uploads4.craft.co · 2019-08-21 · 1. spokesperson of chroma ate inc. name: paul ying position:...

1. Spokesperson of Chroma ATE Inc.

Name: Paul Ying

Position: Vice President, Finance & Administration Center

TEL: (03)327-9999 ext. 2001

Email: [email protected]

Deputy spokesperson of Chroma ATE Inc.

Name: Jennifer Chien

Position: Director, Investor Relation & Corporate Investment, Finance & Administration Center

TEL: (03)327-9999 ext. 2701

Email: [email protected]

2. Addresses and telephone numbers of company headquarters and subsidiaries:

Company HQ address: 66 Huaya 1st Road, Guishan, Taoyuan 33383, Taiwan

TEL: (03)327-9999

Factory address: 68 Huaya 1st Road, Guishan, Taoyuan 33383, Taiwan

TEL: (03)327-9999

Hsinchu Branch office address: 6F, No. 5, Technology Rd., Science Park, Hsinchu City 30078,

Taiwan

TEL: (03)563-5788

Kaohsiung Branch office address: No.1, Beineihuan E. Rd., Nanzi Dist., Kaohsiung City 81170,

Taiwan

TEL: (07)365-6188

3. Stock transfer agent

Name: Taishin International Bank

Address: B1, No. 96, Section 1, Jianguo North Road, Taipei City 10499, Taiwan

Website: http://www.taishinbank.com.tw

TEL: (02)2504-8125

4. Certified Public Accountant (CPA) for the most recent financial report

Name: CPA Cheng-Ming Lee and CPA Wen-Chi Kuo

Name of accounting firm: Deloitte & Touche

Address: 20F, Taipei Nan Shan Plaza, No. 100, Songren Rd., Xinyi Dist., Taipei 11073, Taiwan

Website: http://www.deloitte.com.tw

TEL: (02)2725-9988

5. Name of any overseas securities trading agency and search name in the said overseas securities

trading agency: None

6. Company website: http://www.chromaate.com

Critical financial indicators (consolidated)

Unit: NT$ millions

.

2016 2017 2018

Consolidated operating revenue 11,624 14,901 16,931

Net income (attributable to the owner of the parent

company)

1,720 2,558 2,546

Earnings per share, EPS (NT$) 4.53 6.41 6.22

Capital stock 3,899 4,119 4,168

Total assets 18,633 22,018 23,202

Total equity 10,788 13,463 14,690

Return on total assets 10.12 12.68 11.37

Return on total equity 17.18 21.46 18.42

103079692

11624

14901

16931

0100020003000400050006000700080009000

100001100012000130001400015000160001700018000

2014 2015 2016 2017 2018

Unit: million NT$

Consolidated revenue for the 5 most recent years

1318 1237

1720

2558 2546

0200400600800

10001200140016001800200022002400260028003000

2014 2015 2016 2017 2018

Unit: million NT$

Net income after tax for the 5 most recent years

3.51 3.28

4.53

6.41 6.22

2014 2015 2016 2017 2018

Unit: NT$

Earnings per share for the 5 most recent years

Table of Contents

Chapter 1 Report to Shareholders ................................................................................................ 1

Chapter 2 Company Introduction

I. Date of founding ................................................................................................ 2

II. Company overview ............................................................................................ 2

Chapter 3 Corporate Governance Report

I. Organization ....................................................................................................... 4

II. Directors, CEO, general managers, vice presidents, assistant managers,

and supervisors at various departments and branches ....................................... 6

III. Operation of corporate governance .................................................................. 15

IV. CPA fees .......................................................................................................... 43

V. Replacement of CPAs ...................................................................................... 44

VI. The Corporation's Chairman, CEO, or any managerial officer in charge

of finance or accounting matters who has held a position at the

accounting firm of its CPAs or at an affiliated company in the most recent

year ................................................................................................................... 44

VII. Equity transfer or changes in equity pledged by directors, managerial

officers, or shareholders holding more than 10% of the Corporation's

shares in the most recent year up to the publication date of this annual

report ................................................................................................................ 45

VIII. Information on the 10 largest shareholders who are related parties or each

other's spouses and relatives within the second degree of kinship .................. 47

IX. Number and percentage of shares held by the Corporation, its directors,

managerial officers and directly or indirectly controlled reinvestment

companies in the same reinvestment companies ............................................. 48

Chapter 4 Financing Status

I. Capital and shares ............................................................................................ 49

II. Corporate bond ................................................................................................. 57

III. Preferred shares ................................................................................................ 58

IV. Overseas depositary receipt ............................................................................. 58

V. Employee stock warrant ................................................................................... 58

VI. New restricted employee shares ....................................................................... 60

VII. Issuance of new shares in connection with the merger or acquisition of other

companies ........................................................................................................ 63

VIII. Implementation of capital utilization plan ....................................................... 63

Chapter 5 Operation Summary

I. Business content ............................................................................................... 65

II. Market, production and sales summary ........................................................... 74

III. Employee information in the two most recent years up to the publication

date of this annual report .................................................................................. 81

IV. Environmental protection expenditure ............................................................. 81

V. Labor relations ................................................................................................. 82

VI. Important contracts .......................................................................................... 84

Chapter 6 Financial Summary

I. Condensed balance sheet and statement of comprehensive income in the

five most recent years ...................................................................................... 85

II. Financial analysis in the five most recent years ............................................... 88

III. Audit Committee's audit report on financial statements in the most recent

year ................................................................................................................... 92

IV. Financial statements in the most recent year ................................................... 92

V. The Corporation's parent company-only financial statements audited and

attested by CPAs in the most recent year ......................................................... 92

VI. Financial condition of the Corporation and affiliated companies .................... 92

Chapter 7 Review and Analysis of Financial Condition and Performance, and Relevant Risk

Events

I. Financial condition ........................................................................................... 93

II. Financial performance ..................................................................................... 94

III. Cash flow ......................................................................................................... 95

IV. Impact of material expenditures on the Corporation's finances and

operations in the most recent year ................................................................... 95

V. Policy on investment in other companies, main reasons for profit/losses

resulted therefrom, improvement plans, and investment plans for the

coming year ...................................................................................................... 96

VI. Risk analysis and assessment for the most recent year up to the

publication date of this annual report ............................................................... 97

VII. Other important matters ................................................................................. 102

Chapter 8 Special Notes

I. Information on affiliated companies .............................................................. 103

II. Private placement of securities in the most recent year up to the

publication date of this annual report ............................................................. 110

III. Holding or disposition of the Corporation's shares by subsidiaries in the

most recent year up to the publication date of this annual report .................. 110

IV. Other supplementary matters ......................................................................... 110

V. Any event that results in substantial impact upon shareholders’ equity or

prices of the Corporation’s securities as prescribed by Article 36,

Paragraph 3, Subparagraph 2 of the Securities and Exchange Act that

have occurred in the most recent year up to the publication date of this

annual report .................................................................................................. 110

1

Chapter 1 Report to Shareholders

Business results

The global economy begins to slow down from second half of year 2018. The trade war between

US and China has been a great source of uncertainty for market. Several Chinese manufacturing

companies were moving abroad to outside of China, which slow down the capacity expansion plan

and reduce capital spending. The Company’s sales revenues of testing equipment business in 2018

were weakened due to the US-China Trade War impact. Chroma ATE Inc. the consolidated sales

revenues in year 2018 was NTD 16.9 billion, while the parent company sales revenues were 7.5

billion, with net income of 2.5 billion equals to earnings per share of NTD 6.22.

In year 2018, Chroma consolidated testing equipment business was declined 1%. The test

instruments & automatic testing system sector was increased by 4%, due to the demand of high power

testing equipment from EV related components / modules and battery cell / pack testing remain strong.

However, the semiconductor / photonics testing solution were declined 23%, mainly due to IC market

headwinds demand decreased. For other consolidated entity MAS automation business was

outstanding performance, presented a sales growth of 92%, which the consolidated sales revenues in

2018 to grow 14% year-on-year. Other consolidated financial ratio stated as below:

Financial Performance for Year 2017 ~ 2018

Item 2018 2017

Capital Structure

Analysis

Debt Ratio (%) 36.69 38.85

Long-term Fund to Fixed Assets Ratio (%) 508.27 566.49

Liquidity Analysis Current Ratio (%) 221.54 203.76

Quick Ratio (%) 163.98 161.87

Profitability

Analysis

Return on Total Assets (%) 11.37 12.68

Return on Equity Attributable to Shareholders

of the Parent (%) 18.42 21.46

Net Profit Margin (%) 15.04 17.17

Business plan, development strategies, external competition and environment, legal

environment, and macro-business environment

Look forward to year 2019, US trade protectionism policy appreciated US market, but global

economy uncertainty remains from US-China Trade War. To face wakening global economy

headwinds and fast market turnover, we expect to adopt following strategies to commit a good sales

growth and returns to our shareholders.

1. Increasing North America market penetration and sales force.

2. Close attention on Southeast Asia market development due to China supply chain moving abroad.

3. Active development of related testing equipment needs for megatrend of AI, 3D Imaging Sensing

and 5G communication.

Finally, we would like to express our gratitude to all our shareholders for their unstinted

support and encouragement. We wish everyone good health and all the best.

Chairman & CEO Leo Huang

2

Chapter 2 Company Introduction I. Date of founding: November 8, 1984

II. Company overview

November 8, 1984 Founded in Taipei city with a capital of NT$2 million.

The first Chinese-invented programmable video signals generator (65MHz)

was officially launched.

November 1986 The world's first synchronous parallel test architecture developed to

automatically test switching power supplies.

February 1993 Invested in Chroma ATE Inc., a subsidiary in the US to set up the

Corporation's sales office based in the United States.

December 1993 Official opening and operation of the new Wugu factory.

February 1993 Invested in Neworld Electronics Ltd., a subsidiary in Hong Kong to expand

the Corporation’s base in the Mainland China market.

December 1994 Granted the ISO9002 quality certification.

November 1995 Successfully obtained the Chinese National Laboratory Accreditation (CNLA)

from the Central Bureau of Standards.

December 1996 The Corporation was listed in the stock market for trading on December 21.

August 1997 Granted the ISO9001 quality certification.

December 1997 The 9107 Uninterruptible Power Supply and the 3203 Memory IC Tester won

the 6th Taiwan Excellence Award.

April 1998 Honored with the 6th Industrial Technology Development Outstanding

Performance Award from the Ministry of Economic Affairs (MOEA).

Invested in DynaScan Technology Corp.

July 1998 The 7100 Color Analyzer won the Outstanding Photonics Product Award

during the 2nd Photonics Festival in Taiwan.

September 1998 Invested in Adlink Technology Inc.

December 1998 The 2225 and 2235 Series Video Pattern Generators and the 9105

Uninterruptible Power Supply won the 7th Taiwan Excellence Award.

May 1999 The 9105/9107 Uninterruptible Power Supply won the Excellent Product

Design Award.

June 1999 Acquired Hita Technology Co., Ltd.

September 1999 Invested in Chroma ATE Europe B.V., a subsidiary in the Netherlands to set

up the Corporation's sales office based in Europe.

November 1999 Official opening and operation of the new Linkou factory.

June 2000 First issuance of unsecured convertible corporate bonds in Taiwan worth NT$

1.5 billion.

August 2000 Invested in EVT Technology Co., Ltd.

January 2001 Acquired ZentechTech Inc.

March 2003 Set up a branch office in Hsinchu Science Park.

September 2003 Set up the Global Corporate HQ in Taiwan.

March 2004 Donated a 360-degree LED display to National Chiao Tung University, the

first of its kind in a Taiwanese university.

December 2004 20th Anniversary of the Corporation and grand opening of the Linkou

Operational HQ.

June 2005 Expiration and delisting of the first unsecured convertible corporate bonds

issued in Taiwan

August 2006 Spun off the Special Material Business Unit (BU) to form a new subsidiary,

3

Chroma New Material Corp.

September 2006 Grand opening of the Chroma ATE Suzhou plant in China.

January 2007 Invested in Wei Kuang Automatic Equipment (Nanjing) Co., Ltd., Mou Kuan

Technologies (Nanjing) Co., Ltd., Sajet Technology Co., Ltd., and MAS

Automation Corp.

February 2007 Invested in Wei Kuang Automation (Xiamen) Co., Ltd.

March 2007 Invested in Testar Electronics Corp.

April 2007 Established Manufacturing Execution System (MES) Business Unit.

March 2008 Simplified merger with subsidiary Silver Town Electronic Co., Ltd.

May 2008 Established Chroma Japan Corp.

March 2009 Granted the ISO 9001:2008 certification.

September 2009 Established Kaohsiung branch.

September 2009 Invested in Chroma Systems Solutions, Inc. to set up a sales location in the US.

August 2010 Acquired several prestigious awards from Finance Award in 2010, including the

Best Managed Corporation Award, the Best Corporate Governance Award, and

the Best Medium-sized Enterprise in Taiwan.

October 2010 Granted the ISO/TS 16949 certification.

August 2011 Acquired Wise Life Technology Co., Ltd.

January 2012 Successfully acquired the tender for the Industrial Development Zone (Tender A)

in the Taoyuan International Airport Access MRT Station A7 Transit-Oriented

Development Zone.

January 2012 The High Precision LED Rapid 2D Light and Color Measurement Technology

Development Project successfully won the Excellent Industrial Contribution

Award in the 2011 Technical Excellence Program from MOEA.

November 2012 Simplified merger of subsidiary Novatest Electronics Co., Ltd.

December 2012 Successfully acquired the world’s first SAE J1772 certification from UL for

automated communication protocol testing system.

February 2013 Honored with the 1st Taiwan Mittelstand Award from the Industrial

Development Bureau, MOEA.

February 2013 Invested in Adivic Technology Co., Ltd.

May 2014 Second issuance of unsecured convertible corporate bonds in Taiwan worth NT$

2 billion.

January 2016 Invested in Quantel Private. Ltd. in Singapore to establish a sales location in

Southeast Asia

January 2017 Received the Distinguished Enterprise Innovation Award, the highest honor from

the 5th National Industrial Innovation Award.

August 2017 Established Innovative Nanotech, Inc.

September 2017 Established a subsidiary in Germany.

October 2017 Invested in Touch Cloud Inc.

October 2017 Honored with the “Best Trade Contribution Award” delivered by MOEA.

January 2018 The 61800 Series Regenerative Grid Simulator and the 3160C Tri-Temp Quad-

Site Handler won the 26th Taiwan Excellence Award.

February 2018 Established Chroma Korea, a branch office in South Korea.

May 2018 Chroma Germany GmBH was granted the ISO 9001 certification.

January 2019 The 17040 Regenerative Battery Pack Test System and the 2238 Video Pattern

Generator won the 27th Taiwan Excellence Award.

February 2019 Invested in Camtek Ltd.

4

Chapter 3 Corporate Governance Report I. Organization

(I)Organizational structure

5

(II) Responsibilities and functions of major departments

Department Responsibilities

CEO Office

Establish the Corporate Marketing Department, the Legal Affairs

Department, and the Safety and Health Center. Formulate company-wide

administrative and business objectives, implement communication and

coordination, product planning, new business development and planning,

patent management and contract review, environmental protection, and

occupational safety and health (OSH) management.

Internal Auditor Establish, update, and revise internal audit and control systems.

Review, revise, and audit internal control systems.

Semiconductor

Testing Equipment

BU

Responsible for the planning, research, and development (R&D), and

marketing of semiconductor test equipment and products.

Test &

Measurement BU

Responsible for the R&D and marketing of measurement instruments.

In charge of calibration services as well as operations of calibration labs for

measurement instruments.

Integrated System

Solution BU

R&D of automated mechatronic systems used for measurement purposes.

Responsible for the planning, R&D, and marketing of modular instruments

and products.

Responsible for the planning, R&D, and marketing of system integration

solutions.

Intelligent

Manufacturing

System BU

Responsible for the R&D and marketing of MES systems.

Manufacturing

Center

Responsible for the raw material purchasing and production for the entire

corporation.

Responsible for the planning and maintenance of product quality system.

Advanced

Technology

Research Center

New technology planning and development, and supporting various BUs in

understanding the future development of new industries.

Finance &

Administration

Center

Consist of the Financial Department, the Accounting Department, the

Human Resources Department, the General Affairs Department, and the

Facilities Department.

Financial Department: Responsible for capital planning and utilization for

the entire corporation, assessing investment plans, and providing support for

certain operations.

Accounting Department: Responsible for establishing and implementing an

accounting system, and handling various taxation and accounting affairs.

Human Resources Department: Responsible for planning HR resources,

organizational development, and training for the entire corporation.

General Affairs Department: Responsible for the purchase of routine

equipment and items, as well as the management of equipment and fixed

assets for the entire corporation.

Facilities Department: Responsible for factory maintenance and safety.

Operation

Management Center

Responsible for building and managing the Corporation's operations

management system. Establish the IT Department (including the IT System

Development Section, the IT System Management Section, and the Data

Control Section), carry out planning and safety controls for IT equipment

and application systems throughout the entire corporation, and issuance and

control of rules and regulations.

6

II. Directors, CEO, general managers, vice presidents, assistant managers, and supervisors at various departments and branches

(I) Director Information As of April 20, 2019

Title

Nationality or place

of

registration

Name Gender Date

elected

Final date

of the term

of office

Date of first election

Number of shares held when elected

Number of shares currently held

Shares held by spouse or minor children

Number /

percentage of shares

held in the

name of other

persons

Major experience/academic background Positions currently assumed in the Corporation

or other companies

Any managerial officer, director,

or supervisor who is a spouse or relative within the second degree

of kinship

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding

percentage Title Name Relation

Chairman

Republic

of China

Leo Huang Male 2017.06.08 2020.06.07 1984.10.23 23,419,897 5.78% 20,491,897 4.90% 11,794,362 2.82% 0

Bachelor of Electronics Engineering, National Chiao

Tung University

CEO of the Corporation

Director, I-Sheng Electric Wire & Cable Co., Ltd. Director, Leadtek Research Inc.

Independent Director, Member of Audit Committee and

Member of Remuneration Committee, Ichia Technology Inc.

Representative of Corporate Director, Tian Zheng

International Precision Machinery Co., Ltd.

Director, Twoway Communications Inc.

Chairman, DynaScan Technology Corp.

Refer to Page 106 to 108 for details on positions assumed in affiliated companies

None None None

Independent

director

Republic

of China

Tsung-Ming

Chung Male 2017.06.08 2020.06.07 2002.05.21 0 0 0 0 0 0 0

Master of Business Administration, National Chengchi

University Certified Public Accountant, Republic of China

Licensed Accountant, State of Connecticut, USA

Accountant, Deloitte & Touche Part-time Instructor, Department of Accounting, National

Chengchi University

Applied Accounting Instructor, College of Management, National Taiwan University

Chairman, Dynapack Corp.

Representative of Corporate Director, Far Eastern International Bank

Director, Unity Opto Technology Co., Ltd.

Independent Director, Member of Audit Committee, Member of Risk Management Committee, and Member of

Remuneration Committee, Fubon Hyundai Life Insurance

(South Korea) Co., Ltd.

None None None

Independent

director

Republic of

China

Quincy Lin Male 2017.06.08 2020.06.07 2005.05.18 0 0 0 0 0 0 0

Ph.D. in Business Administration, University of

Kentucky, USA

Senior Vice President, Taiwan Semiconductor Manufacturing Corporation

Chairman, Neo Solar Power Corporation

Director, Rafael Microelectronics Inc.

Chairman, DynaScan Technology Corp.

Director, Co-founder and Strategy Consultant, United Renewable Energy Co., Ltd.

Independent Director, Member of Audit Committee, and

Member of Remuneration Committee, Power Technology Inc.

None None None

Independent

director

Republic

of China

Tai-Jen

George Chen

Male 2017.06.08 2020.06.07 2017.06.08 0 0 0 0 0 0 0

Ph.D. in Atmospheric Science, State University of New

York, USA Chair Professor, National Taiwan University

Executive Vice President, National Taiwan University

Vice President for Academic Affairs, National Taiwan University

Chair, Department of Atmospheric Sciences, National

Taiwan University President, Chinese Geoscience Union

Chair Professor, National Taiwan University

Independent Director, Member of Audit Committee and Member of Remuneration Committee, Ichia Technology

Inc.

None None None

Director

Republic

of China

I-Shih

Tseng Male 2017.06.08 2020.06.07 2012.06.06 383,548 0.09% 397,548 0.09% 238,722 0.06% 0

Ph.D. in Mechanical Engineering, Pennsylvania State

University, USA Project Manager, Institute for Information Industry

President of the Corporation


None None None

Director

Republic

of China

Tsun-I

Wang Male 2017.06.08 2020.06.07 2005.05.18 19,339 0 19,339 0 936 0 0

Ph.D. in Photonics, National Chiao Tung University

Vice President, Tailyn Technologies, Inc.

Vice President, Champion-Lighting Technologies Limited

Chief Technology Officer, DynaScan Technology Corp.

Independent Director and Member of Remuneration

Committee, Dynapack Corp. Refer to Page 106 to 108 for details on positions assumed in

affiliated companies

None None None

Director

Republic

of

China

Chung-Ju Chang

Male 2017.06.08 2020.06.07 2012.11.01 0 0 0 0 0 0 0

Ph.D. in Electrical Engineering, National Taiwan University

Vice President for R&D, Office of Research and

Development, National Chiao Tung University Chairman and Director, the Institute of Communications

Engineering, National Chiao Tung University

Lifetime Chair Professor, Department of Electrical Engineering, National Chiao Tung University

Director, Ting-Shiun Telecommunication Development Foundation

Director, National Information Infrastructure Enterprise

Promotion Association None None None

7

Director Information

Criteria

Name

Does the individual have more than 5 years of

professional experience and the following qualifications?

Meets the criteria for independence (Note

1)

Currently

serving as

an

independent

director in

other public

companies

Currently serving

as an instructor or

in higher positions

in a private or

public college or

university in the

field of business,

law, finance,

accounting, or the

business sector of

the Corporation

Currently serving as

a judge, prosecutor,

lawyer, certified

public accountant or

other professional or

technician that must

undergo national

examinations and

specialized license.

Professional

experience

necessary for

business

administration,

legal affairs,

finance,

accounting or

company sales

1 2 3 4 5 6 7 8 9 10

Leo Huang 1

Tsung-

Ming

Chung

0

Quincy Lin 1

Tai-Jen

George

Chen

1

I-Shih

Tseng 0

Tsun-I

Wang 1

Chung-Ju

Chang 0

Note 1: For any director who fulfills the relevant condition(s) two years before being elected or during the term of office, please tick the

field under the corresponding condition(s).

(1) Not employed by the Corporation or its affiliated companies.

(2) Not serving as a director or supervisor of the Corporation or any affiliated company (However, this does not apply to cases where

the person is an independent director of the Corporation, its parent company or subsidiaries established in accordance with the

laws of Taiwan or with the laws of the country of the parent company or subsidiary).

(3) Not a natural person shareholder who holds more than 1% of the total number of shares issued or is ranked top 10 in terms of the

total number of shares held, including the shares held in the name of the person’s spouse, minor children, or in the name of others.

(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship in the preceding

three items.

(5) Not a director, supervisor, or employee of a corporate shareholder that directly holds more than 5% of the total number of shares

issued by the Corporation or is ranked top 5 in terms of the number of shares held.

(6) Not a director (member of the Board of Directors), supervisor (member of the Board of Supervisors), managerial officer or

shareholder holding more than 5% of the shares of a specific company or institution that has a financial or business relationship

with the Corporation.

(7) Not a professional individual or owner, partner, director (member of the Board of Directors), supervisor (member of the Board

of Supervisors), or managerial officer of a sole proprietorship, partnership, company, or institution that provides commercial,

legal, financial, accounting, or consultation services to the Corporation or to any affiliated company, or spouse thereof. However,

this restriction does not apply to any member of the Remuneration Committee who exercises powers pursuant to Article 7 of the

Regulations Governing the Appointment and Exercise of Powers by the Remuneration Committee of a Company Whose Stock

is Listed on the Stock Exchange or Traded Over the Counter.

(8) Not a spouse or a relative within the second degree of kinship with any director.

(9) Where none of the circumstances specified in Article 30 of the Company Act applies.

(10)Where the person is not elected in the capacity of the government, a juristic person or a representative thereof as provided in

Article 27 of the Company Act.

8

(II) CEO, general managers, vice presidents, assistant managers, and supervisors at various departments and branches As of April 20, 2019

Title Nationality Name Gender Date of

appointment

Number of shares held Shares held by spouse or

minor children

Shares held in the name

of other persons Major experience/academic background Positions currently assumed in other companies

Any managerial officer who is

a spouse or a relative within

the second degree of kinship

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding


CEO

Republic

of

China

Leo Huang Male 1984.11.08 20,491,897 4.90% 11,794,362 2.82% 0 0

Bachelor of Electronics Engineering, National Chiao Tung University

Director, I-Sheng Electric Wire & Cable Co., Ltd.; Director, Leadtek Research Inc.; Independent

Director, Member of Audit Committee and Member

of Remuneration Committee, Ichia Technology

Inc.; Representative of Corporate Director, Tian

Zheng International Precision Machinery Co., Ltd.;

Director, Twoway Communications, Inc.;

Chairman, DynaScan Technology Corp. Refer to Page 106 to 108 for details on positions

assumed in affiliated companies

None None None

General Manager, Test &

Measurement BU

Republic

of

China

David Yang Male 1992.08.14 45,352 0.01% 70,002 0.02% 0 0

Bachelor of Electronics Engineering, National

Chiao Tung University

Teaching Assistant, Department of Information

Technology, College of Engineering, Chung Hua

University

Refer to Page 106 to 108 for details on positions

assumed in affiliated companies None None None

General Manager,

Integrated System Solution

BU

Republic

of

China

I-Shih Tseng Male 1998.07.16 397,548 0.09% 238,722 0.06% 0 0

Bachelor of Mechanical Engineering, Pennsylvania

State University, USA

Project Manager, Institute for Information Industry



General Manager of the Business Department

Republic of

China

C. C. Ho Male 2001.12.10 60,088 0.01% 0 0 0 0

Bachelor of Electrical Engineering, Tatung

University General Manager, Global Operations Management

Department, Tatung Company


None None None

General Manager,

Intelligent Manufacturing

System BU

Republic

of

China

Joe Lin Male 2007.04.01 107,943 0.03% 0 0 0 0

Bachelor of Information Sciences, Cal Poly

Pomona, USA

General Manager, Sajet Technology Co., Ltd.



General Manager,

Semiconductor Testing

Equipment BU

Republic

of

China

George Chang Male 2006.08.01 82,000 0.02% 0 0 0 0

Master of Electrical and Control Engineering,

National Chiao Tung University

Manager, Business Department, Lian Li Co., Ltd.

None None None None

Vice President, Finance &

Administration Center

Republic

of

China

Paul Ying Male 1999.05.03 222,969 0.05% 0 0 0 0

Master of Business Administration, New York

Institute of Technology

Vice President of Finance, Hsin Yu Energy Development Co., Ltd.



Vice President, Operation

Management Center

Republic

of

China

Benjamin

Huang Male 1992.06.22 100,723 0.02% 0 0 0 0

Bachelor of Electrical Engineering, National Taiwan University

Vice President, R&D Department, Test &

Measurement BU of the Corporation

None None None None

Vice President,

Manufacturing Center

Republic

of

China

Steven Liu Male 1991.08.22 139,012 0.03% 738 0 0 0

Bachelor of Information & Communications,

Chinese Culture University

Department Manager, Property and Product

Management Department of the Corporation

None None None None

Vice President, Sales

Department 1, Integrated

System Solution BU

Republic

of

China

Herbert Tsai Male 2005.07.01 2,474 0 0 0 0 0

Department of Machinery and Automation

Engineering, Nanya Institute of Technology

Vice President, Dasike Technology Company

None None None None

Vice President, CEO Office

Republic

of

China

C. C. Fan Male 2010.08.01 321,235 0.08% 0 0 0 0

Bachelor of Industrial Engineering and Management, Minghsin University of Science and

Technology

Vice President, R&D Department, MAS

Automation Corp.

None None None None

Vice President, Planning

Department, Test &

Measurement BU

Republic

of

China

Bobby Tseng Male 2001.01.01 34,000 0.01% 0 0 0 0

Bachelor of Electrical Engineering, Waseda

University

Manager, Product Planning Department, Test &


None None None None

Vice President, Greater

China Area Sales Department, Test &

Measurement BU

Republic

of China

Vincent Chen Male 2001.01.01 48,260 0.01% 0 0 0 0

Bachelor of Electrical Engineering, Lunghwa

University of Science and Technology Department Manager, Greater China Area Sales

Department, Test & Measurement BU


None None None

Vice President, Technical

Service Department, Test &

Measurement BU

Republic

of

China

Tony Yang Male 2003.07.01 56,554 0.01% 0 0 0 0

Department of Electrical Engineering, National

Taitung Junior College

Manager, Engineering Department, Tiger Power

Co., Ltd.

None None None None

9

Title Nationality Name Gender Date of

appointment

Number of shares held Shares held by spouse or

minor children


of other persons Major experience/academic background Positions currently assumed in other companies

Any managerial officer who is a spouse or a relative within

the second degree of kinship

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding

percentage

Number of

shares held

Shareholding


Vice President, R&D

Department, Test &

Measurement BU

Republic

of

China

Vincent Wu Male 2003.07.16 116,465 0.03% 903 0 0 0

Master of Electrical and Control Engineering,

National Chiao Tung University

Department Manager, R&D Department, Test &


None None None None

Vice President, R&D


System Solution BU

Republic

of

China

Lance Ouyang Male 2009.07.01 17,000 0 0 0 0 0

Master of Mechanical Engineering, National Chiao

Tung University

Vice President, Global Target Company

None None None None

Vice President, Sales


System Solution BU

Republic

of

China

Jeff Lee Male 2007.01.01 55,000 0.01% 0 0 0 0

Department of Electrical Engineering, Hsinpu Institute of Technology

Department Manager, Product Planning

Department, Integrated System Solution BU of the

Corporation

None None None None


Department, Test &

Measurement BU

Republic

of

China

Kenny Wang Male 1993.04.23 423,528 0.10% 0 0 0 0

Department of Electrical Engineering, Hsinpu

Institute of Technology



None None None None

Manager, Product Planning

Department, Test &

Measurement BU

Republic

of

China

Cindy Tai Female 2009.11.01 59,536 0.01% 0 0 0 0

Bachelor of Chemical Engineering



None None None None


Department, Test &

Measurement BU

Republic

of

China

Galen Chou Male 1996.07.01 6,000 0 0 0 0 0

Master of Electrical and Control Engineering, National Chiao Tung University



None None None None

10

(III) Remuneration paid to directors, CEO, general managers and vice presidents in the most recent year

1. Remuneration for directors (including independent directors)

Unit: NT$ thousands

Title Name

(Note 1)

Director’s remuneration Proportion of NIAT

after summing four

items: A, B, C, and D

(Note 4)

Remuneration paid to concurrent employee Proportion of NIAT

after summing seven

items: A, B, C, D, E,

and F (Note 4)

Whether or

not the

person

receives

remuneration

from

reinvestment

companies

other than

the

Corporation's

subsidiaries

(Note 7)

Remuneration (A) Retirement pension (B) Bonus for directors (C)

(Note 2)

Allowances (D)

(Note 3)

Salaries, bonuses, and

special expenses (E)

(Note 5)

Retirement pension (F) Employee bonus (G) (Note 6)

The

Corporation

All

companies

listed in

the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in

the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in the

financial

statements

(Note 8)

The

Corporation

All

companies

listed in the

financial

statements

(Note 8)

The Corporation

All companies

listed in the

financial statements

(Note 8) The

Corporation

All

companies

listed in

the

financial

statements

(Note 8)

Amount

of

cash

Amount

of

shares

Amount

of

cash

Amount of

shares

Chairman Leo Huang

0 0 0 0 9,600 10,800 585 585 0.40% 0.45% 10,818 10,818 294

(Note 9) 294

(Note 9) 13,955 0 18,820 0 1.38% 1.62% 7,522

Independent director

Tsung-Ming Chung


Quincy Lin


Tai-Jen George Chen

Director I-Shih Tseng

Director Chung-Ju Chang

Director Tsun-I Wang

*Remuneration received in the most recent year by the directors of the Corporation for rendering services (such as serving as a non-employed consultant) to all companies listed in the financial statements: None.

Remuneration range

Remuneration range for each director in the Corporation

Name of director

Sum of the first 4 items (A+B+C+D) Sum of the first 7 items (A+B+C+D+E+F+G)

The Corporation All reinvestment companies (Note 7) The Corporation All reinvestment companies (Note 7)

Less than NT$2,000,000 Quincy Lin, Tsung-Ming Chung, Tai-Jen George

Chen, Tsun-I Wang, Chung-Ju Chang, I-Shih Tseng

Quincy Lin, Tsung-Ming Chung, Tai-Jen George

Chen, Tsun-I Wang, Chung-Ju Chang, I-Shih Tseng


Chen, Tsun-I Wang, Chung-Ju Chang


Chen, Chung-Ju Chang

NT$2,000,000 (inclusive) to NT$5,000,000 (not inclusive) Leo Huang Leo Huang

NT$ 5,000,000 (inclusive) to 10,000,000 (not inclusive) I-Shih Tseng I-Shih Tseng, Tsun-I Wang

NT$10,000,000 (inclusive) to NT$15,000,000 (not inclusive) Leo Huang


NT$30,000,000 (inclusive) to NT$50,000,000 (not inclusive)


NT$100,000,000 and above

Total 7 7 7 7

Note 1: Name of directors shall be listed separately, and the amount of remuneration paid to them shall be disclosed collectively. Note 2: It refers to bonus distributed to directors upon approval by the Board of Directors in 2018. Note 3: It refers to business expenses paid to directors in the most recent year (including transport, special expenses, various allowances, accommodation, and provision of physical items such as vehicles) Note 4: Net income after taxes (NIAT) refers to net income after taxes in the most recent year. If the International Financial Reporting Standards (IFRS) has been adopted, NIAT refers to net income after taxes stated in the parent company-only financial statements for the most recent year. Note 5: Remuneration for directors concurrently holding positions (including CEO, general manager, vice president, other managerial officers, or employee) in the Corporation shall include salaries, job remuneration, severance pay, various bonuses, rewards, transportation allowance, special expenses,

various allowances, accommodation, and provision of physical items such as vehicles. Salary expenses recognized under IFRS 2 - “Share-based Payment”, including employee stock warrant, new restricted employee shares, and participation in subscription of stocks in cash capital increase, shall also be included in the calculation of remuneration.

Note 6: Employee bonus for directors in 2018 shall be distributed this year according to the actual distribution percentage in the previous year. Note 7: a. If a director receives remuneration from reinvestment companies that are not subsidiaries of the Corporation, the said remuneration shall be included in the remuneration range table. The name of the column shall also be changed to “All reinvestment companies”.

b. The aforesaid remuneration refers to compensation, bonuses (including bonuses for employees, directors, and supervisors) and business expenses received by directors of the Corporation who serve as directors, supervisors or managerial officers of reinvestment companies other than subsidiaries of the Corporation.

Note 8: The total amount of remuneration paid to directors of the Corporation by all companies (including the Corporation) as listed in the financial statements shall be disclosed. Note 9: It refers to the amount of retirement pension contributed.

11

2. Remuneration for CEO, general managers and vice presidents Unit: NT$ thousands

Title Name

Salary (A) Retirement pension (B) Bonuses and special expenses

(C)(Note 1) Employee bonus (D)(Note 2)

Proportion of NIAT after summing four items: A, B,

C, and D(%) (Note 6)

Whether or not the person receives

remuneration from reinvestment

companies other than the Corporation's

subsidiaries (Note 3)

The Corporation

All companies listed in the

financial statements (Note 4)

The Corporation

All companies listed in

the financial statements

(Note 4)

The Corporation



The Corporation All companies listed in

the financial statements(Note 4)

The Corporation



Amount of cash

Amount of shares

Amount of cash

Amount of shares

CEO Leo Huang

37,415 38,327 2,180

(Note 5)

2,180

(Note 5) 23,429 25,029 53,000 0 60,640 0 4.56% 4.89% None

General Manager, Test & Measurement

BU David Yang

General Manager, Integrated System

Solution BU I-Shih Tseng

General Manager of the Business

Department C. C. Ho

General Manager, Intelligent

Manufacturing System BU Joe Lin

General Manager, Semiconductor

Testing Equipment BU George Chang

Vice President, Finance &

Administration Center Paul Ying

Vice President, Operation Management

Center Benjamin Huang

Vice President, Manufacturing Center Steven Liu

Vice President, R&D Department,

Semiconductor Testing Equipment BU

Max Chang

(Note 9)

Vice President, Sales Department 1,

Integrated System Solution BU Herbert Tsai

Vice President, CEO Office C. C. Fan

Vice President, Planning Department,

Test & Measurement BU Bobby Tseng

Vice President, Greater China Area

Sales Department, Test & Measurement

BU

Vincent Chen

Vice President, Technical Service

Department, Test & Measurement BU Tony Yang


Department, Test & Measurement BU Vincent Wu

Vice President, R&D Department 1,

Integrated System Solution BU Lance Ouyang


Integrated System Solution BU Jeff Lee

12

Remuneration range

Remuneration range for CEO, general managers and vice presidents

in the Corporation

Name of CEO, general manager, and vice president

The Corporation (Note 7) All companies listed in the financial statements (Note 8)

Less than NT$2,000,000

NT$2,000,000 (inclusive) to NT$5,000,000 (not inclusive) Herbert Tsai, C. C. Fan, Bobby Tseng, Vincent Chen, Tony Yang, Vincent Wu,

Lance Ouyang, Jeff Lee, Max Chang

Herbert Tsai, C. C. Fan, Bobby Tseng, Vincent Chen, Tony Yang, Vincent Wu,

Lance Ouyang, Jeff Lee, Max Chang

NT$5,000,000 (inclusive) to NT$10,000,000 (not inclusive) David Yang, I-Shih Tseng, C. C. Ho, Joe Lin, George Chang, Paul Ying,

Benjamin Huang, Steven Liu

David Yang, I-Shih Tseng, C. C. Ho, Joe Lin, George Chang, Paul Ying,

Benjamin Huang, Steven Liu





NT$100,000,000 and above

Total 18 18

Note 1: It includes the amount of various bonuses, rewards, transport fees, special expenses, various allowances, accommodation, provision of physical items such as vehicles, and other types of remuneration for CEO,

general managers, and vice presidents in the most recent year. Salary expenses recognized under IFRS 2 - “Share-based Payment”, including employee stock warrant, new restricted employee shares, and

participation in subscription of stocks in cash capital increase, shall also be included in the calculation of remuneration.

Note 2: Employee bonus for CEO, general managers and vice presidents as approved by the Board of Directors in 2018 is to be distributed according to the percentage of actual bonus distribution percentage in the

previous year.

Note 3:

a. If the CEO, a general manager or a vice president receives remuneration from reinvestment companies that are not subsidiaries of the Corporation, the said remuneration shall be included in the remuneration

range table. The name of the column shall also be changed to “All reinvestment companies”.

b. The aforesaid remuneration refers to compensation, bonuses (including bonuses for employees, directors, and supervisors) and business expenses received by CEO, general managers and vice presidents of

the Corporation who serve as directors, supervisors or managerial officers of reinvestment companies other than subsidiaries of the Corporation.

Note 4: The total amount of remuneration paid to CEO, general managers and vice presidents of the Corporation by all companies (including the Corporation) as listed in the financial statements shall be disclosed.

Note 5: It refers to the amount of retirement pension contributed.

Note 6: Net income after taxes (NIAT) refers to net income after taxes in the most recent year. If the International Financial Reporting Standards (IFRS) has been adopted, NIAT refers to net income after taxes stated in

the parent company-only financial statements for the most recent year.

Note 7: The name of CEO, general managers, and vice presidents shall be disclosed in the remuneration ranges to which the amount of remuneration paid to CEO, each general manager and each vice president by the

Corporation correspond, respectively.

Note 8: The name of CEO, general managers, and vice presidents shall be disclosed in the remuneration ranges to which the amount of remuneration paid to CEO, each general manager and each vice president by all the

companies (including the Corporation) listed in the financial statements correspond, respectively.

Note 9: Mr. Max Chang resigned on January 31, 2019.

13

(IV) Compare and analyze the total remuneration paid to the directors, supervisors, CEO,

general managers, and vice presidents of the Corporation in the two most recent years

by all companies listed in the Corporation's parent company-only and consolidated

financial statements as a percentage of NIAT listed in the parent company-only

financial statements, and describe the policies, standards, and packages for payment

of remuneration, the procedures for determining remuneration, and its connection to

business performance and future risk exposure.

1. Analysis of the total remuneration paid to the Corporation’s directors,

supervisors, CEO, general managers, and vice presidents as a percentage of

NIAT in the two most recent years:

Total remuneration paid to directors,

supervisors, CEO, general managers, and

vice presidents as a percentage of NIAT in

2017

Total remuneration paid to directors,

CEO, general managers, and vice presidents

as a percentage of NIAT in 2018

The

Corporation



The

Corporation



6.02% 6.37% 4.96% 5.34%

2. Policies, standards, and packages for payment of remuneration, the procedures

for determining remuneration, and its connection to business performance and

future risk exposure:

(1) Directors:

Bonus paid by the Corporation mainly comprises bonus for directors.

According to Article 34 of the Corporation's Articles of Incorporation,

bonus distributed to directors shall not be greater than 1.5% of the

Corporation's net income before taxes before deducting bonus distributed

to employees and directors in the current year. The directors' bonus

distribution policy not only takes into account the operating performance

of the entire corporation, but also individual director's contributions to the

performance of the Corporation. Directors' compensation shall be

approved by the Remuneration Committee and the Board of Directors. The

remuneration system shall be reviewed at any time depending on the actual

operating status of the Corporation.

In 2018 and 2017, the fixed amount of bonus for directors and supervisors

was NT$9,600,000 respectively, accounting for approximately 0.3% of the

Corporation's net income before taxes each year. The Corporation also

paid attendance fees to directors each time a Board of Directors' meeting

is convened.

(2) CEO, general managers, and vice presidents:

The Corporation has established the "Regulations Governing

Compensation for Senior Executives", which stipulates that when a CEO,

a general manager or a vice president is appointed, he/she shall be paid a

fixed monthly salary based on the pay standards for similar positions in the

industry. Any proposal to change employee bonus shall be made according

to the Corporation's operational performance for the current year and by

taking into individual performance appraisal. Such proposal shall first be

submitted to the Remuneration Committee for review before it is delivered

to the Board of Directors for resolution.

(3) The Corporation shall, at the end of the current year, generate a budget for

the following year. The current state of economy and market environment,

as well as forecasts of overall business performance and risk exposure in

the following year, shall be referenced to make suitable adjustments to

14

compensation paid to managerial officers.

Names of managerial officers who receive employee bonus, and distribution of employee bonus As of March 31, 2019 (Unit: NT$ thousands)

Title Name Amount

of shares

Amount

of cash

(Note 2)

Total

Total amount

of bonus as a

percentage of

NIAT (%)

Man

agerial o

fficer

CEO Leo Huang

0 53,000 53,000 2.08%

General Manager, Test & Measurement BU David Yang

General Manager, Integrated System

Solution BU I-Shih Tseng


Department C. C. Ho

General Manager, Intelligent

Manufacturing System BU Joe Lin

General Manager, Semiconductor Testing

Equipment BU George Chang

Vice President, Finance & Administration

Center Paul Ying


Center Benjamin Huang

Vice President, Manufacturing Center Steven Liu


Integrated System Solution BU Herbert Tsai

Vice President, CEO Office C. C. Fan

Vice President, Product Marketing, Test &

Measurement BU Bobby Tseng

Vice President, Greater China Area Sales

Department, Test & Measurement BU Vincent Chen


Department, Test & Measurement BU Tony Yang

Vice President, R&D Department, Test &

Measurement BU Vincent Wu

Vice President, R&D Department 1,

Integrated System Solution BU Lance Ouyang


Integrated System Solution BU Jeff Lee


Measurement BU

Kenny Wang

(Note 1)

Vice President, Product Marketing t, Test &

Measurement BU

Cindy Tai (Note

1)


Measurement BU

Galen Chou (Note

1)

Note 1: Mr. Kenny Wang, Miss Cindy Tai and Mr. Galen Chou were promoted to the position of Vice President on January 1, 2019.

Note 2: Employee bonus for managerial officers as approved by the Board of Directors in 2018 is to be distributed according to the percentage of actual bonus distribution percentage in the previous year.

15

III. Operation of corporate governance

(I) Operation of Board of Directors

A total of six meetings were held by the Board of Directors in 2018, with the directors'

attendance listed as follows:

Title Name Attendance in

person

Attendance

by proxy

Percentage of attendance

in person (%) Remark

Chairman Leo Huang 6 - 100%

Independent

director

Tsung-Ming

Chung 6 - 100%

Independent

director Quincy Lin 4 2 67%

Independent

director

Tai-Jen

George Chen 6 - 100%

Director I-Shih Tseng 5 - 83%

Director Chung-Ju

Chang 6 - 100%

Director Tsun-I Wang 6 - 100%

Other matters to be noted:

I. If any of the following applies to the operation of Board of Directors, the date and session of the

Board of Directors' meeting, the content of proposals, independent directors’ opinions and the

Corporation's actions in response to independent directors’ opinions shall be stated.

(I) Items listed in Article 14-3 of the Securities and Exchange Act:

Date of

meeting Session Proposal

All

independent

directors'

opinions

The

Corporation's

actions in

response to

independent

directors’

opinions

2018.02.22 1st meeting

in 2018

(1)Annual remuneration for directors and

supervisors, and attendance fees for

directors and supervisors who attended the

Board of Directors' meetings

(2)2018 remuneration for members of the

Audit Committee, and attendance fees for

members who attended Audit Committee

meetings

(3)2018 salary adjustment for managerial

officers

(4)Issue the Corporation's 2017 Statement on

Internal Control System

(5)Capital loan for Chroma Japan Corp.

(6)Propose to provide endorsement and

guarantee for a reinvestment company in

Mainland China

No opinion Proposals

approved

2018.05.03 2nd meeting

in 2018

(1)Endorsement and guarantee for Chroma

ATE Inc. (USA).

No opinion Proposal

approved

2018.06.12 3rd meeting

in 2018


ATE (Suzhou) Co., Ltd.


ATE Europe B.V.

(3)Capital loan for wholly-owned overseas

subsidiaries

(4)Capital increase for TFBS Bioscience, Inc.

(5)Propose to distribute 2017 employee bonus


approved

16

to managerial officers.

2018.07.31 4th meeting

in 2018


Systems Solutions, Inc.


Japan Corp.

(3)2018 CPA fees

(4)Capital increase for EVT Technology Co.,

Ltd.


approved


in 2018


(2)Endorsement and guarantee for Quantel

Private Ltd.


approved


in 2018

(1)Amendments to the Corporation's Internal

Control System and Implementation Rules

for Internal Audit

(2)Capital loan for Chroma Systems

Solutions, Inc.


approved

(II) In addition to the aforementioned matters, any other resolutions from the Board of Directors

where an independent director expressed a dissenting or qualified opinion that has been

recorded or stated in writing: None.

II. For the implementation and state of director’s recusal for conflict of interest, the director's name,

contents of the topic, reasons for the required recusal, and participation in the voting process: None.

III. Goals for enhancing the functions of the Board of Directors (such as establishing an Audit Committee

or increasing information transparency) for the current year and most recent year as well as the

assessment of the actions implemented:

The Corporation has set up the Audit Committee, and has formulated the “Audit Committee Charter”.

The operation of the Audit Committee complies with the relevant laws and regulations. The

Corporation's website also discloses important resolutions of the Board of Directors in the most recent

year to safeguard the rights and interests of the shareholders.

In addition, the Corporation has established and operated the Remuneration Committee in accordance

with the law. This committee assesses the salary and remuneration policy and system for directors

and managerial officers, and provides recommendations to the Board of Directors for reference

during decision-making. For the operation of corporate governance, refer to “3. Operation of

corporate governance - (4) Operation of Remuneration Committee”.

Note 1: Where a director resigns before the end of the fiscal year, the "Remark" column shall filled with the

director's resignation date, whereas his/her percentage of attendance in person (%) shall be calculated

based on the number of Board of Directors' meetings held and the actual attendance in person during

the period during his/her term of office.

Note 2: If directors are re-elected before the end of the fiscal year, former and new directors shall be listed

accordingly, and the "Remark" column shall indicate whether the status of a director is "Former",

"New" or “Re-elected”, and the date of re-election. The director's percentage of attendance in person

(%) shall be calculated based on the number of Board of Directors' Meetings held and the actual

attendance in person during his/her term of office.

17

(II) Operation of Audit Committee

A total of 6 meetings were convened by the Audit Committee in 2018, with the

attendance of independent directors listed as follows:

Title Name Attendance in

person Attendance by

proxy

Percentage of attendance in person (%)

Remark

Chairperson Tsung-Ming

Chung 6 - 100%

Member Quincy Lin 4 2 67%

Member Tai-Jen

George Chen 6 - 100%

Other matters to be noted: I. If any of the following applies to the operation of Audit Committee, the date and session of the

Board of Directors' meeting, the content of proposals, resolutions of the Audit Committee and the Corporation's actions in response to opinions from the Audit Committee shall be stated.

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

Date of

meeting Session Proposal

Audit Committee

Voting results

The

Corporation's

actions in

response to the

opinions of the

Audit Committee

2018.02.22 1st meeting

in 2018

(1) 2017 business report and financial

statements

(2) Issue the Corporation's 2017 Statement on

Internal Control System

(3) Capital loan for Chroma Japan Corp.

(4) Propose to provide endorsements and

guarantees for reinvestment companies in

Mainland China.

The proposals were

unanimously

approved during the

5th meeting of the 1st

Audit Committee

(February 22, 2018).

Proposals

approved

2018.05.03 2nd meeting

in 2018

(1) Endorsement and guarantee for Chroma

ATE Inc (USA)

The proposal was

unanimously

approved during the


Audit Committee

(May 3, 2018).

Proposal

approved

2018.06.12 3rd meeting

in 2018


ATE (Suzhou) Co., Ltd.


ATE Europe B.V.

(3)Capital loans for wholly-owned overseas

subsidiaries

(4)Capital increase for TFBS Bioscience, Inc.

The proposals were

unanimously

approved during the


Audit Committee

(June 12, 2018).

Proposals

approved


in 2018

(1)2018 Q2 financial statements

(2)Capital loan for Chroma Systems Solutions,

Inc.


Japan Corp.

(4)2018 CPA fees

(5)Capital increase for EVT Technology Co.,

Ltd.

The proposals were

unanimously

approved during the


Audit Committee

(July 31, 2018).

Proposals

approved


in 2018


(2)Endorsement and guarantee for Quantel

Private Ltd.

The proposals were

unanimously

approved during the


Audit Committee

(October 30, 2018).

Proposals

approved

18


in 2018

(1)Amendments to the Corporation's Internal

Control System and Implementation Rules

for Internal Audit

(2) Capital loan for Chroma Systems Solutions,

Inc.

The proposals were

unanimously

approved during the

10th meeting of the

1st Audit Committee

(December 27,

2018).

Proposals

approved

(II) Except the aforementioned matters, other resolutions approved by two-thirds or more of all the directors but yet to be approved by the Audit Committee: None.

II. With regard to the recusal of independent directors from voting due to conflict of interests, the

name of independent directors, the content of proposals, reasons for recusal due to conflict of interests and participation in voting shall be stated: None.

III. Communication between directors and the internal auditing officer and CPAs (including material issues, audit methods and results relating to the Corporation's finances and business).

1. Communication between independent directors and Internal Auditing Officer: (1) The Internal Auditing Officer shall complete an audit report at the end of every month and

submit the aforesaid report to the independent directors and they may request clarification from the Internal Auditing Officer upon any inquiry.

(2) The Internal Auditing Officer shall attend the Corporation's routine Board of Directors' meetings to conduct internal audit reporting. Independent directors may directly inquire and communicate with the Internal Auditing Officer on the spot.

2. Communication between independent directors and CPAs:

(1) CPAs submit the consolidated financial statements after quarterly verification (or review) to the Board of Directors in written form. Independent directors are required to clarify if they have any doubts.

(2) The Audit Committee completes the review report by referring to the financial statements audited by CPAs and audit opinion reports.

Note: *If independent directors are re-elected before the end of the year, new and former independent

directors shall be listed accordingly and the "Remark" column shall indicate whether the status of an

independent director is “Former”, “New” or “Re-elected” and the date of re-election. Percentage of

attendance in person (%) shall be calculated based on the number of meetings held by the Audit

Committee and the actual number of meetings attended during his/her term of office.

19

(III) Implementation of corporate governance, discrepancies between its implementation

and the Corporate Governance Best Practice Principles for TWSE or TPEx Listed

Companies, and reasons for such discrepancies

Assessment item

Status of implementation Discrepancies between its implementation and the Corporate Governance Best Practice Principles for TWSE or TPEx Listed Companies, and reasons for such discrepancies

Yes No Summary

I. Has the company formulated and disclosed its corporate governance best practice principles in accordance with the Corporate Governance Best Practice Principles for TWSE or TPEx Listed Companies?

ˇ The Corporation has stipulated the Corporate Governance Best Practice Principles. For details on the principles, visit the Market Observation Post System (MOPS) or the official website of the Corporation.

No discrepancies

II. Shareholder structure and shareholders' rights and interest

(I) Has the company established an internal operating procedure for handling matters related to shareholders' recommendations, doubts, disputes and lawsuits, and implemented them accordingly?

(II) Does the company maintain a list of major shareholders who have actual control over the company and persons who have ultimate control over the major shareholders?

(III) Has the company established and implemented risk control and firewall mechanisms among its affiliated companies?

(IV) Has the company formulated internal regulations that prohibit insiders of the company from trading securities using undisclosed information in the market?

ˇ ˇ ˇ ˇ

(I) The Corporation has established a

system of spokespersons and deputy spokespersons for handling shareholders' proposals, inquiries, and other relevant matters.

(II) The Corporation has delegated a dedicated person to manage the relevant information in order to effectively assess shareholding by the Corporation’s directors, managerial officers, and major shareholders holding more than 10% of the Corporation's shares, and disclosed this information in accordance with the relevant regulations.

(III) The Corporation has established regulations for the monitoring of subsidiaries and delegated personnel for supervising the financial operations of these subsidiaries.

(IV) The Corporation has established regulations for the prevention of insider trading, which prohibit the Corporation’s directors, employees, and other insiders from using information not yet disclosed to the market for trading shares. These Regulations may be downloaded from the Corporation’s official website.

No discrepancies

III. Composition and No discrepancies

20

Assessment item


Yes No Summary

responsibilities of Board of Directors:

(I) Has the Board of Directors drawn up policies on the diversity of its members and implemented them?

(II) Has the company voluntarily established other functional committees, other than the remuneration committee and audit committee that are established in accordance with the law?

(III) Has the company established any rules for evaluating the performance of the Board of Directors and methods for evaluating them? Does the company perform such evaluations every year?

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

ˇ ˇ ˇ

ˇ

(I) The Corporation has formulated the Corporate Governance Best Practice Principles, which stipulate that the composition of the Board of Directors must take in consideration diversity, as well as the principles of diversity, including basic criteria, professional knowledge, and skills which correspond to the operations, business and development of the Corporation. The composition of the Corporation’s Board of Directors shall take into account the members’ professional background, skills and experiences required for the Corporation’s businesses, as well as the principles of diversity. The Board of Directors comprises a total of 7 members, including 3 independent directors.

(II) The Corporation has established the Remuneration Committee and the Audit Committee in accordance with the law.

(III)The Remuneration Committee shall formulate and regularly review the policy, system, standards, and structure for the performance appraisal, salary, and remuneration of directors and managerial officers, and shall submit its recommendations to the Board of Directors' for deliberation.

(IV)In addition to obtaining the statement on CPA independence, the Corporation conducts regular assessments on the independence of CPAs every year. The main assessment targets are employees who are yet to take up the position of director and supervisor, who are not a shareholder of the Corporation, who are yet to receive salary from

21

Assessment item


Yes No Summary

the Corporation, who are not major stakeholder of the Corporation, who are not a manager involved in the Corporation's decision making, and who have not served the Corporation in the past two years. Results of these assessments will be submitted to the Board of Directors. Assessment results for the most recent year have been submitted to the Board of Directors on December 27, 2018.

IV. Does the TWSE or TPEx listed company have a dedicated full-time (or part-time) corporate governance unit or personnel in charge of corporate governance affairs (including but not limited to furnishing information required for business execution by directors and supervisors, handling matters related to Board of Directors' meetings and Shareholders’ meetings, handling company registration and change registration, and producing minutes of Board of Directors' meetings and Shareholders’ meetings)?

ˇ The financial department of the Corporation has appointed a dedicated person to take charge of corporate governance-related affairs. This person possesses more than three years of experience engaging in finance, stock affairs and meetings-related affairs at public companies. The main responsibilities of this person are to provide the information needed by the directors to carry out corporate affairs, handle matters related to Board of Directors' meetings and Shareholders' meetings, prepare meeting minutes, handle company registration and other relevant matters. The implementation of these matters in the most recent year is listed as follows: (1) Assisted the Board of Directors and the Shareholders' Meeting in meeting proceedings and compliance with resolutions. (2) Drafted meeting agendas, informed the directors 7 days prior to the meeting and provided meeting information to the directors, reminded directors beforehand to recuse themselves beforehand in particular proposals, and completed meeting minutes within 20 days after a meeting. (3) Handled matters related to the announcement of major messages concerning important resolutions of the Board of Directors after the meeting to ensure the lawfulness and correctness of the content of major messages so as to protect information symmetry for investor transactions. (4) Registered the

No discrepancies

22

Assessment item


Yes No Summary

date of Board meetings within the regulatory period, prepared meeting notice, annual reports, meeting handbooks and meeting minutes within the specified time limit, and handled change registration for amendments to the Articles of Incorporation.

V. Has the company established channels of communication with stakeholders (including but not limited to shareholders, employees, customers, and suppliers), dedicated a section of the company's website for stakeholder affairs and adequately responded to stakeholders' inquiries on material corporate social responsibility (CSR) issues?

ˇ The Corporation has established a CSR section on its official website which provided contact information, emails, and other channels of communication to stakeholders so that they may raise topics that they are concerned with. These concerns will then be promptly addressed by the Corporation.

No discrepancies

VI. Does the company commission a professional shareholder services agency to handle shareholders' meetings and other relevant affairs?

ˇ The Corporation has appointed Taishin International Bank to handle affairs of the Board of Shareholders. No discrepancies

VII. Information disclosure (I) Has the company established a

website to disclose information on financial operations and corporate governance?

(II) Has the company adopted other means of information disclosure (such as establishing a website in English, appointing specific personnel to collect and disclose company information, implementing a spokesperson system, and disclosing the process of investor conferences on the company’s website)?

ˇ ˇ

(I) The Corporation has established a

website with specific pages on investor services and regular updates on financial operations and corporate governance. Website: (www.chromaate.com)

(II) The Corporation has set up Chinese and English language websites as well as a special section for investor services. A professional has been charged with collecting information and providing regular updates for financial operations. The Corporation has delegated a spokesperson and deputy spokesperson. Investor conferences are held on a regular basis, and relevant information has been disclosed using the Corporation's official website.

No discrepancies

VIII. Does the company provide other important information that can help establish a better

ˇ 1. Employee rights and interests: According to the Labor Standards Act and the Corporation's personnel

No discrepancies

23

Assessment item


Yes No Summary

understanding of the state of corporate governance (including but not limited to employee rights, employee care, investor relations, supplier relations, stakeholders’ rights, continuing education among directors and supervisors, implementation of risk management policies and risk measurement standards, implementation of customer policies, and purchase of liability insurance for directors and supervisors of the company)?

regulations; the Corporation takes employee rights and interests seriously and so sets up the employees' feedback mailbox, communication channels and various specific areas for discussion to provide a comprehensive selection of channels for feedback.

2. Employee care: In addition to providing a good office environment, employees also enjoy a diverse selection of recreational facilities such as swimming pools and gyms. To help uphold family virtues and to promote harmony between parents and their children, the recreational facilities are also available for the employees and their family members during weekends and public holidays. Various health seminars and subsidies to societies and clubs are also available to provide employees with a selection of recreational activities after work.

3. Investor relations: The Corporation's website has an investors' service page, a spokesperson and a deputy spokesperson, specifically responsible for public disclosure of company matters. The Corporation also organizes road show regularly to disclose relevant information on the Corporation's operations, and update the information in the Corporation's website at the same time.

4. Supplier relations: The business strategy adopted by the Corporation upholds trust as the highest guiding principle and respects every commitment made with both suppliers and stakeholders. The Corporation aims at building positive and interactive relationships with suppliers and will not delay payments without

24

Assessment item


Yes No Summary

proper cause. 5. Stakeholders’ rights: To provide

public investors with information transparency and prompt notification, financial and business information posted in the Corporation’s website shall be regularly updated.

6. Progress of training for directors: All directors of the Corporation have academic backgrounds and practical experiences in business management applicable to the business scope of the Corporation. The following lists financial, business, and professional courses recently taken by the Corporation directors and managerial officers (refer to Note 1).

7. Implementation of risk management policy and risk evaluation standards: The Corporation has carefully stipulated various internal control regulations to manage and evaluate various risks.

8. Execution of customer policies: The Corporation is involved in the sales of instruments and equipment, and provides excellent product inquiry response as well as rapid maintenance and other post-sales services to ensure that the clients’ production lines operate smoothly while maintaining positive customer relationships.

9. Purchase of liability insurance for directors: The Corporation has purchase liability insurance for all the directors and important staff. This action was reported to the Board of Directors on December 27, 2018.

IX. Improvements made in the most recent year in response to the results of corporate governance evaluation conducted by the Corporate Governance Center of the Taiwan Stock Exchange Corporation, and prioritized matters and measures to be improved upon for matters that have not been improved. (this section need not be completed by companies not listed for evaluations) 1. Improvements made in the most recent year:

25

Assessment item


Yes No Summary

(1) The implementation of the diversity policy in the Board of Directors is disclosed on the official website of the Corporation.

(2) This annual report reveals the resolutions passed by the Audit Committee on major proposals and the Corporation's actions in response to the opinions of the Audit Committee.

2. Prioritized matters and measures yet to be improved:

Note 1: Progress of training for the Corporation's directors in 2018 up to the publication date of this annual report.

Title Name Training

date

Organizer Course title Course

hours

Chairman Leo

Huang

July 3,

2018

Taiwan Institute of Directors 2018 Annual Meeting of

Taiwan Institute of Directors

3

Independent

director

Tsung-

Ming

Chung

July 24,

2018

Taiwan Academy of Banking

and Finance

Seminar on the Applied

Operations of the Board of

Directors and Supervisors and

Corporate Governance

3

December

24, 2018

Taiwan Academy of Banking

and Finance

Seminar on the Applied

Operations of the Board of

Directors and Supervisors and

Corporate Governance

3

Director Tsun-I

Wang

August 21,

2018

Accounting Research and

Development Foundation

Trend of the "E-Commerce"

Profit Model in the Era of

Financial Technology and

Mindset Required During

Internal Audit

6

Corporate governance training for managerial officers of the Corporation in 2018 up to the publication date of

this annual report:

Title Name Training date Organizer Course title Course

hours

Accounting

Manager

Paul Ying July 19, 2018

to

July 20, 2018

Accounting Research and

Development Foundation

Continuing Training Course for

Principal Accounting Officers

of Issuers, Securities Firms and

Securities Exchanges

12

26

(IV) Composition, duties and operation of the Remuneration Committee

1. Information on the members of the Remuneration Committee

Identity

Criteria

Name

Does the individual have more than 5 years of

professional experience and the following

qualifications?

Meets the criteria for

independence (Note 1)

Number of

salary and

remuneration

committee

memberships

concurrently

held in other

public

companies

Remark

E

n

d

o

f

s

e

c

t

i

o

n

Currently

serving as an

instructor or

in higher

positions in a

private or

public college

or university

in the field of

business, law,

finance,

accounting, or

the business

sector of the

Corporation

Currently

serving as a

judge,

prosecutor,

lawyer, certified

public

accountant or

other

professional or

technician that

must undergo

national

examinations

and specialized

license

Has

professional

experience

necessary for

business

administratio

n, legal

affairs,

finance,

accounting or

company

sales

1 2 3 4 5 6 7 8

Independent

director

Tai-Jen

George

Chen

3

Independent

director

Tsung-

Ming

Chung

0

Independent

director

Quincy Lin 1

Note 1: For any member who fulfills the relevant condition(s) two years before being elected or during the term of office, please tick (ü) the field under the corresponding condition(s).

(1) Not employed by the Corporation or its affiliated companies. (2) Not serving as a director or supervisor of the Corporation or any affiliated company. However, this does not

apply to cases where the person is an independent director of the Corporation, its parent company or subsidiaries established in accordance with the laws of Taiwan or with the laws of the country of the parent company or subsidiary.

(3) Not a natural person shareholder who holds more than 1% of the total number of shares issued or is ranked top 10 in terms of the total number of shares held, including the shares held in the name of the person’s spouse, minor children, or in the name of others.

(4) Not a spouse, relative within the second degree of kinship, or lineal relative within the third degree of kinship in the preceding three items.

(5) Not a director, supervisor, or employee of a corporate shareholder that directly holds more than 5% of the total number of shares issued by the Corporation or is ranked top 5 in terms of the number of shares held.

(6) Not a director (member of the Board of Directors), supervisor (member of the Board of Supervisors), managerial officer, or shareholder holding more than 5% of shares of a specified company or institution that has a financial or business relationship with the company.

(7) Not a professional individual or owner, partner, director (member of the Board of Directors), supervisor (member of the Board of Supervisors), or managerial officer of a sole proprietorship, partnership, company, or institution that provides commercial, legal, financial, accounting, or consultation services to the Corporation or to any affiliated company, or spouse thereof.

(8) Where none of the circumstances specified in Article 30 of the Company Act applies.

27

2. Operation of the Remuneration Committee

(1) The Corporation's Remuneration Committee comprises 3 members.

(2) Duration of the current term of service: June 19, 2017 to June 7, 2020. A

total of 2 meetings (A) were held by the Remuneration Committee in 2018,

with the members' qualifications and attendance listed as follows:

Title Name Attendance in person

(B)

Attendance by

proxy

Percentage of

attendance in person

(%)(B/A) (Note)

Remark

Chairperson

Tai-Jen

George

Chen

2 - 100%

Member Tsung-Ming

Chung 2 - 100%

Member Quincy Lin 1 1 50%

Other matters to be noted:

I. If the Board of Directors does not adopt or amend the recommendations made by the Remuneration

Committee, the date and session of the Board of Directors' meeting, resolutions, voting results and

handling of opinions from the Remuneration Committee by the Company shall be disclosed (if the

remuneration approved by the Board of Directors is better than that recommended by the Remuneration

Committee, the discrepancies and related reasons shall be stated): None.

II. If members of the Remuneration Committee have any dissenting opinion or qualified opinion on the

resolutions of the Remuneration Committee, where such opinions are documented or issued through

written statements, the date and session of the meeting of the Remuneration Committee, resolutions,

all the members' opinions and handling of these opinions shall be stated: None.

Note: Where a member of the Remuneration Committee resigns before the end of the fiscal year, the "Remark" column shall be filled with the member's resignation date, whereas his/her percentage of attendance in person (%) shall be calculated based on the number of meetings held by the Remuneration Committee and the actual number of meetings attended during his/her term of office.

28

(V) Fulfillment of corporate social responsibility

Assessment Item

Status of Implementation Discrepancies

between its

implementation and

the Corporate Social

Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies

and reasons for such

discrepancies

Yes No Summary

I. Implementation of

corporate governance

(I) Has the company

established CSR policies

or systems and reviewed

its effectiveness?

(II) Does the company

routinely promote and

hold CSR training?

(III) Has the company

established a dedicated

full-time (or part-time)

unit to promote CSR? Has

the Board of Directors

authorized senior

management to handle

such matters and report its

implementation to the

Board of Directors?

(IV) Has the company

established a fair

ˇ

ˇ

ˇ

ˇ

(I) The Corporation has established the

Corporate Social Responsibility Best

Practice Principles, and issued its

fourth CSR report in 2018. The

Corporation also entrusted BSI to

carry out verification based on

moderate-level assurance using the

AA1000 Assurance Standards, and

successfully obtained third-party

certifications.

(II) The environmental protection, safety

and health (ESH) unit holds seminars

on safety and hygiene, environmental

protection and health care from time

to time every year. Starting 2018, the

Corporation has strengthened

collaboration with Buy Nearby by

regularly purchasing vegetables and

fruits produced by small farmers in

Taichung on the platform and using

them in the dishes prepared by the

Corporation's canteen to provide

employees with lunch meals so that

employees can enjoy high-quality and

healthy organic fresh vegetables and

fruits.

(III) The ESH unit shall concurrently

implement CSR activities, integrate

various CSR efforts and results from

other departments, and provide

summary reports on CSR activities to

upper management on a regular basis.

A total of 4 meetings were convened

by the CSR Committee in 2018. The

topics discussed during these meetings

include energy management, social

welfare, employee care, corporate

sustainability, various CSR plans and

project implementation reports. The

implementation of CSR in the most

recent year has been reported to the

Board of Directors on October 30,

2018.

(IV) 1. The Corporation has established a

comprehensive performance

No discrepancies

29

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

compensation policy and

linked employee

performance evaluation

with CSR policy, as well

as established a precise

and effective reward and

disciplinary system?

assessment system linked with the

Regulations Governing Employee

Rewards and Punishments which are

then implemented accordingly. 2.

Article 34 of the Corporation's

Articles of Incorporation: If the

Corporation posts a profit (i.e. the

amount of profit before deducting

employee rewards and directors'

rewards from profit before taxes) in a

particular year, 5% to 20% of this

amount of profit shall be allocated as

employee rewards.

II. Fostering a sustainable

environment

(I) Is the company

committed to improving

the efficiency of using

various resources, and to

the use of recycled

materials with reduced

environmental impact?

(II) Has the company

established an appropriate

environmental

management system

based on the

characteristics of the

industry to which it

belongs?

(III) Is the company concerned

with the effects of climate

change on its business

activities? Has the

Company implemented

greenhouse gas (GHG)

inventory audit, and

ˇ

ˇ

ˇ

(I) The Corporation is committed to

developing green products, reducing

the use of hazardous substances, and

generating lead-free production

processes. Suitable recycling processes

are applied according to the attributes

of waste. Waste sorting is

implemented through policy

announcement and promotion,

lectures, labeling, posting and

secondary sorting to reduce waste and

increase resource recovery rate in

fulfilling the environmental protection

responsibility.

(II) All environmental safety operations

are regulated in accordance with laws

and regulations. The Corporation

regularly tracks and declares the

amount of waste generated, sets targets

for waste reduction, carries out ideas

for resource recycling and sets various

energy saving programs to achieve the

goal of energy conservation and the

love for earth. The Corporation has

currently obtained the ISO 14064

carbon footprint certification.

(III) To address the issue of climate change,

the Corporation has enhanced the

efficiency of ice storage air-

conditioning systems, improved

energy consuming hardware in

promoting air-conditioning

temperature control, replaced

No discrepancies

30

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

formulated strategies for

energy conservation,

carbon reduction and

GHG reduction?

refrigerant flow meters and

strengthened power usage monitoring,

used water-saving gasket devices and

replaced public lighting equipment in

the entire plant area with LED lights in

order to achieve energy conservation

and carbon reduction, and reduce

energy consumption and carbon

emission intensity, thus fulfilling the

responsibility of environmental

protection.

III. Preserving public welfare

(I) Has the company

formulated relevant

management policies and

procedures in accordance

with relevant laws and

regulations and the

International Bill of

Human Rights?


established employee

complaint and grievance

mechanisms and

channels, and handled

employee complaints and

grievances appropriately?

(III) Does the company

provide a safe and healthy

work environment for its

employees, and regularly

offer safety and health

education to its

employees?

ˇ

ˇ

ˇ

(I) The Corporation is committed to

fulfilling its corporate social

responsibility, safeguarding the basic

human rights of all colleagues,

customers and interested parties, and

respecting internationally recognized

basic human rights, including freedom

of association, care for disadvantaged

groups, prohibition of child labor,

elimination of all forms of forced

labor, elimination of employment and

employment discrimination, etc. In

addition, the Corporation abides by

labor-related laws and regulations set

in the Corporation's location, as well

as establishes regulations governing

employee appointment, attendance,

remuneration and other personnel to

protect employee rights and interests.

(II) To improve internal communication,

the Corporation has established

employee complaint helpline and

email address. A dedicated personnel

has been assigned to handle and file

these complaints.

(III) The ESH Center administers regular

safety and health education training

courses. The Corporation conducts

regular inspections of the working

environment, conducts fire drills, and

contractor management in compliance

with regulatory deadlines. In addition,

the Corporation also organizes annual

physical and mental health checks for

No discrepancies

31

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary


established mechanisms

to regularly communicate

with its employees and

appropriately notified its

employees of operational

changes that may result in

material effects?

(V) Has the company

established an effective

career developmental plan

for its employees?

(VI) Has the company

established relevant

customer rights policies

and customer complaint

and grievance procedures

for R&D, purchasing,

production, operations

and service processes?

(VII) Does the company

comply with relevant laws

and international

regulations governing the

marketing and labeling of

its products and services?

(VIII)Has the company

evaluated any record of a

ˇ

ˇ

ˇ

ˇ

ˇ

employees, holds diversified health

promotion and care talks, sets up

special health and safety management

units, medical care rooms, and

provides Chinese and Western doctor

consultation services. Each factory

area is equipped with first aid

personnel, first aid kits, and automatic

external defibrillators (AED) to

provide all employees with a safe and

healthy working environment.

(IV) To improve the efficiency of internal

communication and encourage fellow

employees to provide

recommendations, the Corporation has

established various communication

channels such as employee

communication helpline, email

address, and physical opinion boxes.

Various activities and events have also

been announced through electronic

bulletin boards.

(V) The Corporation has established the

"Guidelines for Education and

Training Management", and conducts

employee training in accordance with

these guidelines and career planning to

develop the professional competence

of employees.

(VI) The Corporation has stipulated

internal regulations on various

processes such as R&D, purchasing,

production, sales and services, and

customer complaint and feedback

management. A dedicated sales

service unit has been established to

respond to customer inquiries on post-

sales services and product use, as well

as customer complaints and feedback.

(VII) All marketing and labeling of the

Corporation's products and services

are compliant to the relevant laws and

international standards.

(VIII)The Corporation has established the

"Regulations Governing Supplier

32

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

supplier about its impact

to the environment and

society?

(IX) Do contracts between the

company and its major

suppliers include terms

where the company may

terminate or rescind the

contract at any time if the

said suppliers violate the

company's corporate

social responsibility

policy and have caused

significant effects on the

environment and the

society?

ˇ

Management", which stipulate

supplier assessments before any

commercial dealings. The scope of the

said assessments includes quality

system requirements, production

control, lead-free process

management, purchasing and

incoming material management, and

training. Assessment results are used

as a basis for selecting qualified

suppliers.

(IX) Suppliers are required to sign the

"Statement on Environmental

Protection", which includes terms

stipulating that the Corporation may

terminate contractual agreements if a

supplier violates environmental

protection-related laws and

requirements.

IV. Enhancing information

disclosure

(I) Does the company

disclose relevant and

reliable information

related to CSR on its

official website and

MOPS?

ˇ

The Corporation has established an

electronic bulletin board to promptly report

any of its activities. CSR reports and

information relating to social responsibility

activities are also disclosed on the official

website of the Corporation. The

Corporation's CSR reports have also been

disclosed on MOPS.

