Innolux Corporation 2017 Annual Report · (I) Result of Business Plan In 2017 our consolidated...

Stock Code: 3481

Innolux Corporation 2017 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, 2018

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: 886-6-5051880 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: None

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

Contents

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

1.1 2017 Operating Report ...................................................................................................... 1 1.2 Business Plan for 2018 ...................................................................................................... 2

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

2.1 Date of Incorporation: ..................................................................................................... 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, President, and Vice President ............................................. 19

3.4 Implementation of Corporate Governance ...................................................................... 25 3.5 Information Regarding the Company’s Audit Fee and Independence ............................ 52

3.6 Replacement of CPA: ...................................................................................................... 53 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: ................................................ 53

3.8 Changes in Shareholding of Directors, Managers and Major Shareholders ................... 54

3.9 Relationship among the Top Ten Shareholders ............................................................... 55 3.10 Ownership of Shares in Affiliated Enterprises ................................................................ 56

IV. Capital Overview .................................................................................................................... 57

4.1 Capital and Shares ........................................................................................................... 57 4.2 Bonds............................................................................................................................... 64

4.3 Preferred Shares: . ........................................................................................................... 64 4.4 Global Depository Receipts: ........................................................................................... 64 4.5 Employee Stock Options: ................................................................................................ 64 4.6 Issuance of New Restricted Employee Shares: ............................................................... 64 4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: . ............ 64

4.8 Financing Plans and Implementation:. ............................................................................ 64

V. Operational Highlights ........................................................................................................... 65

5.1 Business Activities .......................................................................................................... 65 5.2 Market and Sales Overview ............................................................................................ 73 5.3 Human Resources ............................................................................................................ 80 5.4 Environmental Protection Expenditures ......................................................................... 80 5.5 Labor Relations ............................................................................................................... 80 5.6 Important Contracts ......................................................................................................... 85

VI. Financial Information ............................................................................................................ 87

6.1 Five-Year Financial Summary......................................................................................... 87 6.2 Five-Year Financial Analysis .......................................................................................... 92 6.3 Audit Committee Report in the Most Recent Year ......................................................... 96

6.4 Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016, and Independent Auditors’ Report......................................................................... 97

6.5 Financial Statements for the Years Ended December 31, 2017 and 2016, and Independent Auditors’ Report ......................................................................................... 97

6.6 Disclosure of the Impact on Company’s Financial Status Due to Financial Difficulties: ..................................................................................................................... 97

VII. Review of Financial Conditions, Operating Results, and Risk Management ................... 98

7.1 Analysis of Financial Status ............................................................................................ 98 7.2 Analysis of Financial Performance ................................................................................. 99 7.3 Analysis of Cash Flow .................................................................................................. 100 7.4 Major Capital Expenditure Items .................................................................................. 100 7.5 Investment Policy in Last Year, Main Causes for Profits or Losses, Improvement

Plans and the Investment Plans for the Coming Year ................................................... 100

7.6 Analysis of Risk Management ...................................................................................... 101 7.7 Other Important Matters: ............................................................................................... 104

VIII. Special Disclosure ................................................................................................................. 105

8.1 Summary of Affiliated Companies ................................................................................ 105 8.2 Private Placement Securities in the Most Recent Years: ............................................... 112

8.3 Shares in the Company Held or Disposed of by Subsidiaries in the Most Recent Years: ............................................................................................................................. 112

8.4 Special Notes: ................................................................................................................ 112

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: .......... 112

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I. Letter to Shareholders 1.1 2017 Operating Report

2017 was a year in which the panel industry underwent drastic changes. In the first half of the year, the production cuts by Korean manufacturers and panels in short supply led to prosperity in terms of panel supply exceeding demand and rising prices. In the second half of the year, with the information of new production capacities emerging in Mainland China, the market anticipated an increase in panel supply as well as market price drops, resulting in a reversal of the upward price trend in the second half of the year and pressure from customers’ price adjustments.

The company managed to achieve a fruitful operating performance in 2017 nonetheless, with annual consolidated sales revenue amounting to NT$329.2 billion, an annual increase of 15% and the after-tax net profit amounting to NT$37.029 billion, hitting a record high on company profits at NT$3.72 EPS.

With the new panel production capacity in China, the supply and demand of the panel market is expected to remain balanced in the short term, not likely causing significant impacts. However, impacts on the economic situation in the long run are inevitable. Therefore, the company has actively adjusted its business strategy towards new technology and new application fields, developing high-end technological products, expanding new markets, and finding a blue ocean through qualitative and quantitative technological improvements, which are in the best interest of the company and its shareholders.

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 2017 our consolidated revenue was NT$ 329,174,401 thousands, which increased NT$42,085,124 thousands or 15% by compared with the 2016 yearly revenue of NT$ 287,089,277 thousands. In 2017 our annual profit after tax which belonged to mother company was NT$37,028,609 thousands, and the annual earnings per share is NT$3.72.

(II) Budget Implementation

No financial forecast disclosed for 2017, therefore not applicable to disclose budget implementation.

(III) Financial Analysis from 2016 to 2017 Item 2016 2017

Finacial Structure Analysis

Debt to Asset Ratio (%) 39.16 36.29 Long-term Capital to property, plant and equipment (%)

126.79 128.12

Debt-paying ability

Current Ratio (%) 109.32 120.19 Quick Ratio (%) 87.84 96.12 Times Interest Earned (Times) 4.90 53.16

Profitability

Return on Assets (%) 0.68 9.57 Return on Shareholders’ equity (%) 0.82 15.10 Operating Income to Paid-in Capital Ratio (%) 6.44 47.25 Pre-tax Income to Paid-in Capital Ratio (%) 5.02 49.18 Net Margin (%) 0.65 11.25 Basic after-tax EPS (NT$) 0.19 3.72

(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,

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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, Mini LED, 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. Among the large-size TFT-LCD products, LCD TVs continue to be oriented towards larger sizes, energy saving, high image quality (4K, 8K), and narrow borders. The main appeal of LCD monitors lies in flexibility, gaming, and narrow borders, while laptop products are oriented towards the development trends of low power consumption, IGZO, narrow borders, and ultra-thin technology, which are intended to urge consumers to upgrade their existing products. As for medium and small sizes, manufacturers have engaged in the research and development of AMOLED, flexible panels, and other next-generation technologies due to flourishing developments of smartphone applications and increasingly mature touch technology, making panels the product category with the greatest diversity of products and the fastest growing. Looking ahead to 2018, 18:9, flexible and special-shaped cutting will become the development trend of small and medium sized panels.

1.2 Business Plan for 2018

(I) Moving Forward Towards Complete Machines In the year of the start of complete-machine shipping, mastering seaports is the key to success.

(II) Moving Outward with the World’s Seaports as the Focus 1. Innolux Vision-Viewing the market from a global perspective. 2. Extending the panel manufacturer’s mindset of selling two pieces of glass to the final product design and manufacture and expanding complete machines and vertical integration.

(III) Innolux 4.0 + Industrial Internet With the accumulation of industrial core technologies and manufacturing experience as the core, we unswervingly melt the professional DNA linked to the Internet. Both are industry based while the Internet key elements are the auxiliary foundation, which are integrated for the common implementation of long-term down-rooting engineering.

In 2018, our company will continue to create-value intelligent manufacturing, achieve the competitiveness of 4.0 Industrial Internet, and enhance operational performance. We hope our shareholders will continue to give us support and encouragement. Lastly, I wish you all good health and all the best. Thank you.

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

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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

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(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

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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.

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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

August 2017 Innolux ranks the 19th of the Large Enterprise Group in "2017 Common Wealth Magazine's Coporate Citizenship Award"competition

September 2017 Best China Investments Limited liquidated

Magic Sun Limited liquidated

Mega Chance Investments Limited liquidated

October 2017 Merger of the subsidiaries Nanjing Innolux Optoelectronics Ltd. and Kunpal Optoelectronics Ltd., in which Nanjing Innolux Optoelectronics Ltd. was the surviving company

December 2017 Merger of the subsidiaries Innolux Optoelectronics Japan Co., Ltd and Innolux Technology Japan Co., Ltd in which Innolux Optoelectronics Japan Co., Ltd was the surviving company and change the company name into Innolux Japan Co. Ltd

Merger of the subsidiaries Innolux Technology Europe B.V. and Innolux Optoelectronics Eurpoe B.V. in which Innolux Technology Europe B.V. was the surviving company and change the company name into Innolux Europe B.V.

February 2018 Merger of the subsidiaries Innolux Optoelectronics USA, Inc. and Innolux Technology USA, Inc. and Innolux Corporation, in which Innolux Optoelectronics USA, Inc. was the surviving company and change the company name into Innolux USA, Inc.

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III. Corporate Governance Report 3.1 Organization 3.1.1 Organization Chart

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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 Responsible for drafting and reviewing contracts; providing business-related legal consultation services.

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3.2 Directors and Management Team 3.2.1 Directors

April 22, 2018;Shares

Title

Natio

nality/

Pla

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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 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

nality/

Pla

ce o

f

Inco

rpora

ti on

Name (Note 1)

Ge

nd

er

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

－－－－


HK Stanley Yuk Lun Yim M 2016/6/24 3 2013/6/19 －－－－－－－－ A founder and Executive Director of S.A.S.

Note 7 －－－

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(Cayman), Foxconn (Far East) Limited(HK), Foxteq Holdings Inc., Foxteq Integration,Inc.,HCM International Company, Chengdu Tiger Tesco E-Commerce Co.,Ltd,Wuhan Tiger Tesco E-Commerce Co.,Ltd,Henan Chung Yuan finance management Limited, Henan Chung Yuan Rental Limited, Henan Chung Yuan Financing guarantees Limited, Jusda Supply Chain Management Co., Ltd., Shenzhen Jinchangzhi Technology Co., Ltd., Fuxuntong Trading, ShenZhen, Shenzhen Fu Rong Inclusive Finance Co., Ltd, 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., Double star Inc., Shenzhen Qunfenghong Technology Co., Ltd. Concurrently as director: Innolux Japan Co., Ltd, Innolux Singapore Holding Pte. Ltd., Innolux Optoelectronics Philippines Corp., Innolux Optoelectronics Malaysia SDN. BHD., Innolux Optoelectronics India Private Ltd.

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), E-ONE Moli Energy Corp. (Statutory representative), Advanced Wireless Semiconductor Company, Bright Led Electronics Corp., Kobrite Taiwan Corporation (Statutory representative), Sasson Capital (Statutory representative), Kopin Corporation Inc., T’Cement(Statutory representative), Bright Crystal Company Limited, KoBrite Corp.

Note 7 :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 ofHK members; and a honoary member of Junior Police Call Committee, Tsuen Wan District.Vice President of the Prime Ministers Association of Yan Chai Hospita、Chair of Tsuen Wan District Civic Education Committee, Honor consultant of Hong Kong Hung Hom Commerce & Industry Associations Ltd.、Director of Hong Kong Peninsula Lions Council

14

Major shareholders of the institutional shareholders April 22, 2018

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, 2018 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 (1.75%), Citigroup hosting Hon Hai Precision Ind. Co. Ltd. Depositary Receipts account (1.48%), Standard Chartered hosting Vatican Gardner emerging market equity index fund account (1.41%), Fubon Life Insurance Co., Ltd. (1.23%), JPMorgan Managed Advanced Stars advanced aggregate International Equity Index(1.17%), JPMorgan hosting Saudi-Arabia Central Bank investment account (1.15%), Citi Bank hosted Norges Bank Investment account(1.11%), 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 2018.

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 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, 2018

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 2010/3/18 912,067 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 (Note3)

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 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 2007/6/1 320,769 － 29,501 －－－

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 62,193 － 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 2010/3/18 925,585 0.01 7,953 －－－ M.S., Chemical Engineering, National Central University

Deputy Section Manager, Chunghwa Picture Tubes, Ltd. Note 5 －－－

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 6 －－－


TW Chung-Kuang

Wei M 2010/3/18 447,395 －－－－－

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 2013/9/23 499,802 0.01 25,000 －－－

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

Note 7 －－－


TW Qing-Hui Lin M 2015/12/25 273,039 －－－－－ 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 2015/12/25 156,600 －－－－－

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 2009/1/9 219,192 －－－－－

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: 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

18

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: Concurrently as chairman of the board: GIO Optoelectronics Corp., Double Star Inc., Shenzhen Qunfenghong Technology Co., Ltd. Concurrently as director: Innolux Japan Co., Ltd., Innolux Singapore Holding Pte.Ltd., Innolux Optoelectronics Philippines Corp., Innolux Optoelectronics Malaysia SDN. BHD, Innolux Optoelectronics India Private Ltd.

Note 5: Concurrently as director: Innolux Japan Co.,Ltd., Chi Lin Optoelectronics. (Statutory representative),FI Medical Device Manufacturing Co. (Statutory representative) Note 6: Concurrently as chairman of the board: Ningbo Innolux Optoelectronics Ltd., Ningbo Innolux Display Ltd.

Concurrently as director: Chi Mei Frozen Food Co., Ltd. Note 7: Innolux Technology Germany GmbH, Innolux Europe B.V. 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, Nanjing Innolux Optoelectronics Ltd., Innocom Technology (Shenzhen) Co., Ltd. Note 10: 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 Germany GmbH

Concurrently as director: Innocom Technology (Shenzhen) Co., Ltd., Nanjing Innolux 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 Japan Co., Ltd., Foshan Innolux Optoelectronics Ltd., Foshan Innolux Logistics Co., Ltd., InnoJoy Investment Corporation (Statutory representative)

19

3.3 Remuneration of Directors, 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 Jialian Investment Co., Ltd.

6,300 6,300 - - 48,261 48,261 370 370 0.15 0.15 49,508 49,508 - - 26,420 - 26,420 - 0.35 0.35 -

Jyh-Chau Wang

Institutional director Hyield Venture Capital Co., Ltd

Te-Tsai Huang

Institutional director I-Chen Investment Ltd.

Chuang-Yi Chiu

Institutional director Innolux Education Foundation

Chin-Lung Ting

Independent Director Chi-Chia Hsieh

Independent Director Bo-Bo Wang

Independent Director Stanley Yuk Lun Yim

Note 1: Existing Directors as of the date 2017. Note 2: Refers to directors’ remuneration paid in 2017. Note 3: The proposal of 2017 profit distribution has resolved by the board of director. Note 4: Refers to the relevant service execution fees of directors in 2017. Note 5: Refers to the salaries, bonuses and special disbursement, etc. received as employees by directors in 2017. Note 6: Refers to the amounts transferred to government authorities in 2017. Note 7: The proposal of 2017 profit distribution has resolved by the board of director. Note 8: Ratio of total net income (Alone).

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

Jyh-Chau Wang, Te-Tsai Huang,

Chuang-Yi Chiu, Chin-Lung Ting,

Jyh-Chau Wang, Te-Tsai Huang,

Chuang-Yi Chiu, Chin-Lung Ting,

Te-Tsai Huang, Chuang-Yi Chiu,

Te-Tsai Huang, Chuang-Yi Chiu,

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

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

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

I-Chen Investment Ltd, Innolux Education Foundation ,

Chi-Chia Hsieh, Bo-Bo Wang,

Stanley Yuk Lun Yim




Stanley Yuk Lun Yim




Stanley Yuk Lun Yim




Stanley Yuk Lun Yim 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

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

Over NT$100,000,000

Total 7 7 7 7

21

3.3.2 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

Jyh-Chau Wang

33,529 33,529 432 432 82,280 82,280 61,021 - 61,021 - 0.48 0.48 -

President&COO

Chih-Hung Hsiao(Note7)

Excutive Vice

President

Chin-Lung Ting

Vice President

Yao-Tong Chen

Vice President

Hung-Wen Yang

Vice President

Chih-Ming Chen

Vice President

Chu-Hsiang Yang

Note 1: Existing Management as of the date of 2017. Note 2: Refers to remuneration paid in 2017. Note 3: Refers to amounts transferred to government authorities in 2017. Note 4: Refers to the bonuses, special disbursement and 494 tousand for a car and oil costs for CEO & President. Note 5: The proposal of 2017 profit distribution has resolved by the board of director. Note 6: Ratio of total net income (Alone). Note 7: Promoted to President&COO on 2017/3/16

22

Range of Remuneration table

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 Yao-Tong Chen Yao-Tong Chen NT$10,000,000 ~ NT$15,000,000

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

Chin-Lung Ting Hung-Wen Yang Chu-Hsiang Yang Chih-Ming Chen

Chin-Lung Ting Hung-Wen Yang Chu-Hsiang Yang Chih-Ming Chen

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

Over NT$100,000,000 Total 7 7

23

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

Unit: NT$ thousands as of April 30, 2018

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)

Chairman&CEO Jyh-Chau Wang

- 119,800 119,800 0.32%

President&COO Chih-Hung Hsiao(Note4) Excutive Vice President

Chin-Lung Ting

Vice President Yao-Tong Chen

Vice President Hung-Wen Yang

Vice President Chih-Ming Chen

Vice President Chu-Hsiang Yang 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 2017. Note 2: The proposal of 2017 profit distribution has resolved by the Board of director. Note 3: Ratio of Total Amount to Net Income of alone. Note 4: Promoted on 2017/3/16

24

3.3.4 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

2016 2017 (Note 1)

The company Companies in the

consolidated financial statements

The company Companies in the

consolidated financial statements

Directors 3.37 3.37 0.35 0.35 Supervisors 0.07 0.07 －－

Presidents&Vice Presidents

5.70 5.70 0.48 0.48

Note 1: The proposal of 2017 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.

All the bonus and performance approved by Compensation Committee and Board meeting.

It also considers future risks and the company business operation and the rule “Full Incentives for Managerial Officers” followed and amendment from time to time.

25

3.4 Implementation of Corporate Governance 3.4.1 Board of Directors

A total of 6 meetings of the Board of Directors were held in the previous(2017)period. Director attendance was as follows:

Title Name Attendance in Person

By Proxy

Attendance Rate (%)

Remarks

Chairman Jialian Investment Co., Ltd.

Jyh-Chau Wang 6 － 100% －

Director Hyield Venture Capital Co., Ltd

Te-Tsai Huang 5 － 83.33% －

Director I-Chen Investment Ltd.

Chuang-Yi Chiu 6 － 100% －

Director Innolux Education Foundation

Chin-Lung Ting 5 － 83.33% －


Chi-Chia Hsieh 5 1 83.33% －


Bo-Bo Wang 5 － 83.33% －


Stanley Yuk Lun Yim 5 1 83.33% －

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: Total 7 meetings of the BOD were held in the period from 2017 to the date of the annual report printed, all the resolutions pleaese refer the Page 50 to Page 51 and there is no independent opinions remained of the meeting.

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

7-4 BOD 20170210

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

Did not for the disucssion

7-6 BOD 20170510

Independent Directors: Chi-Chia Hsieh,Bo-Bo Wang,Stanley Yuk Lun Yim

The Compensation Committee is proposing the functional committees bonus for the 2016

The board members Chi-Chia Hsieh, Bo-Bo Wang and Stanley Yuk Lun Yim 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


Jyh-Chau Wang

The Compensation Committee is proposing the manager bonus for the 2016

The board member and 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


7-8 BOD 20171027

Jyh-Chau Wang

The Compensation Committee is proposing manager salary structure adjustment

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


7-10 BOD 20180209

Chin-Lung Ting

The Company plans to increase the shares of the Japanese subsidiary, Innolux Japan Co., Ltd., by contribution in kind of the equity of

The board member Chin-Lung Ting have a vital interest in the items of agenda, therefore he avoided participating in the voting process in accordance with the Rules and Procedures for Meeting of the Board of Directors.


26

Innolux Technology USA Inc. and Innolux Corporation.

Jyh-Chau Wang Chin-Lung Ting

The Compensation Committee is proposing manager bonus for the year of 2017

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 potential risks of the Company.

(2) The Compnay has set up a Audit Committee on July 1,2016 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 26-27 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 36-37 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 directors’ 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 45 for the detail of the status of Directors ' participation in corporate governance related courses and trainings.

4. Attendance of Independent directors at Board Meetings Board Meeting Independent Director

Chi-Chia Hsieh Independent Director

Bo-Bo Wang Independent Director Stanley Yuk Lun Yim

7-4 Board Meeting 20170210 Attend in person Attend in person Attend in person 7-5 Board Meeting 20170315 Attend in person Apologies Proxy 7-6 Board Meeting 20170510 Attend in person Attend in person Attend in person 7-7 Board Meeting 20170726 Attend in person Attend in person Attend in person 7-8 Board Meeting 20171027 Attend in person Attend in person Attend in person 7-9 Board Meeting 20171114 Proxy Attend in person Attend in person

3.4.2 Audit Committee A total of 5 Audit Committee meeting were held in the previous (2017) 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 4 1 80% － Independent Director Bo-Bo Wang 5 － 100% －

Independent Director Stanley Yuk Lun

Yim 5 － 100% －

Other mentionable items: 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:

27

Board Meeting

Contents of the case and follow-up Resolution Audit Committee

opinions and follow up 7-4 BOD 20170210

The company’s individual financial statements and consolidated financial statements Passed the Accountant assessment of the independence and appropriateness Declaration of the Company’s internal control system 2016.

Approved by Audit Committee

Approved by all Independent directors

7-6 BOD 20170510

Prepare and compile Innolux’s Business Report for 2016 Draft of Innolux’s Dividend Remittance for 2016 Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of Assets” 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.

Approved by Audit Committee


7-7 BOD 20170726

The company’s consolidated financial statements Approved by Audit Committee


7-8 BOD 20171027

Passed the Audit Plan of 2018 Approved by Audit Committee


7-9 BOD 20171114

Acquisition of assets from related party Approved by Audit Committee


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) Communication between independent directors and internal auditors: The head of Internal Audit send the audit

and follow-up reports monthly and presents the findings of all audit reports in the quarterly meetings of the Audit Committee. If material unusual matters occur during the auditing process, the head of Internal Audit will report to the members of the Audit Committee immediately.

(2) The major matters of the communications between independent directors and internal auditors Date Descriptions of the major matters

2017/01/18 Audit Report Findings December 2016 review by Independent Directors. 2017/02/10 1. The findings of the internal audit reports for the fourth quarter of 2016

2. Statement of Internal Control System for 2016 2017/02/23 Audit Report Findings January 2017 review by Independent Directors. 2017/03/24 Audit Report Findings February 2017 review by Independent Directors. 2017/04/21 Audit Report Findings March 2017 review by Independent Directors. 2017/05/10 The findings of the internal audit reports for the first quarter of 2017 2017/05/26 Audit Report Findings April 2017 review by Independent Directors. 2017/06/23 Audit Report Findings May 2017 review by Independent Directors. 2017/07/14 Audit Report Findings June 2017 review by Independent Directors. 2017/07/21 The findings of the internal audit reports for the second quarter of 2017 2017/08/24 Audit Report Findings July 2017 review by Independent Directors. 2017/09/22 Audit Report Findings August 2017 review by Independent Directors. 2017/10/20 Audit Report Findings September 2017 review by Independent Directors. 2017/10/27 The findings of the internal audit reports for the third quarter of 2017 2017/11/24 Audit Report Findings October 2017 review by Independent Directors. 2017/12/20 Audit Report Findings November 2017 review by Independent Directors. (3) Communication between independent directors and independent auditors: The Company 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.

(4) The major matters of the communications between independent directors and independent auditors Date Descriptions of the major matters

2017/02/10 The findings of the audits on the Company’s financial results for 2016 2017/05/10 The findings of the review on the Company’s financial results for the Q1 ended March 31, 2017 2017/07/21 The findings of the review on the Company’s financial results for the Q2 ended June 30, 2017 2017/10/27 1. The findings of the review on the Company’s financial results for the Q3 ended September 30, 2017

2. The findings of the audits on the Company’s Key Audit. Matters, KAM

28

3.4.3 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

Yes

(I) Member diversification is considered by the Board members and also

approved the Corporate Governance Principles by board on Oct. 28, 2016. In


29

Evaluation Item




its members? (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

the principles chapter III, states the factors taken into account include, but are not limited to gender, age, cultures, educational background, race, professional experience, skills, knowledge and terms of service. The Board objectively chooses candidates to meet the goal of member diversification. Diversified policy for the composition of its Board of director members please refer page 34 of annual report.

(II) The Company has set up the Audit Committee and Remuneration Committee, the Company’s independent director’s serve as the Committee members. For more details regarding the business performance of the Company’s Audit and Remuneration Committee, please refer to page 26-27&36-37 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.The evaluate the independence of CPAs please refer page 34 of annual report.

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 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 chairman of the company lead the board of directors to promote and enhance ability of board of directors and co-organized by Finance Division for the 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. The detail of completed item in 2017 list as below:

1. The company held 6 Board meeting, 5 Audit committee meeting and 3 Remuneration Committee Meetings in 2017, the average attendance rate up to 90.9%

2. All the members of Board of directors have participated in corporate governance related courses for 6 hours.

3. Innolux maintains D&O insurance for its Directors and key officers and report to the Board meeting.


30

Evaluation Item




4. The company held a meeting irregular for Accountants, Independent Direcotrs and Internal auditor to discuss and enhanced internal audit control system.

5. The Agenda and meeting materials of Borad meeting mail/send to all directors 7 days before of the board meeting and finished the meeting minutes in 20 days after the meeting.

6. Booking the date of AGM, prepare meeting notice, hand book and minutes of AGM all comply with the listed company rules in Taiwan.

7. Held conference call in quaturly basis for finance results in 2017 and particate the investment forum irregular also set up the IR team to communicate with investors.

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 employees, investor services, customers and supplier area, sales services, product inquiries, media communications and NGOs, reporting and so forth in order to communicate and respond to stakeholders‘needs and expectations by strengthening communications with stakeholders and thereby meeting their expectations. The issues of stakeholders please refer the annual report page 35.


VI. Does the company appoint a professional shareholder service agency to deal with shareholder affairs?

Yes Innolux has appointed a professional agency to handle shareholder related services for the company.


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

Yes (I) Employee's Rights: Please refer to page 80 “5.5 Labor Relations” of the annual report

(II) Employee Care


31

Evaluation Item




practices (e.g., including but not limited to employee rights, employee wellness, investor relations, supplier relations, rights of stakeholders, directors’ training records, the implementation of risk management policies and risk evaluation measures, the implementation of customer relations policies, and purchasing insurance for directors)?

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. 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.

2. Investors: the company treats our shareholders with the principle of 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.

3. 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.

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.

32

Evaluation Item




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

Innolux followed IS022301 to set up Business Impact Analysis, BIA and Risk Assessment, RA for an emergency response and executes process.

(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.

33

Evaluation Item




Company governance of the company was ranked among the top 6%~20% in the last three 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. The areas that require immediate improvement are described below: The company established the procedures for handling material inside information on Oct.28, 2009 accordance with NO.0970058719 letter from FSC on Oct.31, 2008 and yet uploads to the official website.

34

Note1: Board Diversity Policy The Company has enacted the Corporate Governance Principles; the composition of the board of directors shall be determined by taking diversity into consideration. It is advisable that directors concurrently serving as company officers not exceed one-third of the total number of the board members, and that an appropriate policy on diversity based on the company's business operations, operating dynamics, and development needs be formulated and include. The Board Diversity Policy as follow:

Note2: The independence of CPAs Item Results

1 No major financial interested relationship with the client V Yes No 2 Avoiding any improper relationship with the client V Yes No 3 The accountant should supervise their assistants to strictly comply with honesty, justice and independence V Yes No

4 The accountant is prohibited from auditing certification for the company’s financial report where he/she served in within the previous two years

V Yes No

5 The accountant’s identification is forbidden to be infringed by another individual V Yes No 6 The accountant does not hold any shares in the company or in its subsidiaries V Yes No 7 The accountant does not owe any debt to the company or its subsidiaries V Yes No 8 The accountant is not in any joint investment or benefit-sharing relationship with the company or its subsidiaries V Yes No 9 The accountant is not employed and paid regularily by the company or its subsidiaries V Yes No 10 The accountant does not receive any commission which is occupational-related V Yes No 11 The accountant is subject to disciplinary actions does not over 7 years or returning does not less than 2 years V Yes No 12 The accountant audit experience obtain the Electronic industry V Yes No

Item Name Gender Operational

Judgments Management

Administration

Accounting & Financial

analysis

Business & Economics

Crisis Management

Knowledge of the

industry

International market

perspective

Ability to lead and to make

policy decisions

Jyh-Chau Wang Male V V V V V V V V

Te-Tsai Huang Male V V V V V V V V

Chuang-Yi Chiu Male V V V V V V V V

Chin-Lung Ting Male V V V V V V V V

Chi-Chia Hsieh Male V V V V V V V V

Bo-Bo Wang Male V V V V V V V V

Yuk-Lun Yim Male V V V V V V V V

35

Note3: The issues of stakeholders Stakeholder Concerned issues Major Communication Channel

Employees Compensation and benefits Financial performances Recruitment and staffing Training and development

1. Communication hotline 67885, mailbox and disability care group. 2. Labor-management meeting, Meeting with the Executives. 3. DL interview, seminars for disability group and new employees. 4. Innolux Monthly. 5. Satisfaction survey. Contact person: Ms. Liu/[email protected]/037-586000#64650 Contact person: Ms. Cheng/[email protected]/06-5051888#47285

Customers Product quality and customer satisfaction Sustainable supply chain management Greenhouse gas emission and carbon management Green product management

1. VOC (Voice of Customer) system. 2. INNOLUX Intelligent Portal for immediate interaction with the customers. 3. Top management meeting. 4. Customer satisfaction survey and ananlysis. 5. Customer audit or questionnaire. 6. Designated account service for immediate response. Contact person: Ms. Huang/[email protected]/06-5051888#44856

Shareholders/ investors

Financial performances Corporate governance Recruitment and staffing Sustainable supply chain management

1. Annual report. 2. Shareholders’ meeting. 3. Investors’ hotline and mailbox. 4. Participation in seminars held by local and overseas investment agencies. 5. Interview with the analysts Contact person: IR:Ms. Chen/ [email protected] / 06-5053760#47154 Shareholders:Ms. Chen/ [email protected]//037-586000#63588

Suppliers Sustainable supply chain management Green product management Pollution control

1. Procurement strategy meeting. 2. Supplier communication meeting. 3. Material quality meeting. 4. Annual suppliers’ meeting. 5. Suppliers’ notice. SRM (Supplier Relationship Management) An interactive platform for information exchange between purchasing/material control units and suppliers -- Covers purchasing operations, such as purchase orders, delivery dates, invoicing, payment inquiries, etc. and includes an electronic signature system to ensure that the signing of online documents is legally binding for both parties.

36

Stakeholder Concerned issues Major Communication Channel Media Financial performances Recruitment and

staffing Corporate governance Water management

1. Designated media mailbox and hotline. 2. Press release. 3. Press conference Contact person:Ms.Cheng/[email protected]/037-586000#62959

NGOs Community participation and social charity Disability employment Pollution control Occupational health and safety

1. Collaboration with NGOs to hold CSR projects. 2. NGOs funding. 3. Invite NGOs to take part in seminars. Contact person:Ms.Tseng/[email protected]/06-5051888#47042

3.4.4 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;

37

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.

B. Attendance of Members at Remuneration Committee Meetings Mr. Chi-Chia Hsieh, Chairman of the Compensation Committee, convened 3 regular meetings in 2017. The Committee members’ attendance status is as follows:

Title Name Attendance in Person (B) By

Proxy Attendance rate (%) Remarks

Chair Chi-Chia Hsieh 3 － 100 - Member Bo-Bo Wang 3 － 100 - Member Stanley Yuk Lun Yim 3 － 100 -

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.

38

3.4.5 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

Yes

Yes

(I) Innolux has established relevant CSR policies though CSR policies and

approved by Board of Director meeting, the compnay 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 report for CSR issue to Board of Director meeting on Oct. 2017 and 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.


39

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 B for disclosure in 2017 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 unit to take charge of operations including loss and risk aversion, EHS management, employee education and obtained OHSAS18001.

(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


40

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 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 and announced information materials on MOPS for reference.


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.

