters, Branches and Plant.

Headquarters: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Branch: No.21 Zidong Road, Fenghuali, Xinshi District, Tainan City Tel: 886-6- 5889998 Plant

Fab T1: No.160, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T2: No.168, Kesyue Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586000 Fab T3: No. 12, Kejung Road, Jhunan Township, Miaoli County, Hsinchu Science Park Tel: 886-37- 586393 Fab A: No.1, Ciye Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051881 Fab B: No.2, Sect. 2, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051889 Fab C: No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Tel: 886-6-5051880 Fab D: No.3, Sect. 1, Huansi Road, Sinshih District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051888 Fab F: No.11, Luke 10th Road, Kaohsiung City, Southern Taiwan Science Park Tel: 886-7-6278888 Fab L6: No.11, Luke 10th Road, Kaohsiung City, Southern Taiwan Science Park Tel: 886-7-6278888 STSP Touch Fab : No.12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880 Touch Module Fab : No. 12, Nanke 8th Road, Shanhua District, Tainan City, Southern Taiwan Science Park Tel: 886-6-5051880

C. Stock Transfer Agent Grand Fortune Securities Co., Ltd. Address: 6th Floor, No.6, Sec. 1 Zhongxiao W Rd., Zhongzheng Dist., Taipei City 10041, Taiwan Website: http://www.gfortune.com.tw Tel: 886-2-23711658

D. Auditors PricewaterhouseCoopers Auditors: Han-Chi Wu, Sheng-Chung Hsu Address: 27th Floor, 333 Keelung Rd, Sec. 1, Taipei, Taiwan Website: http://www.pwc.tw Tel.: 886-2-27296666

E. Overseas Securities Exchange Luxembourg Stock Exchange Disclosed information can be found at http://www.bourse.lu

F. Corporate Website: http://www.innolux.com

Contents

I. Letter to Shareholders .............................................................................................................. 1

1.1 2016 Operating Report ...................................................................................................... 1 1.2 Business Plan for 2017 ...................................................................................................... 2

II. Company Profile ....................................................................................................................... 3

2.1 Date of Incorporation: January 14 2003 ............................................................................ 3 2.2 Company History .............................................................................................................. 3

III. Corporate Governance Report ................................................................................................ 9 3.1 Organization ...................................................................................................................... 9 3.2 Directors and Management Team ................................................................................... 11 3.3 Remuneration of Directors, Supervisors, President, and Vice President ........................ 19

3.4 Implementation of Corporate Governance ...................................................................... 26 3.5 Information Regarding the Company’s Audit Fee and Independence ............................ 49

3.6 Replacement of CPA: ...................................................................................................... 49 3.7 The Company’s chairman, general manager, or any managerial officer in charge of

finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise: ................................................ 49

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders ................... 50

3.9 Relationship among the Top Ten Shareholders ............................................................... 51 3.10 Ownership of Shares in Affiliated Enterprises ................................................................ 52

IV. Capital Overview .................................................................................................................... 54

4.1 Capital and Shares ........................................................................................................... 54 4.2 Bonds............................................................................................................................... 61

4.3 Preferred Shares:. ............................................................................................................ 61 4.4 Global Depository Receipts ............................................................................................ 62 4.5 Employee Stock Options ................................................................................................. 63 4.6 Issuance of New Restricted Employee Shares ................................................................ 65 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions:. ............. 67

4.8 Financing Plans and Implementation:. ............................................................................ 67

V. Operational Highlights ........................................................................................................... 68

5.1 Business Activities .......................................................................................................... 68 5.2 Market and Sales Overview ............................................................................................ 76 5.3 Human Resources ............................................................................................................ 83 5.4 Environmental Protection Expenditures ......................................................................... 83 5.5 Labor Relations ............................................................................................................... 84 5.6 Important Contracts ......................................................................................................... 88

VI. Financial Information ............................................................................................................ 90

6.1 Five-Year Financial Summary......................................................................................... 90 6.2 Five-Year Financial Analysis .......................................................................................... 95 6.3 Audit Committee Report in the Most Recent Year ......................................................... 99

6.4 Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report....................................................................... 100

6.5 Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report ....................................................................................... 100

6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial Difficulties:.................................................................................................................... 100

VII. Review of Financial Conditions, Operating Results, and Risk Management ................. 101

7.1 Analysis of Financial Status .......................................................................................... 101 7.2 Analysis of Financial Performance ............................................................................... 102 7.3 Analysis of Cash Flow .................................................................................................. 103 7.4 Major Capital Expenditure Items .................................................................................. 103 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement

Plans and the Investment Plans for the Coming Year ................................................... 103

7.6 Analysis of Risk Management ...................................................................................... 103 7.7 Other Important Matters: ............................................................................................... 107

VIII. Special Disclosure ................................................................................................................. 108

8.1 Summary of Affiliated Companies ................................................................................ 108 8.2 Private Placement Securities in the Most Recent Years: ............................................... 117

8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years:. ............................................................................................................................ 117

8.4 Special Notes:. ............................................................................................................... 117

IX. Materially might affect shareholders' equity or the price of the company's securities, has occurred during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, such situations shall be listed one by one: .......... 118

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I. Letter to Shareholders 1.1 2016 Operating Report

The political and economic environment changed drastically worldwide in 2016, including the crisis in the Middle East triggering the influx of refugees that affected the Middle East and then extended to the European continent and the world, the United Kingdom's European Union membership referendum, and Mr. Donald Trump’s winning the US presidential election in November that had caused changes to the Trans-Pacific Strategic Economic Partnership Agreement (TPP) and the Transatlantic Trade and Investment Partnership (TTIP). The terminal consumer market experienced an economic downturn in 2016; however, the economic activity will be accelerated in 2017 and 2018, especially in emerging markets and developing economies. If the policy stimulus efforts of the United States or China can be greater than expected, the accelerated development of global economic activity will be enhanced. However, the global economy has faced a number of possible negative risk factors, including: turning to a closed economic policy and protectionism, worse deflation of the global financial environment than expected, the interaction of balance sheets arising from weak economies in the Euro zone and emerging markets, geopolitical tensions intensified, and significant decline of economic growth in China.

As for the product application market, LCD TV remains the mainstream TV specification on the market, and specifications and technology will be improved continuously; also, the large size of driver products, high-resolution (4K2K), and penetration rate improvement will help activate the momentum of sales. In terms of information products, this includes Notebook computers and computer display screens with the specifications upgraded continuously towards the trend of thin, high-resolution, wide viewing angle, and narrow frame, combined with the customer’s machine innovation, emphasizing the thin and light features of portable computers, as well as high-performance features to activate the demand for information product replacement. In terms of smart phone products, although facing the challenge from the AMOLED (organic light display) technology, the LCD technology has stable yield rate and constant product specifications refinement; therefore, both LTPS (low temperature polysilicon) and a-Si (amorphous silicon) technologies will continue to take up high market share with advanced and moderate specifications.

In this competitive industry, facing such difficulty of the macroeconomic environment and uncertainty of the market, we not only worked accurately and reacted quickly but also made maximum use of resources and created high adding value. Due to the earthquake Feb.2016 the achievement was not good as first half year of 2016, under the full effort of our management team, we reached to a good result. In 2016 our consolidated revenue was NT$ 287.1 billion, gross profit was NT$26.1 billion, net operating income was NT$6.4 billion, annual profit after tax was NT$1.87 billion, and the annual earnings per share is NT$0.19.

In view of the future, our operation team and all of our employees will continue to endeavor, to concentrate, and to innovate for the best interest of our shareholders.

(I) Result of Business Plan

In 2016 our consolidated revenue was NT$ 287,089,277 thousands, which decreased NT$77,043,707 thousands or 21% by compared with the 2015 yearly revenue of NT$ 364,132,984 thousands. In 2016 our annual profit after tax which belonged to mother company was NT$1,870,687 thousands, and the annual earnings per share is NT$0.19

(II) Budget Implementation

No financial forecast disclosed for 2016, therefore not applicable to disclose budget implementation.

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(III) Financial Analysis from 2015 to 2016

Item 2015 2016

Finacial Structure Analysis

Debt to Asset Ratio (%) 40.05 39.16 Long-term Capital to property, plant and equipment (%)

138.84 126.79

Debt-paying ability

Current Ratio (%) 125.70 109.32 Quick Ratio (%) 97.37 87.84 Times Interest Earned (Times) 9.68 6.71

Profitability

Return on Assets (%) 2.81 0.68 Return on Shareholders’ equity (%) 4.69 0.82 Operating Income to Paid-in Capital Ratio (%)

22.54 6.44

Pre-tax Income to Paid-in Capital Ratio (%) 14.93 5.02 Net Margin (%) 2.97 0.65 Basic after-tax EPS (NT$) 1.09 0.19

(IV) Research and development

Our R&D in display technology will continue to help our clients improve competitiveness, meet market demand, and be friendly to the environment. We believe the developing directions, including eco-friendly materials, low power consumption, high pixel, high saturation, ultra thin, narrow border, good dynamic performances, touch, wide viewing angle and service integration in all aspects, will achieve remarkable results.

To enhance our overall competitiveness, we proactively developed new technique and new products such as high flexible IGZO AMOLED panel, MicroLED, touch point integration technique; wide color gamut monitor, middle-and-large-sized touch panel and we’ve obtained substantial results. This helps us to stand out and keep our leading position in the keen competitive industry environment.

1.2 Business Plan for 2017

(I) Profitability increase Vertical Integration and increase products Value-Added

(II) Efficiently,High qulity,Improvement of techni que：：：： 1. Maintain yield before mass production, and continued improvement 2. Autonomation to SmartAuto 3. Continue to promote industry 4.0 via statistic analysis of data.

(III) G8.6/LTPS expansion results Planning annual production and sales plans and reach the goal.

(IV) Lean Human Resource Effective HR arrangement to Enhance competitiveness

(V) Taps new resources and control&reduce expenses

In year 2017, the entire staff will also to fully devote themselves to work. Please continue to give us your support and encouragement. Lastly, I wish everyone a good health and the best of luck. Thank you. Lastly, I wish everyone a good health and the best of luck. Thank you.

Chairman: Jyh-Chau Wang Manager: Jyh-Chau Wang Chief Accountant: Chin-Yuan Chang

3

II. Company Profile 2.1 Date of Incorporation: January 14 2003 2.2 Company History

January 2003 Inception and registration of the Company

March 2003 Invested in a subsidiary, Innolux Holding Ltd.

May 2003 Ground breaking ceremony for the TFT and Color Filter Plant In Jhunan

August 2003 The TFT and Color Filter Plant In Jhunan commenced construction

March 2004 Entered into a 7-year NT$20 billion syndicated loan contract with a syndicate including Bank of Communications

June 2004 Machinery installation started in the TFT factory and Color Filter Plant In Jhunan

September 2004 Birth of the first TFT-LCD panel

October 2004 Invested in Innocom Technology (Shenzhen) Ltd. in China

January 2005 Public issuance of the Company’s shares approved by the Financial Supervisory Commission

February 2005 Invested in Innolux Corporation Ltd. in the U.S.

March 2005 Obtained ISO 9001 certification

Granted the “2005 Outstanding Award in Makingthe Science Park Green by Planting Trees” by the Science Park Administration

July 2005 Registered as an emerging stock on the GreTai Securities Market

Obtained ISO 14001 and OHSAS 18001 certifications

August 2005 Ranked 51st nationwide in actual import/export performance in 2004

Granted the Excellent Award in Import/Export Performance by the Ministry of Economic Affairs and Bureau of Foreign Trade

November 2005 Recognized as an outstanding waste disposal model factory by the Environmental Protection Administration, Executive Yuan

December 2005 Recognized as an Occupational Safety and Health Administration Voluntary Protection Unit by the Council of Labor Affairs, Executive Yuan

October 2006 Shares became listed on the Taiwan Stock Exchange on 24 October

November 2006 The Board passed the resolution of merging with Jemitek Electronics Corp. on 21 November

March 2007 Completed merger with Jemitek Electronics Corp.

June 2007 Invested in InnoJoy Investment Corporation

August 2007 Invested in InnoFun Investment Corporation

November 2007 Global Deposit Receipts became listed on the London Stock Exchange on 7 November

June 2008 Topping out ceremony for the sixth generation factory of the Company

July 2008 Granted the “Outstanding Award in Making Green by Planting Trees” by the Science Park Administration

Recognized as one of the TOP 10 Leading Companies among the “Taiwan Technology Top 100”

Ranked sixth among Deloitte Technology FAST50 Taiwan in terms of profit growth

September 2008 Entered into a 5-year NT$24 billion and US$200 million syndicated loan contract with a syndicate of 20 banks including Mega International Commercial Bank

Selected as one of the 12 units in the national industrial group by the Water Assessment Programme organized by the Ministry of Economic Affairs

October 2008 Received the Bronze Award of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs

Granted the 2008 Excellence Award in Recycling and Reducing Waste Production by the Environmental Protection Administration, Executive Yuan

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November 2008 Recognized as a nationwide friendly workplace in 2008 by the Council of Labor Affairs, Executive Yuan

December 2008 Granted the 2008 Outstanding Water Conservation Award by the Water Resources Agency, Ministry of Economic Affairs

Honored with the "2008 Taiwan CSR Awards-Silver Award" by the Taiwan Institute for Sustainable Energy

February 2009 Innolux Display’s Fab T1 passed and obtained the Taiwan Occupational Safety and Health Management System (TOSHMS) certification

April 2009 Innolux Display’s Fab T1 was granted the excellent award in achieving zero work accident hours by the Council of Labor Affairs

May 2009 Innolux Display’s Fab T2 obtained ISO 9001/ISO 14001/OHSAS 18001/QC 080000 4-in-1 management system certification

June 2009 Granted the 2008 excellent personnel award by the National Labor Safety and Health Partnership of the Council of Labor Affairs

September 2009 Issued the 2008 Sustainability Report of Innolux Display

Innolux Display’s Fab T0, T1, and T2 obtained the TS 16949 quality system certification

October 2009 Innolux Display announced a merger with TPO Displays Corp.

Honored with the “Energy Conservation Outstanding Innovation Award” by the Bureau of Energy, Ministry of Economic Affairs

November 2009 Innolux Display announced a merger with Chi Mei Optoelectronics Corporation

Entered into an NT$48 billion syndicated credit facility with a syndicate of 19 banks including Mega International Commercial Bank

Received two Bronze Awards of the National QCC Competition from the Corporate Synergy Development Center of the Industrial Development Bureau, Ministry of Economic Affairs

Granted the excellent award in low carbon production and waste reduction by the Industrial Development Bureau, Ministry of Economic Affairs

December 2009 Innolux Display was honored with the "2009 Taiwan CSR Awards-Bronze Award" for its 2008 Sustainability Report by the Taiwan Institute for Sustainable Energy

Received the outstanding award in the “2009 Outstanding Energy Saving Companies Selection” from the Science Park Administration

Recognized as the Best Managed Company in Taiwan by Asiamoney

Granted the excellence award in environmental protection by the Science Park Administration

January 2010 Obtained “Labeling of Energy Saving Action” from the Environmental Protection Administration

February 2010 Granted the excellent award for outstanding achievement on training and management for occupational health by the Council of Labor Affairs, Executive Yuan

March 2010 Completed the merger with Chi Mei Optoelectronics and TPO Displays

Innolux Display renamed as Chimei Innolux

Granted the outstanding performance award in occupational safety and health on the occasion of the 2009 Nationwide Occupational Safety and Health Week, held by the Council of Labor Affairs, Executive Yuan

May 2010 Winner of Taiwan's Environmental Protection Administration's 2009 Enterprise Green Procurement Performance Award

Recognized as an outstanding unit in achieving zero work accident hours by the Council of Labor Affairs, Executive Yuan

June 2010 18.5-inch LCD panel is awarded 2009 FPD green quality certification

42-inch 120Hz+ MEMC is awarded the best integrated LCD panel at the Taiwan Gold Panel Awards 2010 with the 13 th Annual Outstanding Optoelectronics Product Awards

September 2010 Awarded the Outstanding Energy Conservation Award by the Department of Energy, Ministry of Economic Affairs

October 2010 Passed DNV third-party independent verification for its 18.5-inch LCD flat panel monitor

5

(M185B1-L02), making CMI the first panel maker to receive a supply chain “water footprint” verification statement, Granted “the Excellent Environmental Protection Award” by the Science Park Administration

November 2010 Granted the 2010 excellence award in recycling and reducing waste production by the Environmental Protection Administration

Completed the merger with Chi Mei Energy

December 2010 Granted “the 2010 Outstanding Energy Saving Award” by the Science Park Administration

Granted “the Excellent Award in Low-Carbon Management” by the Science Park Administration

Granted “the 2010 Outstanding Award in Making Green by Planting Trees” by the Science Park Administration

January 2011 Became the first manufacturer to obtain “water footprint” verification for its product supply-chain with regard to its desktop LCD monitors and LCD TVs

Feburary 2011 Honor Light Services Limited revoked

March 2011 2.65-inch and 5.3-inch Memory-In-Display (Midis) technology, which was a new energy-saving panel technology, obtained the Best Paper Award of the 17th IDW (International Display Workshops), Japan

April 2011 Honored with the 2011 Taiwan Excellence Gold Awards for its ultra-thin 13.3-inch HD notebook display module

May 2011 Kobe site was awarded the Best Safety & Hygiene Company by the Safety Management Committee of Kobe, Japan.

Chi Mei Energy Netherlands revoked

June 2011 Won the Outstanding Photonics Product Award 2011 for its 21.5-inch PCT (Projected Capacitive Touch) display module by the Photonics Industry & Technology Development Association (PIDA).

Honored with the “2011 Contribution to Job Creation” award by the Ministry of Economic Affairs and Council of Labor Affairs, Executive Yuan

August 2011 Ranked third among the “2010 Outstanding Export Growth Companies” by the Bureau of Foreign Trade, Ministry of Economic Affairs

September 2011 Granted the 2010 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan

October 2011 STSP Branch was honored with the “Jin-Jhan Award” by the Council of Labor Affairs, Executive Yuan.

Honored with “National Industrial Safety and Health Award” by the Council of Labor Affairs, Executive Yuan

April 2012 Entered into the Joint Debt Restructuring Agreement with the syndicate

June 2012 Won the Outstanding Photonics Product Award 2012 for its 50-inch 3D Direct-Type LED panel by the PIDA.

August 2012 Honored with the “Taiwan Excellence Silver Award” for its 23.6-inch USB super energy-saving LCD screen

September 2012 Recognized as an outstanding unit for hiring disabled persons by surpassing the target

Granted the 2011 Enterprise Green Procurement Performance Award by the Environmental Protection Administration, Executive Yuan and the only panel factory granted the award for four consecutive years and fulfilling its responsibility of a sustainable environmental protection enterprise

Chi Mei Optoelectronics UK Limited revoked

December 2012 Changed its name to “群創光電股份有限公司” with the English name of “Innolux Corporation”

January 2013 Global depository receipts listed and traded on the Luxembourg Stock Exchange on 23 January

Merger of the subsidiaries InnoJoy Investment Corporation and InnoFun Investment Corporation, in which InnoJoy Investment Corporation was the surviving company

Eastern Vision Co., Ltd. liquidated

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March 2013 Toptch Trading Limited liquidated

Dragon Flame Industrial Ltd. liquidated

April 2013 Nanhai Plant took the lead in obtaining the first MFCA material flow cost accounting certification in the world

The Company’s 65-inch 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award”

The Company’s 4.3-inch active organic light emitting display (TRUEOLED) was awarded the 21st “Taiwan Excellence Silver Award”

The Company's 50-inch ultra-high resolution (4K2K) thin narrow frame LCD TV module was awarded the 21st "Taiwan Excellence Award"

The Company’s 30-inch six million pixel medical monitor was awarded the 21st "Taiwan Excellence Award"

The Company’s 5-inch Full HD LCD panel module was awarded the 21st "Taiwan Excellence Award"

The Company’s 3.4-inch active organic light emitting display was awarded the 21st "Taiwan Excellence Award"

June 2013 The Company's 65-inch ultra-high resolution thin narrow frame LCD TV module was recognized by the 16th “Annual Outstanding Optoelectronics Products Awards”

Granted the first “National Environmental Education Award – Excellence Award for Private Enterprises Group” by the Environmental Protection Administration

Innocom Technology (Jiashan) Co., Ltd. liquidated

September 2013 Ningbo Chi Mei Electronics Ltd. renamed as Ningbo Innolux Optoelectronics Ltd.

Nanhai Chi Mei Optoelectronics Ltd. renamed as Ningbo Innolux Technology Ltd.

Ningbo Chi Hsin Electrics Ltd. renamed as Ningbo Innolux Display Ltd.

Ningbo Chi Mei Logistics Corp renamed as Ningbo Innolux Logistics Ltd.

October 2013 The Company’s “Intelligent Automation” team was granted the “Annual Innovative Pilot Award” of the Industry Innovation Award for theone-stop touch innovative operating model by the Ministry of Economic Affairs

Foshan Chi Mei Logistics Co., Ltd. renamed as Foshan Innolux Logistics Co., Ltd.

TPO Displays (Nanjing) Ltd. renamed as Nanjing Innolux Optoelectronics Ltd.

November 2013 Awarded the 2013 Green Building Gold Mark by the Ministry of Economic Affairs

Awarded the “Premium” honor of the 2013 Taiwan CSR Awards

Full Lucky Investment Limited liquidated

December 2013 Selected as an outstanding water saving unit for 2013 by the Water Resources Agency of the Ministry of Economic Affairs

Dongguan Chi Hsin Electrics Ltd. liquidated

TPO Displays (Shanghai) Ltd. renamed as Shanghai Innolux Optoelectronics Ltd.

Global Deposit Receipts listed on the London Stock Exchange delisted

January 2014 Plant T1 and Plant B, D, TOC, F (Tainan) awarded Health Promotion Label of Healthy Workplace Certification

Ningbo site awarded Safe Standard Level 2 Corporation

Chi Mei Optoelecttonics (Singapore) Pte. Ltd. liquidated

Sonic Trading Limited liquidated

Innocom Technology (Xiamen) Co., Ltd. liquidated

Merger of Nanhai Chi Mei Electronics Ltd. and Nanhai Chi Mei Optoelectronics Ltd., in which Nanhai Chi Mei Electronics Ltd. was the surviving company

February 2014 Foshan site awarded as an Advanced Corporation in Promotion of Environmental Protection in Si-shan town

Ningbo site awarded as an Advanced Corporation in Safe Production and Workplace in Ningbo City 2013

March 2014 Honored with the Healthy Corporation Award for the 2014 Southern Science Park Ecological and

7

Humanistic Marathon

April 2014 Nanhai Chi Mei Electronics Ltd. renamed as Foshan Innolux Optoelectronics Ltd.

Honored with the Taiwan Excellence Sliver Award for its 65-inch ultra-high-analytic 3D TV panel

Awarded a certificate of recognition for offering disability employment opportunities to realize corporate social responsibilities by the Southern Taiwan Science Park Administration, Ministry of Science and Technology

Innolux’s 28-inch 4K2K and 23.6-inch touch panel won the“Taiwan Excellence Silver Award”

September 2014 Chi Mei Optoelectronics USA, Inc. renamed as Innolux Optoelectronics USA, Inc.

TPO Displays USA Inc. renamed as Innolux Technology USA Inc.

October 2014 TPO Displays Japan K.K. renamed as Innolux Technology Japan Co.,Ltd.

November 2014 Chi Mei Optoelectronics Europe B.V. renamed as Innolux Optoelectronics Europe B.V.

TPO Displays (Shinepal) Ltd. renamed as Nanjing Innolux Technology Ltd.

Chi Mei Optoelectronics Japan Co., Ltd. renamed as Innolux Optoelectronics Japan Co.,Ltd.

TPO Displays Hong Kong Ltd renamed as Innolux Hong Kong Ltd.

December 2014 Health Management Award and Nutrition Health Award by the Health Promotion Administration

Granted 2014 Taiwan Sustainable Development Awards by National Council for Sustainable Development

TPO Displays Hong Kong Holding Ltd. renamed as Innolux Optoelectronics Hong Kong Holding Ltd.

TPO Hong Kong Holding Ltd. renamed as Innolux Hong Kong Holding Ltd.

TPO Displays Europe B.V. renamed as Innolux Technology Europe B.V.

February 2015 Signed an agreement for a syndicated credit line of NT$68.5B with Bank of Taiwan and 15 other banks

Innocom Technology (Chengdu) Co., Ltd. revoked

March 2015 The company terminated the debt restructuring negotiation and canceled the debt negotiations

Honored with the Enterprise Innovation Award of Excellence

April 2015 The Company’s 100% high color saturation 4K2K TV module was awarded the 21st “Taiwan Excellence Gold Award”

Awarded a certificate of recognition for social responsibilities by the Global Views

July 2015 Innolux as an outstanding import/export company honored The Best Contribution Award of the MOEA's Award for International Trade 2015

August 2015 Foshan Innolux Optoelectronics Ltd was awarded International Carbon-Value Award in China

September 2015 Innolux named to Dow Jones Sustainability World Index

October 2015 Awarded the Outstanding Energy Conservation Award 2015 by the Department of Energy, Ministry of Economic Affairs

Completed the merger with Chi Mei EL corporation

November 2015 Inception and registration of Ningbo Innolux Electronics Ltd

Innolux marked 100 in disclosure score and listed as CDLI (Carbon Disclosure Leadership Index) 2nd year in a row in CDP.

Innolux honored 2015 Taiwan Corporate Sustainability Report Award-Gold Award.

Gold union investments Limited liquidated

Awarded the MOL TTQS Silver award

June 2016 Ningbo site was awarded an Outstanding Foreign Company Contribution Award by China Zhejiang Invesetment and Trade Symposium.

July 2016 Awarded Award for International Trade for consecutive 6 years and Target Market Contribution Award, the only multiple winner in 2016

Fab 8 awarded "Best Performance in Water-Saving Unit" by the Water Resources Agency, Ministry of Economic Affairs.

8

October 2016 Fab3 and T2 plant passed the Green Factory-Clean Production Certification of Industrial Development Bureau, Ministry of Economic Affairs.

November 2016 Awarded Taiwan Corporate Sustainability Awards-- Corporate Sustainability Report Golden Awards of ICT group.

Awarded Taiwan Corporate Sustainability Awards--Sustainable Water Management Awards for its outstanding water management performance

December 2016 Innolux was granted the Innovative Product Awards by Hsinchu Science Park for its automotive display technologies: S Shape Display, 1-axis Curve Display, Curve with Touch Display

Merger of the subsidiaries Ningbo Innolux Display Ltd. and Ningbo Innolux Technology Ltd., in which Ningbo Innolux Display Ltd. was the surviving company

Feburary 2017 Honored with Taiwan Excellence Achievement Award and Taiwan Excellence Gold Award

Asiaward Investment Limited liquidated

Ningbo Innolux Logistics Limited liquidated

March 2017 Main Dynasty Investment Limited liquidated

Sun Dynasty Development Limited liquidated

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III. Corporate Governance Report 3.1 Organization 3.1.1 Organization Chart

10

3.1.2 Major Corporate Functions

Department Functions

President’s Office Manage the businesses of the Company according to the resolutions passed by the shareholders’ meetings and the Board of directors

Auditor's Office

Responsible for assessing the soundness of the internal control system and all the standards, checking whether the internal control system is operating effectively on a continual basis, measuring the operating results of the departments and providing improvement recommendations for efficient operation.

Mobile Device Center Responsible for the sales, marketing, and product development of LCD wireless communication and audio-visual systems as well as production of panel production.

AII Product Center Responsible for market development,customers service and development,test new technologis and new processes of AII products.

TV Product Center Responsible for market development,customers service and development,test new technologis and new processes of TV products.

Technology Development Center Develop, improve, verify, and test new technologies and new processes. LCD Panel Manufacturing Center Responsible for the production of large-size LCD panel products. Module Manufacturing Center Responsible for the production of LCD module products.

Quality Management Center

Responsible for the quality management of the Company,providing the best and the most efficient quality management services (including quality control, product quality guarantee, quality system, and documentary management); and promoting the concept of total quality control.

Business Management Center

Responsible for the operation and management, industrial engineering and information system of the Company,profits and losses of cost accounting, business strategy consultation, work-flow efficiency improvement, capacity expansion planning, production efficiency enhancement, hardware and software infrastructure, and information system construction.

Strategic Procurement Center Responsible for the overall procurement strategy of the Company, strategic planning of important parts and components, material preparation for the introduction of products and standardized cost management.

Human Resources Management Center

Responsible for overall human resources policy, promotion of talent selection, education, deployment and retention, employee communications, general administration and corporate social responsibilities, etc.

Finance & Accounting Center Coordinate the capital operating system of the Company, provide financial and accounting information, manage investment plans and risk aversion, and manage overall financial, investment, stock, accounting, and tax matters.

Environmental & Safety Division

Responsible for handling company-wide issues including environmental protection, occupational safety, damage prevention, and risk control of the factories, staff health management and workplace improvement, and greenhouse gas reduction; implementing and managing the environmental safety and health policies of the Company.

Legal Affair Division Responsible for drafting and reviewing contracts; providing business-related legal consultation services; and coordinating local and international intellectual property matters of the Company.

11

3.2 Directors and Management Team 3.2.1 Directors

April 22, 2017;Shares

Title

Natio

nality/

Pla

ce o

f

Inco

rpora

ti on

Name (Note 1)

Gen

der

Date Elected (Note2)

Term

(Y)

Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding

Shareholding by Nominee Arrangement Experience (Education)

Other Position

Executives, Directors who are spouses or

within two degrees of kinship

Shares ％ Shares ％ Shares ％ Shares ％ Title Name Relation

Chairman

TW Jialian Investment Co., Ltd. －

2016/6/24 3

2012/6/29 10,672,661 0.11 10,672,661 0.11 －－－－－－－－－

TW Representative : Jyh-Chau Wang

M 2012/6/29 N.A. － 912,067 0.01 607 －－－

M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories, Industrial Technology Research Institute

Note 3 －－－

Institutional Director

TW Hyield Venture Capital Co., Ltd

－

2016/6/24 3

2002/11/21 176,311,219 1.77 176,311,219 1.77 －－－－－－－－－

TW Representative : Te-Tsai Huang M 2002/11/21

(Note 4) N.A. － 212,619 －－－－－

Graduated from National Chiao Tung University Manager, Philips Taiwan Ltd. CFO, Vanguard International Semiconductor Corporation CFO, Foxconn Precision Components Co., Ltd.

Note 4 －－－


TW I-Chen Investment Ltd. －

2016/6/24 3

2004/5/19 27,535,972 0.28 27,535,972 0.28 －－－－－－－－－

TW Representative : Chuang-Yi Chiu

M 2016/6/24 N.A. －－－－－－－

Electrical Engineering, N TU of Science and Technology General Manager of Chunghwa Picture Tubes, Ltd.

GM of Group E ETVG of Hon Hai Precision Industry Co., Ltd.

－－－

12

Title

Natio

na

lity/ P

lace

of

Inco

rpora

ti on

Name (Note 1)

Gen

der

Date Elected (Note2)

Term

(Y)

Date First Elected

Shareholding when Elected

Current Shareholding

Spouse & Minor

Shareholding


Other Position

Executives, Directors who are spouses or

within two degrees of kinship

Shares ％ Shares ％ Shares ％ Shares ％ Title Name Relation


TW Innolux Education Foundation －

2016/6/24 3

2016/6/24 594,310 0.01 594,310 0.01 －－－－－－－－－

TW Representative : Chin-Lung Ting

M 2016/6/24 N.A. － 1,087,063 0.01 －－－－

M.S., Graduate Institute of Electronics Engineering, NTU Senior Consultant, Chi Lin Technology Co., Ltd Executive VP of Innolux Corp.

Note 5 －－－

Independent Director

TW Chi-Chia Hsieh M 2016/6/24 3 2013/6/19 －－－－－－－－ Ph. D of Mechanical Engineering, Santa Clara University, USA

Note 6 －－－


TW Bo-Bo Wang M 2016/6/24 3 2012/6/29 (Note7)

－－－－－－－－ Ph. D of Computer Science, UCLA

Chairman and CEO of Aetas Technology Incorporated

－－－


HK Stanley Yuk Lun Yim M 2016/6/24 3 2013/6/19 －－－－－－－－ High school graduated Note 8 －－－

Note 1:Existing Directors as of the date of the annual report. Note 2:The 7 terms of BOD members reelected on 2016/6/24 and effective on 2016/7/1. Note 3:CEO of Innolux Corporation

Concurrently as chairman of the board:Innolux Holding Ltd., Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd., Innolux Hong Kong Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Yuan Chi Investment Co., Ltd.(Statutory representative) Concurrently as director: InnoJoy Investment Corporation(Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)

Note 4:Elected as Innolux Corporation Supervisor on 2002/11/21 and 2010/6/29 and now as representative of Institutional Director Concurrently as chairman of the board: Hyield Venture Capital Co., Ltd. (Statutory representative), Shenzhen R&R Information Technology Co., Ltd Concurrently as director: Foxconn (Far East) Limited(HK)、Foxteq Holdings Inc.、Foxteq Integration,Inc.,HCM International Company, Beijing Tiger Tesco E-Commerce Co.,Ltd., Chengdu Jusda supply management Ltd.,Chengdu Tiger Tesco E-Commerce Co.,Ltd,Hangzhou Tiger Tesco E-Commerce Co., Ltd,Wuhan Tiger Tesco E-Commerce Co.,Ltd,Henan Chung Yuan finance management Limited,Fuxuntong Trading, ShenZhen, FuRuei International Investment,ShangHai ChiaMing Finance and Rental Limited,Zhengzhou Airport Economic Comprehensive Experimental Zone Chung Yuan Microfinance Limited.,Zhengzhou Airport Economy Zone occupational training school,HungChi International Investment (Statutory representative), HungChiau International Investment,; and Pao Shin International Investment Co., Ltd. (Statutory representative) Concurrently as supervisor: HungJing International Investment (Statutory representative), LiYi International Investment (Statutory representative), HungYuan International Investment (Statutory representative), and Pan-International.

Note 5:Concurrently as chairman of the board: GIO Optoelectronics Corp. and Double star Inc. Concurrently as director: Innolux Optoelectronics Japan

Note 6:Concurrently as chairman of the board: Microelectronics Technology Inc. IQE Taiwan Corporation, Jupiter Network Corp., Welltop Technology Co. Ltd, Jupiter Technology (Wuxi) Co., Ltd. Concurrently as independent director: AcBel Polytech Inc.

13

Concurrently as director: Asia Pacific Telecom(Statutory representative), China Synthetic Rubber Corp. (Statutory representative), E-ONE Moli Energy Corp. (Statutory representative), Advanced Wireless Semiconductor Company, Bright Led Electronics Corp., Kobrite Taiwan Corporation (Statutory representative), Advanced Crystal Application Technology, Inc. (Statutory representative), Sasson Capital (Statutory representative), Kopin Corporation, Inc.T’Cement(Statutory representative) The convener of the 11th supvervision meeting for the Allied Association for Science Park Industries

Note 7 :Elected as Innolux Corporation Independent Director on 2012/6/29 and relected again on 2016/6/24 Note 8 :A founder and Executive Director of S.A.S. Dragon Holding Limited, a member of Justices of Peace in the Government of the Hong Kong Special Administrative Region, the deputy

chairman of Hong Kong Electronic Industry Association, a permanent Honorary President of Hong Kong Trade Services Council,the chairman of District Fight Crime Committee,Tsuen Wan District Office; a counselor for Coucil of Yan Chai Hospital,Chairman of Yan Chai Hospital SUS Kindergarten,a committee member of Political Consultative Conference Shanghai and Yunfu Committee; and a honoary member of Junior Police Call Committee, Tsuen Wan District.

14

Major shareholders of the institutional shareholders April 22, 2017

Name of Institutional shareholders Major shareholders of the institutional shareholders Jialian Investment Co.,Ltd. Super Venture Investments Limited, Samoa（100%）

Hyield Venture Capital Co., Ltd. Hon Hai Precision Components Co., Ltd. (97.95%), Pao Shin International Investment Co., Ltd. (2.05%)

I-Chen Investment Ltd. Company Objective Developments Limited, Samoa (100%) Innolux Education Foundation N.A.

Major shareholders of the Company’s major institutional shareholders

April 22, 2017 Name of Institutional Shareholders Major shareholders

Super Venture Investments Limited, Samoa Diamond Luck Enterprises Ltd（100%）

Hon Hai Precision Ind. Co., Ltd. (Note)

Terry Tai-Ming Gou (9.36%), CTBC Terry Tai-Ming Gou Trust account (2.89%), Citi Managed Government of Singapore Investment accounts (1.91%), JPMorgan hosting Saudi-Arabia Central Bank investment account (1.83%), Citigroup hosting Hon Hai Precision Ind. Co. Ltd. Depositary Receipts account (1.59%), Standard Chartered hosting Vatican Gardner emerging market equity index fund account (1.39%), Citi Bank hosted Norges Bank Investment account (1.33%), JPMorgan Managed Stichting Depositary APG investment account (1.07%), JPMorgan Managed Advanced Stars advanced aggregate International Equity Index(1.06%), Standard Chartered Hosting Fidelity light called Trust: Fidelity Low of shares of the Fund (1.05%)

Pao Shin International Investment Co., Ltd. Hon Hai Precision Industry Co., Ltd. (100%) Company Objective Developments Limited, Samoa

Perfect Impulse Investments Limited（100%）

Note: The information is derived from the close of registrar information of the company dated 24 April 2017.

15

Professional qualifications and independence analysis of directors

Criteria

Name

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience

Independence Criteria (Note)

Number of Other Public Companies in Which the Individual

is Concurrently Serving as an


An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Have Work Experience in the Areas of Commerce, Law, Finance, or Accounting, or Otherwise Necessary for the Business of the Company

1 2 3 4 5 6 7 8 9 10

Jialian Investment Co., Ltd. Jyh-Chau Wang

－－ V －－ V V V V V V V －－

Hyield Venture Capital Co., Ltd Te-Tsai Huang

－－ V V V V V V V V V V －－

I-Chen Investment Ltd. Chuang-Yi Chiu

－－ V V V V V V V V V V －－

Innolux Education Foundation Chin-Lung Ting

－－ V －－ V V V V V V V －－

Chi-Chia Hsieh －－ V V V V V V V V V V V 1

Bo-Bo Wang －－ V V V V V V V V V V V －

Stanley Yuk Lun Yim －－ V V V V V V V V V V V － Note：Please tick the corresponding boxes if directors or supervisors have been any of the following during the two years prior to being elected or during the term of office.

1. Not an employee of the Company or any of its affiliates. 2. Not a director or supervisor of the Company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the Company, its parent

company, or any subsidiary in which the Company holds, directly or indirectly, more than 50% of the voting shares. 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else's name(s), in an aggregate

amount of 1% or more of the total number of outstanding shares of the Company or ranking in the top 10 in holdings. 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the fifth degree of kinship, of any of the persons in the preceding three subparagraphs. 5. Not a director, supervisor, or employee of a corporate shareholder that directly holds 5% or more of the total number of outstanding shares of the Company or that holds shares ranking

in the top five in holdings. 6. Not a director, supervisor, officer, or shareholder holding 5% or more of the shares of a specified company or institution that has a financial or business relationship with the Company. 7. Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial,

accounting services, or consultation to the Company or to any affiliate of the Company, or a spouse thereof. 8. Not having a marital relationship, or a relative within the second degree of kinship to any other director of the Company. 9. Not been a person of any conditions defined in Article 30 of the Company Law. 10. Not a governmental, juridical person, or its representative as defined in Article 27 of the Company Law

16

3.2.2 Management Team April 22, 2017

Title

Natio

nal

ity

Name Note 1

Gen

der

Date Effective

Shareholding Spouse & Minor

Shareholding


Other Position

Managers who are Spouses or Within Two

Degrees of Kinship Shares ％ Shares ％ Shares ％ Title Name Relation

Chairman &CEO

TW Jyh-Chau Wang M 2010/3/18 (Note 2)

912,067 0.01 607 －－－

M.S., Materials Engineering, National Tsing-Hua University Vice President, Chi Lin Technology Co., Ltd. Deputy Plant Director, Unipac Optoelectronics Corp. Associate Research Fellow, Material Research Laboratories,Industrial Technology Research Institute

Note 2 －－－

President &COO

TW Chih-Hung

Hsiao M

2003/1/14 (Note 3)

470,480 － 3,600,000 0.04 －－

B.S., Industrial Engineering, Tunghai University Plant Director, AU Optronics Corp. Deputy Plant Director, Unipac Optoelectronics Corp. Supervisor, Center for Measurement Standards (CMS), Industrial Technology Research Institute

Note 3 －－－

Executive Vice President

TW Chin-Lung Ting M 2010/3/18 (Note 4)

1,087,063 0.01 －－－－ M.S., Graduate Institute of Electronics Engineering, National Taiwan University Manager, Unipac Optoelectronics Corp.

Note 4 －－－

Vice President TW Yao-Tong Chen M 2010/3/18 1,689,644 0.02 16,422 －－－ Master of EMBA, Sun Yat-sen University Manager, Hitachi Electronics Co., Ltd.

－－－－

Vice President TW Hung-Wen Yang M 2007/6/1 (Note 5)

320,769 － 59,002 －－－

M.S., Chemical Engineering, National Cheng Kung University Plant Director, Sintek Photronic Corp Deputy Plant Director, AU Optronics Corp. Manager, Unipac Optoelectronics Corp.

－－－－

Vice President TW Chih-Ming

Chen M

2010/3/18 (Note 5)

312,193 － 863 －－－

Graduated from Metallurgy and Materials Science Research Institute of National Cheng Kung University Engineer, Shyen Sheng Fuat Steel & Iron Works Co., Ltd Senior Engineer, Unipac Optoelectronics Corp.

－－－－

Vice President TW Chu-Hsiang

Yang M

2010/3/18 (Note 6)

925,585 0.01 7,953 －－－ M.S., Chemical Engineering, National Central University Deputy Section Manager, Chunghwa Picture Tubes, Ltd.

Note 6 －－－

Assistant Vice President

TW Ke-Yi Kao M 2010/3/18 607,488 0.01 －－－－ M.S., Chemical Engineering, University of Florida (U.S.A.) Assistant Manager, Unipac Optoelectronics Corp.

－－－－


TW Tai-Chi Pan M 2010/3/18 886,880 0.01 58,680 －－－ Graduated in Electrical Engineering of National Cheng Kung University Assistant Manager, Unipac Optoelectronics Corp.

－－－－


TW Kuo-Hsiung

Kuo M 2010/3/18 714,100 0.01 295,540 －－－ B.S., Mechanical Engineering, Waseda University, Japan Note 7 －－－


TW Chung-Kuang

Wei M 2010/3/18 654,395 0.01 －－－－

Ph. D, Institute of Photonics, National CT University Electronics Research Laboratories, Industrial Technology Research Institute

－－－－

17

Title

Natio

nal

ity

Name Note 1

Gen

der

Date Effective

Shareholding Spouse & Minor

Shareholding


Other Position

Managers who are Spouses or Within Two

Degrees of Kinship Shares ％ Shares ％ Shares ％ Title Name Relation


TW Jia-Pang Pang M 2010/11/8 2,445,089 0.02 －－－－ Ph. D, Electronics Engineering, University of Tokyo, Japan Deputy Director of TFT Manufacturing Plant, AU Optronics Corp.

－－－－


TW Yu Shui Kuo M 2014/12/1 160,000 －－－－－

Master of Mechanical Engineering, Yuan Ze University Associate President of Entire Technology Co. Ltd. Manager of AU Optronics Corp. Associate Manager of Prodisc Coordinator Of Ritek Corporation

－－－－


TW Zheng-Xia Kuo M 2013/9/23 549,802 0.01 30,000 －－－

Bachelor of Industrial Engineering and Management, National Chiao Tung University Person-in-charge of BU, GIO Optoelectronics Corp. Manager of Chi Mei Lighting Technology Corporation

Director of Ampower Holding

Ltd.

－－－


TW Tien-Jen Lin M 2013/9/23 1,169,554 0.01 218,922 －－－

Master of Electrical Engineering, National Taiwan University Advisor to General Manager's Office, Unity Opto Technology Co., Ltd. Director of Head Office of Product Development, Chi Mei Lighting Technology Corporation

Chairman of INX

technology Europe

B.V. and USA

－－－


TW Qing-Hui Lin M 2015/12/25 300,039 －－－－－ Master of institute of science engineering, National Central University R&D Director, Chunghwa Picture Tubes, Ltd.

Note 8 －－－


TW Jun-Yi Yu M 2015/12/25 109,537 －－－－－ Master of Industrial Engineering,Texas Tech University Production Manager of AU Optronics Corp.

Note 9 －－－


TW Mao-Sheng

Hung M 2015/12/25 453,600 －－－－－

Master of management, National Taiwan University Department representative of Gigabyte Marketing Executive of BenQ

－－－－

Finance Supervisor

TW Chien-Lang Lo M 2014/5/7 147,431 － 198 －－－

Master of Business Administration, Baruch College, College of the City of New York Assitant manager of Sumitomo Mitsui Banking Corporation. Deputy manager of HSBC Bank director of Tokyo-Mitsubishi UFJ.

Note 10 －－－

Account Supervisor

TW Chin-Yuan

Chang M 2009/1/9 300,192 －－－－－

Master of Business Administration, National Chengchi University Vice President of Finance, Xiamen Overseas Chinese Electronic Co., Ltd. CFO, Information Product Business Group, BENQ

Note 11 －－－

Note 1:Existing Managers as of the printed date of the annual report. Note 2: Promoted to Chairman and CEO on 2016/5/13

Concurrently as chairman of the board: Innolux Holding Ltd.,Landmark International Ltd., Keyway Investment Management Ltd., Toppoly Optoelectronics (B.V.I.) Ltd.,

18

Innolux Hong Kong Holding Ltd., Innolux Optoelectronics Hong Kong Holding Ltd., Innolux Hong Kong Limited, Bright Information Holding Ltd., Toppoly Optoelectronics (Cayman) Ltd., Leadtek Global Group Ltd., Yuan Chi Investment Co., Ltd. (Statutory representative) Concurrently as director: InnoJoy Investment Corporation (Statutory representative), FI Medical Device Manufacturing Co. (Statutory representative)

Note 3: Promoted to President and COO on 2017/3/16 Concurrently as chairman of the board: Rockets Holding LTD., Stanford Developments Ltd., Suns Holding Ltd., Lakers Trading Ltd., Warriors Technology Investments Ltd., InnoJoy Investment Corporation (Statutory representative) Concurrently as director: Yuan Chi Investment Co., Ltd. (Statutory representative)

Note 4: Promoted to Executive Vice President on 2016/6/24 Concurrently as chairman of the board: GIO Optoelectronics Corp., Double Star Inc. Concurrently as director: Innolux Optoelectronics Japan Co., Ltd.

Note 5:Promoted to Vice President on 25 December 2015 Note 6: Promoted to Vice President on 19 March 2016

Concurrently as director: Innolux Technology Japan Co.,Ltd.,Innolux Optoelectronics Japan Co., Ltd.,Chi Lin Optoelectronics. (Statutory representative),FI Medical Device Manufacturing Co. (Statutory representative)

Note 7:Concurrently as chairman of the board: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd. Concurrently as director: Chi Mei Frozen Food Co., Ltd.

Note 8: Concurrently as chairman of the board: Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co. Note 9:Concurrently as chairman of the board: Bright Information Holding Ltd.,Innolux Hong Kong Holding Limited, Innolux Optoelectronics Hong Kong Holding Ltd., Shanghai

Innolux Optoelectronics Ltd., Foshan Innolux Optoelectronics Ltd, Kunpal Optoelectronics Ltd., Nanjing Innolux Optoelectronics Ltd., Innocom Technology (Shenzhen) Co., Ltd.

Note10:Concurrently as chairman of the board:Best China Investments Ltd., Mega Chance Investments Ltd., Magic Sun Ltd., Concurrently as director: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., InnoJoy Investment Corporation (Statutory representative), Yuan Chi Investment Co., Ltd. (Statutory representative)

Note 11:Concurrently as chairman: Innolux Optoelectronics Europe B.V., Innolux Optoelectronics Germany GmbH Concurrently as director: Innocom Technology (Shenzhen) Co., Ltd., Nanjing Innolux Optoelectronics Ltd., Kunpal Optoelectronics Ltd., Nanjing Innolux Technology Ltd., VAP Optoelectronics (Nanjing) Corp., Shanghai Innolux Optoelectronics Ltd. Concurrently as supervisor: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd., Innolux Optoelectronics Japan Co., Ltd., Innolux Technology Japan Co., Ltd., Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd., InnoJoy Investment Corporation (Statutory representative)

19

3.3 Remuneration of Directors, Supervisors, President, and Vice President 3.3.1 Remuneration of Directors

Unit: NT$; Shares: thousands

Title Name

(Note 1)

Remuneration Ratio of Total Remuneration (A+B+C+D) to

Net Income (%)(Note8)

Relevant Remuneration Received by Directors Who are Also Employees

Ratio of Total Compensation (A+B+C+D+E+F+G) to Net Income (%)(Note8)

C

ompensation P

aid to Directors

from an Investe

d Com

pany Other

than the Com

pany’s Subsidiary

Base Compensation (A) (Note 2)

Severance Pay (B) Directors

Compensation (C) (Note 3)

Allowances (D) (Note 4)

Salary, Bonuses, and Allowances

(E) (Note 5)

Severance Pay (F) (Note 6)

Employees Compensation (G) (Note 7)

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

The company All companies in the financial

report

Th

e com

pan

y

All co

mp

anies

in th

e fina

ncial

repo

rt

Cash Stock Cash Stock

Chairman&CEO Hsing-Chien Tuan(Note)

6,600 6,600 - - 3,856 3,856 300 300 0.57 0.57 50,202 50,202 - - 2,064 - 2,064 - 3.37 3.37 -

Chairman Jialian Investment Co., Ltd.

Jyh-Chau Wang(Note10)

Institutional director

Hyield Venture Capital Co., Ltd

Jeng-Wu Tai(Note11)

Te-Tsai Huang

Institutional director I-Chen Investment Ltd.

Chuang-Yi Chiu(Note12)

Institutional director Innolux Education Foundation

Chin-Lung Ting(Note12)

Independent Director Chi-Chia Hsieh

Independent Director Bo-Bo Wang(Note12)

Independent Director Stanley Yuk Lun Yim

Note 1: Existing Directors as of the date 2016. Note 2: Refers to directors’ remuneration paid in 2016. Note 3: The proposal of 2016 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of directors in 2016. Note 5: Refers to the salaries, bonuses and special disbursement, etc. received as employees by directors in 2016. Note 6: Refers to the amounts transferred to government authorities in 2016. Note 7: The proposal of 2016 profit distribution has resolved by the board of director. Note 8: Ratio of total net income (Alone). Note 9:2016/5/12 Retired Note10:2016/5/13 onboard Note11:2016/5/5 resignation Note12:2016/7/1 onboard

20

Range of Remuneration table

Range of Remuneration

Name of Directors

Total of (A+B+C+D) Total of (A+B+C+D+E+F+G)

The company All companies in the financial

report The company

All companies in the financial report

Under NT$ 2,000,000

Hsing-Chien Tuan, Jialian Investment Co., Ltd.

Jyh-Chau Wang, Hyield Venture Capital Co., Ltd,

Jeng-Wu Tai, Te-Tsai Huang,

I-Chen Investment Ltd, Chuang-Yi Chiu,

Innolux Education Foundation , Chin-Lung Ting, Chi-Chia Hsieh,

Bo-Bo Wang, Stanley Yuk Lun Yim

Hsing-Chien Tuan, Jialian Investment Co., Ltd.

Jyh-Chau Wang, Hyield Venture Capital Co., Ltd,



Innolux Education Foundation , Chin-Lung Ting, Chi-Chia Hsieh, Bo-Bo Wang,

Stanley Yuk Lun Yim

Jialian Investment Co., Ltd. , Hyield Venture Capital Co., Ltd,



Innolux Education Foundation, Chi-Chia Hsieh, Bo-Bo Wang,

Stanley Yuk Lun Yim

Jialian Investment Co., Ltd. , Hyield Venture Capital Co., Ltd,



Innolux Education Foundation, Chi-Chia Hsieh,Bo-Bo Wang,

Stanley Yuk Lun Yim

NT$2,000,000 ~ NT$5,000,000

NT$5,000,000 ~ NT$10,000,000

NT$10,000,000 ~ NT$15,000,000

NT$15,000,000 ~ NT$30,000,000 Chin-Lung Ting Chin-Lung Ting

NT$30,000,000 ~ NT$50,000,000 Jyh-Chau Wang,

Hsing-Chien Tuan Jyh-Chau Wang,

Hsing-Chien Tuan NT$50,000,000 ~ NT$100,000,000

Over NT$100,000,000

Total 13 13 13 13

21

3.3.2 Remuneration of Supervisors Unit: NT$; Share: thousands

Title Name(Note 1)

Remuneration Ratio of Total Remuneration (A+B+C) to Net Income

(%)(Note 5)

Compensation Paid to

Supervisors from an Invested Company

Other than the Company’s Subsidiary

Base Compensation (A) (Note 2)

Bonus to Supervisors (B) (Note 3)

Allowances (C) (Note 4)

The company


The company


The company


The company


Supervisor Ren-Guang Lin

1,350 1,350 - - 50 50 0.07 0.07 - Supervisor Yi-Fang Chen

Supervisor I-Chen Investment Ltd. Te-Tsai Huang

Note 1: Existing Supervisors as of the date of 2016 Note 2: Refers to the remuneration paid to supervisors in 2016. Note 3: The proposal of 2016 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of supervisors in 2016. Note 5: Ratio of total net income (Alone).


Range of Remuneration

Name of Supervisors Total of (A+B+C)

The company All companies in the financial report

Under NT$ 2,000,000

I-Chen Investment Ltd. Te-Tsai Huang,

Ren-Guang Lin, Yi-Fang Chen

I-Chen Investment Ltd. Te-Tsai Huang, Ren-Guang Lin,

Yi-Fang Chen NT$2,000,000 ~ NT$5,000,000

NT$5,000,000 ~ NT$10,000,000

NT$10,000,000 ~ NT$15,000,000

NT$15,000,000 ~ NT$30,000,000

NT$30,000,000 ~ NT$50,000,000

NT$50,000,000 ~ NT$100,000,000

Over NT$100,000,000

Total 4 4

22

3.3.3 Remuneration of the President and Vice Presidents Unit: NT$ thousands

Title Name

(Note 1)

Salary (A) (Note 2) Severance Pay (B) (Note 3)

Bonuses and Allowances (C)

(Note 4) Employee Compensation (D)(Note 5)

Ratio of Total Compensation (A+B+C+D) to Net Income

(%)(Note 6)

Co

mp

ensatio

n P

aid to

th

e Presid

ent an

d Vice

Presid

ents fro

m an

In

vested C

om

pan

y Oth

er th

an th

e Co

mp

any’s

Su

bsid

iary

Th

e com

pany

All

com

pan

ies in th

e finan

cial rep

ort

Th

e com

pany

All

com

pan

ies in th

e finan

cial rep

ort

Th

e com

pany

All

com

pan

ies in th

e finan

cial rep

ort

The company All companies in the

financial report

Th

e com

pany

All

com

pan

ies in

the fin

ancial

repo

rt Cash Stock Cash Stock

Chairman&CEO

Hsing-Chien Tuan(Note7)

32,293 32,293 458 458 69,447 69,447 4,368 - 4,368 - 5.70 5.70 -

Chairman&CEO


-President&COO

Chih-Hung Hsiao(Note9)

Excutive Vice

President


Vice President

Wen-Jyh Sah(Note11)

Vice President

Yao-Tong Chen

Vice President

Hung-Wen Yang

Vice President

Chih-Ming Chen

Vice President

Chu-Hsiang Yang(Note 12)

Note 1: Existing Management as of the date of 2016. Note 2: Refers to remuneration paid in 2016. Note 3: Refers to amounts transferred to government authorities in 2016. Note 4: Refers to the bonuses, special disbursement and 266 tousand for a car and oil costs for CEO & President. Note 5: The proposal of 2016 profit distribution has resolved by the board of director. Note 6: Ratio of total net income (Alone). Note 7: Retired on 2016/5/12 Note 8: Promoted to Chairman&CEO on 2016/5/13 Note 9: Promoted to President&COO on 2017/3/16 Note10: Promoted to Excutive Vice President on 2016/6/24 Note11: Position adjusted on 2016/6/7 Note12: Promoted to Vice President on 2016/3/19

23


Range of Remuneration Name of President and Vice President

The company All companies in the financial report Under NT$ 2,000,000

NT$2,000,000 ~ NT$5,000,000

NT$5,000,000 ~ NT$10,000,000

Wen-Jyh Sah, Yao-Tong Chen , Hung-Wen Yang,

Chu-Hsiang Yang , Chih-Ming Chen

Wen-Jyh Sah, Yao-Tong Chen , Hung-Wen Yang,

Chu-Hsiang Yang , Chih-Ming Chen

NT$10,000,000 ~ NT$15,000,000 Chih-Hung Hsiao, Chin-Lung Ting

Chih-Hung Hsiao, Chin-Lung Ting

NT$15,000,000 ~ NT$30,000,000 Hsing-Chien Tuan ,

Jyh-Chau Wang Hsing-Chien Tuan ,

Jyh-Chau Wang NT$30,000,000 ~ NT$50,000,000 NT$50,000,000 ~ NT$100,000,000

Over NT$100,000,000 Total 9 9

24

3.3.4 Names of managerial officers who received employees’ bonuses in the preceding year and the distribution

Unit: NT$ thousands as of April 30, 2017

Title Name

(Note 1)

Employee Compensation

- in Stock (Fair Market Value)

Employee Compensation

- in Cash (Note 2) Total

Ratio of Total Amount to Net

Income(%) (Note 3)

Execu

tive Officers

Chairman&CEO Hsing-Chien T uan(Note4)

- 8,792 8,792 0.47

Chairman&CEO Jyh-Chau Wang(Note5)

President&COO Chih-Hung Hsiao(Note6) Excutive Vice President


Vice President Wen-Jyh Sah(Note8)

Vice President Yao-Tong Chen

Vice President Hung-Wen Yang

Vice President Chih-Ming Chen

Vice President Chu-Hsiang Yang(Note9) Associate Vice President

Ke-Yi Kao

Associate Vice President

Tai-Chi Pan


Kuo-Hsiung Kuo


Chung-Kuang Wei


Jia-Pang Pang


Yu-Shui Kuo


Zheng-Xia Kuo


Tien-Jen Lin


Qing-Hui Lin


Jun-Yi Yu


Mao-Sheng Hung

Finance Supervisor

Chien-Lang Lo

Accounting Supervisor

Chin-Yuan Chang

Note 1: Refers to current managerial officers as of the printing date of 2016. Note 2: The proposal of 2016 profit distribution has resolved by the Board of director. Note 3: Ratio of Total Amount to Net Income of alone. Note 4: Retired on 2016/5/12 Note 5: Promoted on 2016/5/13 Note 6: Promoted on 2017/3/16 Note 7: Promoted on 2016/6/24 Note 8: Position adjusted on 2016/6/7 Note 9: Promoted on 2016/3/19

25

3.3.5 Comparison of Remuneration for Directors, Supervisors, Presidents, and Vice Presidents in the Most Recent Two Fiscal Years and Remuneration Policy for Directors, Supervisors, Presidents, and Vice Presidents

A. The ratio of total remuneration paid by the company and by all companies included in the

consolidated financial statements for the most recent two fiscal years to directors, supervisors, presidents, and vice presidents of the Company to the net income.

Year

Item

Ratio of total remuneration paid to directors, supervisors, presidents, and vice presidents to net income

2015 2016 (Note 1)

The company Companies in the

consolidated financial statements

The company Companies in the

consolidated financial statements

Directors 0.58 0.58 3.37 3.37 Supervisors 0.04 0.04 0.07 0.07

Presidents&Vice Presidents

1.00 1.00 5.70 5.70

Note 1: The proposal of 2016 profit distribution has resolved by the Board of director.

The remuneration payment policy of the Company is determined in accordance with the actual profit of the Company for the year and the ratio as required under the Articles of Association of the Company for distribution as remuneration to directors and supervisors and as bonuses to employees. For payments made to presidents and vice presidents, different levels of remuneration are set after considering their job positions, responsibilities undertaken, job achievements and contributions made to company operations, and with reference to industry standards, the remuneration payment policy is considered to be reasonable.

B. The policies, standards, and portfolios for the payment of remuneration, the procedures for

determining remuneration, and the correlation with business performance.

Remunerations of directors and supervisors of the Company are determined in accordance with the Articles of Association of the Company, their participation and value of contributions made to the operation of the Company and with reference to industry standards.

Remuneration of presidents and vice presidents includes salaries, bonuses, special

disbursements, employee bonus, employee stock options, and new shares with restrictive rights of employees, etc. which are determined after considering the nature of work, responsibilities, job positions, and duties undertaken and with reference to industry standards of similar job positions. The amount of employees’ bonuses, after the relevant resolution has been passed by shareholders, will be reviewed by the remuneration committee according to the bonus distribution mechanism for employees of the Company on individual basis, and a proposal will be made to the Board for a decision and will be implemented upon passing the Board resolution.

26

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

A total of 5 meetings of the Board of Directors were held in the previous(2016)period. Director attendance was as follows:

Title Name Attendance in Person

By Proxy

Attendance Rate (%)

Remarks

Chairman Hsing-Chien Tuan 2 0 100% 2016/5/12Retired

Chairman Jialian Investment Co., Ltd.

Jyh-Chau Wang 5 0 100% 2016/7/1Reappointed

Director Hyield Venture Capital Co., Ltd

Jeng-Wu Tai 1 0 100% 2016/5/5Resigned

Director Hyield Venture Capital Co., Ltd

Te-Tsai Huang 3 0 100% 2016/7/1Reappointed

Director I-Chen Investment Ltd.