No discrepancies

V. Where the company has stipulated its own Corporate Social Responsibility Best Practice Principles in

accordance with the Corporate Social Responsibility Best Practice Principles for TWSE/GTSM Listed

Companies, describe any discrepancy between the prescribed best practices and actual activities taken

by the Corporation:

The Corporation has stipulated the "Corporate Social Responsibility Best Practices", which specify

various specifications on environmental management, community services, human rights, stakeholder

interest and community participation, can be downloaded from the official website of the Corporation.

For details regarding the implementation of CSR at the Corporation, refer to the CSR reports prepared

by the Corporation.

VI. Other important information that facilitates understanding of the implementation of CSR:

(I) The Corporation promotes corporate social responsibility in a long-term manner. Every year, the

Corporation reveals its sustainable development status and business philosophy through CSR

reports, and reports the implementation of CSR to the public based on the concept and practice of

33

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

transparency, openness and corporate social sustainability.

The Corporation's risk issues related to the implementation of human rights are described below:

1. Diversity, inclusiveness and equal opportunities:

The Corporation does not exhibit language, attitude and behavior which engage in

differential treatment due to gender, race, social status, age, marital status, family status,

language, religion, party affiliation, nationality, appearance, facial features,

mental/physical handicap, etc.

The Corporation ensures equal opportunity employment policy and fairness in terms of

employment, salary benefits, training, evaluation, and promotion opportunity, as well as

provides effective and appropriate complaint mechanism to avoid violation of employee

human rights. In addition, the Corporation is committed to creating equal employment, as

well as eliminating prejudice and harassment in the workplace.

2. Healthy and safe workplace:

The Corporation conducts a full range of employee health management, establishes a

professional and warm medical room, and provides employees with a wealth of medical

resources. The Corporation shows concern for employees' health at all times via the cloud

health management system. Besides, the Corporation also holds a wide variety of health

talks.

The Corporation is committed to providing a safe and healthy work environment so that

employees can work at ease. The Occupational Safety and Hygiene Committee has been

set up to review the safety and health-related issues and plans regularly on a quarterly

basis. In addition, the Corporation conducts regular occupational safety promotion and

training for colleagues, while successfully obtaining safe workplace certification.

3. Reasonable working hours: The regulations of the Corporation stipulate the specifications for

working hours and extension of working hours. The Corporation also regularly cares for and

manages employee attendance.

4. Freedom of association: The Corporation encourages employees to cultivate interest, strengthen

physical and mental health. In addition, the Corporation has formulated the regulations

governing subsidies for clubs and societies, where all colleagues can apply for the establishment

of societies in accordance with these regulations.

5. Labor-management consultation: The Corporation has established a smooth communication

channel, and holds regular labor-management conferences to maintain the rights and interests

of both parties.

6. Privacy protection: In order to fully protect the privacy of clients and stakeholders, the

Corporation has established a comprehensive information security management system, and

complies with strict control specifications and protective measures.

(II) Environmental obligations

• Increase responsibilities for environmental protection, actively promote clean energy

technologies, and provide automated testing solutions for the green industry.

• Actively introduce lead-free production processes and the use of green materials to strengthen

green supply chain.

• Actively reduce energy wastage in office environments.

• Promote the paperless initiative, waste paper recycling, as well as monitor and record the use

of printer paper.

(III) Implementation of CSR in 2018

In 2018, the Corporation made donations totaled NT$30.1 million to the following parties: National

Chiao Tung University Tainan Campus, new building construction at National Chiao Tung

34

Assessment Item


between its

implementation and


Responsibility Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

University, Go Far Foundation, Boyo Social Welfare Foundation, Cho Chia Ting Towel Co., Ltd.,

Chew's Culture Foundation, Taoyuan Friends of the Police Association, Guishan Friends of the

Police Association, and Yunlin County Friends of the Police Association.

For issues related to social care, the Corporation’s support for clean energy policy can also reflect

its concern for environmental sustainability and environmentally friendly attitude. As a developer

of clean energy equipment, the Corporation needs to respond to this policy even more so. At

present, the Corporation is currently evaluating the conversion of the carbon footprint of products

to learn about the amount of GHG emissions on a daily basis. In addition, the Corporation

calculates the amount of carbon dioxide produced from the production stage to the elimination

stage through life cycle assessment, and plans subsequent emission reduction plans.

VII. Descriptions shall be provided if the Company's CSR report complies with verification standards of

relevant certification bodies:

The Corporation issued a CSR report in 2018, and entrusted BSI to carry out verification based on

moderate-level assurance using the AA1000 Assurance Standards.

35

(VI) Compliance with ethical corporate management and measures implemented

Assessment item

Status of implementation Discrepancies

between its

implementation and

the Ethical

Corporate

Management Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

I. Formulating ethical

corporate management

policies and programs


specify ethical corporate

management policies and

programs in its

regulations and external

documents? Do the

Board of Directors and

the management team

actively advocate and

implement these policies?


formulated solutions to

prevent unethical conduct

from taking place,

specified all the solutions

in its operating

procedures, conduct

guidelines, punishments

for violations and

complaint and grievance

channels, and

implemented these

solutions?

(III) Does the company take

preventive measures

against operating

activities stipulated in

Article 7, Subparagraph 2

of the Ethical Corporate

Management Best

Practice Principles for

TWSE or TPEx Listed

Companies or those with

higher risks of unethical

conduct in other scopes

of business?

ˇ

ˇ

ˇ

(I) The Corporation has stipulated the

"Ethical Corporate Management Best

Practice Principles", "Operational Rules

for Ethical Corporate Management Best

Practice Principles", "Code of Ethical

Conduct", "Regulations for Employee

Rewards and Punishments",

"Regulations Governing Supplier

Management", and other relevant laws

to actively enforce its ethical corporate

management policies.

(II) The Corporation's "Operational Rules


Practice Principles" clearly stipulate a

plan to forestall unethical conduct and

prescribed procedures, best practices,

and disciplinary and appeal system for

violations within the said plan. The plan

is also implemented accordingly. The

Corporation formulated the

"Regulations for Employee Rewards

and Punishments" as the basis for

rewarding and penalizing employee

conduct, taking disciplinary actions

taken against violations, and handling

individual appeals.

(III) In addition to communication to internal

personnel of the Corporation regarding

the importance of ethical conduct and

prescribing various procedures for

handling and forestalling unethical

conducts within the "Operational Rules


Practice Principles", the Corporation

also requires suppliers to sign the

"Supplier Commitment towards

Business Integrity" that clearly

stipulates prohibition against improper

or unethical conduct during the process

of business transaction.

No discrepancies

II. Implementing ethical


(I) Has the company

(I) To ensure that mutual trust and integrity

No discrepancies

36

Assessment item


between its

implementation and

the Ethical

Corporate

Management Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

evaluated the ethics

records of counterparties

to its business dealings,

and specified ethical

business policies in

contracts with

counterparties related to

its business dealings?


established a full-time (or

part-time) unit directly

under the supervision of

the Board, which is

dedicated to promoting

ethical corporate

management and

regularly reports its

implementation to the

Board of Directors?

(III) Has the company

established policies to

prevent conflicts of

interest, provided an

appropriate channel for

reporting such conflicts

and implemented them?


established an effective

accounting system and

international control

systems to implement

ethical corporate

management, designated

ˇ

ˇ

ˇ

ˇ

form the basis of all business dealings,

the Corporation’s management

regulations require suppliers to sign a

letter of commitment towards business

integrity, which clearly prohibited any

improper or unethical conduct in business

activities and immediate blacklisting of

any violators. Standard purchasing/sales

contracts of the Corporation also clearly

stipulate terms for business integrity and

prohibition of unethical dealings and

conduct.

(II) The Corporation designated the Audit

Office directly under the Board of

Directors as the responsible owner for

revising, implementing, interpreting,

providing counseling services, reporting,

registering, and filing the contents of the

"Operational Rules for Ethical Corporate

Management Best Practice Principles",

supervising the implementation of these

rules, and providing regular reports to the

Board of Directors. The implementation

and audit of ethical corporate

management in the most recent year has

been reported to the Board of Directors

on December 27, 2018.

(III)The Corporation has established the

"Ethical Corporate Management Best

Principles Practice", which clearly

specify the policy to prevent conflicts of

interest. The official website of the

Corporation displays independent e-mail

address and dedicated telephone line as

channels for internal and external

personnel of the Corporation to make

whistleblower reports. Any report shall

be immediately handled by the

responsible unit.

(IV)To implement ethical corporate

management, the Corporation has

established an effective accounting

system and internal control system

according to the constituent elements of

the internal system, and the internal

auditing unit shall conduct audits

37

Assessment item


between its

implementation and

the Ethical

Corporate

Management Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary

its internal audit unit to

perform regularly audits

or commissioned CPAs

to perform audit?

(V) Does the company

regularly hold internal

and external training

related to ethical

corporate management?

ˇ

according to the annual audit plan.

(V) New recruits are regularly taught about

the Corporation's organizational, cultural,

and internal workplace morality and

ethics, emphasizing the importance of

individual and work integrity. On the

other hand, the Corporation conducts

internal awareness programs, conveying

the importance of integrity.

III. Implementation of the

company’s

whistleblowing system

(I) Has the company

established a specific

whistleblowing and

reward system, set up

convenient

whistleblowing channels

and designated

appropriate personnel to

handle investigations

against wrongdoers?


established standard

operating procedures for

investigating reported

cases and related

confidentiality

mechanisms?

(III) Has the company set up

protection for

whistleblowers to prevent

them from being

subjected to inappropriate

measures as a result of

reporting such incidents?

ˇ

ˇ

ˇ

(I) The Corporation has established and

announced an independent

whistleblowing email address

([email protected]) and a dedicated

telephone line (03-3279999 ext. 8301)

for whistleblowers to report cases to the

Corporation's dedicated personnel.

(II) The Corporation has established standard

operating procedures for handling

whistleblowing investigations and the

relevant confidentiality mechanisms. The

handling personnel shall investigate cases

reported by whistleblowers, generate

records, submit a report, file relevant

documents, and maintain the

confidentiality of whistleblowers'

identities and the content of reported

cases.

(III) The Corporation has established the

standard operating procedures for

handling whistleblowing investigations

and the relevant confidentiality

mechanisms to maintain the

confidentiality of whistleblowers'

identities and the content of reported

cases.

No discrepancies

IV. Enhancing information

disclosure

38

Assessment item


between its

implementation and

the Ethical

Corporate

Management Best

Practice Principles

for TWSE or TPEx

Listed Companies


discrepancies

Yes No Summary


disclose its ethical


practices and the

effectiveness of its

implementation on its

official website or

MOPS?

ˇ The Corporation has established an electronic

bulletin board to provide prompt

announcements related to relevant

regulations and activities. Any regulations

related to corporate governance as well as

compliance with ethical conduct shall also be

disclosed on the official website of the

Corporation.

No discrepancies

V. If the Corporation has established its own Ethical Corporate Management Best Practice Principles in

accordance with the Corporate Social Responsibility Best Practice Principles for TWSE or TPEx

Listed Companies, state the discrepancies between these principles and its implementation: No

discrepancies.

VI. Other important information that facilitates the understanding of the implementation of ethical

corporate management: (such as review and amendment of the Corporation's Ethical Corporate

Management Best Practice Principles)

To ensure that employees at the Corporation comply with the Corporation's ethical standards, the

Corporation has established the "Ethical Corporate Management Best Practice Principles",

"Operational Rules for Ethical Corporate Management Best Practice Principles", and "Code of Ethical

Conduct", so that every internal employee, supervisor and member of the Board of Directors better

understand the ethical standards during performance of duties, and adheres to high demands on oneself.

For details regarding the operations and implementation of ethical corporate management at the

Corporation, refer to the published "Ethical Corporate Management Best Practice Principles",

"Operational management and measures implemented”. For details regarding the Corporation's

"Ethical Corporate Management Best Practice Principles", "Code of Ethical Conduct", and

"Operational Rules for Ethical Corporate Management Best Practice Principles", visit MOPS or the

official website of the Corporation.

(VII) If the Corporation has established the corporate governance best practice principles

and other relevant regulations, the means to search for these regulations shall be

disclosed.

Refer to MOPS or the official website of the Corporation for details regarding the

Corporate Governance Best Practice Principles formulated by the Corporation and

specifications provided by these best practice principles with regard to protecting

shareholders’ rights and interests, enhancing the functions of the Board of Directors,

respecting stakeholders’ rights and interests, and enhancing information transparency.

(VIII) Other important information to enhance the understanding of the implementation of

corporate governance at the Corporation

The Corporation has established the "Regulations Governing Prevention of Insider

Trading" as the basis of major news and information disclosure mechanism at the

Corporation. Besides, the Corporation conducts inspection from time to time to ensure

compliance with the laws and regulations. These regulations can be found on the

internal website of the Corporation.

(IX) Protective measures for the work environment and personal safety of employees

(1) Employee safety:

39

• Employee fire safety teams shall work with local fire departments to conduct fire safety and evacuation exercises, disaster prevention, and emergency drills.

• Establish and enforce self-inspection plans to regularly inspect, maintain, and repair high- and low-voltage electrical equipment, elevators, air conditioning, fire safety equipment, potable water, water towers, and other forms of machinery and equipment to protect employee safety.

• Commission professional cleaning companies to maintain building sanitation and implement sterilization processes.

• Commission qualified security firms to enforce access controls and security operations.

(2) Employee insurance: • Purchase labor and health insurance for employees in accordance with the

regulations and insurance for different income brackets. • Purchase social insurances for personnel stationed overseas in accordance

with local laws. • Provide employees with regular life insurance, accidental injury insurance,

accident and health insurance, hospitalization insurance, cancer health care insurance, and workplace accident insurance.

(3) Physical and mental health care for employees: • Entrust qualified medical institutions to regularly perform employee health

checks, apply health checks that are superior to laws and regulations, and establish a sound health management system to implement and implement health management to safeguard employees' health.

• Incorporate the Sexual Harassment Prevention Act in employees’ work regulations, establish the Sexual Harassment Prevention Committee, and designate dedicated personnel for handling such matters.

• Set up a nursing room equipped with a complete breastfeeding environment and equipment to offer a high-quality breastfeeding environment for breastfeeding employees and protect their privacy during breastfeeding.

• Carry out four cancer screenings and special health check-ups each year to promote employee health care and early detection of diseases.

• AED automatic external defibrillators, first-aid kits and qualified first-aid personnel are set up at each factory site, and first-aid and AED education training courses are conducted. Branch offices have also reached the level of safe workplace applied, thereby enhancing workplace safety.

• Establish employee recreation centers, which are equipped with swimming pools, spa, gyms, dance classrooms, equipment and other materials for employee use.

• Conduct health promotion courses from time to time, such as emotional management, interpersonal communication, parenting, healthy eating, and health care.

• Regularly organize health promotion activities, promote healthy meals, conduct a diverse range of sports instruction courses, organize health promotion talks, and organize health testing activities, etc. every year, to provide employees with disease prevention and health promotion measures for physical and mental relaxation, physical management, and weight control.

• Regularly organize health promotion activities, promote healthy meals, and conduct a diverse range of sports and dancing areas within the perimeter of the factory.

• Establish the Employee Welfare Committee to regularly organize various employee welfare activities, such as domestic travel, festival vouchers or gift delivery, free movie tickets, etc. A total of 14 clubs and societies have been established at the Corporation, including hiking club, badminton club, movie club, dance club, board game club, basketball club, etc. to provide employees with different leisure and health channels.

40

(X) Implementation of internal control system

1. Statement on Internal Control System

Chroma ATE Inc. Statement on Internal Control System

Date: February 21, 2019

The Statement of Internal Control System is issued based on the self-assessment of the Corporation in 2018: I. The Corporation acknowledges that the establishment, implementation, and maintenance of the

internal control system are the responsibilities of the Corporation’s Board of Directors and managerial officers, and have established such a system. The objectives of this system are to meet various goals including achieving operational benefits and efficiency (including profitability, performance, as well as asset and safety protection), and ensuring the reliability, timeliness, transparency and regulatory compliance of reporting, thereby providing reasonable assurance.

II. An internal control system has inherent constraints. No matter how comprehensive its design may be, an effective internal control system is only capable of providing adequate assurance for achieving the abovementioned objectives. In addition, the effectiveness of an internal control system may change with the environment and under different situations. However, the Corporation's internal control system is equipped with self-monitoring mechanisms, thereby allowing the Corporation to take immediate remedial actions in response to any identified deficiency.

III. The Corporation determines whether or not the design and implementation of its internal control system is effective according to the items for determining the effectiveness of internal control system as stated in the Regulations Governing Establishment of Internal Control Systems by Public Companies (hereinafter referred to as the "Regulations"). The internal control system is divided into 5 key components according to the process of management control to generate internal control system assessment items adopted by the Regulations, including: 1. control environment; 2. risk assessment; 3. control operations; 4. information and communications and; 5. monitoring operations. Each key component also includes a number of items. Refer to the Regulations for more information on the abovementioned items.

IV. The Corporation has adopted the aforementioned internal control system assessment items to evaluate the effectiveness of its ICS design and implementation.

V. Based on the abovementioned results, the Corporation believes that the design and implementation of its internal control systems (including the supervision and management of its subsidiaries), as of December 31, 2018, including understanding the level of goal achievement with regards to operational benefits and efficiency, as well as whether reporting is reliable, timely and transparent and whether reporting complies with the relevant laws and regulations, are effective and can reasonably assure the accomplishment of the abovementioned goals.

VI. The Statement shall be a major content of the Corporation that the design and implementation shall be publicly disclosed. Should the abovementioned content contain illegalities such as fraudulent and hidden information, the Corporation shall be subject to legal responsibilities provided in Article 20, Article 32, Article 171 and Article 174 of the Securities and Exchange Act.

VII. We hereby declare that the Statement has been approved by the Board of Directors on February 21, 2019. Among the 6 directors present in the meeting, none of the directors had dissenting opinions, and all the directors agreed with the contents of the Statement.

Chroma ATE Inc .

Chairman:Leo Huang

CEO:Leo Huang

41

2. Where CPAs are commissioned to audit the Corporation's internal control system, the audit report prepared by the CPAs shall be disclosed: None.

(XI) Penalties imposed on the Corporation and its internal staff, penalties imposed on its internal staff by the Corporation for violation of internal control regulations, major deficiencies and status of improvements made in the most recent year up to the publication date of this annual report: None.

(XII) Major resolutions of the Shareholders' Meeting and the Board of Directors in the most recent year up to the publication date of this annual report

1. Major resolutions of the Shareholders' Meeting and status of implementation Date

convened 2018 Annual General Meeting

2018.06.08 1. Recognized the 2017 business report and financial statements. Status of implementation: The resolution was passed.

2. Approved the proposal for distribution of 2017 profits. Status of implementation: The resolution was passed. Ex-dividend date was set for July 21, 2018, whereas cash dividends have been completely distributed to shareholders on August 3, 2018. (Dividend per share: NT$4.47539992)

3. Approved amendments to the Corporation's Articles of Incorporation. Status of implementation: The resolution was passed. On June 26, 2018, the Ministry of Economic Affairs approved the registration of these amendments. These amendments were announced on the official website of the Corporation.

2. Key resolutions of the Board of Directors 2018.2.22 1. Approved the annual rewards for directors and supervisors, and attendance fees for directors

who attended Board of Directors' meetings 2. Approved the 2018 rewards for members of the Audit Committee, and attendance fees for

members who attended Audit Committee meetings 3. Approved the 2018 salary adjustment for managerial officers 4. Approved the 2017 employee reward distribution plan. 5. Approved the 2017 business report and financial statements. 6. Approved the proposal for distribution of 2017 profits. 7. Approved the issuance of the 2017 Statement on Internal Control System. 8. Approved capital loan for Chroma Japan Corp. 9. Approved endorsements and guarantees for reinvestment companies in Mainland China. 10. Approved the amendments to the Corporation's Articles of Incorporation. 11. Approved the proposal for the 2018 business plan. 12. Approved the convening of the 2018 Annual General Meeting and the issues raised by the

shareholders. 2018.05.03 1. Q1 2018 financial statements.

2. Set the date of capital increase through the second issuance of unsecured convertible corporate bonds in exchange for new shares and employee stock warrants.

3. Set the date of capital decrease through the extinguishment of new restricted employee shares.

4. Approved the endorsement and guarantee for Chroma ATE Inc. (USA). 5. Approved credit extension with financial institution.

2018.06.12 1. Set the ex-dividend date, suspension of the conversion of convertible corporate bonds, adjustment of convertible bond prices, and adjustment of employee stock warrant prices in 2018.

2. Approved the endorsement and guarantee for Chroma Ate (Suzhou) Co., Ltd. 3. Approved the endorsement and guarantee for Chroma ATE Europe BV. 4. Approved capital loans for wholly-owned overseas subsidiaries. 5. Approved capital increase for TFBS Bioscience, Inc. 6. Approved the proposal to distribute the 2017 employee rewards to managerial officers.

2018.07.31 1. Q2 2018 financial statements. 2. Approved capital loan for Chroma Systems Solutions, Inc. 3. Approved the endorsement and guarantee for Chroma Japan Corp. 4. Approved the 2018 CPA fees.

42

5. Approved capital increase for EVT Technology Co., Ltd. 6. Set the date of capital increase through the second issuance of unsecured convertible

corporate bonds in exchange for new shares and employee stock warrants. 7. Set the date of capital decrease through the extinguishment of new restricted employee

shares. 8. Approved the application for credit extension to financial institution.

2018.10.30 1. Q3 2018 financial statements. 2. Corporate social responsibility implementation report. 3. Set the date of capital decrease through the extinguishment of new restricted employee

shares. 4. Set the date of capital increase through the second issuance of unsecured convertible

corporate bonds in exchange for new shares and employee stock warrants. 5. Approved capital loan for Chroma Japan Corp. 6. Approved the endorsement and guarantee for Quantel Private Ltd. 7. Approved the establishment of the "Special Mergers and Acquisitions Committee".

2018.12.27 1. Implemented the audit report for ethical corporate management. 2. Report on the purchase of liability insurance for all directors. 3. Evaluated the report on the independence of CPAs. 4. Approved the 2019 audit plan. 5. Approved the amendments to the “Internal Control System” and the “Implementation Rules

for Internal Audit”. 6. Approved capital loan for Chroma Systems Solutions, Inc. 7. Set the date of capital increase through the second issuance of unsecured convertible

corporate bonds in exchange for new shares and employee stock warrants. 2019.02.11 Approved the investment in the shares of the Israeli company, Camtek Ltd. 2019.02.21 1. Approved the annual rewards for directors, and attendance fees for directors who

attended Board of Directors' meetings 2. Approved the 2019 rewards for members of the Audit Committee, and attendance fees for

members who attended Audit Committee meetings 3. Approved the 2019 salary adjustment for managerial officers. 4. Approved the 2018 employee reward distribution plan. 5. Approved the 2018 business report and financial statements. 6. Approved the proposal for distribution of 2018 profits. 7. Approved the issuance of the 2018 Statement on Internal Control System. 8. Approved capital loan for Chroma Japan Corp. 9. Approved the endorsement and guarantee for subsidiaries in Mainland China. 10. Approved the amendments to the "Procedures for Acquisition and Disposal of Assets" and

the "Procedures for Derivatives Trading". 11. Approved the amendments to the Articles of Incorporation. 12. Approved the 2019 business plan. 13. Approved the date of capital decrease through the extinguishment of new restricted

employee shares. 14. Approved the convening of the 2019 Annual General Meeting and the issues raised by the

shareholders.

(XIII) Major contents of dissenting opinions or qualified opinions on resolutions passed by the Board of Directors that are made by directors, and are documented or issued through written statements, in the most recent year up to the publication date of this annual report: None.

(XIV) Resignation or dismissal of the Corporation's Chairman, CEO, accounting manager, finance manager, internal audit manager, and R&D manager in the most recent year up to the publication date of this annual report: None.

43

IV. CPA fees

(I) Amount of audit and non-audit fees paid to CPAs, accounting firm and its affiliated

companies, and content of non-audit services

Range of CPA fees

Name of accounting firm Name of CPA Audit period Remark

Deloitte & Touche Cheng-Ming Lee Wen-Chi Kuo 2018.01.01~2018.12.31

Note: If the Corporation has replaced the CPAs or accounting firm in the current year, the audit period shall be listed separately, and the reason for replacement shall be stated in the Remark column.

Unit: NT$ thousands

Fee item Fee range

Audit fee Non-audit

fee Total

1 Less than NT$2,000,000 1,508 1,508

2 NT$2,000,000 (inclusive) to NT$4,000,000 (not inclusive)



6 ,210 6,210


6 NT$10,000,000 and above

Information on CPA fees Unit: NT$ thousands

Name of

accounting

firm

Name of

CPA

(Note 1)

Audit

fee

Non-audit fee

Audit period Remark System

design

Business

registration

Human

resources

Others

(Note 2) Subtotal

Deloitte &

Touche

Cheng-

Ming Lee

Wen-Chi

Kuo

6,210 1,508 1,508 2018.01.01~2018.12.31

Note 1: If the Corporation has replaced the CPAs or accounting firm in the current year, the audit period shall be listed separately, and the reason for replacement shall be stated in the Remark column. Information on the audit and non-audit fees paid shall also be disclosed in order.

Note 2: It refers to the payment of advance fees, advance audit fees involving subsidiaries, English reports, audit using the direct deduction method, consultation and accounting treatment fees.

(II) Where the accounting firm was replaced, and the audit fees for the year when replacement was made was less than that in the previous fiscal year before replacement, the amount of audit fees paid before replacement and the reasons for paying such an amount shall be disclosed: None.

(III) Where the audit fees for the year were reduced by more than 15% compared to the previous year, the amount and percentage of decrease in audit fees, as well as the reason for such decrease shall be disclosed: None.

44

V. Replacement of CPAs

(I) Information on previous CPAs

Date of replacement Approved by the Board of Directors on December 27, 2017.

Reason for replacement and

related explanation

In order to meet the need for position adjustment at Deloitte & Touche,

it was proposed to replace Yi-Wen Wang and Wen-Chi Kuo and

appoint Cheng-Ming Lee and Wen-Chi Kuo as CPAs appointed to

serve the Corporation.

Indicate whether the

appointer or CPAs terminate

or reject the appointment

Party

Status CPA Appointer

Terminate the appointment Not applicable Not applicable

No longer accept (or continue

with) the appointment Not applicable Not applicable

Opinion and reason for the

issuance of audit reports

containing opinions other

than unqualified opinions in

the two most recent years

None

Disagreement with the issuer

Yes

Accounting principles or practices

Disclosure of financial statements

Scope or procedure of audit

Others

None ˇ Details

Other items to be disclosed

(where Article 10,

Subparagraph 6, Item 1-4 to

1-7 of the Regulations shall

be disclosed)

Not applicable

(II) About successor CPAs

Name of accounting firm Deloitte & Touche

Name of CPA Cheng-Ming Lee, Wen-Chi Kuo

Date of appointment Approved by the Board of Directors on

December 27, 2017.

Subjects and outcomes of consultation on the

accounting treatment of or application of accounting

principles to specific transactions, or opinions that

may be included on financial statements before the

appointment of new CPAs

None

Written opinions from successor CPAs

with regards to matters with which former CPAs

disagreed

None

(III) Former CPAs' response to Article 10, Subparagraph 6, Items 1 and Item 2-3 of the

Regulations: None.

VI. The Corporation's Chairman, CEO, or any managerial officer in charge of finance or

accounting matters who has held a position at the accounting firm of its CPAs or at an

affiliated company in the most recent year: None.

45

VII. Equity transfer or changes in equity pledged by directors, managerial officers, or shareholders

holding more than 10% of the Corporation's shares in the most recent year up to the

publication date of this annual report

1. Changes in equity held by directors, managerial officers, and major shareholders

Title Name

2018 Current year up to April 20, 2019

Increase (decrease) in the number

of shares held

Increase (decrease) in the number of shares pledged

Increase (decrease) in the number of shares

held

Increase (decrease) in the number of shares pledged

Chairman and CEO Leo Huang 48,000 0 0 0

Independent director Quincy Lin 0 0 0 0

Independent director Tsung-Ming Chung 0 0 0 0

Independent director Tai-Jen George

Chen 0 0 0 0

Director and General Manager, Integrated

System Solution BU I-Shih Tseng (96,000) 0 100,000 0

Director Tsun-I Wang 0 0 0 0

Director Chung-Ju Chang 0 0 0 0

General Manager, Test & Measurement BU David Yang 20,000 0 0 0


Department C. C. Ho 50,000 0 0 0

General Manager, Intelligent Manufacturing

System BU Joe Lin (45,400) 0 70,000 0

General Manager, Semiconductor Testing

Equipment BU George Chang 18,000 0 (4,000) 0

Vice President, Finance & Administration

Center Paul Ying 70,000 0 50,000 0

Vice President, Manufacturing Center Steven Liu (9,000) 0 60,000 0


Center Benjamin Huang (79,000) 0 30,000 0

Vice President, R&D Department,

Semiconductor Testing Equipment BU

Max Chang (Note

1) (10,000) 0 - -


Integrated System Solution BU Herbert Tsai 10,000 0 (10,000) 0

Vice President, CEO Office C. C. Fan (40,000) 0 30,000 0

Vice President, Planning Department, Test & Measurement BU Bobby Tseng (13,000) 0 0 0

Vice President, Greater China Area Sales Department, Test & Measurement BU Vincent Chen 42,000 0 0 0

Vice President, Technical Service Department, Test & Measurement BU Tony Yang 12,000 0 0 0

Vice President, R&D Department, Test & Measurement BU Vincent Wu 28,000 0 0 0

Vice President, R&D Department 1, Integrated System Solution BU Lance Ouyang 0 0 12,000 0


Integrated System Solution BU Jeff Lee 10,000 0 0 0

Vice President, Planning Department, Test &

Measurement BU

Kenny Wang (Note

2) - - 0 0


Measurement BU Cindy Tai (Note 2) - - 0 0


Measurement BU

Galen Chou (Note

2) - - 0 0

Note 1: Mr. Max Chang resigned on January 31, 2019. Therefore, changes in equity held by Mr. Max Chang are provided as of this date.

Note 2: Mr. Kenny Wang、Miss Cindy Tai and Mr. Galen Chou were promoted to the position of Vice President on January 1, 2019. Therefore, changes in equity held by them are provided as of this date.

46

2. Where the counterparty for equity transfer is a related person:

Name (Note 1)

Reason for

equity transfer

Date of transaction

Counterparty Relationship between the counterparty and the

Corporation, directors, supervisors and the 10

largest shareholders with a shareholding percentage of

more than 10%

Number of shares

Transaction

price

I-Shih Tseng

Gift 2018.10.30 Jui-Min Tsai, Chi-Lun Tseng, Wei-Han Tseng

Spouse and children 116,000 Not applicable

Note 1: The names of directors, supervisors and the 10 largest shareholders with a shareholding percentage of more than 10% at the Corporation are filled in the column.

3. Where the counterparty of equity pledged is a related party: None.

47

VIII. Information on the 10 largest shareholders who are related parties or each other's spouses and

relatives within the second degree of kinship

Information on the relationships between the 10 largest shareholders

Name (Note 1)

Shares held by the person Shares held by spouse or

minor children


of other persons

Title or name and

relationship of the 10

largest shareholders who

are related parties or

each other's spouses and

relatives within the

second degree of

kinship (Note 2)

Remark

Number of

shares

Shareholding

percentage

Number of

shares

Shareholding

percentage

Number

of shares

Shareholding

percentage Title Relation

Leo Huang 20,491,897 4.90% 11,794,362 2.82% 0 0

Shu-

Chuan

Chen

Spouse

Chun-Sheng Chen 15,113,308 3.61% 11,074,646 2.65% 0 0 Yu-Mei

Hsueh Spouse

First State Asia

Pacific Leaders

fund, a sub-fund of

First State

Investment

15,089,000 3.61% 0 0 0 0 None None

JPMorgan Chase

Bank N.A., Taipei

Branch in custody

for Schroder

International

Selection Fund -

Asian Absolute

Return

13,082,000 3.13% 0 0 0 0 None None

Shu-Chuan Chen 11,794,362 2.82% 20,491,897 4.90% 0 0 Leo

Huang Spouse

Yu-Mei Hsueh 11,074,646 2.65% 15,113,308 3.61% 0 0

Chun-

Sheng

Chen

Spouse

Nan Shan Life

Insurance Co., Ltd

Representative:

Ying-Tsung Tu

8,553,000 2.04% 0 0 0 0 None None

0 0 0 0 0 0 None None

JPMorgan Chase

Bank N.A., Taipei

Branch in custody

for Universities

Superannuation

Scheme Limited

6,964,724 1.66% 0 0 0 0 None None

JPMorgan Chase

Bank N.A., Taipei

Branch in custody

for Stichting

Depositary APG

Emerging Markets

Equity Pool

6,804,000 1.63% 0 0 0 0 None None

JPMorgan Chase

Bank N.A., Taipei

Branch in custody

for Vanguard Total

International Stock

Index Fund, a series

of Vanguard Star

Funds

6,120,800 1.46% 0 0 0 0 None None

Note 1: The 10 largest shareholders shall be listed. For corporate shareholders, the title of the corporate shareholder as well as the

name of the representative shall be indicated.

Note 2: Shareholders to be disclosed in the preceding item shall include legal persons and natural persons. Relationships between

shareholders shall be disclosed according to the financial reporting standards used by the issuer.

48

IX. Number and percentage of shares held by the Corporation, its directors, managerial officers

and directly or indirectly controlled reinvestment companies in the same reinvestment

companies

Combined shareholding percentage

Unit: thousand shares / thousand units of foreign currency

Reinvestment company (Note 1)

Investment by the

Corporation

Investments by directors,

managerial officers, and

companies directly or

indirectly controlled by the

Corporation

Combined investment

Number

of shares

Shareholding

percentage (%)

Number of

shares

Shareholding

percentage

(%)

Number of

shares

Shareholding

percentage

(%)

Neworld Electronics Ltd. 64,013 100.0 0 0 64,013 100.0

Adlink Technology Inc. 24,502 11.3 13 0 24,515 11.3

Chroma New Material Corp. 25,000 100.0 0 0 25,000 100.0

Chroma Investment Co., Ltd. 14,000 100.0 0 0 14,000 100.0

DynaScan Technology Corp. 9,841 27.3 5,111 14.2 14,952 41.5

Sensational Holding Ltd. 1,200 100.0 0 0 1,200 100.0

Chroma ATE Europe B.V. 1 100.0 0 0 1 100.0

Chroma ATE Inc. 1,000 100.0 0 0 1,000 100.0

Chroma Systems Solutions, Inc. (Note 2) 120 25.0 240 50.0 360 75.0

Chen Hwa Technology Inc. 3,085 100.0 0 0 3,085 100.0

Chi Incorporation Ltd. 3,830 100.0 0 0 3,830 100.0 San Eagle Development Corp. 2,050 100.0 0 0 2,050 100.0 Testar Electronic Corporation 20,160 67.2 914 3.1 21,074 70.3 MAS Automation Corp. 10,000 100.0 0 0 10,000 100.0 Deep Red Holding Co., Ltd. 215 100.0 0 0 215 100.0 Chroma Japan Corp. 9 100.0 0 0 9 100.0 Chih Ho Shun Development Co., Ltd. 1,750 35.0 0 0 1,750 35.0 Adivic Technology Co., Ltd. 12,240 51.0 0 0 12,240 51.0 EVT Technology Co., Ltd. 9,412 85.6 89 0.8 9,501 86.4 Quantel Private Ltd. 1,914 60.0 0 0 1,914 60.0 Innovative Nanotech Inc. 14,214 71.1 700 3.5 14,914 74.6 Touch Cloud Inc. 5,700 78.1 0 0 5,700 78.1 Adivic Holding Corporation 0 0 1,000 100.0 1,000 100.0 Wei Da Electric Vehicle Co., Ltd. 0 0 375 75.0 375 75.0 Wei Kuang Mech. Eng .Inc. 0 0 4,475 100.0 4,475 100.0 Quantel Technologies India Private Ltd. 0 0 65 100.0 65 100.0 Quantel Global Vietnam Co.,Ltd. (Note

3) 0 0 US$200 100.0 US$200 100.0

Quantel Global Sdn. Bhd. 0 0 600 100.0 600 100.0

Quantel Global Philippines Corporation 0 0 99 100.0 99 100.0 Chroma Germany GmbH 0 0 30 100.0 30 100.0 Sajet System Technology (Suzhou) Co.,

Ltd. (Note 3) 0 0 RMB$8,374 100.0 RMB$8,374 100.0

Chroma Electronics (Shenzhen) Co., Ltd.

(Note 3) 0 0 HK$30,000 100.0 HK$30,000 100.0

Chroma Electronics (Shanghai) Co., Ltd.

(Note 3) 0 0 US$3,000 100.0 US$3,000 100.0

Chroma (Shanghai) Trading Co., Ltd.

(Note 3) 0 0 US$2,700 100.0 US$2,700 100.0

Chroma ATE (Suzhou) Co., Ltd. 0 0 US$3,800 100.0 US$3,800 100.0 Mou Kuan Technologies (Nanjing) Co.,

Ltd. 0 0 RMB$1,737 100.0 RMB$1,737 100.0

Wei Kuang Automatic Equipment

(Nanjing) Co., Ltd. (Note 3) 0 0 RMB$11,871 100.0 RMB$11,871 100.0


(Xiamen) Co., Ltd. (Note 3) 0 0 RMB$11,417 100.0 RMB$11,417 100.0

Note 1: Reinvestment companies are invested by the Corporation using the equity method.

Note 2: The combined shareholding percentage of the Corporation and its subsidiary in Chroma ATE Inc. is 75%.

Note 3: These invested companies have yet to issue any share. Therefore, only the amount and percentage of capital contribution are

indicated.

49

Chapter 4 Financing Status I. Capital and shares

(I) Source of shares

Year and

month

Issue

price

Authorized capital

stock

Paid-in capital Remark

Number

of shares

(thousand

shares)

Amount

(NT$

thousands)

Number

of shares

(thousand

shares)

Amount

(NT$

thousands)

Source of share capital

Equity

contributions

made in the

form of assets

other than cash

Others

1996.08 10 70,000 700,000 54,365 543,650 Recapitalization of retained earnings None Note 1

1997.08 10 100,000 1,000,000 79,300 793,000

Recapitalization of retained earnings:

NT$149,350,000

Cash capital increase:

NT$100,000,000

None Note 2

1998.06 10 150,000 1,500,000 115,200 1,152,000


NT$259,000,000

Cash capital increase:

NT$100,000,000

None Note 3

1999.05 10 200,000 2,000,000 152,160 1,521,600


NT$312,000,000

Recapitalization of capital reserve:

NT$57,600,000

None Note 4

2000.06 10 250,000 2,500,000 201,300 2,013,000


NT$415,320,000


NT$76,080,000

None Note 5

2001.01 10 250,000 2,500,000 208,358 2,083,588 Capital increase in connection with

merger: NT$70,580,000 None Note 6

2001.03 10 250,000 2,500,000 201,358 2,013,588 Treasury stock extinguished:

NT$70,000,000 None Note 7

2001.07 10 320,000 3,200,000 234,300 2,343,000


NT$269,000,000


NT$60,400,000

None Note 8

2002.07 10 320,000 3,200,000 252,690 2,526,900


NT$19,890,000


NT$164,010,000

None Note 9

2003.07 10 360,000 3,600,000 272,289 2,722,892 Recapitalization of retained earnings:

NT$195,990,000 None Note 10

2004.03 10 360,000 3,600,000 252,579 2,525,787

Treasury stock extinguished:

NT$200,000,000

Stocks converted from stock

warrants: NT$2,890,000

None Note 11

2004.07 10 360,000 3,600,000 262,705 2,627,052


NT$96,520,000



None Note 12

2004.10 10 360,000 3,600,000 263,405 2,634,047 Stocks converted from stock

warrants: NT$7,000,000 None Note 13





2005.07 10 360,000 3,600,000 272,374 2,723,744


NT$75,130,000



None Note 14







50

Year and

month

Issue

price

Authorized capital

stock


Number

of shares

(thousand

shares)

Amount

(NT$

thousands)

Number

of shares

(thousand

shares)

Amount

(NT$

thousands)


Equity

contributions

made in the

form of assets

other than cash

Others

2006.06 10 360,000 3,600,000 284,344 2,843,442


NT$81,370,000



None Note 16







2007.08 10 400,000 4,000,000 302,311 3,023,114


NT$142,490,000



None Note 17







2008.08 10 400,000 4,000,000 329,542 3,295,419


NT$234,820,000



None Note 18







2009.07 10 450,000 4,500,000 348,909 3,489,089


NT$166,100,000



None Note 19







2010.07 10 450,000 4,500,000 362,077 3,620,771


NT$105,500,000



None Note 20


warrants: NT$670,000 None Note 15



2011.07 10 450,000 4,500,000 376,760 3,767,599 Recapitalization of retained earnings:

NT$144,910,000 None Note 21

2014.12 10 450,000 4,500,000 378,086 3,780,862 Stocks converted from convertible

corporate bonds: NT$13,260,000 None Note 22


corporate bonds: NT$6,960,000 None Note 22


corporate bonds: NT$40,000 None Note 22





2016.05 10 450,000 4,500,000 379,693 3,796,934 Stocks converted from convertible None Note 22

51

Year and

month

Issue

price

Authorized capital

stock


Number

of shares

(thousand

shares)

Amount

(NT$

thousands)

Number

of shares

(thousand

shares)

Amount

(NT$

thousands)


Equity

contributions

made in the

form of assets

other than cash

Others

corporate bonds: NT$2,890,000



to Note

23

2016.07 10 450,000 4,500,000 383,373 3,833,732

Stocks converted from convertible




New restricted employee shares:

NT$31,000,000

None

Note 22

to Note

24

2016.12 10 450,000 4,500,000 387,158 3,871,576





None

Note 22

to Note

23

2017.01 10 450,000 4,500,000 389,887 3,898,872





None

Note 22

to Note

23

2017.05 10 450,000 4,500,000 405,090 4,050,904





None

Note 22

to Note

23

2017.06 10 450,000 4,500,000 405,275 4,052,754 New restricted employee shares:

NT$1,850,000 None Note 24

2017.07 10 450,000 4,500,000 405,263 4,052,631 New restricted employee shares

extinguished: NT$120,000 None Note 24

2017.08 10 450,000 4,500,000 408,051 4,080,513




warrants: NT$670,000

None

Note 22

to Note

23

2017.11 10 450,000 4,500,000 409,410 4,094,101





None

Note 22

to Note

23

2018.01 10 450,000 4,500,000 411,894 4,118,942





None

Note 22

to Note

23

2018.05 10 450,000 4,500,000 412,953 4,129,532


corporate bonds: NT$220,000



New restricted employee shares

extinguished: NT$540,000

None

Note 22

to Note

24

2018.09 10 450,000 4,500,000 414,359 4,143,594







None

Note 22

to Note

24

2018.11 10 450,000 4,500,000 416,443 4,164,431







None

Note 22

to Note

24

2019.01 10 450,000 4,500,000 416,779 4,167,794





None

Note 22

to Note

23

2019.03 10 450,000 4,500,000 416,717 4,167,174 New restricted employee shares

extinguished: NT$620,000 None Note 24

52

Year and

month

Issue

price

Authorized capital

stock


Number

of shares

(thousand

shares)

Amount

(NT$

thousands)

Number

of shares

(thousand

shares)

Amount

(NT$

thousands)


Equity

contributions

made in the

form of assets

other than cash

Others



Note 1: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (85) Taiwan-Finance-Securities (I) 41514 dated July 8, 1996 .

Note 2: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (86) Taiwan-Finance-Securities (I) 45915 dated June 25, 1997.

Note 3: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (87) Taiwan-Finance-Securities (I) 46094 dated June 8, 1998 .

Note 4: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (88) Taiwan-Finance-Securities (I) 48548 dated May 24, 1999.

Note 5: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (89) Taiwan-Finance-Securities (I) 49542 dated June 8, 2000 .

Note 6: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (89) Taiwan-Finance-Securities (I) 83405 dated December 18, 2000 .

Note 7: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (89) Taiwan-Finance-Securities (III) 102418 dated December 22, 2000 .

Note 8: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. (90) Taiwan-Finance-Securities (I) 137773 dated June 13, 2001.

Note 9: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. Taiwan-Finance-Securities (I) 0910132477 dated June 14, 2002.

Note 10: Approved by the Securities and Exchange Commission, Ministry of Finance as per letter with Ref. No. Taiwan-Finance-Securities (I) 0920125022 dated June 9, 2003.

Note 11: Approved by the Securities and Exchange Commission, Ministry of Finance as per letters with Ref. No. Taiwan-Finance-Securities (III) 0920162383 dated January 2, 2004, and (90) Taiwan-Finance-Securities (I) 143348 dated July 16, 2001.

Note 12: Approved by the Securities and Exchange Commission, Ministry of Finance as per letters with Ref. (90) No Taiwan-Finance-Securities (I) 143348 dated July 16, 2001 and Taiwan-Finance-Securities (I) 0930128437 dated June 28, 2004.

Note 13: Approved by the Securities and Exchange Commission, Ministry of Finance as per letters with Ref. (90) No Taiwan-Finance-Securities (I) 143348 dated July 16, 2001 and Taiwan-Finance-Securities (I) 0910132478 dated June 14, 2002.

Note 14: Approved by the Financial Supervisory Commission, Executive Yuan as per letter with Ref. No. Financial-Supervisory-Securities (1) 0940122455 dated June 3, 2005.

Note 15: Approved by the Securities and Exchange Commission, Ministry of Finance as per letters with Ref. (90) No Taiwan-Finance-Securities (I) 143348 dated July 16, 2001, Taiwan-Finance-Securities (I) 0910132478 dated June 14, 2002, and Taiwan-Finance-Securities (I) 0920127281 dated June 19, 2003.


Note 17: Approved by the Financial Supervisory Commission, Executive Yuan as per letter with Ref. No. Financial-Supervisory-Securities (1) 0960030405 dated June 14, 2007 .


Note 19: Approved by the Financial Supervisory Commission, Executive Yuan as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-0980027677 dated June 5, 2009.

Note 20: Approved by the Financial Supervisory Commission, Executive Yuan as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-0990029749 dated June 9, 2010.

Note 21: Approved by the Financial Supervisory Commission, Executive Yuan as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-1000028222 dated June 20, 2011

Note 22: Approved by the Financial Supervisory Commission as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-1030012130 dated April 17, 2014.

Note 23: Approved by the Financial Supervisory Commission as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-1010042558 dated September 17, 2012

Note 24: Approved by the Financial Supervisory Commission as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-1050024281 dated June 27, 2016.

Note 25: Approved by the Financial Supervisory Commission as per letter with Ref. No. Financial-Supervisory-Securities-Corporate-1010042558 dated September 17, 2012, and Financial-Supervisory-Securities-Corporate-1040036382 dated September 7, 2015. (changes to capital amount are yet to be implemented)

Unit: shares, as of April 20, 2019

Type of shares Authorized capital stock

Remark Number of shares outstanding(listed)

Number of shares not issued

Total

Common shares 418,538,887 31,461,113 450,000,000 3,000,000 shares have been reserved for employee stock warrants.

Information on the shelf registration system: None.

53

(II) Shareholder structure As of April 20, 2019

Shareholder structure

Quantity

Government

agencies

Financial

institutions

Other legal

persons Individuals

Overseas

institutions

and

individuals

Total

Number of individuals 5 46 45 9,824 447 10,367

Number of shares held 1,854,000 29,508,706 16,657,793 102,521,910 267,996,478 418,538,887

Shareholding

percentage 0.44% 7.05% 3.98% 24.50% 64.03% 100.00%

(III) Distribution of equity ownership

1. Common shares As of April 20, 2019

Shareholding range Number of shareholders Number of shares held Shareholding percentage

1 to 999 4,137 763,730 0.18%

1,000 to 5,000 4,736 8,968,655 2.14%

5,001 to 10,000 552 4,146,319 0.99%

10,001 to 15,000 181 2,239,866 0.54%

15,001 to 20,000 111 1,991,130 0.48%

20,001 to 30,000 92 2,300,817 0.55%

30,001 to 40,000 61 2,166,248 0.52%

40,001 to 50,000 34 1,567,867 0.37%

50,001 to 100,000 107 7,609,059 1.82%

100,001 to 200,000 101 13,875,912 3.32%

200,001 to 400,000 86 24,500,809 5.85%

400,001 to 600,000 41 19,583,249 4.68%

600,001 to 800,000 21 14,697,179 3.51%

800,001 to 1,000,000 16 14,691,883 3.51%

1,000,001 and above 91 299,436,164 71.54%

Total 10,367 418,538,887 100.00%

2. Preferred shares: None.

54

(IV) List of major shareholders

Name of shareholders who hold more than 5% of the shares or are the 10 largest

shareholders, as well as number and percentage of shares held by them: As of April 20, 2019

Shares

Name of major shareholder Number of

shares held

Shareholding

percentage

Leo Huang 20,491,897 4.90%

Chun-Sheng Chen 15,113,308 3.61%

First State Asia Pacific Leaders fund, a sub-fund of First State Investment 15,089,000 3.61%

JPMorgan Chase Bank N.A., Taipei Branch in custody for Schroder

International Selection Fund - Asian Absolute Return 13,082,000 3.13%

Shu-Chuan Chen 11,794,362 2.82%

Yu-Mei Hsueh 11,074,646 2.65%

Nan Shan Life Insurance Co., Ltd 8,553,000 2.04%

JPMorgan Chase Bank N.A., Taipei Branch in custody for Universities

Superannuation Scheme Limited 6,964,724 1.66%

JPMorgan Chase Bank N.A., Taipei Branch in custody for Stichting

Depositary APG Emerging Markets Equity Pool 6,804,000 1.63%

JPMorgan Chase Bank N.A., Taipei Branch in custody for Vanguard Total

International Stock Index Fund, a series of Vanguard Star Funds 6,120,800 1.46%

(V) Market price per share, net asset value per share, earnings per share, dividends per

share and related information in the two most recent years

Year

Item 2017 2018

Current year up to

March 31, 2019

Market

price per

share

(Note 1)

Maximum 188.00 197.00 157.00

Minimum 75.40 99.10 112.00

Average 121.12 150.53 133.26

Net asset

value per

share

(NAVPS)

Before distribution 32.12 34.57 -

After distribution 28.93 - -

Earnings

per share

Weighted average 399,051,822 409,438,272 -

Earnings per share 6.41 6.22 -

Dividend

per Share

Cash dividend 4.47539992 4.2 (Note 5) -

Stock

dividends

Dividends from

surplus earnings - - -

Dividends from

capital reserve - - -

Accumulated unpaid dividend - - -

Return on

investment

Price/earning ratio (Note 2) 18.90 24.20 -

Price/dividend ratio (Note 3) 27.06 35.84 -

Cash dividend yield (Note 4) 3.69 2.79 -

Note 1: The highest and lowest market price of ordinary shares for each year are listed, while the average

market price for each year is calculated based on trading value and volume in each year.

Note 2: Price/earnings Ratio = Average closing price per share for the current year/Earnings per share.

Note 3: Price/dividend ratio = Average closing price per share for the current year/Cash dividend per share.

Note 4: Cash dividend yield = Cash dividend per share/Average closing price per share for the current year.

Note 5: The 2018 surplus allocation plan is currently pending approval from the 2019 Annual General

Meeting.

55

(VI) Dividend policy of the Corporation and its implementation 1. Dividend policy stipulated in the Articles of Incorporation

If the Corporation posts a net income after taxes as indicated in its final annual accounts for the current year, the Corporation shall first make up for the cumulative loss, then set aside 10% of the remaining profit as statutory reserve. If such statutory reserve amounts to the Corporation’s total paid-up capital, this provision shall not apply. In addition, based on the special reserves set aside as required by the law or the competent authority, the balance shall then be combined with the undistributed earnings at the beginning of the same period. The Board of Directors shall propose a surplus allocation plan to be submitted to the Shareholders' Meeting for approval. No share dividends and bonuses shall be allocated when the Corporation does not post a profit. Where the Corporation does not post a loss, its legal reserve may be used to distribute new shares or cash for up to 25% of the sum of the said reserve have in excess of the paid-in capital. Dividend payout shall be implemented according to the business condition of the Corporation and consider both future capital budgets and capital requirements of future development plans of the Corporation as well as shareholders’ interests. The Board of Directors shall formulate the category and amount of dividend payout, which shall, by principle, be no less than 60% of NIAT for the year. The Corporation's dividend payout ratio in 2018 and 2017 were 68% and 70%, respectively. Since the Corporation is still in the growth stage, cash dividend distributed each year shall be no less than 20% of the total cash and stock dividends distributed for the year in consideration of funding needs of the Corporation’s future development plans.

2. Dividend payout plans proposed during the most recent Shareholder's Meeting With regard to the Corporation's 2018 surplus allocation plan, it was proposed during the Board of Directors' meeting on February 21, 2019 that a cash dividend of NT$4.2 per share will be allocated. Cash dividends will be allocated upon approval by the 2019 Annual General Meeting. If provision of employee stock options or any other reasons affect the number of outstanding shares, thereby leading to changes in dividend payout ratio, it is proposed that the Shareholders’ Meeting fully authorizes the Board of Directors to handle the relevant issue.

(VII) Impact of stock dividends proposed by the Shareholders' Meeting on the Corporation's business performance and earnings per share (EPS): Not applicable.

(VIII) Rewards for employees and directors 1. Percentage or range of employee rewards and directors' rewards as stipulated in

the Company's Articles of Incorporation. If the Corporation records a profit, 5% to 20% of the said profit shall be set aside for employee rewards. The Board of Directors shall determine whether to issue rewards in the form of stocks or cash. Recipients of the said rewards shall include employees at the Corporation who satisfy specific criteria. The Corporation permits the Board of Directors to set aside no more than 1.5% of the aforementioned profit as directors' rewards. Proposals for the distribution of employee rewards as well as directors' rewards shall be submitted to the Shareholder’s Meeting.

2. Accounting treatment for the basis of estimating the amount of employee rewards and directors’ rewards, the basis of calculating the number of shares to be distributed as employee rewards, and for any discrepancy between the actual amount distributed and the estimated figures. (1) According to the Corporation's Articles of Incorporation as well as past

experience on the amount of rewards that may be distributed, the amount of employee rewards and directors' rewards in 2018 were NT$240,000,000 and NT$9,600,000, respectively, making up for 7.55% and 0.30% of the

56

Corporation's net income before taxes (the amount before deducting employee rewards and directors' rewards), respectively, thus fulfilling the limits prescribed by the Articles of Incorporation.

(2) Number of shares issued for employee rewards: 0. (3) Accounting treatment for any discrepancy between the actual amount

distributed and the estimated figures: Where the Board of Directors approved to make major changes to the amount of rewards issued before the approval and issuance of the financial statements, the said change shall be adjusted as annual expenses listed for the year. Where changes were still made to the said amount after approval and issuance of financial statements, the changes shall be treated as changes to accounting estimates, and be adjusted and entered into the accounts for the following year.

3. Distribution of rewards as approved by the Board of Directors (1) Where the value of the employee rewards as well as directors' rewards

distributed in the form of cash or shares exhibit discrepancies with the recognized expenses and annual estimates, the sum, cause, and treatment of such discrepancies shall be disclosed: On February 21, 2019, the Board of Directors of the Corporation has approved cash distributions of NT$240,000,000 and NT$9,600,000 for employee rewards and directors' rewards, respectively. There was no discrepancy with recognized expenses and annual estimates.

(2) Amount of employee rewards distributed in the form of shares and its proportion of NIAT provided in the parent company-only financial statements and total sum of employee rewards: 0.

4. The actual distribution of rewards for employees, directors, and supervisors (including the number, amount and price of shares distributed) in the previous year, as well as the amount, cause, and treatment of discrepancy between the actual amount of rewards distributed and the recognized amount of rewards shall be described: In 2017, the Corporation distributed employee rewards totaled NT$310,000,000, whereas rewards for directors and supervisors totaled NT$9,600,000. There was no discrepancy between the actual amount of rewards distributed and the recognized amount of rewards.

(IX) Repurchase of the Corporation's own shares: None.

57

II. Corporate bond

(I) Issuance of corporate bonds

Type of corporate bond Second issuance of unsecured convertible corporate bonds in Taiwan

Issue (placement) date May 23, 2014

Par value NT$100,000

Place of issuance and trading (Note 1) Taiwan

Issue price Issued at par value

Total amount NT$2,000,000,000

Interest rate Coupon rate: 0%

Maturity 5 years Maturity date: May 23, 2019

Guarantor Not applicable

Trustee Mega International Commercial Bank Co., Ltd.

Underwriter Taishin Securities Co., Ltd.

Certified attorney Tai-Yuan Huang, Hwecker Law Firm

CPA Wen-Chin Lin and Chen-Ming Lee, Deloitte & Touche

Repayment method Bondholders may convert these bonds to common shares of the

Corporation in accordance with Article 10 of the Regulations for the

Issuance and Conversion of the Second Unsecured Convertible

Corporate Bonds, or exercise repurchase rights in accordance to

Article 19 of these regulations, or redeem these bonds in advance in

accordance with Article 18 of these regulations, or buy back canceled

bonds at security firms. The Corporation shall provide a lump-sum

cash payment at par value of the bond upon maturity of the

Corporation’s convertible corporate bonds.

Outstanding principal balance 0

Date of trading termination November 7, 2018

Terms of redemption or early

repayment

Refer to the Regulations for the Issuance and Conversion of the

Second Unsecured Convertible Corporate Bonds of the Corporation

Restrictive terms (Note 2) None

Name of credit rating agency, rating

date and corporate bond ratings

None

Other

rights

Total value of bonds already

converted to common shares,

overseas depositary receipt, or

other marketable securities up

to the publication date of this

annual report

Since the remaining number of the Corporation's second unsecured

convertible corporate bonds was lower than 10% of the original

number of these bonds, redemption right was exercised in

accordance with the "Regulations for the Issuance and Conversion of

Corporate Bonds", and trading of these bonds on TPEx were

terminated on November 7, 2018. The number of common shares of

the Corporation to which bondholders applied for conversion of

corporate bonds was 29,774,323 shares.

Regulations for the Issuance

and Conversion of Corporate

Bonds

Refer to the Regulations for the Issuance and Conversion of the

Second Unsecured Convertible Corporate Bonds of the Corporation.

Possible dilution of equity or impact

on shareholders’ equity due to

regulations for the issuance and

conversion, exchange, or stock

subscription

A total of NT$2,000,000,000 was raised in this issuance of convertible

corporate bonds. Since the issuance of convertible corporate bond was

a form of debt financing, no dilution of the Corporation’s shares will

occur if the bond holders do not request for conversion. Bondholders

shall also select a more conducive timing during the conversion period

for converting their bonds which would help delay equity dilution and

prevent immediate impact to the Corporation’s operation privileges

and earnings per share (EPS).

Name of custodian for underlying

bonds

Not applicable

Note 1: This field is to be completed for bonds of overseas companies. Note 2: Restrictive terms include restrictions on the issuance of cash dividends, overseas investments, or

requirements for maintaining a specific asset ratio.

58

(II) Information on convertible corporate bonds

Type of corporate bond Second issuance of unsecured convertible corporate bonds in Taiwan

Year Item

2017 January 1, 2018 to the date of trading termination on November 7, 2018

Market price of

convertible corporate

bond

Maximum 265.00 309.00

Minimum 113.80 251.00

Average 136.10 284.40

Conversion price 67.2~64.9 64.9~63.1

Issue (placement) date and conversion price on issue date

Issue date: May 23, 2014 Conversion price on issue date: NT$74.2

Method for exercising conversion obligation

Issuance of new shares

III. Preferred shares: None.

IV. Overseas depositary receipt: None.

V. Employee stock warrant

(I) Status of employee stock warrants of the Corporation that are yet to mature

As of April 20, 2019

Type of employee stock warrant Employee stock warrant in 2012 Employee stock warrant in 2015

Date of effective registration September 17, 2012 September 7, 2015

Issue date July 8, 2013 March 25, 2016

Number of units issued 6,000,000 units 7,900,000 units

Proportion of the number of

subscribable shares to the total

number of shares issued (%)

1.4398 1.8958

Subscription period 6 years 6 years

Method for exercising stock warrant Issuance of new shares Issuance of new shares

Period and percentage of which

subscription is restricted (%)

Period Ratio of

subscribable shares

End of Year 2 40%

End of Year 3 70%

End of Year 4 100%

Period Ratio of subscribable

shares

End of Year 2 40%

End of Year 3 70%

End of Year 4 100%

Number of subscribed shares 5,190,200 shares 3,687,800 shares

Amount of unsubscribed shares NT$246,410,610 NT$230,973,860

Cumulative number of expired

shares 394,800 shares 443,000 shares

Number of unsubscribed shares 415,000 shares 3,769,200 shares

Subscription price per share of

unsubscribed shares NT$45.4 NT$61.6

Proportion of the number of

unsubscribed shares to the total

number of shares issued (%)

0.0996 0.9045

Impact on shareholders' equity

The Corporation may only refer

to the period to issue new stock

warrants two years after the issue

date of these stock warrants. The

warrant exercise period was also

6 years, meaning that they would

have a limited impact on the

dilution of shareholder equity.

The Corporation may only refer

to the period to issue new stock

warrants two years after the issue

date of these stock warrants. The

warrant exercise period was also

6 years, meaning that they would

have a limited impact on the

dilution of shareholder equity.

59

(II) Name and subscription status of managerial officers who have obtained employee stock warrants and employees

ranked in the top 10 employees with the highest number of shares to which they have subscription rights through

employee stock warrants acquired, up to the publication date of this annual report


Title

(Note 1) Name

Number of

subscribed

shares

(thousand

shares)

(Note 2)

Proportion

of the

number of

subscribed

shares to the

total number

of shares

issued (%)

(Note 4)

Implemented Not implemented

Number of

subscribed

shares

(thousand

shares)

Price of

subscribed

share

(NT$)

(Note 5)

Amount

of

subscribed

shares

(NT$

thousand)

Proportion of

the number of

subscribed

shares to the

total number

of shares

issued (%)

(Note 4)

Number of

unsubscribed

shares

(thousand

shares)

Price of

unsubscribed

share (NT$)

Amount of

unsubscribed

shares (NT$

thousands)

Proportion of

the number of

unsubscribed

shares to the

total number of

shares (%)

(Note 4)

Man

agerial o

fficers

CEO Leo

Huang

1,270 0.3048 910 45.4~

49.9 42,394 0.2184 360 45.4 16,344 0.0864

President I-Shih

Tseng

President David

Yang

President C. C. Ho

President Joe Lin

President George

Chang

Vice President Paul Ying

Vice President Steven

Liu

Vice President Benjamin

Huang

Vice President

Max

Chang

(Note 6)

Vice President Herbert

Tsai

Vice President C. C. Fan

Vice President Bobby

Tseng

Vice President Vincent

Chen

Vice President Tony

Yang


Wu

Vice President Lance

Ouyang

Vice President Jeff Lee

Em

plo

yees (N

ote 3

)

Employee C. F.

Huang

893 0.2143 551 45.4~

63.4 28,908 0.1322 342 61.6 21,067 0.0821

Employee Chouyu

Chuang

Employee Nick Wu

Employee Kevin

Weng

Employee Ethan Wu

Employee Emma

Chen

Employee Hans Yi

Employee Mark

Chien

Employee James Lee

Employee Wen

Shieh

Employee Bill Tsou

Employee John Lee

Employee Liwei Liu

Employee

Wen-

Chung

Chen

Note 1: It includes managerial officers and employees (special notes shall be provided for those who have resigned or deceased). Individual names and job positions

shall be displayed. A summary sheet may be used to disclose the means of acquisition and subscription.

Note 2: It refers to the number of employee stock warrants obtained from 2012 to 2015.

Note 3: It refers to a non-managerial employee ranked in the top 10 employees with the highest number of stock warrants acquired.

Note 4: Total number of shares issued refers to the number of shares listed in the change registration information held by MOEA. (On March 6, 2019, the number of

shares listed in the change registration information held by MOEA was 416,717,387 shares)

Note 5: For the price of employee stock warrant already implemented, the subscription price at the time of implementation shall be disclosed.

Note 6: Mr. Max Chang resigned on January 31, 2019.

60

VI. New restricted employee shares

(I) Implementation of new restricted employee shares


Type of new restricted employee share

First issuance of new restricted employee shares in 2016

Second issuance of new restricted employee shares in 2016

Date of effective registration

June 27, 2016 June 27, 2016

Issue date July 8, 2016 June 20, 2017

Number of new restricted employee shares issued

3,100,000 shares 185,000 shares

Issue price NT$10 NT$10

Proportion of the number of new restricted employee shares issued to the total number of shares issued (%)

0.7439 0.0444

Vesting conditions for new restricted employee shares

An employee must be employed for a period of one year after subscribing for new restricted employee shares and at maturity in each vesting period. Subscription of new restricted employee shares must also comply with the overall financial performance of the Corporation and personal performance assessment indicators. The proportion of shares that may be issued according to the fulfillment of respective vesting conditions shall be distributed according to regulations for the issuance of new restricted employee shares. Ratio of shares to be issued under various vesting conditions are listed as follows: End of Year 1: 10% End of Year 2: 20% End of Year 3: 30% End of Year 4: 40%

An employee must be employed for a period of one year after subscribing for new restricted employee shares and at maturity in each vesting period. Subscription of new restricted employee shares must also comply with the overall financial performance of the Corporation and personal performance assessment indicators. The proportion of shares that may be issued according to the fulfillment of respective vesting conditions shall be distributed according to regulations for the issuance of new restricted employee shares. Ratio of shares to be issued under various vesting conditions are listed as follows: End of Year 1: 10% End of Year 2: 20% End of Year 3: 30% End of Year 4: 40%

Restricted rights to new restricted employee shares

1. An employee may not sell, pledge, transfer, provide as a gift to other party, set up or using other means to dispose of new restricted employee shares.

2. New restricted employee shares may partake in dividend payouts and cash capital increase subscriptions. Dividend payout that may be acquired is not subject to vesting period restrictions. Dividend payout to be issued shall be remitted from a trust account to a personal bank account of the employee on the date of issuance without any surcharge.

3. For an employee who has yet to meet the vesting conditions, attendance, proposal, speech,

1. An employee may not sell, pledge, transfer, provide as a gift to other party, set up or using other means to dispose of new restricted employee shares.

2. New restricted employee shares may partake in dividend payouts and cash capital increase subscriptions. Dividend payout that may be acquired is not subject to vesting period restrictions. Dividend payout to be issued shall be remitted from a trust account to a personal bank account of the employee on the date of issuance without any surcharge.

3. For an employee who has yet to meet the vesting conditions, attendance, proposal, speech,

61

voting rights, and other matters related to shareholder equity in the Shareholders’ Meeting shall be commissioned to a trust custodian shall be commissioned to exercise matters related to attendance, proposal, speech, voting rights, as well as other matters related to shareholder equity in the Shareholders’ Meeting on behalf of the employee.

voting rights, and other matters related to shareholder equity in the Shareholders’ Meeting shall be commissioned to a trust custodian shall be commissioned to exercise matters related to attendance, proposal, speech, voting rights, as well as other matters related to shareholder equity in the Shareholders’ Meeting on behalf of the employee.

Safekeeping of new restricted employee shares

Once issued, new restricted employee shares shall be handed over to a trust for custody. Before meeting the vesting conditions, an employee may not, for any reason or by any means, ask the custodian to return the said shares.

Once issued, the new restricted employee shares shall be submitted to a trust for custody. Before meeting the vesting conditions, an employee may not, for any reason or by any means, ask the custodian to return the said shares.

Actions for handling allotments or subscription of new shares by employees who have yet to meet the vesting conditions

Before meeting the vesting conditions, the Corporation may refer to law to buy back new restricted employee shares that have been issued at the price of the original issuance and extinguish the shares accordingly.

Before meeting the vesting conditions, the Corporation may refer to law to buy back new restricted employee shares that have been issued at the price of the original issuance and extinguish the shares accordingly.

Number of new restricted employee shares recovered or repurchased

131,300 shares 27,000 shares

Number of new restricted shares extinguished

896,700 shares 18,500 shares

Number of new restricted shares yet to be extinguished

2,072,000 shares 139,500 shares

Proportion of the number of new restricted employee shares to the total number of shares issued (%)

0.4972 0.0335

Impact on shareholders' equity

Overall evaluation of the vesting conditions, periods, and proportions listed in the regulations for issuing shares reveal that the said issuance had a limited impact and dilution on the earnings per share (EPS) of the Corporation from 2016 to 2020, and will not significantly affect shareholders' equity.

Overall evaluation of the vesting conditions, periods, and proportions listed in the regulations for issuing shares reveal that the said issuance had a limited impact and dilution on the earnings per share (EPS) of the Corporation from 2017 to 2021, and will not significantly affect shareholders' equity.

62

(II ) Name of managerial officers and top 10 employees with the highest number of new restricted employee shares, and status

of acquisition As of April 20, 2019

Title (Note 1) Name

Number

of new

restricted

employee

shares

acquired

(thousand

shares)

Proportion of

the number of

new restricted

employee

shares to the

total number

of shares

issued (%)

(Note 3)

Restricted shares extinguished Restricted shares yet to be extinguished

Number of

restricted

shares

extinguished

(thousand

shares)

Issue

price

(NT$)

Issue

amount

(NT$

thousands)

Proportion of the

number of

restricted shares

to the total

number of shares

issued (%) (Note

3)

Number of

restricted

shares yet to

be

extinguished

(thousand

shares)

Issue

price

(NT$)

Issue

amount

(NT$

thousands)

Proportion of the

number of restricted

shares yet to be

extinguished to the

total number of

shares issued (%)

(Note 3)

Man

agerial o

fficers

CEO Leo Huang

1,410 0.3384 419 10 4,194 0.1006 952 10 9,520 0.2285

President I-Shih Tseng

President David Yang

President Joe Lin

President George

Chang

Vice President Paul Ying

Vice President Steven Liu

Vice President Benjamin

Huang

Vice President Max Chang

(Note 4)

Vice President Herbert Tsai

Vice President Jeff Lee

Vice President Bobby

Tseng


Chen

Vice President Tony Yang

Vice President Vincent Wu

Vice President Lance

Ouyang

Vice President Kenny

Wang

Vice President Cindy Tai

Vice President Galen Chou

Em

plo

yees (N

ote 2

)

Employee C. F. Huang

450 0.1080 131 10 1,308 0.0314 315 10 3,150 0.0756

Employee Amy Huang

Employee Addin

Chuang

Employee Elia Huang

Employee Glen Yang

Employee Vincent

Chen

Employee Lawrence

Wu

Employee Ray Chi

Employee Jih-Hsiung

Hsieh

Employee Yung-Lung

Hsiao

Note 1: It includes managerial officers and employees (special notes shall be provided to those who have resigned or deceased). Individual names and job positions shall be displayed. A summary sheet may be used to disclose the means of receiving an allocation or subscription.

Note 2: It refers to a non-managerial employee ranked in the top 10 employees with the highest number of new restricted employee shares acquired. Note 3: The total number of shares issued refers to the number of shares listed in the change registration information held by MOEA. (On March 6, 2019, the number

of shares listed in the change registration information held by MOEA was 416,717,387 shares) Note 4: Mr. Max Chang resigned on January 31, 2019.

63

VII. Issuance of new shares in connection with the merger or acquisition of other companies: None.

VIII. Implementation of capital utilization plan (I) Content of the plan

Where various issuance or private placement of securities have yet to be completed, or have been completed in the three most recent years but the benefits of the plan have yet to be realized: 1. Second issuance of unsecured convertible corporate bonds in Taiwan

(1) Content of the plan Total amount of capital required for this plan: NT$2,180,372,000 Source: Issuance of corporate bonds worth NT$2,000,000,000 with a maturity of 5 years and an interest of 0%. Method for acquiring the remaining NT$180,372,000: Own funds or others.

(2) Capital utilization plan and expected progress Unit: NT$ thousands

Item

Expected

completion

date

Total

amount of

capital

required

Expected progress of capital utilization

2014 2015 2016

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

Construction

of factory

building

Q4 2016 2,180,372 50,000 60,000 100,000 150,000 150,000 150,000 620,000 300,000 320,000 280,372

Total 2,180,372 50,000 60,000 100,000 150,000 150,000 150,000 620,000 300,000 320,000 280,372

(3) Anticipated possible benefits The second issuance of unsecured convertible corporate bonds in Taiwan have raised a total of NT$2,000,000,000. This plan requires a total of NT$2,180,372,000 for the construction of new factory building. The remaining NT$180,372,000 shall be paid for using own funds or other methods. The construction of factory building will increase usable space. Expected adjustments to spatial layouts and production line configurations will improve the production and sales of precision electronic measurement instruments and integrated automated measurement system, thereby benefiting future development plans and reduce business risks facing the Corporation. Expected increase in production volume, value, profitability, and net operating profit are provided as follows:

Unit: units, sets; NT$ thousands

Year Item Production

volume Sales

volume Sales value Gross profit

Net operating profit

2017

Precision electronic measurement instruments

515 515 1,010,000 555,500 202,000

Integrated automatic measurement systems 20 20 600,000 240,000 90,000

2018 Precision electronic measurement

instruments 725 725 1,371,000 740,340 274,200

Integrated automatic measurement systems 25 25 1,000,000 390,000 150,000

2019


905 905 1,622,500 859,925 324,500


2020 Precision electronic measurement

instruments 1,080 1,080 1,804,500 956,385 360,900


2021


1,314 1,314 2,029,700 1,055,444 405,940


64

(II) Status of implementation Unit: NT$ thousands

Project item Status of

implementation Q1 2019 As of Q1 2019

Reason for project being ahead of schedule or behind schedule, and

improvement plans

Construction of factory building

Expenses

Expected － 2,180,372

Due to delays in land requisition by the Ministry of Interior, the land was handed over to the Corporation in stages after negotiations, and the construction of factory building was started in the third quarter of 2015. At present, the construction permit applied by the Corporation has been approved. In the first quarter of 2019, the Corporation has made payments for matters including glass curtain works, the 10th phase of construction management and inspection services, the 4th phase of interior design, the 3rd phase of mechanical electrical changes, steel structure works for the 5th and 6th phases of new construction works, the 5th phase of air-conditioner works, the 16th and 17th phases of construction works, the 9th and 10th phases of mechanical and electrical works, and audit fees for the 4th phase of structural changes. The construction of the Corporation's factory is expected to be completed in 2019. Although the project is behind schedule, the project remains currently in progress according to the factory construction project, with no abnormal events identified.

Actual 232,775 1,343,488

Progress

Expected － 100.00%

Actual 10.68% 61.62%

Total

Expenses

Expected － 2,180,372

Actual 232,775 1,343,488

Progress

Expected － 100.00%

Actual 10.68% 61.62%

The Corporation engaged in the second issuance of unsecured convertible corporate bonds to fund the construction of factory building. Due to delays in land requisition by the Ministry of Interior, the land was handed over to the Corporation in stages after negotiations, and the construction of factory building was started in the third quarter of 2015. As of the first quarter of 2019, the Corporation has made payments for matters including glass curtain works, the 10th phase of construction management and inspection services, the 4th phase of interior design, the 3rd phase of mechanical electrical changes, steel structure works for the 5th and 6th phases of new construction works, the 5th phase of air-conditioner works, the 16th and 17th phases of construction works, the 9th and 10th phases of mechanical and electrical works, and audit fees for the 4th phase of structural changes. The cumulative amount of payments made was NT$1,343,488,000, with capital utilization progress reaching 61.62%.

(III) Analysis of discrepancies between expected and actual benefits Due to delays in land requisition by the Ministry of Interior, the land was handed over in stages after negotiations. Based on the progress of factory building construction, the Corporation has obtained the construction permit approved by the competent authority, and the construction of factory building has begun. Therefore, the reason for the delay in actual capital utilization and benefits compared with the scheduled benefits is still reasonable.