VI. Other important information to facilitate better understanding of the company’s corporate social responsibility practices:

41

Evaluation Item



Upholding the concept of co-prosperity in corporate social responsibility and management strategies, Innolux Corporation and Innolux Education Foundation jointly promote community participation and social care, with philanthropic care and environmental education as the main axes, thereby achieving the synergistic effects of sustainable management. (1) Charity Care: Dream-come-true Christmas gift activities, Guardian of love-breakfast donation activities, support of disadvantaged groups in cooperation with the Taiwan

Fund for Children and Families. (2) Environmental Education: Promoting rejuvenation of native ecological bases, native exploration and experience campus, and Advancing to Campus Project-Guide to the

Native Bases. In reference to the LBG’s (London Benchmark Group) community investment assessment model, investments in social welfare have been quantified, totaling NT$6,619,000 in 2017. The analysis of the activity types show community investments in the amount of NT$2,869,000, accounting for 43%, donations in the amount of NT$2,050,000, accounting for 31%, and business promotion in the amount of NT$1,700,000, accounting for 26%. In terms of the company’s performance in corporate social responsibility, in addition to releasing reports, relevant information is also released through the company website and public information observatory.

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 2017 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.

42

3.4.6 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

Yes

(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) 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 established relevant systems for loding complaints as a means for offending employees to seek aid also states in the Innolux Management Standards for Corruption Case Investigation

(III) Innoux has established clearly defined regulations and announced on the official website and internal website for employees to studies and follow, if there the company 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

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


43

Evaluation Item



and Reasons


ethics-related clauses in business contracts?

(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

Supplier's Undertaking about the Code of Conduct Integrity, the company request suppliers to guarantee that they will refrain from bribes or offering to 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 for employees immideted report the case and also finished questionnaire for annual basis.

(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 for one hour on corporate social responsibility, there are 13,589 employees been trained in 2017, 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?

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.


44

Evaluation Item



and Reasons


(II) Does the company establish standard operating procedures for confidential reporting on investigating accusation cases?

(III) Does the company provide proper whistleblower protection?

Yes

Yes

(II) Innolux Corporation ratified the Innolux Management Standards for Corruption Case Investigation as the investigation standard for incidents and related confidentiality systems.

(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.

45

3.4.7 Corporate Governance Guidelines and Regulations Please refer to the Company’s website at www. innolux.com,and the page 25-51 of annual report. 3.4.8 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, 2018

Title Name Date Sponsoring Organization Course Hours

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

Nov 14 2017

Taiwan Corporate Governance Association

M&A Practice and Case studies 3

Innovative thinking of IP management 3

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

Nov 14 2017




Director I-Chen Investment Ltd. Chuang-Yi Chiu

Nov 14 2017




Director Innolux Education Foundation Chin-Lung Ting

Nov 14 2017





Chi-Chia Hsieh Nov 14 2017


M&A Practice and Case studies 3 Innovative thinking of IP management 3


Bo-Bo Wang Nov 14 2017




Stanley Yuk Lun Yim

Nov 14 2017



46

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

April 30, 2018 Title Name Date Sponsoring Organization Course Hours

Chairman &CEO

Jyh-Chau Wang Nov 14 2017



President &COO

Chih-Hung Hsiao Nov 14 2017



Excutive Vice

President Chin-Lung Ting

May 23, 2017

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

0.5

Nov 14 2017



Vice President

Yao-Tong Chen

May 23, 2017


0.5

Aug 15, 2017

Innolux Corporation Antitrust Law 0.5

Nov 14 2017




Vice President

Hung-Wen Yang

May 23, 2017


0.5

Aug 15, 2017


Nov 14 2017




Vice President

Chih-Ming Chen

May 23, 2017


0.5

Aug 15, 2017


Nov 14 2017




Vice President

Chu-Hsiang Yang

May 23, 2017


0.5

Aug 15, 2017


Nov 14 2017




Finance Supervisor

Chien-Lang Lo

May 23, 2017


0.5

Aug 15, 2017


Nov 14 2017




Accounting Supervisor

Chin-Yuan Chang

May 23, 2017


0.5

Aug 15, 2017


Nov 14 2017




47

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 Public Accountant (CPA) 1 -

Certified Internal Auditor (CIA) - 2 Chartered Financial Analyst (CFA) 1 - Financial Risk Manager (FRM) 1 - Senior Securities Specialist 6 - Securities Specialist 6 - Internal controller test of SFI 1 -

48

3.4.9 Internal Control System 1. Statement of internal control system

Innolux Corporation

Statement of Internal Controls Date: Feb 9, 2018

According to the examination on internal control systems done by the Company itself in 2017, 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, 2017 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 9, 2018. Among the 7 attending Directors, no one raised any objection to the contents of this statement.

Innolux Corporation Chairman&CEO: Jyh-Chau Wang General Manager&COO: Chih-Hung Shiao

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

made by accountants: None.

49

3.4.10 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.

3.4.11 Major Resolutions of Shareholders’ Meeting and Board Meetings 1. Important resolutions and implementation made by the Shareholders’ Meeting by the end of 2017

(1) Adoption of the 2016 Business Report and Financial Statements Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(2) Adoption of the Proposal for Distribution of 2016 Profits Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions

(3) Resolution to revise Articles of Incorporation of Innolux Corporation. Status of execution: Resolution carried Implementation Status: Fully implemented in accordance with the resolutions and approve by the SIPA also upload to official website.

(4) 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 and upload to official website on 20170620.

(5) 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.

(6) 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.

50

2.Important resolutions by the Board for 2017 prior to the deadline of annual report publication

Date Major resolutions

7-4 Board Meeting Feburary 10, 2017

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. Passed the Accountant assessment of the independence and appropriateness. 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. 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”.

7-5 Board Meeting March 15, 2017

The change of General Manager of INX.

7-6 Board Meeting May 10, 2017

The Compensation Committee is proposing employee and directrs bonus for the year of 2016 Prepare and compile Innolux’s Business Report of the company for 2016. Draft of Innolux’s Dividend Remittance for 2016. The Company will not continue process the private placement approved by AGM of 2016 Amendment to part of the provisions of the“Procedures for Acquisition or Disposal of Assets” 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 New proposals at the 2016 Annual Meeting of Shareholders Proposal to revoke the Company’s repurchase/redemption of restriction upon employees’ right for new shares in Quarter I, 2017 Proposal for execution of short-term loan agreements with financial institutions The Compensation Committee is proposing manager bonus for the year of 2016

7-7 Board Meeting July 26, 2017

The Company’s consolidated financial statements, Q2 2017. The termination of Global Depositary Receipt (GDR) program Proposal for execution of short-term loan agreements with financial institutions.

7-8 Board Meeting October 27, 2017

The Company’s audit plan of 2018. Amendment to part of the provisions of the Rules and Procedures for Meeting of the Board of Directors and Audit Committee Charter Established Corporate Social Responsibility Best Practice Principles of Innolux Proposal for execution of short-term loan agreements with financial institutions. Adjustment the salary of Management.

7-9 Board Meeting November 14, 2017

Acquisition of assets from related party.

7-10 Board Meeting February 9, 2018

The Compensation Committee is proposing employee and directrs bonus for the year of 2016 To reclassify the unrealized loss under other comprehensive income of available-for-sale financial assets to the line item ”other gains and losses” amounting The Company’s individual financial statements and consolidated financial statements, 2017.

51

Date Major resolutions Passed the Accountant assessment of the independence and appropriateness The Company’s Business Plan 2018. Proposal for the capital expenditures for the Company in 2018. Amendment to part of the provisions of the“Articles of Incorporation” Proposal to convene the Company’s regular shareholders meeting 2018. Declaration of the Company’s internal control system 2017. Proposal for execution of short-term loan agreements with financial institutions. M&A of subsidiary USA and capital increase subsidiary in Japan. Submittal of the“Full Incentives for Managerial Officers 2017”.

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

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

52

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, 2017 - Dec 31, 2017 -

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

14,108 - 80 - 17,897 17,977 Jan 1, 2017

to Dec 31, 2017

Note1

Note1: Investment in R&D and Tax Service for established oversea subsidiary. 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: Mainly due to the earthquake 2016 cause the audit fee increased.

53

3.6 Replacement of CPA:

3.6.1 About predecessor CPA

Date of change February 9, 2018

Reason for Replacement Due to accounting firm’s job rotation in accordance to relevant regulations, the CPA Wu Han-Chi & Hsu, Sheng-Chung replaced by Wu, Han-Chi & Liang, Hua-Ling since Q1 2018.

Descriptions whether the Company terminated or the CPA did not accept the appointment

Parties Status

CPA The company

Termination of appointment －－ No longer accepted (continued) appointment

－－

Other than unqualified issues in the audit reports within last two years

None

Differences with the Company

Yes

－ Accounting principles or practices

－ Disclosure of Financial Statements

－ Audit scope or steps

－ Others None V Descriptions

Other Revealed Matters (Required to be disclosed by Accounting Standards Article 20 section 2 first paragraph item 4)

None

3.6.2 About the Successor CPA:

Accounting Firm Pricewaterhousecoopers Name of CPA Wu, Han-Chi & Liang, Hua-Ling Date of appointment February 9, 2018 Consulting results regarding accounting methods or accounting principles to specific transactions or opinions on the financial statements before appointment

None

Successor CPA written disagreements to former CPA

None

3.6.3 Reply of the Previous Accountant: 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

54

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)

2017 As of Apr. 30, 2018

Holding Increase

(Decrease)

Pledged Holding Increase (Decrease)

Holding Increase

(Decrease)

Pledged Holding Increase (Decrease)

Chairman Jialian investment Co., Ltd - - - -

Jyh-Chau Wang - - - -

Institutional Director Hyield Venture Capital Co., Ltd - - - -

Te-Tsai Huang - - - -

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

Chuang-Yi Chiu - - - -

Institutional Director Innolux Education oundation(Note2) - - - -

Chin-Lung Ting - - - -

Independent Director Chi-Chia Hsieh - - - -

Independent Director Bo-Bo Wang - - - -

Independent Director Stanley Yuk Lun Yim - - - -

President&COO Chih-Hung Hsiao - - - -

Vice President Yao-Tong Chen - - - -

Vice President Hung-Wen Yang - - - -

Vice President Chih-Ming Chen (212,000) - (38,000) -

Vice President Chu-Hsiang Yang - - - -

Associate Vice President Ke-Yi Kao - - - -

Associate Vice President Tai-Chi Pan - - - -

Associate Vice President Kuo-Hsiung Kuo - - - -

Associate Vice President Chung-Kuang Wei (270,000) - (54,000) -

Associate Vice President Jia-Pang Pang - - - -

Associate Vice President Yu Shui Kuo - - - -

Associate Vice President Zheng-Xia Kuo (50,000) - - -

Associate Vice President Tien-Jen Lin - - - -

Associate Vice President Qing-Hui Lin (9,000) - (18,000) -

Associate Vice President Jun-Yi Yu - - - -

Associate Vice President Mao-Sheng Hung (297,000) - - -

Finance Supervisor Chien-Lang Lo - - - -

Accounting Supervisor Chin-Yuan Chang (81,000) - - -

Note 1: Refers to current managerial officers as of the printing date of the annual report Note 2: 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

55

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

Hyield Venture Capital Co., Ltd

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.

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 hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

138,390,952 1.39% －－－－ N.A. N.A.

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

Representative: Hsu, Sheng-Hsiung

3,107,754 0.03% －－－－ N.A. N.A.

Foxconn Technology Co., Ltd.

127,556,349 1.28% －－－－


Chairman


Investing Company

Hua Zhu Investment Co., Ltd

Parent Company

Representative: Hung, Chih-Chien

62,372 －－－－－ N.A. N.A.

Hua Zhu Investment Co., Ltd

121,036,800 1.22% －－－－ Foxconn

Technology Co., Ltd.

Subsidiary companies

Representative: Lu,Hsu-Tung

－－－－－－ N.A. N.A.

JPMorgan Managed Advanced Stars advanced aggregate International Equity Index

117,428,024 1.18% －－－－ N.A. N.A.

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

101,363,169 1.02% －－－－ N.A. N.A.

56

3.10 Ownership of Shares in Affiliated Enterprises Unit: Shares:12/31/2017

Affiliated Enterprises

Ownership by the Company

Direct or Indirect Ownership by

Directors/Managers Total Ownership

Shares % Shares % Shares % Bright Information Holding Ltd. 4,910,000 100% - - 4,910,000 100% Golden Achiever International Limited 40,250 100% - - 40,250 100% InnoLux Corporation 32,000 100% - - 32,000 100% Innolux Holding Ltd. 180,568,185 100% - - 180,568,185 100% 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 Germany GmbH - - 250 100% 250 100% Innolux Optoelectronics Hong Kong Holding Ltd.

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

Innolux Japan Co., Ltd. 80 49% 82 51%- 162 100% Innolux Optoelectronics USA, Inc. - - 1,000 100% 1,000 100% Innolux Europe B.V. - - 375,810 100% 375,810 100% Innolux Singapore Holding Pte. Ltd. 1 100% - - 1 100%

Innolux Technology Germany GmbH - - 100,000 100% 100,000 100% Innolux Technology USA Inc. 1,000 100% - - 1,000 100% Keyway Investment Management Limited 1,656,410 100% - - 1,656,410 100% 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% Nets Trading Ltd. - - 900,001 100% 900,001 100% Rockets Holding Ltd. - - 160,504,550 100% 160,504,550 100% Stanford Developments Ltd. - - 164,000,000 100% 164,000,000 100% 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% Nanjing Innolux Technology Ltd. - - - 100% - 100% Nanjing Innolux Optoelectronics Ltd. - - - 100% - 100% 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%

57

IV. Capital Overview

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

Unit:Shares 4/22/2018

Share Type

Authorized Capital

Remarks Outstanding Un-issued Shares

Total Issued Shares Unlisted Total Shares

Common Shares 9,952,071,977 - 9,952,071,977 547,928,023 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

None 2007.12.10


58

Month/ Year

Par Value



Other receipts


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

None 2013.02.21


59

Month/ Year

Par Value



Other with restricted employee rights at nil consideration

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



None 2017.05.26


C. Information for Shelf Registration: None

60

4.1.2 Status of Shareholders As of 04/22/2018

Item Government

Agencies Financial

Institutions

Other Juridical Person

Domestic Natural Persons

Foreign Institutions & Natural Persons

Total

Number of Shareholders 9 42 571 355,770 1,209 357,601

Shareholding (shares) 96,353,171 72,578,327 2,046,606,675 4,735,019,675 3,001,514,129 9,952,071,977

Percentage 0.97% 0.72% 20.57% 47.58% 30.16% 100%

4.1.3 Shareholding Distribution Status A. Common Shares

As of 04/22/2018

Class of Shareholding (Shares) Number of Shareholders Shareholding (Shares) Percentage 1 ~ 999 83,690 26,068,396 0.26%

1,000 ~ 5,000 159,447 383,820,050 3.86% 5,001 ~ 10,000 48,259 384,721,390 3.87% 10,001 ~ 15,000 16,765 210,423,084 2.11% 15,001 ~ 20,000 13,143 245,943,957 2.47% 20,001 ~ 30,000 11,404 294,877,286 2.96% 30,001 ~ 50,000 10,043 409,728,397 4.12% 50,001 ~ 100,000 7,893 579,956,205 5.83% 100,001 ~ 200,000 3,651 524,898,775 5.27% 200,001 ~ 400,000 1,675 476,936,409 4.79% 400,001 ~ 600,000 539 265,608,514 2.67% 600,001 ~ 800,000 243 170,270,281 1.71%

800,001 ~ 1,000,000 163 148,756,875 1.50% 1,000,001 or over 686 5,830,062,358 58.58%

Total 357,601 9,952,071,977 100.00%

4.1.4 List of Major Shareholders

As of 04/22/2018

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% Hon Hai Precision Ind. Co., Ltd. 147,965,363 1.49% JPMorgan hosting Sanskrit Vanguard Emerging Markets Equity Index Fund account

138,390,952 1.39%

Compal Electronics, Inc. 134,877,335 1.36% Foxconn Technology Co., Ltd. 127,556,349 1.28% Hua Zhu Investment Co., Ltd 121,036,800 1.22% JPMorgan Managed Advanced Stars advanced aggregate International Equity Index

117,428,024 1.18%

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

101,363,169 1.02%

61

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

Year Item

2016 2017 As of 03/31/2018

Market Price per Share

Highest Market Price 12.35 16.65 14.75

Lowest Market Price 8.80 11.65 12.35

Average Market Price 10.58 13.65 13.30

Net Worth per Share

Before Distribution 22.71 26.56 26.91

After Distribution 22.61 －－

Earnings per Share

Weighted Average Shares (thousand shares)

9,947,293 9,952,051 9,952,072

Diluted Earnings Per Share

Adjusted Diluted Earnings Per Share

0.19 3.72 0.30

Dividends per Share

Cash Dividends 0.1 0.8(Note) N.A.

Stock Dividends

Dividends from Retained Earnings

－－－

Dividends from Capital Surplus

－－－

Accumulated Undistributed Dividends

None None None

Return on Investment

Price/Earnings Ratio 55.68 3.67 N.A.

Price/Dividend Ratio 105.80 17.06 N.A.

Cash Dividend Yield Rate 0.95% 5.86% N.A.

Note: 2017 Distribution of Dividends already gets approval from the Board of Directors, subject to shareholders’ approval in Annual General Shareholders’ Meeting.

62

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 7, 2018 for profit distribution as follows: Cash Dividends to Common Shareholders from retained earnings: NT$ 0.8 (Per share). The proposal is subject to shareholders’ approval at the 2018 Annual Shareholders’ Meeting.

C. Significant changes of Dividend policy: None. 4.1.7 Effect of 2018 Share Dividends to Operating Performance and EPS. No financial forecast disclosed for 2018, 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.

63

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 2017 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 Feburary 9, 2017 to have the remuneration to employees paid in cash for an amount of NT$3,136,952,398 and the remuneration to directors for an amount of NT$48,260,806.

The estimated remuneration to employees and the estimated remuneration to directors

referred to above is no different from the estimated expense in 2017.

(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 2016 Earnings Set Aside to Employee Bonus and Directors’ Remuneration:

Distribution of 2016 Earnings (NT$Thousand) Directors' Remuneration $3,856 Employee Remuneration $231,338 As resolved by the stockholders in May 2017, employees’ bonus and directors’ remuneration were $231,388 and $3,856, respectively, resulting to a difference of $40,478 from the amounts in 2016 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 2017.

4.1.9 Buyback of Common Stock: None

64

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.

4.4 Global Depository Receipts: None.

4.5 Employee Stock Options: None. 4.6 Issuance of New Restricted Employee Shares: None.

4.7 Status of New Share Issuance in Connection with Mergers and Acquisitions: None.

4.8 Financing Plans and Implementation: None.

65

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, smart home 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 2017 (%) of total sales TFT-LCD 329,174,401 100%

Total 329,174,401 100%

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,

66

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

Backit Modules

LCM Modules

LCD Monitor LCD TVs NB Mobile, PDA Others

LCD

Polarized

INX

s’ pro

du

cts

Up

strea

m

M

idd

le

strea

m

Do

wn

strea

m

Consumers

67

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 with narrow border, stylus pen 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 2017. 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 to 23-inch and 23.8-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. With an aspect ratio of 21:9, the ultra-wide screen is designed to increase the productivity of the commercial market through double-screen multiprocessing, expand the visual horizons to enhance visual enjoyment, and promote the scale of high-end markets in 2017. 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

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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 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 50-inch, 58-inch and 65-inch, 75-inch, 85-inch, 100-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％), including100-inch, 85-inch, 75-inch, 65-inch, 58-inch and 50-inch panels, Mega-Zone was proposed to achieve pixel-level regional dimming control with dual panels in 4K2K LCD TV module to improve dark-state display quality, and deep black performance to improve the screen visibility. 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 2017 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. On the design of panel appearance, the company provides ultra-narrow frames (<5mm) and ultra-thin design (thickness <4mm) using on products over 40-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, higher definition panel, and full screen and customize surface design. 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 2017, 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

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touch panel and soft display manufacture process (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, smart home 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 2017 March 31,2018 R & D expense 12,916,721 2,934,683 Net Revenue 329,174,401 66,763,486

Percentage of revenue 3.92% 4.40%

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/58-inch/65-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. It has successfully developed a high-efficiency BT.2020 90% technology without Cd / Pb and other heavy metal materials, which can reduce the image distortion, caused by the adjustment of color and faithfully present all real-world images.

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. In 2017, 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.

J. Mass producer of 65-inch/75-inch large 8K4K (7680X4320) panels with the highest resolution

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in the world

(2) Monitors: A. Release whole series wide viewing angle VA/AAS 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, for the market of gaming, provide highly response time,not only increase product value, but also provide client the best choice of high end monitor LCD panel.

D. Launched a 21.5-inch adjustable anti-spy display panel, designed a one-button switch to change the viewing angle, and quickly switch between general mode and anti-peep mode, which is suitable for high confidentiality needs of business people, government agencies, etc. to improve information security protection.

(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.

E. Launched a full range of narrow-bezel notebook panels to achieve a high-screen share of the overall design trend, meet the narrow-side in the standard product specifications of VESA, but also continue to publish the ultimate product design, micro-frame design to expand the horizon.

F. Developed a 15.6-inch high-speed responsive low-blue, colorless, biased, gaming panel, using Innolux's LED chip design patented to effectively reduce 70% of the blue light. The product was certified by TUV Low German Blu-Ray to relieve eye fatigue and allow long-term use of electricity. Improving players have more comfortable enjoyment.

(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 stay ahead in 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.

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F. Deep Sensing Technology using a special electrode design to simulate 3D multi-finger-touch tactile sensation, combined with dual advantages of capacitive touch and resistance, highly identification surpasses 2D touch.

G.Successfully developed a full-screen, borderless, 6-inch wide color touch mobile panel. Through miniaturization of the drive lines, precise control of the plastic frame and cutting accuracy and design appearance of the glass achieves visual effects without borders, and the module surface is actively miniaturized, ultra-thin and lightweight. Increased specification advantage is extremely high.

(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. In 2017, a 100-inch UHD high-luminosity quantum dot public display module was introduced to replace the traditional four-panel 55-inch panel mosaic to present the visual effects of a large-scale video wall, which is widely used in large-size billboards.

5.1.4 Long- and Short-Term Business Development Plans a) 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 also create the happy win-win aspects through the teamwork.

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b) 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 Sales 2017 % Domestic sales 115,922,366 35.22%

Foreign sales

China 68,728,719 20.88% HongKong 75,037,923 22.80%

Europe 11,408,208 3.47% America 8,022,386 2.44%

Other Area 50,054,799 15.19% Total amount of F/S 213,252,035 64.78%

Total 329,174,401 100.00% 2. Market Share

According to the statistic of IHS research report, until 2017, the market of the company’s big size panel shipment is 15%, due to the productivity contribution G8.6, YOY increased 4%, 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 14.3%, world’s third ranking performance; global market share of notebook (not including tablet) is 23% which is the world’s second ranking, global market share of tablet is 12% which is the world’s forth ranking, global market share of car panel is 12% which is the world’s second ranking. The market share of smart phone is 6.4%.Overall, under the tough economic environment, strong market competition; the company still maintains nice performance in the market of big size product application. 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 687 million chips in 2018.

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 215 million in 2017 and average size increase an inch each year and might reacg 224 million in 2018. About LCD monitor, the shipment is 133 million and will slightly decline in 2018, 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 shipment is 342 million in 2017 and the forecast will decline to 333 million in 2018.

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Data Source: iHS

According to the estimation from IHS, global shipment of medium and small size panel will be 284 million in 2017, increased 2.5% compared with 2016. The shipment will be 298 million in 2018 and annual increased 4.9%. According to the estimation from Gartner,Cell phone shipment reach 156 million in 2017 and the forecast will increase to 166 million in 2018 and annual growth rate is 6%. As well-developed of Internet and smart phone rapid growth in emerging countries market, it will keep driving the demand of cell phone’s panel; the overall cell phone panel and internet products shipment is going to grow continually and will be the main growth power of middle and small size panel.

Data Source: Gartner

The goable economic anabiosised gradually from depression, competition amidst the industries, expansion and competition by newly 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 so as to create added lead in 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- and medical 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.

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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 2017, 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 approval-level and, in turn, expanded our shares in the panel markets. In 2017, 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.

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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 4K2K become the major spec of middle or high end product from 2017. 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 2017 deliver 1.56 billion and 2018 1.66 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 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.

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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 International Monetary Fund estimates that the global economy is gradually recovering, and the recent growth of developed economies has increased. However, regional differences in emerging economies and developing economies, where the proportion of global economic development is increasing, are obvious, and the atmosphere of tension in the geopolitical situation has not improved. The fluctuation of the U.S. dollar exchange rate will affect consumer electronics products that are denominated in U.S. dollars and pose risks to market demand. 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 , smart home 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, Supplier Z, Supplier O Good

Glass Supplier P, Supplier S, Supplier X, Supplier Q Good Polarizer Supplier W, Supplier T, Supplier R, Supplier V 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 2016 2017

Company Name

Amount Percent Relation

with Issuer Company

Name Amount Percent

Relation with Issuer

1 Customer A 41,448,102 14.44 None Customer A 50,574,810 15.36 None 2 Others 245,641,175 85.56 None Others 278,599,591 84.64 None

Net Total Supplies

287,089,277 100.00 － Net Total Supplies

329,174,401 100.00 －

B. Major Suppliers Information for the Last Two Calendar Years

Unit：NT Thousand$

Item 2016 2017

Company Name

Amount Percent Relation

with Issuer Company

Name Amount Percent

Relation with Issuer

1 Others 168,042,304 100.00 None Others 177,515,840 100.00 None Net Sales 168,042,304 100.00 － Net Sales 177,515,840 100.00 －

5.2.5 Production in the Last Two Years Unit: NT Thousand$

Year Output

Major Products

2016 2017

Capacity Quantity Amount Capacity Quantity Amount

TFT-LCD 318,000 288,819 259,000,000 370,000 344,026 256,000,000

Total 318,000 288,819 259,000,000 370,000 344,026 256,000,000

5.2.6 Shipments and Sales over the Last Two Years

Unit：NT Thousand$ Year

Shipments & Sales

Major Product

2016 2017 Local Export Local Export

Quantity Amount Quantity Amount Quantity Amount Quantity Amount

TFT-LCD 81,543 95,497,599 254,020 191,591,678 108,791 115,922,366 278,172 213,252,035

Total 81,543 95,497,599 254,020 191,591,678 108,791 115,922,366 278,172 213,252,035

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5.3 Human Resources

Year 2016 2017 As of 4/30/2018

Number of Employees

Manager 2,682 2,662 2,665

IDL 13,582 12,690 12,520

DL 49,267 45,047 43,008

Total 65,531 60,399 58,193

Average Age 30.29 31.34 31.66

Average Years of Service 4.35 5.04 5.24

Education

Ph. D. 0.12% 0.13% 0.14%

Masters 8.39% 9.12% 9.37%

Bachelor’s Degree 71.43% 70.75% 70.32%

Senior High School 15.76% 15.40% 15.35%

Below Senior High School 4.30% 4.60% 4.82%

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. 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; The company 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.

2. Prevention: Innolux has made sure of the conformity of waste solution status and labeling with the 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

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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 mobilization meetings etc., issuing INX digital news, establishing employee communication mailbox to listen and solve employees’ opinions and thoughts.

Under the functional participate and communicate system of Innolux, it is expected that there should be no labor disputes in the future

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 2017, there are 701 participants at 32% attend the meeting in Taiwan and 246 participants at 35% in Mainland China. Analysis and Statistics of Occupational Hazards

The company enhances the efficiency of environmental safety and hygiene related information conveyed within the organization through its electronic system that manages the environmental safety and hygiene management system and database.

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Through the electronic system, Hazard Identification and Risk Assessment System, Operation Safety Observation System, and Work Safety Analysis are linked. In addition, the “Horizontal System” is simultaneously adopted to horizontally launch corrective measures for preventing exceptional events to overseas plants in order to prevent recurrences of anomalies. Starting in 2016, the action-based and intelligent environmental safety and hygiene management system underwent development, and management indicators for plant environmental safety and hygiene management and risk management were established in order to enhance the ability to manage environmental safety and hygiene management and risk management operation status, as well as grasping the trends of change.

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 2017 the Disabling Frequency Rate (FR) and Severity Rate (SR) both decreased 11% and 12%, respectively compared to 2016 .

Through the execution of management plans, equipment safety protection in the respective plants has been improved, while process automation is promoted in order to reduce operational hazards and human hazards incurred by staff and equipment interfaces. Additionally, engineering risk assessment, hazard prevention, and other improvement projects are promoted. At the same time, improvement proposal and horizontal launch items will be actively promoted to enhance the plant performance rating item weights to encourage employees to participate.

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. Irregular meetings are conducted with contractors for two-way communication and coordination and doing PDCA if the accident happened.

The Contractor accident rate pointed at 0.29 and (IR) at 0.06 slightly increase in 2017 compared with 0.23 and 0.05 in 2016, but work-related fatalities rate pointed at 0, (LDR) at 2 in 2017 which is lower than 0.02 and 139 in 2016.

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 2017, 3,319 ESH training sessions were held, for a total of 318,573 participants. On average, employees joined over 5 training sessions per person per year.

(2) Loss Prevention Management Projects Overall risk checks in each plant were completed in 2014. The checking results

were classified and continued to be listed for the annual KPI improvement execution. In order to strengthen the reliability of the security protection systems of importation production facilities and the plants in the Greater China (including plants in Taiwan

83

and China) the Subject Matter Audit, SMA was launched during 2015~2016. In 2017, the China Plant Loss Prevention Risk and Security Management Audit and various disaster mitigation strengthening projects were executed to implement the risk management system and strengthen corporate risk constitution. 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.

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. Disease prevention and management of workload

Innolux aims to effectively prevent abnormal workloads from causing diseases and ensure the safety and health of employees as follow:

A. Ensure that employees’ working hours, rest, and vacation conditions are in line with local labor regulations.

B.The health management system was implemented, including annual regular health checkups, risk case identification and management, anomaly tracking management, mental health management, matching work, fitness adjustment, etc.

C.Active promotion of cardiovascular disease and stress management-related preventive education and dissemination on the rules of working hours, knowledge of preventing workplace fatigue related diseases, and health management strategies to employees through various ways. Management of Female Health Protection

In order to ensure the well-being of female employees and protect their health, Innolux Corporation, taking into consideration the impact of gender differences and pregnancy on health risks, has implemented maternal health protection activities and management, including:

A. In conjunction with the local labor laws, parental leave allowance is implemented, miscarriage prevention leave and family care leave rights are reinforced, related health protection measures are established, internal standard operating procedures are set up. For pregnant female employees, health risk assessments are implemented, hazard control and risk communication are carried out, and work adjustments are made as needed.

B. Health guidance during pregnancy and breastfeeding is provided to pregnant employees. Rest areas and breastfeeding rooms are provided to create a friendly working environment for female employees, taking into account the principles of maternity protection and gender equality in employment.

(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

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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.

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$21 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


Equipment Purchase


Nov 29, 2017 till expiry of warranty period

Machinery equipment Pursuant to the terms and conditions set forth under the Agreement

Syndicated Loans Bank of Taiwan and bank groups

Mar 12, 2015 - Mar 12, 2020

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, 2018

3D Relevant technology & know-how


Patent Foreign Company B Jan 1, 2015 – IPS Relevant patents Pursuant to the terms and

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Agreement Counterparty Period Major Contents Restrictions authorization Dec 31, 2020 conditions set forth under

the Agreement

Cross-licensing Multinational Enterprise C.