Chuang-Yi Chiu 3 0 100% 2016/7/1Newappointed

Director Innolux Education Foundation

Chin-Lung Ting 3 0 100% 2016/7/1Newappointed


Chi-Chia Hsieh 5 0 100% 2016/7/1Reappointed


Bo-Bo Wang 3 0 100% 2016/7/1Newappointed


Stanley Yuk Lun Yim 5 0 100% 2016/7/1Reappointed

Other mentionable items: 1. If the circumstances referred to in Article 14-3 of the Securities and Exchange Act and resolutions of the directors’

meetings objected to by Independent Directors or subject to qualified opinion and recorded or declared in writing exist, the dates of meetings, sessions, contents of motions, all independent opinions, and the Company’s response to the independent directors’ opinions should be specified: None

2. If there are directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified: Date Name Contents of motions Causes for avoidance Voting

2016/2/2 Hsing-Chien Tuan Jyh-Chau Wang

The Compensation Committee is proposing manager bonus for the year of 2015 and amendment the rule of Reward System of executives

The board member and manager Hsing-Chien Tuan and Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors

Did not for the disucssion

2016/5/12 Hsing-Chien Tuan Jyh-Chau Wang

The Compensation Committee is proposing manager bonus for the year of 2015.

The board member and manager Hsing-Chien Tuan and Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors


2016/7/29 Jyh-Chau Wang

The Compensation Committee is proposing manager salary structure adjustment

The manager Jyh-Chau Wang have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors


2017/2/10 Jyh-Chau Wang Chin-Lung Ting

The Compensation Committee is proposing manager bonus for the year of 2016

The board member and manager Jyh-Chau Wang and Chin-Lung Ting have a vital interest in the items on the agenda, therefore they avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors


3. Measures taken to strengthen the functionality of the Board: (1) The Board of Directors shall director the company’s strategy, adivise the management team, responsible to

shareholders, and compliance with relevant laws and regulations and the management of the existing or

27

potential risks of the Company. (2) The Compnay has set up a Audit Committee on June 24,2016 for assisting the Board in the effectiveness of

the implementation of the internal control system, the fair presentation of the financial reports, independence, and performance of the certificated public accountants, the compliance with relevant laws and regulations and the management of the existing or potential risks of the Company. Please see page 27 for the detail of the Audit Committee’s operation.

(3) The Compnay has set up compenstation Committee on Augest 25,2011 and set up standard for the Directors and managers. The Compensation Committee is also in charged of making regular review of performance of the Director and managers, and the related remuneration policy, system, standard, and structure. Please see page 34 for the detail of the Compensation Committee’s operation

(4) The Company has re-elected its Board Director on 24 June, 2016. The new Board is made of 7 board members, including 3 independent directs fors strengthening the Board function and Corporate Governance.

(5) The Board members continuing education extending beyond the scope of the professional expertise of the directors, and to select courses encompassing corporate governance related topics such as finance, risk management, business, commerce, legal affairs, accounting, and corporate social responsibility, or courses relating to internal control systems or liability for financial reports. Please see page 43 for the detail of the status of Directors ' participation in corporate governance related courses and trainings.

3.4.2 Audit Committee A total of 3 Audit Committee meeting were held in the previous(2016)period. The attendance of the independent directors was as follows:

Title Name Attendance in

Person By

Proxy Attendance

Rate Remarks

Independent Director Chi-Chia Hsieh 3 0 100% 2016/7/1Newappointed Independent Director Bo-Bo Wang 3 0 100% 2016/7/1Newappointed

Independent Director Stanley Yuk Lun

Yim 3 0 100% 2016/7/1Newappointed

Other mentionable items: 1. If there are the circumstances referred to in Article 14-5 of the Securities and Exchange Act and resolutions which

were not approved by the Audit Committee but were approved by two thirds or more of all directors, the dates of meetings, sessions, contents of motion, resolutions of the Audit Committee and the Company’s response to the Audit Committee’s opinion should be specified: 1:Circumstances referred to in Article 14-5 of the Securities and Exchange Act and resolutions, please refer page 47 Major Resolutions of and Board Meetings 2:N.A.

2. If there are independent directors’ avoidance of motions in conflict of interest, the directors’ names, contents of motion, causes for avoidance and voting should be specified:N.A.

3. Communications between the independent directors, the Company's chief internal auditor and CPAs (e.g. the items, methods and results of audits of corporate finance or operations, etc.) (1) The company holds audit committee meeting periodily and also invite CPAS, Internal Auditor and other

members in concern to attend the meeting (2) The Chief Internal Auditor present regular BOD and Audit committee meeting to report on the audit operations

and major internal auditing matters, including execution, reporting, and monitoring of Independent Directors’ instructions. In addition, Independent Directors obtained audit reports on a regular basis, which were submitted by the Chief Internal Auditor.

(3) The Companyh CPAs have presented the findings or the comments for the quarterly corporate financial reports, as well as those matters communication of which is required by law, in the regular quarterly meetings of the Audit Committee.

28

3.4.3 Attendance of Supervisors at Board Meetings

A total of 2 meetings of the Board of Directors were held in the previous(2016)period. The attendance of supervisors was as follows:

Title Name Attendance in Person Attendance Rate Remarks

Supervisor Ren-Guang Lin 2 100%

2016/6/30 Term expires Supervisor Yi-Fang Chen 2 100%

Supervisor I-Chen Investment Ltd.

Te-Tsai Huang 1 50%

Other mentionable items: 1. Composition and responsibilities of supervisors:

(1) Communications between supervisors and the Company's employees and shareholders (e.g. the communication channels and methods, etc.): Our Supervisor could communicate with employees and shareholders in anytime if necessary.

(2) Communications between supervisors and the Company's Chief Internal Auditor and CPA (e.g. the items, methods, and results of the audits of corporate finance or operations, etc.): Communications with the Chief Internal Auditor & CPA: The Company holds a Board Meeting each quarter and keeps the meeting minutes. The Directors, President, and the company's management are then notified of important discussions and resolutions. All Supervisors had attended on each occasion, and the CFO, Chief Internal Auditor, and CPAs were also present at the meetings to discuss the related subjects, Chief Internal Auditor was also present at the meetings to report on the audit operations and major internal auditing matters, including execution, reporting, and monitoring of Supervisors’ instructions. In addition, Supervisors obtained audit reports on a monthly basis, which were submitted by the Chief Internal Auditor.

2. If a supervisor expresses an opinion during a meeting of the Board of Directors, the dates of meetings, sessions, contents of motions, resolutions of the directors’ meetings, and the Company’s response to the supervisor’s opinion should be specified: None

29

3.4.4 Corporate Governance Implementation Status and Deviations from “the Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”

Evaluation Item

Implementation Status Deviations from “the Corporate Governance Best-Practice

Principles for TWSE/TPEx Listed Companies” and Reasons

Yes No Abstract Illustration

I. Does the company establish and disclose the Corporate Governance Best-Practice Principles based on “Corporate Governance Best-Practice Principles for TWSE/TPEx Listed Companies”?

Yes The Company has enacted “Corporate Governance Best-Practice Principles”and disclosed on the official website and M.O.P.S. in addition to protect the rights and interests of shareholders, strengthen the powers of the board of directors, respect the rights and interests of stakeholders and enhance information transparency.The INX’s Corporatie Govermance Best-Practice Principles”please refer to INX official website.

No significant difference compared to corporate governance practice principles

II. Shareholding structure & shareholders’ rights

(I) Does the company establish an internal operating procedure to deal with shareholders’ suggestions, doubts, disputes and litigations, and implement based on the procedure?

(II) Does the company possess the list of its major shareholders as well as the ultimate owners of those shares?

(III) Does the company establish and execute

the risk management and firewall system within its conglomerate structure?

(IV) Does the company establish internal rules against insiders trading with undisclosed information?

Yes

Yes

Yes

Yes

(I) The Company has enacted “Operating Procedures for Management over Major

Internal Information” and has, besides, set up spokesman and acting spokesman to take charge of proposals or disputes from shareholders.

(II) The Company is in a position to dominate the name lists of the key

shareholders and the terminal controllers of the key shareholders and has duly input such information to public into the Market Observation Post System (MOPS) promulgated

(III) The Company has duly enacted the “Regulations Governing Transaction with

Related Parties”, “Regulations Governing Supervision over Subsidiaries” and has, besides, set up relevant departments with sound mechanisms to evaluate and monitor potential risks with affiliated enterprises.

(IV) The Company has duly ancted the “Operating Procedures for Management over Major Internal Information” and further in accordance with the Company’s internal control system, enacted “Operating Procedures to Prevent Inside Trading and for Management over Major Information” to ben inside personnel from buying, selling negotiable securities by taking advantage of the information which has not yet been made public in the market.


III. Composition and Responsibilities of the Board of Directors

(I) Does the Board develop and implement a diversified policy for the composition of its members?

Yes

(I) Member diversification is considered by the Board members. Factors taken

into account include, but are not limited to gender, age, cultures, educational background, race, professional experience, skills, knowledge and terms of


30

Evaluation Item




(II) Does the company voluntarily establish

other functional committees in addition to the Remuneration Committee and the Audit Committee?

(III) Does the company establish a standard to measure the performance of the Board, and implement it annually?

(IV) Does the company regularly evaluate the independence of CPAs?

Yes

No

No

service. The Board objectively chooses candidates to meet the goal of member diversification.

(II) The Company has set up the Audit Committee and Remuneration Committee, the Company’s independent directors serve as the Committee members. For more details regarding the business performance of the Company’s Audit and Remuneration Committee, please refer to page 27&34 of this Annual Report. The Company, nevertheless, has not yet set up committee of other functions to date.

(III) The Company has not yet conducted self-evaluation of the Company’s board of directors, functional committees and individual directors.

(IV) The Company’s board of directors evaluates the CPA’s independence on a

regular basis, say, on an annual basis, and retains creditworthy CPA(s) to certify financial statements. The CPA(s) so retained has (have) been free of any interested party involvement and has (have) independent as the strict requirements.

IV. Does the company set up a corporate governance unit or appoint personnel responsible for corporate governance matters (including but not limited to providing information for directors and supervisors to perform their functions, handling work related to meetings of the board of directors and the shareholders' meetings, filing company registration and changes to company registration, and producing minutes of board meetings and shareholders’ meetings)?

Yes The Dept.SA of the company is in charge of company governance work including: taking care of meetings of the board of directors and the shareholders and relevant matters according to the law, preparing meeting minutes of the board of directors and the shareholders, reviewing and revising company governance, relevant guidelines and regulations, providing the directors with the operating required information, preparing regular improvement courses for the directors.


V. Does the company establish a communication channel and build a designated section on its website for stakeholders (including but not limited to shareholders, employees, customers, and suppliers), as well as handle all the issues they care for in terms of corporate social responsibilities?

Yes Innolux offers a variety of features including investor services, supplier area, sales services, product inquiries, media communications, reporting and so forth in order to communicate and respond to shareholders‘ needs and expectations by strengthening communications with stakeholders and thereby meeting their expectations.


VI. Does the company appoint a professional Yes Innolux has appointed a professional agency to handle shareholder related services No significant difference

31

Evaluation Item




shareholder service agency to deal with shareholder affairs?

for the company. compared to corporate governance practice principles

VII. Information Disclosure (I) Does the company have a corporate

website to disclose both financial standings and the status of corporate governance?

(II) Does the company have other information disclosure channels (e.g. building an English website, appointing designated people to handle information collection and disclosure, creating a spokesman system, webcasting investor conferences)?

Yes

Yes

(I) Through the company’s website (http://www.innolux.com) with Chinese and

English versions, we provide financial, business, and corporate governance information and keep updating.

(II) The company’s English website announces information and our Public

Relations department, Stock department and the related department responsible for collecting and disclosing the related information also set up positions for its spokesperson in accordance with the regulations and the company provides Investor Conference report on the official website.


VIII. Is there any other important information to facilitate a better understanding of the company’s corporate governance practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ and supervisors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors and supervisors)?

Yes (I) Employee's Rights: Please refer to page 84 “5.5 Labor Relations” of the annual report

(II) Employee Care The company values employees’ mental and physical balance and

provides hardware which can release stresses, such as “Le Qun Guan” and “Huo Li Guan”. Innolux also holds different kinds of activities to provide physical and mental relaxation for our employees. We encourage our employees to join clubs 40 clubs in Taiwan to create an active and positive working environment by supporting those clubs with resources.

Innolux cares for our employees from healthcare to daily lives. We care about the health of mothers in the workplace and provide a friendly working environment such as lactation room，mothers’ classroom, new parent lessons, and support for lactation during work, maternity leave, birth benefits, and parental subsidies. We also established mothers’ healthcare protection measures and rules.

(III) Maintaining good relations and interactions with investors, suppliers, and interested parties.

According to different interested groups, Innolux has established multiple and unobstructed communication channels, such as investors’ service on company’s webpage, suppliers zone, business service and product consulting, media communications, so that we can keep communicating and getting feedback from those interests groups’ needs and expectations. 1. Investors: the company treats our shareholders with the principle of


32

Evaluation Item




fairness and openness. We call the shareholders meetings according to the Company Act and other related laws every year, encourage stockholders to actively participate in the stockholders meeting with proposals and questions.

2. Customers: we have salespeople and customer service units to reply to customers’ demands effectively, establish a CRM system, monitor the progress of handling issues, field audits and questionnaire feedback, and customers’ satisfaction survey.

3. Employees: we set up a direct employee line, mobilization meeting, Innolux mailbox, interactive factory meeting (Labor-Management Meeting, the Employee Welfare Committee, management interview, Industrial Safety), employee questionnaires (group meals, activities, training), and opinion collection mail box.

4. Suppliers: setting up an interactive platform for supplier purchasing and procurement management, and a buyer and procurement management department to host ad quality meetings monthly / quoterly with other departments and suppliers.

5. Communities: Having departments or individuals to be responsible for the communications with community residents, visit the district officers and residents from time to time, caring, and being kind to the neighbors.

6. Governments: actively participate the regulation public hearing and seminar that host by the governing departments, maintain good interactions with the governments, and follow the government’s environmental protecting actions.

7. Non-governmental organizations: participating the professional seminars host by NGOs, listening to the suggestions from outsiders, keep tracking with the industrial changes, become the reference of CSR policy planning, organizing projects that supporting weakness and promoting environmental protection.

(IV) Directors Profession Enhancement Status Innolux’s Directors have both professional background and practical

experience. The company arranges further studies for Directors and every year. For the latest further study updates please refer to page 43 of this annual report.

(V) Risk Management Innolux has established a risk management system to regularly monitor

the related financial risks, regulation risks, climate change risks, water

33

Evaluation Item




resource risks, supplier chain risks, information safety risks, and the environment, safety, and health risks.

In the wake of the Meinong earthquake incident on 2016.02.06, Innolux not only set up an emergency response team and executes process, operations and production recovery programs according to existing business continuation plans (BCP) but also reviewed its BCP guidelines flow, revised BCP principles to enhance its feasibility and coverage and make it the model of making and executing BCP by other divisions of this company.

(VI) The implementation of customer policy 1. The customer satisfaction service

The company practicing the quality policy and views customer service as the core value of this company. We continuously implement improvement plans for our internal process, such as the quality concepts of product design, manufacturing, information systems, and logistic cooperation, to provide the most competitive service in order to reach the highest customer satisfaction.

2. Customer satisfaction The company collect the KPI of services via VOC sysytem and we

monitor, analyze, and improve the feedback from customers. We also keep interacting with customers pro-actively.

(VII) The company implements and maintains D&O insurance for its Directors and key officers by the company Innolux maintains D&O insurance for its Directors and key officers

IX. Please explain the improvements which have been made in accordance with the results of the Corporate Governance Evaluation System released by the Corporate Governance Center, Taiwan Stock Exchange, and provide the priority enhancement measures. Company governance of the company was ranked among the top 6%~20% in the last two years. It has set up its "Company governance guidelines" according to the revised Corporate Governance Best Practice Principles for TWSE/TPEx Listed Companies by the Taiwan Stock Exchange Corporation (TWSE) on 2016.09.30. This company has been working hard on sustainable economy, environment, and society and fulfilling long-term and sustainable responsibility to individual stakeholders and the whole society based on business core value of honesty and integrity.

34

3.4.5 Composition, Responsibilities and Operations of the Remuneration Committee A. Professional Qualifications and Independence Analysis of Remuneration Committee Members

Criteria

Name (Note 1)

Meet One of the Following Professional Qualification Requirements, Together with at Least Five Years of Work Experience

Independence Criteria(Note 2)

Number of Other Public Companies in Which the

Individual is Concurrently Serving as an Remuneration

Committee Member

An Instructor or Higher Position in a Department of Commerce, Law, Finance, Accounting, or Other Academic Department Related to the Business Needs of the Company in a Public or Private Junior College, College or University

A Judge, Public Prosecutor, Attorney, Certified Public Accountant, or Other Professional or Technical Specialist Who has Passed a National Examination and been Awarded a Certificate in a Profession Necessary for the Business of the Company

Has work experience in the areas of commerce, law, finance, or accounting, or otherwise necessary for the business of the Company

1 2 3 4 5 6 7 8

Independent Director Chi-Chia

Hsieh

－－ v v v v v v v v v 1


Bo-Bo Wang －－ v v v v v v v v v －


Stanley Yuk Lun Yim

－－ v v v v v v v v v －

Note 1:Director; Independent Director or others. Note 2:If Compensation Committee Members, during the two years before being elected or during the term of office, meet any of the following situations, please tick the appropriate

corresponding boxes: 1. Not an employee of the company or any of its affiliates; 2. Not a director or supervisor of the company or any of its affiliates. The same does not apply, however, in cases where the person is an independent director of the company, its

parent company, or any subsidiary in which the company holds, directly or indirectly, more than 50 percent of the voting shares; 3. Not a natural-person shareholder who holds shares, together with those held by the person’s spouse, minor children, or held by the person under someone else’s name(s), in an

aggregate amount of one percent or more of the total number of issued shares of the company or ranking as one of its top ten shareholders; 4. Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship of any of the above persons in the preceding three subparagraphs; 5. Not a director, supervisor, or employee of a corporate/institutional shareholder that directly holds five percent or more of the total number of issued shares of the company or

ranking as one of its top five shareholders; 6. Not a director, supervisor, officer, or shareholder holding five percent or more of the shares of a specified company or institution that has a financial or business relationship with

the company; 7. Not a professional individual or an owner, partner, director, supervisor, or officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal,

financial, accounting services, or consultation to the company or to any affiliate of the company, or a spouse thereof; 8. Has not been a person under any conditions defined in Article 30 of the Company Law.

35

B. Attendance of Members at Remuneration Committee Meetings Mr. Chi-Chia Hsieh, Chairman of the Compensation Committee, convened 4 regular meetings in 2016. The Committee members’ attendance status is as follows:

Title Name Attendance in Person (B) By

Proxy Attendance rate (%) Remarks

Chair Chi-Chia Hsieh 4 － 100 - Member Bo-Bo Wang 2 － 100 - Member Stanley Yuk Lun Yim 2 － 100 - Member Chi-Lin Wei 2 － 100 2016/6/30Term expires

Member Guan-Jun Wang 2 － 100 2016/6/30Term expires

Annotation: 1. There was no recommendation of the Compensation Committee which was not adopted or was modified by the Board of Directors in 2016. 2. There were no written or otherwise recorded resolutions on which a member of the Compensation Committee had a dissenting opinion or

qualified opinion.

36

3.4.6 Corporate Social Responsibility

Evaluation Item

Implementation Status Deviations from “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed

Companies” and Reasons Yes No Abstract Explanation

I. Corporate Governance Implementation (I) Does the company declare its corporate

social responsibility policy and examine the results of the implementation?

(II) Does the company provide educational

training on corporate social responsibility on a regular basis?

(III) Does the company establish exclusively

(or concurrently) dedicated first-line managers authorized by the board to be in charge of proposing the corporate social responsibility policies and reporting to the board?

(IV) Does the company declare a reasonable

salary remuneration policy, and integrate the employee performance appraisal system with its corporate social responsibility policy, as well as establish an effective reward and disciplinary system?

Yes

Yes

No

No

(I) Innolux has established relevant CSR policies though CSR policies has not

yet to approve by Board of Director meeting directly, but still enacted relevant policies and guidelines have also been made available on the company’s website as a declaration of Innolux’s committment and obligation to fulfilling its corporate social responsibilities.

(II) In the orientation training for new employees, Innolux Code of Conduct training has been incorporated as a component. In addition, the company has also incorporated concepts of CSR by emphasizing values such as labor rights in the trainings for assembly line foreman and supervisors.

(III) Innolux has established a designated unit responsible for the promotion and planning of CSR in addition to the formulation of approaches and objectives for sustainable development. Innolux also convenes CSR committee meetings on a quarterly basis, though the company has not yet to report and CSR issue to Board of Director meeting directly but the president each site in Taiwan and mainland China attend the meeting and by senior supervisors from various business divisions forth to discuss the performance of CSR promotion and rate of object accomplishsment in an effort to fulfill the company’s corproate social responsibilities.

(IV) Innolux takes the issue of employee benefit and welfare very seriously and has taken steps to ensure that factors such as gender would result in different wage/benefit for employees. By taking various factors into consideration, Innolux is able to offer competitive salaries. Through the companys’ “employee Code of Conduct“,”Employee Reward/Punishment Procedure“with CSR principle tally.

Compared to the CSR guidelines and practices adopted by other OTC/listed companies, Innolux’s CSR policies have no distinctive differences.

II. Sustainable Environment Development (I) Does the company endeavor to utilize all

resources more efficiently and use renewable materials which have low impact on the environment?

(II) Does the company establish proper environmental management systems based on the characteristics of their industries?

Yes

Yes

(I) Innolux has not only reduced its discharge of contaminants from the source

but also reduced the quantity of pollutants in its waste water discharge to increase its recycling rate by machine deisign and Technology promotion.

(II) The company has been actively promoting relevant EHS management

systems such as the ISO 14001, OHSAS18001 and so forth in order to facilitate a positive cycle of gradual improvement for green sustainability and safety culture.


37

Evaluation Item



(III) Does the company monitor the impact of climate change on its operations and conduct greenhouse gas inspections, as well as establish company strategies for energy conservation and carbon reduction?

Yes (III) Innolux has completed its GHG inventory and 3rd party audit as prescribed by ISO 14064-1. Innolux has not only managed its GHG emission information through a GHG Information Platform but also actively participated in the international Carbon Disclosure Project (CDP). Innolux scored A- for disclosure in 2016 at leadership level .

III. Preserving Public Welfare (I) Does the company formulate appropriate

management policies and procedures according to relevant regulations and the International Bill of Human Rights?

(II) Has the company set up an employee

hotline or grievance mechanism to handle complaints with appropriate solutions?

(III) Does the company offer a safe and healthy working environment for its employees and conduct safety and health education for employees on a regular basis?

(IV) Does the company setup a communication channel with employees on a regular basis, as well as reasonably inform employees of any significant changes in operations that may have an impact on them?

(V) Does the company provide its employees with career development and training sessions?

(VI) Does the company establish any

consumer protection mechanisms and appealing procedures regarding research

Yes

Yes

Yes

Yes

Yes

Yes

(I) Innolux makes an effort to adhere to pertinent regulations prescribed in the

Labor Standards Act. In addition, specific regulations on labor rights have also been established in accordance with the Code,which states that employees shall be free from harrassments or discriminations for reasons including race.

(II) Innolux has established a number of channels for employees filing complaints, including „Communication Hotline“, „Employee Communication Email“ and „Suggestion Box“ that have been setup at various facilities for employees to voice their opinions/thoughts with/without stating their names.

(III) The company has also established its EHS Division to take charge of operations including loss and risk aversion,EHS management and employee education and obtained OHSAS18001 from 2005.

(IV) By establishing comprehensive channels of communication and convening labor-management meetings and employee welfare commitee meetings on a quarterly basis, representatives of management (consisting of senior-ranking supervisors) and labor representatives (elected by employees) are able to engage in direct, bi-lateral communications. With regards to the notice of labor contract termination, relevant notification procedures are fully compliant with pertinent regulations.

(V) Guided by the philosophy that „talents are the foundation of the company’s development“, Innolux has established the „Employee Career Development Roadmap“and the company also offers a list of qualifications that correspond to specific positions, legal certificates and other diplomas in order to boost employees‘ vocational tenacity, competence and competitiveness.

(VI) Innolux has established operating principles that are customer-oriented and through means of telephone calls, email exchanges and face-to-face meetings, we are able to have solid grasp of customers‘needs so as to


38

Evaluation Item



development, purchasing, producing, operating and service?

(VII) Does the company advertise and label its goods and services according to relevant regulations and international standards?

(VIII) Does the company evaluate the records

of suppliers’ impact on the environment and society before taking on business partnerships?

(IX) Do the contracts between the company

and its major suppliers include termination clauses which come into force once the suppliers breach the corporate social responsibility policy and cause appreciable impact on the environment and society?

Yes

Yes

Yes

formulate improvement strategies to respond to customers in a timely manner.

(VII) Product safety has always been the most important consideration for consumers. And as such, safe product design and a series of safety specification accreditations have been incorporated at the early stage of proeduct design to ensure the safety of consumers. Innolux has taken the initiative to apply for international standard accreditation labels for its LCD panels in order to help consumers identify safe products at a glance.

(VIII) With regards to new suppliers, Innolux will refer to relevant guidelines on social/economic/environmental and supply chain assessment along with adequate risk evaluation to screen candidates before choosing official suppliers. Suppliers with actual/potential flaws in operation that have failed to show effective improvement despite notification and guidance from Innolux would be included in the list of forbidden/restricted suppliers.

(IX) Innolux reserves the right to halt payment/immediately terminate or rescind any contract of transaction/order and revoke the undersigned vendor or its affiliated businesses‘ qualification as an authorized supplier. Innolux would also be entitled to file for compensation for any losses incurred on the company’s part.

IV. Enhancing Information Disclosure (I) Does the company disclose relevant and

reliable information regarding its corporate social responsibility on its website and the Market Observation Post System (MOPS)?

Yes

Innolux has established a „Corporate Social Responsibilities“ section on its official website.


V. If the Company has established the corporate social responsibility principles based on “the Corporate Social Responsibility Best-Practice Principles for TWSE/TPEx Listed Companies”, please describe any discrepancy between the Principles and their implementation: The Company has enacted established „Innolux Corporate Code of Conduct and CSR Management Handbook“ as a working guideline that prescribes the philosophies and behaviors that are expected of all Innolux employees acoording to Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed Companies and EICC code of conduct.The code of conduct serves as a reminder that in the face of different challenges from compeititons, no one shall engage in amoral or illegal business activities for the sake of company profit or growth and that everyone at Innolux must adopt higher standards of self-expectation in order to create greater values to contribute to the society. Using tools such as PC startup screen, posters and relevant promotional platforms, Innolux has disseminated the contents of the code of conduct and incorporated CSR and employee code of conduct courses in the new employee orientations,though the company has not yet to report and CSR issue to Board of Director meeting directly.

VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices: Innolux publishes its CSR Report annually. The report features relevant chapters and contents on Innolux’s CSR commitment, corproate governance and development,

39

Evaluation Item



initiatives such as „To Earth, with L.O.V.E“ and „To People, with S.M.I.L.E“ to offer comprehensive disclosure of relevant strategies, directions, measures and performance indicators for issues that were of concern to shareholders. As for Innolux’s CSR performance, in addition to the publication of the report, relevant information is also made available on the company’s website.

VII. A clear statement shall be made below if the corporate social responsibility reports were verified by external certification institutions： Innolux’s CSR Report for 2016 has been verified by 3rd party institute SGS Taiwan for full compliance with the AA1000AS (AccountAbility 1000 Assurance Standard) in Category II high assurance level and GRI G4’s requirement for comprehensive disclosure.

40

3.4.7 Ethical Corporate Management

Evaluation Item

Implementation Status Deviations from “the Ethical Corporate Management

Best-Practice Principles for TWSE/TPEx Listed Companies”

and Reasons


I. Establishment of ethical corporate management policies and programs

(I) Does the company declare its ethical corporate management policies and procedures in its guidelines and external documents, as well as the commitment from its board to implement the policies?

(II) Does the company establish policies to

prevent unethical conduct with clear statements regarding relevant procedures, guidelines of conduct, punishment for violation, rules of appeal, and the commitment to implement the policies?

(III) Does the company establish appropriate

precautions against high-potential unethical conducts or listed activities stated in Article 2, Paragraph 7 of the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies?

Yes

Yes

No

(I) Innolux has established Corporate Conduct and Ethics and has clearly laid out

the management’s philosophy of honest management also in the „CSR Management Handbook“„Code of Ethics for Directors and Officers“„Code of Moral Conduct“and„Supplier Corporate Social Responsibility Code of Conduct Operating Standard“. These documentations strictly require all employees to adhere to the company’s policies on honesty. Additionally, Innolux’s honest management policy and implementations by the board and management are duly disclosed in both the annual report and CSR report.

(II) Innoux has not enacted procedures for Ethical Management and Guideline for Conduct,but with regards to the prevention of dishonest behavior, Innolux has established clearly defined regulations for appropriate behaviors in the”Ethical Corporate Management Best Practice Principles”, ”Code of Ethics for Directors and Officers”,”Corporate Conduct and Ethics”,“Supplier Corporate Social Responsibility Code of Conduct Operating Standard”, which states that any act of violation shall be subjected to corresponding punitive actions in accordance with pertinent regulations and work regulations. In addition, Innolux has also established relevant systems for loding complaints as a means for offending employees to seek aid.

(III) Innoux has specification should any Innolux employee be found to take part in any act of dishonesty, the offending employee shall receive corresponding disciplinary actions. Should said employee be found to be involved in incidents of corruption, receiving bribery/commission, theft, misappropriate/embezzle company property to result in loss of property/significant damage to the company’s reputation would face dismissal. Should any supplier be found to violate the commitment to honesty and integrity (including the offering/acceptance of bribery, offering illegal political contributions and so forth), Innolux would revoke the supplier’s status as a qualified supplier and cease all collaboration with said supplier.

Conformity with the Integrity Operation Practice Principles for TWSE/GTSM-Listed Companies

II. Fulfill operations integrity policy (I) Does the company evaluate business

partners’ ethical records and include ethics-related clauses in business contracts?

Yes

(I) The company request for global suppliers has a cooperation relationship to

follow the Supplier CSR Code of Conduct Operating Standards and sign the Supplier's Undertaking About the Code of Conduct Integrity, the company request suppliers to guarantee that they will refrain from bribes or offering to


41

Evaluation Item



and Reasons


(II) Does the company establish an

exclusively (or concurrently) dedicated unit supervised by the Board to be in charge of corporate integrity?

(III) Does the company establish policies to

prevent conflicts of interest and provide appropriate communication channels, and implement it?

(IV) Has the company established effective

systems for both accounting and internal control to facilitate ethical corporate management, and are they audited by either internal auditors or CPAs on a regular basis?

(V) Does the company regularly hold internal

and external educational trainings on operational integrity?

Yes

Yes

Yes

No

bribe Innolux's employees. Suppliers shall also not offer bribes or benefits to political parties or candidates.

(II) The company has not yet established a designated unit or personnel in charge of promoting corporate ethical management for the time being. In accordance with the philosophy of “Corporate Integrity Practice Principles of Innolux”, nevertheless, the Company has established an Integrity Committee, which is directly report to Chairman to investigation any contrary of integrity matters.

(III) The company clearly makes rules about preventing conflicts of interest in the Code of Conduct. If there is any violation, the company also provides a proper way to report, including a Mailbox for Reporting ([email protected]) and staff complaint mailboxes.

(IV) Based on the annual audit plan approved by the Board of Directors, perform the internal audit's fieldwork auditing or review depending on the risk. Report of the audit results on a regular basis to ensure that the board and managers are aware of the level of goal achievement in the fields of operational results and efficiency, financial reports are reliable, and the company complies with the relevant decrees.

(V) We have made all of our various policies available through easy access on our intranet and require all employees to be trained on corporate social responsibility, also promoted via internal computer boot screens, newsletters, and posters to enhance the staff’s understanding of these policies. We also require our stakeholders, such as our suppliers and vendors, to accept and abide by the integrity policy.

III. Operation of the integrity channel (I) Does the company establish both a

reward/punishment system and an integrity hotline? Can the accused be reached by an appropriate person for follow-up?

(II) Does the company establish standard

operating procedures for confidential reporting on investigating accusation

Yes

Yes

(I) Innolux has implemented a Mailbox for Reporting and staff complaint

mailboxes to encourage employees and related people to report evidence. For anti-integrity and anti-corruption incidents, investigators will conduct confidential factual investigations. The investigation reports are submitted to the Integrity Commission for resolution and penalties are imposed internally or the incident is prosecuted.

(II) Innolux Corporation ratified the “Operating Standards for the Investigation and Management of Corruption Cases” as the investigation standard for incidents and related confidentiality systems.


42

Evaluation Item



and Reasons


cases? (III) Does the company provide proper

whistleblower protection?

Yes

(III) The company designed a confidentiality system to protect the informants and

listed it in the Code of Conduct; the company will protect employees from any revenge due to reporting an incident.

IV. Strengthening information disclosure Does the company disclose its ethical corporate management policies and the results of its implementation on the company’s website and MOPS?

Yes The company discloses the Code of Conduct on the Company’s official website and Taiwan Stock Exchange's Market Observation Post System. It also discloses related information about operational integrity and implements results in the official website and corporate social responsibility report.


V. If the company has established the ethical corporate management policies based on the Ethical Corporate Management Best-Practice Principles for TWSE/TPEx Listed Companies, please describe any discrepancy between the policies and their implementation. The Company has enacted “Corporate Integrity Practice Principles of Innolux” approved by Board of director meeting and disclose on the official website and M.O.P.S. There is not conformity with the integrity operation practice priceiples for TWSE/GTSM-List companies.

VI. Other important information to facilitate a better understanding of the company’s ethical corporate management policies (e.g., review and amend its policies).: In order to ensure full compliance to the company’s policies for honest management, all newcomers are required to sign a „Honesty, Integrity & IP Protection Agreement“ and suppliers over the world that collaborate with Innolux to sign the „Vendor Commitment“ in the hopes of helping all employees and collaborating partners of Innolux to understand and respect the company’s moral standards. In addition, the company has also been disseminating relevant concepts via workstation startup screens along with routine publication of legal-affairs & IP newsletters containing relevant legal issues so that „Honesty and Integrity“ would become the core of Innolux’s fundamental corporate culture. In addition, Innolux conducts business ethics regulation risk assessment on a yearly basis to monitor the company’s management of business ethics through internal control whilst verifying and updating pertinent regulations on business ethics.

43

3.4.8 Corporate Governance Guidelines and Regulations Please refer to the Company’s website at www. innolux.com,and the page 26-48 of annual report. 3.4.9 Other Important Information Regarding Corporate Governance

1. Standard operating procedures for the handling of vital internal information: Innolux has established its „Vital Internal Information Handling Procedure“ that clearly regulates the handling of important internal information. Relevant procedures have been submitted to the board for approval and internal announcements have been made in the company along with relevant trainings for all employees.

2. Status of Directors ' participation in corporate governance related courses and trainings as of the deadline of annual report publication

April 30, 2017 Title Name Date Sponsoring Organization Course Hours

Chairman Jialian Investment Co., Ltd. Jyh-Chau Wang

Nov 22 2016

Taiwan Corporate Governance Association

Prevention of Fraud 3

Trade Secrets & competition restrictions 3

Director Hyield venture Capital Co., Ltd. Te-Tsai Huang

Nov 22 2016




Director I-Chen Investment Ltd. Chuang-Yi Chiu

Nov 22 2016




Director Innolux Education Foundation Chin-Lung Ting

Nov 22 2016





Chi-Chia Hsieh

Aug 11, 2016


How to prevent corruption 3

Nov 10, 2016

Risk and opportunity 3

Nov 22 2016




Bo-Bo Wang Nov 22 2016


Prevention of Fraud 3 Trade Secrets & competition restrictions 3


Stanley Yuk Lun Yim

Nov 22 2016



44

3. Status of managers‘ participation in corporate governance related courses and trainings as of the deadline of annual report publication

April 30, 2017 Title Name Date Sponsoring Organization Course Hours

Chairman &CEO

Jyh-Chau Wang Nov 22 2016



President &COO

Chih-Hung Hsiao

Aug 22, 2016

Innolux Corporation Trade secret act and policy of Anti- corruption

0.5

Nov 22 2016



Excutive Vice

President Chin-Lung Ting

Sept 1, 2016

Innolux Corporation Trade Secrets,Personal Information Protection Act &Anti-corruption

0.5

Nov 22 2016



Vice President

Yao-Tong Chen

Sept 1, 2016


0.5

Nov 22 2016




Vice President

Hung-Wen Yang

Sept 1, 2016


0.5

Nov 22 2016



Vice President

Chih-Ming Chen

Sept 1, 2016


0.5

Nov 22 2016



Vice President

Chu-Hsiang Yang

Sept 1, 2016


0.5

Nov 22 2016



Finance Supervisor

Chien-Lang Lo

Sept 1, 2016


0.5

Nov 22 2016





Chin-Yuan Chang

Sept 1, 2016


0.5

Nov 22 2016



4. Certification Details of Employees Whose Jobs are Related to the Release of the Company’s Financial Information

Certification Number of Employees

Finance&Accounting Internal Audit Certified Internal Auditor (CIA) - 2 Chartered Financial Analyst (CFA) 1 - Financial Risk Manager (FRM) 1 - Senior Securities Specialist 5 - Securities Specialist 4 - Internal controller test of SFI 1 -

45

3.4.10 Internal Control System 1. Statement of internal control system

Innolux Corporation

Statement of Internal Controls Date: Feb 10, 2017

According to the examination on internal control systems done by the Company itself in 2016, we hereby state as follows:

I. The Company’s board of directors and management team understand their responsibilities of developing, implementing and maintaining the Company’s internal control system, and such a system has been established. The purpose of establishing the internal control system is to reasonably assure the following objectives: The effectiveness and efficiency of business operation (including earnings, operation performance, and the safeguard of company assets); The reliability of the financial and related reports; and The compliance of the relevant laws/regulations and company policies;

II. Due to the innate limitations in designing a faultless internal control system, this system can only assure that the reasonableness of the above three objectives has been fairly achieved. In addition, the effectiveness of the internal control system may change over time due to the change of the business environment or situation. Since the Company’s internal control system has included a self-examination capability, the Company will make immediate corrections when errors are detected.

III. The evaluation of effectiveness of the internal control system design and implementation is made in accordance with the “Guidelines for the Establishment of Internal Control Systems by Public Companies” (the Guidelines). The Guidelines are made to examine the following five factors during the management and control process: (1) control environment, (2) risk assessment and response, (3) control activities, (4) information and communication, and (5) supervision. Each factor also includes several items. Details of each factor can be found in the Guidelines.

IV. The Company has examined the effectiveness of each respected area in the internal control system based on the Guidelines.

V. The examination results indicated that the Company’s internal control system (including subsidiary governance) dated December 31, 2016 had effectively assured that the following objectives had been reasonably achieved during the assessing period: The degree of effectiveness and efficiency of business operation; The reliability of the financial and related reports; The compliance of the relevant laws/regulations and company policies

VI. This Statement is a significant part of the Company’s annual report and prospectus available to the general public. If it contains false information or omits any material content, the Company is in violation of Article 20, Article 32, Article 171, and Article 174 set forth in the Taiwan’s Securities and Exchange Act.

VII. The Company hereby declares that this statement had been approved by the Board of Directors on Feb 10, 2017. Among the 7 attending Directors, no one raised any objection to the contents of this statement.

Innolux Corporation Chairman: Jyh-Chau Wang General Manager: Jyh-Chau Wang

2. Hire an accountant to audit the Company’s internal control system and disclose the audit report

made by accountants: None.

46

3.4.11 Lawful punishment inflicted on the Company, and/or disciplinary action taken by the Company against its employees for violating internal regulations in the latest year and up to the printing date of this Annual Report); important errors committed; and correction and improvement procedures: None.

3.4.12 Major Resolutions of Shareholders’ Meeting and Board Meetings 1. Important resolutions and implementation made by the Shareholders’ Meeting by the end of 2016

(1) Resolution to revise Innolux’s charter carried. Status of execution: Resolution carried and implemented in accordance with the revised procedure Implementation Status: Fully implemented in accordance with the resolutions

(2) Adoption of the 2015 Business Report and Financial Statements Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(3) Adoption of the Proposal for Distribution of 2015 Profits Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(4) Carried the resolution to process domestic capital increase by cash to issue common shares, to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Status of execution: Resolution carried and the Board has been authorized to conduct fund raising but there is no any shares issued in the latest year and up to the printing date of this Annual Report.

(5) Carried the resolution to process capital increase in cash to conduct private placement of ordinary shares/preferred shares or private placement of foreign or domestic convertible corporate bonds. Status of execution: Resolution carried and the Board has been authorized to conduct fund raising but there is no any shares issued in the latest year and up to the printing date of this Annual Report.

(6) Resolution to revise Innolux’s Rules of Shareholders' Meeting. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(7) Resolution to revise Innolux’s Election Rules of Directors and Supervisors of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(8) Resolution to revise Innolux’s Operating Procedure Governing the Acquisition and Disposal of Assets of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(9) Resolution to revise Innolux’s Procedures for Engaging in Derivatives Trading of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(10) Resolution to revise Innolux’s Operating Procedure Governing Loaning of Funds of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(11) Resolution to revise Innolux’s Operating Procedure Governing Endorsement and Guarantee of the company. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(12) Proposal to overall re-election of directors Status of execution:Please refer page 11 Board of Directors members information.

(13) proposed to dismiss the non-competition obligation of the newly elected directors and its representatives Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions.

47

2.Important resolutions by the Board for 2016 prior to the deadline of annual report publication

Date Major resolutions

February 2, 2016

Amendment to part of the provisions of the“Articles of Incorporation”. The Company’s individual financial statements and consolidated financial statements, 2015. Passed the Accountant assessment of the independence and appropriateness. The Company’s Business Plan 2016. Proposal for syndicated loans for the capital expenditures for the Company in 2016. Amendment to part of the provisions of the“Rules for Shareholders Meeting”&“Election Rules of Directors and Supervisors”. Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of Assets”&“Polices and Procedures for Financial Derivates Transactions” &“Procedures for Loaning of Funds to Others” &“Procedures for Endorsement & Guarantee”. Election the members of the Seventh Term Board of Directors. Proposal to convene the Company’s regular shareholders meeting 2016. Amendment of the Company’s “Full Incentive System along with Appendix for Managerial Officers” and submittal of the “Full Incentives for Managerial Officers 2015”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter IV, 2015. Declaration of the Company’s internal control system 2015.

Proposal for execution of loan agreements with financial institutions.

May 12, 2016

The Compensation Committee is proposing employee, directrs and supervisors bonus for the year of 2015. Prepare and compile Innolux’s Account of Business for 2015. Draft of Innolux’s Dividend Remittance for 2014. Proposal to process domestic capital increase by cash to issue common shares,to issue new shares as a result of cash capital increase for sponsoring issuance of GDR. Proposals to conduct private placement of ordinary share/preferred share capital increase by cash or private placement of foreign or domestic convertible corporate bonds. Review Submission Period of the nomination of director candidates proposed by shareholders. Proposal to dismiss the non-competition obligation of the newly elected directors and its representatives. New proposals at the 2016 Annual Meeting of Shareholders. Enacted Audit Committee charter. Amendment Rules and Procedures for Meeting of the Board of Directors and cancel the Secretariat, Board of Directors. Amendment internal control system and internal audit implementation rules. Amendment to part of the provisions of the“Procedures for halt and resumption applications”&“Procedures for Handling Material Inside Information”&“Code of Ethics for Directors and Officers”&“Ethical Corporate Management Best Practice Principles” &”Compensation Committee charter” Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter I, 2016. Proposal for execution of short-term loan agreements with financial institutions. The Compensation Committee is proposing manager bonus for the year of 2015. The company Chairman, Director and CEO Hsing-Chien Tuan Retired. Elected Chairman & President. Dr. Tuan as Innolux’s Honor Chairman

June 24, 2016 Elected Chairman Resigned the third term Compensation Committee members

48

Date Major resolutions

July 29, 2016

Report the derivatives transactions of Q2 2016(Note) The Company’s Q2 audit plan excution(Note) The Company’s consolidated financial statements,Q2 2016(Note) According to Procedures for Acquisition or Disposal of Assets the BOD empower Chairman decide the company and its subsidiary for acquisition or disposal of assets(Note) Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter II, 2016. Proposal to execute agreement with Bank of Taiwan, CTBCbank and other financial institution(s) for NT$3.5 billion syndicated loans. Proposal for execution of short-term loan agreements with financial institutions. The BOD,Audit and Compensation Committee salary adjustment. The manager monthly salary adjuetment.

Octber 28, 2016

The Company’s consolidated financial statements,Q3 2016(Note) The Company’s Q3 audit plan excution(Note) Report the derivatives transactions of Q3 2016(Note) Passed the Audit plan of 2017.(Note) Enacted the company’s Corporate Governance Principles Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter III, 2016. Proposal for execution of short-term loan agreements with financial institutions.

Feburary 10, 2017

Report the derivatives transactions of Q4 2016(Note) The Company’s Q4 audit plan excution(Note) The Company’s Business Plan 2017. Proposal for the capital expenditures for the Company in 2017. The Company’s individual financial statements and consolidated financial statements, 2016.(Note) Passed the Accountant assessment of the independence and appropriateness.(Note) Amendment to part of the provisions of the“Articles of Incorporation”. Proposal to convene the Company’s regular shareholders meeting 2017. Declaration of the Company’s internal control system 2016.(Note) Amendment to part of the provisions of the “Procedures for halt and resumption applications”. Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter IV, 2016. Proposal for execution of short-term loan agreements with financial institutions. Submittal of the“Full Incentives for Managerial Officers 2016”.

March 15, 2017 The change of General Manager of INX. Note: The Securities and Exchange Act 14-5

3.4.13 Major Issues of Record or Written Statements Made by Any Director or Supervisor Dissenting to Important Resolutions Passed by the Board of Directors :None

3.4.14 Resignation or Dismissal of the Company’s Key Individuals, Including the Chairman,

CEO, and Heads of Accounting, Finance, Internal Audit and R&D

Title Name Date of

Appointment Date of

Termination Reasons for Resignation or

Dismissal Chairman Hsing-Chien Tuan 2003/1/14 2016/5/12 Retired

R&D director

Wen-Jyh Sah 2010/3/18 2016/6/7 Position Adjustment

President Jyh-Chau Wang 2010/3/18 2017/3/15 Resigned

49

3.5 Information Regarding the Company’s Audit Fee and Independence

Accounting Firm Name of CPA Period Covered by CPA’s

Audit Remarks

Pricewaterhousecoopers Wu, Han-Chi Sheng-Chung Hsu Jan 1, 2016 - Dec 31, 2016 -

Unit: NT$ thousands Fee Items

Fee Range Audit Fee Non-Audit Fee Total

1 Under NT$ 2,000,000 2 NT$2,000,001 ~ NT$4,000,000 3 NT$4,000,001 ~ NT$6,000,000 4 NT$6,000,001 ~ NT$8,000,000 5 NT$8,000,001 ~ NT$10,000,000 6 Over NT$100,000,000 V V V

3.5.1 Non-audit fee paid to auditors, the audit firm and its affiliates accounted for more than

one-fourth of total audits Fees should disclosure the audit fee and non-audit fee amount and non-audit service content

Audit Fee: NT$ Thousands

Accounting Firm

Name of CPA Audit Fee

Non-Audit Fee Period Covered by

CPA’s Audit

Rem

arks System

Design Company

Registration Human resource

Others Subtotal

Pricewaterhousecoopers

Han-Chi Wu Sheng-Chung Hsu

22,683 - 160 - 16,917 17,077 Jan 1, 2016

to Dec 31, 2016

-

3.5.2 Replaced the audit firm and the audit fee paid to the new audit firm was less than the

payment of the previous year: No. 3.5.3 Audit fee reduced more than 15% year over year, required to disclose the reduced

amount, proportion, and reason: No.

3.6 Replacement of CPA:N.A. 3.7 The Company’s chairman, general manager, or any managerial officer in charge of

finance or accounting matters has in the most recent year held a position at the accounting firm of its CPA or at an affiliated enterprise: None

50

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders 3.8.1 Changes in Shareholding of Directors, Managers and Major Shareholders.

Unit: Per share

Title Name (Note 1)

2016 As of Apr. 30, 2017

Holding Increase (Decrease)

Pledged Holding Increase (Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase (Decrease)

Chairman Jialian investment Co., Ltd - - - -

Jyh-Chau Wang 320,000 - - -



- - - -

Te-Tsai Huang - - - -

Institutional Director I-Chen investment Ltd. - - - -

Chuang-Yi Chiu(Note2) - - - -


Innolux Education Foundation(Note2)

- - - -

Chin-Lung Ting 160,000 - - -

Independent Director Chi-Chia Hsieh - - - -

Independent Director Bo-Bo Wang(Note2) - - - -

Independent Director Stanley Yuk Lun Yim - - - -

President&COO Chih-Hung Hsiao 200,000 - - -

Vice President Yao-Tong Chen 80,000 - - -

Vice President Hung-Wen Yang 160,000 - - -

Vice President Chih-Ming Chen 151,000 - - -

Vice President Chu-Hsiang Yang 140,000 - - -

Associate Vice President Ke-Yi Kao 120,000 - - -

Associate Vice President Tai-Chi Pan 120,000 - - -

Associate Vice President Kuo-Hsiung Kuo 120,000 - - -

Associate Vice President Chung-Kuang Wei 120,000 - (81,000) -

Associate Vice President Jia-Pang Pang 120,000 - - -

Associate Vice President Yu Shui Kuo 80,000 - - -

Associate Vice President Zheng-Xia Kuo 160,000 - - -

Associate Vice President Tien-Jen Lin 84,000 - - -

Associate Vice President Qing-Hui Lin 300,000 - - -

Associate Vice President Jun-Yi Yu 96,000 - - -

Associate Vice President Mao-Sheng Hung 444,800 - - -

Finance Supervisor Chien-Lang Lo 24,000 - - -

Accounting Supervisor Chin-Yuan Chang 42,000 - - -

Note 1: Refers to current managerial officers as of the printing date of the annual report Note 2: Appointed to office on July 1, 2016 thus the change in equity in 2016 was not calculated. Note 3: The increase(decrease) of the shares held includes the inward or outward transfer of the trusted shareholding. 3.8.2 Shares Trading with Related Parties None 3.8.3 Shares Pledge with Related Parties None

51

3.9 Relationship among the Top Ten Shareholders

Name Current

Shareholding

Spouse’s/minor’s

Shareholding

Shareholding by Nominee

Arrangement

Name and Relationship Between the Company’s Top Ten Shareholders, or

Spouses or Relatives Within Two Degrees

Remarks

Shares % Shares % Shares % Name Relationship Chimei Corporation 570,929,561 5.74% －－－－ N.A. N.A.

Representative: Hsu Chun-hua

－－－－－－ N.A. N.A.

Terry Gou 243,964,977 2.45% －－－－ Hon Hai Precision Ind. Co., Ltd.

Chairman


176,311,219 1.77% －－－－ Hon Hai Precision Ind. Co., Ltd.

Subsidiary of Hon Hai Precision Ind. Co., Ltd.

Representative: Te-Tsai Huang

212,619 －－－－－ N.A. N.A.

HSBC (U.K.) entrusted with the custody account - IB (Asia) SBL

148,981,524 1.50% －－－－ N.A. N.A.

Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

148,059,054 1.49% －－－－ N.A. N.A.

Hon Hai Precision Ind. Co., Ltd.

147,965,363 1.49% －－－－

Terry Gou Chairman


Subsidiary of Hon Hai Precision Ind. Co., Ltd.

Representative: Terry Gou

243,964,977 2.45% －－－－ Hon Hai Precision Ind. Co., Ltd.

Chairman

JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets Equity Pool

139,139,169 1.40% －－－－ N.A. N.A.

Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custody of Newly Emerging Market Evaluation Fund

137,622,544 1.38% －－－－ N.A. N.A.

Compal Electronics, Inc. 134,877,335 1.36% －－－－ N.A. N.A.

Representative: Hsu, Sheng-Hsiung

2, 267,754 0.02% －－－－ N.A. N.A.

Cathay Life Insurance Co.,Ltd.

130,775,218 1.31% －－－－ N.A. N.A.

Representative: Tsai Hong-Tu

－－－－－－ N.A. N.A.

52

3.10 Ownership of Shares in Affiliated Enterprises Unit:Shares:12/31/2016

Affiliated Enterprises

Ownership by the Company

Direct or Indirect Ownership by

Directors/Supervisors/Managers

Total Ownership

Shares % Shares % Shares % Asiaward Investment Ltd. - - 77,830,001 100% 77,830,001 100% Best China Investments Ltd. - - 10,000,001 100% 10,000,001 100% Bright Information Holding Ltd. 4,910,000 100% - - 4,910,000 100% Golden Achiever International Limited 40,250 100% - - 40,250 100% InnoLux Corporation - - 2,000 100% 2,000 100% Innolux Holding Ltd. 246,768,185 100% - - 246,768,185 100% Innolux Hong Kong Holding Limited 1,158,844,000 100% - - 1,158,844,000 100% Innolux Hong Kong Limited - - 35,000,000 100% 35,000,000 100% Innolux Optoelectronics Europe B.V. 180 100% - - 180 100% Innolux Optoelectronics Germany GmbH - - 250 100% 250 100% Innolux Optoelectronics Hong Kong Holding Ltd.

- - 162,897,802 100% 162,897,802 100%

Innolux Optoelectronics Japan Co., Ltd. 80 100% - - 80 100% Innolux Optoelectronics USA, Inc. - - 1,000 100% 1,000 100% Innolux Technology Europe B.V. - - 375,810 100% 375,810 100% Innolux Technology Germany GmbH - - 100,000 100% 100,000 100% Innolux Technology Japan Co., Ltd. - - 201 100% 201 100% Innolux Technology USA Inc. - - 1,000 100% 1,000 100% Keyway Investment Management Limited 5,656,410 100% - - 5,656,410 100% Lakers Trading Ltd. - - 1 100% 1 100% Landmark International Ltd. 709,450,000 100% - - 709,450,000 100% Leadtek Global Group Limited 50,000,000 100% - - 50,000,000 100% Magic Sun Ltd. - - 38,000,001 100% 38,000,001 100% Main Dynasty Investment Ltd. - - 139,623,801 100% 139,623,801 100% Mega Chance Investments Ltd. - - 18,000,000 100% 18,000,000 100% Nets Trading Ltd. - - 900,001 100% 900,001 100% Rockets Holding Ltd. - - 226,504,550 100% 226,504,550 100% Stanford Developments Ltd. - - 164,000,000 100% 164,000,000 100% Sun Dynasty Development Ltd. - - 295,969,001 100% 295,969,001 100% Suns Holding Ltd. - - 18,177,052 100% 18,177,052 100% Toppoly Optoelectronics (B.V.I.) Ltd. 146,847,000 100% - - 146,847,000 100% Toppoly Optoelectronics (Cayman) Ltd. - - 146,817,000 100% 146,817,000 100% Warriors Technology Investments Ltd. - - 18,177,052 100% 18,177,052 100% Shanghai Innolux Optoelectronics Ltd. - - - 100% - 100% Yuan Chi investment co., Ltd - 100% - - - 100% Foshan Innolux Flnet Electronics Ltd. - - - 100% - 100%

Foshan Innolux Optoelectronics Ltd. - - - 100% - 100% Foshan Innolux Logistics Ltd. - - - 100% - 100% VAP Optoelectromics (NanJing) Corp. - - - 100% - 100% Kunpal Optoelectronics Ltd. - - - 100% - 100% Nanjing Innolux Technology Ltd. - - - 100% - 100% Nanjing Innolux Optoelectronics Ltd. - - - 100% - 100%

53

Affiliated Enterprises

Ownership by the Company

Direct or Indirect Ownership by

Directors/Supervisors/Managers

Total Ownership

Shares % Shares % Shares % InnoJoy Investment Corp. 167,405,392 100% - - 167,405,392 100% Innocom Technology (Shenzhen) Co., LTD - - - 100% - 100% Ningbo Innolux Flnet Electronics Ltd. - - - 100% - 100%

Ningbo Innolux Electronics Ltd. - - - 100% - 100%

Ningbo Innolux Optoelectronics Co., LTD - - - 100% - 100% Ningbo Innolux Display LTD - - - 100% - 100%

Ningbo Innolux Logistics LTD - - - 100% - 100%

54

IV. Capital Overview

4.1 Capital and Shares 4.1.1 Source of Capital A. Type of Stock

Unit:Shares 4/22/2017

Share Type

Authorized Capital

Remarks Outstanding Un-issued Shares

Total Issued Shares Unlisted Total Shares

Common Shares 9,952,078,377 - 9,952,078,377 547,921,623 10,500,000,000

B. Issued Shares

Unit: Shares Thousand ; NT Thousand

Month/ Year

Par Value

Authorized Capital Paid-in Capital Remark Shares Amount Shares Amount Sources of Capital

Capital Increased by Assets Other than Cash

Other

2003.01 - 120,000 1,200,000 35,000 350,000 Created at inception None 2003.01.14

Yuan-Shang-Zih No. 0920001669

2003.05 10 120,000 1,200,000 100,000 1,000,000 65 million shares from cash capital increase

None 2003.05.30


2003.10 10 1,000,000 10,000,000 300,000 3,000,000 200 million shares from cash capital increase

None 2003.11.07


2004.04 10 1,000,000 10,000,000 900,000 9,000,000 600 million shares from cash capital increase

None 2004.05.24


2004.09 12 2,500,000 25,000,000 1,500,000 15,000,000 600 million shares from cash capital increase

None 2004.10.26



None 2005.07.22


2006.01 - 2,500,000 25,000,000 2,106,624 21,066,240 6.624 million new shares issued upon the exercise of employee stock options

None 2006.02.13



None 2006.05.09


2006.09 - 2,500,000 25,000,000 2,112,129 21,121,290 273 thousand new shares issued upon the exercise of employee stock options

None 2006.10.16



None 2006.12.04



None 2007.02.09


2007.03 - 3,300,000 33,000,000 2,331,706 23,317,062 5.650 million shares from capital increase in connection with merger

None 2007.05.30



None 2007.05.31



None 2007.08.30


2007.09 - 3,300,000 33,000,000 2,442,155 24,421,550 101.390 million shares from capital increase through capitalization of retained earnings

None 2007.09.19



None 2007.10.29


2007.11 146 3,300,000 33,000,000 2,742,372 27,423,720

300 million shares from cash capital increase to participate in the issuance of overseas depositary receipts

None 2007.12.10


55

Month/ Year

Par Value



Other


None 2008.02.12



None 2008.05.14



None 2008.08.21



None 2008.09.09



None 2008.11.18



None 2009.03.02



None 2009.05.18



None 2009.07.23



None 2009.09.07



None 2009.11.19



None 2010.02.12


2010.03 - 10,500,000 105,000,000 8,032,930 80,329,300

4,778,089,000 common stocks from capital increase in connection with merger; private placement of 731.707 million preferred shares

None 2010.03.30



None 2010.04.29



None 2010.08.26


2010.11 - 10,500,000 105,000,000 7,311,789 73,117,890 Reduced capital by 731.707 million shares through private placement of preferred shares

None 2010.11.11


2011. 01 - 10,500,000 105,000,000 7,311,809 73,118,090 20 thousand new shares issued upon the exercise of employee stock options

None 2011.01.03


2011. 03 - 10,500,000 105,000,000 7,312,674 73,126,740 865 thousand new shares issued upon the exercise of employee stock options

None 2011.03.25



None 2011.05.04



None 2011.07.26



None 2011.11.28



None 2012.10.15


2013.02 12.98 10,500,000 105,000,000 9,037,970 90,379,700

1.125 billion shares from cash capital increase to participate in the issuance of overseas depositary receipts

None 2013.02.18


2013.02 5/- 10,500,000 105,000,000 9,100,272 91,002,720

Issuance of 31,151,000 new shares with restricted employee rights at positive consideration Issuance of 31,151,000 new shares with restricted employee rights at nil consideration

None 2013.02.21


56

Month/ Year

Par Value



Other

2013.04 5/- 10,500,000 105,000,000 9,101,960 91,019,600

Issuance of 844,000 new shares with restricted employee rights at positive consideration Issuance of 844,000 new shares with restricted employee rights at nil consideration

None 2013.04.16


2013.08 10,500,000 105,000,000 9,101,670 91,016,700 Capital reduced by 290,000 new shares with restricted employee rights

None 2013.08.23


2013.11 - 10,500,000 105,000,000 9,100,892 91,008,920 Capital reduced by 778,000 new shares with restricted employee rights

None 2013.11.27


2013.12 5/- 10,500,000 105,000,000 9,109,428 91,094,280

Issuance of 4,268,000 new shares with restricted employee rights at positive consideration Issuance of 4,268,000 new shares with restricted employee rights at nil consideration

None 2013.12.27


2014.04 - 10,500,000 105,000,000 9,106,457 91,064,570 Capital reduced by 2,970,000 new shares with restricted employee rights

None 2014.04.10

Zhu-Shang-Zih No.1030009955

2014.09 12.5 10,500,000 105,000,000 9,956,457 99,564,570 850 million shares from cash capital increase

None 2014.09.05


2014.09 - 10,500,000 105,000,000 9,955,407 99,554,070 Capital reduced by 1,049,000 new shares with restricted employee rights

None 2014.09.05



None 2014.11.19



None 2015.03.17



None 2015.05.20



None 2015.08.19



None 2015.11.18



None 2016.02.26



None 2016.05.23



None 2016.08.16



None 2016.11.15



None 2017.03.03


C. Information for Shelf Registration: None

57

4.1.2 Status of Shareholders As of 04/22/2017

Item Government

Agencies Financial

Institutions

Other Juridical Person

Domestic Natural Persons

Foreign Institutions & Natural Persons

Total

Number of Shareholders 10 89 525 312,539 1,189 314,352

Shareholding (shares) 103,749,518 362,428,800 2,135,994,458 3,381,753,735 3,968,151,866 9,952,078,377

Percentage 1.04% 3.64% 21.46% 33.98% 39.87% 100.00%

4.1.3 Shareholding Distribution Status A. Common Shares

As of 04/22/2017 Class of Shareholding

(Unit: Share) Number of Shareholders Shareholding(Shares) Percentage

1 ~ 999 91,333 28,480,329 0.29% 1,000 ~ 5,000 139,728 323,104,499 3.25% 5,001 ~ 10,000 36,868 282,057,487 2.83% 10,001 ~ 15,000 13,399 164,014,269 1.65% 15,001 ~ 20,000 8,585 157,504,055 1.58% 20,001 ~ 30,000 7,931 199,786,645 2.01% 30,001 ~ 50,000 6,603 264,271,475 2.66% 50,001 ~ 100,000 5,138 371,565,655 3.73% 100,001 ~ 200,000 2,314 328,405,174 3.30% 200,001 ~ 400,000 1,069 302,122,101 3.04% 400,001 ~ 600,000 394 194,268,648 1.95% 600,001 ~ 800,000 186 130,959,282 1.32%

800,001 ~ 1,000,000 130 119,093,335 1.19% 1,000,001 or over 674 7,086,445,423 71.20%

Total 314,352 9,952,078,377 100.00%

4.1.4 List of Major Shareholders

As of 04/22/2017

Shareholder's Name Shareholding

Shares Percentage Chimei Corporation 570,929,561 5.74% Terry Guo 243,964,977 2.45% Hyield Venture Capital Co., Ltd 176,311,219 1.77% HSBC (U.K.) entrusted with the custody account - I B (Asia) SBL

148,981,524 1.50%

Standard Chartered Bank hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

148,059,054 1.49%

Hon Hai Precision Ind. Co., Ltd. 147,965,363 1.49% JPMorgan Chase Bank, N.A., Taipei Branch in Custody for Stichting Depositary APG Emerging Markets Equity Pool

139,139,169 1.40%

Specially designated (earmarked) account of Citibank (Taiwan) for the delegated custody of Newly Emerging Market Evaluation Fund.