65

Chapter 5 Operation Summary I. Business content

(I) Scope of business 1. Major content of business

The Corporation and its subsidiaries mainly engage in the design, assembly, manufacturing, trading, repair, maintenance, calibration and distribution of computer and peripheral equipment hardware and software, computer automated test systems, electronic test equipment, signal generators, power supplies and communication power supply equipment; trading of special materials; and the design, manufacture and installation of automatic equipment. The Corporation's current production lines include: 1. test instruments; 2. special materials; 3. automatic equipment.

2. Proportion of various businesses Consolidated revenue:

Unit: NT$ thousands

Year

Product category

2017 2018

Amount Percentage of

revenue (%) Amount

Percentage of

revenue (%)

Test instrument equipment 9,932,614 66.66 9,724,331 57.43 Special materials 2,054,568 13.79 2,005,001 11.84

Automatic equipment 2,538,348 17.03 4,862,323 28.72

Others 375,816 2.52 339,473 2.01

Total net operating revenue 14,901,346 100.00 16,931,128 100.00

3. Current products of the Corporation

- Power electronic test solution 1. DC electronic load 2. AC electronic load 3. Regenerative AC load 4. AC power source 5. DC power supply 6. Digital power meter 7. Switching power supply automatic test system 8. Battery simulator 9. Chroma soft panel (graphic user interface)

- Electric vehicle test solution 1. OBC & DC-DC converter automatic test system 2. Battery simulator 3. Battery test system 4. DC power supply 5. AC power source 6. Electronic load 7. Motor stator test system 8. Automatic transformer test system/automatic components analyzer

- Battery test and automation solution 1. Battery pack/battery module automatic test system 2. Battery cell formation system 3. Battery pack automatic test system 4. Battery cell balance maintenance automatic test system 5. Electrical safety test solution 6. Automatic optical inspection system

- Passive components test solution 1. LCR meter/auto transformer test system 2. Electrolytic capacitor tester 3. High frequency AC tester 4. Components test scanner

http://www.chroma.com.tw/product/List?cid=6385

66

5. Battery cell insulation tester 6. Milliohm tester 7. Passive components automatic test system 8. Inductor test and packing machine

- Electrical safety test solution 1. Partial discharge tester 2. Lead-acid battery cell tester 3. Electrical safety analyzer 4. High potential tester/safety tester 5. Ground bond tester 6. Electrical safety test scanner 7. Impulse winding tester 8. Calibrator 9. Automatic test system 10. Motor stator test system

- Video and color testing solution 1. Video pattern generator 2. Color analyzer 3. Automatic test system

- Flat panel display test solution 1. Flat panel display tester 2. OLED test system 3. SHK 8K test solution

- LED/lightning & driver test solution 1. LED total power test system 2. ESD test system 3. LED power driver test solution

- Photonics test solution 1. Wafer level test 2. Package level test

- Automatic optical inspection system 1. Thermoelectric cooling chip controller 2. Thermal data logger

- Photovoltaic/inverter test & automation solution 1. Photovoltaic sorter 2. Automatic loading/unloading system 3. C-Si solar cell tester 4. Automatic optical inspection system 5. Thermoelectric cooling chip controller 6. Thermal data logger 7. Hybrid PV inverter test solution

- Semiconductor/IC test solution 1. SoC test system 2. VLSI test system 3. IC test handler 4. Metrology system

- RF & wireless test solution 1. Wireless test solution 2. RF recorder / player 3. GPS simulator

- PXI test & measurement solution 1. PXI SMU/power supply instrument 2. PXI semiconductor/IC test system

- Intelligent manufacturing system solution 1. Intelligent manufacturing system

- Turnkey test & automation solution 1. Assembly & test automation solution

- Other solutions and services 1. Electric vehicle powertrain solution 2. General purpose instrument

67

4. New products under development - Next generation high power and high speed solar array simulator - Next generation high power density and constant power DC source - Next generation bi-direction power module platform - Next generation regenerative charger and discharger - Next generation high precision linear and modular DC load - High bandwidth hybrid type recycling linear load - Next generation portable/automotive flat panel display tester - 8K HDMI 2.1 pattern generator - High performance high speed and high current insulation tester with partial

discharge measurement function - Ultra-high precision, wide current range battery cell analyzer - Next generation super capacitor automatic burn-in system - Semiconductor advanced packaging optical metrology system

(II) State of the industry 1. Current state and development of the industry

A. Instruments industry At the beginning of 2018, the information electronics industry flourished in various types of applications. With the emergence of the US-China trade war thereafter, the industry began to produce and ship goods in advance so as to respond to tariff increase, resulting in the illusion of economic prosperity. At the end of 2018, economic fundamentals trended downward due to excessive inventory. In 2019, manufacturers will reconsider their plans due to the US-China trade wars by not only changing their investment plans, but also diverting equipment investments toward intelligent manufacturing system. - Power electronic test solution

Power supplies represent a basic and core component of electronic equipment, and are widely utilized in various electronic products such as PC, servers, rechargers, displays, and industrial power supplies. The mobile communications, mobile power, mobile charging and battery industries are all booming. Power supplies are of critical importance to the LED industry and the solar photovoltaic and automotive electronics industries, leading to emerging demand for power supply test equipment. Power supply test equipment provided by the Corporation and its subsidiaries is not only used in PC, servo or telecom power supplies, chargers, and backlight inverter, but can also be applied to LED lighting, solar photovoltaics, and electric vehicle chargers. In response to the increasingly ubiquitous automation of manufacturing, the Corporation has also independently developed automatic test systems for power supply, as well as provided a software platform with powerful functions. Test solutions with built-in applications can offer a variety of industry application tests to maintain the Corporation's competitive advantage of its product lines. Due to wide range of applications, its product lines were able to sustain stable development.

- Video and color test solutions As Japan's NHK began testing its Super 8K (Super-Hi Vision) ultra-high-definition resolution video in August 2016, the display industry will officially enter the 8K era during the 2020 Tokyo Olympics. To meet this requirement, the video and color test solutions must focus on the 8K Super-Hi Vision (7680x4320/8192 x 4320) tests for the upcoming panel and display industry. In the meantime, a modular architecture design must be adopted so that the solution can be combined flexibly with different signals or power modules and required test conditions. High flexibility, strong scalability, and the ability to support a variety of mainstream industry communication interfaces, enable this solution to be in line with the development of the industry.

- Passive components and safety test solutions

68

After many years of consolidation and conservative expansion, the passive components industry has experienced severe supply shortages as demand increases, prompting manufacturers to accelerate capacity expansion, reduce labor costs, human errors, and improve data management, quality, and efficiency. All these have become trends in equipment development. Therefore, a new automation testing technology is provided to test the passive components and safety test by simplifying multiple test functions into one, such as the 11022 LCR Meter dual-frequency tester. For electrolytic and plastic film capacitors, a single unit can complete different frequency measurements, which reduces the number of test stations used. The automatic test system for components provides multi-step and multi-channel test programs to meet diverse test applications.

- Semiconductor/IC test solutions Semiconductor products serve as the pilot of the information and communications industry. Hence, China has been vigorously developing the semiconductor industry in recent years, thus resulting in a sharp increase in semiconductor-related test equipment in the Chinese market. Along with the continuous expansion of semiconductor applications in recent years, demand for semiconductor equipment has increased significantly. As a result, the Corporation offers a wide variety of test programs, and is able to perform large numbers of parallel tests to increase throughput per unit time, which is the development trend for test equipment manufacturers. Customized test equipment capable of satisfying specific requirements may be directly utilized to replace the general-purpose testers achieving significant reduction in costs.

- Battery test and automation solutions When air pollution seriously harms life, how to reduce waste has become an important issue for urban development. In order to solve the air pollution problem, China has developed the electric vehicle industry on a large scale in recent years. With the support of national policies for electric vehicles, market demand for power batteries has increased significantly, but related accidents are also common; therefore, the issue of battery safety will become even more important. The Corporation has long been committed to the field of new energy, and continues to strive for testing automation and efficiency in the battery industry to provide customers with battery cells, modules, battery packs and battery system performance, environmental reliability, as well as safety testing and certification services. The key factors in the evolution of electric vehicles depend on the advancement of battery functions. With batteries becoming increasingly important, the quality and stability of batteries not only affect the range of electric vehicles, but also their safety. Hence, battery automation testing is an important part of the current development of electric vehicles.

- Photovoltaic test solutions In mid-2018, China terminated subsidies for the solar energy industry that significantly affected the development of the solar energy industry. In other words, this industry is facing a severe elimination race. Demand for solar equipment has also been severely affected. It can only be hoped that the industry will recover in 2019.

B. Special materials In recent years, technical issues associated with copper wire packaging have gradually been overcome and improved, and downstream package manufacturers have accelerated the introduction and certification of copper wire packaging. Most of the packaging wire materials which use gold wires have been replaced by copper wires. Chroma New Material Corp., a subsidiary of the Corporation, will combine technical services provided by Japanese company, Nippon Micrometal Corporation to

69

increase the added value of its products in order to consolidate the market share of high-tech threshold packaging products in the Taiwanese market.

2. Correlation with upstream, midstream and downstream sectors of the industry A. Measuring instruments and equipment

These instruments and equipment belong to the test instrument sector in the information electronics industry. The Corporation primarily purchases parts and components from upstream suppliers, and assembles them to produce the test instrument and equipment, which are marketed and sold to customers under the Corporation’s brand name. The Corporation and its subsidiaries offer an extensive selection of solutions for product testing and validation purposes to customers in many fields such as video surveillance, passive components, LCD modules, LED, semiconductor, solar photovoltaics, and electric vehicle industries. The following diagram describes the relationship between the upstream, midstream, and downstream sectors in this industry:

Upstream Midstream Downstream

Boxes and cases

Printed circuit

boards (PCB)

IC

Other

components

Assembly

Test

Sales

Video surveillance,

power supply, passive

components, IC design,

IC testing, LED, solar

photovoltaic and solar

power cells, and electric

vehicles industries

B. Special materials The main products in the special materials business are gold wires, copper wires, and lead-free solder balls. Gold and copper wires are bonding wires used in the process of bonding semiconductor packaging wires. The primary business engaged by the Corporation’s subsidiary, Chroma New Materials Corp., is trading of special materials, and the downstream industry is the IC packaging industry.

C. Automatic equipment Automatic equipment, which consists of metrology equipment, automation systems, and MES software capabilities, provide customers with automation solutions (turnkey solution). The main products offered by MAS Automation Corp., a subsidiary of the Corporation, are automated production and system integration for photovoltaic and TFT-LCD, as well as clean room equipment planning and system integration.

3. Development trends and competition for various products A. Development trends of various products

(A) Instruments industry - Power electronics testing industry

The following describes the current product development trends for power supply testing solutions in response to the aforementioned production, R&D, and quality requirements: • Low voltage load characteristics and high current switching

technology in response to point-of-load converter power supply and fast switching properties.

• Simulation of input and electrical grid distortion in response to regulatory requirements for testing of power supplies.

• Discontinuous, low power measurements in response to energy saving requirements for power supplies in standby mode.

• DC power supplies covering high voltage and current levels are able to reduce the required number of DC power supplies with DC/DC converter input, thus reducing testing costs.

• High voltage, high frequency testing technology and low parasitic capacitance test fixtures for LCD Inverter testing

70

can greatly improve the testing speed and stability. • Network data capture functions enable manufacturers to

establish real-time production capacity control and perform quality statistical analysis.

- Video testing industry The display industry continues to progress toward high resolution. With the commencement of video broadcasting test via 8K super hi-vision by NHK beginning August 2016, the display area will officially enter the 8K during the 2020 Tokyo Olympics. Therefore, the resolution and interactive functions of displays are important, which rely on test equipment to provide the quality assurance. Adopting the product development trend of modular design, this test solution can be combined flexibly with different signals or power modules together with free combinations of test conditions. High flexibility, strong scalability, and the ability to support a variety of mainstream industry communication interfaces, enable this solution to the panels and displays with 8K super hi-vision resolution (7680x4320/8192x4320) for the current and future applications in the video industry.

- Passive component testing industry At present, electronic products are becoming lighter, thinner, and smaller. As a result, the manufacturing, R&D, and quality of passive components used in these products are also moving towards high efficiency and precision levels. The following describes the trends for developing test equipment for passive components: • High speed precision measurement, integration equipment

automation to improve production efficiency while reducing human negligence to enhance reliability.

• Integrated testing of multiple parameters to reduce the production equipment and labor hours required, thereby lowering the production costs.

• Provide complete test solutions for specific applications that help users establish systems rapidly to fulfill their test requirements, and receive comprehensive technical support.

• Provide network data log functions so that manufacturers can build up real-time production capacity control and perform quality statistical analysis.

- Electric vehicle/battery test equipment The most important component in mobile devices and electric vehicles is battery module. Safety is the key factor of battery modules reliability that makes the testing of battery reliability is vital. As the battery production is extremely energy-consuming, automated instruments which are energy saving, high efficiency, high stability and safety have become an important trend in the development of the instruments industry.

- Semiconductor/IC test solutions Since the manufacturing industry began to move towards intelligent manufacturing for Industry 4.0, the combination of integrated test equipment and automation has become a challenge for the instruments industry. The Corporation and its subsidiaries have actively combined integrated technologies in various areas, including electronics, motors, machinery, software, information and communications in order to respond to the development of such a trend in the past year, providing turnkey test solutions for different semiconductor products in production and process. New models feature a wide range of functions, while greatly reducing labor costs by automating test machines and significantly enhancing product quality, thereby fully highlighting the

71

economic benefits of testing. - Photonics test solutions

Since Apple Inc. amazed the technology community by incorporating the facial recognition function into iPhone X, its key laser diode has become an important element for 3D sensing. This technology has recently been widely used, especially in face recognition, autonomous vehicles and existing fiber-optic communications. With the increase in demand for laser diodes, the quality and reliability of laser diodes become relatively important. Thus, the needs for various related test instruments are in the ascendant. The photonics test solutions include wafer-level test for laser diodes and package-level test for active optical communication components.

(B) Special materials The following lists the major development trends of IC packaging wire materials and technologies in response to the changes in semiconductor packaging technologies and product applications: • Gradual replacement of gold wire with copper wire due to cost

considerations. • Need for copper wires with even smaller diameters and higher

strength in response to miniaturization, high frequency, and high speed for final products.

• Bonding capability and precision of wire bonding process in response to ever decreasing bonding pad areas on the die as a result of miniaturization.

• Increasing use of fine pitch and low-loop bonding profiles for stacked packaging with better ASP performance.

B. Product competition The Corporation and its subsidiaries started working extensively with the electronics industry from its earliest stages of development. Strong foundation in the instruments industry and high barriers of entry in terms of product and techniques also allowed the Corporation and its subsidiaries to achieve leading positions in various product technologies. However, with the continuous launch of new products, the Corporation must also improve its R&D technologies for its instrument products to maintain product advantage. In addition, with rampant counterfeiting in third region due to relocation of industries in recent years, products of the Corporation and its subsidiaries also suffer from price competition involving counterfeit products. Hence, in order to maintain the competitive advantage of its products, the Corporation and its subsidiaries invested a considerable amount of manpower to apply for patents and safeguard the brand value. As production processes become increasingly automated, integrated test instruments and automatic equipment will provide the instruments industry with high levels of competitive advantages.

(III) Technologies and recent R&D efforts 1. R&D expenses invested in the two most recent years

Unit: NT$ thousands

Item\Year 2017 2018 R&D expenses 1,212,383 1,254,553 Net operating revenue 14,901,346 16,931,128 Proportion of R&D expenses to net operating revenue

8% 7%

2. Major R&D outcomes ◎ 2238 Video Pattern Generator ◎ 2918 Flat Panel Display Tester ◎ 7505-05 Multi-Functional Optical Measuring System ◎ 61509 Programmable AC Power Source ◎ 63000 Programmable DC Electronic Load ◎ 63000L Programmable DC Power Supply ◎ 66205 Digital Power Meter

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◎ 1870D Inductor Test and Packing Machine ◎ 1871 Inductor Layer Short Automatic Test System ◎ 11210 Battery Cell Insulation Tester ◎ 11050 High Frequency LCR Meter ◎ 19501-K Partial Discharge Tester ◎ 19311 Battery Cell Surge Tester ◎ 33010 PXIe Digital IO Card ◎ 3680 Advanced SoC Test System ◎ 3160C Tri Temp Quad Site Handler ◎ 3660C Tri-Temp SLT Handler ◎ 7940 Wafer Chip Inspection System ◎ 58620 Laser Diode Characterization System ◎ 58604 Laser Diode Burn-in and Reliability Test System ◎ 7505-K006 Cylindrical Battery Cell Automated Optical Inspection System ◎ 7505-K007 Thin Film Thickness Automated Optical Metrology System ◎ 3730-E Solar Cell Inspection Test/Sorting System ◎ 3760 Solar Cell Inspection Test/Sorting System ◎ 17011 Battery Cell Charge/Discharge Test System ◎ 17040 Regenerative Battery Pack Test System ◎ 7925 TO-CAN Inspection System ◎ 8000 Electric Vehicle AC Charging Compatibility Automatic Test System

3. Future R&D plans The Corporation has been running the precision measuring instrument and semiconductor testing business for many years, but has been unable to penetrate into wafer manufacturing. With TSMC taking the lead and becoming an extremely important component manufacturer in the electronic industry, how to penetrate into the testing sector in the field of semiconductor fabrication plant will be a major R&D subject of the Corporation in the coming years. The recent development trends in the IT industry include 3D applications, smart communications, and the development of the Internet of Things (IoT), which involve the use of various equipment in wireless communications to enter into the era of electric vehicles, autonomous vehicles and smart cities, lead the emergence of Industry 4.0 in the manufacturing industry and Finance 3.0 in the financial industry. Therefore, the Corporation's R&D plan has also evolved with various industries, promoting the related automation equipment of Industry 4.0 and the development and integration of Turnkey Solutions, as well as the establishment of Industry 4.0 smart manufacturing related solutions. In response to the trend of IoT, the equipment for testing the electric vehicle, battery, wireless communication, VR and AR are developed. The Corporation and its subsidiaries are also committed to the R&D of products related to clean technology with the aim of developing relevant automatic test equipment.

(IV) Long-term and short-term business development plans 1. Short-term development plans

(1) Build a strong global first-tier customer base to increase market share for each product. The Corporation knows that marketing products to customers globally and obtains the certification of the first-tier customers is a strong guarantee for the Corporation's product quality, which helps increase the product's popularity, facilitate the promotion of products to the market, and enhance the market share for each product.

(2) Accelerate innovation, develop instruments and systems equipped with AI, and meet intelligent manufacturing needs. With major industrialized nations facing issues such as aging population and high salaries, the development of AI to drive intelligent manufacturing can greatly reduce the use of manpower, while providing great possibilities for the manufacturing industry to engage in manufacturing in the US. Therefore, the Corporation has invested in big data analysis, and will deepen its foundation in machine learning and deep learning. The Corporation will apply AI technology to its intelligence measurement

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equipment, which can provide alerts regarding the health status of equipment, and integrate AI technology into intelligent manufacturing system to help customers execute big data analysis and perform forecasts during manufacturing to improve the process, thereby accelerating the development of "precision, reliable and unique" measurement solutions and turnkey solution to meet future market demands.

(3) Lean operations management to effectively improve quality and efficiency In response to the rapidly changing environment, the Corporation has established a product R&D technology database, compiled information of R&D technology personnel, and updated the enterprise management system to improve product R&D rates and rapidly provide various management and analytical information that serves as a basis for business decision-making to effectively improve quality and efficiency.

(4) Implement the 5300 program to enhance operation scale Enhance product market analytical capabilities for in-depth investigation of market development trends, formulate strategies for developing various product series, and establish marketing strategies as part of implementing the 5300 program to enhance the operation scale.

2. Long-term development plans The Corporation’s long term goal and vision is to aggressively develop world-class products and strive to become a world-class enterprise. World-class products are "precise, reliable and unique", offering test solutions with more value to customers in various electronic technology industries. Meanwhile, world-class enterprises are advancing toward three major directions, namely "innovative technologies, own brands, and internationalization." Thus, the Corporation invests a lot in R&D each year to ensure that the Corporation maintains its lead with its core technologies and highly integrated capabilities in optics, machinery, electronics, temperature control and software, in order to maintain its competitive advantage and growth, thereby achieving the goal of sustainable development. (1) Marketing plans

With the rise of work specialization at international level, manufacturing bases for the IT industry have started expanding outward. In order to provide customers with services of the highest quality, the Corporation and its subsidiaries have also established a sales network composed of overseas subsidiaries, as well as sales agents and dealers. With Taiwanese companies heading to Southeast Asia for investment in recent years, the Corporation has also formulated plans to set up sales and marketing locations in Southeast Asia through its subsidiary in Singapore. Besides, the headquarters provides support to various activities, in hopes of increasing revenue in this region. The Corporation fully promotes products with its own brand, and sets up strategic alliances with well-known international brands to serve as an agent to sell professional instruments through online market, in order to increase overall efficiency.

(2) Human resource plans Developing niche products has long been a goal of the Corporation and its subsidiaries. Having been engaging in technology-intensive industries, the Corporation and its subsidiaries must continuously nurture professional talents and strengthen employee training by establishing a knowledge management platform and learning database helping employees quickly gain competence in the field of professional technology through resource sharing, so as to effectively enhance human resources and reduce learning time.

(3) Product development plans The Corporation and its subsidiaries have penetrated the electronic product testing industry for many years, and thus their product development strategies have been keeping pace with the development of the industry. In addition to the products developed for testing semiconductors and flat panel displays, the Corporation has also invested in modular instruments, system integration, and a variety of customized automation products. With

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the rising labor costs and aged population, intelligent networks, industrial automation, and health care industries are becoming increasingly important. The Corporation's long-term product development plans will therefore focus upon the development of test equipment related to products in intelligent network systems in order to develop equipment related to industrial automation and health care. The Corporation will also be aggressively integrating the upstream and downstream industries, and utilize the merger and acquisition strategy to create opportunities for expanding relevant product lines.

II. Market, production and sales summary

(I) Market analysis 1. Major products by sales area

Unit: NT$ thousands 2017 2018

Area Amount

Percentage of net

operating revenue (%) Amount

Percentage of net

operating revenue (%) Domestic

sales

$4,157,800

28

3,921,874

23

Export sales 10,743,546 72 13,009,254 77 Total $14,901,346 100 $16,931,128 100

2. State of the market President Trump introduced policies which were different from the past since he took office, triggering trade barriers between various nations. However, the tax reduction measure he introduced stimulated economic growth, causing a moderate increase in inflation. The Fed began to adopt a moderate monetary tightening policy, but Europe and China continued to implement monetary easing. Yet, the emergence of the US-China trade war and US sanctions against major Chinese telecommunications firms Huawei and ZTE have affected the plans of various major industries. With the information electronics industry treading on thin ice, it was difficult for customers in both the Chinese and US camps to come up with different types of applications in order to drive industrial demand. Despite the development of autonomous vehicles, smart driving, IoT and smart manufacturing in Industry 4.0, investments in such technologies remained relatively conservative.

3. State and growth of market supply and demand In 2018, the information electronics industry hit a new peak, in which a sharp increase in demand resulted in a serious shortage of components. However, inventory adjustment marked a prosperous ending at the end of 2018. In 2019, the manufacturing industry remains conservative and hesitant about expansion due to uncertainties resulted from the US-China trade war. Yet, China and South Korea have consecutively launched 5G and foldable mobile phones, thereby driving the communications industry. The market anticipates that the introduction of 5G technology will drive the development of autonomous vehicles and smart driving, thereby advancing 3D sensing needs. With the introduction of IoT and Internet of Vehicles (IoV), the development of wireless chargers, battery lifespan, virtual reality (VR) and augmented reality (AR) will drive limitless imagination in expanding applications related to these technologies.

4. Favorable and unfavorable factors affecting competitive niches and long-term development, as well as response measures A. Test instrument equipment

(A) Competitive niche and favorable factors: Having established operations all over the world, the quality of a variety of equipment produced by the Corporation are highly recognized by the world’s first-tier manufacturers. The Corporation also maintains good relationships with leading manufacturers of various products so it obtains real-time industry developments, invests in R&D immediately, and launches new measurement products in a timely manner, with a view to providing customer with R&D and solutions of the best quality during production. The

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Corporation has invested heavily in R&D over the years, accumulating a variety of key technologies, and developing a number of technologically advanced products, thus enabling the Corporation and its subsidiaries to stay ahead of the testing market. The competitive niches of the Corporation and its subsidiaries include effective control over sales channels, acquisition of the latest information about the industry, and ownership of key technologies. Besides, with an abundance of resources, the Group owns testing, automation, and factory management systems to provide customers with turnkey solutions. All these are favorable factors that help the Corporation and its subsidiaries maintain their market competitiveness.

(B) Unfavorable factors: Instrument products are typically produced in small amounts and wide varieties, making mass production difficult. Production processes are often complicated and difficult to manage. Other unfavorable factors include complexity of test instruments, and a diverse range of material types required which results in high warehousing costs.

(C) Response measures: Since products are manufactured in small amount and wide varieties, the Corporation and its subsidiaries have adopted modular designs during the stage of product development, in which products with different specifications in a product line are centralized in the same module, while designs with common features in a product line are common modules to increase the production volume of common modules and reduce the amount of materials required for sections with different features. Besides, in order to strengthen production and inventory management, the IMS BU and the Information Center at the Corporation and its subsidiaries have also built a complete information management system according to the nature of industries to which they belong, with a view to enhancing management efficiency.

B. Special materials (A) Competitive niche and favorable factors:

The Corporation's subsidiaries are the largest suppliers in Taiwan, and are able to provide customers with overall competitive value, including quality, price, delivery, technical support and other services, thereby serving as important competitive niches for the Corporation, which are responsible for helping the Corporation and its subsidiaries secure a growing market share.

(B) Unfavorable factors: Key materials had to be imported, which offer a certain degree of uncertainty.

(C) Response measures: Chroma New Material Corp., a subsidiary of the Corporation, has built a long-term partnership with Nippon Micrometal Corporation from Japan to supply materials to Chroma New Material Corp., so as not to affect its development.

(II) Major uses and production process of primary products 1. Major uses of primary products

- Power electronic test solutions In addition to applications in IT, communications, aerospace, defense, and other industries, the power supply test solutions provided by Chroma ATE Inc. are also applied to hybrid vehicles, LED lighting, solar power, fuel cells, and other energy saving products that were actively developed as natural resources become increasingly scarce. The Corporation also provides various industries with customized test solutions. The Corporation offers a wide variety of test equipment, including programmable AC power source, programmable DC power supply, DC

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electronic load, AC electronic load, digital power meter, and frequency response analyzer, which are required for specification tests and dynamic simulation for both input and output terminals of power supplies. Exclusive graphic operating software (Softpanel) and NI Labview drivers are also provided to help users conveniently utilize these solutions. The Corporation and its subsidiaries have independently developed an automatic testing system which includes a software platform that comes with powerful built-in functions, and integrates the necessary hardware instruments into the system so that users can independently edit the test items and analyze vast amounts of test data, which can then be used as a basis for R&D or quality assurance (QA) to make changes to products or improve factory processes. In addition to recent applications in PC, servo or telecom power sources, adapters, and chargers, other areas such as backlight inverters, LED drivers, energy-saving lamp ballasts, and even UPS, PV inverters, and electric vehicle supply equipment (EVSE) are also part of its scope of application. Also, the Corporation and its subsidiaries have a global technical applications support team, which us capable of providing customized plans for automation systems and production of testing fixtures.

- Video & color test solutions LCD modules are equipped with different signal transforming panels. Once assembled, the final products can be used with different signal outputs in various products. These complex outputs and input interfaces require a video pattern generator which provides various international standard signal testing screens for testing purposes to analyze the performance of the display in processing video signals. Precision is a key requirement since output signals of the video pattern generator is the standard source. Color analyzers use advanced digital signal processors and photoelectric conversion technology and combined them with precision optical components and circuit design to accurate measure the energy, calibrated color, brightness, and white balance of the light projected by the display to meet international standards and specifications. For large scale monitors and projectors, optical color analysis probes can be used to achieve simultaneous measurements of multiple points. This can then be integrated with the video pattern generator as well as a software operation interface for video signal analysis. All programmed tests could be carried out quickly using single button operations, making it the most competitive video and color testing solution available.

- Passive component and safety test solutions Testing equipment for passive components include tests for capacitors, inductors, resistors, and other basic passives as well as tests conducted for various electronic components that were assembled using these components (such as wound components, communication and power source filters) or have similar properties (such as switches, connectors, conducting wires, metallic materials, dielectric materials, magnetic materials, and semiconductor components). Tests can be used to analyze the properties of the tested objects and provide design optimization for integrated applications such as automated production inspection, feed/discharge inspection, QA verification, and R&D analysis in order to satisfy the customer’s requirements for cost reduction and achieving better efficiency. Electrical regulatory test equipment is widely employed in various types of electronic components, electrical products, or health care products. Major tests include AC/DC withstanding voltage and insulation resistance testing for electronic components as well as earth connection and grounding leakage current tests for electrical products or medical electronics. In addition to verifying product compliance with various safety specifications such as the UL (United States), CE (Europe), and TUV (Germany), the primary purpose of testing is to ensure personal

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safety of the users as well as long-term reliability of the products. To create an international sales channel, safety regulations must be regarded as a major concern. General test instruments include multi-functional calibrators, resistors, and capacitor meters. In addition to single unit operations, these solutions can also be connected and used with other testers for R&D, design verification, and QA testing purposes. These test solutions were capable of fulfilling basic testing requirements of different units.

- Flat panel display test solutions LCD module test solutions may be used in the assembly phase with shorting-bar signals to test for various defects in the panel and initiate laser reparations. During module processing, the dimensions of the panel as well as backlight properties (CCFL or LED BLU) are referenced. The source of the video signal and programmable power supply are then used to implement voltage, current, and power testing through an ergonomic testing interface on PC. An analysis application that uses both hardware and software features is then used to identify any bright pixels, defective pixels, color, resolution and other properties. Production line designs with automated conveyor belts can also be used to employ system-based controls to provide integrated network management functions for data analysis.

- Semiconductor/IC test solutions The Corporation has established a strong foundation in the field of semiconductor wafer testing for many years, and thus has a large number of product lines. Equipment required from the R&D to mass production stages such as ATE large-scale test system, IC sorter, and PXI/PXIe miniaturization test platform are all complete. Corresponding products provide customers with the most suitable choice. Semiconductor solutions cover different wafer test applications such as: consumer wafers (microprocessors, audio chips, peripherals for computers/mobile devices, etc.), power management chips (linear regulators, DC converters, AC converters, LEDs Drivers, etc.), RF chips (wireless networks, Bluetooth, mobile communications, etc.), and specific areas of testing (image sensors, radio frequency identification, etc.). Handlers used in backend production of ICs could also work with different IC packaging types and sort out defective products from conforming ones. After IC packaging and testing, automatic system function testers can be used to rapidly screen completed IC packages, replacing simulated test environments with actual usage environments for product testing to provide low cost and high coverage tests that will greatly improve the quality of the delivered product.

- LED/lighting test solutions LED test equipment of the Corporation would be employed during midstream process before or after die singulation or die separation. Tests include electrical, optical, and electrostatic discharge (ESD) properties of the die. These solutions can be integrated with ergonomic operation interface of the probe testers to achieve rapid LED testing. For downstream packaging processes, tests such as electrostatic discharge, thermal resistance, and temperature control (tri-temperature) can be carried out with simulated changes of environmental temperature and humidity and measuring the electrical and optical properties of the LED module. Test requirements for LED modules were primarily lifespan tests for LED Flash Lights, LED Light Bars, and OLEDs. Customized test solutions for electrical properties of LEDs and optical testing are also provided to satisfy various kinds of test requirements.

- Photovoltaic test solutions Solar cell test solutions include a number of different testers and testing equipment developed primarily for test requirements during the cell phase and module phase of photovoltaic manufacturing. I-V testers could be used to measure cell conversion efficiency of solar cells and sort these cells according to conversion efficiency. Automatic optical testing is then

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performed to detect any color, top side, and back side printing defects of the solar cell. Finally, the category of the solar cell is used to implement relevant sorting. When assembling a PV system, the system inverter would convert DC into AC currents while controlling the direction of current flow and calculate the reverse current delivered. AC/DC power supply and electronic load of Chroma ATE can be used to simulate and measure output power supply to ensure its quality.

- Battery test & automation solutions The Corporation's battery testing and automation solutions cover a wide range of products that possess features of dynamic charge and discharge, energy recovery battery module test systems for real-world current simulation applications, battery discharge energy recovery and reuse, power saving, environmental protection, and low thermal output, which helps save on electricity and air conditioning costs and reduce production costs. Scope of application for these solutions includes electric vehicle manufacturers, energy storage system vendors, and battery module plants. These solutions are suitable for battery management system testing, battery pack endurance testing, product shipment inspection, design verification research, and battery pack production line capacity learning and DC internal group testing and other purposes.

- Photonics test solution Photonics test solutions include a wafer-level test for laser diodes and package-level test for active optical communication components. With the Corporation's superior power electronics and optical measurement technology, alongside the integration of institutions and temperature control, the optical components can be burned in at different ambient temperatures for testing. The semiconductor laser characteristic detection system is designed specifically for laser diodes, and the All-In-One design concept is used for automatic detection. It can be used for simultaneous testing of different test items; it can be used together with high-capacity vehicle designs. A large number of chips are used to perform various tests. In addition, AOI can increase the speed and reliability of automated inspections. The design of a highly stable temperature control platform enables the R&D engineers to accurately understand the relationship between laser semiconductor characteristics and temperature.

- Manufacturing execution system (MES) This solution provides an integrated system for collecting various manufacturing data from the production floor. Various electronic equipment can be used to automatically collect assorted production data and integrate data required by processes in various units (such as material, production, manufacturing, quality control (QC), and warehousing) so that every unit could rapidly acquire the needed information to enhance production efficiency.

2. Production process

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(III) Supply of primary raw materials The Corporation and its subsidiaries manufacture a large variety of products in small quantities. A large quantity of raw materials would be required, with primary materials including programmable logic gate array IC, converter IC, memory, relays, structural materials, and PCB. The following describes the state of material supply:

Primary raw material category

Main supplier State of supply

Programmable logic gate array IC

Galaxy Far East Corp., Weikeng Industrial Co., Ltd., and Answer Technology Co., Ltd.

The three suppliers above, which serve as agents for distributing and selling products made by world-renowned manufacturers, are vendors which the Corporation collaborates in the long run, and offers products with stable quality and supply of goods.

Inverter IC Answer Technology Co., Ltd., Morrihan International Corp., and World Peace Industrial Group


Memory Weikeng Industrial Co., Ltd., Transcend Information, Inc., and Arrow Electronics, Inc.


Electric relay Sumchip Technology Co., Ltd., IC-Hi Technology Co., Ltd., and Bright Toward Industrial Co., Ltd.


Structural materials

Chyuan Jyh Industry Co.,Ltd., Gao Jing Jhun Metal Co, Ltd., and Chang Yang Electronics Co., Ltd.

The three suppliers above, whose manufacturing quality and supply of goods are relatively stable, are responsible for supplying goods, and have established good long-term relationship with the Corporation.

PCB Lin Genius Enterprise Co. Ltd., Speed Circuits Co., Ltd., and Golden Sum Co., Ltd.

The three suppliers above, whose manufacturing quality and supply of goods are relatively stable, are responsible for supplying goods, and have established good long-term relationship with the Corporation.

Gold wire and copper wire for IC

NIPPON These materials are mainly supplied by Nippon. Nippon has established a positive and long-term collaborative partnership with the Corporation’s subsidiary, Chroma New Material Corp.

Given the large variety of raw materials and components needed by the Corporation and its subsidiaries to manufacture precision instruments, all local and overseas purchases are handled by a single purchasing unit. Where possible, 2 or more suppliers were selected to ensure supplier replaceability, acquire competitive pricing, distribute purchasing risks, achieve reasonable cost reductions, and provide better services. The purchasing unit shall regularly review quotations offered by the supplier. QC and purchasing personnel shall conduct audits at the supplier end to ensure the stability of product quality while assessing the process capability of suppliers.

(IV) List of suppliers and customers accounting for 10 percent or more of the Corporation’s total purchases (sales) of goods in either of the two most recent years, amount and percentage of total purchases (sales) of goods, and reason for changes in these figures. 1. List of suppliers accounting for 10 percent or more of the Corporation's total

purchases of goods in either of the two most recent years

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Information on major suppliers in the two most recent years

Unit: NT$ thousands

Item

2017 2018

Name Amount

Proportion to net

purchases of

goods for the

entire year (%)

Relationship

with the

issuer

Name Amount

Proportion to

net purchase

of goods for

the entire year

(%)

Relationship

with the

issuer

1 NMC 1,164,136 13.99 None NMC 1,085,331 11.73 None

2 NMC(Philippines) 780,296 9.38 None NMC(Philippines) 794,434 8.58 None

Others 6,378,055 76.63 - Others 7,374,992 79.69 -

Net purchase 8,322,487 100.00 Net purchase 9,254,757 100.00

Explanation for any changes: As NMC is the main supplier of the Corporation's subsidiary, Chroma New Material Corporation, the change in purchase of goods was mainly resulted from the decrease in the proportion of sales of special materials by NMC to its consolidated revenue in 2018. Therefore, the ratio of purchases of goods significantly reduced. Yet, NMC remains one of the two most important suppliers of the Corporation.

2. List of customers accounting for 10 percent or more of the Corporation's total

sales of goods in either of the two most recent years

Information of major customers for the two most recent years Unit: NT$ thousands

2017 2018

Item Name Amount

Proportion to net

sales of goods for

the entire year (%)

Relationship

with the

issuer

Name Amount

Proportion to net

sales of goods for

the entire year (%)

Relationship

with the

issuer

1 Others 14,901,346 100.00 - Customer A 2,646,345 15.63 None

Others 14,284,783 84.37 -

Net sales 14,901,346 100.00 Net sales 16,931,128 100.00

Explanation for any changes: These changes occurred due mainly to the fact that the revenue of MAS Automation Corp. under the Group in 2018 grew by 92%, and the total sales of goods to Customer A, an important sales customer of MAS Automation Corp., accounted for 15.63% of the total revenue of the Group.

(V) Production volume in the two most recent years Unit: km, m, feet, g, units, sets, NT$ thousands

Year

Production volume

and value

Major product

2017 2018

Production

capacity

(Note 1)

Production

volume

Production

value

Production

capacity

(Note 1)

Production

volume

Production

value

Test instrument equipment - 82,080 3,098,167 - 80,981 2,741,528

Special materials - - - - - -0

Automatic equipment - 203 2,504,014 - 178 4,001,230

Others - 21 971 - 153 6,103

Total - 82,304 5,603,152 - 81,312 6,748,861

Note 1: The Corporation and its subsidiaries adopt a production model of producing small amounts in wide varieties instead of mass production using automated production lines. No single product has an exclusive product line. Hence, general assessments for capacity utilization rates cannot be used for this production model. For production processes, flexible manufacturing work stations are assembled based upon the number of man hours contributed by operators and test personnel, along with machinery and equipment. Production volume and capacity for various products shall be arranged according to the product market or purchase order requirements. Expected production volume is used to flexibly adjust production capacity in order to achieve maximum benefits using limited economic resources. Hence, stable capacity utilization rate can be maintained for all primary products listed above. The most flexible production plan can also be applied to products with market advantage in order to achieve optimal capacity utilization rate.

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(VI) Sales volume in the two most recent years Unit: km, m, feet, g, units, sets, NT$ thousands

Year

Sales volume

and value

Major product

2017 2018

Domestic sales Export sales Domestic sales Export sales

Volume Value Volume Value Volume Value Volume Value

Test instrument 13,887 1,776,403 104,278 8,156,211 20,354 1,628,748 95,358 8,095,583

Special

materials 2,920,789,389 2,028,001 71 26,567 3,034,452,325 1,969,686 71 35,315

Automatic

equipment 133 30,209 70 2,508,139 107 147,298 71 4,715,025

Others - 323,187 - 52,629 - 176,142 - 163,331

Total 2,920,803,409 4,157,800 104,419 10,743,546 3,034,472,786 3,921,874 95,500 13,009,254

III. Employee information in the two most recent years up to the publication date of this annual

report

Year 2017 2018 Current year up to February

28, 2019

Number of

employees

Management and sales

personnel 1,258 1,341 1,333

Manufacturing personnel 856 854 835

R&D personnel 757 791 788

Total 2,871 2,986 2,956

Average age 35.26 33.7 33.83

Average work tenure 5.88 6.71 6.83

Proportion

for the

distribution

of academic

backgrounds

Ratio

PhD 0.91% 0.97% 0.97%

Masters 20.37% 21.40% 21.48%

University/college degree 63.97% 68.46% 68.49%

High school diploma 13.14% 7.55% 7.42%

Below high school 1.61% 1.63% 1.64%

IV. Environmental protection expenditure

(I) Total losses and fines from environmental pollution from the most recent year up to the publication date of this annual report: None. In 2018, there were no environmental violations regarding environmental pollution after inspections, nor were there any external or internal personnel or property losses caused by environmental pollution.

(II) Future response strategies Located in the Huaya Technology Park in Linkou, the Corporation engages in a high tech and low polluting industry in the IT sector, which does not cause public hazards or pollution issues during the production process. Hence, there is no need for the Corporation to apply for a permit to establish pollution control facilities. For waste water and sewage issues, the Corporation only generates domestic sewage which undergoes preliminary treatment in this factory before being discharged into the wastewater treatment system of the technology park. Domestic waste is cleared and disposed of properly by a waste removal and treatment company approved by the competent environmental protection agency. The waste removal and treatment company approved by the competent environmental protection authority is also entrusted to carry out proper disposal or recycling of business waste. The Corporation and its subsidiaries place great importance on environmental issues and comply with the relevant laws. Landscaping and aesthetics were considered when constructing factory buildings to provide green, spacious, clean, healthy, and comfortable areas for employees. The Corporation and its subsidiaries also actively participate in activities related to green and environmental protection industries, and actively incorporate or develop greener operations and products for processes, products, services, and principles in

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order to fulfill laws and requirements related to RoHS and toxic chemical substances of the customers and countries where the products are being sold to. These laws and requirements are also used as guidelines to achieve continuous improvements and sustainable management to achieve the final objective of green industries. When pursuing and maintaining the overall ecology and sustainable development, the Corporation and its subsidiaries are committed to technical improvements and breakthrough while fulfilling corporate responsibilities such as compliance with the law, social duties, and environmental protection. Stringent approaches are adopted to actively promote environmental management systems (EMS), safety and health-related activities, and pollution prevention measures in order to create an excellent, safe, and healthy work environment to safeguard employees’ physical and mental health.

V. Labor relations

(I) Various employee welfare measures, continuing education and training, retirement systems, and their implementation, as well as various labor-management agreements and measures for safeguarding employee rights and interests. 1. Employee welfare measures

The Corporation has established the Employee Welfare Committee in charge of coordinating and managing employee welfare funds, organizing employee social clubs and trips, ball games, social activities, and festive gifts for fellow employees. The plan also includes subsidies for employee marriage, passing of immediate family, and other celebrations and festivals, subsidies for employee tours, labor, health insurance, and group insurances, establishing employee restaurants, employee dormitories and recreation centers, providing a diverse selection of recreational and entertainment facilities for employees, and preparing employees’ parking spaces.

2. Continuing education and training To promote the employees’ competence, knowledge, and management skills required for their duties, the Corporation stipulated the Education and Training Management Regulations. The Corporation's business objectives, as well as results of departmental surveys, were compiled to formulate the annual training plan. Newly hired staff was provided with work orientation training. On-job training, specialization training, or professional external training were provided every now and then for employees to train professional and talented personnel, improve business performance, and achieve effective utilization of human resources. The following lists the results for the implementation of training the most recent year:

Number of employees trained Training expenses (NT$ thousands)

9,605 1,891

Training courses include: training for newly hired staff, professional training, language training, management function training, and lifestyle seminars.

3. Retirement system The Corporation has established the Regulations for Employee Retirement in accordance with the Labor Standards Act, stipulating that 4% of the total monthly salary provided shall be contributed to the retirement reserve fund and deposited to at the Trust Department of Bank of Taiwan. On the other hand, the Employment Retirement Reserve Fund Supervision Committee has been established for monitoring the retirement reserve fund. As of July 1, 2005, regulations for employee retirement funds entered into force, contributions shall be deposited to the Employee's Pension Account established by the Bureau of Labor Insurance.

4. Labor-management agreement The Corporation and its subsidiaries place great importance on employee welfare and established a harmonious employee-employer relationship. In addition to complying with Labor Standards Act and relevant laws, welfare measures considered superior to statutory regulations are also established. Additionally, it promotes the efficiency of internal communication and encourages fellow employees to propose various recommendations. In addition to regular internal

83

communication meetings between various units, communication channels for employee relations were also established. Any employee inquiry or suggestions can be communicated using the “Employee Communication Helpline”, “Employee Communication Email”, and “Employee Communication Feedback Mailbox” in order to learn about the issues faced by employees, thereby preventing any possible labor disputes.

5. Measures for safeguarding employee rights and interests To safeguard the employees’ rights and improve the living standards of fellow employees, additional labor-management communication channels have been established. The Corporation has also established the Employee Welfare Committee to plan the allocation, payment, preservation, and utilization of the employee welfare fund and to provide laws specified by relevant laws. Protection of employees’ rights and implementation of welfare systems shall comply with the relevant laws and regulations.

(II) Any loss suffered due to labor disputes, estimated loss for current or future incidents that may occur, and response measures from the most recent year up to the publication date of this annual report, and reasons why a reasonable estimate cannot be made: None.

84

VI. Important contracts

Nature of

contract

Contracting

party

Start and end date

of contract Major content Restrictive terms

Land purchase and sale contract

Ministry of the Interior

After signing the contract on April 18, 2012 until the advance registration of land for this project is fully terminated in accordance with the contract

The Corporation entered into a contract with Heran Co., Ltd. and Dynapack Corp. to participate in the "Tender for the Industrial Development Zone in the Taoyuan International Airport Access MRT Station A7 Transit-Oriented Development Zone". The total sum of this contract was NT$ 10,088,889,990, and the project covered a total land area of 222,300 square meters. Shares held by each member of the tender are as follow: Chroma ATE Inc. 35%, Heran Co., Ltd. 35%, and Dynapack International Technology Corporation 30%.

When transferring land property rights, the seller requested the buyer to agree to the condition of providing notice land registration to this land as undeveloped and unused land.

Construction contract

Lee Ming Construction Co., Ltd.

(1) February 24, 2017 to the project acceptance date (2) August 15th, 2017 to the project acceptance date

(1) New construction of the Corporation's Station A7 building. (2) Electrical and mechanical works for the Corporation's Station A7 building.

None


Evergreen Steel Corp.

March 2017 to the project acceptance date

Steel structure works for the construction of the Corporation's Station A7 building

None


Lead Fu Industrials Corp.

August 15, 2017 to the project acceptance date

Glass curtain works for the construction of the Corporation's Station A7 building

None

Medium-term loan contract

Taishin International Bank

2017.9.4~2020.9.4 Medium-term loan The financial ratios must meet the agreed criteria during the duration of credit line.

Medium and long-term loan contract

E. SUN Commercial Bank

2017.12.14~2022.12.14

Medium and long-term loan None

Medium-term loan contract

Bank of Taiwan

2017.12.29~2020.12.29

Medium-term loan None

Medium and long-term loan contract

Mega International Commercial Bank

2018.3.1~2023.3.1 Medium and long-term loan Credit lines cannot be used to purchase real estate.

(1) Share transfer agreement (2)Share purchase agreement

(1)Camtek (2) Priortech

2019.2.11 to delivery condition achievement

Chroma will acquire a total of 6,117,440 shares from Priortech(the controlling shareholder of Camtek) and a further 1,700,000 new shares issued by Camtek with cash payment of US$ 9.50 per share. The total cash transaction will be US$ 74 million.

The delivery will be carried out after the completion of the delivery conditions in accordance with the agreement of the equity sale and purchase agreement and the equity transfer agreement.

85

Chapter 6 Financial Summary I. Condensed balance sheet and statement of comprehensive income in the five most recent years

1. Condensed consolidated balance sheet and statement of comprehensive income Unit: NT$ thousands

Year Item

Financial information in the five most recent years

2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Current assets 9,184,704 9,632,600 11,212,692 14,105,784 13,231,273

Property, plant and equipment 2,712,962 2,767,608 2,714,127 2,664,584 3,389,889

Intangible assets 200,472 200,576 227,503 278,036 274,095

Other assets 2,871,838 3,459,655 4,478,456 4,969,208 6,307,207

Total assets 14,969,976 16,060,439 18,632,778 22,017,612 23,202,464

Current liabilities

Before distribution 2,870,775 3,112,654 4,723,411 6,922,901 5,972,513

After distribution 3,853,214 4,020,607 6,037,618 8,774,705 (Note 2)

Non-current liabilities 2,726,113 3,416,489 3,121,516 1,631,882 2,539,602

Total liabilities



Equity attributable to the owner of the parent company

9,252,948 9,410,104 10,616,627 13,230,679 14,410,020

Capital stock 3,787,821 3,791,699 3,898,872 4,118,942 4,167,794

Capital surplus 1,256,654 1,302,269 1,960,159 3,187,289 3,469,637

Retained earnings



Other equity 507,104 399,665 58,035 (12,134) 13,244

Treasury stock (35,714) (35,714) (35,714) (35,714) (35,714)

Non-controlling interests 120,140 121,192 171,224 232,150 280,329

Total equity



Year Item


2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Operating revenue 10,307,085 9,692,365 11,624,369 14,901,346 16,931,128

Gross profit (Note 3) 4,046,270 4,221,340 5,428,322 7,068,872 7,458,293

Profit from operations 1,221,400 1,219,999 2,013,181 3,043,081 3,039,633

Non-operating income and expenses 302,113 262,673 28,876 78,986 268,457

Profit before income tax 1,523,513 1,482,672 2,042,057 3,122,067 3,308,090

Net income from continuing operations 1,295,985 1,194,542 1,695,566 2,548,823 2,547,179

Loss from discontinued operations ─ ─ ─ ─ ─

Net profit 1,295,985 1,194,542 1,695,566 2,548,823 2,547,179

Other comprehensive income (net value after tax)

4,567 (131,740) (223,152) (138,228) 3,487

Total comprehensive income 1,300,552 1,062,802 1,472,414 2,410,595 2,550,666

Net profit attributable to the owner of the parent company

1,318,373 1,236,557 1,719,935 2,558,401 2,546,275

Net profit attributable to non-controlling interests

(22,388) (42,015) (24,369) (9,578) 904

Total comprehensive income attributable to the owner of the parent company

1,320,288 1,102,621 1,501,612 2,425,174 2,546,584

Total comprehensive income attributable to non-controlling interests

(19,736) (39,819) (29,198) (14,579) 4,082

Earnings per share (NT$) 3.51 3.28 4.53 6.41 6.22

Note 1: In 2015, the Corporation began to adopt the Regulations Governing the Preparation of Financial Reports by Securities Issuers as well as the 2013 version of IFRS and International Accounting Standards (IAS) as well as interpretations and announcements thereof approved by the Financial Supervisory Commission (FSC), and traced applicable items in previous financial statements to adjust those items that may be affected by these adoptions.

Note 2: The 2018 surplus allocation plan has not been approved by the Annual General Meeting. As a result, these fields were left blank as a result.

Note 3: The values listed are net realized gross profit from which unrealized gross profit are deducted.

86

2. Condensed parent company-only balance sheet and statement of comprehensive income Unit: NT$ thousands

Year Item


2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Operating revenue 5,135,199 4,539,441 7,233,315 8,018,006 7,546,840

Gross profit (Note 3) 2,752,917 2,519,834 3,763,579 4,116,862 3,916,720

Profit from operations 1,052,145 825,721 1,726,398 1,759,378 1,514,112

Non-operating income and expenses 431,832 548,464 281,123 1,106,336 1,414,496

Profit before income tax 1,483,977 1,374,185 2,007,521 2,865,714 2,928,608

Net income from continuing operations 1,318,373 1,236,557 1,719,935 2,558,401 2,546,275

Loss from discontinued operations ─ ─ ─ ─ ─

Net profit 1,318,373 1,236,557 1,719,935 2,558,401 2,546,275

Other comprehensive income (net value after tax)

1,915 (133,936) (218,323) (133,227) 309

Total comprehensive income 1,320,288 1,102,621 1,501,612 2,425,174 2,546,584

Net profit attributable to the owner of the parent company

1,318,373 1,236,557 1,719,935 2,558,401 2,546,275

Net profit attributable to non-controlling interests

─ ─ ─ ─ ─

Total comprehensive income attributable to the owner of the parent company

1,320,288 1,102,621 1,501,612 2,425,174 2,546,584

Total comprehensive income attributable to non-controlling interests

─ ─ ─ ─ ─



Note 2: The 2018 surplus allocation plan has not been approved by the Annual General Meeting. As a result, these fields were left blank as a result.

Note 3: Unrealized profits with subsidiaries and related businesses were removed. The only values listed are realized gross profit.

Year Item


2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Current assets 6,015,641 5,999,691 7,709,289 8,212,509 6,640,159

Property, plant and equipment 1,907,429 1,844,215 1,805,031 1,789,099 2,493,620

Intangible assets 94,424 94,424 94,424 94,424 94,424

Other assets 5,274,245 6,026,586 6,977,507 8,463,667 10,098,682

Total assets 13,291,739 13,964,916 16,586,251 18,559,699 19,326,885

Current liabilities



Non-current liabilities 2,583,429 3,244,106 2,932,622 1,451,933 2,365,128

Total liabilities



Equity attributable to the owner of the parent company

9,252,948 9,410,104 10,616,627 13,230,679 14,410,020

Capital stock 3,787,821 3,791,699 3,898,872 4,118,942 4,167,794

Capital surplus 1,256,654 1,302,269 1,960,159 3,187,289 3,469,637

Retained earnings



Other equity 507,104 399,665 58,035 (12,134) 13,244

Treasury stock (35,714) (35,714) (35,714) (35,714) (35,714)

Non-controlling interests ─ ─ ─ ─ ─

Total equity



87

3. Names of CPA and audit opinion for the five most recent years

(1) Name of CPA and audit opinion for the five most recent years

Year Accounting firm Name of CPA Audit opinion

2014 Deloitte & Touche Cheng-Ming Lee, Li-Wen Kuo Unqualified opinion

2015 Deloitte & Touche Yi-Wen Wang, Wen-Chi Kuo Unqualified opinion

2016 Deloitte & Touche Yi-Wen Wang, Wen-Chi Kuo Unqualified opinion

2017 Deloitte & Touche Cheng-Ming Lee, Wen-Chi Kuo Unqualified opinion

2018 Deloitte & Touche Cheng-Ming Lee, Wen-Chi Kuo Unqualified opinion

(2) Accounting firm, former and successor CPAs, and reasons for the replacement

of CPAs in the five most recent years

1) Reasons for replacing CPAs in 2014

a. Name of former and successor CPAs:

Former CPAs: Wen-Chin Lin, Cheng-Ming Lee

Successor CPAs: Cheng-Ming Lee, Li-Wen Kuo

b. Reason for replacement: Internal rotation of duties in the accounting

firm.

c. Date of incident: April 30, 2014

d. Any disagreement related to accounting principles or audit items

between former and successor CPAs: None.

2) Reasons for replacing CPAs in 2015


Former CPAs: Cheng-Ming Lee, Li-Wen Kuo

Successor CPAs: Yi-Wen Wang, Wen-Chi Kuo

b. Reason for change: To ensure the independence of CPAs and comply

with the internal rotation system of Deloitte & Touche.

c. Date of incident: December 23, 2015.



3) Reasons for changing CPAs in 2017


Former CPAs: Yi-Wen Wang, Wen-Chi Kuo

Successor CPAs: Cheng-Ming Lee, Wen-Chi Kuo

b. Reason for change: To comply with the internal rotation system of

Deloitte & Touche.

c. Date of incident: December 27, 2017



88

II. Financial analysis in the five most recent years

1. Consolidated financial analysis

Year

Analysis item (Note 3)

Financial analysis for the five most recent years

2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Financial

structure

(%)

Debt ratio 37.39 40.65 42.10 38.85 36.69

Proportion of long-term capital

to property, plant, and

equipment

445.98 467.83 512.48 566.49 508.27

Debt-

paying

ability

(%)

Current ratio 319.94 309.47 237.39 203.76 221.54

Quick ratio 258.74 248.58 190.86 161.87 163.98

Interest coverage ratio 49.67 39.02 49.56 138.04 105.13

Operating

ability

Receivables turnover (times) 3.25 3.23 3.92 4.04 3.72

Average collection days 112 113 93 90 98

Inventory turnover (times) 3.46 2.73 2.77 2.97 2.95

Payable turnover (times) 4.77 4.02 3.62 3.15 3.45

Average inventory turnover days 105 134 132 123 124

Property, plant and equipment

turnover (times) 3.81 3.54 4.24 5.54 5.59

Total asset turnover (times) 0.74 0.62 0.67 0.73 0.75

Profitability

Return on assets (%) 9.69 8.18 10.12 12.68 11.37

Return on equity (%) 14.80 13.25 17.18 21.46 18.42

Ratio of income before tax to

paid-in capital (%) 40.22 39.10 52.38 75.80 79.37

Net profit margin (%) 12.79 12.76 14.80 17.17 15.04


Cash flow

Cash flow ratio (%) 42.76 72.88 42.36 39.71 21.19

Cash flow adequacy ratio (%) 103.43 89.78 84.19 89.99 77.28

Cash re-investment ratio (%) 2.31 9.82 8.31 10.36 (Note 2)

Degree of

leverage

Degree of operating leverage

(DOL) 1.25 1.27 1.17 1.10 1.10

Degree of financial leverage

(DFL) 1.03 1.03 1.02 1.01 1.01

Explain the reasons for changes in various financial ratios in the two most recent years (analysis is not required

if the change is within 20%).

The following describes the reason for changes to financial ratios that exceed 20% in the two most recent years:

1. Decrease in interest coverage ratio: It was mainly due to the increase in interest expense in 2018 compared

to the previous period.

2. Decrease in cash flow: It was mainly due to the decrease in net cash inflows from operating activities and

the increase in capital expenditures in 2018 compared with the previous period, resulting in a decrease in

cash flow ratio.

89


Note 2: Net cash flow from operating activities - cash dividends is negative. Therefore, the relevant ratio is not applicable. Note 3: The following lists the formulas used for performing the financial analysis:

1. Financial structure (1) Debt ratio = Total liabilities/Total assets. (2) Proportion of long-term capital to property, factory and equipment ratio = (Total equity + Non-current

liabilities)/Net property, plant and equipment. 2. Debt-paying ability

(1) Current ratio = Current assets/Current liabilities. (2) Quick ratio = (Current assets – Inventory – Prepaid expense)/Current liabilities. (3) Interest coverage ratio = Net income before income tax and interest expense/Current interest expense for

the period. 3. Operating ability

(1) Receivables turnover rate (including bills receivable resulting from accounts receivable and business operations) = Net sales/Average accounts receivable in various periods (including bills receivable resulting from accounts receivable and business operations).

(2) Average collection days = 365/Receivables turnover ratio. (3) Inventory turnover ratio = Cost of goods sold/Average inventory value. (4) Payable turnover rate (including bills payable resulting from accounts payable and business operations)

= Cost of goods sold/Average accounts payable in various periods (including bills payable resulting from accounts payable and business operations).

(5) Average inventory turnover days = 365/Inventory turnover ratio. (6) Property, plant and equipment (PP&E) turnover ratio = Net sales/Average value of PP&E. (7) Total asset turnover rate = Net sales/Average total assets.

4. Profitability (1) Return on assets ＝ [Net income after taxes + Interest expense (1– Tax rate)]/Average total assets. (2) Return on equity = Net income after taxes/Average total equity. (3) Net profit margin = Net income after taxes/Net sales. (4) Earnings per share = (Net profit (loss) attributable to the owners of the parent company – Preferred

dividends) / Weighted average number of shares outstanding. 5. Cash flow

(1) Cash flow ratio = Net cash flow from operating activities/Current liabilities. (2) Net cash flow adequacy ratio = Net cash flow from operating activities for the five most recent

years/(Capital expenditure + Inventory increase + Cash dividend) for the most recent five years. (3) Cash reinvestment ratio = (Net cash flow from operating activities – Cash dividend)/Gross value of PP&E

+ Long-term investments + Other non-current assets + Working capital). 6. Degree of leverage

(1) Degree of operating leverage = (Net operating revenue - Change in operating costs and operating expenses)/Operating income.

(2) Degree of financial leverage = Operating income/(Operating income - Interest expenses). Note 4: The following shall be taken note of when using the abovementioned formula for calculating earnings per share:

1. Calculation is made based upon the weighted average of common shares and not the number of issued shares at the end of the year.

2. Where cash capital increase or transaction of treasury stock is involved, weighted average number of shares shall be calculated by taking into consideration circulation period.

3. Where recapitalization of retained earnings or recapitalization of Capital surplus is involved, retrospective adjustment shall be made according to the proportion of recapitalization when calculating annual and semi-annual earnings per share. There is no need to consider the period of issuance for the said recapitalization.

4. If preferred shares cannot be converted into cumulative preferred shares, then dividends for the year (issued or not) shall be deducted from NIAT or increase net loss after tax. If preferred shares are non-cumulative, dividends for preferred shares shall be deducted from any NIAT resulting from this period. No readjustment is required for losses.

Note 5: The following items shall be taken note of during cash flow analysis: 1. Net cash flow from operating activities refers to the net cash inflows from operating activities in the statement

of cash flows. 2. Capital expenditure refers to the amount of cash outflows from capital investments every year. 3. Inventory increase is only included in the calculation when the ending balance is greater than the beginning

balance. Inventory decrease at the end of the year shall be calculated as zero. 4. Cash dividends include cash dividends for common shares and preferred shares. 5. Gross value of property, plant and equipment (PP&E) refers to the total value of PP&E before deducting

accumulated depreciation. Note 6: The issuer shall categorize operating costs and operating expenses as fixed and variable based on the nature of these

items. Where estimates or subjective judgments must be made, care must be taken to ensure their validity and consistency.

Note 7: Where the share of the Corporation has no par value or its par value is not NT$10 per share, the abovementioned ratio of income before tax to paid-in capital shall be replaced with ratio of income before tax to equity attributable to the owner of the parent company listed in the balance sheet.

90

2. Parent company-only financial analysis

Year

Analysis item (Note 3)


2014 (Note 1) 2015 (Note 1) 2016 2017 2018

Financial

structure

(%)

Debt ratio 30.39 32.62 35.99 28.71 25.44

Proportion of long-term

capital to property, plant,

and equipment

620.54 686.16 750.64 820.67 672.72

Debt-paying

ability

(%)

Current ratio 413.34 457.74 253.85 211.82 260.22

Quick ratio 325.04 354.57 204.82 161.19 184.01

Interest coverage ratio 69.62 48.66 74.97 230.44 135.59

Operating

ability

Receivables turnover (times) 2.54 2.25 3.58 2.91 2.58

Average collection days 144 162 102 125 141

Inventory turnover (times) 1.73 1.34 2.13 2.07 1.75

Payable turnover (times) 5.07 3.55 3.94 3.01 3.01

Average inventory turnover

days 211 272 171 176 209

Property, plant and

equipment turnover (times) 2.68 2.42 3.96 4.46 3.52

Total asset turnover (times) 0.42 0.33 0.47 0.46 0.40

Profitability

Return on assets (%) 11.01 9.25 11.41 14.62 13.53

Return on equity (%) 14.80 13.25 17.18 21.46 18.42

Ratio of income before tax to

paid-in capital (%) 39.18 36.24 51.49 69.57 70.27

Net profit margin (%) 25.67 27.24 23.78 31.91 33.74


Cash

flow

Cash flow ratio (%) 56.54 116.19 65.03 17.05 71.13

Cash flow adequacy ratio

(%) 82.31 74.59 72.41 61.09 63.58

Cash re-investment ratio (%) (Note 2) 4.46 8.88 (Note 2) (Note 2)

Degree of

leverage

Degree of operating leverage

(DOL) 1.16 1.24 1.14 1.12 1.12

Degree of financial leverage

(DFL) 1.02 1.04 1.02 1.01 1.01

Explain the reasons for changes in various financial ratios in the two most recent years (analysis is not

required if the change is within 20%).

The following describes the reason for changes to financial ratios that exceed 20% in the two most recent

years:

1. Increase in current ratio: It was mainly due to the decrease in long-term liabilities due within one year

in 2018.

2. Decrease in interest coverage ratio: It was mainly due to the increase in interest expense in 2018

compared to the same period in the previous year.

3. Decrease in property, plant and equipment turnover: It was mainly due to the decrease in revenue and

the increase in average net fixed assets in 2018.

4. Increase in cash flow ratio: It was mainly due to the increase in net cash flow from operating activities

and the decrease in current liabilities 2018.

91


Note 2: Net cash flow from operating activities - cash dividends is negative. Therefore, the relevant ratio is not applicable. Note 3: The following lists the formulas used for performing the financial analysis:

1. Financial structure (1) Debt ratio = Total liabilities/Total assets. (2) Proportion of long-term capital to property, factory and equipment ratio = (Total equity + Non-current

liabilities)/Net property, plant and equipment. 2. Debt-paying ability

(1) Current ratio = Current assets/Current liabilities. (2) Quick ratio = (Current assets – Inventory – Prepaid expense)/Current liabilities. (3) Interest coverage ratio = Net income before income tax and interest expense/Current interest expense for

the period. 3. Operating ability

(1) Receivables turnover rate (including bills receivable resulting from accounts receivable and business operations) = Net sales/Average accounts receivable in various periods (including bills receivable resulting from accounts receivable and business operations).

(2) Average collection days = 365/Receivables turnover ratio. (3) Inventory turnover ratio = Cost of goods sold/Average inventory value. (4) Payable turnover rate (including bills payable resulting from accounts payable and business operations)

= Cost of goods sold/Average accounts payable in various periods (including bills payable resulting from accounts payable and business operations).

(5) Average inventory turnover days = 365/Inventory turnover ratio. (6) Property, plant and equipment (PP&E) turnover ratio = Net sales/Average value of PP&E. (7) Total asset turnover rate = Net sales/Average total assets.

4. Profitability (1) Return on assets ＝ [Net income after taxes + Interest expense (1– Tax rate)]/Average total assets. (2) Return on equity = Net income after taxes/Average total equity. (3) Net profit margin = Net income after taxes/Net sales. (4) Earnings per share = (Net profit (loss) attributable to the owners of the parent company – Preferred

dividends) / Weighted average number of shares outstanding. 5. Cash flow

(1) Cash flow ratio = Net cash flow from operating activities/Current liabilities. (2) Net cash flow adequacy ratio = Net cash flow from operating activities for the five most recent

years/(Capital expenditure + Inventory increase + Cash dividend) for the most recent five years. (3) Cash reinvestment ratio = (Net cash flow from operating activities – Cash dividend)/Gross value of PP&E

+ Long-term investments + Other non-current assets + Working capital). 6. Degree of leverage

(1) Degree of operating leverage = (Net operating revenue - Change in operating costs and operating expenses)/Operating income.

(2) Degree of financial leverage = Operating income/(Operating income - Interest expenses). Note 4: The following shall be taken note of when using the abovementioned formula for calculating earnings per share:

1. Calculation is made based upon the weighted average of common shares and not the number of issued shares at the end of the year.

2. Where cash capital increase or transaction of treasury stock is involved, weighted average number of shares shall be calculated by taking into consideration circulation period.

3. Where recapitalization of retained earnings or recapitalization of Capital surplus is involved, retrospective adjustment shall be made according to the proportion of recapitalization when calculating annual and semi-annual earnings per share. There is no need to consider the period of issuance for the said recapitalization.

4. If preferred shares cannot be converted into cumulative preferred shares, then dividends for the year (issued or not) shall be deducted from NIAT or increase net loss after tax. If preferred shares are non-cumulative, dividends for preferred shares shall be deducted from any NIAT resulting from this period. No readjustment is required for losses.

Note 5: The following items shall be taken note of during cash flow analysis: 1. Net cash flow from operating activities refers to the net cash inflows from operating activities in the statement

of cash flows. 2. Capital expenditure refers to the amount of cash outflows from capital investments every year. 3. Inventory increase is only included in the calculation when the ending balance is greater than the beginning

balance. Inventory decrease at the end of the year shall be calculated as zero. 4. Cash dividends include cash dividends for common shares and preferred shares. 5. Gross value of property, plant and equipment (PP&E) refers to the total value of PP&E before deducting

accumulated depreciation. Note 6: The issuer shall categorize operating costs and operating expenses as fixed and variable based on the nature of these

items. Where estimates or subjective judgments must be made, care must be taken to ensure their validity and consistency.

Note 7: Where the share of the Corporation has no par value or its par value is not NT$10 per share, the abovementioned ratio of income before tax to paid-in capital shall be replaced with ratio of income before tax to equity attributable to the owner of the parent company listed in the balance sheet.

92

III. Audit Committee's audit report on financial statements in the most recent year

Chroma ATE Inc.

Audit Committee’s Audit Report

This audit report was generated after a complete audit of the Corporation's 2018 business report,

parent company-only and consolidated financial statements, and surplus allocation plan submitted by

the Board of Directors, where the parent company-only and consolidated financial statements have

been audited by CPAs Cheng-Ming Lee and Wen-Chi, Kuo of Deloitte & Touche. No discrepancies

were found upon review of the abovementioned documents by the Audit Committee. This audit report

is hereby submitted for review in accordance with Article 14-4 of the Securities and Exchange Act

and Article 2019 of the Company Act.

Sincerely yours,

Chroma ATE Inc.

2019 Annual General Meeting

Chairman of Audit Committee: Tsung-Ming Chung

March 7, 2019

IV. Financial statements in the most recent year: Refer to Page 111 to 202 of this annual report.

V. The Corporation's parent company-only financial statements audited and attested by CPAs in

the most recent year: Refer to Page 203 to 281 of this annual report.

VI. Any financial difficulties experienced by the Corporation and its affiliated companies during

the most recent year up to the publication date of this annual report as well as the impact of

the said difficulties on the financial condition of the Corporation: None.

93

Chapter 7 Review and Analysis of Financial Condition

and Performance, and Relevant Risk Events I. Financial condition

Comparative analysis of financial conditions

Units: NT$ thousands; %

Year

Item December 31, 2018 December 31, 2017 Difference

Amount %

Current assets 13,231,273 14,105,784 (874,511) (6%)

Property, plant and

equipment 3,389,889 2,664,584 725,305 27%

Investment property 3,137,187 0 3,137,187 -

Intangible assets 274,095 278,036 (3,941) (1%)

Other assets 3,170,020 4,969,208 (1,799,188) (36%)

Total assets 23,202,464 22,017,612 1,184,852 5%

Current liabilities 5,972,513 6,922,901 (950,388) (14%)

Non-current liabilities 2,539,602 1,631,882 907,720 56%

Total liabilities 8,512,115 8,554,783 (42,668) -

Capital stock 4,167,794 4,118,942 48,852 1%

Capital surplus 3,469,637 3,187,289 282,348 9%

Retained earnings 6,795,059 5,972,296 822,763 14%

Other equity 13,244 (12,134) 25,378 209%

Treasury stock (35,714) (35,714) 0 -

Non-controlling interests 280,329 232,150 48,179 21%

Total shareholders' equity 14,690,349 13,462,829 1,227,520 9%

1. Major reasons and impact of any material change to the Corporation's assets, liabilities, or equity in the two most recent years: (analysis of changes whose percentage exceeds 20%, and whose amount reaches NT$10 million shall be provided) (1) Increase in property, plant and equipment: It was mainly due to the acquisition of land rights

related to the development of Station A7 of the Taoyuan International Airport Access MRT. (2) Increase in investment property: It was mainly due to the acquisition of land rights related to the

development of Station A7 of the Taoyuan International Airport Access MRT, and the transfer of land for the development of Station A7 to investment property.

(3) Decrease in other assets: It was mainly due to the transfer of prepaid land and equipment payments to property, plant and equipment, as well as investment property.

(4) Increase in non-current liabilities: It was mainly due to the increase in long-term borrowings. (5) Increase in other equity: It was mainly due to the increase employees' unearned rewards. (6) Increase in non-controlling interests: It was mainly due to cash capital increase at subsidiaries.

2. Future response plan: These changes were considered part of normal business operations, and would not lead to severe negative impacts upon overall financial operations of the Corporation and its subsidiaries.

3. Futures response plans: Not applicable.

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II. Financial performance

Analysis of financial performance

Unit: NT$ thousands; %

Year

Item 2018 2017 Amount of change

Percentage of

change (%)

Operating revenue 16,931,128 14,901,346 2,029,782 14%

Gross profit (Note) 7,458,293 7,068,872 389,421 6%

Profit from operations 3,039,633 3,043,081 -3,448 0%

Non-operating income and

expenses 268,457 78,986 189,471 240%

Profit before income tax 3,308,090 3,122,067 186,023 6%

Net income 2,547,179 2,548,823 -1,644 0%

Other comprehensive

income (net value after tax) 3,487 (138,228) 141,715 103%

Total comprehensive income 2,550,666 2,410,595 140,071 6%

Net profit attributable to the

owner of the parent

company

2,546,275 2,558,401 -12,126 0%

Total comprehensive income

attributable to the owner of

the parent company

2,546,584 2,425,174 121,410 5%

1. Major reasons and impact of any material change to the Corporation’s operating revenue, operating profit, and earnings before tax (EBT) in the two most recent years: (analysis of changes whose percentage exceeds 20%, and whose amount reaches NT$10 million shall be provided) (1) Increase in non-operating income and expenses: It was mainly due to the increase in foreign

currency exchange gain. (2) Increase in other comprehensive income for the period: It was mainly due to the increase in

unrealized gain or loss from equipment instrument investments measured at fair value and exchange difference from the translation of financial statements of foreign operations.

2. Expected sales volume and relevant data, possible impact on the company’s financial operations, and response plans: The Corporation has invested in integrated testing technology and automation equipment for many years. In recent years, automation equipment has emerged in various fields one after another, creating new sales performance. Despite being applied in different sectors, these solutions have been highly recognized and employed by international first-tier manufacturers. Looking forward to 2019, with the adjustment of inventory, it is generally expected that the economy will be flat, while most investors are adopting a wait-and-see approach. For the non-Apple camp in the information and communications industry, Huawei and Samsung will be launching a new generation of mobile phones and 5G communications, in which increased transmission speed will help to expand 3D sensing applications. It is expected that promoting the development of electric vehicles will help increase demand for semiconductor and photonics test equipment. Rising labor cost and the US-China trade war will lead to an increase in demand for intelligent and automation equipment.

Note: Net amounts listed are calculated based on net realized operating gross profit after deducting the unrealized operating profit.

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III. Cash flow

Analysis of cash liquidity

(I) Analysis and explanations of changes in cash flow in the most recent year

Unit: NT$ thousands

Initial cash

balance

Net cash inflow

from operating

activities

throughout the year

Total net cash

inflow (outflow)

from investing and

financing activities

throughout the year

(Note)

Amount of

cash surplus

(deficit)

Remedial measures for

cash inadequacy

Investment

plan

Financing

plan

5,076,411 1,265,787 (3,418,241) 2,923,957 ─ ─

Note: Net cash outflow from investing and financing activities was NT$3,465,877 thousand, and the effect of exchange rate was NT$47,636 thousand. 1. Analysis of change in cash flow in the most recent year:

(1) Operating activities: Net cash inflow from operating activities in 2018 was NT$1,265,787 thousand, which came mainly from business profits.

(2) Investing activities: Net cash outflow from investing activities in 2018 amounted to NT$1,834,540 thousand, which was mainly used for making payment for the construction of the Station A7 Building.

(3) Financing activities: Net cash outflow from financing activities in 2018 amounted to NT$1,631,337 thousand, which came mainly from the issuance of cash dividends.