June 28, 2010– Dec 31, 2019

IPS Relevant technology & know-how


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



Cross-licensing Multinational Enterprise H

Oct. 1, 2017– Sep.30, 2022



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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

2013 2014 2015 2016 2017

Current assets 171,701,969 189,380,812 138,866,987 126,998,131 158,529,955 150,158,193 Property, Plant and Equipment

273,505,759 233,609,843 199,482,740 201,360,858 220,864,627 217,632,686

Intangible assets 21,214,994 20,219,137 19,342,856 18,446,321 17,910,908 17,809,318 Other assets 41,778,163 39,306,763 29,749,753 24,674,238 17,553,268 17,387,694 Total assets 508,200,885 482,516,555 387,442,336 371,479,548 414,858,758 402,987,891

Current liabilities

Before distribution

300,586,751 199,135,498 110,471,463 116,165,904 131,894,172 121,846,656

After distribution

301,944,190 206,082,686 112,461,273 117,161,108 Note2 －

Non current liabilities 13,036,280 54,209,621 44,706,150 29,307,281 18,639,538 13,332,475

Total liabilities

Before distribution

313,623,031 253,345,119 155,177,613 145,473,185 150,533,710 135,179,131

After distribution

314,980,470 260,292,307 157,167,423 146,468,389 Note2 －

Equity attributable to shareholders of the parent

193,043,229 227,690,063 232,264,723 226,006,363 264,325,048 267,808,760

Capital stock 91,094,288 99,545,364 99,532,372 99,521,488 99,520,720 99,520,720 Capital surplus 96,058,741 99,584,369 99,643,564 99,647,810 99,646,919 99,646,928

Retained earnings

Before distribution

7,421,697 26,632,674 30,338,450 30,255,869 66,248,130 69,187,902

After distribution

7,331,202 19,685,486 28,348,640 29,260,665 Note2 －

Other equity interest (1,531,497) 1,927,656 2,750,337 (3,418,804) (1,090,721) (546,790) Treasury stock －－－－－－ Non controlling interest 1,534,625 1,481,373 －－－－

Total equity

Before distribution

194,577,854 229,171,436 232,264,723 226,006,363 264,325,048 267,808,760

After distribution

193,220,415 222,224,248 230,274,913 225,011,159 Note2 －

Note 1: Financial data by IFRS from 2013 numbers are audited. Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

88

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 2013 2014 2015 2016 2017(Note2)

Operating revenue 422,730,500 428,661,898 364,132,984 287,089,277 329,174,401 66,763,486 Gross profit 37,759,115 50,385,001 46,640,105 26,088,491 68,738,677 9,050,726 Income from operations 15,349,268 28,173,396 22,430,709 6,413,249 47,022,209 3,828,895 Non-operating income and expenses

(9,705,915) (5,639,056) (7,571,522) (1,421,129) 1,918,980 90,801

Income before tax 5,643,353 22,534,340 14,859,187 4,992,120 48,941,189 3,919,696 Net income (Loss) 5,095,019 21,676,908 10,814,141 1,870,687 37,028,609 2,939,772 Profit (loss) from discontinued operations

－－－－－－

Net income (Loss) 5,095,019 21,676,908 10,814,141 1,870,687 37,028,609 2,939,772 Other comprehensive income (income after tax)

2,859,517 3,159,493 507,196 (6,152,001) 2,286,939 543,931

Total comprehensive income

7,954,536 24,836,401 11,321,337 (4,281,314) 39,315,548 3,483,703

Net income attributable to shareholders of the parent

5,102,568 21,676,759 10,815,594 1,870,687 37,028,609 2,939,772

Net income attributable to non-controlling interest

(7,549) 149 (1,453) －－－

Comprehensive income attributable to Shareholders of the parent

7,953,076 24,844,853 11,352,532 (4,281,314) 39,315,548 3,483,703

Comprehensive income, attributable to non-controlling interests

1,460 (8,452) (31,195) －－－

Earnings per share 0.57 2.31 1.09 0.19 3.72 0.30 Note 1: Financial data by IFRS from 2013 numbers are audited. Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

89

3. Alone Balance Sheet Unit: NT Thousand

Year

Item

Financial Summary for The Last Five Years (Note1)

2013 2014 2015 2016 2017

Current assets 138,274,531 162,875,147 111,926,408 103,003,830 129,298,905 Property, Plant and Equipment 233,557,614 192,599,182 163,921,697 170,150,592 191,778,224 Intangible assets 21,114,443 20,127,184 19,264,025 18,375,538 17,681,078 Other assets 100,611,858 106,252,898 102,927,491 97,564,329 91,173,093 Total assets 493,558,446 481,854,411 398,039,621 389,094,289 429,931,300 Current liabilities

Before distribution 287,413,773 205,189,126 121,257,442 133,926,912 147,100,829 After distribution 288,771,212 212,136,314 123,247,252 134,922,116 Note2

Non current liabilities 13,101,444 48,975,222 44,517,456 29,161,014 18,505,423 Total liabilities


Equity attributable to shareholders of the parent

193,043,229 227,690,063 232,264,723 226,006,363 264,325,048

Capital stock 91,094,288 99,545,364 99,532,372 99,521,488 99,520,720 Capital surplus 96,058,741 99,584,369 99,643,564 99,647,810 99,646,919 Retained earnings


Other equity interest (1,531,497) 1,927,656 2,750,337 (3,418,804) (1,090,721) Treasury stock －－－－－ Non controlling interest －－－－－ Total equity


Note 1: Financial data by IFRS from 2013 numbers are audited. Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

90

4. Alone Statement of Comprehensive Income Unit: NT Thousand

Year

Item

Financial Summary for The Last Five Years (Note1)

2013 2014 2015 2016 2017(Note2)

Operating revenue 419,738,269 426,005,033 360,638,133 285,695,113 323,687,952 Gross profit 27,531,818 36,395,248 33,712,246 14,853,964 57,451,834 Income from operations 11,300,119 20,439,440 15,826,909 513,079 40,633,793 Non-operating income and expenses (6,864,968) 1,238,394 (2,017,968) 3,147,845 4,441,800 Income before tax 4,435,151 21,677,834 13,808,941 3,660,924 45,075,593 Net income (Loss) 5,102,568 21,676,759 10,815,594 1,870,687 37,028,609 Profit (loss) from discontinued operations

－－－－－

Net income (Loss) 5,102,568 21,676,759 10,815,594 1,870,687 37,028,609 Other comprehensive income (income after tax)

2,850,508 3,168,094 536,938 (6,152,001) 2,286,939

Total comprehensive income 7,953,076 24,844,853 11,352,532 (4,281,314) 39,315,548 Net income attributable to shareholders of the parent

5,102,568 21,676,759 10,815,594 1,870,687 37,028,609

Net income attributable to non-controlling interest

－－－－－

Comprehensive income attributable to Shareholders of the parent

7,953,076 24,844,853 11,352,532 (4,281,314) 39,315,548

Comprehensive income attributable to non-controlling interest

－－－－－

Earnings per share 0.57 2.31 1.09 0.19 3.72 Note 1: Financial data by IFRS from 2013 numbers are audited.. Note 2: Pending on approval of shareholders at Annual General Shareholders’ Meeting

91

6.1.2 Auditors’ Opinions from 2013 to 2017

Year Accounting Firm CPA Auditing Opinion

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 2017 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 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 2017 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

2013 2014 2015 2016 2017

Financial structure(%)

Debt Ratio 61.71 52.50 40.05 39.16 36.29 33.54 Ratio of long-term capital to property, plant and equipment

75.91 121.31 138.84 126.79 128.12 129.18

Solvency(%) Current ratio 57.12 95.10 125.70 109.32 120.19 123.24 Quick ratio 39.92 77.41 97.37 87.84 96.12 94.09 Interest earned ratio(times) 2.12 7.28 9.68 4.90 53.16 27.45

Operating performance

Accounts receivable turnover(times)

5.56 5.88 5.68 4.97 5.32 5.02

Average collection period 66 62 64 73 69 73 Inventory turnover(times) 7.67 8.41 9.29 9.02 8.91 6.75 Accounts payable turnover (times)

4.54 4.90 4.52 4.45 4.72 4.52

Average days in sales 48 43 39 40 41 54 Property, plant and equipment turnover(times)

1.40 1.69 1.68 1.43 1.56 1.22

Total assets turnover (times)

0.78 0.87 0.84 0.76 0.84 0.65

Profitability

Return on total assets(%) 1.72 4.98 2.81 0.68 9.57 0.75 Return on stockholders' equity(%)

2.79 10.23 4.69 0.82 15.10 1.10

Pre-tax income to paid-in capital(%)

6.20 22.64 14.93 5.02 49.18 3.94

Profit ratio(%) 1.21 5.06 2.97 0.65 11.25 4.4 Earnings per share(NT$) 0.57 2.31 1.09 0.19 3.72 0.30

Cash flow

Cash flow ratio(%) 25.25 52.33 73.38 28.75 62.66 13.44 Cash flow adequacy ratio(%)

84.75 129.39 226.97 235.82 236.36 206.19

Cash reinvestment ratio(%) 12.91 14.58 9.86 4.12 10.02 1.02

Leverage Operating leverage 4.77 3.02 3.35 7.78 1.97 3.71 Financial leverage 1.49 1.15 1.08 1.16 1.02 1.04

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 increase mainly due to the profitability increase in 2017. 2. Various ratios of profitability increase mainly due to the profits earned increased than 2016’s. 3. Cash flow ratio and Cash reinvestment ratio increase mainly due to the profitability increase in 2017 and cash

provided by operating activities increase. 4. Operating leverage decrease mainly due to the profit increase. Note 1: 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

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(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)

2013 2014 2015 2016 2017

Financial structure(%)

Debt Ratio 60.89 52.75 41.65 41.91 38.52 Ratio of long-term capital to property, plant and equipment

88.26 143.65 168.85 149.97 147.48

Solvency(%) Current ratio 48.11 79.38 92.30 76.91 87.90 Quick ratio 34.07 65.50 71.48 62.14 69.93 Interest earned ratio(times) 2.03 8.23 9.59 5.40 49.02

Operating performance

Accounts receivable turnover(times) 5.66 6.03 5.82 5.20 5.90 Average collection period 64 61 63 70 62 Inventory turnover(times) 9.62 10.78 11.61 11.47 11.00 Accounts payable turnover(times) 3.11 3.39 3.40 3.55 3.47 Average days in sales 38 34 31 32 33 Property, plant and equipment turnover(times)

1.61 2.00 2.02 1.71 1.79

Total assets turnover(times) 0.80 0.87 0.82 0.73 0.79

Profitability

Return on total assets(%) 1.65 4.95 2.76 0.65 9.19 Return on stockholders' equity(%) 2.81 10.30 4.70 0.82 15.10 Pre-tax income to paid-in capital(%) 4.87 21.78 13.87 3.68 45.29 Profit ratio(%) 1.22 5.09 3.00 0.65 11.44 Earnings per share(NT$) 0.57 2.31 1.09 0.19 3.72

Cash flow Cash flow ratio(%) 17.30 44.53 39.11 24.06 55.59 Cash flow adequacy ratio(%) 96.55 153.66 214.96 203.85 215.66 Cash reinvestment ratio(%) 9.34 14.02 5.79 4.25 10.55

Leverage Operating leverage 5.81 3.63 4.12 79.9 2.04 Financial leverage 1.62 1.17 1.11 － 1.02

Analysis of financial ratio change in the last two years. (If the difference does not exceed 20%, the analysis is not required.) a) Times interest earned ratio increase mainly due to the profitability increase in 2016’s. b) Various ratios of profitability increase due to the profitability increase than 2016’s. c) Cash flow ratio and Cash reinvestment ratio increase mainly due to the cash provided by operating activities

increase in 2017 d) Operating leverage decrease mainly due to the operating profit increase. e) Financial leverage increase mainly due to the profit increase. Note 1: 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

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

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(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 2017 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 2018

Audit Committee Chair: Chi-Chia Hsieh

Date: May 7, 2018

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6.4 Consolidated Financial Statements for the Years Ended December 31, 2017 and 2016, and Independent Auditors’ Report

Please refer to page 113 of the annual report.

6.5 Financial Statements for the Years Ended December 31, 2017 and 2016, and Independent Auditors’ Report

Please refer to page 195 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 2016 2017 Difference

Amount % Current Assets(1) 126,998,131 158,529,955 31,531,824 24.83 Fixed Assets 201,360,858 220,864,627 19,503,769 9.69 Intangible assets 18,446,321 17,910,908 (535,413) (2.9) Other Assets(2) 24,674,238 17,553,268 (7,120,970) (28.86)

Total Assets 371,479,548 414,858,758 43,379,210 11.68 Current Liabilities 116,165,904 131,894,172 15,728,268 13.54 OtherLiabilities-non-current(3) 29,307,281 18,639,538 (10,667,743) (36.40)

Total Liabilities 145,473,185 150,533,710 5,060,525 3.48 Capital stock 99,521,488 99,520,720 (768) － Capital surplus 99,647,810 99,646,919 (891) － Retained Earnings(4) 30,255,869 66,248,130 35,992,261 118.96 Other equity(5) (3,418,804) (1,090,721) 2,328,083 (68.10) Non controlling equity －－－－

Total Stockholders' Equity 226,006,363 264,325,048 38,318,685 16.95 Analysis of changes in financial ratios: 1. Mainly due to increase in cash equivalents and inventory, also decrease in account receivable. 2. Mainly due to decrease in deferred tax assets. 3. Mainly due to decrease in long-term loan. 4. Mainly due to increase in special reserve and undistributed surplus earnings. 5. Mainly due to decrease in exchange differences on translation of foreign financial statements and increase

in unrealized gain or loss on available-for-sale financial assets.

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7.2 Analysis of Financial Performance Unit: NT Thousand

Year Item 2016 2017

Difference Amount %

Gross Sales 287,089,277 329,174,401 42,085,124 14.66 Cost of Sales 261,000,786 260,435,724 (565,062) (0.22) Gross Profit(1) 26,088,491 68,738,677 42,650,186 163.48 Operating Expenses 19,675,242 21,716,468 2,041,226 10.37 Operating Income(2) 6,413,249 47,022,209 40,608,960 633.20 Non-operating Income and Expenses(3) (1,421,129) 1,918,980 3,340,109 (235.03) Income Before Tax(4) 4,992,120 48,941,189 43,949,069 880.37 Tax Benefit (Expense)(5) 3,121,433 11,912,580 8,791,147 281.64 Net income(6) 1,870,687 37,028,609 35,157,922 1879.41 Other comprehensive income(7) (6,152,001) 2,286,939 8,438,940 (137.17) Total comprehensive income(8) (4,281,314) 39,315,548 43,596,862 (1018.31) Analysis of changes in financial ratios: 1. Mainly due to the TFT-LCD industry fluctuation, stabllize in the unit price and the well-controlled cost cause the Gross Profit increased. 2. Mainly due to increase in Gross Profit. 3. Mainly due to increase in Investment Profit.. 4. Mainly due to increase in Operating Income. 5. Mainly due to the TFT-LCD industry market better than 2016. The profit increase casuse estimated

income tax expense increased. 6. Mainly due to increase in Income Before Tax. 7. Mainly due to increase in Exchange Differences on Translation of Foreign Financial Statements and

Unrealized Gains (Losses) on Available-for-sale financial assets. 8. Mainly due to increase 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 2017 Analysis

Net cash provided by operating activities

82,642,659 Net cash provided mainly due to depreciation and reasonable control for operating cycle.

Net cash used in investing activities

(21,332,109) Mainly due to additions to property, plant and equipment.

Net cash used in financing activities

(29,602,740) 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

66,051,000 28,796,000 55,207,000 39,640,000 －－ 2018 Analysis of changes in cash flow

Operating Activities: Net Cash inflow due to expected the company continuously optimize cost strutruct.. Investing Activities: Net cash outflow due to overcome difficulties continuously and capital expenditure for new techniques Financing Activities: Net cash inflow mainly due to bank loan drawdown. Remedy Actions for Cash Shortfall: None

7.4 Major Capital Expenditure Items Capital Expenditures in 2017 focus on high-precision, narrow border, high aperture ratio,

yield quality improvement,Generation 8.6, LTPS, LTPS equipments purchases and Green environmental protection, Total amount approximately 25,016,706 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.

Base on the new southbound policy of government, the company is planning to invest and establish the manufacturing bases in South East Asia

In the consolidated financial report of the Company in 2017, the investment gain recognized in equity method came to NT$274,854 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.

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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

1. Interest rate The global economy has experienced synchronized growth and will move into next year with a similar outlook. Among major economies, the US economy is expected to post mild expansion, while the euro area and Japan might show some signs of moderation. Growth in China and the ASEAN economies could grow at a slightly slower pace. Recently, central banks in advanced economies such as the US and the UK have been on the path toward gradual normalization of monetary policy, whereas Japan and most emerging market economies have continued with an accommodative monetary policy stance. The divergent path of monetary policy in major economies, the developments and impact of the US economic and trade policies, rising trade protectionism, and geopolitical risks will all add to the uncertainties surrounding the global economic and financial outlook. The Directorate General of Budget, Accounting and Statistics (DGBAS) of Executive Yuan anticipated the economic growth rate (yoy) by 2018 would hit 2.29%, 0.29% downgrew the annual rate of 2017 at 2.58%. In sum, uncertainties still cast a shadow over next year's global economic outlook. The domestic economic growth is likely to pick up moderately, while the output gap remains negative. Both current inflationary pressures and future inflation expectations are anchored. The financial conditions have experienced some strains, while Taiwan's real interest rate stands at an appropriate level among major economies. In light of the above developments that maintaining the policy rates and the M2 target range unchanged will help to foster a stable financial environment and achieve sustained economic growth.

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 2017, 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 Currently, a continued upturn in international oil prices has pushed up domestic import prices. However, NT dollar appreciation has helped ease the pressure on imported inflation and the CPI is rather stable. Looking ahead to 2018, private sector might raise wages in step with the hikes in minimum wage and public sector employee pay, which could provide a thrust to prices. However, in the context of mild increases in international oil prices, moderate domestic demand, and the output gap remaining negative, the CPI and core CPI to both rise at a pace of 1.12% next year, reflecting a mild inflation outlook.

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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.

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 2017, the Company invests research & development funds in amount 12,916,721 thousand, the amount will hit 12.6 billion in 2018, 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.

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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 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 represents 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 In order to expand the layout of LTPS technology, the company purchased equipment from Luzhu LTPS Plant from Hon Hai with a total amount of approximately NT$31.4 billion. The expected benefits are:

A. Increase the revenue of small and medium-sized businesses revenue to balance the

proportion of TV products and make each size of product line more balanced.

B. After the LTPS equipment purchased from Hon Hai, the global area occupancy rate is

expected to increase from 2% to 8%.

C. LTPS is an important foundation for OLED, miniLED, and uLED technologies, and

increasing LTPS production capacity will contribute to the development of high-end

mobile phone technology. The expansion and addition of the new generation of factory buildings are all subject to the

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professional feasibility assessment of the relevant technical team. 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 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) 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. In December 2009, the Company reached a plea agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil government initiated an investigation case against the Company. The investigation is still ongoing and the Company has been cooperative with the investigation. As for civil lawsuits filed by some state governments in the U.S., downstream panel makers, and customers, the Company had reached settlement agreement individually.

(2) Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and American subsidiaries 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.

In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In June 2017, the jury determined that some products of the Company and American subsidiaries constituted direct infringement of patent and ordered an infringement compensation for Eidos. The Company continued the legal fight by filing a post-trial motion in July 2017. 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. 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

106

8.1.2 Innolux Subsidiaries December 31, 2017

Company Date of

Incorporation Address Capital Stock Business Activities

Bright Information Holding Ltd.

Nov 26, 2008

Unit 2602-03, 26/F., BEA Tower, Millennium City 5, 418 Kwun Tong Road, Kowloon, Hong Kong.

USD 4,910,000 Controlling Company

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 3,200,000 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 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong

HKD 1,101,478,739 Controlling Company

Innolux Hong Kong Limited

Feb 15, 2006 Unit 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong

HKD 113,729,000 Entrepot trade company

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 Unit 2003, 20/F., Millennium City 3, 370 Kwun Tong Road, Kowloon, Hong Kong.

HKD 162,897,802 Controlling Company

Innolux 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

USD 6,000,000 Operating electronics parts and computer display sale

Innolux Europe B.V. Mar 8, 2006 Stationstraat 39G, 6411NK, Heerlen, The Netherlands

EUR 37,581,000

Controlling Company of Researching, developing and Testing

Innolux Singapore Holding Pte. Ltd.

June 28,2017 6 TEMASEK BOULEVARD, #09-05, SUNTEC TOWER FOUR, SINGAPORE (038986)

USD 0 Controlling Company

Innolux Technology Germany GmbH

Feb 17, 2006 Kaiserswerther Strasse 115,D-40880 Ratingen, Germany

EUR 100,000 Testing & Maintenance Company

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

Landmark International Ltd.

Apr 24, 2003 Vistra Corporate Services Centre, Ground Floor NPF Building, Beach Road, Apia, Samoa


Leadtek Global Group Limited

Mar 30, 2005

Portcullis Chambers, 4th Floor, Ellen Skelton Building, 3076 Sir Francis Drake's Highway, P.O. Box 3444, Road Town, VG1110, Tortola, British Virgin Islands

USD 50,000,000 Entrepot trade company

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Company Date of


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


Suns Holding Ltd. Dec 18, 2006 Offshore Chambers, P.O. Box,217, Apia, Samoa


Toppoly Optoelectronics (B.V.I.) Ltd.

Jul 17, 2001

P.O. Box 957, Offshore Incorporations Centre, Road Town, Tortola , British Virgin Islands


Toppoly Optoelectronics (Cayman) Ltd.

Jul 17, 2001

Grand Pavilion, Hibiscus Way, 802 West Bay Road, P. O. Box 31119, 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


Nanjing Innolux Technology Ltd.

Oct 24, 2007

No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 2,100,000 Business of display and related product.

Nanjing Innolux Optoelectronics Ltd.

May 23, 2001

No. 93, Fu Cheng West Road, Jiangning Economic and Technical Development Zone, Nanjing, China

USD 146,000,000


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

108

Company Date of


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


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.

109

8.1.5 Rosters of Directors, Supervisors, and Presidents of INX’s Subsidiaries: As of 12/31/2017

Company Title Name Shareholding

Shares % (Investment Holding)(Note)

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 Rou-Li Cheng - - 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 Rou-Li Cheng - -

Innolux Optoelectronics Germany GmbH

Chairman Chin-Yuan Chang - -


Chairman Jyh Chau, Wang - - Director Shu-Mei He - - Director Jun-Yi Yu - -

Innolux Japan Co., Ltd.

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 Europe B.V. Chairman Tien-Jen Lin - -

Director van Riel, Lucien Franciscus Henricus

- -

Innolux Singapore Holding Pte. Ltd. Director Ching-Lung Ting - - Director Cheng-Chung Chiang - - Director Lim Wan Hoon - -

Innolux Technology Germany GmbH

Chairman Tien-Jen Lin - -

Director van Riel, Lucien Franciscus Henricus

- -

Director Adrianus Gosuinus Marie Kersten - -

Innolux Technology USA Inc. Chairman Tien-Jen Lin - - Director Brant White - -


Chairman Jyh Chau, Wang - -

Lakers Trading Ltd. Chairman Chih-Hung Hsiao - - Landmark International Ltd. Chairman Jyh Chau, Wang - - Leadtek Global Group Limited Chairman Jyh Chau, Wang - - Nets Trading Ltd. Chairman Xi-Xiang Hsu - - Rockets Holding Ltd. Chairman Chih-Hung Hsiao - - Stanford Developments Ltd. Chairman Chih-Hung Hsiao - - Suns Holding Ltd. Chairman Chih-Hung Hsiao - - Toppoly Optoelectronics (B.V.I.) Ltd. Chairman Jyh Chau, Wang - - Toppoly Optoelectronics (Cayman) Ltd.

Chairman Jyh Chau, Wang - -


Chairman Chih-Hung Hsiao - -

110

Company Title Name Shareholding

Shares % (Investment Holding)(Note)

Shanghai Innolux Optoelectronics Ltd Chairman Zhi-Yuan Tsai - - Director Chin-Yuan Chang - - Director Jun-Yi Yu - -

Yuan Chi investment co., Ltd

Chairman Innolux Corporation Representative - Jyh-Chau Wang

- 100%

Director Innolux Corporation Representative – Chien-Lang Lo

- 100%

Director Innolux Corporation Representative - Chih-Hung Hsiao

- 100%

Foshan Innolux Flnet Electronics Ltd. 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 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%


Chairman Zhen-Da chiu - - Director Jun-Yi Yu - - Director Chin-Yuan Chang - -

Ningbo Innolux Flnet Electronics Ltd. 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 - -


Chairman Kuo-Hsiung Kuo - - Director Chien-Lang Lo - - Director Cheng-Chung Chiang - - Supervisor Chin-Yuan Chang - -

Note: Innolux 100% own or investment.

111

8.1.6 Operational Highlights of INX Subsidiaries

Unit: NT$ thousands, 12/31/2017

Company Capital Stock

Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share

Bright Information Holding Ltd.

146,122 95,810 107 95,703 - 53 1,084 0.22

Golden Archiever International Limited

1,198 18,669 - 18,669 - - (41,026) (1,019.27)

InnoLux Corporation 95,232 55,962 53,462 2,500 - (1,333) (1,333) (41.72) Innolux Holding Ltd. 5,711,755 20,423,738 - 20,423,738 - - 2,635,650 14.60 Innolux Hong Kong Holding Limited

4,193,330 3,802,977 - 3,802,977 - - 596,156 0.51

Innolux Hong Kong Limited 432,966 11,816,643 12,905,900 (1,089,257) 36,818,376 217,220 374,757 10.71 Innolux Europe B.V. 1,336,756 2,646,149 162,246 2,483,903 909,841 49,833 52,775 140.43 Innolux Optoelectronics Germany GmbH

889 14,079 2 14,077 - - 634 2,534.71


620,152 1,394,290 - 1,394,290 - - 165,169 1.01

Innolux Japan Co., Ltd. 83,027 3,535,793 381,962 3,153,831 2,511,062 28,185 23,652 146,000.06 Innolux Optoelectronics USA, Inc.

178,560 335,340 63,529 271,811 528,860 16,049 9,214 9,214.08

Innolux Technology Germany GmbH 3,557 93,372 31,291 62,081 33,888 3,859 2,864 28.64

Innolux Technology USA Inc.

30 467,468 117,538 349,930 377,583 12,142 8,543 8542.63


49,295 78,709 - 78,709 - (1) 13,100 7.91

Lakers Trading Ltd. - 10,978,336 10,751,607 226,729 33,712,071 (164,760) - - Landmark International Ltd. 21,113,232 44,227,194 - 44,227,194 - - (741,423) (1.05) Leadtek Global Group Limited

1,488,000 19,985,152 18,985,986 999,166 18,503,392 143,365 1,326,504 26.53

Nets Trading Ltd. 26,784 28,889 - 28,889 - - 1 - Rockets Holding Ltd. 5,108,878 11,932,235 - 11,932,235 - - (31,714) (0.20) Stanford Developments Ltd. 4,880,640 11,903,213 - 11,903,213 - - (33,332) (0.20) Suns Holding Ltd. 540,949 8,264,697 - 8,264,697 - - 2,668,427 146.80 Toppoly Optoelectronics (B.V.I.) Ltd.

4,370,167 6,476,914 - 6,476,914 - - (99,582) (0.68)

Toppoly Optoelectronics (Cayman) Ltd. 4,369,274 6,476,566 - 6,476,566 - - (99,582) (0.68)


540,949 8,264,696 - 8,264,696 - - 2,668,427 146.80


624,960 4,591,789 3,197,499 1,394,290 10,775,836 228,838 165,169 -

Yuan Chi investment co., Ltd 2,100,000 843,512 201 843,311 - (309) (108,668) - Foshan Innolux Flnet Electronics Ltd.

4,555 9,223 3,383 5,840 48,535 1,063 1,274 -


11,398,080 55,883,251 35,067,855 20,815,396 83,676,546 2,518,943 934,684 -


44,640 80,139 6,101 74,038 50,119 4,837 4,737 -


300,576 33,963 15,668 18,295 - (122) (41,027) -


62,496 912,492 355,176 557,316 1,762,396 1,446 19,625 -


4,344,960 14,542,671 8,623,442 5,919,229 16,884,396 236,710 (116,971) -

112

Company Capital Stock

Assets Liabilities Net Worth Net

Revenue

Income (Loss) from

Operation

Net Income (Loss)

Basic Earnings

(Loss) Per Share

InnoJoy Investment Corp. 1,674,054 1,382,297 917 1,381,380 - (226) 65,209 0.39 Innocom Technology (Shenzhen) Co., LTD

4,880,640 12,357,952 454,789 11,903,163 258,405 7,717 (33,371) -


4,555 22,694 15,137 7,556 78,850 4,031 3,261 -


136,635 419,831 48,120 371,711 338,130 152,051 130,536 -


9,225,600 33,678,224 14,352,909 19,325,315 43,836,922 1,476,197 (1,993,452) -


4,761,600 12,641,579 8,476,662 4,164,917 23,722,312 821,524 314,967 -

8.2 Private Placement Securities in the Most Recent Years:

It has been approved by the Annual General Shareholders' Meeting held on 20 June, 2017 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.

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.

113

REPORT OF INDEPENDENT ACCOUNTANTS

To The Board of Directors and Shareholders of INNOLUX CORPORATION AND SUBSIDIARIES

Opinion

We have audited the accompanying consolidated balance sheets of Innolux Corporation (the “Company”) and its subsidiaries as at December 31, 2017 and 2016, 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, 2017 and 2016, 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 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.

114

The key audit matters in relation to the financial statements for the year ended December 31, 2017 are

outlined as follows:

Inventory valuation Description The industry is characterized in its significant fluctuations closely in connection with the economic

environment. As the technology evolves rapidly, the Group’s existing products may become obsolete

when the customers demand for new products or the Group fails to compete with the evolutionary

production approach. The abovementioned factors thus affect the sales amount ultimately. The Group

has evaluated the inventory by taking into account of allowance, obsoleteness or trivial sales amount

and the cost has been written down to the net realizable value. For details of inventory, please refer to

Note 6(6). As the amounts of inventories are material, the types of inventories vary, and the estimation

of net realizable value for individually obsolete or damaged inventories is dependent upon significant

management judgement, we consider inventory valuation a key audit matter.

How our audit addressed the matter We assessed whether the accounting policies on the provision for the loss on decline in value and obsoleteness of inventory are reasonable and in accordance with the accounting principles, as well as whether they are applied consistently. We examined inventory aging report and assessed the reasonableness of provision for the loss on slow-moving inventory. We also assessed the reasonableness of net realizable value and the appropriateness of valuation basis.

Additions to property, plant and equipment Description The Group’s capital expenditures increased with its operational growth. For details of property, plant and equipment, please refer to Notes 6(8) 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 observation of

certain assets to confirm that the purchased items exist. 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(10). Innolux Corporation estimates future cash flows based on appropriate discount rates. In determining

115

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.

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, 2017 and 2016.

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. 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,

116

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:

A. 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.

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 Group’s internal control.

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 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.