137,622,544 1.38%

Compal Electronics, Inc. 134,877,335 1.36% Cathay Life Insurance Co.,Ltd. 130,775,218 1.31%

58

4.1.5 Market Price, Net Worth, Earnings, and Dividends per Share Unit: NT$ Thousand share

Year Item

2015 2016 As of 03/31/2017

Market Price per Share

Highest Market Price 19.35 12.35 14.20 Lowest Market Price 9.10 8.80 11.65 Average Market Price 13.48 10.58 12.72

Net Worth per Share

Before Distribution 23.34 22.71 23.67

After Distribution 23.14 (Note) －

Earnings per Share

Weighted Average Shares (thousand shares)

9,922,525 9,947,293 9,952,019

Diluted Earnings Per Share

Adjusted Diluted Earnings Per Share

1.09 0.19 1.19

Dividends per Share

Cash Dividends 0.2 0.1 N.A.

Stock Dividends

Dividends from Retained Earnings

－－－

Dividends from Capital Surplus

－－－

Accumulated Undistributed Dividends

None None None

Return on Investment

Price/Earnings Ratio 12.37 55.68 N.A. Price/Dividend Ratio 67.40 105.80 N.A. Cash Dividend Yield Rate 1.48% 0.95% N.A.

Note:2016 Distribution of Dividends already gets approval from the Board of Directors, subject to shareholders’ approval in Annual General Shareholders’ Meeting.

59

4.1.6 Dividend Policy and Implementation Status A. Dividend Policy

The annual net profits of final accounts of the Company shall make up for loss first, shall secondly appropriate 10% of profit as legal reserve (however, if legal reserve reaches the total capital amount shall not apply), to make an appropriation of another sum as special reserve or make an reversal of special reserve in accordance with laws and regulation, to distribute dividend for special/preferred shares, and to add into the profit not yet distributed before, the allocation proposal shall be prepared by the board of directors and be submitted to and resolved by the shareholders’ meeting.

The Company is an emerging company of growing rapidly, capital intensive business, and is at the stage of stable growth, in order to match up the long-term financial plan of the Company in the future, investment environment and business competition situation, the allocation of dividends shall consider the future capital expenditure budget and capital requirement of the Company, and allocation proposal shall be prepared by the board of director, and then shall be allocated after a resolution adopted by shareholders’ meeting. However, for the allocation of shareholders’ dividends, the stock dividends shall not exceed two-thirds of distributable dividends in that current year. B. Proposed Distribution of Dividend

The Board adopted a proposal in May 10, 2017 for profit distribution as follows: Cash Dividends to Common Shareholders from retained earnings: NT$ 0.1 (Per share). The proposal is subject to shareholders’ approval at the 2017 Annual Shareholders’ Meeting.

C. Significant changes of Dividend policy: None. 4.1.7 Effect of 2017 Share Dividends to Operating Performance and EPS. No financial forecast disclosed for 2017, therefore not applicable. 4.1.8 Compensation of Employees and Directors A. Information Relating to EmployeeS’ and Directors’ and Remuneration in the Articles of

Incorporation The annual budgeted net income of the Company shall be distributed in the following order:

To pay not less than 5% of the net income as employees’ bonuses and which less than 0.1% shall be paid as remuneration to directors after recover loss.

A company may, by a resolution adopted by a majority vote at a meeting of audit committee

attended by one-two of the total number of independent directors and board of directors two-thirds of the total number of directors, have the profit distributable as employees’ compensation in the preceding two paragraphs distributed in the form of shares or in cash; and in addition thereto a report of such distribution shall be submitted to the shareholders’ meeting.

The scope of employee shall be entitled to dividend & bonus may include the qualified employees of affillated companies, the board of directors is authorized to determine the related rules.

60

B. Estimate Foundation of Employee and Directors’ Remuneration

The company has an amount equivalent to a certain percentage of the current net earnings (net income before tax before deducting the remuneration to employees and the remuneration to directors) minus the accumulated losses estimated and appropriated as remuneration to employees and remuneration to directors, which will be reported as operating cost or operating expense. The remuneration to employees paid with stock is with the number of shares calculated in accordance with the closing price of common stock in the day prior to the resolution reached by the board of directors. If there is any change in the estimated stock share to be distributed after the publication of the financial report in the following year, it is to be treated as changes in accounting estimates and with the effect of such change recognized in the profit and loss of the following year.

C. Profit Distribution of 2016 Approved in Board of Directors Meeting for Employee and

Directors’ Remuneration

(1) For the remuneration to employees and remuneration to directors paid in cash or with stock shares: If such distribution amount is different from the estimated amount recognized, the amount of difference, root cause, and accounting treatment should be disclosed as follows:

It was resolved in the company’s board meeting on May 10, 2017 to have the remuneration to employees paid in cash for an amount of NT$231,338,386 and the remuneration to directors for an amount of NT$3,855,639.

The estimated remuneration to employees and the estimated remuneration to directors

referred to above is different from the estimated expense in 2016 for an amount of NT$40,477,977 that will be treated as changes in accounting estimates and booked as profit and loss adjustments for 2017 after a resolution reached in the shareholders’ meeting.

(2) The amount of remuneration to employees paid with stock shares and its ratio to the net

income and total employee remuneration in the current proprietary or individual financial report:

The company has not had stock shares distributed as remuneration to employees in the current year; therefore, it is not applicable.

D. Information of 2015 Earnings Set Aside to Employee Bonus and Directors’ Remuneration:

Distribution of 2015 Earnings (NT$Thousand) Directors' Remuneration $4,490Employee Remuneration $734,524Employees’ bonus and directors’ and supervisors’ remuneration were accrued at $734,524 and $5,000, respectively, for the year ended December 31, 2015. The amount was accrued by considering the period’s net profit after tax, legal reserve amongst other factors and the Company’s Articles of Incorporation. As resolved by the stockholders in June 2016, employees’ bonus and directors’ and supervisors’ remuneration were $734,524 and $4,490, respectively, resulting to a difference of $510 from the amounts in 2015 financial statements. The difference was caused by different accrual ratio which has been processed as accounting estimates after being approved at the shareholders’ meeting and recorded as income in 2016.

4.1.9 Buyback of Common Stock: None

61

4.2 Bonds 4.2.1 Corporate Bonds: None. 4.2.2 Convertible Bonds: None. 4.2.3 Exchangeable Bonds: None. 4.2.4 Shelf Registration for Issuing Bonds: None. 4.2.5 Corporate Bond with Warrants: None. 4.2.6 Private placement of Corporate Bonds: None.

4.3 Preferred Shares: None.

62

4.4 Global Depository Receipts Issuing Date

Item 01/23/2013

Issuance & Listing Luxembourg Stock Exchange Total Amount (US$) 453,701,250 Unit issuing price (US$) 4.481 Units Issued 101,250,000 Source of negotiable securities Common Shares Amount of negotiable securities 1,012,500,000 Rights & Obligations of GDS Holders Same as those of Common Share Holders Trustee Not Applicable Depositary Bank Citibank, N.A. – New York Custodian Bank Citibank, N.A. – Taipei Branch Outstanding balance (units) 213,377 Treatment of expenses incurred at issuance and thereafter

Borne by INX

Important conventions about depository and escrow agreement

See Deposit Agreement and Custody Agreement for Details

Market price per unit (US$)

2016 Highest 3.86 Lowest 2.71 Average 3.28

Jan 1, 2017 -

Apr 30, 2017

Highest 4.87 Lowest 3.74 Average 4.20

63

4.5 Employee Stock Options 4.5.1 Issuance of Employee Stock Options

Unit: NT $: per share Type of Stock Option 2010

Approval date June 9, 2010 Issue date May 19, 2011 Units issued 50,000,000 Shares of stock options to be issued as a percentage of outstanding shares

0.50%

Duration 5 Years Conversion measures New Common Share Conditional conversion periods and percentages 2nd Year: 30%;3rd Year: 60% 4th Year: 100% Converted shares － Exercised amount － Number of shares yet to be converted 50,000,000 Adjusted exercise price for those who have yet to exercise their rights

21.87

Unexercised shares as a percentage of total issued shares

0.50%

Impact on possible dilution of shareholdings Dilution to Shareholders’ Equity is limited Note:The aggregate total of issued and outstanding shares represents the aggregate total of issued and

outstanding shares having been reported to and registered in the Ministry of Economic Affairs as of the Annual Report date.

64

4.5.2 List of Executives Receiving Employee Stock Options and the Top Ten Employees with Stock Options

Apr 30, 2017; Unit: Thousand

Title Name

No

. of S

tock

Op

tions

Sto

ck Op

tion

s as a

Pe

rcentage

of

Sh

are

s Issued

Exercised Unexercised

No

. of S

ha

res

Conve

rted

Strike

Price

(NT

$)

Am

oun

t

Conve

rted

Sh

are

s as a

P

ercen

tage o

f S

ha

res lssu

ed

No

. of S

ha

res

Conve

rted

Strike

Price

(NT

$)

Am

oun

t

Conve

rted

Sh

are

s as a

P

ercen

tage o

f S

ha

res lssu

ed

Chairman&CEO Hsing-Chien Tuan(Note3)

3,755 0.04% －－－－ 3,755 21.87 82,122 0.04%

Chairman&CEO Jyh-Chau

Wang(Note4)

President&COO Chih-Hung

Hsiao(Note5) Excutive Vice

President Chin-Lung

Ting(Note6)

Vice President Wen-Jyh

Sah(Note7) Vice President Yao-Tong Chen Vice President Hung-Wen Yang Vice President Chih-Ming Chen

Vice President Chu-Hsiang Yang(Note8)


Ke-Yi Kao


Tai-Chi Pan


Kuo-Hsiung Kuo


Chung-Kuang Wei


Jia-Pang Pang


Yu Shui Kuo


Zheng-Xia Kuo


Tien-Jen Lin


Qing-Hui Lin


Jun-Yi Yu


Mao-Sheng Hung

Finance Supervisor

Chien-Lang Lo


Chin-Yuan Chang

Employees Jian-Ting Lai1

1,100 0.01% －－－－ 1,100 21.87 24,057 0.01%

Employees Qiu-Lian Yang Employees Zheng-Xu Zhou Employees Kun-Feng Huang Employees Zong-Ren Kuo Employees Hao-Kun Liu Employees Shu-Fu Hsu Employees Yang-Feng Lin Employees Fu-Shou Wu Employees Min-Zheng Wang

Note 1:Refers to the current management officers and employees up to the date of the Annual Report Note 2:The total number of issued shares represents the number of issued shares registered with the Ministry of

Economic Affairs as of the date of the printing of the Annual Report. Note3:2016/5/12 Retired Note4:2016/5/13 Promoted Note5:2017/3/16 Promoted Note6:2016/6/24 Promoted Note7:2016/6/7 Position adjustment Note8:2016/3/19 Promoted

65

4.6 Issuance of New Restricted Employee Shares 4.6.1 Issuance of New Restricted Employee Shares

30 April 2017,Unit: Dollars,Shares. Type of New Restricted Employee

Shares First Tranche Second Tranche Third Tranche

Date of Effective Registration Dec 13, 2012 Issue date Jan 30, 2013 Mar 29, 2013 Dec 12, 2013

Number of New Restricted Employee Shares Issued

62,302,000（Note1） 1,688,000（Note 2） 8,536,000（Note 3）

Issue Price 0.00/5.00 New Restricted Employee Shares as a Percentage of Shares Issued (Note 4)

0.63% 0.02% 0.09%

Vesting Conditions of New Restricted Employee Shares

Employees shall be in active service during each of the following vesting periods since the capital increase base date with the attainment of the annual individual performance appraisal result of Grade B or G or above over the years. Besides, they shall have fully complied with the service code and have not violated the Company’s service agreement and integrity and intellectual property agreement, work rules, stipulations in contracts with the Company or the regulations of the Company. The percentages of shares in which the vesting conditions are fulfilled are set out below.

Upon expiration of one year: 20% of the number of shares subscribed Upon expiration of two years: 40% of the number of shares subscribed Upon expiration of three years: 40% of the number of shares subscribed

Restricted Rights of New Restricted Employee Shares

(1) shall not be sold, pledged, transferred, given to others as gifts, attached or otherwise dealt with.

(2) no voting rights at general meetings. (3) not entitled to participating in the placement (subscription) of shares,

dividend distribution for the original shareholders. (4) From the book closure day for the placement of shares at nil onsideration,

the book closure day for cash dividends, share subscription in connection with a cash capital increase, the book closure period for general meetings as stipulated in Paragraph 3 under Section 165 of the Company Law, or other statutory book closure periods based on the occurrence of facts to the entitlement distribution date, shares without restrictions of employees who fulfill the vesting conditions in this duration are still not entitled to any voting rights, surplus distribution rights, share placement (subscription) rights, and/or dividend distribution rights.

Custody Status of New Restricted Employee Shares

Custody of shares in trust

Measures to be Taken When Vesting Conditions are not Met

Being placed with new shares: Shares will be reacquired by the Company at nil consideration for cancellation.

Subscribing for new shares: All shares will be repurchased by the Company at the closing price or the original subscription price, whichever is lower, on the expiry dates of the respective periods for cancellation.

Number of New Restricted Employee Shares that have been Redeemed or

Bought Back 7,153,600 407,600 863,600

Number of Released New Restricted Employee Shares

55,147,600 1,280,400 7,644,400

Number of Unreleased New Restricted Shares

800 0 28,000

Ratio of Unreleased New Restricted Shares to Total Issued Shares (%)

－－－

Impact on possible dilution of shareholdings

The impact is limited as the dilution ratio is low

Note1:Allotment of 31,151,000 shares at nil consideration; subscription of 31,151,000 shares at a consideration. Note2:Allotment of 844,000 shares at nil consideration; subscription of 844,000 shares at a consideration. Note3:Allotment of 4,268,000 shares at nil consideration; subscription of 4,268,000 shares at a consideration. Note4:The total number of issued shares represents the number of issued shares registered with the Ministry of

Economic Affairs as of the date of the printing of the Annual Report.

66

4.6.2 List of Executives Receiving New Restricted Employee Shares and the Top Ten Employees with New Restricted Employee Shares

Apr 30, 2017; Unit: Thousand

Title Name(Note1)

No

. of N

ew

Re

stricted S

ha

res

Ne

w R

estricted S

ha

res

as a

Pe

rcentage

of S

hare

s Issu

ed

Released With restrictions

No. of Shares

Issued Price (NT$)

Amount

Re

lea

sed R

estricte

d S

ha

res a

s a

Pe

rcentage

of S

hare

s Issu

ed

No. of Shares

Strike Price (NT$)

Amount

Un

rele

ased

Re

stricted S

ha

res a

s a

Pe

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e of

Sh

are

s Issued

Chairman &CEO

Hsing-Chien Tuan(Note3)

8,022 0.08% 8,022 0/5 20,055 0.08% - - - -

Chairman &CEO


President &COO

Chih-Hung Hsiao(Note5)

Excutive Vice President


Vice President Wen-Jyh Sah

(Note7) Vice President Yao-Tong Chen Vice President Hung-Wen Yang Vice President Chih-Ming Chen

Vice President Chu-Hsiang Yang(Note8)


Ke-Yi Kao


Tai-Chi Pan


Kuo-Hsiung Kuo


Chung-Kuang Wei


Jia-Pang Pang


Yu Shui Kuo


Zheng-Xia Kuo


Tien-Jen Lin


Qing-Hui Lin


Jun-Yi Yu


Mao-Sheng Hung

Finace Supervisor

Chien-Lang Lo


Chin-Yuan Chang

Employees Yong-Yu Cai

2,590 0.03% 2,590 0/5 6,475 0.03% - - - -

Employees Chao-Jun Zhong

Employees Nai-Jian

Zheng(Note9) Employees Geng Ron Xu Employees Zheng-Xu Zhou Employees Dong-Rong Wang Employees Min-Zheng Wang Employees Kun-Feng Huang Employees Zhi-Xian Wang

Employees Sheng-Neam Wei(Note10)

Employees Shu-Fu Hsu Employees Yang-Feng Lin

Note 1:Refers to the current management officers and employees up to the date of the Annual Report Note 2:The total number of issued shares represents the number of issued shares registered with the Ministry of

Economic Affairs as of the date of the printing of the Annual Report. Note 3:2016/5/12 Retired

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Note 4:2016/5/13 Promoted Note 5:2017/3/16 Promoted Note 6:2016/6/24 Promoted Note 7:2016/6/7Position adjustment Note 8:2016/3/19 Promoted Note 9:2017/1/1Resigned Note 10:2016/7/11Resigned

4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None. 4.8 Financing Plans and Implementation: Not applicable.

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V. Operational Highlights

5.1 Business Activities 5.1.1 Business Scope

1. Main areas of business operations The combined operating revenue of the Company is derived from TFT-LCD Flat Panel Displays

and its main commodities include large-sized and small-to-medium-sized TFT-LCD related products. Large-sized products are generally applied to Liquid Crystal Displays, Billboards, Desktop Monitors, and notebooks. Small-to-medium-sized products are used to manufacture tablet computers, portable audio players, GPS for automobiles, aviation, and mobile phones, while various types of touch-control panels could be selected. Besides, for the purpose of special usage, the Company also provides products used for medical, industrial, and educational purposes. Given that the business of the Company covers the entire world and the size mix of panels is complete, the Company is a comprehensive LCD provider.

2. Revenue distribution

Unit: NT$ thousand Major Divisions Total Sales in Year 2016 (%) of total sales

TFT-LCD 287,089,277 100% Total 287,089,277 100%

3. Main products

The Company’s main products are TFT-LCD panels and touch-control modules. The products lines cover small, medium, and large sized panels mainly for a wide range of applications, such as LCD televisions, desktop monitors, notebook computers, mobile phones, portable audio players, automobile accessories, medical, industrial, aeronautic, and educational products.

4. New products development

The Company is planning to develop new commodities with its main focus on flat display-related products, while continuing to delve into key products such as Mobile Phone Panels, automobile display Panels, Notebook Computer Panels, Desktop Monitor Panels, and large-sized LCD Television Panels. Meanwhile, the Company will continue expanding the product scale and product application and development of capacitor-based touch-control panels. The Company will also keep investing into the field of non-consumption applications, and launch new products fit for industrial specification panels, medical, and public display panels.

5.1.2 Industry Overview

1. Current situation and development of industry Owing to excellent product properties and improving costs and image quality, TFT-LCD has

become the mainstream of various kinds of flat displays in recent years. The application coverage of TFT-LCD is extensive, of which, large-sized products are being applied to the manufacturing of LCD Televisions, Desktop Monitors and Notebook Computers while small-to-medium-sized products are being applied to Flat Panel Computers, portable audio players, and GPS for automobiles and mobile phones. Large-sized TFT-LCD products will move towards the goals of energy-saving, better images, and narrower frames, thereby offering an incentive to consumers to upgrade the existing product lines. As the applications of smart phones become more and more popular and the touch-control technology is gradually mature, small-to-medium sized products will become the fastest growing category with the most diverse products in recent years.

The Company adopts the forward–backward integration manufacturing model in response to the

development of TFT-LCD Industry, and comprehensively arranges the early phrase glass of every product generation and the later phrase of all-sized modules and integrates IDM product lines,

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including 3.5 generation, 4.5 generation, 5 generation, 5.5 generation, 6 generation, 7.5 generation, 8.5 generation and 8.6 generation TFT-LCD plants, 2.5 generation, 4.5 generation, and 5 generation touch-control sensor plants and production lines and later phrase module plants for IDM products such as later phrase product lines, Light Guide Plate/Backlight modules, PCB manufacture, assembly and pressing type paints, and upgraded automatic product line,The production capacity and scale of every production line are comprehensive and flexible, matching a-Si, p-Si, LTPS, Oxide, OLED processing and VA, AAS, TN Fringe field Switching and automatic product line, therefore all-sized products can be produced effectively.

2. Association of upstream, mid-stream, and downstream industries

The Company is an IDM product manufacturer which covers the upstream TFT-LCD Panel production and the downstream System Assembly, the association diagram of upstream, mid-stream and downstream industries which the Company belongs to are shown below:

3. Development trend of products TFT-LCD has a low energy consumption rate, small size, low weight, and low radiation

features. Japan, Korea, and Taiwan have actively invested in the production technology for many years, and the technology is getting mature. Now it is widely applied to flat panel displays; especially for notebooks and desktop displays, most of them using TFT-LCD. In the home appliance market, flat screen TVs are the mainstream. The future developing trend of these products are listed below:

(i) Mobile Computers (Notebooks & Tablets)

Due to fair prices and computational efficiency increasing substantially, rapid growth in sales of mobile computers has already become the biggest sales scale under the personal computer category. As the market expands, manufacturers keep releasing differentiation product lines aiming to stimulate different user demands. The design direction focuses on mobility, word processing, and audio performance to meet the needs of every type of customer for market segmentation. LCD panels also have differences in size and resolution. The smallest size is the Tablet; the main market is customers who focus more on personalization and entertainment.

Glass Panel Reticle ITO Conduct

Colour Filter

LCD Panel

Driving IC

PCB

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LCM Modules

LCD Monitor LCD TVs NB Mobile, PDA Others

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Emphasizing small size, light and easily carried features and more focus on entertainment needs. Therefore everything is moving toward a panel with a wide viewing angle. Nearly years high end tablets not only have improved computational efficiency and completeness of software function, in the same time there has been more focus on the customer’s visual sensibility about high screen resolution. The demand of high end tablets has increased significantly due to large size and more high resolution products continuing to be released. For many computer users, a keyboard is still the main input device, and notebooks coming with a physical keyboard still have a considerable market. Facing the rise of tablets, personal computer manufacturers have also started to import new design concepts in notebooks, such as transformer books that can switch between two different modes of tablet and notebook at any time, even table mode can connecting with keyboard directly become a notebook, functional transform notebook are gradually becoming the mainstream design of 10-inch to 13-inch notebooks. Ultra-thin, wide viewing angle, high colour,low consumption and touch function are also becoming important factors. As for those customers with high document requirements and lower mobile requirements, the bigger screen goes with FHD resolution to provide better webpage browsing and visual entertainment experience. 13-inch to 16-inch products are mainstream applications. As for those who emphasize video and audio effects or use the product to replace desktop products, they go with bigger than 15-inch, low energy consumption, and wide color gamut panels to present better color expression. About the size of the panels, due to the development of next generation production lines and wide screens generally supported by operating systems,except 16:9 products are already become the mainstream of the market,3:2 functional transform notebook also become getting focus of the market. In addition, to fit the trend of thin, fashion design, light and narrow border, panels using thinner glass and thinner organization design are essential factors for products.

(ii) LCD Monitor

LCD monitors mainly go with desktops; two mainstream markets are office use and personal video and audio entertainment use. For office use LCD monitors, generally sales are for computers hosted by brand manufacturers and product structure is relatively simple and of moderate cost to fit the budget of enterprise and government organizations. For personal video and audio entertainment product, due to more focus on video and audio purposes, recently the proportion of the product equipped with wide viewing angle technology has gradually increased. We expecting the proportion is going to increase continually in 2016. Meanwhile due to customers increasing demand for high quality products, we are expecting QHD and UHD high resolution products to be released on the market, having a wide viewing angle and narrow frames will become the mainstream of the high end market gradually. In addition, there is increasing customer demands for touch operation. When the software platforms of new versions of Windows gradually spread and become mature, we anticipate the product proportion of our touch function is going to gradually increase. About size, due to an increase in the manufacturing efficiency and efficiency of product design structure, the price of TFT-LCD products is dropping and accelerating market demand for a transfer to the bigger size. For office use types, a gradual transfer from 18.5-inch and 19-inch to 20-inch and 21.5-inch etc.; the average size is bigger for personal video and audio entertainment products, 23.6-inch, 23.8-inch, 24-inch and 27-inch units will gradually increase their proportion soon. Except for standard LCD monitors, All-In-One (AIO) which is an integrated design of the desktop host and monitor. Because of advantages in functionality saving space , the product is winning customers. As the Windows 10 operating system penetration rate increases, it accompanies the All-in-One product with touch function and accessories design adding greater

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entertainment function. It also shows a new appearance for the market of LCD monitors. Amid booming digital gaming marketing and changing public opinion about the electronic gaming sports, along with their races, communities and media coverage, that are fast growing into professional and official sports. Differing from the 6-year life cycle of computer products, gamers are getting new devices in only 2-3 years on average, let alone their high-end hardware specifications and much higher costs. Leading computer brands are rushing into this market with second brands or series of gaming exclusive desktop and notebook devices designed with gamer specific requirements and configurations in mind. Electronic gaming grade components, including advanced and high-reliability mainboard, memory, independent graphic cards and displays with high refresh rate, are powerful magnets to gamer consumer groups.

(iii) LCD TV

Since 2005, Taiwan, Japan and Korea, started to mass produce generation six (G6). The production of TFT-LCD panels above 32-inches increased significantly and LCD TVs have taken up living rooms rapidly. In recent years, LCD TVs fast popularization due to each manufacturer developing G7 and G8 capacity, goes with the improvement of each phase of production technology. It not only has become customers’ first choice when buying a new TV, but also has stimulated the traditional TV refresh cycle. Meanwhile, when the market is warming up and products becomes popular. Innolux is the pioneer of providing differentiated large size models (especially 40-inch, 50-inch, 58-inch and 65-inch), dedicated to effectively improving the technology of each product to significantly increase the panel’s added value, gain customers’ brand recognition, and market segmentation, and increase the market share of large sizes. Meanwhile, mobile display devices gradually move toward high resolution to satisfy customers' demand for high definition TV. We released 4K2K ultra high resolution products in succession since the second half of 2012 and became the pioneer manufacturer of the first of mass production and the highest market share. The company keeps developing high resolution 4K2K(3840x 2160) with Wide Color Gamut (NTSC 100％), including 85-inch, 75-inch, 65-inch, 58-inch and 50-inch panels and were granted the “Taiwan Excellence Gold Award”. The 100-inch 100% wide color Gamut and 4K2K LCD TV panel with HDR and local dimming were granted the 2016 Taiwan Flat Panel product technical award. With the standard of 4K high resolution transport protocol agreement completed, signal transmission standard, high-efficiency TV coding and multimedia transmission interface specification making, popularity of digital TV, we are expecting the 4K2K product will extend into 2016 and future development. Each manufacturer will release 4K2K photographic equipment and go with 4K2K film releases and programs, 4K2K became the necessary specifications of large TVs. In 2016, This company is leading the industry in developing 65" 8K4K (7680x 4320) TV sets in pursuing the ultimate visual experiences for consumers. This new ultra high resolution is set to bring still better image quality which leads to more realistic 3D and telepresence feelings. On the design of panel appearance, the company provides ultra-narrow frames (<5mm) and ultra-thin design (thickness <9mm) using on products over 50-inch, integrate paint design on appearance to make client rapid input and mass production. End customers not only enjoy the real 4K image, also provide the real high quality of excellent vision and sensual experience. Innolux provide client and customer comprehensive and high competitive TV panel by innovation continually, and continue to lead the market trend and become lead firm of the industry.

(iv) Medium and small size panel

Before 2008, no matter technology or shipment, panel manufacturer of Japan always the leader of medium and small size panel industry; after 2009, Taiwan manufacturer shipment started to exceed Japan and Korea, became the leader of medium and small size panel industry instead.

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As the competition is more and more intense, panel manufacturer of medium and small size started to produce by higher generation factory. From 2011, even some panel manufacturer started to mass produce mobile phone panel by higher than G6 factory. However, industry competition of medium and small panel not only at price competition, but also at market demands of higher resolution and higher definition panel. It drives medium and small panel manufacturer to be more enhancement in technical part. Since 2013, not only wide viewing angle technology is sharp competitive edge for manufacturers, each manufacturer release high resolution product continually. By a-si realize high cost-effective in over 5-inch screen of FHD resolution and by LTPS provide WQHD resolution in over 5.5-inch screen. In 2016,except keep improving resolution in 4-inch to 6-inch screen and also compete in lighter, thinner, narrow frames and lower energy consumption products. The company is advancing product competitiveness with embedded and integrated touch control technology along with enhanced product design flexibility and Time-to-Market strength to provide customers with services integrating high performance and ultra-thin and touch control LCD modules. This is followed by R&D efforts in a series of next generation panel technologies including profile cutting, wearable devices, organic light emitting displays (OLED) and flexible panels aiming at products with high added value in addition to price competition. The goal is to distantiate itself from competitors with advanced technology and to staying sustainable in the industry.

4. Market competition situation

In competition of the industry, in order of countries input in TFT-LCD, countries are South Korea, Taiwan, China and Japan. Korea has large-scale investment in two big corporate groups Samsung and LG. Due to domestic support on their own brand, they lead in production volume and production value recent years. Taiwan’s manufacturers based on complete supply chain integration and high production efficiency, the market share is hot pursuit subsequently after Korea manufacturer. The main manufacturers are Innolux and AU Optronics, etc. Japan manufacturers’ market share decrease gradually due to production cost and decreased in new factory investment plan, transfer to high end mobile display and ultra-big TV market. When we look at China, due to huge domestic demand, it attracts government’s support and factory’s input. Recently BOE, ChinaStar and CLP group step into generation G8 and higher production and starting the competition.

5.1.3 Research and Development 1. Technical Level and Research Development

We keep helping clients to intensify product competitiveness, fit market demand, and be friendly to the environment as our main objective of display technique development. About the development, it mainly includes environment protection materials, electronic saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic displays, touch, wide viewing angle, curve and all-around system services integration. We already have obtained remarkable achievements. These results of technical development are applying to TV, desktop monitor, Notebook, Tablet, Cell Phone, Medical, Industrial Display and automobile. Moreover, the integrated development on the touch components and panels of more advanced techniques and portable and wearable product applications are the key points of our future product design and development.

2. Facts of research & development:

With incessant efforts, the Company has insistently invested significant human resources, resources and funds in research & development to continually upgrade the quality of products, technology & know-how of new manufacturing process and application for new products. The Company would like to depict performance in research & development through three aspects below:

(1) In the aspect of upgrade of product quality:

Including the technology & know-how for broad visual angle, high solution, low energy consumption, thin thickness, high hue, dyamic image, high dynamic range, narrow frames, new touch panel and soft display manufacture process

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(2) New material technical process:

Including Oxide, In-Cell Touch Technique, Copper Manufacture Procedure, COA(Color Filter on Array), Photo-Alignment, Horizontal Electronic Field High Transparency and High Contract Positive Magnetic Susceptibility, Reducing Mask and Automotive wide temperature range display material technique, material development and production process for curved touch control display.

(3) In the aspect of new product application:

The up-to-date technology & know-how developed by the Company have been put into volume production one after another and applied onto a good number of products, including notably general cell phones, cameras, MPD, electronic paper, tablets, notebooks, desk monitors, AIO, television, medical treatment services, vehicular carriage, aerospace and touch panel and the like, in the dimensions ranging from 1.36” to 100” TFT-LCD products. In the days and years ahead, we shall continually invest in the research & development oriented human resources and fund to develop more and more TFT-LCD display and monitor products of added dimensions, application ranges, thinner, more environmental protection friendly and high efficiency to live up to the future trends in application and satisfy customers in varied ranges.

3. The consolidated research & development costs invested in the latest year as of the

Annual Report date. Unit: NT$ thousand

Item 2016 March 31,2017 R & D expense 11,132,079 3,647,720 Net Revenue 287,089,277 86,025,771

Percentage of revenue 3.88% 4.24%

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4. Successful development technical or product The company’s develop technical and products for each direction are listed below.

(1) TV: A. The first company of the world develop 23.6-inch/40-inch/50-inch/58-inch the best cutting

efficiency size in G5.5/G6/G7.5/G8.5 generation factory, we creating market differentiation and improve add-value of product.

B. Introduce 4Kx2K ultra high definition and high resolution TV display, the product line is complete, product size from 40-inch to 100-inch, providing higher quality TV image and better product competitiveness, lead 4K TV industry going to fast development and trend.

C. Introduce new size 40-inch/50-inch/75-inch/85-inch/100-inch TV display, overall arrangement in big size application, creating more differentiation product than competitors.

D. Develop high chroma technique, increasing to over 130% sRGB colour range and without increase energy consumption, not only increase the performance of display, but also make customers feeling more about the value-added of big size TV product.

E. Develop new MEMC improvement technique, apparent improving dynamic quality and integrate IC, increase dynamic picture quality and integrated technique.

F. Develop and mass produce a series of over 50-inch thin TV model (<9mm), providing artistic and fashion appearance model to clients.

G. Develop 0.5mm thin glass and apply to TV display, reduce glass usage and cost. Whole series big size TV import and mass production successfully.

H. Develop Narrow border modul(<5MM) successfully. I. Develop Inno Module model, combine narrow frames and front and back appearance, provide

clients high competitive module and reduce assembled time and cost. J. Cooperate with brand to develop big size (65-inch and 75-inch) Curve model, mass production

successfully and assist client to introduce the product to the market for customers. K. Exclusive mass producer of 65-inch large 8K4K (7680X4320) panels with the highest resolution

in the world

(2) Monitors: A. Release whole series wide viewing angle VA desktop monitor panel and with high brightness,

high contrast, high saturation, not only increase product quality and value, but also provide client the best choice of high end monitor LCD panel.

B. Develop several model of globally new Inno-touch monitor and AIO personal computer, by integrate touch as multi-function use can reduce module thickness to become light, increase touch functional can close to end customers’ need.

C. Release 28-inch and 32-inch 4K2K monitor panel, panel monitor can have higher resolution visual enjoyment, not only increase product value, but also provide client the best choice of high end monitor LCD panel.

D. Developing 23.8" QHD (2560x 1440) panel of wide color domain, ultra-thin, bezzeless and super wide view angle based on proprietary technology of high penetration light resistance, high color saturation LED and AAS display. In addition to wide view angle and vivid color for improved visual experience, this product comes with daily life aesthetics design of being virtually bezzeless (4.8mm wide) and thin profile.

(3) Notebook:

A. Release whole series light-weight notebook panel, the thickness of whole series of notebook (11.6-inch/12.5-inch/13.3-inch/14-inch/15.6-inch) is only 2.0mm, show light feature and provide the solution of notebook carry.

B. Interface technical of Notebook panel is totally from LVDS to eDP. It can connect to high resolution trend, also can save space to help thinner design of the system and lower the energy consumption.

C. Release whole series FHD AAS wide viewing angle notebook panel and goes with Low Power-consumption & Wide Color Gamut to increase color range but not increase energy consumption to increase visual performance.

D. Develop TOD technical on notebook panel, through touch integration, notebook not only can be thinner but also can reduce produce process of the module and simplify the complexity of new product.

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E. Develop the world’s first 17.3" fast and high frequency (120Hz refresh speed) panel for electronic gaming notebook. Made with new high speed LCD materials, this new product not only features more vivid color and smooth and realistic gaming screens but also good optical characteristics including wide view angle, low color bias, and ghostlessness.

(4) Small/Medium:

A. Develop a-Si high resolution smart phone panel, resolution can reach above 400ppi, in high yield and stable processes. The product successfully built advantage.

B. Develop LTPS QHD panel of frames narrow than 0.45mm and a-Si FHD 0.6mm, reduce the size of the panel module to fit the narrow frames demand from smart phone and tablet user, increase the design freedom of portable device display appearance.

C. Adopt less power hungry design to lower power consumption by the panel drive chip. Optimize panel production process and material with high color saturation, high transmittance color photo-resistor to ramp up panel efficiency and product competitiveness with balanced low power consumption and production costs.

D. Leading the industry by launching a series of Touch On Display (TOD) integrated touch control devices. Coupled with modular and compact design and good optical performance, this company is providing customers with comprehensive and full range touch control integration services with vertically integrated LCD panels and touch control production.

E. Apply the newly developed Touch In Display (TID) integrated touch control technology in a-Si HD and LTPS FHD panel for mobile phones and a-Si WXGA and WUXGA for tablets. This company is integrating touch control drives and display chips with Touch & Display Driver Integration (TDDI) structure to pioneer the compact and high performance niche product markets.

(5) Touch Panel:

The company already develops several touch technique solutions (including InnoTouch, TOD, TID, Hybrid, Total Solution): A. New type Inno-touch technique is integrated touch panel and induction glass technology. The

advantage is able to simplified production process and provides economic touch panel option. The technology can goes with multiple size panels; meets the new development trend of affordable electronic product toward to touch function.

B. Touch On Display (TOD): Through TOD technique can make portable device have light performance effectively, also with well optical performance and increase portable electronics competitiveness. Not only medium and small size smart phone and tablet apply and mass production, but also apply to bigger size notebook products.

C. Touch In Display (TID) & Hybrid : Not only have TOD technical advantage, the company develop TID Hybrid technical to make it even more lighter, and high touch sensibility technique apply to portable product can improve the users’ experience about portable electronic product.

D. Provide more completeness Touch Total Solution: Through highly vertical integration of streamlined production, we may provide client complete and all-round touch integration service. Not only shorten the process and time of production and delivery, but also help client to enter the market, make better arrangement and configuration at capacity and resource of panel and touch. Equip with integrated InnoTouch, TOD, TID Hybrid product and process technical to serve customers.

(6) Special Application

Release 21.3-inch to 30-inch (AAS; 5/6/10/14 MegaPixel) medical LCD display, with high resolution, high brightness, high contrast, adopt 10 bits drive new technology and high efficiency LED BL, to make the image more delicate and medical personnel can make more precise judgment. Big size public display 75-inch/ 85-inch present natural high color gamut and give consideration to both indoor and outdoor environment,85-inch UHD also support portrait. Also first release horizon LCD display (bar type) presents multiple sizes can fit for multiple environments.

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5.1.4 Long- and Short-Term Business Development Plans 1. Short-Term

In the short-run, we shall devote ourselves profoundly toward televisions, notebooks, tablet computers, cell phones, monitors oriented to vehicles, medical treatment services and industries. Continually we shall help customers pep up competitive edge through our pround monitor technology & know-how, live up to the market and environment-friendly demands. About the development, it mainly includes environment protection materials, electronic saving and low power consumption, high pixel, high chroma, thin, narrow frame, high dynamic displays, touch, wide viewing angle, and all-around system services integration. We already have obtained remarkable achievements. Meanwhile, we shall spare no effort to profoundly team up with customers in strategic alliance to solidify our firm foundation in the panel supply chains and create the happy win-win aspects through the teamwork.

2. Long-Term

Long-term development: Other than the efforts to do research & development for up-to-date monitors, strengthen manufacturing process to optimize the productivity. For the emerging of new model monitor know-how, we shall invest appropriate resources, cultivate autonomous development capability, like the embedded touch know-how, super narrow frames, super thin design, super high solution, curved plate design, soft disply and niche oriented application products and the like. Through such efforts, we hope to set up the optimal strategic deployment in the brand new monitor application regions. Meanwhile, we shall further stress value chian integration and development of products high added values, to make our products more competitive in both pricing and specifications to provide customers with added solutions and services and to provide terminal end consumers with added excitements in visual enjoyment.

5.2 Market and Sales Overview 5.2.1 Market Analysis 1. Main products selling area

Unit；NT$thousand；% Area Amount of Sales2016 %

Domestic sales 95,497,599 33.26%

Foreign sales

China 59,778,250 20.82% HongKong 66,990,932 23.33%

Europe 12,996,893 4.53% America 11,582,252 4.04%

Other Area 40,243,351 14.02% Total amount of F/S 191,591,678 66.74%

Total 287,089,277 100.00% 2. Market Share

According to the statistic of IHS research report, until Q4 2016, the market of the company’s big size panel shipment is 15%, due to the Q1 2016 earthquake effect, YOY decreased 2%, which is the third-largest supplier of the world LCD panel industry. Based on application product, global market share of LCD display panel is 16%, maintains world’s forth ranking performance; global market share of LCD TV panel is 14.7%, world’s third ranking performance; global market share of notebook (not including tablet) is 22.6% which is the world’s second ranking. Overall, under the tough economic environment, strong market competition and the earthquake effect, the company still maintains nice performance in the market of big size product application. The market share of medium and small panel is 6%. 3. The supply and demand situation and growth of the future market

Due to the outstanding product feature and the continuous improvement of cost and quality, TFT-LCD already become the mainstream of flat display and the sales will keep growth as the improvement of application level and penetration. According to the estimation of IHS, the global shipment of big size

(over 9-inch) TFT-LCD panel will be 704 million chips.If analyzing market size of several main application level, about LCD TV part, as new size development

and new technical input and plus new capacity growth stable, global shipment of LCD TV will be 223 million in 2016 and average size increase an inch each yearLCD monitor, the shipment is 136 million and will slightly decline to 133 million in 2017, but as the demand increased of big size and high resolution product, the penetration rate of high value product will incrgradually. About mobile PC (including notebook and tablet),due to the tablet is not popular after 2015, the shipment is 352 million in 2016 and the forecast will decline to 342 million in 2017.

Data Source: DisplaySearchAccording to the estimation from IHS, global shipment of medium and small size panel will be 276

million in 2016, decreased 1.9 % compared with 2015. The shipment will be 277 million in 2017 and annual and stay the same averge. According to the estimation from Gartner,Cell phone shiin 2016 and the forecast will increase to 155 million in 2017 and annual growth rate is 5%. As smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall cell phone panel shipment is going to grow continually until 2022 and will be the main growth power of middle and small size panel.

Data Source: Gartner Amidst the unpredictable macroeconomy, competition amidst the industries, expansion and competition

by newly joining competitors amidst products and technology & knowchanged in each and every passing day, the TFTuncertainty. In the face of the mounting cutthroat competisubstances to deal with all sorts of challenges.

� We shall boost marketing by means of improved operating efficiency, refined management, product development, customer services, technical research & development awill be able to intensify gross profit in sales, cost control to further intensify competitive edge.

� Continued investment in research & development to suffice technical talents, improve product design and application of materiaand improved manufacturing process and new generation monitor technology & knowcreate added lead in know-

� With wholehearted efforts, we shall dmanufactured by our Company cover televisions, computers, mobile devices, vehicles

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LCD panel will be 704 million chips. alyzing market size of several main application level, about LCD TV part, as new size development

and new technical input and plus new capacity growth stable, global shipment of LCD TV will be 223 million in 2016 and average size increase an inch each year and might reacg 226 million in 2017. About LCD monitor, the shipment is 136 million and will slightly decline to 133 million in 2017, but as the demand increased of big size and high resolution product, the penetration rate of high value product will incrgradually. About mobile PC (including notebook and tablet),due to the tablet is not popular after 2015, the shipment is 352 million in 2016 and the forecast will decline to 342 million in 2017.

Data Source: DisplaySearch from IHS, global shipment of medium and small size panel will be 276

million in 2016, decreased 1.9 % compared with 2015. The shipment will be 277 million in 2017 and annual and stay the same averge. According to the estimation from Gartner,Cell phone shipment reach 149 million in 2016 and the forecast will increase to 155 million in 2017 and annual growth rate is 5%. As smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall

l shipment is going to grow continually until 2022 and will be the main growth power of

Amidst the unpredictable macroeconomy, competition amidst the industries, expansion and competition wly joining competitors amidst products and technology & know-how that have been developed and

changed in each and every passing day, the TFT-LCD products would be subject to high level circulation uncertainty. In the face of the mounting cutthroat competition, we shall launch overall upgrade of all substances to deal with all sorts of challenges.

We shall boost marketing by means of improved operating efficiency, refined management, product development, customer services, technical research & development and such efforts. In turn, we will be able to intensify gross profit in sales, cost control to further intensify competitive edge.

Continued investment in research & development to suffice technical talents, improve product design and application of materials. We shall proceed with research & development of advanced and improved manufacturing process and new generation monitor technology & know

-how of products and production costs.

With wholehearted efforts, we shall deploy integrated product lines for new products. The products manufactured by our Company cover televisions, computers, mobile devices, vehicles

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40%

45%

2015 2016(E) 2017(F)

Unit:Billion

alyzing market size of several main application level, about LCD TV part, as new size development and new technical input and plus new capacity growth stable, global shipment of LCD TV will be 223

and might reacg 226 million in 2017. About LCD monitor, the shipment is 136 million and will slightly decline to 133 million in 2017, but as the demand increased of big size and high resolution product, the penetration rate of high value product will increase gradually. About mobile PC (including notebook and tablet),due to the tablet is not popular after 2015, the

from IHS, global shipment of medium and small size panel will be 276 million in 2016, decreased 1.9 % compared with 2015. The shipment will be 277 million in 2017 and annual

pment reach 149 million in 2016 and the forecast will increase to 155 million in 2017 and annual growth rate is 5%. As smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall

l shipment is going to grow continually until 2022 and will be the main growth power of

Amidst the unpredictable macroeconomy, competition amidst the industries, expansion and competition how that have been developed and

LCD products would be subject to high level circulation tion, we shall launch overall upgrade of all

We shall boost marketing by means of improved operating efficiency, refined management, product nd such efforts. In turn, we

will be able to intensify gross profit in sales, cost control to further intensify competitive edge.

Continued investment in research & development to suffice technical talents, improve product ls. We shall proceed with research & development of advanced

and improved manufacturing process and new generation monitor technology & know-how so as to

eploy integrated product lines for new products. The products manufactured by our Company cover televisions, computers, mobile devices, vehicles- and medical

Smart Phone

GR YoY

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treatment oriented products. We provide varied modes to sell panels, whole machines, touch integration and the like. Through such efforts, we virtually bring down the potential risks of fluctuation with single products.

� We intensify integration of supply chains to stay in close teamwork with suppliers to deepen deployment of strategic customers, strengthen responsiveness toward supply and demand fluctuation and, meanwhile, boost approval-level from customers.

4. Niches in competition.

(1) Business model: Since we launched the three-in-one merger, we have continually demonstrated the integrated concerted performance (synergy). Through the business policies with “leadership with know-how and quality, boosting of production efficiency and quality”, we have enhanced the operating efficiency by leaps and bounds and gradually open the new aspects amidst the cutthroat competition.

(2) Vertical and horizontal integration:

In an attempt to strengthen integration of our products, boost cost competitiveness, demonstrate maximum possible benefit in supply chain management, other than production of TFT-LCD panel modules, we dominate a significant ratio of design and manufacture of parts & components, including LED panels, color filter, light guide plate, Backlight Module, PCBA and such structure pieces which could be manufactured inside our home factory or overseas subsidiaries.Meanwhile delopement automatic product line to decrease the human resource and upgrade the product design. Thanks to such high leve vertical integration, we have taken advantage in lowering costs, prompt response to assure top level quality.

(3) Portfolios of our products:

The principal products of the Company include notably the TFT-LCD panel modules primarily including: Large size like LED TV, desktop monitor and laptop plate; mid-small size like mobile phone, tablet PC, automotive display. Various products with advanced wide viewing angle and high resolution manufacturing techology. We satisfied every level of your needs.

(4) Our advantages in costs:

Through the hands-on experiences accumulated by TFT-LCD manufacturers at home and abroad, we could conserve quite a few time which is normally indispensable to try & err. In procurement of machinery & equipment, the hands-on experiences accumulated by the suppliers in installation could help us conserve partially the costs. Further coupled with the aforementioned advantages in the unique operation mode and vertical integration, we well outperform horizontal trades in terms of costs required for production.

(5) Concerted performance (synergy) in marketing:

We are dominant of sound marketing channels to get connected with world class customers. Toward those world-class giant customers, we are capable of rendering prompt design, integrated products with global services through which our customers enjoy the excitements of one-stop shopping.

(6) Customize Provide customize service for our customers. In looking back over 2016, our production lines for all sorts of panels were complete and comprehensive and were in an excellent position to enable customers to enjoy the excitements of one-stop shopping. In extensive aspects notably the productivity scale, product design capability, quality rate, supply, managerial plans as well as financial stability, we have accomplished further upgrade. Besides, the Company has continually without interruption teamed up with customers in the product designs and supply chain management profoundly to continually boost customer

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approval-level and, in turn, expanded our shares in the panel markets. In 2016, we saw continued shipment stable growth, apparently that our efforts in performance have yielded fruit step-by-step. We anticipate that in the days and years ahead, we are in a position to further optimize product, upgrade quality and assure further upgraded approval-level from customers.

5. Advantage and disadvantage of long term development and reaction strategy (1) Advantage:

A. Keep developing new product applications With rapid development of wireless communication and cloud technologies, TV, PC, pad and cellphone are gradually integrated their contents. The development of “one cloud with multiple screens” is the major strategy of all companies. Because the service of cloud information is surrounding people’s life, the flat-panel monitor, as the intermediary of information, has become more important. The more delicate the information content is, the demand of size, resolution, visual angel, and light specification design of consumers rise. It also raises the unit price of TFT-LCD products, and brings new applications and demand increases. The main stream products of all major TV industry brands is ”smart TV”, which is also the sign of the rapid involvement of cloud applications in TV area. 4K2K ultra HD TV, which were put into market in the second half of 2012 and provided higher level of joy for watching TV, has grown very fast and become the major spec of middle or high end product from 2016. Regarding to the LCD monitors, because the market is more matured, the major product requirement is energy saving and HD quality to encourage the customers to upgrade the current product lines. Regarding to notebooks, the new market drives come from the new operating system and calculating platform. Ultra Mobile products innovation, this is good for the production of middle size panels. Regarding to the medium and small size panels, the common use of smart phones and gradually matured touch panel technologies allows smart phones to become general consumer products. The delivery of production continue growing while 2016 deliver 1.5 billion and 2017 1.55 billion to be expected. Because the panel size of smart phone increases from the size of functional phones, panel’s unit price rises while the requirements of wide visual angle, high resolution, and color presentation upgrades. Thus, cellphone panels’ revenue continue rising.

B. Stable customer base Our major customers are global consumer electronics companies, which have important stands in TV, PC and mobile communication industry globally. Moreover, because the trends on integration of consumer electronics and personal computers are obvious, the market will still be dominated by the international big companies, and develops with the direction of “the big ones get bigger”. Therefore, in the company’s perspective, we not only can grow our revenue rapidly, the market share of us is also expected to keep increasing with our major customer basis. Under the synthesized effects of the three factors: rise of production line completion, stronger customer base, keep developing new customers in newly developed market on the current customer basis, the company’s revenue is expected to grow stably, and the global market share will grows gradually as well.

C. Globalized strategy Innolux has been recognized as the best LCD panel supplier in all aspects, and had been setting up global strategy aggressively. Now we have production base of post-production LCD panel module and monitor in Shenzhen，Ningbo, Foshan, Nanjing in China, and we also have delivery hubs in major cities in Asia, Europe, and America, so that we can achieve “deliver just in time” object and strengthen the long term cooperative relationship with customers.

D. Vertical integration in depth Innolux has been working in TFT-LCD industry for a long time, and we have the professional knowledge and managing capability in LCD panel, module, mechanism, and optical components’ R&D, production, and selling. We are more cost-effective and have better

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capability to service the customers timely than unitary TFT-LCD factory. (2) Disadvantage and Reaction Strategy

A. The balance of supply and demand is hard to keep due to the intense competition in this industry. LCD panel industry’s economy cycle is more obvious than other industry and the balance of supply and demand is more difficult to maintain because the high capital intensity and long establishment time. Other competitors in Taiwan, Japan and Korea are planning to build up next generation panel factories and the rising production capability in China since 2012 also brought competition to the industry. Innolux has 3.5th generation, 4th generation, 4.5th generation, 5th generation, 6th generation, 7.5th generation, 8.5th generation and 8.6th generation production lines, which can produce all sizes of LCD panels and touch panels. The production capability is the 3rd largest panel manufacturer. We try to produce the best combination of products and adjust the production allocation according to market supply-demand condition, so that we can optimize the use our production capacity.

B. The complicated technology and patent portfolio The design and production of TFT-LCD requires highly professional technology. All companies that in this industry are aggressively making their portfolio in technology and patent applications. To avoid the violation of patent rights in the production process, Innolux has been developing our own patents and technology since the beginning of this company. We recruited domestic and international talents to join the research team, and evaluate the feasibility of getting the usage rights of some key technology from foreign companies at the same time. Regarding to intellectual poverty, we not only aggressively conduct R&D and the patent applications, we also keep strong legal support team to protect our intellectual poverty.

C. The global economy influences demand and supply Prospects across the main countries and regions remain uneven. the recovery in advanced economies is expected to pick up slightly, while activity in emerging market and developing economies is projected to slow for this and next year.The regional or global economy fluctuate will influence the demands of LCD monitor products. We provide products that are competitive for its cost and specifications by constantly optimizing our products and technology. We also help our supply chain partners to develop business to diminish the operation disadvantages of fluctuation of external demands.

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5.2.2 Production Procedures of Main Products 1. Major Products and Their Main Uses

(1) TFT-LCD TFT-LCD products are display application for digital information delivery, its wide application including information display equipment for business and industry, computer, telecom related and consumer electronics display equipment, etc. As the development of integrated digital age 3C market, the main area of TFT-LCD product are: � Information Technology, IT: such as Desktop monitor and Notebooks, etc. � LCD TV � Communications and Consumer Electronics: Mobile phone, digital camera, digital video,

digital photo frame, automotive display, portable DVD player, portable game console, tablet and other high mobility and portable electronic products application.

� Special application: medical display, Avionics display, automotive display and other touch panel application.

(2) Touch Panel business � Small size (below 7 inch) products mainly apply to smart phone, multimedia player, GPS and

digital camera, etc. � Medium size (7 inch to 19 inch) products mainly apply to tablet, eBook, Ultrabook, notebook,

etc. � Large size (above 20 inch) products mainly apply to All-in-one computer (AIO), Public

Information Display, etc.

2. Major Products and Their Production Processes (1) Three Steps in the TFT-LCD Production Process:

� In the Array or TFT Process mentioned in the preceding paragraph, injection and washing for glass baseplates→gate metallic layer sputtered coating→gatemetallic layer lithography→

Semiconductor layer continued filming→Semiconductor lithography→source/drain film-forming→source/ drain medal sputtered coating→source/drain lithography→Protection film manufacturing process→Protection film lithography→Transparent conducting layer sputtered coating transparent conducting layer lithography→thin film transistor electrical analysis→thin film transistor completion.

� Cell or LCD Process: The Cell process fits the Array substrate to a color-filter substrate; liquid crystal is then inserted between the two substrate layers.

� Module Assembly or LCM Process: taking the panel from the Cell process and bonding the assembling backlights, IC and frame and other components to make the Open cell, module and system and other types based on clients’ demand.

(2) Touch Panel business � Sensor Process: Use Semiconductor Litho process to put sensor on the glass. � Lamination & FPC Bonding Process: � Touch panel modules and LCD/LCM assembling process (TP & LCD/LCM Direct Bonding &

Advanced Direct Bonding): A.TP & LCM: taking LCM as the baseplates to be attached to the touch panel modules for overall combination. B.TP & LCD: LCD(Open-Cell) as the baseplates to be attached to the touch panel modules for overall combination before being assembled with Back Light modules(BLM).

5.2.3 Supply Status of Main Materials

Major Raw Materials Source of Supply Supply Situation Driver IC Supplier U Good

Glass Supplier P, Supplier Q, Supplier S Good Polarizer Supplier R, Supplier T, Supplier V, Supplier W Good

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5.2.4 Major Suppliers and Clients A. Major Clients Information for the Last Two Calendar Years

Unit：NT Thousand$

Item 2015 2016

Company Name

Amount Percent Relation

with Issuer Company

Name Amount Percent

Relation with Issuer

1 Customer A 39,802,830 10.93 None Customer A 41,448,102 14.44 None 2 Others 324,330,154 89.07 None Others 245,641,175 85.56 None

Net Total Supplies

364,132,984 100.00 － Net Total Supplies

287,089,277 100.00 －

B. Major Suppliers Information for the Last Two Calendar Years

Unit：NT Thousand$

Item 2015 2016

Company Name

Amount Percent Relation

with Issuer Company

Name Amount Percent

Relation with Issuer

1 Others 205,711,096 100.00 None Others 168,042,304 100.00 None Net Sales 205,711,096 100.00 － Net Sales 168,042,304 100.00 －

5.2.5 Production in the Last Two Years Unit: NT Thousand$

Year Output

Major Products

2015 2016

Capacity Quantity Amount Capacity Quantity Amount

TFT-LCD 368,000 349,515 317,400,000 318,000 288,819 259,000,000

Total 368,000 349,515 317,400,000 318,000 288,819 259,000,000

5.2.6 Shipments and Sales over the Last Two Years

Unit：NT Thousand$ Year

Shipments & Sales

Major Product

2015 2016 Local Export Local Export

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

TFT-LCD 76,165 103,617,666 298,805 260,515,318 81,543 95,497,599 254,020 191,591,678 Total 76,165 103,617,666 298,805 260,515,318 81,543 95,497,599 254,020 191,591,678

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5.3 Human Resources

Year 2015 2016 As of 4/30/2017

Number of Employees

Manager 2,873 2,682 2,658

IDL 15,810 13,582 13,050

DL 61,962 49,267 50,399

Total 80,645 65,531 66,107

Average Age 28.75 30.29 30.39

Average Years of Service 3.37 4.35 4.35

Education

Ph. D. 0.12% 0.12% 0.11%

Masters 7.28% 8.39% 8.12%

Bachelor’s Degree 75.74% 71.43% 71.82%

Senior High School 14.42% 15.76% 14.89%

Below Senior High School 2.45% 4.30% 5.06%

Total 100% 100% 100%

5.4 Environmental Protection Expenditures Innolux has disclosed the reactions and the total lost (including compensations) and the

possible expenses (including the costs of reactions haven’t been taken, estimated amounts of punishments and compensations. We also explain the reason if there is any cost we couldn’t estimate.) of environmental pollutions.

1. Regarding construction works of Innolux's L6 plant: The Yongqing contractor failed to

suppress dirt with water spraying on its delivery route during concrete pouring operations. Innolux was imposed a fine of TWD 100K by the EPA of the Kaohsiung City Government according to Article 23 of the Air Pollution Control Act and was required to remedy this before a set date. Prevention: Yongqing is required to provide adequate dirt suppression equipment to protect the environment along the route of the concrete delivery. Further training programs have been exercised to enhance construction personnel's awareness about construction air pollution prevention measures.

2. Regarding construction works of Innolux's L6 plant,The construction site runoff waste water reduction program started before being green lighted by the EPA of the Kaohsiung City Government. Innolux was imposed a fine of TWD 42.5K by the EPA of the Kaohsiung City Government according to Article 18 of the Water Pollution Control Act and was required to remedy this before a set date. Prevention: The construction site runoff waste water reduction program of L6 plant has been green lighted by the EPA of the Kaohsiung City Government and has been in effect since then.

3. Innolux T2 plant's violation Article 31 and 36 of the Waste Disposal Act and Article 7 and 15 of the Methods and Facilities Standards for the Storage, Clearance and Disposal of Industrial Waste was due to its failure in filing for temporary storage quantity and record waste solution disposal date among other required disposal certificates; In March, 2015, violating Article 28 of the Waste Disposal Act was due to its contractor, the Safety and Environmental Protection Cleaning Engineering Co., Ltd., of waste water disposal facility maintenance doing sludge removal works without a license: it was imposed a fine of TWD 150K by the Miaoli County Government and required to remedy this before a set date. Prevention: Innolux has made sure of the conformity of waste solution status and labeling with the

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Waste Disposal Act and Article and the Methods and Facilities Standards for the Storage, Clearance and Disposal of Industrial Waste. It also had each unit recognize and abide by the rule of getting wastes removal and transporting only by licensed service providers.

5.5 Labor Relations 5.5.1 List any employee benefit plans, continuing education, training, retirement systems, and

the status of their implementation, and the status of labor-management agreements and measures for preserving employees' rights and interests.

1. Employee welfare and the situation of implementation

(1) Besides the basic monthly salary, we also provide Luna Festival, dragon boat festival and New Year bonus, and proper performance bonus according to the company operation revenue.

(2) Our Employees have the labor insurance, citizen health insurance, and group insurance from the very first day of employment.

(3) We have employee restaurants in all factories, and provide meal substitutes according to the company rules.

(4) With the concepts of energy, comfortable life, and happiness, we built the employee’s center, which provides leisure and exercise functions to release our employees’ mental and physical stress.

(5) We set up the employee welfare committee to be responsible for welfare planning and execution, including club activities, exercise periods, earth environmental day, family day, coherence activities, public lecture, special discounts and festival substitutes, wedding or other special events, and emergencies.

(6) We provide health promotion and a mental consulting plan to take care of employees’ mental and physical health.