2. Remedial measures and liquidity analysis for cash inadequacy: Not applicable.

(II) Analysis of cash liquidity for the following year Unit: NT$ thousands

Beginning cash

balance

Expected net cash

inflow from

operating

activities

throughout the

year

Expected total net

cash inflow

(outflow) from

investing and

financing activities

throughout the year

Expected

amount of

cash surplus

(deficit)

Remedial measures for

expected cash inadequacy

Investment

plan

Financing

plan

2,923,957 2,505,790 (3,512,804) 1,916,943 ─ ─

1. Analysis of changes in cash flow in the most recent year (1) Operating activities: It mainly refers to cash inflow generated by business profits. (2) Investing activities: It mainly refers to cash outflow due to expected payment for the

construction of the Station A7 factory building and equity investment in Camtek. (3) Financing activities: It mainly refers to cash outflow due to expected distribution of cash

dividends and cash inflow generated by long-term borrowings. 2. Remedial measures and liquidity analysis for expected cash inadequacy: Not applicable.

IV. Impact of material expenditures on the Corporation's finances and operations in the most recent year

The Corporation made plans to invest NT$ 3.5 billion for expanding and constructing new Station A7 factory building. The construction will increase usable space. Expected adjustments to spatial layouts and production line configurations can improve the production and sales of precision electronic measurement instruments and integrated automated measurement system, thereby benefiting future development plans and reduce business risks of the Corporation.

The Corporation invested in the construction of the Station A7 factory building to expand production capacity and increase experiment area for R&D, and incorporated more R&D resources to develop more key technologies and products, in order to offer all-round turnkey test and automation solutions, in hopes of maintaining the long-term competitiveness of the Corporation, thereby providing the industry with products which are faster, more accurate and more reliable.

96

V. Investment policies in other companies, main reasons for profit / losses resulting therefrom, improvement plan, and investment plans for the upcoming year

(I) The most recent annual transfer of investment was mainly to increase the capital of the original investment company, and to invest in Singapore Quantel to establish sales locations in Southeast Asia and South Asia. The establishment of a subsidiary in Germany and a subsidiary in South Korea will also provide better and faster services to all locations in the world in order to increase scale of operations.

(II) Profitability or loss analysis of invested companies

As of December 31, 2018 Unit: NT$ thousands

Name of company Shareholding percentage

Investment gain (loss)

Description

Neworld Electronics Ltd. 100.0% 112,846 Gain resulting from excellent sales

Chroma New Material Corporation

100.0% 44,611 Gain resulting from excellent sales

Chroma Investment Co., Ltd.

100.0% (2,094) Net profit in 2018 was NT$6,749 thousand, which was due to the deduction of dividend income from the parent company, thereby resulting in investment loss for the period.

Adlink Technology Inc. 11.3% 26,963 Good R&D capabilities and business

performance.

San Eagle Development Corp. 100.0% 121,538 Mainly derived from investment profits recognized using the equity method

MAS Automation Corp. 100.0% 885,886 Significant sales growth, leading to profit

increase

Chi Incorporation Ltd. 100.0% 7,444 Mainly derived from investment gain

recognized using the equity method

Testar Electronic Corporation 67.2% (1,876) Loss resulting from failure to meet revenue expectations and rising cost

Chroma ATE Inc. (USA) 100.0% (5,875) Loss resulting from poor sales

Sensational Holding Ltd. 100.0% 1,851 Mainly derived from rental income

Chroma Systems Solutions, Inc.

25.0% 21,928 Establishment of a comprehensive sales network with good business performance.

Chroma ATE Europe B.V. 100.0% 21,939 Establishment of a comprehensive sales

network with good business performance.

Chen Hwa Technology Inc. 100.0% 990 Mainly derived from dividend income.

Dynascan Technology Corp. 27.3% 21,014 Gain resulting from excellent sales

Deep Red Holding Co., Ltd. 100.0% 45,430 Mainly derived from investment gain

recognized using the equity method

Chroma Japan Corp. 100.0% (33,979) Loss resulting from poor sales

Chih Ho Shun Development Co., Ltd.

35.0% 38 Mainly derived from recognized interest income.

Adivic Technology Co., Ltd. 51.0% (20,641) Operational loss resulting from incomplete R&D for new products and high R&D costs

EVT Technology Co., Ltd. 85.6% (8,517) Losses resulting from product conversion and incomplete R&D for new products

Quantel Private Ltd. 60.0% 16,888 Establishment of a comprehensive sales network with good business performance.

Innovative Nanotech, Inc. 71.1% (22,503) A startup company which is still in the stage of product development

Touch Cloud Inc. 78.1% (11,563) Still in the stage of product development

(III) Improvement plan 1. Adivic Technology Co., Ltd.: The WiFi test instruments developed by Avidic

Technology has been provided to customers for verification. In mid-2018, some products have been completely verified by customers, while better performance has been recorded in the fourth quarter of 2018. It is expected that turnover can increase in 2019, thereby improving business performance.

2. EVT Technology Co., Ltd.: EVT Technology is now working with the Corporation to develop production lines for electric vehicle parts, expected improvement in business performance upon completion and release of R&D product in the market.

3. Innovative Nanotech, Inc.: Innovative Nanotech continues to invest in R&D. Its

97

products have met customer requirements, and are currently being verified by customers and suppliers.

4. Touch Cloud Inc.: Touch Cloud integrated its software with the Corporation's hardware, and built an AI platform to achieve expected turnover and profit.

(IV) Investment plans for the coming year: Taking into consideration future development strategies, as well as to improve business performance, the Board of Directors passed the resolution, on February 11, 2019, to acquire a total of 7,817,400 shares of the Israeli company, Camtek Ltd. at a price of US$9.5 per share, equivalent to a shareholding percentage of 20.5%. The total amount of investment involved was US$74,265,680. It is hoped that this investment can enhance the Corporation's AOI and 3D metrology test technology capabilities, and penetrate into the foundry and advanced packing market, thereby enhancing the Group's international operational capabilities and increasing financial efficiency.

VI. Risk analysis and assessment of the most recent year up to the publication date of this annual

report

(I) Changes to interest rates, currency exchange fluctuations, and inflation and how these may impact the Corporation penetrate loss as well as future response measures 1. Changes to interest rates and resulting impact to the Corporation's gain or loss

as well as future response measures (1) Changes to interest rates and impact on the gain or loss of the Corporation

and its subsidiaries Unit: NT$ thousands

Item/Year 2017 2018

Interest expense 22,782 31,768

Net operating revenue 14,901,346 16,931,128

Operating profit 3,043,081 3,039,633

Interest expense/Operating revenue (%) 0.15 0.19

Interest expense/Operating profit (%) 0.75 1.05

Interest expenses of the Corporation and its subsidiaries in 2017 and 2018 were NT$22,782 thousand and NT$31,768 thousand, respectively, while the interest expenses and operating profit margin of the Corporation and its subsidiaries were 0.75% and 1.05%, respectively. These changes in interest expenses were of no significant influence to the Corporation and its subsidiaries.

(2) Future response measures The Corporation and its subsidiaries have been carrying out capital planning based on the principle of stability and conservativeness, and focus primarily on safety and liquidity. Measures undertaken by the Corporation and its subsidiaries in response to risk of changing interest rates include carrying out negotiations with various banks for loan interests based upon state of QE policies upon the market and taking active steps in reducing short-term working capital expenses. Financial personnel at the Corporation and its subsidiaries shall also work closely with financial institutions to review trends and changes of interest rates in the market to reduce the impact upon the Corporation’s profitability as a result of changing interest rates.

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2. Currency exchange fluctuations and resulting impact to the Corporation's gain or loss as well as future response measures (1) Currency exchange fluctuations and its impact on the gain or loss of the

Corporation and its subsidiaries Unit: NT$ thousands

Item/Year 2017 2018

Net exchange gain (loss) (133,637) 97,928

Net operating revenue 14,901,346 16,931,128

Operating profit 3,043,081 3,039,633

Profit before income tax 3,122,067 3,308,090

Proportion of net profit (loss) on exchange net to operating revenue (%)

(0.90) 0.58

Proportion of net profit (loss) on exchange to operating profit (%) (4.39) 3.22

Proportion of net profit (loss) on exchange to earnings before tax (EBT) (%)

(4.28) 2.96

The Corporation and its subsidiaries have provided accounts payable and receivable calculating value in US dollar. Hence, fluctuations in the US dollar exchange rate correlate with changes in exchange gain (loss) of the Corporation and its subsidiaries. Exchange gain (loss) in 2017 and 2018 were (NT$133,637) thousand and NT$97,928 thousand, respectively, whereas the proportion of exchange gain (loss) to profit before tax in 2017 and 2018were (4.28)% and 2.96%, respectively.

(2) Future response measures The Corporation and its subsidiaries offset the risk of exchange rate changes by directly increasing foreign currency receivables through US dollar transactions and offsetting foreign currency payables by the purchases and short-term bank borrowings in foreign currencies in order to achieve a natural hedging effect. In addition, the financial department also collects information on the exchange rate on a daily basis to fully understand the changes in exchange rates, and adjust foreign currency positions in a timely manner. The Corporation and its subsidiaries initiate the operation of foreign currency hedging instruments in a timely manner in accordance with the “Procedures for Handling Derivative Trading”, with a view to reducing the impact of exchange rate fluctuations on the Corporation and its subsidiaries.

3. Inflation and its impact on the Corporation’s gain or loss as well as future response measures (1) Inflation and its impact to the gain or loss of the Corporation and its

subsidiaries The Corporation and its subsidiaries has not been affected by inflation severely enough to result in major impact to the gains or losses to the Corporation and its subsidiaries during the period of the most recent year up to the publication date of this annual report.

(2) Future response measures The Corporation and its subsidiaries are minimally affected by inflation, but will continue to monitor changes in the prices of upstream and downstream products to reduce its impact on their gains or losses as a result of cost changes.

(II) Policies on high risk, highly leveraged investments, loans to other parties,

endorsements, guarantees, and derivatives trading, main reasons for the profits or losses generated thereby, and future response measures to be undertaken. 1. Main reasons for engaging in high risk, highly leveraged investments and future

response measures (1) Main reasons for engaging in high risk, highly leveraged investments

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The Corporation and its subsidiaries have not engaged in any high risk, highly leveraged investment from the most recent year up to the publication date of this annual report.

(2) Future response measures The Corporation and its subsidiaries focus upon specialized businesses and adopt a conservative and stable financial operation in principle. No capital is used in high risk, highly leveraged investments.

2. Loans to other parties, endorsements, and guarantees (1) Reasons for providing loans to other parties, endorsements, and guarantees

Loans, endorsements, and guarantees shall be, in principle, provided to affiliated companies or companies that the Corporation and its subsidiaries have business dealings with. Interest rates of loans provided by the Corporation and its subsidiaries shall be, by principle, higher than short-term loan interest rates provided by financial institutions to the Corporation and its subsidiaries.

(2) Future response measures The Corporation has stipulated Provision of Financial Loans to Other Parties as well as Endorsement and Guarantee Operations Procedure and refer to the relevant provisions to provide relevant public disclosures.

3. Policies on derivatives trading, major reasons for profits or losses as well as future response measures (1) Policies when engaging in derivatives trading and major reasons for profits

or losses All derivatives trading engaged by the Corporation and its subsidiaries include hedging of foreign exchange risks generated by the assets or liabilities. No derivatives trading have been implemented in the most recent fiscal year up to the publication date of this annual report.

(2) Future response measures The Corporation and its subsidiaries shall adopt a conservative business principle and seek stable growth, and shall continue to assess impacts to profits or losses resulting from exchange rate fluctuations. To manage transaction risks, the Corporation and its subsidiaries shall refer to regulations prescribed in the Procedure for Handling Derivatives Trading, and activate foreign exchange risk avoidance tools and avoid improper and high risk transactions.

100

(III) Future R&D plans and expected investments in R&D

R&D plan Current progress Expected

completion time

Additional investments

required (NT$)

Remark

Next generation high power and high speed solar array simulator

Design verification phase

Q2 2019 5 million

Next generation high power density and constant power DC source


Q3 2019 7 million

Next generation bi-direction power module platform


Q4 2019 20 million

Next generation regenerative charge/discharge tester for public electrical equipment

Design planning phase

Q3 2019 5 million

Next generation bi-direction charger for battery cell testing


Q4 2019 8 million

High frequency mixed regenerative linear load development project


Q3 2019 6 million

Next generation portable/automotive flat panel display tester

Design review phase

Q3 2019 5 million

8K HDMI 2.1 pattern generator Design review phase

Q3 2019 10 million

High performance high speed and high current Insulation tester with partial discharge measurement function


Q4 2019 4 million

Ultra-high precision, wide current range battery cell analyzer


Q1 2020 12 million

New generation super capacitor automatic aging system


Q2 2019 3.5 million

Advanced semiconductor packaging optical metrology system


Q4 2019 4.5 million

(IV) Changes to local and overseas policies and laws that impact corporate financial operations, and response measures: No changes to local and overseas policies and laws have resulted in major impact to the financial operations of the Corporation and its subsidiaries.

(V) Changes in technology and industry that will impact the Corporation's financial operation with countermeasures The Corporation produces instruments for the technology sector which enjoy longer life cycles. The Corporation also has a wide selection of product lines and would not be easily affected by changes to the technology or industry.

(VI) Changes in corporate image that will impact the Corporation's risk management with countermeasures The Corporation and its subsidiaries enjoy good business images and would not be subject to changes that negatively affect their corporate images.

(VII) Expected benefits, possible risks and response measures for merger and acquisition The Corporation invested in Touch Cloud Inc., in hopes of enhancing and integrating the software R&D capabilities of its product lines to increase marketing opportunities and scale of operations. In addition, the Corporation invested in the establishment of Innovative Nanotech, Inc., in hopes of advancing semiconductor test solutions to front-end processes to provide customers with more comprehensive semiconductor/IC test solutions.

(VIII) Expected benefits, possible risks and response measures of expanding factory buildings Expansion of factory buildings allows the Corporation and its subsidiaries to increase its productivity, gain the ability to receive more purchase orders, improve revenue and profitability, and increase market share. Expansion of factory buildings by the Corporation and its subsidiaries has been carefully reviewed to ensure that customers’ requirements are met while achieving optimal use of corporate capital.

101

(IX) Risks resulting from consolidation of purchase or sales operations and response measures 1. Purchasing risks

Purchases from NMC by the Corporation and its subsidiaries amounted to 20.31% and 23.37% of the total purchases made in 2018 and 2017, respectively, thus indicating centralized purchasing from the same group. The scenario was mainly due to the fact that gold wires, copper wires, and other special materials provided by NMC are of higher quality compared to those provided by Japanese or Korean companies such as Tanaka, NKE, and Heesung, and thus better meet the product quality requirements of downstream semiconductor packaging clients. The amount of purchases made from various suppliers by the Corporation and its subsidiaries may increase or decrease in response to changes in profitability of relevant products. Given the large variety of raw materials and components needed by the Corporation and its subsidiaries to produce their products, all local and overseas purchases are handled by a single purchasing unit. Where possible, two or more suppliers are selected to ensure supplier replaceability, acquire competitive pricing, spread purchasing risks, achieve reasonable cost reductions, and provide better services. Also, the Corporation and its subsidiaries have established positive partnerships with external suppliers to eliminate any concerns of material shortage. Material preparation for special materials and automated conveying and engineering equipment of the Corporation and its subsidiaries would only be initiated after receiving a purchase order to establish inventory levels for raw materials. Positive relationships have been established with upstream suppliers to reduce purchasing risks. Given the long-term partnerships and positive collaboration between the Corporation and its subsidiaries and their main suppliers, no major non-conformities have been identified so far. Since establishment, the Corporation and its subsidiaries have achieved positive interaction with their main suppliers. Hence, no material shortage or supply interruption has yet to occur.

2. Sales risks The Corporation and its subsidiaries offer a large variety of product categories. Product sales were mainly based upon the state of the industry, customer requirements, as well as changes to marketing strategies adopted by the Corporation and its subsidiaries. Hence, the Corporation and its subsidiaries are actively developing new customers to achieve business stability and growth. Currently, most customers were listed companies or renowned companies in Taiwan and other countries. Revenue from automatic equipment in 2018 and 2017 were NT$4,862,323 thousand and NT$2,538,348 thousand, respectively, where revenue from the largest customers of the combined company in 2018 and 2017 were NT$2,646,345 thousand and NT$714,907 thousand, respectively. Due to shipment of automatic equipment in 2018, revenue from one single customer accounted for more than 10% of the total revenue of the Group.

(X) Impacts, risks, and response measures resulting from major equity transfer or replacement of directors, supervisors, or shareholders holding more than 10% of the company's shares The Corporation and its subsidiaries did not encounter any major equity transfer or replacement of directors, supervisors, or shareholders holding more than 10% of the Corporation’s shares from 2018 up to the publication date of this annual report.

(XI) Impact, risk, and response measures related to any change in governance rights in the company The Corporation and its subsidiaries did not undertake any major change to its governance team and did not undertake any major change to business strategies or guidelines. Hence, the Corporation and its subsidiaries did not experience any changes their governance rights.

(XII) Any litigious or non-litigious matters or administrative disputes up to the publication date of this annual report where the company and company directors, supervisors, general managers, person with actual responsibility in the company, and major shareholders holding more than 10% of the company's shares who have been concluded through final judgment or still under litigation, to be a party thereof, and

102

where the results thereof could materially affect the shareholders’ equity or prices of the company’s securities, as well as the facts of the dispute, amount of money at stake, date of litigation commencement, and main parties to the litigation: None.

(XIII) Other material risks and response measures: None. 1. Organizational context and risk management

(1) Risk management organization: The highest-ranking officer at various business units and centers are responsible for promoting organizational context and stakeholder needs and expectation analyses, risk identification and assessment, as well as handling and communicating organizational context and stakeholder needs and expectation analyses.

(2) Information security risk management and response measures To protect R&D assets and maintain information security, a high-availability remote backup mechanism has been planned for the Corporation's information system architecture according to its risk level, so as to ensure that important information systems are not interrupted. In addition, important data is stored in different places by the remote backup mechanism. With regard to confidential information, the Corporation also introduces an appropriate encryption mechanism to reduce the risk of information leakage. Some of the colleagues' work environment involves the use of virtual desktop environment, which centralizes operating systems and data in the machine room to enhance security. In addition to undergoing basic information security training when new employees join the Corporation, the Corporation also regularly promotes information security to increase awareness toward information security among colleagues at the Corporation. As regards the treat of Internet and e-mail viruses, the Corporation adopts the relevant information security solutions to prevent cyber-attacks from any third party. The information department constantly follows the latest security threats. Every year, the department conducts analysis of organizational context and risk management, and performs operational risk impact analysis using information risk analysis map. In addition, the department carries out design planning and increases appropriate software and hardware equipment resources based on risk level, in order to improve response measures such as operating procedures. In 2018, the Corporation improved the air-conditioning system and uninterruptible power supply equipment in machine rooms. With regard to abnormal disasters that may happen to equipment and host machines in machine rooms, the Corporation monitors the environment of machine rooms on a regular basis, and conducts various simulation tests and emergency drills in machine rooms in order to ensure the normal operation of various facilities and information systems in machine rooms, with a view to preventing the risks of various disasters or human errors without warning.

VII. Other important matters: None

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Chapter 8 Special Notes I. Information on affiliated companies

(I) Consolidated business report As of March 31, 2019

1. Diagram of affiliated companies

Chroma

Chroma ATE Europe B.V.

Shareholding percentage: 100%



MAS Automation Corp.


San Eagle Development Corp.


Chroma Japan Corp.


Chen Hwa Technology Inc




Testar Electronic Corporation

Shareholding percentage: 67.2%

Sensational Holding Ltd.


CHI Incorporation Ltd.


Sajet System Technology (Suzhou) Co.,

Ltd. Shareholding percentage:100%



Wei Kuang Mech. Eng. Inc.


Chroma ATE (Suzhou) Co., Ltd.


Wei Kuang Automation (Nanjing) Co.,

Ltd. Shareholding percentage: 100%

Wei Kuang Automation (Xiamen) Co.,


Mou Kuan Technologies (Nanjin) Co.,


Deep Red Holding Co., Ltd.


Sh

areho

ldin

g p

ercentag

e: 50%

Adivic Technology Co., Ltd.


EVT Technology Co., Ltd.


Chroma Electronics (Shenzhen) Co.,


Chroma Electronics (Shanghai) Co.,


Chroma Systems Solutions,

Inc . Shareholding percentage: 25%

Neworld Electronics Ltd.


Chroma ATE Inc.(USA)


Adivic Holding Corporation


Wei Da Electric Vehicle Co., Ltd.


Quantel Private Ltd.

Shares held: 60%

Innovative Nanotech, Inc.


Quantel Global Vietnam Co., Ltd.


Quantel Technologies India Pvt Ltd


Chroma Germany GmbH


Quantel Global Sdn. Bhd.


Quantel Global Philippines Corporation


Touch Cloud Inc.

Shareholding ratio: 78.1%

Sh

areho

ldin

g p

ercentag

e: 15%

%

104

2. Basic information of various affiliated companies

As of March 31, 2019 Unit: thousands in US$ or foreign currency

Name of enterprise Date

established Address Paid-in capital

Primary business or product


1994.02.17 Unit 606, Shui Hing Centre, No. 13, Sheung Yuet Rd., Kowloon Bay, Kowloon, H.K.

HK$64,013 Sale and maintenance of electronic test instruments


1998.03.10 8F, No. 4, Nanyou Tian An Industrial Estate, Shenzhen, China

HK$30,000 Sale and maintenance of electronic test instruments, etc.


2000.11.10 3F Building 40, No.333, Qin Jiang Rd., Shanghai, China

US$3,000 Sale and maintenance of electronic test instruments, etc.

Chroma ATE Inc. (USA)

1993.02.18 7 Chrysler Irvine CA92618 US$1,000 Sale and maintenance of electronic test instruments


1999.09.17 Morsestraat 32,6716 AH Ede,The Netherlands

EUR$45 Sale and maintenance of electronic test instruments

Chroma Germany GmbH

2017.09.04 Südtiroler Str. 9 86165 Augsburg Germany EUR$30 Sale and maintenance of electronic test instruments


1997.01.14 9F,No.66,Huaya 1st Road, Guishan District, Taoyuan City

NT$140,000 Investment


2006.08.11 4F, No.68, Huaya 1st Road, Guishan District, Taoyuan City

NT$250,000 Processing and sale of gold wire


2007.03.09 4F, No. 68, Huaya 1st Road, Guishan District, Taoyuan City

NT$300,000 Testing of LED products


1997.07.11 Citco Buildings PO Box 662, Road Town, Tortola, British Virgin Island

US$1,200 Investment


2001.04.01 19772 Pauling, Foothill Ranch, CA 92610 US$5 Sale and maintenance of electronic test instruments

CHI Incorporation Ltd. 1998.04.03 P.O.Box 957PO Box 957 Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands

US$3,830 Test of inductance, capacitance and resistance equipment and sale of parts


2006.03.15 Building 7, No. 855, Zhujiang Rd., Suzhou New District, Jiang Su, China

US$3,800 Sale and maintenance of electronic test instruments, etc.

Chen Hwa Technology Inc.

1998.04.03 P.O.Box 957 Offshore Incorporations Centre, Road Town, Tortola, British Virgin Islands

US$3,085 Test of inductance, capacitance and resistance equipment and sale of parts.


2004.01.05 Rm 1102B, Building 1, No.18, Tai Gu Rd., Waigaoqiao Free Trade Zone, Shanghai

US$2,700 International and transit trading, simple commercial processing, commercial consulting services, etc.


2006.07.04 Drake Chambers, Road Town, Tortola, British Virgin Islands

US$2,050 Investment

Wei Kuang Mech. Eng .Inc.

2002.01.10 608 St. James Court, St.Denis Street Port Louis,Mauritius

US$4,475 Investment

Mou Kuan 1997.09.27 No. 811, Hushan Road, Jiangning District, RMB$1,737 Assembly, sale and

105

Name of enterprise Date

established Address Paid-in capital

Primary business or product

Technologies (Nanjing) Co., Ltd.

Nanjin City, China maintenance of factory conveyors and related systems and rendering after-sales services

Wei Kuang Automation (Nanjing) Co., Ltd.

2005.06.30 No. 811, Hushan Road, Jiangning District, Nanjing City, China

RMB$11,871 Sale and maintenance of electronic equipment and factory conveyor systems

Wei Kuang Automatic Equipment (Xiamen) Co., Ltd.

2007.02.01 Floor 1, Building A4, No. 20, Jinhui Road, Houxi, Jimei District, Xiamen

RMB$11,417 Sale and maintenance of electronic equipment and factory conveyor systems


1975.11.26 No.6,Lane 17,Niupu S Rd.,Hsinchu City , Taiwan

NT$100,000 Design, manufacturing, installment and testing of automated factory conveyor systems

Chroma Japan Corp. 1998.05.30 888 Nippa-cho, Kouhoku-ku, Yokohama-shi, Kanagawa, 223-0057Japan

JPY$99,500 Sale and maintenance of electronic test instruments


2004.04.29 2F, Felix House, 24 Dr. Joseph Riviere Street, Port Louis, Republic of Mauritius

US$215 Investment

Sajet System Technology (Suzhou) Co., Ltd.

2004.08.24 503-1, 4th Floor Genway LOHASTOWN, 88 Building, 999 Xinghu Road, SIP Suzhou

RMB$8,374 R&D and design of computer network safety systems and data management systems


2009.04.07 6F, No. 345, Xinhu 2nd Road, Neihu District, Taipei City

NT$240,000 Sale and research of RF device

Adivic Holding Corp 2015.01.15 Offshore Chambers, P.O.Box 217, Apia, Samoa.

US$1,000 Sale and research of RF device


1999.08.19 No. 68, Huaya 1st Road, Guishan District, Taoyuan City

NT$110,000 Manufacturing of motorcycles and its parts


2012.02.14 No. 5, Gongye 5th Road, Pingtung City NT$5,000 Distribution and rental services of scooters

Quantel Private Ltd. 1989.02.15 46 Lorong 17 Geylang #05-02 Enterprise Industrial Building Singapore 388568.

SG$3,190 Sale of test and measuring instruments

Quantel Global Vietnam Co., Ltd

2017.01.03 Floor 6th, HL Tower No. 6 Lane 82, Duy Tan Road, Dich Vong Hau Ward, Cau Giay District, Hanoi, Vietnam

VND4,526,506 Sale of test and measuring instruments


2016.10.05 K-13 Ground Floor, Lajpat Nagar-II, New Delhi 110024

INR6,500 Sale of test and measuring instruments


2016.07.20 Unit 802, 8th Flr, Blk A Damansara Intan, No. 1 Jalan SS20/27, 47400, Petaling Jaya, Selangor, Malaysia

MYR600 Sale of test and measuring instruments

Quantel Global Philippines Corporation

2017.07.24 Units 2401 and 2402 The Orient Square, F. Ortigas Jr. Road, Ortigas Centre, Pasig City 1605, Manila Phililppines

PHP9,910 Sale of test and measuring instruments

Innovative Nanotech Incorporated

2017.08.09 5F, No. 6-2, Du Sing Rd, East District, Hsinchu City, Taiwan

NT$200,000 Nanoparticles monitoring equipment

Touch Cloud Inc. 2016.02.03 10F-4, No. 148, Section 4, Zhongxiao East Road, Taipei City, Taiwan

NT$72,995 Cloud platform development and IoT system integration

106

3. Information of shareholders with corporate governance power while working in the Corporation: None.

4. Overall business scope of every affiliated company The overall business scope of every affiliated company of the Corporation primarily focuses upon specialized manufacturing services for measurement instruments. There are also a small number of affiliated companies that focus on investments in its scope of business. In general, specialization of work among affiliated companies focus on mutual support in technology, production capacity, sales, and services to maximize synergy so that the Corporation could keep providing the best manufacturing services for professional measurement instruments for customers throughout the world and ensure the Corporation’s leadership in the global market.

5. Directors, supervisors, CEO and general managers of Chroma ATE Inc. and affiliated companies

As of March 31, 2019

Name of enterprise Title Name or representative Shares held

Number of shares held Shareholding percentage


Director Chroma ATE Inc. (Representatives: Leo Huang and Ming Chang)

64,012,815 shares 100%


Director Director Director CEO

Neworld Electronics (Representative: Leo Huang) Vincent Chen Jackie Liao Vincent Chen

(Note 1) - - -

100% - - -


Director Director Director CEO

Neworld Electronics (Representative: Leo Huang) Paul Ying Vincent Chen Paul Ying

(Note 1) - - -

100% - - -

Chroma ATE Inc.(USA)

Director Director Director

I-Shih Tseng Cheng Ying Yi-Shen Wang

Chroma holds 1,000,000 shares

100%


Director Chroma ATE Inc. (Representative: David Yang, Paul Ying, I-Shih Tseng)

1,000 shares 100%

Chroma Germany GmbH

Director Chroma ATE Europe BV (Representative: Cheng Ying)

(Chroma BV holds 30,000 shares)

100%


Director Supervisor

Chroma ATE Inc. (Representative: Leo Huang, Paul Ying, Ming Chang) Chroma ATE Inc. (Representative: Amy Huang)

14,000,000 shares

100%


Director Supervisor CEO

Chroma ATE Inc. (Representative: Leo Huang, C. C. Ho, Amy Huang) Chroma ATE Inc. (Representative: Paul Ying) C. C. Ho

25,000,000 shares -

100% -



Chroma ATE Inc. (Representatives: Leo Huang, I-Shih Tseng, Tsun-I Wang) Amy Huang C. C. Ho

20,159,600 shares 1,000 shares 350,000 shares

67.2% -

1.2%


Director

Chroma ATE Inc. (Representative: Leo Huang)

1,200,000 shares 100%



Fred Joseph Sabatine Cheng Ying Tai-Wei Yang

120,000 shares Chroma holds 120,000 shares CHROMA USA holds 240,000 share

25% 25%

50%

CHI Incorporation Ltd. Director Leo Huang (Chroma holds 3,830,000 shares)

100%



CHI (Representative: Leo Huang) Paul Ying Emma Chen

(Note 1) - -

100% - -

107



CEO Vincent Chen - -

Chen Hwa Technology Inc.

Director Leo Huang (Chroma holds 3,085,000 shares)

100%


Director Chen Hwa (Representative: Leo Huang) (Note 1) 100%


Director Chroma ATE Inc. (Representative: Leo Huang)

2,050,000 shares 100%

Wei Kuang Mech Eng Inc.

Director San Eagle (Representative: Leo Huang) 4,475,000 shares 100%

Mou Kuan Technologies (Nanjing) Co., Ltd.

Chairman Director Director

Wei Kuang (Representative: Leo Huang) C. F. Huang Amy Huang

(Note 1) - -

100% - -

Wei Kuang Automation (Nanjing) Co., Ltd.



(Note 1) - -

100% - -

Wei Kuang Automatic Equipment (Xiamen) Co., Ltd.



(Note 1) - -

100% - -



Chroma ATE Inc. (Representative: Leo Huang, C. F. Huang, I-Shih Tseng) Chroma ATE Inc. (Representative: Amy Huang) C.-F. Huang

10,000,000 shares -

100% -

Chroma Japan Corp. Director Leo Huang (Chroma holds 8,980 shares)

100%


Director Leo Huang (Chroma holds 215,000 shares)

100%

Sajet System Technology (Suzhou) Co., Ltd.

Director Director Director Supervisor CEO

Deep Red Holding Co., Ltd. (Representative: Joe Lin) Arno Wu Paul Ying Amy Huang Joe Lin

(Note 1) - - - -

100% - - - -


Director Director Supervisor CEO

Chroma ATE Inc. (Representative: I-Shih Tseng, Leo Huang) AIT Group (Representative: Frank Yeh) Michael Sheu Jason Huang

12,240,000 shares 11,760,000 shares - -

51%

49% - -

Adivic Holding Corporation

Director Adivic Technology Co., Ltd. (Representative: I-Shih Tseng)

1,000,000 shares 100%


Director Director Director Supervisor CEO

Leo Huang Joey Chang Tsun-I Wang Chroma ATE Inc. (Representative: Paul Ying) Leo Huang

54,023 shares 1,339 shares 34,838 shares 9,412,412 shares 54,023 shares

0.5% -

0.3% 85.6%

0.5%



EVT Technology Co., Ltd. (Representative: Leo Huang, Hatch Huang, Joey Chang) Bill Shiau Leo Huang

375,000 shares - -

75% - -

Quantel Private Ltd. Director Director

Chroma ATE Inc. (Representative: Leo Huang, Paul Ying) Yip Hin Lay

1,914,000 shares 1,276,000 shares

60% 40%

Quantel Global Vietnam Co., Ltd

Director Phan Sy Dung Quantel Private holds 100%

100%


Director Yip Hin Lay Quantel Private holds 64,999 shares

100%


Director NA Quantel Private holds 600,000 shares

100%

Quantel Global Philippines

Director Yip Hin Lay Quantel Private holds 99,095 shares

100%

108



Corporation

Innovative Nanotech, Inc.


Chroma ATE Inc. (Representative: Leo Huang, I-Shih Tseng, Tsun-I Wang) Amy Huang Po-Jen Wu

14,214,000 shares 100,000 shares 100,000 shares

71.1%

0.5% 0.5%

Touch Cloud Inc. Director Director Director Supervisor

Chroma ATE Inc. (Representative: Leo Huang) Kun-Shan Lu Cheng-Hsun Li Amy Huang

5,700,000 shares - 360,000 shares -

78.1% -

4.9% -

Note 1: Limited liability company

109

6. Business operating conditions of Chroma ATE Inc. and its affiliated companies

As of December 31, 2018 Unit: NT$ thousands

Name of enterprise Paid-in

capital

Total

assets

Total

liabilities

Net

worth

Net

revenue

Operating

profit

Profit and

loss (after

tax)

Earnings per

share (NT$)

Neworld Electronics Ltd. (Note 1) 250,994 2,340,063 1,201,078 1,138,985 4,880,729 158,088 112,846 1.76

Chroma Electronics (Shenzhen)

Co., Ltd. 117,630 1,266,872 614,124 652,748 1,711,856 116,102 85,372

Not

applicable


Ltd. 92,145 213,786 94,582 119,204 347,348 21,598 15,954

Not

applicable

Chroma ATE Inc.(USA) 30,715 822,059 665,644 156,415 1,033,784 (54,204) (5,873) (5.87)

Chroma Systems Solutions, Inc. 147 745,119 413,427 331,692 936,002 116,243 86,297 Not

applicable

Chroma Investment Co., Ltd. 140,000 351,950 1,237 350,713 3,818 2,268 6,479 0.46

Chroma New Material Corporation 250,000 1,005,062 561,990 443,072 2,005,001 50,741 44,611 1.78

Chroma ATE Europe BV (Note 1) 1,597 640,073 457,021 183,052 669,072 28,494 21,964 Not

applicable

Chroma (Shanghai) Trading Co.,

Ltd. 82,931 87,105 3,074 84,031 16,403 (3,423) 117

Not

applicable

Chroma ATE (Suzhou) Co., Ltd. 116,717 511,429 305,278 206,151 632,600 3,542 7,444 Not

applicable

MAS Automation Corp. 100,000 3,034,183 1,827,631 1,206,552 4,001,230 1,036,956 885,878 88.59

Mou Kuan Technologies (Nanjing)

Co., Ltd. 7,768 19,118 1,335 17,783 26,564 4,284 3,902

Not

applicable

Wei Kuang Automation (Nanjing)

Co., Ltd. 53,087 361,813 189,655 172,158 773,667 126,334 94,346

Not

applicable


(Xiamen) Co., Ltd. 51,057 776,631 335,973 440,657 819,450 173,841 129,595

Not

applicable

Sajet System Technology (Suzhou)

Co., Ltd. 37,449 117,637 13,417 104,220 113,306 40,206 45,431

Not

applicable

Testar Electronic Corporation 300,000 270,962 204,789 66,173 335,347 (5,024) (2,792) (0.09)

Chroma Japan Corp. 27,661 249,704 311,841 (62,137) 298,126 (38,624) (33,977) Not

applicable

Sensational Holding Ltd. 36,858 54,220 296 53,924 - (822) 1,851 1.54

Chen Hwa Technology Inc. 94,756 105,965 20 105,945 - (172) 990 0.32

CHI Incorporation Ltd. 117,638 206,319 - 206,319 - - 7,444 1.94

San Eagle Development Corp. 62,966 869,331 20 869,311 - (77) 198,996 97.07

Wei Kuang Mech. Eng .Inc. 137,450 861,933 20 861,912 - (62) 199,047 44.48

Deep Red Holding Co., Ltd. 6,604 104,303 - 104,303 - - 45,430 211.30

Adivic Technology Co., Ltd. (Note

1) 240,000 90,917 19,054 71,863 24,019 (44,483) (39,420) (1.64)

EVT Technology Co., Ltd. (Note 1) 110,000 72,912 4,255 68,657 3,813 (10,820) (10,767) (0.98)

Quantel Private Ltd. (Note 1) 71,711 235,312 52,631 182,681 346,902 34,212 30,011 9.41

Innovative Nanotech, Inc. 200,000 196,967 28,905 168,062 184 (29,821) (29,451) (1.47)

Touch Cloud Inc. 72,995 41,568 535 41,033 427 (15,013) (14,809) (2.03)

Note 1: Expressed per the consolidated financial statement.

Note 2: The following lists the exchange rates for the statement of assets and liabilities:

1 USD = NT$30.715, 1 HKD = NT$3.921, 1 EUR = NT$35.20, 1 RMB = NT$4.472, 1 JPY = NT$0.278, 1 SGD =

NT$22.48

The following lists the exchange rates for the profit and loss statement:

1 USD = NT$30.149, 1 HKD = NT$3.846, 1 EUR = NT$35.61, 1 RMB = NT$4.56, 1 JPY = NT$0.273, 1 SGD = NT$22.35

110

(II) Consolidated financial statements of affiliated companies For 2018 (January 1 to December 31, 2018), affiliated companies of the Corporation that shall be included according to the rules prescribed by the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and Consolidated Financial Statements of Affiliated Enterprises” were the same as those companies that shall be included into the parent and subsidiary consolidated financial statement as prescribed by IFRS 10. All information to be disclosed in the consolidated financial statements of affiliated companies has been disclosed in the consolidated financial statements of the parent company and subsidiaries. Hence, consolidated financial statements of affiliated companies were therefore not prepared separately.

(III) Affiliation report According to Article 369-12 of the Company Act, separate affiliation reports are not required for subsidiaries of the Corporation that have not been publicly listed.

II. Private placement of securities in the most recent year up to the publication date of this annual report: None.

III. Holding or disposition of the Corporation's shares by subsidiaries in the most recent year up to the publication date of this annual report

Unit: NT$ thousand; shares; %

Name

of

subsidiary

Paid-in

capital

Source

of

capital

Shareholding

of the

Corporation

Date of

acquisition

or disposal

Number

and

amount

of

shares

acquired

Number

and

amount

of

shares

disposed

Investment

gain (loss)

Number and

amount of

shares up to

the publication

date of this

annual report

(Note 1)

Status

of

pledge

Amount of

endorsements

and

guarantees

provided to

subsidiaries

by the

Corporation

Loans

provided to

subsidiaries

by the

Corporation

Chroma

Investment

Co., Ltd.

140,000 Own

capital 100%

2018 0 0 0

1,915,579

shares

NT$288,295

thousand

None 0 0

Current

year up to

the

publication

date of this

annual

report

0 0 0

None 0 0

Note 1: The amount of shares held is calculated based on the closing price of NT$150.5 on April 19, 2019.

IV. Other supplementary matters: None. V. Any event that results in substantial impact upon shareholders’ equity or prices of the

Corporation’s securities as prescribed by Article 36, Paragraph 3, Subparagraph 2 of the Securities and Exchange Act that have occurred in the most recent year up to the publication date of this annual report: None.

111

Chroma ATE Inc. and Subsidiaries

Consolidated Financial Statements for the Years Ended December 31, 2018 and 2017 and

Independent Auditors’ Report

112

DECLARATION OF CONSOLIDATION OF FINANCIAL STATEMENTS OF AFFILIATES

The entities required to be included in the consolidated financial statements of affiliates in accordance

with the “Criteria Governing Preparation of Affiliation Reports, Consolidated Business Reports and

Consolidated Financial Statements of Affiliated Enterprises” for the year ended December 31, 2018

are all the same as the companies required to be included in the consolidated financial statements of

parent and subsidiary companies as provided in International Financial Reporting Standards 10

“Consolidated Financial Statements”. Relevant information that should be disclosed in the

consolidated financial statements of affiliates has all been disclosed in the consolidated financial

statements of parent and subsidiary companies. Hence, we have not prepared a separate set of

consolidated financial statements of affiliates.

Very truly yours,

CHROMA ATE INC.

LEO HUANG

Chairman

February 21, 2019

113

INDEPENDENT AUDITORS’ REPORT The Board of Directors and Shareholders Chroma ATE Inc. Opinion We have audited the accompanying consolidated financial statements of Chroma ATE Inc. and its subsidiaries (the Group), which comprise the consolidated balance sheets as of December 31, 2018 and 2017, and the consolidated statements of comprehensive income, changes in equity and cash flows for the years then ended, and the notes to the consolidated 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 Group as of December 31, 2018 and 2017, and its consolidated financial performance and its consolidated cash flows for the years then ended, in accordance with the Regulations Governing the Preparation of Financial Reports by Securities Issuers and International Financial Reporting Standards (IFRS), International Accounting Standards (IAS), IFRIC Interpretations (IFRIC), and SIC Interpretations (SIC) endorsed and issued into effect by the Financial Supervisory Commission (FSC) of the Republic of China. Basis for Opinion We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of Financial Statements by Certified Public Accountants and auditing standards generally accepted in the Republic of China. Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with The Norm of Professional Ethics for Certified Public Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in accordance with these requirements. 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 consolidated financial statements for the year ended December 31, 2018. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters. Key audit matters of the consolidated financial statements for the year ended December 31, 2018 are stated as follows: Impairment of Trade Receivables As indicated in Notes 5 and 13, trade receivables are significant accounts in the consolidated balance sheet of the Group. The process of evaluating impairment loss involves subjective judgement of uncollectible accounts. The management recognizes lifetime Expected Credit Loss (ECL) on trade receivables under the regulations of IFRS 9. The above evaluation involves the impact on receivables of the management’s subjective judgements and assumptions on credit risks; thus, we consider the impairment of trade receivables as a key audit matter. We assessed the rationale of the Group’s policy on providing allowance for trade receivables, tested the impairment rate of ECL, inspected individual overdue receivables and made inquiries for related reasons, to draw a conclusion on ECL of trade receivables. Evaluation of Write-down of Inventories The Group’s inventories are primarily test instruments, widely used in technology industries including power supply, passive components, semiconductor, LED, and solar energy. The Group adjusts the product portfolio in response to the rapid change in the market and business fluctuation.

114

The market competition or technique replacement may result in the risk of inventories becoming unmarketable or prices slumping due to lack of demand in the market. As stated in Note 5, inventory valuation includes the consideration of whether the test instruments are obsolete or unmarketable and the estimation of demand for the products in the future. Since the evaluation process involves material assumptions and estimations, the valuation of inventories is deemed to be a key audit matter. We assessed the rationale of the Group’s policy on providing allowance for inventory valuation and obsolescence losses, and we tested the accuracy of inventory aging report. We also tested the recent selling prices and participated in annual inventory count to observe the condition of the inventories in order to evaluate the reasonableness of the inventory value. Please refer to Note 15 to the consolidated financial statements for the details of the information about inventories. Other Matter We have also audited the parent company only financial statements of Chroma ATE Inc. as of and for the years ended December 31, 2018 and 2017 on which we have issued an unmodified opinion. 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 IFRS, IAS, IFRIC and SIC endorsed and issued into effect by the FSC of the Republic of China, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Those charged with governance, including the audit committee, are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the auditing standards generally accepted in the Republic of China will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. As part of an audit in accordance with the auditing standards generally accepted in the Republic of China, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: 1. Identify and assess the risks of material misstatement of the consolidated financial statements,

whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an

115

opinion on the effectiveness of the Group’s internal control. 3. Evaluate the appropriateness of accounting policies used and the reasonableness of accounting

estimates and related disclosures made by management. 4. Conclude on the appropriateness of management’s use of the going concern basis of accounting

and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ 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 auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

6. Obtain sufficient and appropriate audit evidence regarding the financial information of 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 statements that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the consolidated financial statements for the year ended December 31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication. The engagement partners on the audit resulting in this independent auditors’ report are Cheng-Ming Lee and Wen-Chi Kuo. Deloitte & Touche Taipei, Taiwan Republic of China February 21, 2019

Notice to Readers The accompanying consolidated financial statements are intended only to present the consolidated financial position, financial performance and cash flows in accordance with accounting principles and practices generally accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures and practices to audit such consolidated financial statements are those generally applied in the Republic of China. For the convenience of readers, the independent auditors’ report and the accompanying consolidated financial statements have been translated into English from the original Chinese version prepared and used in the Republic of China. If there is any conflict between the English version and the original Chinese version or any difference in the interpretation of the two versions, the Chinese-language independent auditors’ report and consolidated financial statements shall prevail.

116

CHROMA ATE INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars)

2018 2017

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Note 6) $ 2,923,957 13 $ 5,076,411 23

Financial assets at fair value through profit or loss - current (Note 7) 1,345,944 6 8,794 -

Available-for-sale financial assets - current (Note 10) - - 1,043,387 5

Financial assets at amortized cost - current (Notes 9 and 36) 418,886 2 - -

Contract assets - current (Note 27) 845,164 4 - -

Debt investments with no active market - current (Notes 12 and 36) - - 899,368 4

Notes receivable (Note 13) 96,163 - 249,785 1

Trade receivables - unrelated parties (Note 13) 4,686,789 20 3,717,254 17

Trade receivables - related parties (Notes 13 and 35) 51,818 - 47,702 -

Construction contracts receivable (Note 14) - - 202,535 1

Inventories (Note 15) 2,416,814 10 2,431,074 11

Prepayments 175,801 1 265,944 1

Other current assets (Note 35) 269,937 1 163,530 1

Total current assets 13,231,273 57 14,105,784 64

NON-CURRENT ASSETS

Financial assets at fair value through profit or loss - non-current (Note 7) 6,807 - - -

Financial assets at fair value through other comprehensive income - non-current (Note 8) 618,271 3 - -

Available-for-sale financial assets - non-current (Note 10) - - 268,582 1

Financial assets measured at cost - non-current (Note 11) - - 193,571 1

Investments accounted for using equity method (Note 17) 649,709 3 641,567 3

Property, plant and equipment (Notes 18 and 36) 3,389,889 15 2,664,584 12

Investment properties (Note 19) 3,137,187 13 - -

Goodwill (Note 20) 227,961 1 225,408 1

Other intangible assets (Note 21) 46,134 - 52,628 -

Deferred tax assets (Note 29) 250,150 1 230,408 1

Prepayments for land and equipment (Note 38) 1,082,451 5 3,505,669 16

Refundable deposits 466,748 2 27,439 -

Other non-current assets 95,884 - 101,972 1

Total non-current assets 9,971,191 43 7,911,828 36

TOTAL $ 23,202,464 100 $ 22,017,612 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Notes 22 and 36) $ 807,348 4 $ 471,638 2

Contract liabilities - current (Note 27) 888,333 4 - -

Notes payable - unrelated parties 132,773 1 298,289 1

Notes payable - related parties (Note 35) 14,556 - 17,502 -

Trade payables - unrelated parties 2,404,279 10 2,575,261 12

Trade payables - related parties (Note 35) 8,953 - 39,434 -

Construction contracts payable (Note 14) - - 552,527 3

Other payables (Note 24) 1,258,976 5 1,166,453 5

Current tax liabilities 410,208 2 308,357 2

Receipts in advance (Note 14) 93 - 247,122 1

Current portion of long-term borrowings (Notes 22 and 36) 13,240 - 1,216,042 6

Other current liabilities 33,754 - 30,276 -

Total current liabilities 5,972,513 26 6,922,901 32

NON-CURRENT LIABILITIES

Bonds payable (Note 23) - - 99,703 -

Long-term borrowings (Notes 22 and 36) 1,954,021 8 1,061,693 5

Deferred tax liabilities (Note 29) 424,561 2 303,822 1

Net defined benefit liabilities (Note 25) 160,054 1 165,826 1

Guarantee deposits received 966 - 838 -

Total non-current liabilities 2,539,602 11 1,631,882 7

Total liabilities 8,512,115 37 8,554,783 39

EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION (Note 26)

Ordinary share capital 4,167,794 18 4,118,942 19

Capital surplus 3,469,637 15 3,187,289 14

Retained earnings

Legal reserve 2,152,411 9 1,896,570 9

Special reserve 86,888 - 86,888 -

Unappropriated earnings 4,555,760 20 3,988,838 18

Total retained earnings 6,795,059 29 5,972,296 27

Other equity 13,244 - (12,134) -

Treasury shares (35,714) - (35,714) -

Total equity attributable to owners of the Corporation 14,410,020 62 13,230,679 60

NON-CONTROLLING INTERESTS 280,329 1 232,150 1

Total equity 14,690,349 63 13,462,829 61

TOTAL $ 23,202,464 100 $ 22,017,612 100

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

117


CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017

(In Thousands of New Taiwan Dollars, Except Earnings Per Share)

2018 2017

Amount % Amount %

NET OPERATING REVENUE (Notes 14, 27 and

35) $ 16,931,128 100 $ 14,901,346 100

OPERATING COSTS (Notes 15, 28 and 35) 9,472,788 56 7,832,539 53

GROSS PROFIT 7,458,340 44 7,068,807 47

UNREALIZED GAIN ON TRANSACTIONS

WITH ASSOCIATES AND JOINT

VENTURES (47) - - -

REALIZED GAIN ON TRANSACTIONS WITH

ASSOCIATES AND JOINT VENTURES - - 65 -

REALIZED GROSS PROFIT 7,458,293 44 7,068,872 47

OPERATING EXPENSES (Notes 28 and 35)

Selling and marketing expenses 2,010,963 12 1,857,495 13

General and administrative expenses 1,153,144 7 955,913 6

Research and development expenses 1,254,553 7 1,212,383 8

Total operating expenses 4,418,660 26 4,025,791 27

PROFIT FROM OPERATIONS 3,039,633 18 3,043,081 20

NON-OPERATING INCOME AND EXPENSES

Finance costs (Note 28) (31,768) - (22,782) -

Share of profits of associates and joint ventures

(Note 17) 48,015 - 49,204 1

Interest income 41,793 - 35,090 -

Dividend income 24,146 - 27,610 -

Other income (Note 35) 102,784 1 104,755 1

(Loss) gain on disposal of property, plant and

equipment, net (5,510) - 3,141 -

Gain on disposal of investments - - 15,050 -

Net foreign exchange gain (loss) (Note 39) 97,928 1 (133,637) (1)

Gain on financial assets (liabilities) at fair value

through profit or loss, net 6,571 - 1,858 -

Other expenses (15,502) - (1,194) -

Impairment loss on financial assets - - (109) -

Total non-operating income and expenses 268,457 2 78,986 1

(Continued)

118





2018 2017

Amount % Amount %

PROFIT BEFORE INCOME TAX $ 3,308,090 20 $ 3,122,067 21

INCOME TAX EXPENSE (Note 29) 760,911 5 573,244 4

NET PROFIT FOR THE YEAR 2,547,179 15 2,548,823 17

OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently

to profit or loss:

Remeasurement of defined benefit plans (4,794) - (7,289) -

Unrealized gain on investments in equity

investments designated as at fair value

through other comprehensive income 12,847 - - -

Share of the other comprehensive income

(loss) of associates and joint ventures

accounted for using equity method (521) - 251 -

Items that may be reclassified subsequently to

profit or loss:

Exchange differences on translating the

financial statements of foreign operations (3,035) - (69,618) (1)

Unrealized loss on available-for-sale financial

assets - - (53,513) -

Share of the other comprehensive loss of

associates and joint ventures accounted for

using equity method (1,010) - (8,059) -

Total other comprehensive income (loss) 3,487 - (138,228) (1)

TOTAL COMPREHENSIVE INCOME $ 2,550,666 15 $ 2,410,595 16

NET PROFIT (LOSS) ATTRIBUTABLE TO:

Owners of the Corporation $ 2,546,275 15 $ 2,558,401 17

Non-controlling interests 904 - (9,578) -

$ 2,547,179 15 $ 2,548,823 17

COMPREHENSIVE INCOME (LOSS)

ATTRIBUTABLE TO:

Owners of the Corporation $ 2,546,584 15 $ 2,425,174 16

Non-controlling interests 4,082 - (14,579) -

$ 2,550,666 15 $ 2,410,595 16

(Continued)

119





2018 2017

Amount % Amount %

EARNINGS PER SHARE (NT$; Note 30)

Basic $ 6.22 $ 6.41

Diluted $ 6.08 $ 6.18

The accompanying notes are an integral part of the consolidated financial statements.(Concluded)

120


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY



Equity Attributable to Owners of the Corporation

Other Equity

Retained Earnings

Exchange

Differences on

Translating the

Financial Statements

Unrealized Gain

(Loss) on

Unrealized Gain

(Loss) on Financial

Assets at Fair Value

Through Other

Ordinary Share

Capital Capital Surplus Legal Reserve Special Reserve

Unappropriated

Earnings Total

of Foreign

Operations

Available-for- sale

Financial Assets

Comprehensive

Income

Unearned Employee

Benefit Total Treasury Shares Total

Non-controlling

Interests Total Equity

BALANCE AT JANUARY 1, 2017 $ 3,898,872 $ 1,960,159 $ 1,724,576 $ 86,888 $ 2,923,811 $ 4,735,275 $ (24,914 ) $ 232,901 $ - $ (149,952 ) $ 58,035 $ (35,714 ) $ 10,616,627 $ 171,224 $ 10,787,851

Appropriation of the 2016 earnings

Legal reserve - - 171,994 - (171,994 ) - - - - - - - - - -

Cash dividends - NT$3.3 per share - - - - (1,314,425 ) (1,314,425 ) - - - - - - (1,314,425 ) - (1,314,425 )

Change in capital surplus from investments in associates and

joint ventures accounted for using equity method - (8,326 ) - - - - - - - - - - (8,326 ) - (8,326 )

Net profit (loss) for the year ended December 31, 2017 - - - - 2,558,401 2,558,401 - - - - - - 2,558,401 (9,578 ) 2,548,823

Other comprehensive income (loss) for the year ended

December 31, 2017 - - - - (6,955 ) (6,955 ) (72,719 ) (53,553 ) - - (126,272 ) - (133,227 ) (5,001 ) (138,228 )

Total comprehensive income (loss) for the year ended

December 31, 2017 - - - - 2,551,446 2,551,446 (72,719 ) (53,553 ) - - (126,272 ) - 2,425,174 (14,579 ) 2,410,595

Conversion of convertible bonds 201,515 1,101,453 - - - - - - - - - - 1,302,968 - 1,302,968

Buy-back of treasury shares - - - - - - - - - - - (123 ) (123 ) - (123 )

Cancelation of treasury shares (123 ) - - - - - - - - - - 123 - - -

Adjustment of capital surplus for corporation's cash dividends

received by subsidiaries - 6,170 - - - - - - - - - - 6,170 - 6,170

Share-based payment transaction 18,678 127,833 - - - - - - - 56,103 56,103 - 202,614 - 202,614

Increase in non-controlling interests - - - - - - - - - - - - - 75,505 75,505

BALANCE AT DECEMBER 31, 2017 4,118,942 3,187,289 1,896,570 86,888 3,988,838 5,972,296 (97,633 ) 179,348 - (93,849 ) (12,134 ) (35,714 ) 13,230,679 232,150 13,462,829

Effect of retrospective application and retrospective restatement - - - - 135,130 135,130 - (179,348 ) 151,864 - (27,484 ) - 107,646 - 107,646

BALANCE AT JANUARY 1, 2018 AS RESTATED 4,118,942 3,187,289 1,896,570 86,888 4,123,968 6,107,426 (97,633 ) - 151,864 (93,849 ) (39,618 ) (35,714 ) 13,338,325 232,150 13,570,475


Legal reserve - - 255,841 - (255,841 ) - - - - - - - - - -

Cash dividends - NT$4.5 per share - - - - (1,854,424 ) (1,854,424 ) - - - - - - (1,854,424 ) - (1,854,424 )

Change in capital surplus from investments in associates and

joint ventures accounted for using equity method - (267 ) - - - - - - - - - - (267 ) - (267 )

Net profit for the year ended December 31, 2018 - - - - 2,546,275 2,546,275 - - - - - - 2,546,275 904 2,547,179

Other comprehensive income (loss) for the year ended

December 31, 2018 - - - - (5,322 ) (5,322 ) (7,239 ) - 12,870 - 5,631 - 309 3,178 3,487

Total comprehensive income (loss) for the year ended

December 31, 2018 - - - - 2,540,953 2,540,953 (7,239 ) - 12,870 - 5,631 - 2,546,584 4,082 2,550,666

Conversion of convertible bonds 16,141 84,486 - - - - - - - - - - 100,627 - 100,627

Buy-back of treasury shares - - - - - - - - - - - (840 ) (840 ) - (840 )

Cancelation of treasury shares (840 ) - - - - - - - - - - 840 - - -

Adjustments of capital surplus for corporation's cash dividends

received by subsidiaries - 8,572 - - - - - - - - - - 8,572 - 8,572

Changes in percentage of ownership interests in subsidiaries - - - - (2,107 ) (2,107 ) - - - - - - (2,107 ) 2,107 -

Share-based payment transaction 33,551 189,557 - - - - - - - 51,472 51,472 - 274,580 - 274,580

Increase in non-controlling interests - - - - - - - - - - - - - 41,990 41,990

Disposals of investments in equity instruments designated as at

fair value through other comprehensive income - - - - 4,241 4,241 - - (4,241 ) - (4,241 ) - - - -

Adjustments to share of changes in equities of associates and

joint ventures accounted for using equity method - - - - (1,030 ) (1,030 ) - - - - - - (1,030 ) - (1,030 )

BALANCE AT DECEMBER 31, 2018 $ 4,167,794 $ 3,469,637 $ 2,152,411 $ 86,888 $ 4,555,760 $ 6,795,059 $ (104,872 ) $ - $ 160,493 $ (42,377 ) $ 13,244 $ (35,714 ) $ 14,410,020 $ 280,329 $ 14,690,349

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

121


CONSOLIDATED STATEMENTS OF CASH FLOWS



2018 2017

CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 3,308,090 $ 3,122,067 Adjustments for:

Depreciation expenses 308,923 310,239 Amortization expenses 6,491 3,552 Expected credit loss recognized on trade receivables (provision

for bad debt expense) 8,899 43,667 Net gain on financial assets (liabilities) at fair value through

profit or loss (6,571) (1,858) Finance costs 31,768 22,782 Interest income (41,793) (35,090) Dividend income (24,146) (27,610) Compensation costs of share-based payment 78,596 121,593 Share of profit of associates and joint ventures accounted for

using equity method (48,015) (49,204) Loss (gain) on disposal of property, plant and equipment, net 5,510 (3,141) Gain on disposal of investments - (15,050) Impairment loss on financial assets - 109 Impairment loss (reversal of impairment) on non-financial

assets 22,933 (38,384) Unrealized gain on transactions with associates and joint

ventures 47 - Realized gain on transactions with associates and joint

ventures - (65) Net (gain) loss on foreign currency exchange (90,474) 186,671

Net changes in operating assets and liabilities Contract assets (642,629) - Notes receivable 153,622 (188,016) Trade receivables (937,810) (910,358) Construction contracts receivable - 12,281 Inventories (107,544) (590,366) Prepayments 90,143 (189,529) Other current assets (91,806) (42,662) Contract liabilities 335,806 - Notes payable (168,462) 257,395 Trade payables (209,964) 643,218 Construction contracts payable - 322,669 Other payables 95,036 269,406 Receipts in advance (247,029) (43,652) Other current liabilities 3,478 (818) Net defined benefit liabilities (10,566) (9,729)

Cash generated from operations 1,822,533 3,170,117 Income tax paid (556,746) (420,756)

Net cash generated from operating activities 1,265,787 2,749,361

(Continued)

122





2018 2017

CASH FLOWS FROM INVESTING ACTIVITIES

Payments to acquire financial assets at fair value through other comprehensive income $ (67,800) $ -

Cash returned of capital reduction of financial assets at fair value through other comprehensive income 5,262 -

Decrease in financial assets at amortized cost 479,482 - Payments to acquire financial assets at fair value through profit

or loss (1,989,000) - Proceeds from disposal of financial assets at fair value through

profit or loss 1,701,003 1,000 Payments to acquire available-for-sale financial assets - (556,000) Proceeds from disposal of available-for-sale financial assets - 1,809,889 Payments to acquire debt investments with no active market - (522,222) Proceeds from disposal financial assets measured at cost - 2,552 Cash returned of capital reduction of financial assets measured at

cost - 23,111 Increase in prepayments for investments - (6,489) Payments for property, plant and equipment (135,775) (178,674) Proceeds from disposal of property, plant and equipment 13,877 20,592 Increase in refundable deposits (439,309) (7,219) Payments to acquire intangible assets (2,850) (3,158) Net cash inflows from business combination 8,477 3,514 Decrease (increase) in other non-current assets 1,703 (66,735) Increase in prepayments for equipment (1,517,801) (469,319) Interest received 47,292 39,690 Dividends received 60,899 71,834

Net cash (used in) generated from investing activities (1,834,540) 162,366

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term borrowings 332,835 281,772 Proceeds from long-term borrowings 900,000 900,000 Repayments of long-term borrowings (1,216,046) (847,748) Increase in guarantee deposits 128 - Cash dividends paid (1,851,804) (1,314,207) Exercise of employee stock options 195,755 79,128 Payments for buy-back of ordinary shares (840) (123) Interest paid (41,034) (42,109) Increase in non-controlling interests 49,669 57,502 Proceeds from issuance of employee restricted shares - 1,850

Net cash used in financing activities (1,631,337) (883,935)

EFFECTS OF EXCHANGE RATE CHANGES ON THE

BALANCE OF CASH HELD IN FOREIGN CURRENCIES 47,636 (101,351) (Continued)

123





2018 2017 NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS $(2,152,454) $ 1,926,441 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF

THE YEAR 5,076,411 3,149,970 CASH AND CASH EQUIVALENTS AT THE END OF THE

YEAR $ 2,923,957 $ 5,076,411 The accompanying notes are an integral part of the consolidated financial statements. (Concluded)

124


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS


(In Thousands of New Taiwan Dollars, Unless Stated Otherwise)

1. GENERAL INFORMATION

Chroma ATE Inc. (the “Corporation”) was incorporated in the Republic of China (ROC) in November

1984. The Corporation mainly designs, assembles, calibrates, manufactures, sells, repairs and maintains

software/hardware for computers and peripherals, computerized automatic test systems, electronic test

instruments, signal generators, power supplies, telecom power supplies, etc. as well as serves as an agent

to sell these products. The Corporation’s shares have been listed on the Taiwan Stock Exchange since

December 21, 1996.

The consolidated financial statements of the Corporation and its subsidiaries (collectively referred to as

the “Group”) are presented in the Corporation’s functional currency, the New Taiwan dollar (NTD).

2. APPROVAL OF FINANCIAL STATEMENTS

The consolidated financial statements were approved by the Corporation’s board of directors on February

21, 2019.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND

INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial

Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International

Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)

(collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission

(FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the

Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect

by the FSC would not have any material impact on the Group’s accounting policies:

1) IFRS 9 “Financial Instruments” and related amendment

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with

consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards.

IFRS 9 sets out the requirements for classification, measurement and impairment of financial assets

and hedge accounting.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as at January 1, 2018, the Group

has performed an assessment of the classification of recognized financial assets and has

elected not to restate prior reporting periods.

125

The following table shows the original measurement categories and carrying amount under IAS

39 and the new measurement categories and carrying amount under IFRS 9 for each class of the

Group’s financial assets and financial liabilities as of January 1, 2018.

Measurement Category Carrying Amount

Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark

Cash and cash equivalents Loans and receivables Amortized cost $ 5,076,411 $ 5,076,411 -

Derivatives Held‑ for‑ trading Mandatorily at fair value through

profit or loss (i.e. FVTPL)

31 31 -

Domestic listed equity securities Held‑ for‑ trading Mandatorily at FVTPL 8,763 8,763 -

Domestic listed equity securities Available‑ for‑ sale Fair value through other

comprehensive income (i.e.

FVTOCI) - equity instrument

268,582 268,582 a)

Domestic unlisted equity

securities

Available‑ for‑ sale FVTOCI - equity instrument 157,762 265,884 a)

Foreign unlisted equity securities Available‑ for‑ sale FVTOCI - equity instrument 25,657 29,565 a)

Domestic open-end beneficiary

certificates

Available‑ for‑ sale Mandatorily at FVTPL 1,043,387 1,043,387 b)

Foreign open-end beneficiary

certificates

Available‑ for‑ sale Mandatorily at FVTPL 10,152 6,013 b)

Time deposits with original

maturities of more than 3

months

Loans and receivables Amortized cost 899,368 899,368 c)

Notes receivable, trade

receivables and other

receivables

Loans and receivables Amortized cost 4,146,995 4,146,995 d)

Refundable deposits Loans and receivables Amortized cost 27,439 27,439 -

Financial Assets

IAS 39

Carrying

Amount as of

January 1,

2018

Reclassifi-

cations

Remeasure-

ments

IFRS 9

Carrying

Amount as of

January 1,

2018

Retained

Earnings

Effect on

January 1,

2018

Other Equity

Effect on

January 1,

2018 Remark

FVTPL $ 8,794

Add: Reclassification from

available-for-sale (IAS 39)

required reclassification

- $ 1,053,539 $ (4,139 ) b)

8,794 1,053,539 (4,139 ) $ 1,058,194 $ 10,662 $ (14,801 )

FVTOCI

Equity instruments



- 452,001 112,030 a)

- 452,001 112,030 564,031 123,376 (11,346 )

$ 8,794 $ 1,505,540 $ 107,891 $ 1,622,225 $ 134,038 $ (26,147 )

a) The Group elected to designated all its investments in equity securities previously classified

as available-for-sale under IAS 39 as at FVTOCI under IFRS 9, because these investments are

not held for trading. As a result, the related other equity - unrealized gain (loss) on available-

for-sale financial assets of $158,625 thousand was reclassified to other equity - unrealized gain

(loss) on financial assets at FVTOCI.

Investments in unlisted shares previously measured at cost under IAS 39 have been designated

as at FVTOCI under IFRS 9 and were remeasured at fair value. Consequently, an increase of

$112,030 thousand was recognized in both financial assets at FVTOCI and other equity -

unrealized gain (loss) on financial assets at FVTOCI on January 1, 2018, respectively.

The Group recognized under IAS 39 impairment loss on certain investments in equity

securities previously classified as measured at cost and the loss was accumulated in retained

earnings. Since those investments were designated as at FVTOCI under IFRS 9 and no

impairment assessment is required, an adjustment was made that resulted in a decrease of

$123,376 thousand in other equity - unrealized gain (loss) on financial assets at FVTOCI and

an increase of the same amount in retained earnings on January 1, 2018, respectively.

126

b) Mutual funds previously classified as available-for-sale under IAS 39 were classified

mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not solely

payments of principal and interest on the principal outstanding and they are not equity

instruments. The retrospective adjustment resulted in a decrease of $14,801 thousand in other

equity - unrealized gain (loss) on available-for-sale financial assets and an increase of the same

amount in retained earnings on January 1, 2018. Mutual funds previously measured at cost

under IAS 39 were classified as at FVTPL under IFRS 9 and were measured at fair value.

Consequently, a decrease of $4,139 thousand was recognized in both financial assets at FVTPL

and retained earnings.

c) Debt investments previously classified as debt investments with no active market and

measured at amortized cost under IAS 39 were classified as at amortized cost with an

assessment of expected credit losses under IFRS 9, because on January 1, 2018, the contractual

cash flows were solely payments of principal and interest on the principal outstanding and

these investments were held within a business model whose objective is to collect contractual

cash flows.

d) Notes receivable, trade receivables and other receivables that were previously classified as

loans and receivables under IAS 39 were classified as measured at amortized cost with an

assessment of expected credit losses under IFRS 9. The Group had assessed that the effect of

retrospective application would not have any material impact.

e) As a result of the retrospective application of IFRS 9 by associates and joint ventures

accounted for using equity method, there was a decrease in investments accounted for using

equity method of $245 thousand, a decrease in other equity - unrealized gain (loss) on

available-for-sale financial assets of $5,922 thousand, an increase on other equity - unrealized

gain (loss) on financial assets at FVTOCI of $4,585 thousand and an increase in retained

earnings of $1,092 thousand on January 1, 2018.

2) IFRS 15 “Revenue from Contracts with Customers” and related amendments

Under IFRS 15, the net effect of revenue recognized and consideration received and receivable is

recognized as a contract asset or a contract liability. Prior to the application of IFRS 15, the net

effect of the progress billings, cost incurred and recognized profit (loss) of a construction contract

was recognized as amount due from (to) customer for construction contract under IAS 11.

b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

and the IFRSs endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations

(the “New IFRSs”) Effective Date

Announced by IASB (Note 1)

Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019

Amendments to IFRS 9 “Prepayment Features with Negative

Compensation”

January 1, 2019 (Note 2)

IFRS 16 “Leases” January 1, 2019

Amendments to IAS 19 “Plan Amendment, Curtailment or

Settlement”


Amendments to IAS 28 “Long-term Interests in Associates and

Joint Ventures”

January 1, 2019

IFRIC 23 “Uncertainty over Income Tax Treatments” January 1, 2019

Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods

beginning on or after their respective effective dates.

Note 2: The FSC permits the election for early adoption of the amendments starting from 2018.

127

Note 3: The Group shall apply these amendments to plan amendments, curtailments or

settlements occurring on or after January 1, 2019.

IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their

treatment in the financial statements of both lessees and lessor. It supersedes IAS 17 “Leases”, IFRIC

4 “Determining whether An Arrangement Contains A Lease”, and a number of related interpretations.

Definition of a lease

Upon initial application of IFRS 16, the Group will elect to apply the guidance of IFRS 16 in

determining whether contracts are, or contain, a lease only to contracts entered into (or changed) on or

after January 1, 2019. Contracts identified as containing a lease under IAS 17 and IFRIC 4 will not be

reassessed and will be accounted for in accordance with the transitional provisions under IFRS 16.

The Group as lessee

Upon initial application of IFRS 16, the Group will recognize right-of-use assets, or investment

properties if the right-of-use assets meet the definition of investment properties, and lease liabilities

for all leases on the consolidated balance sheets except for those whose payments under low-value

asset and short-term leases will be recognized as expenses on a straight-line basis. On the consolidated

statements of comprehensive income, the Group will present the depreciation expense charged on

right-of-use assets separately from the interest expense accrued on lease liabilities; interest is computed

using the effective interest method. On the consolidated statements of cash flows, cash payments for

the principal portion of lease liabilities will be classified within financing activities; cash payments for

the interest portion will be classified within financing activities. Currently, payments under operating

lease contracts are recognized as expenses on a straight-line basis. Cash flows for operating leases are

classified within operating activities on the consolidated statements of cash flows. Leased assets and

finance lease payables are recognized for contracts classified as finance leases.

The Group anticipates applying IFRS 16 retrospectively with the cumulative effect of the initial

application of this standard recognized on January 1, 2019. Comparative information will not be

restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating leases

with the application of IAS 17. Lease liabilities will be measured at the present value of the remaining

lease payments, discounted using the lessee’s incremental borrowing rate on January 1, 2019. Right-

of-use assets will be measured at an amount equal to the lease liabilities. The Group will apply IAS 36

to all right-of-use assets.

The Group expects to apply the following practical expedients:

1) The Group will apply a single discount rate to a portfolio of leases with reasonably similar

characteristics to measure lease liabilities.

2) The Group will account for those leases for which the lease term ends on or before December 31,

2019 as short-term leases.

3) The Group will exclude initial direct costs from the measurement of right-of-use assets on January

1, 2019.

4)The Group will use hindsight, such as in determining lease terms, to measure lease liabilities

128

The Group as lessor

The Group will not make any adjustments for leases in which it is a lessor and will account for those

leases with the application of IFRS 16 starting from January 1, 2019.

Anticipated impact on assets, liabilities and equity

Carrying

Amount as of

December 31,

2018

Adjustments

Arising from

Initial

Application

Adjusted

Carrying

Amount as of

January 1,

2019

Right-of-use assets $ - $ 168,654 $ 168,654

Total effect on assets $ - $ 168,654 $ 168,654

Lease liabilities - current $ - $ 82,145 $ 82,145

Lease liabilities - non-current - 86,509 86,509

Total effect on liabilities $ - $ 168,654 $ 168,654

Except for the above impact, as of the date the consolidated financial statements were authorized for

issue, the Group had assessed that the application of other standards and interpretations would not have

significant impacts on the Group’s financial position and financial performance.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs

Effective Date


Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2)

Amendments to IFRS 10 and IAS 28 “Sale or Contribution of

Assets between An Investor and Its Associate or Joint

Venture”

To be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021

Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)



Note 2: The Group shall apply these amendments to business combinations for which the

acquisition date is on or after the beginning of the first annual reporting period

beginning on or after January 1, 2020 and to asset acquisitions that occur on or after

the beginning of that period.

Note 3: The Group shall apply these amendments prospectively for annual reporting periods

beginning on or after January 1, 2020.

Except for the above impact, as of the date the consolidated financial statements were authorized for

issue, the Group is continuously assessing the possible impact that the application of other standards

and interpretations will have on the Group’s financial position and financial performance and will

disclose the relevant impact when the assessment is completed.

129

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The consolidated financial statements have been prepared in accordance with the Regulations

Governing the Preparation of Financial Reports by Securities Issuers and IFRSs as endorsed and issued

into effect by the FSC.

b. Basis of preparation

The consolidated financial statements have been prepared on the historical cost basis except for

financial instruments measured at fair value and net defined benefit liabilities which are measured at

the present value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the

fair value measurement inputs are observable and based on the significance of the inputs to the fair

value measurement in its entirety, which are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for

an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

c. Classification of current and noncurrent assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within 12 months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a

liability for at least 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within 12 months after the reporting period; and

3) Liabilities for which the Group does not have an unconditional right to defer settlement for at

least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

130

d. Basis of consolidation

The consolidated financial statements incorporate the financial statements of the Corporation and

the entities controlled by the Corporation (its subsidiaries). Income and expenses of subsidiaries

acquired or disposed of during the period are included in the consolidated statement of profit or

loss and other comprehensive income from the effective dates of acquisitions up to the effective

dates of disposals, as appropriate. When necessary, adjustments are made to the financial statements

of subsidiaries to bring their accounting policies into line with those used by the Group. All intra-

group transactions, balances, income and expenses are eliminated in full upon consolidation. Total

comprehensive income of subsidiaries is attributed to the owners of the Corporation and to the non-

controlling interests even if this results in the non-controlling interests having a deficit balance.

Changes in the Group’s ownership interests in subsidiaries that do not result in the Group losing

control over the subsidiaries are accounted for as equity transactions. The carrying amounts of the

Group’s interests and the non-controlling interests are adjusted to reflect the changes in their

relative interests in the subsidiaries. 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 and attributed to the owners of the Corporation.

Refer to Note 16, Tables 9 and 10 for detailed information on subsidiaries (including percentage of

ownership and main business).

e. Business combinations

Acquisitions of businesses are accounted for using the acquisition method. Acquisition-related

costs are generally recognized in profit or loss as incurred.

Goodwill is measured as the excess of the sum of the consideration transferred, the amount of any

non-controlling interests in the acquiree, and the fair value of the acquirer’s previously held equity

interest in the acquiree (if any) over the net of the acquisition-date amounts of the identifiable assets

acquired and the liabilities assumed.