E. 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.

F. 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

117

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 9, 2018 ------------------------------------------------------------------------------------------------------------------------------------------------- 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, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

118

Assets Notes December 31, 2017 December 31, 2016

Current Assets

1100 Cash and cash equivalents 6(1) $ 65,988,955 $ 35,384,839

1110 Financial assets at fair value

through profit or loss - current

6(2)

405,060 64,241

1170 Accounts receivable, net 6(4)(5) 41,322,705 52,855,632

1180 Accounts receivable, net - related

parties

7

17,727,082 11,599,359

1200 Other receivables 7 1,212,164 2,034,427

130X Inventory 6(6) 30,259,021 23,401,728

1410 Prepayments 1,487,832 1,552,373

1479 Other current assets 6(1) and 8 127,136 105,532

11XX Total current assets 158,529,955 126,998,131

Non-current assets


through profit or loss - non-current

6(2)

257,676 250,101

1523 Available-for-sale financial assets

- non-current

6(3)

6,555,189 5,840,929

1550 Investments accounted for under

equity method

6(7)

1,491,139 1,517,418

1600 Property, plant and equipment 6(8), 7 and 8 220,864,627 201,360,858

1760 Investment property, net 6(9) 562,697 573,425

1780 Intangible assets 6(10) and 8 17,910,908 18,446,321

1840 Deferred income tax assets 6(26) 6,348,761 14,698,143

1990 Other non-current assets 6(8) and 8 2,337,806 1,794,222

15XX Total non-current assets 256,328,803 244,481,417

1XXX Total assets $ 414,858,758 $ 371,479,548

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS


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

119

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

Current Liabilities

2100 Short-term borrowings 6(11) $ - $ 11,583,750

2120 Financial liabilities at fair value


6(2)

52,500 1,190,148

2170 Accounts payable 50,876,500 51,875,305

2180 Accounts payable - related parties 7 2,565,010 5,120,235

2200 Other payables 6(12) and 7 58,897,804 22,916,097

2230 Current income tax liabilities 1,891,188 1,912,797

2250 Provisions - current 6(16) and 9 5,460,862 3,765,234

2320 Long-term liabilities, current

portion

6(13)

10,951,114 16,381,686

2399 Other current liabilities 1,199,194 1,420,652

21XX Total current liabilities 131,894,172 116,165,904

Non-current liabilities

2540 Long-term borrowings 6(13) 17,287,788 28,128,467

2570 Deferred income tax liabilities 6(26) 734,423 672,971

2600 Other non-current liabilities 6(14) 617,327 505,843

25XX Total non-current liabilities 18,639,538 29,307,281

2XXX Total liabilities 150,533,710 145,473,185

Equity attributable to owners of

the parent

3110 Share capital - common stock 6(17) 99,520,720 99,521,488

3200 Capital surplus 6(18) 99,646,919 99,647,810

Retained earnings 6(19)

3310 Legal reserve 3,945,576 3,758,507

3320 Special reserve 3,418,804 -

3350 Unappropriated retained earnings 58,883,750 26,497,362

3400 Other equity interest 6(20) ( 1,090,721) ( 3,418,804)

3XXX Total equity 264,325,048 226,006,363

3X2X Total liabilities and equity $ 414,858,758 $ 371,479,548

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars, except for earnings per share amounts)


120

Items Notes 2017 2016 4000 Sales revenue 7 $ 329,174,401 $ 287,089,277 5000 Operating costs 6(6)(24) and 7 ( 260,435,724) ( 261,000,786) 5900 Net operating margin 68,738,677 26,088,491 Operating expenses 6(24) 6100 Selling expenses ( 1,942,594) ( 2,301,561) 6200 General and administrative expenses ( 6,857,153) ( 6,241,602) 6300 Research and development expenses ( 12,916,721) ( 11,132,079) 6000 Total operating expenses ( 21,716,468) ( 19,675,242) 6900 Operating profit 47,022,209 6,413,249 Non-operating income and expenses 7010 Other income 6(21) 2,528,814 2,388,895 7020 Other gains and losses 6(22) ( 154,188) ( 3,103,952) 7050 Finance costs 6(23) ( 730,500) ( 893,526) 7060 Share of profit/(loss) of associates and

joint ventures accounted for under equity method

6(7)

274,854 187,454 7000 Total non-operating income and

expenses

1,918,980 ( 1,421,129) 7900 Profit before income tax 48,941,189 4,992,120 7950 Income tax expense 6(26) ( 11,912,580) ( 3,121,433) 8200 Profit for the period $ 37,028,609 $ 1,870,687

Other comprehensive (loss) income (net) Components of other comprehensive (loss)

income that will not be reclassified to profit or loss

8311 Remeasurement of defined benefit

obligations

( $ 49,571) $ 44,027 8349 Income tax relating to the components of

other comprehensive income that will not be reclassified

8,427 ( 7,485) 8310 Components of other comprehensive

(loss) income that will not be reclassified to profit or loss

( 41,144) 36,542 Components of other comprehensive

income (loss) that will be reclassified to profit or loss

6(20)

8361 Financial statements translation

differences of foreign operations

( 1,643,264) ( 5,708,026) 8362 Unrealized gain (loss) on valuation of

available-for-sale financial assets

4,322,008 ( 339,384) 8370 Share of other comprehensive loss of

associates and joint ventures accounted for under equity method

( 33,551) ( 27,676) 8399 Income tax relating to the components of

other comprehensive loss that will be reclassified

6(26)

( 317,110) ( 113,457) 8360 Components of other comprehensive


2,328,083 ( 6,188,543) 8300 Other comprehensive income (loss) for the

year, net of tax

$ 2,286,939 ( $ 6,152,001)

8500 Total comprehensive income (loss) for the year

$ 39,315,548 ( $ 4,281,314)

Profit attributable to: 8610 Owners of the parent $ 37,028,609 $ 1,870,687

Other comprehensive income (loss) attributable to:

8710 Owners of the parent $ 39,315,548 ( $ 4,281,314)

Earnings per share (in dollars) 6(27) 9750 Basic earnings per share $ 3.72 $ 0.19

9850 Diluted earnings per share $ 3.63 $ 0.19

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(Expressed in thousands of New Taiwan dollars) 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

Employee unearned

compensation Total


121

2016 Balance at January 1 $ 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: 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

Recognition of change in equity of associates in proportion to the Group's ownership 6(18) - ( 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 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ -$ 226,006,363

2017 Balance at January 1 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ -$ 226,006,363

Appropriations of 2016 earnings: 6(19) Legal reserve - - 187,069 - ( 187,069 ) - - - -

Special reserve - - - 3,418,804 ( 3,418,804 ) - - - -

Cash dividends - - - - ( 995,204 ) - - - ( 995,204 )

Cancellation of restricted stock to employees ( 768 ) 768 - - - - - - -

Recognition of change in equity of associates in proportion to the Group's ownership 6(18) - ( 1,659 ) - - - - - - ( 1,659 )


Other comprehensive income for the year 6(20) - - - - ( 41,144 ) ( 1,676,815 ) 4,004,898 - 2,286,939

Balance at December 31 $ 99,520,720 $ 99,646,919 $ 3,945,576 $ 3,418,804 $ 58,883,750 ($ 5,717,223 ) $ 4,626,502 $ - $ 264,325,048

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars)

Notes 2017 2016

122

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax for the year $ 48,941,189 $ 4,992,120

Adjustments

Adjustments to reconcile profit (loss)

Depreciation and amortization 6(24) 33,564,048 41,418,534

Compensation related to share-based payment 6(24) - 15,260

Share of loss of associates and joint ventures accounted

for under equity method

6(7)

( 274,854 ) ( 187,454 )

(Gain) loss from disposal of investments 6(22) ( 2,483,645 ) 23,258

Loss on disposal of property, plant and equipment 6(22) 597,261 163,659

Impairment loss 6(22) 3,120,824 502,857

Interest expense 6(23) 730,500 874,879

Interest income 6(21) ( 472,331 ) ( 291,240 )

Dividend income 6(21) ( 151,677 ) ( 177,880 )

Unrealized foreign exchange (gain) loss ( 4,725 ) 4,725

Changes in operating assets and liabilities

Changes in operating assets

Financial assets /liabilities at fair value through profit

or loss

( 1,486,042 ) 1,012,239

Accounts receivable 11,532,927 ( 4,665,841 )

Accounts receivable - related parties ( 6,127,723 ) ( 8,966,506 )

Other receivables 845,803 1,648,507

Inventories ( 6,857,293 ) 5,864,361

Prepayments 64,541 ( 444,504 )

Other current assets 23,807 ( 7,263 )

Changes in operating liabilities

Accounts payable ( 998,805 ) ( 5,194,646 )

Accounts payable - related parties ( 2,555,225 ) 1,760,302

Other payables 6,975,259 ( 1,636,830 )

Provisions - current 1,695,628 ( 1,786,525 )

Other current liabilities ( 221,458 ) 289,323

Other non-current liabilities 16,688 ( 12,343 )

Cash inflow generated from operations 86,474,697 35,198,992

Cash paid for income tax ( 3,832,038 ) ( 1,799,745 )

Net cash flows from operating activities 82,642,659 33,399,247

(Continued)

INNOLUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS


Notes 2017 2016


123

CASH FLOWS FROM INVESTING ACTIVITIES

Acquisition of available-for-sale financial assets ( $ 122,755 ) $ -

Proceeds from disposal of available-for-sale financial assets 2,907,052 222,372

Proceeds from capital reduction of available-for-sale

financial assets

145,575 159,335

Proceeds from capital reduction and return of investments

accounted for under equity method

- 23,680

(Increase) decrease in other financial assets ( 45,381 ) 2,091,694

Acquisition of property, plant and equipment 6(28) ( 25,016,706 ) ( 44,152,843 )

Proceeds from disposal of property, plant and equipment 263,357 42,268

Acquisition of intangible assets ( 327,760 ) ( 22,251 )

(Increase) decrease in other non-current assets ( 2,404 ) 38,230

Interest received 448,903 326,610

Dividends received 418,010 404,576

Net cash flows used in investing activities ( 21,332,109 ) ( 40,866,329 )

CASH FLOWS FROM FINANCING ACTIVITIES

(Decrease) increase in short-term borrowings ( 11,579,025 ) 11,579,025

Increase in long-term borrowings - 822,702

Payment of long-term borrowings ( 16,440,000 ) ( 16,440,000 )

Repurchase from issuance of restricted stock to employees - ( 1,372 )

Interest paid ( 588,511 ) ( 747,143 )

Cash dividends paid 6(19) ( 995,204 ) ( 1,989,810 )

Net cash flows used in financing activities ( 29,602,740 ) ( 6,776,598 )

Effect of changes in foreign currency exchange ( 1,103,694 ) ( 2,894,271 )

Net increase (decrease) in cash and cash equivalents 30,604,116 ( 17,137,951 )

Cash and cash equivalents at beginning of year 35,384,839 52,522,790

Cash and cash equivalents at end of year $ 65,988,955 $ 35,384,839

124

INNOLUX CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 the 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 9, 2018.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS a) Effect of the adoption of new issuances of or amendments to International Financial Reporting

Standards (“IFRS”) as endorsed by the Financial Supervisory Commission (“FSC”) New standards, interpretations, and amendments endorsed by FSC effective from 2017 are as

follows:

125

New Standards, Interpretations and Amendments

Effective Date byInternational Accounting

Standards Board

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:applying the consolidation exception’

January 1, 2016

Amendments to IFRS 11, ‘Accounting for acquisition of interests injoint operations’

January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016Amendments to IAS 1, ‘Disclosure initiative’ January 1, 2016Amendments to IAS 16 and IAS 38, ‘Clarification of acceptablemethods of depreciation and amortisation’

January 1, 2016

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016Amendments to IAS 19, ‘Defined benefit plans: employeecontributions’

July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financialstatements’

January 1, 2016

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

January 1, 2014

126

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

Group’s financial condition and financial performance 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. b) 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 the FSC effective from 2018 are as

follows:



Standards Board

Amendments to IAS 39, ‘Novation of derivatives and continuation ofhedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014Annual improvements to IFRSs 2010-2012 cycle July 1, 2014Annual improvements to IFRSs 2011-2013 cycle July 1, 2014Annual improvements to IFRSs 2012-2014 cycle January 1, 2016



Standards Board

Amendments to IFRS 2, ‘Classification and measurement of share-based payment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments withIFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue fromcontracts with customers’

January 1, 2018

Amendments to IAS 7, ‘Disclosure initiative’ January 1, 2017Amendments to IAS 12, ‘Recognition of deferred tax assets forunrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ January 1, 2018IFRIC 22, ‘Foreign currency transactions and advance consideration’ January 1, 2018Annual improvements to IFRSs 2014-2016 cycle - Amendments toIFRS 1, ‘First-time adoption of International Financial ReportingStandards’

January 1, 2018

127


Group’s financial condition and financial performance 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 measured at fair value through other

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

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

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

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

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

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

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

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

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

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



Standards Board

Annual improvements to IFRSs 2014-2016 cycle - Amendments toIFRS 12, ‘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

128

of the remaining benefits from, the asset.

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

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

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

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 over time. In addition to the clarifications, the amendments include two

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

Standard.

D. 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.

The Group expects to provide additional disclosure to explain the changes in liabilities arising

from financing activities.

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

the new rules under IFRS 9 and IFRS 15 retrospectively from January 1, 2018, with the practical

expedients permitted under the statement. The significant effects of applying the new standards as

of January 1, 2018 are summarized below:

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

the amount of $5,086,506, and make an irrevocable election at initial recognition on equity

instruments not held for dealing or trading purpose, by increasing financial assets at fair value

through other comprehensive income in the amount of $5,086,506. There will be no effect on

retained earnings and other equity interest.

B. In accordance with IFRS 9, the Group expects to reclassify available-for-sale financial assets in

the amounts of $1,468,683 by increasing financial assets at fair value through profit or loss in the

129

amount of $1,468,683. There will be no effect on retained earnings and other equity interest.

C. Presentation of contract assets and contract liabilities

In line with IFRS 15 requirements, the Group expects to change the presentation of certain

accounts in the balance sheet as follows:

Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are

recognized as contract liabilities, but were previously presented as accounts receivable -

allowance for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance

would amount to $2,327,123. c) 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

endorsed by the FSC effective are as follows:


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

quantitative impact will be disclosed when the assessment is complete.

IFRS 16, ‘Leases’

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

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

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

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

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

lessors.



Standards Board

Amendments to IFRS 9, ‘Prepayment features with negativecompensation’

January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 16, ‘Leases’ January 1, 2019IFRS 17, ‘Insurance contracts’ January 1, 2021Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

130

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.

(a) 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”, International

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

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

(b) Basis of preparation

A. Except for the following items, these 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 obligations.

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.

(c) 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) Significant 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

131

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 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 would be reclassified to profit or loss when

the related assets or liabilities are disposed of.

B. Subsidiaries included in the consolidated financial statements:

132

Main

Business December 31, December 31,

Name of Investor Name of Subsidiary Activities 2017 2016 Description

Innolux Corporation Bright Information HoldingLtd.

Investment holdings 100 100 -

Golden AchieverInternational Limited


Innolux Holding Limited Investment holdings 100 100 -

Keyway InvestmentManagement Limited


Landmark International Ltd. Investment holdings 100 100 -

Toppoly Optoelectronics(B.V.I.) Ltd.


Innolux Hong Kong HoldingLimited


Leadtek Global GroupLimited

Distributioncompany

100 100 -

Yuan Chi Investment Co.,Ltd.

Investmentcompany

100 100 -

InnoJoy InvestmentCorporation

Investmentcompany

100 100 -

Innolux OptoelectronicsEurope B.V.

Investment anddistributioncompany

- 100 (e)

Innolux Japan Co., Ltd.(Formerly named: InnoluxOptoelectronics Japan Co.,Ltd.)

Investment, R&D,manufacturing anddistributioncompany

49 100 (d)

Innolux Corporation Distributioncompany

100 - (f)

Innolux Technology USAInc.

Distributioncompany

100 - (f)

Innolux Singapore HoldingPte. Ltd.

Investment holdings 100 - (g)

Golden AchieverInternational Limited

VAP Optoelectronics(Nanjing) Corp.

Processing company 100 100 -

Innolux HoldingLimited

Rockets Holding Ltd. Investment holdings 100 100 -

Suns Holding Ltd. Investment holdings 100 100 -

Lakers Trading Ltd. Distributioncompany

100 100 -

Ownership (%)

133

Main



Ownership (%)

Innolux HoldingLimited

Innolux Corporation Distributioncompany

- 100 (f)

Keyway InvestmentManagement Limited

Ningbo Innolux LogisticsLtd.

Warehousingcompany

- 100 (a)

Foshan Innolux LogisticsLtd.

Warehousingcompany

100 100 -

LandmarkInternational Ltd.

Ningbo InnoluxOptoelectronics Ltd.


Foshan InnoluxOptoelectronics Ltd.


Ningbo Innolux Display Ltd. Processing company 100 100 -

ToppolyOptoelectronics(B.V.I.) Ltd.

Toppoly Optoelectronics(Cayman) Ltd.


Innolux Hong KongHolding Limited

Innolux OptoelectronicsHong Kong Holding Limited


Innolux Hong Kong Limited Distributioncompany

100 100 -

Innolux Europe B.V.(Formerly named: InnoluxTechnology Europe B.V.)

Investment,distribution, andR&D company

100 100 (e)

Innolux Technology JapanCo., Ltd.

R&D company - 100 (d)

Innolux Technology USAInc.

Distributioncompany

- 100 (f)

Innolux Japan Co., Ltd.(Formerly named: InnoluxOptoelectronics Japan Co.,Ltd.)

Investment, R&D,manufacturing anddistributioncompany

51 - (d)

InnoluxOptoelectronicsEurope B.V.

Innolux OptoelectronicsGermany GmbH

After sales servicecompany

- 100 (e)

Innolux Japan Co.,Ltd. (Formerly named:InnoluxOptoelectronics JapanCo., Ltd.)

Innolux OptoelectronicsUSA, Inc.

Distributioncompany

100 100 -

Rockets Holding Ltd. Best China Investments Ltd. Investment holdings - 100 (b)

Mega Chance InvestmentsLtd.

Investment holdings - 100 (b)

Magic Sun Ltd. Investment holdings - 100 (b)

Stanford Developments Ltd. Investment holdings 100 100 -

Nets Trading Ltd. Investmentcompany

100 100 -

134

(1) In the first quarter of 2017, the subsidiary had completed liquidation and dissolution.

(2) In the third quarter of 2017, the subsidiary had completed liquidation and dissolution.

(3) The Company conducted a merger of its subsidiaries, Nanjing Innolux Optoelectronics Ltd. and

Kunpal Optoelectronics Ltd. which were wholly owned by the Company with the effective date

of October 23, 2017. Nanjing Innolux Optoelectronics Ltd. was the surviving company while

Kunpal Optoelectronics Ltd. was dissolved after the merger. Said transaction was accounted as

reorganisation transaction.

(4) A subsidiary, Innolux Optoelectronics Japan Co., Ltd., which has 100% of shares directly

owned by the Company, issued new shares to another subsidiary, Innolux Hong Kong Holding

Limited, which also has 100% of shares directly owned by the Company, to obtain equity shares

of and combined with Innolux Technology Japan Co., Ltd., which was reinvested by the

Company. The surviving company was Innolux Optoelectronics Japan Co., Ltd. and the

effective date was December 18, 2017. The transaction was accounted as reorganisation

Main



Ownership (%)

Suns Holding Ltd. Warriors TechnologyInvestments Ltd.

Investmentcompany

100 100 -

ToppolyOptoelectronics(Cayman) Ltd.

Nanjing Innolux TechnologyLtd.

Distributioncompany

100 100 -

Nanjing InnoluxOptoelectronics Ltd.

Processing company 100 100 (c)

Kunpal Optoelectronics Ltd. Processing company - 100 (c)

InnoluxOptoelectronics HongKong Holding Limited

Shanghai InnoluxOptoelectronics Ltd.


Innolux Europe B.V.(Formerly named:Innolux TechnologyEurope B.V.)

Innolux TechnologyGermany GmbH

Testing andmaintenancecompany

100 100 -

Innolux OptoelectronicsGermany GmbH

After sales servicecompany

100 - (e)

Best ChinaInvestments Ltd.

Asiaward Investment Ltd. Investment holdings - 100 (a)

Mega ChanceInvestments Ltd.

Main Dynasty InvestmentLtd.

Investment holdings - 100 (a)

Magic Sun Ltd. Sun Dynasty DevelopmentLtd.

Investment holdings - 100 (a)

StanfordDevelopments Ltd.

Innocom Technology(Shenzhen) Co., Ltd.


Ningbo InnoluxDisplay Ltd.

Ningbo Innolux ElectornicsLtd.

Distributioncompany

100 100 -

Ningbo InnoluxOptoelectronics ltd.

Ningbo Innolux FlentElectornics ltd.

Distributioncompany

100 100 -

Foshan InnoluxOptoelectronics ltd.

Foshan Innolux FlentElectornics ltd.

Distributioncompany

100 100 -

135

transaction. And Innolux Optoelectronics Japan Co., Ltd. was renamed Innolux Japan Co., Ltd.

on December 2017.

(5) The Company's indirect 100% owned subsidiary, Innolux Technology Europe B.V., merged

with a direct 100% owned subsidiary, Innolux Optoelectronics Europe B.V. The surviving

company was Innolux Technology Europe B.V. which directly held a subsidiary that was

reinvested by the Company, Innolux Optoelectronics Germany GmbH. The effective date was

December 18, 2017, and the transaction was accounted as reorganisation transaction. And

Innolux Technology Europe B.V. was renamed Innolux Europe B.V. on December 2017.

(6) The Company directly and wholly owned the 100% held reinvestment subsidiaries, Innolux

Technology USA Inc. and Innolux Corporation, because of reorganisation in the fourth quarter

of 2017. The transaction was accounted as reorganisation transaction.

(7) Innolux Singapore Holding Pte. Ltd. was incorporated during 2017. There was no capital

injection as of December 31, 2017.

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.

(d) 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 New Taiwan dollars, 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 statements as qualifying cash flow hedge.

(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

within ‘other gains and losses’. B. Translation of foreign operations

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(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, even when 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, even when 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.

(e) 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 settle liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they

are classified as non-current liabilities: 1. Liabilities that are expected to be settled within the normal operating cycle; 2. Liabilities arising mainly from trading activities; 3. Liabilities that are to be settled within twelve months from the balance sheet date; 4. 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.

(f) Cash equivalents Cash equivalents refer to short-term, highly liquid investments that are readily convertible to known amounts of cash and 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.

(g) 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

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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.

(h) Available-for-sale financial assets A. Available-for-sale financial assets are non-derivatives that are designated in this category. B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and

derecognized using trade date accounting. C. 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.

(i) 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.

(j) 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 (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of one 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; or

(d) A significant or prolonged decline in the fair value of an investment in an equity instrument below its cost.

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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 amortisation) 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, 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.

(k) 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; however,

the Group has not retained control of the financial asset. (l) 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.

(m) Inventories Inventories are stated at the lower of cost and net realizable 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 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.

(n) Investments accounted for using equity method / associates 1. 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

139

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.

2. 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.

3. When changes in an associate’s equity do not arise from 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.

4. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’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 Group.

(o) Property, plant and equipment ‧ Property, plant and equipment are initially recorded at cost. Borrowing costs incurred during the

construction period are capitalized. ‧ 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.

‧ 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. 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.

‧ 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

(p) 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.

(q) Intangible assets

A. Goodwill arises in a business combination accounted for by applying the acquisition method.

140

B. Patent, royalties and other intangible assets are amortized on a straight-line basis over their

estimated useful lives of 2 ~ 10 years.

(r) 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 amortized 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. Each unit or group of units to which the goodwill

is allocated represents the lowest level within the entity at which the goodwill is monitored for

internal management purposes. Goodwill is monitored at the operating segment level.

(s) Borrowings

A. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs)

and the redemption value is recognized in profit or loss over the period of the borrowings using the

effective interest method.

B. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to

the extent that it is probable that some or all of the facility will be drawn down. In this case, the fee

is deferred until the draw-down occurs. To the extent there is no evidence that it is probable that

some or all of the facility will be drawn down, the fee is capitalised as a pre-payment for liquidity

services and amortized over the period of the facility to which it relates.

(t) Notes and accounts payable

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

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

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

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

effect of discounting is immaterial.

(u) 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.

141

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.

(v) Provisions

Provisions (including warranties, litigation, etc.) are recognized when the Group has a present legal

or constructive obligation as a result of past events, and it is probable that an outflow of economic

resources will be required to settle the obligation and the amount of the obligation can be reliably

estimated. Provisions are measured at the present value of the expenditures expected to be required to

settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that

reflects the current market assessments of the time value of money and the risks specific to the

obligation. When discounting is used, the increase in the provision due to passage of time is

recognized as interest expense. Provisions are not recognized for future operating losses.

(w) Employee benefits

A. Short-term employee benefits

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

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

expense in that period when the employees render service.

B. Pensions

(a) Defined contribution plans For defined contribution plans, the contributions are recognized as pension expense 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. Net obligation under a defined benefit plan is defined as the present value of an amount of

pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. 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 net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

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’ remuneration Employees’ compensation and directors’ remuneration are recognized as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

(x) 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

142

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: (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 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’.

(y) Income taxes

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 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 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

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

D. Deferred 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 to the extent that it is possible that future taxable profit will

be available against which the unused tax credits can be utilised.

(z) Revenue recognition

The Group manufactures and sells TFT-LCD panel products. 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.

143

(aa) 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 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.

(bb) 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.

CRITICAL ACCOUNTING 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. For the information of

critical accounting judgements, estimates and key sources of assumption uncertainty 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, being the transfer of the accumulated fair value adjustments recognized in other

comprehensive income on the impaired available-for-sale financial assets to profit.

Critical accounting estimates and assumptions

The Group 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:

144

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(10) 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. Evaluation of inventories

As inventories are stated at the lower of cost and net realizable value, the Group must determine the

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

rapid technology innovation, the Group evaluates the amounts of normal inventory consumption,

obsolete inventories or inventories without market selling value on balance sheet date, and writes

down the cost of inventories to the net realizable value. Such an evaluation of inventories is

principally based on the demand for the products within the specified period in the future. Therefore,

there might be material changes to the evaluation. DETAILS OF SIGNIFICANT ACCOUNTS

(1) 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 $50,541 and $4,998 at December 31, 2017 and 2016,

respectively, and were classfied as ‘other current assets’.

December 31, 2017 December 31, 2016

Cash on hand, checking accounts and demand deposits 37,758,696$ 8,392,955$ Time deposits 27,562,983 26,326,649

65,321,679 34,719,604 Cash equivalents - repurchase bonds 667,276 665,235

65,988,955$ 35,384,839$

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

(a) The Group recognized net gain (loss) of $1,987,818 and ($1,244,206) on the financial instruments

for the years ended December 31, 2017 and 2016, 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 in foreign currency. However, these forward foreign exchange contracts are primarily for the requirement of capital management and not accounted for using hedge accounting.

Assets December 31, 2017 December 31, 2016

Current items

Financial assets held for trading

Forward foreign exchange contracts 328,170$ 64,241$

Forward exchange swap contracts 76,890 -

405,060$ 64,241$

Non-current items

Financial assets held for trading

Stock-Advanced Optoelectronic Technology Inc. 48,040$ 77,019$

Valuation adjustment 209,636 173,082

257,676$ 250,101$

Liabilities December 31, 2017 December 31, 2016

Current items Financial liabilities held for trading Forward foreign exchange contracts 52,500$ 1,190,148$

Derivative financial

assets and liabilities Contract Period Contract Period

Current items

Forward foreign USD (sell) 400,000$ 2017/10-2018/3 USD (sell) 360,000$ 2016/10-2017/3

exchange contracts JPY (buy) 44,934,619 2017/10-2018/3 JPY (buy) 39,597,920 2016/10-2017/3

Forward foreign EUR (sell) 15,800 2017/10-2018/2 TWD (sell) 621,240 2016/9-2017/2

exchange contracts USD (buy) 18,841 2017/10-2018/2 USD (buy) 20,000 2016/9-2017/2

Forward foreign EUR (sell) 34,200 2017/10-2018/3 EUR (sell) 19,000 2016/10-2017/1 exchange contracts JPY (buy) 4,554,765 2017/10-2018/3 USD (buy) 20,706 2016/10-2017/1

Forward foreign HKD (sell) 371,732 2017/12-2018/2 EUR (sell) 55,000 2016/9-2017/4

exchange contracts EUR (buy) 40,000 2017/12-2018/2 JPY (buy) 6,516,335 2016/9-2017/4

Forward foreign USD (sell) 430,000 2017/7-2018/2 EUR (sell) 8,960 2016/12-2017/1

exchange contracts RMB (buy) 2,870,455 2017/7-2018/2 TWD (buy) 302,364 2016/12-2017/1

Forward foreign USD (sell) 410,000 2017/12-2018/1 USD (sell) 715,000 2016/9-2017/2

swap contracts TWD (buy) 12,289,569 2017/12-2018/1 RMB (buy) 4,948,754 2016/9-2017/2

HKD (sell) 330,712 2016/10-2017/1

EUR (buy) 39,000 2016/10-2017/1

(in thousands) (in thousands)


Contract Amount Contract Amount

(Notional Principal) (Notional Principal)

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(3) 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, 2017 and 2016. Please

refer to Note 6(20).

B. For the years ended December 31, 2017 and 2016, the Company and its subsidiary assessed that

investment value of certain investee companies was impaired and recognized impairment loss of

$3,120,824 and $500,000 which is listed as ‘other gains and losses’. (4) Notes receivable and 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:

C. Movement analysis of accounts receivable and notes receivable that were impaired is as follows:

(a) As of December 31, 2017 and 2016, the Group’s accounts receivable that were impaired were

$109,496 and $109,501, respectively.

(b) Movement on allowance for bad debts for impairment loss on individual provision is as follows:

(5) 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

Items December 31, 2017 December 31, 2016

Non-current items

Listed stocks 5,969,565$ 5,295,578$

Emerging and unlisted stocks 585,624 545,351

6,555,189$ 5,840,929$


Notes receivable 27,641$ -$

Accounts receivable 43,731,467 53,798,678

43,759,108 53,798,678

Less: Allowance for sales returns and discounts 2,326,907)( 833,545)(

Allowance for bad debts 109,496)( 109,501)(

41,322,705$ 52,855,632$


Up to 60 days 3,321,622$ 391,369$

61 to 180 days 193,350 8,364

Over 180 days 1,258 -

3,516,230$ 399,733$

2017 2016

At January 1 109,501$ 118,516$

Allowance for bad debts - write-offs - 9,001)(

Net exchange difference 5)( 14)(

At December 31 109,496$ 109,501$

147

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.

As of December 31, 2017, all the accounts receivable sold were collected and as of December 31, 2017

and 2016, the Company entered into factoring agreements with CTBC Bank, Taipei Fubon

Commercial Bank, and Bank of Taiwan in the amount of $18,451,200, $5,952,000, and $1,190,400;

and $19,995,000, $6,450,000, and $0, respectively. (6) Inventories

A. For the years ended December 31, 2017 and 2016, the Company and subsidiaries recognized cost of

goods sold for inventories that have been sold at $260,371,976 and $260,067,090, and recognized

net inventory loss at $63,748 and $933,696 due to write down (reversal) of cost of scrap inventories

to net realizable value, respectively. 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. (7) Investments accounted for under the equity method

The operating results of the Group’s share in all individually immaterial associates are summarized below:


Raw materials and supplies 3,921,134$ 3,352,916$

Work in process 13,754,503 12,345,964

Finished goods 12,583,384 7,702,848

30,259,021$ 23,401,728$


Ampower Holding Ltd. 853,016$ 870,941$

FI Medical Device Manufacturing Co., Ltd. 525,926 451,943

Others 112,197 194,534

1,491,139$ 1,517,418$

2017 2016

Profit for the year from continuing operations 274,854$ 187,454$

Other comprehensive loss - net of tax 33,551)( 27,676)(

Total comprehensive income 241,303$ 159,778$

Years ended December 31,

148

(8) Property, plant and equipment

A. Amount of borrowing costs capitalized as part of property, plant and equipment and the range of the

interest rates for such capitalization are as follows:

B. The Group evaluated the recoverable amount for assets with impairment indicators; the impairment

loss for the years ended December 31, 2017 and 2016 was $0 and $2,857, 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.

Transfer, netexchange

differencesAt January 1 Additions Disposals and others At December 31

Cost: Land 3,852,792$ -$ -$ -$ 3,852,792$

Buildings 193,290,765 561,168 340,514)( 2,906,444 196,417,863

Machinery and equipment 438,234,703 29,244,575 7,438,732)( 36,753,956 496,794,502

Other equipment 36,511,450 473,132 1,199,395)( 3,976,274 39,761,461

671,889,710 30,278,875 8,978,641)( 43,636,674 736,826,618

Accumulated depreciation and impairment: Buildings 105,693,860)( 9,118,112)( 286,562 168,636 114,356,774)(

Machinery and equipment 371,358,748)( 19,086,064)( 6,777,534 611,738)( 384,279,016)(

Other equipment 29,890,362)( 4,162,139)( 1,151,295 303,797)( 33,205,003)(

506,942,970)( 32,366,315)( 8,215,391 746,899)( 531,840,793)(

Unfinished construction and equipment under acceptance 36,414,118 23,779,405 105,943)( 44,208,778)( 15,878,802

201,360,858$ 220,864,627$

2017

Transfer, netexchange


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

2017 2016

Capitalized amount 203,902$ 323,503$

Range of the interest rates for capitalization 2.15%~2.41% 2.00%~2.26%


149

D. As of December 31, 2017 and 2016, the prepayments for business facilities which have not yet entered the factory (shown as ‘other non-current assets’) amounted to $1,423,391 and $896,996, 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.

(9) Investment property

The fair value of the investment property held by the Group as at December 31, 2017 and 2016 was $1,423,964 and $1,109,891, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorized within Level 3 in the fair value hierarchy.

(10) 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 439,228 - - 439,228

627,475 - - 627,475

Accumulated

depreciation and

impairment:

Buildings 54,050)( 10,728)( - 64,778)(

573,425$ 10,728)($ -$ 562,697$

2017

At January 1 Additions Disposals 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

150

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 6.32% and 5.86% for the years ended December 31, 2017 and 2016, 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, 2017 and 2016.

Transfer, net

exchange


Cost:

Patents and royalty 8,154,685$ -$ -$ -$ 8,154,685$

Goodwill 17,096,628 - - - 17,096,628

Others 4,417,732 327,760 55,492)( 315,156 5,005,156

29,669,045 327,760 55,492)( 315,156 30,256,469

Accumulated amortization

and impairment:

Patents and royalty 7,528,072)( 615,010)( - - 8,143,082)(

Others 3,694,652)( 571,995)( 55,492 8,676 4,202,479)(

11,222,724)( 1,187,005)( 55,492 8,676 12,345,561)(

18,446,321$ 859,245)($ -$ 323,832$ 17,910,908$

2017

Transfer, net

exchange


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

2017 2016

Operating costs 1,051,664$ 1,004,043$

Operating expenses 135,341 186,377

1,187,005$ 1,190,420$


151

(11) Short-term borrowings

As of December 31, 2017, the Group has no short-term borrowings.