(7) Strengthening the concepts of sustainable management: we hire mentally or physically ill employees and insist on environmental protection and being responsible for social welfare.

(8) We integrate and continuously improve the system, process and plan of talents development.

(9) We provide internal and external trainings, such as professional studies, headquarter training, oversea training to develop employees’ professional knowledge and skills.

(10) Comprehensive certification development framework, based on the professional positions and management functions certification to promote quality, green products, and regulatory courses vertically; also, to promote departmental training horizontally in order to achieve the company’s objectives and to provide the diversified education and training network needed by the organization.

2. Retirement structure and the situation of implement

(1) Retirement structure and the situation of implement. (2) We hire actuary to evaluate our employees’ retirement preparation fund and issue the

evaluation report according to the IAS19R financial principles. (3) We transfer 2%~15% monthly salary to retirement preparation every month. (4) We will conduct the new retirement structure according to the laws from Jul 1, 2005.

3. Labor and management settlement

The rights and obligations of our labor and management follow the rules of our company operation. The relations between labor and management are good without and dispute settlements.

In order to maintain mutual communications and interactions, we have communicating meetings such as labor-management meeting, the Employee welfare union meeting and

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mobilization meetings etc., issuing INX digital news, establishing employee communication mailbox to listen and solve employees’ opinions and thoughts.

4. Working environment and individual safety protection

(1) Safety and Health organization and operation The company has an environmental safety office to be in charge of all safety and

health risks in company operation management, and to integrate the safety and health departments in all factories. The environmental safety office reports to the factory manager, related departments and the soviet in “factory fields’ safety and environmental protection committee” every season.In 2016, there are 777 participants at 38% attend the meeting in Taiwan and 252 participants at 37% in Mainland China. Analysis and Statistics of Occupational Hazards

Through the incident management system the company analyzes the statistics and causes of incidents including traffic accidents and near miss. With reports and surveys generated, the system would announce improvements in hazard prevention, as well as accident reviews and improvements. It also ensures parallel deployment across plants to prevent re-occurrence of incidents. Over 2016 the Disabling Frequency Rate (FR) and Severity Rate (SR) both increased compared to 2015. But the Lost Work Case and Restrictive Workday Case both decreased compared to 2015.

The Company will continuing maintain and improvement the goal to decrease of Lost Workday Case and Restrictive Workday Case.

Business Continuity Management

Innolux has been providing ESH management and training to vendors. A structure is in place for hazard identification, risk assessment and emergency response for high-risk operations. Monthly meetings are conducted with contractors for two-way communication and coordination and doing PDCA if the accident happened. ESH Training

Employees are the most valuable asset. Training is an investment that never depreciates. ESH training is the basis for the promotion and practical implementation of our ESH management. We make long-term investments in human and material resources according to the hazard profile of each plant. We plan, design and deliver training to the staff regarding ESH knowledge and skills, such as handling chemicals, dangerous machinery and equipment, injury prevention, machinery safety, fire safety management, and plant safety management. We also monitor and control the training quality and effectiveness. In 2016, 3,063 ESH training sessions were held, for a total of 337,181 participants. On average, employees joined over 5 training sessions per person per year.

(2) Safety Culture and Risk Management Early waring system

The system divided into 5 levels, base on plant equipment, facilities, inside & outside trend, irresistible natural disasters and man-made disasters to pre-defense and notify manager immediately. Prevention of manmade disasters

Due to musculoskeletal disorders percentage increase this few years, prevention of company as below:

A. Identification and analysis of the risk of job-specific processes of a systematic, resource and continuous improvement mode execution.

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B. Occupational Safety and Health Act will trigger repetitive operations, such as pre-musculoskeletal diseases Anti concept implanted "hazard identification and risk assessment norms" to implement career

In order to effectively prevent and control concepts, health management must be through hazard awareness, assessment and control improvement.

(3) Recruitment and Staffing

Innolux’s goal is to employ qualified personnel to create the best possible performance. Our company cares about diversity and equal opportunity. We do not allow employment discrimination based on race, color, age, gender, sexual orientation, ethnicity, disability, pregnancy, religion, political affiliation, union membership, and marital status or otherwise. In our day-to-day operations, this means that we monitor and manage our human resources consciously. We analyze and improve turnover patterns. We build a labor force with a balanced structure, which was also integrated into our recruiting policy.

(4) Zero Distance Communication Innolux emphasizes harmonious labor relations. To this end, we convene quarterly

meetings with the labor-capital committee and the Employee Welfare Committee. High-level managers from the capital side and grassroots level representatives from the labor side engage in two-way face-to-face communications, to exchange views in an open atmosphere. We also have built a full range of communication channels, which employees can use under their names or anonymously. The Employee Care Hotline, the Employee Care Mailbox, and the opinion box help employees to find quick solutions to their problems. Workplace Free from Sexual Harassment

To protect employees from sexual harassment, Innolux adopted the 'Sexual Harassment Prevention, Complaint and Management Procedures for Taiwan site' to effectively prevent and deal with sexual harassment. Investigation of sexual harassment is conducted in a non-public fashion to protect the privacy of the parties involved. Everyday protection from sexual harassment is promoted through the start-up screens of computers to build a friendly workplace and eliminate sexual harassment. EAPs Employee Assistance Programs

Employees are company's most important asset. Innolux understands how difficulties may affect an individual’s work and life. Therefore, Innolux takes a systematic and embedded approach to offer appropriate professional resources, such as employee communications, psychological counseling, and healthcare, in an effort to reduce the impact that problems may have on our employees' work and lives. We hope to enable our employees to work with a fit body and a healthy mind and improve productivity. Integrated Employee Care Channels

Innolux takes employee feedback seriously. We offer various feedback channels to employees, to effectively prevent and solve employee issues. We put more focus on integrating our employee care channels. Thus, we unified the representative code of Employee care hotline and the Employee Care Mailbox at different sites. The same was advertised via internal announcements and the start-up screens on computers. We expect this integrated approach will pay off through more efficient handling of cases.

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5.5.2 List any loss sustained as a result of labor disputes in the most recent fiscal year, and during the current fiscal year up to the date of printing of the annual report, disclose an estimate of losses incurred to date or likely to be incurred in the future, and indicate mitigation measures being or to be taken. If the loss cannot be reasonably estimated, make a statement to that effect. NT$690 Thousand.

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5.6 Important Contracts

Agreement Counterparty Period Major Contents Restrictions

Lease Agreement of the Land

Science-based Industrial Park Administration

Feb 2001- Dec 2020

Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County(Plant No. I)

Pursuant to the terms and conditions set forth under the Agreement



May 28, 2003 - Dec 31, 2022

Leasehold of land Pursuant to the terms and conditions set forth under the Agreement



Feb 2004 - Dec 2023

Lease of land for Chunan Base of Hsinchu Science Park in Miaoli County (Plant No. II)




Apr 6, 2004 – Dec 31, 2023




Dec 1, 2007 – Dec 31, 2026

T2 Leasehold of land oriented for factory



South Taiwan Science-based Industrial Park Administration

Mar 9, 2015 - Mar 8, 2035


Engineering Project Agreement

Chung Lin Construction Co., Ltd.

Feb 2001 till expiry of warranty period

FAB I Project of Civil Engineering Construction



Hu Tzu Construction Co., Ltd.

Jul 2005 till expiry of warranty period

FAB II Newly constructed project



Cheng Teh Fireproof Industrial Co., Ltd.

Sep 2005 till expiry of warranty period

New construction of Plant No. II, award of the fire prevention project contract


Syndicated Loans Bank of Taiwan and bank groups

Mar 12, 2015 - Mar 12, 2018

1. To be used by the Loanee to reimburse, under the syndicated accord, the mid-term and long-term syndicated loans, for all fund required for the outstanding balance of principal as mentioned above. 2. In the amount of NT$68.5 billion


Syndicated Loans Bank of Taiwan,CTBC and bank groups

Sep 6,2016-Dec 6,2021

1.To be used to reimburse the mid-term loan 2. In the amount of NT$35 billion


Patent authorization

Foreign Company A Jun 17, 2013 – Jun 30, 2017

3D Relevant technology & know-how



Foreign Company B Jan 1, 2015 – Dec 31, 2020

IPS Relevant patents Pursuant to the terms and conditions set forth under the Agreement

Cross-licensing Multinational Enterprise C.

June 28, 2010– Dec 31, 2019

IPS Relevant technology & know-how

Pursuant to the terms and conditions set forth under

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Agreement Counterparty Period Major Contents Restrictions the Agreement

Cross-licensing Multinational Enterprise D

Jul 2, 2012 – Jul 2, 2022

Display of the relevant cross-patent licensing within the regions.


Cross-licensing Multinational Enterprise E

Jul 1, 2013 – Jul 1, 2023

LCD Relevant technology & know-how



Multinational Enterprise F

Jan 1, 2013 – Dec 31, 2019




Multinational Enterprise G

Sept 5, 2013 – Sept 5, 2018




Multinational Enterprise H

Oct 31, 2013 - Oct 31, 2017



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VI. Financial Information 6.1 Five-Year Financial Summary 6.1.1 Condensed Balance Sheet 1. Consolidated Condensed Balance Sheet

Unit: NT Thousand Year

Item

Financial Summary for The Last Five Years (Note1) As of the printing date

of this annual report

2012 2013 2014 2015 2016

Current assets 173,139,399 171,701,969 189,380,812 138,866,987 126,998,131 122,740,178 Property, Plant and Equipment

332,525,859 273,505,759 233,609,843 199,482,740 201,360,858 196,075,992

Intangible assets 22,909,059 21,214,994 20,219,137 19,342,856 18,446,321 18,326,577 Other assets 42,888,840 41,778,163 39,306,763 29,749,753 24,674,238 22,422,858 Total assets 571,463,157 508,200,885 482,516,555 387,442,336 371,479,548 359,565,605

Current liabilities

Before distribution

237,566,939 300,586,751 199,135,498 110,471,463 116,165,904 121,768,253

After distribution

237,566,939 301,944,190 206,082,686 112,461,273 Note2 －

Non current liabilities 162,539,193 13,036,280 54,209,621 44,706,150 29,307,281 2,250,386

Total liabilities

Before distribution

400,106,132 313,623,031 253,345,119 155,177,613 145,473,185 124,018,639

After distribution

400,106,132 314,980,470 260,292,307 157,167,423 Note2 －

Equity attributable to shareholders of the parent

169,823,860 193,043,229 227,690,063 232,264,723 226,006,363 235,546,966

Capital stock 79,129,708 91,094,288 99,545,364 99,532,372 99,521,488 99,520,784 Capital surplus 119,677,980 96,058,741 99,584,369 99,643,564 99,647,810 99,648,514

Retained earnings

Before distribution

(24,979,239) 7,421,697 26,632,674 30,338,450 30,255,869 42,113,988

After distribution

(24,979,239) 7,331,202 19,685,486 28,348,640 Note2 －

Other equity interest (4,004,589) (1,531,497) 1,927,656 2,750,337 (3,418,804) (5,736,320) Treasury stock －－－－－－ Non controlling interest 1,533,165 1,534,625 1,481,373 －－－

Total equity

Before distribution

171,357,025 194,577,854 229,171,436 232,264,723 226,006,363 235,546,966

After distribution

171,357,025 193,220,415 222,224,248 230,274,913 Note2 －

Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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2. Consolidated Condensed Statement of Comprehensive Income Unit: NT Thousand

Year

Item

Financial Summary for The Last Five Years (Note1) As of the printing date of this annual

report 2012 2013 2014 2015 2016(Note2)

Operating revenue 483,609,931 422,730,500 428,661,898 364,132,984 287,089,277 86,025,771 Gross profit 4,499,935 37,759,115 50,385,001 46,640,105 26,088,491 20,345,021 Income from operations (19,749,654) 15,349,268 28,173,396 22,430,709 6,413,249 14,632,036 Non-operating income and expenses

(11,064,521) (9,705,915) (5,639,056) (7,571,522) (1,421,129) 722,153

Income before tax (30,814,175) 5,643,353 22,534,340 14,859,187 4,992,120 15,354,189 Net income (Loss) (30,167,283) 5,095,019 21,676,908 10,814,141 1,870,687 11,858,119 Profit (loss) from discontinued operations

－－－－－－

Net income (Loss) (30,167,283) 5,095,019 21,676,908 10,814,141 1,870,687 11,858,119 Other comprehensive income (income after tax)

(1,975,663) 2,859,517 3,159,493 507,196 (6,152,001) (2,317,516)

Total comprehensive income

(32,142,946) 7,954,536 24,836,401 11,321,337 (4,281,314) 9,540,603

Net income attributable to shareholders of the parent

(29,899,236) 5,102,568 21,676,759 10,815,594 1,870,687 11,858,119

Net income attributable to non-controlling interest

(268,047) (7,549) 149 (1,453) －－

Comprehensive income attributable to Shareholders of the parent

(31,688,130) 7,953,076 24,844,853 11,352,532 (4,281,314) 9,540,603

Comprehensive income, attributable to non-controlling interests

(454,816) 1,460 (8,452) (31,195) －－

Earnings per share (4.00) 0.57 2.31 1.09 0.19 1.19 Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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3. Alone Balance Sheet Unit: NT Thousand

Year

Item

Financial Summary for The Last Five Years (Note1)

2012 2013 2014 2015 2016

Current assets 147,154,273 138,274,531 162,875,147 111,926,408 103,003,830 Property, Plant and Equipment 287,051,335 233,557,614 192,599,182 163,921,697 170,150,592 Intangible assets 22,796,701 21,114,443 20,127,184 19,264,025 18,375,538 Other assets 100,240,714 100,611,858 106,252,898 102,927,491 97,564,329 Total assets 557,243,023 493,558,446 481,854,411 398,039,621 389,094,289 Current liabilities

Before distribution 238,165,426 287,413,773 205,189,126 121,257,442 133,926,912 After distribution 238,165,426 288,771,212 212,136,314 123,247,252 Note2

Non current liabilities 149,253,737 13,101,444 48,975,222 44,517,456 29,161,014 Total liabilities


Equity attributable to shareholders of the parent

169,823,860 193,043,229 227,690,063 232,264,723 226,006,363

Capital stock 79,129,708 91,094,288 99,545,364 99,532,372 99,521,488 Capital surplus 119,677,980 96,058,741 99,584,369 99,643,564 99,647,810 Retained earnings

Before distribution (24,979,239) 7,421,697 26,632,674 30,338,450 30,255,869 After distribution (24,979,239) 7,331,202 19,685,486 28,348,640 Note2

Other equity interest (4,004,589) (1,531,497) 1,927,656 2,750,337 (3,418,804) Treasury stock －－－－－ Non controlling interest －－－－－ Total equity


Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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4. Alone Statement of Comprehensive Income Unit: NT Thousand

Year

Item

Financial Summary for The Last Five Years (Note1)

2012 2013 2014 2015 2016(Note2)

Operating revenue 471,524,374 419,738,269 426,005,033 360,638,133 285,695,113 Gross profit (7,116,158) 27,531,818 36,395,248 33,712,246 14,853,964 Income from operations (24,249,282) 11,300,119 20,439,440 15,826,909 513,079 Non-operating income and expenses (7,431,680) (6,864,968) 1,238,394 (2,017,968) 3,147,845 Income before tax (31,680,962) 4,435,151 21,677,834 13,808,941 3,660,924 Net income (Loss) (29,899,236) 5,102,568 21,676,759 10,815,594 1,870,687 Profit (loss) from discontinued operations

－－－－－

Net income (Loss) (29,899,236) 5,102,568 21,676,759 10,815,594 1,870,687 Other comprehensive income (income after tax)

(1,788,894) 2,850,508 3,168,094 536,938 (6,152,001)

Total comprehensive income (31,688,130) 7,953,076 24,844,853 11,352,532 (4,281,314) Net income attributable to shareholders of the parent

(29,899,236) 5,102,568 21,676,759 10,815,594 1,870,687

Net income attributable to non-controlling interest

－－－－－

Comprehensive income attributable to Shareholders of the parent

(31,688,130) 7,953,076 24,844,853 11,352,532 (4,281,314)

Comprehensive income attributable to non-controlling interest

－－－－－

Earnings per share (4.00) 0.57 2.31 1.09 0.19 Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

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6.1.2 Auditors’ Opinions from 2012 to 2016 Year Accounting Firm CPA Auditing Opinion 2012 PricewaterhouseCoopers Hsiao Chun-Yuan & Hsu Yung-Chien Unqualified-modified wording 2013 PricewaterhouseCoopers Hsiao Chun-Yuan & Wu Han-Chi Unqualified-modified wording 2014 PricewaterhouseCoopers Wu Han-Chi & Hsu Sheng-Chung- Unqualified-modified wording 2015 PricewaterhouseCoopers Wu Han-Chi & Hsu Sheng-Chung Unqualified wording

2016 PricewaterhouseCoopers Wu Han-Chi & Hsu Sheng-Chung Unqualified wording 6.1.3 If there was change/replacement of the CPA within the most recent 5 fiscal years,

explanation made by the company’s previous and current CPA over the causes for such change/replacement shall be set forth.

Year Former CPA's Name Current CPA's Name Reason 2012 None 2013 Hsiao Chun-Yuan & Hsu Yung-Chien Hsiao Chun-Yuan & Wu Han-Chi Unqualified-modified wording 2014 Hsiao Chun-Yuan & Wu Han-Chi Wu Han-Chi & Hsu Sheng-Chung Unqualified-modified wording 2015 None

2016 None

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6.2 Five-Year Financial Analysis 1. Consolidated Financial Analysis

Year)

Item

Financial Analysis for the Last Five Years (Note 1) As of the printing date

of this annual report

2012 2013 2014 2015 2016

Financial structure (%)

Debt Ratio 70.01 61.71 52.50 40.05 39.16 34.49 Ratio of long-term capital to property, plant and equipment

100.41 75.91 121.31 138.84 126.79 121.28

Solvency (%) Current ratio 72.88 57.12 95.10 125.70 109.32 100.80 Quick ratio 54.77 39.92 77.41 97.37 87.84 79.31 Interest earned ratio (times) － 2.12 7.28 9.68 6.71 135.59

Operating performance

Accounts receivable turnover (times)

6.11 5.56 5.88 5.68 4.97 5.58

Average collection period 60 66 62 64 73 65 Inventory turnover(times) 8.51 7.67 8.41 9.29 9.02 9.90 Accounts payable turnover (times)

4.47 4.54 4.90 4.52 4.45 4.75

Average days in sales 43 48 43 39 40 37 Property, plant and equipment turnover (times)

1.31 1.40 1.69 1.68 1.43 1.73

Total assets turnover (times)

0.77 0.78 0.87 0.84 0.76 0.94

Profitability

Return on total assets (%) (3.77) 1.72 4.98 2.81 0.68 3.27 Return on stockholders' equity (%)

(16.18) 2.79 10.23 4.69 0.82 5.14

Pre-tax income to paid-in capital (%)

(38.94) 6.20 22.64 14.93 5.02 15.43

Profit ratio (%) (6.18) 1.21 5.06 2.97 0.65 13.78 Earnings per share (NT$) (4.00) 0.57 2.31 1.09 0.19 1.19

Cash flow

Cash flow ratio (%) 21.16 25.25 52.33 73.38 28.75 22.31 Cash flow adequacy ratio(%)

64.93 84.75 129.39 226.97 235.82 240.51

Cash reinvestment ratio(%) 7.83 12.91 14.58 9.86 4.12 3.63

Leverage Operating leverage － 4.77 3.02 3.35 7.78 1.81 Financial leverage － 1.49 1.15 1.08 1.16 1.01

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) 1. Times interest earned ratio decrease mainly due to earthquake issue cause the profitability decrease in 2016. 2. Various ratios of profitability decrease mainly due to earthquake issue and primarily to economy is in a slump,

the profits earned decreased than 2015’s. 3. Cash flow ratio decrease mainly due to earthquake issue cause and profitability decrease in 2016 and cash

provided by operating activities decrease. 4. Various ratios of Cash flow adequacy ratio rose due primarily to the facts that eqrthquake in 2016, and cash

provided by operating activities decrease cause Cash reinvestment ratio decreased. 5. Operating leverage increase mainly due to the earthquake effect in 2016 cause operating profit decrease. Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2:Financial Ratio Formula

1. Financial Structure analysis (1) Debt ratio= Total Liabilities / Total Assets (2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property,

plant and equipment, net 2. Liquidity analysis

(1) Current ratio = Current assets / Current liability (2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability

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(3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense 3. Operating performance analysis

(1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) = Sales / Average trade receivables

(2) Days to collect accounts receivable = 365 / Average collection turnover (3) Average inventory turnover = Cost of goods sold / Average inventories (4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) =

operating costs / Average trade payables (5) Average days to sell inventory = 365 / Average inventory turnover (6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net (7) Total assets turnover = Sales / Average total assets

4. Return on investment analysis (1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets (2) Rate of return on equity = Profit / Average total Equity (3) Profit to sales = Profit / Sales (4) Earnings per share = (Equity attributable to owners of parent - Dividend-preferred stock ) / Weighted

average outstanding shares 5. Cash flow

(1) Cash flow ratio = Net cash provided by operating activities / Current liability (2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense +

Increase in inventories + Cash dividend) (3) Cash flow reinvestment ratio = (Net cash provided by operating activities - Cash dividend) - (Property,

plant and equipment, net + Long-term investments + Other non-current assets + Operating Capital) 6. Leverage

(1) Operating Leverage= (Net sales – Variable cost) / Operating income (2) Financial leverage = Operating income / (Operating income – Interest expenses)

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2. Financial Analysis -Alone Year

Item

Financial analysis in the past five years(Note 1)

2012 2013 2014 2015 2016

Financial structure(%)

Debt Ratio 69.52 60.89 52.75 41.65 41.91 Ratio of long-term capital to property, plant and equipment

111.16 88.26 143.65 168.85 149.97

Solvency(%) Current ratio 61.79 48.11 79.38 92.30 76.91 Quick ratio 46.82 34.07 65.50 71.48 62.14 Interest earned ratio (times) (5.27) 2.03 8.23 9.59 5.40

Operating performance

Accounts receivable turnover (times) 6.16 5.66 6.03 5.82 5.20 Average collection period 59 64 61 63 70 Inventory turnover (times) 9.99 9.62 10.78 11.61 11.47 Accounts payable turnover (times) 3.13 3.11 3.39 3.40 3.55 Average days in sales 37 38 34 31 32 Property, plant and equipment turnover (times)

1.49 1.61 2.00 2.02 1.71

Total assets turnover (times) 0.80 0.80 0.87 0.82 0.73

Profitability

Return on total assets (%) (4.36) 1.65 4.95 2.76 0.65 Return on stockholders' equity (%) (16.35) 2.81 10.30 4.70 0.82 Pre-tax income to paid-in capital (%) (40.04) 4.87 21.78 13.87 3.68 Profit ratio (%) (6.34) 1.22 5.09 3.00 0.65 Earnings per share (NT$) (4.00) 0.57 2.31 1.09 0.19

Cash flow Cash flow ratio (%) 17.11 17.30 44.53 39.11 24.06 Cash flow adequacy ratio (%) 81.66 96.55 153.66 214.96 203.85 Cash reinvestment ratio (%) 7.06 9.34 14.02 5.79 4.25

Leverage Operating leverage － 5.81 3.63 4.12 79.9 Financial leverage － 1.62 1.17 1.11 －

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) 1. Times interest earned ratio decrease mainly due to earthquake issue cause the profitability decrease in 2016. 2. Various ratios of profitability decrease due to the earthquake effect and primarily to economy is in a slump, the

profits earned decreased than 2015’s. 3. Cash flow ratio decrease mainly due to the earthquake effect and profitability decrease in 2016 and cash

provided by operating activities decrease. 4. Cash reinvestment ratio decrease due primarily to the facts that eqrthquake in 2016, and cash in provided by

operating activities decrease cause Cash reinvestment ratio decreased. 5. Operating leverage increase mainly due to the earthquake effect in 2016 cause operating profit decrease. 6. Financial leverage decrease mainly due to the earthquake effect in 2016 cause profit lower than interest fee. Note 1: Financial data by IFRS from 2013,numbers are audited(inculding2012). Note 2:Financial Ratio Formula

1. Financial Structure analysis (1) Debt ratio= Total Liabilities / Total Assets (2) Long-term funds to property, plant and equipment = (Total equity + Non-current liabilities ) / Property,

plant and equipment, net 2. Liquidity analysis

(1) Current ratio = Current assets / Current liability (2) Quick ratio = (Current Assets - Inventories - Prepaid expenses) / Current liability (3) Times interest earned = Profit Before Credit for Income Tax / Current interest expense

3. Operating performance analysis (1) Average collection turnover(Including Accounts Receivable and Notes Receivable from operation) =

Sales / Average trade receivables (2) Days to collect accounts receivable = 365 / Average collection turnover (3) Average inventory turnover = Cost of goods sold / Average inventories (4) Average payment turnover (Including Accounts Payable and Notes Payable from operation) =

operating costs / Average trade payables (5) Average days to sell inventory = 365 / Average inventory turnover (6) Property, plant and equipment turnover = Sales / Average property, plant and equipment, net (7) Total assets turnover = Sales / Average total assets

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4. Return on investment analysis (1) Rate of return on assets = [Profit + Interest expense X (1 - Tax rate)] / Average assets (2) Rate of return on equity = Profit / Average total Equity (3) Profit to sales = Profit / Sales (4) Earnings per share = (Equity attributable to owners of parent - Dividend-preferred stock ) / Weighted

average outstanding shares 5. Cash flow

(1) Cash flow ratio = Net cash provided by operating activities / Current liability (2) Cash flow adequacy ratio = 5-year net cash provided by operating activities / 5-year (Capital expense +

Increase in inventories + Cash dividend) (3) Cash flow reinvestment ratio = (Net cash provided by operating activities - Cash dividend) - (Property,

plant and equipment, net + Long-term investments + Other non-current assets + Operating Capital) 6. Leverage

(1) Operating Leverage= (Net sales – Variable cost) / Operating income (2) Financial leverage = Operating income / (Operating income – Interest expenses)

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6.3 Audit Committee Report in the Most Recent Year

Audit Committee Report

The Board of Directors has duly submitted the 2016 operating report, financial statements,

and table of profit distribution. The financial statements has been duly reviewed and approved by CPAs of PwC Taiwan with the issuance of Independent Auditor’s Report. The Audit Committee have completed the audit and review, and had found nothing inconsistent with any of the above. Therefore, I issue this audit report for acknowledgment in accordance with Securities and Exchange Act and the Company Act. For your approval. To General Shareholders Meeting of the Company in 2017

Audit Committee Chair:Chi-Chia Hsieh

Date: May 10, 2017

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6.4 Consolidated Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report Please refer to page 119 of the annual report.

6.5 Financial Statements for the Years Ended December 31, 2016 and 2015, and Independent Auditors’ Report

Please refer to page 207 of the annual report.

6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial Difficulties: Not applicable.

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VII. Review of Financial Conditions, Operating Results, and Risk Management 7.1 Analysis of Financial Status


Item 2015 2016 Difference

Amount % Current Assets 138,866,987 126,998,131 (11,868,856) (8.55) Fixed Assets 199,482,740 201,360,858 1,878,118 0.94 Intangible assets 19,342,856 18,446,321 (896,535) (4.63) Other Assets 29,749,753 24,674,238 (5,075,515) (17.06)

Total Assets 387,442,336 371,479,548 (15,962,788) (4.12) Current Liabilities 110,471,463 116,165,904 5,694,441 5.15 OtherLiabilities-non-current(1) 44,706,150 29,307,281 (15,398,869) (34.44)

Total Liabilities 155,177,613 145,473,185 (9,704,428) (6.25) Capital stock 99,532,372 99,521,488 (10,884) (0.01) Capital surplus 99,643,564 99,647,810 4,246 － Retained Earnings 30,338,450 30,255,869 (82,581) (0.27) Other equity(2) 2,750,337 (3,418,804) (6,169,141) (224.3) Non controlling equity －－－－

Total Stockholders' Equity 232,264,723 226,006,363 (6,258,360) (2.69) Analysis of changes in financial ratios: 1. Mainly due to increase debt repayment. 2. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and

decrease in Unrealized Gains (Losses) on Available-for-sale financial assets.

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7.2 Analysis of Financial Performance Unit: NT Thousand

Year Item 2015 2016

Difference Amount %

Gross Sales (1) 364,132,984 287,089,277 (77,043,707) (21.16) Cost of Sales 317,492,879 261,000,786 (56,492,093) (17.79) Gross Profit(1) 46,640,105 26,088,491 (20,551,614) (44.06) Operating Expenses 24,209,396 19,675,242 (4,534,154) (18.73) Operating Income(2) 22,430,709 6,413,249 (16,017,460) (71.41) Non-operating Income and Expenses(3) (7,571,522) (1,421,129) 6,150,393 (81.23) Income Before Tax(4) 14,859,187 4,992,120 (9,867,067) (66.40) Tax Benefit (Expense)(5) 4,045,046 3,121,433 (923,613) (22.83) Net income(6) 10,814,141 1,870,687 (8,943,454) (82.70) Other comprehensive income(7) 507,196 (6,152,001) (6,659,197) (1312.94) Total comprehensive income(8) 11,321,337 (4,281,314) (15,602,651) (137.82) Analysis of changes in financial ratios: 1. Manily due to the earthquake effect in 2016 and TFT-LCD industry is in slump, market demand and unit

price decrease. 2. Mainly due to decrease in Gross Profit. 3. Mainly due to decrease in Annual court fees. 4. Mainly due to decrease in Operating Income. 5. Mainly due to decrease in Undistributed Surplus Earnings. 6. Mainly due to decrease in Income Before Tax. 7. Mainly due to decrease in Exchange Differences on Translation of Foreign Financial Statements and

decrease in Unrealized Gains (Losses) on Available-for-sale financial assets. 8. Mainly due to decrease in Net income and Other comprehensive income.

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7.3 Analysis of Cash Flow 7.3.1 Cash Flow Analysis for the Current Year


Items 2016 Analysis

Net cash provided by operating activities

33,399,247 Net cash provided mainly due to depreciation and reasonable control for operating cycle.

Net cash used in investing activities

(40,866,329) Mainly due to additions to property, plant and equipment.

Net cash used in financing activities

(6,776,598) Mainly due to bank loan repayment and cash dividends

7.3.2 Cash Flow Analysis for the Coming Year

Unit: NT Thousand Estimated Cash

and Cash Equivalents,

Beginning of Year (1)

Estimated Net Cash Flow from

Operating Activities (2)

Estimated Cash Outflow (Inflow)

(3)

Cash Surplus (Deficit)

(1)+(2)+(3)

Leverage of Cash Surplus (Deficit)

Investment Plan Financing Plan

36,053,000 83,633,000 53,107,000 66,579,000 －－ 2017 Analysis of changes in cash flow

Operating Activities: Net Cash inflow due to expected the average selling price for panels will stay high level and lower production cost continually Investing Activities: Net cash outflow due to overcome difficulties continually and capital expenditure for new techniques Financing Activities: Net cash outflow mainly due to bank loan repayment. Remedy Actions for Cash Shortfall: None

7.4 Major Capital Expenditure Items Capital Expenditures in 2016 focus on high-precision, high aperture ratio, yield quality

improvement,Generation 8.6, LTPS and Green environmental protection, Total amount approximately 44,152,843 thousand.

7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement Plans

and the Investment Plans for the Coming Year In terms of outward investment, the Company focused on the up- and down-streams of

TFT-LCD industries to assure effective vertical itnegration as the final objectives. Given the worsening fluctuation of panel industry and the mature development of the industrial chains, the Company held a policy of being increasingly conservative. Other than the effortswe try to refrain from investing toward the businesses irrelevant to the Company’s principal business, the Company disposed non-core investment and investment insignificant in strategies.

In the consolidated financial report of the Company in 2016, the investment gain recognized in equity method came to NT$187,454 thousand, thanks primarily to the upturn of the overall economy where the business performance of the invested businesses turned better. Some outward investments appeared at a loss. Overall, the performance with the Company’s outward reinvestments have been well up to our expectation and have been continually integrated with our business development.

7.6 Analysis of Risk Management 7.6.1 Effects of Changes in Interest Rates, Foreign Exchange Rates and Inflation on

Corporate Finance, and Future Response Measures

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1. Interest rate The domestic economic continuing growth but International Politics and Economics changes, the Trump government, the future policy of United State and Economics of China will influence the economic of goable. The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan anticipated the economic growth rate (yoy) by 2017 would hit 1.87%, 1.35% outgrew the annual rate of 2015 at 0.52%. Given the factors of economic growth and commodity prices, the Central Bank would maintain an easy interest rate policy in 2017. To prevent an increase in the Company’s loan costs as a result of an adjustment of currency policy and rise in interest rate in the market, the Company would undertake interest swap transactions in due time over the current loans in floating interest rates so as to evade the risks of the change in cash flow possibly incurred by fluctuation of interest rate.

2. Foreign exchange rates a. To prevent a potential disadvantage to the foreign currencies in input, ouput,

investment and financing activities to the Company’s assets, liabilities values, operating results due to fluctuation in exchange rates, the Company, in due time, would undertake forward foreign exchange to evade potential risks in fluctuation in exchange rates.

b. The Company adopted Natural Hedge in principle to evade exchange rate risks by taking the revenues from sales in foreign currencies to pay off required foreign currencies. We, therefore, only undertook the hedge transaction aiming at the positions of net assets or liabilities in foreign currencies.

c. In the Company, over 90% of the operating revenues came from U. S. Dollars and other foreign currencies. For capital expenditures and manufacturing costs, the primary demand for foreign currencies came from U. S. Dollars and Japanese yen. Any unfavorable significant change in exchange rate would lead to a passive impact upon the financial profit and/or loss. In calculation with the Company’s output and marketing as well as cost structure in 2016, where the New Taiwan Dollars is appreciated by 1% over U. S. Dollars, the Company’s gross profit would drop 0.4%~0.55%.

3. Inflation

Due to the weather conditions and typhoons, foods prices rose high in 2016 and the international oil prices rebounded, oil charges increased, forecast 2016 rose at 1.31% and 2017 at 0.75%. The high-speed inflation and deflation would interfere with the efficiency in the markets; discourage investment, consumption, savings and such behaviors. To prevent potential impact on the negative aspect from high speed inflation which would, in turn, dampen investment, consumption and savings, the communications has tried by all means of lower various costs to enhance competitive edge and would be closely watchful the change in the supply and demand in the market, to flexbly adjust product portfolio to closely live up to actual demand in the market.

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7.6.2 Policies, Main Causes of Gain or Loss and Future Response Measures with Respect to High-risk, High-leveraged Investments, Lending or Endorsement Guarantees, and Derivatives Transactions

1. The Company had not engaged in highly risky and high financial leverage investment. Exactly as required by the Securities and Futures Bureau, Financial Supervisory Commission, Executive Yuan and the laws and ordinances concerned, we have set up wholesome financial and operating grounds in the managerial regulations and operating procedures, including “Procedures to Engage in Transaction and Disposal of Derivatives”, “Procedures for Loaning of Funds to Others” and “Operating Procedures of Endorsements/Guarantees”.

2. In an attempt to control potential risks in finance, we hold a very wholesome and conservative principle in derivative financial instruments to primarily evade the potential risks of the exchange rates in the substantial positions incurred by input, output and financing activities. In the days and years ahead, we shall stick to such same principle to coordinate with the trends of exchange rates and interest rates as well as the Company’s business operation, we shall adjust the financial risk management in real time in accordance with laws and ordinances concerned, internal managerial rule and operating procedures.

7.6.3 Future Research & Development Projects and Corresponding Budget In terms of the technical development in the future, the Company will continually aim at the development in the monitor application regions. Primarily, we would aim at broad vision TFT LCD monitor technology & know-how to upgrade the contrast and dues in TFT LCD; upgrade of the high penetrating TFT LCD know-how in the optical utilization rate; ultra dimension TFT LCD monitoring technology & know-how; high solution, high brightness, narrow frame TFT LCD moules; in high solution, high brightness, high temperature, low energy consumption. TFT LCD bare-eye monitor know-how upgrade into stereo display effect, rightness monitor technology & know-how, built-in touch panel technology & know-how (TOD, TID, Hybrid) , attachment process technology & know-how & automatic or self-assembly technology. In 2016, the Company invest research & development funds in amount 11,132,079 thousand, the amount will hit 14 billion in 2017, we shall continually invest in technical research & development and boost competitive edge.

7.6.4 Effects of and Response to Changes in Policies and Regulations Relating to Corporate Finance and Sales As of the Annual Report’s publication date, there has been no adversely impact on financial or business due to any policy and law changed. All the Company’s teammates would be closely watchful of potential changes in major policies and laws and ordinances concerned at home and abroad and set up legal personnel to help such issues. Through such efforts, we shall be able to take right countermeasures in real-time to minimize the potential impact upon the Company’s financial standing which might be incurred by major policies at home and abroad and change in laws.

7.6.5 Effects of and Response to Changes in Technology and the Industry Relating to Corporate Finance and Sales

1. Technology Change The TFT-LCD industry is challenged by the constantly upgraded know-how and new products while the mainstream products are being replaced by new generation at a quickening pace. Should we fail to deal with the impact incurred by the change in science and technology, that would be an impact upon the business and financial standing on the seamy sides. Since the Company first came into being, we have spared no effort to accumulate the technical capability of TFT-LCD displays to deal with the impact incurred by the change in science and technology. Other than investment in high level research & development toward high display quality, high solution, broad vision angles, high open

106

rates, quick response, thin and light designs, narrow frames, ultra energy conservaton,flexible display and such technology & know-how, we have, as wll, tried to develop low temperature LTPS,Oxide and organic lighting display OLED and such technology & know-how to assure firm competitive edge and effective growth in the Company’s business and financial standing.

2. Industry Change TFT-LCD features high economic cycle and drastic fluctuation. Any sort of economic trend drop might lead to a shock to the Company’s business operation on the seamy side. Here at the Company, all our teammates would be closely watchful of fluctuation that might hit the Company ito passive aspect and work out sound countermeasures beforehand. In terms of financial operation, we adopt sound and stable financial operation to deal with potential fluctuation in the businesses.

7.6.6 The Impact of Changes in Corporate Image on Corporate Risk Management, and the Company’s Response Measures Faithful law compliance, focus on shareholders’ equity represent the very bounden duties to the Company’s management. In case of a contingence, the Company’s ranking department head would serve as the emergency convener to immediately set up the Crisis Task Force ti defuse the crisis forthwith. As of the Annual Report’s publication date, there has been no event that adversely impact in Innolux’s corporate image and impact on corporate risk management.

7.6.7 Expected Benefits from, Risks Relating to and Response to Merger and Acquisition Plans At the moment, the Company has no plan to launch a merger with another enterprise. Toward potential strategic investment or vertical integration, and the cost benefit and the potential risk so arising, the Company’s management would conduct appropriate evaluation and evasion as appropriate.

7.6.8 Expected Benefits from, Risks Relating to and Response to Factory Expansion Plans We all have those related technical groups to perform the professional feasibility assessment for expansion and build out of new generation factory

7.6.9 Risks Relating to and Response to Excessive Concentration of Purchasing Sources and Excessive Customer Concentration There is no risk associated with excessive customer concentration, due to the plenty production line and the main customers are international brand manufacturers. Innolux’s usually have two or more suppliers for main material. Therefore there is no risk associated with excessive concentration of purchasing. We will keep developing new products and new customers in the future and seeking for the better quality and the lower cost of purchase sources to reduce the risk of excessive customer concentration or excessive purchasing concentration.

7.6.10 Effects of, Risks Relating to and Response to Large Share Transfers or Changes in Shareholdings by Directors, Supervisors, or Shareholders with Shareholdings of over 10% As of the date of this Annual Report, there were no such risks for Innolux.

7.6.11 Effects of, Risks Relating to and Response to Changes in Management Rights As of the date of this Annual Report, there were no such risks for Innolux.

7.6.12 Litigation or Non-litigation Matters

1. The lawsuits, non-contentious cases, administrative litigation that are decided by the court or still in proceeding in recent years until this report was issued.

(1) Former Chi Mei Optoelectronics Corporation, CMO Japan Co. Ltd. CMO UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics U.S.A. Inc. were inquired by the U.S. Department of Justice in December 2006 regarding to their

107

being suspected of involving violating Antitrust Laws. The company had reached agreement with the U.S Department of Justice and had paid all fines. Brazil Government also conducted investigation which is still pending. Some U.S. state governments, retailers and end consumers individually or collectively brought civil lawsuits against certain panel manufacturers. The company has settled all these cases.

(2) Eidos Display, LLC and Eidos III, LLC (below as Eidos) had brought a suit to Eastern District Court of Texas in April 25, 2011, to accuse certain products of Innolux and its US branch’s infringes its patent rights. The summary judgment，

which decided the invalidation of Eidos’ patent rights, of this case had been issued by the administrative judge in December 2013 and the judge of this case had confirmed the summary judgment in January 2014. Eidos had appealed to the United States courts of appeals in February 2014. The United States courts of appeals made decision to rejected and remanded to the district court in March 2015. The company has a form to United States courts of appeals and raise defences actively. The United States courts of appeals rejected INX’s request in June 2015. The company has a form to US Supreme Court and made petition for writ of certiorari on September 2015, but rejected by US Supreme Court on November 2015. The final judgment depends on the suit proceedings and can’t be certain; therefore, this case doesn’t influence Innolux’s business and finance in short order.

2. Board members, monitors, CEO, responsible person in fact, shareholders and their companies holding more than 10% shares that involved in lawsuits, non-contentious cases, administrative litigation that were decided by the court or still in proceeding in recent years until this report was issued and might cause major influence on Innolux stockholder's equity and securities price: None.

7.6.13 Other Major Risks:None. 7.7 Other Important Matters: None.

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VIII. Special Disclosure 8.1 Summary of Affiliated Companies

109

8.1.2 Innolux Subsidiaries December 31, 2016

Company Date of

Incorporation Address Capital Stock Business Activities

Asiaward Investment Ltd.

Jan 9, 2008 Room 1701, 111 Leighton Road, Causeway Bay, Hong Kong

USD 10,000,000 Controlling Company

Best China Investments Ltd.

Jan 3, 2007 Offshore Chambers, P.O. Box,217, Apia, Samoa


Bright Information Holding Ltd.

Nov 26, 2008

Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.


Golden Achiever International Limited

Sept 30, 2005 Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands

USD 40,250 Controlling Company

InnoLux Corporation Nov 22, 2004 2525 Brockton Drive, Suite 300, Austin, TX 78758

USD 200,000 Sales company

Innolux Holding Ltd. Feb 28, 2002 Offshore Chambers, P.O. Box,217, Apia, Samoa.


Innolux Hong Kong Holding Limited

Dec 14, 2005

Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong

HKD 1,158,844,000 Controlling Company

Innolux Hong Kong Limited

Feb 15, 2006


HKD 113,729,000 Entrepot trade company

Innolux Optoelectronics Europe B.V.

Nov 29, 2004 Jupiterstraat 106, 2132 HE Hoofddorp,The Netherlands

EUR 18,000 Operating electronics parts and LCD display import and export sale

Innolux Optoelectronics Germany GmbH

Mar 02, 2006 Hanns-Martin Schleyer Strasse 9b-9c,47877 Willich-Munchheide

EUR 25,000

Operating electronics parts and LCD display import and export sale and after service

Innolux Optoelectronics Hong Kong Holding Ltd.

Nov 16, 2001


HKD 162,897,802 Controlling Company

Innolux Optoelectronics Japan Co., Ltd.

Aug 20, 1991

8F, kowa kawasaki-nishiguchi Bldg., 66-2 horikawa-cho, Saiwai-ku, Kawasaki-City, Kanagawa 212-0013, Japan

JPY 314,258,270 Operating TFT-LCD development, manufacture and sales

Innolux Optoelectronics USA, INC.

May 9, 2002 101 Metro Drive Suite 510,San Jose,CA95110, U.S.A

US$6,000,000 Operating electronics parts and computer display sale

Innolux Technology Europe B.V.

Mar 8, 2006 Stationstraat 39G, 6411NK, Heerlen, The Netherlands

EUR 37,581,000

Controlling Company of Researching, developing and Testing

Innolux Technology Germany GmbH

Feb 17, 2006 Kaiserswerther Strasse 115,D-40880 Ratingen, Germany

EUR 100,000 Testing & Maintenance Company

Innolux Technology Japan Co., Ltd.

Mar 1, 2005 1-1-1, Ibukidaihigashimachi, Nishi-ku, Kobe-city, 651-2242, Japan

JPY 146,570,164 Distributor

Innolux Technology USA Inc.

Apr 12, 2006 2300 North Barrington Road, Suite 400, Hoffman Estates, IL 60169, USA

USD 1,000 Sales company

Keyway Investment Management Limited

Mar 30, 2005 Portcullis TrustNet Chambers, P.O Box 1225, Apia, Samoa


Lakers Trading Ltd. Jun 4, 2004 Offshore Chambers, P.O. Box,217, Apia, Samoa

USD 1 Entrepot trade company

110

Company Date of


Landmark International Ltd.

Apr 24, 2003 Offshore Chambers, P.O.Box 217, Apia, Samoa


Leadtek Global Group Limited

Mar 30, 2005 P.O. Box 3444,Road Town,Tortola,BVI

USD 50,000,000 Entrepot trade company

Magic Sun Ltd. Nov 10, 2009 Offshore Chambers, P.O. Box,217, Apia, Samoa

US$38,000,000 Controlling Company

Main Dynasty Investment Ltd.

Dec 06, 2007 Room 1701, 111 Leighton Road, Causeway Bay, Hong Kong


Mega Chance Investments Ltd.

Jan 3, 2007 Offshore Chambers, P.O. Box 217, Apia, Samoa


Nets Trading Ltd. May 2, 2008 Offshore Chambers, P.O. Box 217, Apia, Samoa

USD900,001 General Investment Industry

Rockets Holding Ltd. Dec 18, 2002 Offshore Chambers, P.O. Box,217, Apia, Samoa


Stanford Developments Ltd.

Aug 12, 1999 Offshore Chambers, P.O. Box,217, Apia, Samoa


Sun Dynasty Development Ltd.

Nov 6, 2009 Room 1701, 111 Leighton Road, Causeway Bay, Hong Kong


Suns Holding Ltd. Dec 18, 2006 Offshore Chambers, P.O. Box,217, Apia, Samoa


Toppoly Optoelectronics (B.V.I.) Ltd.

Jul 17, 2001 CITCO Building, P.O. Box 662, Road Town, Tortola , British Virgin Islands.


Toppoly Optoelectronics (Cayman) Ltd.

Jul 17, 2001

89 Nexus Way, Camana Bay, P. O. Box 31106, Georgetown Grand Cayman KY1-1205, Cayman Islands


Warriors Technology Investments Ltd.

Jan 3, 2007 Offshore Chambers, P.O. Box,217, Apia, Samoa

US$18,177,052 Investment activities

Shanghai Innolux Optoelectronics Ltd.

Jan 9, 2006

No. 272-2, Ba Sheng Road, New Customs, Wai Gao Qiao Free Trade Zone, 200131 Pudong, Shanghai, China

USD 21,000,000

Manufacturing & selling LCD back end module related technologies and products.

Yuan Chi investment co., Ltd

Jul 6, 2005 No.8, Zhongxin Rd., Xinshi Dist., Tainan City 74148, Taiwan (R.O.C.)

NTD 2,100,000,000 Investment activities

Foshan Innolux Flnet Electronics Ltd.

Oct 24, 2016

No. 18 dorm B Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, China

CNY 1000,000 Goods Sale

Foshan Innolux Optoelectronics Ltd.

Apr 21, 2006

Xingye North Rd., Foshan Science & Technology Industry Garden, Foshan, Guangdong, 528325, China

USD 383,000,000


Foshan Innolux Logistics Ltd.

Jul 17, 2008 North Factory, Xingye Rd., Nanhai Economic Zone, Foshan, Guangdong, 528325, China

USD 1,500,000 Storage services

VAP Optoelectromics (NanJing) Corp.

Mar 29, 2007

No. 8, Jiu Zu Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 10,100,000


Kunpal Optoelectronics Ltd.

Jan 9, 2009

No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 4,000,000 Thinner glass process service

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Company Date of


Nanjing Innolux Technology Ltd.

Oct 24, 2007


USD 2,100,000 Business of display and related product.

Nanjing Innolux Optoelectronics Ltd.

May 23, 2001


USD 142,000,000


InnoJoy Investment Corp.

Jun 26, 2007 No.8, Zhongxin Rd., Xinshi Dist., Tainan City 74148, Taiwan (R.O.C.)

NTD1,674,053,920 Investment activities

Innocom Technology (Shenzhen) Co., LTD

Jun 24, 2004

1F, Zone 4, G2 Zone 2F A region, 3F, 4F and 5F Foxconn Technology Industrial Park E, Bao'an District, Shenzhen City, Guangdong Province, China

USD 164,000,000


Ningbo Innolux Flnet Electronics Ltd.

Oct 17, 2016 No.8, Cao E River Rd., Ningbo Bonded Zone Building 2 1f

CNY 1,000,000 Goods Sales

Ningbo Innolux Electronics Ltd.

Nov 04,2015 No.8, Cao E River Rd., Ningbo Bonded Zone Building 2 2F

CNY 30,000,000

Selling LCD back end module related technologies and products.

Ningbo Innolux Optoelectronics Co., LTD

Dec 14, 2004 No.16, YangZi River North Rd., Ningbo Export Processing Zone, 315800, China

USD 310,000,000


Ningbo Innolux Display LTD

Dec 05, 2006 No.8, Cao E River Rd., Ningbo Bonded Zone

USD 160,000,000


Ningbo Innolux Logistics LTD

Dec 05, 2006 No.8, Alishan Road, Ningbo Export Processing Zone, China

USD 4,000,000 Storage services

8.1.3 Shareholders in Common of INX and Its Subsidiaries with Deemed Control and

Subordination: None. 8.1.4 Business Scope of INX and Its Subsidiaries:

The company and its subsidiary operating business include the development, manufacture, after service and sale of TFT-LCD. By the layout of globalization, combine the distribution of Taiwan and China production base; provide downstream manufacturer or panel module manufacturer to have high flexibility supply capacity. There are a small number of affiliated companies are setting investment business as operating scope, to strength vertical integration and strategy investment and coordinate the company’s future operation.

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8.1.5 Rosters of Directors, Supervisors, and Presidents of INX’s Subsidiaries: As of 12/31/2016

Company Title Name Shareholding

Shares % (Investment Holding)(Note)

Asiaward Investment Ltd. Chairman Chien-Lang Lo - - Best China Investments Ltd. Chairman Chien-Lang Lo - -

Bright Information Holding Ltd. Chairman Jyh Chau, Wang - - Director Chao-Hsien Liu - - Director Jun-Yi Yu - -

Golden Achiever International Limited

Chairman Chao-Hsien Liu - -

InnoLux Corporation Chairman Nai-Hsun Kuo - - Innolux Holding Ltd. Chairman Jyh Chau, Wang - -

Innolux Hong Kong Holding Limited

Chairman Jyh Chau, Wang - - Director Chao-Hsien Liu - - Director Jun-Yi Yu - -

Innolux Hong Kong Limited Chairman Jyh Chau, Wang - - Director Pei-Yu Lu - - Director Nai-Hsun Kuo - -


Chairman Chin-Yuan Chang - -


Chairman Chin-Yuan Chang - -


Chairman Jyh Chau, Wang - - Director Shu-Mei He - - Director Jun-Yi Yu - -


Chairman Makoto Kaneda - - Director Chu-Hsiang Yang - - Director Ching-Lung Ting - - Supervisor Kida Masukichi - - Supervisor Jun-Hao Peng - - Supervisor Chin-Yuan Chang - -

Innolux Optoelectronics USA, INC.

Chairman Junichi Ishi - - Director Makoto Kaneda - - Director Sato Takahiro - -

Innolux Technology Europe B.V. Chairman Tien-Jen Lin - -

Director van Riel, Lucien Franciscus Henricus

- -


Chairman Jyh Chau, Wang - -

Director van Riel, Lucien Franciscus Henricus

- -

Director Adrianus Gosuinus Marie Kersten

- -


Chairman Taruda Kiyoshi - - Director Jun-Hao Peng - - Director Chu-Hsiang Yang - - Supervisor Chin-Yuan Chang - -

Innolux Technology USA Inc. Chairman Tien-Jen Lin - - Director Brant White - -



Lakers Trading Ltd. Chairman Chih-Hung Hsiao - - Landmark International Ltd. Chairman Jyh Chau, Wang - - Leadtek Global Group Limited Chairman Jyh Chau, Wang - - Magic Sun Ltd. Chairman Chien-Lang Lo - - Main Dynasty Investment Ltd. Chairman Chien-Lang Lo - - Mega Chance Investments Ltd. Chairman Chien-Lang Lo - -

113



Nets Trading Ltd. Chairman Xi-Xiang Hsu - - Rockets Holding Ltd. Chairman Chih-Hung Hsiao - - Stanford Developments Ltd. Chairman Chih-Hung Hsiao - - Sun Dynasty Development Ltd. Chairman Chien-Lang Lo - - Suns Holding Ltd. Chairman Chih-Hung Hsiao - - Toppoly Optoelectronics (B.V.I.) Ltd.





Chairman Chih-Hung Hsiao - -

Shanghai Innolux Optoelectronics Ltd

Chairman Zhi-Yuan Tsai - - Director Chin-Yuan Chang - - Director Jun-Yi Yu - -


Chairman Innolux Corporation Representative - Jyh-Chau Wang

- 100%

Director Innolux Corporation Representative – Chien-Lang Lo

- 100%

Director Innolux Corporation Representative - Chih-Hung Hsiao

- 100%


Chairman Hai-Jun Lee - - Supervisor Hua-Rui LIN - -


Chairman Qing-Hui Lin - - Director Xiao-Min Quyang - - Director Jun-Yi Yu - - Supervisor Chin-Yuan Chang - -


Chairman Qing-Hui Lin - - Director Qiong Gu - - Director Kuei Wang - - Supervisor Chin-Yuan Chang - -


Chairman Shi-Xian Hsu - - Director Chin-Yuan Chang - - Director Nai-Hsun Kuo - - Supervisor Kun Ma - -


Chairman Shi-Xian Hsu - - Director Jun-Yi Yu - - Director Chin-Yuan Chang - - Supervisor Kun Ma - -


Chairman Shi-Xian Hsu - - Director Chin-Yuan Chang - - Director Chih-Chiang Lu - - Supervisor Kun Ma - -


Chairman Shi-Xian Hsu - - Director Chin-Yuan Chang - - Director Jun-Yi Yu - - Supervisor Kun Ma - -

InnoJoy Investment Corp

Chairman INX Representative - Chih-Hung Hsiao

167,405,392 100%

Director INX Representative - Jyh Chau, Wang

167,405,392 100%

Director INX Representative - Chien-Lang Lo

167,405,392 100%

Supervisor INX Representative Chin-Yuan Chang-

167,405,392 100%

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Innocom Technology (Shenzhen) Co., LTD

Chairman Zhen-Da chiu - - Director Jun-Yi Yu - - Director Chin-Yuan Chang - -


Chairman Jia-Lin Chen - - Supervisor Kun Ma - -

Ningbo Innolux Electronics Ltd. Chairman Cheng-Chung Chiang - - Director Chao-Hsien Liu - -


Chairman Kuo-Hsiung Kuo - - Director Chien-Lang Lo - - Director Cheng-Chung Chiang - - Supervisor Chin-Yuan Chang - -





Note:Innolux 100% own or investment.

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8.1.6 Operational Highlights of INX Subsidiaries

Unit: NT$ thousands, 12/31/2016

Company Capital Stock

Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share

Asiaward Investment Ltd. 323,617 261,686 - 261,686 - - 238 - Best China Investments Ltd.

322,500 523,372 261,686 261,686 - - 238 0.02

Bright Information Holding Ltd.

158,348 103,788 416 103,372 - (444) (6,715) (1.37)

Golden Archiever International Limited

1,298 61,422 - 61,422 - - 149 3.70

InnoLux Corporation 6,450 61,986 154,612 (92,626) - (1,389) (1,388) (694.08) Innolux Holding Ltd. 7,958,274 18,523,142 - 18,523,142 - - 136,022 0.55 Innolux Hong Kong Holding Limited

4,818,473 3,341,269 - 3,341,269 - - 581,552 0.50

Innolux Hong Kong Limited

472,885 10,413,552 11,991,089 (1,577,537) 24,691,325 251,616 235,251 6.72


610 144,762 19,231 125,531 131,726 2,782 221 1,226.56


848 13,593 802 12,791 - - (3,467) (13,869.22)


677,329 1,253,619 - 1,253,619 - - 295,151 1.81


86,610 1,899,841 351,168 1,548,673 2,387,770 24,601 34,739 434,238.49

Innolux Optoelectronics USA, Inc.

193,500 370,551 85,762 284,789 643,134 19,001 11,954 11,953.90


1,273,996 2,305,930 116,177 2,189,753 649,885 39,021 36,358 96.75


3,390 83,457 27,113 56,344 32,742 1,398 554 5.54


40,395 1,781,848 63,269 1,718,579 347,121 22,066 1,203 5,982.88

Innolux Technology USA Inc.

32 480,830 107,585 373,245 964,865 29,088 16,126 16,126.00


182,419 257,392 - 257,392 - - 46,660 8.25

Lakers Trading Ltd. - 53,776,139 53,530,440 245,699 53,205,979 (165) - - Landmark International Ltd.

22,879,763 45,930,198 - 45,930,198 - - 3,833,333 5.40


1,612,500 27,732,157 28,055,130 (322,973) 20,762,472 1,152,258 (94,225) (1.88)

Magic Sun Ltd. 1,225,500 2,148,222 1,074,111 1,074,111 - - 975 0.03 Main Dynasty Investment Ltd.

580,556 430,951 - 430,951 - - 391 -


580,500 861,902 430,950 430,952 - - 391 0.02

Nets Trading Ltd. 29,025 29,966 - 29,966 - - - - Rockets Holding Ltd. 7,304,772 13,988,464 - 13,988,464 - - 16,326 0.07 Stanford Developments Ltd.

5,289,000 12,191,671 41 12,191,630 - - 14,721 0.09

Sun Dynasty Development Ltd.

1,230,639 1,074,111 - 1,074,111 - - 975 -

Suns Holding Ltd. 586,210 4,381,595 - 4,381,595 - - 121,085 6.66 Toppoly Optoelectronics (B.V.I.) Ltd.

4,735,816 6,717,910 - 6,717,910 - - 426,811 2.91

116

Company Capital Stock

Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share


4,734,848 6,717,534 -

6,717,534 - - 426,811 2.91


586,210 4,381,593 - 4,381,593 - - 121,085 6.66


677,250 4,436,036 3,182,417 1,253,619 16,242,486 342,846 295,151 -


2,100,000 922,722 193 922,529 - (305) (167,476) -


4,649 5,317 669 4,648 - (2) (1) -


12,351,750 52,929,761 32,738,936 20,190,825 73,014,604 2,082,854 2,031,410 -


48,375 77,255 6,524 70,731 63,953 8,819 8,289 -


325,725 69,954 8,936 61,018 - (131) 149 -


129,000 68,464 4,335 64,129 - (4,648) (1,546) -


67,725 889,167 340,207 548,960 886,628 2,350 (9,041) -


4,579,500 12,549,759 6,445,338 6,104,421 14,276,033 347,490 437,398 -

InnoJoy Investment Corp. 1,674,054 1,246,923 114 1,246,809 - (227) (76,420) (0.46) Innocom Technology (Shenzhen) Co., LTD

5,289,000 12,636,049 444,432 12,191,617 824,298 (382,230) 14,721 -


4,649 4,692 341 4,351 77 (312) (311) -


139,470 313,126 68,249 244,877 280,535 144,303 110,209 -


9,997,500 36,323,851 14,514,499 21,809,352 45,389,195 960,861 1,348,182 -


5,160,000 12,720,206 8,791,398 3,928,808 23,558,491 484,857 451,215 -


129,000 186,558 4,807 181,751 - (24,603) 38,371 -

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8.2 Private Placement Securities in the Most Recent Years:

It has been approved by the Annual General Shareholders' Meeting held on 24 June, 2016 to

authorize the Board of Directors, within the limit of 950,000,000 common shares, depending on

the market conditions and the Company's capital needs, to choose appropriate timing and one or

more fund raising instruments to issue new common shares for cash to sponsor issuance of new

common shares/ Preferred Stock for cash in private placement and/or overseas or domestic

convertible bonds in private placement in accordance with the applicable laws and regulations.In

consideration of the capital market situation, the Company will not continue with the above

private placement.

8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: None.

8.4 Special Notes: None.

118

IX. Materially might affect shareholders' equity or the price of the company's securities, has occurred during the most recent fiscal year or during the current fiscal year up to the date of printing of the annual report, such situations shall be listed one by one: None.

119

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Co., Ltd.

Opinion

We have audited the accompanying consolidated balance sheets of Innolux Corporation (the

“Company”) and its subsidiaries as at December 31, 2016 and 2015, and the related consolidated

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 consolidated financial statements present fairly, in all material

respects, the consolidated financial position of the Company and its subsidiaries as at December 31,

2016 and 2015, and its consolidated financial performance and its consolidated cash flows for the

years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports

by Securities Issuers” and International Financial Reporting Standards, International Accounting

Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the Financial Supervisory

Commission.

Basis for opinion

We 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 and its subsidiaries 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 matters

Key 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.

Valuation and impairment of goodwill and property, plant and equipment

Description

For details of the impairment valuation of goodwill and property, plant and equipment, please refer to

Note 6(11). As of December 31, 2016, goodwill and property, plant and equipment amounted to

120

NT$17,096,628 thousand and NT$201,360,858 thousand, respectively.

Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining

whether goodwill and property, plant and equipment may be impaired, the recoverable amount of the

cash generating unit is measured based on how assets are utilized, duration years of assets and

projected income and expenses in the future. The estimate involves several assumptions such as

determination of discount rates, expected growth rate and future financial projections. As these

estimates are dependent upon significant management judgement, we consider management’s

assessment of impairment of goodwill and property, plant and equipment a key audit matter. How our audit addressed the matter

We assessed the key assumptions used by management in estimating expected future cash flows,

including the reasonableness of expected operating revenue, gross profit, changes in expenses, and the

basic assumptions applied in expected future cash flows. We also examined the parameters of discount

rates, including the risk-free rate of return on equity capital, the risk factor of the industry and the rate

of return on similar investments in the market. Additions to property, plant and equipment

Description

The Company’s capital expenditures increased with its operational growth. In 2016, property, plant and

equipment increased by NT$43,518,455 thousand, which was 12% of total assets of the Company. For

details of property, plant and equipment, please refer to Notes 6(9) and (28). As the amount of

property, plant and equipment is material, we identified the additions to property, plant and equipment

a key audit matter.

How our audit addressed the matter

We assessed and tested the effectiveness of internal controls related to additions to property, plant and

equipment, including sampling and checking purchase orders and invoices as to whether the

transactions have been approved appropriately and the correctness of the recorded amounts. We also

checked the related receipts or acceptance documents to ensure that additions are recognized in

appropriate period. In addition, through sampling method, we conducted physical inspection of certain

assets to confirm that the purchased items exist.

Estimation of significant disaster insurance claim

Description

As described in Note 10, some of the Company’s inventory, building and equipment were damaged

during the earthquake in Kaohsiung, Taiwan on February 6, 2016. The Company is in the process of

claiming insurance for the damages. The determination of the claim amount involves critical

accounting judgements and estimates by the management, including the list of losses incurred which

121

are covered by insurance and evaluation of replacement cost. Given the significance of the claim, we

consider the estimation of disaster insurance claim a key audit matter.

How our audit addressed the matter

Our procedures in relation to estimation of disaster insurance claim included:

A. Checking assets insurance contracts with the insurance company, and confirming whether the

inventory, building and equipment damaged during the earthquake are covered by insurance;

B. Obtaining the claims list, damaged inventory, building and equipment lists, and verifying the

damaged inventory and building list, selecting samples and cross comparing the data for

completeness and accuracy and checking the accuracy of accounting records and amount of disaster

loss;

C. Assessing the reasonableness of replacement cost of inventory, building and equipment which were

estimated by management, selecting samples and verifying the estimates against original documents;

and

D. Assessing the reasonableness of claim amount which was estimated by the management based on

losses list and replacement cost.

Other matter – Parent company only financial reports

We have audited and expressed an unqualified opinion on the parent company only financial

statements of Innolux Co., Ltd. as at and for the years ended December 31, 2016 and 2015.

Responsibilities of management and those charged with governance for the consolidated financial statements

Management is responsible for the preparation and fair presentation of the consolidated financial

statements in accordance with the “Regulations Governing the Preparation of Financial Reports by

Securities Issuers”, and 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 consolidated financial statements that are free from material misstatement, whether due

to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the

Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern and using the going concern basis of accounting unless management either intends to liquidate

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

122

Those charged with governance, including audit committee, are responsible for overseeing the Group’s

financial reporting process.

Auditor’s responsibilities for the audit of the consolidated financial statements

Our objectives are to obtain reasonable assurance about whether the consolidated financial statements

as a whole are free from material misstatement, whether due to fraud or error, and to issue an 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 consolidated 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 consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and

obtain audit 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 Group’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 Group’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 consolidated 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 Group to

cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements,

including the disclosures, and whether the consolidated financial statements represent the

underlying transactions and events in a manner that achieves fair presentation.

123

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Group to express an opinion on the consolidated financial

statements. We are responsible for the direction, supervision and performance of the group audit.

We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned

scope and timing of the audit and significant audit findings, including any significant deficiencies in

internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant

ethical requirements regarding independence, and to communicate with them all relationships and

other matters that may reasonably be thought to bear on our independence, and where applicable,

related safeguards.

From the matters communicated with those charged with governance, we determine those matters that

were of most significance in the audit of the consolidated financial statements of the current period and

are therefore the key audit matters. We describe these matters in our 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.

PricewaterhouseCoopers, Taiwan

February 10, 2017

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

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

124

December 31, 2016 December 31, 2015 Assets Notes AMOUNT AMOUNT

Current Assets

1100 Cash and cash equivalents 6(1) $ 35,384,839 $ 52,522,790

1110 Financial assets at fair value

through profit or loss - current

6(2)

64,241 120,036

1170 Accounts receivable, net 6(5)(6) 52,855,632 48,189,791

1180 Accounts receivable, net - related

parties

7

11,599,359 2,632,853

1200 Other receivables 7 2,034,427 2,024,204

130X Inventory 6(7) 23,401,728 30,198,432

1410 Prepayments 1,552,373 1,107,869

1476 Other financial assets - current 6(1) and 8 6,724 1,979,467

1479 Other current assets 98,808 91,545

11XX Total current assets 126,998,131 138,866,987

Non-current assets


through profit or loss - non-current

6(2)

250,101 281,922

1523 Available-for-sale financial assets

- non-current

6(3)

5,840,929 7,123,034

1550 Investments accounted for under

equity method

6(8)

1,517,418 1,610,586

1600 Property, plant and equipment 6(9), 7 and 8 201,360,858 199,482,740

1760 Investment property, net 6(10) 573,425 680,503

1780 Intangible assets 6(11) and 8 18,446,321 19,342,856

1840 Deferred income tax assets 6(26) 14,698,143 15,888,467

1990 Other non-current assets 6(9) and 8 1,794,222 4,165,241

15XX Total non-current assets 244,481,417 248,575,349

1XXX Total assets $ 371,479,548 $ 387,442,336

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

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

125

December 31, 2016 December 31, 2015 Liabilities and Equity Notes AMOUNT AMOUNT

Current Liabilities

2100 Short-term borrowings 6(12) $ 11,583,750 $ -

2120 Financial liabilities at fair value


6(2)

1,190,148 265,525

2170 Accounts payable 51,875,305 57,069,951

2180 Accounts payable - related parties 7 5,120,235 3,359,933

2200 Other payables 7 22,916,097 24,912,360

2230 Current income tax liabilities 1,912,797 1,819,368

2250 Provisions - current 6(16) and 9 3,765,234 5,551,759

2320 Long-term liabilities, current

portion

6(13)

16,381,686 16,361,238

2399 Other current liabilities 1,420,652 1,131,329

21XX Total current liabilities 116,165,904 110,471,463

Non-current liabilities

2540 Long-term borrowings 6(13) 28,128,467 43,629,968

2570 Deferred income tax liabilities 6(26) 672,971 514,094

2600 Other non-current liabilities 6(14) 505,843 562,088

25XX Total non-current liabilities 29,307,281 44,706,150

2XXX Total liabilities 145,473,185 155,177,613

Equity attributable to owners of

the parent

3110 Share capital - common stock 6(17) 99,521,488 99,532,372

3200 Capital surplus 6(18) 99,647,810 99,643,564

Retained earnings 6(19)

3310 Legal reserve 3,758,507 2,676,947

3350 Unappropriated retained earnings 26,497,362 27,661,503

3400 Other equity interest 6(20) ( 3,418,804) 2,750,337

31XX Equity attributable to owners

of the parent

226,006,363 232,264,723

3XXX Total equity 226,006,363 232,264,723

3X2X Total liabilities and equity $ 371,479,548 $ 387,442,336

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016 and 2015 (Expressed in thousands of New Taiwan dollars)

126

Year ended December 31 2016 2015

Items Notes AMOUNT AMOUNT

4000 Sales revenue 7 $ 287,089,277 $ 364,132,984

5000 Operating costs 6(7)(24) and 7 ( 261,000,786) ( 317,492,879)

5900 Net operating margin 26,088,491 46,640,105

Operating expenses 6(24)

6100 Selling expenses ( 2,301,561) ( 3,204,824)

6200 General and administrative

expenses

( 6,241,602) ( 6,600,082)

6300 Research and development

expenses

( 11,132,079) ( 14,404,490)

6000 Total operating expenses ( 19,675,242) ( 24,209,396)

6900 Operating profit 6,413,249 22,430,709

Non-operating income and

expenses

7010 Other income 6(21) 2,388,895 2,313,182

7020 Other gains and losses 6(22) ( 3,103,952) ( 8,683,203)

7050 Finance costs 6(23) ( 893,526) ( 1,415,088)

7060 Share of profit of associates and

joint ventures accounted for

under equity method

6(8)

187,454 213,587

7000 Total non-operating income

and expenses

( 1,421,129) ( 7,571,522)

7900 Profit before income tax 4,992,120 14,859,187

7950 Income tax expense 6(26) ( 3,121,433) ( 4,045,046)

8200 Profit for the period $ 1,870,687 $ 10,814,141

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



127


Items Notes AMOUNT AMOUNT Other comprehensive (loss)

income (net)

Components of other

comprehensive income that will not be reclassified to profit or loss

8311 Remeasurement of defined

benefit obligations 6(14)

$ 44,027 ($ 195,939) 8349 Income tax relating to the

components of other comprehensive income that will not be reclassified

6(26)

( 7,485) 33,309 8310 Components of other

comprehensive income (loss) that will not be reclassified to profit or loss

36,542 ( 162,630) Components of other

comprehensive (loss) income that will be reclassified to profit or loss

8361 Financial statements translation

differences of foreign operations

( 5,708,026) ( 1,421,828) 8362 Unrealized (loss) gain on

valuation of available-for-sale financial assets

( 339,384) 2,266,346 8363 Cash flow hedges 6(4) - ( 297,675) 8370 Share of other comprehensive

(loss) income of associates and joint ventures accounted for under equity method

6(20)

( 27,676) 4,432 8399 Income tax relating to the

components of other comprehensive income that will be reclassified

6(26)


comprehensive income that will be reclassified to profit or loss

( 6,188,543) 669,826 8300 Other comprehensive (loss)

income for the year, net of tax

($ 6,152,001) $ 507,196 8500 Total comprehensive (loss)

income for the year

($ 4,281,314) $ 11,321,337 Profit attributable to: 8610 Owners of the parent $ 1,870,687 $ 10,815,594 8620 Non-controlling interest - ( 1,453) Total $ 1,870,687 $ 10,814,141 Other comprehensive (loss)

income attributable to:

8710 Owners of the parent ($ 4,281,314) $ 11,352,532 8720 Non-controlling interest - ( 31,195) Total ($ 4,281,314) $ 11,321,337 Earnings per share (in dollars) 6(27) 9750 Basic earnings per share $ 0.19 $ 1.09 9850 Diluted earnings per share $ 0.19 $ 1.07

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated) Equity attributable to owners of the parent Retained Earnings Other equity interest

Notes Common stock Capital surplus Legal reserve Special reserve

Unappropriated earnings

Financial statements translation

differences of foreign

operations

Unrealized gain (loss) on

available-for-sale financial

assets

Changes in gain (loss)

on cash flow hedge

Employee unearned

compensation Total Non-controlli

ng interest Total


128

2015 Balance at January 1, 2015 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ($ 1,259,847 ) $ 247,070 ($ 142,515 ) $ 227,690,063 $ 1,481,373 $ 229,171,436 Appropriations of 2014

earnings: 6(19)

Legal reserve - - 2,167,675 - ( 2,167,675) - - - - - - - Special reserve - - - ( 1,144,229 ) 1,144,229 - - - - - - - Cash dividends - - - - ( 6,947,188) - - - - ( 6,947,188) - ( 6,947,188 ) Cancellation of restricted

stock to employees

( 12,992 ) 12,992 - - - - - - - - - - Changes in restricted stock to

employees

- ( 3,760 ) - - - - - - 2,411 ( 1,349 ) - ( 1,349 ) Compensation related to

share-based payment 6(15)

- 22,740 - - - - - - 120,702 143,442 - 143,442 Changes in net equity of

long-term equity investments

- 27,185 - - - - - - - 27,185 - 27,185 Changes in non-controlling

interests

- 38 - - - - - - - 38 ( 1,450,178 ) ( 1,450,140 ) Profit for the year - - - - 10,815,594 - - - - 10,815,594 ( 1,453 ) 10,814,141 Other comprehensive income

for the year 6(20)

- - - - ( 162,630 ) ( 1,387,654 ) 2,334,292 ( 247,070 ) - 536,938 ( 29,742 ) 507,196 Balance at December 31,

2015

$ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $ 232,264,723 $ - $ 232,264,723

2016 Balance at January 1, 2016 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $ 232,264,723 $ - $ 232,264,723 Appropriations of 2015

earnings: 6(19)

Legal reserve - - 1,081,560 - ( 1,081,560) - - - - - - - Cash dividends - - - - ( 1,989,810) - - - - ( 1,989,810) - ( 1,989,810 ) Cancellation of restricted

stock to employees

( 10,884 ) 10,884 - - - - - - - - - - Changes in restricted stock to

employees

- ( 4,068 ) - - - - - - 4,142 74 - 74 Compensation related to

share-based payment 6(15)

- - - - - - - - 15,260 15,260 - 15,260 Changes in net equity of

long-term equity investments

- ( 2,570 ) - - - - - - - ( 2,570 ) - ( 2,570 ) Profit for the year - - - - 1,870,687 - - - - 1,870,687 - 1,870,687 Other comprehensive loss for

the year 6(20)

- - - - 36,542 ( 5,735,702 ) ( 452,841 ) - - ( 6,152,001) - ( 6,152,001 ) Balance at December 31,

2016

$ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ - $ 226,006,363 $ - $ 226,006,363

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2016 2015

129

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax for the year $ 4,992,120 $ 14,859,187 Adjustments Adjustments to reconcile profit (loss) Depreciation and amortization 6(24) 41,418,534 53,571,172 Compensation related to share-based payment 6(24) 15,260 143,442 Share of profit of associates and joint ventures

accounted for under equity method 6(8)

( 187,454 ) ( 213,587 ) Loss on disposal of investments 6(22) 23,258 47,583 Loss on disposal of property, plant and equipment 6(22) 163,659 180,829 Impairment loss 6(22) 502,857 589,911 Interest expense 6(23) 874,879 1,712,758 Interest income 6(21) ( 291,240 ) ( 484,873 ) Dividend income 6(21) ( 177,880 ) ( 224,441 ) Unrealized foreign exchange loss (gain) 4,725 ( 225,917 ) Changes in operating assets and liabilities Changes in operating assets Financial assets /liabilities at fair value through profit

or loss

1,012,239 ( 83,841 ) Accounts receivable ( 4,665,841 ) 22,786,214 Accounts receivable - related parties ( 8,966,506 ) 3,479,547 Other receivables 1,648,507 849,827 Inventories 5,864,361 3,589,410 Prepayments ( 444,504 ) 333,734 Other current assets ( 7,263 ) 57,524 Changes in operating liabilities Derivative financial liabilities for hedging - ( 299,026 ) Accounts payable ( 5,194,646 ) ( 17,884,488 ) Accounts payable - related parties 1,760,302 ( 1,893,013 ) Other payables ( 1,636,830 ) ( 713,699 ) Provisions - current ( 1,786,525 ) 2,418,270 Other current liabilities 289,323 ( 821,001 ) Other non-current liabilities ( 12,343 ) 6,891 Cash inflow generated from operations 35,198,992 81,782,413 Cash paid for income tax ( 1,799,745 ) ( 718,120 ) Net cash flows from operating activities 33,399,247 81,064,293

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2016 2015


130

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from disposal of available-for-sale financial assets $ 222,372 $ 450,057

Proceeds from capital reduction of available-for-sale

financial assets

159,335 -

Decrease in other financial assets 2,091,694 783,662

Acquisition of property, plant and equipment 6(28) ( 44,152,843 ) ( 24,511,490 )

Proceeds from disposal of property, plant and equipment 42,268 1,798,359

Acquisition of intangible assets ( 22,251 ) ( 16,392 )

Proceeds from disposal of intangible assets - 856

Decrease (increase) in other non-current assets 38,230 ( 4,453 )

Interest received 326,610 449,038

Dividends received 404,576 247,612

Proceeds from capital reduction and return of investments

accounted for under equity method

23,680 -

Net cash flows used in investing activities ( 40,866,329 ) ( 20,802,751 )

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term borrowings 11,579,025 ( 22,449,868 )

Increase in long-term borrowings 822,702 68,100,131

Payment of long-term borrowings ( 16,440,000 ) ( 116,527,861 )

Repurchase from issuance of restricted stock to employees ( 1,372 ) ( 3,676 )

Changes in non-controlling interests - ( 50 )

Interest paid ( 747,143 ) ( 1,628,841 )

Cash dividends paid 6(19) ( 1,989,810 ) ( 6,947,188 )

Net cash flows used in financing activities ( 6,776,598 ) ( 79,457,353 )

Effect of changes in foreign currency exchange ( 2,894,271 ) 728,860

Net decrease in cash and cash equivalents ( 17,137,951 ) ( 18,466,951 )

Cash and cash equivalents at beginning of year 52,522,790 70,989,741

Cash and cash equivalents at end of year $ 35,384,839 $ 52,522,790

131

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

HISTORY AND ORGANIZATION

(1) Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for

Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company

was listed on the Taiwan Stock Exchange Corporation (the “TSEC”) in October 2006. The

Company merged with TPO Displays Corporation and Chi Mei Optoelectronics Corporation on

March 18, 2010, with the Company as the surviving entity.

(2) The Company and its subsidiaries (the “Group”) engage in the research, development, design,

manufacture and sales of TFT-LCD panels, modules and monitors of LCD, color filter, and low

temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE CONSOLIDATED FINANCIAL

STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These consolidated financial statements were authorized for issuance by the Board of Directors on

February 10, 2017.

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”) None.

(2) Effect of new issuances of or amendments to IFRSs as endorsed by the FSC but not yet adopted by the Group New standards, interpretations and amendments as endorsed by FSC effective from 2017 are as

follows:

New Standards, Interpretations and Amendments

Effective Date byInternational Accounting

Standards Board

Investment entities: applying the consolidation exception (amendments toIFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations (amendments toIFRS 11)

January 1, 2016

IFRS 14, ‘Regulatory deferral accounts’ January 1, 2016Disclosure initiative (amendments to IAS 1) January 1, 2016Clarification of acceptable methods of depreciation and amortisation(amendments to IAS 16 and IAS 38)

January 1, 2016

Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016Defined benefit plans: employee contributions (amendments to IAS 19R) July 1, 2014

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

132

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

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

Annual improvements to IFRSs 2010-2012 cycle ─ IFRS 8, ‘Operating segments’

The standard is amended to require disclosure of judgments made by management in aggregating

operating segments. This amendment also clarifies that a reconciliation of the total of the reportable

segments’ assets to the entity’s assets is required only when segment asset is provided to chief

operating decision maker regularly. (3) IFRSs issued by IASB but not yet endorsed by the FSC

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

as endorsed by the FSC effective from 2017 are as follow:



Standards Board

Recoverable amount disclosures for non-financial assets (amendments toIAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting(amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014Improvements to IFRSs 2010-2012 July 1, 2014Improvements to IFRSs 2011-2013 July 1, 2014Improvements to IFRSs 2012-2014 January 1, 2016



Standards Board

Classification and measurement of share-based payment transactions(amendments to IFRS 2)

January 1, 2018

Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurancecontracts’ (amendments to IFRS 4)

January 1 ,2018

IFRS 9, ‘Financial instruments’ January 1, 2018Sale or contribution of assets between an investor and its associate orjoint venture (amendments to IFRS 10 and IAS 28)

To be determined byInternational Accounting

Standards BoardIFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Clarifications to IFRS 15, ‘Revenue from contracts with customers’(amendments to IFRS 15)

January 1, 2018

IFRS 16, ‘Leases’ January 1, 2019Disclosure initiative (amendments to IAS 7) January 1, 2017Recognition of deferred tax assets for unrealised losses (amendments toIAS 12)

January 1, 2017

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

133

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

the Group’s financial condition and operating results based on the Group’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 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 recognize the equity

instrument not held for trading at fair value in other comprehensive income.

(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 recognize

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 that 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). The Company shall always measure the loss allowance at an amount

equal to lifetime expected credit losses for trade receivables that do not contain a

significant financing component.

(c) The amended general hedge accounting makes the accounting practices consistent with

an entity’s risk management strategy. The components and the grouping of non-financial

items can be loosened as hedged items. The 80~125% threshold of highly efficient hedge

is removed, and that the hedge items and the hedged percentages of the hedge

instruments that can be rebalance under the unchanged business objectives of risk

management is increased.

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 and SICs. According to IFRS

15, revenue is recognized when a customer obtains control of goods or services. A

customer obtains control of goods or services when a customer has the ability to direct the



Standards Board

IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS1, ‘First-time adoption of international financial reporting standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS28, ‘Investments in associates and joint ventures’

January 1, 2018

134

use of, and obtain substantially all of the remaining benefits from, the asset.

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

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 recognizes

revenue in accordance with that core principle by applying the following steps:

Step 1: Identify contracts with customer

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

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract(s)

Step 5: Recognize 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 recognized at a point in time or a period of time. In addition to the clarifications, the

amendments include two additional reliefs to reduce cost and complexity for a company

when it first applies the new Standard.

D. Amendments to IAS 7, ‘Disclosure initiative’

This amendment requires that an entity shall provide more disclosures related to changes in

liabilities arising from financing activities, including both changes arising from cash flows

and non-cash changes.

E. IFRS 16, ‘Leases’

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

standard requires lessees to recognize a ‘right-of-use asset’ and a lease liability (except for

those leases with terms of less than 12 months and leases of low-value assets). Lessor

accounting still uses the dual classification approach: operating leases and finance leases,

and only increases the related disclosures.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these consolidated financial

statements are set out below. These policies have been consistently applied to all the periods

presented, unless otherwise stated.

Compliance statement

The consolidated financial statements of the Group have been prepared in accordance with the

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

135

International Financial Reporting Standards, International Accounting Standards, IFRIC

Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein

as the “IFRSs”).

Basis of preparation

A. Except for the following items, the consolidated 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 recognized 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 IFRSs requires the use of

certain critical accounting estimates. It also requires management to exercise its judgment

in the process of applying the Group’s accounting policies. The areas involving a higher

degree of judgment or complexity, or areas where assumptions and estimates are significant

to the consolidated financial statements are disclosed in Note 5.

Basis of consolidation

A. Basis for preparation of consolidated financial statements:

(a) All subsidiaries are included in the Group’s consolidated financial statements.

Subsidiaries are all entities (including structured entities) controlled by the Group. The

Group controls an entity when the Group is exposed, or has rights, to variable returns

from its involvement with the entity and has the ability to affect those returns through

its power over the entity. Consolidation of subsidiaries begins from the date the Group

obtains control of the subsidiaries and ceases when the Group loses control of the

subsidiaries.

(b) Inter-company transactions, balances and unrealised gains or losses on transactions

between companies within the Group are eliminated. Accounting policies of

subsidiaries have been adjusted where necessary to ensure consistency with the policies

adopted by the Group.

(c) Profit or loss and each component of other comprehensive income are attributed to the

owners of the parent and to the non-controlling interests. Total comprehensive income

is attributed to the owners of the parent and to the non-controlling interests even if this

results in the non-controlling interests having a deficit balance.

(d) Changes in a parent’s ownership interest in a subsidiary that do not result in the parent

losing control of the subsidiary (transactions with non-controlling interests) are

accounted for as equity transactions, i.e. transactions with owners in their capacity as

owners. Any difference between the amount by which the non-controlling interests are

adjusted and the fair value of the consideration paid or received is recognized directly

in equity.

(e) When the Group loses control of a subsidiary, the Group remeasures any investment

136

retained in the former subsidiary at its fair value. Any difference between fair value and

carrying amount is recognized in profit or loss. All amounts previously recognized in

other comprehensive income in relation to the subsidiary are reclassified to profit or

loss as disposal.

B. Subsidiaries included in the consolidated financial statements:

Main

BusinessName of Investor Name of Subsidiary Activities 2016 2015 Description

Innolux Corporation Bright InformationHolding Ltd.

Investmentholdings

100 100 -

Gold UnionInvestments Ltd.

Investmentholdings

- - (c)

Golden AchieverInternational Ltd.

Investmentholdings

100 100 -

Innolux Holding Ltd. Investmentholdings

100 100 -

Keyway InvestmentManagement Limited

Investmentholdings

100 100 -

Landmark InternationalLtd.

Investmentholdings

100 100 -

ToppolyOptoelectronics(B.V.I.) Ltd.

Investmentholdings

100 100 -

Innolux Hong KongHolding Limited

Investmentholdings

100 100 -

Leadtek Global GroupLimited

Distributioncompany

100 100 -

Yuan Chi InvestmentCo., Ltd.

Investmentcompany

100 100 -

InnoJoy InvestmentCorporation

Investmentcompany

100 100 -

Innolux OptoelectronicsEurope B.V.

Investment anddistributioncompany

100 100

-

Innolux OptoelectronicsJapan Co., Ltd.

Investment anddistributioncompany

100 100 -

Chi Mei El Corporation Manufactureand distributioncompany

- - (a)

Bright InformationHolding Ltd.

Kunpal OptoelectronicsLtd.

Processingcompany

- 100 (d)

Golden AchieverInternational Ltd.

VAP Optoelectronics(Nanjing) Corp.

Processingcompany

100 100 -

Ownership (%)

December 31,

137

Main

BusinessName of Investor Name of Subsidiary Activities 2016 2015 Description

Innolux HoldingLtd.

Rockets Holding Ltd. Investmentholdings

100 100 -

Suns Holding Ltd. Investmentholdings

100 100 -

Lakers Trading Ltd. Distributioncompany

100 100 -

Innolux Corporation Distributioncompany

100 100 -

Keyway InvestmentManagement

Ningbo InnoluxLogistics Ltd.

Warehousingcompany

100 100 -

Limited Foshan InnoluxLogistics Ltd.

Warehousingcompany

100 100 -

LandmarkInternational Ltd.

Ningbo InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Ningbo InnoluxTechnology Ltd.

Processingcompany

100 100 (g)

Foshan InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Ningbo Innolux DisplayLtd.

Processingcompany

100 100 -

ToppolyOptoelectronics(B.V.I.) Ltd.

ToppolyOptoelectronics(Cayman) Ltd.

Investmentholdings

100 100 -

Innolux Hong KongHolding Limited

Innolux OptoelectronicsHong Kong HoldingLtd.

Investmentholdings

100 100 -

Innolux Hong KongLtd.

Distributioncompany

100 100 -

Innolux TechnologyEurope B.V.

Investment andR&D company

100 100 -

Innolux TechnologyJapan Co., Ltd.

R&D company 100 100 -

Innolux TechnologyUSA Inc.

Distributioncompany

100 100 -

InnoluxOptoelectronicsEurope B.V.

Innolux OptoelectronicsGermany GmbH

After salesservicecompany

100 100 -

InnoluxOptoelectronicsJapan Co., Ltd.

Innolux OptoelectronicsUSA, Inc.

Distributioncompany

100 100 -

Ownership (%)

December 31,

138

(a) In 2015, the Board of Directors of the Group resolved to proceeds with 97% owned

subsidiary, the effective date was set on September 1, 2015. After the merger, this

Main Business

Name of Investor Name of Subsidiary Activities 2016 2015 DescriptionRockets HoldingLtd.

Best China InvestmentsLtd.

Investmentholdings

100 100 -

Mega ChanceInvestments Ltd.

Investmentholdings

100 100 -

Magic Sun Ltd. Investmentholdings

100 100 -

Stanford DevelopmentsLtd.

Investmentholdings

100 100 -

Nets Trading Ltd. Investmentcompany

100 100 -

Suns Holding Ltd. Warriors TechnologyInvestments Ltd.

Investmentcompany

100 100 -

ToppolyOptoelectronics

Nanjing InnoluxTechnology Ltd.

Distributioncompany

100 100 -

(Cayman) Ltd. Nanjing InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Kunpal OptoelectronicsLtd.

Processingcompany

100 - (d)

InnoluxOptoelectronicsHong Kong HoldingLtd.

Shanghai InnoluxOptoelectronics Ltd.

Processingcompany

100 100 -

Innolux TechnologyEurope B.V.

Innolux TechnologyGermany GmbH

Testing andmaintenancecompany

100 100 -

Best ChinaInvestments Ltd.

Asiaward InvestmentLtd.

Investmentholdings

100 100 -

Mega ChanceInvestments Ltd.

Main DynastyInvestment Ltd.

Investmentholdings

100 100 -

Magic Sun Ltd. Sun DynastyDevelopment Ltd.

Investmentholdings

100 100 -

StanfordDevelopments Ltd.

Innocom Technology(Shenzhen) Co., Ltd.

Processingcompany

100 100 -

Ningbo InnoluxDisplay Ltd.

Ningbi InnoluxElectronics Ltd.

Distributioncompany

100 100 (b)

Ningbo InnoluxOptoelectronics Ltd.

Ningbo Innolux FlnetElectronics Ltd.

Distributioncompany

100 - (e)

Foshan InnoluxOptoelectronics Ltd.

Foshan Innolux FlnetElectronics Ltd.

Distributioncompany

100 - (f)

Ownership (%)December 31,

139

subsidiary was the dissolved company while the Company was the surviving company,

and accounted under equity method.

(b) Ningbo Innolux Electronics Ltd. was established in November 2015 and was included

in the consolidated financial statements since the date of establishment.

(c) Gold Union Investments Ltd. ceased operations and was liquidated in the fourth quarter

of 2015.

(d) Kunpal Optoelectronics Ltd. was previously a wholly-owned subsidiary of Bright

Information Holding Ltd. However, after reorganization in July 2016, Kunpal

Optoelectronics Ltd. became a wholly-owned subsidiary of Toppoly Optoelectronics

(Cayman) Ltd.

(e) Ningbo Innolux Flnet Electronics Ltd. was established in October 2016 and was

included in the consolidated financial statements since the date of establishment.

(f) Foshan Innolux Flnet Electronics Ltd. was established in October 2016 and was

included in the consolidated financial statements since the date of establishment.

(g) In October 2016, the Board of Directors of the Group resolved to merge Ningbo

Innolux Technology Ltd., which was wholly owned by the Group, with Ningbo Innolux

Display Ltd., and Ningbo Innolux Display Ltd. was the surviving company. The

effective date was set on December 1, 2016, and was accounted as a reorganisation.

C. Subsidiaries not included in the consolidated financial statements: None.

D. Adjustments for subsidiaries with different balance sheet dates: None.

E. The restrictions on fund remittance from subsidiaries to the parent company: None.

F. Subsidiaries that have non-controlling interests that are material to the Group: None.

Foreign currency translation

Items included in the financial statements of each of the Group’s entities are measured using

the currency of the primary economic environment in which the entity operates (the

“functional currency”). The consolidated financial statements are presented in NTD, which is

the company’s functional and the Group’s presentation currency.

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 recognized in profit or loss in the period in which they arise, except

when deferred in other comprehensive income as qualifying cash flow hedges.

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

retranslated at the exchange rates prevailing at the balance sheet date. Exchange

differences arising upon re-translation at the balance sheet date are recognized 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 recognized in profit or loss. Non-monetary

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assets and 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 recognized 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’.

B. Translation of foreign operations

(a) The operating results and financial position of all the group entities and associates that

have a functional currency different from the presentation currency are translated into

the presentation currency as follows:

i. Assets and liabilities for each balance sheet presented are translated at the spot

exchange rate at the date of that balance sheet;

ii. Income and expenses for each statement of comprehensive income are translated at

average exchange rates of that period; and

iii. All resulting exchange differences are recognized in other comprehensive income.

(b) When the foreign operation partially disposed of or sold is an associate, exchange

differences that were recorded in other comprehensive income are proportionately

reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Group

retains partial interest in the former foreign associate after losing significant influence

over the former foreign associate, such transactions should be accounted for as disposal

of all interest in these foreign operations.

(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative

exchange differences that were recorded in other comprehensive income are

proportionately transferred to the non-controlling interest in this foreign operation. In

addition, if the Group retains partial interest in the former foreign subsidiary after losing

control of the former foreign subsidiary, such transactions should be accounted for as

disposal of all interest in the foreign operation.

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 pay off liabilities more than twelve months after the

balance sheet date.

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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 paid off within the normal operating cycle;

(b) Liabilities arising mainly from trading activities;

(c) Liabilities that are to be paid off 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.

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 and bonds sold under repurchase agreement that meet the definition above and

are held for the purpose of meeting short-term cash commitments in operations are classified

as cash equivalents.

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. Financial assets that meet one of the

following criteria are designated as at fair value through profit or loss on initial recognition:

(a) Hybrid (combined) contracts; or

(b) They eliminate or significantly reduce a measurement or recognition inconsistency; or

(c) They are managed and their performance is evaluated on a fair value basis, in

accordance with a documented risk management or investment strategy.

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

are recognized and derecognized using trade date accounting.

C. Financial assets at fair value through profit or loss are initially recognized 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 recognized in profit or loss.

Available-for-sale financial assets

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

On a regular way purchase or sale basis, available-for-sale financial assets are recognized

and derecognized using trade date accounting.

B. Available-for-sale financial assets are initially recognized 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 recognized in other comprehensive

income.

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Loans and receivables

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 recognized 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.

Impairment of financial assets

A. The Group 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 and that loss event 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 Group 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) 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;

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

instrument below its cost.

C. When the Group 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 recognized 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 recognized,

the previously recognized 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 recognized

previously. Impairment loss is recognized and reversed by adjusting the carrying

amount of the asset through the use of an impairment allowance account.

(b) 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,

143

less any impairment loss on that financial asset previously recognized in profit or loss,

and is reclassified from ‘other comprehensive income’ to ‘profit or loss’. If, in a

subsequent period, the fair value of an investment in a debt instrument increases, and

the increase can be related objectively to an event occurring after the impairment loss

was recognized, then such impairment loss is reversed through profit or loss.

Impairment loss of an investment in an equity instrument recognized in profit or loss

shall not be reversed through profit or loss. Impairment loss is recognized and reversed

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

allowance account.

Derecognition of financial assets

The Group derecognizes 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 Group 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 Group has not retained control of the financial asset.

Operating leases (lessor)

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

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

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 progress 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.

Investments accounted for using equity method / associates

A. Associates are all entities over which the Group has significant influence but not control.

In general, it is presumed that the investor has significant influence, if an investor holds,

directly or indirectly 20 per cent or more of the voting power of the investee. Investments

in associates are accounted for using the equity method and are initially recognized at

cost.

B. The Group’s share of its associates’ post-acquisition profits or losses is recognized in

profit or loss, and its share of post-acquisition movements in other comprehensive income

is recognized in other comprehensive income. When the Group’s share of losses in an

associate equals or exceeds its interest in the associate, the Group does not recognize

further losses, unless it has incurred legal or constructive obligations or made payments on

behalf of the associate.

144

C. When changes in an associate’s equity are not recognized in profit or loss or other

comprehensive income of the associate and such changes do not affect the Group’s

ownership percentage of the associate, the Group recognizes change in ownership interests

in the associate in ‘capital surplus’ in proportion to its ownership.

D. Unrealised gains on transactions between the Group and its associates are eliminated to

the extent of the Group’s interest in the associates. Unrealised losses are also eliminated

unless the transaction provides evidence of an impairment of the asset transferred.

Accounting policies of associates have been adjusted where necessary to ensure

consistency with the policies adopted by the Group.

E. In the case that an associate issues new shares and the Group does not subscribe or

acquire new shares proportionately, which results in a change in the Group’s ownership

percentage of the associate but maintains significant influence on the associate, then

‘capital surplus’ and ‘investments accounted for under the equity method’ shall be

adjusted for the increase or decrease of its share of equity interest. If the above condition

causes a decrease in the Group’s ownership percentage of the associate, in addition to the

above adjustment, the amounts previously recognized in other comprehensive income in

relation to the associate are reclassified to profit or loss proportionately on the same basis

as would be required if the relevant assets or liabilities were disposed of.

F. Upon loss of significant influence over an associate, the Group remeasures any investment

retained in the former associate at its fair value. Any difference between fair value and

carrying amount is recognized in profit or loss.

G. When the Group disposes its investment in an associate and loses significant influence

over this associate, the amounts previously recognized in other comprehensive income in

relation to the associate are reclassified to profit or loss, on the same basis as would be

required if the relevant assets or liabilities were disposed of.

H. When the Group disposes its investment in an associate and loses significant influence

over this associate, the amounts previously recognized as capital surplus in relation to the

associate are transferred to profit or loss. If it retains significant influence over this

associate, the amounts previously recognized as capital surplus in relation to the associate

are transferred to profit or loss proportionately.

Property, plant and equipment

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

during the construction period are capitalised.

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

asset, as appropriate, only when it is probable that future economic benefits associated

with the item will flow to the Group and the cost of the item can be measured reliably. The

carrying amount of the replaced part is derecognized. All other repairs and maintenance

are charged to profit or loss during the financial period in which they are incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are

depreciated using the straight-line method to allocate their cost over their estimated useful

145

lives. If each part of an item of property, plant, and equipment with a cost that is

significant in relation to the total cost of the item 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:

Buildings and structures 2~51 years

Machinery and equipment 5~11 years

Other equipment 2~6 years

Investment property

An investment property is stated initially at its cost and measured subsequently using the

cost model. Except for land, investment property is depreciated on a straight-line basis over

its estimated useful life of 25~50 years.

Intangible assets

A. Goodwill arises in a business combination accounted for by applying the acquisition

method.

B. Intangible assets, patent, royalties and other intangible assets, are amortised on a

straight-line basis over their estimated useful lives of 2~10 years.

Impairment of non-financial assets

A. The Group 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 recognized 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 recognizing 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 recognized.

B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and

intangible assets that have not yet been available for use are evaluated periodically. An

impairment loss is recognized for the amount by which the asset’s carrying amount

exceeds its recoverable amount. Impairment loss of goodwill previously recognized in

profit or loss shall not be reversed in the following years.

C. For the purpose of impairment testing, goodwill acquired in a business combination is

allocated to each of the cash-generating units, or groups of cash-generating units, that

is/are expected to benefit from the synergies of the business combination. Goodwill is

monitored at the operating segment level.

146

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

principally for 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 recognized 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 recognized in profit or loss.

Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is

entered into and are subsequently remeasured at their fair value. Any changes in the fair

value are recognized in profit or loss.

B. The Group designates certain derivatives as cash flow hedges of a particular risk

associated with a recognized asset or liability or a highly probable forecast transaction.

C. The Group documents at the inception of the transaction the relationship between hedging

instruments and hedged items, as well as its risk management objectives and strategy for

undertaking various hedging transactions. The Group also documents its assessment, both

at hedge inception and on an ongoing basis, of whether the derivatives that are used in

hedging transactions are highly effective in offsetting changes in fair values or cash flows

of hedged items.

D. The full fair value of a hedging derivative is classified as a non-current asset or liability

when the remaining maturity of the hedged item is more than 12 months, and as a current

asset or liability when the remaining maturity of the hedged item is less than 12 months.

Trading derivatives are classified as current assets or liabilities.

E. Cash flow hedge

(a) The effective portion of changes in the fair value of derivatives that are designated and

qualified as cash flow hedges is recognized in other comprehensive income. The gain

or loss relating to the ineffective portion is recognized immediately in the statement of

comprehensive income within ‘other gains and losses’.

(b) Amounts accumulated in other comprehensive income are reclassified into profit or

loss in the periods when the hedged item affects profit or loss. The gain or loss relating

to the effective portion of interest rate swaps hedging variable rate borrowings is

recognized in the statement of comprehensive income within ‘finance costs’.

(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge

no longer meets the criteria for hedge accounting, any cumulative gain or loss existing

in other comprehensive income at that time remains in other comprehensive income.

When a forecast transaction occurs or is no longer expected to occur, the cumulative

gain or loss that was reported in other comprehensive income is transferred to profit or

loss in the periods when the hedged forecast cash flow affects profit or loss.

147

Employee benefits

A. Short-term employee benefits

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

expected to be paid and should be recognized as expenses in that period when the

employees render service.

B. Pensions

(a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expenses

when they are due on an accrual basis. Prepaid contributions are recognized as an asset

to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans

i. The liability recognized in the balance sheet in respect of defined benefit pension

plans is the present value of the defined benefit obligation at the balance sheet date

less the fair value of plan assets. The 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 government bond (at the

balance sheet date).

ii. Remeasurements arising on defined benefit plans are recognized in other

comprehensive income in the period in which they arise and are recorded as

retained earnings.

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

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

expenses and liabilities, provided that such recognition is required under legal or

constructive obligation and those amounts can be reliably estimated.

Employee share-based payment

A. For the equity-settled share-based payment arrangements, the employee services received

are measured at the fair value of the equity instruments granted at the grant date, and are

recognized as compensation cost over the vesting period, with a corresponding adjustment

to equity. The fair value of the equity instruments granted shall reflect the impact of

market vesting conditions and non-market vesting conditions. Compensation cost is

subject to adjustment based on the service conditions that are expected to be satisfied and

the estimates of the number of equity instruments that are expected to vest under the

non-market vesting conditions at each balance sheet date. Ultimately, the amount of

compensation cost recognized is based on the number of equity instruments that

eventually vest.

B. Restricted stocks to employees:

(a) Restricted stocks issued to employees are measured at the fair value of the equity

instruments granted at the grant date, and are recognized as compensation cost over the

vesting period.

(b) For restricted stocks where employees have to pay to acquire those stocks, if

148

employees resign during the vesting period, they must return the stocks to the Group

and the Group must refund their payments on the stocks, the Group recognizes the

payments from the employees who are expected to resign during the vesting period as

liabilities at the grant date, and recognizes the payments from the employees who are

expected to be eventually vested with the stocks in ’capital surplus – others’.

Income tax

A. The tax expense for the period comprises current and deferred tax. Tax is recognized in

profit or loss, except to the extent that it relates to items recognized in other

comprehensive income or items recognized directly in equity, in which cases the tax is

recognized 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 recognized, using the balance sheet liability method, on temporary

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

amounts in the consolidated 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 recognized 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, unrecognized and recognized deferred tax assets are reassessed.

E. A deferred tax asset shall be recognized for the carryforward of unused tax credits

resulting from research and development expenditures and equity investments to the

extent that it is possible that future taxable profit will be available against which the

unused tax credits can be utilised.

Revenue recognition

The Group manufactures and sells TFT-LCE panels. Revenue is measured at the fair value of

the consideration received or receivable taking into account value-added tax, returns, rebates

and discounts for the sale of goods to external customers in the ordinary course of the

Group’s activities.

Business combinations

A. The Group uses the acquisition method to account for business combinations. For each

business combination, the Group measures at the acquisition date components of

non-controlling interests in the acquiree that are present ownership interests and entitle

149

their holders to the proportionate share of the entity’s net assets in the event of liquidation

at either fair value or the present ownership instruments’ proportionate share in the

recognised amounts of the acquiree’s identifiable net assets. All other non-controlling

interests should be measured at the acquisition-date fair value.

B. The excess of the consideration transferred, the amount of any non-controlling interest in

the acquiree and the fair value of any previous equity interest in the acquiree over the fair

value of the identifiable assets acquired and the liabilities assumed is recorded as goodwill

at the acquisition date. If the total of consideration transferred, non-controlling interest in

the acquire recognised and the fair value of previously held equity interest in the acquiree

is less than the fair value of the identifiable assets acquired and the liabilities assumed, the

difference is recognised directly in profit or loss on the acquisition date.

Operating segments

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

to the chief operating decision-maker, who is responsible for allocating resources and

assessing performance of the operating segments.

CRITICALACCOUNTING JUDGEMENTS, ESTIMATES AND KEY SOURCES OF

ASSUMPTION UNCERTAINTY

The preparation of these consolidated financial statements requires management to make critical

judgements in applying the Group’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. The

related information is addressed below:

Critical judgements in applying the Group’s accounting policies

Financial assets-impairment of equity investments

The Group 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 Group 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.

If the decline of the fair value of an individual equity investment below cost was considered

significant or prolonged, the accumulated fair value adjustments recognized in other

comprehensive income on the impaired “available-for-sale financial assets” is transferred to

profit or loss.

Critical accounting estimates and assumptions

The Company makes estimates and assumptions based on the expectation of future events that

are believed to be reasonable under the circumstances at the end of the reporting period. The

resulting accounting estimates might be different from the related actual results. The estimates

and assumptions that have a significant risk of causing a material adjustment to the carrying

amounts of assets and liabilities within the next financial year are addressed below:

150

A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Group’s subjective judgement,

including identifying cash-generating units, allocating assets and liabilities as well as

goodwill to related cash-generating units, and determining the recoverable amounts of

related cash-generating units.

Please refer to Note 6(11) for the information of goodwill impairment.

B. Impairment assessment of tangible and intangible assets (excluding goodwill)

The Group 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 Group strategy might cause material impairment on assets in the future.

C. Estimation of significant disaster insurance claim

The insurance claim revenue is recognized when it is virtually certain that the compensation

will be received in the future. As the amount of claim is measured based on the amount

which is permitted by insurance company, management shall assess and estimate the

replacement cost of damaged assets.

DETAILS OF SIGNIFICANT ACCOUNTS

Cash and cash equivalents

A. The Group associates 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 above time deposits and bonds with repurchase agreement expire in 3 months and

risks of changes in their values are remote. The remaining unpledged time deposits which

did not meet the definition of cash equivalents were $4,998 and $1,973,263 at December 31,

2016 and 2015, respectively, and were classfied as ‘other financial assets - current’.

December 31, 2016 December 31, 2015

Cash on hand, demand deposits and checking accounts 8,392,955$ 28,528,513$

Time deposits 26,326,649 23,331,155

34,719,604 51,859,668

Cash equivalents - Repurchase bonds 665,235 663,122

35,384,839$ 52,522,790$

151

Financial assets and liabilities at fair value through profit or loss

A. The Group recognized net loss of $1,244,206 and $663,075 on the financial instruments for

the years ended December 31, 2016 and 2015, respectively.

B. The non-hedging derivative financial assets and liabilities transaction information are as

follows:

The Group entered into forward foreign exchange contracts to hedge exchange rate risk of

import and export proceeds and foreign currency. However, these forward foreign exchange

contracts are not accounted for under hedge accounting.

Assets December 31, 2016 December 31, 2015

Current items

Financial assets held for trading

Forward foreign exchange contracts 64,241$ 120,036$

Non-current items

Financial assets held for trading

Stock-Advanced Optoelectronic Technology Inc. 77,019$ 77,019$

Valuation adjustment 173,082 204,903

250,101$ 281,922$

Liabilities

Current items

Financial liabilities held for trading

Forward foreign exchange contracts 1,190,148$ 265,525$

Derivative financialassets and liabilities Contract Period Contract PeriodCurrent items Forward foreign USD (sell) 360,000 2016/10-2017/3 USD (sell) 150,000$ 2015/10-2016/2 exchange contracts JPY (buy) 39,597,920 2016/10-2017/3 TWD (buy) 4,896,705 2015/10-2016/2 Forward foreign TWD (sell) 621,240 2016/9-2017/2 USD (sell) 295,000 2015/10-2016/3 exchange contracts USD (buy) 20,000 2016/9-2017/2 JPY (buy) 35,649,520 2015/10-2016/3 Forward foreign EUR (sell) 19,000 2016/10-2017/1 EUR (sell) 5,000 2015/11-2016/1 exchange contracts USD (buy) 20,706 2016/10-2017/1 TWD (buy) 175,075 2015/11-2016/1 Forward foreign EUR (sell) 55,000 2016/9-2017/4 EUR (sell) 80,500 2015/10-2016/3 exchange contracts JPY (buy) 6,516,335 2016/9-2017/4 JPY (buy) 10,668,495 2015/10-2016/3 Forward foreign EUR(sell) 8,960 2016/12~2017/1 HKD (sell) 321,477 2015/11-2016/1 exchange contracts TWD(buy) 302,364 2016/12~2017/1 EUR (buy) 39,000 2015/11-2016/1 Forward foreign USD(sell) 715,000 2016/9~2017/2 USD (sell) 240,000 2015/10-2016/2 exchange contracts RMB(buy) 4,948,754 2016/9~2017/2 RMB (buy) 1,541,675 2015/10-2016/2 Forward foreign HKD(sell) 330,712 2016/10-2017/1 exchange contracts EUR(buy) 39,000 2016/10-2017/1

(in thousands) (in thousands)

December 31, 2016 December 31, 2015Contract Amount Contract Amount

(Notional Principal) (Notional Principal)

152

Available-for-sale financial assets

A. The Group recognized net gain (loss) in other comprehensive income for fair value change

and reclassified from equity to profit or loss for the years ended December 31, 2016 and

2015. Please refer to Note 6(20).

B. For the years ended December 31, 2016 and 2015, the Company and its subsidiary

assessed that investment value of certain investee companies was impaired and recognized

impairment loss of $500,000 and $108,000, respectively, and is listed as ‘other gains and

losses’.

C. The counterparties of the Group’s debt instrument investments have good credit quality.

Hedging derivative financial liabilities

A. The Company was exposed to significant risk of future cash flow changes on principal

payments associated with the Company’s floating interest rate bearing borrowings, both

current and long-term portion. Therefore, the Company entered into interest rate swap

contracts for exchanging floating interest rate for fixed interest rate (TWD90/180CP

(Page51328) to hedge such exposures. The contract had matured and was settled in

February 2015.

B. Information about gain or loss arising from cash flow hedges recognized in profit or loss

and other comprehensive income:

Accounts receivable

A. The Group’s accounts receivable that were neither past due nor impaired meet the credit

ranking rule based on the counterparties’ industrial characteristics scale of business and

profitability.

B. The aging analysis of accounts receivable and notes receivable that were past due but not

impaired is as follows:

Items December 31, 2016 December 31, 2015

Non-current items

Listed stocks and bond investments 5,295,578$ 6,403,449$

Emerging and unlisted stocks 545,351 719,585

5,840,929$ 7,123,034$

Items 2016 2015

Amount of gain or loss adjusted in other comprehensive income

-$ 5$

Amount of gain or loss transferred from other comprehensive income to profit or loss - 297,670

Years ended December 31,


Accounts receivable 53,798,678$ 48,944,637$

Less: Allowance for sales returns and discounts 833,545)( 636,330)(

Allowance for bad debts 109,501)( 118,516)(

52,855,632$ 48,189,791$

153

C. Movement analysis of accounts receivable and notes receivable that were impaired is as

follows: (a) As of December 31, 2016 and 2015, the Group’s accounts receivable that were impaired

were $109,501 and $118,516, respectively. (b) Movement on allowance for bad debts for impairment loss on individual provision is as

follows:

Transfer of financial assets The Company entered into a factoring agreement with financial institutions to sell its accounts receivable. Under the agreement, the Company is not obligated to bear the default risk of the transferred accounts receivable and this is without right of recourse. However, the Company is liable for the losses incurred on any business dispute. The Company does not provide collateral, and has no continuous involvement in the transferred accounts receivable. As a result, the Company derecognized the transferred accounts receivable. There were no related transactions during 2015. As of December 31, 2016, all the accounts receivable sold were collected and the Company entered into factoring agreements with CTBC bank and Taipei Fubon Commercial Bank in the amount of $19,995,000 and $6,450,000, respectively.

Inventories

Expenses and losses incurred on inventories are as follows:

A. The increase in net realisable value was caused by the inventories previously provided with

allowance that were subsequently scrapped or sold for the year ended December 31, 2015.


Up to 60 days 391,369$ 644,656$

61 to 180 days 8,364 42,281

Over 181 days - 15,766

399,733$ 702,703$

2016 2015

At January 1 118,516$ 139,867$

Allowance for bad debts - write-offs 9,001)( 21,447)(

Net exchange difference 14)( 36

Allowance for bad debts - reclassifications - 60

At December 31 109,501$ 118,516$

December 31, 2016 December 31, 2015Raw materials and supplies 3,352,916$ 3,952,699$ Work in process 12,345,964 13,906,846

Finished goods 7,702,848 12,338,887

23,401,728$ 30,198,432$

2016 2015Cost of inventories sold 260,260,782$ 317,186,303$ Loss on (gain on reversal of) decline in market value 546,886 602,609)( Disposal loss and others 193,118 909,185

261,000,786$ 317,492,879$


154

B. Due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016, certain

inventories were destroyed, please refer to Note 10 for details.

Investments accounted for under the equity method

The operating results of the Group’s share in all individually immaterial associates are

summarized below:

Property, plant and equipment

December 31, 2016 December 31, 2015Ampower Holding Ltd. 870,941$ 881,351$ FI Medical Device Manufacturing Co., Ltd. 451,943 321,683 TOA Optronics Corporation 89,366 310,074 Others 105,168 97,478

1,517,418$ 1,610,586$

2016 2015Profit for the year from continuing operations 187,454$ 213,587$

Other comprehensive (loss) income - net of tax 27,676)( 4,432

Total comprehensive income 159,778$ 218,019$


Transfer, netexchange

differencesAt January 1 Additions Disposals and others At December 31

Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 185,696,326 67,493 1,096,456)( 8,623,402 193,290,765

Machinery and equipment 432,460,229 212,508 4,382,487)( 9,944,453 438,234,703

Other equipment 33,632,482 43,195 1,216,192)( 4,051,965 36,511,450

655,641,829 323,196 6,695,135)( 22,619,820 671,889,710

Accumulated depreciation and impairment: Buildings 95,892,428)( 11,362,947)( 623,809 937,706 105,693,860)(

Machinery and equipment 352,326,878)( 24,600,403)( 4,341,598 1,226,935 371,358,748)(

Other equipment 26,880,493)( 4,253,632)( 1,267,015 23,252)( 29,890,362)(

475,099,799)( 40,216,982)( 6,232,422 2,141,389 506,942,970)(

Unfinished construction and equipment under acceptance 18,940,710 43,195,259 219,936)( 25,501,915)( 36,414,118

199,482,740$ 201,360,858$

2016

155

A. Amount of borrowing costs capitalised as part of property, plant and equipment and the

range of the interest rates for such capitalisation are as follows:

B. The Group evaluated the recoverable amount for assets with impairment indicators; the

impairment loss for the years ended December 31, 2016 and 2015 was $2,857 and $481,911,

respectively, shown under “other gains and losses”.

C. Information about the property, plant and equipment that were pledged to others as

collateral is provided in Note 8.

D. As of December 31, 2016 and 2015, the prepayments for business facilities which have not

yet entered the factory (shown as ‘other non-current assets’) amounted to $896,996 and

$3,110,696, respectively.

E. Due to the earthquake in Kaohsiung, Taiwan on February 6, 2016, a portion of property,

plant and equipment were damaged. Please refer to Note 10 for details.



Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 185,352,098 77,904 285,434)( 551,758 185,696,326


Other equipment 30,029,064 311,893 3,317,504)( 6,609,029 33,632,482

651,812,761 1,134,985 15,091,689)( 17,785,772 655,641,829

Accumulated depreciation and impairment: Buildings 83,503,695)( 13,130,422)( 216,190 525,499 95,892,428)( Machinery and equipment 325,264,992)( 35,070,724)( 10,473,424 2,464,586)( 352,326,878)( Other equipment 22,124,028)( 4,123,746)( 3,167,673 3,800,392)( 26,880,493)(

430,892,715)( 52,324,892)( 13,857,287 5,739,479)( 475,099,799)(

Unfinished construction and equipment under acceptance 12,689,797 24,661,681 796,613)( 17,614,155)( 18,940,710

233,609,843$ 199,482,740$

2015

Year endedDecember 31, 2016

Capitalised amount 323,503$

Range of the interest rates for capitalisation 2.00%~2.26%

156

Investment property

The fair value of the investment property held by the Group as at December 31, 2016 and

2015 was $1,109,891 and $1,077,466, respectively. The amounts mentioned above represent

valuation results of comparative method based on market trading information categorised

within Level 3 in the fair value hierarchy.

Intangible assets

A. Intangible assets are goodwill, payments for TFT-LCD related technology and royalty.

At January 1 Additions Transfers At December 31

Cost:

Land 188,247$ -$ -$ 188,247$

Buildings 564,109 - 124,881)( 439,228

752,356 - 124,881)( 627,475

Accumulated

depreciation and

impairment:

Buildings 71,853)( 11,132)( 28,935 54,050)(

680,503$ 11,132)($ 95,946)($ 573,425$

2016

At January 1 Additions Disposals At December 31

Cost:

Land 188,247$ -$ -$ 188,247$

Buildings 568,440 - 4,331)( 564,109

756,687 - 4,331)( 752,356

Accumulated

depreciation and

impairment:

Buildings 63,010)( 13,174)( 4,331 71,853)(

693,677$ 13,174)($ -$ 680,503$

2015



Cost: Patents and royalty 8,152,685$ -$ -$ 2,000$ 8,154,685$

Goodwill 17,096,628 - - - 17,096,628

Others 4,215,500 22,251 70,918)( 250,899 4,417,732

29,464,813 22,251 70,918)( 252,899 29,669,045

Accumulated amortization and impairment: Patents and royalty 6,668,709)( 859,363)( - - 7,528,072)(

Others 3,453,248)( 331,057)( 70,918 18,735 3,694,652)(

10,121,957)( 1,190,420)( 70,918 18,735 11,222,724)(

19,342,856$ 1,168,169)($ -$ 271,634$ 18,446,321$

2016

157

B. Details of amortization on intangible assets are as follows:

C. The Company performed impairment analysis for recoverable amount of the goodwill at

each reporting date and used the value in use as the basis for calculation of the recoverable

amount. The value in use was calculated based on the estimated present value of future

cash flows for five years, which was discounted at the discount rate of 5.86% and 5.72%

for the years ended December 31, 2016 and 2015, respectively, to reflect the specific risks

of the related cash generating units. The future cash flows were estimated based on the

future revenue, gross profit, and other operating costs each year. Based on the evaluation

above, the Company did not recognize impairment loss on goodwill for the years ended

December 31, 2016 and 2015.

Short-term borrowings

As of December 31, 2015, the Group has no short-term borrowings.



Cost: Patents and royalty 8,137,035$ -$ -$ 15,650$ 8,152,685$

Goodwill 17,096,628 - - - 17,096,628

Others 3,993,161 16,392 116,305)( 322,252 4,215,500

29,226,824 16,392 116,305)( 337,902 29,464,813

Accumulated amortization and impairment: Patents and royalty 5,735,685)( 933,024)( - - 6,668,709)(

Others 3,272,002)( 300,082)( 115,449 3,387 3,453,248)(

9,007,687)( 1,233,106)( 115,449 3,387 10,121,957)(

20,219,137$ 1,216,714)($ 856)($ 341,289$ 19,342,856$

2015

2016 2015Operating costs 1,004,043$ 1,005,129$

Operating expenses 186,377 227,977

1,190,420$ 1,233,106$


Type of borrowings December 31, 2016 Collateral

Bank loans

Credit loans 11,583,750$ None

Range of interest rates 0.83%~1.59%

158

Long-term borrowings

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term

borrowings.

B. The syndicated loan agreements specified that the Company shall meet covenants on

current ratio, liability ratio, interest coverage, and tangible net equity, which were based

on the Company’s annual consolidated financial statements audited by independent

auditors. The Company’s financial ratios on the consolidated financial statements for the

years ended December 31, 2016 and 2015 are in compliance with the covenants on the

syndicated loan agreement.

C. In order to repay the unpaid balance of the medium and long-term syndicated loans as

specified in the “Agreed-upon Repayment Agreement” which was signed on April 5, 2012,

the Board of Directors during its meeting on February 10, 2015 approved the proposal for

the Company to apply for a new syndicated credit line of $68.5 billion with certain

financial institutions. Subsequently, on March 12, 2015, the Company acquired consent of

all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’,

and waive negotiation on the debt issue.

D. For repayment of borrowings from financial institutions and financing mid-term working

capital fund, the Company entered into a contract for a syndicated loan with financial

institutions in the amount of $35 billion.

Pensions

A. Defined benefit pension plan

(a) The Company and its domestic subsidiaries have a defined benefit pension plan in

accordance with the Labor Standards Law, covering all regular employees’ service

years prior to the enforcement of the Labor Pension Act on July 1, 2005, and service

years thereafter of employees who choose to continue to be subject to the pension

mechanism under the Law. Under the defined benefit pension plan, two units are

accrued for each year of service for the first 15 years and one unit for each additional

year thereafter, subject to a maximum of 45 units. Pension benefits are based on the

number of units accrued and the average monthly salaries and wages of the last six

months prior to retirement. The Company and its domestic subsidiaries contribute

Type of loans Period December 31, 2016 December 31, 2015

Syndicated bank loans 2015/3/12~2021/12/6

44,840,000$ 60,280,000$

Less:

Administrative expenses charged by syndicated banks 329,847)( 288,794)(

Current portion (includes administrative expenses 16,381,686)( 16,361,238)(

28,128,467$ 43,629,968$

Range of interest rates 1.77%~2.06% 1.90%~2.19%

159

monthly an amount equal to 2% of the employees’ monthly salaries and wages to the

retirement fund deposited with Bank of Taiwan, the trustee, under the name of the

independent retirement fund committee. Also, the Company and its domestic

subsidiaries would assess the balance in the aforementioned 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 the employees expected to qualify

for retirement in the following year, the Company and its domestic subsidiaries will

make contribution for the deficit by next March.

(b) The amounts recognized in the balance sheet are as follows:

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

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


Present value of defined benefit obligation 1,827,687$ 1,852,905$

Fair value of plan assets 1,534,864)( 1,529,124)(

Net defined benefit liability 292,823$ 323,781$

Present value ofdefined benefit Fair value Net defined

obligation of plan assets benefit liability

Year ended December 31, 2016Balance at January 1 1,852,905$ 1,529,124$ 323,781$

Current service cost 7,565 - 7,565

Interest expense / income 31,499 25,995 5,504

39,064 25,995 13,069

Remeasurements:Experience adjustments 55,619)( 11,592)( 44,027)(

Benefits paid 8,663)( 8,663)( -

64,282)( 20,255)( 44,027)(

Balance at December 31 1,827,687$ 1,534,864$ 292,823$

Present value ofdefined benefit Fair value Net defined

obligation of plan assets benefit liability



Interest expense / income 36,133 33,501 2,632

44,361 33,501 10,860

Remeasurements:Change in financial assumptions 172,133 - 172,133

Experience adjustments 30,491 6,685 23,806

202,624 6,685 195,939


160

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 authorized by the Regulator. The

Company has no right to participate in managing and operating that fund and hence the

Company is 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, 2016 and 2015 is given in the Annual Labor Retirement Fund Utilisation

Report announced by the government. (e) The principal actuarial assumptions used were as follows:

Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary

Experience Mortality Table.