Non-controlling interests that are present ownership interests and entitle their holders to a

proportionate share of the entity’s net assets in the event of liquidation may be initially measured

either at fair value or at the non-controlling interests’ proportionate share of the recognized amounts

of the acquiree’s identifiable net assets. Other types of non-controlling interests are measured at

fair value.

f. Foreign currencies

In preparing the financial statements of each individual group entity, transactions in currencies

other than the entity’s functional currency (foreign currencies) are recognized at the rates of

exchange prevailing at the dates of the transactions.

At the end of each reporting period, monetary items denominated in foreign currencies are

retranslated at the rates prevailing at that date. Exchange differences on monetary items arising

from settlement or translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are

retranslated at the rates prevailing at the date when the fair value was determined. Exchange

differences arising from the retranslation of non-monetary items are included in profit or loss for

the period except for exchange differences arising from the retranslation of non-monetary items in

respect of which gains and losses are recognized directly in other comprehensive income, in which

case, the exchange differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are not translated

using the exchange rate at the date of the transaction.

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For the purpose of presenting consolidated financial statements, the functional currencies of the

Corporation and the group entities (including subsidiaries, associates, joint ventures and branches

in other countries that use currencies different from the currency of the Corporation) are translated

into the presentation currency - the New Taiwan dollar as follows: Assets and liabilities are

translated at the exchange rates prevailing at the end of the reporting period; income and expense

items are translated at the average exchange rates for the period. The resulting currency translation

differences are recognized in other comprehensive income (attributed to the owners of the

Corporation and non-controlling interests as appropriate).

On the disposal of a foreign operation (i.e. a disposal of the Corporation’s entire interest in a foreign

operation, or a disposal involving the loss of control over a subsidiary that includes a foreign

operation, or an associate that includes a foreign operation of which the retained interest becomes

a financial asset), all of the exchange differences accumulated in equity in respect of that operation

attributable to the owners of the Corporation are reclassified to profit or loss.

In relation to a partial disposal of a subsidiary that does not result in the Corporation losing control

over the subsidiary, the proportionate share of accumulated exchange differences is re-attributed to

non-controlling interests of the subsidiary and is not recognized in profit or loss. For all other partial

disposals, the proportionate share of the accumulated exchange differences recognized in other

comprehensive income is reclassified to profit or loss.

Goodwill and fair value adjustments on identifiable assets and liabilities acquired arising from the

acquisition of a foreign operation are treated as assets and liabilities of the foreign operation and

translated at the rate of exchange prevailing at the end of each reporting period. Exchange

differences are recognized in other comprehensive income.

g. Inventories

Inventories consist of raw materials, semi-finished goods, work-in-process, finished goods and

inventory in transit, which are stated at the lower of cost or net realizable value. Inventory write-

downs are made by item, except where it may be appropriate to group similar or related items. The

net realizable value is the estimated selling price of inventories less all estimated costs of

completion and costs necessary to make the sale. Inventories are recorded at standard cost and

adjusted to approximate weighted-average cost on the balance sheet date.

h. Investments in associates and joint ventures

An associate is an entity over which the Group has significant influence and which is neither a

subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the

Group and other parties that have joint control of the arrangement have rights to the net assets of

the arrangement.

The Group uses the equity method to account for its investments in associates and joint ventures.

Under the equity method, investments in an associate and a joint venture are initially recognized at

cost and adjusted thereafter to recognize the Group’s share of the profit or loss and other

comprehensive income of the associate and joint venture. The Group also recognizes the changes

in the Group’s share of the equity of associates and joint ventures attributable to the Group.

Any excess of the cost of acquisition over the Group’s share of the net fair value of the identifiable

assets and liabilities of an associate or a joint venture at the date of acquisition is recognized as

goodwill, which is included within the carrying amount of the investment and is not amortized.

Any excess of the Group’s share of the net fair value of the identifiable assets and liabilities over

the cost of acquisition, after reassessment, is recognized immediately in profit or loss.

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When the Group subscribes for additional new shares of an associate and joint venture at a

percentage different from its existing ownership percentage, the resulting carrying amount of the

investment differs from the amount of the Group’s proportionate interest in the associate and joint

venture. The Group records such a difference as an adjustment to investments with the

corresponding amount charged or credited to capital surplus - changes in capital surplus from

investments in associates and joint ventures accounted for using equity method. If the Group’s

ownership interest is reduced due to its additional subscription of the new shares of the associate

and joint venture, the proportionate amount of the gains or losses previously recognized in other

comprehensive income in relation to that associate and joint venture is reclassified to profit or loss

on the same basis as would be required had the investee directly disposed of the related assets or

liabilities. When the adjustment should be debited to capital surplus, but the capital surplus

recognized from investments accounted for using equity method is insufficient, the shortage is

debited to retained earnings.

When the Group’s share of losses of an associate and a joint venture equals or exceeds its interest

in that associate and joint venture (which includes any carrying amount of the investment accounted

for using equity method and long-term interests that, in substance, form part of the Group’s net

investment in the associate and joint venture), the Group discontinues recognizing its share of

further losses. Additional losses and liabilities are recognized only to the extent that the Group has

incurred legal obligations, or constructive obligations, or made payments on behalf of that associate

and joint venture.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a

single asset by comparing its recoverable amount with its carrying amount. Any impairment loss

recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount

of the investment. Any reversal of that impairment loss is recognized to the extent that the

recoverable amount of the investment subsequently increases.

The Group discontinues the use of the equity method from the date on which its investment ceases

to be an associate and a joint venture. Any retained investment is measured at fair value at that date,

and the fair value is regarded as its fair value on initial recognition as a financial asset. The

difference between the previous carrying amount of the associate and the joint venture attributable

to the retained interest and its fair value is included in the determination of the gain or loss on

disposal of the associate and the joint venture. The Group accounts for all amounts previously

recognized in other comprehensive income in relation to that associate and the joint venture on the

same basis as would be required had that associate directly disposed of the related assets or

liabilities. If an investment in an associate becomes an investment in a joint venture or an

investment in a joint venture becomes an investment in an associate, the Group continues to apply

the equity method and does not remeasure the retained interest.

When a group entity transacts with its associate and joint venture, profits and losses resulting from

the transactions with the associate and joint venture are recognized in the Group’s consolidated

financial statements only to the extent that interests in the associate and the joint venture are not

related to the Group.

i. Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and accumulated

impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any recognized

impairment loss. Cost includes professional fees and borrowing costs eligible for capitalization.

Such assets are depreciated and classified to the appropriate categories of property, plant and

equipment when completed and ready for their intended use.

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Depreciation of property, plant and equipment is recognized using the straight-line method. Each

significant part is depreciated separately. If a lease term is shorter than the assets’ useful lives, such

assets are depreciated over the lease term. The estimated useful lives, residual values and

depreciation method are reviewed at the end of each reporting period, with the effect of any changes

in the estimates accounted for on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales

proceeds and the carrying amount of the asset is recognized in profit or loss.

j. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including

property under construction for such purposes). Investment properties also include land held for a

currently undetermined future use.

Investment properties are initially measured at cost, including transaction costs. Subsequent to

initial recognition, investment properties are measured at cost less accumulated depreciation and

accumulated impairment loss. Depreciation is recognized using the straight-line method.

Investment properties under construction are measured at cost less accumulated impairment loss.

Cost includes professional fees and borrowing costs eligible for capitalization. Depreciation of

these assets commences when the assets are ready for their intended use.

On derecognition of an investment property, the difference between the net disposal proceeds and

the carrying amount of the asset is included in profit or loss.

k. Goodwill

Goodwill arising from the acquisition of a business is measured at cost as established at the date of

acquisition of the business less accumulated impairment loss.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating

units or groups of cash-generating units (referred to as “cash-generating units”) that is expected to

benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or

more frequently when there is an indication that the unit may be impaired, by comparing its carrying

amount, including the attributed goodwill, with its recoverable amount. However, if the goodwill

allocated to a cash-generating unit was acquired in a business combination during the current annual

period, that unit shall be tested for impairment before the end of the current annual period. If the

recoverable amount of the cash-generating unit is less than its carrying amount, the impairment loss

is allocated first to reduce the carrying amount of any goodwill allocated to the unit and then pro

rata to the other assets of the unit based on the carrying amount of each asset in the unit. Any

impairment loss is recognized directly in profit or loss. An impairment loss recognized on goodwill

is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation

within that unit, the goodwill associated with the operation which is disposed of is included in the

carrying amount of the operation when determining the gain or loss on disposal and is measured on

the basis of the relative values of the operation disposed of and the portion of the cash-generating

unit retained.

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l. Intangible assets

1) Intangible assets acquired separately

Intangible assets with finite useful lives that are acquired separately are initially measured at

cost and subsequently measured at cost less accumulated amortization and accumulated

impairment loss. Amortization is recognized on a straight-line basis. The estimated useful lives,

residual values, and amortization methods are reviewed at the end of each reporting period, with

the effect of any changes in the estimates accounted for on a prospective basis. Intangible assets

with indefinite useful lives that are acquired separately are measured at cost less accumulated

impairment loss.

2) Intangible assets acquired in a business combination

Intangible assets acquired in a business combination and recognized separately from goodwill

are initially recognized at their fair value at the acquisition date (which is regarded as their cost).

Subsequent to initial recognition, they are measured on the same basis as intangible assets that

are acquired separately.

3) Derecognition of intangible assets

On derecognition of an intangible asset, the difference between the net disposal proceeds and

the carrying amount of the asset is recognized in profit or loss.

m. Impairment of tangible and intangible assets other than goodwill

At the end of each reporting period, the Group reviews the carrying amounts of its tangible and

intangible assets, excluding goodwill, to determine whether there is any indication that those

assets have suffered any impairment loss. If any such indication exists, the recoverable amount

of the asset is estimated in order to determine the extent of the impairment loss. When it is not

possible to estimate the recoverable amount of an individual asset, the Group estimates the

recoverable amount of the cash-generating unit to which the asset belongs. Corporate assets are

allocated to the individual cash-generating units on a reasonable and consistent basis of

allocation.

Intangible assets with indefinite useful lives and intangible assets not yet available for use are

tested for impairment at least annually, and whenever there is an indication that the asset may

be impaired.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the

recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying

amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable

amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding

asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but

only to the extent of the carrying amount that would have been determined had no impairment

loss been recognized for the asset or cash-generating unit in prior years. A reversal of an

impairment loss is recognized in profit or loss.

n. Financial instruments

Financial assets and financial liabilities are recognized when a group entity becomes a party to

the contractual provisions of the instruments.

135

Financial assets and financial liabilities are initially measured at fair value. Transaction costs

that are directly attributable to the acquisition or issuance of financial assets and financial

liabilities (other than financial assets and financial liabilities at FVTPL) are added to or deducted

from the fair value of the financial assets or financial liabilities, as appropriate, on initial

recognition. Transaction costs directly attributable to the acquisition of financial assets or

financial liabilities at FVTPL are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a

trade date basis.

a) Measurement categories

2018

Financial assets are classified into the following categories: Financial assets at FVTPL,

financial assets at amortized cost and investments in equity instruments at FVTOCI.

i. Financial assets at FVTPL

The Group recognizes a financial asset at FVTPL when such a financial asset is

mandatorily classified or designated as at FVTPL, including investments in equity

instruments which are not designated as at FVTOCI.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or

losses arising on remeasurement recognized in profit or loss. The net gain or loss

recognized in profit or loss does not incorporate any dividends or interest earned on such

a financial asset. Fair value is determined in the manner described in Note 34.

ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at

amortized cost:

i) The financial asset is held within a business model whose objective is to hold

financial assets in order to collect contractual cash flows; and

ii) The contractual terms of the financial asset give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and

cash equivalents, financial assets at amortized cost, trade receivables at amortized cost

and refundable deposits, are measured at amortized cost, which equals the gross carrying

amount determined using the effective interest method less any impairment loss.

Exchange differences are recognized in profit or loss.

Interest income is calculated by applying the effective interest rate to the gross carrying

amount of such a financial asset, except for:

i) Purchased or originated credit-impaired financial assets, for which interest income is

calculated by applying the credit-adjusted effective interest rate to the amortized cost

of such financial assets; and

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ii) Financial assets that are not credit-impaired on purchase or origination but have

subsequently become credit-impaired, for which interest income is calculated by

applying the effective interest rate to the amortized cost of such financial assets in

subsequent reporting periods.

Cash equivalents include time deposits with original maturities within 3 months from the

date of acquisition, which are highly liquid, readily convertible to a known amount of cash

and are subject to an insignificant risk of changes in value. These cash equivalents are held

for the purpose of meeting short-term cash commitments.

iii. Investments in equity instruments at FVTOCI

On initial recognition, the Group may make an irrevocable election to designate

investments in equity instruments as at FVTOCI. Designation as at FVTOCI is not

permitted if the equity investment is held for trading or if it is contingent consideration

recognized by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with

gains and losses arising from changes in fair value recognized in other comprehensive

income and accumulated in other equity. The cumulative gain or loss will not be

reclassified to profit or loss on disposal of the equity investments; instead, it will be

transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when

the Group’s right to receive the dividends is established, unless the dividends clearly

represent a recovery of part of the cost of the investment.

2017


available-for-sale financial assets and loans and receivables.


Financial assets are classified as at FVTPL when such financial assets are held for trading

and are stated at fair value, with any gains or losses arising on remeasurement recognized

in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any

dividends or interest earned on such a financial asset. Fair value is determined in the

manner described in Note 34.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as

available-for-sale or are not classified as loans and receivables, held-to-maturity

investments or financial assets at FVTPL.

Available-for-sale financial assets are measured at fair value. Dividends on available-for-

sale equity instruments are recognized in profit or loss when the Group’s right to receive

the dividends is established. Other changes in the carrying amount of available-for-sale

financial assets are recognized in other comprehensive income and will be reclassified to

profit or loss when such investments are disposed of or are determined to be impaired.

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Available-for-sale equity investments that do not have a quoted market price in an active

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

and must be settled by delivery of such unquoted equity investments are measured at cost

less any identified impairment loss at the end of each reporting period and presented as a

separate line item as financial assets measured at cost. If, in a subsequent period, the fair

value of the financial assets can be reliably measured, the financial assets are remeasured

at fair value. The difference between the carrying amount and the fair value of such

financial assets is recognized in other comprehensive income. Any impairment losses are

recognized in profit and loss.

iii. Loans and receivables

Loans and receivables (including cash and cash equivalents, trade receivables, debt

investments with no active market and refundable deposits) are measured using the

effective interest method at amortized cost less any impairment, except for short-term

receivables when the effect of discounting is immaterial.





b) Impairment of financial assets and contract assets

2018

The Group recognizes a loss allowance for expected credit losses on financial assets at

amortized cost (including trade receivables) that are measured at FVTOCI, as well as contract

assets.

The Group always recognizes lifetime expected credit losses (i.e. ECLs) for trade receivables

and contract assets. For all other financial instruments, the Group recognizes lifetime ECLs

when there has been a significant increase in credit risk since initial recognition. If, on the

other hand, the credit risk on a financial instrument has not increased significantly since initial

recognition, the Group measures the loss allowance for that financial instrument at an amount

equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of

default occurring as the weights. Lifetime ECLs represent the expected credit losses that will

result from all possible default events over the expected life of a financial instrument. In

contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from

default events on a financial instrument that are possible within 12 months after the reporting

date.

The Group recognizes an impairment gain or loss in profit or loss for all financial instruments

with a corresponding adjustment to their carrying amount through a loss allowance account.

2017

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the

end of each reporting period. Financial assets are considered to be impaired when there is

objective evidence, as a result of one or more events that occurred after the initial recognition

of such financial assets, that the estimated future cash flows of the investment have been

affected.

138

Financial assets at amortized cost, such as trade receivables, are assessed for impairment on a

collective basis even if they were assessed not to be impaired individually. Objective evidence

of impairment for a portfolio of receivables could include the Group’s past experience with

collecting payments, an increase in the number of delayed payments in the portfolio past the

average credit period, as well as observable changes in national or local economic conditions

that correlate with defaults on receivables.

For a financial asset at amortized cost, the amount of the impairment loss recognized is the

difference between such an asset’s carrying amount and the present value of its estimated

future cash flows, discounted at the financial asset’s original effective interest rate. 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 was recognized, the previously

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

amount of the investment (at the date the impairment is reversed) does not exceed what the

amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value

of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant

financial difficulty of the issuer or counterparty, breach of contract such as a default or

delinquency in interest or principal payments, it becoming probable that the borrower will

enter bankruptcy or financial re-organization, or the disappearance of an active market for

those financial assets because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or

losses previously recognized in other comprehensive income are reclassified to profit or loss

in the period. In respect of available-for-sale equity securities, impairment loss previously

recognized in profit or loss is not reversed through profit or loss. Any increase in fair value

subsequent to impairment is recognized in other comprehensive income.

For a financial asset measured at cost, the amount of the impairment loss is measured as the


future cash flows discounted at the current market rate of return for a similar financial asset.

Such impairment loss will not be reversed in subsequent periods.

The carrying amount of a financial asset is reduced by the impairment loss directly for all

financial assets, with the exception of trade receivables, where the carrying amount is reduced

through the use of an allowance account. When trade receivables are considered uncollectible,

they are written off against the allowance account. Subsequent recoveries of amounts

previously written off are credited against the allowance account. Changes in the carrying

amount of the allowance account are recognized in profit or loss except for uncollectible trade

receivables that are written off against the allowance account.

c) Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows

from the asset expire or when it transfers the financial asset and substantially all the risks and

rewards of ownership of the asset to another party.

139

Before 2018, on derecognition of a financial asset in its entirety, the difference between the

asset’s carrying amount and the sum of the consideration received and receivable and the

cumulative gain or loss which had been recognized in other comprehensive income is

recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at

amortized cost in its entirety, the difference between the asset’s carrying amount and the sum

of the consideration received and receivable is recognized in profit or loss. On derecognition

of an investment in an equity instrument at FVTOCI, the difference between the asset’s

carrying amount and the sum of the consideration received and receivable is recognized in

profit or loss, and the cumulative gain or loss which had been recognized in other

comprehensive income is transferred directly to retained earnings, without recycling through

profit or loss.

2) Equity instruments

Debt and equity instruments issued by a group entity are classified as either financial liabilities or

as equity in accordance with the substance of the contractual arrangements and the definitions of

a financial liability and an equity instrument.

Equity instruments issued by a group entity are recognized at the proceeds received, net of direct

issue costs.

Repurchase of the Corporation’s own equity instruments is recognized in and deducted directly

from equity. No gain or loss is recognized in profit or loss on the purchase, sale, issuance or

cancellation of the Corporation’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except for financial liabilities at FVTPL, all financial liabilities are measured at amortized

cost using the effective interest method.

Financial liabilities at FVTPL are stated at fair value, with any gain or loss arising on

remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss

does not incorporate any interest or dividend paid on such financial liability. Fair value is

determined in the manner described in Note 34.

b) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the

consideration paid, including any non-cash assets transferred or liabilities assumed, is

recognized in profit or loss.

4) Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Group are

classified separately as financial liabilities and equity in accordance with the substance of the

contractual arrangements and the definitions of a financial liability and an equity instrument.

On initial recognition, the fair value of the liability component is estimated using the prevailing

market interest rate for similar non-convertible instruments. This amount is recorded as a liability

on an amortized cost basis using the effective interest method until extinguished upon conversion

or upon the instrument’s maturity date. Any embedded derivative liability is measured at fair

value.

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The conversion option classified as equity is determined by deducting the amount of the liability

component from the fair value of the compound instrument as a whole. This is recognized and

included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the

conversion option classified as equity will remain in equity until the conversion option is

exercised, in which case, the balance recognized in equity will be transferred to capital surplus -

share premiums. When the conversion option remains unexercised at maturity, the balance

recognized in equity will be transferred to capital surplus - share premiums.

Transaction costs that relate to the issuance of the convertible notes are allocated to the liability

and equity components in proportion to the allocation of the gross proceeds. Transaction costs

relating to the equity component are recognized directly in equity. Transaction costs relating to

the liability component are included in the carrying amount of the liability component.

o. Warranty provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required

to settle the present obligation at the end of the reporting period, taking into account the risks and

uncertainties surrounding the obligation. Provisions for the expected cost of warranty obligations to

assure that products comply with agreed-upon specifications are recognized on the date of sale of the

relevant products at the best estimate by the management of the Group of the expenditures required to

settle the obligations.

p. Revenue recognition

2018

The Group identifies contracts with customers, allocates the transaction price to the performance

obligations and recognizes revenue when performance obligations are satisfied.

1) Revenue from the sale of goods

Revenue from sale of goods comes from sales of test instruments and other products. Revenue is

recognized when the goods are delivered to the customer’s specific location or the goods are

shipped because it is the time when the customer has full discretion over the manner of distribution

and bears the risks of obsolescence. Trade receivables are recognized concurrently. The transaction

price received is recognized as a contract liability until the goods are delivered to the customer.

The Group does not recognize revenue on materials delivered to subcontractors because this

delivery does not involve a transfer of control.

2) Revenue from the rendering of services

Revenue from the rendering of services comes from wafer level test and development of cloud

platform. The Group acquires enforceable right to payment for services rendered in accordance

with customer contracts only upon completion of the services; thus, the Group recognizes revenue

from rendering of services upon completion of the contract.

141

3) Construction contract revenue

For construction contracts to build customized production line, the Group recognizes revenue over

time. The Group measures the progress on the basis of costs incurred relative to the total expected

costs as there is a direct relationship between the costs incurred and the progress of satisfying the

performance obligations. Contract assets are recognized during the construction and are reclassified

to trade receivables at the point at which the customer is invoiced. If the milestone payments exceed

the revenue recognized to date, then the Group recognizes contract liabilities for the difference.

Certain payment retained by the customer as specified in the contract is intended to ensure that the

Group adequately completes all of its contractual obligations. Such retention receivables are

recognized as contract assets until the Group satisfies its performance obligations.

2017

Revenue is measured at the fair value of the consideration received or receivable and reduced for

estimated customer returns, rebates and other similar allowances.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Group has transferred to the buyer the significant risks and rewards of ownership of the

goods;

b) The Group retains neither continuing managerial involvement to the degree usually associated

with ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

d) It is probable that the economic benefits associated with the transaction will flow to the Group;

and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Group does not recognized sales revenue on materials delivered to subcontractors because this

delivery does not involve a transfer of risks and rewards of materials’ ownership.

2) Revenue from the rendering of services

Service income is recognized when services are provided.

3) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment

has been established and provided that it is probable that the economic benefits will flow to the

Group and that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits

will flow to the Group and the amount of income can be measured reliably. Interest income is

accrued on a time basis with reference to the principal outstanding and at the applicable effective

interest rate.

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4) Construction contracts

When the outcome of a construction contract can be estimated reliably, revenue and costs are

recognized with reference to the stage of completion of the contract activity at the end of the

reporting period, measured based on the proportion of contract costs incurred to date relative to the

estimated total contract costs. Variations in contract work, claims and incentive payments are

included to the extent that the amount can be measured reliably and its receipt is considered

probable.

When it is probable that total contract costs will exceed total contract revenue, the expected loss is

recognized as an expense immediately.

When contract costs incurred to date plus recognized profits less recognized losses exceed progress

billings, the surplus is presented as construction contracts receivable. For contracts where progress

billings exceed contract costs incurred to date plus recognized profits less recognized losses, the

surplus is presented as construction contracts payable. Amounts received before the related work

is performed are recognized as receipt in advance. Amounts billed for work performed but not yet

paid by the customer are recognized as trade receivables in the consolidated balance sheet.

q. Borrowing costs

Borrowing costs directly attributable to an acquisition, construction or production of qualifying assets

are added to the cost of those assets, until such time that the assets are substantially ready for their

intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their

expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which

they are incurred.

r. Government grants

Government grants are not recognized until there is reasonable assurance that the Group will comply

with the conditions attached to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the

Group recognizes as expenses the related costs for which the grants are intended to compensate.

Specifically, government grants whose primary condition is that the Group should purchase, construct

or otherwise acquire non-current assets are recognized as deferred revenue and transferred to profit or

loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for

the purpose of giving immediate financial support to the Group with no future related costs are

recognized in profit or loss in the period in which they become receivable.

s. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the undiscounted

amount of the benefits expected to be paid in exchange for the related service.

143

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when

employees have rendered service entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined benefit

retirement benefit plans are determined using the projected unit credit method. Service cost

(including current service cost) and net interest on the net defined benefit liability (asset) are

recognized as employee benefits expense in the period they occur. Remeasurement, comprising

actuarial gains and losses and the return on plan assets (excluding interest), is recognized in other

comprehensive income in the period in which it occurs. Remeasurement recognized in other

comprehensive income is reflected immediately in retained earnings and will not be reclassified to

profit or loss.

Net defined benefit liability (asset) represents the actual deficit (surplus) in the Group’s defined

benefit plan. Any surplus resulting from this calculation is limited to the present value of any

refunds from the plans or reductions in future contributions to the plans.

3) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required

for defined benefit plans except that remeasurement is recognized in profit or loss.

t. Share-based payment arrangements

Employee share options and restricted shares for employees granted to employee and others providing

similar services are measured at the fair value of the equity instruments at the grant date. The fair value

at the grant date of the employee share options and restricted shares for employees is expensed on a

straight-line basis over the vesting period, based on the Group's best estimate of the number of the

shares or options that are expected to ultimately vest, with a corresponding increase in capital surplus

- employee share options and other equity - unearned employee benefits. It is recognized as an expense

in full at the grant date if vested immediately.

When restricted shares for employees are issued, other equity - unearned employee benefits is

recognized on the grant date, with a corresponding increase in capital surplus - restricted shares for

employees. If restricted shares for employees are granted for consideration and should be returned

once the employee resigns, they are recognized as payables. Dividends paid to employees on restricted

shares that do not need to be returned if employees resign in the vesting period are recognized as

expenses when the dividends are declared with a corresponding adjustment in retained earnings and

capital surplus - restricted shares for employees.

At the end of each reporting period, the Group revises its estimate of the number of employee share

options and restricted shares for employees expected to vest. The impact of the revision of the original

estimates is recognized in profit or loss such that the cumulative expenses reflect the revised estimate,

with a corresponding adjustment to capital surplus - employee share options and capital surplus -

restricted shares for employees.

u. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law in the ROC, an additional tax of unappropriated earnings is

provided for as income tax in the year the shareholders approve to retain earnings.

144

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax

provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and

liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred tax

assets are generally recognized for all deductible temporary differences to the extent that it is

probable that taxable profits will be available against which those deductible temporary differences

can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with

investments in subsidiaries, associates and interests in joint arrangements, except where the Group

is able to control the reversal of the temporary difference and it is probable that the temporary

difference will not reverse in the foreseeable future. Deferred tax assets arising from deductible

temporary differences associated with such investments and interests are recognized only to the

extent that it is probable that there will be sufficient taxable profits against which to utilize the

benefits of the temporary differences and they are expected to reverse in the foreseeable future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and

reduced to the extent that it is no longer probable that sufficient taxable profits will be available to

allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is also

reviewed at the end of each reporting period and recognized to the extent that it has become

probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the

period in which the liabilities are settled or the assets are realized, based on tax rates and tax laws

that have been enacted or substantively enacted by the end of the reporting period. The

measurement of deferred tax liabilities and assets reflects the tax consequences based on the manner

in which the Group expects, at the end of the reporting period, to recover or settle the carrying

amount of its assets and liabilities.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that are

recognized in other comprehensive income or directly in equity, in which case, the current and

deferred taxes are also recognized in other comprehensive income or directly in equity,

respectively. Where current tax or deferred tax arises from a business combination, the tax effect

is included in the accounting for the business combination.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

In the application of the Group’s accounting policies, management is required to make judgments,

estimations and assumptions about the carrying amounts of assets and liabilities that are not readily

apparent from other sources. The estimates and associated assumptions are based on historical experience

and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised if the revision affects only that

period or in the period of the revision and future periods if the revisions affect both current and future

periods.

145

a. Estimated impairment of trade receivables

The provision for impairment of trade receivables is based on assumptions about risk of default and

expected loss rates. The Group uses judgment in making these assumptions and in selecting the inputs

to the impairment calculation, based on the Group’s historical experience, existing market conditions

as well as forward looking estimates as of the end of each reporting period. For details of the key

assumptions and inputs used, see Note 13. Where the actual future cash flows are less than expected,

a material impairment loss may arise.

b.Write-down of inventories

The net realizable value of inventories is the estimated selling price in the ordinary course of business

less the estimated costs of completion and disposal. The estimation of net realizable value is based on

current market conditions and the historical experience with product sales of a similar nature. Changes

in market conditions may have a material impact on the estimation of net realizable value.

6. CASH AND CASH EQUIVALENTS

December 31 2018 2017 Cash on hand $ 4,515 $ 5,439 Checking accounts and demand deposits 2,728,749 4,251,592 Cash equivalents

Time deposits with maturities less than 3 months 190,693 819,380 $ 2,923,957 $ 5,076,411

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31 2018 2017 Mandatorily at FVTPL Non-derivative financial assets

Domestic listed shares $ 3,653 $ - Open-end beneficiary certificates 1,342,291 -

1,345,944 - Held for trading Derivative instruments (Note 23)

Call and put option of convertible bonds payable - 31 Non-derivative financial assets

Domestic listed shares - 8,763 - 8,794 Financial assets - current $ 1,345,944 $ 8,794 Mandatorily at FVTPL - non-current Non-derivative financial assets

Open-end beneficiary certificates $ 6,807 $ -

146

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME -

2018

December 31,

2018

Investments in equity instruments - non-current

Domestic listed ordinary shares $ 431,797

Domestic unlisted ordinary shares 182,039

Foreign unlisted ordinary shares 4,435

$ 618,271

These investments in equity instruments are not held for trading. Instead, they are held for medium to long-

term strategic purposes. Refer to Table 3 for the detailed information. Accordingly, the management elected

to designate these investments in equity instruments as at FVTOCI as they believe that recognizing short-

term fluctuations in these investments’ fair value in profit or loss would not be consistent with the Group’s

strategy of holding these investments for long-term purposes. These investments in equity instruments were

classified as available-for-sale and measured at cost under IAS 39. Refer to Note 3, Note 10 and Note 11

for information relating to their reclassification and comparative information for 2017.

9. FINANCIAL ASSETS MEASURED AT AMORTIZED COST - CURRENT - 2018

December 31,

2018

Time deposits with original maturities of more than 3 months $ 188,951

Pledge deposits (Note 36) 229,935

$ 418,886

10. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

December 31,

2017

Current

Domestic open-end beneficiary certificates $ 1,043,387

Non-current

Domestic listed shares $ 268,582

147

11. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT - 2017

December 31,

2017

Domestic unlisted ordinary shares $ 157,762

Foreign unlisted ordinary shares 25,657

Foreign open-end beneficiary certificates 10,152

$ 193,571

Classified according to financial asset measurement categories

Available-for-sale financial assets $ 193,571

The above investments were measured at cost less impairment at the balance sheet

date. Management believed the fair value of these investments could not be estimated

reliably because the range of reasonable fair value estimates was significant and the

probabilities of various estimates could not be reasonably assessed.

12. DEBT INVESTMENTS WITH NO ACTIVE MARKET - CURRENT - 2017

December 31,

2017

Time deposits with original maturities of more than 3 months $ 407,921

Pledge deposits (Note 36) 491,447

$ 899,368

13. NOTES RECEIVABLE AND TRADE RECEIVABLES

December 31

2018 2017

Gross carrying amount at amortized cost $ 4,909,282 $ 4,094,746

Less: Allowance for impairment loss (126,330) (127,707)

4,782,952 3,967,039

Gross carrying amount at amortized cost - related parties 51,818 47,702

$ 4,834,770 $ 4,014,741

In 2018

The average credit period for sales of goods is 60 to 90 days from the date when the goods were inspected

and accepted by customers, and no interest was charged on trade receivables. Before accepting any new

customer, the Group uses an external credit scoring system to assess the potential customer’s credit quality

and defines credit limits by customer. Customers’ limits and scores are reviewed irregularly every year.

Most of the trade receivables that are neither past due nor impaired have the best credit score under the

external credit scoring system used by the Group.

148

The Group applies the simplified approach to providing for expected credit losses prescribed by IFRS 9,

which permits the use of lifetime expected loss provision for all trade receivables. The expected credit

losses on trade receivables are estimated by reference to past default experience of the debtor and an

analysis of the debtor’s current financial position, adjusted for general economic conditions of the industry

in which the debtors operate. As the Group’s historical credit loss experience does not show other factors

that matter significantly, the expected credit loss rate is based on past due status of trade receivables.

The Group writes off a trade receivable when there is information indicating that the debtor is in severe

financial difficulty and there is no realistic prospect of recovery. For trade receivables that have been

written off, the Group continues to engage in enforcement activity to attempt to recover the receivables

due. Where recoveries are made, these are recognized in profit or loss.

The aging schedule of notes receivable and trade receivables based on the past due days was as follows:

December 31,

2018

Less than 60 days $ 4,365,269

61-180 days 230,296

Over 180 days 313,717

$ 4,909,282

The movements of the loss allowance of notes receivable and trade receivables were

as follows:

For the Year

Ended

December 31,

2018

Balance at January 1, 2018 per IAS 39 $ 127,707

Adjustment on initial application of IFRS 9 -

Balance at January 1, 2018 per IFRS 9 127,707

Add: Impairment loss recognized on receivables 8,899

Less: Amounts written off (10,545)

Foreign exchange gains and losses 269

Balance at December 31, 2018 $ 126,330

In 2017

The Group applied the same credit policy in 2018 and 2017. In determining the recoverability of a trade

receivable, the Group considered any change in the credit quality of the trade receivable since the date

when credit was initially granted to the end of the reporting period. Allowances for impairment loss are

based on the estimated irrecoverable amounts determined by reference to past default experience of the

counterparties and an analysis of their current financial position.

Past due but not impaired trade receivables are trade receivables balances that were past due at the end of

the reporting period but allowance for impairment loss was not recognized because their credit quality

remained satisfactory and the amounts were still considered recoverable. The Group does not hold any

collateral or other credit enhancements for these balances.

149

The aging of notes receivable and trade receivables was as follows:

December 31,

2017

Less than 60 days $ 3,333,066

61-180 days 429,499

Over 180 days 332,181

$ 4,094,746

The above aging schedule was based on the past due days from end of credit term.

The aging of notes receivable and trade receivables that were past due but not impaired was as follows:

December 31,

2017

Less than 60 days $ 447,305

61-180 days 415,515

Over 180 days 231,913

$ 1,094,733


The movements of the allowance for doubtful notes receivable and trade receivables were as follows:

Individually

Assessed for

Impairment

Collectively

Assessed for

Impairment Total

Balance at January 1, 2017 $ 135,696 $ 34,665 $ 170,361

Add: Impairment losses recognized on

receivables 2,407 41,260 43,667

Less: Amounts written off during the year as

uncollectible (83,378) (401) (83,779)

Reclassification of impairment loss from

collective assessment to individual

assessment 31,071 (31,071) -

Foreign exchange translation gains (1,017) (1,525) (2,542)

Balance at December 31, 2017 $ 84,779 $ 42,928 $ 127,707

The allowance for impairment loss assessed individually on customers in liquidation or in severe financial

difficulties amounted to $84,779 thousand as of December 31, 2017. The Group did not hold any collateral

over these balances.

150

14. CONSTRUCTION CONTRACTS RECEIVABLE (PAYABLE)

December 31,

2017

Construction contracts receivable

Construction costs incurred plus recognized profits (less recognized losses) to

date $ 316,677

Less: Progress billings (114,142)

Due from customers for construction contracts $ 202,535

Construction contracts payable

Progress billings $ 1,149,807

Less: Construction costs incurred plus recognized profits less recognized losses

to date (597,280)

Due to customers for construction contracts $ 552,527

Receipts in advance $ 10,434

The Group recognized construction contract revenue of $2,538,348 thousand in accordance with IAS 11

for the year ended December 31, 2017.

15. INVENTORIES

December 31

2018 2017

Finished goods $ 482,436 $ 482,724

Semi-finished products 381,704 390,533

Work in process 613,007 686,539

Raw materials 939,667 842,094

Inventory in transit - 29,184

$ 2,416,814 $ 2,431,074

The cost of inventories recognized as cost of goods sold for the years ended December 31, 2018 and 2017

was $6,032,195 thousand and $5,941,061 thousand, respectively. The cost of goods sold included

inventory write-downs of $22,933 thousand and the reversal of inventory write-downs of $38,384

thousand, respectively.

151

16. SUBSIDIARIES

Subsidiaries included in the consolidated financial statements:

Percentage of

Ownership as of

December 31

Investor Investee Business 2018 2017 Remark

The Corporation Neworld Electronics Ltd. Sale and maintenance of electronic test

instruments, etc.

100.0 100.0

Chroma Investment Co., Ltd. Investment 100.0 100.0

Sensational Holding Ltd. Investment 100.0 100.0

Chroma ATE Europe B.V. Sale and maintenance of electronic test

instruments, etc.

100.0 100.0

Chroma ATE Inc. (“Chroma USA”) Sale and maintenance of electronic test

instruments, etc.

100.0 100.0

Chen Hwa Technology Inc. Test of inductance, capacitance and resistance

equipment and sale of parts

100.0 100.0

CHI Incorporation Ltd. Test of inductance, capacitance and resistance

equipment and sale of parts

100.0 100.0

Chroma New Material Corporation Processing and sale of gold wire 100.0 100.0

San Eagle Development Corp. Investment 100.0 100.0

Wei Kuang Automatic Equipment Co.,

Ltd.

Design, manufacturing, installment and testing of

automated factory conveyor systems

100.0 100.0

Testar Electronics Corporation Testing of LED products 67.2 67.2

Deep Red Holding Co., Ltd. Investment 100.0 100.0

Chroma Japan Corp. Sale and maintenance of electronic test

instruments, etc.

100.0 100.0

Chroma Systems Solutions, Inc. Sale and maintenance of electronic test

instruments, etc.

25.0 25.0 Note 1

Adivic Technology Co. Sale and research of RF device 51.0 51.0 Note 2

EVT Technology Co., Ltd. Manufacturing of motorcycles and its parts 85.6 73.8 Note 3

Quantel Private Ltd. Sale and maintenance of test instruments, etc. 60.0 60.0

Innovative Nanotech Incorporated Monitoring instruments of nanoparticles 71.1 89.3 Note 4

Touch Cloud Incorporation Development of could platform and Internet of

Things systems

78.1 78.1 Note 5

Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co.,

Ltd.

Sale of computerized automatic test systems,

peripherals and electronic test instruments

100.0 100.0


Ltd.



100.0 100.0

Chroma ATE Inc. (“Chroma

USA”)

Chroma Systems Solutions, Inc. Sale and maintenance of electronic test

instruments, etc.

50.0 50.0 Note 1

Chen Hwa Technology Inc. Chroma (Shanghai) Trading Co., Ltd. International and transit trading, simple

commercial processing, commercial

consulting services, etc.

100.0 100.0

CHI Incorporation Ltd. Chroma ATE (Suzhou) Co., Ltd. Sale of computerized automatic test systems,


100.0 100.0

San Eagle Development

Corp.

Wei Kuang Mech. Eng. Inc. Investment 100.0 100.0

Wei Kuang Mech. Eng. Inc. Mou Kuan Technologies (Nanjin) Co.,

Ltd.

Assembly, sale and maintenance of factory

conveyors and related systems and rendering

after-sales services

100.0 100.0


(Nanjin) Co., Ltd.

Sale and maintenance of electronic equipment

and factory conveyor systems

100.0 100.0


(Xiamen) Co., Ltd.



100.0 100.0

Deep Red Holding Co., Ltd. Saject System Technology (Suzhou)

Co., Ltd.

Research, development and design of computer

network security systems and information

management

100.0 100.0

EVT Technology Co., Ltd. Wei Da Electric Vehicle Co., Ltd. Sale and lease of motorcycles 75.0 75.0

Adivic Technology Co. Adivic Holding Corporation Sale and research of RF device 100.0 100.0

Quantel Private Ltd. Quantel Technologies India Private

Ltd.

Sale and maintenance of test instruments, etc. 100.0 100.0 Note 6

Quantel Global Vietnam Co., Ltd. Sale and maintenance of test instruments, etc. 100.0 100.0 Note 6

Quantel Global Sdn. Bhd. Sale and maintenance of test instruments, etc. 100.0 - Note 6

Quantel Global Philippines

Corporation

Sale and maintenance of test instruments, etc. 100.0 - Note 6

Chroma ATE Europe B.V. Chroma Germany GmbH Sale and maintenance of electronic test

instruments, etc.

100.0 100.0 Note 7

Note 1: The Corporation and the Corporation’s subsidiary, Chroma USA, held 75% equity

interest in Chroma Systems Solutions, Inc.

Note 2: In April 2017, Adivic Technology Co. decreased its capital by $140,000 thousand to

make up for losses and increased its capital by cash injection of $100,000 thousand to

strengthen its financial structure. The Corporation’s board of directors resolved to

participate in the capital injection at the same percentage as originally owned. The

Corporation’s equity interest in Adivic remained the same.

152

Note 3: In December 2017, EVT Technology Co., Ltd. (“EVT”) increased its capital by cash

injection of $40,000 thousand to strengthen its financial structure. In August 2018, EVT

decreased its capital by $30,000 thousand to make up for losses and increased its capital

by $50,000 thousand subsequently. The Corporation’s board of directors participated in

the capital injection. The Corporation’s equity interest in EVT rose to 85.6% after the

cash injection.

Note 4: In response to the demand of new-generation solutions and to provide customers with

most advanced electronic test service, the Corporation’s board of directors resolved in

July 2017 to invest in Innovative Nanotech Incorporated. In December 2017 and May

2018, Innovative Nanotech Incorporated increased its capital. The Corporation

participated in the cash injection and held 71.1% equity consequently.

Note 5: To strengthen and integrate the software research capability of product lines and raise

marketing opportunities, the Corporation’s board of directors resolved to participate in

the cash injection of Touch Cloud Incorporation and acquired equity interest of 78.1%

in 2017.

Note 6: To lay out sales network in Southeast Asia, Quantel Private Ltd. resolved to set up

Quantel Technologies India Private Ltd., Quantel Global Vietnam Co., Ltd. in the fourth

quarter of 2017, Quantel Global Sdn. Bhd. and Quantel Global Philippines Corporation

in the first and second quarter of 2018, respectively, to be engaged in the sale of test

instruments.

Note 7: Chroma ATE Europe B.V. resolved to set up Chroma Germany GmbH in the fourth

quarter of 2017 to be engaged in the sale and maintenance of electronic instruments.

17. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

December 31

2018 2017

Investments in associates $ 632,045 $ 623,941

Investments in joint ventures 17,664 17,626

$ 649,709 $ 641,567

a.Investments in associates

December 31

2018 2017

Amount

Percentage

of Equity

Interest (%) Amount

Percentage

of Equity

Interest (%)

Associates that are not

individually material

Adlink Technology Inc. $ 517,852 11.3 $ 529,538 11.3

Dynascan Technology Corp. 114,193 27.3 94,403 27.3

$ 632,045 $ 623,941

153

Aggregate information of associates that are not individually material:

For the Year Ended December

31

2018 2017

The Group’s share of:

Profit from continuing operations $ 47,977 $ 49,171

Other comprehensive loss (1,531) (7,808)

Total comprehensive income for the year $ 46,446 $ 41,363

The Group is able to exercise significant influence over Adlink Technology Inc. although the

percentage of shares held is less than 20%. Therefore, the Group recognizes the gain and loss under

the equity method.

Except for Adlink Technology Inc., the investments in associates accounted for using equity method

and the share of profit or loss and other comprehensive income of those investments were calculated

based on financial statements which have been audited. Management believes there is no material

impact on the equity method accounting or the calculation of the share of profit or loss and other

comprehensive income from the financial statements of Adlink Technology Inc., which have not

been audited.

b. Investments in joint ventures

December 31 2018 2017

Amount

Percentage of Equity

Interest (%) Amount


Interest (%) Joint ventures that are not

individually material Chih Ho Shun Development

Co., Ltd. $ 17,664 35.0 $ 17,626 35.0

Aggregate information of joint ventures that are not individually material:


31 2018 2017 The Group’s share of:

Profit from continuing operations $ 38 $ 33 Other comprehensive income - - Total comprehensive income for the year $ 38 $ 33

For the investment and development plan, “The Action Plan for Developing Land Surrounding the

MRT Airport Station to Improve Civilians’ Life,” the board of directors resolved to invest jointly

with Dynapack International Corporation and Heran Co., Ltd. to set up Chih Ho Shun Development

Co., Ltd. (“Chih Ho Shun”). The Corporation invested for a 35% entity interest in Chih Ho Shun but

did not have control over this investee.

The investments in joint ventures accounted for using equity method and the share of profit or loss

and other comprehensive income of the investment for the years ended December 31, 2018 and 2017

was based on the joint ventures’ financial statements which have been audited.

154

18. PROPERTY, PLANT AND EQUIPMENT

Land Buildings Machinery

Miscellaneous

Equipment Total

Cost

Balance, January 1, 2017 $ 525,615 $ 2,534,264 $ 930,663 $ 1,485,404 $ 5,475,946

Additions - 13,622 23,430 141,826 178,878

Disposals - (32) (186,480) (80,708) (267,220)

Acquisition through business

combinations (Note 32) - - 371 751 1,122

Intercompany transfer - - 22,842 103,325 126,167

Exchange differences (5,268) (21,459) (5,928) (5,256) (37,911)

Balance, December 31, 2017 $ 520,347 $ 2,526,395 $ 784,898 $ 1,645,342 $ 5,476,982

Accumulated depreciation

Balance, January 1, 2017 $ - $ 983,743 $ 743,583 $ 1,034,493 $ 2,761,819

Depreciation - 92,412 84,455 133,372 310,239

Disposals - (29) (185,362) (64,378) (249,769)

Acquisition through business

combinations (Note 32) - - 56 182 238

Intercompany transfer - - (1,217) - (1,217)

Exchange differences - (2,698) (3,834) (2,380) (8,912)

Balance, December 31, 2017 $ - $ 1,073,428 $ 637,681 $ 1,101,289 $ 2,812,398

Carrying value at December 31, 2017 $ 520,347 $ 1,452,967 $ 147,217 $ 544,053 $ 2,664,584

Cost

Balance, January 1, 2018 $ 520,347 $ 2,526,395 $ 784,898 $ 1,645,342 $ 5,476,982

Additions - 41,136 71,384 147,796 260,316

Disposals - - (36,088) (58,788) (94,876)

Transferred from prepayments for

land and equipment 688,331 - - - 688,331

Transferred from inventories - - 12,936 86,542 99,478

Reclassification - - (323) 323 -

Exchange differences 2,550 5,526 1,722 (7,698) 2,100

Balance, December 31, 2018 $ 1,211,228 $ 2,573,057 $ 834,529 $ 1,813,517 $ 6,432,331


Balance, January 1, 2018 $ - $ 1,073,428 $ 637,681 $ 1,101,289 $ 2,812,398

Depreciation - 85,011 61,951 161,961 308,923

Disposals - - (34,428) (41,061) (75,489)


Exchange differences - 363 1,115 (4,868) (3,390)

Balance, December 31, 2018 $ - $ 1,158,802 $ 666,109 $ 1,217,531 $ 3,042,442

Carrying value at December 31, 2018 $ 1,211,228 $ 1,414,255 $ 168,420 $ 595,986 $ 3,389,889

The above items of property, plant and equipment are depreciated on a straight-line basis over their

estimated useful lives as follows:

Buildings

Primary buildings 55 years

Mechanical and electrical equipment 10 years

Clean room equipment 10 years

Others 2-50 years

Machinery 2-6 years

scellaneous equipment 13-16 years

155

Refer to Note 36 for property, plant and equipment have been pledged to secure borrowings of the Group.

19. INVESTMENT PROPERTIES

Land

Cost

January 1, 2018 $ -

Transferred from prepayments for land and equipment 3,137,187

December 31, 2018 $ 3,137,187

The Group acquired the land ownership certificates of the investment and development plan,

“The Action Plan of Developing Land Surrounding the MRT Airport Station to Improve

Civilian’s Life” in the third quarter of 2018 and transferred the parts of land held for undetermined

future use to investment properties. Please refer to Note 38. The determination of fair value was

performed by independent qualified professional valuers, and the fair value was measured by

using Level 3 inputs. The valuation was arrived at by reference to market evidence of transaction

prices for similar properties. The significant unobservable inputs used include discount rates and

the fair value as appraised.

December 31,

2018

Fair value $ 13,588,172

All of the Group’s investment properties were held under freehold interests.

20. GOODWILL


31

2018 2017

Cost

Balance, beginning of the year $ 225,408 $ 220,236

Acquisition through business combination (Note 32) - 11,737

Net effect of exchange differences 2,553 (6,565)

Balance, end of the year $ 227,961 $ 225,408

For assessing goodwill for impairment at the end of reporting period, the Group took value in use as basis

for calculating the recoverable amount of goodwill. The Group used the cash flows of a five-year financial

forecast as the basis for calculating value in use to reflect the specific risk of cash-generating units. After

this evaluation, the Group did not recognize any impairment loss on goodwill for the years ended

December 31, 2018 and 2017.

156

21. OTHER INTANGIBLE ASSETS

Patents

Licenses and

Franchises

Core

Technology

Customer

Relationships

Computer

Software Total

Cost

Balance, January 1, 2017 $ - $ - $ 317,931 $ 5,592 $ - $ 323,523

Additions 16,088

- 32,662

- -

- -

- 162

- 48,912

Exchange differences - - - - 2 2

Balance, December 31,

2017 $ 16,088 $ 32,662 $ 317,931 $ 5,592 $ 164 $ 372,437

Accumulated amortization

Balance, January 1, 2017 $ - $ - $ 315,417 $ 839 $ - $ 316,256

Amortization expenses 268 136 2,011 1,118 19 3,552

Exchange differences - - - - 1 1


2017 $ 268 $ 136 $ 317,428 $ 1,957 $ 20 $ 319,809

Carrying value at

December 31, 2017 $ 15,820 $ 32,526 $ 503 $ 3,635 $ 144 $ 52,628

Cost

Balance, January 1, 2018 $ 16,088 $ 32,662 $ 317,931 $ 5,592 $ 164 $ 372,437

Disposals - - (317,931) - - (317,931)

Exchange differences - - - - (3) (3)


2018 $ 16,088 $ 32,662 $ - $ 5,592 $ 161 $ 54,503

Accumulated amortization

Balance, January 1, 2018 $ 268 $ 136 $ 317,428 $ 1,957 $ 20 $ 319,809

Amortization expenses 3,218 1,633 503 1,118 19 6,491

Disposals - - (317,931) - - (317,931)


2018 $ 3,486 $ 1,769 $ - $ 3,075 $ 39 $ 8,369

Carrying value at

December 31, 2018 $ 12,602 $ 30,893 $ - $ 2,517 $ 122 $ 46,134

The Group signed an agreement with Industrial Technology Research Institute in 2017 and obtained

technique licenses and patents.

Other intangible assets were amortized on a straight-line basis over their estimated useful lives as follows:

Patents 5 years

Licenses and franchises 20 years

Core technology 5 years

Customer relationships 5 years

Computer software 10 years

157

22. BORROWINGS

a.Short-term borrowings

December 31

2018 2017

Unsecured borrowings

Bank loans $ 807,348 $ 471,638

As of December 31, 2018 and 2017, the interest rate on the bank loans was 0.86%-5.50% and 0.85%-

4.50% per annum, respectively.

b.Long-term borrowings

December 31

2018 2017

Secured borrowings

Bank loans (1) (Note 36) $ 467,261 $ 177,735


Syndicated bank loans (2) - 1,200,000

Bank loans (3) 1,500,000 900,000

1,967,261 2,277,735

Less: Current portions 13,240 1,216,042

Long-term borrowings $ 1,954,021 $ 1,061,693

1) Secured by the Group’s financial assets amortized at cost, debt investments with no active market

and property, plant and equipment. The final repayment period of those bank loans will be due in

March 2023 to November 2025. As of December 31, 2018 and 2017, the effective interest rate on

the bank loans were 1.17%-5.75% and 0.90%-8.88% per annum, respectively.

2) On August 30, 2012, the Group applied to E.SUN and other banks for syndicated bank loans with

$2,000,000 thousand credit line to pay each installment of “The Action Plan for Developing Land

Surrounding the MRT Airport Station to Improve Civilians Life” (refer to Note 38). The

syndicated bank loan had been repaid from March 2017 to March 2018 in three equal semiannual

installments ($400,000 thousand per installment), the remaining $800,000 thousand had been

repaid in September 2018. As of December 31, 2017, the interest rate per annum was 1.58% on a

floating basis and the interest is paid monthly.

3) The bank loans are for the purpose of general operation with due date on June 8, 2023. As of

December 31, 2018 and 2017, the interest rates on the bank loans were 1.08%-1.20% and 1.17%-

1.20% per annum, respectively.

158

23. BONDS PAYABLE

December 31,

2017

Unsecured domestic convertible bonds $ 99,703

On May 23, 2014, the Corporation issued its second domestic unsecured 0% convertible bonds with

aggregate par value of $2,000,000 thousand and face value of $100 thousand. These bonds were listed on

the Taipei Exchange at the same date. Except for the period when books are closed for share transaction,

bondholders are entitled to convert bonds into the Corporation’s common stock from June 24, 2014 to

May 13, 2019. The conversion price would be adjusted when earning distribution of cash dividends was

resolved by shareholders’ meeting. The unsecured domestic convertible bonds had been completely

converted into the Corporation’s common stock in the fourth quarter of 2018.

24. OTHER PAYABLES

December 31

2018 2017

Salaries and bonus (including employee’s compensation and

remuneration of directors) $ 915,728 $ 872,526

Others 343,248 293,927

$ 1,258,976 $ 1,166,453

25. RETIREMENT BENEFIT PLANS

a.Defined contribution plans

The Corporation and its subsidiaries in the ROC adopted a pension plan under the Labor Pension Act

(the “LPA”), which is a state-managed defined contribution plan. Under the LPA, an entity makes

monthly contributions to employees’ individual pension accounts at 6% of monthly salaries and wages.

Employees of the Group’s subsidiaries in the People’s Republic of China, USA, Europe, Singapore,

Japan and branches in Korea are under the retirement benefit plans operated by their respective local

governments. Subsidiaries have to contribute amounts at certain percentages of salaries to the retirement

benefit plans to fund the benefits. The only obligation of the Group with respect to the retirement benefit

plan is to make the specified contributions.

b.Defined benefit plans

The defined benefit plans adopted by the Corporation and its subsidiaries, Chroma New Material Corp.

and Adivic Technology Co. in accordance with the Labor Standard Law is operated by the government

of the ROC. Pension benefits are calculated on the basis of length of service and average monthly

salaries of the 6 months before retirement. The Corporation and its subsidiaries mentioned above

contribute amount equal to 4% of total monthly salaries and wages to a pension fund administered by

the pension fund monitoring committee. Pension contributions are deposited in the Bank of Taiwan in

the committee’s name. Before the end of year, the Corporation and its subsidiaries assess the balance in

the pension fund. If the amount of the balance in the pension fund is inadequate to pay retirement benefits

for employees who conform to retirement requirements in the next year, the Corporation and its

subsidiaries are required to fund the difference in one appropriation that should be made before the end

of March of the next year. The pension fund is managed by the Bureau of Labor Funds, Ministry of

Labor (“the Bureau”); the Group has no right to influence the investment policy and strategy.

159

The amounts included in the consolidated balance sheets in respect of the Group’s defined benefit

plans were as follows:

December 31

2018 2017

Present value of defined benefit obligation $ 470,802 $ 459,640

Fair value of plan assets (310,748) (293,814)

Net defined benefit liabilities $ 160,054 $ 165,826

Movements in net defined benefit liabilities were as follows:

Present Value

of the Defined

Benefit

Obligation

Fair Value of

the Plan

Assets

Net Defined

Benefit

Liabilities

Balance at January 1, 2017 $ 443,230 $(274,964) $ 168,266

Current service cost 4,185 - 4,185

Net interest expense (income) 6,102 (3,885) 2,217

Recognized in profit or loss 10,287 (3,885) 6,402

Remeasurement

Return on plan assets (excluding

amounts included in net interest) - 1,166 1,166

Actuarial loss - changes in demographic

assumptions 3,625 - 3,625

Actuarial loss - changes in financial

assumptions (5) - (5)

Actuarial loss - experience adjustments 2,503 - 2,503

Recognized in other comprehensive

income 6,123 1,166 7,289

Contributions from the employer - (16,131) (16,131)

Balance at December 31, 2017 459,640 (293,814) 165,826

Current service cost 4,030 - 4,030

Net interest expense (income) 6,325 (4,149) 2,176

Recognized in profit or loss 10,355 (4,149) 6,206

Remeasurement

Return on plan assets (excluding

amounts included in net interest) - (7,472) (7,472)

Actuarial loss - changes in demographic

assumptions 442 - 442

Actuarial loss - changes in financial

assumptions 7,047 - 7,047

Actuarial loss - experience adjustments 4,777 - 4,777


income 12,266 (7,472) 4,794

Contributions from employer - (16,772) (16,772)

Benefits paid (11,459) 11,459 -

Balance at December 31, 2018 $ 470,802 $(310,748) $ 160,054

160

Through the defined benefit plans under the Labor Standards Law, the Group is exposed to the

following risks:

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,

bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the

mandated management. However, in accordance with relevant regulations, the return generated

by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of

the defined benefit obligation; however, this will be partially offset by an increase in the return

on the plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the

future salaries of plan participants. As such, an increase in the salary of the plan participants will

increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by

qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were

as follows:

December 31

2018 2017

Discount rate(s) 0.88%-1.38% 0.88%-1.63%

Expected rate(s) of salary increase 1.50%-2.50% 1.50%-2.50%

If possible reasonable changes in each of the significant actuarial assumptions will occur

and all other assumptions will remain constant, the present value of the defined benefit

obligation would increase (decrease) as follows:

December 31

2018 2017

Discount rate(s)

0.25% increase $(13,988) $(14,066)

0.25% decrease $ 14,593 $ 14,697

Expected rate(s) of salary increase

0.25% increase $ 14,173 $ 14,293

0.25% decrease $(13,659) $(13,752)

The sensitivity analysis presented above may not be representative of the actual changes in the

present value of the defined benefit obligation as it is unlikely that the changes in assumptions would

occur in isolation of one another as some of the assumptions may be correlated.

December 31

2018 2017

Expected contributions to the plan for the next year $ 16,615 $ 16,338

Average duration of the defined benefit obligation 12.7 years 13.5 years

161

26. EQUITY

a. Ordinary share capital

December 31 2018 2017 Number of shares authorized (in thousands) 450,000 450,000 Shares authorized $ 4,500,000 $ 4,500,000 Number of shares issued and fully paid (in thousands) 416,779 411,894 Shares issued $ 4,167,794 $ 4,118,942

The authorized shares include 30,000 thousand shares allocated for the exercise of employee share options.

b. Capital surplus

December 31 2018 2017 May be used to offset a deficit, distributed as cash

dividends, or transferred to share capital (Note) Additional paid-in capital $ 2,860,255 $ 2,514,454 Treasury share transactions 179,801 171,229 Consolidation excess 146,976 146,976 May be used to offset a deficit only Employee share options expired 12,421 5,874 Share of changes in capital surplus of associates or joint

ventures 44,110 44,377 May not be used for any purpose Convertible bonds options - 7,209 Employee share options 87,000 116,389 Employee restricted shares 139,074 180,781 $ 3,469,637 $ 3,187,289

Note: Such capital surplus may be used to offset a deficit; in addition, when the Corporation

has no deficit, such capital surplus may be distributed as cash dividends or transferred

to share capital (limited to a certain percentage of the Corporation’s capital surplus

and once a year).

c. Retained earnings and dividend policy

Under the dividend policy as set forth in the Corporation’s Articles of Incorporation (the “Articles”),

where the Corporation made profit in a fiscal year, the profit shall be first utilized for paying taxes,

offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting

aside or reversing special reserve in accordance with the laws and regulations, and then any remaining

profit together with any undistributed retained earnings shall be used by the Corporation’s board of

directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’

meeting for distribution of dividends and bonus to shareholders. For the policies on distribution of

employees’ compensation and remuneration to directors, please refer to d. employees’ compensation

and remuneration of directors in Note 28.

162

Taking into account future capital expenditure requirements and its cash position, the total of cash

dividends paid in any given year may not be less than 20% of total dividends distributed in that year.

The final amount, type and percentage of the cash dividends and stock dividends are subject to actual

earnings and capital requirements of the Corporation in a particular year.

An appropriation of earnings to a legal reserve shall be made until the legal reserve equals the

Corporation’s paid-in capital. The legal reserve may be used to offset deficits. If the Corporation has

no deficits and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may

be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and in the

directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of

IFRSs” should be appropriated to or reversed from a special reserve by the Corporation.

The appropriations of earnings for 2017 and 2016 have been approved in the annual shareholders’

meeting on June 8, 2018 and 2017, respectively, were as follows:

Appropriation of Earnings Dividend Per Share (NT$)

For Fiscal

Year 2017

For Fiscal

Year 2016

For Fiscal

Year 2017

For Fiscal

Year 2016

Legal reserve $ 255,841 $ 171,994

Cash dividends 1,854,424 1,314,425 $ 4.5 $ 3.3

The appropriations of earnings for 2018 had been proposed by the Corporation’s board of directors on

February 21, 2019. The appropriations and dividends per share were as follows:

Appropriation

of Earnings

Dividends Per

Share (NT$)

Legal reserve $ 254,628

Cash dividends 1,750,896 $4.2

The appropriations of earnings for 2018 are subject to the resolution in the shareholders’ meeting to

be held on June 18, 2019.

d. Special reserves

If a special reserve appropriated on the first-time adoption of IFRSs relates to exchange differences on

translation of the financial statements of foreign operations (including the subsidiaries of the

Corporation), the special reserve will be reversed on a proportionate basis according to the

Corporation’s disposal of foreign operations; on the Corporation’s loss of significant influence,

however, the entire special reserve will be reversed. Additional special reserve should be appropriated

for the amount equal to the difference between net debit balance reserves and the special reserve

appropriated on the first-time adoption of IFRSs. Any special reserve appropriated may be reversed to

the extent that the net debit balance reverses and, thereafter, distributed.

163

e. Other equity items

Exchange

Differences on

Translating

Foreign

Operations

Unrealized Gain

(Loss) on

Financial Assets

at FVTOCI

Unrealized Gain

(Loss) on

Available-for-

sale Financial

Assets

Unearned

Employee

Benefit

For the year ended December 31, 2018

Balance at January 1, 2018 (IAS 39) $ (97,633) $ - $ 179,348 $ (93,849)

Effect of retrospective application of IFRS 9 - 151,864 (179,348) -

Balance at January 1, 2018 (IFRS 9) (97,633) 151,864 - (93,849)

Exchange differences on translating

foreign operations (6,229) - - -

Unrealized gain (loss) arising from equity

investment - 12,847 - -

Share of other comprehensive gain (loss)

of associates and joint ventures

accounted for using equity method (1,010) 23 - -

Disposal of investments in equity

instruments designated as at FVTOCI - (4,241) - -

Share-based payment transaction - - - 51,472

Balance at December 31, 2018 $ (104,872) $ 160,493 $ - $ (42,377)


Balance at January 1, 2017 $ (24,914) $ - $ 232,901 $ (149,952)



Unrealized gain (loss) on available-for-sale

financial assets - - (53,553) -


of associates and joint ventures

accounted for using equity method (8,059) - - -

Issuance of shares - - - (13,772)


Balance at December 31, 2017 $ (97,633) $ - $ 179,348 $ (93,849)

f. Non-controlling interests


31

2018 2017

Balance, beginning of the year $ 232,150 $ 171,224

Share of non-controlling interests

Net profit (loss) 904 (9,578)

Exchange difference on translating the financial

statements of foreign entities 3,194 (4,958)

Remeasurement on defined benefit plans (16) (83)

Unrealized gain on available-for-sale financial assets - 40

Capital increase of subsidiaries 49,669 68,756

Non-controlling interests arising from acquisition of

subsidiaries (Note 32) - 12,701

Changes in percentage of ownership interest in subsidiaries 2,107 -

Subsidiaries cash dividend (7,679) (5,952)

Balance, end of the year $ 280,329 $ 232,150

164

g. Treasury shares

The Corporation’s shares held by its subsidiaries at the end of the reporting periods were as follows:

Subsidiaries

Number of

Shares Held

(In Thousand

Shares)

Carrying

Amount Market Price

December 31, 2018

Chroma Investment Co., Ltd. 1,916 $ 35,714 $ 226,038

December 31, 2017


Forfeited employee restricted shares of 84 thousand were returned to the Corporation and canceled

during 2018. Forfeited employee restricted shares of 12 thousand were returned to the Corporation and

canceled during 2017.

Under the Securities and Exchange Act, the Corporation shall neither pledge treasury shares nor

exercise shareholders’ rights on these shares, such as the rights to dividends and to vote. The

subsidiaries holding treasury shares, however, retain shareholders’ rights, except the rights to

participate in any share issuance for cash and to vote.

27. REVENUE


31 2018 2017 Revenue from contracts with customers

Revenue from sale of goods $ 11,733,130 $ 11,989,444 Construction contract revenue 4,862,323 2,538,348 Other revenue 335,675 373,554

$ 16,931,128 $ 14,901,346

a. Contract balances

December 31,

2018 Contract assets - construction contract $ 845,164 Contract liabilities -construction contract $ 645,135 Contract liabilities - sale of goods 243,198 $ 888,333

The changes in the balance of contract liabilities primarily result from the timing difference between

the Group’s performance and the respective customer’s payment. Revenue of the reporting period

recognized from the beginning contract liabilities is $564,062 thousand.

165

b.Disaggregation of revenue

Refer to Note 41 for the information on disaggregation of revenue.

28. ADDITIONAL INFORMATION ON EXPENSES

a.Finance costs


31 2018 2017 Interest on borrowings $ 40,442 $ 40,313 Interest on convertible bonds 935 6,764 41,377 47,077 Less: Amount included in the cost of qualifying assets (9,609) (24,295) $ 31,768 $ 22,782 Capitalized interest $ 9,609 $ 24,295 Capitalization rate 1.58% 1.58%

b.Depreciation and amortization


31 2018 2017 An analysis of depreciation by function

Operating costs $ 75,359 $ 95,716 Operating expenses 233,564 214,523

$ 308,923 $ 310,239 An analysis of amortization by function

Operating expenses $ 6,491 $ 3,552 c.Employee benefits expense


31 2018 2017 Short-term benefits $ 3,386,786 $ 3,079,813 Share-based payments 78,596 121,593 Post-employment benefits

Defined contribution plans 93,653 77,504 Defined benefit plans (Note 25) 6,206 6,402

Other employee benefits 70,500 64,457

$ 3,635,741 $ 3,349,769 An analysis of employee benefits expense by function

Operating costs $ 630,029 $ 594,855 Operating expenses 3,005,712 2,754,914

$ 3,635,741 $ 3,349,769

166

d. Employees’ compensation and remuneration of directors

According to the Article of Incorporation of the Corporation, the Corporation accrued employees’

compensation and remuneration of directors at the rates of 5%-20% and no higher than 1.5%,

respectively, of net profit before income tax, employees’ compensation, and remuneration of

directors. The employees’ compensation and remuneration of directors for the years ended December

31, 2018 and 2017, which have been approved by the Corporation’s board of directors on February

21, 2019 and February 22, 2018, respectively, were as follows:

For the Year Ended December 31

2018 2017

Amount Rate % Amount Rate %

Employees’ compensation $ 240,000 7.55 $ 310,000 9.73

Remuneration of directors 9,600 0.30 9,600 0.30

If there is a change in the amounts after the annual consolidated financial statements were authorized

for issue, the differences are recorded as a change in accounting estimate.

There is no difference between the actual amounts of the employees’ compensation and remuneration

of directors paid and the amounts recognized in the consolidated financial statements for the years

ended December 31, 2018 and 2017.

Information on the employees’ compensation and remuneration of directors resolved by the

Corporation’s board of directors in 2019 and 2018 is available at the Market Observation Post System

website of the Taiwan Stock Exchange.

29. INCOME TAXES

a. Major components of income tax expense recognized in profit or loss


31

2018 2017

Current tax

In respect of the current year $ 605,469 $ 485,085

Income tax on unappropriated earnings 45,612 20,687

Adjustments for prior years 8,685 (34,220)

659,766 471,552

Deferred tax

In respect of the current year 73,527 101,692

Adjustments to deferred tax attributable to changes in tax

rates and law 27,618 -

101,145 101,692

Income tax expense recognized in profit or loss $ 760,911 $ 573,244

167

A reconciliation of accounting profit and income tax expense is as follows:


31

2018 2017

Profit before tax $ 3,308,090 $ 3,122,067 Income tax expense calculated at the statutory rate $ 953,833 $ 776,015 Adjustment items in determining taxable income

Tax-exempt income (191,423) (118,652) Others 16,333 (28,509)

Income tax on unappropriated earnings 45,612 20,687 Unrecognized investment credits (101,193) (67,191) Others credits 1,345 - Temporary differences (452) 25,114 Additional income tax under the Alternative Minimum

Tax Act 553 - Effect of tax rate changes 27,618 -

Adjustments for prior years’ tax 8,685 (34,220) Income tax expense recognized in profit or loss $ 760,911 $ 573,244

In 2017, the applicable corporate income tax rate used by the group entities in the ROC is 17%.

However, the Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate

was adjusted from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax

applicable to the 2018 unappropriated earnings will be reduced from 10% to 5%. The applicable tax

rate used by subsidiaries in China is 25%. Tax rates used by other group entities operating in other

jurisdictions are based on the tax laws in those jurisdictions.

As the status of 2019 appropriations of earnings is uncertain, the potential income tax consequences

of the 2018 unappropriated earnings are not reliably determinable.

b.Deferred tax assets and liabilities


Deferred Tax Assets

Opening

Balance

Recognized

in Profit or

Loss

Exchange

Differences

and Other

Closing

Balance

Unrealized intercompany

gain $ 92,296 $ 18,458 $ - $ 110,754 Tax losses 39,636 4,638 991 45,265 Inventory reserve 33,561 10,124 - 43,685 Tax credit 18,757 5,434 702 24,893 Allowance for impaired

receivables 9,562 1,569 18 11,149 Net defined benefit liability 8,991 (545) - 8,446 Unrealized exchange loss 5,302 (5,277) - 25 Others 2,838 4,083 (988) 5,933 Impairment loss 19,465 (19,465) - - $ 230,408 $ 19,019 $ 723 $ 250,150

168

Deferred Tax Liabilities

Opening

Balance

Recognized

in Profit or

Loss

Exchange

Differences

and Other

Closing

Balance

Unappropriated earnings of

foreign subsidiaries $ 272,636 $ 109,122 $ - $ 381,758

Goodwill 21,593 7,455 19 29,067

Unrealized exchange gain 219 8,122 - 8,341

Others 9,374 (4,535) 556 5,395

$ 303,822 $ 120,164 $ 575 $ 424,561


Deferred Tax Assets

Opening

Balance

Recognized

in Profit or

Loss

Exchange

Differences

and Other

Closing

Balance

Unrealized intercompany

gain $ 70,420 $ 21,876 $ - $ 92,296

Tax losses 61,207 (18,065) (3,506) 39,636

Inventory reserve 33,321 240 - 33,561

Impairment loss 16,030 3,435 - 19,465

Tax credit 16,263 3,834 (1,340) 18,757

Allowance for impaired

receivables 3,402 6,190 (30) 9,562

Net defined benefit liability 9,000 (9) - 8,991

Unrealized exchange loss 4,367 935 - 5,302

Others 6,054 (2,828) (388) 2,838

$ 220,064 $ 15,608 $ (5,264) $ 230,408

Deferred Tax Liabilities

Opening

Balance

Recognized

in Profit or

Loss

Exchange

Differences

and Other

Closing

Balance

Unappropriated earnings of

foreign subsidiaries $ 161,194 $ 111,442 $ - $ 272,636

Goodwill 15,959 5,634 - 21,593

Unrealized exchange gain 945 (726) - 219

Others 9,072 950 (648) 9,374

$ 187,170 $ 117,300 $ (648) $ 303,822

169

c. Deductible temporary differences and unused loss carryforwards for which no deferred tax assets have

been recognized in the consolidated balance sheets

December 31

2018 2017

Loss carryforwards

Expiry in 2018 $ - $ 33,277

Expiry in 2019 49,907 57,397

Expiry in 2020 44,523 49,826

Expiry in 2021 71,191 68,584

Expiry in 2022 109,666 109,443

Expiry after 2023 411,678 377,850

$ 686,965 $ 696,377

Deductible temporary differences $ 3,502 $ 287

d. Information about unused investment credits, unused loss carryforwards and tax-exemptions

Loss carryforwards as of December 31, 2018 were as follows:

Unused

Amount Expiry Year

$ 54,458 2019

49,826 2020

75,788 2021

110,060 2022

71,740 2023

64,217 2024

97,853 2025

90,790 2026

70,727 2027

57,934 2028

58,755 2033

26,173 2034

17,180 2036

59,703 2038

$ 905,204

e. Income tax assessments

As of December 31, 2018, the Corporation’s tax returns through 2016 had been assessed by the tax

authorities.

The tax returns through 2016 of the Corporation’s subsidiary - Chroma New Material Corp., Wei

Kuang Automatic Equipment Co., Adivic Technology Co., Chroma Investment Co., Testar Electronics

Corp., EVT Technology Co., and Wei Da Electric Vehicle Co. had been assessed by the tax authorities.

170

30. EARNINGS PER SHARE

The earnings and weighted average number of ordinary shares outstanding used in the computation of

earnings per share are as follows:

Net Profit for the Year


31 2018 2017 Earnings used in the computation of basic earnings per share $ 2,546,275 $ 2,558,401 Effect of potentially dilutive ordinary shares:

Interest on convertible bonds and valuation gain on conversion option 966 7,459

Earnings used in the computation of diluted earnings per share $ 2,547,241 $ 2,565,860

Shares

(In Thousands of Shares)


31 2018 2017 Weighted average number of ordinary shares used in the

computation of basic earnings per share 409,438 399,052 Effect of potentially dilutive ordinary shares:

Convertible bonds 961 6,864 Employee share options 4,395 5,037 Employees’ compensation 2,313 2,392 Employee restricted shares 1,882 2,057

Weighted average number of ordinary shares used in the

computation of diluted earnings per share 418,989 415,402

If the Group offered to settle compensation paid to employees in cash or shares, the Group assumed the

entire amount of the compensation would be settled in shares and the resulting potential shares were

included in the weighted average number of shares outstanding used in the computation of diluted

earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included in the

computation of diluted earnings per share until the number of shares to be distributed to employees is

resolved in the following year.

31. SHARE-BASED PAYMENT ARRANGEMENTS

a.Employee share option plan of the Corporation

The Corporation granted employee stock options 7,900 thousand units in March 2016 and 6,000

thousand units in July 2013, respectively, with each option eligible to subscribe for one common share

of the Corporation when exercised. The options are valid for 6 years and exercisable at certain

percentages subsequent to the second year of the grant date.