(12) Other payables

(13) Long-term borrowings

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term

borrowings. B. In the third quarter of 2017, the Company applied to extend the expiry date for 2 years pursuant to

the NT$68.5 billion syndicated loan agreement. On August 2, 2017, the Company was informed of the banks’ unanimous consent.

C. The syndicated loan agreements specified that the Company shall meet covenants on current ratio, liability ratio, interest coverage, and tangible net equity, 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 year ended December 31, 2017 and 2016 are in compliance with the covenants on the syndicated loan agreement.

(14) 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 6 months prior to retirement. The Company and its domestic subsidiaries contribute

Type of borrowings December 31, 2016 Collateral

Bank loans

Credit loans 11,583,750$ None

Range of interest rates 0.83%~1.59%


Payable on machinery and equipment 32,381,338$ 3,339,764$

Wages and salaries and bonus payable 13,116,498 6,566,523

Repairs and maintenance expense payable 2,568,063 1,974,059

Utilities expense payable 1,070,308 1,064,275

Other payables 9,761,597 9,971,476

58,897,804$ 22,916,097$

Type of loans Period December 31, 2017 December 31, 2016

Syndicated bank loans 2015/3/12~2021/12/6

28,400,000$ 44,840,000$

Less:

Administrative expenses charged by syndicated banks 161,098)( 329,847)(

Current portion (includes administrative expenses) 10,951,114)( 16,381,686)(

17,287,788$ 28,128,467$

Range of interest rates 1.75%~2.06% 1.77%~2.06%

152

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 insufficient 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 contributions 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 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


Present value of defined benefit obligations 1,902,852$ 1,827,687$

Fair value of plan assets 1,548,769)( 1,534,864)(

Net defined benefit liability 354,083$ 292,823$

Present value of

defined benefit Fair value of Net definedobligations plan assets benefit liability

Year ended December 31, 2017

Balance at January 1 1,827,687$ 1,534,864$ 292,823$

Current service cost 6,711 - 6,711

Interest expense / income 31,071 26,093 4,978

37,782 26,093 11,689

Remeasurements:

Experience adjustments 49,488 83)( 49,571

Benefits paid 12,105)( 12,105)( -

37,383 12,188)( 49,571

Balance at December 31 1,902,852$ 1,548,769$ 354,083$

Present value of defined benefit Fair value of Net defined

obligations plan assets benefit liability


Balance at January 1 1,852,905$ 1,529,124$ 323,781$


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)(


153

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 and domestic subsidiaries have no right to participate in managing and operating that fund and hence the Company and domestic subsidiaries are unable to disclose the classification of plan assets fair value in accordance with IAS 19 paragraph 142. The composition of fair value of plan assets as of December 31, 2017 and 2016 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

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

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 is based on one assumption which changed while the other

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

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

balance sheet are the same. The methods and types of assumptions used in preparing the

sensitivity analysis did not change compared to the previous period.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park

Administration in February 2017.

(g) As of December 31, 2017, the weighted average duration of the retirement plan is 16 years.

B. Defined contribution pension plan

2017 2016

Discount rate 1.50% 1.70%

Future salary increases 1.50% 3.00%


Increase Decrease Increase Decrease0.25% 0.25% 0.25% 0.25%

December 31, 2017

Effect on present value of definedbenefit obligation 74,882)($ 78,699$ 78,501$ 75,063)($

Increase Decrease Increase Decrease0.25% 0.25% 0.25% 0.25%

December 31, 2016

Effect on present value of definedbenefit obligation 75,371)($ 79,187$ 73,355$ 70,354)($

Discount rate Future salary increases


154

(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, 2017 and 2016 were $1,921,461 and $2,021,115, respectively.

(15) Share-based payment

a) As of December 31, 2017, 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.

(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 2011 to 2013 is measured using the Black-Scholes

option-pricing model. Relevant information is as follows:

Quantity granted Contract period

Type of arrangement Grant date (in thousand units) (in years) Vesting conditions

Employee stock options 2011.05.19 50,000 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)



155

b) The details of the employee stock option plan for the year ended December 31, 2016 are as

follows:

There was no employee stock option plan for the year ended December 31, 2017.

c) For the years ended December 31, 2017 and 2016, the expenses incurred from share-based payment arrangements were $0 and $15,260, respectively.

(16) 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

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

Weighted

Weighted Weighted average

average Range of average stock price of

Quantity exercise exercise remaining stock options

(in thousand price price vesting at exerciseStock Options units) (in dollars) (in dollars) period date (in dollars)

Options outstanding at the beginning of the year

50,000 $ 22.85

Options exercised - - $ 9.99

Options expired 50,000)( 21.87

Options outstanding at the end of the year - - $ - -

Options exercisable at the end of the year - -


Warranty Litigation and others Total

At January 1, 2017 1,634,234$ 2,131,000$ 3,765,234$

Additions during the year 2,320,000 638,700 2,958,700

Used during the year 1,263,072)( - 1,263,072)(

At December 31, 2017 2,691,162$ 2,769,700$ 5,460,862$

156

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).

(17) Share capital As of December 31, 2017, the Company’s authorized and outstanding capital were $105,000,000 and $99,520,720, with a par value of $10 (in dollars) per share, respectively. All proceeds from shares issued have been collected. Movements in the number of the Company’s ordinary shares outstanding are as follows:

A. The Board of Directors of the Company resolved to increase capital for cash by issuing the GDR

which 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. The

Company has terminated the contracts in relation to the circulation of GDR and its account of the

depositary bank in order to lower administrative costs in accordance with the resolution by the

Board of Directors on July 26, 2017. B. 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, 2017 and 2016, the Company has retired 77 thousand and 1,088 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

(18) 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 Act 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.

2017 2016

Number of ordinary Number of ordinary

shares (in thousands) shares (in thousands)

At January 1 9,952,149 9,953,237

Cancellation of restricted stock to employees 77)( 1,088)(

At December 31 9,952,072 9,952,149

157

(19) 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 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.

Share of

profit (loss)

of associates

accounted for Restricted

under equity stock to

Share premium method employees Total

At January 1 99,614,516$ 33,888$ 594)($ 99,647,810$

Cancellation of restricted stock to employees - - 768 768 Vested restricted stock to employees 174 - 174)( - Recognition of change in equity of associates in proportion to the Group's ownership - 1,659)( - 1,659)(

At December 31 99,614,690$ 32,229$ -$ 99,646,919$

2017

Share of

profit (loss)

of associates


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)( - -

Recognition of change in equity of associates in proportion to the Group's ownership - 2,570)( - - 2,570)(

At December 31 99,614,516$ 33,888$ -$ 594)($ 99,647,810$

2016

158

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 2016 and 2015 net income which was approved at the

stockholders’ meeting in June 2017 and 2016, respectively, are as follows:

The Company’s appropriations of earnings for 2017 are to be authorized by the Board of Directors

and presented for approval in the Company’s stockholders’ meeting in 2018.

D. For the information relating to employees’ compensation and directors’ remuneration, please


(20) Other equity items

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 187,069$ 1,081,560$

Special reserve 3,418,804 -

Cash dividends 995,204 0.10$ 1,989,810 0.20$

4,601,077$ 3,071,370$


2016 2015

Available-

Currency for-sale

translation investments Total

At January 1 4,040,408)($ 621,604$ 3,418,804)($

Revaluation of available-for-sale investments - gross - 3,675,370 3,675,370 Revaluation transfer of available-for -sale investment - gross - 646,638 646,638

Currency translation differences 1,643,264)( - 1,643,264)(

Share of other comprehensive loss of associates 33,551)( - 33,551)(

Effect of income tax - 317,110)( 317,110)(

At December 31 5,717,223)($ 4,626,502$ 1,090,721)($

2017

159

(21) Other income

(22) Other gains and losses

(23) Finance costs

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 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

2017 2016

Rental revenue 137,037$ 162,665$

Interest income 472,331 291,240

Dividend income 151,677 177,880

Other income 1,767,769 1,757,110

2,528,814$ 2,388,895$


2017 2016Net gain (loss) on financial assets and liabilities at fair value through profit or loss

1,987,818$ 1,244,206)($

Net currency exchange (loss) gain 2,134,155)( 1,360,559

Gain (loss) on disposal of investments 2,483,645 23,258)(

Loss on disposal of property, plant and equipment 597,261)( 163,659)(

Impairment loss 3,120,824)( 502,857)(

Net disaster gain (loss) 2,051,579 1,296,166)(

Others 824,990)( 1,234,365)(

154,188)($ 3,103,952)($


2017 2016

Interest expense:

Bank borrowings 730,468$ 874,873$

Others 32 6

Factoring expense of accounts receivable - 18,647

730,500$ 893,526$


160

(24) Expenses by nature

(25) Employees’ compensation and directors’ 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’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and shall not be higher than 0.1% for directors’ remuneration.

B. For the years ended December 31, 2017 and 2016, employees’ compensation was accrued at $3,136,952 and $192,788, respectively; while directors’ remuneration was accrued at $48,261 and $1,928, respectively. The aforementioned amounts were recognized in expenses. The expenses recognized for 2017 were accrued based on the earnings of current year. The employees’ compensation and directors’ remuneration were $3,136,952 and $48,261 in the form of cash, respectively, as resolved by the Board of Directors on February 9, 2018. The accrued amounts were in agreement with the amount of recorded expense for the year ended December 31, 2017. Employees’ compensation and directors’ remuneration were accrued at $192,788 and $1,928, respectively, based on the earnings of current year distributable for the year ended December 31, 2016 and the employees’ compensation will be distributed in the form of cash. Employees’ compensation and directors’ remuneration for 2016 as resolved by the Board of Directors were $231,338 and $3,856, respectively. The difference of $40,478 between employees’ compensation (directors’ remuneration) as resolved by the Board of Directors and the amount recognized in the 2016 financial statements was caused by a different accrual ratio and had been recorded as expense in 2017. Information about employees’ compensation and directors’ 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:

2017 2016

Employee benefit expense:

Salaries and other short-term employee benefits 45,506,559$ 38,738,413$

Share-based payments - 15,260

Post-employment benefits 1,933,150 2,034,184

Depreciation 32,377,043 40,228,114

Amortization 1,187,005 1,190,420

81,003,757$ 82,206,391$


161

(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:

2017 2016

Current tax:Current tax on profit for the year 3,886,976$ 1,313,262$

Tax on undistributed surplus earnings - 590,712

Prior year income tax overestimation 76,547)( 10,800)(

Total current tax 3,810,429 1,893,174

Deferred tax:Origination and reversal of temporary differences 8,102,151 1,228,259

Income tax expense 11,912,580$ 3,121,433$


2017 2016

Fair value gains/losses on available-for-sale financial assets

317,110$ 113,457$

Remeasurements of defined benefit obligations 8,427)( 7,485

308,683$ 120,942$


2017 2016

Tax calculated based on profit before tax and statutory tax rate

11,532,189$ 1,503,372$

Effects from items disallowed by tax regulation 477,430)( 372,858)(

Prior year income tax overestimation 76,547)( 10,800)(

Additional 10% tax on undistributed earnings - 590,712 Change in assessment of realization of deferred tax assets 934,368 1,411,007

Tax expense 11,912,580$ 3,121,433$


162

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are

as follows:

Recognised

in other

Recognised in comprehensiveJanuary 1 profit or loss income December 31

Temporary differences:

- Deferred tax assets:

Sales returns and discount provisions 270,483$ 158,857$ -$ 429,340$

Accrued royalties and warranty provisions 731,844 363,165 - 1,095,009 Unrealized loss (gain) on financial instruments 470,394 277,255 317,110)( 430,539

Prior year expense carryforward 3,772 292)( - 3,480

Loss carryforward 12,619,814 8,867,059)( - 3,752,755

Others 601,836 27,375 8,427 637,638

14,698,143$ 8,040,699)($ 308,683)($ 6,348,761$

- Deferred tax liabilities:

　Unrealized exchange gain 113,545)($ 71,832$ -$ 41,713)($

Amortisation charges on goodwill 559,426)( 82,369)( - 641,795)(

Others - 50,915)( - 50,915)(

672,971)($ 61,452)($ -$ 734,423)($

14,025,172$ 8,102,151)($ 308,683)($ 5,614,338$

2017

Recognised

in other



- 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 carryforward 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$

2016

163

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, 2017 and 2016, the amounts of temporary differences unrecognized as deferred tax liabilities were $31,293,045 and $28,052,581, respectively.

G. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

H. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

I. The details of imputation system are as follows:

Unrecognised

Amount filed deferred UsableYear incurred / assessed Unused amount tax assets until year

2011 Assessed 26,496,656$ 18,260,810$ 20212012 Assessed 42,898,003 29,564,194 20222016 Filed 1,282,669 883,982 2026

70,677,328$ 48,708,986$

December 31, 2017

Unrecognised

Amount filed deferred UsableYear incurred / assessed Unused amount tax assets until year

2010 Assessed 9,392,452$ 3,575,589$ 20202011 Assessed 63,808,943 24,291,267 20212012 Assessed 42,563,912 16,203,549 20222016 Filed 3,047,240 1,160,045 2026

118,812,547$ 45,230,450$

December 31, 2016


Deductible temporary differences 51,673,594$ 48,198,766$


(a) Balance of tax credit account 2,043,097$ 1,420,948$

2017 (Estimated) 2016 (Actual)

(b) Estimated (Actual) creditable tax rate 3.47% 7.47%

164

(27) Earnings per share

(28) Supplemental cash flow information Investing activities with partial cash payments:

RELATED PARTY TRANSACTIONS

Names and relationship of related parties

Significant related party transactions A. Operating revenue

2017 2016

Basic earnings per shareProfit attributable to ordinary shareholders of the parent 37,028,609$ 1,870,687$

Weighted average number of ordinary shares outstanding (shares in thousands) 9,952,051 9,947,293

Basic earnings per share (in dollars) 3.72$ 0.19$

Diluted earnings per shareProfit attributable to ordinary shareholders of the parent 37,028,609$ 1,870,687$

Weighted average number of ordinary shares outstanding (shares in thousands) 9,952,051 9,947,293 Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation 259,625 54,316

-Restricted stocks 22 4,052

10,211,698 10,005,661

Diluted earnings per share (in dollars) 3.63$ 0.19$


2017 2016

Purchase of property, plant and equipment 54,058,280$ 43,518,455$

Add: Opening balance of payable on equipment 3,339,764 3,974,152

Less: Ending balance of payable on equipment 32,381,338)( 3,339,764)(

Cash paid during the year 25,016,706$ 44,152,843$


Names of related parties Relationship with the Group

Hon Hai Precision Industry Co., Ltd. and its subsidiaries

The related party is owned by the same majorshareholder of the Company

Chi Lin Optoelectronics Co., Ltd. and its subsidiaries

The related party’s director is the Company

FI Medical Device Manufacturing Co., Ltd. Associate

GIO Optoelectronics Corp. Associate

165

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. 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.

D. 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.

E. Property transactions Purchase of property (a) Acquisition of property, plant and equipment:

2017 2016

Sales of goods:

Others 48,858,191$ 16,537,094$

Associates 37,115 113,916

48,895,306$ 16,651,010$


2017 2016

Purchases of goods:

Others 12,518,080$ 8,825,302$

Associates 1,341,203 1,383,704

13,859,283$ 10,209,006$



Accounts receivable:

Others - Nanjing Hongfusharp Precision Electronics Co., Ltd.

7,617,857$ -$

- Hon Hai Precision Industry Co., Ltd. 3,764,389 7,605,574

- Others 6,319,373 3,946,042


17,727,082$ 11,599,359$


Accounts payable:

Others

- Hon Hai Precision Industry Co., Ltd. 2,079,913$ 4,152,828$

- Others 291,120 737,598

Associates 193,977 229,809

2,565,010$ 5,120,235$

166

(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:

(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

2017 2016

Others

- Hon Hai Precision Industry Co., Ltd. 31,456,795$ -$

- Others 42,459 93,923

31,499,254$ 93,923$



Others- Hon Hai Precision Industry Co., Ltd. 26,609,511$ -$

- Others 1,974 27,031

26,611,485$ 27,031$

Disposal proceedsGain on disposal Disposal proceedsGain on disposal

Others 716$ 34$ 1,365$ 940$

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


Others -$ 1,570$

2017 2016

Salaries and other short-term employee benefits 130,223$ 138,669$

Share-based payments - 665

Post-employment benefit 432 458

130,655$ 139,792$


Pledged asset December 31, 2017 December 31, 2016 Purpose

Other current assets Time deposits 1,594$ 1,726$ Credit card guarantee

Property, plant and equipment 70,966,784 80,828,544 Long-term loans

Intangible assets 7,446 15,551 Long-term loans

Other non-current assets Time deposits

722 752

Guarantee for contract and performance bond

70,976,546$ 80,846,573$

Book value

167

2006 for alleged violation of the anti-trust laws. In December 2009, the Company reached a plea agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil government initiated an investigation case against the Company. The investigation is still ongoing and the Company has been cooperative with the investigation. As for civil lawsuits filed by some state governments in the U.S., downstream panel makers, and customers, the Company had reached settlement agreement individually.

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and

American subsidiaries 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.

In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In

March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In

June 2017, the jury determined that some products of the Company and American subsidiaries

constituted direct infringement of patent and ordered an infringement compensation for Eidos. The

Company continued the legal fight by filing a post-trial motion in July 2017. 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.

C. The Company had assessed and recognized related losses and liabilities as shown in

‘provisions-current’ for the aforementioned investigation relating to anti-trust laws and patent

litigation. Commitments

A. Capital expenditure contracted for at the balance sheet date but not yet incurred is as follows:

B. Operating lease commitments

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 disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. The insurance claim has been paid as of September 30, 2017. The Company accrued gain of $755,413 after offsetting the loss with


Property, plant and equipment 18,794,836$ 17,531,784$


Not later than one year 579,498$ 547,803$

Later than one year but not later than five years 1,943,547 1,962,352

Later than five years 541,101 888,807

3,064,146$ 3,398,962$


Outstanding letters of redit 45,687$ 245,565$

168

insurance claim. SUBSEQUENT EVENTS AFTER THE BALANCE SHEET DATE

None. OTHERS

(1) 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.

(2) 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 Group’s overall risk management programme focuses on the unpredictability of financial

markets and seeks to minimize potential adverse effects on the Group’s financial position and

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

exposures (see Notes 6(2)).

(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

169

currency: RMB). Based on the simulations performed, the impact on post-tax profit of a

1% exchange rate fluctuation would be an increase of $278,159 and $672,856 for the years

ended December 31, 2017 and 2016, 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:

Note: Exchange rate represents the amount of NT dollars for which one foreign currency

could be exchanged.

d) Total exchange (loss) gain, including realized and unrealized arising from significant

foreign exchange variation on the monetary items held by the Group for the years ended

December 31, 2017 and 2016 amounted to ($2,134,155) and $1,360,559, 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,

2017 and 2016 would have increased/decreased by $51,535 and $50,020, 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 $1,311,038 and $1,168,186,

respectively, as a result of gains/losses on equity securities classified as available-for-sale.

Interest rate risk

a) The Group’s interest rate risk arises from long-term borrowings. Borrowings issued at

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 5,323,715$ 29.76 158,433,758$ 7,224,538$ 32.25 232,991,351$

JPY 8,017,851 0.26 2,084,641 8,114,141 0.28 2,271,959

EUR 53,720 35.57 1,910,820 85,344 33.90 2,893,162

Non-monetary items

USD 2,595,104$ 29.76 77,230,295$ 2,337,217$ 32.25 75,375,248$

HKD 184,669 3.81 703,589 223,521 4.16 929,847

JPY 5,662,973 0.26 1,472,373 5,619,277 0.28 1,573,398

EUR - 35.57 - 3,703 33.90 125,532

USD 4,108,667$ 29.76 122,273,930$ 4,947,745$ 32.25 159,564,776$

JPY 41,168,652 0.26 10,703,850 35,248,180 0.28 9,869,490

EUR 45,980 35.57 1,635,509 42,379 33.90 1,436,648


Financial liabilities

Monetary items

170

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, 2017 and

2016, 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 Group 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 or decrease of $71,000 and $112,100 for the years ended

December 31, 2017 and 2016, respectively. The simulation is done on a quarterly basis to

verify that the maximum loss potential is within the limit given by the management.

(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’s credit policy, each local entity in the Group 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 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.

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

171

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.

d) The Group does not expect the timing of occurrence of the cash flows estimated through

the maturity date analysis will be significantly earlier, nor expect the actual cash flow

amount will be significantly different.

(3) 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(9).

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.

Less than Between 1 Between 3December 31, 2017 1 year and 3 years and 5 years Total

Accounts payable 53,441,510$ -$ -$ 53,441,510$

Other payables 58,897,804 - - 58,897,804

Long-term borrowings (including current portion) 10,960,000 16,890,000 550,000 28,400,000

Non-derivative financial liabilities


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 27,550,000 850,000 44,840,000

Derivative financial liabilities

December 31, 2017 Less than 1 year Total

Forward exchange contracts 52,500$ 52,500$


Forward exchange contracts 1,190,148$ 1,190,148$

172

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 as of December 31, 2017 and 2016 is as follows:

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

(1) The instruments the Group used market quoted prices as their fair values (that is, Level 1) are listed below by characteristics:

December 31, 2017 Level 1 Level 2 Level 3 Total

Assets

Financial assets at fair value through profit or loss Equity securities 257,676$ -$ -$ 257,676$

Forward exchange contracts - 328,170 - 328,170

Forward exchange swap contract - 76,890 - 76,890

Available-for-sale financial assets

Equity securities 6,241,465 - 313,724 6,555,189

6,499,141$ 405,060$ 313,724$ 7,217,925$

Liabilities

Financial liabilities at fair value through profit or loss Forward exchange contracts -$ 52,500$ -$ 52,500$

-$ 52,500$ -$ 52,500$

Recurring fair value measurements



Assets

Financial 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$

Liabilities

Financial liabilities at fair value through profit or loss Forward exchange contracts -$ 1,190,148$ -$ 1,190,148$



Listed shares Emerging stocks Corporate bondMarket quoted price Closing price Last transaction priceWeighted average quoted price

173

(2) 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.

(3) When assessing non-standard and low-complexity financial instruments, for example, foreign

exchange swap contracts, 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.

(4) 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 and foreign exchange swap contracts are usually valued based on the

current forward exchange rate.

(5) 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 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.

(6) 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, 2017 and 2016, 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, 2017 and

2016:

G. The Group holds private equity shares issued by Fitipower Integrated Technology Inc. The

2017 2016

At January 1 242,351$ 719,585$

Transfers out from level 3 - 349,400)(

Gains and losses recognized in profit or loss 490,901)( - Gains and losses recognized in other comprehensive income 585,094 31,501

Acquired in the period 122,755 -

Proceeds from capital reduction 145,575)( 159,335)(

At December 31 313,724$ 242,351$

Equity securities

174

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. 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:

J. The Group has carefully assessed the valuation models and assumptions used to measure fair

value. However, use of different valuation models or assumptions may result in different

Fair value at

December

31, 2017

Valuation

technique

Significant

unobservable input

Range

(weighted

average)

Relationship of

inputs to fair value

Non-derivative equity instrument: Unlisted shares 286,940$ Market

comparablecompanies

Price to earnings ratiomultiple, price tosales ratio multiple,price to book ratiomultiple

1.26~61.93

(26.49)

The higher themultiple, the higherthe fair value

Discount for lack ofmarketability

30%~70%

(51%)

The higher thediscount for lack ofmarketability, thelower the fair value

Venture capital shares Private equity fund investment

26,784 Net assetvalue

Not applicable Notapplicable

Not applicable

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


30%~70%

(31%)


Venture capital shares Private equity fund investment

27,686 Net assetvalue

Not applicable 308

(308)

Not applicable

175

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: Please refer to Table 3.

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 4.

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

refer to Table 5.

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

6(2).

J. Significant inter-company transactions during the reporting periods: Please refer to Table 6.

(4) Information on investees

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

China): Please refer to table 7.

(5) Information on investments in Mainland China

A. Basic information: Please refer to table 8.

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

in the Mainland Area: Please refer to table 1, 4, 5 and 6. 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

Group met the criteria for combining the segment information of big size and small-medium size TFT

LCD departments, the Group disclosed only one reportable operating segment for all TFT LCD

products.

The Group’s operating segment information was prepared in accordance with the Group’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

Favourable Unfavourable Financial assets Period Input Change change change

Equity instrument 2017/12/31 $ 313,724 ± 1% $ 3,137 ($ 3,137)

Equity instrument 2016/12/31 242,351 ± 1% 2,424 ( 2,424)

Recognised in othercomprehensive income

176

discontinued operations of individual operating segment.

(6) Segment information

The segment information provided to the chief operating decision-maker for the reportable segments

is as follows:

(7) Reconciliation for segment income

In current period, the revenue and income or loss before tax of reportable operating segment are

consistent with those of continuing operations.

(8) Information on products

Revenue from external customers is mainly from sale of TFT-LCD products, the sales amount is in

agreement with operating revenue.

(9) Geographical information

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

(10) 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, 2017 and 2016 are set forth below:

2017 2016

TFT LCD TFT LCD

Segment revenue 329,174,401$ 287,089,277$

Segment income 48,941,189$ 4,992,120$

Depreciation and amortization 33,564,048$ 41,418,534$

Capital expenditure-property, plant and equipment 25,016,706$ 44,152,843$

Segment assets 414,858,758$ 371,479,548$


Revenue Non-current assets Revenue Non-current assets

Taiwan 115,922,366$ 211,482,604$ 95,497,599$ 190,035,166$

Hong Kong 75,037,923 108 66,990,932 118

China 68,728,719 29,891,298 59,778,250 31,982,735

Europe 11,408,208 24,951 12,996,893 23,838

US 8,022,386 612 11,582,252 713

Others 50,054,799 275,743 40,243,351 131,504

Total 329,174,401$ 241,675,316$ 287,089,277$ 222,174,074$

2017 2016


Sales amount Percentage of sales Sales amount Percentage of sales

Company A 50,574,810$ 15% 41,448,102$ 14%

2017 2016


177

Innolux Corporation and Subsidiaries Loans to others

For the year ended December 31, 2017 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,

2017

Balance as at December 31,

2017

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.


Other receivables

Related parties

$ 7,318,350 $ 2,976,000 $ 2,976,000 2.00% Short-term financing

$ -

Operating support

$ -

$ - $ - $ 264,325,048 $ 264,325,048 A

1 Innocom Technology (Shenzhen) Co., Ltd.

Ningbo Innolux Optoelectronics Ltd.

Other receivables

Related parties

3,415,875 2,504,975 2,504,975 2.00% Short-term financing

-

Operating support

-

-

-

264,325,048 264,325,048 A


Ningbo Innolux Display Ltd.

Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

2 Nanjng Innolux Technology Ltd.


Other receivables

Related parties

364,360 227,725 227,725 2.00% Short-term financing

-

Operating support

-

-

-

264,325,048 264,325,048 A

3 Innolux Technology USA Inc.


Other receivables

Related parties

178,560 - - 0% Short-term financing

-

Operating support

-

-

-

264,325,048 264,325,048 A


Lakers Trading Ltd. Other receivables

Related parties

178,560 178,560 178,560 1.01% ~1.52%

Short-term financing

-

Operating support

-

-

-

264,325,048 264,325,048 A

4 Innolux Europe B.V. Innolux Hong Kong Limited

Other receivables

Related parties

1,379,257 1,351,013 1,351,013 0.626% ~0.633%


-

Operating support

-

-

-

264,325,048 264,325,048 A

5 Innolux Europe B.V. Lakers Trading Ltd. Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

6 Innolux Japan Co., Ltd.


Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

178

Innolux Corporation and Subsidiaries Loans to others

For the year ended December 31, 2017 Expressed in thousands of NTD (Except as otherwise indicated)


account

Is a related party

Maximum outstanding


2017


2017


Interest rate

Nature of loan


with the borrower


Allowance for

doubtful accounts



Footnote

Item Value

7 Asiaward Investment Ltd.

Best China Investments Ltd.

Other receivables

Related parties

$ 241,481 $ - $ - 0% Short-term financing

$ - Operating support

$ - $ - $ - $ 264,325,048 $ 264,325,048 A

8 Best China Investments Ltd.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

9 Main Dynasty Investment Ltd.

Mega Chance Investments Ltd.

Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

10 Mega Chance Investments Ltd.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

11 Sun Dynasty Development Limited

Magic Sun Limited Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

12 Magic Sun Limited Lakers Trading Ltd. Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

13 Warriors Technology Investments Ltd.


Related parties

3,205,169 3,205,169 3,205,169 0% Short-term financing

- Operating support

- - - 264,325,048 264,325,048 A

14 Innolux Optoelectronics USA, Inc.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

15 Bright Information Holding Ltd.


Related parties

95,809 95,809 95,809 0% Short-term financing

- Operating support

- - - 264,325,048 264,325,048 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.

179

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

December 31, 2017 Table 2 Expressed in thousands of NTD


Relationship with the securities issuer As of December 31, 2017

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 $ 50,910 1 $ 50,910

Innolux Corporation TPV Technology Ltd. None Available-for-sale financial assets - non-current

150,500,000 607,330 6 607,330

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financial assets - non-current

17,792,552 102,338 19 102,338

Innolux Corporation Epistar Corporation None Available-for-sale financial assets - non-current

89,072 4,022 - 4,022

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financial assets - non-current

44,741,305 543,607 7 543,607

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

1,439,180 148 2 148

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial assets at fair value through profit or loss

6,964,222 257,676 5 257,676

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financial assets - non-current

10,000,000 271,900 7 271,900

Ningbo Innolux Optoelectronics Ltd. 上海辰岱投資中心(有限合夥) None Available-for-sale financial assets - non-current

- 127,492 - 127,492

Warriors Technology Investments Ltd. OED Holding Ltd. None Available-for-sale financial assets - non-current

16,000,000 6,052 6 6,052

Warriors Technology Investments Ltd. General Interface Solution (GIS) Holding Limited

None Available-for-sale financial assets - non-current

24,194,000 4,814,606 7 4,814,606

Nets trading Ltd. PilotTech Global Fund None Available-for-sale financial assets - non-current

90 26,784 - 26,784

180

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



Balance as at January 1, 2017 (Note 4)

Addition (Note 3) Balance as at December 31, 2017 (Note 4)

Investor Marketable securities (Note 1)

General ledger

account

Counterparty (Note 2)

Relationship with the investor (Note 2)

Disposal (Note 3)

Number of shares

Amount Number of shares


Selling price

Book value

Gain on disposal

Number of shares

Amount


General Interface Solution (GIS) Holding Limited (Stock)

Available-for-sale financial assets - non-current

Not applicable

Not applicable

40,500,000 $ 3,705,750 - $ - 16,306,000 $ 2,752,692 $ 165,409 $ 2,587,283 24,194,000 $ 4,814,606

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

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

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

Note 4: It includes unrealized gains (losses) on available-for-sale financial assets.

181

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



Purchaser/seller Counterparty Relationship with the counterparty

Transaction Differences in transaction terms compared to third party

transactions

Notes/accounts receivable (payable) Footnote

Purchases (sales)

Amount Percentage of total purchases

(sales)

Credit term Unit price Credit term Balance Percentage of total notes/accounts receivable

(payable) Innolux Corporation Hon Hai Precision Industry

Co., Ltd. Same major stockholder Sales $ 18,987,653 6 90 days Similar with

general sales No material difference

$ 3,764,389 8

Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary

Sales 14,194,308 4 60 days Similar with general sales

No material difference

- -

Innolux Corporation Guizhou Fuzhikang Electronic Co., Ltd.

An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.



702,843 1

Innolux Corporation Hongfujin Precision Industry (Yantai) Co., Ltd.


Sales 3,134,709 1 60-90 days Similar with general sales


658,025 1

Innolux Corporation Hongfutai Precision Electrons (Yantai) Co., Ltd.




1,261,004 3

Innolux Corporation Honfujin Precision Electronics (Chongqing) Co., Ltd.




442,533 1

Innolux Corporation Innolux Japan Co., Ltd. An indirect wholly-owned subsidiary



218,925 -

Innolux Corporation Innolux Hong Kong Limited An indirect wholly-owned subsidiary



- -

Innolux Corporation eCMMS Precision Singapore Pte. Ltd.