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

obligation is affected. The analysis was as follows:

The sensitivity analysis above was arrived at 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 analyzing sensitivity and the method of calculating net

pension liability in the balance sheet are the same.

(f) The Company suspended its contributions to the pension reserve as agreed by the

Science Park Administration in June 2013.

2016 2015

Discount rate 1.70% 1.70%

Future salary increases 3.00% 3.00%


Increase Decrease Increase DecreaseDecember 31, 2016 0.25% 0.25% 0.25% 0.25%

Effect on present value of

defined benefit obligation 75,371)($ 79,187$ 73,355$ 70,354)($

Increase Decrease Increase Decrease

December 31, 2015 1% 1% 1% 1%

Effect on present value of

defined benefit obligation 299,276)($ 367,992$ 337,723$ 283,242)($

Discount rate Future salary increases


161

(g) As of December 31, 2016, the weighted average duration of that retirement plan is 18

years.

B. Defined contribution pension plan

(a) Effective July 1, 2005, the Company and its domestic subsidiaries have 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 subsidiaries in Mainland China have defined contribution plans. Monthly

contributions to an independent fund administered by the government in accordance

with the pension regulations in the People’s Republic of China (PRC) are based on

certain percentages of employees’ monthly salaries and wages.

(c) The pension costs under the defined contribution pension plans of the Group for the

years ended December 31, 2016 and 2015 were $2,021,115 and $2,283,605,

respectively.

Share-based payment

A. As of December 31, 2016, the Company’s share-based payment transactions are set forth

below:

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40%

of total options granted on completion of the specified year(s) of service (one to four

years) from the grant date.

(b) The employee stock options had already expired.

Quantity

granted Contract

(in thousand period VestingType of arrangement Grant date units) ( in years) conditions

Employee stock options 2010.05.13 20,000 5 Note (a), (b)


Restricted stocks to employees

-shares without consideration 2013.01.30 31,151 3 Note (c), (d)

-shares subscribed with consideration 2013.01.30 31,151 3 Note (c), (d)

-shares without consideration 2013.03.29 844 3 Note (c), (d)

-shares subscribed with consideration 2013.03.29 844 3 Note (c), (d)



162

(c) The employees may exercise the stock options by stage based on 20%, 40% and 40%

of total options granted on completion of the specified year(s) of service (one to three

years) from the grant date.

(d) The restricted stocks issued by the Company cannot be transferred. Voting right and

dividend right are restricted on these stocks before vested.

(e) The fair value of stock options granted from 2010 to 2013 is measured using the

Black-Scholes option-pricing model. Relevant information is as follows:

B. The details of the employee stock option plan for the years ended December 31, 2016 and

2015 are as follows:

Exercise Expected Expected Expected Risk free Fair value

Price price volatility duration dividend interest per unit

Type of arrangement Grant date (in dollars) (in dollars) (%) (month) yield (%) rate (%) (in dollars)


-shares without consideration 2013.12.12 10.65$ $ - - - - - 10.65$

-shares subscribed with consideration 2013.12.12 10.65 5.00 - - - - 5.65

-shares without consideration 2013.03.29 18.40 - - - - - 18.40


-shares without consideration 2013.01.30 15.35 - - - - - 15.35


Employee stock options 2011.05.19 26.70 26.70 35.67 48.60 - 1.00 7.31

~8.32

Employee stock options 2010.05.13 39.85 39.85 51.57 48.60 - 0.80 15.12

~16.98

Weighted Weighted Weighted averageaverage Range of average stock price of

Quantity (in exercise exercise remaining stock optionsthousand price price vesting at exercise

Stock Options units) (in dollars) (in dollars) period date (in dollars)

Outstanding options at the beginning of the year 50,000 22.85$

Options exercised - - 9.99$ Options expired 50,000)( 21.87

Outstanding options at the end of the year - - -$ -

Exercisable options at the end of the year - -

Year ended December 31, 2016

163

C. For the years ended December 31, 2016 and 2015, the expenses incurred from

share-based payment arrangements were $15,260 and $143,442, respectively.

Provisions-current

A. Warranty

The Group provides warranty on TFT-LCD panel products sold. Provision for warranty is

estimated based on historical warranty data of TFT-LCD panel products.

B. Litigation and others

Litigation and other provisions for the Group are related to patents of TFT-LCD panel

products and anti-trust litigations. For information on estimation of provisions, please

refer to Note 9(1).

Share capital

As of December 31, 2016, the Company’s authorized and outstanding capital were

$105,000,000 and $99,521,488, respectively, with a par value of $10 (in dollars) per share.

All proceeds from shares issued have been collected.

Movements in the number of the Company’s ordinary shares outstanding are as follows:

A. On September 26, 2014, the Board of Directors of the Company resolved to increase

Weighted Weighted Weighted averageaverage Range of average stock price of

Quantity (in exercise exercise remaining stock optionsthousand price price vesting at exercise

Stock Options units) (in dollars) (in dollars) period date (in dollars) Outstanding options at the beginning of the year 70,000 25.63$ Options exercised - - 13.61$ Options expired 20,000)( 32.59 Outstanding options at the end of the year 50,000 22.85 22.85$ 0.39 years

Exercisable options at the end of the year 50,000 22.85


Warranty Litigation and others Total

At January 1, 2016 808,136$ 4,743,623$ 5,551,759$

Additions during the year 2,160,000 1,618,915 3,778,915

Used during the year 1,333,902)( 4,231,538)( 5,565,440)(

At December 31, 2016 1,634,234$ 2,131,000$ 3,765,234$

2016 2015

Number of ordinary Number of ordinary shares (in thousands) shares (in thousands)

At January 1 9,953,237 9,954,536

Cancellation of restricted stock to employees 1,088)( 1,299)(

At December 31 9,952,149 9,953,237

164

capital for cash by issuing global depositary receipts (the “GDR”). The amount of

$9,360,000 (approximately equivalent to US$312,625 thousand) is tentatively scheduled

for release. As the Company has received the bank’s approval for extending capital

increase, based on shareholder’s interest, the issuance of the GDR was cancelled in

accordance with the Financial Supervisory Commission (FSC)’s approval on January 30,

2015.

B. The Board of Directors of the Company resolved to increase capital for cash by issuing

the GDR and had been completed in January 2013. The Company issued 1,125,000

thousand shares of common stock for cash, with a unit of GDR representing 10 shares of

common stock at the Luxembourg Stock Exchange which raised a total of $14,519,051,

net of issuance cost. As of December 31, 2016, there were 213 thousand units

outstanding, representing 2,134 thousand shares of common stocks.

C. The Company adopted a resolution in 2013 to issue restricted shares to employees,

consisting of 36,263 thousand shares without consideration and 36,263 thousand shares

with consideration (the price for subscription is $5 per share). Until the vesting

conditions are met by employees, those shares are restricted with regard to transfer of

voting rights, dividend and other rights. As of December 31, 2016 and 2015, the

Company bought back 1,088 and 1,299 thousand shares of unvested restricted stocks to

employees, respectively, and decreased capital in accordance with related regulation.

D. The common stock issued by the Company in 2006 through private placement was

570,929 thousand shares. The rights and obligations of the private common shares were

the same as other issued common shares, except for the transfer restriction under R.O.C.

Securities and Exchange Act and the listing restriction that no public listing will be

allowed within three years since the day of issuance and only if the Company completes

the application to publicly issue the shares. The Board of Directors of the Company

approved the public issuance of the above private common shares on April 28, 2015. As

approved by the Financial Supervisory Committee on July 30, 2015, the stocks were

officially listed in the Taiwan Stock Exchange starting from August 7, 2015.

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 capitalized mentioned above

should not exceed 10% of the paid-in capital each year. Accumulated deficit shall first be

covered by retained earnings before the capital reserve can be used to cover the accumulated

deficit.

165

Retained earnings

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

first be offset against prior years’ operating losses, then set aside 10% of the remaining

Share of

profit (loss)

of associates

accounted for Restricted

under equity Employee stock to

Share premium method stock options employees Total

At January 1 99,101,649$ 36,458$ 393,500$ 111,957$ 99,643,564$

Cancellation of restricted stock to employees - - - 10,884 10,884

Vested restricted stock to employees 119,367 - - 119,367)( -

Changes in restricted stock to employees - - - 4,068)( 4,068)(

Expiration of employee stock options 393,500 - 393,500)( - -

Changes in net equity of long-term equity investments - 2,570)( - - 2,570)(

At December 31 99,614,516$ 33,888$ -$ 594)($ 99,647,810$

2016

Share of

profit (loss)

of associates


under equity Employee stock to

Share premium method stock options employees Total

At January 1 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$




Compensation related to share-based payment - - 22,740 - 22,740

Expiration of employee stock options 1,003,099 - 1,003,099)( - -

Changes in net equity of long-term equity investments - 27,185 - - 27,185

Changes in non-controlling interests 38 - - - 38

At December 31 99,101,611$ 36,458$ 393,500$ 111,957$ 99,643,564$

2015

166

amount as legal reserve (until the legal reserve equals the paid-in capital). Preferred

dividend shall be distributed after setting aside or reversing a special reserve according to

related regulations. The appropriation of the remaining amount along with the

unappropriated earnings from previous years shall be proposed by the Board of Directors

and resolved by the shareholders. The Company is in an emerging industry which is

growing rapidly, and has a capital intensive business. The Company is at the stage of

stable growth. In line with the Company’s long-term financial plan in the future,

investment environment and business competition situation, the appropriation of dividends

shall be proposed by the Board of Directors and resolved by the shareholders, taking into

account the future capital expenditure budget and capital requirement of the Company.

However, the stock dividends distributed to shareholders shall not exceed two-thirds of

distributable dividends in current period.

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 balance of the reserve

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

C. The details of the appropriations of 2015 and 2014 net income which were approved at

the stockholders’ meeting in June 2016 and 2015 are as follows:

The Company’s appropriations of earnings for 2016 are to be authorized by the Board of

Directors and presented for approval in the Company’s stockholders’ meeting in 2017.

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

remuneration, please refer to Note 6(25).

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 1,081,560$ 2,167,675$

Cash dividends 1,989,810 0.20$ 6,947,188 0.70$

3,071,370$ 9,114,863$

2015 2014

167

Other equity items

Other income

Available- Employee

Currency for-sale unearned

translation investments compensation Total

At January 1 1,695,294$ 1,074,445$ 19,402)($ 2,750,337$

Revaluation of available-for-sale investments - gross - 839,384)( - 839,384)(

Revaluation transfer of available-for-sale investment - gross - 500,000 - 500,000

Currency translation differences 5,708,026)( - - 5,708,026)(

Changes in restricted stocks to employees - - 4,142 4,142

Compensation related to share-based payment - - 15,260 15,260

Share of subsidiaries and other comprehensive loss of associates 27,676)( - - 27,676)(

Effect of income tax - 113,457)( - 113,457)(

At December 31 4,040,408)($ 621,604$ -$ 3,418,804)($

2016

Available- Employee

Currency for-sale Hedging unearned translation investments reserve compensation Total

At January 1 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

Fair value losses of cash flow hedges - - 5)( - 5)(

Reclassified as current income of cash flow hedges - - 297,670)( - 297,670)(

Revaluation of available-for-sale investments - gross - 2,304,633 - - 2,304,633

Revaluation transfer of available-for- sale investment - gross - 38,287)( - - 38,287)(

Currency translation differences 1,392,086)( - - - 1,392,086)(

Changes in restricted stocks to employees - - - 2,411 2,411

Compensation related to share-based payment - - - 120,702 120,702

Share of subsidiaries and other comprehensive loss of associates 4,432 - - - 4,432

Effect of income tax - 67,946 50,605 - 118,551

At December 31 1,695,294$ 1,074,445$ -$ 19,402)($ 2,750,337$

2015

2016 2015Rental revenue 162,665$ 182,349$ Interest income 291,240 484,873

Dividend income 177,880 224,441

Other income 1,757,110 1,421,519

2,388,895$ 2,313,182$


168

Other gains and losses

Finance costs

Expenses by nature

Employees’ compensation and directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation of the Company, a ratio of profit of the current

year distributable, after covering accumulated losses, shall be distributed as employees’

compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower

than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ and

supervisors’ remuneration.

B. For the years ended December 31, 2016 and 2015, employees’ compensation was accrued

at $192,788 and $734,524, respectively; which directors’ and supervisors’ remuneration

were accrued at $1,928 and $5,000, respectively. The aforementioned amounts were

recognized in expenses.

2016 2015Net loss on financial assets and liabilities at 1,244,206)($ 663,075)($ Net currency exchange gain 1,360,559 814,978

Loss on disposal of investments 23,258)( 47,583)(

Loss on disposal of property, plant and equipment 163,659)( 180,829)(

Impairment loss 502,857)( 589,911)( Disaster loss 1,296,166)( - Litigation loss and others 1,234,365)( 8,016,783)(

3,103,952)($ 8,683,203)($


2016 2015Interest expense: Bank borrowings 874,873$ 1,707,993$

Others 6 4,765

(Gain) loss on fair value change of financial Gain on cash flow hedges, reclassified from equity - 297,670)(

Factoring expense of accounts receivable 18,647 -

893,526$ 1,415,088$


2016 2015Employee benefit expense: Salaries and other short-term employee benefits 38,738,413$ 43,675,968$ Share-based payments 15,260 143,442 Post-employment benefits 2,034,184 2,294,465 Depreciation 40,228,114 52,338,066 Amortization 1,190,420 1,233,106

82,206,391$ 99,685,047$


169

The expenses recognized for 2016 were accrued based on the earnings of current year and

are to be presented for approval by the Board of Directors and reported during the

Company’s stockholders’ meeting.

Employees’ compensation and directors’ and supervisors’ remuneration for 2015 as

resolved by the Board of Directors, were $734,524 and $4,490, respectively. The

difference of $510 between employees’ compensation (directors’ and supervisors’

remuneration) as resolved by the Board of Directors and the amount recognized in the

2015 financial statements was caused by a different accrual ratio and had been recorded as

expense in 2016.

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

of the Company as resolved by the Board of Directors will be posted in the “Market

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

Income tax

A. Income tax expense

(a) Components of income tax expense:

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

is as follows:

B. Reconciliation between income tax expense and accounting profit:

2016 2015

Current tax:Current tax on profit for the year 1,313,262$ 1,010,940$

Tax on undistributed surplus earnings 590,712 915,947

Adjustments in respect of prior years 10,800)( 39,736

Total current tax 1,893,174 1,966,623

Deferred tax:Origination and reversal of temporary differences 1,228,259 2,078,423

Income tax expense 3,121,433$ 4,045,046$


2016 2015Fair value gains/losses on available-for-sale financial assets 113,457$ 67,946)($

Cash flow hedges - 50,605)(

Remeasurement of defined benefit obligation 7,485 33,309)(

120,942$ 151,860)($


170

C. Amounts of deferred tax assets or liabilities as a result of temporary differences and loss

carryforward are as follows:

2016 2015Tax calculated based on profit before tax and statutory tax rate 1,503,372$ 3,623,079$ Effects from items disallowed by tax regulation 372,858)( 929,272)( Prior year income tax (over) underestimate 10,800)( 39,736 Additional 10% tax on undistributed earnings 590,712 915,947 Effect from Alternative Minimum Tax - 42 Change in assessment of realization of deferred tax assets 1,411,007 395,514

Tax expenses 3,121,433$ 4,045,046$


Recognisedin other

Recognised in comprehensiveJanuary 1 profit or loss income December 31

Temporary differences:-Deferred tax assets: Sales returns and discount provisions 243,526$ 26,957$ -$ 270,483$ Accrued royalties and warranty provisions 654,557 77,287 - 731,844 Unrealized loss (gain) on financial instruments 926,234 342,383)( 113,457)( 470,394 Prior year expense carry forward 10,870 7,098)( - 3,772 Unrealized exchange loss (gain) 119,217 119,217)( - - Loss carryforward 13,618,091 998,277)( - 12,619,814 Others 315,972 293,349 7,485)( 601,836

15,888,467 1,069,382)( 120,942)( 14,698,143

-Deferred tax liabilities: Unrealized exchange gain - 113,545)( - 113,545)( Amortisation charges on goodwill 477,056)( 82,370)( - 559,426)( Others 37,038)( 37,038 - -

514,094)( 158,877)( - 672,971)( 15,374,373$ 1,228,259)($ 120,942)($ 14,025,172$


171

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax

assets are as follows:

E. The amounts of deductible temporary differences that were not recognized as deferred tax assets are as follows:

Recognisedin other


Temporary differences:-Deferred tax assets: Sales returns and discount provisions 166,373$ 77,153$ -$ 243,526$ Accrued royalties and warranty provisions 327,918 326,639 - 654,557 Unrealized (gain) loss on financial instruments 699,962 158,326 67,946 926,234 Prior year expense carry forward 40,794 29,924)( - 10,870 Unrealized exchange loss 200,697 81,480)( - 119,217

Loss carryforward 15,993,574 2,375,483)( - 13,618,091

Others 349,198 66,535)( 33,309 315,972

17,778,516 1,991,304)( 101,255 15,888,467

-Deferred tax liabilities:Unrealized (gain) loss on cash flow hedges 50,605)( - 50,605 - Amortisation charges on goodwill 394,687)( 82,369)( - 477,056)( Others 32,288)( 4,750)( - 37,038)(

477,580)( 87,119)( 50,605 514,094)(

17,300,936$ 2,078,423)($ 151,860$ 15,374,373$

Years ended December 31, 2015

Unrecognised

Year Amount filed deferred tax Usableincurred / assessed Unused amount assets until year

2010 Assessed 9,392,452$ 3,575,589$ 2020

2011 Assessed 63,808,943 24,291,267 2021

2012 Assessed 42,563,912 16,203,549 2022

2016 Filed 3,047,240 1,160,045 2026118,812,547$ 45,230,450$

December 31, 2016

UnrecognisedYear Amount filed deferred tax Usable

incurred / assessed Unused amount assets until year

2011 Assessed 66,433,000$ 18,410,536$ 20212012 Filed 43,278,299 11,950,753 2022

109,711,299$ 30,361,289$

December 31, 2015

172

F. The Company has not recognized taxable temporary differences associated with

investment in subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognized as deferred tax liabilities were $28,052,581 and $29,289,598, respectively.

G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor - liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.

H. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

I. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

J. The details of imputation system are as follows:

Earnings per share

As employee stock options had anti-dilutive effect for the year ended December 31, 2015,

they were not included in the calculation of diluted earnings per share.

Non-cash transaction

Investing activities with partial cash payments:


Deductible temporary differences 48,198,766$ 33,185,717$


(a) Balance of tax credit account 1,420,948$ 678,189$

2016 (Estimated) 2015 (Actual)

(b) Estimated (actual) creditable tax rate 7.59% 5.71%

2016 2015Basic earnings per shareProfit attributable to ordinary shareholders of the parent 1,870,687$ 10,815,594$

Weighted average number of ordinary shares outstanding (shares in thousands) 9,947,293 9,922,525

Basic earnings per share (in dollars) 0.19$ 1.09$

Diluted earnings per shareProfit attributable to ordinary shareholders of the parent 1,870,687$ 10,815,594$


Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation 54,316 116,513 -Restricted stocks 4,052 27,519

10,005,661 10,066,557

Diluted earnings per share (in dollars) 0.19$ 1.07$


173

RELATED PARTY TRANSACTIONS

Significant related party transactions

A. Operating revenue

The collection period was 30~120 days upon delivery or on a monthly-closing basis to

related parties, and 30~90 days to non-related parties. The sales prices and the trading terms

to related parties above were not significantly different from those of sales to third parties.

B. Purchases of goods

The payment term was 30~120 days to related parties after delivery, and 30~180 days to

non-related parties after delivery or on a monthly-closing basis. The purchase prices and the

payment terms from related parties above were not materially different from those of

purchases from third parties.

C. Consigned processing

(a) Consigned processing

(b) Balance of consigned processing at the end of period (shown as “Other payables”)

2016 2015

Purchase of property, plant and equipment 43,518,455$ 25,796,666$

Add: Opening balance of payable on equipment 3,974,152 2,688,976

Less: Ending balance of payable on equipment 3,339,764)( 3,974,152)(

Cash paid during the year 44,152,843$ 24,511,490$


2016 2015

Sales of goods:

Others 16,537,094$ 13,068,072$

Associates 113,916 233,299

16,651,010$ 13,301,371$


2016 2015

Purchases of goods:

Others 8,825,302$ 8,949,014$

Associates 1,383,704 360,626

10,209,006$ 9,309,640$


2016 2015

Processing costs:

Others 112,307$ 99,587$


174

The Group subcontracted the processing of products of associates in Mainland China.

The processing fees were mainly charged based on cost plus method.

D. Receivables from related parties:

The receivables from related parties arise mainly from sales transactions. The receivables

are due 30~120 days 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.

E. Payables to related parties:

The payables to related parties arise mainly from purchase transactions and are due 30~120

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

F. Property transactions

Purchase of property

(a) Acquisition of property, plant and equipment:

(b) Period-end balances arising from purchases of property (shown as “Other payables”):

Sale of property

(a) Proceeds from sale of property and gain on disposal:


Payables to related parties:

Others 46,171$ 70,229$

December 31, 2016 December 31, 2015Accounts receivable

Others 11,551,616$ 2,551,425$

Associates 47,743 81,428

11,599,359$ 2,632,853$

December 31, 2016 December 31, 2015Accounts payable

Others 4,890,426$ 3,284,529$

Associates 229,809 75,404

5,120,235$ 3,359,933$

2016 2015

Others 93,923$ 41,366$

Associates - 220

93,923$ 41,586$



Others 27,031$ 7,365$

175

(b) Period-end balances arising from sale of property (shown as “Other receivables”):

Key management compensation

PLEDGED ASSETS

The Group’s assets pledged as collateral are as follows:

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT

COMMITMENTS

Contingencies－Significant Litigations

A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co.,

Ltd., Chi Mei Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei

Optoelectronics USA Inc. were investigated by the United States (the “U.S.”) Department

of Justice in December 2006 for alleged violation of the anti-trust laws. Moreover,

authorities of some U.S state governments, as well as the governments of the European

Union, China, Brazil and Korea also started to investigate this case. For Brazil case, the

Company is continuously cooperating with the investigation. In addition, certain

downstream customers and consumers brought class-actions and/or individual civil lawsuits

in the U.S. and Canada against the TFT-LCD companies; and in certain lawsuits, CMO and

Chi Mei Optoelectronics USA Inc. were listed as defendants. Details of the investigations

Disposal proceeds Gain on disposal Disposal proceeds Gain on disposal

Others 1,365$ 940$ 1,812$ 45$

Year ended December 31, 2015Year ended December 31, 2016


Others 1,570$ 794$

2016 2015

Salaries and other short-term employee benefits 138,669$ 136,698$

Share-based payments 665 6,286

Post-employment benefit 458 220

139,792$ 143,204$


Pledged asset December 31, 2016 December 31, 2015 Purpose

Other financial assets- current

Time deposits -$ 6,204$ Tariff guarantee and land lease

Time deposits 1,726 - Credit card guaranteeProperty, plant and equipment

80,828,544 59,669,639 Long-term loans and performance guarantee for lease payable

Intangible assets 15,551 - Long-term loans and performance guarantee for lease payable

Other assets-non-current Time deposits 752 119,703 Tariff guarantee, land lease and

guarantee for contract- -

80,845,821$ 59,675,843$

Book value

176

on significant cases related to the alleged violation of the anti-trust laws are as follows:

(a) The Company had reached a plea agreement with the U.S. Department of Justice in

December 2009, agreeing to pay a fine of US$220 million through installment over five

years. The fine had been fully paid as of February 2015.

The Company had also reached out-of-court settlement agreements with the plaintiffs on

separate civil lawsuits in the U.S. since 2012 and recognized related losses.

Further, the Company had reached out-of-court settlement agreements with fourteen

State Governments since November 2011, agreeing to pay civil statutory damages in

order to settle these civil lawsuits. All civil lawsuits between the Company and the U.S

state governments have been settled.

(b) In December 2010, the Company had been ordered by the European Commission to pay

a fine of EUR 300 million. After the Company appealed the case, the General Court of

the European Union rendered a judgment in February 2014 lowering the fine from EUR

300 million to EUR 288 million. The Company further filed an appeal against a part of

the judgment and the Court of Justice of the European Union has adjudicated to maintain

the aforementioned amount of fine in July 2015.

(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably

estimated, the Company has recognized actual or estimated losses or liabilities in

“current provisions”.

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States

District Court for the District of East Texas on April 25, 2011, alleging infringement of its

patent. The administrative law judge has ruled a summary judgment for the lawsuit in

December 2013 rendering Eidos’ patent as invalid, and the presiding judge has confirmed

the summary judgment in January 2014. Eidos has filed a complaint in February 2014. The

United States Court of Appeals for the Federal Circuit has rejected the judgement and sent

back to the United States District Court in March 2015. The Company submitted an

application to ask the United States Court of Appeals for the Federal Circuit to rehear en

banc in April 2015. Though the United States Court of Appeals rejected the request in June

2015, the Company appealed to the Supreme Court in September 2015 and petitioned for

writ of certiorari. The Supreme Court of the United States has denied the appeal of the

Company in November 2015. The case remains at the ruling by the United States Court of

Appeals for the Federal Circuit in March 2015. However, the results of the litigation are

uncertain and are dependent on the future litigation progress. The Company does not expect

that the lawsuit would have a material adverse effect on the Company’s financial position

or results of operations in the short-term.

Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as

follows:

B. Operating lease commitments


Property, plant and equipment 17,531,784$ 37,625,398$

177

The Group leases plant, land and warehouses under non-cancellable operating lease

agreements. The majority of lease agreements are renewable at the end of the lease period

at market rate. The future aggregate minimum lease payments under non-cancellable

operating leases are as follows:

C. Outstanding letters of credit

The outstanding letters of credit for the purchase of property, plant and equipment are as

follows:

SIGNIFICANT DISASTER LOSS

The Company’s partial inventories and buildings were damaged due to the earthquake which

occurred in Kaohsiung, Taiwan on February 6, 2016. The Company has conducted a

preliminary disaster assessment and a conservative estimation on insurance claim to assess

possible disaster loss. However, the Company has full earthquake insurance and business

interruption insurance to cover the operating costs of inventories and building during the repair

period. The Company is actively processing the insurance claims. According to the initial

assessment, the Company may incur a probable loss after taking the insurance claims into

account. Accordingly, the company recognized a loss of $1,296,166 for the year ended

December 31, 2016, shown as “Other gains and losses”.

SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS

Capital management

The Company’s objectives are to maintain an optimal capital structure, and constructively

reduce the debt ratio and the cost of capital in order to maximize shareholders' equity.

Financial instruments

A. Fair value information of financial instruments

The carrying amounts of the Group’s financial instruments not measured at fair value

(including cash and cash equivalents, accounts receivable, other receivables, other

financial assets-current, short-term loans, accounts payable, other payables and long-term

loans) 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 and its subsidiaries’ 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 and its subsidiaries’ overall risk management

programme focuses on the unpredictability of financial markets and seeks to minimize

December 31, 2016 December 31, 2015Not later than one year 547,803$ 581,145$ Later than one year but not later than five years 1,962,352 2,150,162 Later than five years 888,807 1,219,709

3,398,962$ 3,951,016$


Outstanding letters of credit 245,565$ 474,222$

178

potential adverse effects on the Company’s and its subsidiaries’ financial position and

financial performance. The Company’s and its subsidiaries’ uses derivative financial

instruments to hedge certain risk exposures (see Notes 6(2), (4)).

(b) Risk management is carried out by the treasury department under policies approved by

the board of directors. The Company’s and its subsidiaries’ treasury identifies,

evaluates and hedges financial risks in close cooperation with the Company’s and its

subsidiaries’ operating units. The Board provides principles for overall risk

management, as well as 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 by excess liquidity.

C. Significant financial risks and degrees of financial risks

(a) Market risk

Foreign exchange risk

a) The Group operates internationally and is exposed to foreign exchange risk arising

from various currency exposures, primarily with respect to the USD and RMB.

Foreign exchange risk arises from future commercial transactions, recognized

assets and liabilities and net investments in foreign operations.

b) Management has set up a policy to require group companies to manage their

foreign exchange risk against their functional currency. The group companies are

required to hedge their entire foreign exchange risk exposure via the Company’s

treasury departments. To manage their foreign exchange risk arising from future

commercial transactions and recognized assets and liabilities, entities in the

Company use forward foreign exchange contracts. Foreign exchange risk arises

when future commercial transactions or recognized assets or liabilities are

denominated in a currency that is not the entity’s functional currency.

c) The Group’s businesses involve some non-functional currency operations (the

Company’s and certain subsidiaries’ functional currency: NTD; other certain

subsidiaries’ functional currency: RMB). Based on the simulations performed, the

impact on post-tax profit of a 1% exchange rate fluctuation would be an increase

of $671,050 and $161,700 for the years ended December 31, 2016 and 2015,

respectively. The information on assets and liabilities denominated in foreign

currencies whose values would be materially affected by the exchange rate

fluctuations is as follows:

179

Note: Exchange rate represents the amount of NT dollars for which one foreign

currency could be exchanged.

d) Total exchange gain (loss), including realized and unrealized arising from

significant foreign exchange variation on the monetary items held by the Group for

the years ended December 31, 2016 and 2015 amounted to $1,360,559 and

$814,978, respectively.

Price risk

a) The Group is exposed to equity securities price risk because of investments held by

the Company that are classified as available-for-sale or at fair value through profit

or loss in consolidated balance sheet. To manage its price risk arising from

investments in equity securities, the Group diversifies its portfolio in accordance

with the policy set by the Company.

b) The Group’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 20% with all other variables held constant, post-tax profit

for the years ended December 31, 2016 and 2015 would have increased/decreased

by $50,020 and $56,384, 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 $1,168,186 and $1,424,607, respectively,

as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

Foreign Foreign

Currency Exchange Currency Exchange

Amount Rate Book Value Amount Rate Book Value(In Thousands) (Note) (NTD) (In Thousands) (Note) (NTD)

Financial assets

Monetary items

USD 6,907,778$ 32.25 222,775,841$ 4,589,186$ 32.83 150,662,976$

JPY 8,114,141 0.28 2,271,959 9,363,752 0.27 2,528,213

EUR 85,344 33.90 2,893,162 75,963 35.88 2,725,552

Non-monetary items

USD 2,337,217$ 32.25 75,375,248$ 2,342,530$ 32.83 76,905,260$

HKD 223,521 4.16 929,847 178,232 4.24 755,704

JPY 5,619,277 0.28 1,573,398 5,527,619 0.27 1,492,457

EUR 3,703 33.90 125,532 3,697 35.88 132,648

USD 4,636,585$ 32.25 149,529,866$ 4,009,239$ 32.83 131,623,316$

JPY 35,248,180 0.28 9,869,490 29,629,471 0.27 7,999,957

EUR 42,379 33.90 1,436,648 3,440 35.88 123,427


Financial liabilities

Monetary items

180

a) The Group’s interest rate risk arises from long-term borrowings. Borrowings

issued at variable rates expose the Group to cash flow interest rate risk which is

partially offset by cash and cash equivalents held at variable rates. Borrowings

issued at fixed rates expose the Group to fair value interest rate risk. During the

years ended December 31, 2016 and 2015, the Group’s borrowings at variable rate

were denominated in the NTD.

b) The Group analyzes its interest rate exposure on a dynamic basis. Various

scenarios are simulated taking into consideration refinancing, renewal of existing

positions, alternative financing and hedging. Based on these scenarios, the

Company calculates the impact on profit and loss of a defined interest rate shift.

For each simulation, the same interest rate shift is used for all currencies. The

scenarios are run only for liabilities that represent the major interest-bearing

positions.

c) Based on the simulations performed, the impact on post-tax profit of a 0.25% shift

would be a maximum increase of $112,100 or decrease of $150,700 for the years

ended December 31, 2016 and 2015, respectively. The simulation is done on a

quarterly basis to verify that the maximum loss potential is within the limit given

by the management.

d) Based on the various scenarios, the Group manages its cash flow interest rate risk

by using floating-to-fixed interest rate swaps. Such interest rate swaps have the

economic effect of converting borrowings from floating rates to fixed rates.

Generally, the Group raises long-term borrowings at floating rates and swaps them

into fixed rates that are lower than those available if the Group borrowed at fixed

rates directly. The Group agrees with other parties to exchange interest rate, at

specified intervals. The difference between fixed contract rates and floating-rate

interest amounts are calculated by reference to the agreed notional amounts.

(b) Credit risk

a) 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’ credit policy, each local entity in the Group are

responsible for managing and analyzing the credit risk for each of their new clients

before standard payment and delivery terms and conditions are offered. Customer

credit quality is assessed via internal risk control, considering customer financial

position, past experience and other factors. Individual risk limits are set by the

board of directors based on internal or external ratings. The utilization of credit

limits is regularly monitored. Credit risk arises from cash and cash equivalents,

derivative financial instruments and deposits with banks and financial institutions,

as well as credit exposures to wholesale and retail customers, including

outstanding receivables. Because the Company's and its subsidiaries’

counterparties and executor are banks with good credit standing and financial

institutions and government with investment grade or above, there is no significant

default. Therefore, there is no significant credit risk.

181

b) No credit limits were exceeded during the reporting periods. Management does not

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

c) The individual analysis of financial assets that had been impaired is provided in

Note 6.

(c) Liquidity risk

a) Group treasury monitors rolling forecasts of the Company’s and its subsidiaries’

liquidity requirements to ensure it has sufficient cash to meet operational needs

while maintaining sufficient headroom on its undrawn committed borrowing

facilities (Note 6(13)) at all times so that the Group does not breach borrowing

limits or covenants (where applicable) on any of its borrowing facilities. Such

forecasting takes into consideration the Company’s and its subsidiaries’ debt

financing plans, covenant compliance, compliance with internal balance sheet ratio

targets and external regulatory or legal requirements.

b) Surplus cash held by the operating entities over and above balance required for

working capital management are transferred to the Group’s treasury. Group

treasury invests surplus cash in interest bearing savings accounts, time deposits,

money market deposits and marketable securities. The Group chooses instruments

that are with appropriate maturities or sufficient liquidity to provide sufficient

headroom as determined by the abovementioned forecasts. These are expected to

readily generate cash inflows for managing liquidity risk.

c) The table below analyses the Group’s non-derivative financial liabilities and

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

groupings based on the remaining period at the balance sheet date to the

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

maturity date for derivative financial liabilities. The amounts disclosed in the table

are the contractual undiscounted cash flows.

Less than Between 1 Between 3December 31, 2016 1 year and 3 years and 5 years Total

Short-term borrowings 11,583,750$ -$ -$ 11,583,750$

Accounts payable 56,995,540 - - 56,995,540

Other payables 22,916,097 - - 22,916,097

Long-term borrowings (including current portion) 16,440,000 27,850,000 550,000 44,840,000

Non-derivative financial liabilities


Accounts payable 60,429,884$ -$ -$ 60,429,884$

Other payables 24,912,360 - - 24,912,360

Long-term borrowings (including current portion) 16,440,000 43,840,000 - 60,280,000

182

d) The related information on the repayment of the medium and long-term syndicated

loans from the ‘‘Agreed-upon Agreement’’ is described in Note 6(13).

Fair value estimation

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

measured at fair value are provided in Note 12(2)A. Details of the fair value of the

Group’s investment property measured at cost are provided in Note 6(10).

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: Quoted prices (unadjusted) in active markets for identical assets or liabilities that

the entity can access at the measurement date. A market is regarded as active

where a market in which transactions for the asset or liability take place with

sufficient frequency and volume to provide pricing information on an ongoing

basis. The fair value of the Group’s investment in listed stocks and on-the-run

bonds 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 or indirectly. The fair value of the Group’s

investment in derivative instruments is included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Group’s

investment in equity investment without active market is included in Level 3.

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, 2016 and 2015 is as follows:

December 31, 2016 Less than 1 year Total

Forward exchange contracts 1,190,148$ 1,190,148$

Derivative financial liabilities

December 31, 2015 Less than 1 year Total Forward exchange contracts 265,525$ 265,525$

December 31, 2016 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Equity securities 250,101$ -$ -$ 250,101$

Forward exchange contracts - 64,241 - 64,241

Available-for-sale financial assets Equity securities 5,598,578 - 242,351 5,840,929

5,848,679$ 64,241$ 242,351$ 6,155,271$

LiabilitiesRecurring fair value measurementsFinancial liabilities at fair value through profit or loss Forward exchange contracts -$ 1,190,148$ -$ 1,190,148$

183

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

(a)The instruments the Group 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

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

consolidated balance sheet date.

(c)When assessing non-standard and low-complexity financial instruments, for example,

debt instruments without active market, interest rate swap contracts, foreign exchange

swap contracts and options, the Group adopts valuation technique that is widely used

by market participants. The inputs used in the valuation method to measure these

financial instruments are normally observable in the market.

(d)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.

(e)The output of valuation model is an estimated value and the valuation technique may

not be able to capture all relevant factors of the Group’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

December 31, 2015 Level 1 Level 2 Level 3 Total Assets

Financial assets at fair value through profit or loss Equity securities 281,922$ -$ -$ 281,922$

Forward exchange contracts - 120,036 - 120,036


6,685,371$ 120,036$ 719,585$ 7,524,992$

Liabilities

Financial liabilities at fair value through profit or loss Forward exchange contracts -$ 265,525$ -$ 265,525$

Recurring fair value measurements

Recurring fair value measurements

Listed shares Emerging stocks Corporate bond

Market quoted price Closing price Last transaction price Weighted average quoted price

184

accordance with the Group’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 consolidated balance sheet. The inputs

and pricing information used during valuation are carefully assessed and adjusted

based on current market conditions.

(f)The Group 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

Group’s credit quality.

E. For the years ended December 31, 2016 and 2015, there was no transfer between Level 1

and Level 2.

F. The following table presents the changes in level 3 instruments as at December 31, 2016

and 2015:

G. The Group holds private equity shares issued by Fitipower Integrated Technology Inc. The

required procedures for becoming publicly traded were completed and its shares started to

be traded as emerging stock in the Taipei Exchange from October 2016. The Group has

transferred the fair value from Level 3 into Level 1 at the end of month when the event

occurred.

H. As the shares of General Interface Solution (GIS) Holding Limited had been listed in June

2015, the Group transferred the fair value from Level 3 into Level 1 at the end of month

when the event occurred.

I. Investment management segment is in charge of valuation procedures for fair value

measurements being categorized within Level 3, which is to verify independent fair value

of financial instruments. Such assessment is to ensure the valuation results are reasonable

by applying independent information to make results close to current market conditions,

confirming the resource of information is independent, reliable and in line with other

resources and represented as the exercisable price, and frequently calibrating valuation

model, performing back-testing, updating inputs used to the valuation model and making

any other necessary adjustments to the fair value.

Investment management segment set up valuation policies, valuation processes and rules

for measuring fair value of financial instruments and ensure compliance with the related

2016 2015At January 1 719,585$ 1,841,097$ Transfers out from level 3 349,400)( 903,073)( Gains and losses recognized in other comprehensive income 31,501 218,439)(

Proceeds from capital reduction 159,335)( -

At December 31 242,351$ 719,585$

Equity securities

185

requirements in IFRS.

J. The following is the qualitative information of significant unobservable inputs and

sensitivity analysis of changes in significant unobservable inputs to valuation model used

in Level 3 fair value measurement:

K. The Group has carefully assessed the valuation models and assumptions used to measure

fair value; therefore, the fair value measurement is reasonable. However, use of different

valuation models or assumptions may result in different measurement. The following is

the effect of profit or loss or of other comprehensive income from financial assets and

liabilities categorised within Level 3 if the inputs used to valuation models have changed:

Fair value at

December 31,

2016

Valuation

technique

Significant

unobservable input

Range

(weighted

average)

Relationship of

inputs to fair value

Non-derivative equity instrument: Unlisted shares 214,665$ Market

comparablecompanies

Price to earnings ratiomultiple, price tobook ratio multiple,control premium

0.68~1.55

(0.88)

The higher themultiple and controlpremium, the higherthe fair value

Discount for lack ofmarketability

30%~70%

(31%)

The higher thediscount for lack ofmarketability, thelower the fair value

Venture capital shares Private equity fund investment

27,686 Net assetvalue

Not applicable 308

(308)

Not applicable

Fair value at

December

31, 2015

Valuation

technique

Significant

unobservable input

Range

(weighted

average)

Relationship of

inputs to fair value

Non-derivative equity instrument: Unlisted shares 388,799$ Market

comparablecompanies

Price to earnings ratiomultiple, price tobook ratio multiple,control premium

0.56~1.41

(0.70)



20%~70%

(22%)


Venture capital shares Private equity fund investment

28,596 Net assetvalue

Not applicable 318

(318)

Not applicable

Private placement shares (emerging companies)

302,190 Market pricemethod


30%

(30%)


186

SUPPLEMENTARY DISCLOSURES Significant transactions information

A. Loans to others: Please refer to table 1. 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 2. D. Acquisition or sale of the same security with the accumulated cost exceeding $300

million or 20% of the Company’s paid-in capital: None. E. Acquisition of real estate reaching $300 million or 20% of paid-in capital or more: None. F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None. G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of

paid-in capital or more: Please refer to table 3. H. Receivables from related parties reaching $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) and 6(4). J. Significant inter-company transactions during the reporting periods: Please refer to table

5. Information on investees

Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

Information on investments in Mainland China A. Basic information: Please refer to table 7. B. Significant transactions, either directly or indirectly through a third area, with investee

companies in the Mainland Area: Please refer to table 1, 3, 4 and 5. SEGMENT INFORMATION

General information The Group is primarily engaged in research, development, manufacture and sale of TFT LCD. The chief operating decision-maker considered the business from a perspective of product size of TFT LCD. TFT LCD products are currently classified into big size and small-medium size. Because the Company met the criteria for combining the segment information of big-size and small-medium-size TFT LCD departments, the Company disclosed only one reportable operating segment for all TFT LCD products. The Company’s operating segment information was prepared in accordance with the Company’s accounting policies. The chief operating decision-maker allocated resources and assesses performance of the operating segments primarily based on the operating revenue and profit (loss) before tax and discontinued operations of individual operating segment.

Favourable Unfavourable Financial assets Period Input Change change change

Equity instrument 2016/12/31 $ 242,351 ± 1% $ 2,424 ($ 2,424)

Equity instrument 2015/12/31 719,585 ± 1% 7,196 ( 7,196)

Recognised in othercomprehensive income

187

Segment information The segment information provided to the chief operating decision-maker for the reportable segments is as follows:

Reconciliation for segment income

A reconciliation of reported segment income and income from continuing operations before

tax is provided as follows:

A. Reconciliation of segment revenue with operating revenue:

B. Reconciliation of segment income with income from continuing operations before income

tax:

C. Reconciliation of segment assets with total assets:

D. Other significant reconciliation:

2016 2015

TFT LCD TFT LCD

Segment revenue 287,089,277$ 364,132,984$

Segment income 4,992,120$ 14,862,088$

Depreciation and amortization 41,418,534$ 53,557,244$

Capital expenditure-property, plant and equipment 44,152,843$ 24,511,490$

Segment assets 371,479,548$ 387,442,336$


2016 2015

Segment revenue 287,089,277$ 364,132,984$ Other revenue - -

Operating revenue 287,089,277$ 364,132,984$


2016 2015

Reportable segments income 4,992,120$ 14,862,088$ Others - 2,901)(

Income before tax from continuing operations 4,992,120$ 14,859,187$


December 31, 2016 December 31, 2015Segment assets 371,479,548$ 387,442,336$ Others - -

371,479,548$ 387,442,336$

188

Information on product

Revenue from external customers is mainly from TFT-LCD product. Details of revenue are

as follows:

Geographical information

Geographical information for the years ended December 31, 2016 and 2015 is as follows:

Major customer information

The individual sales to the Group’s customers that exceed 10% of the sales in the statements

of comprehensive income for the years ended December 31, 2016 and 2015 are set forth

below:

2016 2015

Depreciation and amortization 41,418,534$ 53,557,244$ Others - 13,928

41,418,534$ 53,571,172$

Capital expenditure - property, plant and equipment 44,152,843$ 24,511,490$ Others - -

44,152,843$ 24,511,490$


2016 2015Sale of TFT LCD products 287,089,277$ 364,132,984$ Other revenue - -

287,089,277$ 364,132,984$


Revenue Non-current assets Revenue Non-current assetsTaiwan 95,497,599$ 190,035,166$ 103,617,666$ 187,010,460$ China 59,778,250 31,982,735 92,893,492 36,492,781 Hong Kong 66,990,932 118 73,942,347 181 Europe 12,996,893 23,838 24,000,586 25,094 U.S.A. 11,582,252 713 16,352,055 450 Others 40,243,351 131,504 53,326,838 22,671

287,089,277$ 222,174,074$ 364,132,984$ 223,551,637$

Years ended December 31,2016 2015

Sales Percentage of sales Sales Percentage of sales

Customer A 41,448,102$ 14% 39,802,830$ 11%


2016 2015

189

Innolux Corporation and Subsidiaries

Loans to others For the year ended December 31, 2016

Table 1 Expressed in thousands of NTD

(Except as otherwise indicated)

No. Creditor Borrower General

ledger account

Is a related party

Maximum outstanding

balance during the year ended

December 31, 2016

Balance at December 31,

2016

Actual amount

drawn down

Interest rate

Nature of loan

Amount of transactions

with the borrower

Reason for short-term financing

Allowance for doubtful

accounts

Collateral Limit on loans granted to a single party

Ceiling on total loans granted

Footnote

Item Value

1 Innocom Technology

(Shenzhen) Co., Ltd.

Foshan Innolux Optoelectronics

Ltd.

Other receivables

Related parties

$5,084,600 $4,154,800 $4,127,390 1.1%~ 1.5%

Short-term financing

$ - Operating support

$ - - $ - $ 226,006,363

$ 226,006,363

A



Ningbo Innolux Optoelectronics

Ltd.

Other receivables

Related parties

2,092,050 2,092,050 2,092,050 1.5% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A



Ningbo Innolux Technology Ltd.

Other receivables

Related parties

650,860 - - 0% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A



Ningbo Innolux Display Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A



Nanjing Innolux Optoelectronics

Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

2 Nanjng Innolux Technology Ltd.

Nanjing Innolux Optoelectronics

Ltd.

Other receivables

Related parties

371,920 371,920 371,920 1.5% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A

3 Innolux Technology USA

Inc.

Innolux Hong Kong Ltd.

Other receivables

Related parties

193,500 193,500 193,500 0.56%~ 0.81%


- Operating support

- - - 226,006,363 226,006,363 A

4 Innolux Technology Europe B.V.


Other receivables

Related parties

1,314,502 1,314,502 1,287,584 0.007%~ 0.997%


- Operating support

- - - 226,006,363 226,006,363 A

190

No. Creditor Borrower General ledger

account

Is a related party

Maximum outstanding


December 31, 2016


2016

Actual amount

drawn down

Interest rate

Nature of loan


with the borrower



accounts



Footnote

Item Value

5 Innolux Technology Japan

Co., Ltd.


Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

6 Innolux Optoelectronics Japan Co., Ltd.


Other receivables

Related parties

$ 689,000

$ 689,000

$ 689,000

0.5% Short-term financing

$ -

Operating support

$ -

- $ -

$ 226,006,363

$ 226,006,363

A

7 Asiaward Investment Ltd.


Other receivables

Related parties

261,686 261,686 261,686 0% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A

8 Best China Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

9 Main Dynasty Investment Ltd.


Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

10 Mega Chance Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

11 Sun Dynasty Development

Limited

Magic Sun Limited

Other receivables

Related parties

1,074,111 1,074,111 1,074,111 0% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A

12 Magic Sun Limited

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

13 Warriors Technology

Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

Note A: The Company - Innolux Corporation 1.For loans obtained for short-term financing, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the company.

2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity. 3.The policy for loans granted to direct or indirect wholly-owned overseas subsidiaries is as follows: for short-term capital needs, financial limit shall not be below the 40% requirement, but should not exceed 100% of the company’s net equity.

191

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

December 31, 2016 Table 2 Expressed in thousands of NTD


Relationship with the securities issuer As of December 31, 2016

Securities held by Marketable securities General ledger account Number of shares Book value Ownership (%) Fair value Footnote

Common stock

Innolux Corporation AvanStrate Inc. None Available-for-sale financial assets - non-current

900,000 $ 53,574 1 $ 53,574

Innolux Corporation TPV Technology Ltd. None Available-for-sale financial assets - non-current

50,500,000 826,028 6 826,028

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financial assets - non-current

32,350,095 155,600 19 155,600

Innolux Corporation Epistar Corporation None Available-for-sale financial assets - non-current

89,072 2,062 - 2,062

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financial assets - non-current

44,741,305 610,719 9 610,719

Innolux Corporation Allied Material Technology Corp. None Available-for-sale financial assets - non-current

1,209 - - -

Yuan Chi Investment Co., Ltd. Trillion Science Inc. None Available-for-sale financial assets - non-current

1,439,180 796 3 796

Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. None Available-for-sale financial assets - non-current

9,282,000 69,151 2 69,151

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial assets at fair value through profit or loss

11,165,222 250,101 8 250,101

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financial assets - non-current

10,000,000 303,000 7 303,000

InnoJoy Investment Corporation G-TECH Optoelectronics Corporation None Available-for-sale financial assets - non-current

3,993,565 81,868 2 81,868


OED Holding Ltd. None Available-for-sale financial assets - non-current

16,000,000 4,695 6 4,695


General Interface Solution (GIS) Holding Limited

None Available-for-sale financial assets - non-current

40,500,000 3,705,750 13 3,705,750

Nets trading Ltd. PilotTech Global Fund None Available-for-sale financial assets - non-current

90 27,686 - 27,686

192

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

For the year ended December 31, 2016 Table 3 Expressed in thousands of NTD


Purchaser/seller Counterparty Relationship with the counterparty

Transaction Differences in transaction terms compared to third party

transactions

Notes/accounts receivable (payable)

Purchases (sales)

Amount Percentage of total purchases

(sales)

Credit term Unit price Credit term Balance Percentage of total notes/accounts

receivable (payable)

Footnote

Innolux Corporation Hon Hai Precision Industry Co., Ltd.

Same major stockholder Sales $ 8,777,756 3 60-90 days Similar with general sales

No material difference

$ 7,605,574 12

Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary

Sales 6,392,974 2 60 days Similar with general sales


-

-

Innolux Corporation Innolux Optoelectronics Japan Co., Ltd.

A subsidiary of the Company Sales 2,017,948 1 45 days Single sales target, no basis for comparison


151,853 -

Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd.

An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

Sales 1,835,243 1 45-90 days Similar with general sales


563,698 1

Innolux Corporation Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary

Sales 1,341,129 - 60 days Similar with general sales


-

-

Innolux Corporation Competition Team Technology (India) Private Limited


Sales 953,423 - 90 days Similar with general sales


317,648 1

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary



-

-

Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd.


Sales 836,014 - 60-90 days Similar with general sales


367,210 1

Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd.




445,861 1

Innolux Corporation Innolux Optoelectronics USA, Inc.

An indirect wholly-owned subsidiary



66,671 -

Innolux Corporation eCMMS Precision Singapore Pte. Ltd.




118,971 -

Innolux Corporation Chi Lin Optoelectronics Co., Ltd.

The company is a corporate director of Chi Lin Optoelectronics



65,137 -

Innolux Corporation Hongfujin Precision Electronics (Zhenzhou) Co., Ltd.




- -

193



transactions


Purchases (sales)


(sales)



Footnote

Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

Sales $ 242,518 - 90 days Similar with general sales


$ 1,703 -

Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd.




99,027 -

Innolux Corporation Nanjing Innolux Optoelectronics Ltd.




73,386 -

Innolux Corporation Hongfujin Precision Industry (Shenzhen) Co., Ltd.




7,516 -

Innolux Corporation FI Medical Device Manufacturing Co., Ltd.

The company's investments accounted for under the equity method



47,743 -

Innolux Corporation Innolux Optoelectronics Europe B.V.

A subsidiary of the Company Sales 110,182 - 30 days Similar with general sales


15,023 -


Same major stockholder Purchases 2,695,546 1 60~90 days after acceptance

Single purchases target, no basis for comparison


( 1,577,291) 2



Purchases 1,123,036 - 30 days after acceptance



( 171,128) -



Purchases 302,134 - 120 days after acceptance



( 145,018) -

Innolux Corporation GIO Optoelectronics Corp. The company's investments accounted for under the equity method




( 52,456) -


Processing expense

53,116,567 20 60-90 days Cost plus No material difference

(21,652,362) 27

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processing expense


(19,136,288) 24

194



transactions


Purchases (sales)


(sales)



Footnote


Processing expense

$ 17,621,556 7 60-90 days Cost plus No material difference

($ 7,545,137) 9


Foxconn Precision Electronics (YanTai) Co., Ltd.


Sales 1,259,092 2 90 days Similar with general transactions


1,214,351 4


Yantai Fuhuada Precision Electronics Co., Ltd.


Sales 427,330 1 90 days Similar with general transactions


478,034 2


Premier Image Technology (China) Ltd.


Sales 208,657 - 90 days Similar with general transactions


233,414 1

Ningbo Innolux Optoelectronics Ltd.

Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary



1,406,162 6






- -






233,397 5





- -

Innocom Technology (Shenzhen) Co., Ltd.




330 -






330 -






245,026 27

Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd.




337,685 3

Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.




52,556 -

195



transactions


Purchases (sales)


(sales)



Footnote


Lakers Trading Ltd. An indirect wholly-owned subsidiary

Processing revenue

$ 28,261,854 79 60 days Similar with general transactions


$ 13,598,180 83


Leadtek Global Group Limited A subsidiary of the Company Processing revenue

17,344,095 78 60 days Similar with general transactions


15,769,351 92



Processing revenue



3,392,000 94


Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary

Processing revenue



5,421,971 100



Processing revenue



1,756,905 100



Processing revenue



- -



267,762 66 60 days Similar with general transactions


- -



Service revenue



72,628 97



Service revenue



56,365 64


Hon Hai Precision Industry Co., Ltd.

Same major stockholder Purchases 993,225 4 90 days after goods are shipped

Similar with general transactions


(368,533) 6



Same major stockholder Purchases 2,512,243 4 90 days after goods are shipped



(2,052,444) 8


Ningbo Lin Moug Optronics Co., Ltd.

An indirect wholly-owned subsidiary of Chi Lin Optoelectronics Co., Ltd.

Purchases 634,425 1 120 days after goods are shipped



(216,554) 2

196



transactions


Purchases (sales)


(sales)



Footnote




Purchases $ 547,478 2 120 days after goods are shipped



($ 195,252) 3






(146,925) 1


Hongfujin Precision Industry (Shenzhen) Co., Ltd.





(156,541) 1

197

Innolux Corporation and Subsidiaries Receivables from related parties reaching $100 million or 20% of paid-in capital or more



Creditor Counterparty Relationship with the counterparty

Balance as at December 31, 2016

Turnover rate

Overdue receivables Amount collected subsequent to the

balance sheet date

Allowance for doubtful accounts

Amount Action taken

Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder $ 7,605,574 2.03 $ 409,768 Subsequent collection $ 716,810 $ -



563,698 3.79 168,958 Subsequent collection 92,347 -






367,210 3.95 - - 117,991 -



317,648 4.13 - - 54,829 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

218,893 0.09 - - - -

Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company

151,853 13.89 - - - -

Innolux Corporation eCMMS Precision Singapore Pte.Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

118,971 8.79 17,450 Subsequent collection - -

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company

15,769,351 1.04 9,358,075 Subsequent collection 2,902,573 -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

1,406,162 1.61 380,541 Subsequent collection 946,047 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

3,392,000 1.67 - - 2,380,978 -

Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

233,397 3.06 - - 191,610 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary




1,756,905 5.18 - - 1,238,852 -

Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

13,598,180 2.61 213,896 Subsequent collection 5,482,509 -

198



Turnover rate

Overdue receivables Amount collected subsequent to the balance sheet date


Amount Action taken

Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd.


$ 1,214,351 0.31 $ - - $ 95,700 $ -

Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd.


478,034 0.89 - - 1,396 -

Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

233,414 0.89 - - - -


Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

245,026 1.24 - - 245,026 -



674,949 - 594,521 Subsequent collection - -

Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary

337,685 2.31 -

- 182,183 -

199

Innolux Corporation and Subsidiaries Significant inter-company transactions during the reporting period



Number Company name Counterparty Relationship (Note A)

Transaction (Note C)

General ledger account Amount Transaction terms (Note B)

Percentage of consolidated total operating revenues or

total assets

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Sales $ 1,341,129 - -

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Processing expense 17,621,556 - 6

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Accrued expenses (7,545,137) - 2

0 Innolux Corporation Innolux Optoelectronics Europe B.V. 1 Sales 110,182 - -

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Sales 2,017,948 - 1

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Accounts receivable 151,853 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 541,547 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 949,933 - -

0 Innolux Corporation Lakers Trading Ltd. 1 Sales 6,392,974 - 2

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 53,116,567 - 19

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses ( 21,652,362) - 6

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 19,102,050 - 7

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses (19,136,288) - 5

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Accounts receivable 218,893 - -

0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 1 Sales 141,437 - -

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Sales 242,518 - -

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 7,349,948 - 3

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Sales 520,147 - -

1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 4,550,697 - 2

1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 1,756,905 - -

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 28,261,854 - 10

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 13,598,180 - 4

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 12,061,738 - 4

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 5,421,971 - 1

200





total assets 4 Innocom Technology (Shenzhen) Co.,

Ltd. Ningbo Innolux Display Ltd. 3 Sales $ 379,223 - -

4 Innocom Technology (Shenzhen) Co., Ltd.

Nanjing Innolux Optoelectronics Ltd. 3 Sales 103,908 - -


Foshan Innolux Optoelectronics Ltd. 3 Sales 303,347 - -


Foshan Innolux Optoelectronics Ltd. 3 Accounts receivable 245,026 - -


Lakers Trading Ltd. 3 Accounts receivable 674,949 - -

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Processing revenue 267,762 - -

5 Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. 3 Sales 132,817 - -

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 17,344,095 - 6

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 15,769,351 - 4

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 4,965,960 - 2

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 1,406,162 - -

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 17,174,029 - 6

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable 3,392,000 - 1

7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Sales 714,999 - -

7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Accounts receivable 233,397 - -

8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 3 Service revenue 318,599 - -

9 Innolux Technology Europe B.V. Innolux Hong Kong Ltd. 3 Service revenue 649,856 - -

10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 3 Sales 844,345 - -

10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 3 Accounts receivable 337,685 - -

11 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. 3 Sales 131,339 - -

Note A: 1. The parent company to the subsidiary. 3. The subsidiary to the subsidiary. Note B: Except for no comparable transactions from related parties, sales prices were similar to non-related parties transactions and the collection period was 30~120 days; the purchases from related parties were at market prices and payment term was 30~120 days upon receipt of goods. Note C: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100 million or 20% of capital.

201

Innolux Corporation and Subsidiaries Information on investees



Investor Investee Location Main business activities

Initial investment amount Shares held as at December 31, 2016 Net profit (loss) of the investee

for the year ended

December 31, 2016

Investment income (loss)

recognised by the Company for the

year ended December 31,

2016

Footnote



Number of shares Ownership (%)

Book value

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings $ 119,724 $ 119,724 4,910,000 100 $ 103,372 ($ 6,715) ($ 6,715) Innolux Corporation Golden Achiever International

Ltd. BVI Investment holdings 119,106 119,106 40,250 100 61,422 149 766

Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings 7,858,300 7,858,300 246,768,185 100 18,523,142 136,022 156,597 Innolux Corporation Keyway Investment

Management Limited Samoa Investment holdings 197,554 197,554 5,656,410 100 257,392 46,660 46,660

Innolux Corporation Landmark International Ltd. Samoa Investment holdings 33,438,542 33,438,542 709,450,000 100 45,894,168 3,833,333 3,856,508 Innolux Corporation Toppoly Optoelectronics (B.V.I.)

Ltd. BVI Investment holdings 3,674,115 3,596,307 146,847,000 100 6,717,191 426,811 426,093

Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings 2,107,291 2,107,291 1,158,844,000 100 3,341,269 581,552 586,288

Innolux Corporation Leadtek Global Group Limited BVI Distributor company - - 50,000,000 100 ( 322,973) ( 94,225) ( 94,225) Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 922,529 ( 167,476) ( 167,476) Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,246,809 ( 76,420) ( 76,420)


Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

121,941 121,941 180 100 125,531 221 221


Japan Researching, manufacturing and selling of the film transistor liquid crystal display

1,335,486 1,335,486 80 100 1,548,673 34,739 34,739

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 870,941 24,266 12,133 Innolux Corporation Jetronics International Corp. Samoa Investment holdings - 86,149 - - - - 66,624 Innolux Corporation FI Medical Device

Manufacturing Co., Ltd. Taiwan Production and selling

of the absorption for medical element

73,500 73,500 7,350,000 49 451,943 750,982 319,420

Innolux Corporation iZ3D, Inc. USA Research and development and sale of 3D flat monitor

- - 4,333 35 - - -

Innolux Corporation Chi Mei Lighting Technology Corporation

Taiwan Manufacturing of electronic equipment and lighting equipment

819,312 819,312 78,195,856 33 - - -

202


Initial investment amount Shares held as at December 31, 2016 Net profit (loss) of the investee

for the year ended

December 31, 2016




2016

Footnote




Book value

Innolux Corporation GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

$ 800,892 $ 800,892 14,812,705 24 $ 104,378 $ 42,915 $ 10,205

Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings 7,296,530 7,296,530 226,504,550 100 13,988,464 16,326 16,326 Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 4,381,595 121,085 121,085 Innolux Holding Ltd. Lakers Trading Ltd. Samoa Distributor company - - 1 100 245,699 - - Innolux Holding Ltd. Innolux Corporation USA Distributor company 6,348 6,348 2,000 100 ( 92,626) ( 1,388) ( 1,388) Toppoly Optoelectronics (B.V.I.) Ltd.