171

Information on employee share options was as follows:


2018 2017

Number of Options

(In Thousands)

Weighted-

average Exercise

Price (NT$)

Number of Options

(In Thousands)

Weighted-

average Exercise

Price (NT$)

Balance at January 1 9,463 $ 60.1 11,538 $ 60.2 Options exercised (3,354) 58.4 (1,683) 47.0 Options forfeited (103) - (392) - Balance at December 31 6,006 59.0 9,463 60.1 Options exercisable, end of the year 1,532 1,914

Information on outstanding options as of December 31, 2018 and 2017 is as follows:

December 31

2018 2017

Range of Exercise Price (NT$)

Weighted-average Remained

Contractual Life (Years)

Range of Exercise Price (NT$)

Weighted-average Remained

Contractual Life (Years)

$45.4 0.52 $46.7 1.52 61.6 3.24 63.4 4.24

Compensation costs recognized were $29,810 thousand and $51,802 thousand for the years ended

December 31, 2018 and 2017, respectively.

b. Employee share option plan of subsidiaries

Adivic Technology Co. granted its employees share options of 1,360 thousand units in 2014, with each

option eligible to subscribe for one common share of Adivic Technology Co. when exercised. The

options are valid for 8 years and exercisable at certain percentages subsequent to the second year of the

grant date.

Information on employee share options was as follows:

For the Year Ended December 31 2018 2017

Number of Options (In Thousands)

Weighted-

average Exercise

Price (NT$)

Number of Options (In Thousands)

Weighted-

average Exercise

Price (NT$)

Balance at January 1 785 $ 10.0 785 $ 10.0 Options forfeited - - - - Balance at December 31 785 10.0 785 10.0 Options exercisable, end of the

period - -

172


December 31

2018 2017

Range of Exercise

Price (NT$)

Weighted-average

Remained

Contractual Life

(Years)

Range of Exercise

Price (NT$)

Weighted-average

Remained

Contractual Life

(Years)

$10 3.20 $10 4.20

No compensation costs were recognized for the years ended December 31, 2018 and 2017.

c. Restricted shares for employees

In the shareholders’ meeting on June 7, 2016, the shareholders approved a Restricted Share Unit Plan

(“RSU” Plan) for employees with a total amount of $36,000 thousand, consisting of 3,600 thousand

shares with issuance price of $10 dollars per share. It can be issued at one time or several times

depending on the circumstance. The RSU Plan is approved under Rule No. 1050024381 issued by the

FSC on June 27, 2016. The Corporation issued 3,100 thousand and 185 thousand shares on July 8,

2016 and June 20, 2017, the subscription date. The details of RSU Plan are as follows:

1) Employees who are granted RSUs, upon meeting the Corporation’s financial performance and

personal performance indicators, are eligible to be vested 10, 20, 30 and 40 percent of the RSUs

granted after 1, 2, 3 and 4 years of tenure after the subscription date, respectively.

2) The restrictions on the rights of the employees who are granted RSUs but have not met the vesting

conditions are as follows:

a) The employees are not eligible to sell, pledge, transfer, donate or to dispose any RSUs in any

form.

b) The employees holding RSUs are entitled to receive dividends and similar purchasing rights

to ordinary shares during capital increase. Dividends from RSUs are not restricted during the

vesting period and are appropriated to the employees’ personal account from trust account

after the dividend distribution date.

c) Before the restricted shares are vested to the employees, the right of attendance, proposal,

speech, voting and other rights of shareholders are acted by the custodian.

d) The RSUs should be delivered to trust custodians upon grant date. The employees cannot

request for return in any manner before vesting conditions are met.

3) If an employee fails to meet the vesting conditions, the Corporation will recall or buy back and

cancel the restricted shares at issued price. If an employee voluntarily resigns, retires, disabled or

decease due to occupational hazards, dismissed, be transferred to another post, violates labor

contracts or working protocols substantially or abandons restricted shares, related guidelines of

RSU Plan will be followed accordingly.

173

Information relating to outstanding employee restricted shares as of December 31, 2018 and 2017

was as follows:


31

2018 2017

Restricted shares at the beginning of the year 2,975 3,100

Shares granted - 185

Shares vested (618) (298)

Shares canceled (84) (12)

Restricted shares at the end of the year 2,273 2,975

Compensations costs of share-based payment arising from the RSU Plan were $48,786 thousand

and $69,791 thousand (including deduction of 2,686 and 84 thousand for canceled shares) for the

years ended December 31, 2018 and 2017, respectively.

32. BUSINESS COMBINATIONS

a. Subsidiaries acquired

The Group bought 78.1% of equity interest in and acquired control of Touch Cloud Incorporation

(“Touch Cloud”) in 2017. The subsidiary is included in the consolidated financial statements since the

date the Group acquired control.

b. Assets acquired and liabilities assumed at the date of acquisition

Touch Cloud

Incorporation

Current assets

Cash and cash equivalents $ 60,514

Trade receivables 790

Prepayments 339

Other current assets 30

Non-current assets

Property, plant and equipment, net 884

Refundable deposits 175

Other non-current assets 1

Current liabilities

Trade payables (290)

Notes payable (443)

Other payables (20)

Other current liabilities (4,016)

$ 57,964

174

c. Goodwill recognized on acquisitions

Touch Cloud

Incorporation

Consideration transferred $ 57,000

Plus: Non-controlling interests 12,701

Less: Fair value of identifiable net assets acquired (57,964)

Goodwill recognized on acquisitions $ 11,737

d. Net cash inflow on the acquisition of subsidiaries

Touch Cloud

Incorporation

Consideration paid in cash $(57,000)

Less: Cash and cash equivalent balances acquired 60,514

$ 3,514

e. Impact of acquisitions on the results of the Group

The results of the acquirees since the acquisition date included in the consolidated statements of

comprehensive income are as follows:

Touch Cloud

Incorporation

Revenue $ 1,121

Net loss $ (2,123)

Had these business combinations been in effect at the beginning of the annual reporting period, the

Group’s revenue would have been $14,906,187 thousand, and the profit would have been $2,542,377

thousand for the year ended December 31, 2018. This pro-forma information is for illustrative purposes

only and is not necessarily an indication of the revenue and results of operations of the Group that

actually would have been achieved had the acquisition been completed on January 1, 2018, nor is it

intended to be a projection of future results.

33. CAPITAL MANAGEMENT

The Group manages its capital to ensure that entities in the Group will be able to continue as going

concerns while maximizing the return to shareholders through the optimization of the debt and equity

balance. The Group’s capital management aims to maintain the sufficiency of financial resources and the

soundness of operating strategies to meet the needs for operating capital, capital expenditure, R & D

expenses, debt handling, dividend disbursement, etc.

175

34. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments not measured at fair value

Management believes the carrying amounts of financial assets and financial liabilities recognized in

the consolidated financial statements approximates their fair values or their fair value could not be

assessed reliably.

b. Fair value of financial instruments measured at fair value on a recurring basis

1) Fair value hierarchy

Level 1 Level 2 Level 3 Total

December 31, 2018 Financial assets at FVTPL

Domestic listed equity

securities $ 3,653 $ - $ - $ 3,653

Open-end beneficiary

certificates 1,342,291 - 6,807 1,349,098

$ 1,345,944 $ - $ 6,807 $ 1,352,751

Financial assets at FVTOCI


securities $ 431,797 $ - $ - $ 431,797


securities - - 182,039 182,039

Foreign unlisted equity

securities - - 4,435 4,435

$ 431,797 $ - $ 186,474 $ 618,271

December 31, 2017

Financial assets at FVTPL

Derivative instruments $ - $ 31 $ - $ 31


securities 8,763 - - 8,763

$ 8,763 $ 31 $ - $ 8,794

Available-for-sale financial

assets


securities $ 268,582 $ - $ - $ 268,582


certificates 1,043,387 - - 1,043,387

$ 1,311,969 $ - $ - $ 1,311,969

There were no transfers between Levels 1 and 2 for the years ended December 31, 2018 and 2017.

176

2) Reconciliation of Level 3 fair value measurements of financial instruments


Financial Assets at FVTPL

Financial Assets at FVTOCI

Financial Assets Equity

Instruments Equity

Instruments Total Balance at January 1, 2018 $ 6,013 $ 295,449 $ 301,462 Recognized in profit or loss (included

in valuation gains and losses) 794 - 794 Recognized in other comprehensive

income (included in unrealized gain (loss) on financial assets at FVTOCI) - (15,269) (15,269)

Purchases - 67,800 67,800 Cash returned of capital reduction - (5,262) (5,262) Transfers out of Level 3 - (156,244) (156,244) Balance at December 31, 2018 $ 6,807 $ 186,474 $ 193,281

3) Valuation techniques and inputs applied for Level 2 fair value measurement

Financial Instruments Valuation Techniques and Inputs

Derivatives - convertible

bonds

Binomial tree valuation model of convertible bonds: The

fair value of the derivative financial assets embedded in

convertible bonds was determined based on the

observable closing price of the stocks at balance sheet

date and risk-free interest rate with risk premium.


The fair values of domestic unlisted equity securities and open-end beneficiary certificates are

determined by using the asset approach and the market approach. Asset approach evaluates the total

market value of individual asset and liability of the evaluated target, taking into account the risk

factors (lack of marketability, etc.) to estimate the fair value. Market approach refers to the

transaction prices in active market of the listed companies engaging in similar business, related

price multiplier, transaction and information implied by the transaction price, to arrive at the fair

value.

c. Categories of financial instruments

December 31

2018 2017

Financial assets


Held for trading $ - $ 8,794

Mandatorily at FVTPL 1,352,751 -

Loans and receivables (1) - 10,150,213

Available-for-sale financial assets (2) - 1,505,540

(Continued)

177

December 31

2018 2017

Financial assets at amortized cost (3) $ 8,882,741 $ -


Equity instruments 618,271 -

Financial liabilities

Financial liabilities at amortized cost (4) 6,595,112 6,946,853

(Concluded)

1) The balances included loans and receivables measured at amortized cost, which comprise cash

and cash equivalents, debt investments with no active market, notes receivable, trade receivables,

other receivables (classified as other current assets) and refundable deposits.

2) The balances included the carrying amount of available-for-sale financial assets measured at cost.

3) The balances include financial assets measured at amortized cost, which comprise cash and cash

equivalents, financial assets measured at amortized cost, notes receivable, trade receivables, other

receivables (classified as other current assets) and refundable deposits.

4) The balances included financial liabilities measured at amortized cost, which comprise short-term

loans, notes payable, trade payables, other payables, bonds issued, long-term loans (including

current portion of long-term borrowings) and guarantee deposits received.

d. Financial risk management objectives and policies

The Group’s major financial instruments consist of equity investments, cash and cash equivalents,

receivables, long-term and short-term borrowings, trade payables and convertible bonds. The

Group’s financial risk management pertains to financial risks relating to the operations of the Group,

including currency risk, interest rate risk, credit risk and liquidity risk. The Group seeks to identify,

evaluate and hedge against market uncertainties to lower the effect of market changes on the Group’s

financial performance.

The Group manages foreign exchange risk through setting up of foreign currency deposit bank

accounts and through the use of foreign currency directly received from sale to pay for purchases in

foreign currency to reduce the impact of foreign exchange fluctuation and to achieve a natural hedge

effect. The Group actively observes the exchange rate information to fully control the foreign

currency hedge.

1) Market risk

The Group’s activities expose it primarily to the financial risks of changes in exchange rates (see

Item (a) below), interest rates (see Item (b) below) and price (see Item (c) below).

There has been no change to the Group’s exposure to market risks or the manner in which these

risks are managed and measured.

a) Foreign currency risk

The carrying amounts of the Group’s foreign currency denominated monetary assets and

monetary liabilities (including those eliminated on consolidation) at the end of the reporting

period are set out in Note 39.

178

Sensitivity analysis

The Group was mainly exposed to USD and RMB.

Had the NTD strengthened/weakened by 5% against the relevant currency, the pre-tax profit

would have decreased/increased by $256,386 thousand and $289,984 thousand for the years

ended December 31, 2018 and 2017, respectively. The 5% sensitivity rate is used when

reporting foreign currency risk internally to key management personnel and represents

management’s assessment of the reasonably possible change in foreign exchange rates. The

sensitivity analysis includes only outstanding foreign currency-denominated monetary items

and their translation at period-end is adjusted for a 5% change in foreign-currency rates.

b) Interest rate risk

The Group is exposed to interest rate risk because entities in the Group borrow funds both at

fixed and floated interest rates. The Group evaluates hedging activities regularly to align with

interest rate views and defined risk appetite and ensures that the most cost-effective hedging

strategies are applied.

The carrying amounts of the financial assets and liabilities with exposure to interest rates at

the end of the reporting period were as follows:

December 31 2018 2017 Fair value interest rate risk

Financial assets $ 609,579 $ 1,718,748 Financial liabilities 278,637 673,710

Cash flow interest rate risk Financial assets 2,728,644 4,250,952 Financial liabilities 2,495,972 2,175,366


The sensitivity analysis below has been determined on the basis of the exposure to interest

rates for both derivative and non-derivative instruments at balance sheet dates. For floating

rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at

the balance sheet dates was outstanding for the whole year. A 50 basis point increase or

decrease was used when reporting interest rate risk internally to key management personnel

and represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held

constant, the Group’s pre-tax profit for the years ended December 31, 2018 and 2017 would

increased/decreased by $1,163 thousand and $10,378 thousand, respectively, which was

mainly attributable to the Group’s exposure to interest rates on its variable rate deposits and

bank loans.

c) Price risk

The Group is exposed to equity price risks mainly arising from the followings:

i. Investment in financial assets at FVTOCI (mainly investment in domestic and foreign

stocks), which are held for strategic rather than trading purposes. The Group does not

actively trade these investments.

ii. Financial assets at FVTPL (mainly investment in domestic and foreign open-ended

beneficiary certificates and listed stocks in Taiwan)

179

The Group manages risk through holding various investment portfolios and having every

equity investment get prior approval from the Group’s management.


The sensitivity analysis below was determined based on the exposure to equity price risks at

the end of the reporting period.

If equity prices had been 5% higher/lower, the pre-tax profit for the year ended December 31,

2018 would have increased/decreased by $67,638 thousand as a result of the changes in fair

values of financial assets at FVTPL, and the pre-tax other comprehensive income for the year

ended December 31, 2018 would have increased/decreased by $30,914 thousand as a result of

the changes in fair values of financial assets at FVTOCI.


2017 would have increased/decreased by $438 thousand as a result of the changes in fair values

of financial assets held by the Group for trading purposes, and the pre-tax other comprehensive

income for the year ended December 31, 2017 would have increased/decreased by $65,598

thousand as a result of the changes in fair values of available-for-sale financial assets held by

the Group.

2) Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations resulting

in financial loss to the Corporation. As at the end of the reporting period, the Group’s maximum

exposure to credit risk, which would cause a financial loss to the Group due to the failure of the

counterparty to discharge its obligation, could arise from:

a) The carrying amount of trade receivables from operating activities; and

b) The amount of bank deposits, fixed-income and other financial instruments from investing

activities.

The Group adopted a policy of only dealing with creditworthy counterparties and obtaining

sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from

defaults.

Trade receivables involve a large number of customers, spread across diverse industries and

geographical areas. Ongoing credit evaluation is performed on the financial condition of trade

receivables, including the evaluation of internal credits, historical transaction records, present

economic circumstances, etc. which affect the customers’ payment ability.

The credit risk of bank deposits, fixed-income financial instruments and other financial

instruments are evaluated, managed and controlled by the Group’s financial department. The

Group’s exposure to credit risk was limited because the Group adopted a policy of only dealing

with creditworthy counterparties.

3) Liquidity risk

The Group manages liquidity risk by managing and maintaining sufficient cash and cash

equivalents to supply the Group’s demand and mitigate the effects of fluctuations in cash flow.

The Group continuously monitors the use of credit lines and conformity to loan terms.

180

The Group relies on bank borrowings as a significant source of liquidity. As of December 31,

2018 and 2017, the Group’s available unutilized bank loan facilities were $2,972,285 thousand

and $3,036,639 thousand, respectively.

Liquidity and interest risk tables for non-derivative financial liabilities

The following tables detail the Group’s remaining contractual maturity for its non-derivative

financial liabilities with agreed repayment periods. The tables have been drawn up based on the

undiscounted cash flows of financial liabilities from the earliest date on which the Group can be

required to pay.

Bank loans with a repayment on demand clause were included in the earliest time band regardless

of the probability of the banks choosing to exercise their rights. The maturity dates for other non-

derivative financial liabilities were based on the agreed repayment dates.

December 31, 2018

Within 1 Year 1-5 Years

More Than 5

Years

Non-derivative financial liabilities

Non-interest bearing $ 3,819,537 $ - $ -

Fixed interest rate instruments 187,606 35,983 107,351

Floating interest rate instruments 665,291 1,897,191 -

$ 4,672,434 $ 1,933,174 $ 107,351

December 31, 2017


More Than 5

Years

Non-derivative financial liabilities


Convertible bonds - 101,900 -

Fixed interest rate instruments 482,332 98,794 3,057

Floating interest rate instruments 1,233,271 981,261 7,462

$ 5,812,542 $ 1,181,955 $ 10,519

After considering the financial position of the Group, management does not expect the banks will

execute their rights of requiring the Group to repay the bank loans immediately. In addition,

management believes the operating funds of the Corporation and subsidiaries are sufficient to

meet cash flow demand; thus, liquidity risk is not considered significant.

The Group’s operating funds are sufficient to meet its cash flow demand, as a result, the

Group does not use its overdraft limit.

181

35. TRANSACTIONS WITH RELATED PARTIES

a. The related parties and relationships with the Group were as follows:

Related Party

Relationship with the

Group Dynascan Technology Corp. (“Dynascan Technology”) Associate Adlink Technology Inc. (“Adlink”) Associate Chih Ho Shun Development Co., Ltd. (“Chih Ho Shun”) Joint venture Dynascan Electronics (Shanghai) Co., Ltd. (“Dynascan

Shanghai”) Associate

Dynascan Technology Inc. (“Dynascan USA”) Associate Dynascan Japan Inc. (“Dynascan Japan”) Associate Mou Kuan Industry Co., Ltd. (“Mou Kuan”) Other related party Quantel Co., Ltd. (“Quantel Thailand”) Other related party Quantel Sdn. Bhd. (“Quantel Malaysia”) Other related party Quantel Philippines Inc. (“Quantel Philippines”) Other related party PT Quantel (“Quantel Indonesia”) Other related party Quantel Pte Ltd Representative Office In Hanoi (“Quantel

Vietnam”) Other related party

Quantel Electronics (India) Private Limited (“Quantel India”) Other related party

Balances and transactions between the Corporation and its subsidiaries, which are related parties of the Corporation, have been eliminated on consolidation and are not disclosed in this note. Details of transactions between the Group and its related parties are disclosed below. The related-party transactions were conducted under normal terms unless specified otherwise.

b. Sales


31 Related Party Categories 2018 2017 Associates $ 63,587 $ 46,766 Other related parties 60,355 51,380 $ 123,942 $ 98,146

c. Purchases


31 Related Party Categories 2018 2017 Associates $ 17,433 $ 24,917 Other related parties 70,517 58,716 $ 87,950 $ 83,633

d. Receivables from related parties (excluding loans to related parties)

December 31

Line Item Related Party Categories 2018 2017 Trade receivables - related Associates $ 6,990 $ 4,075 parties Other related parties 44,828 43,627

$ 51,818 $ 47,702

182

Outstanding trade receivables from related parties are unsecured.

e. Payables to related parties (excluding loans from related parties)

December 31

Line Item Related Party Categories 2018 2017

Notes payable - related parties Other related parties $ 14,556 $ 17,502

Trade payables - related parties Associates $ 7,438 $ 7,201

Other related parties 1,515 32,233

$ 8,953 $ 39,434

f. Others


31


Rental income Associates $ 1,260 $ 1,260

Rental expense Other related parties $ 12,600 $ 12,600

Administration expense Associates $ 4,764 $ 4,770

Other related parties 21,256 26,726

$ 26,020 $ 31,496

December 31


Other current assets Associates $ 3,797 $ 912

g. Compensation of key management personnel


31

2018 2017

Short-term employee benefits $ 118,804 $ 121,303

Post-employment benefits 2,180 2,247

$ 120,984 $ 123,550

The remuneration of directors and key executives is determined by the remuneration committee based

on the performance of individuals and market trends.

183

36. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The assets pledged as collaterals for bank loans and for product warranties were as follows:

December 31

2018 2017

Property, plant and equipment, net $ 971,991 $ 1,030,465

Pledge deposits - (classified as financial assets measure at

amortized cost) 229,935 -

Pledge deposits - (classified as debt investments with no active

market) - 491,447

$ 1,201,926 $ 1,521,912

37. SIGNIFICANT EVENTS AFTER REPORTING PERIOD

In view of future development strategy and improvement of operating performance, the Corporation’s

board of directors resolved on February 11, 2019, to subscribe equity interest of Camtek Ltd. in US$9.5

per share with a consideration of US$74,265,680. The Corporation expects to acquire 20.5% of equity

interest upon completion of the transaction. The investment is awaiting for the authorities’ approval for

settlement.

38. OTHER SIGNIFICANT EVENTS

On January 17, 2012, the Corporation, Dynapack International Corporation and Heran Co., Ltd. won a

bid for the ownership of land and the building and related facilities to be built on the land pertaining to

“The Action Plan for Developing Land Surrounding the MRT Airport Station to Improve Civilians’ Life,”

which had been reviewed and approved by the Ministry of the Interior (MOI).

The total bid price was $10,088,890 thousand, covering land with an area of 222,300 square meters. As a

result of winning the above bid, the Corporation acquired 35%, or 77,805 square meters, of a certain piece

of land for $3,531,112 thousand. On April 18, 2012, the Corporation signed the land purchase contract

with the MOI; the payment schedule for this purchase is as follows:

a. The first installment of the bid amount (10% of the total bid amount, or $353,111 thousand) should be

paid within 10 days from the contract date. The Corporation paid the first installment by bid deposit

$353,040 thousand and cash.

b. To meet the schedule for zone expropriation, the Corporation should pay the second installment (30%

of the total bid amount) within 10 days of receiving the payment notice from the MOI. The MOI will

approve the Corporation’s land usage rights as the payment is made. On September 3, 2013, the

Corporation has paid the second installment $1,059,333 thousand.

c. To help the MOI provide the compensations for land expropriation and complete the demolition and

relocation of structures on the land, the Corporation should pay the third installment (40% of the total

bid amount) within 10 days of the payment notice from the MOI. The MOI will then check with the

Corporation to see if the demolition and relocation are completed as the payment is made. In November

2015 and July 2016, the Corporation has paid the first part of the third installments $536,729 thousand

and the remaining part of the third installment $875,716 thousand, respectively.

184

d. The Corporation should accomplish the following things within four years from the time of obtaining

the approval of the land usage rights:

1) Open up the main road system and build related public facilities.

2) Acquire the building license for over 50% of all industrial land and register with the authorities to

go into operation.

After completing the above requirements, the Corporation should apply to the MOI for the approval

to acquire real property rights to the structures and facilities built. The Corporation should pay the

fourth installment (20% of the total bid amount) within 10 days upon obtaining the approval and receipt

of the payment notice from the MOI. The Corporation has paid the fourth installment $716,362

thousand in June 2018 and obtained the property registration over the land from the MOI. The

Corporation has agreed to comply with the MOI’s requirement for the MOI’s placing of caution on

undeveloped land before ownership of real property is turned over to the Corporation. The MOI will

cancel this caution once it determines that the Corporation has completed all the required land

development, building and facility construction and land improvements. The Corporation has

recognized the land for self-use and the land for undetermined future use to property, plant and

equipment and investment properties, respectively. Please refer to Notes 18 and 19.

39. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Group entities’ significant financial assets and liabilities denominated in foreign currencies

aggregated by the foreign currencies other than functional currencies and the related exchange rates

between foreign currencies and respective functional currencies were as follows:

December 31, 2018

Foreign

Currencies Exchange Rate

Carrying

Amount

Financial assets

Monetary items

USD $ 149,940 30.715 (USD:NTD) $ 4,605,398

USD 9,634 7.833 (USD:HKD) 295,902

USD 4,526 1.366 (USD:SGD) 139,018

RMB 109,170 4.472 (RMB:NTD) 488,209

RMB 126,780 1.141 (RMB:HKD) 566,962

RMB 37,354 0.146 (RMB:USD) 167,048

$ 6,262,537


Monetary items

USD 24,643 30.715 (USD:NTD) $ 756,911

USD 12,304 7.833 (USD:HKD) 377,909

$ 1,134,820

185

December 31, 2017

Foreign


Carrying

Amount

Financial assets

Monetary items

USD $ 143,081 29.760 (USD:NTD) $ 4,258,102

USD 18,885 7.817 (USD:HKD) 562,031

USD 4,348 1.337 (USD:SGD) 129,370

RMB 479,401 4.565 (RMB:NTD) 2,188,466

RMB 176,964 1.199 (RMB:HKD) 807,841

$ 7,945,810


Monetary items

USD 33,786 29.760 (USD:NTD) $ 1,005,481

USD 19,711 7.817 (USD:HKD) 586,585

RMB 30,206 4.565 (RMB:NTD) 137,891

RMB 91,165 1.199 (RMB:HKD) 416,167

$ 2,146,124

For the years ended December 31, 2018 and 2017, (realized and unrealized) net foreign exchange gain

(losses) were $97,928 thousand and $(133,637) thousand, respectively. It is impractical to disclose net

foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign

currency transactions of the group entities.

40. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:

1) Financing provided to others: Table 1 (attached)

2) Endorsements/guarantees provided: Table 2 (attached)

3) Marketable securities held (excluding investment in subsidiaries, associates and joint ventures):

Table 3 (attached)

4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or 20%

of the paid-in capital: Table 4 (attached)

5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in

capital: Table 5 (attached).

6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:

None.

7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of the

paid-in capital: Table 6 (attached)

186

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in

capital: Table 7 (attached)

9) Trading in derivative instruments: Note 7 and Note 23

10) Others: Intercompany relationships and significant intercompany transactions: Table 8 (attached)

11) Information on investees: Table 9 (attached)

b. Information on investments in mainland China

1) Information on any investee company in mainland China, showing the name, principal business

activities, paid-in capital, method of investment, inward and outward remittance of funds, ownership

percentage, net income of investees, investment income or loss, carrying amount of the investment

at the end of the period, repatriations of investment income, and limit on the amount of investment

in the mainland China area: Table 10 (attached)

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third party, and their prices, payment terms, and unrealized gains or

losses:

a) The amount and percentage of purchases and the balance and percentage of the related payables

at the end of the period: Table 6 (attached)

b) The amount and percentage of sales and the balance and percentage of the related receivables at

the end of the period: Table 6 (attached)

c) The amount of property transactions and the amount of the resultant gains or losses: None.

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at the

end of the period and the purposes: Table 2 (attached).

e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds: Table 1 (attached).

f) Other transactions that have a material effect on the profit or loss for the year or on the financial

position, such as the rendering or receiving of services: None.

41. SEGMENT INFORMATION

Information reported to the Group’s chief operating decision maker for the purpose of resource allocation

and assessment of segment performance focuses on types of products delivered or services provided. The

Group’s reportable segments are as follows:

a.Special materials department.

b.Test instrument department.

c.Automatic equipment department.

187

d. Other

1) Segment revenues and results

Special

Materials

Department

Test

Instrument

Department

Automatic

Equipment

Department Other Elimination Total

For the year ended December 31,

2018

Revenue from external customers $ 2,005,001 $ 9,724,331 $ 4,862,323 $ 339,473 $ - $ 16,931,128

Inter-segment revenue - 6,767,600 755,759 114 (7,523,473 ) -

Segment revenue $ 2,005,001 $ 16,491,931 $ 5,618,082 $ 339,587 $ (7,523,473 ) 16,931,128

Consolidated revenue $ 16,931,128

Segment income $ 50,741 $ 1,723,167 $ 1,332,796 $ (31,253 ) $ (35,818 ) $ 3,039,633


expenses 268,457

Profit before tax $ 3,308,090

For the year ended December 31,

2017

Revenue from external customers $ 2,054,568 $ 9,932,614 $ 2,538,348 $ 375,816 $ - $ 14,901,346

Inter-segment revenue - 6,704,652 416,355 12 (7,121,019 ) -

Segment revenue $ 2,054,568 $ 16,637,266 $ 2,954,703 $ 375,828 $ (7,121,019 ) 14,901,346

Consolidated revenue $ 14,901,346

Segment income $ 38,334 $ 2,147,485 $ 815,601 $ (10,961 ) $ 52,622 $ 3,043,081


expenses 78,986

Profit before tax $ 3,122,067

The sales between segments are based on fair value.

The above revenues were generated through transactions with external customers and among

segments. The inter-segment revenues for the years ended December 31, 2018 and 2017 had been

adjusted and eliminated from the consolidated financial statements.

Segment operating income refers to profits earned by each segment, excluding remuneration of

directors, share of profits or loss of associates and joint venture, rental income, interest income,

gain (loss) on disposal of property, plant and equipment, gain (loss) on disposal of investments,

foreign exchange gain (loss), valuation gain (loss) on financial instruments, finance costs and

income tax expense. This was the measure reported to the Group’s chief operating decision maker

to allocate resources to each segment and evaluate its performance.

2) Segment assets and liabilities

December 31

2018 2017

Segment assets

Special materials department $ 863,031 $ 935,074

Test instrument department 18,578,300 19,209,748

Automatic equipment department 3,856,680 2,703,688

Other 353,624 599,309

Adjustments and eliminations (3,738,938) (4,722,373)

Total segment assets 19,912,697 18,725,446

Investments and other unallocated assets 3,289,767 3,292,166

Consolidated total assets $ 23,202,464 $ 22,017,612

(Continued)

188

December 31 2018 2017 Segment liabilities Special material department $ 561,478 $ 614,525 Test instrument department 6,184,236 6,330,287 Automatic equipment department 1,369,831 2,001,270 Other 115,500 277,289 Adjustments and eliminations (2,918,100) (3,821,486) Total segment liabilities 5,312,945 5,401,885 Borrowings and other unallocated liabilities 3,199,170 3,152,898 Consolidated total liabilities $ 8,512,115 $ 8,554,783

(Concluded)

For the purpose of monitoring segment performance and allocating resources between segments:

a) All assets were allocated to reportable segments other than interests in associates accounted

for using equity method, other financial assets, and deferred tax assets. Goodwill was allocated

to reportable segments.

b) All liabilities were allocated to reportable segments other than borrowings and deferred tax

liabilities.

3) Revenue from major products

The following is an analysis of the Group’s revenue from its major products and services:


31 2018 2017 Special material equipment $ 2,005,001 $ 2,054,568 Test instrument equipment 9,724,331 9,932,614 Automatic equipment 4,862,323 2,538,348 $ 16,591,655 $ 14,525,530

4) Geographical information

The Group operates in three principal geographical areas - Republic of China, other Asia

countries, and others.

The Group’s revenue from external customers by location of operations and information about its

non-current assets by geographical location are detailed below.

Revenue from External

Customers

For the Year Ended Non-current Assets

December 31 December 31 2018 2017 2018 2017 Republic of China $ 8,622,514 $ 7,843,613 $ 7,465,536 $ 5,605,770 Asia 5,823,264 4,650,547 531,449 507,384 Others 2,485,350 2,407,186 449,269 458,057 $ 16,931,128 $ 14,901,346 $ 8,446,254 $ 6,571,211

189

Non-current assets exclude non-current assets classified as financial instruments, investments

accounted for using equity method, prepayments for investments, and deferred tax assets.

5) Information about major customers

Included in revenue from direct sales of automated factory conveyor systems of $4,862,323

thousand and $2,538,348 thousand in 2018 and 2017, respectively, were revenues of

approximately $2,646,345 thousand and $714,907 thousand, respectively, which were

generated from sales to the Group’s largest customer. No other single customers

contributed 10% or more to the Group’s revenue for both 2018 and 2017.

190


FINANCING PROVIDED TO OTHERS

FOR THE YEAR ENDED DECEMBER 31, 2018


No. Lender Borrower Financial

Statement Account

Related

Party

Highest

Balance for

the Period

Ending

Balance

Actual

Borrowing

Amount

Interest

Rate

Nature of

Financing

(Note 5)

Business

Transaction

Amounts

Reasons for

Short-term

Financing

Allowance

for

Impairment

Loss

Collateral Financing

Limit for

Each

Borrower

Aggregate

Financing

Limit Item Value

0 The Corporation Chroma Systems

Solutions, Inc.

Other receivables Y $ 119,375 $ 119,375 $ 119,375 3.25% a $ 493,283 - $ - - $ - $ 1,441,002

(Note 1)

$ 2,882,004

(Note 2)

Chroma Japan Corp. Other receivables Y 46,321 41,194 35,553 - a 223,056 - - - - 1,441,002

(Note 1)

2,882,004

(Note 2)

1 Chroma Electronics

(Shenzhen) Co., Ltd.

Chroma ATE (Suzhou)

Co., Ltd.

Other receivables Y 44,720 44,720 - 2.50% b - Operation - - - 456,924

(Note 3)

456,924

(Note 3)

2 Wei Kuang Automatic

Equipment (Xiamen)

Co., Ltd.

Chroma ATE (Suzhou)

Co., Ltd.

Other receivables Y 44,720 44,720 13,416 2.50% b - Operation - - - 308,460

(Note 3)

308,460

(Note 3)

Note 1: Based on 10% of the net value of the Corporation.


Note 3: Based on 70% of the net value from the latest financial statements of borrowing company that have been audited.

Note 4: The amounts listed in the table were translated into New Taiwan dollars at the exchange rate of US$1=NT$30.715, RMB1=NT$4.472 and JPY1 = NT$0.278 as of December 28, 2018.

Note 5: Financing provided:

a. For transactions.

b. For short-term financing.

191

TABLE 2


ENDORSEMENTS/GUARANTEES PROVIDED


(In Thousands of New Taiwan Dollars or Foreign Currency, Unless Stated Otherwise)

No. Endorser/

Guarantor

Endorsee/Guarantee Limits on

Endorsement

/Guarantee

Given on

Behalf of

Each Party

(Note 1)

Maximum

Amount

Endorsed/Gu

aranteed

During the

Period

Outstanding

Endorsement

/Guarantee

at the End of

the Period

Actual

Borrowing

Amount

Amount

Endorsed/Gu

aranteed by

Collateral

Ratio of

Accumulated

Endorsement

/Guarantee

to Net Equity

in Latest

Financial

Statements

Aggregate

Endorsement

Guarantee

Limit

(Note 2)

Endorsement

/Guarantee

Given by

Parent on

Behalf of

Subsidiaries

Endorsement

/Guarantee

Given by

Subsidiaries

on Behalf of

Parent

Endorsement

/Guarantee

Given on

Behalf of

Companies in

Mainland

China

Name Relationship

0 The Corporation Chroma Japan Corp. Subsidiary $ 2,161,503 $ 34,100 $ 34,100 $ 5,560 $ - 0.24% $ 4,323,006 Y - -

Chroma ATE Europe

B.V.

Subsidiary 2,161,503 52,800 52,800 - - 0.37% 4,323,006 Y - -

Chroma ATE Inc. Subsidiary 2,161,503 61,430 61,430 61,430 - 0.43% 4,323,006 Y - -

Sajet System Technology

(Suzhou) Co., Ltd.

Subsidiary 2,161,503 22,360 22,360 - - 0.16% 4,323,006 Y - Y

Chroma Electronics

(Shanghai) Co., Ltd.

Subsidiary 2,161,503 44,720 44,720 - - 0.31% 4,323,006 Y - Y

Chroma Electronics


Subsidiary 2,161,503 44,720 44,720 - - 0.31% 4,323,006 Y - Y

Chroma ATE (Suzhou)

Co., Ltd.

Subsidiary 2,161,503 89,440 89,440 5,417 - 0.62% 4,323,006 Y - Y

Quantel Private Ltd. Subsidiary 2,161,503 44,960 44,960 - - 0.31% 4,323,006 Y - -

Note 1: According to Regulation of the “Procedures for Endorsement/Guarantee and lending of Funds”, the Corporation limits the endorsement/guarantee amount on each entity to (a) within 15% of the net value of the

Corporation and (b) the capital issued of the entity endorsed/guaranteed, but 100% held subsidiary is not limited by the regulation.

Note 2: According to Regulation of the “Procedures for Endorsement/Guarantee and Lending of Funds”, the Corporation limits the endorsement/guarantee amount within the 30% of the net value of the Corporation.

Note 3: The amounts listed in columns were translated into New Taiwan dollars at the exchange rate of US$1=NT$30.715, JPY1=NT$0.278, RMB1=NT$4.472, EUR1=NT$35.200, SGD1=NT$22.480 as of December 28,

2018.

192

TABLE 3


MARKETABLE SECURITIES HELD (EXCLUDING INVESTMENT IN SUBSIDIARIES, ASSOCIATES AND JOINT CONTROLLED ENTITIES)

DECEMBER 31, 2018


Holding Company Name Type and Name of Marketable Securities

Relationship with

the Holding

Company

Financial Statement Account

December 31, 2018

Note Shares/Units

(Thousands)

Carrying

Amount

Percentage

of

Ownership

Fair Value

The Corporation Fund

Mega Diamond Money Market Fund - Financial assets at fair value through profit or loss - current 44,427 $ 556,317 - $ 556,317 -

Jih Sun Money Market Fund - 〃 6,765 100,076 - 100,076 -

Hua Nan Kirin Money Market Fund - 〃 7,947 95,019 - 95,019 -

Yuanta De-Li Money Market Fund - 〃 12,287 200,044 - 200,044 -

WI Harper INC Fund VII LP - Financial assets at fair value through profit or loss - non-

current

- 6,807 - 6,807 -

Stocks

DynaColor, Inc. - Financial assets at fair value through other comprehensive

income - non-current

6,050 228,702 6.1 228,702 -

Chunghwa Telecom Co., Ltd. - 〃 412 46,599 - 46,599 -

China Communications Media Group Co., Ltd. - 〃 26 252 - 252 -

WK Technology Fund IX Ltd. - 〃 4,614 37,017 4.6 37,017 -

Twoway Catv Service Inc. - 〃 3,561 42,585 4.4 42,585 -

Tian Zheng International Precision Machinery Co., Ltd. - 〃 2,553 156,244 8.1 156,244 -

WK Technology Fund IV Ltd. - 〃 806 3,594 1.9 3,594 -

WK Technology Fund VI Ltd. - 〃 723 2,289 1.4 2,289 -

TFBS Bioscience Inc. - 〃 3,280 47,954 14.7 47,954 -

Taiwan Advanced Nanotech Inc. - 〃 2,700 48,600 15.0 48,600 -

Chroma New Material Corp. Fund

Fuh Hwa You Li Money Market Fund - Financial assets at fair value through profit or loss - current 6,829 91,891 - 91,891 -

Taishin 1699 Money Market Fund - 〃 3,712 50,140 - 50,140 -

Chroma Investment Co., Ltd. Fund


Stocks

Greatek Electronics Inc. - 〃 85 3,653 - 3,653 -

Chroma ATE Inc. The Corporation Financial assets at fair value through other comprehensive


1,916 226,038 0.5 226,038 -

Cosmactive Broadband Networks Co., Ltd. - 〃 26 - 1.5 - -

Prance System Technology Co., Ltd. - 〃 111 - 5.1 - -

Chen Hwa Technology Inc. Stocks

Hangzhou New Material Chroma Co., Ltd. - 〃 - 4,435 19.0 4,435 -

(Continued)

193


Relationship with

the Holding

Company


December 31, 2018

Note Shares/Units

(Thousands)

Carrying

Amount

Percentage

of

Ownership

Fair Value

Innovative Nanotech Incorporated Fund


Touch Cloud Incorporation Fund

Mega Diamond Money Market Fund - 〃 2,753 34,469 - 34,469 -

Note 1: Marketable securities refer to stocks, bonds, beneficiary certificates and marketable securities derived from above items under IFRS 9 “Financial Instruments”.

Note 2: The fair value of open-end beneficiary certificates and listed market securities was calculated based on the net asset value and closing price as of balance sheet date.

(Concluded)

194

TABLE 4


MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Type and Name of

Marketable Securities Financial Statement Account Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance

Number of

Shares

(Thousands)

Amount

(Note)

Number of

Shares

(Thousands)

Amount

Number of

Shares

(Thousands)

Amount Carrying

Amount

Gain (Loss) on

Disposal

Number of

Shares

(Thousands)

Amount

(Note)


Mega Diamond Money

Market Fund

Financial assets at fair value

through profit or loss - current

- - 20,372 $ 253,960 24,055 $ 300,000 - $ - $ - $ - 44,427 $ 556,317

Jih Sun Money Market

Fund 〃 - - - - 33,911 500,000 27,146 400,970 400,000 970 6,765 100,076

Note: The beginning and ending balances included adjustments for financial assets valuation gain or loss.

TABLE 5


ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Type of Property Transaction Date Transaction

Amount Payment Term Counter-party

Nature of

Relationship

Prior Transaction of Related Counter-party Price Reference

Purpose of

Acquisition Other Terms

Owner Relationship Transfer Date Amount

The Corporation Land 2018.06.05 $ 717,244 Based on the contract;

fourth installment had

been paid.

Ministry of the Interior,

Republic of China

- - - - $ - Public bidding Manufacturing, R&D,

operating and

building employee

dormitories

Note

Note: Please refer to Note 38 to the financial statements for related information.

195

TABLE 6


TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Related Party Relationship

Transaction Details Abnormal Transaction Notes/Accounts

Receivable (Payable) Note

Purchase

(Sale) Amount

% to

Total Payment Terms Unit Price

Payment

Terms

Ending

Balance

% to

Total

The Corporation Neworld Electronics Ltd. Subsidiary (Sale) $ (1,979,060) (26) Net 90 days after delivery - - $ 447,646 17 -

Neworld Electronics Ltd. The Corporation Parent company Purchase 1,979,060 100 Net 90 days after delivery - - (447,646) (100) -

The Corporation Chroma Electronics (Shanghai) Co., Ltd. Subsidiary (Sale) (169,418) (2) Net 120 days after delivery - - 27,286 1 -

Chroma Electronics (Shanghai) Co., Ltd. The Corporation Parent company Purchase 169,418 100 Net 120 days after delivery - - (27,286) (100) -

The Corporation Chroma Electronics (Shenzhen) Co., Ltd. Subsidiary (Sale) (308,313) (4) Net 90 days after monthly closing - - 71,854 3 -

Chroma Electronics (Shenzhen) Co., Ltd. The Corporation Parent company Purchase 308,313 100 Net 90 days after monthly closing - - (71,854) (100) -

The Corporation Chroma ATE (Suzhou) Co., Ltd. Subsidiary (Sale) (129,839) (2) Net 120 days after delivery - - 59,922 2 -

Chroma ATE (Suzhou) Co., Ltd. The Corporation Parent company Purchase 129,839 100 Net 120 days after delivery - - (59,922) (100) -

The Corporation Chroma Japan Corp. Subsidiary (Sale) (223,056) (3) Net 90 days after delivery - - 221,817 9 -

Chroma Japan Corp. The Corporation Parent company Purchase 223,056 100 Net 90 days after delivery - - (221,817) (100) -

The Corporation Chroma ATE Inc. Subsidiary (Sale) (665,640) (9) Net 180 days after delivery - - 467,443 18 -

Chroma ATE Inc. The Corporation Parent company Purchase 665,640 100 Net 180 days after delivery - - (467,443) (100) -

The Corporation Chroma Systems Solutions, Inc. Subsidiary (Sale) (493,283) (7) Net 90 days after delivery - - 135,507 5 -

Chroma Systems Solutions, Inc. The Corporation Parent company Purchase 493,283 100 Net 90 days after delivery - - (135,507) (100) -

The Corporation Chroma ATE Europe B.V. Subsidiary (Sale) (403,983) (5) Net 90 days after delivery - - 253,438 10 -

Chroma ATE Europe B.V. The Corporation Parent company Purchase 403,983 100 Net 90 days after delivery - - (253,438) (100) -

The Corporation Quantel Private Ltd. Subsidiary (Sale) (166,600) (2) Net 90 days after delivery - - 27,851 1 -

Quantel Private Ltd. The Corporation Parent company Purchase 166,600 100 Net 90 days after delivery - - (27,851) (100) -

Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co., Ltd. Subsidiary (Sale) (817,631) (29) Net 90 days - - 364,859 52 -

Chroma Electronics (Shenzhen) Co., Ltd. Neworld Electronics Ltd. Parent company Purchase 817,631 72 Net 90 days - - (364,859) (80) -

(Continued)

196




Purchase

(Sale) Amount

% to

Total Payment Terms Unit Price

Payment

Terms

Ending

Balance

% to

Total

Neworld Electronics Ltd. Chroma ATE (Suzhou) Co., Ltd. Same parent

company

(Sale) $ (143,737) (5) Net 90 days - - $ 90,145 13 -

Chroma ATE (Suzhou) Co., Ltd. Neworld Electronics Ltd. Same parent

company

Purchase 143,737 44 Net 90 days - - (90,145) (41) -

Neworld Electronics Ltd. Wei Kuang Automatic Equipment (Nanjin)

Co., Ltd.

Same parent

company

(Sale) (261,831) (9) Net 90 days - - - - -

Wei Kuang Automatic Equipment (Nanjin)

Co., Ltd.

Neworld Electronics Ltd. Same parent

company

Purchase 261,831 87 Net 90 days - - - - -

Neworld Electronics Ltd. Wei Kuang Automatic Equipment (Xiamen)

Co., Ltd.

Same parent

company

(Sale) (343,601) (12) Net 90 days - - - - -

Wei Kuang Automatic Equipment (Xiamen)

Co., Ltd.


company


Wei Kuang Automatic Equipment Co., Ltd. Neworld Electronics Ltd. Same parent

company

(Sale) (512,937) (13) Net 180 days after delivery - - - - -

Neworld Electronics Ltd. Wei Kuang Automatic Equipment Co., Ltd. Same parent

company

Purchase 512,937 21 Net 180 days after delivery - - - - -

Wei Kuang Automatic Equipment Co., Ltd. Wei Kuang Automatic Equipment (Xiamen)

Co., Ltd.

Same parent

company

(Sale) (139,851) (3) Net 120 days after monthly closing

- - 113,499 7 -


Co., Ltd.

Wei Kuang Automatic Equipment Co., Ltd. Same parent

company

Purchase 139,851 28 Net 120 days after monthly closing

- - (133,499) (65) -

(Concluded)

197

TABLE 7


RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018


Company Name Related Party Relationship Ending Balance Turnover

Rate

Overdue Amount

Received in

Subsequent

Period (Note)

Allowance for

Impairment

Loss Amount Action Taken

The Corporation Neworld Electronics Ltd. Subsidiary Trade receivables $ 447,646 3.00 $ - - $ 261,053 $ -

Chroma ATE Inc. Subsidiary Trade receivables 467,443 1.60 - - 125,057 -

Chroma ATE Europe B.V. Subsidiary Trade receivables 253,438 1.85 - - - -

Chroma Systems Solutions, Inc. Subsidiary Trade receivables 135,507 4.02 - - 72,310 -

Other receivables - financing provided

119,375

- - - - -

Chroma Japan Corp. Subsidiary Trade receivables 221,817 1.16 - - 60,581 -

Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co,

Ltd.

Subsidiary Trade receivables 364,859 1.97 - - 196,163 -


Co., Ltd. Same parent

company

Trade receivables 113,499 2.40 - - 23,451 -

Note: As of February 21, 2019.

198

TABLE 8


INTERCOMPANY RELATIONSHIPS AND SIGNIFICANT TRANSACTIONS



No. Company Name Counterparty

Flow of

Transactions

(Note 1)

Transaction Details Percentage to

Consolidated

Total

Operating

Revenues or

Total Assets

Account Amount Transaction Terms

0 The Corporation Neworld Electronics Ltd. a Operating revenue $ 1,979,060 Note 2 12 Chroma USA a Operating revenue 665,640 Note 2 4 Chroma Systems Solutions, Inc. a Operating revenue 493,283 Note 2 3 Chroma Europe a Operating revenue 403,983 Note 2 2 Chroma Electronics (Shenzhen) Co., Ltd. a Operating revenue 308,313 Note 2 2 Chroma Japan a Operating revenue 223,056 Note 2 1 Chroma Electronics (Shanghai) Co., Ltd. a Operating revenue 169,418 Note 2 1 Quantel Private Ltd. a Operating revenue 166,600 Note 2 1 Chroma ATE (Suzhou) Co., Ltd. a Operating revenue 129,839 Note 2 1 Testar Electronics Co. a Operating revenue 38,573 Note 2 - Wei Kuang Automatic Equipment Co., Ltd. a Purchase 26,638 Based on regular terms - Chroma USA a Purchase 42,148 Based on regular terms - Chroma ATE (Suzhou) Co., Ltd. a Purchase 13,647 Based on regular terms - Adivic Technology Co. a Purchase 13,209 Based on regular terms - Testar Electronics Co. a Rental revenue 13,656 Based on regular terms - Quantel Private Ltd. a Commissions expense 17,790 Based on regular terms - Chroma Electronics (Shanghai) Co., Ltd. a Commissions expense 12,301 Based on regular terms - Chroma ATE (Suzhou) Co., Ltd. a Commissions expense 12,211 Based on regular terms - Neworld Electronics Ltd. a Other revenue 14,400 Based on regular terms - Chroma USA a Trade receivables 467,443 Based on regular terms 2 Neworld Electronics Ltd. a Trade receivables 447,646 Based on regular terms 2 Chroma Europe a Trade receivables 253,438 Based on regular terms 1 Chroma Japan a Trade receivables 221,817 Based on regular terms 1 Chroma Systems Solutions, Inc. a Trade receivables 135,507 Based on regular terms 1 Chroma Electronics (Shenzhen) Co., Ltd. a Trade receivables 71,854 Based on regular terms - Chroma ATE (Suzhou) Co., Ltd. a Trade receivables 59,922 Based on regular terms - Testar Electronics Co. a Trade receivables 40,501 Note 3 - Quantel Private Ltd. a Trade receivables 27,851 Based on regular terms - Chroma Electronics (Shanghai) Co., Ltd. a Trade receivables 27,286 Based on regular terms - Chroma Systems Solutions, Inc. a Other receivables - financing provided 119,375 Based on regular terms 1 Chroma Japan a Other receivables - financing provided 35,553 Based on regular terms - Testar Electronics Co. a Other receivables 23,353 Based on regular terms - 1 Wei Kuang Automatic Equipment Co., Ltd. Neworld Electronics Ltd. b Operating revenue 512,937 Based on regular terms 3 Wei Kuang Automatic Equipment (Xiamen) Co., Ltd. b Operating revenue 139,851 Based on regular terms 1 Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. b Operating revenue 22,887 Based on regular terms - Wei Kuang Automatic Equipment (Xiamen) Co., Ltd. b Trade receivables 113,499 Based on regular terms -

(Continued)

199

No. Company Name Counterparty

Flow of

Transactions

(Note 1)

Transaction Details Percentage to

Consolidated

Total

Operating

Revenues or

Total Assets

Account Amount Transaction Terms

2 Chroma USA Chroma Japan b Purchase $ 71,247 Based on regular terms -

Chroma Systems Solutions, Inc. a Dividends receivable 15,358 Based on regular terms -

3 Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co., Ltd. a Operating revenue $ 817,631 Based on regular terms 5

Wei Kuang Automatic Equipment (Xiamen) Co.,

Ltd.

b Operating revenue 343,601 Based on regular terms 2

Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. b Operating revenue 261,831 Based on regular terms 2

Chroma ATE (Suzhou) Co., Ltd. b Operating revenue 143,737 Based on regular terms 1

Chroma Electronics (Shanghai) Co., Ltd. a Operating revenue 44,253 Based on regular terms -

Chroma Electronics (Shenzhen) Co., Ltd. a Commissions expense 45,767 Based on regular terms -

Chroma Electronics (Shanghai) Co., Ltd. a Commissions expense 37,365 Based on regular terms -

Chroma ATE (Suzhou) Co., Ltd. b Commissions expense 27,232 Based on regular terms -

Chroma Electronics (Shenzhen) Co., Ltd. a Trade receivables 364,859 Based on regular terms 2

Chroma ATE (Suzhou) Co., Ltd. b Trade receivables 90,145 Based on regular terms -

Chroma Electronics (Shanghai) Co., Ltd. a Trade receivables 13,831 Based on regular terms -

Chroma Electronics (Shenzhen) Co., Ltd. a Other receivables 80,160 Based on regular terms -

4 Chroma Electronics (Shenzhen) Co., Ltd. Chroma ATE (Suzhou) Co., Ltd. b Operating revenue 47,191 Based on regular terms -

Chroma Electronics (Shanghai) Co., Ltd. b Operating revenue 31,747 Based on regular terms -

Sajet System Technology (Suzhou) Co., Ltd. b Purchase 16,886 Based on regular terms -


Chroma Electronics (Shanghai) Co., Ltd. b Trade receivables 34,900 Based on regular terms -

5 Chroma Electronics (Shanghai) Co., Ltd. Chroma ATE (Suzhou) Co., Ltd. b Purchase 19,000 Based on regular terms -


Chroma ATE (Suzhou) Co., Ltd. b Trade payables 17,430 Based on regular terms -

6 Wei Kuang Automatic Equipment (Xiamen) Co.,

Ltd.

Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. b Operating revenue 15,083 Based on regular terms -

Wei Kuang Automatic Equipment Co., Ltd. b Operating revenue 12,590 Based on regular terms -

Mou Kuan Technologies (Nanjin) Co., Ltd. b Purchase 22,076 Based on regular terms -

7 Chroma Europe Chroma Germany GmbH a Operating revenue 91,066 Based on regular terms 1

Chroma Germany GmbH a Trade receivables 83,457 Based on regular terms -

Chroma Germany GmbH a Other receivables 50,712 Based on regular terms -

Note 1: a. From parent to subsidiary.

b. Between subsidiaries.

Note 2: The prices were determined after taking the selling and post-sale service expenses into consideration.

Note 3: The collection periods of about 12 months were longer than those for third parties.

(Concluded)

200

TABLE 9


INFORMATION ON INVESTEES



Investor Investee Location Main Businesses and Products

Original Investment Amount Balance as of December 31, 2018 Net Income

(Loss) of the

Investee

Investment

Gain (Loss) Note December 31,

2018

December 31,

2017

Shares

(Thousands)

Percentage of

Ownership

Carrying

Amount

The Corporation Neworld Electronics Ltd. Hong Kong Sale and maintenance of electronic test instruments, etc. $ 271,873 $ 271,873 64,013 100.0 $ 949,027 $ 112,846 $ 112,846 Subsidiary

San Eagle Development Corp. British Virgin Islands Investment 186,514 186,514 2,050 100.0 791,854 198,996 121,538 Subsidiary

Adlink Technology Inc. New Taipei, Taiwan Manufacturing, processing and retailing of software/hardware of

computers and peripherals

165,146 165,146 24,502 11.3 517,852 238,525 26,963 Associate

Chroma New Material Corporation Taoyuan, Taiwan Sale and processing of gold wire 480,715 480,715 25,000 100.0 443,073 44,611 44,611 Subsidiary

Wei Kuang Automatic Equipment Co., Ltd. Hsinchu, Taiwan Design, manufacturing, installment and testing of automated

factory conveyor systems

533,000 533,000 10,000 100.0 1,206,381 885,878 885,886 Subsidiary

CHI Incorporation Ltd. British Virgin Islands Test of inductance, capacitance and resistance, and sale of parts 122,884 122,884 3,830 100.0 164,834 7,444 7,444 Subsidiary

Quantel Private Ltd. Singapore Sale and maintenance of test instruments, etc. 112,328 112,328 1,914 60.0 130,270 30,011 16,888 Subsidiary

Chen Hwa Technology Inc. British Virgin Islands Test of inductance, capacitance and resistance, and sale of parts 98,217 98,217 3,085 100.0 101,626 990 990 Subsidiary

Chroma Investment Co., Ltd. New Taipei, Taiwan Investment 80,000 80,000 14,000 100.0 124,674 6,479 (2,094) Subsidiary

Chroma ATE Europe B.V. The Netherlands Sale and maintenance of electronic test instruments etc. 54,026 54,026 1 100.0 60,658 21,964 21,939 Subsidiary

DynaScan Technology Corp. Taoyuan, Taiwan Research and manufacture of LED generators 238,746 238,746 9,841 27.3 114,193 76,973 21,014 Associate

Chroma USA USA Sale and maintenance of electronic test instruments, etc. 29,895 29,895 1,000 100.0 134,810 (5,873) (5,875) Subsidiary

Sensational Holding Ltd. British Virgin Islands Investment 38,301 38,301 1,200 100.0 53,924 1,851 1,851 Subsidiary

Adivic Technology Co. Taipei, Taiwan Sale and research of RF device 193,800 193,800 12,240 51.0 35,617 (39,420) (20,641) Subsidiary

Chroma Japan Corp. Japan Sale and maintenance of electronic test instruments, etc. 147,125 147,125 9 100.0 (70,297) (33,977) (33,979) Subsidiary

Chroma Systems Solutions, Inc. USA Sale and maintenance of electronic test instruments, etc. 29,628 29,628 120 25.0 (45,711) 86,297 21,928 Subsidiary

Deep Red Holding Co., Ltd. Mauritius Investment 12,217 12,217 215 100.0 104,303 45,430 45,430 Subsidiary

Chih Ho Shun Development Co., Ltd. Taoyuan, Taiwan Construction and development of residence, buildings and

specialized field; construction and investment of public works

17,500 17,500 1,750 35.0 17,664 108 38 Joint venture

Testar Electronics Corporation Taoyuan, Taiwan Testing of LED products 247,096 247,096 20,160 67.2 24,596 (2,792) (1,876) Subsidiary

EVT Technology Co., Ltd. Taoyuan, Taiwan Manufacturing of motorcycles and its parts 117,311 67,481 9,412 85.6 59,793 (10,767) (8,517) Subsidiary

Innovative Nanotech Incorporated Taoyuan, Taiwan Monitoring instruments of nanoparticles 142,140 70,000 14,214 71.1 119,441 (29,451) (22,503) Subsidiary

Touch Cloud Incorporation Taipei, Taiwan Development of cloud platform and Internet of Things Systems 57,000 57,000 5,700 78.1 43,779 (14,809) (11,563) Subsidiary

Chroma USA Chroma Systems Solutions, Inc. USA Sale and maintenance of electronic test instruments, etc. 64 64 240 50.0 165,846 86,297 NA Subsidiary

San Eagle Development Corp. Wei Kuang Mech. Eng. Inc. Mauritius Investments 185,686 185,686 4,475 100.0 861,912 199,047 NA Subsidiary

EVT Technology Co., Ltd. Wei Da Electric Vehicle Co., Ltd. Pingtung, Taiwan Sale and lease of motorcycles 3,750 3,750 375 75.0 (3,906) - NA Subsidiary

Adivic Technology Co., Ltd. Adivic Holding Corporation Samoa Sale and research of RF device 42,245 42,245 1,000 100.0 10,234 (1,259) NA Subsidiary

Quantel Private Ltd. Quantel Technologies India Private Ltd. India Sale and maintenance of test instruments, etc. 3,056 3,056 65 100.0 2,306 (547) NA Subsidiary

Quantel Global Vietnam Co., Ltd. Vietnam Sale and maintenance of test instruments, etc. 6,219 6,219 - 100.0 3,010 (896) NA Subsidiary

Quantel Global Sdn. Bhd. Malaysia Sale and maintenance of test instruments, etc. 4,199 - 600 100.0 4,120 (143) NA Subsidiary

Quantel Global Philippines Corporation Philippines Sale and maintenance of test instruments, etc. 610 - 99 100.0 1,359 (4,238) NA Subsidiary

Chroma ATE Europe B.V. Chroma Germany GmbH Germany Sale and maintenance of electronic test instruments, etc. 1,073 1,073 30 100.0 (3,063) 1,169 NA Subsidiary

201

TABLE 10


INFORMATION ON INVESTMENTS IN MAINLAND CHINA



Investee Company Main Businesses and Products Paid-in Capital

(Note 2)

Method of Investment

(Note 1)

Accumulated

Outward

Remittance for

Investment from

Taiwan as of

January 1, 2018

(Note 3)

Remittance of Funds Accumulated

Outward

Remittance for

Investment from

Taiwan as of

December 31,

2018

(Note 3)

Net Income

(Loss) of the

Investee

Percentage of

Ownership in

Investment

Investment

Gain (Loss)

(Notes 4 and 5)

Carrying

Amount as of

December 31,

2018

(Note 2)

Accumulated

Inward

Remittance of

Earnings as of

December 31,

2018

Outward Inward

Chroma Electronics (Shenzhen)

Co., Ltd.



$ 117,630

(HK$ 30,000)

b. Subsidiary of

Neworld

Electronics Ltd.

$ 132,178

(HK$ 1,200

US$ 3,853)

$ - $ - $ 132,178

(HK$ 1,200

US$ 3,853)

$ 85,372 100 $ 85,372 $ 653,019 $ -

Chroma Electronics (Shanghai)

Co., Ltd.



92,145

(US$ 3,000)

b. Subsidiary of

Neworld

Electronics Ltd.

101,993

(US$ 3,000)

- - 101,993

(US$ 3,000)

15,954 100 15,954 119,254 -

Chroma (Shanghai) Trading

Co., Ltd.

International and transit trading, commercial

simple processing and commercial

consulting service and etc.

82,931

(US$ 2,700)

b. Subsidiary of Chen

Hwa Technology

Inc.

84,988

(US$ 2,700)

- - 84,988

(US$ 2,700)

117 100 117 86,639 -

Hangzhou New Material Chroma

Co., Ltd.

Production and sale of semiconductor

connecting materials

46,073

(US$ 1,500)


Hwa Technology

Inc.

9,091

(US$ 285)

- - 9,091

(US$ 285)

18,853 19 - 4,436 -

Chroma ATE (Suzhou) Co., Ltd. Sale of computerized automatic test systems,


116,717

(US$ 3,800)

b. Subsidiary of CHI

Incorporation Ltd.

121,115

(US$ 3,800)

- - 121,115

(US$ 3,800)

7,444 100 7,444 206,304 -


(Nanjin) Co., Ltd.



53,087

(RMB 11,871)

b. Subsidiary of Wei

Kuang Mech. Eng.

Inc.

43,751

(US$ 1,338)

- - 43,751

(US$ 1,338)

94,346 100 94,346 171,227 -


(Xiamen) Co., Ltd.



51,057

(RMB 11,417)


Kuang Mech. Eng.

Inc.

49,935

(US$ 1,500)

- - 49,935

(US$ 1,500)

129,595 100 129,595 440,657 -

Mou Kuan Technologies (Nanjin)

Co., Ltd.

Assembly, sale and maintenance of factory

conveyors and related systems and renders

related after-sales services

7,768

(RMB 1,737)


Kuang Mech. Eng.

Inc.

92,000

(US$ 2,836)

- - 92,000

(US$ 2,836)

3,902 100 3,902 50,145 -


(Suzhou) Co., Ltd.

Research, development and design of

computer network security systems and

information management

37,449

(RMB 8,374)

b. Subsidiary of Deep

Red Holding Co.,

Ltd.

(Note 9) - - (Note 9) 45,431 100 45,431 104,298 -

Accumulated Outward Remittance for

Investments in Mainland China as of

December 31, 2018

Investment Amounts Authorized by the

Investment Commission, MOEA

Upper Limit on the Amount of Investment

Stipulated by Investment Commission, MOEA

$635,051

(HK$1,200, US$19,312)

$725,060

(HK$1,400, US$22,076) (Note 6)

$8,646,012 (Note 7)

(Continued)

202

Note 1: Methods of investment have following type:

a. Direct investment in Mainland China.

b. Indirect investment in the Company of Mainland China through a third place.

c. Other

Note 2: The amounts of paid-in capital and carrying value as of balance sheet date were translated into New Taiwan dollars at the rates of HK$1=NT$3.921, US$1=NT$30.715, RMB1=NT$4.472 prevailing on December 28, 2018.

Note 3: The amounts of accumulated outflow of investment from Taiwan as of January 1, 2018 and December 31, 2018 were translated into New Taiwan dollars on the original outflow day.

Note 4: Based on audited financial statements.

Note 5: Investment income (loss) was translated into New Taiwan dollars at the average rate of HK$1=NT$3.846, US$1=NT$30.149, RMB1=NT$4.560 for the year ended December 31, 2018.

Note 6:

Approval Letter Approved Amount

a. Letter (1998) II-87710585 of Investment Commission of MOEA NT$ 5,852 (HK$ 1,400)

b. Letter (2000) II-89014726 and 89037430 of Investment Commission of MOEA NT$ 63,180 (US$ 2,000)

c. Letter (2001) II-89037430 of Investment Commission of MOEA NT$ 33,160 (US$ 1,000)

d. Letter II-91048640 of Investment Commission of MOEA NT$ 63,984 (US$ 1,853) (Note 8)

e. Letter II-90025170 of Investment Commission of MOEA NT$ 60,240 (US$ 1,750)

f. Letter II-092020235 of Investment Commission of MOEA NT$ 19,230 (US$ 560)

g. Letter II-092043358 of Investment Commission of MOEA NT$ 6,748 (US$ 200)

h. Letter II-093004076 of Investment Commission of MOEA NT$ 3,158 (US$ 95)

i. Letter II-094006092 of Investment Commission of MOEA NT$ 6,896 (US$ 219)

j. Letter II-09500052120 of Investment Commission of MOEA NT$ 81,528 (US$ 2,500)

k. Letter II-09600175700 of Investment Commission of MOEA NT$ 120,000 (US$ 3,699)

l. Letter II-096000006020 of Investment Commission of MOEA NT$ 66,580 (US$ 2,000)

m. Letter II-09600310110 of Investment Commission of MOEA NT$ 33,160 (US$ 1,000)

n. Letter II-09700186010 of Investment Commission of MOEA NT$ 46,110 (US$ 1,500)

o. Letter II-09700403210 of Investment Commission of MOEA NT$ 7,096 (US$ 210) (Note 9)

p. Letter II-10400042770 of Investment Commission of MOEA NT$ 78,240 (US$ 2,500)

q. Letter II-10600164500 of Investment Commission of MOEA NT$ 29,898 (US$ 990)

Note 7: The upper limit on investment was calculated in accordance with the regulations of the Investment Commission of the Ministry of Economic Affairs for 60% of the net equity or consolidated net equity.

Note 8: The Corporation invested accounts receivable amounting to US$853 thousand in Chroma Electronics (Shenzhen) Co., Ltd. through Neworld Electronics Ltd.

Note 9:The investment in Sajet Technology Inc. (liquidated on September 15, 2008) was authorized by the Investment Commission in 2004.

- 203 -

Chroma ATE Inc. Financial Statements for the Years Ended December 31, 2018 and 2017 and Independent Auditors’ Report

- 204 -

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Shareholders

Chroma ATE Inc.

Opinion

We have audited the financial statements of Chroma ATE Inc. (the “Corporation”), which comprise

the balance sheets as of December 31, 2018 and 2017, and the statements of comprehensive income,

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

including a summary of significant accounting policies.

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

financial position of the Corporation as of December 31, 2018 and 2017, and its financial performance

and its cash flows for the years then ended in accordance with the Regulations Governing the

Preparation of Financial Reports by Securities Issuers.

Basis for Opinion

We conducted our audits in accordance with the Regulations Governing Auditing and Attestation of

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

the Republic of China. Our responsibilities under those standards are further described in the Auditors’

Responsibilities for the Audit of the Financial Statements section of our report. We are independent

of the Corporation in accordance with The Norm of Professional Ethics for Certified Public

Accountant of the Republic of China, and we have fulfilled our other ethical responsibilities in

accordance with these requirements. 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 for the year ended December 31, 2018. These matters were

addressed in the context of our audit of the financial statements as a whole, and in forming our opinion

thereon, and we do not provide a separate opinion on these matters.

The key audit matters of the financial statements for the year ended December 31, 2018 are described

as follows:

Impairment of Trade Receivables

As indicated in Notes 5 and 11, trade receivables are significant accounts in the balance sheet of

Chroma ATE Inc. The process of evaluating impairment loss involves subjective judgement of

uncollectible accounts. The management recognizes lifetime Expected Credit Loss (ECL) on trade

receivables under the regulations of IFRS 9. The above evaluation involves the impact on receivables

of the management’s subjective judgements and assumptions on credit risks;, thus, we consider the

impairment of trade receivables as a key audit matter.

- 205 -

We assessed the rationale of the Corporation’s policy on providing allowance for trade receivables,

tested the impairment rate of ECL, inspected individual overdue receivables and made inquiries for

related reasons, to draw a conclusion on ECL of trade receivables.

Evaluation of Write-down of Inventories

The Corporation’s inventories are primarily test instruments widely used in technology industries

including power supply, passive components, semiconductor, LED, and solar energy. The

Corporation adjusts the product portfolio in response to the rapid change in the market and business

fluctuation. The market competition or technique replacement may result in the risk of inventories

becoming unmarketable or prices slumping due to lack of demand in the market. As stated in Note 5,

inventory valuation includes the consideration of whether the test instruments are obsolete or

unmarketable and the estimation of demand for the products in the future. Since the evaluation process

involves material assumptions and estimations, the valuation of inventories is deemed to be a key

audit matter.

We assessed the rationale of the Corporation’s policy on providing allowance for inventory valuation

and obsolescence losses, and we tested the accuracy of inventory aging report. We also tested the

recent selling prices and participated in annual inventory count to observe the condition of the

inventories in order to evaluate the reasonableness of the inventory value.

Please refer to Note 12 to the financial statements for the details of the information about inventories.

Responsibilities of Management and Those Charged with Governance for the Financial

Statements

Management is responsible for the preparation and fair presentation of the financial statements 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

financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Corporation’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

Corporation 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

Corporation’s financial reporting process.

Auditors’ Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report

that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee

that an audit conducted in accordance with the auditing standards generally accepted in the Republic

of China will always detect a material misstatement when it exists. Misstatements can arise from

fraud or error and are considered material if, individually or in the aggregate, they could reasonably

be expected to influence the economic decisions of users taken on the basis of these financial

statements.

- 206 -

As part of an audit in accordance with the auditing standards generally accepted in the Republic of

China, we exercise professional judgment and maintain professional skepticism throughout the audit.

We also:

1. Identify and assess the risks of material misstatement of the financial statements, whether due to

fraud or error, design and perform audit procedures responsive to those risks, and obtain audit

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

detecting a material misstatement resulting from fraud is higher than for one resulting from error,

as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override

of internal control.

2. Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an

opinion on the effectiveness of the Corporation’s internal control.

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

estimates and related disclosures made by management.

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

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

or conditions that may cast significant doubt on the Corporation’s ability to continue as a going

concern. If we conclude that a material uncertainty exists, we are required to draw attention in

our auditors’ report to the related disclosures in the financial statements or, if such disclosures

are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained

up to the date of our auditors’ report. However, future events or conditions may cause the

Corporation to cease to continue as a going concern.

5. Evaluate the overall presentation, structure and content of the financial statements, including the

disclosures, and whether the financial statements represent the underlying transactions and events

in a manner that achieves fair presentation.

6. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or

business activities within the Corporation to express an opinion on the financial statements. We

are responsible for the direction, supervision and performance of the 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 statements that we have complied with relevant

ethical requirements regarding independence, and to communicate with them all relationships and

other matters that may reasonably be thought to bear on our independence, and where applicable,

related safeguards.

From the matters communicated with those charged with governance, we determine those matters

that were of most significance in the audit of the financial statements for the year ended December

31, 2018 and are therefore the key audit matters. We describe these matters in our auditors’ report

unless law or regulation precludes public disclosure about the matter or when, in extremely rare

circumstances, we determine that a matter should not be communicated in our report because the

adverse consequences of doing so would reasonably be expected to outweigh the public interest

benefits of such communication.

- 207 -

The engagement partners on the audit resulting in this independent auditors’ report are Cheng-Ming

Lee and Wen-Chi Kuo.

Deloitte & Touche

Taipei, Taiwan

Republic of China

February 21, 2019

Notice to Readers

The accompanying financial statements are intended only to present the financial position, financial

performance and cash flows in accordance with accounting principles and practices generally

accepted in the Republic of China and not those of any other jurisdictions. The standards, procedures

and practices to audit such financial statements are those generally applied in the Republic of China.

For the convenience of readers, the independent auditors’ report and the accompanying financial

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

the Republic of China. If there is any conflict between the English version and the original Chinese

version or any difference in the interpretation of the two versions, the Chinese-language independent

auditors’ report and financial statements shall prevail.

- 208 -

CHROMA ATE INC.

BALANCE SHEETS

DECEMBER 31, 2018 AND 2017


2018 2017

ASSETS Amount % Amount %

CURRENT ASSETS

Cash and cash equivalents (Note 6) $ 915,899 5 $ 2,046,071 11

Financial assets at fair value through profit or loss - current (Note 7) 951,456 5 31 -

Available-for-sale financial assets - current (Note 9) - - 832,314 4

Notes receivable - unrelated parties (Note 11) 9,613 - 4,776 -

Notes receivable - related parties (Notes 11 and 29) 194 - 794 -

Trade receivables - unrelated parties (Note 11) 821,676 4 843,458 5

Trade receivables - related parties (Notes 11 and 29) 1,760,760 9 2,250,031 12

Other receivables - related parties (Note 29) 162,607 1 160,609 1

Inventories (Note 12) 1,897,485 10 1,862,318 10

Prepayments 47,177 - 100,866 -

Other current assets (Note 29) 73,292 - 111,241 1

Total current assets 6,640,159 34 8,212,509 44

NON-CURRENT ASSETS

Financial assets at fair value through profit or loss - non-current (Note 7) 6,807 - - -

Financial assets at fair value through other comprehensive income - non-current (Note 8) 613,836 3 - -

Available-for-sale financial assets - non-current (Note 9) - - 268,582 1

Financial assets measured at cost - non-current (Note 10) - - 167,914 1

Investments accounted for using equity method (Note 13) 5,082,361 26 4,358,436 23

Property, plant and equipment (Notes 14, 30 and 32) 2,493,620 13 1,789,099 10

Investment properties (Notes 15 and 32) 3,137,187 16 - -

Goodwill (Note 16) 94,424 1 94,424 1

Deferred tax assets (Note 24) 170,635 1 163,714 1

Prepayments for land and equipment (Note 32) 1,082,451 6 3,501,726 19

Refundable deposits 5,405 - 2,335 -

Other non-current assets - - 960 -

Total non-current assets 12,686,726 66 10,347,190 56

TOTAL $ 19,326,885 100 $ 18,559,699 100

LIABILITIES AND EQUITY

CURRENT LIABILITIES

Short-term borrowings (Note 17) $ 630,000 3 $ 300,000 2

Contract liabilities - current (Note 22) 31,014 - - -

Notes payable (Note 29) 105 - 3,790 -

Trade payables - unrelated parties 979,904 5 1,372,241 7

Trade payables - related parties (Note 29) 12,787 - 34,519 -

Other payables (Note 19) 667,068 4 721,008 4

Current tax liabilities (Note 24) 214,898 1 167,807 1

Receipts in advance - - 61,593 -

Current portion of long-term borrowings (Note 17) - - 1,200,000 7

Other current liabilities 15,961 - 16,129 -

Total current liabilities 2,551,737 13 3,877,087 21

NON-CURRENT LIABILITIES

Bonds payable (Note 18) - - 99,703 -

Long-term borrowings (Note 17) 1,800,000 9 900,000 5

Deferred tax liabilities (Note 24) 412,043 2 294,229 2

Net defined benefit liabilities (Note 20) 152,393 1 157,432 1

Guarantee deposits received 692 - 569 -

Total non-current liabilities 2,365,128 12 1,451,933 8

Total liabilities 4,916,865 25 5,329,020 29

EQUITY ATTRIBUTABLE TO OWNERS OF THE CORPORATION (Note 21)

Ordinary share capital 4,167,794 22 4,118,942 22

Capital surplus 3,469,637 18 3,187,289 17

Retained earnings

Legal reserve 2,152,411 11 1,896,570 10

Special reserve 86,888 - 86,888 -

Unappropriated earnings 4,555,760 24 3,988,838 22

Total retained earnings 6,795,059 35 5,972,296 32

Other equity 13,244 - (12,134) -

Treasury shares (35,714) - (35,714) -

Total equity 14,410,020 75 13,230,679 71

TOTAL $ 19,326,885 100 $ 18,559,699 100

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

- 209 -

CHROMA ATE INC.