Sales 892,785 - 90 days Similar with general sales


- -

Innolux Corporation FIH (Hong Kong) Limited An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.



237,634 -

Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd.




70,209 -

Innolux Corporation Fu Lian Net International (Hong Kong) Limited




579,927 1

182

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, 2017 Table 4 Expressed in thousands of NTD (Except as otherwise indicated)



transactions


Purchases (sales)


(sales)


(payable) Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned

subsidiary Sales $ 579,412 - 90 days Similar with


$ 140,002 -

Innolux Corporation Competition Team Technology (India) Private Limited




109,636 -

Innolux Corporation Innolux Optoelectronics USA, Inc.

An indirect wholly-owned subsidiary



43,910 -

Innolux Corporation COMPETITION TEAM IRELAND LIMITED


Sales 416,110 - 45-90 days Similar with general sales


212,617 -

Innolux Corporation Chi Lin Optoelectronics Co., Ltd.

The company is a corporate director of Chi Lin Optoelectronics



4 -

Innolux Corporation Innolux Technology USA Inc. A subsidiary of the Company Sales 298,945 - 60 days Similar with general sales


23,717 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd.




796,728 2

Innolux Corporation Innolux Optoelectronics Europe B.V.

A subsidiary of the Company Sales 221,279 - 30-60 days Similar with general sales


46,259 -

Innolux Corporation NANJING HONGFUSHARP PRECISION ELECTRONICS CO., LTD.




23,965 -

Innolux Corporation Nanjing Innolux Optoelectronics Ltd.




55,401 -

Innolux Corporation Ningbo Innolux Optoelectronics Ltd.




- -

Innolux Corporation Hon Hai Precision Industry Co., Ltd.

Same major stockholder Purchases 6,302,886 2 60-90 days after acceptance

Single purchases target, no basis for comparison


( 1,331,325) 2

Innolux Corporation FI Medical Device Manufacturing Co., Ltd.

Investee accounted for under the equity method

Purchases 1,129,036 - 30 days after acceptance



( 160,373) -

Innolux Corporation GIO Optoelectronics Corp. Investee accounted for under the equity method

Purchases 207,980 - 60 days after acceptance



( 32,821) -






( 1,863) -

183

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, 2017

Expressed in thousands of NTD (Except as otherwise indicated)



transactions


Purchases (sales)


(sales)


(payable) Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned

subsidiary Processing expense

$ 33,657,805 13 60-90 days Cost plus No material difference

($ 13,089,589) 18


Processing expense

22,426,873 8 60-90 days Cost plus No material difference

( 9,158,742) 12

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processing expense


( 21,080,569) 29


Lakers Trading Ltd. An indirect wholly-owned subsidiary

Processing revenue

15,471,977 44 60 days Similar with general transactions


2,767,180 21


Leadtek Global Group Limited A subsidiary of the Company Processing revenue



16,946,551 95



Processing revenue



3,423,930 98


Innolux Hong Kong Limited An indirect wholly-owned subsidiary

Processing revenue



6,673,314 100



Processing revenue



2,106,625 100


NANJING HONGFUSHARP PRECISION ELECTRONICS CO.,LTD.


Sales 6,720,061 8 90 days Similar with general transactions


7,593,892 22


Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary



846,815 4


Foxconn Precision Electronics (YanTai) Co., Ltd.




- -


Premier Image Technology (China) Ltd.




720,839 2






315,142 3

184


Futaijing Precision Electronics (Beijing) Co., Ltd.




55,085 -






transactions


Purchases (sales)


(sales)


(payable) Foshan Innolux Optoelectronics Ltd.

Panxian FuguiKang Precision electronic Ltd.


Sales $ 513,953 1 90 days Similar with general transactions


$ 607,499 2

Innocom Technology (Shenzhen) Co., Ltd.


Processing revenue

258,405 100 60 days Similar with general transactions


890,068 100


Chongqing Fuyusheng Electronics Technology Co.,Ltd.


Sales 236,753 - 90 days Similar with general transactions


279,845 1


Beijing Fusharp Electronic Commerce Ltd.




267,856 1

Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.


Sales 171,488 1 60 days Similar with general transactions


32,642 -






70,839 2

Innolux Europe B.V. Innolux Hong Kong Limited An indirect wholly-owned subsidiary

Service revenue



63,124 61

Innolux Technology Japan Co., Ltd.


Service revenue



46,676 92


Hon Hai Precision Industry Co., Ltd.

Same major stockholder Purchases 3,385,353 4 90 days after goods are shipped

Similar with general transactions


( 111,114) -






( 424,958) 8



Same major stockholder Purchases 606,150 1 90 days after goods are shipped



( 177,967) 2


Hongfujin Precision Industry (Shenzhen) Co., Ltd.


Purchases 467,721 1 90 days after goods are shipped



( 156,344) 2



Same major stockholder Purchases 138,628

1 90 days after goods are shipped



( 34,312)

1

185


Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017

Table 5 Expressed in thousands of NTD


Creditor Counterparty Relationship with the counterparty

Balance as at December 31, 2017

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 $ 3,764,389 3.34 $ - - $ 1,019,373 $ -



1,261,004 2.40 49 Subsequent collection 96,383 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

796,728 0.44 - - 21,848 -

Innolux Corporation Guizhou Fuzhikang Electronic Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

702,843 10.11 - - 242,084 -



658,025 6.12 - - 285,937 -



579,927 2.03 - - - -



442,533 3.98 173,027 Subsequent collection 107,152 -


237,634 6.37 - - 87,730 -

Innolux Corporation Innolux Japan Co.,Ltd. An indirect wholly-owned subsidiary

218,925 10.35 - - - -




Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

140,002 8.18 - - - -



109,636 2.13 - - 33,789 -

186

Innolux Corporation and Subsidiaries Receivables from related parties reaching $100 million or 20% of paid-in capital or more





Turnover rate


balance sheet date

Allowance for doubtful accounts Amount Action taken

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company

$ 16,946,551 1.12 $ 9,908,141 Subsequent collection $ 4,188,141 $ -

Foshan Innolux Optoelectronics Ltd. NANJING HONGFUSHARP PRECISION ELECTRONICS CO., LTD.


7,593,892 1.77 - - 1,559,705 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited An indirect wholly-owned subsidiary

6,673,314 2.11 3,178,558 Subsequent collection 1,767,763 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

3,423,930 5.22 - - 1,803,967 -

Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

2,767,180 1.89 - - 4,646,874 -



2,106,625 4.42 508,631 Subsequent collection 405,283 -



890,068 0.33 846,013 Subsequent collection - -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

846,815 4.18 - - 476,386 -

Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

720,839 3.91 - - 215,908 -

Foshan Innolux Optoelectronics Ltd. Panxian FuguiKang Precision electronic Ltd.


607,499 1.69 - - - -

Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. An indirect wholly-owned subsidiary

315,142 5.20 - - 150,313 -

Foshan Innolux Optoelectronics Ltd. Chongqing Fuyusheng Electronics Technology Co.,Ltd.


279,845 1.69 - - - -

Foshan Innolux Optoelectronics Ltd. Beijing Fusharp Electronic Commerce Ltd.


267,856 1.69 - - - -

187

Innolux Corporation and Subsidiaries Significant inter-company transactions during the reporting period

For the year ended December 31, 2017

Table 6 Expressed in thousands of NTD (Except as otherwise indicated)

Number (Note 1)

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 Lakers Trading Ltd. 1 Sales $ 14,194,308 - 4

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 33,657,805 - 10

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses ( 13,089,589) - 3

0 Innolux Corporation Innolux Japan Co.,Ltd. 1 Sales 1,919,552 - 1

0 Innolux Corporation Innolux Japan Co.,Ltd. 1 Accounts receivable 218,925 - -

0 Innolux Corporation Innolux Hong Kong Limited 1 Sales 1,703,414 - 1

0 Innolux Corporation Innolux Hong Kong Limited 1 Processing expense 22,426,873 - 7

0 Innolux Corporation Innolux Hong Kong Limited 1 Accrued expenses ( 9,158,742) - 2

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Sales 579,412 - -

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Accounts receivable 140,002 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 432,561 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 298,945 - -

0 Innolux Corporation Innolux Optoelectronics Europe B.V. 1 Sales 221,279 - -

0 Innolux Corporation Ningbo Innolux Optoelectronics Ltd. 1 Sales 109,310 - -

0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 1 Sales 164,262 - -

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 18,527,796 - 6

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses ( 21,080,569) - 5

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Sales 225,318 - -

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Accounts receivable 796,728 - -

1 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 15,471,977 - 5

1 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 2,767,180 - 1

2 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 18,372,503 - 6

2 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 16,946,551 - 4

3 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 17,786,185 - 5

3 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable 3,423,930 - 1

4 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Processing revenue 12,749,197 - 4

4 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Accounts receivable 6,673,314 - 2

188

Innolux Corporation and Subsidiaries Significant inter-company transactions during the reporting period




Number (Note 1)





total assets 5 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Processing revenue $ 8,536,865 - 3

5 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Accounts receivable 2,106,625 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 4,706,550 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 846,815 - -

7 Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. 3 Sales 1,698,493 - 1

7 Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. 3 Accounts receivable 315,142 - -

8 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Processing revenue 258,405 - -

8 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Accounts receivable 890,068 - -

9 Innolux Europe B.V. Innolux Hong Kong Limited 3 Service revenue 659,699 - -

9 Innolux Technology Japan Co.,Ltd. Innolux Hong Kong Limited 3 Service revenue 270,068 - -

10 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. 3 Sales 171,488 - -

11 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Sales 162,765 - -

Note A: 1 refers to the parent company to the subsidiary.

3 refers to 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.

189

Innolux Corporation and Subsidiaries Information on investees




Investor Investee Location Main business activities

Initial investment amount Shares held as at December 31, 2017 Net profit (loss) of the investee for the

year ended December 31, 2017

Investment income (loss) recognised by the Company for the


Footnote


2017


2016

Number of shares Ownership (%)

Book value

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings $ 119,724 $ 119,724 4,910,000 100 $ 95,703 $ 1,084 $ 1,084 Innolux Corporation Golden Achiever International

Limited BVI Investment holdings 119,106 119,106 40,250 100 18,669 ( 41,026) ( 41,026)

Innolux Corporation Innolux Holding Limited Samoa Investment holdings 6,192,679 7,858,300 180,568,185 100 20,423,738 2,635,650 2,635,650 Innolux Corporation Keyway Investment

Management Limited Samoa Investment holdings 62,197 187,457 1,656,410 100 78,709 13,100 13,100

Innolux Corporation Landmark International Ltd. Samoa Investment holdings 33,438,542 33,438,542 709,450,000 100 44,160,820 ( 741,423) ( 771,767) Innolux Corporation Toppoly Optoelectronics

(B.V.I.) Ltd. BVI Investment holdings 3,674,115 3,674,115 146,847,000 100 6,476,884 ( 99,582) ( 98,893)

Innolux Corporation Innolux Hong Kong Holding Limited

Hong Kong Investment holdings 1,889,115 2,107,291 1,158,844,000 100 3,797,279 596,156 586,392

Innolux Corporation Leadtek Global Group Limited BVI Distributor company - - 50,000,000 100 999,166 1,326,504 1,326,504

Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 843,311 ( 108,668) ( 108,668)

Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,381,380 65,209 65,209


Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

- 121,941 - - - 6,965 5,944

Innolux Corporation Innolux Japan Co., Ltd. Japan Holdings, R&D, manufacturing and Distributor company

1,335,486 1,335,486 80 49 1,496,157 22,299 22,299

Innolux Corporation Innolux Corporation USA Distributor company 90,845 - 32,000 100 2,500 ( 1,335) ( 203)

Innolux Corporation Innolux Technology USA Inc. USA Distributor company 354,262 - 1,000 100 349,930 8,543 493

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 - - -

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 853,016 25,735 12,867


Taiwan Production and selling of the absorption for medical element

73,500 73,500 7,350,000 49 525,926 685,633 339,907

190

Innolux Corporation and Subsidiaries Information on investees

For the year ended December 31, 2017 Table 7 Expressed in thousands of NTD (Except as otherwise indicated)






Footnote


2017


2016


Book value

Innolux Corporation GIO Optoelectronics Corp. Taiwan Sales and manufacture of TFT-LCD parts and components

$ 800,892 $ 800,892 10,494,001 24 $ 111,354 $ 37,487 $ 8,914

Innolux Holding Limited

Rockets Holding Ltd. Samoa Investment holdings 5,222,180 7,296,530 160,504,550 100 11,932,235 ( 31,714) ( 31,714)


Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 8,264,697 2,668,427 2,668,427


Lakers Trading Ltd. Samoa Distributor company - - 1 100 226,729 - -


Innolux Corporation USA Distributor company - 6,348 - - - ( 1,335) ( 1,132)



Cayman Investment holdings 3,650,192 3,650,192 146,817,000 100 6,476,566 ( 99,582) ( 99,582)


Innolux Optoelectronics Hong Kong Holding Limited

Hong Kong Investment holdings - - 162,897,802 100 1,394,290 165,169 165,169


Innolux Hong Kong Limited Hong Kong Distributor company - - 35,000,000 100 ( 1,089,257) 374,757 374,757


Innolux Europe B.V. Netherlands Holding company and R&D testing company

3,209,158 3,073,072 375,810 100 2,341,954 42,943 42,943


Innolux Japan Co.,Ltd. Japan Holdings, R&D, manufacturing and Distributor company

1,815,603 1,815,603 82 51 1,661,840 1,351 1,351


Innolux Technology USA Inc. USA Distributor company - 263,685 - - - 8,543 8,050

Innolux Europe B.V. Innolux Optoelectronics Germany GmbH

Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

10,324 10,324 250 100 14,077 634 634

Innolux Japan Co.,Ltd. Innolux Optoelectronics USA, Inc.

USA Selling of electronic equipment and computer monitors

2,400 2,400 1,000 100 271,811 9,214 9,214

Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings 5,391,125 5,391,125 164,000,000 100 11,903,213 ( 33,332) ( 33,332) Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 28,889 1 1 Suns Holding Ltd. Warriors Technology

Investments Ltd. Samoa Investment company 555,422 555,422 18,177,052 100 8,264,696 2,668,427 2,668,427

Innolux Europe B.V. Innolux Technology Germany GmbH

Germany Testing and maintenance company

33,735 33,735 100,000 100 62,081 2,864 2,864

Yuan Chi Investment Co., Ltd.

Chi Mei Lighting Technology Corporation


263,812 263,812 19,673,402 8 - - -

191


Information on investees For the year ended December 31, 2017







Footnote


2017


2016


Book value


GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

$ 6,881 $ 6,881 77,235 - $ 843 $ 37,487 $ 67


TOA Optronics Corporation Taiwan Selling of electronic materials, trading business, manufacturing of electronic equipment and lighting equipments

423,606 423,606 58,007,000 40 - ( 272,602) ( 86,901)

192

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,

2017

Amount remitted from Taiwan to Mainland

China/Amount remitted back to Taiwan for the




Mainland China as of December

31, 2017

Net income of investee for the

year ended December 31,

2017

Ownership held by the Company (direct or indirect)

Investment income (loss)

recognised by the Company for the

year ended December 31, 2017 (Note B)

Book value of investments in

Mainland China as of

December 31, 2017

Accumulated amount of investment

income remitted back

to Taiwan as of December 31,

2017

Footnote

Remitted to Mainland

China

Remitted back to Taiwan


Manufacturing and selling of LCD backend module and related components

$ 4,880,640 2 $ 3,776,893 $ - $ - $ 3,776,893 ($ 33,371) 100 ($ 33,371) $ 11,903,163 $ 1,103,747 2.1

OED Company Manufacturing and selling of electronic paper

292,896 2 59,520 - - 59,520 ( 96,503) 4 - 6,752 - 2.1



9,225,600 2 219,184 - - 219,184 ( 1,993,452) 100 ( 1,993,452) 19,339,733 5,137,616 2.2



11,398,080 2 11,398,080 - - 11,398,080 934,684 100 937,060 20,721,423 - 2.2



4,761,600 2 4,761,600 - - 4,761,600 314,967 100 314,967 4,164,917 - 2.2

Nanjng Innolux Technology Ltd.

Purchases and sales of monitor-related components company

62,496 2 62,496 - - 62,496 19,625 100 19,625 557,316 - 2.3

VAP Optoelectronics (Nanjing) Corp.


300,576 2 113,088 - - 113,088 ( 41,027) 100 ( 41,027) 18,295 - 2.4



4,344,960 2 4,286,499 - - 4,286,499 ( 116,971) 100 ( 116,971) 5,919,229 - 2.3 2.8



624,960 2 - - - - 165,169 100 165,169 1,394,290 - 2.5

193

Investee in Mainland China

Main business activities Paid-in capital (Note A)

Investment method (Note C)




2017







31, 2017



2017







December 31, 2017




2017

Footnote


China



Warehousing services $ 44,640 2 $ 44,640 $ - $ - $ 44,640 $ 4,737 100 $ 4,737 $ 74,038 $ - 2.6

Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments

238,080 2 297,600 - - 297,600 - 50 - 192,427 - 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

2,862,912 2 401,760 - - 401,760 1,821,286 7 - 4,814,606 - 2.1



136,635 3 - - - - 130,536 100 130,536 371,711 - 3.1


Commodity agency 4,555 3 - - - - 1,274 100 1,274 5,840 - 3.2



Ceiling on investments in Mainland China:

Company name Accumulated amount of remittance from

Taiwan to Mainland China as of December 31, 2017

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 $ 26,761,777 $ _35,873,581 $ 158,595,029

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, 2017 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 Limited 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.

194

2.8. Nanjing Innoloux Optoelectornics Ltd. acquired Kunpal Optoelectronics Ltd. by merger, which was approved by the Investment Commission of the Ministry of Economic Affairs in November 2017.

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.

195

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, 2017 and 2016, 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, 2017

and 2016, 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.

The key audit matters in relation to the financial statements for the year ended December 31, 2017 are

outlined as follows:

Inventory valuation Description The industry is characterized in its significant fluctuations closely in connection with the economic

environment. As the technology evolves rapidly, the Company’s existing products may become

196

obsolete when the customers demand for new products or the Company fails to compete with the

evolutionary production approach. The abovementioned factors thus affect the sales amount

ultimately. The Company has evaluated the inventory by taking into account of allowance,

obsoleteness or trivial sales amount and the cost has been written down to the net realizable value. For

details of inventory, please refer to Note 6(6). As the amounts of inventories are material, the types of

inventories vary, and the estimation of net realizable value for individually obsolete or damaged

inventories is dependent upon significant management judgement, we consider inventory valuation a

key audit matter.

How our audit addressed the matter We assessed whether the accounting policies on the provision for the loss on decline in value and obsoleteness of inventory are reasonable and in accordance with the accounting principles, as well as whether they are applied consistently. We examined inventory aging report and assessed the reasonableness of provision for the loss on slow-moving inventory. We also assessed the reasonableness of net realizable value and the appropriateness of valuation basis. Additions to property, plant and equipment Description

The company’s capital expenditures increased with its operational growth. For details of property,

plant and equipment, please refer to Notes 6(8) 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 observation of

certain assets to confirm that the purchased items exist.

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(10). 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

197

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.

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.

198

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 9, 2018 ------------------------------------------------------------------------------------------------------------------------------------------------- The accompanying parent company only 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 parent company only 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


199

Assets Notes December 31, 2017 December 31, 2016

Current assets

1100 Cash and cash equivalents 6(1) $ 53,532,826 $ 20,927,609



6(2)

106,634 64,241

1170 Accounts receivable, net 6(4)(5) 39,078,322 50,693,511

1180 Accounts receivable, net - related

parties

7

9,483,133 10,199,014

1200 Other receivables 636,591 1,184,141

1210 Other receivables - related parties 7 28,791 123,091

130X Inventory 6(6) 25,381,254 18,897,916

1410 Prepayments 1,050,467 878,510

1479 Other current assets 887 35,797

11XX Total current assets 129,298,905 103,003,830

Non-current assets

1523 Available-for-sale financial assets

- non-current

6(3)

1,308,207 1,647,983

1550 Investments accounted for under

equity method

6(7)

81,614,542 79,845,787

1600 Property, plant and equipment 6(8), 7 and 8 191,778,224 170,150,592

1760 Investment property, net 6(9) 562,697 573,425

1780 Intangible assets 6(10) and 8 17,681,078 18,375,538

1840 Deferred income tax assets 6(26) 6,227,042 14,561,523

1990 Other non-current assets 6(8) and 8 1,460,605 935,611

15XX Total non-current assets 300,632,395 286,090,459

1XXX Total assets $ 429,931,300 $ 389,094,289

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY BALANCE SHEETS


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

200

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

Current liabilities

2100 Short-term borrowings 6(11) $ - $ 11,583,750

2120 Financial liabilities at fair value


6(2)

52,500 734,915

2170 Accounts payable 29,023,773 29,250,025

2180 Accounts payable - related parties 7 44,859,800 50,320,414

2200 Other payables 6(12) and 7 55,797,132 20,188,656

2230 Current income tax liabilities 6(26) - 577,254

2250 Provisions - current 6(16) and 9 5,460,862 3,765,234

2320 Long-term liabilities, current

portion

6(13)

10,951,114 16,381,686

2399 Other current liabilities 955,648 1,124,978

21XX Total current liabilities 147,100,829 133,926,912

Non-current liabilities

2540 Long-term borrowings 6(13) 17,287,788 28,128,467

2570 Deferred income tax liabilities 6(26) 734,423 672,971

2670 Other non-current liabilities 6(14) 483,212 359,576

25XX Total non-current liabilities 18,505,423 29,161,014

2XXX Total liabilities 165,606,252 163,087,926

Equity

3110 Share capital - common stock 6(17) 99,520,720 99,521,488

3200 Capital surplus 6(18) 99,646,919 99,647,810

Retained earnings 6(19)

3310 Legal reserve 3,945,576 3,758,507

3320 Special reserve 3,418,804 -

3350 Unappropriated retained earnings 58,883,750 26,497,362

3400 Other equity interest 6(20) ( 1,090,721) ( 3,418,804)

3XXX Total equity 264,325,048 226,006,363

3X2X Total liabilities and equity $ 429,931,300 $ 389,094,289

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 (Expressed in thousands of New Taiwan dollars, except for earnings per share amount)


201

Items Notes 2017 2016 4000 Sales revenue 7 $ 323,687,952 $ 285,695,113 5000 Operating costs 6(6)(24) and 7 ( 266,236,118) ( 270,841,149) 5900 Net operating margin 57,451,834 14,853,964 Operating expenses 6(24) 6100 Selling expenses ( 980,494) ( 943,819) 6200 General and administrative expenses ( 3,635,529) ( 3,052,097) 6300 Research and development expenses ( 12,202,018) ( 10,344,969) 6000 Total operating expenses ( 16,818,041) ( 14,340,885) 6900 Operating profit 40,633,793 513,079 Non-operating income and expenses 7010 Other income 6(21) 2,410,518 1,905,334 7020 Other gains and losses 6(22) ( 1,236,027) ( 3,078,900) 7050 Finance costs 6(23) ( 730,497) ( 850,007) 7070 Share of profit of subsidiaries,

associates and joint ventures accounted for under equity method

3,997,806 5,171,418 7000 Total non-operating income and

expenses

4,441,800 3,147,845 7900 Profit before income tax 45,075,593 3,660,924 7950 Income tax expense 6(26) ( 8,046,984) ( 1,790,237) 8200 Profit for the year $ 37,028,609 $ 1,870,687

Other comprehensive (loss) income (net)

Components of other comprehensive (loss) income that will not be reclassified to profit or loss

8311 Remeasurement of defined benefit

obligations 6(14)

($ 49,571) $ 44,027 8349 Income tax relating to the

components of other comprehensive income (loss) that will not be reclassified to profit or loss

6(26)

8,427 ( 7,485) 8310 Components of other

comprehensive (loss) income that will not be reclassified to profit or loss

( 41,144) 36,542 Components of other comprehensive


8361 Financial statements translation

differences of foreign operations 6(20)

( 1,643,264) ( 5,708,026) 8362 Unrealized gain on valuation of

available-for-sale financial assets

2,855,347 355,619 8380 Share of other comprehensive

income (loss) of subsidiaries, associates and joint ventures accounted for under equity method

1,433,110 ( 722,679) 8399 Income tax relating to the

components of other comprehensive loss that will be reclassified

6(26)

( 317,110) ( 113,457) 8360 Components of other

comprehensive income (loss) that will be reclassified to profit or loss

2,328,083 ( 6,188,543) 8300 Other comprehensive income (loss)

for the year, net of tax

$ 2,286,939 ($ 6,152,001)

8500 Total comprehensive income (loss) for the year

$ 39,315,548 ($ 4,281,314)

Earnings per share (in dollars) 6(27) 9750 Basic earnings per share $ 3.72 $ 0.19

9850 Diluted earnings per share $ 3.63 $ 0.19

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CHANGES IN EQUITY


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 on available-for-sale financial assets

Employee unearned compensation Total

Note 1: 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. Note 2: Employee's compensation and directors' remuneration accrued at $192,788 and $1,928 had been deducted from the statement of comprehensive income for the year ended December 31, 2016, respectively.


202

2016 Balance at January 1 $ 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 1): 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

Recognition of change in equity of associates in proportion to the Company's ownership

- ( 2,570 ) - - - - - - ( 2,570 )


Other comprehensive loss for the year 6(20) - - - - 36,542 ( 5,735,702 ) ( 452,841 ) - ( 6,152,001 )

Balance at December 31 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ 226,006,363

2017 Balance at January 1 $ 99,521,488 $ 99,647,810 $ 3,758,507 $ - $ 26,497,362 ($ 4,040,408 ) $ 621,604 $ - $ 226,006,363

Appropriations of 2016 earnings (Note 2): 6(19) Legal reserve - - 187,069 - ( 187,069 ) - - - -

Special reserve - - - 3,418,804 ( 3,418,804 ) - - - -

Cash dividends - - - - ( 995,204 ) - - - ( 995,204 )

Cancellation of restricted stock to employees ( 768 ) 768 - - - - - - -

Recognition of change in equity of associates in proportion to the Company's ownership

- ( 1,659 ) - - - - - - ( 1,659 )


Other comprehensive income for the year 6(20) - - - - ( 41,144 ) ( 1,676,815 ) 4,004,898 - 2,286,939

Balance at December 31 $ 99,520,720 $ 99,646,919 $ 3,945,576 $ 3,418,804 $ 58,883,750 ($ 5,717,223 ) $ 4,626,502 $ - $ 264,325,048

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


Notes 2017 2016

203

CASH FLOWS FROM OPERATING ACTIVITIES

Profit before tax for the year $ 45,075,593 $ 3,660,924

Adjustments

Adjustments to reconcile profit (loss)

Depreciation and amortization 6(24) 29,669,396 37,605,732

Compensation related to share-based payment 6(24) - 15,260

Share of profit of subsidiaries and associates accounted


( 3,997,806 ) ( 5,171,418 )

Loss on disposal of property, plant and equipment 6(22) 32,859 35,222

Impairment loss 6(22) 3,049,547 500,000

Interest income 6(21) ( 301,764 ) ( 131,151 )

Dividend income 6(21) ( 22,678 ) ( 28,593 )

Interest expense 6(23) 730,497 831,360

Unrealized foreign exchange (gain) loss ( 4,725 ) 4,725

Changes in operating assets and liabilities

Changes in operating assets

Financial assets /liabilities at fair value through profit

or loss

( 724,808 ) 698,611

Accounts receivable 11,615,189 ( 4,938,382 )

Accounts receivable - related parties 715,881 ( 7,294,261 )

Other receivables 554,181 1,378,266

Inventories ( 6,483,338 ) 4,715,867

Prepayments ( 171,957 ) ( 173,054 )

Other current assets 34,910 ( 32,796 )

Changes in operating liabilities

Accounts payable ( 226,252 ) 1,518,990

Accounts payable - related parties ( 5,460,614 ) 4,886,552

Other payables 6,665,654 ( 3,435,134 )

Provisions - current 1,695,628 ( 1,786,525 )

Other current liabilities ( 169,330 ) 289,172

Other non-current liabilities 28,840 ( 5,678 )

Cash inflow generated from operations 82,304,903 33,143,689

Cash paid for income tax ( 536,988 ) ( 915,890 )

Net cash flows from operating activities 81,767,915 32,227,799

(Continued)

INNOLUX CORPORATION PARENT COMPANY ONLY STATEMENTS OF CASH FLOWS


Notes 2017 2016


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CASH FLOWS FROM INVESTING ACTIVITIES

Decrease in other receivables - related parties $ 3,625 $ 254,273

Proceeds from capital reduction of available-for-sale

financial assets

145,575 159,335

Acquisition of investment accounted for under equity

method

- ( 77,808 )

Proceeds from capital reduction of investments accounted


1,790,881 23,680

Decrease in other financial assets 30 1,519,807

Acquisition of property, plant and equipment 6(28) ( 22,321,235 ) ( 42,155,612 )

Proceeds from disposal of property, plant and equipment 293,308 7,778

Acquisition of intangible assets ( 106,781 ) -

(Increase) decrease in other non-current assets ( 319 ) 31,437

Interest received 295,245 135,099

Dividends received 339,710 255,289

Net cash flows used in investing activities ( 19,559,961 ) ( 39,846,722 )

CASH FLOWS FROM FINANCING ACTIVITIES

(Decrease) increase in short-term borrowings ( 11,579,025 ) 11,579,025

Increase in long-term borrowings - 822,702

Payment of long-term borrowings ( 16,440,000 ) ( 16,440,000 )

Cash dividends paid 6(19) ( 995,204 ) ( 1,989,810 )

Repurchase from issuance of restricted stock to employees - ( 1,372 )

Interest paid ( 588,508 ) ( 703,623 )

Net cash flows used in financing activities ( 29,602,737 ) ( 6,733,078 )

Net increase (decrease) in cash and cash equivalents 32,605,217 ( 14,352,001 )

Cash and cash equivalents at beginning of year 20,927,609 35,279,610

Cash and cash equivalents at end of year $ 53,532,826 $ 20,927,609

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INNOLUX CORPORATION

NOTES TO PARENT COMPANY ONLY FINANCIAL STATEMENTS

FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016

(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 the 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 9, 2018.

APPLICATION OF NEW STANDARDS, AMENDMENTS AND INTERPRETATIONS

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

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

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

follows:

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Standards Board

Amendments to IFRS 10, IFRS 12 and IAS 28, ‘Investment entities:applying the consolidation exception’

January 1, 2016

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

January 1, 2016

IFRS 14,‘Regulatory deferral accounts’ January 1, 2016Amendments to IAS 1, ‘Disclosure initiative’ January 1, 2016Amendments to IAS 16 and IAS 38, ‘Clarification of acceptable methodsof depreciation and amortisation’

January 1, 2016

Amendments to IAS 16 and IAS 41, ‘Agriculture: bearer plants’ January 1, 2016Amendments to IAS 19, ‘Defined benefit plans: employee contributions’ July 1, 2014

Amendments to IAS 27, ‘Equity method in separate financial statements’ January 1, 2016

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

January 1, 2014

Amendments to IAS 39, ‘Novation of derivatives and continuation ofhedge accounting’

January 1, 2014

IFRIC 21, ‘Levies’ January 1, 2014

Except for the following, the above standards and interpretations have no significant impact to the Company’s financial condition and financial performance based on the Company’s assessment. 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.

(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 2018 are as follows:


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

A. IFRS 9, ‘Financial instruments’

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

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



Standards Board

Annual improvements to IFRSs 2010-2012 cycle July 1, 2014Annual improvements to IFRSs 2011-2013 cycle July 1, 2014Annual improvements to IFRSs 2012-2014 cycle January 1, 2016



Standards Board

Amendments to IFRS 2, ‘Classification and measurement of share-basedpayment transactions’

January 1, 2018

Amendments to IFRS 4, ‘Applying IFRS 9 Financial instruments withIFRS 4 Insurance contracts’

January 1, 2018

IFRS 9, ‘Financial instruments’ January 1, 2018IFRS 15, ‘Revenue from contracts with customers’ January 1, 2018Amendments to IFRS 15, ‘Clarifications to IFRS 15 Revenue fromcontracts with customers’

January 1, 2018

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

Amendments to IAS 12, ‘Recognition of deferred tax assets forunrealised losses’

January 1, 2017

Amendments to IAS 40, ‘Transfers of investment property’ 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

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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 promised

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

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

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.