Cayman Investment holdings 3,650,192 3,572,384 146,817,000 100 6,717,534 426,811 426,811

Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong Kong Holding Ltd.

Hong Kong Investment holdings - - 162,897,802 100 1,253,619 295,151 295,151

Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Distributor company - - 35,000,000 100 ( 1,577,537) 235,251 235,251 Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company and

R&D testing company 3,073,072 3,073,072 375,810 100 2,189,753 36,358 36,358

Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd.

Japan R&D testing company 1,815,603 1,815,603 201 100 1,718,579 1,203 1,203

Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company 263,685 263,685 1,000 100 373,245 16,126 16,126 Innolux Optoelectronics Europe B.V.


Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

10,324 10,324 250 100 12,791 ( 3,467) ( 3,467)



USA Selling of electronic equipment and computer monitors

2,400 2,400 1,000 100 284,789 11,954 11,954

Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings 314,740 314,740 10,000,001 100 261,686 238 238 Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings 573,940 573,940 18,000,000 100 430,952 391 391 Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings 1,146,370 1,146,370 38,000,001 100 1,074,111 975 975 Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings 5,391,125 5,391,125 164,000,000 100 12,191,630 14,721 14,721 Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 29,966 - - Suns Holding Ltd. Warriors Technology

Investments Ltd. Samoa Investment company 555,422 555,422 18,177,052 100 4,381,593 121,085 121,085

Innolux Technology Europe B.V. Innolux Technology Germany GmbH

Germany Testing and maintenance company

33,735 33,735 100,000 100 56,344 554 554

Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings 314,740 314,740 77,830,001 100 261,686 238 238 Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings 573,940 573,940 139,623,801 100 430,951 391 391 Magic Sun Ltd. Sun Dynasty Development Ltd. Hong Kong Investment holdings 1,146,370 1,146,370 295,969,001 100 1,074,111 975 975 Yuan Chi Investment Co., Ltd. Chi Mei Lighting Technology

Corporation Taiwan Trading business,

manufacturing of electronic equipment and lighting equipment

263,812 263,812 19,673,402 8 - - -

203


Initial investment

amount

Shares held as at December

31, 2016

Net profit (loss) of the investee

for the year ended December

31, 2016


recognised by the

Company for the year

ended December 31, 2016

Footnote Investor Investee Location




Book value

Yuan Chi Investment Co., Ltd. GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

$ 6,881 $ 6,881 109,021 - $ 790 $ 42,915 $ 77

Yuan Chi Investment Co., Ltd. TOA Optronics Corporation Taiwan Selling electronic materials, trading business, manufacturing of electronic equipments and lighting equipments

423,606 423,606 58,007,000 40 89,366 ( 202,512) ( 221,005)

204

Innolux Corporation and Subsidiaries Information on investments in Mainland China



Investee in Mainland China

Main business activities Paid-in capital (Note A)

Investment method (Note C)

Accumulated amount of

remittance from Taiwan to

Mainland China as of January 1,

2016

Amount remitted from Taiwan to Mainland

China/Amount remitted back to Taiwan for the

year ended December 31, 2016



Mainland China as of December

31, 2016

Net income of investee for the


2016

Ownership held by the Company (direct or indirect)




2016 (Note B)

Book value of investments in

Mainland China as of

December 31, 2016

Accumulated amount of investment

income remitted back

to Taiwan as of December 31,

2016

Footnote

Remitted to Mainland

China

Remitted back to Taiwan


Manufacturing and selling of LCD backend module and related components

$ 5,289,000 2 $ 4,092,903 $ - $ - $ 4,092,903 $ 14,721 100 $ 14,721 $ 12,191,617 $ 1,196,097 2.1

OED Company Manufacturing and selling of electronic paper

298,972 2 64,500 - - 64,500 ( 117,377) 4 - 11,488 - 2.1



9,997,500 2 237,523 - - 237,523 1,348,182 100 1,348,182 21,809,352 5,567,477 2.2



4,192,500 2 4,192,500 - - 4,192,500 - 100 ( 51,415) - - 2.2 2.8



12,351,750 2 12,351,750 - - 12,351,750 2,031,410 100 2,033,936 20,190,825 - 2.2



967,500 2 967,500 - - 967,500 451,215 100 502,631 3,928,808 - 2.2 2.8

Nanjng Innolux Technology Ltd.

Purchases and sales of monitor-related components company

67,725 2 67,725 - - 67,725 ( 9,041) 100 ( 9,041) 548,960 - 2.3


Glass thinning processing service

129,000 2 121,965 - - 121,965 ( 1,546) 100 ( 1,546) 64,129 - 2.3

VAP Optoelectronics (Nanjing) Corp.


325,725 2 122,550 - - 122,550 149 100 149 61,018 - 2.4



4,579,500 2 4,579,500 - - 4,579,500 437,398 100 437,398 6,104,421 - 2.3

Ningbo Innolux Logistics Ltd.

Warehousing services 129,000 2 129,000 - - 129,000 38,371 100 38,371 181,751 - 2.6

205







2016







31, 2016



2016





2016 (Note B)



December 31, 2016




2016

Footnote


China




$ 677,250 2 $ - $ - $ - $ - $ 295,151 100 $ 295,151 $ 1,253,619 $ - $ 3



Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments

258,000 2 322,500 - - 322,500 22,597 50 11,299 199,222 - 2.7

Interface Optoelectronics (Shenzhen) Co., Ltd.

Development of new type of flat panel display, monitor and peripherals, production and management, and offer of after-sales service

3,102,450 2 435,375 - - 435,375 38,027 13 - 3,705,750 - 2.1



139,470 3 - - - - 110,209 100 110,209 244,877 - 3.1


Commodity agency 4,649 3 - - - - ( 1) 100 ( 1) 4,648 - 3.2



Ceiling on investments in Mainland China:

Company name Accumulated amount of remittance from

Taiwan to Mainland China as of December 31, 2016

Investment amount approved by the Investment Commission of the Ministry

of Economic Affairs (MOEA)

Ceiling on investments in Mainland China imposed by the Investment

Commission of MOEA

Innolux Corporation $ 29,238,867 $ 38,733,112 $ 135,603,818

Note A: The relevant figures were listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate.

Note B: Profit or loss recognised for the year ended December 31, 2016 was audited by independent accountants.

Note C: The investment methods are as follows:

1. Directly investing in Mainland China.

2. Through investing in companies in the third area, which then invested in the investee in Mainland China.

2.1. Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

206

2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.

2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.

2.5. Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.

2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.8. Ningbo Innolux Display Ltd. acquired Ningbo Innolux Technology Ltd. by merger, and approved by the Investment Commission of the Ministry of Economic Affairs in November 2016.

3. Others.

3.1. The company invested in the company via investee company in Mainland China, Ningbo Innolux Display Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not

approved by Investment Commission of the Ministry of Economic Affairs

3.2 The company invested via Foshan Innolux Optoelectronics Ltd. and Ningbo Innolux Optoelectronics Ltd. which are the company investment entities in Mainland China to invest in Foshan Innolux Flnet Electronics Ltd. and Ningbo Innolux Flnet Electronics Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs.

207

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Shareholders of Innolux Co., Ltd.

Opinion

We have audited the accompanying parent company only balance sheets of Innolux Corporation (the “Company”) as at December 31, 2016 and 2015, and the related parent company only statements of comprehensive income, of changes in equity and of cash flows for the years then ended, and notes to the parent company only financial statements, including a summary of significant accounting policies. In our opinion, the accompanying parent company only financial statements present fairly, in all material respects, the parent company only financial position of the Company as at December 31, 2016 and 2015, and its parent company only financial performance and its parent company only cash flows for the years then ended in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”.

Basis for opinion

We 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 Parent Company Only 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 matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the parent company only financial statements of the current period. These matters were addressed in the context of our audit of the parent company only financial statements as a whole and, in forming our opinion thereon, we do not provide a separate opinion on these matters.

Valuation and impairment of goodwill and property, plant and equipment Description For details of the impairment valuation of goodwill and property, plant and equipment, please refer to Note 6(11). As of December 31, 2016, goodwill and property, plant and equipment amounted to NT$17,096,628 thousand and NT$170,150,592 thousand, respectively. Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining whether goodwill and property, plant and equipment may be impaired, the recoverable amount of the

208

cash generating unit is measured based on how assets are utilized, duration years of assets and projected income and expenses in the future. The estimate involves several assumptions such as determination of discount rates, expected growth rate and future financial projections. As these estimates are dependent upon significant management judgement, we consider management’s assessment of impairment of goodwill and property, plant and equipment a key audit matter. How our audit addressed the matter We assessed the key assumptions used by management in estimating expected future cash flows, including the reasonableness of expected operating revenue, gross profit, changes in expenses, and the basic assumptions applied in expected future cash flows. We also examined the parameters of discount rates, including the risk-free rate of return on equity capital, the risk factor of the industry and the rate of return on similar investments in the market. Additions to property, plant and equipment Description The Company’s capital expenditures increased with its operational growth. In 2016, property, plant and equipment increased by NT$41,145,085 thousand, which was 11% of total assets of the Company. For details of property, plant and equipment, please refer to Notes 6(9) and (28). As the amount of property, plant and equipment is material, we identified the additions to property, plant and equipment a key audit matter. How our audit addressed the matter We assessed and tested the effectiveness of internal controls related to additions to property, plant and equipment, including sampling and checking purchase orders and invoices as to whether the transactions have been approved appropriately and the correctness of the recorded amounts. We also checked the related receipts or acceptance documents to ensure that additions are recognized in appropriate period. In addition, through sampling method, we conducted physical inspection of certain assets to confirm that the purchased items exist. Estimation of significant disaster insurance claim

Description As described in Note 10, some of the Company’s inventory, building and equipment were damaged during the earthquake in Kaohsiung, Taiwan on February 6, 2016. The Company is in the process of claiming insurance for the damages. The determination of the claim amount involves critical accounting judgements and estimates by the management, including the list of losses incurred which are covered by insurance and evaluation of replacement cost. Given the significance of the claim, we consider the estimation of disaster insurance claim a key audit matter. How our audit addressed the matter Our procedures in relation to estimation of disaster insurance claim included: E. Checking assets insurance contracts with the insurance company, and confirming whether the

inventory, building and equipment damaged during the earthquake were covered by insurance; F. Obtaining the claims list and damaged inventory, building and equipment list, and verifying the

damaged inventory and building list, selecting samples and cross comparing the data for completeness and accuracy and checking the accuracy of accounting records and amount of disaster

209

loss; G. Assessing the reasonableness of replacement cost of inventory, building and equipment which were

estimated by management, selecting samples and verifying the estimates against original documents; and

H. Assessing the reasonableness of claim amount which was estimated by the management based on losses list and replacement cost.

Responsibilities of management and those charged with governance for the parent company only financial statements

Management is responsible for the preparation and fair presentation of the parent company only financial statements in accordance with the “Regulations Governing the Preparation of Financial Reports by Securities Issuers”, and for such internal control as management determines is necessary to enable the preparation of parent company only financial statements that are free from material misstatement, whether due to fraud or error. In preparing the parent company only 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, are responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the parent company only financial statements

Our objectives are to obtain reasonable assurance about whether the parent company only 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 parent company only 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: A. Identify and assess the risks of material misstatement of the parent company only financial

statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit 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.

B. 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.

210

C. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

D. 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 parent company only 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.

E. Evaluate the overall presentation, structure and content of the parent company only financial statements, including the disclosures, and whether the parent company only financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

F. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Company to express an opinion on the parent company only financial statements. We are responsible for the direction, supervision and performance of the company audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the parent company only 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.

PricewaterhouseCoopers, Taiwan

February 10, 2017

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

INNOLUX CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars)

211

December 31, 2016 December 31, 2015 Assets Notes AMOUNT AMOUNT

Current assets

1100 Cash and cash equivalents 6(1) $ 20,927,609 $ 35,279,610



6(2)

64,241 81,858

1170 Accounts receivable, net 6(5)(6) 50,693,511 45,755,129

1180 Accounts receivable - related

parties

7

10,199,014 2,904,753

1200 Other receivables 1,184,141 872,255

1210 Other receivables - related parties 7 123,091 377,364

130X Inventory 6(7) 18,897,916 24,546,126

1410 Prepayments 878,510 705,456

1476 Other financial assets - current 6(1) and 8 - 1,400,856

1479 Other current assets 35,797 3,001

11XX Total current assets 103,003,830 111,926,408

Non-current assets

1523 Available-for-sale financial assets

- non-current

6(3)

1,647,983 1,944,917

1550 Investments accounted for under

equity method

6(8)

79,845,787 81,315,320

1600 Property, plant and equipment 6(9), 7 and 8 170,150,592 163,921,697

1760 Investment property, net 6(10) 573,425 680,503

1780 Intangible assets 6(11) and 8 18,375,538 19,264,025

1840 Deferred income tax assets 6(26) 14,561,523 15,722,814

1990 Other non-current assets 6(9) and 8 935,611 3,263,937

15XX Total non-current assets 286,090,459 286,113,213

1XXX Total assets $ 389,094,289 $ 398,039,621

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY BALANCE SHEETS

DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars)

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

212

December 31, 2016 December 31, 2015 Liabilities and Equity Notes AMOUNT AMOUNT

Current liabilities

2100 Short-term borrowings 6(12) $ 11,583,750 $ -

2120 Financial liabilities at fair value


6(2)

734,915 53,921

2170 Accounts payable 29,250,025 27,731,035

2180 Accounts payable - related parties 7 50,320,414 45,433,862

2200 Other payables 7 20,188,656 24,387,687

2230 Current income tax liabilities 6(26) 577,254 902,134

2250 Provisions - current 6(16) and 9 3,765,234 5,551,759

2320 Long-term liabilities, current

portion

6(13)

16,381,686 16,361,238

2399 Other current liabilities 1,124,978 835,806

21XX Total current liabilities 133,926,912 121,257,442

Non-current liabilities

2540 Long-term borrowings 6(13) 28,128,467 43,629,968

2570 Deferred income tax liabilities 6(26) 672,971 514,094

2670 Other non-current liabilities 6(14) 359,576 373,394

25XX Total non-current liabilities 29,161,014 44,517,456

2XXX Total liabilities 163,087,926 165,774,898

Equity

3110 Share capital - common stock 6(17) 99,521,488 99,532,372

3200 Capital surplus 6(18) 99,647,810 99,643,564

Retained earnings 6(19)

3310 Legal reserve 3,758,507 2,676,947

3350 Unappropriated retained earnings 26,497,362 27,661,503

3400 Other equity interest 6(20) ( 3,418,804) 2,750,337

3XXX Total equity 226,006,363 232,264,723

3X2X Total liabilities and equity $ 389,094,289 $ 398,039,621

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars, except for earning per share amonuts)


213


Items Notes AMOUNT AMOUNT 4000 Sales revenue 7 $ 285,695,113 $ 360,638,133 5000 Operating costs 6(7)(24) and 7 ( 270,841,149) ( 326,925,887) 5900 Net operating margin 14,853,964 33,712,246 Operating expenses 6(24) 6100 Selling expenses ( 943,819) ( 1,167,637) 6200 General and administrative expenses ( 3,052,097) ( 3,183,374) 6300 Research and development expenses ( 10,344,969) ( 13,534,326) 6000 Total operating expenses ( 14,340,885) ( 17,885,337) 6900 Operating profit 513,079 15,826,909 Non-operating income and expenses 7010 Other income 6(21) 1,905,334 1,301,865 7020 Other gains and losses 6(22) ( 3,078,900) ( 7,842,919) 7050 Finance costs 6(23) ( 850,007) ( 1,310,112) 7070 Share of profit of subsidiaries,

associates and joint ventures accounted for under equity method

5,171,418 5,833,198 7000 Total non-operating income and

expenses

3,147,845 ( 2,017,968) 7900 Profit before income tax 3,660,924 13,808,941 7950 Income tax expense 6(26) ( 1,790,237) ( 2,993,347) 8200 Profit for the year $ 1,870,687 $ 10,815,594

Other comprehensive (loss) income (net)

Components of other comprehensive income (loss) that will not be reclassified to profit or loss

8311 Remeasurement of defined benefit

obligations 6(14)

$ 44,027 ($ 195,939) 8349 Income tax relating to the

components of other comprehensive income that will not be reclassified to profit or loss

6(26)


comprehensive income (loss) that will not be reclassified to profit or loss

36,542 ( 162,630) Components of other comprehensive

(loss) income that will be reclassified to profit or loss

8361 Financial statements translation

differences of foreign operations

( 5,708,026) ( 1,392,086) 8362 Unrealized gain (loss) on valuation of

available-for-sale financial assets

355,619 ( 1,149,260) 8363 Cash flow hedges 6(4) - ( 297,675) 8380 Share of other comprehensive (loss)

income of subsidiaries, associates and joint ventures accounted for under equity method

6(20)

( 722,679) 3,420,038 8399 Income tax relating to the

components of other comprehensive income that will be reclassified

6(26)


comprehensive (loss) income that will be reclassified to profit or loss

( 6,188,543) 699,568 8300 Other comprehensive (loss) income

for the year, net of tax

($ 6,152,001) $ 536,938

8500 Total comprehensive (loss) income for the year

($ 4,281,314) $ 11,352,532

Earnings per share (in dollars) 6(27) 9750 Basic earnings per share $ 0.19 $ 1.09

9850 Diluted earnings per share $ 0.19 $ 1.07

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

Retained Earnings Other equity interest

Notes Common stock Capital surplus Legal reserve Special reserve

Unappropriated earnings

Financial statements translation

differences of foreign

operations

Unrealized gain (loss) on

available-for-sale financial

assets

Changes in gain (loss)

on cash flow

hedges

Employee unearned

compensation Total

Note 1: Employees' bonus accrued at $1,436,187 had been deducted from the statement of comprehensive income for the year ended December 31, 2014. Note 2: Employee's compensation and directors' and supervisors' remuneration accrued at $734,524 and $5,000 had been deducted from the statement of comprehensive income for the year ended December 31, 2015, respectively.


214

2015 Balance at January 1, 2015 $ 99,545,364 $ 99,584,369 $ 509,272 $ 1,144,229 $ 24,979,173 $ 3,082,948 ($ 1,259,847 ) $ 247,070 ($ 142,515 ) $ 227,690,063

Appropriations of 2014 earnings (Note 1): 6(19) Legal reserve - - 2,167,675 - ( 2,167,675 ) - - - - -

Special reserve - - - ( 1,144,229 ) 1,144,229 - - - - -

Cash dividends - - - - ( 6,947,188 ) - - - - ( 6,947,188 )

Cancellation of restricted stock to employees ( 12,992 ) 12,992 - - - - - - - -

Changes in restricted stock to employees - ( 3,760 ) - - - - - - 2,411 ( 1,349 )

Compensation related to share-based payment 6(15) - 22,740 - - - - - - 120,702 143,442

Changes in net equity of long-term equity investments - 27,185 - - - - - - - 27,185

Changes in non-controlling interests - 38 - - - - - - - 38

Profit for the year - - - - 10,815,594 - - - - 10,815,594

Other comprehensive income for the year 6(20) - - - - ( 162,630 ) ( 1,387,654 ) 2,334,292 ( 247,070 ) - 536,938

Balance at December 31, 2015 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $ 232,264,723

2016 Balance at January 1, 2016 $ 99,532,372 $ 99,643,564 $ 2,676,947 $ - $ 27,661,503 $ 1,695,294 $ 1,074,445 $ - ($ 19,402 ) $ 232,264,723

Appropriations of 2015 earnings (Note 2): 6(19) Legal reserve - - 1,081,560 - ( 1,081,560 ) - - - - -

Cash dividends - - - - ( 1,989,810 ) - - - - ( 1,989,810 )

Cancellation of restricted stock to employees ( 10,884 ) 10,884 - - - - - - - -

Changes in restricted stock to employees - ( 4,068 ) - - - - - - 4,142 74

Compensation related to share-based payment 6(15) - - - - - - - - 15,260 15,260

Changes in net equity of long-term equity investments - ( 2,570 ) - - - - - - - ( 2,570 )

Profit for the year - - - - 1,870,687 - - - - 1,870,687

Other comprehensive loss for the year 6(20) - - - - 36,542 ( 5,735,702 ) ( 452,841 ) - - ( 6,152,001 )

Balance at December 31, 2016 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ - $ 226,006,363

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars)

Notes 2016 2015

215

CASH FLOWS FROM OPERATING ACTIVITIES Profit before tax for the year $ 3,660,924 $ 13,808,941 Adjustments Adjustments to reconcile profit (loss) Depreciation and amortization 6(24) 37,605,732 49,383,090 Compensation related to share-based payment 6(24) 15,260 143,442 Share of profit of subsidiaries and associates accounted

for under equity method

( 5,171,418 ) ( 5,833,198 ) Loss on disposal of investments 6(22) - 112,058 Loss on disposal of property, plant and equipment 6(22) 35,222 100,841 Impairment loss 6(22) 500,000 - Interest income 6(21) ( 131,151 ) ( 144,282 ) Dividend income 6(21) ( 28,593 ) ( 117,882 ) Interest expense 6(23) 831,360 1,607,782 Unrealized foreign exchange loss (gain) 4,725 ( 148,786 ) Changes in operating assets and liabilities Changes in operating assets Financial assets/liabilities at fair value through profit

or loss

698,611 ( 580,500 ) Accounts receivable ( 4,938,382 ) 23,103,020 Accounts receivable - related parties ( 7,294,261 ) 3,162,905 Other receivables 1,378,266 ( 178,584 ) Inventories 4,715,867 3,392,039 Prepayments ( 173,054 ) ( 143,809 ) Other current assets ( 32,796 ) 9,541 Changes in operating liabilities Derivative financial liabilities for hedging - ( 299,026 ) Accounts payable 1,518,990 ( 6,000,745 ) Accounts payable - related parties 4,886,552 ( 39,736,875 ) Other payables ( 3,435,134 ) 4,001,150 Provisions - current ( 1,786,525 ) 2,418,270 Other current liabilities 289,172 ( 577,572 ) Other non-current liabilities ( 5,678 ) ( 17,734 ) Cash inflow generated from operations 33,143,689 47,464,086 Cash paid for income tax ( 915,890 ) ( 38,833 ) Net cash flows from operating activities 32,227,799 47,425,253

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015 (Expressed in thousands of New Taiwan dollars)

Notes 2016 2015


216

CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in other receivables - related parties $ 254,273 $ 225,689

Proceeds from disposal of available-for-sale financial assets - 231,275

Proceeds from capital reduction of available-for sale

financal assets

159,335 -

Acquisition of investment accounted for under equity

method

( 77,808 ) ( 623,249 )

Proceeds from capital reduction of investments accounted

for under equity method

23,680 531,696

Acquisition of property, plant and equipment 6(28) ( 42,155,612 ) ( 21,096,240 )

Decrease in other financial assets 1,519,807 810,198

Proceeds from disposal of property, plant and equipment 7,778 42,240

Decrease in other non-current assets 31,437 329

Interest received 135,099 138,837

Dividends received 255,289 141,053

Cash inflow from incorporation of subsidiary - 11,874

Net cash flows used in investing activities ( 39,846,722 ) ( 19,586,298 )

CASH FLOWS FROM FINANCING ACTIVITIES

Increase (decrease) in short-term borrowings 11,579,025 ( 1,300,000 )

Increase in long-term borrowings 822,702 68,100,131

Payment of long-term borrowings ( 16,440,000 ) ( 106,427,892 )

Cash dividends paid 6(19) ( 1,989,810 ) ( 6,947,188 )

Repurchase from issuance of restricted stock to employees ( 1,372 ) ( 3,676 )

Acquisition of subsidiary stock - ( 50 )

Interest paid ( 703,623 ) ( 1,523,865 )

Net cash flows used in financing activities ( 6,733,078 ) ( 48,102,540 )

Net decrease in cash and cash equivalents ( 14,352,001 ) ( 20,263,585 )

Cash and cash equivalents at beginning of year 35,279,610 55,543,195

Cash and cash equivalents at end of year $ 20,927,609 $ 35,279,610

217

INNOLUX CORPORATION

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2016 AND 2015

(Expressed in thousands of New Taiwan dollars, except as otherwise indicated)

HISTORY AND ORGANIZATION

(1) Innolux Corporation (the “Company”) was organized on January 14, 2003 under the Act for

Establishment and Administration of Science Parks in Republic of China (R.O.C.). The Company

was listed on the Taiwan Stock Exchange Corporation (the “TSEC”) in October 2006. The

Company merged with TPO Displays Corporation and Chi Mei Optoelectronics Corporation on

March 18, 2010, with the Company as the surviving entity.

(2) The Company engages in the research, development, design, manufacture and sales of TFT-LCD

panels, modules and monitors of LCD, color filter, and low temperature poly-silicon TFT-LCD.

THE DATE OF AUTHORIZATION FOR ISSUANCE OF THE PARENT COMPANY ONLY

FINANCIAL STATEMENTS AND PROCEDURES FOR AUTHORIZATION

These parent company only financial statements were authorized for issuance by the Board of Directors

on February 10, 2017.

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”)

None.

(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 FSC effective from 2017 are as

follows:



Standards Board

Investment entities: applying the consolidation exception(amendments to IFRS 10, IFRS 12 and IAS 28)

January 1, 2016

Accounting for acquisition of interests in joint operations(amendments to IFRS 11)

January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016Disclosure initiative (amendments to IAS 1) January 1, 2016Clarification of acceptable methods of depreciation and amortization(amendments to IAS 16 and IAS 38)

January 1, 2016

Agriculture: bearer plants (amendments to IAS 16 and IAS 41) January 1, 2016Defined benefit plans: employee contributions (amendments to IAS 19R) July 1, 2014

218

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

Company financial condition and operating results based on the Company assessment.

Annual improvements to IFRSs 2010-2012 cycle ─ IFRS 8, ‘Operating segments’

The standard is amended to require disclosure of judgments made by management in aggregating

operating segments. This amendment also clarifies that a reconciliation of the total of the

reportable segments’ assets to the entity’s assets is required only when segment asset is provided to

chief operating decision maker regularly.

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

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

as endorsed by the FSC effective from 2017 are as follows:



Standards Board

Equity method in separate financial statements (amendments to IAS 27) January 1, 2016Recoverable amount disclosures for non-financial assets(amendments to IAS 36)

January 1, 2014

Novation of derivatives and continuation of hedge accounting(amendments to IAS 39)

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014Annual improvements to IFRSs 2010-2012 July 1, 2014Annual improvements to IFRSs 2011-2013 July 1, 2014Annual improvements to IFRSs 2012-2014 January 1, 2016



Standards Board

Classification and measurement of share-based payment transactions(amendments to IFRS 2)

January 1, 2018

Applying IFRS 9, ‘Financial instruments’ with IFRS 4, ‘Insurancecontracts’ (amendments to IFRS 4)

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018Sale or contribution of assets between an investor and its associate orjoint venture (amendments to IFRS 10 and IAS 28)

To be determined byInternational Accounting

Standards BoardIFRS 15, ‘Revenue from contracts with customers’ January 1, 2018

Clarifications to IFRS 15, ‘Revenue from contracts with customers’(amendments to IFRS 15)

January 1, 2018

IFRS 16, ‘Leases’ January 1, 2019Disclosure initiative (amendments to IAS 7) January 1, 2017Recognition of deferred tax assets for unrealised losses (amendments toIAS 12)

January 1, 2017

219

Except for the following, the above standards and interpretations have no significant impact to the Company financial condition and operating results based on the Company 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 amortized 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 recognize 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 that 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). The Company shall always measure the loss allowance at an amount equal to lifetime expected credit losses for trade receivables that do not contain a significant financing component.

(c) The amended general hedge accounting requirements align hedge accounting more closely with an entity’s risk management strategy. Risk components of non-financial items and a group of items can be designated as hedged items. The standard relaxes the requirements for hedge effectiveness, removing the 80-125% bright line, and introduces the concept of ‘rebalancing’; while its risk management objective remains unchanged, an entity shall rebalance the hedged item or the hedging instrument for the purpose of maintaining the hedge ratio.

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 and SICs. According to IFRS 15, revenue is recognized when a customer obtains control of 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 recognizes revenue to depict the transfer of 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 recognizes revenue in accordance with that core principle by applying the following steps: Step 1: Identify contracts with customer Step 2: Identify performance obligations in the contract(s) Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligation in the contract(s)



Standards Board

Transfers of investment property (amendments to IAS 40) January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS1, ‘First-time adoption of International Financial Reporting Standards’

January 1, 2018

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IFRS12, ‘Disclosure of interests in other entities’

January 1, 2017

Annual improvements to IFRSs 2014-2016 cycle-Amendments to IAS28, ‘Investments in associates and joint ventures’

January 1, 2018

220

Step 5: Recognize 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 recognized at a point in time or a period of time. In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.

D. Amendments to IAS 7, ‘Disclosure initiative’ This amendment requires that an entity shall provide more disclosures related to changes in liabilities arising from financing activities, including both changes arising from cash flows and non-cash changes.

E. IFRS 16, ‘Leases’ IFRS 16, ‘Leases’, replaces IAS 17, ‘Leases’ and related interpretations and SICs. The standard requires lessees to recognize a 'right-of-use asset' and a lease liability (except for those leases with terms of less than 12 months and leases of low-value assets). Lessor accounting still uses the dual classification approach: operating leases and finance leases, and only increases the related disclosures.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these parent company only financial statements are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated. (1) Compliance statement

These parent company only financial statements are prepared by the Company in accordance with the “Rules Governing the Preparation of Financial Statements by Securities Issuers.

(2) Basis of preparation A. Except for the following items, these parent company only 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 recognized based on the net amount of pension fund assets less

present value of defined benefit obligations. B. The preparation of financial statements in conformity with International Financial Reporting

Standards, International Accounting Standards, IFRIC Interpretations, and SIC Interpretations as endorsed by the FSC (collectively referred herein as the “IFRSs”) requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the parent company only financial statements are disclosed in Note 5.

(3) Foreign currency translation Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The parent company only financial statements are presented in NTD, which is the Company’s functional and presentation currency. 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 recognized in

221

profit or loss in the period in which they arise, except when deferred in other comprehensive income as qualifying cash flow hedges.

(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 recognized 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 recognized in profit or loss. Non-monetary assets and 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 recognized 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 under “other gains and losses”.

B. Translation of foreign operations (a) The operating results and financial position of all the group entities and associates that have a

functional currency different from the presentation currency are translated into the presentation currency as follows: i. Assets and liabilities for each balance sheet presented are translated at the exchange rate

prevailing at the dates of that balance sheet; ii. Income and expenses for each statement of comprehensive income are translated at average

exchange rates of that period; iii. All resulting exchange differences are recognized in other comprehensive income.

(b) When a foreign operation partially disposed of or sold is an associate, exchange differences that were recorded in other comprehensive income are proportionately reclassified to profit or loss as part of the gain or loss on sale. In addition, if the Company retains partial interest in the former foreign associate after losing significant influence over the former foreign associate, such transactions should be accounted for as disposal of all interest in these foreign operations.

(c) When the foreign operation partially disposed of or sold is a subsidiary, cumulative exchange differences that were recorded in other comprehensive income are proportionately transferred to the non-controlling interest in this foreign operation. In addition, if the Company retains partial interest in the former foreign subsidiary after losing control of the former foreign subsidiary, such transactions should be accounted for as disposal of all interest in the foreign operation.

(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 realized, 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 realized 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 pay off 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 paid off within the normal operating cycle; (b) Liabilities arising mainly from trading activities; (c) Liabilities that are to be paid off 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.

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(5) Cash equivalents Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits and bonds sold under repurchase agreements that meet the above criteria and held for the purpose of meeting short-term cash commitment 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 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 sale in the short-term. Derivatives are also categorized as financial assets held for trading unless they are designated as hedges. Financial assets that meet one of the following criteria are designated as at fair value through profit or loss on initial recognition:

(a) Hybrid (combined) contracts; or (b) They eliminate or significantly reduce a measurement or recognition inconsistency; or (c) They are managed and their performance is evaluated on a fair value basis, in accordance with a

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

recognized and derecognized using trade date accounting. C. Financial assets at fair value through profit or loss are initially recognized 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 recognized in profit or loss.

(7) Available-for-sale financial assets A. Available-for-sale financial assets are non-derivatives that are designated in this category. On a

regular way purchase or sale basis, available-for-sale financial assets are recognized and derecognized using trade date accounting.

B. Available-for-sale financial assets are initially recognized 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 recognized in other comprehensive income.

(8) Loans and receivables 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 recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. However, short-term accounts receivable which are non-interest bearing are subsequently measured at initial invoice amount as the effect of discounting is insignificant.

(9) Impairment of financial assets A. The Company assesses at each balance sheet date whether there is objective evidence that an

individual 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 and that loss event has an impact on the estimated future cash flows of an individual financial asset or group of financial assets that can be reliably estimated.

B. The objective evidence that the Company uses to determine whether there is 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) 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; or

(d) 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

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impairment loss has occurred, accounting for impairment is made as follows according to the category of financial assets:

(a) Financial assets measured at amortized 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 recognized 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 recognized, the previously recognized impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset does not exceed its amortized cost that would have been at the date of reversal had the impairment loss not been recognized previously. Impairment loss is recognized and reversed by adjusting the carrying amount of the asset through the use of an impairment allowance account.

(b) 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 recognized in profit or loss, and is reclassified from “other comprehensive income” to “profit or loss”. If, in a subsequent period, the fair value of an investment in a debt instrument increases, and the increase can be related objectively to an event occurring after the impairment loss was recognized, then such impairment loss is reversed through profit or loss. Impairment loss of an investment in an equity instrument recognized in profit or loss shall not be reversed through profit or loss. Impairment loss is recognized 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 derecognizes 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) Operating leases (lessor)

Lease income from an operating lease (net of any incentives given to the lessee) is recognized 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 realizable value. Cost is determined using the weighted-average cost method. The cost of finished goods and work in process comprises raw materials, direct labor, 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 realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less the estimated cost of completion and applicable variable selling expenses.

(13) Investments accounted for under the equity method / subsidiaries / associates A. Subsidiaries are all entities (including structured entities) controlled by the Company. The

Company controls an entity when the Company is exposed, or has rights, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity.

B. Inter-company transactions, balances and unrealised gains or losses on transactions between companies within the Company are eliminated. Accounting policies of subsidiaries have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

C. The Company's share of its subsidiaries' post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Company’s share of losses in a subsidiary equals or

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exceeds its interest in the subsidiary, the Company continues to recognize losses proportionate to its ownership.

D. If changes in the Company’s shares in subsidiaries do not result in loss in control (transactions with non-controlling interest), transactions shall be considered as equity transactions, which are transactions between owners. Difference of adjustment of non-controlling interest and fair value of consideration paid or received is recognized in equity.

E. When the Company loses control of a subsidiary, the Company remeasures any investment retained in the former subsidiary at its fair value. That fair value is regarded as the fair value on initial recognition of a financial asset or the cost on initial recognition of the associate or joint venture. Any difference between fair value and carrying amount is recognized in profit or loss. The Company should reclassify all amounts previously recognized as other comprehensive income and amounts relating to the prior subsidiary to profit or loss.

F. Associates are all entities over which the Company has significant influence but not control. In general, it is presumed that the investor has significant influence, if an investor holds, directly or indirectly 20 percent or more of the voting power of the investee. Investments in associates are accounted for using the equity method and are initially recognized at cost.

G. The Company’s share of its associates’ post-acquisition profits or losses is recognized in profit or loss, and its share of post-acquisition movements in other comprehensive income is recognized in other comprehensive income. When the Company’s share of losses in an associate equals or exceeds its interest in the associate, the Company does not recognize further losses, unless it has incurred legal or constructive obligations or made payments on behalf of the associate.

H. When changes in an associate’s equity are not recognized in profit or loss or other comprehensive income of the associate and such changes do not affect the Company’s ownership percentage of the associate, the Company recognizes all the change in equity in “capital surplus” in proportion to its ownership.

I. Unrealized gains on transactions between the Company and its associates are eliminated to the extent of the Company’s interest in the associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Accounting policies of associates have been adjusted where necessary to ensure consistency with the policies adopted by the Company.

J. In the case that an associate issues new shares and the Company does not subscribe or acquire new shares proportionately, which results in a change in the Company’s ownership percentage of the associate but maintains significant influence on the associate, then “capital surplus” and “investments accounted for under the equity method” shall be adjusted for the increase or decrease of its share of equity interest. If the above condition causes a decrease in the Company’s ownership percentage of the associate, in addition to the above adjustment, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss proportionately on the same basis as would be required if the relevant assets or liabilities were disposed of.

K. Upon loss of significant influence over an associate, the Company remeasures any investment retained in the former associate at its fair value. Any difference between fair value and carrying amount is recognized in profit or loss.

L. When the Company disposes its investment in an associate and loses significant influence over the associate, the amounts previously recognized in other comprehensive income in relation to the associate are reclassified to profit or loss, on the same basis as would be required if the relevant assets or liabilities were disposed of.

M. When the Company disposes its investment in an associate and loses significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss. If it retains significant influence over this associate, the amounts previously recognized as capital surplus in relation to the associate are transferred to profit or loss proportionately.

N. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities

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Issuers,” profit (loss) of the current period and other comprehensive income in the parent company only financial statements shall equal to the amount attributable to owners of the parent in the financial statements prepared with basis for consolidation. Owners’ equity in the parent company only financial statements shall equal to equity attributable to owners of the parent in the financial statements prepared with basis for consolidation.

(14) 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 recognized 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 of the replaced part is derecognized. All other repairs and maintenance are charged to profit or loss when incurred.

C. Land is not depreciated. Other property, plant and equipment apply cost model and are depreciated using the straight-line method to allocate their cost over their estimated useful lives. If each component of property, plant and equipment is significant, it is depreciated separately.

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

appropriate, at each balance sheet date. 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:

Buildings 3~51years

Machinery and equipment 5~9 years

Other equipment 2~6 years

(15) Investment property

An investment property is stated initially at its cost and measured subsequently using the cost model.

Except for land, investment property is depreciated on a straight-line basis over its estimated useful

life of 25~50 years.

(16) Intangible assets

A. Goodwill arises in a business combination accounted for by applying the acquisition method.

B. Intangible assets, mainly patents, royalties and other intangible assets, are amortized on a

straight-line basis over their estimated useful lives of 2～10 years.

(17) Impairment of non-financial assets

A. 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 recognized 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 recognizing impairment loss for an asset in prior years no longer

exist, the impairment loss shall be reversed to the extent of the loss previously recognized in profit

or loss. Such recovery of impairment loss shall not result to the asset’s carrying amount greater

than its amortized cost where no impairment loss was recognized.

B. The recoverable amounts of goodwill, intangible assets with an indefinite useful life and

intangible assets that have not yet been available for use shall be evaluated periodically. An

impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its

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recoverable amount. Impairment loss of goodwill previously recognized in profit or loss shall not

be reversed in the following years.

C. For impairment testing purpose, goodwill is allocated to cash generating units. This allocation is

based on operating segments. Goodwill is allocated to a cash generating unit or a group of cash

generating units that expects to benefit from business combination that will produce goodwill.

(18) 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.

Financial liabilities are classified in this category of held for trading if acquired principally for 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 recognized 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 recognized in profit or loss. (19) Derivative financial instruments and hedging activities

A. Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value. Any changes in the fair value are recognized in profit or loss.

B. The Company designates certain derivatives as cash flow hedges of a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.

C. The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedging transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

D. The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months, and as a current asset or liability when the remaining maturity of the hedged item is less than 12 months. Trading derivatives are classified as current assets or liabilities.

E. Cash flow hedge (a) The effective portion of changes in the fair value of derivatives that are designated and

qualified as cash flow hedges is recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized immediately in the statement of comprehensive income within “other gains and losses”.

(b) Amounts accumulated in other comprehensive income are reclassified into profit or loss in the periods when the hedged item affects profit or loss. The gain or loss relating to the effective portion of interest rate swaps hedging variable rate borrowings is recognized in the statement of comprehensive income within “finance costs”.

(c) When a hedging instrument expires, or is sold, cancelled or executed, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in other comprehensive income at that time remains in other comprehensive income. When a forecast transaction occurs or is no longer expected to occur, the cumulative gain or loss that was reported in other comprehensive income is transferred to profit or loss in the periods when the hedged forecast cash flow affects profit or loss.

(20) Employee benefits A. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid and should be recognized as expenses in that period when the employees render

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service. B. Pensions

(a) Defined contribution plans For defined contribution plans, the contributions are recognized as pension expenses on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a cash refund or a reduction in the future payments.

(b) Defined benefit plans i. The liability recognized in the balance sheet in respect of defined benefit pension plans is

the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets. The 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 government bond (at the balance sheet date).

ii. Remeasurements arising on defined benefit plans are recognized in other comprehensive income in the period in which they arise and are recorded as retained earnings.

C. Employees’, directors’ and supervisors’ remuneration Employees’ remuneration and directors’ and supervisors’ remuneration are recognized as expenses and liabilities, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated.

(21) Employee share-based payment A. For the equity-settled share-based payment arrangements, the employee services received are

measured at the fair value of the equity instruments granted at the grant date, and are recognized as compensation cost over the vesting period, with a corresponding adjustment to equity. The fair value of the equity instruments granted shall reflect the impact of market vesting conditions and non-market vesting conditions. Compensation cost is subject to adjustment based on the service conditions that are expected to be satisfied and the estimates of the number of equity instruments that are expected to vest under the non-market vesting conditions at each balance sheet date. Ultimately, the amount of compensation cost recognized is based on the number of equity instruments that eventually vest.

B. Restricted stocks to employees: (a) Restricted stocks issued to employees are measured at the fair value of the equity instruments

granted at the grant date, and are recognized as compensation cost over the vesting period. (b) For restricted stocks where employees have to pay to acquire those stocks, if employees resign

during the vesting period, they must return the stocks to the Company and the Company must refund their payments on the stocks. The Company recognizes the payments from the employees who are expected to resign during the vesting period as liabilities at the grant date, and recognizes the payments from the employees who are expected to be eventually vested with the stocks in “capital surplus – others”.

(22) Income tax

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

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

items recognized directly in equity, in which cases the tax is recognized 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.

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

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

parent company only 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 realized or the deferred income tax liability is

settled.

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

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

sheet date, unrecognized and recognized deferred income tax assets are reassessed.

E. A deferred tax asset shall be recognized for the carryforward of unused tax credits resulting from

research and development expenditures that future taxable profit will be available against which

the unused tax credits can be utilized.

(23) Revenue recognition

The Company manufactures and sells TFT-LCD panels. Revenue is measured at the fair value of the

consideration received or receivable taking into account value-added tax, returns, rebates and

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

activities.

(24) Business combinations

A. The Company uses the acquisition method to account for business combinations. For each

business combination, the Company measures at the acquisition date components of

non-controlling interests in the acquiree that are present ownership interests and entitle their

holders to the proportionate share of the entity’s net assets in the event of liquidation at either fair

value or the present ownership instruments’ proportionate share in the recognized amounts of the

acquiree’s identifiable net assets. All other non-controlling interests should be measured at the

acquisition date fair value.

B. The excess of the consideration transferred, the amount of any non-controlling interest in the

acquiree and the fair value of any previous equity interest in the acquiree over the fair value of the

identifiable assets acquired and the liabilities assumed is recorded as goodwill at the acquisition

date. If the total of consideration transferred, non-controlling interest in the acquiree recognized

and the fair value of previously held equity interest in the acquiree is less than the fair value of the

identifiable assets acquired and the liabilities assumed, the difference is recognized directly in

profit or loss on the acquisition date. CRITICAL ACCOUNTING JUDGMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION

UNCERTAINTY The preparation of these parent company only financial statements requires management to make critical

judgments 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. The information is

addressed below:

(1) Critical judgments 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

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is impaired. This determination requires significant judgment. In making this judgment, 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.

If the decline of the fair value of an individual equity investment below cost was considered significant

or prolonged, the accumulated fair value adjustments recognized in other comprehensive income on

the impaired “available-for-sale financial assets” is transferred to profit or loss.

(2) Critical accounting estimates and assumptions

The Company makes estimates and assumptions based on the expectation of future events that are

believed to be reasonable under the circumstances at the end of the reporting period. The resulting

accounting estimates might be different from the related actual results. The estimates and assumptions

that have a significant risk of causing a material adjustment to the carrying amounts of assets and

liabilities within the next financial year are addressed below:

A. Impairment assessment of goodwill

The impairment assessment of goodwill relies on the Company’s subjective judgment, including

identifying cash-generating units, allocating assets and liabilities as well as goodwill to related

cash-generating units, and determining the recoverable amounts of related cash-generating units.

Please refer to Note 6(11) for the information on goodwill impairment.

B. Impairment assessment of tangible and intangible assets (excluding goodwill)

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.

C. Estimation of significant disaster insurance claim

The insurance claim revenue is recognized when it is virtually certain that the compensation will

be received in the future. As the amount of claim is measured based on the amount which is

permitted by insurance company, management shall assess and estimate the replacement cost of

damaged assets. DETAILS OF SIGNIFICANT ACCOUNTS

(1) Cash and cash equivalents

A. The Company associates 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 above time deposits expire in 3 months and risks of changes in their values are remote. The

remaining time deposits which did not meet the definition of cash equivalents were $1,400,000 at

December 31, 2015, and were classfied as ‘other financial assets-current’.


Cash on hand, demand deposits and checking account 6,245,543$ 22,427,663$

Time deposits 14,682,066 12,851,947

20,927,609$ 35,279,610$

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

A. The Company recognized net gain and loss of $87,140 and $133,873 on financial assets held for

trading for the years ended December 31, 2016 and 2015, respectively.

B. The non-hedging derivative financial assets and liabilities transaction information are as follows:

The Company entered into forward foreign exchange contracts to hedge exchange rate risk of import

and export proceeds and foreign currency. However, these forward foreign exchange contracts are

not accounted for under hedge accounting. (3) Available-for-sale financial assets

A. The Company recognized net gain (loss) in other comprehensive income for fair value change and

reclassified from equity to profit or loss for the years ended December 31, 2016 and 2015. Please

refer to Note 6(20).

B. The Company has assessed the impairment of certain investment items and recognized loss of

$500,000 which has been reclassified from equity to current period profit or loss (shown as ‘other

gains and losses’) for the year ended December 31, 2016.

Assets December 31, 2016 December 31, 2015Current items Financial assets held for trading Forward foreign exchange contracts 64,241$ 81,858$

Liabilities December 31, 2016 December 31, 2015Current items Financial liabilities held for trading Forward foreign exchange contracts 734,915$ 53,921$

Derivative financial

assets and liabilities Contract Period Contract Period

Current items

Forward foreign USD (sell) 360,000$ 2016/10~2017/3 USD (sell) 295,000$ 2015/10~2016/3

exchange contracts JPY (buy)39,597,920 2016/10~2017/3 JPY (buy) 35,649,520 2015/10~2016/3

Forward foreign TWD (sell) 621,240 2016/9~2017/2 USD (sell) 150,000 2015/10~2016/2

exchange contracts USD (buy) 20,000 2016/9~2017/2 TWD (buy) 4,896,705 2015/10~2016/2

Forward foreign EUR (sell) 19,000 2016/10~2017/1 EUR (sell) 5,000 2015/11~2016/1

exchange contracts USD (buy) 20,706 2016/10~2017/1 TWD (buy) 175,075 2015/11~2016/1

Forward foreign EUR (sell) 55,000 2016/9~2017/4 EUR (sell) 80,500 2015/10~2016/3 exchange contracts JPY (buy) 6,516,335 2016/9~2017/4 JPY (buy) 10,668,495 2015/10~2016/3

Forward foreign EUR(sell) 8,960 2016/12~2017/1

exchange contracts TWD(buy) 302,364 2016/12~2017/1


Contract Amount Contract Amount

(Notional Principal) (Notional Principal)(in thousands) (in thousands)

Items December 31, 2016 December 31, 2015Non-current items Listed stocks and bond investments 1,438,809$ 1,562,871$ Emerging and unlisted stocks 209,174 382,046

1,647,983$ 1,944,917$

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(4) Hedging derivative financial liabilities

A. The Company was exposed to significant risk of future cash flow changes on principal payments

associated with the Company’s floating interest rate bearing borrowings, both current and

long-term portion. Therefore, the Company entered into interest rate swap contracts for exchanging

floating interest rate for fixed interest rate (TWD90/180CP (Page51328) to hedge such exposures.

The contract had matured and was settled in February, 2015.

B. Information about gain or loss arising from cash flow hedges recognized in profit or loss and other

comprehensive income:

(5) Accounts receivable

A. The Company’s accounts receivable that were neither past due nor impaired meet the credit ranking

rule based on the counterparties’ industrial characteristics scale of business and profitability.

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

The above ageing analysis was based on past due date.

C. Movement analysis of accounts receivable that were impaired is as follows:

(a) As of December 31, 2016 and 2015, the Company’s accounts receivable that were impaired

were $109,373 and $117,499, respectively.

(b) Movement on allowance for bad debts for impairment loss based on individual provision is as

follows:

Items 2016 2015Amount of gain or loss adjusted in other comprehensive income -$ 5$

Amount of gain or loss transferred from other comprehensive income to profit or loss - 297,670


December 31, 2016 December 31, 2015Accounts receivable 51,636,429$ 46,508,958$ Less: Allowance for sales returns and discounts 833,545)( 636,330)(

Allowance for bad debts 109,373)( 117,499)(

50,693,511$ 45,755,129$


Up to 60 days 237,149$ 482,335$

61 to 180 days 8,553 14,480

Over 180 days - 14,481

245,702$ 511,296$

2016 2015

At January 1 117,499$ 138,272$

Allowance for bad debts - reclassified - 674

Allowance for bad debts - write-offs 8,126)( 21,447)(

At December 31 109,373$ 117,499$

232

(6) Transfer of financial assets

The Company entered into a factoring agreement with financial institutions to sell its accounts

receivable. Under the agreement, the Company is not obligated to bear the default risk of the

transferred accounts receivable and this is without right of recourse. However, the Company is liable

for the losses incurred on any business dispute.

The Company does not provide collateral, and has no continuous involvement in the transferred

accounts receivable. As a result, the Company derecognized the accounts receivable from the financial

statements. There were no related transactions during 2015. As of December 31, 2016, all the accounts

receivable sold were collected and the Company entered into factoring agreements with CTBC bank

and Taipei Fubon Commercial Bank in the amount of $19,995,000 and $6,450,000, respectively.

(7) Inventories

Expenses and losses incurred on inventories are as follows:

A. The Company had disposed its expired and slow-moving inventories for the year ended December

31, 2015. Thus, the risk of reduction in the inventory’s market price had decreased and the net

realizable value of inventories had been recovered.

B. Due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016, certain

inventories were destroyed. Please refer to Note 10 for details.

December 31, 2016 December 31, 2015Raw materials and supplies 2,164,341$ 1,954,960$ Work in process 9,608,843 11,769,129

Finished goods 7,124,732 10,822,037

18,897,916$ 24,546,126$

2016 2015Cost of inventories sold 270,033,125$ 326,638,579$ Loss on (gain on reversal of) decline in market value 550,000 602,500)(

Disposal loss and others 258,024 889,808

270,841,149$ 326,925,887$


233

(8) Investments accounted for under the equity method

A. The Company’s subsidiaries

(a)Details of the Company’s subsidiaries are provided in Note 4(3) of the Company’s consolidated

financial statements as of and for the year ended December 31, 2016.

(b)The Board of Directors of the Company in July, 2015 resolved to conduct a simple merger with

Chi Mei El Corporation (Chi Mei El), a 97%-owned subsidiary of the Company effective

September 1, 2015. The Company was the surviving company while Chi Mei El was dissolved

after the merger. Said merger was accounted for an as equity transaction.

B. The Company’s associates The operating results of the Company’s share in all individually immaterial associates are summarized below:


Subsidiaries:

Landmark International Ltd. 45,894,168$ 45,888,559$

Innolux Holding Ltd. 18,523,142 20,242,553

Toppoly Optoelectronics (B.V.I.) Ltd. 6,717,191 6,787,268

Innolux Hong Kong Holding Ltd. 3,341,269 2,907,677

Innolux Optoelectronics Japan Co., Ltd. 1,548,673 1,507,382

InnoJoy Investment Corporation 1,246,809 1,242,760

Yuan Chi Investment Co., Ltd. 922,529 1,137,982

Others 224,744 301,375

Associates:

Ampower Holding Ltd. 870,941 881,351

FI Medical Device Manufacturing Co., Ltd. 451,943 321,683

Others 104,378 96,730

79,845,787$ 81,315,320$

2016 2015

Profit or loss for the year from continuing operations

408,382$ 268,381$

Other comprehensive income - net of tax 27,958)( 4,437

Total comprehensive income 380,424$ 272,818$


234

(9) Property, plant and equipment

A. Amount of borrowing costs for property, plant and equipment capitalised and interest rate range:

B. Information about the property, plant and equipment that were pledged to others as collateral is

provided in Note 8. C. As of December 31, 2016 and 2015, the prepayments for business facilities which have not yet

entered the factory (shown as ‘other non-current assets’) amounted to $896,996 and $3,110,696, respectively.

D. Due to the earthquake in Kaohsiung, Taiwan on February 6, 2016, a portion of property, plant and equipment were damaged. Please refer to Note 10 for details.

At January 1 Additions Disposals Transfer At December 31Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$ Buildings 157,662,050 25,463 1,048,411)( 10,744,159 167,383,261 Machinery and equipment 380,337,787 17,229 3,302,869)( 12,318,411 389,370,558 Other equipment 26,624,640 - 880,686)( 4,471,500 30,215,454

568,477,269 42,692 5,231,966)( 27,534,070 590,822,065

Accumulated depreciation and impairment: Buildings 84,570,136)( 10,122,036)( 576,527 61,153)( 94,176,798)( Machinery and equipment 315,914,090)( 22,724,600)( 3,255,968 1,654,171)( 337,036,893)( Other equipment 22,131,167)( 3,582,386)( 879,748 409,676)( 25,243,481)(

422,615,393)( 36,429,022)( 4,712,243 2,125,000)( 456,457,172)( Unfinished construction and equipment under acceptance 18,059,821 41,102,393 - 23,376,515)( 35,785,699

163,921,697$ 170,150,592$

2016

At January 1 Additions Disposals Transfer At December 31

Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 156,858,729 40,626 19,452)( 782,147 157,662,050


Other equipment 22,584,306 - 2,164,598)( 6,204,932 26,624,640

558,366,136 102,793 8,637,067)( 18,645,407 568,477,269

Accumulated depreciation and impairment: Buildings 72,766,956)( 11,798,206)( 19,172 24,146)( 84,570,136)(

Machinery and equipment 284,203,012)( 32,843,077)( 6,259,044 5,127,045)( 315,914,090)(

Other equipment 17,590,360)( 3,522,586)( 2,163,943 3,182,164)( 22,131,167)(

374,560,328)( 48,163,869)( 8,442,159 8,333,355)( 422,615,393)( Unfinished construction and equipment under acceptance 8,793,374 22,380,334 - 13,113,887)( 18,059,821

192,599,182$ 163,921,697$

2015

Year Ended December 31, 2016

Capitalised amount 323,503$

Range of the interest rates for capitalisation 2.00%~2.26%

235

(10) Investment property

The fair value of the investment property held by the Company as at December 31, 2016 and 2015 was $1,109,891 and $1,077,466, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information and are classified as Level 3.

(11) Intangible assets A. Intangible assets are goodwill, payments for TFT-LCD related technology and royalty.

B. Details of amortization on intangible assets are as follows:

At At At At

January 1 Additions Transfer December 31 January 1 Additions DisposalsDecember 31

Cost:

Land 188,247$ -$ -$ 188,247$ 188,247$ -$ -$ 188,247$

Buildings 564,109 - 124,881)( 439,228 568,440 - 4,331)( 564,109

752,356 - 124,881)( 627,475 756,687 - 4,331)( 752,356

Accumulated

depreciation

and impairment:

Buildings 71,853)( 11,132)( 28,935 54,050)( 63,010)( 13,174)( 4,331 71,853)(

680,503$ 573,425$ 693,677$ 680,503$

2016 2015


Cost:

Patents and royalty 8,152,685$ -$ -$ 2,000$ 8,154,685$

Goodwill 17,096,628 - - - 17,096,628

Others 3,900,053 - 70,918)( 275,091 4,104,226

29,149,366 - 70,918)( 277,091 29,355,539

Accumulated amortisation and impairment:

Patents and royalty 6,668,707)( 859,363)( - - 7,528,070)(

Others 3,216,634)( 306,215)( 70,918 - 3,451,931)(

9,885,341)( 1,165,578)( 70,918 - 10,980,001)(

19,264,025$ 18,375,538$

2016


Cost:

Patents and royalty 8,137,035$ -$ -$ 15,650$ 8,152,685$

Goodwill 17,096,628 - - - 17,096,628

Others 3,686,545 - 113,730)( 327,238 3,900,053

28,920,208 - 113,730)( 342,888 29,149,366

Accumulated amortisation

and impairment:

Patents and royalty 5,735,683)( 933,024)( - - 6,668,707)(

Others 3,057,341)( 273,023)( 113,730 - 3,216,634)(

8,793,024)( 1,206,047)( 113,730 - 9,885,341)(

20,127,184$ 19,264,025$

2015

236

C. The Company performed impairment analysis for recoverable amount of the goodwill at each

reporting date and used the value in use as the basis for calculation of the recoverable amount.

The value in use was calculated based on the estimated present value of future cash flows for five

years, which was discounted at the discount rate of 5.86% and 5.72% for the years ended

December 31, 2016 and 2015, respectively, to reflect the specific risks of the related cash

generating units. The future cash flows were estimated based on the future revenue, gross profit,

and other operating costs each year. Based on the evaluation above, the Company did not

recognize impairment loss on goodwill for the years ended December 31, 2016 and 2015.

(12) Short-term borrowings

As of December 31, 2015, the Company has no short-term borrowings.

(13) Long-term borrowings

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term

borrowings. B. The syndicated loan agreements specified that the Company shall meet covenants on current ratio,

liability ratio, interest coverage, and tangible net equity, which were based on the Company’s annual parent company only financial statements audited by independent auditors. The Company’s financial ratios on the parent company only financial statements for the years ended December 31, 2016 and 2015 are in compliance with the covenants on the syndicated loan agreement.

C. In order to repay the unpaid balance of the medium and long-term syndicated loans as specified in the “Agreed-upon Repayment Agreement” which was signed on April 5, 2012, the Board of Directors during its meeting on February 10, 2015 approved the proposal for the Company to apply for a new syndicated credit line of $68.5 billion with certain financial institutions. Subsequently, on March 12, 2015, the Company acquired consent of all financial institution creditors to terminate the ‘‘Agreed-upon Repayment Agreement’’, and waive negotiation on the debt issue.

2016 2015

Operating costs 997,181$ 998,974$

Operating expenses 168,397 207,073

1,165,578$ 1,206,047$


Type of borrowings December 31, 2016 Collateral

Bank loans Credit loans 11,583,750$ None

Range of interest rates 0.83%~1.59%

Type of loans Period December 31, 2016December 31, 2015

Syndicated bank loans 2015/3/12~2021/12/6

44,840,000$ 60,280,000$

Less: Administrative expenses charged by syndicated banks 329,847)( 288,794)(

Current portion 16,381,686)( 16,361,238)(

28,128,467$ 43,629,968$

Range of interest rates 1.77%~2.06% 1.90%~2.19%

237

D. In order to repay the unpaid balance of the medium and long-term syndicated loans, the Board of Directors during its meeting on July 29, 2016, resolved for the Company to apply for new syndicated credit line of $35 billion with certain financial institutions.

(14) Pensions A. Defined benefit pension plan

(a) The Company has a defined benefit pension plan in accordance with the Labor Standards Law, covering all regular employees’ service years prior to the enforcement of the Labor Pension Act on July 1, 2005, and service years thereafter of employees who choose to continue to be subject to the pension mechanism under the Law. Under the defined benefit pension plan, two units are accrued for each year of service for the first 15 years and one unit for each additional year thereafter, subject to a maximum of 45 units. Pension benefits are based on the number of units accrued and the average monthly salaries and wages of the last six 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 Bank of Taiwan, the trustee, under the name of the independent retirement fund committee. Also, the Company would assess the balance in the aforementioned 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 the employees expected to qualify for retirement in the following year, the Company will make contribution for the deficit by next March.

(b) The amounts recognized in the balance sheet are as follows:

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


Present value of defined benefit obligation 1,827,687$ 1,852,905$

Fair value of plan assets 1,534,864)( 1,529,124)(

Net defined benefit liability 292,823$ 323,781$

Present value of defined benefit Fair value of Net defined

obligation plan assets benefit liability



Interest expense/income 31,499 25,995 5,504

39,064 25,995 13,069

Remeasurements:Experience adjustments 55,619)( 11,592)( 44,027)(

Benefits paid 8,663)( 8,663)( -

64,282)( 20,255)( 44,027)(


238

(d) The Bank of Taiwan was commissioned to manage the Fund of the Company’s 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 authorized by the Regulator. The Company has no right to participate in managing

and operating that fund and hence the Company is 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, 2016 and 2015 is given in the Annual Labor Retirement Fund

Utilisation Report announced by the government. (e) The principal actuarial assumptions used were as follows:

Future mortality rate was estimated based on the 5th Taiwan Standard Ordinary Experience Mortality Table. Because the main actuarial assumption changed, the present value of defined benefit obligation is affected. The analysis was as follows:

Present value of defined benefit Fair value of Net defined

obligation plan assets benefit liability



Interest expense/income 36,133 33,501 2,632

44,361 33,501 10,860

Remeasurements:Change in financial assumptions 172,133 - 172,133

Experience adjustments 30,491 6,685 23,806

202,624 6,685 195,939


2016 2015

Discount rate 1.70% 1.70%

Future salary increases 3.00% 3.00%


239

The sensitivity analysis above was arrived at 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.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park

Administration in June 2013.

(g) As of December 31, 2016, the weighted average duration of that retirement plan is 18 years.