STATEMENTS OF COMPREHENSIVE INCOME



2018 2017

Amount % Amount %

OPERATING REVENUE (Notes 22 and 29)

Sales $ 7,551,259 100 $ 8,034,225 100

Less: Sales returns (2,714) - (13,935) -

Sales allowances (1,705) - (2,284) -

Net operating revenue 7,546,840 100 8,018,006 100

OPERATING COSTS (Notes 12, 23 and 29) (3,619,263) (48) (3,861,228) (48)

GROSS PROFIT 3,927,577 52 4,156,778 52

UNREALIZED GAIN ON TRANSACTIONS

WITH SUBSIDIARIES AND ASSOCIATES (10,857) - (39,916) (1)

REALIZED GROSS PROFIT 3,916,720 52 4,116,862 51

OPERATING EXPENSES (Notes 23 and 29)

Selling and marketing expenses 788,086 11 771,907 10

General and administrative expenses 471,125 6 500,298 6

Research and development expenses 1,143,397 15 1,085,279 13

Total operating expenses 2,402,608 32 2,357,484 29

PROFIT FROM OPERATIONS 1,514,112 20 1,759,378 22

NON-OPERATING INCOME AND EXPENSES

Finance costs (Note 23) (21,760) - (12,490) -

Share of profit of subsidiaries, associates and

joint ventures, net (Note 13) 1,222,318 16 1,111,001 14

Interest income (Note 29) 8,903 - 16,521 -

Rental income (Note 29) 18,327 - 29,908 -

Dividend income 22,880 1 24,115 -

Other income (Note 29) 72,902 1 41,040 1

Gain (loss) on disposal of property, plant and

equipment, net 1 - (106) -

Gain on disposal of investments - - 13,792 -

Net foreign exchange gain (loss) (Note 33) 84,517 1 (117,951) (1)

Gain on financial assets (liabilities) at fair value

through profit or loss, net (Note 18) 6,493 - 539 -

Other expenses (85) - (33) -

Total non-operating income and expenses 1,414,496 19 1,106,336 14

(Continued)

- 210 -

CHROMA ATE INC.

STATEMENTS OF COMPREHENSIVE INCOME



2018 2017

Amount % Amount %

PROFIT BEFORE INCOME TAX $ 2,928,608 39 $ 2,865,714 36

INCOME TAX EXPENSE (Note 24) 382,333 5 307,313 4

NET PROFIT FOR THE YEAR 2,546,275 34 2,558,401 32

OTHER COMPREHENSIVE INCOME (LOSS)

Items that will not be reclassified subsequently

to profit or loss:

Remeasurement of defined benefit plans (4,618) - (8,846) -

Unrealized gain on investments in equity

investments designated as at fair value

through other comprehensive income 16,832 - - -

Share of the other comprehensive income

(loss) of subsidiaries, associates and joint

ventures accounted for using equity method (4,666) - 1,891 -

Items that may be reclassified subsequently to

profit or loss:

Exchange differences on translating the

financial statements of foreign operations (6,229) - (64,660) (1)

Unrealized loss on available-for-sale financial

assets - - (53,099) (1)

Share of the other comprehensive loss of

subsidiaries, associates and joint ventures

accounted for using equity method (1,010) - (8,513) -

Total other comprehensive income (loss) 309 - (133,227) (2)

TOTAL COMPREHENSIVE INCOME $ 2,546,584 34 $ 2,425,174 30

EARNINGS PER SHARE (NT$; Note 25)

Basic $ 6.22 $ 6.41

Diluted $ 6.08 $ 6.18

The accompanying notes are an integral part of the financial statements.(Concluded)

- 211 -

CHROMA ATE INC.

STATEMENTS OF CHANGES IN EQUITY



Other Equity

Unrealized Gain

Exchange (Loss) on

Differences on Financial Assets at

Translating the Unrealized Gain Fair Value

Retained Earnings Financial (Loss) on Through Other

Ordinary Share Unappropriated Statements of Available-for-sale Comprehensive Unearned

Capital Capital Surplus Legal Reserve Special Reserve Earnings Total Foreign Operations Financial Assets Income Employee Benefit Total Treasury Shares Total Equity

BALANCE AT JANUARY 1, 2017 $ 3,898,872 $ 1,960,159 $ 1,724,576 $ 86,888 $ 2,923,811 $ 4,735,275 $ (24,914 ) $ 232,901 $ - $ (149,952 ) $ 58,035 $ (35,714 ) $ 10,616,627


Legal reserve - - 171,994 - (171,994 ) - - - - - - - -

Cash dividends - NT$3.3 per share - - - - (1,314,425 ) (1,314,425 ) - - - - - - (1,314,425 )

Change in capital surplus from investments in subsidiaries, associates and

joint ventures accounted for using equity method - (8,326 ) - - - - - - - - - - (8,326 )

Net profit for the year ended December 31, 2017 - - - - 2,558,401 2,558,401 - - - - - - 2,558,401

Other comprehensive income (loss) for the year ended December 31,

2017 - - - - (6,955 ) (6,955 ) (72,719 ) (53,553 ) - - (126,272 ) - (133,227 )

Total comprehensive income (loss) for the year ended December 31,

2017 - - - - 2,551,446 2,551,446 (72,719 ) (53,553 ) - - (126,272 ) - 2,425,174

Conversion of convertible bonds 201,515 1,101,453 - - - - - - - - - - 1,302,968

Buy-back of treasury shares - - - - - - - - - - - (123 ) (123 )

Cancelation of treasury shares (123 ) - - - - - - - - - - 123 -

Adjustment of capital surplus for corporation's cash dividends received

by subsidiaries - 6,170 - - - - - - - - - - 6,170

Share-based payment transaction 18,678 127,833 - - - - - - - 56,103 56,103 - 202,614

BALANCE AT DECEMBER 31, 2017 4,118,942 3,187,289 1,896,570 86,888 3,988,838 5,972,296 (97,633 ) 179,348 - (93,849 ) (12,134 ) (35,714 ) 13,230,679

Effect of retrospective application and retrospective restatement - - - - 135,130 135,130 - (179,348 ) 151,864 - (27,484 ) - 107,646

BALANCE AT JANUARY 1, 2018 AS RESTATED 4,118,942 3,187,289 1,896,570 86,888 4,123,968 6,107,426 (97,633 ) - 151,864 (93,849 ) (39,618 ) (35,714 ) 13,338,325


Legal reserve - - 255,841 - (255,841 ) - - - - - - - -

Cash dividends - NT$4.5 per share - - - - (1,854,424 ) (1,854,424 ) - - - - - - (1,854,424 )

Change in capital surplus from investments in subsidiaries, associates and

joint ventures accounted for using equity method - (267 ) - - - - - - - - - - (267 )

Net profit for the year ended December 31, 2018 - - - - 2,546,275 2,546,275 - - - - - - 2,546,275

Other comprehensive income (loss) for the year ended December 31,

2018 - - - - (5,322 ) (5,322 ) (7,239 ) - 12,870 - 5,631 - 309

Total comprehensive income (loss) for the year ended December 31,

2018 - - - - 2,540,953 2,540,953 (7,239 ) - 12,870 - 5,631 - 2,546,584

Conversion of convertible bonds 16,141 84,486 - - - - - - - - - - 100,627

Buy-back of treasury shares - - - - - - - - - - - (840 ) (840 )

Cancelation of treasury shares (840 ) - - - - - - - - - - 840 -

Adjustment of capital surplus for corporation's cash dividends received

by subsidiaries - 8,572 - - - - - - - - - - 8,572

Changes in percentage of ownership interests in subsidiaries - - - - (2,107 ) (2,107 ) - - - - - - (2,107 )

Share-based payment transaction 33,551 189,557 - - - - - - - 51,472 51,472 - 274,580

Disposals of investments in equity instruments designated as at fair value

through other comprehensive income - - - - 4,241 4,241 - - (4,241 ) - (4,241 ) - -

Adjustments to share of changes in equities of subsidiaries, associates

and joint ventures accounted for using equity method - - - - (1,030 ) (1,030 ) - - - - - - (1,030 )

BALANCE AT DECEMBER 31, 2018 $ 4,167,794 $ 3,469,637 $ 2,152,411 $ 86,888 $ 4,555,760 $ 6,795,059 $ (104,872 ) $ - $ 160,493 $ (42,377 ) $ 13,244 $ (35,714 ) $ 14,410,020

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

- 212 -

CHROMA ATE INC.

STATEMENTS OF CASH FLOWS



2018 2017 CASH FLOWS FROM OPERATING ACTIVITIES

Income before income tax $ 2,928,608 $ 2,865,714 Adjustments for:

Depreciation expenses 176,530 168,141 Amortization expenses 960 960 Expected credit loss recognized on trade receivables (provision

for bad debt expense) 3,000 36,000 Net gain on financial assets (liabilities) at fair value through

profit or loss (6,493) (539) Finance costs 21,760 12,490 Interest income (8,903) (16,521) Dividend income (22,880) (24,115) Compensation costs of share-based payments 78,596 121,593 Share of profit of subsidiaries, associates and joint ventures

accounted for using equity method (1,222,318) (1,111,001) (Gain) loss on disposal of property, plant and equipment (1) 106 Gain on disposal of investments - (13,792) Impairment loss (reversal of impairment) on non-financial

assets 21,000 (37,331) Unrealized gain on transactions with subsidiaries and

associates 10,857 39,916 Net (gain) loss on foreign currency exchange (62,225) 137,192

Net changes in operating assets and liabilities Notes receivable (4,237) (738) Trade receivables 553,062 (943,125) Inventories (761) (425,391) Prepayments 53,689 (69,871) Other current assets 37,689 (731) Contract liabilities (30,579) - Notes payable (3,685) 3,280 Trade payables (422,570) 271,543 Other payables (51,971) 60,306 Receipts in advance - (105,489) Other current liabilities (168) 5,478 Net defined benefit liabilities (9,657) (9,174)

Cash generated from operations 2,039,303 964,901 Income tax paid (224,349) (302,752)

Net cash generated from operating activities 1,814,954 662,149

CASH FLOWS FROM INVESTING ACTIVITIES

Payments to acquire financial assets at fair value through other comprehensive income (67,800) -

Cash returned of capital reduction of financial assets at fair value through other comprehensive income 5,262 -

Payments to acquire financial assets at fair value through profit or loss (1,745,000) -

(Continued)

- 213 -

CHROMA ATE INC.

STATEMENTS OF CASH FLOWS



2018 2017

Proceeds from disposal of financial assets at fair value through profit or loss $ 1,631,577 $ -

Payments to acquire available-for-sale financial assets - (476,000) Proceeds from disposal of available-for-sale financial assets - 1,678,988 Proceeds from disposal of financial assets measured at cost - 2,552 Cash returned of capital reduction of financial assets measured at

cost - 23,111 Payments to acquire investments accounted for using equity

method (121,970) (217,858) Payments for property, plant and equipment (133,241) (71,611) Proceeds from disposal of property, plant and equipment 6,949 3,875 Increase in refundable deposits (3,070) (259) Decrease (increase) in other receivables - related parties 5,409 (10,108) Increase in other non-current assets - (960) Increase in prepayments for equipment (1,519,652) (465,376) Interest received 9,173 17,189 Dividends received 627,585 181,175

Net cash (used in) generated from investing activities (1,304,778) 664,718

CASH FLOWS FROM FINANCING ACTIVITIES

Increase in short-term borrowings 330,000 300,000 Proceeds from long-term borrowings 900,000 900,000 Repayments of long-term borrowings (1,200,000) (800,000) Increase in guarantee deposits 123 - Cash dividends paid (1,854,424) (1,314,425) Exercise of employee stock options 195,755 79,128 Payments for buy-back of ordinary shares (840) (123) Interest paid (30,989) (30,440) Proceeds from issuance of employee restricted shares - 1,850

Net cash used in financing activities (1,660,375) (864,010)

EFFECTS OF EXCHANGE RATE CHANGES ON THE

BALANCE OF CASH HELD IN FOREIGN CURRENCIES 20,027 (41,624) NET (DECREASE) INCREASE IN CASH AND CASH

EQUIVALENTS (1,130,172) 421,233 CASH AND CASH EQUIVALENTS AT THE BEGINNING OF

THE YEAR 2,046,071 1,624,838 CASH AND CASH EQUIVALENTS AT THE END OF THE

YEAR $ 915,899 $ 2,046,071

The accompanying notes are an integral part of the financial statements. (Concluded)

- 214 -

CHROMA ATE INC.

NOTES TO FINANCIAL STATEMENTS



1. GENERAL INFORMATION

Chroma ATE Inc. (the “Corporation”) was incorporated in the Republic of China (ROC) in November

1984. The Corporation mainly designs, assembles, calibrates, manufactures, sells, repairs and maintains

software/hardware for computers and peripherals, computerized automatic test systems, electronic test

instruments, signal generators, power supplies, telecom power supplies, etc. as well as serves as an agent

to sell these products. The Corporation’s shares have been listed on the Taiwan Stock Exchange since

December 21, 1996.

The financial statements are presented in the Corporation’s functional currency, the New Taiwan dollar

(NTD).

2. APPROVAL OF FINANCIAL STATEMENTS

The financial statements were approved by the Corporation’s board of directors on February 21, 2019.

3. APPLICATION OF NEW, AMENDED AND REVISED STANDARDS AND

INTERPRETATIONS

a. Initial application of the amendments to the Regulations Governing the Preparation of Financial

Reports by Securities Issuers and the International Financial Reporting Standards (IFRS), International

Accounting Standards (IAS), Interpretations of IFRS (IFRIC), and Interpretations of IAS (SIC)

(collectively, the “IFRSs”) endorsed and issued into effect by the Financial Supervisory Commission

(FSC)

Except for the following, the initial application of the amendments to the Regulations Governing the

Preparation of Financial Reports by Securities Issuers and the IFRSs endorsed and issued into effect

by the FSC would not have any material impact on the Corporation’s accounting policies:

IFRS 9 “Financial Instruments” and related amendment

IFRS 9 supersedes IAS 39 “Financial Instruments: Recognition and Measurement”, with

consequential amendments to IFRS 7 “Financial Instruments: Disclosures” and other standards.

IFRS 9 sets out the requirements for classification, measurement and impairment of financial

assets and hedge accounting.

Classification, measurement and impairment of financial assets

On the basis of the facts and circumstances that existed as at January 1, 2018, the Corporation has

performed an assessment of the classification of recognized financial assets and has elected not

to restate prior reporting periods.

- 215 -

The following table shows the original measurement categories and carrying amount under IAS

39 and the new measurement categories and carrying amount under IFRS 9 for each class of the

Corporation’s financial assets and financial liabilities as of January 1, 2018.

Measurement Category Carrying Amount

Financial Assets IAS 39 IFRS 9 IAS 39 IFRS 9 Remark

Cash and cash equivalents Loans and receivables Amortized cost $ 2,046,071 $ 2,046,071 -

Derivatives Held‑ for‑ trading Mandatorily at fair value through

profit or loss (i.e. FVTPL)

31 31 -

Domestic listed equity securities Available‑ for‑ sale Fair value through other

comprehensive income (i.e.

FVTOCI) - equity instrument

268,582 268,582 1)


securities

Available‑ for‑ sale FVTOCI - equity instrument 157,762 265,884 1)

Domestic open-end beneficiary

certificates

Available‑ for‑ sale Mandatorily at FVTPL 832,314 832,314 2)

Foreign open-end beneficiary

certificates

Available‑ for‑ sale Mandatorily at FVTPL 10,152 6,013 2)

Notes receivable, trade

receivables and other

receivables

Loans and receivables Amortized cost 3,363,393 3,363,393 3)

Refundable deposits Loans and receivables Amortized cost 2,335 2,335 -

Financial Assets

IAS 39

Carrying

Amount as of

January 1,

2018

Reclassifi-

cations

Remeasure-

ments

IFRS 9

Carrying

Amount as of

January 1,

2018

Retained

Earnings

Effect on

January 1,

2018

Other Equity

Effect on

January 1,

2018 Remark

FVTPL $ 31



required reclassification

-

$ 842,466

$ (4,139 )

2)

31 842,466 (4,139 ) $ 838,358 $ 8,176 $ (12,315 )

FVTOCI

Equity instruments



-

426,344

108,122

1)

- 426,344 108,122 534,466 109,876 (1,754 )

$ 31 $ 1,268,810 $ 103,983 $ 1,372,824 $ 118,052 $ (14,069 )

1) The Corporation elected to designated all its investments in equity securities

previously classified as available-for-sale under IAS 39 as at FVTOCI under IFRS 9,

because these investments are not held for trading. As a result, the related other equity

- unrealized gain (loss) on available-for-sale financial assets of $158,625 thousand was

reclassified to other equity - unrealized gain (loss) on financial assets at FVTOCI.

Investments in unlisted shares previously measured at cost under IAS 39 have been

designated as at FVTOCI under IFRS 9 and were remeasured at fair value.

Consequently, an increase of $108,122 thousand was recognized in both financial

assets at FVTOCI and other equity - unrealized gain (loss) on financial assets at

FVTOCI on January 1, 2018, respectively.

The Corporation recognized under IAS 39 impairment loss on certain investments in

equity securities previously classified as measured at cost and the loss was

accumulated in retained earnings. Since those investments were designated as at

FVTOCI under IFRS 9 and no impairment assessment is required, an adjustment was

made that resulted in a decrease of $109,876 thousand in other equity - unrealized gain

(loss) on financial assets at FVTOCI and an increase of the same amount in retained

earnings on January 1, 2018, respectively.

- 216 -

2) Mutual funds previously classified as available-for-sale under IAS 39 were classified

mandatorily as at FVTPL under IFRS 9, because the contractual cash flows are not

solely payments of principal and interest on the principal outstanding and they are not

equity instruments. The retrospective adjustment resulted in a decrease of $12,315

thousand in other equity - unrealized gain (loss) on available-for-sale financial assets

and an increase of the same amount in retained earnings on January 1, 2018. Mutual

funds previously measured at cost under IAS 39 were classified as at FVTPL under

IFRS 9 and were measured at fair value. Consequently, a decrease of $4,139 thousand

was recognized in both financial assets at FVTPL and retained earnings.

3) Notes receivable, trade receivables and other receivables that were previously

classified as loans and receivables under IAS 39 were classified as measured at

amortized cost with an assessment of expected credit losses under IFRS 9. The

Corporation had assessed that the effect of retrospective application would not have

any material impact.

4) As a result of the retrospective application of IFRS 9 by subsidiaries, associates and

joint ventures accounted for using equity method, there was an increase in investments

accounted for using equity method of $3,663 thousand, a decrease in other equity -

unrealized gain (loss) on available-for-sale financial assets of $8,408 thousand, a

decrease on other equity - unrealized gain (loss) on financial assets at FVTOCI of

$5,007 thousand and an increase in retained earnings of $17,078 thousand on January

1, 2018.

b. Amendments to the Regulations Governing the Preparation of Financial Reports by Securities Issuers

and the “IFRSs” endorsed by the FSC for application starting from 2019

New, Amended or Revised Standards and Interpretations

(the “New IFRSs”)

Effective Date


Annual Improvements to IFRSs 2015-2017 Cycle January 1, 2019

Amendments to IFRS 9 “Prepayment Features with Negative

Compensation”


IFRS 16 “Leases” January 1, 2019

Amendments to IAS 19 “Plan Amendment, Curtailment or

Settlement”


Amendments to IAS 28 “Long-term Interests in Associates and

Joint Ventures”

January 1, 2019

IFRIC 23 “Uncertainty Over Income Tax Treatments” January 1, 2019 Note 1: Unless stated otherwise, the above New IFRSs are effective for annual periods

beginning on or after their respective effective dates. Note 2: The FSC permits the election for early adoption of the amendments starting from

2018. Note 3: The Corporation shall apply these amendments to plan amendments, curtailments or

settlements occurring on or after January 1, 2019. IFRS 16 “Leases”

IFRS 16 provides a comprehensive model for the identification of lease arrangements and their treatment in the financial statements of both lessees and lessor. It supersedes IAS 17 “Leases”, IFRIC 4 “Determining whether An Arrangement Contains A Lease”, and a number of related interpretations.

- 217 -

Definition of a lease

Upon initial application of IFRS 16, the Corporation will elect to apply the guidance of IFRS 16

in determining whether contracts are, or contain, a lease only to contracts entered into (or

changed) on or after January 1, 2019. Contracts identified as containing a lease under IAS 17 and

IFRIC 4 will not be reassessed and will be accounted for in accordance with the transitional

provisions under IFRS 16.

The Corporation as lessee

Upon initial application of IFRS 16, the Corporation will recognize right-of-use assets, or

investment properties if the right-of-use assets meet the definition of investment properties, and

lease liabilities for all leases on the balance sheets except for those whose payments under low-

value and short-term leases will be recognized as expenses on a straight-line basis. On the

statements of comprehensive income, the Corporation will present the depreciation expense

charged on right-of-use assets separately from the interest expense accrued on lease liabilities;

interest is computed using the effective interest method. On the statements of cash flows, cash

payments for the principal portion of lease liabilities will be classified within financing activities;

cash payments for the interest portion will be classified within financing activities. Currently,

payments under operating lease contracts are recognized as expenses on a straight-line basis. Cash

flows for operating leases are classified within operating activities on the statements of cash flows.

Leased assets and finance lease payables are recognized for contracts classified as finance leases.

The Corporation anticipates applying IFRS 16 retrospectively with the cumulative effect of the

initial application of this standard recognized on January 1, 2019. Comparative information will

not be restated.

Lease liabilities will be recognized on January 1, 2019 for leases currently classified as operating

leases with the application of IAS 17. Lease liabilities will be measured at the present value of

the remaining lease payments, discounted using the lessee’s incremental borrowing rate on

January 1, 2019. Right-of-use assets will be measured at an amount equal to the lease liabilities,

the Corporation will apply IAS 36 to all right-of-use assets.

The Corporation anticipates applying IFRS 16 retrospectively with the cumulative effect of the

initial application of this standard recognized on January 1, 2019. Comparative information will

not be restated.

The Corporation expects to apply the following practical expedients:

1) The Corporation will apply a single discount rate to a portfolio of leases with

reasonably similar characteristics to measure lease liabilities.

2) The Corporation will account for those leases for which the lease term ends on or

before December 31, 2019 as short-term leases.

3) The Corporation will exclude initial direct costs from the measurement of right-of-use

assets on January 1, 2019.

4) The Corporation will use hindsight, such as in determining lease terms, to measure

lease liabilities.

The Corporation as lessor

The Corporation will not make any adjustments for leases in which it is a lessor and will account

for those leases with the application of IFRS 16 starting from January 1, 2019.

- 218 -

Anticipated impact on assets, liabilities and equity

Carrying Amount as of December 31,

2018

Adjustments Arising from

Initial Application

Adjusted Carrying

Amount as of January 1,

2019 Right-of-use assets $ - $ 42,905 $ 42,905 Total effect on assets $ - $ 42,905 $ 42,905 Lease liabilities - current $ - $ 15,963 $ 15,963 Lease liabilities - non-current - 26,942 26,942 Total effect on liabilities $ - $ 42,905 $ 42,905

Except for the above impacts, the Corporation had assessed that the application of other standards

and interpretations would not have significant impacts on the Corporation’s financial position and

financial performance.

c. New IFRSs in issue but not yet endorsed and issued into effect by the FSC

New IFRSs

Effective Date

Announced by IASB (Note 1) Amendments to IFRS 3 “Definition of a Business” January 1, 2020 (Note 2) Amendments to IFRS 10 and IAS 28 “Sale or Contribution of

Assets between An Investor and Its Associate or Joint Venture”

To be determined by IASB

IFRS 17 “Insurance Contracts” January 1, 2021 Amendments to IAS 1 and IAS 8 “Definition of Material” January 1, 2020 (Note 3)



Note 2: The Corporation shall apply these amendments to business combinations for which

the acquisition date is on or after the beginning of the first annual reporting period

beginning on or after January 1, 2020 and to asset acquisitions that occur on or after

the beginning of that period.

Note 3: The Corporation shall apply these amendments prospectively for annual reporting

periods beginning on or after January 1, 2020.

Except for the above impacts, the Corporation is continuously assessing the possible impacts that the

application of other standards and interpretations will have on the Corporation’s financial position and

financial performance, and will disclose the relevant impacts when the assessment is completed.

4. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

a. Statement of compliance

The financial statements have been prepared in accordance with the Regulations Governing the

Preparation of Financial Reports by Securities Issuers.

- 219 -

b. Basis of preparation

The financial statements have been prepared on the historical cost basis except for financial

instruments measured at fair value and net defined benefit liabilities which are measured at the present

value of the defined benefit obligation less the fair value of plan assets.

The fair value measurements, which are grouped into Levels 1 to 3 based on the degree to which the

fair value measurement inputs are observable and based on the significance of the inputs to the fair

value measurement in its entirety, are described as follows:

1) Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities;

2) Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for

an asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

3) Level 3 inputs are unobservable inputs for an asset or liability.

When preparing these financial statements, the Corporation used the equity method to account for its

investment in subsidiaries, associates and joint ventures. In order for the amounts of the net profit for

the year, other comprehensive income for the year and total equity in the financial statements to be the

same with the amounts attributable to the owner of the Corporation in its consolidated financial

statements, adjustments arising from the differences in accounting treatment between the basis and the

consolidated basis were made to investments accounted for using the equity method, share of profit or

loss of subsidiaries, associates and joint ventures, share of other comprehensive income of subsidiaries,

associates and joint ventures and related equity items, as appropriate, in these financial statements.

c. Classification of current and non-current assets and liabilities

Current assets include:

1) Assets held primarily for the purpose of trading;

2) Assets expected to be realized within 12 months after the reporting period; and

3) Cash and cash equivalents unless the asset is restricted from being exchanged or used to settle a

liability for at least 12 months after the reporting period.

Current liabilities include:

1) Liabilities held primarily for the purpose of trading;

2) Liabilities due to be settled within 12 months after the reporting period; and

3) Liabilities for which the Corporation does not have an unconditional right to defer settlement for

at least 12 months after the reporting period.

Assets and liabilities that are not classified as current are classified as non-current.

d. Foreign currencies

In preparing the Corporation’s financial statements, transactions in currencies other than the entity’s

functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates

of the transactions.

- 220 -

At the end of each reporting period, monetary items denominated in foreign currencies are retranslated

at the rates prevailing at that date. Exchange differences on monetary items arising from settlement or

translation are recognized in profit or loss in the period in which they arise.

Non-monetary items measured at fair value that are denominated in foreign currencies are retranslated

at the rates prevailing at the date when the fair value was determined. Exchange differences arising

from the retranslation of non-monetary items are included in profit or loss for the period except for

exchange differences arising from the retranslation of non-monetary items in respect of which gains

and losses are recognized directly in other comprehensive income, in which case, the exchange

differences are also recognized directly in other comprehensive income.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the

exchange rate at the date of the transaction.

e. Inventories

Inventories consist of raw materials, semi-finished goods, finished goods and work-in-process, which

are stated at the lower of cost or net realizable value. Inventory write-downs are made by item, except

where it may be appropriate to group similar or related items. The net realizable value is the estimated

selling price of inventories less all estimated costs of completion and costs necessary to make the sale.

Inventories are recorded at standard cost and adjusted to approximate weighted-average cost on the

balance sheet date.

f. Investments accounted for using equity method

Investments in subsidiaries, associates and joint ventures are accounted for by the equity method.

1) Investment in subsidiaries

A subsidiary is an entity that is controlled by the Corporation.

Under the equity method, an investment in a subsidiary is initially recognized at cost and adjusted

thereafter to recognize the Corporation's share of the profit or loss and other comprehensive

income of the subsidiary. The Corporation also recognizes the changes in the Corporation’s share

of equity of subsidiaries attributable to the Corporation.

Changes in the Corporation’s ownership interest in a subsidiary that do not result in the

Corporation losing control of the subsidiary are equity transactions. The Corporation recognizes

directly in equity any difference between the carrying amount of the investment and the fair value

of the consideration paid or received.

When the Corporation’s share of losses of a subsidiary equals or exceeds its interest in that

subsidiary (which includes any carrying amount of the investment in subsidiary accounted for

using equity method and long-term interests that, in substance, form part of the Corporation’s net

investment in the subsidiary), the Corporation continues recognizing its share of further losses.

Any excess of the cost of acquisition over the Corporation’s share of the net fair value of the

identifiable assets and liabilities of a subsidiary at the date of acquisition is recognized as

goodwill, which is included within the carrying amount of the investment and is not amortized.

Any excess of the Corporation’s share of the net fair value of the identifiable assets and liabilities

over the cost of acquisition is recognized immediately in profit or loss.

- 221 -

The Corporation assesses its investment for any impairment by comparing the carrying amount

with the estimated recoverable amount as assessed based on the investee’s financial statements as

a whole. Impairment loss is recognized when the carrying amount exceeds the recoverable

amount. If the recoverable amount of the investment subsequently increases, the Corporation

recognizes reversal of the impairment loss; the adjusted post-reversal carrying amount should not

exceed the carrying amount that would have been recognized (net of amortization or depreciation)

had no impairment loss been recognized in prior years. An impairment loss recognized on

goodwill cannot be reversed in a subsequent period.

When the Corporation loses control of a subsidiary, it recognizes the investment retained in the

former subsidiary at its fair value at the date when control is lost. The difference between the fair

value of the retained investment plus any consideration received and the carrying amount of

previous investment at the date when control is lost is recognized as a gain or loss in profit or

loss. Besides, the Corporation accounts for all amounts previously recognized in other

comprehensive income in relation to that subsidiary on the same basis as would be required if the

Corporation had directly disposed of the related assets or liabilities.

Profits and losses resulting from downstream transactions are eliminated in full in the

Corporation’s financial statement. Profits and losses resulting from upstream transactions and

transactions between subsidiaries are recognized in the Corporation’s financial statements only to

the extent of interests in the subsidiaries that are not related to the Corporation.

2) Investments in associates and joint ventures

An associate is an entity over which the Corporation has significant influence and which is neither

a subsidiary nor an interest in a joint venture. A joint venture is a joint arrangement whereby the

Corporation and other parties that have joint control of the arrangement have rights to the net

assets of the arrangement.

Under the equity method, investments in an associate and a joint venture are initially recognized

at cost and adjusted thereafter to recognize the Corporation’s share of the profit or loss and other

comprehensive income of the associate and joint venture. The Corporation also recognizes the

changes in the Corporation’s share of equity of the associates and joint ventures attributable to

the Corporation.

Any excess of the cost of acquisition over the Corporation’s share of the net fair value of the

identifiable assets and liabilities of an associate or a joint venture at the date of acquisition is

recognized as goodwill, which is included within the carrying amount of the investment and is

not amortized. Any excess of the Corporation’s share of the net fair value of the identifiable assets

and liabilities over the cost of acquisition, after reassessment, is recognized immediately in profit

or loss.

When the Corporation subscribes for additional new shares of an associate and joint venture at a

percentage different from its existing ownership percentage, the resulting carrying amount of the

investment differs from the amount of the Corporation’s proportionate interest in the associate

and joint venture. The Corporation records such a difference as an adjustment to investments with

the corresponding amount charged or credited to capital surplus - changes in capital surplus from

investments in associates and joint ventures accounted for using equity method. If the

Corporation’s ownership interest is reduced due to its additional subscription of the new shares

of the associate and joint venture, the proportionate amount of the gains or losses previously

recognized in other comprehensive income in relation to that associate and joint venture is

reclassified to profit or loss on the same basis as would be required had the investee directly

disposed of the related assets or liabilities. When the adjustment should be debited to capital

surplus, but the capital surplus recognized from investments accounted for using equity method

is insufficient, the shortage is debited to retained earnings.

- 222 -

When the Corporation’s share of losses of an associate and a joint venture equals or exceeds its

interest in that associate and joint venture (which includes any carrying amount of the investment

accounted for using equity method and long-term interests that, in substance, form part of the

Corporation’s net investment in the associate and joint venture), the Corporation discontinues

recognizing its share of further losses. Additional losses and liabilities are recognized only to the

extent that the Corporation has incurred legal obligations, or constructive obligations, or made

payments on behalf of that associate and joint venture.

The entire carrying amount of the investment (including goodwill) is tested for impairment as a

single asset by comparing its recoverable amount with its carrying amount. Any impairment loss

recognized is not allocated to any asset, including goodwill, that forms part of the carrying amount

of the investment. Any reversal of that impairment loss is recognized to the extent that the

recoverable amount of the investment subsequently increases.

The Corporation discontinues the use of the equity method from the date on which its investment

ceases to be an associate and a joint venture. Any retained investment is measured at fair value at

that date, and the fair value is regarded as its fair value on initial recognition as a financial asset.

The difference between the previous carrying amount of the associate and the joint venture

attributable to the retained interest and its fair value is included in the determination of the gain

or loss on disposal of the associate and the joint venture. The Corporation accounts for all amounts

previously recognized in other comprehensive income in relation to that associate and joint

venture on the same basis as would be required had that associate directly disposed of the related

assets or liabilities. If an investment in an associate becomes an investment in a joint venture or

an investment in a joint venture becomes an investment in an associate, the Corporation continues

to apply the equity method and does not remeasure the retained interest.

When a group entity transacts with its associate and joint venture, profits and losses resulting

from the transactions with the associate and joint venture are recognized in the Corporation’s

financial statements only to the extent that interests in the associate and the joint venture are not

related to the Corporation.

g. Property, plant and equipment

Property, plant and equipment are measured at cost less accumulated depreciation and

accumulated impairment loss.

Property, plant and equipment in the course of construction are measured at cost less any

recognized impairment loss. Cost includes professional fees and borrowing cost eligible for

capitalization. Such assets are depreciated and classified to the appropriate categories of property,

plant and equipment when completed and ready for their intended use.

Depreciation is recognized using the straight-line method. Each significant part is depreciated

separately. If a lease term is shorter than the assets’ useful lives, such assets are depreciated over

the lease term. The estimated useful lives, residual values and depreciation method are reviewed

at the end of each reporting period, with the effect of any changes in the estimates accounted for

on a prospective basis.

On derecognition of an item of property, plant and equipment, the difference between the sales

proceeds and the carrying amount of the asset is recognized in profit or loss.

h. Investment properties

Investment properties are properties held to earn rentals and/or for capital appreciation (including

property under construction for such purposes). Investment properties also include land held for

a currently undetermined future use.

- 223 -

Investment properties are initially measured at cost, including transaction costs. Subsequent to

initial recognition, investment properties are measured at cost less accumulated depreciation and

accumulated impairment loss. Depreciation is recognized using the straight-line method.

Investment properties under construction are measured at cost less accumulated impairment loss.

Cost includes professional fees and borrowing costs eligible for capitalization. Depreciation of

these assets commences when the assets are ready for their intended use.

On derecognition of an investment property, the difference between the net disposal proceeds and

the carrying amount of the asset is included in profit or loss.

i. Goodwill

For the purposes of impairment testing, goodwill is allocated to each of the Corporation’s cash-

generating units or groups of cash-generating units (referred to as “cash-generating units”) that is

expected to benefit from the synergies of the combination.

A cash-generating unit to which goodwill has been allocated is tested for impairment annually or

more frequently when there is an indication that the unit may be impaired, by comparing its

carrying amount, including the attributed goodwill, with its recoverable amount. However, if the

goodwill allocated to a cash-generating unit was acquired in a business combination during the

current annual period, that unit shall be tested for impairment before the end of the current annual

period. If the recoverable amount of the cash-generating unit is less than its carrying amount, the

impairment loss is allocated first to reduce the carrying amount of any goodwill allocated to the

unit and then pro rata to the other assets of the unit based on the carrying amount of each asset in

the unit. Any impairment loss is recognized directly in profit or loss. An impairment loss

recognized on goodwill is not reversed in subsequent periods.

If goodwill has been allocated to a cash-generating unit and the entity disposes of an operation

within that unit, the goodwill associated with the operation which is disposed of is included in the

carrying amount of the operation when determining the gain or loss on disposal and is measured

on the basis of the relative values of the operation disposed of and the portion of the cash-

generating unit retained.

j. Impairment of tangible assets

At the end of each reporting period, the Corporation reviews the carrying amounts of its tangible

asset, to determine whether there is any indication that those assets have suffered any impairment

loss. If any such indication exists, the recoverable amount of the asset is estimated in order to

determine the extent of the impairment loss. When it is not possible to estimate the recoverable

amount of an individual asset, the Corporation estimates the recoverable amount of the CGUs to

which the asset belongs. Corporate assets are allocated to the individual cash-generating units on

a reasonable and consistent basis of allocation.

The recoverable amount is the higher of fair value less costs to sell and value in use. If the

recoverable amount of an asset or cash-generating unit is estimated to be less than its carrying

amount, the carrying amount of the asset or cash-generating unit is reduced to its recoverable

amount, with the resulting impairment loss recognized in profit or loss.

When an impairment loss is subsequently reversed, the carrying amount of the corresponding

asset or cash-generating unit is increased to the revised estimate of its recoverable amount, but

only to the extent of the carrying amount that would have been determined had no impairment

loss been recognized for the asset or cash-generating unit in prior years. A reversal of an

impairment loss is recognized in profit or loss.

- 224 -

k. Financial instruments

Financial assets and financial liabilities are recognized when the Corporation becomes a party to

the contractual provisions of the instruments.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs that

are directly attributable to the acquisition or issuance of financial assets and financial liabilities

(other than financial assets and financial liabilities at FVTPL) are added to or deducted from the

fair value of the financial assets or financial liabilities, as appropriate, on initial recognition.

Transaction costs directly attributable to the acquisition of financial assets or financial liabilities

at FVTPL are recognized immediately in profit or loss.

1) Financial assets

All regular way purchases or sales of financial assets are recognized and derecognized on a

trade date basis.

a) Measurement categories

2018


financial assets at amortized cost and equity instruments at FVTOCI.

i. Financial asset at FVTPL

Financial assets are classified as at FVTPL when such a financial asset is mandatorily

classified as at FVTPL. Financial assets mandatorily classified as at FVTPL include

investments in equity instruments which are not designated as at FVTOCI.

Financial assets at FVTPL are subsequently measured at fair value, with any gains or losses

arising on remeasurement recognized in profit or loss. The net gain or loss recognized in

profit or loss does not incorporate any dividends or interest earned on such a financial asset.

Fair value is determined in the manner described in Note 28.

ii. Financial assets at amortized cost

Financial assets that meet the following conditions are subsequently measured at

amortized cost:

i) The financial asset is held within a business model whose objective is to hold financial

assets in order to collect contractual cash flows; and

ii) The contractual terms of the financial asset give rise on specified dates to cash flows

that are solely payments of principal and interest on the principal amount outstanding.

Subsequent to initial recognition, financial assets at amortized cost, including cash and

cash equivalents, trade receivables at amortized cost and refundable deposits, are measured

at amortized cost, which equals the gross carrying amount determined using the effective

interest method less any impairment loss. Exchange differences are recognized in profit or

loss.

- 225 -

Interest income is calculated by applying the effective interest rate to the gross carrying

amount of such a financial asset, except for:

i) Purchased or originated credit-impaired financial assets, for which interest income is

calculated by applying the credit-adjusted effective interest rate to the amortized cost

of such financial asset; and

ii) Financial assets that are not credit-impaired on purchase or origination but have

subsequently become credit-impaired, for which interest income is calculated by

applying the effective interest rate to the amortized cost of such financial assets in

subsequent reporting periods.





iii. Investments in equity instruments at FVTOCI

On initial recognition, the Corporation may make an irrevocable election to designate

investments in equity instruments as at FVTOCI. Designation at FVTOCI is not permitted

if the equity investment is held for trading or if it is contingent consideration recognized

by an acquirer in a business combination.

Investments in equity instruments at FVTOCI are subsequently measured at fair value with

gains and losses arising from changes in fair value recognized in other comprehensive

income and accumulated in other equity. The cumulative gain or loss will not be

reclassified to profit or loss on disposal of the equity investments, instead, it will be

transferred to retained earnings.

Dividends on these investments in equity instruments are recognized in profit or loss when

the Corporation’s right to receive the dividends is established, unless the dividends clearly

represent a recovery of part of the cost of the investment.

2017


available-for-sale financial assets, and loans and receivables.


Financial assets are classified as at FVTPL when such financial assets are held for trading

and are stated at fair value, with any gains or losses arising on remeasurement recognized

in profit or loss. The net gain or loss recognized in profit or loss does not incorporate any

dividends or interest earned such a financial asset. Fair value is determined in the manner

described in Note 28.

ii. Available-for-sale financial assets

Available-for-sale financial assets are non-derivatives that are either designated as

available-for-sale or are not classified as loans and receivables, held-to-maturity

investments or financial assets at FVTPL.

- 226 -

Available-for-sale financial assets are measured at fair value. Dividends on available-for-

sale equity instruments are recognized in profit or loss when the Corporation’s right to

receive the dividends is established. Other changes in the carrying amount of available-

for-sale financial assets are recognized in other comprehensive income and will be

reclassified to profit or loss when the investment is disposed of or is determined to be

impaired.

Available-for-sale equity investments that do not have a quoted market price in an active

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

and must be settled by delivery of such unquoted equity investments are measured at cost

less any identified impairment loss at the end of each reporting period and are presented

in a separate line item as financial assets measured at cost. If, in a subsequent period, the

fair value of the financial assets can be reliably measured, the financial assets are

remeasured at fair value. The difference between carrying amount and fair value is

recognized in other comprehensive income on financial assets. Any impairment losses are

recognized in profit and loss.

iii. Loans and receivables

Loans and receivables (including cash and cash equivalents, notes receivable, trade

receivables, and refundable deposits) are measured using the effective interest method at

amortized cost less any impairment, except for short-term receivables when the effect of

discounting is immaterial.





b) Impairment of financial assets

2018

The Corporation recognizes a loss allowance for expected credit losses on financial assets at

amortized cost (including trade receivables).

The Corporation always recognizes lifetime expected credit losses (i.e. ECLs) for trade

receivables. For all other financial instruments, the Corporation recognizes lifetime ECLs

when there has been a significant increase in credit risk since initial recognition. If, on the

other hand, the credit risk on the financial instrument has not increased significantly since

initial recognition, the Corporation measures the loss allowance for that financial instrument

at an amount equal to 12-month ECLs.

Expected credit losses reflect the weighted average of credit losses with the respective risks of

a default occurring as the weights. Lifetime ECLs represents the expected credit losses that

will result from all possible default events over the expected life of a financial instrument. In

contrast, 12-month ECLs represent the portion of lifetime ECLs that is expected to result from

default events on a financial instrument that are possible within 12 months after the reporting

date.

The Corporation recognizes an impairment gain or loss in profit or loss for all financial

instruments with a corresponding adjustment to their carrying amount through a loss allowance

account.

- 227 -

2017

Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the

end of each reporting period. Financial assets are considered to be impaired when there is

objective evidence, as a result of one or more events that occurred after the initial recognition

of such financial assets, that the estimated future cash flows of the investment have been

affected.

Financial assets at amortized cost, such as trade receivables are assessed for impairment on a

collective basis even if they were assessed not to be impaired individually. Objective evidence

of impairment for a portfolio of receivables could include the Corporation’s past experience

of collecting payments, an increase in the number of delayed payments in the portfolio past

the average credit period, as well as observable changes in national or local economic

conditions that correlate with default on receivables.

For financial assets carried at amortized cost, the amount of the impairment loss recognized is

the difference between such an asset’s carrying amount and the present value of its estimated

future cash flows, discounted at the financial asset’s original effective interest rate. 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 was recognized, the previously

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

amount of the investment (at the date the impairment is reversed) does not exceed what the

amortized cost would have been had the impairment not been recognized.

For available-for-sale equity investments, a significant or prolonged decline in the fair value

of the security below its cost is considered to be objective evidence of impairment.

For all other financial assets, objective evidence of impairment could include significant

financial difficulty of the issuer or counterparty, breach of contract such as a default or

delinquency in interest or principal payments, it becoming probable that the borrower will

enter bankruptcy or financial re-organization, or the disappearance of an active market for

those financial assets because of financial difficulties.

When an available-for-sale financial asset is considered to be impaired, cumulative gains or

losses previously recognized in other comprehensive income are reclassified to profit or loss

in the period. In respect of available-for-sale equity securities, impairment loss previously

recognized in profit or loss is not reversed through profit or loss. Any increase in fair value

subsequent to impairment is recognized in other comprehensive income.

For a financial asset measured at cost, the amount of the impairment loss is measured as the


future cash flows discounted at the current market rate of return for a similar financial asset.

Such impairment loss will not be reversed in subsequent periods.

The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets, with the exception of trade receivables, where the carrying amount is reduced

through the use of an allowance account. When trade receivables are considered uncollectible,

they are written off against the allowance account. Subsequent recoveries of amounts

previously written off are credited against the allowance account. Changes in the carrying

amount of the allowance account are recognized in profit or loss except for uncollectible trade

receivables that are written off against the allowance account.

c) Derecognition of financial assets

The Corporation derecognizes a financial asset only when the contractual rights to the cash

flows from the asset expire or when it transfers the financial asset and substantially all the risks

and rewards of ownership of the asset to another party.

- 228 -

Before 2018, on derecognition of a financial asset in its entirety, the difference between the

asset’s carrying amount and the sum of the consideration received and receivable and the

cumulative gain or loss which had been recognized in other comprehensive income is

recognized in profit or loss. Starting from 2018, on derecognition of a financial asset at

amortized cost in its entirety, the difference between the asset’s carrying amount and the sum

of the consideration received and receivable is recognized in profit or loss. On derecognition

of an investment in an equity instrument at FVTOCI, the difference between the asset’s

carrying amount and the sum of the consideration received and receivable is recognized in

profit or loss, and the cumulative gain or loss which had been recognized in other

comprehensive income is transferred directly to retained earnings, without recycling through

profit or loss.

2) Equity instruments

Debt and equity instruments issued by the Corporation are classified as either

financial liabilities or as equity in accordance with the substance of the contractual

arrangements and the definitions of a financial liability and an equity instrument.

Equity instruments issued by the Corporation are recognized at the proceeds

received, net of direct issue costs.

Repurchase of the Corporation’s own equity instruments is recognized in and

deducted directly from equity. No gain or loss is recognized in profit or loss on the

purchase, sale, issuance or cancellation of the Corporation’s own equity instruments.

3) Financial liabilities

a) Subsequent measurement

Except for financial liabilities at FVTPL, all financial liabilities are measured at amortized

cost using the effective interest method.

Financial liabilities at FVTPL are stated at fair value, with any gain or loss arising on

remeasurement recognized in profit or loss. The net gain or loss recognized in profit or loss

does not incorporate any interest or dividend paid on such financial liability. Fair value is

determined in the manner described in Note 28.

b) Derecognition of financial liabilities

The difference between the carrying amount of a financial liability derecognized and the

consideration paid, including any non-cash assets transferred or liabilities assumed, is

recognized in profit or loss.

4) Convertible bonds

The component parts of compound instruments (convertible bonds) issued by the Corporation are

classified separately as financial liabilities and equity in accordance with the substance of the

contractual arrangements and the definitions of a financial liability and an equity instrument.

On initial recognition, the fair value of the liability component is estimated using the prevailing

market interest rate for similar non-convertible instruments. This amount is recorded as a liability

on an amortized cost basis using the effective interest method until extinguished upon conversion

or upon the instrument’s maturity date. Any embedded derivative liability is measured at fair

value.

- 229 -

The conversion option classified as equity is determined by deducting the amount of the liability

component from the fair value of the compound instrument as a whole. This is recognized and

included in equity, net of income tax effects, and is not subsequently remeasured. In addition, the

conversion option classified as equity will remain in equity until the conversion option is

exercised, in which case, the balance recognized in equity will be transferred to capital surplus -

share premiums. When the conversion option remains unexercised at maturity, the balance

recognized in equity will be transferred to capital surplus - share premiums.

Transaction costs that relate to the issuance of the convertible notes are allocated to the liability

and equity components in proportion to the allocation of the gross proceeds. Transaction costs

relating to the equity component are recognized directly in equity. Transaction costs relating to

the liability component are included in the carrying amount of the liability component.

l. Warranty provisions

Provisions are measured at the best estimate of the discounted cash flows of the consideration required

to settle the present obligation at the end of the reporting period, taking into account the risks and

uncertainties surrounding the obligation. Provisions for the expected cost of warranty obligations to

assure that products comply with agreed-upon specifications are recognized on the date of sale of the

relevant products at the best estimate by the management of the Corporation of the expenditures

required to settle the obligations.

m. Revenue recognition

2018

The Corporation identifies contracts with customers, allocates the transaction price to the performance

obligations and recognizes revenue when performance obligations are satisfied.

Revenue from sale of goods comes from sales of test instruments. Revenue is recognized when the

goods are delivered to the customer’s specific location or the goods are shipped because it is the time

when the customer has full discretion over the manner of distribution and bears the risks of

obsolescence. Trade receivables are recognized concurrently. The transaction price received is

recognized as a contract liability until the goods are delivered to the customer.

The Corporation does not recognize revenue on materials delivered to subcontractors because this

delivery does not involve a transfer of control.

2017

Revenue is measured at the fair value of the consideration received or receivable and reduced for

estimated customer returns, rebates and other similar allowances.

1) Sale of goods

Revenue from the sale of goods is recognized when all the following conditions are satisfied:

a) The Corporation has transferred to the buyer the significant risks and rewards of ownership of

the goods;

b) The Corporation retains neither continuing managerial involvement to the degree usually

associated with ownership nor effective control over the goods sold;

c) The amount of revenue can be measured reliably;

- 230 -

d) It is probable that the economic benefits associated with the transaction will flow to the

Corporation; and

e) The costs incurred or to be incurred in respect of the transaction can be measured reliably.

The Corporation does not recognize sales revenue on materials delivered to subcontractors

because this delivery does not involve a transfer of risks and rewards of materials’ ownership.

2) Dividend and interest income

Dividend income from investments is recognized when the shareholder’s right to receive payment

has been established and provided that it is probable that the economic benefits will flow to the

Corporation and that the amount of income can be measured reliably.

Interest income from a financial asset is recognized when it is probable that the economic benefits

will flow to the Corporation and the amount of income can be measured reliably. Interest income

is accrued on a time basis with reference to the principal outstanding and at the applicable

effective interest rate.

n. Borrowing costs

Borrowing costs directly attributable to an acquisition, construction or production of qualifying assets

are added to the cost of those assets, until such time that the assets are substantially ready for their

intended use or sale.

Investment income earned on the temporary investment of specific borrowings pending their

expenditure on qualifying assets is deducted from the borrowing costs eligible for capitalization.

Other than stated above, all other borrowing costs are recognized in profit or loss in the period in which

they are incurred.

o. Government grants

Government grants are not recognized until there is reasonable assurance that the Corporation will

comply with the conditions attached to them and that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the

Corporation recognizes as expenses the related costs for which the grants are intended to compensate.

Specifically, government grants whose primary condition is that the Corporation should purchase,

construct or otherwise acquire non-current assets are recognized as deferred revenue and transferred

to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for

the purpose of giving immediate financial support to the Corporation with no future related costs are

recognized in profit or loss in the period in which they become receivable.

p. Employee benefits

1) Short-term employee benefits

Liabilities recognized in respect of short-term employee benefits are measured at the

undiscounted amount of the benefits expected to be paid in exchange for the related service.

- 231 -

2) Retirement benefits

Payments to defined contribution retirement benefit plans are recognized as expenses when

employees have rendered services entitling them to the contributions.

Defined benefit costs (including service cost, net interest and remeasurement) under defined

benefit retirement benefit plans are determined using the projected unit credit method. Service

cost (including current service cost) and net interest on the net defined benefit liabilities (assets)

are recognized as employee benefits expense in the period in which they occur. Remeasurement,

comprising actuarial gains and losses and the return on plan assets (excluding interest), is

recognized in other comprehensive income in the period in which it occurs. Remeasurement

recognized in other comprehensive income is reflected immediately in retained earnings and will

not be reclassified to profit or loss.

Net defined benefit liabilities (assets) represent the actual deficit (surplus) in the Corporation’s

defined benefit plans. Any surplus resulting from this calculation is limited to the present value

of any refunds from the plans or reductions in future contributions to the plans.

3) Other long-term employee benefits

Other long-term employee benefits are accounted for in the same way as the accounting required

for defined benefit plans except that remeasurement is recognized in profit or loss.

q. Share-based Payment Arrangements

Employee share options and restricted shares for employees that are granted to employees and others

providing similar services are measured at the fair value of the equity instruments at the grant date.

The fair value at the grant date of the employee share options and restricted shares for employees is

expensed on a straight-line basis over the vesting period, based on the Corporation's best estimate of

the number of shares or options that are expected to ultimately vest, with a corresponding increase in

capital surplus - employee share options and other equity - unearned employee benefits. It is

recognized as an expense in full at the grant date if vested immediately.

When restricted shares for employees are issued, other equity - unearned employee benefits is

recognized on the grant date, with a corresponding increase in capital surplus - restricted shares for

employees. If restricted shares for employees are granted for consideration and should be returned

once the employee resigns, they are recognized as payables. Dividends paid to employees on restricted

shares that do not need to be returned if employees resign in the vesting period are recognized as

expenses when the dividends are declared with a corresponding adjustment in retained earnings and

capital surplus - restricted shares for employees.

At the end of each reporting period, the Corporation revises its estimate of the number of employee

share options and restricted shares for employees expected to vest. The impact of the revision of the

original estimates is recognized in profit or loss such that the cumulative expenses reflect the revised

estimate, with a corresponding adjustment to capital surplus - employee share options and capital

surplus - restricted shares for employees.

r. Taxation

Income tax expense represents the sum of the tax currently payable and deferred tax.

1) Current tax

According to the Income Tax Law in the ROC, an additional tax at 10% of unappropriated earnings

is provided for as income tax in the year the shareholders approve to retain earnings.

- 232 -

Adjustments of prior years’ tax liabilities are added to or deducted from the current year’s tax

provision.

2) Deferred tax

Deferred tax is recognized on temporary differences between the carrying amounts of assets and

liabilities and the corresponding tax bases used in the computation of taxable profit.

Deferred tax liabilities are generally recognized for all taxable temporary differences. Deferred

tax assets are generally recognized for all deductible temporary differences to the extent that it is

probable that taxable profits will be available against which those deductible temporary

differences can be utilized.

Deferred tax liabilities are recognized for taxable temporary differences associated with

investments in subsidiaries, associates and interests in joint arrangements, except where the

Corporation is able to control the reversal of the temporary difference and it is probable that the

temporary difference will not reverse in the foreseeable future. Deferred tax assets arising from

deductible temporary differences associated with such investments and interests are recognized

only to the extent that it is probable that there will be sufficient taxable profits against which to

utilize the benefits of the temporary differences and they are expected to reverse in the foreseeable

future.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and

reduced to the extent that it is no longer probable that sufficient taxable profits will be available

to allow all or part of the assets to be recovered. A previously unrecognized deferred tax asset is

also reviewed at the end of each reporting period and recognized to the extent that it has become

probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax liabilities and assets are measured at the tax rates that are expected to apply in the

period in which the liabilities are settled or the assets are realized, based on tax rates and tax laws

that have been enacted or substantively enacted by the end of the reporting period. The

measurement of deferred tax liabilities and assets reflects the tax consequences based on the

manner in which the Corporation expects, at the end of the reporting period, to recover or settle

the carrying amount of its assets and liabilities.

3) Current and deferred taxes for the year

Current and deferred taxes are recognized in profit or loss, except when they relate to items that

are recognized in other comprehensive income or directly in equity, in which case, the current

and deferred taxes are also recognized in other comprehensive income or directly in equity,

respectively. Where current tax or deferred tax arises from acquisition of a subsidiary, the tax

effect is included in the accounting for the acquisition of a subsidiary.

5. CRITICAL ACCOUNTING JUDGMENTS AND KEY SOURCES OF ESTIMATION

UNCERTAINTY

In the application of the Corporation’s accounting policies, management is required to make judgments,

estimations and assumptions about the carrying amounts of assets and liabilities that are not readily

apparent from other sources. The estimates and associated assumptions are based on historical experience

and other factors that are considered relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognized in the period in which the estimates are revised if the revision affects only that

period, or in the period of the revision and future periods if the revisions affect both current and future

periods.

- 233 -

a. Estimated impairment of trade receivables

The provision for impairment of trade receivables is based on assumptions about risk of default and

expected loss rates. The Corporation uses judgment in making these assumptions and in selecting the

inputs to the impairment calculation, based on the Corporation’s historical experience, existing market

conditions as well as forward looking estimates as of the end of each reporting period. For details of

the key assumptions and inputs used, see Note 11. Where the actual future cash flows are less than

expected, a material impairment loss may arise.

b. Write-down of inventories

The net realizable value of inventories is the estimated selling price in the ordinary course of business

less the estimated costs of completion and disposal. The estimation of net realizable value is based on

current market conditions and the historical experience with product sales of a similar nature. Changes

in market conditions may have a material impact on the estimation of net realizable value.

6. CASH AND CASH EQUIVALENTS

December 31

2018 2017

Cash on hand $ 2,434 $ 2,602

Checking accounts and demand deposits 913,465 1,448,269

Cash equivalents

Time deposits with original maturities less than 3 months - 595,200

$ 915,899 $ 2,046,071

7. FINANCIAL INSTRUMENTS AT FAIR VALUE THROUGH PROFIT OR LOSS

December 31

2018 2017

Mandatorily at FVTPL

Non-derivative financial assets


Derivative instruments held for trading

Call and put option of convertible bonds payable (Note 18) - 31

Financial assets - current $ 951,456 $ 31

Mandatorily at FVTPL - non-current

Non-derivative financial assets


- 234 -

8. FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME -

2018

December 31,

2018 Investments in equity instruments - non-current Domestic Listed ordinary shares $ 431,797 Domestic unlisted ordinary shares 182,039 $ 613,836 These investments in equity instruments are not held for trading. Instead, they are held for medium to

long-term strategic purposes. Refer to Table 3 for the detailed information. Accordingly, the management

elected to designate these investments in equity instruments as at FVTOCI as they believe that recognizing

short-term fluctuations in these investments’ fair value in profit or loss would not be consistent with the

Corporation’s strategy of holding these investments for long-term purposes. These investments in equity

instruments were classified as available-for-sale and measured at cost under IAS 39. Refer to Note 3, Note

9 and Note 10 for information relating to their reclassification and comparative information for 2017.

9. AVAILABLE-FOR-SALE FINANCIAL ASSETS - 2017

December 31,

2017 Current Domestic open-end beneficiary certificates $ 832,314 Non-current Domestic listed shares $ 268,582

10. FINANCIAL ASSETS MEASURED AT COST - NON-CURRENT - 2017

December 31,

2017 Domestic unlisted ordinary shares $ 157,762 Foreign open-end beneficiary certificates 10,152 $ 167,914 Classified according to financial asset measurement categories

Available-for-sale financial assets $ 167,914

The above investments were measured at cost less impairment at the balance sheet date. Management

believed the fair value of these investments could not be estimated reliably because the range of reasonable

fair value estimates was significant and the probabilities of various estimates could not be reasonably

assessed.

- 235 -

11. NOTES RECEIVABLE AND TRADE RECEIVABLES

December 31

2018 2017

Gross carrying amount at amortized cost $ 909,711 $ 926,522

Less: Allowance for impairment loss (78,422) (78,288)

831,289 848,234

Gross carrying amount at amortized cost - related parties 1,760,954 2,250,825

$ 2,592,243 $ 3,099,059

In 2018

The average credit period for sales of goods is 60 to 90 days from the date when the goods were inspected

and accepted by customers, and no interest was charged on trade receivables. Before accepting any new

customer, the Corporation uses an external credit scoring system to assess the potential customer’s credit

quality and defines credit limits by customer. Customers’ limits and scores are reviewed irregularly every

year. Most of the trade receivables that are neither past due nor impaired have the best credit score under

the external credit scoring system used by the Corporation.

The Corporation applies the simplified approach to providing for expected credit losses prescribed by

IFRS 9, which permits the use of lifetime expected loss provision for all trade receivables. The expected

credit losses on trade receivables are estimated by reference to past default experience of the debtor and

an analysis of the debtor’s current financial position, adjusted for general economic conditions of the

industry in which the debtors operate. As the Corporation’s historical credit loss experience does not show

other factors that matter significantly, the expected credit loss rate is based on past due status of trade

receivables.

The Corporation writes off a trade receivable when there is information indicating that the debtor is in

severe financial difficulty and there is no realistic prospect of recovery. For trade receivables that have

been written off, the Corporation continues to engage in enforcement activity to attempt to recover the

receivables due. Where recoveries are made, these are recognized in profit or loss.

The aging schedule of notes receivable and trade receivables based on the past due days was as follows:

December 31,

2018


61-365 days 134,231

Over 365 days 81,422

$ 909,711

- 236 -

The movements of the loss allowance of notes receivable and trade receivables were as follows:

For the Year

Ended

December 31,

2018

Balance at January 1, 2018 per IAS 39 $ 78,288

Adjustment on initial application of IFRS 9 -

Balance at January 1, 2018 per IFRS 9 78,288

Add: Impairment loss recognized on receivables 3,000

Less: Amounts written off (2,866)

Balance at December 31, 2018 $ 78,422

In 2017

The Corporation applied the same credit policy in 2018 and 2017. In determining the recoverability of a

trade receivable, the Corporation considers any change in the credit quality of the trade receivable since

the date when credit was initially granted to the end of the reporting period. Allowances for impairment

loss are based on the estimated irrecoverable amounts determined by reference to past default experience

of the counterparties and an analysis of their current financial position.

Past due but not impaired trade receivables are trade receivables balances that were past due at the end of

the reporting period but allowance for impairment loss was not recognized because their credit quality

remained satisfactory and the amounts were still considered recoverable. The Corporation does not hold

any collateral or other credit enhancements for these balances.

The aging of notes receivable and trade receivables was as follows:

December 31,

2017


61-365 days 276,090


$ 926,522


The aging of notes receivable and trade receivables that were past due but not impaired was as follows:

December 31,

2017


61-365 days 264,437


$ 438,163


- 237 -

The movements of the allowance for doubtful notes receivable and trade receivables were as follows:

Individually

Assessed for

Impairment

Collectively

Assessed for

Impairment Total


Add: Impairment losses recognized on

receivables - 36,000 36,000

Reclassification of impairment loss from

collective assessment to individual

assessment 31,071 (31,071) -

Less: Amounts written off during the year as

uncollectible (1,795) - (1,795)


The allowance for impairment loss individually assessed due to customers were in

liquidation or in severe financial difficulties were $62,996 thousand as of December 31,

2017. The Corporation did not hold any collateral over these balances.

12. INVENTORIES

December 31

2018 2017

Finished goods $ 183,483 $ 190,397

Semi-finished products 356,602 361,613

Work in process 608,744 638,940

Raw materials 748,656 671,368

$ 1,897,485 $ 1,862,318

The cost of goods sold for the years ended December 31, 2018 and 2017 included the inventory write-

downs of $21,000 thousand and the reversal of inventory write-downs of $37,331 thousand, respectively.

13. INVESTMENTS ACCOUNTED FOR USING EQUITY METHOD

December 31

2018 2017

Investments in subsidiaries $ 4,432,652 $ 3,716,869

Investments in associates 632,045 623,941

Investments in joint venture 17,664 17,626

$ 5,082,361 $ 4,358,436

- 238 -

a. Investments in subsidiaries

December 31

2018 2017

Amount

Percentage

of Equity

Interest (%) Amount

Percentage

of Equity

Interest (%)

Unlisted company

Neworld Electronics Ltd. $ 949,027 100.0 $ 817,757 100.0

San Eagle Development Corp. 791,854 100.0 669,747 100.0

Chroma New Material Corporation 443,073 100.0 420,605 100.0

Wei Kuang Automatic Equipment Co., Ltd. 1,206,381 100.0 860,666 100.0

CHI Incorporation Ltd. 164,834 100.0 156,232 100.0

Quantel Private Ltd. 130,270 60.0 115,153 60.0

Chen Hwa Technology Inc. 101,626 100.0 105,899 100.0

Chroma Investment Co., Ltd. 124,674 100.0 113,954 100.0

Chroma ATE Europe B.V. 60,658 100.0 73,859 100.0

Chroma ATE Inc. (“Chroma USA”) 134,810 100.0 118,957 100.0

Sensational Holding Ltd. 53,924 100.0 50,420 100.0

Adivic Technology Co. 35,617 51.0 56,290 51.0

Chroma Japan Corp.

(70,297

) 100.0

(35,580

) 100.0


(45,711

) 25.0

(31,012

) 25.0

Deep Red Holding Co., Ltd. 104,303 100.0 60,772 100.0

Testar Electronics Corporation 24,596 67.2 17,379 67.2

EVT Technology Co., Ltd. 59,793 85.6 22,652 73.8

Innovative Nanotech Incorporated 119,441 71.1 67,777 89.3

Touch Cloud Incorporation 43,779 78.1 55,342 78.1

$ 4,432,652 $ 3,716,869

In April 2017, Adivic Technology Co. (“Adivic”) decreased its capital by $140,000 thousand to

make up for losses and increased its capital by cash injection of $100,000 thousand to strengthen

its financial structure. The Corporation’s board of directors decided to participate in the capital

injection at the same percentage as originally owned. The Corporation’s equity interest in Adivic

remained the same.

In December 2017, EVT Technology Co., Ltd. (“EVT”) increased its capital by cash injection of

$40,000 thousand to strengthen its financial structure. In August 2018, EVT decreased its capital

by $30,000 thousand to make up for losses and increased its capital by $50,000 thousand

subsequently. The Corporation’s board of directors resolved to participate in the capital injection.

The Corporation’s equity interest in EVT rose to 85.6% after the cash injection.

In response to the demand for new-generation solutions and to provide customers with most

advanced electronic test service, the Corporation’s board of directors resolved in July 2017 to invest

in Innovative Nanotech Incorporated. In December 2017 and May 2018, Innovative Nanotech

Incorporated increased its capital. The Corporation participated in the cash injection and held

71.1% equity consequently.

To strengthen and integrate the software research capability of product lines and raise marketing

opportunities, the Corporation’s board of directors resolved to participate in the cash injection of

Touch Cloud Incorporation and acquired equity interest of 78.1% in 2017.

Refer to Note 34 for the detail of the subsidiaries indirectly held by the Corporation.

Refer to Table 8 “Information on Investees” for the Corporations’ share of profit of subsidiaries

under equity method.

- 239 -

The investments accounted for using equity method and the share of profit or loss and other

comprehensive income of those investments were calculated based on the financial statements

which have been audited.

b. Investments in associates

December 31 2018 2017

Amount


Interest (%) Amount


Interest (%) Associates that are not

individually material Adlink Technology Inc. $ 517,852 11.3 $ 529,538 11.3 Dynascan Technology Corp. 114,193 27.3 94,403 27.3

$ 632,045 $ 623,941

Aggregate information of associates that are not individually material:


31 2018 2017 The Corporation’s share of:

Profit from continuing operations $ 47,977 $ 49,171 Other comprehensive loss (1,531) (7,808)

Total comprehensive income for the year $ 46,446 $ 41,363

The Corporation is able to exercise significant influence over Adlink Technology Inc. although the

percentage of shares held is less than 20%. Therefore, the Corporation recognizes the gain and loss

under the equity method.

Except for Adlink Technology Inc., the investments in associate accounted for using equity method

and the share of profit or loss and other comprehensive income of those investments were calculated

based on financial statements which have been audited. Management believes there is no material

impact on the equity method accounting or the calculation of the share of profit or loss and other

comprehensive income from the financial statements of Adlink Technology Inc., which have not

been audited.

c. Investments in joint ventures

December 31 2018 2017

Amount


Interest (%) Amount


Interest (%) Joint ventures that are not

individually material Chih Ho Shun Development

Co., Ltd. $ 17,664 35.0 $ 17,626 35.0

- 240 -

Aggregate information of joint ventures that are not individually material:


31

2018 2017

The Corporation’s share of:

Profit from continuing operations $ 38 $ 33

Other comprehensive income - -

Total comprehensive income for the year $ 38 $ 33

For the investment and development plan, “The Action Plan for Developing Land Surrounding the

MRT Airport Station to Improve Civilians’ Life,” the board of directors resolved to invest jointly

with Dynapack International Corporation and Heran Co., Ltd. to set up Chih Ho Shun Development

Co., Ltd. (“Chih Ho Shun”). The Corporation invested for a 35% entity interest in Chih Ho Shun but

did not have control over this investee.

The investments in joint ventures accounted for using equity method and the share of profit or loss

and other comprehensive income of the investment for the years ended December 31, 2018 and 2017

was based on the joint ventures’ financial statements which have been audited.

14. PROPERTY, PLANT AND EQUIPMENT


Miscellaneous

Equipment Total

Cost

Balance, January 1, 2017 $ 450,575 $ 2,004,437 $ 110,270 $ 968,615 $ 3,533,897

Additions - 10,554 8,772 55,329 74,655

Disposals - - (34) (29,869) (29,903)


Balance, December 31, 2017 $ 450,575 $ 2,014,991 $ 124,858 $ 1,069,760 $ 3,660,184


Balance, January 1, 2017 $ - $ 906,259 $ 91,888 $ 730,719 $ 1,728,866

Depreciation - 77,560 10,057 80,524 168,141

Disposals - - (15) (25,907) (25,922)

Balance, December 31, 2017 $ - $ 983,819 $ 101,930 $ 785,336 $ 1,871,085

Carrying amount at December 31,

2017 $ 450,575 $ 1,031,172 $ 22,928 $ 284,424 $ 1,789,099

Cost

Balance, January 1, 2018 $ 450,575 $ 2,014,991 $ 124,858 $ 1,069,760 $ 3,660,184

Additions - 15,838 41,104 75,114 132,056

Disposals - - (5,040) (25,625) (30,665)

Transferred from prepayments for

land and equipment 688,331 - - - 688,331



Balance, December 31, 2018 $ 1,138,906 $ 2,030,829 $ 166,207 $ 1,181,576 $ 4,517,518

(Continued)

- 241 -


Miscellaneous

Equipment Total


Balance, January 1, 2018 $ - $ 983,819 $ 101,930 $ 785,336 $ 1,871,085

Depreciation - 68,716 13,701 94,113 176,530

Disposals - - (5,040) (18,677) (23,717)


Balance, December 31, 2018 $ - $ 1,052,535 $ 110,381 $ 860,982 $ 2,023,898

Carrying amount at December 31,

2018 $ 1,138,906 $ 978,294 $ 55,826 $ 320,594 $ 2,493,620

(Concluded)

The above items of property, plant and equipment are depreciated on a straight-line basis over their

estimated useful lives as follows:

Buildings

Primary buildings 55 years

Mechanical and electrical equipment 10 years

Clean room equipment 10 years

Others 2-50 years

Machinery 2-6 years

Miscellaneous equipment 3-16 years

Refer to Note 30 for property, plant and equipment have been pledged to secure borrowings of the

Corporation.

15. INVESTMENT PROPERTIES

Land

Cost

January 1, 2018 $ -

Transferred from prepayments for land and equipment 3,137,187

December 31, 2018 $ 3,137,187

The Corporation acquired the land ownership certificates of the investment and development plan,

“The Action Plan of Developing Land Surrounding the MRT Airport Station to Improve

Civilian’s Life” in the third quarter of 2018 and transferred the parts of land held for undetermined

future use to investment properties. Please refer to Note 32. The determination of fair value was

performed by independent qualified professional valuers, and the fair value was measured by

using Level 3 inputs. The valuation was arrived at by reference to market evidence of transaction

prices for similar properties. The significant unobservable inputs used include discount rates and

the fair value as appraised.

December 31,

2018

Fair value $ 13,588,172

All of the Corporation’s investment properties were held under freehold interests.

- 242 -

16. GOODWILL

December 31

2018 2017

Cost $ 94,424 $ 94,424

To reorganize the organization structure, save operating costs and improve the operating efficiency, the

Corporation’s board of directors resolved to acquire Silver Town Electronic Co., Ltd. in February 2008.

The goodwill was arisen from the premium acquisition.

For assessing goodwill for impairment, the Corporation took value in use as basis for calculating the

recoverable amount of goodwill. The Corporation used the cash flows of a five-year financial forecast as

the basis for calculating value in use to reflect the specific risk of cash-generating units. After these

calculations, the Corporation did not recognize any impairment loss on goodwill for the years ended


17. BORROWINGS

a. Short-term borrowings

December 31

2018 2017


Bank loans $ 630,000 $ 300,000

Interest rate (%) 0.86%-0.88% 0.85%

b. Long-term borrowings

December 31

2018 2017

Secured borrowings

Bank loans (1) (Note 30) $ 300,000 $ -


Syndicated bank loans (2) - 1,200,000

Bank loans (3) 1,500,000 900,000

1,800,000 2,100,000

Less: Current portions - 1,200,000

$ 1,800,000 $ 900,000

1) The Corporation applied to Mega International Commercial Bank for a credit line of $800,000

thousand and borrowed $300,000 thousand in March 2018, which will be used for increasing

operating budget and repaying syndicated bank loans. The interest rate on the bank loan was 1.17%

per annum on a floating basis. The bank loan will be due in March 2023, and was secured by the

Corporation’s land and buildings. Please refer to Note 30.

- 243 -

2) On August 30, 2012, the Corporation applied to E.SUN and other banks for syndicated bank loans

with $2,000,000 thousand credit line to pay each installment of “The Action Plan for Developing

Land Surrounding the MRT Airport Station to Improve Civilians Life” (refer to Note 32). The

syndicated bank loan had been repaid from March 2017 to March 2018 in three equal semiannual

installments ($400,000 thousand per installment), the remaining $800,000 thousand had been

repaid in September 2018. As of December 31, 2017, the interest rate per annum was 1.58% on a

floating basis and the interest is paid monthly.

3) The Corporation applied for bank loan for repaying syndicated bank loans and increasing

operating budget. The interest rate was 1.08%-1.20% per annum on a floating basis. The bank loan

will be due in June 2023.

18. BONDS PAYABLE

December 31,

2017

Unsecured domestic convertible bonds $ 99,703

On May 23, 2014, the Corporation issued its second domestic unsecured 0% convertible bonds with

aggregate par value of $2,000,000 thousand and face value of $100 thousand. These bonds were listed on

the Taipei Exchange at the same date. Except for the period when books are closed for share transaction,

bondholders are entitled to convert bonds into the Corporation’s common stock from June 24, 2014 to

May 13, 2019. The conversion price would be adjusted when earning distribution of cash dividends was

resolved by shareholders’ meeting. The unsecured domestic convertible bonds had been completely

converted into the Corporation’s common stock in the fourth quarter of 2018.

19. OTHER PAYABLES

December 31

2018 2017

Salaries and bonus $ 306,560 $ 283,762

Employee’s compensation 275,489 325,622

Remuneration of directors 9,600 9,600

Others 75,419 102,024

$ 667,068 $ 721,008

20. RETIREMENT BENEFIT PLANS

a. Defined contribution plans

The Corporation adopted a pension plan under the Labor Pension Act (the “LPA”), which is a state-

managed defined contribution plan. Under the LPA, an entity makes monthly contributions to

employees’ individual pension accounts at 6% of monthly salaries and wages.

- 244 -

b. Defined benefit plans

The defined benefit plan adopted by the Corporation in accordance with the Labor Standards Law is

operated by the government. Pension benefits are calculated on the basis of length of service and

average monthly salaries of the 6 months before retirement. The Corporation contributes amount

equal to 4% of total monthly salaries and wages to a pension fund administered by the pension fund

monitoring committee. Pension contributions are deposited in the Bank of Taiwan in the committee’s

name. Before the end of year, the Corporation assesses the balances in the pension fund. If the amount

of the balance in the pension fund is inadequate to pay retirement benefits for employees who

conform to retirement requirements in the next year, the Corporation is required to fund the difference

in one appropriation that should be made before the end of March of the next year. The pension fund

is managed by the Bureau of Labor Funds, Ministry of Labor (“the Bureau”); the Corporation has no

right to influence the investment policy and strategy.