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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

over time. In addition to the clarifications, the amendments include two additional reliefs to reduce

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

D. 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.

The Company expects to provide additional disclosure to explain the changes in liabilities arising

from financing activities.

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

the new rules under IFRS 9 and IFRS15 retrospectively from January 1, 2018, with the practical

expedients permitted under the statement. The significant effects of applying the new standards as of

January 1, 2018 are summarised below:

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

the amount of $1,308,207 by increasing financial assets at fair value through profit or loss in the

amount of $1,308,207. There will be no effect on retained earnings and other equity interest.

B. Presentation of contract assets and contract liabilities

In line with IFRS 15 requirements, the Company expects to change the presentation of certain

accounts in the balance sheet as follows:

Under IFRS 15, liabilities in relation to expected volume discounts and refunds to customers are

recognized as contract liabilities, but were previously presented as accounts receivable - allowance

for sales returns and discounts in the balance sheet. As of January 1, 2018, the balance would

amount to $2,330,484.

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

New standards, interpretations, and amendments issued by IASB but not yet included in the IFRSs as endorsed by the FSC are as follows:

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

quantitative impact will be disclosed when the assessment is complete.

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

which is to classify their leases as either finance leases or operating leases and account for those two

types of leases differently. IFRS 16 only requires enhanced disclosures to be provided by lessors.

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 judgement in the process of



Standards Board

Amendments to IFRS 9, ‘Prepayment features with negativecompensation’

January 1, 2019

Amendments to IFRS 10 and IAS 28, ‘Sale or contribution of assetsbetween an investor and its associate or joint venture’

To be determined byInternational Accounting

Standards BoardIFRS 16, ‘Leases’ January 1, 2019IFRS 17, ‘Insurance contracts’ January 1, 2021Amendments to IAS 19, ‘Plan amendment, curtailment or settlement’ January 1, 2019Amendments to IAS 28, ‘Long-term interests in associates and jointventures’

January 1, 2019

IFRIC 23, ‘Uncertainty over income tax treatments’ January 1, 2019Annual improvements to IFRSs 2015-2017 cycle January 1, 2019

211

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

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 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, even with 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, even when the Company retains

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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 settle liabilities more than twelve months after the balance sheet date. B. Liabilities that meet one of the following criteria are classified as current liabilities; otherwise they

are classified as non-current liabilities: (a) Liabilities that are expected to be settled within the normal operating cycle; (b) Liabilities arising mainly from trading activities; (c) Liabilities that are to be settled within twelve months from the balance sheet date; (d) Liabilities for which the repayment date cannot be extended unconditionally to more than twelve

months after the balance sheet date. Terms of a liability that could, at the option of the counterparty, result in its settlement by the issue of equity instruments do not affect its classification.

(5) Cash equivalents Cash equivalents refer to short-term highly liquid investments that are readily convertible to known amount of cash and subject to an insignificant risk of changes in value. Time deposits that meet the definition above and are held for the purpose of meeting short-term cash 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 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.

(7) Available-for-sale financial assets A. Available-for-sale financial assets are non-derivatives that are designated in this category. B. On a regular way purchase or sale basis, available-for-sale financial assets are recognized and

derecognized using trade date accounting. C. 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

213

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 a

financial asset or a group of financial assets is impaired as a result of one or more events that occurred after the initial recognition of the asset (a “loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated.

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

impairment loss is as follows: (a) Significant financial difficulty of the issuer or debtor; (b) A breach of contract, such as a default or delinquency in interest or principal payments; (c) 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 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, 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.

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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; however, 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 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 C. 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.

D. 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.

E. 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 exceeds its interest in the subsidiary, the Company continues to recognize losses proportionate to its ownership.

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. Pursuant to the “Regulations Governing the Preparation of Financial Reports by Securities 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.

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(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. 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 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 and structures 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. Patent, 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

C. 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 or diminish, the impairment loss is reversed. The increased carrying amount due to reversal should not be more than what the depreciated or amortized historical cost would have been if the impairment had not been recognized.

D. 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 recoverable amount. Impairment loss of goodwill previously recognized in profit or loss shall not be reversed in the following years.

E. 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. Each unit or group of units to which the goodwill is allocated represents the lowest level within the entity at which the goodwill is

216

monitored for internal management purposes. Goodwill is monitored at the operating segment level.

(18) Borrowings A. Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are

subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using the effective interest method.

B. Fees paid on the establishment of loan facilities are recognized as transaction costs of the loan to the extent that it is probable that some or all of the facility will be drawn down. To the extent there is no evidence that it is probable that some or all of the facility will be drawn down, the fee is capitalized as a pre-payment for liquidity services and amortized over the period of the facility to which it relates.

(19) Notes and accounts payable Notes and accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method. However, short-term accounts payable without bearing interest are subsequently measured at initial invoice amount as the effect of discounting is immaterial.

(20) 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.

(21) Provisions Provisions (including warranties, litigations, etc.) are recognized when the Company has a present legal or constructive obligation as a result of past events, and it is probable that an outflow of economic resources will be required to settle the obligation and the amount of the obligation can be reliably estimated. Provisions are measured at the present value of the expenditures expected to be required to settle the obligation on the balance sheet date, which is discounted using a pre-tax discount rate that reflects the current market assessments of the time value of money and the risks specific to the obligation. When discounting is used, the increase in the provision due to passage of time is recognized as interest expense. Provisions are not recognized for future operating losses.

(22) Employee benefits K. Short-term employee benefits

Short-term employee benefits are measured at the undiscounted amount of the benefits expected to be paid in respect of service rendered by employees in a period and should be recognized as expense in that period when the employees render service.

L. Pensions (a) Defined contribution plans

For defined contribution plans, the contributions are recognized as pension expense when they are due on an accrual basis. Prepaid contributions are recognized as an asset to the extent of a

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cash refund or a reduction in the future payments. (b) Defined benefit plans

i. Net obligation under a defined benefit plan is defined as the present value of an amount of pension benefits that employees will receive on retirement for their services with the Group in current period or prior periods. 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 net defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The rate used to discount is determined by using interest rates of government bonds (at the balance sheet date) that are denominated in the currency in which the benefits will be paid, and that have terms to maturity approximating to the terms of the related pension liability.

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.

M. Employees’ compensation and directors’ remuneration Employees’ compensation and directors’ remuneration are recognized as expense and liability, provided that such recognition is required under legal or constructive obligation and those amounts can be reliably estimated. Any difference between the resolved amounts and the subsequently actual distributed amounts is accounted for as changes in estimates.

(23) 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: (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”.

(24) 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

218

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 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 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 tax asset is realized or the deferred tax liability is settled.

D. Deferred 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 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 to the extent that it is possible that future taxable profit will be available against which the unused tax credits can be utilised.

(25) 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.

(26) 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 JUDGEMENTS, ESTIMATES AND KEY SOURCES OF ASSUMPTION UNCERTAINTY The preparation of these parent company only financial statements requires management to make critical judgements in applying the Company’s accounting policies and make critical assumptions and estimates concerning future events. Assumptions and estimates may differ from the actual results and are continually evaluated and adjusted based on historical experience and other factors. For the information of critical accounting judgements, estimates and key sources of assumption uncertainty is addressed below: (1) Critical judgements in applying the Company’s accounting policies

Financial assets - impairment of equity investments The Company follows the guidance of IAS 39 to determine whether a financial asset-equity investment

219

is impaired. This determination requires significant judgement. In making this judgement, the Company evaluates, among other factors, the duration and extent to which the fair value of an equity investment is less than its cost and the financial health of and short-term business outlook for the investee, including factors such as industry and sector performance, changes in technology and operational and financing cash flow. If the decline of the fair value of an individual equity investment below cost was considered significant or prolonged, being the transfer of the accumulated fair value adjustments recognized in other comprehensive income on the impaired available-for-sale financial assets 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 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(10) 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. Evaluation of inventories

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

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

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

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

and writes down the cost of inventories to the net realizable value. Such an evaluation of

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

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

December 31, 2017 December 31, 2016Cash on hand, demand deposits and checking account 35,676,826$ 6,245,543$

Time deposits 17,856,000 14,682,066

53,532,826$ 20,927,609$

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

A. The Company recognized net gain of $89,192 and $87,140 on financial assets held for trading for

the years ended December 31, 2017 and 2016, 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 in foreign currency. However, these forward foreign exchange contracts are primarily for the requirement of capital management and not accounted for using 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, 2017 and 2016. Please


B. The Company has assessed the impairment of certain investment items and recognized loss of

$3,049,547 and $500,000 which has been reclassified from equity to current period profit or loss

(shown as ‘other gains and losses’) for the years ended December 31, 2017 and 2016, respectively.

Assets December 31, 2017 December 31, 2016

Current items Financial assets held for trading Forward foreign exchange contracts 29,744$ 64,241$

Forward exchange swap contracts 76,890 -

106,634$ 64,241$

Liabilities December 31, 2017 December 31, 2016

Current items Financial liabilities held for trading Forward foreign exchange contracts 52,500$ 734,915$

Derivative financialassets and liabilities Contract Period Contract Period

Current itemsForward foreign USD (sell) 400,000$ 2017/10~2018/3 USD (sell) 360,000$ 2016/10~2017/3 exchange contracts JPY (buy)44,934,619 2017/10~2018/3 JPY (buy) 39,597,920 2016/10~2017/3Forward foreign EUR (sell) 15,800 2017/10~2018/2 TWD (sell) 621,240 2016/9~2017/2 exchange contracts USD (buy) 18,841 2017/10~2018/2 USD (buy) 20,000 2016/9~2017/2Forward foreign EUR (sell) 34,200 2017/10~2018/3 EUR (sell) 19,000 2016/10~2017/1 exchange contracts JPY (buy) 4,554,765 2017/10~2018/3 USD (buy) 20,706 2016/10~2017/1Forward foreign USD (sell) 410,000 2017/12~2018/1 EUR (sell) 55,000 2016/9~2017/4 swap contracts TWD (buy)12,289,569 2017/12~2018/1 JPY (buy) 6,516,335 2016/9~2017/4

EUR(sell) 8,960 2016/12~2017/1 TWD(buy) 302,364 2016/12~2017/1

(Notional Principal) (Notional Principal)(in thousands) (in thousands)


Contract Amount Contract Amount

Items December 31, 2017 December 31, 2016

Non-current items

Listed stocks 1,154,959$ 1,438,809$

Emerging and unlisted stocks 153,248 209,174

1,308,207$ 1,647,983$

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(4) 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, 2017 and 2016, the Company’s accounts receivable that were impaired

were both $109,373.

(b) Movement on allowance for bad debts for impairment loss based on individual provision is as

follows:

(5) 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 transferred accounts receivable. As of December 31, 2017 and 2016, all the accounts receivable sold were collected and the Company entered into factoring agreements with CTBC bank, Taipei Fubon Commercial Bank and Bank of Taiwan in the amount of $18,451,200, $5,952,000, and $1,190,400; and $19,995,000, $6,450,000, and $0, respectively.

(6) Inventories

A. For the years ended December 31, 2017 and 2016, the Company recognized cost of goods sold for

inventories that have been sold at $266,366,821 and $269,927,841, and recognized net inventory


Accounts receivable 41,514,602$ 51,636,429$

Less: Allowance for sales returns and discounts 2,326,907)( 833,545)(

Allowance for bad debts 109,373)( 109,373)(

39,078,322$ 50,693,511$


Up to 60 days 3,279,209$ 237,149$

61 to 180 days 178,662 8,553

Over 181 days 1,248 -

3,459,119$ 245,702$

2017 2016

At January 1 109,373$ 117,499$

Allowance for bad debts - write-offs - 8,126)(

At December 31 109,373$ 109,373$


Raw materials and supplies 2,538,870$ 2,164,341$

Work in progress 11,006,624 9,608,843

Finished goods 11,835,760 7,124,732

25,381,254$ 18,897,916$

222

(gain) loss at ($130,703) and $913,308 due to write down (reversal) of cost of scrap inventories to net realizable value, respectively.

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.

(7) Investments accounted for under the equity method

A. The Company’s subsidiaries

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, 2017.

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. 44,160,820$ 45,894,168$

Innolux Holding Limited 20,423,738 18,523,142

Toppoly Optoelectronics (B.V.I.) Ltd. 6,476,884 6,717,191

Innolux Hong Kong Holding Limited 3,797,279 3,341,269

Innolux Japan Co., Ltd. 1,496,157 1,548,673

InnoJoy Investment Corporation 1,381,380 1,246,809

Leadtek Global Group Limited 999,166 322,973)(

Yuan Chi Investment Co., Ltd. 843,311 922,529

Others 545,511 547,717

Associates:

Ampower Holding Ltd. 853,016 870,941

FI Medical Device Manufacturing Co., Ltd. 525,926 451,943

Others 111,354 104,378

81,614,542$ 79,845,787$

2017 2016

Profit for the year from continuing operations 361,688$ 408,382$

Other comprehensive income - net of tax 31,085)( 27,958)(

Total comprehensive income 330,603$ 380,424$


223

(8) Property, plant and equipment

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. Information about the property, plant and equipment that were pledged to others as collateral is

provided in Note 8. C. As of December 31, 2017 and 2016, the prepayments for business facilities which have not yet

entered the factory (shown as ‘other non-current assets’) amounted to $1,376,587 and $896,996, 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 167,383,261 558,932 268,401)( 3,333,445 171,007,237 Machinery and equipment 389,370,558 29,241,530 3,496,686)( 35,804,241 450,919,643 Other equipment 30,215,454 454,839 745,518)( 3,742,307 33,667,082

590,822,065 30,255,301 4,510,605)( 42,879,993 659,446,754 Accumulated depreciation and impairment: Buildings 94,176,798)( 7,966,324)( 246,887 56,068)( 101,952,303)( Machinery and equipment 337,036,893)( 17,269,387)( 3,183,935 1,503,306)( 352,625,651)( Other equipment 25,243,481)( 3,497,636)( 745,251 407,044)( 28,402,910)(

456,457,172)( 28,733,347)( 4,176,073 1,966,418)( 482,980,864)( Unfinished construction and equipment under acceptance 35,785,699 21,043,881 - 41,517,246)( 15,312,334

170,150,592$ 191,778,224$

2017

At January 1 Additions Disposals Transfer At December 31

Cost: 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

2017 2016Capitalised amount 203,902$ 323,503$ Range of the interest rates for capitalisation 2.15%~2.41% 2.00%~2.26%


224

(9) Investment property

The fair value of the investment property held by the Company as at December 31, 2017 and 2016 was $1,423,964 and $1,109,891, respectively. The amounts mentioned above represent valuation results of comparative method based on market trading information categorized within Level 3 in the fair value hierarchy.

(10) 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 AtJanuary 1 Additions Transfer December 31 January 1 Additions DisposalsDecember 31

Cost:

Land 188,247$ -$ -$ 188,247$ 188,247$ -$ -$ 188,247$

Buildings 439,228 - - 439,228 564,109 - 124,881)( 439,228

627,475 - - 627,475 752,356 - 124,881)( 627,475

Accumulated

depreciation

and impairment:

Buildings 54,050)( 10,728)( - 64,778)( 71,853)( 11,132)( 28,935 54,050)(

573,425$ 562,697$ 680,503$ 573,425$

2017 2016


Cost: Patents and royalty 8,154,685$ -$ -$ -$ 8,154,685$

Goodwill 17,096,628 - - - 17,096,628

Others 4,104,226 106,781 55,337)( 124,080 4,279,750

29,355,539 106,781 55,337)( 124,080 29,531,063

Accumulated amortisation and impairment: Patents and royalty 7,528,070)( 615,010)( - - 8,143,080)(

Others 3,451,931)( 310,311)( 55,337 - 3,706,905)(

10,980,001)( 925,321)( 55,337 - 11,849,985)(

18,375,538$ 17,681,078$

2017


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

2017 2016

Operating costs 807,530$ 997,181$

Operating expenses 117,791 168,397

925,321$ 1,165,578$


225

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 6.32% and 5.86% for the years ended

December 31, 2017 and 2016, 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, 2017 and 2016. (11) Short-term borrowings

As of December 31, 2017, the Company has no short-term borrowings.

(12) Other payables

(13) Long-term borrowings

A. Please refer to Note 8 for the information on assets pledged as collateral for long-term

borrowings.

B. In the third quarter of 2017, the Company applied to extend the expiry date for 2 years pursuant to

the NT$68.5 billion syndicated loan agreement. On August 2, 2017, the Company was informed

of the banks’ unanimous consent.

C. The syndicated loan agreements specified that the Company shall meet covenants on current ratio,

liability ratio, interest coverage, and tangible net equity, 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, 2017

and 2016 are in compliance with the covenants on the syndicated loan agreement.

Type of borrowings December 31, 2016 Collateral

Bank borrowings Unsecured borrowings 11,583,750$ NoneRange of interest rates 0.83%~1.59%

December 31, 2017 December 31, 2016Payable on machinery and equipment 32,086,845$ 3,108,898$ Wages and salaries and bonus payable 11,217,517 5,034,291 Repairs and maintenance expense payable 2,274,668 1,761,707 Processing fee payable 1,498,772 1,202,227 Utilities expense payable 1,018,773 1,009,126 Other payables 7,700,557 8,072,407

55,797,132$ 20,188,656$

Type of borrowings Period December 31, 2017December 31, 2016

Syndicated bank loans 2015/3/12~2021/12/6

28,400,000$ 44,840,000$

Less: Administrative expenses charged by syndicated banks 161,098)( 329,847)(

Current portion (includes 10,951,114)( 16,381,686)(

administrative expenses) 17,287,788$ 28,128,467$

Range of interest rates 1.75%~2.06% 1.77%~2.06%

226

(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 insufficient 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

contributions 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 1,902,852$ 1,827,687$

Fair value of plan assets 1,548,769)( 1,534,864)(

Net defined benefit liability 354,083$ 292,823$


obligation plan assets benefit liability

Year ended December 31, 2017Balance at January 1 1,827,687$ 1,534,864$ 292,823$


Interest expense/income 31,071 26,093 4,978

37,782 26,093 11,689

Remeasurements:Experience adjustments 49,488 83)( 49,571

Benefits paid 12,105)( 12,105)( -

37,383 12,188)( 49,571


227

(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, 2017 and 2016 is given in the Annual Labor Retirement Fund Utilisation Report announced by the government.

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

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:


obligation plan assets benefit liability

Year ended December 31, 2016Balance at January 1 1,852,905$ 1,529,124$ 323,781$


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)(


2017 2016

Discount rate 1.50% 1.70%

Future salary increases 1.50% 3.00%


228

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

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

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

balance sheet are the same. The methods and types of assumptions used in preparing the

sensitivity analysis did not change compared to the previous period.

(f) The Company suspended its contributions to the pension reserve as agreed by the Science Park

Administration in February 2017.

(g) As of December 31, 2017, the weighted average duration of that retirement plan is 16 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, 2017 and 2016 were $979,319 and $978,325, respectively. (15) Share-based payment

A. As of December 31, 2017, 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, 2017Effect on present value of defined benefit obligation 74,882)($ 78,699$ 78,501$ 75,063)($

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)($



Quantity granted Contract period

Type of arrangement Grant date (in thousand units) (in years) Vesting conditions

Employee stock options 2011.05.19 50,000 5 Note (a), (b)




-shares without consideration 2013.03.29 844 3 Note (c), (d)

-shares subscribed with consideration 2013.03.29 844 3 Note (c), (d)



229

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 2011 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 year ended December 31, 2016 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)



2013.12.12 10.65$ $ - - - - - 10.65$


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

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) Options outstanding at the beginning of the year

50,000 $ 22.85

Options exercised - - $ 9.99

Options expired 50,000)( 21.87

Options outstanding at the end of the year - - $ - -

Options exercisable at the end of the year - -


230

There was no employee stock option plan for the year ended December 31, 2017.

C. For the years ended December 31, 2017 and 2016, the expenses incurred from share-based

payment arrangements were $0 and $15,260, respectively.

(16) Provisions-current

D. 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.

E. 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).

(17) Share capital

As of December 31, 2017, the Company’s authorized and outstanding capital were $105,000,000 and

$99,520,720, with a par value of $10 (in dollars) per share, respectively. All proceeds from shares

issued have been collected.

Movements in the number of the Company’s ordinary shares outstanding are as follows:

G. 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. The Company has terminated the contracts in relation to the circulation of GDR and its account of the depositary bank in order to lower administrative costs in accordance with the resolution by the Board of Directors on July 26, 2017.

H. 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, 2017 and 2016, the Company has retired 77 thousand and 1,088 thousand shares of unvested restricted stocks to employees, respectively, and decreased capital in accordance with related regulation.

Warranty Litigation and others Total

At January 1, 2017 1,634,234$ 2,131,000$ 3,765,234$

Additions during the year 2,320,000 638,700 2,958,700

Used during the year 1,263,072)( - 1,263,072)(

At December 31, 2017 2,691,162$ 2,769,700$ 5,460,862$

2017 2016

Number of ordinary Number of ordinary

shares (in thousands) shares (in thousands)

At January 1 9,952,149 9,953,237

Cancellation of restricted stock to employees 77)( 1,088)(

At December 31 9,952,072 9,952,149

231

(18) 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 Act 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. 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 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,

Share of profit(loss) of

associatesaccounted for Restricted under equity stock to

Share premium method employees Total

At January 1 99,614,516$ 33,888$ 594)($ 99,647,810$

Cancellation of restricted stock to employees - - 768 768

Vested restricted stock to employees 174 - 174)( -

Recognition of change in equity of associates in proportion to the Company's ownership - 1,659)( - 1,659)(

At December 31 99,614,690$ 32,229$ -$ 99,646,919$

2017

Share of profit

(loss) of

associates


under equity Employee stock toShare 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)( - -

Recognition of change in equity of associates in proportion to the Company's ownership - 2,570)( - - 2,570)(

At December 31 99,614,516$ 33,888$ -$ 594)($ 99,647,810$

2016

232

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 2016 and 2015 net income which was approved at the stockholders’ meeting in June 2017 and 2016, respectively, are as follows:

The Company’s appropriations of earnings for 2017 are to be authorized by the Board of Directors and presented for approval in the Company’s stockholders’ meeting in 2018.

D. For the information relating to employees’ compensation and directors’ remuneration, please refer to Note 6(25).

(20) Other equity items

Dividends per Dividends perAmount share (in dollars) Amount share (in dollars)

Legal reserve 187,069$ 1,081,560$

Special reserve 3,418,804 -

Cash dividends 995,204 0.10$ 1,989,810 0.20$

4,601,077$ 3,071,370$

Years ended December 31,2016 2015

Available-

Currency for-sale

translation investments Total

At January 1 4,040,408)($ 621,604$ 3,418,804)($

Revaluation of available-for-sale investments - gross - 194,200)( 194,200)( Revaluation transfer of available-for-sale investment - gross - 3,049,547 3,049,547

Currency translation differences 1,643,264)( - 1,643,264)(

Share of other comprehensive loss of subsidiaries and associates 33,551)( 1,466,661 1,433,110

Effect of income tax - 317,110)( 317,110)(

At December 31 5,717,223)($ 4,626,502$ 1,090,721)($

2017

233

(21) Other income

(22) Other gains and losses

(23) Finance costs

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 other comprehensive loss of subsidiaries and associates 27,686)( 695,003)( - 722,689)(

Effect of income tax - 113,457)( - 113,457)(

At December 31 4,040,418)($ 621,604$ -$ 3,418,814)($

2016

2017 2016

Rental revenue 124,405$ 139,315$

Interest income 301,764 131,151

Dividend income 22,678 28,593

Service income 635,100 250,240

Other income 1,326,571 1,356,035

2,410,518$ 1,905,334$


2017 2016Net gain on financial assets and liabilities at fair value through profit or loss 86,192$ 87,140$

Net currency exchange loss 1,019,872)( 306,238)(

Loss on disposal of property, plant and equipment 32,859)( 35,222)(

Impairment loss 3,049,547)( 500,000)(

Net disaster gain (loss) 2,051,579 1,296,166)(

Others 728,480 1,028,414)(

1,236,027)($ 3,078,900)($


2017 2016

Interest expense:

Bank borrowings 730,468$ 831,360$

Others 29 -

Factoring expense of accounts receivable - 18,647

730,497$ 850,007$


234

(24) Expenses by nature

(25) Employees’ compensation and directors’ 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’ remuneration. The ratio shall not be lower than 5% for employees’ compensation and

shall not be higher than 0.1% for directors’ remuneration.

B. For the years ended December 31, 2017 and 2016, employees’ compensation was accrued at

$3,136,952 and $192,788, respectively; while directors’ remuneration was accrued at $48,261 and

$1,928, respectively. The aforementioned amounts were recognized in expenses.

The expenses recognized for 2017 were accrued based on the earnings of current year. The

employees’ compensation and directors’ remuneration were $3,136,952 and $48,261 in the form of

cash, respectively, as resolved by the Board of Directors on February 9, 2018. The accrued amounts

were in agreement with the amount of recorded expense for the year ended December 31, 2017.

Employees’ compensation and directors’ remuneration were accrued at $192,788 and $1,928,

respectively, based on the earnings of current year distributable for the year ended December 31,

2016 and the employees’ compensation will be distributed in the form of cash. Employees’

compensation and directors’ remuneration for 2016 as resolved by the Board of Directors were

$231,338 and $3,856, respectively. The difference of $40,478 between employees’ compensation

(directors’ remuneration) as resolved by the Board of Directors and the amount recognized in the

2016 financial statements was caused by a different accrual ratio and had been recorded as expense

in 2017.

Information about employees’ compensation and directors’ 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:

2017 2016

Employee benefit expense:

Salaries and other short-term employee benefits 33,307,647$ 26,461,969$

Share-based payments - 15,260

Post-employment benefits 991,008 991,394

Depreciation 28,744,075 36,440,154

Amortization 925,321 1,165,578

63,968,051$ 65,074,355$


235

(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:

2017 2016

Current tax:

Current tax on profit for the year -$ -$

Tax on undistributed surplus earnings - 590,712

Prior year income tax(overestimation) underestimation 40,266)( 299

Total current tax 40,266)( 591,011

Deferred tax:Origination and reversal of temporary differences 8,087,250 1,199,226

Income tax expense 8,046,984$ 1,790,237$


2017 2016

Fair value gains/losses on available-for-sale financial assets 317,110$ 113,457$

Remeasurement of defined benefit obligation 8,427)( 7,485

308,683$ 120,942$


2017 2016

Tax calculated based on profit before tax and statutory tax rate 7,662,851$ 622,357$

Effects from items disallowed by tax regulation 500,004)( 816,199)(

Prior year income tax (overestimation) underestimation 40,266)( 299

Additional 10% tax on undistributed earnings - 590,712

Change in assessment of realization of deferred tax assets 924,403 1,393,068

Tax expense 8,046,984$ 1,790,237$


236

D. Expiration dates of unused loss carryforward and amounts of unrecognized deferred tax assets are

as follows:

Recognisedin other



-Deferred tax assets: Sales returns and discount provisions 270,483$ 158,857$ -$ 429,340$ Accrued royalties and warranty provisions 731,844 363,165 - 1,095,009 Unrealized loss (gain) on financial instruments 470,394 277,255 317,110)( 430,539 Loss carryforward 12,486,251 8,851,439)( - 3,634,812 Others 602,551 26,364 8,427 637,342

14,561,523$ 8,025,798)($ 308,683)($ 6,227,042$

-Deferred tax liabilities: Unrealized exchange gain 113,545)($ 71,832$ -$ 41,713)($

Amortisation charges on goodwill 559,426)( 82,369)( - 641,795)( Others - 50,915)( - 50,915)(

672,971)($ 61,452)($ -$ 734,423)($ 13,888,552$ 8,087,250)($ 308,683)($ 5,492,619$


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$


237

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, 2017 and 2016, the amounts of temporary differences unrecognized as deferred tax liabilities were $31,293,045 and $28,052,581, respectively.

G. The Company’s income tax returns through 2014 have been assessed and approved by the Tax Authority.

H. Unappropriated retained earnings recorded by the Company pertain to retained earnings after 1998.

I. The details of imputation system are as follows:

UnrecognisedAmount filed deferred Usable

Year incurred / assessed Unused amount tax assets until year

2011 Assessed 26,496,656$ 18,427,518$ 20212012 Assessed 42,430,348 29,508,856 20222016 Filed 1,282,669 892,052 2026

70,209,673$ 48,828,426$

December 31, 2017

UnrecognisedAmount filed deferred Usable

Year incurred / assessed Unused amount tax assets until year

2010 Assessed 9,392,452$ 3,579,613$ 20202011 Assessed 63,808,943 24,318,605 20212012 Assessed 42,430,348 16,170,882 20222016 Filed 3,047,240 1,161,351 2026

118,678,983$ 45,230,451$

December 31, 2016


Deductible temporary differences 51,793,034$ 48,198,766$


(a) Balance of tax credit account 2,043,097$ 1,420,948$

2017 (Estimated) 2016 (Actual)

(b) Estimated (Actual) creditable tax rate 3.47% 7.47%

238

(27) Earnings per share

(28) Supplemental cash flow information

Investing activities with partial cash payments:

RELATED PARTY TRANSACTIONS

(1) Names of related parties and relationship

For the more information about the Company and other subsidiaries, please refer to Note 4(3) of the consolidated financial report for the year ended December 31, 2017.

(2) Significant related party transactions A. Operating revenue

2017 2016Basic earnings per shareProfit attributable to ordinary shareholders of the parent 37,028,609$ 1,870,687$


Basic earnings per share (in dollar) 3.72$ 0.19$

Diluted earnings per shareProfit attributable to ordinary shareholders of the parent 37,028,609$ 1,870,687$


Assumed conversion of all dilutive potential ordinary shares: -Employees’ compensation 259,625 54,316

-Restricted stocks 22 4,052

10,211,698 10,005,661

Diluted earnings per share (in dollar) 3.63$ 0.19$


2017 2016

Purchase of property, plant and equipment 51,299,182$ 41,145,085$

Add: Opening balance of payable on equipment 3,108,898 4,119,425

Less: Ending balance of payable on equipment 32,086,845)( 3,108,898)(

Cash paid during the year 22,321,235$ 42,155,612$


Names of related parties Relationship with the Company

Hon Hai Precision Industry Co., Ltd. and its subsidiaries

The related party is owned by the samemajor shareholder of the Company

Chi Lin Optoelectronics Co., Ltd. and its subsidiaries The related party’s director is the Company

FI Medical Device Manufacturing Co., Ltd. Associate

GIO Optoelectronics Corp. Associate

Leadtek Global Group Limited The Company’s subsidiary

Lakers Trading Ltd. Indirect investee of the Company

Innolux Hong Kong Limited Indirect investee of the Company

Foshan Innolux Optoelectronics Ltd. Indirect investee of the Company

239

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 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”)

2017 2016

Sales of goods:

Others 34,304,366$ 14,619,410$

Subsidiaries 19,877,722 11,788,496


54,219,203$ 26,521,822$


2017 2016

Others 6,465,106$ 3,014,178$

Associates 1,337,016 1,363,067

Subsidiaries 101,332 223,037

7,903,454$ 4,600,282$


Purchases of goods:

2017 2016

Processing expense: Subsidiaries - Lakers Trading Ltd. 33,657,805$ 53,116,567$

- Others 40,954,669 36,723,606

Others - 40,737

74,612,474$ 89,880,910$



Payables to related parties: Subsidiaries 1,476,966$ 1,188,143$

Others 8 -

1,476,974$ 1,188,143$

240

E. Receivables from related parties:

(c) 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.

(d) 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 and consigned processing 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:

2017 2016Service revenue: Subsidiaries - Foshan Innolux Optoelectronics Ltd. 585,639$ 207,244$


635,100$ 250,240$


December 31, 2017 December 31, 2016Accounts receivable: Others - Hon Hai Precision Industry Co., Ltd. 3,764,389$ 7,605,574$ - Others 4,363,885 2,012,832 Subsidiaries 1,343,412 655,047 Associates 25,552 47,743

9,497,238 10,321,196 Less: Transfer to other receivables 10,528)( 105,539)( Allowance for sales returns and discounts 3,577)( 16,643)(

9,483,133$ 10,199,014$


Transfer from accounts receivable 10,528$ 105,539$

Other receivables 18,263 17,552

28,791$ 123,091$


Accounts payable:

Subsidiaries

- Leadtek Global Group Limited 21,080,569$ 19,136,288$

- Lakers Trading Ltd. 13,089,589 21,652,362

- Innolux Hong Kong Limited 9,158,742 7,545,137

- Others 3,439 35,737

Others 1,334,266 1,727,306

Associates 193,195 223,584

44,859,800$ 50,320,414$

241

(b) Period-end balances arising from purchases of property (shown as “Other payables”):

(3) Key management compensation

PLEDGED ASSETS

The Company’s assets pledged as collateral are as follows:

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. In December 2009, the Company reached a plea

agreement with the Department of Justice of the U.S. and paid off the fines. Later, Brazil

government initiated an investigation case against the Company. The investigation is still ongoing

and the Company has been cooperative with the investigation. As for civil lawsuits filed by some

state governments in the U.S., downstream panel makers, and customers, the Company had reached

settlement agreement individually.