B. Defined contribution pension plan

(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 plans of the Company for the years

ended December 31, 2016 and 2015 were $978,325 and $1,003,836, respectively. (15) Share-based payment

A. As of December 31, 2016, the Company’s share-based payment transactions are set forth below:

(a) The employees may exercise the stock options by stage based on 30%, 30% and 40% of total

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

December 31, 2016Effect on present value of defined benefit obligation 75,371)($ 79,187$ 73,355$ 70,354)($

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

December 31, 2015Effect on present value of defined benefit obligation 299,276)($ 367,992$ 337,723$ 283,242)($



Quantity granted Contract period

Type of arrangement Grant date (in thousand units) (in years) Vesting conditions






-shares without consideration 2013.03.29 844 3 Note (c), (d)

-shares subscribed with consideration 2013.03.29 844 3 Note (c), (d)



240

options granted on completion of the specified year(s) of service (one to four years) from the

grant date.

(b) The employee stock options had already expired.

(c) The employees may exercise the stock options by stage based on 20%, 40% and 40% of total

options granted on completion of the specified year(s) of service (one to three years) from the

grant date.

(d) The restricted stocks issued by the Company cannot be transferred. Voting right and dividend

right are restricted on these stocks before vested.

(e) The fair value of stock options granted from 2010 to 2013 is measured using the Black-Scholes option-pricing model. Relevant information is as follows:

B. The details of the employee stock option plan for the years ended December 31, 2016 and 2015

are as follows:

Risk Exercise Expected Expected Expected free Fair value

Type of Price price volatility duration dividend interest per unitarrangement Grant date (in dollars) (in dollars) (%) (month) yield (%) rate (%) (in dollars)


-shares without consideration

2013.12.12 10.65$ $ - - - - - 10.65$

- shares subscribed with consideration

2013.12.12 10.65 5.00 - - - - 5.65


2013.03.29 18.40 - - - - - 18.40


2013.03.29 18.40 5.00 - - - - 13.40


2013.01.30 15.35 - - - - - 15.35


2013.01.30 15.35 5.00 - - - - 10.35

Employee stockoptions

2011.05.19 26.70 26.70 35.67 48.60 0.00 1.00 7.31

~8.32

Employee stockoptions

2010.05.13 39.85 39.85 51.57 48.60 0.00 0.80 15.12

~16.98

241

For the years ended December 31, 2016 and 2015, the expenses incurred from share-based payment arrangements were $15,260 and $143,442, respectively.

(16) Provisions-current

A. Warranty

The Company provides warranty on TFT-LCD panel products sold. Provision for warranty is estimated based on historical warranty data of TFT-LCD panel products.

B. Litigation and others Litigation and other provision for the Company are related to patents of TFT-LCD panel products and anti-trust litigations. For information on estimation of provisions, please refer to Note 9(1).

WeightedWeighted Weighted averageaverage Range of average stock price of

Quantity exercise exercise remaining stock options(in thousand price price vesting at exercise

Stock Options units) (in dollars) (in dollars) period date (in dollars) Outstanding options at the beginning of the year

50,000 $ 22.85

Options exercised - - $ 9.99

Options expired 50,000)( 21.87

Outstanding options at the end of the year - - $ - -

Exercisable options at the end of the year - -


WeightedWeighted averageaverage Range of stock price of

Quantity exercise exercise stock options(in thousand price price at exercise

Stock Options units) (in dollars) (in dollars) date (in dollars) Outstanding options at the beginning of the year

70,000 $ 25.63

Options exercised - - $ 13.61

Options expired ( 20,000) 32.59

Outstanding options at the end of the year 50,000 22.85 $ 22.85 0.39 years

Exercisable options at the end of the year 50,000 22.85

period


Weightedaverage

remaining vesting

Warranty Litigation and others Total

At January 1, 2016 808,136$ 4,743,623$ 5,551,759$

Additions during the year 2,160,000 1,618,915 3,778,915

Used during the year 1,333,902)( 4,231,538)( 5,565,440)(

At December 31, 2016 1,634,234$ 2,131,000$ 3,765,234$

242

(17) Share capital As of December 31, 2016, the Company’s authorized and outstanding capital were $105,000,000 and $99,521,488, respectively, with a par value of $10 (in dollars) per share. All proceeds from shares issued have been collected. Movements in the number of the Company’s ordinary shares outstanding are as follows:

A. On September 26, 2014, the Board of Directors of the Company resolved to increase capital for

cash by issuing global depositary receipts (the “GDR”). The amount of $9,360,000

(approximately equivalent to US$312,625 thousand) is tentatively scheduled for release. As the

Company has received the bank’s approval for extending capital increase, based on shareholder’s

interest, the issuance of the GDR was cancelled in accordance with the Financial Supervisory

Commission (FSC)’s approval on January 30, 2015.

B. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR

and had been completed in January 2013. The Company issued 1,125,000 thousand shares of

common stock for cash, with a unit of GDR representing 10 shares of common stock at the

Luxembourg Stock Exchange which raised a total of $14,519,051, net of issuance cost. As of

December 31, 2016, there were 213 thousand units outstanding, representing 2,134 thousand

shares of common stocks.

C. The Company adopted a resolution in 2013 to issue restricted shares to employees, consisting of

36,263 thousand shares without consideration and 36,263 thousand shares with consideration (the

price for subscription is $5 per share). Until the vesting conditions are met by employees, those

shares are restricted with regard to transfer of voting rights, dividend and other rights. As of

December 31, 2016 and 2015, the Company bought back 1,088 and 1,299 thousand shares of

unvested restricted stocks to employees, respectively, and decreased capital in accordance with

related regulation.

D. The common stock issued by the Company in 2006 through private placement was 570,929

thousand shares. The rights and obligations of the private common shares were the same as other

issued common shares, except for the transfer restriction under R.O.C. Securities and Exchange

Act and the listing restriction that no public listing will be allowed within three years since the

day of issuance and only if the Company completes the application to publicly issue the shares.

The Board of Directors of the Company approved the public issuance of the above private

common shares on April 28, 2015. As approved by the Financial Supervisory Committee on July

30, 2015, the stocks were officially listed in the Taiwan Stock Exchange starting from August 7,

2015. (18) Capital surplus

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

2016 2015

Number of ordinary Number of ordinary

shares (in thousands) shares (in thousands)

At January 1 9,953,237 9,954,536

Cancellation of restricted stock to employees 1,088)( 1,299)(

At December 31 9,952,149 9,953,237

243

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 capitalized mentioned above should not exceed 10% of the paid-in capital each year. Accumulated deficit shall first be covered by retained earnings before the capital reserve can be used to cover the accumulated deficit.

(19) Retained earnings

A. In accordance with the Company’s Articles of Incorporation, the current year’s earnings, if any, shall first be offset against prior years’ operating losses, then set aside 10% of the remaining amount as legal reserve (until the legal reserve equals the paid-in capital). Preferred dividend shall be distributed after setting aside or reversing a special reserve according to related regulations. The appropriation of the remaining amount along with the unappropriated earnings from previous years

Share of profit(loss) of

associatesaccounted for Restricted under equity Employee stock to

Share premium method stock option employees Total

At January 1 99,101,649$ 36,458$ 393,500$ 111,957$ 99,643,564$




Expiration of employee stock options 393,500 - 393,500)( - -

Changes in net equity of long-term equity investments - 2,570)( - - 2,570)(

At December 31 99,614,516$ 33,888$ -$ 594)($ 99,647,810$

2016

Share of profit

(loss) of

associates


under equity Employee stock toShare premium method stock option employees Total

At January 1 97,972,912$ 9,273$ 1,373,859$ 228,325$ 99,584,369$




Compensation related to share-based payment - - 22,740 - 22,740

Expiration of employee stock options 1,003,099 - 1,003,099)( - -

Changes in net equity of long-term equity investments - 27,185 - - 27,185

Changes in non-controlling interests 38 - - - 38

At December 31 99,101,649$ 36,458$ 393,500$ 111,957$ 99,643,564$

2015

244

shall be proposed by the Board of Directors and resolved by the shareholders. The Company is in an emerging industry which is growing rapidly, and has a capital intensive business. The Company is at the stage of stable growth. In line with the Company’s long-term financial plan in the future, investment environment and business competition situation, the appropriation of dividends shall be proposed by the Board of Directors and resolved by the shareholders, taking into account the future capital expenditure budget and capital requirement of the Company. However, the stock dividends distributed to shareholders shall not exceed two-thirds of distributable dividends in current period.

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 balance of the reserve exceeds 25% of the Company’s paid-in capital.

C. The details of the appropriation of 2015 net income and the appropriation of 2014 net income which was approved at the stockholders’ meeting in June 2016 and 2015 are as follows:

The Company’s appropriations of earnings for 2016 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting for 2017.

D. For the information relating to employees’ remuneration and directors’ and supervisors’ remuneration, please refer to Note 6(25).

(20) Other equity items

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 1,081,560$ 2,167,675$

Cash dividends 1,989,810 0.20$ 6,947,188 0.70$

3,071,370$ 9,114,863$


2015 2014

Available- Employee

Currency for-sale unearned

translation investments compensation Total

At January 1 1,695,294$ 1,074,445$ 19,402)($ 2,750,337$

Revaluation of available-for-sale investments - gross - 144,381)( - 144,381)( Revaluation transfer of available-for-sale investment - gross - 500,000 - 500,000

Currency translation differences 5,708,026)( - - 5,708,026)(

Changes in restricted stocks to employees - - 4,142 4,142

Compensation related to share-based payment - - 15,260 15,260

Share of subsidiaries and other comprehensive loss of associates 27,676)( 695,003)( - 722,679)(

Effect of income tax - 113,457)( - 113,457)(

At December 31 4,040,408)($ 621,604$ -$ 3,418,804)($

2016

245

(21) Other income

(22) Other gains and losses

Available- Employee

Currency for-sale Hedging unearned

translation investments reserve compensation Total

At January 1 3,082,948$ 1,259,847)($ 247,070$ 142,515)($ 1,927,656$

Fair value losses of cash flow hedges - - 5)( - 5)(

Reclassified as current income of cash flow hedges - - 297,670)( - 297,670)(

Revaluation of available-for-sale investments - gross - 1,145,267)( - - 1,145,267)(

Revaluation transfer of available-for-sale investment - gross - 3,993)( - - 3,993)(

Currency translation differences 1,392,086)( - - - 1,392,086)( Changes in restricted stocks to employees - - - 2,411 2,411

Compensation related to share-based payment - - - 120,702 120,702

Share of subsidiaries and other comprehensive income of associates 4,432 3,415,606 - - 3,420,038

Effect of income tax - 67,946 50,605 - 118,551

At December 31 1,695,294$ 1,074,445$ -$ 19,402)($ 2,750,337$

2015

2016 2015

Rental revenue 139,315$ 165,372$

Interest income 131,151 144,282

Dividend income 28,593 117,882

Service income 250,240 25,597

Other income 1,356,035 848,732

1,905,334$ 1,301,865$


2016 2015Net gain (loss) on financial assets and liabilities at fair value through profit or loss 87,140$ 133,873)($

Net currency exchange loss 306,238)( 66,797)(

Loss on disposal of investments - 112,058)(

Loss on disposal of property, plant and equipment 35,222)( 100,841)(

Impairment loss 500,000)( -

Disaster loss 1,296,166)( -

Litigation loss and others 1,028,414)( 7,429,350)(

3,078,900)($ 7,842,919)($


246

(23) Finance costs

(24) Expenses by nature

(25) Employees’ compensation and directors’ and supervisors’ remuneration

A. According to the Articles of Incorporation, of the Company a ratio of profit of the current year distributable, after covering accumulated losses, shall be distributed as employees' compensation and directors’ and supervisors’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ and supervisors’ remuneration.

B. For the years ended December 31, 2016 and 2015, employees’ compensation was accrued at $192,788 and $734,524, respectively; while directors’ and supervisors’ remuneration was accrued at $1,928 and $5,000, respectively. The aforementioned amounts were recognized in expenses. The expenses recognized for 2016 were accrued based on the earnings of current year and are to be presented for approval by the Board of Directors and reported during the Company’s stockholders’ meeting. Employees’ compensation and directors’ and supervisors’ remuneration for 2015 as resolved by the Board of Directors on May, 2016 were $734,524 and $4,490, respectively. The difference of $510 between employees’ compensation (directors’ and supervisors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2015 financial statements was caused by a different accrual ratio and had been recorded as expense in 2016. Information about employees’ compensation and directors’ and supervisors’ remuneration of the Company as resolved by the Board of Directors will be posted in the “Market Observation Post System” at the website of the Taiwan Stock Exchange.

(26) Income tax

A. Income tax expense (a) Components of income tax expense:

2016 2015

Interest expense: Bank borrowings 831,360$ 1,601,674$

Others - 6,108

Gain (loss) on fair value change of financial instruments:

Gain on cash flow hedges, reclassified from equity - 297,670)(

Factoring expense of accounts receivable 18,647 -

850,007$ 1,310,112$


2016 2015

Employee benefit expense: Salaries and other short-term employee benefits 26,461,969$ 26,436,720$

Share-based payments 15,260 143,442

Post-employment benefits 991,394 1,014,696

Depreciation 36,440,154 48,177,043

Amortization 1,165,578 1,206,047

65,074,355$ 76,977,948$


247

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

follows:

B. Reconciliation between income tax expense and accounting profit:

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

2016 2015Current tax:Current tax on profit for the year -$ 42$

Tax on undistributed surplus earnings 590,712 915,947

Adjustments in respect of prior years 299 36,371

Total current tax 591,011 952,360

Deferred tax:Origination and reversal of temporary differences 1,199,226 2,040,987

Income tax expense 1,790,237$ 2,993,347$


2016 2015

Fair value gains/losses on available-for-sale financial assets 113,457$ 67,946)($

Cash flow hedges - 50,605)(

Remeasurement of defined benefit obligation 7,485 33,309)(

120,942$ 151,860)($


2016 2015

Tax calculated based on profit before tax and statutory tax rate 622,357$ 2,347,520$

Effects from items disallowed by tax regulation 816,199)( 975,322)(

Prior year income tax underestimate 299 36,371

Additional 10% tax on undistributed earnings 590,712 915,947

Effect from Alternative Minimum Tax - 42

Change in assessment of realization of deferred tax assets 1,393,068 668,789

Tax expense 1,790,237$ 2,993,347$


248

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are

as follows:

Recognisedin other


Temporary differences:-Deferred tax assets:

Sales returns and discount provisions 243,526$ 26,957$ -$ 270,483$

Accrued royalties and warranty provisions 654,557 77,287 - 731,844

Unrealized exchange loss (gain) 119,217 119,217)( - -

Unrealized loss (gain) on financial instruments 926,234 342,383)( 113,457)( 470,394 Loss carryforward 13,463,164 976,913)( - 12,486,251 Others 316,116 293,920 7,485)( 602,551

15,722,814 1,040,349)( 120,942)( 14,561,523 -Deferred tax liabilities:

Unrealized exchange gain - 113,545)( - 113,545)(

Amortisation charges on goodwill 477,056)( 82,370)( - 559,426)( Others 37,038)( 37,038 - -

514,094)( 158,877)( - 672,971)(

15,208,720$ 1,199,226)($ 120,942)($ 13,888,552$


Recognisedin other


Temporary differences:-Deferred tax assets:

Sales returns and discount provisions

166,373$ 77,153$ -$ 243,526$

Accrued royalties and warranty provisions 327,918 326,639 - 654,557

Unrealized exchange loss (gain) 200,697 81,480)( - 119,217

Unrealized loss on financial instruments 699,962 158,326 67,946 926,234 Loss carryforward 15,848,188 2,385,024)( - 13,463,164 Others 332,288 49,481)( 33,309 316,116

17,575,426 1,953,867)( 101,255 15,722,814 -Deferred tax liabilities:

Unrealized (gain) loss on cash flow hedges 50,605)( - 50,605 -

Amortisation charges on goodwill 394,687)( 82,369)( - 477,056)( Others 32,287)( 4,751)( - 37,038)(

477,579)( 87,120)( 50,605 514,094)(

17,097,847$ 2,040,987)($ 151,860$ 15,208,720$


249

E. The amounts of deductible temporary differences that were not recognized as deferred tax assets

are as follows:

F. The Company has not recognized taxable temporary differences associated with investment in

subsidiaries as deferred tax liabilities. As of December 31, 2016 and 2015, the amounts of temporary differences unrecognized as deferred tax liabilities were $28,052,581 and $29,289,598, respectively.

G. Certain revenue from the design, research, development, manufacture and sale of the thin film transistor - liquid crystal displays (TFT-LCD) and LCDs is exempt from income tax from 2008 to 2015.

H. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

I. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998. J. The details of imputation system are as follows:

Unrecognised

Amount filed deferred UsableYear incurred / assessed Unused amount tax assets until year

2010 Assessed 9,392,452$ 3,579,613$ 2020

2011 Assessed 63,808,943 24,318,605 2021

2012 Assessed 42,430,348 16,170,882 2022

2016 Filed 3,047,240 1,161,351 2026

118,678,983$ 45,230,451$

December 31, 2016

Unrecognised

Amount filed deferred UsableYear incurred / assessed Unused amount tax assets until year

2011 Assessed 66,433,000$ 18,410,536$ 2021

2012 Filed 43,123,372 11,950,753 2022

109,556,372$ 30,361,289$

December 31, 2015


Deductible temporary differences 48,198,766$ 33,185,717$


(a) Balance of tax credit account 1,420,948$ 678,189$

2016 (Estimated) 2015 (Actual)

(b) Estimated (Actual) creditable tax rate 7.59% 5.71%

250

(27) Earnings per share

As employee stock options had anti-dilutive effect for the years ended December 31, 2015, they were not included in the calculation of diluted earnings per share.

(28) Non-cash transaction Investing activities with partial cash payments:

RELATED PARTY TRANSACTIONS

(1) Significant related party transactions A. Operating revenue

The collection period was 30~120 days upon delivery or on a monthly-closing basis to related parties, and 30~90 days to non-related parties. The sales prices and the trading terms to related parties above were not significantly different from those of sales to third parties.

B. Purchases of goods

2016 2015Basic earnings per shareProfit attributable to ordinary shareholders of the parent 1,870,687$ 10,815,594$


Basic earnings per share (in dollar) 0.19$ 1.09$

Diluted earnings per shareProfit attributable to ordinary shareholders of the parent 1,870,687$ 10,815,594$


Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation 54,316 116,513

-Restricted stocks 4,052 27,519

10,005,661 10,066,557

Diluted earnings per share (in dollar) 0.19$ 1.07$


2016 2015

Purchase of property, plant and equipment 41,145,085$ 22,483,127$

Add: Opening balance of payable on equipment 4,119,425 2,732,538

Less: Ending balance of payable on equipment 3,108,898)( 4,119,425)(

Cash paid during the year 42,155,612$ 21,096,240$


2016 2015Sales of goods:　Others 14,619,410$ 13,019,281$

　Subsidiaries 11,788,496 13,048,043

　Associates 113,916 233,299

26,521,822$ 26,300,623$


251

The payment term was 30~120 days to related parties after delivery, and 30~180 days to non-related parties after delivery or on a monthly-closing basis. The purchase prices and the payment terms to related parties above were not materially different from those of purchases from third parties.

C. Consigned processing (a) Consigned processing

(b) Balance of consigned processing at the end of year (shown as “Other payables”)

The Company subcontracted the processing of products of associates in Mainland China. The processing fees were mainly charged based on cost plus method.

D. Service revenue (Shown as “other revenue”)

E. Receivables from related parties:

2016 2015

　Others 3,014,178$ 2,960,453$

　Associates 1,363,067 311,987

　Subsidiaries 223,037 123,169

4,600,282$ 3,395,609$


Purchases of goods:

2016 2015

Processing costs:

　Subsidiaries 89,840,173$ 122,717,171$

　Others 40,737 31,116

89,880,910$ 122,748,287$



Payables to related parties:

　Subsidiaries 1,188,143$ 3,765,006$


Service revenue:

　Subsidiaries 207,244$ -$

　Associates 42,996 25,597

250,240$ 25,597$


Accounts receivable:

　Others 9,618,406$ 2,659,151$

　Subsidiaries 655,047 519,539

　Associates 47,743 81,427

10,321,196 3,260,117

Less: Transfer to other receivables 105,539)( 355,364)(

Allowance for sales returns and discounts 16,643)( -

10,199,014$ 2,904,753$

252

(a) The receivables from related parties arise mainly from sales transactions. The receivables are due 30~120 days 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.

(b) The above receivables from related parties that exceed normal granting periods were transferred to ‘other receivables – related parties’.

F. Other receivables from related parties

G. Payables to related parties:

The payables to related parties arise mainly from purchase transactions and are due 30~120 days after the date of purchase. The payables bear no interest.

H. Property transactions Purchase of property

(a) Acquisition of property, plant and equipment:

(b) Period-end balances arising from purchases of property (shown as “Other payables”):

(2) Key management compensation

PLEDGED ASSETS

The Company’s assets pledged as collateral are as follows:


Transfer from accounts receivable 105,539$ 355,364$

Other receivables 17,552 22,000

123,091$ 377,364$


Accounts payable:

　Subsidiaries 48,369,524$ 44,235,860$

Others 1,727,306 1,130,282

　Associates 223,584 67,720

50,320,414$ 45,433,862$

2016 2015

Subsidiaries 83,144$ 148,450$

Others 17,324 7,820

Associates - 220

100,468$ 156,490$



Subsidiaries 6,528$ 542,694$

Others 16,917 6,273

23,445$ 548,967$

2016 2015

Salaries and other short-term employee benefits 138,669$ 136,698$

Share-based payments 665 6,286

Post-employment benefits 458 220

139,792$ 143,204$


253

SIGNIFICANT CONTINGENT LIABILITIES AND UNRECOGNIZED CONTRACT COMMITMENTS

(1) Contingencies－Significant Litigations A. Chi Mei Optoelectronics Corporation (the “CMO”), Chi Mei Optoelectronics Japan Co., Ltd., Chi

Mei Optoelectronics UK Ltd., Chi Mei Optoelectronics Europe B.V., and Chi Mei Optoelectronics USA Inc. were investigated by the United States (the “U.S.”) Department of Justice in December 2006 for alleged violation of the anti-trust laws. Moreover, authorities of some U.S state governments, as well as the governments of the European Union, China, Brazil and Korea also started to investigate this case. For Brazil case, the Company is continuously cooperating with the investigation. In addition, certain downstream customers and consumers brought class-actions and/or individual civil lawsuits in the U.S. and Canada against the TFT-LCD companies; and in certain lawsuits, CMO and Chi Mei Optoelectronics USA Inc. were listed as defendants. Details of the investigations on significant cases related to the alleged violation of the anti-trust laws are as follows:

(a) The Company had reached a plea agreement with the U.S. Department of Justice in December

2009, agreeing to pay a fine of US$220 million through installment over five years. The fine had

been fully paid as of February 2015.

The Company had also reached out-of-court settlement agreements with the plaintiffs on

separate civil lawsuits in the U.S. since 2012 and recognized related losses.

Further, the Company had reached out-of-court settlement agreements with fourteen State

Governments since November 2011, agreeing to pay civil statutory damages in order to settle

these civil lawsuits. All civil lawsuits between the Company and the U.S state governments

have been settled.

(b) In December 2010, the Company had been ordered by the European Commission to pay a fine

of EUR 300 million. The Company appealed the case in February 2011, and the General Court

of the European Union rendered a judgment in February 2014 lowering the fine from EUR 300

million to EUR 288 million. The Company further filed an appeal against a part of the judgment

and the Court of Justice of the European Union has adjudicated to maintain the aforementioned

amount of fine.

(c) Except for those anti-trust litigations for which the ultimate results cannot be reliably estimated,

the Company has recognized actual or estimated losses or liabilities in “Current Provisions”.

Pledged asset December 31, 2016December 31, 2015 Purpose

Other financial assets-current

Time deposits -$ 856$ Land leaseProperty, plant and equipment 80,828,544 59,669,639 Long-term loans and performance

guarantee for lease payableIntagible assets 15,551 - Long-term loans and performance

guarantee for lease payableOther non-current assets

Time deposits752 119,703

Tariff guarantee, land lease and guarantee for contract

80,844,847$ 59,790,198$

Book value

254

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit with the United States District

Court for the District of East Texas on April 25, 2011, alleging infringement of its patent. The

administrative law judge has ruled a summary judgment for the lawsuit in December 2013 rendering

Eidos’ patent as invalid, and the presiding judge has confirmed the summary judgment in January

2014. Eidos has filed a complaint in February 2014. The United States Court of Appeals for the

Federal Circuit has rejected the judgement and sent back to the United States District Court in

March 2015. The Company submitted an application to ask the United States Court of Appeals for

the Federal Circuit to rehear en banc in April 2015. Though the United States Court of Appeals

rejected the request in June 2015, the Company appealed to the Supreme Court in September 2015

and petitioned for writ of certiorari. The Supreme Court of the United States has denied the appeal of

the Company in November 2015. The case remains at the ruling by the United States Court of

Appeals for the Federal Circuit in March 2015. However, the results of the litigation are uncertain

and are dependent on the future litigation progress. The Company does not expect that the lawsuit

would have a material adverse effect on the Company’s financial position or results of operations in

the short-term. (2) Commitments

A. Capital expenditures contracted for at the balance sheet date but not yet incurred are as follows:

B. Operating lease commitments The Company leases plant, land and warehouses under non-cancellable operating lease agreements. The majority of lease agreements are renewable at the end of the lease period at market rate. The future aggregate minimum lease payments under non-cancellable operating leases are as follows:

C. Outstanding letters of credit

The outstanding letters of credit for the purchase of property, plant and equipment are as follows:

SIGNIFICANT DISASTER LOSS

The Company’s partial inventories and buildings were damaged due to the earthquake which occurred in Kaohsiung, Taiwan on February 6, 2016. The Company has conducted a preliminary disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. However, the Company has full earthquake insurance and business interruption insurance to cover the operating costs of inventories and building during the repair period. The Company is actively processing the insurance claims. Based on the initial assessment, the Company may incur a probable loss after taking the insurance claims into account. Accordingly, the company recognized a loss of $1,296,166 for the year


Property, plant and equipment 17,663,033$ 38,262,634$


Not later than one year 527,419$ 508,974$

Later than one year but not later than five years 1,861,776 1,873,940

Later than five years 880,359 1,207,891

3,269,554$ 3,590,805$


Outstanding letters of credit 245,565$ 474,222$

255

ended December 31, 2016, shown as “Other gains and losses”.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE

None.

OTHERS Capital management

The Company’s objectives are to maintain an optimal capital structure, and constructively reduce the debt ratio and the cost of capital in order to maximize shareholders' equity.

Financial instruments A. Fair value information of financial instruments

The carrying amounts of the Company’s financial instruments not measured at fair value (including cash and cash equivalents, accounts receivable, other receivables, other financial assets-current, short-term loans, accounts payable, other payables and long-term loans) 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 minimize 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), (4)).

(b) Risk management is carried out by the treasury department 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 principles for overall risk management, as well as 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 by excess liquidity.

C. Significant financial risks and degrees of financial risks (a) Market risk

Foreign exchange risk e) The Company operates internationally and is exposed to foreign exchange risk arising from

various currency exposures, primarily with respect to the USD and RMB. Foreign exchange risk arises from future commercial transactions, recognized assets and liabilities and net investments in foreign operations.

f) Management has set up a policy to require group companies to manage their foreign exchange risk against their functional currency. The group companies are required to hedge their entire foreign exchange risk exposure via the Company’s treasury departments. To manage their foreign exchange risk arising from future commercial transactions and recognized assets and liabilities, entities in the Company use forward foreign exchange contracts. Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency.

g) The Company’s businesses involve some non-functional currency operations (the Company’s functional currency: NTD). Based on the simulations performed, the impact on post-tax profit of a 1% exchange rate fluctuation would be an increase of $35,439 and $29,120 for the years ended December 31, 2016 and 2015, respectively. The information on

256

assets and liabilities denominated in foreign currencies whose values would be materially affected by the exchange rate fluctuations is as follows:

Note: Exchange rate represents the amount of NT dollars for which one foreign currency

could be exchanged. h) Total exchange loss including realized and unrealized arising from significant foreign

exchange variation on the monetary items held by the Company for the years ended December 31, 2016 and 2015 amounted to $306,238 and $66,797, respectively.

Price risk a) The Company is exposed to equity securities price risk because of investments held by the

Company that are classified on the parent company only balance sheet either as available-for-sale or at fair value through profit or loss. To manage its price risk arising from investments in equity securities, the Company diversifies its portfolio in accordance with the policy set by the Company.

b) 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 20% with all other variables held constant, other components of equity for the years ended December 31, 2016 and 2015 would have increased/decreased by $329,597 and $388,983, respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk a) The Company’s interest rate risk arises from long-term borrowings. Borrowings issued at

variable rates expose the Company to cash flow interest rate risk which is partially offset by cash and cash equivalents held at variable rates. Borrowings issued at fixed rates expose the Company to fair value interest rate risk. During the years ended December 31, 2016 and 2015, the Company’s borrowings at variable rate were denominated in the NTD.

b) The Company analyzes its interest rate exposure on a dynamic basis. Various scenarios are simulated taking into consideration refinancing, renewal of existing positions, alternative financing and hedging. Based on these scenarios, the Company calculates the impact on profit and loss of a defined interest rate shift. For each simulation, the same interest rate

Foreign ForeignCurrency Exchange Currency ExchangeAmount Rate Book Value Amount Rate Book Value

(In Thousands) (Note) (NTD) (In Thousands) (Note) (NTD) Financial asstes Monetary items USD 2,348,586$ 32.25 75,741,899$ 2,229,374$ 32.83 73,190,348$ JPY 388,289 0.28 108,721 1,607,428 0.27 434,006 EUR 80,977 33.90 2,745,120 75,928 35.88 2,724,297 Non-monetary items USD 2,337,217$ 32.25 75,375,248$ 2,342,530$ 32.83 76,905,260$ HKD 223,521 4.16 929,847 178,232 4.24 755,704 JPY 5,619,277 0.28 1,573,398 5,527,619 0.27 1,492,457 EUR 3,703 33.90 125,532 3,697 35.88 132,648

Monetary items USD 2,088,145$ 32.25 67,342,676$ 1,990,752$ 32.83 65,356,388$ JPY 27,233,384 0.28 7,625,348 29,475,552 0.27 7,958,399 EUR 2,471 33.90 83,767 3,397 35.88 121,884


Financial liabilities

257

shift is used for all currencies. The scenarios are run only for liabilities that represent the major interest-bearing positions.

c) Based on the simulations performed, the impact on post-tax profit of a 0.25% shift would be a maximum increase of $112,100 or decrease of $150,700 for the years ended December 31, 2016 and 2015, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

d) Based on the various scenarios, the Company manages its cash flow interest rate risk by using floating-to-fixed interest rate swaps. Such interest rate swaps have the economic effect of converting borrowings from floating rates to fixed rates. Generally, the Company raises long-term borrowings at floating rates and swaps them into fixed rates that are lower than those available if the Company borrowed at fixed rates directly. The Company agrees with other parties to exchange interest rate, at specified intervals. The difference between fixed contract rates and floating-rate interest amounts are calculated by reference to the agreed notional amounts.

(b) Credit risk a) Credit risk refers to the risk of financial loss to the Company arising from default by the

clients or counterparties of financial instruments on the contract obligations. According to the Company’s credit policy, each local entity in the Company is responsible for managing and analyzing the credit risk for each of their new clients before standard payment and delivery terms and conditions are offered. Customer credit quality is assessed via internal risk control, considering customer financial position, past experience and other factors. Individual risk limits are set by the board of directors based on internal or external ratings. The utilization of credit limits is regularly monitored. Credit risk arises from cash and cash equivalents, derivative financial instruments and deposits with banks and financial institutions, as well as credit exposures to wholesale and retail customers, including outstanding receivables. Because the Company's counterparties and executor are banks with good credit standing and financial institutions and government with investment grade or above, there is no significant default. Therefore, there is no significant credit risk.

b) No credit limits were exceeded during the reporting periods. Management does not expect any significant losses from non-performance by these counterparties.

c) The individual analysis of financial assets that had been impaired is provided in Note 6. (c) Liquidity risk

a) 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 (Note 6(13)) 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, compliance with internal balance sheet ratio targets and external regulatory or legal requirements.

b) Surplus cash held by the operating entities over and above balance required for working capital management are transferred to the Company treasury. Company treasury invests surplus cash in interest bearing savings accounts, time deposits, money market deposits and marketable securities. The Company chooses instruments that are with appropriate maturities or sufficient liquidity to provide sufficient headroom as determined by the abovementioned forecasts. These are expected to readily generate cash inflows for managing liquidity risk.

258

c) The table below analyses the Company’s non-derivative financial liabilities and net-settled or gross-settled derivative financial liabilities into relevant maturity groupings based on the remaining period at the balance sheet date to the contractual maturity date for non-derivative financial liabilities and to the expected maturity date for derivative financial liabilities. The amounts disclosed in the table are the contractual undiscounted cash flows.

d) The related information on the repayment of the medium and long-term syndicated loans

from the ‘‘Agreed-upon Agreement’’ is described in Note 6(13). Fair value estimation

A. Details of the fair value of the Company’s financial assets and financial liabilities not measured at fair value are provided in Note 12(2)A. Details of the fair value of the Company’s investment property measured at cost are provided in Note 6(10).

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: Quoted prices (unadjusted) in active markets for identical assets or liabilities that the

entity can access at the measurement date. A market is regarded as active where a market in which transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. The fair value of the Company’s investment in listed stocks and on-the-run bonds 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 or indirectly. The fair value of the Company’s investment in derivative instruments is included in Level 2.

Level 3: Unobservable inputs for the asset or liability. The fair value of the Company’s investment in equity investment without active market is included in Level 3.

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, 2016 and 2015 is as follows:


Short-term borrowings 11,583,750$ -$ -$ 11,583,750$

Accounts payable 79,570,439 - - 79,570,439

Other payables 20,188,656 - - 20,188,656

Long-term borrowings(including current portion) 16,440,000 27,850,000 550,000 44,840,000

Non-derivative financial liabilities:

Less than Between 1 Between 3

December 31, 2015 1 year and 3 years and 5 years Total

Accounts payable 73,164,897$ -$ -$ 73,164,897$

Other payables 24,387,687 - - 24,387,687

Long-term borrowings(including current portion) 16,440,000 43,840,000 - 60,280,000

Derivative financial liabilities:December 31, 2016 Less than 1 year Total

Forward exchange contracts $ 734,915 $ 734,915

December 31, 2015 Less than 1 year Total

Forward exchange contracts $ 53,921 $ 53,921

259

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

(a) The 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 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 parent company only balance sheet date.

(c) When assessing non-standard and low-complexity financial instruments, for example, debt instruments without active market, interest rate swap contracts, foreign exchange swap contracts and options, the Company adopts valuation technique that is widely used by market participants.

December 31, 2016 Level 1 Level 2 Level 3 Total

AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Forward exchange contracts -$ 64,241$ -$ 64,241$


1,438,809$ 64,241$ 209,174$ 1,712,224$

LiabilitiesRecurring fair value measurementsFinancial liabilities at fair value through profit or loss Forward exchange contracts -$ 734,915$ -$ 734,915$

December 31, 2015 Level 1 Level 2 Level 3 Total AssetsRecurring fair value measurementsFinancial assets at fair value through profit or loss Forward exchange contracts -$ 81,858$ -$ 81,858$


1,562,871$ 81,858$ 382,046$ 2,026,775$

LiabilitiesRecurring fair value measurementsFinancial liabilities at fair value through profit or loss Forward exchange contracts -$ 53,921$ -$ 53,921$

Listed shares Emerging stocks Corporate bond

Market quoted price Closing price Last transaction priceWeighted average

quoted price

260

The inputs used in the valuation method to measure these financial instruments are normally observable in the market.

(d) 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.

(e) 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 parent company only balance sheet. The inputs and pricing information used during valuation are carefully assessed and adjusted based on current market conditions.

(f) 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, 2016 and 2015, there was no transfer between Level 1 and Level 2.

F. The following table presents the changes in level 3 instruments as at December 31, 2016 and 2015:

G. For the years ended December 31, 2016 and 2015, there was no transfer into or out from Level 3. H. Investment management segment is in charge of valuation procedures for fair value measurements

being categorized within Level 3, which is to verify independent fair value of financial instruments. Such assessment is to ensure the valuation results are reasonable by applying independent information to make results close to current market conditions, confirming the resource of information is independent, reliable and in line with other resources and represented as the exercisable price, and frequently calibrating valuation model, performing back-testing, updating inputs used to the valuation model and making any other necessary adjustments to the fair value. Investment management segment set up valuation policies, valuation processes and rules for measuring fair value of financial instruments and ensure compliance with the related requirements in IFRS.

I. The following is the qualitative information of significant unobservable inputs and sensitivity analysis of changes in significant unobservable inputs to valuation model used in Level 3 fair value measurement:

2016 2015

At January 1 382,046$ 563,496$

Proceeds from capital reduction 159,335)( -

Gains and losses recognized in other comprehensive income 13,537)( 181,450)(

At December 31 209,174$ 382,046$

Equity securities

261

J. The Company has carefully assessed the valuation models and assumptions used to measure fair

value; therefore, the fair value measurement is reasonable. However, use of different valuation models or assumptions may result in different measurement. The following is the effect of profit or loss or of other comprehensive income from financial assets and liabilities categorised within Level 3 if the inputs used to valuation models have changed:

SUPPLEMENTARY DISCLOSURES

Significant transactions information A. Loans to others: Please refer to table 1. 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 2. D. Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20%

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

Fair value Range

at December Valuation Significant (Weighted Relationship of

31, 2016 technique unobservable input average) inputs to fair value

Non-derivative equity instrument:

Fair value Range

at December Valuation Significant (Weighted Relationship of

31, 2015 technique unobservable input average) inputs to fair value

Non-derivative equity instrument:



20%~30%

(22%)


Unlisted shares 382,046$ Marketcomparablecompanies

Price to earningsratio multiple,price to book ratiomultiple controlpremium

0.56~1.41

(0.70)


30%

(29%)


Unlisted shares 209,174$ Marketcomparablecompanies

Price to earningsratio multiple,price to book ratiomultiple controlpremium

0.68~1.55

(0.88)


Favourable UnfavourableFinancial assets Period Input Change change change

Equity instrument 2016/12/31 209,174$ ± 1% 2,092$ 2,092)($

Equity instrument 2015/12/31 382,046 ± 1% 3,820 3,820)(

Recognised in other

comprehensive income

262

F. Disposal of real estate reaching $300 million or 20% of paid-in capital or more: None. G. Purchases or sales of goods from or to related parties reaching $100 million or 20% of paid-in

capital or more: Please refer to table 3. H. Receivables from related parties reaching $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) and 6(4). J. Significant inter-company transactions during the reporting periods: Please refer to table 5.

Information on investees Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 6.

Information on investments in Mainland China A. Basic information: Please refer to table 7. B. Significant transactions, either directly or indirectly through a third area, with investee companies

in the Mainland Area: Please refer to Table 1, 3, 4 and 5. SEGMENT INFORMATION

None.

263

Innolux Corporation Loans to others



No. Creditor Borrower General

ledger account

Is a related party

Maximum outstanding


December 31, 2016


2016

Actual amount

drawn down

Interest rate

Nature of loan


with the borrower



accounts



Footnote

Item Value



Other receivables

Related parties

$ 5,084,600 $ 4,154,800 $ 4,127,390 1.1%~ 1.5%



$ - $ - - $ 226,006,363 $ 226,006,363 A



Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A



Other receivables

Related parties

650,860 - - 0% Short-term financing

- Operating support

- - - 226,006,363 226,006,363 A



Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A



Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

2 Nanjng Innolux Technology Ltd.


Other receivables

Related parties

371,920 371,920 371,920 1.5% Short-term financing

- Operating support

- - - 226,006,363 226,006,363

A

3 Innolux Technology USA Inc.


Other receivables

Related parties

193,500 193,500 193,500 0.56%~ 0.81%


- Operating support

- - - 226,006,363 226,006,363 A

4 Innolux Technology Europe B.V.


Other receivables

Related parties

1,314,502 1,314,502 1,287,584 0.007%~ 0.997%


- Operating support

- - - 226,006,363 226,006,363 A

264

5 Innolux Technology Japan Co., Ltd.


Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

No. Creditor Borrower General ledger

account

Is a related party

Maximum outstanding


December 31, 2016


2016

Actual amount

drawn down

Interest rate

Nature of loan


with the borrower



accounts



Footnote

Item Value

6 Innolux Optoelectronics Japan Co., Ltd.


Other receivables

Related parties

$ 689,000 $ 689,000 $ 689,000 0.5% Short-term financing


$ - - $ - $ 226,006,363 $ 226,006,363 A

7 Asiaward Investment Ltd.


Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

8 Best China Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

9 Main Dynasty Investment Ltd.


Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

10 Mega Chance Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

11 Sun Dynasty Development Limited

Magic Sun Limited

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

12 Magic Sun Limited

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

13 Warriors Technology Investments Ltd.

Lakers Trading Ltd.

Other receivables

Related parties


- Operating support

- - - 226,006,363 226,006,363 A

Note A: The Company - Innolux Corporation 1.For loans obtained for short-term financing, financial limit on loans granted to a single party shall not exceed 10% of the company’s net equity, based on the most recent audited financial statements of the company. 2.The financial limit on loans granted shall not exceed 40% of the company’s net equity. If it is for short-term capital needs, the limit shall not exceed 30% of the company’s net equity. 3.The policy for loans granted to direct or indirect wholly-owned overseas subsidiaries is as follows: for short-term capital needs, financial limit shall not be below the 40% requirement, but should not exceed 100% of the company’s net equity.

265

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



As of December 31, 2016 Securities held by Marketable securities Relationship

with the securities issuer

General ledger account Number of shares Book value Ownership (%) Fair value Footnote

Common stock Innolux Corporation AvanStrate Inc. None Available-for-sale financial assets -

non-current 900,000 $ 53,574 1 $ 53,574

Innolux Corporation TPV Technology Ltd. None Available-for-sale financial assets - non-current

150,500,000 826,028 6 826,028

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financial assets - non-current

32,350,095 155,600 19 155,600

Innolux Corporation Epistar Corporation None Available-for-sale financial assets - non-current

89,072 2,062 - 2,062

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financial assets - non-current

44,741,305 610,719 9 610,719

Innolux Corporation Allied Material Technology Corp. None Available-for-sale financial assets - non-current

1,209 - - -

Yuan Chi Investment Co., Ltd. Trillion Science Inc. None Available-for-sale financial assets - non-current

1,439,180 796 3 796

Yuan Chi Investment Co., Ltd. China Electric Mfg. Corp. None Available-for-sale financial assets - non-current

9,282,000 69,151 2 69,151

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial assets at fair value through profit or loss

11,165,222 250,101 8 250,101

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financial assets - non-current

10,000,000 303,000 7 303,000

InnoJoy Investment Corporation G-TECH Optoelectronics Corporation None Available-for-sale financial assets - non-current

3,993,565 81,868 2 81,868


OED Holding Ltd. None Available-for-sale financial assets - non-current

16,000,000 4,695 6 4,695


General Interface Solution (GIS) Holding Limited

None Available-for-sale financial assets - non-current

40,500,000 3,705,750 13 3,705,750

Nets trading Ltd. PilotTech Global Fund None Available-for-sale financial assets - non-current

90 27,686 - 27,686

266

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




transactions



Purchases (sales)


(sales)



Footnote


Same major stockholder Sales $ 8,777,756 3 60-90 days Similar with general sales


$ 7,605,574 12


Sales 6,392,974 2 60 days Similar with general sales


- -


A subsidiary of the Company Sales 2,017,948 1 45 days Single sales target, no basis for comparison


151,853 -



Sales 1,835,243 1 45-90 days Similar with general sales


563,698 1


Sales 1,341,129 - 60 days Similar with general sales


- -





317,648 1

Innolux Corporation Innolux Technology USA Inc. An indirect wholly-owned subsidiary



- -



Sales 836,014 - 60-90 days Similar with general sales


367,210 1





445,861 1

Innolux Corporation Innolux Optoelectronics USA, Inc.




66,671 -

Innolux Corporation eCMMS Precision Singapore Pte. Ltd.




118,971 -





65,137 -

Innolux Corporation Hongfujin Precision Electronics (Zhenzhou) Co., Ltd.




- -

267


transactions



Purchases (sales)


(sales)



Footnote

Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

Sales $ 242,518 - 90 days Similar with general sales


$ 1,703 -

Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd.




99,027 -

Innolux Corporation Nanjing Innolux Optoelectronics Ltd.




73,386 -

Innolux Corporation Hongfujin Precision Industry (Shenzhen) Co., Ltd.




7,516 -





47,743 -


A subsidiary of the Company Sales 110,182 - 30 days Similar with general sales


15,023 -


Same major stockholder Purchases 2,695,546 1 60~90 days after acceptance



( 1,577,291) 2



Purchases 1,123,036 - 30 days after acceptance



( 171,128) -






( 145,018) -

Innolux Corporation GIO Optoelectronics Corp. The company's investments accounted for under the equity method




( 52,456) -


Processing expense


( 21,652,362) 27

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processing expense


( 19,136,288) 24

268


transactions



Purchases (sales)


(sales)



Footnote


Processing expense

$ 17,621,556 7 60-90 days Cost plus No material difference

($ 7,545,137) 9


Foxconn Precision Electronics (YanTai) Co., Ltd.




1,214,351 4


Yantai Fuhuada Precision Electronics Co., Ltd.




478,034 2


Premier Image Technology (China) Ltd.




233,414 1





1,406,162 6






- -






233,397 5





- -





330 -






330 -






245,026 27

Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd.




337,685 3

Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.




52,556 -

269


transactions



Purchases (sales)


(sales)



Footnote



Processing revenue

$ 28,261,854 79 60 days Similar with general transactions


$ 13,598,180 83





15,769,351 92



Processing revenue



3,392,000 94



Processing revenue



5,421,971 100



Processing revenue



1,756,905 100



Processing revenue



- -





- -



Service revenue



72,628 97



Service revenue



56,365 64






( 368,533) 6



Same major stockholder Purchases 2,512,243 4 90 days after goods are shipped



( 2,052,444) 8







( 216,554) 2

270


transactions



Purchases (sales)


(sales)



Footnote




Purchases $ 547,478 2 120 days after goods are shipped



($ 195,252) 3






( 146,925) 1


Hongfujin Precision Industry (Shenzhen) Co., Ltd.





( 156,541) 1

271

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



Overdue receivables



Turnover rate

Amount Action taken Amount collected subsequent to the balance sheet date


Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder $ 7,605,574 2.03 $ 409,768 Subsequent collection $ 716,810 $ -









367,210 3.95 - - 117,991 -



317,648 4.13 - - 54,829 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

218,893 0.09 - - - -

Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. A subsidiary of the Company

151,853 13.89 - - - -

Innolux Corporation eCMMS Precision Singapore Pte.Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

118,971 8.79 17,450 Subsequent collection - -

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company


Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

1,406,162 1.61 380,541 Subsequent collection 946,047 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

3,392,000 1.67 - - 2,380,978 -

Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

233,397 3.06 - - 191,610 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. An indirect wholly-owned subsidiary




1,756,905 5.18 - - 1,238,852 -

Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

13,598,180 2.61 213,896 Subsequent collection 5,482,509 -

272

Overdue receivables



Turnover rate

Amount Action taken Amount collected subsequent to the balance sheet date


Foshan Innolux Optoelectronics Ltd. Foxconn Precision Electronics (YanTai) Co., Ltd.


$ 1,214,351 0.31 $ - - $ 95,700 $ -

Foshan Innolux Optoelectronics Ltd. Yantai Fuhuada Precision Electronics Co., Ltd.


478,034 0.89 - - 1,396 -

Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

233,414 0.89 - - - -


Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

245,026 1.24 - - 245,026 -



674,949 - 594,521 Subsequent collection - -

Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. An indirect wholly-owned subsidiary

337,685 2.31 - - 182,183 -

273

Innolux Corporation Significant inter-company transactions during the reporting period



Transaction (Note C) Number Company name Counterparty Relationship

(Note A) General ledger account Amount Transaction terms

(Note B) Percentage of consolidated total operating revenues or

total assets 0 Innolux Corporation Innolux Hong Kong Ltd. 1 Sales $ 1,341,129 - -

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Processing expense 17,621,556 - 6

0 Innolux Corporation Innolux Hong Kong Ltd. 1 Accrued expenses ( 7,545,137) - 2

0 Innolux Corporation Innolux Optoelectronics Europe B.V. 1 Sales 110,182 - -

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Sales 2,017,948 - 1

0 Innolux Corporation Innolux Optoelectronics Japan Co., Ltd. 1 Accounts receivable 151,853 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 541,547 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 949,933 - -

0 Innolux Corporation Lakers Trading Ltd. 1 Sales 6,392,974 - 2

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 53,116,567 - 19

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses ( 21,652,362) - 6

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 19,102,050 - 7

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses ( 19,136,288) - 5

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Accounts receivable 218,893 - -

0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 1 Sales 141,437 - -

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Sales 242,518 - -

1 Shanghai Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 7,349,948 - 3

1 Shanghai Innolux Optoelectronics Ltd. Nanjing Innolux Optoelectronics Ltd. 3 Sales 520,147 - -

1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 4,550,697 - 2

1 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 1,756,905 - -

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 28,261,854 - 10

2 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 13,598,180 - 4

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Processing revenue 12,061,738 - 4

3 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Ltd. 3 Accounts receivable 5,421,971 - 1

274





total assets 4 Innocom Technology (Shenzhen) Co.,

Ltd. Ningbo Innolux Display Ltd. 3 Sales $ 379,223 - -


Nanjing Innolux Optoelectronics Ltd. 3 Sales 103,908 - -


Foshan Innolux Optoelectronics Ltd. 3 Sales 303,347 - -


Foshan Innolux Optoelectronics Ltd. 3 Accounts receivable 245,026 - -


Lakers Trading Ltd. 3 Accounts receivable 674,949 - -

5 Ningbo Innolux Technology Ltd. Leadtek Global Group Limited 3 Processing revenue 267,762 - -

5 Ningbo Innolux Technology Ltd. Ningbo Innolux Display Ltd. 3 Sales 132,817 - -

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 17,344,095 - 6

6 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 15,769,351 - 4

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 4,965,960 - 2

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 1,406,162 - -

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 17,174,029 - 6

7 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable ( 3,392,000) - 1

7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Sales 714,999 - -

7 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Accounts receivable 233,397 - -

8 Innolux Technology Japan Co., Ltd. Innolux Hong Kong Ltd. 3 Service revenue 318,599 - -

9 Innolux Technology Europe B.V. Innolux Hong Kong Ltd. 3 Service revenue 649,856 - -

10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 3 Sales 844,345 - -

10 Innolux Hong Kong Ltd. Nanjng Innolux Technology Ltd. 3 Accounts receivable 337,685 - -

11 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. 3 Sales 131,339 - -

Note A: 1. The parent company to the subsidiary. 3. The subsidiary to the subsidiary. Note B: Except for no comparable transactions from related parties, sales prices were similar to non-related parties transactions and the collection period was 30~120 days; the purchases from related parties were at market prices and payment term was 30~120 days upon receipt of goods. Note C: Amount disclosure standard: purchases, sales and receivables from related parties in excess of $100 million or 20% of capital.

275

Innolux Corporation Information on investees



Initial investment amount Shares held as at December 31, 2016 Investor Investee Location Main business

activities Balance as at

December 31, 2016



Book value Net profit (loss) of the investee

for the year ended

December 31, 2016




2016

Footnote

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings $ 119,724 $ 119,724 4,910,000 100 $ 103,372 ($ 6,715) ($ 6,715) Innolux Corporation Golden Achiever International

Ltd. BVI Investment holdings 119,106 119,106 40,250 100 61,422 149 766

Innolux Corporation Innolux Holding Ltd. Samoa Investment holdings 7,858,300 7,858,300 246,768,185 100 18,523,142 136,022 156,597 Innolux Corporation Keyway Investment

Management Limited Samoa Investment holdings 197,554 197,554 5,656,410 100 257,392 46,660 46,660

Innolux Corporation Landmark International Ltd. Samoa Investment holdings 33,438,542 33,438,542 709,450,000 100 45,894,168 3,833,333 3,856,508 Innolux Corporation Toppoly Optoelectronics (B.V.I.)

Ltd. BVI Investment holdings 3,674,115 3,596,307 146,847,000 100 6,717,191 426,811 426,093

Innolux Corporation Innolux Hong Kong Holding Ltd. Hong Kong Investment holdings 2,107,291 2,107,291 1,158,844,000 100 3,341,269 581,552 586,288

Innolux Corporation Leadtek Global Group Limited BVI Distributor company - - 50,000,000 100 ( 322,973) ( 94,225) ( 94,225) Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 922,529 ( 167,476) ( 167,476) Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,246,809 ( 76,420) ( 76,420)


Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

121,941 121,941 180 100 125,531 221 221


Japan Researching, manufacturing and selling of the film transistor liquid crystal display

1,335,486 1,335,486 80 100 1,548,673 34,739 34,739

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 870,941 24,266 12,133 Innolux Corporation Jetronics International Corp. Samoa Investment holdings - 86,149 - - - - 66,624 Innolux Corporation FI Medical Device

Manufacturing Co., Ltd. Taiwan Production and selling

of the absorption for medical element

73,500 73,500 7,350,000 49 451,943 750,982 319,420

Innolux Corporation iZ3D, Inc. USA Research and development and sale of 3D flat monitor

- - 4,333 35 - - -

Innolux Corporation Chi Mei Lighting Technology Corporation

Taiwan Manufacturing of electronic equipment and lighting equipment

819,312 819,312 78,195,856 33 - - -

276

Shares held as at December 31, 2016 Investor Investee Location Main business

activities Balance as at

December 31, 2016




for the year ended

December 31, 2016




2016

Footnote

Innolux Corporation GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

$ 800,892 $ 800,892 14,812,705 24 $ 104,378 $ 42,915 $ 10,205

Innolux Holding Ltd. Rockets Holding Ltd. Samoa Investment holdings 7,296,530 7,296,530 226,504,550 100 13,988,464 16,326 16,326 Innolux Holding Ltd. Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 4,381,595 121,085 121,085 Innolux Holding Ltd. Lakers Trading Ltd. Samoa Distributor company - - 1 100 245,699 - - Innolux Holding Ltd. Innolux Corporation USA Distributor company 6,348 6,348 2,000 100 ( 92,626) ( 1,388) ( 1,388) Toppoly Optoelectronics (B.V.I.) Ltd.


Cayman Investment holdings 3,650,192 3,572,384 146,817,000 100 6,717,534 426,811 426,811

Innolux Hong Kong Holding Ltd. Innolux Optoelectronics Hong Kong Holding Ltd.

Hong Kong Investment holdings - - 162,897,802 100 1,253,619 295,151 295,151

Innolux Hong Kong Holding Ltd. Innolux Hong Kong Ltd. Hong Kong Distributor company - - 35,000,000 100 ( 1,577,537) 235,251 235,251 Innolux Hong Kong Holding Ltd. Innolux Technology Europe B.V. Netherlands Holding company and

R&D testing company 3,073,072 3,073,072 375,810 100 2,189,753 36,358 36,358

Innolux Hong Kong Holding Ltd. Innolux Technology Japan Co., Ltd.

Japan R&D testing company 1,815,603 1,815,603 201 100 1,718,579 1,203 1,203

Innolux Hong Kong Holding Ltd. Innolux Technology USA Inc. USA Distributor company 263,685 263,685 1,000 100 373,245 16,126 16,126 Innolux Optoelectronics Europe B.V.


Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

10,324 10,324 250 100 12,791 ( 3,467) ( 3,467)



USA Selling of electronic equipment and computer monitors

2,400 2,400 1,000 100 284,789 11,954 11,954

Rockets Holding Ltd. Best China Investments Ltd. Samoa Investment holdings 314,740 314,740 10,000,001 100 261,686 238 238 Rockets Holding Ltd. Mega Chance Investments Ltd. Samoa Investment holdings 573,940 573,940 18,000,000 100 430,952 391 391 Rockets Holding Ltd. Magic Sun Ltd. Samoa Investment holdings 1,146,370 1,146,370 38,000,001 100 1,074,111 975 975 Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings 5,391,125 5,391,125 164,000,000 100 12,191,630 14,721 14,721 Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 29,966 - - Suns Holding Ltd. Warriors Technology

Investments Ltd. Samoa Investment company 555,422 555,422 18,177,052 100 4,381,593 121,085 121,085

Innolux Technology Europe B.V. Innolux Technology Germany GmbH

Germany Testing and maintenance company

33,735 33,735 100,000 100 56,344 554 554

Best China Investments Ltd. Asiaward Investment Ltd. Hong Kong Investment holdings 314,740 314,740 77,830,001 100 261,686 238 238 Mega Chance Investments Ltd. Main Dynasty Investment Ltd. Hong Kong Investment holdings 573,940 573,940 139,623,801 100 430,951 391 391 Magic Sun Ltd. Sun Dynasty Development Ltd. Hong Kong Investment holdings 1,146,370 1,146,370 295,969,001 100 1,074,111 975 975

277

Shares held as at December 31, 2016






for the year ended

December 31, 2016




2016

Footnote

Yuan Chi Investment Co., Ltd. Chi Mei Lighting Technology Corporation

Taiwan Trading business, manufacturing of electronic equipment and lighting equipment

$ 263,812 $ 263,812 $ 19,673,402 8 - - -

Yuan Chi Investment Co., Ltd. GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

6,881 6,881 109,021 - 790 42,915 77

Yuan Chi Investment Co., Ltd. TOA Optronics Corporation Taiwan Selling electronic materials, trading business, manufacturing of electronic equipments and lighting equipments

423,606 423,606 58,007,000 40 89,366 ( 202,512) ( 221,005)

278

Innolux Corporation Information on investments in Mainland China









2016







31, 2016



2016





2016 (Note B)



December 31, 2016




2016

Footnote


China




$ 5,289,000 2 $ 4,092,903 $ - $ - $ 4,092,903 $ 14,721 100 $ 14,721 $ 12,191,617 $ 1,196,097 2.1

OED Company Manufacturing and selling of electronic paper

298,972 2 64,500 - - 64,500 ( 117,377) 4 - 11,488 - 2.1



9,997,500 2 237,523 - - 237,523 1,348,182 100 1,348,182 21,809,352 5,567,477 2.2



4,192,500 2 4,192,500 - - 4,192,500 - 100 ( 51,415) - - 2.2 2.8



12,351,750 2 12,351,750 - - 12,351,750 2,031,410 100 2,033,936 20,190,825 - 2.2



967,500 2 967,500 - - 967,500 451,215 100 502,631 3,928,808 - 2.2 2.8

Nanjng Innolux Technology Ltd.

Purchases and sales of monitor-related components company

67,725 2 67,725 - - 67,725 ( 9,041) 100 ( 9,041) 548,960 - 2.3


Glass thinning processing service

129,000 2 121,965 - - 121,965 ( 1,546) 100 ( 1,546) 64,129 - 2.3

VAP Optoelectronics (Nanjing) Corp.


325,725 2 122,550 - - 122,550 149 100 149 61,018 - 2.4



4,579,500 2 4,579,500 - - 4,579,500 437,398 100 437,398 6,104,421 - 2.3

Ningbo Innolux Logistics Ltd.


279







2016







31, 2016



2016





2016 (Note B)



December 31, 2016




2016

Footnote


China




$ 677,250 2 $ - $ - $ - $ - $ 295,151 100 $ 295,151 $ 1,253,619 $ - 2.5



Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments

258,000 2 322,500 - - 322,500 22,597 50 11,299 199,222 - 2.7

Interface Optoelectronics (Shenzhen) Co., Ltd.

Development of new type of flat panel display, monitor and peripherals, production and management, and offer of after-sales service

3,102,450 2 435,375 - - 435,375 38,027 13 - 3,705,750 - 2.1



139,470 3 - - - - 110,209 100 110,209 244,877 - 3.1





Ceiling on investments in Mainland China:

Company name Accumulated amount of remittance from

Taiwan to Mainland China as of December 31, 2016

Investment amount approved by the Investment Commission of the Ministry

of Economic Affairs (MOEA)

Ceiling on investments in Mainland

China imposed by the Investment

Commission of MOEA

Innolux Corporation $ 29,238,867 $ 38,733,112 $ 135,603,818

Note A: The relevant figures were listed in NT$. Where foreign currencies were involved, the figures were converted to NT$ using exchange rate.

Note B: Profit or loss recognised for the year ended December 31, 2016 was audited by independent accountants.

Note C: The investment methods are as follows:

1. Directly investing in Mainland China.

2. Through investing in companies in the third area, which then invested in the investee in Mainland China.

280

2.1. Through investing in Innolux Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.2. Through investing in Landmark International Ltd. in the third area, which then invested in the investee in Mainland China.

2.3. Through investing in Toppoly Optoelectronics (B.V.I) Ltd. in the third area, which then invested in the investee in Mainland China.

2.4. Through investing in Golden Achiever International Ltd. in the third area, which then invested in the investee in Mainland China.

2.5. Through investing in Innolux Hong Kong Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.6. Through investing in Keyway Investment Management Limited in the third area, which then invested in the investee in Mainland China.

2.7. Through investing in Ampower Holding Ltd. in the third area, which then invested in the investee in Mainland China.

2.8. Ningbo Innolux Display Ltd. acquired Ningbo Innolux Technology Ltd. by merger, and approved by the Investment Commission of the Ministry of Economic Affairs in November 2016.

3. Others.

3.1. The company invested in the company via investee company in Mainland China, Ningbo Innolux Display Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not

approved by Investment Commission of the Ministry of Economic Affairs. 3.2 The company invested via Foshan Innolux Optoelectronics Ltd. and Ningbo Innolux Optoelectronics Ltd. which are the company investment entities in Mainland China to invest in Foshan Innolux Flnet Electronics Ltd. and Ningbo Innolux Flnet Electronics Ltd. Except for the investment via the holding companies in Mainland China, other investments shall be not approved by Investment Commission of the Ministry of Economic Affairs.

Innolux Corporation Chairman: Jyh-Chau Wang

Documents

Innolux Corporation 2016 Annual Report · Stock Code: 3481 Innolux Corporation 2016 Annual Report Notice to readers This English-version annual report is a summary translation …