The amounts included in the balance sheets in respect of the Corporation’s defined benefit plans were

as follows:

December 31

2018 2017

Present value of defined benefit obligation $ 460,083 $ 449,301

Fair value of plan assets (307,690) (291,869)

Net defined benefit liabilities $ 152,393 $ 157,432

Movements in net defined benefit liability were as follows:

Present Value of the Defined

Benefit Obligation

Fair Value of the Plan Assets

Net Defined Benefit

Liabilities Balance at January 1, 2017 $ 431,536 $(273,776) $ 157,760 Current service cost 4,147 - 4,147 Net interest expense (income) 5,934 (3,868) 2,066 Recognized in profit or loss 10,081 (3,868) 6,213 Remeasurement

Return on plan assets (excluding amounts included in net interest) - 1,162 1,162

Actuarial loss - changes in demographic assumptions 3,599 - 3,599

Actuarial loss - experience adjustments 4,085 - 4,085 Recognized in other comprehensive

income 7,684 1,162 8,846 Contributions from the employer - (15,387) (15,387) Balance at December 31, 2017 449,301 (291,869) 157,432 Current service cost 4,009 - 4,009 Net interest expense (income) 6,178 (4,118) 2,060 Recognized in profit or loss 10,187 (4,118) 6,069 Remeasurement

Return on plan assets (excluding amounts included in net interest) - (7,436) (7,436)

Actuarial loss - changes in demographic assumptions 442 - 442

(Continued)

- 245 -

Present Value

of the Defined

Benefit

Obligation

Fair Value of

the Plan

Assets

Net Defined

Benefit

Liabilities

Actuarial loss - changes in financial assumptions $ 6,791 $ - $ 6,791

Actuarial loss - experience adjustments 4,821 - 4,821 Recognized in other comprehensive

income 12,054 (7,436) 4,618 Contributions from employer - (15,726) (15,726) Benefits paid (11,459) 11,459 - Balance at December 31, 2018 $ 460,083 $(307,690) $ 152,393

(Concluded)

Through the defined benefit plans under the Labor Standards Law, the Corporation is exposed to the

following risks:

1) Investment risk: The plan assets are invested in domestic and foreign equity and debt securities,

bank deposits, etc. The investment is conducted at the discretion of the Bureau or under the

mandated management. However, in accordance with relevant regulations, the return generated

by plan assets should not be below the interest rate for a 2-year time deposit with local banks.

2) Interest risk: A decrease in the government bond interest rate will increase the present value of the

defined benefit obligation; however, this will be partially offset by an increase in the return on the

plan’s debt investments.

3) Salary risk: The present value of the defined benefit obligation is calculated by reference to the

future salaries of plan participants. As such, an increase in the salary of the plan participants will

increase the present value of the defined benefit obligation.

The actuarial valuations of the present value of the defined benefit obligation were carried out by

qualified actuaries. The significant assumptions used for the purposes of the actuarial valuations were

as follows:

December 31 2018 2017 Discount rate(s) 0.88%-1.25% 0.88%-1.38% Expected rate(s) of salary increase 1.50%-2.50% 1.50%-2.50%

If possible reasonable changes in each of the significant actuarial assumptions will occur and all other assumptions will remain constant, the present value of the defined benefit obligation would increase (decrease) as follows:

December 31 2018 2017 Discount rate(s)

0.25% increase $(13,652) $(13,723) 0.25% decrease $ 14,243 $ 14,340

Expected rate(s) of salary increase 0.25% increase $ 13,833 $ 13,945 0.25% decrease $(13,331) $(13,417)

- 246 -

The sensitivity analysis presented above may not be representative of the actual changes in the

present value of the defined benefit obligation as it is unlikely that the changes in assumptions would

occur in isolation of one another as some of the assumptions may be correlated.

December 31

2018 2017

Expected contributions to the plan for the next year $ 15,568 $ 15,293

Average duration of the defined benefit obligation 12 years 13 years

21. EQUITY

a. Ordinary share capital

December 31

2018 2017

Number of shares authorized (in thousands) 450,000 450,000

Shares authorized $ 4,500,000 $ 4,500,000

Number of shares issued and fully paid (in thousands) 416,779 411,894

Shares issued $ 4,167,794 $ 4,118,942

The authorized shares include 30,000 thousand shares allocated for the exercise of employee share

options.

b. Capital surplus December 31 2018 2017 May be used to offset a deficit, distributed as cash dividends or transferred to share capital (Note) Additional paid-in capital $ 2,860,255 $ 2,514,454 Treasury share transactions 179,801 171,229 Consolidation excess 146,976 146,976 May be used to offset a deficit only Employee share options expired 12,421 5,874 Share of changes in capital surplus of associates or joint

ventures 44,110 44,377 May not be used for any purpose Convertible bonds options - 7,209 Employee shares options 87,000 116,389 Employee restricted shares 139,074 180,781 $ 3,469,637 $ 3,187,289 Note: Such capital surplus may be used to offset a deficit; in addition, when the Corporation

has no deficit, such capital surplus may be distributed as cash dividends or transferred

to share capital (limited to a certain percentage of the Corporation’s capital surplus

and once a year).

- 247 -

c. Retained earnings and dividends policy

Under the dividend policy as set forth in the Corporation’s Articles of Incorporation (the “Articles”),

where the Corporation made profit in a fiscal year, the profit shall be first utilized for paying taxes,

offsetting losses of previous years, setting aside as legal reserve 10% of the remaining profit, setting

aside or reversing special reserve in accordance with the laws and regulations, and then any remaining

profit together with any undistributed retained earnings shall be used by the Corporation’s board of

directors as the basis for proposing a distribution plan, which should be resolved in the shareholders’

meeting for distribution of dividends and bonus to shareholders. For the policies on distribution of

employees’ compensation and remuneration to directors, please refer to d. employees’ compensation

and remuneration of directors in Note 23.

Taking into account future capital expenditure requirements and its cash position, the total of cash

dividends paid in any given year may not be less than 20% of total dividends distributed in that year.

The final amount, type and percentage of the cash dividends and stock dividends are subject to actual

earnings and capital requirements of the Corporation in a particular year.

An appropriation of earnings to a legal reserve shall be made until the legal reserve equals the

Corporation’s paid-in capital. The legal reserve may be used to offset deficits. If the Corporation has

no deficit and the legal reserve has exceeded 25% of the Corporation’s paid-in capital, the excess may

be transferred to capital or distributed in cash.

Items referred to under Rule No. 1010012865 and Rule No. 1010047490 issued by the FSC and the

directive titled “Questions and Answers for Special Reserves Appropriated Following Adoption of

IFRSs” should be appropriated to or reversed from a special reserve by the Corporation.

The appropriations of earnings for 2017 and 2016 have been approved in the annual shareholders’

meeting on June 8, 2018 and 2017, respectively, were as follows:

Appropriation of Earnings Dividends Per Share (NT$)

For Fiscal

Year 2017 For Fiscal



Year 2016

Legal reserve $ 255,841 $ 171,994

Cash dividends 1,854,424 1,314,425 $ 4.5 $ 3.3

The appropriations of earnings for 2018 had been proposed by the Corporation’s board of

directors on February 21, 2019. The appropriations and dividends per share were as follows:

Appropriation

of Earnings

Dividends Per

Share (NT$)

Legal reserve $ 254,628

Cash dividends 1,750,896 $4.2

The appropriations of earnings for 2018 are subject to the resolution in the shareholders’ meeting to

be held on June 18, 2019.

- 248 -

d. Special reserves

If a special reserve appropriated on the first-time adoption of IFRSs relates to exchange differences on

translation of the financial statements of foreign operations (including the subsidiaries of the

Corporation), the special reserve will be reversed on a proportionate basis according to the

Corporation’s disposal of foreign operations; on the Corporation’s loss of significant influence,

however, the entire special reserve will be reversed. Additional special reserve should be appropriated

for the amount equal to the difference between net debit balance reserves and the special reserve

appropriated on the first-time adoption of IFRSs. Any special reserve appropriated may be reversed to

the extent that the net debit balance reverses and, thereafter, distributed.

e. Other equity items

Exchange

Differences on

Translating

Foreign

Operations

Unrealized

Gain (Loss) on

Financial

Assets at

FVTOCI

Unrealized

Gain (Loss) on

Available-for-

sale Financial

Assets

Unearned

Employee

Benefit


Balance at January 1, 2018 (IAS 39) $ (97,633) $ - $ 179,348 $ (93,849)

Effect of retrospective application of

IFRS 9 - 151,864 (179,348) -

Balance at January 1, 2018 (IFRS 9) (97,633) 151,864 - (93,849)



Unrealized gain (loss) arising from

equity investments - 16,832 - -


of associates and join ventures

accounted for using equity method (1,010) (3,962) - -

Disposal of investments in equity

instruments designated as at FVTOCI - (4,241) - -


Balance at December 31, 2018 $ (104,872) $ 160,493 $ - $ (42,377)


Balance at January 1, 2017 $ (24,914) $ - $ 232,901 $ (149,952)



Unrealized gain (loss) on available-for-

sale Financial assets - - (53,099) -

Shares of other comprehensive gain

(loss) of associates and join ventures

accounted for using equity method (8,059) - (454) -

Issuance of shares - - - (13,772)


Balance at December 31, 2017 $ (97,633) $ - $ 179,348 $ (93,849)

- 249 -

f. Treasury shares

The Corporation’s shares held by its subsidiaries at the end of the reporting periods were as follows:

Subsidiaries

Number of

Shares Held

(In Thousand

Shares)

Carrying

Amount Market Price

December 31, 2018


December 31, 2017


Forfeited employee restricted shares of 84 thousand were returned to the Corporation and canceled

during 2018. Forfeited employee restricted shares of 12 thousand were returned to the Corporation

and canceled during 2017.

Under the Securities and Exchange Act, the Corporation shall neither pledge treasury shares nor

exercise shareholders’ rights on these shares, such as the rights to dividends and to vote. The

subsidiaries holding treasury shares, however, retain shareholders’ rights, except the rights to

participate in any share issuance for cash and to vote.

22. REVENUE

Contract revenue of the Corporation comes from sale of goods.

a. Contract balances

December 31,

2018

Contract liabilities from sale of goods $ 31,014

The changes in the balance of contract liabilities primarily result from the timing difference between

the Corporation’s performance and the respective customer’s payment. Revenue of the reporting

period recognized from the beginning contract liabilities is $47,766 thousand.

b. Disaggregation of revenue

Amount

Automatic test systems $ 3,957,776

Precised electronic test instruments 3,120,094

Others 468,970

$ 7,546,840

- 250 -

23. ADDITIONAL INFORMATION ON EXPENSES

a. Finance costs


2018 2017

Interest on borrowings $ 30,434 $ 30,021

Interest on convertible bonds 935 6,764

31,369 36,785

Less: Amount included in the cost of qualifying assets (9,609) (24,295)

$ 21,760 $ 12,490

Capitalized interest $ 9,609 $ 24,295

Capitalization rate 1.58% 1.58%

b. Depreciation and amortization


2018 2017

An analysis of depreciation by function

Operating costs $ 32,754 $ 29,224

Operating expenses 143,776 138,917

$ 176,530 $ 168,141

An analysis of amortization by function

Operating expenses $ 960 $ 960

c. Employee benefits expense


2018 2017

Operating

Costs

Operating

Expenses Total

Operating

Costs

Operating

Expenses Total

Short-term benefits

Salary expenses $ 277,786 $ 1,312,678 $ 1,590,464 $ 285,086 $ 1,284,096 $ 1,569,182

Insurance expenses 28,949 98,632 127,581 25,842 90,158 116,000

Remuneration of directors - 10,185 10,185 - 9,125 9,125

306,735

1,421,495

1,728,230 310,928

1,383,379

1,694,307 Share-based payments - 78,596 78,596 - 121,593 121,593

Retirement benefits

efined contribution plans 9,179 52,264 61,443 8,650 46,991 55,641

Defined benefit plans 961 5,108 6,069 964 5,249 6,213

10,140 57,372 67,512 9,614 52,240 61,854 Other employee benefits 15,896 22,527 38,423 15,043 23,620 38,663

Total employee benefits expense $ 332,771 $ 1,579,990 $ 1,912,761 $ 335,585 $ 1,580,832 $ 1,916,417

As of December 31, 2018 and 2017, the Corporation had 1,734 and 1,728 employees, respectively,

among which there are 5 directors not concurrently holding positions in the Corporation. The basis of

above calculations was the same with the basis which was used in the calculation on employee benefits

expense.

- 251 -

d. Employees’ compensation and remuneration of directors

According to the Article of Incorporation of the Corporation, the Corporation accrued employees’

compensation and remuneration of directors at the rates of 5%-20% and no higher than 1.5%,

respectively, of net profit before income tax, employees’ compensation, and remuneration of directors.

The employees’ compensation and remuneration of directors for the years ended December 31, 2018

and 2017, which have been approved by the Corporation’s board of directors on February 21, 2019

and February 22, 2018, respectively, were as follows:


2018 2017

Amount Rate (%) Amount Rate (%)

Employees’ compensation $ 240,000 7.55 $ 310,000 9.73

Remuneration of directors 9,600 0.30 9,600 0.30

If there is a change in the amounts after the annual financial statements were authorized for issue,

the differences are recorded as a change in accounting estimate.

There is no difference between the actual amounts of the employees’ compensation and remuneration

of directors paid and the actual amounts recognized in the financial statements for the years ended


Information on the employees’ compensation and remuneration of directors resolved by the

Corporation’s board of directors in 2019 and 2018 is available at the Market Observation Post System

website of the Taiwan Stock Exchange.

24. INCOME TAXES

a. Major components of income tax expense recognized in profit or loss


2018 2017

Current tax

In respect of the current year $ 227,322 $ 233,681


Adjustments for prior years - (32,223)

271,440 222,145

Deferred tax

In respect of the current year 83,298 85,168

Adjustments to deferred tax attributable to changes in tax

rates and law 27,595 -

110,893 85,168


- 252 -

A reconciliation of accounting profit and income tax expense is as follows:


2018 2017

Profit before tax $ 2,928,608 $ 2,865,714

Income tax expense calculated at the statutory rate $ 585,722 $ 487,171

Tax-exempt income (189,101) (117,538)

Nondeductible expenses in determining taxable income 1,204 972


Unrecognized investment credits (101,193) (67,191)

Adjustments for prior years’ tax - (32,223)

Effect of tax rate changes 27,595 -

Others (temporary differences adjustments) 13,988 15,435


In 2017, the applicable corporate income tax rate used by the Corporation is 17%. However, the

Income Tax Act in the ROC was amended in 2018, and the corporate income tax rate was adjusted

from 17% to 20%, effective in 2018. In addition, the rate of the corporate surtax applicable to 2018

unappropriated earnings will be reduced from 10% to 5%.

As the status of 2019 appropriations of earnings is uncertain, the potential income tax consequences

of the 2018 unappropriated earnings are not reliably determinable.

b. Deferred tax assets and liabilities

The movements of deferred tax assets and deferred tax liabilities were as follows:


Opening

Balance

Recognized in

Profit or Loss

Closing

Balance

Deferred tax assets Temporary differences

Unrealized intercompany gain $ 92,296 $ 18,458 $ 110,754 Inventory reserve 30,976 9,667 40,643 Allowance for impaired receivables 7,897 2,446 10,343 Net defined benefit liability 8,460 (438) 8,022 Provisions - 873 873 Impairment loss 19,465 (19,465) - Unrealized exchange loss 4,620 (4,620) -

$ 163,714 $ 6,921 $ 170,635 Deferred tax liabilities Temporary differences

Unappropriated earnings of subsidiaries $ 272,636 $ 109,122 $ 381,758 Goodwill 21,593 6,416 28,009 Unrealized exchange gain - 2,276 2,276

$ 294,229 $ 117,814 $ 412,043

- 253 -


Opening

Balance

Recognized in

Profit or Loss

Closing

Balance

Deferred tax assets

Temporary differences

Unrealized intercompany gain $ 70,420 $ 21,876 $ 92,296

Inventory reserve 30,736 240 30,976

Impairment loss 16,030 3,435 19,465

Net defined benefit liability 8,251 209 8,460

Allowance for impaired receivables 2,962 4,935 7,897

Unrealized exchange loss 3,336 1,284 4,620

Others 71 (71) -

$ 131,806 $ 31,908 $ 163,714

Deferred tax liabilities

Temporary differences

Unappropriated earnings of subsidiaries $ 161,194 $ 111,442 $ 272,636

Goodwill 15,959 5,634 21,593

$ 177,153 $ 117,076 $ 294,229

c. Income tax assessments

As of December 31, 2018, the Corporation’s tax returns through 2016 had been assessed by the tax

authorities.

25. EARNINGS PER SHARE

The earnings and weighted average number of ordinary shares outstanding used in the computation of

earnings per share are as follows:

Net Profit for the Year


31

2018 2017

Earnings used in the computation of basic earnings per share $ 2,546,275 $ 2,558,401

Effect of potentially dilutive ordinary shares:

Interest on convertible bonds and valuation gain on

conversion option 966 7,459

Earnings used in the computation of diluted earnings per share $ 2,547,241 $ 2,565,860

- 254 -

Shares

(In Thousands of Shares)


2018 2017


computation of basic earnings per share 409,438 399,052

Effect of potentially dilutive ordinary shares:

Convertible bonds 961 6,864

Employee share options 4,395 5,037

Employees’ compensation 2,313 2,392

Employee restricted shares 1,882 2,057


computation of diluted earnings per share 418,989 415,402

If the Corporation offered to settle compensation paid to employees in cash or shares, the Corporation

assumed the entire amount of the compensation would be settled in shares and the resulting potential

shares were included in the weighted average number of shares outstanding used in the computation of

diluted earnings per share, as the effect is dilutive. Such dilutive effect of the potential shares is included

in the computation of diluted earnings per share until the number of shares to be distributed to employees

is resolved in the following year.

26. SHARE-BASED PAYMENT ARRANGEMENTS

a. Employee share option plan

The Corporation granted employee stock options 7,900 thousand units in March 2016 and 6,000

thousand units in July 2013, respectively, with each option eligible to subscribe for one common share

of the Corporation when exercised. The options are valid for 6 years and exercisable at certain

percentages subsequent to the second year of the grant date.

Information on employee share options was as follows: For the Year Ended December 31 2018 2017

Number of Options

(In Thousands)

Weighted- average Exercise

Price (NT$)

Number of Options

(In Thousands)

Weighted- average Exercise

Price (NT$)

Balance at January 1 9,463 $ 60.1 11,538 $ 60.2 Options exercised (3,354) 58.4 (1,683) 47.0 Options forfeited (103) - (392) - Balance at December 31 6,006 59.0 9,463 60.1 Options exercisable, end of the

year 1,532 1,914

- 255 -


December 31

2018 2017

Range of Exercise

Price (NT$)

Weighted-average

Remaining

Contractual Life

(Years)

Range of Exercise

Price (NT$)

Weighted-average

Remaining

Contractual Life

(Years)

$45.4 0.52 $46.7 1.52

61.6 3.24 63.4 4.24

Compensation costs recognized were $29,810 thousand and $51,802 thousand for the years ended

December 31, 2018 and 2017, respectively

b. Restricted shares for employees

In the shareholders’ meeting on June 7, 2016, the shareholders approved a Restricted Share Unit Plan

(“RSU” Plan) for employees with a total amount of $36,000 thousand, consisting of 3,600 thousand

shares with issuance price of $10 dollars per share. It can be issued at one time or several times

depending on the circumstance. The RSU Plan is approved under Rule No. 1050024381 issued by the

FSC on June 27, 2016. The Corporation issued 3,100 thousand and 185 thousand shares on July 8,

2016 and June 20, 2017, the subscription date. The details of RSU Plan are as follows:

1) Employees who are granted RSUs, upon meeting the Corporation’s financial performance and

personal performance indicators, are eligible to be vested 10, 20, 30 and 40 percent of the RSUs

granted after 1, 2, 3 and 4 years of tenure after the subscription date, respectively.

2) The restrictions on the rights of the employees who are granted RSUs but have not met the vesting

conditions are as follows:

a) The employees are not eligible to sell, pledge, transfer, donate or to dispose any RSUs in any

form.

b) The employees holding RSUs are entitled to receive dividends and similar purchasing rights

to ordinary shares during capital increase. Dividends from RSUs are not restricted during the

vesting period, and are appropriated to the employees’ personal account from trust account

after the dividend distribution date.

c) Before the restricted shares are vested to the employees, the right of attendance, proposal,

speech, voting and other rights of shareholders are acted by the custodian.

d) The RSUs should be delivered to trust custodians upon grant date. The employees cannot

request for return in any manner before vesting conditions are met.

3) If an employee fails to meet the vesting conditions, the Corporation will recall or buy back and

cancel the restricted shares at issued price. If an employee voluntarily resigns, retires, disabled or

decease due to occupational hazards, dismissed, be transferred to another post, violates labor

contracts or working protocols substantially or abandons restricted shares, related guidelines of

RSU Plan will be followed accordingly.

- 256 -

Information relating to outstanding employee restricted shares as of December 31, 2018 and 2017

was as follows:


31 2018 2017 Restricted shares at the beginning of the year 2,975 3,100 Shares granted - 185 Share vested (618) (298) Shares canceled (84) (12) Restricted shares at the end of the year 2,273 2,975

Compensation costs of share-based payment arising from the RSU Plan were $48,786 thousand and

$69,791 thousand for the years ended December 31, 2018 and 2017, respectively

27. CAPITAL MANAGEMENT

The Corporation manages its capital to ensure that it will be able to continue as going concerns while

maximizing the return to shareholders through the optimization of the debt and equity balance. The

Corporation’s capital management aims to maintain the sufficiency of financial resources and the

soundness of operating strategies to meet the needs for operating capital, capital expenditure, R&D

expenses, debt handling, dividend disbursement, etc.

28. FINANCIAL INSTRUMENTS

a. Fair value of financial instruments not measured at fair value

Management believes the carrying amount of financial assets and financial liabilities recognized in the

financial statements approximates their fair values or their fair value could not be assessed reliably.

b. Fair value of financial instruments measured at fair value on a recurring basis

1) Fair value hierarchy

Level 1 Level 2 Level 3 Total December 31, 2018 Financial assets at

FVTPL Open-end beneficiary

certificates $ 951,456 $ - $ 6,807 $ 958,263 Financial assets at

FVTOCI Domestic listed equity

securities $ 431,797 $ - $ - $ 431,797 Foreign unlisted equity

securities - - 182,039 182,039 $ 431,797 $ - $ 182,039 $ 613,836

(Continued)

- 257 -

Level 1 Level 2 Level 3 Total

December 31, 2017

Financial assets at

FVTPL

Derivative instruments $ - $ 31 $ - $ 31

Available-for-sale

financial assets

Domestic securities

listed equity

securities $ 268,582 $ - $ - $ 268,582


certificates 832,314 - - 832,314

$ 1,100,896 $ - $ - $ 1,100,896

(Concluded)

There were no transfers between Levels 1 and 2 for the years ended December 31, 2018 and 2017.

2) Reconciliation of Level 3 fair value measurements of financial instruments


Financial

Assets at

FVTPL

Financial

Assets at

FVTOCI

Financial Assets

Equity

Instruments

Equity

Instruments Total


Recognized in profit or loss (included

in valuation gains and losses) 794 - 794


income (included in unrealized gain

(loss) on financial assets at

FVTOCI) - 9,861 9,861

Purchases - 67,800 67,800

Cash returned of capital reduction - (5,262) (5,262)

Transfers out of Level 3 - (156,244) (156,244)



Financial Instruments Valuation Techniques and Inputs

Derivatives - convertible

bonds

Binomial tree valuation model of convertible bonds: The fair

value of the derivative financial assets embedded in

convertible bonds were determined based on the observable

closing price of the stocks at balance sheet date and risk-free

interest rate with risk premium.

- 258 -


The fair values of domestic unlisted equity securities and open-end beneficiary certificates are

determined by using the asset approach and the market approach. Asset approach evaluates the

total market value of individual asset and liability of the evaluated target, taking into account the

risk factors (lack of marketability, etc.) to estimate the fair value. Market approach refers to the

transaction prices in active market of the listed companies engaging in similar business, related

price multiplier, transaction and information implied by the transaction price, to arrive at the fair

value.

c. Categories of financial instruments

December 31

2018 2017

Financial assets


Held for trading $ - $ 31

Mandatorily at FVTPL 958,263 -

Loans and receivables (1) - 5,411,799

Available-for-sale financial assets (2) - 1,268,810

Financial assets at amortized cost (3) 3,744,311 -


Equity instruments 613,836 -


Financial liabilities at amortized cost (4) 4,090,556 4,631,830

1) The balances included loans and receivables measured at amortized cost, which comprise cash and

cash equivalents, notes receivable, trade receivables, other receivables (classified as other

receivables - related parties and other current assets) and refundable deposits.

2) The balances included the carrying amount of available-for-sale financial assets measured at cost.

3) The balances include financial assets at amortized cost, which comprise cash and cash equivalents,

notes receivable, trade receivables, other receivables (classified as other receivable - related parties

and other current assets) and refundable deposits.

4) The balances included financial liabilities measured at amortized cost, which comprise short-term

loans, notes payable, trade payables, other payables, bonds issued, long-term loans (including

current portion of long-term borrowings) and guarantee deposits received.

d. Financial risk management objectives and policies

The Corporation’s major financial instruments consist of equity investments, cash and cash

equivalents, receivables, long-term and short-term borrowings, trade payables and convertible bonds.

The Corporation’s financial risk management pertains to financial risks relating to the operations of

the Corporation, including currency risk, interest rate risk, credit risk and liquidity risk. The

Corporation seeks to identify, evaluate and hedge against market uncertainties to lower the effect of

market changes on the Corporation’s financial performance.

- 259 -

The Corporation manages foreign exchange risk through setting up of foreign currency deposit bank

accounts and through the use of foreign currency directly received from sale to pay for purchases in

foreign currency to reduce the impact of foreign exchange fluctuation and to achieve a natural hedge

effect. The Corporation actively observes the exchange rate information to fully control the foreign

currency hedge.

1) Market risk

The Corporation’s activities expose it primarily to the financial risks of changes in exchange rates

(see Item (a) below), interest rates (see Item (b) below) and price (see Item (c) below).

There has been no change to the Corporation’s exposure to market risks or the manner in which

these risks are managed and measured.

a) Foreign currency risk

The carrying amounts of the Corporation’s foreign currency denominated monetary assets and

monetary liabilities at the end of the reporting period are set out in Note 33.


The Corporation was mainly exposed to USD and RMB.

Had the NTD strengthened/weakened by 5% against the relevant currency, the pre-tax profit

would have decreased/increased by $98,527 thousand and $154,405 thousand for the years

ended December 31, 2018 and 2017, respectively. The 5% sensitivity rate is used when

reporting foreign currency risk internally to key management personnel and represents

management’s assessment of the reasonably possible change in foreign exchange rates. The

sensitivity analysis includes only outstanding foreign currency-denominated monetary items

and their translation at period-end is adjusted for a 5% change in foreign-currency rates.

b) Interest rate risk

The Corporation is exposed to interest rate risk because it borrows funds both at fixed and

floated interest rates. The Corporation evaluates hedging activities regularly to align with

interest rate views and defined risk appetite and ensures that the most cost-effective hedging

strategies are applied.

The carrying amounts of the financial assets and liabilities with exposure to interest rates at

the end of the reporting period were as follows:

December 31

2018 2017

Fair value interest rate risk

Financial assets $ - $ 595,200

Financial liabilities - 399,703

Cash flow interest rate risk

Financial assets 913,360 1,447,629

Financial liabilities 2,430,000 2,100,000

- 260 -


The sensitivity analysis below was determined on the basis of the exposure to interest rates for

both derivative and non-derivative instruments at balance sheet dates. For floating rate

liabilities, the analysis was prepared assuming the amount of the liability outstanding at the

balance sheet dates was outstanding for the whole year. A 50 basis point increase or decrease

was used when reporting interest rate risk internally to key management personnel and

represents management’s assessment of the reasonably possible change in interest rates.

If interest rates had been 50 basis points higher/lower and all other variables were held

constant, the Corporation’s pre-tax profit for the years ended December 31, 2018 and 2017

would have decreased/increased by $7,583 thousand and $3,262 thousand, respectively, which

was mainly attributable to the Corporation’s exposure to interest rates on its variable rate

deposits and bank loans.

c) Price risk

The Corporation is exposed to equity price risks mainly arising from investment in open-end

beneficiary certificates and listed stocks in Taiwan, which are held for strategic rather than

trading purposes. The Corporation does not actively trade these investments. The Corporation

manages the risk through holding various portfolios of investment and having every equity

investment get prior approval from the Corporation’s management.


The sensitivity analysis below was determined based on the exposure to equity price risks at

the end of the reporting period.


2018 would have increased/decreased by $47,913 thousand as a result of the changes in fair

values of financial assets at FVTPL, and the pre-tax other comprehensive income for the year

ended December 31, 2018 would have increased/decreased by $30,692 thousand as a result of

the changes in fair values of financial assets at FVTOCI.

If equity prices had been 5% higher/lower, the pre-tax other comprehensive income for the

year ended December 31, 2017 would have increased/decreased by $55,045 thousand as a

result of the changes in fair values of available-for-sale financial assets held by the

Corporation.

2) Credit risk

Credit risk refers to the risk that the counterparty will default on its contractual obligations

resulting in financial loss to the Corporation. As at the end of the reporting period, the

Corporation’s maximum exposure to credit risk, which would cause a financial loss to the

Corporation due to the failure of the counterparty to discharge its obligation, could arise from:

a) The carrying amount of trade receivables from operating activities; and

b) The amount of bank deposits, fixed-income and other financial instruments from investing

activities.

The Corporation adopted a policy of only dealing with creditworthy counterparties and obtaining

sufficient collateral, where appropriate, as a means of mitigating the risk of financial loss from

defaults.

- 261 -

Trade receivables involve a large number of customers, spread across diverse industries and

geographical areas. Ongoing credit evaluation is performed on the financial condition of trade

receivables, including the evaluation of internal credits, historical transaction records, present

economic circumstances, etc. which affect the customers’ payment ability.

The credit risk of bank deposits, fixed-income financial instruments and other financial

instruments are evaluated, managed and controlled by the Corporation’s financial department.

The Corporation’s exposure to credit risk was limited because the Corporation adopted a policy

of only dealing with creditworthy counterparties.

3) Liquidity risk

The Corporation manages liquidity risk by managing and maintaining sufficient cash and cash

equivalents to supply the Corporation’s demand and mitigate the effects of fluctuations in cash

flow. The Corporation continuously monitors the use of credit lines and conformity to loan terms.

The Corporation relies on bank borrowings as a significant source of liquidity. As of December

31, 2018 and 2017, the Corporation’s available unutilized bank loan facilities were $1,850,000

thousand and $2,067,840 thousand, respectively.

Liquidity and interest risk tables for non-derivative financial liabilities

The following tables detail the Corporation’s remaining contractual maturity for its non-derivative

financial liabilities with agreed repayment periods. The tables have been drawn up based on the

undiscounted cash flows of financial liabilities from the earliest date on which the Corporation

can be required to pay.

Bank loans with a repayment on demand clause were included in the earliest time band regardless

of the probability of the banks choosing to exercise their rights. The maturity dates for other non-

derivative financial liabilities were based on the agreed repayment dates.

December 31, 2018


More Than

5 Years


Floating interest rate instruments 654,453 1,834,028 -

$ 2,314,317 $ 1,834,028 $ -

December 31, 2017


More Than

5 Years


Convertible bonds - 101,900 -

Floating interest rate instruments 1,521,820 919,379 -

$ 3,653,378 $ 1,021,279 $ -

After considering the financial position of the Corporation, management does not expect the

banks will execute their rights of requiring the Corporation to repay the bank loans immediately.

In addition, management believes the operating funds of the Corporation are sufficient to meet

cash flow demand; thus, liquidity risk is not considered significant.

- 262 -

The Corporation’s operating funds are sufficient to meet its cash flow demand, as a result, the

Corporation does not use its overdraft limit.

29. TRANSACTIONS WITH RELATED PARTIES

a. The related parties and relationships with the Corporation were as follows:

Related Party Relationship with the Corporation Chroma ATE Inc. (“Chroma USA”) Subsidiary Neworld Electronics Ltd. (“Neworld Electronics”) Subsidiary Chroma ATE Europe B.V. (“Chroma Europe”) Subsidiary CHI Incorporation Ltd. (“CHI”) Subsidiary Chroma Investment Co., Ltd. (“Chroma Investment”) Subsidiary Chen Hwa Technology Inc. (“Chen Hwa”) Subsidiary Sensational Holding Ltd. (“Sensational”) Subsidiary Chroma New Material Corp. (“Chroma New Material”) Subsidiary Chroma Japan Corp. (“Chroma Japan”) Subsidiary Chroma Systems Solutions, Inc. (“CSS”) Subsidiary Quantel Private Ltd. (“Quantel”) Subsidiary San Eagle Development Corp. (“San Eagle”) Subsidiary Wei Kuang Automatic Equipment Co., Ltd. (“Wei Kuang

Automatic”) Subsidiary

Testar Electronics Corp. (“Testar Electronics”) Subsidiary Deep Red Holding Co., Ltd. (“Deep Red”) Subsidiary Adivic Technology Co. (“Adivic Tech.”) Subsidiary Sajet System Technology (Suzhou) Co., Ltd. (“Sajet

Suzhou”) Subsidiary

Wei Kuang Mech. Eng. Inc. (“Wei Kuang”) Subsidiary Adivic Holding Corp. (“Adivic Holding”) Subsidiary Chroma Electronics (Shenzhen) Co., Ltd. (“Chroma

Shenzhen”) Subsidiary

Chroma Electronics (Shanghai) Co., Ltd. (“Chroma Shanghai”)

Subsidiary

Chroma (Shanghai) Trading Co., Ltd. (“Chroma Shanghai Trading”)

Subsidiary

Chroma ATE (Suzhou) Co., Ltd. (“Chroma Suzhou”) Subsidiary Mou Kuan Technologies (Nanjin) Co., Ltd. (“Mou Kuan

Nanjin”) Subsidiary

Wei Kuang Automatic Equipment (Nanjin) Co., Ltd. (“Wei Kuang Nanjin”)

Subsidiary

Wei Kuang Automatic Equipment (Xiamen) Co., Ltd. (“Wei Kuang Xiamen”)

Subsidiary

EVT Technology Co., Ltd. (“EVT”) Subsidiary Wei Da Electric Vehicle Co., Ltd. (“Wei Da Electric”) Subsidiary (EVT’s subsidiary) Innovative Nanotech Incorporated (“Innovative”) Subsidiary (the Corporation

acquired control over the subsidiary since August 9, 2017)

Touch Cloud Incorporation (“Touch Cloud”) Subsidiary (the Corporation acquired control over the subsidiary since 2017 Q4)

Quantel Technologies India Private Ltd. (“Quantel Technologies India”)

Subsidiary (Quantel’s subsidiary)

Quantel Global Vietnam Co., Ltd. (“Quantel Global Vietnam”)

Subsidiary (Quantel’s subsidiary)

Quantel Global Sdn. Bhd. (“Quantel Global Malaysia”) Subsidiary (Quantel’s subsidiary) (Continued)

- 263 -

Related Party Relationship with the Corporation Quantel Global Philippines Corporation (“Quantel Global

Philippines”) Subsidiary (Quantel’s subsidiary)

Chroma Germany GmbH (“Chroma Germany”) Subsidiary (Chroma Europe’s subsidiary)

Adlink Technology Inc. (“Adlink”) Associate DynaScan Technology Corp. (“DynaScan Technology”) Associate Chih Ho Shun Development Co., Ltd. (“Chih Ho Shun”) Joint venture Mon Kuan Technologies Co., Ltd. (“Mon Kuan Tec.”) Other related party Quantel Co., Ltd. (“Quantel Thailand”) Other related party Quantel Sdn., Ltd. (“Quantel Malaysia”) Other related party Quantel Philippines Inc. (“Quantel Philippines”) Other related party PT Quantel (“Quantel Indonesia”) Other related party Quantel Pte Ltd Representative Office In Hanoi (“Quantel

Vietnam”) Other related party

Quantel Electronics (India) Private Limited (“Quantel India”)

Other related party

(Concluded) The related-party transactions were conducted under normal terms unless specified otherwise. The related-party transactions were as follows:

b. Sales

For the Year Ended December 31 Related Party Categories 2018 2017 Subsidiaries

Neworld Electronics $ 1,979,060 $ 1,880,032 Chroma USA 665,640 898,453 Others 1,937,829 2,087,363

Associates 22,534 14,068 Other related parties 1,175 1,240 $ 4,606,238 $ 4,881,156

To raise market share and expand its market in the America, Europe and Mainland China, the Corporation set up Chroma USA, Chroma ATE Europe B.V. and Neworld Electronics Ltd. The selling prices for Chroma USA, CSS, Chroma Europe, Neworld Electronics, Chroma Suzhou, and Chroma Shenzhen were determined after taking the selling and post-sale service expenses into consideration.

c. Purchases

For the Year Ended December 31 Related Party Categories 2018 2017 Subsidiaries $ 103,013 $ 181,239 Associates 12,687 20,761 Other related parties - 6 $ 115,700 $ 202,006

- 264 -

d. Receivables from related parties (excluding loans to related parties)

December 31


Notes receivable Subsidiaries $ 194 $ 794

Trade receivables Subsidiaries

Chroma USA $ 467,443 $ 363,520

Neworld Electronics 447,646 870,209

Chroma EUR 253,438 184,154

Others 584,989 827,829

Associates 6,940 4,015

Other related parties 304 304

$ 1,760,760 $ 2,250,031

Dividends receivable Subsidiaries $ 7,679 $ 5,952

e. Payables to related parties (excluding loans from related parties)

December 31


Notes payable Other related parties $ 105 $ 140

Trade payables Subsidiaries $ 9,660 $ 30,805

Associates 3,127 3,714

$ 12,787 $ 34,519

f. Acquisitions of property, plant and equipment


31 Related Party Categories 2018 2017 Subsidiaries $ 6,533 $ 515 Associates 133 84 $ 6,666 $ 599

g. Loans to related parties

1) Other receivables

December 31 Related Party Categories 2018 2017 Subsidiaries

CSS $ 119,375 $ 115,664 Chroma Japan 35,553 38,993

$ 154,928 $ 154,657

- 265 -

2) Interest receivables

December 31

Related Party Categories 2018 2017

Subsidiaries $ 323 $ 313

3) Interest revenue


31


Subsidiaries

CSS $ 3,808 $ 3,827

Note: Refer to Table 1 (attached) for other information related to financing provided.

h. Endorsement guarantees provided

Note:Refer to Table 2 (attached) for other information related to endorsement guarantees provided.

i. Others

1) Commission expense


31 Related Party Categories 2018 2017 Subsidiaries

Quantel $ 17,790 $ 8,322 Chroma Shanghai 12,301 11,836 Chroma Suzhou 12,211 11,146 Chroma Japan - 5,893

Others 2,863 2,094 $ 45,165 $ 39,291

Commission expense refers to the disbursements made for business introduction activities.

2) Rental income


31 Related Party Categories 2018 2017 Subsidiaries

Testar Electronics $ 13,656 $ 13,815 Others 1,110 1,074

Associates 1,260 1,260 $ 16,026 $ 16,149

The Corporation leased out some floors of the buildings in Hwa-Ya Technical Park in Taoyuan

to the above related parties under operating lease contracts, and these leases were based on market

prices. Rents were collected monthly.

- 266 -

3) Management service income



Subsidiaries

Chroma New Material $ 6,000 $ 6,000

Others 600 600

$ 6,600 $ 6,600

Management service income was from the Corporation’s provision of administrative services.

4) Other income



Subsidiaries

Neworld Electronics $ 14,400 $ 19,732

Chroma Europe 666 -

Others 26 3

$ 15,092 $ 19,735

Other income is income from repairs and maintenance.

5) Other current assets - other receivables

December 31


Subsidiaries

Testar Electronics $ 23,353 $ 53,543

Neworld Electronics 5,178 10,317

Others 1,929 2,076

Associates 521 666

$ 30,981 $ 66,602

Receivables were recognized from managerial services and building rentals.

j. Compensation of key management personnel


2018 2017

Short-term employee benefits $ 108,652 $ 115,350

Post-employment benefits 2,180 2,247

$ 110,832 $ 117,597

- 267 -

30. ASSETS PLEDGED AS COLLATERAL OR FOR SECURITY

The assets pledged as collaterals for bank loans were as follows:

December 31

2018 2017

Land and buildings, net $ 700,115 $ 707,751

31. SIGNIFICANT EVENTS AFTER REPORTING PERIOD

In view of future development strategy and improvement of operating performance, the Corporation’s

board of directors resolved on February 11, 2019, to subscribe equity interest of Camtek Ltd. in US$9.5

per share with a consideration of US$74,265,680. The Corporation expected to acquire 20.5% of equity

interest upon completion of the transaction. The investment is awarding for the authorities’ approval for

settlement.

32. SIGNIFICANT EVENTS

On January 17, 2012, the Corporation, Dynapack International Corporation and Heran Co., Ltd. won a

bid for the ownership of land and the building and related facilities to be built on the land pertaining to

“The Action Plan for Developing Land Surrounding the MRT Airport Station to Improve Civilians’ Life,”

which had been reviewed and approved by the Ministry of the Interior (MOI).

The total bid price was $10,088,890 thousand, covering land with an area of 222,300 square meters. As a

result of winning the above bid, the Corporation acquired 35%, or 77,805 square meters, of a certain piece

of land for $3,531,112 thousand. On April 18, 2012, the Corporation signed the land purchase contract

with the MOI; the payment schedule for this purchase is as follows:

a. The first installment of the bid amount (10% of the total bid amount, or $353,111 thousand) should

be paid within 10 days from the contract date. The Corporation paid the first installment by bid

deposit $353,040 thousand and cash.

b. To meet the schedule for zone expropriation, the Corporation should pay the second installment (30%

of the total bid amount) within 10 days of receiving the payment notice from the MOI. The MOI will

approve the Corporation’s land usage rights as the payment is made. On September 3, 2013, the

Corporation has paid the second installment $1,059,333 thousand.

c. To help the MOI provide the compensations for land expropriation and complete the demolition and

relocation of structures on the land, the Corporation should pay the third installment (40% of the total

bid amount) within 10 days of the payment notice from the MOI. The MOI will then check with the

Corporation to see if the demolition and relocation are completed as the payment is made. In

November 2015 and July 2016, the Corporation has paid the first part of the third installment

$536,729 thousand and the remaining part of the third installment $875,716 thousand, respectively.

d. The Corporation should accomplish the following things within four years from the time of obtaining

the approval of the land usage rights:

1) Open up the main road system and build related public facilities.

2) Acquire the building license for over 50% of all industrial land and register with the authorities to go

into operation.

- 268 -

After completing the above requirements, the Corporation should apply to the MOI for the approval

to acquire real property rights to the structures and facilities built. The Corporation should pay the

fourth installment (20% of the total bid amount) within 10 days upon obtaining the approval and

receipt of the payment notice from the MOI. The Corporation has paid the fourth installment

$716,362 thousand in June 2018 and obtained the property registration over the land from the MOI.

The Corporation has agreed to comply with the MOI’s requirement for the MOI’s placing of caution

on undeveloped land before ownership of real property is turned over to the Corporation. The MOI

will cancel this caution once it determines that the Corporation has completed all the required land

development, building and facility construction and land improvements. The Corporation has

recognized the land for self-use and the land for undetermined future use to property, plant and

equipment and investment properties, respectively. Please refer to Notes 14 and 15.

33. SIGNIFICANT ASSETS AND LIABILITIES DENOMINATED IN FOREIGN CURRENCIES

The Corporation’s significant financial assets and liabilities denominated in foreign currencies were as

follows:

December 31, 2018

Foreign


Carrying

Amount

Financial assets

Monetary items

USD $ 62,425 30.715 (USD:NTD) $ 1,917,377

RMB 57,246 4.472 (RMB:NTD) 256,006

$ 2,173,383

Non-monetary items

Investments accounted for using

equity method

USD 51,219 30.715 (USD:NTD) $ 1,509,875

HKD 289,530 3.921 (HKD:NTD) 1,135,246

$ 2,645,121


Monetary items

USD 6,604 30.715 (USD:NTD) $ 202,848

- 269 -

December 31, 2017

Foreign


Carrying

Amount

Financial assets

Monetary items

USD $ 87,600 29.760 (USD:NTD) $ 2,606,983

RMB 168,862 4.565 (RMB:NTD) 770,855

$ 3,377,838

Non-monetary items

Investments accounted for using

equity method

USD 44,127 29.760 (USD:NTD) $ 1,326,994

HKD 271,236 3.807 (HKD:NTD) 1,032,596

$ 2,359,590


Monetary items

USD 9,736 29.760 (USD:NTD) $ 289,746

For the years ended December 31, 2018 and 2017, (realized and unrealized) net foreign exchange gains

(losses) were $84,517 thousand and $(117,951) thousand, respectively. It is impractical to disclose net

foreign exchange gains (losses) by each significant foreign currency due to the variety of the foreign

currency transactions.

34. SEPARATELY DISCLOSED ITEMS

a. Information about significant transactions and investees:

1) Financing provided to others: Table 1 (attached)

2) Endorsements/guarantees provided: Table 2 (attached)

3) Marketable securities held (excluding investment in subsidiaries, associates and joint ventures):

Table 3 (attached)

4) Marketable securities acquired and disposed of at costs or prices of at least NT$300 million or

20% of the paid-in capital: Table 4 (attached)

5) Acquisition of individual real estate at costs of at least NT$300 million or 20% of the paid-in


6) Disposal of individual real estate at prices of at least NT$300 million or 20% of the paid-in capital:

None.

7) Total purchases from or sales to related parties amounting to at least NT$100 million or 20% of

the paid-in capital: Table 6 (attached)

- 270 -

8) Receivables from related parties amounting to at least NT$100 million or 20% of the paid-in


9) Trading in derivative instruments: Note 7 and Note 18

10) Information on investees: Table 8 (attached)

b. Information on investments in mainland China

1) Information on any investee company in mainland China, showing the name, principal business

activities, paid-in capital, method of investment, inward and outward remittance of funds,

ownership percentage, net income of investees, investment income or loss, carrying amount of the

investment at the end of the period, repatriations of investment income, and limit on the amount

of investment in the mainland China area: Table 9 (attached)

2) Any of the following significant transactions with investee companies in mainland China, either

directly or indirectly through a third party, and their prices, payment terms, and unrealized gains

or losses:

a) The amount and percentage of purchases and the balance and percentage of the related

payables at the end of the period: Table 6 (attached)

b) The amount and percentage of sales and the balance and percentage of the related receivables

at the end of the period: Table 6 (attached)

c) The amount of property transactions and the amount of the resultant gains or losses: None.

d) The balance of negotiable instrument endorsements or guarantees or pledges of collateral at

the end of the period and the purposes: Table 2 (attached)

e) The highest balance, the end of period balance, the interest rate range, and total current period

interest with respect to financing of funds: Table 1 (attached)

f) Other transactions that have a material effect on the profit or loss for the year or on

the financial position, such as the rendering or receiving of services: None

- 271 -

CHROMA ATE INC.

FINANCING PROVIDED TO OTHERS



No. Lender Borrower Financial

Statement Account

Related

Parties

Highest

Balance for

the Period

Ending

Balance

Actual

Borrowing

Amount

Interest

Rate

Nature of

Financing

(Note 5)

Business

Transaction

Amounts

Reasons for

Short-term

Financing

Allowance

for

Impairment

Loss

Collateral Financing

Limit for

Each

Borrower

Aggregate

Financing

Limit Item Value

0 The Corporation Chroma Systems

Solutions, Inc.

Other receivables Y $ 119,375 $ 119,375 $ 119,375 3.25% a $ 493,283 - $ - - $ - $ 1,441,002

(Note 1)

$ 2,882,004

(Note 2)

Chroma Japan Corp. Other receivables Y 46,321 41,194 35,553 - a 223,056 - - - - 1,441,002

(Note 1)

2,882,004

(Note 2)

1 Chroma Electronics


Chroma ATE (Suzhou)

Co., Ltd.

Other receivables Y 44,720 44,720 - 2.50% b - Operation - - - 456,924

(Note 3)

456,924

(Note 3)

2 Wei Kuang Automatic

Equipment (Xiamen)

Co., Ltd.

Chroma ATE (Suzhou)

Co., Ltd.

Other receivables Y 44,720 44,720 13,416 2.50% b - Operation - - - 308,460

(Note 3)

308,460

(Note 3)



Note 3: Based on 70% of the net value from the latest financial statements of borrowing company that have been audited.

Note 4: The amounts listed in the table were translated into New Taiwan dollars at the exchange rate of US$1=NT$30.715, RMB1=NT$4.472 and JPY1 = NT$0.278 as of December 28, 2018.

Note 5: Financing provided:

a. For transactions.

b. For short-term financing.

- 272 -

TABLE 2

CHROMA ATE INC.

ENDORSEMENTS/GUARANTEES PROVIDED



No. Endorser/

Guarantor

Endorsee/Guarantee Limits on

Endorsement

/Guarantee

Given on

Behalf of

Each Party

(Note 1)

Maximum

Amount

Endorsed/

Guaranteed

During the

Period

Outstanding

Endorsement

/Guarantee

at the End of

the Period

Actual

Borrowing

Amount

Amount

Endorsed/

Guaranteed

by Collateral

Ratio of

Accumulated

Endorsement

/Guarantee

to Net Equity

in Latest

Financial

Statements

Aggregate

Endorsement

Guarantee

Limit

(Note 2)

Endorsement

/Guarantee

Given by

Parent on

Behalf of

Subsidiaries

Endorsement

/Guarantee

Given by

Subsidiaries

on Behalf of

Parent

Endorsement

/Guarantee

Given on

Behalf of

Companies in

Mainland

China

Name Relationship

0 The Corporation Chroma Japan Corp. Subsidiary $ 2,161,503 $ 34,100 $ 34,100 $ 5,560 $ - 0.24% $ 4,323,006 Y - -

Chroma ATE Europe

B.V.

Subsidiary 2,161,503 52,800 52,800 - - 0.37% 4,323,006 Y - -

Chroma ATE Inc. Subsidiary 2,161,503 61,430 61,430 61,430 - 0.43% 4,323,006 Y - -


(Suzhou) Co., Ltd.

Subsidiary 2,161,503 22,360 22,360 - - 0.16% 4,323,006 Y - Y

Chroma Electronics

(Shanghai) Co., Ltd.

Subsidiary 2,161,503 44,720 44,720 - - 0.31% 4,323,006 Y - Y

Chroma Electronics


Subsidiary 2,161,503 44,720 44,720 - - 0.31% 4,323,006 Y - Y

Chroma ATE (Suzhou)

Co., Ltd.

Subsidiary 2,161,503 89,440 89,440 5,417 - 0.62% 4,323,006 Y - Y

Quantel Private Ltd. Subsidiary 2,161,503 44,960 44,960 - - 0.31% 4,323,006 Y - -

Note 1: According to Regulation of the “Procedures for Endorsement/Guarantee and lending of Funds”, the Corporation limits the endorsement/guarantee amount on each entity to (a) within 15% of the net value of the

Corporation and (b) the capital issued of the entity endorsed/guaranteed, but 100% held subsidiary is not limited by the regulation.

Note 2: According to Regulation of the “Procedures for Endorsement/Guarantee and Lending of Funds”, the Corporation limits the endorsement/guarantee amount within the 30% of the net value of the Corporation.

Note 3: The amounts listed in columns were translated into New Taiwan dollars at the exchange rate of US$1=NT$30.715, JPY1=NT$0.278, RMB1=NT$4.472, EUR1=NT$35.200, SGD1=NT$22.480 as of December 28,

2018.

- 273 -

TABLE 3

CHROMA ATE INC.

MARKETABLE SECURITIES HELD

(EXCLUDING INVESTMENT IN SUBSIDIARIES, ASSOCIATES AND JOINT CONTROLLED ENTITIES)

DECEMBER 31, 2018



Relationship with

the Holding

Company


December 31, 2018

Note Shares/Units

(Thousands)

Carrying

Amount

Percentage

of

Ownership

Fair Value



Jih Sun Money Market Fund - 〃 6,765 100,076 - 100,076 -


Yuanta De-Li Money Market Fund - 〃 12,287 200,044 - 200,044 -

WI Harper INC Fund VII LP - Financial assets at fair value through profit or loss - non-

current

- 6,807 - 6,807 -

Stocks

DynaColor, Inc. - Financial assets at fair value through other comprehensive


6,050 228,702 6.1 228,702 -

Chunghwa Telecom Co., Ltd. - 〃 412 46,599 - 46,599 -

China Communications Media Group Co., Ltd. - 〃 26 252 - 252 -

WK Technology Fund IX Ltd. - 〃 4,614 37,017 4.6 37,017 -

Twoway Catv Service Inc. - 〃 3,561 42,585 4.4 42,585 -

Tian Zheng International Precision Machinery Co., Ltd. - 〃 2,553 156,244 8.1 156,244 -

WK Technology Fund IV Ltd. - 〃 806 3,594 1.9 3,594 -

WK Technology Fund VI Ltd. - 〃 723 2,289 1.4 2,289 -

TFBS Bioscience Inc. - 〃 3,280 47,954 14.7 47,954 -

Taiwan Advanced Nanotech Inc. - 〃 2,700 48,600 15.0 48,600 -

Chroma New Material Corp. Fund

Fuh Hwa You Li Money Market Fund - Financial assets at fair value through profit or loss - current 6,829 91,891 - 91,891 -

Taishin 1699 Money Market Fund - 〃 3,712 50,140 - 50,140 -

Chroma Investment Co., Ltd. Fund


Stocks

Greatek Electronics Inc. - 〃 85 3,653 - 3,653 -

Chroma ATE Inc. The Corporation Financial assets at fair value through other comprehensive


1,916 226,038 0.5 226,038 -

Cosmactive Broadband Networks Co., Ltd. - 〃 26 - 1.5 - -

Prance System Technology Co., Ltd. - 〃 111 - 5.1 - -

Chen Hwa Technology Inc. Stocks

Hangzhou New Material Chroma Co., Ltd. - 〃 - 4,435 19.0 4,435 -

(Continued)

- 274 -


Relationship with

the Holding

Company


December 31, 2018

Note Shares/Units

(Thousands)

Carrying

Amount

Percentage

of

Ownership

Fair Value

Innovative Nanotech Incorporated Fund


Touch Cloud Incorporation Fund

Mega Diamond Money Market Fund - 〃 2,753 34,469 - 34,469 -

Note 1: Marketable securities refer to stocks, bonds, beneficiary certificates and marketable securities derived from above items under IFRS 9 “Financial Instruments”.

Note 2: The fair value of open-end beneficiary certificates and listed market securities was calculated based on the net asset value and closing price as of balance sheet date.

(Concluded)

- 275 -

TABLE 4

CHROMA ATE INC.

MARKETABLE SECURITIES ACQUIRED AND DISPOSED OF AT COSTS OR PRICES OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Type and Name of

Marketable Securities Financial Statement Account Counterparty Relationship

Beginning Balance Acquisition Disposal Ending Balance

Number of Shares

(Thousands)

Amount

(Note)

Number of Shares

(Thousands) Amount

Number of Shares

(Thousands) Amount Carrying Amount

Gain (Loss) on

Disposal

Number of Shares

(Thousands)

Amount

(Note)


Mega Diamond Money Market Fund

Financial assets at fair value through profit or loss - current

- - 20,372 $ 253,960 24,055 $ 300,000 - $ - $ - $ - 44,427 $ 556,317

Jih Sun Money Market

Fund 〃 - - - - 33,911 500,000 27,146 400,970 400,000 970 6,765 100,076

Note: The beginning and ending balances included adjustments for financial assets valuation gain or loss.

TABLE 5

CHROMA ATE INC.

ACQUISITION OF INDIVIDUAL REAL ESTATE AT COSTS OF AT LEAST NT$300 MILLION OR 20% OF THE PAID-IN CAPITAL



Company Name Type of Property Transaction Date Transaction

Amount Payment Term Counter-party

Nature of

Relationship

Prior Transaction of Related Counter-party Price Reference

Purpose of

Acquisition Other Terms

Owner Relationship Transfer Date Amount

The Corporation Land 2018.06.05 $ 717,244 Based on the contract;

fourth installment had

been paid.

Ministry of the Interior,

Republic of China

- - - - $ - Public bidding Manufacturing, R&D,

operating and

building employee

dormitories

Note

Note: Please refer to Note 32 to the financial statements for related information.

- 276 -

TABLE 6

CHROMA ATE INC.

TOTAL PURCHASE FROM OR SALE TO RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL






Purchase

(Sale) Amount

% to

Total Payment Terms Unit Price Payment Terms Ending Balance

% to

Total

The Corporation Neworld Electronics Ltd. Subsidiary (Sale) $ (1,979,060) (26) Net 90 days after delivery - - $ 447,646 17 -

Neworld Electronics Ltd. The Corporation Parent company Purchase 1,979,060 100 Net 90 days after delivery - - (447,646) (100) -

The Corporation Chroma Electronics (Shanghai) Co., Ltd. Subsidiary (Sale) (169,418) (2) Net 120 days after delivery - - 27,286 1 -

Chroma Electronics (Shanghai) Co., Ltd. The Corporation Parent company Purchase 169,418 100 Net 120 days after delivery - - (27,286) (100) -

The Corporation Chroma Electronics (Shenzhen) Co., Ltd. Subsidiary (Sale) (308,313) (4) Net 90 days after monthly closing - - 71,854 3 -

Chroma Electronics (Shenzhen) Co., Ltd. The Corporation Parent company Purchase 308,313 100 Net 90 days after monthly closing - - (71,854) (100) -

The Corporation Chroma ATE (Suzhou) Co., Ltd. Subsidiary (Sale) (129,839) (2) Net 120 days after delivery - - 59,922 2 -

Chroma ATE (Suzhou) Co., Ltd. The Corporation Parent company Purchase 129,839 100 Net 120 days after delivery - - (59,922) (100) -

The Corporation Chroma Japan Corp. Subsidiary (Sale) (223,056) (3) Net 90 days after delivery - - 221,817 9 -

Chroma Japan Corp. The Corporation Parent company Purchase 223,056 100 Net 90 days after delivery - - (221,817) (100) -

The Corporation Chroma ATE Inc. Subsidiary (Sale) (665,640) (9) Net 180 days after delivery - - 467,443 18 -

Chroma ATE Inc. The Corporation Parent company Purchase 665,640 100 Net 180 days after delivery - - (467,443) (100) -

The Corporation Chroma Systems Solutions, Inc. Subsidiary (Sale) (493,283) (7) Net 90 days after delivery - - 135,507 5 -

Chroma Systems Solutions, Inc. The Corporation Parent company Purchase 493,283 100 Net 90 days after delivery - - (135,507) (100) -

The Corporation Chroma ATE Europe B.V. Subsidiary (Sale) (403,983) (5) Net 90 days after delivery - - 253,438 10 -

Chroma ATE Europe B.V. The Corporation Parent company Purchase 403,983 100 Net 90 days after delivery - - (253,438) (100) -

The Corporation Quantel Private Ltd. Subsidiary (Sale) (166,600) (2) Net 90 days after delivery - - 27,851 1 -

Quantel Private Ltd. The Corporation Parent company Purchase 166,600 100 Net 90 days after delivery - - (27,851) (100) -

Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co., Ltd. Subsidiary (Sale) (817,631) (29) Net 90 days - - 364,859 52 -

Chroma Electronics (Shenzhen) Co., Ltd. Neworld Electronics Ltd. Parent company Purchase 817,631 72 Net 90 days - - (364,859) (80) -

(Continued)

- 277 -




Purchase

(Sale) Amount

% to

Total Payment Terms Unit Price Payment Terms Ending Balance

% to

Total

Neworld Electronics Ltd. Chroma ATE (Suzhou) Co., Ltd. Same parent

company

(Sale) $ (143,737) (5) Net 90 days - - $ 90,145 13 -

Chroma ATE (Suzhou) Co., Ltd. Neworld Electronics Ltd. Same parent

company

Purchase 143,737 44 Net 90 days - - (90,145) (41) -

Neworld Electronics Ltd. Wei Kuang Automatic Equipment (Nanjin)

Co., Ltd.

Same parent

company

(Sale) (261,831) (9) Net 90 days - - - - -


Co., Ltd.


company


Neworld Electronics Ltd. Wei Kuang Automatic Equipment (Xiamen)

Co., Ltd.

Same parent

company

(Sale) (343,601) (12) Net 90 days - - - - -


Co., Ltd.


company


Wei Kuang Automatic Equipment Co., Ltd. Neworld Electronics Ltd. Same parent

company

(Sale) (512,937) (13) Net 180 days after delivery - - - - -

Neworld Electronics Ltd. Wei Kuang Automatic Equipment Co., Ltd. Same parent

company

Purchase 512,937 21 Net 180 days after delivery - - - - -


Co., Ltd.

Same parent

company

(Sale) (139,851) (3) Net 120 days after monthly closing

- - 113,499 7 -


Co., Ltd.

Wei Kuang Automatic Equipment Co., Ltd. Same parent

company

Purchase 139,851 28 Net 120 days after monthly closing - - (133,499) (65) -

(Concluded)

- 278 -

TABLE 7

CHROMA ATE INC.

RECEIVABLES FROM RELATED PARTIES AMOUNTING TO AT LEAST $100 MILLION OR 20% OF THE PAID-IN CAPITAL

DECEMBER 31, 2018


Company Name Related Party Relationship Ending Balance Turnover

Rate

Overdue Amount

Received in

Subsequent

Period (Note)

Allowance for

Impairment

Loss Amount Action Taken

The Corporation Neworld Electronics Ltd. Subsidiary Trade receivables $ 447,646 3.00 $ - - $ 261,053 $ -

Chroma ATE Inc. Subsidiary Trade receivables 467,443 1.60 - - 125,057 -

Chroma ATE Europe B.V. Subsidiary Trade receivables 253,438 1.85 - - - -

Chroma Systems Solutions, Inc. Subsidiary Trade receivables 135,507 4.02 - - 72,310 -

Other receivables - financing provided

119,375

- - - - -

Chroma Japan Corp. Subsidiary Trade receivables 221,817 1.16 - - 60,581 -

Neworld Electronics Ltd. Chroma Electronics (Shenzhen) Co,

Ltd.

Subsidiary Trade receivables 364,859 1.97 - - 196,163 -


Co., Ltd. Same parent

company

Trade receivables 113,499 2.40 - - 23,451 -

Note: As of February 21, 2019.

- 279 -

TABLE 8

CHROMA ATE INC.

INFORMATION ON INVESTEES



Investor Investee Location Main Businesses and Products

Investment Amount Balance as of December 31, 2018 Net Income

(Loss) of the

Investee

Investment

Gain (Loss) Note December 31,

2018

December 31,

2017

Shares

(Thousands)

Percentage of

Ownership

Carrying

Amount

The Corporation Neworld Electronics Ltd. Hong Kong Sale and maintenance of electronic test instruments, etc. $ 271,873 $ 271,873 64,013 100.0 $ 949,027 $ 112,846 $ 112,846 Subsidiary

San Eagle Development Corp. British Virgin Islands Investment 186,514 186,514 2,050 100.0 791,854 198,996 121,538 Subsidiary

Adlink Technology Inc. New Taipei, Taiwan Manufacturing, processing and retailing of software/hardware of

computers and peripherals

165,146 165,146 24,502 11.3 517,852 238,525 26,963 Associate

Chroma New Material Corporation Taoyuan, Taiwan Sale and processing of gold wire 480,715 480,715 25,000 100.0 443,073 44,611 44,611 Subsidiary

Wei Kuang Automatic Equipment Co., Ltd. Hsinchu, Taiwan Design, manufacturing, installment and testing of automated

factory conveyor systems

533,000 533,000 10,000 100.0 1,206,381 885,878 885,886 Subsidiary

CHI Incorporation Ltd. British Virgin Islands Test of inductance, capacitance and resistance, and sale of parts 122,884 122,884 3,830 100.0 164,834 7,444 7,444 Subsidiary

Quantel Private Ltd. Singapore Sale and maintenance of test instruments, etc. 112,328 112,328 1,914 60.0 130,270 30,011 16,888 Subsidiary

Chen Hwa Technology Inc. British Virgin Islands Test of inductance, capacitance and resistance, and sale of parts 98,217 98,217 3,085 100.0 101,626 990 990 Subsidiary

Chroma Investment Co., Ltd. New Taipei, Taiwan Investment 80,000 80,000 14,000 100.0 124,674 6,479 (2,094) Subsidiary

Chroma ATE Europe B.V. The Netherlands Sale and maintenance of electronic test instruments etc. 54,026 54,026 1 100.0 60,658 21,964 21,939 Subsidiary

DynaScan Technology Corp. Taoyuan, Taiwan Research and manufacture of LED generators 238,746 238,746 9,841 27.3 114,193 76,973 21,014 Associate

Chroma USA USA Sale and maintenance of electronic test instruments, etc. 29,895 29,895 1,000 100.0 134,810 (5,873) (5,875) Subsidiary

Sensational Holding Ltd. British Virgin Islands Investment 38,301 38,301 1,200 100.0 53,924 1,851 1,851 Subsidiary

Adivic Technology Co. Taipei, Taiwan Sale and research of RF device 193,800 193,800 12,240 51.0 35,617 (39,420) (20,641) Subsidiary

Chroma Japan Corp. Japan Sale and maintenance of electronic test instruments, etc. 147,125 147,125 9 100.0 (70,297) (33,977) (33,979) Subsidiary

Chroma Systems Solutions, Inc. USA Sale and maintenance of electronic test instruments, etc. 29,628 29,628 120 25.0 (45,711) 86,297 21,928 Subsidiary

Deep Red Holding Co., Ltd. Mauritius Investment 12,217 12,217 215 100.0 104,303 45,430 45,430 Subsidiary

Chih Ho Shun Development Co., Ltd. Taoyuan, Taiwan Construction and development of residence, buildings and

specialized field; construction and investment of public works

17,500 17,500 1,750 35.0 17,664 108 38 Joint venture

Testar Electronics Corporation Taoyuan, Taiwan Testing of LED products 247,096 247,096 20,160 67.2 24,596 (2,792) (1,876) Subsidiary

EVT Technology Co., Ltd. Taoyuan, Taiwan Manufacturing of motorcycles and its parts 117,311 67,481 9,412 85.6 59,793 (10,767) (8,517) Subsidiary

Innovative Nanotech Incorporated Taoyuan, Taiwan Monitoring instruments of nanoparticles 142,140 70,000 14,214 71.1 119,441 (29,451) (22,503) Subsidiary

Touch Cloud Incorporation Taipei, Taiwan Development of cloud platform and Internet of Things Systems 57,000 57,000 5,700 78.1 43,779 (14,809) (11,563) Subsidiary

Chroma USA Chroma Systems Solutions, Inc. USA Sale and maintenance of electronic test instruments, etc. 64 64 240 50.0 165,846 86,297 NA Subsidiary

San Eagle Development Corp. Wei Kuang Mech. Eng. Inc. Mauritius Investments 185,686 185,686 4,475 100.0 861,912 199,047 NA Subsidiary

EVT Technology Co., Ltd. Wei Da Electric Vehicle Co., Ltd. Pingtung, Taiwan Sale and lease of motorcycles 3,750 3,750 375 75.0 (3,906) - NA Subsidiary

Adivic Technology Co., Ltd. Adivic Holding Corporation Samoa Sale and research of RF device 42,245 42,245 1,000 100.0 10,234 (1,259) NA Subsidiary

Quantel Private Ltd. Quantel Technologies India Private Ltd. India Sale and maintenance of test instruments, etc. 3,056 3,056 65 100.0 2,306 (547) NA Subsidiary

Quantel Global Vietnam Co., Ltd. Vietnam Sale and maintenance of test instruments, etc. 6,219 6,219 - 100.0 3,010 (896) NA Subsidiary

Quantel Global Sdn. Bhd. Malaysia Sale and maintenance of test instruments, etc. 4,199 - 600 100.0 4,120 (143) NA Subsidiary

Quantel Global Philippines Corporation Philippines Sale and maintenance of test instruments, etc. 610 - 99 100.0 1,359 (4,238) NA Subsidiary

Chroma ATE Europe B.V. Chroma Germany GmbH Germany Sale and maintenance of electronic test instruments, etc. 1,073 1,073 30 100.0 (3,063) 1,169 NA Subsidiary

- 280 -

TABLE 8

CHROMA ATE INC.

INFORMATION ON INVESTMENTS IN MAINLAND CHINA



Investee Company Main Businesses and Products Paid-in Capital

(Note 2)

Method of Investment

(Note 1)

Accumulated

Outward

Remittance for

Investment from

Taiwan as of

January 1, 2018

(Note 3)

Remittance of Funds Accumulated

Outward

Remittance for

Investment from

Taiwan as of

December 31,

2018

(Note 3)

Net Income

(Loss) of the

Investee

Percentage of

Ownership in

Investment

Investment

Gain (Loss)

(Notes 4 and 5)

Carrying

Amount as of

December 31,

2018

(Note 2)

Accumulated

Inward

Remittance of

Earnings as of

December 31,

2018

Outward Inward

Chroma Electronics (Shenzhen) Co., Ltd. Sale of computerized automatic test systems,


$ 117,630

(HK$ 30,000)

b. Subsidiary of

Neworld Electronics

Ltd.

$ 132,178

(HK$ 1,200

US$ 3,853)

$ - $ - $ 132,178

(HK$ 1,200

US$ 3,853)

$ 85,372 100 $ 85,372 $ 653,019 $ -

Chroma Electronics (Shanghai) Co., Ltd. Sale of computerized automatic test systems,


92,145

(US$ 3,000)

b. Subsidiary of

Neworld Electronics

Ltd.

101,993

(US$ 3,000)

- - 101,993

(US$ 3,000)

15,954 100 15,954 119,254 -

Chroma (Shanghai) Trading Co., Ltd. International and transit trading, commercial

simple processing and commercial

consulting service and etc.

82,931

(US$ 2,700)


Hwa Technology Inc.

84,988

(US$ 2,700)

- - 84,988

(US$ 2,700)

117 100 117 86,639 -

Hangzhou New Material Chroma Co., Ltd. Production and sale of semiconductor

connecting materials

46,073

(US$ 1,500)


Hwa Technology Inc.

9,091

(US$ 285)

- - 9,091

(US$ 285)

18,853 19 - 4,436 -

Chroma ATE (Suzhou) Co., Ltd. Sale of computerized automatic test systems,


116,717

(US$ 3,800)

b. Subsidiary of CHI

Incorporation Ltd.

121,115

(US$ 3,800)

- - 121,115

(US$ 3,800)

7,444 100 7,444 206,304 -


Co., Ltd.

Sale and maintenance of electronic

equipment and factory conveyor systems

53,087

(RMB 11,871)


Kuang Mech. Eng.

Inc.

43,751

(US$ 1,338)

- - 43,751

(US$ 1,338)

94,346 100 94,346 171,227 -


Co., Ltd.

Sale and maintenance of electronic

equipment and factory conveyor systems

51,057

(RMB 11,417)


Kuang Mech. Eng.

Inc.

49,935

(US$ 1,500)

- - 49,935

(US$ 1,500)

129,595 100 129,595 440,657 -

Mou Kuan Technologies (Nanjin) Co., Ltd. Assembly, sale and maintenance of factory

conveyors and related systems and renders

related after-sales services

7,768

(RMB 1,737)


Kuang Mech. Eng.

Inc.

92,000

(US$ 2,836)

- - 92,000

(US$ 2,836)

3,902 100 3,902 50,145 -

Sajet System Technology (Suzhou) Co., Ltd. Research, development and design of

computer network security systems and

information management

37,449

(RMB 8,374)

b. Subsidiary of Deep

Red Holding Co.,

Ltd.

(Note 9) - - (Note 9) 45,431 100 45,431 104,298 -

Accumulated Outward Remittance for

Investment in Mainland China as of

December 31, 2018

Investment Amounts Authorized by the

Investment Commission, MOEA

Upper Limit on the Amount of Investment

Stipulated by Investment Commission, MOEA

$635,051

(HK$1,200, US$19,312)

$725,060

(HK$1,400, US$22,076) (Note 6)

$8,646,012 (Note 7)

(Continued)

- 281 -

Note 1: Methods of investment have following types:

a. Direct investment in mainland China.

b. Indirect investment in the Company of Mainland China through a third place.

c. Other

Note 2: The amounts of paid-in capital and carrying value as of balance sheet date were translated into New Taiwan dollars at the rates of HK$1=NT$3.921, US$1=NT$30.715, RMB1=NT$4.472 prevailing on December 28, 2018.

Note 3: The amounts of accumulated outflow of investment from Taiwan as of January 1, 2018 and December 31, 2018 were translated into New Taiwan dollars on the original outflow day.

Note 4: Based on audited financial statements.

Note 5: Investment income (loss) was translated into New Taiwan dollars at the average rate of HK$1=NT$3.846, US$1=NT$30.149, RMB1=NT$4.560 for the year ended December 31, 2018.

Note 6:

Approval Letter Approved Amount

a. Letter (1998) II-87710585 of Investment Commission of MOEA NT$ 5,852 (HK$ 1,400)

b. Letter (2000) II-89014726 and 89037430 of Investment Commission of MOEA NT$ 63,180 (US$ 2,000)

c. Letter (2001) II-89037430 of Investment Commission of MOEA NT$ 33,160 (US$ 1,000)

d. Letter II-91048640 of Investment Commission of MOEA NT$ 63,984 (US$ 1,853) (Note 8)

e. Letter II-90025170 of Investment Commission of MOEA NT$ 60,240 (US$ 1,750)

f. Letter II-092020235 of Investment Commission of MOEA NT$ 19,230 (US$ 560)

g. Letter II-092043358 of Investment Commission of MOEA NT$ 6,748 (US$ 200)

h. Letter II-093004076 of Investment Commission of MOEA NT$ 3,158 (US$ 95)

i. Letter II-094006092 of Investment Commission of MOEA NT$ 6,896 (US$ 219)

j. Letter II-09500052120 of Investment Commission of MOEA NT$ 81,528 (US$ 2,500)

k. Letter II-09600175700 of Investment Commission of MOEA NT$ 120,000 (US$ 3,699)

l. Letter II-096000006020 of Investment Commission of MOEA NT$ 66,580 (US$ 2,000)

m. Letter II-09600310110 of Investment Commission of MOEA NT$ 33,160 (US$ 1,000)

n. Letter II-09700186010 of Investment Commission of MOEA NT$ 46,110 (US$ 1,500)

o. Letter II-09700403210 of Investment Commission of MOEA NT$ 7,096 (US$ 210) (Note 9)

p. Letter II-10400042770 of Investment Commission of MOEA NT$ 78,240 (US$ 2,500)

q. Letter II-10600164500 of Investment Commission of MOEA NT$ 29,898 (US$ 990)

Note 7: The upper limit on investment was calculated in accordance with the regulations of the Investment Commission of the Ministry of Economic Affairs for 60% of the net equity or consolidated net equity.

Note 8: The Corporation invested accounts receivable amounting to US$853 thousand in Chroma Electronics (Shenzhen) Co., Ltd. through Neworld Electronics Ltd.

Note 9:The investment in Sajet Technology Inc. (liquidated on September 15, 2008) was authorized by the Investment Commission in 2004

- 282 -

Chroma ATE Inc.

Chariman Leo Huang

- 283 -

uploads4.craft.co · 2019-08-21 · 1. spokesperson of chroma ate inc. name: paul ying position:...

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