B. Eidos Displays, LLC and Eidos III, LLC (“Eidos”) filed a lawsuit against the Company and

2017 2016

Subsidiaries 38,536$ 83,144$

Others

- Hon Hai Precision Industry Co., Ltd. 31,456,795 -

- Others 20,360 17,324

31,515,691$ 100,468$



Subsidiaries 28,246$ 6,528$

Others- Hon Hai Precision Industry Co., Ltd. 26,609,511 -

- Others 113 16,917

26,637,870$ 23,445$

2017 2016

Salaries and other short-term employee benefits 130,223$ 138,669$

Share-based payments - 665

Post-employment benefits 432 458

130,655$ 139,792$


Pledged asset December 31, 2017December 31, 2016 Purpose Property, plant and equipment 70,966,784$ 80,828,544$ Long-term loansIntangible assets 7,446 15,551 Long-term loansOther non-current assets

Time deposits722 752

Guarantee for contract and performance bond

70,974,952$ 80,844,847$

Book value

242

American subsidiaries 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.

In February 2014, Eidos appealed to the US Court of Appeals for the Federal Circuit (CAFC). In

March 2015, the CAFC overruled the decision rendered by the district court and ordered a retrial. In

June 2017, the jury determined that some products of the Company and American subsidiaries

constituted direct infringement of patent and ordered an infringement compensation for Eidos. The

Company continued the legal fight by filing a post-trial motion in July 2017. 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.

C. The Company had assessed and recognized related losses and liabilities as shown in

‘provisions-current’ for the aforementioned investigation relating to anti-trust laws and patent

litigation. (2) Commitments

A. Capital expenditure 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 disaster assessment and a conservative estimation on insurance claim to assess possible disaster loss. The insurance claim has been paid as of September 30, 2017. The Company accrued gain of $755,413 after offsetting the loss with insurance claim.

SIGNIFICANT EVENTS AFTER THE BALANCE SHEET DATE None.


Property, plant and equipment 18,878,215$ 17,663,033$


Not later than one year 549,625$ 527,419$

Later than one year but not later than five years 1,854,909 1,861,776

Later than five years 529,173 880,359

2,933,707$ 3,269,554$


Outstanding letters of credit 45,687$ 245,565$

243

OTHERS (11) 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.

(12) 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)).

(b) Risk management is carried out by the treasury department under policies approved by the

board of directors. The 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

d) 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.

e) 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.

f) The Company’s businesses involve some non-functional currency operations (the

Company’s functional currency: NTD). Based on the simulations performed, the impact on

244

post-tax profit of a 1% exchange rate fluctuation would be an increase of $130,606 and

$35,439 for the years ended December 31, 2017 and 2016, 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:

Note: Exchange rate represents the amount of NT dollars for which one foreign currency

could be exchanged. g) 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, 2017 and 2016 amounted to $1,019,872 and $306,238, respectively.

Price risk d) 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.

e) 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, 2017 and 2016 would have increased/decreased by $261,641 and $329,597, 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, 2017 and 2016, 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

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 2,652,560$ 29.76 78,940,186$ 2,348,586$ 32.25 75,741,899$ JPY 291,999 0.26 75,920 388,289 0.28 108,721 EUR 52,375 35.57 1,862,979 80,977 33.90 2,745,120 Non-monetary items USD 2,595,104$ 29.76 77,230,295$ 2,337,217$ 32.25 75,375,248$ HKD 184,669 3.81 703,589 223,521 4.16 929,847 JPY 5,662,973 0.26 1,472,373 5,619,277 0.28 1,573,398 EUR - 35.57 - 3,703 33.90 125,532

Monetary items USD 1,978,955$ 29.76 58,893,701$ 2,088,145$ 32.25 67,342,676$ JPY 33,272,514 0.26 8,650,854 27,233,384 0.28 7,625,348 EUR 4,889 35.57 173,902 2,471 33.90 83,767


Financial liabilities

245

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 or decrease of $71,000 and $112,100 for the years ended December 31, 2017 and 2016, respectively. The simulation is done on a quarterly basis to verify that the maximum loss potential is within the limit given by the management.

(b) Credit risk f) 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.

g) No credit limits were exceeded during the reporting periods. Management does not expect any significant losses from non-performance by these counterparties.

h) 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 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.

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.

246

d) The Company does not expect the timing of occurrence of the cash flows estimated through

the maturity date analysis will be significantly earlier, nor expect the actual cash flow amount will be significantly different.

(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(9).

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, 2017 and 2016 is as follows:


Accounts payable 73,883,573$ -$ -$ 73,883,573$

Other payables 55,797,132 - - 55,797,132

Long-term borrowings(including current portion) 10,960,000 16,890,000 550,000 28,400,000

Non-derivative financial liabilities:

Less than Between 1 Between 3

December 31, 2016 1 year and 3 years and 5 years Total

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 27,550,000 850,000 44,840,000

Derivative financial liabilities:December 31, 2017 Less than 1 year Total

Forward exchange contracts $ 52,500 $ 52,500


Forward exchange contracts $ 734,915 $ 734,915

247

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, foreign exchange swap contracts, the Company 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 and foreign exchange swap contracts are usually valued based on the current


Assets


Financial assets at fair value through profit or loss

Forward exchange contracts -$ 29,744$ -$ 29,744$

Forward exchange swap contracts - 76,890 - 76,890



1,154,959$ 106,634$ 153,248$ 1,414,841$

Liabilities


Financial liabilities at fair value through profit or loss



Assets


Financial assets at fair value through profit or loss




1,438,809$ 64,241$ 209,174$ 1,712,224$

Liabilities


Financial liabilities at fair value through profit or loss


Listed shares Emerging stocks Corporate bond

Market quoted price Closing price Last transaction price Weighted average quoted price

248

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, 2017 and 2016, 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, 2017 and 2016:

G. For the years ended December 31, 2017 and 2016, 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:

2017 2016

At January 1 209,174$ 382,046$

Gains and losses recognized in profit or loss 420,832)( -

Gains and losses recognized in other comprehensive income 510,481 13,537)(

Proceeds from capital reduction 145,575)( 159,335)(

At December 31 153,248$ 209,174$

Equity securities

249

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: Please refer to table 3. 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

Fair value Range

at December Valuation Significant (Weighted Relationship of

31, 2017 technique unobservable input average) inputs to fair value

Non-derivative equity instrument:

Unlisted shares 153,248$ Marketcomparablecompanies

Price to earningsratio multiple, priceto sales ratiomultiple, price tobook ratio multiple

1.26~1.64

(0.78)

The higher themultiple, the higherthe fair value


30%~50%

(24%)


Fair value Range

at December Valuation Significant (Weighted Relationship of

31, 2016 technique unobservable input average) inputs to fair value

Non-derivative equity instrument:

Unlisted shares 209,174$ Marketcomparablecompanies

Price to earningsratio multiple, priceto book ratiomultiple, controlpremium

0.68~1.55

(0.88)

The higher themultiple and controlpremium, the higherthe fair value


30%

(29%)


Favourable UnfavourableFinancial assets Period Input Change change change

Equity instrument 2017/12/31 153,248$ ± 1% 1,532$ 1,532)($

Equity instrument 2016/12/31 209,174 ± 1% 2,092 2,092)(

Recognised in other

comprehensive income

250

capital or more: Please refer to table 4. H. Receivables from related parties reaching $100 million or 20% of paid-in capital or more: Please

refer to table 5. I. Trading in derivative instruments undertaken during the reporting periods: Please refer to Notes

6(2). J. Significant inter-company transactions during the reporting periods: Please refer to table 6.

Information on investees Names, locations and other information of investee companies (not including investees in Mainland China): Please refer to table 7.

(14) Information on investments in Mainland China A. Basic information: Please refer to table 8. B. Significant transactions, either directly or indirectly through a third area, with investee companies

in the Mainland Area: Please refer to Table 1, 4, 5 and 6. SEGMENT INFORMATION

None.

Innolux Corporation Loans to others




account

Is a related party

Maximum outstanding


2017


2017


Interest rate

Nature of loan


with the borrower


Allowance for

doubtful accounts



Footnote

Item Value 1 Innocom

Technology (Shenzhen) Co., Ltd.


Other receivables

Related parties

$ 7,318,350 $ 2,976,000 $ 2,976,000 2.00% Short-term financing

$ -

Operating support

$ -

$ - $ - $ 264,325,048 $ 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

2 Nanjng Innolux Technology Ltd.


Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A



Related parties

178,560 178,560 178,560 1.01% ~1.52%


-

Operating support

-

-

-

264,325,048 264,325,048 A

4 Innolux Europe B.V. Innolux Hong Kong Limited

Other receivables

Related parties

1,379,257 1,351,013 1,351,013 0.626% ~0.633%


-

Operating support

-

-

-

264,325,048 264,325,048 A

5 Innolux Europe B.V. Lakers Trading Ltd. Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

6 Innolux Japan Co., Ltd.


Other receivables

Related parties


-

Operating support

-

-

-

264,325,048 264,325,048 A

252

Innolux Corporation

Loans to others For the year ended December 31, 2017



account

Is a related party

Maximum outstanding


2017


2017


Interest rate

Nature of loan


with the borrower


Allowance for

doubtful accounts



Footnote

Item Value

7 Asiaward Investment Ltd.

Best China Investments Ltd.

Other receivables

Related parties

$ 241,481 $ - $ - 0% Short-term financing

$ - Operating support

$ - $ - $ - $ 264,325,048 $ 264,325,048 A

8 Best China Investments Ltd.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

9 Main Dynasty Investment Ltd.

Mega Chance Investments Ltd.

Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

10 Mega Chance Investments Ltd.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

11 Sun Dynasty Development Limited

Magic Sun Limited Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

12 Magic Sun Limited Lakers Trading Ltd. Other receivables

Related parties


- Operating support

- - - 264,325,048 264,325,048 A

13 Warriors Technology Investments Ltd.


Related parties

3,205,169 3,205,169 3,205,169 0% Short-term financing

- Operating support

- - - 264,325,048 264,325,048 A

14 Innolux Optoelectronics USA, Inc.


Related parties


- Operating support

- - - 264,325,048 264,325,048 A

15 Bright Information Holding Ltd.


Related parties

95,809 95,809 95,809 0% Short-term financing

- Operating support

- - - 264,325,048 264,325,048 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.

253

Innolux Corporation

Holding of marketable securities at the end of the period (not including subsidiaries, associates and joint ventures) December 31, 2017



Relationship with the securities issuer As of December 31, 2017

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 $ 50,910 1 $ 50,910

Innolux Corporation TPV Technology Ltd. None Available-for-sale financial assets - non-current

150,500,000 607,330 6 607,330

Innolux Corporation Chi Lin Optoelectronics Co., Ltd. None Available-for-sale financial assets - non-current

17,792,552 102,338 19 102,338

Innolux Corporation Epistar Corporation None Available-for-sale financial assets - non-current

89,072 4,022 - 4,022

Innolux Corporation Chimei Materials Technology Corp. None Available-for-sale financial assets - non-current

44,741,305 543,607 7 543,607

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

1,439,180 148 2 148

InnoJoy Investment Corporation Advanced Optoelectronic Technology, Inc. None Financial assets at fair value through profit or loss

6,964,222 257,676 5 257,676

InnoJoy Investment Corporation Fitipower Integrated Technology Inc. None Available-for-sale financial assets - non-current

10,000,000 271,900 7 271,900

Ningbo Innolux Optoelectronics Ltd. 上海辰岱投資中心(有限合夥) None Available-for-sale financial assets - non-current

- 127,492 - 127,492

Warriors Technology Investments Ltd. OED Holding Ltd. None Available-for-sale financial assets - non-current

16,000,000 6,052 6 6,052

Warriors Technology Investments Ltd. General Interface Solution (GIS) Holding Limited

None Available-for-sale financial assets - non-current

24,194,000 4,814,606 7 4,814,606

Nets trading Ltd. PilotTech Global Fund None Available-for-sale financial assets - non-current

90 26,784 - 26,784

254

Innolux Corporation

Acquisition or sale of the same security with the accumulated cost exceeding $300 million or 20% of the Company's paid-in capital For the year ended December 31, 2017



Balance as at January 1, 2017 (Note 4)

Addition (Note 3) Balance as at December 31, 2017 (Note 4)

Investor Marketable securities (Note 1)

General ledger

account

Counterparty (Note 2)

Relationship with the investor (Note 2)

Disposal (Note 3)

Number of shares



Selling price

Book value

Gain on disposal

Number of shares

Amount


General Interface Solution (GIS) Holding Limited (Stock)

Available-for-sale financial assets - non-current

Not applicable

Not applicable

40,500,000 $ 3,705,750 - $ - 16,306,000 $ 2,752,692 $ 165,409 $ 2,587,283 24,194,000 $ 4,814,606

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

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

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

Note 4: It includes unrealized gains (losses) on available-for-sale financial assets.

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)


(payable) Innolux Corporation Hon Hai Precision Industry

Co., Ltd. Same major stockholder Sales $ 18,987,653 6 90 days Similar with


$ 3,764,389 8

Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned subsidiary



- -

Innolux Corporation Guizhou Fuzhikang Electronic Co., Ltd.




702,843 1





658,025 1





1,261,004 3





442,533 1

Innolux Corporation Innolux Japan Co., Ltd. An indirect wholly-owned subsidiary



218,925 -




- -

Innolux Corporation eCMMS Precision Singapore Pte. Ltd.




- -




237,634 -

Innolux Corporation Hongfujin Precision Industry (Wuhan) Co., Ltd.




70,209 -





579,927 1

256

Innolux Corporation





transactions


Purchases (sales)


(sales)


(payable) Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned

subsidiary Sales $ 579,412 - 90 days Similar with


$ 140,002 -





109,636 -

Innolux Corporation Innolux Optoelectronics USA, Inc.




43,910 -



Sales 416,110 - 45-90 days Similar with general sales


212,617 -





4 -

Innolux Corporation Innolux Technology USA Inc. A subsidiary of the Company Sales 298,945 - 60 days Similar with general sales


23,717 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd.




796,728 2


A subsidiary of the Company Sales 221,279 - 30-60 days Similar with general sales


46,259 -

Innolux Corporation NANJING HONGFUSHARP PRECISION ELECTRONICS CO., LTD.




23,965 -

Innolux Corporation Nanjing Innolux Optoelectronics Ltd.




55,401 -

Innolux Corporation Ningbo Innolux Optoelectronics Ltd.




- -

Innolux Corporation Hon Hai Precision Industry Co., Ltd.

Same major stockholder Purchases 6,302,886 2 60-90 days after acceptance



( 1,331,325) 2


Investee accounted for under the equity method

Purchases 1,129,036 - 30 days after acceptance



( 160,373) -

Innolux Corporation GIO Optoelectronics Corp. Investee accounted for under the equity method




( 32,821) -


The company is a corporate director of Chi Lin


Single purchases target, no basis


( 1,863) -

257

Optoelectronics for comparison





transactions


Purchases (sales)


(sales)


(payable) Innolux Corporation Lakers Trading Ltd. An indirect wholly-owned

subsidiary Processing expense

$ 33,657,805 13 60-90 days Cost plus No material difference

($ 13,089,589) 18


Processing expense


( 9,158,742) 12

Innolux Corporation Leadtek Global Group Limited A subsidiary of the Company Processing expense


( 21,080,569) 29



Processing revenue



2,767,180 21


Leadtek Global Group Limited A subsidiary of the Company Processing revenue



16,946,551 95



Processing revenue



3,423,930 98



Processing revenue



6,673,314 100



Processing revenue



2,106,625 100


NANJING HONGFUSHARP PRECISION ELECTRONICS CO.,LTD.




7,593,892 22


Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary



846,815 4


Foxconn Precision Electronics (YanTai) Co., Ltd.




- -


Premier Image Technology (China) Ltd.




720,839 2






315,142 3

258


Futaijing Precision Electronics (Beijing) Co., Ltd.




55,085 -





transactions


Purchases (sales)


(sales)


(payable) Foshan Innolux Optoelectronics Ltd.

Panxian FuguiKang Precision electronic Ltd.


Sales $ 513,953 1 90 days Similar with general transactions


$ 607,499 2



Processing revenue



890,068 100


Chongqing Fuyusheng Electronics Technology Co.,Ltd.




279,845 1


Beijing Fusharp Electronic Commerce Ltd.




267,856 1

Lakers Trading Ltd. Ningbo Innolux Electronics Ltd.




32,642 -






70,839 2

Innolux Europe B.V. Innolux Hong Kong Limited An indirect wholly-owned subsidiary

Service revenue



63,124 61

Innolux Technology Japan Co., Ltd.


Service revenue



46,676 92






( 111,114) -






( 424,958) 8



Same major stockholder Purchases 606,150 1 90 days after goods are shipped



( 177,967) 2


Hongfujin Precision Industry (Shenzhen) Co., Ltd.


Purchases 467,721 1 90 days after goods are shipped



( 156,344) 2



Same major stockholder Purchases 138,628

1 90 days after goods are shipped



( 34,312)

1

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





Turnover rate


balance sheet date

Allowance for doubtful accounts

Amount Action taken

Innolux Corporation Hon Hai Precision Industry Co., Ltd. Same major stockholder $ 3,764,389 3.34 $ - - $ 1,019,373 $ -



1,261,004 2.40 49 Subsequent collection 96,383 -

Innolux Corporation Foshan Innolux Optoelectronics Ltd. An indirect wholly-owned subsidiary

796,728 0.44 - - 21,848 -

Innolux Corporation Guizhou Fuzhikang Electronic Co., Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

702,843 10.11 - - 242,084 -



658,025 6.12 - - 285,937 -



579,927 2.03 - - - -





237,634 6.37 - - 87,730 -

Innolux Corporation Innolux Japan Co.,Ltd. An indirect wholly-owned subsidiary

218,925 10.35 - - - -




Innolux Corporation Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

140,002 8.18 - - - -



109,636 2.13 - - 33,789 -

260

Innolux Corporation

Receivables from related parties reaching $100 million or 20% of paid-in capital or more December 31, 2017




Turnover rate


balance sheet date

Allowance for doubtful accounts Amount Action taken

Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited A subsidiary of the Company

$ 16,946,551 1.12 $ 9,908,141 Subsequent collection $ 4,188,141 $ -

Foshan Innolux Optoelectronics Ltd. NANJING HONGFUSHARP PRECISION ELECTRONICS CO., LTD.


7,593,892 1.77 - - 1,559,705 -

Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited An indirect wholly-owned subsidiary

6,673,314 2.11 3,178,558 Subsequent collection 1,767,763 -

Ningbo Innolux Display Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

3,423,930 5.22 - - 1,803,967 -

Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. An indirect wholly-owned subsidiary

2,767,180 1.89 - - 4,646,874 -



2,106,625 4.42 508,631 Subsequent collection 405,283 -



890,068 0.33 846,013 Subsequent collection - -

Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. An indirect wholly-owned subsidiary

846,815 4.18 - - 476,386 -

Foshan Innolux Optoelectronics Ltd. Premier Image Technology (China) Ltd. An indirect wholly-owned subsidiary of Hon Hai Precision Industry Co., Ltd.

720,839 3.91 - - 215,908 -

Foshan Innolux Optoelectronics Ltd. Panxian FuguiKang Precision electronic Ltd.


607,499 1.69 - - - -

Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. An indirect wholly-owned subsidiary

315,142 5.20 - - 150,313 -

Foshan Innolux Optoelectronics Ltd. Chongqing Fuyusheng Electronics Technology Co.,Ltd.


279,845 1.69 - - - -

Foshan Innolux Optoelectronics Ltd. Beijing Fusharp Electronic Commerce Ltd.


267,856 1.69 - - - -

Innolux Corporation Significant inter-company transactions during the reporting period



Number (Note 1)





total assets 0 Innolux Corporation Lakers Trading Ltd. 1 Sales $ 14,194,308 - 4

0 Innolux Corporation Lakers Trading Ltd. 1 Processing expense 33,657,805 - 10

0 Innolux Corporation Lakers Trading Ltd. 1 Accrued expenses ( 13,089,589) - 3

0 Innolux Corporation Innolux Japan Co.,Ltd. 1 Sales 1,919,552 - 1

0 Innolux Corporation Innolux Japan Co.,Ltd. 1 Accounts receivable 218,925 - -

0 Innolux Corporation Innolux Hong Kong Limited 1 Sales 1,703,414 - 1

0 Innolux Corporation Innolux Hong Kong Limited 1 Processing expense 22,426,873 - 7

0 Innolux Corporation Innolux Hong Kong Limited 1 Accrued expenses ( 9,158,742) - 2

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Sales 579,412 - -

0 Innolux Corporation Ningbo Innolux Display Ltd. 1 Accounts receivable 140,002 - -

0 Innolux Corporation Innolux Optoelectronics USA, Inc. 1 Sales 432,561 - -

0 Innolux Corporation Innolux Technology USA Inc. 1 Sales 298,945 - -

0 Innolux Corporation Innolux Optoelectronics Europe B.V. 1 Sales 221,279 - -

0 Innolux Corporation Ningbo Innolux Optoelectronics Ltd. 1 Sales 109,310 - -

0 Innolux Corporation Nanjing Innolux Optoelectronics Ltd. 1 Sales 164,262 - -

0 Innolux Corporation Leadtek Global Group Limited 1 Processing expense 18,527,796 - 6

0 Innolux Corporation Leadtek Global Group Limited 1 Accrued expenses ( 21,080,569) - 5

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Sales 225,318 - -

0 Innolux Corporation Foshan Innolux Optoelectronics Ltd. 1 Accounts receivable 796,728 - -

1 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Processing revenue 15,471,977 - 5

1 Foshan Innolux Optoelectronics Ltd. Lakers Trading Ltd. 3 Accounts receivable 2,767,180 - 1

2 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Processing revenue 18,372,503 - 6

2 Ningbo Innolux Optoelectronics Ltd. Leadtek Global Group Limited 3 Accounts receivable 16,946,551 - 4

3 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Processing revenue 17,786,185 - 5

3 Ningbo Innolux Display Ltd. Lakers Trading Ltd. 3 Accounts receivable 3,423,930 - 1

4 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Processing revenue 12,749,197 - 4

4 Nanjing Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Accounts receivable 6,673,314 - 2

262

Innolux Corporation Significant inter-company transactions during the reporting period




Number (Note 1)





total assets 5 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Processing revenue $ 8,536,865 - 3

5 Shanghai Innolux Optoelectronics Ltd. Innolux Hong Kong Limited 3 Accounts receivable 2,106,625 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Sales 4,706,550 - 1

6 Ningbo Innolux Optoelectronics Ltd. Ningbo Innolux Display Ltd. 3 Accounts receivable 846,815 - -

7 Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. 3 Sales 1,698,493 - 1

7 Innolux Hong Kong Limited Nanjing Innolux Technology Ltd. 3 Accounts receivable 315,142 - -

8 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Processing revenue 258,405 - -

8 Innocom Technology (Shenzhen) Co., Ltd. Lakers Trading Ltd. 3 Accounts receivable 890,068 - -

9 Innolux Europe B.V. Innolux Hong Kong Limited 3 Service revenue 659,699 - -

9 Innolux Technology Japan Co.,Ltd. Innolux Hong Kong Limited 3 Service revenue 270,068 - -

10 Lakers Trading Ltd. Ningbo Innolux Electronics Ltd. 3 Sales 171,488 - -

11 Ningbo Innolux Display Ltd. Ningbo Innolux Optoelectronics Ltd. 3 Sales 162,765 - -

Note A: 1 refers to the parent company to the subsidiary.

3 refers to 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.

Innolux Corporation Information on investees









Footnote


2017


2016


Book value

Innolux Corporation Bright Information Holding Ltd. Hong Kong Investment holdings $ 119,724 $ 119,724 4,910,000 100 $ 95,703 $ 1,084 $ 1,084 Innolux Corporation Golden Achiever International

Limited BVI Investment holdings 119,106 119,106 40,250 100 18,669 ( 41,026) ( 41,026)

Innolux Corporation Innolux Holding Limited Samoa Investment holdings 6,192,679 7,858,300 180,568,185 100 20,423,738 2,635,650 2,635,650 Innolux Corporation Keyway Investment

Management Limited Samoa Investment holdings 62,197 187,457 1,656,410 100 78,709 13,100 13,100

Innolux Corporation Landmark International Ltd. Samoa Investment holdings 33,438,542 33,438,542 709,450,000 100 44,160,820 ( 741,423) ( 771,767) Innolux Corporation Toppoly Optoelectronics

(B.V.I.) Ltd. BVI Investment holdings 3,674,115 3,674,115 146,847,000 100 6,476,884 ( 99,582) ( 98,893)

Innolux Corporation Innolux Hong Kong Holding Limited

Hong Kong Investment holdings 1,889,115 2,107,291 1,158,844,000 100 3,797,279 596,156 586,392

Innolux Corporation Leadtek Global Group Limited BVI Distributor company - - 50,000,000 100 999,166 1,326,504 1,326,504

Innolux Corporation Yuan Chi Investment Co., Ltd. Taiwan Investment company 1,217,235 1,217,235 - 100 843,311 ( 108,668) ( 108,668)

Innolux Corporation InnoJoy Investment Corporation Taiwan Investment company 1,674,054 1,674,054 167,405,392 100 1,381,380 65,209 65,209


Netherlands Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

- 121,941 - - - 6,965 5,944

Innolux Corporation Innolux Japan Co., Ltd. Japan Holdings, R&D, manufacturing and Distributor company

1,335,486 1,335,486 80 49 1,496,157 22,299 22,299

Innolux Corporation Innolux Corporation USA Distributor company 90,845 - 32,000 100 2,500 ( 1,335) ( 203)

Innolux Corporation Innolux Technology USA Inc. USA Distributor company 354,262 - 1,000 100 349,930 8,543 493

Innolux Corporation iZ3D, Inc. USA Research and development and sale of 3D flat monitor

- - 4,333 35 - - -

Innolux Corporation Chi Mei Lighting Technology Corporation


819,312 819,312 78,195,856 33 - - -

Innolux Corporation Ampower Holding Ltd. Cayman Investment holdings 1,717,714 1,717,714 14,062,500 50 853,016 25,735 12,867


Taiwan Production and selling of the absorption for medical element

73,500 73,500 7,350,000 49 525,926 685,633 339,907

264

Innolux Corporation








Footnote


2017


2016


Book value

Innolux Corporation GIO Optoelectronics Corp. Taiwan Sales and manufacture of TFT-LCD parts and components

$ 800,892 $ 800,892 10,494,001 24 $ 111,354 $ 37,487 $ 8,914


Rockets Holding Ltd. Samoa Investment holdings 5,222,180 7,296,530 160,504,550 100 11,932,235 ( 31,714) ( 31,714)


Suns Holding Ltd. Samoa Investment holdings 555,422 555,422 18,177,052 100 8,264,697 2,668,427 2,668,427


Lakers Trading Ltd. Samoa Distributor company - - 1 100 226,729 - -


Innolux Corporation USA Distributor company - 6,348 - - - ( 1,335) ( 1,132)



Cayman Investment holdings 3,650,192 3,650,192 146,817,000 100 6,476,566 ( 99,582) ( 99,582)


Innolux Optoelectronics Hong Kong Holding Limited

Hong Kong Investment holdings - - 162,897,802 100 1,394,290 165,169 165,169


Innolux Hong Kong Limited Hong Kong Distributor company - - 35,000,000 100 ( 1,089,257) 374,757 374,757


Innolux Europe B.V. Netherlands Holding company and R&D testing company

3,209,158 3,073,072 375,810 100 2,341,954 42,943 42,943


Innolux Japan Co.,Ltd. Japan Holdings, R&D, manufacturing and Distributor company

1,815,603 1,815,603 82 51 1,661,840 1,351 1,351


Innolux Technology USA Inc. USA Distributor company - 263,685 - - - 8,543 8,050

Innolux Europe B.V. Innolux Optoelectronics Germany GmbH

Germany Importing, exporting, buying, selling and logistics services of electronic equipment and TFT-LCD monitors

10,324 10,324 250 100 14,077 634 634

Innolux Japan Co.,Ltd. Innolux Optoelectronics USA, Inc.

USA Selling of electronic equipment and computer monitors

2,400 2,400 1,000 100 271,811 9,214 9,214

Rockets Holding Ltd. Stanford Developments Ltd. Samoa Investment holdings 5,391,125 5,391,125 164,000,000 100 11,903,213 ( 33,332) ( 33,332) Rockets Holding Ltd. Nets Trading Ltd. Samoa Investment company 27,477 27,477 900,001 100 28,889 1 1 Suns Holding Ltd. Warriors Technology

Investments Ltd. Samoa Investment company 555,422 555,422 18,177,052 100 8,264,696 2,668,427 2,668,427

Innolux Europe B.V. Innolux Technology Germany GmbH

Germany Testing and maintenance company

33,735 33,735 100,000 100 62,081 2,864 2,864


Chi Mei Lighting Technology Corporation


263,812 263,812 19,673,402 8 - - -

265

Innolux Corporation








Footnote


2017


2016


Book value


GIO Optoelectronics Corp. Taiwan Manufacturing and selling of components of TFT-LCD

$ 6,881 $ 6,881 77,235 - $ 843 $ 37,487 $ 67


TOA Optronics Corporation Taiwan Selling of electronic materials, trading business, manufacturing of electronic equipment and lighting equipments

423,606 423,606 58,007,000 40 - ( 272,602) ( 86,901)

Innolux Corporation Information on investments in Mainland China




Investee in Mainland

China Main business activities Paid-in capital

(Note A) Investment

method (Note C)




2017







31, 2017



2017







December 31, 2017




2017

Footnote


China




$ 4,880,640 2 $ 3,776,893 $ - $ - $ 3,776,893 ($ 33,371) 100 ($ 33,371) $ 11,903,163 $ 1,103,747 2.1

OED Company Manufacturing and selling of electronic paper

292,896 2 59,520 - - 59,520 ( 96,503) 4 - 6,752 - 2.1



9,225,600 2 219,184 - - 219,184 ( 1,993,452) 100 ( 1,993,452) 19,339,733 5,137,616 2.2



11,398,080 2 11,398,080 - - 11,398,080 934,684 100 937,060 20,721,423 - 2.2



4,761,600 2 4,761,600 - - 4,761,600 314,967 100 314,967 4,164,917 - 2.2

Nanjng Innolux Technology Ltd.

Purchases and sales of monitor-related components company

62,496 2 62,496 - - 62,496 19,625 100 19,625 557,316 - 2.3

VAP Optoelectronics (Nanjing) Corp.


300,576 2 113,088 - - 113,088 ( 41,027) 100 ( 41,027) 18,295 - 2.4



4,344,960 2 4,286,499 - - 4,286,499 ( 116,971) 100 ( 116,971) 5,919,229 - 2.3 2.8



624,960 2 - - - - 165,169 100 165,169 1,394,290 - 2.5

267

Investee in Mainland China

Main business activities Paid-in capital (Note A)

Investment method (Note C)




2017







31, 2017



2017







December 31, 2017




2017

Footnote


China



Warehousing services $ 44,640 2 $ 44,640 $ - $ - $ 44,640 $ 4,737 100 $ 4,737 $ 74,038 $ - 2.6

Amlink (Shanghai) Ltd. Manufacturing and selling of power supply, modem, ADSL, and other IT equipments

238,080 2 297,600 - - 297,600 - 50 - 192,427 - 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

2,862,912 2 401,760 - - 401,760 1,821,286 7 - 4,814,606 - 2.1



136,635 3 - - - - 130,536 100 130,536 371,711 - 3.1





Ceiling on investments in Mainland China:

Company name Accumulated amount of remittance from

Taiwan to Mainland China as of December 31, 2017

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 $ 26,761,777 $ _35,873,581 $ 158,595,029

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, 2017 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 Limited 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.

268

2.8. Nanjing Innoloux Optoelectornics Ltd. acquired Kunpal Optoelectronics Ltd. by merger, which was approved by the Investment Commission of the Ministry of Economic Affairs in November 2017.

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

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